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
G.R. No. L-23145      November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased.
RENATO D. TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary
administrator, the County Trust Company of New York, United States
of America, of the estate of the deceased Idonah Slade Perkins, who
died in New York City on March 27, 1960, to surrender to the ancillary
administrator in the Philippines the stock certificates owned by her in
a Philippine corporation, Benguet Consolidated, Inc., to satisfy the
legitimate claims of local creditors, the lower court, then presided by
the Honorable Arsenio Santos, now retired, issued on May 18, 1964,
an order of this tenor: "After considering the motion of the ancillary
administrator, dated February 11, 1964, as well as the opposition filed
by the Benguet Consolidated, Inc., the Court hereby (1) considers as
lost for all purposes in connection with the administration and
liquidation of the Philippine estate of Idonah Slade Perkins the stock
certificates covering the 33,002 shares of stock standing in her name
in the books of the Benguet Consolidated, Inc., (2) orders said
certificates cancelled, and (3) directs said corporation to issue new
certificates in lieu thereof, the same to be delivered by said
corporation to either the incumbent ancillary administrator or to the
Probate Division of this Court."1
From such an order, an appeal was taken to this Court not by the
domiciliary administrator, the County Trust Company of New York, but
by the Philippine corporation, the Benguet Consolidated, Inc. The
appeal cannot possibly prosper. The challenged order represents a
response and expresses a policy, to paraphrase Frankfurter, arising
out of a specific problem, addressed to the attainment of specific ends
The facts will explain why. As set forth in the brief of appellant
Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March
27, 1960 in New York City, left among others, two stock certificates
covering 33,002 shares of appellant, the certificates being in the
possession of the County Trust Company of New York, which as
noted, is the domiciliary administrator of the estate of the
deceased.2 Then came this portion of the appellant's brief: "On August
12, 1960, Prospero Sanidad instituted ancillary administration
proceedings in the Court of First Instance of Manila; Lazaro A.
Marquez was appointed ancillary administrator, and on January 22,
1963, he was substituted by the appellee Renato D. Tayag. A dispute
arose between the domiciary administrator in New York and the
ancillary administrator in the Philippines as to which of them was
entitled to the possession of the stock certificates in question. On
January 27, 1964, the Court of First Instance of Manila ordered the
domiciliary administrator, County Trust Company, to "produce and
deposit" them with the ancillary administrator or with the Clerk of
Court. The domiciliary administrator did not comply with the order, and
on February 11, 1964, the ancillary administrator petitioned the court
to "issue an order declaring the certificate or certificates of stocks
covering the 33,002 shares issued in the name of Idonah Slade
Perkins by Benguet Consolidated, Inc., be declared [or] considered as
lost."3
It is to be noted further that appellant Benguet Consolidated, Inc.
admits that "it is immaterial" as far as it is concerned as to "who is
entitled to the possession of the stock certificates in question;
appellant opposed the petition of the ancillary administrator because
the said stock certificates are in existence, they are today in the
possession of the domiciliary administrator, the County Trust
Company, in New York, U.S.A...."4
It is its view, therefore, that under the circumstances, the stock
certificates cannot be declared or considered as lost. Moreover, it
would allege that there was a failure to observe certain requirements
of its by-laws before new stock certificates could be issued. Hence, its
appeal.
1
As was made clear at the outset of this opinion, the appeal lacks
merit. The challenged order constitutes an emphatic affirmation of
judicial authority sought to be emasculated by the wilful conduct of the
domiciliary administrator in refusing to accord obedience to a court
decree. How, then, can this order be stigmatized as illegal?
As is true of many problems confronting the judiciary, such a
response was called for by the realities of the situation. What cannot
be ignored is that conduct bordering on wilful defiance, if it had not
actually reached it, cannot without undue loss of judicial prestige, be
condoned or tolerated. For the law is not so lacking in flexibility and
resourcefulness as to preclude such a solution, the more so as
deeper reflection would make clear its being buttressed by
indisputable principles and supported by the strongest policy
considerations.
It can truly be said then that the result arrived at upheld and
vindicated the honor of the judiciary no less than that of the country.
Through this challenged order, there is thus dispelled the atmosphere
of contingent frustration brought about by the persistence of the
domiciliary administrator to hold on to the stock certificates after it
had, as admitted, voluntarily submitted itself to the jurisdiction of the
lower court by entering its appearance through counsel on June 27,
1963, and filing a petition for relief from a previous order of March 15,
1963.
Thus did the lower court, in the order now on appeal, impart vitality
and effectiveness to what was decreed. For without it, what it had
been decided would be set at naught and nullified. Unless such a
blatant disregard by the domiciliary administrator, with residence
abroad, of what was previously ordained by a court order could be
thus remedied, it would have entailed, insofar as this matter was
concerned, not a partial but a well-nigh complete paralysis of judicial
authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of
the appellee ancillary administrator to gain control and possession of
all assets of the decedent within the jurisdiction of the Philippines. Nor
could it. Such a power is inherent in his duty to settle her estate and
satisfy the claims of local creditors.5 As Justice Tuason speaking for
this Court made clear, it is a "general rule universally recognized" that
administration, whether principal or ancillary, certainly "extends to the
assets of a decedent found within the state or country where it was
granted," the corollary being "that an administrator appointed in one
state or country has no power over property in another state or
country."6
It is to be noted that the scope of the power of the ancillary
administrator was, in an earlier case, set forth by Justice Malcolm.
Thus: "It is often necessary to have more than one administration of
an estate. When a person dies intestate owning property in the
country of his domicile as well as in a foreign country, administration
is had in both countries. That which is granted in the jurisdiction of
decedent's last domicile is termed the principal administration, while
any other administration is termed the ancillary administration. The
reason for the latter is because a grant of administration does not ex
proprio vigore have any effect beyond the limits of the country in
which it is granted. Hence, an administrator appointed in a foreign
state has no authority in the [Philippines]. The ancillary administration
is proper, whenever a person dies, leaving in a country other than that
of his last domicile, property to be administered in the nature of assets
of the deceased liable for his individual debts or to be distributed
among his heirs."7
It would follow then that the authority of the probate court to require
that ancillary administrator's right to "the stock certificates covering the
33,002 shares ... standing in her name in the books of [appellant]
Benguet Consolidated, Inc...." be respected is equally beyond
question. For appellant is a Philippine corporation owing full
allegiance and subject to the unrestricted jurisdiction of local courts.
Its shares of stock cannot therefore be considered in any wise as
immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal
Revenue8 finds application. "In the instant case, the actual situs of the
shares of stock is in the Philippines, the corporation being domiciled
[here]." To the force of the above undeniable proposition, not even
appellant is insensible. It does not dispute it. Nor could it successfully
do so even if it were so minded.
2
2. In the face of such incontrovertible doctrines that argue in a rather
conclusive fashion for the legality of the challenged order, how does
appellant, Benguet Consolidated, Inc. propose to carry the extremely
heavy burden of persuasion of precisely demonstrating the contrary?
It would assign as the basic error allegedly committed by the lower
court its "considering as lost the stock certificates covering 33,002
shares of Benguet belonging to the deceased Idonah Slade
Perkins, ..."9 More specifically, appellant would stress that the "lower
court could not "consider as lost" the stock certificates in question
when, as a matter of fact, his Honor the trial Judge knew, and does
know, and it is admitted by the appellee, that the said stock
certificates are in existence and are today in the possession of the
domiciliary administrator in New York."10
There may be an element of fiction in the above view of the lower
court. That certainly does not suffice to call for the reversal of the
appealed order. Since there is a refusal, persistently adhered to by
the domiciliary administrator in New York, to deliver the shares of
stocks of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or
arbitrary in considering them as lost and requiring the appellant to
issue new certificates in lieu thereof. Thereby, the task incumbent
under the law on the ancillary administrator could be discharged and
his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order
being made to depend on the uncontrolled discretion of the party or
entity, in this case domiciled abroad, which thus far has shown the
utmost persistence in refusing to yield obedience. Certainly, appellant
would not be heard to contend in all seriousness that a judicial decree
could be treated as a mere scrap of paper, the court issuing it being
powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the
lower court did not correspond exactly with the facts. To be more
blunt, the quality of truth may be lacking in such a conclusion arrived
at. It is to be remembered however, again to borrow from Frankfurter,
"that fictions which the law may rely upon in the pursuit of legitimate
ends have played an important part in its development."11
Speaking of the common law in its earlier period, Cardozo could state
fictions "were devices to advance the ends of justice, [even if] clumsy
and at times offensive."12 Some of them have persisted even to the
present, that eminent jurist, noting "the quasi contract, the adopted
child, the constructive trust, all of flourishing vitality, to attest the
empire of "as if" today."13 He likewise noted "a class of fictions of
another order, the fiction which is a working tool of thought, but which
at times hides itself from view till reflection and analysis have brought
it to the light."14
What cannot be disputed, therefore, is the at times indispensable role
that fictions as such played in the law. There should be then on the
part of the appellant a further refinement in the catholicity of its
condemnation of such judicial technique. If ever an occasion did call
for the employment of a legal fiction to put an end to the anomalous
situation of a valid judicial order being disregarded with apparent
impunity, this is it. What is thus most obvious is that this particular
alleged error does not carry persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the
above contention by its invoking one of the provisions of its by-laws
which would set forth the procedure to be followed in case of a lost,
stolen or destroyed stock certificate; it would stress that in the event of
a contest or the pendency of an action regarding ownership of such
certificate or certificates of stock allegedly lost, stolen or destroyed,
the issuance of a new certificate or certificates would await the "final
decision by [a] court regarding the ownership [thereof]."15
Such reliance is misplaced. In the first place, there is no such
occasion to apply such by-law. It is admitted that the foreign
domiciliary administrator did not appeal from the order now in
question. Moreover, there is likewise the express admission of
appellant that as far as it is concerned, "it is immaterial ... who is
entitled to the possession of the stock certificates ..." Even if such
were not the case, it would be a legal absurdity to impart to such a
provision conclusiveness and finality. Assuming that a contrariety
exists between the above by-law and the command of a court decree,
the latter is to be followed.
3
It is understandable, as Cardozo pointed out, that the Constitution
overrides a statute, to which, however, the judiciary must yield
deference, when appropriately invoked and deemed applicable. It
would be most highly unorthodox, however, if a corporate by-law
would be accorded such a high estate in the jural order that a court
must not only take note of it but yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be
saddled unless the appealed order be set aside for its inconsistency
with one of its by-laws does not impress us. Its obedience to a lawful
court order certainly constitutes a valid defense, assuming that such
apprehension of a possible court action against it could possibly
materialize. Thus far, nothing in the circumstances as they have
developed gives substance to such a fear. Gossamer possibilities of a
future prejudice to appellant do not suffice to nullify the lawful exercise
of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated,
Inc. is fraught with implications at war with the basic postulates of
corporate theory.
We start with the undeniable premise that, "a corporation is an
artificial being created by operation of law...."16 It owes its life to the
state, its birth being purely dependent on its will. As Berle so aptly
stated: "Classically, a corporation was conceived as an artificial
person, owing its existence through creation by a sovereign
power."17 As a matter of fact, the statutory language employed owes
much to Chief Justice Marshall, who in the Dartmouth College
decision defined a corporation precisely as "an artificial being,
invisible, intangible, and existing only in contemplation of law."18
The well-known authority Fletcher could summarize the matter thus:
"A corporation is not in fact and in reality a person, but the law treats it
as though it were a person by process of fiction, or by regarding it as
an artificial person distinct and separate from its individual
stockholders.... It owes its existence to law. It is an artificial person
created by law for certain specific purposes, the extent of whose
existence, powers and liberties is fixed by its charter."19 Dean Pound's
terse summary, a juristic person, resulting from an association of
human beings granted legal personality by the state, puts the matter
neatly.20
There is thus a rejection of Gierke's genossenchaft theory, the basic
theme of which to quote from Friedmann, "is the reality of the group
as a social and legal entity, independent of state recognition and
concession."21 A corporation as known to Philippine jurisprudence is a
creature without any existence until it has received the imprimatur of
the state according to law. It is logically inconceivable therefore that it
will have rights and privileges of a higher priority than that of its
creator. More than that, it cannot legitimately refuse to yield
obedience to acts of its state organs, certainly not excluding the
judiciary, whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following
American law still of persuasive authority in our jurisdiction, comes
more often within the ken of the judiciary than the other two
coordinate branches. It institutes the appropriate court action to
enforce its right. Correlatively, it is not immune from judicial control in
those instances, where a duty under the law as ascertained in an
appropriate legal proceeding is cast upon it.
To assert that it can choose which court order to follow and which to
disregard is to confer upon it not autonomy which may be conceded
but license which cannot be tolerated. It is to argue that it may, when
so minded, overrule the state, the source of its very existence; it is to
contend that what any of its governmental organs may lawfully require
could be ignored at will. So extravagant a claim cannot possibly merit
approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it
was shown that in a guardianship proceedings then pending in a
lower court, the United States Veterans Administration filed a motion
for the refund of a certain sum of money paid to the minor under
guardianship, alleging that the lower court had previously granted its
petition to consider the deceased father as not entitled to guerilla
benefits according to a determination arrived at by its main office in
the United States. The motion was denied. In seeking a
reconsideration of such order, the Administrator relied on an American
federal statute making his decisions "final and conclusive on all
4
questions of law or fact" precluding any other American official to
examine the matter anew, "except a judge or judges of the United
States court."23 Reconsideration was denied, and the Administrator
appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court.
Thus: "We are of the opinion that the appeal should be rejected. The
provisions of the U.S. Code, invoked by the appellant, make the
decisions of the U.S. Veterans' Administrator final and conclusive
when made on claims property submitted to him for resolution; but
they are not applicable to the present case, where the Administrator is
not acting as a judge but as a litigant. There is a great difference
between actions against the Administrator (which must be filed strictly
in accordance with the conditions that are imposed by the Veterans'
Act, including the exclusive review by United States courts), and those
actions where the Veterans' Administrator seeks a remedy from our
courts and submits to their jurisdiction by filing actions therein. Our
attention has not been called to any law or treaty that would make the
findings of the Veterans' Administrator, in actions where he is a party,
conclusive on our courts. That, in effect, would deprive our tribunals of
judicial discretion and render them mere subordinate instrumentalities
of the Veterans' Administrator."
That is all then that this case presents. It is obvious why the appeal
cannot succeed. It is always easy to conjure extreme and even
oppressive possibilities. That is not decisive. It does not settle the
issue. What carries weight and conviction is the result arrived at, the
just solution obtained, grounded in the soundest of legal doctrines and
distinguished by its correspondence with what a sense of realism
requires. For through the appealed order, the imperative requirement
of justice according to law is satisfied and national dignity and honor
maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos,
the Judge of the Court of First Instance, dated May 18, 1964, is
affirmed. With costs against oppositor-appelant Benguet
Consolidated, Inc.
Makalintal, Zaldivar and Capistrano, JJ., concur.
Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro,
JJ., concur in the result.

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
SUPREME COURT
Manila
SECOND DIVISION
 
