G.R. No.

L-23145

November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary

administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo
F.
Asperillo,
Jr.,
for
ancillary
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.

administrator-appellee.

FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust
Company of New York, United States of America, of the estate of the deceased Idonah Slade
Perkins, who died in New York City on March 27, 1960, to surrender to the ancillary administrator in
the Philippines the stock certificates owned by her in a Philippine corporation, Benguet
Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided by
the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After
considering the motion of the ancillary administrator, dated February 11, 1964, as well as the
opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all
purposes in connection with the administration and liquidation of the Philippine estate of Idonah
Slade Perkins the stock certificates covering the 33,002 shares of stock standing in her name in the
books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said
corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to
either the incumbent ancillary administrator or to the Probate Division of this Court." 1
From such an order, an appeal was taken to this Court not by the domiciliary administrator, the
County Trust Company of New York, but by the Philippine corporation, the Benguet Consolidated,
Inc. The appeal cannot possibly prosper. The challenged order represents a response and
expresses a policy, to paraphrase Frankfurter, arising out of a specific problem, addressed to the
attainment of specific ends by the use of specific remedies, with full and ample support from legal
doctrines of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah
Slade Perkins, who died on March 27, 1960 in New York City, left among others, two stock
certificates covering 33,002 shares of appellant, the certificates being in the possession of the
County Trust Company of New York, which as noted, is the domiciliary administrator of the estate of
the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960, Prospero
Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila;
Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was
substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in
New York and the ancillary administrator in the Philippines as to which of them was entitled to the
possession of the stock certificates in question. On January 27, 1964, the Court of First Instance of
Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them
with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not
comply with the order, and on February 11, 1964, the ancillary administrator petitioned the court to
"issue an order declaring the certificate or certificates of stocks covering the 33,002 shares issued in
the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as
lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far
as it is concerned as to "who is entitled to the possession of the stock certificates in question;
appellant opposed the petition of the ancillary administrator because the said stock certificates are in

existence, they are today in the possession of the domiciliary

administrator, the County Trust
2
Company, in New York, U.S.A...."4
It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or
considered as lost. Moreover, it would allege that there was a failure to observe certain requirements
of its by-laws before new stock certificates could be issued. Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order
constitutes an emphatic affirmation of judicial authority sought to be emasculated by the wilful
conduct of the domiciliary administrator in refusing to accord obedience to a court decree. How,
then, can this order be stigmatized as illegal?
As is true of many problems confronting the judiciary, such a response was called for by the realities
of the situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had not
actually reached it, cannot without undue loss of judicial prestige, be condoned or tolerated. For the
law is not so lacking in flexibility and resourcefulness as to preclude such a solution, the more so as
deeper reflection would make clear its being buttressed by indisputable principles and supported by
the strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no
less than that of the country. Through this challenged order, there is thus dispelled the atmosphere of
contingent frustration brought about by the persistence of the domiciliary administrator to hold on to
the stock certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of the
lower court by entering its appearance through counsel on June 27, 1963, and filing a petition for
relief from a previous order of March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was
decreed. For without it, what it had been decided would be set at naught and nullified. Unless such a
blatant disregard by the domiciliary administrator, with residence abroad, of what was previously
ordained by a court order could be thus remedied, it would have entailed, insofar as this matter was
concerned, not a partial but a well-nigh complete paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary
administrator to gain control and possession of all assets of the decedent within the jurisdiction of
the Philippines. Nor could it. Such a power is inherent in his duty to settle her estate and satisfy the
claims of local creditors.5 As Justice Tuason speaking for this Court made clear, it is a "general rule
universally recognized" that administration, whether principal or ancillary, certainly "extends to the
assets of a decedent found within the state or country where it was granted," the corollary being "that
an administrator appointed in one state or country has no power over property in another state or
country."6
It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set
forth by Justice Malcolm. Thus: "It is often necessary to have more than one administration of an
estate. When a person dies intestate owning property in the country of his domicile as well as in a
foreign country, administration is had in both countries. That which is granted in the jurisdiction of
decedent's last domicile is termed the principal administration, while any other administration is
termed the ancillary administration. The reason for the latter is because a grant of administration
does not ex proprio vigore have any effect beyond the limits of the country in which it is granted.
Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The
ancillary administration is proper, whenever a person dies, leaving in a country other than that of his
last domicile, property to be administered in the nature of assets of the deceased liable for his
individual debts or to be distributed among his heirs." 7

It would follow then that the authority of the probate court to

3 require that ancillary administrator's right
to "the stock certificates covering the 33,002 shares ... standing in her name in the books of
[appellant] Benguet Consolidated, Inc...." be respected is equally beyond question. For appellant is a
Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts.
Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue 8 finds application. "In
the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being
domiciled [here]." To the force of the above undeniable proposition, not even appellant is insensible.
It does not dispute it. Nor could it successfully do so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the
legality of the challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry the
extremely heavy burden of persuasion of precisely demonstrating the contrary? It would assign as
the basic error allegedly committed by the lower court its "considering as lost the stock certificates
covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, ..." 9 More
specifically, appellant would stress that the "lower court could not "consider as lost" the stock
certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and
it is admitted by the appellee, that the said stock certificates are in existence and are today in the
possession of the domiciliary administrator in New York."10
There may be an element of fiction in the above view of the lower court. That certainly does not
suffice to call for the reversal of the appealed order. Since there is a refusal, persistently adhered to
by the domiciliary administrator in New York, to deliver the shares of stocks of appellant corporation
owned by the decedent to the ancillary administrator in the Philippines, there was nothing
unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new
certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator
could be discharged and his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being made to depend on the
uncontrolled discretion of the party or entity, in this case domiciled abroad, which thus far has shown
the utmost persistence in refusing to yield obedience. Certainly, appellant would not be heard to
contend in all seriousness that a judicial decree could be treated as a mere scrap of paper, the court
issuing it being powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not correspond
exactly with the facts. To be more blunt, the quality of truth may be lacking in such a conclusion
arrived at. It is to be remembered however, again to borrow from Frankfurter, "that fictions which the
law may rely upon in the pursuit of legitimate ends have played an important part in its
development."11
Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to
advance the ends of justice, [even if] clumsy and at times offensive." 12 Some of them have persisted
even to the present, that eminent jurist, noting "the quasi contract, the adopted child, the constructive
trust, all of flourishing vitality, to attest the empire of "as if" today." 13 He likewise noted "a class of
fictions of another order, the fiction which is a working tool of thought, but which at times hides itself
from view till reflection and analysis have brought it to the light." 14
What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in
the law. There should be then on the part of the appellant a further refinement in the catholicity of its
condemnation of such judicial technique. If ever an occasion did call for the employment of a legal
fiction to put an end to the anomalous situation of a valid judicial order being disregarded with

apparent impunity, this is it. What is thus most obvious is4that this particular alleged error does not
carry persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking
one of the provisions of its by-laws which would set forth the procedure to be followed in case of a
lost, stolen or destroyed stock certificate; it would stress that in the event of a contest or the
pendency of an action regarding ownership of such certificate or certificates of stock allegedly lost,
stolen or destroyed, the issuance of a new certificate or certificates would await the "final decision by
[a] court regarding the ownership [thereof]." 15
Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is
admitted that the foreign domiciliary administrator did not appeal from the order now in question.
Moreover, there is likewise the express admission of appellant that as far as it is concerned, "it is
immaterial ... who is entitled to the possession of the stock certificates ..." Even if such were not the
case, it would be a legal absurdity to impart to such a provision conclusiveness and finality.
Assuming that a contrariety exists between the above by-law and the command of a court decree,
the latter is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which,
however, the judiciary must yield deference, when appropriately invoked and deemed applicable. It
would be most highly unorthodox, however, if a corporate by-law would be accorded such a high
estate in the jural order that a court must not only take note of it but yield to its alleged controlling
force.
The fear of appellant of a contingent liability with which it could be saddled unless the appealed
order be set aside for its inconsistency with one of its by-laws does not impress us. Its obedience to
a lawful court order certainly constitutes a valid defense, assuming that such apprehension of a
possible court action against it could possibly materialize. Thus far, nothing in the circumstances as
they have developed gives substance to such a fear. Gossamer possibilities of a future prejudice to
appellant do not suffice to nullify the lawful exercise of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with
implications at war with the basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by operation of
law...."16 It owes its life to the state, its birth being purely dependent on its will. As Berle so aptly
stated: "Classically, a corporation was conceived as an artificial person, owing its existence through
creation by a sovereign power."17As a matter of fact, the statutory language employed owes much to
Chief Justice Marshall, who in the Dartmouth College decision defined a corporation precisely as "an
artificial being, invisible, intangible, and existing only in contemplation of law." 18
The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and
in reality a person, but the law treats it as though it were a person by process of fiction, or by
regarding it as an artificial person distinct and separate from its individual stockholders.... It owes its
existence to law. It is an artificial person created by law for certain specific purposes, the extent of
whose existence, powers and liberties is fixed by its charter." 19 Dean Pound's terse summary, a
juristic person, resulting from an association of human beings granted legal personality by the state,
puts the matter neatly.20
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from
Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition
and concession."21 A corporation as known to Philippine jurisprudence is a creature without any
existence until it has received the imprimatur of the state according to law. It is logically

inconceivable therefore that it will have rights and privileges

of a higher priority than that of its
5
creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs,
certainly not excluding the judiciary, whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of persuasive
authority in our jurisdiction, comes more often within the ken of the judiciary than the other two
coordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it is
not immune from judicial control in those instances, where a duty under the law as ascertained in an
appropriate legal proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not
autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may,
when so minded, overrule the state, the source of its very existence; it is to contend that what any of
its governmental organs may lawfully require could be ignored at will. So extravagant a claim cannot
possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs, 22 it was shown that in a guardianship
proceedings then pending in a lower court, the United States Veterans Administration filed a motion
for the refund of a certain sum of money paid to the minor under guardianship, alleging that the
lower court had previously granted its petition to consider the deceased father as not entitled to
guerilla benefits according to a determination arrived at by its main office in the United States. The
motion was denied. In seeking a reconsideration of such order, the Administrator relied on an
American federal statute making his decisions "final and conclusive on all questions of law or fact"
precluding any other American official to examine the matter anew, "except a judge or judges of the
United States court."23 Reconsideration was denied, and the Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion
that the appeal should be rejected. The provisions of the U.S. Code, invoked by the appellant, make
the decisions of the U.S. Veterans' Administrator final and conclusive when made on claims property
submitted to him for resolution; but they are not applicable to the present case, where the
Administrator is not acting as a judge but as a litigant. There is a great difference between actions
against the Administrator (which must be filed strictly in accordance with the conditions that are
imposed by the Veterans' Act, including the exclusive review by United States courts), and those
actions where the Veterans' Administrator seeks a remedy from our courts and submits to their
jurisdiction by filing actions therein. Our attention has not been called to any law or treaty that would
make the findings of the Veterans' Administrator, in actions where he is a party, conclusive on our
courts. That, in effect, would deprive our tribunals of judicial discretion and render them mere
subordinate instrumentalities of the Veterans' Administrator."
It is bad enough as the Viloria decision made patent for our judiciary to accept as final and
conclusive, determinations made by foreign governmental agencies. It is infinitely worse if through
the absence of any coercive power by our courts over juridical persons within our jurisdiction, the
force and effectivity of their orders could be made to depend on the whim or caprice of alien entities.
It is difficult to imagine of a situation more offensive to the dignity of the bench or the honor of the
country.
Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet
Consolidated seems to be firmly committed as shown by its failure to accept the validity of the order
complained of; it seeks its reversal. Certainly we must at all pains see to it that it does not succeed.
The deplorable consequences attendant on appellant prevailing attest to the necessity of negative
response from us. That is what appellant will get.

That is all then that this case presents. It is obvious why6the appeal cannot succeed. It is always
easy to conjure extreme and even oppressive possibilities. That is not decisive. It does not settle the
issue. What carries weight and conviction is the result arrived at, the just solution obtained,
grounded in the soundest of legal doctrines and distinguished by its correspondence with what a
sense of realism requires. For through the appealed order, the imperative requirement of justice
according to law is satisfied and national dignity and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First
Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet
Consolidated, Inc.

[G.R. No. 120138. September 5, 1997]

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR.,

MELVIN S. JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D.
PABALAN, petitioners, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION, TORMIL REALTY & DEVELOPMENT CORPORATION, ANTONIO P.
TORRES, JR., MA. CRISTINA T. CARLOS, MA. LUISA T. MORALES, and DANTE D.
MORALES,respondents.
DECISION
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioners
seek to annul the decision of the Court of Appeals in CA-G.R. SP. No. 31748 dated 23 May 1994 and
its subsequent resolution dated 10 May 1995 denying petitioners motion for reconsideration.
The present case involves two separate but interrelated conflicts. The facts leading to the first
controversy are as follows:
The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder of Tormil Realty
& Development Corporation while private respondents who are the children of Judge Torres
deceased brother Antonio A. Torres, constituted the minority stockholders. In particular, their
respective shareholdings and positions in the corporation were as follows:
Name of Stockholder Number of Percentage Position(s)
Shares
Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair
Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500 .28 Director [1]
In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an estate
planning scheme under which he assigned to Tormil Realty & Development Corporation (Tormil for
brevity) various real properties he owned and his shares of stock in other corporations in exchange
for 225,972 Tormil Realty shares. Hence, on various dates in July and August of 1984, ten (10)
deeds of assignment were executed by the late Judge Torres:

ASSIGNMENT DATE PROPERTY ASSIGNED LOCATION8SHARES TO

BE ISSUED
1. July 13, 1984 TCT 81834 Quezon City 13,252
TCT 144240 Quezon City
2. July 13, 1984 TCT 77008 Manila
TCT 65689 Manila 78,493
TCT 109200 Manila
3. July 13, 1984 TCT 374079 Makati 8,307
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay 9,855
TCT 41529 Pasay
5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000
6, Aug. 06, 1984 Manila Jockey Club Stocks 48,737
7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283
8. Aug. 07, 1984 China Banking Corp. Stocks 6,300
9. Aug. 20, 1984 Ayala Corp. Stocks 7,468
10. Aug. 29, 1984 Ayala Fund Stocks 1,322
225,972 [2]
Consequently, the aforelisted properties were duly recorded in the inventory of assets of Tormil
Realty and the revenues generated by the said properties were correspondingly entered in the
corporations books of account and financial records.
Likewise, all the assigned parcels of land were duly registered with the respective Register of
Deeds in the name of Tormil Realty, except for the ones located in Makati and Pasay City.
At the time of the assignments and exchange, however, only 225,000 Tormil Realty shares
remained unsubscribed, all of which were duly issued to and received by Judge Torres (as
evidenced by stock certificates Nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25). [3]
Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal
of private respondents to approve the needed increase in the corporations authorized capital stock
(to cover the shortage of 972 shares due to Judge Torres under the estate planning scheme), on 11
September 1986, Judge Torres revoked the two (2) deeds of assignment covering the properties in
Makati and Pasay City.[4]

Noting the disappearance of the Makati and Pasay

9 City properties from the corporations
inventory of assets and financial records private respondents, on 31 March 1987, were constrained
to file a complaint with the Securities and Exchange Commission (SEC) docketed as SEC Case No.
3153 to compel Judge Torres to deliver to Tormil Corporation the two (2) deeds of assignment
covering the aforementioned Makati and Pasay City properties which he had unilaterally revoked
and to cause the registration of the corresponding titles in the name of Tormil. Private respondents
alleged that following the disappearance of the properties from the corporations inventory of assets,
they found that on October 24, 1986, Judge Torres, together with Edgardo Pabalan and Graciano
Tobias, then General Manager and legal counsel, respectively, of Tormil, formed and organized a
corporation named Torres-Pabalan Realty and Development Corporation and that as part of Judge
Torres contribution to the new corporation, he executed in its favor a Deed of Assignment conveying
the same Makati and Pasay City properties he had earlier transferred to Tormil.
The second controversy--involving the same parties--concerned the election of the 1987
corporate board of directors.
The 1987 annual stockholders meeting and election of directors of Tormil corporation was
scheduled on 25 March 1987 in compliance with the provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (1) share each to petitioners
Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of
qualifying shares, for the sole purpose of meeting the legal requirement to be able to elect
them (Tobias and company) to the Board of Directors as Torres nominees.
The assigned shares were covered by corresponding Tormil Stock Certificates Nos. 030, 029,
028, 027, 026 and at the back of each certificate the following inscription is found:
The present certificate and/or the one share it represents, conformably to the purpose and intention
of the Deed of Assignment dated March 6, 1987, is not held by me under any claim of ownership and
I acknowledge that I hold the same merely as trustee of Judge Manuel A. Torres, Jr. and for the sole
purpose of qualifying me as Director;
(Signature of Assignee) [5]
The reason behind the aforestated action was to remedy the inequitable lopsided set-up
obtaining in the corporation, where, notwithstanding his controlling interest in the corporation, the
late Judge held only a single seat in the nine-member Board of Directors and was, therefore, at the
mercy of the minority, a combination of any two (2) of whom would suffice to overrule the majority
stockholder in the Boards decision making functions. [6]
On 25 March 1987, the annual stockholders meeting was held as scheduled. What transpired
therein was ably narrated by Attys. Benito Cataran and Bayani De los Reyes, the official
representatives dispatched by the SEC to observe the proceedings (upon request of the late Judge
Torres) in their report dated 27 March 1987:
xxx.
The undersigned arrived at 1:55 p.m. in the place of the meeting, a residential bungalow in Urdaneta
Village, Makati, Metro Manila. Upon arrival, Josefina Torres introduced us to the stockholders
namely:Milagros Torres, Antonio Torres, Jr., Ma. Luisa Morales, Ma. Cristina Carlos and Ma. Jacinta
Torres. Antonio Torres, Jr. questioned our authority and personality to appear in the meeting claiming
subject corporation is a family and private firm. We explained that our appearance there was merely
in response to the request of Manuel Torres, Jr. and that SEC has jurisdiction over all registered

corporations.Manuel Torres, Jr., a septuagenarian, argued10

that as holder of the major and controlling
shares, he approved of our attendance in the meeting.
At about 2:30 p.m., a group composed of Edgardo Pabalan, Atty. Graciano Tobias, Atty. Rodolfo
Jocson, Jr., Atty. Melvin Jurisprudencia, and Atty. Augustus Cesar Azura arrived. Atty. Azura told the
body that they came as counsels of Manuel Torres, Jr. and as stockholders having assigned
qualifying shares by Manuel Torres, Jr.
The stockholders meeting started at 2:45 p.m. with Mr. Pabalan presiding after verbally authorized
by Manuel Torres, Jr., the President and Chairman of the Board. The secretary when asked about
the quorum, said that there was more than a quorum. Mr. Pabalan distributed copies of the
presidents report and the financial statements. Antonio Torres, Jr. requested time to study the said
reports and brought out the question of auditing the finances of the corporation which he claimed
was approved previously by the board. Heated arguments ensued which also touched on family
matters. Antonio Torres, Jr. moved for the suspension of the meeting but Manuel Torres, Jr. voted for
the continuation of the proceedings.
Mr. Pabalan suggested that the opinion of the SEC representatives be asked on the propriety of
suspending the meeting but Antonio Torres, Jr. objected reasoning out that we were just observers.
When the Chairman called for the election of directors, the Secretary refused to write down the
names of nominees prompting Atty. Azura to initiate the appointment of Atty. Jocson, Jr. as Acting
Secretary.
Antonio Torres, Jr. nominated the present members of the Board. At this juncture, Milagros Torres
cried out and told the group of Manuel Torres, Jr. to leave the house.
Manuel Torres, Jr., together with his lawyers-stockholders went to the residence of Ma. Jacinta
Torres in San Miguel Village, Makati, Metro Manila. The undersigned joined them since the group
with Manuel Torres, Jr. the one who requested for S.E.C. observers, represented the majority of the
outstanding capital stock and still constituted a quorum.
At the resumption of the meeting, the following were nominated and elected as directors for the year
1987-1988:
1. Manuel Torres, Jr.
2. Ma. Jacinta Torres
3. Edgardo Pabalan
4. Graciano Tobias
5. Rodolfo Jocson, Jr.
6. Melvin Jurisprudencia
7. Augustus Cesar Azura
8. Josefina Torres
9. Dante Morales

After the election, it was resolved that after the meeting, the
11new board of directors shall convene for
the election of officers.
xxx. [7]
Consequently, on 10 April 1987, private respondents instituted a complaint with the SEC (SEC
Case No. 3161) praying in the main, that the election of petitioners to the Board of Directors be
annulled.
Private respondents alleged that the petitioners-nominees were not legitimate stockholders of
Tormil because the assignment of shares to them violated the minority stockholders right of preemption as provided in the corporations articles and by-laws.
Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for joint hearing
and adjudication.
On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision in favor of
private respondents. The dispositive portion thereof states, thus:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering and directing the respondents, particularly respondent Manuel A. Torres, Jr., to turn over
and deliver to TORMIL through its Corporate Secretary, Ma. Cristina T. Carlos: (a) the originals of the
Deeds of Assignment dated July 13 and 24, 1984 together with the owners duplicates of Transfer
Certificates of Title Nos. 374079 of the Registry of Deeds for Makati, and 41527, 41528 and 41529
of the Registry of Deeds for Pasay City and/or to cause the formal registration and transfer of title in
and over such real properties in favor of TORMIL with the proper government agency; (b) all
corporate books of account, records and papers as may be necessary for the conduct of a
comprehensive audit examination, and to allow the examination and inspection of such accounting
books, papers and records by any or all of the corporate directors, officers and stockholders and/or
their duly authorized representatives or auditors;
2. Declaring as permanent and final the writ of preliminary injunction issued by the Hearing Panel on
February 13, 1989;
3. Declaring as null and void the election and appointment of respondents to the Board of Directors
and executive positions of TORMIL held on March 25, 1987, and all their acts and resolutions made
for and in behalf of TORMIL by authority of and pursuant to such invalid appointment & election held
on March 25, 1987;
4. Ordering the respondents jointly and severally, to pay the complainants the sum of ONE
HUNDRED THOUSAND PESOS (P100,000.00) and by way of attorneys fees. [8]
Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No. 339). Thereafter,
on 3 April 1991, during the pendency of said appeal, petitioner Manuel A. Torres, Jr. died. However,
notice thereof was brought to the attention of the SEC not by petitioners counsel but by private
respondents in a Manifestation dated 24 April 1991.[9]
On 8 June 1993, petitioners filed a Motion to Suspend Proceedings on grounds that no
administrator or legal representative of the late Judge Torres estate has yet been appointed by the
Regional Trial Court of Makati where Sp. Proc. No. M-1768 (In Matter of the Issuance of the Last Will

and Testament of Manuel A. Torres, Jr.) was pending. Two12

similar motions for suspension were filed
by petitioners on 28 June 1993 and 9 July 1993.
On 19 July 1993, the SEC en banc issued an Order denying petitioners aforecited motions on
the following ground:
Before the filing of these motions, the Commission en banc had already completed all proceedings
and had likewise ruled on the merits of the appealed cases. Viewed in this light, we thus feel that
there is nothing left to be done except to deny these motions to suspend proceedings. [10]
On the same date, the SEC en banc rendered a decision, the dispositive portion of which reads,
thus:
WHEREFORE, premises considered, the appealed decision of the hearing panel is hereby affirmed
and all motions pending before us incident to this appealed case are necessarily DISMISSED.
SO ORDERED. [11]
Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to the Court of
Appeals by way of a petition for review (docketed as CA-G.R. SP No. 31748).
On 23 May 1994, the Court of Appeals rendered a decision, the dispositive portion of which
states:
WHEREFORE, the petition for review is DISMISSED and the appealed decision is accordingly
affirmed.
SO ORDERED. [12]
From the said decision, petitioners filed a motion for reconsideration which was denied in a
resolution issued by the Court of Appeals dated 10 May 1995. [13]
Insisting on their cause, petitioners filed the present petition for review alleging that the Court of
Appeals committed the following errors in its decision:
(1)
WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTH DECISION,
WITHOUT THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C. - AC NO. 339 BEING
PROPERLY BROUGHT BEFORE IT FOR REVIEW AND RE-EXAMINATION, AN OMISSION
RESULTING IN A CLEAR TRANSGRESSION OR CURTAILMENT OF THE RIGHTS OF THE
HEREIN PETITIONERS TO PROCEDURAL DUE PROCESS;
(2)
WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT S.E.C., WHICH
IS VOID FOR HAVING BEEN RENDERED WITHOUT THE PROPER SUBSTITUTION OF THE
DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO. 339 AND CONSEQUENTLY,
FOR WANT OF JURISDICTION OVER THE SAID DECEASEDS TESTATE ESTATE, AND
MOREOVER, WHEN IT SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY ITS APPLICATION
OF THE CIVIL LAW CONCEPT OF NEGOTIORUM GESTIO;

