HUTCHISON PORTS PHILIPPINES LIMITED, petitioner, vs.

 SUBIC BAY METROPOLITAN AUTHORITY,

INTERNATIONAL CONTAINER TERMINAL SERVICES INC., ROYAL PORT SERVICES INC. and the
EXECUTIVE SECRETARY, respondents.

DECISION
YNARES-SANTIAGO, J.:

On February 12, 1996, the Subic Bay Metropolitan Authority (or SBMA) advertised in leading national daily newspapers
and in one international publication, [1] an invitation offering to the private sector the opportunity to develop and operate a modern
marine container terminal within the Subic Bay Freeport Zone. Out of seven bidders who responded to the published invitation,
three were declared by the SBMA as qualified bidders after passing the pre-qualification evaluation conducted by the SBMAs
Technical Evaluation Committee (or SBMA-TEC).These are: (1) International Container Terminal Services, Inc. (or ICTSI); (2)
a consortium consisting of Royal Port Services, Inc. and HPC Hamburg Port Consulting GMBH (or RPSI); and (3) Hutchison
Ports Philippines Limited (or HPPL), representing a consortium composed of HPPL, Guoco Holdings (Phils.), Inc. and Unicol
Management Services, Inc. All three qualified bidders were required to submit their respective formal bid package on or before
July 1, 1996 by the SBMAs Pre-qualification, Bids and Awards Committee (or SBMA-PBAC).
Thereafter, the services of three (3) international consultants [2] recommended by the World Bank for their expertise were
hired by SBMA to evaluate the business plans submitted by each of the bidders, and to ensure that there would be a transparent
and comprehensive review of the submitted bids. The SBMA also hired the firm of Davis, Langdon and Seah Philippines, Inc. to
assist in the evaluation of the bids and in the negotiation process after the winning bidder is chosen. All the consultants, after such
review and evaluation unanimously concluded that HPPLs Business Plan was far superior to that of the two other bidders. [3]
However, even before the sealed envelopes containing the bidders proposed royalty fees could be opened at the appointed
time and place, RPSI formally protested that ICTSI is legally barred from operating a second port in the Philippines based on
Executive Order No. 212 and Department of Transportation and Communication (DOTC) Order 95-863. RPSI thus requested that
the financial bid of ICTSI should be set aside.[4]
Nevertheless, the opening of the sealed financial bids proceeded under advisement relative to the protest signified by
RPSI. The financial bids, more particularly the proposed royalty fee of each bidder, was as follows:

ICTSI ------------US$57.80 TEU

HPPL ------------US$20.50 TEU

RPSI -------------US$15.08 TEU

The SBMA-PBAC decided to suspend the announcement of the winning bid, however, and instead gave ICTSI seven (7) days
within which to respond to the letter-protest lodged by RPSI.The HPPL joined in RPSIs protest, stating that ICTSI should be
disqualified because it was already operating the Manila International Container Port (or MICP), which would give rise to
inevitable conflict of interest between the MICP and the Subic Bay Container Terminal facility. [5]
On August 15, 1996, the SBMA-PBAC issued a resolution rejecting the bid of ICTSI because said bid does not comply
with the requirements of the tender documents and the laws of the Philippines. The said resolution also declared that:

RESOLVED FURTHER, that the winning bid be awarded to HUTCHISON PORTS PHILIPPINES LIMITED (HPPL) and
that negotiations commence immediately with HPPL (HUTCHISON) with a view to concluding an acceptable agreement within
45 days of this date failing which negotiations with RPSI (ROYAL) will commence with a view to concluding an acceptable
agreement within 45 days thereafter failing which there will be declared a failure of bids. [6] (Underscoring supplied)

The following day, ICTSI filed a letter-appeal with SBMAs Board of Directors requesting the nullification and reversal of
the above-quoted resolution rejecting ICTSIs bid while awarding the same to HPPL. But even before the SBMA Board could act
on the appeal, ICTSI filed a similar appeal before the Office of the President. [7] On August 30, 1996, then Chief Presidential
Legal Counsel (CPLC) Renato L. Cayetano submitted a memorandum to then President Fidel V. Ramos, containing the following
recommendations:

We therefore suggest that the President direct SBMA Chairman Gordon to consider option number 4 that is to re-evaluate the
financial bids submitted by the parties, taking into consideration all the following factors:

1. Reinstate ICTSIs bid;

2. Disregard all arguments relating to monopoly;

3. The re-evaluation must be limited to the parties financial bids.

3.1 Considering that the parties business have been accepted (passed), strictly follow the criteria for bid
evaluation provided for in pars. (c) and (d), Part B (1) of the Tender Document.

4. In the re-evaluation, the COA should actively participate to determine which of the financial bids is more advantageous.

5. In addition, all the parties should be given ample opportunity to elucidate or clarify the components/justification for their
respective financial bids in order to ensure fair play and transparency in the proceedings.

6. The Presidents authority to review the final award shall remain. [8] (Underscoring supplied)

The recommendation of CPLC Cayetano was approved by President Ramos, and a copy of President Ramos handwritten
approval was sent to the SBMA Board of Directors.Accordingly, the SBMA Board, with the concurrence of representatives of
the Commission on Audit, agreed to focus the reevaluation of the bids in accordance with the evaluation criteria and the detailed
components contained in the Tender Document, including all relevant information gleaned from the bidding documents, as well
as the reports of the three international experts and the consultancy firm hired by the SBMA.
On September 19, 1996, the SBMA Board issued a Resolution, declaring:

NOW, THEREFORE, IT IS HEREBY RESOLVED that the bid that conforms to the Invitation to Tender, that has a realistic
Business Plan offering the greatest financial return to SBMA, the best possible offer and the most advantageous to the
government is that of HPPL and HPPL is accordingly selected as the winning bidder and is hereby awarded the concession for
the operation and development of the Subic Bay Container Terminal. [9] (Underscoring supplied)

In a letter dated September 24, 1996, the SBMA Board of Directors submitted to the Office of the President the results of
the re-evaluation of the bid proposals, to wit:

SBMA, through the unanimous vote of all the Board Members, excluding the Chairman of the Board who voluntarily inhibited
himself from participating in the re-evaluation, selected the HPPL bid as the winning bid, being: the conforming bid with a
realistic Business Plan offering the greatest financial return to the SBMA; the best possible offer in the market, and the most
advantageous to the government in accordance with the Tender Document. [10]

Notwithstanding the SBMA Boards recommendations and action awarding the project to HPPL, then Executive Secretary
Ruben Torres submitted a memorandum to the Office of the President recommending that another rebidding be conducted.
[11]
 Consequently, the Office of the President issued a Memorandum directing the SBMA Board of Directors to refrain from
signing the Concession Contract with HPPL and to conduct a rebidding of the project. [12]
In the meantime, the Resident Ombudsman for the DOTC filed a complaint against members of the SBMA-PBAC before
the Office of the Ombudsman for alleged violation of Section 3(e) of Republic Act No. 3019 for awarding the contract to
HPPL. On April 16, 1997, the Evaluation and Preliminary Investigation Bureau of the Office of the Ombudsman issued a
Resolution absolving the members of the SBMA-PBAC of any liability and dismissing the complaint against them, ruling thus:

After an assiduous study of the respective contentions of both parties, we are inclined to hold, as it is hereby held, that there is no
proof on record pinpointing respondents to have acted in excess of their discretion when they awarded the bid to HPPL. Records
revealed that respondents, in the exercise of their discretion in determining the financial packages offered by the applicants, were
guided by the expert report of Davis, Langdon and Seah (DLS) that fairly evaluated which of the bidders tender the greatest
financial return to the government. There is no showing that respondents had abused their prerogatives. As succinctly set forth in
the DLS report it stated, among others, that, in assessing the full financial return to SBMA offered by the bidders, it is necessary
to consider the following critical matters:

1. Royalty fees

2. Volume of TEUs as affected by:

a. Tariff rates;

b. Marketing strategy;

c. Port facilities; and

d. Efficient reliable services.

With the preceding parameters for the evaluation of bidders business plan, the respondents were fairly guided by, as they aligned
their judgment in congruence with, the opinion of the panel of experts and the SBMAs Technical Evaluation Committee to the
effect that HPPLs business is superior while that of ICTSIs appeared to be unrealistically high which may eventually hinder the
competitiveness of the SBMA port with the rest of the world. Respondents averred that the panel of World Bank experts noted
that ICTSIs high tariff rates at U.S. $119.00 per TEU is already higher by 37% through HPPL, which could further increase by
20% in the first two (2) years and by 5% hike thereafter. In short, high tariffs would discourage potential customers which may
be translated into low cargo volume that will eventually reduce financial return to SBMA. Respondents asserted that HPPLs
business plan offers the greatest financial return which could be equated that over the five years, HPPL offers 1.25 billion pesos
while ICTSI offers P0.859 billion, and RPSI offers P.420 billion. Over the first ten years HPPL gives P2.430 billion, ICTSI
tenders P2.197 billion and RPSI has P1.632 billion.

Viewed from this perspective alongside with the evidence on record, the undersigned panel does not find respondents to have
exceeded their discretion in awarding the bid to HPPL.Consequently, it could not be said that respondents act had placed the
government at a grossly disadvantageous plight that could have jeopardized the interest of the Republic of the Philippines. [13]

On July 7, 1997, the HPPL, feeling aggrieved by the SBMAs failure and refusal to commence negotiations and to execute
the Concession Agreement despite its earlier pronouncements that HPPL was the winning bidder, filed a complaint [14] against
SBMA before the Regional Trial Court (RTC) of Olongapo City, Branch 75, for specific performance, mandatory injunction and
damages. In due time, ICTSI, RPSI and the Office of the President filed separate Answers-in-Intervention [15] to the complaint
opposing the reliefs sought by complainant HPPL.
Complainant HPPL alleged and argued therein that a binding and legally enforceable contract had been established between
HPPL and defendant SBMA under Article 1305 of the Civil Code, considering that SBMA had repeatedly declared and
confirmed that HPPL was the winning bidder. Having accepted HPPLs offer to operate and develop the proposed container
terminal, defendant SBMA is duty-bound to comply with its obligation by commencing negotiations and drawing up a
Concession Agreement with plaintiff HPPL. HPPL also pointed out that the bidding procedure followed by the SBMA faithfully
complied with existing laws and rules established by SBMA itself; thus, when HPPL was declared the winning bidder it acquired
the exclusive right to negotiate with the SBMA. Consequently, plaintiff HPPL posited that SBMA should be: (1) barred from
conducting a re-bidding of the proposed project and/or performing any such acts relating thereto; and (2) prohibited from
negotiating with any party other than plaintiff HPPL until negotiations between HPPL and SBMA have been concluded or in the
event that no acceptable agreement could be arrived at. Plaintiff HPPL also alleged that SBMAs continued refusal to negotiate
the Concession Contract is a substantial infringement of its proprietary rights, and caused damage and prejudice to plaintiff
HPPL.
Hence, HPPL prayed that:

(1) Upon the filing of this complaint, hearings be scheduled to determine the propriety of plaintiffs mandatory injunction
application which seeks to order defendant or any of its appropriate officers or committees to forthwith specify the date as well as
to perform any and all such acts (e.g. laying the ground rules for discussion) for the commencement of negotiations with plaintiff
with the view to signing at the earliest possible time a Concession Agreement for the development and operation of the Subic
Bay Container Terminal.

(2) Thereafter, judgment be rendered in favor of plaintiff and against defendant:

2.1. Making permanent the preliminary mandatory injunction it had issued;

2.2. Ordering defendant to implement the Concession Agreement it had executed with plaintiff in respect of the development and
operation of the proposed Subic Bay Container Terminal;

2.3. Ordering defendant to pay for the cost of plaintiffs attorneys fees in the amount of P500,000.00, or as otherwise proven
during the trial.

Plaintiff prays for other equitable reliefs.[16]

During the pre-trial hearing, one of the issues raised and submitted for resolution was whether or not the Office of the
President can set aside the award made by SBMA in favor of plaintiff HPPL and if so, can the Office of the President direct the
SBMA to conduct a re-bidding of the proposed project.
While the case before the trial court was pending litigation, on August 4, 1997, the SBMA sent notices to plaintiff HPPL,
ICTSI and RPSI requesting them to declare their interest in participating in a rebidding of the proposed project. [17] On October 20,
1997, plaintiff HPPL received a copy of the minutes of the pre-bid conference which stated that the winning bidder would be
announced on December 5, 1997. [18] Then on November 4, 1997, plaintiff HPPL learned that the SBMA had accepted the bids of
ICTSI and RPSI who were the only bidders who qualified.
In order to enjoin the rebidding while the case was still pending, plaintiff HPPL filed a motion for maintenance of
the status quo[19] on October 28, 1997. The said motion was denied by the court a quo in an Order dated November 3, 1997, to
wit:

Plaintiff maintains that by voluntarily participating in this proceedings, the defendant and the intervenors have unqualifiedly
agreed to submit the issue of the propriety, legality and validity of the Office of the Presidents directive that the SBMA effect a
rebidding of its concession contract or the operation of the Subic Bay Container Terminal. As such, the status quo must be
maintained in order not to thwart the courts ability to resolve the issues presented. Further, the ethics of the profession require
that counsel should discontinue any act which tends to render the issues academic.

The Opposition is anchored on lack of jurisdiction since the issuance of a cease-and-desist order would be tantamount to the
issuance of a Temporary Restraining Order or a Writ of Injunction which this Court cannot do in light of the provision of Section
21 of R.A. 7227 which states:

Section 21. Injunction and Restraining Order. The implementation of the projects for the conversion into alternative productive
uses of the military reservations are urgent and necessary and shall not be restrained or enjoined except by an order issued by the
Supreme Court of the Philippines.

During the hearing on October 30, 1997, SBMAs counsel revealed that there is no law or administrative rule or regulation which
requires that a bidding be accomplished within a definite time frame.

Truly, the matter of the deferment of the re-bidding on November 4, 1997 rests on the sound discretion of the SBMA. For this
Court to issue a cease-and-desist order would be tantamount to an issuance of a Temporary Restraining Order or a Writ of
Preliminary Injunction. (Prado v. Veridiano II, G.R. No. 98118, December 6, 1991).

The Court notes that the Office of the President has not been heard fully on the issues. Moreover, one of the intervenors is of the
view that the issue of jurisdiction must be resolved first, ahead of all the other issues.

WHEREFORE, and viewed from the foregoing considerations, plaintiffs motion is DENIED.

SO ORDERED.[20] (Underscoring supplied)

Hence, this petition filed by petitioner (plaintiff below) HPPL against respondents SBMA, ICTSI, RPSI and the Executive
Secretary seeking to obtain a prohibitory injunction. The grounds relied upon by petitioner HPPL to justify the filing of the
instant petition are summed up as follows:

29. It is respectfully submitted that to allow or for this Honorable Court to otherwise refrain from restraining SBMA, during the
pendency of this suit, from committing the aforementioned act(s) which will certainly occur on 5 December 1997 such action (or
inaction) will work an injustice upon petitioner which has validly been announced as the winning bidder for the operation of the
Subic Bay Container Terminal.

30. To allow or for this Honorable Court to otherwise refrain from restraining SBMA, during the pendency of this suit, from
committing the aforementioned threatened acts would be in violation of petitioners rights in respect of the action it had filed
before the RTC of Olongapo City in Civil Case No. 243-O-97, and could render any judgment which may be reached by said
Court moot and ineffectual. As stated, the legal issues raised by the parties in that proceedings are of far reaching importance to
the national pride and prestige, and they impact on the integrity of government agencies engaged in international bidding of
privatization projects. Its resolution on the merits by the trial court below and, thereafter, any further action to be taken by the
parties before the appellate courts will certainly benefit respondents and the entire Filipino people. [21]

WHEREFORE, petitioner HPPL sought relief praying that:

a) Upon the filing of this petition, the same be given due course and a temporary restraining order and/or writ of preliminary
injunction be issued ex parte, restraining SBMA or any of its committees, or other persons acting under its control or direction or
upon its instruction, from declaring any winner on 5 December 1997 or at any other date thereafter, in connection with the
rebidding for the privatization of the Subic Bay Container Terminal and/or for any, some or all of the respondents to perform any
such act(s) in pursuance thereof, until further orders from this Honorable Court;

b) After appropriate proceedings, judgment be rendered in favor of petitioner and against respondents --

(1) Ordering SBMA to desist from conducting any rebidding or in declaring the winner of any such rebidding in respect of the
development and operation of the Subic Bay Container Terminal until the judgment which the RTC of Olongapo City may render
in Civil Case No. 243-O-97 is resolved with finality;

(2) Declaring null and void any award which SBMA may announce or issue on 5 December 1997; and

(3) Ordering respondents to pay for the cost of suit.

