G.R. No.
129459 September 29, 1998 (362909) 2876 is s$ll in the name of said defendant; while defendant JNM Realty &
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., pe$$oner,
vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP.
and JNM REALTY AND DEVELOPMENT CORP., respondents.
PANGANIBAN, J.:
May corporate treasurer, by herself and without any authoriza$on from he board of directors, validly sell a parcel
of land owned by the corpora$on?. May the veil of corporate fic$on be pierced on the mere ground that almost
all of the shares of stock of the corpora$on are owned by said treasurer and her husband?
The Case
These ques$ons are answered in the nega$ve by this Court in resolving the Pe$$on for Review
on Cer)orari before us, assailing the March 18, 1997 Decision 1 of the Court of Appeals 2 in CA GR CV No. 46801
which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of Maka$, Metro Manila, Branch
633 in Civil Case No. 89-3511. The RTC dismissed both the Complaint and the Counterclaim filed by the par$es.
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH MODIFICATION
ordering defendant-appellee Nenita Lee Gruenberg to REFUND or return to plain$ff-appellant
the downpayment of P100,000.00 which she received from plain$ff-appellant. There is no
pronouncement as to costs. 4
The pe$$on also challenges the June 10, 1997 CA Resolu$on denying reconsidera$on. 5
The Facts
The facts as found by the Court of Appeals are as follows:
Plain$ff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint alleged
that on 14 February 1989, plain$ff-appellant entered into an agreement with defendant-
appellee Motorich Sales Corpora$on for the transfer to it of a parcel of land iden$fied as Lot
30, Block 1 of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City.
Metro Manila, containing an area of Four Hundred Fourteen (414) square meters, covered by
TCT No. (362909) 2876: that as s$pulated in the Agreement of 14 February 1989, plain$ff-
appellant paid the downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos,
the balance to be paid on or before March 2, 1989; that on March 1, 1989. Mr. Andres T. Co,
president of plain$ff-appellant corpora$on, wrote a lefer to defendant-appellee Motorich
Sales Corpora$on reques$ng for a computa$on of the balance to be paid: that said lefer was
coursed through defendant-appellee's broker. Linda Aduca, who wrote the computa$on of
the balance: that on March 2, 1989, plain$ff-appellant was ready with the amount
corresponding to the balance, covered by Metrobank Cashier's Check No. 004223, payable to
defendant-appellee Motorich Sales Corpora$on; that plain$ff-appellant and defendant-
appellee Motorich Sales Corpora$on were supposed to meet in the office of plain$ff-
appellant but defendant-appellee's treasurer, Nenita Lee Gruenberg, did not appear; that
defendant-appellee Motorich Sales Corpora$on despite repeated demands and in ufer
disregard of its commitments had refused to execute the Transfer of Rights/Deed of
Assignment which is necessary to transfer the cer$ficate of $tle; that defendant ACL
Development Corp. is impleaded as a necessary party since Transfer Cer$ficate of Title No.
Development Corp. is likewise impleaded as a necessary party in view of the fact that it is the
transferor of right in favor of defendant-appellee Motorich Sales Corpora$on: that on April 6,
1989, defendant ACL Development Corpora$on and Motorich Sales Corpora$on entered into
a Deed of Absolute Sale whereby the former transferred to the lafer the subject property;
that by reason of said transfer, the Registry of Deeds of Quezon City issued a new $tle in the
name of Motorich Sales Corpora$on, represented by defendant-appellee Nenita Lee
Gruenberg and Reynaldo L. Gruenberg, under Transfer Cer$ficate of Title No. 3571; that as a
result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corpora$on's bad
faith in refusing to execute a formal Transfer of Rights/Deed of Assignment, plain$ff-appellant
suffered moral and nominal damages which may be assessed against defendants-appellees in
the sum of Five Hundred Thousand (500,000.00) Pesos; that as a result of defendants-
appellees Nenita Lee Gruenberg and Motorich Sales Corpora$on's unjus$fied and
unwarranted failure to execute the required Transfer of Rights/Deed of Assignment or formal
deed of sale in favor of plain$ff-appellant, defendants-appellees should be assessed
exemplary damages in the sum of One Hundred Thousand (P100,000.00) Pesos; that by
reason of defendants-appellees' bad faith in refusing to execute a Transfer of Rights/Deed of
Assignment in favor of plain$ff-appellant, the lafer lost the opportunity to construct a
residen$al building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a
consequence of defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corpora$on's bad faith in refusing to execute a deed of sale in favor of plain$ff-appellant, it
has been constrained to obtain the services of counsel at an agreed fee of One Hundred
Thousand (P100,000.00) Pesos plus appearance fee for every appearance in court hearings.
In its answer, defendants-appellees Motorich Sales Corpora$on and Nenita Lee Gruenberg
interposed as affirma$ve defense that the President and Chairman of Motorich did not sign
the agreement adverted to in par. 3 of the amended complaint; that Mrs. Gruenberg's
signature on the agreement (ref: par. 3 of Amended Complaint) is inadequate to bind
Motorich. The other signature, that of Mr. Reynaldo Gruenberg, President and Chairman of
Motorich, is required: that plain$ff knew this from the very beginning as it was presented a
copy of the Transfer of Rights (Annex B of amended complaint) at the $me the Agreement
(Annex B of amended complaint) was signed; that plain$ff-appellant itself draled the
Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money; that
gran$ng, without admimng, the enforceability of the agreement, plain$ff-appellant
nonetheless failed to pay in legal tender within the s$pulated period (up to March 2, 1989);
that it was the understanding between Mrs. Gruenberg and plain$ff-appellant that the
Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash payment; thus
they agreed that if the payment be in check, they will meet at a bank designated by plain$ff-
appellant where they will encash the check and sign the Transfer of Rights/Deed. However,
plain$ff-appellant informed Mrs. Gruenberg of the alleged availability of the check, by phone,
only aler banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed from[,]
dismissing plain$ff-appellant's complaint, ruling that:
The issue to be resolved is: whether plain$ff had the right to compel
defendants to execute a deed of absolute sale in accordance with the
agreement of February 14, 1989: and if so, whether plain$ff is en$tled to
damage.
 As to the first ques$on, there is no evidence to show that defendant
Nenita Lee Gruenberg was indeed authorized by defendant corpora$on.
Motorich Sales, to dispose of that property covered by T.C.T. No. (362909)
2876. Since the property is clearly owned by the corpora$on. Motorich
Sales, then its disposi$on should be governed by the requirement laid
down in Sec. 40. of the Corpora$on Code of the Philippines, to wit:
Sec. 40, Sale or other disposi$on of assets. Subject to
the provisions of exis$ng laws on illegal combina$on
and monopolies, a corpora$on may by a majority vote
of its board of directors . . . sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or
substan$ally all of its property and assets including its
goodwill . . . when authorized by the vote of the
stockholders represen$ng at least two third (2/3) of
the outstanding capital stock . . .
No such vote was obtained by defendant Nenita Lee Gruenberg for that
proposed sale[;] neither was there evidence to show that the supposed
transac$on was ra$fied by the corpora$on. Plain$ff should have been on
the look out under these circumstances. More so, plain$ff himself [owns]
several corpora$ons (tsn dated August 16, 1993, p. 3) which makes him
knowledgeable on corpora$on mafers.
Regarding the ques$on of damages, the Court likewise, does not find
substan$al evidence to hold defendant Nenita Lee Gruenberg liable
considering that she did not in anyway misrepresent herself to be
authorized by the corpora$on to sell the property to plain$ff (tsn dated
September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment
DISMISSING the complaint at instance for lack of merit.
"Defendants" counterclaim is also DISMISSED for lack of basis. (Decision,
pp. 7-8; Rollo, pp. 34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corpora$on duly organized and
exis$ng under and by virtue of Philippine Laws, with principal office
address at 5510 South Super Hi-way cor. Balderama St., Pio del Pilar.
Maka$, Metro Manila, represented herein by its Treasurer, NENITA LEE
GRUENBERG, hereinaler referred to as the TRANSFEROR;
— and —
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corpora$on duly
organized and exis$ng under and by virtue of the laws of the Philippines,
with principal office address at Sumulong Highway, Barrio Mambungan,
An$polo, Rizal, represented herein by its President, ANDRES T. CO,
hereinaler referred to as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land iden$fied as Lot 30 Block 1 of
the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City, Metro
Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS, covered by
a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich
Sales Corp. as the Transferee;
NOW, THEREFORE, for and in considera$on of the foregoing premises, the par$es have
agreed as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED
PESOS (P5,200.00) per square meter; subject to the following terms:
a. Earnest money amoun$ng to ONE HUNDRED
THOUSAND PESOS (P100,000.00), will be paid upon
the execu$on of this agreement and shall form part of
the total purchase price;
b. Balance shall be payable on or before March 2,
1989;
2. That the monthly amor$za$on for the month of February 1989 shall be
for the account of the Transferor; and that the monthly amor$za$on
star$ng March 21, 1989 shall be for the account of the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described property and
that there [are] no exis$ng liens and/or encumbrances of whatsoever nature;
In case of failure by the Transferee to pay the balance on the date specified on 1, (b), the
earnest money shall be forfeited in favor of the Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF
RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the par$es have hereunto set their hands this 14th day of February,
1989 at Greenhills, San Juan, Metro Manila, Philippines.
MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS
TRANSFEROR TRANSFEREE
[SGD.] [SGD.]
By. NENITA LEE GRUENBERG By: ANDRES T. CO
Treasurer President
Signed In the presence of:
[SGD.] [SGD.]
————————————— ———————————6
In its recourse before the Court of Appeals, pe$$oner insisted:
 1. Appellant is en$tled to compel the appellees to execute a Deed of
Absolute Sale in accordance with the Agreement of February 14, 1989,
2. Plain$ff is en$tled to damages. 7
As stated earlier, the Court of Appeals debunked pe$$oner's arguments and affirmed the Decision of the RTC
with the modifica$on that Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to pe$$oner, the
amount remifed as "downpayment" or "earnest money." Hence, this pe$$on before us.8
The Issues
Before this Court, pe$$oner raises the following issues:
I. Whether or not the doctrine of piercing the veil of corporate fic$on is
applicable in the instant case
II. Whether or not the appellate court may consider mafers which the
par$es failed to raise in the lower court
III. Whether or not there is a valid and enforceable contract between the
pe$$oner and the respondent corpora$on
IV. Whether or not the Court of Appeals erred in holding that there is a
valid correc$on/subs$tu$on of answer in the transcript of stenographic
note[s].
V. Whether or not respondents are liable for damages and aforney's
fees 9
The Court synthesized the foregoing and will thus discuss them seria)m as follows:
1. Was there a valid contract of sale between pe$$oner and Motorich?
2. May the doctrine of piercing the veil of corporate fic$on be applied to
Motorich?
3. Is the alleged altera$on of Gruenberg's tes$mony as recorded in the
transcript of stenographic notes material to the disposi$on of this case?
4. Are respondents liable for damages and aforney's fees?
The Court's Ruling
The pe$$on is devoid of merit.
First Issue: Validity of Agreement
Pe$$oner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it entered through its
president, Andres Co, into the disputed Agreement with Respondent Motorich Sales Corpora$on, which was in
turn allegedly represented by its treasurer, Nenita Lee Gruenberg. Pe$$oner insists that "[w]hen Gruenberg and
Co affixed their signatures on the contract they both consented to be bound by the terms thereof." Ergo,
pe$$oner contends that the contract is binding on the two corpora$ons. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot owned by
Motorich Sales Corpora$on was purportedly sold. Such contract, however, cannot bind Motorich, because it
never authorized or ra$fied such sale.
A corpora$on is a juridical person separate and dis$nct from its stockholders or members. Accordingly, the
property of the corpora$on is not the property of its stockholders or members and may not be sold by the
stockholders or members without express authoriza$on from the corpora$on's board of directors. 10 Sec$on 23
of BP 68, otherwise known as the Corpora$on Code of the Philippines, provides;
Sec. 23. The Board of Directors or Trustees. — Unless otherwise provided in this Code, the
corporate powers of all corpora$ons formed under this Code shall be exercised, all business
conducted and all property of such corpora$ons controlled and held by the board of directors
or trustees to be elected from among the holders of stocks, or where there is no stock, from
among the members of the corpora$on, who shall hold office for one (1) year and un$l their
successors are elected and qualified.
Indubitably, a corpora$on may act only through its board of directors or, when authorized either by its bylaws or
by its board resolu$on, through its officers or agents in the normal course of business. The general principles of
agency govern the rela$on between the corpora$on and its officers or agents, subject to the ar$cles of
incorpora$on, bylaws, or relevant provisions of law. 11 Thus, this Court has held that "a corporate officer or agent
may represent and bind the corpora$on in transac$ons with third persons to the extent that the authority to do
so has been conferred upon him, and this includes powers which have been inten$onally conferred, and also
such powers as, in the usual course of the par$cular business, are incidental to, or may be implied from, the
powers inten$onally conferred, powers added by custom and usage, as usually pertaining to the par$cular officer
or agent, and such apparent powers as the corpora$on has caused persons dealing with the officer or agent to
believe that it has conferred." 12
Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent, whether the
assumed agency be a general or special one bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)." 13 Unless
duly authorized, a treasurer, whose powers are limited, cannot bind the corpora$on in a sale of its assets. 14
In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its
treasurer, to sell the subject parcel of land. 15 Consequently, pe$$oner had the burden of proving that Nenita
Gruenberg was in fact authorized to represent and bind Motorich in the transac$on. Pe$$oner failed to discharge
this burden. Its offer of evidence before the trial court contained no proof of such authority. 16 It has not shown
any provision of said respondent's ar$cles of incorpora$on, bylaws or board resolu$on to prove that Nenita
Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich does not free pe$$oner from the responsibility of
ascertaining the extent of her authority to represent the corpora$on. Pe$$oner cannot assume that she, by
virtue of her posi$on, was authorized to sell the property of the corpora$on. Selling is obviously foreign to a
corporate treasurer's func$on, which generally has been described as "to receive and keep the funds of the
corpora$on, and to disburse them in accordance with the authority given him by the board or the properly
authorized officers." 17
Neither was such real estate sale shown to be a normal business ac$vity of Motorich. The primary purpose of
Motorich is marke$ng, distribu$on, export and import in rela$on to a general merchandising
business. 18 Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real
property, an ac$vity which falls way beyond the scope of her general authority.
Art. 1874 and 1878 of the Civil Code of the Philippines provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the lafer shall be in wri$ng: otherwise, the sale shall be void.
Art. 1878. Special powers of aforney are necessary in the following case:
xxx xxx xxx
 (5) To enter any contract by which the ownership of an immovable is transmifed or acquired
either gratuitously or for a valuable considera$on;
xxx xxx xxx.
Pe$$oner further contends that Respondent Motorich has ra$fied said contract of sale because of its
"acceptance of benefits," as evidenced by the receipt issued by Respondent Gruenberg. 19 Pe$$oner is clutching
at straws.
As a general rule, the acts of corporate officers within the scope of their authority are binding on the corpora$on.
But when these officers exceed their authority, their ac$ons "cannot bind the corpora$on, unless it has ra$fied
such acts or is estopped from disclaiming them." 20
In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it appear
to any third person that she had the authority, to sell its land or to receive the earnest money. Neither was there
any proof that Motorich ra$fied, expressly or impliedly, the contract. Pe$$oner rests its argument on the receipt
which, however, does not prove the fact of ra$fica$on. The document is a hand-wrifen one, not a corporate
receipt, and it bears only Nenita Gruenberg's signature. Certainly, this document alone does not prove that her
acts were authorized or ra$fied by Motorich.
Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of the contrac$ng
par$es; (2) object certain which is the subject mafer of the contract; (3) cause of the obliga$on which is
established." As found by the trial court 21 and affirmed by the Court of Appeals, 22 there is no evidence that
Gruenberg was authorized to enter into the contract of sale, or that the said contract was ra$fied by Motorich.
This factual finding of the two courts is binding on this Court. 23 As the consent of the seller was not obtained, no
contract to bind the obligor was perfected. Therefore, there can be no valid contract of sale between pe$$oner
and Motorich.
Because Motorich had never given a wrifen authoriza$on to Respondent Gruenberg to sell its parcel of land, we
hold that the February 14, 1989 Agreement entered into by the lafer with pe$$oner is void under Ar$cle 1874 of
the Civil Code. Being inexistent and void from the beginning, said contract cannot be ra$fied. 24
Second Issue:
Piercing the Corporate Veil Not Jus)fied
Pe$$oner also argues that the veil of corporate fic$on of Motorich should be pierced, because the lafer is a
close corpora$on. Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or
99.866% to be accurate, of the subscribed capital stock" 25 of Motorich, pe$$oner argues that Gruenberg needed
no authoriza$on from the board to enter into the subject contract. 26 It adds that, being solely owned by the
Spouses Gruenberg, the company can treated as a close corpora$on which can be bound by the acts of its
principal stockholder who needs no specific authority. The Court is not persuaded.
First, pe$$oner itself concedes having raised the issue belatedly, 27 not having done so during the trial, but only
when it filed its sur-rejoinder before the Court of Appeals. 28 Thus, this Court cannot entertain said issue at this
late stage of the proceedings. It is well-sefled the points of law, theories and arguments not brought to the
afen$on of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they
cannot be raised for the first $me on appeal. 29 Allowing pe$$oner to change horses in midstream, as it were, is
to run roughshod over the basic principles of fair play, jus$ce and due process.
Second, even if the above men$oned argument were to be addressed at this $me, the Court s$ll finds no reason
to uphold it. True, one of the advantages of a corporate form of business organiza$on is the limita$on of an
investor's liability to the amount of the investment. 30 This feature flows from the legal theory that a corporate
en$ty is separate and dis$nct from its stockholders. However, the statutorily granted privilege of a corporate veil
may be used only for legi$mate purposes. 31 On equitable considera$ons, the veil can be disregarded when it is
u$lized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legi$mate issues; or
serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another
corpora$on. 32
Thus, the Court has consistently ruled that "[w]hen the fic$on is used as a means of perpetra$ng a fraud or an
illegal act or as vehicle for the evasion of an exis$ng obliga$on, the circumven$on of statutes, the achievement or
perfec$on of a monopoly or generally the perpetra$on of knavery or crime, the veil with which the law covers
and isolates the corpora$on from the members or stockholders who compose it will be liled to allow for its
considera$on merely as an aggrega$on of individuals." 33
We stress that the corporate fic$on should be set aside when it becomes a shield against liability for fraud,
illegality or inequity commifed on third persons. The ques$on of piercing the veil of corporate fic$on is
essen$ally, then, a mafer of proof. In the present case, however, the Court finds no reason to pierce the
corporate veil of Respondent Motorich. Pe$$oner uferly failed to establish that said corpora$on was formed, or
that it is operated, for the purpose of shielding any alleged fraudulent or illegal ac$vi$es of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons
like pe$$oner.
Pe$$oner claims that Motorich is a close corpora$on. We rule that it is not. Sec$on 96 of the Corpora$on Code
defines a close corpora$on as follows:
Sec. 96. Defini)on and Applicability of Title. — A close corpora$on, within the meaning of this
Code, is one whose ar$cles of incorpora$on provide that: (1) All of the corpora$on's issued
stock of all classes, exclusive of treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all
classes shall be subject to one or more specified restric$ons on transfer permifed by this
Title; and (3) The corpora$on shall not list in any stock exchange or make any public offering
of any of its stock of any class. Notwithstanding the foregoing, a corpora$on shall be deemed
not a close corpora$on when at least two-thirds (2/3) of its vo$ng stock or vo$ng rights is
owned or controlled by another corpora$on which is not a close corpora$on within the
meaning of this Code. . . . .
The ar$cles of incorpora$on 34 of Motorich Sales Corpora$on does not contain any provision sta$ng that (1) the
number of stockholders shall not exceed 20, or (2) a preemp$on of shares is restricted in favor of any stockholder
or of the corpora$on, or (3) lis$ng its stocks in any stock exchange or making a public offering of such stocks is
prohibited. From its ar$cles, it is clear that Respondent Motorich is not a close corpora$on. 35 Motorich does not
become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed
capital stock. The "[m]ere ownership by a single stockholder or by another corpora$on of all or capital stock of a
corpora$on is not of itself sufficient ground for disregarding the separate corporate personali$es." 36 So, too, a
narrow distribu$on of ownership does not, by itself, make a close corpora$on.
Pe$$oner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals 37 wherein the Court ruled that ". . .
pe$$oner corpora$on is classified as a close corpora$on and, consequently, a board resolu$on authorizing the
sale or mortgage of the subject property is not necessary to bind the corpora$on for the ac$on of its
president." 38 But the factual milieu in Dulay is not on all fours with the present case. In Dulay, the sale of real
property was contracted by the president of a close corpora$on with the knowledge and acquiescence of its
board of directors. 39 In the present case, Motorich is not a close corpora$on, as previously discussed, and the
agreement was entered into by the corporate treasurer without the knowledge of the board of directors.
The Court is not unaware that there are excep$onal cases where "an ac$on by a director, who singly is the
controlling stockholder, may be considered as a binding corporate act and a board ac$on as nothing more than a
mere formality." 40 The present case, however, is not one of them.
As stated by pe$$oner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of Respondent
Motorich. 41 Since Nenita is not the sole controlling stockholder of Motorich, the aforemen$oned excep$on does
not apply. Gran$ng arguendo that the corporate veil of Motorich is to be disregarded, the subject parcel of land
would then be treated as conjugal property of Spouses Gruenberg, because the same was acquired during their
marriage. There being no indica$on that said spouses, who appear to have been married before the effec$vity of
the Family Code, have agreed to a different property regime, their property rela$ons would be governed by
conjugal partnership of gains. 42 As a consequence, Nenita Gruenberg could not have effected a sale of the
subject lot because "[t]here is no co-ownership between the spouses in the proper$es of the conjugal
partnership of gains. Hence, neither spouse can alienate in favor of another his or interest in the partnership or in
any property belonging to it; neither spouse can ask for a par$$on of the proper$es before the partnership has
been legally dissolved." 43
Assuming further, for the sake of argument, that the spouses' property regime is the absolute community of
property, the sale would s$ll be invalid. Under this regime, "aliena$on of community property must have the
wrifen consent of the other spouse or he authority of the court without which the disposi$on or encumbrance
is void." 44 Both requirements are manifestly absent in the instant case.
Third Issue: Challenged Por)on of TSN Immaterial
Pe$$oner calls our afen$on to the following excerpt of the transcript of stenographic notes (TSN):
Q Did you ever represent to Mr. Co that you were authorized by the
corpora$on to sell the property?
A Yes, sir. 45
Pe$$oner claims that the answer "Yes" was crossed out, and, in its place was wrifen a "No" with an ini$al
scribbled above it. 46 This, however, is insufficient to prove that Nenita Gruenberg was authorized to represent
Respondent Motorich in the sale of its immovable property. Said excerpt be understood in the context of her
whole tes$mony. During her cross-examina$on. Respondent Gruenberg tes$fied:
Q So, you signed in your capacity as the treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examina$on that you did not represent that you
were authorized to sell the property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the
property, you did not tell that to Mr. Co, is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corpora$on and it [was]
also the president who [was] also authorized to sign on behalf of the
corpora$on.
Q You did not say that you were not authorized nor did you say that you
were authorized?
A Mr. Co was very interested to purchase the property and he offered to
put up a P100,000.00 earnest money at that $me. That was our first
mee$ng. 47
Clearly then, Nenita Gruenberg did not tes$fy that Motorich had authorized her to sell its property. On the other
hand, her tes$mony demonstrates that the president of Pe$$oner Corpora$on, in his great desire to buy the
property, threw cau$on to the wind by offering and paying the earnest money without first verifying Gruenberg's
authority to sell the lot.
Fourth Issue:
Damages and ALorney's Fees
Finally, pe$$oner prays for damages and aforney's fees, alleging that "[i]n an ufer display of malice and bad
faith, respondents afempted and succeeded in impressing on the trial court and [the] Court of Appeals that
Gruenberg did not represent herself as authorized by Respondent Motorich despite the receipt issued by the
former specifically indica$ng that she was signing on behalf of Motorich Sales Corpora$on. Respondent Motorich
likewise acted in bad faith when it claimed it did not authorize Respondent Gruenberg and that the contract
[was] not binding, [insofar] as it [was] concerned, despite receipt and enjoyment of the proceeds of Gruenberg's
act." 48 Assuming that Respondent Motorich was not a party to the alleged fraud, pe$$oner maintains that
Respondent Gruenberg should be held liable because she "acted fraudulently and in bad faith [in] represen$ng
herself as duly authorized by [R]espondent [C]orpora$on." 49
As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing allega$ons
lack factual bases. Hence, an award of damages or aforney's fees cannot be jus$fied. The amount paid as
"earnest money" was not proven to have redounded to the benefit of Respondent Motorich. Pe$$oner claims
that said amount was deposited to the account of Respondent Motorich, because "it was deposited with the
account of Aren Commercial c/o Motorich Sales Corpora$on." 50 Respondent Gruenberg, however, disputes the
allega$ons of pe$$oner. She tes$fied as follows:
Q You voluntarily accepted the P100,000.00, as a mafer of fact, that was
encashed, the check was encashed.
A Yes. sir, the check was paid in my name and I deposit[ed] it.
Q In your account?
A Yes, sir. 51
In any event, Gruenberg offered to return the amount to pe$$oner ". . . since the sale did not push
through." 52
Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the
president of Pe$$oner Corpora$on for more than ten years and has also served as chief execu$ve of two other
corporate en$$es. 53 Co cannot feign ignorance of the scope of the authority of a corporate treasurer such as
Gruenberg. Neither can he be oblivious to his duty to ascertain the scope of Gruenberg's authoriza$on to enter
into a contract to sell a parcel of land belonging to Motorich.
Indeed, pe$$oner's claim of fraud and bad faith is unsubstan$ated and fails to persuade the Court. Indubitably,
pe$$oner appears to be the vic$m of its own officer's negligence in entering into a contract with and paying an
unauthorized officer of another corpora$on.
As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return to pe$$oner
the amount she received as earnest money, as "no one shall enrich himself at the expense of another." 54 a
principle embodied in Ar$cle 2154 of Civil Code. 55 Although there was no binding rela$on between them,
pe$$oner paid Gruenberg on the mistaken belief that she had the authority to sell the property of
Motorich. 56 Ar$cle 2155 of Civil Code provides that "[p]ayment by reason of a mistake in the contruc$on or BELLOSILLO, J.:
applica$on of a difficult ques$on of law may come within the scope of the preceding ar$cle."
This is rather a simple case for specific performance with damages which could have been resolved through
WHEREFORE, the pe$$on is hereby DENIED and the assailed Decision is AFFIRMED. media$on and concilia$on during its infancy stage had the par$es been earnest in expedi$ng the disposal of this
case. They opted however to resort to full court proceedings and denied themselves the benefits of alterna$ve
SO ORDERED.
dispute resolu$on, thus making the process more arduous and long-drawn.
The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To
remedy and curtail further losses due to the series of power failures, pe$$oner PURE FOODS CORPORATION
(herealer PUREFOODS) decided to install two (2) 1500 KW generators in its food processing plant in San Roque,
Marikina City.
Some$me in November 1992 a bidding for the supply and installa$on of the generators was held. Several
suppliers and dealers were invited to afend a pre-bidding conference to discuss the condi$ons, propose scheme
and specifica$ons that would best suit the needs of PUREFOODS. Out of the eight (8) prospec$ve bidders who
afended the pre-bidding conference, only three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY
CORPORATION (herealer FEMSCO), MONARK and ADVANCE POWER submifed bid proposals and gave bid bonds
equivalent to 5% of their respec$ve bids, as required.
Therealer, in a lefer dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS
confirmed the award of the contract to FEMSCO —
Gentlemen:
This will confirm that Pure Foods Corpora$on has awarded to your firm the project: Supply and Installa$on of
two (2) units of 1500 KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on
your proposal number PC 28-92 dated November 20, 1992, subject to the following basic terms and condi$ons:
1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the
local por$on and the labor for the imported materials, payable by progress billing twice a month, with
ten percent (10%) reten$on. The retained amount shall be released thirty (30) days aler acceptance of
the completed project and upon pos$ng of Guarantee Bond in an amount equivalent to twenty percent
(20%) of the contract price. The Guarantee Bond shall be valid for one (1) year from comple$on and
acceptance of project. The contract price includes future increase/s in costs of materials and labor;
2. The projects shall be undertaken pursuant to the afached specifica$ons. It is understood that any
item required to complete the project, and those not included in the list of items shall be deemed
included and covered and shall be performed;
3. All materials shall be brand new;
4. The project shall commence immediately and must be completed within twenty (20) working days
aler the delivery of Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase
G.R. No. 128066 June 19, 2000 price for every day of delay;
JARDINE DAVIES INC., pe$$oner, 5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and
vs. shall procure All Risk Insurance equivalent to the contract price upon commencement of the project.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents. The All Risk Insurance Policy shall be endorsed in favor of and shall be delivered to Pure Foods
Corpora$on;
x - - - - - - - - - - - - - - - - - - - - - - -x
6. Warranty of one (1) year against defec$ve material and/or workmanship.
G.R. No. 128069
Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and condi$ons.
PURE FOODS CORPORATION, pe$$oner,
vs. Immediately, FEMSCO submifed the required performance bond in the amount of P1,841,187.90 and
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents. contractor's all-risk insurance policy in the amount of P6,137,293.00 which PUREFOODS through its Vice
President Benedicto G. Tope acknowledged in a lefer dated 18 December 1992. FEMSCO also made between PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt with
arrangements with its principal and started the PUREFOODS project by purchasing the necessary materials. FEMSCO. Hence moral and exemplary damages should not have been awarded.
PUREFOODS on the other hand returned FEMSCO's Bidder's Bond in the amount of P1,000,000.00, as requested.
Corollarily, JARDINE asserts that the records are berel of any showing that it had prior knowledge of the
Later, however, in a lefer dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. supposed contract between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the lafer's
Dimayuga unilaterally canceled the award as "significant factors were uncovered and brought to (their) afen$on alleged contract with FEMSCO. Moreover, JARDINE reasons that FEMSCO, an ar$ficial person, is not en$tled to
which dictate (the) cancella$on and warrant a total review and re-bid of (the) project." Consequently, FEMSCO moral damages. But gran$ng arguendo that the award of moral damages is proper, P2,000,000.00 is extremely
protested the cancella$on of the award and sought a mee$ng with PUREFOODS. However, on 26 March 1993, excessive.
before the mafer could be resolved, PUREFOODS already awarded the project and entered into a contract with
In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract
JARDINE NELL, a division of Jardine Davies, Inc. (herealer JARDINE), which incidentally was not one of the
between PUREFOODS and FEMSCO; and second, gran$ng there existed a perfected contract, whether there is
bidders.1âwphi1.nêt
any showing that JARDINE induced or connived with PUREFOODS to violate the lafer's contract with FEMSCO.
FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from
A contract is defined as "a juridical conven$on manifested in legal form, by virtue of which one or more persons
delivering and installing the two (2) generators at PUREFOODS. Its demand lefers unheeded, FEMSCO sued both
bind themselves in favor of another or others, or reciprocally, to the fulfillment of a presta$on to give, to do, or
PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted
not to do." 4 There can be no contract unless the following requisites concur: (a) consent of the contrac$ng
interference and inducement. Trial ensued. Aler FEMSCO presented its evidence, JARDINE filed a Demurrer to
par$es; (b) object certain which is the subject mafer of the contract; and, (c) cause of the obliga$on which is
Evidence.
established. 5 A contract binds both contrac$ng par$es and has the force of law between them.
On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to Evidence. The trial
Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror.
court concluded that "[w]hile it may seem to the plain$ff that by the ac$ons of the two defendants there is
From that moment, the par$es are bound not only to the fulfillment of what has been expressly s$pulated but
something underhanded going on, this is all a mafer of percep$on, and unsupported by hard evidence, mere
also to all the consequences which, according to their nature, may be in keeping with good faith, usage and
suspicions and supposi$ons would not stand up very well in a court of law." 2 Meanwhile trial proceeded as
law. 6 To produce a contract, the acceptance must not qualify the terms of the offer. However, the acceptance
regards the case against PUREFOODS.
may be express or implied. 7 For a contract to arise, the acceptance must be made known to the offeror.
On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.
P2,300,000.00 represen$ng the value of engineering services it rendered; (b) to pay FEMSCO the sum of
In the instant case, there is no issue as regards the subject mafer of the contract and the cause of the obliga$on.
US$14,000.00 or its peso equivalent, and P900,000.00 represen$ng contractor's mark-up on installa$on work,
The controversy lies in the consent — whether there was an acceptance of the offer, and if so, if it was
considering that it would be impossible to compel PUREFOODS to honor, perform and fulfill its contractual
communicated, thereby perfec$ng the contract.
obliga$ons in view of PUREFOOD's contract with JARDINE and no$ng that construc$on had already started
thereon; (c) to pay aforney's fees in an amount equivalent to 20% of the total amount due; and, (d) to pay the To resolve the dispute, there is a need to determine what cons$tuted the offer and the acceptance. Since
costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis. pe$$oner PUREFOODS started the process of entering into the contract by conduc$ng a bidding, Art. 1326 of the
Civil Code, which provides that "[a]dver$sements for bidders are simply invita$ons to make proposals," applies.
Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolu$on
Accordingly, the Terms and Condi$ons of the Bidding disseminated by pe$$oner PUREFOODS cons$tutes the
of the trial court which granted the Demurrer to Evidence filed by JARDINE resul$ng in the dismissal of the
"adver$sement" to bid on the project. The bid proposals or quota$ons submifed by the prospec$ve suppliers
complaint against it, while PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to
including respondent FEMSCO, are the offers. And, the reply of pe$$oner PUREFOODS, the acceptance or
pay FEMSCO.
rejec$on of the respec$ve offers.
On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. 3 It also
Quite obviously, the 12 December 1992 lefer of pe$$oner. PUREFOODS to FEMSCO cons$tuted acceptance of
reversed the 27 June 1994 Resolu$on of the lower court and ordered JARDINE to pay FEMSCO damages for
respondent FEMSCO's offer as contemplated by law. The tenor of the lefer, i.e., "This will confirm that Pure
inducing PUREFOODS to violate the lafer's contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO
Foods has awarded to your firm (FEMSCO) the project," could not be more categorical. While the same lefer
P2,000,000.00 for moral damages. In addi$on, PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as
enumerated certain "basic terms and condi$ons," these condi$ons were imposed on the performance of the
moral damages and P1,000,000.00 as exemplary damages as well as 20% of the total amount due as aforney's
obliga$on rather than on the perfec$on of the contract. Thus, the first "condi$on" was merely a reitera$on of the
fees.
contract price and billing scheme based on the Terms and Condi$ons of Bidding and the bid or previous offer of
On 31 January 1997 the Court of Appeals denied for lack of merit the separate mo$ons for reconsidera$on filed respondent FEMSCO. The second and third "condi$ons" were nothing more than general statements that all
by PUREFOODS and JARDINE. Hence, these two (2) pe$$ons for review filed by PUREFOODS and JARDINE which items and materials including those excluded in the list but necessary to complete the project shall be deemed
were subsequently consolidated. included and should be brand new. The fourth "condi$on" concerned the comple$on of the work to be done, i.e.,
within twenty (20) days from the delivery of the generator set, the purchase of which was part of the contract.
PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a
The filh "condi$on" had to do with the pumng up of a performance bond and an all-risk insurance, both of
misapprehension of facts. It argues that its 12 December 1992 lefer to FEMSCO was not an acceptance of the
which should be given upon commencement of the project. The sixth "condi$on" related to the standard
lafer's bid proposal and award of the project but more of a qualified acceptance cons$tu$ng a counter-offer
warranty of one (1) year. In fine, the enumerated "basic terms and condi$ons" were prescrip$ons on how the
which required FEMSCO's express conforme. Since PUREFOODS never received FEMSCO's conforme, PUREFOODS
obliga$on was to be performed and implemented. They were far from being condi$ons imposed on the
was very well within reason to revoke its qualified acceptance or counter-offer. Hence, no contract was perfected
perfec$on of the contract.
In Babasa v. Court of Appeals 8 we dis$nguished between a condi$on imposed on the perfec$on of a contract award of exemplary damages by way of example for the public good is excessive and should be reduced to
and a condi$on imposed merely on the performance of an obliga$on. While failure to comply with the first P100,000.00.
condi$on results in the failure of a contract, failure to comply with the second merely gives the other party
Pe$$oner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral
op$ons and/or remedies to protect his interests.
damages to respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We
We thus agree with the conclusion of respondent appellate court which affirmed the trial court — agree. While it may seem that pe$$oners PUREFOODS and JARDINE connived to deceive respondent FEMSCO,
we find no specific evidence on record to support such percep$on. Likewise, there is no showing whatsoever that
As can be inferred from the actual phrase used in the first por$on of the lefer, the decision to award
pe$$oner JARDINE induced pe$$oner PUREFOODS. The similarity in the design submifed to pe$$oner
the contract has already been made. The lefer only serves as a confirma$on of such decision. Hence,
PUREFOODS by both pe$$oner JARDINE and respondent FEMSCO, and the tender of a lower quota$on by
to the Court's mind, there is already an acceptance made of the offer received by Purefoods.
pe$$oner JARDINE are insufficient to show that pe$$oner JARDINE indeed induced pe$$oner PUREFOODS to
Notwithstanding the terms and condi$ons enumerated therein, the offer has been accepted and/or
violate its contract with respondent FEMSCO.
amplified the details of the terms and condi$ons contained in the Terms and Condi$ons of Bidding
given out by Purefoods to prospec$ve bidders. 9 WHEREFORE, judgment is hereby rendered as follows:
But even gran$ng arguendo that the 12 December 1992 lefer of pe$$oner PUREFOODS cons$tuted a (a) The pe$$on in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing
"condi$onal counter-offer," respondent FEMCO's submission of the performance bond and contractor's all-risk the 27 June 1994 resolu$on of the trial court and ordering pe$$oner JARDINE DAVIES, INC., to pay
insurance was an implied acceptance, if not a clear indica$on of its acquiescence to, the "condi$onal counter- private respondent FAR EAST MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is
offer," which expressly stated that the performance bond and the contractor's all-risk insurance should be given REVERSED and SET ASIDE for insufficiency of evidence; and
upon the commencement of the contract. Corollarily, the acknowledgment thereof by pe$$oner PUREFOODS,
(b) The pe$$on in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering
not to men$on its return of FEMSCO's bidder's bond, was a concrete manifesta$on of its knowledge that
pe$$oner PUREFOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY
respondent FEMSCO indeed consented to the "condi$onal counter-offer." Aler all, as earlier adverted to, an
CORPORATION the sum of P2,300,000.00 represen$ng the value of engineering services it rendered,
acceptance may either be express or implied, 10 and this can be inferred from the contemporaneous and
US$14,000.00 or its peso equivalent, and P900,000.00 represen$ng the contractor's mark-up on
subsequent acts of the contrac$ng par$es.
installa$on work, as well as aforney's fees equivalent to twenty percent (20%) of the total amount due,
Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent is AFFIRMED. In addi$on, pe$$oner PURE FOODS CORPORATION is ordered to pay private respondent
FEMSCO's conforme would only be a mere surplusage. The discussion of the price of the project two (2) months FAR EAST MILLS SUPPLY CORPORATION moral damages in the amount of P1,000,000.00 and exemplary
aler the 12 December 1992 lefer can be deemed as nothing more than a pressure being exerted by pe$$oner damages in the amount of P1,000,000.00. Costs against pe$$oner.
PUREFOODS on respondent FEMSCO to lower the price even aler the contract had been perfected. Indeed from
SO ORDERED.
the facts, it can easily be surmised that pe$$oner PUREFOODS was haggling for a lower price even aler agreeing
to the earlier quota$on, and was threatening to unilaterally cancel the contract, which it eventually did.
Pe$$oner PUREFOODS also makes an issue out of the absence of a purchase order (PO). Suffice it to say that
purchase orders or POs do not make or break a contract. Thus, even the tenor of the subsequent lefer of
pe$$oner PUREFOODS, i.e., "Pure Foods Corpora$on is hereby canceling the award to your company of the
project," presupposes that the contract has been perfected. For, there can be no cancella$on if the contract was
not perfected in the first place.
Pe$$oner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the contrary, it believed in good
faith that no such contract was perfected. We are not convinced. We subscribe to the factual findings and
conclusions of the trial court which were affirmed by the appellate court —
Hence, by the unilateral cancella$on of the contract, the defendant (pe$$oner PURE FOODS) has acted
with bad faith and this was further aggravated by the subsequent inking of a contract between
defendant Purefoods and erstwhile co-defendant Jardine. It is very evident that Purefoods thought that
by the expedient means of merely wri$ng a lefer would automa$cally cancel or nullify the exis$ng G.R. No. 143312. August 12, 2005
contract entered into by both par$es aler a process of bidding. This, to the Court's mind, is a flagrant RICARDO S. SILVERIO, JR., ESSES DEVELOPMENT CORPORATION, and TRI-STAR FARMS, INC., Pe$$oners,
viola$on of the express provisions of the law and is contrary to fair and just dealings to which every vs.
man is due. 11 FILIPINO BUSINESS CONSULTANTS, INC., Respondent.
