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Republic of the Philippines by the use of specific remedies, with full and ample support from legal

SUPREME COURT doctrines of weight and significance.


Manila
EN BANC The facts will explain why. As set forth in the brief of appellant
G.R. No. L-23145      November 29, 1968 Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. 27, 1960 in New York City, left among others, two stock certificates
RENATO D. TAYAG, ancillary administrator-appellee, covering 33,002 shares of appellant, the certificates being in the
vs. possession of the County Trust Company of New York, which as
BENGUET CONSOLIDATED, INC., oppositor-appellant. noted, is the domiciliary administrator of the estate of the
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee. deceased.2 Then came this portion of the appellant's brief: "On August
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant. 12, 1960, Prospero Sanidad instituted ancillary administration
proceedings in the Court of First Instance of Manila; Lazaro A.
FERNANDO, J.: Marquez was appointed ancillary administrator, and on January 22,
1963, he was substituted by the appellee Renato D. Tayag. A dispute
Confronted by an obstinate and adamant refusal of the domiciliary arose between the domiciary administrator in New York and the
administrator, the County Trust Company of New York, United States ancillary administrator in the Philippines as to which of them was
of America, of the estate of the deceased Idonah Slade Perkins, who entitled to the possession of the stock certificates in question. On
died in New York City on March 27, 1960, to surrender to the ancillary January 27, 1964, the Court of First Instance of Manila ordered the
administrator in the Philippines the stock certificates owned by her in domiciliary administrator, County Trust Company, to "produce and
a Philippine corporation, Benguet Consolidated, Inc., to satisfy the deposit" them with the ancillary administrator or with the Clerk of
legitimate claims of local creditors, the lower court, then presided by Court. The domiciliary administrator did not comply with the order, and
the Honorable Arsenio Santos, now retired, issued on May 18, 1964, on February 11, 1964, the ancillary administrator petitioned the court
an order of this tenor: "After considering the motion of the ancillary to "issue an order declaring the certificate or certificates of stocks
administrator, dated February 11, 1964, as well as the opposition filed covering the 33,002 shares issued in the name of Idonah Slade
by the Benguet Consolidated, Inc., the Court hereby (1) considers as Perkins by Benguet Consolidated, Inc., be declared [or] considered as
lost for all purposes in connection with the administration and lost."3
liquidation of the Philippine estate of Idonah Slade Perkins the stock
certificates covering the 33,002 shares of stock standing in her name It is to be noted further that appellant Benguet Consolidated, Inc.
in the books of the Benguet Consolidated, Inc., (2) orders said admits that "it is immaterial" as far as it is concerned as to "who is
certificates cancelled, and (3) directs said corporation to issue new entitled to the possession of the stock certificates in question;
certificates in lieu thereof, the same to be delivered by said appellant opposed the petition of the ancillary administrator because
corporation to either the incumbent ancillary administrator or to the the said stock certificates are in existence, they are today in the
Probate Division of this Court."1 possession of the domiciliary administrator, the County Trust
Company, in New York, U.S.A...."4
From such an order, an appeal was taken to this Court not by the
domiciliary administrator, the County Trust Company of New York, but It is its view, therefore, that under the circumstances, the stock
by the Philippine corporation, the Benguet Consolidated, Inc. The certificates cannot be declared or considered as lost. Moreover, it
appeal cannot possibly prosper. The challenged order represents a would allege that there was a failure to observe certain requirements
response and expresses a policy, to paraphrase Frankfurter, arising of its by-laws before new stock certificates could be issued. Hence, its
out of a specific problem, addressed to the attainment of specific ends appeal.
1
As was made clear at the outset of this opinion, the appeal lacks this Court made clear, it is a "general rule universally recognized" that
merit. The challenged order constitutes an emphatic affirmation of administration, whether principal or ancillary, certainly "extends to the
judicial authority sought to be emasculated by the wilful conduct of the assets of a decedent found within the state or country where it was
domiciliary administrator in refusing to accord obedience to a court granted," the corollary being "that an administrator appointed in one
decree. How, then, can this order be stigmatized as illegal? state or country has no power over property in another state or
country."6
As is true of many problems confronting the judiciary, such a
response was called for by the realities of the situation. What cannot It is to be noted that the scope of the power of the ancillary
be ignored is that conduct bordering on wilful defiance, if it had not administrator was, in an earlier case, set forth by Justice Malcolm.
actually reached it, cannot without undue loss of judicial prestige, be Thus: "It is often necessary to have more than one administration of
condoned or tolerated. For the law is not so lacking in flexibility and an estate. When a person dies intestate owning property in the
resourcefulness as to preclude such a solution, the more so as country of his domicile as well as in a foreign country, administration
deeper reflection would make clear its being buttressed by is had in both countries. That which is granted in the jurisdiction of
indisputable principles and supported by the strongest policy decedent's last domicile is termed the principal administration, while
considerations. any other administration is termed the ancillary administration. The
reason for the latter is because a grant of administration does not ex
It can truly be said then that the result arrived at upheld and proprio vigore have any effect beyond the limits of the country in
vindicated the honor of the judiciary no less than that of the country. which it is granted. Hence, an administrator appointed in a foreign
Through this challenged order, there is thus dispelled the atmosphere state has no authority in the [Philippines]. The ancillary administration
of contingent frustration brought about by the persistence of the is proper, whenever a person dies, leaving in a country other than that
domiciliary administrator to hold on to the stock certificates after it of his last domicile, property to be administered in the nature of assets
had, as admitted, voluntarily submitted itself to the jurisdiction of the of the deceased liable for his individual debts or to be distributed
lower court by entering its appearance through counsel on June 27, among his heirs."7
1963, and filing a petition for relief from a previous order of March 15,
1963. It would follow then that the authority of the probate court to require
that ancillary administrator's right to "the stock certificates covering the
Thus did the lower court, in the order now on appeal, impart vitality 33,002 shares ... standing in her name in the books of [appellant]
and effectiveness to what was decreed. For without it, what it had Benguet Consolidated, Inc...." be respected is equally beyond
been decided would be set at naught and nullified. Unless such a question. For appellant is a Philippine corporation owing full
blatant disregard by the domiciliary administrator, with residence allegiance and subject to the unrestricted jurisdiction of local courts.
abroad, of what was previously ordained by a court order could be Its shares of stock cannot therefore be considered in any wise as
thus remedied, it would have entailed, insofar as this matter was immune from lawful court orders.
concerned, not a partial but a well-nigh complete paralysis of judicial
authority. Our holding in Wells Fargo Bank and Union v. Collector of Internal
Revenue8 finds application. "In the instant case, the actual situs of the
1. Appellant Benguet Consolidated, Inc. did not dispute the power of shares of stock is in the Philippines, the corporation being domiciled
the appellee ancillary administrator to gain control and possession of [here]." To the force of the above undeniable proposition, not even
all assets of the decedent within the jurisdiction of the Philippines. Nor appellant is insensible. It does not dispute it. Nor could it successfully
could it. Such a power is inherent in his duty to settle her estate and do so even if it were so minded.
satisfy the claims of local creditors.5 As Justice Tuason speaking for
2
2. In the face of such incontrovertible doctrines that argue in a rather Speaking of the common law in its earlier period, Cardozo could state
conclusive fashion for the legality of the challenged order, how does fictions "were devices to advance the ends of justice, [even if] clumsy
appellant, Benguet Consolidated, Inc. propose to carry the extremely and at times offensive."12 Some of them have persisted even to the
heavy burden of persuasion of precisely demonstrating the contrary? present, that eminent jurist, noting "the quasi contract, the adopted
It would assign as the basic error allegedly committed by the lower child, the constructive trust, all of flourishing vitality, to attest the
court its "considering as lost the stock certificates covering 33,002 empire of "as if" today."13 He likewise noted "a class of fictions of
shares of Benguet belonging to the deceased Idonah Slade another order, the fiction which is a working tool of thought, but which
Perkins, ..."9 More specifically, appellant would stress that the "lower at times hides itself from view till reflection and analysis have brought
court could not "consider as lost" the stock certificates in question it to the light."14
when, as a matter of fact, his Honor the trial Judge knew, and does
know, and it is admitted by the appellee, that the said stock What cannot be disputed, therefore, is the at times indispensable role
certificates are in existence and are today in the possession of the that fictions as such played in the law. There should be then on the
domiciliary administrator in New York."10 part of the appellant a further refinement in the catholicity of its
condemnation of such judicial technique. If ever an occasion did call
There may be an element of fiction in the above view of the lower for the employment of a legal fiction to put an end to the anomalous
court. That certainly does not suffice to call for the reversal of the situation of a valid judicial order being disregarded with apparent
appealed order. Since there is a refusal, persistently adhered to by impunity, this is it. What is thus most obvious is that this particular
the domiciliary administrator in New York, to deliver the shares of alleged error does not carry persuasion.
stocks of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or 3. Appellant Benguet Consolidated, Inc. would seek to bolster the
arbitrary in considering them as lost and requiring the appellant to above contention by its invoking one of the provisions of its by-laws
issue new certificates in lieu thereof. Thereby, the task incumbent which would set forth the procedure to be followed in case of a lost,
under the law on the ancillary administrator could be discharged and stolen or destroyed stock certificate; it would stress that in the event of
his responsibility fulfilled. a contest or the pendency of an action regarding ownership of such
certificate or certificates of stock allegedly lost, stolen or destroyed,
Any other view would result in the compliance to a valid judicial order the issuance of a new certificate or certificates would await the "final
being made to depend on the uncontrolled discretion of the party or decision by [a] court regarding the ownership [thereof]."15
entity, in this case domiciled abroad, which thus far has shown the
utmost persistence in refusing to yield obedience. Certainly, appellant Such reliance is misplaced. In the first place, there is no such
would not be heard to contend in all seriousness that a judicial decree occasion to apply such by-law. It is admitted that the foreign
could be treated as a mere scrap of paper, the court issuing it being domiciliary administrator did not appeal from the order now in
powerless to remedy its flagrant disregard. question. Moreover, there is likewise the express admission of
appellant that as far as it is concerned, "it is immaterial ... who is
It may be admitted of course that such alleged loss as found by the entitled to the possession of the stock certificates ..." Even if such
lower court did not correspond exactly with the facts. To be more were not the case, it would be a legal absurdity to impart to such a
blunt, the quality of truth may be lacking in such a conclusion arrived provision conclusiveness and finality. Assuming that a contrariety
at. It is to be remembered however, again to borrow from Frankfurter, exists between the above by-law and the command of a court decree,
"that fictions which the law may rely upon in the pursuit of legitimate the latter is to be followed.
ends have played an important part in its development."11

3
It is understandable, as Cardozo pointed out, that the Constitution human beings granted legal personality by the state, puts the matter
overrides a statute, to which, however, the judiciary must yield neatly.20
deference, when appropriately invoked and deemed applicable. It
would be most highly unorthodox, however, if a corporate by-law There is thus a rejection of Gierke's genossenchaft theory, the basic
would be accorded such a high estate in the jural order that a court theme of which to quote from Friedmann, "is the reality of the group
must not only take note of it but yield to its alleged controlling force. as a social and legal entity, independent of state recognition and
concession."21 A corporation as known to Philippine jurisprudence is a
The fear of appellant of a contingent liability with which it could be creature without any existence until it has received the imprimatur of
saddled unless the appealed order be set aside for its inconsistency the state according to law. It is logically inconceivable therefore that it
with one of its by-laws does not impress us. Its obedience to a lawful will have rights and privileges of a higher priority than that of its
court order certainly constitutes a valid defense, assuming that such creator. More than that, it cannot legitimately refuse to yield
apprehension of a possible court action against it could possibly obedience to acts of its state organs, certainly not excluding the
materialize. Thus far, nothing in the circumstances as they have judiciary, whenever called upon to do so.
developed gives substance to such a fear. Gossamer possibilities of a
future prejudice to appellant do not suffice to nullify the lawful exercise As a matter of fact, a corporation once it comes into being, following
of judicial authority. American law still of persuasive authority in our jurisdiction, comes
more often within the ken of the judiciary than the other two
4. What is more the view adopted by appellant Benguet Consolidated, coordinate branches. It institutes the appropriate court action to
Inc. is fraught with implications at war with the basic postulates of enforce its right. Correlatively, it is not immune from judicial control in
corporate theory. those instances, where a duty under the law as ascertained in an
appropriate legal proceeding is cast upon it.
We start with the undeniable premise that, "a corporation is an
artificial being created by operation of law...."16 It owes its life to the To assert that it can choose which court order to follow and which to
state, its birth being purely dependent on its will. As Berle so aptly disregard is to confer upon it not autonomy which may be conceded
stated: "Classically, a corporation was conceived as an artificial but license which cannot be tolerated. It is to argue that it may, when
person, owing its existence through creation by a sovereign so minded, overrule the state, the source of its very existence; it is to
power."17 As a matter of fact, the statutory language employed owes contend that what any of its governmental organs may lawfully require
much to Chief Justice Marshall, who in the Dartmouth College could be ignored at will. So extravagant a claim cannot possibly merit
decision defined a corporation precisely as "an artificial being, approval.
invisible, intangible, and existing only in contemplation of law."18
5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it
The well-known authority Fletcher could summarize the matter thus: was shown that in a guardianship proceedings then pending in a
"A corporation is not in fact and in reality a person, but the law treats it lower court, the United States Veterans Administration filed a motion
as though it were a person by process of fiction, or by regarding it as for the refund of a certain sum of money paid to the minor under
an artificial person distinct and separate from its individual guardianship, alleging that the lower court had previously granted its
stockholders.... It owes its existence to law. It is an artificial person petition to consider the deceased father as not entitled to guerilla
created by law for certain specific purposes, the extent of whose benefits according to a determination arrived at by its main office in
existence, powers and liberties is fixed by its charter."19 Dean Pound's the United States. The motion was denied. In seeking a
terse summary, a juristic person, resulting from an association of reconsideration of such order, the Administrator relied on an American
federal statute making his decisions "final and conclusive on all
4
questions of law or fact" precluding any other American official to That is all then that this case presents. It is obvious why the appeal
examine the matter anew, "except a judge or judges of the United cannot succeed. It is always easy to conjure extreme and even
States court."23 Reconsideration was denied, and the Administrator oppressive possibilities. That is not decisive. It does not settle the
appealed. issue. What carries weight and conviction is the result arrived at, the
just solution obtained, grounded in the soundest of legal doctrines and
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. distinguished by its correspondence with what a sense of realism
Thus: "We are of the opinion that the appeal should be rejected. The requires. For through the appealed order, the imperative requirement
provisions of the U.S. Code, invoked by the appellant, make the of justice according to law is satisfied and national dignity and honor
decisions of the U.S. Veterans' Administrator final and conclusive maintained.
when made on claims property submitted to him for resolution; but
they are not applicable to the present case, where the Administrator is WHEREFORE, the appealed order of the Honorable Arsenio Santos,
not acting as a judge but as a litigant. There is a great difference the Judge of the Court of First Instance, dated May 18, 1964, is
between actions against the Administrator (which must be filed strictly affirmed. With costs against oppositor-appelant Benguet
in accordance with the conditions that are imposed by the Veterans' Consolidated, Inc.
Act, including the exclusive review by United States courts), and those
actions where the Veterans' Administrator seeks a remedy from our Makalintal, Zaldivar and Capistrano, JJ., concur.
courts and submits to their jurisdiction by filing actions therein. Our Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro,
attention has not been called to any law or treaty that would make the JJ., concur in the result.
findings of the Veterans' Administrator, in actions where he is a party,
conclusive on our courts. That, in effect, would deprive our tribunals of
judicial discretion and render them mere subordinate instrumentalities
of the Veterans' Administrator."

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

Yet that would be the effect, even if unintended, of the proposition to


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

5
Republic of the Philippines Commission (SEC). To facilitate the trading of its shares among
SUPREME COURT investors, PALI sought to course the trading of its shares through the
Manila Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with
SECOND DIVISION the said stock exchange an application to list its shares, with
  supporting documents attached.
G.R. No. 125469 October 27, 1997
PHILIPPINE STOCK EXCHANGE, INC., petitioner, On February 8, 1996, the Listing Committee of the PSE, upon a
vs. perusal of PALI's application, recommended to the PSE's Board of
THE HONORABLE COURT OF APPEALS, SECURITIES AND Governors the approval of PALI's listing application.
EXCHANGE COMMISSION and PUERTO AZUL LAND,
INC., respondents. On February 14, 1996, before it could act upon PALI's application, the
Board of Governors of the PSE received a letter from the heirs of
TORRES, JR., J.: Ferdinand E. Marcos, claiming that the late President Marcos was the
legal and beneficial owner of certain properties forming part of the
The Securities and Exchange Commission is the government agency, Puerto Azul Beach Hotel and Resort Complex which PALI claims to
under the direct general supervision of the Office of the be among its assets and that the Ternate Development Corporation,
President, 1 with the immense task of enforcing the Revised Securities which is among the stockholders of PALI, likewise appears to have
Act, and all other duties assigned to it by pertinent laws. Among its been held and continue to be held in trust by one Rebecco Panlilio for
inumerable functions, and one of the most important, is the then President Marcos and now, effectively for his estate, and
supervision of all corporations, partnerships or associations, who are requested PALI's application to be deferred. PALI was requested to
grantees of primary franchise and/or a license or permit issued by the comment upon the said letter.
government to operate in the Philippines. 2 Just how far this regulatory
authority extends, particularly, with regard to the Petitioner Philippine PALI's answer stated that the properties forming part of the Puerto
Stock Exchange, Inc. is the issue in the case at bar. Azul Beach Hotel and Resort Complex were not claimed by PALI as
its assets. On the contrary, the resort is actually owned by Fantasia
In this Petition for Review on Certiorari, petitioner assails the Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct
resolution of the respondent Court of Appeals, dated June 27, 1996, from PALI. Furthermore, the Ternate Development Corporation owns
which affirmed the decision of the Securities and Exchange only 1.20% of PALI. The Marcoses responded that their claim is not
Commission ordering the petitioner Philippine Stock Exchange, Inc. to confined to the facilities forming part of the Puerto Azul Hotel and
allow the private respondent Puerto Azul Land, Inc. to be listed in its Resort Complex, thereby implying that they are also asserting legal
stock market, thus paving the way for the public offering of PALI's and beneficial ownership of other properties titled under the name of
shares. PALI.

The facts of the case are undisputed, and are hereby restated in sum. On February 20, 1996, the PSE wrote Chairman Magtanggol
Gunigundo of the Presidential Commission on Good Government
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, (PCGG) requesting for comments on the letters of the PALI and the
had sought to offer its shares to the public in order to raise funds Marcoses. On March 4, 1996, the PSE was informed that the
allegedly to develop its properties and pay its loans with several Marcoses received a Temporary Restraining Order on the same date,
banking institutions. In January, 1995, PALI was issued a Permit to enjoining the Marcoses from, among others, "further impeding,
Sell its shares to the public by the Securities and Exchange obstructing, delaying or interfering in any manner by or any means
6
with the consideration, processing and approval by the PSE of the material information it deems necessary for the
initial public offering of PALI." The TRO was issued by Judge Martin protection of the investigating public.
S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case
No. 65561, pending in Branch 69 thereof. This Order shall take effect immediately.

In its regular meeting held on March 27, 1996, the Board of Governors SO ORDERED.
of the PSE reached its decision to reject PALI's application, citing the
existence of serious claims, issues and circumstances surrounding PSE filed a motion for reconsideration of the said order on April 29,
PALI's ownership over its assets that adversely affect the suitability of 1996, which was, however denied by the Commission in its May 9,
listing PALI's shares in the stock exchange. 1996 Order which states:

On April 11, 1996, PALI wrote a letter to the SEC addressed to the WHEREFORE, premises considered, the Commission
then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SEC's finds no compelling reason to reconsider its order
attention the action taken by the PSE in the application of PALI for the dated April 24, 1996, and in the light of recent
listing of its shares with the PSE, and requesting that the SEC, in the developments on the adverse claim against the PALI
exercise of its supervisory and regulatory powers over stock properties, PSE should require PALI to submit full
exchanges under Section 6(j) of P.D. No. 902-A, review the PSE's disclosure of material facts and information to protect
action on PALI's listing application and institute such measures as are the investing public. In this regard, PALI is hereby
just and proper under the circumstances. ordered to amend its registration statements filed with
the Commission to incorporate the full disclosure of
On the same date, or on April 11, 1996, the SEC wrote to the PSE, these material facts and information.
attaching thereto the letter of PALI and directing the PSE to file its
comments thereto within five days from its receipt and for its Dissatisfied with this ruling, the PSE filed with the Court of Appeals on
authorized representative to appear for an "inquiry" on the matter. On May 17, 1996 a Petition for Review (with Application for Writ of
April 22, 1996, the PSE submitted a letter to the SEC containing its Preliminary Injunction and Temporary Restraining Order), assailing
comments to the April 11, 1996 letter of PALI. the above mentioned orders of the SEC, submitting the following as
errors of the SEC:
On April 24, 1996, the SEC rendered its Order, reversing the PSE's
decision. The dispositive portion of the said order reads: I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT
WHEREFORE, premises considered, and invoking the POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO
Commissioner's authority and jurisdiction under POWER TO ORDER THE LISTING AND SALE OF SHARES OF
Section 3 of the Revised Securities Act, in conjunction PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW
with Section 3, 6(j) and 6(m) of Presidential Decree No. AND SUBSTITUTE DECISIONS OF PSE ON LISTING
902-A, the decision of the Board of Governors of the APPLICATIONS;
Philippine Stock Exchange denying the listing of shares
of Puerto Azul Land, Inc., is hereby set aside, and the II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF
PSE is hereby ordered to immediately cause the listing DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY
of the PALI shares in the Exchange, without prejudice
to its authority to require PALI to disclose such other
7
AND ABUSIVE MANNER IN DISAPPROVING PALI'S LISTING respondent the plenary authority over the petitioner; and the power of
APPLICATION; review necessarily comes within its authority.

III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID All in all, the court held that PALI complied with all the requirements
FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN for public listing, affirming the SEC's ruling to the effect that:
CUSTODIA LEGIS AND WHICH FORM PART OF
NAVAL/MILITARY RESERVATION; AND . . . the Philippine Stock Exchange has acted in an arbitrary and
abusive manner in disapproving the application of PALI for
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY listing of its shares in the face of the following considerations:
PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION
IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE 1. PALI has clearly and admittedly complied with the
CONSTITUTION. Listing Rules and full disclosure requirements of the
Exchange;
On June 4, 1996, PALI filed its Comment to the Petition for Review
and subsequently, a Comment and Motion to Dismiss. On June 10, 2. In applying its clear and reasonable standards on the
1996, PSE fled its Reply to Comment and Opposition to Motion to suitability for listing of shares, PSE has failed to justify
Dismiss. why it acted differently on the application of PALI, as
compared to the IPOs of other companies similarly
On June 27, 1996, the Court of Appeals promulgated its Resolution situated that were allowed listing in the Exchange;
dismissing the PSE's Petition for Review. Hence, this Petition by the
PSE. 3. It appears that the claims and issues on the title to
PALI's properties were even less serious than the
The appellate court had ruled that the SEC had both jurisdiction and claims against the assets of the other companies in
authority to look into the decision of the petitioner PSE, pursuant to that, the assertions of the Marcoses that they are
Section 3 3 of the Revised Securities Act in relation to Section 6(j) and owners of the disputed properties were not
6(m) 4 of P.D. No. 902-A, and Section 38(b)5 of the Revised Securities substantiated enough to overcome the strength of a
Act, and for the purpose of ensuring fair administration of the title to properties issued under the Torrens System as
exchange. Both as a corporation and as a stock exchange, the evidence of ownership thereof;
petitioner is subject to public respondent's jurisdiction, regulation and
control. Accepting the argument that the public respondent has the 4. No action has been filed in any court of competent
authority merely to supervise or regulate, would amount to serious jurisdiction seeking to nullify PALI's ownership over the
consequences, considering that the petitioner is a stock exchange disputed properties, neither has the government
whose business is impressed with public interest. Abuse is not remote instituted recovery proceedings against these
if the public respondent is left without any system of control. If the properties. Yet the import of PSE's decision in denying
securities act vested the public respondent with jurisdiction and PALI's application is that it would be PALI, not the
control over all corporations; the power to authorize the establishment Marcoses, that must go to court to prove the legality of
of stock exchanges; the right to supervise and regulate the same; and its ownership on these properties before its shares can
the power to alter and supplement rules of the exchange in the listing be listed.
or delisting of securities, then the law certainly granted to the public

8
In addition, the argument that the PALI properties belong to the are in abundance even in the United States, from which the country's
Military/Naval Reservation does not inspire belief. The point is, the security policies are patterned, to the effect of giving the Securities
PALI properties are now titled. A property losses its public character Commission less control over stock exchanges, which in turn are
the moment it is covered by a title. As a matter of fact, the titles have given more lee-way in making the decision whether or not to allow
long been settled by a final judgment; and the final decree having corporations to offer their stock to the public through the stock
been registered, they can no longer be re-opened considering that the exchange. This is in accord with the "business judgment rule"
one year period has already passed. Lastly, the determination of what whereby the SEC and the courts are barred from intruding into
standard to apply in allowing PALI's application for listing, whether the business judgments of corporations, when the same are made in
discretion method or the system of public disclosure adhered to by the good faith. the said rule precludes the reversal of the decision of the
SEC, should be addressed to the Securities Commission, it being the PSE to deny PALI's listing application, absent a showing of bad faith
government agency that exercises both supervisory and regulatory on the part of the PSE. Under the listing rules of the PSE, to which
authority over all corporations. PALI had previously agreed to comply, the PSE retains the discretion
to accept or reject applications for listing. Thus, even if an issuer has
On August 15, 19961 the PSE, after it was granted an extension, filed complied with the PSE listing rules and requirements, PSE retains the
the instant Petition for Review on Certiorari, taking exception to the discretion to accept or reject the issuer's listing application if the PSE
rulings of the SEC and the Court of Appeals. Respondent PALI filed determines that the listing shall not serve the interests of the investing
its Comment to the petition on October 17, 1996. On the same date, public.
the PCGG filed a Motion for Leave to file a Petition for Intervention.
This was followed up by the PCGG's Petition for Intervention on Moreover, PSE argues that the SEC has no jurisdiction over
October 21, 1996. A supplemental Comment was filed by PALI on sequestered corporations, nor with corporations whose properties are
October 25, 1997. The Office of the Solicitor General, representing under sequestration. A reading of Republic of the Philippines
the SEC and the Court of Appeals, likewise filed its Comment on vs. Sadiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal
December 26, 1996. In answer to the PCGG's motion for leave to file that the properties of PALI, which were derived from the Ternate
petition for intervention, PALI filed its Comment thereto on January Development Corporation (TDC) and the Monte del Sol Development
17, 1997, whereas the PSE filed its own Comment on January 20, Corporation (MSDC). are under sequestration by the PCGG, and
1997. subject of forfeiture proceedings in the Sandiganbayan. This ruling of
the Court is the "law of the case" between the Republic and TDC and
On February 25, 1996, the PSE filed its Consolidated Reply to the MSDC. It categorically declares that the assets of these corporations
comments of respondent PALI (October 17, 1996) and the Solicitor were sequestered by the PCGG on March 10, 1986 and April 4, 1988.
General (December 26, 1996). On May 16, 1997, PALI filed its
Rejoinder to the said consolidated reply of PSE. It is, likewise, intimated that the Court of Appeals' sanction that PALI's
ownership over its properties can no longer be questioned, since
PSE submits that the Court of Appeals erred in ruling that the SEC certificates of title have been issued to PALI and more than one year
had authority to order the PSE to list the shares of PALI in the stock has since lapsed, is erroneous and ignores well settled jurisprudence
exchange. Under presidential decree No. 902-A, the powers of the on land titles. That a certificate of title issued under the Torrens
SEC over stock exchanges are more limited as compared to its System is a conclusive evidence of ownership is not an absolute rule
authority over ordinary corporations. In connection with this, the and admits certain exceptions. It is fundamental that forest lands or
powers of the SEC over stock exchanges under the Revised military reservations are non-alienable. Thus, when a title covers a
Securities Act are specifically enumerated, and these do not include forest reserve or a government reservation, such title is void.
the power to reverse the decisions of the stock exchange. Authorities
9
PSE, likewise, assails the SEC's and the Court of Appeals reliance on nearly all of a corporation's concerns. This authority springs from the
the alleged policy of "full disclosure" to uphold the listing of PALI's fact that a corporation owes its existence to the concession of its
shares with the PSE, in the absence of a clear mandate for the corporate franchise from the state.
effectivity of such policy. As it is, the case records reveal the truth that
PALI did not comply with the listing rules and disclosure requirements. The SEC's power to look into the subject ruling of the PSE, therefore,
In fact, PALI's documents supporting its application contained may be implied from or be considered as necessary or incidental to
misrepresentations and misleading statements, and concealed the carrying out of the SEC's express power to insure fair dealing in
material information. The matter of sequestration of PALI's properties securities traded upon a stock exchange or to ensure the fair
and the fact that the same form part of military/naval/forest administration of such exchange. 7 It is, likewise, observed that the
reservations were not reflected in PALI's application. principal function of the SEC is the supervision and control over
corporations, partnerships and associations with the end in view that
It is undeniable that the petitioner PSE is not an ordinary corporation, investment in these entities may be encouraged and protected, and
in that although it is clothed with the markings of a corporate entity, it their activities for the promotion of economic development. 8
functions as the primary channel through which the vessels of capital
trade ply. The PSE's relevance to the continued operation and Thus, it was in the alleged exercise of this authority that the SEC
filtration of the securities transactions in the country gives it a distinct reversed the decision of the PSE to deny the application for listing in
color of importance such that government intervention in its affairs the stock exchange of the private respondent PALI. The SEC's action
becomes justified, if not necessarily. Indeed, as the only operational was affirmed by the Court of Appeals.
stock exchange in the country today, the PSE enjoys a monopoly of
securities transactions, and as such, it yields an immense influence We affirm that the SEC is the entity with the primary say as to whether
upon the country's economy. or not securities, including shares of stock of a corporation, may be
traded or not in the stock exchange. This is in line with the SEC's
Due to this special nature of stock exchanges, the country's mission to ensure proper compliance with the laws, such as the
lawmakers has seen it wise to give special treatment to the Revised Securities Act and to regulate the sale and disposition of
administration and regulation of stock exchanges. 6 securities in the country. 9 As the appellate court explains:

These provisions, read together with the general grant of jurisdiction, Paramount policy also supports the authority of the
and right of supervision and control over all corporations under Sec. 3 public respondent to review petitioner's denial of the
of P.D. 902-A, give the SEC the special mandate to be vigilant in the listing. Being a stock exchange, the petitioner performs
supervision of the affairs of stock exchanges so that the interests of a function that is vital to the national economy, as the
the investing public may be fully safeguard. business is affected with public interest. As a matter of
fact, it has often been said that the economy moves on
Section 3 of Presidential Decree 902-A, standing alone, is enough the basis of the rise and fall of stocks being traded. By
authority to uphold the SEC's challenged control authority over the its economic power, the petitioner certainly can dictate
petitioner PSE even as it provides that "the Commission shall have which and how many users are allowed to sell
absolute jurisdiction, supervision, and control over all corporations, securities thru the facilities of a stock exchange, if
partnerships or associations, who are the grantees of primary allowed to interpret its own rules liberally as it may
franchises and/or a license or permit issued by the government to please. Petitioner can either allow or deny the entry to
operate in the Philippines. . ." The SEC's regulatory authority over the market of securities. To repeat, the monopoly,
private corporations encompasses a wide margin of areas, touching unless accompanied by control, becomes subject to
10
abuse; hence, considering public interest, then it breach of a known duty through some motive or interest of ill will,
should be subject to government regulation. partaking of the nature of fraud.

The role of the SEC in our national economy cannot be minimized. In reaching its decision to deny the application for listing of PALI, the
The legislature, through the Revised Securities Act, Presidential PSE considered important facts, which, in the general scheme, brings
Decree No. 902-A, and other pertinent laws, has entrusted to it the to serious question the qualification of PALI to sell its shares to the
serious responsibility of enforcing all laws affecting corporations and public through the stock exchange. During the time for receiving
other forms of associations not otherwise vested in some other objections to the application, the PSE heard from the representative of
government office. 10 the late President Ferdinand E. Marcos and his family who claim the
properties of the private respondent to be part of the Marcos estate. In
This is not to say, however, that the PSE's management prerogatives time, the PCGG confirmed this claim. In fact, an order of
are under the absolute control of the SEC. The PSE is, alter all, a sequestration has been issued covering the properties of PALI, and
corporation authorized by its corporate franchise to engage in its suit for reconveyance to the state has been filed in the
proposed and duly approved business. One of the PSE's main Sandiganbayan Court. How the properties were effectively
concerns, as such, is still the generation of profit for its stockholders. transferred, despite the sequestration order, from the TDC and MSDC
Moreover, the PSE has all the rights pertaining to corporations, to Rebecco Panlilio, and to the private respondent PALI, in only a
including the right to sue and be sued, to hold property in its own short span of time, are not yet explained to the Court, but it is clear
name, to enter (or not to enter) into contracts with third persons, and that such circumstances give rise to serious doubt as to the integrity
to perform all other legal acts within its allocated express or implied of PALI as a stock issuer. The petitioner was in the right when it
powers. refused application of PALI, for a contrary ruling was not to the best
interest of the general public. The purpose of the Revised Securities
A corporation is but an association of individuals, allowed to transact Act, after all, is to give adequate and effective protection to the
under an assumed corporate name, and with a distinct legal investing public against fraudulent representations, or false promises,
personality. In organizing itself as a collective body, it waives no and the imposition of worthless ventures. 14
constitutional immunities and perquisites appropriate to such a
body. 11 As to its corporate and management decisions, therefore, the It is to be observed that the U.S. Securities Act emphasized its
state will generally not interfere with the same. Questions of policy avowed protection to acts detrimental to legitimate business, thus:
and of management are left to the honest decision of the officers and
directors of a corporation, and the courts are without authority to The Securities Act, often referred to as the "truth in
substitute their judgment for the judgment of the board of directors. securities" Act, was designed not only to provide
The board is the business manager of the corporation, and so long as investors with adequate information upon which to
it acts in good faith, its orders are not reviewable by the courts. 12 base their decisions to buy and sell securities, but also
to protect legitimate business seeking to obtain capital
Thus, notwithstanding the regulatory power of the SEC over the PSE, through honest presentation against competition from
and the resultant authority to reverse the PSE's decision in matters of crooked promoters and to prevent fraud in the sale of
application for listing in the market, the SEC may exercise such power securities. (Tenth Annual Report, U.S. Securities &
only if the PSE's judgment is attended by bad faith. In Board of Exchange Commission, p. 14).
Liquidators vs. Kalaw,13 it was held that bad faith does not simply
connote bad judgment or negligence. It imports a dishonest purpose As has been pointed out, the effects of such an act are
or some moral obliquity and conscious doing of wrong. It means a chiefly (1) prevention of excesses and fraudulent
11
transactions, merely by requirement of that their details described therein to the person named as owner. The inscription in
be revealed; (2) placing the market during the early the registry, to be effective, must be made in good faith. The defense
stages of the offering of a security a body of of indefeasibility of a Torrens Title does not extend to a transferee
information, which operating indirectly through who takes the certificate of title with notice of a flaw.
investment services and expert investors, will tend to
produce a more accurate appraisal of a security, . . . In any case, for the purpose of determining whether PSE acted
Thus, the Commission may refuse to permit a correctly in refusing the application of PALI, the true ownership of the
registration statement to become effective if it appears properties of PALI need not be determined as an absolute fact. What
on its face to be incomplete or inaccurate in any is material is that the uncertainty of the properties' ownership and
material respect, and empower the Commission to alienability exists, and this puts to question the qualification of PALI's
issue a stop order suspending the effectiveness of any public offering. In sum, the Court finds that the SEC had acted
registration statement which is found to include any arbitrarily in arrogating unto itself the discretion of approving the
untrue statement of a material fact or to omit to state application for listing in the PSE of the private respondent PALI, since
any material fact required to be stated therein or this is a matter addressed to the sound discretion of the PSE, a
necessary to make the statements therein not corporation entity, whose business judgments are respected in the
misleading. (Idem). absence of bad faith.

Also, as the primary market for securities, the PSE has established its The question as to what policy is, or should be relied upon in
name and goodwill, and it has the right to protect such goodwill by approving the registration and sale of securities in the SEC is not for
maintaining a reasonable standard of propriety in the entities who the Court to determine, but is left to the sound discretion of the
choose to transact through its facilities. It was reasonable for the PSE, Securities and Exchange Commission. In mandating the SEC to
therefore, to exercise its judgment in the manner it deems appropriate administer the Revised Securities Act, and in performing its other
for its business identity, as long as no rights are trampled upon, and functions under pertinent laws, the Revised Securities Act, under
public welfare is safeguarded. Section 3 thereof, gives the SEC the power to promulgate such rules
and regulations as it may consider appropriate in the public interest
In this connection, it is proper to observe that the concept of for the enforcement of the said laws. The second paragraph of
government absolutism is a thing of the past, and should remain so. Section 4 of the said law, on the other hand, provides that no security,
unless exempt by law, shall be issued, endorsed, sold, transferred or
The observation that the title of PALI over its properties is absolute in any other manner conveyed to the public, unless registered in
and can no longer be assailed is of no moment. At this juncture, there accordance with the rules and regulations that shall be promulgated in
is the claim that the properties were owned by TDC and MSDC and the public interest and for the protection of investors by the
were transferred in violation of sequestration orders, to Rebecco Commission. Presidential Decree No. 902-A, on the other hand,
Panlilio and later on to PALI, besides the claim of the Marcoses that provides that the SEC, as regulatory agency, has supervision and
such properties belong to the Marcos estate, and were held only in control over all corporations and over the securities market as a
trust by Rebecco Panlilio. It is also alleged by the petitioner that these whole, and as such, is given ample authority in determining
properties belong to naval and forest reserves, and therefore beyond appropriate policies. Pursuant to this regulatory authority, the SEC
private dominion. If any of these claims is established to be true, the has manifested that it has adopted the policy of "full material
certificates of title over the subject properties now held by PALI map disclosure" where all companies, listed or applying for listing, are
be disregarded, as it is an established rule that a registration of a required to divulge truthfully and accurately, all material information
certificate of title does not confer ownership over the properties about themselves and the securities they sell, for the protection of the
12
investing public, and under pain of administrative, criminal and civil (iv) has been engaged or is engaged or
sanctions. In connection with this, a fact is deemed material if it tends is about to engage in fraudulent
to induce or otherwise effect the sale or purchase of its transaction;
securities. 15 While the employment of this policy is recognized and
sanctioned by the laws, nonetheless, the Revised Securities Act sets (v) is in any way dishonest or is not of
substantial and procedural standards which a proposed issuer of good repute; or
securities must satisfy. 16 Pertinently, Section 9 of the Revised
Securities Act sets forth the possible Grounds for the Rejection of the (vi) does not conduct its business in
registration of a security: accordance with law or is engaged in a
business that is illegal or contrary to
— The Commission may reject a registration statement government rules and regulations.
and refuse to issue a permit to sell the securities
included in such registration statement if it finds that — (3) The enterprise or the business of the issuer is not
shown to be sound or to be based on sound business
(1) The registration statement is on its face incomplete principles;
or inaccurate in any material respect or includes any
untrue statement of a material fact or omits to state a (4) An officer, member of the board of directors, or
material fact required to be stated therein or necessary principal stockholder of the issuer is disqualified to be
to make the statements therein not misleading; or such officer, director or principal stockholder; or

(2) The issuer or registrant — (5) The issuer or registrant has not shown to the
satisfaction of the Commission that the sale of its
(i) is not solvent or not in sound financial security would not work to the prejudice of the public
condition; interest or as a fraud upon the purchasers or investors.
(Emphasis Ours)
(ii) has violated or has not complied with
the provisions of this Act, or the rules A reading of the foregoing grounds reveals the intention of the
promulgated pursuant thereto, or any lawmakers to make the registration and issuance of securities
order of the Commission; dependent, to a certain extent, on the merits of the securities
themselves, and of the issuer, to be determined by the Securities and
(iii) has failed to comply with any of the Exchange Commission. This measure was meant to protect the
applicable requirements and conditions interests of the investing public against fraudulent and worthless
that the Commission may, in the public securities, and the SEC is mandated by law to safeguard these
interest and for the protection of interests, following the policies and rules therefore provided. The
investors, impose before the security absolute reliance on the full disclosure method in the registration of
can be registered; securities is, therefore, untenable. As it is, the Court finds that the
private respondent PALI, on at least two points (nos. 1 and 5) has
failed to support the propriety of the issue of its shares with unfailing
clarity, thereby lending support to the conclusion that the PSE acted

13
correctly in refusing the listing of PALI in its stock exchange. This
does not discount the effectivity of whatever method the SEC, in the
exercise of its vested authority, chooses in setting the standard for
public offerings of corporations wishing to do so. However, the SEC
must recognize and implement the mandate of the law, particularly the
Revised Securities Act, the provisions of which cannot be amended or
supplanted by mere administrative issuance.

In resume, the Court finds that the PSE has acted with justified
circumspection, discounting, therefore, any imputation of arbitrariness
and whimsical animation on its part. Its action in refusing to allow the
listing of PALI in the stock exchange is justified by the law and by the
circumstances attendant to this case.

ACCORDINGLY, in view of the foregoing considerations, the Court


hereby GRANTS the Petition for Review on Certiorari. The Decisions
of the Court of Appeals and the Securities and Exchange Commission
dated July 27, 1996 and April 24, 1996 respectively, are hereby
REVERSED and SET ASIDE, and a new Judgment is hereby
ENTERED, affirming the decision of the Philippine Stock Exchange to
deny the application for listing of the private respondent Puerto Azul
Land, Inc.

SO ORDERED.

Regalado and Puno, JJ., concur.

Mendoza, J., concurs in the result.

14
Republic of the Philippines Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio
SUPREME COURT as principal, in favor of the Philippine National Bank Branch at San
Manila Fernando, Pampanga, to guarantee the payment of defendant Rita
SECOND DIVISION Gueco Tapnio's account with said Bank. In turn, to guarantee the
G.R. No. L-27155 May 18, 1978 payment of whatever amount the bonding company would pay to the
PHILIPPINE NATIONAL BANK, petitioner, Philippine National Bank, both defendants executed the indemnity
vs. agreement, Exh. B. Under the terms and conditions of this indemnity
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO agreement, whatever amount the plaintiff would pay would earn
GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE interest at the rate of 12% per annum, plus attorney's fees in the
COMPANY, INC., respondents. amount of 15 % of the whole amount due in case of court litigation.
Medina, Locsin, Coruña, & Sumbillo for petitioner.
Manuel Lim & Associates for private respondents. The original amount of the bond was for P4,000.00; but the amount
was later reduced to P2,000.00.
ANTONIO, J.:
It is not disputed that defendant Rita Gueco Tapnio was indebted to
Certiorari to review the decision of the Court of Appeals which the bank in the sum of P2,000.00, plus accumulated interests unpaid,
affirmed the judgment of the Court of First Instance of Manila in Civil which she failed to pay despite demands. The Bank wrote a letter of
Case No. 34185, ordering petitioner, as third-party defendant, to pay demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank
respondent Rita Gueco Tapnio, as third-party plaintiff, the sum of on September 18, 1957, the full amount due and owing in the sum of
P2,379.71, plus 12% interest per annum from September 19, 1957 P2,379.91, for and on account of defendant Rita Gueco's obligation
until the same is fully paid, P200.00 attorney's fees and costs, the (Exhs. D and D-1).
same amounts which Rita Gueco Tapnio was ordered to pay the
Philippine American General Insurance Co., Inc., to be paid directly to Plaintiff, in turn, made several demands, both verbal and written, upon
the Philippine American General Insurance Co., Inc. in full satisfaction defendants (Exhs. E and F), but to no avail.
of the judgment rendered against Rita Gueco Tapnio in favor of the
former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. Defendant Rita Gueco Tapnio admitted all the foregoing facts. She
The basic action is the complaint filed by Philamgen (Philippine claims, however, when demand was made upon her by plaintiff for her
American General Insurance Co., Inc.) as surety against Rita Gueco to pay her debt to the Bank, that she told the Plaintiff that she did not
Tapnio and Cecilio Gueco, for the recovery of the sum of P2,379.71 consider herself to be indebted to the Bank at all because she had an
paid by Philamgen to the Philippine National Bank on behalf of agreement with one Jacobo-Nazon whereby she had leased to the
respondents Tapnio and Gueco, pursuant to an indemnity agreement. latter her unused export sugar quota for the 1956-1957 agricultural
Petitioner Bank was made third-party defendant by Tapnio and Gueco year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a
on the theory that their failure to pay the debt was due to the fault or total of P2,800.00, which was already in excess of her obligation
negligence of petitioner. guaranteed by plaintiff's bond, Exh. A. This lease agreement,
according to her, was with the knowledge of the bank. But the Bank
The facts as found by the respondent Court of Appeals, in affirming has placed obstacles to the consummation of the lease, and the delay
the decision of the Court of First Instance of Manila, are quoted caused by said obstacles forced 'Nazon to rescind the lease contract.
hereunder: Thus, Rita Gueco Tapnio filed her third-party complaint against the
Bank to recover from the latter any and all sums of money which may

15
be adjudged against her and in favor of the plaitiff plus moral Explaining the meaning of Tuazon's statement as to the
damages, attorney's fees and costs. funds, it was stated by him that he had an approved loan
from the bank but he had not yet utilized it as he was
Insofar as the contentions of the parties herein are concerned, we intending to use it to pay for the quota. Hence, when he said
quote with approval the following findings of the lower court based the amount needed to pay Mrs. Tapnio was in his folder
on the evidence presented at the trial of the case: which was in the bank, he meant and the manager
understood and knew he had an approved loan available to
It has been established during the trial that Mrs. Tapnio had an be used in payment of the quota. In said Exh. "6-Gueco",
export sugar quota of 1,000 piculs for the agricultural year 1956- Tuazon also informed the manager that he would want for a
1957 which she did not need. She agreed to allow Mr. Jacobo C. notice from the manager as to the time when the bank
Tuazon to use said quota for the consideration of P2,500.00 (Exh. needed the money so that Tuazon could sign the
"4"-Gueco). This agreement was called a contract of lease of sugar corresponding promissory note.
allotment.
Further Consideration of the evidence discloses that
At the time of the agreement, Mrs. Tapnio was indebted to the when the branch manager of the Philippine National
Philippine National Bank at San Fernando, Pampanga. Her Bank at San Fernando recommended the approval of
indebtedness was known as a crop loan and was secured by a the contract of lease at the price of P2.80 per picul
mortgage on her standing crop including her sugar quota allocation (Exh. 1 1-Bank), whose recommendation was
for the agricultural year corresponding to said standing crop. This concurred in by the Vice-president of said Bank, J. V.
arrangement was necessary in order that when Mrs. Tapnio Buenaventura, the board of directors required that the
harvests, the P.N.B., having a lien on the crop, may effectively amount be raised to 13.00 per picul. This act of the
enforce collection against her. Her sugar cannot be exported without board of directors was communicated to Tuazon, who
sugar quota allotment Sometimes, however, a planter harvest less in turn asked for a reconsideration thereof. On
sugar than her quota, so her excess quota is utilized by another who November 19, 1956, the branch manager submitted
pays her for its use. This is the arrangement entered into between Tuazon's request for reconsideration to the board of
Mrs. Tapnio and Mr. Tuazon regarding the former's excess quota for directors with another recommendation for the approval
1956-1957 (Exh. "4"-Gueco). of the lease at P2.80 per picul, but the board returned
the recommendation unacted upon, considering that
Since the quota was mortgaged to the P.N.B., the contract of lease the current price prevailing at the time was P3.00 per
had to be approved by said Bank, The same was submitted to the picul (Exh. 9-Bank).
branch manager at San Fernando, Pampanga. The latter required
the parties to raise the consideration of P2.80 per picul or a total of The parties were notified of the refusal on the part of
P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease the board of directors of the Bank to grant the motion
rental acceptable to the Bank, is P2.80 per picul." In a letter for reconsideration. The matter stood as it was until
addressed to the branch manager on August 10, 1956, Mr. Tuazon February 22, 1957, when Tuazon wrote a letter (Exh.
informed the manager that he was agreeable to raising the 10-Bank informing the Bank that he was no longer
consideration to P2.80 per picul. He further informed the manager interested to continue the deal, referring to the lease of
that he was ready to pay said amount as the funds were in his folder sugar quota allotment in favor of defendant Rita Gueco
which was kept in the bank. Tapnio. The result is that the latter lost the sum of
P2,800.00 which she should have received from
16
Tuazon and which she could have paid the Bank to (1) In finding that the rescission of the lease contract of the 1,000
cancel off her indebtedness, piculs of sugar quota allocation of respondent Rita Gueco Tapnio by
Jacobo C. Tuazon was due to the unjustified refusal of petitioner to
The court below held, and in this holding we concur approve said lease contract, and its unreasonable insistence on the
that failure of the negotiation for the lease of the sugar rental price of P3.00 instead of P2.80 per picul; and
quota allocation of Rita Gueco Tapnio to Tuazon was
due to the fault of the directors of the Philippine (2) In not holding that based on the statistics of sugar price and prices
National Bank, The refusal on the part of the bank to of sugar quota in the possession of the petitioner, the latter's Board of
approve the lease at the rate of P2.80 per picul which, Directors correctly fixed the rental of price per picul of 1,000 piculs of
as stated above, would have enabled Rita Gueco sugar quota leased by respondent Rita Gueco Tapnio to Jacobo C.
Tapnio to realize the amount of P2,800.00 which was Tuazon at P3.00 per picul.
more than sufficient to pay off her indebtedness to the
Bank, and its insistence on the rental price of P3.00 per Petitioner argued that as an assignee of the sugar quota of Tapnio, it
picul thus unnecessarily increasing the value by only a has the right, both under its own Charter and under the Corporation
difference of P200.00. inevitably brought about the Law, to safeguard and protect its rights and interests under the deed
rescission of the lease contract to the damage and of assignment, which include the right to approve or disapprove the
prejudice of Rita Gueco Tapnio in the aforesaid sum of said lease of sugar quota and in the exercise of that authority, its
P2,800.00. The unreasonableness of the position
adopted by the board of directors of the Philippine Board of Directors necessarily had authority to determine and fix the
National Bank in refusing to approve the lease at the rental price per picul of the sugar quota subject of the lease between
rate of P2.80 per picul and insisting on the rate of private respondents and Jacobo C. Tuazon. It argued further that both
P3.00 per picul, if only to increase the retail value by under its Charter and the Corporation Law, petitioner, acting thru its
only P200.00 is shown by the fact that all the accounts Board of Directors, has the perfect right to adopt a policy with respect
of Rita Gueco Tapnio with the Bank were secured by to fixing of rental prices of export sugar quota allocations, and in fixing
chattel mortgage on standing crops, assignment of the rentals at P3.00 per picul, it did not act arbitrarily since the said
leasehold rights and interests on her properties, and Board was guided by statistics of sugar price and prices of sugar
surety bonds, aside from the fact that from Exh. 8- quotas prevailing at the time. Since the fixing of the rental of the sugar
Bank, it appears that she was offering to execute a real quota is a function lodged with petitioner's Board of Directors and is a
estate mortgage in favor of the Bank to replace the matter of policy, the respondent Court of Appeals could not substitute
surety bond This statement is further bolstered by the its own judgment for that of said Board of Directors, which acted in
fact that Rita Gueco Tapnio apparently had the means good faith, making as its basis therefore the prevailing market price as
to pay her obligation fact that she has been granted shown by statistics which were then in their possession.
several value of almost P80,000.00 for the agricultural
years from 1952 to 56. 1 Finally, petitioner emphasized that under the appealed judgment, it
shall suffer a great injustice because as a creditor, it shall be deprived
Its motion for the reconsideration of the decision of the Court of of a just claim against its debtor (respondent Rita Gueco Tapnio) as it
Appeals having been denied, petitioner filed the present petition. would be required to return to respondent Philamgen the sum of
P2,379.71, plus interest, which amount had been previously paid to
The petitioner contends that the Court of Appeals erred: petitioner by said insurance company in behalf of the principal debtor,

17
herein respondent Rita Gueco Tapnio, and without recourse against allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to
respondent Rita Gueco Tapnio. utilize her sugar quota, resulting in her loss in the sum of P2,800.00
which she should have received had the lease in favor of Tuazon
We must advert to the rule that this Court's appellate jurisdiction in been implemented.
proceedings of this nature is limited to reviewing only errors of law,
accepting as conclusive the factual fin dings of the Court of Appeals It has been clearly shown that when the Branch Manager of petitioner
upon its own assessment of the evidence. 2 required the parties to raise the consideration of the lease from P2.50
to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence,
The contract of lease of sugar quota allotment at P2.50 per picul in his letter to the Branch Manager of the Bank on August 10, 1956,
between Rita Gueco Tapnio and Jacobo C. Tuazon was executed on Tuazon informed him that the minimum lease rental of P2.80 per picul
April 17, 1956. This contract was submitted to the Branch Manager of was acceptable to him and that he even offered to use the loan
the Philippine National Bank at San Fernando, Pampanga. This secured by him from petitioner to pay in full the sum of P2,800.00
arrangement was necessary because Tapnio's indebtedness to which was the total consideration of the lease. This arrangement was
petitioner was secured by a mortgage on her standing crop including not only satisfactory to the Branch Manager but it was also approves
her sugar quota allocation for the agricultural year corresponding to by Vice-President J. V. Buenaventura of the PNB. Under that
said standing crop. The latter required the parties to raise the arrangement, Rita Gueco Tapnio could have realized the amount of
consideration to P2.80 per picul, the minimum lease rental acceptable P2,800.00, which was more than enough to pay the balance of her
to the Bank, or a total of P2,800.00. Tuazon informed the Branch indebtedness to the Bank which was secured by the bond of
Manager, thru a letter dated August 10, 1956, that he was agreeable Philamgen.
to raising the consideration to P2.80 per picul. He further informed the
manager that he was ready to pay the said sum of P2,800.00 as the There is no question that Tapnio's failure to utilize her sugar quota for
funds were in his folder which was kept in the said Bank. This referred the crop year 1956-1957 was due to the disapproval of the lease by
to the approved loan of Tuazon from the Bank which he intended to the Board of Directors of petitioner. The issue, therefore, is whether or
use in paying for the use of the sugar quota. The Branch Manager not petitioner is liable for the damage caused.
submitted the contract of lease of sugar quota allocation to the Head
Office on September 7, 1956, with a recommendation for approval, As observed by the trial court, time is of the essence in the approval
which recommendation was concurred in by the Vice-President of the of the lease of sugar quota allotments, since the same must be
Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of utilized during the milling season, because any allotment which is not
Directors of petitioner required that the consideration be raised to filled during such milling season may be reallocated by the Sugar
P3.00 per picul. Quota Administration to other holders of allotments. 3 There was no
proof that there was any other person at that time willing to lease the
Tuazon, after being informed of the action of the Board of Directors, sugar quota allotment of private respondents for a price higher than
asked for a reconsideration thereof. On November 19, 1956, the P2.80 per picul. "The fact that there were isolated transactions
Branch Manager submitted the request for reconsideration and again wherein the consideration for the lease was P3.00 a picul", according
recommended the approval of the lease at P2.80 per picul, but the to the trial court, "does not necessarily mean that there are always
Board returned the recommendation unacted, stating that the current ready takers of said price. " The unreasonableness of the position
price prevailing at that time was P3.00 per picul. adopted by the petitioner's Board of Directors is shown by the fact that
the difference between the amount of P2.80 per picul offered by
On February 22, 1957, Tuazon wrote a letter, informing the Bank that Tuazon and the P3.00 per picul demanded by the Board amounted
he was no longer interested in continuing the lease of sugar quota only to a total sum of P200.00. Considering that all the accounts of
18
Rita Gueco Tapnio with the Bank were secured by chattel mortgage as true of a corporation as of a natural person, A corporation is liable,
on standing crops, assignment of leasehold rights and interests on her therefore, whenever a tortious act is committed by an officer or agent
properties, and surety bonds and that she had apparently "the means under express direction or authority from the stockholders or
to pay her obligation to the Bank, as shown by the fact that she has members acting as a body, or, generally, from the directors as the
been granted several sugar crop loans of the total value of almost governing body." 6
P80,000.00 for the agricultural years from 1952 to 1956", there was
no reasonable basis for the Board of Directors of petitioner to have WHEREFORE, in view of the foregoing, the decision of the Court of
rejected the lease agreement because of a measly sum of P200.00. Appeals is hereby AFFIRMED.

While petitioner had the ultimate authority of approving or Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur.
disapproving the proposed lease since the quota was mortgaged to
the Bank, the latter certainly cannot escape its responsibility of  Separate Opinions
observing, for the protection of the interest of private respondents,
that degree of care, precaution and vigilance which the circumstances  BARREDO, J., concurring:
justly demand in approving or disapproving the lease of said sugar
quota. The law makes it imperative that every person "must in the concurs on the basis of Article 19 of the Civil Code, or at least, of
exercise of his rights and in the performance of his duties, act with equity. He reserves his opinion on the matter of torts relied upon in
justice, give everyone his due, and observe honesty and good the main opinion.
faith, 4 This petitioner failed to do. Certainly, it knew that the
agricultural year was about to expire, that by its disapproval of the
 Separate Opinions
lease private respondents would be unable to utilize the sugar quota
in question. In failing to observe the reasonable degree of care and
vigilance which the surrounding circumstances reasonably impose, BARREDO, J., concurring:
petitioner is consequently liable for the damages caused on private
respondents. Under Article 21 of the New Civil Code, "any person who concurs on the basis of Article 19 of the Civil Code, or at least, of
wilfully causes loss or injury to another in a manner that is contrary to equity. He reserves his opinion on the matter of torts relied upon in
morals, good customs or public policy shall compensate the latter for the main opinion.
the damage." The afore-cited provisions on human relations were
intended to expand the concept of torts in this jurisdiction by granting
adequate legal remedy for the untold number of moral wrongs which
is impossible for human foresight to specifically provide in the
statutes. 5

A corporation is civilly liable in the same manner as natural persons


for torts, because "generally speaking, the rules governing the liability
of a principal or master for a tort committed by an agent or servant are
the same whether the principal or master be a natural person or a
corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable
for every tort which he expressly directs or authorizes, and this is just
19
Republic of the Philippines By virtue of the powers vested in the Presidential
SUPREME COURT Commission on Good Government, by authority of the
Manila President of the Philippines, you are hereby directed to
EN BANC sequester the following companies.
G.R. No. 75885 May 27, 1987
BATAAN SHIPYARD & ENGINEERING CO., INC. 1. Bataan Shipyard and Engineering Co., Inc.
(BASECO), petitioner, (Engineering Island Shipyard and Mariveles Shipyard)
vs. 2. Baseco Quarry
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, 3. Philippine Jai-Alai Corporation
CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY 4. Fidelity Management Co., Inc.
CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, 5. Romson Realty, Inc.
COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. 6. Trident Management Co.
DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents. 7. New Trident Management
Apostol, Bernas, Gumaru, Ona and Associates for petitioner. 8. Bay Transport
Vicente G. Sison for intervenor A.T. Abesamis. 9. And all affiliate companies of Alfredo "Bejo"
Romualdez
NARVASA, J.:
You are hereby ordered:
Challenged in this special civil action of certiorari and prohibition by a
private corporation known as the Bataan Shipyard and Engineering 1. To implement this sequestration order with a
Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated minimum disruption of these companies' business
by President Corazon C. Aquino on February 28, 1986 and March 12, activities.
1986, respectively, and (2) the sequestration, takeover, and other
orders issued, and acts done, in accordance with said executive 2. To ensure the continuity of these companies as
orders by the Presidential Commission on Good Government and/or going concerns, the care and maintenance of these
its Commissioners and agents, affecting said corporation. assets until such time that the Office of the President
through the Commission on Good Government should
1. The Sequestration, Takeover, and Other Orders Complained of decide otherwise.

a. The Basic Sequestration Order 3. To report to the Commission on Good Government


periodically.
The sequestration order which, in the view of the petitioner
corporation, initiated all its misery was issued on April 14, 1986 by Further, you are authorized to request for
Commissioner Mary Concepcion Bautista. It was addressed to three Military/Security Support from the Military/Police
of the agents of the Commission, hereafter simply referred to as authorities, and such other acts essential to the
PCGG. It reads as follows: achievement of this sequestration order. 1

RE: SEQUESTRATION ORDER b. Order for Production of Documents

20
On the strength of the above sequestration order, Mr. Jose M. Balde, 8. Updated schedule of Accounts Receivable and Accounts Payable.
acting for the PCGG, addressed a letter dated April 18, 1986 to the
President and other officers of petitioner firm, reiterating an earlier 9. Complete list of depository banks for all funds with the
request for the production of certain documents, to wit: authorized signatories for withdrawals thereof.

