[G.R. No. L-32409. February 27, 1971.
] Revenue Code, in relation to all other pertinent provisions thereof,
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners,
v. HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as
Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE
LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO,
JOHN DOE, JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V
. Bautista, Solicitor Pedro A. Ramirez and Special Attorney Jaime M.
Maza for Respondents.
DECISION
VILLAMOR, J.:
This is an original action of certiorari, prohibition and mandamus, with
prayer for a writ of preliminary mandatory and prohibitory injunction.
In their petition Bache & Co. (Phil.), Inc., a corporation duly organized
and existing under the laws of the Philippines, and its President,
Frederick E. Seggerman, pray this Court to declare null and void Search
Warrant No. 2-M-70 issued by respondent Judge on February 25, 1970;
to order respondents to desist from enforcing the same and/or keeping
the documents, papers and effects seized by virtue thereof, as well as
from enforcing the tax assessments on petitioner corporation alleged
by petitioners to have been made on the basis of the said documents,
papers and effects, and to order the return of the latter to petitioners.
We gave due course to the petition but did not issue the writ of
preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as
follows:chanrob1es virtual 1aw library
On February 24, 1970, respondent Misael P. Vera, Commissioner of
Internal Revenue, wrote a letter addressed to respondent Judge
Vivencio M. Ruiz requesting the issuance of a search warrant against
petitioners for violation of Section 46(a) of the National Internal
respondents, thru the Solicitor General, filed an answer to the petition.
particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue
Examiner Rodolfo de Leon, one of herein respondents, to make and file
the application for search warrant which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent
De Leon and his witness, respondent Arturo Logronio, went to the Court
of First Instance of Rizal. They brought with them the following papers:
respondent Veras aforesaid letter-request; an application for search
warrant already filled up but still unsigned by respondent De Leon; an
affidavit of respondent Logronio subscribed before respondent De
Leon; a deposition in printed form of respondent Logronio already
accomplished and signed by him but not yet subscribed; and a search
warrant already accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means
of a note, he instructed his Deputy Clerk of Court to take the
depositions of respondents De Leon and Logronio. After the session had
adjourned, respondent Judge was informed that the depositions had
already been taken. The stenographer, upon request of respondent
Judge, read to him her stenographic notes; and thereafter, respondent
Judge asked respondent Logronio to take the oath and warned him that
if his deposition was found to be false and without legal basis, he could
be charged for perjury. Respondent Judge signed respondent de Leons
application for search warrant and respondent Logronios deposition,
Search Warrant No. 2-M-70 was then sign by respondent Judge and
accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the
BIR agents served the search warrant petitioners at the offices of
petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners
lawyers protested the search on the ground that no formal complaint or
transcript of testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded six boxes of
documents.
On March 3, 1970, petitioners filed a petition with the Court of First
Instance of Rizal praying that the search warrant be quashed, dissolved
or recalled, that preliminary prohibitory and mandatory writs of
injunction be issued, that the search warrant be declared null and void,
and that the respondents be ordered to pay petitioners, jointly and
severally, damages and attorneys fees. On March 18, 1970, the
After hearing, the court, presided over by respondent Judge, issued on
July 29, 1970, an order dismissing the petition for dissolution of the
search warrant. In the meantime, or on April 16, 1970, the Bureau of
Internal Revenue made tax assessments on petitioner corporation in
the total sum of P2,594,729.97, partly, if not entirely, based on the
documents thus seized. Petitioners came to this Court.
The petition should be granted for the following reasons:chanrob1es
virtual 1aw library
1. Respondent Judge failed to personally examine the complainant and
his witness.
The pertinent provisions of the Constitution of the Philippines and of
the Revised Rules of Court are:jgc:chanrobles.com.ph
"(3) The right of the people to be secure in their persons, houses,
papers and effects against unreasonable searches and seizures shall not
be violated, and no warrants shall issue but upon probable cause, to be
determined by the judge after examination under oath or affirmation of
the complainant and the witnesses he may produce, and particularly
describing the place to be searched, and the persons or things to be
seized." (Art. III, Sec. 1, Constitution.)
"SEC. 3. Requisites for issuing search warrant. A search warrant shall
not issue but upon probable cause in connection with one specific
offense to be determined by the judge or justice of the peace after
examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be
searched and the persons or things to be seized.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. The judge or justice of the
peace must, before issuing the warrant, personally examine on oath or
affirmation the complainant and any witnesses he may produce and
take their depositions in writing, and attach them to the record, in
addition to any affidavits presented to him." (Rule 126, Revised Rules of
Court.)
The examination of the complainant and the witnesses he may
produce, required by Art. III, Sec. 1, par. 3, of the Constitution, and by
Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be
conducted by the judge himself and not by others. The phrase "which
shall be determined by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce,"
appearing in the said constitutional provision, was introduced by
Delegate Francisco as an amendment to the draft submitted by the Sub-
Committee of Seven. The following discussion in the Constitutional
Convention (Laurel, Proceedings of the Philippine Constitutional
Convention, Vol. III, pp. 755-757) is enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano.
En los casos de una necesidad de actuar inmediatamente para que no
se frusten los fines de la justicia mediante el registro inmediato y la
incautacion del cuerpo del delito, no cree Su Seoria que causaria cierta
demora el procedimiento apuntado en su enmienda en tal forma que
podria frustrar los fines de la justicia o si Su Seoria encuentra un
remedio para esto casos con el fin de compaginar los fines de la justicia
con los derechos del individuo en su persona, bienes etcetera, etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su
Seoria pregunta por la siguiente razon: el que solicita un mandamiento
de registro tiene que hacerlo por escrito y ese escrito no aparecer en la
Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o
peticion de sucuestro. Esa persona que presenta el registro puede ser el
mismo denunciante o alguna persona que solicita dicho mandamiento
de registro. Ahora toda la enmienda en esos casos consiste en que haya
peticion de registro y el juez no se atendra solamente a sea peticion
sino que el juez examiner a ese denunciante y si tiene testigos tambin
examiner a los testigos.
"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese
denunciante por escrito siempre requeriria algun tiempo?.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado
minimizamos en todo lo posible las vejaciones injustas con la
expedicion arbitraria de los mandamientos de registro. Creo que entre
dos males debemos escoger. el menor.
x x x witness, and that stenographic notes thereof were taken by Mrs.
"MR. LAUREL. . . . The reason why we are in favor of this amendment is
because we are incorporating in our constitution something of a
fundamental character. Now, before a judge could issue a search
warrant, he must be under the obligation to examine personally under
oath the complainant and if he has any witness, the witnesses that he
may produce . . ."cralaw virtua1aw library
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is
more emphatic and candid, for it requires the judge, before issuing a
search warrant, to "personally examine on oath or affirmation the
complainant and any witnesses he may produce . . ."cralaw virtua1aw
library
Personal examination by the judge of the complainant and his
witnesses is necessary to enable him to determine the existence or non-
existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the
Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of
which prohibit the issuance of warrants except "upon probable cause."
The determination of whether or not a probable cause exists calls for
the exercise of judgment after a judicial appraisal of facts and should
not be allowed to be delegated in the absence of any rule to the
contrary.
In the case at bar, no personal examination at all was conducted by
respondent Judge of the complainant (respondent De Leon) and his
witness (respondent Logronio). While it is true that the complainants
application for search warrant and the witness printed-form deposition
were subscribed and sworn to before respondent Judge, the latter did
not ask either of the two any question the answer to which could
possibly be the basis for determining whether or not there was
probable cause against herein petitioners. Indeed, the participants
seem to have attached so little significance to the matter that notes of
the proceedings before respondent Judge were not even taken. At this
juncture it may be well to recall the salient facts. The transcript of
stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition)
taken at the hearing of this case in the court below shows that per
instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special
Deputy Clerk of Court, took the depositions of the complainant and his
Gaspar. At that time respondent Judge was at the sala hearing a case.
After respondent Judge was through with the hearing, Deputy Clerk
Gonzales, stenographer Gaspar, complainant De Leon and witness
Logronio went to respondent Judges chamber and informed the Judge
that they had finished the depositions. Respondent Judge then
requested the stenographer to read to him her stenographic notes.
Special Deputy Clerk Gonzales testified as
follows:jgc:chanrobles.com.ph
"A And after finishing reading the stenographic notes, the Honorable
Judge requested or instructed them, requested Mr. Logronio to raise his
hand and warned him if his deposition will be found to be false and
without legal basis, he can be charged criminally for perjury. The
Honorable Court told Mr. Logronio whether he affirms the facts
contained in his deposition and the affidavit executed before Mr.
Rodolfo de Leon.
"Q And thereafter?
"A And thereafter, he signed the deposition of Mr. Logronio.
"Q Who is this he?
"A The Honorable Judge.
"Q The deposition or the affidavit?
"A The affidavit, Your Honor."cralaw virtua1aw library
Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings which led to
the issuance of Search Warrant No. 2-M-70 was thus limited to listening
to the stenographers readings of her notes, to a few words of warning
against the commission of perjury, and to administering the oath to the
complainant and his witness. This cannot be consider a personal
examination. If there was an examination at all of the complainant and
his witness, it was the one conducted by the Deputy Clerk of Court. But,
as stated, the Constitution and the rules require a personal examination
by the judge. It was precisely on account of the intention of the
delegates to the Constitutional Convention to make it a duty of the
issuing judge to personally examine the complainant and his witnesses
that the question of how much time would be consumed by the judge
in examining them came up before the Convention, as can be seen from
the record of the proceedings quoted above. The reading of the
stenographic notes to respondent Judge did not constitute sufficient
compliance with the constitutional mandate and the rule; for by that
manner respondent Judge did not have the opportunity to observe the
demeanor of the complainant and his witness, and to propound initial
and follow-up questions which the judicial mind, on account of its
training, was in the best position to conceive. These were important in
arriving at a sound inference on the all-important question of whether
or not there was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of
the National Internal Revenue Code in relation to all other pertinent
provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The
question is: Was the said search warrant issued "in connection with one
specific offense," as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the
provisions of the Tax Code referred to above. Thus we find the
following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income tax returns by corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and
for rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a
return or to supply the information required under the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks,
compounds, or manufactures any article subject to a specific tax,
without having paid the privilege tax therefore, or who aids or abets in
the conduct of illicit distilling, rectifying, compounding, or illicit
manufacture of any article subject to specific tax . . .," and provides that
in the case of a corporation, partnership, or association, the official
and/or employee who caused the violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales,
business, or gross value of output removed, or to pay the tax due
thereon.
The search warrant in question was issued for at least four distinct
offenses under the Tax Code. The first is the violation of Sec. 46(a), Sec.
72 and Sec. 73 (the filing of income tax returns), which are interrelated.
The second is the violation of Sec. 53 (withholding of income taxes at
source). The third is the violation of Sec. 208 (unlawful pursuit of
business or occupation); and the fourth is the violation of Sec. 209
(failure to make a return of receipts, sales, business or gross value of
output actually removed or to pay the tax due thereon). Even in their
classification the six above-mentioned provisions are embraced in two
different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax);
while Secs. 208 and 209 are under Title V (Privilege Tax on Business and
Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June
19, 1967 (20 SCRA 383), is not applicable, because there the search
warrants were issued for "violation of Central Bank Laws, Internal
Revenue (Code) and Revised Penal Code;" whereas, here Search
Warrant No 2-M-70 was issued for violation of only one code, i.e., the
National Internal Revenue Code. The distinction more apparent than
real, because it was precisely on account of the Stonehill incident,
which occurred sometime before the present Rules of Court took effect
on January 1, 1964, that this Court amended the former rule by
inserting therein the phrase "in connection with one specific offense,"
and adding the sentence "No search warrant shall issue for more than
one specific offense," in what is now Sec. 3, Rule 126. Thus we said in
Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in connection
with the disputed search warrants, that this Court deemed it fit to
amend Section 3 of Rule 122 of the former Rules of Court that a search
warrant shall not issue but upon probable cause in connection with one
specific offense. Not satisfied with this qualification, the Court added
thereto a paragraph, directing that no search warrant shall issue for
more than one specific offense."
3. The search warrant does not particularly describe the things to be
seized.
The documents, papers and effects sought to be seized are described in
Search Warrant No. 2-M-70 in this manner:jgc:chanrobles.com.ph
"Unregistered and private books of accounts (ledgers, journals,
columnars, receipts and disbursements books, customers ledgers);
receipts for payments received; certificates of stocks and securities;
contracts, promissory notes and deeds of sale; telex and coded
messages; business communications, accounting and business records;
checks and check stubs; records of bank deposits and withdrawals; and
records of foreign remittances, covering the years 1966 to 1970."cralaw
virtua1aw library
The description does not meet the requirement in Art III, Sec. 1, of the
Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court, that
the warrant should particularly describe the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto
Concepcion, said:jgc:chanrobles.com.ph
"The grave violation of the Constitution made in the application for the
contested search warrants was compounded by the description therein
made of the effects to be searched for and seized, to wit:chanrob1es
virtual 1aw library
Books of accounts, financial records, vouchers, journals,
correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or paper showing all business
transactions including disbursement receipts, balance sheets and
related profit and loss statements.
"Thus, the warrants authorized the search for and seizure of records
pertaining to all business transactions of petitioners herein, regardless
of whether the transactions were legal or illegal. The warrants
sanctioned the seizure of all records of the petitioners and the
aforementioned corporations, whatever their nature, thus openly
contravening the explicit command of our Bill of Rights that the
things to be seized be particularly described as well as tending to
defeat its major objective: the elimination of general warrants."cralaw
virtua1aw library
While the term "all business transactions" does not appear in Search
Warrant No. 2-M-70, the said warrant nevertheless tends to defeat the
major objective of the Bill of Rights, i.e., the elimination of general
warrants, for the language used therein is so all-embracing as to include
all conceivable records of petitioner corporation, which, if seized, could
possibly render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court
had occasion to explain the purpose of the requirement that the
warrant should particularly describe the place to be searched and the
things to be seized, to wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97)
specifically require that a search warrant should particularly describe
the place to be searched and the things to be seized. The evident
purpose and intent of this requirement is to limit the things to be seized
to those, and only those, particularly described in the search warrant
to leave the officers of the law with no discretion regarding what
articles they shall seize, to the end that unreasonable searches and
seizures may not be made, that abuses may not be committed. That
this is the correct interpretation of this constitutional provision is borne
out by American authorities."cralaw virtua1aw library
The purpose as thus explained could, surely and effectively, be defeated
under the search warrant issued in this case.
A search warrant may be said to particularly describe the things to be
seized when the description therein is as specific as the circumstances
will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the
description expresses a conclusion of fact not of law by which the
warrant officer may be guided in making the search and seizure (idem.,
dissent of Abad Santos, J.,); or when the things described are limited to
those which bear direct relation to the offense for which the warrant is
being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein
search warrant does not conform to any of the foregoing tests. If the
articles desired to be seized have any direct relation to an offense
committed, the applicant must necessarily have some evidence, other
than those articles, to prove the said offense; and the articles subject of
search and seizure should come in handy merely to strengthen such
evidence. In this event, the description contained in the herein disputed
warrant should have mentioned, at least, the dates, amounts, persons,
and other pertinent data regarding the receipts of payments,
certificates of stocks and securities, contracts, promissory notes, deeds
of sale, messages and communications, checks, bank deposits and
withdrawals, records of foreign remittances, among others,
enumerated in the warrant.
Respondents contend that certiorari does not lie because petitioners
failed to file a motion for reconsideration of respondent Judges order
of July 29, 1970. The contention is without merit. In the first place,
when the questions raised before this Court are the same as those
which were squarely raised in and passed upon by the court below, the
filing of a motion for reconsideration in said court before certiorari can
be instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al.
v. Ago, Et Al., 108 Phil., 905). In the second place, the rule requiring the
filing of a motion for reconsideration before an application for a writ
of certiorari can be entertained was never intended to be applied
without considering the circumstances. (Matutina v. Buslon, Et Al., 109
Phil., 140.) In the case at bar time is of the essence in view of the tax
assessments sought to be enforced by respondent officers of the
Bureau of Internal Revenue against petitioner corporation, On account
of which immediate and more direct action becomes necessary.
(Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does
not apply where, as in this case, the deprivation of petitioners
fundamental right to due process taints the proceeding against them in
the court below not only with irregularity but also with nullity. (Matute
v. Court of Appeals, Et Al., supra.)
It is next contended by respondents that a corporation is not entitled to
protection against unreasonable search and seizures. Again, we find no
merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an
officer of a corporation which is charged with a violation of a statute of
the state of its creation, or of an act of Congress passed in the exercise
of its constitutional powers, cannot refuse to produce the books and
papers of such corporation, we do not wish to be understood as holding
that a corporation is not entitled to immunity, under the 4th
Amendment, against unreasonable searches and seizures. A
corporation is, after all, but an association of individuals under an
assumed name and with a distinct legal entity. In organizing itself as a
collective body it waives no constitutional immunities appropriate to
such body. Its property cannot be taken without compensation. It can
only be proceeded against by due process of law, and is protected,
under the 14th Amendment, against unlawful discrimination . . ." (Hale
v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was
thought that a different rule applied to a corporation, the ground that it
was not privileged from producing its books and papers. But the rights
of a corporation against unlawful search and seizure are to be
protected even if the same result might have been achieved in a lawful
way." (Silverthorne Lumber Company, Et. Al. v. United States of
America, 251 U.S. 385, 64 L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly
recognized the right of a corporation to object against unreasonable
searches and seizures, thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein have no
cause of action to assail the legality of the contested warrants and of
the seizures made in pursuance thereof, for the simple reason that said
corporations have their respective personalities, separate and distinct
from the personality of herein petitioners, regardless of the amount of
shares of stock or the interest of each of them in said corporations,
whatever, the offices they hold therein may be. Indeed, it is well settled
that the legality of a seizure can be contested only by the party whose
rights have been impaired thereby, and that the objection to an
unlawful search and seizure is purely personal and cannot be availed of
by third parties. Consequently, petitioners herein may not validly object
to the use in evidence against them of the documents, papers and
things seized from the offices and premises of the corporations
adverted to above, since the right to object to the admission of said
papers in evidence belongs exclusively to the corporations, to whom
the seized effects belong, and may not be invoked by the corporate
officers in proceedings against them in their individual capacity . .
."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in
whose offices documents, papers and effects were searched and seized
were the petitioners. In the case at bar, the corporation to whom the
seized documents belong, and whose rights have thereby been
impaired, is itself a petitioner. On that score, petitioner corporation
here stands on a different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not
entirely as claimed by petitioners at least partly as in effect
admitted by respondents based on the documents seized by virtue of
Search Warrant No. 2-M-70. Furthermore, the fact that the assessments
were made some one and one-half months after the search and seizure
on February 25, 1970, is a strong indication that the documents thus
seized served as basis for the assessments. Those assessments should
therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search
Warrant No. 2-M-70 issued by respondent Judge is declared null and
void; respondents are permanently enjoined from enforcing the said
search warrant; the documents, papers and effects seized thereunder
are ordered to be returned to petitioners; and respondent officials the
Bureau of Internal Revenue and their representatives are permanently
enjoined from enforcing the assessments mentioned in Annex "G" of
the present petition, as well as other assessments based on the
documents, papers and effects seized under the search warrant herein
nullified, and from using the same against petitioners in any criminal or
other proceeding. No pronouncement as to costs.
G.R. No. L-6055 June 12, 1953
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
WILLIAM H. QUASHA, defendant-appellant.
Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor
General Francisco Carreon for appellee.
REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in the
Court of First Instance of Manila with the crime of falsification of a
public and commercial document in that, having been entrusted with
the preparation and registration of the article of incorporation of the
Pacific Airways Corporation, a domestic corporation organized for the
purpose of engaging in business as a common carrier, he caused it to of incorporation was issued by the Securities and Exchange
appear in said article of incorporation that one Arsenio Baylon, a Commission.
Filipino citizen, had subscribed to and was the owner of 60.005 per cent
of the subscribed capital stock of the corporation when in reality, as the There is no question that Baylon actually subscribed to 60.005 per cent
accused well knew, such was not the case, the truth being that the of the subscribed capital stock of the corporation. But it is admitted
owner of the portion of the capital stock subscribed to by Baylon and that the money paid on his subscription did not belong to him but to
the money paid thereon were American citizen whose name did not the Americans subscribers to the corporate stock. In explanation, the
appear in the article of incorporation, and that the purpose for making accused testified, without contradiction, that in the process of
this false statement was to circumvent the constitutional mandate that organization Baylon was made a trustee for the American
no corporation shall be authorize to operate as a public utility in the incorporators, and that the reason for making Baylon such trustee was
Philippines unless 60 per cent of its capital stock is owned by Filipinos. as follows:
Found guilty after trial and sentenced to a term of imprisonment and a Q. According to this article of incorporation Arsenio Baylon
fine, the accused has appealed to this Court. subscribed to 1,135 preferred shares with a total value of
P1,135. Do you know how that came to be?
The essential facts are not in dispute. On November 4,1946, the Pacific
Airways Corporation registered its articles of incorporation with the A. Yes.
Securities and Exchanged Commission. The article were prepared and
the registration was effected by the accused, who was in fact the
The people who were desirous of forming the corporation, whose
organizer of the corporation. The article stated that the primary
names are listed on page 7 of this certified copy came to my house,
purpose of the corporation was to carry on the business of a common
Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas
carrier by air, land or water; that its capital stock was P1,000,000,
one evening. There was considerable difficulty to get them all together
represented by 9,000 preferred and 100,000 common shares, each
at one time because they were pilots. They had difficulty in deciding
preferred share being of the par value of p100 and entitled to 1/3 vote
what their respective share holdings would be. Onstott had invested a
and each common share, of the par value of P1 and entitled to one
certain amount of money in airplane surplus property and they had
vote; that the amount capital stock actually subscribed was P200,000,
obtained a considerable amount of money on those planes and as I
and the names of the subscribers were Arsenio Baylon, Eruin E.
recall they were desirous of getting a corporation formed right away.
Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and
And they wanted to have their respective shares holdings resolved at a
William H. Quasha, the first being a Filipino and the other five all
latter date. They stated that they could get together that they feel that
Americans; that Baylon's subscription was for 1,145 preferred shares, of
they had no time to settle their respective share holdings. We discussed
the total value of P114,500, and for 6,500 common shares, of the total
the matter and finally it was decided that the best way to handle the
par value of P6,500, while the aggregate subscriptions of the American
things was not to put the shares in the name of anyone of the
subscribers were for 200 preferred shares, of the total par value of
interested parties and to have someone act as trustee for their
P20,000, and 59,000 common shares, of the total par value of P59,000;
respective shares holdings. So we looked around for a trustee. And he
and that Baylon and the American subscribers had already paid 25 per
said "There are a lot of people whom I trust." He said, "Is there
cent of their respective subscriptions. Ostensibly the owner of, or
someone around whom we could get right away?" I said, "There is
subscriber to, 60.005 per cent of the subscribed capital stock of the
Arsenio. He was my boy during the liberation and he cared for me when
corporation, Baylon nevertheless did not have the controlling vote
i was sick and i said i consider him my friend." I said. They all knew
because of the difference in voting power between the preferred shares
Arsenio. He is a very kind man and that was what was done. That is how
and the common shares. Still, with the capital structure as it was, the
it came about.
article of incorporation were accepted for registration and a certificate
Defendant is accused under article 172 paragraph 1, in connection with
article 171, paragraph 4, of the Revised Penal Code, which read:
ART. 171. Falsification by public officer, employee, or notary or
ecclesiastic minister. The penalty of prision mayor and a
fine not to exceed 5,000 pesos shall be imposed upon any
public officer, employee, or notary who, taking advantage of
his official position, shall falsify a document by committing
any of the following acts:
xxx xxx xxx
4. Making untruthful statements in a narration of facts.
ART. 172. Falsification by private individuals and use of
falsified documents. The penalty of prision correccional in
its medium and maximum period and a fine of not more than
5,000 pesos shall be imposed upon:
xxx xxx xxx
1. Any private individual who shall commit any of the
falsifications enumerated in the next preceding article in any
public or official document or letter of exchange or any other
kind of commercial document.
Commenting on the above provision, Justice Albert, in his well-known
work on the Revised Penal Code ( new edition, pp. 407-408), observes,
on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of
truth in the narration of facts must be made with the wrongful intent of
injuring a third person; and on the authority of U.S. vs. Lopez (15 Phil.,
515), the same author further maintains that even if such wrongful
intent is proven, still the untruthful statement will not constitute the
crime of falsification if there is no legal obligation on the part of the
narrator to disclose the truth. Wrongful intent to injure a third person
and obligation on the part of the narrator to disclose the truth are thus
essential to a conviction for a crime of falsification under the above
article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the
present case consists in not disclosing in the articles of incorporation
that Baylon was a mere trustee ( or dummy as the prosecution chooses
to call him) of his American co-incorporators, thus giving the impression
that Baylon was the owner of the shares subscribed to by him which, as
above stated, amount to 60.005 per cent of the sub-scribed capital
stock. This, in the opinion of the trial court, is a malicious perversion of
the truth made with the wrongful intent circumventing section 8,
Article XIV of the Constitution, which provides that " 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
corporation or other entities organized under the law of the Philippines,
sixty per centum of the capital of which is owned by citizens of the
Philippines . . . ." Plausible though it may appear at first glance, this
opinion loses validity once it is noted that it is predicated on the
erroneous assumption that the constitutional provision just quoted was
meant to prohibit the mere formation of a public utility corporation
without 60 per cent of its capital being owned by the Filipinos, a
mistaken belief which has induced the lower court to that the accused
was under obligation to disclose the whole truth about the nationality
of the subscribed capital stock of the corporation by revealing that
Baylon was a mere trustee or dummy of his American co-incorporators,
and that in not making such disclosure defendant's intention was to
circumvent the Constitution to the detriment of the public interests.
Contrary to the lower court's assumption, the Constitution does not
prohibit the mere formation of a public utility corporation without the
required formation of Filipino capital. What it does prohibit is the
granting of a franchise or other form of authorization for the operation
of a public utility to a corporation already in existence but without the
requisite proportion of Filipino capital. This is obvious from the context,
for the constitutional provision in question qualifies the terms "
franchise", "certificate", or "any other form of authorization" with the
phrase "for the operation of a public utility," thereby making it clear
that the franchise meant is not the "primary franchise" that invest a
body of men with corporate existence but the "secondary franchise" or
the privilege to operate as a public utility after the corporation has
already come into being.
If the Constitution does not prohibit the mere formation of a public
utility corporation with the alien capital, then how can the accused be
charged with having wrongfully intended to circumvent that
fundamental law by not revealing in the articles of incorporation that
Baylon was a mere trustee of his American co-incorporation and that
for that reason the subscribed capital stock of the corporation was
wholly American? For the mere formation of the corporation such
revelation was not essential, and the Corporation Law does not require
it. Defendant was, therefore, under no obligation to make it. In the
absence of such obligation and of the allege wrongful intent, defendant
cannot be legally convicted of the crime with which he is charged.
It is urged, however, that the formation of the corporation with 60 per
cent of its subscribed capital stock appearing in the name of Baylon was
an indispensable preparatory step to the subversion of the
constitutional prohibition and the laws implementing the policy
expressed therein. This view is not correct. For a corporation to be
entitled to operate a public utility it is not necessary that it be organized
with 60 per cent of its capital owned by Filipinos from the start. A
corporation formed with capital that is entirely alien may subsequently
change the nationality of its capital through transfer of shares to
Filipino citizens. conversely, a corporation originally formed with
Filipino capital may subsequently change the national status of said
capital through transfer of shares to foreigners. What need is there
then for a corporation that intends to operate a public utility to have, at
the time of its formation, 60 per cent of its capital owned by Filipinos
alone? That condition may anytime be attained thru the necessary
transfer of stocks. The moment for determining whether a corporation
is entitled to operate as a public utility is when it applies for a franchise,
certificate, or any other form of authorization for that purpose. And
that can be done after the corporation has already come into being and
not while it is still being formed. And at that moment, the corporation
must show that it has complied not only with the requirement of the
Constitution as to the nationality of its capital, but also with the
requirements of the Civil Aviation Law if it is a common carrier by air,
the Revised Administrative Code if it is a common carrier by water, and
the Public Service Law if it is a common carrier by land or other kind of
public service.
Equally untenable is the suggestion that defendant should at least be
held guilty of an "impossible crime" under article 59 of the Revised
Penal Code. It not being possible to suppose that defendant had
intended to commit a crime for the simple reason that the alleged
constitutional prohibition which he is charged for having tried to
circumvent does not exist, conviction under that article is out of the
question.
 The foregoing consideration can not but lead to the conclusion
CHAIRMAN thatANTHONI
the SALIM OF FIRST PACIFIC CO., LTD. BRION,
defendant can not be held guilty of the crime charged. The majority
IN HIS CAPACITY of AS DIRECTOR OF METRO PACIFIC ASSET
the court, however, are also of the opinion that, even supposing
HOLDINGSthat INC., CHAIRMAN MANUEL V. PANGILINAN OF PERALTA,
the act imputed to the defendant constituted falsification at the time
PHILIPPINE it DISTANCE TELEPHONE COMPANY
LONG
was perpetrated, still with the approval of the Party Amendment
(PLDT) IN HISto the
CAPACITY AS MANAGING DIRECTOR OF
Constitution in March, 1947, which placed Americans on the same BERSAMIN,
FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L.
footing as Filipino citizens with respect to the right to operate
NAZARENOpublicOF PHILIPPINE LONG DISTANCE TELEPHONE
utilities in the Philippines, thus doing away with the prohibition
COMPANY, in CHAIR FE BARIN OF THE SECURITIES DEL CASTILLO,
section 8, Article XIV of the Constitution in so far as American
EXCHANGEcitizens
COMMISSION, and PRESIDENT FRANCIS LIM
are concerned, the said act has ceased to be an offenseOF within
THE the
PHILIPPINE STOCK EXCHANGE, ABAD,
meaning of the law, so that defendant can no longer be held criminally
liable therefor.
Respondents. VILLARAMA, JR.,
In view of the foregoing, the judgment appealed from is reversed and
the defendant William H. Quasha acquitted, with costs de oficio. PEREZ,