This Court has awarded in the past moral damages to a corpora$on whose reputa$on has been besmirched. 12 In DECISION
the instant case, respondent FEMSCO has sufficiently shown that its reputa$on was tarnished aler it
CARPIO, J.:
immediately ordered equipment from its suppliers on account of the urgency of the project, only to be canceled
later. We thus sustain respondent appellate court's award of moral damages. We however reduce the award from The Case
P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich the recipient. Likewise, the
Before us is a pe$$on for review of the Order of the Regional Trial Court, Fourth Judicial Region, Branch XI,
Balayan, Batangas ("RTC Balayan") dated 26 May 2000.1 The order suspended the enforcement of the writ of
possession that the RTC Balayan had previously issued in favor of pe$$oners Ricardo S. Silverio, Jr. ("Silverio, Jr."),
Esses Development Corpora$on ("Esses") and Tri-Star Farms, Inc. ("Tri-Star"). Filipino Business Consultants, Inc.
("FBCI"), now Filipino Vastland Company, Inc. sought to suspend the writ of possession on the ground of a
supervening event. FBCI claimed that it had just acquired all the stocks of Esses and Tri-Star. As the new owner of
Esses and Tri-Star, FBCI asserted its right of possession to the disputed property. Pe$$oners Silverio, Jr., Esses and
Tri-Star ques$on the RTC Balayan’s suspension of the writ of possession and its jurisdic$on to hold hearings on
the supervening event.
The Antecedent Facts
The par$es are wrangling over possession of a 62 hectare-land in Calatagan, Batangas ("Calatagan Property").
Silverio, Jr. is the President of Esses and Tri-Star. Esses and Tri-Star were in possession of the Calatagan Property,
covered by TCT No. T-55200 and registered in the names of Esses and Tri-Star.
On 22 September 1995, Esses and Tri-Star executed a Deed of Sale with Assump$on of Mortgage in favor of FBCI.
Esses and Tri-Star failed to redeem the Calatagan Property.
On 27 May 1997, FBCI filed a Pe$$on for Consolida$on of Title of the Calatagan Property with the RTC Balayan.2
FBCI obtained a judgment by default. Subsequently, TCT No. T-55200 in the names of Esses and Tri-Star was
cancelled and TCT No. T-77656 was issued in FBCI’s name. On 20 April 1998, the RTC Balayan issued a writ of
possession in FBCI’s favor. FBCI then entered the Calatagan Property.
When Silverio, Jr., Esses and Tri-Star learned of the judgment by default and writ of possession, they filed a
pe$$on for relief from judgment and the recall of the writ of possession. Silverio, Jr., Esses and Tri-Star alleged
that the judgment by default is void because the RTC Balayan did not acquire jurisdic$on over them. FBCI
allegedly forged the service of summons on them.
On 28 December 1998, the RTC Balayan nullified and set aside the judgment by default and the writ of
possession. The RTC Balayan found that the summons and the complaint were not served on Silverio, Jr., Esses
and Tri-Star. The RTC Balayan directed the service of summons anew on Silverio, Jr., Esses and Tri-Star.
The RTC Balayan denied FBCI’s mo$on for reconsidera$on of the order. FBCI then filed a pe$$on
for cer)orari with the Court of Appeals ques$oning the RTC Balayan’s 28 December 1998 Order.3 On 28 April
2000, the Court of Appeals denied FBCI’s pe$$on. The Court of Appeals also denied FBCI’s mo$on for
reconsidera$on. On 13 August 2001, the Supreme Court denied FBCI’s pe$$on.
On 14 April 1999, the RTC Balayan modified its 28 December 1998 Order by upholding FBCI’s possession of the
Calatagan Property. The RTC Balayan ruled that FBCI could not be deprived of possession of the Calatagan
Property because FBCI made substan$al improvements on it. Possession could revert to Silverio, Jr., Esses and Tri-
Star only if they reimburse FBCI. The RTC Balayan gave Silverio, Jr., Esses and Tri-Star 15 days to file their
responsive pleadings.
Silverio, Jr., Esses and Tri-Star moved for the par$al reconsidera$on of the 14 April 1999 Order. Silverio, Jr., Esses
and Tri-Star argued that since the judgment by default was nullified, they should be restored to their possession
of the Calatagan Property. FBCI did not file any opposi$on to the mo$on.
On 9 November 1999, the RTC Balayan reversed its 14 April 1999 Order by holding that Silverio, Jr., Esses and Tri-
Star had no duty to reimburse FBCI. The RTC Balayan pointed out that FBCI offered no evidence to substan$ate its
claim for expenses. The 9 November 1999 Order also restored possession of the Calatagan Property to Silverio,
Jr., Esses and Tri-Star pursuant to Rule 39, Sec$on 5 of the 1997 Rules of Civil Procedure. This provision provides
for res$tu$on in case of reversal of an executed judgment. On 7 January 2000, the RTC Balayan denied FBCI’s
mo$on for reconsidera$on.
On 8 May 2000, the RTC Balayan issued the writ of possession to Silverio, Jr., Esses and Tri-Star.
On 12 May 2000, FBCI filed with the RTC Balayan a Manifesta$on and Mo$on to Recall Writ of Possession on the
ground that the decision of the Court of Appeals in CA-G.R. SP No. 56924 was not yet final and FBCI’s mo$on for
reconsidera$on was s$ll pending. The RTC Balayan set the hearing on 26 May 2000.
On 23 May 2000, FBCI filed with the RTC Balayan an Urgent Ex-Parte Mo$on to Suspend Enforcement of Writ of
Possession. FBCI pointed out that it is now the new owner of Esses and Tri-Star having purchased the "substan$al
and controlling shares of stocks"4 of the two corpora$ons.
On the 26 May 2000 hearing, FBCI reiterated its claim of a supervening event, its ownership of Esses and Tri-Star.
FBCI informed the RTC Balayan that a new board of directors for Esses and Tri-Star had been convened following
the resigna$on of the members of the board of directors. The previous ac$ons of the former board of directors
have been abandoned and the services of Afy. Vicente B. Chuidian, the counsel of pe$$oners Silverio, Jr., Esses
and Tri-Star, have been terminated.
On the same day, the RTC Balayan issued the order suspending the writ of possession it had earlier issued to
Silverio, Jr., Esses and Tri-Star. The RTC Balayan reasoned that it would violate the law on forum shopping if it
executed the writ while FBCI’s mo$on for reconsidera$on of the Court of Appeals’ decision and urgent mo$on to
suspend the issuance of the writ of possession remained pending with the Court of Appeals. The RTC Balayan
noted that because of FBCI’s strong resistance, Silverio, Jr., Esses and Tri-Star have s$ll to take possession of the
Calatagan Property. More than ten days had already passed from the $me that the RTC Balayan had issued the
writ of possession. FBCI had barricaded the Calatagan Property, threatening bloodshed if possession will be taken
away from it. The RTC Balayan believed that if it would not restrain Silverio, Jr., Esses and Tri-Star from taking
possession of the Calatagan Property, a violent confronta$on between the par$es might erupt as reported in the
Tempo newspaper in its 26 May 2000 issue. Without issuing a restraining order, the RTC Balayan suspended the
writ by reques$ng the counsel of Silverio, Jr., Esses and Tri-Star to allow the court to study the voluminous
records of the case, which are to be presented at the hearing on 16 June 2000. The hearing would determine the
existence of a supervening event.
On 15 June 2000, the RTC Balayan issued an Order cancelling the 16 June 2000 hearing so that the Court of
Appeals could resolve the issue regarding the existence of a supervening event. However, the RTC Balayan
declared that the suspension of the writ of possession would be liled on 17 June 2000.
On 8 August 2000, Silverio, Jr., Esses and Tri-Star filed a complaint for annulment of contracts with damages with
the Regional Trial Court of Las Piñas City, Branch 275 ("RTC Las Piñas").5
Issues
Silverio, Jr., Esses and Tri-Star argue that:
I
An ex parte mo$on cannot legally cons$tute an ini$atory basis for the RTC Balayan to conduct addi$onal hearings
in order to validate certain new allega$ons. Neither can said ex parte mo$on be the basis for the suspension of a
writ of possession being implemented.
II
When the RTC Balayan suspended the writ of possession, it was barred from hearing intra-corporate disputes.
And though Congress has now amended our law on the mafer, the RTC s$ll cannot proceed because of due
process and res judicata reasons.
III
A final and executory judgment cannot be enjoined except by an appropriate pe$$on for relief, a direct afack in
another ac$on or a collateral act in another ac$on.
IV
Respondent FBCI is asking for a suspension of the writ of possession while at the same $me threatening violence
if the writ of possession were to be implemented. The RTC Balayan had no lawful basis to suspend the writ under
these admifed circumstances.
V First, interlocutory orders are those that determine incidental mafers that do not touch on the merits of the
Respondent has not directly answered pe$$oners’ legal theory. The pe$$on is founded on admifed facts upon
which relief is sought under Rule 45. Respondent has altered these facts – presen$ng its so called
"counterstatements of facts and issues" – which involve ques$ons of fact that are s$ll li)s penden)a at the RTC
Balayan. And which even involve an afempt to vary res judicata.
VI
Contrary to respondent’s claims, that the RTC order of 15 June 2000 has rendered this case "moot and academic"
– quite on the contrary – said order calls upon the Supreme Court to decide whether or not, the RTC Balayan may
con$nue to conduct its hearings on suspending the writ of possession.
VII
Respondent’s theory that an order suspending a writ of possession is interlocutory in nature, and therefore
inappealable, is not supported by jurisprudence.
VIII
Respondent’s views on when suspending a writ of execu$on is appropriate – would "make the excep$on as rule."
And respondent’s reliance on Flores vs. CA, et al. is totally misplaced. In the Flores case, the party being
dispossessed was a judgment creditor, who was admifed by the adverse party to be the owner.
IX
The ques$on of jus possessionis on the Calatagan Property is already res judicata while the ques$on of jus
possidendi is s$ll under li)s penden)a. For that reason, respondent has lost all his legal op$ons in retaining the
property procured under a "faked service" of summons.
X mul$ple suits involving the same par$es for the same cause of ac$on, either simultaneously or successively, to
Respondents arguments in his 11-06-01 Memo – on (a) "forum shopping", (b) "pe$$oners’ lack of capacity to
sue", (c) "service of summons already served" (d) "no intra-corporate dispute" and (e) "the relief herein
preempted by events" – are ra$ocina$ons of miniscule weight, meri$ng only the slightest comment.6
FBCI raises the following issues:
1. Whether the present case has been rendered moot and academic by the Order of the RTC Balayan dated 15
June 2000 and the filing of an ac$on with the Regional Trial Court of Las Piñas City;
2. Whether the present appeal should be dismissed on the ground of forum shopping;
3. Whether the RTC Balayan had the authority to suspend enforcement of the writ of possession and to conduct
hearings on a new set of facts;
4. Whether the present case involves an intra-corporate controversy;
5. Whether appeal by cer)orari under Rule 45 is the proper remedy under the given facts of the case.7
The Ruling of the Court
The pe$$on has merit.
Procedural Issues
Before resolving the threshold issue, which is the existence of a supervening event, we first address the following
procedural issues: (1) whether appeal is the proper remedy against an order suspending the execu$on of a writ
of possession; (2) whether the issue of possession was mooted by the 15 June 2000 Order of the RTC Balayan;
and (3) whether the filing of a civil case with the RTC Las Piñas cons$tutes forum shopping.
case or put an end to the proceedings.8 The proper remedy to ques$on an improvident interlocutory order is a
pe$$on for cer)orari under Rule 65, not Rule 45.9 A pe$$on for review under Rule 45 is the proper mode of
redress to ques$on final judgments.10
An order staying the execu$on of the writ of possession is an interlocutory order.11 Clearly, this order cannot be
appealed. A pe$$on for cer)orari was therefore the correct remedy. Moreover, Silverio, Jr., Esses and Tri-Star
pointed out that the RTC Balayan acted on an ex-parte mo$on to suspend the writ of possession, which is a
li$gious mafer, without complying with the rules on no$ce and hearing. Silverio, Jr., Esses and Tri-Star also assail
the RTC Balayan’s impending move to accept FBCI’s evidence on its subsequent ownership of Esses and Tri-Star. In
effect, Silverio, Jr., Esses and Tri-Star accuse the RTC Balayan of ac$ng without or in excess of jurisdic$on or with
grave abuse of discre$on, which is within the ambit of cer)orari.
However, in the exercise of our judicial discre$on, we will treat the appeal as a pe$$on under Rule 65.12 Technical
rules must be suspended whenever the purposes of jus$ce warrant it, such as in this case where substan$al and
important issues await resolu$on.
Second, the RTC Balayan’s 15 June 2000 Order liling the suspension of the writ of possession was issued to
correct its ac$on on FBCI’s ex-parte mo$on, which did not have the required no$ce and hearing. This issue has
thus become a fait accompli. However, while the 15 June 2000 Order is supposed to have mooted the suspension
of the execu$on of the writ of possession by liling the suspension on 17 June 2000, Silverio, Jr., Esses and Tri-Star
claim that the writ has not been executed in their favor. Thus, the issues in this pe$$on are far from being moot.
Also, the existence of a supervening event is another issue that must be resolved since the RTC Balayan had
instead submifed to the "higher courts" the resolu$on of this issue.
Third, Silverio, Jr., Esses and Tri-Star are not guilty of forum shopping for filing another ac$on against FBCI with
the RTC Las Piñas during the pendency of this case with the RTC Balayan. Forum shopping consists of filing
obtain a favorable judgment.13
The par$es and cause of ac$on in the present case before the RTC Balayan and in the case before the RTC Las
Piñas are different. The present case was filed by FBCI against Silverio, Jr., Esses and Tri-Star for the consolida$on
of $tle over the Calatagan Property. On the other hand, the case before the RTC Las Piñas was filed by Silverio, Jr.,
Esses and Tri-Star against FBCI and other defendants for the annulment of contract with damages, tort and culpa
aquiliana (civil fraud).
In its complaint before the RTC Las Piñas, Silverio, Jr., Esses and Tri-Star informed the court that there is a pending
case with the RTC Balayan over the Calatagan Property.14 Silverio, Jr., Esses and Tri-Star made it clear in the
complaint that the case before the RTC Las Piñas will focus on the Maka$ Tuscany property and any reference to
the Calatagan Property is "meant to serve only as proof or evidence of the plan, system, scheme, habit, etc.,
lurking behind defendants’ interlocking acts cons$tu$ng interlocking tort and interlocking fraud."15 Clearly, FBCI’s
claim of forum shopping against Silverio, Jr., Esses and Tri-Star has no basis.
No Supervening Event in this Case
FBCI took possession of the Calatagan Property aler the RTC Balayan rendered a judgment by default in FBCI’s
favor. The judgment by default was nullified aler the RTC Balayan found out that the service of summons on
Silverio, Jr., Esses and Tri-Star was procured fraudulently. The RTC Balayan thus recalled the writ of possession it
had issued to FBCI. Silverio, Jr., Esses and Tri-Star were served anew with summons. The RTC Balayan restored
possession of the Calatagan Property to Silverio, Jr., Esses and Tri-Star as res$tu$on resul$ng from the annulment
of the judgment by default. The order restoring possession of the Calatagan Property to Silverio, Jr., Esses and Tri-
Star has afained finality. This case then proceeded to pre-trial.
FBCI has resisted the enforcement of the writ of possession by barricading the Calatagan Property and
threatening violence if its possession of the property is taken away from it. To avoid bloodshed, as FBCI also
claimed that Silverio, Jr. had armed civilians threatening to shoot FBCI’s representa$ves,16 the RTC Balayan
momentarily suspended the execu$on of the writ. The RTC Balayan also had to rule on FBCI’s claim of a
supervening event that would allegedly make the execu$on of the writ absurd,17 as FBCI alleges it now owns the
controlling interest in Esses and Tri-Star. The RTC Balayan liled the suspension of the writ but it cancelled the
hearings on the supervening event to give way to the Court of Appeals’ ac$on on this issue. The RTC Balayan
decided to await the appellate court’s resolu$on because it did not want to violate the rule against forum
shopping.
Silverio, Jr., Esses and Tri-Star argue that the RTC Balayan has no power to conduct hearings on the supervening
event because res judicata has set in on the issue. They also contend that the supervening event is an intra-
corporate controversy that is within the jurisdic$on of the Securi$es and Exchange Commission, not the trial
court. Silverio, Jr., Esses and Tri-Star point out that despite the liling of the suspension RTC Balayan has s$ll to
execute the writ of possession in their favor. On the other hand, FBCI maintains that its acquisi$on of Esses and
Tri-Star is a supervening event, which the RTC Balayan could hear and is sufficient ground to stay the execu$on of
the writ of possession.
We rule in favor of Silverio, Jr., Esses and Tri-Star.
The court may stay immediate execu$on of a judgment when supervening events, occurring subsequent to the
judgment, bring about a material change in the situa$on of the par$es.18 To jus$fy the stay of immediate
execu$on, the supervening events must have a direct effect on the mafer already li$gated and sefled.19 Or, the
supervening events must create a substan$al change in the rights or rela$ons of the par$es which would render
execu$on of a final judgment unjust, impossible or inequitable making it impera$ve to stay immediate execu$on
in the interest of jus$ce.20
In this case, there is no judgment on the merits, only a judgment on a technicality. Even then, the judgment of
default rendered in FBCI’s favor was voided because the RTC Balayan did not acquire jurisdic$on over Silverio, Jr.,
Esses and Tri-Star due to a fraudulent service of summons. The case for consolida$on of $tle, from which this
pe$$on stemmed, is in fact s$ll being li$gated before the RTC Balayan.
The issuance of the writ of possession in favor of Silverio, Jr., Esses and Tri-Star is also not a judgment on the
merits.21 A writ of possession is an order whereby the sheriff is commanded to place a person in possession of
real or personal property. 22 The issuance of the writ of possession to Silverio, Jr., Esses and Tri-Star is but an order
of res$tu$on – a consequence of the nullifica$on of the judgment by default. The order of res$tu$on placed the
par$es in the situa$on prior to the RTC Balayan’s rendi$on of the void judgment by default. Title to the Calatagan
Property is s$ll in the names of Esses and Tri-Star. Possession of the Calatagan Property must revert to Esses and
Tri-Star as legal owners of the property.
However, with the reins$tu$on of the case for consolida$on of $tle with the RTC Balayan, possession of the
Calatagan Property is now subject to the outcome of the case. Nonetheless, while this case is s$ll under li$ga$on
– it is only in the pre-trial stage – Esses and Tri-Star in whose names the Calatagan Property is $tled and in whose
favor the order of res$tu$on was issued, are the ones en$tled to possession of the property.
We do not agree with Silverio, Jr., Esses and Tri-Star’s asser$on that the RTC Balayan has no power to conduct a
hearing on the existence of a supervening event because of res judicata. Res judicata does not set in where the
court is without jurisdic$on over the subject or person, and therefore, the judgment is a nullity23 such as the
judgment by default in this case. The order that voided the judgment by default and the order of res$tu$on
merely recognized the nullity of the judgment by default. The orders did not adjudicate on the merits of the case.
Since res judicata had not set in, the case was tried anew upon the proper service of summons on Silverio, Jr.,
Esses and Tri-Star.
Moreover, it is the court issuing the writ of possession that has control and supervision over its processes.24 The
RTC Balayan can therefore hear the evidence on the existence of a supervening event, provided the subject
mafer is within the jurisdic$on of the court, as this could affect the execu$on of the writ of possession.
We are, therefore, dismayed with the RTC Balayan’s referral of the existence of the supervening event to the
"higher courts." Courts must not shirk from their duty to rule on an issue. The duty of the appellate or higher
courts is to review the findings and rulings of the lower courts, not to issue advisories. Courts must execute its
processes and should not succumb to threats by any of the par$es to resort to violence in case of such
enforcement. Had the RTC Balayan immediately passed upon FBCI’s allega$on of a supervening event, it would
have been apparent that this claim is without merit. The RTC Balayan should have then enforced posthaste the
writ of possession in Silverio, Jr., Esses and Tri-Star’s favor.
FBCI’s acquisi$on of the "substan$al and controlling shares of stocks"25 of Esses and Tri-Star does not create a
substan$al change in the rights or rela$ons of the par$es that would en$tle FBCI to possession of the Calatagan
Property, a corporate property of Esses and Tri-Star. Esses and Tri-Star, just like FBCI, are corpora$ons. A
corpora$on has a personality dis$nct from that of its stockholders. As early as the case of Stockholders of F.
Guanzon and Sons, Inc. v. Register of Deeds of Manila,26 the Court explained the principle of separate juridical
personality in this wise:
A corpora$on is a juridical person dis$nct from the members composing it. Proper$es registered in the name of
the corpora$on are owned by it as an en$ty separate and dis$nct from its members. While shares of stock
cons$tute personal property, they do not represent property of the corpora$on. The corpora$on has property of
its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa
1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corpora$on's property, or the right to share
in its proceeds to that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173
Ala 398, 56 So., 235), but its holder is not the owner of any part of the capital of the corpora$on (Bradley v.
Bauder, 36 Ohio St., 28). Nor is he en$tled to the possession of any definite por$on of its property or assets
(Go{ried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in
common of the corporate property (Harton v. Hohnston, 166 Ala., 317, 51 So., 992).
Thus, FBCI’s alleged controlling shareholdings in Esses and Tri-Star merely represent a propor$onate or aliquot
interest in the proper$es of the two corpora$ons. Such controlling shareholdings do not vest FBCI with any legal
right or $tle to any of Esses and Tri-Star’s corporate proper$es. As a stockholder, FBCI has an interest in Esses and
Tri-Star’s corporate proper$es that is only equitable or beneficial in nature. Even assuming that FBCI is the
controlling shareholder of Esses and Tri-Star, it does not legally make it the owner of the Calatagan Property,
which is legally owned by Esses and Tri-Star as dis$nct juridical persons. As such, FBCI is not en$tled to the
possession of any definite por$on of the Calatagan Property or any of Esses and Tri-Star’s proper$es or assets.
FBCI is not a co-owner or tenant in common of the Calatagan Property or any of Esses and Tri-Star’s corporate
proper$es.
We see no reason why the execu$on of the writ of possession has been long delayed. Possession of the
Calatagan Property must be restored to Esses and Tri-Star through their representa$ve, Silverio, Jr. There is no
proof on record that Silverio, Jr. has ceased to be the representa$ve of Esses and Tri-Star in this case.
WHEREFORE, we GRANT the pe$$on. The Regional Trial Court, Branch XI, Balayan, Batangas is ordered to
immediately execute the writ of possession in Civil Case No. 3356 in favor of Esses Development Corpora$on and
Tri-Star Farms, Inc. through their representa$ve, Ricardo S. Silverio, Jr. No costs.
SO ORDERED.
G.R. No. 176579 June 28, 2011
WILSON P. GAMBOA, Pe$$oner,
vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND
COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN
THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN
ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS
INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS
CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Pe$$oners-in-Interven$on.
DECISION
CARPIO, J.:
The Case
This is an original pe$$on for prohibi$on, injunc$on, declaratory relief and declara$on of nullity of the sale of
shares of stock of Philippine Telecommunica$ons Investment Corpora$on (PTIC) by the government of the
Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific).
The Antecedents
The facts, according to pe$$oner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone
Company (PLDT), are as follows:1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the
right to engage in telecommunica$ons business. In 1969, General Telephone and Electronics Corpora$on (GTE),
an American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT
to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose
Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of
Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of
stock of PTIC held by PHI were sequestered by the Presiden$al Commission on Good Government (PCGG). The
111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later
declared by this Court to be owned by the Republic of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54
percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Priva$za$on Council
(IPC) of the Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of
the outstanding capital stock of PTIC, through a public bidding to be conducted on 4 December 2006.
Subsequently, the public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund
XXVII (Parallax) and Pan-Asia Presidio Capital, submifed their bids. Parallax won with a bid of ₱25.6 billion or
US$510 million.
Therealer, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the
111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February
2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC un$l 2 March
2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a
Condi$onal Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, with the Philippine Government for the price of ₱25,217,556,000 or US$510,580,189. The
sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of
PLDT. With the sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates
Sec$on 11, Ar$cle XII of the 1987 Philippine Cons$tu$on which limits foreign ownership of the capital of a public
u$lity to not more than 40 percent.3
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and
PCGG Commissioner Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC
held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on
the other hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of
the outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and
Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently
declared by this Court as part of the ill-gofen wealth of former President Ferdinand Marcos. The sequestered
PTIC shares were reconveyed to the Republic of the Philippines in accordance with this Court’s decision4 which
became final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the
outstanding common shares of stock of PLDT, and designated the Inter-Agency Priva$za$on Council (IPC),
composed of the Department of Finance and the PCGG, as the disposing en$ty. An invita$on to bid was
published in seven different newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid
conference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8
December 2006. The extension was published in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid
of ₱25,217,556,000. The government no$fied First Pacific, the majority owner of PTIC shares, of the bidding
results and gave First Pacific un$l 1 February 2007 to exercise its right of first refusal in accordance with PTIC’s
Ar$cles of Incorpora$on. First Pacific announced its inten$on to match Parallax’s bid.
On 31 January 2007, the House of Representa$ves (HR) Commifee on Good Government conducted a public
hearing on the par$culars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla
were among those who afended the public hearing. The HR Commifee Report No. 2270 concluded that: (a) the
auc$on of the government’s 111,415 PTIC shares bore due diligence, transparency and conformity with exis$ng
legal procedures; and (b) First Pacific’s intended acquisiaon of the government’s 111,415 PTIC shares resulang
in First Pacific’s 100% ownership of PTIC will not violate the 40 percent consatuaonal limit on foreign
ownership of a public uality since PTIC holds only 13.847 percent of the total outstanding common shares of
PLDT.5 On 28 February 2007, First Pacific completed the acquisi$on of the 111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of
111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC
shares was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amoun$ng to
₱25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTIC’s
Ar$cles of Incorpora$on, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest
bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when
MPAH paid IPC ₱25,217,556,000 and the government delivered the cer$ficates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allega$ons of facts of pe$$oner.
On 28 February 2007, pe$$oner filed the instant pe$$on for prohibi$on, injunc$on, declaratory relief, and
declara$on of nullity of sale of the 111,415 PTIC shares. Pe$$oner claims, among others, that the sale of the
111,415 PTIC shares would result in an increase in First Pacific’s common shareholdings in PLDT from 30.7
percent to 37 percent, and this, combined with Japanese NTT DoCoMo’s common shareholdings in PLDT, would
result to a total foreign common shareholdings in PLDT of 51.56 percent which is over the 40 percent
cons$tu$onal limit.6 Pe$$oner asserts:
If and when the sale is completed, First Pacific’s equity in PLDT will go up from 30.7 percent to 37.0 percent of its
common – or vo$ng- stockholdings, x x x. Hence, the consumma$on of the sale will put the two largest foreign
investors in PLDT – First Pacific and Japan’s NTT DoCoMo, which is the world’s largest wireless
telecommunica$ons firm, owning 51.56 percent of PLDT common equity. x x x With the comple$on of the sale,
data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those foreign
en$$es, which own at least five percent of common equity, will collec$vely own 81.47 percent of PLDT’s common
equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submifed to the
New York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign en$$es
breached the cons$tu$onal limit of 40 percent ownership as early as 2003. x x x"7
Pe$$oner raises the following issues: (1) whether the consumma$on of the then impending sale of 111,415 PTIC
shares to First Pacific violates the cons$tu$onal limit on foreign ownership of a public u$lity; (2) whether public
respondents commifed grave abuse of discre$on in allowing the sale of the 111,415 PTIC shares to First Pacific;
and (3) whether the sale of common shares to foreigners in excess of 40 percent of the en$re subscribed
common capital stock violates the cons$tu$onal limit on foreign ownership of a public u$lity.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Mo$on for Leave to Intervene and Admit
Afached Pe$$on-in-Interven$on. In the Resolu$on of 28 August 2007, the Court granted the mo$on and noted
the Pe$$on-in-Interven$on.
Pe$$oners-in-interven$on "join pe$$oner Wilson Gamboa x x x in seeking, among others, to enjoin and/or
nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or assignee." Pe$$oners-in-interven$on
claim that, as PLDT subscribers, they have a "stake in the outcome of the controversy x x x where the Philippine
Government is comple$ng the sale of government owned assets in [PLDT], unques$onably a public u$lity, in
viola$on of the na$onality restric$ons of the Philippine Cons$tu$on."
The Issue
This Court is not a trier of facts. Factual ques$ons such as those raised by
pe$$oner,9
which indisputably demand
a thorough examina$on of the evidence of the par$es, are generally beyond this Court’s jurisdic$on. Adhering to
this well-sefled principle, the Court shall confine the resolu$on of the instant controversy solely on
the threshold and purely legal issue of whether the term "capital" in Sec$on 11, Ar$cle XII of the Cons$tu$on
refers to the total common shares only or to the total outstanding capital stock (combined total of common and
non-vo$ng preferred shares) of PLDT, a public u$lity.
The Ruling of the Court
The pe$$on is partly meritorious.
Pe@@on for declaratory relief treated as pe@@on for mandamus
At the outset, pe$$oner is faced with a procedural barrier. Among the remedies pe$$oner seeks, only the
pe$$on for prohibi$on is within the original jurisdic$on of this court, which however is not exclusive but is
concurrent with the Regional Trial Court and the Court of Appeals. The ac$ons for declaratory relief,10 injunc$on,
and annulment of sale are not embraced within the original jurisdic$on of the Supreme Court. On this ground
alone, the pe$$on could have been dismissed outright.
While direct resort to this Court may be jus$fied in a pe$$on for prohibi$on,11 the Court shall nevertheless
refrain from discussing the grounds in support of the pe$$on for prohibi$on since on 28 February 2007, the
ques$oned sale was consummated when MPAH paid IPC ₱25,217,556,000 and the government delivered the
cer$ficates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the defini$on of the term "capital" in Sec$on 11, Ar$cle
XII of the Cons$tu$on has far-reaching implica$ons to the na$onal economy, the Court treats the pe$$on for
declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the pe$$on for declaratory relief as one for
mandamus considering the grave injus$ce that would result in the interpreta$on of a banking law. In that case,
which involved the crime of rape commifed by a foreign tourist against a Filipino minor and the execu$on of the
final judgment in the civil case for damages on the tourist’s dollar deposit with a local bank, the Court declared
Sec$on 113 of Central Bank Circular No. 960, exemp$ng foreign currency deposits from afachment, garnishment
or any other order or process of any court, inapplicable due to the peculiar circumstances of the case. The Court
held that "injus$ce would result especially to a ci$zen aggrieved by a foreign guest like accused x x x" that would
"negate Ar$cle 10 of the Civil Code which provides that ‘in case of doubt in the interpreta$on or applica$on of
laws, it is presumed that the lawmaking body intended right and jus$ce to prevail.’" The Court therefore required
respondents Central Bank of the Philippines, the local bank, and the accused to comply with the writ of execu$on
issued in the civil case for damages and to release the dollar deposit of the accused to sa$sfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural
infirmity of the pe$$on for declaratory relief and treated the same as one for mandamus. In Alliance, the issue
was whether the government unlawfully excluded pe$$oners, who were government employees, from the
enjoyment of rights to which they were en$tled under the law. Specifically, the ques$on was: "Are the branches,
agencies, subdivisions, and instrumentali$es of the Government, including government owned or controlled
corpora$ons included among the four ‘employers’ under Presiden$al Decree No. 851 which are required to pay
their employees x x x a thirteenth (13th) month pay x x x ?" The Cons$tu$onal principle involved therein affected
all government employees, clearly jus$fying a relaxa$on of the technical rules of procedure, and certainly
requiring the interpreta$on of the assailed presiden$al decree.
In short, it is well-sefled that this Court may treat a pe$$on for declaratory relief as one for mandamus if the
issue involved has far-reaching implica$ons. As this Court held in Salvacion:
The Court has no original and exclusive jurisdic$on over a pe$$on for declaratory relief. However, excepaons to
this rule have been recognized. Thus, where the peaaon has far-reaching implicaaons and raises quesaons that
should be resolved, it may be treated as one for mandamus.15 (Emphasis supplied)
In the present case, pe$$oner seeks primarily the interpreta$on of the term "capital" in Sec$on 11, Ar$cle XII of
the Cons$tu$on. He prays that this Court declare that the term "capital" refers to common shares only, and that
such shares cons$tute "the sole basis in determining foreign equity in a public u$lity." Pe$$oner further asks this
Court to declare any ruling inconsistent with such interpreta$on uncons$tu$onal.
The interpreta$on of the term "capital" in Sec$on 11, Ar$cle XII of the Cons$tu$on has far-reaching implica$ons
to the na$onal economy. In fact, a resolu$on of this issue will determine whether Filipinos are masters, or second
class ci$zens, in their own country. What is at stake here is whether Filipinos or foreigners will have effec@ve
control of the na$onal economy. Indeed, if ever there is a legal issue that has far-reaching implica$ons to the
en$re na$on, and to future genera$ons of Filipinos, it is the threshhold legal issue presented in this case.
The Court first encountered the issue on the defini$on of the term "capital" in Sec$on 11, Ar$cle XII of the
Cons$tu$on in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same
public u$lity (PLDT) and substan$ally the same private respondents. Despite the importance and novelty of the
cons$tu$onal issue raised therein and despite the fact that the pe$$on involved a purely legal ques$on, the
Court declined to resolve the case on the merits, and instead denied the same for disregarding the hierarchy of
courts.17 There, pe$$oner Fernandez assailed on a pure ques$on of law the Regional Trial Court’s Decision of 21
February 2003 via a pe$$on for review under Rule 45. The Court’s Resolu$on, denying the pe$$on, became final
on 21 December 2004.
The instant pe$$on therefore presents the Court with another opportunity to finally sefle this purely legal
issue which is of transcendental importance to the na$onal economy and a fundamental requirement to a
faithful adherence to our Cons$tu$on. The Court must forthwith seize such opportunity, not only for the benefit
of the li$gants, but more significantly for the benefit of the en$re Filipino people, to ensure, in the words of the
Cons$tu$on, "a self-reliant and independent na$onal economy effecavely controlled by Filipinos."18 Besides, in
the light of vague and confusing posi$ons taken by government agencies on this purely legal issue, present and
future foreign investors in this country deserve, as a mafer of basic fairness, a categorical ruling from this Court
on the extent of their par$cipa$on in the capital of public u$li$es and other na$onalized businesses.
Despite its far-reaching implica$ons to the na$onal economy, this purely legal issue has remained unresolved for
over 75 years since the 1935 Cons$tu$on. There is no reason for this Court to evade this ever recurring
fundamental issue and delay again defining the term "capital," which appears not only in Sec$on 11, Ar$cle XII of
the Cons$tu$on, but also in Sec$on 2, Ar$cle XII on co-produc$on and joint venture agreements for the
development of our natural resources,19 in Sec$on 7, Ar$cle XII on ownership of private lands,20 in Sec$on 10,
Ar$cle XII on the reserva$on of certain investments to Filipino ci$zens,21 in Sec$on 4(2), Ar$cle XIV on the
ownership of educa$onal ins$tu$ons,22 and in Sec$on 11(2), Ar$cle XVI on the ownership of adver$sing
companies.23
Pe@@oner has locus standi
There is no dispute that pe$$oner is a stockholder of PLDT. As such, he has the right to ques$on the subject sale,
which he claims to violate the na$onality requirement prescribed in Sec$on 11, Ar$cle XII of the Cons$tu$on. If
the sale indeed violates the Cons$tu$on, then there is a possibility that PLDT’s franchise could be revoked, a dire
consequence directly affec$ng pe$$oner’s interest as a stockholder.
More importantly, there is no ques$on that the instant pe$$on raises mafers of transcendental importance to
the public. The fundamental and threshold legal issue in this case, involving the na$onal economy and the
economic welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the
pe$$oner to bring this ac$on.
In Chavez v. PCGG,24 the Court upheld the right of a ci$zen to bring a suit on mafers of transcendental
importance to the public, thus:
In Tañada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus
is to obtain the enforcement of a public duty, the people are regarded as the real paraes in interest; and
because it is sufficient that peaaoner is a ciazen and as such is interested in the execuaon of the laws, he need
not show that he has any legal or special interest in the result of the acaon. In the aforesaid case, the
pe$$oners sought to enforce their right to be informed on mafers of public concern, a right then recognized in
Sec$on 6, Ar$cle IV of the 1973 Cons$tu$on, in connec$on with the rule that laws in order to be valid and
enforceable must be published in the Official Gazefe or otherwise effec$vely promulgated. In ruling for the
pe$$oners’ legal standing, the Court declared that the right they sought to be enforced ‘is a public right
recognized by no less than the fundamental law of the land.’
Legaspi v. Civil Service Commission, while reitera$ng Tañada, further declared that ‘when a mandamus
proceeding involves the asseraon of a public right, the requirement of personal interest is saasfied by the mere
fact that peaaoner is a ciazen and, therefore, part of the general ‘public’ which possesses the right.’
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the
ques$oned contract for the development, management and opera$on of the Manila Interna$onal Container
Terminal, ‘public interest [was] definitely involved considering the important role [of the subject contract] . . .
in the economic development of the country and the magnitude of the financial consideraaon involved.’ We
concluded that, as a consequence, the disclosure provision in the Cons$tu$on would cons$tute sufficient
authority for upholding the pe$$oner’s standing. (Emphasis supplied)
Clearly, since the instant pe$$on, brought by a ci$zen, involves mafers of transcendental public importance, the
pe$$oner has the requisite locus standi.
Defini@on of the Term "Capital" in
Sec@on 11, Ar@cle XII of the 1987 Cons@tu@on
Sec$on 11, Ar$cle XII (Na$onal Economy and Patrimony) of the 1987 Cons$tu$on mandates the Filipiniza$on of
public u$li$es, to wit:
Sec$on 11. No franchise, ceraficate, or any other form of authorizaaon for the operaaon of a public uality shall
be granted except to ciazens of the Philippines or to corporaaons or associaaons organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such ciazens; nor shall such franchise,
cer$ficate, or authoriza$on be exclusive in character or for a longer period than fily years. Neither shall any such
franchise or right be granted except under the condi$on that it shall be subject to amendment, altera$on, or
repeal by the Congress when the common good so requires. The State shall encourage equity par$cipa$on in
public u$li$es by the general public. The par$cipa$on of foreign investors in the governing body of any public
u$lity enterprise shall be limited to their propor$onate share in its capital, and all the execu$ve and managing
officers of such corpora$on or associa$on must be ci$zens of the Philippines. (Emphasis supplied)
The above provision substan$ally reiterates Sec$on 5, Ar$cle XIV of the 1973 Cons$tu$on, thus:
Secaon 5. No franchise, ceraficate, or any other form of authorizaaon for the operaaon of a public uality shall
be granted except to ciazens of the Philippines or to corporaaons or associaaons organized under the laws of
the Philippines at least sixty per centum of the capital of which is owned by such ciazens, nor shall such
franchise, cer$ficate, or authoriza$on be exclusive in character or for a longer period than fily years. Neither
shall any such franchise or right be granted except under the condi$on that it shall be subject to amendment,
altera$on, or repeal by the Na$onal Assembly when the public interest so requires. The State shall encourage
equity par$cipa$on in public u$li$es by the general public. The par$cipa$on of foreign investors in the governing
body of any public u$lity enterprise shall be limited to their propor$onate share in the capital thereof. (Emphasis
supplied)
The foregoing provision in the 1973 Cons$tu$on reproduced Sec$on 8, Ar$cle XIV of the 1935 Cons$tu$on, viz:
Secaon 8. No franchise, ceraficate, or any other form of authorizaaon for the operaaon of a public uality shall
be granted except to ciazens of the Philippines or to corporaaons or other enaaes organized under the laws of
the Philippines sixty per centum of the capital of which is owned by ciazens of the Philippines, nor shall such
franchise, cer$ficate, or authoriza$on be exclusive in character or for a longer period than fily years. No
franchise or right shall be granted to any individual, firm, or corpora$on, except under the condi$on that it shall
be subject to amendment, altera$on, or repeal by the Congress when the public interest so requires. (Emphasis
supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Cons$tu$onal Commission, reminds us that the
Filipiniza$on provision in the 1987 Cons$tu$on is one of the products of the spirit of na$onalism which gripped
the 1935 Cons$tu$onal Conven$on.25 The 1987 Cons$tu$on "provides for the Filipiniza$on of public u$li$es by
requiring that any form of authoriza$on for the opera$on of public u$li$es should be granted only to ‘ci$zens of
the Philippines or to corpora$ons or associa$ons organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such ci$zens.’ The provision is [an express] recogniaon of the sensiave and
vital posiaon of public ualiaes both in the naaonal economy and for naaonal security."26 The evident purpose
of the ci$zenship requirement is to prevent aliens from assuming control of public u$li$es, which may be inimical
to the na$onal interest.27 This specific provision explicitly reserves to Filipino ci$zens control of public u$li$es,
pursuant to an overriding economic goal of the 1987 Cons$tu$on: to "conserve and develop our
patrimony"28 and ensure "a self-reliant and independent na$onal economy effec@vely controlled by Filipinos."29
Any ci$zen or juridical en$ty desiring to operate a public u$lity must therefore meet the minimum na$onality
requirement prescribed in Sec$on 11, Ar$cle XII of the Cons$tu$on. Hence, for a corpora$on to be granted
authority to operate a public u$lity, at least 60 percent of its "capital" must be owned by Filipino ci$zens.
The crux of the controversy is the defini$on of the term "capital." Does the term "capital" in Sec$on 11, Ar$cle
XII of the Cons$tu$on refer to common shares or to the total outstanding capital stock (combined total of
common and non-vo$ng preferred shares)?