1. Stock Transfer Book 10. Schedule of company investments and placements. 2

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

2.2. By-Laws c. Orders Re Engineer Island

2.3. Minutes of the Annual Stockholders Meeting from 1973 to (1) Termination of Contract for Security Services
1986
A third order assailed by petitioner corporation, hereafter referred to
2.4. Minutes of the Regular and Special Meetings of the Board of simply as BASECO, is that issued on April 21, 1986 by a Capt.
Directors from 1973 to 1986 Flordelino B. Zabala, a member of the task force assigned to carry out
the basic sequestration order. He sent a letter to BASECO's Vice-
2.5. Minutes of the Executive Committee Meetings from 1973 to President for Finance, 3 terminating the contract for security services
1986 within the Engineer Island compound between BASECO and "Anchor
and FAIRWAYS" and "other civilian security agencies," CAPCOM
2.6. Existing contracts with suppliers/contractors/others. military personnel having already been assigned to the area,

3. Yearly list of stockholders with their corresponding (2) Change of Mode of Payment of


share/stockholdings from 1973 to 1986 duly certified by the Corporate Entry Charges
Secretary.
On July 15, 1986, the same Capt. Zabala issued a Memorandum
4. Audited Financial Statements such as Balance Sheet, Profit & Loss addressed to "Truck Owners and Contractors," particularly a "Mr.
and others from 1973 to December 31, 1985. Buddy Ondivilla National Marine Corporation," advising of the
amendment in part of their contracts with BASECO in the sense that
5. Monthly Financial Statements for the current year up to March 31, the stipulated charges for use of the BASECO road network were
1986. made payable "upon entry and not anymore subject to monthly billing
as was originally agreed upon." 4
6. Consolidated Cash Position Reports from January to April 15,
1986. d. Aborted Contract for Improvement of Wharf at
Engineer Island
7. Inventory listings of assets up dated up to March 31, 1986.

21
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a g. The TAKEOVER Order
contract in behalf of BASECO with Deltamarine Integrated Port
Services, Inc., in virtue of which the latter undertook to introduce By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed
improvements costing approximately P210,000.00 on the BASECO the provisional takeover by the PCGG of BASECO, "the Philippine
wharf at Engineer Island, allegedly then in poor condition, avowedly to Dockyard Corporation and all their affiliated companies." 9 Diaz
"optimize its utilization and in return maximize the revenue which invoked the provisions of Section 3 (c) of Executive Order No. 1,
would flow into the government coffers," in consideration of empowering the Commission —
Deltamarine's being granted "priority in using the improved portion of
the wharf ahead of anybody" and exemption "from the payment of any * * To provisionally takeover in the public interest or to
charges for the use of wharf including the area where it may install its prevent its disposal or dissipation, business enterprises
bagging equipments" "until the improvement remains in a condition and properties taken over by the government of the
suitable for port operations." 5 It seems however that this contract was Marcos Administration or by entities or persons close to
never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) former President Marcos, until the transactions leading
BASECO Management Team," advised Deltamarine by letter dated to such acquisition by the latter can be disposed of by
July 30, 1986 that "the new management is not in a position to honor the appropriate authorities.
the said contract" and thus "whatever improvements * * (may be
introduced) shall be deemed unauthorized * * and shall be at * * A management team was designated to implement the order, headed
(Deltamarine's) own risk." 6 by Capt. Siacunco, and was given the following powers:

e. Order for Operation of Sesiman Rock Quarry, 1. Conducts all aspects of operation of the subject
Mariveles, Bataan companies;

By Order dated June 20, 1986, Commissioner Mary Bautista first 2. Installs key officers, hires and terminates personnel
directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and as necessary;
implement progress towards maximizing the continuous operation of
the BASECO Sesiman Rock Quarry * * by conventional methods;" but 3. Enters into contracts related to management and
afterwards, Commissioner Bautista, in representation of the PCGG, operation of the companies;
authorized another party, A.T. Abesamis, to operate the quarry,
located at Mariveles, Bataan, an agreement to this effect having been
4. Ensures that the assets of the companies are not
executed by them on September 17, 1986. 7
dissipated and used effectively and efficiently;
revenues are duly accounted for; and disburses funds
f. Order to Dispose of Scrap, etc. only as may be necessary;
By another Order of Commissioner Bautista, this time dated June 26, 5. Does actions including among others, seeking of
1986, Mayor Buenaventura was also "authorized to clean and beautify military support as may be necessary, that will ensure
the Company's compound," and in this connection, to dispose of or compliance to this order;
sell "metal scraps" and other materials, equipment and machineries
no longer usable, subject to specified guidelines and safeguards
including audit and verification. 8

22
6. Holds itself fully accountable to the Presidential liberty and property without due process of law." (Const., Art. I V, Sec.
Commission on Good Government on all aspects 1)." 12
related to this take-over order.
It declares that its objection to the constitutionality of the Executive
h. Termination of Services of BASECO Orders "as well as the Sequestration Order * * and Takeover Order * *
Officers issued purportedly under the authority of said Executive Orders, rests
on four fundamental considerations: First, no notice and hearing was
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. accorded * * (it) before its properties and business were taken
Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R. over; Second, the PCGG is not a court, but a purely investigative
Cuesta I, advising of the termination of their services by the agency and therefore not competent to act as prosecutor and judge in
PCGG. 10 the same cause; Third, there is nothing in the issuances which
envisions any proceeding, process or remedy by which petitioner may
2. Petitioner's Plea and Postulates expeditiously challenge the validity of the takeover after the same has
been effected; and Fourthly, being directed against specified persons,
It is the foregoing specific orders and acts of the PCGG and its and in disregard of the constitutional presumption of innocence and
members and agents which, to repeat, petitioner BASECO would general rules and procedures, they constitute a Bill of Attainder." 13
have this Court nullify. More particularly, BASECO prays that this
Court- b. Re Order to Produce Documents

1) declare unconstitutional and void Executive Orders Numbered 1 It argues that the order to produce corporate records from 1973 to
and 2; 1986, which it has apparently already complied with, was issued
without court authority and infringed its constitutional right against
2) annul the sequestration order dated April- 14, 1986, and all other self-incrimination, and unreasonable search and seizure. 14
orders subsequently issued and acts done on the basis thereof,
inclusive of the takeover order of July 14, 1986 and the termination of c. Re PCGG's Exercise of Right of Ownership and
the services of the BASECO executives. 11 Management

a. Re Executive Orders No. 1 and 2, and the BASECO further contends that the PCGG had unduly interfered with
Sequestration and Takeover Orders its right of dominion and management of its business affairs by —

While BASECO concedes that "sequestration without resorting to 1) terminating its contract for security services with Fairways &
judicial action, might be made within the context of Executive Orders Anchor, without the consent and against the will of the contracting
Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution parties; and amending the mode of payment of entry fees stipulated in
was promulgated, under the principle that the law promulgated by the its Lease Contract with National Stevedoring & Lighterage
ruler under a revolutionary regime is the law of the land, it ceased to Corporation, these acts being in violation of the non-impairment
be acceptable when the same ruler opted to promulgate the Freedom clause of the constitution; 15
Constitution on March 25, 1986 wherein under Section I of the same,
Article IV (Bill of Rights) of the 1973 Constitution was adopted
providing, among others, that "No person shall be deprived of life,

23
2) allowing PCGG Agent Silverio Berenguer to enter into an
"anomalous contract" with Deltamarine Integrated Port Services, Inc.,
giving the latter free use of BASECO premises; 16

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage 4. The Governing Law
and operate its rock quarry at Sesiman, Mariveles; 17
a. Proclamation No. 3
4) authorizing the same mayor to sell or dispose of its metal scrap,
equipment, machinery and other materials; 18 The impugned executive orders are avowedly meant to carry out the
explicit command of the Provisional Constitution, ordained by
5) authorizing the takeover of BASECO, Philippine Dockyard Proclamation No. 3, 23 that the President-in the exercise of legislative
Corporation, and all their affiliated companies; power which she was authorized to continue to wield "(until a
legislature is elected and convened under a new Constitution" —
6) terminating the services of BASECO executives: President Hilario "shall give priority to measures to achieve the mandate of the people,"
M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance among others to (r)ecover ill-gotten properties amassed by the
Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19 leaders and supporters of the previous regime and protect the interest
of the people through orders of sequestration or freezing of assets or
7) planning to elect its own Board of Directors; 20 accounts."  24

8) allowing willingly or unwillingly its personnel to take, steal, carry b. Executive Order No. 1
away from petitioner's premises at Mariveles * * rolls of cable wires,
worth P600,000.00 on May 11, 1986; 21 Executive Order No. 1 stresses the "urgent need to recover all ill-
gotten wealth," and postulates that "vast resources of the government
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold have been amassed by former President Ferdinand E. Marcos, his
bars supposed to have been buried therein. 22 immediate family, relatives, and close associates both here and
abroad." 25 Upon these premises, the Presidential Commission on
3. Doubts, Misconceptions regarding Sequestration, Freeze and Good Government was created, 26 "charged with the task of assisting
Takeover Orders the President in regard to (certain specified) matters," among which
was precisely-
Many misconceptions and much doubt about the matter of
sequestration, takeover and freeze orders have been engendered by * * The recovery of all in-gotten wealth accumulated by
misapprehension, or incomplete comprehension if not indeed former President Ferdinand E. Marcos, his immediate
downright ignorance of the law governing these remedies. It is needful family, relatives, subordinates and close associates,
that these misconceptions and doubts be dispelled so that uninformed whether located in the Philippines or abroad, including
and useless debates about them may be avoided, and arguments the takeover or sequestration of all business
tainted b sophistry or intellectual dishonesty be quickly exposed and enterprises and entities owned or controlled by them,
discarded. Towards this end, this opinion will essay an exposition of during his administration, directly or through nominees,
the law on the matter. In the process many of the objections raised by by taking undue advantage of their public office and/or
BASECO will be dealt with.
24
using their powers, authority, influence, connections or Executive Order No. 2 gives additional and more specific data and
relationship. 27 directions respecting "the recovery of ill-gotten properties amassed by
the leaders and supporters of the previous regime." It declares that:
In relation to the takeover or sequestration that it was authorized to
undertake in the fulfillment of its mission, the PCGG was granted 1) * * the Government of the Philippines is in
"power and authority" to do the following particular acts, to wit: possession of evidence showing that there are assets
and properties purportedly pertaining to former
1. To sequester or place or cause to be placed under Ferdinand E. Marcos, and/or his wife Mrs. Imelda
its control or possession any building or office wherein Romualdez Marcos, their close relatives, subordinates,
any ill-gotten wealth or properties may be found, and business associates, dummies, agents or nominees
any records pertaining thereto, in order to prevent their which had been or were acquired by them directly or
destruction, concealment or disappearance which indirectly, through or as a result of the improper or
would frustrate or hamper the investigation or illegal use of funds or properties owned by the
otherwise prevent the Commission from accomplishing government of the Philippines or any of its branches,
its task. instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their
2. To provisionally take over in the public interest or to office, authority, influence, connections or relationship,
prevent the disposal or dissipation, business resulting in their unjust enrichment and causing grave
enterprises and properties taken over by the damage and prejudice to the Filipino people and the
government of the Marcos Administration or by entities Republic of the Philippines:" and
or persons close to former President Marcos, until the
transactions leading to such acquisition by the latter 2) * * said assets and properties are in the form of bank
can be disposed of by the appropriate authorities. accounts, deposits, trust accounts, shares of stocks,
buildings, shopping centers, condominiums, mansions,
3. To enjoin or restrain any actual or threatened residences, estates, and other kinds of real and
commission of acts by any person or entity that may personal properties in the Philippines and in various
render moot and academic, or frustrate or otherwise countries of the world." 31
make ineffectual the efforts of the Commission to carry
out its task under this order. 28 Upon these premises, the President-

So that it might ascertain the facts germane to its objectives, it was 1) froze "all assets and properties in the Philippines in
granted power to conduct investigations; require submission of which former President Marcos and/or his wife, Mrs.
evidence by subpoenae ad testificandum and duces Imelda Romualdez Marcos, their close relatives,
tecum; administer oaths; punish for contempt. 29 It was given power subordinates, business associates, dummies, agents,
also to promulgate such rules and regulations as may be necessary to or nominees have any interest or participation;
carry out the purposes of * * (its creation). 30
2) prohibited former President Ferdinand Marcos
c. Executive Order No. 2 and/or his wife * *, their close relatives, subordinates,
business associates, duties, agents, or nominees
from transferring, conveying, encumbering, concealing
25
or dissipating said assets or properties in the under the Civil Code or other existing laws, in connection with * * (said
Philippines and abroad, pending the outcome of Executive Orders Numbered 1 and 2) may be filed separately from
appropriate proceedings in the Philippines to determine and proceed independently of any criminal proceedings and may be
whether any such assets or properties were acquired proved by a preponderance of evidence;" and that, moreover, the
by them through or as a result of improper or illegal use "technical rules of procedure and evidence shall not be strictly applied
of or the conversion of funds belonging to the to* * (said)civil cases." 36
Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial 5. Contemplated Situations
institutions, or by taking undue advantage of their
official position, authority, relationship, connection or The situations envisaged and sought to be governed are self-evident,
influence to unjustly enrich themselves at the expense these being:
and to the grave damage and prejudice of the Filipino
people and the Republic of the Philippines; 1) that "(i)ll-gotten properties (were) amassed by the
leaders and supporters of the previous regime"; 37
3) prohibited "any person from transferring, conveying,
encumbering or otherwise depleting or concealing such a) more particularly, that ill-gotten wealth (was)
assets and properties or from assisting or taking part in accumulated by former President Ferdinand E. Marcos,
their transfer, encumbrance, concealment or his immediate family, relatives, subordinates and close
dissipation under pain of such penalties as are associates, * * located in the Philippines or abroad, * *
prescribed by law;" and (and) business enterprises and entities (came to be)
owned or controlled by them, during * * (the Marcos)
4) required "all persons in the Philippines holding such administration, directly or through nominees, by taking
assets or properties, whether located in the Philippines undue advantage of their public office and/or using
or abroad, in their names as nominees, agents or their powers, authority, influence, Connections or
trustees, to make full disclosure of the same to the relationship; 38
Commission on Good Government within thirty (30)
days from publication of * (the) Executive Order, * *. 32 b) otherwise stated, that "there are assets and
properties purportedly pertaining to former President
d. Executive Order No. 14 Ferdinand E. Marcos, and/or his wife Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates,
A third executive order is relevant: Executive Order No. 14, 33 by business associates, dummies, agents or nominees
which the PCGG is empowered, "with the assistance of the Office of which had been or were acquired by them directly or
the Solicitor General and other government agencies, * * to file and indirectly, through or as a result of the improper or
prosecute all cases investigated by it * * as may be warranted by its illegal use of funds or properties owned by the
findings." 34 All such cases, whether civil or criminal, are to be filed Government of the Philippines or any of its branches,
"with the Sandiganbayan which shall have exclusive and original instrumentalities, enterprises, banks or financial
jurisdiction thereof." 35 Executive Order No. 14 also pertinently institutions, or by taking undue advantage of their
provides that civil suits for restitution, reparation of damages, or office, authority, influence, connections or relationship,
indemnification for consequential damages, forfeiture proceedings resulting in their unjust enrichment and causing grave
provided for under Republic Act No. 1379, or any other civil actions
26
damage and prejudice to the Filipino people and the of enterprise within reasonable bounds and under
Republic of the Philippines"; 39 proper control. * * Evincing much concern for the
protection of property, the Constitution distinctly
c) that "said assets and properties are in the form of recognizes the preferred position which real estate has
bank accounts. deposits, trust. accounts, shares of occupied in law for ages. Property is bound up with
stocks, buildings, shopping centers, condominiums, every aspect of social life in a democracy as
mansions, residences, estates, and other kinds of real democracy is conceived in the Constitution. The
and personal properties in the Philippines and in Constitution realizes the indispensable role which
various countries of the world;" 40 and property, owned in reasonable quantities and used
legitimately, plays in the stimulation to economic effort
2) that certain "business enterprises and properties and the formation and growth of a solid social middle
(were) taken over by the government of the Marcos class that is said to be the bulwark of democracy and
Administration or by entities or persons close to former the backbone of every progressive and happy
President Marcos. 41 country. 42

6. Government's Right and Duty to Recover All Ill-gotten Wealth a. Need of Evidentiary Substantiation in Proper Suit

There can be no debate about the validity and eminent propriety of Consequently, the factual premises of the Executive Orders cannot
the Government's plan "to recover all ill-gotten wealth." simply be assumed. They will have to be duly established by
adequate proof in each case, in a proper judicial proceeding, so that
Neither can there be any debate about the proposition that assuming the recovery of the ill-gotten wealth may be validly and properly
the above described factual premises of the Executive Orders and adjudged and consummated; although there are some who maintain
Proclamation No. 3 to be true, to be demonstrable by competent that the fact-that an immense fortune, and "vast resources of the
evidence, the recovery from Marcos, his family and his dominions of government have been amassed by former President Ferdinand E.
the assets and properties involved, is not only a right but a duty on the Marcos, his immediate family, relatives, and close associates both
part of Government. here and abroad," and they have resorted to all sorts of clever
schemes and manipulations to disguise and hide their illicit
But however plain and valid that right and duty may be, still a balance acquisitions-is within the realm of judicial notice, being of so extensive
must be sought with the equally compelling necessity that a proper notoriety as to dispense with proof thereof, Be this as it may, the
respect be accorded and adequate protection assured, the requirement of evidentiary substantiation has been expressly
fundamental rights of private property and free enterprise which are acknowledged, and the procedure to be followed explicitly laid down,
deemed pillars of a free society such as ours, and to which all in Executive Order No. 14.
members of that society may without exception lay claim.
b. Need of Provisional Measures to Collect and
* * Democracy, as a way of life enshrined in the Conserve Assets Pending Suits
Constitution, embraces as its necessary components
freedom of conscience, freedom of expression, and Nor may it be gainsaid that pending the institution of the suits for the
freedom in the pursuit of happiness. Along with these recovery of such "ill-gotten wealth" as the evidence at hand may
freedoms are included economic freedom and freedom reveal, there is an obvious and imperative need for preliminary,
provisional measures to prevent the concealment, disappearance,
27
destruction, dissipation, or loss of the assets and properties subject of A "freeze order" prohibits the person having possession or control of
the suits, or to restrain or foil acts that may render moot and property alleged to constitute "ill-gotten wealth" "from transferring,
academic, or effectively hamper, delay, or negate efforts to recover conveying, encumbering or otherwise depleting or concealing such
the same. property, or from assisting or taking part in its transfer, encumbrance,
concealment, or dissipation." 46 In other words, it commands the
7. Provisional Remedies Prescribed by Law possessor to hold the property and conserve it subject to the orders
and disposition of the authority decreeing such freezing. In this sense,
To answer this need, the law has prescribed three (3) provisional it is akin to a garnishment by which the possessor or ostensible owner
remedies. These are: (1) sequestration; (2) freeze orders; and (3) of property is enjoined not to deliver, transfer, or otherwise dispose of
provisional takeover. any effects or credits in his possession or control, and thus becomes
in a sense an involuntary depositary thereof. 47
Sequestration and freezing are remedies applicable generally to
unearthed instances of "ill-gotten wealth." The remedy of "provisional c. Provisional Takeover
takeover" is peculiar to cases where "business enterprises and
properties (were) taken over by the government of the Marcos In providing for the remedy of "provisional takeover," the law
Administration or by entities or persons close to former President acknowledges the apparent distinction between "ill gotten" "business
Marcos." 43 enterprises and entities" (going concerns, businesses in actual
operation), generally, as to which the remedy of sequestration applies,
a. Sequestration it being necessarily inferred that the remedy entails no interference, or
the least possible interference with the actual management and
By the clear terms of the law, the power of the PCGG to sequester operations thereof; and "business enterprises which were taken over
property claimed to be "ill-gotten" means to place or cause to be by the government government of the Marcos Administration or by
placed under its possession or control said property, or any building or entities or persons close to him," in particular, as to which a
office wherein any such property and any records pertaining thereto "provisional takeover" is authorized, "in the public interest or to
may be found, including "business enterprises and entities,"-for the prevent disposal or dissipation of the enterprises." 48 Such a
purpose of preventing the destruction, concealment or dissipation of, "provisional takeover" imports something more than sequestration or
and otherwise conserving and preserving, the same-until it can be freezing, more than the placing of the business under physical
determined, through appropriate judicial proceedings, whether the possession and control, albeit without or with the least possible
property was in truth will- gotten," i.e., acquired through or as a result interference with the management and carrying on of the business
of improper or illegal use of or the conversion of funds belonging to itself. In a "provisional takeover," what is taken into custody is not only
the Government or any of its branches, instrumentalities, enterprises, the physical assets of the business enterprise or entity, but the
banks or financial institutions, or by taking undue advantage of official business operation as well. It is in fine the assumption of control not
position, authority relationship, connection or influence, resulting in only over things, but over operations or on- going activities. But, to
unjust enrichment of the ostensible owner and grave damage and repeat, such a "provisional takeover" is allowed only as regards
prejudice to the State. 44 And this, too, is the sense in which the term "business enterprises * * taken over by the government of the Marcos
is commonly understood in other jurisdictions. 45 Administration or by entities or persons close to former President
Marcos."
b. "Freeze Order"
d. No Divestment of Title Over Property Seized

28
It may perhaps be well at this point to stress once again the Be this as it may, the 1987 Constitution should allay any lingering
provisional, contingent character of the remedies just described. fears about the duration of these provisional remedies. Section 26 of
Indeed the law plainly qualifies the remedy of take-over by the its Transitory Provisions, 51 lays down the relevant rule in plain terms,
adjective, "provisional." These remedies may be resorted to only for a apart from extending ratification or confirmation (although not really
particular exigency: to prevent in the public interest the disappearance necessary) to the institution by presidential fiat of the remedy of
or dissipation of property or business, and conserve it pending sequestration and freeze orders:
adjudgment in appropriate proceedings of the primary issue of
whether or not the acquisition of title or other right thereto by the SEC. 26. The authority to issue sequestration or freeze
apparent owner was attended by some vitiating anomaly. None of the orders under Proclamation No. 3 dated March 25, 1986
remedies is meant to deprive the owner or possessor of his title or any in relation to the recovery of ill-gotten wealth shag
right to the property sequestered, frozen or taken over and vest it in remain operative for not more than eighteen
the sequestering agency, the Government or other person. This can months after the ratification of this Constitution.
be done only for the causes and by the processes laid down by law. However, in the national interest, as certified by the
President, the Congress may extend said period.
That this is the sense in which the power to sequester, freeze or
provisionally take over is to be understood and exercised, the A sequestration or freeze order shall be issued only
language of the executive orders in question leaves no doubt. upon showing of a prima facie case. The order and the
Executive Order No. 1 declares that the sequestration of property the list of the sequestered or frozen properties shall
acquisition of which is suspect shall last "until the transactions leading forthwith be registered with the proper court. For orders
to such acquisition * * can be disposed of by the appropriate issued before the ratification of this Constitution, the
authorities."  49 Executive Order No. 2 declares that the assets or corresponding judicial action or proceeding shall be
properties therein mentioned shall remain frozen "pending the filed within six months from its ratification. For those
outcome of appropriate proceedings in the Philippines to determine issued after such ratification, the judicial action or
whether any such assets or properties were acquired" by illegal proceeding shall be commenced within six months from
means. Executive Order No. 14 makes clear that judicial proceedings the issuance thereof.
are essential for the resolution of the basic issue of whether or not
particular assets are "ill-gotten," and resultant recovery thereof by the The sequestration or freeze order is deemed
Government is warranted. automatically lifted if no judicial action or proceeding is
commenced as herein provided. 52
e. State of Seizure Not To Be Indefinitely Maintained;
The Constitutional Command f. Kinship to Attachment Receivership

There is thus no cause for the apprehension voiced by As thus described, sequestration, freezing and provisional takeover
BASECO 50 that sequestration, freezing or provisional takeover is are akin to the provisional remedy of preliminary attachment, or
designed to be an end in itself, that it is the device through which receivership. 53 By attachment, a sheriff seizes property of a defendant
persons may be deprived of their property branded as "ill-gotten," that in a civil suit so that it may stand as security for the satisfaction of any
it is intended to bring about a permanent, rather than a passing, judgment that may be obtained, and not disposed of, or dissipated, or
transitional state of affairs. That this is not so is quite explicitly lost intentionally or otherwise, pending the action. 54 By receivership,
declared by the governing rules. property, real or personal, which is subject of litigation, is placed in the
possession and control of a receiver appointed by the Court, who
29
shall conserve it pending final determination of the title or right of assets and properties would frustrate, obstruct or hamper the efforts
possession over it. 55 All these remedies — sequestration, freezing, of the Government" at the just recovery thereof. 60
provisional, takeover, attachment and receivership — are provisional,
temporary, designed for-particular exigencies, attended by no 8. Requisites for Validity
character of permanency or finality, and always subject to the control
of the issuing court or agency. What is indispensable is that, again as in the case of attachment and
receivership, there exist a prima facie factual foundation, at least, for
g. Remedies, Non-Judicial the sequestration, freeze or takeover order, and adequate and fair
opportunity to contest it and endeavor to cause its negation or
Parenthetically, that writs of sequestration or freeze or takeover nullification. 61
orders are not issued by a court is of no moment. The Solicitor
General draws attention to the writ of distraint and levy which since Both are assured under the executive orders in question and the rules
1936 the Commissioner of Internal Revenue has been by law and regulations promulgated by the PCGG.
authorized to issue against property of a delinquent
taxpayer. 56 BASECO itself declares that it has not manifested "a rigid a. Prima Facie Evidence as Basis for Orders
insistence on sequestration as a purely judicial remedy * * (as it feels)
that the law should not be ossified to a point that makes it insensitive Executive Order No. 14 enjoins that there be "due regard to the
to change." What it insists on, what it pronounces to be its "unyielding requirements of fairness and due process." 62 Executive Order No. 2
position, is that any change in procedure, or the institution of a new declares that with respect to claims on allegedly "ill-gotten" assets and
one, should conform to due process and the other prescriptions of the properties, "it is the position of the new democratic government that
Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on President Marcos * * (and other parties affected) be afforded fair
which there can be no disagreement. opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and Regulations
h. Orders May Issue Ex Parte provides that sequestration or freeze (and takeover) orders issue
upon the authority of at least two commissioners, based on
Like the remedy of preliminary attachment and receivership, as well the affirmation or complaint of an interested party, or motu
as delivery of personal property in replevin suits, sequestration and proprio when the Commission has reasonable grounds to believe that
provisional takeover writs may issue ex parte. 58 And as in preliminary the issuance thereof is warranted. 64 A similar requirement is now
attachment, receivership, and delivery of personality, no objection of found in Section 26, Art. XVIII of the 1987 Constitution, which requires
any significance may be raised to the ex parte issuance of an order of that a "sequestration or freeze order shall be issued only upon
sequestration, freezing or takeover, given its fundamental character of showing of a prima facie case." 65
temporariness or conditionality; and taking account specially of the
constitutionally expressed "mandate of the people to recover ill-gotten b. Opportunity to Contest
properties amassed by the leaders and supporters of the previous
regime and protect the interest of the people;" 59 as well as the And Sections 5 and 6 of the same Rules and Regulations lay down
obvious need to avoid alerting suspected possessors of "ill-gotten the procedure by which a party may seek to set aside a writ of
wealth" and thereby cause that disappearance or loss of property sequestration or freeze order, viz:
precisely sought to be prevented, and the fact, just as self-evident,
that "any transfer, disposition, concealment or disappearance of said

30
SECTION 5. Who may contend.-The person against "authority to issue sequestration or freeze orders under Proclamation
whom a writ of sequestration or freeze or hold order is No. 3 dated March 25, 1986."
directed may request the lifting thereof in writing, either
personally or through counsel within five (5) days from The institution of these provisional remedies is also premised upon
receipt of the writ or order, or in the case of a hold the State's inherent police power, regarded, as t lie power of
order, from date of knowledge thereof. promoting the public welfare by restraining and regulating the use of
liberty and property," 68 and as "the most essential, insistent and
SECTION 6. Procedure for review of writ or order.-After illimitable of powers * * in the promotion of general welfare and the
due hearing or motu proprio for good cause shown, the public interest," 69 and said to be co-extensive with self-protection and
Commission may lift the writ or order unconditionally or * * not inaptly termed (also) the'law of overruling necessity." "70
subject to such conditions as it may deem necessary,
taking into consideration the evidence and the 10. PCGG not a "Judge"; General Functions
circumstance of the case. The resolution of the
commission may be appealed by the party concerned It should also by now be reasonably evident from what has thus far
to the Office of the President of the Philippines within been said that the PCGG is not, and was never intended to act as, a
fifteen (15) days from receipt thereof. judge. Its general function is to conduct investigations in order
to collect evidence establishing instances of "ill-gotten wealth;" issue
Parenthetically, even if the requirement for a prima facie showing of sequestration, and such orders as may be warranted by the evidence
"ill- gotten wealth" were not expressly imposed by some rule or thus collected and as may be necessary to preserve and conserve the
regulation as a condition to warrant the sequestration or freezing of assets of which it takes custody and control and prevent their
property contemplated in the executive orders in question, it would disappearance, loss or dissipation; and eventually file and
nevertheless be exigible in this jurisdiction in which the Rule of Law prosecute in the proper court of competent jurisdiction all cases
prevails and official acts which are devoid of rational basis in fact or investigated by it as may be warranted by its findings. It does not try
law, or are whimsical and capricious, are condemned and struck and decide, or hear and determine, or adjudicate with any character of
down. 66 finality or compulsion, cases involving the essential issue of whether
or not property should be forfeited and transferred to the State
9. Constitutional Sanction of Remedies because "ill-gotten" within the meaning of the Constitution and the
executive orders. This function is reserved to the designated court, in
If any doubt should still persist in the face of the foregoing this case, the Sandiganbayan. 71 There can therefore be no serious
considerations as to the validity and propriety of sequestration, freeze regard accorded to the accusation, leveled by BASECO, 72 that the
and takeover orders, it should be dispelled by the fact that these PCGG plays the perfidious role of prosecutor and judge at the same
particular remedies and the authority of the PCGG to issue them have time.
received constitutional approbation and sanction. As already
mentioned, the Provisional or "Freedom" Constitution recognizes the 11. Facts Preclude Grant of Relief to Petitioner
power and duty of the President to enact "measures to achieve the
mandate of the people to * * * (recover ill- gotten properties amassed Upon these premises and reasoned conclusions, and upon the facts
by the leaders and supporters of the previous regime and protect the disclosed by the record, hereafter to be discussed, the petition cannot
interest of the people through orders of sequestration or freezing of succeed. The writs of certiorari and prohibition prayed for will not be
assets or accounts." And as also already adverted to, Section 26, issued.
Article XVIII of the 1987 Constitution 67 treats of, and ratifies the
31
The facts show that the corporation known as BASECO was owned or 2. Severino G. 1,248
controlled by President Marcos "during his administration, through de la Cruz shares
nominees, by taking undue advantage of his public office and/or using
his powers, authority, or influence, " and that it was by and through 3. Emilio T. Yap 2,508
the same means, that BASECO had taken over the business and/or shares
assets of the National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities. 4. Jose 1,248
Fernandez shares
12. Organization and Stock Distribution of BASECO
5. Jose 128 shares
BASECO describes itself in its petition as "a shiprepair and Francisco
shipbuilding company * * incorporated as a domestic private
6. Manuel S. 96 shares
corporation * * (on Aug. 30, 1972) by a consortium of Filipino
Mendoza
shipowners and shipping executives. Its main office is at Engineer
Island, Port Area, Manila, where its Engineer Island Shipyard is 7. Anthony P. 1,248
housed, and its main shipyard is located at Mariveles Bataan." 73 Its Lee shares
Articles of Incorporation disclose that its authorized capital stock is
P60,000,000.00 divided into 60,000 shares, of which 12,000 shares 8. Hilario M. Ruiz 32 shares
with a value of P12,000,000.00 have been subscribed, and on said
subscription, the aggregate sum of P3,035,000.00 has been paid by 9. Constante L. 8 shares
the incorporators. 74 The same articles Identify the incorporators, Fariñas
numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P.
Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso 10. Fidelity 65,882
Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Management, shares
Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Inc.
Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw
Torres, and (15) Rodolfo Torres. 11. Trident 7,412
Management shares
By 1986, however, of these fifteen (15) incorporators, six (6) had 12. United Phil. 1,240
ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Lines shares
Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5)
Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there 13. Renato M. 8 shares
were twenty (20) stockholders listed in BASECO's Stock and Transfer Tanseco
Book. 75 Their names and the number of shares respectively held by
them are as follows: 14. Fidel Ventura 8 shares

15. Metro Bay 136,370


1. Jose A. Rojas 1,248 Drydock shares
shares
16. Manuel 1 share
32
Jacela Unaccountably, the price of P52,000,000.00 was reduced by more
than one-half, to P24,311,550.00, about eight (8) months later. A
17. Jonathan G. 1 share document to this effect was executed on October 9, 1973, entitled
Lu "Memorandum Agreement," and was signed for NASSCO by Arturo
Pacificador, as Presiding Officer of the Board of Directors, and David
18. Jose J. 1 share R. Ines, as General Manager. 77 This agreement bore, at the top right
Tanchanco corner of the first page, the word "APPROVED" in the handwriting
of President Marcos, followed by his usual full signature. The
19. Dioscoro 128 shares document recited that a down payment of P5,862,310.00 had been
Papa made by BASECO, and the balance of P19,449,240.00 was payable
in equal semi-annual installments over nine (9) years after a grace
20. Edward T. 4 shares period of two (2) years, with interest at 7% per annum.
Marcelo
15. Acquisition of 300 Hectares from Export Processing Zone
TOTAL 218,819
Authority
shares.
On October 1, 1974, BASECO acquired three hundred (300) hectares
13 Acquisition of NASSCO by BASECO of land in Mariveles from the Export Processing Zone Authority for the
price of P10,047,940.00 of which, as set out in the document of sale,
Barely six months after its incorporation, BASECO acquired from P2,000.000.00 was paid upon its execution, and the balance
National Shipyard & Steel Corporation, or NASSCO, a government- stipulated to be payable in installments. 78
owned or controlled corporation, the latter's shipyard at Mariveles,
Bataan, known as the Bataan National Shipyard (BNS), and — except 16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
for NASSCO's Engineer Island Shops and certain equipment of the
BNS, consigned for future negotiation — all its structures, buildings, Some nine months afterwards, or on July 15, 1975, to be precise,
shops, quarters, houses, plants, equipment and facilities, in stock or in BASECO, again with the intervention of President Marcos, acquired
transit. This it did in virtue of a "Contract of Purchase and Sale with ownership of the rest of the assets of NASSCO which had not been
Chattel Mortgage" executed on February 13, 1973. The price was included in the first two (2) purchase documents. This was
P52,000,000.00. As partial payment thereof, BASECO delivered to accomplished by a deed entitled "Contract of Purchase and
NASSCO a cash bond of P11,400,000.00, convertible into cash within Sale," 79 which, like the Memorandum of Agreement dated October 9,
twenty-four (24) hours from completion of the inventory undertaken 1973 supra also bore at the upper right-hand corner of its first page,
pursuant to the contract. The balance of P41,600,000.00, with interest the handwritten notation of President Marcos reading, "APPROVED,
at seven percent (7%) per annum, compounded semi-annually, was July 29, 1973," and underneath it, his usual full signature. Transferred
stipulated to be paid in equal semi-annual installments over a term of to BASECO were NASSCO's "ownership and all its titles, rights and
nine (9) years, payment to commence after a grace period of two (2) interests over all equipment and facilities including structures,
years from date of turnover of the shipyard to BASECO. 76 buildings, shops, quarters, houses, plants and expendable or semi-
expendable assets, located at the Engineer Island, known as the
14. Subsequent Reduction of Price; Intervention of Marcos Engineer Island Shops, including all the equipment of the Bataan
National Shipyards (BNS) which were excluded from the sale of NBS
to BASECO but retained by BASECO and all other selected
33
equipment and machineries of NASSCO at J. Panganiban Smelting of P165,854,000.00. 85 He suggested that, to "save the situation,"
Plant." In the same deed, NASSCO committed itself to cooperate with there be a "spin-off (of their) shipbuilding activities which shall be
BASECO for the acquisition from the National Government or other handled exclusively by an entirely new corporation to be created;" and
appropriate Government entity of Engineer Island. Consideration for towards this end, he informed Marcos that BASECO was —
the sale was set at P5,000,000.00; a down payment of P1,000,000.00
appears to have been made, and the balance was stipulated to be * * inviting NDC and LUSTEVECO to participate by
paid at 7% interest per annum in equal semi annual installments over converting the NDC shipbuilding loan to BASECO
a term of nine (9) years, to commence after a grace period of two (2) amounting to P341.165M and assuming and converting
years. Mr. Arturo Pacificador again signed for NASSCO, together with a portion of BASECO's shipbuilding loans from
the general manager, Mr. David R. Ines. REPACOM amounting to P52.2M or a total of
P83.365M as NDC's equity contribution in the new
17. Loans Obtained corporation. LUSTEVECO will participate by absorbing
and converting a portion of the REPACOM loan of Bay
It further appears that on May 27, 1975 BASECO obtained a loan Shipyard and Drydock, Inc., amounting to P32.538M.86
from the NDC, taken from "the last available Japanese war damage
fund of $19,000,000.00," to pay for "Japanese made heavy equipment b. Romualdez' Report
(brand new)." 80 On September 3, 1975, it got another loan also from
the NDC in the amount of P30,000,000.00 (id.). And on January 28, Capt. A.T. Romualdez' report to the President was submitted eleven
1976, it got still another loan, this time from the GSIS, in the sum of (11) days later. It opened with the following caption:
P12,400,000.00. 81 The claim has been made that not a single
centavo has been paid on these loans. 82 MEMORANDUM:

18. Reports to President Marcos FOR : The President

In September, 1977, two (2) reports were submitted to President SUBJECT: An Evaluation and Re-assessment of a
Marcos regarding BASECO. The first was contained in a letter dated Performance of a Mission
September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The
second was embodied in a confidential memorandum dated FROM: Capt. A.T. Romualdez.
September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose
the fine hand of Marcos in the affairs of BASECO, and that of a Like Ruiz, Romualdez wrote that BASECO faced great difficulties in
Romualdez, a relative by affinity. meeting its loan obligations due chiefly to the fact that "orders to build
ships as expected * * did not materialize."
a. BASECO President's Report
He advised that five stockholders had "waived and/or assigned their
In his letter of September 5, 1977, BASECO President Ruiz reported holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la
to Marcos that there had been "no orders or demands for ship Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee.
construction" for some time and expressed the fear that if that state of Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose
affairs persisted, BASECO would not be able to pay its debts to the A. Rojas had a major heart attack," he made the following quite
Government, which at the time stood at the not inconsiderable amount

34
revealing, and it may be added, quite cynical and indurate 7. Contract dated October 1, 1974, between EPZA and
recommendation, to wit: BASECO re 300 hectares of land at Mariveles, Bataan;

* * (that) their replacements (be effected) so we can 8. List of BASECO's fixed assets;
register their names in the stock book prior to the
implementation of your instructions to pass a board 9. Loan Agreement dated September 3, 1975,
resolution to legalize the transfers under SEC BASECO's loan from NDC of P30,000,000.00;
regulations;
10. BASECO-REPACOM Agreement dated May 27,
2. By getting their replacements, the families cannot 1975;
question us later on; and
11. GSIS loan to BASECO dated January 28, 1976 of
3. We will owe no further favors from them. 87 P12,400,000.00 for the housing facilities for BASECO's
rank-and-file employees. 90
He also transmitted to Marcos, together with the report, the following
documents: 88 Capt. Romualdez also recommended that BASECO's loans be
restructured "until such period when BASECO will have enough
1. Stock certificates indorsed and assigned in blank orders for ships in order for the company to meet loan obligations,"
with assignments and waivers;  89 and that —

2. The articles of incorporation, the amended articles, An LOI may be issued to government agencies using
and the by-laws of BASECO; floating equipment, that a linkage scheme be applied to
a certain percent of BASECO's net profit as part of
3. Deed of Sales, wherein NASSCO sold to BASECO BASECO's amortization payments to make it justifiable
four (4) parcels of land in "Engineer Island", Port Area, for you, Sir. 91
Manila;
It is noteworthy that Capt. A.T. Romualdez does not appear to be a
4. Transfer Certificate of Title No. 124822 in the name stockholder or officer of BASECO, yet he has presented a report on
of BASECO, covering "Engineer Island"; BASECO to President Marcos, and his report demonstrates intimate
familiarity with the firm's affairs and problems.
5. Contract dated October 9, 1973, between NASSCO
and BASECO re-structure and equipment at Mariveles, 19. Marcos' Response to Reports
Bataan;
President Marcos lost no time in acting on his subordinates'
6. Contract dated July 16, 1975, between NASSCO recommendations, particularly as regards the "spin-off" and the
and BASECO re-structure and equipment at Engineer "linkage scheme" relative to "BASECO's amortization payments."
Island, Port Area Manila;
a. Instructions re "Spin-Off"

35
Under date of September 28, 1977, he addressed a Memorandum to Instructions No. 670 addressed to the Reparations Commission
Secretary Geronimo Velasco of the Philippine National Oil Company REPACOM the Philippine National Oil Company (PNOC), the Luzon
and Chairman Constante Fariñas of the National Development Stevedoring Company (LUSTEVECO), and the National Development
Company, directing them "to participate in the formation of a new Company (NDC). What is commanded therein is summarized by the
corporation resulting from the spin-off of the shipbuilding component Solicitor General, with pithy and not inaccurate observations as to the
of BASECO along the following guidelines: effects thereof (in italics), as follows:

a. Equity participation of government shall be through * * 1) the shipbuilding equipment procured by BASECO
LUSTEVECO and NDC in the amount of P115,903,000 through reparations be transferred to NDC subject to
consisting of the following obligations of BASECO reimbursement by NDC to BASECO (of) the amount of
which are hereby authorized to be converted to s allegedly representing the handling and incidental
equity of the said new corporation, to wit: expenses incurred by BASECO in the installation of
said equipment (so instead of NDC getting paid on its
1. NDC P83,865,000 (P31.165M loan & loan to BASECO, it was made to pay BASECO instead
P52.2M Reparation) the amount of P18.285M); 2) the shipbuilding
equipment procured from reparations through EPZA,
2. LUSTEVECO P32,538,000 now in the possession of BASECO and BSDI (Bay
(Reparation) Shipyard & Drydocking, Inc.) be transferred to
LUSTEVECO through PNOC; and 3) the shipbuilding
b. Equity participation of government shall be in the equipment (thus) transferred be invested by
form of non- voting shares. LUSTEVECO, acting through PNOC and NDC, as the
government's equity participation in a shipbuilding
For immediate compliance. 92 corporation to be established in partnership with the
private sector.
Mr. Marcos' guidelines were promptly complied with by his
subordinates. Twenty-two (22) days after receiving their president's xxx xxx xxx
memorandum, Messrs. Hilario M. Ruiz, Constante L. Fariñas and
Geronimo Z. Velasco, in representation of their respective And so, through a simple letter of instruction and
corporations, executed a PRE-INCORPORATION AGREEMENT memorandum, BASECO's loan obligation to NDC and
dated October 20, 1977. 93 In it, they undertook to form a shipbuilding REPACOM * * in the total amount of P83.365M and
corporation to be known as "PHIL-ASIA SHIPBUILDING BSD's REPACOM loan of P32.438M were wiped out
CORPORATION," to bring to realization their president's instructions. and converted into non-voting preferred shares. 95
It would seem that the new corporation ultimately formed was actually
named "Philippine Dockyard Corporation (PDC)." 94 20. Evidence of Marcos'

b. Letter of Instructions No. 670 Ownership of BASECO

Mr. Marcos did not forget Capt. Romualdez' recommendation for a


letter of instructions. On February 14, 1978, he issued Letter of

36
It cannot therefore be gainsaid that, in the context of the proceedings Corporation — which allegedly owns 136,370 shares of
at bar, the actuality of the control by President Marcos of BASECO BASECO stock;
has been sufficiently shown.
3) the deeds of assignment of 800 outstanding shares
Other evidence submitted to the Court by the Solicitor General proves of Trident Management Co., Inc. — which allegedly
that President Marcos not only exercised control over BASECO, but owns 7,412 shares of BASECO stock, assigned in
also that he actually owns well nigh one hundred percent of its blank; 98 and
outstanding stock.
4) stock certificates corresponding to 207,725 out of
It will be recalled that according to petitioner- itself, as of April 23, the 218,819 outstanding shares of BASECO stock; that
1986, there were 218,819 shares of stock outstanding, ostensibly is, all but 5 % — all endorsed in blank. 99
owned by twenty (20) stockholders. 96 Four of these twenty are
juridical persons: (1) Metro Bay Drydock, recorded as holding 136,370 While the petitioner's counsel was quick to dispute this asserted fact,
shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident assuring this Court that the BASECO stockholders were still in
Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. possession of their respective stock certificates and had "never
The first three corporations, among themselves, own an aggregate of endorsed * * them in blank or to anyone else," 100 that denial is
209,664 shares of BASECO stock, or 95.82% of the outstanding exposed by his own prior and subsequent recorded statements as a
stock. mere gesture of defiance rather than a verifiable factual declaration.

Now, the Solicitor General has drawn the Court's attention to the By resolution dated September 25, 1986, this Court granted
intriguing circumstance that found in Malacanang shortly after the BASECO's counsel a period of 10 days "to SUBMIT, as undertaken
sudden flight of President Marcos, were certificates corresponding to by him, * * the certificates of stock issued to the stockholders of * *
more than ninety-five percent (95%) of all the outstanding shares of BASECO as of April 23, 1986, as listed in Annex 'P' of the
stock of BASECO, endorsed in blank, together with deeds of petition.' 101 Counsel thereafter moved for extension; and in his
assignment of practically all the outstanding shares of stock of the motion dated October 2, 1986, he declared inter alia that "said
three (3) corporations above mentioned (which hold 95.82% of all certificates of stock are in the possession of third parties, among
BASECO stock), signed by the owners thereof although not whom being the respondents themselves * * and petitioner is still
notarized. 97 endeavoring to secure copies thereof from them." 102 On the same
day he filed another motion praying that he be allowed "to secure
More specifically, found in Malacanang (and now in the custody of the copies of the Certificates of Stock in the name of Metro Bay Drydock,
PCGG) were: Inc., and of all other Certificates, of Stock of petitioner's stockholders
in possession of respondents." 103
1) the deeds of assignment of all 600 outstanding
shares of Fidelity Management Inc. — which In a Manifestation dated October 10, 1986,, 104 the Solicitor General
supposedly owns as aforesaid 65,882 shares of not unreasonably argued that counsel's aforestated motion to secure
BASECO stock; copies of the stock certificates "confirms the fact that stockholders of
petitioner corporation are not in possession of * * (their) certificates of
2) the deeds of assignment of 2,499,995 of the stock," and the reason, according to him, was "that 95% of said
2,500,000 outstanding shares of Metro Bay Drydock shares * * have been endorsed in blank and found in Malacañang
after the former President and his family fled the country." To this
37
manifestation BASECO's counsel replied on November 5, 1986, as Marcos; at any rate, that they are no longer owners of any shares of
already mentioned, Stubbornly insisting that the firm's stockholders stock in the corporation, the conclusion cannot be avoided that said
had not really assigned their stock. 105 stockholders and directors have no basis and no standing whatever to
cause the filing and prosecution of the instant proceeding; and to
In view of the parties' conflicting declarations, this Court resolved on grant relief to BASECO, as prayed for in the petition, would in effect
November 27, 1986 among other things "to require * * the petitioner * be to restore the assets, properties and business sequestered and
* to deposit upon proper receipt with Clerk of Court Juanito Ranjo the taken over by the PCGG to persons who are "dummies," nominees
originals of the stock certificates alleged to be in its possession or or alter egos of the former president.
accessible to it, mentioned and described in Annex 'P' of its petition,
(and other pleadings) * * within ten (10) days from notice." 106 In a From the standpoint of the PCGG, the facts herein stated at some
motion filed on December 5, 1986, 107 BASECO's counsel made the length do indeed show that the private corporation known as
statement, quite surprising in the premises, that "it will negotiate with BASECO was "owned or controlled by former President Ferdinand E.
the owners (of the BASECO stock in question) to allow petitioner to Marcos * * during his administration, * * through nominees, by taking
borrow from them, if available, the certificates referred to" but that "it advantage of * * (his) public office and/or using * * (his) powers,
needs a more sufficient time therefor" (sic). BASECO's counsel authority, influence * *," and that NASSCO and other property of the
however eventually had to confess inability to produce the originals of government had been taken over by BASECO; and the situation
the stock certificates, putting up the feeble excuse that while he had justified the sequestration as well as the provisional takeover of the
"requested the stockholders to allow * * (him) to borrow said corporation in the public interest, in accordance with the terms of
certificates, * * some of * * (them) claimed that they had delivered the Executive Orders No. 1 and 2, pending the filing of the requisite
certificates to third parties by way of pledge and/or to secure actions with the Sandiganbayan to cause divestment of title thereto
performance of obligations, while others allegedly have entrusted from Marcos, and its adjudication in favor of the Republic pursuant to
them to third parties in view of last national emergency." 108 He has Executive Order No. 14.
conveniently omitted, nor has he offered to give the details of the
transactions adverted to by him, or to explain why he had not As already earlier stated, this Court agrees that this assessment of
impressed on the supposed stockholders the primordial importance of the facts is correct; accordingly, it sustains the acts of sequestration
convincing this Court of their present custody of the originals of the and takeover by the PCGG as being in accord with the law, and, in
stock, or if he had done so, why the stockholders are unwilling to view of what has thus far been set out in this opinion, pronounces to
agree to some sort of arrangement so that the originals of their be without merit the theory that said acts, and the executive orders
certificates might at the very least be exhibited to the Court. Under the pursuant to which they were done, are fatally defective in not
circumstances, the Court can only conclude that he could not get the according to the parties affected prior notice and hearing, or an
originals from the stockholders for the simple reason that, as the adequate remedy to impugn, set aside or otherwise obtain relief
Solicitor General maintains, said stockholders in truth no longer have therefrom, or that the PCGG had acted as prosecutor and judge at the
them in their possession, these having already been assigned in blank same time.
to then President Marcos.
22. Executive Orders Not a Bill of Attainder
21. Facts Justify Issuance of Sequestration and Takeover Orders
Neither will this Court sustain the theory that the executive orders in
In the light of the affirmative showing by the Government that, prima question are a bill of attainder. 110 "A bill of attainder is a legislative
facie at least, the stockholders and directors of BASECO as of April, act which inflicts punishment without judicial trial." 111 "Its essence is
1986 109 were mere "dummies," nominees or alter egos of President the substitution of a legislative for a judicial determination of guilt." 112
38
In the first place, nothing in the executive orders can be reasonably * * corporations are not entitled to all of the
construed as a determination or declaration of guilt. On the contrary, constitutional protections which private individuals
the executive orders, inclusive of Executive Order No. 14, make it have. * * They are not at all within the privilege against
perfectly clear that any judgment of guilt in the amassing or self-incrimination, although this court more than once
acquisition of "ill-gotten wealth" is to be handed down by a judicial has said that the privilege runs very closely with the 4th
tribunal, in this case, the Sandiganbayan, upon complaint filed and Amendment's Search and Seizure provisions. It is also
prosecuted by the PCGG. In the second place, no punishment is settled that an officer of the company cannot refuse to
inflicted by the executive orders, as the merest glance at their produce its records in its possession upon the plea that
provisions will immediately make apparent. In no sense, therefore, they will either incriminate him or may incriminate
may the executive orders be regarded as a bill of attainder. it." (Oklahoma Press Publishing Co. v. Walling, 327
U.S. 186; emphasis, the Solicitor General's).
23. No Violation of Right against Self-Incrimination and Unreasonable
Searches and Seizures * * The corporation is a creature of the state. It is
presumed to be incorporated for the benefit of the
BASECO also contends that its right against self incrimination and public. It received certain special privileges and
unreasonable searches and seizures had been transgressed by the franchises, and holds them subject to the laws of the
Order of April 18, 1986 which required it "to produce corporate state and the limitations of its charter. Its powers are
records from 1973 to 1986 under pain of contempt of the Commission limited by law. It can make no contract not authorized
if it fails to do so." The order was issued upon the authority of Section by its charter. Its rights to act as a corporation are only
3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue preserved to it so long as it obeys the laws of its
subpoenas requiring * * the production of such books, papers, creation. There is a reserve right in the legislature to
contracts, records, statements of accounts and other documents as investigate its contracts and find out whether it has
may be material to the investigation conducted by the Commission, " exceeded its powers. It would be a strange anomaly to
and paragraph (3), Executive Order No. 2 dealing with its power to hold that a state, having chartered a corporation to
"require all persons in the Philippines holding * * (alleged "ill-gotten") make use of certain franchises, could not, in the
assets or properties, whether located in the Philippines or abroad, in exercise of sovereignty, inquire how these franchises
their names as nominees, agents or trustees, to make full disclosure had been employed, and whether they had been
of the same * *." The contention lacks merit. abused, and demand the production of the corporate
books and papers for that purpose. The defense
It is elementary that the right against self-incrimination has no amounts to this, that an officer of the corporation which
application to juridical persons. is charged with a criminal violation of the statute may
plead the criminality of such corporation as a refusal to
While an individual may lawfully refuse to answer produce its books. To state this proposition is to
incriminating questions unless protected by an answer it. While an individual may lawfully refuse to
immunity statute, it does not follow that a corporation, answer incriminating questions unless protected by an
vested with special privileges and franchises, may immunity statute, it does not follow that a corporation,
refuse to show its hand when charged with an abuse vested with special privileges and franchises may
ofsuchprivileges * * 113 refuse to show its hand when charged with an abuse of
such privileges. (Wilson v. United States, 55 Law Ed.,
Relevant jurisprudence is also cited by the Solicitor General. 114 771, 780 [emphasis, the Solicitor General's])
39
At any rate, Executive Order No. 14-A, amending Section 4 of property; does not make the PCGG the owner thereof. In relation to
Executive Order No. 14 assures protection to individuals required to the property sequestered, frozen or provisionally taken over,
produce evidence before the PCGG against any possible violation of the PCGG is a conservator, not an owner. Therefore, it can not
his right against self-incrimination. It gives them immunity from perform acts of strict ownership; and this is specially true in the
prosecution on the basis of testimony or information he is compelled situations contemplated by the sequestration rules where, unlike
to present. As amended, said Section 4 now provides that — cases of receivership, for example, no court exercises effective
supervision or can upon due application and hearing, grant authority
xxx xxx xxx for the performance of acts of dominion.

The witness may not refuse to comply with the order on Equally evident is that the resort to the provisional remedies in
the basis of his privilege against self-incrimination; but question should entail the least possible interference with business
no testimony or other information compelled under the operations or activities so that, in the event that the accusation of the
order (or any information directly or indirectly derived business enterprise being "ill gotten" be not proven, it may be
from such testimony, or other information) may be used returned to its rightful owner as far as possible in the same condition
against the witness in any criminal case, except a as it was at the time of sequestration.
prosecution for perjury, giving a false statement, or
otherwise failing to comply with the order. b. PCGG Has Only Powers of Administration

The constitutional safeguard against unreasonable searches and The PCGG may thus exercise only powers of administration over the
seizures finds no application to the case at bar either. There has been property or business sequestered or provisionally taken over, much
no search undertaken by any agent or representative of the PCGG, like a court-appointed receiver, 115 such as to bring and defend
and of course no seizure on the occasion thereof. actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as
24. Scope and Extent of Powers of the PCGG may be necessary to fulfill its mission as conservator and
administrator. In this context, it may in addition enjoin or restrain any
One other question remains to be disposed of, that respecting the actual or threatened commission of acts by any person or entity that
scope and extent of the powers that may be wielded by the PCGG may render moot and academic, or frustrate or otherwise make
with regard to the properties or businesses placed under ineffectual its efforts to carry out its task; punish for direct or indirect
sequestration or provisionally taken over. Obviously, it is not a contempt in accordance with the Rules of Court; and seek and secure
question to which an answer can be easily given, much less one the assistance of any office, agency or instrumentality of the
which will suffice for every conceivable situation. government. 116 In the case of sequestered businesses generally
(i.e., going concerns, businesses in current operation), as in the case
a. PCGG May Not Exercise Acts of Ownership of sequestered objects, its essential role, as already discussed, is that
of conservator, caretaker, "watchdog" or overseer. It is not that of
One thing is certain, and should be stated at the outset: the PCGG manager, or innovator, much less an owner.
cannot exercise acts of dominion over property sequestered, frozen or
provisionally taken over. AS already earlier stressed with no little c. Powers over Business Enterprises Taken Over by
insistence, the act of sequestration; freezing or provisional takeover of Marcos or Entities or Persons Close to him; Limitations
property does not import or bring about a divestment of title over said Thereon

40
Now, in the special instance of a business enterprise shown by 1986. That Memorandum authorizes the PCGG, "pending the
evidence to have been "taken over by the government of the Marcos outcome of proceedings to determine the ownership of * *
Administration or by entities or persons close to former President (sequestered) shares of stock," "to vote such shares of stock as it may
Marcos," 117 the PCGG is given power and authority, as already have sequestered in corporations at all stockholders' meetings called
adverted to, to "provisionally take (it) over in the public interest or to for the election of directors, declaration of dividends, amendment of
prevent * * (its) disposal or dissipation;" and since the term is the Articles of Incorporation, etc." The Memorandum should be
obviously employed in reference to going concerns, or business construed in such a manner as to be consistent with, and not
enterprises in operation, something more than mere physical custody contradictory of the Executive Orders earlier promulgated on the
is connoted; the PCGG may in this case exercise some measure of same matter. There should be no exercise of the right to vote simply
control in the operation, running, or management of the business because the right exists, or because the stocks sequestered
itself. But even in this special situation, the intrusion into management constitute the controlling or a substantial part of the corporate voting
should be restricted to the minimum degree necessary to accomplish power. The stock is not to be voted to replace directors, or revise the
the legislative will, which is "to prevent the disposal or dissipation" of articles or by-laws, or otherwise bring about substantial changes in
the business enterprise. There should be no hasty, indiscriminate, policy, program or practice of the corporation except for demonstrably
unreasoned replacement or substitution of management officials or weighty and defensible grounds, and always in the context of the
change of policies, particularly in respect of viable establishments. In stated purposes of sequestration or provisional takeover, i.e., to
fact, such a replacement or substitution should be avoided if at all prevent the dispersion or undue disposal of the corporate assets.
possible, and undertaken only when justified by demonstrably tenable Directors are not to be voted out simply because the power to do so
grounds and in line with the stated objectives of the PCGG. And it exists. Substitution of directors is not to be done without reason or
goes without saying that where replacement of management officers rhyme, should indeed be shunned if at an possible, and undertaken
may be called for, the greatest prudence, circumspection, care and only when essential to prevent disappearance or wastage of corporate
attention - should accompany that undertaking to the end that truly property, and always under such circumstances as assure that the
competent, experienced and honest managers may be recruited. replacements are truly possessed of competence, experience and
There should be no role to be played in this area by rank amateurs, probity.
no matter how wen meaning. The road to hell, it has been said, is
paved with good intentions. The business is not to be experimented or In the case at bar, there was adequate justification to vote the
played around with, not run into the ground, not driven to bankruptcy, incumbent directors out of office and elect others in their stead
not fleeced, not ruined. Sight should never be lost sight of the ultimate because the evidence showed prima facie that the former were just
objective of the whole exercise, which is to turn over the business to tools of President Marcos and were no longer owners of any stock in
the Republic, once judicially established to be "ill-gotten." Reason the firm, if they ever were at all. This is why, in its Resolution of
dictates that it is only under these conditions and circumstances that October 28, 1986; 118 this Court declared that —
the supervision, administration and control of business enterprises
provisionally taken over may legitimately be exercised. Petitioner has failed to make out a case of grave abuse
or excess of jurisdiction in respondents' calling and
d. Voting of Sequestered Stock; Conditions Therefor holding of a stockholders' meeting for the election of
directors as authorized by the Memorandum of the
So, too, it is within the parameters of these conditions and President * * (to the PCGG) dated June 26, 1986,
circumstances that the PCGG may properly exercise the prerogative particularly, where as in this case, the government can,
to vote sequestered stock of corporations, granted to it by the through its designated directors, properly exercise
President of the Philippines through a Memorandum dated June 26, control and management over what appear to be
41
properties and assets owned and belonging to the I, therefore, vote to grant the petition. Pending the filing of an
government itself and over which the persons who appropriate case in court, the PCGG must be enjoined from
appear in this case on behalf of BASECO have failed to exercising any and all acts of ownership over the sequestered firm.
show any right or even any shareholding in said
corporation. Bidin and Cortes, JJ., concur and dissent.