Petitioner prays for other equitable reliefs. [22]

The instant petition seeks the issuance of an injunctive writ for the sole purpose of holding in abeyance the conduct by
respondent SBMA of a rebidding of the proposed SBICT project until the case for specific performance is resolved by the trial
court. In other words, petitioner HPPL prays that the status quo be preserved until the issues raised in the main case are litigated
and finally determined. Petitioner was constrained to invoke this Courts exclusive jurisdiction and authority by virtue of the
above-quoted Republic Act 7227, Section 21.
On December 3, 1997, this Court granted petitioner HPPLs application for a temporary restraining order enjoining the
respondent SBMA or any of its committees, or other persons acting under its control or direction or upon its instruction, from
declaring any winner on December 5, 1997 or at any other date thereafter, in connection with the rebidding for the privatization
of the Subic Bay Container Terminal and/or for any, some or all of the respondents to perform any such act or acts in pursuance
thereof.[23]
There is no doubt that since this controversy arose, precious time has been lost and a vital infrastructure project has in
essense been mothballed to the detriment of all parties involved, not the least of which is the Philippine Government, through its
officials and agencies, who serve the interest of the nation. It is, therefore, imperative that the issues raised herein and in the
court a quo be resolved without further delay so as not to exacerbate an already untenable situation.
At the outset, the application for the injunctive writ is only a provisional remedy, a mere adjunct to the main suit. [24] Thus, it
is not uncommon that the issues in the main action are closely intertwined, if not identical, to the allegations and counter
allegations propounded by the opposing parties in support of their contrary positions concerning the propriety or impropriety of
the injunctive writ. While it is not our intention to preempt the trial courts determination of the issues in the main action for
specific performance, this Court has a bounden duty to perform; that is, to resolve the matters before this Court in a manner that
gives essence to justice, equity and good conscience.
While our pronouncements are for the purpose only of determining whether or not the circumstances warrant the issuance
of the writ of injunction, it is inevitable that it may have some impact on the main action pending before the trial
court. Nevertheless, without delving into the merits of the main case, our findings herein shall be confined to the necessary issues
attendant to the application for an injunctive writ.
For an injunctive writ to be issued, the following requisites must be proven:

First. That the petitioner/applicant must have a clear and unmistakable right.

Second. That there is a material and substantial invasion of such right.

Third. That there is an urgent and permanent necessity for the writ to prevent serious damage. [25]

To our mind, petitioner HPPL has not sufficiently shown that it has a clear and unmistakable right to be declared the
winning bidder with finality, such that the SBMA can be compelled to negotiate a Concession Contract.  Though the SBMA
Board of Directors, by resolution, may have declared HPPL as the winning bidder, said award cannot be said to be final and
unassailable. The SBMA Board of Directors and other officers are subject to the control and supervision of the Office of the
President. All projects undertaken by SBMA require the approval of the President of the Philippines under Letter of Instruction
No. 620, which places the SBMA under its ambit as an instrumentality, defined in Section 10 thereof as an agency of the national
government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter.  This
term includes regulatory agencies, chartered institutions and government owned and controlled corporations .[26] (Underscoring
supplied)
As a chartered institution, the SBMA is always under the direct control of the Office of the President, particularly when
contracts and/or projects undertaken by the SBMA entail substantial amounts of money. Specifically, Letter of Instruction No.
620 dated October 27, 1997 mandates that the approval of the President is required in all contracts of the national government
offices, agencies and instrumentalities, including government-owned or controlled corporations involving two million pesos
(P2,000,000.00) and above, awarded through public bidding or negotiation. The President may, within his authority, overturn or
reverse any award made by the SBMA Board of Directors for justifiable reasons. It is well-established that the discretion to
accept or reject any bid, or even recall the award thereof, is of such wide latitude that the courts will not generally interfere with
the exercise thereof by the executive department, unless it is apparent that such exercise of discretion is used to shield unfairness
or injustice. When the President issued the memorandum setting aside the award previously declared by the SBMA in favor of
HPPL and directing that a rebidding be conducted, the same was, within the authority of the President and was a valid exercise of
his prerogative.Consequently, petitioner HPPL acquired no clear and unmistakable right as the award announced by the SBMA
prior to the Presidents revocation thereof was not final and binding.
There being no clear and unmistakable right on the part of petitioner HPPL, the rebidding of the proposed project can no
longer be enjoined as there is no material and substantial invasion to speak of.  Thus, there is no longer any urgent or permanent
necessity for the writ to prevent any perceived serious damage. In fine, since the requisites for the issuance of the writ of
injunction are not present in the instant case, petitioners application must be denied for lack of merit. [27]
Finally, we focus on the matter of whether or not petitioner HPPL has the legal capacity to even seek redress from this
Court. Admittedly, petitioner HPPL is a foreign corporation, organized and existing under the laws of the British Virgin
Islands. While the actual bidder was a consortium composed of petitioner, and two other corporations, namely, Guoco Holdings
(Phils.) Inc. and Unicol Management Servises, Inc., it is only petitioner HPPL that has brought the controversy before the Court,
arguing that it is suing only on an isolated transaction to evade the legal requirement that foreign corporations must be licensed to
do business in the Philippines to be able to file and prosecute an action before Philippines courts.
The maelstrom of this issue is whether participating in the bidding is a mere isolated transaction, or did it constitute
engaging in or transacting business in the Philippines such that petitioner HPPL needed a license to do business in the Philippines
before it could come to court.
There is no general rule or governing principle laid down as to what constitutes doing or engaging in or transacting
business in the Philippines. Each case must be judged in the light of its peculiar circumstances. [28] Thus, it has often been held that
a single act or transaction may be considered as doing business when a corporation performs acts for which it was created or
exercises some of the functions for which it was organized. The amount or volume of the business is of no moment, for even a
singular act cannot be merely incidental or casual if it indicates the foreign corporations intention to do business. [29]
Participating in the bidding process constitutes doing business because it shows the foreign corporations intention to engage
in business here. The bidding for the concession contract is but an exercise of the corporations reason for creation or
existence. Thus, it has been held that a foreign company invited to bid for IBRD and ADB international projects in the
Philippines will be considered as doing business in the Philippines for which a license is required.  In this regard, it is the
performance by a foreign corporation of the acts for which it was created, regardless of volume of business, that determines
whether a foreign corporation needs a license or not. [30]
The primary purpose of the license requirement is to compel a foreign corporation desiring to do business within the
Philippines to submit itself to the jurisdiction of the courts of the state and to enable the government to exercise jurisdiction over
them for the regulation of their activities in this country. [31] If a foreign corporation operates a business in the Philippines without
a license, and thus does not submit itself to Philippine laws, it is only just that said foreign corporation be not allowed to invoke
them in our courts when the need arises. While foreign investors are always welcome in this land to collaborate with us for our
mutual benefit, they must be prepared as an indispensable condition to respect and be bound by Philippine law in proper cases, as
in the one at bar. [32] The requirement of a license is not intended to put foreign corporations at a disadvantage, for the doctrine of
lack of capacity to sue is based on considerations of sound public policy. [33] Accordingly, petitioner HPPL must be held to be
incapacitated to bring this petition for injunction before this Court for it is a foreign corporation doing business in the Philippines
without the requisite license.
WHEREFORE, in view of all the foregoing, the instant petition is hereby DISMISSED for lack of merit. Further, the
temporary restraining order issued on December 3, 1997 is LIFTED and SET ASIDE. No costs.

HUTCHISON PORTS PHILIPPINES LIMITED

v.

SUBIC BAY METROPOLITAN AUTHORITY

G.R. No. 131367 August 31, 2000

FACTS OF THE CASE

The Subic Bay Metropolitan Authority (or SBMA) advertised in leading national daily newspapers and in one international

publication, an invitation offering to the private sector the opportunity to develop and operate a modern marine container terminal

within the Subic Bay Freeport Zone. Out of seven bidders who responded to the published invitation, three were declared by the

SBMA as qualified bidders after passing the pre-qualification evaluation conducted by the SBMA’s Technical Evaluation

Committee (or SBMA-TEC). Among these is the petitioner.

Thereafter, the services of three (3) international consultants recommended by the World Bank for their expertise were hired by

SBMA to evaluate the business plans submitted by each of the bidders, and to ensure that there would be a transparent and

comprehensive review of the submitted bids. The SBMA also hired the firm of Davis, Langdon and Seah Philippines, Inc. to

assist in the evaluation of the bids and in the negotiation process after the winning bidder is chosen. All the consultants, after such

review and evaluation unanimously concluded that HPPL’s Business Plan was “far superior to that of the two other bidders.”
However, even before the sealed envelopes containing the bidders’ proposed royalty fees could be opened at the appointed time

and place, RPSI formally protested that ICTSI is legally barred from operating a second port in the Philippines based on

Executive Order No. 212 and Department of Transportation and Communication (DOTC) Order 95-863.

ISSUE

 Whether the petitioner HPPL has the legal capacity to seek redress from the Court.

RULING

Yes. Admittedly, petitioner HPPL is a foreign corporation, organized and existing under the laws of the British Virgin Islands.

While the actual bidder was a consortium composed of petitioner, and two other corporations, namely, Guoco Holdings (Phils.)

Inc. and Unicol Management Services, Inc., it is only petitioner HPPL that has brought the controversy before the Court, arguing

that it is suing only on an isolated transaction to evade the legal requirement that foreign corporations must be licensed to do

business in the Philippines to be able to file and prosecute an action before Philippines courts.

There is no general rule or governing principle laid down as to what constitutes “doing” or “engaging in” or “transacting”

business in the Philippines. Each case must be judged in the light of its peculiar circumstances.Thus, it has often been held that a

single act or transaction may be considered as “doing business” when a corporation performs acts for which it was created or

exercises some of the functions for which it was organized. The amount or volume of the business is of no moment, for even a

singular act cannot be merely incidental or casual if it indicates the foreign corporation’s intention to do business.

Participating in the bidding process constitutes “doing business” because it shows the foreign corporation’s intention to engage in

business here. The bidding for the concession contract is but an exercise of the corporation’s reason for creation or existence.

Thus, it has been held that “a foreign company invited to bid for IBRD and ADB international projects in the Philippines will be

considered as doing business in the Philippines for which a license is required.”

GSIS v. CA(G.R. No. 183905)

Date: June 4, 2016Author: jaicdn0 Comments

Facts:

GSIS, a major shareholder in Meralco, was distressed over the proxy validation proceedings and the resulting certification of

proxies in favor of the Meralco Management. The proceedings were presided over by Meralco’s assistant corporate secretary and

chief legal counsel instead of the person duly designated by Meralco’s Board of Directors. Thus, GSIS moved before the SEC to

declare certain proxies, those issued to herein private respondents, as invalid. Private respondents contend that dispute in the

validity of proxies is an election contest which falls under the trial court’s jurisdiction. GSIS argues there was no election yet at

the time it filed its petition with the SEC, hence no proper election contest over which the regular courts may have jurisdiction.

Issue:

Whether or not the proxy challenge is an election contest cognizable by the regular courts.

Ruling: YES.
Section 2, Rule 6 of the Interim Rules broadly defines the term “election contest” as encompassing all plausible incidents arising

from the election of corporate directors, including: (1) any controversy or dispute involving title or claim to any elective office in

a stock or non-stock corporation, (2) the validation of proxies, (3) the manner and validity of elections and (4) the qualifications

of candidates, including the proclamation of winners.

Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial courts with

respect to election-related controversies is specifically confined to “controversies in the election or appointment of directors,

trustees, officers or managers of corporations, partnerships, or associations.” Evidently, the jurisdiction of the regular courts over

so-called election contests or controversies under Section 5(c) does not extend to every potential subject that may be voted on by

shareholders, but only to the election of directors or trustees, in which stockholders are authorized to participate under Section 24

of the Corporation Code.

The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to

vote on matters unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies are

solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the

SEC rules on proxy solicitation, should be properly seen as an election controversy within the original and exclusive jurisdiction

of the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential Decree No. 902-A.

That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed. The controversy was

engendered by the looming annual meeting, during which the stockholders of Meralco were to elect the directors of the

corporation. GSIS very well knew of that fact.

CONSUELO METAL G.R. No. 152580

CORPORATION,
Petitioner,
Present:
 
PUNO, C.J., Chairperson,
- versus - CARPIO,
CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ.
 
 
PLANTERS DEVELOPMENT
BANK and ATTY. JESUSA PRADO- Promulgated:
MANINGAS, in her capacity as
Ex-officio Sheriff of Manila,
Respondents. June 26, 2008

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

DECISION
 

CARPIO, J.:

The Case

This is a petition for review [1] seeking to reverse the 14 December 2001 Decision[2] and the 6 March 2002 Resolution[3] of the

Court of Appeals in CA-G.R. SP No. 65069. In its 14 December 2001 Decision, the Court of Appeals dismissed petitioner

Consuelo Metal Corporations (CMC) petition for certiorari and affirmed the 25 April 2001 Order [4] of the Regional Trial Court,
Branch 46, Manila (trial court). In its 6 March 2002 Resolution, the Court of Appeals partially granted CMCs motion for

reconsideration and remanded the case to the Securities and Exchange Commission (SEC) for further proceedings.

The Facts

On 1 April 1996, CMC filed before the SEC a petition to be declared in a state of suspension of payment, for rehabilitation, and

for the appointment of a rehabilitation receiver or management committee under Section 5(d) of Presidential Decree No. 902-A.
[5]
 On 2 April 1996, the SEC, finding the petition sufficient in form and substance, declared that all actions for claims against

CMC pending before any court, tribunal, office, board, body and/or commission are deemed suspended immediately until further

order from the SEC.[6]

In an Order dated 13 September 1999, the SEC directed the creation of a management committee to undertake CMCs

rehabilitation and reiterated the suspension of all actions for claims against CMC. [7]

On 29 November 2000, upon the management committees recommendation, [8] the SEC issued an Omnibus Order directing the

dissolution and liquidation of CMC.[9] The SEC also directed that the proceedings on and implementation of the order of

liquidation be commenced at the Regional Trial Court to which this case shall be transferred. [10]

Thereafter, respondent Planters Development Bank (Planters Bank), one of CMCs creditors, commenced the extra-judicial

foreclosure of CMCs real estate mortgage. Public auctions were scheduled on 30 January 2001 and 6 February 2001.

CMC filed a motion for the issuance of a temporary restraining order and a writ of preliminary injunction with the SEC to enjoin

the foreclosure of the real estate mortgage. On 29 January 2001, the SEC issued a temporary restraining order to maintain the

status quo and ordered the immediate transfer of the case records to the trial court. [11]

The case was then transferred to the trial court. In its 25 April 2001 Order, the trial court denied CMCs motion for issuance of a

temporary restraining order. The trial court ruled that since the SEC had already terminated and decided on the merits CMCs

petition for suspension of payment, the trial court no longer had legal basis to act on CMCs motion.

On 28 May 2001, the trial court denied CMCs motion for reconsideration. [12] The trial court ruled that CMCs petition for

suspension of payment could not be converted into a petition for dissolution and liquidation because they covered different

subject matters and were governed by different rules. The trial court stated that CMCs remedy was to file a new petition for

dissolution and liquidation either with the SEC or the trial court.

CMC filed a petition for certiorari with the Court of Appeals. CMC alleged that the trial court acted with grave abuse of

discretion amounting to lack of jurisdiction when it required CMC to file a new petition for dissolution and liquidation with either

the SEC or the trial court when the SEC clearly retained jurisdiction over the case.

On 13 June 2001, Planters Bank extra-judicially foreclosed the real estate mortgage. [13]

The Ruling of the Court of Appeals

On 14 December 2001, the Court of Appeals dismissed the petition and upheld the 25 April 2001 Order of the trial court. The

Court of Appeals held that the trial court correctly denied CMCs motion for the issuance of a temporary restraining order because

it was only an ancillary remedy to the petition for suspension of payment which was already terminated. The Court of Appeals

added that, under Section 121 of the Corporation Code, [14] the SEC has jurisdiction to hear CMCs petition for dissolution and

liquidation.
 

CMC filed a motion for reconsideration. CMC argued that it does not have to file a new petition for dissolution and liquidation

with the SEC but that the case should just be remanded to the SEC as a continuation of its jurisdiction over the petition for

suspension of payment. CMC also asked that Planters Banks foreclosure of the real estate mortgage be declared void.

In its 6 March 2002 Resolution, the Court of Appeals partially granted CMCs motion for reconsideration and ordered that the

case be remanded to the SEC under Section 121 of the Corporation Code. The Court of Appeals also ruled that since the SEC

already ordered CMCs dissolution and liquidation, Planters Banks foreclosure of the real estate mortgage was in order.

Planters Bank filed a motion for reconsideration questioning the remand of the case to the SEC. In a resolution dated 19 July

2002, the Court of Appeals denied the motion for reconsideration.

Not satisfied with the 6 March 2002 Resolution, CMC filed this petition for review on certiorari.

The Issues

CMC raises the following issues:

1.     Whether the present case falls under Section 121 of the Corporation Code, which refers to the SECs jurisdiction

over CMCs dissolution and liquidation, or is only a continuation of the SECs jurisdiction over CMCs petition for

suspension of payment; and

2.     Whether Planters Banks foreclosure of the real estate mortgage is valid.

The Courts Ruling

The petition has no merit.

 
The SEC has jurisdiction to order CMCs dissolution
but the trial court has jurisdiction over CMCs liquidation.

While CMC agrees with the ruling of the Court of Appeals that the SEC has jurisdiction over CMCs dissolution and liquidation,

CMC argues that the Court of Appeals remanded the case to the SEC on the wrong premise that the applicable law is Section 121

of the Corporation Code. CMC maintains that the SEC retained jurisdiction over its dissolution and liquidation because it is only

a continuation of the SECs jurisdiction over CMCs original petition for suspension of payment which had not been finally

disposed of as of 30 June 2000.