G.R. No. 125469 October 27, 1997
PHILIPPINE STOCK EXCHANGE, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and PUERTO AZUL LAND,
INC., respondents.
TORRES, JR., J.:
The Securities and Exchange Commission is the government agency,
under the direct general supervision of the Office of the
President, 1 with the immense task of enforcing the Revised Securities
Act, and all other duties assigned to it by pertinent laws. Among its
inumerable functions, and one of the most important, is the
supervision of all corporations, partnerships or associations, who are
grantees of primary franchise and/or a license or permit issued by the
government to operate in the Philippines. 2 Just how far this regulatory
authority extends, particularly, with regard to the Petitioner Philippine
Stock Exchange, Inc. is the issue in the case at bar.
In this Petition for Review on Certiorari, petitioner assails the
resolution of the respondent Court of Appeals, dated June 27, 1996,
which affirmed the decision of the Securities and Exchange
Commission ordering the petitioner Philippine Stock Exchange, Inc. to
allow the private respondent Puerto Azul Land, Inc. to be listed in its
stock market, thus paving the way for the public offering of PALI's
shares.
The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation,
had sought to offer its shares to the public in order to raise funds
allegedly to develop its properties and pay its loans with several
banking institutions. In January, 1995, PALI was issued a Permit to
Sell its shares to the public by the Securities and Exchange
Commission (SEC). To facilitate the trading of its shares among
investors, PALI sought to course the trading of its shares through the
Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with
the said stock exchange an application to list its shares, with
supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a
perusal of PALI's application, recommended to the PSE's Board of
Governors the approval of PALI's listing application.
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
Ferdinand E. Marcos, claiming that the late President Marcos was the
legal and beneficial owner of certain properties forming part of the
Puerto Azul Beach Hotel and Resort Complex which PALI claims to
be among its assets and that the Ternate Development Corporation,
which is among the stockholders of PALI, likewise appears to have
been held and continue to be held in trust by one Rebecco Panlilio for
then President Marcos and now, effectively for his estate, and
requested PALI's application to be deferred. PALI was requested to
comment upon the said letter.
PALI's answer stated that the properties forming part of the Puerto
Azul Beach Hotel and Resort Complex were not claimed by PALI as
its assets. On the contrary, the resort is actually owned by Fantasia
Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct
from PALI. Furthermore, the Ternate Development Corporation owns
only 1.20% of PALI. The Marcoses responded that their claim is not
confined to the facilities forming part of the Puerto Azul Hotel and
Resort Complex, thereby implying that they are also asserting legal
and beneficial ownership of other properties titled under the name of
PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol
Gunigundo of the Presidential Commission on Good Government
(PCGG) requesting for comments on the letters of the PALI and the
Marcoses. On March 4, 1996, the PSE was informed that the
Marcoses received a Temporary Restraining Order on the same date,
enjoining the Marcoses from, among others, "further impeding,
obstructing, delaying or interfering in any manner by or any means
6
with the consideration, processing and approval by the PSE of the
initial public offering of PALI." The TRO was issued by Judge Martin
S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case
No. 65561, pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors
of the PSE reached its decision to reject PALI's application, citing the
existence of serious claims, issues and circumstances surrounding
PALI's ownership over its assets that adversely affect the suitability of
listing PALI's shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the
then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SEC's
attention the action taken by the PSE in the application of PALI for the
listing of its shares with the PSE, and requesting that the SEC, in the
exercise of its supervisory and regulatory powers over stock
exchanges under Section 6(j) of P.D. No. 902-A, review the PSE's
action on PALI's listing application and institute such measures as are
just and proper under the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE,
attaching thereto the letter of PALI and directing the PSE to file its
comments thereto within five days from its receipt and for its
authorized representative to appear for an "inquiry" on the matter. On
April 22, 1996, the PSE submitted a letter to the SEC containing its
comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSE's
decision. The dispositive portion of the said order reads:
WHEREFORE, premises considered, and invoking the
Commissioner's authority and jurisdiction under
Section 3 of the Revised Securities Act, in conjunction
with Section 3, 6(j) and 6(m) of Presidential Decree No.
902-A, the decision of the Board of Governors of the
Philippine Stock Exchange denying the listing of shares
of Puerto Azul Land, Inc., is hereby set aside, and the
PSE is hereby ordered to immediately cause the listing
of the PALI shares in the Exchange, without prejudice
to its authority to require PALI to disclose such other
material information it deems necessary for the
protection of the investigating public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29,
1996, which was, however denied by the Commission in its May 9,
1996 Order which states:
WHEREFORE, premises considered, the Commission
finds no compelling reason to reconsider its order
dated April 24, 1996, and in the light of recent
developments on the adverse claim against the PALI
properties, PSE should require PALI to submit full
disclosure of material facts and information to protect
the investing public. In this regard, PALI is hereby
ordered to amend its registration statements filed with
the Commission to incorporate the full disclosure of
these material facts and information.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on
May 17, 1996 a Petition for Review (with Application for Writ of
Preliminary Injunction and Temporary Restraining Order), assailing
the above mentioned orders of the SEC, submitting the following as
errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT
POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO
POWER TO ORDER THE LISTING AND SALE OF SHARES OF
PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW
AND SUBSTITUTE DECISIONS OF PSE ON LISTING
APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY
7
 AND ABUSIVE MANNER IN DISAPPROVING PALI'S LISTING
APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID
FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN
CUSTODIA LEGIS AND WHICH FORM PART OF
NAVAL/MILITARY RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY
PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION
IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE
CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for Review
and subsequently, a Comment and Motion to Dismiss. On June 10,
1996, PSE fled its Reply to Comment and Opposition to Motion to
Dismiss.
On June 27, 1996, the Court of Appeals promulgated its Resolution
dismissing the PSE's Petition for Review. Hence, this Petition by the
PSE.
The appellate court had ruled that the SEC had both jurisdiction and
authority to look into the decision of the petitioner PSE, pursuant to
Section 3 3 of the Revised Securities Act in relation to Section 6(j) and
6(m) 4 of P.D. No. 902-A, and Section 38(b)5 of the Revised Securities
Act, and for the purpose of ensuring fair administration of the
exchange. Both as a corporation and as a stock exchange, the
petitioner is subject to public respondent's jurisdiction, regulation and
control. Accepting the argument that the public respondent has the
authority merely to supervise or regulate, would amount to serious
consequences, considering that the petitioner is a stock exchange
whose business is impressed with public interest. Abuse is not remote
if the public respondent is left without any system of control. If the
securities act vested the public respondent with jurisdiction and
control over all corporations; the power to authorize the establishment
of stock exchanges; the right to supervise and regulate the same; and
the power to alter and supplement rules of the exchange in the listing
or delisting of securities, then the law certainly granted to the public
respondent the plenary authority over the petitioner; and the power of
review necessarily comes within its authority.
All in all, the court held that PALI complied with all the requirements
for public listing, affirming the SEC's ruling to the effect that:
. . . the Philippine Stock Exchange has acted in an arbitrary and
abusive manner in disapproving the application of PALI for
listing of its shares in the face of the following considerations:
1. PALI has clearly and admittedly complied with the
Listing Rules and full disclosure requirements of the
Exchange;
2. In applying its clear and reasonable standards on the
suitability for listing of shares, PSE has failed to justify
why it acted differently on the application of PALI, as
compared to the IPOs of other companies similarly
situated that were allowed listing in the Exchange;
3. It appears that the claims and issues on the title to
PALI's properties were even less serious than the
claims against the assets of the other companies in
that, the assertions of the Marcoses that they are
owners of the disputed properties were not
substantiated enough to overcome the strength of a
title to properties issued under the Torrens System as
evidence of ownership thereof;
4. No action has been filed in any court of competent
jurisdiction seeking to nullify PALI's ownership over the
disputed properties, neither has the government
instituted recovery proceedings against these
properties. Yet the import of PSE's decision in denying
PALI's application is that it would be PALI, not the
Marcoses, that must go to court to prove the legality of
its ownership on these properties before its shares can
be listed.
8
In addition, the argument that the PALI properties belong to the
Military/Naval Reservation does not inspire belief. The point is, the
PALI properties are now titled. A property losses its public character
the moment it is covered by a title. As a matter of fact, the titles have
long been settled by a final judgment; and the final decree having
been registered, they can no longer be re-opened considering that the
one year period has already passed. Lastly, the determination of what
standard to apply in allowing PALI's application for listing, whether the
discretion method or the system of public disclosure adhered to by the
SEC, should be addressed to the Securities Commission, it being the
government agency that exercises both supervisory and regulatory
authority over all corporations.
On August 15, 19961 the PSE, after it was granted an extension, filed
the instant Petition for Review on Certiorari, taking exception to the
rulings of the SEC and the Court of Appeals. Respondent PALI filed
its Comment to the petition on October 17, 1996. On the same date,
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
October 21, 1996. A supplemental Comment was filed by PALI on
October 25, 1997. The Office of the Solicitor General, representing
the SEC and the Court of Appeals, likewise filed its Comment on
December 26, 1996. In answer to the PCGG's motion for leave to file
petition for intervention, PALI filed its Comment thereto on January
17, 1997, whereas the PSE filed its own Comment on January 20,
1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the
comments of respondent PALI (October 17, 1996) and the Solicitor
General (December 26, 1996). On May 16, 1997, PALI filed its
Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC
had authority to order the PSE to list the shares of PALI in the stock
exchange. Under presidential decree No. 902-A, the powers of the
SEC over stock exchanges are more limited as compared to its
authority over ordinary corporations. In connection with this, the
powers of the SEC over stock exchanges under the Revised
Securities Act are specifically enumerated, and these do not include
the power to reverse the decisions of the stock exchange. Authorities
are in abundance even in the United States, from which the country's
security policies are patterned, to the effect of giving the Securities
Commission less control over stock exchanges, which in turn are
given more lee-way in making the decision whether or not to allow
corporations to offer their stock to the public through the stock
exchange. This is in accord with the "business judgment rule"
whereby the SEC and the courts are barred from intruding into
business judgments of corporations, when the same are made in
good faith. the said rule precludes the reversal of the decision of the
PSE to deny PALI's listing application, absent a showing of bad faith
on the part of the PSE. Under the listing rules of the PSE, to which
PALI had previously agreed to comply, the PSE retains the discretion
to accept or reject applications for listing. Thus, even if an issuer has
complied with the PSE listing rules and requirements, PSE retains the
discretion to accept or reject the issuer's listing application if the PSE
determines that the listing shall not serve the interests of the investing
public.
Moreover, PSE argues that the SEC has no jurisdiction over
sequestered corporations, nor with corporations whose properties are
under sequestration. A reading of Republic of the Philippines
vs. Sadiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal
that the properties of PALI, which were derived from the Ternate
Development Corporation (TDC) and the Monte del Sol Development
Corporation (MSDC). are under sequestration by the PCGG, and
subject of forfeiture proceedings in the Sandiganbayan. This ruling of
the Court is the "law of the case" between the Republic and TDC and
MSDC. It categorically declares that the assets of these corporations
were sequestered by the PCGG on March 10, 1986 and April 4, 1988.
It is, likewise, intimated that the Court of Appeals' sanction that PALI's
ownership over its properties can no longer be questioned, since
certificates of title have been issued to PALI and more than one year
has since lapsed, is erroneous and ignores well settled jurisprudence
on land titles. That a certificate of title issued under the Torrens
System is a conclusive evidence of ownership is not an absolute rule
and admits certain exceptions. It is fundamental that forest lands or
military reservations are non-alienable. Thus, when a title covers a
forest reserve or a government reservation, such title is void.
9
PSE, likewise, assails the SEC's and the Court of Appeals reliance on
the alleged policy of "full disclosure" to uphold the listing of PALI's
shares with the PSE, in the absence of a clear mandate for the
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.
In fact, PALI's documents supporting its application contained
misrepresentations and misleading statements, and concealed
material information. The matter of sequestration of PALI's properties
and the fact that the same form part of military/naval/forest
reservations were not reflected in PALI's application.
It is undeniable that the petitioner PSE is not an ordinary corporation,
in that although it is clothed with the markings of a corporate entity, it
functions as the primary channel through which the vessels of capital
trade ply. The PSE's relevance to the continued operation and
filtration of the securities transactions in the country gives it a distinct
color of importance such that government intervention in its affairs
becomes justified, if not necessarily. Indeed, as the only operational
stock exchange in the country today, the PSE enjoys a monopoly of
securities transactions, and as such, it yields an immense influence
upon the country's economy.
Due to this special nature of stock exchanges, the country's
lawmakers has seen it wise to give special treatment to the
administration and regulation of stock exchanges. 6
These provisions, read together with the general grant of jurisdiction,
and right of supervision and control over all corporations under Sec. 3
of P.D. 902-A, give the SEC the special mandate to be vigilant in the
supervision of the affairs of stock exchanges so that the interests of
the investing public may be fully safeguard.
Section 3 of Presidential Decree 902-A, standing alone, is enough
authority to uphold the SEC's challenged control authority over the
petitioner PSE even as it provides that "the Commission shall have
absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations, who are the grantees of primary
franchises and/or a license or permit issued by the government to
operate in the Philippines. . ." The SEC's regulatory authority over
private corporations encompasses a wide margin of areas, touching
nearly all of a corporation's concerns. This authority springs from the
fact that a corporation owes its existence to the concession of its
corporate franchise from the state.
The SEC's power to look into the subject ruling of the PSE, therefore,
may be implied from or be considered as necessary or incidental to
the carrying out of the SEC's express power to insure fair dealing in
securities traded upon a stock exchange or to ensure the fair
administration of such exchange. 7 It is, likewise, observed that the
principal function of the SEC is the supervision and control over
corporations, partnerships and associations with the end in view that
investment in these entities may be encouraged and protected, and
their activities for the promotion of economic development. 8
Thus, it was in the alleged exercise of this authority that the SEC
reversed the decision of the PSE to deny the application for listing in
the stock exchange of the private respondent PALI. The SEC's action
was affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to whether
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
mission to ensure proper compliance with the laws, such as the
Revised Securities Act and to regulate the sale and disposition of
securities in the country. 9 As the appellate court explains:
Paramount policy also supports the authority of the
public respondent to review petitioner's denial of the
listing. Being a stock exchange, the petitioner performs
a function that is vital to the national economy, as the
business is affected with public interest. As a matter of
fact, it has often been said that the economy moves on
the basis of the rise and fall of stocks being traded. By
its economic power, the petitioner certainly can dictate
which and how many users are allowed to sell
securities thru the facilities of a stock exchange, if
allowed to interpret its own rules liberally as it may
please. Petitioner can either allow or deny the entry to
the market of securities. To repeat, the monopoly,
unless accompanied by control, becomes subject to
10
 abuse; hence, considering public interest, then it
should be subject to government regulation.
The role of the SEC in our national economy cannot be minimized.
The legislature, through the Revised Securities Act, Presidential
Decree No. 902-A, and other pertinent laws, has entrusted to it the
serious responsibility of enforcing all laws affecting corporations and
other forms of associations not otherwise vested in some other
government office. 10
This is not to say, however, that the PSE's management prerogatives
are under the absolute control of the SEC. The PSE is, alter all, a
corporation authorized by its corporate franchise to engage in its
proposed and duly approved business. One of the PSE's main
concerns, as such, is still the generation of profit for its stockholders.
Moreover, the PSE has all the rights pertaining to corporations,
including the right to sue and be sued, to hold property in its own
name, to enter (or not to enter) into contracts with third persons, and
to perform all other legal acts within its allocated express or implied
powers.
A corporation is but an association of individuals, allowed to transact
under an assumed corporate name, and with a distinct legal
personality. In organizing itself as a collective body, it waives no
constitutional immunities and perquisites appropriate to such a
body. 11 As to its corporate and management decisions, therefore, the
state will generally not interfere with the same. Questions of policy
and of management are left to the honest decision of the officers and
directors of a corporation, and the courts are without authority to
substitute their judgment for the judgment of the board of directors.
The board is the business manager of the corporation, and so long as
it acts in good faith, its orders are not reviewable by the courts. 12
Thus, notwithstanding the regulatory power of the SEC over the PSE,
and the resultant authority to reverse the PSE's decision in matters of
application for listing in the market, the SEC may exercise such power
only if the PSE's judgment is attended by bad faith. In Board of
Liquidators vs. Kalaw,13 it was held that bad faith does not simply
connote bad judgment or negligence. It imports a dishonest purpose
or some moral obliquity and conscious doing of wrong. It means a
breach of a known duty through some motive or interest of ill will,
partaking of the nature of fraud.
In reaching its decision to deny the application for listing of PALI, the
PSE considered important facts, which, in the general scheme, brings
to serious question the qualification of PALI to sell its shares to the
public through the stock exchange. During the time for receiving
objections to the application, the PSE heard from the representative of
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
time, the PCGG confirmed this claim. In fact, an order of
sequestration has been issued covering the properties of PALI, and
suit for reconveyance to the state has been filed in the
Sandiganbayan Court. How the properties were effectively
transferred, despite the sequestration order, from the TDC and MSDC
to Rebecco Panlilio, and to the private respondent PALI, in only a
short span of time, are not yet explained to the Court, but it is clear
that such circumstances give rise to serious doubt as to the integrity
of PALI as a stock issuer. The petitioner was in the right when it
refused application of PALI, for a contrary ruling was not to the best
interest of the general public. The purpose of the Revised Securities
Act, after all, is to give adequate and effective protection to the
investing public against fraudulent representations, or false promises,
and the imposition of worthless ventures. 14
It is to be observed that the U.S. Securities Act emphasized its
avowed protection to acts detrimental to legitimate business, thus:
The Securities Act, often referred to as the "truth in
securities" Act, was designed not only to provide
investors with adequate information upon which to
base their decisions to buy and sell securities, but also
to protect legitimate business seeking to obtain capital
through honest presentation against competition from
crooked promoters and to prevent fraud in the sale of
securities. (Tenth Annual Report, U.S. Securities &
Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are
chiefly (1) prevention of excesses and fraudulent
11
 transactions, merely by requirement of that their details
be revealed; (2) placing the market during the early
stages of the offering of a security a body of
information, which operating indirectly through
investment services and expert investors, will tend to
produce a more accurate appraisal of a security, . . .
Thus, the Commission may refuse to permit a
registration statement to become effective if it appears
on its face to be incomplete or inaccurate in any
material respect, and empower the Commission to
issue a stop order suspending the effectiveness of any
registration statement which is found to include any
untrue statement of a material fact or to omit to state
any material fact required to be stated therein or
necessary to make the statements therein not
misleading. (Idem).
Also, as the primary market for securities, the PSE has established its
name and goodwill, and it has the right to protect such goodwill by
maintaining a reasonable standard of propriety in the entities who
choose to transact through its facilities. It was reasonable for the PSE,
therefore, to exercise its judgment in the manner it deems appropriate
for its business identity, as long as no rights are trampled upon, and
public welfare is safeguarded.
In this connection, it is proper to observe that the concept of
government absolutism is a thing of the past, and should remain so.
The observation that the title of PALI over its properties is absolute
and can no longer be assailed is of no moment. At this juncture, there
is the claim that the properties were owned by TDC and MSDC and
were transferred in violation of sequestration orders, to Rebecco
Panlilio and later on to PALI, besides the claim of the Marcoses that
such properties belong to the Marcos estate, and were held only in
trust by Rebecco Panlilio. It is also alleged by the petitioner that these
properties belong to naval and forest reserves, and therefore beyond
private dominion. If any of these claims is established to be true, the
certificates of title over the subject properties now held by PALI map
be disregarded, as it is an established rule that a registration of a
certificate of title does not confer ownership over the properties
described therein to the person named as owner. The inscription in
the registry, to be effective, must be made in good faith. The defense
of indefeasibility of a Torrens Title does not extend to a transferee
who takes the certificate of title with notice of a flaw.
In any case, for the purpose of determining whether PSE acted
correctly in refusing the application of PALI, the true ownership of the
properties of PALI need not be determined as an absolute fact. What
is material is that the uncertainty of the properties' ownership and
alienability exists, and this puts to question the qualification of PALI's
public offering. In sum, the Court finds that the SEC had acted
arbitrarily in arrogating unto itself the discretion of approving the
application for listing in the PSE of the private respondent PALI, since
this is a matter addressed to the sound discretion of the PSE, a
corporation entity, whose business judgments are respected in the
absence of bad faith.
The question as to what policy is, or should be relied upon in
approving the registration and sale of securities in the SEC is not for
the Court to determine, but is left to the sound discretion of the
Securities and Exchange Commission. In mandating the SEC to
administer the Revised Securities Act, and in performing its other
functions under pertinent laws, the Revised Securities Act, under
Section 3 thereof, gives the SEC the power to promulgate such rules
and regulations as it may consider appropriate in the public interest
for the enforcement of the said laws. The second paragraph of
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
in any other manner conveyed to the public, unless registered in
accordance with the rules and regulations that shall be promulgated in
the public interest and for the protection of investors by the
Commission. Presidential Decree No. 902-A, on the other hand,
provides that the SEC, as regulatory agency, has supervision and
control over all corporations and over the securities market as a
whole, and as such, is given ample authority in determining
appropriate policies. Pursuant to this regulatory authority, the SEC
has manifested that it has adopted the policy of "full material
disclosure" where all companies, listed or applying for listing, are
required to divulge truthfully and accurately, all material information
about themselves and the securities they sell, for the protection of the
12
investing public, and under pain of administrative, criminal and civil
sanctions. In connection with this, a fact is deemed material if it tends
to induce or otherwise effect the sale or purchase of its
securities. 15 While the employment of this policy is recognized and
sanctioned by the laws, nonetheless, the Revised Securities Act sets
substantial and procedural standards which a proposed issuer of
securities must satisfy. 16 Pertinently, Section 9 of the Revised
Securities Act sets forth the possible Grounds for the Rejection of the
registration of a security:
— The Commission may reject a registration statement
and refuse to issue a permit to sell the securities
included in such registration statement if it finds that —
(1) The registration statement is on its face incomplete
or inaccurate in any material respect or includes any
untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary
to make the statements therein not misleading; or
(2) The issuer or registrant —
(i) is not solvent or not in sound financial
condition;
(ii) has violated or has not complied with
the provisions of this Act, or the rules
promulgated pursuant thereto, or any
order of the Commission;
(iii) has failed to comply with any of the
applicable requirements and conditions
that the Commission may, in the public
interest and for the protection of
investors, impose before the security
can be registered;
(iv) has been engaged or is engaged or
is about to engage in fraudulent
transaction;
(v) is in any way dishonest or is not of
good repute; or
(vi) does not conduct its business in
accordance with law or is engaged in a
business that is illegal or contrary to
government rules and regulations.
(3) The enterprise or the business of the issuer is not
shown to be sound or to be based on sound business
principles;
(4) An officer, member of the board of directors, or
principal stockholder of the issuer is disqualified to be
such officer, director or principal stockholder; or
(5) The issuer or registrant has not shown to the
satisfaction of the Commission that the sale of its
security would not work to the prejudice of the public
interest or as a fraud upon the purchasers or investors.
(Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the
lawmakers to make the registration and issuance of securities
dependent, to a certain extent, on the merits of the securities
themselves, and of the issuer, to be determined by the Securities and
Exchange Commission. This measure was meant to protect the
interests of the investing public against fraudulent and worthless
securities, and the SEC is mandated by law to safeguard these
interests, following the policies and rules therefore provided. The
absolute reliance on the full disclosure method in the registration of
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
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-27155 May 18, 1978
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO
GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE
COMPANY, INC., respondents.
Medina, Locsin, Coruña, & Sumbillo for petitioner.
Manuel Lim & Associates for private respondents.
ANTONIO, J.:
Certiorari to review the decision of the Court of Appeals which
affirmed the judgment of the Court of First Instance of Manila in Civil
Case No. 34185, ordering petitioner, as third-party defendant, to pay
respondent Rita Gueco Tapnio, as third-party plaintiff, the sum of
P2,379.71, plus 12% interest per annum from September 19, 1957
until the same is fully paid, P200.00 attorney's fees and costs, the
same amounts which Rita Gueco Tapnio was ordered to pay the
Philippine American General Insurance Co., Inc., to be paid directly to
the Philippine American General Insurance Co., Inc. in full satisfaction
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.
The basic action is the complaint filed by Philamgen (Philippine
American General Insurance Co., Inc.) as surety against Rita Gueco
Tapnio and Cecilio Gueco, for the recovery of the sum of P2,379.71
paid by Philamgen to the Philippine National Bank on behalf of
respondents Tapnio and Gueco, pursuant to an indemnity agreement.
Petitioner Bank was made third-party defendant by Tapnio and Gueco
on the theory that their failure to pay the debt was due to the fault or
negligence of petitioner.
The facts as found by the respondent Court of Appeals, in affirming
the decision of the Court of First Instance of Manila, are quoted
hereunder:
Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio
as principal, in favor of the Philippine National Bank Branch at San
Fernando, Pampanga, to guarantee the payment of defendant Rita
Gueco Tapnio's account with said Bank. In turn, to guarantee the
payment of whatever amount the bonding company would pay to the
Philippine National Bank, both defendants executed the indemnity
agreement, Exh. B. Under the terms and conditions of this indemnity
agreement, whatever amount the plaintiff would pay would earn
interest at the rate of 12% per annum, plus attorney's fees in the
amount of 15 % of the whole amount due in case of court litigation.
The original amount of the bond was for P4,000.00; but the amount
was later reduced to P2,000.00.
It is not disputed that defendant Rita Gueco Tapnio was indebted to
the bank in the sum of P2,000.00, plus accumulated interests unpaid,
which she failed to pay despite demands. The Bank wrote a letter of
demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank
on September 18, 1957, the full amount due and owing in the sum of
P2,379.91, for and on account of defendant Rita Gueco's obligation
(Exhs. D and D-1).
Plaintiff, in turn, made several demands, both verbal and written, upon
defendants (Exhs. E and F), but to no avail.
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She
claims, however, when demand was made upon her by plaintiff for her
to pay her debt to the Bank, that she told the Plaintiff that she did not
consider herself to be indebted to the Bank at all because she had an
agreement with one Jacobo-Nazon whereby she had leased to the
latter her unused export sugar quota for the 1956-1957 agricultural
year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a
total of P2,800.00, which was already in excess of her obligation
guaranteed by plaintiff's bond, Exh. A. This lease agreement,
according to her, was with the knowledge of the bank. But the Bank
has placed obstacles to the consummation of the lease, and the delay
caused by said obstacles forced 'Nazon to rescind the lease contract.
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
damages, attorney's fees and costs.
Insofar as the contentions of the parties herein are concerned, we
quote with approval the following findings of the lower court based
on the evidence presented at the trial of the case:
It has been established during the trial that Mrs. Tapnio had an
export sugar quota of 1,000 piculs for the agricultural year 1956-
1957 which she did not need. She agreed to allow Mr. Jacobo C.
Tuazon to use said quota for the consideration of P2,500.00 (Exh.
"4"-Gueco). This agreement was called a contract of lease of sugar
allotment.
At the time of the agreement, Mrs. Tapnio was indebted to the
Philippine National Bank at San Fernando, Pampanga. Her
indebtedness was known as a crop loan and was secured by a
mortgage on her standing crop including her sugar quota allocation
for the agricultural year corresponding to said standing crop. This
arrangement was necessary in order that when Mrs. Tapnio
harvests, the P.N.B., having a lien on the crop, may effectively
enforce collection against her. Her sugar cannot be exported without
sugar quota allotment Sometimes, however, a planter harvest less
sugar than her quota, so her excess quota is utilized by another who
pays her for its use. This is the arrangement entered into between
Mrs. Tapnio and Mr. Tuazon regarding the former's excess quota for
1956-1957 (Exh. "4"-Gueco).
Since the quota was mortgaged to the P.N.B., the contract of lease
had to be approved by said Bank, The same was submitted to the
branch manager at San Fernando, Pampanga. The latter required
the parties to raise the consideration of P2.80 per picul or a total of
P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease
rental acceptable to the Bank, is P2.80 per picul." In a letter
addressed to the branch manager on August 10, 1956, Mr. Tuazon
informed the manager that he was agreeable to raising the
consideration to P2.80 per picul. He further informed the manager
that he was ready to pay said amount as the funds were in his folder
which was kept in the bank.
Explaining the meaning of Tuazon's statement as to the
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
intending to use it to pay for the quota. Hence, when he said
the amount needed to pay Mrs. Tapnio was in his folder
which was in the bank, he meant and the manager
understood and knew he had an approved loan available to
be used in payment of the quota. In said Exh. "6-Gueco",
Tuazon also informed the manager that he would want for a
notice from the manager as to the time when the bank
needed the money so that Tuazon could sign the
corresponding promissory note.
Further Consideration of the evidence discloses that
when the branch manager of the Philippine National
Bank at San Fernando recommended the approval of
the contract of lease at the price of P2.80 per picul
(Exh. 1 1-Bank), whose recommendation was
concurred in by the Vice-president of said Bank, J. V.
Buenaventura, the board of directors required that the
amount be raised to 13.00 per picul. This act of the
board of directors was communicated to Tuazon, who
in turn asked for a reconsideration thereof. On
November 19, 1956, the branch manager submitted
Tuazon's request for reconsideration to the board of
directors with another recommendation for the approval
of the lease at P2.80 per picul, but the board returned
the recommendation unacted upon, considering that
the current price prevailing at the time was P3.00 per
picul (Exh. 9-Bank).
The parties were notified of the refusal on the part of
the board of directors of the Bank to grant the motion
for reconsideration. The matter stood as it was until
February 22, 1957, when Tuazon wrote a letter (Exh.
10-Bank informing the Bank that he was no longer
interested to continue the deal, referring to the lease of
sugar quota allotment in favor of defendant Rita Gueco
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
cancel off her indebtedness,
The court below held, and in this holding we concur
that failure of the negotiation for the lease of the sugar
quota allocation of Rita Gueco Tapnio to Tuazon was
due to the fault of the directors of the Philippine
National Bank, The refusal on the part of the bank to
approve the lease at the rate of P2.80 per picul which,
as stated above, would have enabled Rita Gueco
Tapnio to realize the amount of P2,800.00 which was
more than sufficient to pay off her indebtedness to the
Bank, and its insistence on the rental price of P3.00 per
picul thus unnecessarily increasing the value by only a
difference of P200.00. inevitably brought about the
rescission of the lease contract to the damage and
prejudice of Rita Gueco Tapnio in the aforesaid sum of
P2,800.00. The unreasonableness of the position
adopted by the board of directors of the Philippine
National Bank in refusing to approve the lease at the
rate of P2.80 per picul and insisting on the rate of
P3.00 per picul, if only to increase the retail value by
only P200.00 is shown by the fact that all the accounts
of Rita Gueco Tapnio with the Bank were secured by
chattel mortgage on standing crops, assignment of
leasehold rights and interests on her properties, and
surety bonds, aside from the fact that from Exh. 8-
Bank, it appears that she was offering to execute a real
estate mortgage in favor of the Bank to replace the
surety bond This statement is further bolstered by the
fact that Rita Gueco Tapnio apparently had the means
to pay her obligation fact that she has been granted
several value of almost P80,000.00 for the agricultural
years from 1952 to 56. 1
Its motion for the reconsideration of the decision of the Court of
Appeals having been denied, petitioner filed the present petition.
The petitioner contends that the Court of Appeals erred:
(1) In finding that the rescission of the lease contract of the 1,000
piculs of sugar quota allocation of respondent Rita Gueco Tapnio by
Jacobo C. Tuazon was due to the unjustified refusal of petitioner to
approve said lease contract, and its unreasonable insistence on the
rental price of P3.00 instead of P2.80 per picul; and
(2) In not holding that based on the statistics of sugar price and prices
of sugar quota in the possession of the petitioner, the latter's Board of
Directors correctly fixed the rental of price per picul of 1,000 piculs of
sugar quota leased by respondent Rita Gueco Tapnio to Jacobo C.
Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it
has the right, both under its own Charter and under the Corporation
Law, to safeguard and protect its rights and interests under the deed
of assignment, which include the right to approve or disapprove the
said lease of sugar quota and in the exercise of that authority, its
Board of Directors necessarily had authority to determine and fix the
rental price per picul of the sugar quota subject of the lease between
private respondents and Jacobo C. Tuazon. It argued further that both
under its Charter and the Corporation Law, petitioner, acting thru its
Board of Directors, has the perfect right to adopt a policy with respect
to fixing of rental prices of export sugar quota allocations, and in fixing
the rentals at P3.00 per picul, it did not act arbitrarily since the said
Board was guided by statistics of sugar price and prices of sugar
quotas prevailing at the time. Since the fixing of the rental of the sugar
quota is a function lodged with petitioner's Board of Directors and is a
matter of policy, the respondent Court of Appeals could not substitute
its own judgment for that of said Board of Directors, which acted in
good faith, making as its basis therefore the prevailing market price as
shown by statistics which were then in their possession.
Finally, petitioner emphasized that under the appealed judgment, it
shall suffer a great injustice because as a creditor, it shall be deprived
of a just claim against its debtor (respondent Rita Gueco Tapnio) as it
would be required to return to respondent Philamgen the sum of
P2,379.71, plus interest, which amount had been previously paid to
petitioner by said insurance company in behalf of the principal debtor,
17
herein respondent Rita Gueco Tapnio, and without recourse against
respondent Rita Gueco Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in
proceedings of this nature is limited to reviewing only errors of law,
accepting as conclusive the factual fin dings of the Court of Appeals
upon its own assessment of the evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul
between Rita Gueco Tapnio and Jacobo C. Tuazon was executed on
April 17, 1956. This contract was submitted to the Branch Manager of
the Philippine National Bank at San Fernando, Pampanga. This
arrangement was necessary because Tapnio's indebtedness to
petitioner was secured by a mortgage on her standing crop including
her sugar quota allocation for the agricultural year corresponding to
said standing crop. The latter required the parties to raise the
consideration to P2.80 per picul, the minimum lease rental acceptable
to the Bank, or a total of P2,800.00. Tuazon informed the Branch
Manager, thru a letter dated August 10, 1956, that he was agreeable
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
funds were in his folder which was kept in the said Bank. This referred
to the approved loan of Tuazon from the Bank which he intended to
use in paying for the use of the sugar quota. The Branch Manager
submitted the contract of lease of sugar quota allocation to the Head
Office on September 7, 1956, with a recommendation for approval,
which recommendation was concurred in by the Vice-President of the
Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of
Directors of petitioner required that the consideration be raised to
P3.00 per picul.
Tuazon, after being informed of the action of the Board of Directors,
asked for a reconsideration thereof. On November 19, 1956, the
Branch Manager submitted the request for reconsideration and again
recommended the approval of the lease at P2.80 per picul, but the
Board returned the recommendation unacted, stating that the current
price prevailing at that time was P3.00 per picul.
On February 22, 1957, Tuazon wrote a letter, informing the Bank that
he was no longer interested in continuing the lease of sugar quota
allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to
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
been implemented.
It has been clearly shown that when the Branch Manager of petitioner
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,
in his letter to the Branch Manager of the Bank on August 10, 1956,
Tuazon informed him that the minimum lease rental of P2.80 per picul
was acceptable to him and that he even offered to use the loan
secured by him from petitioner to pay in full the sum of P2,800.00
which was the total consideration of the lease. This arrangement was
not only satisfactory to the Branch Manager but it was also approves
by Vice-President J. V. Buenaventura of the PNB. Under that
arrangement, Rita Gueco Tapnio could have realized the amount of
P2,800.00, which was more than enough to pay the balance of her
indebtedness to the Bank which was secured by the bond of
Philamgen.
There is no question that Tapnio's failure to utilize her sugar quota for
the crop year 1956-1957 was due to the disapproval of the lease by
the Board of Directors of petitioner. The issue, therefore, is whether or
not petitioner is liable for the damage caused.
As observed by the trial court, time is of the essence in the approval
of the lease of sugar quota allotments, since the same must be
utilized during the milling season, because any allotment which is not
filled during such milling season may be reallocated by the Sugar
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
sugar quota allotment of private respondents for a price higher than
P2.80 per picul. "The fact that there were isolated transactions
wherein the consideration for the lease was P3.00 a picul", according
to the trial court, "does not necessarily mean that there are always
ready takers of said price. " The unreasonableness of the position
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
Tuazon and the P3.00 per picul demanded by the Board amounted
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
on standing crops, assignment of leasehold rights and interests on her
properties, and surety bonds and that she had apparently "the means
to pay her obligation to the Bank, as shown by the fact that she has
been granted several sugar crop loans of the total value of almost
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
rejected the lease agreement because of a measly sum of P200.00.
as true of a corporation as of a natural person, A corporation is liable,
therefore, whenever a tortious act is committed by an officer or agent
under express direction or authority from the stockholders or
members acting as a body, or, generally, from the directors as the
governing body." 6
WHEREFORE, in view of the foregoing, the decision of the Court of
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
SUPREME COURT
Manila
EN BANC
G.R. No. 75885 May 27, 1987
BATAAN SHIPYARD & ENGINEERING CO., INC.
(BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,
CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY
CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,
COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S.
DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.
NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a
private corporation known as the Bataan Shipyard and Engineering
Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated
by President Corazon C. Aquino on February 28, 1986 and March 12,
1986, respectively, and (2) the sequestration, takeover, and other
orders issued, and acts done, in accordance with said executive
orders by the Presidential Commission on Good Government and/or
its Commissioners and agents, affecting said corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner
corporation, initiated all its misery was issued on April 14, 1986 by
Commissioner Mary Concepcion Bautista. It was addressed to three
of the agents of the Commission, hereafter simply referred to as
PCGG. It reads as follows:
RE: SEQUESTRATION ORDER
By virtue of the powers vested in the Presidential
Commission on Good Government, by authority of the
President of the Philippines, you are hereby directed to
sequester the following companies.
1. Bataan Shipyard and Engineering Co., Inc.
(Engineering Island Shipyard and Mariveles Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.
7. New Trident Management
8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo"
Romualdez
You are hereby ordered:
1. To implement this sequestration order with a
minimum disruption of these companies' business
activities.
2. To ensure the continuity of these companies as
going concerns, the care and maintenance of these
assets until such time that the Office of the President
through the Commission on Good Government should
decide otherwise.
3. To report to the Commission on Good Government
periodically.
Further, you are authorized to request for
Military/Security Support from the Military/Police
authorities, and such other acts essential to the
achievement of this sequestration order. 1
b. Order for Production of Documents
20
On the strength of the above sequestration order, Mr. Jose M. Balde,
acting for the PCGG, addressed a letter dated April 18, 1986 to the
President and other officers of petitioner firm, reiterating an earlier
request for the production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to
1986
2.4. Minutes of the Regular and Special Meetings of the Board of
Directors from 1973 to 1986
2.5. Minutes of the Executive Committee Meetings from 1973 to
1986
2.6. Existing contracts with suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding
share/stockholdings from 1973 to 1986 duly certified by the Corporate
Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss
and others from 1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31,
1986.
6. Consolidated Cash Position Reports from January to April 15,
1986.
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the
authorized signatories for withdrawals thereof.
10. Schedule of company investments and placements. 2
The letter closed with the warning that if the documents were not
submitted within five days, the officers would be cited for "contempt in
pursuance with Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to
simply as BASECO, is that issued on April 21, 1986 by a Capt.
Flordelino B. Zabala, a member of the task force assigned to carry out
the basic sequestration order. He sent a letter to BASECO's Vice-
President for Finance, 3 terminating the contract for security services
within the Engineer Island compound between BASECO and "Anchor
and FAIRWAYS" and "other civilian security agencies," CAPCOM
military personnel having already been assigned to the area,
(2) Change of Mode of Payment of
Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum
addressed to "Truck Owners and Contractors," particularly a "Mr.
Buddy Ondivilla National Marine Corporation," advising of the
amendment in part of their contracts with BASECO in the sense that
the stipulated charges for use of the BASECO road network were
made payable "upon entry and not anymore subject to monthly billing
as was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at
Engineer Island
21
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a
contract in behalf of BASECO with Deltamarine Integrated Port
Services, Inc., in virtue of which the latter undertook to introduce
improvements costing approximately P210,000.00 on the BASECO
wharf at Engineer Island, allegedly then in poor condition, avowedly to
"optimize its utilization and in return maximize the revenue which
would flow into the government coffers," in consideration of
Deltamarine's being granted "priority in using the improved portion of
the wharf ahead of anybody" and exemption "from the payment of any
charges for the use of wharf including the area where it may install its
bagging equipments" "until the improvement remains in a condition
suitable for port operations." 5 It seems however that this contract was
never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG)
BASECO Management Team," advised Deltamarine by letter dated
July 30, 1986 that "the new management is not in a position to honor
the said contract" and thus "whatever improvements * * (may be
introduced) shall be deemed unauthorized * * and shall be at * *
(Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry,
Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first
directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and
implement progress towards maximizing the continuous operation of
the BASECO Sesiman Rock Quarry * * by conventional methods;" but
afterwards, Commissioner Bautista, in representation of the PCGG,
authorized another party, A.T. Abesamis, to operate the quarry,
located at Mariveles, Bataan, an agreement to this effect having been
executed by them on September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26,
1986, Mayor Buenaventura was also "authorized to clean and beautify
the Company's compound," and in this connection, to dispose of or
sell "metal scraps" and other materials, equipment and machineries
no longer usable, subject to specified guidelines and safeguards
including audit and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed
the provisional takeover by the PCGG of BASECO, "the Philippine
Dockyard Corporation and all their affiliated companies." 9 Diaz
invoked the provisions of Section 3 (c) of Executive Order No. 1,
empowering the Commission —
* * To provisionally takeover in the public interest or to
prevent its disposal or dissipation, business enterprises
and properties taken over by the government of the
Marcos Administration or by entities or persons close to
former President Marcos, until the transactions leading
to such acquisition by the latter can be disposed of by
the appropriate authorities.
A management team was designated to implement the order, headed
by Capt. Siacunco, and was given the following powers:
1. Conducts all aspects of operation of the subject
companies;
2. Installs key officers, hires and terminates personnel
as necessary;
3. Enters into contracts related to management and
operation of the companies;
4. Ensures that the assets of the companies are not
dissipated and used effectively and efficiently;
revenues are duly accounted for; and disburses funds
only as may be necessary;
5. Does actions including among others, seeking of
military support as may be necessary, that will ensure
compliance to this order;
22
 6. Holds itself fully accountable to the Presidential
Commission on Good Government on all aspects
related to this take-over order.
h. Termination of Services of BASECO
Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S.
Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R.
Cuesta I, advising of the termination of their services by the
PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its
members and agents which, to repeat, petitioner BASECO would
have this Court nullify. More particularly, BASECO prays that this
Court-
1) declare unconstitutional and void Executive Orders Numbered 1
and 2;
2) annul the sequestration order dated April- 14, 1986, and all other
orders subsequently issued and acts done on the basis thereof,
inclusive of the takeover order of July 14, 1986 and the termination of
the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the
Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to
judicial action, might be made within the context of Executive Orders
Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution
was promulgated, under the principle that the law promulgated by the
ruler under a revolutionary regime is the law of the land, it ceased to
be acceptable when the same ruler opted to promulgate the Freedom
Constitution on March 25, 1986 wherein under Section I of the same,
Article IV (Bill of Rights) of the 1973 Constitution was adopted
providing, among others, that "No person shall be deprived of life,
liberty and property without due process of law." (Const., Art. I V, Sec.
1)." 12
It declares that its objection to the constitutionality of the Executive
Orders "as well as the Sequestration Order * * and Takeover Order * *
issued purportedly under the authority of said Executive Orders, rests
on four fundamental considerations: First, no notice and hearing was
accorded * * (it) before its properties and business were taken
over; Second, the PCGG is not a court, but a purely investigative
agency and therefore not competent to act as prosecutor and judge in
the same cause; Third, there is nothing in the issuances which
envisions any proceeding, process or remedy by which petitioner may
expeditiously challenge the validity of the takeover after the same has
been effected; and Fourthly, being directed against specified persons,
and in disregard of the constitutional presumption of innocence and
general rules and procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to
1986, which it has apparently already complied with, was issued
without court authority and infringed its constitutional right against
self-incrimination, and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and
Management
BASECO further contends that the PCGG had unduly interfered with
its right of dominion and management of its business affairs by —
1) terminating its contract for security services with Fairways &
Anchor, without the consent and against the will of the contracting
parties; and amending the mode of payment of entry fees stipulated in
its Lease Contract with National Stevedoring & Lighterage
Corporation, these acts being in violation of the non-impairment
clause of the constitution; 15
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
and operate its rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap,
equipment, machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard
Corporation, and all their affiliated companies;
6) terminating the services of BASECO executives: President Hilario
M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance
Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry
away from petitioner's premises at Mariveles * * rolls of cable wires,
worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold
bars supposed to have been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and
Takeover Orders
Many misconceptions and much doubt about the matter of
sequestration, takeover and freeze orders have been engendered by
misapprehension, or incomplete comprehension if not indeed
downright ignorance of the law governing these remedies. It is needful
that these misconceptions and doubts be dispelled so that uninformed
and useless debates about them may be avoided, and arguments
tainted b sophistry or intellectual dishonesty be quickly exposed and
discarded. Towards this end, this opinion will essay an exposition of
the law on the matter. In the process many of the objections raised by
BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the
explicit command of the Provisional Constitution, ordained by
Proclamation No. 3, 23 that the President-in the exercise of legislative
power which she was authorized to continue to wield "(until a
legislature is elected and convened under a new Constitution" —
"shall give priority to measures to achieve the mandate of the people,"
among others to (r)ecover ill-gotten properties amassed by the
leaders and supporters of the previous regime and protect the interest
of the people through orders of sequestration or freezing of assets or
accounts."  24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-
gotten wealth," and postulates that "vast resources of the government
have been amassed by former President Ferdinand E. Marcos, his
immediate family, relatives, and close associates both here and
abroad." 25 Upon these premises, the Presidential Commission on
Good Government was created, 26 "charged with the task of assisting
the President in regard to (certain specified) matters," among which
was precisely-
* * The recovery of all in-gotten wealth accumulated by
former President Ferdinand E. Marcos, his immediate
family, relatives, subordinates and close associates,
whether located in the Philippines or abroad, including
the takeover or sequestration of all business
enterprises and entities owned or controlled by them,
during his administration, directly or through nominees,
by taking undue advantage of their public office and/or
24
 using their powers, authority, influence, connections or
relationship. 27
In relation to the takeover or sequestration that it was authorized to
undertake in the fulfillment of its mission, the PCGG was granted
"power and authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed under
its control or possession any building or office wherein
any ill-gotten wealth or properties may be found, and
any records pertaining thereto, in order to prevent their
destruction, concealment or disappearance which
would frustrate or hamper the investigation or
otherwise prevent the Commission from accomplishing
its task.
2. To provisionally take over in the public interest or to
prevent the disposal or dissipation, business
enterprises and properties taken over by the
government of the Marcos Administration or by entities
or persons close to former President Marcos, until the
transactions leading to such acquisition by the latter
can be disposed of by the appropriate authorities.
3. To enjoin or restrain any actual or threatened
commission of acts by any person or entity that may
render moot and academic, or frustrate or otherwise
make ineffectual the efforts of the Commission to carry
out its task under this order. 28
So that it might ascertain the facts germane to its objectives, it was
granted power to conduct investigations; require submission of
evidence by subpoenae ad testificandum and duces
tecum; administer oaths; punish for contempt. 29 It was given power
also to promulgate such rules and regulations as may be necessary to
carry out the purposes of * * (its creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and
directions respecting "the recovery of ill-gotten properties amassed by
the leaders and supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in
possession of evidence showing that there are assets
and properties purportedly pertaining to former
Ferdinand E. Marcos, and/or his wife Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents or nominees
which had been or were acquired by them directly or
indirectly, through or as a result of the improper or
illegal use of funds or properties owned by the
government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their
office, authority, influence, connections or relationship,
resulting in their unjust enrichment and causing grave
damage and prejudice to the Filipino people and the
Republic of the Philippines:" and
2) * * said assets and properties are in the form of bank
accounts, deposits, trust accounts, shares of stocks,
buildings, shopping centers, condominiums, mansions,
residences, estates, and other kinds of real and
personal properties in the Philippines and in various
countries of the world." 31
Upon these premises, the President-
1) froze "all assets and properties in the Philippines in
which former President Marcos and/or his wife, Mrs.
Imelda Romualdez Marcos, their close relatives,
subordinates, business associates, dummies, agents,
or nominees have any interest or participation;
2) prohibited former President Ferdinand Marcos
and/or his wife * *, their close relatives, subordinates,
business associates, duties, agents, or nominees
from transferring, conveying, encumbering, concealing
25
 or dissipating said assets or properties in the
Philippines and abroad, pending the outcome of
appropriate proceedings in the Philippines to determine
whether any such assets or properties were acquired
by them through or as a result of improper or illegal use
of or the conversion of funds belonging to the
Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their
official position, authority, relationship, connection or
influence to unjustly enrich themselves at the expense
and to the grave damage and prejudice of the Filipino
people and the Republic of the Philippines;
3) prohibited "any person from transferring, conveying,
encumbering or otherwise depleting or concealing such
assets and properties or from assisting or taking part in
their transfer, encumbrance, concealment or
dissipation under pain of such penalties as are
prescribed by law;" and
4) required "all persons in the Philippines holding such
assets or properties, whether located in the Philippines
or abroad, in their names as nominees, agents or
trustees, to make full disclosure of the same to the
Commission on Good Government within thirty (30)
days from publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by
which the PCGG is empowered, "with the assistance of the Office of
the Solicitor General and other government agencies, * * to file and
prosecute all cases investigated by it * * as may be warranted by its
findings." 34 All such cases, whether civil or criminal, are to be filed
"with the Sandiganbayan which shall have exclusive and original
jurisdiction thereof." 35 Executive Order No. 14 also pertinently
provides that civil suits for restitution, reparation of damages, or
indemnification for consequential damages, forfeiture proceedings
provided for under Republic Act No. 1379, or any other civil actions
under the Civil Code or other existing laws, in connection with * * (said
Executive Orders Numbered 1 and 2) may be filed separately from
and proceed independently of any criminal proceedings and may be
proved by a preponderance of evidence;" and that, moreover, the
"technical rules of procedure and evidence shall not be strictly applied
to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident,
these being:
1) that "(i)ll-gotten properties (were) amassed by the
leaders and supporters of the previous regime"; 37
a) more particularly, that ill-gotten wealth (was)
accumulated by former President Ferdinand E. Marcos,
his immediate family, relatives, subordinates and close
associates, * * located in the Philippines or abroad, * *
(and) business enterprises and entities (came to be)
owned or controlled by them, during * * (the Marcos)
administration, directly or through nominees, by taking
undue advantage of their public office and/or using
their powers, authority, influence, Connections or
relationship; 38
b) otherwise stated, that "there are assets and
properties purportedly pertaining to former President
Ferdinand E. Marcos, and/or his wife Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents or nominees
which had been or were acquired by them directly or
indirectly, through or as a result of the improper or
illegal use of funds or properties owned by the
Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their
office, authority, influence, connections or relationship,
resulting in their unjust enrichment and causing grave
26
 damage and prejudice to the Filipino people and the
Republic of the Philippines"; 39
c) that "said assets and properties are in the form of
bank accounts. deposits, trust. accounts, shares of
stocks, buildings, shopping centers, condominiums,
mansions, residences, estates, and other kinds of real
and personal properties in the Philippines and in
various countries of the world;" 40 and
2) that certain "business enterprises and properties
(were) taken over by the government of the Marcos
Administration or by entities or persons close to former
President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of
the Government's plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming
the above described factual premises of the Executive Orders and
Proclamation No. 3 to be true, to be demonstrable by competent
evidence, the recovery from Marcos, his family and his dominions of
the assets and properties involved, is not only a right but a duty on the
part of Government.
But however plain and valid that right and duty may be, still a balance
must be sought with the equally compelling necessity that a proper
respect be accorded and adequate protection assured, the
fundamental rights of private property and free enterprise which are
deemed pillars of a free society such as ours, and to which all
members of that society may without exception lay claim.
* * Democracy, as a way of life enshrined in the
Constitution, embraces as its necessary components
freedom of conscience, freedom of expression, and
freedom in the pursuit of happiness. Along with these
freedoms are included economic freedom and freedom
of enterprise within reasonable bounds and under
proper control. * * Evincing much concern for the
protection of property, the Constitution distinctly
recognizes the preferred position which real estate has
occupied in law for ages. Property is bound up with
every aspect of social life in a democracy as
democracy is conceived in the Constitution. The
Constitution realizes the indispensable role which
property, owned in reasonable quantities and used
legitimately, plays in the stimulation to economic effort
and the formation and growth of a solid social middle
class that is said to be the bulwark of democracy and
the backbone of every progressive and happy
country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot
simply be assumed. They will have to be duly established by
adequate proof in each case, in a proper judicial proceeding, so that
the recovery of the ill-gotten wealth may be validly and properly
adjudged and consummated; although there are some who maintain
that the fact-that an immense fortune, and "vast resources of the
government have been amassed by former President Ferdinand E.
Marcos, his immediate family, relatives, and close associates both
here and abroad," and they have resorted to all sorts of clever
schemes and manipulations to disguise and hide their illicit
acquisitions-is within the realm of judicial notice, being of so extensive
notoriety as to dispense with proof thereof, Be this as it may, the
requirement of evidentiary substantiation has been expressly
acknowledged, and the procedure to be followed explicitly laid down,
in Executive Order No. 14.
b. Need of Provisional Measures to Collect and
Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the
recovery of such "ill-gotten wealth" as the evidence at hand may
reveal, there is an obvious and imperative need for preliminary,
provisional measures to prevent the concealment, disappearance,
27
destruction, dissipation, or loss of the assets and properties subject of
the suits, or to restrain or foil acts that may render moot and
academic, or effectively hamper, delay, or negate efforts to recover
the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional
remedies. These are: (1) sequestration; (2) freeze orders; and (3)
provisional takeover.
Sequestration and freezing are remedies applicable generally to
unearthed instances of "ill-gotten wealth." The remedy of "provisional
takeover" is peculiar to cases where "business enterprises and
properties (were) taken over by the government of the Marcos
Administration or by entities or persons close to former President
Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester
property claimed to be "ill-gotten" means to place or cause to be
placed under its possession or control said property, or any building or
office wherein any such property and any records pertaining thereto
may be found, including "business enterprises and entities,"-for the
purpose of preventing the destruction, concealment or dissipation of,
and otherwise conserving and preserving, the same-until it can be
determined, through appropriate judicial proceedings, whether the
property was in truth will- gotten," i.e., acquired through or as a result
of improper or illegal use of or the conversion of funds belonging to
the Government or any of its branches, instrumentalities, enterprises,
banks or financial institutions, or by taking undue advantage of official
position, authority relationship, connection or influence, resulting in
unjust enrichment of the ostensible owner and grave damage and
prejudice to the State. 44 And this, too, is the sense in which the term
is commonly understood in other jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of
property alleged to constitute "ill-gotten wealth" "from transferring,
conveying, encumbering or otherwise depleting or concealing such
property, or from assisting or taking part in its transfer, encumbrance,
concealment, or dissipation." 46 In other words, it commands the
possessor to hold the property and conserve it subject to the orders
and disposition of the authority decreeing such freezing. In this sense,
it is akin to a garnishment by which the possessor or ostensible owner
of property is enjoined not to deliver, transfer, or otherwise dispose of
any effects or credits in his possession or control, and thus becomes
in a sense an involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law
acknowledges the apparent distinction between "ill gotten" "business
enterprises and entities" (going concerns, businesses in actual
operation), generally, as to which the remedy of sequestration applies,
it being necessarily inferred that the remedy entails no interference, or
the least possible interference with the actual management and
operations thereof; and "business enterprises which were taken over
by the government government of the Marcos Administration or by
entities or persons close to him," in particular, as to which a
"provisional takeover" is authorized, "in the public interest or to
prevent disposal or dissipation of the enterprises." 48 Such a
"provisional takeover" imports something more than sequestration or
freezing, more than the placing of the business under physical
possession and control, albeit without or with the least possible
interference with the management and carrying on of the business
itself. In a "provisional takeover," what is taken into custody is not only
the physical assets of the business enterprise or entity, but the
business operation as well. It is in fine the assumption of control not
only over things, but over operations or on- going activities. But, to
repeat, such a "provisional takeover" is allowed only as regards
"business enterprises * * taken over by the government of the Marcos
Administration or by entities or persons close to former President
Marcos."
d. No Divestment of Title Over Property Seized
28
It may perhaps be well at this point to stress once again the
provisional, contingent character of the remedies just described.
Indeed the law plainly qualifies the remedy of take-over by the
adjective, "provisional." These remedies may be resorted to only for a
particular exigency: to prevent in the public interest the disappearance
or dissipation of property or business, and conserve it pending
adjudgment in appropriate proceedings of the primary issue of
whether or not the acquisition of title or other right thereto by the
apparent owner was attended by some vitiating anomaly. None of the
remedies is meant to deprive the owner or possessor of his title or any
right to the property sequestered, frozen or taken over and vest it in
the sequestering agency, the Government or other person. This can
be done only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or
provisionally take over is to be understood and exercised, the
language of the executive orders in question leaves no doubt.
Executive Order No. 1 declares that the sequestration of property the
acquisition of which is suspect shall last "until the transactions leading
to such acquisition * * can be disposed of by the appropriate
authorities."  49 Executive Order No. 2 declares that the assets or
properties therein mentioned shall remain frozen "pending the
outcome of appropriate proceedings in the Philippines to determine
whether any such assets or properties were acquired" by illegal
means. Executive Order No. 14 makes clear that judicial proceedings
are essential for the resolution of the basic issue of whether or not
particular assets are "ill-gotten," and resultant recovery thereof by the
Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained;
The Constitutional Command
There is thus no cause for the apprehension voiced by
BASECO 50 that sequestration, freezing or provisional takeover is
designed to be an end in itself, that it is the device through which
persons may be deprived of their property branded as "ill-gotten," that
it is intended to bring about a permanent, rather than a passing,
transitional state of affairs. That this is not so is quite explicitly
declared by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering
fears about the duration of these provisional remedies. Section 26 of
its Transitory Provisions, 51 lays down the relevant rule in plain terms,
apart from extending ratification or confirmation (although not really
necessary) to the institution by presidential fiat of the remedy of
sequestration and freeze orders:
SEC. 26. The authority to issue sequestration or freeze
orders under Proclamation No. 3 dated March 25, 1986
in relation to the recovery of ill-gotten wealth shag
remain operative for not more than eighteen
months after the ratification of this Constitution.
However, in the national interest, as certified by the
President, the Congress may extend said period.
A sequestration or freeze order shall be issued only
upon showing of a prima facie case. The order and the
list of the sequestered or frozen properties shall
forthwith be registered with the proper court. For orders
issued before the ratification of this Constitution, the
corresponding judicial action or proceeding shall be
filed within six months from its ratification. For those
issued after such ratification, the judicial action or
proceeding shall be commenced within six months from
the issuance thereof.
The sequestration or freeze order is deemed
automatically lifted if no judicial action or proceeding is
commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover
are akin to the provisional remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes property of a defendant
in a civil suit so that it may stand as security for the satisfaction of any
judgment that may be obtained, and not disposed of, or dissipated, or
lost intentionally or otherwise, pending the action. 54 By receivership,
property, real or personal, which is subject of litigation, is placed in the
possession and control of a receiver appointed by the Court, who
29
shall conserve it pending final determination of the title or right of
possession over it. 55 All these remedies — sequestration, freezing,
provisional, takeover, attachment and receivership — are provisional,
temporary, designed for-particular exigencies, attended by no
character of permanency or finality, and always subject to the control
of the issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover
orders are not issued by a court is of no moment. The Solicitor
General draws attention to the writ of distraint and levy which since
1936 the Commissioner of Internal Revenue has been by law
authorized to issue against property of a delinquent
taxpayer. 56 BASECO itself declares that it has not manifested "a rigid
insistence on sequestration as a purely judicial remedy * * (as it feels)
that the law should not be ossified to a point that makes it insensitive
to change." What it insists on, what it pronounces to be its "unyielding
position, is that any change in procedure, or the institution of a new
one, should conform to due process and the other prescriptions of the
Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on
which there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well
as delivery of personal property in replevin suits, sequestration and
provisional takeover writs may issue ex parte. 58 And as in preliminary
attachment, receivership, and delivery of personality, no objection of
any significance may be raised to the ex parte issuance of an order of
sequestration, freezing or takeover, given its fundamental character of
temporariness or conditionality; and taking account specially of the
constitutionally expressed "mandate of the people to recover ill-gotten
properties amassed by the leaders and supporters of the previous
regime and protect the interest of the people;" 59 as well as the
obvious need to avoid alerting suspected possessors of "ill-gotten
wealth" and thereby cause that disappearance or loss of property
precisely sought to be prevented, and the fact, just as self-evident,
that "any transfer, disposition, concealment or disappearance of said
assets and properties would frustrate, obstruct or hamper the efforts
of the Government" at the just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and
receivership, there exist a prima facie factual foundation, at least, for
the sequestration, freeze or takeover order, and adequate and fair
opportunity to contest it and endeavor to cause its negation or
nullification. 61
Both are assured under the executive orders in question and the rules
and regulations promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the
requirements of fairness and due process." 62 Executive Order No. 2
declares that with respect to claims on allegedly "ill-gotten" assets and
properties, "it is the position of the new democratic government that
President Marcos * * (and other parties affected) be afforded fair
opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and Regulations
provides that sequestration or freeze (and takeover) orders issue
upon the authority of at least two commissioners, based on
the affirmation or complaint of an interested party, or motu
proprio when the Commission has reasonable grounds to believe that
the issuance thereof is warranted. 64 A similar requirement is now
found in Section 26, Art. XVIII of the 1987 Constitution, which requires
that a "sequestration or freeze order shall be issued only upon
showing of a prima facie case." 65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down
the procedure by which a party may seek to set aside a writ of
sequestration or freeze order, viz:
30
 SECTION 5. Who may contend.-The person against
whom a writ of sequestration or freeze or hold order is
directed may request the lifting thereof in writing, either
personally or through counsel within five (5) days from
receipt of the writ or order, or in the case of a hold
order, from date of knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After
due hearing or motu proprio for good cause shown, the
Commission may lift the writ or order unconditionally or
subject to such conditions as it may deem necessary,
taking into consideration the evidence and the
circumstance of the case. The resolution of the
commission may be appealed by the party concerned
to the Office of the President of the Philippines within
fifteen (15) days from receipt thereof.
Parenthetically, even if the requirement for a prima facie showing of
"ill- gotten wealth" were not expressly imposed by some rule or
regulation as a condition to warrant the sequestration or freezing of
property contemplated in the executive orders in question, it would
nevertheless be exigible in this jurisdiction in which the Rule of Law
prevails and official acts which are devoid of rational basis in fact or
law, or are whimsical and capricious, are condemned and struck
down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing
considerations as to the validity and propriety of sequestration, freeze
and takeover orders, it should be dispelled by the fact that these
particular remedies and the authority of the PCGG to issue them have
received constitutional approbation and sanction. As already
mentioned, the Provisional or "Freedom" Constitution recognizes the
power and duty of the President to enact "measures to achieve the
mandate of the people to * * * (recover ill- gotten properties amassed
by the leaders and supporters of the previous regime and protect the
interest of the people through orders of sequestration or freezing of
assets or accounts." And as also already adverted to, Section 26,
Article XVIII of the 1987 Constitution 67 treats of, and ratifies the
"authority to issue sequestration or freeze orders under Proclamation
No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon
the State's inherent police power, regarded, as t lie power of
promoting the public welfare by restraining and regulating the use of
liberty and property," 68 and as "the most essential, insistent and
illimitable of powers * * in the promotion of general welfare and the
public interest," 69 and said to be co-extensive with self-protection and
* * not inaptly termed (also) the'law of overruling necessity." "70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far
been said that the PCGG is not, and was never intended to act as, a
judge. Its general function is to conduct investigations in order
to collect evidence establishing instances of "ill-gotten wealth;" issue
sequestration, and such orders as may be warranted by the evidence
thus collected and as may be necessary to preserve and conserve the
assets of which it takes custody and control and prevent their
disappearance, loss or dissipation; and eventually file and
prosecute in the proper court of competent jurisdiction all cases
investigated by it as may be warranted by its findings. It does not try
and decide, or hear and determine, or adjudicate with any character of
finality or compulsion, cases involving the essential issue of whether
or not property should be forfeited and transferred to the State
because "ill-gotten" within the meaning of the Constitution and the
executive orders. This function is reserved to the designated court, in
this case, the Sandiganbayan. 71 There can therefore be no serious
regard accorded to the accusation, leveled by BASECO, 72 that the
PCGG plays the perfidious role of prosecutor and judge at the same
time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts
disclosed by the record, hereafter to be discussed, the petition cannot
succeed. The writs of certiorari and prohibition prayed for will not be
issued.
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
17. Jonathan G. 1 share
Lu
18. Jose J. 1 share
Tanchanco
19. Dioscoro 128 shares
Papa
20. Edward T. 4 shares
Marcelo
TOTAL 218,819
shares.
13 Acquisition of NASSCO by BASECO
Barely six months after its incorporation, BASECO acquired from
National Shipyard & Steel Corporation, or NASSCO, a government-
owned or controlled corporation, the latter's shipyard at Mariveles,
Bataan, known as the Bataan National Shipyard (BNS), and — except
for NASSCO's Engineer Island Shops and certain equipment of the
BNS, consigned for future negotiation — all its structures, buildings,
shops, quarters, houses, plants, equipment and facilities, in stock or in
transit. This it did in virtue of a "Contract of Purchase and Sale with
Chattel Mortgage" executed on February 13, 1973. The price was
P52,000,000.00. As partial payment thereof, BASECO delivered to
NASSCO a cash bond of P11,400,000.00, convertible into cash within
twenty-four (24) hours from completion of the inventory undertaken
pursuant to the contract. The balance of P41,600,000.00, with interest
at seven percent (7%) per annum, compounded semi-annually, was
stipulated to be paid in equal semi-annual installments over a term of
nine (9) years, payment to commence after a grace period of two (2)
years from date of turnover of the shipyard to BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more
than one-half, to P24,311,550.00, about eight (8) months later. A
document to this effect was executed on October 9, 1973, entitled
"Memorandum Agreement," and was signed for NASSCO by Arturo
Pacificador, as Presiding Officer of the Board of Directors, and David
R. Ines, as General Manager. 77 This agreement bore, at the top right
corner of the first page, the word "APPROVED" in the handwriting
of President Marcos, followed by his usual full signature. The
document recited that a down payment of P5,862,310.00 had been
made by BASECO, and the balance of P19,449,240.00 was payable
in equal semi-annual installments over nine (9) years after a grace
period of two (2) years, with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone
Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares
of land in Mariveles from the Export Processing Zone Authority for the
price of P10,047,940.00 of which, as set out in the document of sale,
P2,000.000.00 was paid upon its execution, and the balance
stipulated to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
Some nine months afterwards, or on July 15, 1975, to be precise,
BASECO, again with the intervention of President Marcos, acquired
ownership of the rest of the assets of NASSCO which had not been
included in the first two (2) purchase documents. This was
accomplished by a deed entitled "Contract of Purchase and
Sale," 79 which, like the Memorandum of Agreement dated October 9,
1973 supra also bore at the upper right-hand corner of its first page,
the handwritten notation of President Marcos reading, "APPROVED,
July 29, 1973," and underneath it, his usual full signature. Transferred
to BASECO were NASSCO's "ownership and all its titles, rights and
interests over all equipment and facilities including structures,
buildings, shops, quarters, houses, plants and expendable or semi-
expendable assets, located at the Engineer Island, known as the
Engineer Island Shops, including all the equipment of the Bataan
National Shipyards (BNS) which were excluded from the sale of NBS
to BASECO but retained by BASECO and all other selected
33
equipment and machineries of NASSCO at J. Panganiban Smelting
Plant." In the same deed, NASSCO committed itself to cooperate with
BASECO for the acquisition from the National Government or other
appropriate Government entity of Engineer Island. Consideration for
the sale was set at P5,000,000.00; a down payment of P1,000,000.00
appears to have been made, and the balance was stipulated to be
paid at 7% interest per annum in equal semi annual installments over
a term of nine (9) years, to commence after a grace period of two (2)
years. Mr. Arturo Pacificador again signed for NASSCO, together with
the general manager, Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan
from the NDC, taken from "the last available Japanese war damage
fund of $19,000,000.00," to pay for "Japanese made heavy equipment
(brand new)." 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,
1976, it got still another loan, this time from the GSIS, in the sum of
P12,400,000.00. 81 The claim has been made that not a single
centavo has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President
Marcos regarding BASECO. The first was contained in a letter dated
September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The
second was embodied in a confidential memorandum dated
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
Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported
to Marcos that there had been "no orders or demands for ship
construction" for some time and expressed the fear that if that state of
affairs persisted, BASECO would not be able to pay its debts to the
Government, which at the time stood at the not inconsiderable amount
of P165,854,000.00. 85 He suggested that, to "save the situation,"
there be a "spin-off (of their) shipbuilding activities which shall be
handled exclusively by an entirely new corporation to be created;" and
towards this end, he informed Marcos that BASECO was —
* * inviting NDC and LUSTEVECO to participate by
converting the NDC shipbuilding loan to BASECO
amounting to P341.165M and assuming and converting
a portion of BASECO's shipbuilding loans from
REPACOM amounting to P52.2M or a total of
P83.365M as NDC's equity contribution in the new
corporation. LUSTEVECO will participate by absorbing
and converting a portion of the REPACOM loan of Bay
Shipyard and Drydock, Inc., amounting to P32.538M.86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven
(11) days later. It opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a
Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in
meeting its loan obligations due chiefly to the fact that "orders to build
ships as expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their
holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la
Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee.
Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose
A. Rojas had a major heart attack," he made the following quite
34
revealing, and it may be added, quite cynical and indurate
recommendation, to wit:
* * (that) their replacements (be effected) so we can
register their names in the stock book prior to the
implementation of your instructions to pass a board
resolution to legalize the transfers under SEC
regulations;
2. By getting their replacements, the families cannot
question us later on; and
3. We will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following
documents: 88
1. Stock certificates indorsed and assigned in blank
with assignments and waivers;  89
2. The articles of incorporation, the amended articles,
and the by-laws of BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO
four (4) parcels of land in "Engineer Island", Port Area,
Manila;
4. Transfer Certificate of Title No. 124822 in the name
of BASECO, covering "Engineer Island";
5. Contract dated October 9, 1973, between NASSCO
and BASECO re-structure and equipment at Mariveles,
Bataan;
6. Contract dated July 16, 1975, between NASSCO
and BASECO re-structure and equipment at Engineer
Island, Port Area Manila;
7. Contract dated October 1, 1974, between EPZA and
BASECO re 300 hectares of land at Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975,
BASECO's loan from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27,
1975;
11. GSIS loan to BASECO dated January 28, 1976 of
P12,400,000.00 for the housing facilities for BASECO's
rank-and-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be
restructured "until such period when BASECO will have enough
orders for ships in order for the company to meet loan obligations,"
and that —
An LOI may be issued to government agencies using
floating equipment, that a linkage scheme be applied to
a certain percent of BASECO's net profit as part of
BASECO's amortization payments to make it justifiable
for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a
stockholder or officer of BASECO, yet he has presented a report on
BASECO to President Marcos, and his report demonstrates intimate
familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates'
recommendations, particularly as regards the "spin-off" and the
"linkage scheme" relative to "BASECO's amortization payments."
a. Instructions re "Spin-Off"
35
Under date of September 28, 1977, he addressed a Memorandum to
Secretary Geronimo Velasco of the Philippine National Oil Company
and Chairman Constante Fariñas of the National Development
Company, directing them "to participate in the formation of a new
corporation resulting from the spin-off of the shipbuilding component
of BASECO along the following guidelines:
a. Equity participation of government shall be through
LUSTEVECO and NDC in the amount of P115,903,000
consisting of the following obligations of BASECO
which are hereby authorized to be converted to
equity of the said new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan &
P52.2M Reparation)
2. LUSTEVECO P32,538,000
(Reparation)
b. Equity participation of government shall be in the
form of non- voting shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his
subordinates. Twenty-two (22) days after receiving their president's
memorandum, Messrs. Hilario M. Ruiz, Constante L. Fariñas and
Geronimo Z. Velasco, in representation of their respective
corporations, executed a PRE-INCORPORATION AGREEMENT
dated October 20, 1977. 93 In it, they undertook to form a shipbuilding
corporation to be known as "PHIL-ASIA SHIPBUILDING
CORPORATION," to bring to realization their president's instructions.
It would seem that the new corporation ultimately formed was actually
named "Philippine Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a
letter of instructions. On February 14, 1978, he issued Letter of
Instructions No. 670 addressed to the Reparations Commission
REPACOM the Philippine National Oil Company (PNOC), the Luzon
Stevedoring Company (LUSTEVECO), and the National Development
Company (NDC). What is commanded therein is summarized by the
Solicitor General, with pithy and not inaccurate observations as to the
effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO
through reparations be transferred to NDC subject to
reimbursement by NDC to BASECO (of) the amount of
s allegedly representing the handling and incidental
expenses incurred by BASECO in the installation of
said equipment (so instead of NDC getting paid on its
loan to BASECO, it was made to pay BASECO instead
the amount of P18.285M); 2) the shipbuilding
equipment procured from reparations through EPZA,
now in the possession of BASECO and BSDI (Bay
Shipyard & Drydocking, Inc.) be transferred to
LUSTEVECO through PNOC; and 3) the shipbuilding
equipment (thus) transferred be invested by
LUSTEVECO, acting through PNOC and NDC, as the
government's equity participation in a shipbuilding
corporation to be established in partnership with the
private sector.
xxx xxx xxx
And so, through a simple letter of instruction and
memorandum, BASECO's loan obligation to NDC and
REPACOM * * in the total amount of P83.365M and
BSD's REPACOM loan of P32.438M were wiped out
and converted into non-voting preferred shares. 95
20. Evidence of Marcos'
Ownership of BASECO
36
It cannot therefore be gainsaid that, in the context of the proceedings
at bar, the actuality of the control by President Marcos of BASECO
has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves
that President Marcos not only exercised control over BASECO, but
also that he actually owns well nigh one hundred percent of its
outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23,
1986, there were 218,819 shares of stock outstanding, ostensibly
owned by twenty (20) stockholders. 96 Four of these twenty are
juridical persons: (1) Metro Bay Drydock, recorded as holding 136,370
shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident
Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares.
The first three corporations, among themselves, own an aggregate of
209,664 shares of BASECO stock, or 95.82% of the outstanding
stock.
Now, the Solicitor General has drawn the Court's attention to the
intriguing circumstance that found in Malacanang shortly after the
sudden flight of President Marcos, were certificates corresponding to
more than ninety-five percent (95%) of all the outstanding shares of
stock of BASECO, endorsed in blank, together with deeds of
assignment of practically all the outstanding shares of stock of the
three (3) corporations above mentioned (which hold 95.82% of all
BASECO stock), signed by the owners thereof although not
notarized. 97
More specifically, found in Malacanang (and now in the custody of the
PCGG) were:
1) the deeds of assignment of all 600 outstanding
shares of Fidelity Management Inc. — which
supposedly owns as aforesaid 65,882 shares of
BASECO stock;
2) the deeds of assignment of 2,499,995 of the
2,500,000 outstanding shares of Metro Bay Drydock
Corporation — which allegedly owns 136,370 shares of
BASECO stock;
3) the deeds of assignment of 800 outstanding shares
of Trident Management Co., Inc. — which allegedly
owns 7,412 shares of BASECO stock, assigned in
blank; 98 and
4) stock certificates corresponding to 207,725 out of
the 218,819 outstanding shares of BASECO stock; that
is, all but 5 % — all endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact,
assuring this Court that the BASECO stockholders were still in
possession of their respective stock certificates and had "never
endorsed * * them in blank or to anyone else," 100 that denial is
exposed by his own prior and subsequent recorded statements as a
mere gesture of defiance rather than a verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted
BASECO's counsel a period of 10 days "to SUBMIT, as undertaken
by him, * * the certificates of stock issued to the stockholders of * *
BASECO as of April 23, 1986, as listed in Annex 'P' of the
petition.' 101 Counsel thereafter moved for extension; and in his
motion dated October 2, 1986, he declared inter alia that "said
certificates of stock are in the possession of third parties, among
whom being the respondents themselves * * and petitioner is still
endeavoring to secure copies thereof from them." 102 On the same
day he filed another motion praying that he be allowed "to secure
copies of the Certificates of Stock in the name of Metro Bay Drydock,
Inc., and of all other Certificates, of Stock of petitioner's stockholders
in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General
not unreasonably argued that counsel's aforestated motion to secure
copies of the stock certificates "confirms the fact that stockholders of
petitioner corporation are not in possession of * * (their) certificates of
stock," and the reason, according to him, was "that 95% of said
shares * * have been endorsed in blank and found in Malacañang
after the former President and his family fled the country." To this
37
manifestation BASECO's counsel replied on November 5, 1986, as
already mentioned, Stubbornly insisting that the firm's stockholders
had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on
November 27, 1986 among other things "to require * * the petitioner *
* to deposit upon proper receipt with Clerk of Court Juanito Ranjo the
originals of the stock certificates alleged to be in its possession or
accessible to it, mentioned and described in Annex 'P' of its petition,
(and other pleadings) * * within ten (10) days from notice." 106 In a
motion filed on December 5, 1986, 107 BASECO's counsel made the
statement, quite surprising in the premises, that "it will negotiate with
the owners (of the BASECO stock in question) to allow petitioner to
borrow from them, if available, the certificates referred to" but that "it
needs a more sufficient time therefor" (sic). BASECO's counsel
however eventually had to confess inability to produce the originals of
the stock certificates, putting up the feeble excuse that while he had
"requested the stockholders to allow * * (him) to borrow said
certificates, * * some of * * (them) claimed that they had delivered the
certificates to third parties by way of pledge and/or to secure
performance of obligations, while others allegedly have entrusted
them to third parties in view of last national emergency." 108 He has
conveniently omitted, nor has he offered to give the details of the
transactions adverted to by him, or to explain why he had not
impressed on the supposed stockholders the primordial importance of
convincing this Court of their present custody of the originals of the
stock, or if he had done so, why the stockholders are unwilling to
agree to some sort of arrangement so that the originals of their
certificates might at the very least be exhibited to the Court. Under the
circumstances, the Court can only conclude that he could not get the
originals from the stockholders for the simple reason that, as the
Solicitor General maintains, said stockholders in truth no longer have
them in their possession, these having already been assigned in blank
to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima
facie at least, the stockholders and directors of BASECO as of April,
1986 109 were mere "dummies," nominees or alter egos of President