MENDOZA, and
PABLITO V. SANIDAD and Promulgated:
SERENO, JJ.
ARNO V. SANIDAD,

Petitioners-in-Intervention. June 28, 2011

ON P. GAMBOA, G.R. No. 176579

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

oner,
Present:
us -

CORONA, C.J., DECISION

NCE SECRETARY MARGARITO B. TEVES, FINANCE CARPIO,

RSECRETARY JOHN P. SEVILLA, AND
MISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL VELASCO, JR.,
MISSION ON GOOD GOVERNMENT (PCGG) IN THEIR
CITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF CARPIO, J.:
LEONARDO-DE CASTRO,
RIVATIZATION COUNCIL,

The Case
This is an original petition for prohibition, injunction, declaratory relief
and declaration of nullity of the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government
of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of
Philippine Long Distance Telephone Company (PLDT), are as follows:1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436
which granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone and
Electronics Corporation (GTE), an American company and a major PLDT
stockholder, sold 26 percent of the outstanding common shares of PLDT
to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several
persons, including Roland Gapud and Jose Campos, Jr. Subsequently,
PHI became the owner of 111,415 shares of stock of PTIC by virtue of
three Deeds of Assignment executed by PTIC stockholders
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of
stock of PTIC held by PHI were sequestered by the Presidential
Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock
of PTIC, were later declared by this Court to be owned by the Republic
of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based
investment firm, acquired the remaining 54 percent of the outstanding
capital stock of PTIC. On 20 November 2006, the Inter-Agency
Privatization Council (IPC) of the Philippine Government announced
that it would sell the 111,415 PTIC shares, or 46.125 percent of the
outstanding capital stock of PTIC, through a public bidding to be
conducted on 4 December 2006. Subsequently, the public bidding was
reset to 8 December 2006, and only two bidders, Parallax Venture Fund
XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids.
Parallax won with a bid of 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 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. x x x With the completion of the sale,
data culled from the official website of the New York Stock
Exchange (www.nyse.com) showed that those foreign
entities, which own at least five percent of common equity,
will collectively own 81.47 percent of PLDTs common equity.
xxx
x x x as the annual disclosure reports, also
referred to as Form 20-K reports
x x x which PLDT submitted to the New
York Stock Exchange 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 issue of whether the term capital in
Section 11, Article XII of the Constitution refers to the total common
shares only or to the total outstanding capital stock (combined total of
common and non-voting preferred shares) of PLDT, a public utility.
The Ruling of the Court