On the other hand, Planters Bank insists that the trial court has jurisdiction over CMCs dissolution and liquidation. Planters Bank

argues that dissolution and liquidation are entirely new proceedings for the termination of the existence of the corporation which

are incompatible with a petition for suspension of payment which seeks to preserve corporate existence.

Republic Act No. 8799 (RA 8799) [15] transferred to the appropriate regional trial courts the SECs jurisdiction defined under

Section 5(d) of Presidential Decree No. 902-A. Section 5.2 of RA 8799 provides:
The Commissions jurisdiction over all cases enumerated under Sec. 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. (Emphasis supplied)

 
The SEC assumed jurisdiction over CMCs petition for suspension of payment and issued a suspension order on 2 April 1996 after

it found CMCs petition to be sufficient in form and substance. While CMCs petition was still pending with the SEC as of 30 June

2000, it was finally disposed of on 29 November 2000 when the SEC issued its Omnibus Order directing the dissolution of CMC

and the transfer of the liquidation proceedings before the appropriate trial court. The SEC finally disposed of CMCs petition for

suspension of payment when it determined that CMC could no longer be successfully rehabilitated.
 

However, the SECs jurisdiction does not extend to the liquidation of a corporation.  While the SEC has jurisdiction to order the

dissolution of a corporation, [16] jurisdiction over the liquidation of the corporation now pertains to the appropriate regional trial

courts. This is the reason why the SEC, in its 29 November 2000 Omnibus Order, directed that the proceedings on and

implementation of the order of liquidation be commenced at the Regional Trial Court to which this case shall be transferred.  This

is the correct procedure because the liquidation of a corporation requires the settlement of claims for and against the corporation,

which clearly falls under the jurisdiction of the regular courts. The trial court is in the best position to convene all the creditors of

the corporation, ascertain their claims, and determine their preferences.

 
 

Foreclosure of real estate mortgage is valid.

CMC maintains that the foreclosure is void because it was undertaken without the knowledge and previous consent of the

liquidator and other lien holders. CMC adds that the rules on concurrence and preference of credits should apply in foreclosure

proceedings. Assuming that Planters Bank can foreclose the mortgage, CMC argues that the foreclosure is still void because it

was conducted in violation of Section 15, Rule 39 of the Rules of Court which states that the sale should not be earlier than nine

oclock in the morning and not later than two oclock in the afternoon.

On the other hand, Planters Bank argues that it has the right to foreclose the real estate mortgage because of non-payment of the

loan obligation. Planters Bank adds that the rules on concurrence and preference of credits and the rules on insolvency are not

applicable in this case because CMC has been not been declared insolvent and there are no insolvency proceedings against CMC.

In Rizal Commercial Banking Corporation v. Intermediate Appellate Court,[17] we held that if rehabilitation is no longer feasible

and the assets of the corporation are finally liquidated, secured creditors shall enjoy preference over unsecured creditors, subject

only to the provisions of the Civil Code on concurrence and preference of credits.Creditors of secured obligations may pursue

their security interest or lien, or they may choose to abandon the preference and prove their credits as ordinary claims. [18]

Moreover, Section 2248 of the Civil Code provides:

 
Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to
the extent of the value of the immovable or real right to which the preference refers.
 

In this case, Planters Bank, as a secured creditor, enjoys preference over a specific mortgaged property and has a right to

foreclose the mortgage under Section 2248 of the Civil Code. The creditor-mortgagee has the right to foreclose the mortgage over

a specific real property whether or not the debtor-mortgagor is under insolvency or liquidation proceedings.  The right to foreclose

such mortgage is merely suspended upon the appointment of a management committee or rehabilitation receiver [19] or upon the

issuance of a stay order by the trial court. [20] However, the creditor-mortgagee may exercise his right to foreclose the mortgage

upon the termination of the rehabilitation proceedings or upon the lifting of the stay order.[21]

Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to rebut the same is on the

party that seeks to challenge the proceedings. [22]CMCs challenge to the foreclosure proceedings has no merit. The notice of sale
clearly specified that the auction sale will be held at 10:00 oclock in the morning or soon thereafter, but not later than 2:00

oclock in the afternoon.[23] The Sheriffs Minutes of the Sale stated that the foreclosure sale was actually opened at 10:00 A.M. and

commenced at 2:30 P.M.[24] There was nothing irregular about the foreclosure proceedings.

WHEREFORE, we DENY the petition. We REINSTATE the 29 November 2000 Omnibus Order of the Securities and

Exchange Commission directing the Regional Trial Court, Branch 46, Manila to immediately undertake the liquidation of

Consuelo Metal Corporation. We AFFIRM the ruling of the Court of Appeals that Planters Development Banks extra-judicial

foreclosure of the real estate mortgage is valid.

GOVERNMENT SERVICE, G.R. No. 183905

INSURANCE SYSTEM,
Petitioner,
Present:
QUISUMBING,
- versus - Chairperson,
CARPIO MORALES,
TINGA,
VELASCO, JR., and
THE HON. COURT OF APPEALS, BRION, JJ.
(8TH DIVISION), ANTHONY V.
ROSETE, MANUEL M. LOPEZ,
FELIPE B. ALFONSO, JESUS F. Promulgated:
FRANCISCO, CHRISTIAN S.
MONSOD, ELPIDIO L. IBAEZ,
and FRANCIS GILES PUNO, April 16, 2009
Respondents.
 
x----------------------------------------------------------------------------------------------- x
 
SECURITIES AND EXCHANGE G.R. No. 184275
COMMISSION, COMMISSIONER
JESUS ENRIQUE G. MARTINEZ
IN HIS CAPACITY AS OFFICER-
IN-CHARGE OF THE SECURITIES
AND EXCHANGE COMMISSION
and HUBERT G. GUEVARA IN HIS
CAPACITY AS DIRECTOR OF THE
COMPLIANCE AND ENFORCEMENT
DEPT. OF SECURITIES
Petitioners,
 
-         versus -
 
ANTHONY V. ROSETE, MANUEL M.
LOPEZ, FELIPE B. ALFONSO, JESUS F.
FRANCISCO, CHRISTIAN S. MONSOD,
ELPIDIO L. IBAEZ, and FRANCIS
GILES PUNO,
Respondents.
 
x---------------------------------------------------------------------------------x
 
 
DECISION
 
TINGA, J.:
 

These are the undisputed facts.

The annual stockholders meeting (annual meeting) of the Manila Electric Company (Meralco) was scheduled on 27

May 2008.[1] In connection with the annual meeting, proxies [2] were required to be submitted on or before 17 May 2008, and the

proxy validation was slated for five days later, or 22 May. [3]

 
In view of the resignation of Camilo Quiason, [4] the position of corporate secretary of Meralco became vacant. [5] On 15 May

2008, the board of directors of Meralco designated Jose Vitug [6] to act as corporate secretary for the annual meeting. [7] However,

when the proxy validation began on 22 May, the proceedings were presided over by respondent Anthony Rosete (Rosete),

assistant corporate secretary and in-house chief legal counsel of Meralco. [8] Private respondents nonetheless argue that Rosete

was the acting corporate secretary of Meralco. [9] Petitioner Government Service Insurance System (GSIS), a major shareholder in

Meralco, was distressed over the proxy validation proceedings, and the resulting certification of proxies in favor of the Meralco

management.[10]

On 23 May 2008, GSIS filed a complaint with the Regional Trial Court (RTC) of Pasay City, docketed as R-PSY-08-

05777-C4 seeking the declaration of certain proxies as invalid.[11] Three days

later, on 26 May, GSIS filed a Notice with the RTC manifesting the dismissal of the complaint. [12] On the same day, GSIS filed

an Urgent Petition[13] with the Securities and Exchange Commission (SEC) seeking to restrain Rosete from recognizing, counting

and tabulating, directly or indirectly, notionally or actually or in whatever way, form, manner or means, or otherwise honoring

the shares covered by the proxies in favor of respondents Manuel Lopez, [14] Felipe Alfonso,[15] Jesus Francisco,[16] Oscar Lopez,

Christian Monsod,[17] Elpidio Ibaez,[18] Francisco Giles-Puno[19] or any officer representing MERALCO Management, and to

annul and declare invalid said proxies. [20] GSIS also prayed for the issuance of a Cease and Desist Order (CDO) to restrain the

use of said proxies during the annual meeting scheduled for the following day. [21] A CDO[22] to that effect signed by SEC

Commissioner Jesus Martinez was issued on 26 May 2008, the same day the complaint was filed. During the annual meeting held

on the following day, Rosete announced that the meeting would push through, expressing the opinion that the CDO is null and

void.[23]

On 28 May 2008, the SEC issued a Show Cause Order (SCO)[24] against private respondents, ordering them to appear

before the Commission on 30 May 2008 and explain why they should not be cited in contempt. On 29 May 2008, respondents

filed a petition for certiorari with prohibition [25] with the Court of Appeals, praying that the CDO and the SCO be annulled. The

petition was docketed as CA-G.R. SP No. 103692.

Many developments involving the Court of Appeals handling of CA-G.R. SP No. 103692 and the conduct of several of

its individual justices are recounted in our Resolution dated 9 September 2008 in A.M. No. 08-8-11-CA (Re: Letter Of Presiding

Justice Conrado M. Vasquez, Jr. On CA-G.R. SP No. 103692).[26] On 23 July 2008, the Court of Appeals Eighth Division

promulgated a decision in the case with the following dispositive portion:

WHEREFORE, premises considered, the May 26, 2008 complaint filed by GSIS in the SEC is
hereby DISMISSED due to SECs lack of jurisdiction, due to forum shopping by respondent GSIS, and due to
splitting of causes of action by respondent GSIS. Consequently, the SECs undated cease and desist order and the
SECs May 28, 2008 show cause order are hereby DECLARED VOID AB INITIO and without legal effect and
their implementation are hereby permanently restrained.
The May 26, 2008 complaint filed by GSIS in the SEC is hereby barred from being considered, out of equitable
considerations, as an election contest in the RTC, because the prescriptive period of 15 days from the May 27,
2008 Meralco election to file an election contest in the RTC had already run its course, pursuant to Sec. 3, Rule
6 of the interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799, due to
deliberate act of GSIS in filing a complaint in the SEC instead of the RTC.
Let seventeen (17) copies of this decision be officially TRANSMITTED to the Office of the Chief Justice and
three (3) copies to the Office of the Court Administrator:
(1)      for sanction by the Supreme Court against the GSIS LAW OFFICE for unauthorized practice of law,
(2)      for sanction and discipline by the Supreme Court of GSIS lawyers led by Atty. Estrella Elamparo-
Tayag, Atty. Marcial C. Pimentel, Atty. Enrique L. Tandan III, and other GSIS lawyers for violation
of Sec. 27 of Rule 138 of the Revised Rules of Court, pursuant to Santayana v. Alampay, A.C. No.
5878, March 21, 2005 454 SCRA 1, and pursuant to Land Bank of the Philippines v. Raymunda
Martinez, G.R. No. 169008, August 14, 2007:
(a)          for violating express provisions of law and defying public policy in deliberately displacing
the Office of the Government Corporate Counsel (OGCC) from its duty as the exclusive lawyer
 of GSIS, a government owned and controlled corporation (GOCC), by admittedly filing and
defending cases as well as appearing as counsel for GSIS, without authority to do so, the
authority belonging exclusively to the OGCC;
(b)         for violating the lawyers oath for failing in their duty to act as faithful officers of the court by
engaging in forum shopping;
(c)          for violating express provisions of law most especially those on jurisdiction which are
mandatory; and
(d)       for violating Sec. 3, Rule 2 of the 1997 Rules of Civil Procedure by deliberately splitting
causes of action in order to file multiple complaints: (i) in the RTC of Pasay City and (ii) in the
SEC, in order to ensure a favorable order.[27]

The promulgation of the said decision provoked a searing controversy, as detailed in our Resolution in A.M. No. 08-8-

11-CA. Nonetheless, the appellate courts decision spawned three different actions docketed with their own case numbers before

this Court. One of them, G.R. No. 183933, was initiated by a Motion for Extension of Time to File Petition for Review filed by

the Office of the Solicitor General (OSG) in behalf of the SEC, Commissioner Martinez in his capacity as officer-in-charge of the

SEC, and Hubert Guevarra in his capacity as Director of the Compliance and Enforcement Department of the SEC. [28] However,

the OSG did not follow through with the filing of the petition for review adverted to; thus, on 19 January 2009, the Court

resolved to declare G.R. No. 183933 closed and terminated. [29]

The two remaining cases before us are docketed as G.R. No. 183905 and 184275. G.R. No. 183905 pertains to a

petition for certiorari and prohibition filed by GSIS, against the Court of Appeals, and respondents Rosete, Lopez, Alfonso,

Francisco, Monsod, Ibaez and Puno, all of whom serve in different corporate capacities with Meralco or First Philippines

Holdings Corporation, a major stockholder of Meralco and an affiliate of the Lopez Group of Companies. This petition seeks of

the Court to declare the 23 July 2008 decision of the Court of Appeals null and void, affirm the SECs jurisdiction over the

petition filed before it by GSIS, and pronounce that the CDO and the SCO orders are valid. This petition was filed in behalf of

GSIS by the GSIS Law Office; it was signed by the Chief Legal Counsel and Assistant Legal Counsel of GSIS, and three self-

identified Attorney[s], presumably holding lawyer positions in GSIS. [30]

The OSG also filed the other petition, docketed as G.R. No. 184275. It identifies as its petitioners the SEC,

Commissioner Martinez in his capacity as OIC of the SEC, and Hubert Guevarra in his capacity as Director of the Compliance

and Enforcement Department of the SEC the same petitioners in the  aborted petition for review initially docketed as G.R. No.

183933. Unlike what was adverted to in the motion for extension filed by the same petitioners in G.R. No. 183933, the petition in

G.R. No. 184275 is one for certiorari under Rule 65 as indicated on page 3 thereof, [31] and not a petition for review. Interestingly,

save for the first page which leaves the docket number blank, all 86 pages of this petition for certiorari carry a header wrongly

identifying the pleading as the non-existent petition for review under G.R. No. 183933. This petition seeks the reversal of the

assailed decision of the Court of Appeals, the recognition of the jurisdiction of the SEC over the petition of GSIS, and the

affirmation of the CDO and SCO.

II.

Private respondents seek the expunction of the petition filed by the SEC in G.R. No. 184275. We agree that the

petitioners therein, namely: the SEC, Commissioner Marquez and Guevarra, are not real parties-in-interest to the dispute and thus

bereft of capacity to file the petition. By way of simple illustration, to argue otherwise is to say that the trial court judge, the

National Labor Relations Commission, or any quasi-judicial agency has the right to seek the review of an appellate court decision

reversing any of their rulings. That prospect, as any serious student of remedial law knows, is zero.

The Court, through the Resolution of the Third Division dated 2 September 2008, had resolved to treat the petition in

G.R. No. 184275 as a petition for review on certiorari, but withheld giving due course to it. [32] Under Section 1 of Rule 45, which

governs appeals by certiorari, the right to file the appeal is restricted to a party, meaning that only the real parties-in-interest who

litigated the petition for certiorari before the Court of Appeals are entitled to appeal the same under Rule 45. The SEC and its two

officers may have been designated as respondents in the petition for certiorari filed with the Court of Appeals, but under Section

5 of Rule 65 they are not entitled to be classified as real parties-in-interest. Under the provision, the judge, court, quasi-judicial
agency, tribunal, corporation, board, officer or person to whom grave abuse of discretion is imputed (the SEC and its two officers

in this case) are denominated only as public respondents. The provision further states that public respondents shall not appear in

or file an answer or comment to the petition or any pleading therein. [33] Justice Regalado explains:

[R]ule 65 involves an original special civil action specifically directed against the person, court,
agency or party a quo which had committed not only a mistake of judgment but an error of jurisdiction, hence
should be made public respondents in that action brought to nullify their invalid acts. It shall, however be the
duty of the party litigant, whether in an appeal under Rule 45 or in a special civil action in Rule 65, to defend in
his behalf and the party whose adjudication is assailed, as he is the one interested in sustaining the correctness of
the disposition or the validity of the proceedings.
xxx The party interested in sustaining the proceedings in the lower court must be joined as a co-
respondent and he has the duty to defend in his own behalf and in behalf of the court which rendered the
questioned order. While there is nothing in the Rules that prohibit the presiding judge of the court involved from
filing his own answer and defending his questioned order, the Supreme Court has reminded judges of the
lower courts to refrain from doing so unless ordered by the Supreme Court.[ [34]] The judicial norm or
mode of conduct to be observed in trial and appellate courts is now prescribed in the second paragraph of
this section.
xxx
A person not a party to the proceedings in the trial court or in the Court of Appeals cannot
maintain an action for certiorari in the Supreme Court to have the judgment reviewed. [35]

Rule 65 does recognize that the SEC and its officers should have been designated as public respondents in the petition

for certiorari filed with the Court of Appeals. Yet their involvement in the instant petition is not as original party-litigants, but as

the quasi-judicial agency and officers exercising the adjudicative functions over the dispute between the two contending factions

within Meralco. From the onset, neither the SEC nor Martinez or Guevarra has been considered as a real party-in-interest. Section

2, Rule 3 of the 1997 Rules of Civil Procedure provides that every action must be prosecuted or defended in the name of the real

party in interest, that is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the

avails of the suit. It would be facetious to assume that the SEC had any real interest or stake in the intra-corporate dispute within
Meralco.