Marcos; at any rate, that they are no longer owners of any shares of
stock in the corporation, the conclusion cannot be avoided that said
stockholders and directors have no basis and no standing whatever to
cause the filing and prosecution of the instant proceeding; and to
grant relief to BASECO, as prayed for in the petition, would in effect
be to restore the assets, properties and business sequestered and
taken over by the PCGG to persons who are "dummies," nominees
or alter egos of the former president.
From the standpoint of the PCGG, the facts herein stated at some
length do indeed show that the private corporation known as
BASECO was "owned or controlled by former President Ferdinand E.
Marcos * * during his administration, * * through nominees, by taking
advantage of * * (his) public office and/or using * * (his) powers,
authority, influence * *," and that NASSCO and other property of the
government had been taken over by BASECO; and the situation
justified the sequestration as well as the provisional takeover of the
corporation in the public interest, in accordance with the terms of
Executive Orders No. 1 and 2, pending the filing of the requisite
actions with the Sandiganbayan to cause divestment of title thereto
from Marcos, and its adjudication in favor of the Republic pursuant to
Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of
the facts is correct; accordingly, it sustains the acts of sequestration
and takeover by the PCGG as being in accord with the law, and, in
view of what has thus far been set out in this opinion, pronounces to
be without merit the theory that said acts, and the executive orders
pursuant to which they were done, are fatally defective in not
according to the parties affected prior notice and hearing, or an
adequate remedy to impugn, set aside or otherwise obtain relief
therefrom, or that the PCGG had acted as prosecutor and judge at the
same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in
question are a bill of attainder. 110 "A bill of attainder is a legislative
act which inflicts punishment without judicial trial." 111 "Its essence is
the substitution of a legislative for a judicial determination of guilt." 112
38
In the first place, nothing in the executive orders can be reasonably
construed as a determination or declaration of guilt. On the contrary,
the executive orders, inclusive of Executive Order No. 14, make it
perfectly clear that any judgment of guilt in the amassing or
acquisition of "ill-gotten wealth" is to be handed down by a judicial
tribunal, in this case, the Sandiganbayan, upon complaint filed and
prosecuted by the PCGG. In the second place, no punishment is
inflicted by the executive orders, as the merest glance at their
provisions will immediately make apparent. In no sense, therefore,
may the executive orders be regarded as a bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable
Searches and Seizures
BASECO also contends that its right against self incrimination and
unreasonable searches and seizures had been transgressed by the
Order of April 18, 1986 which required it "to produce corporate
records from 1973 to 1986 under pain of contempt of the Commission
if it fails to do so." The order was issued upon the authority of Section
3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue
subpoenas requiring * * the production of such books, papers,
contracts, records, statements of accounts and other documents as
may be material to the investigation conducted by the Commission, "
and paragraph (3), Executive Order No. 2 dealing with its power to
"require all persons in the Philippines holding * * (alleged "ill-gotten")
assets or properties, whether located in the Philippines or abroad, in
their names as nominees, agents or trustees, to make full disclosure
of the same * *." The contention lacks merit.
It is elementary that the right against self-incrimination has no
application to juridical persons.
While an individual may lawfully refuse to answer
incriminating questions unless protected by an
immunity statute, it does not follow that a corporation,
vested with special privileges and franchises, may
refuse to show its hand when charged with an abuse
ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the
constitutional protections which private individuals
have. * * They are not at all within the privilege against
self-incrimination, although this court more than once
has said that the privilege runs very closely with the 4th
Amendment's Search and Seizure provisions. It is also
settled that an officer of the company cannot refuse to
produce its records in its possession upon the plea that
they will either incriminate him or may incriminate
it." (Oklahoma Press Publishing Co. v. Walling, 327
U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is
presumed to be incorporated for the benefit of the
public. It received certain special privileges and
franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are
limited by law. It can make no contract not authorized
by its charter. Its rights to act as a corporation are only
preserved to it so long as it obeys the laws of its
creation. There is a reserve right in the legislature to
investigate its contracts and find out whether it has
exceeded its powers. It would be a strange anomaly to
hold that a state, having chartered a corporation to
make use of certain franchises, could not, in the
exercise of sovereignty, inquire how these franchises
had been employed, and whether they had been
abused, and demand the production of the corporate
books and papers for that purpose. The defense
amounts to this, that an officer of the corporation which
is charged with a criminal violation of the statute may
plead the criminality of such corporation as a refusal to
produce its books. To state this proposition is to
answer it. While an individual may lawfully refuse to
answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation,
vested with special privileges and franchises may
refuse to show its hand when charged with an abuse of
such privileges. (Wilson v. United States, 55 Law Ed.,
771, 780 [emphasis, the Solicitor General's])
39
At any rate, Executive Order No. 14-A, amending Section 4 of
Executive Order No. 14 assures protection to individuals required to
produce evidence before the PCGG against any possible violation of
his right against self-incrimination. It gives them immunity from
prosecution on the basis of testimony or information he is compelled
to present. As amended, said Section 4 now provides that —
xxx xxx xxx
The witness may not refuse to comply with the order on
the basis of his privilege against self-incrimination; but
no testimony or other information compelled under the
order (or any information directly or indirectly derived
from such testimony, or other information) may be used
against the witness in any criminal case, except a
prosecution for perjury, giving a false statement, or
otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and
seizures finds no application to the case at bar either. There has been
no search undertaken by any agent or representative of the PCGG,
and of course no seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the
scope and extent of the powers that may be wielded by the PCGG
with regard to the properties or businesses placed under
sequestration or provisionally taken over. Obviously, it is not a
question to which an answer can be easily given, much less one
which will suffice for every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG
cannot exercise acts of dominion over property sequestered, frozen or
provisionally taken over. AS already earlier stressed with no little
insistence, the act of sequestration; freezing or provisional takeover of
property does not import or bring about a divestment of title over said
property; does not make the PCGG the owner thereof. In relation to
the property sequestered, frozen or provisionally taken over,
the PCGG is a conservator, not an owner. Therefore, it can not
perform acts of strict ownership; and this is specially true in the
situations contemplated by the sequestration rules where, unlike
cases of receivership, for example, no court exercises effective
supervision or can upon due application and hearing, grant authority
for the performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in
question should entail the least possible interference with business
operations or activities so that, in the event that the accusation of the
business enterprise being "ill gotten" be not proven, it may be
returned to its rightful owner as far as possible in the same condition
as it was at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the
property or business sequestered or provisionally taken over, much
like a court-appointed receiver, 115 such as to bring and defend
actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as
may be necessary to fulfill its mission as conservator and
administrator. In this context, it may in addition enjoin or restrain any
actual or threatened commission of acts by any person or entity that
may render moot and academic, or frustrate or otherwise make
ineffectual its efforts to carry out its task; punish for direct or indirect
contempt in accordance with the Rules of Court; and seek and secure
the assistance of any office, agency or instrumentality of the
government. 116 In the case of sequestered businesses generally
(i.e., going concerns, businesses in current operation), as in the case
of sequestered objects, its essential role, as already discussed, is that
of conservator, caretaker, "watchdog" or overseer. It is not that of
manager, or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by
Marcos or Entities or Persons Close to him; Limitations
Thereon
40
Now, in the special instance of a business enterprise shown by
evidence to have been "taken over by the government of the Marcos
Administration or by entities or persons close to former President
Marcos," 117 the PCGG is given power and authority, as already
adverted to, to "provisionally take (it) over in the public interest or to
prevent * * (its) disposal or dissipation;" and since the term is
obviously employed in reference to going concerns, or business
enterprises in operation, something more than mere physical custody
is connoted; the PCGG may in this case exercise some measure of
control in the operation, running, or management of the business
itself. But even in this special situation, the intrusion into management
should be restricted to the minimum degree necessary to accomplish
the legislative will, which is "to prevent the disposal or dissipation" of
the business enterprise. There should be no hasty, indiscriminate,
unreasoned replacement or substitution of management officials or
change of policies, particularly in respect of viable establishments. In
fact, such a replacement or substitution should be avoided if at all
possible, and undertaken only when justified by demonstrably tenable
grounds and in line with the stated objectives of the PCGG. And it
goes without saying that where replacement of management officers
may be called for, the greatest prudence, circumspection, care and
attention - should accompany that undertaking to the end that truly
competent, experienced and honest managers may be recruited.
There should be no role to be played in this area by rank amateurs,
no matter how wen meaning. The road to hell, it has been said, is
paved with good intentions. The business is not to be experimented or
played around with, not run into the ground, not driven to bankruptcy,
not fleeced, not ruined. Sight should never be lost sight of the ultimate
objective of the whole exercise, which is to turn over the business to
the Republic, once judicially established to be "ill-gotten." Reason
dictates that it is only under these conditions and circumstances that
the supervision, administration and control of business enterprises
provisionally taken over may legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and
circumstances that the PCGG may properly exercise the prerogative
to vote sequestered stock of corporations, granted to it by the
President of the Philippines through a Memorandum dated June 26,
1986. That Memorandum authorizes the PCGG, "pending the
outcome of proceedings to determine the ownership of * *
(sequestered) shares of stock," "to vote such shares of stock as it may
have sequestered in corporations at all stockholders' meetings called
for the election of directors, declaration of dividends, amendment of
the Articles of Incorporation, etc." The Memorandum should be
construed in such a manner as to be consistent with, and not
contradictory of the Executive Orders earlier promulgated on the
same matter. There should be no exercise of the right to vote simply
because the right exists, or because the stocks sequestered
constitute the controlling or a substantial part of the corporate voting
power. The stock is not to be voted to replace directors, or revise the
articles or by-laws, or otherwise bring about substantial changes in
policy, program or practice of the corporation except for demonstrably
weighty and defensible grounds, and always in the context of the
stated purposes of sequestration or provisional takeover, i.e., to
prevent the dispersion or undue disposal of the corporate assets.
Directors are not to be voted out simply because the power to do so
exists. Substitution of directors is not to be done without reason or
rhyme, should indeed be shunned if at an possible, and undertaken
only when essential to prevent disappearance or wastage of corporate
property, and always under such circumstances as assure that the
replacements are truly possessed of competence, experience and
probity.
In the case at bar, there was adequate justification to vote the
incumbent directors out of office and elect others in their stead
because the evidence showed prima facie that the former were just
tools of President Marcos and were no longer owners of any stock in
the firm, if they ever were at all. This is why, in its Resolution of
October 28, 1986; 118 this Court declared that —
Petitioner has failed to make out a case of grave abuse
or excess of jurisdiction in respondents' calling and
holding of a stockholders' meeting for the election of
directors as authorized by the Memorandum of the
President * * (to the PCGG) dated June 26, 1986,
particularly, where as in this case, the government can,
through its designated directors, properly exercise
control and management over what appear to be
41
 properties and assets owned and belonging to the
government itself and over which the persons who
appear in this case on behalf of BASECO have failed to
show any right or even any shareholding in said
corporation.
I, therefore, vote to grant the petition. Pending the filing of an
appropriate case in court, the PCGG must be enjoined from
exercising any and all acts of ownership over the sequestered firm.
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
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 167291               January 12, 2011
PRINCE TRANSPORT, Inc. and Mr. RENATO CLAROS, Petitioners,
vs.
DIOSDADO GARCIA, LUISITO GARCIA, RODANTE ROMERO,
REX BARTOLOME, FELICIANO GASCO, JR., DANILO ROJO,
EDGAR SANFUEGO, AMADO GALANTO, EUTIQUIO LUGTU,
JOEL GRAMATICA, MIEL CERVANTES, TERESITA CABANES,
ROE DELA CRUZ, RICHELO BALIDOY, VILMA PORRAS,
MIGUELITO SALCEDO, CRISTINA GARCIA, MARIO NAZARENO,
DINDO TORRES, ESMAEL RAMBOYONG, ROBETO* MANO,
ROGELIO BAGAWISAN, ARIEL SNACHEZ, ESTAQULO
VILLAREAL, NELSON MONTERO, GLORIA ORANTE, HARRY
TOCA, PABLITO MACASAET and RONALD
GARCITA Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of
the Rules of Court praying for the annulment of the Decision1 and
Resolution2 of the Court of Appeals (CA) dated December 20, 2004
and February 24, 2005, respectively, in CA-G.R. SP No. 80953. The
assailed Decision reversed and set aside the Resolutions dated May
30, 20033 and September 26, 20034 of the National Labor Relations
Commission (NLRC) in CA No. 029059-01, while the disputed
Resolution denied petitioners' Motion for Reconsideration.
The present petition arose from various complaints filed by herein
respondents charging petitioners with illegal dismissal, unfair labor
practice and illegal deductions and praying for the award of premium
pay for holiday and rest day, holiday pay, service leave pay, 13th
month pay, moral and exemplary damages and attorney's fees.
Respondents alleged in their respective position papers and other
related pleadings that they were employees of Prince Transport, Inc.
(PTI), a company engaged in the business of transporting passengers
by land; respondents were hired either as drivers, conductors,
mechanics or inspectors, except for respondent Diosdado Garcia
(Garcia), who was assigned as Operations Manager; in addition to
their regular monthly income, respondents also received commissions
equivalent to 8 to 10% of their wages; sometime in October 1997, the
said commissions were reduced to 7 to 9%; this led respondents and
other employees of PTI to hold a series of meetings to discuss the
protection of their interests as employees; these meetings led
petitioner Renato Claros, who is the president of PTI, to suspect that
respondents are about to form a union; he made known to Garcia his
objection to the formation of a union; in December 1997, PTI
employees requested for a cash advance, but the same was denied
by management which resulted in demoralization on the employees'
ranks; later, PTI acceded to the request of some, but not all, of the
employees; the foregoing circumstances led respondents to form a
union for their mutual aid and protection; in order to block the
continued formation of the union, PTI caused the transfer of all union
members and sympathizers to one of its sub-companies, Lubas
Transport (Lubas); despite such transfer, the schedule of drivers and
conductors, as well as their company identification cards, were issued
by PTI; the daily time records, tickets and reports of the respondents
were also filed at the PTI office; and, all claims for salaries were
transacted at the same office; later, the business of Lubas
deteriorated because of the refusal of PTI to maintain and repair the
units being used therein, which resulted in the virtual stoppage of its
operations and respondents' loss of employment.
Petitioners, on the other hand, denied the material allegations of the
complaints contending that herein respondents were no longer their
employees, since they all transferred to Lubas at their own request;
petitioners have nothing to do with the management and operations of
Lubas as well as the control and supervision of the latter's employees;
petitioners were not aware of the existence of any union in their
company and came to know of the same only in June 1998 when they
were served a copy of the summons in the petition for certification
election filed by the union; that before the union was registered on
April 15, 1998, the complaint subject of the present petition was
already filed; that the real motive in the filing of the complaints was
because PTI asked respondents to vacate the bunkhouse where they
(respondents) and their respective families were staying because PTI
wanted to renovate the same.
Subsequently, the complaints filed by respondents were consolidated.
On October 25, 2000, the Labor Arbiter rendered a Decision,5 the
dispositive portion of which reads as follows:
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
TO FILE AN APPEAL TO THE NLRC
B already settled that under Section 9 of Batas Pambansa Blg. 129, as
THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING
THAT PETITIONERS PRINCE TRANSPORT, INC. AND MR.
RENATO CLAROS AND LUBAS TRANSPORT ARE ONE AND THE
SAME CORPORATION AND THUS, LIABLE IN SOLIDUM TO
RESPONDENTS.
C The Court of Appeals shall have the power to try cases and conduct
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION IN ORDERING THE REINSTATEMENT OF
RESPONDENTS TO THEIR PREVIOUS POSITION WHEN IT IS
NOT ONE OF THE ISSUES RAISED IN RESPONDENTS' PETITION
FOR CERTIORARI.11
Petitioners assert that factual findings of agencies exercising quasi-
judicial functions like the NLRC are accorded not only respect but
even finality; that the CA should have outrightly dismissed the petition
filed before it because in certiorari proceedings under Rule 65 of the
Rules of Court it is not within the province of the CA to evaluate the
sufficiency of evidence upon which the NLRC based its determination,
the inquiry being limited essentially to whether or not said tribunal has
acted without or in excess of its jurisdiction or with grave abuse of
discretion. Petitioners assert that the CA can only pass upon the
factual findings of the NLRC if they are not supported by evidence on
record, or if the impugned judgment is based on misapprehension of
facts — which circumstances are not present in this case. Petitioners
also emphasize that the NLRC and the Labor Arbiter concurred in
their factual findings which were based on substantial evidence and,
therefore, should have been accorded great weight and respect by the
CA.
Respondents, on the other hand, aver that the CA neither exceeded
its jurisdiction nor committed error in re-evaluating the NLRC’s factual
findings since such findings are not in accord with the evidence on
record and the applicable law or jurisprudence.
The Court agrees with respondents.
The power of the CA to review NLRC decisions via a petition for
certiorari under Rule 65 of the Rules of Court has been settled as
early as this Court’s decision in St. Martin Funeral Homes v.
NLRC.12 In said case, the Court held that the proper vehicle for such
review is a special civil action for certiorari under Rule 65 of the said
Rules, and that the case should be filed with the CA in strict
observance of the doctrine of hierarchy of courts. Moreover, it is
amended by Republic Act No. 7902, the CA — pursuant to the
exercise of its original jurisdiction over petitions for certiorari — is
specifically given the power to pass upon the evidence, if and when
necessary, to resolve factual issues.13 Section 9 clearly states:
xxxx
hearings, receive evidence and perform any and all acts necessary to
resolve factual issues raised in cases falling within its original and
appellate jurisdiction, including the power to grant and conduct new
trials or further proceedings. x x x
However, equally settled is the rule that factual findings of labor
officials, who are deemed to have acquired expertise in matters within
their jurisdiction, are generally accorded not only respect but even
finality by the courts when supported by substantial evidence, i.e., the
amount of relevant evidence which a reasonable mind might accept
as adequate to justify a conclusion.14 But these findings are not
infallible. When there is a showing that they were arrived at arbitrarily
or in disregard of the evidence on record, they may be examined by
the courts.15 The CA can grant the petition for certiorari if it finds that
the NLRC, in its assailed decision or resolution, made a factual finding
not supported by substantial evidence.16 It is within the jurisdiction of
the CA, whose jurisdiction over labor cases has been expanded to
review the findings of the NLRC.17
In this case, the NLRC sustained the factual findings of the Labor
Arbiter. Thus, these findings are generally binding on the appellate
court, unless there was a showing that they were arrived at arbitrarily
or in disregard of the evidence on record. In respondents' petition for
certiorari with the CA, these factual findings were reexamined and
reversed by the appellate court on the ground that they were not in
accord with credible evidence presented in this case. To determine if
the CA's reexamination of factual findings and reversal of the NLRC
decision are proper and with sufficient basis, it is incumbent upon this
Court to make its own evaluation of the evidence on record.18
After a thorough review of the records at hand, the Court finds that the
CA did not commit error in arriving at its own findings and conclusions
for reasons to be discussed hereunder.
46
Firstly, petitioners posit that the petition filed with the CA is fatally
defective, because the attached verification and certificate against
forum shopping was signed only by respondent Garcia.
The Court does not agree.
While the general rule is that the certificate of non-forum shopping
must be signed by all the plaintiffs in a case and the signature of only
one of them is insufficient, the Court has stressed that the rules on
forum shopping, which were designed to promote and facilitate the
orderly administration of justice, should not be interpreted with such
absolute literalness as to subvert its own ultimate and legitimate
objective.19 Strict compliance with the provision regarding the
certificate of non-forum shopping underscores its mandatory nature in
that the certification cannot be altogether dispensed with or its
requirements completely disregarded.20 It does not, however, prohibit
substantial compliance therewith under justifiable circumstances,
considering especially that although it is obligatory, it is not
jurisdictional.21
In a number of cases, the Court has consistently held that when all
the petitioners share a common interest and invoke a common cause
of action or defense, the signature of only one of them in the
certification against forum shopping substantially complies with the
rules.22 In the present case, there is no question that respondents
share a common interest and invoke a common cause of action.
Hence, the signature of respondent Garcia is a sufficient compliance
with the rule governing certificates of non-forum shopping. In the first
place, some of the respondents actually executed a Special Power of
Attorney authorizing Garcia as their attorney-in-fact in filing a petition
for certiorari with the CA.23
The Court, likewise, does not agree with petitioners' argument that the
CA should not have given due course to the petition filed before it with
respect to some of the respondents, considering that these
respondents did not sign the verification attached to the Memorandum
of Partial Appeal earlier filed with the NLRC. Petitioners assert that
the decision of the Labor Arbiter has become final and executory with
respect to these respondents and, as a consequence, they are barred
from filing a petition for certiorari with the CA.
With respect to the absence of some of the workers’ signatures in the
verification, the verification requirement is deemed substantially
complied with when some of the parties who undoubtedly have
sufficient knowledge and belief to swear to the truth of the allegations
in the petition had signed the same. Such verification is deemed a
sufficient assurance that the matters alleged in the petition have been
made in good faith or are true and correct, and not merely
speculative. Moreover, respondents' Partial Appeal shows that the
appeal stipulated as complainants-appellants "Rizal Beato, et al.",
meaning that there were more than one appellant who were all
workers of petitioners.
In any case, the settled rule is that a pleading which is required by the
Rules of Court to be verified, may be given due course even without a
verification if the circumstances warrant the suspension of the rules in
the interest of justice.24 Indeed, the absence of a verification is not
jurisdictional, but only a formal defect, which does not of itself justify a
court in refusing to allow and act on a case.25 Hence, the failure of
some of the respondents to sign the verification attached to their
Memorandum of Appeal filed with the NLRC is not fatal to their cause
of action.
Petitioners also contend that the CA erred in applying the doctrine of
piercing the corporate veil with respect to Lubas, because the said
doctrine is applicable only to corporations and Lubas is not a
corporation but a single proprietorship; that Lubas had been found by
the Labor Arbiter and the NLRC to have a personality which is
separate and distinct from that of PTI; that PTI had no hand in the
management and operation as well as control and supervision of the
employees of Lubas.
The Court is not persuaded.
On the contrary, the Court agrees with the CA that Lubas is a mere
agent, conduit or adjunct of PTI. A settled formulation of the doctrine
of piercing the corporate veil is that when two business enterprises
are owned, conducted and controlled by the same parties, both law
and equity will, when necessary to protect the rights of third parties,
disregard the legal fiction that these two entities are distinct and treat
them as identical or as one and the same.26 In the present case, it
may be true that Lubas is a single proprietorship and not a
corporation. However, petitioners’ attempt to isolate themselves from
and hide behind the supposed separate and distinct personality of
Lubas so as to evade their liabilities is precisely what the classical
doctrine of piercing the veil of corporate entity seeks to prevent and
remedy.
Thus, the Court agrees with the observations of the CA, to wit:
47
As correctly pointed out by petitioners, if Lubas were truly a separate
entity, how come that it was Prince Transport who made the decision
to transfer its employees to the former? Besides, Prince Transport
never regarded Lubas Transport as a separate entity. In the aforesaid
letter, it referred to said entity as "Lubas operations." Moreover, in
said letter, it did not transfer the employees; it "assigned" them. Lastly,
the existing funds and 201 file of the employees were turned over not
to a new company but a "new management."27
The Court also agrees with respondents that if Lubas is indeed an
entity separate and independent from PTI why is it that the latter
decides which employees shall work in the former?
What is telling is the fact that in a memorandum issued by PTI, dated
January 22, 1998, petitioner company admitted that Lubas is one of
its sub-companies.28 In addition, PTI, in its letters to its employees
who were transferred to Lubas, referred to the latter as its "New City
Operations Bus."29
Moreover, petitioners failed to refute the contention of respondents
that despite the latter’s transfer to Lubas of their daily time records,
reports, daily income remittances of conductors, schedule of drivers
and conductors were all made, performed, filed and kept at the office
of PTI. In fact, respondents’ identification cards bear the name of PTI.
It may not be amiss to point out at this juncture that in two separate
illegal dismissal cases involving different groups of employees
transferred by PTI to other companies, the Labor Arbiter handling the
cases found that these companies and PTI are one and the same
entity; thus, making them solidarily liable for the payment of
backwages and other money claims awarded to the complainants
therein.30
Petitioners likewise aver that the CA erred and committed grave
abuse of discretion when it ordered petitioners to reinstate
respondents to their former positions, considering that the issue of
reinstatement was never brought up before it and respondents never
questioned the award of separation pay to them.
The Court is not persuaded.
It is clear from the complaints filed by respondents that they are
seeking reinstatement.31
In any case, Section 2 (c), Rule 7 of the Rules of Court provides that a
pleading shall specify the relief sought, but may add a general prayer
for such further or other reliefs as may be deemed just and equitable.
Under this rule, a court can grant the relief warranted by the allegation
and the proof even if it is not specifically sought by the injured party;
the inclusion of a general prayer may justify the grant of a remedy
different from or together with the specific remedy sought, if the facts
alleged in the complaint and the evidence introduced so
warrant.321avvphi1
Moreover, in BPI Family Bank v. Buenaventura,33 this Court ruled that
the general prayer is broad enough "to justify extension of a remedy
different from or together with the specific remedy sought." Even
without the prayer for a specific remedy, proper relief may be granted
by the court if the facts alleged in the complaint and the evidence
introduced so warrant. The court shall grant relief warranted by the
allegations and the proof even if no such relief is prayed for. The
prayer in the complaint for other reliefs equitable and just in the
premises justifies the grant of a relief not otherwise specifically prayed
for.34 In the instant case, aside from their specific prayer for
reinstatement, respondents, in their separate complaints, prayed for
such reliefs which are deemed just and equitable.
As to whether petitioners are guilty of unfair labor practice, the Court
finds no cogent reason to depart from the findings of the CA that
respondents’ transfer of work assignments to Lubas was designed by
petitioners as a subterfuge to foil the former’s right to organize
themselves into a union. Under Article 248 (a) and (e) of the Labor
Code, an employer is guilty of unfair labor practice if it interferes with,
restrains or coerces its employees in the exercise of their right to self-
organization or if it discriminates in regard to wages, hours of work
and other terms and conditions of employment in order to encourage
or discourage membership in any labor organization.
Indeed, evidence of petitioners' unfair labor practice is shown by the
established fact that, after respondents' transfer to Lubas, petitioners
left them high and dry insofar as the operations of Lubas was
concerned. The Court finds no error in the findings and conclusion of
the CA that petitioners "withheld the necessary financial and logistic
support such as spare parts, and repair and maintenance of the
transferred buses until only two units remained in running condition."
This left respondents virtually jobless.
WHEREFORE, the instant petition is denied. The assailed Decision
and Resolution of the Court of Appeals, dated December 20, 2004
and February 24, 2005, respectively, in CA-G.R. SP No. 80953, are
AFFIRMED.
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
Court, herein petitioners Marc II Marketing, Inc. and Lucila V. Joson
assailed the Decision1 dated 20 June 2005 of the Court of Appeals in
CA-G.R. SP No. 76624 for reversing and setting aside the
Resolution2 of the National Labor Relations Commission (NLRC)
dated 15 October 2002, thereby affirming the Labor Arbiter’s
Decision3 dated 1 October 2001 finding herein respondent Alfredo M.
Joson’s dismissal from employment as illegal. In the questioned
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
mere employee of petitioner Marc II Marketing, Inc., thus, totally
disregarding the latter’s allegation of intra-corporate controversy.
Nonetheless, the Court of Appeals remanded the case to the NLRC
for further proceedings to determine the proper amount of monetary
awards that should be given to respondent.
Assailed as well is the Court of Appeals Resolution4 dated 7 March
2006 denying their Motion for Reconsideration.
Petitioner Marc II Marketing, Inc. (petitioner corporation) is a
corporation duly organized and existing under and by virtue of the
laws of the Philippines. It is primarily engaged in buying, marketing,
selling and distributing in retail or wholesale for export or import
household appliances and products and other items.5 It took over the
business operations of Marc Marketing, Inc. which was made non-
operational following its incorporation and registration with the
Securities and Exchange Commission (SEC). Petitioner Lucila V.
Joson (Lucila) is the President and majority stockholder of petitioner
corporation. She was also the former President and majority
stockholder of the defunct Marc Marketing, Inc.
Respondent Alfredo M. Joson (Alfredo), on the other hand, was the
General Manager, incorporator, director and stockholder of petitioner
corporation.
The controversy of this case arose from the following factual milieu:
Before petitioner corporation was officially incorporated,6 respondent
has already been engaged by petitioner Lucila, in her capacity as
President of Marc Marketing, Inc., to work as the General Manager of
petitioner corporation. It was formalized through the execution of a
Management Contract7 dated 16 January 1994 under the letterhead of
Marc Marketing, Inc.8 as petitioner corporation is yet to be
incorporated at the time of its execution. It was explicitly provided
therein that respondent shall be entitled to 30% of its net income for
his work as General Manager. Respondent will also be granted 30%
of its net profit to compensate for the possible loss of opportunity to
work overseas.9
Pending incorporation of petitioner corporation, respondent was
designated as the General Manager of Marc Marketing, Inc., which
was then in the process of winding up its business. For occupying the
said position, respondent was among its corporate officers by the
express provision of Section 1, Article IV10 of its by-laws.11
On 15 August 1994, petitioner corporation was officially incorporated
and registered with the SEC. Accordingly, Marc Marketing, Inc. was
made non-operational. Respondent continued to discharge his duties
as General Manager but this time under petitioner corporation.
Pursuant to Section 1, Article IV12 of petitioner corporation’s by-
laws,13 its corporate officers are as follows: Chairman, President, one
or more Vice-President(s), Treasurer and Secretary. Its Board of
Directors, however, may, from time to time, appoint such other officers
as it may determine to be necessary or proper.
Per an undated Secretary’s Certificate,14 petitioner corporation’s
Board of Directors conducted a meeting on 29 August 1994 where
respondent was appointed as one of its corporate officers with the
designation or title of General Manager to function as a managing
director with other duties and responsibilities that the Board of
Directors may provide and authorized.15
Nevertheless, on 30 June 1997, petitioner corporation decided to stop
and cease its operations, as evidenced by an Affidavit of Non-
Operation16 dated 31 August 1998, due to poor sales collection
aggravated by the inefficient management of its affairs. On the same
date, it formally informed respondent of the cessation of its business
operation. Concomitantly, respondent was apprised of the termination
50
of his services as General Manager since his services as such would
no longer be necessary for the winding up of its affairs.17
Feeling aggrieved, respondent filed a Complaint for Reinstatement
and Money Claim against petitioners before the Labor Arbiter which
was docketed as NLRC NCR Case No. 00-03-04102-99.
In his complaint, respondent averred that petitioner Lucila dismissed
him from his employment with petitioner corporation due to the feeling
of hatred she harbored towards his family. The same was rooted in
the filing by petitioner Lucila’s estranged husband, who happened to
be respondent’s brother, of a Petition for Declaration of Nullity of their
Marriage.18
For the parties’ failure to settle the case amicably, the Labor Arbiter
required them to submit their respective position papers. Respondent
complied but petitioners opted to file a Motion to Dismiss grounded on
the Labor Arbiter’s lack of jurisdiction as the case involved an intra-
corporate controversy, which jurisdiction belongs to the SEC [now
with the Regional Trial Court (RTC)].19 Petitioners similarly raised
therein the ground of prescription of respondent’s monetary claim.
On 5 September 2000, the Labor Arbiter issued an Order20 deferring
the resolution of petitioners’ Motion to Dismiss until the final
determination of the case. The Labor Arbiter also reiterated his
directive for petitioners to submit position paper. Still, petitioners did
not comply. Insisting that the Labor Arbiter has no jurisdiction over the
case, they instead filed an Urgent Motion to Resolve the Motion to
Dismiss and the Motion to Suspend Filing of Position Paper.
In an Order21 dated 15 February 2001, the Labor Arbiter denied both
motions and declared final the Order dated 5 September 2000. The
Labor Arbiter then gave petitioners a period of five days from receipt
thereof within which to file position paper, otherwise, their Motion to
Dismiss will be treated as their position paper and the case will be
considered submitted for decision.
Petitioners, through counsel, moved for extension of time to submit
position paper. Despite the requested extension, petitioners still failed
to submit the same. Accordingly, the case was submitted for
resolution.
On 1 October 2001, the Labor Arbiter rendered his Decision in favor
of respondent. Its decretal portion reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered
declaring [respondent’s] dismissal from employment illegal.
Accordingly, [petitioners] are hereby ordered:
1. To reinstate [respondent] to his former or equivalent position
without loss of seniority rights, benefits, and privileges;
2. Jointly and severally liable to pay [respondent’s] unpaid
wages in the amount of ₱450,000.00 per month from [26
March 1996] up to time of dismissal in the total amount of
₱6,300,000.00;
3. Jointly and severally liable to pay [respondent’s] full
backwages in the amount of ₱450,000.00 per month from date
of dismissal until actual reinstatement which at the time of
promulgation amounted to ₱21,600,000.00;
4. Jointly and severally liable to pay moral damages in the
amount of ₱100,000.00 and attorney’s fees in the amount of
5% of the total monetary award.22 [Emphasis supplied.]
In the aforesaid Decision, the Labor Arbiter initially resolved
petitioners’ Motion to Dismiss by finding the ground of lack of
jurisdiction to be without merit. The Labor Arbiter elucidated that
petitioners failed to adduce evidence to prove that the present case
involved an intra-corporate controversy. Also, respondent’s money
claim did not arise from his being a director or stockholder of
petitioner corporation but from his position as being its General
Manager. The Labor Arbiter likewise held that respondent was not a
corporate officer under petitioner corporation’s by-laws. As such,
respondent’s complaint clearly arose from an employer-employee
relationship, thus, subject to the Labor Arbiter’s jurisdiction.
51
The Labor Arbiter then declared respondent’s dismissal from
employment as illegal. Respondent, being a regular employee of
petitioner corporation, may only be dismissed for a valid cause and
upon proper compliance with the requirements of due process. The
records, though, revealed that petitioners failed to present any
evidence to justify respondent’s dismissal.
Aggrieved, petitioners appealed the aforesaid Labor Arbiter’s Decision
to the NLRC.
In its Resolution dated 15 October 2002, the NLRC ruled in favor of
petitioners by giving credence to the Secretary’s Certificate, which
evidenced petitioner corporation’s Board of Directors’ meeting in
which a resolution was approved appointing respondent as its
corporate officer with designation as General Manager. Therefrom,
the NLRC reversed and set aside the Labor Arbiter’s Decision dated 1
October 2001 and dismissed respondent’s Complaint for want of
jurisdiction.23
The NLRC enunciated that the validity of respondent’s appointment
and termination from the position of General Manager was made
subject to the approval of petitioner corporation’s Board of Directors.
Had respondent been an ordinary employee, such board action would
not have been required. As such, it is clear that respondent was a
corporate officer whose dismissal involved a purely intra-corporate
controversy. The NLRC went further by stating that respondent’s
claim for 30% of the net profit of the corporation can only emanate
from his right of ownership therein as stockholder, director and/or
corporate officer. Dividends or profits are paid only to stockholders or
directors of a corporation and not to any ordinary employee in the
absence of any profit sharing scheme. In addition, the question of
remuneration of a person who is not a mere employee but a
stockholder and officer of a corporation is not a simple labor problem.
Such matter comes within the ambit of corporate affairs and
management and is an intra-corporate controversy in contemplation of
the Corporation Code.24
When respondent’s Motion for Reconsideration was denied in another
Resolution25 dated 23 January 2003, he filed a Petition for Certiorari
with the Court of Appeals ascribing grave abuse of discretion on the
part of the NLRC.
On 20 June 2005, the Court of Appeals rendered its now assailed
Decision declaring that the Labor Arbiter has jurisdiction over the
present controversy. It upheld the finding of the Labor Arbiter that
respondent was a mere employee of petitioner corporation, who has
been illegally dismissed from employment without valid cause and
without due process. Nevertheless, it ordered the records of the case
remanded to the NLRC for the determination of the appropriate
amount of monetary awards to be given to respondent. The Court of
Appeals, thus, decreed:
WHEREFORE, the petition is by us PARTIALLY GRANTED. The
Labor Arbiter is DECLARED to have jurisdiction over the controversy.
The records are REMANDED to the NLRC for further proceedings to
determine the appropriate amount of monetary awards to be adjudged
in favor of [respondent]. Costs against the [petitioners] in solidum.26
Petitioners moved for its reconsideration but to no avail.27
Petitioners are now before this Court with the following assignment of
errors:
THE COURT OF APPEALS ERRED AND COMMITTED
GRAVE ABUSE OF DISCRETION IN DECIDING THAT THE
NLRC HAS THE JURISDICTION IN RESOLVING A PURELY
INTRA-CORPORATE MATTER WHICH IS COGNIZABLE BY
THE SECURITIES AND EXCHANGE
COMMISSION/REGIONAL TRIAL COURT.
ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS
JURISDICTION OVER THE CASE, STILL THE COURT OF
APPEALS SERIOUSLY ERRED IN NOT RULING THAT
THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP
BETWEEN [RESPONDENT] ALFREDO M. JOSON AND
MARC II MARKETING, INC. [PETITIONER CORPORATION].
52
 ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS
JURISDICTION OVER THE CASE, THE COURT OF
APPEALS ERRED IN NOT RULING THAT THE LABOR
ARBITER COMMITTED GRAVE ABUSE OF DISCRETION IN
AWARDING MULTI-MILLION PESOS IN COMPENSATION
AND BACKWAGES BASED ON THE PURPORTED GROSS
INCOME OF [PETITIONER CORPORATION].
THE COURT OF APPEALS SERIOUSLY ERRED AND
COMMITTED GRAVE ABUSE OF DISCRETION IN NOT
MAKING ANY FINDINGS AND RULING THAT [PETITIONER
LUCILA] SHOULD NOT BE HELD SOLIDARILY LIABLE IN
THE ABSENCE OF EVIDENCE OF MALICE AND BAD FAITH
ON HER PART.28
Petitioners fault the Court of Appeals for having sustained the Labor
Arbiter’s finding that respondent was not a corporate officer under
petitioner corporation’s by-laws. They insist that there is no need to
amend the corporate by-laws to specify who its corporate officers are.
The resolution issued by petitioner corporation’s Board of Directors
appointing respondent as General Manager, coupled with his
assumption of the said position, positively made him its corporate
officer. More so, respondent’s position, being a creation of petitioner
corporation’s Board of Directors pursuant to its by-laws, is a corporate
office sanctioned by the Corporation Code and the doctrines
previously laid down by this Court. Thus, respondent’s removal as
petitioner corporation’s General Manager involved a purely intra-
corporate controversy over which the RTC has jurisdiction.
Petitioners further contend that respondent’s claim for 30% of the net
profit of petitioner corporation was anchored on the purported
Management Contract dated 16 January 1994. It should be noted,
however, that said Management Contract was executed at the time
petitioner corporation was still nonexistent and had no juridical
personality yet. Such being the case, respondent cannot invoke any
legal right therefrom as it has no legal and binding effect on petitioner
corporation. Moreover, it is clear from the Articles of Incorporation of
petitioner corporation that respondent was its director and
stockholder. Indubitably, respondent’s claim for his share in the profit
of petitioner corporation was based on his capacity as such and not
by virtue of any employer-employee relationship.
Petitioners further avow that even if the present case does not pose
an intra-corporate controversy, still, the Labor Arbiter’s multi-million
peso awards in favor of respondent were erroneous. The same was
merely based on the latter’s self-serving computations without any
supporting documents.
Finally, petitioners maintain that petitioner Lucila cannot be held
solidarily liable with petitioner corporation. There was neither
allegation nor iota of evidence presented to show that she acted with
malice and bad faith in her dealings with respondent. Moreover, the
Labor Arbiter, in his Decision, simply concluded that petitioner Lucila
was jointly and severally liable with petitioner corporation without
making any findings thereon. It was, therefore, an error for the Court
of Appeals to hold petitioner Lucila solidarily liable with petitioner
corporation.
From the foregoing arguments, the initial question is which between
the Labor Arbiter or the RTC, has jurisdiction over respondent’s
dismissal as General Manager of petitioner corporation. Its resolution
necessarily entails the determination of whether respondent as
General Manager of petitioner corporation is a corporate officer or a
mere employee of the latter.
While Article 217(a)229 of the Labor Code, as amended, provides that
it is the Labor Arbiter who has the original and exclusive jurisdiction
over cases involving termination or dismissal of workers when the
person dismissed or terminated is a corporate officer, the case
automatically falls within the province of the RTC. The dismissal of a
corporate officer is always regarded as a corporate act and/or an
intra-corporate controversy.30
Under Section 531 of Presidential Decree No. 902-A, intra-corporate
controversies are those controversies arising out of intra-corporate or
partnership relations, between and among stockholders, members or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership
53
or association and the State insofar as it concerns their individual
franchise or right to exist as such entity. It also includes
controversies in the election or appointments of directors,
trustees, officers or managers of such corporations, partnerships
or associations.32
Accordingly, in determining whether the SEC (now the RTC) has
jurisdiction over the controversy, the status or relationship of the
parties and the nature of the question that is the subject of their
controversy must be taken into consideration.33
In Easycall Communications Phils., Inc. v. King, this Court held that in
the context of Presidential Decree No. 902-A, corporate officers are
those officers of a corporation who are given that character either by
the Corporation Code or by the corporation’s by-laws. Section 2534 of
the Corporation Code specifically enumerated who are these
corporate officers, to wit: (1) president; (2) secretary; (3) treasurer;
and (4) such other officers as may be provided for in the by-laws.35
The aforesaid Section 25 of the Corporation Code, particularly the
phrase "such other officers as may be provided for in the by-laws,"
has been clarified and elaborated in this Court’s recent
pronouncement in Matling Industrial and Commercial Corporation v.
Coros, where it held, thus:
Conformably with Section 25, a position must be expressly mentioned
in the [b]y-[l]aws in order to be considered as a corporate office. Thus,
the creation of an office pursuant to or under a [b]y-[l]aw enabling
provision is not enough to make a position a corporate office. [In]
Guerrea v. Lezama [citation omitted] the first ruling on the matter, held
that the only officers of a corporation were those given that character
either by the Corporation Code or by the [b]y-[l]aws; the rest of the
corporate officers could be considered only as employees or
subordinate officials. Thus, it was held in Easycall Communications
Phils., Inc. v. King [citation omitted]:
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
employee occupies no office and generally is employed not by the
action of the directors or stockholders but by the managing officer of
the corporation who also determines the compensation to be paid to
such employee.
xxxx
This interpretation is the correct application of Section 25 of the
Corporation Code, which plainly states that the corporate officers are
the President, Secretary, Treasurer and such other officers as may be
provided for in the [b]y-[l]aws. Accordingly, the corporate officers in
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
[b]y[l]aws.
A different interpretation can easily leave the way open for the Board
of Directors to circumvent the constitutionally guaranteed security of
tenure of the employee by the expedient inclusion in the [b]y-[l]aws of
an enabling clause on the creation of just any corporate officer
position.
It is relevant to state in this connection that the SEC, the primary
agency administering the Corporation Code, adopted a similar
interpretation of Section 25 of the Corporation Code in its Opinion
dated November 25, 1993 [citation omitted], to wit:
Thus, pursuant to the above provision (Section 25 of the Corporation
Code), whoever are the corporate officers enumerated in the by-laws
are the exclusive Officers of the corporation and the Board has no
power to create other Offices without amending first the corporate
[b]y-laws. However, the Board may create appointive positions
other than the positions of corporate Officers, but the persons
occupying such positions are not considered as corporate
officers within the meaning of Section 25 of the Corporation
Code and are not empowered to exercise the functions of the
corporate Officers, except those functions lawfully delegated to them.
Their functions and duties are to be determined by the Board of
Directors/Trustees.36 [Emphasis supplied.]
A careful perusal of petitioner corporation’s by-laws, particularly
paragraph 1, Section 1, Article IV,37 would explicitly reveal that its
54
corporate officers are composed only of: (1) Chairman; (2) President;
(3) one or more Vice-President; (4) Treasurer; and (5)
Secretary.38 The position of General Manager was not among those
enumerated.
Paragraph 2, Section 1, Article IV of petitioner corporation’s by-laws,
empowered its Board of Directors to appoint such other officers as it
may determine necessary or proper.39 It is by virtue of this enabling
provision that petitioner corporation’s Board of Directors allegedly
approved a resolution to make the position of General Manager a
corporate office, and, thereafter, appointed respondent thereto making
him one of its corporate officers. All of these acts were done without
first amending its by-laws so as to include the General Manager in its
roster of corporate officers.
With the given circumstances and in conformity with Matling Industrial
and Commercial Corporation v. Coros, this Court rules that
respondent was not a corporate officer of petitioner corporation
because his position as General Manager was not specifically
mentioned in the roster of corporate officers in its corporate by-laws.
The enabling clause in petitioner corporation’s by-laws empowering its
Board of Directors to create additional officers, i.e., General Manager,
and the alleged subsequent passage of a board resolution to that
effect cannot make such position a corporate office. Matling clearly
enunciated that the board of directors has no power to create other
corporate offices without first amending the corporate by-laws so as to
include therein the newly created corporate office. Though the board
of directors may create appointive positions other than the positions of
corporate officers, the persons occupying such positions cannot be
viewed as corporate officers under Section 25 of the Corporation
Code.40 In view thereof, this Court holds that unless and until
petitioner corporation’s by-laws is amended for the inclusion of
General Manager in the list of its corporate officers, such position
cannot be considered as a corporate office within the realm of Section
25 of the Corporation Code.
This Court considers that the interpretation of Section 25 of the
Corporation Code laid down in Matling safeguards the constitutionally
enshrined right of every employee to security of tenure. To allow the
creation of a corporate officer position by a simple inclusion in the
corporate by-laws of an enabling clause empowering the board of
directors to do so can result in the circumvention of that
constitutionally well-protected right.41
It is also of no moment that respondent, being petitioner corporation’s
General Manager, was given the functions of a managing director by
its Board of Directors. As held in Matling, the only officers of a
corporation are those given that character either by the Corporation
Code or by the corporate by-laws. It follows then that the corporate
officers enumerated in the by-laws are the exclusive officers of the
corporation while the rest could only be regarded as mere employees
or subordinate officials.42 Respondent, in this case, though occupying
a high ranking and vital position in petitioner corporation but which
position was not specifically enumerated or mentioned in the latter’s
by-laws, can only be regarded as its employee or subordinate official.
Noticeably, respondent’s compensation as petitioner corporation’s
General Manager was set, fixed and determined not by the latter’s
Board of Directors but simply by its President, petitioner Lucila. The
same was not subject to the approval of petitioner corporation’s Board
of Directors. This is an indication that respondent was an employee
and not a corporate officer.
To prove that respondent was petitioner corporation’s corporate
officer, petitioners presented before the NLRC an undated Secretary’s
Certificate showing that corporation’s Board of Directors approved a
resolution making respondent’s position of General Manager a
corporate office. The submission, however, of the said undated
Secretary’s Certificate will not change the fact that respondent was an
employee. The certification does not amount to an amendment of the
by-laws which is needed to make the position of General Manager a
corporate office.
Moreover, as has been aptly observed by the Court of Appeals, the
board resolution mentioned in that undated Secretary’s Certificate and
the latter itself were obvious fabrications, a mere afterthought. Here
we quote with conformity the Court of Appeals findings on this matter
stated in this wise:
The board resolution is an obvious fabrication. Firstly, if it had been in
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
it could have been the best evidence that [herein respondent] was a
corporate officer? Secondly, why did they report the [respondent]
instead as [herein petitioner corporation’s] employee to the Social
Security System [(SSS)] on [11 October 1994] or a later date than
their [29 August 1994] board resolution? Thirdly, why is there no
indication that the [respondent], the person concerned himself, and
the [SEC] were furnished with copies of said board resolution? And,
lastly, why is the corporate [S]ecretary’s [C]ertificate not notarized in
keeping with the customary procedure? That is why we called it
manipulative evidence as it was a shameless sham meant to be
thrown in as a wild card to muddle up the [D]ecision of the Labor
Arbiter to the end that it be overturned as the latter had firmly pointed
out that [respondent] is not a corporate officer under [petitioner
corporation’s by-laws]. Regrettably, the [NLRC] swallowed the bait
hook-line-and sinker. It failed to see through its nature as a belatedly
manufactured evidence. And even on the assumption that it were an
authentic board resolution, it did not make [respondent] a corporate
officer as the board did not first and properly create the position of a
[G]eneral [M]anager by amending its by-laws.
(2) The scope of the term "officer" in the phrase "and such
other officers as may be provided for in the by-laws["] (Sec. 25,
par. 1), would naturally depend much on the provisions of the
by-laws of the corporation. (SEC Opinion, [4 December 1991.])
If the by-laws enumerate the officers to be elected by the
board, the provision is conclusive, and the board is without
power to create new offices without amending the by-laws.
(SEC Opinion, [19 October 1971.])
(3) If, for example, the general manager of a corporation is not
listed as an officer, he is to be classified as an employee
although he has always been considered as one of the
principal officers of a corporation [citing De Leon, H. S., The
Corporation Code of the Philippines Annotated, 1993 Ed., p.
215.]43 [Emphasis supplied.]
That respondent was also a director and a stockholder of petitioner
corporation will not automatically make the case fall within the ambit
of intra-corporate controversy and be subjected to RTC’s jurisdiction.
To reiterate, not all conflicts between the stockholders and the
corporation are classified as intra-corporate. Other factors such as the
status or relationship of the parties and the nature of the question that
is the subject of the controversy44 must be considered in determining
whether the dispute involves corporate matters so as to regard them
as intra-corporate controversies.45 As previously discussed,
respondent was not a corporate officer of petitioner corporation but a
mere employee thereof so there was no intra-corporate relationship
between them. With regard to the subject of the controversy or issue
involved herein, i.e., respondent’s dismissal as petitioner corporation’s
General Manager, the same did not present or relate to an intra-
corporate dispute. To note, there was no evidence submitted to show
that respondent’s removal as petitioner corporation’s General
Manager carried with it his removal as its director and stockholder.
Also, petitioners’ allegation that respondent’s claim of 30% share of
petitioner corporation’s net profit was by reason of his being its
director and stockholder was without basis, thus, self-serving. Such
an allegation was tantamount to a mere speculation for petitioners’
failure to substantiate the same.
In addition, it was not shown by petitioners that the position of General
Manager was offered to respondent on account of his being petitioner
corporation’s director and stockholder. Also, in contrast to NLRC’s
findings, neither petitioner corporation’s by-laws nor the Management
Contract stated that respondent’s appointment and termination from
the position of General Manager was subject to the approval of
petitioner corporation’s Board of Directors. If, indeed, respondent was
a corporate officer whose termination was subject to the approval of
its Board of Directors, why is it that his termination was effected only
by petitioner Lucila, President of petitioner corporation? The records
are bereft of any evidence to show that respondent’s dismissal was
done with the conformity of petitioner corporation’s Board of Directors
or that the latter had a hand on respondent’s dismissal. No board
resolution whatsoever was ever presented to that effect.
With all the foregoing, this Court is fully convinced that, indeed,
respondent, though occupying the General Manager position, was not
a corporate officer of petitioner corporation rather he was merely its
employee occupying a high-ranking position.
56
Accordingly, respondent’s dismissal as petitioner corporation’s
General Manager did not amount to an intra-corporate controversy.
Jurisdiction therefor properly belongs with the Labor Arbiter and not
with the RTC.
Having established that respondent was not petitioner corporation’s
corporate officer but merely its employee, and that, consequently,
jurisdiction belongs to the Labor Arbiter, this Court will now determine
if respondent’s dismissal from employment is illegal.
It was not disputed that respondent worked as petitioner corporation’s
General Manager from its incorporation on 15 August 1994 until he
was dismissed on 30 June 1997. The cause of his dismissal was
petitioner corporation’s cessation of business operations due to poor
sales collection aggravated by the inefficient management of its
affairs.
In termination cases, the burden of proving just and valid cause for
dismissing an employee from his employment rests upon the
employer. The latter's failure to discharge that burden would
necessarily result in a finding that the dismissal is unjustified.46
Under Article 283 of the Labor Code, as amended, one of the
authorized causes in terminating the employment of an employee is
the closing or cessation of operation of the establishment or
undertaking. Article 283 of the Labor Code, as amended, reads, thus:
ART. 283. Closure of establishment and reduction of personnel. – The
employer may also terminate the employment of any employee due to
the installation of labor saving-devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a written notice
on the workers and the Department of Labor and Employment at least
one (1) month before the intended date thereof. x x x In case of
retrenchment to prevent losses and in cases of closures or cessation
of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be
equivalent to one (1) month pay or to at least one-half (1/2) month pay
for every year of service, whichever is higher. A fraction of at least six
(6) months shall be considered one (1) whole year. [Emphasis
supplied.]
From the afore-quoted provision, the closure or cessation of
operations of establishment or undertaking may either be due to
serious business losses or financial reverses or otherwise. If the
closure or cessation was due to serious business losses or financial
reverses, it is incumbent upon the employer to sufficiently and
convincingly prove the same. If it is otherwise, the employer can
lawfully close shop anytime as long as it was bona fide in character
and not impelled by a motive to defeat or circumvent the tenurial
rights of employees and as long as the terminated employees were
paid in the amount corresponding to their length of service.47
Accordingly, under Article 283 of the Labor Code, as amended, there
are three requisites for a valid cessation of business operations: (a)
service of a written notice to the employees and to the Department of
Labor and Employment (DOLE) at least one month before the
intended date thereof; (b) the cessation of business must be bona fide
in character; and (c) payment to the employees of termination pay
amounting to one month pay or at least one-half month pay for every
year of service, whichever is higher.
In this case, it is obvious that petitioner corporation’s cessation of
business operations was not due to serious business losses. Mere
poor sales collection, coupled with mismanagement of its affairs does
not amount to serious business losses. Nonetheless, petitioner
corporation can still validly cease or close its business operations
because such right is legally allowed, so long as it was not done for
the purpose of circumventing the provisions on termination of
employment embodied in the Labor Code.48 As has been stressed by
this Court in Industrial Timber Corporation v. Ababon, thus:
Just as no law forces anyone to go into business, no law can compel
anybody to continue the same. It would be stretching the intent and
spirit of the law if a court interferes with management's prerogative to
close or cease its business operations just because the business is
not suffering from any loss or because of the desire to provide the
workers continued employment.49
57
A careful perusal of the records revealed that, indeed, petitioner
corporation has stopped and ceased business operations beginning
30 June 1997. This was evidenced by a notarized Affidavit of Non-
Operation dated 31 August 1998. There was also no showing that the
cessation of its business operations was done in bad faith or to
circumvent the Labor Code. Nevertheless, in doing so, petitioner
corporation failed to comply with the one-month prior written notice
rule. The records disclosed that respondent, being petitioner
corporation’s employee, and the DOLE were not given a written notice
at least one month before petitioner corporation ceased its business
operations. Moreover, the records clearly show that respondent’s
dismissal was effected on the same date that petitioner corporation
decided to stop and cease its operation. Similarly, respondent was not
paid separation pay upon termination of his employment.
As respondent’s dismissal was not due to serious business losses,
respondent is entitled to payment of separation pay equivalent to one
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
Corporation v. National Labor Relations Commission,50 thus:
The grant of separation pay, as an incidence of termination of
employment under Article 283, is a statutory obligation on the part of
the employer and a demandable right on the part of the employee,
except only where the closure or cessation of operations was due to
serious business losses or financial reverses and there is sufficient
proof of this fact or condition. In the absence of such proof of serious
business losses or financial reverses, the employer closing his
business is obligated to pay his employees and workers their
separation pay.
The rule, therefore, is that in all cases of business closure or
cessation of operation or undertaking of the employer, the affected
employee is entitled to separation pay. This is consistent with the
state policy of treating labor as a primary social economic force,
affording full protection to its rights as well as its welfare. The
exception is when the closure of business or cessation of operations
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.]
As previously discussed, respondent’s dismissal was due to an
authorized cause, however, petitioner corporation failed to observe
procedural due process in effecting such dismissal. In Culili v. Eastern
Telecommunications Philippines, Inc.,52 this Court made the following
pronouncements, thus:
x x x there are two aspects which characterize the concept of due
process under the Labor Code: one is substantive — whether the
termination of employment was based on the provision of the Labor
Code or in accordance with the prevailing jurisprudence; the other is
procedural — the manner in which the dismissal was effected.
Section 2(d), Rule I, Book VI of the Rules Implementing the Labor
Code provides:
(d) In all cases of termination of employment, the following standards
of due process shall be substantially observed:
xxxx
For termination of employment as defined in Article 283 of the Labor
Code, the requirement of due process shall be deemed complied with
upon service of a written notice to the employee and the appropriate
Regional Office of the Department of Labor and Employment at least
thirty days before effectivity of the termination, specifying the ground
or grounds for termination.
In Mayon Hotel & Restaurant v. Adana, [citation omitted] we
observed:
The requirement of law mandating the giving of notices was intended
not only to enable the employees to look for another employment and
therefore ease the impact of the loss of their jobs and the
corresponding income, but more importantly, to give the Department
of Labor and Employment (DOLE) the opportunity to ascertain the
verity of the alleged authorized cause of termination.53 [Emphasis
supplied].
58
The records of this case disclosed that there was absolutely no written
notice given by petitioner corporation to the respondent and to the
DOLE prior to the cessation of its business operations. This is evident
from the fact that petitioner corporation effected respondent’s
dismissal on the same date that it decided to stop and cease its
business operations. The necessary consequence of such failure to
comply with the one-month prior written notice rule, which constitutes
a violation of an employee’s right to statutory due process, is the
payment of indemnity in the form of nominal damages.54 In Culili v.
Eastern Telecommunications Philippines, Inc., this Court further held:
In Serrano v. National Labor Relations Commission [citation omitted],
we noted that "a job is more than the salary that it carries." There is a
psychological effect or a stigma in immediately finding one’s self laid
off from work. This is exactly why our labor laws have provided for
mandating procedural due process clauses. Our laws, while
recognizing the right of employers to terminate employees it cannot
sustain, also recognize the employee’s right to be properly informed of
the impending severance of his ties with the company he is working
for. x x x.
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
procedural due process requirements in terminating its employees. In
Agabon v. National Labor Relations Commission [citation omitted],
this Court reverted back to the doctrine in Wenphil Corporation v.
National Labor Relations Commission [citation omitted] and held that
where the dismissal is due to a just or authorized cause, but without
observance of the due process requirements, the dismissal may be
upheld but the employer must pay an indemnity to the employee. The
sanctions to be imposed however, must be stiffer than those imposed
in Wenphil to achieve a result fair to both the employers and the
employees.
In Jaka Food Processing Corporation v. Pacot [citation omitted], this
Court, taking a cue from Agabon, held that since there is a clear-cut
distinction between a dismissal due to a just cause and a dismissal
due to an authorized cause, the legal implications for employers who
fail to comply with the notice requirements must also be treated
differently:
Accordingly, it is wise to hold that: (1) if the dismissal is based on a
just cause under Article 282 but the employer failed to comply with the
notice requirement, the sanction to be imposed upon him should be
tempered because the dismissal process was, in effect, initiated by an
act imputable to the employee; and (2) if the dismissal is based on an
authorized cause under Article 283 but the employer failed to comply
with the notice requirement, the sanction should be stiffer because the
dismissal process was initiated by the employer's exercise of his
management prerogative.55 [Emphasis supplied.]
Thus, in addition to separation pay, respondent is also entitled to an
award of nominal damages. In conformity with this Court’s ruling in
Culili v. Eastern Telecommunications Philippines, Inc. and Shimizu
Phils. Contractors, Inc. v. Callanta, both citing Jaka Food Processing
Corporation v. Pacot,56 this Court fixed the amount of nominal
damages to ₱50,000.00.
With respect to petitioners’ contention that the Management Contract
executed between respondent and petitioner Lucila has no binding
effect on petitioner corporation for having been executed way before
its incorporation, this Court finds the same meritorious.
Section 19 of the Corporation Code expressly provides:
Sec. 19. Commencement of corporate existence. - A private
corporation formed or organized under this Code commences to have
corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange Commission
issues a certificate of incorporation under its official seal; and
thereupon the incorporators, stockholders/members and their
successors shall constitute a body politic and corporate under the
name stated in the articles of incorporation for the period of time
mentioned therein, unless said period is extended or the corporation
is sooner dissolved in accordance with law. [Emphasis supplied.]
Logically, there is no corporation to speak of prior to an entity’s
incorporation. And no contract entered into before incorporation can
bind the corporation.
59
As can be gleaned from the records, the Management Contract dated
16 January 1994 was executed between respondent and petitioner
Lucila months before petitioner corporation’s incorporation on 15
August 1994. Similarly, it was done when petitioner Lucila was still the
President of Marc Marketing, Inc. Undeniably, it cannot have any
binding and legal effect on petitioner corporation. Also, there was no
evidence presented to prove that petitioner corporation adopted,
ratified or confirmed the Management Contract. It is for the same
reason that petitioner corporation cannot be considered estopped
from questioning its binding effect now that respondent was invoking
the same against it. In no way, then, can it be enforced against
petitioner corporation, much less, its provisions fixing respondent’s
compensation as General Manager to 30% of petitioner corporation’s
net profit. Consequently, such percentage cannot be the basis for the
computation of respondent’s separation pay. This finding, however,
will not affect the undisputed fact that respondent was, indeed, the
General Manager of petitioner corporation from its incorporation up to
the time of his dismissal.
Accordingly, this Court finds it necessary to still remand the present
case to the Labor Arbiter to conduct further proceedings for the sole
purpose of determining the compensation that respondent was
actually receiving during the period that he was the General Manager
of petitioner corporation, this, for the proper computation of his
separation pay.
As regards petitioner Lucila’s solidary liability, this Court affirms the
same.
As a rule, corporation has a personality separate and distinct from its
officers, stockholders and members such that corporate officers are
not personally liable for their official acts unless it is shown that they
have exceeded their authority. However, this corporate veil can be
pierced when the notion of the legal entity is used as a means to
perpetrate fraud, an illegal act, as a vehicle for the evasion of an
existing obligation, and to confuse legitimate issues. Under the Labor
Code, for instance, when a corporation violates a provision declared
to be penal in nature, the penalty shall be imposed upon the guilty
officer or officers of the corporation.57
Based on the prevailing circumstances in this case, petitioner Lucila,
being the President of petitioner corporation, acted in bad faith and
with malice in effecting respondent’s dismissal from employment.
Although petitioner corporation has a valid cause for dismissing
respondent due to cessation of business operations, however, the
latter’s dismissal therefrom was done abruptly by its President,
petitioner Lucila. Respondent was not given the required one-month
prior written notice that petitioner corporation will already cease its
business operations. As can be gleaned from the records, respondent
was dismissed outright by petitioner Lucila on the same day that
petitioner corporation decided to stop and cease its business
operations. Worse, respondent was not given separation pay
considering that petitioner corporation’s cessation of business was not
due to business losses or financial reverses.
WHEREFORE, premises considered, the Decision and Resolution
dated 20 June 2005 and 7 March 2006, respectively, of the Court of
Appeals in CA-G.R. SP No. 76624 are hereby AFFIRMED with the
MODIFICATION finding respondent’s dismissal from employment
legal but without proper observance of due process. Accordingly,
petitioner corporation, jointly and solidarily liable with petitioner Lucila,
is hereby ordered to pay respondent the following; (1) separation pay
equivalent to one month pay or at least one-half month pay for every
year of service, whichever is higher, to be computed from the
commencement of employment until termination; and (2) nominal
damages in the amount of ₱50,000.00.
This Court, however, finds it proper to still remand the records to the
Labor Arbiter to conduct further proceedings for the sole purpose of
determining the compensation that respondent was actually receiving
during the period that he was the General Manager of petitioner
corporation for the proper computation of his separation pay.
Costs against petitioners.
SO ORDERED.
JOSE PORTUGAL PEREZ
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
223 May 13, 1988 Zenaida V. Yu
227 May 13, 1988 Donnina C. Halley
In addition, the stockholderssubmitted other documentsin evidence,
namely:(a) an audit report dated March 30, 1989 prepared by Ilagan,
Cepillo & Associates (submitted to the SEC and the BIR);7(b)
BMPIbalance sheet8 and income statement9as of December 31, 1988;
(c) BMPI income tax return for the year 1988 (stamped "received" by
the BIR);10(d) journal vouchers;11(e) cash deposit slips;12 and(f)Bank of
the Philippine Islands (BPI) savings account passbookin the name of
BMPI.13
Ruling of the RTC
On November 3, 1993, the RTC rendereda decision in favor of
Printwell, rejecting the allegation of payment in full of the subscriptions
in view of an irregularity in the issuance of the ORs and observingthat
the defendants had used BMPI’s corporate personality to evade
payment and create injustice, viz:
The claim of individual defendants that they have fully paid their
subscriptions to defend[a]nt corporation, is not worthy of
consideration, because: —
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
₱135,000.00, is covered by Official Receipt No. 218 (Exh. "2"),
whereas the alleged payment made earlier on November 5, 1987,
amounting to ₱5,000.00, is covered by Official Receipt No. 222 (Exh.
"3"). This is cogent proof that said receipts were belatedly issued just
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,
1987 has serial numbers (222) higher than those issued on a later
date (May 13, 1988).
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
₱ 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
₱ 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
payment of the unpaid subscriptions. Their inaction should not work to
their benefit and unjust enrichment at the expense of plaintiff.
Assuming arguendo that the individual defendants have paid their
unpaid subscriptions, still, it is very apparent that individual
defendants merely used the corporate fiction as a cloak or cover to
create an injustice; hence, the alleged separate personality of
defendant corporation should be disregarded (Tan Boon Bee & Co.,
Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).14
Applying the trust fund doctrine, the RTC declared the defendant
stockholders liable to Printwell pro rata, thusly:
Defendant Business Media, Inc. is a registered corporation (Exhibits
"A", "A-1" to "A-9"), and, as appearing from the Articles of
Incorporation, individual defendants have the following unpaid
subscriptions:
Names Unpaid Subscription
Donnina C. Halley ₱262,500.00
Roberto V. Cabrera, Jr. 135.000.00
Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
Rizalino V. Vineza 15,000.00
--------------------------------
Total ₱562,500.00
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.
Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a corporation has
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
invalid (Velasco vs. Poizat, 37 Phil. 802).
The liability of the individual stockholders in the instant case shall be
pro-rated as follows:
Spouses Donnina and Simon Halley, andRizalinoViñeza defined the
following errors committed by the RTC, as follows:
I.
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-
STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE
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:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and
against defendants, ordering defendants to pay to plaintiff the amount
of ₱291,342.76, as principal, with interest thereon at 20% per annum,
from date of default, until fully paid, plus ₱30,000.00 as attorney’s
fees, plus costs of suit.
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND
WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES ALBERT
AND ZENAIDA YU’S EXHIBITS 2 AND 3 DESPITE THE
UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT
YU AND THE ABSENCE OF PROOF CONTROVERTING THEM.
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.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO
APPLY THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE
PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-
ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT
THERETO.
II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO
RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE
PLAINTIFF-APPELLEE’S CLAIM BASED ON THEIR RESPECTIVE
SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING
EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED
CAPITAL BY THE INDIVIDUAL DEFENDANTS.
On August 14, 2002, the CA affirmed the RTC, holding that the
defendants’ resort to the corporate personality would createan
injustice becausePrintwell would thereby be at a loss against whom it
would assert the right to collect, viz:
Settled is the rule that when the veil of corporate fiction is used as a
means of perpetrating fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the
achievements or perfection of monopoly or generally the perpetration
of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be
lifted to allow for its consideration merely as an aggregation of
individuals (First Philippine International Bank vs. Court of Appeals,
252 SCRA 259). Moreover, under this doctrine, the corporate
existence may be disregarded where the entity is formed or used for
non-legitimate purposes, such as to evade a just and due obligations
or to justify wrong (Claparols vs. CIR, 65 SCRA 613).
In the case at bench, it is undisputed that BMPI made several orders
on credit from appellee PRINTWELL involving the printing of business
magazines, wrappers and subscription cards, in the total amount of
P291,342.76 (Record pp. 3-5, Annex "A") which facts were never
denied by appellants’ stockholders that they owe appellee the amount
of P291,342.76. The said goods were delivered to and received by
BMPI but it failed to pay its overdue account to appellee as well as the
interest thereon, at the rate of 20% per annum until fully paid. It was
also during this time that appellants stockholders were in charge of
the operation of BMPI despite the fact that they were not able to pay
their unpaid subscriptions to BMPI yet greatly benefited from said
transactions. In view of the unpaid subscriptions, BMPI failed to pay
appellee of its liability, hence appellee in order to protect its right can
collect from the appellants’ stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants
would place appellee in a limbo on where to assert their right to collect
from BMPI since the stockholders who are appellants herein are
availing the defense of corporate fiction to evade payment of its
obligations.17
Further, the CA concurred with the RTC on theapplicability of thetrust
fund doctrine, under which corporate debtors might look to the unpaid
subscriptions for the satisfaction of unpaid corporate debts, stating
thus:
It is an established doctrine that subscription to the capital stock of a
corporation constitute a fund to which creditors have a right to look up
to for satisfaction of their claims, and that the assignee in insolvency
can maintain an action upon any unpaid stock subscription in order to
realize assets for the payment of its debts (PNB vs. Bitulok Sawmill,
23 SCRA 1366).
Premised on the above-doctrine, an inference could be made that the
funds, which consists of the payment of subscriptions of the
stockholders, is where the creditors can claim monetary
considerations for the satisfaction of their claims. If these funds which
ought to be fully subscribed by the stockholders were not paid or
remain an unpaid subscription of the corporation then the creditors
have no other recourse to collect from the corporation of its liability.
Such occurrence was evident in the case at bar wherein the
appellants as stockholders failed to fully pay their unpaid
subscriptions, which left the creditors helpless in collecting their claim
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
Incorporations of BMPI that the unpaid subscriptions were fully paid
by the appellants’ stockholders. For it is a rule that a stockholder may
be sued directly by creditors to the extent of their unpaid subscriptions
to the corporation (Keller vs. COB Marketing, 141 SCRA 86).
Moreover, a corporation has no power to release a subscription or its
capital stock, without valuable consideration for such releases, and as
against creditors, a reduction of the capital stock can take place only
in the manner and under the conditions prescribed by the statute or
the charter or the Articles of Incorporation. (PNB vs. Bitulok Sawmill,
23 SCRA 1366).18
The CAdeclared thatthe inconsistency in the issuance of the ORs
rendered the claim of full payment of the subscriptions to the capital
stock unworthy of consideration; andheld that the veil of corporate
fiction could be pierced when it was used as a shield to perpetrate a
fraud or to confuse legitimate issues, to wit:
Finally, appellants SPS YU, argued that the fact of full payment for the
unpaid subscriptions was incontrovertibly established by competent
testimonial and documentary evidence, namely – Exhibits "1", "2", "3"
& "4", which were never disputed by appellee, clearly shows that they
should not be held liable for payment of the said unpaid subscriptions
of BMPI.
The reliance is misplaced.
We are hereby reproducing the contents of the above-mentioned
exhibits, to wit:
Exh: "1" – YU – Official Receipt No. 217 dated November 5, 1987
amounting to ₱45,000.00 allegedly representing the initial payment of
subscriptions of stockholder Albert Yu.
Exh: "2" – YU – Official Receipt No. 218 dated May 13, 1988
amounting to ₱135,000.00 allegedly representing full payment of
balance of subscriptions of stockholder Albert Yu. (Record p. 352).
Exh: "3" – YU – Official Receipt No. 222 dated November 5, 1987
amounting to ₱5,000.00 allegedly representing the initial payment of
subscriptions of stockholder Zenaida Yu.
Exh: "4" – YU – Official Receipt No. 223 dated May 13, 1988
amounting to ₱15,000.00 allegedly representing the full payment of
balance of subscriptions of stockholder Zenaida Yu. (Record p. 353).
Based on the above exhibits, we are in accord with the lower court’s
findings that the claim of the individual appellants that they fully paid
their subscription to the defendant BMPI is not worthy of
consideration, because, in the case of appellants SPS. YU, there is an
inconsistency regarding the issuance of the official receipt since the
alleged payment made on May 13, 1988 amounting to ₱135,000.00
was covered by Official Receipt No. 218 (Record, p. 352), whereas
the alleged payment made earlier on November 5, 1987 amounting to
₱5,000.00 is covered by Official Receipt No. 222 (Record, p. 353).
Such issuance is a clear indication that said receipts were belatedly
issued just to suit their claim that they have fully paid the unpaid
subscriptions since in the ordinary course of business, a receipt is
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,
1987 had a serial number (222) higher than those issued on May 13,
1988 (218). And even assuming arguendo that the individual
appellants have paid their unpaid subscriptions, still, it is very
apparent that the veil of corporate fiction may be pierced when made
as a shield to perpetuate fraud and/or confuse legitimate issues.
(Jacinto vs. Court of Appeals, 198 SCRA 211).19
Spouses Halley and Viñeza moved for a reconsideration, but the CA
denied their motion for reconsideration.
Issues
Only Donnina Halley has come to the Court to seek a further
review, positing the following for our consideration and
resolution, to wit:
I.
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
RESPONDENT’S MEMORANDUM ADOPTING THE SAME
AS THE REASON FOR THE DECISION
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THE
DECISION OF THE REGIONAL TRIAL COURT WHICH
ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF
CORPORATE FICTION
III.
THE HONORABLE COURT OF APPEALS ERRED IN
APPLYING THE TRUST FUND DOCTRINE WHEN THE
GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.
On the first error, the petitioner contends that the RTC lifted verbatim
from the memorandum of Printwell; and submits that the RTCthereby
violatedthe requirement imposed in Section 14, Article VIII of the
Constitution20 as well as in Section 1,Rule 36 of the Rules of Court,21to
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
claims that the RTC’s violation indicated that the RTC did not analyze
the case before rendering its decision, thus denying her the
opportunity to analyze the decision; andthat a suspicion of partiality
arose from the fact that the RTC decision was but a replica of
Printwell’s memorandum.She cites Francisco v. Permskul,22 in which
the Court has stated that the reason underlying the constitutional
requirement, that every decision should clearly and distinctly state the
facts and the law on which it is based, is to inform the reader of how
the court has reached its decision and thereby give the losing party an
opportunity to study and analyze the decision and enable such party
to appropriately assign the errors committed therein on appeal.
On the second and third errors, the petitioner maintains that the CA
and the RTC erroneously pierced the veil of corporate fiction despite
the absence of cogent proof showing that she, as stockholder of
BMPI, had any hand in transacting with Printwell; thatthe CA and the
RTC failed to appreciate the evidence that she had fully paid her
subscriptions; and the CA and the RTCwrongly relied on the articles
of incorporation in determining the current list of unpaid subscriptions
despite the articles of incorporationbeing at best reflectiveonly of the
pre-incorporation status of BMPI.
As her submissions indicate, the petitioner assails the decisions of the
CA on: (a) the propriety of disregarding the separate personalities of
BMPI and its stockholdersby piercing the thin veil that separated
them; and (b) the application of the trust fund doctrine.
Ruling
The petition for review fails.
I
The RTC did not violate
the Constitution and the Rules of Court
The contention of the petitioner, that the RTC merely copied the
memorandum of Printwell in writing its decision, and did not analyze
the records on its own, thereby manifesting a bias in favor of Printwell,
is unfounded.
It is noted that the petition for review merely generally alleges that
starting from its page 5, the decision of the RTC "copied verbatim the
allegations of herein Respondents in its Memorandum before the said
court," as if "the Memorandum was the draft of the Decision of the
Regional Trial Court of Pasig,"23but fails to specify either the portions
allegedly lifted verbatim from the memorandum, or why she regards
the decision as copied. The omission renders thepetition for review
insufficient to support her contention, considering that the mere
similarityin language or thought between Printwell’s memorandum and
the trial court’s decisiondid not necessarily justify the conclusion that
the RTC simply lifted verbatim or copied from thememorandum.
It is to be observed in this connection that a trial or appellate judge
may occasionally viewa party’s memorandum or brief as worthy of
due consideration either entirely or partly. When he does so, the
judgemay adopt and incorporatein his adjudicationthe memorandum
or the parts of it he deems suitable,and yet not be guilty of the
accusation of lifting or copying from the memorandum.24 This
isbecause ofthe avowed objective of the memorandum to contribute in
the proper illumination and correct determination of the
controversy.Nor is there anything untoward in the congruence of ideas
67
and views about the legal issues between himself and the party
drafting the memorandum.The frequency of similarities in
argumentation, phraseology, expression, and citation of authorities
between the decisions of the courts and the memoranda of the
parties, which may be great or small, can be fairly attributable tothe
adherence by our courts of law and the legal profession to widely
knownor universally accepted precedents set in earlier judicial actions
with identical factual milieus or posing related judicial dilemmas.
We also do not agree with the petitioner that the RTC’s manner of
writing the decisiondeprivedher ofthe opportunity to analyze its
decisionas to be able to assign errors on appeal. The contrary
appears, considering that she was able to impute and assignerrors to
the RTCthat she extensively discussed in her appeal in the CA,
indicating her thorough analysis ofthe decision of the RTC.
Our own readingof the trial court’s decision persuasively shows that
the RTC did comply with the requirements regarding the content and
the manner of writing a decision prescribed in the Constitution and the
Rules of Court. The decision of the RTC contained clear and distinct
findings of facts, and stated the applicablelaw and jurisprudence, fully
explaining why the defendants were being held liable to the plaintiff. In
short, the reader was at once informed of the factual and legal
reasons for the ultimate result.
II
Corporate personality not to be used to foster injustice
Printwell impleaded the petitioner and the other stockholders of BMPI
for two reasons, namely: (a) to reach the unpaid subscriptions
because it appeared that such subscriptions were the remaining
visible assets of BMPI; and (b) to avoid multiplicity of suits.25
The petitionersubmits that she had no participation in the transaction
between BMPI and Printwell;that BMPI acted on its own; and that
shehad no hand in persuading BMPI to renege on its obligation to
pay. Hence, she should not be personally liable.
We rule against the petitioner’s submission.
Although a corporation has a personality separate and distinct from
those of its stockholders, directors, or officers,26such separate and
distinct personality is merely a fiction created by law for the sake of
convenience and to promote the ends of justice.27The corporate
personality may be disregarded, and the individuals composing the
corporation will be treated as individuals, if the corporate entity is
being used as a cloak or cover for fraud or illegality;as a justification
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
looked upon as a legal entity, unless and until sufficient reason to the
contrary appears. Thus,the courts always presume good faith, andfor
that reason accord prime importance to the separate personality of
the corporation, disregarding the corporate personality only after the
wrongdoing is first clearly and convincingly established.29It thus
behooves the courts to be careful in assessing the milieu where the
piercing of the corporate veil shall be done.30
Although nowhere in Printwell’s amended complaint or in the
testimonies Printwell offered can it be read or inferred from that the
petitioner was instrumental in persuading BMPI to renege onits
obligation to pay; or that sheinduced Printwell to extend the credit
accommodation by misrepresenting the solvency of BMPI toPrintwell,
her personal liability, together with that of her co-defendants,
remainedbecause the CA found her and the other defendant
stockholders to be in charge of the operations of BMPI at the time the
unpaid obligation was transacted and incurred, to wit:
In the case at bench, it is undisputed that BMPI made several orders
on credit from appellee PRINTWELL involving the printing of business
magazines, wrappers and subscription cards, in the total amount of
₱291,342.76 (Record pp. 3-5, Annex "A") which facts were never
denied by appellants’ stockholders that they owe(d) appellee the
amount of ₱291,342.76. The said goods were delivered to and
received by BMPI but it failed to pay its overdue account to appellee
as well as the interest thereon, at the rate of 20% per annum until fully
paid. It was also during this time that appellants stockholders were in
charge of the operation of BMPI despite the fact that they were not
able to pay their unpaid subscriptions to BMPI yet greatly benefited
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
unpaid subscriptions. To deny appellee from recovering from
appellants would place appellee in a limbo on where to assert their
right to collect from BMPI since the stockholders who are appellants
herein are availing the defense of corporate fiction to evade payment
of its obligations.31
It follows, therefore, that whether or not the petitioner persuaded
BMPI to renege on its obligations to pay, and whether or not she
induced Printwell to transact with BMPI were not gooddefensesin the
suit.1avvphi1
III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions
Both the RTC and the CA applied the trust fund doctrineagainst the
defendant stockholders, including the petitioner.
The petitionerargues, however,that the trust fund doctrinewas
inapplicablebecause she had already fully paid her subscriptions to
the capital stock of BMPI. She thus insiststhat both lower courts erred
in disregarding the evidence on the complete payment of the
subscription, like receipts, income tax returns, and relevant financial
statements.
The petitioner’s argumentis devoid of substance.
The trust fund doctrineenunciates a –
xxx rule that the property of a corporation is a trust fund for the
payment of creditors, but such property can be called a trust fund
‘only by way of analogy or metaphor.’ As between the corporation
itself and its creditors it is a simple debtor, and as between its
creditors and stockholders its assets are in equity a fund for the
payment of its debts.32
The trust fund doctrine, first enunciated in the American case of Wood
v. Dummer,33was adopted in our jurisdiction in Philippine Trust Co. v.
Rivera,34where thisCourt declared that:
It is established doctrine that subscriptions to the capital of a
corporation constitute a fund to which creditors have a right to look for
satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to
realize assets for the payment of its debts. (Velasco vs. Poizat, 37
Phil., 802) xxx35
We clarify that the trust fund doctrineis not limited to reaching the
stockholder’s unpaid subscriptions. The scope of the doctrine when
the corporation is insolvent encompasses not only the capital stock,
but also other property and assets generally regarded in equity as a
trust fund for the payment of corporate debts.36All assets and property
belonging to the corporation held in trust for the benefit of creditors
thatwere distributed or in the possession of the stockholders,
regardless of full paymentof their subscriptions, may be reached by
the creditor in satisfaction of its claim.
Also, under the trust fund doctrine,a corporation has no legal capacity
to release an original subscriber to its capital stock from the obligation
of paying for his shares, in whole or in part,37 without a valuable
consideration,38 or fraudulently, to the prejudice of creditors.39The
creditor is allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of the corporation for
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
contribute to the payment of its debts by making good unpaid
balances upon their subscriptions, it is only necessary to establish
that thestockholders have not in good faith paid the par value of the
stocks of the corporation.41
The petitionerposits that the finding of irregularity attending the
issuance of the receipts (ORs) issued to the other
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
in the OR issued in her favor,we still cannot sustain the petitioner’s
defense of full payment of her subscription.
In civil cases, theparty who pleads payment has the burden of proving
it, that even where the plaintiff must allege nonpayment, the general
rule is that the burden rests on the defendant to prove payment, rather
than on the plaintiff to prove nonpayment. In other words, the debtor
bears the burden of showing with legal certainty that the obligation
has been discharged by payment.42
Apparently, the petitioner failed to discharge her burden.
A receipt is the written acknowledgment of the fact of payment in
money or other settlement between the seller and the buyer of goods,
thedebtor or thecreditor, or theperson rendering services, and
theclient or thecustomer.43Althougha receipt is the best evidence of
the fact of payment, it isnot conclusive, but merely presumptive;nor is
it exclusive evidence,considering thatparole evidence may also
establishthe fact of payment.44
The petitioner’s ORNo. 227,presentedto prove the payment of the
balance of her subscription, indicated that her supposed payment had
beenmade by means of a check. Thus, to discharge theburden to
prove payment of her subscription, she had to adduce evidence
satisfactorily proving that her payment by check wasregardedas