Pe$$oner submits that the 40 percent foreign equity limita$on in domes$c public u$li$es refers only to common
shares because such shares are en$tled to vote and it is through vo$ng that control over a corpora$on is
exercised. Pe$$oner posits that the term "capital" in Sec$on 11, Ar$cle XII of the Cons$tu$on refers to "the
ownership of common capital stock subscribed and outstanding, which class of shares alone, under the corporate
set-up of PLDT, can vote and elect members of the board of directors." It is undisputed that PLDT’s non-vo$ng
preferred shares are held mostly by Filipino ci$zens.30 This arose from Presiden$al Decree No. 217,31 issued on 16
June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to
non-vo$ng preferred shares to pay for the investment cost of installing the telephone line.32
Pe$$oners-in-interven$on basically reiterate pe$$oner’s arguments and adopt pe$$oner’s defini$on of the term
"capital."33 Pe$$oners-in-interven$on allege that "the approximate foreign ownership of common capital stock of
PLDT x x x already amounts to at least 63.54% of the total outstanding common stock," which means that
foreigners exercise significant control over PLDT, patently viola$ng the 40 percent foreign equity limita$on in
public u$li$es prescribed by the Cons$tu$on.
Respondents, on the other hand, do not offer any defini$on of the term "capital" in Sec$on 11, Ar$cle XII of the
Cons$tu$on. More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more
than 40 percent of the common shares of PLDT are held by foreigners.
In par$cular, respondent Nazareno’s Memorandum, consis$ng of 73 pages, harps mainly on the procedural
infirmi$es of the pe$$on and the supposed viola$on of the due process rights of the "affected foreign common
shareholders." Respondent Nazareno does not deny pe$$oner’s allega$on of foreigners’ domina$ng the
common shareholdings of PLDT. Nazareno stressed mainly that the pe$$on "seeks to divest foreign common
shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their ownership over
their shares." Thus, "the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that
they can be heard."34 Essen$ally, Nazareno invokes denial of due process on behalf of the foreign common
shareholders.
While Nazareno does not introduce any defini$on of the term "capital," he states that "among the factual
asseraons that need to be established to counter peaaoner’s allegaaons is the uniform interpretaaon by
government agencies (such as the SEC), insatuaons and corporaaons (such as the Philippine Naaonal Oil
Company-Energy Development Corporaaon or PNOC-EDC) of including both preferred shares and common
shares in "controlling interest" in view of tesang compliance with the 40% consatuaonal limitaaon on foreign
ownership in public ualiaes."35
Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Sec$on 11, Ar$cle XII of the
Cons$tu$on. Neither does he refute pe$$oner’s claim of foreigners holding more than 40 percent of PLDT’s
common shares. Instead, respondent Pangilinan focuses on the procedural flaws of the pe$$on and the alleged
viola$on of the due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the
absence of this Court’s jurisdic$on over the pe$$on; (2) pe$$oner’s lack of standing; (3) mootness of the
pe$$on; (4) non-availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondent
Pangilinan alleges that the issue should be whether "owners of shares in PLDT as well as owners of shares in
companies holding shares in PLDT may be required to relinquish their shares in PLDT and in those companies
without any law requiring them to surrender their shares and also without no$ce and trial."
Respondent Pangilinan further asserts that "Secaon 11, [Aracle XII of the Consatuaon] imposes no naaonality
requirement on the shareholders of the uality company as a condiaon for keeping their shares in the uality
company." According to him, "Sec$on 11 does not authorize taking one person’s property (the shareholder’s
stock in the u$lity company) on the basis of another party’s alleged failure to sa$sfy a requirement that is a
condi$on only for that other party’s reten$on of another piece of property (the u$lity company being at least
60% Filipino-owned to keep its franchise)."36
The OSG, represen$ng public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla,
Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the defini$on of the term "capital." In
its Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed procedural
defects of the pe$$on, i.e. lack of standing, lack of jurisdic$on, non-inclusion of interested par$es, and lack of
basis for injunc$on. The OSG does not present any defini$on or interpreta$on of the term "capital" in Sec$on 11,
Ar$cle XII of the Cons$tu$on. The OSG contends that "the pe$$on actually partakes of a collateral afack on
PLDT’s franchise as a public u$lity," which in effect requires a "full-blown trial where all the par$es in interest are
given their day in court."38
Respondent Francisco Ed Lim, impleaded as President and Chief Execu$ve Officer of the Philippine Stock
Exchange (PSE), does not also define the term "capital" and seeks the dismissal of the pe$$on on the following
grounds: (1) failure to state a cause of ac$on against Lim; (2) the PSE allegedly implemented its rules and
required all listed companies, including PLDT, to make proper and $mely disclosures; and (3) the reliefs prayed for
in the pe$$on would adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco, pe$$oner Fernandez who claimed to be a stockholder of record of
PLDT, contended that the term "capital" in the 1987 Cons$tu$on refers to shares en$tled to vote or the common
shares. Fernandez explained thus:
The forty percent (40%) foreign equity limita$on in public u$li$es prescribed by the Cons$tu$on refers to
ownership of shares of stock en$tled to vote, i.e., common shares, considering that it is through vo$ng that
control is being exercised. x x x
Obviously, the intent of the framers of the Cons$tu$on in imposing limita$ons and restric$ons on fully
na$onalized and par$ally na$onalized ac$vi$es is for Filipino na$onals to be always in control of the corpora$on
undertaking said ac$vi$es. Otherwise, if the Trial Court’s ruling upholding respondents’ arguments were to be
given credence, it would be possible for the ownership structure of a public u$lity corpora$on to be divided into
one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Court’s
ruling adop$ng respondents’ arguments, the common shares can be owned en$rely by foreigners thus crea$ng
an absurd situa$on wherein foreigners, who are supposed to be minority shareholders, control the public u$lity
corpora$on.
xxxx
Thus, the 40% foreign ownership limita$on should be interpreted to apply to both the beneficial ownership and
the controlling interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limita$on in public u$li$es prescribed by the
Cons$tu$on refers to ownership of shares of stock en$tled to vote, i.e., common shares. Furthermore, ownership
of record of shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands
of Filipino ci$zens. Consequently, in the case of pe$$oner PLDT, since it is already admifed that the vo$ng
interests of foreigners which would gain entry to pe$$oner PLDT by the acquisi$on of SMART shares through the
Ques$oned Transac$ons is equivalent to 82.99%, and the nominee arrangements between the foreign principals
and the Filipino owners is likewise admifed, there is, therefore, a viola$on of Sec$on 11, Ar$cle XII of the
Cons$tu$on.
Parenthe$cally, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the
proposi$on that the meaning of the word "capital" as used in Sec$on 11, Ar$cle XII of the Cons$tu$on allegedly
refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how
the stock is classified, whether as common or preferred, cannot stand in the face of a clear legisla$ve policy as
stated in the FIA which took effect in 1991 or way aler said opinions were rendered, and as clarified by the
above-quoted Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by
an administra$ve agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot
prevail over the clear intent of the framers of the Cons$tu$on.
In the same vein, the SEC’s construc$on of Sec$on 11, Ar$cle XII of the Cons$tu$on is at best merely advisory for
it is the courts that finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y.
Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno,
Albert F. Del Rosario, and Orlando B. Vea, argued that the term "capital" in Sec$on 11, Ar$cle XII of the
Cons$tu$on includes preferred shares since the Cons$tu$on does not dis$nguish among classes of stock, thus:
16. The Cons$tu$on applies its foreign ownership limita$on on the corpora$on’s "capital," without dis$nc$on as
to classes of shares. x x x
In this connec$on, the Corpora$on Code – which was already in force at the $me the present (1987) Cons$tu$on
was draled – defined outstanding capital stock as follows:
Sec$on 137. Outstanding capital stock defined. – The term "outstanding capital stock", as used in this Code,
means the total shares of stock issued under binding subscrip$on agreements to subscribers or stockholders,
whether or not fully or par$ally paid, except treasury shares.
Sec$on 137 of the Corpora$on Code also does not dis$nguish between common and preferred shares, nor
exclude either class of shares, in determining the outstanding capital stock (the "capital") of a corpora$on.
Consequently, pe$$oner’s sugges$on to reckon PLDT’s foreign equity only on the basis of PLDT’s outstanding
common shares is without legal basis. The language of the Cons$tu$on should be understood in the sense it has
in common use.
xxxx
17. But even assuming that resort to the proceedings of the Cons$tu$onal Commission is necessary, there is
nothing in the Record of the Cons$tu$onal Commission (Vol. III) – which pe$$oner misleadingly cited in the
Pe$$on x x x – which supports pe$$oner’s view that only common shares should form the basis for compu$ng a
public u$lity’s foreign equity.
xxxx
18. In addi$on, the SEC – the government agency primarily responsible for implemen$ng the Corpora$on Code,
and which also has the responsibility of ensuring compliance with the Cons$tu$on’s foreign equity restric$ons as
regards na$onalized ac$vi$es x x x – has categorically ruled that both common and preferred shares are properly
considered in determining outstanding capital stock and the na$onality composi$on thereof.40
We agree with pe$$oner and pe$$oners-in-interven$on. The term "capital" in Sec$on 11, Ar$cle XII of the
Cons$tu$on refers only to shares of stock en$tled to vote in the elec$on of directors, and thus in the present
case only to common shares,41 and not to the total outstanding capital stock comprising both common and non-
vo$ng preferred shares.
The Corpora$on Code of the Philippines42 classifies shares as common or preferred, thus:
Sec. 6. Classifica)on of shares. - The shares of stock of stock corpora$ons may be divided into classes or series of
shares, or both, any of which classes or series of shares may have such rights, privileges or restric$ons as may be
stated in the ar$cles of incorpora$on: Provided, That no share may be deprived of voang rights except those
classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided,
further, That there shall always be a class or series of shares which have complete vo$ng rights. Any or all of the
shares or series of shares may have a par value or have no par value as may be provided for in the ar$cles of
incorpora$on: Provided, however, That banks, trust companies, insurance companies, public u$li$es, and
building and loan associa$ons shall not be permifed to issue no-par value shares of stock.
Preferred shares of stock issued by any corpora$on may be given preference in the distribu$on of the assets of
the corpora$on in case of liquida$on and in the distribu$on of dividends, or such other preferences as may be
stated in the ar$cles of incorpora$on which are not viola$ve of the provisions of this Code: Provided, That
preferred shares of stock may be issued only with a stated par value. The Board of Directors, where authorized in
the ar$cles of incorpora$on, may fix the terms and condi$ons of preferred shares of stock or any series thereof:
Provided, That such terms and condi$ons shall be effec$ve upon the filing of a cer$ficate thereof with the
Securi$es and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of
such shares shall not be liable to the corpora$on or to its creditors in respect thereto: Provided; That shares
without par value may not be issued for a considera$on less than the value of five (₱5.00) pesos per share:
Provided, further, That the en$re considera$on received by the corpora$on for its no-par value shares shall be
treated as capital and shall not be available for distribu$on as dividends.
A corpora$on may, furthermore, classify its shares for the purpose of insuring compliance with cons$tu$onal or
legal requirements.
Except as otherwise provided in the ar$cles of incorpora$on and stated in the cer$ficate of stock, each share
shall be equal in all respects to every other share.
Where the ar$cles of incorpora$on provide for non-vo$ng shares in the cases allowed by this Code, the holders
of such shares shall nevertheless be en$tled to vote on the following mafers:
1. Amendment of the ar$cles of incorpora$on;
2. Adop$on and amendment of by-laws;
 3. Sale, lease, exchange, mortgage, pledge or other disposi$on of all or substan$ally all of the corporate
property;
4. Incurring, crea$ng or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolida$on of the corpora$on with another corpora$on or other corpora$ons;
7. Investment of corporate funds in another corpora$on or business in accordance with this Code; and
8. Dissolu$on of the corpora$on.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a par$cular corporate
act as provided in this Code shall be deemed to refer only to stocks with vo$ng rights.
Indisputably, one of the rights of a stockholder is the right to par$cipate in the control or management of the
corpora$on.43 This is exercised through his vote in the elec$on of directors because it is the board of directors
that controls or manages the corpora$on.44 In the absence of provisions in the ar$cles of incorpora$on denying
vo$ng rights to preferred shares, preferred shares have the same vo$ng rights as common shares. However,
preferred shareholders are olen excluded from any control, that is, deprived of the right to vote in the elec$on
of directors and on other mafers, on the theory that the preferred shareholders are merely investors in the
corpora$on for income in the same manner as bondholders.45 In fact, under the Corpora$on Code only preferred
or redeemable shares can be deprived of the right to vote.46 Common shares cannot be deprived of the right to
vote in any corporate mee$ng, and any provision in the ar$cles of incorpora$on restric$ng the right of common
shareholders to vote is invalid.47
Considering that common shares have vo$ng rights which translate to control, as opposed to preferred shares
which usually have no vo$ng rights, the term "capital" in Sec$on 11, Ar$cle XII of the Cons$tu$on refers only to
common shares. However, if the preferred shares also have the right to vote in the elec$on of directors, then the
term "capital" shall include such preferred shares because the right to par$cipate in the control or management
of the corpora$on is exercised through the right to vote in the elec$on of directors. In short, the term "capital"
in Secaon 11, Aracle XII of the Consatuaon refers only to shares of stock that can vote in the elecaon of
directors.
This interpreta$on is consistent with the intent of the framers of the Cons$tu$on to place in the hands of Filipino
ci$zens the control and management of public u$li$es. As revealed in the delibera$ons of the Cons$tu$onal
Commission, "capital" refers to the vo$ng stock or controlling interest of a corpora$on, to wit:
MR. NOLLEDO. In Sec$ons 3, 9 and 15, the Commifee stated local or Filipino equity and foreign equity; namely,
60-40 in Sec$on 3, 60-40 in Sec$on 9 and 2/3-1/3 in Sec$on 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this ques$on: "Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock
of a corpora$on"? Will the Commifee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who
provided us a dral. The phrase that is contained here which we adopted from the UP drap is "60 percent of
voang stock."
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid
capital stock shall be en$tled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corpora$on in another corpora$on, say, a corpora$on with 60-40 percent
equity invests in another corpora$on which is permifed by the Corpora$on Code, does the Commifee adopt the
grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Commifee.
MR. NOLLEDO. Therefore, we need addi$onal Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that por$on that was accepted by the Commifee.
MR. VILLEGAS. The por$on accepted by the Commifee is the dele$on of the phrase "vo$ng stock or controlling
interest."
MR. AZCUNA. Hence, without the Davide amendment, the commifee report would read: "corpora$ons or
associa$ons at least sixty percent of whose CAPITAL is owned by such ci$zens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by
ci$zens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of
the capital is owned by them, but it is the voang capital, whereas, the Filipinos own the nonvoang shares. So
we can have a situaaon where the corporaaon is controlled by foreigners despite being the minority because
they have the voang capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Consatuaons is
that according to Commissioner Rodrigo, there are associaaons that do not have stocks. That is why we say
"CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling interest."
MR. BENGZON. In the case of stock corporaaons, it is assumed.49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the corpora$on.
Reinforcing this interpreta$on of the term "capital," as referring to controlling interest or shares en$tled to vote,
is the defini$on of a "Philippine na$onal" in the Foreign Investments Act of 1991,50 to wit:
SEC. 3. Defini)ons. - As used in this Act:
a. The term "Philippine na)onal" shall mean a ci$zen of the Philippines; or a domes$c partnership or associa$on
wholly owned by ci$zens of the Philippines; or a corporaaon organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and enatled to vote is owned and held by
ciazens of the Philippines; or a corpora$on organized abroad and registered as doing business in the Philippines
under the Corpora$on Code of which one hundred percent (100%) of the capital stock outstanding and en$tled
to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee re$rement or separa$on
benefits, where the trustee is a Philippine na$onal and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine na$onals: Provided, That where a corpora$on and its non-Filipino stockholders own stocks
in a Securi$es and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital
stock outstanding and en$tled to vote of each of both corpora$ons must be owned and held by ci$zens of the
Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both
corpora$ons must be ci$zens of the Philippines, in order that the corpora$on, shall be considered a "Philippine
na$onal." (Emphasis supplied)
In explaining the defini$on of a "Philippine na$onal," the Implemen$ng Rules and Regula$ons of the Foreign
Investments Act of 1991 provide:
b. "Philippine na)onal" shall mean a ci$zen of the Philippines or a domes$c partnership or associa$on wholly
owned by the ci$zens of the Philippines; or a corporaaon organized under the laws of the Philippines of which
at least sixty percent [60%] of the capital stock outstanding and enatled to vote is owned and held by ciazens
of the Philippines; or a trustee of funds for pension or other employee re$rement or separa$on benefits, where
the trustee is a Philippine na$onal and at least sixty percent [60%] of the fund will accrue to the benefit of the
Philippine na$onals; Provided, that where a corpora$on its non-Filipino stockholders own stocks in a Securi$es
and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock
outstanding and en$tled to vote of both corpora$ons must be owned and held by ci$zens of the Philippines and
at least sixty percent [60%] of the members of the Board of Directors of each of both corpora$on must be
ci$zens of the Philippines, in order that the corpora$on shall be considered a Philippine na$onal. The control test
shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporaaon shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks which are generally enatled to vote
are considered.
For stocks to be deemed owned and held by Philippine ciazens or Philippine naaonals, mere legal atle is not
enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate
voang rights is essenaal. Thus, stocks, the voang rights of which have been assigned or transferred to aliens
cannot be considered held by Philippine ciazens or Philippine naaonals.
Individuals or juridical enaaes not meeang the aforemenaoned qualificaaons are considered as non-Philippine
naaonals. (Emphasis supplied)
Mere legal $tle is insufficient to meet the 60 percent Filipino-owned "capital" required in the Cons$tu$on. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the vo$ng rights,
is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipino na$onals in accordance with the cons$tu$onal mandate. Otherwise, the corpora$on is
"considered as non-Philippine na$onal[s]."
Under Sec$on 10, Ar$cle XII of the Cons$tu$on, Congress may "reserve to ci$zens of the Philippines or to
corpora$ons or associa$ons at least sixty per centum of whose capital is owned by such ci$zens, or such higher
percentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino ci$zens or to corpora$ons at least sixty percent of the "capital"
of which is owned by Filipino ci$zens. Some of these laws are: (1) Regula$on of Award of Government Contracts
or R.A. No. 5183; (2) Philippine Inventors Incen$ves Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)
Domes$c Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or
R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term "capital" in Sec$on 11, Ar$cle
XII of the Cons$tu$on is also used in the same context in numerous laws reserving certain areas of investments
to Filipino ci$zens.
To construe broadly the term "capital" as the total outstanding capital stock, including both common and non-
vo)ng preferred shares, grossly contravenes the intent and lefer of the Cons$tu$on that the "State shall develop
a self-reliant and independent na$onal economy effec@vely controlled by Filipinos." A broad defini$on
unjus$fiably disregards who owns the all-important vo$ng stock, which necessarily equates to control of the
public u$lity.
We shall illustrate the glaring anomaly in giving a broad defini$on to the term "capital." Let us assume that a
corpora$on has 100 common shares owned by foreigners and 1,000,000 non-vo$ng preferred shares owned by
Filipinos, with both classes of share having a par value of one peso (₱1.00) per share. Under the broad defini$on
of the term "capital," such corpora$on would be considered compliant with the 40 percent cons$tu$onal limit on
foreign equity of public u$li$es since the overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have vo$ng rights in the elec$on of
directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent,
exercise control over the public u$lity. On the other hand, the Filipinos, holding more than 99.999 percent of the
equity, cannot vote in the elec$on of directors and hence, have no control over the public u$lity. This starkly
circumvents the intent of the framers of the Cons$tu$on, as well as the clear language of the Cons$tu$on, to
place the control of public u$li$es in the hands of Filipinos. It also renders illusory the State policy of an
independent na$onal economy effec@vely controlled by Filipinos.
The example given is not theore$cal but can be found in the real world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the elec$on of directors. PLDT’s
Ar$cles of Incorpora$on expressly state that "the holders of Serial Preferred Stock shall not be enatled to vote
at any meeang of the stockholders for the elecaon of directors or for any other purpose or otherwise
par$cipate in any ac$on taken by the corpora$on or its stockholders, or to receive no$ce of any mee$ng of
stockholders."51
On the other hand, holders of common shares are granted the exclusive right to vote in the elec$on of directors.
PLDT’s Ar$cles of Incorpora$on52 state that "each holder of Common Capital Stock shall have one vote in respect
of each share of such stock held by him on all mafers voted upon by the stockholders, and the holders of
Common Capital Stock shall have the exclusive right to vote for the elecaon of directors and for all other
purposes."53
In short, only holders of common shares can vote in the elec$on of directors, meaning only common
shareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no vo$ng rights in the
elec$on of directors, do not have any control over PLDT. In fact, under PLDT’s Ar$cles of Incorpora$on, holders of
common shares have vo$ng rights for all purposes, while holders of preferred shares have no vo$ng right for any
purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of
PLDT. In fact, based on PLDT’s 2010 General Informa$on Sheet (GIS),54 which is a document required to be
submifed annually to the Securi$es and Exchange Commission,55 foreigners hold 120,046,690 common shares of
PLDT whereas Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the
total number of PLDT’s common shares, while Filipinos hold only 35.73%. Since holding a majority of the
common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public u$li$es expressly mandated
in Sec$on 11, Ar$cle XII of the Cons$tu$on.
Moreover, the Dividend Declara$ons of PLDT for 2009,57 as submifed to the SEC, shows that per share the
SIP58 preferred shares earn a pifance in dividends compared to the common shares. PLDT declared dividends for
the common shares at ₱70.00 per share, while the declared dividends for the preferred shares amounted to a
measly ₱1.00 per share.59 So the preferred shares not only cannot vote in the elec$on of directors, they also have
very lifle and obviously negligible dividend earning capacity compared to common shares.
As shown in PLDT’s 2010 GIS,60 as submifed to the SEC, the par value of PLDT common shares is ₱5.00 per share,
whereas the par value of preferred shares is ₱10.00 per share. In other words, preferred shares have twice the
par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares.
Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of
the preferred shares.61 Worse, preferred shares cons$tute 77.85% of the authorized capital stock of PLDT while
common shares cons$tute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the
non-vo$ng preferred shares but with the common shares, blatantly viola$ng the cons$tu$onal requirement of 60
percent Filipino control and Filipino beneficial ownership in a public u$lity.
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipinos in accordance with the cons$tu$onal mandate. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the vo$ng rights, is cons$tu$onally required for the State’s
grant of authority to operate a public u$lity. The undisputed fact that the PLDT preferred shares, 99.44% owned
by Filipinos, are non-vo$ng and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates
the cons$tu$onal requirement of 60 percent Filipino control and Filipino beneficial ownership of a public u$lity.
In short, Filipinos hold less than 60 percent of the voang stock, and earn less than 60 percent of the dividends,
of PLDT. This directly contravenes the express command in Sec$on 11, Ar$cle XII of the Cons$tu$on that "[n]o
franchise, cer$ficate, or any other form of authoriza$on for the opera$on of a public u$lity shall be granted
except to x x x corpora$ons x x x organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such ciazens x x x."
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right
to vote in the elec$on of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDT’s
common shares, cons$tu$ng a minority of the vo$ng stock, and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no vo$ng rights; (4) preferred shares earn only 1/70 of the
dividends that common shares earn;63 (5) preferred shares have twice the par value of common shares; and (6)
preferred shares cons$tute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This
kind of ownership and control of a public u$lity is a mockery of the Cons$tu$on.
Incidentally, the fact that PLDT common shares with a par value of ₱5.00 have a current stock market value of
₱2,328.00 per share,64 while PLDT preferred shares with a par value of ₱10.00 per share have a current stock
market value ranging from only ₱10.92 to ₱11.06 per share,65 is a glaring confirma$on by the market that control
and beneficial ownership of PLDT rest with the common shares, not with the preferred shares.
Indisputably, construing the term "capital" in Sec$on 11, Ar$cle XII of the Cons$tu$on to include both vo$ng and
non-vo$ng shares will result in the abject surrender of our telecommunica$ons industry to foreigners, amoun$ng
to a clear abdica$on of the State’s cons$tu$onal duty to limit control of public u$li$es to Filipino ci$zens. Such an
interpreta$on certainly runs counter to the cons$tu$onal provision reserving certain areas of investment to
Filipino ci$zens, such as the exploita$on of natural resources as well as the ownership of land, educa$onal
ins$tu$ons and adver$sing businesses. The Court should never open to foreign control what the Cons$tu$on has
expressly reserved to Filipinos for that would be a betrayal of the Cons$tu$on and of the na$onal interest. The
Court must perform its solemn duty to defend and uphold the intent and lefer of the Cons$tu$on to ensure, in
the words of the Cons$tu$on, "a self-reliant and independent na$onal economy effec)vely controlled by
Filipinos."
Sec$on 11, Ar$cle XII of the Cons$tu$on, like other provisions of the Cons$tu$on expressly reserving to
Filipinos specific areas of investment, such as the development of natural resources and ownership of land,
educa$onal ins$tu$ons and adver$sing business, is self-execu@ng. There is no need for legisla$on to implement
these self-execu$ng provisions of the Cons$tu$on. The ra$onale why these cons$tu$onal provisions are self-
execu$ng was explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legisla$ve act is necessary to enforce a cons$tu$onal mandate,
the presump$on now is that all provisions of the cons$tu$on are self-execu$ng. If the cons$tu$onal provisions
are treated as requiring legisla$on instead of self-execu$ng, the legislature would have the power to ignore and
prac$cally nullify the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is,
as it has always been, that —
. . . in case of doubt, the Cons$tu$on should be considered self-execu$ng rather than non-self-
execu$ng. . . . Unless the contrary is clearly intended, the provisions of the Consatuaon should be considered
self-execuang, as a contrary rule would give the legislature discreaon to determine when, or whether, they
shall be effecave. These provisions would be subordinated to the will of the lawmaking body, which could make
them en$rely meaningless by simply refusing to pass the needed implemen$ng statute. (Emphasis supplied)
In Manila Prince Hotel, even the Dissen$ng Opinion of then Associate Jus$ce Reynato S. Puno, later Chief Jus$ce,
agreed that cons$tu$onal provisions are presumed to be self-execu$ng. Jus$ce Puno stated:
Courts as a rule consider the provisions of the Cons$tu$on as self-execu$ng, rather than as requiring future
legisla$on for their enforcement. The reason is not difficult to discern. For if they are not treated as self-
execuang, the mandate of the fundamental law raafied by the sovereign people can be easily ignored and
nullified by Congress. Suffused with wisdom of the ages is the unyielding rule that legislaave acaons may give
breath to consatuaonal rights but congressional inacaon should not suffocate them.
Thus, we have treated as self-execu$ng the provisions in the Bill of Rights on arrests, searches and seizures, the
rights of a person under custodial inves$ga$on, the rights of an accused, and the privilege against self-
incrimina$on. It is recognized that legisla$on is unnecessary to enable courts to effectuate cons$tu$onal
provisions guaranteeing the fundamental rights of life, liberty and the protec$on of property. The same
treatment is accorded to cons$tu$onal provisions forbidding the taking or damaging of property for public use
without just compensa$on. (Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of implemen$ng legisla$on, applied directly the
provisions of the 1935, 1973 and 1987 Cons$tu$ons limi$ng land ownership to Filipinos. In Soriano v. Ong
Hoo,68 this Court ruled:
x x x As the Cons$tu$on is silent as to the effects or consequences of a sale by a ci$zen of his land to an alien,
and as both the ci$zen and the alien have violated the law, none of them should have a recourse against the
other, and it should only be the State that should be allowed to intervene and determine what is to be done with
the property subject of the viola$on. We have said that what the State should do or could do in such mafers is a
mafer of public policy, en$rely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6
G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policy should be
followed in cases of violaaons against the consatuaonal prohibiaon, courts of jusace cannot go beyond by
declaring the disposiaon to be null and void as violaave of the Consatuaon. x x x (Emphasis supplied)
To treat Sec$on 11, Ar$cle XII of the Cons$tu$on as not self-execu$ng would mean that since the 1935
Cons$tu$on, or over the last 75 years, not one of the cons$tu$onal provisions expressly reserving specific areas
of investments to corpora$ons, at least 60 percent of the "capital" of which is owned by Filipinos, was
enforceable. In short, the framers of the 1935, 1973 and 1987 Cons$tu$ons miserably failed to effec$vely reserve
to Filipinos specific areas of investment, like the opera$on by corpora$ons of public u$li$es, the exploita$on by
corpora$ons of mineral resources, the ownership by corpora$ons of real estate, and the ownership of
educa$onal ins$tu$ons. All the legislatures that convened since 1935 also miserably failed to enact legisla$ons to
implement these vital cons$tu$onal provisions that determine who will effec$vely control the na$onal economy,
Filipinos or foreigners. This Court cannot allow such an absurd interpreta$on of the Cons$tu$on.
This Court has held that the SEC "has both regulatory and adjudica$ve func$ons."69 Under its regulatory
func$ons, the SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects to
perform the same. Under its adjudica$ve or quasi-judicial func$ons, the SEC can be also be compelled by
mandamus to hear and decide a possible viola$on of any law it administers or enforces when it is mandated by
law to inves$gate such viola$on.1awphi1
Under Sec$on 17(4)70 of the Corpora$on Code, the SEC has the regulatory func$on to reject or disapprove the
Ar$cles of Incorpora$on of any corpora$on where "the required percentage of ownership of the capital stock to
be owned by ciazens of the Philippines has not been complied with as required by exisang laws or the
Consatuaon." Thus, the SEC is the government agency tasked with the statutory duty to enforce the na$onality
requirement prescribed in Sec$on 11, Ar$cle XII of the Cons$tu$on on the ownership of public u$li$es. This
Court, in a pe$$on for declaratory relief that is treated as a pe$$on for mandamus as in the present case, can
direct the SEC to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully
neglected to do based on the 2010 GIS that respondent PLDT submifed to the SEC.
Under Sec$on 5(m) of the Securi$es Regula$on Code,71 the SEC is vested with the "power and func$on" to
"suspend or revoke, aper proper noace and hearing, the franchise or ceraficate of registraaon of corporaaons,
partnerships or associaaons, upon any of the grounds provided by law." The SEC is mandated under Sec$on
5(d) of the same Code with the "power and func$on" to "invesagate x x x the acaviaes of persons to ensure
compliance" with the laws and regula$ons that SEC administers or enforces. The GIS that all corpora$ons are
required to submit to SEC annually should put the SEC on guard against viola$ons of the na$onality requirement
prescribed in the Cons$tu$on and exis$ng laws. This Court can compel the SEC, in a pe$$on for declaratory relief
that is treated as a pe$$on for mandamus as in the present case, to hear and decide a possible viola$on of
Sec$on 11, Ar$cle XII of the Cons$tu$on in view of the ownership structure of PLDT’s vo$ng shares, as admifed
by respondents and as stated in PLDT’s 2010 GIS that PLDT submifed to SEC.
WHEREFORE, we PARTLY GRANT the pe$$on and rule that the term "capital" in Sec$on 11, Ar$cle XII of the
1987 Cons$tu$on refers only to shares of stock en$tled to vote in the elec$on of directors, and thus in the
present case only to common shares, and not to the total outstanding capital stock (common and non-vo$ng
preferred shares). Respondent Chairperson of the Securi$es and Exchange Commission is DIRECTED to apply this
defini$on of the term "capital" in determining the extent of allowable foreign ownership in respondent Philippine
Long Distance Telephone Company, and if there is a viola$on of Sec$on 11, Ar$cle XII of the Cons$tu$on, to
impose the appropriate sanc$ons under the law.
SO ORDERED.
G.R. No. 176579 October 9, 2012
HEIRS OF WILSON P. GAMBOA,* Pe$$oners,
vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN P. SEVILLA, AND COMMISSIONER
RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES
AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF
FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN
MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS
MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES AND EXCHANGE COMMISSION, and
PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Pe$$oner-in-Interven$on.
RESOLUTION
CARPIO, J.:
This resolves the mo$ons for reconsidera$on of the 28 June 2011 Decision filed by (1) the Philippine Stock
Exchange's (PSE) President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L. Nazareno (Nazareno ),3 and
( 4) the Securi$es and Exchange Commission (SEC)4 (collec$vely, movants ).
The Office of the Solicitor General (OSG) ini$ally filed a mo$on for reconsidera$on on behalfolhe SEC,5 assailing
the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment on behalf of the
State,6 declaring expressly that it agrees with the Court's defini$on of the term "capital" in Sec$on 11, Ar$cle XII
of the Cons$tu$on. During the Oral Arguments on 26 June 2012, the OSG reiterated its posi$on consistent with
the Court's 28 June 2011 Decision.
We deny the mo$ons for reconsidera$on.
I.
Far-reaching implica@ons of the legal issue jus@fy
treatment of pe@@on for declaratory relief as one for mandamus.
As we empha$cally stated in the 28 June 2011 Decision, the interpreta$on of the term "capital" in Sec$on 11,
Ar$cle XII of the Cons$tu$on has far-reaching implica$ons to the na$onal economy. In fact, a resolu$on of this
issue will determine whether Filipinos are masters, or second-class ci$zens, in their own country. What is at stake
here is whether Filipinos or foreigners will have effec@ve control of the Philippine na$onal economy. Indeed, if
ever there is a legal issue that has far-reaching implica$ons to the en$re na$on, and to future genera$ons of
Filipinos, it is the threshold legal issue presented in this case.
Contrary to Pangilinan’s narrow view, the serious economic consequences resul$ng in the interpreta$on of the
term "capital" in Sec$on 11, Ar$cle XII of the Cons$tu$on undoubtedly demand an immediate adjudica$on of
this issue. Simply put, the far-reaching implicaaons of this issue jusafy the treatment of the peaaon as one for
mandamus.7
In Luzon Stevedoring Corp. v. An)-Dummy Board,8 the Court deemed it wise and expedient to resolve the case
although the pe$$on for declaratory relief could be outrightly dismissed for being procedurally defec$ve. There,
appellant admifedly had already commifed a breach of the Public Service Act in rela$on to the An$-Dummy Law
since it had been employing non- American aliens long before the decision in a prior similar case. However, the
main issue in Luzon Stevedoring was of transcendental importance, involving the exercise or enjoyment of rights,
franchises, privileges, proper$es and businesses which only Filipinos and qualified corpora$ons could exercise or
enjoy under the Cons$tu$on and the statutes. Moreover, the same issue could be raised by appellant in an
appropriate ac$on. Thus, in Luzon Stevedoring the Court deemed it necessary to finally dispose of the case for
the guidance of all concerned, despite the apparent procedural flaw in the pe$$on.
The circumstances surrounding the present case, such as the supposed procedural defect of the pe$$on and the
pivotal legal issue involved, resemble those in Luzon Stevedoring. Consequently, in the interest of substan$al
jus$ce and faithful adherence to the Cons$tu$on, we opted to resolve this case for the guidance of the public
and all concerned par$es.
II.
No change of any long-standing rule;
thus, no redefini@on of the term "capital."
Movants contend that the term "capital" in Sec$on 11, Ar$cle XII of the Cons$tu$on has long been sefled and
defined to refer to the total outstanding shares of stock, whether vo$ng or non-vo$ng. In fact, movants claim
that the SEC, which is the administra$ve agency tasked to enforce the 60-40 ownership requirement in favor of
Filipino ci$zens in the Cons$tu$on and various statutes, has consistently adopted this par$cular defini$on in its
numerous opinions. Movants point out that with the 28 June 2011 Decision, the Court in effect introduced a
"new" defini$on or "midstream redefini$on"9 of the term "capital" in Sec$on 11, Ar$cle XII of the Cons$tu$on.
This is egregious error.
For more than 75 years since the 1935 Cons$tu$on, the Court has not interpreted or defined the term "capital"
found in various economic provisions of the 1935, 1973 and 1987 Cons$tu$ons. There has never been a judicial
precedent interpre$ng the term "capital" in the 1935, 1973 and 1987 Cons$tu$ons, un$l now. Hence, it is
patently wrong and uferly baseless to claim that the Court in defining the term "capital" in its 28 June 2011
Decision modified, reversed, or set aside the purported long-standing defini$on of the term "capital," which
supposedly refers to the total outstanding shares of stock, whether vo$ng or non-vo$ng. To repeat, un$l the
present case there has never been a Court ruling categorically defining the term "capital" found in the various
economic provisions of the 1935, 1973 and 1987 Philippine Cons$tu$ons.
The opinions of the SEC, as well as of the Department of Jus$ce (DOJ), on the defini$on of the term "capital" as
referring to both vo$ng and non-vo$ng shares (combined total of common and preferred shares) are, in the first
place, conflic$ng and inconsistent. There is no basis whatsoever to the claim that the SEC and the DOJ have
consistently and uniformly adopted a defini$on of the term "capital" contrary to the defini$on that this Court
adopted in its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term "capital" in Sec$on 9, Ar$cle XIV
of the 1973 Cons$tu$on was raised, that is, whether the term "capital" includes "both preferred and common
stocks." The issue was raised in rela$on to a stock-swap transac$on between a Filipino and a Japanese
corpora$on, both stockholders of a domes$c corpora$on that owned lands in the Philippines. Then Minister of
Jus$ce Estelito P. Mendoza ruled that the resul$ng ownership structure of the corpora$on would
be unconsatuaonal because 60% of the vo$ng stock would be owned by Japanese while Filipinos would own
only 40% of the vo$ng stock, although when the non-vo$ng stock is added, Filipinos would own 60% of the
combined vo$ng and non-vo$ng stock. This ownership structure is remarkably similar to the current ownership
structure of PLDT. Minister Mendoza ruled:
xxxx
Thus, the Filipino group s$ll owns sixty (60%) of the en$re subscribed capital stock (common and preferred) while
the Japanese investors control sixty percent (60%) of the common (vo$ng) shares.
It is your posiaon that x x x since Secaon 9, Aracle XIV of the Consatuaon uses the word "capital," which is
construed "to include both preferred and common shares" and "that where the law does not disanguish, the
courts shall not disanguish."
xxxx
In light of the foregoing jurisprudence, it is my opinion that the stock-swap transacaon in quesaon may not be
consatuaonally upheld. While it may be ordinary corporate prac$ce to classify corporate shares into common
vo$ng shares and preferred non-vo$ng shares, any arrangement which afempts to defeat the cons$tu$onal
purpose should be eschewed. Thus, the resultant equity arrangement which would place ownership of 60%11 of
the common (voang) shares in the Japanese group, while retaining 60% of the total percentage of common
and preferred shares in Filipino hands would amount to circumvenaon of the principle of control by Philippine
stockholders that is implicit in the 60% Philippine naaonality requirement in the Consatuaon. (Emphasis
supplied)
In short, Minister Mendoza categorically rejected the theory that the term "capital" in Sec$on 9, Ar$cle XIV of
the 1973 Cons$tu$on includes "both preferred and common stocks" treated as the same class of shares
regardless of differences in vo$ng rights and privileges. Minister Mendoza stressed that the 60-40 ownership
requirement in favor of Filipino ci$zens in the Cons$tu$on is not complied with unless the corpora$on "saasfies
the criterion of beneficial ownership" and that in applying the same "the primordial consideraaon is situs of
control."
On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Cas$llo Laman Tan Pantaleon & San
Jose, then SEC General Counsel Vernefe G. Umali-Paco applied the Voang Control Test, that is, using only the
vo$ng stock to determine whether a corpora$on is a Philippine na$onal. The Opinion states:
Applying the foregoing, paracularly the Control Test, MLRC is deemed as a Philippine na$onal because: (1) sixty
percent (60%) of its outstanding capital stock en@tled to vote is owned by a Philippine na$onal, the Trustee; and
(2) at least sixty percent (60%) of the ERF will accrue to the benefit of Philippine na$onals. Sall pursuant to the
Control Test, MLRC’s investment in 60% of BFDC’s outstanding capital stock en@tled to vote shall be deemed as
of Philippine naaonality, thereby qualifying BFDC to own private land.
Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine na$onals, considering that: (1)
sixty percent (60%) of their respec$ve outstanding capital stock en@tled to vote is owned by a Philippine
na$onal (i.e., by the Trustee, in the case of MLRC; and by MLRC, in the case of BFDC); and (2) at least 60% of their
respec$ve board of directors are Filipino ci$zens. (Boldfacing and italiciza$on supplied)
Clearly, these DOJ and SEC opinions are compa$ble with the Court’s interpreta$on of the 60-40 ownership
requirement in favor of Filipino ci$zens mandated by the Cons$tu$on for certain economic ac$vi$es. At the same
$me, these opinions highlight the conflic$ng, contradictory, and inconsistent posi$ons taken by the DOJ and the
SEC on the defini$on of the term "capital" found in the economic provisions of the Cons$tu$on.
The opinions issued by SEC legal officers do not have the force and effect of SEC rules and regula$ons because
only the SEC en banc can adopt rules and regula$ons. As expressly provided in Sec$on 4.6 of the Securi$es
Regula$on Code,12 the SEC cannot delegate to any of its individual Commissioner or staff the power to adopt any
rule or regula$on. Further, under Secaon 5.1 of the same Code, it is the SEC as a collegial body, and not any of
its legal officers, that is empowered to issue opinions and approve rules and regulaaons. Thus:
4.6. The Commission may, for purposes of efficiency, delegate any of its func$ons to any department or office of
the Commission, an individual Commissioner or staff member of the Commission except its review or appellate
authority and its power to adopt, alter and supplement any rule or regulaaon.
The Commission may review upon its own ini$a$ve or upon the pe$$on of any interested party any ac$on of any
department or office, individual Commissioner, or staff member of the Commission.
SEC. 5. Powers and Func)ons of the Commission.- 5.1. The Commission shall act with transparency and shall have
the powers and func$ons provided by this Code, Presiden$al Decree No. 902-A, the Corpora$on Code, the
Investment Houses Law, the Financing Company Act and other exis$ng laws. Pursuant thereto the Commission
shall have, among others, the following powers and func$ons:
xxxx
(g) Prepare, approve, amend or repeal rules, regulaaons and orders, and issue opinions and provide guidance
on and supervise compliance with such rules, regulaaons and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that have the effect
of SEC rules or regula$ons is ultra vires. Under Sec$ons 4.6 and 5.1(g) of the Code, only the SEC en banc can
"issue opinions" that have the force and effect of rules or regula$ons. Sec$on 4.6 of the Code bars the SEC en
banc from delega$ng to any individual Commissioner or staff the power to adopt rules or regula$ons. In short,
any opinion of individual Commissioners or SEC legal officers does not consatute a rule or regulaaon of the
SEC.