The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the
remedies petitioner seeks, only the petition for prohibition is within the
original jurisdiction of this court, which however is not exclusive but is
concurrent with the Regional Trial Court and the Court of Appeals. The
actions for declaratory relief,10 injunction, and annulment of sale are
not embraced within the original jurisdiction of the Supreme Court. On
this ground alone, the petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for
prohibition,11 the Court shall nevertheless refrain from discussing the
grounds in support of the petition for prohibition since on 28 February
2007, the questioned sale was consummated when MPAH paid
IPC 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 national economy, the Court treats the
petition for declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the
petition for declaratory relief as one for mandamus considering the
grave injustice that would result in the interpretation of a banking law.
In that case, which involved the crime of rape committed by a foreign
tourist against a Filipino minor and the execution of the final judgment
in the civil case for damages on the tourists dollar deposit with a local
bank, the Court declared Section 113 of Central Bank Circular No. 960,
exempting foreign currency deposits from attachment, garnishment or
any other order or process of any court, inapplicable due to the peculiar
circumstances of the case. The Court held that injustice would result
especially to a citizen aggrieved by a foreign guest like accused x x x that
would negate Article 10 of the Civil Code which provides that in case of
doubt in the interpretation or application of laws, it is presumed that
the lawmaking body intended right and justice to prevail. The Court
therefore required respondents Central Bank of the Philippines, the
local bank, and the accused to comply with the writ of execution issued
in the civil case for damages and to release the dollar deposit of the
accused to satisfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court
similarly brushed aside the procedural infirmity of the petition for
declaratory relief and treated the same as one for mandamus.
In Alliance, the issue was whether the government unlawfully excluded
petitioners, who were government employees, from the enjoyment of
rights to which they were entitled under the law. Specifically, the
question was: Are the branches, agencies, subdivisions, and
instrumentalities of the Government, including government owned or
controlled corporations included among the four employers under
Presidential Decree No. 851 which are required to pay their employees
x x x a thirteenth (13th) month pay x x x ? The Constitutional principle
involved therein affected all government employees, clearly justifying a
relaxation of the technical rules of procedure, and certainly requiring
the interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for
declaratory relief as one for mandamus if the issue involved has far-
reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a
petition for declaratory relief. However, exceptions to this
rule have been recognized. Thus, where the petition has far-
reaching implications and raises questions that should be
resolved, it may be treated as one for
mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the
term capital in Section 11, Article XII of the Constitution. He prays that
this Court declare that the term capital refers to common shares only,
and that such shares constitute the sole basis in determining foreign
equity in a public utility. Petitioner further asks this Court to declare any
ruling inconsistent with such interpretation unconstitutional.
The interpretation of the term capital in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy. In
fact, a resolution of this issue will determine whether Filipinos are
masters, or second class citizens, in their own country. What is at stake
here is whether Filipinos or foreigners will have effective control of the
national economy. Indeed, if ever there is a legal issue that has far-
reaching implications to the entire nation, and to future generations of
Filipinos, it is the threshhold legal issue presented in this case.
The Court first encountered the issue on the definition of the term
capital in Section 11, Article XII of the Constitution in the case
of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case
involved the same public utility (PLDT) and substantially the same
private respondents. Despite the importance and novelty of the
constitutional issue raised therein and despite the fact that the petition
involved a purely legal question, the Court declined to resolve the case
on the merits, and instead denied the same for disregarding the
hierarchy of courts.17 There, petitioner Fernandez assailed on a pure
question of law the Regional Trial 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, 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 a public right, the requirement of personal interest is satisfied by the
has the right to question the subject sale, which he claims to violate the mere fact that petitioner is a citizen and, therefore, part of the general
nationality requirement prescribed in Section 11, Article XII of the public which possesses the right.
Constitution. If the sale indeed violates the Constitution, then there is a
possibility that PLDTs franchise could be revoked, a dire consequence Further, in Albano v. Reyes, we said that while expenditure of public
directly affecting petitioners interest as a stockholder. 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
More importantly, there is no question that the instant petition raises the economic development of the country and the magnitude of the
matters of transcendental importance to the public. The fundamental financial consideration involved. We concluded that, as a consequence,
and threshold legal issue in this case, involving the national economy the disclosure provision in the Constitution would constitute sufficient
and the economic welfare of the Filipino people, far outweighs any authority for upholding the petitioners standing. (Emphasis supplied)
perceived impediment in the legal personality of the petitioner to bring
this action.
Clearly, since the instant petition, brought by a citizen, involves matters
of transcendental public importance, the petitioner has the
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a requisite locus standi.
suit on matters of transcendental importance to the public, thus:
Definition of the Term Capital in
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 Section 11, Article XII of the 1987 Constitution
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
Section 11, Article XII (National Economy and Patrimony) of the 1987
aforesaid case, the petitioners sought to enforce their right to be
Constitution mandates the Filipinization of public utilities, to wit:
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. Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
Legaspi v. Civil Service Commission, while reiterating Taada, further granted except to citizens of the Philippines or to
declared that when a mandamus proceeding involves the assertion of corporations or associations organized under the laws of the
 Philippines, at least sixty per centum of whose capital is
owned by such citizens; nor shall such franchise, certificate,
or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such 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:
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)
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. 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)?

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)
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
Father Joaquin G. Bernas, S.J., a leading member of the 1986
common capital stock subscribed and outstanding, which class of shares
Constitutional Commission, reminds us that the Filipinization provision
alone, under the corporate set-up of PLDT, can vote and elect members
in the 1987 Constitution is one of the products of the spirit of
of the board of directors. It is undisputed that PLDTs non-voting
nationalism which gripped the 1935 Constitutional Convention.25 The
preferred shares are held mostly by Filipino citizens.30 This arose from
1987 Constitution provides for the Filipinization of public utilities by
Presidential Decree No. 217,31 issued on 16 June 1973 by then President
requiring that any form of authorization for the operation of public
Ferdinand Marcos, requiring every applicant of a PLDT telephone line to
utilities should be granted only to citizens of the Philippines or to
subscribe to non-voting preferred shares to pay for the investment cost
corporations or associations organized under the laws of the Philippines
of installing the telephone line.32
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
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 and Pangilinan of PLDT do not dispute
that more than 40 percent of the common shares of PLDT are held by
foreigners.
In particular, respondent 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.
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
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

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
The OSG, representing public respondents Secretary Margarito Teves,
Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, and
Obviously, the intent of the framers of the Constitution in
Chairman Fe Barin, is likewise silent on the definition of the term
imposing limitations and restrictions on fully nationalized and
capital. In its Memorandum37 dated 24 September 2007, the OSG also
partially nationalized activities is for Filipino nationals to be
limits its discussion on the supposed procedural defects of the petition,
always in control of the corporation undertaking said
i.e. lack of standing, lack of jurisdiction, non-inclusion of interested
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 In this connection, the Corporation Code which was already in
Section 11, Article XII of the Constitution allegedly refers to force at the time the present (1987) Constitution was drafted
the sum total of the shares subscribed and paid-in by the defined outstanding capital stock as follows:
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 Section 137. Outstanding capital stock defined. The term
regard, suffice it to state that as between the law and an outstanding capital stock, as used in this Code, means the
opinion rendered by an administrative agency, the law total shares of stock issued under binding subscription
indubitably prevails. Moreover, said Opinions are merely agreements to subscribers or stockholders, whether or not
fully or partially paid, except treasury shares.
advisory and cannot prevail over the clear intent of the
framers of the Constitution.
Section 137 of the Corporation Code also does not distinguish
between common and preferred shares, nor exclude either
In the same vein, the SECs construction of Section 11, Article
class of shares, in determining the outstanding capital stock
XII of the Constitution is at best merely advisory for it is the
courts that finally determine what a law means.39 (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
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel
V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B.
Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa,
Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea,
argued that the term capital in Section 11, Article XII of the Constitution 17. But even assuming that resort to the proceedings of the
includes preferred shares since the Constitution does not distinguish Constitutional Commission is necessary, there is nothing in
among classes of stock, thus: 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.
16. The Constitution applies its foreign ownership limitation on
xxxx
the corporations capital, without distinction as to classes of
shares. x x x
 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 series thereof: Provided, That such terms and
conditions shall be effective upon the filing of a certificate
thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be
deemed fully paid and non-assessable and the holder of such
shares shall not be liable to the corporation or to its creditors
in respect thereto: Provided; That shares without par value
may not be issued for a consideration less than the value of
five (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.
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 MR. NOLLEDO. Therefore, we need additional Filipino capital?
Committee please enlighten me on this?
MR. VILLEGAS. Yes.48
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.
xxxx
MR. AZCUNA. May I be clarified as to that portion that was
accepted by the Committee.
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. The portion accepted by the Committee is the
deletion of the phrase voting stock or controlling interest.
MR. VILLEGAS. That is right.
MR. AZCUNA. Hence, without the Davide amendment, the
committee report would read: corporations or associations at
MR. NOLLEDO. Thank you. least sixty percent of whose CAPITAL is owned by such
citizens.
With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity MR. VILLEGAS. Yes.
invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather
rule?
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. Yes, that is the understanding of the
Committee.
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)
In explaining the definition of a Philippine national, the Implementing
Rules and Regulations of the Foreign Investments Act of 1991 provide:
Thus, 60 percent of the capital assumes, or should result in, controlling
interest in the corporation. Reinforcing this interpretation of the term
capital, as referring to controlling interest or shares entitled to vote, is
the definition of a Philippine national in the Foreign Investments Act of
1991,50 to wit:
SEC. 3. Definitions. - As used in this Act: [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
a. The term Philippine national shall mean a citizen of the
of the Philippine nationals; Provided,that where a corporation
Philippines; or a domestic partnership or association wholly
its non-Filipino stockholders own stocks in a Securities and
owned by citizens of the Philippines; or a corporation
Exchange Commission [SEC] registered enterprise, at least
organized under the laws of the Philippines of which at least
sixty percent [60%] of the capital stock outstanding and
sixty percent (60%) of the capital stock
entitled to vote of both corporations must be owned and held
outstanding and entitled to vote is owned and held by
by citizens of the Philippines and at least sixty percent [60%]
citizens of the Philippines; or a corporation organized abroad
of the members of the Board of Directors of each of both
and registered as doing business in the Philippines under the
corporation must be citizens of the Philippines, in order that
Corporation Code of which one hundred percent (100%) of
the corporation shall be considered a Philippine national. The
the capital stock outstanding and entitled to vote is wholly
control test shall be applied for this purpose.
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- Compliance with the required Filipino ownership of a
Filipino stockholders own stocks in a Securities and Exchange corporation shall be determined on the basis of outstanding
Commission (SEC) registered enterprise, at least sixty percent capital stock whether fully paid or not, but only such stocks
(60%) of the capital stock outstanding and entitled to vote of which are generally entitled to vote are considered.
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
For stocks to be deemed owned and held by Philippine
the corporation, shall be considered a Philippine national.
citizens or Philippine nationals, mere legal title is not enough
(Emphasis supplied)
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.
b. Philippine national shall mean a citizen of the Philippines or Individuals or juridical entities not meeting the
a domestic partnership or association wholly owned by the aforementioned qualifications are considered as non-
citizens of the Philippines; or a corporation organized under Philippine nationals. (Emphasis supplied)
the laws of the Philippines of which at least sixty percent