payment under the law.
Paymentis defined as the delivery of money.45Yet, because a check is
not money and only substitutes for money, the delivery of a check
does not operate as payment and does not discharge the obligation
under a judgment.46 The delivery of a bill of exchange only produces
the fact of payment when the bill has been encashed.47The following
passage fromBank of Philippine Islands v. Royeca48is enlightening:
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
payment. Since a negotiable instrument is only a substitute for money
and not money, the delivery of such an instrument does not, by itself,
operate as payment. Mere delivery of checks does not discharge the
obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is
actually realized.
To establish their defense, the respondents therefore had to present
proof, not only that they delivered the checks to the petitioner, but also
that the checks were encashed. The respondents failed to do so. Had
the checks been actually encashed, the respondents could have
easily produced the cancelled checks as evidence to prove the same.
Instead, they merely averred that they believed in good faith that the
checks were encashed because they were not notified of the dishonor
of the checks and three years had already lapsed since they issued
the checks.
Because of this failure of the respondents to present sufficient proof of
payment, it was no longer necessary for the petitioner to prove non-
payment, particularly proof that the checks were dishonored. The
burden of evidence is shifted only if the party upon whom it is lodged
was able to adduce preponderant evidence to prove its claim.
Ostensibly, therefore, the petitioner’s mere submission of the receipt
issued in exchange of the check did not satisfactorily establish her
allegation of full payment of her subscription. Indeed, she could not
even inform the trial court about the identity of her drawee bank,49and
about whether the check was cleared and its amount paid to BMPI.50In
fact, she did not present the check itself.
Theincome tax return (ITR) and statement of assets and liabilities of
BMPI, albeit presented, had no bearing on the issue of payment of the
subscription because they did not by themselves prove payment.
ITRsestablish ataxpayer’s liability for taxes or a taxpayer’s claim for
refund. In the same manner, the deposit slips and entries in the
passbook issued in the name of BMPI were hardly relevant due to
their not reflecting the alleged payments.
It is notable, too, that the petitioner and her co-stockholders did not
support their allegation of complete payment of their respective
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
its members to prove the corporate acts, its financial status and other
matters (like the status of the stockholders), and are ordinarily the
best evidence of corporate acts and proceedings.51Specifically, a
stock and transfer book is necessary as a measure of precaution,
expediency, and convenience because it provides the only certain and
accurate method of establishing the various corporate acts and
transactions and of showing the ownership of stock and like
matters.52That she tendered no explanation why the stock and transfer
book was not presented warrants the inference that the book did not
reflect the actual payment of her subscription.
Nor did the petitioner present any certificate of stock issued by BMPI
to her. Such a certificate covering her subscription might have been a
reliable evidence of full payment of the subscriptions, considering that
under Section 65 of the Corporation Code a certificate of stock issues
only to a subscriber who has fully paid his subscription. The lack of
any explanation for the absence of a stock certificate in her favor
likewise warrants an unfavorable inference on the issue of payment.
Lastly, the petitioner maintains that both lower courts erred in relying
on the articles of incorporationas proof of the liabilities of the
stockholders subscribing to BMPI’s stocks, averring that the articles of
incorporationdid not reflect the latest subscription status of BMPI.
Although the articles of incorporation may possibly reflect only the
pre-incorporation status of a corporation, the lower courts’ reliance on
that document to determine whether the original subscribersalready
fully paid their subscriptions or not was neither unwarranted nor
erroneous. As earlier explained, the burden of establishing the fact of
full payment belonged not to Printwell even if it was the plaintiff, but to
the stockholders like the petitioner who, as the defendants, averredfull
payment of their subscriptions as a defense. Their failure to
substantiate their averment of full payment, as well as their failure to
counter the reliance on the recitals found in the articles of
incorporation simply meant their failure or inability to satisfactorily
prove their defense of full payment of the subscriptions.
To reiterate, the petitionerwas liablepursuant to the trust fund doctrine
for the corporate obligation of BMPI by virtue of her subscription being
still unpaid. Printwell, as BMPI’s creditor,had a right to reachher
unpaid subscription in satisfaction of its claim.
IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription
The RTC declared the stockholders pro rata liable for the debt(based
on the proportion to their shares in the capital stock of BMPI); and
held the petitionerpersonally liable onlyin the amount of ₱149,955.65.
We do not agree. The RTC lacked the legal and factual support for its
prorating the liability. Hence, we need to modify the extent of the
petitioner’s personal liability to Printwell. The prevailing rule is that a
stockholder is personally liable for the financial obligations of the
corporation to the extent of his unpaid subscription.53In view ofthe
petitioner’s unpaid subscription being worth ₱262,500.00, shewas
liable up to that amount.
Interest is also imposable on the unpaid obligation. Absent any
stipulation, interest is fixed at 12% per annum from the date the
amended complaint was filed on February 8, 1990 until the obligation
(i.e., to the extent of the petitioner’s personal liability of ₱262,500.00)
is fully paid.54
Lastly, we find no basis togrant attorney’s fees, the award for which
must be supported by findings of fact and of law as provided under
Article 2208 of the Civil Code55incorporated in the body of decision of
the trial court. The absence of the requisite findings from the RTC
decision warrants the deletion of the attorney’s fees.
ACCORDINGLY, we deny the petition for review on certiorari;and
affirm with modification the decision promulgated on August 14,
2002by ordering the petitionerto pay to Printwell, Inc. the sum of
₱262,500.00, plus interest of 12% per annum to be computed from
February 8, 1990 until full payment.
The petitioner shall paycost of suit in this appeal.
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.:
This petition for review on certiorari assails the Decision1 dated
February 1, 2008 of the Court of Appeals (CA) in CA-G.R. SP No.
99861. The appellate court reversed and set aside the January 31,
2007 Decision2 and March 15, 2007 Resolution3 of the National Labor
Relations Commission (NLRC) and reinstated the Labor Arbiter’s
Decision4 finding petitioners guilty of illegal dismissal.
The facts follow.
Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor
Bulusan were all employed by petitioner Alert Security and
Investigation Agency, Inc. (Alert Security) as security guards
beginning March 31, 1996, January 14, 1997, and January 24, 1997,
respectively. They were paid 165.00 pesos a day as regular
employees, and assigned at the Department of Science and
Technology (DOST) pursuant to a security service contract between
the DOST and Alert Security.
Respondents aver that because they were underpaid, they filed a
complaint for money claims against Alert Security and its president
and general manager, petitioner Manuel D. Dasig, before Labor
Arbiter Ariel C. Santos. As a result of their complaint, they were
relieved from their posts in the DOST and were not given new
assignments despite the lapse of six months. On January 26, 1999,
they filed a joint complaint for illegal dismissal against petitioners.
Petitioners, on the other hand, deny that they dismissed the
respondents. They claimed that from the DOST, respondents were
merely detailed at the Metro Rail Transit, Inc. at the Light Rail Transit
Authority (LRTA) Compound in Aurora Blvd. because the wages
therein were already adjusted to the latest minimum wage. Petitioners
presented "Duty Detail Orders"5 that Alert Security issued to show that
respondents were in fact assigned to LRTA. Respondents, however,
failed to report at the LRTA and instead kept loitering at the DOST
and tried to convince other security guards to file complaints against
Alert Security. Thus, on August 3, 1998, Alert Security filed a
"termination report"6 with the Department of Labor and Employment
relative to the termination of the respondents.
Upon motion of the respondents, the joint complaint for illegal
dismissal was ordered consolidated with respondents’ earlier
complaint for money claims. The records of the illegal dismissal case
were sent to Labor Arbiter Ariel C. Santos, but later returned to the
Office of the Labor Arbiter hearing the illegal dismissal complaint
because a Decision7 has already been rendered in the complaint for
money claims on July 14, 1999. In that decision, the complaint for
money claims was dismissed for lack of merit but petitioners were
ordered to pay respondents their latest salary differentials.
On July 28, 2000, Labor Arbiter Melquiades Sol D. Del Rosario
rendered a Decision8 on the complaint for illegal dismissal. The Labor
Arbiter ruled:
CONFORMABLY WITH THE FOREGOING, judgment is hereby
rendered finding complainants to have been illegally dismissed.
Consequently, each complainant should be paid in solidum by the
respondents the individual awards computed in the body of the
decision, which is hereto adopted as part of this disposition.
SO ORDERED.9
Aggrieved, petitioners appealed the decision to the NLRC claiming
that the Labor Arbiter erred in deciding a re-filed case when it was
filed in violation of the prohibitions against litis pendencia and forum
shopping. Further, petitioners argued that complainants were not
illegally dismissed but were only transferred. They claimed that it was
the respondents who refused to report for work in their new
assignment.
On January 31, 2007, the NLRC rendered a Decision10 ruling that
Labor Arbiter Del Rosario did not err in taking cognizance of
respondents’ complaint for illegal dismissal because the July 14, 1999
Decision of Labor Arbiter Santos on the complaint for money claims
did not at all pass upon the issue of illegal dismissal. The NLRC,
however, dismissed the complaint for illegal dismissal after ruling that
the fact of dismissal or termination of employment was not sufficiently
established. According to the NLRC, "[the] sweeping generalization
that the complainants were constructively dismissed is not sufficient to
73
establish the existence of illegal dismissal."11 The dispositive portion
of the NLRC decision reads:
WHEREFORE, premises considered, the respondents’ appeal is
hereby given due course and the decision dated July 28, 2000 is
hereby REVERSED and SET-ASIDE and a new one entered
DISMISSING the complaint for illegal dismissal for lack of merit.
SO ORDERED.12
Unfazed, respondents filed a petition for certiorari with the CA
questioning the NLRC decision and alleging grave abuse of
discretion.
On February 1, 2008, the CA rendered the assailed
Decision13 reversing and setting aside the NLRC decision and
reinstating the July 28, 2000 Decision of Labor Arbiter Del Rosario.
The CA ruled that Alert Security, as an employer, failed to discharge
its burden to show that the employee’s separation from employment
was not motivated by discrimination, made in bad faith, or effected as
a form of punishment or demotion without sufficient cause. The CA
also found that respondents were never informed of the "Duty Detail
Orders" transferring them to a new post, thereby making the alleged
transfer ineffective. The dispositive portion of the CA decision states:
WHEREFORE, premises considered, the January 31, 2007 decision
of the NLRC is hereby REVERSED and SET ASIDE and the July 28,
2000 decision of the Labor Arbiter is hereby REVIVED.
SO ORDERED.14
Petitioners filed a motion for reconsideration, but the motion was
denied in a Resolution15 dated March 31, 2008.
Petitioners are now before this Court to seek relief by way of a petition
for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended.
Petitioners argue that the CA erred when it held that the NLRC
committed grave abuse of discretion. According to petitioners, the
NLRC was correct when it ruled that there was no sufficient basis to
rule that respondents were terminated from their employment while
there was proof that they were merely transferred from DOST to
LRTA as shown in the "Duty Detail Orders". Verily, petitioners claim
that there was no termination at all; instead, respondents abandoned
their employment by refusing to report for duty at the LRTA
Compound.
Further, petitioners argue that the CA erred when it reinstated the July
28, 2000 Decision of Labor Arbiter Del Rosario in its entirety. The
dispositive portion of said decision ruled that respondents should be
paid their monetary awards in solidum by Alert Security and Manuel
D. Dasig, its President and General Manager. They argue that Alert
Security is a duly organized domestic corporation which has a legal
personality separate and distinct from its members or owners. Hence,
liability for whatever compensation or money claims owed to
employees must be borne solely by Alert Security and not by any of
its individual stockholders or officers.
On the other hand, respondents claim that the NLRC committed a
serious error in ruling that they failed to provide factual substantiation
of their claim of constructive dismissal. Respondents aver that their
Complaint Form16 sufficiently constitutes the basis of their claim of
illegal dismissal. Also, respondents aver that Alert Security itself
admitted that respondents were relieved from their posts as security
guards in DOST, albeit raising the defense that it was a mere transfer
as shown by "Duty Detail Orders", which, however, were never
received by respondents, as observed by the Labor Arbiter.
Essentially, the issue for resolution is whether respondents were
illegally dismissed.
We rule in the affirmative.
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
authorized18 causes that
must comply with the due process requirements mandated19 by law.
Hence, employers are barred from arbitrarily removing their workers
whenever and however they want. The law sets the valid grounds for
termination as well as the proper procedure to take when terminating
the services of an employee.
In De Guzman, Jr. v. Commission on Elections,20 the Court, speaking
of the Constitutional guarantee of security of tenure to all workers,
ruled:
x x x It only means that an employee cannot be dismissed (or
transferred) from the service for causes other than those provided by
law and after due process is accorded the employee. What it seeks to
prevent is capricious exercise of the power to dismiss. x x x
(Emphasis supplied.)
Although we recognize the right of employers to shape their own work
force, this management prerogative must not curtail the basic right of
employees to security of tenure. There must be a valid and lawful
reason for terminating the employment of a worker. Otherwise, it is
illegal and would be dealt with by the courts accordingly.
As stated in Bascon v. Court of Appeals:21
x x x The employer’s power to dismiss must be tempered with the
employee’s right to security of tenure. Time and again we have said
that the preservation of the lifeblood of the toiling laborer comes
before concern for business profits. Employers must be reminded to
exercise the power to dismiss with great caution, for the State will not
hesitate to come to the succor of workers wrongly dismissed by
capricious employers.
In the case at bar, respondents were relieved from their posts
because they filed with the Labor Arbiter a complaint against their
employer for money claims due to underpayment of wages. This
reason is unacceptable and illegal. Nowhere in the law providing for
the just and authorized causes of termination of employment is there
any direct or indirect reference to filing a legitimate complaint for
money claims against the employer as a valid ground for termination.
The Labor Code, as amended, enumerates several just and
authorized causes for a valid termination of employment. An
employee asserting his right and asking for minimum wage is not
among those causes. Dismissing an employee on this ground
amounts to retaliation by management for an employee’s legitimate
grievance without due process. Such stroke of retribution has no
place in Philippine Labor Laws.
Petitioners aver that respondents were merely transferred to a new
post wherein the wages are adjusted to the current minimum wage
standards. They maintain that the respondents voluntarily abandoned
their jobs when they failed to report for duty in the new location.
Assuming this is true, we still cannot hold that the respondents
abandoned their posts. For abandonment of work to fall under Article
282 (b) of the Labor Code, as amended, as gross and habitual neglect
of duties there must be the concurrence of two elements. First, there
should be a failure of the employee to report for work without a valid
or justifiable reason, and second, there should be a showing that the
employee intended to sever the employer-employee relationship, the
second element being the more determinative factor as manifested by
overt acts.22
As regards the second element of intent to sever the employer-
employee relationship, the CA correctly ruled that:
x x x the fact that petitioners filed a complaint for illegal dismissal is
indicative of their intention to remain employed with private
respondent considering that one of their prayers in the complaint is for
re-instatement. As declared by the Supreme Court, a complaint for
illegal dismissal is inconsistent with the charge of abandonment,
because when an employee takes steps to protect himself against a
dismissal, this cannot, by logic, be said to be abandonment by him of
his right to be able to work.23
75
Further, according to Alert Security itself, respondents continued to
report for work and loiter in the DOST after the alleged transfer order
was issued. Such circumstance makes it unlikely that respondents
have clear intention of leaving their respective jobs. In any case, there
is no dispute that in cases of abandonment of work, notice shall be
served at the worker’s last known address.24 This petitioners failed to
do.
On the element of the failure of the employee to report for work, we
also cannot accept the allegations of petitioners that respondents
unjustifiably refused to report for duty in their new posts. A careful
review of the records reveals that there is no showing that
respondents were notified of their new assignments. Granting that the
"Duty Detail Orders" were indeed issued, they served no purpose
unless the intended recipients of the orders are informed of such.
The employer cannot simply conclude that an employee is ipso facto
notified of a transfer when there is no evidence to indicate that the
employee had knowledge of the transfer order. Hence, the failure of
an employee to report for work at the new location cannot be taken
against him as an element of abandonment.
We acknowledge and recognize the right of an employer to transfer
employees in the interest of the service. This exercise is a
management prerogative which is a lawful right of an employer.
However, like all rights, there are limitations to the right to transfer
employees. As ruled in the case of Blue Dairy Corporation v. NLRC:25
x x x The managerial prerogative to transfer personnel must be
exercised without grave abuse of discretion, bearing in mind the basic
elements of justice and fair play. Having the right should not be
confused with the manner in which that right is exercised. Thus, it
cannot be used as a subterfuge by the employer to rid himself of an
undesirable worker. In particular, the employer must be able to show
that the transfer is not unreasonable, inconvenient or prejudicial to the
employee; nor does it involve a demotion in rank or a diminution of his
salaries, privileges and other benefits. x x x
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
burden to show that the employee was duly notified of the transfer.
Verily, an employer cannot reasonably expect an employee to report
for work in a new location without first informing said employee of the
transfer. Petitioners’ insistence on the sufficiency of mere issuance of
the transfer order is indicative of bad faith on their part.
Besides, according to petitioners, the reason for the transfer to LRTA
of the respondents was that the wages in LRTA were already adjusted
to comply with the minimum wage rates. Now it is hard to believe that
after being ordered to transfer to LRTA where the wages are better,
the respondents would still refuse the transfer. That would mean that
the respondents refused better wages and instead chose to remain in
DOST, underpaid, and go through the lengthy process of claiming and
asking for minimum wage. This proposed scenario of petitioners
simply does not jibe with human logic and experience.
On the question of the propriety of holding petitioner Manuel D. Dasig,
president and general manager of Alert Security, solidarily liable with
Alert Security for the payment of the money awards in favor of
respondents, we find petitioners’ arguments meritorious.
Basic is the rule that a corporation has a separate and distinct
personality apart from its directors, officers, or owners. In exceptional
cases, courts find it proper to breach this corporate personality in
order to make directors, officers, or owners solidarily liable for the
companies’ acts. Section 31, Paragraph 1 of the Corporation
Code26 provides:
Sec. 31. Liability of directors, trustees or officers. - Directors or
trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence
or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such
directors, or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
xxxx
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
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 157802               October 13, 2010
MATLING INDUSTRIAL AND COMMERCIAL CORPORATION,
RICHARD K. SPENCER, CATHERINE SPENCER, AND ALEX
MANCILLA, Petitioners,
vs.
RICARDO R. COROS, Respondent.
DECISION
BERSAMIN, J.:
This case reprises the jurisdictional conundrum of whether a
complaint for illegal dismissal is cognizable by the Labor Arbiter (LA)
or by the Regional Trial Court (RTC). The determination of whether
the dismissed officer was a regular employee or a corporate officer
unravels the conundrum. In the case of the regular employee, the LA
has jurisdiction; otherwise, the RTC exercises the legal authority to
adjudicate.
In this appeal via petition for review on certiorari, the petitioners
challenge the decision dated September 13, 20021 and the resolution
dated April 2, 2003,2 both promulgated in C.A.-G.R. SP No. 65714
entitled Matling Industrial and Commercial Corporation, et al. v.
Ricardo R. Coros and National Labor Relations Commission, whereby
by the Court of Appeals (CA) sustained the ruling of the National
Labor Relations Commission (NLRC) to the effect that the LA had
jurisdiction because the respondent was not a corporate officer of
petitioner Matling Industrial and Commercial Corporation (Matling).
Antecedents
After his dismissal by Matling as its Vice President for Finance and
Administration, the respondent filed on August 10, 2000 a complaint
for illegal suspension and illegal dismissal against Matling and some
of its corporate officers (petitioners) in the NLRC, Sub-Regional
Arbitration Branch XII, Iligan City.3
The petitioners moved to dismiss the complaint,4 raising the ground,
among others, that the complaint pertained to the jurisdiction of the
Securities and Exchange Commission (SEC) due to the controversy
being intra-corporate inasmuch as the respondent was a member of
Matling’s Board of Directors aside from being its Vice-President for
Finance and Administration prior to his termination.
The respondent opposed the petitioners’ motion to dismiss,5 insisting
that his status as a member of Matling’s Board of Directors was
doubtful, considering that he had not been formally elected as such;
that he did not own a single share of stock in Matling, considering that
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
back and retained the certificate of stock in its custody; and that even
assuming that he had been a Director of Matling, he had been
removed as the Vice President for Finance and Administration, not as
a Director, a fact that the notice of his termination dated April 10, 2000
showed.
On October 16, 2000, the LA granted the petitioners’ motion to
dismiss,6 ruling that the respondent was a corporate officer because
he was occupying the position of Vice President for Finance and
Administration and at the same time was a Member of the Board of
Directors of Matling; and that, consequently, his removal was a
corporate act of Matling and the controversy resulting from such
removal was under the jurisdiction of the SEC, pursuant to Section 5,
paragraph (c) of Presidential Decree No. 902.
Ruling of the NLRC
The respondent appealed to the NLRC,7 urging that:
I
THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE
OF DISCRETION GRANTING APPELLEE’S MOTION TO DISMISS
WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE
HIS OPPOSITION THERETO THEREBY VIOLATING THE BASIC
PRINCIPLE OF DUE PROCESS.
78
 II
THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN
DISMISSING THE CASE FOR LACK OF JURISDICTION.
On March 13, 2001, the NLRC set aside the dismissal, concluding
that the respondent’s complaint for illegal dismissal was properly
cognizable by the LA, not by the SEC, because he was not a
corporate officer by virtue of his position in Matling, albeit high ranking
and managerial, not being among the positions listed in Matling’s
Constitution and By-Laws.8 The NLRC disposed thuswise:
WHEREFORE, the Order appealed from is SET ASIDE. A new one is
entered declaring and holding that the case at bench does not involve
any intracorporate matter. Hence, jurisdiction to hear and act on said
case is vested with the Labor Arbiter, not the SEC, considering that
the position of Vice-President for Finance and Administration being
held by complainant-appellant is not listed as among respondent's
corporate officers.
Accordingly, let the records of this case be REMANDED to the
Arbitration Branch of origin in order that the Labor Arbiter below could
act on the case at bench, hear both parties, receive their respective
evidence and position papers fully observing the requirements of due
process, and resolve the same with reasonable dispatch.
SO ORDERED.
The petitioners sought reconsideration,9 reiterating that the
respondent, being a member of the Board of Directors, was a
corporate officer whose removal was not within the LA’s jurisdiction.
The petitioners later submitted to the NLRC in support of the motion
for reconsideration the certified machine copies of Matling’s Amended
Articles of Incorporation and By Laws to prove that the President of
Matling was thereby granted "full power to create new offices and
appoint the officers thereto, and the minutes of special meeting held
on June 7, 1999 by Matling’s Board of Directors to prove that the
respondent was, indeed, a Member of the Board of Directors.10
Nonetheless, on April 30, 2001, the NLRC denied the petitioners’
motion for reconsideration.11
Ruling of the CA
The petitioners elevated the issue to the CA by petition for certiorari,
docketed as C.A.-G.R. No. SP 65714, contending that the NLRC
committed grave abuse of discretion amounting to lack of jurisdiction
in reversing the correct decision of the LA.
In its assailed decision promulgated on September 13, 2002,12 the CA
dismissed the petition for certiorari, explaining:
For a position to be considered as a corporate office, or, for that
matter, for one to be considered as a corporate officer, the position
must, if not listed in the by-laws, have been created by the
corporation's board of directors, and the occupant thereof appointed
or elected by the same board of directors or stockholders. This is the
implication of the ruling in Tabang v. National Labor Relations
Commission, which reads:
"The president, vice president, secretary and treasurer are commonly
regarded as the principal or executive officers of a corporation, and
modern corporation statutes usually designate them as the officers of
the corporation. However, other offices are sometimes created by the
charter or by-laws of a corporation, or the board of directors may be
empowered under the by-laws of a corporation to create additional
offices as may be necessary.
It has been held that 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 'employee' usually occupies no
office and generally is employed not by action of the directors or
stockholders but by the managing officer of the corporation who also
determines the compensation to be paid to such employee."
This ruling was reiterated in the subsequent cases of Ongkingco v.
National Labor Relations Commission and De Rossi v. National
Labor Relations Commission.
79
The position of vice-president for administration and finance, which
Coros used to hold in the corporation, was not created by the
corporation’s board of directors but only by its president or executive
vice-president pursuant to the by-laws of the corporation. Moreover,
Coros’ appointment to said position was not made through any act of
the board of directors or stockholders of the corporation.
Consequently, the position to which Coros was appointed and later on
removed from, is not a corporate office despite its nomenclature, but
an ordinary office in the corporation.
Coros’ alleged illegal dismissal therefrom is, therefore, within the
jurisdiction of the labor arbiter.
WHEREFORE, the petition for certiorari is hereby DISMISSED.
SO ORDERED.
The CA denied the petitioners’ motion for reconsideration on April 2,
2003.13
Issue
Thus, the petitioners are now before the Court for a review on
certiorari, positing that the respondent was a stockholder/member of
the Matling’s Board of Directors as well as its Vice President for
Finance and Administration; and that the CA consequently erred in
holding that the LA had jurisdiction.
The decisive issue is whether the respondent was a corporate officer
of Matling or not. The resolution of the issue determines whether the
LA or the RTC had jurisdiction over his complaint for illegal dismissal.
Ruling
The appeal fails.
I with a claim for reinstatement.
The Law on Jurisdiction in Dismissal Cases
As a rule, the illegal dismissal of an officer or other employee of a
private employer is properly cognizable by the LA. This is pursuant to
Article 217 (a) 2 of the Labor Code, as amended, which provides as
follows:
Article 217. Jurisdiction of the Labor Arbiters and the Commission. -
(a) Except as otherwise provided under this Code, the Labor Arbiters
shall have original and exclusive jurisdiction to hear and decide, within
thirty (30) calendar days after the submission of the case by the
parties for decision without extension, even in the absence of
stenographic notes, the following cases involving all workers, whether
agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those
cases that workers may file involving wages, rates of
pay, hours of work and other terms and conditions of
employment;
4. Claims for actual, moral, exemplary and other forms
of damages arising from the employer-employee
relations;
5. Cases arising from any violation of Article 264 of this
Code, including questions involving the legality of
strikes and lockouts; and
6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other
claims arising from employer-employee relations,
including those of persons in domestic or household
service, involving an amount exceeding five thousand
pesos (₱5,000.00) regardless of whether accompanied
80
 (b) The Commission shall have exclusive appellate jurisdiction
over all cases decided by Labor Arbiters.
(c) Cases arising from the interpretation or implementation of
collective bargaining agreements and those arising from the
interpretation or enforcement of company personnel policies
shall be disposed of by the Labor Arbiter by referring the same
to the grievance machinery and voluntary arbitration as may
be provided in said agreements. (As amended by Section 9,
Republic Act No. 6715, March 21, 1989).
Where the complaint for illegal dismissal concerns a corporate officer,
however, the controversy falls under the jurisdiction of the Securities
and Exchange Commission (SEC), because the controversy arises
out of intra-corporate or partnership relations between and among
stockholders, members, or associates, or between any or all of them
and the corporation, partnership, or association of which they are
stockholders, members, or associates, respectively; and between
such corporation, partnership, or association and the State insofar as
the controversy concerns their individual franchise or right to exist as
such entity; or because the controversy involves the election or
appointment of a director, trustee, officer, or manager of such
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.
8799,15 otherwise known as The Securities Regulation Code, the
SEC’s jurisdiction over all intra-corporate disputes was transferred to
the RTC, pursuant to Section 5.2 of RA No. 8799, to wit:
5.2. The Commission’s jurisdiction over all cases enumerated under
Section 5 of Presidential Decree No. 902-A is hereby transferred to
the Courts of general jurisdiction or the appropriate Regional Trial
Court: Provided, that the Supreme Court in the exercise of its
authority may designate the Regional Trial Court branches that shall
exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one (1)
year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases
filed as of 30 June 2000 until finally disposed.
Considering that the respondent’s complaint for illegal dismissal was
commenced on August 10, 2000, it might come under the coverage of
Section 5.2 of RA No. 8799, supra, should it turn out that the
respondent was a corporate, not a regular, officer of Matling.
II
Was the Respondent’s Position of Vice President
for Administration and Finance a Corporate Office?
We must first resolve whether or not the respondent’s position as Vice
President for Finance and Administration was a corporate office. If it
was, his dismissal by the Board of Directors rendered the matter an
intra-corporate dispute cognizable by the RTC pursuant to RA No.
8799.
The petitioners contend that the position of Vice President for Finance
and Administration was a corporate office, having been created by
Matling’s President pursuant to By-Law No. V, as amended,16 to wit:
BY LAW NO. V
Officers
The President shall be the executive head of the corporation; shall
preside over the meetings of the stockholders and directors; shall
countersign all certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors; shall have full
power to hire and discharge any or all employees of the corporation;
shall have full power to create new offices and to appoint the officers
thereto as he may deem proper and necessary in the operations of
the corporation and as the progress of the business and welfare of the
corporation may demand; shall make reports to the directors and
stockholders and perform all such other duties and functions as are
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
Executive Vice President shall have the power to exercise his
functions.
The petitioners argue that the power to create corporate offices and to
appoint the individuals to assume the offices was delegated by
Matling’s Board of Directors to its President through By-Law No. V, as
amended; and that any office the President created, like the position
of the respondent, was as valid and effective a creation as that made
by the Board of Directors, making the office a corporate office. In
justification, they cite Tabang v. National Labor Relations
Commission,17 which held that "other offices are sometimes created
by the charter or by-laws of a corporation, or the board of directors
may be empowered under the by-laws of a corporation to create
additional officers as may be necessary."
The respondent counters that Matling’s By-Laws did not list his
position as Vice President for Finance and Administration as one of
the corporate offices; that Matling’s By-Law No. III listed only four
corporate officers, namely: President, Executive Vice President,
Secretary, and Treasurer; 18 that the corporate offices contemplated in
the phrase "and such other officers as may be provided for in the by-
laws" found in Section 25 of the Corporation Code should be clearly
and expressly stated in the By-Laws; that the fact that Matling’s By-
Law No. III dealt with Directors & Officers while its By-Law No. V dealt
with Officers proved that there was a differentiation between the
officers mentioned in the two provisions, with those classified under
By-Law No. V being ordinary or non-corporate officers; and that the
officer, to be considered as a corporate officer, must be elected by the
Board of Directors or the stockholders, for the President could only
appoint an employee to a position pursuant to By-Law No. V.
We agree with respondent.
Section 25 of the Corporation Code provides:
Section 25. Corporate officers, quorum.--Immediately after their
election, the directors of a corporation must formally organize by the
election of a president, who shall be a director, a treasurer who may
or may not be a director, a secretary who shall be a resident and
citizen of the Philippines, and such other officers as may be
provided for in the by-laws. Any two (2) or more positions may be
held concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same
time.
The directors or trustees and officers to be elected shall perform the
duties enjoined on them by law and the by-laws of the corporation.
Unless the articles of incorporation or the by-laws provide for a
greater majority, a majority of the number of directors or trustees as
fixed in the articles of incorporation shall constitute a quorum for the
transaction of corporate business, and every decision of at least a
majority of the directors or trustees present at a meeting at which
there is a quorum shall be valid as a corporate act, except for the
election of officers which shall require the vote of a majority of all the
members of the board.
Directors or trustees cannot attend or vote by proxy at board
meetings.
Conformably with Section 25, a position must be expressly mentioned
in the By-Laws in order to be considered as a corporate office. Thus,
the creation of an office pursuant to or under a By-Law enabling
provision is not enough to make a position a corporate office. Guerrea
v. Lezama,19 the first ruling on the matter, held that the only officers of
a corporation were those given that character either by the
Corporation Code or by the By-Laws; the rest of the corporate officers
could be considered only as employees or subordinate officials. Thus,
it was held in Easycall Communications Phils., Inc. v. King:20
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
employee occupies no office and generally is employed not by the
action of the directors or stockholders but by the managing officer of
the corporation who also determines the compensation to be paid to
such employee.
In this case, respondent was appointed vice president for nationwide
expansion by Malonzo, petitioner’'s general manager, not by the
board of directors of petitioner. It was also Malonzo who determined
82
the compensation package of respondent. Thus, respondent was an
employee, not a "corporate officer." The CA was therefore correct in
ruling that jurisdiction over the case was properly with the NLRC, not
the SEC (now the RTC).
This interpretation is the correct application of Section 25 of the
Corporation Code, which plainly states that the corporate officers are
the President, Secretary, Treasurer and such other officers as may be
provided for in the By-Laws. Accordingly, the corporate officers in 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 By-
Laws.
A different interpretation can easily leave the way open for the Board
of Directors to circumvent the constitutionally guaranteed security of
tenure of the employee by the expedient inclusion in the By-Laws of
an enabling clause on the creation of just any corporate officer
position.
It is relevant to state in this connection that the SEC, the primary
agency administering the Corporation Code, adopted a similar
interpretation of Section 25 of the Corporation Code in its Opinion
dated November 25, 1993,21 to wit:
Thus, pursuant to the above provision (Section 25 of the Corporation
Code), whoever are the corporate officers enumerated in the by-laws
are the exclusive Officers of the corporation and the Board has no
power to create other Offices without amending first the corporate By-
laws. However, the Board may create appointive positions other
than the positions of corporate Officers, but the persons
occupying such positions are not considered as corporate
officers within the meaning of Section 25 of the Corporation
Code and are not empowered to exercise the functions of the
corporate Officers, except those functions lawfully delegated to them.
Their functions and duties are to be determined by the Board of
Directors/Trustees.
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
itself to elect the corporate officers. Verily, the power to elect the
corporate officers was a discretionary power that the law exclusively
vested in the Board of Directors, and could not be delegated to
subordinate officers or agents.22 The office of Vice President for
Finance and Administration created by Matling’s President pursuant to
By Law No. V was an ordinary, not a corporate, office.
To emphasize, the power to create new offices and the power to
appoint the officers to occupy them vested by By-Law No. V merely
allowed Matling’s President to create non-corporate offices to be
occupied by ordinary employees of Matling. Such powers were
incidental to the President’s duties as the executive head of Matling to
assist him in the daily operations of the business.
The petitioners’ reliance on Tabang, supra, is misplaced. The
statement in Tabang, to the effect that offices not expressly
mentioned in the By-Laws but were created pursuant to a By-Law
enabling provision were also considered corporate offices, was
plainly obiter dictum due to the position subject of the controversy
being mentioned in the By-Laws. Thus, the Court held therein that the
position was a corporate office, and that the determination of the
rights and liabilities arising from the ouster from the position was an
intra-corporate controversy within the SEC’s jurisdiction.
In Nacpil v. Intercontinental Broadcasting Corporation,23 which may
be the more appropriate ruling, the position subject of the controversy
was not expressly mentioned in the By-Laws, but was created
pursuant to a By-Law enabling provision authorizing the Board of
Directors to create other offices that the Board of Directors might see
fit to create. The Court held there that the position was a corporate
office, relying on the obiter dictum in Tabang.
Considering that the observations earlier made herein show that the
soundness of their dicta is not
unassailable, Tabang and Nacpil should no longer be controlling.
III
83
Did Respondent’s Status as Director and
Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?
Yet, the petitioners insist that because the respondent was a
Director/stockholder of Matling, and relying on Paguio v. National
Labor Relations Commission24 and Ongkingko v. National Labor
Relations Commission,25 the NLRC had no jurisdiction over his
complaint, considering that any case for illegal dismissal brought by a
stockholder/officer against the corporation was an intra-corporate
matter that must fall under the jurisdiction of the SEC conformably
with the context of PD No. 902-A.
The petitioners’ insistence is bereft of basis.
To begin with, the reliance on Paguio and Ongkingko is misplaced. In
both rulings, the complainants were undeniably corporate officers due
to their positions being expressly mentioned in the By-Laws, aside
from the fact that both of them had been duly elected by the
respective Boards of Directors. But the herein respondent’s position of
Vice President for Finance and Administration was not expressly
mentioned in the By-Laws; neither was the position of Vice President
for Finance and Administration created by Matling’s Board of
Directors. Lastly, the President, not the Board of Directors, appointed
him.
True it is that the Court pronounced in Tabang as follows:
Also, an intra-corporate controversy is one which arises between a
stockholder and the corporation. There is no distinction, qualification
or any exemption whatsoever. The provision is broad and covers all
kinds of controversies between stockholders and corporations.26
However, the Tabang pronouncement is not controlling because it is
too sweeping and does not accord with reason, justice, and fair play.
In order to determine whether a dispute constitutes an intra-corporate
controversy or not, the Court considers two elements instead, namely:
(a) the status or relationship of the parties; and (b) the nature of the
question that is the subject of their controversy. This was our thrust
in Viray v. Court of Appeals:27
The establishment of any of the relationships mentioned above will
not necessarily always confer jurisdiction over the dispute on the SEC
to the exclusion of regular courts. The statement made in one case
that the rule admits of no exceptions or distinctions is not that
absolute. The better policy in determining which body has jurisdiction
over a case would be to consider not only the status or relationship of
the parties but also the nature of the question that is the subject of
their controversy.
Not every conflict between a corporation and its stockholders involves
corporate matters that only the SEC can resolve in the exercise of its
adjudicatory or quasi-judicial powers. If, for example, a person leases
an apartment owned by a corporation of which he is a stockholder,
there should be no question that a complaint for his ejectment for non-
payment of rentals would still come under the jurisdiction of the
regular courts and not of the SEC. By the same token, if one person
injures another in a vehicular accident, the complaint for damages
filed by the victim will not come under the jurisdiction of the SEC
simply because of the happenstance that both parties are
stockholders of the same corporation. A contrary interpretation would
dissipate the powers of the regular courts and distort the meaning and
intent of PD No. 902-A.
In another case, Mainland Construction Co., Inc. v. Movilla,28 the
Court reiterated these determinants thuswise:
In order that the SEC (now the regular courts) can take cognizance of
a case, the controversy must pertain to any of the following
relationships:
a) between the corporation, partnership or association and the
public;
b) between the corporation, partnership or association and its
stockholders, partners, members or officers;
84
 c) between the corporation, partnership or association and the
State as far as its franchise, permit or license to operate is
concerned; and
d) among the stockholders, partners or associates themselves.
The fact that the parties involved in the controversy are all
stockholders or that the parties involved are the stockholders and the
corporation does not necessarily place the dispute within the ambit of
the jurisdiction of SEC. The better policy to be followed in determining
jurisdiction over a case should be to consider concurrent factors such
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
these factors, the SEC will not have jurisdiction. Furthermore, it does
not necessarily follow that every conflict between the corporation and
its stockholders would involve such corporate matters as only the
SEC can resolve in the exercise of its adjudicatory or quasi-judicial
powers.29
The criteria for distinguishing between corporate officers who may be
ousted from office at will, on one hand, and ordinary corporate
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
the manner of creation of the office. In the respondent’s case, he was
supposedly at once an employee, a stockholder, and a Director of
Matling. The circumstances surrounding his appointment to office
must be fully considered to determine whether the dismissal
constituted an intra-corporate controversy or a labor termination
dispute. We must also consider whether his status as Director and
stockholder had any relation at all to his appointment and subsequent
dismissal as Vice President for Finance and Administration.
Obviously enough, the respondent was not appointed as Vice
President for Finance and Administration because of his being a
stockholder or Director of Matling. He had started working for Matling
on September 8, 1966, and had been employed continuously for 33
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
and Administration had been gradual but steady, as the following
sequence indicates:
1966 – Bookkeeper
1968 – Senior Accountant
1969 – Chief Accountant
1972 – Office Supervisor
1973 – Assistant Treasurer
1978 – Special Assistant for Finance
1980 – Assistant Comptroller
1983 – Finance and Administrative Manager
1985 – Asst. Vice President for Finance and Administration
1987 to April 17, 2000 – Vice President for Finance and
Administration
Even though he might have become a stockholder of Matling in 1992,
his promotion to the position of Vice President for Finance and
Administration in 1987 was by virtue of the length of quality service he
had rendered as an employee of Matling. His subsequent acquisition
of the status of Director/stockholder had no relation to his promotion.
Besides, his status of Director/stockholder was unaffected by his
dismissal from employment as Vice President for Finance and
Administration.1avvphi1
In Prudential Bank and Trust Company v. Reyes,30 a case involving a
lady bank manager who had risen from the ranks but was dismissed,
the Court held that her complaint for illegal dismissal was correctly
brought to the NLRC, because she was deemed a regular employee
of the bank. The Court observed thus:
It appears that private respondent was appointed Accounting Clerk by
the Bank on July 14, 1963. From that position she rose to become
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
seeking to nullify the dismissal by the Court of Appeals of the original
petition for certiorari, prohibition and mandamus filed by the herein
petitioner against the City Mayor and City Legal Officer of Iligan and
the Samahang Optometrist sa Pilipinas — Iligan Chapter (SOPI, for
brevity).
The antecedent facts leading to the filing of the instant petition are as
follows:
Petitioner applied with the Office of the City Mayor of Iligan for a
business permit. After consideration of petitioner's application and the
opposition interposed thereto by local optometrists, respondent City
Mayor issued Business Permit No. 5342 subject to the following
conditions:
1. Since it is a corporation, Acebedo cannot put up an optical
clinic but only a commercial store;
2. Acebedo cannot examine and/or prescribe reading and
similar optical glasses for patients, because these are
functions of optical clinics;
3. Acebedo cannot sell reading and similar eyeglasses without
a prescription having first been made by an independent
optometrist (not its employee) or independent optical clinic.
Acebedo can only sell directly to the public, without need of a
prescription, Ray-Ban and similar eyeglasses;
4. Acebedo cannot advertise optical lenses and eyeglasses,
but can advertise Ray-Ban and similar glasses and frames;
5. Acebedo is allowed to grind lenses but only upon the
prescription of an independent optometrist. 1
On December 5, 1988, private respondent Samahan ng Optometrist
Sa Pilipinas (SOPI), Iligan Chapter, through its Acting President, Dr.
Frances B. Apostol, lodged a complaint against the petitioner before
the Office of the City Mayor, alleging that Acebedo had violated the
conditions set forth in its business permit and requesting the
cancellation and/or revocation of such permit.
Acting on such complaint, then City Mayor Camilo P. Cabili
designated City Legal Officer Leo T. Cahanap to conduct an
investigation on the matter. On July 12, 1989, respondent City Legal
Officer submitted a report to the City Mayor finding the herein
petitioner guilty of violating all the conditions of its business permit
and recommending the disqualification of petitioner from operating its
business in Iligan City. The report further advised that no new permit
shall be granted to petitioner for the year 1989 and should only be
given time to wind up its affairs.
On July 19, 1989, the City Mayor sent petitioner a Notice of
Resolution and Cancellation of Business Permit effective as of said
date and giving petitioner three (3) months to wind up its affairs.
On October 17, 1989, petitioner brought a petition for certiorari,
prohibition and mandamus with prayer for restraining
order/preliminary injunction against the respondents, City Mayor, City
Legal Officer and Samahan ng Optometrists sa Pilipinas-Iligan City
Chapter (SOPI), docketed as Civil Case No. 1497 before the Regional
Trial Court of Iligan City, Branch I. Petitioner alleged that (1) it was
denied due process because it was not given an opportunity to
present its evidence during the investigation conducted by the City
Legal Officer; (2) it was denied equal protection of the laws as the
limitations imposed on its business permit were not imposed on
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
Legal Officer had no authority to conduct the investigation as the
matter falls within the exclusive jurisdiction of the Professional
Regulation Commission and the Board of Optometry.
Respondent SOPI interposed a Motion to Dismiss the Petition on the
ground of non-exhaustion of administrative remedies but on
November 24, 1989, Presiding Judge Mamindiara P. Mangotara
deferred resolution of such Motion to Dismiss until after trial of the
case on the merits. However, the prayer for a writ of preliminary
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
exhaust administrative remedies, and dissolved the writ of preliminary
injunction it earlier issued. Petitioner's motion for reconsideration met
the same fate. It was denied by an Order dated June 28, 1990.
On October 3, 1990, instead of taking an appeal, petitioner filed a
petition for certiorari, prohibition and mandamus with the Court of
Appeals seeking to set aside the questioned Order of Dismissal,
branding the same as tainted with grave abuse of discretion on the
part of the trial court.
On January 24, 1991, the Ninth Division 2 of the Court of Appeals
dismissed the petition for lack of merit. Petitioner's motion
reconsideration was also denied in the Resolution dated May 15,
1991.
Undaunted, petitioner has come before this court via the present
petition, theorizing that:
A.
THE RESPONDENT COURT, WHILE CORRECTLY
HOLDING THAT THE RESPONDENT CITY MAYOR ACTED
BEYOND HIS AUTHORITY IN IMPOSING THE SPECIAL
CONDITIONS IN THE PERMIT AS THEY HAD NO BASIS IN
ANY LAW OR ORDINANCE, ERRED IN HOLDING THAT
THE SAID SPECIAL CONDITIONS NEVERTHELESS
BECAME BINDING ON PETITIONER UPON ITS
ACCEPTANCE THEREOF AS A PRIVATE AGREEMENT OR
CONTRACT.
B.
THE RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE CONTRACT BETWEEN PETITIONER
AND THE CITY OF ILIGAN WAS ENTERED INTO BY THE
LATTER IN THE PERFORMANCE OF ITS PROPRIETARY
FUNCTIONS.
The petition is impressed with merit.
Although petitioner agrees with the finding of the Court of Appeals that
respondent City Mayor acted beyond the scope of his authority in
imposing the assailed conditions in subject business permit, it has
excepted to the ruling of the Court of Appeals that the said conditions
nonetheless became binding on petitioner, once accepted, as a
private agreement or contract. Petitioner maintains that the said
special conditions are null and void for being ultra vires and cannot be
given effect; and therefore, the principle of estoppel cannot apply
against it.
On the other hand, the public respondents, City Mayor and City Legal
Officer, private respondent SOPI and the Office of the Solicitor
General contend that as a valid exercise of police power, respondent
City Mayor has the authority to impose, as he did, special conditions
in the grant of business permits.
Police power as an inherent attribute of sovereignty is the power to
prescribe regulations to promote the health, morals, peace, education,
good order or safety and general welfare of the people. 9 The State,
through the legislature, has delegated the exercise of police power to
local government units, as agencies of the State, in order to effectively
accomplish and carry out the declared objects of their creation. 4 This
delegation of police power is embodied in the general welfare clause
of the Local Government Code which provides:
Sec. 6. General Welfare. — Every local government unit shall
exercise the powers expressly granted, those necessarily
implied therefrom, as well as powers necessary, appropriate,
or incidental for its efficient and effective governance, and
those which are essential to the promotion of the general
welfare. Within their respective territorial jurisdictions, local
government units shall ensure and support, among other
things, the preservation and enrichment of culture, promote
health and safety, enhance the right of the people to a
balanced ecology, encourage and support the development of
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
comfort and convenience of their inhabitants.
The scope of police power has been held to be so comprehensive as
to encompass almost all matters affecting the health, safety, peace,
order, morals, comfort and convenience of the community. Police
power is essentially regulatory in nature and the power to issue
licenses or grant business permits, if exercised for a regulatory and
not revenue-raising purpose, is within the ambit of this power. 5
The authority of city mayors to issue or grant licenses and business
permits is beyond cavil. It is provided for by law. Section 171,
paragraph 2 (n) of Batas Pambansa Bilang 337 otherwise known as
the Local Government Code of 1983, reads:
Sec. 171. The City Mayor shall:
x x x           x x x          x x x
n) Grant or refuse to grant, pursuant to law, city licenses or
permits, and revoke the same for violation of law or ordinance
or the conditions upon which they are granted.
However, the power to grant or issue licenses or business permits
must always be exercised in accordance with law, with utmost
observance of the rights of all concerned to due process and equal
protection of the law.
Succinct and in point is the ruling of this Court, that:
. . . While a business may be regulated, such regulation must,
however, be within the bounds of reason, i.e., the regulatory
ordinance must be reasonable, and its provision cannot be
oppressive amounting to an arbitrary interference with the
business or calling subject of regulation. A lawful business or
calling may not, under the guise of regulation, be
unreasonably interfered with even by the exercise of police
power. . . .
x x x           x x x          x x x
. . . The exercise of police power by the local government is
valid unless it contravenes the fundamental law of the land or
an act of the legislature, or unless it is against public policy or
is unreasonable, oppressive, partial, discriminating or in
derogation of a common right. 6
In the case under consideration, the business permit granted by
respondent City Mayor to petitioner was burdened with several
conditions. Petitioner agrees with the holding by the Court of Appeals
that respondent City Mayor acted beyond his authority in imposing
such special conditions in its permit as the same have no basis in the
law or ordinance. Public respondents and private respondent SOPI,
on the other hand, are one in saying that the imposition of said special
conditions on petitioner's business permit is well within the authority of
the City Mayor as a valid exercise of police power.
As aptly discussed by the Solicitor General in his Comment, the
power to issue licenses and permits necessarily includes the corollary
power to revoke, withdraw or cancel the same. And the power to
revoke or cancel, likewise includes the power to restrict through the
imposition of certain conditions. In the case of Austin-
Hardware, Inc. vs. Court of Appeals, 7 it was held that the power to
license carries with it the authority to provide reasonable terms and
conditions under which the licensed business shall be conducted. As
the Solicitor General puts it:
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
can also exercise a lesser power that is reasonably incidental
to his express power, i.e. to restrict a license through the
imposition of certain conditions, especially so that there is no
positive prohibition to the exercise of such prerogative by the
City Mayor, nor is there any particular official or body vested
with such authority. 8
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
which, it complains, amount to a confiscation of the business in which
petitioner is engaged.
Distinction must be made between the grant of a license or permit to
do business and the issuance of a license to engage in the practice of
a particular profession. The first is usually granted by the local
authorities and the second is issued by the Board or Commission
tasked to regulate the particular profession. A business permit
authorizes the person, natural or otherwise, to engage in business or
some form of commercial activity. A professional license, on the other
hand, is the grant of authority to a natural person to engage in the
practice or exercise of his or her profession.
In the case at bar, what is sought by petitioner from respondent City
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
optometry as a corporate body or entity, although it does have in its
employ, persons who are duly licensed to practice optometry by the
Board of Examiners in Optometry.
The case of Samahan ng Optometrists sa Pilipinas
vs. Acebedo International Corporation, G.R. No.
117097, 9 promulgated by this Court on March 21, 1997, is in point.
The factual antecedents of that case are similar to those of the case
under consideration and the issue ultimately resolved therein is
exactly the same issue posed for resolution by this Court en banc.
In the said case, the Acebedo International Corporation filed with the
Office of the Municipal Mayor an application for a business permit for
the operation of a branch of Acebedo Optical in Candon, Ilocos Sur.
The application was opposed by the Samahan ng Optometrists sa
Pilipinas-Ilocos Sur Chapter, theorizing that Acebedo is a juridical
entity not qualified to practice optometry. A committee was created by
the Office of the Mayor to study private respondent's application.
Upon recommendation of the said committee, Acebedo's application
for a business permit was denied. Acebedo filed a petition with the
Regional Trial Court but the same was dismissed. On appeal,
however, the Court of Appeals reversed the trial court's disposition,
prompting the Samahan ng Optometrists to elevate the matter to this
Court.
The First Division of this Court, then composed of Honorable Justice
Teodoro Padilla, Josue Bellosillo, Jose Vitug and Santiago Kapunan,
with Honorable Justice Regino Hermosisima, Jr. as ponente, denied
the petition and ruled in favor of respondent Acebedo International
Corporation, holding that "the fact that private respondent hires
optometrists who practice their profession in the course of their
employment in private respondent's optical shops, does not translate
into a practice of optometry by private respondent itself," 10 The Court
further elucidated that in both the old and new Optometry Law, R.A.
No. 1998, superseded by R.A. No. 8050, it is significant to note that
there is no prohibition against the hiring by corporations of
optometrists. The Court concluded thus:
All told, there is no law that prohibits the hiring by corporations
of optometrists or considers the hiring by corporations of
optometrists as a practice by the corporation itself of the
profession of optometry.
In the present case, the objective of the imposition of subject
conditions on petitioner's business permit could be attained by
requiring the optometrists in petitioner's employ to produce a valid
certificate of registration as optometrist, from the Board of Examiners
in Optometry. A business permit is issued primarily to regulate the
conduct of business and the City Mayor cannot, through the issuance
of such permit, regulate the practice of a profession, like that of
optometry. Such a function is within the exclusive domain of the
administrative agency specifically empowered by law to supervise the
profession, in this case the Professional Regulations Commission and
the Board of Examiners in Optometry.
It is significant to note that during the deliberations of the bicameral
conference committee of the Senate and the House of
Representatives on R.A. 8050 (Senate Bill No. 1998 and House Bill
No. 14100), the committee failed to reach a consensus as to the
prohibition on indirect practice of optometry by corporations. The
proponent of the bill, former Senator Freddie Webb, admitted thus:
90
 Senator Webb: xxx xxx xxx
The focus of contention remains to be the proposal of
prohibiting the indirect practice of optometry by
corporations.1âwphi1 We took a second look and even a third
look at the issue in the bicameral conference, but a
compromise remained elusive. 11
Former Senator Leticia Ramos-Shahani likewise voted her reservation
in casting her vote:
Senator Shahani: Mr. President.
The optometry bills have evoked controversial views from the
members of the panel. While we realize the need to uplift the
standards of optometry as a profession, the consesnsus of
both Houses was to avoid touching sensitive issues which
properly belong to judicial determination. Thus, the bicameral
conference committee decided to leave the issue of indirect
practice of optometry and the use of trade names open to the
wisdom of the Courts which are vested with the prerogative of
interpreting the laws. 12
From the foregoing, it is thus evident that Congress has not adopted a
unanimous position on the matter of prohibition of indirect practice of
optometry by corporations, specifically on the hiring and employment
of licensed optometrists by optical corporations. It is clear that
Congress left the resolution of such issue for judicial determination,
and it is therefore proper for this Court to resolve the issue.
Even in the United States, jurisprudence varies and there is a conflict
of opinions among the federal courts as to the right of a corporation or
individual not himself licensed, to hire and employ licensed
optometrists. 13
Courts have distinguished between optometry as a learned profession
in the category of law and medicine, and optometry as a mechanical
art. And, insofar as the courts regard optometry as merely a
mechanical art, they have tended to find nothing objectionable in the
making and selling of eyeglasses, spectacles and lenses by
corporations so long as the patient is actually examined and
prescribed for by a qualified practitioner. 14
The primary purpose of the statute regulating the practice of
optometry is to insure that optometrical services are to be rendered by
competent and licensed persons in order to protect the health and
physical welfare of the people from the dangers engendered by
unlicensed practice. Such purpose may be fully accomplished
although the person rendering the service is employed by a
corporation. 15
Furthermore, it was ruled that the employment of a qualified
optometrist by a corporation is not against public policy. 16 Unless
prohibited by statutes, a corporation has all the contractual rights that
an individual has 17 and it does not become the practice of medicine or
optometry because of the presence of a physician or
optometrist. 18 The manufacturing, selling, trading and bartering of
eyeglasses and spectacles as articles of merchandise do not
constitute the practice of optometry. 19
In the case of Dvorine vs. Castelberg Jewelry
Corporation, 20 defendant corporation conducted as part of its
business, a department for the sale of eyeglasses and the furnishing
of optometrical services to its clients. It employed a registered
optometrist who was compensated at a regular salary and
commission and who was furnished instruments and appliances
needed for the work, as well as an office. In holding that corporation
was not engaged in the practice of optometry, the court ruled that
there is no public policy forbidding the commercialization of
optometry, as in law and medicine, and recognized the general
practice of making it a commercial business by advertising and selling
eyeglasses.
To accomplish the objective of the regulation, a state may provide by
statute that corporations cannot sell eyeglasses, spectacles, and
lenses unless a duly licensed physician or a duly qualified optometrist
is in charge of, and in personal attendance at the place where such
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
of prescription and preliminary and final examination. 22
In analogy, it is noteworthy that private hospitals are maintained by
corporations incorporated for the purpose of furnishing medical and
surgical treatment. In the course of providing such treatments, these
corporations employ physicians, surgeons and medical practitioners,
in the same way that in the course of manufacturing and selling
eyeglasses, eye frames and optical lenses, optical shops hire licensed
optometrists to examine, prescribe and dispense ophthalmic lenses.
No one has ever charged that these corporations are engaged in the
practice of medicine. There is indeed no valid basis for treating
corporations engaged in the business of running optical shops
differently.
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
Appeals. Consequently, the holding by the Court of Appeals that the
act of respondent City Mayor in imposing the questioned special
conditions on petitioner's business permit is ultra vires cannot be put
into issue here by the respondents. It is well-settled that:
A party who has not appealed from the decision may not
obtain any affirmative relief from the appellate court other than
what he had obtain from the lower court, if any, whose
decision is brought up on appeal. 23
. . . an appellee who is not an appellant may assign errors in
his brief where his purpose is to maintain the judgment on
other grounds, but he cannot seek modification or reversal of
the judgment or affirmative relief unless he has also
appealed. 24
Thus, respondents' submission that the imposition of subject special
conditions on petitioner's business permit is not ultra vires cannot
prevail over the finding and ruling by the Court of Appeals from which
they (respondents) did not appeal.
Anent the second assigned error, petitioner maintains that its
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
although petitioner agreed to such conditions, it cannot be held in
estoppel since ultra vires acts cannot be given effect.
Respondents, on the other hand, agree with the ruling of the Court of
Appeals that the business permit in question is in the nature of a
contract between Iligan City and the herein petitioner, the terms and
conditions of which are binding upon agreement, and that petitioner is
estopped from questioning the same. Moreover, in the Resolution
denying petitioner's motion for reconsideration, the Court of Appeals
held that the contract between the petitioner and the City of Iligan was
entered into by the latter in the performance of its proprietary
functions.
This Court holds otherwise. It had occasion to rule that a license or
permit is not in the nature of a contract but a special privilege.
. . . a license or a permit is not a contract between the
sovereignty and the licensee or permitee, and is not a property
in the constitutional sense, as to which the constitutional
proscription against impairment of the obligation of contracts
may extend. A license is rather in the nature of a special
privilege, of a permission or authority to do what is within its
terms. It is not in any way vested, permanent or absolute. 25
It is therefore decisively clear that estoppel cannot apply in this case.
The fact that petitioner acquiesced in the special conditions imposed
by the City Mayor in subject business permit does not preclude it from
challenging the said imposition, which is ultra vires or beyond the
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
and cannot be given any effect. The doctrine of estoppel cannot
operate to give effect to an act which is otherwise null and void
or ultra vires.
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
Filipinas Broadcasting Network, Inc. and its broadcasters
Hermogenes Alegre and Carmelo Rima liable for libel and ordered
them to solidarily pay Ago Medical and Educational Center-Bicol
Christian College of Medicine moral damages, attorney’s fees and
costs of suit.
The Antecedents
"Exposé" is a radio documentary4 program hosted by Carmelo ‘Mel’
Rima ("Rima") and Hermogenes ‘Jun’ Alegre ("Alegre").5 Exposé is
aired every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi
City, the Albay municipalities and other Bicol areas.6
In the morning of 14 and 15 December 1989, Rima and Alegre
exposed various alleged complaints from students, teachers and
parents against Ago Medical and Educational Center-Bicol Christian
College of Medicine ("AMEC") and its administrators. Claiming that
the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as
Dean of AMEC’s College of Medicine, filed a complaint for
damages7 against FBNI, Rima and Alegre on 27 February 1990.
Quoted are portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking
medical course at AMEC-BCCM, advise them to pass all subjects
because if they fail in any subject they will repeat their year level,
taking up all subjects including those they have passed already.
Several students had approached me stating that they had consulted
with the DECS which told them that there is no such regulation. If
[there] is no such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had
complained that the course is not recognized by DECS. xxx
Third: Students are required to take and pay for the subject even
if the subject does not have an instructor - such greed for money
on the part of AMEC’s administration. Take the subject Anatomy:
students would pay for the subject upon enrolment because it is
offered by the school. However there would be no instructor for such
subject. Students would be informed that course would be moved to a
later date because the school is still searching for the appropriate
instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center
has survived and has been surviving for the past few years since its
inception because of funds support from foreign foundations. If you
will take a look at the AMEC premises you’ll find out that the names of
the buildings there are foreign soundings. There is a McDonald Hall.
Why not Jose Rizal or Bonifacio Hall? That is a very concrete and
undeniable evidence that the support of foreign foundations for AMEC
is substantial, isn’t it? With the report which is the basis of the expose
in DZRC today, it would be very easy for detractors and enemies of
the Ago family to stop the flow of support of foreign foundations who
assist the medical school on the basis of the latter’s purpose. But if
the purpose of the institution (AMEC) is to deceive students at cross
purpose with its reason for being it is possible for these foreign
foundations to lift or suspend their donations temporarily.8
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC
Science High School and the AMEC-Institute of Mass
Communication in their effort to minimize expenses in terms of
salary are absorbing or continues to accept "rejects". For
example how many teachers in AMEC are former teachers of Aquinas
University but were removed because of immorality? Does it mean
that the present administration of AMEC have the total definite moral
foundation from catholic administrator of Aquinas University. I will
prove to you my friends, that AMEC is a dumping ground, garbage,
not merely of moral and physical misfits. Probably they only qualify
in terms of intellect. The Dean of Student Affairs of AMEC is Justita
Lola, as the family name implies. She is too old to work, being an old
94
woman. Is the AMEC administration exploiting the very [e]nterprising
or compromising and undemanding Lola? Could it be that AMEC is
just patiently making use of Dean Justita Lola were if she is very old.
As in atmospheric situation – zero visibility – the plane cannot land,
meaning she is very old, low pay follows. By the way, Dean Justita
Lola is also the chairman of the committee on scholarship in AMEC.
She had retired from Bicol University a long time ago but AMEC has
patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for
moral and physically misfit people. What does this mean? Immoral
and physically misfits as teachers.
May I say I’m sorry to Dean Justita Lola. But this is the truth. The truth
is this, that your are no longer fit to teach. You are too old. As an
aviation, your case is zero visibility. Don’t insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and
chairman of the scholarship committee at that. The reason is practical
cost saving in salaries, because an old person is not fastidious, so
long as she has money to buy the ingredient of beetle juice. The
elderly can get by – that’s why she (Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is
likely that the students would be influenced by evil. When they
become members of society outside of campus will be liabilities
rather than assets. What do you expect from a doctor who while
studying at AMEC is so much burdened with unreasonable
imposition? What do you expect from a student who aside from
peculiar problems – because not all students are rich – in their
struggle to improve their social status are even more burdened with
false regulations. xxx9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning
institution. With the supposed exposés, FBNI, Rima and Alegre
"transmitted malicious imputations, and as such, destroyed plaintiffs’
(AMEC and Ago) reputation." AMEC and Ago included FBNI as
defendant for allegedly failing to exercise due diligence in the
selection and supervision of its employees, particularly Rima and
Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil
Lozares, filed an Answer10 alleging that the broadcasts against AMEC
were fair and true. FBNI, Rima and Alegre claimed that they were
plainly impelled by a sense of public duty to report the "goings-on in
AMEC, [which is] an institution imbued with public interest."
Thereafter, trial ensued. During the presentation of the evidence for
the defense, Atty. Edmundo Cea, collaborating counsel of Atty.
Lozares, filed a Motion to Dismiss11 on FBNI’s behalf. The trial court
denied the motion to dismiss. Consequently, FBNI filed a separate
Answer claiming that it exercised due diligence in the selection and
supervision of Rima and Alegre. FBNI claimed that before hiring a
broadcaster, the broadcaster should (1) file an application; (2) be
interviewed; and (3) undergo an apprenticeship and training program
after passing the interview. FBNI likewise claimed that it always
reminds its broadcasters to "observe truth, fairness and objectivity in
their broadcasts and to refrain from using libelous and indecent
language." Moreover, FBNI requires all broadcasters to pass
the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accreditation
test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision12 finding
FBNI and Alegre liable for libel except Rima. The trial court held that
the broadcasts are libelous per se. The trial court rejected the
broadcasters’ claim that their utterances were the result of straight
reporting because it had no factual basis. The broadcasters did not
even verify their reports before airing them to show good faith. In
holding FBNI liable for libel, the trial court found that FBNI failed to
exercise diligence in the selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rima’s
only participation was when he agreed with Alegre’s exposé. The trial
95
court found Rima’s statement within the "bounds of freedom of
speech, expression, and of the press." The dispositive portion of the
decision reads:
WHEREFORE, premises considered, this court finds for the
plaintiff. Considering the degree of damages caused by the
controversial utterances, which are not found by this court to be
really very serious and damaging, and there being no showing
that indeed the enrollment of plaintiff school dropped, defendants
Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network
(owner of the radio station DZRC), are hereby jointly and severally
ordered to pay plaintiff Ago Medical and Educational Center-Bicol
Christian College of Medicine (AMEC-BCCM) the amount of
₱300,000.00 moral damages, plus ₱30,000.00 reimbursement of
attorney’s fees, and to pay the costs of suit.
SO ORDERED. 13 (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and
AMEC and Ago, on the other, appealed the decision to the Court of
Appeals. The Court of Appeals affirmed the trial court’s judgment with
modification. The appellate court made Rima solidarily liable with
FBNI and Alegre. The appellate court denied Ago’s claim for damages
and attorney’s fees because the broadcasts were directed against
AMEC, and not against her. The dispositive portion of the Court of
Appeals’ decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED,
subject to the modification that broadcaster Mel Rima is SOLIDARILY
ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.14
FBNI, Rima and Alegre filed a motion for reconsideration which the
Court of Appeals denied in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.15
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial court’s ruling that the questioned
broadcasts are libelous per se and that FBNI, Rima and Alegre failed
to overcome the legal presumption of malice. The Court of Appeals
found Rima and Alegre’s claim that they were actuated by their moral
and social duty to inform the public of the students’ gripes as
insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMEC’s
administrators, the Court of Appeals ruled that the broadcasts were
made "with reckless disregard as to whether they were true or false."
The appellate court pointed out that FBNI, Rima and Alegre failed to
present in court any of the students who allegedly complained against
AMEC. Rima and Alegre merely gave a single name when asked to
identify the students. According to the Court of Appeals, these
circumstances cast doubt on the veracity of the broadcasters’ claim
that they were "impelled by their moral and social duty to inform the
public about the students’ gripes."
The Court of Appeals found Rima also liable for libel since he
remarked that "(1) AMEC-BCCM is a dumping ground for morally and
physically misfit teachers; (2) AMEC obtained the services of Dean
Justita Lola to minimize expenses on its employees’ salaries; and (3)
AMEC burdened the students with unreasonable imposition and false
regulations."16
The Court of Appeals held that FBNI failed to exercise due diligence
in the selection and supervision of its employees for allowing Rima
and Alegre to make the radio broadcasts without the proper KBP
accreditation. The Court of Appeals denied Ago’s claim for damages
and attorney’s fees because the libelous remarks were directed
against AMEC, and not against her. The Court of Appeals adjudged
FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages,
attorney’s fees and costs of suit.1awphi1.nét
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
96
 II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEY’S FEES IS
PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA
AND ALEGRE FOR PAYMENT OF MORAL DAMAGES,
ATTORNEY’S FEES AND COSTS OF SUIT.
The Court’s Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly
defamatory remarks of Rima and Alegre against AMEC.17 While
AMEC did not point out clearly the legal basis for its complaint, a
reading of the complaint reveals that AMEC’s cause of action is based
on Articles 30 and 33 of the Civil Code. Article 3018 authorizes a
separate civil action to recover civil liability arising from a criminal
offense. On the other hand, Article 3319 particularly provides that the
injured party may bring a separate civil action for damages in cases of
defamation, fraud, and physical injuries. AMEC also invokes Article
1920 of the Civil Code to justify its claim for damages. AMEC cites
Articles 217621 and 218022 of the Civil Code to hold FBNI solidarily
liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel23 is a public and malicious imputation of a crime, or of a vice or
defect, real or imaginary, or any act or omission, condition, status, or
circumstance tending to cause the dishonor, discredit, or contempt of
a natural or juridical person, or to blacken the memory of one who is
dead.24
There is no question that the broadcasts were made public and
imputed to AMEC defects or circumstances tending to cause it
dishonor, discredit and contempt. Rima and Alegre’s remarks such as
"greed for money on the part of AMEC’s administrators"; "AMEC is a
dumping ground, garbage of xxx moral and physical misfits"; and
AMEC students who graduate "will be liabilities rather than assets" of
the society are libelous per se. Taken as a whole, the broadcasts
suggest that AMEC is a money-making institution where physically
and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI
claims that Rima and Alegre were plainly impelled by their civic duty
to air the students’ gripes. FBNI alleges that there is no evidence that
ill will or spite motivated Rima and Alegre in making the broadcasts.
FBNI further points out that Rima and Alegre exerted efforts to obtain
AMEC’s side and gave Ago the opportunity to defend AMEC and its
administrators. FBNI concludes that since there is no malice, there is
no libel.
FBNI’s contentions are untenable.
Every defamatory imputation is presumed malicious.25 Rima and
Alegre failed to show adequately their good intention and justifiable
motive in airing the supposed gripes of the students. As hosts of a
documentary or public affairs program, Rima and Alegre should have
presented the public issues "free from inaccurate and misleading
information."26 Hearing the students’ alleged complaints a month
before the exposé,27 they had sufficient time to verify their sources
and information. However, Rima and Alegre hardly made a thorough
investigation of the students’ alleged gripes. Neither did they inquire
about nor confirm the purported irregularities in AMEC from the
Department of Education, Culture and Sports. Alegre testified that he
merely went to AMEC to verify his report from an alleged AMEC
official who refused to disclose any information. Alegre simply relied
on the words of the students "because they were many and not
because there is proof that what they are saying is true."28 This plainly
shows Rima and Alegre’s reckless disregard of whether their report
was true or not.
Contrary to FBNI’s claim, the broadcasts were not "the result of
straight reporting." Significantly, some courts in the United States
apply the privilege of "neutral reportage" in libel cases involving
matters of public interest or public figures. Under this privilege, a
97
republisher who accurately and disinterestedly reports certain
defamatory statements made against public figures is shielded from
liability, regardless of the republisher’s subjective awareness of the
truth or falsity of the accusation.29 Rima and Alegre cannot invoke the
privilege of neutral reportage because unfounded comments abound
in the broadcasts. Moreover, there is no existing controversy involving
AMEC when the broadcasts were made. The privilege of neutral
reportage applies where the defamed person is a public figure who is
involved in an existing controversy, and a party to that controversy
makes the defamatory statement.30
However, FBNI argues vigorously that malice in law does not apply to
this case. Citing Borjal v. Court of Appeals,31 FBNI contends that the
broadcasts "fall within the coverage of qualifiedly privileged
communications" for being commentaries on matters of public
interest. Such being the case, AMEC should prove malice in fact or
actual malice. Since AMEC allegedly failed to prove actual malice,
there is no libel.
FBNI’s reliance on Borjal is misplaced. In Borjal, the Court elucidated
on the "doctrine of fair comment," thus:
[F]air commentaries on matters of public interest are privileged and
constitute a valid defense in an action for libel or slander. The doctrine
of fair comment means that while in general every discreditable
imputation publicly made is deemed false, because every man is
presumed innocent until his guilt is judicially proved, and every false
imputation is deemed malicious, nevertheless, when the discreditable
imputation is directed against a public person in his public capacity, it
is not necessarily actionable. In order that such discreditable
imputation to a public official may be actionable, it must either
be a false allegation of fact or a comment based on a false
supposition. If the comment is an expression of opinion, based
on established facts, then it is immaterial that the opinion happens
to be mistaken, as long as it might reasonably be inferred from the
facts.32 (Emphasis supplied)
True, AMEC is a private learning institution whose business of
educating students is "genuinely imbued with public interest." The
welfare of the youth in general and AMEC’s students in particular is a
matter which the public has the right to know. Thus, similar to the
newspaper articles in Borjal, the subject broadcasts dealt with
matters of public interest. However, unlike in Borjal, the questioned
broadcasts are not based on established facts. The record supports
the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent
reports of students and parents against plaintiff, yet, defendants have
not presented in court, nor even gave name of a single student who
made the complaint to them, much less present written complaint or
petition to that effect. To accept this defense of defendants is too
dangerous because it could easily give license to the media to malign
people and establishments based on flimsy excuses that there were
reports to them although they could not satisfactorily establish it. Such
laxity would encourage careless and irresponsible broadcasting which
is inimical to public interests.
Secondly, there is reason to believe that defendant radio
broadcasters, contrary to the mandates of their duties, did not verify
and analyze the truth of the reports before they aired it, in order to
prove that they are in good faith.
Alegre contended that plaintiff school had no permit and is not
accredited to offer Physical Therapy courses. Yet, plaintiff produced a
certificate coming from DECS that as of Sept. 22, 1987 or more than 2
years before the controversial broadcast, accreditation to offer
Physical Therapy course had already been given the plaintiff, which
certificate is signed by no less than the Secretary of Education and
Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants
could have easily known this were they careful enough to verify. And
yet, defendants were very categorical and sounded too positive when
they made the erroneous report that plaintiff had no permit to offer
Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign
foundations like Mcdonald Foundation prove not to be true also. The
truth is there is no Mcdonald Foundation existing. Although a big
building of plaintiff school was given the name Mcdonald building, that
was only in order to honor the first missionary in Bicol of plaintiffs’
religion, as explained by Dr. Lita Ago. Contrary to the claim of
98
defendants over the air, not a single centavo appears to be received
by plaintiff school from the aforementioned McDonald Foundation
which does not exist.
Defendants did not even also bother to prove their claim, though
denied by Dra. Ago, that when medical students fail in one subject,
they are made to repeat all the other subject[s], even those they have
already passed, nor their claim that the school charges laboratory
fees even if there are no laboratories in the school. No evidence was
presented to prove the bases for these claims, at least in order to give
semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits,
and immoral teachers, defendant[s] singled out Dean Justita Lola who
is said to be so old, with zero visibility already. Dean Lola testified in
court last Jan. 21, 1991, and was found to be 75 years old. xxx Even
older people prove to be effective teachers like Supreme Court
Justices who are still very much in demand as law professors in their
late years. Counsel for defendants is past 75 but is found by this court
to be still very sharp and effective.l^vvphi1.net So is plaintiffs’ counsel.
Dr. Lola was observed by this court not to be physically decrepit yet,
nor mentally infirmed, but is still alert and docile.
The contention that plaintiffs’ graduates become liabilities rather than
assets of our society is a mere conclusion. Being from the place
himself, this court is aware that majority of the medical graduates of
plaintiffs pass the board examination easily and become prosperous
and responsible professionals.33
Had the comments been an expression of opinion based on
established facts, it is immaterial that the opinion happens to be
mistaken, as long as it might reasonably be inferred from the
facts.34 However, the comments of Rima and Alegre were not backed
up by facts. Therefore, the broadcasts are not privileged and remain
libelous per se.
The broadcasts also violate the Radio Code35 of the Kapisanan ng
mga Brodkaster sa Pilipinas, Ink. ("Radio Code"). Item I(B) of the
Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free
from personal bias, prejudice and inaccurate and misleading
information. x x x Furthermore, the station shall strive to
present balanced discussion of issues. x x x.
xxx
7. The station shall be responsible at all times in the
supervision of public affairs, public issues and commentary
programs so that they conform to the provisions and standards
of this code.
8. It shall be the responsibility of the newscaster,
commentator, host and announcer to protect public interest,
general welfare and good order in the presentation of public
affairs and public issues.36 (Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio
Code, which lays down the code of ethical conduct governing
practitioners in the radio broadcast industry. The Radio Code is a
voluntary code of conduct imposed by the radio broadcast industry on
its own members. The Radio Code is a public warranty by the radio
broadcast industry that radio broadcast practitioners are subject to a
code by which their conduct are measured for lapses, liability and
sanctions.
The public has a right to expect and demand that radio broadcast
practitioners live up to the code of conduct of their profession, just like
other professionals. A professional code of conduct provides the
standards for determining whether a person has acted justly, honestly
and with good faith in the exercise of his rights and performance of his
99
duties as required by Article 1937 of the Civil Code. A professional
code of conduct also provides the standards for determining whether
a person who willfully causes loss or injury to another has acted in a
manner contrary to morals or good customs under Article 2138 of the
Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it
is a corporation.39
A juridical person is generally not entitled to moral damages because,
unlike a natural person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious anxiety, mental
anguish or moral shock.40 The Court of Appeals cites Mambulao
Lumber Co. v. PNB, et al.41 to justify the award of moral damages.
However, the Court’s statement in Mambulao that "a corporation may
have a good reputation which, if besmirched, may also be a ground
for the award of moral damages" is an obiter dictum.42
Nevertheless, AMEC’s claim for moral damages falls under item 7 of
Article 221943 of the Civil Code. This provision expressly authorizes
the recovery of moral damages in cases of libel, slander or any other
form of defamation. Article 2219(7) does not qualify whether the
plaintiff is a natural or juridical person. Therefore, a juridical person
such as a corporation can validly complain for libel or any other form
of defamation and claim for moral damages.44
Moreover, where the broadcast is libelous per se, the law implies
damages.45 In such a case, evidence of an honest mistake or the want
of character or reputation of the party libeled goes only in mitigation of
damages.46 Neither in such a case is the plaintiff required to introduce
evidence of actual damages as a condition precedent to the recovery
of some damages.47 In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.
However, we find the award of ₱300,000 moral damages
unreasonable. The record shows that even though the broadcasts
were libelous per se, AMEC has not suffered any substantial or
material damage to its reputation. Therefore, we reduce the award of
moral damages from ₱300,000 to ₱150,000.
III.
Whether the award of attorney’s fees is proper
FBNI contends that since AMEC is not entitled to moral damages,
there is no basis for the award of attorney’s fees. FBNI adds that the
instant case does not fall under the enumeration in Article 220848 of
the Civil Code.
The award of attorney’s fees is not proper because AMEC failed to
justify satisfactorily its claim for attorney’s fees. AMEC did not adduce
evidence to warrant the award of attorney’s fees. Moreover, both the
trial and appellate courts failed to explicitly state in their respective
decisions the rationale for the award of attorney’s fees.49 In Inter-Asia
Investment Industries, Inc. v. Court of Appeals ,50 we held that:
[I]t is an accepted doctrine that the award thereof as an item of
damages is the exception rather than the rule, and counsel’s fees are
not to be awarded every time a party wins a suit. The power of the
court to award attorney’s fees under Article 2208 of the Civil
Code demands factual, legal and equitable justification, without
which the award is a conclusion without a premise, its basis
being improperly left to speculation and conjecture. In all events,
the court must explicitly state in the text of the decision, and not only
in the decretal portion thereof, the legal reason for the award of
attorney’s fees.51 (Emphasis supplied)
While it mentioned about the award of attorney’s fees by stating that it
"lies within the discretion of the court and depends upon the
circumstances of each case," the Court of Appeals failed to point out
any circumstance to justify the award.
IV.
100
Whether FBNI is solidarily liable with Rima and Alegre for moral
damages, attorney’s fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for
the payment of damages and attorney’s fees because it exercised due
diligence in the selection and supervision of its employees, particularly
Rima and Alegre. FBNI maintains that its broadcasters, including
Rima and Alegre, undergo a "very regimented process" before they
are allowed to go on air. "Those who apply for broadcaster are
subjected to interviews, examinations and an apprenticeship
program."
FBNI further argues that Alegre’s age and lack of training are
irrelevant to his competence as a broadcaster. FBNI points out that
the "minor deficiencies in the KBP accreditation of Rima and Alegre
do not in any way prove that FBNI did not exercise the diligence of a
good father of a family in selecting and supervising them." Rima’s
accreditation lapsed due to his non-payment of the KBP annual fees
while Alegre’s accreditation card was delayed allegedly for reasons
attributable to the KBP Manila Office. FBNI claims that membership in
the KBP is merely voluntary and not required by any law or
government regulation.
FBNI’s arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly
and severally liable for the tort which they commit.52 Joint tort feasors
are all the persons who command, instigate, promote, encourage,
advise, countenance, cooperate in, aid or abet the commission of a
tort, or who approve of it after it is done, if done for their
benefit.53 Thus, AMEC correctly anchored its cause of action against
FBNI on Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is
solidarily liable to pay for damages arising from the libelous
broadcasts. As stated by the Court of Appeals, "recovery for
defamatory statements published by radio or television may be had
from the owner of the station, a licensee, the operator of the
station, or a person who procures, or participates in, the making of
the defamatory statements."54 An employer and employee are
solidarily liable for a defamatory statement by the employee within the
course and scope of his or her employment, at least when the
employer authorizes or ratifies the defamation.55 In this case, Rima
and Alegre were clearly performing their official duties as hosts of
FBNI’s radio program Exposé when they aired the broadcasts. FBNI
neither alleged nor proved that Rima and Alegre went beyond the
scope of their work at that time. There was likewise no showing that
FBNI did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised
due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI merely showed that it exercised
diligence in the selection of its broadcasters without introducing any
evidence to prove that it observed the same diligence in
the supervision of Rima and Alegre. FBNI did not show how it
exercised diligence in supervising its broadcasters. FBNI’s alleged
constant reminder to its broadcasters to "observe truth, fairness and
objectivity and to refrain from using libelous and indecent language" is
not enough to prove due diligence in the supervision of its
broadcasters. Adequate training of the broadcasters on the industry’s
code of conduct, sufficient information on libel laws, and continuous
evaluation of the broadcasters’ performance are but a few of the many
ways of showing diligence in the supervision of broadcasters.
FBNI claims that it "has taken all the precaution in the selection of
Rima and Alegre as broadcasters, bearing in mind their
qualifications." However, no clear and convincing evidence shows that
Rima and Alegre underwent FBNI’s "regimented process" of
application. Furthermore, FBNI admits that Rima and Alegre had
deficiencies in their KBP accreditation,56 which is one of FBNI’s
requirements before it hires a broadcaster. Significantly, membership
in the KBP, while voluntary, indicates the broadcaster’s strong
commitment to observe the broadcast industry’s rules and regulations.
Clearly, these circumstances show FBNI’s lack of diligence in
selecting and supervising Rima and Alegre. Hence, FBNI is solidarily
liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the
Decision of 4 January 1999 and Resolution of 26 January 2000 of the
Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION
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.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-
Intervention.
DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory relief
and declaration of nullity of the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the
government of the Republic of the Philippines to Metro Pacific Assets
Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited
(First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of
Philippine Long Distance Telephone Company (PLDT), are as