It must however be emphasized that the conduct of the PCGG


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

25. No Sufficient Showing of Other Irregularities

As to the other irregularities complained of by BASECO, i.e., the


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

WHEREFORE, the petition is dismissed. The temporary restraining


order issued on October 14, 1986 is lifted.

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

42
Republic of the Philippines equivalent to 8 to 10% of their wages; sometime in October 1997, the
SUPREME COURT said commissions were reduced to 7 to 9%; this led respondents and
Manila other employees of PTI to hold a series of meetings to discuss the
SECOND DIVISION protection of their interests as employees; these meetings led
G.R. No. 167291               January 12, 2011 petitioner Renato Claros, who is the president of PTI, to suspect that
PRINCE TRANSPORT, Inc. and Mr. RENATO CLAROS, Petitioners, respondents are about to form a union; he made known to Garcia his
vs. objection to the formation of a union; in December 1997, PTI
DIOSDADO GARCIA, LUISITO GARCIA, RODANTE ROMERO, employees requested for a cash advance, but the same was denied
REX BARTOLOME, FELICIANO GASCO, JR., DANILO ROJO, by management which resulted in demoralization on the employees'
EDGAR SANFUEGO, AMADO GALANTO, EUTIQUIO LUGTU, ranks; later, PTI acceded to the request of some, but not all, of the
JOEL GRAMATICA, MIEL CERVANTES, TERESITA CABANES, employees; the foregoing circumstances led respondents to form a
ROE DELA CRUZ, RICHELO BALIDOY, VILMA PORRAS, union for their mutual aid and protection; in order to block the
MIGUELITO SALCEDO, CRISTINA GARCIA, MARIO NAZARENO, continued formation of the union, PTI caused the transfer of all union
DINDO TORRES, ESMAEL RAMBOYONG, ROBETO* MANO, members and sympathizers to one of its sub-companies, Lubas
ROGELIO BAGAWISAN, ARIEL SNACHEZ, ESTAQULO Transport (Lubas); despite such transfer, the schedule of drivers and
VILLAREAL, NELSON MONTERO, GLORIA ORANTE, HARRY conductors, as well as their company identification cards, were issued
TOCA, PABLITO MACASAET and RONALD by PTI; the daily time records, tickets and reports of the respondents
GARCITA Respondents. were also filed at the PTI office; and, all claims for salaries were
DECISION transacted at the same office; later, the business of Lubas
PERALTA, J.: deteriorated because of the refusal of PTI to maintain and repair the
Before the Court is a petition for review on certiorari under Rule 45 of units being used therein, which resulted in the virtual stoppage of its
the Rules of Court praying for the annulment of the Decision1 and operations and respondents' loss of employment.
Resolution2 of the Court of Appeals (CA) dated December 20, 2004 Petitioners, on the other hand, denied the material allegations of the
and February 24, 2005, respectively, in CA-G.R. SP No. 80953. The complaints contending that herein respondents were no longer their
assailed Decision reversed and set aside the Resolutions dated May employees, since they all transferred to Lubas at their own request;
30, 20033 and September 26, 20034 of the National Labor Relations petitioners have nothing to do with the management and operations of
Commission (NLRC) in CA No. 029059-01, while the disputed Lubas as well as the control and supervision of the latter's employees;
Resolution denied petitioners' Motion for Reconsideration. petitioners were not aware of the existence of any union in their
The present petition arose from various complaints filed by herein company and came to know of the same only in June 1998 when they
respondents charging petitioners with illegal dismissal, unfair labor were served a copy of the summons in the petition for certification
practice and illegal deductions and praying for the award of premium election filed by the union; that before the union was registered on
pay for holiday and rest day, holiday pay, service leave pay, 13th April 15, 1998, the complaint subject of the present petition was
month pay, moral and exemplary damages and attorney's fees. already filed; that the real motive in the filing of the complaints was
Respondents alleged in their respective position papers and other because PTI asked respondents to vacate the bunkhouse where they
related pleadings that they were employees of Prince Transport, Inc. (respondents) and their respective families were staying because PTI
(PTI), a company engaged in the business of transporting passengers wanted to renovate the same.
by land; respondents were hired either as drivers, conductors, Subsequently, the complaints filed by respondents were consolidated.
mechanics or inspectors, except for respondent Diosdado Garcia On October 25, 2000, the Labor Arbiter rendered a Decision,5 the
(Garcia), who was assigned as Operations Manager; in addition to dispositive portion of which reads as follows:
their regular monthly income, respondents also received commissions WHEREFORE, judgment is hereby rendered:
43
1. Dismissing the complaints for Unfair Labor Practice, non- (15) Rogelio
payment of holiday pay and holiday premium, service incentive 265,800.00 60,000.00
Bagawisan
leave pay and 13th month pay;
Dismissing the complaint of Edgardo Belda for refund of (16) Rodante H.
221,500.00 60,000.00
boundary-hulog; Romero
2. Dismissing the complaint for illegal dismissal against the
(17) Dindo Torres 265,800.00 50,000.00
respondents Prince Transport, Inc. and/or Prince Transport
Phils. Corporation, Roberto Buenaventura, Rory Bayona, Ailee (18) Edgar Sanfuego 221,500.00 40,000.00
Avenue, Nerissa Uy, Mario Feranil and Peter Buentiempo;
3. Declaring that the complainants named below are illegally (19) Ronald Gacita 221,500.00 40,000.00
dismissed by Lubas Transport; ordering said Lubas Transport (20) Harry Toca 174,300.00 23,400.00
to pay backwages and separation pay in lieu of reinstatement
in the following amount: (21) Amado Galanto 130,725.00 17,550.00
Separation (22) Teresita Cabañes 130,725.00 17,550.00
Complainants Backwages
Pay
(23) Rex Bartolome 301,500.00 30,000.00
(1) Diosdado Garcia ₱222,348.70 ₱79,456.00
(24) Mario Nazareno 221,500.00 30,000.00
(2) Feliciano Gasco,
203,350.00 54,600.00 (25) Eustaquio
Jr. 145,250.00 19,500.00
Villareal
(3) Pablito Macasaet 145,250.00 13,000.00
(26) Ariel Sanchez 265,800.00 60,000.00
(4) Esmael
221,500.00 30,000.00 (27) Gloria Orante 263,100.00 60,000.00
Ramboyong
(5) Joel Gramatica 221,500.00 60,000.00 (28) Nelson Montero 264,600.00 60,000.00

(6) Amado Galanto 130,725.00 29,250.00 (29) Rizal Beato 295,000.00 40,000.00

(7) Miel Cervantes 265,800.00 60,000.00 (30) Eutiquio Lugtu 354,000.00 48,000.00

(8) Roberto Mano 221,500.00 50,000.00 (31) Warlito


295,000.00 40,000.00
Dickensomn
(9) Roe dela Cruz 265,800.00 60,000.00
(32) Edgardo Belda 354,000.00 84,000.00
(10) Richelo Balidoy 130,725.00 29,250.00
(33) Tita Go 295,000.00 70,000.00
(11) Vilma Porras 221,500.00 70,000.00
(34) Alex Lodor 295,000.00 50,000.00
(12) Miguelito Salcedo 265,800.00 60,000.00
(35) Glenda Arguilles 295,000.00 40,000.00
(13) Cristina Garcia 130,725.00 35,100.00
(36) Erwin Luces 354,000.00 48,000.00
(14) Luisito Garcia 145,250.00 19,500.00

44
(37) Jesse Celle 354,000.00 48,000.00 Respondents filed a Motion for Reconsideration, but the NLRC denied
it in its Resolution8 dated September 26, 2003.
(38) Roy Adorable 295,000.00 40,000.00 Respondents then filed a special civil action for certiorari with the CA
assailing the Decision and Resolution of the NLRC.
(39) Marlon Bangcoro 295,000.00 40,000.00
On December 20, 2004, the CA rendered the herein assailed Decision
(40)Edgardo which granted respondents' petition. The CA ruled that petitioners are
354,000.00 36,000.00 guilty of unfair labor practice; that Lubas is a mere instrumentality,
Bangcoro
4. Ordering Lubas Transport to pay attorney's fees equivalent agent conduit or adjunct of PTI; and that petitioners’ act of transferring
to ten (10%) of the total monetary award; and respondents’ employment to Lubas is indicative of their intent to
6. Ordering the dismissal of the claim for moral and exemplary frustrate the efforts of respondents to organize themselves into a
damages for lack merit. union. Accordingly, the CA disposed of the case as follows:
SO ORDERED.6 WHEREFORE, the Petition for Certiorari is hereby GRANTED.
The Labor Arbiter ruled that petitioners are not guilty of unfair labor Accordingly, the subject decision is hereby REVERSED and SET
practice in the absence of evidence to show that they violated ASIDE and another one ENTERED finding the respondents guilty of
respondents’ right to self-organization. The Labor Arbiter also held unfair labor practice and ordering them to reinstate the petitioners to
that Lubas is the respondents’ employer and that it (Lubas) is an their former positions without loss of seniority rights and with full
entity which is separate, distinct and independent from PTI. backwages.
Nonetheless, the Labor Arbiter found that Lubas is guilty of illegally With respect to the portion ordering the inclusion of Danilo Rojo and
dismissing respondents from their employment. Danilo Laurel in the computation of petitioner's claim for backwages
Respondents filed a Partial Appeal with the NLRC praying, among and with respect to the portion ordering the refund of Edgardo Belda's
others, that PTI should also be held equally liable as Lubas. boundary-hulog in the amount of ₱446,862.00, the NLRC decision is
In a Resolution dated May 30, 2003, the NLRC modified the Decision affirmed and maintained.
of the Labor Arbiter and disposed as follows: SO ORDERED.9
Petitioners filed a Motion for Reconsideration, but the CA denied it via
WHEREFORE, premises considered, the appeal is its Resolution10 dated February 24, 2005.
hereby PARTIALLY GRANTED. Accordingly, the Decision appealed Hence, the instant petition for review on certiorari based on the
from is SUSTAINED subject to the modification that Complainant- following grounds:
Appellant Edgardo Belda deserves refund of his boundary-hulog in A
the amount of ₱446,862.00; and that Complainants-Appellants Danilo THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
Rojo and Danilo Laurel should be included in the computation of DISCRETION IN GIVING DUE COURSE TO THE RESPONDENTS'
Complainants-Appellants claim as follows: PETITION FOR CERTIORARI
1. THE COURT OF APPEALS SHOULD HAVE
RESPECTED THE FINDINGS OF THE LABOR
Complainants Backwages Separation Pay ARBITER AND AFFIRMED BY THE NLRC
41. Danilo Rojo ₱355,560.00 ₱48,000.00 2. ONLY ONE PETITIONER EXECUTED AND
VERIFIED THE PETITION
42. Danilo Laurel ₱357,960.00 ₱72,000.00 3. THE COURT OF APPEALS SHOULD NOT HAVE
As regards all other aspects, the Decision appealed from GIVEN DUE COURSE TO THE PETITION WITH
is SUSTAINED. RESPECT TO RESPONDENTS REX BARTOLOME,
SO ORDERED.7 FELICIANO GASCO, DANILO ROJO, EUTIQUIO
45
LUGTU, AND NELSON MONTERO AS THEY FAILED Rules, and that the case should be filed with the CA in strict
TO FILE AN APPEAL TO THE NLRC observance of the doctrine of hierarchy of courts. Moreover, it is
B already settled that under Section 9 of Batas Pambansa Blg. 129, as
THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING amended by Republic Act No. 7902, the CA — pursuant to the
THAT PETITIONERS PRINCE TRANSPORT, INC. AND MR. exercise of its original jurisdiction over petitions for certiorari — is
RENATO CLAROS AND LUBAS TRANSPORT ARE ONE AND THE specifically given the power to pass upon the evidence, if and when
SAME CORPORATION AND THUS, LIABLE IN SOLIDUM TO necessary, to resolve factual issues.13 Section 9 clearly states:
RESPONDENTS. xxxx
C The Court of Appeals shall have the power to try cases and conduct
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF hearings, receive evidence and perform any and all acts necessary to
DISCRETION IN ORDERING THE REINSTATEMENT OF resolve factual issues raised in cases falling within its original and
RESPONDENTS TO THEIR PREVIOUS POSITION WHEN IT IS appellate jurisdiction, including the power to grant and conduct new
NOT ONE OF THE ISSUES RAISED IN RESPONDENTS' PETITION trials or further proceedings. x x x
FOR CERTIORARI.11 However, equally settled is the rule that factual findings of labor
Petitioners assert that factual findings of agencies exercising quasi- officials, who are deemed to have acquired expertise in matters within
judicial functions like the NLRC are accorded not only respect but their jurisdiction, are generally accorded not only respect but even
even finality; that the CA should have outrightly dismissed the petition finality by the courts when supported by substantial evidence, i.e., the
filed before it because in certiorari proceedings under Rule 65 of the amount of relevant evidence which a reasonable mind might accept
Rules of Court it is not within the province of the CA to evaluate the as adequate to justify a conclusion.14 But these findings are not
sufficiency of evidence upon which the NLRC based its determination, infallible. When there is a showing that they were arrived at arbitrarily
the inquiry being limited essentially to whether or not said tribunal has or in disregard of the evidence on record, they may be examined by
acted without or in excess of its jurisdiction or with grave abuse of the courts.15 The CA can grant the petition for certiorari if it finds that
discretion. Petitioners assert that the CA can only pass upon the the NLRC, in its assailed decision or resolution, made a factual finding
factual findings of the NLRC if they are not supported by evidence on not supported by substantial evidence.16 It is within the jurisdiction of
record, or if the impugned judgment is based on misapprehension of the CA, whose jurisdiction over labor cases has been expanded to
facts — which circumstances are not present in this case. Petitioners review the findings of the NLRC.17
also emphasize that the NLRC and the Labor Arbiter concurred in In this case, the NLRC sustained the factual findings of the Labor
their factual findings which were based on substantial evidence and, Arbiter. Thus, these findings are generally binding on the appellate
therefore, should have been accorded great weight and respect by the court, unless there was a showing that they were arrived at arbitrarily
CA. or in disregard of the evidence on record. In respondents' petition for
Respondents, on the other hand, aver that the CA neither exceeded certiorari with the CA, these factual findings were reexamined and
its jurisdiction nor committed error in re-evaluating the NLRC’s factual reversed by the appellate court on the ground that they were not in
findings since such findings are not in accord with the evidence on accord with credible evidence presented in this case. To determine if
record and the applicable law or jurisprudence. the CA's reexamination of factual findings and reversal of the NLRC
The Court agrees with respondents. decision are proper and with sufficient basis, it is incumbent upon this
The power of the CA to review NLRC decisions via a petition for Court to make its own evaluation of the evidence on record.18
certiorari under Rule 65 of the Rules of Court has been settled as After a thorough review of the records at hand, the Court finds that the
early as this Court’s decision in St. Martin Funeral Homes v. CA did not commit error in arriving at its own findings and conclusions
NLRC.12 In said case, the Court held that the proper vehicle for such for reasons to be discussed hereunder.
review is a special civil action for certiorari under Rule 65 of the said
46
Firstly, petitioners posit that the petition filed with the CA is fatally in the petition had signed the same. Such verification is deemed a
defective, because the attached verification and certificate against sufficient assurance that the matters alleged in the petition have been
forum shopping was signed only by respondent Garcia. made in good faith or are true and correct, and not merely
The Court does not agree. speculative. Moreover, respondents' Partial Appeal shows that the
While the general rule is that the certificate of non-forum shopping appeal stipulated as complainants-appellants "Rizal Beato, et al.",
must be signed by all the plaintiffs in a case and the signature of only meaning that there were more than one appellant who were all
one of them is insufficient, the Court has stressed that the rules on workers of petitioners.
forum shopping, which were designed to promote and facilitate the In any case, the settled rule is that a pleading which is required by the
orderly administration of justice, should not be interpreted with such Rules of Court to be verified, may be given due course even without a
absolute literalness as to subvert its own ultimate and legitimate verification if the circumstances warrant the suspension of the rules in
objective.19 Strict compliance with the provision regarding the the interest of justice.24 Indeed, the absence of a verification is not
certificate of non-forum shopping underscores its mandatory nature in jurisdictional, but only a formal defect, which does not of itself justify a
that the certification cannot be altogether dispensed with or its court in refusing to allow and act on a case.25 Hence, the failure of
requirements completely disregarded.20 It does not, however, prohibit some of the respondents to sign the verification attached to their
substantial compliance therewith under justifiable circumstances, Memorandum of Appeal filed with the NLRC is not fatal to their cause
considering especially that although it is obligatory, it is not of action.
jurisdictional.21 Petitioners also contend that the CA erred in applying the doctrine of
In a number of cases, the Court has consistently held that when all piercing the corporate veil with respect to Lubas, because the said
the petitioners share a common interest and invoke a common cause doctrine is applicable only to corporations and Lubas is not a
of action or defense, the signature of only one of them in the corporation but a single proprietorship; that Lubas had been found by
certification against forum shopping substantially complies with the the Labor Arbiter and the NLRC to have a personality which is
rules.22 In the present case, there is no question that respondents separate and distinct from that of PTI; that PTI had no hand in the
share a common interest and invoke a common cause of action. management and operation as well as control and supervision of the
Hence, the signature of respondent Garcia is a sufficient compliance employees of Lubas.
with the rule governing certificates of non-forum shopping. In the first The Court is not persuaded.
place, some of the respondents actually executed a Special Power of On the contrary, the Court agrees with the CA that Lubas is a mere
Attorney authorizing Garcia as their attorney-in-fact in filing a petition agent, conduit or adjunct of PTI. A settled formulation of the doctrine
for certiorari with the CA.23 of piercing the corporate veil is that when two business enterprises
The Court, likewise, does not agree with petitioners' argument that the are owned, conducted and controlled by the same parties, both law
CA should not have given due course to the petition filed before it with and equity will, when necessary to protect the rights of third parties,
respect to some of the respondents, considering that these disregard the legal fiction that these two entities are distinct and treat
respondents did not sign the verification attached to the Memorandum them as identical or as one and the same.26 In the present case, it
of Partial Appeal earlier filed with the NLRC. Petitioners assert that may be true that Lubas is a single proprietorship and not a
the decision of the Labor Arbiter has become final and executory with corporation. However, petitioners’ attempt to isolate themselves from
respect to these respondents and, as a consequence, they are barred and hide behind the supposed separate and distinct personality of
from filing a petition for certiorari with the CA. Lubas so as to evade their liabilities is precisely what the classical
With respect to the absence of some of the workers’ signatures in the doctrine of piercing the veil of corporate entity seeks to prevent and
verification, the verification requirement is deemed substantially remedy.
complied with when some of the parties who undoubtedly have Thus, the Court agrees with the observations of the CA, to wit:
sufficient knowledge and belief to swear to the truth of the allegations
47
As correctly pointed out by petitioners, if Lubas were truly a separate and the proof even if it is not specifically sought by the injured party;
entity, how come that it was Prince Transport who made the decision the inclusion of a general prayer may justify the grant of a remedy
to transfer its employees to the former? Besides, Prince Transport different from or together with the specific remedy sought, if the facts
never regarded Lubas Transport as a separate entity. In the aforesaid alleged in the complaint and the evidence introduced so
letter, it referred to said entity as "Lubas operations." Moreover, in warrant.321avvphi1
said letter, it did not transfer the employees; it "assigned" them. Lastly, Moreover, in BPI Family Bank v. Buenaventura,33 this Court ruled that
the existing funds and 201 file of the employees were turned over not the general prayer is broad enough "to justify extension of a remedy
to a new company but a "new management."27 different from or together with the specific remedy sought." Even
The Court also agrees with respondents that if Lubas is indeed an without the prayer for a specific remedy, proper relief may be granted
entity separate and independent from PTI why is it that the latter by the court if the facts alleged in the complaint and the evidence
decides which employees shall work in the former? introduced so warrant. The court shall grant relief warranted by the
What is telling is the fact that in a memorandum issued by PTI, dated allegations and the proof even if no such relief is prayed for. The
January 22, 1998, petitioner company admitted that Lubas is one of prayer in the complaint for other reliefs equitable and just in the
its sub-companies.28 In addition, PTI, in its letters to its employees premises justifies the grant of a relief not otherwise specifically prayed
who were transferred to Lubas, referred to the latter as its "New City for.34 In the instant case, aside from their specific prayer for
Operations Bus."29 reinstatement, respondents, in their separate complaints, prayed for
Moreover, petitioners failed to refute the contention of respondents such reliefs which are deemed just and equitable.
that despite the latter’s transfer to Lubas of their daily time records, As to whether petitioners are guilty of unfair labor practice, the Court
reports, daily income remittances of conductors, schedule of drivers finds no cogent reason to depart from the findings of the CA that
and conductors were all made, performed, filed and kept at the office respondents’ transfer of work assignments to Lubas was designed by
of PTI. In fact, respondents’ identification cards bear the name of PTI. petitioners as a subterfuge to foil the former’s right to organize
It may not be amiss to point out at this juncture that in two separate themselves into a union. Under Article 248 (a) and (e) of the Labor
illegal dismissal cases involving different groups of employees Code, an employer is guilty of unfair labor practice if it interferes with,
transferred by PTI to other companies, the Labor Arbiter handling the restrains or coerces its employees in the exercise of their right to self-
cases found that these companies and PTI are one and the same organization or if it discriminates in regard to wages, hours of work
entity; thus, making them solidarily liable for the payment of and other terms and conditions of employment in order to encourage
backwages and other money claims awarded to the complainants or discourage membership in any labor organization.
therein.30 Indeed, evidence of petitioners' unfair labor practice is shown by the
Petitioners likewise aver that the CA erred and committed grave established fact that, after respondents' transfer to Lubas, petitioners
abuse of discretion when it ordered petitioners to reinstate left them high and dry insofar as the operations of Lubas was
respondents to their former positions, considering that the issue of concerned. The Court finds no error in the findings and conclusion of
reinstatement was never brought up before it and respondents never the CA that petitioners "withheld the necessary financial and logistic
questioned the award of separation pay to them. support such as spare parts, and repair and maintenance of the
The Court is not persuaded. transferred buses until only two units remained in running condition."
It is clear from the complaints filed by respondents that they are This left respondents virtually jobless.
seeking reinstatement.31 WHEREFORE, the instant petition is denied. The assailed Decision
In any case, Section 2 (c), Rule 7 of the Rules of Court provides that a and Resolution of the Court of Appeals, dated December 20, 2004
pleading shall specify the relief sought, but may add a general prayer and February 24, 2005, respectively, in CA-G.R. SP No. 80953, are
for such further or other reliefs as may be deemed just and equitable. AFFIRMED.
Under this rule, a court can grant the relief warranted by the allegation SO ORDERED.
48
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ANTONIO EDUARDO B.
ROBERTO A. ABAD
NACHURA
Associate Justice
Associate Justice  
________________________**
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
ANTONIO T. CARPIO
Associate Justice
Second Division, Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson’s Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
RENATO C. CORONA
Chief Justice

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 171993               December 12, 2011
MARC II MARKETING, INC. and LUCILA V. JOSON, Petitioners,
vs.
ALFREDO M. JOSON, Respondent.
DECISION
PEREZ, J.:

49
In this Petition for Review on Certiorari under Rule 45 of the Rules of petitioner corporation. It was formalized through the execution of a
Court, herein petitioners Marc II Marketing, Inc. and Lucila V. Joson Management Contract7 dated 16 January 1994 under the letterhead of
assailed the Decision1 dated 20 June 2005 of the Court of Appeals in Marc Marketing, Inc.8 as petitioner corporation is yet to be
CA-G.R. SP No. 76624 for reversing and setting aside the incorporated at the time of its execution. It was explicitly provided
Resolution2 of the National Labor Relations Commission (NLRC) therein that respondent shall be entitled to 30% of its net income for
dated 15 October 2002, thereby affirming the Labor Arbiter’s his work as General Manager. Respondent will also be granted 30%
Decision3 dated 1 October 2001 finding herein respondent Alfredo M. of its net profit to compensate for the possible loss of opportunity to
Joson’s dismissal from employment as illegal. In the questioned work overseas.9
Decision, the Court of Appeals upheld the Labor Arbiter’s jurisdiction
over the case on the basis that respondent was not an officer but a Pending incorporation of petitioner corporation, respondent was
mere employee of petitioner Marc II Marketing, Inc., thus, totally designated as the General Manager of Marc Marketing, Inc., which
disregarding the latter’s allegation of intra-corporate controversy. was then in the process of winding up its business. For occupying the
Nonetheless, the Court of Appeals remanded the case to the NLRC said position, respondent was among its corporate officers by the
for further proceedings to determine the proper amount of monetary express provision of Section 1, Article IV10 of its by-laws.11
awards that should be given to respondent.
On 15 August 1994, petitioner corporation was officially incorporated
Assailed as well is the Court of Appeals Resolution4 dated 7 March and registered with the SEC. Accordingly, Marc Marketing, Inc. was
2006 denying their Motion for Reconsideration. made non-operational. Respondent continued to discharge his duties
as General Manager but this time under petitioner corporation.
Petitioner Marc II Marketing, Inc. (petitioner corporation) is a
corporation duly organized and existing under and by virtue of the Pursuant to Section 1, Article IV12 of petitioner corporation’s by-
laws of the Philippines. It is primarily engaged in buying, marketing, laws,13 its corporate officers are as follows: Chairman, President, one
selling and distributing in retail or wholesale for export or import or more Vice-President(s), Treasurer and Secretary. Its Board of
household appliances and products and other items.5 It took over the Directors, however, may, from time to time, appoint such other officers
business operations of Marc Marketing, Inc. which was made non- as it may determine to be necessary or proper.
operational following its incorporation and registration with the
Securities and Exchange Commission (SEC). Petitioner Lucila V. Per an undated Secretary’s Certificate,14 petitioner corporation’s
Joson (Lucila) is the President and majority stockholder of petitioner Board of Directors conducted a meeting on 29 August 1994 where
corporation. She was also the former President and majority respondent was appointed as one of its corporate officers with the
stockholder of the defunct Marc Marketing, Inc. designation or title of General Manager to function as a managing
director with other duties and responsibilities that the Board of
Respondent Alfredo M. Joson (Alfredo), on the other hand, was the Directors may provide and authorized.15
General Manager, incorporator, director and stockholder of petitioner
corporation. Nevertheless, on 30 June 1997, petitioner corporation decided to stop
and cease its operations, as evidenced by an Affidavit of Non-
The controversy of this case arose from the following factual milieu: Operation16 dated 31 August 1998, due to poor sales collection
aggravated by the inefficient management of its affairs. On the same
Before petitioner corporation was officially incorporated,6 respondent date, it formally informed respondent of the cessation of its business
has already been engaged by petitioner Lucila, in her capacity as operation. Concomitantly, respondent was apprised of the termination
President of Marc Marketing, Inc., to work as the General Manager of
50
of his services as General Manager since his services as such would to submit the same. Accordingly, the case was submitted for
no longer be necessary for the winding up of its affairs.17 resolution.

Feeling aggrieved, respondent filed a Complaint for Reinstatement On 1 October 2001, the Labor Arbiter rendered his Decision in favor
and Money Claim against petitioners before the Labor Arbiter which of respondent. Its decretal portion reads as follows:
was docketed as NLRC NCR Case No. 00-03-04102-99.
WHEREFORE, premises considered, judgment is hereby rendered
In his complaint, respondent averred that petitioner Lucila dismissed declaring [respondent’s] dismissal from employment illegal.
him from his employment with petitioner corporation due to the feeling Accordingly, [petitioners] are hereby ordered:
of hatred she harbored towards his family. The same was rooted in
the filing by petitioner Lucila’s estranged husband, who happened to 1. To reinstate [respondent] to his former or equivalent position
be respondent’s brother, of a Petition for Declaration of Nullity of their without loss of seniority rights, benefits, and privileges;
Marriage.18
2. Jointly and severally liable to pay [respondent’s] unpaid
For the parties’ failure to settle the case amicably, the Labor Arbiter wages in the amount of ₱450,000.00 per month from [26
required them to submit their respective position papers. Respondent March 1996] up to time of dismissal in the total amount of
complied but petitioners opted to file a Motion to Dismiss grounded on ₱6,300,000.00;
the Labor Arbiter’s lack of jurisdiction as the case involved an intra-
corporate controversy, which jurisdiction belongs to the SEC [now 3. Jointly and severally liable to pay [respondent’s] full
with the Regional Trial Court (RTC)].19 Petitioners similarly raised backwages in the amount of ₱450,000.00 per month from date
therein the ground of prescription of respondent’s monetary claim. of dismissal until actual reinstatement which at the time of
promulgation amounted to ₱21,600,000.00;
On 5 September 2000, the Labor Arbiter issued an Order20 deferring
the resolution of petitioners’ Motion to Dismiss until the final 4. Jointly and severally liable to pay moral damages in the
determination of the case. The Labor Arbiter also reiterated his amount of ₱100,000.00 and attorney’s fees in the amount of
directive for petitioners to submit position paper. Still, petitioners did 5% of the total monetary award.22 [Emphasis supplied.]
not comply. Insisting that the Labor Arbiter has no jurisdiction over the
case, they instead filed an Urgent Motion to Resolve the Motion to In the aforesaid Decision, the Labor Arbiter initially resolved
Dismiss and the Motion to Suspend Filing of Position Paper. petitioners’ Motion to Dismiss by finding the ground of lack of
jurisdiction to be without merit. The Labor Arbiter elucidated that
In an Order21 dated 15 February 2001, the Labor Arbiter denied both petitioners failed to adduce evidence to prove that the present case
motions and declared final the Order dated 5 September 2000. The involved an intra-corporate controversy. Also, respondent’s money
Labor Arbiter then gave petitioners a period of five days from receipt claim did not arise from his being a director or stockholder of
thereof within which to file position paper, otherwise, their Motion to petitioner corporation but from his position as being its General
Dismiss will be treated as their position paper and the case will be Manager. The Labor Arbiter likewise held that respondent was not a
considered submitted for decision. corporate officer under petitioner corporation’s by-laws. As such,
respondent’s complaint clearly arose from an employer-employee
Petitioners, through counsel, moved for extension of time to submit relationship, thus, subject to the Labor Arbiter’s jurisdiction.
position paper. Despite the requested extension, petitioners still failed

51
The Labor Arbiter then declared respondent’s dismissal from with the Court of Appeals ascribing grave abuse of discretion on the
employment as illegal. Respondent, being a regular employee of part of the NLRC.
petitioner corporation, may only be dismissed for a valid cause and
upon proper compliance with the requirements of due process. The On 20 June 2005, the Court of Appeals rendered its now assailed
records, though, revealed that petitioners failed to present any Decision declaring that the Labor Arbiter has jurisdiction over the
evidence to justify respondent’s dismissal. present controversy. It upheld the finding of the Labor Arbiter that
respondent was a mere employee of petitioner corporation, who has
Aggrieved, petitioners appealed the aforesaid Labor Arbiter’s Decision been illegally dismissed from employment without valid cause and
to the NLRC. without due process. Nevertheless, it ordered the records of the case
remanded to the NLRC for the determination of the appropriate
In its Resolution dated 15 October 2002, the NLRC ruled in favor of amount of monetary awards to be given to respondent. The Court of
petitioners by giving credence to the Secretary’s Certificate, which Appeals, thus, decreed:
evidenced petitioner corporation’s Board of Directors’ meeting in
which a resolution was approved appointing respondent as its WHEREFORE, the petition is by us PARTIALLY GRANTED. The
corporate officer with designation as General Manager. Therefrom, Labor Arbiter is DECLARED to have jurisdiction over the controversy.
the NLRC reversed and set aside the Labor Arbiter’s Decision dated 1 The records are REMANDED to the NLRC for further proceedings to
October 2001 and dismissed respondent’s Complaint for want of determine the appropriate amount of monetary awards to be adjudged
jurisdiction.23 in favor of [respondent]. Costs against the [petitioners] in solidum.26

The NLRC enunciated that the validity of respondent’s appointment Petitioners moved for its reconsideration but to no avail.27
and termination from the position of General Manager was made
subject to the approval of petitioner corporation’s Board of Directors. Petitioners are now before this Court with the following assignment of
Had respondent been an ordinary employee, such board action would errors:
not have been required. As such, it is clear that respondent was a
corporate officer whose dismissal involved a purely intra-corporate THE COURT OF APPEALS ERRED AND COMMITTED
controversy. The NLRC went further by stating that respondent’s GRAVE ABUSE OF DISCRETION IN DECIDING THAT THE
claim for 30% of the net profit of the corporation can only emanate NLRC HAS THE JURISDICTION IN RESOLVING A PURELY
from his right of ownership therein as stockholder, director and/or INTRA-CORPORATE MATTER WHICH IS COGNIZABLE BY
corporate officer. Dividends or profits are paid only to stockholders or THE SECURITIES AND EXCHANGE
directors of a corporation and not to any ordinary employee in the COMMISSION/REGIONAL TRIAL COURT.
absence of any profit sharing scheme. In addition, the question of
remuneration of a person who is not a mere employee but a ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS
stockholder and officer of a corporation is not a simple labor problem. JURISDICTION OVER THE CASE, STILL THE COURT OF
Such matter comes within the ambit of corporate affairs and APPEALS SERIOUSLY ERRED IN NOT RULING THAT
management and is an intra-corporate controversy in contemplation of THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP
the Corporation Code.24 BETWEEN [RESPONDENT] ALFREDO M. JOSON AND
MARC II MARKETING, INC. [PETITIONER CORPORATION].
When respondent’s Motion for Reconsideration was denied in another
Resolution25 dated 23 January 2003, he filed a Petition for Certiorari

52
ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS of petitioner corporation was based on his capacity as such and not
JURISDICTION OVER THE CASE, THE COURT OF by virtue of any employer-employee relationship.
APPEALS ERRED IN NOT RULING THAT THE LABOR
ARBITER COMMITTED GRAVE ABUSE OF DISCRETION IN Petitioners further avow that even if the present case does not pose
AWARDING MULTI-MILLION PESOS IN COMPENSATION an intra-corporate controversy, still, the Labor Arbiter’s multi-million
AND BACKWAGES BASED ON THE PURPORTED GROSS peso awards in favor of respondent were erroneous. The same was
INCOME OF [PETITIONER CORPORATION]. merely based on the latter’s self-serving computations without any
supporting documents.
THE COURT OF APPEALS SERIOUSLY ERRED AND
COMMITTED GRAVE ABUSE OF DISCRETION IN NOT Finally, petitioners maintain that petitioner Lucila cannot be held
MAKING ANY FINDINGS AND RULING THAT [PETITIONER solidarily liable with petitioner corporation. There was neither
LUCILA] SHOULD NOT BE HELD SOLIDARILY LIABLE IN allegation nor iota of evidence presented to show that she acted with
THE ABSENCE OF EVIDENCE OF MALICE AND BAD FAITH malice and bad faith in her dealings with respondent. Moreover, the
ON HER PART.28 Labor Arbiter, in his Decision, simply concluded that petitioner Lucila
was jointly and severally liable with petitioner corporation without
Petitioners fault the Court of Appeals for having sustained the Labor making any findings thereon. It was, therefore, an error for the Court
Arbiter’s finding that respondent was not a corporate officer under of Appeals to hold petitioner Lucila solidarily liable with petitioner
petitioner corporation’s by-laws. They insist that there is no need to corporation.
amend the corporate by-laws to specify who its corporate officers are.
The resolution issued by petitioner corporation’s Board of Directors From the foregoing arguments, the initial question is which between
appointing respondent as General Manager, coupled with his the Labor Arbiter or the RTC, has jurisdiction over respondent’s
assumption of the said position, positively made him its corporate dismissal as General Manager of petitioner corporation. Its resolution
officer. More so, respondent’s position, being a creation of petitioner necessarily entails the determination of whether respondent as
corporation’s Board of Directors pursuant to its by-laws, is a corporate General Manager of petitioner corporation is a corporate officer or a
office sanctioned by the Corporation Code and the doctrines mere employee of the latter.
previously laid down by this Court. Thus, respondent’s removal as
petitioner corporation’s General Manager involved a purely intra- While Article 217(a)229 of the Labor Code, as amended, provides that
corporate controversy over which the RTC has jurisdiction. it is the Labor Arbiter who has the original and exclusive jurisdiction
over cases involving termination or dismissal of workers when the
Petitioners further contend that respondent’s claim for 30% of the net person dismissed or terminated is a corporate officer, the case
profit of petitioner corporation was anchored on the purported automatically falls within the province of the RTC. The dismissal of a
Management Contract dated 16 January 1994. It should be noted, corporate officer is always regarded as a corporate act and/or an
however, that said Management Contract was executed at the time intra-corporate controversy.30
petitioner corporation was still nonexistent and had no juridical
personality yet. Such being the case, respondent cannot invoke any Under Section 531 of Presidential Decree No. 902-A, intra-corporate
legal right therefrom as it has no legal and binding effect on petitioner controversies are those controversies arising out of intra-corporate or
corporation. Moreover, it is clear from the Articles of Incorporation of partnership relations, between and among stockholders, members or
petitioner corporation that respondent was its director and associates; between any or all of them and the corporation,
stockholder. Indubitably, respondent’s claim for his share in the profit partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership
53
or association and the State insofar as it concerns their individual the corporation who also determines the compensation to be paid to
franchise or right to exist as such entity. It also includes such employee.
controversies in the election or appointments of directors,
trustees, officers or managers of such corporations, partnerships xxxx
or associations.32
This interpretation is the correct application of Section 25 of the
Accordingly, in determining whether the SEC (now the RTC) has Corporation Code, which plainly states that the corporate officers are
jurisdiction over the controversy, the status or relationship of the the President, Secretary, Treasurer and such other officers as may be
parties and the nature of the question that is the subject of their provided for in the [b]y-[l]aws. Accordingly, the corporate officers in
controversy must be taken into consideration.33 the context of PD No. 902-A are exclusively those who are given that
character either by the Corporation Code or by the corporation’s
In Easycall Communications Phils., Inc. v. King, this Court held that in [b]y[l]aws.
the context of Presidential Decree No. 902-A, corporate officers are
those officers of a corporation who are given that character either by A different interpretation can easily leave the way open for the Board
the Corporation Code or by the corporation’s by-laws. Section 2534 of of Directors to circumvent the constitutionally guaranteed security of
the Corporation Code specifically enumerated who are these tenure of the employee by the expedient inclusion in the [b]y-[l]aws of
corporate officers, to wit: (1) president; (2) secretary; (3) treasurer; an enabling clause on the creation of just any corporate officer
and (4) such other officers as may be provided for in the by-laws.35 position.

The aforesaid Section 25 of the Corporation Code, particularly the It is relevant to state in this connection that the SEC, the primary
phrase "such other officers as may be provided for in the by-laws," agency administering the Corporation Code, adopted a similar
has been clarified and elaborated in this Court’s recent interpretation of Section 25 of the Corporation Code in its Opinion
pronouncement in Matling Industrial and Commercial Corporation v. dated November 25, 1993 [citation omitted], to wit:
Coros, where it held, thus:
Thus, pursuant to the above provision (Section 25 of the Corporation
Conformably with Section 25, a position must be expressly mentioned Code), whoever are the corporate officers enumerated in the by-laws
in the [b]y-[l]aws in order to be considered as a corporate office. Thus, are the exclusive Officers of the corporation and the Board has no
the creation of an office pursuant to or under a [b]y-[l]aw enabling power to create other Offices without amending first the corporate
provision is not enough to make a position a corporate office. [In] [b]y-laws. However, the Board may create appointive positions
Guerrea v. Lezama [citation omitted] the first ruling on the matter, held other than the positions of corporate Officers, but the persons
that the only officers of a corporation were those given that character occupying such positions are not considered as corporate
either by the Corporation Code or by the [b]y-[l]aws; the rest of the officers within the meaning of Section 25 of the Corporation
corporate officers could be considered only as employees or Code and are not empowered to exercise the functions of the
subordinate officials. Thus, it was held in Easycall Communications corporate Officers, except those functions lawfully delegated to them.
Phils., Inc. v. King [citation omitted]: Their functions and duties are to be determined by the Board of
Directors/Trustees.36 [Emphasis supplied.]
An "office" is created by the charter of the corporation and the officer
is elected by the directors or stockholders. On the other hand, an A careful perusal of petitioner corporation’s by-laws, particularly
employee occupies no office and generally is employed not by the paragraph 1, Section 1, Article IV,37 would explicitly reveal that its
action of the directors or stockholders but by the managing officer of
54
corporate officers are composed only of: (1) Chairman; (2) President; corporate by-laws of an enabling clause empowering the board of
(3) one or more Vice-President; (4) Treasurer; and (5) directors to do so can result in the circumvention of that
Secretary.38 The position of General Manager was not among those constitutionally well-protected right.41
enumerated.
It is also of no moment that respondent, being petitioner corporation’s
Paragraph 2, Section 1, Article IV of petitioner corporation’s by-laws, General Manager, was given the functions of a managing director by
empowered its Board of Directors to appoint such other officers as it its Board of Directors. As held in Matling, the only officers of a
may determine necessary or proper.39 It is by virtue of this enabling corporation are those given that character either by the Corporation
provision that petitioner corporation’s Board of Directors allegedly Code or by the corporate by-laws. It follows then that the corporate
approved a resolution to make the position of General Manager a officers enumerated in the by-laws are the exclusive officers of the
corporate office, and, thereafter, appointed respondent thereto making corporation while the rest could only be regarded as mere employees
him one of its corporate officers. All of these acts were done without or subordinate officials.42 Respondent, in this case, though occupying
first amending its by-laws so as to include the General Manager in its a high ranking and vital position in petitioner corporation but which
roster of corporate officers. position was not specifically enumerated or mentioned in the latter’s
by-laws, can only be regarded as its employee or subordinate official.
With the given circumstances and in conformity with Matling Industrial Noticeably, respondent’s compensation as petitioner corporation’s
and Commercial Corporation v. Coros, this Court rules that General Manager was set, fixed and determined not by the latter’s
respondent was not a corporate officer of petitioner corporation Board of Directors but simply by its President, petitioner Lucila. The
because his position as General Manager was not specifically same was not subject to the approval of petitioner corporation’s Board
mentioned in the roster of corporate officers in its corporate by-laws. of Directors. This is an indication that respondent was an employee
The enabling clause in petitioner corporation’s by-laws empowering its and not a corporate officer.
Board of Directors to create additional officers, i.e., General Manager,
and the alleged subsequent passage of a board resolution to that To prove that respondent was petitioner corporation’s corporate
effect cannot make such position a corporate office. Matling clearly officer, petitioners presented before the NLRC an undated Secretary’s
enunciated that the board of directors has no power to create other Certificate showing that corporation’s Board of Directors approved a
corporate offices without first amending the corporate by-laws so as to resolution making respondent’s position of General Manager a
include therein the newly created corporate office. Though the board corporate office. The submission, however, of the said undated
of directors may create appointive positions other than the positions of Secretary’s Certificate will not change the fact that respondent was an
corporate officers, the persons occupying such positions cannot be employee. The certification does not amount to an amendment of the
viewed as corporate officers under Section 25 of the Corporation by-laws which is needed to make the position of General Manager a
Code.40 In view thereof, this Court holds that unless and until corporate office.
petitioner corporation’s by-laws is amended for the inclusion of
General Manager in the list of its corporate officers, such position Moreover, as has been aptly observed by the Court of Appeals, the
cannot be considered as a corporate office within the realm of Section board resolution mentioned in that undated Secretary’s Certificate and
25 of the Corporation Code. the latter itself were obvious fabrications, a mere afterthought. Here
we quote with conformity the Court of Appeals findings on this matter
This Court considers that the interpretation of Section 25 of the stated in this wise:
Corporation Code laid down in Matling safeguards the constitutionally
enshrined right of every employee to security of tenure. To allow the The board resolution is an obvious fabrication. Firstly, if it had been in
creation of a corporate officer position by a simple inclusion in the existence since [29 August 1994], why did not [herein petitioners]
55
attach it to their [M]otion to [D]ismiss filed on [26 August 1999], when To reiterate, not all conflicts between the stockholders and the
it could have been the best evidence that [herein respondent] was a corporation are classified as intra-corporate. Other factors such as the
corporate officer? Secondly, why did they report the [respondent] status or relationship of the parties and the nature of the question that
instead as [herein petitioner corporation’s] employee to the Social is the subject of the controversy44 must be considered in determining
Security System [(SSS)] on [11 October 1994] or a later date than whether the dispute involves corporate matters so as to regard them
their [29 August 1994] board resolution? Thirdly, why is there no as intra-corporate controversies.45 As previously discussed,
indication that the [respondent], the person concerned himself, and respondent was not a corporate officer of petitioner corporation but a
the [SEC] were furnished with copies of said board resolution? And, mere employee thereof so there was no intra-corporate relationship
lastly, why is the corporate [S]ecretary’s [C]ertificate not notarized in between them. With regard to the subject of the controversy or issue
keeping with the customary procedure? That is why we called it involved herein, i.e., respondent’s dismissal as petitioner corporation’s
manipulative evidence as it was a shameless sham meant to be General Manager, the same did not present or relate to an intra-
thrown in as a wild card to muddle up the [D]ecision of the Labor corporate dispute. To note, there was no evidence submitted to show
Arbiter to the end that it be overturned as the latter had firmly pointed that respondent’s removal as petitioner corporation’s General
out that [respondent] is not a corporate officer under [petitioner Manager carried with it his removal as its director and stockholder.
corporation’s by-laws]. Regrettably, the [NLRC] swallowed the bait Also, petitioners’ allegation that respondent’s claim of 30% share of
hook-line-and sinker. It failed to see through its nature as a belatedly petitioner corporation’s net profit was by reason of his being its
manufactured evidence. And even on the assumption that it were an director and stockholder was without basis, thus, self-serving. Such
authentic board resolution, it did not make [respondent] a corporate an allegation was tantamount to a mere speculation for petitioners’
officer as the board did not first and properly create the position of a failure to substantiate the same.
[G]eneral [M]anager by amending its by-laws.
In addition, it was not shown by petitioners that the position of General
(2) The scope of the term "officer" in the phrase "and such Manager was offered to respondent on account of his being petitioner
other officers as may be provided for in the by-laws["] (Sec. 25, corporation’s director and stockholder. Also, in contrast to NLRC’s
par. 1), would naturally depend much on the provisions of the findings, neither petitioner corporation’s by-laws nor the Management
by-laws of the corporation. (SEC Opinion, [4 December 1991.]) Contract stated that respondent’s appointment and termination from
If the by-laws enumerate the officers to be elected by the the position of General Manager was subject to the approval of
board, the provision is conclusive, and the board is without petitioner corporation’s Board of Directors. If, indeed, respondent was
power to create new offices without amending the by-laws. a corporate officer whose termination was subject to the approval of
(SEC Opinion, [19 October 1971.]) its Board of Directors, why is it that his termination was effected only
by petitioner Lucila, President of petitioner corporation? The records
(3) If, for example, the general manager of a corporation is not are bereft of any evidence to show that respondent’s dismissal was
listed as an officer, he is to be classified as an employee done with the conformity of petitioner corporation’s Board of Directors
although he has always been considered as one of the or that the latter had a hand on respondent’s dismissal. No board
principal officers of a corporation [citing De Leon, H. S., The resolution whatsoever was ever presented to that effect.
Corporation Code of the Philippines Annotated, 1993 Ed., p.
215.]43 [Emphasis supplied.] With all the foregoing, this Court is fully convinced that, indeed,
respondent, though occupying the General Manager position, was not
That respondent was also a director and a stockholder of petitioner a corporate officer of petitioner corporation rather he was merely its
corporation will not automatically make the case fall within the ambit employee occupying a high-ranking position.
of intra-corporate controversy and be subjected to RTC’s jurisdiction.
56
Accordingly, respondent’s dismissal as petitioner corporation’s (6) months shall be considered one (1) whole year. [Emphasis
General Manager did not amount to an intra-corporate controversy. supplied.]
Jurisdiction therefor properly belongs with the Labor Arbiter and not
with the RTC. From the afore-quoted provision, the closure or cessation of
operations of establishment or undertaking may either be due to
Having established that respondent was not petitioner corporation’s serious business losses or financial reverses or otherwise. If the
corporate officer but merely its employee, and that, consequently, closure or cessation was due to serious business losses or financial
jurisdiction belongs to the Labor Arbiter, this Court will now determine reverses, it is incumbent upon the employer to sufficiently and
if respondent’s dismissal from employment is illegal. convincingly prove the same. If it is otherwise, the employer can
lawfully close shop anytime as long as it was bona fide in character
It was not disputed that respondent worked as petitioner corporation’s and not impelled by a motive to defeat or circumvent the tenurial
General Manager from its incorporation on 15 August 1994 until he rights of employees and as long as the terminated employees were
was dismissed on 30 June 1997. The cause of his dismissal was paid in the amount corresponding to their length of service.47
petitioner corporation’s cessation of business operations due to poor
sales collection aggravated by the inefficient management of its Accordingly, under Article 283 of the Labor Code, as amended, there
affairs. are three requisites for a valid cessation of business operations: (a)
service of a written notice to the employees and to the Department of
In termination cases, the burden of proving just and valid cause for Labor and Employment (DOLE) at least one month before the
dismissing an employee from his employment rests upon the intended date thereof; (b) the cessation of business must be bona fide
employer. The latter's failure to discharge that burden would in character; and (c) payment to the employees of termination pay
necessarily result in a finding that the dismissal is unjustified.46 amounting to one month pay or at least one-half month pay for every
year of service, whichever is higher.
Under Article 283 of the Labor Code, as amended, one of the
authorized causes in terminating the employment of an employee is In this case, it is obvious that petitioner corporation’s cessation of
the closing or cessation of operation of the establishment or business operations was not due to serious business losses. Mere
undertaking. Article 283 of the Labor Code, as amended, reads, thus: poor sales collection, coupled with mismanagement of its affairs does
not amount to serious business losses. Nonetheless, petitioner
ART. 283. Closure of establishment and reduction of personnel. – The corporation can still validly cease or close its business operations
employer may also terminate the employment of any employee due to because such right is legally allowed, so long as it was not done for
the installation of labor saving-devices, redundancy, retrenchment to the purpose of circumventing the provisions on termination of
prevent losses or the closing or cessation of operation of the employment embodied in the Labor Code.48 As has been stressed by
establishment or undertaking unless the closing is for the purpose of this Court in Industrial Timber Corporation v. Ababon, thus:
circumventing the provisions of this Title, by serving a written notice
on the workers and the Department of Labor and Employment at least Just as no law forces anyone to go into business, no law can compel
one (1) month before the intended date thereof. x x x In case of anybody to continue the same. It would be stretching the intent and
retrenchment to prevent losses and in cases of closures or cessation spirit of the law if a court interferes with management's prerogative to
of operations of establishment or undertaking not due to serious close or cease its business operations just because the business is
business losses or financial reverses, the separation pay shall be not suffering from any loss or because of the desire to provide the
equivalent to one (1) month pay or to at least one-half (1/2) month pay workers continued employment.49
for every year of service, whichever is higher. A fraction of at least six
57
A careful perusal of the records revealed that, indeed, petitioner As previously discussed, respondent’s dismissal was due to an
corporation has stopped and ceased business operations beginning authorized cause, however, petitioner corporation failed to observe
30 June 1997. This was evidenced by a notarized Affidavit of Non- procedural due process in effecting such dismissal. In Culili v. Eastern
Operation dated 31 August 1998. There was also no showing that the Telecommunications Philippines, Inc.,52 this Court made the following
cessation of its business operations was done in bad faith or to pronouncements, thus:
circumvent the Labor Code. Nevertheless, in doing so, petitioner
corporation failed to comply with the one-month prior written notice x x x there are two aspects which characterize the concept of due
rule. The records disclosed that respondent, being petitioner process under the Labor Code: one is substantive — whether the
corporation’s employee, and the DOLE were not given a written notice termination of employment was based on the provision of the Labor
at least one month before petitioner corporation ceased its business Code or in accordance with the prevailing jurisprudence; the other is
operations. Moreover, the records clearly show that respondent’s procedural — the manner in which the dismissal was effected.
dismissal was effected on the same date that petitioner corporation
decided to stop and cease its operation. Similarly, respondent was not Section 2(d), Rule I, Book VI of the Rules Implementing the Labor
paid separation pay upon termination of his employment. Code provides:

As respondent’s dismissal was not due to serious business losses, (d) In all cases of termination of employment, the following standards
respondent is entitled to payment of separation pay equivalent to one of due process shall be substantially observed:
month pay or at least one-half month pay for every year of service,
whichever is higher. The rationale for this was laid down in Reahs xxxx
Corporation v. National Labor Relations Commission,50 thus:
For termination of employment as defined in Article 283 of the Labor
The grant of separation pay, as an incidence of termination of Code, the requirement of due process shall be deemed complied with
employment under Article 283, is a statutory obligation on the part of upon service of a written notice to the employee and the appropriate
the employer and a demandable right on the part of the employee, Regional Office of the Department of Labor and Employment at least
except only where the closure or cessation of operations was due to thirty days before effectivity of the termination, specifying the ground
serious business losses or financial reverses and there is sufficient or grounds for termination.
proof of this fact or condition. In the absence of such proof of serious
business losses or financial reverses, the employer closing his In Mayon Hotel & Restaurant v. Adana, [citation omitted] we
business is obligated to pay his employees and workers their observed:
separation pay.
The requirement of law mandating the giving of notices was intended
The rule, therefore, is that in all cases of business closure or not only to enable the employees to look for another employment and
cessation of operation or undertaking of the employer, the affected therefore ease the impact of the loss of their jobs and the
employee is entitled to separation pay. This is consistent with the corresponding income, but more importantly, to give the Department
state policy of treating labor as a primary social economic force, of Labor and Employment (DOLE) the opportunity to ascertain the
affording full protection to its rights as well as its welfare. The verity of the alleged authorized cause of termination.53 [Emphasis
exception is when the closure of business or cessation of operations supplied].
is due to serious business losses or financial reverses duly proved, in
which case, the right of affected employees to separation pay is lost
for obvious reasons.51 [Emphasis supplied.]
58
The records of this case disclosed that there was absolutely no written Accordingly, it is wise to hold that: (1) if the dismissal is based on a
notice given by petitioner corporation to the respondent and to the just cause under Article 282 but the employer failed to comply with the
DOLE prior to the cessation of its business operations. This is evident notice requirement, the sanction to be imposed upon him should be
from the fact that petitioner corporation effected respondent’s tempered because the dismissal process was, in effect, initiated by an
dismissal on the same date that it decided to stop and cease its act imputable to the employee; and (2) if the dismissal is based on an
business operations. The necessary consequence of such failure to authorized cause under Article 283 but the employer failed to comply
comply with the one-month prior written notice rule, which constitutes with the notice requirement, the sanction should be stiffer because the
a violation of an employee’s right to statutory due process, is the dismissal process was initiated by the employer's exercise of his
payment of indemnity in the form of nominal damages.54 In Culili v. management prerogative.55 [Emphasis supplied.]
Eastern Telecommunications Philippines, Inc., this Court further held:
Thus, in addition to separation pay, respondent is also entitled to an
In Serrano v. National Labor Relations Commission [citation omitted], award of nominal damages. In conformity with this Court’s ruling in
we noted that "a job is more than the salary that it carries." There is a Culili v. Eastern Telecommunications Philippines, Inc. and Shimizu
psychological effect or a stigma in immediately finding one’s self laid Phils. Contractors, Inc. v. Callanta, both citing Jaka Food Processing
off from work. This is exactly why our labor laws have provided for Corporation v. Pacot,56 this Court fixed the amount of nominal
mandating procedural due process clauses. Our laws, while damages to ₱50,000.00.
recognizing the right of employers to terminate employees it cannot
sustain, also recognize the employee’s right to be properly informed of With respect to petitioners’ contention that the Management Contract
the impending severance of his ties with the company he is working executed between respondent and petitioner Lucila has no binding
for. x x x. effect on petitioner corporation for having been executed way before
its incorporation, this Court finds the same meritorious.
x x x Over the years, this Court has had the opportunity to reexamine
the sanctions imposed upon employers who fail to comply with the Section 19 of the Corporation Code expressly provides:
procedural due process requirements in terminating its employees. In
Agabon v. National Labor Relations Commission [citation omitted], Sec. 19. Commencement of corporate existence. - A private
this Court reverted back to the doctrine in Wenphil Corporation v. corporation formed or organized under this Code commences to have
National Labor Relations Commission [citation omitted] and held that corporate existence and juridical personality and is deemed
where the dismissal is due to a just or authorized cause, but without incorporated from the date the Securities and Exchange Commission
observance of the due process requirements, the dismissal may be issues a certificate of incorporation under its official seal; and
upheld but the employer must pay an indemnity to the employee. The thereupon the incorporators, stockholders/members and their
sanctions to be imposed however, must be stiffer than those imposed successors shall constitute a body politic and corporate under the
in Wenphil to achieve a result fair to both the employers and the name stated in the articles of incorporation for the period of time
employees. mentioned therein, unless said period is extended or the corporation
is sooner dissolved in accordance with law. [Emphasis supplied.]
In Jaka Food Processing Corporation v. Pacot [citation omitted], this
Court, taking a cue from Agabon, held that since there is a clear-cut Logically, there is no corporation to speak of prior to an entity’s
distinction between a dismissal due to a just cause and a dismissal incorporation. And no contract entered into before incorporation can
due to an authorized cause, the legal implications for employers who bind the corporation.
fail to comply with the notice requirements must also be treated
differently:
59
As can be gleaned from the records, the Management Contract dated Based on the prevailing circumstances in this case, petitioner Lucila,
16 January 1994 was executed between respondent and petitioner being the President of petitioner corporation, acted in bad faith and
Lucila months before petitioner corporation’s incorporation on 15 with malice in effecting respondent’s dismissal from employment.
August 1994. Similarly, it was done when petitioner Lucila was still the Although petitioner corporation has a valid cause for dismissing
President of Marc Marketing, Inc. Undeniably, it cannot have any respondent due to cessation of business operations, however, the
binding and legal effect on petitioner corporation. Also, there was no latter’s dismissal therefrom was done abruptly by its President,
evidence presented to prove that petitioner corporation adopted, petitioner Lucila. Respondent was not given the required one-month
ratified or confirmed the Management Contract. It is for the same prior written notice that petitioner corporation will already cease its
reason that petitioner corporation cannot be considered estopped business operations. As can be gleaned from the records, respondent
from questioning its binding effect now that respondent was invoking was dismissed outright by petitioner Lucila on the same day that
the same against it. In no way, then, can it be enforced against petitioner corporation decided to stop and cease its business
petitioner corporation, much less, its provisions fixing respondent’s operations. Worse, respondent was not given separation pay
compensation as General Manager to 30% of petitioner corporation’s considering that petitioner corporation’s cessation of business was not
net profit. Consequently, such percentage cannot be the basis for the due to business losses or financial reverses.
computation of respondent’s separation pay. This finding, however,
will not affect the undisputed fact that respondent was, indeed, the WHEREFORE, premises considered, the Decision and Resolution
General Manager of petitioner corporation from its incorporation up to dated 20 June 2005 and 7 March 2006, respectively, of the Court of
the time of his dismissal. Appeals in CA-G.R. SP No. 76624 are hereby AFFIRMED with the
MODIFICATION finding respondent’s dismissal from employment
Accordingly, this Court finds it necessary to still remand the present legal but without proper observance of due process. Accordingly,
case to the Labor Arbiter to conduct further proceedings for the sole petitioner corporation, jointly and solidarily liable with petitioner Lucila,
purpose of determining the compensation that respondent was is hereby ordered to pay respondent the following; (1) separation pay
actually receiving during the period that he was the General Manager equivalent to one month pay or at least one-half month pay for every
of petitioner corporation, this, for the proper computation of his year of service, whichever is higher, to be computed from the
separation pay. commencement of employment until termination; and (2) nominal
damages in the amount of ₱50,000.00.
As regards petitioner Lucila’s solidary liability, this Court affirms the
same. This Court, however, finds it proper to still remand the records to the
Labor Arbiter to conduct further proceedings for the sole purpose of
As a rule, corporation has a personality separate and distinct from its determining the compensation that respondent was actually receiving
officers, stockholders and members such that corporate officers are during the period that he was the General Manager of petitioner
not personally liable for their official acts unless it is shown that they corporation for the proper computation of his separation pay.
have exceeded their authority. However, this corporate veil can be
pierced when the notion of the legal entity is used as a means to Costs against petitioners.
perpetrate fraud, an illegal act, as a vehicle for the evasion of an
existing obligation, and to confuse legitimate issues. Under the Labor SO ORDERED.
Code, for instance, when a corporation violates a provision declared
to be penal in nature, the penalty shall be imposed upon the guilty JOSE PORTUGAL PEREZ
officer or officers of the corporation.57 Associate Justice