(3)

13

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL

RECORD OF S.E.C. -AC NO. 339 NOT HAVING ACTUALLY BEEN RE-EXAMINED, THAT S.E.C.
CASE NO. 3153 INVOLVED A SITUATION WHERE PERFORMANCE WAS IMPOSSIBLE (AS
CONTEMPLATED UNDER ARTICLE 1191 OF THE CIVIL CODE) AND WAS NOT A MERE CASE
OF LESION OR INADEQUACY OF CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE) AS SO
ERRONEOUSLY CHARACTERIZED BY THE RESPONDENT S.E.C.; and,
(4)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL
RECORD OF S.E.C.-AC NO. 339 NOT HAVING ACTUALLY BEEN EXAMINED, THAT THE
RECORDING BY THE LATE JUDGE MANUEL A. TORRES, JR. OF THE QUESTIONED
ASSIGNMENT OF QUALIFYING SHARES TO HIS NOMINEES, WAS AFFIRMED IN THE STOCK
AND TRANSFER BOOK BY AN ACTING CORPORATE SECRETARY AND MOREOVER, THAT
ACTUAL NOTICE OF SAID ASSIGNMENT WAS TIMELY MADE TO THE OTHER
STOCKHOLDERS. [14]
We shall resolve the issues in seriatim.
I
Petitioners insist that the failure to transmit the original records to the Court of Appeals deprived
them of procedural due process. Without the evidence and the original records of the proceedings
before the SEC, the Court of Appeals, petitioners adamantly state, could not have possibly made a
proper appreciation and correct determination of the issues, particularly the factual issues they had
raised on appeal. Petitioners also assert that since the Court of Appeals allegedly gave due course
to their petition, the original records should have been forwarded to said court.
Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91 (dated 27 February
1991) which provides that:
8. WHEN PETITION GIVEN DUE COURSE.-The Court of Appeals shall give due course to the
petition only when it shows prima facie that the court, commission, board, office or agency
concerned has committed errors of fact or law that would warrant reversal or modification of the
order, ruling or decision sought to be reviewed. The findings of fact of the court commission, board,
office or agency concerned when supported by substantial evidence shall be final.
xxx.
11. TRANSMITTAL OF RECORD.-Within fifteen (15) days from notice that the petition has been
given due course, the court, commission, board, office or agency concerned shall transmit to the
Court of Appeals the original or a certified copy of the entire record of the proceeding under
review. The record to be transmitted may be abridged by agreement of all parties to the
proceeding. The Court of Appeals may require or permit subsequent correction or addition to the
record.
Petitioners contend that the Court of Appeals had given due course to their petition as allegedly
indicated by the following acts:

a) it granted the restraining order applied for by the herein 14

petitioners, and after hearing, also the writ
of preliminary injunction sought by them; under the original SC Circular No. 1-91, a petition for
review may be given due course at the onset (paragraph 8) upon a mere prima facie finding of errors
of fact or law having been committed, and such prima facie finding is but consistent with the grant of
the extra-ordinary writ of preliminary injunction;
b) it required the parties to submit simultaneous memoranda in its resolution dated October 15, 1993
(this is in addition to the comment required to be filed by the respondents) and furthermore declared
in the same resolution that the petition will be decided on the merits, instead of outrightly dismissing
the same;
c) it rendered a full length decision, wherein: (aa) it expressly declared the respondent S.E.C. as
having erred in denying the pertinent motions to suspend proceedings; (bb) it declared the supposed
error as having become a non-issue when the respondent C.A. proceeded to hear (the)
appeal; (cc) it formulated and applied its own theory of negotiorum gestio in justifying the nonsubstitution of the deceased principal party in S.E C. -AC No. 339 and moreover, its theory of di
minimis non curat lex (this, without first determining the true extent of and the correct legal
characterization of the so-called shortage ofTormil shares; and, (dd) it expressly affirmed the
assailed decision of respondent S.E.C .[15]
Petitioners contention is unmeritorious.
There is nothing on record to show that the Court of Appeals gave due course to the
petition. The fact alone that the Court of Appeals issued a restraining order and a writ of preliminary
injunction and required the parties to submit their respective memoranda does not indicate that the
petition was given due course. The office of an injunction is merely to preserve the
statusquo pending the disposition of the case. The court can require the submission of memoranda
in support of the respective claims and positions of the parties without necessarily giving due course
to the petition. The matter of whether or not to give due course to a petition lies in the discretion of
the court.
It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised Administrative
Circular No. 1-95 (which took effect on 1 June 1995) wherein the procedure for appeals from quasijudicial agencies to the Court of Appeals was clarified thus:
10. Due course.-- If upon the filing of the comment or such other pleadings or documents as may be
required or allowed by the Court of Appeals or upon the expiration of the period for the filing
thereof, and on the bases of the petition or the record the Court of Appeals finds prima facie that the
court or agency concerned has committed errors of fact or law that would warrant reversal or
modification of the award, judgment, final order or resolution sought to be reviewed, it may give due
course to the petition; otherwise, it shall dismiss the same. The findings of fact of the court or agency
concerned, when supported by substantial evidence, shall be binding on the Court of Appeals.
11. Transmittal of record.-- Within fifteen (15) days from notice that the petition has been given due
course, the Court of Appeals may require the court or agency concerned to transmit the original or a
legible certified true copy of the entire record of the proceeding under review. The record to be
transmitted may be abridged by agreement of all parties to the proceeding. The Court of Appeals
may require or permit subsequent correction of or addition to the record. (Underscoring ours.)
The aforecited circular now formalizes the correct practice and clearly states that in resolving
appeals from quasi judicial agencies, it is within the discretion of the Court of Appeals to have the
original records of the proceedings under review be transmitted to it. In this connection, petitioners
claim that the Court of Appeals could not have decided the case on the merits without the records

being brought before it is patently lame. Indubitably, the Court

15 of Appeals decided the case on the
basis of the uncontroverted facts and admissions contained in the pleadings, that is, the petition,
comment, reply, rejoinder, memoranda, etc. filed by the parties.
II
Petitioners contend that the decisions of the SEC and the Court of Appeals are null and void for
being rendered without the necessary substitution of parties (for the deceased petitioner Manuel A.
Torres, Jr.) as mandated by Sec. 17, Rule 3 of the Revised Rules of Court, which provides as
follows:
SEC. 17. Death of party.--After a party dies and the claim is not thereby extinguished, the court shall
order, upon proper notice, the legal representative of the deceased to appear and to be substituted
for the deceased, within a period of thirty (30) days, or within such time as may be granted. If the
legal representative fails to appear within said time, the court may order the opposing party to
procure the appointment of a legal representative of the deceased within a time to be specified by
the court, and the representative shall immediately appear for and on behalf of the interest of the
deceased. The court charges involved in procuring such appointment, if defrayed by the opposing
party, may be recovered as costs. The heirs of the deceased may be allowed to be substituted for
the deceased, without requiring the appointment of an executor or administrator and the court may
appoint guardian ad litem for the minor heirs.
Petitioners insist that the SEC en banc should have granted the motions to suspend they filed
based as they were on the ground that the Regional Trial Court of Makati, where the probate of the
late Judge Torres will was pending, had yet to appoint an administrator or legal representative of his
estate.
We are not unaware of the principle underlying the aforequoted provision:
It has been held that when a party dies in an action that survives, and no order is issued by the
Court for the appearance of the legal representative or of the heirs of the deceased to be substituted
for the deceased, and as a matter of fact no such substitution has ever been effected, the trial held
by the court without such legal representative or heirs, and the judgment rendered after such trial,
are null and void because the court acquired no jurisdiction over the persons of the legal
representative or of the heirs upon whom the trial and the judgment are not binding. [16]
As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-1768 before the
Regional Trial Court of Makati for the ante-mortem probate of his holographic will which he had
executed on 31 October 1986. Testifying in the said proceedings, Judge Torres confirmed his
appointment of petitioner Edgardo D. Pabalan as the sole executor of his will and administrator of his
estate. The proceedings, however, were opposed by the same parties, herein private respondents
Antonio P. Torres, Jr., Ma. Luisa T. Morales and Ma. Cristina T. Carlos, [17] who are nephew and
nieces of Judge Torres, being the children of his late brother Antonio A. Torres.
It can readily be observed therefore that the parties involved in the present controversy are
virtually the same parties fighting over the representation of the late Judge Torres estate. It should be
recalled that the purpose behind the rule on substitution of parties is the protection of the right of
every party to due process. It is to ensure that the deceased party would continue to be properly
represented in the suit through the duly appointed legal representative of his estate. In the present
case, this purpose has been substantially fulfilled (despite the lack of formal substitution) in view of
the peculiar fact that both proceedings involve practically the same parties. Both parties have been
fiercely fighting in the probate proceedings of Judge Torres holographic will for appointment as legal
representative of his estate. Since both parties claim interests over the estate, the rights of the

estate were expected to be fully protected in the proceedings

16 before the SEC en banc and the Court
of Appeals. In either case, whoever shall be appointed legal representative of Judge Torres estate
(petitioner Pabalan or private respondents) would no longer be a stranger to the present case, the
said parties having voluntarily submitted to the jurisdiction of the SEC and the Court of Appeals and
having thoroughly participated in the proceedings.
The foregoing rationale finds support in the recent case of Vda. de Salazar v. CA, [18] wherein
the Court expounded thus:
The need for substitution of heirs is based on the right to due process accruing to every party in any
proceeding. The rationale underlying this requirement in case a party dies during the pendency of
proceedings of a nature not extinguished by such death, is that xxx the exercise of judicial power to
hear and determine a cause implicitly presupposes in the trial court, amongst other essentials,
jurisdiction over the persons of the parties. That jurisdiction was inevitably impaired upon the death
of the protestee pending the proceedings below such that unless and until a legal representative is
for him duly named and within the jurisdiction of the trial court, no adjudication in the cause could
have been accorded any validity or binding effect upon any party, in representation of the deceased,
without trenching upon the fundamental right to a day in court which is the very essence of the
constitutionally enshrined guarantee of due process.
We are not unaware of several cases where we have ruled that a party having died in an action that
survives, the trial held by the court without appearance of the deceaseds legal representative or
substitution of heirs and the judgment rendered after such trial, are null and void because the court
acquired no jurisdiction over the persons of the legal representatives or of the heirs upon whom the
trial and the judgment would be binding. This general rule notwithstanding, in denying petitioners
motion for reconsideration, the Court of Appeals correctly ruled that formal substitution of heirs is not
necessary when the heirs themselves voluntarily appeared, participated in the case and presented
evidence in defense of deceased defendant. Attending the case at bench, after all, are these
particular circumstances which negate petitioners belated and seemingly ostensible claim of
violation of her rights to due process. We should not lose sight of the principle underlying the general
rule that formal substitution of heirs must be effectuated for them to be bound by a subsequent
judgment. Such had been the general rule established not because the rule on substitution of heirs
and that on appointment of a legal representative are jurisdictional requirements per se but because
non-compliance therewith results in the undeniable violation of the right to due process of those who,
though not duly notified of the proceedings, are substantially affected by the decision rendered
therein. xxx.
It is appropriate to mention here that when Judge Torres died on April 3, 1991, the
SEC en banc had already fully heard the parties and what remained was the evaluation of the
evidence and rendition of the judgment.
Further, petitioners filed their motions to suspend proceedings only after more than two (2)
years from the death of Judge Torres. Petitioners counsel was even remiss in his duty under Sec.
16, Rule 3 of the Revised Rules of Court. [19] Instead, it was private respondents who informed the
SEC of Judge Torres death through a manifestation dated 24 April 1991.
For the SEC en banc to have suspended the proceedings to await the appointment of the legal
representatives by the estate was impractical and would have caused undue delay in the
proceedings and a denial of justice. There is no telling when the probate court will decide the issue,
which may still be appealed to the higher courts.
In any case, there has been no final disposition of the properties of the late Judge Torres before
the SEC. On the contrary, the decision of the SEC en banc as affirmed by the Court of Appeals

served to protect and preserve his estate. Consequently, 17

the rule that when a party dies, he should
be substituted by his legal representative to protect the interest of his estate in observance of due
process was not violated in this case in view of its peculiar situation where the estate was fully
protected by the presence of the parties who claim interest thereto either as directors, stockholders
or heirs.
Finally, we agree with petitioners contention that the principle of negotiorum gestio [20] does not
apply in the present case. Said principle explicitly covers abandoned or neglected property or
business.
III
Petitioners find legal basis for Judge Torres act of revoking the assignment of his properties in
Makati and Pasay City to Tormil corporation by relying on Art. 1191 of the Civil Code which provides
that:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law.
Petitioners contentions cannot be sustained. We see no justifiable reason to disturb the findings
of SEC, as affirmed by the Court of Appeals:
We sustain the ruling of respondent SEC in the decision appealed from (Rollo, pp. 45-46) that x x x the shortage of 972 shares would not be valid ground for respondent Torres to unilaterally
revoke the deeds of assignment he had executed on July 13, 1984 and July 24, 1984 wherein he
voluntarily assigned to TORMIL real properties covered by TCT No. 374079 (Makati) and TCT No.
41527, 41528 and 41529 (Pasay) respectively.
A comparison of the number of shares that respondent Torres received from TORMIL by virtue of the
deeds of assignment and the stock certificates issued by the latter to the former readily shows that
TORMIL had substantially performed what was expected of it. In fact, the first two issuances were in
satisfaction to the properties being revoked by respondent Torres. Hence, the shortage of 972
shares would never be a valid ground for the revocation of the deeds covering Pasay and Quezon
City properties.
In Universal Food Corp. vs. CA, the Supreme Court held:
The general rule is that rescission of a contract will not be permitted for a slight or carnal breach, but
only for such substantial and fundamental breach as would defeat the very object of the parties in
making the agreement.

The shortage of 972 shares definitely is not substantial and

18fundamental breach as would defeat the
very object of the parties in entering into contract. Art. 1355 of the Civil Code also provides: Except
in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there
has been fraud, mistake or undue influences. There being no fraud, mistake or undue influence
exerted on respondent Torres by TORMIL and the latter having already issued to the former of its
225,000 unissued shares, the most logical course of action is to declare as null and void the deed of
revocation executed by respondent Torres. (Rollo, pp. 45-46.) [21]
The aforequoted Civil Code provision does not apply in this particular situation for the obvious
reason that a specific number of shares of stock (as evidenced by stock certificates) had already
been issued to the late Judge Torres in exchange for his Makati and Pasay City properties. The
records thus disclose:
DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF
ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE
1. July 13, 1984 TCT 81834 Quezon City) 13,252 3rd
TCT 144240 Quezon City)
2. July 13, 1984 TCT 77008 Manila)
TCT 65689 Manila) 78,493 2nd
TCT 102200 Manila)
3. July 13, 1984 TCT 374079 Makati 8,307 1st
4. July 24, 1984 TCT 41527 Pasay)
TCT 41528 Pasay) 9,855 4th
TCT 41529 Pasay)
5. August 6, 1984 El Hogar Filipino Stocks 2,000 7th
6. August 6, 1984 Manila Jockey Club Stocks 48,737 5th
7. August 7, 1984 San Miguel Corp. Stocks 50,238 8th
8. August 7, 1984 China Banking Corp. Stocks 6,300 6th
9. August 20, 1984 Ayala Corp. Stocks 7,468.2) 9th
10. August 29, 1984 Ayala Fund Stocks 1,322.1)
TOTAL 225,972.3
* Order of stock certificate issuances by TORMIL to respondent Torres relative to the Deeds of
Assignment he executed sometime in July and August, 1984. [22] (Emphasis ours.)

Moreover, we agree with the contention of the Solicitor

19 General that the shortage of shares
should not have affected the assignment of the Makati and Pasay City properties which were
executed in 13 and 24 July 1984 and the consideration for which have been duly paid or fulfilled but
should have been applied logically to the last assignment of property -- Judge Torres Ayala Fund
shares--which was executed on 29 August 1984.[23]
IV
Petitioners insist that the assignment of qualifying shares to the nominees of the late Judge
Torres (herein petitioners) does not partake of the real nature of a transfer or conveyance of shares
of stock as would call for the imposition of stringent requirements (with respect to the) recording of
the transfer of said shares. Anyway, petitioners add, there was substantial compliance with the
above-stated requirement since said assignments were entered by the late Judge Torres himself in
the corporations stock and transfer book on 6 March 1987, prior to the 25 March 1987 annual
stockholders meeting and which entries were confirmed on 8 March 1987 by petitioner Azura who
was appointed Assistant Corporate Secretary by Judge Torres.
Petitioners further argue that:
10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to penalize the late Judge
Torres by invalidating the questioned entries in the stock and transfer book, simply because he
initially made those entries (they were later affirmed by an acting corporate secretary) and because
the stock and transfer book was in his possession instead of the elected corporate secretary, if the
background facts herein-before narrated and the serious animosities that then reigned between the
deceased Judge and his relatives are to be taken into account;
xxx.
10.12. Indeed it was a practice in the corporate respondent, a family corporation with only a measly
number of stockholders, for the late judge to have personal custody of corporate records; as
president, chairman and majority stockholder, he had the prerogative of designating an acting
corporate secretary or to himself make the needed entries, in instances where the regular secretary,
who is a mere subordinate, is unavailable or intentionally defaults, which was the situation that
obtained immediately prior to the 1987 annual stockholders meeting of Tormil, as the late Judge
Torres had so indicated in the stock and transfer book in the form of the entries now in question;
10.13. Surely, it would have been futile nay foolish for him to have insisted under those
circumstances, for the regular secretary, who was then part of a group ranged against him, to make
the entries of the assignments in favor of his nominees; [24]
Petitioners contentions lack merit.
It is precisely the brewing family discord between Judge Torres and private respondents--his
nephew and nieces that should have placed Judge Torres on his guard. He should have been more
careful in ensuring that his actions (particularly the assignment of qualifying shares to his nominees)
comply with the requirements of the law. Petitioners cannot use the flimsy excuse that it would have
been a vain attempt to force the incumbent corporate secretary to register the aforestated
assignments in the stock and transfer book because the latter belonged to the opposite faction. It is
the corporate secretarys duty and obligation to register valid transfers of stocks and if said corporate
officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel performance.
[25]
In other words, there are remedies within the law that petitioners could have availed of, instead of
taking the law in their own hands, as the cliche goes.

Thus, we agree with the ruling of the SEC en banc as20

affirmed by the Court of Appeals:
We likewise sustain respondent SEC when it ruled, interpreting Section 74 of the Corporation Code,
as follows (Rollo, p. 45):
In the absence of (any) provision to the contrary, the corporate secretary is the custodian of
corporate records. Corollarily, he keeps the stock and transfer book and makes proper and
necessary entries therein.
Contrary to the generally accepted corporate practice, the stock and transfer book of TORMIL was
not kept by Ms. Maria Cristina T. Carlos, the corporate secretary but by respondent Torres, the
President and Chairman of the Board of Directors of TORMIL. In contravention to the above cited
provision, the stock and transfer book was not kept at the principal office of the corporation either but
at the place of respondent Torres.
These being the obtaining circumstances, any entries made in the stock and transfer book on March
8, 1987 by respondent Torres of an alleged transfer of nominal shares to Pabalan and Co. cannot
therefore be given any valid effect. Where the entries made are not valid, Pabalan and Co. cannot
therefore be considered stockholders of record of TORMIL. Because they are not stockholders, they
cannot therefore be elected as directors of TORMIL. To rule otherwise would not only encourage
violation of clear mandate of Sec. 74 of the Corporation Code that stock and transfer book shall be
kept in the principal office of the corporation but would likewise open the flood gates of confusion in
the corporation as to who has the proper custody of the stock and transfer book and who are the real
stockholders of records of a certain corporation as any holder of the stock and transfer book, though
not the corporate secretary, at pleasure would make entries therein.
The fact that respondent Torres holds 81.28% of the outstanding capital stock of TORMIL is of no
moment and is not a license for him to arrogate unto himself a duty lodged to (sic) the corporate
secretary.[26]
All corporations, big or small, must abide by the provisions of the Corporation Code. Being a
simple family corporation is not an exemption. Such corporations cannot have rules and practices
other than those established by law.
WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED.
SO ORDERED.