follows:1
On 28 November 1928, the Philippine Legislature enacted Act No.
3436 which granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone and
Electronics Corporation (GTE), an American company and a major
PLDT stockholder, sold 26 percent of the outstanding common shares
of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was
incorporated by several persons, including Roland Gapud and Jose
Campos, Jr. Subsequently, PHI became the owner of 111,415 shares
of stock of PTIC by virtue of three Deeds of Assignment executed by
PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986,
the 111,415 shares of stock of PTIC held by PHI were sequestered by
the Presidential Commission on Good Government (PCGG). The
111,415 PTIC shares, which represent about 46.125 percent of the
outstanding capital stock of PTIC, were later declared by this Court to
be owned by the Republic of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based
investment firm, acquired the remaining 54 percent of the outstanding
capital stock of PTIC. On 20 November 2006, the Inter-Agency
Privatization Council (IPC) of the Philippine Government announced
that it would sell the 111,415 PTIC shares, or 46.125 percent of the
outstanding capital stock of PTIC, through a public bidding to be
conducted on 4 December 2006. Subsequently, the public bidding
was reset to 8 December 2006, and only two bidders, Parallax
Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital,
submitted their bids. Parallax won with a bid of ₱25.6 billion or
US$510 million.
Thereafter, First Pacific announced that it would exercise its right of
first refusal as a PTIC stockholder and buy the 111,415 PTIC shares
by matching the bid price of Parallax. However, First Pacific failed to
do so by the 1 February 2007 deadline set by IPC and instead,
yielded its right to PTIC itself which was then given by IPC until 2
March 2007 to buy the PTIC shares. On 14 February 2007, First
Pacific, through its subsidiary, MPAH, entered into a Conditional Sale
and Purchase Agreement of the 111,415 PTIC shares, or 46.125
percent of the outstanding capital stock of PTIC, with the Philippine
Government for the price of ₱25,217,556,000 or US$510,580,189.
The sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine
Government of 46.125 percent of PTIC shares is actually an indirect
sale of 12 million shares or about 6.3 percent of the outstanding
common shares of PLDT. With the sale, First Pacific’s common
shareholdings in PLDT increased from 30.7 percent to 37
percent, thereby increasing the common shareholdings of
foreigners in PLDT to about 81.47 percent. This violates Section
11, Article XII of the 1987 Philippine Constitution which limits foreign
ownership of the capital of a public utility to not more than 40 percent.3
On the other hand, public respondents Finance Secretary Margarito
B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner
Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged
in the business of investment holdings. PTIC held 26,034,263 PLDT
common shares, or 13.847 percent of the total PLDT outstanding
common shares. PHI, on the other hand, was incorporated in 1977,
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and became the owner of 111,415 PTIC shares or 46.125 percent of
the outstanding capital stock of PTIC by virtue of three Deeds of
Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In
1986, the 111,415 PTIC shares held by PHI were sequestered by the
PCGG, and subsequently declared by this Court as part of the ill-
gotten wealth of former President Ferdinand Marcos. The
sequestered PTIC shares were reconveyed to the Republic of the
Philippines in accordance with this Court’s decision4 which became
final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares,
which represent 6.4 percent of the outstanding common shares of
stock of PLDT, and designated the Inter-Agency Privatization Council
(IPC), composed of the Department of Finance and the PCGG, as the
disposing entity. An invitation to bid was published in seven different
newspapers from 13 to 24 November 2006. On 20 November 2006, a
pre-bid conference was held, and the original deadline for bidding
scheduled on 4 December 2006 was reset to 8 December 2006. The
extension was published in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management
LP emerged as the highest bidder with a bid of ₱25,217,556,000. The
government notified First Pacific, the majority owner of PTIC shares,
of the bidding results and gave First Pacific until 1 February 2007 to
exercise its right of first refusal in accordance with PTIC’s Articles of
Incorporation. First Pacific announced its intention to match Parallax’s
bid.
On 31 January 2007, the House of Representatives (HR) Committee
on Good Government conducted a public hearing on the particulars of
the then impending sale of the 111,415 PTIC shares. Respondents
Teves and Sevilla were among those who attended the public
hearing. The HR Committee Report No. 2270 concluded that: (a) the
auction of the government’s 111,415 PTIC shares bore due diligence,
transparency and conformity with existing legal procedures; and
(b) First Pacific’s intended acquisition of the government’s
111,415 PTIC shares resulting in First Pacific’s 100% ownership
of PTIC will not violate the 40 percent constitutional limit on
foreign ownership of a public utility since PTIC holds only 13.847
percent of the total outstanding common shares of PLDT. 5 On 28
February 2007, First Pacific completed the acquisition of the 111,415
shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the
IPC conducted a public bidding for the sale of 111,415 PTIC shares or
46 percent of the outstanding capital stock of PTIC (the remaining 54
percent of PTIC shares was already owned by First Pacific and its
affiliates); (b) Parallax offered the highest bid amounting to
₱25,217,556,000; (c) pursuant to the right of first refusal in favor of
PTIC and its shareholders granted in PTIC’s Articles of Incorporation,
MPAH, a First Pacific affiliate, exercised its right of first refusal by
matching the highest bid offered for PTIC shares on 13 February
2007; and (d) on 28 February 2007, the sale was consummated when
MPAH paid IPC ₱25,217,556,000 and the government delivered the
certificates for the 111,415 PTIC shares. Respondent Pangilinan
denies the other allegations of facts of petitioner.
On 28 February 2007, petitioner filed the instant petition for
prohibition, injunction, declaratory relief, and declaration of nullity of
sale of the 111,415 PTIC shares. Petitioner claims, among others,
that the sale of the 111,415 PTIC shares would result in an increase
in First Pacific’s common shareholdings in PLDT from 30.7 percent to
37 percent, and this, combined with Japanese NTT DoCoMo’s
common shareholdings in PLDT, would result to a total foreign
common shareholdings in PLDT of 51.56 percent which is over the 40
percent constitutional limit.6 Petitioner asserts:
If and when the sale is completed, First Pacific’s equity in PLDT will
go up from 30.7 percent to 37.0 percent of its common – or voting-
stockholdings, x x x. Hence, the consummation of the sale will put the
two largest foreign investors in PLDT – First Pacific and Japan’s NTT
DoCoMo, which is the world’s largest wireless telecommunications
firm, owning 51.56 percent of PLDT common equity. x x x With the
completion of the sale, data culled from the official website of the New
York Stock Exchange (www.nyse.com) showed that those foreign
entities, which own at least five percent of common equity, will
collectively own 81.47 percent of PLDT’s common equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K
reports x x x which PLDT submitted to the New York Stock Exchange
104
for the period 2003-2005, revealed that First Pacific and several other
foreign entities breached the constitutional limit of 40 percent
ownership as early as 2003. x x x"7
Petitioner raises the following issues: (1) whether the consummation
of the then impending sale of 111,415 PTIC shares to First Pacific
violates the constitutional limit on foreign ownership of a public utility;
(2) whether public respondents committed grave abuse of discretion
in allowing the sale of the 111,415 PTIC shares to First Pacific; and
(3) whether the sale of common shares to foreigners in excess of 40
percent of the entire subscribed common capital stock violates the
constitutional limit on foreign ownership of a public utility. 8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a
Motion for Leave to Intervene and Admit Attached Petition-in-
Intervention. In the Resolution of 28 August 2007, the Court granted
the motion and noted the Petition-in-Intervention.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in
seeking, among others, to enjoin and/or nullify the sale by
respondents of the 111,415 PTIC shares to First Pacific or assignee."
Petitioners-in-intervention claim that, as PLDT subscribers, they have
a "stake in the outcome of the controversy x x x where the Philippine
Government is completing the sale of government owned assets in
[PLDT], unquestionably a public utility, in violation of the nationality
restrictions of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those
raised by petitioner,9 which indisputably demand a thorough
examination of the evidence of the parties, are generally beyond this
Court’s jurisdiction. Adhering to this well-settled principle, the Court
shall confine the resolution of the instant controversy solely on
the threshold and purely legal issue of whether the term "capital" in
Section 11, Article XII of the Constitution refers to the total common
shares only or to the total outstanding capital stock (combined total of
common and non-voting preferred shares) of PLDT, a public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the
remedies petitioner seeks, only the petition for prohibition is within the
original jurisdiction of this court, which however is not exclusive but is
concurrent with the Regional Trial Court and the Court of Appeals.
The actions for declaratory relief,10 injunction, and annulment of sale
are not embraced within the original jurisdiction of the Supreme Court.
On this ground alone, the petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for
prohibition,11 the Court shall nevertheless refrain from discussing the
grounds in support of the petition for prohibition since on 28 February
2007, the questioned sale was consummated when MPAH paid IPC
₱25,217,556,000 and the government delivered the certificates for the
111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition
of the term "capital" in Section 11, Article XII of the Constitution has
far-reaching implications to the national economy, the Court treats the
petition for declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the
petition for declaratory relief as one for mandamus considering the
grave injustice that would result in the interpretation of a banking law.
In that case, which involved the crime of rape committed by a foreign
tourist against a Filipino minor and the execution of the final judgment
in the civil case for damages on the tourist’s dollar deposit with a local
bank, the Court declared Section 113 of Central Bank Circular No.
960, exempting foreign currency deposits from attachment,
garnishment or any other order or process of any court, inapplicable
due to the peculiar circumstances of the case. The Court held that
"injustice would result especially to a citizen aggrieved by a foreign
guest like accused x x x" that would "negate Article 10 of the Civil
Code which provides that ‘in case of doubt in the interpretation or
105
application of laws, it is presumed that the lawmaking body intended
right and justice to prevail.’" The Court therefore required respondents
Central Bank of the Philippines, the local bank, and the accused to
comply with the writ of execution issued in the civil case for damages
and to release the dollar deposit of the accused to satisfy the
judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court
similarly brushed aside the procedural infirmity of the petition for
declaratory relief and treated the same as one for mandamus.
In Alliance, the issue was whether the government unlawfully
excluded petitioners, who were government employees, from the
enjoyment of rights to which they were entitled under the law.
Specifically, the question was: "Are the branches, agencies,
subdivisions, and instrumentalities of the Government, including
government owned or controlled corporations included among the four
‘employers’ under Presidential Decree No. 851 which are required to
pay their employees x x x a thirteenth (13th) month pay x x x ?" The
Constitutional principle involved therein affected all government
employees, clearly justifying a relaxation of the technical rules of
procedure, and certainly requiring the interpretation of the assailed
presidential decree.
In short, it is well-settled that this Court may treat a petition for
declaratory relief as one for mandamus if the issue involved has far-
reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for
declaratory relief. However, exceptions to this rule have been
recognized. Thus, where the petition has far-reaching
implications and raises questions that should be resolved, it may
be treated as one for mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the
term "capital" in Section 11, Article XII of the Constitution. He prays
that this Court declare that the term "capital" refers to common shares
only, and that such shares constitute "the sole basis in determining
foreign equity in a public utility." Petitioner further asks this Court to
declare any ruling inconsistent with such interpretation
unconstitutional.
The interpretation of the term "capital" in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy. In
fact, a resolution of this issue will determine whether Filipinos are
masters, or second class citizens, in their own country. What is at
stake here is whether Filipinos or foreigners will have effective
control of the national economy. Indeed, if ever there is a legal issue
that has far-reaching implications to the entire nation, and to future
generations of Filipinos, it is the threshhold legal issue presented in
this case.
The Court first encountered the issue on the definition of the term
"capital" in Section 11, Article XII of the Constitution in the case
of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That
case involved the same public utility (PLDT) and substantially the
same private respondents. Despite the importance and novelty of the
constitutional issue raised therein and despite the fact that the petition
involved a purely legal question, the Court declined to resolve the
case on the merits, and instead denied the same for disregarding the
hierarchy of courts.17 There, petitioner Fernandez assailed on a pure
question of law the Regional Trial Court’s Decision of 21 February
2003 via a petition for review under Rule 45. The Court’s Resolution,
denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another
opportunity to finally settle this purely legal issue which is of
transcendental importance to the national economy and a
fundamental requirement to a faithful adherence to our Constitution.
The Court must forthwith seize such opportunity, not only for the
benefit of the litigants, but more significantly for the benefit of the
entire Filipino people, to ensure, in the words of the Constitution, "a
self-reliant and independent national economy effectively
controlled by Filipinos."18 Besides, in the light of vague and confusing
positions taken by government agencies on this purely legal issue,
present and future foreign investors in this country deserve, as a
matter of basic fairness, a categorical ruling from this Court on the
extent of their participation in the capital of public utilities and other
nationalized businesses.
Despite its far-reaching implications to the national economy, this
purely legal issue has remained unresolved for over 75 years since
106
the 1935 Constitution. There is no reason for this Court to evade this
ever recurring fundamental issue and delay again defining the term
"capital," which appears not only in Section 11, Article XII of the
Constitution, but also in Section 2, Article XII on co-production and
joint venture agreements for the development of our natural
resources,19 in Section 7, Article XII on ownership of private lands,20 in
Section 10, Article XII on the reservation of certain investments to
Filipino citizens,21 in Section 4(2), Article XIV on the ownership of
educational institutions,22 and in Section 11(2), Article XVI on the
ownership of advertising companies.23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such,
he has the right to question the subject sale, which he claims to
violate the nationality requirement prescribed in Section 11, Article XII
of the Constitution. If the sale indeed violates the Constitution, then
there is a possibility that PLDT’s franchise could be revoked, a dire
consequence directly affecting petitioner’s interest as a stockholder.
More importantly, there is no question that the instant petition raises
matters of transcendental importance to the public. The fundamental
and threshold legal issue in this case, involving the national economy
and the economic welfare of the Filipino people, far outweighs any
perceived impediment in the legal personality of the petitioner to bring
this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a
suit on matters of transcendental importance to the public, thus:
In Tañada v. Tuvera, the Court asserted that when the issue
concerns a public right and the object of mandamus is to obtain
the enforcement of a public duty, the people are regarded as the
real parties in interest; and because it is sufficient that petitioner
is a citizen and as such is interested in the execution of the laws,
he need not show that he has any legal or special interest in the
result of the action. In the aforesaid case, the petitioners sought to
enforce their right to be informed on matters of public concern, a right
then recognized in Section 6, Article IV of the 1973 Constitution, in
connection with the rule that laws in order to be valid and enforceable
must be published in the Official Gazette or otherwise effectively
promulgated. In ruling for the petitioners’ legal standing, the Court
declared that the right they sought to be enforced ‘is a public right
recognized by no less than the fundamental law of the land.’
Legaspi v. Civil Service Commission, while reiterating Tañada, further
declared that ‘when a mandamus proceeding involves the
assertion of a public right, the requirement of personal interest is
satisfied by the mere fact that petitioner is a citizen and,
therefore, part of the general ‘public’ which possesses the right.’
Further, in Albano v. Reyes, we said that while expenditure of public
funds may not have been involved under the questioned contract for
the development, management and operation of the Manila
International Container Terminal, ‘public interest [was] definitely
involved considering the important role [of the subject contract] .
. . in the economic development of the country and the
magnitude of the financial consideration involved.’ We concluded
that, as a consequence, the disclosure provision in the Constitution
would constitute sufficient authority for upholding the petitioner’s
standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves
matters of transcendental public importance, the petitioner has the
requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987
Constitution mandates the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens; nor
shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any such
107
franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation
of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital,
and all the executive and managing officers of such corporation or
association must be citizens of the Philippines. (Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of
the 1973 Constitution, thus:
Section 5. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least
sixty per centum of the capital of which is owned by such
citizens, nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by
the National Assembly when the public interest so requires. The State
shall encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their proportionate share
in the capital thereof. (Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced Section
8, Article XIV of the 1935 Constitution, viz:
Section 8. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or other
entities organized under the laws of the Philippines sixty per
centum of the capital of which is owned by citizens of the
Philippines, nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. No
franchise or right shall be granted to any individual, firm, or
corporation, except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the public
interest so requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986
Constitutional Commission, reminds us that the Filipinization provision
in the 1987 Constitution is one of the products of the spirit of
nationalism which gripped the 1935 Constitutional Convention.25 The
1987 Constitution "provides for the Filipinization of public utilities by
requiring that any form of authorization for the operation of public
utilities should be granted only to ‘citizens of the Philippines or to
corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by
such citizens.’ The provision is [an express] recognition of the
sensitive and vital position of public utilities both in the national
economy and for national security."26 The evident purpose of the
citizenship requirement is to prevent aliens from assuming control of
public utilities, which may be inimical to the national interest.27 This
specific provision explicitly reserves to Filipino citizens control of
public utilities, pursuant to an overriding economic goal of the 1987
Constitution: to "conserve and develop our patrimony"28 and ensure "a
self-reliant and independent national
economy effectively controlled by Filipinos."29
Any citizen or juridical entity desiring to operate a public utility must
therefore meet the minimum nationality requirement prescribed in
Section 11, Article XII of the Constitution. Hence, for a corporation to
be granted authority to operate a public utility, at least 60 percent of
its "capital" must be owned by Filipino citizens.
The crux of the controversy is the definition of the term "capital."
Does the term "capital" in Section 11, Article XII of the Constitution
108
refer to common shares or to the total outstanding capital stock
(combined total of common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in
domestic public utilities refers only to common shares because such
shares are entitled to vote and it is through voting that control over a
corporation is exercised. Petitioner posits that the term "capital" in
Section 11, Article XII of the Constitution refers to "the ownership of
common capital stock subscribed and outstanding, which class of
shares alone, under the corporate set-up of PLDT, can vote and elect
members of the board of directors." It is undisputed that PLDT’s non-
voting preferred shares are held mostly by Filipino citizens.30 This
arose from Presidential Decree No. 217,31 issued on 16 June 1973 by
then President Ferdinand Marcos, requiring every applicant of a PLDT
telephone line to subscribe to non-voting preferred shares to pay for
the investment cost of installing the telephone line.32
Petitioners-in-intervention basically reiterate petitioner’s arguments
and adopt petitioner’s definition of the term "capital."33 Petitioners-in-
intervention allege that "the approximate foreign ownership of
common capital stock of PLDT x x x already amounts to at least
63.54% of the total outstanding common stock," which means that
foreigners exercise significant control over PLDT, patently violating
the 40 percent foreign equity limitation in public utilities prescribed by
the Constitution.
Respondents, on the other hand, do not offer any definition of the
term "capital" in Section 11, Article XII of the Constitution. More
importantly, private respondents Nazareno and Pangilinan of PLDT do
not dispute that more than 40 percent of the common shares of PLDT
are held by foreigners.
In particular, respondent Nazareno’s Memorandum, consisting of 73
pages, harps mainly on the procedural infirmities of the petition and
the supposed violation of the due process rights of the "affected
foreign common shareholders." Respondent Nazareno does not deny
petitioner’s allegation of foreigners’ dominating the common
shareholdings of PLDT. Nazareno stressed mainly that the petition
"seeks to divest foreign common shareholders purportedly
exceeding 40% of the total common shareholdings in PLDT of
their ownership over their shares." Thus, "the foreign natural and
juridical PLDT shareholders must be impleaded in this suit so that
they can be heard."34 Essentially, Nazareno invokes denial of due
process on behalf of the foreign common shareholders.
While Nazareno does not introduce any definition of the term "capital,"
he states that "among the factual assertions that need to be
established to counter petitioner’s allegations is the uniform
interpretation by government agencies (such as the SEC),
institutions and corporations (such as the Philippine National Oil
Company-Energy Development Corporation or PNOC-EDC) of
including both preferred shares and common shares in
"controlling interest" in view of testing compliance with the 40%
constitutional limitation on foreign ownership in public
utilities."35
Similarly, respondent Manuel V. Pangilinan does not define the term
"capital" in Section 11, Article XII of the Constitution. Neither does he
refute petitioner’s claim of foreigners holding more than 40 percent of
PLDT’s common shares. Instead, respondent Pangilinan focuses on
the procedural flaws of the petition and the alleged violation of the due
process rights of foreigners. Respondent Pangilinan emphasizes in
his Memorandum (1) the absence of this Court’s jurisdiction over the
petition; (2) petitioner’s lack of standing; (3) mootness of the petition;
(4) non-availability of declaratory relief; and (5) the denial of due
process rights. Moreover, respondent Pangilinan alleges that the
issue should be whether "owners of shares in PLDT as well as owners
of shares in companies holding shares in PLDT may be required to
relinquish their shares in PLDT and in those companies without any
law requiring them to surrender their shares and also without notice
and trial."
109
Respondent Pangilinan further asserts that "Section 11, [Article XII
of the Constitution] imposes no nationality requirement on the
shareholders of the utility company as a condition for keeping
their shares in the utility company." According to him, "Section 11
does not authorize taking one person’s property (the shareholder’s
stock in the utility company) on the basis of another party’s alleged
failure to satisfy a requirement that is a condition only for that other
party’s retention of another piece of property (the utility company
being at least 60% Filipino-owned to keep its franchise)."36
The OSG, representing public respondents Secretary Margarito
Teves, Undersecretary John P. Sevilla, Commissioner Ricardo
Abcede, and Chairman Fe Barin, is likewise silent on the definition of
the term "capital." In its Memorandum37 dated 24 September 2007, the
OSG also limits its discussion on the supposed procedural defects of
the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of
interested parties, and lack of basis for injunction. The OSG does not
present any definition or interpretation of the term "capital" in Section
11, Article XII of the Constitution. The OSG contends that "the petition
actually partakes of a collateral attack on PLDT’s franchise as a public
utility," which in effect requires a "full-blown trial where all the parties
in interest are given their day in court."38
Respondent Francisco Ed Lim, impleaded as President and Chief
Executive Officer of the Philippine Stock Exchange (PSE), does not
also define the term "capital" and seeks the dismissal of the petition
on the following grounds: (1) failure to state a cause of action against
Lim; (2) the PSE allegedly implemented its rules and required all listed
companies, including PLDT, to make proper and timely disclosures;
and (3) the reliefs prayed for in the petition would adversely impact
the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez
who claimed to be a stockholder of record of PLDT, contended that
the term "capital" in the 1987 Constitution refers to shares entitled to
vote or the common shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities
prescribed by the Constitution refers to ownership of shares of stock
entitled to vote, i.e., common shares, considering that it is through
voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing
limitations and restrictions on fully nationalized and partially
nationalized activities is for Filipino nationals to be always in control of
the corporation undertaking said activities. Otherwise, if the Trial
Court’s ruling upholding respondents’ arguments were to be given
credence, it would be possible for the ownership structure of a public
utility corporation to be divided into one percent (1%) common stocks
and ninety-nine percent (99%) preferred stocks. Following the Trial
Court’s ruling adopting respondents’ arguments, the common shares
can be owned entirely by foreigners thus creating an absurd situation
wherein foreigners, who are supposed to be minority shareholders,
control the public utility corporation.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted to
apply to both the beneficial ownership and the controlling interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in
public utilities prescribed by the Constitution refers to ownership of
shares of stock entitled to vote, i.e., common shares. Furthermore,
ownership of record of shares will not suffice but it must be shown that
the legal and beneficial ownership rests in the hands of Filipino
citizens. Consequently, in the case of petitioner PLDT, since it is
already admitted that the voting interests of foreigners which would
gain entry to petitioner PLDT by the acquisition of SMART shares
through the Questioned Transactions is equivalent to 82.99%, and the
nominee arrangements between the foreign principals and the Filipino
owners is likewise admitted, there is, therefore, a violation of Section
11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14,
1987 cited by the Trial Court to support the proposition that the
meaning of the word "capital" as used in Section 11, Article XII of the
110
Constitution allegedly refers to the sum total of the shares subscribed
and paid-in by the shareholder and it allegedly is immaterial how the
stock is classified, whether as common or preferred, cannot stand in
the face of a clear legislative policy as stated in the FIA which took
effect in 1991 or way after said opinions were rendered, and as
clarified by the above-quoted Amendments. In this regard, suffice it to
state that as between the law and an opinion rendered by an
administrative agency, the law indubitably prevails. Moreover, said
Opinions are merely advisory and cannot prevail over the clear intent
of the framers of the Constitution.
In the same vein, the SEC’s construction of Section 11, Article XII of
the Constitution is at best merely advisory for it is the courts that
finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco,
Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal
B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C.
Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando
B. Vea, argued that the term "capital" in Section 11, Article XII of the
Constitution includes preferred shares since the Constitution does not
distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the
corporation’s "capital," without distinction as to classes of shares. x x x
In this connection, the Corporation Code – which was already in force
at the time the present (1987) Constitution was drafted – defined
outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. – The term
"outstanding capital stock", as used in this Code, means the total
shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid,
except treasury shares.
Section 137 of the Corporation Code also does not distinguish
between common and preferred shares, nor exclude either class of
shares, in determining the outstanding capital stock (the "capital") of a
corporation. Consequently, petitioner’s suggestion to reckon PLDT’s
foreign equity only on the basis of PLDT’s outstanding common
shares is without legal basis. The language of the Constitution should
be understood in the sense it has in common use.
xxxx
17. But even assuming that resort to the proceedings of the
Constitutional Commission is necessary, there is nothing in the
Record of the Constitutional Commission (Vol. III) – which petitioner
misleadingly cited in the Petition x x x – which supports petitioner’s
view that only common shares should form the basis for computing a
public utility’s foreign equity.
xxxx
18. In addition, the SEC – the government agency primarily
responsible for implementing the Corporation Code, and which also
has the responsibility of ensuring compliance with the Constitution’s
foreign equity restrictions as regards nationalized activities x x x – has
categorically ruled that both common and preferred shares are
properly considered in determining outstanding capital stock and the
nationality composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term
"capital" in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in
the present case only to common shares,41 and not to the total
outstanding capital stock comprising both common and non-voting
preferred shares.
The Corporation Code of the Philippines42 classifies shares as
common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock
corporations may be divided into classes or series of shares, or both,
any of which classes or series of shares may have such rights,
privileges or restrictions as may be stated in the articles of
incorporation: Provided, That no share may be deprived of voting
111
rights except those classified and issued as "preferred" or
"redeemable" shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class or series of
shares which have complete voting rights. Any or all of the shares or
series of shares may have a par value or have no par value as may
be provided for in the articles of incorporation: Provided, however,
That banks, trust companies, insurance companies, public utilities,
and building and loan associations shall not be permitted to issue no-
par value shares of stock.
Preferred shares of stock issued by any corporation may be given
preference in the distribution of the assets of the corporation in case
of liquidation and in the distribution of dividends, or such other
preferences as may be stated in the articles of incorporation which are
not violative of the provisions of this Code: Provided, That preferred
shares of stock may be issued only with a stated par value. The Board
of Directors, where authorized in the articles of incorporation, may fix
the terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be effective
upon the filing of a certificate thereof with the Securities and
Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully
paid and non-assessable and the holder of such shares shall not be
liable to the corporation or to its creditors in respect thereto: Provided;
That shares without par value may not be issued for a consideration
less than the value of five (₱5.00) pesos per share: Provided, further,
That the entire consideration received by the corporation for its no-par
value shares shall be treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of
insuring compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and
stated in the certificate of stock, each share shall be equal in all
respects to every other share.
Where the articles of incorporation provide for non-voting shares in
the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or
business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote
necessary to approve a particular corporate act as provided in this
Code shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to
participate in the control or management of the corporation.43 This is
exercised through his vote in the election of directors because it is the
board of directors that controls or manages the corporation.44 In the
absence of provisions in the articles of incorporation denying voting
rights to preferred shares, preferred shares have the same voting
rights as common shares. However, preferred shareholders are often
excluded from any control, that is, deprived of the right to vote in the
election of directors and on other matters, on the theory that the
preferred shareholders are merely investors in the corporation for
income in the same manner as bondholders.45 In fact, under the
Corporation Code only preferred or redeemable shares can be
112
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
they are the minority. Let us say 40 percent of the capital is
owned by them, but it is the voting capital, whereas, the Filipinos
own the nonvoting shares. So we can have a situation where the
corporation is controlled by foreigners despite being the minority
because they have the voting capital. That is the anomaly that
would result here.
MR. BENGZON. No, the reason we eliminated the word "stock"
as stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have
stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling
interest."
MR. BENGZON. In the case of stock corporations, it is
assumed.49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in,
"controlling interest" in the corporation. Reinforcing this
interpretation of the term "capital," as referring to controlling interest or
shares entitled to vote, is the definition of a "Philippine national" in the
Foreign Investments Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the
Philippines; or a domestic partnership or association wholly owned by
citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of
the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a corporation organized
abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital
stock outstanding and entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at
least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-
Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%)
of the capital stock outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of the Philippines
and at least sixty percent (60%) of the members of the Board of
Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a
"Philippine national." (Emphasis supplied)
In explaining the definition of a "Philippine national," the Implementing
Rules and Regulations of the Foreign Investments Act of 1991
provide:
b. "Philippine national" shall mean a citizen of the Philippines or a
domestic partnership or association wholly owned by the citizens of
the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent [60%] of the capital
stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty percent [60%] of the fund will
accrue to the benefit of the Philippine nationals; Provided, that where
a corporation its non-Filipino stockholders own stocks in a Securities
and Exchange Commission [SEC] registered enterprise, at least sixty
percent [60%] of the capital stock outstanding and entitled to vote of
both corporations must be owned and held by citizens of the
Philippines and at least sixty percent [60%] of the members of the
Board of Directors of each of both corporation must be citizens of the
Philippines, in order that the corporation shall be considered a
Philippine national. The control test shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation
shall be determined on the basis of outstanding capital stock
whether fully paid or not, but only such stocks which are
generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens
or Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks,
114
coupled with appropriate voting rights is essential. Thus, stocks,
the voting rights of which have been assigned or transferred to
aliens cannot be considered held by Philippine citizens or
Philippine nationals.
Individuals or juridical entities not meeting the aforementioned
qualifications are considered as non-Philippine
nationals. (Emphasis supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned
"capital" required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of
the voting rights, is required. The legal and beneficial ownership of 60
percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate.
Otherwise, the corporation is "considered as non-Philippine
national[s]."
Under Section 10, Article XII of the Constitution, Congress may
"reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by
such citizens, or such higher percentage as Congress may prescribe,
certain areas of investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens or to
corporations at least sixty percent of the "capital" of which is owned
by Filipino citizens. Some of these laws are: (1) Regulation of Award
of Government Contracts or R.A. No. 5183; (2) Philippine Inventors
Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas
Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping
Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology
Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage
Decree or P.D. No. 1521. Hence, the term "capital" in Section 11,
Article XII of the Constitution is also used in the same context in
numerous laws reserving certain areas of investments to Filipino
citizens.
To construe broadly the term "capital" as the total outstanding capital
stock, including both common and non-voting preferred shares,
grossly contravenes the intent and letter of the Constitution that the
"State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos." A broad definition
unjustifiably disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to
the term "capital." Let us assume that a corporation has 100 common
shares owned by foreigners and 1,000,000 non-voting preferred
shares owned by Filipinos, with both classes of share having a par
value of one peso (₱1.00) per share. Under the broad definition of the
term "capital," such corporation would be considered compliant with
the 40 percent constitutional limit on foreign equity of public utilities
since the overwhelming majority, or more than 99.999 percent, of the
total outstanding capital stock is Filipino owned. This is obviously
absurd.
In the example given, only the foreigners holding the common shares
have voting rights in the election of directors, even if they hold only
100 shares. The foreigners, with a minuscule equity of less than 0.001
percent, exercise control over the public utility. On the other hand, the
Filipinos, holding more than 99.999 percent of the equity, cannot vote
in the election of directors and hence, have no control over the public
utility. This starkly circumvents the intent of the framers of the
Constitution, as well as the clear language of the Constitution, to
place the control of public utilities in the hands of Filipinos. It also
renders illusory the State policy of an independent national
economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real
world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to
vote in the election of directors. PLDT’s Articles of Incorporation
expressly state that "the holders of Serial Preferred Stock shall not
be entitled to vote at any meeting of the stockholders for the
election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders,
or to receive notice of any meeting of stockholders."51
115
On the other hand, holders of common shares are granted the
exclusive right to vote in the election of directors. PLDT’s Articles of
Incorporation52 state that "each holder of Common Capital Stock shall
have one vote in respect of each share of such stock held by him on
all matters voted upon by the stockholders, and the holders of
Common Capital Stock shall have the exclusive right to vote for
the election of directors and for all other purposes."53
In short, only holders of common shares can vote in the election of
directors, meaning only common shareholders exercise control over
PLDT. Conversely, holders of preferred shares, who have no voting
rights in the election of directors, do not have any control over PLDT.
In fact, under PLDT’s Articles of Incorporation, holders of common
shares have voting rights for all purposes, while holders of preferred
shares have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners
hold a majority of the common shares of PLDT. In fact, based on
PLDT’s 2010 General Information Sheet (GIS),54 which is a document
required to be submitted annually to the Securities and Exchange
Commission,55 foreigners hold 120,046,690 common shares of PLDT
whereas Filipinos hold only 66,750,622 common shares.56 In other
words, foreigners hold 64.27% of the total number of PLDT’s common
shares, while Filipinos hold only 35.73%. Since holding a majority of
the common shares equates to control, it is clear that foreigners
exercise control over PLDT. Such amount of control unmistakably
exceeds the allowable 40 percent limit on foreign ownership of public
utilities expressly mandated in Section 11, Article XII of the
Constitution.
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted
to the SEC, shows that per share the SIP58 preferred shares earn a
pittance in dividends compared to the common shares. PLDT
declared dividends for the common shares at ₱70.00 per share, while
the declared dividends for the preferred shares amounted to a measly
₱1.00 per share.59 So the preferred shares not only cannot vote in the
election of directors, they also have very little and obviously negligible
dividend earning capacity compared to common shares.
As shown in PLDT’s 2010 GIS,60 as submitted to the SEC, the par
value of PLDT common shares is ₱5.00 per share, whereas the par
value of preferred shares is ₱10.00 per share. In other words,
preferred shares have twice the par value of common shares but
cannot elect directors and have only 1/70 of the dividends of common
shares. Moreover, 99.44% of the preferred shares are owned by
Filipinos while foreigners own only a minuscule 0.56% of the preferred
shares.61 Worse, preferred shares constitute 77.85% of the authorized
capital stock of PLDT while common shares constitute only
22.15%.62 This undeniably shows that beneficial interest in PLDT is
not with the non-voting preferred shares but with the common shares,
blatantly violating the constitutional requirement of 60 percent Filipino
control and Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipinos in accordance with the
constitutional mandate. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights,
is constitutionally required for the State’s grant of authority to operate
a public utility. The undisputed fact that the PLDT preferred shares,
99.44% owned by Filipinos, are non-voting and earn only 1/70 of the
dividends that PLDT common shares earn, grossly violates the
constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock,
and earn less than 60 percent of the dividends, of PLDT. This
directly contravenes the express command in Section 11, Article XII of
the Constitution that "[n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted
except to x x x corporations x x x organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned
by such citizens x x x."
To repeat, (1) foreigners own 64.27% of the common shares of PLDT,
which class of shares exercises the sole right to vote in the election of
directors, and thus exercise control over PLDT; (2) Filipinos own only
35.73% of PLDT’s common shares, constituting a minority of the
voting stock, and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights;
116
(4) preferred shares earn only 1/70 of the dividends that common
shares earn;63 (5) preferred shares have twice the par value of
common shares; and (6) preferred shares constitute 77.85% of the
authorized capital stock of PLDT and common shares only 22.15%.
This kind of ownership and control of a public utility is a mockery of
the Constitution.
Incidentally, the fact that PLDT common shares with a par value of
₱5.00 have a current stock market value of ₱2,328.00 per
share,64 while PLDT preferred shares with a par value of ₱10.00 per
share have a current stock market value ranging from only ₱10.92 to
₱11.06 per share,65 is a glaring confirmation by the market that control
and beneficial ownership of PLDT rest with the common shares, not
with the preferred shares.
Indisputably, construing the term "capital" in Section 11, Article XII of
the Constitution to include both voting and non-voting shares will
result in the abject surrender of our telecommunications industry to
foreigners, amounting to a clear abdication of the State’s
constitutional duty to limit control of public utilities to Filipino citizens.
Such an interpretation certainly runs counter to the constitutional
provision reserving certain areas of investment to Filipino citizens,
such as the exploitation of natural resources as well as the ownership
of land, educational institutions and advertising businesses. The Court
should never open to foreign control what the Constitution has
expressly reserved to Filipinos for that would be a betrayal of the
Constitution and of the national interest. The Court must perform its
solemn duty to defend and uphold the intent and letter of the
Constitution to ensure, in the words of the Constitution, "a self-reliant
and independent national economy effectively controlled by Filipinos."
Section 11, Article XII of the Constitution, like other provisions of the
Constitution expressly reserving to Filipinos specific areas of
investment, such as the development of natural resources and
ownership of land, educational institutions and advertising business,
is self-executing. There is no need for legislation to implement these
self-executing provisions of the Constitution. The rationale why these
constitutional provisions are self-executing was explained in Manila
Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is
necessary to enforce a constitutional mandate, the presumption now
is that all provisions of the constitution are self-executing. If the
constitutional provisions are treated as requiring legislation instead of
self-executing, the legislature would have the power to ignore and
practically nullify the mandate of the fundamental law. This can be
cataclysmic. That is why the prevailing view is, as it has always been,
that —
. . . in case of doubt, the Constitution should be considered self-
executing rather than non-self-executing. . . . Unless the contrary is
clearly intended, the provisions of the Constitution should be
considered self-executing, as a contrary rule would give the
legislature discretion to determine when, or whether, they shall
be effective. These provisions would be subordinated to the will of
the lawmaking body, which could make them entirely meaningless by
simply refusing to pass the needed implementing statute. (Emphasis
supplied)
In Manila Prince Hotel, even the Dissenting Opinion of then Associate
Justice Reynato S. Puno, later Chief Justice, agreed that
constitutional provisions are presumed to be self-executing. Justice
Puno stated:
Courts as a rule consider the provisions of the Constitution as self-
executing, rather than as requiring future legislation for their
enforcement. The reason is not difficult to discern. For if they are not
treated as self-executing, the mandate of the fundamental law
ratified by the sovereign people can be easily ignored and
nullified by Congress. Suffused with wisdom of the ages is the
unyielding rule that legislative actions may give breath to
constitutional rights but congressional inaction should not
suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of
Rights on arrests, searches and seizures, the rights of a person under
custodial investigation, the rights of an accused, and the privilege
against self-incrimination. It is recognized that legislation is
unnecessary to enable courts to effectuate constitutional provisions
guaranteeing the fundamental rights of life, liberty and the protection
117
of property. The same treatment is accorded to constitutional
provisions forbidding the taking or damaging of property for public use
without just compensation. (Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of
implementing legislation, applied directly the provisions of the 1935,
1973 and 1987 Constitutions limiting land ownership to Filipinos.
In Soriano v. Ong Hoo,68 this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of
a sale by a citizen of his land to an alien, and as both the citizen and
the alien have violated the law, none of them should have a recourse
against the other, and it should only be the State that should be
allowed to intervene and determine what is to be done with the
property subject of the violation. We have said that what the State
should do or could do in such matters is a matter of public policy,
entirely beyond the scope of judicial authority. (Dinglasan, et al. vs.
Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the
legislature has not definitely decided what policy should be
followed in cases of violations against the constitutional
prohibition, courts of justice cannot go beyond by declaring the
disposition to be null and void as violative of the Constitution. x x
x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-executing
would mean that since the 1935 Constitution, or over the last 75
years, not one of the constitutional provisions expressly reserving
specific areas of investments to corporations, at least 60 percent of
the "capital" of which is owned by Filipinos, was enforceable. In short,
the framers of the 1935, 1973 and 1987 Constitutions miserably failed
to effectively reserve to Filipinos specific areas of investment, like the
operation by corporations of public utilities, the exploitation by
corporations of mineral resources, the ownership by corporations of
real estate, and the ownership of educational institutions. All the
legislatures that convened since 1935 also miserably failed to enact
legislations to implement these vital constitutional provisions that
determine who will effectively control the national economy, Filipinos
or foreigners. This Court cannot allow such an absurd interpretation of
the Constitution.
This Court has held that the SEC "has both regulatory and
adjudicative functions."69 Under its regulatory functions, the SEC can
be compelled by mandamus to perform its statutory duty when it
unlawfully neglects to perform the same. Under its adjudicative or
quasi-judicial functions, the SEC can be also be compelled by
mandamus to hear and decide a possible violation of any law it
administers or enforces when it is mandated by law to investigate
such violation.1awphi1
Under Section 17(4)70 of the Corporation Code, the SEC has the
regulatory function to reject or disapprove the Articles of Incorporation
of any corporation where "the required percentage of ownership of
the capital stock to be owned by citizens of the Philippines has
not been complied with as required by existing laws or the
Constitution." Thus, the SEC is the government agency tasked with
the statutory duty to enforce the nationality requirement prescribed in
Section 11, Article XII of the Constitution on the ownership of public
utilities. This Court, in a petition for declaratory relief that is treated as
a petition for mandamus as in the present case, can direct the SEC to
perform its statutory duty under the law, a duty that the SEC has
apparently unlawfully neglected to do based on the 2010 GIS that
respondent PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is
vested with the "power and function" to "suspend or revoke, after
proper notice and hearing, the franchise or certificate of
registration of corporations, partnerships or associations, upon
any of the grounds provided by law." The SEC is mandated under
Section 5(d) of the same Code with the "power and function" to
"investigate x x x the activities of persons to ensure compliance"
with the laws and regulations that SEC administers or enforces. The
GIS that all corporations are required to submit to SEC annually
should put the SEC on guard against violations of the nationality
requirement prescribed in the Constitution and existing laws. This
Court can compel the SEC, in a petition for declaratory relief that is
treated as a petition for mandamus as in the present case, to hear
and decide a possible violation of Section 11, Article XII of the
Constitution in view of the ownership structure of PLDT’s voting
shares, as admitted by respondents and as stated in PLDT’s 2010
GIS that PLDT submitted to SEC.
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,
LUISITA INDUSTRIAL PARK CORPORATION and RIZAL
COMMERCIAL BANKING CORPORATION, Petitioners-in-
Intervention,
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY
NASSER PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN
REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG
HACIENDA LUISITA, RENE GALANG, NOEL MALLARI, and JULIO
SUNIGA1 and his SUPERVISORY GROUP OF THE HACIENDA
LUISITA, INC. and WINDSOR ANDAYA, Respondents.
DECISION
VELASCO, JR., J.:
"Land for the landless," a shibboleth the landed gentry doubtless has
received with much misgiving, if not resistance, even if only the
number of agrarian suits filed serves to be the norm. Through the
years, this battle cry and root of discord continues to reflect the
seemingly ceaseless discourse on, and great disparity in, the
distribution of land among the people, "dramatizing the increasingly
urgent demand of the dispossessed x x x for a plot of earth as their
place in the sun."2 As administrations and political alignments change,
policies advanced, and agrarian reform laws enacted, the latest being
what is considered a comprehensive piece, the face of land reform
varies and is masked in myriads of ways. The stated goal, however,
remains the same: clear the way for the true freedom of the farmer.3
Land reform, or the broader term "agrarian reform," has been a
government policy even before the Commonwealth era. In fact, at the
onset of the American regime, initial steps toward land reform were
already taken to address social unrest.4 Then, under the 1935
Constitution, specific provisions on social justice and expropriation of
landed estates for distribution to tenants as a solution to land
ownership and tenancy issues were incorporated.
In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was
passed, setting in motion the expropriation of all tenanted estates.5
On August 8, 1963, the Agricultural Land Reform Code (RA 3844)
was enacted,6 abolishing share tenancy and converting all instances
of share tenancy into leasehold tenancy.7 RA 3844 created the Land
Bank of the Philippines (LBP) to provide support in all phases of
agrarian reform.
As its major thrust, RA 3844 aimed to create a system of owner-
cultivatorship in rice and corn, supposedly to be accomplished by
expropriating lands in excess of 75 hectares for their eventual resale
to tenants. The law, however, had this restricting feature: its
operations were confined mainly to areas in Central Luzon, and its
implementation at any level of intensity limited to the pilot project in
Nueva Ecija.8
Subsequently, Congress passed the Code of Agrarian Reform (RA
6389) declaring the entire country a land reform area, and providing
for the automatic conversion of tenancy to leasehold tenancy in all
areas. From 75 hectares, the retention limit was cut down to seven
hectares.9
Barely a month after declaring martial law in September 1972, then
President Ferdinand Marcos issued Presidential Decree No. 27 (PD
27) for the "emancipation of the tiller from the bondage of the
soil."10 Based on this issuance, tenant-farmers, depending on the size
of the landholding worked on, can either purchase the land they tilled
or shift from share to fixed-rent leasehold tenancy.11 While touted as
"revolutionary," the scope of the agrarian reform program PD 27
enunciated covered only tenanted, privately-owned rice and corn
lands.12
Then came the revolutionary government of then President Corazon
C. Aquino and the drafting and eventual ratification of the 1987
Constitution. Its provisions foreshadowed the establishment of a legal
framework for the formulation of an expansive approach to land
reform, affecting all agricultural lands and covering both tenant-
farmers and regular farmworkers.13
So it was that Proclamation No. 131, Series of 1987, was issued
instituting a comprehensive agrarian reform program (CARP) to cover
all agricultural lands, regardless of tenurial arrangement and
commodity produced, as provided in the Constitution.
120
On July 22, 1987, Executive Order No. 229 (EO 229) was issued
providing, as its title14 indicates, the mechanisms for CARP
implementation. It created the Presidential Agrarian Reform Council
(PARC) as the highest policy-making body that formulates all policies,
rules, and regulations necessary for the implementation of CARP.
On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform
Law of 1988, also known as CARL or the CARP Law, took effect,
ushering in a new process of land classification, acquisition, and
distribution. As to be expected, RA 6657 met stiff opposition, its
validity or some of its provisions challenged at every possible
turn. Association of Small Landowners in the Philippines, Inc. v.
Secretary of Agrarian Reform 15 stated the observation that the assault
was inevitable, the CARP being an untried and untested project, "an
experiment [even], as all life is an experiment," the Court said,
borrowing from Justice Holmes.
The Case
In this Petition for Certiorari and Prohibition under Rule 65 with prayer
for preliminary injunctive relief, petitioner Hacienda Luisita, Inc. (HLI)
assails and seeks to set aside PARC Resolution No. 2005-32-
0116 and Resolution No. 2006-34-0117 issued on December 22, 2005
and May 3, 2006, respectively, as well as the implementing Notice of
Coverage dated January 2, 2006 (Notice of Coverage).18
The Facts
At the core of the case is Hacienda Luisita de Tarlac (Hacienda
Luisita), once a 6,443-hectare mixed agricultural-industrial-residential
expanse straddling several municipalities of Tarlac and owned by
Compañia General de Tabacos de Filipinas (Tabacalera). In 1957, the
Spanish owners of Tabacalera offered to sell Hacienda Luisita as well
as their controlling interest in the sugar mill within the hacienda, the
Central Azucarera de Tarlac (CAT), as an indivisible transaction. The
Tarlac Development Corporation (Tadeco), then owned and/or
controlled by the Jose Cojuangco, Sr. Group, was willing to buy. As
agreed upon, Tadeco undertook to pay the purchase price for
Hacienda Luisita in pesos, while that for the controlling interest in
CAT, in US dollars.19
To facilitate the adverted sale-and-purchase package, the Philippine
government, through the then Central Bank of the Philippines,
assisted the buyer to obtain a dollar loan from a US bank.20 Also, the
Government Service Insurance System (GSIS) Board of Trustees
extended on November 27, 1957 a PhP 5.911 million loan in favor of
Tadeco to pay the peso price component of the sale. One of the
conditions contained in the approving GSIS Resolution No. 3203, as
later amended by Resolution No. 356, Series of 1958, reads as
follows:
That the lots comprising the Hacienda Luisita shall be subdivided by
the applicant-corporation and sold at cost to the tenants, should there
be any, and whenever conditions should exist warranting such action
under the provisions of the Land Tenure Act;21
As of March 31, 1958, Tadeco had fully paid the purchase price for
the acquisition of Hacienda Luisita and Tabacalera’s interest in CAT.22
The details of the events that happened next involving the hacienda
and the political color some of the parties embossed are of minimal
significance to this narration and need no belaboring. Suffice it to
state that on May 7, 1980, the martial law administration filed a suit
before the Manila Regional Trial Court (RTC) against Tadeco, et al.,
for them to surrender Hacienda Luisita to the then Ministry of Agrarian
Reform (MAR, now the Department of Agrarian Reform [DAR]) so that
the land can be distributed to farmers at cost. Responding, Tadeco or
its owners alleged that Hacienda Luisita does not have tenants,
besides which sugar lands––of which the hacienda consisted––are
not covered by existing agrarian reform legislations. As perceived
then, the government commenced the case against Tadeco as a
political message to the family of the late Benigno Aquino, Jr.23
Eventually, the Manila RTC rendered judgment ordering Tadeco to
surrender Hacienda Luisita to the MAR. Therefrom, Tadeco appealed
to the Court of Appeals (CA).
On March 17, 1988, the Office of the Solicitor General (OSG) moved
to withdraw the government’s case against Tadeco, et al. By
Resolution of May 18, 1988, the CA dismissed the case the Marcos
government initially instituted and won against Tadeco, et al. The
121
dismissal action was, however, made subject to the obtention by
Tadeco of the PARC’s approval of a stock distribution plan (SDP) that
must initially be implemented after such approval shall have been
secured.24 The appellate court wrote:
The defendants-appellants x x x filed a motion on April 13, 1988
joining the x x x governmental agencies concerned in moving for the
dismissal of the case subject, however, to the following conditions
embodied in the letter dated April 8, 1988 (Annex 2) of the Secretary
of the [DAR] quoted, as follows:
1. Should TADECO fail to obtain approval of the stock
distribution plan for failure to comply with all the requirements
for corporate landowners set forth in the guidelines issued by
the [PARC]: or
2. If such stock distribution plan is approved by PARC, but
TADECO fails to initially implement it.
xxxx
WHEREFORE, the present case on appeal is hereby dismissed
without prejudice, and should be revived if any of the conditions as
above set forth is not duly complied with by the TADECO.25
26
Markedly, Section 10 of EO 229  allows corporate landowners, as an
alternative to the actual land transfer scheme of CARP, to give
qualified beneficiaries the right to purchase shares of stocks of the
corporation under a stock ownership arrangement and/or land-to-
share ratio.
Like EO 229, RA 6657, under the latter’s Sec. 31, also provides two
(2) alternative modalities, i.e., land or stock transfer, pursuant to either
of which the corporate landowner can comply with CARP, but subject
to well-defined conditions and timeline requirements. Sec. 31 of RA
6657 provides:
SEC. 31. Corporate Landowners.¾Corporate landowners may
voluntarily transfer ownership over their agricultural landholdings to
the Republic of the Philippines pursuant to Section 20 hereof or to
qualified beneficiaries x x x.
Upon certification by the DAR, corporations owning agricultural
lands may give their qualified beneficiaries the right to purchase
such proportion of the capital stock of the corporation that the
agricultural land, actually devoted to agricultural activities, bears
in relation to the company’s total assets, under such terms and
conditions as may be agreed upon by them. In no case shall the
compensation received by the workers at the time the shares of
stocks are distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of
their capital stock, equity or participation in favor of their workers or
other qualified beneficiaries under this section shall be deemed to
have complied with the provisions of this Act: Provided, That the
following conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own
shares of stocks to dividends and other financial benefits, the
books of the corporation or association shall be subject to
periodic audit by certified public accountants chosen by the
beneficiaries;
(b) Irrespective of the value of their equity in the corporation or
association, the beneficiaries shall be assured of at least one
(1) representative in the board of directors, or in a
management or executive committee, if one exists, of the
corporation or association;
(c) Any shares acquired by such workers and beneficiaries
shall have the same rights and features as all other shares;
and
(d) Any transfer of shares of stocks by the original
beneficiaries shall be void ab initio unless said transaction is in
favor of a qualified and registered beneficiary within the same
corporation.
122
If within two (2) years from the approval of this Act, the [voluntary]
land or stock transfer envisioned above is not made or realized or the
plan for such stock distribution approved by the PARC within the
same period, the agricultural land of the corporate owners or
corporation shall be subject to the compulsory coverage of this Act.
(Emphasis added.)
Vis-à-vis the stock distribution aspect of the aforequoted Sec. 31,
DAR issued Administrative Order No. 10, Series of 1988 (DAO
10),27 entitled Guidelines and Procedures for Corporate Landowners
Desiring to Avail Themselves of the Stock Distribution Plan under
Section 31 of RA 6657.
From the start, the stock distribution scheme appeared to be Tadeco’s
preferred option, for, on August 23, 1988,28 it organized a spin-off
corporation, HLI, as vehicle to facilitate stock acquisition by the
farmworkers. For this purpose, Tadeco assigned and conveyed to HLI
the agricultural land portion (4,915.75 hectares) and other farm-
related properties of Hacienda Luisita in exchange for HLI shares of
stock.29
Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose
Cojuangco, Jr., and Paz C. Teopaco were the incorporators of HLI.30
To accommodate the assets transfer from Tadeco to HLI, the latter,
with the Securities and Exchange Commission’s (SEC’s) approval,
increased its capital stock on May 10, 1989 from PhP 1,500,000
divided into 1,500,000 shares with a par value of PhP 1/share to PhP
400,000,000 divided into 400,000,000 shares also with par value of
PhP 1/share, 150,000,000 of which were to be issued only to qualified
and registered beneficiaries of the CARP, and the remaining
250,000,000 to any stockholder of the corporation.31
As appearing in its proposed SDP, the properties and assets of
Tadeco contributed to the capital stock of HLI, as appraised and
approved by the SEC, have an aggregate value of PhP 590,554,220,
or after deducting the total liabilities of the farm amounting to PhP
235,422,758, a net value of PhP 355,531,462. This translated to
355,531,462 shares with a par value of PhP 1/share.32
On May 9, 1989, some 93% of the then farmworker-beneficiaries
(FWBs) complement of Hacienda Luisita signified in a referendum
their acceptance of the proposed HLI’s Stock Distribution Option Plan.
On May 11, 1989, the Stock Distribution Option Agreement (SDOA),
styled as a Memorandum of Agreement (MOA),33 was entered into by
Tadeco, HLI, and the 5,848 qualified FWBs34 and attested to by then
DAR Secretary Philip Juico. The SDOA embodied the basis and
mechanics of the SDP, which would eventually be submitted to the
PARC for approval. In the SDOA, the parties agreed to the following:
1. The percentage of the value of the agricultural land of
Hacienda Luisita (P196,630,000.00) in relation to the total
assets (P590,554,220.00) transferred and conveyed to the
SECOND PARTY [HLI] is 33.296% that, under the law, is the
proportion of the outstanding capital stock of the SECOND
PARTY, which is P355,531,462.00 or 355,531,462 shares with
a par value of P1.00 per share, that has to be distributed to the
THIRD PARTY [FWBs] under the stock distribution plan, the
said 33.296% thereof being P118,391,976.85
or 118,391,976.85 shares.
2. The qualified beneficiaries of the stock distribution plan shall
be the farmworkers who appear in the annual payroll, inclusive
of the permanent and seasonal employees, who are regularly
or periodically employed by the SECOND PARTY.
3. At the end of each fiscal year, for a period of 30 years, the
SECOND PARTY shall arrange with the FIRST PARTY
[Tadeco] the acquisition and distribution to the THIRD
PARTY on the basis of number of days worked and at no cost
to them of one-thirtieth (1/30) of 118,391,976.85 shares of the
capital stock of the SECOND PARTY that are presently owned
and held by the FIRST PARTY, until such time as the entire
block of 118,391,976.85 shares shall have been completely
acquired and distributed to the THIRD PARTY.
4.The SECOND PARTY shall guarantee to the qualified
beneficiaries of the [SDP] that every year they will receive on
top of their regular compensation, an amount that
approximates the equivalent of three (3%) of the total gross
123
 sales from the production of the agricultural land, whether it be
in the form of cash dividends or incentive bonuses or both.
5. Even if only a part or fraction of the shares earmarked for
distribution will have been acquired from the FIRST PARTY
and distributed to the THIRD PARTY, FIRST PARTY shall
execute at the beginning of each fiscal year an irrevocable
proxy, valid and effective for one (1) year, in favor of the
farmworkers appearing as shareholders of the SECOND
PARTY at the start of said year which will empower the THIRD
PARTY or their representative to vote in stockholders’ and
board of directors’ meetings of the SECOND PARTY
convened during the year the entire 33.296% of the
outstanding capital stock of the SECOND PARTY earmarked
for distribution and thus be able to gain such number of seats
in the board of directors of the SECOND PARTY that the
whole 33.296% of the shares subject to distribution will be
entitled to.
6. In addition, the SECOND PARTY shall within a reasonable
time subdivide and allocate for free and without charge among
the qualified family-beneficiaries residing in the place where
the agricultural land is situated, residential or homelots of not
more than 240 sq.m. each, with each family-beneficiary being
assured of receiving and owning a homelot in the barangay
where it actually resides on the date of the execution of this
Agreement.
7. This Agreement is entered into by the parties in the spirit of
the (C.A.R.P.) of the government and with the supervision of
the [DAR], with the end in view of improving the lot of the
qualified beneficiaries of the [SDP] and obtaining for them
greater benefits. (Emphasis added.)
As may be gleaned from the SDOA, included as part of the
distribution plan are: (a) production-sharing equivalent to three
percent (3%) of gross sales from the production of the agricultural
land payable to the FWBs in cash dividends or incentive bonus; and
(b) distribution of free homelots of not more than 240 square meters
each to family-beneficiaries. The production-sharing, as the SDP
indicated, is payable "irrespective of whether [HLI] makes money or
not," implying that the benefits do not partake the nature of dividends,
as the term is ordinarily understood under corporation law.
While a little bit hard to follow, given that, during the period material,
the assigned value of the agricultural land in the hacienda was PhP
196.63 million, while the total assets of HLI was PhP 590.55 million
with net assets of PhP 355.53 million, Tadeco/HLI would admit that
the ratio of the land-to-shares of stock corresponds to 33.3% of the
outstanding capital stock of the HLI equivalent to 118,391,976.85
shares of stock with a par value of PhP 1/share.
Subsequently, HLI submitted to DAR its SDP, designated as
"Proposal for Stock Distribution under C.A.R.P.,"35 which was
substantially based on the SDOA.
Notably, in a follow-up referendum the DAR conducted on October 14,
1989, 5,117 FWBs, out of 5,315 who participated, opted to receive
shares in HLI.36 One hundred thirty-two (132) chose actual land
distribution.37
After a review of the SDP, then DAR Secretary Miriam Defensor-
Santiago (Sec. Defensor-Santiago) addressed a letter dated
November 6, 198938 to Pedro S. Cojuangco (Cojuangco), then Tadeco
president, proposing that the SDP be revised, along the following
lines:
1. That over the implementation period of the [SDP],
[Tadeco]/HLI shall ensure that there will be no dilution in the
shares of stocks of individual [FWBs];
2. That a safeguard shall be provided by [Tadeco]/HLI against
the dilution of the percentage shareholdings of the [FWBs],
i.e., that the 33% shareholdings of the [FWBs] will be
maintained at any given time;
3. That the mechanics for distributing the stocks be explicitly
stated in the [MOA] signed between the [Tadeco], HLI and its
[FWBs] prior to the implementation of the stock plan;
124
 4. That the stock distribution plan provide for clear and definite
terms for determining the actual number of seats to be
allocated for the [FWBs] in the HLI Board;
5. That HLI provide guidelines and a timetable for the
distribution of homelots to qualified [FWBs]; and
6. That the 3% cash dividends mentioned in the [SDP] be
expressly provided for [in] the MOA.
In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago,
Tadeco/HLI explained that the proposed revisions of the SDP are
already embodied in both the SDP and MOA.39 Following that
exchange, the PARC, under then Sec. Defensor-Santiago,
by Resolution No. 89-12-240 dated November 21, 1989, approved the
SDP of Tadeco/HLI.41
At the time of the SDP approval, HLI had a pool of farmworkers,
numbering 6,296, more or less, composed of permanent, seasonal
and casual master list/payroll and non-master list members.
From 1989 to 2005, HLI claimed to have extended the following
benefits to the FWBs:
(a) 3 billion pesos (P3,000,000,000) worth of salaries, wages
and fringe benefits
(b) 59 million shares of stock distributed for free to the FWBs;
(c) 150 million pesos (P150,000,000) representing 3% of the
gross produce;
(d) 37.5 million pesos (P37,500,000) representing 3% from the
sale of 500 hectares of converted agricultural land of Hacienda
Luisita;
(e) 240-square meter homelots distributed for free;
(f) 2.4 million pesos (P2,400,000) representing 3% from the
sale of 80 hectares at 80 million pesos (P80,000,000) for the
SCTEX;
(g) Social service benefits, such as but not limited to free
hospitalization/medical/maternity services, old age/death
benefits and no interest bearing salary/educational loans and
rice sugar accounts. 42
Two separate groups subsequently contested this claim of HLI.
On August 15, 1995, HLI applied for the conversion of 500 hectares of
land of the hacienda from agricultural to industrial use,43 pursuant to
Sec. 65 of RA 6657, providing:
SEC. 65. Conversion of Lands.¾After the lapse of five (5) years from
its award, when the land ceases to be economically feasible and
sound for agricultural purposes, or the locality has become urbanized
and the land will have a greater economic value for residential,
commercial or industrial purposes, the DAR, upon application of the
beneficiary or the landowner, with due notice to the affected parties,
and subject to existing laws, may authorize the reclassification, or
conversion of the land and its disposition: Provided, That the
beneficiary shall have fully paid its obligation.
The application, according to HLI, had the backing of 5,000 or so
FWBs, including respondent Rene Galang, and Jose Julio Suniga, as
evidenced by the Manifesto of Support they signed and which was
submitted to the DAR.44 After the usual processing, the DAR, thru then
Sec. Ernesto Garilao, approved the application on August 14, 1996,
per DAR Conversion Order No. 030601074-764-(95), Series of
1996,45 subject to payment of three percent (3%) of the gross selling
price to the FWBs and to HLI’s continued compliance with its
undertakings under the SDP, among other conditions.
On December 13, 1996, HLI, in exchange for subscription of
12,000,000 shares of stocks of Centennary Holdings, Inc.
(Centennary), ceded 300 hectares of the converted area to the
latter.46 Consequently, HLI’s Transfer Certificate of Title (TCT) No.
125
28791047 was canceled and TCT No. 29209148 was issued in the
name of Centennary. HLI transferred the remaining 200 hectares
covered by TCT No. 287909 to Luisita Realty Corporation (LRC)49 in
two separate transactions in 1997 and 1998, both uniformly involving
100 hectares for PhP 250 million each.50
Centennary, a corporation with an authorized capital stock of PhP
12,100,000 divided into 12,100,000 shares and wholly-owned by HLI,
had the following incorporators: Pedro Cojuangco, Josephine C.
Reyes, Teresita C. Lopa, Ernesto G. Teopaco, and Bernardo R.
Lahoz.
Subsequently, Centennary sold51 the entire 300 hectares to Luisita
Industrial Park Corporation (LIPCO) for PhP 750 million. The latter
acquired it for the purpose of developing an industrial complex.52 As a
result, Centennary’s TCT No. 292091 was canceled to be replaced by
TCT No. 31098653 in the name of LIPCO.
From the area covered by TCT No. 310986 was carved out two (2)
parcels, for which two (2) separate titles were issued in the name of
LIPCO, specifically: (a) TCT No. 36580054 and (b) TCT No.
365801,55 covering 180 and four hectares, respectively. TCT No.
310986 was, accordingly, partially canceled.
Later on, in a Deed of Absolute Assignment dated November 25,
2004, LIPCO transferred the parcels covered by its TCT Nos. 365800
and 365801 to the Rizal Commercial Banking Corporation (RCBC) by
way of dacion en pago in payment of LIPCO’s PhP 431,695,732.10
loan obligations. LIPCO’s titles were canceled and new ones, TCT
Nos. 391051 and 391052, were issued to RCBC.
Apart from the 500 hectares alluded to, another 80.51 hectares were
later detached from the area coverage of Hacienda Luisita which had
been acquired by the government as part of the Subic-Clark-Tarlac
Expressway (SCTEX) complex. In absolute terms, 4,335.75 hectares
remained of the original 4,915 hectares Tadeco ceded to HLI.56
Such, in short, was the state of things when two separate petitions,
both undated, reached the DAR in the latter part of 2003. In the first,
denominated as Petition/Protest,57 respondents Jose Julio Suniga and
Windsor Andaya, identifying themselves as head of the Supervisory
Group of HLI (Supervisory Group), and 60 other supervisors sought to
revoke the SDOA, alleging that HLI had failed to give them their
dividends and the one percent (1%) share in gross sales, as well as
the thirty-three percent (33%) share in the proceeds of the sale of the
converted 500 hectares of land. They further claimed that their lives
have not improved contrary to the promise and rationale for the
adoption of the SDOA. They also cited violations by HLI of the
SDOA’s terms.58 They prayed for a renegotiation of the SDOA, or, in
the alternative, its revocation.
Revocation and nullification of the SDOA and the distribution of the
lands in the hacienda were the call in the second petition, styled
as Petisyon (Petition).59 The Petisyon was ostensibly filed on
December 4, 2003 by Alyansa ng mga Manggagawang Bukid ng
Hacienda Luisita (AMBALA), where the handwritten name of
respondents Rene Galang as "Pangulo AMBALA" and Noel Mallari as
"Sec-Gen. AMBALA"60 appeared. As alleged, the petition was filed on
behalf of AMBALA’s members purportedly composing about 80% of
the 5,339 FWBs of Hacienda Luisita.
HLI would eventually answer61 the petition/protest of the Supervisory
Group. On the other hand, HLI’s answer62 to the AMBALA petition was
contained in its letter dated January 21, 2005 also filed with DAR.
Meanwhile, the DAR constituted a Special Task Force to attend to
issues relating to the SDP of HLI. Among other duties, the Special
Task Force was mandated to review the terms and conditions of the
SDOA and PARC Resolution No. 89-12-2 relative to HLI’s SDP;
evaluate HLI’s compliance reports; evaluate the merits of the petitions
for the revocation of the SDP; conduct ocular inspections or field
investigations; and recommend appropriate remedial measures for
approval of the Secretary.63
After investigation and evaluation, the Special Task Force submitted
its "Terminal Report: Hacienda Luisita, Incorporated (HLI) Stock
Distribution Plan (SDP) Conflict"64 dated September 22, 2005
(Terminal Report), finding that HLI has not complied with its
obligations under RA 6657 despite the implementation of the
126
SDP.65 The Terminal Report and the Special Task Force’s
recommendations were adopted by then DAR Sec. Nasser
Pangandaman (Sec. Pangandaman).66
Subsequently, Sec. Pangandaman recommended to the PARC
Executive Committee (Excom) (a) the recall/revocation of PARC
Resolution No. 89-12-2 dated November 21, 1989 approving HLI’s
SDP; and (b) the acquisition of Hacienda Luisita through the
compulsory acquisition scheme. Following review, the PARC
Validation Committee favorably endorsed the DAR Secretary’s
recommendation afore-stated.67
On December 22, 2005, the PARC issued the assailed Resolution No.
2005-32-01, disposing as follows:
NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is
HEREBY RESOLVED, to approve and confirm the recommendation
of the PARC Executive Committee adopting in toto the report of the
PARC ExCom Validation Committee affirming the recommendation of
the DAR to recall/revoke the SDO plan of Tarlac Development
Corporation/Hacienda Luisita Incorporated.
RESOLVED, further, that the lands subject of the recalled/revoked
TDC/HLI SDO plan be forthwith placed under the compulsory
coverage or mandated land acquisition scheme of the [CARP].
APPROVED.68
A copy of Resolution No. 2005-32-01 was served on HLI the following
day, December 23, without any copy of the documents adverted to in
the resolution attached. A letter-request dated December 28,
200569 for certified copies of said documents was sent to, but was not
acted upon by, the PARC secretariat.
Therefrom, HLI, on January 2, 2006, sought reconsideration.70 On the
same day, the DAR Tarlac provincial office issued the Notice of
Coverage71 which HLI received on January 4, 2006.
Its motion notwithstanding, HLI has filed the instant recourse in light of
what it considers as the DAR’s hasty placing of Hacienda Luisita
under CARP even before PARC could rule or even read the motion
for reconsideration.72 As HLI later rued, it "can not know from the
above-quoted resolution the facts and the law upon which it is
based."73
PARC would eventually deny HLI’s motion for reconsideration via
Resolution No. 2006-34-01 dated May 3, 2006.
By Resolution of June 14, 2006,74 the Court, acting on HLI’s motion,
issued a temporary restraining order,75 enjoining the implementation of
Resolution No. 2005-32-01 and the notice of coverage.
On July 13, 2006, the OSG, for public respondents PARC and the
DAR, filed its Comment76 on the petition.
On December 2, 2006, Noel Mallari, impleaded by HLI as respondent
in his capacity as "Sec-Gen. AMBALA," filed his Manifestation and
Motion with Comment Attached dated December 4, 2006
(Manifestation and Motion).77 In it, Mallari stated that he has broken
away from AMBALA with other AMBALA ex-members and formed
Farmworkers Agrarian Reform Movement, Inc. (FARM).78 Should this
shift in alliance deny him standing, Mallari also prayed that FARM be
allowed to intervene.
As events would later develop, Mallari had a parting of ways with
other FARM members, particularly would-be intervenors Renato Lalic,
et al. As things stand, Mallari returned to the AMBALA fold, creating
the AMBALA-Noel Mallari faction and leaving Renato Lalic, et al. as
the remaining members of FARM who sought to intervene.
On January 10, 2007, the Supervisory Group79 and the AMBALA-
Rene Galang faction submitted their Comment/Opposition dated
December 17, 2006.80
On October 30, 2007, RCBC filed a Motion for Leave to Intervene and
to File and Admit Attached Petition-In-Intervention dated October 18,
2007.81 LIPCO later followed with a similar motion.82 In both motions,
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RCBC and LIPCO contended that the assailed resolution effectively
nullified the TCTs under their respective names as the properties
covered in the TCTs were veritably included in the January 2, 2006
notice of coverage. In the main, they claimed that the revocation of
the SDP cannot legally affect their rights as innocent purchasers for
value. Both motions for leave to intervene were granted and the
corresponding petitions-in-intervention admitted.
On August 18, 2010, the Court heard the main and intervening
petitioners on oral arguments. On the other hand, the Court, on
August 24, 2010, heard public respondents as well as the respective
counsels of the AMBALA-Mallari-Supervisory Group, the AMBALA-
Galang faction, and the FARM and its 27 members83 argue their case.
Prior to the oral arguments, however, HLI; AMBALA, represented by
Mallari; the Supervisory Group, represented by Suniga and Andaya;
and the United Luisita Workers Union, represented by Eldifonso
Pingol, filed with the Court a joint submission and motion for approval
of a Compromise Agreement (English and Tagalog versions) dated
August 6, 2010.
On August 31, 2010, the Court, in a bid to resolve the dispute through
an amicable settlement, issued a Resolution84 creating a Mediation
Panel composed of then Associate Justice Ma. Alicia Austria-
Martinez, as chairperson, and former CA Justices Hector Hofileña and
Teresita Dy-Liacco Flores, as members. Meetings on five (5) separate
dates, i.e., September 8, 9, 14, 20, and 27, 2010, were conducted.
Despite persevering and painstaking efforts on the part of the panel,
mediation had to be discontinued when no acceptable agreement
could be reached.
The Issues
HLI raises the following issues for our consideration:
I.
WHETHER OR NOT PUBLIC RESPONDENTS PARC AND
SECRETARY PANGANDAMAN HAVE JURISDICTION,
POWER AND/OR AUTHORITY TO NULLIFY, RECALL,
REVOKE OR RESCIND THE SDOA.
II.
[IF SO], x x x CAN THEY STILL EXERCISE SUCH
JURISDICTION, POWER AND/OR AUTHORITY AT THIS
TIME, I.E., AFTER SIXTEEN (16) YEARS FROM THE
EXECUTION OF THE SDOA AND ITS IMPLEMENTATION
WITHOUT VIOLATING SECTIONS 1 AND 10 OF ARTICLE III
(BILL OF RIGHTS) OF THE CONSTITUTION AGAINST
DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS
OF LAW AND THE IMPAIRMENT OF CONTRACTUAL
RIGHTS AND OBLIGATIONS? MOREOVER, ARE THERE
LEGAL GROUNDS UNDER THE CIVIL CODE, viz, ARTICLE
1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x ARTICLE
1390 x x x AND ARTICLE 1409 x x x THAT CAN BE
INVOKED TO NULLIFY, RECALL, REVOKE, OR RESCIND
THE SDOA?
III.
WHETHER THE PETITIONS TO NULLIFY, RECALL,
REVOKE OR RESCIND THE SDOA HAVE ANY LEGAL
BASIS OR GROUNDS AND WHETHER THE PETITIONERS
THEREIN ARE THE REAL PARTIES-IN-INTEREST TO FILE
SAID PETITIONS.
IV.
WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES
OF THE PARTIES TO THE SDOA ARE NOW GOVERNED
BY THE CORPORATION CODE (BATAS PAMBANSA BLG.
68) AND NOT BY THE x x x [CARL] x x x.
On the other hand, RCBC submits the following issues:
I.
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 RESPONDENT PARC COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT DID NOT EXCLUDE THE
SUBJECT PROPERTY FROM THE COVERAGE OF THE
CARP DESPITE THE FACT THAT PETITIONER-
INTERVENOR RCBC HAS ACQUIRED VESTED RIGHTS
AND INDEFEASIBLE TITLE OVER THE SUBJECT
PROPERTY AS AN INNOCENT PURCHASER FOR VALUE.
A. THE ASSAILED RESOLUTION NO. 2005-32-01
AND THE NOTICE OF COVERAGE DATED 02
JANUARY 2006 HAVE THE EFFECT OF NULLIFYING
TCT NOS. 391051 AND 391052 IN THE NAME OF
PETITIONER-INTERVENOR RCBC.
B. AS AN INNOCENT PURCHASER FOR VALUE,
PETITIONER-INTERVENOR RCBC CANNOT BE
PREJUDICED BY A SUBSEQUENT REVOCATION
OR RESCISSION OF THE SDOA.
II.
THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE
NOTICE OF COVERAGE DATED 02 JANUARY 2006 WERE
ISSUED WITHOUT AFFORDING PETITIONER-
INTERVENOR RCBC ITS RIGHT TO DUE PROCESS AS AN
INNOCENT PURCHASER FOR VALUE.
LIPCO, like RCBC, asserts having acquired vested and indefeasible
rights over certain portions of the converted property, and, hence,
would ascribe on PARC the commission of grave abuse of discretion
when it included those portions in the notice of coverage. And apart
from raising issues identical with those of HLI, such as but not limited
to the absence of valid grounds to warrant the rescission and/or
revocation of the SDP, LIPCO would allege that the assailed
resolution and the notice of coverage were issued without affording it
the right to due process as an innocent purchaser for value. The
government, LIPCO also argues, is estopped from recovering
properties which have since passed to innocent parties.
Simply formulated, the principal determinative issues tendered in the
main petition and to which all other related questions must yield boil
down to the following: (1) matters of standing; (2) the constitutionality
of Sec. 31 of RA 6657; (3) the jurisdiction of PARC to recall or revoke
HLI’s SDP; (4) the validity or propriety of such recall or revocatory
action; and (5) corollary to (4), the validity of the terms and conditions
of the SDP, as embodied in the SDOA.
Our Ruling
I.
We first proceed to the examination of the preliminary issues before
delving on the more serious challenges bearing on the validity of
PARC’s assailed issuance and the grounds for it.
Supervisory Group, AMBALA and their
respective leaders are real parties-in-interest
HLI would deny real party-in-interest status to the purported leaders of
the Supervisory Group and AMBALA, i.e., Julio Suniga, Windsor
Andaya, and Rene Galang, who filed the revocatory petitions before
the DAR. As HLI would have it, Galang, the self-styled head of
AMBALA, gained HLI employment in June 1990 and, thus, could not
have been a party to the SDOA executed a year earlier.85 As regards
the Supervisory Group, HLI alleges that supervisors are not regular
farmworkers, but the company nonetheless considered them FWBs
under the SDOA as a mere concession to enable them to enjoy the
same benefits given qualified regular farmworkers. However, if the
SDOA would be canceled and land distribution effected, so HLI
claims, citing Fortich v. Corona,86 the supervisors would be excluded
from receiving lands as farmworkers other than the regular
farmworkers who are merely entitled to the "fruits of the land."87
The SDOA no less identifies "the SDP qualified beneficiaries" as "the
farmworkers who appear in the annual payroll, inclusive of the
permanent and seasonal employees, who are regularly or periodically
employed by [HLI]."88 Galang, per HLI’s own admission, is employed
by HLI, and is, thus, a qualified beneficiary of the SDP; he comes
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within the definition of a real party-in-interest under Sec. 2, Rule 3 of
the Rules of Court, meaning, one who stands to be benefited or
injured by the judgment in the suit or is the party entitled to the avails
of the suit.
The same holds true with respect to the Supervisory Group whose
members were admittedly employed by HLI and whose names and
signatures even appeared in the annex of the SDOA. Being qualified
beneficiaries of the SDP, Suniga and the other 61 supervisors are
certainly parties who would benefit or be prejudiced by the judgment
recalling the SDP or replacing it with some other modality to comply
with RA 6657.
Even assuming that members of the Supervisory Group are not
regular farmworkers, but are in the category of "other farmworkers"
mentioned in Sec. 4, Article XIII of the Constitution,89 thus only entitled
to a share of the fruits of the land, as indeed Fortich teaches, this
does not detract from the fact that they are still identified as being
among the "SDP qualified beneficiaries." As such, they are, thus,
entitled to bring an action upon the SDP.90 At any rate, the following
admission made by Atty. Gener Asuncion, counsel of HLI, during the
oral arguments should put to rest any lingering doubt as to the status
of protesters Galang, Suniga, and Andaya:
Justice Bersamin: x x x I heard you a while ago that you were
conceding the qualified farmer beneficiaries of Hacienda Luisita were
real parties in interest?
Atty. Asuncion: Yes, Your Honor please, real party in interest which
that question refers to the complaints of protest initiated before the
DAR and the real party in interest there be considered as possessed
by the farmer beneficiaries who initiated the protest.91
Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are
expressly allowed to represent themselves, their fellow farmers or
their organizations in any proceedings before the DAR. Specifically:
SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x
xxxx
Responsible farmer leaders shall be allowed to represent
themselves, their fellow farmers or their organizations in any
proceedings before the DAR: Provided, however, that when there
are two or more representatives for any individual or group, the
representatives should choose only one among themselves to
represent such party or group before any DAR proceedings.
(Emphasis supplied.)
Clearly, the respective leaders of the Supervisory Group and
AMBALA are contextually real parties-in-interest allowed by law to file
a petition before the DAR or PARC.
This is not necessarily to say, however, that Galang represents
AMBALA, for as records show and as HLI aptly noted,92 his "petisyon"
filed with DAR did not carry the usual authorization of the individuals
in whose behalf it was supposed to have been instituted. To date,
such authorization document, which would logically include a list of
the names of the authorizing FWBs, has yet to be submitted to be part
of the records.
PARC’s Authority to Revoke a Stock Distribution Plan
On the postulate that the subject jurisdiction is conferred by law, HLI
maintains that PARC is without authority to revoke an SDP, for neither
RA 6657 nor EO 229 expressly vests PARC with such authority.
While, as HLI argued, EO 229 empowers PARC to approve the plan
for stock distribution in appropriate cases, the empowerment only
includes the power to disapprove, but not to recall its previous
approval of the SDP after it has been implemented by the parties.93 To
HLI, it is the court which has jurisdiction and authority to order the
revocation or rescission of the PARC-approved SDP.
We disagree.
Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority
to approve the plan for stock distribution of the corporate landowner
belongs to PARC. However, contrary to petitioner HLI’s posture,
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PARC also has the power to revoke the SDP which it previously
approved. It may be, as urged, that RA 6657 or other executive
issuances on agrarian reform do not explicitly vest the PARC with the
power to revoke/recall an approved SDP. Such power or authority,
however, is deemed possessed by PARC under the principle of
necessary implication, a basic postulate that what is implied in a
statute is as much a part of it as that which is expressed.94
We have explained that "every statute is understood, by implication, to
contain all such provisions as may be necessary to effectuate its
object and purpose, or to make effective rights, powers, privileges or
jurisdiction which it grants, including all such collateral and subsidiary
consequences as may be fairly and logically inferred from its
terms."95 Further, "every statutory grant of power, right or privilege is
deemed to include all incidental power, right or privilege. 96
Gordon v. Veridiano II is instructive:
The power to approve a license includes by implication, even if not
expressly granted, the power to revoke it. By extension, the power to
revoke is limited by the authority to grant the license, from which it is
derived in the first place. Thus, if the FDA grants a license upon its
finding that the applicant drug store has complied with the
requirements of the general laws and the implementing administrative
rules and regulations, it is only for their violation that the FDA may
revoke the said license. By the same token, having granted the permit
upon his ascertainment that the conditions thereof as applied x x x
have been complied with, it is only for the violation of such conditions
that the mayor may revoke the said permit.97 (Emphasis supplied.)
Following the doctrine of necessary implication, it may be stated that
the conferment of express power to approve a plan for stock
distribution of the agricultural land of corporate owners necessarily
includes the power to revoke or recall the approval of the plan.
As public respondents aptly observe, to deny PARC such revocatory
power would reduce it into a toothless agency of CARP, because the
very same agency tasked to ensure compliance by the corporate
landowner with the approved SDP would be without authority to
impose sanctions for non-compliance with it.98 With the view We take
of the case, only PARC can effect such revocation. The DAR
Secretary, by his own authority as such, cannot plausibly do so, as
the acceptance and/or approval of the SDP sought to be taken back
or undone is the act of PARC whose official composition includes, no
less, the President as chair, the DAR Secretary as vice-chair, and at
least eleven (11) other department heads.99
On another but related issue, the HLI foists on the Court the argument
that subjecting its landholdings to compulsory distribution after its
approved SDP has been implemented would impair the contractual
obligations created under the SDOA.
The broad sweep of HLI’s argument ignores certain established legal
precepts and must, therefore, be rejected.
A law authorizing interference, when appropriate, in the contractual
relations between or among parties is deemed read into the contract
and its implementation cannot successfully be resisted by force of the
non-impairment guarantee. There is, in that instance, no impingement
of the impairment clause, the non-impairment protection being
applicable only to laws that derogate prior acts or contracts by
enlarging, abridging or in any manner changing the intention of the
parties. Impairment, in fine, obtains if a subsequent law changes the
terms of a contract between the parties, imposes new conditions,
dispenses with those agreed upon or withdraws existing remedies for
the enforcement of the rights of the parties.100 Necessarily, the
constitutional proscription would not apply to laws already in effect at
the time of contract execution, as in the case of RA 6657, in relation to
DAO 10, vis-à-vis HLI’s SDOA. As held in Serrano v. Gallant Maritime
Services, Inc.:
The prohibition [against impairment of the obligation of contracts] is
aligned with the general principle that laws newly enacted have only a
prospective operation, and cannot affect acts or contracts already
perfected; however, as to laws already in existence, their provisions
are read into contracts and deemed a part thereof. Thus, the non-
impairment clause under Section 10, Article II [of the Constitution] is
limited in application to laws about to be enacted that would in any
way derogate from existing acts or contracts by enlarging, abridging
131
or in any manner changing the intention of the parties
thereto.101 (Emphasis supplied.)
Needless to stress, the assailed Resolution No. 2005-32-01 is not the
kind of issuance within the ambit of Sec. 10, Art. III of the Constitution
providing that "[n]o law impairing the obligation of contracts shall be
passed."
Parenthetically, HLI tags the SDOA as an ordinary civil law contract
and, as such, a breach of its terms and conditions is not a PARC
administrative matter, but one that gives rise to a cause of action
cognizable by regular courts.102 This contention has little to commend
itself. The SDOA is a special contract imbued with public interest,
entered into and crafted pursuant to the provisions of RA 6657. It
embodies the SDP, which requires for its validity, or at least its
enforceability, PARC’s approval. And the fact that the certificate of
compliance103––to be issued by agrarian authorities upon completion
of the distribution of stocks––is revocable by the same issuing
authority supports the idea that everything about the implementation
of the SDP is, at the first instance, subject to administrative
adjudication.
HLI also parlays the notion that the parties to the SDOA should now
look to the Corporation Code, instead of to RA 6657, in determining
their rights, obligations and remedies. The Code, it adds, should be
the applicable law on the disposition of the agricultural land of HLI.
Contrary to the view of HLI, the rights, obligations and remedies of the
parties to the SDOA embodying the SDP are primarily governed by