Mere legal title is insufficient to meet the 60 percent Filipino-owned
capital required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required. The legal and beneficial ownership of 60
percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate.
Otherwise, the corporation is considered as non-Philippine national[s].
Under Section 10, Article XII of the Constitution, Congress may reserve
to citizens of the Philippines or to corporations or associations at least
sixty per centum of whose capital is owned by such citizens, or such
higher percentage as Congress may prescribe, certain areas of
investments. Thus, in numerous laws Congress has reserved certain
areas of investments to Filipino citizens or to corporations at least sixty
percent of the capital of which is owned by Filipino citizens. Some of
these laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850;
(3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No.
6977; (4) Philippine Overseas Shipping Development Act or R.A. No.
7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295;
(6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and
(7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term capital in
Section 11, Article XII of the Constitution is also used in the same
context in numerous 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
Incorporation52 state that each holder of Common Capital Stock shall
have one vote in respect of each share of such stock held by him on all
matters voted upon by the stockholders, and the holders of Common
Capital Stock shall have the exclusive right to vote for the election of
directors and for all other purposes.53
In short, only holders of common shares can vote in the election of
directors, meaning only common shareholders exercise control over
PLDT. Conversely, holders of preferred shares, who have no voting
rights in the election of directors, do not have any control over PLDT. In
fact, under 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, that 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 of P10.00 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
for that would be a betrayal of the Constitution and of the national
interest. The Court must perform its solemn duty to defend and uphold
the intent and letter of the Constitution to ensure, in the words of the
Constitution, a self-reliant and independent national
economy effectively controlled by Filipinos.
Section 11, Article XII of the Constitution, like other provisions of the
Constitution expressly reserving to Filipinos specific areas of
investment, such as the development of natural resources and
ownership of land, educational institutions and advertising business,
is self-executing. There is no need for legislation to implement these
self-executing provisions of the Constitution. The rationale why these
constitutional provisions are self-executing was explained in Manila
Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative
act is necessary to enforce a constitutional mandate, the
presumption now is that all provisions of the constitution are
self-executing. If the constitutional provisions are treated as
requiring legislation instead of self-executing, the legislature
would have the power to ignore and practically nullify the
mandate of the fundamental law. This can be cataclysmic.
That is why the prevailing view is, as it has always been, that
. . . in case of doubt, the Constitution should be considered
self-executing rather than non-self-executing. . . . Unless the
contrary is clearly intended, the provisions of the
 Constitution should be considered self-executing, as a
contrary rule would give the legislature discretion to
determine when, or whether, they shall be effective. These
provisions would be subordinated to the will of the
lawmaking body, which could make them entirely
meaningless by simply refusing to pass the needed
implementing statute. (Emphasis supplied)
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:
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)
x x x As the Constitution is silent as to the effects or
consequences of a sale by a citizen of his land to an alien, and
as both the citizen and the alien have violated the law, none
of them should have a recourse against the other, and it
should only be the State that should be allowed to intervene
and determine what is to be done with the property subject
of the violation. We have said that what the State should do
or could do in such matters is a matter of public policy,
entirely beyond the scope of judicial authority. (Dinglasan, et
al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27,
1956.) While the legislature has not definitely decided what
policy should be followed in cases of violations against the
constitutional prohibition, courts of justice cannot go
beyond by declaring the disposition to be null and void
as violative of the Constitution. x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-executing
would mean that since the 1935 Constitution, or over the last 75 years,
not one of the constitutional provisions expressly reserving specific
areas of investments to corporations, at least 60 percent of the capital
of which is owned by Filipinos, was enforceable. In short, the framers of
the 1935, 1973 and 1987 Constitutions miserably failed to effectively
reserve to Filipinos specific areas of investment, like the operation by
corporations of public utilities, the exploitation by corporations of
mineral resources, the ownership by corporations of real estate, and
the ownership of educational institutions. All the legislatures that
convened since 1935 also miserably failed to enact legislations to
implement these vital constitutional provisions that determine who will
effectively control the national economy, Filipinos or foreigners. This
Court cannot allow such an absurd interpretation of the Constitution.
This Court has held that the SEC has both regulatory and adjudicative
functions.69 Under its regulatory functions, the SEC can be compelled by
mandamus to perform its statutory duty when it unlawfully neglects to
perform the same. Under its adjudicative or quasi-judicial functions, the
SEC can be also be compelled by mandamus to hear and decide a
possible violation of any law it administers or enforces when it is
mandated by law to investigate such violation.
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.
G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING
AND DEVELOPMENT, INC., and MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45
filed by Narra Nickel and Mining Development Corp. (Narra), Tesoro
Mining and Development, Inc. (Tesoro), and McArthur Mining Inc.
(McArthur), which seeks to reverse the October 1, 2010 Decision1 and
the February 15, 2011 Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines
Corp. (Redmont), a domestic corporation organized and existing under
Philippine laws, took interest in mining and exploring certain areas of
the province of Palawan. After inquiring with the Department of
Environment and Natural Resources (DENR), it learned that the areas
where it wanted to undertake exploration and mining activities where
already covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie
Mining, Inc. (SMMI), filed an application for an MPSA and Exploration
Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-
B, Office of the Department of Environment and Natural Resources
(DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area
of over 1,782 hectares in Barangay Sumbiling, Municipality of Bataraza,
Province of Palawan and EPA-IVB-44 which includes an area of 3,720
hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP
were then transferred to Madridejos Mining Corporation (MMC) and,
on November 6, 2006, assigned to petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining & Development
Corporation (PLMDC) which previously filed an application for an MPSA
with the MGB, Region IV-B, DENR on January 6, 1992. Through the said
application, the DENR issued MPSA-IV-1-12 covering an area of 3.277
hectares in barangays Calategas and San Isidro, Municipality of Narra,
Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned
its rights and interests over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-
B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402
hectares in Barangays Malinao and Princesa Urduja, Municipality of
Narra, Province of Palawan. SMMI subsequently conveyed, transferred
and assigned its rights and interest over the said MPSA application to
Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA)
of the DENR three (3) separate petitions for the denial of petitioners
applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and
MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock
of McArthur, Tesoro and Narra are owned and controlled by MBMI
Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont
reasoned that since MBMI is a considerable stockholder of petitioners,
it was the driving force behind petitioners filing of the MPSAs over the
areas covered by applications since it knows that it can only participate
in mining activities through corporations which are deemed Filipino
citizens. Redmont argued that given that petitioners capital stocks
were mostly owned by MBMI, they were likewise disqualified from
engaging in mining activities through MPSAs, which are reserved only
for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons
under Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine
Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the
following terms, whether in singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with
capacity to contract, or a corporation, partnership, association, or
cooperative organized or authorized for the purpose of engaging in
mining, with technical and financial capability to undertake mineral
resources development and duly registered in accordance with law at
least sixty per cent (60%) of the capital of which is owned by citizens of
the Philippines: Provided, That a legally organized foreign-owned
corporation shall be deemed a qualified person for purposes of granting
an exploration permit, financial or technical assistance agreement or
mineral processing permit.
Additionally, they stated that their nationality as applicants is
immaterial because they also applied for Financial or Technical
Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for
McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which
are granted to foreign-owned corporations. Nevertheless, they claimed
that the issue on nationality should not be raised since McArthur,
Tesoro and Narra are in fact Philippine Nationals as 60% of their capital
is owned by citizens of the Philippines. They asserted that though MBMI
owns 40% of the shares of PLMC (which owns 5,997 shares of
Narra),3 40% of the shares of MMC (which owns 5,997 shares of
McArthur)4 and 40% of the shares of SLMC (which, in turn, owns 5,997
shares of Tesoro),5 the shares of MBMI will not make it the owner of at
least 60% of the capital stock of each of petitioners. They added that
the best tool used in determining the nationality of a corporation is the
"control test," embodied in Sec. 3 of RA 7042 or the Foreign
Investments Act of 1991. They also claimed that the POA of DENR did
not have jurisdiction over the issues in Redmonts petition since they
are not enumerated in Sec. 77 of RA 7942. Finally, they stressed that
Redmont has no personality to sue them because it has no pending
claim or application over the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying
petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants
to engage in mining activities. On the other hand, [Redmont] having
filed its own applications for an EPA over the areas earlier covered by
the MPSA application of respondents may be considered if and when
they are qualified under the law. The violation of the requirements for
the issuance and/or grant of permits over mining areas is clearly
established thus, there is reason to believe that the cancellation and/or
revocation of permits already issued under the premises is in order and
open the areas covered to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur
Mining Inc., Tesoro Mining and Development, Inc., and Narra Nickel
Mining and Development Corp. as, DISQUALIFIED for being considered
as Foreign Corporations. Their Mineral Production Sharing Agreement
(MPSA) are hereby x x x DECLARED NULL AND VOID.6
The POA considered petitioners as foreign corporations being
"effectively controlled" by MBMI, a 100% Canadian company and
declared their MPSAs null and void. In the same Resolution, it gave due
course to Redmonts EPAs. Thereafter, on February 7, 2008, the POA
issued an Order7 denying the Motion for Reconsideration filed by
petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and
Tesoro filed a joint Notice of Appeal8 and Memorandum of Appeal9 with
the Mines Adjudication Board (MAB) while Narra separately filed its
Notice of Appeal10 and Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they are
qualified persons under the law. Also, through a letter, they informed
the MAB that they had their individual MPSA applications converted to
FTAAs. McArthurs FTAA was denominated as AFTA-IVB-0912 on May
2007, while Tesoros MPSA application was converted to AFTA-IVB-
0813 on May 28, 2007, and Narras FTAA was converted to AFTA-IVB-
0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB,
Redmont filed a Complaint15 with the Securities and Exchange
Commission (SEC), seeking the revocation of the certificates for
registration of petitioners on the ground that they are foreign-owned or
controlled corporations engaged in mining in violation of Philippine
laws. Thereafter, Redmont filed on September 1, 2008 a Manifestation
and Motion to Suspend Proceeding before the MAB praying for the
suspension of the proceedings on the appeals filed by McArthur, Tesoro
and Narra.
Subsequently, on September 8, 2008, Redmont filed before the
Regional Trial Court of Quezon City, Branch 92 (RTC) a Complaint16 for
injunction with application for issuance of a temporary restraining order
(TRO) and/or writ of preliminary injunction, docketed as Civil Case No.
08-63379. Redmont prayed for the deferral of the MAB proceedings
pending the resolution of the Complaint before the SEC.
But before the RTC can resolve Redmonts Complaint and applications
for injunctive reliefs, the MAB issued an Order on September 10, 2008,
finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board
hereby REVERSES and SETS ASIDE the Resolution dated 14 December
2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-
DENR Case Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07
February 2008 denying the Motions for Reconsideration of the
Appellants. The Petition filed by Redmont Consolidated Mines
Corporation on 02 January 2007 is hereby ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an Order18 granting
Redmonts application for a TRO and setting the case for hearing the
prayer for the issuance of a writ of preliminary injunction on September
19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for
Reconsideration19 of the September 10, 2008 Order of the MAB.
Subsequently, it filed a Supplemental Motion for Reconsideration20 on
September 29, 2008.
Before the MAB could resolve Redmonts Motion for Reconsideration
and Supplemental Motion for Reconsideration, Redmont filed before
the RTC a Supplemental Complaint21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order22 granting the issuance of
a writ of preliminary injunction enjoining the MAB from finally disposing
of the appeals of petitioners and from resolving Redmonts Motion for
Reconsideration and Supplement Motion for Reconsideration of the
MABs September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying
Redmonts Motion for Reconsideration and Supplemental Motion for
Reconsideration and resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing
the Orders issued by the MAB. On October 1, 2010, the CA rendered a
Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders,
dated September 10, 2008 and July 1, 2009 of the Mining Adjudication
Board are reversed and set aside. The findings of the Panel of
Arbitrators of the Department of Environment and Natural Resources
that respondents McArthur, Tesoro and Narra are foreign corporations
is upheld and, therefore, the rejection of their applications for Mineral
Product Sharing Agreement should be recommended to the Secretary
of the DENR.
With respect to the applications of respondents McArthur, Tesoro and
Narra for Financial or Technical Assistance Agreement (FTAA) or
conversion of their MPSA applications to FTAA, the matter for its
rejection or approval is left for determination by the Secretary of the
DENR and the President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for
Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was doubt
as to the nationality of petitioners when it realized that petitioners had
a common major investor, MBMI, a corporation composed of 100%
Canadians. Pursuant to the first sentence of paragraph 7 of Department
of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC
Rules which implemented the requirement of the Constitution and
other laws pertaining to the exploitation of natural resources, the CA
used the "grandfather rule" to determine the nationality of petitioners.
It provided:
Shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital,
respectively, of which belong to Filipino citizens, all of the shares shall
be recorded as owned by Filipinos. But if less than 60%, or say, 50% of
the capital stock or capital of the corporation or partnership,
respectively, belongs to Filipino citizens, only 50,000 shares shall be
recorded as belonging to aliens.24(emphasis supplied)
In determining the nationality of petitioners, the CA looked into their
corporate structures and their corresponding common shareholders.
Using the grandfather rule, the CA discovered that MBMI in effect
owned majority of the common stocks of the petitioners as well as at
least 60% equity interest of other majority shareholders of petitioners
through joint venture agreements. The CA found that through a "web of
corporate layering, it is clear that one common controlling investor in
all mining corporations involved x x x is MBMI."25 Thus, it concluded
that petitioners McArthur, Tesoro and Narra are also in partnership
with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of
petitioners into FTAA applications suspicious in nature and, as a
consequence, it recommended the rejection of petitioners MPSA
applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas,
the CA pointed out that the POA has jurisdiction over them and that it
also has the power to determine the of nationality of petitioners as a
prerequisite of the Constitution prior the conferring of rights to "co-
production, joint venture or production-sharing agreements" of the
state to mining rights. However, it also stated that the POAs
jurisdiction is limited only to the resolution of the dispute and not on
the approval or rejection of the MPSAs. It stipulated that only the
Secretary of the DENR is vested with the power to approve or reject
applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007
Resolution which considered petitioners McArthur, Tesoro and Narra as
foreign corporations. Nevertheless, the CA determined that the POAs
declaration that the MPSAs of McArthur, Tesoro and Narra are void is
highly improper.
While the petition was pending with the CA, Redmont filed with the
Office of the President (OP) a petition dated May 7, 2010 seeking the
cancellation of petitioners FTAAs. The OP rendered a Decision26 on
April 6, 2011, wherein it canceled and revoked petitioners FTAAs for
violating and circumventing the "Constitution x x x[,] the Small Scale
Mining Law and Environmental Compliance Certificate as well as
Sections 3 and 8 of the Foreign Investment Act and E.O. 584."27 The OP,
in affirming the cancellation of the issued FTAAs, agreed with Redmont
stating that petitioners committed violations against the
abovementioned laws and failed to submit evidence to negate them.
The Decision further quoted the December 14, 2007 Order of the POA
focusing on the alleged misrepresentation and claims made by
petitioners of being domestic or Filipino corporations and the admitted
continued mining operation of PMDC using their locally secured Small
Scale Mining Permit inside the area earlier applied for an MPSA
application which was eventually transferred to Narra. It also agreed
with the POAs estimation that the filing of the FTAA applications by
petitioners is a clear admission that they are "not capable of conducting
a large scale mining operation and that they need the financial and
technical assistance of a foreign entity in their operation, that is why
they sought the participation of MBMI Resources, Inc."28 The Decision
further quoted:
The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining. The
filing of the FTAA application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that indeed the
respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI Resources,
Inc. furnished its stockholders in their head office in Canada suggest
that they are conducting operation only through their local
counterparts.29
The Motion for Reconsideration of the Decision was further denied by
the OP in a Resolution30 dated July 6, 2011. Petitioners then filed a
Petition for Review on Certiorari of the OPs Decision and Resolution
with the CA, docketed as CA-G.R. SP No. 120409. In the CA Decision
dated February 29, 2012, the CA affirmed the Decision and Resolution
of the OP. Thereafter, petitioners appealed the same CA decision to this
Court which is now pending with a different division.
Thus, the instant petition for review against the October 1, 2010
Decision of the CA. Petitioners put forth the following errors of the CA:
I.
The Court of Appeals erred when it did not dismiss the case
for mootness despite the fact that the subject matter of the
controversy, the MPSA Applications, have already been
converted into FTAA applications and that the same have
already been granted.
II.
The Court of Appeals erred when it did not dismiss the case
for lack of jurisdiction considering that the Panel of
Arbitrators has no jurisdiction to determine the nationality of
Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case
on account of Redmonts willful forum shopping.
IV.
The Court of Appeals ruling that Narra, Tesoro and McArthur
are foreign corporations based on the "Grandfather Rule" is
contrary to law, particularly the express mandate of the
Foreign Investments Act of 1991, as amended, and the FIA
Rules.
V.
The Court of Appeals erred when it applied the exceptions to
the res inter alios acta rule.
VI.
The Court of Appeals erred when it concluded that the
conversion of the MPSA Applications into FTAA Applications
were of "suspicious nature" as the same is based on mere
conjectures and surmises without any shred of evidence to
show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant
case as moot is without merit.
Basically, a case is said to be moot and/or academic when it "ceases to
present a justiciable controversy by virtue of supervening events, so
that a declaration thereon would be of no practical use or
value."32 Thus, the courts "generally decline jurisdiction over the case or
dismiss it on the ground of mootness."33
The "mootness" principle, however, does accept certain exceptions and
the mere raising of an issue of "mootness" will not deter the courts
from trying a case when there is a valid reason to do so. In David v.
Macapagal-Arroyo (David), the Court provided four instances where
courts can decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount
public interest is involved;
3.) When constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the
public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant case. We of
this Court note that a grave violation of the Constitution, specifically
Section 2 of Article XII, is being committed by a foreign corporation
right under our countrys nose through a myriad of corporate layering
under different, allegedly, Filipino corporations. The intricate corporate
layering utilized by the Canadian company, MBMI, is of exceptional
character and involves paramount public interest since it undeniably
affects the exploitation of our Countrys natural resources. The
corresponding actions of petitioners during the lifetime and existence
of the instant case raise questions as what principle is to be applied to
cases with similar issues. No definite ruling on such principle has been
pronounced by the Court; hence, the disposition of the issues or errors
in the instant case will serve as a guide "to the bench, the bar and the
public."35 Finally, the instant case is capable of repetition yet evading
review, since the Canadian company, MBMI, can keep on utilizing
dummy Filipino corporations through various schemes of corporate
layering and conversion of applications to skirt the constitutional
prohibition against foreign mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error
presented by petitioners since both involve the conversion of MPSA
applications to FTAA applications. Petitioners propound that the CA
erred in ruling against them since the questioned MPSA applications
were already converted into FTAA applications; thus, the issue on the
prohibition relating to MPSA applications of foreign mining corporations
is academic. Also, petitioners would want us to correct the CAs finding
which deemed the aforementioned conversions of applications as
suspicious in nature, since it is based on mere conjectures and surmises
and not supported with evidence.
We disagree.
The CAs analysis of the actions of petitioners after the case was filed
against them by respondent is on point. The changing of applications by
petitioners from one type to another just because a case was filed
against them, in truth, would raise not a few sceptics eyebrows. What
is the reason for such conversion? Did the said conversion not stem
from the case challenging their citizenship and to have the case
dismissed against them for being "moot"? It is quite obvious that it is
petitioners strategy to have the case dismissed against them for being
"moot."
Consider the history of this case and how petitioners responded to
every action done by the court or appropriate government agency: on
January 2, 2007, Redmont filed three separate petitions for denial of
the MPSA applications of petitioners before the POA. On June 15, 2007,
petitioners filed a conversion of their MPSA applications to FTAAs. The
POA, in its December 14, 2007 Resolution, observed this suspect change
of applications while the case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement application
is a clear admission that the respondents are not capable of conducting
a large scale mining operation and that they need the financial and
technical assistance of a foreign entity in their operation that is why
they sought the participation of MBMI Resources, Inc. The participation
of MBMI in the corporation only proves the fact that it is the Canadian
company that will provide the finances and the resources to operate
the mining areas for the greater benefit and interest of the same and
not the Filipino stockholders who only have a less substantial financial
stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining. The
filing of the FTAA application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that indeed the
respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI Resources,
Inc. furnished its stockholders in their head office in Canada suggest
that they are conducting operation only through their local
counterparts.36
On October 1, 2010, the CA rendered a Decision which partially granted
the petition, reversing and setting aside the September 10, 2008 and
July 1, 2009 Orders of the MAB. In the said Decision, the CA upheld the
findings of the POA of the DENR that the herein petitioners are in fact
foreign corporations thus a recommendation of the rejection of their
MPSA applications were recommended to the Secretary of the DENR.
With respect to the FTAA applications or conversion of the MPSA
applications to FTAAs, the CA deferred the matter for the determination
of the Secretary of the DENR and the President of the Republic of the
Philippines.37
In their Motion for Reconsideration dated October 26, 2010, petitioners
prayed for the dismissal of the petition asserting that on April 5, 2010,
then President Gloria Macapagal-Arroyo signed and issued in their favor
FTAA No. 05-2010-IVB, which rendered the petition moot and
academic. However, the CA, in a Resolution dated February 15, 2011
denied their motion for being a mere "rehash of their claims and
defenses."38 Standing firm on its Decision, the CA affirmed the ruling
that petitioners are, in fact, foreign corporations. On April 5, 2011,
petitioners elevated the case to us via a Petition for Review on
Certiorari under Rule 45, questioning the Decision of the CA.
Interestingly, the OP rendered a Decision dated April 6, 2011, a day
after this petition for review was filed, cancelling and revoking the
FTAAs, quoting the Order of the POA and stating that petitioners are
foreign corporations since they needed the financial strength of MBMI,
Inc. in order to conduct large scale mining operations. The OP Decision
also based the cancellation on the misrepresentation of facts and the
violation of the "Small Scale Mining Law and Environmental Compliance
Certificate as well as Sections 3 and 8 of the Foreign Investment Act and
E.O. 584."39 On July 6, 2011, the OP issued a Resolution, denying the
Motion for Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made
known to the Court the fact of the OPs Decision and Resolution. In
their Reply, petitioners chose to ignore the OP Decision and continued
to reuse their old arguments claiming that they were granted FTAAs
and, thus, the case was moot. Petitioners filed a Manifestation and
Submission dated October 19, 2012,40 wherein they asserted that the
present petition is moot since, in a remarkable turn of events, MBMI
was able to sell/assign all its shares/interest in the "holding companies"
to DMCI Mining Corporation (DMCI), a Filipino corporation and, in
effect, making their respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this
case dismissed for being "moot." Their final act, wherein MBMI was
able to allegedly sell/assign all its shares and interest in the petitioner
"holding companies" to DMCI, only proves that they were in fact not
Filipino corporations from the start. The recent divesting of interest by
MBMI will not change the stand of this Court with respect to the
nationality of petitioners prior the suspicious change in their corporate
structures. The new documents filed by petitioners are factual evidence
that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP
declared that petitioner corporations have violated several mining laws
and made misrepresentations and falsehood in their applications for
FTAA which lead to the revocation of the said FTAAs, demonstrating
that petitioners are not beyond going against or around the law using
shifty actions and strategies. Thus, in this instance, we can say that their
claim of mootness is moot in itself because their defense of conversion
of MPSAs to FTAAs has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners
nationality, whether Filipino or foreign. In their previous petitions, they
had been adamant in insisting that they were Filipino corporations, until
they submitted their Manifestation and Submission dated October 19,
2012 where they stated the alleged change of corporate ownership to
reflect their Filipino ownership. Thus, there is a need to determine the
nationality of petitioner corporations.
Basically, there are two acknowledged tests in determining the
nationality of a corporation: the control test and the grandfather rule.
Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967
SEC Rules which implemented the requirement of the Constitution and
other laws pertaining to the controlling interests in enterprises engaged
in the exploitation of natural resources owned by Filipino citizens,
provides:
Shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital,
respectively, of which belong to Filipino citizens, all of the shares shall
be recorded as owned by Filipinos. But if less than 60%, or say, 50% of
the capital stock or capital of the corporation or partnership,
respectively, belongs to Filipino citizens, only 50,000 shares shall be
counted as owned by Filipinos and the other 50,000 shall be recorded
as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares
belonging to corporations or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be considered as of Philippine
nationality," pertains to the control test or the liberal rule. On the other
hand, the second part of the DOJ Opinion which provides, "if the
percentage of the Filipino ownership in the corporation or partnership
is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality," pertains to the
stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in
advocating the application of the "control test" under RA 7042, as
amended by RA 8179, otherwise known as the Foreign Investments Act
(FIA), rather than using the stricter grandfather rule. The pertinent
provision under Sec. 3 of the FIA provides:
SECTION 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 the citizens
of the Philippines; 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 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 were 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, in
order that the corporation shall be considered a Philippine national.
(emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the
instant case since the definition of a "Philippine National" under Sec. 3
of the FIA does not provide for it. They further claim that the
grandfather rule "has been abandoned and is no longer the applicable
rule."41 They also opined that the last portion of Sec. 3 of the FIA admits
the application of a "corporate layering" scheme of corporations.
Petitioners claim that the clear and unambiguous wordings of the
statute preclude the court from construing it and prevent the courts
use of discretion in applying the law. They said that the plain, literal
meaning of the statute meant the application of the control test is
obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but
if it is used to circumvent the Constitution and pertinent laws, then it
becomes illegal. Further, the pronouncement of petitioners that the
grandfather rule has already been abandoned must be discredited for
lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum
and other mineral oils, all forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural resources are owned
by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture or
production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such
citizens. Such agreements may be for a period not exceeding twenty-
five years, renewable for not more than twenty-five years, and under
such terms and conditions as may be provided by law.
xxxx
The President may enter into agreements with Foreign-owned
corporations involving either technical or financial assistance for large-
scale exploration, development, and utilization of minerals, petroleum,
and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth
and general welfare of the country. In such agreements, the State shall
promote the development and use of local scientific and technical
resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering
into different types of agreements for the exploration, development,
and utilization of natural resources with entities who are deemed
Filipino due to 60 percent ownership of capital is pertinent to this case,
since the issues are centered on the utilization of our countrys natural
resources or specifically, mining. Thus, there is a need to ascertain the
nationality of petitioners since, as the Constitution so provides, such
agreements are only allowed corporations or associations "at least 60
percent of such capital is owned by such citizens." The deliberations in
the Records of the 1986 Constitutional Commission shed light on how a
citizenship of a corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairmans interpretation of
an independent national economy is freedom from undue foreign
control? What is the meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices
national sovereignty and the welfare of the Filipino in the economic
sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word
"undue"? Why not simply freedom from foreign control? I think that is
the meaning of independence, because as phrased, it still allows for
foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if, for
example, we retain the 60/40 possibility in the cultivation of natural
resources, 40 percent involves some control; not total control, but
some control.
MR. BENNAGEN: In any case, I think in due time we will propose some
amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the
phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
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.
MR. NOLLEDO: In teaching law, we are always faced with the 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 with a draft. The
phrase that is contained here which we adopted from the UP draft is
60 percent of the 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.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution
to apply the grandfather rule in cases where corporate layering is
present.
Elementary in statutory construction is when there is conflict between
the Constitution and a statute, the Constitution will prevail. In this
instance, specifically pertaining to the provisions under Art. XII of the
Constitution on National Economy and Patrimony, Sec. 3 of the FIA will
have no place of application. As decreed by the honorable framers of
our Constitution, the grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the
Filipino interest in a corporation for purposes, among others, of
determining compliance with nationality requirements (the Investee
Corporation). Such manner of computation is necessary since the
shares in the Investee Corporation may be owned both by individual
stockholders (Investing Individuals) and by corporations and apply. (emphasis supplied)
partnerships (Investing Corporation). The said rules thus provide for
the determination of nationality depending on the ownership of the
Investee Corporation and, in certain instances, the Investing
Corporation.
Under the above-quoted SEC Rules, there are two cases in determining
the nationality of the Investee Corporation. The first case is the liberal
rule, later coined by the SEC as the Control Test in its 30 May 1990
Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC
Rules which states, (s)hares belonging to corporations or partnerships
at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality. Under the liberal Control Test,
there is no need to further trace the ownership of the 60% (or more)
Filipino stockholdings of the Investing Corporation since a corporation
which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, "but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding
to such percentage shall be counted as of Philippine nationality." Under
the Strict Rule or Grandfather Rule Proper, the combined totals in the
Investing Corporation and the Investee Corporation must be traced (i.e.,
"grandfathered") to determine the total percentage of Filipino
ownership.
Moreover, the ultimate Filipino ownership of the shares must first be
traced to the level of the Investing Corporation and added to the shares
directly owned in the Investee Corporation x x x.
xxxx
In other words, based on the said SEC Rule and DOJ Opinion, the
Grandfather Rule or the second part of the SEC Rule applies only when
the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases
where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%] invests
in other joint venture corporation which is either 60-40% Filipino-alien
or the 59% less Filipino). Stated differently, where the 60-40 Filipino-
foreign equity ownership is not in doubt, the Grandfather Rule will not
After a scrutiny of the evidence extant on record, the Court finds that
this case calls for the application of the grandfather rule since, as ruled
by the POA and affirmed by the OP, doubt prevails and persists in the
corporate ownership of petitioners. Also, as found by the CA, doubt is
present in the 60-40 Filipino equity ownership of petitioners Narra,
McArthur and Tesoro, since their common investor, the 100% Canadian
corporationMBMI, funded them. However, petitioners also claim that
there is "doubt" only when the stockholdings of Filipinos are less than
60%.43
 The assertion of petitioners that "doubt" only exists when the B. Esguerra
Fernando Filipino 1 PhP 1,000.00 PhP 1,000.00
stockholdings are less than 60% fails to convince this Court. DOJ
Opinion No. 20, which petitioners quoted in their petition,
Manuelonly made
A. Agcaoili Filipino 1 PhP Hernando
1,000.00 PhP 1,000.00
an example of an instance where "doubt" as to the ownership of the
Michael T. Mason
corporation exists. It would be ludicrous to limit the application of the American 1 PhP Michael
1,000.00T. Mason PhPAmerican
1,000.00 1 PhP 1,000.00 PhP 1,000