[G.R. No. 125469. October 27, 1997]

21

PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT OF

APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND,
INC., respondents.
DECISION
TORRES, JR., J.:
The Securities and Exchange Commission is the government agency, under the direct general
supervision of the Office of the President,[1] with the immense task of enforcing the Revised
Securities Act, and all other duties assigned to it by pertinent laws. Among its inumerable functions,
and one of the most important, is the supervision of all corporations, partnerships or associations,
who are grantees or primary franchise and/or a license or permit issued by the government to
operate in the Philippines.[2] Just how far this regulatory authority extends, particularly, with regard to
the Petitioner Philippine Stock Exchange, Inc. is the issue in the case at bar.
In this Petition for Review of Certiorari, petitioner assails the resolution of the respondent Court
of Appeals, dated June 27, 1996, which affirmed the decision of the Securities and Exchange
Commission ordering the petitioner Philippine Stock Exchange, Inc. to allow the private respondent
Puerto Azul Land, Inc. to be listed in its stock market, thus paving the way for the public offering of
PALIs shares.
The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its
shares to the public in order to raise funds allegedly to develop its properties and pay its loans with
several banking institutions. In January, 1995, PALI was issued a Permit to Sell its shares to the
public by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares
among investors, PALI sought to course the trading of its shares through the Philippine Stock
Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange an application to list its
shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs application,
recommended to the PSEs Board of Governors the approval of PALIs listing application.
On February 14, 1996, before it could act upon PALIs application, the Board of Governors of
PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos
was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel
and Resort Complex which PALI claims to be among its assets and that the Ternate Development
Corporation, which is among the stockholders of PALI, likewise appears to have been held and
continue to be held in trust by one Rebecco Panlilio for then President Marcos and now, effectively
for his estate, and requested PALIs application to be deferred. PALI was requested to comment upon
the said letter.
PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and Resort
Complex were not claimed by PALI as its assets. On the contrary, the resort is actually owned by
Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI.
Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The Marcoses
responded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and

Resort Complex, thereby implying that they are also asserting

legal and beneficial ownership of
22
other properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential
Commission on Good Government (PCGG) requesting for comments on the letter of the PALI and
the Marcoses. On March 4, 1996, the PSE was informed that the Marcoses received a Temporary
Restraining Order on the same date, enjoining the Marcoses from, among others, further impeding,
obstructing, delaying or interfering in any manner by or any means with the consideration,
processing and approval by the PSE of the initial public offering of PALI. The TRO was issued by
Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No. 65561,
pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its
decision to reject PALIs application, citing the existence of serious claims, issues and circumstances
surrounding PALIs ownership over its assets that adversely affect the suitability of listing PALIs
shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman,
Perfecto R. Yasay, Jr., bringing to the SECs attention the action taken by the PSE in the application
of PALI for the listing of its shares with the PSE, and requesting that the SEC, in the exercise of its
supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-A,
review the PSEs action on PALIs listing application and institute such measures as are just and
proper and under the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter
of PALI and directing the PSE to file its comments thereto within five days from its receipt and for its
authorized representative to appear for an inquiry on the matter. On April 22, 1996, the PSE
submitted a letter to the SEC containing its comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The dispositive
portion of the said order reads:
WHEREFORE, premises considered, and invoking the Commissioners authority and jurisdiction
under Section 3 of the Revised Securities Act, in conjunction with Section 3, 6(j) and 6(m) of the
Presidential Decree No. 902-A, the decision of the Board of Governors of the Philippine Stock
Exchange denying the listing of shares of Puerto Azul Land, Inc., is hereby set aside, and the PSE is
hereby ordered to immediately cause the listing of the PALI shares in the Exchange, without
prejudice to its authority to require PALI to disclose such other material information it deems
necessary for the protection of the investing public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however
denied by the Commission in its May 9, 1996 Order which states:
WHEREFORE, premises considered, the Commission finds no compelling reason to consider its
order dated April 24, 1996, and in the light of recent developments on the adverse claim against the
PALI properties, PSE should require PALI to submit full disclosure of material facts and information
to protect the investing public. In this regard, PALI is hereby ordered to amend its registration
statements filed with the Commission to incorporate the full disclosure of these material facts and
information.

Dissatisfied with this ruling, the PSE filed with the Court
23 of Appeals on May 17, 1996 a Petition
for Review (with application for Writ of Preliminary Injunction and Temporary Restraining Order),
assailing the above mentioned orders of the SEC, submitting the following as errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING
THE ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR AUTHORITY; SEC
HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE
ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE
ON LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING
THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALIS
LISTING APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER
DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM PART OF
NAVAL/MILITARY RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS
IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS
CLAUSE OF THE CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a
Comment and Motion to Dismiss. On June 10, 1996, PSE filed its Reply to Comment and Opposition
to Motion to Dismiss.
On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSEs
Petition for Review. Hence, this Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction and authority to look into the
decision of the petitioner PSE, pursuant to Section 3 [3] of the Revised Securities Act in relation to
Section 6(j) and 6(m)[4] of P.D. No. 902-A, and Section 38(b)[5] of the Revised Securities Act, and for
the purpose of ensuring fair administration of the exchange. Both as a corporation and as a stock
exchange, the petitioner is subject to public respondents jurisdiction, regulation and
control. Accepting the argument that the public respondent has the authority merely to supervise or
regulate, would amount to serious consequences, considering that the petitioner is a stock exchange
whose business is impressed with public interest. Abuse is not remote if the public respondent is left
without any system of control. If the securities act vested the public respondent with jurisdiction and
control over all corporations; the power to authorize the establishment of stock exchanges; the right
to supervise and regulate the same; and the power to alter and supplement rules of the exchange in
the listing or delisting of securities, then the law certainly granted to the public respondent the
plenary authority over the petitioner; and the power of review necessarily comes within its authority.
All in all, the court held that PALI complied with all the requirements for public listing, affirming
the SECs ruling to the effect that:
x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving
the application of PALI for listing of its shares in the face of the following considerations:
1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of
the Exchange;

2. In applying its clear and reasonable standards on the24

suitability for listing of shares, PSE has
failed to justify why it acted differently on the application of PALI, as compared to the IPOs of other
companies similarly that were allowed listing in the Exchange;
3. It appears that the claims and issues on the title to PALIs properties were even less serious than
the claims against the assets of the other companies in that, the assertions of the Marcoses that
they are owners of the disputed properties were not substantiated enough to overcome the strength
of a title to properties issued under the Torrens System as evidence of ownership thereof;
4. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs ownership
over the disputed properties, neither has the government instituted recovery proceedings against
these properties. Yet the import of PSEs decision in denying PALIs application is that it would be
PALI, not the Marcoses, that must go to court to prove the legality of its ownership on these
properties before its shares can be listed.
In addition, the argument that the PALI properties belong to the Military/Naval Reservation does
not inspire belief. The point is, the PALI properties are now titled. A property losses its public
character the moment it is covered by a title. As a matter of fact, the titles have long been settled by
a final judgment; and the final decree having been registered, they can no longer be re-opened
considering that the one year period has already passed. Lastly, the determination of what standard
to apply in allowing PALIs application for listing, whether the discretion method or the system of
public disclosure adhered to by the SEC, should be addressed to the Securities Commission, it
being the government agency that exercises both supervisory and regulatory authority over all
corporations.
On August 15, 1996, the PSE, after it was granted an extension, filed an instant Petition for
Review on Certiorari, taking exception to the rulings of the SEC and the Court of Appeals.
Respondent PALI filed its Comment to the petition on October 17, 1996. On the same date, the
PCGG filed a Motion for Leave to file a Petition for Intervention. This was followed up by the PCGGs
Petition for Intervention on October 21, 1996. A supplemental Comment was filed by PALI on
October 25, 1997. The Office of the Solicitor General, representing the SEC and the Court of
Appeals, likewise filed its Comment on December 26, 1996. In answer to the PCGGs motion for
leave to file petition for intervention, PALI filed its Comment thereto on January 17, 1997, whereas
the PSE filed its own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent
PALI (October 17, 1996) and the Solicitor General (December 26, 1996). On may 16, 1997, PALI
filed its Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the
PSE to list the shares of PALI in the stock exchange. Under presidential decree No. 902-A, the
powers of the SEC over stock exchanges are more limited as compared to its authority over ordinary
corporations. In connection with this, the powers of the SEC over stock exchanges under the
Revised Securities Act are specifically enumerated, and these do not include the power to reverse
the decisions of the stock exchange. Authorities are in abundance even in the United States, from
which the countrys security policies are patterned, to the effect of giving the Securities Commission
less control over stock exchanges, which in turn are given more lee-way in making the decision
whether or not to allow corporations to offer their stock to the public through the stock
exchange. This is in accord with the business judgment rule whereby the SEC and the courts are
barred from intruding into business judgments of corporations, when the same are made in good
faith. The said rule precludes the reversal of the decision of the PSE to deny PALIs listing
application, absent a showing a bad faith on the part of the PSE. Under the listing rule of the PSE, to
which PALI had previously agreed to comply, the PSE retains the discretion to accept or reject

applications for listing. Thus, even if an issuer has complied

with the PSE listing rules and
25
requirements, PSE retains the discretion to accept or reject the issuers listing application if the PSE
determines that the listing shall not serve the interests of the investing public.
Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with
corporations whose properties are under sequestration. A reading of Republic of the Philippines vs.
Sandiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the properties of PALI, which
were derived from the Ternate Development Corporation (TDC) and the Monte del Sol Development
Corporation (MSDC), are under sequestration by the PCGG, and the subject of forfeiture
proceedings in the Sandiganbayan. This ruling of the Court is the law of the case between the
Republic and the TDC and MSDC. It categorically declares that the assets of these corporations
were sequestered by the PCGG on March 10, 1986 and April 4, 1988.
It is, likewise, intimidated that the Court of Appeals sanction that PALIs ownership over its
properties can no longer be questioned, since certificates of title have been issued to PALI and more
than one year has since lapsed, is erroneous and ignores well settled jurisprudence on land
titles. That a certificate of title issued under the Torrens System is a conclusive evidence of
ownership is not an absolute rule and admits certain exceptions. It is fundamental that forest lands
or military reservations are non-alienable. Thus, when a title covers a forest reserve or a government
reservation, such title is void.
PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged policy of full
disclosure to uphold the listing of the PALIs shares with the PSE, in the absence of a clear mandate
for the effectivity of such policy. As it is, the case records reveal the truth that PALI did not comply
with the listing rules and disclosure requirements. In fact, PALIs documents supporting its application
contained misrepresentations and misleading statements, and concealed material information. The
matter of sequestration of PALIs properties and the fact that the same form part of
military/naval/forest reservations were not reflected in PALIs application.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is
clothed with the marking of a corporate entity, its functions as the primary channel through which the
vessels of capital trade ply. The PSEs relevance to the continued operation and filtration of the
securities transactions in the country gives it a distinct color of importance such that government
intervention in its affairs becomes justified, if not necessary. Indeed, as the only operational stock
exchange in the country today, the PSE enjoys a monopoly of securities transactions, and as such, it
yields an immense influence upon the countrys economy.
Due to this special nature of stock exchanges, the countrys lawmakers has seen it wise to give
special treatment to the administration and regulation of stock exchanges. [6]
These provisions, read together with the general grant of jurisdiction, and right of supervision
and control over all corporations under Sec. 3 of P.D. 902-A, give the SEC the special mandate to be
vigilant in the supervision of the affairs of stock exchanges so that the interests of the investing
public may be fully safeguarded.
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SECs
challenged control authority over the petitioner PSE even as it provides that the Commission shall
have absolute jurisdiction, supervision, and control over all corporations, partnerships or
associations, who are the grantees of primary franchises and/or a license or permit issued by the
government to operate in the Philippines The SECs regulatory authority over private corporations
encompasses a wide margin of areas, touching nearly all of a corporations concerns. This authority
springs from the fact that a corporation owes its existence to the concession of its corporate
franchise from the state.

The SECs power to look into the subject ruling of the 26

PSE, therefore, may be implied from or be
considered as necessary or incidental to the carrying out of the SECs express power to insure fair
dealing in securities traded upon a stock exchange or to ensure the fair administration of such
exchange.[7] It is, likewise, observed that the principal function of the SEC is the supervision and
control over corporations, partnerships and associations with the end in view that investment in
these entities may be encouraged and protected, and their activities pursued for the promotion of
economic development.[8]
Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the
PSE to deny the application for listing in the stock exchange of the private respondent PALI. The
SECs action was affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to whether or not securities,
including shares of stock of a corporation, may be traded or not in the stock exchange. This is in line
with the SECs mission to ensure proper compliance with the laws, such as the Revised Securities
Act and to regulate the sale and disposition of securities in the country. [9] As the appellate court
explains:
Paramount policy also supports the authority of the public respondent to review petitioners denial of
the listing. Being a stock exchange, the petitioner performs a function that is vital to the national
economy, as the business is affected with public interest. As a matter of fact, it has often been said
that the economy moves on the basis of the rise and fall of stocks being traded. By its economic
power, the petitioner certainly can dictate which and how many users are allowed to sell securities
thru the facilities of a stock exchange, if allowed to interpret its own rules liberally as it may
please. Petitioner can either allow or deny the entry to the market of securities. To repeat, the
monopoly, unless accompanied by control, becomes subject to abuse; hence, considering public
interest, then it should be subject to government regulation.
The role of the SEC in our national economy cannot be minimized. The legislature, through the
Revised Securities Act, Presidential Decree No. 902-A, and other pertinent laws, has entrusted to it
the serious responsibility of enforcing all laws affecting corporations and other forms of associations
not otherwise vested in some other government office. [10]
This is not to say, however, that the PSEs management prerogatives are under the absolute
control of the SEC. The PSE is, after all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business. One of the PSEs main concerns, as such, is
still the generation of profit for its stockholders. Moreover, the PSE has all the rights pertaining to
corporations, including the right to sue and be sued, to hold property in its own name, to enter (or not
to enter) into contracts with third persons, and to perform all other legal acts within its allocated
express or implied powers.
A corporation is but an association of individuals, allowed to transact under an assumed
corporate name, and with a distinct legal personality. In organizing itself as a collective body, it
waives no constitutional immunities and perquisites appropriate to such body.[11] As to its corporate
and management decisions, therefore, the state will generally not interfere with the same. Questions
of policy and of management are left to the honest decision of the officers and directors of a
corporation, and the courts are without authority to substitute their judgment for the judgment of the
board of directors. The board is the business manager of the corporation, and so long as it acts in
good faith, its orders are not reviewable by the courts. [12]
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant
authority to reverse the PSEs decision in matters of application for listing in the market, the SEC
may exercise such power only if the PSEs judgment is attended by bad faith. In board of

Liquidators vs. Kalaw,[13] it was held that bad faith does

27not simply connote bad judgment or
negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It
means a breach of a known duty through some motive or interest of ill will, partaking of the nature of
fraud.
In reaching its decision to deny the application for listing of PALI, the PSE considered important
facts, which in the general scheme, brings to serious question the qualification of PALI to sell its
shares to the public through the stock exchange. During the time for receiving objections to the
application, the PSE heard from the representative of the late President Ferdinand E. Marcos and
his family who claim the properties of the private respondent to be part of the Marcos estate. In time,
the PCGG confirmed this claim. In fact, an order of sequestration has been issued covering the
properties of PALI, and suit for reconveyance to the state has been filed in the Sandiganbayan
Court. How the properties were effectively transferred, despite the sequestration order, from the TDC
and MSDC to Rebecco Panlilio, and to the private respondent PALI, in only a short span of time, are
not yet explained to the Court, but it is clear that such circumstances give rise to serious doubt as to
the integrity of PALI as a stock issuer. The petitioner was in the right when it refused application of
PALI, for a contrary ruling was not to the best interest of the general public. The purpose of the
Revised Securities Act, after all, is to give adequate and effective protection to the investing public
against fraudulent representations, or false promises, and the imposition of worthless ventures. [14]
It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts
detrimental to legitimate business, thus:
The Securities Act, often referred to as the truth in securities Act, was designed not only to provide
investors with adequate information upon which to base their decisions to buy and sell securities, but
also to protect legitimate business seeking to obtain capital through honest presentation against
competition form crooked promoters and to prevent fraud in the sale of securities. (Tenth Annual
Report, U.S. Securities and Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses and
fraudulent transactions, merely by requirement of that details be revealed; (2) placing the market
during the early stages of the offering of a security a body of information, which operating indirectly
through investment services and expert investors, will tend to produce a more accurate appraisal of
a security. x x x. Thus, the Commission may refuse to permit a registration statement to become
effective if it appears on its face to be incomplete or inaccurate in any material respect, and
empower the Commission to issue a stop order suspending the effectiveness of any registration
statement which is found to include any untrue statement of a material fact or to omit to state any
material fact required to be stated therein or necessary to make the statements therein not
misleading. (Idem).
Also, as the primary market for securities, the PSE has established its name and goodwill, and
it has the right to protect such goodwill by maintaining a reasonable standard of propriety in the
entities who choose to transact through its facilities. It was reasonable for PSE, therefore, to
exercise its judgment in the manner it deems appropriate for its business identity, as long as no
rights are trampled upon, and public welfare is safeguarded.
In this connection, it is proper to observe that the concept of government absolutism in a thing
of the past, and should remain so.
The observation that the title of PALI over its properties is absolute and can no longer be
assailed is of no moment. At this juncture, there is the claim that the properties were owned by the
TDC and MSDC and were transferred in violation of sequestration orders, to Rebecco Panlilio and
later on to PALI, besides the claim of the Marcoses that such properties belong to Marcos estate,

and were held only in trust by Rebecco Panlilio. It is also

28 alleged by the petitioner that these
properties belong to naval and forest reserves, and therefore beyond private dominion. If any of
these claims is established to be true, the certificates of title over the subject properties now held by
PALI may be disregarded, as it is an established rule that a registration of a certificate of title does
not confer ownership over the properties described therein to the person named as owner. The
inscription in the registry, to be effective, must be made in good faith. The defense of indefeasibility
of a Torrens Title does not extend to a transferee who takes the certificate of title with notice of a
flaw.
In any case, for the purpose of determining whether PSE acted correctly in refusing the
application of PALI, the true ownership of the properties of PALI need not be determined as an
absolute fact. What is material is that the uncertainty of the properties ownership and alienability
exists, and this puts to question the qualification of PALIs public offering. In sum, the Court finds that
the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for
listing in the PSE of the private respondent PALI, since this is a matter addressed to the sound
discretion of the PSE, a corporate entity, whose business judgments are respected in the absence of
bad faith.
The question as to what policy is, or should be relied upon in approving the registration and
sale of securities in the SEC is not for the Court to determine, but is left to the sound discretion of the
Securities and Exchange Commission. In mandating the SEC to administer the Revised Securities
Act, and in performing its other functions under pertinent laws, the Revised Securities Act, under
Section 3 thereof, gives the SEC the power to promulgate such rules and regulations as it may
consider appropriate in the public interest for the enforcement of the said laws. The second
paragraph of Section 4 of the said law, on the other hand, provides that no security, unless exempt
by law, shall be issued, endorsed, sold, transferred or in any other manner conveyed to the public,
unless registered in accordance with the rules and regulations that shall be promulgated in the public
interest and for the protection of investors by the Commission. Presidential Decree No. 902-A, on
the other hand, provides that the SEC, as regulatory agency, has supervision and control over all
corporations and over the securities market as a whole, and as such, is given ample authority in
determining appropriate policies. Pursuant to this regulatory authority, the SEC has manifested that it
has adopted the policy of full material disclosure where all companies, listed or applying for listing,
are required to divulge truthfully and accurately, all material information about themselves and the
securities they sell, for the protection of the investing public, and under pain of administrative,
criminal and civil sanctions. In connection with this, a fact is deemed material if it tends to induce or
otherwise effect the sale or purchase of its securities. [15] While the employment of this policy is
recognized and sanctioned by laws, nonetheless, the Revised Securities Act sets substantial and
procedural standards which a proposed issuer of securities must satisfy. [16] Pertinently, Section 9 of
the Revised Securities Act sets forth the possible Grounds for the Rejection of the registration of a
security:
- - The Commission may reject a registration statement and refuse to issue a permit to sell the
securities included in such registration statement if it finds that - (1) The registration statement is on its face incomplete or inaccurate in any material respect or
includes any untrue statement of a material fact or omits to state a material facts required to be
stated therein or necessary to make the statements therein not misleading; or
(2) The issuer or registrant - (i) is not solvent or not is sound financial condition;

(ii) has violated or has not complied with the provisions of 29

this Act, or the rules promulgated pursuant
thereto, or any order of the Commission;
(iii) has failed to comply with any of the applicable requirements and conditions that the Commission
may, in the public interest and for the protection of investors, impose before the security can be
registered;
(iv) had been engaged or is engaged or is about to engaged in fraudulent transactions;
(v) is in any was dishonest of is not of good repute; or
(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or
contrary or government rules and regulations.
(3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound
business principles;
(4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified
to such officer, director or principal stockholder; or
(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its
security would not work to the prejudice to the public interest or as a fraud upon the purchaser or
investors. (Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the lawmakers to make the
registration and issuance of securities dependent, to a certain extent, on the merits of the securities
themselves, and of the issuer, to be determined by the Securities and Exchange Commission. This
measure was meant to protect the interest of the investing public against fraudulent and worthless
securities, and the SEC is mandated by law to safeguard these interests, following the policies and
rules therefore provided. The absolute reliance on the full disclosure method in the registration of
securities is, therefore, untenable. At it is, the Court finds that the private respondent PALI, on at
least two points (nos. 1 and 5) has failed to support the propriety of the issue of its shares with
unfailing clarity, thereby lending support to the conclusion that the PSE acted correctly in refusing the
listing of PALI in its stock exchange. This does not discount the effectivity of whatever method the
SEC, in the exercise of its vested authority, chooses in setting the standard for public offerings of
corporations wishing to do so.However, the SEC must recognize and implement the mandate of the
law, particularly the Revised Securities Act, the provisions of which cannot be amended or
supplanted my mere administrative issuance.
In resum, the Court finds that the PSE has acted with justified circumspection, discounting,
therefore, any imputation of arbitrariness and whimsical animation on its part. Its action in refusing to
allow the listing of PALI in the stock exchange is justified by the law and by the circumstances
attendant to this case.
ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the
Petition for Review on Certiorari. The decisions of the Court of Appeals and the Securities and
Exchage Commission dated July 27, 1996 and April 24, 1996, respectively, are hereby REVERSED
and SET ASIDE, and a new Judgment is hereby ENTERED, affirming the decision of the Philippine
Stock Exchange to deny the application for listing of the private respondent Puerto Azul Land, Inc.
SO ORDERED.