60
WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

MARIA LOURDES P. A.
ARTURO D. BRION
SERENO
Associate Justice
Associate Justice

BIENVENIDO L. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in


consultation before the case was assigned to the writer of the opinion
of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson’s Attestation, I certify that the conclusions in the above Republic of the Philippines
Decision had been reached in consultation before the case was SUPREME COURT
assigned to the writer of the opinion of the Court’s Division. Manila
THIRD DIVISION
RENATO C. CORONA G.R. No. 157549               May 30, 2011
Chief Justice DONNINA C. HALLEY, Petitioner,
vs.
PRINTWELL, INC., Respondent.
DECISION
BERSAMIN, J:

Stockholders of a corporation are liable for the debts of the


corporation up to the extent of their unpaid subscriptions. They cannot
61
invoke the veil of corporate identity as a shield from liability, because paidonly₱25,000.00,Printwell suedBMPIon January 26, 1990 for the
the veil may be lifted to avoid defrauding corporate creditors. collection of the unpaid balance of ₱291,342.76 in the RTC.4

Weaffirm with modification the decisionpromulgated on August 14, On February 8, 1990,Printwell amended thecomplaint in order to
2002,1whereby the Court of Appeals(CA) upheld thedecision of the implead as defendants all the original stockholders and incorporators
Regional Trial Court, Branch 71, in Pasig City (RTC),2ordering the to recover on theirunpaid subscriptions, as follows:5
defendants (including the petitioner)to pay to Printwell, Inc. (Printwell)
the principal sum of ₱291,342.76 plus interest. Name Unpaid Shares
Antecedents Donnina C. Halley ₱ 262,500.00
Roberto V. Cabrera, Jr. ₱135,000.00
The petitioner wasan incorporator and original director of Business
Media Philippines, Inc. (BMPI), which, at its incorporation on Albert T. Yu ₱135,000.00
November 12, 1987,3had an authorized capital stock of ₱3,000,000.00
Zenaida V. Yu ₱15,000.00
divided into 300,000 shares each with a par value of ₱10.00,of which
75,000 were initially subscribed, to wit: Rizalino C. Viñeza ₱15,000.00
TOTAL ₱ 562,500.00
Subscriber No. of shares Total subscription
Donnina C. Halley 35,000 ₱ 350,000.00 The defendants filed a consolidated answer,6averring that they all had
paid their subscriptions in full; that BMPI had a separate personality
Roberto V. Cabrera, Jr. 18,000 ₱ 180,000.00
from those of its stockholders; thatRizalino C. Viñeza had assigned
Albert T. Yu 18,000 ₱ 180,000.00 his fully-paid up sharesto a certain Gerardo R. Jacinto in 1989;
andthat the directors and stockholders of BMPI had resolved to
Zenaida V. Yu 2,000 ₱ 20,000.00 dissolve BMPI during the annual meetingheld on February 5, 1990.
Rizalino C. Vineza 2,000 ₱ 20,000.00
To prove payment of their subscriptions, the
TOTAL 75,000 ₱750,000.00 defendantstockholderssubmitted in evidenceBMPI official receipt (OR)
no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no.
Printwellengaged in commercial and industrial printing.BMPI 223, andOR no. 227,to wit:
commissioned Printwell for the printing of the magazine Philippines,
Inc. (together with wrappers and subscription cards) that BMPI Receipt No. Date Name Am
published and sold. For that purpose, Printwell extended 30-day credit
accommodations to BMPI. 217 November 5, 1987 Albert T. Yu ₱ 45
218 May 13, 1988 Albert T. Yu ₱ 135
In the period from October 11, 1988 until July 12, 1989, BMPI
placedwith Printwell several orders on credit, evidenced byinvoices 220 May 13, 1988 Roberto V. Cabrera, Jr. ₱ 135
and delivery receipts totaling₱316,342.76.Considering that BMPI
221 November 5, 1987 Roberto V. Cabrera, Jr. ₱ 45

62
222 November 5, 1987 Zenaida V. Yu b) The claim that since there was no call by the Board of Directors of
defendant corporation for the payment of unpaid subscriptions will not
223 May 13, 1988 Zenaida V. Yu ₱ 15,000.00
be a valid excuse to free individual defendants from liability. Since the
individual defendants are members of the Board of Directors of
227 May 13, 1988 Donnina C. Halley ₱ 262,500.00
defendantcorporation, it was within their exclusive power to prevent
the fulfillment of the condition, by simply not making a call for the
In addition, the stockholderssubmitted other documentsin evidence, payment of the unpaid subscriptions. Their inaction should not work to
namely:(a) an audit report dated March 30, 1989 prepared by Ilagan, their benefit and unjust enrichment at the expense of plaintiff.
Cepillo & Associates (submitted to the SEC and the BIR);7(b)
BMPIbalance sheet8 and income statement9as of December 31, 1988; Assuming arguendo that the individual defendants have paid their
(c) BMPI income tax return for the year 1988 (stamped "received" by unpaid subscriptions, still, it is very apparent that individual
the BIR);10(d) journal vouchers;11(e) cash deposit slips;12 and(f)Bank of defendants merely used the corporate fiction as a cloak or cover to
the Philippine Islands (BPI) savings account passbookin the name of create an injustice; hence, the alleged separate personality of
BMPI.13 defendant corporation should be disregarded (Tan Boon Bee & Co.,
Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).14
Ruling of the RTC
Applying the trust fund doctrine, the RTC declared the defendant
On November 3, 1993, the RTC rendereda decision in favor of stockholders liable to Printwell pro rata, thusly:
Printwell, rejecting the allegation of payment in full of the subscriptions
in view of an irregularity in the issuance of the ORs and observingthat Defendant Business Media, Inc. is a registered corporation (Exhibits
the defendants had used BMPI’s corporate personality to evade "A", "A-1" to "A-9"), and, as appearing from the Articles of
payment and create injustice, viz: Incorporation, individual defendants have the following unpaid
subscriptions:
The claim of individual defendants that they have fully paid their
subscriptions to defend[a]nt corporation, is not worthy of
Names Unpaid Subscription
consideration, because: —
Donnina C. Halley ₱262,500.00
a) in the case of defendants-spouses Albert and Zenaida Yu, it will be
noted that the alleged payment made on May 13, 1988 amounting to Roberto V. Cabrera, Jr. 135.000.00
₱135,000.00, is covered by Official Receipt No. 218 (Exh. "2"), Albert T. Yu 135,000.00
whereas the alleged payment made earlier on November 5, 1987,
amounting to ₱5,000.00, is covered by Official Receipt No. 222 (Exh. Zenaida V. Yu 15,000.00
"3"). This is cogent proof that said receipts were belatedly issued just Rizalino V. Vineza 15,000.00
to suit their theory since in the ordinary course of business, a receipt
issued earlier must have serial numbers lower than those issued on a --------------------------------
later date. But in the case at bar, the receipt issued on November 5,
Total ₱562,500.00
1987 has serial numbers (222) higher than those issued on a later
date (May 13, 1988).
and it is an established doctrine that subscriptions to the capital stock
of a corporation constitute a fund to which creditors have a right to
63
look for satisfaction of their claims (Philippine National Bank vs. Spouses Donnina and Simon Halley, andRizalinoViñeza defined the
Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a corporation has following errors committed by the RTC, as follows:
no legal capacity to release a subscriber to its capital stock from the
obligation to pay for his shares, and any agreement to this effect is I.
invalid (Velasco vs. Poizat, 37 Phil. 802).
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-
The liability of the individual stockholders in the instant case shall be STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE
pro-rated as follows: DEFENDANT CORPORATION.

Names Amount II.

Donnina C. Halley ₱149,955.65 ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO


Roberto V. Cabrera, Jr. 77,144.55 THE EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF
STOCK, IF ANY, THE TRIAL COURT NONETHELESS ERRED IN
Albert T. Yu 77,144.55 NOT FINDING THAT APPELLANTS-STOCKHOLDERS HAVE, AT
THE TIME THE SUIT WAS FILED, NO SUCH UNPAID
Zenaida V. Yu 8,579.00
SUBSCRIPTIONS.
Rizalino V. Vineza 8,579.00
On their part, Spouses Albert and Zenaida Yu averred:
--------------------------------
Total ₱321,342.7515 I.

The RTC disposed as follows: THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND
WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES ALBERT
WHEREFORE, judgment is hereby rendered in favor of plaintiff and AND ZENAIDA YU’S EXHIBITS 2 AND 3 DESPITE THE
against defendants, ordering defendants to pay to plaintiff the amount UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT
of ₱291,342.76, as principal, with interest thereon at 20% per annum, YU AND THE ABSENCE OF PROOF CONTROVERTING THEM.
from date of default, until fully paid, plus ₱30,000.00 as attorney’s
fees, plus costs of suit. II.

Defendants’ counterclaims are ordered dismissed for lack of merit. THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS
SPOUSES ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR
SO ORDERED.16 THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS.,
INC. DESPITE FULL PAYMENT BY SAID DEFENDANTS-
APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE
Ruling of the CA
CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.
All the defendants, except BMPI, appealed.
Roberto V. Cabrera, Jr. argued:

64
I. denied by appellants’ stockholders that they owe appellee the amount
of P291,342.76. The said goods were delivered to and received by
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO BMPI but it failed to pay its overdue account to appellee as well as the
APPLY THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE interest thereon, at the rate of 20% per annum until fully paid. It was
PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA- also during this time that appellants stockholders were in charge of
ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT the operation of BMPI despite the fact that they were not able to pay
THERETO. their unpaid subscriptions to BMPI yet greatly benefited from said
transactions. In view of the unpaid subscriptions, BMPI failed to pay
II. appellee of its liability, hence appellee in order to protect its right can
collect from the appellants’ stockholders regarding their unpaid
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO subscriptions. To deny appellee from recovering from appellants
RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE would place appellee in a limbo on where to assert their right to collect
PLAINTIFF-APPELLEE’S CLAIM BASED ON THEIR RESPECTIVE from BMPI since the stockholders who are appellants herein are
SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING availing the defense of corporate fiction to evade payment of its
EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED obligations.17
CAPITAL BY THE INDIVIDUAL DEFENDANTS.
Further, the CA concurred with the RTC on theapplicability of thetrust
On August 14, 2002, the CA affirmed the RTC, holding that the fund doctrine, under which corporate debtors might look to the unpaid
defendants’ resort to the corporate personality would createan subscriptions for the satisfaction of unpaid corporate debts, stating
injustice becausePrintwell would thereby be at a loss against whom it thus:
would assert the right to collect, viz:
It is an established doctrine that subscription to the capital stock of a
Settled is the rule that when the veil of corporate fiction is used as a corporation constitute a fund to which creditors have a right to look up
means of perpetrating fraud or an illegal act or as a vehicle for the to for satisfaction of their claims, and that the assignee in insolvency
evasion of an existing obligation, the circumvention of statutes, the can maintain an action upon any unpaid stock subscription in order to
achievements or perfection of monopoly or generally the perpetration realize assets for the payment of its debts (PNB vs. Bitulok Sawmill,
of knavery or crime, the veil with which the law covers and isolates the 23 SCRA 1366).
corporation from the members or stockholders who compose it will be
lifted to allow for its consideration merely as an aggregation of Premised on the above-doctrine, an inference could be made that the
individuals (First Philippine International Bank vs. Court of Appeals, funds, which consists of the payment of subscriptions of the
252 SCRA 259). Moreover, under this doctrine, the corporate stockholders, is where the creditors can claim monetary
existence may be disregarded where the entity is formed or used for considerations for the satisfaction of their claims. If these funds which
non-legitimate purposes, such as to evade a just and due obligations ought to be fully subscribed by the stockholders were not paid or
or to justify wrong (Claparols vs. CIR, 65 SCRA 613). remain an unpaid subscription of the corporation then the creditors
have no other recourse to collect from the corporation of its liability.
In the case at bench, it is undisputed that BMPI made several orders Such occurrence was evident in the case at bar wherein the
on credit from appellee PRINTWELL involving the printing of business appellants as stockholders failed to fully pay their unpaid
magazines, wrappers and subscription cards, in the total amount of subscriptions, which left the creditors helpless in collecting their claim
P291,342.76 (Record pp. 3-5, Annex "A") which facts were never due to insufficiency of funds of the corporation. Likewise, the claim of
appellants that they already paid the unpaid subscriptions could not
65
be given weight because said payment did not reflect in the Articles of Exh: "3" – YU – Official Receipt No. 222 dated November 5, 1987
Incorporations of BMPI that the unpaid subscriptions were fully paid amounting to ₱5,000.00 allegedly representing the initial payment of
by the appellants’ stockholders. For it is a rule that a stockholder may subscriptions of stockholder Zenaida Yu.
be sued directly by creditors to the extent of their unpaid subscriptions
to the corporation (Keller vs. COB Marketing, 141 SCRA 86). Exh: "4" – YU – Official Receipt No. 223 dated May 13, 1988
amounting to ₱15,000.00 allegedly representing the full payment of
Moreover, a corporation has no power to release a subscription or its balance of subscriptions of stockholder Zenaida Yu. (Record p. 353).
capital stock, without valuable consideration for such releases, and as
against creditors, a reduction of the capital stock can take place only Based on the above exhibits, we are in accord with the lower court’s
in the manner and under the conditions prescribed by the statute or findings that the claim of the individual appellants that they fully paid
the charter or the Articles of Incorporation. (PNB vs. Bitulok Sawmill, their subscription to the defendant BMPI is not worthy of
23 SCRA 1366).18 consideration, because, in the case of appellants SPS. YU, there is an
inconsistency regarding the issuance of the official receipt since the
The CAdeclared thatthe inconsistency in the issuance of the ORs alleged payment made on May 13, 1988 amounting to ₱135,000.00
rendered the claim of full payment of the subscriptions to the capital was covered by Official Receipt No. 218 (Record, p. 352), whereas
stock unworthy of consideration; andheld that the veil of corporate the alleged payment made earlier on November 5, 1987 amounting to
fiction could be pierced when it was used as a shield to perpetrate a ₱5,000.00 is covered by Official Receipt No. 222 (Record, p. 353).
fraud or to confuse legitimate issues, to wit: Such issuance is a clear indication that said receipts were belatedly
issued just to suit their claim that they have fully paid the unpaid
Finally, appellants SPS YU, argued that the fact of full payment for the subscriptions since in the ordinary course of business, a receipt is
unpaid subscriptions was incontrovertibly established by competent issued earlier must have serial numbers lower than those issued on a
testimonial and documentary evidence, namely – Exhibits "1", "2", "3" later date. But in the case at bar, the receipt issued on November 5,
& "4", which were never disputed by appellee, clearly shows that they 1987 had a serial number (222) higher than those issued on May 13,
should not be held liable for payment of the said unpaid subscriptions 1988 (218). And even assuming arguendo that the individual
of BMPI. appellants have paid their unpaid subscriptions, still, it is very
apparent that the veil of corporate fiction may be pierced when made
The reliance is misplaced. as a shield to perpetuate fraud and/or confuse legitimate issues.
(Jacinto vs. Court of Appeals, 198 SCRA 211).19
We are hereby reproducing the contents of the above-mentioned
exhibits, to wit: Spouses Halley and Viñeza moved for a reconsideration, but the CA
denied their motion for reconsideration.
Exh: "1" – YU – Official Receipt No. 217 dated November 5, 1987
amounting to ₱45,000.00 allegedly representing the initial payment of Issues
subscriptions of stockholder Albert Yu. Only Donnina Halley has come to the Court to seek a further
review, positing the following for our consideration and
Exh: "2" – YU – Official Receipt No. 218 dated May 13, 1988 resolution, to wit:
amounting to ₱135,000.00 allegedly representing full payment of I.
balance of subscriptions of stockholder Albert Yu. (Record p. 352). THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO
THE DECISION THAT DID NOTSTATE THE FACTS AND
THE LAW UPON WHICH THE JUDGMENT WAS BASED
66
BUT MERELY COPIED THE CONTENTS OF As her submissions indicate, the petitioner assails the decisions of the
RESPONDENT’S MEMORANDUM ADOPTING THE SAME CA on: (a) the propriety of disregarding the separate personalities of
AS THE REASON FOR THE DECISION BMPI and its stockholdersby piercing the thin veil that separated
II. them; and (b) the application of the trust fund doctrine.
THE COURT OF APPEALS ERRED IN AFFIRMING THE
DECISION OF THE REGIONAL TRIAL COURT WHICH Ruling
ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF
CORPORATE FICTION The petition for review fails.
III.
THE HONORABLE COURT OF APPEALS ERRED IN I
APPLYING THE TRUST FUND DOCTRINE WHEN THE The RTC did not violate
GROUNDS THEREFOR HAVE NOT BEEN SATISFIED. the Constitution and the Rules of Court

On the first error, the petitioner contends that the RTC lifted verbatim The contention of the petitioner, that the RTC merely copied the
from the memorandum of Printwell; and submits that the RTCthereby memorandum of Printwell in writing its decision, and did not analyze
violatedthe requirement imposed in Section 14, Article VIII of the the records on its own, thereby manifesting a bias in favor of Printwell,
Constitution20 as well as in Section 1,Rule 36 of the Rules of Court,21to is unfounded.
the effect that a judgment or final order of a court should state clearly
and distinctly the facts and the law on which it is based. The petitioner It is noted that the petition for review merely generally alleges that
claims that the RTC’s violation indicated that the RTC did not analyze starting from its page 5, the decision of the RTC "copied verbatim the
the case before rendering its decision, thus denying her the allegations of herein Respondents in its Memorandum before the said
opportunity to analyze the decision; andthat a suspicion of partiality court," as if "the Memorandum was the draft of the Decision of the
arose from the fact that the RTC decision was but a replica of Regional Trial Court of Pasig,"23but fails to specify either the portions
Printwell’s memorandum.She cites Francisco v. Permskul,22 in which allegedly lifted verbatim from the memorandum, or why she regards
the Court has stated that the reason underlying the constitutional the decision as copied. The omission renders thepetition for review
requirement, that every decision should clearly and distinctly state the insufficient to support her contention, considering that the mere
facts and the law on which it is based, is to inform the reader of how similarityin language or thought between Printwell’s memorandum and
the court has reached its decision and thereby give the losing party an the trial court’s decisiondid not necessarily justify the conclusion that
opportunity to study and analyze the decision and enable such party the RTC simply lifted verbatim or copied from thememorandum.
to appropriately assign the errors committed therein on appeal.
It is to be observed in this connection that a trial or appellate judge
On the second and third errors, the petitioner maintains that the CA may occasionally viewa party’s memorandum or brief as worthy of
and the RTC erroneously pierced the veil of corporate fiction despite due consideration either entirely or partly. When he does so, the
the absence of cogent proof showing that she, as stockholder of judgemay adopt and incorporatein his adjudicationthe memorandum
BMPI, had any hand in transacting with Printwell; thatthe CA and the or the parts of it he deems suitable,and yet not be guilty of the
RTC failed to appreciate the evidence that she had fully paid her accusation of lifting or copying from the memorandum.24 This
subscriptions; and the CA and the RTCwrongly relied on the articles isbecause ofthe avowed objective of the memorandum to contribute in
of incorporation in determining the current list of unpaid subscriptions the proper illumination and correct determination of the
despite the articles of incorporationbeing at best reflectiveonly of the controversy.Nor is there anything untoward in the congruence of ideas
pre-incorporation status of BMPI.
67
and views about the legal issues between himself and the party Although a corporation has a personality separate and distinct from
drafting the memorandum.The frequency of similarities in those of its stockholders, directors, or officers,26such separate and
argumentation, phraseology, expression, and citation of authorities distinct personality is merely a fiction created by law for the sake of
between the decisions of the courts and the memoranda of the convenience and to promote the ends of justice.27The corporate
parties, which may be great or small, can be fairly attributable tothe personality may be disregarded, and the individuals composing the
adherence by our courts of law and the legal profession to widely corporation will be treated as individuals, if the corporate entity is
knownor universally accepted precedents set in earlier judicial actions being used as a cloak or cover for fraud or illegality;as a justification
with identical factual milieus or posing related judicial dilemmas. for a wrong; as an alter ego, an adjunct, or a business conduit for the
sole benefit of the stockholders.28 As a general rule, a corporation is
We also do not agree with the petitioner that the RTC’s manner of looked upon as a legal entity, unless and until sufficient reason to the
writing the decisiondeprivedher ofthe opportunity to analyze its contrary appears. Thus,the courts always presume good faith, andfor
decisionas to be able to assign errors on appeal. The contrary that reason accord prime importance to the separate personality of
appears, considering that she was able to impute and assignerrors to the corporation, disregarding the corporate personality only after the
the RTCthat she extensively discussed in her appeal in the CA, wrongdoing is first clearly and convincingly established.29It thus
indicating her thorough analysis ofthe decision of the RTC. behooves the courts to be careful in assessing the milieu where the
piercing of the corporate veil shall be done.30
Our own readingof the trial court’s decision persuasively shows that
the RTC did comply with the requirements regarding the content and Although nowhere in Printwell’s amended complaint or in the
the manner of writing a decision prescribed in the Constitution and the testimonies Printwell offered can it be read or inferred from that the
Rules of Court. The decision of the RTC contained clear and distinct petitioner was instrumental in persuading BMPI to renege onits
findings of facts, and stated the applicablelaw and jurisprudence, fully obligation to pay; or that sheinduced Printwell to extend the credit
explaining why the defendants were being held liable to the plaintiff. In accommodation by misrepresenting the solvency of BMPI toPrintwell,
short, the reader was at once informed of the factual and legal her personal liability, together with that of her co-defendants,
reasons for the ultimate result. remainedbecause the CA found her and the other defendant
stockholders to be in charge of the operations of BMPI at the time the
II unpaid obligation was transacted and incurred, to wit:
Corporate personality not to be used to foster injustice
In the case at bench, it is undisputed that BMPI made several orders
Printwell impleaded the petitioner and the other stockholders of BMPI on credit from appellee PRINTWELL involving the printing of business
for two reasons, namely: (a) to reach the unpaid subscriptions magazines, wrappers and subscription cards, in the total amount of
because it appeared that such subscriptions were the remaining ₱291,342.76 (Record pp. 3-5, Annex "A") which facts were never
visible assets of BMPI; and (b) to avoid multiplicity of suits.25 denied by appellants’ stockholders that they owe(d) appellee the
amount of ₱291,342.76. The said goods were delivered to and
The petitionersubmits that she had no participation in the transaction received by BMPI but it failed to pay its overdue account to appellee
between BMPI and Printwell;that BMPI acted on its own; and that as well as the interest thereon, at the rate of 20% per annum until fully
shehad no hand in persuading BMPI to renege on its obligation to paid. It was also during this time that appellants stockholders were in
pay. Hence, she should not be personally liable. charge of the operation of BMPI despite the fact that they were not
able to pay their unpaid subscriptions to BMPI yet greatly benefited
We rule against the petitioner’s submission. from said transactions. In view of the unpaid subscriptions, BMPI
failed to pay appellee of its liability, hence appellee in order to protect
68
its right can collect from the appellants stockholders regarding their The trust fund doctrine, first enunciated in the American case of Wood
unpaid subscriptions. To deny appellee from recovering from v. Dummer,33was adopted in our jurisdiction in Philippine Trust Co. v.
appellants would place appellee in a limbo on where to assert their Rivera,34where thisCourt declared that:
right to collect from BMPI since the stockholders who are appellants
herein are availing the defense of corporate fiction to evade payment It is established doctrine that subscriptions to the capital of a
of its obligations.31 corporation constitute a fund to which creditors have a right to look for
satisfaction of their claims and that the assignee in insolvency can
It follows, therefore, that whether or not the petitioner persuaded maintain an action upon any unpaid stock subscription in order to
BMPI to renege on its obligations to pay, and whether or not she realize assets for the payment of its debts. (Velasco vs. Poizat, 37
induced Printwell to transact with BMPI were not gooddefensesin the Phil., 802) xxx35
suit.1avvphi1
We clarify that the trust fund doctrineis not limited to reaching the
III stockholder’s unpaid subscriptions. The scope of the doctrine when
Unpaid creditor may satisfy its claim from the corporation is insolvent encompasses not only the capital stock,
unpaid subscriptions;stockholders must but also other property and assets generally regarded in equity as a
prove full payment oftheir subscriptions trust fund for the payment of corporate debts.36All assets and property
belonging to the corporation held in trust for the benefit of creditors
Both the RTC and the CA applied the trust fund doctrineagainst the thatwere distributed or in the possession of the stockholders,
defendant stockholders, including the petitioner. regardless of full paymentof their subscriptions, may be reached by
the creditor in satisfaction of its claim.
The petitionerargues, however,that the trust fund doctrinewas
inapplicablebecause she had already fully paid her subscriptions to Also, under the trust fund doctrine,a corporation has no legal capacity
the capital stock of BMPI. She thus insiststhat both lower courts erred to release an original subscriber to its capital stock from the obligation
in disregarding the evidence on the complete payment of the of paying for his shares, in whole or in part,37 without a valuable
subscription, like receipts, income tax returns, and relevant financial consideration,38 or fraudulently, to the prejudice of creditors.39The
statements. creditor is allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of the corporation for
The petitioner’s argumentis devoid of substance. the satisfaction of its debt.40To make out a prima facie case in a suit
against stockholders of an insolvent corporation to compel them to
The trust fund doctrineenunciates a – contribute to the payment of its debts by making good unpaid
balances upon their subscriptions, it is only necessary to establish
xxx rule that the property of a corporation is a trust fund for the that thestockholders have not in good faith paid the par value of the
payment of creditors, but such property can be called a trust fund stocks of the corporation.41
‘only by way of analogy or metaphor.’ As between the corporation
itself and its creditors it is a simple debtor, and as between its The petitionerposits that the finding of irregularity attending the
creditors and stockholders its assets are in equity a fund for the issuance of the receipts (ORs) issued to the other
payment of its debts.32 stockholders/subscribers should not affect her becauseher receipt did
not suffer similar irregularity.

69
Notwithstanding that the RTC and the CA did not find any irregularity operate as payment. Mere delivery of checks does not discharge the
in the OR issued in her favor,we still cannot sustain the petitioner’s obligation under a judgment. The obligation is not extinguished and
defense of full payment of her subscription. remains suspended until the payment by commercial document is
actually realized.
In civil cases, theparty who pleads payment has the burden of proving
it, that even where the plaintiff must allege nonpayment, the general To establish their defense, the respondents therefore had to present
rule is that the burden rests on the defendant to prove payment, rather proof, not only that they delivered the checks to the petitioner, but also
than on the plaintiff to prove nonpayment. In other words, the debtor that the checks were encashed. The respondents failed to do so. Had
bears the burden of showing with legal certainty that the obligation the checks been actually encashed, the respondents could have
has been discharged by payment.42 easily produced the cancelled checks as evidence to prove the same.
Instead, they merely averred that they believed in good faith that the
Apparently, the petitioner failed to discharge her burden. checks were encashed because they were not notified of the dishonor
of the checks and three years had already lapsed since they issued
A receipt is the written acknowledgment of the fact of payment in the checks.
money or other settlement between the seller and the buyer of goods,
thedebtor or thecreditor, or theperson rendering services, and Because of this failure of the respondents to present sufficient proof of
theclient or thecustomer.43Althougha receipt is the best evidence of payment, it was no longer necessary for the petitioner to prove non-
the fact of payment, it isnot conclusive, but merely presumptive;nor is payment, particularly proof that the checks were dishonored. The
it exclusive evidence,considering thatparole evidence may also burden of evidence is shifted only if the party upon whom it is lodged
establishthe fact of payment.44 was able to adduce preponderant evidence to prove its claim.

The petitioner’s ORNo. 227,presentedto prove the payment of the Ostensibly, therefore, the petitioner’s mere submission of the receipt
balance of her subscription, indicated that her supposed payment had issued in exchange of the check did not satisfactorily establish her
beenmade by means of a check. Thus, to discharge theburden to allegation of full payment of her subscription. Indeed, she could not
prove payment of her subscription, she had to adduce evidence even inform the trial court about the identity of her drawee bank,49and
satisfactorily proving that her payment by check wasregardedas about whether the check was cleared and its amount paid to BMPI.50In
payment under the law. fact, she did not present the check itself.

Paymentis defined as the delivery of money.45Yet, because a check is Theincome tax return (ITR) and statement of assets and liabilities of
not money and only substitutes for money, the delivery of a check BMPI, albeit presented, had no bearing on the issue of payment of the
does not operate as payment and does not discharge the obligation subscription because they did not by themselves prove payment.
under a judgment.46 The delivery of a bill of exchange only produces ITRsestablish ataxpayer’s liability for taxes or a taxpayer’s claim for
the fact of payment when the bill has been encashed.47The following refund. In the same manner, the deposit slips and entries in the
passage fromBank of Philippine Islands v. Royeca48is enlightening: passbook issued in the name of BMPI were hardly relevant due to
their not reflecting the alleged payments.
Settled is the rule that payment must be made in legal tender. A check
is not legal tender and, therefore, cannot constitute a valid tender of It is notable, too, that the petitioner and her co-stockholders did not
payment. Since a negotiable instrument is only a substitute for money support their allegation of complete payment of their respective
and not money, the delivery of such an instrument does not, by itself, subscriptions with the stock and transfer book of BMPI. Indeed, books
and records of a corporation (including the stock and transfer book)
70
are admissible in evidence in favor of or against the corporation and still unpaid. Printwell, as BMPI’s creditor,had a right to reachher
its members to prove the corporate acts, its financial status and other unpaid subscription in satisfaction of its claim.
matters (like the status of the stockholders), and are ordinarily the
best evidence of corporate acts and proceedings.51Specifically, a IV
stock and transfer book is necessary as a measure of precaution, Liability of stockholders for corporate debts isup
expediency, and convenience because it provides the only certain and to the extentof their unpaid subscription
accurate method of establishing the various corporate acts and
transactions and of showing the ownership of stock and like The RTC declared the stockholders pro rata liable for the debt(based
matters.52That she tendered no explanation why the stock and transfer on the proportion to their shares in the capital stock of BMPI); and
book was not presented warrants the inference that the book did not held the petitionerpersonally liable onlyin the amount of ₱149,955.65.
reflect the actual payment of her subscription.
We do not agree. The RTC lacked the legal and factual support for its
Nor did the petitioner present any certificate of stock issued by BMPI prorating the liability. Hence, we need to modify the extent of the
to her. Such a certificate covering her subscription might have been a petitioner’s personal liability to Printwell. The prevailing rule is that a
reliable evidence of full payment of the subscriptions, considering that stockholder is personally liable for the financial obligations of the
under Section 65 of the Corporation Code a certificate of stock issues corporation to the extent of his unpaid subscription.53In view ofthe
only to a subscriber who has fully paid his subscription. The lack of petitioner’s unpaid subscription being worth ₱262,500.00, shewas
any explanation for the absence of a stock certificate in her favor liable up to that amount.
likewise warrants an unfavorable inference on the issue of payment.
Interest is also imposable on the unpaid obligation. Absent any
Lastly, the petitioner maintains that both lower courts erred in relying stipulation, interest is fixed at 12% per annum from the date the
on the articles of incorporationas proof of the liabilities of the amended complaint was filed on February 8, 1990 until the obligation
stockholders subscribing to BMPI’s stocks, averring that the articles of (i.e., to the extent of the petitioner’s personal liability of ₱262,500.00)
incorporationdid not reflect the latest subscription status of BMPI. is fully paid.54

Although the articles of incorporation may possibly reflect only the Lastly, we find no basis togrant attorney’s fees, the award for which
pre-incorporation status of a corporation, the lower courts’ reliance on must be supported by findings of fact and of law as provided under
that document to determine whether the original subscribersalready Article 2208 of the Civil Code55incorporated in the body of decision of
fully paid their subscriptions or not was neither unwarranted nor the trial court. The absence of the requisite findings from the RTC
erroneous. As earlier explained, the burden of establishing the fact of decision warrants the deletion of the attorney’s fees.
full payment belonged not to Printwell even if it was the plaintiff, but to
the stockholders like the petitioner who, as the defendants, averredfull ACCORDINGLY, we deny the petition for review on certiorari;and
payment of their subscriptions as a defense. Their failure to affirm with modification the decision promulgated on August 14,
substantiate their averment of full payment, as well as their failure to 2002by ordering the petitionerto pay to Printwell, Inc. the sum of
counter the reliance on the recitals found in the articles of ₱262,500.00, plus interest of 12% per annum to be computed from
incorporation simply meant their failure or inability to satisfactorily February 8, 1990 until full payment.
prove their defense of full payment of the subscriptions.
The petitioner shall paycost of suit in this appeal.
To reiterate, the petitionerwas liablepursuant to the trust fund doctrine
for the corporate obligation of BMPI by virtue of her subscription being
71
SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

CONCHITA CARPIOMORALES
Associate Justice
Chairperson

ARTURO D. BRION MARTIN S. VILLARAMA


Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO


Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

CONCHITA CARPIO MORALES


Associate Justice
Chairperson

CERTIFICATION
Republic of the Philippines
Pursuant to Section 13, Article VIII of the Constitution, and the SUPREME COURT
Division Chairperson’s Attestation, I certify that the conclusions in the Manila
above Decision had been reached in consultation before the case was FIRST DIVISION
assigned to the writer of the opinion of the Court’s Division. G.R. No. 182397               September 14, 2011
ALERT SECURITY AND INVESTIGATION AGENCY, INC. AND/OR
RENATO C. CORONA MANUEL D. DASIG, Petitioners,
Chief Justice vs.
SAIDALI PASAWILAN, WILFREDO VERCELES AND MELCHOR
BULUSAN, Respondents.
DECISION
72
VILLARAMA, JR., J.: Upon motion of the respondents, the joint complaint for illegal
dismissal was ordered consolidated with respondents’ earlier
This petition for review on certiorari assails the Decision1 dated complaint for money claims. The records of the illegal dismissal case
February 1, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. were sent to Labor Arbiter Ariel C. Santos, but later returned to the
99861. The appellate court reversed and set aside the January 31, Office of the Labor Arbiter hearing the illegal dismissal complaint
2007 Decision2 and March 15, 2007 Resolution3 of the National Labor because a Decision7 has already been rendered in the complaint for
Relations Commission (NLRC) and reinstated the Labor Arbiter’s money claims on July 14, 1999. In that decision, the complaint for
Decision4 finding petitioners guilty of illegal dismissal. money claims was dismissed for lack of merit but petitioners were
ordered to pay respondents their latest salary differentials.
The facts follow.
On July 28, 2000, Labor Arbiter Melquiades Sol D. Del Rosario
Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor rendered a Decision8 on the complaint for illegal dismissal. The Labor
Bulusan were all employed by petitioner Alert Security and Arbiter ruled:
Investigation Agency, Inc. (Alert Security) as security guards
beginning March 31, 1996, January 14, 1997, and January 24, 1997, CONFORMABLY WITH THE FOREGOING, judgment is hereby
respectively. They were paid 165.00 pesos a day as regular rendered finding complainants to have been illegally dismissed.
employees, and assigned at the Department of Science and Consequently, each complainant should be paid in solidum by the
Technology (DOST) pursuant to a security service contract between respondents the individual awards computed in the body of the
the DOST and Alert Security. decision, which is hereto adopted as part of this disposition.

Respondents aver that because they were underpaid, they filed a SO ORDERED.9
complaint for money claims against Alert Security and its president
and general manager, petitioner Manuel D. Dasig, before Labor Aggrieved, petitioners appealed the decision to the NLRC claiming
Arbiter Ariel C. Santos. As a result of their complaint, they were that the Labor Arbiter erred in deciding a re-filed case when it was
relieved from their posts in the DOST and were not given new filed in violation of the prohibitions against litis pendencia and forum
assignments despite the lapse of six months. On January 26, 1999, shopping. Further, petitioners argued that complainants were not
they filed a joint complaint for illegal dismissal against petitioners. illegally dismissed but were only transferred. They claimed that it was
the respondents who refused to report for work in their new
Petitioners, on the other hand, deny that they dismissed the assignment.
respondents. They claimed that from the DOST, respondents were
merely detailed at the Metro Rail Transit, Inc. at the Light Rail Transit On January 31, 2007, the NLRC rendered a Decision10 ruling that
Authority (LRTA) Compound in Aurora Blvd. because the wages Labor Arbiter Del Rosario did not err in taking cognizance of
therein were already adjusted to the latest minimum wage. Petitioners respondents’ complaint for illegal dismissal because the July 14, 1999
presented "Duty Detail Orders"5 that Alert Security issued to show that Decision of Labor Arbiter Santos on the complaint for money claims
respondents were in fact assigned to LRTA. Respondents, however, did not at all pass upon the issue of illegal dismissal. The NLRC,
failed to report at the LRTA and instead kept loitering at the DOST however, dismissed the complaint for illegal dismissal after ruling that
and tried to convince other security guards to file complaints against the fact of dismissal or termination of employment was not sufficiently
Alert Security. Thus, on August 3, 1998, Alert Security filed a established. According to the NLRC, "[the] sweeping generalization
"termination report"6 with the Department of Labor and Employment that the complainants were constructively dismissed is not sufficient to
relative to the termination of the respondents.
73
establish the existence of illegal dismissal."11 The dispositive portion Petitioners argue that the CA erred when it held that the NLRC
of the NLRC decision reads: committed grave abuse of discretion. According to petitioners, the
NLRC was correct when it ruled that there was no sufficient basis to
WHEREFORE, premises considered, the respondents’ appeal is rule that respondents were terminated from their employment while
hereby given due course and the decision dated July 28, 2000 is there was proof that they were merely transferred from DOST to
hereby REVERSED and SET-ASIDE and a new one entered LRTA as shown in the "Duty Detail Orders". Verily, petitioners claim
DISMISSING the complaint for illegal dismissal for lack of merit. that there was no termination at all; instead, respondents abandoned
their employment by refusing to report for duty at the LRTA
SO ORDERED.12 Compound.

Unfazed, respondents filed a petition for certiorari with the CA Further, petitioners argue that the CA erred when it reinstated the July
questioning the NLRC decision and alleging grave abuse of 28, 2000 Decision of Labor Arbiter Del Rosario in its entirety. The
discretion. dispositive portion of said decision ruled that respondents should be
paid their monetary awards in solidum by Alert Security and Manuel
On February 1, 2008, the CA rendered the assailed D. Dasig, its President and General Manager. They argue that Alert
Decision13 reversing and setting aside the NLRC decision and Security is a duly organized domestic corporation which has a legal
reinstating the July 28, 2000 Decision of Labor Arbiter Del Rosario. personality separate and distinct from its members or owners. Hence,
The CA ruled that Alert Security, as an employer, failed to discharge liability for whatever compensation or money claims owed to
its burden to show that the employee’s separation from employment employees must be borne solely by Alert Security and not by any of
was not motivated by discrimination, made in bad faith, or effected as its individual stockholders or officers.
a form of punishment or demotion without sufficient cause. The CA
also found that respondents were never informed of the "Duty Detail On the other hand, respondents claim that the NLRC committed a
Orders" transferring them to a new post, thereby making the alleged serious error in ruling that they failed to provide factual substantiation
transfer ineffective. The dispositive portion of the CA decision states: of their claim of constructive dismissal. Respondents aver that their
Complaint Form16 sufficiently constitutes the basis of their claim of
WHEREFORE, premises considered, the January 31, 2007 decision illegal dismissal. Also, respondents aver that Alert Security itself
of the NLRC is hereby REVERSED and SET ASIDE and the July 28, admitted that respondents were relieved from their posts as security
2000 decision of the Labor Arbiter is hereby REVIVED. guards in DOST, albeit raising the defense that it was a mere transfer
as shown by "Duty Detail Orders", which, however, were never
SO ORDERED.14 received by respondents, as observed by the Labor Arbiter.

Petitioners filed a motion for reconsideration, but the motion was Essentially, the issue for resolution is whether respondents were
denied in a Resolution15 dated March 31, 2008. illegally dismissed.

Petitioners are now before this Court to seek relief by way of a petition We rule in the affirmative.
for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended. As a rule, employment cannot be terminated by an employer without
any just or authorized cause. No less than the 1987 Constitution in
Section 3, Article 13 guarantees security of tenure for workers and

74
because of this, an employee may only be terminated for just17 or the just and authorized causes of termination of employment is there
authorized18 causes that any direct or indirect reference to filing a legitimate complaint for
money claims against the employer as a valid ground for termination.
must comply with the due process requirements mandated19 by law.
Hence, employers are barred from arbitrarily removing their workers The Labor Code, as amended, enumerates several just and
whenever and however they want. The law sets the valid grounds for authorized causes for a valid termination of employment. An
termination as well as the proper procedure to take when terminating employee asserting his right and asking for minimum wage is not
the services of an employee. among those causes. Dismissing an employee on this ground
amounts to retaliation by management for an employee’s legitimate
In De Guzman, Jr. v. Commission on Elections,20 the Court, speaking grievance without due process. Such stroke of retribution has no
of the Constitutional guarantee of security of tenure to all workers, place in Philippine Labor Laws.
ruled:
Petitioners aver that respondents were merely transferred to a new
x x x It only means that an employee cannot be dismissed (or post wherein the wages are adjusted to the current minimum wage
transferred) from the service for causes other than those provided by standards. They maintain that the respondents voluntarily abandoned
law and after due process is accorded the employee. What it seeks to their jobs when they failed to report for duty in the new location.
prevent is capricious exercise of the power to dismiss. x x x
(Emphasis supplied.) Assuming this is true, we still cannot hold that the respondents
abandoned their posts. For abandonment of work to fall under Article
Although we recognize the right of employers to shape their own work 282 (b) of the Labor Code, as amended, as gross and habitual neglect
force, this management prerogative must not curtail the basic right of of duties there must be the concurrence of two elements. First, there
employees to security of tenure. There must be a valid and lawful should be a failure of the employee to report for work without a valid
reason for terminating the employment of a worker. Otherwise, it is or justifiable reason, and second, there should be a showing that the
illegal and would be dealt with by the courts accordingly. employee intended to sever the employer-employee relationship, the
second element being the more determinative factor as manifested by
As stated in Bascon v. Court of Appeals:21 overt acts.22

x x x The employer’s power to dismiss must be tempered with the As regards the second element of intent to sever the employer-
employee’s right to security of tenure. Time and again we have said employee relationship, the CA correctly ruled that:
that the preservation of the lifeblood of the toiling laborer comes
before concern for business profits. Employers must be reminded to x x x the fact that petitioners filed a complaint for illegal dismissal is
exercise the power to dismiss with great caution, for the State will not indicative of their intention to remain employed with private
hesitate to come to the succor of workers wrongly dismissed by respondent considering that one of their prayers in the complaint is for
capricious employers. re-instatement. As declared by the Supreme Court, a complaint for
illegal dismissal is inconsistent with the charge of abandonment,
In the case at bar, respondents were relieved from their posts because when an employee takes steps to protect himself against a
because they filed with the Labor Arbiter a complaint against their dismissal, this cannot, by logic, be said to be abandonment by him of
employer for money claims due to underpayment of wages. This his right to be able to work.23
reason is unacceptable and illegal. Nowhere in the law providing for

75
Further, according to Alert Security itself, respondents continued to burden to show that the employee was duly notified of the transfer.
report for work and loiter in the DOST after the alleged transfer order Verily, an employer cannot reasonably expect an employee to report
was issued. Such circumstance makes it unlikely that respondents for work in a new location without first informing said employee of the
have clear intention of leaving their respective jobs. In any case, there transfer. Petitioners’ insistence on the sufficiency of mere issuance of
is no dispute that in cases of abandonment of work, notice shall be the transfer order is indicative of bad faith on their part.
served at the worker’s last known address.24 This petitioners failed to
do. Besides, according to petitioners, the reason for the transfer to LRTA
of the respondents was that the wages in LRTA were already adjusted
On the element of the failure of the employee to report for work, we to comply with the minimum wage rates. Now it is hard to believe that
also cannot accept the allegations of petitioners that respondents after being ordered to transfer to LRTA where the wages are better,
unjustifiably refused to report for duty in their new posts. A careful the respondents would still refuse the transfer. That would mean that
review of the records reveals that there is no showing that the respondents refused better wages and instead chose to remain in
respondents were notified of their new assignments. Granting that the DOST, underpaid, and go through the lengthy process of claiming and
"Duty Detail Orders" were indeed issued, they served no purpose asking for minimum wage. This proposed scenario of petitioners
unless the intended recipients of the orders are informed of such. simply does not jibe with human logic and experience.

The employer cannot simply conclude that an employee is ipso facto On the question of the propriety of holding petitioner Manuel D. Dasig,
notified of a transfer when there is no evidence to indicate that the president and general manager of Alert Security, solidarily liable with
employee had knowledge of the transfer order. Hence, the failure of Alert Security for the payment of the money awards in favor of
an employee to report for work at the new location cannot be taken respondents, we find petitioners’ arguments meritorious.
against him as an element of abandonment.
Basic is the rule that a corporation has a separate and distinct
We acknowledge and recognize the right of an employer to transfer personality apart from its directors, officers, or owners. In exceptional
employees in the interest of the service. This exercise is a cases, courts find it proper to breach this corporate personality in
management prerogative which is a lawful right of an employer. order to make directors, officers, or owners solidarily liable for the
However, like all rights, there are limitations to the right to transfer companies’ acts. Section 31, Paragraph 1 of the Corporation
employees. As ruled in the case of Blue Dairy Corporation v. NLRC:25 Code26 provides:

x x x The managerial prerogative to transfer personnel must be Sec. 31. Liability of directors, trustees or officers. - Directors or
exercised without grave abuse of discretion, bearing in mind the basic trustees who willfully and knowingly vote for or assent to patently
elements of justice and fair play. Having the right should not be unlawful acts of the corporation or who are guilty of gross negligence
confused with the manner in which that right is exercised. Thus, it or bad faith in directing the affairs of the corporation or acquire any
cannot be used as a subterfuge by the employer to rid himself of an personal or pecuniary interest in conflict with their duty as such
undesirable worker. In particular, the employer must be able to show directors, or trustees shall be liable jointly and severally for all
that the transfer is not unreasonable, inconvenient or prejudicial to the damages resulting therefrom suffered by the corporation, its
employee; nor does it involve a demotion in rank or a diminution of his stockholders or members and other persons.
salaries, privileges and other benefits. x x x
xxxx
In addition to these tests for a valid transfer, there should be proper
and effective notice to the employee concerned. It is the employer’s
76
Jurisprudence has been consistent in defining the instances when the With costs against the petitioners.
separate and distinct personality of a corporation may be disregarded
in order to hold the directors, officers, or owners of the corporation SO ORDERED.
liable for corporate debts. In McLeod v. National Labor Relations
Commission,27 the Court ruled: MARTIN S. VILLARAMA, JR.
Associate Justice
Thus, the rule is still that the doctrine of piercing the corporate veil
applies only when the corporate fiction is used to defeat public WE CONCUR:
convenience, justify wrong, protect fraud, or defend crime. In the
absence of malice, bad faith, or a specific provision of law making a RENATO C. CORONA
corporate officer liable, such corporate officer cannot be made Chief Justice
personally liable for corporate liabilities. x x x Chairperson

Further, in Carag v. National Labor Relations Commission,28 the Court TERESITA J. LEONARDO-DE


clarified the McLeod doctrine as regards labor laws, to wit: LUCAS P. BERSAMIN
CASTRO
Associate Justice
Associate Justice
We have already ruled in McLeod v. NLRC29 and Spouses Santos v.
NLRC30 that Article 212(e)31 of the Labor Code, by itself, does not
MARIANO C. DEL CASTILLO
make a corporate officer personally liable for the debts of the Associate Justice
corporation.1awphi1 The governing law on personal liability of
directors for debts of the corporation is still Section 31 of the
CERTIFICATION
Corporation Code. x x x
Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify
In the present case, there is no evidence to indicate that Manuel D.
that the conclusions in the above Decision had been reached in
Dasig, as president and general manager of Alert Security, is using
consultation before the case was assigned to the writer of the opinion
the veil of corporate fiction to defeat public convenience, justify wrong,
of the Court’s Division.
protect fraud, or defend crime. Further, there is no showing that Alert
Security has folded up its business or is reneging in its obligations. In
the final analysis, it is Alert Security that respondents are after and it RENATO C. CORONA
is also Alert Security who should take responsibility for their illegal Chief Justice
dismissal.

WHEREFORE, the petition for review on certiorari is DENIED. The


Decision of the Court of Appeals in CA-G.R. SP No. 99861 and the
Decision dated July 28, 2000 of the Labor Arbiter are MODIFIED.
Petitioner Manuel D. Dasig is held not solidarily liable with petitioner
Alert Security and Investigation, Inc. for the payment of the monetary
awards in favor of respondents. Said Decision of the Court of Appeals
in all other aspects is AFFIRMED.

77
Republic of the Philippines The petitioners moved to dismiss the complaint,4 raising the ground,
SUPREME COURT among others, that the complaint pertained to the jurisdiction of the
Manila Securities and Exchange Commission (SEC) due to the controversy
THIRD DIVISION being intra-corporate inasmuch as the respondent was a member of
G.R. No. 157802               October 13, 2010 Matling’s Board of Directors aside from being its Vice-President for
MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, Finance and Administration prior to his termination.
RICHARD K. SPENCER, CATHERINE SPENCER, AND ALEX
MANCILLA, Petitioners, The respondent opposed the petitioners’ motion to dismiss,5 insisting
vs. that his status as a member of Matling’s Board of Directors was
RICARDO R. COROS, Respondent. doubtful, considering that he had not been formally elected as such;
DECISION that he did not own a single share of stock in Matling, considering that
BERSAMIN, J.: he had been made to sign in blank an undated indorsement of the
certificate of stock he had been given in 1992; that Matling had taken
This case reprises the jurisdictional conundrum of whether a back and retained the certificate of stock in its custody; and that even
complaint for illegal dismissal is cognizable by the Labor Arbiter (LA) assuming that he had been a Director of Matling, he had been
or by the Regional Trial Court (RTC). The determination of whether removed as the Vice President for Finance and Administration, not as
the dismissed officer was a regular employee or a corporate officer a Director, a fact that the notice of his termination dated April 10, 2000
unravels the conundrum. In the case of the regular employee, the LA showed.
has jurisdiction; otherwise, the RTC exercises the legal authority to
adjudicate. On October 16, 2000, the LA granted the petitioners’ motion to
dismiss,6 ruling that the respondent was a corporate officer because
In this appeal via petition for review on certiorari, the petitioners he was occupying the position of Vice President for Finance and
challenge the decision dated September 13, 20021 and the resolution Administration and at the same time was a Member of the Board of
dated April 2, 2003,2 both promulgated in C.A.-G.R. SP No. 65714 Directors of Matling; and that, consequently, his removal was a
entitled Matling Industrial and Commercial Corporation, et al. v. corporate act of Matling and the controversy resulting from such
Ricardo R. Coros and National Labor Relations Commission, whereby removal was under the jurisdiction of the SEC, pursuant to Section 5,
by the Court of Appeals (CA) sustained the ruling of the National paragraph (c) of Presidential Decree No. 902.
Labor Relations Commission (NLRC) to the effect that the LA had
jurisdiction because the respondent was not a corporate officer of Ruling of the NLRC
petitioner Matling Industrial and Commercial Corporation (Matling).
The respondent appealed to the NLRC,7 urging that:
Antecedents
I
After his dismissal by Matling as its Vice President for Finance and
Administration, the respondent filed on August 10, 2000 a complaint THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE
for illegal suspension and illegal dismissal against Matling and some OF DISCRETION GRANTING APPELLEE’S MOTION TO DISMISS
of its corporate officers (petitioners) in the NLRC, Sub-Regional WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE
Arbitration Branch XII, Iligan City.3 HIS OPPOSITION THERETO THEREBY VIOLATING THE BASIC
PRINCIPLE OF DUE PROCESS.

78
II Nonetheless, on April 30, 2001, the NLRC denied the petitioners’
motion for reconsideration.11
THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN
DISMISSING THE CASE FOR LACK OF JURISDICTION. Ruling of the CA

On March 13, 2001, the NLRC set aside the dismissal, concluding The petitioners elevated the issue to the CA by petition for certiorari,
that the respondent’s complaint for illegal dismissal was properly docketed as C.A.-G.R. No. SP 65714, contending that the NLRC
cognizable by the LA, not by the SEC, because he was not a committed grave abuse of discretion amounting to lack of jurisdiction
corporate officer by virtue of his position in Matling, albeit high ranking in reversing the correct decision of the LA.
and managerial, not being among the positions listed in Matling’s
Constitution and By-Laws.8 The NLRC disposed thuswise: In its assailed decision promulgated on September 13, 2002,12 the CA
dismissed the petition for certiorari, explaining:
WHEREFORE, the Order appealed from is SET ASIDE. A new one is
entered declaring and holding that the case at bench does not involve For a position to be considered as a corporate office, or, for that
any intracorporate matter. Hence, jurisdiction to hear and act on said matter, for one to be considered as a corporate officer, the position
case is vested with the Labor Arbiter, not the SEC, considering that must, if not listed in the by-laws, have been created by the
the position of Vice-President for Finance and Administration being corporation's board of directors, and the occupant thereof appointed
held by complainant-appellant is not listed as among respondent's or elected by the same board of directors or stockholders. This is the
corporate officers. implication of the ruling in Tabang v. National Labor Relations
Commission, which reads:
Accordingly, let the records of this case be REMANDED to the
Arbitration Branch of origin in order that the Labor Arbiter below could "The president, vice president, secretary and treasurer are commonly
act on the case at bench, hear both parties, receive their respective regarded as the principal or executive officers of a corporation, and
evidence and position papers fully observing the requirements of due modern corporation statutes usually designate them as the officers of
process, and resolve the same with reasonable dispatch. the corporation. However, other offices are sometimes created by the
charter or by-laws of a corporation, or the board of directors may be
SO ORDERED. empowered under the by-laws of a corporation to create additional
offices as may be necessary.
The petitioners sought reconsideration,9 reiterating that the
respondent, being a member of the Board of Directors, was a It has been held that an 'office' is created by the charter of the
corporate officer whose removal was not within the LA’s jurisdiction. corporation and the officer is elected by the directors or
stockholders. On the other hand, an 'employee' usually occupies no
The petitioners later submitted to the NLRC in support of the motion office and generally is employed not by action of the directors or
for reconsideration the certified machine copies of Matling’s Amended stockholders but by the managing officer of the corporation who also
Articles of Incorporation and By Laws to prove that the President of determines the compensation to be paid to such employee."
Matling was thereby granted "full power to create new offices and
appoint the officers thereto, and the minutes of special meeting held This ruling was reiterated in the subsequent cases of Ongkingco v.
on June 7, 1999 by Matling’s Board of Directors to prove that the National Labor Relations Commission and De Rossi v. National
respondent was, indeed, a Member of the Board of Directors.10 Labor Relations Commission.

79
The position of vice-president for administration and finance, which As a rule, the illegal dismissal of an officer or other employee of a
Coros used to hold in the corporation, was not created by the private employer is properly cognizable by the LA. This is pursuant to
corporation’s board of directors but only by its president or executive Article 217 (a) 2 of the Labor Code, as amended, which provides as
vice-president pursuant to the by-laws of the corporation. Moreover, follows:
Coros’ appointment to said position was not made through any act of
the board of directors or stockholders of the corporation. Article 217. Jurisdiction of the Labor Arbiters and the Commission. -
Consequently, the position to which Coros was appointed and later on (a) Except as otherwise provided under this Code, the Labor Arbiters
removed from, is not a corporate office despite its nomenclature, but shall have original and exclusive jurisdiction to hear and decide, within
an ordinary office in the corporation. thirty (30) calendar days after the submission of the case by the
parties for decision without extension, even in the absence of
Coros’ alleged illegal dismissal therefrom is, therefore, within the stenographic notes, the following cases involving all workers, whether
jurisdiction of the labor arbiter. agricultural or non-agricultural:

WHEREFORE, the petition for certiorari is hereby DISMISSED. 1. Unfair labor practice cases;

SO ORDERED. 2. Termination disputes;

The CA denied the petitioners’ motion for reconsideration on April 2, 3. If accompanied with a claim for reinstatement, those
2003.13 cases that workers may file involving wages, rates of
pay, hours of work and other terms and conditions of
Issue employment;

Thus, the petitioners are now before the Court for a review on 4. Claims for actual, moral, exemplary and other forms
certiorari, positing that the respondent was a stockholder/member of of damages arising from the employer-employee
the Matling’s Board of Directors as well as its Vice President for relations;
Finance and Administration; and that the CA consequently erred in
holding that the LA had jurisdiction. 5. Cases arising from any violation of Article 264 of this
Code, including questions involving the legality of
The decisive issue is whether the respondent was a corporate officer strikes and lockouts; and
of Matling or not. The resolution of the issue determines whether the
LA or the RTC had jurisdiction over his complaint for illegal dismissal. 6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other
Ruling claims arising from employer-employee relations,
including those of persons in domestic or household
The appeal fails. service, involving an amount exceeding five thousand
pesos (₱5,000.00) regardless of whether accompanied
I with a claim for reinstatement.

The Law on Jurisdiction in Dismissal Cases


80
(b) The Commission shall have exclusive appellate jurisdiction jurisdiction over pending suspension of payments/rehabilitation cases
over all cases decided by Labor Arbiters. filed as of 30 June 2000 until finally disposed.