said word only to the instances where the stockholdings of non-Filipino

Kenneth Cawkell Canadian 1 PhP Kenneth
1,000.00 Cawkell PhPCanadian
1,000.00 1 PhP 1,000.00 PhP 1,000
stockholders are more than 40% of the total stockholdings in a
corporation. The corporations interested in circumventing our laws Total 10,000 PhP 10,000,000.00 Total
PhP 2,708,174.60 10,000 PhP 10,000,000.00 PhP 2,809,9
would clearly strive to have "60% Filipino Ownership" at face value. It (emphasis supplied)
would be senseless for these applying corporations to state in their (emphasis su
respective articles of incorporation that they have less than 60% Filipino
stockholders since the applications will be denied instantly. Thus, Interestingly, looking at the corporate structure of MMC, we take note
that it has a similar structure and composition as McArthur. In fact, it Noticeably, Olympic Mines & Development Corporation (Olympic) did
various corporate schemes and layerings are utilized to circumvent the
would seem that MBMI is also a major investor and "controls"45 MBMI not pay any amount with respect to the number of shares they
application of the Constitution.
and also, similar nominal shareholders were present, i.e. Fernando B. subscribed to in the corporation, which is quite absurd since Olympic is
Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason the major stockholder in MMC. MBMIs 2006 Annual Report sheds light
Obviously, the instant case presents a situation which exhibits a scheme on why Olympic failed to pay any amount with respect to the number
(Mason) and Kenneth Cawkell (Cawkell):
employed by stockholders to circumvent the law, creating a cloud of of shares it subscribed to. It states that Olympic entered into joint
doubt in the Courts mind. To determine, therefore, the actual venture agreements with several Philippine companies, wherein it holds
participation, direct or indirect, of MBMI, the grandfather rule must be Madridejos Mining Corporation
directly and indirectly a 60% effective equity interest in the Olympic
used. Properties.46 Quoting the said Annual report:
Name Nationality Number of Shares Amount Subscribed Amount Paid
McArthur Mining, Inc. On September 9, 2004, the Company and Olympic Mines &
Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0
Development Corporation ("Olympic") entered into a series of
To establish the actual ownership, interest or participation of MBMI in agreements including a Property Purchase and Development
each of petitioners corporate structure, they have toDevelopment
be Agreement (the Transaction Documents) with respect to three nickel
"grandfathered." laterite properties in Palawan, Philippines (the "Olympic Properties").
Corp. The Transaction Documents effectively establish a joint venture
As previously discussed, McArthur acquired its MPSAMBMIapplication from between the Company and Olympic for purposes of developing the
Resources, Canadian 3,331 PhP 3,331,000.00 PhPOlympic
2,803,900.00
Properties. The Company holds directly and indirectly an initial
MMC, which acquired its application from SMMI. McArthur has a
capital stock of ten million pesos (PhP 10,000,000) divided into 10,000 60% interest in the joint venture. Under certain circumstances and
common shares at one thousand pesos (PhP 1,000) per Inc.share, upon achieving certain milestones, the Company may earn up to a
subscribed to by the following: 44 100% interest, subject to a 2.5% net revenue royalty.47 (emphasis
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
supplied)
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Name Nationality Number of Shares Amount Subscribed Amount Paid Thus, as demonstrated in this first corporation, McArthur, when it is
ejos Mining Filipino 5,997 PhP 5,997,000.00
Esguerra PhP 825,000.00 "grandfathered," company layering was utilized by MBMI to gain
tion control over McArthur. It is apparent that MBMI has more than 60% or
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
more equity interest in McArthur, making the latter a foreign
esources, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60 corporation.
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a capital Except for the name "Sara Marie Mining, Inc.," the table above shows
stock of ten million pesos (PhP 10,000,000) divided into ten thousand exactly the same figures as the corporate structure of petitioner
(10,000) common shares at PhP 1,000 per share, as demonstrated McArthur, down to the last centavo. All the other shareholders are the Hernando
below: same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell. The
figures under "Nationality," "Number of Shares," "Amount Subscribed," Michael T. Mason American 1 PhP 1,000.00
[[reference and "Amount Paid" are exactly the same. Delving deeper, we scrutinize
SMMIs corporate structure: Kenneth Cawkell Canadian 1 PhP 1,000.00
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2
014/april2014/195580.pdf]]
Total 10,000 PhP 10,000,000.0
Sara Marie Mining, Inc.

Name Nationality Number of Amount Amount Paid

[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2
Shares Subscribed
014/april2014/195580.pdf]] After subsequently studying SMMIs corporate structure, it is not
farfetched for us to spot the glaring similarity between SMMI and
Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
MMCs corporate structure. Again, the presence of identical
Name Nationality Number of Amount Amount Paid
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
Mining, Inc. Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the
Shares Subscribed
headings "Nationality," "Number of Shares," "Amount Subscribed," and
MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60 "Amount Paid" are exactly the same except for the amount paid by
Olympic Mines & Filipino 6,663 PhP 6,663,000.00
MBMI which now reflects the PhPamount
0 of two million seven hundred
Resources, Inc. ninety four thousand pesos (PhP 2,794,000). Oddly, the total value of
Development the amount paid is two million eight hundred nine thousand nine
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 hundred pesos (PhP 2,809,900).
Corp.
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00 Accordingly, after "grandfathering" petitioner Tesoro and factoring in
MBMI Resources, Canadian 3,331 Olympics participation
PhP 3,331,000.00 PhPin2,794,000.00
SMMIs corporate structure, it is clear that
Esguerra MBMI is in control of Tesoro and owns 60% or more equity interest in
Inc. Tesoro. This makes petitioner Tesoro a non-Filipino corporation and,
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00 thus, disqualifies it to participate in the exploitation, utilization and
Amanti Limson Filipino 1 development of our natural
PhP 1,000.00 resources.
PhP 1,000.00
Agcaoili
Fernando B. Filipino 1 Narra Nickel Mining and
PhP 1,000.00 Development
PhP 1,000.00 Corporation
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Esguerra Moving on to the last petitioner, Narra, which is the transferee and
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 assignee of PLMDCs MPSA application, whose corporate structures
Lauro Salazar Filipino 1 arrangement is similar PhP
PhP 1,000.00 to that of the first two petitioners discussed. The
1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60 capital stock of Narra is ten million pesos (PhP 10,000,000), which is
Emmanuel G. Filipino 1 divided into ten thousand
PhP 1,000.00 PhPcommon
1,000.00shares (10,000) at one thousand
(emphasis supplied) pesos (PhP 1,000) per share, shown as follows:
[[reference Total 10,000 PhP 10,000,000.00 PhP 2,7
Robert L. American 1 PhP 1,000.00 PhP 1,000.00
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2 (em
014/april2014/195580.pdf]] sup
McCurdy

Name Nationality Number of Kenneth Cawkell

Amount Canadian
Amount Paid 1 PhP 1,000.00 PhP 1,000.00
Yet again, the usual players in petitioners corporate structures are
present. Similarly, the amount of money paid by the 2nd tier majority
Shares Subscribed Total 10,000 PhP 10,000,000.00 PhP 2,800,000.00
stock holder, in this case, Palawan Alpha South Resources and
Development Corp.(emphasis
(PASRDC),supplied)
is zero.
Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00
Again, MBMI, along with other nominal stockholders, i.e., Mason, Studying MBMIs Summary of Significant Accounting Policies dated
Mining & October 31, 2005 explains the reason behind the intricate corporate
Agcaoili and Esguerra, is present in this corporate structure.
layering that MBMI immersed itself in:
Development Patricia Louise Mining & Development Corporation
JOINT VENTURES The Companys ownership interests in various mining
ventures engaged in the acquisition, exploration and development of
Corp. Using the grandfather method, we further look and examine PLMDCs mineral properties in the Philippines is described as follows:
corporate structure:
MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00
(a) Olympic Group
Name Nationality Number of Amount Amount Paid
Resources, Inc.
Shares Subscribed The Philippine companies holding the Olympic Property, and the
Higinio C. Filipino 1 PhP 1,000.00Development PhP 1,000.00 ownership and interests therein, are as follows:
Palawan Alpha South Resources Filipino 6,596 PhP 6,596,000.00 PhP 0
Corporation
Mendoza, Jr. Olympic- Philippines (the "Olympic Group")
MBMI Resources, Canadian 3,396 PhP 3,396,000.00 PhP 2,796,000.00
Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00 Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Inc.
Fernandez Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 Tesoro
PhPMining & Development, Inc. (Tesoro) 60.0%
1,000.00