30

[G.R. No. 147402. January 14, 2004]

31

ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte

Metropolitan Water District (LMWD), Tacloban City, petitioner, vs. COMMISSION ON
AUDIT, Chairman CELSO D. GANGAN, Commissioners RAUL C. FLORES and
EMMANUEL M. DALMAN, and Regional Director of COA Region VIII, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari[1] to annul the Commission on Audits (COA) Resolution dated 3
January 2000 and the Decision dated 30 January 2001 denying the Motion for Reconsideration. The
COA denied petitioner Ranulfo C. Felicianos request for COA to cease all audit services, and to stop
charging auditing fees, to Leyte Metropolitan Water District (LMWD). The COA also denied
petitioners request for COA to refund all auditing fees previously paid by LMWD.
Antecedent Facts
A Special Audit Team from COA Regional Office No. VIII audited the accounts of
LMWD. Subsequently, LMWD received a letter from COA dated 19 July 1999 requesting payment of
auditing fees. As General Manager of LMWD, petitioner sent a reply dated 12 October 1999
informing COAs Regional Director that the water district could not pay the auditing fees.Petitioner
cited as basis for his action Sections 6 and 20 of Presidential Decree 198 (PD 198) [2], as well as
Section 18 of Republic Act No. 6758 (RA 6758). The Regional Director referred petitioners reply to
the COA Chairman on 18 October 1999.
On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all
auditing fees LMWD previously paid to COA.
On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3
January 2000 denying his requests. Petitioner filed a motion for reconsideration on 31 March 2000,
which COA denied on 30 January 2001.
On 13 March 2001, petitioner filed this instant petition. Attached to the petition were resolutions
of the Visayas Association of Water Districts (VAWD) and the Philippine Association of Water
Districts (PAWD) supporting the petition.
The Ruling of the Commission on Audit
The COA ruled that this Court has already settled COAs audit jurisdiction over local water
districts in Davao City Water District v. Civil Service Commission and Commission on Audit,
[3]
as follows:
The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to naught petitioners
contention that they are private corporations. It is clear therefrom that the power to appoint the
members who will comprise the members of the Board of Directors belong to the local executives of
the local subdivision unit where such districts are located. In contrast, the members of the Board of
Directors or the trustees of a private corporation are elected from among members or stockholders

thereof. It would not be amiss at this point to emphasize that

32 a private corporation is created for the
private purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or
stockholders should be given a free hand to choose who will compose the governing body of their
corporation. But this is not the case here and this clearly indicates that petitioners are not private
corporations.
The COA also denied petitioners request for COA to stop charging auditing fees as well as
petitioners request for COA to refund all auditing fees already paid.
The Issues
Petitioner contends that COA committed grave abuse of discretion amounting to lack or excess
of jurisdiction by auditing LMWD and requiring it to pay auditing fees. Petitioner raises the following
issues for resolution:
1. Whether a Local Water District (LWD) created under PD 198, as amended, is a
government-owned or controlled corporation subject to the audit jurisdiction of COA;
2. Whether Section 20 of PD 198, as amended, prohibits COAs certified public
accountants from auditing local water districts; and
3. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned
and controlled corporations auditing fees.
The Ruling of the Court
The petition lacks merit.
The Constitution and existing laws [4] mandate COA to audit all government agencies, including
government-owned and controlled corporations (GOCCs) with original charters. An LWD is a GOCC
with an original charter. Section 2(1), Article IX-D of the Constitution provides for COAs audit
jurisdiction, as follows:
SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to examine,
audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of
funds and property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities, including government-owned and controlled
corporations with original charters, and on a post-audit basis: (a) constitutional bodies,
commissions and offices that have been granted fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c) other government-owned or controlled corporations
and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or
indirectly, from or through the government, which are required by law or the granting institution to
submit to such audit as a condition of subsidy or equity. However, where the internal control system
of the audited agencies is inadequate, the Commission may adopt such measures, including
temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall
keep the general accounts of the Government and, for such period as may be provided by law,
preserve the vouchers and other supporting papers pertaining thereto. (Emphasis supplied)
The COAs audit jurisdiction extends not only to government agencies or instrumentalities, but also to
government-owned and controlled corporations with original charters as well as other governmentowned or controlled corporations without original charters.

Whether LWDs are Private or Government-Owned

33

and Controlled Corporations with Original Charters

Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine
backed by a long line of cases culminating in Davao City Water District v. Civil Service
Commission[5] and just recently reiterated in De Jesus v. Commission on Audit.[6] Petitioner
maintains that LWDs are not government-owned and controlled corporations with original
charters. Petitioner even argues that LWDs are private corporations. Petitioner asks the Court to
consider certain interpretations of the applicable laws, which would give a new perspective to the
issue of the true character of water districts.[7]
Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration
(LWUA) and not the LWDs. Petitioner claims that LWDs are created pursuant to and not created
directly by PD 198. Thus, petitioner concludes that PD 198 is not an original charter that would place
LWDs within the audit jurisdiction of COA as defined in Section 2(1), Article IX-D of the
Constitution. Petitioner elaborates that PD 198 does not create LWDs since it does not expressly
direct the creation of such entities, but only provides for their formation on an optional or voluntary
basis.[8] Petitioner adds that the operative act that creates an LWD is the approval of the Sanggunian
Resolution as specified in PD 198.
Petitioners contention deserves scant consideration.
We begin by explaining the general framework under the fundamental law. The Constitution
recognizes two classes of corporations. The first refers to private corporations created under a
general law. The second refers to government-owned or controlled corporations created by special
charters. Section 16, Article XII of the Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of
economic viability.
The Constitution emphatically prohibits the creation of private corporations except by a general law
applicable to all citizens.[9] The purpose of this constitutional provision is to ban private corporations
created by special charters, which historically gave certain individuals, families or groups special
privileges denied to other citizens.[10]
In short, Congress cannot enact a law creating a private corporation with a special
charter. Such legislation would be unconstitutional. Private corporations may exist only under a
general law. If the corporation is private, it must necessarily exist under a general law. Stated
differently, only corporations created under a general law can qualify as private corporations.Under
existing laws, that general law is the Corporation Code, [11] except that the Cooperative Code governs
the incorporation of cooperatives.[12]
The Constitution authorizes Congress to create government-owned or controlled corporations
through special charters. Since private corporations cannot have special charters, it follows that
Congress can create corporations with special charters only if such corporations are governmentowned or controlled.
Obviously, LWDs are not private corporations because they are not created under the
Corporation Code. LWDs are not registered with the Securities and Exchange Commission.Section
14 of the Corporation Code states that [A]ll corporations organized under this code shall file with the

Securities and Exchange Commission articles of incorporation

x x x. LWDs have no articles of
34
incorporation, no incorporators and no stockholders or members. There are no stockholders or
members to elect the board directors of LWDs as in the case of all corporations registered with the
Securities and Exchange Commission. The local mayor or the provincial governor appoints the
directors of LWDs for a fixed term of office. This Court has ruled that LWDs are not created under the
Corporation Code, thus:
From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the
CSC are those corporations created pursuant to the Corporation Code. Significantly, petitioners
are not created under the said code, but on the contrary, they were created pursuant to a
special law and are governed primarily by its provision. [13] (Emphasis supplied)
LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the
Constitution only government-owned or controlled corporations may have special charters, LWDs
can validly exist only if they are government-owned or controlled. To claim that LWDs are private
corporations with a special charter is to admit that their existence is constitutionally infirm.
Unlike private corporations, which derive their legal existence and power from the Corporation
Code, LWDs derive their legal existence and power from PD 198. Sections 6 and 25 of PD
198[14] provide:
Section 6. Formation of District. This Act is the source of authorization and power to form and
maintain a district. For purposes of this Act, a district shall be considered as a quasi-public
corporation performing public service and supplying public wants. As such, a district shall
exercise the powers, rights and privileges given to private corporations under existing laws,
in addition to the powers granted in, and subject to such restrictions imposed, under this Act.
(a) The name of the local water district, which shall include the name of the city, municipality, or
province, or region thereof, served by said system, followed by the words Water District.
(b) A description of the boundary of the district. In the case of a city or municipality, such boundary
may include all lands within the city or municipality. A district may include one or more municipalities,
cities or provinces, or portions thereof.
(c) A statement completely transferring any and all waterworks and/or sewerage facilities managed,
operated by or under the control of such city, municipality or province to such district upon the filing
of resolution forming the district.
(d) A statement identifying the purpose for which the district is formed, which shall include those
purposes outlined in Section 5 above.
(e) The names of the initial directors of the district with the date of expiration of term of office for
each.
(f) A statement that the district may only be dissolved on the grounds and under the conditions set
forth in Section 44 of this Title.
(g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 of this
Title.
Nothing in the resolution of formation shall state or infer that the local legislative body has the power
to dissolve, alter or affect the district beyond that specifically provided for in this Act.

If two or more cities, municipalities or provinces, or any combination

thereof, desire to form a single
35
district, a similar resolution shall be adopted in each city, municipality and province.
xxx
Sec. 25. Authorization. The district may exercise all the powers which are expressly granted by
this Title or which are necessarily implied from or incidental to the powers and purposes
herein stated. For the purpose of carrying out the objectives of this Act, a district is hereby granted
the power of eminent domain, the exercise thereof shall, however, be subject to review by the
Administration.(Emphasis supplied)
Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers on
LWDs corporate powers. Section 6 of PD 198 provides that LWDs shall exercise the powers, rights
and privileges given to private corporations under existing laws. Without PD 198, LWDs would have
no corporate powers. Thus, PD 198 constitutes the special enabling charter of LWDs. The
ineluctable conclusion is that LWDs are government-owned and controlled corporations with a
special charter.
The phrase government-owned and controlled corporations with original charters means
GOCCs created under special laws and not under the general incorporation law. There is no
difference between the term original charters and special charters. The Court clarified this
in National Service Corporation v. NLRC[15] by citing the deliberations in the Constitutional
Commission, as follows:
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now read
as follows: including government-owned or controlled corporations WITH ORIGINAL CHARTERS.
The purpose of this amendment is to indicate that government corporations such as the GSIS and
SSS, which have original charters, fall within the ambit of the civil service. However, corporations
which are subsidiaries of these chartered agencies such as the Philippine Airlines, Manila Hotel and
Hyatt are excluded from the coverage of the civil service.
THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?
MR. FOZ. Just one question, Mr. Presiding Officer. By the term original charters, what exactly
do we mean?
MR. ROMULO. We mean that they were created by law, by an act of Congress, or by special
law.
MR. FOZ. And not under the general corporation law.
MR. ROMULO. That is correct. Mr. Presiding Officer.
MR. FOZ. With that understanding and clarification, the Committee accepts the amendment.
MR. NATIVIDAD. Mr. Presiding Officer, so those created by the general corporation law are out.
MR. ROMULO. That is correct. (Emphasis supplied)

Again, in Davao City Water District v. Civil Service36

Commission,[16] the Court reiterated the
meaning of the phrase government-owned and controlled corporations with original charters in this
wise:
By government-owned or controlled corporation with original charter, We mean government
owned or controlled corporation created by a special law and not under the Corporation Code
of the Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170
SCRA 79, 82), We held:
The Court, in National Service Corporation (NASECO) v. National Labor Relations
Commission, G.R. No. 69870, promulgated on 29 November 1988, quoting extensively from
the deliberations of the 1986 Constitutional Commission in respect of the intent and meaning
of the new phrase with original charter, in effect held that government-owned and controlled
corporations with original charter refer to corporations chartered by special law as
distinguished from corporations organized under our general incorporation statute the
Corporation Code. In NASECO, the company involved had been organized under the general
incorporation statute and was a subsidiary of the National Investment Development Corporation
(NIDC) which in turn was a subsidiary of the Philippine National Bank, a bank chartered by a special
statute. Thus, government-owned or controlled corporations like NASECO are effectively, excluded
from the scope of the Civil Service. (Emphasis supplied)
Petitioners contention that the Sangguniang Bayan resolution creates the LWDs assumes that
the Sangguniang Bayan has the power to create corporations. This is a patently baseless
assumption. The Local Government Code[17] does not vest in the Sangguniang Bayan the power to
create corporations.[18] What the Local Government Code empowers the Sangguniang Bayan to do is
to provide for the establishment of a waterworks system subject to existing laws. Thus, Section
447(5)(vii) of the Local Government Code provides:
SECTION 447. Powers, Duties, Functions and Compensation. (a) The sangguniang bayan, as the
legislative body of the municipality, shall enact ordinances, approve resolutions and appropriate
funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this
Code and in the proper exercise of the corporate powers of the municipality as provided for under
Section 22 of this Code, and shall:
xxx
(vii) Subject to existing laws, provide for the establishment, operation, maintenance, and repair of
an efficient waterworks system to supply water for the inhabitants; regulate the construction,
maintenance, repair and use of hydrants, pumps, cisterns and reservoirs; protect the purity and
quantity of the water supply of the municipality and, for this purpose, extend the coverage of
appropriate ordinances over all territory within the drainage area of said water supply and within one
hundred (100) meters of the reservoir, conduit, canal, aqueduct, pumping station, or watershed used
in connection with the water service; and regulate the consumption, use or wastage of water;
x x x. (Emphasis supplied)
The Sangguniang Bayan may establish a waterworks system only in accordance with the
provisions of PD 198. The Sangguniang Bayan has no power to create a corporate entity that will
operate its waterworks system. However, the Sangguniang Bayan may avail of existing enabling
laws, like PD 198, to form and incorporate a water district. Besides, even assuming for the sake of
argument that the Sangguniang Bayan has the power to create corporations, the LWDs would
remain government-owned or controlled corporations subject to COAs audit jurisdiction. The
resolution of the Sangguniang Bayan would constitute an LWDs special charter, making the LWD a

government-owned and controlled corporation with an original

37 charter.In any event, the Court has
already ruled in Baguio Water District v. Trajano[19] that the Sangguniang Bayan resolution is not
the special charter of LWDs, thus:
While it is true that a resolution of a local sanggunian is still necessary for the final creation of a
district, this Court is of the opinion that said resolution cannot be considered as its charter, the same
being intended only to implement the provisions of said decree.
Petitioner further contends that a law must create directly and explicitly a GOCC in order that it
may have an original charter. In short, petitioner argues that one special law cannot serve as
enabling law for several GOCCs but only for one GOCC. Section 16, Article XII of the Constitution
mandates that Congress shall not, except by general law,[20] provide for the creation of private
corporations. Thus, the Constitution prohibits one special law to create one private corporation,
requiring instead a general law to create private corporations. In contrast, the same Section 16
states that Government-owned or controlled corporations may be created or established by special
charters. Thus, the Constitution permits Congress to create a GOCC with a special charter. There
is, however, no prohibition on Congress to create several GOCCs of the same class under one
special enabling charter.
The rationale behind the prohibition on private corporations having special charters does not
apply to GOCCs. There is no danger of creating special privileges to certain individuals, families or
groups if there is one special law creating each GOCC. Certainly, such danger will not exist whether
one special law creates one GOCC, or one special enabling law creates several GOCCs. Thus,
Congress may create GOCCs either by special charters specific to each GOCC, or by one special
enabling charter applicable to a class of GOCCs, like PD 198 which applies only to LWDs.
Petitioner also contends that LWDs are private corporations because Section 6 of PD
198[21] declares that LWDs shall be considered quasi-public in nature. Petitioners rationale is that
only private corporations may be deemed quasi-public and not public corporations. Put differently,
petitioner rationalizes that a public corporation cannot be deemed quasi-public because such
corporation is already public. Petitioner concludes that the term quasi-public can only apply to
private corporations. Petitioners argument is inconsequential.
Petitioner forgets that the constitutional criterion on the exercise of COAs audit jurisdiction
depends on the governments ownership or control of a corporation. The nature of the corporation,
whether it is private, quasi-public, or public is immaterial.
The Constitution vests in the COA audit jurisdiction over government-owned and controlled
corporations with original charters, as well as government-owned or controlled corporations without
original charters. GOCCs with original charters are subject to COA pre-audit, while GOCCs without
original charters are subject to COA post-audit. GOCCs without original charters refer to
corporations created under the Corporation Code but are owned or controlled by the
government. The nature or purpose of the corporation is not material in determining COAs audit
jurisdiction. Neither is the manner of creation of a corporation, whether under a general or special
law.
The determining factor of COAs audit jurisdiction is government ownership or control of the
corporation. In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Bank,
[22]
the Court even ruled that the criterion of ownership and control is more important than the issue of
original charter, thus:
This point is important because the Constitution provides in its Article IX-B, Section 2(1) that the Civil
Service embraces all branches, subdivisions, instrumentalities, and agencies of the Government,

including government-owned or controlled corporations with

38 original charters. As the Bank is not
owned or controlled by the Government although it does have an original charter in the form
of R.A. No. 3518,[23] it clearly does not fall under the Civil Service and should be regarded as
an ordinary commercial corporation. Section 28 of the said law so provides. The consequence is
that the relations of the Bank with its employees should be governed by the labor laws, under which
in fact they have already been paid some of their claims. (Emphasis supplied)
Certainly, the government owns and controls LWDs. The government organizes LWDs in
accordance with a specific law, PD 198. There is no private party involved as co-owner in the
creation of an LWD. Just prior to the creation of LWDs, the national or local government owns and
controls all their assets. The government controls LWDs because under PD 198 the municipal or city
mayor, or the provincial governor, appoints all the board directors of an LWD for a fixed term of six
years.[24] The board directors of LWDs are not co-owners of the LWDs.LWDs have no private
stockholders or members. The board directors and other personnel of LWDs are government
employees subject to civil service laws [25] and anti-graft laws.[26]
While Section 8 of PD 198 states that [N]o public official shall serve as director of an LWD, it
only means that the appointees to the board of directors of LWDs shall come from the private
sector. Once such private sector representatives assume office as directors, they become public
officials governed by the civil service law and anti-graft laws. Otherwise, Section 8 of PD 198 would
contravene Section 2(1), Article IX-B of the Constitution declaring that the civil service includes
government-owned or controlled corporations with original charters.
If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then
they would fall under the term agencies or instrumentalities of the government and thus still subject
to COAs audit jurisdiction. However, the stark and undeniable fact is that the government owns
LWDs. Section 45[27] of PD 198 recognizes government ownership of LWDs when Section 45 states
that the board of directors may dissolve an LWD only on the condition that another public
entity has acquired the assets of the district and has assumed all obligations and liabilities attached
thereto. The implication is clear that an LWD is a public and not a private entity.
Petitioner does not allege that some entity other than the government owns or controls
LWDs. Instead, petitioner advances the theory that the Water Districts owner is the District itself.
[28]
Assuming for the sake of argument that an LWD is self-owned, [29] as petitioner describes an LWD,
the government in any event controls all LWDs. First, government officials appoint all LWD directors
to a fixed term of office. Second, any per diem of LWD directors in excess of P50 is subject to the
approval of the Local Water Utilities Administration, and directors can receive no other compensation
for their services to the LWD. [30] Third, the Local Water Utilities Administration can require LWDs to
merge or consolidate their facilities or operations. [31] This element of government control subjects
LWDs to COAs audit jurisdiction.
Petitioner argues that upon the enactment of PD 198, LWDs became private entities through
the transfer of ownership of water facilities from local government units to their respective water
districts as mandated by PD 198. Petitioner is grasping at straws. Privatization involves the transfer
of government assets to a private entity. Petitioner concedes that the owner of the assets transferred
under Section 6 (c) of PD 198 is no other than the LWD itself. [32] The transfer of assets mandated by
PD 198 is a transfer of the water systems facilities managed, operated by or under the control of
such city, municipality or province to such (water) district. [33] In short, the transfer is from one
government entity to another government entity. PD 198 is bereft of any indication that the transfer is
to privatize the operation and control of water systems.
Finally, petitioner claims that even on the assumption that the government owns and controls
LWDs, Section 20 of PD 198 prevents COA from auditing LWDs. [34] Section 20 of PD 198 provides:

Sec. 20. System of Business Administration. The Board shall,

39 as soon as practicable, prescribe and
define by resolution a system of business administration and accounting for the district, which shall
be patterned upon and conform to the standards established by the Administration. Auditing shall
be performed by a certified public accountant not in the government service. The
Administration may, however, conduct annual audits of the fiscal operations of the district to be
performed by an auditor retained by the Administration. Expenses incurred in connection therewith
shall be borne equally by the water district concerned and the Administration. [35] (Emphasis supplied)
Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor for that
matter, from auditing LWDs. Petitioner asserts that this is the import of the second sentence of
Section 20 of PD 198 when it states that [A]uditing shall be performed by a certified public
accountant not in the government service.[36]
PD 198 cannot prevail over the Constitution. No amount of clever legislation can exclude
GOCCs like LWDs from COAs audit jurisdiction. Section 3, Article IX-C of the Constitution outlaws
any scheme or devise to escape COAs audit jurisdiction, thus:
Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any
guise whatever, or any investment of public funds, from the jurisdiction of the Commission on Audit.
(Emphasis supplied)
The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely to
annul provisions of Presidential Decrees, like that of Section 20 of PD 198, that exempt GOCCs from
COA audit. The following exchange in the deliberations of the Constitutional Commission elucidates
this intent of the framers:
MR. OPLE: I propose to add a new section on line 9, page 2 of the amended committee report which
reads: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS
SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM
THE JURISDICTION OF THE COMMISSION ON AUDIT.
May I explain my reasons on record.
We know that a number of entities of the government took advantage of the absence of a
legislature in the past to obtain presidential decrees exempting themselves from the
jurisdiction of the Commission on Audit, one notable example of which is the Philippine National
Oil Company which is really an empty shell. It is a holding corporation by itself, and strictly on its own
account. Its funds were not very impressive in quantity but underneath that shell there were billions
of pesos in a multiplicity of companies. The PNOC the empty shell under a presidential decree was
covered by the jurisdiction of the Commission on Audit, but the billions of pesos invested in different
corporations underneath it were exempted from the coverage of the Commission on Audit.
Another example is the United Coconut Planters Bank. The Commission on Audit has determined
that the coconut levy is a form of taxation; and that, therefore, these funds attributed to the shares of
1,400,000 coconut farmers are, in effect, public funds. And that was, I think, the basis of the PCGG
in undertaking that last major sequestration of up to 94 percent of all the shares in the United
Coconut Planters Bank. The charter of the UCPB, through a presidential decree, exempted it from
the jurisdiction of the Commission on Audit, it being a private organization.
So these are the fetuses of future abuse that we are slaying right here with this additional section.
May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY
ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY

INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION

OF THE COMMISSION ON
40
AUDIT.
THE PRESIDENT: May we know the position of the Committee on the proposed amendment of
Commissioner Ople?
MR. JAMIR: If the honorable Commissioner will change the number of the section to 4, we will
accept the amendment.
MR. OPLE: Gladly, Madam President. Thank you.
MR. DE CASTRO: Madam President, point of inquiry on the new amendment.
THE PRESIDENT: Commissioner de Castro is recognized.
MR. DE CASTRO: Thank you. May I just ask a few questions of Commissioner Ople.
Is that not included in Section 2 (1) where it states: (c) government-owned or controlled corporations
and their subsidiaries? So that if these government-owned and controlled corporations and their
subsidiaries are subjected to the audit of the COA, any law exempting certain government
corporations or subsidiaries will be already unconstitutional.
So I believe, Madam President, that the proposed amendment is unnecessary.
MR. MONSOD: Madam President, since this has been accepted, we would like to reply to the point
raised by Commissioner de Castro.
THE PRESIDENT: Commissioner Monsod will please proceed.
MR. MONSOD: I think the Commissioner is trying to avoid the situation that happened in the past,
because the same provision was in the 1973 Constitution and yet somehow a law or a decree was
passed where certain institutions were exempted from audit. We are just reaffirming, emphasizing,
the role of the Commission on Audit so that this problem will never arise in the future. [37]
There is an irreconcilable conflict between the second sentence of Section 20 of PD 198
prohibiting COA auditors from auditing LWDs and Sections 2(1) and 3, Article IX-D of the
Constitution vesting in COA the power to audit all GOCCs. We rule that the second sentence of
Section 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3, Article IX-D of the
Constitution.
On the Legality of COAs
Practice of Charging Auditing Fees
Petitioner claims that the auditing fees COA charges LWDs for audit services violate the
prohibition in Section 18 of RA 6758,[38] which states:
Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. In order
to preserve the independence and integrity of the Commission on Audit (COA), its officials and
employees are prohibited from receiving salaries, honoraria, bonuses, allowances or other
emoluments from any government entity, local government unit, government-owned or controlled

corporations, and government financial institutions, except

41those compensation paid directly by
COA out of its appropriations and contributions.
Government entities, including government-owned or controlled corporations including financial
institutions and local government units are hereby prohibited from assessing or billing other
government entities, including government-owned or controlled corporations including financial
institutions or local government units for services rendered by its officials and employees as part of
their regular functions for purposes of paying additional compensation to said officials and
employees. (Emphasis supplied)
Claiming that Section 18 is absolute and leaves no doubt, [39] petitioner asks COA to discontinue its
practice of charging auditing fees to LWDs since such practice allegedly violates the law.
Petitioners claim has no basis.
Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from
any government entity except compensation paid directly by COA out of its appropriations and
contributions. Thus, RA 6758 itself recognizes an exception to the statutory ban on COA personnel
receiving compensation from GOCCs. In Tejada v. Domingo,[40]the Court declared:
There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthen further
the policy x x x to preserve the independence and integrity of the COA, by explicitly PROHIBITING:
(1) COA officials and employees from receiving salaries, honoraria, bonuses, allowances or other
emoluments from any government entity, local government unit, GOCCs and government financial
institutions,except such compensation paid directly by the COA out of its appropriations and
contributions, and (2) government entities, including GOCCs, government financial institutions and
local government units from assessing or billing other government entities, GOCCs, government
financial institutions or local government units for services rendered by the latters officials and
employees as part of their regular functions for purposes of paying additional compensation to said
officials and employees.
xxx
The first aspect of the strategy is directed to the COA itself, while the second aspect is addressed
directly against the GOCCs and government financial institutions. Under the first, COA personnel
assigned to auditing units of GOCCs or government financial institutions can receive only
such salaries, allowances or fringe benefits paid directly by the COA out of its appropriations
and contributions.The contributions referred to are the cost of audit services earlier
mentioned which cannot include the extra emoluments or benefits now claimed by
petitioners. The COA is further barred from assessing or billing GOCCs and government financial
institutions for services rendered by its personnel as part of their regular audit functions for purposes
of paying additional compensation to such personnel. x x x. (Emphasis supplied)
In Tejada, the Court explained the meaning of the word contributions in Section 18 of RA
6758, which allows COA to charge GOCCs the cost of its audit services:
x x x the contributions from the GOCCs are limited to the cost of audit services which are based on
the actual cost of the audit function in the corporation concerned plus a reasonable rate to cover
overhead expenses. The actual audit cost shall include personnel services, maintenance and other
operating expenses, depreciation on capital and equipment and out-of-pocket expenses. In respect
to the allowances and fringe benefits granted by the GOCCs to the COA personnel assigned to the
formers auditing units, the same shall be directly defrayed by COA from its own appropriations x x
x. [41]

COA may charge GOCCs actual audit cost but GOCCs must
42 pay the same directly to COA and not
to COA auditors. Petitioner has not alleged that COA charges LWDs auditing fees in excess of COAs
actual audit cost. Neither has petitioner alleged that the auditing fees are paid by LWDs directly to
individual COA auditors. Thus, petitioners contention must fail.
WHEREFORE, the Resolution of the Commission on Audit dated 3 January 2000 and the
Decision dated 30 January 2001 denying petitioners Motion for Reconsideration are
AFFIRMED. The second sentence of Section 20 of Presidential Decree No. 198 is declared VOID for
being inconsistent with Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.
SO ORDERED.

G.R. No. L-22619

December 2, 1924

43

NATIONAL
COAL
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
Attorney-General
Villa-Real
Perfecto J. Salas Rodriguez for appellee.

for

COMPANY, plaintiff-appellee,

appellant.

JOHNSON, J.:
This action was brought in the Court of First Instance of the City of Manila on the 17th day of July,
1923, for the purpose of recovering the sum of P12,044.68, alleged to have been paid under protest
by the plaintiff company to the defendant, as specific tax on 24,089.3 tons of coal. Said company is a
corporation created by Act No. 2705 of the Philippine Legislature for the purpose of developing the
coal industry in the Philippine Islands and is actually engaged in coal mining on reserved lands
belonging to the Government. It claimed exemption from taxes under the provision of sections 14
and 15 of Act No. 2719, and prayed for a judgment ordering the defendant to refund to the plaintiff
said sum of P12,044.68, with legal interest from the date of the presentation of the complaint, and
costs against the defendant.
The defendant answered denying generally and specifically all the material allegations of the
complaint, except the legal existence and personality of the plaintiff. As a special defense, the
defendant alleged (a) that the sum of P12,044.68 was paid by the plaintiff without protests, and (b)
that said sum was due and owing from the plaintiff to the Government of the Philippine Islands under
the provisions of section 1496 of the Administrative Code and prayed that the complaint be
dismissed, with costs against the plaintiff.
Upon the issue thus presented, the case was brought on for trial. After a consideration of the
evidence adduced by both parties, the Honorable Pedro Conception, judge, held that the words
"lands owned by any person, etc.," in section 15 of Act No. 2719 should be understood to mean
"lands held in lease or usufruct," in harmony with the other provision of said Act; that the coal lands
possessed by the plaintiff, belonging to the Government, fell within the provisions of section 15 of Act
No. 2719; and that a tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted therefrom, as
provided in said section, was the only tax which should be collected from the plaintiff; and sentenced
the defendant to refund to the plaintiff the sum of P11,081.11 which is the difference between the
amount collected under section 1496 of the Administrative Code and the amount which should have
been collected under the provisions of said section 15 of Act No. 2719. From that sentence the
defendant appealed, and now makes the following assignments of error:
I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal lands owned
by persons and corporations.
II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section
1496 of the Administrative Code.
The question confronting us in this appeal is whether the plaintiff is subject to the taxes under
section 15 of Act No. 2719, or to the specific taxes under section 1496 of the Administrative Code.
The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for the
purpose of developing the coal industry in the Philippine Island, in harmony with the general plan of

the Government to encourage the development of the 44

natural resources of the country, and to
provided facilities therefor. By said Act, the company was granted the general powers of a
corporation "and such other powers as may be necessary to enable it to prosecute the business of
developing coal deposits in the Philippine Island and of mining, extracting, transporting and selling
the coal contained in said deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705) the
Government of the Philippine Islands is made the majority stockholder, evidently in order to insure
proper government supervision and control, and thus to place the Government in a position to render
all possible encouragement, assistance and help in the prosecution and furtherance of the
company's business.
On May 14, 1917, two months after the passage of Act No. 2705, creating the National Coal
Company, the Philippine Legislature passed Act No. 2719 "to provide for the leasing and
development of coal lands in the Philippine Islands." On October 18, 1917, upon petition of the
National Coal Company, the Governor-General, by Proclamation No. 39, withdrew "from settlement,
entry, sale or other disposition, all coal-bearing public lands within the Province of Zamboanga,
Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." Almost
immediately after the issuance of said proclamation the National Coal Company took possession of
the coal lands within the said reservation, with an area of about 400 hectares, without any further
formality, contract or lease. Of the 30,000 shares of stock issued by the company, the Government of
the Philippine Islands is the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole
capital stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of the land
from which it has mined the coal in question and is therefore subject to the provisions of section 15
of Act No. 2719 and not to the provisions of the section 1496 of the Administrative Code. That
contention of the plaintiff leads us to an examination of the evidence upon the question of the
ownership of the land from which the coal in question was mined. Was the plaintiff the owner of the
land from which the coal in question was mined? If the evidence shows the affirmative, then the
judgment should be affirmed. If the evidence shows that the land does not belong to the plaintiff,
then the judgment should be reversed, unless the plaintiff's rights fall under section 3 of said Act.
The only witness presented by the plaintiff upon the question of the ownership of the land in question
was Mr. Dalmacio Costas, who stated that he was a member of the board of directors of the plaintiff
corporation; that the plaintiff corporation took possession of the land in question by virtue of the
proclamation of the Governor-General, known as Proclamation No. 39 of the year 1917; that no
document had been issued in favor of the plaintiff corporation; that said corporation had received no
permission from the Secretary of Agriculture and Natural Resources; that it took possession of said
lands covering an area of about 400 hectares, from which the coal in question was mined, solely, by
virtue of said proclamation (Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the
18th day of October, 1917, and provided: "Pursuant to the provision of section 71 of Act No. 926, I
hereby withdraw from settlement, entry, sale, or other disposition, all coal-bearing public lands within
the Province of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of
Tayabas." It will be noted that said proclamation only provided that all coal-bearing public lands
within said province and island should be withdrawn from settlement, entry, sale, or other disposition.
There is nothing in said proclamation which authorizes the plaintiff or any other person to enter upon
said reversations and to mine coal, and no provision of law has been called to our attention, by virtue
of which the plaintiff was entitled to enter upon any of the lands so reserved by said proclamation
without first obtaining permission therefor.
The plaintiff is a private corporation. The mere fact that the Government happens to the majority
stockholder does not make it a public corporation. Act No. 2705, as amended by Act No. 2822,

makes it subject to all of the provisions of the Corporation 45

Law, in so far as they are not inconsistent
with said Act (No. 2705). No provisions of Act No. 2705 are found to be inconsistent with the
provisions of the Corporation Law. As a private corporation, it has no greater rights, powers or
privileges than any other corporation which might be organized for the same purpose under the
Corporation Law, and certainly it was not the intention of the Legislature to give it a preference or
right or privilege over other legitimate private corporations in the mining of coal. While it is true that
said proclamation No. 39 withdrew "from settlement, entry, sale, or other disposition of coal-bearing
public lands within the Province of Zamboanga . . . and the Island of Polillo," it made no provision for
the occupation and operation by the plaintiff, to the exclusion of other persons or corporations who
might, under proper permission, enter upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the
Philippine Island in "an Act for the leasing and development of coal lands in the Philippine Islands"
(Act No. 2719), made liberal provision. Section 1 of said Act provides: "Coal-bearing lands of the
public domain in the Philippine Island shall not be disposed of in any manner except as provided in
this Act," thereby giving a clear indication that no "coal-bearing lands of the public domain" had been
disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the
amendments thereof found in Act No. 2822, which authorizes the National Coal Company to enter
upon any of the reserved coal lands without first having obtained permission from the Secretary of
Agriculture and Natural Resources.lawphi1.net
The following propositions are fully sustained by the facts and the law:
(1) The National Coal Company is an ordinary private corporation organized under Act No. 2705,
and has no greater powers nor privileges than the ordinary private corporation, except those
mentioned, perhaps, in section 10 of Act No. 2719, and they do not change the situation here.
(2) It mined on public lands between the month of July, 1920, and the months of March, 1922,
24,089.3 tons of coal.
(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton, as taxes under the
provisions of article 1946 of the Administrative Code on the 15th day of December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal was
mined.
(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day of October,
1917, by authority of section 1 of Act No. 926, withdrawing from settlement, entry, sale, or other
dispositon all coal-bearing public lands within the Province of Zamboanga and the Island of Polillo,
was not a reservation for the benefit of the National Coal Company, but for any person or corporation
of the Philippine Islands or of the United States.
(6) That the National Coal Company entered upon said land and mined said coal, so far as the
record shows, without any lease or other authority from either the Secretary of Agriculture and
Natural Resources or any person having the power to grant a leave or authority.
From all of the foregoing facts we find that the issue is well defined between the plaintiff and the
defendant. The plaintiff contends that it was liable only to pay the internal revenue and other fees
and taxes provided for under section 15 of Act No. 2719; while the defendant contends, under the
facts of record, the plaintiff is obliged to pay the internal revenue duty provided for in section 1496 of

the Administrative Code. That being the issue, an examination

of the provisions of Act No. 2719
46
becomes necessary.
An examination of said Act (No. 2719) discloses the following facts important for consideration here:
First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of in
any manner except as provided in this Act." Second. Provisions for leasing by the Secretary of
Agriculture and Natural Resources of "unreserved, unappropriated coal-bearing public lands," and
the obligation to the Government which shall be imposed by said Secretary upon the
lessee.lawphi1.net
Third. The internal revenue duty and tax which must be paid upon coal-bearing lands owned by any
person, firm, association or corporation.
To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty and tax upon
unreserved, unappropriated coal-bearing public lands which may be leased by the Secretary of
Agriculture and Natural Resources; and, second, that said Act (No. 2719) provides an internal
revenue duty and tax imposed upon any person, firm, association or corporation, who may be the
owner of "coal-bearing lands." A reading of said Act clearly shows that the tax imposed thereby is
imposed upon two classes of persons only lessees and owners.
The lower court had some trouble in determining what was the correct interpretation of section 15 of
said Act, by reason of what he believed to be some difference in the interpretation of the language
used in Spanish and English. While there is some ground for confusion in the use of the language in
Spanish and English, we are persuaded, considering all the provisions of said Act, that said section
15 has reference only to persons, firms, associations or corporations which had already, prior to the
existence of said Act, become the owners of coal lands. Section 15 cannot certainty refer to "holders
or lessees of coal lands' for the reason that practically all of the other provisions of said Act has
reference to lessees or holders. If section 15 means that the persons, firms, associations, or
corporation mentioned therein are holders or lessees of coal lands only, it is difficult to understand
why the internal revenue duty and tax in said section was made different from the obligations
mentioned in section 3 of said Act, imposed upon lessees or holders.
From all of the foregoing, it seems to be made plain that the plaintiff is neither a lessee nor an owner
of coal-bearing lands, and is, therefore, not subject to any other provisions of Act No. 2719. But, is
the plaintiff subject to the provisions of section 1496 of the Administrative Code?
Section 1496 of the Administrative Code provides that "on all coal and coke there shall be collected,
per metric ton, fifty centavos." Said section (1496) is a part of article, 6 which provides for specific
taxes. Said article provides for a specific internal revenue tax upon all things manufactured or
produced in the Philippine Islands for domestic sale or consumption, and upon things imported from
the United States or foreign countries. It having been demonstrated that the plaintiff has produced
coal in the Philippine Islands and is not a lessee or owner of the land from which the coal was
produced, we are clearly of the opinion, and so hold, that it is subject to pay the internal revenue tax
under the provisions of section 1496 of the Administrative Code, and is not subject to the payment of
the internal revenue tax under section 15 of Act No. 2719, nor to any other provisions of said Act.
Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby relieved from
all responsibility under the complaint. And, without any finding as to costs, it is so ordered.

G.R. No. 72807 September 9, 1991

47

MARILAO
WATER
CONSUMERS
ASSOCIATION,
INC., petitioners,
vs.
INTERMEDIATE APPELLATE
COURT, MUNICIPALITY OF MARILAO,
BULACAN,
SANGGUNIANG BAYAN, MARILAO, BULACAN, and MARILAO WATER DISTRICT, respondents.
Magtanggol C. Gunigundo for petitioner.
Prospero A. Crescini for Marilao Water District.

NARVASA, J.:p
Involved in this appeal is the determination of which triburial has jurisdiction over the dissolution of a
water district organized and operating as a quasi-public corporation under the provisions of
Presidential Decree No. 198, as amended; 1 the Regional Trial Court, or the Securities & Exchange
Commission.
PD 198 authorizes the formation, lays down the powers and functions, and governs the operation of
water districts throughout the country; it is "the source of authorization and power to form and
maintain a (water) district." Once formed, it says, a district is subject to its provisions and is not
under the jurisdiction of any political subdivision. 2
Under PD 198, water districts may be created by the different local legislative bodies by the passage
of a resolution to this effect, subject to the terms of the decree. The primary function of these water
districts is to sell water to residents within their territory, under such schedules of rates and charges
as may be determined by their boards. 3 They shall manage, administer, operate and maintain all
watersheds within their territorial boundaries, safeguard and protect the use of the waters therein,
supervise and control structures within their service areas, and prohibit any person from selling or
otherwise disposing of water for public purposes within their service areas where district facilities are
available to provide such service. 4
The decree specifies the terms under which water districts may be formed and operate. It
prescribes, particularly
a) the name by which a water district shad be known, which shall be contained in the enabling
resolution, and shall include the name of the city, municipality, or province, or region thereof, served
by said system, followed by the words, 'Water District;' 5
b) the number and qualifications of the members of the boards of directors, with the date of
expiration of term of office for each; 6 the manner of their selection and initial appointment by the
head of the local political subdivision; 7 their terms of office (which shall be in staggered periods of
two, four and six years); 8 the manner of filling up vacancies in the board; 9 the compensation and
liabilities of members of the board. 10 The resolution shall contain a "statement that the district may
only be dissolved on the grounds and under the conditions set forth in Section 44" of the law, but
nothing in the resolution of formation, the decree adds, "shall state or infer that the local legislative
body has the power to dissolve, alter or affect the district beyond that specifically provided for in this
Act." 11

The juridical entities thus created and organized under

48 PD 198 are considered quasi-public
corporations, performing public services and supplying public wants. They are authorized not only to
"exercise all the powers which are expressly granted" by said decree, and those "which are
necessarily implied from or incidental to" said powers, but also "the power of eminent domain, the
exercise .. (of which) shall however be subject to review by the Administration" (LWUA). In addition
to the powers granted in, and subject to such restrictions imposed under, the Act, they may also
exercise the powers, rights and privileges given to private corporations under existing laws. 12
The decree also established a government corporation attached to the Office of the President,
known as the Local Water Utilities Administration (LWUA) 13 to function primarily as "a specialized
lending institution for the promotion development and financing of local water utilities." It has the
following specific powers and duties; 14
(1) prescribe minimum standards and regulations in order to assure acceptable
standards of construction materials and supplies, maintenance, operation, personnel
training, accounting and fiscal practices for local water utilities;
(2) furnish technical assistance and personnel training programs for local water
utilities;
(3) monitor and evaluate local water standards; and
(4) effect systems integration, joint investment and operations, district annexation
and deannexation whenever economically warranted.
It was pursuant to the foregoing rules and norms that the Marilao Water District was formed by
Resolution of the Sangguniang Bayan of the Municipality of Marilao dated September 18, 1982,
which resolution was thereafter forwarded to the LWUA and "duly filed" by it on October 4, 1982 after
ascertaining that it conformed to the requirements of the law. 15
The claim was thereafter made that the creation of the Marilao Water District in the manner
aforestated was defective and illegal. The claim was made by a non-stock, non-profit corporation
known as the Marilao Water Consumers Association, Inc., in a petition dated December 12, 1983
filed with the Regional Trial Court at Malolos, Bulacan. Impleaded as respondents were the Marilao
Water District, as well as the Municipality of Marilao, Bulacan; its Sangguniang Bayan; and Mayor
Nicanor V. GUILLERMO. The petition prayed for the dissolution of the water district on the basis
chiefly of the following allegations, to wit:
1) there had been no real, but only a "farcical" public hearing prior to the creation of the Water
District;
2) not only was the waterworks system turned over to the Water District without compensation. but a
subsidy was illegally authorized for it;
3) the Water District was being run with "negligence, apathy, indifference and mismanagement," and
was not providing adequate and efficient service to the community, but this notwithstanding, the
consumers were being billed in full and threatened with disconnection for failure to pay bills on time;
in fact, one of the consumers who complained had his water service cut off;
4) the consumers were consequently "forced to organize themselves into a corporation last October
3, 1983 ... for the purpose of demanding adequate and sufficient supply of water and efficient
management of the waterworks in Marilao, Bulacan. 16

Acting on the complaint, particularly on the application

49 for temporary restraining order and
preliminary injunction set out therein, the Trial Court issued an Order on December 22, 1983 setting
the application for preliminary hearing, requiring the respondents to answer the petition and
restraining them until further orders from collecting any water bill, disconnecting any water service,
transferring any property of the waterworks, or disbursing any amount in favor of any person. The
order was modified on January 6, 1984 to allow the respondents to pay the district's outstanding
obligations to Meralco, by way of exception to the restraining order.
On January 13, 1984 the Marilao Water District filed its Answer with Compulsory Counterclaim,
denying the material allegations of the petition and asserting as affirmative defenses (a) the Court's
lack of jurisdiction of the subject matter, and (b) the failure of the petition to state a cause of action.
The answer alleged that the matter of the water district's dissolution fell under the original and
exclusive jurisdiction of the Securities & Exchange Commission (SEC); and the matter of the
propriety of water rates, within the primary administrative jurisdiction of the LWUA and the quasijudicial jurisdiction of the National Water Resources Council. On the same date, Marilao Water
District filed a motion for admission of its third-party complaint against the officers and directors of
the petitioner corporation, it being claimed that they had instigated the filing of the petition simply
because one of them was a political adversary of the respondent Mayor.
The other respondents also filed their answer through the Provincial Fiscal of Bulacan, setting up the
same affirmative defense of lack of jurisdiction on the part of the Trial Court; and failure of the
petition to state a cause of action since it admitted that it was by resolution of the Marilao
Sangguniang Bayan that the Marilao Water District was constituted.
The petitioner the Marilao Consumers Association filed a reply, and an answer to the
counterclaim, on January 26, 1984. It averred that since the Marilao Water District had not been
organized under the Corporation Code, the SEC had no jurisdiction over a proceeding for its
dissolution; and that under Section 45 of PD 198, the proceeding to determine if the dissolution of
the water district is for the best interest of the people, is within the competence of a regular court of
justice, and neither the LWUA nor the National Water Resources Council is competent to take
cognizance of the matter of dissolution of the water district and recovery of its waterworks system, or
the exorbitant rates imposed by it. The Consumers Association also opposed admission of the thirdparty complaint on the ground that its individual officers are not personally amenable to suit for acts
of the corporation, 17 which has a personality distinct from theirs.
The Trial Court found for the respondents. It dismissed the Consumers Association's suit by Order
handed down on June 8, 1984 which pertinently reads as follows:
After a consideration of the arguments raised by the herein parties, the Court is
more inclined to take the position of the respondents that the Securities and
Exchange Commission has the exclusive and original jurisdiction over this case.
WHEREFORE, the instant petition, the third-party complaint, and the compulsory
counterclaim filed herein are hereby DISMISSED, for lack of jurisdiction.
Its motion for reconsideration having been denied, by Order dated September 20, 1984, the
Consumers Association filed with this Court a petition for review on certiorari, which was docketed as
G.R. No. 68742. The case was however referred to the Intermediate Appellate Court by this Court's
Second Division, in a Resolution dated November 19, 1984, where it was docketed as AC-G.R. S.P.
No. 04862.