We find our ruling in Hon. Santiago v. Court of Appeals[36] quite apposite to the question at hand. Petitioner therein, a

trial court judge, had presided over an expropriation case. The litigants had arrived at an amicable settlement, but the judge

refused to approve the same, even declaring it invalid. The matter was elevated to the Court of Appeals, which promptly reversed

the trial court and approved the amicable settlement. The judge took the extraordinary step of filing in his own behalf a petition

for review on certiorari with this Court, assailing the decision of the Court of Appeals which had reversed him. In disallowing the

judges petition, the Court explained:

 
While the issue in the Court of Appeals and that raised by petitioner now is whether the latter abused
his discretion in nullifying the deeds of sale and in proceeding with the expropriation proceeding, that question
is eclipsed by the concern of whether Judge Pedro T. Santiago may file this petition at all.
 
And the answer must be in the negative, Section 1 of Rule 45 allows a party to appeal
by certiorari from a judgment of the Court of Appeals by filing with this Court a petition for review
on certiorari. But petitioner judge was not a party either in the expropriation proceeding or in
the certiorari proceeding in the Court of Appeals. His being named as respondent in the Court of Appeals
was merely to comply with the rule that in original petitions for certiorari, the court or the judge, in his
capacity as such, should be named as party respondent because the question in such a proceeding is the
jurisdiction of the court itself (See Mayol v. Blanco, 61 Phil. 547 [19351, cited in Comments on the Rules of
Court, Moran, Vol. II, 1979 ed., p. 471). "In special proceedings, the judge whose order is under attack is
merely a nominal party; wherefore, a judge in his official capacity, should not be made to appear as a
party seeking reversal of a decision that is unfavorable to the action taken by him. A decent regard for the
judicial hierarchy bars a judge from suing against the adverse opinion of a higher court,. . . . " (Alcasid v.
Samson, 102 Phil. 785, 740 [1957])
 
ACCORDINGLY, this petition is DENIED for lack of legal capacity to sue by the petitioner.[37]

Justice Isagani Cruz added, in a Concurring Opinion in Santiago: The judge is not an active combatant in such

proceeding and must leave it to the parties themselves to argue their respective positions and for the appellate court to rule on the

matter without his participation.[38]

 Note that in Santiago, the Court recognized the good faith of the judge, who perceived the amicable settlement as a

manifestly iniquitous and illegal contract. [39] The SEC could have similarly felt in good faith that the assailed Court of Appeals

decision had unduly impaired its prerogatives or caused some degree of hurt to it. Yet assuming that there are rights or

prerogatives peculiar to the SEC itself that the appellate court had countermanded, these can be vindicated in the petition for

certiorari filed by GSIS, whose legal capacity to challenge the Court of Appeals decision is without question. There simply is no

plausible reason for this Court to deviate from a time-honored rule that preserves the purity of our judicial and quasi-judicial

offices to accommodate the SECs distrust and resentment of the appellate courts decision. The expunction of the petition in G.R.

No. 184275 is accordingly in order.

At this point, only one petition remainsthe petition for certiorari filed by GSIS in G.R. No. 183905. Casting off the uncritical and

unimportant aspects, the two main issues for adjudication are as follows: (1) whether the SEC has jurisdiction over the petition

filed by GSIS against private respondents; and (2) whether the CDO and SCO issued by the SEC are valid.

II.

It is our resolute inclination that this case, which raises interesting questions of law, be decided solely on the merits, without

regard to the personalities involved or the well-reported drama preceding the petition. To that end, the Court has taken note of

reports in the media that GSIS and the Lopez group have taken positive steps to divest or significantly reduce their respective

interests in Meralco.[40] These are developments that certainly ease the tension surrounding this case, not to mention reason

enough for the two groups to make an internal reassessment of their respective positions and interests in relation to this case.

Still, the key legal questions raised in the petition do not depend at all on the identity of any of the parties, and would obtain the

same denouement even if this case was lodged by unknowns as petitioners against similarly obscure respondents.

With the objective to resolve the key questions of law raised in the petition, some of the issues raised diminish as

peripheral. For example, petitioners raise arguments tied to the behavior of individual justices of the Court of Appeals,

particularly former Justice Vicente Roxas, in relation to this case as it was pending before the appellate court. The Court takes

cognizance of our Resolution in A.M. No. 08-8-11-CA dated 9 September 2008, which duly recited the various anomalous or

unbecoming acts in relation to this case performed by two of the justices who decided the case in behalf of the Court of

Appealsformer Justice Roxas (the ponente) and Justice Bienvenido L. Reyes (the Chairman of the 8th Division) as well as three

other members of the Court of Appeals. At the same time, the consensus of the Court as it deliberated on A.M. No. 08-8-11-CA

was to reserve comment or conclusion on the assailed decision of the Court of Appeals, in recognition of the reality that however

stigmatized the actions and motivations of Justice Roxas are, the decision is still the product of the Court of Appeals as a

collegial judicial body, and not of one or some rogue justices. The penalties levied by the Court on these appellate court justices,

in our estimation, redress the unwholesome acts which they had committed. At the same time, given the jurisprudential

importance of the questions of law raised in the petition, any result reached without squarely addressing such questions would be

unsatisfactory, perhaps derelict even.

III.

We now examine whether the SEC has jurisdiction over the petition filed by GSIS. To recall, SEC has sought to enjoin the use

and annul the validation, of the proxies issued in favor of several of the private respondents, particularly in connection with the

annual meeting.

A.

Jurisdiction is conferred by no other source but law. Both sides have relied upon provisions of Rep. Act No. 8799, otherwise

known as the Securities Regulation Code (SRC), its implementing rules (Amended Implementing Rules or AIRR-SRC), and
other related rules to support their competing contentions that either the SEC or the trial courts has exclusive original jurisdiction

over the dispute.

GSIS primarily anchors its argument on two correlated provisions of the SRC. These are Section 53.1 and Section 20.1, which we

cite:

SEC. 53.  Investigations, Injunctions and Prosecution of Offenses . - 53.1. The Commission may, in
its discretion, make such investigations as it deems necessary to determine whether any person has
violated or is about to violate any provision of this Code, any rule, regulation or order thereunder, or any
rule of an Exchange, registered securities association, clearing agency, other self-regulatory organization ,
and may require or permit any person to file with it a statement in writing, under oath or otherwise, as the
Commission shall determine, as to all facts and circumstances concerning the matter to be investigated. The
Commission may publish information concerning any such violations, and to investigate any fact, condition,
practice or matter which it may deem necessary or proper to aid in the enforcement of the provisions of
this Code, in the prescribing of rules and regulations thereunder, or in securing information to serve as a
basis for recommending further legislation concerning the matters to which this Code relates: xxx
(emphasis supplied)
SEC. 20. Proxy Solicitations.   20.1. Proxies must be issued and proxy solicitation must be made in
accordance with rules and regulations to be issued by the Commission;

The argument, stripped of extravagance, is that since proxy solicitations following Section 20.1 have to be made in accordance

with rules and regulations issued by the SEC, it is the SEC under Section 53.1 that has the jurisdiction to investigate alleged

violations of the rules on proxy solicitations. The GSIS petition invoked AIRR-AIRR-SRC Rule 20, otherwise known as The

Proxy Rule, which enumerates the requirements as to form of proxy and delivery of information to security holders. According to

GSIS, the information statement Meralco had filed with the SEC in connection with the annual meeting did not contain any proxy

form as required under AIRR-SRC Rule 20.

On the other hand, private respondents argue before us that under Section 5.2 of the SRC, the SECs jurisdiction over all

cases enumerated in Section 5 of Presidential Decree No. 902-A was transferred to the courts of general jurisdiction or the

appropriate regional trial court. The two particular classes of cases in the enumeration under Section 5 of Presidential Decree No.

902-A which private respondents especially refer to are as follows:

xxx
 
(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among
stockholders, members, or associates; or association of which they are stockholders, members, or
associates, respectively;
 
3) Controversies in the election or appointment of directors, trustees, officers or managers of corporations,
partnerships, or associations;

xxx

In addition, private respondents cite the Interim Rules on Intra-Corporate Controversies (Interim Rules) promulgated

by this Court in 2001, most pertinently, Section 2 of Rule 6 (on Election Contests), which defines election contests as follows:

 
SEC. 2. Definition. An election contest refers to any controversy or dispute involving title or claim to
any elective office in a stock or nonstock corporation, the validation of proxies, the manner and validity of
elections and the qualifications of candidates, including the proclamation of winners, to the office of director,
trustee or other officer directly elected by the stockholders in a close corporation or by members of a nonstock
corporation where the articles of incorporation or bylaws so provide. (emphasis supplied)

 
The correct answer is not clear-cut, but there is one. In private respondents favor, the provisions of law they cite pertain directly

and exclusively to the statutory jurisdiction of trial courts acquired by virtue of the transfer of jurisdiction following the passage

of the SRC. In contrast, the SRC provisions relied upon by GSIS do not immediately or directly establish that bodys jurisdiction

over the petition, since it necessitates the linkage of Section 20 to Section 53.1 of the SRC before the point can bear on us.

On the other hand, the distinction between proxy solicitation and proxy validation cannot be dismissed offhand. The right of

a stockholder to vote by proxy is generally established by the

Corporation Code,[41] but it is the SRC which specifically regulates the form and use of proxies, more particularly the procedure

of proxy solicitation, primarily through Section 20.[42] AIRR-SRC Rule 20 defines the terms solicit and solicitation:

The terms solicit and solicitation include:

A.      any request for a proxy whether or not accompanied by or included in a form of proxy
B.       any request to execute or not to execute, or to revoke, a proxy; or
C.       the furnishing of a form of proxy or other communication to security holders under circumstance
reasonably calculated to result in the procurement, withholding or revocation of a proxy.

It is plain that proxy solicitation is a procedure that antecedes proxy validation. The former involves the securing and

submission of proxies, while the latter concerns the validation of such secured and submitted proxies. GSIS raises the sensible

point that there was no election yet at the time it filed its petition with the SEC, hence no proper election contest or controversy

yet over which the regular courts may have jurisdiction. And the point ties its cause of action to alleged irregularities in the proxy

solicitation procedure, a process that precedes either the validation of proxies or the annual meeting itself.

Under Section 20.1, the solicitation of proxies must be in accordance with rules and regulations issued by the SEC,

such as AIRR-SRC Rule 4. And by virtue of Section 53.1, the SEC has the discretion to make such investigations as it deems

necessary to determine whether any person has violated any rule issued by it, such as AIRR-SRC Rule 4. The investigatory

power of the SEC established by Section 53.1 is central to its regulatory authority, most crucial to the public interest especially as

it may pertain to corporations with publicly traded shares. For that reason, we are not keen on pursuing private respondents

insistence that the GSIS complaint be viewed as rooted in an intra-corporate controversy solely within the jurisdiction of the trial

courts to decide. It is possible that an intra-corporate controversy may animate a disgruntled shareholder to complain to the SEC

a corporations violations of SEC rules and regulations, but that motive alone should not be sufficient to deprive the SEC of its

investigatory and regulatory powers, especially so since such powers are exercisable on a motu proprio basis.

At the same time, Meralco raises the substantial point that nothing in the SRC empowers the SEC to annul or invalidate

improper proxies issued in contravention of Section 20. It cites that the penalties defined by the SEC itself for violation of

Section 20 or AIRR-SRC Rule 20 are limited to a reprimand/warning for the first offense, and pecuniary fines for succeeding

offenses.[43] Indeed, if the SEC does not have the power to invalidate proxies solicited in violation of its promulgated rules,

serious questions may be raised whether it has the power to adjudicate claims of violation in the first place, since the relief it may

extend does not directly redress the cause of action of the complainant seeking the exclusion of the proxies.

There is an interesting point, which neither party raises, and it concerns Section 6(g) of Presidential Decree No. 902-A,

which states:

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following
powers:
xxx
 (g) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent
stockholders or members;
xxx

As promulgated then, the provision would confer on the SEC the power to adjudicate controversies relating not only to proxy

solicitation, but also to proxy validation. Should the proposition hold true up to the present, the position of GSIS would have

merit, especially since Section 6 of Presidential Decree No. 902-A was not expressly repealed or abrogated by the SRC. [44]

Yet a closer reading of the provision indicates that such power of the SEC then was incidental or ancillary to the

exercise of such jurisdiction. Note that Section 6 is immediately preceded by Section 5, which originally conferred on the SEC

original and exclusive jurisdiction to hear and decide cases involving controversies in the election or appointments of directors,

trustees, officers or managers of such corporations, partnerships or associations. The cases referred to in Section 5 were

transferred from the jurisdiction of the SEC to the regular courts with the passage of the SRC, specifically Section 5.2. Thus, the

SECs power to pass upon the validity of proxies in relation to election controversies has effectively been withdrawn, tied as it is

to its abrogated jurisdictional powers.

Based on the foregoing, it is evident that the linchpin in deciding the question is whether or not the cause of action of

GSIS before the SEC is intimately tied to an election controversy, as defined under Section 5(c) of Presidential Decree No. 902-

A. To answer that, we need to properly ascertain the scope of the power of trial courts to resolve controversies in corporate

elections.

B.

Shares of stock in corporations may be divided into voting shares and non-voting shares, which are generally issued as preferred

or redeemable shares. [45] Voting rights are exercised during regular or special meetings of stockholders; regular meetings to be

held annually on a fixed date, while special meetings may be held at any time necessary or as provided in the by-laws, upon due

notice.[46] The Corporation Code provides for a whole range of matters which can be voted upon by stockholders, including a

limited set on which even non-voting stockholders are entitled to vote on. [47] On any of these matters which may be voted upon by

stockholders, the proxy device is generally available. [48]

Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial courts with

respect to election-related controversies is specifically confined to controversies in the election or appointment of directors,

trustees, officers or managers of corporations, partnerships, or associations. Evidently, the jurisdiction of the regular courts

over so-called election contests or controversies under Section 5(c) does not extend to every potential subject that may be

voted on by shareholders, but only to the election of directors or trustees, in which stockholders are authorized to

participate under Section 24 of the Corporation Code.[49]

This qualification allows for a useful distinction that gives due effect to the statutory right of the SEC to regulate proxy

solicitation, and the statutory jurisdiction of regular courts over election contests or controversies. The power of the SEC to

investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters unrelated to

the cases enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the

election of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules on

proxy solicitation, should be properly seen as an election controversy within the original and exclusive jurisdiction of the

trial courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential Decree No. 902-A.

The conferment of original and exclusive jurisdiction on the regular courts over such controversies in the election of corporate

directors must be seen as intended to confine to one body the adjudication of all related claims and controversy arising from the

election of such directors. For that reason, the aforequoted Section 2, Rule 6 of the Interim Rules broadly defines the term
election contest as encompassing all plausible incidents arising from the election of corporate directors, including: (1)  any

controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation, (2) the validation of

proxies, (3) the manner and validity of elections and (4) the qualifications of candidates, including the proclamation of winners.

If all matters anteceding the holding of such election which affect its manner and conduct, such as the proxy solicitation process,

are deemed within the original and exclusive jurisdiction of the SEC, then the prospect of overlapping and competing

jurisdictions between that body and the regular courts becomes frighteningly real. From the language of Section 5(c) of

Presidential Decree No. 902-A, it is indubitable that controversies as to the qualification of voting shares, or the validity of votes

cast in favor of a candidate for election to the board of directors are properly cognizable and adjudicable by the regular courts

exercising original and exclusive jurisdiction over election cases. Questions relating to the proper solicitation of proxies used in

such election are indisputably related to such issues, yet if the position of GSIS were to be upheld, they would be resolved by the

SEC and not the regular courts, even if they fall within controversies in the election of directors.

The Court recognizes that GSISs position flirts with the abhorrent evil of split jurisdiction, [50] allowing as it does both the SEC

and the regular courts to assert jurisdiction over the same controversies surrounding an election contest. Should the argument of

GSIS be sustained, we would be perpetually confronted with the spectacle of election controversies being heard and adjudicated

by both the SEC and the regular courts, made possible through a mere allegation that the anteceding proxy solicitation process

was errant, but the competing cases filed with one objective in mind to affect the outcome of the election of the board of

directors. There is no definitive statutory provision that expressly mandates so untidy a framework, and we are disinclined to

construe the SRC in such a manner as to pave the way for the splitting of jurisdiction.

Unlike either Section 20.1 or Section 53.1, which merely alludes to the rule-making or investigatory power of the SEC, Section 5

of Pres. Decree No. 902-A sets forth a definitive rule on jurisdiction, expressly granting as it does original and exclusive

jurisdiction first to the SEC, and now to the regular courts. The fact that the jurisdiction of the regular courts under Section 5(c) is

confined to the voting on election of officers, and not on all matters which may be voted upon by stockholders, elucidates that the

power of the SEC to regulate proxies remains extant and could very well be exercised when stockholders vote on matters other

than the election of directors.