(c) Cases arising from the interpretation or implementation of Considering that the respondent’s complaint for illegal dismissal was
collective bargaining agreements and those arising from the commenced on August 10, 2000, it might come under the coverage of
interpretation or enforcement of company personnel policies Section 5.2 of RA No. 8799, supra, should it turn out that the
shall be disposed of by the Labor Arbiter by referring the same respondent was a corporate, not a regular, officer of Matling.
to the grievance machinery and voluntary arbitration as may
be provided in said agreements. (As amended by Section 9, II
Republic Act No. 6715, March 21, 1989).
Was the Respondent’s Position of Vice President
Where the complaint for illegal dismissal concerns a corporate officer, for Administration and Finance a Corporate Office?
however, the controversy falls under the jurisdiction of the Securities
and Exchange Commission (SEC), because the controversy arises We must first resolve whether or not the respondent’s position as Vice
out of intra-corporate or partnership relations between and among President for Finance and Administration was a corporate office. If it
stockholders, members, or associates, or between any or all of them was, his dismissal by the Board of Directors rendered the matter an
and the corporation, partnership, or association of which they are intra-corporate dispute cognizable by the RTC pursuant to RA No.
stockholders, members, or associates, respectively; and between 8799.
such corporation, partnership, or association and the State insofar as
the controversy concerns their individual franchise or right to exist as The petitioners contend that the position of Vice President for Finance
such entity; or because the controversy involves the election or and Administration was a corporate office, having been created by
appointment of a director, trustee, officer, or manager of such Matling’s President pursuant to By-Law No. V, as amended,16 to wit:
corporation, partnership, or association.14 Such controversy, among
others, is known as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No. BY LAW NO. V
8799,15 otherwise known as The Securities Regulation Code, the Officers
SEC’s jurisdiction over all intra-corporate disputes was transferred to
the RTC, pursuant to Section 5.2 of RA No. 8799, to wit:
The President shall be the executive head of the corporation; shall
preside over the meetings of the stockholders and directors; shall
5.2. The Commission’s jurisdiction over all cases enumerated under countersign all certificates, contracts and other instruments of the
Section 5 of Presidential Decree No. 902-A is hereby transferred to corporation as authorized by the Board of Directors; shall have full
the Courts of general jurisdiction or the appropriate Regional Trial power to hire and discharge any or all employees of the corporation;
Court: Provided, that the Supreme Court in the exercise of its shall have full power to create new offices and to appoint the officers
authority may designate the Regional Trial Court branches that shall thereto as he may deem proper and necessary in the operations of
exercise jurisdiction over these cases. The Commission shall retain the corporation and as the progress of the business and welfare of the
jurisdiction over pending cases involving intra-corporate disputes corporation may demand; shall make reports to the directors and
submitted for final resolution which should be resolved within one (1) stockholders and perform all such other duties and functions as are
year from the enactment of this Code. The Commission shall retain incident to his office or are properly required of him by the Board of

81
Directors. In case of the absence or disability of the President, the citizen of the Philippines, and such other officers as may be
Executive Vice President shall have the power to exercise his provided for in the by-laws. Any two (2) or more positions may be
functions. held concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same
The petitioners argue that the power to create corporate offices and to time.
appoint the individuals to assume the offices was delegated by
Matling’s Board of Directors to its President through By-Law No. V, as The directors or trustees and officers to be elected shall perform the
amended; and that any office the President created, like the position duties enjoined on them by law and the by-laws of the corporation.
of the respondent, was as valid and effective a creation as that made Unless the articles of incorporation or the by-laws provide for a
by the Board of Directors, making the office a corporate office. In greater majority, a majority of the number of directors or trustees as
justification, they cite Tabang v. National Labor Relations fixed in the articles of incorporation shall constitute a quorum for the
Commission,17 which held that "other offices are sometimes created transaction of corporate business, and every decision of at least a
by the charter or by-laws of a corporation, or the board of directors majority of the directors or trustees present at a meeting at which
may be empowered under the by-laws of a corporation to create there is a quorum shall be valid as a corporate act, except for the
additional officers as may be necessary." election of officers which shall require the vote of a majority of all the
members of the board.
The respondent counters that Matling’s By-Laws did not list his
position as Vice President for Finance and Administration as one of Directors or trustees cannot attend or vote by proxy at board
the corporate offices; that Matling’s By-Law No. III listed only four meetings.
corporate officers, namely: President, Executive Vice President,
Secretary, and Treasurer; 18 that the corporate offices contemplated in Conformably with Section 25, a position must be expressly mentioned
the phrase "and such other officers as may be provided for in the by- in the By-Laws in order to be considered as a corporate office. Thus,
laws" found in Section 25 of the Corporation Code should be clearly the creation of an office pursuant to or under a By-Law enabling
and expressly stated in the By-Laws; that the fact that Matling’s By- provision is not enough to make a position a corporate office. Guerrea
Law No. III dealt with Directors & Officers while its By-Law No. V dealt v. Lezama,19 the first ruling on the matter, held that the only officers of
with Officers proved that there was a differentiation between the a corporation were those given that character either by the
officers mentioned in the two provisions, with those classified under Corporation Code or by the By-Laws; the rest of the corporate officers
By-Law No. V being ordinary or non-corporate officers; and that the could be considered only as employees or subordinate officials. Thus,
officer, to be considered as a corporate officer, must be elected by the it was held in Easycall Communications Phils., Inc. v. King:20
Board of Directors or the stockholders, for the President could only
appoint an employee to a position pursuant to By-Law No. V. An "office" is created by the charter of the corporation and the officer
is elected by the directors or stockholders. On the other hand, an
We agree with respondent. employee occupies no office and generally is employed not by the
action of the directors or stockholders but by the managing officer of
Section 25 of the Corporation Code provides: the corporation who also determines the compensation to be paid to
such employee.
Section 25. Corporate officers, quorum.--Immediately after their
election, the directors of a corporation must formally organize by the In this case, respondent was appointed vice president for nationwide
election of a president, who shall be a director, a treasurer who may expansion by Malonzo, petitioner’'s general manager, not by the
or may not be a director, a secretary who shall be a resident and board of directors of petitioner. It was also Malonzo who determined
82
the compensation package of respondent. Thus, respondent was an itself to elect the corporate officers. Verily, the power to elect the
employee, not a "corporate officer." The CA was therefore correct in corporate officers was a discretionary power that the law exclusively
ruling that jurisdiction over the case was properly with the NLRC, not vested in the Board of Directors, and could not be delegated to
the SEC (now the RTC). subordinate officers or agents.22 The office of Vice President for
Finance and Administration created by Matling’s President pursuant to
This interpretation is the correct application of Section 25 of the By Law No. V was an ordinary, not a corporate, office.
Corporation Code, which plainly states that the corporate officers are
the President, Secretary, Treasurer and such other officers as may be To emphasize, the power to create new offices and the power to
provided for in the By-Laws. Accordingly, the corporate officers in the appoint the officers to occupy them vested by By-Law No. V merely
context of PD No. 902-A are exclusively those who are given that allowed Matling’s President to create non-corporate offices to be
character either by the Corporation Code or by the corporation’s By- occupied by ordinary employees of Matling. Such powers were
Laws. incidental to the President’s duties as the executive head of Matling to
assist him in the daily operations of the business.
A different interpretation can easily leave the way open for the Board
of Directors to circumvent the constitutionally guaranteed security of The petitioners’ reliance on Tabang, supra, is misplaced. The
tenure of the employee by the expedient inclusion in the By-Laws of statement in Tabang, to the effect that offices not expressly
an enabling clause on the creation of just any corporate officer mentioned in the By-Laws but were created pursuant to a By-Law
position. enabling provision were also considered corporate offices, was
plainly obiter dictum due to the position subject of the controversy
It is relevant to state in this connection that the SEC, the primary being mentioned in the By-Laws. Thus, the Court held therein that the
agency administering the Corporation Code, adopted a similar position was a corporate office, and that the determination of the
interpretation of Section 25 of the Corporation Code in its Opinion rights and liabilities arising from the ouster from the position was an
dated November 25, 1993,21 to wit: intra-corporate controversy within the SEC’s jurisdiction.

Thus, pursuant to the above provision (Section 25 of the Corporation In Nacpil v. Intercontinental Broadcasting Corporation,23 which may
Code), whoever are the corporate officers enumerated in the by-laws be the more appropriate ruling, the position subject of the controversy
are the exclusive Officers of the corporation and the Board has no was not expressly mentioned in the By-Laws, but was created
power to create other Offices without amending first the corporate By- pursuant to a By-Law enabling provision authorizing the Board of
laws. However, the Board may create appointive positions other Directors to create other offices that the Board of Directors might see
than the positions of corporate Officers, but the persons fit to create. The Court held there that the position was a corporate
occupying such positions are not considered as corporate office, relying on the obiter dictum in Tabang.
officers within the meaning of Section 25 of the Corporation
Code and are not empowered to exercise the functions of the Considering that the observations earlier made herein show that the
corporate Officers, except those functions lawfully delegated to them. soundness of their dicta is not
Their functions and duties are to be determined by the Board of unassailable, Tabang and Nacpil should no longer be controlling.
Directors/Trustees.
III
Moreover, the Board of Directors of Matling could not validly delegate
the power to create a corporate office to the President, in light of
Section 25 of the Corporation Code requiring the Board of Directors
83
Did Respondent’s Status as Director and question that is the subject of their controversy. This was our thrust
Stockholder Automatically Convert his Dismissal in Viray v. Court of Appeals:27
into an Intra-Corporate Dispute?
The establishment of any of the relationships mentioned above will
Yet, the petitioners insist that because the respondent was a not necessarily always confer jurisdiction over the dispute on the SEC
Director/stockholder of Matling, and relying on Paguio v. National to the exclusion of regular courts. The statement made in one case
Labor Relations Commission24 and Ongkingko v. National Labor that the rule admits of no exceptions or distinctions is not that
Relations Commission,25 the NLRC had no jurisdiction over his absolute. The better policy in determining which body has jurisdiction
complaint, considering that any case for illegal dismissal brought by a over a case would be to consider not only the status or relationship of
stockholder/officer against the corporation was an intra-corporate the parties but also the nature of the question that is the subject of
matter that must fall under the jurisdiction of the SEC conformably their controversy.
with the context of PD No. 902-A.
Not every conflict between a corporation and its stockholders involves
The petitioners’ insistence is bereft of basis. corporate matters that only the SEC can resolve in the exercise of its
adjudicatory or quasi-judicial powers. If, for example, a person leases
To begin with, the reliance on Paguio and Ongkingko is misplaced. In an apartment owned by a corporation of which he is a stockholder,
both rulings, the complainants were undeniably corporate officers due there should be no question that a complaint for his ejectment for non-
to their positions being expressly mentioned in the By-Laws, aside payment of rentals would still come under the jurisdiction of the
from the fact that both of them had been duly elected by the regular courts and not of the SEC. By the same token, if one person
respective Boards of Directors. But the herein respondent’s position of injures another in a vehicular accident, the complaint for damages
Vice President for Finance and Administration was not expressly filed by the victim will not come under the jurisdiction of the SEC
mentioned in the By-Laws; neither was the position of Vice President simply because of the happenstance that both parties are
for Finance and Administration created by Matling’s Board of stockholders of the same corporation. A contrary interpretation would
Directors. Lastly, the President, not the Board of Directors, appointed dissipate the powers of the regular courts and distort the meaning and
him. intent of PD No. 902-A.

True it is that the Court pronounced in Tabang as follows: In another case, Mainland Construction Co., Inc. v. Movilla,28 the
Court reiterated these determinants thuswise:
Also, an intra-corporate controversy is one which arises between a
stockholder and the corporation. There is no distinction, qualification In order that the SEC (now the regular courts) can take cognizance of
or any exemption whatsoever. The provision is broad and covers all a case, the controversy must pertain to any of the following
kinds of controversies between stockholders and corporations.26 relationships:

However, the Tabang pronouncement is not controlling because it is a) between the corporation, partnership or association and the
too sweeping and does not accord with reason, justice, and fair play. public;
In order to determine whether a dispute constitutes an intra-corporate
controversy or not, the Court considers two elements instead, namely: b) between the corporation, partnership or association and its
(a) the status or relationship of the parties; and (b) the nature of the stockholders, partners, members or officers;

84
c) between the corporation, partnership or association and the 1966 – Bookkeeper
State as far as its franchise, permit or license to operate is
concerned; and 1968 – Senior Accountant

d) among the stockholders, partners or associates themselves. 1969 – Chief Accountant

The fact that the parties involved in the controversy are all 1972 – Office Supervisor
stockholders or that the parties involved are the stockholders and the
corporation does not necessarily place the dispute within the ambit of 1973 – Assistant Treasurer
the jurisdiction of SEC. The better policy to be followed in determining
jurisdiction over a case should be to consider concurrent factors such 1978 – Special Assistant for Finance
as the status or relationship of the parties or the nature of the question
that is the subject of their controversy. In the absence of any one of 1980 – Assistant Comptroller
these factors, the SEC will not have jurisdiction. Furthermore, it does
not necessarily follow that every conflict between the corporation and
1983 – Finance and Administrative Manager
its stockholders would involve such corporate matters as only the
SEC can resolve in the exercise of its adjudicatory or quasi-judicial
powers.29 1985 – Asst. Vice President for Finance and Administration

The criteria for distinguishing between corporate officers who may be 1987 to April 17, 2000 – Vice President for Finance and
ousted from office at will, on one hand, and ordinary corporate Administration
employees who may only be terminated for just cause, on the other
hand, do not depend on the nature of the services performed, but on Even though he might have become a stockholder of Matling in 1992,
the manner of creation of the office. In the respondent’s case, he was his promotion to the position of Vice President for Finance and
supposedly at once an employee, a stockholder, and a Director of Administration in 1987 was by virtue of the length of quality service he
Matling. The circumstances surrounding his appointment to office had rendered as an employee of Matling. His subsequent acquisition
must be fully considered to determine whether the dismissal of the status of Director/stockholder had no relation to his promotion.
constituted an intra-corporate controversy or a labor termination Besides, his status of Director/stockholder was unaffected by his
dispute. We must also consider whether his status as Director and dismissal from employment as Vice President for Finance and
stockholder had any relation at all to his appointment and subsequent Administration.1avvphi1
dismissal as Vice President for Finance and Administration.
In Prudential Bank and Trust Company v. Reyes,30 a case involving a
Obviously enough, the respondent was not appointed as Vice lady bank manager who had risen from the ranks but was dismissed,
President for Finance and Administration because of his being a the Court held that her complaint for illegal dismissal was correctly
stockholder or Director of Matling. He had started working for Matling brought to the NLRC, because she was deemed a regular employee
on September 8, 1966, and had been employed continuously for 33 of the bank. The Court observed thus:
years until his termination on April 17, 2000, first as a bookkeeper,
and his climb in 1987 to his last position as Vice President for Finance It appears that private respondent was appointed Accounting Clerk by
and Administration had been gradual but steady, as the following the Bank on July 14, 1963. From that position she rose to become
sequence indicates: supervisor. Then in 1982, she was appointed Assistant Vice-President
85
which she occupied until her illegal dismissal on July 19, 1991. The CONCHITA CARPIO MORALES
bank’s contention that she merely holds an elective position and Associate Justice
that in effect she is not a regular employee is belied by the Chairperson
nature of her work and her length of service with the Bank. As ARTURO D. BRION MARTIN S. VILLARAMA, JR.
earlier stated, she rose from the ranks and has been employed with Associate Justice Associate Justice
the Bank since 1963 until the termination of her employment in 1991. MARIA LOURDES P. A. SERENO
As Assistant Vice President of the Foreign Department of the Bank, Associate Justice
she is tasked, among others, to collect checks drawn against ATTESTATION
overseas banks payable in foreign currency and to ensure the
collection of foreign bills or checks purchased, including the signing of I attest that the conclusions in the above Decision had been reached
transmittal letters covering the same. It has been stated that "the in consultation before the case was assigned to the writer of the
primary standard of determining regular employment is the opinion of the Court’s Division.
reasonable connection between the particular activity performed by
the employee in relation to the usual trade or business of the CONCHITA CARPIO MORALES
employer. Additionally, "an employee is regular because of the nature Associate Justice
of work and the length of service, not because of the mode or even Chairperson
the reason for hiring them." As Assistant Vice-President of the Foreign
Department of the Bank she performs tasks integral to the operations CERTIFICATION
of the bank and her length of service with the bank totaling 28 years
speaks volumes of her status as a regular employee of the bank. In
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
fine, as a regular employee, she is entitled to security of tenure; that
conclusions in the above Decision had been reached in consultation
is, her services may be terminated only for a just or authorized cause.
before the case was assigned to the writer of the opinion of the
This being in truth a case of illegal dismissal, it is no wonder then that
Court’s Division.
the Bank endeavored to the very end to establish loss of trust and
confidence and serious misconduct on the part of private respondent
but, as will be discussed later, to no avail. RENATO C. CORONA
Chief Justice
WHEREFORE, we deny the petition for review on certiorari, and
affirm the decision of the Court of Appeals.

Costs of suit to be paid by the petitioners. G.R. No. 100152             March 31, 2000
ACEBEDO OPTICAL COMPANY, INC., petitioner,
vs.
SO ORDERED.
THE HONORABLE COURT OF APPEALS, Hon. MAMINDIARA
MANGOTARA, in his capacity as Presiding Judge of the RTC,
LUCAS P. BERSAMIN
12th Judicial Region, Br. 1, Iligan City; SAMAHANG
Associate Justice OPTOMETRIST Sa PILIPINAS — Iligan City Chapter, LEO T.
CAHANAP, City Legal Officer, and Hon. CAMILO P. CABILI, City
WE CONCUR: Mayor of Iligan, respondents.
PURISIMA, J.:

86
At bar is a petition for review under Rule 45 of the Rules of Court conditions set forth in its business permit and requesting the
seeking to nullify the dismissal by the Court of Appeals of the original cancellation and/or revocation of such permit.
petition for certiorari, prohibition and mandamus filed by the herein
petitioner against the City Mayor and City Legal Officer of Iligan and Acting on such complaint, then City Mayor Camilo P. Cabili
the Samahang Optometrist sa Pilipinas — Iligan Chapter (SOPI, for designated City Legal Officer Leo T. Cahanap to conduct an
brevity). investigation on the matter. On July 12, 1989, respondent City Legal
Officer submitted a report to the City Mayor finding the herein
The antecedent facts leading to the filing of the instant petition are as petitioner guilty of violating all the conditions of its business permit
follows: and recommending the disqualification of petitioner from operating its
business in Iligan City. The report further advised that no new permit
Petitioner applied with the Office of the City Mayor of Iligan for a shall be granted to petitioner for the year 1989 and should only be
business permit. After consideration of petitioner's application and the given time to wind up its affairs.
opposition interposed thereto by local optometrists, respondent City
Mayor issued Business Permit No. 5342 subject to the following On July 19, 1989, the City Mayor sent petitioner a Notice of
conditions: Resolution and Cancellation of Business Permit effective as of said
date and giving petitioner three (3) months to wind up its affairs.
1. Since it is a corporation, Acebedo cannot put up an optical
clinic but only a commercial store; On October 17, 1989, petitioner brought a petition for certiorari,
prohibition and mandamus with prayer for restraining
2. Acebedo cannot examine and/or prescribe reading and order/preliminary injunction against the respondents, City Mayor, City
similar optical glasses for patients, because these are Legal Officer and Samahan ng Optometrists sa Pilipinas-Iligan City
functions of optical clinics; Chapter (SOPI), docketed as Civil Case No. 1497 before the Regional
Trial Court of Iligan City, Branch I. Petitioner alleged that (1) it was
3. Acebedo cannot sell reading and similar eyeglasses without denied due process because it was not given an opportunity to
a prescription having first been made by an independent present its evidence during the investigation conducted by the City
optometrist (not its employee) or independent optical clinic. Legal Officer; (2) it was denied equal protection of the laws as the
Acebedo can only sell directly to the public, without need of a limitations imposed on its business permit were not imposed on
prescription, Ray-Ban and similar eyeglasses; similar businesses in Iligan City; (3) the City Mayor had no authority to
impose the special conditions on its business permit; and (4) the City
4. Acebedo cannot advertise optical lenses and eyeglasses, Legal Officer had no authority to conduct the investigation as the
but can advertise Ray-Ban and similar glasses and frames; matter falls within the exclusive jurisdiction of the Professional
Regulation Commission and the Board of Optometry.
5. Acebedo is allowed to grind lenses but only upon the
prescription of an independent optometrist. 1 Respondent SOPI interposed a Motion to Dismiss the Petition on the
ground of non-exhaustion of administrative remedies but on
On December 5, 1988, private respondent Samahan ng Optometrist November 24, 1989, Presiding Judge Mamindiara P. Mangotara
Sa Pilipinas (SOPI), Iligan Chapter, through its Acting President, Dr. deferred resolution of such Motion to Dismiss until after trial of the
Frances B. Apostol, lodged a complaint against the petitioner before case on the merits. However, the prayer for a writ of preliminary
the Office of the City Mayor, alleging that Acebedo had violated the injunction was granted. Thereafter, respondent SOPI filed its
answer.1âwphi1.nêt
87
On May 30, 1990, the trial court dismissed the petition for failure to The petition is impressed with merit.
exhaust administrative remedies, and dissolved the writ of preliminary
injunction it earlier issued. Petitioner's motion for reconsideration met Although petitioner agrees with the finding of the Court of Appeals that
the same fate. It was denied by an Order dated June 28, 1990. respondent City Mayor acted beyond the scope of his authority in
imposing the assailed conditions in subject business permit, it has
On October 3, 1990, instead of taking an appeal, petitioner filed a excepted to the ruling of the Court of Appeals that the said conditions
petition for certiorari, prohibition and mandamus with the Court of nonetheless became binding on petitioner, once accepted, as a
Appeals seeking to set aside the questioned Order of Dismissal, private agreement or contract. Petitioner maintains that the said
branding the same as tainted with grave abuse of discretion on the special conditions are null and void for being ultra vires and cannot be
part of the trial court. given effect; and therefore, the principle of estoppel cannot apply
against it.
On January 24, 1991, the Ninth Division 2 of the Court of Appeals
dismissed the petition for lack of merit. Petitioner's motion On the other hand, the public respondents, City Mayor and City Legal
reconsideration was also denied in the Resolution dated May 15, Officer, private respondent SOPI and the Office of the Solicitor
1991. General contend that as a valid exercise of police power, respondent
City Mayor has the authority to impose, as he did, special conditions
Undaunted, petitioner has come before this court via the present in the grant of business permits.
petition, theorizing that:
Police power as an inherent attribute of sovereignty is the power to
A. prescribe regulations to promote the health, morals, peace, education,
good order or safety and general welfare of the people. 9 The State,
THE RESPONDENT COURT, WHILE CORRECTLY through the legislature, has delegated the exercise of police power to
HOLDING THAT THE RESPONDENT CITY MAYOR ACTED local government units, as agencies of the State, in order to effectively
BEYOND HIS AUTHORITY IN IMPOSING THE SPECIAL accomplish and carry out the declared objects of their creation. 4 This
CONDITIONS IN THE PERMIT AS THEY HAD NO BASIS IN delegation of police power is embodied in the general welfare clause
ANY LAW OR ORDINANCE, ERRED IN HOLDING THAT of the Local Government Code which provides:
THE SAID SPECIAL CONDITIONS NEVERTHELESS
BECAME BINDING ON PETITIONER UPON ITS Sec. 6. General Welfare. — Every local government unit shall
ACCEPTANCE THEREOF AS A PRIVATE AGREEMENT OR exercise the powers expressly granted, those necessarily
CONTRACT. implied therefrom, as well as powers necessary, appropriate,
or incidental for its efficient and effective governance, and
B. those which are essential to the promotion of the general
welfare. Within their respective territorial jurisdictions, local
THE RESPONDENT COURT OF APPEALS ERRED IN government units shall ensure and support, among other
HOLDING THAT THE CONTRACT BETWEEN PETITIONER things, the preservation and enrichment of culture, promote
AND THE CITY OF ILIGAN WAS ENTERED INTO BY THE health and safety, enhance the right of the people to a
LATTER IN THE PERFORMANCE OF ITS PROPRIETARY balanced ecology, encourage and support the development of
FUNCTIONS. appropriate and self-reliant scientific and technological
capabilities, improve public morals, enhance economic
prosperity and social justice, promote full employment among
88
their residents, maintain peace and order, and preserve the x x x           x x x          x x x
comfort and convenience of their inhabitants.
. . . The exercise of police power by the local government is
The scope of police power has been held to be so comprehensive as valid unless it contravenes the fundamental law of the land or
to encompass almost all matters affecting the health, safety, peace, an act of the legislature, or unless it is against public policy or
order, morals, comfort and convenience of the community. Police is unreasonable, oppressive, partial, discriminating or in
power is essentially regulatory in nature and the power to issue derogation of a common right. 6
licenses or grant business permits, if exercised for a regulatory and
not revenue-raising purpose, is within the ambit of this power. 5 In the case under consideration, the business permit granted by
respondent City Mayor to petitioner was burdened with several
The authority of city mayors to issue or grant licenses and business conditions. Petitioner agrees with the holding by the Court of Appeals
permits is beyond cavil. It is provided for by law. Section 171, that respondent City Mayor acted beyond his authority in imposing
paragraph 2 (n) of Batas Pambansa Bilang 337 otherwise known as such special conditions in its permit as the same have no basis in the
the Local Government Code of 1983, reads: law or ordinance. Public respondents and private respondent SOPI,
on the other hand, are one in saying that the imposition of said special
Sec. 171. The City Mayor shall: conditions on petitioner's business permit is well within the authority of
the City Mayor as a valid exercise of police power.
x x x           x x x          x x x
As aptly discussed by the Solicitor General in his Comment, the
n) Grant or refuse to grant, pursuant to law, city licenses or power to issue licenses and permits necessarily includes the corollary
permits, and revoke the same for violation of law or ordinance power to revoke, withdraw or cancel the same. And the power to
or the conditions upon which they are granted. revoke or cancel, likewise includes the power to restrict through the
imposition of certain conditions. In the case of Austin-
However, the power to grant or issue licenses or business permits Hardware, Inc. vs. Court of Appeals, 7 it was held that the power to
must always be exercised in accordance with law, with utmost license carries with it the authority to provide reasonable terms and
observance of the rights of all concerned to due process and equal conditions under which the licensed business shall be conducted. As
protection of the law. the Solicitor General puts it:

Succinct and in point is the ruling of this Court, that: If the City Mayor is empowered to grant or refuse to grant a
license, which is a broader power, it stands to reason that he
. . . While a business may be regulated, such regulation must, can also exercise a lesser power that is reasonably incidental
however, be within the bounds of reason, i.e., the regulatory to his express power, i.e. to restrict a license through the
ordinance must be reasonable, and its provision cannot be imposition of certain conditions, especially so that there is no
oppressive amounting to an arbitrary interference with the positive prohibition to the exercise of such prerogative by the
business or calling subject of regulation. A lawful business or City Mayor, nor is there any particular official or body vested
calling may not, under the guise of regulation, be with such authority. 8
unreasonably interfered with even by the exercise of police
power. . . . However, the present inquiry does not stop there, as the Solicitor
General believes. The power or authority of the City Mayor to impose
conditions or restrictions in the business permit is indisputable. What
89
petitioner assails are the conditions imposed in its particular case prompting the Samahan ng Optometrists to elevate the matter to this
which, it complains, amount to a confiscation of the business in which Court.
petitioner is engaged.
The First Division of this Court, then composed of Honorable Justice
Distinction must be made between the grant of a license or permit to Teodoro Padilla, Josue Bellosillo, Jose Vitug and Santiago Kapunan,
do business and the issuance of a license to engage in the practice of with Honorable Justice Regino Hermosisima, Jr. as ponente, denied
a particular profession. The first is usually granted by the local the petition and ruled in favor of respondent Acebedo International
authorities and the second is issued by the Board or Commission Corporation, holding that "the fact that private respondent hires
tasked to regulate the particular profession. A business permit optometrists who practice their profession in the course of their
authorizes the person, natural or otherwise, to engage in business or employment in private respondent's optical shops, does not translate
some form of commercial activity. A professional license, on the other into a practice of optometry by private respondent itself," 10 The Court
hand, is the grant of authority to a natural person to engage in the further elucidated that in both the old and new Optometry Law, R.A.
practice or exercise of his or her profession. No. 1998, superseded by R.A. No. 8050, it is significant to note that
there is no prohibition against the hiring by corporations of
In the case at bar, what is sought by petitioner from respondent City optometrists. The Court concluded thus:
Mayor is a permit to engage in the business of running an optical
shop. It does not purport to seek a license to engage in the practice of All told, there is no law that prohibits the hiring by corporations
optometry as a corporate body or entity, although it does have in its of optometrists or considers the hiring by corporations of
employ, persons who are duly licensed to practice optometry by the optometrists as a practice by the corporation itself of the
Board of Examiners in Optometry. profession of optometry.

The case of Samahan ng Optometrists sa Pilipinas In the present case, the objective of the imposition of subject
vs. Acebedo International Corporation, G.R. No. conditions on petitioner's business permit could be attained by
117097, 9 promulgated by this Court on March 21, 1997, is in point. requiring the optometrists in petitioner's employ to produce a valid
The factual antecedents of that case are similar to those of the case certificate of registration as optometrist, from the Board of Examiners
under consideration and the issue ultimately resolved therein is in Optometry. A business permit is issued primarily to regulate the
exactly the same issue posed for resolution by this Court en banc. conduct of business and the City Mayor cannot, through the issuance
of such permit, regulate the practice of a profession, like that of
In the said case, the Acebedo International Corporation filed with the optometry. Such a function is within the exclusive domain of the
Office of the Municipal Mayor an application for a business permit for administrative agency specifically empowered by law to supervise the
the operation of a branch of Acebedo Optical in Candon, Ilocos Sur. profession, in this case the Professional Regulations Commission and
The application was opposed by the Samahan ng Optometrists sa the Board of Examiners in Optometry.
Pilipinas-Ilocos Sur Chapter, theorizing that Acebedo is a juridical
entity not qualified to practice optometry. A committee was created by It is significant to note that during the deliberations of the bicameral
the Office of the Mayor to study private respondent's application. conference committee of the Senate and the House of
Upon recommendation of the said committee, Acebedo's application Representatives on R.A. 8050 (Senate Bill No. 1998 and House Bill
for a business permit was denied. Acebedo filed a petition with the No. 14100), the committee failed to reach a consensus as to the
Regional Trial Court but the same was dismissed. On appeal, prohibition on indirect practice of optometry by corporations. The
however, the Court of Appeals reversed the trial court's disposition, proponent of the bill, former Senator Freddie Webb, admitted thus:

90
Senator Webb: xxx xxx xxx making and selling of eyeglasses, spectacles and lenses by
corporations so long as the patient is actually examined and
The focus of contention remains to be the proposal of prescribed for by a qualified practitioner. 14
prohibiting the indirect practice of optometry by
corporations.1âwphi1 We took a second look and even a third The primary purpose of the statute regulating the practice of
look at the issue in the bicameral conference, but a optometry is to insure that optometrical services are to be rendered by
compromise remained elusive. 11 competent and licensed persons in order to protect the health and
physical welfare of the people from the dangers engendered by
Former Senator Leticia Ramos-Shahani likewise voted her reservation unlicensed practice. Such purpose may be fully accomplished
in casting her vote: although the person rendering the service is employed by a
corporation. 15
Senator Shahani: Mr. President.
Furthermore, it was ruled that the employment of a qualified
The optometry bills have evoked controversial views from the optometrist by a corporation is not against public policy. 16 Unless
members of the panel. While we realize the need to uplift the prohibited by statutes, a corporation has all the contractual rights that
standards of optometry as a profession, the consesnsus of an individual has 17 and it does not become the practice of medicine or
both Houses was to avoid touching sensitive issues which optometry because of the presence of a physician or
properly belong to judicial determination. Thus, the bicameral optometrist. 18 The manufacturing, selling, trading and bartering of
conference committee decided to leave the issue of indirect eyeglasses and spectacles as articles of merchandise do not
practice of optometry and the use of trade names open to the constitute the practice of optometry. 19
wisdom of the Courts which are vested with the prerogative of
interpreting the laws. 12 In the case of Dvorine vs. Castelberg Jewelry
Corporation, 20 defendant corporation conducted as part of its
From the foregoing, it is thus evident that Congress has not adopted a business, a department for the sale of eyeglasses and the furnishing
unanimous position on the matter of prohibition of indirect practice of of optometrical services to its clients. It employed a registered
optometry by corporations, specifically on the hiring and employment optometrist who was compensated at a regular salary and
of licensed optometrists by optical corporations. It is clear that commission and who was furnished instruments and appliances
Congress left the resolution of such issue for judicial determination, needed for the work, as well as an office. In holding that corporation
and it is therefore proper for this Court to resolve the issue. was not engaged in the practice of optometry, the court ruled that
there is no public policy forbidding the commercialization of
Even in the United States, jurisprudence varies and there is a conflict optometry, as in law and medicine, and recognized the general
of opinions among the federal courts as to the right of a corporation or practice of making it a commercial business by advertising and selling
individual not himself licensed, to hire and employ licensed eyeglasses.
optometrists. 13
To accomplish the objective of the regulation, a state may provide by
Courts have distinguished between optometry as a learned profession statute that corporations cannot sell eyeglasses, spectacles, and
in the category of law and medicine, and optometry as a mechanical lenses unless a duly licensed physician or a duly qualified optometrist
art. And, insofar as the courts regard optometry as merely a is in charge of, and in personal attendance at the place where such
mechanical art, they have tended to find nothing objectionable in the articles are sold. 21 In such a case, the patient's primary and essential

91
safeguard lies in the optometrist's control of the "treatment" by means Anent the second assigned error, petitioner maintains that its
of prescription and preliminary and final examination. 22 business permit issued by the City Mayor is not a contract entered
into by Iligan City in the exercise of its proprietary functions, such that
In analogy, it is noteworthy that private hospitals are maintained by although petitioner agreed to such conditions, it cannot be held in
corporations incorporated for the purpose of furnishing medical and estoppel since ultra vires acts cannot be given effect.
surgical treatment. In the course of providing such treatments, these
corporations employ physicians, surgeons and medical practitioners, Respondents, on the other hand, agree with the ruling of the Court of
in the same way that in the course of manufacturing and selling Appeals that the business permit in question is in the nature of a
eyeglasses, eye frames and optical lenses, optical shops hire licensed contract between Iligan City and the herein petitioner, the terms and
optometrists to examine, prescribe and dispense ophthalmic lenses. conditions of which are binding upon agreement, and that petitioner is
No one has ever charged that these corporations are engaged in the estopped from questioning the same. Moreover, in the Resolution
practice of medicine. There is indeed no valid basis for treating denying petitioner's motion for reconsideration, the Court of Appeals
corporations engaged in the business of running optical shops held that the contract between the petitioner and the City of Iligan was
differently. entered into by the latter in the performance of its proprietary
functions.
It also bears stressing, as petitioner has pointed out, that the public
and private respondents did not appeal from the ruling of the Court of This Court holds otherwise. It had occasion to rule that a license or
Appeals. Consequently, the holding by the Court of Appeals that the permit is not in the nature of a contract but a special privilege.
act of respondent City Mayor in imposing the questioned special
conditions on petitioner's business permit is ultra vires cannot be put . . . a license or a permit is not a contract between the
into issue here by the respondents. It is well-settled that: sovereignty and the licensee or permitee, and is not a property
in the constitutional sense, as to which the constitutional
A party who has not appealed from the decision may not proscription against impairment of the obligation of contracts
obtain any affirmative relief from the appellate court other than may extend. A license is rather in the nature of a special
what he had obtain from the lower court, if any, whose privilege, of a permission or authority to do what is within its
decision is brought up on appeal. 23 terms. It is not in any way vested, permanent or absolute. 25

. . . an appellee who is not an appellant may assign errors in It is therefore decisively clear that estoppel cannot apply in this case.
his brief where his purpose is to maintain the judgment on The fact that petitioner acquiesced in the special conditions imposed
other grounds, but he cannot seek modification or reversal of by the City Mayor in subject business permit does not preclude it from
the judgment or affirmative relief unless he has also challenging the said imposition, which is ultra vires or beyond the
appealed. 24 ambit of authority of respondent City Mayor. Ultra vires acts or acts
which are clearly beyond the scope of one's authority are null and void
Thus, respondents' submission that the imposition of subject special and cannot be given any effect. The doctrine of estoppel cannot
conditions on petitioner's business permit is not ultra vires cannot operate to give effect to an act which is otherwise null and void
prevail over the finding and ruling by the Court of Appeals from which or ultra vires.
they (respondents) did not appeal.
The Court of Appeals erred in adjudging subject business permit as
having been issued by responded City Mayor in the performance of
proprietary functions of Iligan City. As hereinabove elaborated upon,
92
the issuance of business licenses and permits by a municipality or city
is essentially regulatory in nature. The authority, which devolved upon
local government units to issue or grant such licenses or permits, is
essentially in the exercise of the police power of the State within the
contemplation of the general welfare clause of the Local Government
Code.

WHEREFORE, the petition is GRANTED; the Decision of the Court of


Appeals in CA-GR SP No. 22995 REVERSED: and the respondent
City Mayor is hereby ordered to reissue petitioner's business permit in
accordance with law and with this disposition. No pronouncement as
to costs.

SO ORDERED.

Bellosillo, Puno, Mendoza, Quisumbing, Buena, Gonzaga-Reyes,


Ynares-Santiago and De Leon, Jr., JJ., concur.
Kapunan, J., see concurring opinion.
Vitug, J., please see dissent.
Davide, Jr., C.J., I join Justice Vitug in his dissent.
Melo, J., I join the dissent of Justice Vitug.
Panganiban, J., I join Justice Vitug's Dissent.
Pardo, J., I join dissent of Justice Vitug.

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,
93
Branch 10, in Civil Case No. 8236. The Court of Appeals held Third: Students are required to take and pay for the subject even
Filipinas Broadcasting Network, Inc. and its broadcasters if the subject does not have an instructor - such greed for money
Hermogenes Alegre and Carmelo Rima liable for libel and ordered on the part of AMEC’s administration. Take the subject Anatomy:
them to solidarily pay Ago Medical and Educational Center-Bicol students would pay for the subject upon enrolment because it is
Christian College of Medicine moral damages, attorney’s fees and offered by the school. However there would be no instructor for such
costs of suit. subject. Students would be informed that course would be moved to a
The Antecedents later date because the school is still searching for the appropriate
instructor.
"Exposé" is a radio documentary4 program hosted by Carmelo ‘Mel’
Rima ("Rima") and Hermogenes ‘Jun’ Alegre ("Alegre").5 Exposé is xxx
aired every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi It is a public knowledge that the Ago Medical and Educational Center
City, the Albay municipalities and other Bicol areas.6 has survived and has been surviving for the past few years since its
inception because of funds support from foreign foundations. If you
In the morning of 14 and 15 December 1989, Rima and Alegre will take a look at the AMEC premises you’ll find out that the names of
exposed various alleged complaints from students, teachers and the buildings there are foreign soundings. There is a McDonald Hall.
parents against Ago Medical and Educational Center-Bicol Christian Why not Jose Rizal or Bonifacio Hall? That is a very concrete and
College of Medicine ("AMEC") and its administrators. Claiming that undeniable evidence that the support of foreign foundations for AMEC
the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as is substantial, isn’t it? With the report which is the basis of the expose
Dean of AMEC’s College of Medicine, filed a complaint for in DZRC today, it would be very easy for detractors and enemies of
damages7 against FBNI, Rima and Alegre on 27 February 1990. the Ago family to stop the flow of support of foreign foundations who
Quoted are portions of the allegedly libelous broadcasts: 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
JUN ALEGRE: purpose with its reason for being it is possible for these foreign
foundations to lift or suspend their donations temporarily.8
Let us begin with the less burdensome: if you have children taking
medical course at AMEC-BCCM, advise them to pass all subjects xxx
because if they fail in any subject they will repeat their year level,
taking up all subjects including those they have passed already. On the other hand, the administrators of AMEC-BCCM, AMEC
Several students had approached me stating that they had consulted Science High School and the AMEC-Institute of Mass
with the DECS which told them that there is no such regulation. If Communication in their effort to minimize expenses in terms of
[there] is no such regulation why is AMEC doing the same? salary are absorbing or continues to accept "rejects". For
example how many teachers in AMEC are former teachers of Aquinas
xxx University but were removed because of immorality? Does it mean
that the present administration of AMEC have the total definite moral
Second: Earlier AMEC students in Physical Therapy had foundation from catholic administrator of Aquinas University. I will
complained that the course is not recognized by DECS. xxx 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
94
woman. Is the AMEC administration exploiting the very [e]nterprising The complaint further alleged that AMEC is a reputable learning
or compromising and undemanding Lola? Could it be that AMEC is institution. With the supposed exposés, FBNI, Rima and Alegre
just patiently making use of Dean Justita Lola were if she is very old. "transmitted malicious imputations, and as such, destroyed plaintiffs’
As in atmospheric situation – zero visibility – the plane cannot land, (AMEC and Ago) reputation." AMEC and Ago included FBNI as
meaning she is very old, low pay follows. By the way, Dean Justita defendant for allegedly failing to exercise due diligence in the
Lola is also the chairman of the committee on scholarship in AMEC. selection and supervision of its employees, particularly Rima and
She had retired from Bicol University a long time ago but AMEC has Alegre.
patiently made use of her.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil
xxx Lozares, filed an Answer10 alleging that the broadcasts against AMEC
were fair and true. FBNI, Rima and Alegre claimed that they were
MEL RIMA: plainly impelled by a sense of public duty to report the "goings-on in
AMEC, [which is] an institution imbued with public interest."
xxx My friends based on the expose, AMEC is a dumping ground for
moral and physically misfit people. What does this mean? Immoral Thereafter, trial ensued. During the presentation of the evidence for
and physically misfits as teachers. the defense, Atty. Edmundo Cea, collaborating counsel of Atty.
Lozares, filed a Motion to Dismiss11 on FBNI’s behalf. The trial court
May I say I’m sorry to Dean Justita Lola. But this is the truth. The truth denied the motion to dismiss. Consequently, FBNI filed a separate
is this, that your are no longer fit to teach. You are too old. As an Answer claiming that it exercised due diligence in the selection and
aviation, your case is zero visibility. Don’t insist. supervision of Rima and Alegre. FBNI claimed that before hiring a
broadcaster, the broadcaster should (1) file an application; (2) be
xxx Why did AMEC still absorb her as a teacher, a dean, and interviewed; and (3) undergo an apprenticeship and training program
chairman of the scholarship committee at that. The reason is practical after passing the interview. FBNI likewise claimed that it always
cost saving in salaries, because an old person is not fastidious, so reminds its broadcasters to "observe truth, fairness and objectivity in
long as she has money to buy the ingredient of beetle juice. The their broadcasts and to refrain from using libelous and indecent
elderly can get by – that’s why she (Lola) was taken in as Dean. language." Moreover, FBNI requires all broadcasters to pass
the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accreditation
xxx test and to secure a KBP permit.

xxx On our end our task is to attend to the interests of students. It is On 14 December 1992, the trial court rendered a Decision12 finding
likely that the students would be influenced by evil. When they FBNI and Alegre liable for libel except Rima. The trial court held that
become members of society outside of campus will be liabilities the broadcasts are libelous per se. The trial court rejected the
rather than assets. What do you expect from a doctor who while broadcasters’ claim that their utterances were the result of straight
studying at AMEC is so much burdened with unreasonable reporting because it had no factual basis. The broadcasters did not
imposition? What do you expect from a student who aside from even verify their reports before airing them to show good faith. In
peculiar problems – because not all students are rich – in their holding FBNI liable for libel, the trial court found that FBNI failed to
struggle to improve their social status are even more burdened with exercise diligence in the selection and supervision of its employees.
false regulations. xxx9 (Emphasis supplied)
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
95
court found Rima’s statement within the "bounds of freedom of The Court of Appeals upheld the trial court’s ruling that the questioned
speech, expression, and of the press." The dispositive portion of the broadcasts are libelous per se and that FBNI, Rima and Alegre failed
decision reads: to overcome the legal presumption of malice. The Court of Appeals
found Rima and Alegre’s claim that they were actuated by their moral
WHEREFORE, premises considered, this court finds for the and social duty to inform the public of the students’ gripes as
plaintiff. Considering the degree of damages caused by the insufficient to justify the utterance of the defamatory remarks.
controversial utterances, which are not found by this court to be
really very serious and damaging, and there being no showing Finding no factual basis for the imputations against AMEC’s
that indeed the enrollment of plaintiff school dropped, defendants administrators, the Court of Appeals ruled that the broadcasts were
Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network made "with reckless disregard as to whether they were true or false."
(owner of the radio station DZRC), are hereby jointly and severally The appellate court pointed out that FBNI, Rima and Alegre failed to
ordered to pay plaintiff Ago Medical and Educational Center-Bicol present in court any of the students who allegedly complained against
Christian College of Medicine (AMEC-BCCM) the amount of AMEC. Rima and Alegre merely gave a single name when asked to
₱300,000.00 moral damages, plus ₱30,000.00 reimbursement of identify the students. According to the Court of Appeals, these
attorney’s fees, and to pay the costs of suit. circumstances cast doubt on the veracity of the broadcasters’ claim
that they were "impelled by their moral and social duty to inform the
SO ORDERED. 13 (Emphasis supplied) public about the students’ gripes."

Both parties, namely, FBNI, Rima and Alegre, on one hand, and The Court of Appeals found Rima also liable for libel since he
AMEC and Ago, on the other, appealed the decision to the Court of remarked that "(1) AMEC-BCCM is a dumping ground for morally and
Appeals. The Court of Appeals affirmed the trial court’s judgment with physically misfit teachers; (2) AMEC obtained the services of Dean
modification. The appellate court made Rima solidarily liable with Justita Lola to minimize expenses on its employees’ salaries; and (3)
FBNI and Alegre. The appellate court denied Ago’s claim for damages AMEC burdened the students with unreasonable imposition and false
and attorney’s fees because the broadcasts were directed against regulations."16
AMEC, and not against her. The dispositive portion of the Court of
Appeals’ decision reads: The Court of Appeals held that FBNI failed to exercise due diligence
in the selection and supervision of its employees for allowing Rima
WHEREFORE, the decision appealed from is hereby AFFIRMED, and Alegre to make the radio broadcasts without the proper KBP
subject to the modification that broadcaster Mel Rima is SOLIDARILY accreditation. The Court of Appeals denied Ago’s claim for damages
ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre. and attorney’s fees because the libelous remarks were directed
against AMEC, and not against her. The Court of Appeals adjudged
SO ORDERED.14 FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages,
attorney’s fees and costs of suit.1awphi1.nét
FBNI, Rima and Alegre filed a motion for reconsideration which the
Court of Appeals denied in its 26 January 2000 Resolution. Issues

Hence, FBNI filed this petition.15 FBNI raises the following issues for resolution:

The Ruling of the Court of Appeals I. WHETHER THE BROADCASTS ARE LIBELOUS;

96
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES; "greed for money on the part of AMEC’s administrators"; "AMEC is a
dumping ground, garbage of xxx moral and physical misfits"; and
III. WHETHER THE AWARD OF ATTORNEY’S FEES IS AMEC students who graduate "will be liabilities rather than assets" of
PROPER; and the society are libelous per se. Taken as a whole, the broadcasts
suggest that AMEC is a money-making institution where physically
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA and morally unfit teachers abound.
AND ALEGRE FOR PAYMENT OF MORAL DAMAGES,
ATTORNEY’S FEES AND COSTS OF SUIT. However, FBNI contends that the broadcasts are not malicious. FBNI
claims that Rima and Alegre were plainly impelled by their civic duty
The Court’s Ruling 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.
We deny the petition. 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
This is a civil action for damages as a result of the allegedly administrators. FBNI concludes that since there is no malice, there is
defamatory remarks of Rima and Alegre against AMEC.17 While no libel.
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 FBNI’s contentions are untenable.
on Articles 30 and 33 of the Civil Code. Article 3018 authorizes a
separate civil action to recover civil liability arising from a criminal Every defamatory imputation is presumed malicious.25 Rima and
offense. On the other hand, Article 3319 particularly provides that the Alegre failed to show adequately their good intention and justifiable
injured party may bring a separate civil action for damages in cases of motive in airing the supposed gripes of the students. As hosts of a
defamation, fraud, and physical injuries. AMEC also invokes Article documentary or public affairs program, Rima and Alegre should have
1920 of the Civil Code to justify its claim for damages. AMEC cites presented the public issues "free from inaccurate and misleading
Articles 217621 and 218022 of the Civil Code to hold FBNI solidarily information."26 Hearing the students’ alleged complaints a month
liable with Rima and Alegre. before the exposé,27 they had sufficient time to verify their sources
and information. However, Rima and Alegre hardly made a thorough
I. investigation of the students’ alleged gripes. Neither did they inquire
about nor confirm the purported irregularities in AMEC from the
Whether the broadcasts are libelous 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
A libel23 is a public and malicious imputation of a crime, or of a vice or
on the words of the students "because they were many and not
defect, real or imaginary, or any act or omission, condition, status, or
because there is proof that what they are saying is true."28 This plainly
circumstance tending to cause the dishonor, discredit, or contempt of
shows Rima and Alegre’s reckless disregard of whether their report
a natural or juridical person, or to blacken the memory of one who is
was true or not.
dead.24
Contrary to FBNI’s claim, the broadcasts were not "the result of
There is no question that the broadcasts were made public and
straight reporting." Significantly, some courts in the United States
imputed to AMEC defects or circumstances tending to cause it
apply the privilege of "neutral reportage" in libel cases involving
dishonor, discredit and contempt. Rima and Alegre’s remarks such as
matters of public interest or public figures. Under this privilege, a
97
republisher who accurately and disinterestedly reports certain matter which the public has the right to know. Thus, similar to the
defamatory statements made against public figures is shielded from newspaper articles in Borjal, the subject broadcasts dealt with
liability, regardless of the republisher’s subjective awareness of the matters of public interest. However, unlike in Borjal, the questioned
truth or falsity of the accusation.29 Rima and Alegre cannot invoke the broadcasts are not based on established facts. The record supports
privilege of neutral reportage because unfounded comments abound the following findings of the trial court:
in the broadcasts. Moreover, there is no existing controversy involving
AMEC when the broadcasts were made. The privilege of neutral xxx Although defendants claim that they were motivated by consistent
reportage applies where the defamed person is a public figure who is reports of students and parents against plaintiff, yet, defendants have
involved in an existing controversy, and a party to that controversy not presented in court, nor even gave name of a single student who
makes the defamatory statement.30 made the complaint to them, much less present written complaint or
petition to that effect. To accept this defense of defendants is too
However, FBNI argues vigorously that malice in law does not apply to dangerous because it could easily give license to the media to malign
this case. Citing Borjal v. Court of Appeals,31 FBNI contends that the people and establishments based on flimsy excuses that there were
broadcasts "fall within the coverage of qualifiedly privileged reports to them although they could not satisfactorily establish it. Such
communications" for being commentaries on matters of public laxity would encourage careless and irresponsible broadcasting which
interest. Such being the case, AMEC should prove malice in fact or is inimical to public interests.
actual malice. Since AMEC allegedly failed to prove actual malice,
there is no libel. Secondly, there is reason to believe that defendant radio
broadcasters, contrary to the mandates of their duties, did not verify
FBNI’s reliance on Borjal is misplaced. In Borjal, the Court elucidated and analyze the truth of the reports before they aired it, in order to
on the "doctrine of fair comment," thus: prove that they are in good faith.

[F]air commentaries on matters of public interest are privileged and Alegre contended that plaintiff school had no permit and is not
constitute a valid defense in an action for libel or slander. The doctrine accredited to offer Physical Therapy courses. Yet, plaintiff produced a
of fair comment means that while in general every discreditable certificate coming from DECS that as of Sept. 22, 1987 or more than 2
imputation publicly made is deemed false, because every man is years before the controversial broadcast, accreditation to offer
presumed innocent until his guilt is judicially proved, and every false Physical Therapy course had already been given the plaintiff, which
imputation is deemed malicious, nevertheless, when the discreditable certificate is signed by no less than the Secretary of Education and
imputation is directed against a public person in his public capacity, it Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants
is not necessarily actionable. In order that such discreditable could have easily known this were they careful enough to verify. And
imputation to a public official may be actionable, it must either yet, defendants were very categorical and sounded too positive when
be a false allegation of fact or a comment based on a false they made the erroneous report that plaintiff had no permit to offer
supposition. If the comment is an expression of opinion, based Physical Therapy courses which they were offering.
on established facts, then it is immaterial that the opinion happens
to be mistaken, as long as it might reasonably be inferred from the The allegation that plaintiff was getting tremendous aids from foreign
facts.32 (Emphasis supplied) foundations like Mcdonald Foundation prove not to be true also. The
truth is there is no Mcdonald Foundation existing. Although a big
True, AMEC is a private learning institution whose business of building of plaintiff school was given the name Mcdonald building, that
educating students is "genuinely imbued with public interest." The was only in order to honor the first missionary in Bicol of plaintiffs’
welfare of the youth in general and AMEC’s students in particular is a religion, as explained by Dr. Lita Ago. Contrary to the claim of
98
defendants over the air, not a single centavo appears to be received The broadcasts also violate the Radio Code35 of the Kapisanan ng
by plaintiff school from the aforementioned McDonald Foundation mga Brodkaster sa Pilipinas, Ink. ("Radio Code"). Item I(B) of the
which does not exist. Radio Code provides:

Defendants did not even also bother to prove their claim, though B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
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 1. x x x
already passed, nor their claim that the school charges laboratory
fees even if there are no laboratories in the school. No evidence was 4. Public affairs program shall present public issues free
presented to prove the bases for these claims, at least in order to give from personal bias, prejudice and inaccurate and misleading
semblance of good faith. information. x x x Furthermore, the station shall strive to
present balanced discussion of issues. x x x.
As for the allegation that plaintiff is the dumping ground for misfits,
and immoral teachers, defendant[s] singled out Dean Justita Lola who xxx
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 7. The station shall be responsible at all times in the
older people prove to be effective teachers like Supreme Court supervision of public affairs, public issues and commentary
Justices who are still very much in demand as law professors in their programs so that they conform to the provisions and standards
late years. Counsel for defendants is past 75 but is found by this court of this code.
to be still very sharp and effective.l^vvphi1.net So is plaintiffs’ counsel.
8. It shall be the responsibility of the newscaster,
Dr. Lola was observed by this court not to be physically decrepit yet, commentator, host and announcer to protect public interest,
nor mentally infirmed, but is still alert and docile. general welfare and good order in the presentation of public
affairs and public issues.36 (Emphasis supplied)
The contention that plaintiffs’ graduates become liabilities rather than
assets of our society is a mere conclusion. Being from the place The broadcasts fail to meet the standards prescribed in the Radio
himself, this court is aware that majority of the medical graduates of Code, which lays down the code of ethical conduct governing
plaintiffs pass the board examination easily and become prosperous practitioners in the radio broadcast industry. The Radio Code is a
and responsible professionals.33 voluntary code of conduct imposed by the radio broadcast industry on
its own members. The Radio Code is a public warranty by the radio
Had the comments been an expression of opinion based on broadcast industry that radio broadcast practitioners are subject to a
established facts, it is immaterial that the opinion happens to be code by which their conduct are measured for lapses, liability and
mistaken, as long as it might reasonably be inferred from the sanctions.
facts.34 However, the comments of Rima and Alegre were not backed
up by facts. Therefore, the broadcasts are not privileged and remain The public has a right to expect and demand that radio broadcast
libelous per se. 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

99
duties as required by Article 1937 of the Civil Code. A professional However, we find the award of ₱300,000 moral damages
code of conduct also provides the standards for determining whether unreasonable. The record shows that even though the broadcasts
a person who willfully causes loss or injury to another has acted in a were libelous per se, AMEC has not suffered any substantial or
manner contrary to morals or good customs under Article 2138 of the material damage to its reputation. Therefore, we reduce the award of
Civil Code. moral damages from ₱300,000 to ₱150,000.

II. III.

Whether AMEC is entitled to moral damages Whether the award of attorney’s fees is proper

FBNI contends that AMEC is not entitled to moral damages because it FBNI contends that since AMEC is not entitled to moral damages,
is a corporation.39 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
A juridical person is generally not entitled to moral damages because, the Civil Code.
unlike a natural person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious anxiety, mental The award of attorney’s fees is not proper because AMEC failed to
anguish or moral shock.40 The Court of Appeals cites Mambulao justify satisfactorily its claim for attorney’s fees. AMEC did not adduce
Lumber Co. v. PNB, et al.41 to justify the award of moral damages. evidence to warrant the award of attorney’s fees. Moreover, both the
However, the Court’s statement in Mambulao that "a corporation may trial and appellate courts failed to explicitly state in their respective
have a good reputation which, if besmirched, may also be a ground decisions the rationale for the award of attorney’s fees.49 In Inter-Asia
for the award of moral damages" is an obiter dictum.42 Investment Industries, Inc. v. Court of Appeals ,50 we held that:

Nevertheless, AMEC’s claim for moral damages falls under item 7 of [I]t is an accepted doctrine that the award thereof as an item of
Article 221943 of the Civil Code. This provision expressly authorizes damages is the exception rather than the rule, and counsel’s fees are
the recovery of moral damages in cases of libel, slander or any other not to be awarded every time a party wins a suit. The power of the
form of defamation. Article 2219(7) does not qualify whether the court to award attorney’s fees under Article 2208 of the Civil
plaintiff is a natural or juridical person. Therefore, a juridical person Code demands factual, legal and equitable justification, without
such as a corporation can validly complain for libel or any other form which the award is a conclusion without a premise, its basis
of defamation and claim for moral damages.44 being improperly left to speculation and conjecture. In all events,
the court must explicitly state in the text of the decision, and not only
Moreover, where the broadcast is libelous per se, the law implies in the decretal portion thereof, the legal reason for the award of
damages.45 In such a case, evidence of an honest mistake or the want attorney’s fees.51 (Emphasis supplied)
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 While it mentioned about the award of attorney’s fees by stating that it
evidence of actual damages as a condition precedent to the recovery "lies within the discretion of the court and depends upon the
of some damages.47 In this case, the broadcasts are libelous per se. circumstances of each case," the Court of Appeals failed to point out
Thus, AMEC is entitled to moral damages. any circumstance to justify the award.

IV.

100
Whether FBNI is solidarily liable with Rima and Alegre for moral solidarily liable for a defamatory statement by the employee within the
damages, attorney’s fees and costs of suit course and scope of his or her employment, at least when the
employer authorizes or ratifies the defamation.55 In this case, Rima
FBNI contends that it is not solidarily liable with Rima and Alegre for and Alegre were clearly performing their official duties as hosts of
the payment of damages and attorney’s fees because it exercised due FBNI’s radio program Exposé when they aired the broadcasts. FBNI
diligence in the selection and supervision of its employees, particularly neither alleged nor proved that Rima and Alegre went beyond the
Rima and Alegre. FBNI maintains that its broadcasters, including scope of their work at that time. There was likewise no showing that
Rima and Alegre, undergo a "very regimented process" before they FBNI did not authorize and ratify the defamatory broadcasts.
are allowed to go on air. "Those who apply for broadcaster are
subjected to interviews, examinations and an apprenticeship Moreover, there is insufficient evidence on record that FBNI exercised
program." due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI merely showed that it exercised
FBNI further argues that Alegre’s age and lack of training are diligence in the selection of its broadcasters without introducing any
irrelevant to his competence as a broadcaster. FBNI points out that evidence to prove that it observed the same diligence in
the "minor deficiencies in the KBP accreditation of Rima and Alegre the supervision of Rima and Alegre. FBNI did not show how it
do not in any way prove that FBNI did not exercise the diligence of a exercised diligence in supervising its broadcasters. FBNI’s alleged
good father of a family in selecting and supervising them." Rima’s constant reminder to its broadcasters to "observe truth, fairness and
accreditation lapsed due to his non-payment of the KBP annual fees objectivity and to refrain from using libelous and indecent language" is
while Alegre’s accreditation card was delayed allegedly for reasons not enough to prove due diligence in the supervision of its
attributable to the KBP Manila Office. FBNI claims that membership in broadcasters. Adequate training of the broadcasters on the industry’s
the KBP is merely voluntary and not required by any law or code of conduct, sufficient information on libel laws, and continuous
government regulation. evaluation of the broadcasters’ performance are but a few of the many
ways of showing diligence in the supervision of broadcasters.
FBNI’s arguments do not persuade us.
FBNI claims that it "has taken all the precaution in the selection of
The basis of the present action is a tort. Joint tort feasors are jointly Rima and Alegre as broadcasters, bearing in mind their
and severally liable for the tort which they commit.52 Joint tort feasors qualifications." However, no clear and convincing evidence shows that
are all the persons who command, instigate, promote, encourage, Rima and Alegre underwent FBNI’s "regimented process" of
advise, countenance, cooperate in, aid or abet the commission of a application. Furthermore, FBNI admits that Rima and Alegre had
tort, or who approve of it after it is done, if done for their deficiencies in their KBP accreditation,56 which is one of FBNI’s
benefit.53 Thus, AMEC correctly anchored its cause of action against requirements before it hires a broadcaster. Significantly, membership
FBNI on Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net in the KBP, while voluntary, indicates the broadcaster’s strong
commitment to observe the broadcast industry’s rules and regulations.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is Clearly, these circumstances show FBNI’s lack of diligence in
solidarily liable to pay for damages arising from the libelous selecting and supervising Rima and Alegre. Hence, FBNI is solidarily
broadcasts. As stated by the Court of Appeals, "recovery for liable to pay damages together with Rima and Alegre.
defamatory statements published by radio or television may be had
from the owner of the station, a licensee, the operator of the WHEREFORE, we DENY the instant petition. We AFFIRM the
station, or a person who procures, or participates in, the making of Decision of 4 January 1999 and Resolution of 26 January 2000 of the
the defamatory statements."54 An employer and employee are Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION
101
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.

Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and


Azcuna, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. 176579               June 28, 2011
WILSON P. GAMBOA, Petitioner,
vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE
UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER
RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR
AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION
COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO.,
LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC
ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN
HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC
CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR
FE BARIN OF THE SECURITIES EXCHANGE COMMISSION, and
PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK
102
EXCHANGE, Respondents. capital stock of PTIC. On 20 November 2006, the Inter-Agency
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in- Privatization Council (IPC) of the Philippine Government announced
Intervention. that it would sell the 111,415 PTIC shares, or 46.125 percent of the
DECISION outstanding capital stock of PTIC, through a public bidding to be
CARPIO, J.: conducted on 4 December 2006. Subsequently, the public bidding
was reset to 8 December 2006, and only two bidders, Parallax
The Case Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital,
submitted their bids. Parallax won with a bid of ₱25.6 billion or
This is an original petition for prohibition, injunction, declaratory relief US$510 million.
and declaration of nullity of the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the Thereafter, First Pacific announced that it would exercise its right of
government of the Republic of the Philippines to Metro Pacific Assets first refusal as a PTIC stockholder and buy the 111,415 PTIC shares
Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited by matching the bid price of Parallax. However, First Pacific failed to
(First Pacific). do so by the 1 February 2007 deadline set by IPC and instead,
yielded its right to PTIC itself which was then given by IPC until 2
The Antecedents March 2007 to buy the PTIC shares. On 14 February 2007, First
Pacific, through its subsidiary, MPAH, entered into a Conditional Sale
The facts, according to petitioner Wilson P. Gamboa, a stockholder of and Purchase Agreement of the 111,415 PTIC shares, or 46.125
Philippine Long Distance Telephone Company (PLDT), are as percent of the outstanding capital stock of PTIC, with the Philippine
follows:1 Government for the price of ₱25,217,556,000 or US$510,580,189.
The sale was completed on 28 February 2007.
On 28 November 1928, the Philippine Legislature enacted Act No.
3436 which granted PLDT a franchise and the right to engage in Since PTIC is a stockholder of PLDT, the sale by the Philippine
telecommunications business. In 1969, General Telephone and Government of 46.125 percent of PTIC shares is actually an indirect
Electronics Corporation (GTE), an American company and a major sale of 12 million shares or about 6.3 percent of the outstanding
PLDT stockholder, sold 26 percent of the outstanding common shares common shares of PLDT. With the sale, First Pacific’s common
of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was shareholdings in PLDT increased from 30.7 percent to 37
incorporated by several persons, including Roland Gapud and Jose percent, thereby increasing the common shareholdings of
Campos, Jr. Subsequently, PHI became the owner of 111,415 shares foreigners in PLDT to about 81.47 percent. This violates Section
of stock of PTIC by virtue of three Deeds of Assignment executed by 11, Article XII of the 1987 Philippine Constitution which limits foreign
PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, ownership of the capital of a public utility to not more than 40 percent.3
the 111,415 shares of stock of PTIC held by PHI were sequestered by
the Presidential Commission on Good Government (PCGG). The On the other hand, public respondents Finance Secretary Margarito
111,415 PTIC shares, which represent about 46.125 percent of the B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner
outstanding capital stock of PTIC, were later declared by this Court to Ricardo Abcede allege the following relevant facts:
be owned by the Republic of the Philippines.2
On 9 November 1967, PTIC was incorporated and had since engaged
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based in the business of investment holdings. PTIC held 26,034,263 PLDT
investment firm, acquired the remaining 54 percent of the outstanding common shares, or 13.847 percent of the total PLDT outstanding
common shares. PHI, on the other hand, was incorporated in 1977,
103
and became the owner of 111,415 PTIC shares or 46.125 percent of February 2007, First Pacific completed the acquisition of the 111,415
the outstanding capital stock of PTIC by virtue of three Deeds of shares of stock of PTIC.
Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In
1986, the 111,415 PTIC shares held by PHI were sequestered by the Respondent Manuel V. Pangilinan admits the following facts: (a) the
PCGG, and subsequently declared by this Court as part of the ill- IPC conducted a public bidding for the sale of 111,415 PTIC shares or
gotten wealth of former President Ferdinand Marcos. The 46 percent of the outstanding capital stock of PTIC (the remaining 54
sequestered PTIC shares were reconveyed to the Republic of the percent of PTIC shares was already owned by First Pacific and its
Philippines in accordance with this Court’s decision4 which became affiliates); (b) Parallax offered the highest bid amounting to
final and executory on 8 August 2006. ₱25,217,556,000; (c) pursuant to the right of first refusal in favor of
PTIC and its shareholders granted in PTIC’s Articles of Incorporation,
The Philippine Government decided to sell the 111,415 PTIC shares, MPAH, a First Pacific affiliate, exercised its right of first refusal by
which represent 6.4 percent of the outstanding common shares of matching the highest bid offered for PTIC shares on 13 February
stock of PLDT, and designated the Inter-Agency Privatization Council 2007; and (d) on 28 February 2007, the sale was consummated when
(IPC), composed of the Department of Finance and the PCGG, as the MPAH paid IPC ₱25,217,556,000 and the government delivered the
disposing entity. An invitation to bid was published in seven different certificates for the 111,415 PTIC shares. Respondent Pangilinan
newspapers from 13 to 24 November 2006. On 20 November 2006, a denies the other allegations of facts of petitioner.
pre-bid conference was held, and the original deadline for bidding
scheduled on 4 December 2006 was reset to 8 December 2006. The On 28 February 2007, petitioner filed the instant petition for
extension was published in nine different newspapers. prohibition, injunction, declaratory relief, and declaration of nullity of
sale of the 111,415 PTIC shares. Petitioner claims, among others,
During the 8 December 2006 bidding, Parallax Capital Management that the sale of the 111,415 PTIC shares would result in an increase
LP emerged as the highest bidder with a bid of ₱25,217,556,000. The in First Pacific’s common shareholdings in PLDT from 30.7 percent to
government notified First Pacific, the majority owner of PTIC shares, 37 percent, and this, combined with Japanese NTT DoCoMo’s
of the bidding results and gave First Pacific until 1 February 2007 to common shareholdings in PLDT, would result to a total foreign
exercise its right of first refusal in accordance with PTIC’s Articles of common shareholdings in PLDT of 51.56 percent which is over the 40
Incorporation. First Pacific announced its intention to match Parallax’s percent constitutional limit.6 Petitioner asserts:
bid.
If and when the sale is completed, First Pacific’s equity in PLDT will
On 31 January 2007, the House of Representatives (HR) Committee go up from 30.7 percent to 37.0 percent of its common – or voting-
on Good Government conducted a public hearing on the particulars of stockholdings, x x x. Hence, the consummation of the sale will put the
the then impending sale of the 111,415 PTIC shares. Respondents two largest foreign investors in PLDT – First Pacific and Japan’s NTT
Teves and Sevilla were among those who attended the public DoCoMo, which is the world’s largest wireless telecommunications
hearing. The HR Committee Report No. 2270 concluded that: (a) the firm, owning 51.56 percent of PLDT common equity. x x x With the
auction of the government’s 111,415 PTIC shares bore due diligence, completion of the sale, data culled from the official website of the New
transparency and conformity with existing legal procedures; and York Stock Exchange (www.nyse.com) showed that those foreign
(b) First Pacific’s intended acquisition of the government’s entities, which own at least five percent of common equity, will
111,415 PTIC shares resulting in First Pacific’s 100% ownership collectively own 81.47 percent of PLDT’s common equity. x x x
of PTIC will not violate the 40 percent constitutional limit on
foreign ownership of a public utility since PTIC holds only 13.847 x x x as the annual disclosure reports, also referred to as Form 20-K
percent of the total outstanding common shares of PLDT. 5 On 28 reports x x x which PLDT submitted to the New York Stock Exchange
104
for the period 2003-2005, revealed that First Pacific and several other The Ruling of the Court
foreign entities breached the constitutional limit of 40 percent
ownership as early as 2003. x x x"7 The petition is partly meritorious.

Petitioner raises the following issues: (1) whether the consummation Petition for declaratory relief treated as petition for mandamus
of the then impending sale of 111,415 PTIC shares to First Pacific
violates the constitutional limit on foreign ownership of a public utility; At the outset, petitioner is faced with a procedural barrier. Among the
(2) whether public respondents committed grave abuse of discretion remedies petitioner seeks, only the petition for prohibition is within the
in allowing the sale of the 111,415 PTIC shares to First Pacific; and original jurisdiction of this court, which however is not exclusive but is
(3) whether the sale of common shares to foreigners in excess of 40 concurrent with the Regional Trial Court and the Court of Appeals.
percent of the entire subscribed common capital stock violates the The actions for declaratory relief,10 injunction, and annulment of sale
constitutional limit on foreign ownership of a public utility. 8 are not embraced within the original jurisdiction of the Supreme Court.
On this ground alone, the petition could have been dismissed outright.
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a
Motion for Leave to Intervene and Admit Attached Petition-in- While direct resort to this Court may be justified in a petition for
Intervention. In the Resolution of 28 August 2007, the Court granted prohibition,11 the Court shall nevertheless refrain from discussing the
the motion and noted the Petition-in-Intervention. grounds in support of the petition for prohibition since on 28 February
2007, the questioned sale was consummated when MPAH paid IPC
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in ₱25,217,556,000 and the government delivered the certificates for the
seeking, among others, to enjoin and/or nullify the sale by 111,415 PTIC shares.
respondents of the 111,415 PTIC shares to First Pacific or assignee."
Petitioners-in-intervention claim that, as PLDT subscribers, they have However, since the threshold and purely legal issue on the definition
a "stake in the outcome of the controversy x x x where the Philippine of the term "capital" in Section 11, Article XII of the Constitution has
Government is completing the sale of government owned assets in far-reaching implications to the national economy, the Court treats the
[PLDT], unquestionably a public utility, in violation of the nationality petition for declaratory relief as one for mandamus.12
restrictions of the Philippine Constitution."
In Salvacion v. Central Bank of the Philippines,13 the Court treated the
The Issue petition for declaratory relief as one for mandamus considering the
grave injustice that would result in the interpretation of a banking law.
This Court is not a trier of facts. Factual questions such as those In that case, which involved the crime of rape committed by a foreign
raised by petitioner,9 which indisputably demand a thorough tourist against a Filipino minor and the execution of the final judgment
examination of the evidence of the parties, are generally beyond this in the civil case for damages on the tourist’s dollar deposit with a local
Court’s jurisdiction. Adhering to this well-settled principle, the Court bank, the Court declared Section 113 of Central Bank Circular No.
shall confine the resolution of the instant controversy solely on 960, exempting foreign currency deposits from attachment,
the threshold and purely legal issue of whether the term "capital" in garnishment or any other order or process of any court, inapplicable
Section 11, Article XII of the Constitution refers to the total common due to the peculiar circumstances of the case. The Court held that
shares only or to the total outstanding capital stock (combined total of "injustice would result especially to a citizen aggrieved by a foreign
common and non-voting preferred shares) of PLDT, a public utility. guest like accused x x x" that would "negate Article 10 of the Civil
Code which provides that ‘in case of doubt in the interpretation or

105
application of laws, it is presumed that the lawmaking body intended The interpretation of the term "capital" in Section 11, Article XII of the
right and justice to prevail.’" The Court therefore required respondents Constitution has far-reaching implications to the national economy. In
Central Bank of the Philippines, the local bank, and the accused to fact, a resolution of this issue will determine whether Filipinos are
comply with the writ of execution issued in the civil case for damages masters, or second class citizens, in their own country. What is at
and to release the dollar deposit of the accused to satisfy the stake here is whether Filipinos or foreigners will have effective
judgment. control of the national economy. Indeed, if ever there is a legal issue
that has far-reaching implications to the entire nation, and to future
In Alliance of Government Workers v. Minister of Labor,14 the Court generations of Filipinos, it is the threshhold legal issue presented in
similarly brushed aside the procedural infirmity of the petition for this case.
declaratory relief and treated the same as one for mandamus.
In Alliance, the issue was whether the government unlawfully The Court first encountered the issue on the definition of the term
excluded petitioners, who were government employees, from the "capital" in Section 11, Article XII of the Constitution in the case
enjoyment of rights to which they were entitled under the law. of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That
Specifically, the question was: "Are the branches, agencies, case involved the same public utility (PLDT) and substantially the
subdivisions, and instrumentalities of the Government, including same private respondents. Despite the importance and novelty of the
government owned or controlled corporations included among the four constitutional issue raised therein and despite the fact that the petition
‘employers’ under Presidential Decree No. 851 which are required to involved a purely legal question, the Court declined to resolve the
pay their employees x x x a thirteenth (13th) month pay x x x ?" The case on the merits, and instead denied the same for disregarding the
Constitutional principle involved therein affected all government hierarchy of courts.17 There, petitioner Fernandez assailed on a pure
employees, clearly justifying a relaxation of the technical rules of question of law the Regional Trial Court’s Decision of 21 February
procedure, and certainly requiring the interpretation of the assailed 2003 via a petition for review under Rule 45. The Court’s Resolution,
presidential decree. denying the petition, became final on 21 December 2004.

In short, it is well-settled that this Court may treat a petition for The instant petition therefore presents the Court with another
declaratory relief as one for mandamus if the issue involved has far- opportunity to finally settle this purely legal issue which is of
reaching implications. As this Court held in Salvacion: transcendental importance to the national economy and a
fundamental requirement to a faithful adherence to our Constitution.
The Court has no original and exclusive jurisdiction over a petition for The Court must forthwith seize such opportunity, not only for the
declaratory relief. However, exceptions to this rule have been benefit of the litigants, but more significantly for the benefit of the
recognized. Thus, where the petition has far-reaching entire Filipino people, to ensure, in the words of the Constitution, "a
implications and raises questions that should be resolved, it may self-reliant and independent national economy effectively
be treated as one for mandamus.15 (Emphasis supplied) controlled by Filipinos."18 Besides, in the light of vague and confusing
positions taken by government agencies on this purely legal issue,
In the present case, petitioner seeks primarily the interpretation of the present and future foreign investors in this country deserve, as a
term "capital" in Section 11, Article XII of the Constitution. He prays matter of basic fairness, a categorical ruling from this Court on the
that this Court declare that the term "capital" refers to common shares extent of their participation in the capital of public utilities and other
only, and that such shares constitute "the sole basis in determining nationalized businesses.
foreign equity in a public utility." Petitioner further asks this Court to
declare any ruling inconsistent with such interpretation Despite its far-reaching implications to the national economy, this
unconstitutional. purely legal issue has remained unresolved for over 75 years since
106
the 1935 Constitution. There is no reason for this Court to evade this must be published in the Official Gazette or otherwise effectively
ever recurring fundamental issue and delay again defining the term promulgated. In ruling for the petitioners’ legal standing, the Court
"capital," which appears not only in Section 11, Article XII of the declared that the right they sought to be enforced ‘is a public right
Constitution, but also in Section 2, Article XII on co-production and recognized by no less than the fundamental law of the land.’
joint venture agreements for the development of our natural
resources,19 in Section 7, Article XII on ownership of private lands,20 in Legaspi v. Civil Service Commission, while reiterating Tañada, further
Section 10, Article XII on the reservation of certain investments to declared that ‘when a mandamus proceeding involves the
Filipino citizens,21 in Section 4(2), Article XIV on the ownership of assertion of a public right, the requirement of personal interest is
educational institutions,22 and in Section 11(2), Article XVI on the satisfied by the mere fact that petitioner is a citizen and,
ownership of advertising companies.23 therefore, part of the general ‘public’ which possesses the right.’

Petitioner has locus standi Further, in Albano v. Reyes, we said that while expenditure of public
funds may not have been involved under the questioned contract for
There is no dispute that petitioner is a stockholder of PLDT. As such, the development, management and operation of the Manila
he has the right to question the subject sale, which he claims to International Container Terminal, ‘public interest [was] definitely
violate the nationality requirement prescribed in Section 11, Article XII involved considering the important role [of the subject contract] .
of the Constitution. If the sale indeed violates the Constitution, then . . in the economic development of the country and the
there is a possibility that PLDT’s franchise could be revoked, a dire magnitude of the financial consideration involved.’ We concluded
consequence directly affecting petitioner’s interest as a stockholder. that, as a consequence, the disclosure provision in the Constitution
would constitute sufficient authority for upholding the petitioner’s
More importantly, there is no question that the instant petition raises standing. (Emphasis supplied)
matters of transcendental importance to the public. The fundamental
and threshold legal issue in this case, involving the national economy Clearly, since the instant petition, brought by a citizen, involves
and the economic welfare of the Filipino people, far outweighs any matters of transcendental public importance, the petitioner has the
perceived impediment in the legal personality of the petitioner to bring requisite locus standi.
this action.
Definition of the Term "Capital" in
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a Section 11, Article XII of the 1987 Constitution
suit on matters of transcendental importance to the public, thus:
Section 11, Article XII (National Economy and Patrimony) of the 1987
In Tañada v. Tuvera, the Court asserted that when the issue Constitution mandates the Filipinization of public utilities, to wit:
concerns a public right and the object of mandamus is to obtain
the enforcement of a public duty, the people are regarded as the Section 11. No franchise, certificate, or any other form of
real parties in interest; and because it is sufficient that petitioner authorization for the operation of a public utility shall be granted
is a citizen and as such is interested in the execution of the laws, except to citizens of the Philippines or to corporations or
he need not show that he has any legal or special interest in the associations organized under the laws of the Philippines, at least
result of the action. In the aforesaid case, the petitioners sought to sixty per centum of whose capital is owned by such citizens; nor
enforce their right to be informed on matters of public concern, a right shall such franchise, certificate, or authorization be exclusive in
then recognized in Section 6, Article IV of the 1973 Constitution, in character or for a longer period than fifty years. Neither shall any such
connection with the rule that laws in order to be valid and enforceable
107
franchise or right be granted except under the condition that it shall be Section 8. No franchise, certificate, or any other form of
subject to amendment, alteration, or repeal by the Congress when the authorization for the operation of a public utility shall be granted
common good so requires. The State shall encourage equity except to citizens of the Philippines or to corporations or other
participation in public utilities by the general public. The participation entities organized under the laws of the Philippines sixty per
of foreign investors in the governing body of any public utility centum of the capital of which is owned by citizens of the
enterprise shall be limited to their proportionate share in its capital, Philippines, nor shall such franchise, certificate, or authorization be
and all the executive and managing officers of such corporation or exclusive in character or for a longer period than fifty years. No
association must be citizens of the Philippines. (Emphasis supplied) franchise or right shall be granted to any individual, firm, or
corporation, except under the condition that it shall be subject to
The above provision substantially reiterates Section 5, Article XIV of amendment, alteration, or repeal by the Congress when the public
the 1973 Constitution, thus: interest so requires. (Emphasis supplied)

Section 5. No franchise, certificate, or any other form of Father Joaquin G. Bernas, S.J., a leading member of the 1986
authorization for the operation of a public utility shall be granted Constitutional Commission, reminds us that the Filipinization provision
except to citizens of the Philippines or to corporations or in the 1987 Constitution is one of the products of the spirit of
associations organized under the laws of the Philippines at least nationalism which gripped the 1935 Constitutional Convention.25 The
sixty per centum of the capital of which is owned by such 1987 Constitution "provides for the Filipinization of public utilities by
citizens, nor shall such franchise, certificate, or authorization be requiring that any form of authorization for the operation of public
exclusive in character or for a longer period than fifty years. Neither utilities should be granted only to ‘citizens of the Philippines or to
shall any such franchise or right be granted except under the corporations or associations organized under the laws of the
condition that it shall be subject to amendment, alteration, or repeal by Philippines at least sixty per centum of whose capital is owned by
the National Assembly when the public interest so requires. The State such citizens.’ The provision is [an express] recognition of the
shall encourage equity participation in public utilities by the general sensitive and vital position of public utilities both in the national
public. The participation of foreign investors in the governing body of economy and for national security."26 The evident purpose of the
any public utility enterprise shall be limited to their proportionate share citizenship requirement is to prevent aliens from assuming control of
in the capital thereof. (Emphasis supplied) public utilities, which may be inimical to the national interest.27 This
specific provision explicitly reserves to Filipino citizens control of
The foregoing provision in the 1973 Constitution reproduced Section public utilities, pursuant to an overriding economic goal of the 1987
8, Article XIV of the 1935 Constitution, viz: Constitution: to "conserve and develop our patrimony"28 and ensure "a
self-reliant and independent national
economy effectively controlled by Filipinos."29

Any citizen or juridical entity desiring to operate a public utility must


therefore meet the minimum nationality requirement prescribed in
Section 11, Article XII of the Constitution. Hence, for a corporation to
be granted authority to operate a public utility, at least 60 percent of
its "capital" must be owned by Filipino citizens.

The crux of the controversy is the definition of the term "capital."


Does the term "capital" in Section 11, Article XII of the Constitution
108
refer to common shares or to the total outstanding capital stock their ownership over their shares." Thus, "the foreign natural and
(combined total of common and non-voting preferred shares)? juridical PLDT shareholders must be impleaded in this suit so that
they can be heard."34 Essentially, Nazareno invokes denial of due
Petitioner submits that the 40 percent foreign equity limitation in process on behalf of the foreign common shareholders.
domestic public utilities refers only to common shares because such
shares are entitled to vote and it is through voting that control over a While Nazareno does not introduce any definition of the term "capital,"
corporation is exercised. Petitioner posits that the term "capital" in he states that "among the factual assertions that need to be
Section 11, Article XII of the Constitution refers to "the ownership of established to counter petitioner’s allegations is the uniform
common capital stock subscribed and outstanding, which class of interpretation by government agencies (such as the SEC),
shares alone, under the corporate set-up of PLDT, can vote and elect institutions and corporations (such as the Philippine National Oil
members of the board of directors." It is undisputed that PLDT’s non- Company-Energy Development Corporation or PNOC-EDC) of
voting preferred shares are held mostly by Filipino citizens.30 This including both preferred shares and common shares in
arose from Presidential Decree No. 217,31 issued on 16 June 1973 by "controlling interest" in view of testing compliance with the 40%
then President Ferdinand Marcos, requiring every applicant of a PLDT constitutional limitation on foreign ownership in public
telephone line to subscribe to non-voting preferred shares to pay for utilities."35
the investment cost of installing the telephone line.32
Similarly, respondent Manuel V. Pangilinan does not define the term
Petitioners-in-intervention basically reiterate petitioner’s arguments "capital" in Section 11, Article XII of the Constitution. Neither does he
and adopt petitioner’s definition of the term "capital."33 Petitioners-in- refute petitioner’s claim of foreigners holding more than 40 percent of
intervention allege that "the approximate foreign ownership of PLDT’s common shares. Instead, respondent Pangilinan focuses on
common capital stock of PLDT x x x already amounts to at least the procedural flaws of the petition and the alleged violation of the due
63.54% of the total outstanding common stock," which means that process rights of foreigners. Respondent Pangilinan emphasizes in
foreigners exercise significant control over PLDT, patently violating his Memorandum (1) the absence of this Court’s jurisdiction over the
the 40 percent foreign equity limitation in public utilities prescribed by petition; (2) petitioner’s lack of standing; (3) mootness of the petition;
the Constitution. (4) non-availability of declaratory relief; and (5) the denial of due
process rights. Moreover, respondent Pangilinan alleges that the
Respondents, on the other hand, do not offer any definition of the issue should be whether "owners of shares in PLDT as well as owners
term "capital" in Section 11, Article XII of the Constitution. More of shares in companies holding shares in PLDT may be required to
importantly, private respondents Nazareno and Pangilinan of PLDT do relinquish their shares in PLDT and in those companies without any
not dispute that more than 40 percent of the common shares of PLDT law requiring them to surrender their shares and also without notice
are held by foreigners. and trial."

In particular, respondent Nazareno’s Memorandum, consisting of 73


pages, harps mainly on the procedural infirmities of the petition and
the supposed violation of the due process rights of the "affected
foreign common shareholders." Respondent Nazareno does not deny
petitioner’s allegation of foreigners’ dominating the common
shareholdings of PLDT. Nazareno stressed mainly that the petition
"seeks to divest foreign common shareholders purportedly
exceeding 40% of the total common shareholdings in PLDT of
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Respondent Pangilinan further asserts that "Section 11, [Article XII entitled to vote, i.e., common shares, considering that it is through
of the Constitution] imposes no nationality requirement on the voting that control is being exercised. x x x
shareholders of the utility company as a condition for keeping
their shares in the utility company." According to him, "Section 11 Obviously, the intent of the framers of the Constitution in imposing
does not authorize taking one person’s property (the shareholder’s limitations and restrictions on fully nationalized and partially
stock in the utility company) on the basis of another party’s alleged nationalized activities is for Filipino nationals to be always in control of
failure to satisfy a requirement that is a condition only for that other the corporation undertaking said activities. Otherwise, if the Trial
party’s retention of another piece of property (the utility company Court’s ruling upholding respondents’ arguments were to be given
being at least 60% Filipino-owned to keep its franchise)."36 credence, it would be possible for the ownership structure of a public
utility corporation to be divided into one percent (1%) common stocks
The OSG, representing public respondents Secretary Margarito and ninety-nine percent (99%) preferred stocks. Following the Trial
Teves, Undersecretary John P. Sevilla, Commissioner Ricardo Court’s ruling adopting respondents’ arguments, the common shares
Abcede, and Chairman Fe Barin, is likewise silent on the definition of can be owned entirely by foreigners thus creating an absurd situation
the term "capital." In its Memorandum37 dated 24 September 2007, the wherein foreigners, who are supposed to be minority shareholders,
OSG also limits its discussion on the supposed procedural defects of control the public utility corporation.
the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of
interested parties, and lack of basis for injunction. The OSG does not xxxx
present any definition or interpretation of the term "capital" in Section
11, Article XII of the Constitution. The OSG contends that "the petition Thus, the 40% foreign ownership limitation should be interpreted to
actually partakes of a collateral attack on PLDT’s franchise as a public apply to both the beneficial ownership and the controlling interest.
utility," which in effect requires a "full-blown trial where all the parties
in interest are given their day in court."38 xxxx

Respondent Francisco Ed Lim, impleaded as President and Chief Clearly, therefore, the forty percent (40%) foreign equity limitation in
Executive Officer of the Philippine Stock Exchange (PSE), does not public utilities prescribed by the Constitution refers to ownership of
also define the term "capital" and seeks the dismissal of the petition shares of stock entitled to vote, i.e., common shares. Furthermore,
on the following grounds: (1) failure to state a cause of action against ownership of record of shares will not suffice but it must be shown that
Lim; (2) the PSE allegedly implemented its rules and required all listed the legal and beneficial ownership rests in the hands of Filipino
companies, including PLDT, to make proper and timely disclosures; citizens. Consequently, in the case of petitioner PLDT, since it is
and (3) the reliefs prayed for in the petition would adversely impact already admitted that the voting interests of foreigners which would
the stock market. gain entry to petitioner PLDT by the acquisition of SMART shares
through the Questioned Transactions is equivalent to 82.99%, and the
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez nominee arrangements between the foreign principals and the Filipino
who claimed to be a stockholder of record of PLDT, contended that owners is likewise admitted, there is, therefore, a violation of Section
the term "capital" in the 1987 Constitution refers to shares entitled to 11, Article XII of the Constitution.
vote or the common shares. Fernandez explained thus:
Parenthetically, the Opinions dated February 15, 1988 and April 14,
The forty percent (40%) foreign equity limitation in public utilities 1987 cited by the Trial Court to support the proposition that the
prescribed by the Constitution refers to ownership of shares of stock meaning of the word "capital" as used in Section 11, Article XII of the

110
Constitution allegedly refers to the sum total of the shares subscribed corporation. Consequently, petitioner’s suggestion to reckon PLDT’s
and paid-in by the shareholder and it allegedly is immaterial how the foreign equity only on the basis of PLDT’s outstanding common
stock is classified, whether as common or preferred, cannot stand in shares is without legal basis. The language of the Constitution should
the face of a clear legislative policy as stated in the FIA which took be understood in the sense it has in common use.
effect in 1991 or way after said opinions were rendered, and as
clarified by the above-quoted Amendments. In this regard, suffice it to xxxx
state that as between the law and an opinion rendered by an
administrative agency, the law indubitably prevails. Moreover, said 17. But even assuming that resort to the proceedings of the
Opinions are merely advisory and cannot prevail over the clear intent Constitutional Commission is necessary, there is nothing in the
of the framers of the Constitution. Record of the Constitutional Commission (Vol. III) – which petitioner
misleadingly cited in the Petition x x x – which supports petitioner’s
In the same vein, the SEC’s construction of Section 11, Article XII of view that only common shares should form the basis for computing a
the Constitution is at best merely advisory for it is the courts that public utility’s foreign equity.
finally determine what a law means.39
xxxx
On the other hand, respondents therein, Antonio O. Cojuangco,
Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal 18. In addition, the SEC – the government agency primarily
B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. responsible for implementing the Corporation Code, and which also
Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando has the responsibility of ensuring compliance with the Constitution’s
B. Vea, argued that the term "capital" in Section 11, Article XII of the foreign equity restrictions as regards nationalized activities x x x – has
Constitution includes preferred shares since the Constitution does not categorically ruled that both common and preferred shares are
distinguish among classes of stock, thus: properly considered in determining outstanding capital stock and the
nationality composition thereof.40
16. The Constitution applies its foreign ownership limitation on the
corporation’s "capital," without distinction as to classes of shares. x x x We agree with petitioner and petitioners-in-intervention. The term
"capital" in Section 11, Article XII of the Constitution refers only to
In this connection, the Corporation Code – which was already in force shares of stock entitled to vote in the election of directors, and thus in
at the time the present (1987) Constitution was drafted – defined the present case only to common shares,41 and not to the total
outstanding capital stock as follows: outstanding capital stock comprising both common and non-voting
preferred shares.
Section 137. Outstanding capital stock defined. – The term
"outstanding capital stock", as used in this Code, means the total The Corporation Code of the Philippines42 classifies shares as
shares of stock issued under binding subscription agreements to common or preferred, thus:
subscribers or stockholders, whether or not fully or partially paid,
except treasury shares. Sec. 6. Classification of shares. - The shares of stock of stock
corporations may be divided into classes or series of shares, or both,
Section 137 of the Corporation Code also does not distinguish any of which classes or series of shares may have such rights,
between common and preferred shares, nor exclude either class of privileges or restrictions as may be stated in the articles of
shares, in determining the outstanding capital stock (the "capital") of a incorporation: Provided, That no share may be deprived of voting

111
rights except those classified and issued as "preferred" or Where the articles of incorporation provide for non-voting shares in
"redeemable" shares, unless otherwise provided in this Code: the cases allowed by this Code, the holders of such shares shall
Provided, further, That there shall always be a class or series of nevertheless be entitled to vote on the following matters:
shares which have complete voting rights. Any or all of the shares or
series of shares may have a par value or have no par value as may 1. Amendment of the articles of incorporation;
be provided for in the articles of incorporation: Provided, however,
That banks, trust companies, insurance companies, public utilities, 2. Adoption and amendment of by-laws;
and building and loan associations shall not be permitted to issue no-
par value shares of stock. 3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate property;
Preferred shares of stock issued by any corporation may be given
preference in the distribution of the assets of the corporation in case 4. Incurring, creating or increasing bonded indebtedness;
of liquidation and in the distribution of dividends, or such other
preferences as may be stated in the articles of incorporation which are 5. Increase or decrease of capital stock;
not violative of the provisions of this Code: Provided, That preferred
shares of stock may be issued only with a stated par value. The Board
6. Merger or consolidation of the corporation with another
of Directors, where authorized in the articles of incorporation, may fix
corporation or other corporations;
the terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be effective
upon the filing of a certificate thereof with the Securities and 7. Investment of corporate funds in another corporation or
Exchange Commission. business in accordance with this Code; and

Shares of capital stock issued without par value shall be deemed fully 8. Dissolution of the corporation.
paid and non-assessable and the holder of such shares shall not be
liable to the corporation or to its creditors in respect thereto: Provided; Except as provided in the immediately preceding paragraph, the vote
That shares without par value may not be issued for a consideration necessary to approve a particular corporate act as provided in this
less than the value of five (₱5.00) pesos per share: Provided, further, Code shall be deemed to refer only to stocks with voting rights.
That the entire consideration received by the corporation for its no-par
value shares shall be treated as capital and shall not be available for Indisputably, one of the rights of a stockholder is the right to
distribution as dividends. participate in the control or management of the corporation.43 This is
exercised through his vote in the election of directors because it is the
A corporation may, furthermore, classify its shares for the purpose of board of directors that controls or manages the corporation.44 In the
insuring compliance with constitutional or legal requirements. absence of provisions in the articles of incorporation denying voting
rights to preferred shares, preferred shares have the same voting
Except as otherwise provided in the articles of incorporation and rights as common shares. However, preferred shareholders are often
stated in the certificate of stock, each share shall be equal in all excluded from any control, that is, deprived of the right to vote in the
respects to every other share. election of directors and on other matters, on the theory that the
preferred shareholders are merely investors in the corporation for
income in the same manner as bondholders.45 In fact, under the
Corporation Code only preferred or redeemable shares can be
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deprived of the right to vote.46 Common shares cannot be deprived of MR. NOLLEDO. That must be based on the subscribed capital stock,
the right to vote in any corporate meeting, and any provision in the because unless declared delinquent, unpaid capital stock shall be
articles of incorporation restricting the right of common shareholders entitled to vote.
to vote is invalid.47
MR. VILLEGAS. That is right.
Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting MR. NOLLEDO. Thank you.
rights, the term "capital" in Section 11, Article XII of the Constitution
refers only to common shares. However, if the preferred shares also With respect to an investment by one corporation in another
have the right to vote in the election of directors, then the term corporation, say, a corporation with 60-40 percent equity invests in
"capital" shall include such preferred shares because the right to another corporation which is permitted by the Corporation Code, does
participate in the control or management of the corporation is the Committee adopt the grandfather rule?
exercised through the right to vote in the election of directors. In
short, the term "capital" in Section 11, Article XII of the MR. VILLEGAS. Yes, that is the understanding of the Committee.
Constitution refers only to shares of stock that can vote in the
election of directors. MR. NOLLEDO. Therefore, we need additional Filipino capital?
This interpretation is consistent with the intent of the framers of the MR. VILLEGAS. Yes.48
Constitution to place in the hands of Filipino citizens the control and
management of public utilities. As revealed in the deliberations of the
xxxx
Constitutional Commission, "capital" refers to the voting stock
or controlling interest of a corporation, to wit:
MR. AZCUNA. May I be clarified as to that portion that was accepted
by the Committee.
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local
or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40
in Section 9 and 2/3-1/3 in Section 15. MR. VILLEGAS. The portion accepted by the Committee is the
deletion of the phrase "voting stock or controlling interest."
MR. VILLEGAS. That is right.
MR. AZCUNA. Hence, without the Davide amendment, the committee
report would read: "corporations or associations at least sixty percent
MR. NOLLEDO. In teaching law, we are always faced with this
of whose CAPITAL is owned by such citizens."
question: "Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation"? Will the Committee please MR. VILLEGAS. Yes.
enlighten me on this?
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with
MR. VILLEGAS. We have just had a long discussion with the 60 percent of the capital to be owned by citizens.
members of the team from the UP Law Center who provided us a
draft. The phrase that is contained here which we adopted from MR. VILLEGAS. That is right.
the UP draft is "60 percent of voting stock."

113
MR. AZCUNA. But the control can be with the foreigners even if Philippine nationals: Provided, That where a corporation and its non-
they are the minority. Let us say 40 percent of the capital is Filipino stockholders own stocks in a Securities and Exchange
owned by them, but it is the voting capital, whereas, the Filipinos Commission (SEC) registered enterprise, at least sixty percent (60%)
own the nonvoting shares. So we can have a situation where the of the capital stock outstanding and entitled to vote of each of both
corporation is controlled by foreigners despite being the minority corporations must be owned and held by citizens of the Philippines
because they have the voting capital. That is the anomaly that and at least sixty percent (60%) of the members of the Board of
would result here. Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a
MR. BENGZON. No, the reason we eliminated the word "stock" "Philippine national." (Emphasis supplied)
as stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have In explaining the definition of a "Philippine national," the Implementing
stocks. That is why we say "CAPITAL." Rules and Regulations of the Foreign Investments Act of 1991
provide:
MR. AZCUNA. We should not eliminate the phrase "controlling
interest." b. "Philippine national" shall mean a citizen of the Philippines or a
domestic partnership or association wholly owned by the citizens of
MR. BENGZON. In the case of stock corporations, it is the Philippines; or a corporation organized under the laws of the
assumed.49 (Emphasis supplied) Philippines of which at least sixty percent [60%] of the capital
stock outstanding and entitled to vote is owned and held by
Thus, 60 percent of the "capital" assumes, or should result in, citizens of the Philippines; or a trustee of funds for pension or other
"controlling interest" in the corporation. Reinforcing this employee retirement or separation benefits, where the trustee is a
interpretation of the term "capital," as referring to controlling interest or Philippine national and at least sixty percent [60%] of the fund will
shares entitled to vote, is the definition of a "Philippine national" in the accrue to the benefit of the Philippine nationals; Provided, that where
Foreign Investments Act of 1991,50 to wit: a corporation its non-Filipino stockholders own stocks in a Securities
and Exchange Commission [SEC] registered enterprise, at least sixty
SEC. 3. Definitions. - As used in this Act: percent [60%] of the capital stock outstanding and entitled to vote of
both corporations must be owned and held by citizens of the
a. The term "Philippine national" shall mean a citizen of the Philippines and at least sixty percent [60%] of the members of the
Philippines; or a domestic partnership or association wholly owned by Board of Directors of each of both corporation must be citizens of the
citizens of the Philippines; or a corporation organized under the Philippines, in order that the corporation shall be considered a
laws of the Philippines of which at least sixty percent (60%) of Philippine national. The control test shall be applied for this purpose.
the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a corporation organized Compliance with the required Filipino ownership of a corporation
abroad and registered as doing business in the Philippines under the shall be determined on the basis of outstanding capital stock
Corporation Code of which one hundred percent (100%) of the capital whether fully paid or not, but only such stocks which are
stock outstanding and entitled to vote is wholly owned by Filipinos or a generally entitled to vote are considered.
trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at For stocks to be deemed owned and held by Philippine citizens
least sixty percent (60%) of the fund will accrue to the benefit of or Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks,
114
coupled with appropriate voting rights is essential. Thus, stocks, "State shall develop a self-reliant and independent national
the voting rights of which have been assigned or transferred to economy effectively controlled by Filipinos." A broad definition
aliens cannot be considered held by Philippine citizens or unjustifiably disregards who owns the all-important voting stock, which
Philippine nationals. necessarily equates to control of the public utility.

Individuals or juridical entities not meeting the aforementioned We shall illustrate the glaring anomaly in giving a broad definition to
qualifications are considered as non-Philippine the term "capital." Let us assume that a corporation has 100 common
nationals. (Emphasis supplied) shares owned by foreigners and 1,000,000 non-voting preferred
shares owned by Filipinos, with both classes of share having a par
Mere legal title is insufficient to meet the 60 percent Filipino-owned value of one peso (₱1.00) per share. Under the broad definition of the
"capital" required in the Constitution. Full beneficial ownership of 60 term "capital," such corporation would be considered compliant with
percent of the outstanding capital stock, coupled with 60 percent of the 40 percent constitutional limit on foreign equity of public utilities
the voting rights, is required. The legal and beneficial ownership of 60 since the overwhelming majority, or more than 99.999 percent, of the
percent of the outstanding capital stock must rest in the hands of total outstanding capital stock is Filipino owned. This is obviously
Filipino nationals in accordance with the constitutional mandate. absurd.
Otherwise, the corporation is "considered as non-Philippine
national[s]." In the example given, only the foreigners holding the common shares
have voting rights in the election of directors, even if they hold only
Under Section 10, Article XII of the Constitution, Congress may 100 shares. The foreigners, with a minuscule equity of less than 0.001
"reserve to citizens of the Philippines or to corporations or percent, exercise control over the public utility. On the other hand, the
associations at least sixty per centum of whose capital is owned by Filipinos, holding more than 99.999 percent of the equity, cannot vote
such citizens, or such higher percentage as Congress may prescribe, in the election of directors and hence, have no control over the public
certain areas of investments." Thus, in numerous laws Congress has utility. This starkly circumvents the intent of the framers of the
reserved certain areas of investments to Filipino citizens or to Constitution, as well as the clear language of the Constitution, to
corporations at least sixty percent of the "capital" of which is owned place the control of public utilities in the hands of Filipinos. It also
by Filipino citizens. Some of these laws are: (1) Regulation of Award renders illusory the State policy of an independent national
of Government Contracts or R.A. No. 5183; (2) Philippine Inventors economy effectively controlled by Filipinos.
Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas The example given is not theoretical but can be found in the real
Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping world, and in fact exists in the present case.
Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology
Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Holders of PLDT preferred shares are explicitly denied of the right to
Decree or P.D. No. 1521. Hence, the term "capital" in Section 11, vote in the election of directors. PLDT’s Articles of Incorporation
Article XII of the Constitution is also used in the same context in expressly state that "the holders of Serial Preferred Stock shall not
numerous laws reserving certain areas of investments to Filipino be entitled to vote at any meeting of the stockholders for the
citizens. election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders,
To construe broadly the term "capital" as the total outstanding capital or to receive notice of any meeting of stockholders."51
stock, including both common and non-voting preferred shares,
grossly contravenes the intent and letter of the Constitution that the
115
On the other hand, holders of common shares are granted the As shown in PLDT’s 2010 GIS,60 as submitted to the SEC, the par
exclusive right to vote in the election of directors. PLDT’s Articles of value of PLDT common shares is ₱5.00 per share, whereas the par
Incorporation52 state that "each holder of Common Capital Stock shall value of preferred shares is ₱10.00 per share. In other words,
have one vote in respect of each share of such stock held by him on preferred shares have twice the par value of common shares but
all matters voted upon by the stockholders, and the holders of cannot elect directors and have only 1/70 of the dividends of common
Common Capital Stock shall have the exclusive right to vote for shares. Moreover, 99.44% of the preferred shares are owned by
the election of directors and for all other purposes."53 Filipinos while foreigners own only a minuscule 0.56% of the preferred
shares.61 Worse, preferred shares constitute 77.85% of the authorized
In short, only holders of common shares can vote in the election of capital stock of PLDT while common shares constitute only
directors, meaning only common shareholders exercise control over 22.15%.62 This undeniably shows that beneficial interest in PLDT is
PLDT. Conversely, holders of preferred shares, who have no voting not with the non-voting preferred shares but with the common shares,
rights in the election of directors, do not have any control over PLDT. blatantly violating the constitutional requirement of 60 percent Filipino
In fact, under PLDT’s Articles of Incorporation, holders of common control and Filipino beneficial ownership in a public utility.
shares have voting rights for all purposes, while holders of preferred
shares have no voting right for any purpose whatsoever. The legal and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipinos in accordance with the
It must be stressed, and respondents do not dispute, that foreigners constitutional mandate. Full beneficial ownership of 60 percent of the
hold a majority of the common shares of PLDT. In fact, based on outstanding capital stock, coupled with 60 percent of the voting rights,
PLDT’s 2010 General Information Sheet (GIS),54 which is a document is constitutionally required for the State’s grant of authority to operate
required to be submitted annually to the Securities and Exchange a public utility. The undisputed fact that the PLDT preferred shares,
Commission,55 foreigners hold 120,046,690 common shares of PLDT 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the
whereas Filipinos hold only 66,750,622 common shares.56 In other dividends that PLDT common shares earn, grossly violates the
words, foreigners hold 64.27% of the total number of PLDT’s common constitutional requirement of 60 percent Filipino control and Filipino
shares, while Filipinos hold only 35.73%. Since holding a majority of beneficial ownership of a public utility.
the common shares equates to control, it is clear that foreigners
exercise control over PLDT. Such amount of control unmistakably In short, Filipinos hold less than 60 percent of the voting stock,
exceeds the allowable 40 percent limit on foreign ownership of public and earn less than 60 percent of the dividends, of PLDT. This
utilities expressly mandated in Section 11, Article XII of the directly contravenes the express command in Section 11, Article XII of
Constitution. the Constitution that "[n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted except to x x x corporations x x x organized under the laws of the
to the SEC, shows that per share the SIP58 preferred shares earn a Philippines, at least sixty per centum of whose capital is owned
pittance in dividends compared to the common shares. PLDT by such citizens x x x."
declared dividends for the common shares at ₱70.00 per share, while
the declared dividends for the preferred shares amounted to a measly To repeat, (1) foreigners own 64.27% of the common shares of PLDT,
₱1.00 per share.59 So the preferred shares not only cannot vote in the which class of shares exercises the sole right to vote in the election of
election of directors, they also have very little and obviously negligible directors, and thus exercise control over PLDT; (2) Filipinos own only
dividend earning capacity compared to common shares. 35.73% of PLDT’s common shares, constituting a minority of the
voting stock, and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights;
116
(4) preferred shares earn only 1/70 of the dividends that common x x x Hence, unless it is expressly provided that a legislative act is
shares earn;63 (5) preferred shares have twice the par value of necessary to enforce a constitutional mandate, the presumption now
common shares; and (6) preferred shares constitute 77.85% of the is that all provisions of the constitution are self-executing. If the
authorized capital stock of PLDT and common shares only 22.15%. constitutional provisions are treated as requiring legislation instead of
This kind of ownership and control of a public utility is a mockery of self-executing, the legislature would have the power to ignore and
the Constitution. practically nullify the mandate of the fundamental law. This can be
cataclysmic. That is why the prevailing view is, as it has always been,
Incidentally, the fact that PLDT common shares with a par value of that —
₱5.00 have a current stock market value of ₱2,328.00 per
share,64 while PLDT preferred shares with a par value of ₱10.00 per . . . in case of doubt, the Constitution should be considered self-
share have a current stock market value ranging from only ₱10.92 to executing rather than non-self-executing. . . . Unless the contrary is
₱11.06 per share,65 is a glaring confirmation by the market that control clearly intended, the provisions of the Constitution should be
and beneficial ownership of PLDT rest with the common shares, not considered self-executing, as a contrary rule would give the
with the preferred shares. legislature discretion to determine when, or whether, they shall
be effective. These provisions would be subordinated to the will of
Indisputably, construing the term "capital" in Section 11, Article XII of the lawmaking body, which could make them entirely meaningless by
the Constitution to include both voting and non-voting shares will simply refusing to pass the needed implementing statute. (Emphasis
result in the abject surrender of our telecommunications industry to supplied)
foreigners, amounting to a clear abdication of the State’s
constitutional duty to limit control of public utilities to Filipino citizens. In Manila Prince Hotel, even the Dissenting Opinion of then Associate
Such an interpretation certainly runs counter to the constitutional Justice Reynato S. Puno, later Chief Justice, agreed that
provision reserving certain areas of investment to Filipino citizens, constitutional provisions are presumed to be self-executing. Justice
such as the exploitation of natural resources as well as the ownership Puno stated:
of land, educational institutions and advertising businesses. The Court
should never open to foreign control what the Constitution has Courts as a rule consider the provisions of the Constitution as self-
expressly reserved to Filipinos for that would be a betrayal of the executing, rather than as requiring future legislation for their
Constitution and of the national interest. The Court must perform its enforcement. The reason is not difficult to discern. For if they are not
solemn duty to defend and uphold the intent and letter of the treated as self-executing, the mandate of the fundamental law
Constitution to ensure, in the words of the Constitution, "a self-reliant ratified by the sovereign people can be easily ignored and
and independent national economy effectively controlled by Filipinos." nullified by Congress. Suffused with wisdom of the ages is the
unyielding rule that legislative actions may give breath to
Section 11, Article XII of the Constitution, like other provisions of the constitutional rights but congressional inaction should not
Constitution expressly reserving to Filipinos specific areas of suffocate them.
investment, such as the development of natural resources and
ownership of land, educational institutions and advertising business, Thus, we have treated as self-executing the provisions in the Bill of
is self-executing. There is no need for legislation to implement these Rights on arrests, searches and seizures, the rights of a person under
self-executing provisions of the Constitution. The rationale why these custodial investigation, the rights of an accused, and the privilege
constitutional provisions are self-executing was explained in Manila against self-incrimination. It is recognized that legislation is
Prince Hotel v. GSIS,66 thus: unnecessary to enable courts to effectuate constitutional provisions
guaranteeing the fundamental rights of life, liberty and the protection
117
of property. The same treatment is accorded to constitutional This Court has held that the SEC "has both regulatory and
provisions forbidding the taking or damaging of property for public use adjudicative functions."69 Under its regulatory functions, the SEC can
without just compensation. (Emphasis supplied) be compelled by mandamus to perform its statutory duty when it
unlawfully neglects to perform the same. Under its adjudicative or
Thus, in numerous cases,67 this Court, even in the absence of quasi-judicial functions, the SEC can be also be compelled by
implementing legislation, applied directly the provisions of the 1935, mandamus to hear and decide a possible violation of any law it
1973 and 1987 Constitutions limiting land ownership to Filipinos. administers or enforces when it is mandated by law to investigate
In Soriano v. Ong Hoo,68 this Court ruled: such violation.1awphi1

x x x As the Constitution is silent as to the effects or consequences of Under Section 17(4)70 of the Corporation Code, the SEC has the
a sale by a citizen of his land to an alien, and as both the citizen and regulatory function to reject or disapprove the Articles of Incorporation
the alien have violated the law, none of them should have a recourse of any corporation where "the required percentage of ownership of
against the other, and it should only be the State that should be the capital stock to be owned by citizens of the Philippines has
allowed to intervene and determine what is to be done with the not been complied with as required by existing laws or the
property subject of the violation. We have said that what the State Constitution." Thus, the SEC is the government agency tasked with
should do or could do in such matters is a matter of public policy, the statutory duty to enforce the nationality requirement prescribed in
entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Section 11, Article XII of the Constitution on the ownership of public
Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the utilities. This Court, in a petition for declaratory relief that is treated as
legislature has not definitely decided what policy should be a petition for mandamus as in the present case, can direct the SEC to
followed in cases of violations against the constitutional perform its statutory duty under the law, a duty that the SEC has
prohibition, courts of justice cannot go beyond by declaring the apparently unlawfully neglected to do based on the 2010 GIS that
disposition to be null and void as violative of the Constitution. x x respondent PLDT submitted to the SEC.
x (Emphasis supplied)
Under Section 5(m) of the Securities Regulation Code,71 the SEC is
To treat Section 11, Article XII of the Constitution as not self-executing vested with the "power and function" to "suspend or revoke, after
would mean that since the 1935 Constitution, or over the last 75 proper notice and hearing, the franchise or certificate of
years, not one of the constitutional provisions expressly reserving registration of corporations, partnerships or associations, upon
specific areas of investments to corporations, at least 60 percent of any of the grounds provided by law." The SEC is mandated under
the "capital" of which is owned by Filipinos, was enforceable. In short, Section 5(d) of the same Code with the "power and function" to
the framers of the 1935, 1973 and 1987 Constitutions miserably failed "investigate x x x the activities of persons to ensure compliance"
to effectively reserve to Filipinos specific areas of investment, like the with the laws and regulations that SEC administers or enforces. The
operation by corporations of public utilities, the exploitation by GIS that all corporations are required to submit to SEC annually
corporations of mineral resources, the ownership by corporations of should put the SEC on guard against violations of the nationality
real estate, and the ownership of educational institutions. All the requirement prescribed in the Constitution and existing laws. This
legislatures that convened since 1935 also miserably failed to enact Court can compel the SEC, in a petition for declaratory relief that is
legislations to implement these vital constitutional provisions that treated as a petition for mandamus as in the present case, to hear
determine who will effectively control the national economy, Filipinos and decide a possible violation of Section 11, Article XII of the
or foreigners. This Court cannot allow such an absurd interpretation of Constitution in view of the ownership structure of PLDT’s voting
the Constitution. shares, as admitted by respondents and as stated in PLDT’s 2010
GIS that PLDT submitted to SEC.
118
WHEREFORE, we PARTLY GRANT the petition and rule that the
term "capital" in Section 11, Article XII of the 1987 Constitution refers Associate Justice Associate Justice
only to shares of stock entitled to vote in the election of directors, and
thus in the present case only to common shares, and not to the total MARIA LOURDES P. A. SERENO
outstanding capital stock (common and non-voting preferred shares). Associate Justice
Respondent Chairperson of the Securities and Exchange Commission
is DIRECTED to apply this definition of the term "capital" in CERTIFICATION
determining the extent of allowable foreign ownership in respondent
Philippine Long Distance Telephone Company, and if there is a
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
violation of Section 11, Article XII of the Constitution, to impose the
conclusions in the above Decision had been reached in consultation
appropriate sanctions under the law.
before the case was assigned to the writer of the opinion of the Court.
SO ORDERED.
RENATO C. CORONA
Chief Justice
ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice

PRESBITERO J. TERESITA J. LEONARDO-


VELASCO, JR. DE CASTRO
Associate Justice Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA


Associate Justice Associate Justice

MARIANO C. DEL
LUCAS P. BERSAMIN
CASTILLO
Associate Justice
Associate Justice

MARTIN S. VILLARAMA, Republic of the Philippines


ROBERTO A. ABAD
JR. SUPREME COURT
Associate Justice
Associate Justice Manila
EN BANC
JOSE PORTUGAL PEREZ JOSE C. MENDOZA G.R. No. 171101               July 5, 2011

119
HACIENDA LUISITA, INCORPORATED, Petitioner, of share tenancy into leasehold tenancy.7 RA 3844 created the Land
LUISITA INDUSTRIAL PARK CORPORATION and RIZAL Bank of the Philippines (LBP) to provide support in all phases of
COMMERCIAL BANKING CORPORATION, Petitioners-in- agrarian reform.
Intervention,
vs. As its major thrust, RA 3844 aimed to create a system of owner-
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY cultivatorship in rice and corn, supposedly to be accomplished by
NASSER PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN expropriating lands in excess of 75 hectares for their eventual resale
REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG to tenants. The law, however, had this restricting feature: its
HACIENDA LUISITA, RENE GALANG, NOEL MALLARI, and JULIO operations were confined mainly to areas in Central Luzon, and its
SUNIGA1 and his SUPERVISORY GROUP OF THE HACIENDA implementation at any level of intensity limited to the pilot project in
LUISITA, INC. and WINDSOR ANDAYA, Respondents. Nueva Ecija.8
DECISION
VELASCO, JR., J.: Subsequently, Congress passed the Code of Agrarian Reform (RA
6389) declaring the entire country a land reform area, and providing
"Land for the landless," a shibboleth the landed gentry doubtless has for the automatic conversion of tenancy to leasehold tenancy in all
received with much misgiving, if not resistance, even if only the areas. From 75 hectares, the retention limit was cut down to seven
number of agrarian suits filed serves to be the norm. Through the hectares.9
years, this battle cry and root of discord continues to reflect the
seemingly ceaseless discourse on, and great disparity in, the Barely a month after declaring martial law in September 1972, then
distribution of land among the people, "dramatizing the increasingly President Ferdinand Marcos issued Presidential Decree No. 27 (PD
urgent demand of the dispossessed x x x for a plot of earth as their 27) for the "emancipation of the tiller from the bondage of the
place in the sun."2 As administrations and political alignments change, soil."10 Based on this issuance, tenant-farmers, depending on the size
policies advanced, and agrarian reform laws enacted, the latest being of the landholding worked on, can either purchase the land they tilled
what is considered a comprehensive piece, the face of land reform or shift from share to fixed-rent leasehold tenancy.11 While touted as
varies and is masked in myriads of ways. The stated goal, however, "revolutionary," the scope of the agrarian reform program PD 27
remains the same: clear the way for the true freedom of the farmer.3 enunciated covered only tenanted, privately-owned rice and corn
lands.12
Land reform, or the broader term "agrarian reform," has been a
government policy even before the Commonwealth era. In fact, at the Then came the revolutionary government of then President Corazon
onset of the American regime, initial steps toward land reform were C. Aquino and the drafting and eventual ratification of the 1987
already taken to address social unrest.4 Then, under the 1935 Constitution. Its provisions foreshadowed the establishment of a legal
Constitution, specific provisions on social justice and expropriation of framework for the formulation of an expansive approach to land
landed estates for distribution to tenants as a solution to land reform, affecting all agricultural lands and covering both tenant-
ownership and tenancy issues were incorporated. farmers and regular farmworkers.13

In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was So it was that Proclamation No. 131, Series of 1987, was issued
passed, setting in motion the expropriation of all tenanted estates.5 instituting a comprehensive agrarian reform program (CARP) to cover
all agricultural lands, regardless of tenurial arrangement and
On August 8, 1963, the Agricultural Land Reform Code (RA 3844) commodity produced, as provided in the Constitution.
was enacted,6 abolishing share tenancy and converting all instances
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On July 22, 1987, Executive Order No. 229 (EO 229) was issued To facilitate the adverted sale-and-purchase package, the Philippine
providing, as its title14 indicates, the mechanisms for CARP government, through the then Central Bank of the Philippines,
implementation. It created the Presidential Agrarian Reform Council assisted the buyer to obtain a dollar loan from a US bank.20 Also, the
(PARC) as the highest policy-making body that formulates all policies, Government Service Insurance System (GSIS) Board of Trustees
rules, and regulations necessary for the implementation of CARP. 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
On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform conditions contained in the approving GSIS Resolution No. 3203, as
Law of 1988, also known as CARL or the CARP Law, took effect, later amended by Resolution No. 356, Series of 1958, reads as
ushering in a new process of land classification, acquisition, and follows:
distribution. As to be expected, RA 6657 met stiff opposition, its
validity or some of its provisions challenged at every possible That the lots comprising the Hacienda Luisita shall be subdivided by
turn. Association of Small Landowners in the Philippines, Inc. v. the applicant-corporation and sold at cost to the tenants, should there
Secretary of Agrarian Reform 15 stated the observation that the assault be any, and whenever conditions should exist warranting such action
was inevitable, the CARP being an untried and untested project, "an under the provisions of the Land Tenure Act;21
experiment [even], as all life is an experiment," the Court said,
borrowing from Justice Holmes. 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 Case
The details of the events that happened next involving the hacienda
In this Petition for Certiorari and Prohibition under Rule 65 with prayer and the political color some of the parties embossed are of minimal
for preliminary injunctive relief, petitioner Hacienda Luisita, Inc. (HLI) significance to this narration and need no belaboring. Suffice it to
assails and seeks to set aside PARC Resolution No. 2005-32- state that on May 7, 1980, the martial law administration filed a suit
0116 and Resolution No. 2006-34-0117 issued on December 22, 2005 before the Manila Regional Trial Court (RTC) against Tadeco, et al.,
and May 3, 2006, respectively, as well as the implementing Notice of for them to surrender Hacienda Luisita to the then Ministry of Agrarian
Coverage dated January 2, 2006 (Notice of Coverage).18 Reform (MAR, now the Department of Agrarian Reform [DAR]) so that
the land can be distributed to farmers at cost. Responding, Tadeco or
The Facts its owners alleged that Hacienda Luisita does not have tenants,
besides which sugar lands––of which the hacienda consisted––are
At the core of the case is Hacienda Luisita de Tarlac (Hacienda not covered by existing agrarian reform legislations. As perceived
Luisita), once a 6,443-hectare mixed agricultural-industrial-residential then, the government commenced the case against Tadeco as a
expanse straddling several municipalities of Tarlac and owned by political message to the family of the late Benigno Aquino, Jr.23
Compañia General de Tabacos de Filipinas (Tabacalera). In 1957, the
Spanish owners of Tabacalera offered to sell Hacienda Luisita as well Eventually, the Manila RTC rendered judgment ordering Tadeco to
as their controlling interest in the sugar mill within the hacienda, the surrender Hacienda Luisita to the MAR. Therefrom, Tadeco appealed
Central Azucarera de Tarlac (CAT), as an indivisible transaction. The to the Court of Appeals (CA).
Tarlac Development Corporation (Tadeco), then owned and/or
controlled by the Jose Cojuangco, Sr. Group, was willing to buy. As On March 17, 1988, the Office of the Solicitor General (OSG) moved
agreed upon, Tadeco undertook to pay the purchase price for to withdraw the government’s case against Tadeco, et al. By
Hacienda Luisita in pesos, while that for the controlling interest in Resolution of May 18, 1988, the CA dismissed the case the Marcos
CAT, in US dollars.19 government initially instituted and won against Tadeco, et al. The
121
dismissal action was, however, made subject to the obtention by the Republic of the Philippines pursuant to Section 20 hereof or to
Tadeco of the PARC’s approval of a stock distribution plan (SDP) that qualified beneficiaries x x x.
must initially be implemented after such approval shall have been
secured.24 The appellate court wrote: Upon certification by the DAR, corporations owning agricultural
lands may give their qualified beneficiaries the right to purchase
The defendants-appellants x x x filed a motion on April 13, 1988 such proportion of the capital stock of the corporation that the
joining the x x x governmental agencies concerned in moving for the agricultural land, actually devoted to agricultural activities, bears
dismissal of the case subject, however, to the following conditions in relation to the company’s total assets, under such terms and
embodied in the letter dated April 8, 1988 (Annex 2) of the Secretary conditions as may be agreed upon by them. In no case shall the
of the [DAR] quoted, as follows: compensation received by the workers at the time the shares of
stocks are distributed be reduced. x x x
1. Should TADECO fail to obtain approval of the stock
distribution plan for failure to comply with all the requirements Corporations or associations which voluntarily divest a proportion of
for corporate landowners set forth in the guidelines issued by their capital stock, equity or participation in favor of their workers or
the [PARC]: or other qualified beneficiaries under this section shall be deemed to
have complied with the provisions of this Act: Provided, That the
2. If such stock distribution plan is approved by PARC, but following conditions are complied with:
TADECO fails to initially implement it.
(a) In order to safeguard the right of beneficiaries who own
xxxx shares of stocks to dividends and other financial benefits, the
books of the corporation or association shall be subject to
WHEREFORE, the present case on appeal is hereby dismissed periodic audit by certified public accountants chosen by the
without prejudice, and should be revived if any of the conditions as beneficiaries;
above set forth is not duly complied with by the TADECO.25
(b) Irrespective of the value of their equity in the corporation or
26
Markedly, Section 10 of EO 229  allows corporate landowners, as an association, the beneficiaries shall be assured of at least one
alternative to the actual land transfer scheme of CARP, to give (1) representative in the board of directors, or in a
qualified beneficiaries the right to purchase shares of stocks of the management or executive committee, if one exists, of the
corporation under a stock ownership arrangement and/or land-to- corporation or association;
share ratio.
(c) Any shares acquired by such workers and beneficiaries
Like EO 229, RA 6657, under the latter’s Sec. 31, also provides two shall have the same rights and features as all other shares;
(2) alternative modalities, i.e., land or stock transfer, pursuant to either and
of which the corporate landowner can comply with CARP, but subject
to well-defined conditions and timeline requirements. Sec. 31 of RA (d) Any transfer of shares of stocks by the original
6657 provides: beneficiaries shall be void ab initio unless said transaction is in
favor of a qualified and registered beneficiary within the same
SEC. 31. Corporate Landowners.¾Corporate landowners may corporation.
voluntarily transfer ownership over their agricultural landholdings to

122
If within two (2) years from the approval of this Act, the [voluntary] On May 9, 1989, some 93% of the then farmworker-beneficiaries
land or stock transfer envisioned above is not made or realized or the (FWBs) complement of Hacienda Luisita signified in a referendum
plan for such stock distribution approved by the PARC within the their acceptance of the proposed HLI’s Stock Distribution Option Plan.
same period, the agricultural land of the corporate owners or On May 11, 1989, the Stock Distribution Option Agreement (SDOA),
corporation shall be subject to the compulsory coverage of this Act. styled as a Memorandum of Agreement (MOA),33 was entered into by
(Emphasis added.) Tadeco, HLI, and the 5,848 qualified FWBs34 and attested to by then
DAR Secretary Philip Juico. The SDOA embodied the basis and
Vis-à-vis the stock distribution aspect of the aforequoted Sec. 31, mechanics of the SDP, which would eventually be submitted to the
DAR issued Administrative Order No. 10, Series of 1988 (DAO PARC for approval. In the SDOA, the parties agreed to the following:
10),27 entitled Guidelines and Procedures for Corporate Landowners
Desiring to Avail Themselves of the Stock Distribution Plan under 1. The percentage of the value of the agricultural land of
Section 31 of RA 6657. Hacienda Luisita (P196,630,000.00) in relation to the total
assets (P590,554,220.00) transferred and conveyed to the
From the start, the stock distribution scheme appeared to be Tadeco’s SECOND PARTY [HLI] is 33.296% that, under the law, is the
preferred option, for, on August 23, 1988,28 it organized a spin-off proportion of the outstanding capital stock of the SECOND
corporation, HLI, as vehicle to facilitate stock acquisition by the PARTY, which is P355,531,462.00 or 355,531,462 shares with
farmworkers. For this purpose, Tadeco assigned and conveyed to HLI a par value of P1.00 per share, that has to be distributed to the
the agricultural land portion (4,915.75 hectares) and other farm- THIRD PARTY [FWBs] under the stock distribution plan, the
related properties of Hacienda Luisita in exchange for HLI shares of said 33.296% thereof being P118,391,976.85
stock.29 or 118,391,976.85 shares.

Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose 2. The qualified beneficiaries of the stock distribution plan shall
Cojuangco, Jr., and Paz C. Teopaco were the incorporators of HLI.30 be the farmworkers who appear in the annual payroll, inclusive
of the permanent and seasonal employees, who are regularly
To accommodate the assets transfer from Tadeco to HLI, the latter, or periodically employed by the SECOND PARTY.
with the Securities and Exchange Commission’s (SEC’s) approval,
increased its capital stock on May 10, 1989 from PhP 1,500,000 3. At the end of each fiscal year, for a period of 30 years, the
divided into 1,500,000 shares with a par value of PhP 1/share to PhP SECOND PARTY shall arrange with the FIRST PARTY
400,000,000 divided into 400,000,000 shares also with par value of [Tadeco] the acquisition and distribution to the THIRD
PhP 1/share, 150,000,000 of which were to be issued only to qualified PARTY on the basis of number of days worked and at no cost
and registered beneficiaries of the CARP, and the remaining to them of one-thirtieth (1/30) of 118,391,976.85 shares of the
250,000,000 to any stockholder of the corporation.31 capital stock of the SECOND PARTY that are presently owned
and held by the FIRST PARTY, until such time as the entire
As appearing in its proposed SDP, the properties and assets of block of 118,391,976.85 shares shall have been completely
Tadeco contributed to the capital stock of HLI, as appraised and acquired and distributed to the THIRD PARTY.
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 4.The SECOND PARTY shall guarantee to the qualified
235,422,758, a net value of PhP 355,531,462. This translated to beneficiaries of the [SDP] that every year they will receive on
355,531,462 shares with a par value of PhP 1/share.32 top of their regular compensation, an amount that
approximates the equivalent of three (3%) of the total gross
123
sales from the production of the agricultural land, whether it be indicated, is payable "irrespective of whether [HLI] makes money or
in the form of cash dividends or incentive bonuses or both. not," implying that the benefits do not partake the nature of dividends,
as the term is ordinarily understood under corporation law.
5. Even if only a part or fraction of the shares earmarked for
distribution will have been acquired from the FIRST PARTY While a little bit hard to follow, given that, during the period material,
and distributed to the THIRD PARTY, FIRST PARTY shall the assigned value of the agricultural land in the hacienda was PhP
execute at the beginning of each fiscal year an irrevocable 196.63 million, while the total assets of HLI was PhP 590.55 million
proxy, valid and effective for one (1) year, in favor of the with net assets of PhP 355.53 million, Tadeco/HLI would admit that
farmworkers appearing as shareholders of the SECOND the ratio of the land-to-shares of stock corresponds to 33.3% of the
PARTY at the start of said year which will empower the THIRD outstanding capital stock of the HLI equivalent to 118,391,976.85
PARTY or their representative to vote in stockholders’ and shares of stock with a par value of PhP 1/share.
board of directors’ meetings of the SECOND PARTY
convened during the year the entire 33.296% of the Subsequently, HLI submitted to DAR its SDP, designated as
outstanding capital stock of the SECOND PARTY earmarked "Proposal for Stock Distribution under C.A.R.P.,"35 which was
for distribution and thus be able to gain such number of seats substantially based on the SDOA.
in the board of directors of the SECOND PARTY that the
whole 33.296% of the shares subject to distribution will be Notably, in a follow-up referendum the DAR conducted on October 14,
entitled to. 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
6. In addition, the SECOND PARTY shall within a reasonable distribution.37
time subdivide and allocate for free and without charge among
the qualified family-beneficiaries residing in the place where After a review of the SDP, then DAR Secretary Miriam Defensor-
the agricultural land is situated, residential or homelots of not Santiago (Sec. Defensor-Santiago) addressed a letter dated
more than 240 sq.m. each, with each family-beneficiary being November 6, 198938 to Pedro S. Cojuangco (Cojuangco), then Tadeco
assured of receiving and owning a homelot in the barangay president, proposing that the SDP be revised, along the following
where it actually resides on the date of the execution of this lines:
Agreement.
1. That over the implementation period of the [SDP],
7. This Agreement is entered into by the parties in the spirit of [Tadeco]/HLI shall ensure that there will be no dilution in the
the (C.A.R.P.) of the government and with the supervision of shares of stocks of individual [FWBs];
the [DAR], with the end in view of improving the lot of the
qualified beneficiaries of the [SDP] and obtaining for them 2. That a safeguard shall be provided by [Tadeco]/HLI against
greater benefits. (Emphasis added.) the dilution of the percentage shareholdings of the [FWBs],
i.e., that the 33% shareholdings of the [FWBs] will be
As may be gleaned from the SDOA, included as part of the maintained at any given time;
distribution plan are: (a) production-sharing equivalent to three
percent (3%) of gross sales from the production of the agricultural 3. That the mechanics for distributing the stocks be explicitly
land payable to the FWBs in cash dividends or incentive bonus; and stated in the [MOA] signed between the [Tadeco], HLI and its
(b) distribution of free homelots of not more than 240 square meters [FWBs] prior to the implementation of the stock plan;
each to family-beneficiaries. The production-sharing, as the SDP
124
4. That the stock distribution plan provide for clear and definite (f) 2.4 million pesos (P2,400,000) representing 3% from the
terms for determining the actual number of seats to be sale of 80 hectares at 80 million pesos (P80,000,000) for the
allocated for the [FWBs] in the HLI Board; SCTEX;

5. That HLI provide guidelines and a timetable for the (g) Social service benefits, such as but not limited to free
distribution of homelots to qualified [FWBs]; and hospitalization/medical/maternity services, old age/death
benefits and no interest bearing salary/educational loans and
6. That the 3% cash dividends mentioned in the [SDP] be rice sugar accounts. 42
expressly provided for [in] the MOA.
Two separate groups subsequently contested this claim of HLI.
In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago,
Tadeco/HLI explained that the proposed revisions of the SDP are On August 15, 1995, HLI applied for the conversion of 500 hectares of
already embodied in both the SDP and MOA.39 Following that land of the hacienda from agricultural to industrial use,43 pursuant to
exchange, the PARC, under then Sec. Defensor-Santiago, Sec. 65 of RA 6657, providing:
by Resolution No. 89-12-240 dated November 21, 1989, approved the
SDP of Tadeco/HLI.41 SEC. 65. Conversion of Lands.¾After the lapse of five (5) years from
its award, when the land ceases to be economically feasible and
At the time of the SDP approval, HLI had a pool of farmworkers, sound for agricultural purposes, or the locality has become urbanized
numbering 6,296, more or less, composed of permanent, seasonal and the land will have a greater economic value for residential,
and casual master list/payroll and non-master list members. commercial or industrial purposes, the DAR, upon application of the
beneficiary or the landowner, with due notice to the affected parties,
From 1989 to 2005, HLI claimed to have extended the following and subject to existing laws, may authorize the reclassification, or
benefits to the FWBs: conversion of the land and its disposition: Provided, That the
beneficiary shall have fully paid its obligation.
(a) 3 billion pesos (P3,000,000,000) worth of salaries, wages
and fringe benefits The application, according to HLI, had the backing of 5,000 or so
FWBs, including respondent Rene Galang, and Jose Julio Suniga, as
(b) 59 million shares of stock distributed for free to the FWBs; evidenced by the Manifesto of Support they signed and which was
submitted to the DAR.44 After the usual processing, the DAR, thru then
(c) 150 million pesos (P150,000,000) representing 3% of the Sec. Ernesto Garilao, approved the application on August 14, 1996,
gross produce; per DAR Conversion Order No. 030601074-764-(95), Series of
1996,45 subject to payment of three percent (3%) of the gross selling
(d) 37.5 million pesos (P37,500,000) representing 3% from the price to the FWBs and to HLI’s continued compliance with its
sale of 500 hectares of converted agricultural land of Hacienda undertakings under the SDP, among other conditions.
Luisita;
On December 13, 1996, HLI, in exchange for subscription of
(e) 240-square meter homelots distributed for free; 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.

125
28791047 was canceled and TCT No. 29209148 was issued in the denominated as Petition/Protest,57 respondents Jose Julio Suniga and
name of Centennary. HLI transferred the remaining 200 hectares Windsor Andaya, identifying themselves as head of the Supervisory
covered by TCT No. 287909 to Luisita Realty Corporation (LRC)49 in Group of HLI (Supervisory Group), and 60 other supervisors sought to
two separate transactions in 1997 and 1998, both uniformly involving revoke the SDOA, alleging that HLI had failed to give them their
100 hectares for PhP 250 million each.50 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
Centennary, a corporation with an authorized capital stock of PhP converted 500 hectares of land. They further claimed that their lives
12,100,000 divided into 12,100,000 shares and wholly-owned by HLI, have not improved contrary to the promise and rationale for the
had the following incorporators: Pedro Cojuangco, Josephine C. adoption of the SDOA. They also cited violations by HLI of the
Reyes, Teresita C. Lopa, Ernesto G. Teopaco, and Bernardo R. SDOA’s terms.58 They prayed for a renegotiation of the SDOA, or, in
Lahoz. the alternative, its revocation.

Subsequently, Centennary sold51 the entire 300 hectares to Luisita Revocation and nullification of the SDOA and the distribution of the
Industrial Park Corporation (LIPCO) for PhP 750 million. The latter lands in the hacienda were the call in the second petition, styled
acquired it for the purpose of developing an industrial complex.52 As a as Petisyon (Petition).59 The Petisyon was ostensibly filed on
result, Centennary’s TCT No. 292091 was canceled to be replaced by December 4, 2003 by Alyansa ng mga Manggagawang Bukid ng
TCT No. 31098653 in the name of LIPCO. Hacienda Luisita (AMBALA), where the handwritten name of
respondents Rene Galang as "Pangulo AMBALA" and Noel Mallari as
From the area covered by TCT No. 310986 was carved out two (2) "Sec-Gen. AMBALA"60 appeared. As alleged, the petition was filed on
parcels, for which two (2) separate titles were issued in the name of behalf of AMBALA’s members purportedly composing about 80% of
LIPCO, specifically: (a) TCT No. 36580054 and (b) TCT No. the 5,339 FWBs of Hacienda Luisita.
365801,55 covering 180 and four hectares, respectively. TCT No.
310986 was, accordingly, partially canceled. HLI would eventually answer61 the petition/protest of the Supervisory
Group. On the other hand, HLI’s answer62 to the AMBALA petition was
Later on, in a Deed of Absolute Assignment dated November 25, contained in its letter dated January 21, 2005 also filed with DAR.
2004, LIPCO transferred the parcels covered by its TCT Nos. 365800
and 365801 to the Rizal Commercial Banking Corporation (RCBC) by Meanwhile, the DAR constituted a Special Task Force to attend to
way of dacion en pago in payment of LIPCO’s PhP 431,695,732.10 issues relating to the SDP of HLI. Among other duties, the Special
loan obligations. LIPCO’s titles were canceled and new ones, TCT Task Force was mandated to review the terms and conditions of the
Nos. 391051 and 391052, were issued to RCBC. SDOA and PARC Resolution No. 89-12-2 relative to HLI’s SDP;
evaluate HLI’s compliance reports; evaluate the merits of the petitions
Apart from the 500 hectares alluded to, another 80.51 hectares were for the revocation of the SDP; conduct ocular inspections or field
later detached from the area coverage of Hacienda Luisita which had investigations; and recommend appropriate remedial measures for
been acquired by the government as part of the Subic-Clark-Tarlac approval of the Secretary.63
Expressway (SCTEX) complex. In absolute terms, 4,335.75 hectares
remained of the original 4,915 hectares Tadeco ceded to HLI.56 After investigation and evaluation, the Special Task Force submitted
its "Terminal Report: Hacienda Luisita, Incorporated (HLI) Stock
Such, in short, was the state of things when two separate petitions, Distribution Plan (SDP) Conflict"64 dated September 22, 2005
both undated, reached the DAR in the latter part of 2003. In the first, (Terminal Report), finding that HLI has not complied with its
obligations under RA 6657 despite the implementation of the
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SDP.65 The Terminal Report and the Special Task Force’s Its motion notwithstanding, HLI has filed the instant recourse in light of
recommendations were adopted by then DAR Sec. Nasser what it considers as the DAR’s hasty placing of Hacienda Luisita
Pangandaman (Sec. Pangandaman).66 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
Subsequently, Sec. Pangandaman recommended to the PARC above-quoted resolution the facts and the law upon which it is
Executive Committee (Excom) (a) the recall/revocation of PARC based."73
Resolution No. 89-12-2 dated November 21, 1989 approving HLI’s
SDP; and (b) the acquisition of Hacienda Luisita through the PARC would eventually deny HLI’s motion for reconsideration via
compulsory acquisition scheme. Following review, the PARC Resolution No. 2006-34-01 dated May 3, 2006.
Validation Committee favorably endorsed the DAR Secretary’s
recommendation afore-stated.67 By Resolution of June 14, 2006,74 the Court, acting on HLI’s motion,
issued a temporary restraining order,75 enjoining the implementation of
On December 22, 2005, the PARC issued the assailed Resolution No. Resolution No. 2005-32-01 and the notice of coverage.
2005-32-01, disposing as follows:
On July 13, 2006, the OSG, for public respondents PARC and the
NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is DAR, filed its Comment76 on the petition.
HEREBY RESOLVED, to approve and confirm the recommendation
of the PARC Executive Committee adopting in toto the report of the On December 2, 2006, Noel Mallari, impleaded by HLI as respondent
PARC ExCom Validation Committee affirming the recommendation of in his capacity as "Sec-Gen. AMBALA," filed his Manifestation and
the DAR to recall/revoke the SDO plan of Tarlac Development Motion with Comment Attached dated December 4, 2006
Corporation/Hacienda Luisita Incorporated. (Manifestation and Motion).77 In it, Mallari stated that he has broken
away from AMBALA with other AMBALA ex-members and formed
RESOLVED, further, that the lands subject of the recalled/revoked Farmworkers Agrarian Reform Movement, Inc. (FARM).78 Should this
TDC/HLI SDO plan be forthwith placed under the compulsory shift in alliance deny him standing, Mallari also prayed that FARM be
coverage or mandated land acquisition scheme of the [CARP]. allowed to intervene.

APPROVED.68 As events would later develop, Mallari had a parting of ways with
other FARM members, particularly would-be intervenors Renato Lalic,
A copy of Resolution No. 2005-32-01 was served on HLI the following et al. As things stand, Mallari returned to the AMBALA fold, creating
day, December 23, without any copy of the documents adverted to in the AMBALA-Noel Mallari faction and leaving Renato Lalic, et al. as
the resolution attached. A letter-request dated December 28, the remaining members of FARM who sought to intervene.
200569 for certified copies of said documents was sent to, but was not
acted upon by, the PARC secretariat. On January 10, 2007, the Supervisory Group79 and the AMBALA-
Rene Galang faction submitted their Comment/Opposition dated
Therefrom, HLI, on January 2, 2006, sought reconsideration.70 On the December 17, 2006.80
same day, the DAR Tarlac provincial office issued the Notice of
Coverage71 which HLI received on January 4, 2006. 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,

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RCBC and LIPCO contended that the assailed resolution effectively POWER AND/OR AUTHORITY TO NULLIFY, RECALL,
nullified the TCTs under their respective names as the properties REVOKE OR RESCIND THE SDOA.
covered in the TCTs were veritably included in the January 2, 2006
notice of coverage. In the main, they claimed that the revocation of II.
the SDP cannot legally affect their rights as innocent purchasers for
value. Both motions for leave to intervene were granted and the [IF SO], x x x CAN THEY STILL EXERCISE SUCH
corresponding petitions-in-intervention admitted. JURISDICTION, POWER AND/OR AUTHORITY AT THIS
TIME, I.E., AFTER SIXTEEN (16) YEARS FROM THE
On August 18, 2010, the Court heard the main and intervening EXECUTION OF THE SDOA AND ITS IMPLEMENTATION
petitioners on oral arguments. On the other hand, the Court, on WITHOUT VIOLATING SECTIONS 1 AND 10 OF ARTICLE III
August 24, 2010, heard public respondents as well as the respective (BILL OF RIGHTS) OF THE CONSTITUTION AGAINST
counsels of the AMBALA-Mallari-Supervisory Group, the AMBALA- DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS
Galang faction, and the FARM and its 27 members83 argue their case. OF LAW AND THE IMPAIRMENT OF CONTRACTUAL
RIGHTS AND OBLIGATIONS? MOREOVER, ARE THERE
Prior to the oral arguments, however, HLI; AMBALA, represented by LEGAL GROUNDS UNDER THE CIVIL CODE, viz, ARTICLE
Mallari; the Supervisory Group, represented by Suniga and Andaya; 1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x ARTICLE
and the United Luisita Workers Union, represented by Eldifonso 1390 x x x AND ARTICLE 1409 x x x THAT CAN BE
Pingol, filed with the Court a joint submission and motion for approval INVOKED TO NULLIFY, RECALL, REVOKE, OR RESCIND
of a Compromise Agreement (English and Tagalog versions) dated THE SDOA?
August 6, 2010.
III.
On August 31, 2010, the Court, in a bid to resolve the dispute through
an amicable settlement, issued a Resolution84 creating a Mediation WHETHER THE PETITIONS TO NULLIFY, RECALL,
Panel composed of then Associate Justice Ma. Alicia Austria- REVOKE OR RESCIND THE SDOA HAVE ANY LEGAL
Martinez, as chairperson, and former CA Justices Hector Hofileña and BASIS OR GROUNDS AND WHETHER THE PETITIONERS
Teresita Dy-Liacco Flores, as members. Meetings on five (5) separate THEREIN ARE THE REAL PARTIES-IN-INTEREST TO FILE
dates, i.e., September 8, 9, 14, 20, and 27, 2010, were conducted. SAID PETITIONS.
Despite persevering and painstaking efforts on the part of the panel,
mediation had to be discontinued when no acceptable agreement IV.
could be reached.
WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES
The Issues OF THE PARTIES TO THE SDOA ARE NOW GOVERNED
BY THE CORPORATION CODE (BATAS PAMBANSA BLG.
HLI raises the following issues for our consideration: 68) AND NOT BY THE x x x [CARL] x x x.

I. On the other hand, RCBC submits the following issues:

WHETHER OR NOT PUBLIC RESPONDENTS PARC AND I.


SECRETARY PANGANDAMAN HAVE JURISDICTION,

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RESPONDENT PARC COMMITTED GRAVE ABUSE OF Simply formulated, the principal determinative issues tendered in the
DISCRETION AMOUNTING TO LACK OR EXCESS OF main petition and to which all other related questions must yield boil
JURISDICTION WHEN IT DID NOT EXCLUDE THE down to the following: (1) matters of standing; (2) the constitutionality
SUBJECT PROPERTY FROM THE COVERAGE OF THE of Sec. 31 of RA 6657; (3) the jurisdiction of PARC to recall or revoke
CARP DESPITE THE FACT THAT PETITIONER- HLI’s SDP; (4) the validity or propriety of such recall or revocatory
INTERVENOR RCBC HAS ACQUIRED VESTED RIGHTS action; and (5) corollary to (4), the validity of the terms and conditions
AND INDEFEASIBLE TITLE OVER THE SUBJECT of the SDP, as embodied in the SDOA.
PROPERTY AS AN INNOCENT PURCHASER FOR VALUE.
Our Ruling
A. THE ASSAILED RESOLUTION NO. 2005-32-01
AND THE NOTICE OF COVERAGE DATED 02 I.
JANUARY 2006 HAVE THE EFFECT OF NULLIFYING
TCT NOS. 391051 AND 391052 IN THE NAME OF We first proceed to the examination of the preliminary issues before
PETITIONER-INTERVENOR RCBC. delving on the more serious challenges bearing on the validity of
PARC’s assailed issuance and the grounds for it.
B. AS AN INNOCENT PURCHASER FOR VALUE,
PETITIONER-INTERVENOR RCBC CANNOT BE Supervisory Group, AMBALA and their
PREJUDICED BY A SUBSEQUENT REVOCATION respective leaders are real parties-in-interest
OR RESCISSION OF THE SDOA.
HLI would deny real party-in-interest status to the purported leaders of
II. the Supervisory Group and AMBALA, i.e., Julio Suniga, Windsor
Andaya, and Rene Galang, who filed the revocatory petitions before
THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE the DAR. As HLI would have it, Galang, the self-styled head of
NOTICE OF COVERAGE DATED 02 JANUARY 2006 WERE AMBALA, gained HLI employment in June 1990 and, thus, could not
ISSUED WITHOUT AFFORDING PETITIONER- have been a party to the SDOA executed a year earlier.85 As regards
INTERVENOR RCBC ITS RIGHT TO DUE PROCESS AS AN the Supervisory Group, HLI alleges that supervisors are not regular
INNOCENT PURCHASER FOR VALUE. farmworkers, but the company nonetheless considered them FWBs
under the SDOA as a mere concession to enable them to enjoy the
LIPCO, like RCBC, asserts having acquired vested and indefeasible same benefits given qualified regular farmworkers. However, if the
rights over certain portions of the converted property, and, hence, SDOA would be canceled and land distribution effected, so HLI
would ascribe on PARC the commission of grave abuse of discretion claims, citing Fortich v. Corona,86 the supervisors would be excluded
when it included those portions in the notice of coverage. And apart from receiving lands as farmworkers other than the regular
from raising issues identical with those of HLI, such as but not limited farmworkers who are merely entitled to the "fruits of the land."87
to the absence of valid grounds to warrant the rescission and/or
revocation of the SDP, LIPCO would allege that the assailed The SDOA no less identifies "the SDP qualified beneficiaries" as "the
resolution and the notice of coverage were issued without affording it farmworkers who appear in the annual payroll, inclusive of the
the right to due process as an innocent purchaser for value. The permanent and seasonal employees, who are regularly or periodically
government, LIPCO also argues, is estopped from recovering employed by [HLI]."88 Galang, per HLI’s own admission, is employed
properties which have since passed to innocent parties. by HLI, and is, thus, a qualified beneficiary of the SDP; he comes

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within the definition of a real party-in-interest under Sec. 2, Rule 3 of xxxx
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 Responsible farmer leaders shall be allowed to represent
of the suit. themselves, their fellow farmers or their organizations in any
proceedings before the DAR: Provided, however, that when there
The same holds true with respect to the Supervisory Group whose are two or more representatives for any individual or group, the
members were admittedly employed by HLI and whose names and representatives should choose only one among themselves to
signatures even appeared in the annex of the SDOA. Being qualified represent such party or group before any DAR proceedings.
beneficiaries of the SDP, Suniga and the other 61 supervisors are (Emphasis supplied.)
certainly parties who would benefit or be prejudiced by the judgment
recalling the SDP or replacing it with some other modality to comply Clearly, the respective leaders of the Supervisory Group and
with RA 6657. AMBALA are contextually real parties-in-interest allowed by law to file
a petition before the DAR or PARC.
Even assuming that members of the Supervisory Group are not
regular farmworkers, but are in the category of "other farmworkers" This is not necessarily to say, however, that Galang represents
mentioned in Sec. 4, Article XIII of the Constitution,89 thus only entitled AMBALA, for as records show and as HLI aptly noted,92 his "petisyon"
to a share of the fruits of the land, as indeed Fortich teaches, this filed with DAR did not carry the usual authorization of the individuals
does not detract from the fact that they are still identified as being in whose behalf it was supposed to have been instituted. To date,
among the "SDP qualified beneficiaries." As such, they are, thus, such authorization document, which would logically include a list of
entitled to bring an action upon the SDP.90 At any rate, the following the names of the authorizing FWBs, has yet to be submitted to be part
admission made by Atty. Gener Asuncion, counsel of HLI, during the of the records.
oral arguments should put to rest any lingering doubt as to the status
of protesters Galang, Suniga, and Andaya: PARC’s Authority to Revoke a Stock Distribution Plan

Justice Bersamin: x x x I heard you a while ago that you were On the postulate that the subject jurisdiction is conferred by law, HLI
conceding the qualified farmer beneficiaries of Hacienda Luisita were maintains that PARC is without authority to revoke an SDP, for neither
real parties in interest? RA 6657 nor EO 229 expressly vests PARC with such authority.
While, as HLI argued, EO 229 empowers PARC to approve the plan
Atty. Asuncion: Yes, Your Honor please, real party in interest which for stock distribution in appropriate cases, the empowerment only
that question refers to the complaints of protest initiated before the includes the power to disapprove, but not to recall its previous
DAR and the real party in interest there be considered as possessed approval of the SDP after it has been implemented by the parties.93 To
by the farmer beneficiaries who initiated the protest.91 HLI, it is the court which has jurisdiction and authority to order the
revocation or rescission of the PARC-approved SDP.
Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are
expressly allowed to represent themselves, their fellow farmers or We disagree.
their organizations in any proceedings before the DAR. Specifically:
Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority
SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x to approve the plan for stock distribution of the corporate landowner
belongs to PARC. However, contrary to petitioner HLI’s posture,

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PARC also has the power to revoke the SDP which it previously of the case, only PARC can effect such revocation. The DAR
approved. It may be, as urged, that RA 6657 or other executive Secretary, by his own authority as such, cannot plausibly do so, as
issuances on agrarian reform do not explicitly vest the PARC with the the acceptance and/or approval of the SDP sought to be taken back
power to revoke/recall an approved SDP. Such power or authority, or undone is the act of PARC whose official composition includes, no
however, is deemed possessed by PARC under the principle of less, the President as chair, the DAR Secretary as vice-chair, and at
necessary implication, a basic postulate that what is implied in a least eleven (11) other department heads.99
statute is as much a part of it as that which is expressed.94
On another but related issue, the HLI foists on the Court the argument
We have explained that "every statute is understood, by implication, to that subjecting its landholdings to compulsory distribution after its
contain all such provisions as may be necessary to effectuate its approved SDP has been implemented would impair the contractual
object and purpose, or to make effective rights, powers, privileges or obligations created under the SDOA.
jurisdiction which it grants, including all such collateral and subsidiary
consequences as may be fairly and logically inferred from its The broad sweep of HLI’s argument ignores certain established legal
terms."95 Further, "every statutory grant of power, right or privilege is precepts and must, therefore, be rejected.
deemed to include all incidental power, right or privilege. 96
A law authorizing interference, when appropriate, in the contractual
Gordon v. Veridiano II is instructive: relations between or among parties is deemed read into the contract
and its implementation cannot successfully be resisted by force of the
The power to approve a license includes by implication, even if not non-impairment guarantee. There is, in that instance, no impingement
expressly granted, the power to revoke it. By extension, the power to of the impairment clause, the non-impairment protection being
revoke is limited by the authority to grant the license, from which it is applicable only to laws that derogate prior acts or contracts by
derived in the first place. Thus, if the FDA grants a license upon its enlarging, abridging or in any manner changing the intention of the
finding that the applicant drug store has complied with the parties. Impairment, in fine, obtains if a subsequent law changes the
requirements of the general laws and the implementing administrative terms of a contract between the parties, imposes new conditions,
rules and regulations, it is only for their violation that the FDA may dispenses with those agreed upon or withdraws existing remedies for
revoke the said license. By the same token, having granted the permit the enforcement of the rights of the parties.100 Necessarily, the
upon his ascertainment that the conditions thereof as applied x x x constitutional proscription would not apply to laws already in effect at
have been complied with, it is only for the violation of such conditions the time of contract execution, as in the case of RA 6657, in relation to
that the mayor may revoke the said permit.97 (Emphasis supplied.) DAO 10, vis-à-vis HLI’s SDOA. As held in Serrano v. Gallant Maritime
Services, Inc.:
Following the doctrine of necessary implication, it may be stated that
the conferment of express power to approve a plan for stock The prohibition [against impairment of the obligation of contracts] is
distribution of the agricultural land of corporate owners necessarily aligned with the general principle that laws newly enacted have only a
includes the power to revoke or recall the approval of the plan. prospective operation, and cannot affect acts or contracts already
perfected; however, as to laws already in existence, their provisions
As public respondents aptly observe, to deny PARC such revocatory are read into contracts and deemed a part thereof. Thus, the non-
power would reduce it into a toothless agency of CARP, because the impairment clause under Section 10, Article II [of the Constitution] is
very same agency tasked to ensure compliance by the corporate limited in application to laws about to be enacted that would in any
landowner with the approved SDP would be without authority to way derogate from existing acts or contracts by enlarging, abridging
impose sanctions for non-compliance with it.98 With the view We take
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or in any manner changing the intention of the parties Without doubt, the Corporation Code is the general law providing for
thereto.101 (Emphasis supplied.) the formation, organization and regulation of private corporations. On
the other hand, RA 6657 is the special law on agrarian reform. As
Needless to stress, the assailed Resolution No. 2005-32-01 is not the between a general and special law, the latter shall prevail—generalia
kind of issuance within the ambit of Sec. 10, Art. III of the Constitution specialibus non derogant.105 Besides, the present impasse between
providing that "[n]o law impairing the obligation of contracts shall be HLI and the private respondents is not an intra-corporate dispute
passed." which necessitates the application of the Corporation Code. What
private respondents questioned before the DAR is the proper
Parenthetically, HLI tags the SDOA as an ordinary civil law contract implementation of the SDP and HLI’s compliance with RA 6657.
and, as such, a breach of its terms and conditions is not a PARC Evidently, RA 6657 should be the applicable law to the instant case.
administrative matter, but one that gives rise to a cause of action
cognizable by regular courts.102 This contention has little to commend HLI further contends that the inclusion of the agricultural land of
itself. The SDOA is a special contract imbued with public interest, Hacienda Luisita under the coverage of CARP and the eventual
entered into and crafted pursuant to the provisions of RA 6657. It distribution of the land to the FWBs would amount to a disposition of
embodies the SDP, which requires for its validity, or at least its all or practically all of the corporate assets of HLI. HLI would add that
enforceability, PARC’s approval. And the fact that the certificate of this contingency, if ever it comes to pass, requires the applicability of
compliance103––to be issued by agrarian authorities upon completion the Corporation Code provisions on corporate dissolution.
of the distribution of stocks––is revocable by the same issuing
authority supports the idea that everything about the implementation We are not persuaded.
of the SDP is, at the first instance, subject to administrative
adjudication. Indeed, the provisions of the Corporation Code on corporate
dissolution would apply insofar as the winding up of HLI’s affairs or
HLI also parlays the notion that the parties to the SDOA should now liquidation of the assets is concerned. However, the mere inclusion of
look to the Corporation Code, instead of to RA 6657, in determining the agricultural land of Hacienda Luisita under the coverage of CARP
their rights, obligations and remedies. The Code, it adds, should be and the land’s eventual distribution to the FWBs will not, without more,
the applicable law on the disposition of the agricultural land of HLI. automatically trigger the dissolution of HLI. As stated in the SDOA
itself, the percentage of the value of the agricultural land of Hacienda
Contrary to the view of HLI, the rights, obligations and remedies of the Luisita in relation to the total assets transferred and conveyed by
parties to the SDOA embodying the SDP are primarily governed by Tadeco to HLI comprises only 33.296%, following this equation: value
RA 6657. It should abundantly be made clear that HLI was precisely of the agricultural lands divided by total corporate assets. By no
created in order to comply with RA 6657, which the OSG aptly stretch of imagination would said percentage amount to a disposition
described as the "mother law" of the SDOA and the SDP.104 It is, thus, of all or practically all of HLI’s corporate assets should compulsory
paradoxical for HLI to shield itself from the coverage of CARP by land acquisition and distribution ensue.
invoking exclusive applicability of the Corporation Code under the
guise of being a corporate entity. 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
Without in any way minimizing the relevance of the Corporation Code 6657 for the reasons set forth in the Terminal Report of the Special
since the FWBs of HLI are also stockholders, its applicability is limited Task Force, as endorsed by PARC Excom. But first, the matter of the
as the rights of the parties arising from the SDP should not be made constitutionality of said section.
to supplant or circumvent the agrarian reform program.
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Constitutional Issue Not all the foregoing requirements are satisfied in the case at bar.

FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it While there is indeed an actual case or controversy, intervenor FARM,
affords the corporation, as a mode of CARP compliance, to resort to composed of a small minority of 27 farmers, has yet to explain its
stock distribution, an arrangement which, to FARM, impairs the failure to challenge the constitutionality of Sec. 3l of RA 6657, since
fundamental right of farmers and farmworkers under Sec. 4, Art. XIII as early as November 21, l989 when PARC approved the SDP of
of the Constitution.106 Hacienda Luisita or at least within a reasonable time thereafter and
why its members received benefits from the SDP without so much of a
To a more specific, but direct point, FARM argues that Sec. 31 of RA protest. It was only on December 4, 2003 or 14 years after approval of
6657 permits stock transfer in lieu of outright agricultural land transfer; the SDP via PARC Resolution No. 89-12-2 dated November 21, 1989
in fine, there is stock certificate ownership of the farmers or that said plan and approving resolution were sought to be revoked,
farmworkers instead of them owning the land, as envisaged in the but not, to stress, by FARM or any of its members, but by petitioner
Constitution. For FARM, this modality of distribution is an anomaly to AMBALA. Furthermore, the AMBALA petition did NOT question the
be annulled for being inconsistent with the basic concept of agrarian constitutionality of Sec. 31 of RA 6657, but concentrated on the
reform ingrained in Sec. 4, Art. XIII of the Constitution.107 purported flaws and gaps in the subsequent implementation of the
SDP. Even the public respondents, as represented by the Solicitor
Reacting, HLI insists that agrarian reform is not only about transfer of General, did not question the constitutionality of the provision. On the
land ownership to farmers and other qualified beneficiaries. It draws other hand, FARM, whose 27 members formerly belonged to
attention in this regard to Sec. 3(a) of RA 6657 on the concept and AMBALA, raised the constitutionality of Sec. 31 only on May 3, 2007
scope of the term "agrarian reform." The constitutionality of a law, when it filed its Supplemental Comment with the Court. Thus, it took
HLI added, cannot, as here, be attacked collaterally. FARM some eighteen (18) years from November 21, 1989 before it
challenged the constitutionality of Sec. 31 of RA 6657 which is quite
The instant challenge on the constitutionality of Sec. 31 of RA 6657 too late in the day. The FARM members slept on their rights and even
and necessarily its counterpart provision in EO 229 must fail as accepted benefits from the SDP with nary a complaint on the alleged
explained below. unconstitutionality of Sec. 31 upon which the benefits were derived.
The Court cannot now be goaded into resolving a constitutional issue
When the Court is called upon to exercise its power of judicial review that FARM failed to assail after the lapse of a long period of time and
over, and pass upon the constitutionality of, acts of the executive or the occurrence of numerous events and activities which resulted from
legislative departments, it does so only when the following essential the application of an alleged unconstitutional legal provision.
requirements are first met, to wit:
It has been emphasized in a number of cases that the question of
(1) there is an actual case or controversy; 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
(2) that the constitutional question is raised at the earliest
constitutionality of Sec. 31 of RA 6657. The second requirement that
possible opportunity by a proper party or one with locus standi;
the constitutional question should be raised at the earliest possible
and
opportunity is clearly wanting.
(3) the issue of constitutionality must be the very lis mota of
The last but the most important requisite that the constitutional issue
the case.108
must be the very lis mota of the case does not likewise obtain. The lis
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mota aspect is not present, the constitutional issue tendered not being purposes, the stock distribution scheme under Sec. 31 of RA 6657 is
critical to the resolution of the case. The unyielding rule has been to no longer an available option under existing law. The question of
avoid, whenever plausible, an issue assailing the constitutionality of a whether or not it is unconstitutional should be a moot issue.
statute or governmental act.110 If some other grounds exist by which
judgment can be made without touching the constitutionality of a law, It is true that the Court, in some cases, has proceeded to resolve
such recourse is favored.111 Garcia v. Executive Secretary explains constitutional issues otherwise already moot and
why: academic114 provided the following requisites are present:

Lis Mota — the fourth requirement to satisfy before this Court will x x x first, there is a grave violation of the Constitution; second, the
undertake judicial review — means that the Court will not pass upon a exceptional character of the situation and the paramount public
question of unconstitutionality, although properly presented, if the interest is involved; third, when the constitutional issue raised requires
case can be disposed of on some other ground, such as the formulation of controlling principles to guide the bench, the bar, and
application of the statute or the general law. The petitioner must be the public; fourth, the case is capable of repetition yet evading review.
able to show that the case cannot be legally resolved unless the
constitutional question raised is determined. This requirement is These requisites do not obtain in the case at bar.
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 For one, there appears to be no breach of the fundamental law. Sec.
unequivocal breach of the Constitution, and not one that is doubtful, 4, Article XIII of the Constitution reads:
speculative, or argumentative.112 (Italics in the original.)
The State shall, by law, undertake an agrarian reform program
The lis mota in this case, proceeding from the basic positions founded on the right of the farmers and regular farmworkers, who are
originally taken by AMBALA (to which the FARM members previously landless, to OWN directly or COLLECTIVELY THE LANDS THEY
belonged) and the Supervisory Group, is the alleged non-compliance TILL or, in the case of other farmworkers, to receive a just share of
by HLI with the conditions of the SDP to support a plea for its the fruits thereof. To this end, the State shall encourage and
revocation. And before the Court, the lis mota is whether or not PARC undertake the just distribution of all agricultural lands, subject to such
acted in grave abuse of discretion when it ordered the recall of the priorities and reasonable retention limits as the Congress may
SDP for such non-compliance and the fact that the SDP, as couched prescribe, taking into account ecological, developmental, or equity
and implemented, offends certain constitutional and statutory considerations, and subject to the payment of just compensation. In
provisions. To be sure, any of these key issues may be resolved determining retention limits, the State shall respect the right of small
without plunging into the constitutionality of Sec. 31 of RA 6657. landowners. The State shall further provide incentives for voluntary
Moreover, looking deeply into the underlying petitions of AMBALA, et land-sharing. (Emphasis supplied.)
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. The wording of the provision is unequivocal––the farmers and regular
farmworkers have a right TO OWN DIRECTLY OR COLLECTIVELY
It may be well to note at this juncture that Sec. 5 of RA THE LANDS THEY TILL. The basic law allows two (2) modes of land
9700,113 amending Sec. 7 of RA 6657, has all but superseded Sec. 31 distribution—direct and indirect ownership. Direct transfer to individual
of RA 6657 vis-à-vis the stock distribution component of said Sec. 31. farmers is the most commonly used method by DAR and widely
In its pertinent part, Sec. 5 of RA 9700 provides: "[T]hat after June accepted. Indirect transfer through collective ownership of the
30, 2009, the modes of acquisition shall be limited to voluntary agricultural land is the alternative to direct ownership of agricultural
offer to sell and compulsory acquisition." Thus, for all intents and
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land by individual farmers. The aforequoted Sec. 4 EXPRESSLY proportion of the capital stock of the corporation that the agricultural
authorizes collective ownership by farmers. No language can be land, actually devoted to agricultural activities, bears in relation to the
found in the 1987 Constitution that disqualifies or prohibits company’s total assets, under such terms and conditions as may be
corporations or cooperatives of farmers from being the legal entity agreed upon by them. In no case shall the compensation received by
through which collective ownership can be exercised. The word the workers at the time the shares of stocks are distributed be
"collective" is defined as "indicating a number of persons or things reduced. The same principle shall be applied to associations, with
considered as constituting one group or aggregate,"115 while respect to their equity or participation. x x x (Emphasis supplied.)
"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 Clearly, workers’ cooperatives or associations under Sec. 29 of RA
indirect ownership of land and not just outright agricultural land 6657 and corporations or associations under the succeeding Sec. 31,
transfer. This is in recognition of the fact that land reform may become as differentiated from individual farmers, are authorized vehicles for
successful even if it is done through the medium of juridical entities the collective ownership of agricultural land. Cooperatives can be
composed of farmers. registered with the Cooperative Development Authority and acquire
legal personality of their own, while corporations are juridical persons
Collective ownership is permitted in two (2) provisions of RA 6657. Its under the Corporation Code. Thus, Sec. 31 is constitutional as it
Sec. 29 allows workers’ cooperatives or associations to collectively simply implements Sec. 4 of Art. XIII of the Constitution that land can
own the land, while the second paragraph of Sec. 31 allows be owned COLLECTIVELY by farmers. Even the framers of the l987
corporations or associations to own agricultural land with the farmers Constitution are in unison with respect to the two (2) modes of
becoming stockholders or members. Said provisions read: ownership of agricultural lands tilled by farmers––DIRECT and
COLLECTIVE, thus:
SEC. 29. Farms owned or operated by corporations or other business
associations.—In the case of farms owned or operated by MR. NOLLEDO. And when we talk of the phrase "to own directly," we
corporations or other business associations, the following rules shall mean the principle of direct ownership by the tiller?
be observed by the PARC.
MR. MONSOD. Yes.
In general, lands shall be distributed directly to the individual worker-
beneficiaries. MR. NOLLEDO. And when we talk of "collectively," we mean
communal ownership, stewardship or State ownership?
In case it is not economically feasible and sound to divide the land,
then it shall be owned collectively by the worker beneficiaries who MS. NIEVA. In this section, we conceive of cooperatives; that is
shall form a workers’ cooperative or association which will deal with farmers’ cooperatives owning the land, not the State.
the corporation or business association. x x x (Emphasis supplied.)
MR. NOLLEDO. And when we talk of "collectively," referring to
SEC. 31. Corporate Landowners.— x x x farmers’ cooperatives, do the farmers own specific areas of land
where they only unite in their efforts?
xxxx
MS. NIEVA. That is one way.
Upon certification by the DAR, corporations owning agricultural lands
may give their qualified beneficiaries the right to purchase such

135
MR. NOLLEDO. Because I understand that there are two basic constitutional provision is not self-executory and that legislation is
systems involved: the "moshave" type of agriculture and the "kibbutz." needed to implement the urgently needed program of agrarian reform.
So are both contemplated in the report? And RA 6657 has been enacted precisely pursuant to and as a
mechanism to carry out the constitutional directives. This piece of
MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng legislation, in fact, restates118 the agrarian reform policy established in
tunay na reporma sa lupa ay ang pagmamay-ari ng lupa na hahatiin the aforementioned provision of the Constitution of promoting the
sa individual na pagmamay-ari – directly – at ang tinatawag na sama- welfare of landless farmers and farmworkers. RA 6657 thus defines
samang gagawin ng mga magbubukid. Tulad sa Negros, ang gusto "agrarian reform" as "the redistribution of lands … to farmers and
ng mga magbubukid ay gawin nila itong "cooperative or collective regular farmworkers who are landless … to lift the economic status of
farm." Ang ibig sabihin ay sama-sama nilang sasakahin. the beneficiaries and all other arrangements alternative to the
physical redistribution of lands, such as production or profit
xxxx sharing, labor administration and the distribution of shares of
stock which will allow beneficiaries to receive a just share of the fruits
MR. TINGSON. x x x When we speak here of "to own directly or of the lands they work."
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," With the view We take of this case, the stock distribution option
but now the slogan is "land for the tillers." Is that right? 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
MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers. Constitution. Albeit land ownership for the landless appears to be the
Ang ibig sabihin ng "directly" ay tulad sa implementasyon sa rice and dominant theme of that policy, We emphasize that Sec. 4, Article XIII
corn lands kung saan inaari na ng mga magsasaka ang lupang of the Constitution, as couched, does not constrict Congress to
binubungkal nila. Ang ibig sabihin naman ng "collectively" ay sama- passing an agrarian reform law planted on direct land transfer to and
samang paggawa sa isang lupain o isang bukid, katulad ng sitwasyon ownership by farmers and no other, or else the enactment suffers
sa Negros.117 (Emphasis supplied.) from the vice of unconstitutionality. If the intention were otherwise, the
framers of the Constitution would have worded said section in a
As Commissioner Tadeo explained, the farmers will work on the manner mandatory in character.
agricultural land "sama-sama" or collectively. Thus, the main requisite
for collective ownership of land is collective or group work by farmers For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer
of the agricultural land. Irrespective of whether the landowner is a features, is not inconsistent with the State’s commitment to farmers
cooperative, association or corporation composed of farmers, as long and farmworkers to advance their interests under the policy of social
as concerted group work by the farmers on the land is present, then it justice. The legislature, thru Sec. 31 of RA 6657, has chosen a
falls within the ambit of collective ownership scheme. modality for collective ownership by which the imperatives of social
justice may, in its estimation, be approximated, if not achieved. The
Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a Court should be bound by such policy choice.
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 FARM contends that the farmers in the stock distribution scheme
subject to such priorities as Congress may prescribe, taking into under Sec. 31 do not own the agricultural land but are merely given
account such abstract variable as "equity considerations." The textual stock certificates. Thus, the farmers lose control over the land to the
reference to a law and Congress necessarily implies that the above board of directors and executive officials of the corporation who
actually manage the land. They conclude that such arrangement runs
136
counter to the mandate of the Constitution that any agrarian reform should always own majority of the common shares entitled to elect the
must preserve the control over the land in the hands of the tiller. 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
This contention has no merit. scrutiny of the proposed SDP must always be undertaken by the DAR
and PARC, such that the value of the agricultural land contributed to
While it is true that the farmer is issued stock certificates and does not the corporation must always be more than 50% of the total assets of
directly own the land, still, the Corporation Code is clear that the FWB the corporation to ensure that the majority of the members of the
becomes a stockholder who acquires an equitable interest in the board of directors are composed of the farmers. The PARC composed
assets of the corporation, which include the agricultural lands. It was of the President of the Philippines and cabinet secretaries must see to
explained that the "equitable interest of the shareholder in the it that control over the board of directors rests with the farmers by
property of the corporation is represented by the term stock, and the rejecting the inclusion of non-agricultural assets which will yield the
extent of his interest is described by the term shares. The expression majority in the board of directors to non-farmers. Any deviation,
shares of stock when qualified by words indicating number and however, by PARC or DAR from the correct application of the formula
ownership expresses the extent of the owner’s interest in the prescribed by the second paragraph of Sec. 31 of RA 6675 does not
corporate property."119 A share of stock typifies an aliquot part of the make said provision constitutionally infirm. Rather, it is the application
corporation’s property, or the right to share in its proceeds to that of said provision that can be challenged. Ergo, Sec. 31 of RA 6657
extent when distributed according to law and equity and that its holder does not trench on the constitutional policy of ensuring control by the
is not the owner of any part of the capital of the farmers.
corporation.120 However, the FWBs will ultimately own the agricultural
lands owned by the corporation when the corporation is eventually A view has been advanced that there can be no agrarian reform
dissolved and liquidated. unless there is land distribution and that actual land distribution is the
essential characteristic of a constitutional agrarian reform program.
Anent the alleged loss of control of the farmers over the agricultural On the contrary, there have been so many instances where, despite
land operated and managed by the corporation, a reading of the actual land distribution, the implementation of agrarian reform was still
second paragraph of Sec. 31 shows otherwise. Said provision unsuccessful. As a matter of fact, this Court may take judicial notice of
provides that qualified beneficiaries have "the right to purchase such cases where FWBs sold the awarded land even to non-qualified
proportion of the capital stock of the corporation that the agricultural persons and in violation of the prohibition period provided under the
land, actually devoted to agricultural activities, bears in relation to the law. This only proves to show that the mere fact that there is land
company’s total assets." The wording of the formula in the distribution does not guarantee a successful implementation of
computation of the number of shares that can be bought by the agrarian reform.
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 As it were, the principle of "land to the tiller" and the old pastoral
capital stock that can be bought by the farmers depends on the value model of land ownership where non-human juridical persons, such as
of the agricultural land and the value of the total assets of the corporations, were prohibited from owning agricultural lands are no
corporation. longer realistic under existing conditions. Practically, an individual
farmer will often face greater disadvantages and difficulties than those
There is, thus, nothing unconstitutional in the formula prescribed by who exercise ownership in a collective manner through a cooperative
RA 6657. The policy on agrarian reform is that control over the or corporation. The former is too often left to his own devices when
agricultural land must always be in the hands of the farmers. Then it faced with failing crops and bad weather, or compelled to obtain
falls on the shoulders of DAR and PARC to see to it the farmers usurious loans in order to purchase costly fertilizers or farming
137
equipment. The experiences learned from failed land reform activities to overcome the presumption of constitutionality of Sec. 31 of RA
in various parts of the country are lack of financing, lack of farm 6657.
equipment, lack of fertilizers, lack of guaranteed buyers of produce,
lack of farm-to-market roads, among others. Thus, at the end of the The wisdom of Congress in allowing an SDP through a corporation as
day, there is still no successful implementation of agrarian reform to an alternative mode of implementing agrarian reform is not for judicial
speak of in such a case. determination. Established jurisprudence tells us that it is not within
the province of the Court to inquire into the wisdom of the law, for,
Although success is not guaranteed, a cooperative or a corporation indeed, We are bound by words of the statute.124
stands in a better position to secure funding and competently maintain
the agri-business than the individual farmer. While direct singular II.
ownership over farmland does offer advantages, such as the ability to
make quick decisions unhampered by interference from others, yet at The stage is now set for the determination of the propriety under the
best, these advantages only but offset the disadvantages that are premises of the revocation or recall of HLI’s SDP. Or to be more
often associated with such ownership arrangement. Thus, precise, the inquiry should be: whether or not PARC gravely abused
government must be flexible and creative in its mode of its discretion in revoking or recalling the subject SDP and placing the
implementation to better its chances of success. One such option is hacienda under CARP’s compulsory acquisition and distribution
collective ownership through juridical persons composed of farmers. scheme.

Aside from the fact that there appears to be no violation of the The findings, analysis and recommendation of the DAR’s Special
Constitution, the requirement that the instant case be capable of Task Force contained and summarized in its Terminal Report
repetition yet evading review is also wanting. It would be speculative provided the bases for the assailed PARC revocatory/recalling
for this Court to assume that the legislature will enact another law Resolution. The findings may be grouped into two: (1) the SDP is
providing for a similar stock option. 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
As a matter of sound practice, the Court will not interfere inordinately of the SDP. In more particular terms, the following are essentially the
with the exercise by Congress of its official functions, the heavy reasons underpinning PARC’s revocatory or recall action:
presumption being that a law is the product of earnest studies by
Congress to ensure that no constitutional prescription or concept is (1) Despite the lapse of 16 years from the approval of HLI’s
infringed.121 Corollarily, courts will not pass upon questions of wisdom, SDP, the lives of the FWBs have hardly improved and the
expediency and justice of legislation or its provisions. Towards this promised increased income has not materialized;
end, all reasonable doubts should be resolved in favor of the
constitutionality of a law and the validity of the acts and processes (2) HLI has failed to keep Hacienda Luisita intact and
taken pursuant thereof.122 unfragmented;

Consequently, before a statute or its provisions duly challenged are (3) The issuance of HLI shares of stock on the basis of
voided, an unequivocal breach of, or a clear conflict with the number of hours worked––or the so-called "man days"––is
Constitution, not merely a doubtful or argumentative one, must be grossly onerous to the FWBs, as HLI, in the guise of rotation,
demonstrated in such a manner as to leave no doubt in the mind of can unilaterally deny work to anyone. In elaboration of this
the Court. In other words, the grounds for nullity must be beyond ground, PARC’s Resolution No. 2006-34-01, denying HLI’s
reasonable doubt.123 FARM has not presented compelling arguments
138
motion for reconsideration of Resolution No. 2005-32-01, Sec. 2 of RA 6657 states:
stated that the man days criterion worked to dilute the
entitlement of the original share beneficiaries;125 SECTION 2. Declaration of Principles and Policies.¾It is the policy of
the State to pursue a Comprehensive Agrarian Reform Program
(4) The distribution/transfer of shares was not in accordance (CARP). The welfare of the landless farmers and farm workers will
with the timelines fixed by law; receive the highest consideration to promote social justice and to
move the nation towards sound rural development and
(5) HLI has failed to comply with its obligations to grant 3% of industrialization, and the establishment of owner cultivatorship of
the gross sales every year as production-sharing benefit on economic-sized farms as the basis of Philippine agriculture.
top of the workers’ salary; and
To this end, a more equitable distribution and ownership of land, with
(6) Several homelot awardees have yet to receive their due regard to the rights of landowners to just compensation and to the
individual titles. ecological needs of the nation, shall be undertaken to provide farmers
and farm workers with the opportunity to enhance their dignity and
Petitioner HLI claims having complied with, at least substantially, all improve the quality of their lives through greater productivity of
its obligations under the SDP, as approved by PARC itself, and tags agricultural lands.
the reasons given for the revocation of the SDP as unfounded.
The agrarian reform program is founded on the right of farmers and
Public respondents, on the other hand, aver that the assailed regular farm workers, who are landless, to own directly or collectively
resolution rests on solid grounds set forth in the Terminal Report, a the lands they till or, in the case of other farm workers, to receive a
position shared by AMBALA, which, in some pleadings, is represented share of the fruits thereof. To this end, the State shall encourage the
by the same counsel as that appearing for the Supervisory Group. just distribution of all agricultural lands, subject to the priorities and
retention limits set forth in this Act, having taken into account
FARM, for its part, posits the view that legal bases obtain for the ecological, developmental, and equity considerations, and subject to
revocation of the SDP, because it does not conform to Sec. 31 of RA the payment of just compensation. The State shall respect the right of
6657 and DAO 10. And training its sight on the resulting dilution of the small landowners and shall provide incentives for voluntary land-
equity of the FWBs appearing in HLI’s masterlist, FARM would state sharing. (Emphasis supplied.)
that the SDP, as couched and implemented, spawned disparity when
there should be none; parity when there should have been Paragraph 2 of the above-quoted provision specifically mentions that
differentiation.126 "a more equitable distribution and ownership of land x x x shall be
undertaken to provide farmers and farm workers with the opportunity
The petition is not impressed with merit. to enhance their dignity and improve the quality of their lives through
greater productivity of agricultural lands." Of note is the term
In the Terminal Report adopted by PARC, it is stated that the SDP "opportunity" which is defined as a favorable chance or opening
violates the agrarian reform policy under Sec. 2 of RA 6657, as the offered by circumstances.127 Considering this, by no stretch of
said plan failed to enhance the dignity and improve the quality of lives imagination can said provision be construed as a guarantee in
of the FWBs through greater productivity of agricultural lands. We improving the lives of the FWBs. At best, it merely provides for a
disagree. possibility or favorable chance of uplifting the economic status of the
FWBs, which may or may not be attained.