The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual commissioners
or legal staff, is empowered to issue opinions which have the same binding effect as SEC rules and regula$ons,
thus:
JUSTICE CARPIO:
So, under the law, it is the Commission En Banc that can issue an
SEC Opinion, correct?
COMMISSIONER GAITE:13
That’s correct, Your Honor.
JUSTICE CARPIO:
Can the Commission En Banc delegate this func$on to an SEC officer?
COMMISSIONER GAITE:
Yes, Your Honor, we have delegated it to the General Counsel.
JUSTICE CARPIO:
It can be delegated. What cannot be delegated by the Commission En Banc to a
commissioner or an individual employee of the Commission?
COMMISSIONER GAITE:
Novel opinions that [have] to be decided by the En Banc...
JUSTICE CARPIO:
What cannot be delegated, among others, is the power to adopt or amend rules and
regula$ons, correct?
COMMISSIONER GAITE:
That’s correct, Your Honor.
JUSTICE CARPIO:
So, you combine the two (2), the SEC officer, if delegated that power, can issue an opinion
but that opinion does not consatute a rule or regulaaon, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, all of these opinions that you menaoned they are not rules and regulaaons, correct?
COMMISSIONER GAITE:
They are not rules and regulaaons.
JUSTICE CARPIO:
If they are not rules and regula$ons, they apply only to that par$cular situa$on and will not
cons$tute a precedent, correct?
COMMISSIONER GAITE:
Yes, Your Honor.14 (Emphasis supplied)
Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions on
behalf of the SEC, has adopted even the Grandfather Rule in determining compliance with the 60-40 ownership
requirement in favor of Filipino ci$zens mandated by the Cons$tu$on for certain economic ac$vi$es. This
prevailing SEC ruling, which the SEC correctly adopted to thwart any circumven$on of the required Filipino
"ownership and control," is laid down in the 25 March 2010 SEC en banc ruling in Redmont Consolidated Mines,
Corp. v. McArthur Mining, Inc., et al.,15 to wit:
The avowed purpose of the Cons$tu$on is to place in the hands of Filipinos the exploita$on of our natural
resources. Necessarily, therefore, the Rule interpreang the consatuaonal provision should not diminish that
right through the legal ficaon of corporate ownership and control. But the cons$tu$onal provision, as
interpreted and prac$ced via the 1967 SEC Rules, has favored foreigners contrary to the command of the
Cons$tu$on. Hence, the Grandfather Rule must be applied to accurately determine the actual par@cipa@on,
both direct and indirect, of foreigners in a corpora@on engaged in a na@onalized ac@vity or business.
Compliance with the cons$tu$onal limita$on(s) on engaging in na$onalized ac$vi$es must be determined by
ascertaining if 60% of the inves$ng corpora$on’s outstanding capital stock is owned by "Filipino ci$zens", or as
interpreted, by natural or individual Filipino ci$zens. If such inves$ng corpora$on is in turn owned to some extent
by another inves$ng corpora$on, the same process must be observed. One must not stop un$l the ci$zenships of
the individual or natural stockholders of layer aler layer of inves$ng corpora$ons have been established, the
very essence of the Grandfather Rule.
Lastly, it was the intent of the framers of the 1987 Consatuaon to adopt the Grandfather Rule. In one of the
discussions on what is now Ar$cle XII of the present Cons$tu$on, the framers made the following exchange:
MR. NOLLEDO. In Sec$ons 3, 9 and 15, the Commifee stated local or Filipino equity and foreign equity; namely,
60-40 in Sec$on 3, 60-40 in Sec$on 9, and 2/3-1/3 in Sec$on 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with the ques$on: ‘Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock
of a corpora$on’? Will the Commifee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who
provided us a dral. The phrase that is contained here which we adopted from the UP dral is ‘60 percent of
vo$ng stock.’
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid
capital stock shall be en$tled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you. With respect to an investment by one corpora$on in another corpora$on, say, a
corpora$on with 60-40 percent equity invests in another corpora$on which is permifed by the Corpora$on
Code, does the Commifee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Commifee.
MR. NOLLEDO. Therefore, we need addi$onal Filipino capital?
MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied; italiciza$on in the original)
This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership requirement in favor of
Filipino ci$zens in the Cons$tu$on to engage in certain economic ac$vi$es applies not only to vo$ng control of
the corpora$on, but also to the beneficial ownership of the corporaaon. Thus, in our 28 June 2011 Decision we
stated:
Mere legal $tle is insufficient to meet the 60 percent Filipinoowned "capital" required in the Cons$tu$on. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voang
rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in
the hands of Filipino na$onals in accordance with the cons$tu$onal mandate. Otherwise, the corpora$on is
"considered as non-Philippine na$onal[s]." (Emphasis supplied)
Both the Vo$ng Control Test and the Beneficial Ownership Test must be applied to determine whether a
corpora$on is a "Philippine na$onal."
The interpreta$on by legal officers of the SEC of the term "capital," embodied in various opinions which
respondents relied upon, is merely preliminary and an opinion only of such officers. To repeat, any such opinion
does not cons$tute an SEC rule or regula$on. In fact, many of these opinions contain a disclaimer which expressly
states: "x x x the foregoing opinion is based solely on facts disclosed in your query and relevant only to the
par$cular issue raised therein and shall not be used in the nature of a standing rule binding upon the
Commission in other cases whether of similar or dissimilar circumstances."16 Thus, the opinions clearly make
a caveat that they do not cons$tute binding precedents on any one, not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpre$ng the law are neither conclusive nor
controlling and thus, do not bind the Court. It is hornbook doctrine that any interpreta$on of the law that
administra$ve or quasi-judicial agencies make is only preliminary, never conclusive on the Court. The power to
make a final interpreta$on of the law, in this case the term "capital" in Sec$on 11, Ar$cle XII of the 1987
Cons$tu$on, lies with this Court, not with any other government en$ty.
In his mo$on for reconsidera$on, the PSE President cites the cases of Na)onal Telecommunica)ons Commission
v. Court of Appeals17 and Philippine Long Distance Telephone Company v. Na)onal Telecommunica)ons
Commission18 in arguing that the Court has already defined the term "capital" in Sec$on 11, Ar$cle XII of the
1987 Cons$tu$on.19
The PSE President is grossly mistaken. In both cases of Na)onal Telecommunica)ons v. Court of
Appeals20 and Philippine Long Distance Telephone Company v. Na)onal Telecommunica)ons Commission,21 the
Court did not define the term "capital" as found in Sec$on 11, Ar$cle XII of the 1987 Cons$tu$on. In fact, these
two cases never menaoned, discussed or cited Secaon 11, Aracle XII of the Consatuaon or any of its economic
provisions, and thus cannot serve as precedent in the interpretaaon of Secaon 11, Aracle XII of the
Consatuaon. These two cases dealt solely with the determina$on of the correct regulatory fees under Sec$on
40(e) and (f) of the Public Service Act, to wit:
(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of other public
services and/or in the regula$on or fixing of their rates, twenty centavos for each one hundred pesos or frac$on
thereof, of the capital stock subscribed or paid, or if no shares have been issued, of the capital invested, or of the
property and equipment whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or frac$on thereof, of
the increased capital. (Emphasis supplied)
The Court’s interpreta$on in these two cases of the terms "capital stock subscribed or paid," "capital stock" and
"capital" does not pertain to, and cannot control, the defini$on of the term "capital" as used in Sec$on 11, Ar$cle
XII of the Cons$tu$on, or any of the economic provisions of the Cons$tu$on where the term "capital" is found.
The defini$on of the term "capital" found in the Cons$tu$on must not be taken out of context. A careful reading
of these two cases reveals that the terms "capital stock subscribed or paid," "capital stock" and "capital" were
defined solely to determine the basis for compu$ng the supervision and regula$on fees under Sec$on 40(e) and
(f) of the Public Service Act.
III.
Filipiniza@on of Public U@li@es
The Preamble of the 1987 Cons$tu$on, as the prologue of the supreme law of the land, embodies the ideals that
the Cons$tu$on intends to achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and humane society,
and establish a Government that shall embody our ideals and aspira$ons, promote the common good, conserve
and develop our patrimony, and secure to ourselves and our posterity, the blessings of independence and
democracy under the rule of law and a regime of truth, jus$ce, freedom, love, equality, and peace, do ordain and
promulgate this Cons$tu$on. (Emphasis supplied)
Consistent with these ideals, Sec$on 19, Ar$cle II of the 1987 Cons$tu$on declares as State policy the
development of a na$onal economy "effec@vely controlled" by Filipinos:
Sec$on 19. The State shall develop a self-reliant and independent na$onal economy effec@vely controlled by
Filipinos.
For$fying the State policy of a Filipino-controlled economy, the Cons$tu$on decrees:
Sec$on 10. The Congress shall, upon recommenda$on of the economic and planning agency, when the na$onal
interest dictates, reserve to ci$zens of the Philippines or to corpora$ons or associa$ons at least sixty per
centum of whose capital is owned by such ci$zens, or such higher percentage as Congress may prescribe, certain
areas of investments. The Congress shall enact measures that will encourage the forma$on and opera$on of
enterprises whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the na$onal economy and patrimony, the State shall
give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its na$onal jurisdic$on and in
accordance with its na$onal goals and priori$es.23
Under Sec$on 10, Ar$cle XII of the 1987 Cons$tu$on, Congress may "reserve to ci$zens of the Philippines or to
corpora$ons or associa$ons at least sixty per centum of whose capital is owned by such ci$zens, or such higher
percentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino ci$zens or to corpora$ons at least sixty percent of the "capital"
of which is owned by Filipino ci$zens. Some of these laws are: (1) Regula$on of Award of Government Contracts
or R.A. No. 5183; (2) Philippine Inventors Incen$ves Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)
Domes$c Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or
R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521.
With respect to public u$li$es, the 1987 Cons$tu$on specifically ordains:
Sec$on 11. No franchise, ceraficate, or any other form of authorizaaon for the operaaon of a public uality shall
be granted except to ciazens of the Philippines or to corporaaons or associaaons organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such ciazens; nor shall such franchise,
cer$ficate, or authoriza$on be exclusive in character or for a longer period than fily years. Neither shall any such
franchise or right be granted except under the condi$on that it shall be subject to amendment, altera$on, or
repeal by the Congress when the common good so requires. The State shall encourage equity par$cipa$on in
public u$li$es by the general public. The par$cipa$on of foreign investors in the governing body of any public
u$lity enterprise shall be limited to their propor$onate share in its capital, and all the execu$ve and managing
officers of such corpora$on or associa$on must be ci$zens of the Philippines. (Emphasis supplied)
This provision, which mandates the Filipiniza$on of public u$li$es, requires that any form of authoriza$on for the
opera$on of public u$li$es shall be granted only to "ci$zens of the Philippines or to corpora$ons or associa$ons
organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such ci$zens."
"The provision is [an express] recogniaon of the sensiave and vital posiaon of public ualiaes both in the
naaonal economy and for naaonal security."24
The 1987 Cons$tu$on reserves the ownership and opera$on of public u$li$es exclusively to (1) Filipino ci$zens,
or (2) corpora$ons or associa$ons at least 60 percent of whose "capital" is owned by Filipino ci$zens. Hence, in
the case of individuals, only Filipino ci$zens can validly own and operate a public u$lity. In the case of
corpora$ons or associa$ons, at least 60 percent of their "capital" must be owned by Filipino ci$zens. In other
words, under Secaon 11, Aracle XII of the 1987 Consatuaon, to own and operate a public uality a corporaaon’s
capital must at least be 60 percent owned by Philippine na@onals.
IV.
Defini@on of "Philippine Na@onal"
Pursuant to the express mandate of Sec$on 11, Ar$cle XII of the 1987 Cons$tu$on, Congress enacted Republic
Act No. 7042 or the Foreign Investments Act of 1991 (FIA), as amended, which defined a "Philippine naaonal" as
follows:
SEC. 3. Defini$ons. - As used in this Act:
a. The term "Philippine na)onal" shall mean a ci$zen of the Philippines; or a domes$c partnership or associa$on
wholly owned by ci$zens of the Philippines; or a corporaaon organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and en@tled to vote is owned and held by
ciazens of the Philippines; or a corpora$on organized abroad and registered as doing business in the Philippines
under the Corpora$on Code of which one hundred percent (100%) of the capital stock outstanding and en$tled
to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee re$rement or separa$on
benefits, where the trustee is a Philippine na$onal and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine na$onals: Provided, That where a corpora$on and its non-Filipino stockholders own stocks
in a Securi$es and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital
stock outstanding and en$tled to vote of each of both corpora$ons must be owned and held by ci$zens of the
Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both
corpora$ons must be ci$zens of the Philippines, in order that the corpora$on, shall be considered a "Philippine
na$onal." (Boldfacing, italiciza$on and underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine naaonal" as a Philippine ci$zen, or a domes$c
corpora$on at least "60% of the capital stock outstanding and en@tled to vote" is owned by Philippine ci$zens.
The defini$on of a "Philippine na$onal" in the FIA reiterated the meaning of such term as provided in its
predecessor statute, Execu$ve Order No. 226 or the Omnibus Investments Code of 1987,25 which was issued by
then President Corazon C. Aquino. Ar$cle 15 of this Code states:
Ar$cle 15. "Philippine na$onal" shall mean a ci$zen of the Philippines or a diploma$c partnership or associa$on
wholly-owned by ci$zens of the Philippines; or a corporaaon organized under the laws of the Philippines of
which at least sixty per cent (60%) of the capital stock outstanding and en@tled to vote is owned and held by
ciazens of the Philippines; or a trustee of funds for pension or other employee re$rement or separa$on
benefits, where the trustee is a Philippine na$onal and at least sixty per cent (60%) of the fund will accrue to the
benefit of Philippine na$onals: Provided, That where a corpora$on and its non-Filipino stockholders own stock in
a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and en$tled to vote of both
corpora$ons must be owned and held by the ci$zens of the Philippines and at least sixty per cent (60%) of the
members of the Board of Directors of both corpora$ons must be ci$zens of the Philippines in order that the
corpora$on shall be considered a Philippine na$onal. (Boldfacing, italiciza$on and underscoring supplied)
Under Ar$cle 48(3)26 of the Omnibus Investments Code of 1987, "no corpora$on x x x which is not a ‘Philippine
na$onal’ x x x shall do business
x x x in the Philippines x x x without first securing from the Board of Investments a wrifen cer$ficate to the effect
that such business or economic ac$vity x x x would not conflict with the Cons$tu$on or laws of the
Philippines."27 Thus, a "non-Philippine na$onal" cannot own and operate a reserved economic ac$vity like a
public u$lity. This means, of course, that only a "Philippine na$onal" can own and operate a public u$lity.
In turn, the defini$on of a "Philippine na$onal" under Ar$cle 15 of the Omnibus Investments Code of 1987 was a
reitera$on of the meaning of such term as provided in Ar$cle 14 of the Omnibus Investments Code of 1981,28 to
wit:
Ar$cle 14. "Philippine na$onal" shall mean a ci$zen of the Philippines; or a domes$c partnership or associa$on
wholly owned by ci$zens of the Philippines; or a corporaaon organized under the laws of the Philippines of
which at least sixty per cent (60%) of the capital stock outstanding and en@tled to vote is owned and held by
ciazens of the Philippines; or a trustee of funds for pension or other employee re$rement or separa$on
benefits, where the trustee is a Philippine na$onal and at least sixty per cent (60%) of the fund will accrue to the
benefit of Philippine na$onals: Provided, That where a corpora$on and its non-Filipino stockholders own stock in
a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and en$tled to vote of both
corpora$ons must be owned and held by the ci$zens of the Philippines and at least sixty per cent (60%) of the
members of the Board of Directors of both corpora$ons must be ci$zens of the Philippines in order that the
corpora$on shall be considered a Philippine na$onal. (Boldfacing, italiciza$on and underscoring supplied)
Under Ar$cle 69(3) of the Omnibus Investments Code of 1981, "no corpora$on x x x which is not a ‘Philippine
na$onal’ x x x shall do business x x x in the Philippines x x x without first securing a wrifen cer$ficate from the
Board of Investments to the effect that such business or economic ac$vity x x x would not conflict with the
Cons$tu$on or laws of the Philippines."29 Thus, a "non-Philippine na$onal" cannot own and operate a reserved
economic ac$vity like a public u$lity. Again, this means that only a "Philippine na$onal" can own and operate a
public u$lity.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 518630 or the Investment Incen)ves Act, which
took effect on 16 September 1967, contained a similar defini$on of a "Philippine na$onal," to wit:
(f) "Philippine Na$onal" shall mean a ci$zen of the Philippines; or a partnership or associa$on wholly owned by
ci$zens of the Philippines; or a corporaaon organized under the laws of the Philippines of which at least sixty
per cent of the capital stock outstanding and en@tled to vote is owned and held by ciazens of the Philippines;
or a trustee of funds for pension or other employee re$rement or separa$on benefits, where the trustee is a
Philippine Na$onal and at least sixty per cent of the fund will accrue to the benefit of Philippine Na$onals:
Provided, That where a corpora$on and its non-Filipino stockholders own stock in a registered enterprise, at least
sixty per cent of the capital stock outstanding and en$tled to vote of both corpora$ons must be owned and held
by the ci$zens of the Philippines and at least sixty per cent of the members of the Board of Directors of both
corpora$ons must be ci$zens of the Philippines in order that the corpora$on shall be considered a Philippine
Na$onal. (Boldfacing, italiciza$on and underscoring supplied)
Under Sec$on 3 of Republic Act No. 5455 or the Foreign Business Regula)ons Act, which took effect on 30
September 1968, if the investment in a domes$c enterprise by non-Philippine na$onals exceeds 30% of its
outstanding capital stock, such enterprise must obtain prior approval from the Board of Investments before
accep$ng such investment. Such approval shall not be granted if the investment "would conflict with exis$ng
cons$tu$onal provisions and laws regula$ng the degree of required ownership by Philippine na$onals in the
enterprise."31 A "non-Philippine na$onal" cannot own and operate a reserved economic ac$vity like a public
u$lity. Again, this means that only a "Philippine na$onal" can own and operate a public u$lity.
The FIA, like all its predecessor statutes, clearly defines a "Philippine naaonal" as a Filipino ci$zen, or a domesac
corporaaon "at least sixty percent (60%) of the capital stock outstanding and en@tled to vote" is owned by
Filipino ci$zens. A domes$c corpora$on is a "Philippine na$onal" only if at least 60% of its vo@ng stock is owned
by Filipino ci$zens. This defini$on of a "Philippine na$onal" is crucial in the present case because the FIA
reiterates and clarifies Sec$on 11, Ar$cle XII of the 1987 Cons$tu$on, which limits the ownership and opera$on
of public u$li$es to Filipino ci$zens or to corpora$ons or associa$ons at least 60% Filipino-owned.
The FIA is the basic law governing foreign investments in the Philippines, irrespec$ve of the nature of business
and area of investment. The FIA spells out the procedures by which non-Philippine na$onals can invest in the
Philippines. Among the key features of this law is the concept of a nega$ve list or the Foreign Investments
Nega$ve List.32 Sec$on 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine Na@onals [Foreign Investment Nega)ve List]. - The
Foreign Investment Nega$ve List shall have two 2 component lists: A and B:
a. List A shall enumerate the areas of ac@vi@es reserved to Philippine na@onals by mandate of the
Cons@tu@on and specific laws.
b. List B shall contain the areas of ac$vi$es and enterprises regulated pursuant to law:
1. which are defense-related ac$vi$es, requiring prior clearance and authoriza$on from the Department of
Na$onal Defense [DND] to engage in such ac$vity, such as the manufacture, repair, storage and/or distribu$on of
firearms, ammuni$on, lethal weapons, military ordinance, explosives, pyrotechnics and similar materials; unless
such manufacturing or repair ac$vity is specifically authorized, with a substan$al export component, to a non-
Philippine na$onal by the Secretary of Na$onal Defense; or
2. which have implica$ons on public health and morals, such as the manufacture and distribu$on of dangerous
drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and
massage clinics. (Boldfacing, underscoring and italiciza$on supplied)
Sec$on 8 of the FIA enumerates the investment areas "reserved to Philippine na$onals." Foreign Investment
Negaave List A consists of "areas of ac@vi@es reserved to Philippine na@onals by mandate of the Cons@tu@on
and specific laws," where foreign equity paracipaaon in any enterprise shall be limited to the maximum
percentage expressly prescribed by the Consatuaon and other specific laws. In short, to own and operate a
public uality in the Philippines one must be a "Philippine naaonal" as defined in the FIA. The FIA is abundant
noace to foreign investors to what extent they can invest in public ualiaes in the Philippines.
To repeat, among the areas of investment covered by the Foreign Investment Nega$ve List A is the ownership
and opera$on of public u$li$es, which the Cons$tu$on expressly reserves to Filipino ci$zens and to corpora$ons
at least 60% owned by Filipino ci$zens. In other words, Negaave List A of the FIA reserves the ownership and
operaaon of public ualiaes only to "Philippine naaonals," defined in Secaon 3(a) of the FIA as "(1) a ci$zen of
the Philippines; x x x or (3) a corporaaon organized under the laws of the Philippines of which at least sixty
percent (60%) of the capital stock outstanding and en@tled to vote is owned and held by ciazens of the
Philippines; or (4) a corpora$on organized abroad and registered as doing business in the Philippines under the
Corpora$on Code of which one hundred percent (100%) of the capital stock outstanding and en$tled to vote is
wholly owned by Filipinos or a trustee of funds for pension or other employee re$rement or separa$on benefits,
where the trustee is a Philippine na$onal and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine na$onals."
Clearly, from the effec$vity of the Investment Incen$ves Act of 1967 to the adop$on of the Omnibus Investments
Code of 1981, to the enactment of the Omnibus Investments Code of 1987, and to the passage of the present
Foreign Investments Act of 1991, or for more than four decades, the statutory definiaon of the term "Philippine
naaonal" has been uniform and consistent: it means a Filipino ciazen, or a domesac corporaaon at least 60% of
the vo@ng stock is owned by Filipinos. Likewise, these same statutes have uniformly and consistently required
that only "Philippine naaonals" could own and operate public ualiaes in the Philippines. The following
exchange during the Oral Arguments is revealing:
JUSTICE CARPIO:
Counsel, I have some ques$ons. You are aware of the Foreign Investments Act of 1991, x x x?
And the FIA of 1991 took effect in 1991, correct? That’s over twenty (20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Sec$on 8 of the Foreign Investments Act of 1991 states that []only Philippine na$onals
can own and operate public u$li$es[], correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign Investments Act of 1991 defines a "Philippine na$onal" either as a
ci$zen of the Philippines, or if it is a corpora$on at least sixty percent (60%) of the vo$ng
stock is owned by ci$zens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that under the predecessor law of the Foreign Investments Act of
1991, the Omnibus Investments Act of 1987, the same provisions apply: x x x only Philippine
na$onals can own and operate a public u$lity and the Philippine na$onal, if it is a
corpora$on, x x x sixty percent (60%) of the capital stock of that corpora$on must be owned
by ci$zens of the Philippines, correct?
COMMISSIONER GAITE:
 Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the Omnibus Investments Act of 1987, under the Omnibus Investments Act
of 1981, the same rules apply: x x x only a Philippine na$onal can own and operate a public
u$lity and a Philippine na$onal, if it is a corpora$on, sixty percent (60%) of its x x x vo$ng
stock, must be owned by ci$zens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under [the]1967 Investments Incen$ves Act and the Foreign Company
Act of 1968, the same rules applied, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4) decades, x x x, the law has been very consistent – only a Philippine
naaonal can own and operate a public uality, and a Philippine naaonal, if it is a
corporaaon, x x x at least sixty percent (60%) of the voang stock must be owned by ciazens
of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.33 (Emphasis supplied)
Government agencies like the SEC cannot simply ignore Sec$ons 3(a) and 8 of the FIA which categorically
prescribe that certain economic ac$vi$es, like the ownership and opera$on of public u$li$es, are reserved to
corpora$ons "at least sixty percent (60%) of the capital stock outstanding and en@tled to vote is owned and held
by ci$zens of the Philippines." Foreign Investment Nega$ve List A refers to "ac$vi$es reserved to Philippine
na$onals by mandate of the Cons$tu$on and specific laws." The FIA is the basic statute regulaang foreign
investments in the Philippines. Government agencies tasked with regula$ng or monitoring foreign investments,
as well as counsels of foreign investors, should start with the FIA in determining to what extent a par$cular
foreign investment is allowed in the Philippines. Foreign investors and their counsels who ignore the FIA do so at
their own peril. Foreign investors and their counsels who rely on opinions of SEC legal officers that obviously
contradict the FIA do so also at their own peril.
Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise a red flag.
There are already numerous opinions of SEC legal officers that cite the defini$on of a "Philippine na$onal" in
Sec$on 3(a) of the FIA in determining whether a par$cular corpora$on is qualified to own and operate a
na$onalized or par$ally na$onalized business in the Philippines. This shows that SEC legal officers are not only
aware of, but also rely on and invoke, the provisions of the FIA in ascertaining the eligibility of a corpora$on to
engage in par$ally na$onalized industries. The following are some of such opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;
2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine Overseas
Employment Administra$on;
3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S. Calma;
4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and
7. SEC-OGC Opinion No. 03-08, addressed to Afys. Ruby Rose J. Yusi and Rudyard S. Arbolado.
The SEC legal officers’ occasional but blatant disregard of the defini$on of the term "Philippine na$onal" in the
FIA signifies their lack of integrity and competence in resolving issues on the 60-40 ownership requirement in
favor of Filipino ci$zens in Sec$on 11, Ar$cle XII of the Cons$tu$on.
The PSE President argues that the term "Philippine na$onal" defined in the FIA should be limited and interpreted
to refer to corpora$ons seeking to avail of tax and fiscal incen$ves under investment incen$ves laws and cannot
be equated with the term "capital" in Sec$on 11, Ar$cle XII of the 1987 Cons$tu$on. Pangilinan similarly
contends that the FIA and its predecessor statutes do not apply to "companies which have not registered and
obtained special incen$ves under the schemes established by those laws."
Both are desperately grasping at straws. The FIA does not grant tax or fiscal incen$ves to any enterprise. Tax and
fiscal incen$ves to investments are granted separately under the Omnibus Investments Code of 1987, not under
the FIA. In fact, the FIA expressly repealed Ar$cles 44 to 56 of Book II of the Omnibus Investments Code of 1987,
which ar$cles previously regulated foreign investments in na$onalized or par$ally na$onalized industries.
The FIA is the applicable law regula$ng foreign investments in na$onalized or par$ally na$onalized industries.
There is nothing in the FIA, or even in the Omnibus Investments Code of 1987 or its predecessor statutes, that
states, expressly or impliedly, that the FIA or its predecessor statutes do not apply to enterprises not availing of
tax and fiscal incen$ves under the Code. The FIA and its predecessor statutes apply to investments in all domes$c
enterprises, whether or not such enterprises enjoy tax and fiscal incen$ves under the Omnibus Investments Code
of 1987 or its predecessor statutes. The reason is quite obvious – mere non-availment of tax and fiscal
incenaves by a non-Philippine naaonal cannot exempt it from Secaon 11, Aracle XII of the Consatuaon
regulaang foreign investments in public ualiaes. In fact, the Board of Investments’ Primer on Investment
Policies in the Philippines,34 which is given out to foreign investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES
Investors who do not seek incen$ves and/or whose chosen ac$vi$es do not qualify for incen$ves, (i.e., the
ac$vity is not listed in the IPP, and they are not expor$ng at least 70% of their produc$on) may go ahead and
make the investments without seeking incen$ves. They only have to be guided by the Foreign Investments
Negaave List (FINL).
The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas outside of this
list are fully open to foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effec@ve control.
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the Cons$tu$on to
engage in certain economic ac$vi$es applies not only to vo$ng control of the corpora$on, but also to the
beneficial ownership of the corporaaon. To repeat, we held:
Mere legal $tle is insufficient to meet the 60 percent Filipino-owned "capital" required in the Cons$tu$on. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voang
rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in
the hands of Filipino na$onals in accordance with the cons$tu$onal mandate. Otherwise, the corpora$on is
"considered as non-Philippine na$onal[s]." (Emphasis supplied)
This is consistent with Sec$on 3 of the FIA which provides that where 100% of the capital stock is held by "a
trustee of funds for pension or other employee re$rement or separa$on benefits," the trustee is a Philippine
na$onal if "at least sixty percent (60%) of the fund will accrue to the benefit of Philippine na$onals." Likewise,
Sec$on 1(b) of the Implemen$ng Rules of the FIA provides that "for stocks to be deemed owned and held by
Philippine ci$zens or Philippine na$onals, mere legal $tle is not enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with appropriate voang rights, is essenaal."
Since the cons$tu$onal requirement of at least 60 percent Filipino ownership applies not only to vo$ng control
of the corpora$on but also to the beneficial ownership of the corpora$on, it is therefore impera$ve that such
requirement apply uniformly and across the board to all classes of shares, regardless of nomenclature and
category, comprising the capital of a corpora$on. Under the Corpora$on Code, capital stock35 consists of all
classes of shares issued to stockholders, that is, common shares as well as preferred shares, which may have
different rights, privileges or restric$ons as stated in the ar$cles of incorpora$on.36
The Corpora$on Code allows denial of the right to vote to preferred and redeemable shares, but disallows denial
of the right to vote in specific corporate mafers. Thus, common shares have the right to vote in the elec$on of
directors, while preferred shares may be denied such right. Nonetheless, preferred shares, even if denied the
right to vote in the elec$on of directors, are en$tled to vote on the following corporate mafers: (1) amendment
of ar$cles of incorpora$on; (2) increase and decrease of capital stock; (3) incurring, crea$ng or increasing bonded
indebtedness; (4) sale, lease, mortgage or other disposi$on of substan$ally all corporate assets; (5) investment of
funds in another business or corpora$on or for a purpose other than the primary purpose for which the
corpora$on was organized; (6) adop$on, amendment and repeal of by-laws; (7) merger and consolida$on; and
(8) dissolu$on of corpora$on.37
Since a specific class of shares may have rights and privileges or restric$ons different from the rest of the shares
in a corpora$on, the 60-40 ownership requirement in favor of Filipino ci$zens in Sec$on 11, Ar$cle XII of the
Cons$tu$on must apply not only to shares with vo$ng rights but also to shares without vo$ng rights. Preferred
shares, denied the right to vote in the elec$on of directors, are anyway s$ll en$tled to vote on the eight specific
corporate mafers men$oned above. Thus, if a corporaaon, engaged in a paraally naaonalized industry, issues a
mixture of common and preferred non-voang shares, at least 60 percent of the common shares and at least 60
percent of the preferred non-voang shares must be owned by Filipinos. Of course, if a corpora$on issues only a
single class of shares, at least 60 percent of such shares must necessarily be owned by Filipinos. In short, the
60-40 ownership requirement in favor of Filipino ciazens must apply separately to each class of shares,
whether common, preferred non-voang, preferred voang or any other class of shares. This uniform applica$on
of the 60-40 ownership requirement in favor of Filipino ci$zens clearly breathes life to the cons$tu$onal
command that the ownership and opera$on of public u$li$es shall be reserved exclusively to corpora$ons at
least 60 percent of whose capital is Filipino-owned. Applying uniformly the 60-40 ownership requirement in favor
of Filipino ci$zens to each class of shares, regardless of differences in vo$ng rights, privileges and restric$ons,
guarantees effec$ve Filipino control of public u$li$es, as mandated by the Cons$tu$on.
Moreover, such uniform applica$on to each class of shares insures that the "controlling interest" in public u$li$es
always lies in the hands of Filipino ci$zens. This addresses and ex$nguishes Pangilinan’s worry that foreigners,
owning most of the non-vo$ng shares, will exercise greater control over fundamental corporate mafers requiring
two-thirds or majority vote of all shareholders.
VI.
Intent of the framers of the Cons@tu@on
While Jus$ce Velasco quoted in his Dissen$ng Opinion38 a por$on of the delibera$ons of the Cons$tu$onal
Commission to support his claim that the term "capital" refers to the total outstanding shares of stock, whether
vo$ng or non-vo$ng, the following excerpts of the delibera$ons reveal otherwise. It is clear from the following
exchange that the term "capital" refers to controlling interest of a corpora$on, thus:
MR. NOLLEDO. In Sec$ons 3, 9 and 15, the Commifee stated local or Filipino equity and foreign equity; namely,
60-40 in Sec$on 3, 60-40 in Sec$on 9 and 2/3-1/3 in Sec$on 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this ques$on: "Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock
of a corpora$on"? Will the Commifee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who
provided us a dral. The phrase that is contained here which we adopted from the UP drap is "60 percent of
voang stock."
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid
capital stock shall be en$tled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corpora$on in another corpora$on, say, a corpora$on with 60-40 percent
equity invests in another corpora$on which is permifed by the Corpora$on Code, does the Commifee adopt the
grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Commifee.
MR. NOLLEDO. Therefore, we need addi$onal Filipino capital?
MR. VILLEGAS. Yes.39
xxxx
MR. AZCUNA. May I be clarified as to that por$on that was accepted by the Commifee.
MR. VILLEGAS. The por$on accepted by the Commifee is the dele$on of the phrase "vo$ng stock or controlling
interest."
MR. AZCUNA. Hence, without the Davide amendment, the commifee report would read: "corpora$ons or
associa$ons at least sixty percent of whose CAPITAL is owned by such ci$zens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by
ci$zens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of
the capital is owned by them, but it is the voang capital, whereas, the Filipinos own the nonvoang shares. So
we can have a situaaon where the corporaaon is controlled by foreigners despite being the minority because
they have the voang capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Consatuaons is
that according to Commissioner Rodrigo, there are associaaons that do not have stocks. That is why we say
"CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling interest."
MR. BENGZON. In the case of stock corporaaons, it is assumed.40 (Boldfacing and underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the corpora$on.
The use of the term "capital" was intended to replace the word "stock" because associa$ons without stocks can
operate public u$li$es as long as they meet the 60-40 ownership requirement in favor of Filipino ci$zens
prescribed in Sec$on 11, Ar$cle XII of the Cons$tu$on. However, this did not change the intent of the framers of
the Cons$tu$on to reserve exclusively to Philippine na$onals the "controlling interest" in public u$li$es.
During the draling of the 1935 Cons$tu$on, economic protec$onism was "the bafle-cry of the na$onalists in
the Conven$on."41 The same bafle-cry resulted in the na$onaliza$on of the public u$li$es.42 This is also the same
intent of the framers of the 1987 Cons$tu$on who adopted the exact formula$on embodied in the 1935 and
1973 Cons$tu$ons on foreign equity limita$ons in par$ally na$onalized industries.
The OSG, in its own behalf and as counsel for the State,43 agrees fully with the Court’s interpreta$on of the term
"capital." In its Consolidated Comment, the OSG explains that the dele$on of the phrase "controlling interest"
and replacement of the word "stock" with the term "capital" were intended specifically to extend the scope of
the en$$es qualified to operate public u$li$es to include associa$ons without stocks. The framers’ omission of
the phrase "controlling interest" did not mean the inclusion of all shares of stock, whether vo$ng or non-vo$ng.
The OSG reiterated essen$ally the Court’s declara$on that the Cons$tu$on reserved exclusively to Philippine
na$onals the ownership and opera$on of public u$li$es consistent with the State’s policy to "develop a self-
reliant and independent na$onal economy effec@vely controlled by Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total outstanding capital
stock, treated as a single class regardless of the actual classifica$on of shares, grossly contravenes the intent and
lefer of the Cons$tu$on that the "State shall develop a self-reliant and independent na$onal
economy effec@vely controlled by Filipinos." We illustrated the glaring anomaly which would result in defining
the term "capital" as the total outstanding capital stock of a corpora$on, treated as a single class of shares
regardless of the actual classifica$on of shares, to wit:
Let us assume that a corpora$on has 100 common shares owned by foreigners and 1,000,000 non-vo$ng
preferred shares owned by Filipinos, with both classes of share having a par value of one peso (₱ 1.00) per share.
Under the broad defini$on of the term "capital," such corpora$on would be considered compliant with the 40
percent cons$tu$onal limit on foreign equity of public u$li$es since the overwhelming majority, or more than
99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have vo$ng rights in the elec$on of
directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent,
exercise control over the public u$lity. On the other hand, the Filipinos, holding more than 99.999 percent of the
equity, cannot vote in the elec$on of directors and hence, have no control over the public u$lity. This starkly
circumvents the intent of the framers of the Cons$tu$on, as well as the clear language of the Cons$tu$on, to
place the control of public u$li$es in the hands of Filipinos. x x x
Further, even if foreigners who own more than forty percent of the vo$ng shares elect an all-Filipino board of
directors, this situa$on does not guarantee Filipino control and does not in any way cure the viola$on of the
Cons$tu$on. The independence of the Filipino board members so elected by such foreign shareholders is highly
doub•ul. As the OSG pointed out, quo$ng Jus$ce George Sutherland’s words in Humphrey’s Executor v. US,44 "x x
x it is quite evident that one who holds his office only during the pleasure of another cannot be depended upon
to maintain an amtude of independence against the lafer’s will." Allowing foreign shareholders to elect a
controlling majority of the board, even if all the directors are Filipinos, grossly circumvents the lefer and intent of
the Cons$tu$on and defeats the very purpose of our na$onaliza$on laws.
VII.
Last sentence of Sec@on 11, Ar@cle XII of the Cons@tu@on
The last sentence of Sec$on 11, Ar$cle XII of the 1987 Cons$tu$on reads:
The par$cipa$on of foreign investors in the governing body of any public u$lity enterprise shall be limited to their
propor$onate share in its capital, and all the execu$ve and managing officers of such corpora$on or associa$on
must be ci$zens of the Philippines.
During the Oral Arguments, the OSG emphasized that there was never a ques$on on the intent of the framers of
the Cons$tu$on to limit foreign ownership, and assure majority Filipino ownership and control of public u$li$es.
The OSG argued, "while the delegates disagreed as to the percentage threshold to adopt, x x x the records show
they clearly understood that Filipino control of the public u$lity corpora$on can only be and is obtained only
through the elec$on of a majority of the members of the board."
Indeed, the only point of conten$on during the delibera$ons of the Cons$tu$onal Commission on 23 August
1986 was the extent of majority Filipino control of public u$li$es. This is evident from the following exchange:
THE PRESIDENT. Commissioner Jamir is recognized.
MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the phrase "two thirds of
whose vo$ng stock or controlling interest," and instead subs$tute the words "SIXTY PERCENT OF WHOSE
CAPITAL" so that the sentence will read: "No franchise, cer$ficate, or any other form of authoriza$on for the
opera$on of a public u$lity shall be granted except to ci$zens of the Philippines or to corpora$ons or associa$ons
organized under the laws of the Philippines at least SIXTY PERCENT OF WHOSE CAPITAL is owned by such
ci$zens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
MR. JAMIR. Yes, in this Ar$cle on Na$onal Economy and Patrimony, there were two previous sec$ons in which we
fixed the Filipino equity to 60 percent as against 40 percent for foreigners. It is only in this Sec$on 15 with respect
to public u$li$es that the commifee proposal was increased to two-thirds. I think it would be befer to
harmonize this provision by providing that even in the case of public u$li$es, the minimum equity for Filipino
ci$zens should be 60 percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is recognized.
MR. ROMULO. My reason for suppor$ng the amendment is based on the discussions I have had with
representa$ves of the Filipino majority owners of the interna$onal record carriers, and the subsequent
memoranda they submifed to me. x x x
Their second point is that under the Corpora$on Code, the management and control of a corpora$on is vested in
the board of directors, not in the officers but in the board of directors. The officers are only agents of the board.
And they believe that with 60 percent of the equity, the Filipino majority stockholders undeniably control the
board. Only on important corporate acts can the 40-percent foreign equity exercise a veto, x x x.
x x x x45
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of equal $me, may I also read from a memorandum by the spokesman of
the Philippine Chamber of Communica$ons on why they would like to maintain the present equity, I am referring
to the 66 2/3. They would prefer to have a 75-25 ra$o but would sefle for 66 2/3. x x x
xxxx
THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-thirds rather than
the 60 percent?
MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino ci$zens.
x x x x46
While they had differing views on the percentage of Filipino ownership of capital, it is clear that the framers of
the Cons$tu$on intended public u$li$es to be majority Filipino-owned and controlled. To ensure that Filipinos
control public u$li$es, the framers of the Cons$tu$on approved, as addi$onal safeguard, the inclusion of the last
sentence of Sec$on 11, Ar$cle XII of the Cons$tu$on commanding that "[t]he par$cipa$on of foreign investors in
the governing body of any public u$lity enterprise shall be limited to their propor$onate share in its capital, and
all the execu$ve and managing officers of such corpora$on or associa$on must be ci$zens of the Philippines." In
other words, the last sentence of Sec$on 11, Ar$cle XII of the Cons$tu$on mandates that (1) the par$cipa$on of
foreign investors in the governing body of the corpora$on or associa$on shall be limited to their propor$onate
share in the capital of such en$ty; and (2) all officers of the corpora$on or associa$on must be Filipino ci$zens.
Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers of the
corpora$on or associa$on to be Filipino ci$zens specifically to prevent management contracts, which were
designed primarily to circumvent the Filipiniza$on of public u$li$es, and to assure Filipino control of public
u$li$es, thus:
MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a phrase which states:
"THE MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY
CITIZENS OF THE PHILIPPINES." I have with me their posi$on paper.
THE PRESIDENT. The Commissioner may proceed.
MS. ROSARIO BRAID. The three major interna$onal record carriers in the Philippines, which Commissioner
Romulo men$oned – Philippine Global Communica$ons, Eastern Telecommunica$ons, Globe Mackay Cable – are
40-percent owned by foreign mul$na$onal companies and 60-percent owned by their respec$ve Filipino
partners. All three, however, also have management contracts with these foreign companies – Philcom with RCA,
ETPI with Cable and Wireless PLC, and GMCR with ITT. Up to the present $me, the general managers of these
carriers are foreigners. While the foreigners in these common carriers are only minority owners, the foreign
mul$na$onals are the ones managing and controlling their opera$ons by virtue of their management contracts
and by virtue of their strength in the governing bodies of these carriers.47
xxxx
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an amendment with
respect to the opera$ng management of public u$li$es, and in this amendment, we are associated with Fr.
Bernas, Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will state this amendment now.
Thank you.
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. This is s$ll on Sec$on 15.
MS. ROSARIO BRAID. Yes.
MR. VILLEGAS. Yes, Madam President.
xxxx
MS. ROSARIO BRAID. Madam President, I propose a new sec$on to read: ‘THE MANAGEMENT BODY OF EVERY
CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES."
This will prevent management contracts and assure control by Filipino ciazens. Will the commifee assure us
that this amendment will insure that past ac$vi$es such as management contracts will no longer be possible
under this amendment?
xxxx
FR. BERNAS. Madam President.
THE PRESIDENT. Commissioner Bernas is recognized.
FR. BERNAS. Will the commifee accept a reformula$on of the first part?
MR. BENGZON. Let us hear it.
FR. BERNAS. The reformula$on will be essen$ally the formula of the 1973 Cons$tu$on which reads: "THE
PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE
LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND..."
MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS AND ASSOCIATIONS
MUST BE CITIZENS OF THE PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the whole thing again?
FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY
ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF..." I do not have the
rest of the copy.
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR
ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that correct?
MR. VILLEGAS. Yes.
MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept the amendment.
Is that all right with Commissioner Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body refers to the board of directors and trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body refers to the board of directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam President.
VOTING
xxxx
The results show 29 votes in favor and none against; so the proposed amendment is approved.
xxxx
THE PRESIDENT. All right. Can we proceed now to vote on Sec$on 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the commifee please read Sec$on 15?
MR. VILLEGAS. The en$re Sec$on 15, as amended, reads: "No franchise, cer$ficate, or any other form of
authoriza$on for the opera$on of a public u$lity shall be granted except to ci$zens of the Philippines or to
corpora$ons or associa$ons organized under the laws of the Philippines at least 60 PERCENT OF WHOSE CAPITAL
is owned by such ci$zens." May I request Commissioner Bengzon to please con$nue reading.
MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY
ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND ALL THE
EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE
PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE EXCLUSIVE IN CHARACTER OR
FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS RENEWABLE FOR NOT MORE THAN TWENTY-FIVE YEARS.
Neither shall any such franchise or right be granted except under the condi$on that it shall be subject to
amendment, altera$on, or repeal by Congress when the common good so requires. The State shall encourage
equity par$cipa$on in public u$li$es by the general public."
VOTING
xxxx
The results show 29 votes in favor and 4 against; Sec$on 15, as amended, is approved.48 (Emphasis supplied)
The last sentence of Sec$on 11, Ar$cle XII of the 1987 Cons$tu$on, par$cularly the provision on the limited
par$cipa$on of foreign investors in the governing body of public u$li$es, is a reitera$on of the last sentence of
Sec$on 5, Ar$cle XIV of the 1973 Cons$tu$on,49 signifying its importance in reserving ownership and control of
public u$li$es to Filipino ci$zens.
VIII.
The undisputed facts
There is no dispute, and respondents do not claim the contrary, that (1) foreigners own 64.27% of the common
shares of PLDT, which class of shares exercises the sole right to vote in the elec$on of directors, and thus
foreigners control PLDT; (2) Filipinos own only 35.73% of PLDT’s common shares, cons$tu$ng a minority of the
vo$ng stock, and thus Filipinos do not control PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no
vo$ng rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn;50 (5) preferred
shares have twice the par value of common shares; and (6) preferred shares cons$tute 77.85% of the authorized
capital stock of PLDT and common shares only 22.15%.
Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the ques$on of
whether PLDT violated the 60-40 ownership requirement in favor of Filipino ci$zens in Sec$on 11, Ar$cle XII of
the 1987 Cons$tu$on. Such ques$on indisputably calls for a presenta$on and determina$on of evidence through
a hearing, which is generally outside the province of the Court’s jurisdic$on, but well within the SEC’s statutory
powers. Thus, for obvious reasons, the Court limited its decision on the purely legal and threshold issue on the
defini$on of the term "capital" in Sec$on 11, Ar$cle XII of the Cons$tu$on and directed the SEC to apply such
defini$on in determining the exact percentage of foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his pe$$on, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory relief that ownership of common or vo$ng shares is the sole
basis in determining foreign equity in a public u$lity and that any other government rulings, opinions, and
regula$ons inconsistent with this declaratory relief be declared uncons$tu$onal and a viola$on of the intent and
spirit of the 1987 Cons$tu$on;
6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess of 40
percent of the total subscribed common shareholdings; and
7. For the Honorable Court to direct the Securiaes and Exchange Commission and Philippine Stock Exchange to
require PLDT to make a public disclosure of all of its foreign shareholdings and their actual and real beneficial
owners.
Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)
As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its statutory duty
to inves$gate whether "the required percentage of ownership of the capital stock to be owned by ci$zens of the
Philippines has been complied with [by PLDT] as required by x x x the Cons$tu$on."51 Such plea clearly negates
SEC’s argument that it was not impleaded.
Gran$ng that only the SEC Chairman was impleaded in this case, the Court has ample powers to order the SEC’s
compliance with its direc$ve contained in the 28 June 2011 Decision in view of the far-reaching implica$ons of
this case. In Domingo v. Scheer,52 the Court dispensed with the amendment of the pleadings to implead the
Bureau of Customs considering (1) the unique backdrop of the case; (2) the utmost need to avoid further delays;
and (3) the issue of public interest involved. The Court held:
The Court may be curing the defect in this case by adding the BOC as party-pe$$oner. The pe$$on should not be
dismissed because the second ac$on would only be a repe$$on of the first. In Salvador, et al., v. Court of
Appeals, et al., we held that this Court has full powers, apart from that power and authority which is inherent, to
amend the processes, pleadings, proceedings and decisions by subs$tu$ng as party-plain$ff the real party-in-
interest. The Court has the power to avoid delay in the disposiaon of this case, to order its amendment as to
implead the BOC as party-respondent. Indeed, it may no longer be necessary to do so taking into account the
unique backdrop in this case, involving as it does an issue of public interest. Aler all, the Office of the Solicitor
General has represented the pe$$oner in the instant proceedings, as well as in the appellate court, and
maintained the validity of the deporta$on order and of the BOC’s Omnibus Resolu$on. It cannot, thus, be
claimed by the State that the BOC was not afforded its day in court, simply because only the pe$$oner, the
Chairperson of the BOC, was the respondent in the CA, and the pe$$oner in the instant recourse. In Alonso v.
Villamor, we had the occasion to state:
There is nothing sacred about processes or pleadings, their forms or contents. Their sole purpose is to facilitate
the applicaaon of jusace to the rival claims of contending paraes. They were created, not to hinder and delay,
but to facilitate and promote, the administra$on of jus$ce. They do not cons$tute the thing itself, which courts
are always striving to secure to li$gants. They are designed as the means best adapted to obtain that thing. In
other words, they are a means to an end. When they lose the character of the one and become the other, the
administra$on of jus$ce is at fault and courts are correspondingly remiss in the performance of their obvious
duty.53 (Emphasis supplied)
In any event, the SEC has expressly manifested54 that it will abide by the Court’s decision and defer to the
Court’s definiaon of the term "capital" in Secaon 11, Aracle XII of the Consatuaon. Further, the SEC entered its
special appearance in this case and argued during the Oral Arguments, indicaang its submission to the Court’s
jurisdicaon. It is clear, therefore, that there exists no legal impediment against the proper and immediate
implementaaon of the Court’s direcave to the SEC.
PLDT is an indispensable party only insofar as the other issues, par$cularly the factual ques$ons, are concerned.
In other words, PLDT must be impleaded in order to fully resolve the issues on (1) whether the sale of 111,415
PTIC shares to First Pacific violates the cons$tu$onal limit on foreign ownership of PLDT; (2) whether the sale of
common shares to foreigners exceeded the 40 percent limit on foreign equity in PLDT; and (3) whether the total
percentage of the PLDT common shares with vo$ng rights complies with the 60-40 ownership requirement in
favor of Filipino ci$zens under the Cons$tu$on for the ownership and opera$on of PLDT. These issues
indisputably call for an examina$on of the par$es’ respec$ve evidence, and thus are clearly within the
jurisdic$on of the SEC. In short, PLDT must be impleaded, and must necessarily be heard, in the proceedings
before the SEC where the factual issues will be thoroughly threshed out and resolved.
Notably, the foregoing issues were lep untouched by the Court. The Court did not rule on the factual issues
raised by Gamboa, except the single and purely legal issue on the defini$on of the term "capital" in Sec$on 11,
Ar$cle XII of the Cons$tu$on. The Court confined the resolu$on of the instant case to this threshold legal issue in
deference to the fact-finding power of the SEC.
Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in this case
even without the par$cipa$on of PLDT since defining the term "capital" in Sec$on 11, Ar$cle XII of the
Cons$tu$on does not, in any way, depend on whether PLDT was impleaded. Simply put, PLDT is not
indispensable for a complete resolu$on of the purely legal ques$on in this case.55 In fact, the Court, by trea$ng
the pe$$on as one for mandamus,56 merely directed the SEC to apply the Court’s defini$on of the term "capital"
in Sec$on 11, Ar$cle XII of the Cons$tu$on in determining whether PLDT commifed any viola$on of the said
cons$tu$onal provision. The disposiave poraon of the Court’s ruling is addressed not to PLDT but solely to the
SEC, which is the administraave agency tasked to enforce the 60-40 ownership requirement in favor of Filipino
ciazens in Secaon 11, Aracle XII of the Consatuaon.
Since the Court limited its resolu$on on the purely legal issue on the defini$on of the term "capital" in Sec$on
11, Ar$cle XII of the 1987 Cons$tu$on, and directed the SEC to inves$gate any viola$on by PLDT of the 60-40
ownership requirement in favor of Filipino ci$zens under the Cons$tu$on,57 there is no depriva$on of PLDT’s
property or denial of PLDT’s right to due process, contrary to Pangilinan and Nazareno’s misimpression. Due
process will be afforded to PLDT when it presents proof to the SEC that it complies, as it claims here, with Sec$on
11, Ar$cle XII of the Cons$tu$on.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in a sudden
flight of exis$ng foreign investors to "friendlier" countries and simultaneously deterring new foreign investors to
our country. In par$cular, the PSE claims that the 28 June 2011 Decision may result in the following: (1) loss of
more than ₱ 630 billion in foreign investments in PSE-listed shares; (2) massive decrease in foreign trading
transac$ons; (3) lower PSE Composite Index; and (4) local investors not inves$ng in PSE-listed shares.58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants’ apprehension. Without
providing specific details, he pointed out the depressing state of the Philippine economy compared to our
neighboring countries which boast of growing economies. Further, Dr. Villegas explained that the solu$on to our
economic woes is for the government to "take-over" strategic industries, such as the public u$li$es sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you have addi$onal informa$on on whether this high
FDI59 countries in East Asia have allowed foreigners x x x control [of] their public u$li$es, so that we can compare
apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these neighbors of ours find an industry strategic, their solu$on
is not to "Filipinize" or "Vietnamize" or "Singaporize." Their soluaon is to make sure that those industries are in
the hands of state enterprises. So, in these countries, naaonalizaaon means the government takes over. And
because their governments are competent and honest enough to the public, that is the soluaon. x x
x 60 (Emphasis supplied)
If government ownership of public u$li$es is the solu$on, then foreign investments in our public u$li$es serve no
purpose. Obviously, there can never be foreign investments in public u$li$es if, as Dr. Villegas claims, the
"solu$on is to make sure that those industries are in the hands of state enterprises." Dr. Villegas’s argument that
foreign investments in telecommunica$on companies like PLDT are badly needed to save our ailing economy
contradicts his own theory that the solu$on is for government to take over these companies. Dr. Villegas is
barking up the wrong tree since State ownership of public u$li$es and foreign investments in such industries are
diametrically opposed concepts, which cannot possibly be reconciled.
In any event, the experience of our neighboring countries cannot be used as argument to decide the present case
differently for two reasons. First, the governments of our neighboring countries have, as claimed by Dr. Villegas,
taken over ownership and control of their strategic public u$li$es like the telecommunica$ons industry. Second,
our Cons$tu$on has specific provisions limi$ng foreign ownership in public u$li$es which the Court is sworn to
uphold regardless of the experience of our neighboring countries.
In our jurisdic$on, the Cons$tu$on expressly reserves the ownership and opera$on of public u$li$es to Filipino
ci$zens, or corpora$ons or associa$ons at least 60 percent of whose capital belongs to Filipinos. Following Dr.
Villegas’s claim, the Philippines appears to be more liberal in allowing foreign investors to own 40 percent of
public u$li$es, unlike in other Asian countries whose governments own and operate such industries.
XI.
Prospec@ve Applica@on of Sanc@ons
In its Mo$on for Par$al Reconsidera$on, the SEC sought to clarify the reckoning period of the applica$on and
imposi$on of appropriate sanc$ons against PLDT if found viola$ng Sec$on 11, Ar$cle XII of the
Cons$tu$on.1avvphi1
As discussed, the Court has directed the SEC to inves$gate and determine whether PLDT violated Sec$on 11,
Ar$cle XII of the Cons$tu$on. Thus, there is no dispute that it is only aler the SEC has determined PLDT’s
viola$on, if any exists at the $me of the commencement of the administra$ve case or inves$ga$on, that the SEC
may impose the statutory sanc$ons against PLDT. In other words, once the 28 June 2011 Decision becomes final,
the SEC shall impose the appropriate sanc$ons only if it finds aler due hearing that, at the start of the
administra$ve case or inves$ga$on, there is an exis$ng viola$on of Sec$on 11, Ar$cle XII of the Cons$tu$on.
Under prevailing jurisprudence, public u$li$es that fail to comply with the na$onality requirement under Sec$on
11, Ar$cle XII and the FIA can cure their deficiencies prior to the start of the administra$ve case or
inves$ga$on.61
XII.
Final Word
The Cons$tu$on expressly declares as State policy the development of an economy "effec@vely controlled" by
Filipinos. Consistent with such State policy, the Cons$tu$on explicitly reserves the ownership and opera$on of
public u$li$es to Philippine na$onals, who are defined in the Foreign Investments Act of 1991 as Filipino ci$zens,
or corpora$ons or associa$ons at least 60 percent of whose capital with vo@ng rights belongs to Filipinos. The
FIA’s implemen$ng rules explain that "[f]or stocks to be deemed owned and held by Philippine ci$zens or
Philippine na$onals, mere legal $tle is not enough to meet the required Filipino equity. Full beneficial ownership
of the stocks, coupled with appropriate voang rights is essenaal." In effect, the FIA clarifies, reiterates and
confirms the interpreta$on that the term "capital" in Sec$on 11, Ar$cle XII of the 1987 Cons$tu$on refers
to shares with vo@ng rights, as well as with full beneficial ownership. This is precisely because the right to vote
in the elec$on of directors, coupled with full beneficial ownership of stocks, translates to effec$ve control of a
corpora$on.
Any other construc$on of the term "capital" in Sec$on 11, Ar$cle XII of the Cons$tu$on contravenes the lefer
and intent of the Cons$tu$on. Any other meaning of the term "capital" openly invites alien domina$on of
economic ac$vi$es reserved exclusively to Philippine na$onals. Therefore, respondents’ interpreta$on will
ul$mately result in handing over effec$ve control of our na$onal economy to foreigners in patent viola$on of the
Cons$tu$on, making Filipinos second-class ci$zens in their own country.
Filipinos have only to remind themselves of how this country was exploited under the Parity Amendment, which
gave Americans the same rights as Filipinos in the exploita$on of natural resources, and in the ownership and
control of public u$li$es, in the Philippines. To do this the 1935 Cons$tu$on, which contained the same 60
percent Filipino ownership and control requirement as the present 1987 Cons$tu$on, had to be amended to give
Americans parity rights with Filipinos. There was bifer opposi$on to the Parity Amendment62 and many Filipinos
eagerly awaited its expira$on. In late 1968, PLDT was one of the American-controlled public u$li$es that became
Filipino-controlled when the controlling American stockholders divested in an$cipa$on of the expira$on of the
Parity Amendment on 3 July 1974.63 No economic suicide happened when control of public u$li$es and mining
corpora$ons passed to Filipinos’ hands upon expira$on of the Parity Amendment.
Movants’ interpreta$on of the term "capital" would bring us back to the same evils spawned by the Parity
Amendment, effec@vely giving foreigners parity rights with Filipinos, but this @me even without any
amendment to the present Cons@tu@on. Worse, movants’ interpreta$on opens up our na$onal economy
to effec@ve control not only by Americans but also by all foreigners, be they Indonesians, Malaysians or
Chinese, even in the absence of reciprocal treaty arrangements. At least the Parity Amendment, as
implemented by the Laurel-Langley Agreement, gave the capital-starved Filipinos theore$cal parity – the same
rights as Americans to exploit natural resources, and to own and control public u$li$es, in the United States of
America. Here, movants’ interpreta$on would effec$vely mean a unilateral opening up of our na$onal economy
to all foreigners, without any reciprocal arrangements. That would mean that Indonesians, Malaysians and
Chinese na$onals could effec$vely control our mining companies and public u$li$es while Filipinos, even if they
have the capital, could not control similar corpora$ons in these countries.
The 1935, 1973 and 1987 Cons$tu$ons have the same 60 percent Filipino ownership and control requirement for
public u$li$es like PLOT. Any devia$on from this requirement necessitates an amendment to the Cons$tu$on as
exemplified by the Parity Amendment. This Court has no power to amend the Cons$tu$on for its power and duty
is only to faithfully apply and interpret the Cons$tu$on.
WHEREFORE, we DENY the mo$ons for reconsidera$on WITH FINALITY. No further pleadings shall be
entertained.
SO ORDERED.
G.R. No. 207246
JOSE M. ROY III, Pe$$oner
vs.
CHAIRPERSON TERESITA HERBOSA, THE SECURITIES AND EXCHANGE COMMISSION, and PHILIPPINE LONG
DISTANCE TELEPHONE COMP ANY,, Respondents
x-----------------------x
WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN WARREN P. GABINETE, ANTONIO V. PESINA, JR.,
MODESTO MARTINY. MAMON III, and GERARDO C. EREBAREN, Pe$$oners-in-Interven$on,
x-----------------------x
PHILIPPINE STOCK EXCHANGE, INC. Respondent-in-Interven$on,
x-----------------------x
SHAREHOLDERS' ASSOCIATION OF THE PHILIPPINES, INC., Respondent-in-Interven$on.
RESOLUTION
CAGUIOA, J.:
Before the Court is the Mo$on for Reconsidera$on dated January 19, 20171 (the Mo$on) filed by pe$$oner Jose
M. Roy III (movant) seeking the reversal and semng aside of the Decision dated November 22, 20162 (the
Decision) which denied the movant's pe$$on, and declared that the Securi$es and Exchange Commission (SEC)
did not commit grave abuse of discre$on in issuing Memorandum Circular No. 8, Series of 2013 (SEC-MC No. 8)
as the same was in compliance with, and in fealty to, the decision of the Court in Gamboa v. Finance Secretary
Teves,3 (Gamboa Decision) and the resolu$on4 denying the Mo$on for Reconsidera$on
therein (Gamboa Resolu$on).
The Mo$on presents no compelling and new arguments to jus$fy the reconsidera$on of the Decision.
The grounds raised by movant are: (1) He has the requisite standing because this case is one of transcendental
importance; (2) The Court has the cons$tu$onal duty to exercise judicial review over any grave abuse of
discre$on by any instrumentality of government; (3) He did not rely on an obiter dictum; and (4) The Court
should have treated the pe$$on as the appropriate device to explain the Gamboa Decision.
The Decision has already exhaus$vely discussed and directly passed upon these grounds. Movant's pe$$on was
dismissed based on both procedural and substan$ve grounds.
Regarding the procedural grounds, the Court ruled that pe$$oners (movant and pe$$oners-in-interven$on)
failed to sufficiently allege and establish the existence of a case or controversy and locus standi on their part to
warrant the Court's exercise of judicial review; the rule on the hierarchy of courts was violated; and pe$$oners
failed to implead indispensable par$es such as the Philippine Stock Exchange, Inc. and Shareholders' Associa$on
of the Philippines, Inc. 5
In connec$on with the failure to implead indispensable par$es, the Court's Decision held:
Under Sec$on 3, Rule 7 of the Rules of Court, an indispensable party is a party-in-interest without whom there
can be no final determina$on of an ac$on. Indispensable par$es are those with such a material and direct
interest in the controversy that a final decree would necessarily affect their rights, so that the court cannot
proceed without their presence. The interests of such indispensable par$es in the subject mafer of the suit and
the relief are so bound with those of the other par$es that their legal presence as par$es to the proceeding is an
absolute necessity and a complete and efficient determina$on of the equi$es and rights of the par$es is not
possible if they are not joined.
Other than PLDT, the pe$$ons failed to join or implead other public u$lity corpora$ons subject to the same
restric$on imposed by Sec$on 11, Ar$cle XII of the Cons$tu$on. These corpora$ons are in danger of losing their
franchise and property if they are found not compliant with the restric$ve interpreta$on of the cons$tu$onal
provision under review which is being espoused by pe$$oners. They should be afforded due no$ce and
opportunity to be heard, lest they be deprived of their property without due process.
Not only are public u$lity corpora$ons other than PLDT directly and materially affected by the outcome of the
pe$$ons, their shareholders also stand to suffer in case they will be forced to divest their shareholdings to ensure
compliance with the said restric$ve interpreta$on of the term "capital". As explained by SHAREPHIL, in five
corpora$ons alone, more than Php158 Billion worth of shares must be divested by foreign shareholders and
absorbed by Filipino investors if pe$$oners' posi$on is upheld.
Pe$$oners' disregard of the rights of these other corpora$ons and numerous shareholders cons$tutes another
fatal procedural flaw, jus$fying the dismissal of their pe$$ons. Without giving all of them their day in court, they
will definitely be deprived of their property without due process of law. 6
This is highlighted to clear any misimpression that the Gamboa Decision and Gamboa Resolu$on made a
categorical ruling on the meaning of the word "capital" under Sec$on 11, Ar$cle XII of the Cons$tu$on only in
respect of, or only confined to, respondent Philippine Long Distance Telephone Company (PLDT). Nothing is
further from the truth. Indeed, a fair reading of the Gamboa Decision and Gamboa Resolu$on shows that the
Court's pronouncements therein would affect all public u$li$es, and not just respondent PLDT.
On the substan$ve grounds, the Court disposed of the issue on whether the SEC gravely abused its discre$on in
ruling that respondent PLDT is compliant with the limita$on on foreign ownership under the Cons$tu$on and
other relevant laws as without merit. The Court reasoned that "in the absence of a defini$ve ruling by the SEC on
PLDT's compliance with the capital requirement pursuant to the Gamboa Decision and Resolu$on, any ques$on
rela$ve to the inexistent ruling is premature."7
In resolving the other substan$ve issue raised by pe$$oners, the Court held that:
[E]ven if the resolu$on of the procedural issues were conceded in favor of pe$$oners, the pe$$ons, being
anchored on Rule 65, must nonetheless fail because the SEC did not commit grave abuse of discre$on amoun$ng
to lack or excess of jurisdic$on when it issued SEC-MC No. 8. To the contrary, the Court finds SEC-MC No. 8 to
have been issued in fealty to the Gamboa Decision and Resolu$on.8
To belabor the point, movant's pe$$on is not a con$nua$on of the Gamboa case as the Gamboa Decision
afained finality on October 18, 2012, and therealer Entry of Judgment was issued on December 11, 2012.9
As regards movant's repeated invoca$on of the transcendental importance of the Gamboa case, this does
not ipso facto accord locus standi to movant. Being a new pe$$on, movant had the burden to jus$fy his locus
standi in his own pe$$on. The Court, however, was not persuaded by his jus$fica$on.
Pursuant to the Court's cons$tu$onal duty to exercise judicial review, the Court has conclusively found no grave
abuse of discre$on on the part of SEC in issuing SEC-MC No. 8.
The Decision has painstakingly explained why it considered as obiter dictum that pronouncement in
the Gamboa Resolu$on that the cons$tu$onal requirement on Filipino ownership should "apply uniformly and
across the board to all classes of shares, regardless of nomenclature and category, comprising the capital of a
corpora$on."[[9-a]] The Court stated that:
[T]he fallo or decretal/disposi$ve por$ons of both the Gamboa Decision and Resolu$on are definite, clear and
unequivocal. While there is a passage in the body of the Gamboa Resolu$on that might have appeared contrary
to the fallo of the Gamboa Decision x x x the definiteness and clarity of the fallo of the Gamboa Decision must
control over the obiter dictum in the Gamboa Resolu$on regarding the applica$on of the 60-40 Filipino-foreign
ownership requirement to "each class of shares, regardless of differences in vo$ng rights, privileges and
restric$ons." 10
To the Court's mind and, as exhaus$vely demonstrated in the Decision, the disposi$ve por$on of
the Gamboa Decision was in no way modified by the Gamboa Resolu$on.
The heart of the controversy is the interpreta$on of Sec$on 11, Ar$cle XII of the Cons$tu$on, which provides:
"No franchise, cer$ficate, or any other form of authoriza$on for the opera$on of a public u$lity shall be granted
except to ci$zens of the Philippines or to corpora$ons or associa$ons organized under the laws of the Philippines
at least sixty per centum of whose capital is owned by such ci$zens x x x."
The Gamboa Decision already held, in no uncertain terms, that what the Cons$tu$on requires is "[fJull [and legal]
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the vo$ng rights x
x x must rest in the hands of Filipino na$onals x x x." 11 And, precisely that is what SEC-MC No. 8 provides, viz.: "x
x x For purposes of determining compliance [with the cons$tu$onal or statutory ownership], the required
percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock
en$tled to vote in the elec$on of directors; AND (b) the total number of outstanding shares of stock, whether or
not en$tled to vote x x x." 12
In construing "full beneficial ownership," the Implemen$ng Rules and Regula$ons of the Foreign Investments Act
of 1991 (FIA-IRR) provides:
For stocks to be deemed owned and held by Philippine ci$zens or Philippine na$onals, mere legal $tle is not
enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate
vo$ng rights is essen$al. Thus, stocks, the vo$ng rights of which have been assigned or transferred to aliens
cannot be considered held by Philippine ci$zens or Philippine na$onals. 13
In turn, "beneficial owner" or "beneficial ownership" is defined in the Implemen$ng Rules and Regula$ons of the
Securi$es Regula$on Code (SRC-IRR) as:
[A]ny person who, directly or indirectly, through any contract, arrangement, understanding, rela$onship or
otherwise, has or shares vo$ng power (which includes the power to vote or direct the vo$ng of such security)
and/or investment returns or power (which includes the power to dispose of, or direct the disposi$on of such
security) x x x. 14
Thus, the defini$on of "beneficial owner or beneficial ownership" in the SRC-IRR, which is in consonance with the
concept of "full beneficial ownership" in the FIA-IRR, is, as stressed in the Decision, relevant in resolving only the
ques$on of who is the beneficial owner or has beneficial ownership of each "specific stock" of the public u$lity
company whose stocks are under review. If the Filipino has the voang power of the "specific stock", i.e., he
can vote the stock or direct another to vote for him, or the Filipino has the investment power over the "specific
stock", i.e., he can dispose of the stock or direct another to dispose of it for him, or both, i.e., he can vote and
dispose of that "specific stock" or direct another to vote or dispose it for him, then such Filipino is the "beneficial
owner" of that "specific stock." Being considered Filipino, that "specific stock" is then to be counted as part of the In conclusion, the basic issues raised in the Mo$on having been duly considered and passed upon by the Court in
60% Filipino ownership requirement under the Cons$tu$on. The right to the dividends, jus fruendi - a right the Decision and no substan$al argument having been adduced to warrant the reconsidera$on sought, the Court
emana$ng from ownership of that "specific stock" necessarily accrues to its Filipino "beneficial owner." resolves to DENY the Mo$on with FINALITY.
Once more, this is emphasized anew to disabuse any no$on that the dividends accruing to any par$cular stock WHEREFORE, the subject Mo$on for Reconsidera$on is hereby DENIED WITH FINALITY. No further pleadings or
are determina$ve of that stock's "beneficial ownership." Dividend declara$on is dictated by the corpora$on's mo$ons shall be entertained in this case. Let entry of final judgment be issued immediately.
unrestricted retained earnings. On the other hand, the corpora$on's need of capital for expansion programs and
SO ORDERED.
special reserve for probable con$ngencies may limit retained earnings available for dividend declara$on. 15 It
bears repea$ng here that the Court in the Gamboa Decision adopted the foregoing defini$on of the term
"capital" in Sec$on 11, Ar$cle XII of the 1987 Cons$tu$on in express recogni$on of the sensi$ve and vital
posi$on of public u$li$es both in the na$onal economy and for na$onal security, so that the evident purpose of
the ci$zenship requirement is to prevent aliens from assuming control of public u$li$es, which may be inimical to
the na$onal interest. 16 This purpose prescinds from the "benefits"/dividends that are derived from or accorded
to the par$cular stocks held by Filipinos vis-a-vis the stocks held by aliens. So long as Filipinos have controlling
interest of a public u$lity corpora$on, their decision to declare more dividends for a par$cular stock over other
kinds of stock is their sole preroga$ve - an act of ownership that would presumably be for the benefit of the
public u$lity corpora$on itself. Thus, as explained in the Decision:
In this regard, it would be apropos to state that since Filipinos own at least 60% of the outstanding shares of
stock en$tled to vote directors, which is what the Cons$tu$on precisely requires, then the Filipino G.R. No. 114787 June 2, 1995
stockholders control the corpora$on, i.e., they dictate corporate ac$ons and decisions, and they have all the MAM REALTY DEVELOPMENT CORPORATION and MANUEL CENTENO, pe$$oners,
rights of ownership including, but not limited to, offering certain preferred shares that may have greater vs.
economic interest to foreign investors - as the need for capital for corporate pursuits (such as expansion), may be NATIONAL LABOR RELATIONS COMMISSION and CELSO B. BALBASTRO respondents.
good for the corpora$on that they own. Surely, these "true owners" will not allow any dilu$on of their ownership
and control if such move will not be beneficial to them. 17
VITUG, J.:
Finally, as to how the SEC will classify or treat certain stocks with vo$ng rights held by a trust fund that is created
by the public en$ty whose compliance with the limita$on on foreign ownership under the Cons$tu$on is under A prime focus in the instant pe$$on is the ques$on of when to hold a director or officer of a corpora$on
scru$ny, and how the SEC will determine if such public u$lity does, in fact, control how the said stocks will be solidarily obligated with the lafer for a corporate liability.
voted, and whether, resultantly, the trust fund would be considered as Philippine na$onal or not - lengthily
The case originated from a complaint filed with the Labor Arbiter by private respondent Celso B. Balbastro
discussed in the dissen$ng opinion of Jus$ce Carpio - is specula$ve at this juncture. The Court cannot engage in
against herein pe$$oners, MAM Realty Development Corpora$on ("MAM") and its Vice President Manuel P.
guesswork. Thus, there is need of an actual case or controversy before the Court may exercise its power of
Centeno, for wage differen$als, "ECOLA," over$me pay, incen$ve leave pay, 13th month pay (for the years 1988
judicial review. The movant's pe$$on is not that actual case or controversy.
and 1989), holiday pay and rest day pay. Balbastro alleged that he was employed by MAM as a pump operator in
Thus, the discussion of Jus$ce Carpio' s dissen$ng opinion as to the vo$ng preferred shares created by 1982 and had since performed such work at its Rancho Estate, Marikina, Metro Manila. He earned a basic
respondent PLDT, their acquisi$on by BTF Holdings, Inc., which appears to be a wholly-owned company of the monthly salary of P1,590.00 for seven days of work a week that started from 6:00 a.m. to up un$l 6:00 p.m. daily.
PLDT Beneficial Trust Fund (BTF), and whether or not it is respondent PLDT's management that controls BTF and
MAM countered that Balbastro had previously been employed by Francisco Cacho and Co., Inc., the developer of
BTF Holdings, Inc. - all these are factual mafers that are outside the ambit of this Court's review which, as stated
Rancho Estates. Some$me in May 1982, his services were contracted by MAM for the opera$on of the Rancho
in the beginning, is confined to determining whether or not the SEC commifed grave abuse of discre$on in
Estates' water pump. He was engaged, however, not as an employee, but as a service contractor, at an agreed fee
issuing SEC-MC No. 8; that is, whether or not SEC-MC No. 8 violated the ruling of the Court in Gamboa v. Finance
of P1,590.00 a month. Similar arrangements were likewise entered into by MAM with one Rodolfo Mercado and
Secretary Teves, 18 and the resolu$on in Heirs of Wilson P. Gamboa v. Finance Sec. Teves19denying the Mo$on for
with a security guard of Rancho Estates III Homeowners' Associa$on. Under the agreement, Balbastro was
Reconsidera$on therein as to the proper understanding of "capital".
merely made to open and close on a daily basis the water supply system of the different phases of the
To be sure, it would be more prudent and advisable for the Court to await the SEC's prior determina$on of the subdivision in accordance with its water ra$oning scheme. He worked for only a maximum period of three hours
ci$zenship of specific shares of stock held in trust - based on proven facts - before the Court proceeds to pass a day, and he made use of his free $me by offering plumbing services to the residents of the subdivision. He was
upon the legality of such determina$on. not at all subject to the control or supervision of MAM for, in fact, his work could so also be done either by
Mercado or by the security guard. On 23 May 1990, prior to the filing of the complaint, MAM executed a Deed of
As to whether respondent PLDT is currently in compliance with the Cons$tu$onal provision regarding public
Transfer,1 effec$ve 01 July 1990, in favor of the Rancho Estates Phase III Homeowners Associa$on, Inc., conveying
u$lity en$$es, the Court must likewise await the SEC's determina$on thereof applying SEC-MC No. 8. Aler all, as
to the lafer all its rights and interests over the water system in the subdivision.
stated in the Decision, it is the SEC which is the government agency with the competent exper$se and the
mandate of law to make such determina$on. In a decision, dated 23 December 1991, the Labor Arbiter dismissed the complaint for lack of merit.
On appeal to it, respondent Na$onal Labor Rela$ons Commission ("NLRC") rendered judgment (a) semng aside
the ques$oned decision of the Labor Arbiter and (b) referring the case, pursuant to Ar$cle 218(c) of the Labor
Code, to Arbiter Cristeta D. Tamayo for further hearing and submission of a report within 20 days from receipt of
the Order.2 On 21 March 1994, respondent Commissioner, aler considering the report of Labor Arbiter Tamayo,
ordered:
WHEREFORE, the respondents are hereby directed to pay jointly and severally complainant
the sum of P86,641.05 as above-computed. 3
The instant pe$$on asseverates that respondent NLRC gravely abused its discre$on, amoun$ng to lack
or excess of jurisdic$on, (1) in finding that an employer-employee rela$onship existed between
pe$$oners and private respondent and (2) in holding pe$$oners jointly and severally liable for the
money claims awarded to private respondent.
Once again, the mafer of ascertaining the existence of an employer-employee rela$onship is raised. Repeatedly,
we have said that this factual issue is determined by:
(a) the selec$on and engagement of the employee;
(b) the payment of wages;
(c) the power of dismissal; and
(d) the employer's power to control the employee with respect to the result of the work to be
done and to the means and methods by which the work is to be accomplished.
We see no grave abuse of discre$on on the part of NLRC in finding a full sa$sfac$on, in the case at
bench, of the criteria to establish that employer-employee rela$onship. The power of control, the most
important feature of that rela$onship and, here, a point of controversy, refers merely to
the existence of the power and not to the actual exercise thereof. It is not essen$al for the employer
to actually supervise the performance of du$es of the employee; it is enough that the former has a
right to wield the power.4 It is hard to accede to the conten$on of pe$$oners that private respondent
should be considered totally free from such control merely because the work could equally and easily
be done either by Mercado or by the subdivision's security guard. Not without any significance is that
private respondent's employment with MAM has been registered by pe$$oners with the Social
Security System.5
It would seem that the money claims awarded to private respondent were computed from 06 March 1988 to 06
March 1991,6 the lafer being the date of the filing of the complaint. The NLRC might have missed the transfer by
MAM of the water system to the Homeowners Associa$on on 01 July 1990, a mafer that would appear not to be
in dispute. Accordingly, the period for the computa$on of the money claims should only be for the period from
06 March 1988 to 01 July 1990 (when pe$$oner corpora$on could be deemed to have ceased from the ac$vity
for which private respondent was employed), and pe$$oner corpora$on should, instead, be made liable for the
employee's separa$on pay equivalent to one-half (1/2) month pay for every year of
service. 7 While the transfer was allegedly due to MAM's financial constraints, unfortunately for pe$$oner
corpora$on, however, it failed to sufficiently establish that its business losses or financial reverses were serious
enough that possibly can warrant an exemp$on under the law.8
We agree with pe$$oners, however, that the NLRC erred in holding Centeno jointly and severally liable with
MAM. A corpora$on, being a juridical en$ty, may act only through its directors, officers and employees.
Obliga$ons incurred by them, ac$ng as such corporate agents, are not theirs but the direct accountabili$es of the
corpora$on they represent. True, solidary liabili$es may at $mes be incurred but only when excep$onal
circumstances warrant such as, generally, in the following cases:9
1. When directors and trustees or, in appropriate cases, the officers of a corpora$on —
(a) vote for or assent to patently unlawful acts of the corpora$on;
(b) act in bad faith or with gross negligence in direc$ng the corporate
affairs;
(c) are guilty of conflict of interest to the prejudice of the corpora$on, its
stockholders or members, and other persons. 10
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his wrifen objec$on
thereto. 11
3. When a director, trustee or officer has contractually agreed or s$pulated to hold himself
personally and solidarily liable with the Corpora$on. 12
4 When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate ac$on.13
In labor cases, for instance, the Court has held corporate directors and officers solidarily liable with the
corpora$on for the termina$on of employment of employees done with malice or in bad faith.14
In the case at Bench, there is nothing substan$al on record that can jus$fy, prescinding from the foregoing,
pe$$oner Centeno's solidary liability with the corpora$on.
An extra note. Private respondent avers that the ques$oned decision, having already become final and executory,
could no longer be reviewed by this Court. The pe$$on before us has been filed under Rule 65 of the Rules of
Court, there being no appeal, or any other plain, speedy and adequate remedy in the ordinary course of law from
decisions of the Na$onal Labor Rela$ons Commission; it is a relief that is open so long as it is availed of within a
reasonable $me.
WHEREFORE, the order of 21 March 1994 is MODIFIED. The case is REMANDED to the NLRC for a re-computa$on
of private respondent's monetary awards, which, conformably with this opinion, shall be paid solely by pe$$oner
MAM Realty Development Corpora$on. No special pronouncement on costs.
SO ORDERED.
G.R. No. 153535. July 28, 2005
SOLIDBANK CORPORATION, Pe$$oners,
vs.
MINDANAO FERROALLOY CORPORATION, Spouses JONG-WON HONG and SOO-OK KIM HONG,* TERESITA CU,
and RICARDO P. GUEVARA and Spouse,** respondents.
DECISION
PANGANIBAN, J.:
To jus$fy an award for moral and exemplary damages under Ar$cles 19 to 21 of the Civil Code (on human
rela$ons), the claimants must establish the other party’s malice or bad faith by clear and convincing evidence.
The Case
Before us is a Pe$$on for Review1 under Rule 45 of the Rules of Court, assailing the December 21, 2001
Decision2 and the May 15, 2002 Resolu$on3 of the Court of Appeals (CA) in CA-GR CV No. 67482. The CA
disposed as follows:
"IN THE LIGHT OF ALL THE FOREGOING, the appeal is DISMISSED. The Decision appealed from is AFFIRMED."4
The assailed Resolu$on, on the other hand, denied pe$$oner’s Mo$on for Reconsidera$on.
The Facts
The CA narrated the antecedents as follows:
"The Maria Cris$na Chemical Industries (MCCI) and three (3) Korean corpora$ons, namely, the Ssangyong
Corpora$on, the Pohang Iron and Steel Company and the Dongil Industries Company, Ltd., decided to forge a
joint venture and establish a corpora$on, under the name of the Mindanao Ferroalloy Corpora$on (Corpora$on
for brevity) with principal offices in Iligan City. Ricardo P. Guevara was the President and Chairman of the Board of
Directors of the Corpora$on. Jong-Won Hong, the General Manager of Ssangyong Corpora$on, was the Vice-
President of the Corpora$on for Finance, Marke$ng and Administra$on. So was Teresita R. Cu. On November 26,
1990, the Board of Directors of the Corpora$on approved a ‘Resolu$on’ authorizing its President and Chairman
of the Board of Directors or Teresita R. Cu, ac$ng together with Jong-Won Hong, to secure an omnibus line in the
aggregate amount of ₱30,000,000.00 from the Solidbank x x x.
xxxxxxxxx
"In the mean$me, the Corpora$on started its opera$ons some$me in April, 1991. Its indebtedness ballooned to
₱200,453,686.69 compared to its assets of only ₱65,476,000.00. On May 21, 1991, the Corpora$on secured an
ordinary $me loan from the Solidbank in the amount of ₱3,200,000.00. Another ordinary $me loan was granted
by the Bank to the Corpora$on on May 28, 1991, in the amount of ₱1,800,000.00 or in the total amount of
₱5,000,000.00, due on July 15 and 26, 1991, respec$vely.