That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed. The controversy was

engendered by the looming annual meeting, during which the stockholders of Meralco were to elect the directors of the

corporation. GSIS very well knew of that fact. On 17 March 2008, the Meralco board of directors adopted a board resolution

stating:

RESOLVED that the board of directors of the Manila Electric Company (MERALCO) delegate, as it hereby
delegates to the Nomination & Governance Committee the authority to approve and adopt appropriate rules on:
(1) nomination of candidates for election to the board of directors; (2) appreciation of ballots during the
election of members of the board of directors; and (3) validation of proxies for regular or special meetings of
the stockholders.[51]

In addition, the Information Statement/Proxy form filed by First Philippine Holdings Corporation with the SEC pursuant to

Section 20 of the SRC, states:

REASON FOR SOLICITATION OF VOTES

The Solicitor is soliciting proxies from stockholders of the Company for the purpose of electing the directors
named under the subject headed Directors in this Statement as well as to vote the matters in the agenda of
the meeting as provided for in the Information Statement of the Company. All of the nominees are current
directors of the Company.[52]
 

Under the circumstances, we do not see it feasible for GSIS to posit that its challenge to the solicitation or validation of proxies

bore no relation at all to the scheduled election of the board of directors of Meralco during the annual meeting. GSIS very well

knew that the controversy falls within the contemplation of an election controversy properly within the jurisdiction of the regular
courts. Otherwise, it would have never filed its original petition with the RTC of Pasay. GSIS may have withdrawn its petition

with the RTC on a new assessment made in good faith that the controversy falls within the jurisdiction of the SEC, yet the reality

is that the reassessment is precisely wrong as a matter of law.

IV.

The lack of jurisdiction of the SEC over the subject matter of GSISs petition necessarily invalidates

the CDO and SDO issued by that body. However, especially with respect to the CDO, there is need for this Court to squarely rule

on the question pertaining to its validity, if only for jurisprudential value and for the guidance of the SEC.

To recount the facts surrounding the issuance of the CDO, GSIS filed its petition with the SEC on 26 May 2008.

The CDO, six (6) pages in all with three (3) pages devoted to the tenability of granting the injunctive relief, was issued on the

very same day, 26 May 2008, without notice or hearing. The CDO bore the signature of Commissioner Jesus Martinez, identified

therein as Officer-in-Charge, and nobody elses.

The provisions of the SRC relevant to the issuance of a CDO are as follows:

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency
and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation
Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the
Commission shall have, among others, the following powers and functions:
 
xxx
 
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
 
xxx
 
[SEC.] 53.3. Whenever it shall appear to the Commission that any person has engaged or is about to
engage in any act or practice constituting a violation of any provision of this Code, any rule, regulation or order
thereunder, or any rule of an Exchange, registered securities association, clearing agency or other self-regulatory
organization, it may issue an order to such person to desist from committing such act or practice:  Provided,
however, That the Commission shall not charge any person with violation of the rules of an Exchange or other
self regulatory organization unless it appears to the Commission that such Exchange or other self-regulatory
organization is unable or unwilling to take action against such person.  After finding that such person has
engaged in any such act or practice and that there is a reasonable likelihood of continuing, further or future
violations by such person, the Commission may issue ex-parte a cease and desist order for a maximum period of
ten (10) days, enjoining the violation and compelling compliance with such provision.  The Commission may
transmit such evidence as may be available concerning any violation of any provision of this Code, or any rule,
regulation or order thereunder, to the Department of Justice, which may institute the appropriate criminal
proceedings under this Code.
 
SEC. 64. Cease and Desist Order.   64.1. The Commission, after proper investigation or
verification, motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist
order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate
as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing
public.
  
 
 
 
 
64.2. Until the Commission issues a cease and desist order, the fact that an investigation has been
initiated or that a complaint has been filed, including the contents of the complaint, shall be confidential. Upon
issuance of a cease and desist order, the Commission shall make public such order and a copy thereof shall be
immediately furnished to each person subject to the order.
 
64.3. Any person against whom a cease and desist order was issued may, within five (5) days from
receipt of the order, file a formal request for a lifting thereof.  Said request shall be set for hearing by the
Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not later than
ten (10) days from the termination of the hearing. If the Commission fails to resolve the request within the time
herein prescribed, the cease and desist order shall automatically be lifted.

 
There are three distinct bases for the issuance by the SEC of the CDO. The first, allocated by Section 5(i), is predicated on a

necessity to prevent fraud or injury to the investing public. No other requisite or detail is tied to this CDO authorized under

Section 5(i).

The second basis, found in Section 53.3, involves a determination by the SEC that any person has engaged or is about to engage

in any act or practice constituting a violation of any provision of this Code, any rule, regulation or order thereunder, or any rule of

an Exchange, registered securities association, clearing agency or other self-regulatory organization. The provision additionally

requires a finding that there is a reasonable likelihood of continuing [or engaging in] further or future violations by such person.

The maximum duration of the CDO issued under Section 53.3 is ten (10) days.

The third basis for the issuance of a CDO is Section 64. This CDO is founded on a determination of an act or practice, which

unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the

investing public. Section 64.1 plainly provides three segregate instances upon which the SEC may issue the CDO under this

provision: (1) after proper investigation or verification, (2) motu proprio, or (3) upon verified complaint by any aggrieved party.

While no lifetime is expressly specified for the CDO under Section 64, the respondent to the CDO may file a formal request for

the lifting thereof, which the SEC must hear within fifteen (15) days from filing and decide within ten (10) days from the hearing.

It appears that the CDO under Section 5(i) is similar to the CDO under Section 64.1. Both require a common finding of a need to

prevent fraud or injury to the investing public. At the same time, no mention is made whether the  CDO defined under Section 5(i)

may be issued ex-parte, while the CDO under Section 64.1 requires grave and irreparable injury, language absent in Section 5(i).

Notwithstanding the similarities between Section 5(i) and Section 64.1, it remains clear that the CDO issued under Section 53.3 is

a distinct creation from that under Section 64.

The Court of Appeals cited the CDO as having been issued in violation of the constitutional provision on due process, which

requires both prior notice and prior hearing. [53] Yet interestingly, the CDO as contemplated in Section 53.3 or in Section 64, may

be issued ex-parte (under Section 53.3) or without necessity of hearing (under Section 64.1). Nothing in these provisions impose

a requisite hearing before the CDO may be issued thereunder. Nonetheless, there are identifiable requisite actions on the part of

the SEC that must be undertaken before the CDO may be issued either under Section 53.3 or Section 64. In the case of Section

53.3, the SEC must make two findings: (1) that such person has engaged in any such act or practice, and (2) that there is a

reasonable likelihood of continuing, (or engaging in) further or future violations by such person. In the case of Section 64, the

SEC must adjudge that the act, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or

irreparable injury or prejudice to the investing public.

Noticeably, the CDO is not precisely clear whether it was issued on the basis of Section 5.1, Section 53.3 or Section 64

of the SRC. The CDO actually refers and cites all three provisions, yet it is apparent that a singular CDO could not be founded on

Section 5.1, Section 53.3 and Section 64 collectively. At the very least, the CDO under Section 53.3 and under Section 64 have

their respective requisites and terms.

GSIS was similarly cagey in its petition before the SEC, it demurring to state whether it was seeking the  CDO under

Section 5.1, Section 53.3, or Section 64. Considering that injunctive relief generally avails upon the showing of a clear legal right

to such relief, the inability or unwillingness to lay bare the precise statutory basis for

the prayer forinjunction is an obvious impediment to a successful

application. Nonetheless, the error of the SEC in granting the CDO without stating which kind of CDO it was issuing is more

unpardonable, as it is an act that contravenes due process of law.

  

We have particularly required, in administrative proceedings, that the body or tribunal in all controversial questions,

render its decision in such a manner that the parties to the proceeding can know the various issues involved, and the reason for

the decision rendered.[54] This requirement is vital, as its fulfillment would afford the adverse party the opportunity to interpose a

reasoned and intelligent appeal that is responsive to the grounds cited against it. The CDO extended by the SEC fails to provide

the needed reasonable clarity of the rationale behind its issuance.

The subject CDO first refers to Section 64, citing its provisions, then stating: [p]rescinding from the aforequoted, there

can be no doubt whatsoever that the Commission is in fact mandated to take up, if expeditiously, any verified complaint praying

for the provisional remedy of a cease and desist order. [55] The CDO then discusses the nature of the right of GSIS to obtain

the CDO, as well as the urgent and paramount necessity to prevent serious damage because the stockholders meeting is scheduled

on May 28, 2008 x x x Had the CDO stopped there, the unequivocal impression would have been that the order is based on

Section 64.

But the CDO goes on to cite Section 5.1, quoting paragraphs (i) and (n) in full, ratiocinating that under these

provisions, the SEC had the power to issue cease and desist orders to prevent fraud or injury to the public and such other

measures necessary to carry out the Commissions role as regulator. [56] Immediately thence, the CDO cites Section 53.3 as

providing that whenever it shall appear to the Commission that nay person has engaged or is about to engage in any act or

practice constituting a violation of any provision, any rule, regulation or order thereunder, the Commission may issue ex-parte a

cease and desist order for a maximum period of ten (10) days, enjoining the violation and compelling compliance therewith. [57]

The citation in the CDO of Section 5.1, Section 53.3 and Section 64 together may leave the impression that it is

grounded on all three provisions, and that may very well have been the intention of the SEC. Assuming that is so, it is legally

impermissible for the SEC to have utilized both Section 53.3 and Section 64 as basis for the  CDO at the same time.

The CDO under Section 53.3 is premised on distinctly different requisites than the CDO under Section 64. Even more crucially,

the lifetime of the CDO under Section 53.3 is confined to a definite span of ten (10) days, which is not the case with

the CDO under Section 64. This CDO under Section 64 may be the object of a formal request for lifting within five (5) days from

its issuance, a remedy not expressly afforded to the CDO under Section 53.3.

Any respondent to a CDO which cites both Section 53.3 and Section 64 would not have an intelligent or adequate basis

to respond to the same. Such respondent would not know whether the CDO would have a determinate lifespan of ten (10) days,

as in Section 53.3, or would necessitate a formal request for lifting within five (5) days, as required under Section 64.1. This lack

of clarity is to the obvious prejudice of the respondent, and is in clear defiance of the constitutional right to due process of law.

Indeed, the veritable mlange that the assailed CDO is, with its jumbled mixture of premises and conclusions, the antithesis of due

process.

Had the CDO issued by the SEC expressed the length of its term, perhaps greater clarity would have been offered on

what Section of the SRC it is based. However, the CDO is precisely silent as to its lifetime, thereby precluding much needed

clarification. In view of the statutory differences among the three CDOs under the SRC, it is essential that the SEC, in issuing

such injunctive relief, identify the exact provision of the SRC on which the CDO is founded. Only by doing so could the

adversely affected party be able to properly evaluate whatever his responses under the law. 

To make matters worse for the SEC, the fact that the CDO was signed, much less apparently deliberated upon, by only

by one commissioner likewise renders the order fatally infirm. 

 
  

The SEC is a collegial body composed of a Chairperson and four (4) Commissioners. [58] In order to constitute a quorum

to conduct business, the presence of at least three (3) Commissioners is required. [59] In the leading case of GMCR v. Bell,[60] we

definitively explained the nature of a collegial body, and how the act of one member of such body, even if the head, could not be

considered as that of the entire body itself. Thus:

 
We hereby declare that the NTC is a collegial body requiring a majority vote out of the three members
of the commission in order to validly decide a case or any incident therein.   Corollarily, the vote alone of the
chairman of the commission, as in this case, the vote of Commissioner Kintanar, absent the required concurring
vote coming from the rest of the membership of the commission to at least arrive at a majority decision, is not
sufficient to legally render an NTC order, resolution or decision.
 
Simply put, Commissioner Kintanar is not the National Telecommunications Commission.   He alone
does not speak for and in behalf of the NTC.  The NTC acts through a three-man body, and the three members
of the commission each has one vote to cast in every deliberation concerning a case or any incident therein that
is subject to the jurisdiction of the NTC.  When we consider the historical milieu in which the NTC evolved into
the quasi-judicial agency it is now under Executive Order No. 146 which organized the NTC as a three-man
commission and expose the illegality of all memorandum circulars negating the collegial nature of the NTC
under Executive Order No. 146, we are left with only one logical conclusion:  the NTC is a collegial body and
was a collegial body even during the time when it was acting as a one-man regime. [61]
 
 

We can adopt a virtually word-for-word observation with respect to former Commissioner Martinez and the SEC. Simply put,

Commissioner Martinez is not the SEC. He alone does not speak for and in behalf of the SEC. The SEC acts through a five-

person body, and the five members of the commission each has one vote to cast in every deliberation concerning a case or any

incident therein that is subject to the jurisdiction of the SEC.

 

GSIS attempts to defend former Commissioner Martinezs action, but its argument is without merit. It cites SEC Order No. 169,

Series of 2008, whereby Martinez was designated as Officer-in-Charge of the Commission for the duration of the official travel

of the Chairperson to Paris, France, to attend the 33rd Annual Conference of the [IOSCO] from May 26-30, 2008. [62] As officer-

in-charge (OIC), Martinez was authorized to sign all documents and papers and perform all other acts and deeds as may be

necessary in the day-to-day operation of the Commission.

It is clear that Martinez was designated as OIC because of the official travel of only one member, Chairperson Fe

Barin. Martinez was not commissioned to act as the SEC itself. At most, he was to act in place of Chairperson Barin in the

exercise of her duties as Chairperson of the SEC. Under Section 4.3 of the SRC, the Chairperson is the chief executive officer of

the SEC, and thus empowered to execute and administer the policies, decisions, orders and resolutions approved by the

Commission, as well as to have the

general executive direction and supervision of the work and operation of the Commission. [63] It is in relation to the exercise of

these duties of the Chairperson, and not to the functions of the Commission, that Martinez was authorized to sign all documents

and papers and perform all other acts and deeds as may be necessary in the day-to-day operation of the Commission.

GSIS likewise cites, as authority for Martinezs unilateral issuance of the CDO, Section 4.6 of the SRC, which states

that the SEC may, for purposes of efficiency, delegate any of its functions to any department or office of the Commission, an

individual Commissioner or staff member of the Commission except its review or appellate authority and its power to adopt, alter

and supplement any rule or regulation. Reliance on this provision is inappropriate. First, there is no convincing demonstration

that the SEC had delegated to Martinez the authority to issue the CDO. The SEC Order designating Martinez as OIC only

authorized him to exercise the functions of the absent Chairperson, and not of the Commission. If the Order is read as

enabling Martinez to issue the CDO in behalf of the Commission, it would be akin to conceding that the SEC Chairperson, acting

alone, can issue the CDO in behalf of the SEC itself. That again contravenes our holding in GMCR v. Bell.
  

In addition, it is clear under Section 4.6 that the ability to delegate functions to a single commissioner does not extend

to the exercise of the review or appellate authority of the SEC. The issuance of the  CDO is an act of the SEC itself done in the

exercise of its original jurisdiction to review actual cases or controversies. If it has not been clear to the SEC before, it should be

clear now that its power to issue a CDO can not, under the SRC, be delegated to an individual commissioner.

V.

In the end, even assuming that the events narrated in our Resolution in A.M. No. 08-8-11-CA constitute sufficient basis to nullify

the assailed decision of the Court of Appeals, still it remains clear that the reliefs GSIS seeks of this Court have no basis in law.

Notwithstanding the black mark that stains the appellate courts decision, the first paragraph of its fallo, to the extent that it

dismissed the complaint of GSIS with the SEC for lack of jurisdiction and consequently nullified the  CDO and SDO, defies

unbiased scrutiny and deserves affirmation.

A.

In its dispositive portion, the Court of Appeals likewise pronounced that the complaint filed by GSIS with the SEC should be

barred from being considered as an election contest in the RTC, given that the fifteen (15) day prescriptive period to file an

election contest with the RTC, under Section 3, Rule 6 of the Interim Rules, had already run its course. [64]Yet no such relief was

requested by private respondents in their petition for certiorari filed with the Court of Appeals [65]. Without disputing the legal

predicates surrounding this pronouncement, we note that its tenor, if not the text, unduly suggests an unwholesome pre-emptive

strike. Given our observations in A.M. No. 08-8-11-CA of the undue interest exhibited by the author of the appellate court

decision, such declaration is best deleted. Nonetheless, we do trust that any court or tribunal that may be confronted with that

premise adverted to by the Court of Appeals would know how to properly treat the same.

B.

Finally, we turn to the sanction on the lawyers of GSIS imposed by the Court of Appeals.

Nonetheless, we find that as a matter of law the sanctions are unwarranted. The charter of GSIS [66] is unique among government

owned or controlled corporations with original charter in that it allocates a role for its internal legal counsel that is in conjunction

with or complementary to the Office of the Government Corporate Counsel (OGCC), which is the statutory legal counsel for

GOCCs. Section 47 of GSIS charter reads:

 
SEC. 47. Legal Counsel.The Government Corporate Counsel shall be the legal adviser and consultant of GSIS,
but GSIS may assign to the Office of the Government Corporate Counsel (OGCC) cases for legal action or trial,
issues for legal opinions, preparation and review of contracts/agreements and others, as GSIS may decide or
determine from time to time: Provided, however, That the present legal services group in GSIS shall serve as its
in-house legal counsel.
 