RA 6657. It should abundantly be made clear that HLI was precisely
created in order to comply with RA 6657, which the OSG aptly
described as the "mother law" of the SDOA and the SDP.104 It is, thus,
paradoxical for HLI to shield itself from the coverage of CARP by
invoking exclusive applicability of the Corporation Code under the
guise of being a corporate entity.
Without in any way minimizing the relevance of the Corporation Code
since the FWBs of HLI are also stockholders, its applicability is limited
as the rights of the parties arising from the SDP should not be made
to supplant or circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law providing for
the formation, organization and regulation of private corporations. On
the other hand, RA 6657 is the special law on agrarian reform. As
between a general and special law, the latter shall prevail—generalia
specialibus non derogant.105 Besides, the present impasse between
HLI and the private respondents is not an intra-corporate dispute
which necessitates the application of the Corporation Code. What
private respondents questioned before the DAR is the proper
implementation of the SDP and HLI’s compliance with RA 6657.
Evidently, RA 6657 should be the applicable law to the instant case.
HLI further contends that the inclusion of the agricultural land of
Hacienda Luisita under the coverage of CARP and the eventual
distribution of the land to the FWBs would amount to a disposition of
all or practically all of the corporate assets of HLI. HLI would add that
this contingency, if ever it comes to pass, requires the applicability of
the Corporation Code provisions on corporate dissolution.
We are not persuaded.
Indeed, the provisions of the Corporation Code on corporate
dissolution would apply insofar as the winding up of HLI’s affairs or
liquidation of the assets is concerned. However, the mere inclusion of
the agricultural land of Hacienda Luisita under the coverage of CARP
and the land’s eventual distribution to the FWBs will not, without more,
automatically trigger the dissolution of HLI. As stated in the SDOA
itself, the percentage of the value of the agricultural land of Hacienda
Luisita in relation to the total assets transferred and conveyed by
Tadeco to HLI comprises only 33.296%, following this equation: value
of the agricultural lands divided by total corporate assets. By no
stretch of imagination would said percentage amount to a disposition
of all or practically all of HLI’s corporate assets should compulsory
land acquisition and distribution ensue.
This brings us to the validity of the revocation of the approval of the
SDP sixteen (16) years after its execution pursuant to Sec. 31 of RA
6657 for the reasons set forth in the Terminal Report of the Special
Task Force, as endorsed by PARC Excom. But first, the matter of the
constitutionality of said section.
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Constitutional Issue
FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it
affords the corporation, as a mode of CARP compliance, to resort to
stock distribution, an arrangement which, to FARM, impairs the
fundamental right of farmers and farmworkers under Sec. 4, Art. XIII
of the Constitution.106
To a more specific, but direct point, FARM argues that Sec. 31 of RA
6657 permits stock transfer in lieu of outright agricultural land transfer;
in fine, there is stock certificate ownership of the farmers or
farmworkers instead of them owning the land, as envisaged in the
Constitution. For FARM, this modality of distribution is an anomaly to
be annulled for being inconsistent with the basic concept of agrarian
reform ingrained in Sec. 4, Art. XIII of the Constitution.107
Reacting, HLI insists that agrarian reform is not only about transfer of
land ownership to farmers and other qualified beneficiaries. It draws
attention in this regard to Sec. 3(a) of RA 6657 on the concept and
scope of the term "agrarian reform." The constitutionality of a law,
HLI added, cannot, as here, be attacked collaterally.
The instant challenge on the constitutionality of Sec. 31 of RA 6657
and necessarily its counterpart provision in EO 229 must fail as
explained below.
When the Court is called upon to exercise its power of judicial review
over, and pass upon the constitutionality of, acts of the executive or
legislative departments, it does so only when the following essential
requirements are first met, to wit:
(1) there is an actual case or controversy;
(2) that the constitutional question is raised at the earliest
possible opportunity by a proper party or one with locus standi;
and
(3) the issue of constitutionality must be the very lis mota of
the case.108
Not all the foregoing requirements are satisfied in the case at bar.
While there is indeed an actual case or controversy, intervenor FARM,
composed of a small minority of 27 farmers, has yet to explain its
failure to challenge the constitutionality of Sec. 3l of RA 6657, since
as early as November 21, l989 when PARC approved the SDP of
Hacienda Luisita or at least within a reasonable time thereafter and
why its members received benefits from the SDP without so much of a
protest. It was only on December 4, 2003 or 14 years after approval of
the SDP via PARC Resolution No. 89-12-2 dated November 21, 1989
that said plan and approving resolution were sought to be revoked,
but not, to stress, by FARM or any of its members, but by petitioner
AMBALA. Furthermore, the AMBALA petition did NOT question the
constitutionality of Sec. 31 of RA 6657, but concentrated on the
purported flaws and gaps in the subsequent implementation of the
SDP. Even the public respondents, as represented by the Solicitor
General, did not question the constitutionality of the provision. On the
other hand, FARM, whose 27 members formerly belonged to
AMBALA, raised the constitutionality of Sec. 31 only on May 3, 2007
when it filed its Supplemental Comment with the Court. Thus, it took
FARM some eighteen (18) years from November 21, 1989 before it
challenged the constitutionality of Sec. 31 of RA 6657 which is quite
too late in the day. The FARM members slept on their rights and even
accepted benefits from the SDP with nary a complaint on the alleged
unconstitutionality of Sec. 31 upon which the benefits were derived.
The Court cannot now be goaded into resolving a constitutional issue
that FARM failed to assail after the lapse of a long period of time and
the occurrence of numerous events and activities which resulted from
the application of an alleged unconstitutional legal provision.
It has been emphasized in a number of cases that the question of
constitutionality will not be passed upon by the Court unless it is
properly raised and presented in an appropriate case at the first
opportunity.109 FARM is, therefore, remiss in belatedly questioning the
constitutionality of Sec. 31 of RA 6657. The second requirement that
the constitutional question should be raised at the earliest possible
opportunity is clearly wanting.
The last but the most important requisite that the constitutional issue
must be the very lis mota of the case does not likewise obtain. The lis
133
mota aspect is not present, the constitutional issue tendered not being
critical to the resolution of the case. The unyielding rule has been to
avoid, whenever plausible, an issue assailing the constitutionality of a
statute or governmental act.110 If some other grounds exist by which
judgment can be made without touching the constitutionality of a law,
such recourse is favored.111 Garcia v. Executive Secretary explains
why:
Lis Mota — the fourth requirement to satisfy before this Court will
undertake judicial review — means that the Court will not pass upon a
question of unconstitutionality, although properly presented, if the
case can be disposed of on some other ground, such as the
application of the statute or the general law. The petitioner must be
able to show that the case cannot be legally resolved unless the
constitutional question raised is determined. This requirement is
based on the rule that every law has in its favor the presumption of
constitutionality; to justify its nullification, there must be a clear and
unequivocal breach of the Constitution, and not one that is doubtful,
speculative, or argumentative.112 (Italics in the original.)
The lis mota in this case, proceeding from the basic positions
originally taken by AMBALA (to which the FARM members previously
belonged) and the Supervisory Group, is the alleged non-compliance
by HLI with the conditions of the SDP to support a plea for its
revocation. And before the Court, the lis mota is whether or not PARC
acted in grave abuse of discretion when it ordered the recall of the
SDP for such non-compliance and the fact that the SDP, as couched
and implemented, offends certain constitutional and statutory
provisions. To be sure, any of these key issues may be resolved
without plunging into the constitutionality of Sec. 31 of RA 6657.
Moreover, looking deeply into the underlying petitions of AMBALA, et
al., it is not the said section per se that is invalid, but rather it is the
alleged application of the said provision in the SDP that is flawed.
It may be well to note at this juncture that Sec. 5 of RA
9700,113 amending Sec. 7 of RA 6657, has all but superseded Sec. 31
of RA 6657 vis-à-vis the stock distribution component of said Sec. 31.
In its pertinent part, Sec. 5 of RA 9700 provides: "[T]hat after June
30, 2009, the modes of acquisition shall be limited to voluntary
offer to sell and compulsory acquisition." Thus, for all intents and
purposes, the stock distribution scheme under Sec. 31 of RA 6657 is
no longer an available option under existing law. The question of
whether or not it is unconstitutional should be a moot issue.
It is true that the Court, in some cases, has proceeded to resolve
constitutional issues otherwise already moot and
academic114 provided the following requisites are present:
x x x first, there is a grave violation of the Constitution; second, the
exceptional character of the situation and the paramount public
interest is involved; third, when the constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and
the public; fourth, the case is capable of repetition yet evading review.
These requisites do not obtain in the case at bar.
For one, there appears to be no breach of the fundamental law. Sec.
4, Article XIII of the Constitution reads:
The State shall, by law, undertake an agrarian reform program
founded on the right of the farmers and regular farmworkers, who are
landless, to OWN directly or COLLECTIVELY THE LANDS THEY
TILL or, in the case of other farmworkers, to receive a just share of
the fruits thereof. To this end, the State shall encourage and
undertake the just distribution of all agricultural lands, subject to such
priorities and reasonable retention limits as the Congress may
prescribe, taking into account ecological, developmental, or equity
considerations, and subject to the payment of just compensation. In
determining retention limits, the State shall respect the right of small
landowners. The State shall further provide incentives for voluntary
land-sharing. (Emphasis supplied.)
The wording of the provision is unequivocal––the farmers and regular
farmworkers have a right TO OWN DIRECTLY OR COLLECTIVELY
THE LANDS THEY TILL. The basic law allows two (2) modes of land
distribution—direct and indirect ownership. Direct transfer to individual
farmers is the most commonly used method by DAR and widely
accepted. Indirect transfer through collective ownership of the
agricultural land is the alternative to direct ownership of agricultural
134
land by individual farmers. The aforequoted Sec. 4 EXPRESSLY
authorizes collective ownership by farmers. No language can be
found in the 1987 Constitution that disqualifies or prohibits
corporations or cooperatives of farmers from being the legal entity
through which collective ownership can be exercised. The word
"collective" is defined as "indicating a number of persons or things
considered as constituting one group or aggregate,"115 while
"collectively" is defined as "in a collective sense or manner; in a mass
or body."116 By using the word "collectively," the Constitution allows for
indirect ownership of land and not just outright agricultural land
transfer. This is in recognition of the fact that land reform may become
successful even if it is done through the medium of juridical entities
composed of farmers.
Collective ownership is permitted in two (2) provisions of RA 6657. Its
Sec. 29 allows workers’ cooperatives or associations to collectively
own the land, while the second paragraph of Sec. 31 allows
corporations or associations to own agricultural land with the farmers
becoming stockholders or members. Said provisions read:
SEC. 29. Farms owned or operated by corporations or other business
associations.—In the case of farms owned or operated by
corporations or other business associations, the following rules shall
be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-
beneficiaries.
In case it is not economically feasible and sound to divide the land,
then it shall be owned collectively by the worker beneficiaries who
shall form a workers’ cooperative or association which will deal with
the corporation or business association. x x x (Emphasis supplied.)
SEC. 31. Corporate Landowners.— x x x
xxxx
Upon certification by the DAR, corporations owning agricultural lands
may give their qualified beneficiaries the right to purchase such
proportion of the capital stock of the corporation that the agricultural
land, actually devoted to agricultural activities, bears in relation to the
company’s total assets, under such terms and conditions as may be
agreed upon by them. In no case shall the compensation received by
the workers at the time the shares of stocks are distributed be
reduced. The same principle shall be applied to associations, with
respect to their equity or participation. x x x (Emphasis supplied.)
Clearly, workers’ cooperatives or associations under Sec. 29 of RA
6657 and corporations or associations under the succeeding Sec. 31,
as differentiated from individual farmers, are authorized vehicles for
the collective ownership of agricultural land. Cooperatives can be
registered with the Cooperative Development Authority and acquire
legal personality of their own, while corporations are juridical persons
under the Corporation Code. Thus, Sec. 31 is constitutional as it
simply implements Sec. 4 of Art. XIII of the Constitution that land can
be owned COLLECTIVELY by farmers. Even the framers of the l987
Constitution are in unison with respect to the two (2) modes of
ownership of agricultural lands tilled by farmers––DIRECT and
COLLECTIVE, thus:
MR. NOLLEDO. And when we talk of the phrase "to own directly," we
mean the principle of direct ownership by the tiller?
MR. MONSOD. Yes.
MR. NOLLEDO. And when we talk of "collectively," we mean
communal ownership, stewardship or State ownership?
MS. NIEVA. In this section, we conceive of cooperatives; that is
farmers’ cooperatives owning the land, not the State.
MR. NOLLEDO. And when we talk of "collectively," referring to
farmers’ cooperatives, do the farmers own specific areas of land
where they only unite in their efforts?
MS. NIEVA. That is one way.
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MR. NOLLEDO. Because I understand that there are two basic
systems involved: the "moshave" type of agriculture and the "kibbutz."
So are both contemplated in the report?
MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng
tunay na reporma sa lupa ay ang pagmamay-ari ng lupa na hahatiin
sa individual na pagmamay-ari – directly – at ang tinatawag na sama-
samang gagawin ng mga magbubukid. Tulad sa Negros, ang gusto
ng mga magbubukid ay gawin nila itong "cooperative or collective
farm." Ang ibig sabihin ay sama-sama nilang sasakahin.
xxxx
MR. TINGSON. x x x When we speak here of "to own directly or
collectively the lands they till," is this land for the tillers rather than
land for the landless? Before, we used to hear "land for the landless,"
but now the slogan is "land for the tillers." Is that right?
MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers.
Ang ibig sabihin ng "directly" ay tulad sa implementasyon sa rice and
corn lands kung saan inaari na ng mga magsasaka ang lupang
binubungkal nila. Ang ibig sabihin naman ng "collectively" ay sama-
samang paggawa sa isang lupain o isang bukid, katulad ng sitwasyon
sa Negros.117 (Emphasis supplied.)
As Commissioner Tadeo explained, the farmers will work on the
agricultural land "sama-sama" or collectively. Thus, the main requisite
for collective ownership of land is collective or group work by farmers
of the agricultural land. Irrespective of whether the landowner is a
cooperative, association or corporation composed of farmers, as long
as concerted group work by the farmers on the land is present, then it
falls within the ambit of collective ownership scheme.
Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a
commitment on the part of the State to pursue, by law, an agrarian
reform program founded on the policy of land for the landless, but
subject to such priorities as Congress may prescribe, taking into
account such abstract variable as "equity considerations." The textual
reference to a law and Congress necessarily implies that the above
constitutional provision is not self-executory and that legislation is
needed to implement the urgently needed program of agrarian reform.
And RA 6657 has been enacted precisely pursuant to and as a
mechanism to carry out the constitutional directives. This piece of
legislation, in fact, restates118 the agrarian reform policy established in
the aforementioned provision of the Constitution of promoting the
welfare of landless farmers and farmworkers. RA 6657 thus defines
"agrarian reform" as "the redistribution of lands … to farmers and
regular farmworkers who are landless … to lift the economic status of
the beneficiaries and all other arrangements alternative to the
physical redistribution of lands, such as production or profit
sharing, labor administration and the distribution of shares of
stock which will allow beneficiaries to receive a just share of the fruits
of the lands they work."
With the view We take of this case, the stock distribution option
devised under Sec. 31 of RA 6657 hews with the agrarian reform
policy, as instrument of social justice under Sec. 4 of Article XIII of the
Constitution. Albeit land ownership for the landless appears to be the
dominant theme of that policy, We emphasize that Sec. 4, Article XIII
of the Constitution, as couched, does not constrict Congress to
passing an agrarian reform law planted on direct land transfer to and
ownership by farmers and no other, or else the enactment suffers
from the vice of unconstitutionality. If the intention were otherwise, the
framers of the Constitution would have worded said section in a
manner mandatory in character.
For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer
features, is not inconsistent with the State’s commitment to farmers
and farmworkers to advance their interests under the policy of social
justice. The legislature, thru Sec. 31 of RA 6657, has chosen a
modality for collective ownership by which the imperatives of social
justice may, in its estimation, be approximated, if not achieved. The
Court should be bound by such policy choice.
FARM contends that the farmers in the stock distribution scheme
under Sec. 31 do not own the agricultural land but are merely given
stock certificates. Thus, the farmers lose control over the land to the
board of directors and executive officials of the corporation who
actually manage the land. They conclude that such arrangement runs
136
counter to the mandate of the Constitution that any agrarian reform
must preserve the control over the land in the hands of the tiller.
This contention has no merit.
While it is true that the farmer is issued stock certificates and does not
directly own the land, still, the Corporation Code is clear that the FWB
becomes a stockholder who acquires an equitable interest in the
assets of the corporation, which include the agricultural lands. It was
explained that the "equitable interest of the shareholder in the
property of the corporation is represented by the term stock, and the
extent of his interest is described by the term shares. The expression
shares of stock when qualified by words indicating number and
ownership expresses the extent of the owner’s interest in the
corporate property."119 A share of stock typifies an aliquot part of the
corporation’s property, or the right to share in its proceeds to that
extent when distributed according to law and equity and that its holder
is not the owner of any part of the capital of the
corporation.120 However, the FWBs will ultimately own the agricultural
lands owned by the corporation when the corporation is eventually
dissolved and liquidated.
Anent the alleged loss of control of the farmers over the agricultural
land operated and managed by the corporation, a reading of the
second paragraph of Sec. 31 shows otherwise. Said provision
provides that qualified beneficiaries have "the right to purchase such
proportion of the capital stock of the corporation that the agricultural
land, actually devoted to agricultural activities, bears in relation to the
company’s total assets." The wording of the formula in the
computation of the number of shares that can be bought by the
farmers does not mean loss of control on the part of the farmers. It
must be remembered that the determination of the percentage of the
capital stock that can be bought by the farmers depends on the value
of the agricultural land and the value of the total assets of the
corporation.
There is, thus, nothing unconstitutional in the formula prescribed by
RA 6657. The policy on agrarian reform is that control over the
agricultural land must always be in the hands of the farmers. Then it
falls on the shoulders of DAR and PARC to see to it the farmers
should always own majority of the common shares entitled to elect the
members of the board of directors to ensure that the farmers will have
a clear majority in the board. Before the SDP is approved, strict
scrutiny of the proposed SDP must always be undertaken by the DAR
and PARC, such that the value of the agricultural land contributed to
the corporation must always be more than 50% of the total assets of
the corporation to ensure that the majority of the members of the
board of directors are composed of the farmers. The PARC composed
of the President of the Philippines and cabinet secretaries must see to
it that control over the board of directors rests with the farmers by
rejecting the inclusion of non-agricultural assets which will yield the
majority in the board of directors to non-farmers. Any deviation,
however, by PARC or DAR from the correct application of the formula
prescribed by the second paragraph of Sec. 31 of RA 6675 does not
make said provision constitutionally infirm. Rather, it is the application
of said provision that can be challenged. Ergo, Sec. 31 of RA 6657
does not trench on the constitutional policy of ensuring control by the
farmers.
A view has been advanced that there can be no agrarian reform
unless there is land distribution and that actual land distribution is the
essential characteristic of a constitutional agrarian reform program.
On the contrary, there have been so many instances where, despite
actual land distribution, the implementation of agrarian reform was still
unsuccessful. As a matter of fact, this Court may take judicial notice of
cases where FWBs sold the awarded land even to non-qualified
persons and in violation of the prohibition period provided under the
law. This only proves to show that the mere fact that there is land
distribution does not guarantee a successful implementation of
agrarian reform.
As it were, the principle of "land to the tiller" and the old pastoral
model of land ownership where non-human juridical persons, such as
corporations, were prohibited from owning agricultural lands are no
longer realistic under existing conditions. Practically, an individual
farmer will often face greater disadvantages and difficulties than those
who exercise ownership in a collective manner through a cooperative
or corporation. The former is too often left to his own devices when
faced with failing crops and bad weather, or compelled to obtain
usurious loans in order to purchase costly fertilizers or farming
137
equipment. The experiences learned from failed land reform activities
in various parts of the country are lack of financing, lack of farm
equipment, lack of fertilizers, lack of guaranteed buyers of produce,
lack of farm-to-market roads, among others. Thus, at the end of the
day, there is still no successful implementation of agrarian reform to
speak of in such a case.
Although success is not guaranteed, a cooperative or a corporation
stands in a better position to secure funding and competently maintain
the agri-business than the individual farmer. While direct singular
ownership over farmland does offer advantages, such as the ability to
make quick decisions unhampered by interference from others, yet at
best, these advantages only but offset the disadvantages that are
often associated with such ownership arrangement. Thus,
government must be flexible and creative in its mode of
implementation to better its chances of success. One such option is
collective ownership through juridical persons composed of farmers.
Aside from the fact that there appears to be no violation of the
Constitution, the requirement that the instant case be capable of
repetition yet evading review is also wanting. It would be speculative
for this Court to assume that the legislature will enact another law
providing for a similar stock option.
As a matter of sound practice, the Court will not interfere inordinately
with the exercise by Congress of its official functions, the heavy
presumption being that a law is the product of earnest studies by
Congress to ensure that no constitutional prescription or concept is
infringed.121 Corollarily, courts will not pass upon questions of wisdom,
expediency and justice of legislation or its provisions. Towards this
end, all reasonable doubts should be resolved in favor of the
constitutionality of a law and the validity of the acts and processes
taken pursuant thereof.122
Consequently, before a statute or its provisions duly challenged are
voided, an unequivocal breach of, or a clear conflict with the
Constitution, not merely a doubtful or argumentative one, must be
demonstrated in such a manner as to leave no doubt in the mind of
the Court. In other words, the grounds for nullity must be beyond
reasonable doubt.123 FARM has not presented compelling arguments
to overcome the presumption of constitutionality of Sec. 31 of RA
6657.
The wisdom of Congress in allowing an SDP through a corporation as
an alternative mode of implementing agrarian reform is not for judicial
determination. Established jurisprudence tells us that it is not within
the province of the Court to inquire into the wisdom of the law, for,
indeed, We are bound by words of the statute.124
II.
The stage is now set for the determination of the propriety under the
premises of the revocation or recall of HLI’s SDP. Or to be more
precise, the inquiry should be: whether or not PARC gravely abused
its discretion in revoking or recalling the subject SDP and placing the
hacienda under CARP’s compulsory acquisition and distribution
scheme.
The findings, analysis and recommendation of the DAR’s Special
Task Force contained and summarized in its Terminal Report
provided the bases for the assailed PARC revocatory/recalling
Resolution. The findings may be grouped into two: (1) the SDP is
contrary to either the policy on agrarian reform, Sec. 31 of RA 6657,
or DAO 10; and (2) the alleged violation by HLI of the conditions/terms
of the SDP. In more particular terms, the following are essentially the
reasons underpinning PARC’s revocatory or recall action:
(1) Despite the lapse of 16 years from the approval of HLI’s
SDP, the lives of the FWBs have hardly improved and the
promised increased income has not materialized;
(2) HLI has failed to keep Hacienda Luisita intact and
unfragmented;
(3) The issuance of HLI shares of stock on the basis of
number of hours worked––or the so-called "man days"––is
grossly onerous to the FWBs, as HLI, in the guise of rotation,
can unilaterally deny work to anyone. In elaboration of this
ground, PARC’s Resolution No. 2006-34-01, denying HLI’s
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 motion for reconsideration of Resolution No. 2005-32-01,
stated that the man days criterion worked to dilute the
entitlement of the original share beneficiaries;125
(4) The distribution/transfer of shares was not in accordance
with the timelines fixed by law;
(5) HLI has failed to comply with its obligations to grant 3% of
the gross sales every year as production-sharing benefit on
top of the workers’ salary; and
(6) Several homelot awardees have yet to receive their
individual titles.
Petitioner HLI claims having complied with, at least substantially, all
its obligations under the SDP, as approved by PARC itself, and tags
the reasons given for the revocation of the SDP as unfounded.
Public respondents, on the other hand, aver that the assailed
resolution rests on solid grounds set forth in the Terminal Report, a
position shared by AMBALA, which, in some pleadings, is represented
by the same counsel as that appearing for the Supervisory Group.
FARM, for its part, posits the view that legal bases obtain for the
revocation of the SDP, because it does not conform to Sec. 31 of RA
6657 and DAO 10. And training its sight on the resulting dilution of the
equity of the FWBs appearing in HLI’s masterlist, FARM would state
that the SDP, as couched and implemented, spawned disparity when
there should be none; parity when there should have been
differentiation.126
The petition is not impressed with merit.
In the Terminal Report adopted by PARC, it is stated that the SDP
violates the agrarian reform policy under Sec. 2 of RA 6657, as the
said plan failed to enhance the dignity and improve the quality of lives
of the FWBs through greater productivity of agricultural lands. We
disagree.
Sec. 2 of RA 6657 states:
SECTION 2. Declaration of Principles and Policies.¾It is the policy of
the State to pursue a Comprehensive Agrarian Reform Program
(CARP). The welfare of the landless farmers and farm workers will
receive the highest consideration to promote social justice and to
move the nation towards sound rural development and
industrialization, and the establishment of owner cultivatorship of
economic-sized farms as the basis of Philippine agriculture.
To this end, a more equitable distribution and ownership of land, with
due regard to the rights of landowners to just compensation and to the
ecological needs of the nation, shall be undertaken to provide farmers
and farm workers with the opportunity to enhance their dignity and
improve the quality of their lives through greater productivity of
agricultural lands.
The agrarian reform program is founded on the right of farmers and
regular farm workers, who are landless, to own directly or collectively
the lands they till or, in the case of other farm workers, to receive a
share of the fruits thereof. To this end, the State shall encourage the
just distribution of all agricultural lands, subject to the priorities and
retention limits set forth in this Act, having taken into account
ecological, developmental, and equity considerations, and subject to
the payment of just compensation. The State shall respect the right of
small landowners and shall provide incentives for voluntary land-
sharing. (Emphasis supplied.)
Paragraph 2 of the above-quoted provision specifically mentions that
"a more equitable distribution and ownership of land x x x shall be
undertaken to provide farmers and farm workers with the opportunity
to enhance their dignity and improve the quality of their lives through
greater productivity of agricultural lands." Of note is the term
"opportunity" which is defined as a favorable chance or opening
offered by circumstances.127 Considering this, by no stretch of
imagination can said provision be construed as a guarantee in
improving the lives of the FWBs. At best, it merely provides for a
possibility or favorable chance of uplifting the economic status of the
FWBs, which may or may not be attained.
139
Pertinently, improving the economic status of the FWBs is neither
among the legal obligations of HLI under the SDP nor an imperative
imposition by RA 6657 and DAO 10, a violation of which would justify
discarding the stock distribution option. Nothing in that option
agreement, law or department order indicates otherwise.
Significantly, HLI draws particular attention to its having paid its
FWBs, during the regime of the SDP (1989-2005), some PhP 3 billion
by way of salaries/wages and higher benefits exclusive of free
hospital and medical benefits to their immediate family. And attached
as Annex "G" to HLI’s Memorandum is the certified true report of the
finance manager of Jose Cojuangco & Sons Organizations-Tarlac
Operations, captioned as "HACIENDA LUISITA, INC. Salaries,
Benefits and Credit Privileges (in Thousand Pesos) Since the Stock
Option was Approved by PARC/CARP," detailing what HLI gave their
workers from 1989 to 2005. The sum total, as added up by the Court,
yields the following numbers: Total Direct Cash Out (Salaries/Wages
& Cash Benefits) = PhP 2,927,848; Total Non-Direct Cash Out
(Hospital/Medical Benefits) = PhP 303,040. The cash out figures, as
stated in the report, include the cost of homelots; the PhP 150 million
or so representing 3% of the gross produce of the hacienda; and the
PhP 37.5 million representing 3% from the proceeds of the sale of the
500-hectare converted lands. While not included in the report, HLI
manifests having given the FWBs 3% of the PhP 80 million paid for
the 80 hectares of land traversed by the SCTEX.128 On top of these, it
is worth remembering that the shares of stocks were given by HLI to
the FWBs for free. Verily, the FWBs have benefited from the SDP.
To address urgings that the FWBs be allowed to disengage from the
SDP as HLI has not anyway earned profits through the years, it
cannot be over-emphasized that, as a matter of common business
sense, no corporation could guarantee a profitable run all the time. As
has been suggested, one of the key features of an SDP of a corporate
landowner is the likelihood of the corporate vehicle not earning, or,
worse still, losing money.129
The Court is fully aware that one of the criteria under DAO 10 for the
PARC to consider the advisability of approving a stock distribution
plan is the likelihood that the plan "would result in increased income
and greater benefits to [qualified beneficiaries] than if the lands were
divided and distributed to them individually."130 But as aptly noted
during the oral arguments, DAO 10 ought to have not, as it cannot,
actually exact assurance of success on something that is subject to
the will of man, the forces of nature or the inherent risky nature of
business.131 Just like in actual land distribution, an SDP cannot
guarantee, as indeed the SDOA does not guarantee, a comfortable
life for the FWBs. The Court can take judicial notice of the fact that
there were many instances wherein after a farmworker beneficiary
has been awarded with an agricultural land, he just subsequently sells
it and is eventually left with nothing in the end.
In all then, the onerous condition of the FWBs’ economic status, their
life of hardship, if that really be the case, can hardly be attributed to
HLI and its SDP and provide a valid ground for the plan’s revocation.
Neither does HLI’s SDP, whence the DAR-attested SDOA/MOA is
based, infringe Sec. 31 of RA 6657, albeit public respondents
erroneously submit otherwise.
The provisions of the first paragraph of the adverted Sec. 31 are
without relevance to the issue on the propriety of the assailed order
revoking HLI’s SDP, for the paragraph deals with the transfer of
agricultural lands to the government, as a mode of CARP compliance,
thus:
SEC. 31. Corporate Landowners.¾Corporate landowners may
voluntarily transfer ownership over their agricultural landholdings to
the Republic of the Philippines pursuant to Section 20 hereof or to
qualified beneficiaries under such terms and conditions, consistent
with this Act, as they may agree, subject to confirmation by the DAR.
The second and third paragraphs, with their sub-paragraphs, of Sec.
31 provide as follows:
Upon certification by the DAR, corporations owning agricultural
lands may give their qualified beneficiaries the right to purchase
such proportion of the capital stock of the corporation that the
agricultural land, actually devoted to agricultural activities, bears
in relation to the company’s total assets, under such terms and
140
conditions as may be agreed upon by them. In no case shall the
compensation received by the workers at the time the shares of
stocks are distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of
their capital stock, equity or participation in favor of their workers or
other qualified beneficiaries under this section shall be deemed to
have complied with the provisions of this Act: Provided, That the
following conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own
shares of stocks to dividends and other financial benefits, the
books of the corporation or association shall be subject to
periodic audit by certified public accountants chosen by the
beneficiaries;
(b) Irrespective of the value of their equity in the corporation or
association, the beneficiaries shall be assured of at least one
(1) representative in the board of directors, or in a
management or executive committee, if one exists, of the
corporation or association;
(c) Any shares acquired by such workers and beneficiaries
shall have the same rights and features as all other shares;
and
(d) Any transfer of shares of stocks by the original
beneficiaries shall be void ab initio unless said transaction is in
favor of a qualified and registered beneficiary within the same
corporation.
The mandatory minimum ratio of land-to-shares of stock supposed to
be distributed or allocated to qualified beneficiaries, adverting to what
Sec. 31 of RA 6657 refers to as that "proportion of the capital stock of
the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets"
had been observed.
Paragraph one (1) of the SDOA, which was based on the SDP,
conforms to Sec. 31 of RA 6657. The stipulation reads:
1. The percentage of the value of the agricultural land of Hacienda
Luisita (P196,630,000.00) in relation to the total assets
(P590,554,220.00) transferred and conveyed to the SECOND PARTY
is 33.296% that, under the law, is the proportion of the outstanding
capital stock of the SECOND PARTY, which is P355,531,462.00 or
355,531,462 shares with a par value of P1.00 per share, that has to
be distributed to the THIRD PARTY under the stock distribution plan,
the said 33.296% thereof being P118,391,976.85 or 118,391,976.85
shares.
The appraised value of the agricultural land is PhP 196,630,000 and
of HLI’s other assets is PhP 393,924,220. The total value of HLI’s
assets is, therefore, PhP 590,554,220.132 The percentage of the value
of the agricultural lands (PhP 196,630,000) in relation to the total
assets (PhP 590,554,220) is 33.296%, which represents the
stockholdings of the 6,296 original qualified farmworker-beneficiaries
(FWBs) in HLI. The total number of shares to be distributed to said
qualified FWBs is 118,391,976.85 HLI shares. This was arrived at by
getting 33.296% of the 355,531,462 shares which is the outstanding
capital stock of HLI with a value of PhP 355,531,462. Thus, if we
divide the 118,391,976.85 HLI shares by 6,296 FWBs, then each
FWB is entitled to 18,804.32 HLI shares. These shares under the
SDP are to be given to FWBs for free.
The Court finds that the determination of the shares to be distributed
to the 6,296 FWBs strictly adheres to the formula prescribed by Sec.
31(b) of RA 6657.
Anent the requirement under Sec. 31(b) of the third paragraph, that
the FWBs shall be assured of at least one (1) representative in the
board of directors or in a management or executive committee
irrespective of the value of the equity of the FWBs in HLI, the Court
finds that the SDOA contained provisions making certain the FWBs’
representation in HLI’s governing board, thus:
5. Even if only a part or fraction of the shares earmarked for
distribution will have been acquired from the FIRST PARTY and
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distributed to the THIRD PARTY, FIRST PARTY shall execute at the
beginning of each fiscal year an irrevocable proxy, valid and effective
for one (1) year, in favor of the farmworkers appearing as
shareholders of the SECOND PARTY at the start of said year which
will empower the THIRD PARTY or their representative to vote in
stockholders’ and board of directors’ meetings of the SECOND
PARTY convened during the year the entire 33.296% of the
outstanding capital stock of the SECOND PARTY earmarked for
distribution and thus be able to gain such number of seats in the
board of directors of the SECOND PARTY that the whole 33.296% of
the shares subject to distribution will be entitled to.
Also, no allegations have been made against HLI restricting the
inspection of its books by accountants chosen by the FWBs; hence,
the assumption may be made that there has been no violation of the
statutory prescription under sub-paragraph (a) on the auditing of HLI’s
accounts.
Public respondents, however, submit that the distribution of the
mandatory minimum ratio of land-to-shares of stock, referring to the
118,391,976.85 shares with par value of PhP 1 each, should have
been made in full within two (2) years from the approval of RA 6657,
in line with the last paragraph of Sec. 31 of said law.133
Public respondents’ submission is palpably erroneous. We have
closely examined the last paragraph alluded to, with particular focus
on the two-year period mentioned, and nothing in it remotely supports
the public respondents’ posture. In its pertinent part, said Sec. 31
provides:
SEC. 31. Corporate Landowners x x x
If within two (2) years from the approval of this Act, the [voluntary]
land or stock transfer envisioned above is not made or realized or the
plan for such stock distribution approved by the PARC within the
same period, the agricultural land of the corporate owners or
corporation shall be subject to the compulsory coverage of this Act.
(Word in bracket and emphasis added.)
Properly viewed, the words "two (2) years" clearly refer to the period
within which the corporate landowner, to avoid land transfer as a
mode of CARP coverage under RA 6657, is to avail of the stock
distribution option or to have the SDP approved. The HLI secured
approval of its SDP in November 1989, well within the two-year period
reckoned from June 1988 when RA 6657 took effect.
Having hurdled the alleged breach of the agrarian reform policy under
Sec. 2 of RA 6657 as well as the statutory issues, We shall now delve
into what PARC and respondents deem to be other instances of
violation of DAO 10 and the SDP.
On the Conversion of Lands
Contrary to the almost parallel stance of the respondents, keeping
Hacienda Luisita unfragmented is also not among the imperative
impositions by the SDP, RA 6657, and DAO 10.
The Terminal Report states that the proposed distribution plan
submitted in 1989 to the PARC effectively assured the intended stock
beneficiaries that the physical integrity of the farm shall remain
inviolate. Accordingly, the Terminal Report and the PARC-assailed
resolution would take HLI to task for securing approval of the
conversion to non-agricultural uses of 500 hectares of the hacienda.
In not too many words, the Report and the resolution view the
conversion as an infringement of Sec. 5(a) of DAO 10 which reads: "a.
that the continued operation of the corporation with its agricultural
land intact and unfragmented is viable with potential for growth and
increased profitability."
The PARC is wrong.
In the first place, Sec. 5(a)––just like the succeeding Sec. 5(b) of DAO
10 on increased income and greater benefits to qualified
beneficiaries––is but one of the stated criteria to guide PARC in
deciding on whether or not to accept an SDP. Said Sec. 5(a) does not
exact from the corporate landowner-applicant the undertaking to keep
the farm intact and unfragmented ad infinitum. And there is logic to
HLI’s stated observation that the key phrase in the provision of Sec.
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5(a) is "viability of corporate operations": "[w]hat is thus required is not
the agricultural land remaining intact x x x but the viability of the
corporate operations with its agricultural land being intact and
unfragmented. Corporate operation may be viable even if the
corporate agricultural land does not remain intact or
[un]fragmented."134
It is, of course, anti-climactic to mention that DAR viewed the
conversion as not violative of any issuance, let alone undermining the
viability of Hacienda Luisita’s operation, as the DAR Secretary
approved the land conversion applied for and its disposition via his
Conversion Order dated August 14, 1996 pursuant to Sec. 65 of RA
6657 which reads:
Sec. 65. Conversion of Lands.¾After the lapse of five years from its
award when the land ceases to be economically feasible and sound
for agricultural purposes, or the locality has become urbanized and
the land will have a greater economic value for residential,
commercial or industrial purposes, the DAR upon application of the
beneficiary or landowner with due notice to the affected parties, and
subject to existing laws, may authorize the x x x conversion of the
land and its dispositions. x x x
On the 3% Production Share
On the matter of the alleged failure of HLI to comply with sharing the
3% of the gross production sales of the hacienda and pay dividends
from profit, the entries in its financial books tend to indicate
compliance by HLI of the profit-sharing equivalent to 3% of the gross
sales from the production of the agricultural land on top of (a) the
salaries and wages due FWBs as employees of the company and (b)
the 3% of the gross selling price of the converted land and that portion
used for the SCTEX. A plausible evidence of compliance or non-
compliance, as the case may be, could be the books of account of
HLI. Evidently, the cry of some groups of not having received their
share from the gross production sales has not adequately been
validated on the ground by the Special Task Force.
Indeed, factual findings of administrative agencies are conclusive
when supported by substantial evidence and are accorded due
respect and weight, especially when they are affirmed by the
CA.135 However, such rule is not absolute. One such exception is
when the findings of an administrative agency are conclusions without
citation of specific evidence on which they are based,136 such as in
this particular instance. As culled from its Terminal Report, it would
appear that the Special Task Force rejected HLI’s claim of compliance
on the basis of this ratiocination:
 The Task Force position: Though, allegedly, the Supervisory
Group receives the 3% gross production share and that others
alleged that they received 30 million pesos still others maintain
that they have not received anything yet. Item No. 4 of the
MOA is clear and must be followed. There is a distinction
between the total gross sales from the production of the land
and the proceeds from the sale of the land. The former refers
to the fruits/yield of the agricultural land while the latter is the
land itself. The phrase "the beneficiaries are entitled every
year to an amount approximately equivalent to 3% would only
be feasible if the subject is the produce since there is at least
one harvest per year, while such is not the case in the sale of
the agricultural land. This negates then the claim of HLI that,
all that the FWBs can be entitled to, if any, is only 3% of the
purchase price of the converted land.
 Besides, the Conversion Order dated 14 August 1996 provides
that "the benefits, wages and the like, presently received by
the FWBs shall not in any way be reduced or adversely
affected. Three percent of the gross selling price of the sale of
the converted land shall be awarded to the beneficiaries of the
SDO." The 3% gross production share then is different from
the 3% proceeds of the sale of the converted land and, with
more reason, the 33% share being claimed by the FWBs as
part owners of the Hacienda, should have been given the
FWBs, as stockholders, and to which they could have been
entitled if only the land were acquired and redistributed to
them under the CARP.
xxxx
143
  The FWBs do not receive any other benefits under the MOA
except the aforementioned [(viz: shares of stocks (partial), 3%
gross production sale (not all) and homelots (not all)].
Judging from the above statements, the Special Task Force is at best
silent on whether HLI has failed to comply with the 3% production-
sharing obligation or the 3% of the gross selling price of the converted
land and the SCTEX lot. In fact, it admits that the FWBs, though not
all, have received their share of the gross production sales and in the
sale of the lot to SCTEX. At most, then, HLI had complied
substantially with this SDP undertaking and the conversion order. To
be sure, this slight breach would not justify the setting to naught by
PARC of the approval action of the earlier PARC. Even in contract
law, rescission, predicated on violation of reciprocity, will not be
permitted for a slight or casual breach of contract; rescission may be
had only for such breaches that are substantial and fundamental as to
defeat the object of the parties in making the agreement.137
Despite the foregoing findings, the revocation of the approval of the
SDP is not without basis as shown below.
On Titles to Homelots
Under RA 6657, the distribution of homelots is required only for
corporations or business associations owning or operating farms
which opted for land distribution. Sec. 30 of RA 6657 states:
SEC. 30. Homelots and Farmlots for Members of Cooperatives.¾The
individual members of the cooperatives or corporations mentioned in
the preceding section shall be provided with homelots and small
farmlots for their family use, to be taken from the land owned by the
cooperative or corporation.
The "preceding section" referred to in the above-quoted provision is
as follows:
SEC. 29. Farms Owned or Operated by Corporations or Other
Business Associations.¾In the case of farms owned or operated by
corporations or other business associations, the following rules shall
be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-
beneficiaries.
In case it is not economically feasible and sound to divide the land,
then it shall be owned collectively by the worker-beneficiaries who
shall form a workers’ cooperative or association which will deal with
the corporation or business association. Until a new agreement is
entered into by and between the workers’ cooperative or association
and the corporation or business association, any agreement existing
at the time this Act takes effect between the former and the previous
landowner shall be respected by both the workers’ cooperative or
association and the corporation or business association.
Noticeably, the foregoing provisions do not make reference to
corporations which opted for stock distribution under Sec. 31 of RA
6657. Concomitantly, said corporations are not obliged to provide for it
except by stipulation, as in this case.
Under the SDP, HLI undertook to "subdivide and allocate for free and
without charge among the qualified family-beneficiaries x x x
residential or homelots of not more than 240 sq. m. each, with each
family beneficiary being assured of receiving and owning a homelot in
the barrio or barangay where it actually resides," "within a reasonable
time."
More than sixteen (16) years have elapsed from the time the SDP
was approved by PARC, and yet, it is still the contention of the FWBs
that not all was given the 240-square meter homelots and, of those
who were already given, some still do not have the corresponding
titles.
During the oral arguments, HLI was afforded the chance to refute the
foregoing allegation by submitting proof that the FWBs were already
given the said homelots:
144
Justice Velasco: x x x There is also an allegation that the farmer
beneficiaries, the qualified family beneficiaries were not given the 240
square meters each. So, can you also [prove] that the qualified family
beneficiaries were already provided the 240 square meter homelots.
Atty. Asuncion: We will, your Honor please.138
Other than the financial report, however, no other substantial proof
showing that all the qualified beneficiaries have received homelots
was submitted by HLI. Hence, this Court is constrained to rule that
HLI has not yet fully complied with its undertaking to distribute
homelots to the FWBs under the SDP.
On "Man Days" and the Mechanics of Stock Distribution
In our review and analysis of par. 3 of the SDOA on the mechanics
and timelines of stock distribution, We find that it violates two (2)
provisions of DAO 10. Par. 3 of the SDOA states:
3. At the end of each fiscal year, for a period of 30 years, the
SECOND PARTY [HLI] shall arrange with the FIRST PARTY [TDC]
the acquisition and distribution to the THIRD PARTY [FWBs] on the
basis of number of days worked and at no cost to them of one-thirtieth
(1/30) of 118,391,976.85 shares of the capital stock of the SECOND
PARTY that are presently owned and held by the FIRST PARTY, until
such time as the entire block of 118,391,976.85 shares shall have
been completely acquired and distributed to the THIRD PARTY.
Based on the above-quoted provision, the distribution of the shares of
stock to the FWBs, albeit not entailing a cash out from them, is
contingent on the number of "man days," that is, the number of days
that the FWBs have worked during the year. This formula deviates
from Sec. 1 of DAO 10, which decrees the distribution of equal
number of shares to the FWBs as the minimum ratio of shares of
stock for purposes of compliance with Sec. 31 of RA 6657. As stated
in Sec. 4 of DAO 10:
Section 4. Stock Distribution Plan.¾The [SDP] submitted by the
corporate landowner-applicant shall provide for the distribution of
an equal number of shares of the same class and value, with the
same rights and features as all other shares, to each of the qualified
beneficiaries. This distribution plan in all cases, shall be at least the
minimum ratio for purposes of compliance with Section 31 of R.A. No.
6657.
On top of the minimum ratio provided under Section 3 of this
Implementing Guideline, the corporate landowner-applicant may
adopt additional stock distribution schemes taking into account factors
such as rank, seniority, salary, position and other circumstances
which may be deemed desirable as a matter of sound company
policy. (Emphasis supplied.)
The above proviso gives two (2) sets or categories of shares of stock
which a qualified beneficiary can acquire from the corporation under
the SDP. The first pertains, as earlier explained, to the mandatory
minimum ratio of shares of stock to be distributed to the FWBs in
compliance with Sec. 31 of RA 6657. This minimum ratio
contemplates of that "proportion of the capital stock of the corporation
that the agricultural land, actually devoted to agricultural activities,
bears in relation to the company’s total assets."139 It is this set of
shares of stock which, in line with Sec. 4 of DAO 10, is supposed to
be allocated "for the distribution of an equal number of shares of stock
of the same class and value, with the same rights and features as all
other shares, to each of the qualified beneficiaries."
On the other hand, the second set or category of shares partakes of a
gratuitous extra grant, meaning that this set or category constitutes an
augmentation share/s that the corporate landowner may give under
an additional stock distribution scheme, taking into account such
variables as rank, seniority, salary, position and like factors which the
management, in the exercise of its sound discretion, may deem
desirable.140
Before anything else, it should be stressed that, at the time PARC
approved HLI’s SDP, HLI recognized 6,296 individuals as qualified
FWBs. And under the 30-year stock distribution program envisaged
under the plan, FWBs who came in after 1989, new FWBs in fine,
may be accommodated, as they appear to have in fact been
accommodated as evidenced by their receipt of HLI shares.
145
Now then, by providing that the number of shares of the original 1989
FWBs shall depend on the number of "man days," HLI violated the
afore-quoted rule on stock distribution and effectively deprived the
FWBs of equal shares of stock in the corporation, for, in net effect,
these 6,296 qualified FWBs, who theoretically had given up their
rights to the land that could have been distributed to them, suffered a
dilution of their due share entitlement. As has been observed during
the oral arguments, HLI has chosen to use the shares earmarked for
farmworkers as reward system chips to water down the shares of the
original 6,296 FWBs.141 Particularly:
Justice Abad: If the SDOA did not take place, the other thing that
would have happened is that there would be CARP?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: That’s the only point I want to know x x x. Now, but they
chose to enter SDOA instead of placing the land under CARP. And for
that reason those who would have gotten their shares of the land
actually gave up their rights to this land in place of the shares of the
stock, is that correct?
Atty. Dela Merced: It would be that way, Your Honor.
Justice Abad: Right now, also the government, in a way, gave up its
right to own the land because that way the government takes own
[sic] the land and distribute it to the farmers and pay for the land, is
that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: And then you gave thirty-three percent (33%) of the
shares of HLI to the farmers at that time that numbered x x x those
who signed five thousand four hundred ninety eight (5,498)
beneficiaries, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: But later on, after assigning them their shares, some
workers came in from 1989, 1990, 1991, 1992 and the rest of the
years that you gave additional shares who were not in the original list
of owners?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: Did those new workers give up any right that would
have belong to them in 1989 when the land was supposed to have
been placed under CARP?
Atty. Dela Merced: If you are talking or referring… (interrupted)
Justice Abad: None! You tell me. None. They gave up no rights to
land?
Atty. Dela Merced: They did not do the same thing as we did in 1989,
Your Honor.
Justice Abad: No, if they were not workers in 1989 what land did they
give up? None, if they become workers later on.
Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to
the original… (interrupted)
Justice Abad: So why is it that the rights of those who gave up their
lands would be diluted, because the company has chosen to use the
shares as reward system for new workers who come in? It is not that
the new workers, in effect, become just workers of the corporation
whose stockholders were already fixed. The TADECO who has
shares there about sixty six percent (66%) and the five thousand four
hundred ninety eight (5,498) farmers at the time of the SDOA?
Explain to me. Why, why will you x x x what right or where did you get
that right to use this shares, to water down the shares of those who
should have been benefited, and to use it as a reward system decided
by the company?142
From the above discourse, it is clear as day that the original 6,296
FWBs, who were qualified beneficiaries at the time of the approval of
146
the SDP, suffered from watering down of shares. As determined
earlier, each original FWB is entitled to 18,804.32 HLI shares. The
original FWBs got less than the guaranteed 18,804.32 HLI shares per
beneficiary, because the acquisition and distribution of the HLI shares
were based on "man days" or "number of days worked" by the FWB in
a year’s time. As explained by HLI, a beneficiary needs to work for at
least 37 days in a fiscal year before he or she becomes entitled to HLI
shares. If it falls below 37 days, the FWB, unfortunately, does not get
any share at year end. The number of HLI shares distributed varies
depending on the number of days the FWBs were allowed to work in
one year. Worse, HLI hired farmworkers in addition to the original
6,296 FWBs, such that, as indicated in the Compliance dated August
2, 2010 submitted by HLI to the Court, the total number of
farmworkers of HLI as of said date stood at 10,502. All these
farmworkers, which include the original 6,296 FWBs, were given
shares out of the 118,931,976.85 HLI shares representing the
33.296% of the total outstanding capital stock of HLI. Clearly, the
minimum individual allocation of each original FWB of 18,804.32
shares was diluted as a result of the use of "man days" and the hiring
of additional farmworkers.
Going into another but related matter, par. 3 of the SDOA expressly
providing for a 30-year timeframe for HLI-to-FWBs stock transfer is an
arrangement contrary to what Sec. 11 of DAO 10 prescribes. Said
Sec. 11 provides for the implementation of the approved stock
distribution plan within three (3) months from receipt by the corporate
landowner of the approval of the plan by PARC. In fact, based on the
said provision, the transfer of the shares of stock in the names of the
qualified FWBs should be recorded in the stock and transfer books
and must be submitted to the SEC within sixty (60) days from
implementation. As stated:
Section 11. Implementation/Monitoring of Plan.¾The approved stock
distribution plan shall be implemented within three (3) months from
receipt by the corporate landowner-applicant of the approval thereof
by the PARC, and the transfer of the shares of stocks in the names of
the qualified beneficiaries shall be recorded in stock and transfer
books and submitted to the Securities and Exchange Commission
(SEC) within sixty (60) days from the said implementation of the stock
distribution plan. (Emphasis supplied.)
It is evident from the foregoing provision that the implementation, that
is, the distribution of the shares of stock to the FWBs, must be made
within three (3) months from receipt by HLI of the approval of the
stock distribution plan by PARC. While neither of the clashing parties
has made a compelling case of the thrust of this provision, the Court
is of the view and so holds that the intent is to compel the corporate
landowner to complete, not merely initiate, the transfer process of
shares within that three-month timeframe. Reinforcing this conclusion
is the 60-day stock transfer recording (with the SEC) requirement
reckoned from the implementation of the SDP.
To the Court, there is a purpose, which is at once discernible as it is
practical, for the three-month threshold. Remove this timeline and the
corporate landowner can veritably evade compliance with agrarian
reform by simply deferring to absurd limits the implementation of the
stock distribution scheme.
The argument is urged that the thirty (30)-year distribution program is
justified by the fact that, under Sec. 26 of RA 6657, payment by
beneficiaries of land distribution under CARP shall be made in thirty
(30) annual amortizations. To HLI, said section provides a justifying
dimension to its 30-year stock distribution program.
HLI’s reliance on Sec. 26 of RA 6657, quoted in part below, is
obviously misplaced as the said provision clearly deals with land
distribution.
SEC. 26. Payment by Beneficiaries.¾Lands awarded pursuant to this
Act shall be paid for by the beneficiaries to the LBP in thirty (30)
annual amortizations x x x.
Then, too, the ones obliged to pay the LBP under the said provision
are the beneficiaries. On the other hand, in the instant case, aside
from the fact that what is involved is stock distribution, it is the
corporate landowner who has the obligation to distribute the shares of
stock among the FWBs.
Evidently, the land transfer beneficiaries are given thirty (30) years
within which to pay the cost of the land thus awarded them to make it
147
less cumbersome for them to pay the government. To be sure, the
reason underpinning the 30-year accommodation does not apply to
corporate landowners in distributing shares of stock to the qualified
beneficiaries, as the shares may be issued in a much shorter period of
time.
Taking into account the above discussion, the revocation of the SDP
by PARC should be upheld for violating DAO 10. It bears stressing
that under Sec. 49 of RA 6657, the PARC and the DAR have the
power to issue rules and regulations, substantive or procedural. Being
a product of such rule-making power, DAO 10 has the force and effect
of law and must be duly complied with.143 The PARC is, therefore,
correct in revoking the SDP. Consequently, the PARC Resolution No.
89-12-2 dated November 21, l989 approving the HLI’s SDP is nullified
and voided.
III.
We now resolve the petitions-in-intervention which, at bottom,
uniformly pray for the exclusion from the coverage of the assailed
PARC resolution those portions of the converted land within Hacienda
Luisita which RCBC and LIPCO acquired by purchase.
Both contend that they are innocent purchasers for value of portions
of the converted farm land. Thus, their plea for the exclusion of that
portion from PARC Resolution 2005-32-01, as implemented by a
DAR-issued Notice of Coverage dated January 2, 2006, which called
for mandatory CARP acquisition coverage of lands subject of the
SDP.
To restate the antecedents, after the conversion of the 500 hectares
of land in Hacienda Luisita, HLI transferred the 300 hectares to
Centennary, while ceding the remaining 200-hectare portion to LRC.
Subsequently, LIPCO purchased the entire three hundred (300)
hectares of land from Centennary for the purpose of developing the
land into an industrial complex.144 Accordingly, the TCT in
Centennary’s name was canceled and a new one issued in LIPCO’s
name. Thereafter, said land was subdivided into two (2) more parcels
of land. Later on, LIPCO transferred about 184 hectares to RCBC by
way of dacion en pago, by virtue of which TCTs in the name of RCBC
were subsequently issued.
Under Sec. 44 of PD 1529 or the Property Registration Decree, "every
registered owner receiving a certificate of title in pursuance of a
decree of registration and every subsequent purchaser of registered
land taking a certificate of title for value and in good faith shall hold
the same free from all encumbrances except those noted on the
certificate and enumerated therein."145
It is settled doctrine that one who deals with property registered under
the Torrens system need not go beyond the four corners of, but can
rely on what appears on, the title. He is charged with notice only of
such burdens and claims as are annotated on the title. This principle
admits of certain exceptions, such as when the party has actual
knowledge of facts and circumstances that would impel a reasonably
cautious man to make such inquiry, or when the purchaser has
knowledge of a defect or the lack of title in his vendor or of sufficient
facts to induce a reasonably prudent man to inquire into the status of
the title of the property in litigation.146 A higher level of care and
diligence is of course expected from banks, their business being
impressed with public interest.147
Millena v. Court of Appeals describes a purchaser in good faith in this
wise:
x x x A purchaser in good faith is one who buys property of another,
without notice that some other person has a right to, or interest in,
such property at the time of such purchase, or before he has notice of
the claim or interest of some other persons in the property. Good faith,
or the lack of it, is in the final analysis a question of intention; but in
ascertaining the intention by which one is actuated on a given
occasion, we are necessarily controlled by the evidence as to the
conduct and outward acts by which alone the inward motive may, with
safety, be determined. Truly, good faith is not a visible, tangible fact
that can be seen or touched, but rather a state or condition of mind
which can only be judged by actual or fancied tokens or signs.
Otherwise stated, good faith x x x refers to the state of mind which is
manifested by the acts of the individual concerned.148 (Emphasis
supplied.)
148
In fine, there are two (2) requirements before one may be considered
a purchaser in good faith, namely: (1) that the purchaser buys the
property of another without notice that some other person has a right
to or interest in such property; and (2) that the purchaser pays a full
and fair price for the property at the time of such purchase or before
he or she has notice of the claim of another.
It can rightfully be said that both LIPCO and RCBC are––based on the
above requirements and with respect to the adverted transactions of
the converted land in question––purchasers in good faith for value
entitled to the benefits arising from such status.
First, at the time LIPCO purchased the entire three hundred (300)
hectares of industrial land, there was no notice of any supposed
defect in the title of its transferor, Centennary, or that any other
person has a right to or interest in such property. In fact, at the time
LIPCO acquired said parcels of land, only the following annotations
appeared on the TCT in the name of Centennary: the Secretary’s
Certificate in favor of Teresita Lopa, the Secretary’s Certificate in
favor of Shintaro Murai, and the conversion of the property from
agricultural to industrial and residential use.149
The same is true with respect to RCBC. At the time it acquired
portions of Hacienda Luisita, only the following general annotations
appeared on the TCTs of LIPCO: the Deed of Restrictions, limiting its
use solely as an industrial estate; the Secretary’s Certificate in favor
of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage in
favor of RCBC to guarantee the payment of PhP 300 million.
It cannot be claimed that RCBC and LIPCO acted in bad faith in
acquiring the lots that were previously covered by the SDP. Good faith
"consists in the possessor’s belief that the person from whom he
received it was the owner of the same and could convey his title.
Good faith requires a well-founded belief that the person from whom
title was received was himself the owner of the land, with the right to
convey it. There is good faith where there is an honest intention to
abstain from taking any unconscientious advantage from another."150 It
is the opposite of fraud.
To be sure, intervenor RCBC and LIPCO knew that the lots they
bought were subjected to CARP coverage by means of a stock
distribution plan, as the DAR conversion order was annotated at the
back of the titles of the lots they acquired. However, they are of the
honest belief that the subject lots were validly converted to
commercial or industrial purposes and for which said lots were taken
out of the CARP coverage subject of PARC Resolution No. 89-12-2
and, hence, can be legally and validly acquired by them. After all, Sec.
65 of RA 6657 explicitly allows conversion and disposition of
agricultural lands previously covered by CARP land acquisition "after
the lapse of five (5) years from its award when the land ceases to be
economically feasible and sound for agricultural purposes or the
locality has become urbanized and the land will have a greater
economic value for residential, commercial or industrial purposes."
Moreover, DAR notified all the affected parties, more particularly the
FWBs, and gave them the opportunity to comment or oppose the
proposed conversion. DAR, after going through the necessary
processes, granted the conversion of 500 hectares of Hacienda
Luisita pursuant to its primary jurisdiction under Sec. 50 of RA 6657 to
determine and adjudicate agrarian reform matters and its original
exclusive jurisdiction over all matters involving the implementation of
agrarian reform. The DAR conversion order became final and
executory after none of the FWBs interposed an appeal to the CA. In
this factual setting, RCBC and LIPCO purchased the lots in question
on their honest and well-founded belief that the previous registered
owners could legally sell and convey the lots though these were
previously subject of CARP coverage. Ergo, RCBC and LIPCO acted
in good faith in acquiring the subject lots.
And second, both LIPCO and RCBC purchased portions of Hacienda
Luisita for value. Undeniably, LIPCO acquired 300 hectares of land
from Centennary for the amount of PhP 750 million pursuant to a
Deed of Sale dated July 30, 1998.151 On the other hand, in a Deed of
Absolute Assignment dated November 25, 2004, LIPCO conveyed
portions of Hacienda Luisita in favor of RCBC by way of dacion en
pago to pay for a loan of PhP 431,695,732.10.
As bona fide purchasers for value, both LIPCO and RCBC have
acquired rights which cannot just be disregarded by DAR, PARC or
even by this Court. As held in Spouses Chua v. Soriano:
149
With the property in question having already passed to the hands of
purchasers in good faith, it is now of no moment that some irregularity
attended the issuance of the SPA, consistent with our pronouncement
in Heirs of Spouses Benito Gavino and Juana Euste v. Court of
Appeals, to wit:
x x x the general rule that the direct result of a previous void contract
cannot be valid, is inapplicable in this case as it will directly
contravene the Torrens system of registration. Where innocent third
persons, relying on the correctness of the certificate of title thus
issued, acquire rights over the property, the court cannot
disregard such rights and order the cancellation of the
certificate. The effect of such outright cancellation will be to impair
public confidence in the certificate of title. The sanctity of the Torrens
system must be preserved; otherwise, everyone dealing with the
property registered under the system will have to inquire in every
instance as to whether the title had been regularly or irregularly
issued, contrary to the evident purpose of the law.
Being purchasers in good faith, the Chuas already acquired valid
title to the property. A purchaser in good faith holds an
indefeasible title to the property and he is entitled to the
protection of the law.152 x x x (Emphasis supplied.)
To be sure, the practicalities of the situation have to a point influenced
Our disposition on the fate of RCBC and LIPCO. After all, the Court,
to borrow from Association of Small Landowners in the Philippines,
Inc.,153 is not a "cloistered institution removed" from the realities on the
ground. To note, the approval and issuances of both the national and
local governments showing that certain portions of Hacienda Luisita
have effectively ceased, legally and physically, to be agricultural and,
therefore, no longer CARPable are a matter of fact which cannot just
be ignored by the Court and the DAR. Among the
approving/endorsing issuances:154
(a) Resolution No. 392 dated 11 December 1996 of the
Sangguniang Bayan of Tarlac favorably endorsing the 300-
hectare industrial estate project of LIPCO;
(b) BOI Certificate of Registration No. 96-020 dated 20
December 1996 issued in accordance with the Omnibus
Investments Code of 1987;
(c) PEZA Certificate of Board Resolution No. 97-202 dated 27
June 1997, approving LIPCO’s application for a mixed
ecozone and proclaiming the three hundred (300) hectares of
the industrial land as a Special Economic Zone;
(d) Resolution No. 234 dated 08 August 1997 of the
Sangguniang Bayan of Tarlac, approving the Final
Development Permit for the Luisita Industrial Park II Project;
(e) Development Permit dated 13 August 1997 for the
proposed Luisita Industrial Park II Project issued by the Office
of the Sangguniang Bayan of Tarlac;155
(f) DENR Environmental Compliance Certificate dated 01
October 1997 issued for the proposed project of building an
industrial complex on three hundred (300) hectares of
industrial land;156
(g) Certificate of Registration No. 00794 dated 26 December
1997 issued by the HLURB on the project of Luisita Industrial
Park II with an area of three million (3,000,000) square
meters;157
(h) License to Sell No. 0076 dated 26 December 1997 issued
by the HLURB authorizing the sale of lots in the Luisita
Industrial Park II;
(i) Proclamation No. 1207 dated 22 April 1998 entitled
"Declaring Certain Parcels of Private Land in Barangay San
Miguel, Municipality of Tarlac, Province of Tarlac, as a Special
Economic Zone pursuant to Republic Act No. 7916,"
designating the Luisita Industrial Park II consisting of three
hundred hectares (300 has.) of industrial land as a Special
Economic Zone; and
150
 (j) Certificate of Registration No. EZ-98-05 dated 07 May 1998
issued by the PEZA, stating that pursuant to Presidential
Proclamation No. 1207 dated 22 April 1998 and Republic Act
No. 7916, LIPCO has been registered as an Ecozone
Developer/Operator of Luisita Industrial Park II located in San
Miguel, Tarlac, Tarlac.
While a mere reclassification of a covered agricultural land or its
inclusion in an economic zone does not automatically allow the
corporate or individual landowner to change its use,158 the
reclassification process is a prima facie indicium that the land has
ceased to be economically feasible and sound for agricultural uses.
And if only to stress, DAR Conversion Order No. 030601074-764-(95)
issued in 1996 by then DAR Secretary Garilao had effectively
converted 500 hectares of hacienda land from agricultural to
industrial/commercial use and authorized their disposition.
In relying upon the above-mentioned approvals, proclamation and
conversion order, both RCBC and LIPCO cannot be considered at
fault for believing that certain portions of Hacienda Luisita are
industrial/commercial lands and are, thus, outside the ambit of CARP.
The PARC, and consequently DAR, gravely abused its discretion
when it placed LIPCO’s and RCBC’s property which once formed part
of Hacienda Luisita under the CARP compulsory acquisition scheme
via the assailed Notice of Coverage.
As regards the 80.51-hectare land transferred to the government for
use as part of the SCTEX, this should also be excluded from the
compulsory agrarian reform coverage considering that the transfer
was consistent with the government’s exercise of the power of
eminent domain159 and none of the parties actually questioned the
transfer.
While We affirm the revocation of the SDP on Hacienda Luisita
subject of PARC Resolution Nos. 2005-32-01 and 2006-34-01, the
Court cannot close its eyes to certain "operative facts" that had
occurred in the interim. Pertinently, the "operative fact" doctrine
realizes that, in declaring a law or executive action null and void, or,
by extension, no longer without force and effect, undue harshness
and resulting unfairness must be avoided. This is as it should
realistically be, since rights might have accrued in favor of natural or
juridical persons and obligations justly incurred in the
meantime.160 The actual existence of a statute or executive act is,
prior to such a determination, an operative fact and may have
consequences which cannot justly be ignored; the past cannot always
be erased by a new judicial declaration.161
The oft-cited De Agbayani v. Philippine National Bank162 discussed
the effect to be given to a legislative or executive act subsequently
declared invalid:
x x x It does not admit of doubt that prior to the declaration of nullity
such challenged legislative or executive act must have been in force
and had to be complied with. This is so as until after the judiciary, in
an appropriate case, declares its invalidity, it is entitled to obedience
and respect. Parties may have acted under it and may have changed
their positions. What could be more fitting than that in a subsequent
litigation regard be had to what has been done while such legislative
or executive act was in operation and presumed to be valid in all
respects. It is now accepted as a doctrine that prior to its being
nullified, its existence as a fact must be reckoned with. This is merely
to reflect awareness that precisely because the judiciary is the
government organ which has the final say on whether or not a
legislative or executive measure is valid, a period of time may have
elapsed before it can exercise the power of judicial review that may
lead to a declaration of nullity. It would be to deprive the law of its
quality of fairness and justice then, if there be no recognition of what
had transpired prior to such adjudication.
In the language of an American Supreme Court decision: "The actual
existence of a statute, prior to such a determination of
[unconstitutionality], is an operative fact and may have consequences
which cannot justly be ignored. The past cannot always be erased by
a new judicial declaration. The effect of the subsequent ruling as to
invalidity may have to be considered in various aspects,––with
respect to particular relations, individual and corporate, and particular
conduct, private and official." x x x
Given the above perspective and considering that more than two
decades had passed since the PARC’s approval of the HLI’s SDP, in
151
conjunction with numerous activities performed in good faith by HLI,
and the reliance by the FWBs on the legality and validity of the PARC-
approved SDP, perforce, certain rights of the parties, more particularly
the FWBs, have to be respected pursuant to the application in a
general way of the operative fact doctrine.
A view, however, has been advanced that the operative fact doctrine
is of minimal or altogether without relevance to the instant case as it
applies only in considering the effects of a declaration of
unconstitutionality of a statute, and not of a declaration of nullity of a
contract. This is incorrect, for this view failed to consider is that it is
NOT the SDOA dated May 11, 1989 which was revoked in the instant
case. Rather, it is PARC’s approval of the HLI’s Proposal for Stock
Distribution under CARP which embodied the SDP that was nullified.
A recall of the antecedent events would show that on May 11, 1989,
Tadeco, HLI, and the qualified FWBs executed the SDOA. This
agreement provided the basis and mechanics of the SDP that was
subsequently proposed and submitted to DAR for approval. It was
only after its review that the PARC, through then Sec. Defensor-
Santiago, issued the assailed Resolution No. 89-12-2 approving the
SDP. Considerably, it is not the SDOA which gave legal force and
effect to the stock distribution scheme but instead, it is the approval of
the SDP under the PARC Resolution No. 89-12-2 that gave it its
validity.
The above conclusion is bolstered by the fact that in Sec.
Pangandaman’s recommendation to the PARC Excom, what he
proposed is the recall/revocation of PARC Resolution No. 89-12-2
approving HLI’s SDP, and not the revocation of the SDOA. Sec.
Pangandaman’s recommendation was favorably endorsed by the
PARC Validation Committee to the PARC Excom, and these
recommendations were referred to in the assailed Resolution No.
2005-32-01. Clearly, it is not the SDOA which was made the basis for
the implementation of the stock distribution scheme.
That the operative fact doctrine squarely applies to executive acts––in
this case, the approval by PARC of the HLI proposal for stock
distribution––is well-settled in our jurisprudence. In Chavez v. National
Housing Authority,163 We held:
Petitioner postulates that the "operative fact" doctrine is inapplicable
to the present case because it is an equitable doctrine which could not
be used to countenance an inequitable result that is contrary to its
proper office.
On the other hand, the petitioner Solicitor General argues that the
existence of the various agreements implementing the SMDRP is an
operative fact that can no longer be disturbed or simply ignored, citing
Rieta v. People of the Philippines.
The argument of the Solicitor General is meritorious.
The "operative fact" doctrine is embodied in De Agbayani v. Court of
Appeals, wherein it is stated that a legislative or executive act, prior to
its being declared as unconstitutional by the courts, is valid and must
be complied with, thus:
x x x           x x x          x x x
This doctrine was reiterated in the more recent case of City of Makati
v. Civil Service Commission, wherein we ruled that:
Moreover, we certainly cannot nullify the City Government's order of
suspension, as we have no reason to do so, much less retroactively
apply such nullification to deprive private respondent of a compelling
and valid reason for not filing the leave application. For as we have
held, a void act though in law a mere scrap of paper nonetheless
confers legitimacy upon past acts or omissions done in reliance
thereof. Consequently, the existence of a statute or executive order
prior to its being adjudged void is an operative fact to which legal
consequences are attached. It would indeed be ghastly unfair to
prevent private respondent from relying upon the order of suspension
in lieu of a formal leave application. (Citations omitted; Emphasis
supplied.)
The applicability of the operative fact doctrine to executive acts was
further explicated by this Court in Rieta v. People,164 thus:
152
Petitioner contends that his arrest by virtue of Arrest Search and
Seizure Order (ASSO) No. 4754 was invalid, as the law upon which it
was predicated — General Order No. 60, issued by then President
Ferdinand E. Marcos — was subsequently declared by the Court, in
Tañada v. Tuvera, 33 to have no force and effect. Thus, he asserts,
any evidence obtained pursuant thereto is inadmissible in evidence.
We do not agree. In Tañada, the Court addressed the possible effects
of its declaration of the invalidity of various presidential issuances.
Discussing therein how such a declaration might affect acts done on a
presumption of their validity, the Court said:
". . .. In similar situations in the past this Court had taken the
pragmatic and realistic course set forth in Chicot County Drainage
District vs. Baxter Bank to wit:
‘The courts below have proceeded on the theory that the Act of
Congress, having been found to be unconstitutional, was not a law;
that it was inoperative, conferring no rights and imposing no duties,
and hence affording no basis for the challenged decree. . . . It is quite
clear, however, that such broad statements as to the effect of a
determination of unconstitutionality must be taken with qualifications.
The actual existence of a statute, prior to [the determination of its
invalidity], is an operative fact and may have consequences which
cannot justly be ignored. The past cannot always be erased by a new
judicial declaration. The effect of the subsequent ruling as to invalidity
may have to be considered in various aspects — with respect to
particular conduct, private and official. Questions of rights claimed to
have become vested, of status, of prior determinations deemed to
have finality and acted upon accordingly, of public policy in the light of
the nature both of the statute and of its previous application, demand
examination. These questions are among the most difficult of those
which have engaged the attention of courts, state and federal, and it is
manifest from numerous decisions that an all-inclusive statement of a
principle of absolute retroactive invalidity cannot be justified.’
x x x           x x x          x x x
"Similarly, the implementation/enforcement of presidential decrees
prior to their publication in the Official Gazette is ‘an operative fact
which may have consequences which cannot be justly ignored. The
past cannot always be erased by a new judicial declaration . . . that an
all-inclusive statement of a principle of absolute retroactive invalidity
cannot be justified.’"
The Chicot doctrine cited in Tañada advocates that, prior to the
nullification of a statute, there is an imperative necessity of taking into
account its actual existence as an operative fact negating the
acceptance of "a principle of absolute retroactive invalidity." Whatever
was done while the legislative or the executive act was in operation
should be duly recognized and presumed to be valid in all respects.
The ASSO that was issued in 1979 under General Order No. 60 —
long before our Decision in Tañada and the arrest of petitioner — is
an operative fact that can no longer be disturbed or simply ignored.
(Citations omitted; Emphasis supplied.)
To reiterate, although the assailed Resolution No. 2005-32-01 states
that it revokes or recalls the SDP, what it actually revoked or recalled
was the PARC’s approval of the SDP embodied in Resolution No. 89-
12-2. Consequently, what was actually declared null and void was an
executive act, PARC Resolution No. 89-12-2,165 and not a contract
(SDOA). It is, therefore, wrong to say that it was the SDOA which was
annulled in the instant case. Evidently, the operative fact doctrine is
applicable.
IV.
While the assailed PARC resolutions effectively nullifying the
Hacienda Luisita SDP are upheld, the revocation must, by application
of the operative fact principle, give way to the right of the original
6,296 qualified FWBs to choose whether they want to remain as HLI
stockholders or not. The Court cannot turn a blind eye to the fact that
in 1989, 93% of the FWBs agreed to the SDOA (or the MOA), which
became the basis of the SDP approved by PARC per its Resolution
No. 89-12-2 dated November 21, 1989. From 1989 to 2005, the FWBs
were said to have received from HLI salaries and cash benefits,
hospital and medical benefits, 240-square meter homelots, 3% of the
gross produce from agricultural lands, and 3% of the proceeds of the
sale of the 500-hectare converted land and the 80.51-hectare lot sold
to SCTEX. HLI shares totaling 118,391,976.85 were distributed as of
153
April 22, 2005.166 On August 6, 20l0, HLI and private respondents
submitted a Compromise Agreement, in which HLI gave the FWBs the
option of acquiring a piece of agricultural land or remain as HLI
stockholders, and as a matter of fact, most FWBs indicated their
choice of remaining as stockholders. These facts and circumstances
tend to indicate that some, if not all, of the FWBs may actually desire
to continue as HLI shareholders. A matter best left to their own
discretion.
With respect to the other FWBs who were not listed as qualified
beneficiaries as of November 21, 1989 when the SDP was approved,
they are not accorded the right to acquire land but shall, however,
continue as HLI stockholders. All the benefits and
homelots167 received by the 10,502 FWBs (6,296 original FWBs and
4,206 non-qualified FWBs) listed as HLI stockholders as of August 2,
2010 shall be respected with no obligation to refund or return them
since the benefits (except the homelots) were received by the FWBs
as farmhands in the agricultural enterprise of HLI and other fringe
benefits were granted to them pursuant to the existing collective
bargaining agreement with Tadeco. If the number of HLI shares in the
names of the original FWBs who opt to remain as HLI stockholders
falls below the guaranteed allocation of 18,804.32 HLI shares per
FWB, the HLI shall assign additional shares to said FWBs to complete
said minimum number of shares at no cost to said FWBs.
With regard to the homelots already awarded or earmarked, the
FWBs are not obliged to return the same to HLI or pay for its value
since this is a benefit granted under the SDP. The homelots do not
form part of the 4,915.75 hectares covered by the SDP but were taken
from the 120.9234 hectare residential lot owned by Tadeco. Those
who did not receive the homelots as of the revocation of the SDP on
December 22, 2005 when PARC Resolution No. 2005-32-01 was
issued, will no longer be entitled to homelots. Thus, in the
determination of the ultimate agricultural land that will be subjected to
land distribution, the aggregate area of the homelots will no longer be
deducted.
There is a claim that, since the sale and transfer of the 500 hectares
of land subject of the August 14, 1996 Conversion Order and the
80.51-hectare SCTEX lot came after compulsory coverage has taken
place, the FWBs should have their corresponding share of the land’s
value. There is merit in the claim. Since the SDP approved by PARC
Resolution No. 89-12-2 has been nullified, then all the lands subject of
the SDP will automatically be subject of compulsory coverage under
Sec. 31 of RA 6657. Since the Court excluded the 500-hectare lot
subject of the August 14, 1996 Conversion Order and the 80.51-
hectare SCTEX lot acquired by the government from the area covered
by SDP, then HLI and its subsidiary, Centennary, shall be liable to the
FWBs for the price received for said lots. HLI shall be liable for the
value received for the sale of the 200-hectare land to LRC in the
amount of PhP 500,000,000 and the equivalent value of the
12,000,000 shares of its subsidiary, Centennary, for the 300-hectare
lot sold to LIPCO for the consideration of PhP 750,000,000. Likewise,
HLI shall be liable for PhP 80,511,500 as consideration for the sale of
the 80.51-hectare SCTEX lot.
We, however, note that HLI has allegedly paid 3% of the proceeds of
the sale of the 500-hectare land and 80.51-hectare SCTEX lot to the
FWBs. We also take into account the payment of taxes and expenses
relating to the transfer of the land and HLI’s statement that most, if not
all, of the proceeds were used for legitimate corporate purposes. In
order to determine once and for all whether or not all the proceeds
were properly utilized by HLI and its subsidiary, Centennary, DAR will
engage the services of a reputable accounting firm to be approved by
the parties to audit the books of HLI to determine if the proceeds of
the sale of the 500-hectare land and the 80.51-hectare SCTEX lot
were actually used for legitimate corporate purposes, titling expenses
and in compliance with the August 14, 1996 Conversion Order. The
cost of the audit will be shouldered by HLI. If after such audit, it is
determined that there remains a balance from the proceeds of the
sale, then the balance shall be distributed to the qualified FWBs.
A view has been advanced that HLI must pay the FWBs yearly rent
for use of the land from 1989. We disagree. It should not be forgotten
that the FWBs are also stockholders of HLI, and the benefits acquired
by the corporation from its possession and use of the land ultimately
redounded to the FWBs’ benefit based on its business operations in
the form of salaries, and other fringe benefits under the CBA. To still
require HLI to pay rent to the FWBs will result in double
compensation.
154
For sure, HLI will still exist as a corporation even after the revocation
of the SDP although it will no longer be operating under the SDP, but
pursuant to the Corporation Code as a private stock corporation. The
non-agricultural assets amounting to PhP 393,924,220 shall remain
with HLI, while the agricultural lands valued at PhP 196,630,000 with
an original area of 4,915.75 hectares shall be turned over to DAR for
distribution to the FWBs. To be deducted from said area are the 500-
hectare lot subject of the August 14, 1996 Conversion Order, the
80.51-hectare SCTEX lot, and the total area of 6,886.5 square meters
of individual lots that should have been distributed to FWBs by DAR
had they not opted to stay in HLI.
HLI shall be paid just compensation for the remaining agricultural land
that will be transferred to DAR for land distribution to the FWBs. We
find that the date of the "taking" is November 21, 1989, when PARC
approved HLI’s SDP per PARC Resolution No. 89-12-2. DAR shall
coordinate with LBP for the determination of just compensation. We
cannot use May 11, 1989 when the SDOA was executed, since it was
the SDP, not the SDOA, that was approved by PARC.
The instant petition is treated pro hac vice in view of the peculiar facts
and circumstances of the case.
WHEREFORE, the instant petition is DENIED. PARC Resolution No.
2005-32-01 dated December 22, 2005 and Resolution No. 2006-34-
01 dated May 3, 2006, placing the lands subject of HLI’s SDP under
compulsory coverage on mandated land acquisition scheme of the
CARP, are hereby AFFIRMED with the MODIFICATION that the
original 6,296 qualified FWBs shall have the option to remain as
stockholders of HLI. DAR shall immediately schedule meetings with
the said 6,296 FWBs and explain to them the effects, consequences
and legal or practical implications of their choice, after which the
FWBs will be asked to manifest, in secret voting, their choices in the
ballot, signing their signatures or placing their thumbmarks, as the
case may be, over their printed names.
Of the 6,296 FWBs, he or she who wishes to continue as an HLI
stockholder is entitled to 18,804.32 HLI shares, and, in case the HLI
shares already given to him or her is less than 18,804.32 shares, the
HLI is ordered to issue or distribute additional shares to complete said
prescribed number of shares at no cost to the FWB within thirty (30)
days from finality of this Decision. Other FWBs who do not belong to
the original 6,296 qualified beneficiaries are not entitled to land
distribution and shall remain as HLI shareholders. All salaries,
benefits, 3% production share and 3% share in the proceeds of the
sale of the 500-hectare converted land and the 80.51-hectare SCTEX
lot and homelots already received by the 10,502 FWBs, composed of
6,296 original FWBs and 4,206 non-qualified FWBs, shall be
respected with no obligation to refund or return them.
Within thirty (30) days after determining who from among the original
FWBs will stay as stockholders, DAR shall segregate from the HLI
agricultural land with an area of 4,915.75 hectares subject of PARC’s
SDP-approving Resolution No. 89-12-2 the following: (a) the 500-
hectare lot subject of the August 14, l996 Conversion Order; (b) the
80.51-hectare lot sold to, or acquired by, the government as part of
the SCTEX complex; and (c) the aggregate area of 6,886.5 square
meters of individual lots that each FWB is entitled to under the CARP
had he or she not opted to stay in HLI as a stockholder. After the
segregation process, as indicated, is done, the remaining area shall
be turned over to DAR for immediate land distribution to the original
qualified FWBs who opted not to remain as HLI stockholders.
The aforementioned area composed of 6,886.5-square meter lots
allotted to the FWBs who stayed with the corporation shall form part of
the HLI assets.
HLI is directed to pay the 6,296 FWBs the consideration of PhP
500,000,000 received by it from Luisita Realty, Inc. for the sale to the
latter of 200 hectares out of the 500 hectares covered by the August
14, 1996 Conversion Order, the consideration of PhP 750,000,000
received by its owned subsidiary, Centennary Holdings, Inc. for the
sale of the remaining 300 hectares of the aforementioned 500-hectare
lot to Luisita Industrial Park Corporation, and the price of PhP
80,511,500 paid by the government through the Bases Conversion
Development Authority for the sale of the 80.51-hectare lot used for
the construction of the SCTEX road network. From the total amount of
PhP 1,330,511,500 (PhP 500,000,000 + PhP 750,000,000 + PhP
80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of the
total gross sales from the production of the agricultural land and the
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
of this judgment. It shall also submit, after submission of the
compliance report, quarterly reports on the execution of this judgment
to be submitted within the first 15 days at the end of each quarter,
until fully implemented.
The temporary restraining order is lifted.
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified
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.
RENATO C. CORONA
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
bank officers in an exchange of letters and/or in a meeting with the
buyers constitute a perfected and enforceable contract of sale over
101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of
"apparent authority" apply in this case? If so, may the Central Bank-
appointed conservator of Producers Bank (now First Philippine
International Bank) repudiate such "apparent authority" after said
contract has been deemed perfected? During the pendency of a suit
for specific performance, does the filing of a "derivative suit" by the
majority shareholders and directors of the distressed bank to prevent
the enforcement or implementation of the sale violate the ban against
forum-shopping?
Simply stated, these are the major questions brought before this Court
in the instant Petition for review on certiorari under Rule 45 of the
Rules of Court, to set aside the Decision promulgated January 14,
1994 of the respondent Court of Appeals1 in CA-G.R CV No. 35756
and the Resolution promulgated June 14, 1994 denying the motion for
reconsideration. The dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by
the elimination of the damages awarded under paragraphs 3,
4 and 6 of its dispositive portion and the reduction of the award
in paragraph 5 thereof to P75,000.00, to be assessed against
defendant bank. In all other aspects, said decision is hereby
AFFIRMED.
All references to the original plaintiffs in the decision and its
dispositive portion are deemed, herein and hereafter, to legally
refer to the plaintiff-appellee Carlos C. Ejercito.
Costs against appellant bank.
The dispositive portion of the trial court's2 decision dated July 10,
1991, on the other hand, is as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiffs and against the defendants
as follows:
1. Declaring the existence of a perfected contract to buy and
sell over the six (6) parcels of land situated at Don Jose, Sta.
Rosa, Laguna with an area of 101 hectares, more or less,
covered by and embraced in Transfer Certificates of Title Nos.
T-106932 to T-106937, inclusive, of the Land Records of
Laguna, between the plaintiffs as buyers and the defendant
Producers Bank for an agreed price of Five and One Half
Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon
finality of this decision and receipt from the plaintiffs the
amount of P5.5 Million, to execute in favor of said plaintiffs a
deed of absolute sale over the aforementioned six (6) parcels
of land, and to immediately deliver to the plaintiffs the owner's
copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for
purposes of registration of the same deed and transfer of the
six (6) titles in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay
plaintiffs Jose A. Janolo and Demetrio Demetria the sums of
P200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay
plaintiffs the sum of P100,000.00 as exemplary damages ;
5. Ordering the defendants, jointly and severally, to pay the
plaintiffs the amount of P400,000.00 for and by way of
attorney's fees;
6. Ordering the defendants to pay the plaintiffs, jointly and
severally, actual and moderate damages in the amount of
P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and
reply to sur-rejoinder, the petition was given due course in a
Resolution dated January 18, 1995. Thence, the parties filed their
respective memoranda and reply memoranda. The First Division
157
transferred this case to the Third Division per resolution dated
October 23, 1995. After carefully deliberating on the aforesaid
submissions, the Court assigned the case to the
undersigned ponente for the writing of this Decision.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank
of the Philippines; petitioner Bank, for brevity) is a banking institution
organized and existing under the laws of the Republic of the
Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity)
is of legal age and was, at all times material to this case, Head-
Manager of the Property Management Department of the petitioner
Bank.
(2) In the early part of August 1987 said plaintiffs, upon the
suggestion of BYME investment's legal counsel, Jose Fajardo,
met with defendant Mercurio Rivera, Manager of the Property
Management Department of the defendant bank. The meeting
was held pursuant to plaintiffs' plan to buy the property (TSN
of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal
purchase offer to the bank through a letter dated August 30,
1987 (Exh. "B"), as follows:
August 30, 1987
The Producers Bank of the Philippines
Makati, Metro Manila