But there in the Intermediate Appellate Court, the Consumers

Association's cause also met with
50
failure. The Appellate Court, in its Decision promulgated on September 10, 1985, ruled that its cause
could not prosper because
1) it had availed of the wrong remedy, i.e., the special civil action of certiorari; the Order of June 8,
1984 being a final order in the sense that it "left nothing else to be done in the case the proper
remedy was appeal under Rule 41 of the Rules of Court and not a certiorari suit under Rule 65; and
2) even if the certiorari action be treated as an appeal, it was 14 unerringly clear that the controversy
... falls within the competence of the SEC in virtue of P.D. 902-A 18 Which provides that said agency
"shall have original and exclusive jurisdiction to hear and decide cases involving:
a) xxx xxx xxx
b) Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association
and the state insofar as it concerns their individual franchise or right to exist as such
entity ...
The Appellate Court subsequently denied the petitioner's motion for reconsideration, by Resolution
dated November 4, 1985. Hence, the petition for review on certiorari at bar, in which reversal of the
Appellate Tribunal's decision is sought, the petitioner insisting that the remedy resorted to by it was
correct but misunderstood by the I.A.C. and that the law does indeed vest exclusive jurisdiction over
the subject matter of the case in the Regional Trial Court, not the Securities and Exchange
Commission.
Turning first to the adjective issue, it is quite evident that the Order of the Trial Court of June 8, 1984,
dismissing the action of the Consumers Association, is really a final order; it finally disposed of the
proceeding and left nothing more to be done by the Court on the merits. Now, the firmly settled
principle is that the remedy against such a final order is the ordinary remedy of an appeal, either
solely on questions of law in which case the appeal may be taken only to the Supreme Court
or questions of fact and law in which event the appeal should be brought to the Court of Appeals.
The extraordinary remedy of a special civil action of certiorari or prohibition is not the appropriate
recourse because precisely, one of the conditions for availing of it is that there should be "no appeal,
nor any plain, speedy and adequate remedy in the ordinary course of law. 19 A resort to the latter
instead of the former would ordinarily be fatal, unless it should appear in a given case that appeal
would otherwise be an inefficacious or inadequate remedy. 20
In holding that Marilao Water District had resorted to the wrong remedy against the Trial Court's
order dismissing its suit, i.e., the special civil action of certiorari, instead of an appeal, the
Intermediate Appellate Court quite overlooked the fact, not seriously disputed by the Marilao Water
District and its co-respondents, that the former had in fact availed of the remedy of appeal by
certiorari under Rule 45 of the Rules of Court, as required by paragraph 25 of the Interim Rules &
Guidelines of this Court, implementing Batas Pambansa Bilang 129; that before doing so, it had first
asked for and been granted an extension of thirty (30) days within which to file a petition for review
on certiorari; but that subsequently, by Resolution of this Court's Second Division dated November
19, 1984, the case was referred to the Intermediate Appellate Court, evidently because it was felt
that certain factual issues had yet to be determined. In any case, all things considered, the Court is
not prepared to have the case at bar finally determined on this procedural issue.

The juridical entities known as water districts created by51

PD 198, although considered as quasipublic corporations and authorized to exercise the powers, rights and privileges given to private
corporations under existing laws 21 are entirely distinct from corporations organized under the
Corporation Code, PD 902-A, as amended. The Corporation Code has nothing whatever to do with
their formation and organization, all the terms and conditions for their organization and operation
being particularly spelled out in PD 198. The resolutions creating them, their charters, in other words,
are filed not with the Securities and Exchange Commission but with the LWUA. It is these
resolutions qua charters, and not articles of incorporation drawn up under the Corporation Code,
which set forth the name of the water districts, the number of their directors, the manner of their
selection and replacement, their powers, etc. The SEC which is charged with enforcement of the
Corporation Code as regards corporations, partnerships and associations formed or operating under
its provisions, has no power of supervision or control over the activities of water districts. More
particularly, the SEC has no power of oversight over such activities of water districts as selling water,
fuling the rates and charges therefor 22 or the management, administration, operation and
maintenance of watersheds within their territorial boundaries, or the safeguarding and protection of
the use of the waters therein, or the supervision and control of structures within the service areas of
the district, and the prohibition of any person from selling or otherwise disposing of water for public
purposes within their service areas where district facilities are available to provide such
service. 23 That function of supervision or control over water districts is entrusted to the Local Water
Utilities Administration. 24 Consequently, as regards the activities of water districts just mentioned,
the SEC obviously can have no claim to any expertise.
The "Provincial Water Utilities Act of 1973" has a specific provision governing dissolution of water
districts created thereunder This is Section 45 of PD 198 25 reading as follows:
SEC. 45. Dissolution. A district may be dissolved by resolution of its board of
directors filed in the manner of filing the resolution forming the district: Provided,
however, That prior to the adoption of any such resolution: (1) another public entity
has acquired the assets of the district and has assumed all obligations and liabilities
attached thereto; (2) all bondholders and other creditors have been notified and they
consent to said transfer and dissolution; and (3) a court of competent jurisdiction has
found that said transfer and dissolution are in the best interest of the public.
Under this provision, it is the LWUA which is the administrative body involved in the voluntary
dissolution of a water district; it is with it that the resolution of dissolution is filed, not the Securities
and Exchange Commission. And this provision is evidently quite distinct and different from those on
dissolution of corporations "formed or organized under the provisions of xx (the Corporation) Code"
set out in Sections 117 to 121, inclusive, of said Code, under which dissolution may be voluntary (by
vote of the stockholders or members), generally effected by the filing of the corresponding resolution
with the Securities and Exchange Commission, or involuntary, commenced by the filing of a verified
complaint also with the SEC.
All these argue against conceding jurisdiction in the Securities and Exchange Commission over
proceedings for the dissolution of water districts. For although described as quasipublic corporations,
and granted the same powers as private corporations, water districts are not really corporations.
They have no incorporators, stockholders or members, who have the right to vote for directors, or
amend the articles of incorporation or by-laws, or pass resolutions, or otherwise perform such other
acts as are authorized to stockholders or members of corporations by the Corporation Code. In a
word, there can be no such thing as a relation of corporation and stockholders or members in a
water district for the simple reason that in the latter there are no stockholders or members. Between
the water district and those who are recipients of its water services there exists not the relationship
of corporation-and-stockholder, but that of a service agency and users or customers. There can
therefore be no such thing in a water district as "intra-corporate or partnership relations, between

and among stockholders, members or associates (or)52

between any or all of them and the
corporation, partnership or association of which they are stockholders, members or associates,
respectively," within the contemplation of Section 5 of the Corporation Code so as to bring
controversies involving them within the competence and cognizance of the SEC.
There can be even less debate about the fact that the SEC has no jurisdiction over the corespondents of the Marilao Water District the Municipality of Marilao, its Sangguniang Bayan and
its Mayor who are accused of a "conspiracy" with the water district in respect of the anomalies
described in the Consumer Associations' petition.26
The controversy, therefore, between the Consumers Association, on the one hand, and Marilao
District and its co-respondents, on the other, is not within the jurisdiction of the SEC.
In their answer with counterclaim in the proceedings a quo, the respondents advocated the theory
that the case falls within the jurisdiction of the LWUA and/or the National Water Resources Council.
The LWUA does not appear to have any adjudicatory functions. It is, as already pointed out,
"primarily a specialized lending institution for the promotion, development and financing of local
water utilities, 27 with power to prescribe minimum standards and regulations regarding maintenance,
operation, personnel training, accounting and fiscal practices for local water utilities, to furnish
technical assistance and personnel training programs therefor; monitor and evaluate local water
standards; and effect systems integration, joint investment and operations, district annexation and
deannexation whenever economically warranted. 28 The LWUA has quasi-judicial power only as
regards rates or charges fixed by water districts, which it may review to establish compliance with
the provisions of PD 198, without prejudice to appeal being taken therefrom by a water
concessionaire to the National Water Resources Council whose decision thereon shall be
appealable to the Office of the President. 29 The rates or charges established by respondent Marilao
Water District do not appear to be at issue in the controversy at bar.
The National Water Resources Council, on the other hand, is conferred "original jurisdiction over all
disputes relating to appropriation, utilization, exploitation, development, control, conservation and
protection of waters within the meaning and context of the provisions of ..." (the Code by which said
Council was created, Presidential Decree No. 1067, otherwise known as the Water Code of the
Philippines); 30 and its decision on water rights controversies may be appealed to the Court of First
Instance of the province where the subject matter of the controversy is situated. 31 It also has
authority to review questions of annexations and deannexations (addition to or exclusion from the
district of territory). Again it does not appear that the case at bar is a water rights controversy or one
involving annexation or deannexation.
What essentially is sought by the Consumers Association is the dissolution of the Marilao Water
District, on the ground that its formation was illegal and invalid; the waterworks system had been
turned over to it without compensation and a subsidy illegally authorized for it; and the Water District
was being run with "negligence, apathy, indifference and mismanagement," and was not providing
adequate and efficient service to the community. 32
Now, as already above stated, the dissolution of a water district is governed by Section 45 of PD
198, as amended, stating that it "may be dissolved by resolution of its board of directors filed in the
manner of filing the resolution forming the district," subject to enumerated pre-requisites. 33 The
procedure for dissolution thus consists of the following steps:
1) the initiation by the board of directors of the water district motu proprio or at the relation of an
interested party, of proceedings for the dissolution of the water district, including:

a) the ascertainment by said board that

53

1) another public entity has acquired the assets of the district and has assumed all obligations and
liabilities attached thereto; and
2) all bondholders and other creditors have been notified and consent to said transfer and
dissolution;
b) the commencement by the water district in a court of competent jurisdiction of a proceeding to
obtain a declaration that "said transfer and dissolution are in the best interest of the public;
2) after compliance with the foregoing requisites, the adoption by the board of directors of the water
district of a resolution dissolving the water district and its submission to the Sangguniang Bayan
concerned for approval;
3) submission of the resolution of the Sangguniang Bayan dissolving the water district to the head of
the local government concerned for approval, and ultimately to the LWUA for final approval and filing.
The Consumer Association's action therefore is, in fine, in the nature of a mandamus suit, seeking to
compel the board of directors of the Marilao Water District, and its alleged co-conspirators, the
Sangguniang Bayan and the Mayor of Marilao to go through the process above described for the
dissolution of the water district. In this sense, and indeed, taking account of the nature of the
proceedings for dissolution just described, it seems plain that the case does not fall within the limited
jurisdiction of the SEC., but within the general jurisdiction of Regional Trial Courts.
WHEREFORE, the Decision of the Intermediate Appellate Court of September 10, 1985 affirming
that of the Regional Trial Court of June 8, 1984 is REVERSED and SET ASIDE, and the case is
remanded to the Regional Trial Court for further proceedings and adjudication in accordance with
law. No costs.
SO ORDERED.

[G.R. No. 141735. June 8, 2005]

54

SAPPARI K. SAWADJAAN, petitioner, vs. THE HONORABLE COURT OF APPEALS, THE CIVIL
SERVICE COMMISSION and AL-AMANAH INVESTMENT BANK OF THE
PHILIPPINES, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a petition for certiorari under Rule 65 of the Rules of Court of the Decision [1] of the Court
of Appeals of 30 March 1999 affirming Resolutions No. 94-4483 and No. 95-2754 of the Civil Service
Commission (CSC) dated 11 August 1994 and 11 April 1995, respectively, which in turn affirmed
Resolution No. 2309 of the Board of Directors of the Al-Amanah Islamic Investment Bank of the
Philippines (AIIBP) dated 13 December 1993, finding petitioner guilty of Dishonesty in the
Performance of Official Duties and/or Conduct Prejudicial to the Best Interest of the Service and
dismissing him from the service, and its Resolution [2] of 15 December 1999 dismissing petitioners
Motion for Reconsideration.
The records show that petitioner Sappari K. Sawadjaan was among the first employees of the
Philippine Amanah Bank (PAB) when it was created by virtue of Presidential Decree No. 264 on 02
August 1973. He rose through the ranks, working his way up from his initial designation as security
guard, to settling clerk, bookkeeper, credit investigator, project analyst, appraiser/ inspector, and
eventually, loans analyst.[3]
In February 1988, while still designated as appraiser/investigator, Sawadjaan was assigned to
inspect the properties offered as collaterals by Compressed Air Machineries and Equipment
Corporation (CAMEC) for a credit line of Five Million Pesos (P5,000,000.00). The properties
consisted of two parcels of land covered by Transfer Certificates of Title (TCTs) No. N-130671 and
No. C-52576. On the basis of his Inspection and Appraisal Report, [4] the PAB granted the loan
application. When the loan matured on 17 May 1989, CAMEC requested an extension of 180 days,
but was granted only 120 days to repay the loan.[5]
In the meantime, Sawadjaan was promoted to Loans Analyst I on 01 July 1989. [6]
In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealing P.D. No.
264 (which created the PAB). All assets, liabilities and capital accounts of the PAB were transferred
to the AIIBP,[7] and the existing personnel of the PAB were to continue to discharge their functions
unless discharged.[8] In the ensuing reorganization, Sawadjaan was among the personnel retained
by the AIIBP.
When CAMEC failed to pay despite the given extension, the bank, now referred to as the AIIBP,
discovered that TCT No. N-130671 was spurious, the property described therein non-existent, and
that the property covered by TCT No. C-52576 had a prior existing mortgage in favor of one Divina
Pablico.
On 08 June 1993, the Board of Directors of the AIIBP created an Investigating Committee to
look into the CAMEC transaction, which had cost the bank Six Million Pesos (P6,000,000.00) in
losses.[9] The subsequent events, as found and decided upon by the Court of Appeals, [10] are as
follows:

On 18 June 1993, petitioner received a memorandum from

55Islamic Bank [AIIBP] Chairman Roberto
F. De Ocampo charging him with Dishonesty in the Performance of Official Duties and/or Conduct
Prejudicial to the Best Interest of the Service and preventively suspending him.
In his memorandum dated 8 September 1993, petitioner informed the Investigating Committee that
he could not submit himself to the jurisdiction of the Committee because of its alleged partiality. For
his failure to appear before the hearing set on 17 September 1993, after the hearing of 13
September 1993 was postponed due to the Manifestation of even date filed by petitioner, the
Investigating Committee declared petitioner in default and the prosecution was allowed to present its
evidence ex parte.
On 08 December 1993, the Investigating Committee rendered a decision, the pertinent portions of
which reads as follows:
In view of respondent SAWADJAANS abject failure to perform his duties and assigned tasks as
appraiser/inspector, which resulted to the prejudice and substantial damage to the Bank, respondent
should be held liable therefore. At this juncture, however, the Investigating Committee is of the
considered opinion that he could not be held liable for the administrative offense of dishonesty
considering the fact that no evidence was adduced to show that he profited or benefited from being
remiss in the performance of his duties. The record is bereft of any evidence which would show that
he received any amount in consideration for his non-performance of his official duties.
This notwithstanding, respondent cannot escape liability. As adverted to earlier, his failure to perform
his official duties resulted to the prejudice and substantial damage to the Islamic Bank for which he
should be held liable for the administrative offense of CONDUCT PREJUDICIAL TO THE BEST
INTEREST OF THE SERVICE.
Premises considered, the Investigating Committee recommends that respondent SAPPARI
SAWADJAAN be meted the penalty of SIX (6) MONTHS and ONE (1) DAY SUSPENSION from
office in accordance with the Civil Service Commissions Memorandum Circular No. 30, Series of
1989.
On 13 December 1993, the Board of Directors of the Islamic Bank [AIIBP] adopted Resolution No.
2309 finding petitioner guilty of Dishonesty in the Performance of Official Duties and/or Conduct
Prejudicial to the Best Interest of the Service and imposing the penalty of Dismissal from the
Service.
On reconsideration, the Board of Directors of the Islamic Bank [AIIBP] adopted the Resolution No.
2332 on 20 February 1994 reducing the penalty imposed on petitioner from dismissal to suspension
for a period of six (6) months and one (1) day.
On 29 March 1994, petitioner filed a notice of appeal to the Merit System Protection Board (MSPB).
On 11 August 1994, the CSC adopted Resolution No. 94-4483 dismissing the appeal for lack of merit
and affirming Resolution No. 2309 dated 13 December 1993 of the Board of Directors of Islamic
Bank.
On 11 April 1995, the CSC adopted Resolution No. 95-2574 denying petitioners Motion for
Reconsideration.
On 16 June 1995, the instant petition was filed with the Honorable Supreme Court on the following
assignment of errors:

I. Public respondent Al-Amanah Islamic Investment56

Bank of the Philippines has committed a
grave abuse of discretion amounting to excess or lack of jurisdiction when it initiated and conducted
administrative investigation without a validly promulgated rules of procedure in the adjudication of
administrative cases at the Islamic Bank.
II. Public respondent Civil Service Commission has committed a grave abuse of discretion
amounting to lack of jurisdiction when it prematurely and falsely assumed jurisdiction of the case not
appealed to it, but to the Merit System Protection Board.
III. Both the Islamic Bank and the Civil Service Commission erred in finding petitioner
Sawadjaan of having deliberately reporting false information and therefore guilty of Dishonesty and
Conduct Prejudicial to the Best Interest of the Service and penalized with dismissal from the service.
On 04 July 1995, the Honorable Supreme Court En Banc referred this petition to this Honorable
Court pursuant to Revised Administrative Circular No. 1-95, which took effect on 01 June 1995.
We do not find merit [in] the petition.
Anent the first assignment of error, a reading of the records would reveal that petitioner raises for the
first time the alleged failure of the Islamic Bank [AIIBP] to promulgate rules of procedure governing
the adjudication and disposition of administrative cases involving its personnel. It is a rule that issues
not properly brought and ventilated below may not be raised for the first time on appeal, save in
exceptional circumstances (Casolita, Sr. v. Court of Appeals, 275 SCRA 257) none of which,
however, obtain in this case. Granting arguendo that the issue is of such exceptional character that
the Court may take cognizance of the same, still, it must fail. Section 26 of Republic Act No. 6848
(1990) provides:
Section 26. Powers of the Board. The Board of Directors shall have the broadest powers to manage
the Islamic Bank, x x x The Board shall adopt policy guidelines necessary to carry out effectively the
provisions of this Charter as well as internal rules and regulations necessary for the conduct of its
Islamic banking business and all matters related to personnel organization, office functions and
salary administration. (Italics ours)
On the other hand, Item No. 2 of Executive Order No. 26 (1992) entitled Prescribing Procedure and
Sanctions to Ensure Speedy Disposition of Administrative Cases directs, all administrative agencies
to adopt and include in their respective Rules of Procedure provisions designed to abbreviate
administrative proceedings.
The above two (2) provisions relied upon by petitioner does not require the Islamic Bank [AIIBP] to
promulgate rules of procedure before administrative discipline may be imposed upon its employees.
The internal rules of procedures ordained to be adopted by the Board refers to that necessary for the
conduct of its Islamic banking business and all matters related to personnel organization, office
functions and salary administration. On the contrary, Section 26 of RA 6848 gives the Board of
Directors of the Islamic Bank the broadest powers to manage the Islamic Bank. This grant of broad
powers would be an idle ceremony if it would be powerless to discipline its employees.
The second assignment of error must likewise fail. The issue is raised for the first time via this
petition for certiorari. Petitioner submitted himself to the jurisdiction of the CSC. Although he could
have raised the alleged lack of jurisdiction in his Motion for Reconsideration of Resolution No. 944483 of the CSC, he did not do so. By filing the Motion for Reconsideration, he is estopped from
denying the CSCs jurisdiction over him, as it is settled rule that a party who asks for an affirmative
relief cannot later on impugn the action of the tribunal as without jurisdiction after an adverse result
was meted to him. Although jurisdiction over the subject matter of a case may be objected to at any

stage of the proceedings even on appeal, this particular57

rule, however, means that jurisdictional
issues in a case can be raised only during the proceedings in said case and during the appeal of
said case (Aragon v. Court of Appeals, 270 SCRA 603). The case at bar is a petition
[for] certiorari and not an appeal.
But even on the merits the argument must falter. Item No. 1 of CSC Resolution No. 93-2387 dated
29 June 1993, provides:
Decisions in administrative cases involving officials and employees of the civil service appealable to
the Commission pursuant to Section 47 of Book V of the Code (i.e., Administrative Code of 1987)
including personnel actions such as contested appointments shall now be appealed directly to the
Commission and not to the MSPB.
In Rubenecia v. Civil Service Commission, 244 SCRA 640, 651, it was categorically held:
. . . The functions of the MSPB relating to the determination of administrative disciplinary cases
were, in other words, re-allocated to the Commission itself.
Be that as it may, (i)t is hornbook doctrine that in order `(t)o ascertain whether a court (in this case,
administrative agency) has jurisdiction or not, the provisions of the law should be inquired into.
Furthermore, `the jurisdiction of the court must appear clearly from the statute law or it will not be
held to exist.(Azarcon v. Sandiganbayan, 268 SCRA 747, 757) From the provision of law abovecited,
the Civil Service Commission clearly has jurisdiction over the Administrative Case against petitioner.
Anent the third assignment of error, we likewise do not find merit in petitioners proposition that he
should not be liable, as in the first place, he was not qualified to perform the functions of
appraiser/investigator because he lacked the necessary training and expertise, and therefore, should
not have been found dishonest by the Board of Directors of Islamic Bank [AIIBP] and the CSC.
Petitioner himself admits that the position of appraiser/inspector is one of the most serious [and]
sensitive job in the banking operations. He should have been aware that accepting such a
designation, he is obliged to perform the task at hand by the exercise of more than ordinary
prudence. As appraiser/investigator, he is expected, among others, to check the authenticity of the
documents presented by the borrower by comparing them with the originals on file with the proper
government office. He should have made it sure that the technical descriptions in the location plan
on file with the Bureau of Lands of Marikina, jibe with that indicated in the TCT of the collateral
offered by CAMEC, and that the mortgage in favor of the Islamic Bank was duly annotated at the
back of the copy of the TCT kept by the Register of Deeds of Marikina. This, petitioner failed to do,
for which he must be held liable. That he did not profit from his false report is of no moment. Neither
the fact that it was not deliberate or willful, detracts from the nature of the act as dishonest. What is
apparent is he stated something to be a fact, when he really was not sure that it was so.
WHEREFORE, above premises considered, the instant Petition is DISMISSED, and the assailed
Resolutions of the Civil Service Commission are hereby AFFIRMED.
On 24 March 1999, Sawadjaans counsel notified the court a quo of his change of address,
but apparently neglected to notify his client of this fact. Thus, on 23 July 1999, Sawadjaan, by
himself, filed a Motion for New Trial[12] in the Court of Appeals based on the following grounds: fraud,
accident, mistake or excusable negligence and newly discovered evidence. He claimed that he had
recently discovered that at the time his employment was terminated, the AIIBP had not yet adopted
its corporate by-laws. He attached a Certification [13] by the Securities and Exchange Commission
(SEC) that it was only on 27 May 1992 that the AIIBP submitted its draft by-laws to the SEC, and that
its registration was being held in abeyance pending certain corrections being made thereon.
Sawadjaan argued that since the AIIBP failed to file its by-laws within 60 days from the passage of
[11]