139
Pertinently, improving the economic status of the FWBs is neither divided and distributed to them individually."130 But as aptly noted
among the legal obligations of HLI under the SDP nor an imperative during the oral arguments, DAO 10 ought to have not, as it cannot,
imposition by RA 6657 and DAO 10, a violation of which would justify actually exact assurance of success on something that is subject to
discarding the stock distribution option. Nothing in that option the will of man, the forces of nature or the inherent risky nature of
agreement, law or department order indicates otherwise. business.131 Just like in actual land distribution, an SDP cannot
guarantee, as indeed the SDOA does not guarantee, a comfortable
Significantly, HLI draws particular attention to its having paid its life for the FWBs. The Court can take judicial notice of the fact that
FWBs, during the regime of the SDP (1989-2005), some PhP 3 billion there were many instances wherein after a farmworker beneficiary
by way of salaries/wages and higher benefits exclusive of free has been awarded with an agricultural land, he just subsequently sells
hospital and medical benefits to their immediate family. And attached it and is eventually left with nothing in the end.
as Annex "G" to HLI’s Memorandum is the certified true report of the
finance manager of Jose Cojuangco & Sons Organizations-Tarlac In all then, the onerous condition of the FWBs’ economic status, their
Operations, captioned as "HACIENDA LUISITA, INC. Salaries, life of hardship, if that really be the case, can hardly be attributed to
Benefits and Credit Privileges (in Thousand Pesos) Since the Stock HLI and its SDP and provide a valid ground for the plan’s revocation.
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, Neither does HLI’s SDP, whence the DAR-attested SDOA/MOA is
yields the following numbers: Total Direct Cash Out (Salaries/Wages based, infringe Sec. 31 of RA 6657, albeit public respondents
& Cash Benefits) = PhP 2,927,848; Total Non-Direct Cash Out erroneously submit otherwise.
(Hospital/Medical Benefits) = PhP 303,040. The cash out figures, as
stated in the report, include the cost of homelots; the PhP 150 million The provisions of the first paragraph of the adverted Sec. 31 are
or so representing 3% of the gross produce of the hacienda; and the without relevance to the issue on the propriety of the assailed order
PhP 37.5 million representing 3% from the proceeds of the sale of the revoking HLI’s SDP, for the paragraph deals with the transfer of
500-hectare converted lands. While not included in the report, HLI agricultural lands to the government, as a mode of CARP compliance,
manifests having given the FWBs 3% of the PhP 80 million paid for thus:
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 SEC. 31. Corporate Landowners.¾Corporate landowners may
the FWBs for free. Verily, the FWBs have benefited from the SDP. voluntarily transfer ownership over their agricultural landholdings to
the Republic of the Philippines pursuant to Section 20 hereof or to
To address urgings that the FWBs be allowed to disengage from the qualified beneficiaries under such terms and conditions, consistent
SDP as HLI has not anyway earned profits through the years, it with this Act, as they may agree, subject to confirmation by the DAR.
cannot be over-emphasized that, as a matter of common business
sense, no corporation could guarantee a profitable run all the time. As The second and third paragraphs, with their sub-paragraphs, of Sec.
has been suggested, one of the key features of an SDP of a corporate 31 provide as follows:
landowner is the likelihood of the corporate vehicle not earning, or,
worse still, losing money.129 Upon certification by the DAR, corporations owning agricultural
lands may give their qualified beneficiaries the right to purchase
The Court is fully aware that one of the criteria under DAO 10 for the such proportion of the capital stock of the corporation that the
PARC to consider the advisability of approving a stock distribution agricultural land, actually devoted to agricultural activities, bears
plan is the likelihood that the plan "would result in increased income in relation to the company’s total assets, under such terms and
and greater benefits to [qualified beneficiaries] than if the lands were
140
conditions as may be agreed upon by them. In no case shall the Paragraph one (1) of the SDOA, which was based on the SDP,
compensation received by the workers at the time the shares of conforms to Sec. 31 of RA 6657. The stipulation reads:
stocks are distributed be reduced. x x x
1. The percentage of the value of the agricultural land of Hacienda
Corporations or associations which voluntarily divest a proportion of Luisita (P196,630,000.00) in relation to the total assets
their capital stock, equity or participation in favor of their workers or (P590,554,220.00) transferred and conveyed to the SECOND PARTY
other qualified beneficiaries under this section shall be deemed to is 33.296% that, under the law, is the proportion of the outstanding
have complied with the provisions of this Act: Provided, That the capital stock of the SECOND PARTY, which is P355,531,462.00 or
following conditions are complied with: 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,
(a) In order to safeguard the right of beneficiaries who own the said 33.296% thereof being P118,391,976.85 or 118,391,976.85
shares of stocks to dividends and other financial benefits, the shares.
books of the corporation or association shall be subject to
periodic audit by certified public accountants chosen by the The appraised value of the agricultural land is PhP 196,630,000 and
beneficiaries; 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
(b) Irrespective of the value of their equity in the corporation or of the agricultural lands (PhP 196,630,000) in relation to the total
association, the beneficiaries shall be assured of at least one assets (PhP 590,554,220) is 33.296%, which represents the
(1) representative in the board of directors, or in a stockholdings of the 6,296 original qualified farmworker-beneficiaries
management or executive committee, if one exists, of the (FWBs) in HLI. The total number of shares to be distributed to said
corporation or association; 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
(c) Any shares acquired by such workers and beneficiaries capital stock of HLI with a value of PhP 355,531,462. Thus, if we
shall have the same rights and features as all other shares; divide the 118,391,976.85 HLI shares by 6,296 FWBs, then each
and FWB is entitled to 18,804.32 HLI shares. These shares under the
SDP are to be given to FWBs for free.
(d) Any transfer of shares of stocks by the original
beneficiaries shall be void ab initio unless said transaction is in The Court finds that the determination of the shares to be distributed
favor of a qualified and registered beneficiary within the same to the 6,296 FWBs strictly adheres to the formula prescribed by Sec.
corporation. 31(b) of RA 6657.

The mandatory minimum ratio of land-to-shares of stock supposed to Anent the requirement under Sec. 31(b) of the third paragraph, that
be distributed or allocated to qualified beneficiaries, adverting to what the FWBs shall be assured of at least one (1) representative in the
Sec. 31 of RA 6657 refers to as that "proportion of the capital stock of board of directors or in a management or executive committee
the corporation that the agricultural land, actually devoted to irrespective of the value of the equity of the FWBs in HLI, the Court
agricultural activities, bears in relation to the company’s total assets" finds that the SDOA contained provisions making certain the FWBs’
had been observed. 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
141
distributed to the THIRD PARTY, FIRST PARTY shall execute at the Properly viewed, the words "two (2) years" clearly refer to the period
beginning of each fiscal year an irrevocable proxy, valid and effective within which the corporate landowner, to avoid land transfer as a
for one (1) year, in favor of the farmworkers appearing as mode of CARP coverage under RA 6657, is to avail of the stock
shareholders of the SECOND PARTY at the start of said year which distribution option or to have the SDP approved. The HLI secured
will empower the THIRD PARTY or their representative to vote in approval of its SDP in November 1989, well within the two-year period
stockholders’ and board of directors’ meetings of the SECOND reckoned from June 1988 when RA 6657 took effect.
PARTY convened during the year the entire 33.296% of the
outstanding capital stock of the SECOND PARTY earmarked for Having hurdled the alleged breach of the agrarian reform policy under
distribution and thus be able to gain such number of seats in the Sec. 2 of RA 6657 as well as the statutory issues, We shall now delve
board of directors of the SECOND PARTY that the whole 33.296% of into what PARC and respondents deem to be other instances of
the shares subject to distribution will be entitled to. violation of DAO 10 and the SDP.

Also, no allegations have been made against HLI restricting the On the Conversion of Lands
inspection of its books by accountants chosen by the FWBs; hence,
the assumption may be made that there has been no violation of the Contrary to the almost parallel stance of the respondents, keeping
statutory prescription under sub-paragraph (a) on the auditing of HLI’s Hacienda Luisita unfragmented is also not among the imperative
accounts. impositions by the SDP, RA 6657, and DAO 10.

Public respondents, however, submit that the distribution of the The Terminal Report states that the proposed distribution plan
mandatory minimum ratio of land-to-shares of stock, referring to the submitted in 1989 to the PARC effectively assured the intended stock
118,391,976.85 shares with par value of PhP 1 each, should have beneficiaries that the physical integrity of the farm shall remain
been made in full within two (2) years from the approval of RA 6657, inviolate. Accordingly, the Terminal Report and the PARC-assailed
in line with the last paragraph of Sec. 31 of said law.133 resolution would take HLI to task for securing approval of the
conversion to non-agricultural uses of 500 hectares of the hacienda.
Public respondents’ submission is palpably erroneous. We have In not too many words, the Report and the resolution view the
closely examined the last paragraph alluded to, with particular focus conversion as an infringement of Sec. 5(a) of DAO 10 which reads: "a.
on the two-year period mentioned, and nothing in it remotely supports that the continued operation of the corporation with its agricultural
the public respondents’ posture. In its pertinent part, said Sec. 31 land intact and unfragmented is viable with potential for growth and
provides: increased profitability."

SEC. 31. Corporate Landowners x x x The PARC is wrong.

If within two (2) years from the approval of this Act, the [voluntary] In the first place, Sec. 5(a)––just like the succeeding Sec. 5(b) of DAO
land or stock transfer envisioned above is not made or realized or the 10 on increased income and greater benefits to qualified
plan for such stock distribution approved by the PARC within the beneficiaries––is but one of the stated criteria to guide PARC in
same period, the agricultural land of the corporate owners or deciding on whether or not to accept an SDP. Said Sec. 5(a) does not
corporation shall be subject to the compulsory coverage of this Act. exact from the corporate landowner-applicant the undertaking to keep
(Word in bracket and emphasis added.) 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.

142
5(a) is "viability of corporate operations": "[w]hat is thus required is not respect and weight, especially when they are affirmed by the
the agricultural land remaining intact x x x but the viability of the CA.135 However, such rule is not absolute. One such exception is
corporate operations with its agricultural land being intact and when the findings of an administrative agency are conclusions without
unfragmented. Corporate operation may be viable even if the citation of specific evidence on which they are based,136 such as in
corporate agricultural land does not remain intact or this particular instance. As culled from its Terminal Report, it would
[un]fragmented."134 appear that the Special Task Force rejected HLI’s claim of compliance
on the basis of this ratiocination:
It is, of course, anti-climactic to mention that DAR viewed the
conversion as not violative of any issuance, let alone undermining the  The Task Force position: Though, allegedly, the Supervisory
viability of Hacienda Luisita’s operation, as the DAR Secretary Group receives the 3% gross production share and that others
approved the land conversion applied for and its disposition via his alleged that they received 30 million pesos still others maintain
Conversion Order dated August 14, 1996 pursuant to Sec. 65 of RA that they have not received anything yet. Item No. 4 of the
6657 which reads: MOA is clear and must be followed. There is a distinction
between the total gross sales from the production of the land
Sec. 65. Conversion of Lands.¾After the lapse of five years from its and the proceeds from the sale of the land. The former refers
award when the land ceases to be economically feasible and sound to the fruits/yield of the agricultural land while the latter is the
for agricultural purposes, or the locality has become urbanized and land itself. The phrase "the beneficiaries are entitled every
the land will have a greater economic value for residential, year to an amount approximately equivalent to 3% would only
commercial or industrial purposes, the DAR upon application of the be feasible if the subject is the produce since there is at least
beneficiary or landowner with due notice to the affected parties, and one harvest per year, while such is not the case in the sale of
subject to existing laws, may authorize the x x x conversion of the the agricultural land. This negates then the claim of HLI that,
land and its dispositions. x x x all that the FWBs can be entitled to, if any, is only 3% of the
purchase price of the converted land.
On the 3% Production Share  Besides, the Conversion Order dated 14 August 1996 provides
that "the benefits, wages and the like, presently received by
On the matter of the alleged failure of HLI to comply with sharing the the FWBs shall not in any way be reduced or adversely
3% of the gross production sales of the hacienda and pay dividends affected. Three percent of the gross selling price of the sale of
from profit, the entries in its financial books tend to indicate the converted land shall be awarded to the beneficiaries of the
compliance by HLI of the profit-sharing equivalent to 3% of the gross SDO." The 3% gross production share then is different from
sales from the production of the agricultural land on top of (a) the the 3% proceeds of the sale of the converted land and, with
salaries and wages due FWBs as employees of the company and (b) more reason, the 33% share being claimed by the FWBs as
the 3% of the gross selling price of the converted land and that portion part owners of the Hacienda, should have been given the
used for the SCTEX. A plausible evidence of compliance or non- FWBs, as stockholders, and to which they could have been
compliance, as the case may be, could be the books of account of entitled if only the land were acquired and redistributed to
HLI. Evidently, the cry of some groups of not having received their them under the CARP.
share from the gross production sales has not adequately been
validated on the ground by the Special Task Force. xxxx

Indeed, factual findings of administrative agencies are conclusive


when supported by substantial evidence and are accorded due
143
 The FWBs do not receive any other benefits under the MOA corporations or other business associations, the following rules shall
except the aforementioned [(viz: shares of stocks (partial), 3% be observed by the PARC.
gross production sale (not all) and homelots (not all)].
In general, lands shall be distributed directly to the individual worker-
Judging from the above statements, the Special Task Force is at best beneficiaries.
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 In case it is not economically feasible and sound to divide the land,
land and the SCTEX lot. In fact, it admits that the FWBs, though not then it shall be owned collectively by the worker-beneficiaries who
all, have received their share of the gross production sales and in the shall form a workers’ cooperative or association which will deal with
sale of the lot to SCTEX. At most, then, HLI had complied the corporation or business association. Until a new agreement is
substantially with this SDP undertaking and the conversion order. To entered into by and between the workers’ cooperative or association
be sure, this slight breach would not justify the setting to naught by and the corporation or business association, any agreement existing
PARC of the approval action of the earlier PARC. Even in contract at the time this Act takes effect between the former and the previous
law, rescission, predicated on violation of reciprocity, will not be landowner shall be respected by both the workers’ cooperative or
permitted for a slight or casual breach of contract; rescission may be association and the corporation or business association.
had only for such breaches that are substantial and fundamental as to
defeat the object of the parties in making the agreement.137 Noticeably, the foregoing provisions do not make reference to
corporations which opted for stock distribution under Sec. 31 of RA
Despite the foregoing findings, the revocation of the approval of the 6657. Concomitantly, said corporations are not obliged to provide for it
SDP is not without basis as shown below. except by stipulation, as in this case.

On Titles to Homelots Under the SDP, HLI undertook to "subdivide and allocate for free and
without charge among the qualified family-beneficiaries x x x
Under RA 6657, the distribution of homelots is required only for residential or homelots of not more than 240 sq. m. each, with each
corporations or business associations owning or operating farms family beneficiary being assured of receiving and owning a homelot in
which opted for land distribution. Sec. 30 of RA 6657 states: the barrio or barangay where it actually resides," "within a reasonable
time."
SEC. 30. Homelots and Farmlots for Members of Cooperatives.¾The
individual members of the cooperatives or corporations mentioned in More than sixteen (16) years have elapsed from the time the SDP
the preceding section shall be provided with homelots and small was approved by PARC, and yet, it is still the contention of the FWBs
farmlots for their family use, to be taken from the land owned by the that not all was given the 240-square meter homelots and, of those
cooperative or corporation. who were already given, some still do not have the corresponding
titles.
The "preceding section" referred to in the above-quoted provision is
as follows: During the oral arguments, HLI was afforded the chance to refute the
foregoing allegation by submitting proof that the FWBs were already
SEC. 29. Farms Owned or Operated by Corporations or Other given the said homelots:
Business Associations.¾In the case of farms owned or operated by

144
Justice Velasco: x x x There is also an allegation that the farmer an equal number of shares of the same class and value, with the
beneficiaries, the qualified family beneficiaries were not given the 240 same rights and features as all other shares, to each of the qualified
square meters each. So, can you also [prove] that the qualified family beneficiaries. This distribution plan in all cases, shall be at least the
beneficiaries were already provided the 240 square meter homelots. minimum ratio for purposes of compliance with Section 31 of R.A. No.
6657.
Atty. Asuncion: We will, your Honor please.138
On top of the minimum ratio provided under Section 3 of this
Other than the financial report, however, no other substantial proof Implementing Guideline, the corporate landowner-applicant may
showing that all the qualified beneficiaries have received homelots adopt additional stock distribution schemes taking into account factors
was submitted by HLI. Hence, this Court is constrained to rule that such as rank, seniority, salary, position and other circumstances
HLI has not yet fully complied with its undertaking to distribute which may be deemed desirable as a matter of sound company
homelots to the FWBs under the SDP. policy. (Emphasis supplied.)

On "Man Days" and the Mechanics of Stock Distribution The above proviso gives two (2) sets or categories of shares of stock
which a qualified beneficiary can acquire from the corporation under
In our review and analysis of par. 3 of the SDOA on the mechanics the SDP. The first pertains, as earlier explained, to the mandatory
and timelines of stock distribution, We find that it violates two (2) minimum ratio of shares of stock to be distributed to the FWBs in
provisions of DAO 10. Par. 3 of the SDOA states: compliance with Sec. 31 of RA 6657. This minimum ratio
contemplates of that "proportion of the capital stock of the corporation
3. At the end of each fiscal year, for a period of 30 years, the that the agricultural land, actually devoted to agricultural activities,
SECOND PARTY [HLI] shall arrange with the FIRST PARTY [TDC] bears in relation to the company’s total assets."139 It is this set of
the acquisition and distribution to the THIRD PARTY [FWBs] on the shares of stock which, in line with Sec. 4 of DAO 10, is supposed to
basis of number of days worked and at no cost to them of one-thirtieth be allocated "for the distribution of an equal number of shares of stock
(1/30) of 118,391,976.85 shares of the capital stock of the SECOND of the same class and value, with the same rights and features as all
PARTY that are presently owned and held by the FIRST PARTY, until other shares, to each of the qualified beneficiaries."
such time as the entire block of 118,391,976.85 shares shall have
been completely acquired and distributed to the THIRD PARTY. 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
Based on the above-quoted provision, the distribution of the shares of augmentation share/s that the corporate landowner may give under
stock to the FWBs, albeit not entailing a cash out from them, is an additional stock distribution scheme, taking into account such
contingent on the number of "man days," that is, the number of days variables as rank, seniority, salary, position and like factors which the
that the FWBs have worked during the year. This formula deviates management, in the exercise of its sound discretion, may deem
from Sec. 1 of DAO 10, which decrees the distribution of equal desirable.140
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 Before anything else, it should be stressed that, at the time PARC
in Sec. 4 of DAO 10: approved HLI’s SDP, HLI recognized 6,296 individuals as qualified
FWBs. And under the 30-year stock distribution program envisaged
Section 4. Stock Distribution Plan.¾The [SDP] submitted by the under the plan, FWBs who came in after 1989, new FWBs in fine,
corporate landowner-applicant shall provide for the distribution of may be accommodated, as they appear to have in fact been
accommodated as evidenced by their receipt of HLI shares.
145
Now then, by providing that the number of shares of the original 1989 Justice Abad: But later on, after assigning them their shares, some
FWBs shall depend on the number of "man days," HLI violated the workers came in from 1989, 1990, 1991, 1992 and the rest of the
afore-quoted rule on stock distribution and effectively deprived the years that you gave additional shares who were not in the original list
FWBs of equal shares of stock in the corporation, for, in net effect, of owners?
these 6,296 qualified FWBs, who theoretically had given up their
rights to the land that could have been distributed to them, suffered a Atty. Dela Merced: Yes, Your Honor.
dilution of their due share entitlement. As has been observed during
the oral arguments, HLI has chosen to use the shares earmarked for Justice Abad: Did those new workers give up any right that would
farmworkers as reward system chips to water down the shares of the have belong to them in 1989 when the land was supposed to have
original 6,296 FWBs.141 Particularly: been placed under CARP?

Justice Abad: If the SDOA did not take place, the other thing that Atty. Dela Merced: If you are talking or referring… (interrupted)
would have happened is that there would be CARP?
Justice Abad: None! You tell me. None. They gave up no rights to
Atty. Dela Merced: Yes, Your Honor. land?

Justice Abad: That’s the only point I want to know x x x. Now, but they Atty. Dela Merced: They did not do the same thing as we did in 1989,
chose to enter SDOA instead of placing the land under CARP. And for Your Honor.
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 Justice Abad: No, if they were not workers in 1989 what land did they
stock, is that correct? give up? None, if they become workers later on.

Atty. Dela Merced: It would be that way, Your Honor. Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to
the original… (interrupted)
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 Justice Abad: So why is it that the rights of those who gave up their
[sic] the land and distribute it to the farmers and pay for the land, is lands would be diluted, because the company has chosen to use the
that correct? 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
Atty. Dela Merced: Yes, Your Honor. whose stockholders were already fixed. The TADECO who has
shares there about sixty six percent (66%) and the five thousand four
Justice Abad: And then you gave thirty-three percent (33%) of the hundred ninety eight (5,498) farmers at the time of the SDOA?
shares of HLI to the farmers at that time that numbered x x x those Explain to me. Why, why will you x x x what right or where did you get
who signed five thousand four hundred ninety eight (5,498) that right to use this shares, to water down the shares of those who
beneficiaries, is that correct? should have been benefited, and to use it as a reward system decided
by the company?142
Atty. Dela Merced: Yes, Your Honor.
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
146
the SDP, suffered from watering down of shares. As determined It is evident from the foregoing provision that the implementation, that
earlier, each original FWB is entitled to 18,804.32 HLI shares. The is, the distribution of the shares of stock to the FWBs, must be made
original FWBs got less than the guaranteed 18,804.32 HLI shares per within three (3) months from receipt by HLI of the approval of the
beneficiary, because the acquisition and distribution of the HLI shares stock distribution plan by PARC. While neither of the clashing parties
were based on "man days" or "number of days worked" by the FWB in has made a compelling case of the thrust of this provision, the Court
a year’s time. As explained by HLI, a beneficiary needs to work for at is of the view and so holds that the intent is to compel the corporate
least 37 days in a fiscal year before he or she becomes entitled to HLI landowner to complete, not merely initiate, the transfer process of
shares. If it falls below 37 days, the FWB, unfortunately, does not get shares within that three-month timeframe. Reinforcing this conclusion
any share at year end. The number of HLI shares distributed varies is the 60-day stock transfer recording (with the SEC) requirement
depending on the number of days the FWBs were allowed to work in reckoned from the implementation of the SDP.
one year. Worse, HLI hired farmworkers in addition to the original
6,296 FWBs, such that, as indicated in the Compliance dated August To the Court, there is a purpose, which is at once discernible as it is
2, 2010 submitted by HLI to the Court, the total number of practical, for the three-month threshold. Remove this timeline and the
farmworkers of HLI as of said date stood at 10,502. All these corporate landowner can veritably evade compliance with agrarian
farmworkers, which include the original 6,296 FWBs, were given reform by simply deferring to absurd limits the implementation of the
shares out of the 118,931,976.85 HLI shares representing the stock distribution scheme.
33.296% of the total outstanding capital stock of HLI. Clearly, the
minimum individual allocation of each original FWB of 18,804.32 The argument is urged that the thirty (30)-year distribution program is
shares was diluted as a result of the use of "man days" and the hiring justified by the fact that, under Sec. 26 of RA 6657, payment by
of additional farmworkers. beneficiaries of land distribution under CARP shall be made in thirty
(30) annual amortizations. To HLI, said section provides a justifying
Going into another but related matter, par. 3 of the SDOA expressly dimension to its 30-year stock distribution program.
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 HLI’s reliance on Sec. 26 of RA 6657, quoted in part below, is
Sec. 11 provides for the implementation of the approved stock obviously misplaced as the said provision clearly deals with land
distribution plan within three (3) months from receipt by the corporate distribution.
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 SEC. 26. Payment by Beneficiaries.¾Lands awarded pursuant to this
qualified FWBs should be recorded in the stock and transfer books Act shall be paid for by the beneficiaries to the LBP in thirty (30)
and must be submitted to the SEC within sixty (60) days from annual amortizations x x x.
implementation. As stated:
Then, too, the ones obliged to pay the LBP under the said provision
Section 11. Implementation/Monitoring of Plan.¾The approved stock are the beneficiaries. On the other hand, in the instant case, aside
distribution plan shall be implemented within three (3) months from from the fact that what is involved is stock distribution, it is the
receipt by the corporate landowner-applicant of the approval thereof corporate landowner who has the obligation to distribute the shares of
by the PARC, and the transfer of the shares of stocks in the names of stock among the FWBs.
the qualified beneficiaries shall be recorded in stock and transfer
books and submitted to the Securities and Exchange Commission Evidently, the land transfer beneficiaries are given thirty (30) years
(SEC) within sixty (60) days from the said implementation of the stock within which to pay the cost of the land thus awarded them to make it
distribution plan. (Emphasis supplied.)
147
less cumbersome for them to pay the government. To be sure, the way of dacion en pago, by virtue of which TCTs in the name of RCBC
reason underpinning the 30-year accommodation does not apply to were subsequently issued.
corporate landowners in distributing shares of stock to the qualified
beneficiaries, as the shares may be issued in a much shorter period of Under Sec. 44 of PD 1529 or the Property Registration Decree, "every
time. registered owner receiving a certificate of title in pursuance of a
decree of registration and every subsequent purchaser of registered
Taking into account the above discussion, the revocation of the SDP land taking a certificate of title for value and in good faith shall hold
by PARC should be upheld for violating DAO 10. It bears stressing the same free from all encumbrances except those noted on the
that under Sec. 49 of RA 6657, the PARC and the DAR have the certificate and enumerated therein."145
power to issue rules and regulations, substantive or procedural. Being
a product of such rule-making power, DAO 10 has the force and effect It is settled doctrine that one who deals with property registered under
of law and must be duly complied with.143 The PARC is, therefore, the Torrens system need not go beyond the four corners of, but can
correct in revoking the SDP. Consequently, the PARC Resolution No. rely on what appears on, the title. He is charged with notice only of
89-12-2 dated November 21, l989 approving the HLI’s SDP is nullified such burdens and claims as are annotated on the title. This principle
and voided. admits of certain exceptions, such as when the party has actual
knowledge of facts and circumstances that would impel a reasonably
III. 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
We now resolve the petitions-in-intervention which, at bottom, facts to induce a reasonably prudent man to inquire into the status of
uniformly pray for the exclusion from the coverage of the assailed the title of the property in litigation.146 A higher level of care and
PARC resolution those portions of the converted land within Hacienda diligence is of course expected from banks, their business being
Luisita which RCBC and LIPCO acquired by purchase. impressed with public interest.147

Both contend that they are innocent purchasers for value of portions Millena v. Court of Appeals describes a purchaser in good faith in this
of the converted farm land. Thus, their plea for the exclusion of that wise:
portion from PARC Resolution 2005-32-01, as implemented by a
DAR-issued Notice of Coverage dated January 2, 2006, which called x x x A purchaser in good faith is one who buys property of another,
for mandatory CARP acquisition coverage of lands subject of the without notice that some other person has a right to, or interest in,
SDP. 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,
To restate the antecedents, after the conversion of the 500 hectares or the lack of it, is in the final analysis a question of intention; but in
of land in Hacienda Luisita, HLI transferred the 300 hectares to ascertaining the intention by which one is actuated on a given
Centennary, while ceding the remaining 200-hectare portion to LRC. occasion, we are necessarily controlled by the evidence as to the
Subsequently, LIPCO purchased the entire three hundred (300) conduct and outward acts by which alone the inward motive may, with
hectares of land from Centennary for the purpose of developing the safety, be determined. Truly, good faith is not a visible, tangible fact
land into an industrial complex.144 Accordingly, the TCT in that can be seen or touched, but rather a state or condition of mind
Centennary’s name was canceled and a new one issued in LIPCO’s which can only be judged by actual or fancied tokens or signs.
name. Thereafter, said land was subdivided into two (2) more parcels Otherwise stated, good faith x x x refers to the state of mind which is
of land. Later on, LIPCO transferred about 184 hectares to RCBC by manifested by the acts of the individual concerned.148 (Emphasis
supplied.)
148
In fine, there are two (2) requirements before one may be considered To be sure, intervenor RCBC and LIPCO knew that the lots they
a purchaser in good faith, namely: (1) that the purchaser buys the bought were subjected to CARP coverage by means of a stock
property of another without notice that some other person has a right distribution plan, as the DAR conversion order was annotated at the
to or interest in such property; and (2) that the purchaser pays a full back of the titles of the lots they acquired. However, they are of the
and fair price for the property at the time of such purchase or before honest belief that the subject lots were validly converted to
he or she has notice of the claim of another. commercial or industrial purposes and for which said lots were taken
out of the CARP coverage subject of PARC Resolution No. 89-12-2
It can rightfully be said that both LIPCO and RCBC are––based on the and, hence, can be legally and validly acquired by them. After all, Sec.
above requirements and with respect to the adverted transactions of 65 of RA 6657 explicitly allows conversion and disposition of
the converted land in question––purchasers in good faith for value agricultural lands previously covered by CARP land acquisition "after
entitled to the benefits arising from such status. the lapse of five (5) years from its award when the land ceases to be
economically feasible and sound for agricultural purposes or the
First, at the time LIPCO purchased the entire three hundred (300) locality has become urbanized and the land will have a greater
hectares of industrial land, there was no notice of any supposed economic value for residential, commercial or industrial purposes."
defect in the title of its transferor, Centennary, or that any other Moreover, DAR notified all the affected parties, more particularly the
person has a right to or interest in such property. In fact, at the time FWBs, and gave them the opportunity to comment or oppose the
LIPCO acquired said parcels of land, only the following annotations proposed conversion. DAR, after going through the necessary
appeared on the TCT in the name of Centennary: the Secretary’s processes, granted the conversion of 500 hectares of Hacienda
Certificate in favor of Teresita Lopa, the Secretary’s Certificate in Luisita pursuant to its primary jurisdiction under Sec. 50 of RA 6657 to
favor of Shintaro Murai, and the conversion of the property from determine and adjudicate agrarian reform matters and its original
agricultural to industrial and residential use.149 exclusive jurisdiction over all matters involving the implementation of
agrarian reform. The DAR conversion order became final and
The same is true with respect to RCBC. At the time it acquired executory after none of the FWBs interposed an appeal to the CA. In
portions of Hacienda Luisita, only the following general annotations this factual setting, RCBC and LIPCO purchased the lots in question
appeared on the TCTs of LIPCO: the Deed of Restrictions, limiting its on their honest and well-founded belief that the previous registered
use solely as an industrial estate; the Secretary’s Certificate in favor owners could legally sell and convey the lots though these were
of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage in previously subject of CARP coverage. Ergo, RCBC and LIPCO acted
favor of RCBC to guarantee the payment of PhP 300 million. in good faith in acquiring the subject lots.

It cannot be claimed that RCBC and LIPCO acted in bad faith in And second, both LIPCO and RCBC purchased portions of Hacienda
acquiring the lots that were previously covered by the SDP. Good faith Luisita for value. Undeniably, LIPCO acquired 300 hectares of land
"consists in the possessor’s belief that the person from whom he from Centennary for the amount of PhP 750 million pursuant to a
received it was the owner of the same and could convey his title. Deed of Sale dated July 30, 1998.151 On the other hand, in a Deed of
Good faith requires a well-founded belief that the person from whom Absolute Assignment dated November 25, 2004, LIPCO conveyed
title was received was himself the owner of the land, with the right to portions of Hacienda Luisita in favor of RCBC by way of dacion en
convey it. There is good faith where there is an honest intention to pago to pay for a loan of PhP 431,695,732.10.
abstain from taking any unconscientious advantage from another."150 It
is the opposite of fraud. 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:
149
With the property in question having already passed to the hands of (b) BOI Certificate of Registration No. 96-020 dated 20
purchasers in good faith, it is now of no moment that some irregularity December 1996 issued in accordance with the Omnibus
attended the issuance of the SPA, consistent with our pronouncement Investments Code of 1987;
in Heirs of Spouses Benito Gavino and Juana Euste v. Court of
Appeals, to wit: (c) PEZA Certificate of Board Resolution No. 97-202 dated 27
June 1997, approving LIPCO’s application for a mixed
x x x the general rule that the direct result of a previous void contract ecozone and proclaiming the three hundred (300) hectares of
cannot be valid, is inapplicable in this case as it will directly the industrial land as a Special Economic Zone;
contravene the Torrens system of registration. Where innocent third
persons, relying on the correctness of the certificate of title thus (d) Resolution No. 234 dated 08 August 1997 of the
issued, acquire rights over the property, the court cannot Sangguniang Bayan of Tarlac, approving the Final
disregard such rights and order the cancellation of the Development Permit for the Luisita Industrial Park II Project;
certificate. The effect of such outright cancellation will be to impair
public confidence in the certificate of title. The sanctity of the Torrens (e) Development Permit dated 13 August 1997 for the
system must be preserved; otherwise, everyone dealing with the proposed Luisita Industrial Park II Project issued by the Office
property registered under the system will have to inquire in every of the Sangguniang Bayan of Tarlac;155
instance as to whether the title had been regularly or irregularly
issued, contrary to the evident purpose of the law. (f) DENR Environmental Compliance Certificate dated 01
October 1997 issued for the proposed project of building an
Being purchasers in good faith, the Chuas already acquired valid industrial complex on three hundred (300) hectares of
title to the property. A purchaser in good faith holds an industrial land;156
indefeasible title to the property and he is entitled to the
protection of the law.152 x x x (Emphasis supplied.) (g) Certificate of Registration No. 00794 dated 26 December
1997 issued by the HLURB on the project of Luisita Industrial
To be sure, the practicalities of the situation have to a point influenced Park II with an area of three million (3,000,000) square
Our disposition on the fate of RCBC and LIPCO. After all, the Court, meters;157
to borrow from Association of Small Landowners in the Philippines,
Inc.,153 is not a "cloistered institution removed" from the realities on the (h) License to Sell No. 0076 dated 26 December 1997 issued
ground. To note, the approval and issuances of both the national and by the HLURB authorizing the sale of lots in the Luisita
local governments showing that certain portions of Hacienda Luisita Industrial Park II;
have effectively ceased, legally and physically, to be agricultural and,
therefore, no longer CARPable are a matter of fact which cannot just (i) Proclamation No. 1207 dated 22 April 1998 entitled
be ignored by the Court and the DAR. Among the "Declaring Certain Parcels of Private Land in Barangay San
approving/endorsing issuances:154 Miguel, Municipality of Tarlac, Province of Tarlac, as a Special
Economic Zone pursuant to Republic Act No. 7916,"
(a) Resolution No. 392 dated 11 December 1996 of the designating the Luisita Industrial Park II consisting of three
Sangguniang Bayan of Tarlac favorably endorsing the 300- hundred hectares (300 has.) of industrial land as a Special
hectare industrial estate project of LIPCO; Economic Zone; and

150
(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 realistically be, since rights might have accrued in favor of natural or
issued by the PEZA, stating that pursuant to Presidential juridical persons and obligations justly incurred in the
Proclamation No. 1207 dated 22 April 1998 and Republic Act meantime.160 The actual existence of a statute or executive act is,
No. 7916, LIPCO has been registered as an Ecozone prior to such a determination, an operative fact and may have
Developer/Operator of Luisita Industrial Park II located in San consequences which cannot justly be ignored; the past cannot always
Miguel, Tarlac, Tarlac. be erased by a new judicial declaration.161

While a mere reclassification of a covered agricultural land or its The oft-cited De Agbayani v. Philippine National Bank162 discussed
inclusion in an economic zone does not automatically allow the the effect to be given to a legislative or executive act subsequently
corporate or individual landowner to change its use,158 the declared invalid:
reclassification process is a prima facie indicium that the land has
ceased to be economically feasible and sound for agricultural uses. x x x It does not admit of doubt that prior to the declaration of nullity
And if only to stress, DAR Conversion Order No. 030601074-764-(95) such challenged legislative or executive act must have been in force
issued in 1996 by then DAR Secretary Garilao had effectively and had to be complied with. This is so as until after the judiciary, in
converted 500 hectares of hacienda land from agricultural to an appropriate case, declares its invalidity, it is entitled to obedience
industrial/commercial use and authorized their disposition. and respect. Parties may have acted under it and may have changed
their positions. What could be more fitting than that in a subsequent
In relying upon the above-mentioned approvals, proclamation and litigation regard be had to what has been done while such legislative
conversion order, both RCBC and LIPCO cannot be considered at or executive act was in operation and presumed to be valid in all
fault for believing that certain portions of Hacienda Luisita are respects. It is now accepted as a doctrine that prior to its being
industrial/commercial lands and are, thus, outside the ambit of CARP. nullified, its existence as a fact must be reckoned with. This is merely
The PARC, and consequently DAR, gravely abused its discretion to reflect awareness that precisely because the judiciary is the
when it placed LIPCO’s and RCBC’s property which once formed part government organ which has the final say on whether or not a
of Hacienda Luisita under the CARP compulsory acquisition scheme legislative or executive measure is valid, a period of time may have
via the assailed Notice of Coverage. 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
As regards the 80.51-hectare land transferred to the government for quality of fairness and justice then, if there be no recognition of what
use as part of the SCTEX, this should also be excluded from the had transpired prior to such adjudication.
compulsory agrarian reform coverage considering that the transfer
was consistent with the government’s exercise of the power of In the language of an American Supreme Court decision: "The actual
eminent domain159 and none of the parties actually questioned the existence of a statute, prior to such a determination of
transfer. [unconstitutionality], is an operative fact and may have consequences
which cannot justly be ignored. The past cannot always be erased by
While We affirm the revocation of the SDP on Hacienda Luisita a new judicial declaration. The effect of the subsequent ruling as to
subject of PARC Resolution Nos. 2005-32-01 and 2006-34-01, the invalidity may have to be considered in various aspects,––with
Court cannot close its eyes to certain "operative facts" that had respect to particular relations, individual and corporate, and particular
occurred in the interim. Pertinently, the "operative fact" doctrine conduct, private and official." x x x
realizes that, in declaring a law or executive action null and void, or,
by extension, no longer without force and effect, undue harshness Given the above perspective and considering that more than two
and resulting unfairness must be avoided. This is as it should decades had passed since the PARC’s approval of the HLI’s SDP, in
151
conjunction with numerous activities performed in good faith by HLI, Petitioner postulates that the "operative fact" doctrine is inapplicable
and the reliance by the FWBs on the legality and validity of the PARC- to the present case because it is an equitable doctrine which could not
approved SDP, perforce, certain rights of the parties, more particularly be used to countenance an inequitable result that is contrary to its
the FWBs, have to be respected pursuant to the application in a proper office.
general way of the operative fact doctrine.
On the other hand, the petitioner Solicitor General argues that the
A view, however, has been advanced that the operative fact doctrine existence of the various agreements implementing the SMDRP is an
is of minimal or altogether without relevance to the instant case as it operative fact that can no longer be disturbed or simply ignored, citing
applies only in considering the effects of a declaration of Rieta v. People of the Philippines.
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 The argument of the Solicitor General is meritorious.
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 The "operative fact" doctrine is embodied in De Agbayani v. Court of
Distribution under CARP which embodied the SDP that was nullified. 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
A recall of the antecedent events would show that on May 11, 1989, be complied with, thus:
Tadeco, HLI, and the qualified FWBs executed the SDOA. This
agreement provided the basis and mechanics of the SDP that was x x x           x x x          x x x
subsequently proposed and submitted to DAR for approval. It was
only after its review that the PARC, through then Sec. Defensor- This doctrine was reiterated in the more recent case of City of Makati
Santiago, issued the assailed Resolution No. 89-12-2 approving the v. Civil Service Commission, wherein we ruled that:
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 Moreover, we certainly cannot nullify the City Government's order of
the SDP under the PARC Resolution No. 89-12-2 that gave it its suspension, as we have no reason to do so, much less retroactively
validity. apply such nullification to deprive private respondent of a compelling
and valid reason for not filing the leave application. For as we have
The above conclusion is bolstered by the fact that in Sec. held, a void act though in law a mere scrap of paper nonetheless
Pangandaman’s recommendation to the PARC Excom, what he confers legitimacy upon past acts or omissions done in reliance
proposed is the recall/revocation of PARC Resolution No. 89-12-2 thereof. Consequently, the existence of a statute or executive order
approving HLI’s SDP, and not the revocation of the SDOA. Sec. prior to its being adjudged void is an operative fact to which legal
Pangandaman’s recommendation was favorably endorsed by the consequences are attached. It would indeed be ghastly unfair to
PARC Validation Committee to the PARC Excom, and these prevent private respondent from relying upon the order of suspension
recommendations were referred to in the assailed Resolution No. in lieu of a formal leave application. (Citations omitted; Emphasis
2005-32-01. Clearly, it is not the SDOA which was made the basis for supplied.)
the implementation of the stock distribution scheme.
The applicability of the operative fact doctrine to executive acts was
That the operative fact doctrine squarely applies to executive acts––in further explicated by this Court in Rieta v. People,164 thus:
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:
152
Petitioner contends that his arrest by virtue of Arrest Search and which may have consequences which cannot be justly ignored. The
Seizure Order (ASSO) No. 4754 was invalid, as the law upon which it past cannot always be erased by a new judicial declaration . . . that an
was predicated — General Order No. 60, issued by then President all-inclusive statement of a principle of absolute retroactive invalidity
Ferdinand E. Marcos — was subsequently declared by the Court, in cannot be justified.’"
Tañada v. Tuvera, 33 to have no force and effect. Thus, he asserts,
any evidence obtained pursuant thereto is inadmissible in evidence. The Chicot doctrine cited in Tañada advocates that, prior to the
nullification of a statute, there is an imperative necessity of taking into
We do not agree. In Tañada, the Court addressed the possible effects account its actual existence as an operative fact negating the
of its declaration of the invalidity of various presidential issuances. acceptance of "a principle of absolute retroactive invalidity." Whatever
Discussing therein how such a declaration might affect acts done on a was done while the legislative or the executive act was in operation
presumption of their validity, the Court said: should be duly recognized and presumed to be valid in all respects.
The ASSO that was issued in 1979 under General Order No. 60 —
". . .. In similar situations in the past this Court had taken the long before our Decision in Tañada and the arrest of petitioner — is
pragmatic and realistic course set forth in Chicot County Drainage an operative fact that can no longer be disturbed or simply ignored.
District vs. Baxter Bank to wit: (Citations omitted; Emphasis supplied.)

‘The courts below have proceeded on the theory that the Act of To reiterate, although the assailed Resolution No. 2005-32-01 states
Congress, having been found to be unconstitutional, was not a law; that it revokes or recalls the SDP, what it actually revoked or recalled
that it was inoperative, conferring no rights and imposing no duties, was the PARC’s approval of the SDP embodied in Resolution No. 89-
and hence affording no basis for the challenged decree. . . . It is quite 12-2. Consequently, what was actually declared null and void was an
clear, however, that such broad statements as to the effect of a executive act, PARC Resolution No. 89-12-2,165 and not a contract
determination of unconstitutionality must be taken with qualifications. (SDOA). It is, therefore, wrong to say that it was the SDOA which was
The actual existence of a statute, prior to [the determination of its annulled in the instant case. Evidently, the operative fact doctrine is
invalidity], is an operative fact and may have consequences which applicable.
cannot justly be ignored. The past cannot always be erased by a new
judicial declaration. The effect of the subsequent ruling as to invalidity IV.
may have to be considered in various aspects — with respect to
particular conduct, private and official. Questions of rights claimed to While the assailed PARC resolutions effectively nullifying the
have become vested, of status, of prior determinations deemed to Hacienda Luisita SDP are upheld, the revocation must, by application
have finality and acted upon accordingly, of public policy in the light of of the operative fact principle, give way to the right of the original
the nature both of the statute and of its previous application, demand 6,296 qualified FWBs to choose whether they want to remain as HLI
examination. These questions are among the most difficult of those stockholders or not. The Court cannot turn a blind eye to the fact that
which have engaged the attention of courts, state and federal, and it is in 1989, 93% of the FWBs agreed to the SDOA (or the MOA), which
manifest from numerous decisions that an all-inclusive statement of a became the basis of the SDP approved by PARC per its Resolution
principle of absolute retroactive invalidity cannot be justified.’ 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,
x x x           x x x          x x x hospital and medical benefits, 240-square meter homelots, 3% of the
gross produce from agricultural lands, and 3% of the proceeds of the
"Similarly, the implementation/enforcement of presidential decrees sale of the 500-hectare converted land and the 80.51-hectare lot sold
prior to their publication in the Official Gazette is ‘an operative fact to SCTEX. HLI shares totaling 118,391,976.85 were distributed as of
153
April 22, 2005.166 On August 6, 20l0, HLI and private respondents place, the FWBs should have their corresponding share of the land’s
submitted a Compromise Agreement, in which HLI gave the FWBs the value. There is merit in the claim. Since the SDP approved by PARC
option of acquiring a piece of agricultural land or remain as HLI Resolution No. 89-12-2 has been nullified, then all the lands subject of
stockholders, and as a matter of fact, most FWBs indicated their the SDP will automatically be subject of compulsory coverage under
choice of remaining as stockholders. These facts and circumstances Sec. 31 of RA 6657. Since the Court excluded the 500-hectare lot
tend to indicate that some, if not all, of the FWBs may actually desire subject of the August 14, 1996 Conversion Order and the 80.51-
to continue as HLI shareholders. A matter best left to their own hectare SCTEX lot acquired by the government from the area covered
discretion. 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
With respect to the other FWBs who were not listed as qualified value received for the sale of the 200-hectare land to LRC in the
beneficiaries as of November 21, 1989 when the SDP was approved, amount of PhP 500,000,000 and the equivalent value of the
they are not accorded the right to acquire land but shall, however, 12,000,000 shares of its subsidiary, Centennary, for the 300-hectare
continue as HLI stockholders. All the benefits and lot sold to LIPCO for the consideration of PhP 750,000,000. Likewise,
homelots167 received by the 10,502 FWBs (6,296 original FWBs and HLI shall be liable for PhP 80,511,500 as consideration for the sale of
4,206 non-qualified FWBs) listed as HLI stockholders as of August 2, the 80.51-hectare SCTEX lot.
2010 shall be respected with no obligation to refund or return them
since the benefits (except the homelots) were received by the FWBs We, however, note that HLI has allegedly paid 3% of the proceeds of
as farmhands in the agricultural enterprise of HLI and other fringe the sale of the 500-hectare land and 80.51-hectare SCTEX lot to the
benefits were granted to them pursuant to the existing collective FWBs. We also take into account the payment of taxes and expenses
bargaining agreement with Tadeco. If the number of HLI shares in the relating to the transfer of the land and HLI’s statement that most, if not
names of the original FWBs who opt to remain as HLI stockholders all, of the proceeds were used for legitimate corporate purposes. In
falls below the guaranteed allocation of 18,804.32 HLI shares per order to determine once and for all whether or not all the proceeds
FWB, the HLI shall assign additional shares to said FWBs to complete were properly utilized by HLI and its subsidiary, Centennary, DAR will
said minimum number of shares at no cost to said FWBs. 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
With regard to the homelots already awarded or earmarked, the the sale of the 500-hectare land and the 80.51-hectare SCTEX lot
FWBs are not obliged to return the same to HLI or pay for its value were actually used for legitimate corporate purposes, titling expenses
since this is a benefit granted under the SDP. The homelots do not and in compliance with the August 14, 1996 Conversion Order. The
form part of the 4,915.75 hectares covered by the SDP but were taken cost of the audit will be shouldered by HLI. If after such audit, it is
from the 120.9234 hectare residential lot owned by Tadeco. Those determined that there remains a balance from the proceeds of the
who did not receive the homelots as of the revocation of the SDP on sale, then the balance shall be distributed to the qualified FWBs.
December 22, 2005 when PARC Resolution No. 2005-32-01 was
issued, will no longer be entitled to homelots. Thus, in the A view has been advanced that HLI must pay the FWBs yearly rent
determination of the ultimate agricultural land that will be subjected to for use of the land from 1989. We disagree. It should not be forgotten
land distribution, the aggregate area of the homelots will no longer be that the FWBs are also stockholders of HLI, and the benefits acquired
deducted. by the corporation from its possession and use of the land ultimately
redounded to the FWBs’ benefit based on its business operations in
There is a claim that, since the sale and transfer of the 500 hectares the form of salaries, and other fringe benefits under the CBA. To still
of land subject of the August 14, 1996 Conversion Order and the require HLI to pay rent to the FWBs will result in double
80.51-hectare SCTEX lot came after compulsory coverage has taken compensation.
154
For sure, HLI will still exist as a corporation even after the revocation prescribed number of shares at no cost to the FWB within thirty (30)
of the SDP although it will no longer be operating under the SDP, but days from finality of this Decision. Other FWBs who do not belong to
pursuant to the Corporation Code as a private stock corporation. The the original 6,296 qualified beneficiaries are not entitled to land
non-agricultural assets amounting to PhP 393,924,220 shall remain distribution and shall remain as HLI shareholders. All salaries,
with HLI, while the agricultural lands valued at PhP 196,630,000 with benefits, 3% production share and 3% share in the proceeds of the
an original area of 4,915.75 hectares shall be turned over to DAR for sale of the 500-hectare converted land and the 80.51-hectare SCTEX
distribution to the FWBs. To be deducted from said area are the 500- lot and homelots already received by the 10,502 FWBs, composed of
hectare lot subject of the August 14, 1996 Conversion Order, the 6,296 original FWBs and 4,206 non-qualified FWBs, shall be
80.51-hectare SCTEX lot, and the total area of 6,886.5 square meters respected with no obligation to refund or return them.
of individual lots that should have been distributed to FWBs by DAR
had they not opted to stay in HLI. Within thirty (30) days after determining who from among the original
FWBs will stay as stockholders, DAR shall segregate from the HLI
HLI shall be paid just compensation for the remaining agricultural land agricultural land with an area of 4,915.75 hectares subject of PARC’s
that will be transferred to DAR for land distribution to the FWBs. We SDP-approving Resolution No. 89-12-2 the following: (a) the 500-
find that the date of the "taking" is November 21, 1989, when PARC hectare lot subject of the August 14, l996 Conversion Order; (b) the
approved HLI’s SDP per PARC Resolution No. 89-12-2. DAR shall 80.51-hectare lot sold to, or acquired by, the government as part of
coordinate with LBP for the determination of just compensation. We the SCTEX complex; and (c) the aggregate area of 6,886.5 square
cannot use May 11, 1989 when the SDOA was executed, since it was meters of individual lots that each FWB is entitled to under the CARP
the SDP, not the SDOA, that was approved by PARC. 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
The instant petition is treated pro hac vice in view of the peculiar facts be turned over to DAR for immediate land distribution to the original
and circumstances of the case. qualified FWBs who opted not to remain as HLI stockholders.

WHEREFORE, the instant petition is DENIED. PARC Resolution No. The aforementioned area composed of 6,886.5-square meter lots
2005-32-01 dated December 22, 2005 and Resolution No. 2006-34- allotted to the FWBs who stayed with the corporation shall form part of
01 dated May 3, 2006, placing the lands subject of HLI’s SDP under the HLI assets.
compulsory coverage on mandated land acquisition scheme of the
CARP, are hereby AFFIRMED with the MODIFICATION that the HLI is directed to pay the 6,296 FWBs the consideration of PhP
original 6,296 qualified FWBs shall have the option to remain as 500,000,000 received by it from Luisita Realty, Inc. for the sale to the
stockholders of HLI. DAR shall immediately schedule meetings with latter of 200 hectares out of the 500 hectares covered by the August
the said 6,296 FWBs and explain to them the effects, consequences 14, 1996 Conversion Order, the consideration of PhP 750,000,000
and legal or practical implications of their choice, after which the received by its owned subsidiary, Centennary Holdings, Inc. for the
FWBs will be asked to manifest, in secret voting, their choices in the sale of the remaining 300 hectares of the aforementioned 500-hectare
ballot, signing their signatures or placing their thumbmarks, as the lot to Luisita Industrial Park Corporation, and the price of PhP
case may be, over their printed names. 80,511,500 paid by the government through the Bases Conversion
Development Authority for the sale of the 80.51-hectare lot used for
Of the 6,296 FWBs, he or she who wishes to continue as an HLI the construction of the SCTEX road network. From the total amount of
stockholder is entitled to 18,804.32 HLI shares, and, in case the HLI PhP 1,330,511,500 (PhP 500,000,000 + PhP 750,000,000 + PhP
shares already given to him or her is less than 18,804.32 shares, the 80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of the
HLI is ordered to issue or distribute additional shares to complete said total gross sales from the production of the agricultural land and the
155
3% of the proceeds of said transfers that were paid to the FWBs, the
DIOSDADO M. PERALTA*
taxes and expenses relating to the transfer of titles to the transferees, Associate Justice
Associate Justice
and the expenditures incurred by HLI and Centennary Holdings, Inc.
for legitimate corporate purposes. For this purpose, DAR is ordered to
LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO
engage the services of a reputable accounting firm approved by the Associate Justice Associate Justice
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
ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.
(3) aforementioned lots were used or spent for legitimate corporate Associate Justice Associate Justice
purposes. Any unspent or unused balance as determined by the audit
shall be distributed to the 6,296 original FWBs.
JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA
Associate Justice Associate Justice
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 MARIA LOURDES P. A. SERENO
determine the compensation due to HLI. Associate Justice

DAR shall submit a compliance report after six (6) months from finality CERTIFICATION
of this judgment. It shall also submit, after submission of the
compliance report, quarterly reports on the execution of this judgment Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified
to be submitted within the first 15 days at the end of each quarter, that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court.
until fully implemented.
RENATO C. CORONA
The temporary restraining order is lifted. Chief Justice

SO ORDERED.

PRESBITERO J. VELASCO, JR.


Republic of the Philippines
Associate Justice
SUPREME COURT
Manila
WE CONCUR:
THIRD DIVISION
G.R. No. 115849             January 24, 1996
RENATO C. CORONA
Chief Justice FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers
Bank of the Philippines) and MERCURIO RIVERA, petitioners,
vs.
TERESITA J. LEONARDO-DE COURT OF APPEALS, CARLOS EJERCITO, in substitution of
ANTONIO T. CARPIO
CASTRO DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.
Associate Justice
Associate Justice
DECISION
ARTURO D. BRION (On official leave) PANGANIBAN, J.:
156
In the absence of a formal deed of sale, may commitments given by 1. Declaring the existence of a perfected contract to buy and
bank officers in an exchange of letters and/or in a meeting with the sell over the six (6) parcels of land situated at Don Jose, Sta.
buyers constitute a perfected and enforceable contract of sale over Rosa, Laguna with an area of 101 hectares, more or less,
101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of covered by and embraced in Transfer Certificates of Title Nos.
"apparent authority" apply in this case? If so, may the Central Bank- T-106932 to T-106937, inclusive, of the Land Records of
appointed conservator of Producers Bank (now First Philippine Laguna, between the plaintiffs as buyers and the defendant
International Bank) repudiate such "apparent authority" after said Producers Bank for an agreed price of Five and One Half
contract has been deemed perfected? During the pendency of a suit Million (P5,500,000.00) Pesos;
for specific performance, does the filing of a "derivative suit" by the
majority shareholders and directors of the distressed bank to prevent 2. Ordering defendant Producers Bank of the Philippines, upon
the enforcement or implementation of the sale violate the ban against finality of this decision and receipt from the plaintiffs the
forum-shopping? amount of P5.5 Million, to execute in favor of said plaintiffs a
deed of absolute sale over the aforementioned six (6) parcels
Simply stated, these are the major questions brought before this Court of land, and to immediately deliver to the plaintiffs the owner's
in the instant Petition for review on certiorari under Rule 45 of the copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for
Rules of Court, to set aside the Decision promulgated January 14, purposes of registration of the same deed and transfer of the
1994 of the respondent Court of Appeals1 in CA-G.R CV No. 35756 six (6) titles in the names of the plaintiffs;
and the Resolution promulgated June 14, 1994 denying the motion for
reconsideration. The dispositive portion of the said Decision reads: 3. Ordering the defendants, jointly and severally, to pay
plaintiffs Jose A. Janolo and Demetrio Demetria the sums of
WHEREFORE, the decision of the lower court is MODIFIED by P200,000.00 each in moral damages;
the elimination of the damages awarded under paragraphs 3,
4 and 6 of its dispositive portion and the reduction of the award 4. Ordering the defendants, jointly and severally, to pay
in paragraph 5 thereof to P75,000.00, to be assessed against plaintiffs the sum of P100,000.00 as exemplary damages ;
defendant bank. In all other aspects, said decision is hereby
AFFIRMED. 5. Ordering the defendants, jointly and severally, to pay the
plaintiffs the amount of P400,000.00 for and by way of
All references to the original plaintiffs in the decision and its attorney's fees;
dispositive portion are deemed, herein and hereafter, to legally
refer to the plaintiff-appellee Carlos C. Ejercito. 6. Ordering the defendants to pay the plaintiffs, jointly and
severally, actual and moderate damages in the amount of
Costs against appellant bank. P20,000.00;

The dispositive portion of the trial court's2 decision dated July 10, With costs against the defendants.
1991, on the other hand, is as follows:
After the parties filed their comment, reply, rejoinder, sur-rejoinder and
WHEREFORE, premises considered, judgment is hereby reply to sur-rejoinder, the petition was given due course in a
rendered in favor of the plaintiffs and against the defendants Resolution dated January 18, 1995. Thence, the parties filed their
as follows: respective memoranda and reply memoranda. The First Division

157
transferred this case to the Third Division per resolution dated (2) In the early part of August 1987 said plaintiffs, upon the
October 23, 1995. After carefully deliberating on the aforesaid suggestion of BYME investment's legal counsel, Jose Fajardo,
submissions, the Court assigned the case to the met with defendant Mercurio Rivera, Manager of the Property
undersigned ponente for the writing of this Decision. Management Department of the defendant bank. The meeting
was held pursuant to plaintiffs' plan to buy the property (TSN
The Parties of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal
Petitioner First Philippine International Bank (formerly Producers Bank purchase offer to the bank through a letter dated August 30,
of the Philippines; petitioner Bank, for brevity) is a banking institution 1987 (Exh. "B"), as follows:
organized and existing under the laws of the Republic of the
Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) August 30, 1987
is of legal age and was, at all times material to this case, Head-
Manager of the Property Management Department of the petitioner The Producers Bank of the Philippines
Bank. Makati, Metro Manila

Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of Attn. Mr. Mercurio Q. Rivera
legal age and is the assignee of original plaintiffs-appellees Demetrio Manager, Property Management Dept.
Demetria and Jose Janolo.
Gentleman:
Respondent Court of Appeals is the court which issued the Decision
and Resolution sought to be set aside through this petition.
I have the honor to submit my formal offer to purchase your
properties covered by titles listed hereunder located at Sta.
The Facts Rosa, Laguna, with a total area of 101 hectares, more or less.

The facts of this case are summarized in the respondent Court's


TCT NO. AREA
Decision3 as follows:
T-106932 113,580 sq. m.
(1) In the course of its banking operations, the defendant T-106933 70,899 sq. m.
Producer Bank of the Philippines acquired six parcels of land
T-106934 52,246 sq. m.
with a total area of 101 hectares located at Don Jose, Sta.
Rose, Laguna, and covered by Transfer Certificates of Title T-106935 96,768 sq. m.
Nos. T-106932 to T-106937. The property used to be owned T-106936 187,114 sq. m.
by BYME Investment and Development Corporation which had
T-106937 481,481 sq. m.
them mortgaged with the bank as collateral for a loan. The
original plaintiffs, Demetrio Demetria and Jose O. Janolo,
wanted to purchase the property and thus initiated My offer is for PESOS: THREE MILLION FIVE HUNDRED
negotiations for that purpose. THOUSAND (P3,500,000.00) PESOS, in cash.

Kindly contact me at Telephone Number 921-1344.