"However, the Corpora$on and the Bank agreed to consolidate and, at the same $me, restructure the two (2)
loan availments, the same payable on September 20, 1991. The Corpora$on executed ‘Promissory Note No.
96-91-00865-6’ in favor of the Bank evidencing its loan in the amount of ₱5,160,000.00, payable on September
20, 1991. Teresita Cu and Jong-Won Hong affixed their signatures on the note. To secure the payment of the said
loan, the Corpora$on, through Jong-Won Hong and Teresita Cu, executed a ‘Deed of Assignment’ in favor of the
Bank covering its rights, $tle and interest to the following:
‘The en$re proceeds of drals drawn under Irrevocable Lefer of Credit No. M-S-041-2002080 opened with The
Mitsubishi Bank Ltd. – Tokyo dated June 13, 1991 for the account of Ssangyong Japan Corpora$on, 7F. Matsuoka-
Tamura-Cho Bldg., 22-10, 5-Chome, Shimbashi, Minato-Ku, Tokyo, Japan up to the extent of US$197,679.00’
"The Corpora$on likewise executed a ‘Quedan’, by way of addi$onal security, under which the Corpora$on bound
and obliged to keep and hold, in trust for the Bank or its Order, ‘Ferrosilicon for US$197,679.00’. Jong-Won Hong
and Teresita Cu affixed their signatures thereon for the Corpora$on. The Corpora$on, also, through Jong-Won
Hong and Teresita Cu, executed a ‘Trust Receipt Agreement’, by way of addi$onal security for said loan, the
Corpora$on undertaking to hold in trust, for the Bank, as its property, the following:
‘1. THE MITSUBISHI BANK LTD., Tokyo L/C No. M-S-041-2002080 for account of Ssangyong Japan Corpora$on,
Tokyo, Japan for US$197,679.00 Ferrosilicon to expire September 20, 1991.
‘2. SEC QUEDAN NO. 91-476 dated June 26, 1991 covering the following:
Ferrosilicon for US$197,679.00’
"However, shortly aler the execu$on of the said deeds, the Corpora$on stopped its opera$ons. The Corpora$on
failed to pay its loan availments from the Bank inclusive of accrued interest. On February 11, 1992, the Bank sent
a lefer to the Corpora$on demanding payment of its loan availments inclusive of interests due. The Corpora$on
failed to comply with the demand of the Bank. On November 23, 1992, the Bank sent another lefer to the
[Corpora$on] demanding payment of its account which, by November 23, 1992, had amounted to ₱7,283,913.33.
The Corpora$on again failed to comply with the demand of the Bank.
"On January 6, 1993, the Bank filed a complaint against the Corpora$on with the Regional Trial Court of Maka$
City, en$tled and docketed as ‘Solidbank Corpora)on vs. Mindanao Ferroalloy Corpora)on, Sps. Jong-Won Hong
and the Sps. Teresita R. Cu, Civil Case No. 93-038’ for ‘Sum of Money’ with a plea for the issuance of a writ of
preliminary afachment. x x x
xxxxxxxxx
"Under its ‘Amended Complaint’, the Plain$ff alleged that it impleaded Ricardo Guevara and his wife as
Defendants because, [among others]:
‘Defendants JONG-WON HONG and TERESITA CU, are the Vice-Presidents of defendant corpora$on, and also
members of the company’s Board of Directors. They are impleaded as joint and solidary debtors of [pe$$oner]
bank having signed the Promissory Note, Quedan, and Trust Receipt agreements with [pe$$oner], in this case.
x x x x x x x x x’
"[Pe$$oner] likewise filed a criminal complaint x x x en$tled and docketed as ‘Solidbank Corpora$on vs. Ricardo
Guevara, Teresita R. Cu and Jong Won Hong x x x for ‘Viola$on of P.D. 115’. On April 14, 1993, the inves$ga$ng
Prosecutor issued a ‘Resolu$on’ finding no probable cause for viola$on of P.D. 115 against the Respondents as
the goods covered by the quedan ‘were nonexistent’:
xxxxxxxxx
"In their Answer to the complaint [in the civil case], the Spouses Jong-Won Hong and Soo-ok Kim Hong alleged,
inter alia, that [pe$$oner] had no cause of ac$on against them as:
‘x x x the clean loan of ₱5.1 M obtained was a corporate undertaking of defendant MINFACO executed through its
duly authorized representa$ves, Ms. Teresita R. Cu and Mr. Jong-Won Hong, both Vice Presidents then of
MINFACO. x x x.’
xxxxxxxxx
"[On their part, respondents] Teresita Cu and Ricardo Guevara alleged that [pe$$oner] had no cause of ac$on
against them because: (a) Ricardo Guevara did not sign any of the documents in favor of [pe$$oner]; (b) Teresita
Cu signed the ‘Promissory Note’, ‘Deed of Assignment’, ‘Trust Receipt’ and ‘Quedan’ in blank and merely as
representa$ve and, hence, for and in behalf of the Defendant Corpora$on and, hence, was not personally liable
to [pe$$oner].
"In the interim, the Corpora$on filed, on June 20, 1994, a ‘Pe$$on’, with the Regional Trial Court of Iligan City, for
‘Voluntary Insolvency’ x x x.
xxxxxxxxx
"Appended to the Pe$$on was a list of its creditors, including [pe$$oner], for the amount of ₱8,144,916.05. The
Court issued an Order, on July 12, 1994, finding the Pe$$on sufficient in form and substance x x x.
xxxxxxxxx
"In view of said development, the Court issued an Order, in Civil Case No. 93-038, suspending the proceedings as
against the Defendant Corpora$on but ordering the proceedings to proceed as against the individual defendants
x x x.
xxxxxxxxx
"On December 10, 1999, the Court rendered a Decision dismissing the complaint for lack of cause of ac$on of
[pe$$oner] against the Spouses Jong-Won Hong, Teresita Cu and the Spouses Ricardo Guevara, x x x.
xxxxxxxxx
"In dismissing the complaint against the individual [respondents], the Court a quo found and declared that
[pe$$oner] failed to adduce a morsel of evidence to prove the personal liability of the said [respondents] for the
claims of [pe$$oner] and that the lafer impleaded the [respondents], in its complaint and amended complaint,
solely to put more pressure on the Defendant Corpora$on to pay its obliga$ons to [pe$$oner].
"[Pe$$oner] x x x interposed an appeal, from the Decision of the Court a quo and posed, for x x x resolu$on, the
issue of whether or not the individual [respondents], are jointly and severally liable to [pe$$oner] for the loan
availments of the [respondent] Corpora$on, inclusive of accrued interests and penal$es.
"In the mean$me, on mo$on of [pe$$oner], the Court set aside its Order, dated February 2, 1995, suspending
the proceedings as against the [respondent] Corpora$on. [Pe$$oner] filed a ‘Mo$on for Summary
Judgment’ against the [respondent] Corpora$on. On February 28, 2000, the Court rendered a ‘Summary
Judgment’ against the [respondent] Corpora$on, the decretal por$on of which reads as follows:
‘WHEREFORE, premises considered, this Court hereby resolves to give due course to the mo$on for summary
judgment filed by herein [pe$$oner]. Consequently, judgment is hereby rendered in favor of [Pe$$oner]
SOLIDBANK CORPORATION and against [Respondent] MINDANAO FERROALLOY CORPORATION, ordering the
lafer to pay the former the amount of ₱7,086,686.70, represen$ng the outstanding balance of the subject loan
as of 24 September 1994, plus s$pulated interest at the rate of 16% per annum to be computed from the
aforesaid date un$l fully paid together with an amount equivalent to 12% of the total amount due each year
from 24 September 1994 un$l fully paid. Lastly, said [respondent] is hereby ordered to pay [pe$$oner] the
amount of ₱25,000.00 to [pe$$oner] as reasonable aforney’s fees as well as cost of li$ga$on."5
In its appeal, pe$$oner argued that (1) it had adduced the requisite evidence to prove the solidary liability of the
individual respondents, and (2) it was not liable for their counterclaims for damages and aforney’s fees.
Ruling of the Court of Appeals
Affirming the RTC, the appellate court ruled that the individual respondents were not solidarily liable with the
Mindanao Ferroalloy Corpora$on, because they had acted merely as officers of the corpora$on, which was the
real party in interest. Respondent Guevara was not even a signatory to the Promissory Note, the Trust Receipt
Agreement, the Deed of Assignment or the Quedan; he was merely authorized to represent Minfaco to nego$ate
with and secure the loans from the bank. On the other hand, the CA noted that Respondents Cu and Hong had
not signed the above documents as comakers, but as signatories in their representa$ve capaci$es as officers of
Minfaco.
Likewise, the CA held that the individual respondents were not liable to pe$$oner for damages, simply because
(1) they had not received the proceeds of the irrevocable Lefer of Credit, which was the subject of the Deed of
Assignment; and (2) the goods subject of the Trust Receipt Agreement had been found to be nonexistent. The
appellate court took judicial no$ce of the prac$ce of banks and financing ins$tu$ons to inves$gate, examine and
assess all proper$es offered by borrowers as collaterals, in order to determine the feasibility and advisability of
gran$ng loans. Before agreeing to the consolida$on of Minfaco’s loans, it presumed that pe$$oner had done its
homework.
As to the award of damages to the individual respondents, the CA upheld the trial court’s findings that it was
clearly unfair on pe$$oner’s part to have impleaded the wives of Guevara and Hong, because the women were
not privy to any of the transac$ons between pe$$oner and Minfaco. Under Ar$cles 19, 20 and 2229 of the Civil
Code, such reckless and wanton act of pressuring individual respondents to sefle the corpora$on’s obliga$ons is
a ground to award moral and exemplary damages, as well as aforney’s fees.
Hence this Pe$$on.6
Issues
In its Memorandum, pe$$oner raises the following issues:
"A. Whether or not there is ample evidence on record to support the joint and solidary liability of individual
respondents with Mindanao Ferroalloy Corpora$on.
"B. In the absence of joint and solidary liability[,] will the provision of Ar$cle 1208 in rela$on to Ar$cle 1207 of
the New Civil Code providing for joint liability be applicable to the case at bar.
"C. May bank prac$ces be the proper subject of judicial no$ce under Sec. 1 [of] Rule 129 of the Rules of Court.
"D. Whether or not there is evidence to sustain the claim that respondents were impleaded to apply pressure
upon them to pay the obliga$ons in lieu of MINFACO that is declared insolvent.
"E. Whether or not there are sufficient bases for the award of various kinds of and substan$al amounts in
damages including payment for aforney’s fees.
"F. Whether or not respondents commifed fraud and misrepresenta$ons and acted in bad faith.
"G. Whether or not the inclusion of respondents spouses is proper under certain circumstances and supported by
prevailing jurisprudence."7
In sum, there are two main ques$ons: (1) whether the individual respondents are liable, either jointly or
solidarily, with the Mindanao Ferroalloy Corpora$on; and (2) whether the award of damages to the individual
respondents is valid and legal.
The Court’s Ruling
The Pe$$on is partly meritorious.
First Issue:
Liability of Individual Respondents
Pe$$oner argues that the individual respondents were jointly or solidarily liable with Minfaco, either because
their par$cipa$on in the loan contract and the loan documents made them comakers; or because they
commifed fraud and decep$on, which jus$fies the piercing of the corporate veil.
The first conten$on hinges on certain factual determina$ons made by the trial and the appellate courts. These
tribunals found that, although he had not signed any document in connec$on with the subject transac$on,
Respondent Guevara was authorized to represent Minfaco in nego$a$ng for a ₱30 million loan from pe$$oner.
As to Cu and Hong, it was determined, among others, that their signatures on the loan documents other than the
Deed of Assignment were not prefaced with the word "by," and that there were no other signatures to indicate
who had signed for and on behalf of Minfaco, the principal borrower. In the Promissory Note, they signed above
the printed name of the corpora$on -- on the space provided for "Maker/Borrower," not on that provided for
"Co-maker."
Pe$$oner has not shown any excep$onal circumstance that sanc$ons the disregard of these findings of fact,
which are thus deemed final and conclusive upon this Court and may not be reviewed on appeal.8
No Personal Liability
for Corporate Deeds
Basic is the principle that a corpora$on is vested by law with a personality separate and dis$nct from that of each
person composing9 or represen$ng it.10 Equally fundamental is the general rule that corporate officers cannot be
held personally liable for the consequences of their acts, for as long as these are for and on behalf of the
corpora$on, within the scope of their authority and in good faith.11 The separate corporate personality is a shield
against the personal liability of corporate officers, whose acts are properly afributed to the corpora$on.12
Tramat Mercan)le v. Court of Appeals13 held thus:
"Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corpora$on
may so validly afach, as a rule, only when —
‘1. He assents (a) to a patently unlawful act of the corpora$on, or (b) for bad faith or gross negligence in direc$ng
its affairs, or (c) for conflict of interest, resul$ng in damages to the corpora$on, its stockholders or other persons;
‘2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with
the corporate secretary his wrifen objec$on thereto;
‘3. He agrees to hold himself personally and solidarily liable with the corpora$on; or
‘4. He is made, by a specific provision of law, to personally answer for his corporate ac$on.’"
Consistent with the foregoing principles, we sustain the CA’s ruling that Respondent Guevara was not personally
liable for the contracts. First, it is beyond cavil that he was duly authorized to act on behalf of the corpora$on;
and that in nego$a$ng the loans with pe$$oner, he did so in his official capacity. Second, no sufficient and
specific evidence was presented to show that he had acted in bad faith or gross negligence in that
nego$a$on. Third, he did not hold himself personally and solidarily liable with the corpora$on. Neither is there
any specific provision of law making him personally answerable for the subject corporate acts.
On the other hand, Respondents Cu and Hong signed the Promissory Note without the word "by" preceding their
signatures, atop the designa$on "Maker/Borrower" and the printed name of the corpora$on, as follows:
__(Sgd) Cu/Hong__
(Maker/Borrower)
MINDANAO FERROALLOY
While their signatures appear without qualifica$on, the inference that they signed in their individual capaci$es is
negated by the following facts: 1) the name and the address of the corpora$on appeared on the space provided
for "Maker/Borrower"; 2) Respondents Cu and Hong had only one set of signatures on the instrument, when
there should have been two, if indeed they had intended to be bound solidarily -- the first as representa$ves of
the corpora$on, and the second as themselves in their individual capaci$es; 3) they did not sign under the spaces
provided for "Co-maker," and neither were their addresses reflected there; and 4) at the back of the Promissory
Note, they signed above the words "Authorized Representa$ve."
Solidary Liability
Not Lightly Inferred
Moreover, it is axioma$c that solidary liability cannot be lightly inferred.14 Under Ar$cle 1207 of the Civil Code,
"there is a solidary liability only when the obliga$on expressly so states, or when the law or the nature of the
obliga$on requires solidarity." Since solidary liability is not clearly expressed in the Promissory Note and is not
required by law or the nature of the obliga$on in this case, no conclusion of solidary liability can be made.
Furthermore, nothing supports the alleged joint liability of the individual pe$$oners because, as correctly
pointed out by the two lower courts, the evidence shows that there is only one debtor: the corpora$on. In a joint
obliga$on, there must be at least two debtors, each of whom is liable only for a propor$onate part of the debt;
and the creditor is en$tled only to a propor$onate part of the credit.15
Moreover, it is rather late in the day to raise the alleged joint liability, as this mafer has not been pleaded before
the trial and the appellate courts. Before the lower courts, pe$$oner anchored its claim solely on the alleged
joint and several (or solidary) liability of the individual respondents. Pe$$oner must be reminded that an issue
cannot be raised for the first $me on appeal, but seasonably in the proceedings before the trial court.16
So too, the Promissory Note in ques$on is a nego$able instrument. Under Sec$on 19 of the Nego$able
Instruments Law, agents or representa$ves may sign for the principal. Their authority may be established, as in
other cases of agency. Sec$on 20 of the law provides that a person signing "for and on behalf of a [disclosed]
principal or in a representa$ve capacity x x x is not liable on the instrument if he was duly authorized."
The authority of Respondents Cu and Hong to sign for and on behalf of the corpora$on has been amply
established by the Resolu$on of Minfaco’s Board of Directors, sta$ng that "Afy. Ricardo P. Guevara (President
and Chairman), or Ms. Teresita R. Cu (Vice President), ac$ng together with Mr. Jong Won Hong (Vice President),
be as they are hereby authorized for and in behalf of the Corpora$on to: 1. Nego$ate with and obtain from
(pe$$oner) the extension of an omnibus line in the aggregate of ₱30 million x x x; and 2. Execute and deliver all
documenta$on necessary to implement all of the foregoing."17
Further, the agreement involved here is a "contract of adhesion," which was prepared en$rely by one party and
offered to the other on a "take it or leave it" basis. Following the general rule, the contract must be read against
pe$$oner, because it was the party that prepared it,18 more so because a bank is held to high standards of care in
the conduct of its business.19
In the totality of the circumstances, we hold that Respondents Cu and Hong clearly signed the Note merely as
representa$ves of Minfaco.
No Reason to Pierce
the Corporate Veil
Under certain circumstances, courts may treat a corpora$on as a mere aggroupment of persons, to whom
liability will directly afach. The dis$nct and separate corporate personality may be disregarded, inter alia, when
the corporate iden$ty is used to defeat public convenience, jus$fy a wrong, protect a fraud, or defend a crime.
Likewise, the corporate veil may be pierced when the corpora$on acts as a mere alter ego or business conduit of
a person, or when it is so organized and controlled and its affairs so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corpora$on.20 But to disregard the separate juridical
personality of a corpora$on, the wrongdoing must be clearly and convincingly established; it cannot be
presumed.21
Pe$$oner contends that the corpora$on was used to protect the fraud foisted upon it by the individual
respondents. It argues that the CA failed to consider the following badges of fraud and evident bad faith: 1) the
individual respondents misrepresented the corpora$on as solvent and financially capable of paying its loan; 2)
they knew that prices of ferrosilicon were declining in the world market when they secured the loan in June
1991; 3) not a single centavo was paid for the loan; and 4) the corpora$on suspended its opera$ons shortly aler
the loan was granted.22
Fraud refers to all kinds of decep$on -- whether through insidious machina$on, manipula$on, concealment or
misrepresenta$on -- that would lead an ordinarily prudent person into error aler taking the circumstances into
account.23 In contracts, a fraud known as dolo causante or causal fraud24 is basically a decep$on used by one
party prior to or simultaneous with the contract, in order to secure the consent of the other.25 Needless to say,
the deceit employed must be serious. In contradis$nc$on, only some par$cular or accident of the obliga$on is
referred to by incidental fraud or dolo incidente,26 or that which is not serious in character and without which the
other party would have entered into the contract anyway.27
Fraud must be established by clear and convincing evidence; mere preponderance of evidence is not
adequate.28 Bad faith, on the other hand, imports a dishonest purpose or some moral obliquity and conscious
doing of a wrong, not simply bad judgment or negligence.29 It is synonymous with fraud, in that it involves a
design to mislead or deceive another.30
Unfortunately, pe$$oner was unable to establish clearly and precisely how the alleged fraud was commifed. It
failed to establish that it was deceived into gran$ng the loans because of respondents’ misrepresenta$ons and/
or insidious ac$ons. Quite the contrary, circumstances indicate the weakness of its submission.
First, pe$$oner does not deny that the ₱5 million loan represented the consolida$on of two loans,31 granted long
before the bank required the individual respondents to execute the Promissory Note, Trust Receipt Agreement,
Quedan or Deed of Assignment. Hence, no words, acts or machina$ons arising from any of those instruments
could have been used by them prior to or simultaneous with the execu$on of the contract, or even as some
accident or par$cular of the obliga$on.
Second, pe$$oner bank was in a posi$on to verify for itself the solvency and trustworthiness of respondent
corpora$on. In fact, ordinary business prudence required it to do so before gran$ng the mul$million loans. It is of
common knowledge that, as a mafer of prac$ce, banks conduct exhaus$ve inves$ga$ons of the financial
standing of an applicant debtor, as well as appraisals of collaterals offered as securi$es for loans to ensure their
prompt and sa$sfactory payment. To uphold pe$$oner’s cry of fraud when it failed to verify the existence of the
goods covered by the Trust Receipt Agreement and the Quedan is to condone its negligence.
Judicial No)ce
of Bank Prac)ces
This point brings us to the alleged error of the appellate court in taking judicial no$ce of the prac$ce of banks in
conduc$ng background checks on borrowers and sure$es. While a court is not mandated to take judicial no$ce
of this prac$ce under Sec$on 1 of Rule 129 of the Rules of Court, it nevertheless may do so under Sec$on 2 of
the same Rule. The lafer Rule provides that a court, in its discre$on, may take judicial no$ce of "mafers which
are of public knowledge, or ought to be known to judges because of their judicial func$ons."
Thus, the Court has taken judicial no$ce of the prac$ces of banks and other financial ins$tu$ons. Precisely, it has
noted that it is their uniform prac$ce, before approving a loan, to inves$gate, examine and assess would-be
borrowers’ credit standing or real estate32 offered as security for the loan applied for.
Second Issue:
Award of Damages
The individual respondents were awarded moral and exemplary damages as well as aforney’s fees under Ar$cles
19 to 21 of the Civil Code, on the basic premise that the suit was clearly malicious and intended merely to harass.
Ar$cle 19 of the Civil Code expresses the fundamental principle of law on human conduct that a person "must, in
the exercise of his rights and in the performance of his du$es, act with jus$ce, give every one his due, and
observe honesty and good faith." Under this basic postulate, the exercise of a right, though legal by itself, must
nonetheless be done in accordance with the proper norm. When the right is exercised arbitrarily, unjustly or
excessively and results in damage to another, a legal wrong is commifed for which the wrongdoer must be held
responsible.33
To be liable under the abuse-of-rights principle, three elements must concur: a) a legal right or duty, b) its
exercise in bad faith, and c) the sole intent of prejudicing or injuring another.34 Needless to say, absence of good
faith35 must be sufficiently established.
Ar$cle 20 makes "[e]very person who, contrary to law, willfully or negligently causes damage to another" liable
for damages. Upon the other hand, held liable for damages under Ar$cle 21 is one who "willfully causes loss or
injury to another in a manner that is contrary to morals, good customs or public policy."
For damages to be properly awarded under the above provisions, it is necessary to demonstrate by clear and
convincing evidence36 that the ac$on ins$tuted by pe$$oner was clearly so unfounded and untenable as to
amount to gross and evident bad faith.37 To jus$fy an award of damages for malicious prosecu$on, one must
prove two elements: malice or sinister design to vex or humiliate and want of probable cause.38
Pe$$oner was proven wrong in impleading Spouses Guevara and Hong. Beyond that fact, however, respondents
have not established that the suit was so patently malicious as to warrant the award of damages under the Civil
Code’s Ar$cles 19 to 21, which are grounded on malice or bad faith.39 With the presump$on of law on the side of
good faith, and in the absence of adequate proof of malice, we find that pe$$oner impleaded the spouses
because it honestly believed that the conjugal partnerships had benefited from the proceeds of the loan, as
stated in their Complaint and subsequent pleadings. Its act does not amount to evident bad faith or malice;
hence, an award for damages is not proper. The adverse result of an act per se neither makes the act wrongful
nor subjects the actor to the payment of damages, because the law could not have meant to impose a penalty on
the right to li$gate.40
For the same reason, aforney’s fees cannot be granted. Ar$cle 2208 of the Civil Code states that in the absence
of a s$pula$on, aforney’s fees cannot be recovered, except in any of the following circumstances:
"(1) When exemplary damages are awarded;
"(2) When the defendant’s act or omission has compelled the plain$ff to li$gate with third persons or to incur
expenses to protect his interest;
"(3) In criminal cases of malicious prosecu$on against the plain$ff;
"(4) In case of a clearly unfounded civil ac$on or proceeding against the plain$ff;
"(5) Where the defendant acted in gross and evident bad faith in refusing to sa$sfy the plain$ff’s plainly valid,
just and demandable claim;
"(6) In ac$ons for legal support;
"(7) In ac$ons for the recovery of wages of household helpers, laborers and skilled workers;
"(8) In ac$ons for indemnity under workmen’s compensa$on and employer’s liability laws;
"(9) In a separate civil ac$on to recover civil liability arising from a crime;
"(10) When at least double judicial costs are awarded;
"(11) In any other case where the court deems it just and equitable that aforney’s fees and expenses of li$ga$on
should be recovered."
In the instant case, none of the enumerated grounds for recovery of aforney’s fees are present.
WHEREFORE, this Pe$$on is PARTIALLY GRANTED. The assailed Decision is AFFIRMED, but the award of moral
and exemplary damages as well as aforney’s fees is DELETED. No costs.
G.R. No. 145578 November 18, 2005
JOSE C. TUPAZ IV and PETRONILA C. TUPAZ, Pe$$oners,
vs.
THE COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, Respondents.
DECISION
CARPIO, J.:
The Case
This is a pe$$on for review1 of the Decision2 of the Court of Appeals dated 7 September 2000 and its Resolu$on
dated 18 October 2000. The 7 September 2000 Decision affirmed the ruling of the Regional Trial Court, Maka$,
Branch 144 in a case for estafa under Sec$on 13, Presiden$al Decree No. 115. The Court of Appeals’ Resolu$on of
18 October 2000 denied pe$$oners’ mo$on for reconsidera$on.
The Facts
Pe$$oners Jose C. Tupaz IV and Petronila C. Tupaz ("pe$$oners") were Vice-President for Opera$ons and Vice-
President/Treasurer, respec$vely, of El Oro Engraver Corpora$on ("El Oro Corpora$on"). El Oro Corpora$on had a
contract with the Philippine Army to supply the lafer with "survival bolos."
To finance the purchase of the raw materials for the survival bolos, pe$$oners, on behalf of El Oro Corpora$on,
applied with respondent Bank of the Philippine Islands ("respondent bank") for two commercial lefers of credit.
The lefers of credit were in favor of El Oro Corpora$on’s suppliers, Tanchaoco Manufacturing
Incorporated3 ("Tanchaoco Incorporated") and Maresco Rubber and Retreading Corpora$on4 ("Maresco
Corpora$on"). Respondent bank granted pe$$oners’ applica$on and issued Lefer of Credit No. 2-00896-3 for
₱564,871.05 to Tanchaoco Incorporated and Lefer of Credit No. 2-00914-5 for ₱294,000 to Maresco Corpora$on.
Simultaneous with the issuance of the lefers of credit, pe$$oners signed trust receipts in favor of respondent
bank. On 30 September 1981, pe$$oner Jose C. Tupaz IV ("pe$$oner Jose Tupaz") signed, in his personal
capacity, a trust receipt corresponding to Lefer of Credit No. 2-00896-3 (for ₱564,871.05). Pe$$oner Jose Tupaz
bound himself to sell the goods covered by the lefer of credit and to remit the proceeds to respondent bank, if
sold, or to return the goods, if not sold, on or before 29 December 1981.
On 9 October 1981, pe$$oners signed, in their capaci$es as officers of El Oro Corpora$on, a trust receipt
corresponding to Lefer of Credit No. 2-00914-5 (for ₱294,000). Pe$$oners bound themselves to sell the goods
covered by that lefer of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if
not sold, on or before 8 December 1981.
Aler Tanchaoco Incorporated and Maresco Corpora$on delivered the raw materials to El Oro Corpora$on,
respondent bank paid the former ₱564,871.05 and ₱294,000, respec$vely.
Pe$$oners did not comply with their undertaking under the trust receipts. Respondent bank made several
demands for payments but El Oro Corpora$on made par$al payments only. On 27 June 1983 and 28 June 1983,
respondent bank’s counsel5 and its representa$ve6 respec$vely sent final demand lefers to El Oro Corpora$on. El
Oro Corpora$on replied that it could not fully pay its debt because the Armed Forces of the Philippines had
delayed paying for the survival bolos.
Respondent bank charged pe$$oners with estafa under Sec$on 13, Presiden$al Decree No. 115 ("Sec$on
13")7 or Trust Receipts Law ("PD 115"). Aler preliminary inves$ga$on, the then Maka$ Fiscal’s Office found
probable cause to indict pe$$oners. The Maka$ Fiscal’s Office filed the corresponding Informa$ons (docketed as
Criminal Case Nos. 8848 and 8849) with the Regional Trial Court, Maka$, on 17 January 1984 and the cases were
raffled to Branch 144 ("trial court") on 20 January 1984. Pe$$oners pleaded not guilty to the charges and trial
ensued. During the trial, respondent bank presented evidence on the civil aspect of the cases.
The Ruling of the Trial Court
On 16 July 1992, the trial court rendered judgment acquimng pe$$oners of estafa on reasonable doubt.
However, the trial court found pe$$oners solidarily liable with El Oro Corpora$on for the balance of El Oro
Corpora$on’s principal debt under the trust receipts. The disposi$ve por$on of the trial court’s Decision
provides:
WHEREFORE, judgment is hereby rendered ACQUITTING both accused Jose C. Tupaz, IV and Petronila Tupaz
based upon reasonable doubt.
However, El Oro Engraver Corpora$on, Jose C. Tupaz, IV and Petronila Tupaz, are hereby ordered, jointly and
solidarily, to pay the Bank of the Philippine Islands the outstanding principal obliga$on of ₱624,129.19 (as of
January 23, 1992) with the s$pulated interest at the rate of 18% per annum; plus 10% of the total amount due as
aforney’s fees; ₱5,000.00 as expenses of li$ga$on; and costs of the suit.8
In holding pe$$oners civilly liable with El Oro Corpora$on, the trial court held:
[S]ince the civil ac$on for the recovery of the civil liability is deemed impliedly ins$tuted with the criminal ac$on,
as in fact the prosecu$on thereof was ac$vely handled by the private prosecutor, the Court believes that the El
Oro Engraver Corpora$on and both accused Jose C. Tupaz and Petronila Tupaz, jointly and solidarily should be
held civilly liable to the Bank of the Philippine Islands. The mere fact that they were unable to collect in full from
the AFP and/or the Department of Na$onal Defense the proceeds of the sale of the delivered survival bolos
manufactured from the raw materials covered by the trust receipt agreements is no valid defense to the civil
claim of the said complainant and surely could not wipe out their civil obliga$on. Aler all, they are free to
ins$tute an ac$on to collect the same.9
Pe$$oners appealed to the Court of Appeals. Pe$$oners contended that: (1) their acquifal "operates to
ex$nguish [their] civil liability" and (2) at any rate, they are not personally liable for El Oro Corpora$on’s debts.
The Ruling of the Court of Appeals
In its Decision of 7 September 2000, the Court of Appeals affirmed the trial court’s ruling. The appellate court
held:
It is clear from [Sec$on 13, PD 115] that civil liability arising from the viola$on of the trust receipt agreement is
dis$nct from the criminal liability imposed therein. In the case of Vintola vs. Insular Bank of Asia and
America, our Supreme Court held that acquifal in the estafa case (P.D. 115) is no bar to the ins$tu$on of a civil
ac$on for collec$on. This is because in such cases, the civil liability of the accused does not arise ex delicto but
rather based ex contractu and as such is dis$nct and independent from any criminal proceedings and may
proceed regardless of the result of the lafer. Thus, an independent civil ac$on to enforce the civil liability may be
filed against the corpora$on aside from the criminal ac$on against the responsible officers or employees.
xxx
[W]e hereby hold that the acquifal of the accused-appellants from the criminal charge of estafa did not operate
to ex$nguish their civil liability under the lefer of credit-trust receipt arrangement with plain$ff-appellee, with
which they dealt both in their personal capacity and as officers of El Oro Engraver Corpora$on, the lefer of credit
applicant and principal debtor.
Appellants argued that they cannot be held solidarily liable with their corpora$on, El Oro Engraver Corpora$on,
alleging that they executed the subject documents including the trust receipt agreements only in their capacity as
such corporate officers. They said that these instruments are mere pro-forma and that they executed these
instruments on the strength of a board resolu$on of said corpora$on authorizing them to apply for the opening
of a lefer of credit in favor of their suppliers as well as to execute the other documents necessary to accomplish
the same.
Such conten$on, however, is contradicted by the evidence on record. The trust receipt agreement indicated in
clear and unmistakable terms that the accused signed the same as surety for the corpora$on and that they
bound themselves directly and immediately liable in the event of default with respect to the obliga$on under the
lefers of credit which were made part of the said agreement, without need of demand. Even in the applica$on
for the lefer of credit, it is likewise clear that the undertaking of the accused is that of a surety as indicated [in]
the following words: "In considera$on of your establishing the commercial lefer of credit herein applied for
substan$ally in accordance with the foregoing, the undersigned Applicant and Surety hereby agree, jointly and
severally, to each and all s$pula$ons, provisions and condi$ons on the reverse side hereof."
xxx
Having contractually agreed to hold themselves solidarily liable with El Oro Engraver Corpora$on under the
subject trust receipt agreements with appellee Bank of the Philippine Islands, herein accused-appellants may not,
therefore, invoke the separate legal personality of the said corpora$on to evade their civil liability under the
lefer of credit-trust receipt arrangement with said appellee, notwithstanding their acquifal in the criminal cases
filed against them. The trial court thus did not err in holding the appellants solidarily liable with El Oro Engraver
Corpora$on for the outstanding principal obliga$on of ₱624,129.19 (as of January 23, 1992) with the s$pulated
interest at the rate of 18% per annum, plus 10% of the total amount due as aforney’s fees, ₱5,000.00 as
expenses of li$ga$on and costs of suit.10
Hence, this pe$$on. Pe$$oners contend that:
1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THE CIVIL LIABILITY OF PETITIONERS[;]
2. GRANTING WITHOUT ADMITTING THAT THE QUESTIONED OBLIGATION WAS INCURRED BY THE CORPORATION,
THE SAME IS NOT YET DUE AND PAYABLE;
3. GRANTING THAT THE QUESTIONED OBLIGATION WAS ALREADY DUE AND PAYABLE, xxx PETITIONERS ARE NOT
PERSONALLY LIABLE TO xxx RESPONDENT BANK, SINCE THEY SIGNED THE LETTER[S] OF CREDIT AS ‘SURETY’ AS
OFFICERS OF EL ORO, AND THEREFORE, AN EXCLUSIVE LIABILITY OF EL ORO; [AND]
4. IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE SIMULATED AND VOID.11
The Issues
The pe$$on raises these issues:
(1) Whether pe$$oners bound themselves personally liable for El Oro Corpora$on’s debts under the trust
receipts;
(2) If so —
(a) whether pe$$oners’ liability is solidary with El Oro Corpora$on; and
(b) whether pe$$oners’ acquifal of estafa under Sec$on 13, PD 115 ex$nguished their civil liability.
The Ruling of the Court
The pe$$on is partly meritorious. We affirm the Court of Appeals’ ruling with the modifica$on that pe$$oner
Jose Tupaz is liable as guarantor of El Oro Corpora$on’s debt under the trust receipt dated 30 September 1981.
On Pe$$oners’ Undertaking Under
the Trust Receipts
A corpora$on, being a juridical en$ty, may act only through its directors, officers, and employees. Debts incurred
by these individuals, ac$ng as such corporate agents, are not theirs but the direct liability of the corpora$on they
represent.12 As an excep$on, directors or officers are personally liable for the corpora$on’s debts only if they so
contractually agree or s$pulate.13
Here, the dorsal side of the trust receipts contains the following s$pula$on:
To the Bank of the Philippine Islands
In considera$on of your releasing to ………………………………… under the terms of this Trust Receipt the goods
described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or
sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way
connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this
undertaking on the part of the said ……………………………………. I/we further agree that my/our liability in this
guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or
exhaust any legal remedies that you may have against the said …………………………………. before making demand
upon me/us.14 (Capitaliza$on in the original)
In the trust receipt dated 9 October 1981, pe$$oners signed below this clause as officers of El Oro Corpora$on.
Thus, under pe$$oner Petronila Tupaz’s signature are the words "Vice-Pres–Treasurer" and under pe$$oner Jose
Tupaz’s signature are the words "Vice-Pres–Opera$ons." By so signing that trust receipt, pe$$oners did not bind
themselves personally liable for El Oro Corpora$on’s obliga$on. In Ong v. Court of Appeals,15 a corporate
representa$ve signed a solidary guarantee clause in two trust receipts in his capacity as corporate representa$ve.
There, the Court held that the corporate representa$ve did not undertake to guarantee personally the payment
of the corpora$on’s debts, thus:
[P]e$$oner did not sign in his personal capacity the solidary guarantee clause found on the dorsal por$on of the
trust receipts. Pe$$oner placed his signature aler the typewrifen words "ARMCO INDUSTRIAL CORPORATION"
found at the end of the solidary guarantee clause. Evidently, pe$$oner did not undertake to guaranty personally
the payment of the principal and interest of ARMAGRI’s debt under the two trust receipts.
Hence, for the trust receipt dated 9 October 1981, we sustain pe$$oners’ claim that they are not personally
liable for El Oro Corpora$on’s obliga$on.
For the trust receipt dated 30 September 1981, the dorsal por$on of which pe$$oner Jose Tupaz signed alone,
we find that he did so in his personal capacity. Pe$$oner Jose Tupaz did not indicate that he was signing as El Oro
Corpora$on’s Vice-President for Opera$ons. Hence, pe$$oner Jose Tupaz bound himself personally liable for El
Oro Corpora$on’s debts. Not being a party to the trust receipt dated 30 September 1981, pe$$oner Petronila
Tupaz is not liable under such trust receipt.
The Nature of Pe@@oner Jose Tupaz’s Liability
Under the Trust Receipt Dated 30 September 1981
As stated, the dorsal side of the trust receipt dated 30 September 1981 provides:
To the Bank of the Philippine Islands
In considera$on of your releasing to ………………………………… under the terms of this Trust Receipt the goods
described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or
sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way
connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this
undertaking on the part of the said ……………………………………. I/we further agree that my/our liability in
this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or
exhaust any legal remedies that you may have against the said ……………………………………………. Before making
demand upon me/us. (Underlining supplied; capitaliza$on in the original)
The lower courts interpreted this to mean that pe$$oner Jose Tupaz bound himself solidarily liable with El Oro
Corpora$on for the lafer’s debt under that trust receipt.
This is error.
In Pruden@al Bank v. Intermediate Appellate Court,16 the Court interpreted a substan$ally iden$cal clause17 in a
trust receipt signed by a corporate officer who bound himself personally liable for the corpora$on’s obliga$on.
The pe$$oner in that case contended that the s$pula$on "we jointly and severally agree and undertake"
rendered the corporate officer solidarily liable with the corpora$on. We dismissed this claim and held the
corporate officer liable as guarantor only. The Court further ruled that had there been more than one signatories
to the trust receipt, the solidary liability would exist between the guarantors. We held:
Pe$$oner [Pruden$al Bank] insists that by virtue of the clear wording of the xxx clause "x x x we jointly and
severally agree and undertake x x x," and the concluding sentence on exhaus$on, [respondent] Chi’s liability
therein is solidary.
xxx
Our xxx reading of the ques$oned solidary guaranty clause yields no other conclusion than that the obliga$on of
Chi is only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of
exhaus$on, which, nevertheless, is ineffec$ve in this case because the space therein for the party whose
property may not be exhausted was not filled up. Under Ar$cle 2058 of the Civil Code, the defense of exhaus$on
(excussion) may be raised by a guarantor before he may be held liable for the obliga$on. Pe$$oner likewise
admits that the ques$oned provision is a solidary guaranty clause, thereby clearly dis$nguishing it from a
contract of surety. It, however, described the guaranty as solidary between the guarantors; this would have been
correct if two (2) guarantors had signed it. The clause "we jointly and severally agree and undertake" refers to the
undertaking of the two (2) par$es who are to sign it or to the liability exis$ng between themselves. It does not
refer to the undertaking between either one or both of them on the one hand and the pe$$oner on the other
with respect to the liability described under the trust receipt. xxx
Furthermore, any doubt as to the import or true intent of the solidary guaranty clause should be resolved against
the pe$$oner. The trust receipt, together with the ques$oned solidary guaranty clause, is on a form draled and
prepared solely by the pe$$oner; Chi’s par$cipa$on therein is limited to the affixing of his signature thereon. It
is, therefore, a contract of adhesion; as such, it must be strictly construed against the party responsible for its
prepara$on.18 (Underlining supplied; italiciza$on in the original)
However, respondent bank’s suit against pe$$oner Jose Tupaz stands despite the Court’s finding that he is liable
as guarantor only. First, excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor
can s$ll demand deferment of the execu$on of the judgment against him un$l aler the assets of the principal
debtor shall have been exhausted.19 Second, the benefit of excussion may be waived.20 Under the trust receipt
dated 30 September 1981, pe$$oner Jose Tupaz waived excussion when he agreed that his "liability in [the]
guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank]
to take any steps or exhaust any legal remedies xxx." The clear import of this s$pula$on is that pe$$oner Jose
Tupaz waived the benefit of excussion under his guarantee.