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

158
(3) On September 1, 1987, defendant Rivera made on behalf In reply to your letter regarding my proposal to purchase your
of the bank a formal reply by letter which is hereunder quoted 101-hectare lot located at Sta. Rosa, Laguna, I would like to
(Exh. "C"): amend my previous offer and I now propose to buy the said lot
at P4.250 million in CASH..
September 1, 1987
Hoping that this proposal meets your satisfaction.
JP M-P GUTIERREZ ENTERPRISES
142 Charisma St., Doña Andres II (5) There was no reply to Janolo's foregoing letter of
Rosario, Pasig, Metro Manila September 17, 1987. What took place was a meeting on
September 28, 1987 between the plaintiffs and Luis Co, the
Senior Vice-President of defendant bank. Rivera as well as
Attention: JOSE O. JANOLO
Fajardo, the BYME lawyer, attended the meeting. Two days
later, or on September 30, 1987, plaintiff Janolo sent to the
Dear Sir: bank, through Rivera, the following letter (Exh. "E"):
Thank you for your letter-offer to buy our six (6) parcels of The Producers Bank of the Philippines
acquired lots at Sta. Rosa, Laguna (formerly owned by Byme Paseo de Roxas, Makati
Industrial Corp.). Please be informed however that the bank's Metro Manila
counter-offer is at P5.5 million for more than 101 hectares on
lot basis.
Attention: Mr. Mercurio Rivera
We shall be very glad to hear your position on the on the
Re: 101 Hectares of Land
matter.
in Sta. Rosa, Laguna
Best regards.
Gentlemen:
(4) On September 17, 1987, plaintiff Janolo, responding to
Pursuant to our discussion last 28 September 1987, we are
Rivera's aforequoted reply, wrote (Exh. "D"):
pleased to inform you that we are accepting your offer for us to
purchase the property at Sta. Rosa, Laguna, formerly owned
September 17, 1987 by Byme Investment, for a total price of PESOS: FIVE
MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).
Producers Bank
Paseo de Roxas Thank you.
Makati, Metro Manila
(6) On October 12, 1987, the conservator of the bank (which
Attention: Mr. Mercurio Rivera has been placed under conservatorship by the Central Bank
since 1984) was replaced by an Acting Conservator in the
Gentlemen: person of defendant Leonida T. Encarnacion. On November 4,