The GSIS may, subject to approval by the proper court, deputize any personnel of the legal service
group to act as special sheriff in the enforcement of writs and processes issued by the court, quasi-judicial
agencies or administrative bodies in cases involving GSIS. [67]

The designation of the OGCC as the legal counsel for GOCCs is set forth by statute, initially by Rep. Act No. 3838, then

reiterated by the Administrative Code of 1987. [68]Given that the designation is statutory in nature, there is no impediment for
Congress to impose a different role for the OGCC with respect to particular GOCCs it may charter. Congress appears to have

done so with respect to GSIS, designating the OGCC as a legal adviser and consultant, rather than as counsel to GSIS. Further,

the law clearly vests unto GSIS the discretion, rather than the duty, to assign cases to the OGCC for legal action, while

designating the present legal services group of GSIS as in-house legal counsel. This situates GSIS differently from the Land Bank

of the Philippines, whose own in-house lawyers have persistently argued before this Court to no avail on their alleged right

to file petitions before us instead of the OGCC. [69] Nothing in the Land Bank charter[70] vested it with the discretion to choose

when to assign

cases to the OGCC, notwithstanding the establishment of its own Legal Department. [71]

Congress is not bound to retain the OGCC as the primary or exclusive legal counsel of GSIS even if it performs such a

role for other GOCCs. To bind Congress to perform in that manner would be akin to elevating the OGCCs statutory role to

irrepealable status, and it is basic that Congress is barred from passing irrepealable laws. [72]

C.

We close by acknowledging that the surrounding circumstances behind these petitions are unfortunate, given the events

as narrated in A.M. No. 08-8-11-CA. While due punishment has been meted on the errant magistrates, the corporate world may

very well be reminded that the members of the judiciary are not to be viewed or treated as

mere pawns or puppets in the internecine fights businessmen and their associates wage against other businessmen in the quest for

corporate dominance. In the end, the petitions did afford this Court to clarify consequential points of law, points rooted in

principles which will endure long after the names of the participants in these cases have been forgotten.

WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for lack of capacity of the petitioner to bring forth the suit.

The petition in G.R. No. 183905 is DISMISSED for lack of merit except that the second and third paragraphs of the fallo of the

assailed decision dated 23 July 2008 of the Court of Appeals, including subparagraphs (1), (2), 2(a), 2(b), 2(c) and 2(d) under the

second paragraph, are hereby DELETED.

No pronouncements as to costs.
 

SO ORDERED.

MATLING INDUSTRIAL G.R. No. 157802

AND COMMERCIAL CORPORATION,  
RICHARD K. SPENCER, Present:
CATHERINE SPENCER,  
AND ALEX MANCILLA, CARPIO MORALES, Chairperson,
Petitioners, BRION,
  BERSAMIN,
  VILLARAMA, JR., and
-versus - SERENO, JJ.
   
  Promulgated:
RICARDO R. COROS, October 13, 2010
Respondent.
x-----------------------------------------------------------------------------------------x
 
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,

2002  and the resolution dated April 2, 2003, [2] both promulgated in C.A.-G.R. SP No. 65714 entitled Matling Industrial and
[1]

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 Matlings 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 Matlings 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
APPELLEES MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO
FILE HIS OPPOSITION THERETO THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE
PROCESS.
 
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 respondents 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 Matlings 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 LAs jurisdiction.

The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified machine copies

of Matlings 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 Matlings

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.

 
[12]
In its assailed decision promulgated on September 13, 2002,  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.
The position of vice-president for administration and finance, which Coros used to hold in the
corporation, was not created by the corporations 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 Matlings 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
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 (P5,000.00) regardless of whether accompanied
with a claim for reinstatement.
 
(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 SECs 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 Commissions 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 respondents 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 Respondents Position of Vice President
for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondents 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 Matlings 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 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 Matlings 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 Matlings By-Laws did not list his position as Vice President for Finance and Administration as one

of the corporate offices; that Matlings 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 Matlings 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 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 corporations 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 Matlings 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 Matlings President to create non-corporate offices to be occupied by ordinary employees of Matling. Such
powers were incidental to the Presidents 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 SECs 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
Did Respondents 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 Commission[24] 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 respondents 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 Matlings 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;
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 respondents 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.

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
which she occupied until her illegal dismissal on July 19, 1991. The banks contention that she merely
holds an elective position and that in effect she is not a regular employee is belied by the nature of her
work and her length of service with the Bank.  As earlier stated, she rose from the ranks and has been
employed with the Bank since 1963 until the termination of her employment in 1991.  As Assistant Vice
President of the Foreign Department of the Bank, she is tasked, among others, to collect checks drawn against
overseas banks payable in foreign currency and to ensure the collection of foreign bills or checks purchased,
 including the signing of transmittal letters covering the same.  It has been stated that the primary standard of
determining regular employment is the reasonable connection between the particular activity performed by
the employee in relation to the usual trade or business of the employer. Additionally, an employee is regular
because of the nature of work and the length of service, not because of the mode or even the reason for hiring
them. As Assistant Vice-President of the Foreign Department of the Bank she performs  tasks integral to the
operations 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 fine, as a regular employee, she is entitled to security of tenure; that is,
her services may be terminated only for a just or authorized cause. This being in truth a case of illegal
dismissal, it is no wonder then that 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.

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.

 
SO ORDERED.
 

POLIAND INDUSTRIAL LIMITED, petitioner, vs. NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT

BANK OF THE PHILIPPINES, and THE HONORABLE COURT OF APPEALS (Fourteenth
Division) respondents.

[G.R. No. 143877. August 22, 2005]

NATIONAL DEVELOPMENT COMPANY, petitioner, vs. POLIAND INDUSTRIAL LIMITED, respondent.

DECISION
TINGA, J.:

Before this Court are two Rule 45 consolidated petitions for review seeking the review of the Decision[1] of the Court of
Appeals (Fourth Division) in CA-G.R. CV No. 53257, which modified the Decision of the Regional Trial Court, Branch 61,
Makati City in Civil Case No. 91-2798. Upon motion of the Development Bank of the Philippines (DBP), the two petitions were
consolidated since both assail the same Decision of the Court of Appeals.
In G.R. No. 143866, petitioner Poliand Industrial Limited (POLIAND) seeks judgment declaring the National Development
Company (NDC) and the DBP solidarily liable in the amount of US$2,315,747.32, representing the maritime lien in favor of
POLIAND and the net amount of loans incurred by Galleon Shipping Corporation (GALLEON). It also prays that NDC and DBP
be ordered to pay the attorneys fees and costs of the proceedings as solidary debtors. In G.R. No. 143877, petitioner NDC seeks
the reversal of the Court of Appeals Decision ordering it to pay POLIAND the amount of One Million Nine Hundred Twenty
Thousand Two Hundred Ninety-Eight and 56/100 United States Dollars (US$1,920,298.56), corresponding to the maritime lien
in favor of POLIAND, plus interest.

ANTECEDENTS

The following factual antecedents are matters of record.

Between October 1979 and March 1981, Asian Hardwood Limited (Asian Hardwood), a Hong Kong corporation, extended
credit accommodations in favor of GALLEON totaling US$3,317,747.32. [2] At that time, GALLEON, a domestic corporation
organized in 1977 and headed by its president, Roberto Cuenca, was engaged in the maritime transport of goods. The advances
were utilized to augment GALLEONs working capital depleted as a result of the purchase of five new vessels and two second-
hand vessels in 1979 and competitiveness of the shipping industry. GALLEON had incurred an obligation in the total amount of
US$3,391,084.91 in favor of Asian Hardwood.
To finance the acquisition of the vessels, GALLEON obtained loans from Japanese lenders, namely, Taiyo Kobe Bank,
Ltd., Mitsui Bank Ltd. and Marubeni Benelux. On October 10, 1979, GALLEON, through Cuenca, and DBP executed a  Deed of
Undertaking[3] whereby DBP guaranteed the prompt and punctual payment of GALLEONs borrowings from the Japanese
lenders. To secure DBPs guarantee under the Deed of Undertaking, GALLEON promised, among others, to secure a first
mortgage on the five new vessels and on the second-hand vessels. Thus, GALLEON executed on January 25, 1982 a mortgage
contract over five of its vessels namely, M/V Galleon Honor, M/V Galleon Integrity, M/V Galleon Dignity, M/V Galleon Pride,
and M/V Galleon Trust in favor of DBP.[4]
Meanwhile, on January 21, 1981, President Ferdinand Marcos issued Letter of Instruction (LOI) No. 1155, directing NDC
to acquire the entire shareholdings of GALLEON for the amount originally contributed by its shareholders payable in five (5)
years without interest cost to the government. In the same LOI, DBP was to advance to GALLEON within three years from its
effectivity the principal amount and the interest thereon of GALLEONs maturing obligations.
On August 10, 1981, GALLEON, represented by its president, Cuenca, and NDC, represented by Minister of Trade
Roberto Ongpin, forged a Memorandum of Agreement,[5] whereby NDC and GALLEON agreed to execute a share purchase
agreement within sixty days for the transfer of GALLEONs shareholdings. Thereafter, NDC assumed the management and
operations of GALLEON although Cuenca remained president until May 9, 1982. [6] Using its own funds, NDC paid Asian
Hardwood on January 15, 1982 the amount of US$1,000,000.00 as partial settlement of GALLEONs obligations. [7]
On February 10, 1982, LOI No. 1195 was issued directing the foreclosure of the mortgage on the five vessels. For failure of
GALLEON to pay its debt despite repeated demands from DBP, the vessels were extrajudicially foreclosed on various dates and
acquired by DBP for the total amount of P539,000,000.00. DBP subsequently sold the vessels to NDC for the same amount. [8]
On April 22, 1982, the Board of Directors of GALLEON amended the Articles of Incorporation changing the corporate
name from Galleon Shipping Corporation to National Galleon Shipping Corporation and increasing the number of directors from
seven to nine.[9]
Asian Hardwood assigned its rights over the outstanding obligation of GALLEON of US$2,315,747.32 to World Universal
Trading and Investment Company, S.A. (World Universal), embodied in a Deed of Assignment executed on April 29, 1989.
[10]
 World Universal, in turn, assigned the credit to petitioner POLIAND sometime in July 1989. [11]
On March 24, 1988, then President Aquino issued Administrative Order No. 64, directing NDC and Philippine Export and
Foreign Loan Guarantee Corporation (now Trade and Investment Development Corporation of the Philippines) to transfer some
of their assets to the National Government, through the Asset Privatization Trust (APT) for disposition. Among those transferred
to the APT were the five GALLEON vessels sold at the foreclosure proceedings.
On September 24, 1991, POLIAND made written demands on GALLEON, NDC, and DBP for the satisfaction of the
outstanding balance in the amount of US$2,315,747.32.[12] For failure to heed the demand, POLIAND instituted a collection suit
against NDC, DBP and GALLEON filed on October 10, 1991 with the Regional Trial Court, Branch 61, Makati City. POLIAND
claimed that under LOI No. 1155 and the Memorandum of Agreement between GALLEON and NDC, defendants GALLEON,
NDC, and DBP were solidarily liable to POLIAND as assignee of the rights of the credit advances/loan accommodations to
GALLEON. POLIAND also claimed that it had a preferred maritime lien over the proceeds of the extrajudicial foreclosure sale
of GALLEONs vessels mortgaged by NDC to DBP. The complaint prayed for judgment ordering NDC, DBP, and GALLEON to
pay POLIAND jointly and severally the balance of the credit advances/loan accommodations in the amount of US$2,315,747.32
and attorneys fees of P100,000.00 plus 20% of the amount recovered. By way of an alternative cause of action, POLIAND sought
reimbursement from NDC and DBP for the preferred maritime lien of US$1,193,298.56. [13]
In its Answer with Compulsory Counterclaim and Cross-claim, DBP denied being a party to any of the alleged loan
transactions. Accordingly, DBP argued that POLIANDs complaint stated no cause of action against DBP or was barred by the
Statute of Frauds because DBP did not sign any memorandum to act as guarantor for the alleged credit advances/loan
accommodations in favor of POLIAND. DBP also denied any liability under LOI No. 1155, which it described as immoral and
unconstitutional, since it was rescinded by LOI No. 1195. By way of its Affirmative Allegations and Defenses, DBP countered
that it was unaware of the maritime lien on the five vessels mortgaged in its favor and that as far as GALLEONs foreign
borrowings are concerned, DBP agreed to act as guarantor thereof only under the conditions laid down under the  Deed of
Undertaking. DBP prayed for the award of actual, moral and exemplary damages and attorneys fees against POLIAND as
compulsory counterclaim. In the event that it be adjudged liable for the payment of the loan accommodations and the maritime
liens, DBP prayed that its co-defendant GALLEON be ordered to indemnify DBP for the full amount. [14]
For its part, NDC denied any participation in the execution of the loan accommodations/credit advances and acquisition of
ownership of GALLEON, asserting that it acted only as manager of GALLEON. NDC specifically denied having agreed to the
assumption of GALLEONs liabilities because no purchase and sale agreement was executed and the delivery of the required
shares of stock of GALLEON did not take place.[15]
Upon motion by POLIAND, the trial court dropped GALLEON as a defendant, despite vigorous oppositions from NDC
and DBP. At the pre-trial conference on April 29, 1993, the trial court issued an  Order limiting the issues to the following: (1)
whether or not GALLEON has an outstanding obligation in the amount of US$2,315,747.32; (2) whether or not NDC and DBP
may be held solidarily liable therefor; and (3) whether or not there exists a preferred maritime lien of P1,000,000.00 in favor of
POLIAND.[16]
After trial on the merits, the court a quo rendered a decision on August 9, 1996 in favor of POLIAND. Finding that
GALLEONs loan advances/credit accommodations were duly established by the evidence on record, the trial court concluded
that under LOI No. 1155, DBP and NDC are liable for those obligations. The trial court also found NDC liable for GALLEONs
obligations based on the Memorandum of Agreement dated August 1981 executed between GALLEON and NDC, where it was
provided that NDC shall prioritize repayments of GALLEONs valid and subsisting liabilities subject of a meritorious lawsuit or
which have been arranged and guaranteed by Cuenca. The trial court was of the opinion that despite the subsequent issuance of
LOI No. 1195, NDC and DBPs obligation under LOI No. 1155 subsisted because vested rights of the parties have arisen
therefrom. Accordingly, the trial court interpreted LOI No. 1195s directive to limit and protect to mean that DBP and NDC
should not assume or incur additional exposure with respect to GALLEON. [17]
The trial court dismissed NDCs argument that the Memorandum of Agreement was merely a preliminary agreement, noting
that under paragraph nine thereof, the only condition for the payment of GALLEONs subsisting loans by NDC was the
determination by the latter that those obligations were incurred in the ordinary course of GALLEONs business. The trial court did
not regard the non-execution of the stock purchase agreement as fatal to POLIANDs cause since its non-happening was solely
attributable to NDC. The trial court also ruled that POLIAND had preference to the maritime lien over the proceeds of the
extrajudicial foreclosure sale of GALLEONs vessels since the loan advances/credit accommodations utilized for the payment of
expenses on the vessels were obtained prior to the constitution of the mortgage in favor of DBP.
In sum, NDC and DBP were ordered to pay POLIAND as follows:

WHEREFORE, premises above considered, judgment is hereby rendered for plaintiff as against defendants DBP and NDC, who
are hereby ORDERED as follows:

1. To jointly and severally PAY plaintiff POLIAND the amount of TWO MILLION THREE HUNDRED FIFTEEN
THOUSAND SEVEN HUNDRED FORTY SEVEN AND 21/100 [sic] United States Dollars (US$2,315,747.32) computed at the
official exchange rate at the time of payment, plus interest at the rate of 12% per annum from 25 September 1991 until fully paid;

2. To PAY the amount of ONE MILLION (P1,000,000.) Pesos, Philippine Currency, for and as attorneys fees; and

3. To PAY the costs of the proceedings.

SO ORDERED.[18]

Both NDC and DBP appealed the trial courts decision.

The Court of Appeals rendered a modified judgment, absolving DBP of any liability in view of POLIANDs failure to
clearly prove its action against DBP. The appellate court also discharged NDC of any liability arising from the credit
advances/loan obligations obtained by GALLEON on the ground that NDC did not acquire ownership of GALLEON but merely
assumed control over its management and operations. However, NDC was held liable to POLIAND for the payment of the
preferred maritime lien based on LOI No. 1195 which directed NDC to discharge such maritime liens as may be necessary to
allow the foreclosed vessels to engage on the international shipping business, as well as attorneys fees and costs of suit. The
dispositive portion of the Decision reads:

WHEREFORE, the assailed decision is MODIFIED, in accordance with the foregoing findings, as follows:

The case against defendant-appellant DBP is hereby DISMISSED.

Defendant-appellant NDC is hereby ordered to pay plaintiff-appellee POLIAND the amount of US$1,920,298.56 plus legal
interest effective September 12, 1984.

The award of attorneys fees and cost of suit is addressed only against NDC.

Costs against defendant-appellant NDC.

SO ORDERED.[19]

Not satisfied with the modified judgment, both POLIAND and NDC elevated it to this Court via two separate petitions for
review on certiorari. In G.R. No. 143866 filed on August 21, 2000, petitioner POLIAND raises the following arguments:

RESPONDENT COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERRORS IN ITS QUESTIONED
DECISION DATED 29 JUNE 2000 AND DECIDED QUESTIONS CONTRARY TO LAW AND THE APPLICABLE
DECISIONS OF THE HONORABLE COURT WHEN IT MODIFIED THE DECISION DATED 09 AUGUST 1996
RENDERED BY THE REGIONAL TRIAL COURT (BRANCH 61) CONSIDERING THAT:

A.

CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, RESPONDENT NDC NOT ONLY TOOK
OVER TOTALLY THE MANAGEMENT AND CONTROL OF GALLEON BUT ALSO ASSUMED OWNERSHIP OF
GALLEON PURSUANT TO LOI NO. 1155 AND THE MEMORANDUM OF AGREEMENT DATED 10 AUGUST 1981;
THUS, RESPONDENT NDCS ACQUISITION OF FULL OWNERSHIP AND CONTROL OF GALLEON CARRIED WITH
IT THE ASSUMPTION OF THE LATTERS LIABILITIES TO THIRD PARTIES SUCH AS ASIAN HARDWOOD,
PETITIONER POLIANDS PREDECESSOR-IN-INTEREST.

B.

RESPONDENT COURT OF APPEALS, IN VIOLATION OF THE CONSTITUTION AND THE RULES OF COURT,
DISMISSED THE CASE AGAINST RESPONDENT DBP WITHOUT STATING CLEARLY AND DISTINCTLY THE
REASONS FOR SUCH A DISMISSAL.

C.

CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, PETITIONER POLIAND WAS ABLE TO
ESTABLISH THAT RESPONDENT DBP IS SOLIDARILY LIABLE, TOGETHER WITH RESPONDENT NDC, WITH
RESPECT TO THE NET TOTAL AMOUNT OWING TO PETITIONER POLIAND.

D.

RESPONDENT COURT OF APPEALS GRAVELY ERRED ALSO IN NOT FINDING THAT RESPONDENT DBP IS
JOINTLY AND SOLIDARILY LIABLE WITH RESPONDENT NDC FOR THE PAYMENT OF MARITIME LIENS PLUS
INTEREST PURSUANT TO SECTION 17 OF PRESIDENTIAL DECREEE 1521. [20]
 On August 25, 2000, NDC filed its petition, docketed as G.R. No. 143877, imputing the following errors to the Court of
Appeals:
I.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER NDC IS LIABLE TO PAY GALLEONS
OUTSTANDING OBLIGATION TO RESPONDENT POLIAND IN THE AMOUNT OF US$ 1,920,298.56, TO SATISFY
THE PREFERRED MARITIME LIENS OVER THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE GALLEON
VESSELS.

(A) PRESIDENTIAL DECREE NO. 1521 OTHERWISE KNOWN AS THE SHIP MORTGAGE DECREE OF 1978 IS NOT
APPLICABLE IN THE CASE AT BAR.

(B) PETITIONER NDC DOES NOT HOLD THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE (5) GALLEON
VESSELS.

(C) THE FORECLOSURE SALE OF THE FIVE (5) GALLEON VESSELS EXTINGUISHES ALL CLAIMS AGAINST THE
VESSELS.

II.

THE COURT OF APPEALS ERRED IN AWARDING ATTORNEYS FEES TO RESPONDENT POLIAND. [21]

The two petitions were consolidated considering that both petitions assail the same Court of Appeals Decision, although on
different fronts. In G.R. No. 143866, POLIAND questions the appellate courts finding that neither NDC nor DBP can be held
liable for the loan accommodations to GALLEON. In G.R. No. 143877, NDC asserts that it is not liable to POLIAND for the
preferred maritime lien.

ISSUES

The bone of contention revolves around two main issues, namely: (1) Whether NDC or DBP or both are liable to
POLIAND on the loan accommodations and credit advances incurred by GALLEON, and (2) Whether POLIAND has a maritime
lien enforceable against NDC or DBP or both.

RULING of the COURT

I. Liability on loan accommodations

and credit advances incurred by GALLEON
The Court of Appeals reversed the trial courts conclusion that NDC and DBP are both liable to POLIAND for GALLEONs
debts on the basis of LOI No. 1155 and the Memorandum of Agreement. It ratiocinated thus:

With respect to appellant NDC, resolution of the matters raised in its assignment of errors hinges on whether or not it acquired
the shareholdings of GALLEON as directed by LOI 1155; and if in the negative, whether or not it is liable to pay GALLEONs
outstanding obligation.

The Court answers the issue in the negative. The MOA executed by GALLEON and NDC following the issuance of LOI 1155
called for the execution of a formal share purchase agreement and the transfer of all the shareholdings of seller to Buyer. Since no
such execution and consequent transfer of shareholdings took place, NDC did not acquire ownership of GALLEON. It merely
assumed actual control over the management and operations of GALLEON in the exercise of which it, on January 15, 1982, after
being satisfied of the existence of GALLEONs obligation to ASIAN HARDWOOD, partially paid the latter One Million
($1,000,000.00) US dollars.[22]

....

With respect to defendant-appellant DBP, POLIAND failed to clearly prove its cause of action against it. This leaves it
unnecessary to dwell on DBPs other assigned errors, including that bearing on its claim for damages and attorneys fees which
does not persuade.[23]

POLIANDs cause of action against NDC is premised on the theory that when NDC acquired all the shareholdings of
GALLEON, the former also assumed the latters liabilities, including the loan advances/credit accommodations obtained by
GALLEON from POLIANDs predecessors-in-interest. In G.R. No. 143866, POLIAND argues that NDC acquired ownership of
GALLEON pursuant to paragraphs 1 and 2 of LOI No. 1155, which was implemented through the execution of the  Memorandum
of Agreement. It believes that no conditions were required prior to the assumption by NDC of GALLEONs ownership and
subsisting loans. Even assuming that conditions were set, POLIAND opines that the conditions were deemed fulfilled pursuant to
Article 1186 of the Civil Code because of NDCs apparent intent to prevent the execution of the share purchase agreement. [24]
On the other hand, NDC asserts that it could not have acquired GALLEONs equity and, consequently, its liabilities because
LOI No. 1155 had been rescinded by LOI No. 1195, and therefore, became inoperative and non-existent. Moreover, NDC,
relying on the pronouncements in Philippine Association of Service Exporters, Inc. et al. v. Ruben D. Torres [25] and Parong, et al.
v. Minister Enrile,[26] is of the opinion that LOI No. 1155 does not have the force and effect of law and cannot be a valid source of
obligation.[27] NDC denies POLIANDs contention that it deliberately prevented the execution of the share purchase agreement
considering that Cuenca remained GALLEONs president seven months after the signing of the Memorandum of Agreement.
[28]
 NDC contends that the Memorandum of Agreement was a mere preliminary agreement between Cuenca and Ongpin for the
intended purchase of GALLEONs equity, prescribing the manner, terms and conditions of said purchase. [29]
NDC, not liable under LOI No. 1155
As a general rule, letters of instructions are simply directives of the President of the Philippines, issued in the exercise of
his administrative power of control, to heads of departments and/or officers under the executive branch of the government for
observance by the officials and/or employees thereof. [30] Being administrative in nature, they do not have the force and effect of a
law and, thus, cannot be a valid source of obligation. However, during the period when then President Marcos exercised
extraordinary legislative powers, he issued certain decrees, orders and letters of instruction which the Court has declared as
having the force and effect of a statute. As pointed out by the Court in Legaspi v. Minister of Finance,[31]paramount
considerations compelled the grant of extraordinary legislative power to the President at that time when the nation was beset with
threats to public order and the purpose for which the authority was granted was specific to meet the exigencies of that period,
thus:

True, without loss of time, President Marcos made it clear that there was no military take-over of the government, and that much
less was there being established a revolutionary government, even as he declared that said martial law was of a double-barrelled
type, unfamiliar to traditional constitutionalists and political scientistsfor two basic and transcendental objectives were intended
by it: (1) the quelling of nation-wide subversive activities characteristic not only of a rebellion but of a state of war fanned by a
foreign power of a different ideology from ours, and not excluding the stopping effectively of a brewing, if not a strong separatist
movement in Mindanao, and (2) the establishment of a New Society by the institution of disciplinary measures designed to
eradicate the deep-rooted causes of the rebellion and elevate the standards of living, education and culture of our people, and
most of all the social amelioration of the poor and underprivileged in the farms and in the barrios, to the end that hopefully
insurgency may not rear its head in this country again. [32]

Thus, before a letter of instruction is declared as having the force and effect of a statute, a determination of whether or not
it was issued in response to the objectives stated in Legaspiis necessary. Parong, et al. v. Minister Enrile [33] differentiated
between LOIs in the nature of mere administrative issuances and those forming part of the law of the land. The following
conditions must be established before a letter of instruction may be considered a law:

To form part of the law of the land, the decree, order or LOI must be issued by the President in the exercise of his extraordinary
power of legislation as contemplated in Section 6 of the 1976 amendments to the Constitution, whenever in his judgment, there
exists a grave emergency or threat or imminence thereof, or whenever the interim Batasan Pambansa or the regular National
Assembly fails or is unable to act adequately on any matter for any reason that in his judgment requires immediate action. [34]

Only when issued under any of the two circumstances will a decree, order, or letter be qualified as having the force and
effect of law. The decree or instruction should have been issued either when there existed a grave emergency or threat or
imminence or when the Legislature failed or was unable to act adequately on the matter. The qualification that  there exists a
grave emergency or threat or imminence thereof must be interpreted to refer to the prevailing peace and order conditions because
the particular purpose the President was authorized to assume legislative powers was to address the deteriorating peace and order
situation during the martial law period.
There is no doubt that LOI No. 1155 was issued on July 21, 1981 when then President Marcos was vested with
extraordinary legislative powers. LOI No. 1155 was specifically directed to DBP, NDC and the Maritime Industry Authority to
undertake the following tasks:

LETTER OF INSTRUCTIONS NO. 1155

DEVELOPMENT BANK OF THE PHILIPPINES

NATIONAL DEVELOPMENT COMPANY
MARITIME INDUSTRY AUTHORITY

DIRECTING A REHABILITATION PLAN FOR GALLEON SHIPPING CORPORATION

....

1. NDC shall acquire 100% of the shareholdings of Galleon Shipping Corporation from its present owners for the amount
of P46.7 million which is the amount originally contributed by the present shareholders, payable after five years with no interest
cost.

2. NDC to immediately infuse P30 million into Galleon Shipping Corporation in lieu of is previously approved subscription to
Philippine National Lines. In addition, NDC is to provide additional equity to Galleon as may be required.

3. DBP to advance for a period of three years from date hereof both the principal and the interest on Galleon's obligations falling
due and to convert such advances into 12% preferred shares in Galleon Shipping Corporation.

4. DBP and NDC to negotiate a restructuring of loans extended by foreign creditors of Galleon.

5. MARINA to provide assistance to Galleon by mandating a rational liner shipping schedule considering existing freight
volumes and to immediately negotiate a bilateral agreement with the United States in accordance with UNCTAD resolutions.

....

Although LOI No. 1155 was undoubtedly issued at the time when the President exercised legislative powers granted under
Amendment No. 6 of the 1973 Constitution, the language and purpose of LOI No. 1155 precludes this Court from declaring that
said LOI had the force and effect of law in the absence of any of the conditions set out in  Parong. The subject matter of LOI No.
1155 is not connected, directly or remotely, to a grave emergency or threat to the peace and order situation of the nation in
particular or to the public interest in general. Nothing in the language of LOI No. 1155 suggests that it was issued to address the
security of the nation. Obviously, LOI No. 1155 was in the nature of a mere administrative issuance directed to NDC, DBP and
MARINA to undertake a policy measure, that is, to rehabilitate a private corporation.
NDC, not liable under the Corporation Code
The Court cannot accept POLIANDs theory that with the effectivity of LOI No. 1155, NDC ipso facto acquired the
interests in GALLEON without disregarding applicable statutory requirements governing the acquisition of a corporation.
Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the
combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving
corporation.[35] The merger, however, does not become effective upon the mere agreement of the constituent corporations. [36]
As specifically provided under Section 79[37] of said Code, the merger shall only be effective upon the issuance of a
certificate of merger by the Securities and Exchange Commission (SEC), subject to its prior determination that the merger is not
inconsistent with the Code or existing laws. Where a party to the merger is a special corporation governed by its own charter, the
Code particularly mandates that a favorable recommendation of the appropriate government agency should first be obtained. The
issuance of the certificate of merger is crucial because not only does it bear out SECs approval but also marks the moment
whereupon the consequences of a merger take place. By operation of law, upon the effectivity of the merger, the absorbed
corporation ceases to exist but its rights, and properties as well as liabilities shall be taken and deemed transferred to and vested
in the surviving corporation.[38]
The records do not show SEC approval of the merger. POLIAND cannot assert that no conditions were required prior to the
assumption by NDC of ownership of GALLEON and its subsisting loans. Compliance with the statutory requirements is a
condition precedent to the effective transfer of the shareholdings in GALLEON to NDC. In directing NDC to acquire the
shareholdings in GALLEON, the President could not have intended that the parties disregard the requirements of law. In the
absence of SEC approval, there was no effective transfer of the shareholdings in GALLEON to NDC. Hence, NDC did not
acquire the rights or interests of GALLEON, including its liabilities.
DBP, not liable under LOI No. 1155
POLIAND argues that paragraph 3 of LOI No. 1155 unequivocally obliged DBP to advance the obligations of GALLEON.
[39]
 DBP argues that POLIAND has no cause of action against it under LOI No. 1155 which is void and unconstitutional. [40]
The Court affirms the appellate courts ruling that POLIAND does not have any cause of action against DBP under LOI No.
1155. Being a mere administrative issuance, LOI No. 1155 cannot be a valid source of obligation because it did not create any
privity of contract between DBP and POLIAND or its predecessors-in-interest. At best, the directive in LOI No. 1155 was in the
nature of a grant of authority by the President on DBP to enter into certain transactions for the satisfaction of GALLEONs
obligations. There is, however, nothing from the records of the case to indicate that DBP had acted as surety or guarantor, or had
otherwise accommodated GALLEONs obligations to POLIAND or its predecessors-in-interest.

II. Liability on maritime lien

On the second issue of whether or not NDC is liable to POLIAND for the payment of maritime lien, the appellate court
ruled in the affirmative, to wit:

Non-acquisition of ownership of GALLEON notwithstanding, NDC is liable to pay ASIAN HARDWOODs successor-in-interest
POLIAND the equivalent of US$1,930,298.56 representing the proceeds of the loan from Asian Hardwood which were spent by
GALLEON for ship modification and salaries of crew, to satisfy the preferred maritime liens over the proceeds of the foreclosure
sale of the 5 vessels.[41]

POLIAND contends that NDC can no longer raise the issue on the latters liability for the payment of the maritime lien
considering that upon appeal to the Court of Appeals, NDC did not assign it as an error. [42] Generally, an appellate court may only
pass upon errors assigned. However, this rule is not without exceptions. In the following instances, the Court ruled that an
appellate court is accorded a broad discretionary power to waive the lack of assignment of errors and consider errors not
assigned:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter;
(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice;
(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;
(e) Matters not assigned as errors on appeal but closely related to an error assigned;
(f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is
dependent.[43]
It is noteworthy that the question of NDC and DBPs liability on the maritime lien had been raised by POLIAND as an
alternative cause of action against NDC and DBP and was passed upon by the trial court. The Court of Appeals, however,
reversed the trial courts finding that NDC and DBP are liable to POLIAND for the payment of the credit advances and loan
accommodations and instead found NDC to be solely liable on the preferred maritime lien although NDC did not assign it as an
error.
The records, however, reveal that the issue on the liability on the preferred maritime lien had been properly raised and
argued upon before the Court of Appeals not by NDC but by DBP who was also adjudged liable thereon by the trial court. DBPs
appellants brief[44] pointed out POLIANDs failure to present convincing evidence to prove its alternative cause of action, which
POLIAND disputed in its appellees brief. [45] The issue on the maritime lien is a matter of record having been adequately
ventilated before and passed upon by the trial court and the appellate court. Thus, by way of exception, NDC is not precluded
from again raising the issue before this Court even if it did not specifically assign the matter as an error before the Court of
Appeals. Besides, this Court is clothed with ample authority to review matters, even if they are not assigned as errors in the
appeal if it finds that their consideration is necessary in arriving at a just decision of the case. [46]
 Articles 578 and 580 of the Code
of Commerce, not applicable

NDC cites Articles 578[47] and 580[48] of the Code of Commerce to bolster its argument that the foreclosure of the vessels
extinguished all claims against the vessels including POLIANDs claim. [49] Article 578 of the Code of Commerce is not relevant to
the facts of the instant case because it governs the sale of vessels in a foreign port. Said provision outlines the formal and
registration requirements in order that a sale of a vessel on voyage or in a foreign port becomes effective as against third persons.
On the other hand, the resolution of the instant case depends on the determination as to which creditor is entitled to the proceeds
of the foreclosure sale of the vessels. Clearly, Article 578 of the Code of Commerce is inapplicable.
Article 580, while providing for the order of payment of creditors in the event of sale of a vessel, had been repealed by the
pertinent provisions of Presidential Decree (P.D.) No. 1521, otherwise known as the Ship Mortgage Decree of 1978. In particular,
Article 580 provides that in case of the judicial sale of a vessel for the payment of creditors, the debts shall be satisfied in the
order specified therein. On the other hand, Section 17 of P.D. No. 1521 [50] also provides that in the judicial or extrajudicial sale of
a vessel for the enforcement of a preferred mortgage lien constituted in accordance with Section 2 of P.D. No. 1521, such
preferred mortgage lien shall have priority over all pre-existing claims against the vessel, save for those claims enumerated under
Section 17, which have preference over the preferred mortgage lien in the order stated therein. Since P.D. No. 1521 is a
subsequent legislation and since said law in Section 17 thereof confers on the preferred mortgage lien on the vessel superiority
over all other claims, thereby engendering an irreconcilable conflict with the order of preference provided under Article 580 of
the Code of Commerce, it follows that the Code of Commerce provision is deemed repealed by the provision of P.D. No. 1521,
as the posterior law.[51]

P.D. No. 1521 is applicable, not the

Civil Code provisions on
concurrence/preference of
credits

Whether or not the order of preference under Section 17, P.D. No. 1521 may be properly applied in the instant case
depends on the classification of the mortgage on the GALLEON vessels, that is, if it falls within the ambit of Section 2, P.D. No.
1521, defining how a preferred mortgage is constituted.
NDC and DBP both argue that POLIANDs claim cannot prevail over DBPs mortgage credit over the foreclosed vessels
because the mortgage executed in favor of DBP pursuant to the October 10, 1979  Deed of Undertaking signed by GALLEON
and DBP was an ordinary ship mortgage and not a preferred one, that is, it was not given in connection with the construction,
acquisition, purchase or initial operation of the vessels, but for the purpose of guaranteeing GALLEONs foreign borrowings. [52]
Section 2 of P.D. No. 1521 recognizes the constitution of a mortgage on a vessel, to wit:

SECTION 2. Who may Constitute a Ship Mortgage. Any citizen of the Philippines, or any association or corporation organized
under the laws of the Philippines, at least sixty per cent of the capital of which is owned by citizens of the Philippines may, for
the purpose of financing the construction, acquisition, purchase of vessels or initial operation of vessels, freely constitute a
mortgage or any other lien or encumbrance on his or its vessels and its equipment with any bank or other financial institutions,
domestic or foreign.