As guarantor, pe$$oner Jose Tupaz is liable for El Oro Corpora$on’s principal debt and other accessory liabili$es
(as s$pulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981. That
trust receipt (and the trust receipt dated 9 October 1981) provided for payment of aforney’s fees equivalent to
10% of the total amount due and an "interest at the rate of 7% per annum, or at such other rate as the bank may
fix, from the date due un$l paid xxx."21 In the applica$ons for the lefers of credit, the par$es s$pulated that
drals drawn under the lefers of credit are subject to interest at the rate of 18% per annum.22
The lower courts correctly applied the 18% interest rate per annum considering that the face value of each of the
trust receipts is based on the drals drawn under the lefers of credit. Based on the guidelines laid down in
Eastern Shipping Lines, Inc. v. Court of Appeals,23 the accrued s$pulated interest earns 12% interest per
annum from the $me of the filing of the Informa$ons in the Maka$ Regional Trial Court on 17 January 1984.
Further, the total amount due as of the date of the finality of this Decision will earn interest at 18% per
annum un$l fully paid since this was the s$pulated rate in the applica$ons for the lefers of credit.24
The accoun$ng of El Oro Corpora$on’s debts as of 23 January 1992, which the trial court used, is no longer useful
as it does not specify the amounts owing under each of the trust receipts. Hence, in the execu$on of this
Decision, the trial court shall compute El Oro Corpora$on’s total liability under each of the trust receipts dated 30
September 1981 and 9 October 1981 based on the following formula:25
TOTAL AMOUNT DUE = [principal + interest + interest on interest] – par$al payments made26
Interest = principal x 18 % per annum x no. of years from due date27 un$l finality of judgment
Interest on interest = interest computed as of the filing of the complaint (17 January 1984) x 12% x no. of years
un$l finality of judgment
Aforney’s fees is 10% of the total amount computed as of finality of judgment
Total amount due as of the date of finality of judgment will earn an interest of 18% per annum un$l fully paid.
In so delega$ng this task, we reiterate what we said in Rizal Commercial Banking Corpora@on v. Alfa RTW
Manufacturing Corpora@on28 where we also ordered the trial court to compute the amount of obliga$on due
based on a formula substan$ally similar to that indicated above:
The total amount due xxx [under] the xxx contract[] xxx may be easily determined by the trial court through a
simple mathema$cal computa$on based on the formula specified above. Mathema$cs is an exact science, the
applica$on of which needs no further proof from the par$es.
Pe@@oner Jose Tupaz’s Acquibal did not
Ex@nguish his Civil Liability
The rule is that where the civil ac$on is impliedly ins$tuted with the criminal ac$on, the civil liability is not
ex$nguished by acquifal —
[w]here the acquifal is based on reasonable doubt xxx as only preponderance of evidence is required in civil
cases; where the court expressly declares that the liability of the accused is not criminal but only civil in nature
xxx as, for instance, in the felonies of estafa, thel, and malicious mischief commifed by certain rela$ves who
thereby incur only civil liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise
from or is not based upon the criminal act of which the accused was acquifed xxx.29 (Emphasis supplied)
Here, respondent bank chose not to file a separate civil ac$on30 to recover payment under the trust receipts.
Instead, respondent bank sought to recover payment in Criminal Case Nos. 8848 and 8849. Although the trial
court acquifed pe$$oner Jose Tupaz, his acquifal did not ex$nguish his civil liability. As the Court of Appeals
correctly held, his liability arose not from the criminal act of which he was acquifed (ex delito) but from the trust
receipt contract (ex contractu) of 30 September 1981. Pe$$oner Jose Tupaz signed the trust receipt of 30
September 1981 in his personal capacity.
On the other Mabers Pe@@oners Raise
Pe$$oners raise for the first $me in this appeal the conten$on that El Oro Corpora$on’s debts under the trust
receipts are not yet due and demandable. Alterna$vely, pe$$oners assail the trust receipts as simulated. These
asser$ons have no merit. Under the terms of the trust receipts dated 30 September 1981 and 9 October 1981, El
Oro Corpora$on’s debts fell due on 29 December 1981 and 8 December 1981, respec$vely.
Neither is there merit to pe$$oners’ claim that the trust receipts were simulated. During the trial, pe$$oners did
not deny applying for the lefers of credit and subsequently execu$ng the trust receipts to secure payment of the
drals drawn under the lefers of credit.
WHEREFORE, we GRANT the pe$$on in part. We AFFIRM the Decision of the Court of Appeals dated 7
September 2000 and its Resolu$on dated 18 October 2000 with the following MODIFICATIONS:
1) El Oro Engraver Corpora$on is principally liable for the total amount due under the trust receipts dated 30
September 1981 and 9 October 1981, as computed by the Regional Trial Court, Maka$, Branch 144, upon finality
of this Decision, based on the formula provided above;
2) Pe$$oner Jose C. Tupaz IV is liable for El Oro Engraver Corpora$on’s total debt under the trust receipt dated 30
September 1981 as thus computed by the Regional Trial Court, Maka$, Branch 144; and
3) Pe$$oners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust receipt dated 9 October 1981.
SO ORDERED.
G.R. No. 93073 December 21, 1992
REPUBLIC PLANTERS BANK, pe$$oner,
vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.
CAMPOS, JR., J.:
This is an appeal by way of a Pe$$on for Review on Cer)orari from the decision * of the Court of Appeals in CA
G.R. CV No. 07302, en$tled "Republic Planters Bank.Plain$ff-Appellee vs. Pinch Manufacturing Corpora$on, et al.,
Defendants, and Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448
except that it completely absolved Fermin Canlas from liability under the promissory notes and reduced the
award for damages and aforney's fees. The RTC decision, rendered on June 20, 1985, is quoted hereunder:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plain$ff
Republic Planters Bank, ordering defendant Pinch Manufacturing Corpora$on (formerly
Worldwide Garment Manufacturing, Inc.) and defendants Shozo Yamaguchi and Fermin
Canlas to pay, jointly and severally, the plain$ff bank the following sums with interest thereon
at 16% per annum from the dates indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January
29, 1981 un$l fully paid; under promissory note (Exhibit "B"), the sum of P40,000.00 with
interest from November 27, 1980; under the promissory note (Exhibit "C"), the sum of
P166,466.00 which interest from January 29, 1981; under the promissory note (Exhibit "E"),
the sum of P86,130.31 with interest from January 29, 1981; under the promissory note
(Exhibit "G"), the sum of P12,703.70 with interest from November 27, 1980; under the
promissory note (Exhibit "H"), the sum of P281,875.91 with interest from January 29, 1981;
and under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from
January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corpora$on
(formerly named Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi are
ordered to pay jointly and severally, the plain$ff bank the sum of P367,000.00 with interest of
16% per annum from January 29, 1980 un$l fully paid
Under the promissory note (Exhibit "F") defendant corpora$on Pinch (formerly Worldwide) is
ordered to pay the plain$ff bank the sum of P140,000.00 with interest at 16% per annum
from November 27, 1980 un$l fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the plain$ff the sum of
P231,120.81 with interest at 12% per annum from July 1, 1981, un$l fully paid and the sum of
P331,870.97 with interest from March 28, 1981, un$l fully paid.
All the defendants are also ordered to pay, jointly and severally, the plain$ff the sum of
P100,000.00 as and for reasonable aforney's fee and the further sum equivalent to 3% per
annum of the respec$ve principal sums from the dates above stated as penalty charge un$l
fully paid, plus one percent (1%) of the principal sums as service charge.
With costs against the defendants.
SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the Court
Appeals). His conten$on was that inasmuch as he signed the promissory notes in his capacity as officer of the
defunct Worldwide Garment Manufacturing, Inc, he should not be held personally liable for such authorized
corporate acts that he performed. It is now the conten$on of the pe$$oner Republic Planters Bank that having
uncondi$onally signed the nine (9) promissory notes with Shozo Yamaguchi, jointly and severally, defendant
Fermin Canlas is solidarity liable with Shozo Yamaguchi on each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas
were President/Chief Opera$ng Officer and Treasurer respec$vely, of Worldwide Garment Manufacturing, Inc..
By virtue of Board Resolu$on No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent
Fermin Canlas were authorized to apply for credit facili$es with the pe$$oner Republic Planters Bank in the
forms of export advances and lefers of credit/trust receipts accommoda$ons. Pe$$oner bank issued nine
promissory notes, marked as Exhibits A to I inclusive, each of which were uniformly worded in the following
manner:
___________, aler date, for value received, I/we, jointly and severaIly promise to pay to the
ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of
___________ PESOS(....) Philippine Currency...
On the right bofom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin
Canlas above their printed names with the phrase "and (in) his personal capacity" typewrifen below. At the
bofom of the promissory notes appeared: "Please credit proceeds of this note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line which ran horizontally across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. was
apparently rubber stamped above the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch
Manufacturing Corpora$on.
On February 5, 1982, pe$$oner bank filed a complaint for the recovery of sums of money covered among others,
by the nine promissory notes with interest thereon, plus aforney's fees and penalty charges. The complainant
was originally brought against Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to
drop Worldwide Manufacturing, Inc. as defendant and subs$tute Pinch Manufacturing Corpora$on it its place.
Defendants Pinch Manufacturing Corpora$on and Shozo Yamaguchi did not file an Amended Answer and failed to
appear at the scheduled pre-trial conference despite due no$ce. Only private respondent Fermin Canlas filed an
Amended Answer wherein he, denied having issued the promissory notes in ques$on since according to him, he
was not an officer of Pinch Manufacturing Corpora$on, but instead of Worldwide Garment Manufacturing, Inc.,
and that when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same
were in blank, the typewrifen entries not appearing therein prior to the $me he affixed his signature.
In the mind of this Court, the only issue material to the resolu$on of this appeal is whether private respondent
Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corpora$on and Shozo
Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his
signature for the following reasons:
The promissory motes are nego$able instruments and must be governed by the Nego$able Instruments Law. 2
Under the Nego$able lnstruments Law, persons who write their names on the face of promissory notes are
makers and are liable as such.3 By signing the notes, the maker promises to pay to the order of the payee or any
holder 4 according to the tenor thereof.5 Based on the above provisions of law, there is no denying that private
respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability
arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed
to be jointly and severally liable thereon.6 An instrument which begins" with "I" ,We" , or "Either of us" promise
to, pay, when signed by two or more persons, makes them solidarily liable. 7 The fact that the singular pronoun is
used indicates that the promise is individual as to each other; meaning that each of the co-signers is deemed to
have made an independent singular promise to pay the notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without
reason for ambiguity, by the presence of the phrase "joint and several" as describing the uncondi$onal promise
to pay to the order of Republic Planters Bank. A joint and several note is one in which the makers bind
themselves both jointly and individually to the payee so that all may be sued together for its enforcement, or the
creditor may select one or more as the object of the suit. 8 A joint and several obliga$on in common law
corresponds to a civil law solidary obliga$on; that is, one of several debtors bound in such wise that each is liable
for the en$re amount, and not merely for his propor$onate share. 9 By making a joint and several promise to pay
to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the solidary liability of a
debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch
Manufacturing Corpora$on as solidary debtors.
As to whether the interpola$on of the phrase "and (in) his personal capacity" below the signatures of the makers
in the notes will affect the liability of the makers, We do not find it necessary to resolve and decide, because it is
immaterial and will not affect to the liability of private respondent Fermin Canlas as a joint and several debtor of
the notes. With or without the presence of said phrase, private respondent Fermin Canlas is primarily liable as a
co-maker of each of the notes and his liability is that of a solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corpora$on's Ar$cles of
Incorpora$on effec$ng a change of corporate name, in this case from Worldwide Garment manufacturing Inc to
Pinch Manufacturing Corpora$on ex$nguished the personality of the original corpora$on.
The corpora$on, upon such change in its name, is in no sense a new corpora$on, nor the successor of the
original corpora$on. It is the same corpora$on with a different name, and its character is in no respect
changed.10
A change in the corporate name does not make a new corpora$on, and whether effected by special act or under
a general law, has no affect on the iden$ty of the corpora$on, or on its property, rights, or liabili)es. 11
The corpora$on con$nues, as before, responsible in its new name for all debts or other liabili$es which it had
previously contracted or incurred.12
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or
contracts entered into by officers of the corpora$on, if duly authorized. Inasmuch as such officers acted in their
capacity as agent of the old corpora$on and the change of name meant only the con$nua$on of the old juridical
en$ty, the corpora$on bearing the same name is s$ll bound by the acts of its agents if authorized by the Board.
Under the Nego$able Instruments Law, the liability of a person signing as an agent is specifically provided for as
follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or
a person adds to his signature words indica$ng that he signs for or on behalf of a principal ,
or in a representa$ve capacity, he is not liable on the instrument if he was duly authorized;
but the mere addi$on of words describing him as an agent, or as filling a representa$ve
character, without disclosing his principal, does not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is ac$ng in a
representa$ve capacity or the name of the third party for whom he might have acted as agent, the agent is
personally liable to take holder of the instrument and cannot be permifed to prove that he was merely ac$ng as
agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability. 13
On the private respondent's conten$on that the promissory notes were delivered to him in blank for his
signature, we rule otherwise. A careful examina$on of the notes in ques$on shows that they are the stereotype
printed form of promissory notes generally used by commercial banking ins$tu$ons to be signed by their clients
in obtaining loans. Such printed notes are incomplete because there are blank spaces to be filled up on material
par$culars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity date. The
terms and condi$ons of the loan are printed on the note for the borrower-debtor 's perusal. An incomplete
instrument which has been delivered to the borrower for his signature is governed by Sec$on 14 of the
Nego$able Instruments Law which provides, in so far as relevant to this case, thus:
Sec. 14. Blanks: when may be filled. — Where the instrument is wan$ng in any material
par$cular, the person in possesion thereof has a prima facie authority to complete it by filling
up the blanks therein. ... In order, however, that any such instrument when completed may
be enforced against any person who became a party thereto prior to its comple$on, it must
be filled up strictly in accordance with the authority given and within a reasonable $me...
Proof that the notes were signed in blank was only the self-serving tes$mony of private respondent Fermin
Canlas, as determined by the trial court, so that the trial court ''doubts the defendant (Canlas) signed in blank the
promissory notes". We chose to believe the bank's tes$mony that the notes were filled up before they were
given to private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint and
several promissors. For signing the notes above their typewrifen names, they bound themselves as
uncondi$onal makers. We take judicial no$ce of the customary procedure of commercial banks of requiring their
clientele to sign promissory notes prepared by the banks in printed form with blank spaces already filled up as
per agreed terms of the loan, leaving the borrowers-debtors to do nothing but read the terms and condi$ons
therein printed and to sign as makers or co-makers. When the notes were given to private respondent Fermin
Canlas for his signature, the notes were complete in the sense that the spaces for the material par$cular had
been filled up by the bank as per agreement. The notes were not incomplete instruments; neither were they
given to private respondent Fermin Canlas in blank as he claims. Thus, Sec$on 14 of the Nego$abIe Instruments
Law is not applicable.
The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the
promissory notes from 16% to 12% per annum does not squarely apply to the instant pe$$on. In the abovecited
case, the rate of 12% was applied to forebearances of money, goods or credit and court judgemets thereon, only
in the absence of any s$pula$on between the par$es.
In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which
interest rate the plain$ff may at any $me without no$ce, raise within the limits allowed law. And so, as of
February 16, 1984 , the plain$ff had fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presiden$al Decree No. 116, are
applicable only to interests by way of compensa$on for the use or forebearance of money. Ar$cle 2209 of the
Civil Code, on the other hand, governs interests by way of damages.15 This fine dis$nc$on was not taken into
considera$on by the appellate court, which instead made a general statement that the interest rate be at 12%
per annum.
Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by
the Usury Law, the appellate court erred in limi$ng the interest rates at 12% per annum. Central Bank Circular
No. 905, Series of 1982 removed the Usury Law ceiling on interest rates. 16
In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the
mafer, the decision of the respondent: Court of Appeals absolving private respondent Fermin Canlas is
REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and
severally liable on all the nine promissory notes with the following sums and at 16% interest per annum from the
dates indicated, to wit:
Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29, 1981
un$l fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest from November
27, 1980: under the promissory note denominated as Exhibit C, the amount of P166,466.00 with interest from
January 29, 1981; under the promissory note denominated as Exhibit D, the amount of P367,000.00 with interest
from January 29, 1981 un$l fully paid; under the promissory note marked as Exhibit E, the amount of P86,130.31
with interest from January 29, 1981; under the promissory note marked as Exhibit F, the sum of P140,000.00 with
interest from November 27, 1980 un$l fully paid; under the promissory note marked as Exhibit G, the amount of
P12,703.70 with interest from November 27, 1980; the promissory note marked as Exhibit H, the sum of
P281,875.91 with interest from January 29, 1981; and the promissory note marked as Exhibit I, the sum of
P200,000.00 with interest on January 29, 1981.
The liabili$es of defendants Pinch Manufacturing Corpora$on (formerly Worldwide Garment Manufacturing, Inc.)
and Shozo Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in
accordance with the judgment rendered by the Court a quo.
With respect to aforney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby
held jointly and solidarity liable with defendants for the amounts found, by the Court a quo. With costs against
private respondent.
SO ORDERED.
G.R. No. 141994 January 17, 2005
FILIPINAS BROADCASTING NETWORK, INC., pe$$oner,
vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and
ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This pe$$on for review1 assails the 4 January 1999 Decision2 and 26 January 2000 Resolu$on of the Court of
Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modifica$on the 14 December 1992
Decision3 of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held
Filipinas Broadcas$ng Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel
and ordered them to solidarily pay Ago Medical and Educa$onal Center-Bicol Chris$an College of Medicine moral
damages, aforney’s fees and costs of suit.
The Antecedents
"Exposé" is a radio documentary4 program hosted by Carmelo ‘Mel’ Rima ("Rima") and Hermogenes ‘Jun’ Alegre
("Alegre").5 Exposé is aired every morning over DZRC-AM which is owned by Filipinas Broadcas$ng Network, Inc.
("FBNI"). "Exposé" is heard over Legazpi City, the Albay municipali$es and other Bicol areas.6
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educa$onal Center-Bicol Chris$an College of Medicine ("AMEC")
and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of
AMEC’s College of Medicine, filed a complaint for damages7 against FBNI, Rima and Alegre on 27 February 1990.
Quoted are por$ons of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them
to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects
including those they have passed already. Several students had approached me sta$ng that they had consulted
with the DECS which told them that there is no such regula$on. If [there] is no such regula$on why is AMEC
doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS.
xxx
Third: Students are required to take and pay for the subject even if the subject does not have an instructor -
such greed for money on the part of AMEC’s administraaon. Take the subject Anatomy: students would pay for
the subject upon enrolment because it is offered by the school. However there would be no instructor for such
subject. Students would be informed that course would be moved to a later date because the school is s$ll
searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educa$onal Center has survived and has been surviving for the
past few years since its incep$on because of funds support from foreign founda$ons. If you will take a look at the
AMEC premises you’ll find out that the names of the buildings there are foreign soundings. There is a McDonald
Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of
foreign founda$ons for AMEC is substan$al, isn’t it? With the report which is the basis of the expose in DZRC
today, it would be very easy for detractors and enemies of the Ago family to stop the flow of support of foreign
founda$ons who assist the medical school on the basis of the lafer’s purpose. But if the purpose of the
ins$tu$on (AMEC) is to deceive students at cross purpose with its reason for being it is possible for these foreign
founda$ons to lil or suspend their dona$ons temporarily.8
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Insatute of
Mass Communicaaon in their effort to minimize expenses in terms of salary are absorbing or conanues to
accept "rejects". For example how many teachers in AMEC are former teachers of Aquinas University but were
removed because of immorality? Does it mean that the present administra$on of AMEC have the total definite
moral founda$on from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a
dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of
intellect. The Dean of Student Affairs of AMEC is Jus$ta Lola, as the family name implies. She is too old to work,
being an old woman. Is the AMEC administra$on exploi$ng the very [e]nterprising or compromising and
undemanding Lola? Could it be that AMEC is just pa$ently making use of Dean Jus$ta Lola were if she is very old.
As in atmospheric situa$on – zero visibility – the plane cannot land, meaning she is very old, low pay follows. By
the way, Dean Jus$ta Lola is also the chairman of the commifee on scholarship in AMEC. She had re$red from
Bicol University a long $me ago but AMEC has pa$ently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What
does this mean? Immoral and physically misfits as teachers.
May I say I’m sorry to Dean Jus$ta Lola. But this is the truth. The truth is this, that your are no longer fit to teach.
You are too old. As an avia$on, your case is zero visibility. Don’t insist.
xxx Why did AMEC s$ll absorb her as a teacher, a dean, and chairman of the scholarship commifee at that. The
reason is prac$cal cost saving in salaries, because an old person is not fas$dious, so long as she has money to buy
the ingredient of beetle juice. The elderly can get by – that’s why she (Lola) was taken in as Dean.
xxx
xxx On our end our task is to afend to the interests of students. It is likely that the students would be influenced
by evil. When they become members of society outside of campus will be liabiliaes rather than assets. What do
you expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposi$on? What
do you expect from a student who aside from peculiar problems – because not all students are rich – in their
struggle to improve their social status are even more burdened with false regula$ons. xxx9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning ins$tu$on. With the supposed exposés, FBNI,
Rima and Alegre "transmifed malicious imputa$ons, and as such, destroyed plain$ffs’ (AMEC and Ago)
reputa$on." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the
selec$on and supervision of its employees, par$cularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Afy. Rozil Lozares, filed an Answer10 alleging that the
broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a
sense of public duty to report the "goings-on in AMEC, [which is] an ins$tu$on imbued with public interest."
Therealer, trial ensued. During the presenta$on of the evidence for the defense, Afy. Edmundo Cea,
collabora$ng counsel of Afy. Lozares, filed a Mo$on to Dismiss11 on FBNI’s behalf. The trial court denied the
mo$on to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the
selec$on and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster
should (1) file an applica$on; (2) be interviewed; and (3) undergo an appren$ceship and training program aler
passing the interview. FBNI likewise claimed that it always reminds its broadcasters to "observe truth, fairness
and objec$vity in their broadcasts and to refrain from using libelous and indecent language." Moreover, FBNI
requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accredita$on test and to
secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision12 finding FBNI and Alegre liable for libel except Rima.
The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters’ claim that
their uferances were the result of straight repor$ng because it had no factual basis. The broadcasters did not
even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court
found that FBNI failed to exercise diligence in the selec$on and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rima’s only par$cipa$on was when he agreed with
Alegre’s exposé. The trial court found Rima’s statement within the "bounds of freedom of speech, expression,
and of the press." The disposi$ve por$on of the decision reads:
WHEREFORE, premises considered, this court finds for the plain$ff. Considering the degree of damages caused
by the controversial uuerances, which are not found by this court to be really very serious and damaging, and
there being no showing that indeed the enrollment of plainaff school dropped, defendants Hermogenes "Jun"
Alegre, Jr. and Filipinas Broadcas$ng Network (owner of the radio sta$on DZRC), are hereby jointly and severally
ordered to pay plain$ff Ago Medical and Educa$onal Center-Bicol Chris$an College of Medicine (AMEC-BCCM)
the amount of ₱300,000.00 moral damages, plus ₱30,000.00 reimbursement of aforney’s fees, and to pay the
costs of suit.
SO ORDERED. 13 (Emphasis supplied)
Both par$es, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the
decision to the Court of Appeals. The Court of Appeals affirmed the trial court’s judgment with modifica$on. The
appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Ago’s claim for
damages and aforney’s fees because the broadcasts were directed against AMEC, and not against her. The
disposi$ve por$on of the Court of Appeals’ decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modifica$on that broadcaster Mel
Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.14

G.R. No. 115849 January 24, 1996
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO
RIVERA, pe$$oners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in subsatuaon of DEMETRIO DEMETRIA, and JOSE
JANOLO, respondents.
DECISION
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of lefers and/or
in a mee$ng with the buyers cons$tute a perfected and enforceable contract of sale over 101 hectares of land in
Sta. Rosa, Laguna? Does the doctrine of "apparent authority" apply in this case? If so, may the Central Bank-
appointed conservator of Producers Bank (now First Philippine Interna$onal Bank) repudiate such "apparent
authority" aler said contract has been deemed perfected? During the pendency of a suit for specific
performance, does the filing of a "deriva$ve suit" by the majority shareholders and directors of the distressed
bank to prevent the enforcement or implementa$on of the sale violate the ban against forum-shopping?
Simply stated, these are the major ques$ons brought before this Court in the instant Pe$$on for review
on cer)orari under Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the
respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolu$on promulgated June 14, 1994 denying the
mo$on for reconsidera$on. The disposi$ve por$on of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the elimina$on of the damages awarded
under paragraphs 3, 4 and 6 of its disposi$ve por$on and the reduc$on of the award in paragraph 5
thereof to P75,000.00, to be assessed against defendant bank. In all other aspects, said decision is
hereby AFFIRMED.
All references to the original plain$ffs in the decision and its disposi$ve por$on are deemed, herein and
herealer, to legally refer to the plain$ff-appellee Carlos C. Ejercito.
Costs against appellant bank.
The disposi$ve por$on of the trial court's2 decision dated July 10, 1991, on the other hand, is as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plain$ffs and against
the defendants as follows:
1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated
at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in
Transfer Cer$ficates of Title Nos. T-106932 to T-106937, inclusive, of the Land Records of Laguna,
between the plain$ffs as buyers and the defendant Producers Bank for an agreed price of Five and One
Half Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from
the plain$ffs the amount of P5.5 Million, to execute in favor of said plain$ffs a deed of absolute sale
over the aforemen$oned six (6) parcels of land, and to immediately deliver to the plain$ffs the owner's
copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for purposes of registra$on of the same deed and
transfer of the six (6) $tles in the names of the plain$ffs;
3. Ordering the defendants, jointly and severally, to pay plain$ffs Jose A. Janolo and Demetrio Demetria
the sums of P200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plain$ffs the sum of P100,000.00 as exemplary
damages ;
5. Ordering the defendants, jointly and severally, to pay the plain$ffs the amount of P400,000.00 for
and by way of aforney's fees;
6. Ordering the defendants to pay the plain$ffs, jointly and severally, actual and moderate damages in
the amount of P20,000.00;
With costs against the defendants.
Aler the par$es filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the pe$$on was
given due course in a Resolu$on dated January 18, 1995. Thence, the par$es filed their respec$ve memoranda
and reply memoranda. The First Division transferred this case to the Third Division per resolu$on dated October
23, 1995. Aler carefully delibera$ng on the aforesaid submissions, the Court assigned the case to the
undersigned ponente for the wri$ng of this Decision.
The Par)es
Pe$$oner First Philippine Interna$onal Bank (formerly Producers Bank of the Philippines; pe$$oner Bank, for
brevity) is a banking ins$tu$on organized and exis$ng under the laws of the Republic of the Philippines.
Pe$$oner Mercurio Rivera (pe$$oner Rivera, for brevity) is of legal age and was, at all $mes material to this case,
Head-Manager of the Property Management Department of the pe$$oner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original
plain$ffs-appellees Demetrio Demetria and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolu$on sought to be set aside
through this pe$$on.
The Facts
The facts of this case are summarized in the respondent Court's Decision3 as follows:
(1) In the course of its banking opera$ons, the defendant Producer Bank of the Philippines acquired six
parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose, Laguna, and covered by
Transfer Cer$ficates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME
Investment and Development Corpora$on which had them mortgaged with the bank as collateral for a
loan. The original plain$ffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property We shall be very glad to hear your posi$on on the on the mafer.
and thus ini$ated nego$a$ons for that purpose.
Best regards.
(2) In the early part of August 1987 said plain$ffs, upon the sugges$on of BYME investment's legal
(4) On September 17, 1987, plain$ff Janolo, responding to Rivera's aforequoted reply, wrote (Exh. "D"):
counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management
Department of the defendant bank. The mee$ng was held pursuant to plain$ffs' plan to buy the September 17, 1987
property (TSN of Jan. 16, 1990, pp. 7-10). Aler the mee$ng, plain$ff Janolo, following the advice of
defendant Rivera, made a formal purchase offer to the bank through a lefer dated August 30, 1987 Producers Bank
(Exh. "B"), as follows: Paseo de Roxas
Maka$, Metro Manila
August 30, 1987
Afen$on: Mr. Mercurio Rivera
The Producers Bank of the Philippines Gentlemen:
Maka$, Metro Manila
In reply to your lefer regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa,
Afn. Mr. Mercurio Q. Rivera Laguna, I would like to amend my previous offer and I now propose to buy the said lot at P4.250 million
Manager, Property Management Dept. in CASH..
Gentleman: Hoping that this proposal meets your sa$sfac$on.
I have the honor to submit my formal offer to purchase your proper$es covered by $tles listed (5) There was no reply to Janolo's foregoing lefer of September 17, 1987. What took place was a
hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less. mee$ng on September 28, 1987 between the plain$ffs and Luis Co, the Senior Vice-President of
defendant bank. Rivera as well as Fajardo, the BYME lawyer, afended the mee$ng. Two days later, or
TCT NO. AREA
on September 30, 1987, plain$ff Janolo sent to the bank, through Rivera, the following lefer (Exh. "E"):
T-106932 113,580 sq. m. The Producers Bank of the Philippines
T-106933 70,899 sq. m. Paseo de Roxas, Maka$
Metro Manila
T-106934 52,246 sq. m.
Afen$on: Mr. Mercurio Rivera
T-106935 96,768 sq. m.
Re: 101 Hectares of Land
T-106936 187,114 sq. m. in Sta. Rosa, Laguna
T-106937 481,481 sq. m. Gentlemen:

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash. Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accep$ng
your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme Investment,
Kindly contact me at Telephone Number 921-1344. for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).
(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by lefer which Thank you.
is hereunder quoted (Exh. "C"):
(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by
September 1, 1987 the Central Bank since 1984) was replaced by an Ac$ng Conservator in the person of defendant Leonida
T. Encarnacion. On November 4, 1987, defendant Rivera wrote plain$ff Demetria the following lefer
JP M-P GUTIERREZ ENTERPRISES (Exh. "F"):
142 Charisma St., Doña Andres II
Afen$on: Afy. Demetrio Demetria
Rosario, Pasig, Metro Manila
Dear Sir:
Afen$on: JOSE O. JANOLO
Your proposal to buy the proper$es the bank foreclosed from Byme investment Corp. located at Sta.
Dear Sir:
Rosa, Laguna is under study yet as of this $me by the newly created commifee for submission to the
Thank you for your lefer-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly newly designated Ac$ng Conservator of the bank.
owned by Byme Industrial Corp.). Please be informed however that the bank's counter-offer is at P5.5
For your informa$on.
million for more than 101 hectares on lot basis.
(7) What therealer transpired was a series of demands by the plain$ffs for compliance by the bank
with what plain$ff considered as a perfected contract of sale, which demands were in one form or
another refused by the bank. As detailed by the trial court in its decision, on November 17, 1987,
plain$ffs through a lefer to defendant Rivera (Exhibit "G") tendered payment of the amount of P5.5
million "pursuant to (our) perfected sale agreement." Defendants refused to receive both the payment
and the lefer. Instead, the parcels of land involved in the transac$on were adver$sed by the bank for
sale to any interested buyer (Exh, "H" and "H-1"). Plain$ffs demanded the execu$on by the bank of the
documents on what was considered as a "perfected agreement." Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Maka$
Metro Manila
Dear Mr. Rivera:
This is in connec$on with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot
located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937.
From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same
lot in the amount of P5.5 million was accepted by our client thru a lefer dated September 30, 1987 and
was received by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been perfected. We were also
informed that despite repeated follow-up to consummate the purchase, you now refuse to honor your
commitment. Instead, you have adver$sed for sale the same lot to others.
In behalf of our client, therefore, we are making this formal demand upon you to consummate and
execute the necessary ac$ons/documenta$on within three (3) days from your receipt hereof. We are
ready to remit the agreed amount of P5.5 million at your advice. Otherwise, we shall be constrained to
file the necessary court ac$on to protect the interest of our client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing lefer and stated,
in its communica$on of December 2, 1987 (Exh. "I"), that said lefer has been "referred . . . to the office
of our Conservator for proper disposi$on" However, no response came from the Ac$ng Conservator. On
December 14, 1987, the plain$ffs made a second tender of payment (Exh. "L" and "L-1"), this $me
through the Ac$ng Conservator, defendant Encarnacion. Plain$ffs' lefer reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Maka$, Metro Manila
Afn.: Afy. NIDA ENCARNACION
Central Bank Conservator
We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in
the amount of P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos.
106932, 106933, 106934, 106935, 106936 and 106937 and registered under Producers Bank.
This is in connec$on with the perfected agreement consequent from your offer of P5.5 Million as the
purchase price of the said lots. Please inform us of the date of documenta$on of the sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing lefer drew no response for more than four months. Then, on May 3, 1988, plain$ff,
through counsel, made a final demand for compliance by the bank with its obliga$ons under the
considered perfected contract of sale (Exhibit "N"). As recounted by the trial court (Original Record, p.
656), in a reply lefer dated May 12, 1988 (Annex "4" of defendant's answer to amended complaint),
the defendants through Ac$ng Conservator Encarnacion repudiated the authority of defendant Rivera
and claimed that his dealings with the plain$ffs, par$cularly his counter-offer of P5.5 Million are
unauthorized or illegal. On that basis, the defendants jus$fied the refusal of the tenders of payment
and the non-compliance with the obliga$ons under what the plain$ffs considered to be a perfected
contract of sale.
(10) On May 16, 1988, plain$ffs filed a suit for specific performance with damages against the bank, its
Manager Rivers and Ac$ng Conservator Encarnacion. The basis of the suit was that the transac$on had
with the bank resulted in a perfected contract of sale, The defendants took the posi$on that there was
no such perfected sale because the defendant Rivera is not authorized to sell the property, and that
there was no mee$ng of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and
Gatmaitan, filed a mo$on to intervene in the trial court, alleging that as owner of 80% of the Bank's
outstanding shares of stock, he had a substan$al interest in resis$ng the complaint. On July 8, 1991, the
trial court issued an order denying the mo$on to intervene on the ground that it was filed aler trial
had already been concluded. It also denied a mo$on for reconsidera$on filed therealer. From the trial
court's decision, the Bank, pe$$oner Rivera and conservator Encarnacion appealed to the Court of
Appeals which subsequently affirmed with modifica$on the said judgment. Henry Co did not appeal the
denial of his mo$on for interven$on.
In the course of the proceedings in the respondent Court, Carlos Ejercito was subs$tuted in place of Demetria
and Janolo, in view of the assignment of the lafers' rights in the mafer in li$ga$on to said private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other
stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an ac$on (herealer,
the "Second Case") — purportedly a "deriva$ve suit" — with the Regional Trial Court of Maka$, Branch 134,
docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo "to declare any perfected sale of
the property as unenforceable and to stop Ejercito from enforcing or implemen$ng the sale"4 In his answer,
Janolo argued that the Second Case was barred by li)s penden)a by virtue of the case then pending in the Court
of Appeals. During the pre-trial conference in the Second Case, plain$ffs filed a Mo$on for Leave of Court to
Dismiss the Case Without Prejudice. "Private respondent opposed this mo$on on the ground, among others, that
plain$ff's act of forum shopping jus$fies the dismissal of both cases, with prejudice."5 Private respondent, in his
memorandum, averred that this mo$on is s$ll pending in the Maka$ RTC.
In their Pe$$on6 and Memorandum7 , pe$$oners summarized their posi$on as follows:
I.
The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in
subs$tu$on of Demetria and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the
par$es.
III.
The Court of Appeals erred in declaring that the conservator does not have the power to overrule or
revoke acts of previous management.
 IV.
The findings and conclusions of the Court of Appeals do not conform to the evidence on record.
On the other hand, pe$$oners prayed for dismissal of the instant suit on the ground8 that:
I.
Pe$$oners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence on record
and may no longer be ques$oned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo
(subs$tuted by; respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from being estopped from
repudia$ng the agency and the contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing posi$ons of the par$es, the issues in this case may be summed up as follows:
1) Was there forum-shopping on the part of pe$$oner Bank?
2) Was there a perfected contract of sale between the par$es?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers
and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexa$ons of mul$ple pe$$ons and ac$ons, the Supreme Court promulgated Revised
Circular No. 28-91 requiring that a party "must cer$fy under oath . . . [that] (a) he has not (t)heretofore
commenced any other ac$on or proceeding involving the same issues in the Supreme Court, the Court of
Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such ac$on or proceeding is
pending" in said courts or agencies. A viola$on of the said circular entails sanc$ons that include the summary
dismissal of the mul$ple pe$$ons or complaints. To be sure, pe$$oners have included a VERIFICATION/
CERTIFICATION in their Pe$$on sta$ng "for the record(,) the pendency of Civil Case No. 92-1606 before the
Regional Trial Court of Maka$, Branch 134, involving a deriva)ve suit filed by stockholders of pe$$oner Bank
against the conservator and other defendants but which is the subject of a pending Mo$on to Dismiss Without
Prejudice.9
Private respondent Ejercito vigorously argues that in spite of this verifica$on, pe$$oners are guilty of actual
forum shopping because the instant pe$$on pending before this Court involves "iden$cal par$es or interests
represented, rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court, Maka$
Branch 134 in the Second Case. In fact, the issues in the two cases are so interwined that a judgement or
resolu$on in either case will cons$tute res judicata in the other." 10
On the other hand, pe$$oners explain 11 that there is no forum-shopping because:
1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as
a defendant, whereas in the "Second Case" (assuming the Bank is the real party in interest in a
deriva$ve suit), it was plain)ff;
2) "The deriva$ve suit is not properly a suit for and in behalf of the corpora$on under the
circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and afached to the
Pe$$on iden$fies the ac$on as a "deriva$ve suit," it "does not mean that it is one" and "(t)hat is a legal
ques$on for the courts to decide";
4) Pe$$oners did not hide the Second Case at they men$oned it in the said VERIFICATION/
CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private interna$onal law.12 , where non-resident
li$gants are given the op$on to choose the forum or place wherein to bring their suit for various reasons or
excuses, including to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded
dockets, or to select a more friendly venue. To combat these less than honorable excuses, the principle of forum
non conveniens was developed whereby a court, in conflicts of law cases, may refuse imposi$ons on its
jurisdic$on where it is not the most "convenient" or available forum and the par$es are not precluded from
seeking remedies elsewhere.
In this light, Black's Law Dic)onary 13 says that forum shopping "occurs when a party afempts to have his ac$on
tried in a par$cular court or jurisdic$on where he feels he will receive the most favorable judgment or verdict."
Hence, according to Words and Phrases14 , "a li$gant is open to the charge of "forum shopping" whenever he
chooses a forum with slight connec$on to factual circumstances surrounding his suit, and li$gants should be
encouraged to afempt to sefle their differences without imposing undue expenses and vexa$ous situa$ons on
the courts".
In the Philippines, forum shopping has acquired a connota$on encompassing not only a choice of venues, as it
was originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of venues),
the Rules of Court, for example, allow a plain$ff to commence personal ac$ons "where the defendant or any of
the defendants resides or may be found, or where the plain$ff or any of the plain$ffs resides, at the elec$on of
the plain$ff" (Rule 4, Sec, 2 [b]). As to remedies, aggrieved par$es, for example, are given a choice of pursuing
civil liabili$es independently of the criminal, arising from the same set of facts. A passenger of a public u$lity
vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal — each
remedy being available independently of the others — although he cannot recover more than once.
In either of these situa$ons (choice of venue or choice of remedy), the li$gant actually shops for a
forum of his ac$on, This was the original concept of the term forum shopping.
Eventually, however, instead of actually making a choice of the forum of their ac$ons, li$gants, through
the encouragement of their lawyers, file their ac$ons in all available courts, or invoke all relevant
remedies simultaneously. This prac$ce had not only resulted to (sic) conflic$ng adjudica$ons among
different courts and consequent confusion enimical (sic) to an orderly administra$on of jus$ce. It had
created extreme inconvenience to some of the par$es to the ac$on.
Thus, "forum shopping" had acquired a different concept — which is unethical professional legal
prac$ce. And this necessitated or had given rise to the formula$on of rules and canons discouraging or
altogether prohibi$ng the prac$ce. 15
What therefore originally started both in conflicts of laws and in our domes$c law as a legi$mate device for
solving problems has been abused and mis-used to assure scheming li$gants of dubious reliefs.
To avoid or minimize this unethical prac$ce of subver$ng jus$ce, the Supreme Court, as already men$oned,
promulgated Circular 28-91. And even before that, the Court had prescribed it in the Interim Rules and Guidelines
issued on January 11, 1983 and had struck down in several cases 16 the inveterate use of this insidious
malprac$ce. Forum shopping as "the filing of repe$$ous suits in different courts" has been condemned by Jus$ce
Andres R. Narvasa (now Chief Jus$ce) in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as
a reprehensible manipula$on of court processes and proceedings . . ." 17 when does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a
favorable opinion (other than by appeal or cer)orari) in another. The principle applies not only with
respect to suits filed in the courts but also in connec$on with li$ga$ons commenced in the courts while
an administra$ve proceeding is pending, as in this case, in order to defeat administra$ve processes and
in an$cipa$on of an unfavorable administra$ve ruling and a favorable court ruling. This is specially so,
as in this case, where the court in which the second suit was brought, has no jurisdic$on.18
The test for determining whether a party violated the rule against forum shopping has been laid dawn in the
1986 case of Buan vs. Lopez 19 , also by Chief Jus$ce Narvasa, and that is, forum shopping exists where the
elements of li)s penden)a are present or where a final judgment in one case will amount to res judicata in the
other, as follows:
There thus exists between the ac$on before this Court and RTC Case No. 86-36563 iden$ty of par$es,
or at least such par$es as represent the same interests in both ac$ons, as well as iden$ty of rights
asserted and relief prayed for, the relief being founded on the same facts, and the iden$ty on the two
preceding par$culars is such that any judgment rendered in the other ac$on, will, regardless of which
party is successful, amount to res adjudicata in the ac$on under considera$on: all the requisites, in
fine, of auter ac)on pendant.
xxx xxx xxx
As already observed, there is between the ac$on at bar and RTC Case No. 86-36563, an iden$ty as
regards par$es, or interests represented, rights asserted and relief sought, as well as basis thereof, to a
degree sufficient to give rise to the ground for dismissal known as auter ac)on pendant or lis pendens.