Manuel A. Filipino Fernando

1 B. Esguerra
PhP 1,000.00 Filipino
PhP 1,000.00 1 PhP 1,000.00 PhP 1,000.00
Pursuant to the Olympic joint venture agreement the Company holds
Henry E. Fernandez Filipino 1 PhP 1,000.00 directly and indirectly an effective equity interest in the Olympic
PhP 1,000.00
Agcaoili Property of 60.0%. Pursuant to a shareholders agreement, the
Lauro L. Salazar Filipino 1 PhP 1,000.00 Company exercises joint control over the companies in the Olympic
PhP 1,000.00
Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00 Group.
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Bocalan Bayani H. Agabin Filipino 1 PhP 1,000.00 (b) Alpha Group
PhP 1,000.00

Bayani H. Agabin Filipino Michael

1 T. Mason PhP 1,000.00 PhP American
1,000.00 1 PhP 1,000.00 PhP 1,000.00
The Philippine companies holding the Alpha Property, and the
Kenneth Cawkell Canadian 1 PhP 1,000.00 ownership interests therein, are as follows:
PhP 1,000.00
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Under a joint venture agreement the Company holds directly and
indirectly an effective equity interest in the Alpha Property of 60.4%.
Pursuant to a shareholders agreement, the Company exercises joint
control over the companies in the Alpha Group.48 (emphasis supplied)
Concluding from the above-stated facts, it is quite safe to say that
petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a
100% Canadian corporation, owns 60% or more of their equity
interests. Such conclusion is derived from grandfathering petitioners
corporate owners, namely: MMI, SMMI and PLMDC. Going further and
adding to the picture, MBMIs Summary of Significant Accounting
Policies statement regarding the "joint venture" agreements that it
entered into with the "Olympic" and "Alpha" groupsinvolves SMMI,
Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered"
corporations boils down to MBMI, Olympic or corporations under the
"Alpha" group wherein MBMI has joint venture agreements with,
practically exercising majority control over the corporations mentioned.
In effect, whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are NOT
Filipino nationals and must be considered foreign since 60% or more of
their capital stocks or equity interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CAs use of the exception of the res inter alios
acta or the "admission by co-partner or agent" rule and "admission by
privies" under the Rules of Court in the instant case, by pointing out
that statements made by MBMI should not be admitted in this case
since it is not a party to the case and that it is not a "partner" of
petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of a
partner or agent of the party within the scope of his authority and
during the existence of the partnership or agency, may be given in
evidence against such party after the partnership or agency is shown by
evidence other than such act or declaration itself. The same rule applies
to the act or declaration of a joint owner, joint debtor, or other person
jointly interested with the party.
Sec. 31. Admission by privies.- Where one derives title to property from
another, the act, declaration, or omission of the latter, while holding
the title, in relation to the property, is evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied
to a case, "the partnership relation must be shown, and that proof of
the fact must be made by evidence other than the admission
itself."49 Thus, petitioners assert that the CA erred in finding that a
partnership relationship exists between them and MBMI because, in
fact, no such partnership exists.
Accordingly, culled from the incidents and records of this case, it can be
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the
Rules by stating that "by entering into a joint venture, MBMI have a
joint interest" with Narra, Tesoro and McArthur. They challenged the
conclusion of the CA which pertains to the close characteristics of
"partnerships" and "joint venture agreements." Further, they asserted
that before this particular partnership can be formed, it should have
been formally reduced into writing since the capital involved is more
than three thousand pesos (PhP 3,000). Being that there is no evidence
of written agreement to form a partnership between petitioners and
MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves
to contribute money, property, or industry to a common fund with the
intention of dividing the profits among themselves.50 On the other
hand, joint ventures have been deemed to be "akin" to partnerships
since it is difficult to distinguish between joint ventures and
partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their
association are so similar and closely akin to a partnership that it is
ordinarily held that their rights, duties, and liabilities are to be tested by
rules which are closely analogous to and substantially the same, if not
exactly the same, as those which govern partnership. In fact, it has been
said that the trend in the law has been to blur the distinctions between
a partnership and a joint venture, very little law being found applicable
to one that does not apply to the other.51
Though some claim that partnerships and joint ventures are totally
different animals, there are very few rules that differentiate one from
the other; thus, joint ventures are deemed "akin" or similar to a
partnership. In fact, in joint venture agreements, rules and legal
incidents governing partnerships are applied.52
assumed that the relationships entered between and among petitioners
and MBMI are no simple "joint venture agreements." As a rule,
corporations are prohibited from entering into partnership agreements;
consequently, corporations enter into joint venture agreements with
other corporations or partnerships for certain transactions in order to
form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and
among petitioners and MBMI was executed to circumvent the legal
prohibition against corporations entering into partnerships, then the
relationship created should be deemed as "partnerships," and the laws
on partnership should be applied. Thus, a joint venture agreement
between and among corporations may be seen as similar to
partnerships since the elements of partnership are present.
Considering that the relationships found between petitioners and
MBMI are considered to be partnerships, then the CA is justified in
applying Sec. 29, Rule 130 of the Rules by stating that "by entering into
a joint venture, MBMI have a joint interest" with Narra, Tesoro and
McArthur.
Panel of Arbitrators jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction
over the instant case. The POA has jurisdiction to settle disputes over
rights to mining areas which definitely involve the petitions filed by
Redmont against petitioners Narra, McArthur and Tesoro. Redmont, by
filing its petition against petitioners, is asserting the right of Filipinos
over mining areas in the Philippines against alleged foreign-owned
mining corporations. Such claim constitutes a "dispute" found in Sec. 77
of RA 7942:
Within thirty (30) days, after the submission of the case by the parties
for the decision, the panel shall have exclusive and original jurisdiction
to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia
Corp.:53
The phrase "disputes involving rights to mining areas" refers to any
adverse claim, protest, or opposition to an application for mineral
agreement. The POA therefore has the jurisdiction to resolve any
adverse claim, protest, or opposition to a pending application for a
mineral agreement filed with the concerned Regional Office of the
MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-40, which
provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the authorized officer(s) of
the concerned office(s) shall issue a certification(s) that the
publication/posting/radio announcement have been complied with.
Any adverse claim, protest, opposition shall be filed directly, within
thirty (30) calendar days from the last date of publication/posting/radio
announcement, with the concerned Regional Office or through any
concerned PENRO or CENRO for filing in the concerned Regional Office
for purposes of its resolution by the Panel of Arbitrators pursuant to the
provisions of this Act and these implementing rules and regulations.
Upon final resolution of any adverse claim, protest or opposition, the
Panel of Arbitrators shall likewise issue a certification to that effect
within five (5) working days from the date of finality of resolution
thereof. Where there is no adverse claim, protest or opposition, the
Panel of Arbitrators shall likewise issue a Certification to that effect
within five working days therefrom.
xxxx
No Mineral Agreement shall be approved unless the requirements
under this Section are fully complied with and any adverse
claim/protest/opposition is finally resolved by the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification
issued by the Panel of Arbitrators as provided in Section 38 hereof, the
concerned Regional Director shall initially evaluate the Mineral
Agreement applications in areas outside Mineral reservations. He/She
shall thereafter endorse his/her findings to the Bureau for further
evaluation by the Director within fifteen (15) working days from receipt
of forwarded documents. Thereafter, the Director shall endorse the
same to the secretary for consideration/approval within fifteen working
days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral
Reservations, within fifteen (15) working days from receipt of the
Certification issued by the Panel of Arbitrators as provided for in
Section 38 hereof, the same shall be evaluated and endorsed by the
Director to the Secretary for consideration/approval within fifteen days
from receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the "disputes
involving rights to mining areas" under Sec. 77(a) specifically refer only
to those disputes relative to the applications for a mineral agreement or
conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions
to a mining right application is further elucidated by Secs. 219 and 43 of
DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said sections may also
be filed directly with the Panel of Arbitrators within the concerned
periods for filing such claim, protest or opposition as specified in said
Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director shall also cause
the posting of the application on the bulletin boards of the Bureau,
concerned Regional office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the proposed
contract area is located once a week for two (2) consecutive weeks in a
language generally understood in the locality. After forty-five (45) days
from the last date of publication/posting has been made and no
adverse claim, protest or opposition was filed within the said forty-five
(45) days, the concerned offices shall issue a certification that
publication/posting has been made and that no adverse claim, protest
or opposition of whatever nature has been filed. On the other hand, if
there be any adverse claim, protest or opposition, the same shall be
filed within forty-five (45) days from the last date of
publication/posting, with the Regional Offices concerned, or through
the Departments Community Environment and Natural Resources
Officers (CENRO) or Provincial Environment and Natural Resources
Officers (PENRO), to be filed at the Regional Office for resolution of the
Panel of Arbitrators. However previously published valid and subsisting
mining claims are exempted from posted/posting required under this
Section.
No mineral agreement shall be approved unless the requirements
under this section are fully complied with and any opposition/adverse
claim is dealt with in writing by the Director and resolved by the Panel
of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the "disputes
involving rights to mining areas" under Sec. 77(a) specifically refer only
to those disputes relative to the applications for a mineral agreement or
conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions
to a mining right application is further elucidated by Secs. 219 and 43 of
DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said sections may also
be filed directly with the Panel of Arbitrators within the concerned
periods for filing such claim, protest or opposition as specified in said
Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.-
xxxx
The Regional Director or concerned Regional Director shall also cause
the posting of the application on the bulletin boards of the Bureau,
concerned Regional office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the proposed
contract area is located once a week for two (2) consecutive weeks in a
language generally understood in the locality. After forty-five (45) days
from the last date of publication/posting has been made and no
adverse claim, protest or opposition was filed within the said forty-five
(45) days, the concerned offices shall issue a certification that
publication/posting has been made and that no adverse claim, protest
or opposition of whatever nature has been filed. On the other hand, if
there be any adverse claim, protest or opposition, the same shall be
filed within forty-five (45) days from the last date of
publication/posting, with the Regional offices concerned, or through
the Departments Community Environment and Natural Resources
Officers (CENRO) or Provincial Environment and Natural Resources
Officers (PENRO), to be filed at the Regional Office for resolution of the
Panel of Arbitrators. However, previously published valid and subsisting
mining claims are exempted from posted/posting required under this
Section.
No mineral agreement shall be approved unless the requirements
under this section are fully complied with and any opposition/adverse
claim is dealt with in writing by the Director and resolved by the Panel
of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to
resolve any adverse claim, opposition, or protest relative to mining
rights under Sec. 77(a) of RA 7942 is confined only to adverse claims,
conflicts and oppositions relating to applications for the grant of
mineral rights.
POAs jurisdiction is confined only to resolutions of such adverse claims,
conflicts and oppositions and it has no authority to approve or reject
said applications. Such power is vested in the DENR Secretary upon
recommendation of the MGB Director. Clearly, POAs jurisdiction over
"disputes involving rights to mining areas" has nothing to do with the
cancellation of existing mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably has
jurisdiction to resolve disputes over MPSA applications subject of
Redmonts petitions. However, said jurisdiction does not include either
the approval or rejection of the MPSA applications, which is vested only
upon the Secretary of the DENR. Thus, the finding of the POA, with
respect to the rejection of petitioners MPSA applications being that
they are foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is
the regular courts, not the POA, that has jurisdiction over the MPSA
applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute
in force at the time of the commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall exercise
exclusive original jurisdiction:
1. In all civil actions in which the subject of the litigation is incapable of
pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77
of RA 7942:
Section 77. Panel of Arbitrators.
x x x Within thirty (30) days, after the submission of the case
by the parties for the decision, the panel shall have exclusive
and original jurisdiction to hear and decide the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and
all disputes involving rights to mining areas. One such dispute is an
MPSA application to which an adverse claim, protest or opposition is
filed by another interested applicant.1wphi1 In the case at bar, the
dispute arose or originated from MPSA applications where petitioners
are asserting their rights to mining areas subject of their respective
MPSA applications. Since respondent filed 3 separate petitions for the
denial of said applications, then a controversy has developed between
the parties and it is POAs jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while what
petitioners filed with the DENR Regional Office or any concerned DENRE
or CENRO are MPSA applications. Thus POA has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications
under the doctrine of primary jurisdiction. Euro-med Laboratories v.
Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that its
determination requires the expertise, specialized training and
knowledge of an administrative body, relief must first be obtained in an
administrative proceeding before resort to the courts is had even if the
matter may well be within their proper jurisdiction.
Whatever may be the decision of the POA will eventually reach the
court system via a resort to the CA and to this Court as a last recourse.
Selling of MBMIs shares to DMCI
As stated before, petitioners Manifestation and Submission dated
October 19, 2012 would want us to declare the instant petition moot
and academic due to the transfer and conveyance of all the
shareholdings and interests of MBMI to DMCI, a corporation duly
organized and existing under Philippine laws and is at least 60%
Philippine-owned.56 Petitioners reasoned that they now cannot be
considered as foreign-owned; the transfer of their shares supposedly
cured the "defect" of their previous nationality. They claimed that their
current FTAA contract with the State should stand since "even wholly-
owned foreign corporations can enter into an FTAA with the
State."57Petitioners stress that there should no longer be any issue left
as regards their qualification to enter into FTAA contracts since they are
qualified to engage in mining activities in the Philippines. Thus, whether
the "grandfather rule" or the "control test" is used, the nationalities of
petitioners cannot be doubted since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any bearing
in the instant case and said fact should be disregarded. The
manifestation can no longer be considered by us since it is being tackled
in G.R. No. 202877 pending before this Court.1wphi1 Thus, the
question of whether petitioners, allegedly a Philippine-owned
corporation due to the sale of MBMI's shareholdings to DMCI, are
allowed to enter into FTAAs with the State is a non-issue in this case.
In ending, the "control test" is still the prevailing mode of determining
whether or not a corporation is a Filipino corporation, within the ambit
of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the
exploration, development and utilization of the natural resources of the
Philippines. When in the mind of the Court there is doubt, based on the
attendant facts and circumstances of the case, in the 60-40 Filipino-
equity ownership in the corporation, then it may apply the "grandfather
rule."
WHEREFORE, premises considered, the instant petition is DENIED. The
assailed Court of Appeals Decision dated October 1, 2010 and
Resolution dated February 15, 2011 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 178158 December 4, 2009
STRATEGIC ALLIANCE DEVELOPMENT CORPORATION, Petitioner,
vs.
RADSTOCK SECURITIES LIMITED and PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION,Respondents.
ASIAVEST MERCHANT BANKERS BERHAD, Intervenor.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 180428
LUIS SISON, Petitioner,
vs.
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION and RADSTOCK
SECURITIES LIMITED,Respondents.