If the mortgage on the vessel is constituted for the purpose stated under Section 2, the mortgage obtains a preferred status
provided the formal requisites enumerated under Section 4 [53] are complied with. Upon enforcement of the preferred mortgage
and eventual foreclosure of the vessel, the proceeds of the sale shall be first applied to the claim of the mortgage creditor unless
there are superior or preferential liens, as enumerated under Section 17, namely:

SECTION 17. Preferred Maritime Lien, Priorities, Other Liens. (a) Upon the sale of any mortgaged vessel in any extra-judicial
sale or by order of a district court of the Philippines in any suit in rem in admiralty for the enforcement of a preferred mortgage
lien thereon, all pre-existing claims in the vessel, including any possessory common-law lien of which a lienor is deprived under
the provisions of Section 16 of this Decree, shall be held terminated and shall thereafter attach in like amount and in accordance
with the priorities established herein to the proceeds of the sale. The preferred mortgage lien shall have priority over all claims
against the vessel, except the following claims in the order stated: (1) expenses and fees allowed and costs taxed by the court
and taxes due to the Government; (2) crew's wages; (3) general average; (4) salvage including contract salvage; (5)
maritime liens arising prior in time to the recording of the preferred mortgage; (6) damages arising out of tort; and (7)
preferred mortgage registered prior in time.

(b) If the proceeds of the sale should not be sufficient to pay all creditors included in one number or grade, the residue shall be
divided among them pro rata. All credits not paid, whether fully or partially shall subsist as ordinary credits enforceable by
personal action against the debtor. The record of judicial sale or sale by public auction shall be recorded in the Record of
Transfers and Encumbrances of Vessels in the port of documentation. (Emphasis supplied.)

There is no question that the mortgage executed in favor of DBP is covered by P.D. No. 1521. Contrary to NDCs assertion,
the mortgage constituted on GALLEONs vessels in favor of DBP may appropriately be characterized as a preferred mortgage
under Section 2, P.D. No. 1521 because GALLEON constituted the same for the purpose of financing the construction,
acquisition, purchase of vessels or initial operation of vessels. While it is correct that GALLEON executed the mortgage in
consideration of DBPs guarantee of the prompt payment of GALLEONs obligations to the Japanese lenders, DBPs undertaking
to pay the Japanese banks was a condition sine qua non to the acquisition of funds for the purchase of the GALLEON vessels.
Without DBPs guarantee, the Japanese lenders would not have provided the funds utilized in the purchase of the GALLEON
vessels. The mortgage in favor of DBP was therefore constituted to facilitate the acquisition of funds necessary for the purchase
of the vessels.
NDC adds that being an ordinary ship mortgage, the Civil Code provisions on concurrence and preference of credits and
not P.D. No. 1521 should govern. NDC contends that under Article 2246, in relation to Article 2241 of the Civil Code, the credits
guaranteed by a chattel mortgage upon the thing mortgaged shall enjoy preference (with respect to the thing mortgaged), to the
exclusion of all others to the extent of the value of the personal property to which the preference exists. [54] Following NDCs
theory, DBPs mortgage credit, which is fourth in the order of preference under Article 2241, is superior to POLIANDs claim,
which enjoys no preference.
NDCs argument does not persuade the Court.
The provision of P.D. No. 1521 on the order of preference in the satisfaction of the claims against the vessel is the more
applicable statute to the instant case compared to the Civil Code provisions on the concurrence and preference of credit. General
legislation must give way to special legislation on the same subject, and generally be so interpreted as to embrace only cases in
which the special provisions are not applicable. [55]
POLIANDs alternative cause of action for the payment of maritime liens is based on Sections 17 and 21 of P.D. No. 1521.
POLIAND also contends that by virtue of the directive in LOI No. 1195 on NDC to discharge maritime liens to allow the vessels
to engage in international business, NDC is liable therefor. [56]

POLIANDs maritime lien is superior

to DBPs mortgage lien

Before POLIANDs claim may be classified as superior to the mortgage constituted on the vessel, it must be shown to be
one of the enumerated claims which Section 17, P.D. No. 1521 declares as having preferential status in the event of the sale of
the vessel. One of such claims enumerated under Section 17, P.D. No. 1521 which is considered to be superior to the preferred
mortgage lien is a maritime lien arising prior in time to the recording of the preferred mortgage. Such maritime lien is described
under Section 21, P.D. No. 1521, which reads:

SECTION 21. Maritime Lien for Necessaries; persons entitled to such lien. Any person furnishing repairs, supplies, towage, use
of dry dock or marine railway, or other necessaries to any vessel, whether foreign or domestic, upon the order of the owner of
such vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit
in rem, and it shall be necessary to allege or prove that credit was given to the vessel.

Under the aforequoted provision, the expense must be incurred upon the order of the owner of the vessel or its authorized
person and prior to the recording of the ship mortgage. Under the law, it must be established that the credit was extended to the
vessel itself.[57]
The trial court found that GALLEONs advances obtained from Asian Hardwood were used to cover for the payment of
bunker oil/fuel, unused stores and oil, bonded stores, provisions, and repair and docking of the GALLEON vessels. [58] These
expenses clearly fall under Section 21, P.D. No. 1521.
The trial court also found that the advances from Asian Hardwood were spent for ship modification cost and the crews
salary and wages. DBP contends that a ship modification cost is omitted under Section 17, P.D. No. 1521, hence, it does not have
a status superior to DBPs preferred mortgage lien.
As stated in Section 21, P.D. No. 1521, a maritime lien may consist in other necessaries spent for the vessel. The ship
modification cost may properly be classified under this broad category because it was a necessary expenses for the vessels
navigation. As long as an expense on the vessel is indispensable to the maintenance and navigation of the vessel, it may properly
be treated as a maritime lien for necessaries under Section 21, P.D. No. 1521.
With respect to the claim for salary and wages of the crew, there is no doubt that it is also one of the enumerated claims
under Section 17, P.D. No. 1521, second only to judicial costs and taxes due the government in preference and, thus, having a
status superior to DBPs mortgage lien.
All told, the determination of the existence and the amount of POLIANDs claim for maritime lien is a finding of fact which
is within the province of the courts below. Findings of fact of lower courts are deemed conclusive and binding upon the Supreme
Court except when the findings are grounded on speculation, surmises or conjectures; when the inference made is manifestly
mistaken, absurd or impossible; when there is grave abuse of discretion in the appreciation of facts; when the factual findings of
the trial and appellate courts are conflicting; when the Court of Appeals, in making its findings, has gone beyond the issues of the
case and such findings are contrary to the admissions of both appellant and appellee; when the judgment of the appellate court is
premised on a misapprehension of facts or when it has failed to notice certain relevant facts which, if properly considered, will
justify a different conclusion; when the findings of fact are conclusions without citation of specific evidence upon which they are
based; and when findings of fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the
evidence on record.[59] The Court finds no sufficient justification to reverse the findings of the trial court and the appellate court in
respect to the existence and amount of maritime lien.

Only NDC is liable on the maritime lien

POLIAND maintains that DBP is also solidarily liable for the payment of the preferred maritime lien over the proceeds of
the foreclosure sale by virtue of Section 17, P.D. No. 1521. It claims that since the lien was incurred prior to the constitution of
the mortgage on January 25, 1982, the preferred maritime lien attaches to the proceeds of the sale of the vessels and has priority
over all claims against the vessels in accordance with Section 17, P.D. No. 1521. [60]
In its defense, DBP reiterates the following arguments: (1) The salary and crews wages cannot be claimed by POLIAND or
its predecessors-in-interest because none of them is a sailor or mariner; [61] (2) Even if conceded, POLIANDs preferred maritime
lien is unenforceable pursuant to Article 1403 of the Civil Code; and (3) POLIANDs claim is barred by prescription and laches.
[62]

The first argument is absurd. Although POLIAND or its predecessors-in-interest are not sailors entitled to wages, they can
still make a claim for the advances spent for the salary and wages of the crew under the principle of legal subrogation. As
explained in Philippine National Bank v. Court of Appeals,[63] a third person who satisfies the obligation to an original maritime
lienor may claim from the debtor because the third person is subrogated to the rights of the maritime lienor over the vessel. The
Court explained as follows:
From the foregoing, it is clear that the amount used for the repair of the vessel M/V Asean Liberty was advanced by Citibank and
was utilized for the purpose of paying off the original maritime lienor, Hong Kong United Dockyards, Ltd. As a person not
interested in the fulfillment of the obligation between PISC and Hong Kong United Dockyards, Ltd., Citibank was subrogated to
the rights of Hong Kong United Dockyards, Ltd. as a maritime lienor over the vessel, by virtue of Article 1302, par. 2 of the New
Civil Code. By definition, subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all
his rights. Considering that Citibank paid off the debt of PISC to Hong Kong United Dockyards, Ltd. it became the transferee of
all the rights of Hong Kong Dockyards, Ltd. as against PISC, including the maritime lien over the vessel M/V Asian Liberty. [64]

DBPs reliance on the Statute of Frauds is misplaced. Article 1403 (2) of the Civil Code, which enumerates the contracts
covered by the Statue of Frauds, is inapplicable. To begin with, there is no privity of contract between POLIAND or its
predecessors-in-interest, on one hand, and DBP, on the other. POLIAND hinges its claim on the maritime lien based on LOI No.
1195 and P.D. No. 1521, and not on any contract or agreement.
Neither can DBP invoke prescription or laches against POLIAND. Under Article 1144 of the Civil Code, an action upon an
obligation created by law must be brought within ten years from the time the right of action accrues. The right of action arose
after January 15, 1982, when NDC partially paid off GALLEONs obligations to POLIANDs predecessor-in-interest, Asian
Hardwood. At that time, the prescriptive period for the enforcement by action of the balance of GALLEONs outstanding
obligations had commenced. Prescription could not have set in because the prescriptive period was tolled when POLIAND made
a written demand for the satisfaction of the obligation on September 24, 1991, or before the lapse of the ten-year prescriptive
period. Laches also do not lie because there was no unreasonable delay on the part of POLIAND in asserting its rights. Indeed, it
instituted the instant suit seasonably.
All things considered, however, the Court finds that only NDC is liable for the payment of the maritime lien. A maritime
lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not extinguished. The maritime lien is
inseparable from the vessel and until discharged, it follows the vessel. Hence, the enforcement of a maritime lien is in the nature
and character of a proceeding quasi in rem.[65] The expression action in rem is, in its narrow application, used only with reference
to certain proceedings in courts of admiralty wherein the property alone is treated as responsible for the claim or obligation upon
which the proceedings are based. [66] Considering that DBP subsequently transferred ownership of the vessels to NDC, the Court
holds the latter liable on the maritime lien. Notwithstanding the subsequent transfer of the vessels to NDC, the maritime lien
subsists.
This is a unique situation where the extrajudicial foreclosure of the GALLEON vessels took place without the intervention
of GALLEONs other creditors including POLIANDs predecessors-in-interest who were apparently left in the dark about the
foreclosure proceedings. At that time, GALLEON was already a failing corporation having borrowed large sums of money from
banks and financial institutions. When GALLEON defaulted in the payment of its obligations to DBP, the latter foreclosed on its
mortgage over the GALLEON ships. The other creditors, including POLIANDs predecessors-in-interest who apparently had
earlier or superior rights over the foreclosed vessels, could not have participated as they were unaware and were not made parties
to the case.
On this note, the Court believes and so holds that the institution of the extrajudicial foreclosure proceedings was tainted
with bad faith. It took place when NDC had already assumed the management and operations of GALLEON. NDC could not
have pleaded ignorance over the existence of a prior or preferential lien on the vessels subject of foreclosure. As aptly held by the
Court of Appeals:

NDCs claim that even if maritime liens existed over the proceeds of the foreclosure sale of the vessels which it subsequently
purchased from DBP, it is not liable as it was a purchaser in good faith fails, given the fact that in its actual control over the
management and operations of GALLEON, it was put on notice of the various obligations of GALLEON including those secured
from ASIAN HARDWOOD as in fact it even paid ASIAN HARDWOOD US$1,000,000.00 in partial settlement of GALLEONs
obligations, before it (NDC) mortgaged the 5 vessels to DBP on January 25, 1982.

Parenthetically, LOI 1195 directed NDC to discharge such maritime liens as may be necessary to allow the foreclosed vessels to
engage on the international shipping business.

In fine, it is with respect to POLIANDs claim for payment of US$1,930,298.56 representing part of the proceeds of GALLEONs
loan which was spent by GALLEON for ship modification and salaries of crew that NDC is liable. [67]

Thus, NDC cannot claim that it was a subsequent purchaser in good faith because it had knowledge that the vessels were
subject to various liens. At the very least, to evince good faith, NDC could have inquired as to the existence of other claims
against the vessels apart from DBPs mortgage lien. Considering that NDC was also in a position to know or discover the financial
condition of GALLEON when it took over its management, the lack of notice to GALLEONs creditors suggests that the
extrajudicial foreclosure was effected to prejudice the rights of GALLEONs other creditors.
NDC also cannot rely on Administrative Order No. 64, [68] which directed the transfer of the vessels to the APT, on its
hypothesis that such transfer extinguished the lien. APT is a mere conduit through which the assets acquired by the National
Government are provisionally held and managed until their eventual disposal or privatization. Administrative Order No. 64 did
not divest NDC of its ownership over the GALLEON vessels because APT merely holds the vessels in trust for NDC until the
same are disposed. Even if ownership was transferred to APT, that would not be sufficient to discharge the maritime lien and
deprive POLIAND of its recourse based on the lien. Such denouement would smack of denial of due process and taking of
property without just compensation.

NDCs liability for attorneys fees

The lower court awarded attorneys fees to POLIAND in the amount of P1,000,000.00 on account of the amount involved in
the case and the protracted character of the litigation. [69] The award was affirmed by the Court of Appeals as against NDC only. [70]
This Court finds no reversible error with the award as upheld by the appellate court. Under Article 2208 [71] of the Civil
Code, attorneys fees may be awarded inter alia when the defendants act or omission has compelled the plaintiff to incur expenses
to protect his interest or in any other case where the court deems it just and equitable that attorneys fees and expenses of litigation
be recovered.
 One final note. There is a discrepancy between the dispositive portion of the Court of Appeals  Decision and the body
thereof with respect to the amount of the maritime lien in favor of POLIAND. The dispositive portion ordered NDC to pay
POLIAND the amount of US$1,920,298.56 plus interest [72] despite a finding that NDCs liability to POLIAND represents the
maritime lien[73] which according to the complaint [74] is the alternative cause of action of POLIAND in the smaller amount of
US$1,193,298.56, as prayed for by POLIAND in its complaint.
The general rule is that where there is conflict between the dispositive portion or the fallo and the body of the decision,
the fallo controls. This rule rests on the theory that the fallo is the final order while the opinion in the body is merely a statement
ordering nothing. However, where the inevitable conclusion from the body of the decision is so clear as to show that there was a
mistake in the dispositive portion, the body of the decision will prevail. [75] In the instant case, it is clear from the trial court
records and the Court of Appeals Rollo that the bigger amount awarded in the dispositive portion of the Court of
Appeals Decision was a typographical mistake. Considering that the appellate courts Decision merely affirmed the trial courts
finding with respect to the amount of maritime lien, the bigger amount stated in the dispositive portion of the Court of
Appeals Decision must have been awarded through indavertence.
WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No. 143877 are DENIED. The  Decision of the Court of
Appeals in CA-G.R. CV No. 53257 is MODIFIED to the extent that National Development Company is liable to Poliand
Industrial Limited for the amount of One Million One Hundred Ninety Three Thousand Two Hundred Ninety Eight US Dollars
and Fifty-Six US Cents (US$ 1,193,298.56), plus interest of 12% per annum computed from 25 September 1991 until fully paid.
In other respects, said Decision is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.