That same iden$ty puts into opera$on the sanc$on of twin dismissals just men$oned. The applica$on
of this sanc$on will prevent any further delay in the seflement of the controversy which might ensue
from afempts to seek reconsidera$on of or to appeal from the Order of the Regional Trial Court in Civil
Case No. 86-36563 promulgated on July 15, 1986, which dismissed the pe$$on upon grounds which
appear persuasive.
Consequently, where a li$gant (or one represen$ng the same interest or person) sues the same party against
whom another ac$on or ac$ons for the alleged viola$on of the same right and the enforcement of the same
relief is/are s$ll pending, the defense of li)s pendencia in one case is bar to the others; and, a final judgment in
one would cons$tute res judicata and thus would cause the dismissal of the rest. In either case, forum shopping
could be cited by the other party as a ground to ask for summary dismissal of the two 20 (or more) complaints or
pe$$ons, and for imposi$on of the other sanc$ons, which are direct contempt of court, criminal prosecu$on,
and disciplinary ac$on against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that
there exist iden$ty of par$es or interests represented, iden$ty of rights or causes and iden$ty of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the instant pe$$on was filed by
the buyer (herein private respondent and his predecessors-in-interest) against the seller (herein pe$$oners) to
enforce the alleged perfected sale of real estate. On the other hand, the complaint 21 in the Second Case seeks to
declare such purported sale involving the same real property "as unenforceable as against the Bank", which is the
pe$$oner herein. In other words, in the Second Case, the majority stockholders, in representa$on of the Bank,
are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In brief, the
objec$ve or the relief being sought, though worded differently, is the same, namely, to enable the pe$$oner
Bank to escape from the obliga$on to sell the property to respondent. In Danville Mari$me, Inc. vs. Commission
on Audit. 22 , this Court ruled that the filing by a party of two apparently different ac$ons, but with the same
objec)ve, cons$tuted forum shopping:
In the afempt to make the two ac$ons appear to be different, pe$$oner impleaded different
respondents therein — PNOC in the case before the lower court and the COA in the case before this
Court and sought what seems to be different reliefs. Pe$$oner asks this Court to set aside the
ques$oned lefer-direc$ve of the COA dated October 10, 1988 and to direct said body to approve the
Memorandum of Agreement entered into by and between the PNOC and pe$$oner, while in the
complaint before the lower court pe$$oner seeks to enjoin the PNOC from conduc$ng a rebidding and
from selling to other par$es the vessel "T/T Andres Bonifacio", and for an extension of $me for it to
comply with the paragraph 1 of the memorandum of agreement and damages. One can see that
although the relief prayed for in the two (2) ac)ons are ostensibly different, the ul)mate objec)ve in
both ac)ons is the same, that is, approval of the sale of vessel in favor of pe))oner and to overturn the
leLer-direc)ve of the COA of October 10, 1988 disapproving the sale. (emphasis supplied).
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the pe$$oners of the instant special civil ac$on for cer)orari and
prohibi$on in this Court despite the pendency of their ac$on in the Maka$ Regional Trial Court, is a
species of forum-shopping. Both ac$ons unques$onably involve the same transac$ons, the same
essen$al facts and circumstances. The pe$$oners' claim of absence of iden$ty simply because the
PCGG had not been impleaded in the RTC suit, and the suit did not involve certain acts which transpired
aler its commencement, is specious. In the RTC ac$on, as in the ac$on before this Court, the validity of
the contract to purchase and sell of September 1, 1986, i.e., whether or not it had been efficaciously
rescinded, and the propriety of implemen$ng the same (by paying the pledgee banks the amount of
their loans, obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the relief
was the same: the preven$on of such implementa$on and/or the restora$on of the status quo ante.
When the acts sought to be restrained took place anyway despite the issuance by the Trial Court of a
temporary restraining order, the RTC suit did not become functus oficio. It remained an effec$ve vehicle
for obten$on of relief; and pe$$oners' remedy in the premises was plain and patent: the filing of an
amended and supplemental pleading in the RTC suit, so as to include the PCGG as defendant and seek
nullifica$on of the acts sought to be enjoined but nonetheless done. The remedy was certainly not the
ins$tu$on of another ac$on in another forum based on essen$ally the same facts, The adop$on of this
lafer recourse renders the pe$$oners amenable to disciplinary ac$on and both their ac$ons, in this
Court as well as in the Court a quo, dismissible.
In the instant case before us, there is also iden$ty of par$es, or at least, of interests represented. Although the
plain$ffs in the Second Case (Henry L. Co. et al.) are not name par$es in the First Case, they represent the same
interest and en$ty, namely, pe$$oner Bank, because:
Firstly, they are not suing in their personal capaci$es, for they have no direct personal interest in the mafer in
controversy. They are not principally or even subsidiarily liable; much less are they direct par$es in the assailed
contract of sale; and
Secondly, the allega$ons of the complaint in the Second Case show that the stockholders are bringing a
"deriva$ve suit". In the cap$on itself, pe$$oners claim to have brought suit "for and in behalf of the Producers
Bank of the Philippines" 24 . Indeed, this is the very essence of a deriva$ve suit:
An individual stockholder is permifed to ins$tute a deriva$ve suit on behalf of the corpora$on wherein
he holdsstock in order to protect or vindicate corporate rights, whenever the officials of the corpora)on
 refuse to sue, or are the ones to be sued or hold the control of the corpora$on. In such ac$ons, the
suing stockholder is regarded as a nominal party, with the corpora)on as the real party in interest.
(Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).
In the face of the damaging admissions taken from the complaint in the Second Case, pe$$oners, quite strangely,
sought to deny that the Second Case was a deriva$ve suit, reasoning that it was brought, not by the minority
shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the outstanding capital stock,
but also cons$tute the majority in the Board of Directors of pe$$oner Bank. That being so, then they really
represent the Bank. So, whether they sued "deriva$vely" or directly, there is undeniably an iden$ty of interests/
en$ty represented.
Pe$$oner also tried to seek refuge in the corporate fic$on that the personality Of the Bank is separate and
dis$nct from its shareholders. But the rulings of this Court are consistent: "When the fic$on is urged as a means
of perpetra$ng a fraud or an illegal act or as a vehicle for the evasion of an exis$ng obliga$on, the circumven$on
of statutes, the achievement or perfec$on of a monopoly or generally the perpetra$on of knavery or crime, the
veil with which the law covers and isolates the corpora$on from the members or stockholders who compose it
will be liled to allow for its considera$on merely as an aggrega$on of individuals." 25
In addi$on to the many cases 26 where the corporate fic$on has been disregarded, we now add the instant case,
and declare herewith that the corporate veil cannot be used to shield an otherwise blatant viola$on of the
prohibi$on against forum-shopping. Shareholders, whether suing as the majority in direct ac$ons or as the
minority in a deriva$ve suit, cannot be allowed to trifle with court processes, par$cularly where, as in this case,
the corpora$on itself has not been remiss in vigorously prosecu$ng or defending corporate causes and in using
and applying remedies available to it. To rule otherwise would be to encourage corporate li$gants to use their
shareholders as fronts to circumvent the stringent rules against forum shopping.
Finally, pe$$oner Bank argued that there cannot be any forum shopping, even assuming arguendo that there is
iden$ty of par$es, causes of ac$on and reliefs sought, "because it (the Bank) was the defendant in the (first) case
while it was the plain$ff in the other (Second Case)",ci$ng as authority Victronics Computers, Inc., vs. Regional
Trial Court, Branch 63, Maka), etc. et al., 27 where Court held:
The rule has not been extended to a defendant who, for reasons known only to him, commences a new
ac$on against the plain$ff — instead of filing a responsive pleading in the other case — semng forth
therein, as causes of ac$on, specific denials, special and affirma$ve defenses or even counterclaims,
Thus, Velhagen's and King's mo$on to dismiss Civil Case No. 91-2069 by no means negates the charge
of forum-shopping as such did not exist in the first place. (emphasis supplied)
Pe$$oner pointed out that since it was merely the defendant in the original case, it could not have chosen the
forum in said case.
Respondent, on the other hand, replied that there is a difference in factual semng between Victronics and the
present suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file
any responsive pleading in the first case. In other words, they did not make any denial or raise any defense or
counter-claim therein In the case before us however, pe$$oners filed a responsive pleading to the complaint —
as a result of which, the issues were joined.
Indeed, by praying for affirma$ve reliefs and interposing counter–claims in their responsive pleadings, the
pe$$oners became plain$ffs themselves in the original case, giving unto themselves the very remedies they
repeated in the Second Case.
Ul$mately, what is truly important to consider in determining whether forum-shopping exists or not is the
vexa$on caused the courts and par$es-li$gant by a party who asks different courts and/or administra$ve
agencies to rule on the same or related causes and/or to grant the same or substan$ally the same reliefs, in the
process crea$ng the possibility of conflic$ng decisions being rendered by the different fora upon the same issue.
In this case, this is exactly the problem: a decision recognizing the perfec$on and direc$ng the enforcement of
the contract of sale will directly conflict with a possible decision in the Second Case barring the par$es front
enforcing or implemen$ng the said sale. Indeed, a final decision in one would cons$tute res judicata in the
other 28 .
The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanc$on possible
now is the dismissal of both cases with prejudice, as the other sanc$ons cannot be imposed because pe$$oners'
present counsel entered their appearance only during the proceedings in this Court, and the Pe$$on's
VERIFICATION/CERTIFICATION contained sufficient allega$ons as to the pendency of the Second Case to show
good faith in observing Circular 28-91. The Lawyers who filed the Second Case are not before us; thus the
rudiments of due process prevent us from motu propio imposing disciplinary measures against them in this
Decision. However, pe$$oners themselves (and par$cularly Henry Co, et al.) as li$gants are admonished to
strictly follow the rules against forum-shopping and not to trifle with court proceedings and processes They are
warned that a repe$$on of the same will be dealt with more severely.
Having said that, let it be emphasized that this pe$$on should be dismissed not merely because of forum-
shopping but also because of the substan$ve issues raised, as will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the ques$on of whether or not there was, on the basis of the facts
established, a perfected contract of sale as the ul$mate issue. Holding that a valid contract has been established,
respondent Court stated:
There is no dispute that the object of the transac$on is that property owned by the defendant bank as
acquired assets consis$ng of six (6) parcels of land specifically iden$fied under Transfer Cer$ficates of
Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the bank intended to sell the property.
As tes$fied to by the Bank's Deputy Conservator, Jose Entereso, the bank was looking for buyers of the
property. It is definite that the plain$ffs wanted to purchase the property and it was precisely for this
purpose that they met with defendant Rivera, Manager of the Property Management Department of
the defendant bank, in early August 1987. The procedure in the sale of acquired assets as well as the
nature and scope of the authority of Rivera on the mafer is clearly delineated in the tes$mony of
Rivera himself, which tes$mony was relied upon by both the bank and by Rivera in their appeal briefs.
Thus (TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to me and then I published
it in the form of an inter-office memorandum distributed to all branches that these are
acquired assets for sale. I was instructed to adver$se acquired assets for sale so on that basis,
I have to entertain offer; to accept offer, formal offer and upon having been offered, I present
it to the Commifee. I provide the Commifee with necessary informa$on about the property
such as original loan of the borrower, bid price during the foreclosure, total claim of the bank,
the appraised value at the $me the property is being offered for sale and then the
informa$on which are rela$ve to the evalua$on of the bank to buy which the Commifee
considers and it is the Commifee that evaluate as against the exposure of the bank and it is
also the Commifee that submit to the Conservator for final approval and once approved, we
have to execute the deed of sale and it is the Conservator that sign the deed of sale, sir.
The plain$ffs, therefore, at that mee$ng of August 1987 regarding their purpose of buying the property,
dealt with and talked to the right person. Necessarily, the agenda was the price of the property, and
plain$ffs were dealing with the bank official authorized to entertain offers, to accept offers and to
present the offer to the Commifee before which the said official is authorized to discuss informa$on
rela$ve to price determina$on. Necessarily, too, it being inherent in his authority, Rivera is the officer
from whom official informa$on regarding the price, as determined by the Commifee and approved by
the Conservator, can be had. And Rivera confirmed his authority when he talked with the plain$ff in
August 1987. The tes$mony of plain$ff Demetria is clear on this point (TSN of May 31,1990, pp. 27-28):
Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask
him point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it would
take because he was saying that the mafer of pricing will be passed upon by the commifee.
And when I asked him how long it will take for the commifee to decide and he said the
commifee meets every week. If I am not mistaken Wednesday and in about two week's (sic)
$me, in effect what he was saying he was not the one who was to decide. But he would refer
it to the commifee and he would relay the decision of the commifee to me.
Q — Please answer the ques$on.
A — He did not say that he had the authority (.) But he said he would refer the mafer to the
commifee and he would relay the decision to me and he did just like that.
"Parenthe$cally, the Commifee referred to was the Past Due Commifee of which Luis Co was the
Head, with Jose Entereso as one of the members.
What transpired aler the mee$ng of early August 1987 are consistent with the authority and the
du$es of Rivera and the bank's internal procedure in the mafer of the sale of bank's assets. As advised
by Rivera, the plain$ffs made a formal offer by a lefer dated August 20, 1987 sta$ng that they would
buy at the price of P3.5 Million in cash. The lefer was for the afen$on of Mercurio Rivera who was
tasked to convey and accept such offers. Considering an aspect of the official duty of Rivera as some
sort of intermediary between the plain$ffs-buyers with their proposed buying price on one hand, and
the bank Commifee, the Conservator and ul$mately the bank itself with the set price on the other, and
considering further the discussion of price at the mee$ng of August resul$ng in a formal offer of P3.5
Million in cash, there can be no other logical conclusion than that when, on September 1, 1987, Rivera
informed plain$ffs by lefer that "the bank's counter-offer is at P5.5 Million for more than 101 hectares
on lot basis," such counter-offer price had been determined by the Past Due Commifee and approved
by the Conservator aler Rivera had duly presented plain$ffs' offer for discussion by the Commifee of
such mafers as original loan of borrower, bid price during foreclosure, total claim of the bank, and
market value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly worded
in Rivera's lefer (Exh. "E"), the official and defini$ve price at which the bank was selling the property.
There were averments by defendants below, as well as before this Court, that the P5.5 Million price was
not discussed by the Commifee and that price. As correctly characterized by the trial court, this is not
credible. The tes$monies of Luis Co and Jose Entereso on this point are at best equivocal and
considering the gratuitous and self-serving character of these declara$ons, the bank's submission on
this point does not inspire belief. Both Co ad Entereso, as members of the Past Due Commifee of the
bank, claim that the offer of the plain$ff was never discussed by the Commifee. In the same vein, both
Co and Entereso openly admit that they seldom afend the mee$ngs of the Commifee. It is important
to note that nego$a$ons on the price had started in early August and the plain$ffs had already offered
an amount as purchase price, having been made to understand by Rivera, the official in charge of the
nego$a$on, that the price will be submifed for approval by the bank and that the bank's decision will
be relayed to plain$ffs. From the facts, the official bank price. At any rate, the bank placed its official,
Rivera, in a posi$on of authority to accept offers to buy and nego$ate the sale by having the offer
officially acted upon by the bank. The bank cannot turn around and later say, as it now does, that what
Rivera states as the bank's ac$on on the mafer is not in fact so. It is a familiar doctrine, the doctrine of
ostensible authority, that if a corpora$on knowingly permits one of its officers, or any other agent, to
do acts within the scope of an apparent authority, and thus holds him out to the public as possessing
power to do those acts, the corpora$on will, as against any one who has in good faith dealt with the
corpora$on through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577,
583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Pruden$al Bank v. Court of Appeals, G.R. No.
103957, June 14, 1993). 29
Ar$cle 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1) Consent
of the contrac$ng par$es; (2) Object certain which is the subject mafer of the contract; (3) Cause of the
obliga$on which is established."
There is no dispute on requisite no. 2. The object of the ques$oned contract consists of the six (6) parcels of land
in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer
Cer$ficates of Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third requisites.
Pe$$oners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera
(or Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was nothing for
Ejercito (in subs$tu$on of Demetria and Janolo) to accept." 30 They disputed the factual basis of the respondent
Court's findings that there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5
million. We have perused the evidence but cannot find fault with the said Court's findings of fact. Verily, in a
pe$$on under Rule 45 such as this, errors of fact — if there be any - are, as a rule, not reviewable. The mere fact
that respondent Court (and the trial court as well) chose to believe the evidence presented by respondent more
than that presented by pe$$oners is not by itself a reversible error. In fact, such findings merit serious
considera$on by this Court, par$cularly where, as in this case, said courts carefully and me$culously discussed
their findings. This is basic.
Be that as it may, and in addi)on to the foregoing disquisi$ons by the Court of Appeals, let us review the
ques$on of Rivera's authority to act and pe$$oner's allega$ons that the P5.5 million counter-offer was
ex$nguished by the P4.25 million revised offer of Janolo. Here, there are ques$ons of law which could be drawn
from the factual findings of the respondent Court. They also delve into the contractual elements of consent and
cause.
The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of
"apparent authority", with special reference to banks, was laid out in Pruden)al Bank vs. Court of Appeals31 ,
where it was held that:
Conformably, we have declared in countless decisions that the principal is liable for obliga$ons
contracted by the agent. The agent's apparent representa$on yields to the principal's true
representa$on and the contract is considered as entered into between the principal and the third
person (ci)ng Na$onal Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the
course of dealings of the officers in their representa$ve capacity but not for acts outside the
scape of their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy
of confidence will not be permifed to profit by the frauds they may thus be enabled to
perpetrate in the apparent scope of their employment; nor will it be permifed to shirk its
responsibility for such frauds even though no benefit may accrue to the bank therefrom (10
Am Jur 2d, p. 114). Accordingly, a banking corpora$on is liable to innocent third persons
where the representa$on is made in the course of its business by an agent ac$ng within the
general scope of his authority even though, in the par$cular case, the agent is secretly
abusing his authority and afemp$ng to perpetrate a fraud upon his principal or some other
person, for his own ul$mate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818,
40 ALR 1021).
 Applica$on of these principles is especially necessary because banks have a fiduciary rela$onship with
the public and their stability depends on the confidence of the people in their honesty and efficiency.
Such faith will be eroded where banks do not exercise strict care in the selec$on and supervision of its
employees, resul$ng in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that pe$$oner Rivera has apparent or implied
authority to act for the Bank in the mafer of selling its acquired assets. This evidence includes the following:
(a) The pe$$on itself in par. II-i (p. 3) states that Rivera was "at all $mes material to this case, Manager
of the Property Management Department of the Bank". By his own admission, Rivera was already the
person in charge of the Bank's acquired assets (TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the
ini$al mee$ng between the buyers and Rivera, the lafer suggested that the buyers' offer should be no
less than P3.3 million (TSN, April 26, 1990, pp. 16-17);
(c) Rivera received the buyers' lefer dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990,
p.11);
(d) Rivera signed the lefer dated September 1, 1987 offering to sell the property for P5.5 million (TSN,
July 30, p. 11);
(e) Rivera received the lefer dated September 17, 1987 containing the buyers' proposal to buy the
property for P4.25 million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversa$on, confirmed that the P5.5 million was the final price of the Bank
(TSN, January 16, 1990, p. 18);
(g) Rivera arranged the mee$ng between the buyers and Luis Co on September 28, 1994, during which
the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said
mee$ng, Co, a major shareholder and officer of the Bank, confirmed Rivera's statement as to the
finality of the Bank's counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p.
35);
(h) In its newspaper adver$sements and announcements, the Bank referred to Rivera as the officer
ac$ng for the Bank in rela$on to par$es interested in buying assets owned/acquired by the Bank. In
fact, Rivera was the officer men$oned in the Bank's adver$sements offering for sale the property in
ques$on (cf. Exhs. "S" and "S-1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32 , the Court, through Jus$ce
Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer
of the Bank of P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with
buyers.
To be sure, pe$$oners afempted to repudiate Rivera's apparent authority through documents and tes$mony
which seek to establish Rivera's actual authority. These pieces of evidence, however, are inherently weak as they
consist of Rivera's self-serving tes$mony and various inter-office memoranda that purport to show his limited
actual authority, of which private respondent cannot be charged with knowledge. In any event, since the issue is
apparent authority, the existence of which is borne out by the respondent Court's findings, the evidence of actual
authority is immaterial insofar as the liability of a corpora$on is concerned 33 .
Pe$$oners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had once
acted for the Bank in three criminal cases, they should be charged with actual knowledge of Rivera's limited
authority. But the Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had
no no$ce of Rivera's actual authority prior to the sale. In fact, the Bank has not shown that they acted as its
counsel in respect to any acquired assets; on the other hand, respondent has proven that Demetria and Janolo
merely associated with a loose aggrupa$on of lawyers (not a professional partnership), one of whose members
(Afy. Susana Parker) acted in said criminal cases.
Pe$$oners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the lefer dated September 17,
1987 ex)nguished the Bank's offer of P5.5 million 34 .They disputed the respondent Court's finding that "there
was a mee$ng of minds when on 30 September 1987 Demetria and Janolo through Annex "L" (lefer dated
September 30, 1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J" (lefer dated September
17, 1987)", ci)ng the late Jus$ce Paras35 , Art. 1319 of the Civil Code 36 and related Supreme Court rulings star$ng
with Beaumont vs. Prieto 37 .
However, the above-cited authori$es and precedents cannot apply in the instant case because, as found by the
respondent Court which reviewed the tes$monies on this point, what was "accepted" by Janolo in his lefer
dated September 30, 1987 was the Bank's offer of P5.5 million as confirmed and reiterated to Demetria and Afy.
Jose Fajardo by Rivera and Co during their mee$ng on September 28, 1987. Note that the said lefer of
September 30, 1987 begins with"(p)ursuant to our discussion last 28 September 1987 . . .
Pe$$oners insist that the respondent Court should have believed the tes$monies of Rivera and Co that the
September 28, 1987 mee$ng "was meant to have the offerors improve on their posi$on of P5.5.
million."38 However, both the trial court and the Court of Appeals found pe$$oners' tes$monial evidence "not
credible", and we find no basis for changing this finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding that private
respondents' evidence is more in keeping with truth and logic — that during the mee$ng on September 28, 1987,
Luis Co and Rivera "confirmed that the P5.5 million price has been passed upon by the Commifee and could no
longer be lowered (TSN of April 27, 1990, pp. 34-35)"39 . Hence, assuming arguendo that the counter-offer of
P4.25 million ex$nguished the offer of P5.5 million, Luis Co's reitera$on of the said P5.5 million price during the
September 28, 1987 mee$ng revived the said offer. And by virtue of the September 30, 1987 lefer accep$ng
this revived offer, there was a mee$ng of the minds, as the acceptance in said lefer was absolute and
unqualified.
We note that the Bank's repudia$on, through Conservator Encarnacion, of Rivera's authority and ac$on,
par$cularly the lafer's counter-offer of P5.5 million, as being "unauthorized and illegal" came only on May 12,
1988 or more than seven (7) months aler Janolo' acceptance. Such delay, and the absence of any circumstance
which might have jus$fiably prevented the Bank from ac$ng earlier, clearly characterizes the repudia$on as
nothing more than a last-minute afempt on the Bank's part to get out of a binding contractual obliga$on.
Taken together, the factual findings of the respondent Court point to an implied admission on the part of the
pe$$oners that the wrifen offer made on September 1, 1987 was carried through during the mee$ng of
September 28, 1987. This is the conclusion consistent with human experience, truth and good faith.
It also bears no$ng that this issue of ex$nguishment of the Bank's offer of P5.5 million was raised for the first
$me on appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of law, theories,
issues of fact and arguments not adequately brought to the afen$on of the trial court need not be,
and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first $me on
appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA 592).40
. . . It is sefled jurisprudence that an issue which was neither averred in the complaint nor raised
during the trial in the court below cannot be raised for the first $me on appeal as it would be offensive
to the basic rules of fair play, jus$ce and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo
vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos
vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).41
Since the issue was not raised in the pleadings as an affirma$ve defense, private respondent was not given an
opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a mafer of due
process. But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural grounds,
and we repeat that, on the basis of the evidence already in the record and as appreciated by the lower courts,
the inevitable conclusion is simply that there was a perfected contract of sale.
The Third Issue: Is the Contract Enforceable?
The pe$$on alleged42 :
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the mee$ng of
28 September 1987, and it was this verbal offer that Demetria and Janolo accepted with their lefer of
30 September 1987, the contract produced thereby would be unenforceable by ac$on — there being
no note, memorandum or wri$ng subscribed by the Bank to evidence such contract. (Please see ar$cle
1403[2], Civil Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
. . . Of course, the bank's lefer of September 1, 1987 on the official price and the plain$ffs' acceptance
of the price on September 30, 1987, are not, in themselves, formal contracts of sale. They are however
clear embodiments of the fact that a contract of sale was perfected between the par$es, such contract
being binding in whatever form it may have been entered into (case cita$ons omifed). Stated simply,
the banks' lefer of September 1, 1987, taken together with plain$ffs' lefer dated September 30, 1987,
cons$tute in law a sufficient memorandum of a perfected contract of sale.
The respondent Court could have added that the wrifen communica$ons commenced not only from September
1, 1987 but from Janolo's August 20, 1987 lefer. We agree that, taken together, these lefers cons$tute sufficient
memoranda — since they include the names of the par$es, the terms and condi$ons of the contract, the price
and a descrip$on of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the mee$ng on September 28, 1987 did cons$tute a
"new" offer which was accepted by Janolo on September 30, 1987. S$ll, the statute of frauds will not apply by
reason of the failure of pe$$oners to object to oral tes$mony proving pe$$oner Bank's counter-offer of P5.5
million. Hence, pe$$oners — by such ufer failure to object — are deemed to have waived any defects of the
contract under the statute of frauds, pursuant to Ar$cle 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of ar$cle 1403, are ra$fied by
the failure to object to the presenta$on of oral evidence to prove the same, or by the acceptance of
benefits under them.
As private respondent pointed out in his Memorandum, oral tes$mony on the reaffirma$on of the counter-offer
of P5.5 million is a plenty — and the silence of pe$$oners all throughout the presenta$on makes the evidence
binding on them thus;
A Yes, sir, I think it was September 28, 1987 and I was again present because Afy. Demetria told me to
accompany him we were able to meet Luis Co at the Bank.
xxx xxx xxx
Q Now, what transpired during this mee$ng with Luis Co of the Producers Bank?
A Afy. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final
price and that is the price they intends (sic) to have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reac$on of the plain$ff Demetria to Luis Co's statement (sic) that the defendant Rivera's
counter-offer of 5.5 million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
A He said he will wait for the posi$on of Afy. Demetria, sir.
[Direct tes$mony of Afy. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
Q What transpired during that mee$ng between you and Mr. Luis Co of the defendant Bank?
A We went straight to the point because he being a busy person, I told him if the amount of P5.5
million could s$ll be reduced and he said that was already passed upon by the commifee. What the
bank expects which was contrary to what Mr. Rivera stated. And he told me that is the final offer of the
bank P5.5 million and we should indicate our posi$on as soon as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days and he said that was it. Afy. Fajardo and
I and Mr. Mercurio [Rivera] was with us at the $me at his office.
Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in
Producers Bank Building during this mee$ng?
A Mr. Co himself, Mr. Rivera, Afy. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q Aler this mee$ng with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the
bank?
A Yes, sir, we did.? Two days therealer we sent our acceptance to the bank which offer we accepted,
the offer of the bank which is P5.5 million.
[Direct tes$mony of Afy. Demetria, TSN, 26 April 1990, at pp. 34-36.]
Q According to Afy. Demetrio Demetria, the amount of P5.5 million was reached by the Commifee
and it is not within his power to reduce this amount. What can you say to that statement that the
amount of P5.5 million was reached by the Commifee?
A It was not discussed by the Commifee but it was discussed ini$ally by Luis Co and the group of Afy.
Demetrio Demetria and Afy. Pajardo (sic) in that September 28, 1987 mee$ng, sir.
[Direct tes$mony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract.
It is not disputed that the pe$$oner Bank was under a conservator placed by the Central Bank of the Philippines
during the $me that the nego$a$on and perfec$on of the contract of sale took place. Pe$$oners energe$cally
contended that the conservator has the power to revoke or overrule ac$ons of the management or the board of
directors of a bank, under Sec$on 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) as
follows:
 Whenever, on the basis of a report submifed by the appropriate supervising or examining department,
the Monetary Board finds that a bank or a non-bank financial intermediary performing quasi-banking
func$ons is in a state of con$nuing inability or unwillingness to maintain a state of liquidity deemed
adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a
conservator to take charge of the assets, liabili$es, and the management of that ins$tu$on, collect all
monies and debts due said ins$tu$on and exercise all powers necessary to preserve the assets of the
ins$tu$on, reorganize the management thereof, and restore its viability. He shall have the power to
overrule or revoke the ac$ons of the previous management and board of directors of the bank or non-
bank financial intermediary performing quasi-banking func$ons, any provision of law to the contrary
notwithstanding, and such other powers as the Monetary Board shall deem necessary.
In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected contract of
sale was raised for the first $me in this Pe$$on — as this was not li$gated in the trial court or Court of Appeals.
As already stated earlier, issues not raised and/or ven$lated in the trial court, let alone in the Court of Appeals,
"cannot be raised for the first $me on appeal as it would be offensive to the basic rules of fair play, jus$ce and
due process."43
In the second place, there is absolutely no evidence that the Conservator, at the $me the contract was perfected,
actually repudiated or overruled said contract of sale. The Bank's ac$ng conservator at the $me, Rodolfo Romey,
never objected to the sale of the property to Demetria and Janolo. What pe$$oners are really referring to is the
lefer of Conservator Encarnacion, who took over from Romey aler the sale was perfected on September 30,
1987 (Annex V, pe$$on) which unilaterally repudiated — not the contract — but the authority of Rivera to make
a binding offer — and which unarguably came months aler the perfec$on of the contract. Said lefer dated May
12, 1988 is reproduced hereunder:
May 12, 1988
Afy. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Maka$, Metro-Manila
Dear Afy. Zarate:
This pertains to your lefer dated May 5, 1988 on behalf of Afys. Janolo and Demetria regarding the six
(6) parcels of land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a
"contract to sell and buy" with any of them for the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former Ac$ng
Conservator Mr. Andres I. Rus$a, Producers Bank Senior Manager Perfecto M. Pascua detailed the
func$ons of Property Management Department (PMD) staff and officers (Annex A.), you will
immediately read that Manager Mr. Mercurio Rivera or any of his subordinates has no authority, power
or right to make any alleged counter-offer. In short, your lawyer-clients did not deal with the authorized
officers of the bank.
Moreover, under Sec. 23 and 36 of the Corpora$on Code of the Philippines (Bates Pambansa Blg. 68.)
and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/
Conservator may authorize the sale of any property of the corpor$on/bank..
Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank
conservators (star$ng January, 1984) to sell the aforesaid property to any of your clients. Apparently,
what took place were just preliminary discussions/consulta$ons between him and your clients, which
everyone knows cannot bind the Bank's Board or Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently
viola$ve of corporate and banking laws. We believe that this is more than sufficient legal jus$fica$on
for refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are official, legal and in
accordance with law. We also have no personal interest in any of the proper$es of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. EDCARNACION
Ac$ng Conservator
In the third place, while admifedly, the Central Bank law gives vast and far-reaching powers to the conservator of
a bank, it must be pointed out that such powers must be related to the "(preserva$on of) the assets of the bank,
(the reorganiza$on of) the management thereof and (the restora$on of) its viability." Such powers, enormous
and extensive as they are, cannot extend to the post-facto repudia$on of perfected transac$ons, otherwise they
would infringe against the non-impairment clause of the Cons$tu$on 44 . If the legislature itself cannot revoke an
exis$ng valid contract, how can it delegate such non-existent powers to the conservator under Sec$on 28-A of
said law?
Obviously, therefore, Sec$on 28-A merely gives the conservator power to revoke contracts that are, under
exis$ng law, deemed to be defec$ve — i.e., void, voidable, unenforceable or rescissible. Hence, the conservator
merely takes the place of a bank's board of directors. What the said board cannot do — such as repudia$ng a
contract validly entered into under the doctrine of implied authority — the conservator cannot do either.
Ineluctably, his power is not unilateral and he cannot simply repudiate valid obliga$ons of the Bank. His authority
would be only to bring court ac$ons to assail such contracts — as he has already done so in the instant case. A
contrary understanding of the law would simply not be permifed by the Cons$tu$on. Neither by common sense.
To rule otherwise would be to enable a failing bank to become solvent, at the expense of third par$es, by simply
gemng the conservator to unilaterally revoke all previous dealings which had one way or another or come to be
considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the
third par$es who had dealt with the Bank.
The Firh Issue: Were There Reversible Errors of Facts?
Basic is the doctrine that in pe$$ons for review under Rule 45 of the Rules of Court, findings of fact by the Court
of Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust
Corpora)on, 45 , we held:
. . . The rule regarding ques$ons of fact being raised with this Court in a pe$$on for cer)orari under
Rule 45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February
25, 1988, 158 SCRA 138, thus:
The rule in this jurisdic$on is that only ques$ons of law may be raised in a pe$$on for cer)orari under
Rule 45 of the Revised Rules of Court. "The jurisdic$on of the Supreme Court in cases brought to it
from the Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its
findings of the fact being conclusive " [Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33
SCRA 737, reitera$ng a long line of decisions]. This Court has empha$cally declared that "it is not the
func$on of the Supreme Court to analyze or weigh such evidence all over again, its jurisdic$on being
limited to reviewing errors of law that might have been commifed by the lower court" (Tiongco v. De la
 Merced, G. R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482,
April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127
SCRA 596). "Barring, therefore, a showing that the findings complained of are totally devoid of support
in the record, or that they are so glaringly erroneous as to cons$tute serious abuse of discre$on, such
findings must stand, for this Court is not expected or required to examine or contrast the oral and
documentary evidence submifed by the par$es" [Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394,
December 17, 1966, 18 SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals 46 , we held:
The resolu$on of this pe$$on invites us to closely scru$nize the facts of the case, rela$ng to the
sufficiency of evidence and the credibility of witnesses presented. This Court so held that it is not the
func$on of the Supreme Court to analyze or weigh such evidence all over again. The Supreme Court's
jurisdic$on is limited to reviewing errors of law that may have been commifed by the lower court. The
Supreme Court is not a trier of facts. . . .
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construc$on and Development
Corp. 47 :
The Court has consistently held that the factual findings of the trial court, as well as the Court of
Appeals, are final and conclusive and may not be reviewed on appeal. Among the excep$onal
circumstances where a reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded en$rely on specula$on, surmises or conjectures; when the inference
made is manifestly absurd, mistaken or impossible; when there is grave abuse of discre$on in the
apprecia$on of facts; when the judgment is premised on a misapprehension of facts; when the findings
went beyond the issues of the case and the same are contrary to the admissions of both appellant and
appellee. Aler a careful study of the case at bench, we find none of the above grounds present to
jus$fy the re-evalua$on of the findings of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company
Inc. vs. Hon. Court of Appeals, et al. 48 is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is not the
func$on of this Court to assess and evaluate all over again the evidence, tes$monial and documentary,
adduced by the par$es, par$cularly where, such as here, the findings of both the trial court and the
appellate court on the mafer coincide. (emphasis supplied)
Pe$$oners, however, assailed the respondent Court's Decision as "fraught with findings and conclusions which
were not only contrary to the evidence on record but have no bases at all," specifically the findings that (1) the
"Bank's counter-offer price of P5.5 million had been determined by the past due commifee and approved by
conservator Romey, aler Rivera presented the same for discussion" and (2) "the mee$ng with Co was not to
scale down the price and start nego$a$ons anew, but a mee$ng on the already determined price of P5.5 million"
Hence, ci)ng Philippine Na$onal Bank vs. Court of Appeals 49 , pe$$oners are asking us to review and reverse
such factual findings.
The first point was clearly passed upon by the Court of Appeals 50 , thus:
There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed
plain$ffs by lefer that "the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot
basis, "such counter-offer price had been determined by the Past Due Commifee and approved by the
Conservator aler Rivera had duly presented plain$ffs' offer for discussion by the Commifee . . . Tersely
put, under the established fact, the price of P5.5 Million was, as clearly worded in Rivera's lefer (Exh.
"E"), the official and defini$ve price at which the bank was selling the property. (p. 11, CA Decision)
xxx xxx xxx
. . . The argument deserves scant considera$on. As pointed out by plain$ff, during the mee$ng of
September 28, 1987 between the plain$ffs, Rivera and Luis Co, the senior vice-president of the bank,
where the topic was the possible lowering of the price, the bank official refused it and confirmed that
the P5.5 Million price had been passed upon by the Commifee and could no longer be lowered (TSN of
April 27, 1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the pe$$oners on this point, characterizing it as "not
credible" and "at best equivocal and considering the gratuitous and self-serving character of these declara$ons,
the bank's submissions on this point do not inspire belief."
To become credible and unequivocal, pe$$oners should have presented then Conservator Rodolfo Romey to
tes$fy on their behalf, as he would have been in the best posi$on to establish their thesis. Under the rules on
evidence 51 , such suppression gives rise to the presump$on that his tes$mony would have been adverse, if
produced.
The second point was squarely raised in the Court of Appeals, but pe$$oners' evidence was deemed insufficient
by both the trial court and the respondent Court, and instead, it was respondent's submissions that were
believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are
valid and correct. But the pe$$oners are now asking this Court to disturb these findings to fit the conclusion they
are espousing, This we cannot do.
To be sure, there are sefled excep$ons where the Supreme Court may disregard findings of fact by the Court of
Appeals 52 . We have studied both the records and the CA Decision and we find no such excep$ons in this case.
On the contrary, the findings of the said Court are supported by a preponderance of competent and credible
evidence. The inferences and conclusions are seasonably based on evidence duly iden$fied in the Decision.
Indeed, the appellate court pa$ently traversed and dissected the issues presented before it, lending credibility
and dependability to its findings. The best that can be said in favor of pe$$oners on this point is that the factual
findings of respondent Court did not correspond to pe$$oners' claims, but were closer to the evidence as
presented in the trial court by private respondent. But this alone is no reason to reverse or ignore such factual
findings, par$cularly where, as in this case, the trial court and the appellate court were in common agreement
thereon. Indeed, conclusions of fact of a trial judge — as affirmed by the Court of Appeals — are conclusive upon
this Court, absent any serious abuse or evident lack of basis or capriciousness of any kind, because the trial court
is in a befer posi$on to observe the demeanor of the witnesses and their courtroom manner as well as to
examine the real evidence presented.
Epilogue.
In summary, there are two procedural issues involved forum-shopping and the raising of issues for the first $me
on appeal [viz., the ex$nguishment of the Bank's offer of P5.5 million and the conservator's powers to repudiate
contracts entered into by the Bank's officers] — which per se could jus$fy the dismissal of the present case. We
did not limit ourselves thereto, but delved as well into the substan$ve issues — the perfec$on of the contract of
sale and its enforceability, which required the determina$on of ques$ons of fact. While the Supreme Court is not
a trier of facts and as a rule we are not required to look into the factual bases of respondent Court's decisions
and resolu$ons, we did so just the same, if only to find out whether there is reason to disturb any of its factual
findings, for we are only too aware of the depth, magnitude and vigor by which the par$es through their
respec$ve eloquent counsel, argued their posi$ons before this Court.
We are not unmindful of the tenacious plea that the pe$$oner Bank is opera$ng abnormally under a
government-appointed conservator and "there is need to rehabilitate the Bank in order to get it back on its
feet . . . as many people depend on (it) for investments, deposits and well as employment. As of June 1987, the
Bank's overdral with the Central Bank had already reached P1.023 billion . . . and there were (other) offers to
buy the subject proper$es for a substan$al amount of money." 53
While we do not deny our sympathy for this distressed bank, at the same $me, the Court cannot emo$onally
close its eyes to overriding considera$ons of substan$ve and procedural law, like respect for perfected contracts,
non-impairment of obliga$ons and sanc$ons against forum-shopping, which must be upheld under the rule of
law and blind jus$ce.
This Court cannot just gloss over private respondent's submission that, while the subject proper$es may
currently command a much higher price, it is equally true that at the $me of the transac$on in 1987, the price
agreed upon of P5.5 million was reasonable, considering that the Bank acquired these proper$es at a foreclosure
sale for no more than P3.5 million 54 . That the Bank procras$nated and refused to honor its commitment to sell
cannot now be used by it to promote its own advantage, to enable it to escape its binding obliga$on and to reap
the benefits of the increase in land values. To rule in favor of the Bank simply because the property in ques$on
has algebraically accelerated in price during the long period of li$ga$on is to reward lawlessness and delays in
the fulfillment of binding contracts. Certainly, the Court cannot stamp its imprimatur on such outrageous
proposi$on.
WHEREFORE, finding no reversible error in the ques$oned Decision and Resolu$on, the Court hereby DENIES the
pe$$on. The assailed Decision is AFFIRMED. Moreover, pe$$oner Bank is REPRIMANDED for engaging in forum-
shopping and WARNED that a repe$$on of the same or similar acts will be dealt with more severely. Costs
against pe$$oners.
SO ORDERED.