DECISION
CARPIO, J.:
Prologue
This case is an anatomy of a 6.185 billion1 pillage of the public coffers
that ranks among one of the most brazen and hideous in the history of
this country. This case answers the questions why our Government
perennially runs out of funds to provide basic services to our people,
why the great masses of the Filipino people wallow in poverty, and why
a very select few amass unimaginable wealth at the expense of the
Filipino people.
On 1 May 2007, the 30-year old franchise of Philippine National
Construction Corporation (PNCC) under Presidential Decree No. 1113
(PD 1113), as amended by Presidential Decree No. 1894 (PD 1894),
expired. During the 13th Congress, PNCC sought to extend its franchise.
PNCC won approval from the House of Representatives, which passed
House Bill No. 57492 renewing PNCCs franchise for another 25 years.
However, PNCC failed to secure approval from the Senate, dooming the
extension of PNCCs franchise. Led by Senator Franklin M. Drilon, the
Senate opposed PNCCs plea for extension of its franchise.3 Senator
Drilons privilege speech4 explains why the Senate chose not to renew
PNCCs franchise:
I repeat, Mr. President. PNCC has agreed in a compromise agreement
dated 17 August 2006 to transfer to Radstock Securities Limited
17,676,063,922, no small money, Mr. President, my dear colleagues,
17.6 billion.
What does it consist of? It consists of the following: 19 pieces of real
estate properties with an appraised value of 5,993,689,000. Do we
know what is the bulk of this? An almost 13-hectare property right here
in the Financial Center. As we leave the Senate, as we go out of this
Hall, as we drive thru past the GSIS, we will see on the right a vacant lot,
that is PNCC property. As we turn right on Diosdado Macapagal, we see
on our right new buildings, these are all PNCC properties. That is 12.9
hectares of valuable asset right in this Financial Center that is worth
5,993,689.000.
What else, Mr. President? The 20% of the outstanding capital stock of
PNCC with a par value of 2,300,000,000-- I repeat, 20% of the
outstanding capital stock of PNCC worth 2,300 billion-- was assigned
to Radstock.
In addition, Mr. President and my dear colleagues, please hold on to
your seats because part of the agreement is 50% of PNCCs 6% share in
the gross toll revenue of the Manila North Tollways Corporation for 27
years, from 2008 to 2035, is being assigned to Radstock. How much is
this worth? It is worth 9,382,374,922. I repeat, 9,382,374,922.
xxxx
Mr. President, 17,676,000,000, however, was made to appear in the
agreement to be only worth 6,196,156,488. How was this achieved?
How was an aggregate amount of 17,676,000,000 made to appear to
be only 6,196,156,488? First, the 19 pieces of real estate worth
5,993,689,000 were only assigned a value of 4,195,000,000 or only
70% of their appraised value.
Second, the PNCC shares of stock with a par value of 2.3 billion were
marked to market and therefore were valued only at 713 million.
Third, the share of the toll revenue assigned was given a net present
value of only 1,287,000,000 because of a 15% discounted rate that
was applied.
In other words, Mr. President, the toll collection of 9,382,374,922 for
27 years was given a net present value of only 1,287,000,000 so that it
is made to appear that the compromise agreement is only worth
6,196,000,000.
Mr. President, my dear colleagues, this agreement will substantially
wipe out all the assets of PNCC. It will be left with nothing else except,
probably, the collection for the next 25 years or so from the North
Luzon Expressway. This agreement brought PNCC to the cleaners and
literally cleaned the PNCC of all its assets. They brought PNCC to the
cleaners and cleaned it to the tune of 17,676,000,000.
xxxx
Mr. President, are we not entitled, as members of the Committee, to
know who is Radstock Securities Limited?
Radstock Securities Limited was allegedly incorporated under the laws
of the British Virgin Islands. It has no known board of directors, except
for its recently appointed attorney-in-fact, Mr. Carlos Dominguez.
Mr. President, are the members of the Committee not entitled to know
why 20 years after the account to Marubeni Corporation, which gave
Philippine government claims of 39 billion but also over other
rise to the compromise agreement 20 years after the obligation was
allegedly incurred, PNCC suddenly recognized this obligation in its
books when in fact this obligation was not found in its books for 20
years?
In other words, Mr. President, for 20 years, the financial statements of
PNCC did not show any obligation to Marubeni, much less, to Radstock.
Why suddenly on October 20, 2000, 10 billion in obligation was
recognized? Why was it recognized?
During the hearing on December 18, Mr. President, we asked this
question to the Asset Privatization Trust (APT) trustee, Atty. Raymundo
Francisco, and he was asked: "What is the basis of your
recommendation to recognize this?" He said: "I based my
recommendation on a legal opinion of Feria and Feria." I asked him:
"Who knew of this opinion?" He said: "Only me and the chairman of
PNCC, Atty. Renato Valdecantos." I asked him: "Did you share this
opinion with the members of the board who recognized the obligation
of 10 billion?" He said: "No." "Can you produce this opinion now?" He
said: "I have no copy."
Mysteriously, Mr. President, an obligation of 10 billion based on a
legal opinion which, even Mr. Arthur Aguilar, the chairman of PNCC, is
not aware of, none of the members of the PNCC board on October 20,
2000 who recognized this obligation had seen this opinion. It is
mysterious.
Mr. President, are the members of our Committee not entitled to know
why Radstock Securities Limited is given preference over all other
creditors notwithstanding the fact that this is an unsecured obligation?
There is no mortgage to secure this obligation.
More importantly, Mr. President, equally recognized is the obligation of
PNCC to the Philippine government to the tune of 36 billion. PNCC
owes the Philippine government 36 billion recognized in its books,
apart from 3 billion in taxes. Why in the face of all of these is Radstock
given preference? Why is it that Radstock is given preference to claim
17.676 billion of the assets of PNCC and give it superior status over the
claim of the Philippine government, of the Filipino people to the extent
of 36 billion and taxes in the amount of P3 billion? Why, Mr.
President? Why is Radstock given preference not only over the
creditors including a certain best merchant banker in Asia, which has
already a final and executory judgment against PNCC for about 300
million? Why, Mr. President? Are we not entitled to know why the
compromise agreement assigned 17.676 billion to Radstock? Why was
it executed?5 (Emphasis supplied)
Aside from Senator Drilon, Senator Sergio S. Osmea III also saw
irregularities in the transactions involving the Marubeni loans, thus:
SEN. OSMEA. Ah okay. Good.
Now, I'd like to point out to the Committee that it seems that this was
a politically driven deal like IMPSA. Because the acceptance of the 10
billion or 13 billion debt came in October 2000 and the Radstock
assignment was January 10, 2001. Now, why would Marubeni sell for $2
million three months after there was a recognition that it was owed 10
billion. Can you explain that, Mr. Dominguez?
MR. DOMINGUEZ. Your Honor, I am not aware of the decision making
process of Marubeni. But my understanding was, the Japanese culture
is not a litigious one and they didn't want to get into a, you know, a
court situation here in the Philippines having a lot of other interest, et
cetera.
SEN. OSMEA. Well, but that is beside the point, Mr. Dominguez. All I
am asking is does it stand to reason that after you get an acceptance by
a debtor that he owes you 10 billion, you sell your note for 100 million.
Now, if that had happened a year before, maybe I would have
understood why he sold for such a low amount. But right after, it seems
that this was part of an orchestrated deal wherein with certain
powerful interest would be able to say, "Yes, we will push through.
We'll fix the courts. We'll fix the board. We'll fix the APT. And we will be
able to do it, just give us 55 percent of whatever is recovered," am I
correct?
MR. DOMINGUEZ. As I said, Your Honor, I am not familiar with the
decision making process of Marubeni. But my understanding was, as I
said, they didn't want to get into a
SEN. OSMEA. All right.
MR. DOMINGUEZ. ...litigious situation.6
xxxx
SEN. OSMEA. All of these financial things can be arranged. They can
hire a local bank, Filipino, to be trustee for the real estate. So ...
SEN. DRILON. Well, then, thats a dummy relationship.
SEN. OSMEA. In any case, to me the main point here is that a third
party, Radstock, whoever owns it, bought Marubenis right for $2
million or 100 million. Then, they are able to go through all these legal
machinations and get awarded with the consent of PNCC of 6 billion.
Thats a 100 million to 6 billion. Now, Mr. Aguilar, you have been in the
business for such a long time. I mean, this hedge funds whether its
Radstock or New Bridge or Texas Pacific Group or Carlyle or Avenue
Capital, they look at their returns. So if Avenue Capital buys something
for $2 million and you give him $4 million in one year, its a 100 percent
return. Theyll walk away and dance to their stockholders. So here in
this particular case, if you know that Radstock only bought it for $2
million, I would have gotten board approval and say, "Okay, lets settle
this for $4 million." And Radstock would have jumped up and down. So
what looks to me is that this was already a scheme. Marubeni wrote it
off already. Marubeni wrote everything off. They just got a $2 million
and they probably have no more residual rights or maybe theres a
clause there, a secret clause, that says, "I want 20 percent of whatever
youre able to eventually collect." So $2 million. But whatever it is,
Marubeni practically wrote it off. Radstocks liability now or exposure is
only $2 million plus all the lawyer fees, under-the-table, etcetera. All
right. Okay. So its pretty obvious to me that if anybody were using his
brain, I would have gone up to Radstock and say, "Heres $4 million.
Heres P200 million. Okay." They would have walked away. But
evidently, the "ninongs" of Radstock See, I dont care who owns
Radstock. I want to know who is the ninong here who stands to make a
lot of money by being able to get to courts, the government agencies,
OGCC, or whoever else has been involved in this, to agree to 6 billion or
whatever it was. Thats a lot of money. And believe me, Radstock will
probably get one or two billion and four billion will go into somebody
elses pocket. Or Radstock will turn around, sell that claim for 4 billion
and let the new guy just collect the payments over the years.
x x x x7
SEN. OSMEA. x x x I just wanted to know is CDCP Mining a 100 percent
subsidiary of PNCC?
MR. AGUILAR. Hindi ho. Ah, no.
SEN. OSMEA. If theyre not a 100 percent, why would they sign jointly
and severally? I just want to plug the loopholes.
MR. AGUILAR. I think it was if I may just speculate. It was just
common ownership at that time.
SEN. OSMEA. Al right. Now Also, the ...
MR. AGUILAR. Ah, 13 percent daw, Your Honor.
SEN. OSMEA. Huh?
MR. AGUILAR. Thirteen percent ho.
SEN. OSMEA. Whats 13 percent?
MR. AGUILAR. We owned ...
xxxx
SEN. OSMEA. x x x CDCP Mining, how many percent of the equity of
CDCP Mining was owned by PNCC, formerly CDCP?
MS. PASETES. Thirteen percent.
SEN. OSMEA. Thirteen. And as a 13 percent owner, they agreed to sign
jointly and severally?
MS. PASETES. Yes.
SEN. OSMEA. One-three? So poor PNCC and CDCP got taken to the
cleaners here. They sign for a 100 percent and they only own 13
percent.
x x x x8 (Emphasis supplied)
I.
The Case
Before this Court are the consolidated petitions for review9 filed by
Strategic Alliance Development Corporation (STRADEC) and Luis Sison
(Sison), with a motion for intervention filed by Asiavest Merchant
Bankers Berhad (Asiavest), challenging the validity of the Compromise
Agreement between PNCC and Radstock. The Court of Appeals
approved the Compromise Agreement in its Decision of 25 January
200710 in CA-G.R. CV No. 87971.
II.
The Antecedents
PNCC was incorporated in 1966 for a term of fifty years under the
Corporation Code with the name Construction Development
Corporation of the Philippines (CDCP).11 PD 1113, issued on 31 March
1977, granted CDCP a 30-year franchise to construct, operate and
maintain toll facilities in the North and South Luzon Tollways. PD 1894,
issued on 22 December 1983, amended PD 1113 to include in CDCPs
franchise the Metro Manila Expressway, which would "serve as an
additional artery in the transportation of trade and commerce in the
Metro Manila area."
Sometime between 1978 and 1981, Basay Mining Corporation (Basay
Mining), an affiliate of CDCP, obtained loans from Marubeni
Corporation of Japan (Marubeni) amounting to 5,460,000,000 yen and
US$5 million. A CDCP official issued letters of guarantee for the loans,
committing CDCP to pay solidarily for the full amount of the
5,460,000,000 yen loan and to the extent of 20 million for the US$5
million loan. However, there was no CDCP Board Resolution authorizing
the issuance of the letters of guarantee. Later, Basay Mining changed its
name to CDCP Mining Corporation (CDCP Mining). CDCP Mining secured
the Marubeni loans when CDCP and CDCP Mining were still privately
owned and managed.
Subsequently in 1983, CDCP changed its corporate name to PNCC to
reflect the extent of the Government's equity investment in the
company, which arose when government financial institutions
converted their loans to PNCC into equity following PNCCs inability to
pay the loans.12 Various government financial institutions held a total of
seventy-seven point forty-eight percent (77.48%) of PNCCs voting
equity, most of which were later transferred to the Asset Privatization
Trust (APT) under Administrative Orders No. 14 and 64, series of 1987
and 1988, respectively.13 Also, the Presidential Commission on Good
Government holds some 13.82% of PNCCs voting equity under a writ of
sequestration and through the voluntary surrender of certain PNCC
shares. In fine, the Government owns 90.3% of the equity of PNCC and
only 9.70% of PNCCs voting equity is under private ownership.14
Meanwhile, the Marubeni loans to CDCP Mining remained unpaid. On
20 October 2000, during the short-lived Estrada Administration, the
PNCC Board of Directors15 (PNCC Board) passed Board Resolution No.
BD-092-2000 admitting PNCCs liability to Marubeni for
10,743,103,388 as of 30 September 1999. PNCC Board Resolution No.
BD-092-2000 reads as follows:
RESOLUTION NO. BD-092-2000
RESOLVED, That the Board recognizes, acknowledges and confirms
PNCCs obligations as of September 30, 1999 with the following entities,
exclusive of the interests and other charges that may subsequently
accrue and still become due therein, to wit:
a). the Government of the Republic of the
Philippines in the amount of 36,023,784,751.00;
and
b). Marubeni Corporation in the amount of
10,743,103,388.00. (Emphasis supplied)
This was the first PNCC Board Resolution admitting PNCCs liability for
the Marubeni loans. Previously, for two decades the PNCC Board
consistently refused to admit any liability for the Marubeni loans.
Less than two months later, or on 22 November 2000, the PNCC Board
passed Board Resolution No. BD-099-2000 amending Board Resolution
No. BD-092-2000. PNCC Board Resolution No. BD-099-2000 reads as
follows:
RESOLUTION NO. BD-099-2000
RESOLVED, That the Board hereby amends its Resolution No. BD-092-
2000 dated October 20, 2000 so as to read as follows:
RESOLVED, That the Board recognizes, acknowledges and confirms its
obligations as of September 30, 1999 with the following entities,
exclusive of the interests and other charges that may subsequently
accrue and still due thereon, subject to the final determination by the
Commission on Audit (COA) of the amount of obligation involved, and
subject further to the declaration of the legality of said obligations by
the Office of the Government Corporate Counsel (OGCC), to wit:
a). the Government of the Republic of the
Philippines in the amount of 36,023,784,751.00;
and
b). Marubeni Corporation in the amount of
10,743,103,388.00. (Emphasis supplied)
In January 2001, barely three months after the PNCC Board first
admitted liability for the Marubeni loans, Marubeni assigned its entire
credit to Radstock for US$2 million or less than 100 million. In short,
Radstock paid Marubeni less than 10% of the 10.743 billion admitted
amount. Radstock immediately sent a notice and demand letter to
PNCC.
On 15 January 2001, Radstock filed an action for collection and
damages against PNCC before the Regional Trial Court of Mandaluyong
City, Branch 213 (trial court). In its order of 23 January 2001, the trial
court issued a writ of preliminary attachment against PNCC. The trial
court ordered PNCCs bank accounts garnished and several of its real
properties attached. On 14 February 2001, PNCC moved to set aside the
23 January 2001 Order and to discharge the writ of attachment. PNCC
also filed a motion to dismiss the case. The trial court denied both
motions. PNCC filed motions for reconsideration, which the trial court
also denied. PNCC filed a petition for certiorari before the Court of
Appeals, docketed as CA-G.R. SP No. 66654, assailing the denial of the
motion to dismiss. On 30 August 2002, the Court of Appeals denied
PNCCs petition. PNCC filed a motion for reconsideration, which the
Court of Appeals also denied in its 22 January 2003 Resolution. PNCC
filed a petition for review before this Court, docketed as G.R. No.
156887.
Meanwhile, on 19 June 2001, at the start of the Arroyo Administration,
the PNCC Board, under a new President and Chairman, revoked Board
Resolution No. BD-099-2000.
The trial court continued to hear the main case. On 10 December 2002,
the trial court ruled in favor of Radstock, as follows:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and the defendant is directed to pay the total
amount of Thirteen Billion One Hundred Fifty One Million Nine Hundred
Fifty Six thousand Five Hundred Twenty Eight Pesos
(13,151,956,528.00) with interest from October 15, 2001 plus Ten
Million Pesos (10,000,000.00) as attorneys fees.
SO ORDERED.16
PNCC appealed the trial courts decision to the Court of Appeals,
docketed as CA-G.R. CV No. 87971.
On 19 March 2003, this Court issued a temporary restraining order in
G.R. No. 156887 forbidding the trial court from implementing the writ
of preliminary attachment and ordering the suspension of the
proceedings before the trial court and the Court of Appeals. In its 3
October 2005 Decision, this Court ruled as follows:
WHEREFORE, the petition is partly GRANTED and insofar as the Motion
to Set Aside the Order and/or Discharge the Writ of Attachment is
concerned, the Decision of the Court of Appeals on August 30, 2002 and
its Resolution of January 22, 2003 in CA-G.R. SP No. 66654 are
REVERSED and SET ASIDE. The attachments over the properties by the
writ of preliminary attachment are hereby ordered LIFTED effective
upon the finality of this Decision. The Decision and Resolution of the
Court of Appeals are AFFIRMED in all other respects. The Temporary
Restraining Order is DISSOLVED immediately and the Court of Appeals is
directed to PROCEED forthwith with the appeal filed by PNCC.
No costs.
SO ORDERED.17
On 17 August 2006, PNCC and Radstock entered into the Compromise