Rep. Act No. 6848, as required by Sec. 51 of the said law,58

the bank and its stockholders had already
forfeited its franchise or charter, including its license to exist and operate as a corporation, [14] and
thus no longer have the legal standing and personality to initiate an administrative case.
Sawadjaans counsel subsequently adopted his motion, but requested that it be treated as a
motion for reconsideration.[15] This motion was denied by the court a quo in its Resolution of 15
December 1999.[16]
Still disheartened, Sawadjaan filed the present petition for certiorari under Rule 65 of the Rules
of Court challenging the above Decision and Resolution of the Court of Appeals on the ground that
the court a quo erred: i) in ignoring the facts and evidences that the alleged Islamic Bank has no
valid by-laws; ii) in ignoring the facts and evidences that the Islamic Bank lost its juridical personality
as a corporation on 16 April 1990; iii) in ignoring the facts and evidences that the alleged Islamic
Bank and its alleged Board of Directors have no jurisdiction to act in the manner they did in the
absence of a valid by-laws; iv) in not correcting the acts of the Civil Service Commission who
erroneously rendered the assailed Resolutions No. 94-4483 and No. 95-2754 as a result of fraud,
falsification and/or misrepresentations committed by Farouk A. Carpizo and his group, including
Roberto F. de Ocampo; v) in affirming an unconscionably harsh and/or excessive penalty; and vi) in
failing to consider newly discovered evidence and reverse its decision accordingly.
Subsequently, petitioner Sawadjaan filed an Ex-parte Urgent Motion for Additional Extension of
Time to File a Reply (to the Comments of Respondent Al-Amanah Investment Bank of the
Philippines),[17] Reply (to Respondents Consolidated Comment,) [18] and Reply (to the Alleged
Comments of Respondent Al-Amanah Islamic Bank of the Philippines). [19] On 13 October 2000, he
informed this Court that he had terminated his lawyers services, and, by himself, prepared and filed
the following: 1) Motion for New Trial; [20] 2) Motion to Declare Respondents in Default and/or Having
Waived their Rights to Interpose Objection to Petitioners Motion for New Trial; [21] 3) Ex-Parte Urgent
Motions to Punish Attorneys Amado D. Valdez, Elpidio J. Vega, Alda G. Reyes, Dominador R.
Isidoro, Jr., and Odilon A. Diaz for Being in Contempt of Court & to Inhibit them from Appearing in
this Case Until they Can Present Valid Evidence of Legal Authority; [22] 4) Opposition/Reply (to
Respondent AIIBPs Alleged Comment);[23] 5) Ex-Parte Urgent Motion to Punish Atty. Reynaldo A.
Pineda for Contempt of Court and the Issuance of a Commitment Order/Warrant for His Arrest; [24] 6)
Reply/Opposition (To the Formal Notice of Withdrawal of Undersigned Counsel as Legal Counsel for
the Respondent Islamic Bank with Opposition to Petitioners Motion to Punish Undersigned Counsel
for Contempt of Court for the Issuance of a Warrant of Arrest); [25] 7) Memorandum for Petitioner; [26] 8)
Opposition to SolGens Motion for Clarification with Motion for Default and/or Waiver of Respondents
to File their Memorandum;[27] 9) Motion for Contempt of Court and Inhibition/Disqualification with
Opposition to OGCCs Motion for Extension of Time to File Memorandum; [28] 10) Motion for
Enforcement (In Defense of the Rule of Law); [29] 11) Motion and Opposition (Motion to Punish
OGCCs Attorneys Amado D. Valdez, Efren B. Gonzales, Alda G. Reyes, Odilon A. Diaz and
Dominador R. Isidoro, Jr., for Contempt of Court and the Issuance of a Warrant for their Arrest; and
Opposition to their Alleged Manifestation and Motion Dated February 5, 2002); [30] 12) Motion for
Reconsideration of Item (a) of Resolution dated 5 February 2002 with Supplemental Motion for
Contempt of Court;[31] 13) Motion for Reconsideration of Portion of Resolution Dated 12 March 2002;
[32]
14) Ex-Parte Urgent Motion for Extension of Time to File Reply Memorandum (To: CSC and
AIIBPs Memorandum);[33] 15) Reply Memorandum (To: CSCs Memorandum) With Ex-Parte Urgent
Motion for Additional Extension of time to File Reply Memorandum (To: AIIBPs Memorandum); [34] and
16) Reply Memorandum (To: OGCCs Memorandum for Respondent AIIBP). [35]
Petitioners efforts are unavailing, and we deny his petition for its procedural and substantive
flaws.

The general rule is that the remedy to obtain reversal

59or modification of the judgment on the
merits is appeal. This is true even if the error, or one of the errors, ascribed to the court rendering the
judgment is its lack of jurisdiction over the subject matter, or the exercise of power in excess thereof,
or grave abuse of discretion in the findings of fact or of law set out in the decision. [36]
The records show that petitioners counsel received the Resolution of the Court of Appeals
denying his motion for reconsideration on 27 December 1999. The fifteen day reglamentary period to
appeal under Rule 45 of the Rules of Court therefore lapsed on 11 January 2000. On 23 February
2000, over a month after receipt of the resolution denying his motion for reconsideration, the
petitioner filed his petition for certiorari under Rule 65.
It is settled that a special civil action for certiorari will not lie as a substitute for the lost remedy
of appeal,[37] and though there are instances[38] where the extraordinary remedy ofcertiorari may be
resorted to despite the availability of an appeal, [39] we find no special reasons for making out an
exception in this case.
Even if we were to overlook this fact in the broader interests of justice and treat this as a special
civil action for certiorari under Rule 65,[40] the petition would nevertheless be dismissed for failure of
the petitioner to show grave abuse of discretion. Petitioners recurrent argument, tenuous at its very
best, is premised on the fact that since respondent AIIBP failed to file its by-laws within the
designated 60 days from the effectivity of Rep. Act No. 6848, all proceedings initiated by AIIBP and
all actions resulting therefrom are a patent nullity. Or, in his words, the AIIBP and its officers and
Board of Directors,
. . . [H]ave no legal authority nor jurisdiction to manage much less operate the Islamic Bank, file
administrative charges and investigate petitioner in the manner they did and allegedly passed Board
Resolution No. 2309 on December 13, 1993 which is null and void for lack of an (sic) authorized and
valid by-laws. The CIVIL SERVICE COMMISSION was therefore affirming, erroneously, a null and
void Resolution No. 2309 dated December 13, 1993 of the Board of Directors of Al-Amanah Islamic
Investment Bank of the Philippines in CSC Resolution No. 94-4483 dated August 11, 1994. A motion
for reconsideration thereof was denied by the CSC in its Resolution No. 95-2754 dated April 11,
1995. Both acts/resolutions of the CSC are erroneous, resulting from fraud, falsifications and
misrepresentations of the alleged Chairman and CEO Roberto F. de Ocampo and the alleged
Director Farouk A. Carpizo and his group at the alleged Islamic Bank. [41]
Nowhere in petitioners voluminous pleadings is there a showing that the court a quo committed
grave abuse of discretion amounting to lack or excess of jurisdiction reversible by a petition
for certiorari. Petitioner already raised the question of AIIBPs corporate existence and lack of
jurisdiction in his Motion for New Trial/Motion for Reconsideration of 27 May 1997 and was denied by
the Court of Appeals. Despite the volume of pleadings he has submitted thus far, he has added
nothing substantial to his arguments.
The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business,
has shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here
represented by the Office of the Government Corporate Counsel, the principal law office of
government-owned corporations, one of which is respondent bank. [42] At the very least, by its failure
to submit its by-laws on time, the AIIBP may be considered a de facto corporation[43] whose right to
exercise corporate powers may not be inquired into collaterally in any private suit to which such
corporations may be a party.[44]
Moreover, a corporation which has failed to file its by-laws within the prescribed period does
not ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate
of Registration of Corporations,[45] details the procedures and remedies that may be availed of before

an order of revocation can be issued. There is no showing60

that such a procedure has been initiated
in this case.
In any case, petitioners argument is irrelevant because this case is not a corporate controversy,
but a labor dispute; and it is an employers basic right to freely select or discharge its employees, if
only as a measure of self-protection against acts inimical to its interest. [46] Regardless of whether
AIIBP is a corporation, a partnership, a sole proprietorship, or a sari-saristore, it is an undisputed fact
that AIIBP is the petitioners employer. AIIBP chose to retain his services during its reorganization,
controlled the means and methods by which his work was to be performed, paid his wages, and,
eventually, terminated his services.[47]
And though he has had ample opportunity to do so, the petitioner has not alleged that he is
anything other than an employee of AIIBP. He has neither claimed, nor shown, that he is a
stockholder or an officer of the corporation. Having accepted employment from AIIBP, and rendered
his services to the said bank, received his salary, and accepted the promotion given him, it is now
too late in the day for petitioner to question its existence and its power to terminate his services. One
who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof
on the ground that there was in fact no corporation. [48]
Even if we were to consider the facts behind petitioner Sawadjaans dismissal from service, we
would be hard pressed to find error in the decision of the AIIBP.
As appraiser/investigator, the petitioner was expected to conduct an ocular inspection of the
properties offered by CAMEC as collaterals and check the copies of the certificates of title against
those on file with the Registry of Deeds. Not only did he fail to conduct these routine checks, but he
also deliberately misrepresented in his appraisal report that after reviewing the documents and
conducting a site inspection, he found the CAMEC loan application to be in order. Despite the
number of pleadings he has filed, he has failed to offer an alternative explanation for his actions.
When he was informed of the charges against him and directed to appear and present his side
on the matter, the petitioner sent instead a memorandum questioning the fairness and impartiality of
the members of the investigating committee and refusing to recognize their jurisdiction over him.
Nevertheless, the investigating committee rescheduled the hearing to give the petitioner another
chance, but he still refused to appear before it.
Thereafter, witnesses were presented, and a decision was rendered finding him guilty of
dishonesty and dismissing him from service. He sought a reconsideration of this decision and the
same committee whose impartiality he questioned reduced their recommended penalty to
suspension for six months and one day. The board of directors, however, opted to dismiss him from
service.
On appeal to the CSC, the Commission found that Sawadjaans failure to perform his official
duties greatly prejudiced the AIIBP, for which he should be held accountable. It held that:
. . . (I)t is crystal clear that respondent SAPPARI SAWADJAAN was remiss in the performance of his
duties as appraiser/inspector. Had respondent performed his duties as appraiser/inspector, he could
have easily noticed that the property located at Balintawak, Caloocan City covered by TCT No. C52576 and which is one of the properties offered as collateral by CAMEC is encumbered to Divina
Pablico. Had respondent reflected such fact in his appraisal/inspection report on said property the
ISLAMIC BANK would not have approved CAMECs loan of P500,000.00 in 1987 and CAMECs P5
Million loan in 1988, respondent knowing fully well the Banks policy of not accepting encumbered
properties as collateral.

Respondent SAWADJAANs reprehensible act is further 61

aggravated when he failed to check and
verify from the Registry of Deeds of Marikina the authenticity of the property located at Mayamot,
Antipolo, Rizal covered by TCT No. N-130671 and which is one of the properties offered as collateral
by CAMEC for its P5 Million loan in 1988. If he only visited and verified with the Register of Deeds of
Marikina the authenticity of TCT No. N-130671 he could have easily discovered that TCT No. N130671 is fake and the property described therein non-existent.
...
This notwithstanding, respondent cannot escape liability. As adverted to earlier, his failure to perform
his official duties resulted to the prejudice and substantial damage to the ISLAMIC BANK for which
he should be held liable for the administrative offense of CONDUCT PREJUDICIAL TO THE BEST
INTEREST OF THE SERVICE.[49]
From the foregoing, we find that the CSC and the court a quo committed no grave abuse of
discretion when they sustained Sawadjaans dismissal from service. Grave abuse of discretion
implies such capricious and whimsical exercise of judgment as equivalent to lack of jurisdiction, or, in
other words, where the power is exercised in an arbitrary or despotic manner by reason of passion
or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty
or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. [50] The
records show that the respondents did none of these; they acted in accordance with the law.
WHEREFORE, the petition is DISMISSED. The Decision of the Court of Appeals of 30 March
1999 affirming Resolutions No. 94-4483 and No. 95-2754 of the Civil Service Commission, and its
Resolution of 15 December 1999 are hereby AFFIRMED. Costs against the petitioner.
SO ORDERED.

WILSON GAMBOA V. SEC. MARGARITO TEVES JUNE 62

28, 2011
DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the
sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the
government of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an
affiliate of First Pacific Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance
Telephone Company (PLDT), are as follows: 1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a
franchise and the right to engage in telecommunications business. In 1969, General Telephone and
Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26
percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI)
was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently,
PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment
executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415
shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good
Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the
outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic of
the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the
remaining 54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the InterAgency Privatization Council (IPC) of the Philippine Government announced that it would sell the
111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public
bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8
December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia
Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC
stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax. However, First
Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its right to
PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14 February
2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase
Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC,
with the Philippine Government for the price of P25,217,556,000 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 Pacifics common shareholdings in PLDT
increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of
foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987
Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than
40 percent.3
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John
P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the following relevant facts:

On 9 November 1967, PTIC was incorporated and had since

63 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-gotten wealth of former President Ferdinand Marcos. The sequestered
PTIC shares were reconveyed to the Republic of the Philippines in accordance with this Courts
decision4 which became final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of
the outstanding common shares of stock of PLDT, and designated the Inter-Agency Privatization
Council (IPC), composed of the Department of Finance and the PCGG, as the disposing entity. An
invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On 20
November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled on 4
December 2006 was reset to 8 December 2006. The extension was published in nine different
newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest
bidder with a bid of P25,217,556,000. The government notified First Pacific, the majority owner of
PTIC shares, of the bidding results and gave First Pacific until 1 February 2007 to exercise its right
of first refusal in accordance with PTICs Articles of Incorporation. First Pacific announced its
intention to match Parallaxs bid.
On 31 January 2007, the House of Representatives (HR) Committee on Good Government
conducted a public hearing on the particulars of the then impending sale of the 111,415 PTIC shares.
Respondents Teves and Sevilla were among those who attended the public hearing. The HR
Committee Report No. 2270 concluded that: (a) the auction of the governments 111,415 PTIC
shares bore due diligence, transparency and conformity with existing legal procedures; and (b) First
Pacifics intended acquisition of the governments 111,415 PTIC shares resulting in First
Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign
ownership of a public utility since PTIC holds only 13.847 percent of the total outstanding
common shares of PLDT.5 On 28 February 2007, First Pacific completed the acquisition of the
111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding
for the sale of 111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the
remaining 54 percent of PTIC shares was already owned by First Pacific and its affiliates); (b)
Parallax offered the highest bid amounting to P25,217,556,000; (c) pursuant to the right of first
refusal in favor of PTIC and its shareholders granted in PTICs Articles of Incorporation, MPAH, a
First Pacific affiliate, exercised its right of first refusal by matching the highest bid offered for PTIC
shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when MPAH
paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC
shares. Respondent Pangilinan denies the other allegations of facts of petitioner.
On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief,
and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that
the sale of the 111,415 PTIC shares would result in an increase in First Pacifics common
shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese
NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common
shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional limit. 6 Petitioner
asserts:
If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent
to 37.0 percent of its common or voting- stockholdings, x x x. Hence, the consummation of
the sale will put the two largest foreign investors in PLDT First Pacific and Japans
NTT DoCoMo, which is the worlds largest wireless telecommunications firm, owning 51.56
percent of PLDT common equity. xx x With the completion of the sale, data culled from the
official website of the New York Stock Exchange (www.nyse.com) showed that those foreign
entities, which own at least five percent of common equity, will collectively own 81.47
percent of PLDTs common equity. x x x

x x x as the annual disclosure reports,

64 also referred to as Form 20-K reports
x x x which PLDT submitted to the New York Stock Exchange for the period
2003-2005, revealed that First Pacific and several other foreign entities
breached the constitutional limit of 40 percent ownership as early as 2003.
x x x7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale of
111,415 PTIC shares to First Pacific violates the constitutional limit on foreign ownership of a public
utility; (2) whether public respondents committed grave abuse of discretion in allowing the sale of the
111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to foreigners in
excess of 40 percent of the entire subscribed common capital stock violates the constitutional limit
on foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene
and Admit Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted
the motion and noted the Petition-in-Intervention.
Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin
and/or nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or assignee.
Petitioners-in-intervention claim that, as PLDT subscribers, they have a stake in the outcome of the
controversy x x x where the Philippine Government is completing the sale of government owned
assets in [PLDT], unquestionably a public utility, in violation of the nationality restrictions of the
Philippine Constitution.
The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which
indisputably demand a thorough examination of the evidence of the parties, are generally beyond
this Courts jurisdiction. Adhering to this well-settled principle, the Court shall confine the resolution of
the instant controversy solely on the threshold and purely legal issueof whether the term capital in
Section 11, Article XII of the Constitution refers to the total common shares only or to the total
outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a
public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only
the petition for prohibition is within the original jurisdiction of this court, which however is not
exclusive but is concurrent with the Regional Trial Court and the Court of Appeals. The actions for
declaratory relief,10 injunction, and annulment of sale are not embraced within the original jurisdiction
of the Supreme Court. On this ground alone, the petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for prohibition, 11 the Court shall
nevertheless refrain from discussing the grounds in support of the petition for prohibition since on 28
February 2007, the questioned sale was consummated when MPAH paid IPC P25,217,556,000 and
the government delivered the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of the term capital in Section
11, Article XII of the Constitution has far-reaching implications to the nationaleconomy, the Court
treats the petition for declaratory relief as one for mandamus. 12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief
as one for mandamus considering the grave injustice that would result in the interpretation of a
banking law. In that case, which involved the crime of rape committed by a foreign tourist against a
Filipino minor and the execution of the final judgment in the civil case for damages on the tourists

dollar deposit with a local bank, the Court declared Section

65 113 of Central Bank Circular No. 960,
exempting foreign currency deposits from attachment, garnishment or any other order or process of
any court, inapplicable due to the peculiar circumstances of the case. The Court held that injustice
would result especially to a citizen aggrieved by a foreign guest like accused x x x that would negate
Article 10 of the Civil Code which provides that in case of doubt in the interpretation or application of
laws, it is presumed that the lawmaking body intended right and justice to prevail. The Court
therefore required respondents Central Bank of the Philippines, the local bank, and the accused to
comply with the writ of execution issued in the civil case for damages and to release the dollar
deposit of the accused to satisfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the
procedural infirmity of the petition for declaratory relief and treated the same as one for mandamus.
In Alliance, the issue was whether the government unlawfully excluded petitioners, who were
government employees, from the enjoyment of rights to which they were entitled under the law.
Specifically, the question was: Are the branches, agencies, subdivisions, and instrumentalities of the
Government, including government owned or controlled corporations included among the four
employers under Presidential Decree No. 851 which are required to pay their employees x x x a
thirteenth (13th) month pay x x x ? The Constitutional principle involved therein affected all
government employees, clearly justifying a relaxation of the technical rules of procedure, and
certainly requiring the interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for
mandamus if the issue involved has far-reaching implications. As this Court held inSalvacion:
The Court has no original and exclusive jurisdiction over a petition for declaratory
relief. However, exceptions to this rule have been recognized. Thus, where the petition
has far-reaching implications and raises questions that should be resolved, it may be
treated as one for mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the term capital in Section 11,
Article XII of the Constitution. He prays that this Court declare that the term capital refers to common
shares only, and that such shares constitute the sole basis in determining foreign equity in a public
utility. Petitioner further asks this Court to declare any ruling inconsistent with such interpretation
unconstitutional.
The interpretation of the term capital in Section 11, Article XII of the Constitution has far-reaching
implications to the national economy. In fact, a resolution of this issue will determine whether
Filipinos are masters, or second class citizens, in their own country. What is at stake here is whether
Filipinos or foreigners will have effective control of the national economy. Indeed, if ever there is a
legal issue that has far-reaching implications to the entire nation, and to future generations of
Filipinos, it is the threshhold legal issue presented in this case.
The Court first encountered the issue on the definition of the term capital in Section 11, Article XII of
the Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360. 16 That case
involved the same public utility (PLDT) and substantially the same private respondents. Despite the
importance and novelty of the constitutional issue raised therein and despite the fact that the petition
involved a purely legal question, the Court declined to resolve the case on the merits, and instead
denied the same for disregarding the hierarchy of courts. 17 There, petitioner Fernandez assailed on a
pure question of law the Regional Trial Courts Decision of 21 February 2003 via a petition for review
under Rule 45. The Courts Resolution, denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely
legal issue which is of transcendental importance to the national economy and a fundamental
requirement to a faithful adherence to our Constitution. The Court must forthwith seize such
opportunity, not only for the benefit of the litigants, but more significantly for the benefit of the entire
Filipino people, to ensure, in the words of the Constitution, a self-reliant and independent national
economy effectively controlled by Filipinos.18 Besides, in the light of vague and confusing positions
taken by government agencies on this purely legal issue, present and future foreign investors in this
country deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of
their participation in the capital of public utilities and other nationalized businesses.

Despite its far-reaching implications to the national economy,

66 this purely legal issue has remained
unresolved for over 75 years since the 1935 Constitution. There is no reason for this Court to evade
this ever recurring fundamental issue and delay again defining the term capital, which appears not
only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII on co-production
and joint venture agreements for the development of our natural resources, 19 in Section 7, Article XII
on ownership of private lands, 20 in Section 10, Article XII on the reservation of certain investments to
Filipino citizens,21 in Section 4(2), Article XIV on the ownership of educational institutions, 22 and in
Section 11(2), Article XVI on the ownership of advertising companies. 23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the
subject sale, which he claims to violate the nationality requirement prescribed in Section 11, Article
XII of the Constitution. If the sale indeed violates the Constitution, then there is a possibility that
PLDTs franchise could be revoked, a dire consequence directly affecting petitioners interest as a
stockholder.
More importantly, there is no question that the instant petition raises matters of transcendental
importance to the public. The fundamental and threshold legal issue in this case, involving the
national economy and the economic welfare of the Filipino people, far outweighs any perceived
impediment in the legal personality of the petitioner to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of
transcendental importance to the public, thus:
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the
object of mandamus is to obtain the enforcement of a public duty, the people are regarded as
the real parties in interest; and because it is sufficient that petitioner is a citizen and as such
is interested in the execution of the laws, he need not show that he has any legal or special
interest in the result of the action. In the aforesaid case, the petitioners sought to enforce their
right to be informed on matters of public concern, a right then recognized in Section 6, Article IV of
the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must
be published in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners
legal standing, the Court declared that the right they sought to be enforced is a public right
recognized by no less than the fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a
mandamus proceeding involves the assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the
general public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been
involved under the questioned contract for the development, management and operation of the
Manila International Container Terminal, public interest [was] definitely involved considering the
important role [of the subject contract] . . . in the economic development of the country and
the magnitude of the financial consideration involved. We concluded that, as a consequence,
the disclosure provision in the Constitution would constitute sufficient authority for upholding the
petitioners standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public
importance, the petitioner has the requisite locus standi.
Definition of the Term Capital in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates
the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at least

sixty per centum of whose capital is owned by

such citizens; nor shall such franchise,
67
certificate, or authorization be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except under the condition that it shall
be subject to amendment, alteration, or repeal by the Congress when the common good so
requires. The State shall encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be citizens of the Philippines.
(Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:
Section 5. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least sixty
per centum of the capital of which is owned by such citizens, nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except under the condition that it shall
be subject to amendment, alteration, or repeal by the National Assembly when the public
interest so requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis
supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935
Constitution, viz:
Section 8. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or other entities organized under the laws of the Philippines sixty per
centum of the capital of which is owned by citizens of the Philippines, nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than
fifty years. No franchise or right shall be granted to any individual, firm, or corporation,
except under the condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the public interest so requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds
us that the Filipinization provision in the 1987 Constitution is one of the products of the spirit of
nationalism which gripped the 1935 Constitutional Convention. 25 The 1987 Constitution provides for
the Filipinization of public utilities by requiring that any form of authorization for the operation of
public utilities should be granted only to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is owned by
such citizens. The provision is [an express] recognition of the sensitive and vital position of
public utilities both in the national economy and for national security. 26 The evident purpose of
the citizenship requirement is to prevent aliens from assuming control of public utilities, which may
be inimical to the national interest.27 This specific provision explicitly reserves to Filipino citizens
control of public utilities, pursuant to an overriding economic goal of the 1987 Constitution: to
conserve and develop our patrimony28 and ensure a self-reliant and independent national
economy effectively controlled by Filipinos.29
Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum
nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a
corporation to be granted authority to operate a public utility, at least 60 percent of its capital must be
owned by Filipino citizens.