159
1987, defendant Rivera wrote plaintiff Demetria the following
letter (Exh. "F"):
Attention: Atty. Demetrio Demetria
Dear Sir:
Your proposal to buy the properties the bank foreclosed from
Byme investment Corp. located at Sta. Rosa, Laguna is under
study yet as of this time by the newly created committee for
submission to the newly designated Acting Conservator of the
bank.
For your information.
(7) What thereafter transpired was a series of demands by the
plaintiffs for compliance by the bank with what plaintiff
considered as a perfected contract of sale, which demands
were in one form or another refused by the bank. As detailed
by the trial court in its decision, on November 17, 1987,
plaintiffs through a letter to defendant Rivera (Exhibit "G")
tendered payment of the amount of P5.5 million "pursuant to
(our) perfected sale agreement." Defendants refused to
receive both the payment and the letter. Instead, the parcels of
land involved in the transaction were advertised by the bank
for sale to any interested buyer (Exh, "H" and "H-1"). Plaintiffs
demanded the execution by the bank of the documents on
what was considered as a "perfected agreement." Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O.
Janolo, to purchase your 101-hectare lot located in Sta. Rosa,
Laguna, and which are covered by TCT No. T-106932 to
106937.
From the documents at hand, it appears that your counter-
offer dated September 1, 1987 of this same lot in the amount
of P5.5 million was accepted by our client thru a letter dated
September 30, 1987 and was received by you on October 5,
1987.
In view of the above circumstances, we believe that an
agreement has been perfected. We were also informed that
despite repeated follow-up to consummate the purchase, you
now refuse to honor your commitment. Instead, you have
advertised for sale the same lot to others.
In behalf of our client, therefore, we are making this formal
demand upon you to consummate and execute the necessary
actions/documentation within three (3) days from your receipt
hereof. We are ready to remit the agreed amount of P5.5
million at your advice. Otherwise, we shall be constrained to
file the necessary court action to protect the interest of our
client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged
receipt of the foregoing letter and stated, in its communication
of December 2, 1987 (Exh. "I"), that said letter has been
"referred . . . to the office of our Conservator for proper
disposition" However, no response came from the Acting
Conservator. On December 14, 1987, the plaintiffs made a
second tender of payment (Exh. "L" and "L-1"), this time
through the Acting Conservator, defendant Encarnacion.
Plaintiffs' letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
160
 Attn.: Atty. NIDA ENCARNACION
Central Bank Conservator
We are sending you herewith, in - behalf of our client, Mr.
JOSE O. JANOLO, MBTC Check No. 258387 in the amount of
P5.5 million as our agreed purchase price of the 101-hectare
lot covered by TCT Nos. 106932, 106933, 106934, 106935,
106936 and 106937 and registered under Producers Bank.
This is in connection with the perfected agreement consequent
from your offer of P5.5 Million as the purchase price of the said
lots. Please inform us of the date of documentation of the sale
immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four
months. Then, on May 3, 1988, plaintiff, through counsel,
made a final demand for compliance by the bank with its
obligations under the considered perfected contract of sale
(Exhibit "N"). As recounted by the trial court (Original Record,
p. 656), in a reply letter dated May 12, 1988 (Annex "4" of
defendant's answer to amended complaint), the defendants
through Acting Conservator Encarnacion repudiated the
authority of defendant Rivera and claimed that his dealings
with the plaintiffs, particularly his counter-offer of P5.5 Million
are unauthorized or illegal. On that basis, the defendants
justified the refusal of the tenders of payment and the non-
compliance with the obligations under what the plaintiffs
considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific
performance with damages against the bank, its Manager
Rivers and Acting Conservator Encarnacion. The basis of the
suit was that the transaction had with the bank resulted in a
perfected contract of sale, The defendants took the position
that there was no such perfected sale because the defendant
Rivera is not authorized to sell the property, and that there was
no meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co),
through counsel Sycip Salazar Hernandez and Gatmaitan,
filed a motion to intervene in the trial court, alleging that as
owner of 80% of the Bank's outstanding shares of stock, he
had a substantial interest in resisting the complaint. On July 8,
1991, the trial court issued an order denying the motion to
intervene on the ground that it was filed after trial had already
been concluded. It also denied a motion for reconsideration
filed thereafter. From the trial court's decision, the Bank,
petitioner Rivera and conservator Encarnacion appealed to the
Court of Appeals which subsequently affirmed with
modification the said judgment. Henry Co did not appeal the
denial of his motion for intervention.
In the course of the proceedings in the respondent Court, Carlos
Ejercito was substituted in place of Demetria and Janolo, in view of
the assignment of the latters' rights in the matter in litigation to said
private respondent.
On July 11, 1992, during the pendency of the proceedings in the
Court of Appeals, Henry Co and several other stockholders of the
Bank, through counsel Angara Abello Concepcion Regala and Cruz,
filed an action (hereafter, the "Second Case") — purportedly a
"derivative suit" — with the Regional Trial Court of Makati, Branch
134, docketed as Civil Case No. 92-1606, against Encarnacion,
Demetria and Janolo "to declare any perfected sale of the property as
unenforceable and to stop Ejercito from enforcing or implementing the
sale"4 In his answer, Janolo argued that the Second Case was barred
by litis pendentia by virtue of the case then pending in the Court of
Appeals. During the pre-trial conference in the Second Case, plaintiffs
filed a Motion for Leave of Court to Dismiss the Case Without
Prejudice. "Private respondent opposed this motion on the ground,
among others, that plaintiff's act of forum shopping justifies the
dismissal of both cases, with prejudice."5 Private respondent, in his
memorandum, averred that this motion is still pending in the Makati
RTC.
In their Petition6 and Memorandum7 , petitioners summarized their
position as follows:
161
 I.
The Court of Appeals erred in declaring that a contract of sale
was perfected between Ejercito (in substitution of Demetria
and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an
enforceable contract of sale between the parties.
III.
The Court of Appeals erred in declaring that the conservator
does not have the power to overrule or revoke acts of previous
management.
IV.
The findings and conclusions of the Court of Appeals do not
conform to the evidence on record.
On the other hand, petitioners prayed for dismissal of the instant suit
on the ground8 that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals
are supported by the evidence on record and may no longer
be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected
contract between Demetria and Janolo (substituted by;
respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator,
apart from being estopped from repudiating the agency and
the contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case
may be summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable
under the statute of frauds?
4) Did the bank conservator have the unilateral power to
repudiate the authority of the bank officers and/or to revoke
the said contract?
5) Did the respondent Court commit any reversible error in its
findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the
Supreme Court promulgated Revised Circular No. 28-91 requiring that
a party "must certify under oath . . . [that] (a) he has not (t)heretofore
commenced any other action or proceeding involving the same issues
in the Supreme Court, the Court of Appeals, or any other tribunal or
agency; (b) to the best of his knowledge, no such action or proceeding
is pending" in said courts or agencies. A violation of the said circular
entails sanctions that include the summary dismissal of the multiple
162
petitions or complaints. To be sure, petitioners have included a
VERIFICATION/CERTIFICATION in their Petition stating "for the
record(,) the pendency of Civil Case No. 92-1606 before the Regional
Trial Court of Makati, Branch 134, involving a derivative suit filed by
stockholders of petitioner Bank against the conservator and other
defendants but which is the subject of a pending Motion to Dismiss
Without Prejudice.9
Private respondent Ejercito vigorously argues that in spite of this
verification, petitioners are guilty of actual forum shopping because
the instant petition pending before this Court involves "identical parties
or interests represented, rights asserted and reliefs sought (as that)
currently pending before the Regional Trial Court, Makati Branch 134
in the Second Case. In fact, the issues in the two cases are so
interwined that a judgement or resolution in either case will
constitute res judicata in the other." 10
On the other hand, petitioners explain 11 that there is no forum-
shopping because:
1) In the earlier or "First Case" from which this proceeding
arose, the Bank was impleaded as a defendant, whereas in
the "Second Case" (assuming the Bank is the real party in
interest in a derivative suit), it was plaintiff;
2) "The derivative suit is not properly a suit for and in behalf of
the corporation under the circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra)
signed by the Bank president and attached to the Petition
identifies the action as a "derivative suit," it "does not mean
that it is one" and "(t)hat is a legal question for the courts to
decide";
4) Petitioners did not hide the Second Case at they mentioned
it in the said VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private
international law.12 , where non-resident litigants are given the option
to choose the forum or place wherein to bring their suit for various
reasons or excuses, including to secure procedural advantages, to
annoy and harass the defendant, to avoid overcrowded dockets, or to
select a more friendly venue. To combat these less than honorable
excuses, the principle of forum non conveniens was developed
whereby a court, in conflicts of law cases, may refuse impositions on
its jurisdiction where it is not the most "convenient" or available forum
and the parties are not precluded from seeking remedies elsewhere.
In this light, Black's Law Dictionary 13 says that forum shopping
"occurs when a party attempts to have his action tried in a particular
court or jurisdiction where he feels he will receive the most favorable
judgment or verdict." Hence, according to Words and Phrases14 , "a
litigant is open to the charge of "forum shopping" whenever he
chooses a forum with slight connection to factual circumstances
surrounding his suit, and litigants should be encouraged to attempt to
settle their differences without imposing undue expenses and
vexatious situations on the courts".
In the Philippines, forum shopping has acquired a connotation
encompassing not only a choice of venues, as it was originally
understood in conflicts of laws, but also to a choice of remedies. As to
the first (choice of venues), the Rules of Court, for example, allow a
plaintiff to commence personal actions "where the defendant or any of
the defendants resides or may be found, or where the plaintiff or any
of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2
[b]). As to remedies, aggrieved parties, for example, are given a
choice of pursuing civil liabilities independently of the criminal, arising
from the same set of facts. A passenger of a public utility vehicle
involved in a vehicular accident may sue on culpa contractual, culpa
aquiliana or culpa criminal — each remedy being available
independently of the others — although he cannot recover more than
once.
In either of these situations (choice of venue or choice of
remedy), the litigant actually shops for a forum of his action,
This was the original concept of the term forum shopping.
163
 Eventually, however, instead of actually making a choice of the
forum of their actions, litigants, through the encouragement of
their lawyers, file their actions in all available courts, or invoke
all relevant remedies simultaneously. This practice had not
only resulted to (sic) conflicting adjudications among different
courts and consequent confusion enimical (sic) to an orderly
administration of justice. It had created extreme inconvenience
to some of the parties to the action.
Thus, "forum shopping" had acquired a different concept —
which is unethical professional legal practice. And this
necessitated or had given rise to the formulation of rules and
canons discouraging or altogether prohibiting the practice. 15
What therefore originally started both in conflicts of laws and in our
domestic law as a legitimate device for solving problems has been
abused and mis-used to assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the
Supreme Court, as already mentioned, promulgated Circular 28-91.
And even before that, the Court had prescribed it in the Interim Rules
and Guidelines issued on January 11, 1983 and had struck down in
several cases 16 the inveterate use of this insidious malpractice. Forum
shopping as "the filing of repetitious suits in different courts" has been
condemned by Justice Andres R. Narvasa (now Chief Justice)
in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et
al., "as a reprehensible manipulation of court processes and
proceedings . . ." 17 when does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse
opinion in one forum, a party seeks a favorable opinion (other
than by appeal or certiorari) in another. The principle applies
not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an
administrative proceeding is pending, as in this case, in order
to defeat administrative processes and in anticipation of an
unfavorable administrative ruling and a favorable court ruling.
This is specially so, as in this case, where the court in which
the second suit was brought, has no jurisdiction.18
The test for determining whether a party violated the rule against
forum shopping has been laid dawn in the 1986 case of Buan vs.
Lopez 19 , also by Chief Justice Narvasa, and that is, forum shopping
exists where the elements of litis pendentia are present or where a
final judgment in one case will amount to res judicata in the other, as
follows:
There thus exists between the action before this Court and
RTC Case No. 86-36563 identity of parties, or at least such
parties as represent the same interests in both actions, as well
as identity of rights asserted and relief prayed for, the relief
being founded on the same facts, and the identity on the two
preceding particulars is such that any judgment rendered in
the other action, will, regardless of which party is successful,
amount to res adjudicata in the action under consideration: all
the requisites, in fine, of auter action pendant.
xxx       xxx       xxx
As already observed, there is between the action at bar and
RTC Case No. 86-36563, an identity as regards parties, or
interests represented, rights asserted and relief sought, as well
as basis thereof, to a degree sufficient to give rise to the
ground for dismissal known as auter action pendant or lis
pendens. That same identity puts into operation the sanction
of twin dismissals just mentioned. The application of this
sanction will prevent any further delay in the settlement of the
controversy which might ensue from attempts to seek
reconsideration of or to appeal from the Order of the Regional
Trial Court in Civil Case No. 86-36563 promulgated on July 15,
1986, which dismissed the petition upon grounds which
appear persuasive.
Consequently, where a litigant (or one representing the same interest
or person) sues the same party against whom another action or
actions for the alleged violation of the same right and the enforcement
of the same relief is/are still pending, the defense of litis pendencia in
one case is bar to the others; and, a final judgment in one would
constitute res judicata and thus would cause the dismissal of the rest.
In either case, forum shopping could be cited by the other party as a
164
ground to ask for summary dismissal of the two 20 (or more)
complaints or petitions, and for imposition of the other sanctions,
which are direct contempt of court, criminal prosecution, and
disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing
it with the Second Case, it is obvious that there exist identity of parties
or interests represented, identity of rights or causes and identity of
reliefs sought.
Very simply stated, the original complaint in the court a quo which
gave rise to the instant petition was filed by the buyer (herein private
respondent and his predecessors-in-interest) against the seller (herein
petitioners) to enforce the alleged perfected sale of real estate. On the
other hand, the complaint 21 in the Second Case seeks to declare such
purported sale involving the same real property "as unenforceable as
against the Bank", which is the petitioner herein. In other words, in the
Second Case, the majority stockholders, in representation of the
Bank, are seeking to accomplish what the Bank itself failed to do in
the original case in the trial court. In brief, the objective or the relief
being sought, though worded differently, is the same, namely, to
enable the petitioner Bank to escape from the obligation to sell the
property to respondent. In Danville Maritime, Inc. vs. Commission on
Audit. 22 , this Court ruled that the filing by a party of two apparently
different actions, but with the same objective, constituted forum
shopping:
In the attempt to make the two actions appear to be different,
petitioner impleaded different respondents therein — PNOC in
the case before the lower court and the COA in the case
before this Court and sought what seems to be different
reliefs. Petitioner asks this Court to set aside the questioned
letter-directive of the COA dated October 10, 1988 and to
direct said body to approve the Memorandum of Agreement
entered into by and between the PNOC and petitioner, while in
the complaint before the lower court petitioner seeks to enjoin
the PNOC from conducting a rebidding and from selling to
other parties the vessel "T/T Andres Bonifacio", and for an
extension of time for it to comply with the paragraph 1 of the
memorandum of agreement and damages. One can see that
although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is the
same, that is, approval of the sale of vessel in favor of
petitioner and to overturn the letter-directive of the COA of
October 10, 1988 disapproving the sale. (emphasis supplied).
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant
special civil action for certiorari and prohibition in this Court
despite the pendency of their action in the Makati Regional
Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same
essential facts and circumstances. The petitioners' claim of
absence of identity simply because the PCGG had not been
impleaded in the RTC suit, and the suit did not involve certain
acts which transpired after its commencement, is specious. In
the RTC action, as in the action before this Court, the validity
of the contract to purchase and sell of September 1, 1986, i.e.,
whether or not it had been efficaciously rescinded, and the
propriety of implementing the same (by paying the pledgee
banks the amount of their loans, obtaining the release of the
pledged shares, etc.) were the basic issues. So, too, the relief
was the same: the prevention of such implementation and/or
the restoration of the status quo ante. When the acts sought to
be restrained took place anyway despite the issuance by the
Trial Court of a temporary restraining order, the RTC suit did
not become functus oficio. It remained an effective vehicle for
obtention of relief; and petitioners' remedy in the premises was
plain and patent: the filing of an amended and supplemental
pleading in the RTC suit, so as to include the PCGG as
defendant and seek nullification of the acts sought to be
enjoined but nonetheless done. The remedy was certainly not
the institution of another action in another forum based on
essentially the same facts, The adoption of this latter recourse
renders the petitioners amenable to disciplinary action and
both their actions, in this Court as well as in the Court a quo,
dismissible.
165
In the instant case before us, there is also identity of parties, or at
least, of interests represented. Although the plaintiffs in the Second
Case (Henry L. Co. et al.) are not name parties in the First Case, they
represent the same interest and entity, namely, petitioner Bank,
because:
Firstly, they are not suing in their personal capacities, for they have no
direct personal interest in the matter in controversy. They are not
principally or even subsidiarily liable; much less are they direct parties
in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show
that the stockholders are bringing a "derivative suit". In the caption
itself, petitioners claim to have brought suit "for and in behalf of the
Producers Bank of the Philippines" 24 . Indeed, this is the very essence
of a derivative suit:
An individual stockholder is permitted to institute a derivative
suit on behalf of the corporation wherein he holdsstock in
order to protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the ones to be
sued or hold the control of the corporation. In such actions, the
suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. (Gamboa v.
Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).
In the face of the damaging admissions taken from the complaint in
the Second Case, petitioners, quite strangely, sought to deny that the
Second Case was a derivative suit, reasoning that it was brought, not
by the minority shareholders, but by Henry Co et al., who not only
own, hold or control over 80% of the outstanding capital stock, but
also constitute the majority in the Board of Directors of petitioner
Bank. That being so, then they really represent the Bank. So, whether
they sued "derivatively" or directly, there is undeniably an identity of
interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the
personality Of the Bank is separate and distinct from its shareholders.
But the rulings of this Court are consistent: "When the fiction is urged
as a means of perpetrating a fraud or an illegal act or as a vehicle for
the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration
of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be
lifted to allow for its consideration merely as an aggregation of
individuals." 25
In addition to the many cases 26 where the corporate fiction has been
disregarded, we now add the instant case, and declare herewith that
the corporate veil cannot be used to shield an otherwise blatant
violation of the prohibition against forum-shopping. Shareholders,
whether suing as the majority in direct actions or as the minority in a
derivative suit, cannot be allowed to trifle with court processes,
particularly where, as in this case, the corporation itself has not been
remiss in vigorously prosecuting or defending corporate causes and in
using and applying remedies available to it. To rule otherwise would
be to encourage corporate litigants to use their shareholders as fronts
to circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum
shopping, even assuming arguendo that there is identity of parties,
causes of action and reliefs sought, "because it (the Bank) was the
defendant in the (first) case while it was the plaintiff in the other
(Second Case)",citing as authority Victronics Computers, Inc.,
vs. Regional Trial Court, Branch 63, Makati, etc. et al., 27 where Court
held:
The rule has not been extended to a defendant who, for
reasons known only to him, commences a new action against
the plaintiff — instead of filing a responsive pleading in the
other case — setting forth therein, as causes of action, specific
denials, special and affirmative defenses or even
counterclaims, Thus, Velhagen's and King's motion to dismiss
Civil Case No. 91-2069 by no means negates the charge of
forum-shopping as such did not exist in the first place.
(emphasis supplied)
Petitioner pointed out that since it was merely the defendant in the
original case, it could not have chosen the forum in said case.
166
Respondent, on the other hand, replied that there is a difference in
factual setting between Victronics and the present suit. In the former,
as underscored in the above-quoted Court ruling, the defendants did
not file any responsive pleading in the first case. In other words, they
did not make any denial or raise any defense or counter-claim therein
In the case before us however, petitioners filed a responsive pleading
to the complaint — as a result of which, the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counter–
claims in their responsive pleadings, the petitioners became plaintiffs
themselves in the original case, giving unto themselves the very
remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether
forum-shopping exists or not is the vexation caused the courts and
parties-litigant by a party who asks different courts and/or
administrative agencies to rule on the same or related causes and/or
to grant the same or substantially the same reliefs, in the process
creating the possibility of conflicting decisions being rendered by the
different fora upon the same issue. In this case, this is exactly the
problem: a decision recognizing the perfection and directing the
enforcement of the contract of sale will directly conflict with a possible
decision in the Second Case barring the parties front enforcing or
implementing the said sale. Indeed, a final decision in one would
constitute res judicata in the other 28 .
The foregoing conclusion finding the existence of forum-shopping
notwithstanding, the only sanction possible now is the dismissal of
both cases with prejudice, as the other sanctions cannot be imposed
because petitioners' present counsel entered their appearance only
during the proceedings in this Court, and the Petition's
VERIFICATION/CERTIFICATION contained sufficient allegations as
to the pendency of the Second Case to show good faith in observing
Circular 28-91. The Lawyers who filed the Second Case are not
before us; thus the rudiments of due process prevent us from motu
propio imposing disciplinary measures against them in this Decision.
However, petitioners themselves (and particularly Henry Co, et al.) as
litigants are admonished to strictly follow the rules against forum-
shopping and not to trifle with court proceedings and processes They
are warned that a repetition of the same will be dealt with more
severely.
Having said that, let it be emphasized that this petition should be
dismissed not merely because of forum-shopping but also because of
the substantive issues raised, as will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not
there was, on the basis of the facts established, a perfected contract
of sale as the ultimate issue. Holding that a valid contract has been
established, respondent Court stated:
There is no dispute that the object of the transaction is that
property owned by the defendant bank as acquired assets
consisting of six (6) parcels of land specifically identified under
Transfer Certificates of Title Nos. T-106932 to T-106937. It is
likewise beyond cavil that the bank intended to sell the
property. As testified to by the Bank's Deputy Conservator,
Jose Entereso, the bank was looking for buyers of the
property. It is definite that the plaintiffs wanted to purchase the
property and it was precisely for this purpose that they met
with defendant Rivera, Manager of the Property Management
Department of the defendant bank, in early August 1987. The
procedure in the sale of acquired assets as well as the nature
and scope of the authority of Rivera on the matter is clearly
delineated in the testimony of Rivera himself, which testimony
was relied upon by both the bank and by Rivera in their appeal
briefs. Thus (TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was
turned over to me and then I published it in the form of
an inter-office memorandum distributed to all branches
that these are acquired assets for sale. I was instructed
to advertise acquired assets for sale so on that basis, I
have to entertain offer; to accept offer, formal offer and
upon having been offered, I present it to the
Committee. I provide the Committee with necessary
information about the property such as original loan of
167
 the borrower, bid price during the foreclosure, total
claim of the bank, the appraised value at the time the
property is being offered for sale and then the
information which are relative to the evaluation of the
bank to buy which the Committee considers and it is
the Committee that evaluate as against the exposure of
the bank and it is also the Committee that submit to the
Conservator for final approval and once approved, we
have to execute the deed of sale and it is the
Conservator that sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987
regarding their purpose of buying the property, dealt with and
talked to the right person. Necessarily, the agenda was the
price of the property, and plaintiffs were dealing with the bank
official authorized to entertain offers, to accept offers and to
present the offer to the Committee before which the said
official is authorized to discuss information relative to price
determination. Necessarily, too, it being inherent in his
authority, Rivera is the officer from whom official information
regarding the price, as determined by the Committee and
approved by the Conservator, can be had. And Rivera
confirmed his authority when he talked with the plaintiff in
August 1987. The testimony of plaintiff Demetria is clear on
this point (TSN of May 31,1990, pp. 27-28):
Q: When you went to the Producers Bank and talked
with Mr. Mercurio Rivera, did you ask him point-blank
his authority to sell any property?
A: No, sir. Not point blank although it came from him,
(W)hen I asked him how long it would take because he
was saying that the matter of pricing will be passed
upon by the committee. And when I asked him how
long it will take for the committee to decide and he said
the committee meets every week. If I am not mistaken
Wednesday and in about two week's (sic) time, in
effect what he was saying he was not the one who was
to decide. But he would refer it to the committee and he
would relay the decision of the committee to me.
Q — Please answer the question.
A — He did not say that he had the authority (.) But he
said he would refer the matter to the committee and he
would relay the decision to me and he did just like that.
"Parenthetically, the Committee referred to was the Past Due
Committee of which Luis Co was the Head, with Jose
Entereso as one of the members.
What transpired after the meeting of early August 1987 are
consistent with the authority and the duties of Rivera and the
bank's internal procedure in the matter of the sale of bank's
assets. As advised by Rivera, the plaintiffs made a formal offer
by a letter dated August 20, 1987 stating that they would buy
at the price of P3.5 Million in cash. The letter was for the
attention of Mercurio Rivera who was tasked to convey and
accept such offers. Considering an aspect of the official duty of
Rivera as some sort of intermediary between the plaintiffs-
buyers with their proposed buying price on one hand, and the
bank Committee, the Conservator and ultimately the bank
itself with the set price on the other, and considering further
the discussion of price at the meeting of August resulting in a
formal offer of P3.5 Million in cash, there can be no other
logical conclusion than that when, on September 1, 1987,
Rivera informed plaintiffs by letter that "the bank's counter-
offer is at P5.5 Million for more than 101 hectares on lot basis,"
such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had
duly presented plaintiffs' offer for discussion by the Committee
of such matters as original loan of borrower, bid price during
foreclosure, total claim of the bank, and market value. Tersely
put, under the established facts, the price of P5.5 Million was,
as clearly worded in Rivera's letter (Exh. "E"), the official and
definitive price at which the bank was selling the property.
There were averments by defendants below, as well as before
this Court, that the P5.5 Million price was not discussed by the
Committee and that price. As correctly characterized by the
trial court, this is not credible. The testimonies of Luis Co and
168
 Jose Entereso on this point are at best equivocal and
considering the gratuitous and self-serving character of these
declarations, the bank's submission on this point does not
inspire belief. Both Co ad Entereso, as members of the Past
Due Committee of the bank, claim that the offer of the plaintiff
was never discussed by the Committee. In the same vein, both
Co and Entereso openly admit that they seldom attend the
meetings of the Committee. It is important to note that
negotiations on the price had started in early August and the
plaintiffs had already offered an amount as purchase price,
having been made to understand by Rivera, the official in
charge of the negotiation, that the price will be submitted for
approval by the bank and that the bank's decision will be
relayed to plaintiffs. From the facts, the official bank price. At
any rate, the bank placed its official, Rivera, in a position of
authority to accept offers to buy and negotiate the sale by
having the offer officially acted upon by the bank. The bank
cannot turn around and later say, as it now does, that what
Rivera states as the bank's action on the matter is not in fact
so. It is a familiar doctrine, the doctrine of ostensible authority,
that if a corporation knowingly permits one of its officers, or
any other agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as possessing
power to do those acts, the corporation will, as against any
one who has in good faith dealt with the corporation through
such agent, he estopped from denying his authority (Francisco
v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94
SCRA 357, 369-370; Prudential Bank v. Court of Appeals,
G.R. No. 103957, June 14, 1993). 29
Article 1318 of the Civil Code enumerates the requisites of a valid and
perfected contract as follows: "(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; (3)
Cause of the obligation which is established."
There is no dispute on requisite no. 2. The object of the questioned
contract consists of the six (6) parcels of land in Sta. Rosa, Laguna
with an aggregate area of about 101 hectares, more or less, and
covered by Transfer Certificates of Title Nos. T-106932 to T-106937.
There is, however, a dispute on the first and third requisites.
Petitioners allege that "there is no counter-offer made by the Bank,
and any supposed counter-offer which Rivera (or Co) may have made
is unauthorized. Since there was no counter-offer by the Bank, there
was nothing for Ejercito (in substitution of Demetria and Janolo) to
accept." 30 They disputed the factual basis of the respondent Court's
findings that there was an offer made by Janolo for P3.5 million, to
which the Bank counter-offered P5.5 million. We have perused the
evidence but cannot find fault with the said Court's findings of fact.
Verily, in a petition under Rule 45 such as this, errors of fact — if there
be any - are, as a rule, not reviewable. The mere fact that respondent
Court (and the trial court as well) chose to believe the evidence
presented by respondent more than that presented by petitioners is
not by itself a reversible error. In fact, such findings merit serious
consideration by this Court, particularly where, as in this case, said
courts carefully and meticulously discussed their findings. This is
basic.
Be that as it may, and in addition to the foregoing disquisitions by the
Court of Appeals, let us review the question of Rivera's authority to act
and petitioner's allegations that the P5.5 million counter-offer was
extinguished by the P4.25 million revised offer of Janolo. Here, there
are questions of law which could be drawn from the factual findings of
the respondent Court. They also delve into the contractual elements
of consent and cause.
The authority of a corporate officer in dealing with third persons may
be actual or apparent. The doctrine of "apparent authority", with
special reference to banks, was laid out in Prudential Bank vs. Court
of Appeals31 , where it was held that:
Conformably, we have declared in countless decisions that the
principal is liable for obligations contracted by the agent. The
agent's apparent representation yields to the principal's true
representation and the contract is considered as entered into
between the principal and the third person (citing National
Food Authority vs. Intermediate Appellate Court, 184 SCRA
166).
A bank is liable for wrongful acts of its officers done in
the interests of the bank or in the course of dealings of
169
 the officers in their representative capacity but not for
acts outside the scape of their authority (9 C.J.S., p.
417). A bank holding out its officers and agents as
worthy of confidence will not be permitted to profit by
the frauds they may thus be enabled to perpetrate in
the apparent scope of their employment; nor will it be
permitted to shirk its responsibility for such frauds even
though no benefit may accrue to the bank therefrom
(10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the
representation is made in the course of its business by
an agent acting within the general scope of his
authority even though, in the particular case, the agent
is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other
person, for his own ultimate benefit (McIntosh v.
Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR
1021).
Application of these principles is especially necessary because
banks have a fiduciary relationship with the public and their
stability depends on the confidence of the people in their
honesty and efficiency. Such faith will be eroded where banks
do not exercise strict care in the selection and supervision of
its employees, resulting in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that
petitioner Rivera has apparent or implied authority to act for the Bank
in the matter of selling its acquired assets. This evidence includes the
following:
(a) The petition itself in par. II-i (p. 3) states that Rivera was "at
all times material to this case, Manager of the Property
Management Department of the Bank". By his own admission,
Rivera was already the person in charge of the Bank's
acquired assets (TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely
being sold by the Bank. And during the initial meeting between
the buyers and Rivera, the latter suggested that the buyers'
offer should be no less than P3.3 million (TSN, April 26, 1990,
pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987
offering P3.5 million (TSN, 30 July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering
to sell the property for P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987
containing the buyers' proposal to buy the property for P4.25
million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5
million was the final price of the Bank (TSN, January 16, 1990,
p. 18);
(g) Rivera arranged the meeting between the buyers and Luis
Co on September 28, 1994, during which the Bank's offer of
P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp.
34-35). At said meeting, Co, a major shareholder and officer of
the Bank, confirmed Rivera's statement as to the finality of the
Bank's counter-offer of P5.5 million (TSN, January 16, 1990, p.
21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the
Bank referred to Rivera as the officer acting for the Bank in
relation to parties interested in buying assets owned/acquired
by the Bank. In fact, Rivera was the officer mentioned in the
Bank's advertisements offering for sale the property in
question (cf. Exhs. "S" and "S-1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of
Appeals, et. al.32 , the Court, through Justice Jose A. R. Melo, affirmed
the doctrine of apparent authority as it held that the apparent authority
of the officer of the Bank of P.I. in charge of acquired assets is borne
out by similar circumstances surrounding his dealings with buyers.
170
To be sure, petitioners attempted to repudiate Rivera's apparent
authority through documents and testimony which seek to establish
Rivera's actual authority. These pieces of evidence, however, are
inherently weak as they consist of Rivera's self-serving testimony and
various inter-office memoranda that purport to show his limited actual
authority, of which private respondent cannot be charged with
knowledge. In any event, since the issue is apparent authority, the
existence of which is borne out by the respondent Court's findings, the
evidence of actual authority is immaterial insofar as the liability of a
corporation is concerned 33 .
Petitioners also argued that since Demetria and Janolo were
experienced lawyers and their "law firm" had once acted for the Bank
in three criminal cases, they should be charged with actual knowledge
of Rivera's limited authority. But the Court of Appeals in its Decision
(p. 12) had already made a factual finding that the buyers had no
notice of Rivera's actual authority prior to the sale. In fact, the Bank
has not shown that they acted as its counsel in respect to any
acquired assets; on the other hand, respondent has proven that
Demetria and Janolo merely associated with a loose aggrupation of
lawyers (not a professional partnership), one of whose members (Atty.
Susana Parker) acted in said criminal cases.
Petitioners also alleged that Demetria's and Janolo's P4.25 million
counter-offer in the letter dated September 17, 1987 extinguished the
Bank's offer of P5.5 million 34 .They disputed the respondent Court's
finding that "there was a meeting of minds when on 30 September
1987 Demetria and Janolo through Annex "L" (letter dated September
30, 1987) "accepted" Rivera's counter offer of P5.5 million under
Annex "J" (letter dated September 17, 1987)", citing the late Justice
Paras35 , Art. 1319 of the Civil Code 36 and related Supreme Court
rulings starting with Beaumont vs. Prieto 37 .
However, the above-cited authorities and precedents cannot apply in
the instant case because, as found by the respondent Court which
reviewed the testimonies on this point, what was "accepted" by Janolo
in his letter dated September 30, 1987 was the Bank's offer of P5.5
million as confirmed and reiterated to Demetria and Atty. Jose Fajardo
by Rivera and Co during their meeting on September 28, 1987. Note
that the said letter of September 30, 1987 begins with"(p)ursuant to
our discussion last 28 September 1987 . . .
Petitioners insist that the respondent Court should have believed the
testimonies of Rivera and Co that the September 28, 1987 meeting
"was meant to have the offerors improve on their position of P5.5.
million."38 However, both the trial court and the Court of Appeals found
petitioners' testimonial evidence "not credible", and we find no basis
for changing this finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC
and the CA) common finding that private respondents' evidence is
more in keeping with truth and logic — that during the meeting on
September 28, 1987, Luis Co and Rivera "confirmed that the P5.5
million price has been passed upon by the Committee and could no
longer be lowered (TSN of April 27, 1990, pp. 34-35)"39 . Hence,
assuming arguendo that the counter-offer of P4.25 million
extinguished the offer of P5.5 million, Luis Co's reiteration of the said
P5.5 million price during the September 28, 1987 meeting revived the
said offer. And by virtue of the September 30, 1987 letter accepting
this revived offer, there was a meeting of the minds, as the
acceptance in said letter was absolute and unqualified.
We note that the Bank's repudiation, through Conservator
Encarnacion, of Rivera's authority and action, particularly the latter's
counter-offer of P5.5 million, as being "unauthorized and illegal" came
only on May 12, 1988 or more than seven (7) months after Janolo'
acceptance. Such delay, and the absence of any circumstance which
might have justifiably prevented the Bank from acting earlier, clearly
characterizes the repudiation as nothing more than a last-minute
attempt on the Bank's part to get out of a binding contractual
obligation.
Taken together, the factual findings of the respondent Court point to
an implied admission on the part of the petitioners that the written
offer made on September 1, 1987 was carried through during the
meeting of September 28, 1987. This is the conclusion consistent with
human experience, truth and good faith.
171
It also bears noting that this issue of extinguishment of the Bank's
offer of P5.5 million was raised for the first time on appeal and should
thus be disregarded.
This Court in several decisions has repeatedly adhered to the
principle that points of law, theories, issues of fact and
arguments not adequately brought to the attention of the trial
court need not be, and ordinarily will not be, considered by a
reviewing court, as they cannot be raised for the first time on
appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145
SCRA 592).40
. . . It is settled jurisprudence that an issue which was neither
averred in the complaint nor raised during the trial in the court
below cannot be raised for the first time on appeal as it would
be offensive to the basic rules of fair play, justice and due
process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo
vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development
Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175
SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30,
1990).41
Since the issue was not raised in the pleadings as an affirmative
defense, private respondent was not given an opportunity in the trial
court to controvert the same through opposing evidence. Indeed, this
is a matter of due process. But we passed upon the issue anyway, if
only to avoid deciding the case on purely procedural grounds, and we
repeat that, on the basis of the evidence already in the record and as
appreciated by the lower courts, the inevitable conclusion is simply
that there was a perfected contract of sale.
The Third Issue: Is the Contract Enforceable?
The petition alleged42 :
Even assuming that Luis Co or Rivera did relay a verbal offer
to sell at P5.5 million during the meeting of 28 September
1987, and it was this verbal offer that Demetria and Janolo
accepted with their letter of 30 September 1987, the contract
produced thereby would be unenforceable by action — there
being no note, memorandum or writing subscribed by the Bank
to evidence such contract. (Please see article 1403[2], Civil
Code.)
Upon the other hand, the respondent Court in its Decision (p, 14)
stated:
. . . Of course, the bank's letter of September 1, 1987 on the
official price and the plaintiffs' acceptance of the price on
September 30, 1987, are not, in themselves, formal contracts
of sale. They are however clear embodiments of the fact that a
contract of sale was perfected between the parties, such
contract being binding in whatever form it may have been
entered into (case citations omitted). Stated simply, the banks'
letter of September 1, 1987, taken together with plaintiffs' letter
dated September 30, 1987, constitute in law a sufficient
memorandum of a perfected contract of sale.
The respondent Court could have added that the written
communications commenced not only from September 1, 1987 but
from Janolo's August 20, 1987 letter. We agree that, taken together,
these letters constitute sufficient memoranda — since they include the
names of the parties, the terms and conditions of the contract, the
price and a description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the
meeting on September 28, 1987 did constitute a "new" offer which
was accepted by Janolo on September 30, 1987. Still, the statute of
frauds will not apply by reason of the failure of petitioners to object to
oral testimony proving petitioner Bank's counter-offer of P5.5 million.
Hence, petitioners — by such utter failure to object — are deemed to
have waived any defects of the contract under the statute of frauds,
pursuant to Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred
to in No. 2 of article 1403, are ratified by the failure to object to
the presentation of oral evidence to prove the same, or by the
acceptance of benefits under them.
172
As private respondent pointed out in his Memorandum, oral testimony
on the reaffirmation of the counter-offer of P5.5 million is a plenty —
and the silence of petitioners all throughout the presentation makes
the evidence binding on them thus;
A Yes, sir, I think it was September 28, 1987 and I was again
present because Atty. Demetria told me to accompany him we
were able to meet Luis Co at the Bank.
xxx       xxx       xxx
Q Now, what transpired during this meeting with Luis Co of the
Producers Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could be
reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount
cited by Mr. Mercurio Rivera is the final price and that is the
price they intends (sic) to have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis Co's
statement (sic) that the defendant Rivera's counter-offer of 5.5
million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp.
18-21.]
Q What transpired during that meeting between you and Mr.
Luis Co of the defendant Bank?
A We went straight to the point because he being a busy
person, I told him if the amount of P5.5 million could still be
reduced and he said that was already passed upon by the
committee. What the bank expects which was contrary to what
Mr. Rivera stated. And he told me that is the final offer of the
bank P5.5 million and we should indicate our position as soon
as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days
and he said that was it. Atty. Fajardo and I and Mr. Mercurio
[Rivera] was with us at the time at his office.
Q For the record, your Honor please, will you tell this Court
who was with Mr. Co in his Office in Producers Bank Building
during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your partner
accede on (sic) the counter offer by the bank?
A Yes, sir, we did.? Two days thereafter we sent our
acceptance to the bank which offer we accepted, the offer of
the bank which is P5.5 million.
Q According to Atty. Demetrio Demetria, the amount of P5.5
million was reached by the Committee and it is not within his
power to reduce this amount. What can you say to that
173
 statement that the amount of P5.5 million was reached by the
Committee?
A It was not discussed by the Committee but it was discussed
initially by Luis Co and the group of Atty. Demetrio Demetria
and Atty. Pajardo (sic) in that September 28, 1987 meeting,
sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract.
It is not disputed that the petitioner Bank was under a conservator
placed by the Central Bank of the Philippines during the time that the
negotiation and perfection of the contract of sale took place.
Petitioners energetically contended that the conservator has the
power to revoke or overrule actions of the management or the board
of directors of a bank, under Section 28-A of Republic Act No. 265
(otherwise known as the Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the
Monetary Board finds that a bank or a non-bank financial
intermediary performing quasi-banking functions is in a state of
continuing inability or unwillingness to maintain a state of
liquidity deemed adequate to protect the interest of depositors
and creditors, the Monetary Board may appoint a conservator
to take charge of the assets, liabilities, and the management of
that institution, collect all monies and debts due said institution
and exercise all powers necessary to preserve the assets of
the institution, reorganize the management thereof, and
restore its viability. He shall have the power to overrule or
revoke the actions of the previous management and board of
directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to the
contrary notwithstanding, and such other powers as the
Monetary Board shall deem necessary.
In the first place, this issue of the Conservator's alleged authority to
revoke or repudiate the perfected contract of sale was raised for the
first time in this Petition — as this was not litigated in the trial court or
Court of Appeals. As already stated earlier, issues not raised and/or
ventilated in the trial court, let alone in the Court of Appeals, "cannot
be raised for the first time on appeal as it would be offensive to the
basic rules of fair play, justice and due process."43
In the second place, there is absolutely no evidence that the
Conservator, at the time the contract was perfected, actually
repudiated or overruled said contract of sale. The Bank's acting
conservator at the time, Rodolfo Romey, never objected to the sale of
the property to Demetria and Janolo. What petitioners are really
referring to is the letter of Conservator Encarnacion, who took over
from Romey after the sale was perfected on September 30, 1987
(Annex V, petition) which unilaterally repudiated — not the contract —
but the authority of Rivera to make a binding offer — and which
unarguably came months after the perfection of the contract. Said
letter dated May 12, 1988 is reproduced hereunder:
May 12, 1988
Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of
Attys. Janolo and Demetria regarding the six (6) parcels of
land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-
offer to any of your clients nor perfected a "contract to sell and
buy" with any of them for the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986
addressed to and approved by former Acting Conservator Mr.
174
Andres I. Rustia, Producers Bank Senior Manager Perfecto M.
Pascua detailed the functions of Property Management
Department (PMD) staff and officers (Annex A.), you will
immediately read that Manager Mr. Mercurio Rivera or any of
his subordinates has no authority, power or right to make any
alleged counter-offer. In short, your lawyer-clients did not deal
with the authorized officers of the bank.
Moreover, under Sec. 23 and 36 of the Corporation Code of
the Philippines (Bates Pambansa Blg. 68.) and Sec. 28-A of
the Central Bank Act (Rep. Act No. 265, as amended), only
the Board of Directors/Conservator may authorize the sale of
any property of the corportion/bank..
Our records do not show that Mr. Rivera was authorized by the
old board or by any of the bank conservators (starting January,
1984) to sell the aforesaid property to any of your clients.
Apparently, what took place were just preliminary
discussions/consultations between him and your clients, which
everyone knows cannot bind the Bank's Board or Conservator.
We are, therefore, constrained to refuse any tender of
payment by your clients, as the same is patently violative of
corporate and banking laws. We believe that this is more than
sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your
clients. All our acts are official, legal and in accordance with
law. We also have no personal interest in any of the properties
of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast
and far-reaching powers to the conservator of a bank, it must be
pointed out that such powers must be related to the "(preservation of)
the assets of the bank, (the reorganization of) the management
thereof and (the restoration of) its viability." Such powers, enormous
and extensive as they are, cannot extend to the post-facto repudiation
of perfected transactions, otherwise they would infringe against the
non-impairment clause of the Constitution 44 . If the legislature itself
cannot revoke an existing valid contract, how can it delegate such
non-existent powers to the conservator under Section 28-A of said
law?
Obviously, therefore, Section 28-A merely gives the conservator
power to revoke contracts that are, under existing law, deemed to be
defective — i.e., void, voidable, unenforceable or rescissible. Hence,
the conservator merely takes the place of a bank's board of directors.
What the said board cannot do — such as repudiating a contract
validly entered into under the doctrine of implied authority — the
conservator cannot do either. Ineluctably, his power is not unilateral
and he cannot simply repudiate valid obligations of the Bank. His
authority would be only to bring court actions to assail such contracts
— as he has already done so in the instant case. A contrary
understanding of the law would simply not be permitted by the
Constitution. Neither by common sense. To rule otherwise would be to
enable a failing bank to become solvent, at the expense of third
parties, by simply getting the conservator to unilaterally revoke all
previous dealings which had one way or another or come to be
considered unfavorable to the Bank, yielding nothing to perfected
contractual rights nor vested interests of the third parties who had
dealt with the Bank.
The Fifth Issue: Were There Reversible Errors of Facts?
Basic is the doctrine that in petitions for review under Rule 45 of the
Rules of Court, findings of fact by the Court of Appeals are not
reviewable by the Supreme Court. In Andres vs. Manufacturers
Hanover & Trust Corporation, 45 , we held:
. . . The rule regarding questions of fact being raised with this
Court in a petition for certiorari under Rule 45 of the Revised
175
 Rules of Court has been stated in Remalante vs. Tibe, G.R.
No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be
raised in a petition for certiorari under Rule 45 of the Revised
Rules of Court. "The jurisdiction of the Supreme Court in cases
brought to it from the Court of Appeals is limited to reviewing
and revising the errors of law imputed to it, its findings of the
fact being conclusive " [Chan vs. Court of Appeals, G.R. No. L-
27488, June 30, 1970, 33 SCRA 737, reiterating a long line of
decisions]. This Court has emphatically declared that "it is not
the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed by the
lower court" (Tiongco v. De la Merced, G. R. No. L-24426, July
25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No.
L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of
Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA
596). "Barring, therefore, a showing that the findings
complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute serious
abuse of discretion, such findings must stand, for this Court is
not expected or required to examine or contrast the oral and
documentary evidence submitted by the parties" [Santa Ana,
Jr. vs. Hernandez, G. R. No. L-16394, December 17, 1966, 18
SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals 46 , we held:
The resolution of this petition invites us to closely scrutinize
the facts of the case, relating to the sufficiency of evidence
and the credibility of witnesses presented. This Court so held
that it is not the function of the Supreme Court to analyze or
weigh such evidence all over again. The Supreme Court's
jurisdiction is limited to reviewing errors of law that may have
been committed by the lower court. The Supreme Court is not
a trier of facts. . . .
As held in the recent case of Chua Tiong Tay vs. Court of Appeals
and Goldrock Construction and Development Corp. 47 :
The Court has consistently held that the factual findings of the
trial court, as well as the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts
found by the lower courts is allowed are when the conclusion
is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd,
mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is
premised on a misapprehension of facts; when the findings
went beyond the issues of the case and the same are contrary
to the admissions of both appellant and appellee. After a
careful study of the case at bench, we find none of the above
grounds present to justify the re-evaluation of the findings of
fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South
Sea Surety and Insurance Company Inc. vs. Hon. Court of
Appeals, et al. 48 is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of
the appellate court, . . . (I)t is not the function of this Court to
assess and evaluate all over again the evidence, testimonial
and documentary, adduced by the parties, particularly where,
such as here, the findings of both the trial court and the
appellate court on the matter coincide. (emphasis supplied)
Petitioners, however, assailed the respondent Court's Decision as
"fraught with findings and conclusions which were not only contrary to
the evidence on record but have no bases at all," specifically the
findings that (1) the "Bank's counter-offer price of P5.5 million had
been determined by the past due committee and approved by
conservator Romey, after Rivera presented the same for discussion"
and (2) "the meeting with Co was not to scale down the price and start
negotiations anew, but a meeting on the already determined price of
P5.5 million" Hence, citing Philippine National Bank vs. Court of
Appeals 49 , petitioners are asking us to review and reverse such
factual findings.
176
The first point was clearly passed upon by the Court of Appeals 50 ,
thus:
There can be no other logical conclusion than that when, on
September 1, 1987, Rivera informed plaintiffs by letter that
"the bank's counter-offer is at P5.5 Million for more than 101
hectares on lot basis, "such counter-offer price had been
determined by the Past Due Committee and approved by the
Conservator after Rivera had duly presented plaintiffs' offer for
discussion by the Committee . . . Tersely put, under the
established fact, the price of P5.5 Million was, as clearly
worded in Rivera's letter (Exh. "E"), the official and definitive
price at which the bank was selling the property. (p. 11, CA
Decision)
xxx       xxx       xxx
. . . The argument deserves scant consideration. As pointed
out by plaintiff, during the meeting of September 28, 1987
between the plaintiffs, Rivera and Luis Co, the senior vice-
president of the bank, where the topic was the possible
lowering of the price, the bank official refused it and confirmed
that the P5.5 Million price had been passed upon by the
Committee and could no longer be lowered (TSN of April 27,
1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners
on this point, characterizing it as "not credible" and "at best equivocal
and considering the gratuitous and self-serving character of these
declarations, the bank's submissions on this point do not inspire
belief."
To become credible and unequivocal, petitioners should have
presented then Conservator Rodolfo Romey to testify on their behalf,
as he would have been in the best position to establish their thesis.
Under the rules on evidence 51 , such suppression gives rise to the
presumption that his testimony would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but
petitioners' evidence was deemed insufficient by both the trial court
and the respondent Court, and instead, it was respondent's
submissions that were believed and became bases of the conclusions
arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the
findings of fact by the lower courts are valid and correct. But the
petitioners are now asking this Court to disturb these findings to fit the
conclusion they are espousing, This we cannot do.
To be sure, there are settled exceptions where the Supreme Court
may disregard findings of fact by the Court of Appeals 52 . We have
studied both the records and the CA Decision and we find no such
exceptions in this case. On the contrary, the findings of the said Court
are supported by a preponderance of competent and credible
evidence. The inferences and conclusions are seasonably based on
evidence duly identified in the Decision. Indeed, the appellate court
patiently traversed and dissected the issues presented before it,
lending credibility and dependability to its findings. The best that can
be said in favor of petitioners on this point is that the factual findings
of respondent Court did not correspond to petitioners' claims, but were
closer to the evidence as presented in the trial court by private
respondent. But this alone is no reason to reverse or ignore such
factual findings, particularly where, as in this case, the trial court and
the appellate court were in common agreement thereon. Indeed,
conclusions of fact of a trial judge — as affirmed by the Court of
Appeals — are conclusive upon this Court, absent any serious abuse
or evident lack of basis or capriciousness of any kind, because the
trial court is in a better position to observe the demeanor of the
witnesses and their courtroom manner as well as to examine the real
evidence presented.
Epilogue.
In summary, there are two procedural issues involved forum-shopping
and the raising of issues for the first time on appeal [viz., the
extinguishment of the Bank's offer of P5.5 million and the
conservator's powers to repudiate contracts entered into by the
Bank's officers] — which per se could justify the dismissal of the
177
present case. We did not limit ourselves thereto, but delved as well contracts. Certainly, the Court cannot stamp its imprimatur on such
into the substantive issues — the perfection of the contract of sale outrageous proposition.
and its enforceability, which required the determination of questions of
fact. While the Supreme Court is not a trier of facts and as a rule we WHEREFORE, finding no reversible error in the questioned Decision
are not required to look into the factual bases of respondent Court's and Resolution, the Court hereby DENIES the petition. The assailed
decisions and resolutions, we did so just the same, if only to find out Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED
whether there is reason to disturb any of its factual findings, for we are for engaging in forum-shopping and WARNED that a repetition of the
only too aware of the depth, magnitude and vigor by which the parties same or similar acts will be dealt with more severely. Costs against
through their respective eloquent counsel, argued their positions petitioners.
before this Court.
SO ORDERED.
We are not unmindful of the tenacious plea that the petitioner Bank is
operating abnormally under a government-appointed conservator and Narvasa, C.J., Davide Jr., Melo and Francisco, JJ., concur.
"there is need to rehabilitate the Bank in order to get it back on its feet
. . . as many people depend on (it) for investments, deposits and well
as employment. As of June 1987, the Bank's overdraft with the
Central Bank had already reached P1.023 billion . . . and there were
(other) offers to buy the subject properties for a substantial amount of
money." 53

While we do not deny our sympathy for this distressed bank, at the
same time, the Court cannot emotionally close its eyes to overriding
considerations of substantive and procedural law, like respect for
perfected contracts, non-impairment of obligations and sanctions
against forum-shopping, which must be upheld under the rule of law
and blind justice.

This Court cannot just gloss over private respondent's submission

that, while the subject properties may currently command a much
higher price, it is equally true that at the time of the transaction in
1987, the price agreed upon of P5.5 million was reasonable,
considering that the Bank acquired these properties at a foreclosure FIRST DIVISION
sale for no more than P3.5 million 54 . That the Bank procrastinated G. R. No. 164317             February 6, 2006
and refused to honor its commitment to sell cannot now be used by it ALFREDO CHING, Petitioner,
to promote its own advantage, to enable it to escape its binding vs.
obligation and to reap the benefits of the increase in land values. To THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR
rule in favor of the Bank simply because the property in question has ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of the
algebraically accelerated in price during the long period of litigation is Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL
to reward lawlessness and delays in the fulfillment of binding BANKING CORP. and THE PEOPLE OF THE
PHILIPPINES, Respondents.
178
 DECISION 80 81 moulds
CALLEJO, SR., J.:
2042 01-30- 04-30- P469,669.29 High Fired
Before the Court is a petition for review on certiorari of the 81 81 Refractory Nozzle
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 57169 Bricks
dismissing the petition for certiorari, prohibition and mandamus filed
by petitioner Alfredo Ching, and its Resolution2 dated June 28, 2004 1801 11-21- 02-19- P2,001,715.1 Synthetic Graphite
denying the motion for reconsideration thereof. 80 81 7 Electrode [with]
tapered pitch filed
Petitioner was the Senior Vice-President of Philippine Blooming Mills, nipples
Inc. (PBMI). Sometime in September to October 1980, PBMI, through 1857 12-09- 03-09- P197,843.61 3,000 pcs. (15
petitioner, applied with the Rizal Commercial Banking Corporation 80 81 bundles calorized
(respondent bank) for the issuance of commercial letters of credit to lance pipes [)]
finance its importation of assorted goods.3
1895 12-17- 03-17- P67,652.04 Spare parts for
Respondent bank approved the application, and irrevocable letters of 80 81 Spectrophotomete
credit were issued in favor of petitioner. The goods were purchased r
and delivered in trust to PBMI. Petitioner signed 13 trust receipts4 as
surety, acknowledging delivery of the following goods: 1911 12-22- 03-20- P91,497.85 50 pcs. Ingot
80 81 moulds

T/R Date Maturity Principal Description of 2041 01-30- 04-30- P91,456.97 50 pcs. Ingot
Nos. Granted Date Goods 81 81 moulds

1845 12-05- 03-05- P1,596,470.0 79.9425 M/T 2099 02-10- 05-11- P66,162.26 8 pcs. Kubota
80 81 5 "SDK" Brand 81 81 Rolls for rolling
Synthetic Graphite mills
Electrode
2100 02-10- 05-12- P210,748.00 Spare parts for
1853 12-08- 03-06- P198,150.67 3,000 pcs. (15 81 81 Lacolaboratory
80 81 bundles) Calorized Equipment5
Lance Pipes
1824 11-28- 02-26- P707,879.71 One Lot High Under the receipts, petitioner agreed to hold the goods in trust for the
80 81 Fired Refractory said bank, with authority to sell but not by way of conditional sale,
Tundish Bricks pledge or otherwise; and in case such goods were sold, to turn over
the proceeds thereof as soon as received, to apply against the relative
1798 11-21- 02-19- P835,526.25 5 cases spare acceptances and payment of other indebtedness to respondent bank.
80 81 parts for CCM In case the goods remained unsold within the specified period, the
goods were to be returned to respondent bank without any need of
1808 11-21- 02-19- P370,332.52 200 pcs. ingot demand. Thus, said "goods, manufactured products or proceeds

179
thereof, whether in the form of money or bills, receivables, or
accounts separate and capable of identification" were respondent
bank’s property.
When the trust receipts matured, petitioner failed to return the goods
to respondent bank, or to return their value amounting to
₱6,940,280.66 despite demands. Thus, the bank filed a criminal
complaint for estafa6 against petitioner in the Office of the City
Prosecutor of Manila.
After the requisite preliminary investigation, the City Prosecutor found
probable cause estafa under Article 315, paragraph 1(b) of the
Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115,
otherwise known as the Trust Receipts Law. Thirteen (13)
Informations were filed against the petitioner before the Regional Trial
Court (RTC) of Manila. The cases were docketed as Criminal Cases
No. 86-42169 to 86-42181, raffled to Branch 31 of said court.
Petitioner appealed the resolution of the City Prosecutor to the then
Minister of Justice. The appeal was dismissed in a Resolution7 dated
March 17, 1987, and petitioner moved for its reconsideration. On
December 23, 1987, the Minister of Justice granted the motion, thus
reversing the previous resolution finding probable cause against
petitioner.8 The City Prosecutor was ordered to move for the
withdrawal of the Informations.
This time, respondent bank filed a motion for reconsideration, which,
however, was denied on February 24, 1988.9 The RTC, for its part,
granted the Motion to Quash the Informations filed by petitioner on the
ground that the material allegations therein did not amount to estafa.10
In the meantime, the Court rendered judgment in Allied Banking
Corporation v. Ordoñez,11 holding that the penal provision of P.D. No.
115 encompasses any act violative of an obligation covered by the
trust receipt; it is not limited to transactions involving goods which are
to be sold (retailed), reshipped, stored or processed as a component
of a product ultimately sold. The Court also ruled that "the non-
payment of the amount covered by a trust receipt is an act violative of
the obligation of the entrustee to pay."12
On February 27, 1995, respondent bank re-filed the criminal complaint
for estafa against petitioner before the Office of the City Prosecutor of
Manila. The case was docketed as I.S. No. 95B-07614.
Preliminary investigation ensued. On December 8, 1995, the City
Prosecutor ruled that there was no probable cause to charge
petitioner with violating P.D. No. 115, as petitioner’s liability was only
civil, not criminal, having signed the trust receipts as
surety.13 Respondent bank appealed the resolution to the Department
of Justice (DOJ) via petition for review, alleging that the City
Prosecutor erred in ruling:
1. That there is no evidence to show that respondent
participated in the misappropriation of the goods subject of the
trust receipts;
2. That the respondent is a mere surety of the trust receipts;
and
3. That the liability of the respondent is only civil in nature.14
On July 13, 1999, the Secretary of Justice issued Resolution No.
25015 granting the petition and reversing the assailed resolution of the
City Prosecutor. According to the Justice Secretary, the petitioner, as
Senior Vice-President of PBMI, executed the 13 trust receipts and as
such, was the one responsible for the offense. Thus, the execution of
said receipts is enough to indict the petitioner as the official
responsible for violation of P.D. No. 115. The Justice Secretary also
declared that petitioner could not contend that P.D. No. 115 covers
only goods ultimately destined for sale, as this issue had already been
settled in Allied Banking Corporation v. Ordoñez,16 where the Court
ruled that P.D. No. 115 is "not limited to transactions in goods which
are to be sold (retailed), reshipped, stored or processed as a
component of a product ultimately sold but covers failure to turn over
the proceeds of the sale of entrusted goods, or to return said goods if
unsold or not otherwise disposed of in accordance with the terms of
the trust receipts."
180
The Justice Secretary further stated that the respondent bound
himself under the terms of the trust receipts not only as a corporate
official of PBMI but also as its surety; hence, he could be proceeded
against in two (2) ways: first, as surety as determined by the Supreme
Court in its decision in Rizal Commercial Banking Corporation v. Court
of Appeals;17 and second, as the corporate official responsible for the
offense under P.D. No. 115, via criminal prosecution. Moreover, P.D.
No. 115 explicitly allows the prosecution of corporate officers "without
prejudice to the civil liabilities arising from the criminal offense." Thus,
according to the Justice Secretary, following Rizal Commercial
Banking Corporation, the civil liability imposed is clearly separate and
distinct from the criminal liability of the accused under P.D. No. 115.
Conformably with the Resolution of the Secretary of Justice, the City
Prosecutor filed 13 Informations against petitioner for violation of P.D.
No. 115 before the RTC of Manila. The cases were docketed as
Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial
before Branch 52 of said court. Petitioner filed a motion for
reconsideration, which the Secretary of Justice denied in a
Resolution18 dated January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition and mandamus
with the CA, assailing the resolutions of the Secretary of Justice on
the following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN
HAND AND IN FACT, ARE ACTING OPPRESSIVELY
AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS
PROSECUTION DESPITE THE FACT THAT NO EVIDENCE
HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION
IN THE ALLEGED TRANSACTIONS.
2. THE RESPONDENT SECRETARY OF JUSTICE
COMMITTED AN ACT IN GRAVE ABUSE OF DISCRETION
AND IN EXCESS OF HIS JURISDICTION WHEN THEY
CONTINUED PROSECUTION OF THE PETITIONER
DESPITE THE LENGTH OF TIME INCURRED IN THE
TERMINATION OF THE PRELIMINARY INVESTIGATION
THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT
CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND
ASSISTANT CITY PROSECUTOR ACTED IN GRAVE ABUSE
OF DISCRETION AMOUNTING TO AN EXCESS OF
JURISDICTION WHEN THEY CONTINUED THE
PROSECUTION OF THE PETITIONER DESPITE LACK OF
SUFFICIENT BASIS.19
In his petition, petitioner incorporated a certification stating that "as far
as this Petition is concerned, no action or proceeding in the Supreme
Court, the Court of Appeals or different divisions thereof, or any
tribunal or agency. It is finally certified that if the affiant should learn
that a similar action or proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or different divisions
thereof, of any other tribunal or agency, it hereby undertakes to notify
this Honorable Court within five (5) days from such notice."20
In its Comment on the petition, the Office of the Solicitor General
alleged that -
A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY
RULED THAT PETITIONER ALFREDO CHING IS THE
OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED
AND THAT THE ACTS OF PETITIONER FALL WITHIN THE
AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO
ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONER’S CONTENTION
THAT EXCESSIVE DELAY HAS MARRED THE CONDUCT
OF THE PRELIMINARY INVESTIGATION OF THE CASE,
JUSTIFYING ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI,
PROHIBITION AND MANDAMUS IS NOT THE PROPER
181
 MODE OF REVIEW FROM THE RESOLUTION OF THE
DEPARTMENT OF JUSTICE. THE PRESENT PETITION
MUST THEREFORE BE DISMISSED.21
On April 22, 2004, the CA rendered judgment dismissing the petition
for lack of merit, and on procedural grounds. On the procedural issue,
it ruled that (a) the certification of non-forum shopping executed by
petitioner and incorporated in the petition was defective for failure to
comply with the first two of the three-fold undertakings prescribed in
Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b) the
petition for certiorari, prohibition and mandamus was not the proper
remedy of the petitioner.
On the merits of the petition, the CA ruled that the assailed resolutions
of the Secretary of Justice were correctly issued for the following
reasons: (a) petitioner, being the Senior Vice-President of PBMI and
the signatory to the trust receipts, is criminally liable for violation of
P.D. No. 115; (b) the issue raised by the petitioner, on whether he
violated P.D. No. 115 by his actuations, had already been resolved
and laid to rest in Allied Bank Corporation v. Ordoñez;22 and (c)
petitioner was estopped from raising the
City Prosecutor’s delay in the final disposition of the preliminary
investigation because he failed to do so in the DOJ.
Thus, petitioner filed the instant petition, alleging that:
I divisions thereof, or any tribunal or agency.
THE COURT OF APPEALS ERRED WHEN IT DISMISSED
THE PETITION ON THE GROUND THAT THE
CERTIFICATION OF NON-FORUM SHOPPING
INCORPORATED THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT
NO GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION WAS COMMITTED
BY THE SECRETARY OF JUSTICE IN COMING OUT WITH
THE ASSAILED RESOLUTIONS.23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a
mere technicality. He claims that the rules of procedure should be
used to promote, not frustrate, substantial justice. He insists that the
Rules of Court should be construed liberally especially when, as in
this case, his substantial rights are adversely affected; hence, the
deficiency in his certification of non-forum shopping should not result
in the dismissal of his petition.
The Office of the Solicitor General (OSG) takes the opposite view,
and asserts that indubitably, the certificate of non-forum shopping
incorporated in the petition before the CA is defective because it failed
to disclose essential facts about pending actions concerning similar
issues and parties. It asserts that petitioner’s failure to comply with the
Rules of Court is fatal to his petition. The OSG cited Section 2, Rule
42, as well as the ruling of this Court in Melo v. Court of Appeals.24
We agree with the ruling of the CA that the certification of non-forum
shopping petitioner incorporated in his petition before the appellate
court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action
or proceeding in the Supreme Court, the Court of Appeals or different
It is finally certified that if the affiant should learn that a similar action
or proceeding has been filed or is pending before the Supreme Court,
the Court of Appeals, or different divisions thereof, of any other
tribunal or agency, it hereby undertakes to notify this Honorable Court
within five (5) days from such notice.25
Under Section 1, second paragraph of Rule 65 of the Revised Rules
of Court, the petition should be accompanied by a sworn certification
of non-forum shopping, as provided in the third paragraph of Section
3, Rule 46 of said Rules. The latter provision reads in part:
182
SEC. 3. Contents and filing of petition; effect of non-compliance with
requirements. — The petition shall contain the full names and actual
addresses of all the petitioners and respondents, a concise statement
of the matters involved, the factual background of the case and the
grounds relied upon for the relief prayed for.
xxx
The petitioner shall also submit together with the petition a sworn
certification that he has not theretofore commenced any other action
involving the same issues in the Supreme Court, the Court of Appeals
or different divisions thereof, or any other tribunal or agency; if there is
such other action or proceeding, he must state the status of the same;
and if he should thereafter learn that a similar action or proceeding
has been filed or is pending before the Supreme Court, the Court of
Appeals, or different divisions thereof, or any other tribunal or agency,
he undertakes to promptly inform the aforesaid courts and other
tribunal or agency thereof within five (5) days therefrom. xxx
Compliance with the certification against forum shopping is separate
from and independent of the avoidance of forum shopping itself. The
requirement is mandatory. The failure of the petitioner to comply with
the foregoing requirement shall be sufficient ground for the dismissal
of the petition without prejudice, unless otherwise provided.26
Indubitably, the first paragraph of petitioner’s certification is
incomplete and unintelligible. Petitioner failed to certify that he "had
not heretofore commenced any other action involving the same issues
in the Supreme Court, the Court of Appeals or the different divisions
thereof or any other tribunal or agency" as required by paragraph 4,
Section 3, Rule 46 of the Revised Rules of Court.
We agree with petitioner’s contention that the certification is designed
to promote and facilitate the orderly administration of justice, and
therefore, should not be interpreted with absolute literalness. In his
works on the Revised Rules of Civil Procedure, former Supreme Court
Justice Florenz Regalado states that, with respect to the contents of
the certification which the pleader may prepare, the rule of substantial
compliance may be availed of.27 However, there must be a special
circumstance or compelling reason which makes the strict application
of the requirement clearly unjustified. The instant petition has not
alleged any such extraneous circumstance. Moreover, as worded, the
certification cannot even be regarded as substantial compliance with
the procedural requirement. Thus, the CA was not informed whether,
aside from the petition before it, petitioner had commenced any other
action involving the same issues in other tribunals.
On the merits of the petition, the CA ruled that the petitioner failed to
establish that the Secretary of Justice committed grave abuse of
discretion in finding probable cause against the petitioner for violation
of estafa under Article 315, paragraph 1(b) of the Revised Penal
Code, in relation to P.D. No. 115. Thus, the appellate court
ratiocinated:
Be that as it may, even on the merits, the arguments advanced in
support of the petition are not persuasive enough to justify the desired
conclusion that respondent Secretary of Justice gravely abused its
discretion in coming out with his assailed Resolutions. Petitioner
posits that, except for his being the Senior Vice-President of the
PBMI, there is no iota of evidence that he was a participes crimines in
violating the trust receipts sued upon; and that his liability, if at all, is
purely civil because he signed the said trust receipts merely as a xxx
surety and not as the entrustee. These assertions are, however, too
dull that they cannot even just dent the findings of the respondent
Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part,
viz:
‘xxx If the violation or offense is committed by a corporation,
partnership, association or other judicial entities, the penalty provided
for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the
offense, without prejudice to the civil liabilities arising from the criminal
offense.’
"There is no dispute that it was the respondent, who as senior vice-
president of PBM, executed the thirteen (13) trust receipts. As such,
the law points to him as the official responsible for the offense. Since
a corporation cannot be proceeded against criminally because it
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cannot commit crime in which personal violence or malicious intent is
required, criminal action is limited to the corporate agents guilty of an
act amounting to a crime and never against the corporation itself
(West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v.
Reyes, 39 SCRA 303). Thus, the execution by respondent of said
receipts is enough to indict him as the official responsible for violation
of PD 115.
"Parenthetically, respondent is estopped to still contend that PD 115
covers only goods which are ultimately destined for sale and not
goods, like those imported by PBM, for use in manufacture. This issue
has already been settled in the Allied Banking Corporation case,
supra, where he was also a party, when the Supreme Court ruled that
PD 115 is ‘not limited to transactions in goods which are to be sold
(retailed), reshipped, stored or processed as a component or a
product ultimately sold’ but ‘covers failure to turn over the proceeds of
the sale of entrusted goods, or to return said goods if unsold or
disposed of in accordance with the terms of the trust receipts.’
"In regard to the other assigned errors, we note that the respondent
bound himself under the terms of the trust receipts not only as a
corporate official of PBM but also as its surety. It is evident that these
are two (2) capacities which do not exclude the other. Logically, he
can be proceeded against in two (2) ways: first, as surety as
determined by the Supreme Court in its decision in RCBC vs. Court of
Appeals, 178 SCRA 739; and, secondly, as the corporate official
responsible for the offense under PD 115, the present case is an
appropriate remedy under our penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate
officers ‘without prejudice to the civil liabilities arising from the criminal
offense’ thus, the civil liability imposed on respondent in RCBC vs.
Court of Appeals case is clearly separate and distinct from his criminal
liability under PD 115.’"28
Petitioner asserts that the appellate court’s ruling is erroneous
because (a) the transaction between PBMI and respondent bank is
not a trust receipt transaction; (b) he entered into the transaction and
was sued in his capacity as PBMI Senior Vice-President; (c) he never
received the goods as an entrustee for PBMI, hence, could not have
committed any dishonesty or abused the confidence of respondent
bank; and (d) PBMI acquired the goods and used the same in
operating its machineries and equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:
34. Petitioner further claims that he is not a person responsible for the
offense allegedly because "[b]eing charged as the Senior Vice-
President of Philippine Blooming Mills (PBM), petitioner cannot be
held criminally liable as the transactions sued upon were clearly
entered into in his capacity as an officer of the corporation" and that
[h]e never received the goods as an entrustee for PBM as he never
had or took possession of the goods nor did he commit dishonesty nor
"abuse of confidence in transacting with RCBC." Such argument is
bereft of merit.
35. Petitioner’s being a Senior Vice-President of the Philippine
Blooming Mills does not exculpate him from any liability. Petitioner’s
responsibility as the corporate official of PBM who received the goods
in trust is premised on Section 13 of P.D. No. 115, which provides:
Section 13. Penalty Clause. The failure of an entrustee to turn over
the proceeds of the sale of the goods, documents or instruments
covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article Three
hundred and fifteen, paragraph one (b) of Act Numbered Three
thousand eight hundred and fifteen, as amended, otherwise known as
the Revised Penal Code. If the violation or offense is committed by a
corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense. (Emphasis supplied)
36. Petitioner having participated in the negotiations for the trust
receipts and having received the goods for PBM, it was inevitable that
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the petitioner is the proper corporate officer to be proceeded against
by virtue of the PBM’s violation of P.D. No. 115.29
The ruling of the CA is correct.
In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court
held that the acts of a quasi-judicial officer may be assailed by the
aggrieved party via a petition for certiorari and enjoined (a) when
necessary to afford adequate protection to the constitutional rights of
the accused; (b) when necessary for the orderly administration of
justice; (c) when the acts of the officer are without or in excess of
authority; (d) where the charges are manifestly false and motivated by
the lust for vengeance; and (e) when there is clearly no prima facie
case against the accused.31 The Court also declared that, if the officer
conducting a preliminary investigation (in that case, the Office of the
Ombudsman) acts without or in excess of his authority and resolves to
file an Information despite the absence of probable cause, such act
may be nullified by a writ of certiorari.32
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal
Procedure,33 the Information shall be prepared by the Investigating
Prosecutor against the respondent only if he or she finds probable
cause to hold such respondent for trial. The Investigating Prosecutor
acts without or in excess of his authority under the Rule if the
Information is filed against the respondent despite absence of
evidence showing probable cause therefor.34 If the Secretary of
Justice reverses the Resolution of the Investigating Prosecutor who
found no probable cause to hold the respondent for trial, and orders
such prosecutor to file the Information despite the absence of
probable cause, the Secretary of Justice acts contrary to law, without
authority and/or in excess of authority. Such resolution may likewise
be nullified in a petition for certiorari under Rule 65 of the Revised
Rules of Civil Procedure.35
A preliminary investigation, designed to secure the respondent
against hasty, malicious and oppressive prosecution, is an inquiry to
determine whether (a) a crime has been committed; and (b) whether
there is probable cause to believe that the accused is guilty thereof. It
is a means of discovering the person or persons who may be
reasonably charged with a crime. Probable cause need not be based
on clear and convincing evidence of guilt, as the investigating officer
acts upon probable cause of reasonable belief. Probable cause
implies probability of guilt and requires more than bare suspicion but
less than evidence which would justify a conviction. A finding of
probable cause needs only to rest on evidence showing that more
likely than not, a crime has been committed by the suspect.36
However, while probable cause should be determined in a summary
manner, there is a need to examine the evidence with care to prevent
material damage to a potential accused’s constitutional right to liberty
and the guarantees of freedom and fair play37 and to protect the State
from the burden of unnecessary expenses in prosecuting alleged
offenses and holding trials arising from false, fraudulent or groundless
charges.38
In this case, petitioner failed to establish that the Secretary of Justice
committed grave abuse of discretion in issuing the assailed
resolutions. Indeed, he acted in accord with law and the evidence.
Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:
Section 4. What constitutes a trust receipt transaction. A trust receipt
transaction, within the meaning of this Decree, is any transaction by
and between a person referred to in this Decree as the entruster, and
another person referred to in this Decree as entrustee, whereby the
entruster, who owns or holds absolute title or security interests over
certain specified goods, documents or instruments, releases the same
to the possession of the entrustee upon the latter’s execution and
delivery to the entruster of a signed document called a "trust receipt"
wherein the entrustee binds himself to hold the designated goods,
documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof to the
extent of the amount owing to the entruster or as appears in the trust
receipt or the goods, documents or instruments themselves if they are
unsold or not otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt, or for other purposes
substantially equivalent to any of the following:
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 1. In case of goods or documents, (a) to sell the goods or
procure their sale; or (b) to manufacture or process the goods
with the purpose of ultimate sale; Provided, That, in the case
of goods delivered under trust receipt for the purpose of
manufacturing or processing before its ultimate sale, the
entruster shall retain its title over the goods whether in its
original or processed form until the entrustee has complied
fully with his obligation under the trust receipt; or (c) to load,
unload, ship or otherwise deal with them in a manner
preliminary or necessary to their sale; or
2. In the case of instruments a) to sell or procure their sale or
exchange; or b) to deliver them to a principal; or c) to effect the
consummation of some transactions involving delivery to a
depository or register; or d) to effect their presentation,
collection or renewal.
The sale of goods, documents or instruments by a person in the
business of selling goods, documents or instruments for profit who, at
the outset of the transaction, has, as against the buyer, general
property rights in such goods, documents or instruments, or who sells
the same to the buyer on credit, retaining title or other interest as
security for the payment of the purchase price, does not constitute a
trust receipt transaction and is outside the purview and coverage of
this Decree.
An entrustee is one having or taking possession of goods, documents
or instruments under a trust receipt transaction, and any successor in
interest of such person for the purpose of payment specified in the
trust receipt agreement.39 The entrustee is obliged to: (1) hold the
goods, documents or instruments in trust for the entruster and shall
dispose of them strictly in accordance with the terms and conditions of
the trust receipt; (2) receive the proceeds in trust for the entruster and
turn over the same to the entruster to the extent of the amount owing
to the entruster or as appears on the trust receipt; (3) insure the
goods for their total value against loss from fire, theft, pilferage or
other casualties; (4) keep said goods or proceeds thereof whether in
money or whatever form, separate and capable of identification as
property of the entruster; (5) return the goods, documents or
instruments in the event of non-sale or upon demand of the entruster;
and (6) observe all other terms and conditions of the trust receipt not
contrary to the provisions of the decree.40
The entruster shall be entitled to the proceeds from the sale of the
goods, documents or instruments released under a trust receipt to the
entrustee to the extent of the amount owing to the entruster or as
appears in the trust receipt, or to the return of the goods, documents
or instruments in case of non-sale, and to the enforcement of all other
rights conferred on him in the trust receipt; provided, such are not
contrary to the provisions of the document.41
In the case at bar, the transaction between petitioner and respondent
bank falls under the trust receipt transactions envisaged in P.D. No.
115. Respondent bank imported the goods and entrusted the same to
PBMI under the trust receipts signed by petitioner, as entrustee, with
the bank as entruster. The agreement was as follows:
And in consideration thereof, I/we hereby agree to hold said goods in
trust for the said BANK as its property with liberty to sell the same
within ____days from the date of the execution of this Trust Receipt
and for the Bank’s account, but without authority to make any other
disposition whatsoever of the said goods or any part thereof (or the
proceeds) either by way of conditional sale, pledge or otherwise.
I/we agree to keep the said goods insured to their full value against
loss from fire, theft, pilferage or other casualties as directed by the
BANK, the sum insured to be payable in case of loss to the BANK,
with the understanding that the BANK is, not to be chargeable with the
storage premium or insurance or any other expenses incurred on said
goods.
In case of sale, I/we further agree to turn over the proceeds thereof as
soon as received to the BANK, to apply against the relative
acceptances (as described above) and for the payment of any other
indebtedness of mine/ours to the BANK. In case of non-sale within the
period specified herein, I/we agree to return the goods under this
Trust Receipt to the BANK without any need of demand.
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I/we agree to keep the said goods, manufactured products or
proceeds thereof, whether in the form of money or bills, receivables,
or accounts separate and capable of identification as property of the
BANK.42
It must be stressed that P.D. No. 115 is a declaration by legislative
authority that, as a matter of public policy, the failure of person to turn
over the proceeds of the sale of the goods covered by a trust receipt
or to return said goods, if not sold, is a public nuisance to be abated
by the imposition of penal sanctions.43
The Court likewise rules that the issue of whether P.D. No. 115
encompasses transactions involving goods procured as a component
of a product ultimately sold has been resolved in the affirmative in
Allied Banking Corporation v. Ordoñez.44 The law applies to goods
used by the entrustee in the operation of its machineries and
equipment. The non-payment of the amount covered by the trust
receipts or the non-return of the goods covered by the receipts, if not
sold or otherwise not disposed of, violate the entrustee’s obligation to
pay the amount or to return the goods to the entruster.
In Colinares v. Court of Appeals,45 the Court declared that there are
two possible situations in a trust receipt transaction. The first is
covered by the provision which refers to money received under the
obligation involving the duty to deliver it (entregarla) to the owner of
the merchandise sold. The second is covered by the provision which
refers to merchandise received under the obligation to return it
(devolvera) to the owner.46 Thus, failure of the entrustee to turn over
the proceeds of the sale of the goods covered by the trust receipts to
the entruster or to return said goods if they were not disposed of in
accordance with the terms of the trust receipt is a crime under P.D.
No. 115, without need of proving intent to defraud. The law punishes
dishonesty and abuse of confidence in the handling of money or
goods to the prejudice of the entruster, regardless of whether the
latter is the owner or not. A mere failure to deliver the proceeds of the
sale of the goods, if not sold, constitutes a criminal offense that
causes prejudice, not only to another, but more to the public interest.47
The Court rules that although petitioner signed the trust receipts
merely as Senior Vice-President of PBMI and had no physical
possession of the goods, he cannot avoid prosecution for violation of
P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over
the proceeds of the sale of the goods, documents or instruments
covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article Three
hundred and fifteen, paragraph one (b) of Act Numbered Three
thousand eight hundred and fifteen, as amended, otherwise known as
the Revised Penal Code.1âwphi1 If the violation or offense is
committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon
the directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense.
The crime defined in P.D. No. 115 is malum prohibitum but is
classified as estafa under paragraph 1(b), Article 315 of the Revised
Penal Code, or estafa with abuse of confidence. It may be committed
by a corporation or other juridical entity or by natural persons.
However, the penalty for the crime is imprisonment for the periods
provided in said Article 315, which reads:
ARTICLE 315. Swindling (estafa). – Any person who shall defraud
another by any of the means mentioned hereinbelow shall be
punished by:
1st. The penalty of prision correccional in its maximum period
to prision mayor in its minimum period, if the amount of the
fraud is over 12,000 pesos but does not exceed 22,000 pesos;
and if such amount exceeds the latter sum, the penalty
provided in this paragraph shall be imposed in its maximum
period, adding one year for each additional 10,000 pesos; but
the total penalty which may be imposed shall not exceed
twenty years. In such cases, and in connection with the
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 accessory penalties which may be imposed and for the
purpose of the other provisions of this Code, the penalty shall
be termed prision mayor or reclusion temporal, as the case
may be;
2nd. The penalty of prision correccional in its minimum and
medium periods, if the amount of the fraud is over 6,000 pesos
but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to
prision correccional in its minimum period, if such amount is
over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum periods, if such
amount does not exceed 200 pesos, provided that in the four cases
mentioned, the fraud be committed by any of the following means; xxx
Though the entrustee is a corporation, nevertheless, the law
specifically makes the officers, employees or other officers or persons
responsible for the offense, without prejudice to the civil liabilities of
such corporation and/or board of directors, officers, or other officials
or employees responsible for the offense. The rationale is that such
officers or employees are vested with the authority and responsibility
to devise means necessary to ensure compliance with the law and, if
they fail to do so, are held criminally accountable; thus, they have a
responsible share in the violations of the law.48
If the crime is committed by a corporation or other juridical entity, the
directors, officers, employees or other officers thereof responsible for
the offense shall be charged and penalized for the crime, precisely
because of the nature of the crime and the penalty therefor. A
corporation cannot be arrested and imprisoned; hence, cannot be
penalized for a crime punishable by imprisonment.49 However, a
corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute prescribes both fine and
imprisonment as penalty, a corporation may be prosecuted and, if
found guilty, may be fined.50
A crime is the doing of that which the penal code forbids to be done,
or omitting to do what it commands. A necessary part of the definition
of every crime is the designation of the author of the crime upon
whom the penalty is to be inflicted. When a criminal statute
designates an act of a corporation or a crime and prescribes
punishment therefor, it creates a criminal offense which, otherwise,
would not exist and such can be committed only by the corporation.
But when a penal statute does not expressly apply to corporations, it
does not create an offense for which a corporation may be punished.
On the other hand, if the State, by statute, defines a crime that may
be committed by a corporation but prescribes the penalty therefor to
be suffered by the officers, directors, or employees of such
corporation or other persons responsible for the offense, only such
individuals will suffer such penalty.51 Corporate officers or employees,
through whose act, default or omission the corporation commits a
crime, are themselves individually guilty of the crime.52
The principle applies whether or not the crime requires the
consciousness of wrongdoing. It applies to those corporate agents
who themselves commit the crime and to those, who, by virtue of their
managerial positions or other similar relation to the corporation, could
be deemed responsible for its commission, if by virtue of their
relationship to the corporation, they had the power to prevent the
act.53 Moreover, all parties active in promoting a crime, whether
agents or not, are principals.54 Whether such officers or employees
are benefited by their delictual acts is not a touchstone of their
criminal liability. Benefit is not an operative fact.
In this case, petitioner signed the trust receipts in question. He
cannot, thus, hide behind the cloak of the separate corporate
personality of PBMI. In the words of Chief Justice Earl Warren, a
corporate officer cannot protect himself behind a corporation where he
is the actual, present and efficient actor.55
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack
of merit. Costs against the petitioner.
SO ORDERED.
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ROMEO J. CALLEJO, SR.
Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

CONSUELO YNARES- MA. ALICIA AUSTRIA-

SANTIAGO MARTINEZ
Associate Justice Asscociate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby

certified 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.

ARTEMIO V. PANGANIBAN
Chief Justice

189