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

68 Does the term capital in Section 11,
Article XII of the Constitution refer to common shares or to the total outstanding capital stock
(combined total of common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only
to common shares because such shares are entitled to vote and it is through voting that control over
a corporation is exercised. Petitioner posits that the term capital in Section 11, Article XII of the
Constitution refers to the ownership of common capital stock subscribed and outstanding, which
class of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board
of directors. It is undisputed that PLDTs non-voting preferred shares are held mostly by Filipino
citizens.30 This arose from Presidential Decree No. 217, 31 issued on 16 June 1973 by then President
Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting
preferred shares to pay for the investment cost of installing the telephone line. 32
Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of
the term capital.33 Petitioners-in-intervention allege that the approximate foreign ownership of
common capital stock of PLDT x x x already amounts to at least 63.54% of the total outstanding
common stock, which means that foreigners exercise significant control over PLDT, patently violating
the 40 percent foreign equity limitation in public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any definition of the term capital in Section 11, Article
XII of the Constitution. More importantly, private respondents Nazareno andPangilinan of PLDT do
not dispute that more than 40 percent of the common shares of PLDT are held by foreigners.
In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the
procedural infirmities of the petition and the supposed violation of the due process rights of the
affected foreign common shareholders. Respondent Nazareno does not deny petitioners allegation
of foreigners dominating the common shareholdings of PLDT. Nazarenostressed mainly that the
petition seeks to divest foreign common shareholders purportedly exceeding 40% of the total
common shareholdings in PLDT of their ownership over their shares. Thus, the foreign natural
and juridical PLDT shareholders must be impleaded in this suit so that they can be
heard.34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common
shareholders.
While Nazareno does not introduce any definition of the term capital, he states that among the
factual assertions that need to be established to counter petitioners allegations is the
uniform interpretation by government agencies (such as the SEC), institutions and
corporations (such as the Philippine National Oil Company-Energy Development Corporation
or PNOC-EDC) of including both preferred shares and common shares in controlling interest
in view of testing compliance with the 40% constitutional limitation on foreign ownership in
public utilities.35
Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11, Article XII
of the Constitution. Neither does he refute petitioners claim of foreigners holding more than 40
percent of PLDTs common shares. Instead, respondent Pangilinan focuses on the procedural flaws
of the petition and the alleged violation of the due process rights of foreigners.
Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this Courts jurisdiction
over the petition; (2) petitioners lack of standing; (3) mootness of the petition; (4) non-availability of
declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan alleges
that the issue should be whether owners of shares in PLDT as well as owners of shares in
companies holding shares in PLDT may be required to relinquish their shares in PLDT and in those
companies without any law requiring them to surrender their shares and also without notice and trial.
Respondent Pangilinan further asserts that Section 11, [Article XII of the Constitution] imposes
no nationality requirement on the shareholders of the utility company as a condition for
keeping their shares in the utility company. According to him, Section 11 does not authorize
taking one persons property (the shareholders stock in the utility company) on the basis of another
partys alleged failure to satisfy a requirement that is a condition only for that other partys retention of
another piece of property (the utility company being at least 60% Filipino-owned to keep its
franchise).36

The OSG, representing public respondents Secretary

69Margarito Teves, Undersecretary John
P. Sevilla, Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition
of the term capital. In its Memorandum 37 dated 24 September 2007, the OSG also limits its
discussion on the supposed procedural defects of the petition, i.e. lack of standing, lack of
jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The OSG does not
present any definition or interpretation of the term capital in Section 11, Article XII of the Constitution.
The OSG contends that the petition actually partakes of a collateral attack on PLDTs franchise as a
public utility, which in effect requires a full-blown trial where all the parties in interest are given their
day in court.38
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine
Stock Exchange (PSE), does not also define the term capital and seeks the dismissal of the petition
on the following grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly
implemented its rules and required all listed companies, including PLDT, to make proper and timely
disclosures; and (3) the reliefs prayed for in the petition would adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder
of record of PLDT, contended that the term capital in the 1987 Constitution refers to shares entitled
to vote or the common shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities prescribed by the
Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares,
considering that it is through voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions
on fully nationalized and partially nationalized activities is for Filipino nationals to be always
in control of the corporation undertaking said activities. Otherwise, if the Trial Courts ruling
upholding respondents arguments were to be given credence, it would be possible for the
ownership structure of a public utility corporation to be divided into one percent (1%)
common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Courts
ruling adopting respondents arguments, the common shares can be owned entirely by
foreigners thus creating an absurd situation wherein foreigners, who are supposed to be
minority shareholders, control the public utility corporation.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the
beneficial ownership and the controlling interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities
prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e.,
common shares. Furthermore, ownership of record of shares will not suffice but it must be
shown that the legal and beneficial ownership rests in the hands of Filipino citizens.
Consequently, in the case of petitioner PLDT, since it is already admitted that the voting
interests of foreigners which would gain entry to petitioner PLDT by the acquisition of
SMART shares through the Questioned Transactions is equivalent to 82.99%, and the
nominee arrangements between the foreign principals and the Filipino owners is likewise
admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial
Court to support the proposition that the meaning of the word capital as used in Section 11,
Article XII of the Constitution allegedly refers to the sum total of the shares subscribed and
paid-in by the shareholder and it allegedly is immaterial how the stock is classified, whether
as common or preferred, cannot stand in the face of a clear legislative policy as stated in the
FIA which took effect in 1991 or way after said opinions were rendered, and as clarified by
the above-quoted Amendments. In this regard, suffice it to state that as between the law and
an opinion rendered by an administrative agency, the law indubitably prevails. Moreover,
said Opinions are merely advisory and cannot prevail over the clear intent of the framers of
the Constitution.

In the same vein, the SECs construction of Section

70 11, Article XII of the Constitution is at
best merely advisory for it is the courts that finally determine what a law means. 39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A.
Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. BienvenidoF. Nebres, Ray
C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term
capital in Section 11, Article XII of the Constitution includes preferred shares since the Constitution
does not distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the corporations capital, without
distinction as to classes of shares. x x x
In this connection, the Corporation Code which was already in force at the time the present
(1987) Constitution was drafted defined outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. The term outstanding capital stock, as used
in this Code, means the total shares of stock issued under binding subscription agreements
to subscribers or stockholders, whether or not fully or partially paid, except treasury shares.
Section 137 of the Corporation Code also does not distinguish between common and
preferred shares, nor exclude either class of shares, in determining the outstanding capital
stock (the capital) of a corporation. Consequently, petitioners suggestion to reckon PLDTs
foreign equity only on the basis of PLDTs outstanding common shares is without legal basis.
The language of the Constitution should be understood in the sense it has in common use.
xxxx
17. But even assuming that resort to the proceedings of the Constitutional Commission is
necessary, there is nothing in the Record of the Constitutional Commission (Vol. III) which
petitioner misleadingly cited in the Petition x x x which supports petitioners view that only
common shares should form the basis for computing a public utilitys foreign equity.
xxxx
18. In addition, the SEC the government agency primarily responsible for implementing the
Corporation Code, and which also has the responsibility of ensuring compliance with the
Constitutions foreign equity restrictions as regards nationalized activities x x x has
categorically ruled that both common and preferred shares are properly considered in
determining outstanding capital stock and the nationality composition thereof. 40
We agree with petitioner and petitioners-in-intervention. The term capital in Section 11, Article XII of
the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in
the present case only to common shares, 41 and not to the total outstanding capital stock comprising
both common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided
into classes or series of shares, or both, any of which classes or series of shares may have
such rights, privileges or restrictions as may be stated in the articles of incorporation:
Provided, That no share may be deprived of voting rights except those classified and
issued as preferred or redeemable shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class or series of shares which have
complete voting rights. Any or all of the shares or series of shares may have a par value or
have no par value as may be provided for in the articles of incorporation: Provided,
however, That banks, trust companies, insurance companies, public utilities, and building
and loan associations shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the articles of incorporation which
are not violative of the provisions of this Code: Provided, That preferred shares of stock may
be issued only with a stated par value. The Board of Directors, where authorized in the

articles of incorporation, may fix the terms and conditions

of preferred shares of stock or any
71
series thereof: Provided, That such terms and conditions shall be effective upon the filing of
a certificate thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and nonassessable and the holder of such shares shall not be liable to the corporation or to its
creditors in respect thereto: Provided; That shares without par value may not be issued for a
consideration less than the value of five (P5.00) pesos per share: Provided, further, That the
entire consideration received by the corporation for its no-par value shares shall be treated
as capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance
with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of
stock, each share shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this
Code, the holders of such shares shall nevertheless be entitled to vote on the following
matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance
with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to approve
a particular corporate act as provided in this Code shall be deemed to refer only to stocks
with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate in the control or management
of the corporation.43 This is exercised through his vote in the election of directors because it is the
board of directors that controls or manages the corporation. 44 In the absence of provisions in the
articles of incorporation denying voting rights to preferred shares, preferred shares have the same
voting rights as common shares. However, preferred shareholders are often excluded from
any control, that is, deprived of the right to vote in the election of directors and on other matters, on
the theory that the preferred shareholders are merely investors in the corporation for income in the
same manner as bondholders.45 In fact, under the Corporation Code only preferred or redeemable
shares can be deprived of the right to vote. 46 Common shares cannot be deprived of the right to vote
in any corporate meeting, and any provision in the articles of incorporation restricting the right of
common shareholders to vote is invalid.47
Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term capital in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred shares also have the right to
vote in the election of directors, then the term capital shall include such preferred shares because
the right to participate in the control or management of the corporation is exercised through the right
to vote in the election of directors. In short, the term capital in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in the hands
of Filipino citizens the control and management of public utilities. As revealed in the deliberations of
the Constitutional Commission, capital refers to the voting stock or controlling interest of a
corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.

72

MR. NOLLEDO. In teaching law, we are always faced with this question: Where do we base
the equity requirement, is it on the authorized capital stock, on the subscribed capital stock,
or on the paid-up capital stock of a corporation? Will the Committee please 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 draft. The phrase that is contained here which we
adopted from the UP draft is 60 percent of voting stock.
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless
declared delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation
with 60-40 percent equity invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase voting
stock or controlling interest.
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read:
corporations or associations at least sixty percent of whose CAPITAL is owned by such
citizens.
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 citizens.
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 voting capital,
whereas, the Filipinos own the nonvoting shares. So we can have a situation where
the corporation is controlled by foreigners despite being the minority because they
have the voting capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973 and
1935 Constitutions is that according to Commissioner Rodrigo, there are associations
that do not have stocks. That is why we say CAPITAL.
MR. AZCUNA. We should not eliminate the phrase controlling interest.
MR. BENGZON. In the case of stock corporations, it is assumed. 49 (Emphasis supplied)

Thus, 60 percent of the capital assumes, or should result 73

in, controlling interest in the corporation.
Reinforcing this interpretation of the term capital, as referring to controlling interest or shares entitled
to vote, is the definition of a Philippine national in the Foreign Investments Act of 1991, 50 to wit:
SEC. 3. Definitions. - As used in this Act:
a. The term Philippine national shall mean a citizen of the Philippines; or a domestic
partnership or association wholly owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at least sixty percent (60%) of
the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of the capital
stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for
pension or other employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders
own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least
sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of the Philippines and at least sixty percent
(60%) of the members of the Board of Directors of each of both corporations must be
citizens of the Philippines, in order that the corporation, shall be considered a Philippine
national. (Emphasis supplied)
In explaining the definition of a Philippine national, the Implementing Rules and Regulations of the
Foreign Investments Act of 1991 provide:
b. Philippine national shall mean a citizen of the Philippines or a domestic partnership or
association wholly owned by the citizens of the Philippines; or a corporation organized
under the laws of the Philippines of which at least sixty percent [60%] of the capital
stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the
fund will accrue to the benefit of the Philippine nationals; Provided,that where a corporation
its non-Filipino stockholders own stocks in a Securities and Exchange Commission [SEC]
registered enterprise, at least sixty percent [60%] of the capital stock outstanding and
entitled to vote of both corporations must be owned and held by citizens of the Philippines
and at least sixty percent [60%] of the members of the Board of Directors of each of both
corporation must be citizens of the Philippines, in order that the corporation shall be
considered a Philippine national. The control test shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation shall be determined
on the basis of outstanding capital stock whether fully paid or not, but only such
stocks which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with appropriate voting rights is
essential. Thus, stocks, the voting rights of which have been assigned or transferred
to aliens cannot be considered held by Philippine citizens or Philippine nationals.
Individuals or juridical entities not meeting the aforementioned qualifications are
considered as non-Philippine nationals. (Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the

outstanding capital stock must rest in the hands of Filipino

nationals in accordance with the
74
constitutional mandate. Otherwise, the corporation is considered as non-Philippine national[s].
Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the Philippines
or to corporations or associations at least sixty per centum of whose capital is owned by such
citizens, or such higher percentage as Congress may prescribe, certain areas of investments. Thus,
in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to
corporations at least sixty percent of the capital of which is owned by Filipino citizens. Some of
these laws are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine
Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium Enterprises
or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic
Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009
or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term capital in
Section 11, Article XII of the Constitution is also used in the same context in numerous
lawsreserving certain areas of investments to Filipino citizens.
To construe broadly the term capital as the total outstanding capital stock, including both common
and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the
State shall develop a self-reliant and independent national economy effectively controlled by
Filipinos. A broad definition unjustifiably disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume
that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred
shares owned by Filipinos, with both classes of share having a par value of one peso ( P1.00) per
share. Under the broad definition of the term capital, such corporation would be considered
compliant with the 40 percent constitutional limit on foreign equity of public utilities since the
overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino
owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the
election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of
less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos,
holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence,
have no control over the public utility. This starkly circumvents the intent of the framers of the
Constitution, as well as the clear language of the Constitution, to place the control of public utilities in
the hands of Filipinos. It also renders illusory the State policy of an independent national
economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real world, and in fact exists in the
present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors.
PLDTs Articles of Incorporation expressly state that the holders of Serial Preferred Stock shall
not be entitled to vote at any meeting of the stockholders for the election of directors or for
any other purpose or otherwise participate in any action taken by the corporation or its
stockholders, or to receive notice of any meeting of stockholders. 51
On the other hand, holders of common shares are granted the exclusive right to vote in the election
of directors. PLDTs Articles of Incorporation 52 state that each holder of Common Capital Stock shall
have one vote in respect of each share of such stock held by him on all matters voted upon by the
stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote
for the election of directors and for all other purposes.53
In short, only holders of common shares can vote in the election of directors, meaning only common
shareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no
voting rights in the election of directors, do not have any control over PLDT. In fact, under PLDTs
Articles of Incorporation, holders of common shares have voting rights for all purposes, while holders
of preferred shares have no voting right for any purpose whatsoever.

It must be stressed, and respondents do not dispute,

75that foreigners hold a majority of the
common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS), 54which is
a document required to be submitted annually to the Securities and Exchange
Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only
66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total number of PLDTs
common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares
equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly
mandated in Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009, 57 as submitted to the SEC, shows that per
share the SIP58 preferred shares earn a pittance in dividends compared to the common shares.
PLDT declared dividends for the common shares at P70.00 per share, while the declared dividends
for the preferred shares amounted to a measly P1.00 per share.59 So the preferred shares not only
cannot vote in the election of directors, they also have very little and obviously negligible dividend
earning capacity compared to common shares.
As shown in PLDTs 2010 GIS, 60 as submitted to the SEC, the par value of PLDT common shares
is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words,
preferred shares have twice the par value of common shares but cannot elect directors and have
only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned
by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. 61 Worse, preferred
shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute
only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the non-voting
preferred shares but with the common shares, blatantly violating the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally required for the States grant of authority to operate a public utility. The undisputed
fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70
of the dividends that PLDT common shares earn, grossly violates the constitutional requirement of
60 percent Filipino control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent
of the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII
of the Constitution that [n]o franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to x x xcorporations x x x organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such citizens x x x.
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares
exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2)
Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and
thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no
voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; 63 (5)
preferred shares have twice the par value of common shares; and (6) preferred shares constitute
77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of
ownership and control of a public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock
market value of P2,328.00 per share,64 while PLDT preferred shares with a par value ofP10.00 per
share have a current stock market value ranging from only P10.92 to P11.06 per share,65 is a glaring
confirmation by the market that control and beneficial ownership of PLDT rest with the common
shares, not with the preferred shares.
Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include both
voting and non-voting shares will result in the abject surrender of our telecommunications industry to
foreigners, amounting to a clear abdication of the States constitutional duty to limit control of public
utilities to Filipino citizens. Such an interpretation certainly runs counter to the constitutional
provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural
resources as well as the ownership of land, educational institutions and advertising businesses. The

Court should never open to foreign control what the Constitution

has expressly reserved to Filipinos
76
for that would be a betrayal of the Constitution and of the national interest. The Court must perform
its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words
of the Constitution, a self-reliant and independent national economy effectively controlled by
Filipinos.
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving
to Filipinos specific areas of investment, such as the development of natural resources and
ownership of land, educational institutions and advertising business, is self-executing. There is no
need for legislation to implement these self-executing provisions of the Constitution. The rationale
why these constitutional provisions are self-executing was explained in Manila Prince Hotel v.
GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a
constitutional mandate, the presumption now is that all provisions of the constitution are selfexecuting. If the constitutional provisions are treated as requiring legislation instead of selfexecuting, the legislature would have the power to ignore and practically nullify the mandate
of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has
always been, that
. . . in case of doubt, the Constitution should be considered self-executing rather than nonself-executing. . . . Unless the contrary is clearly intended, the provisions of the
Constitution should be considered self-executing, as a contrary rule would give the
legislature discretion to determine when, or whether, they shall be effective . These
provisions would be subordinated to the will of the lawmaking body, which could make them
entirely meaningless by simply refusing to pass the needed implementing statute.
(Emphasis supplied)

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later
Chief Justice, agreed that constitutional provisions are presumed to be self-executing. Justice Puno
stated:
Courts as a rule consider the provisions of the Constitution as self-executing, rather than as
requiring future legislation for their enforcement. The reason is not difficult to discern. For if
they are not treated as self-executing, the mandate of the fundamental law ratified by
the sovereign people can be easily ignored and nullified by Congress. Suffused with
wisdom of the ages is the unyielding rule that legislative actions may give breath to
constitutional rights but congressional inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests,
searches and seizures, the rights of a person under custodial investigation, the rights of an
accused, and the privilege against self-incrimination. It is recognized that legislation is
unnecessary to enable courts to effectuate constitutional provisions guaranteeing the
fundamental rights of life, liberty and the protection of property. The same treatment is
accorded to constitutional provisions forbidding the taking or damaging of property for public
use without just compensation. (Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied
directly the provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos.
In Soriano v. Ong Hoo,68 this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of
his land to an alien, and as both the citizen and the alien have violated the law, none of them
should have a recourse against the other, and it should only be the State that should be
allowed to intervene and determine what is to be done with the property subject of the
violation. We have said that what the State should do or could do in such matters is a matter

of public policy, entirely beyond the scope of judicial

77authority. (Dinglasan, et al. vs. Lee Bun
Ting, et al., 6 G. R. No. L-5996, June 27, 1956.)While the legislature has not definitely
decided what policy should be followed in cases of violations against the
constitutional prohibition, courts of justice cannot go beyond by declaring the
disposition to be null and void as violative of the Constitution. x x x (Emphasis
supplied)
To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the
1935 Constitution, or over the last 75 years, not one of the constitutional provisions expressly
reserving specific areas of investments to corporations, at least 60 percent of the capital of which is
owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987 Constitutions
miserably failed to effectively reserve to Filipinos specific areas of investment, like the operation by
corporations of public utilities, the exploitation by corporations of mineral resources, the ownership
by corporations of real estate, and the ownership of educational institutions. All the legislatures that
convened since 1935 also miserably failed to enact legislations to implement these vital
constitutional provisions that determine who will effectively control the national economy, Filipinos or
foreigners. This Court cannot allow such an absurd interpretation of the Constitution.
This Court has held that the SEC has both regulatory and adjudicative functions. 69 Under its
regulatory functions, the SEC can be compelled by mandamus to perform its statutory duty when it
unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial functions, the SEC
can be also be compelled by mandamus to hear and decide a possible violation of any law it
administers or enforces when it is mandated by law to investigate such violation.
Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or
disapprove the Articles of Incorporation of any corporation where the required percentage of
ownership of the capital stock to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the Constitution. Thus, the SEC is the
government agency tasked with the statutory duty to enforce the nationality requirement prescribed
in Section 11, Article XII of the Constitution on the ownership of public utilities. This Court, in a
petition for declaratory relief that is treated as a petition for mandamus as in the present case, can
direct the SEC to perform its statutory duty under the law, a duty that the SEC has apparently
unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code, 71 the SEC is vested with the power and
function to suspend or revoke, after proper notice and hearing, the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds provided
by law. The SEC is mandated under Section 5(d) of the same Code with the power and function
to investigate x x x the activities of persons to ensure compliance with the laws and regulations
that SEC administers or enforces. The GIS that all corporations are required to submit to SEC
annually should put the SEC on guard against violations of the nationality requirement prescribed in
the Constitution and existing laws. This Court can compel the SEC, in a petition for declaratory relief
that is treated as a petition for mandamus as in the present case, to hear and decide a possible
violation of Section 11, Article XII of the Constitution in view of the ownership structure of PLDTs
voting shares, as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT submitted to
SEC.
WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11, Article
XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors,
and thus in the present case only to common shares, and not to the total outstanding capital stock
(common and non-voting preferred shares). Respondent Chairperson of the Securities and
Exchange Commission is DIRECTED to apply this definition of the term capital in determining the
extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company,
and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate
sanctions under the law.
SO ORDERED.