Agreement where they agreed to reduce PNCCs liability to Radstock,
supposedly from 17,040,843,968, to 6,185,000,000. PNCC and
Radstock submitted the Compromise Agreement to this Court for
approval. In a Resolution dated 4 December 2006 in G.R. No. 156887,
this Court referred the Compromise Agreement to the Commission on
Audit (COA) for comment. The COA recommended approval of the
Compromise Agreement. In a Resolution dated 22 November 2006, this
Court noted the Compromise Agreement and referred it to the Court of
Appeals in CA-G.R. CV No. 87971. In its 25 January 2007 Decision, the
Court of Appeals approved the Compromise Agreement.
STRADEC moved for reconsideration of the 25 January 2007 Decision.
STRADEC alleged that it has a claim against PNCC as a bidder of the
National Governments shares, receivables, securities and interests in
PNCC. The matter is subject of a complaint filed by STRADEC against
PNCC and the Privatization and Management Office (PMO) for the
issuance of a Notice of Award of Sale to Dong-A Consortium of which
STRADEC is a partner. The case, docketed as Civil Case No. 05-882, is
pending before the Regional Trial Court of Makati, Branch 146 (RTC On 26 November 2007, Sison filed a petition for review before this
Branch 146). Court, docketed as G.R. No. 180428.
The Court of Appeals treated STRADECs motion for reconsideration as In a Resolution dated 18 February 2008, this Court consolidated G.R.
a motion for intervention and denied it in its 31 May 2007 Resolution. Nos. 178158 and 180428.
STRADEC filed a petition for review before this Court, docketed as G.R.
No. 178158. On 13 January 2009, the Court held oral arguments on the following
issues:
Rodolfo Cuenca (Cuenca), a stockholder and former PNCC President and
Board Chairman, filed an intervention before the Court of Appeals. 1. Does the Compromise Agreement violate public policy?
Cuenca alleged that PNCC had no obligation to pay Radstock. The Court
of Appeals also denied Cuencas motion for intervention in its
2. Does the subject matter involve an assumption by the
Resolution of 31 May 2007. Cuenca did not appeal the denial of his
government of a private entitys obligation in violation of the
motion.
law and/or the Constitution? Is the PNCC Board Resolution of
20 October 2000 defective or illegal?
On 2 July 2007, this Court issued an order directing PNCC and Radstock,
their officers, agents, representatives, and other persons under their
3. Is the Compromise Agreement viable in the light of the
control, to maintain the status quo ante.
non-renewal of PNCCs franchise by Congress and its inclusion
of all or substantially all of PNCCs assets?
Meanwhile, on 20 February 2007, Sison, also a stockholder and former
PNCC President and Board Chairman, filed a Petition for Annulment of
4. Is the Decision of the Court of Appeals annullable even if
Judgment Approving Compromise Agreement before the Court of
final and executory on grounds of fraud and violation of
Appeals. The case was docketed as CA-G.R. SP No. 97982.
public policy and the Constitution?
Asiavest, a judgment creditor of PNCC, filed an Urgent Motion for Leave
III.
to Intervene and to File the Attached Opposition and Motion-in-
Propriety of Actions
Intervention before the Court of Appeals in CA-G.R. SP No. 97982.
The Court of Appeals denied STRADECs motion for intervention on the
In a Resolution dated 12 June 2007, the Court of Appeals dismissed
ground that the motion was filed only after the Court of Appeals and
Sisons petition on the ground that it had no jurisdiction to annul a final
the trial court had promulgated their respective decisions.
and executory judgment also rendered by the Court of Appeals. In the
same resolution, the Court of Appeals also denied Asiavests urgent
motion. Section 2, Rule 19 of the 1997 Rules of Civil Procedure provides:
SECTION 2. Time to intervene. The motion to intervene may be filed at
Asiavest filed its Urgent Motion for Leave to Intervene and to File the
any time before rendition of judgment by the trial court. A copy of the
Attached Opposition and Motion-in-Intervention in G.R. No. 178158.18
pleading-in-intervention shall be attached to the motion and served on
the original parties.
Sison filed a motion for reconsideration. In its 5 November 2007
Resolution, the Court of Appeals denied Sisons motion.
The rule is not absolute. The rule on intervention, like all other rules of
procedure, is intended to make the powers of the Court completely
available for justice.19 It is aimed to facilitate a comprehensive
adjudication of rival claims, overriding technicalities on the timeliness of
the filing of the claims.20 This Court has ruled:
[A]llowance or disallowance of a motion for intervention rests on the
sound discretion of the court after consideration of the appropriate
circumstances. Rule 19 of the Rules of Court is a rule of procedure
whose object is to make the powers of the court fully and completely
available for justice. Its purpose is not to hinder or delay but to facilitate
and promote the administration of justice. Thus, interventions have
been allowed even beyond the prescribed period in the Rule in the
higher interest of justice. Interventions have been granted to afford
indispensable parties, who have not been impleaded, the right to be
heard even after a decision has been rendered by the trial court, when
the petition for review of the judgment was already submitted for
decision before the Supreme Court, and even where the assailed order
has already become final and executory. In Lim v. Pacquing (310 Phil.
722 (1995)], the motion for intervention filed by the Republic of the
Philippines was allowed by this Court to avoid grave injustice and injury
and to settle once and for all the substantive issues raised by the
parties.21
In Collado v. Court of Appeals,22 this Court reiterated that exceptions to
Section 2, Rule 12 could be made in the interest of substantial justice.
Citing Mago v. Court of Appeals,23 the Court stated:
It is quite clear and patent that the motions for intervention filed by the
movants at this stage of the proceedings where trial had already been
concluded x x x and on appeal x x x the same affirmed by the Court of
Appeals and the instant petition for certiorari to review said judgments
is already submitted for decision by the Supreme Court, are obviously
and, manifestly late, beyond the period prescribed under x x x Section
2, Rule 12 of the Rules of Court.
But Rule 12 of the Rules of Court, like all other Rules therein
promulgated, is simply a rule of procedure, the whole purpose and
object of which is to make the powers of the Court fully and completely
available for justice. The purpose of procedure is not to thwart justice.
Its proper aim is to facilitate the application of justice to the rival claims
of contending parties. It was created not to hinder and delay but to
facilitate and promote the administration of justice. It does not
constitute the thing itself which courts are always striving to secure to
litigants. It is designed as the means best adopted to obtain that thing.
In other words, it is a means to an end.
Concededly, STRADEC has no legal interest in the subject matter of the
Compromise Agreement. Section 1, Rule 19 of the 1997 Rules of Civil
Procedure states:
SECTION 1. Who may intervene. - A person who has a legal interest in
the matter in litigation, or in the success of either of the parties, or an
interest against both, or is so situated as to be adversely affected by a
distribution or other disposition of property in the custody of the court
or of an officer thereof may, with leave of court, be allowed to
intervene in the action. The Court shall consider whether or not the
intervention will unduly delay or prejudice the adjudication of the rights
of the original parties, and whether or not the intervenors rights may
be fully protected in a separate proceeding.
STRADECs interest is dependent on the outcome of Civil Case No. 05-
882. Unless STRADEC can show that RTC Branch 146 had already
decided in its favor, its legal interest is simply contingent and expectant.
However, Asiavest has a direct and material interest in the approval or
disapproval of the Compromise Agreement. Asiavest is a judgment
creditor of PNCC in G.R. No. 110263 and a court has already issued a
writ of execution in its favor. Asiavests interest is actual and material,
direct and immediate characterized by either gain or loss from the
judgment that this Court may render.24 Considering that the
Compromise Agreement involves the disposition of all or substantially
all of the assets of PNCC, Asiavest, as PNCCs judgment creditor, will be
greatly prejudiced if the Compromise Agreement is eventually upheld.
Sison has legal standing to challenge the Compromise Agreement.
Although there was no allegation that Sison filed the case as a
derivative suit in the name of PNCC, it could be fairly deduced that
Sison was assailing the Compromise Agreement as a stockholder of
PNCC. In such a situation, a stockholder of PNCC can sue on behalf of
PNCC to annul the Compromise Agreement.
A derivative action is a suit by a stockholder to enforce a corporate
cause of action.25 Under the Corporation Code, where a corporation is
an injured party, its power to sue is lodged with its board of directors or
trustees.26 However, an individual stockholder may file a derivative suit
on behalf of the corporation to protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue, or are the ones
to be sued, or hold control of the corporation.27 In such actions, the
corporation is the real party-in-interest while the suing stockholder, on
behalf of the corporation, is only a nominal party.28
In this case, the PNCC Board cannot conceivably be expected to attack
the validity of the Compromise Agreement since the PNCC Board itself
approved the Compromise Agreement. In fact, the PNCC Board
steadfastly defends the Compromise Agreement for allegedly being
advantageous to PNCC.
Besides, the circumstances in this case are peculiar. Sison, as former
PNCC President and Chairman of the PNCC Board, was responsible for
the approval of the Board Resolution issued on 19 June 2001 revoking
the previous Board Resolution admitting PNCCs liability for the
Marubeni loans.29 Such revocation, however, came after Radstock had
filed an action for collection and damages against PNCC on 15 January
2001. Then, when the trial court rendered its decision on 10 December
2002 in favor of Radstock, Sison was no longer the PNCC President and
Chairman, although he remains a stockholder of PNCC.
When the case was on appeal before the Court of Appeals, there was
no need for Sison to avail of any remedy, until PNCC and Radstock
entered into the Compromise Agreement, which disposed of all or
substantially all of PNCCs assets. Sison came to know of the
Compromise Agreement only in December 2006. PNCC and Radstock
submitted the Compromise Agreement to the Court of Appeals for
approval on 10 January 2007. The Court of Appeals approved the
Compromise Agreement on 25 January 2007. To require Sison at this
stage to exhaust all the remedies within the corporation will render
such remedies useless as the Compromise Agreement had already been
approved by the Court of Appeals. PNCCs assets are in danger of being
dissipated in favor of a private foreign corporation. Thus, Sison had no
recourse but to avail of an extraordinary remedy to protect PNCCs
assets.
Besides, in the interest of substantial justice and for compelling
reasons, such as the nature and importance of the issues raised in this
case,30 this Court must take cognizance of Sisons action. This Court
should exercise its prerogative to set aside technicalities in the Rules,
because after all, the power of this Court to suspend its own rules
whenever the interest of justice requires is well recognized.31 In
Solicitor General v. The Metropolitan Manila Authority,32 this Court
held:
Unquestionably, the Court has the power to suspend procedural rules
in the exercise of its inherent power, as expressly recognized in the
Constitution, to promulgate rules concerning pleading, practice and
procedure in all courts. In proper cases, procedural rules may be
relaxed or suspended in the interest of substantial justice, which
otherwise may be miscarried because of a rigid and formalistic
adherence to such rules. x x x
We have made similar rulings in other cases, thus:
Be it remembered that rules of procedure are but mere tools designed
to facilitate the attainment of justice. Their strict and rigid application,
which would result in technicalities that tend to frustrate rather than
promote substantial justice, must always be avoided. x x x Time and
again, this Court has suspended its own rules and excepted a particular
case from their operation whenever the higher interests of justice so
require.
IV.
The PNCC Board Acted in Bad Faith and with Gross Negligence
in Directing the Affairs of PNCC
In this jurisdiction, the members of the board of directors have a three-
fold duty: duty of obedience, duty of diligence, and duty of
loyalty.33 Accordingly, the members of the board of directors (1) shall
direct the affairs of the corporation only in accordance with the
purposes for which it was organized;34 (2) shall not willfully and
knowingly vote for or assent to patently unlawful acts of the
corporation or act in bad faith or with gross negligence in directing the
affairs of the corporation;35 and (3) shall not acquire any personal or
pecuniary interest in conflict with their duty as such directors or
trustees.36
In the present case, the PNCC Board blatantly violated its duty of
diligence as it miserably failed to act in good faith in handling the affairs
of PNCC.
First. For almost two decades, the PNCC Board had consistently refused
to admit liability for the Marubeni loans because of the absence of a
PNCC Board resolution authorizing the issuance of the letters of
guarantee.
There is no dispute that between 1978 and 1980, Marubeni Corporation
extended two loans to Basay Mining (later renamed CDCP Mining): (1)
US$5 million to finance the purchase of copper concentrates by Basay
Mining; and (2) Y5.46 billion to finance the completion of the expansion
project of Basay Mining including working capital.
There is also no dispute that it was only on 20 October 2000 when the
PNCC Board approved a resolution expressly admitting PNCCs liability
for the Marubeni loans. This was the first Board Resolution admitting
liability for the Marubeni loans, for PNCC never admitted liability for
these debts in the past. Even Radstock admitted that PNCCs 1994
Financial Statements did not reflect the Marubeni loans.37 Also, former
PNCC Chairman Arthur Aguilar stated during the Senate hearings that
"the Marubeni claim was never in the balance sheet x x x nor was it in a
contingent account."38 Miriam M. Pasetes, SVP Finance of PNCC, and
Atty. Herman R. Cimafranca of the Office of the Government Corporate
Counsel, confirmed this fact, thus:
SEN. DRILON. x x x And so, PNCC itself did not recognize this as an
obligation but the board suddenly recognized it as an obligation. It was
on that basis that the case was filed, is that correct? In fact, the case
hinges on they knew that this claim has prescribed but because of
that board resolution which recognized the obligation they filed their
complaint, is that correct?
MR. CIMAFRANCA. Apparently, it's like that, Senator, because the filing
of the case came after the acknowledgement.
SEN. DRILON. Yes. In fact, the filing of the case came three months after
the acknowledgement.
MR. CIMAFRANCA. Yes. And that made it difficult to handle on our part.
SEN. DRILON. That is correct. So, that it was an obligation which was
not recognized in the financial statements of PNCC but revived in the
financial statements because it has prescribed but revived by the
board effectively. That's the theory, at least, of the plaintiff. Is that
correct? Who can answer that?
Ms. Pasetes, yes.
MS. PASETES. It is not an obligation of PNCC that is why it is not
reflected in the financial statements.39 (Emphasis supplied)
In short, after two decades of consistently refuting its liability for the
Marubeni loans, the PNCC Board suddenly and inexplicably reversed
itself by admitting in October 2000 liability for the Marubeni loans. Just
three months after the PNCC Board recognized the Marubeni loans,
Radstock acquired Marubeni's receivable and filed the present
collection case.
Second. The PNCC Board admitted liability for the Marubeni loans
despite PNCCs total liabilities far exceeding its assets. There is no
dispute that the Marubeni loans, once recognized, would wipe out the
assets of PNCC, "virtually emptying the coffers of the PNCC."40 While
PNCC insists that it remains financially viable, the figures in the COA
Audit Reports tell otherwise.41 For 2006 and 2005, "the Corporation
has incurred negative gross margin of 84.531 Million and 80.180
Million, respectively, and net losses that had accumulated in a deficit
of 14.823 Billion as of 31 December 2006."42 The COA even opined
that "unless [PNCC] Management addresses the issue on net losses in
its financial rehabilitation plan, x x x the Corporation may not be able
to continue its operations as a going concern."
Notably, during the oral arguments before this Court, the Government
Corporate Counsel admitted the PNCCs huge negative net worth, thus:
JUSTICE CARPIO
x x x what is the net worth now of PNCC? Negative what? Negative 6
Billion at least[?]
ATTY. AGRA
Yes, your Honor.43 (Emphasis supplied)
Clearly, the PNCC Boards admission of liability for the Marubeni loans,
given PNCCs huge negative net worth of at least 6 billion as admitted
by PNCCs counsel, or 14.823 billion based on the 2006 COA Audit
Report, would leave PNCC an empty shell, without any assets to pay its
biggest creditor, the National Government with an admitted receivable
of 36 billion from PNCC.
Third. In a debilitating self-inflicted injury, the PNCC Board revived what
appeared to have been a dead claim by abandoning one of PNCCs
strong defenses, which is the prescription of the action to collect the
Marubeni loans.
Settled is the rule that actions prescribe by the mere lapse of time fixed
by law.44 Under Article 1144 of the Civil Code, an action upon a written
contract, such as a loan contract, must be brought within ten years
from the time the right of action accrues. The prescription of such an
action is interrupted when the action is filed before the court, when
there is a written extrajudicial demand by the creditor, or when there is
any written acknowledgment of the debt by the debtor.45
In this case, Basay Mining obtained the Marubeni loans sometime
between 1978 and 1981. While Radstock claims that numerous demand
letters were sent to PNCC, based on the records, the extrajudicial
demands to pay the loans appear to have been made only in 1984 and
1986. Meanwhile, the written acknowledgment of the debt, in the form
of Board Resolution No. BD-092-2000, was issued only on 20 October
2000.
Thus, more than ten years would have already lapsed between
Marubenis extrajudicial demands in 1984 and 1986 and the
acknowledgment by the PNCC Board of the Marubeni loans in 2000.
However, the PNCC Board suddenly passed Board Resolution No. BD-
092-2000 expressly admitting liability for the Marubeni loans. In short,
the PNCC Board admitted liability for the Marubeni loans despite the
fact that the same might no longer be judicially collectible. Although the
legal advantage was obviously on its side, the PNCC Board threw in the
towel even before the fight could begin. During the Senate hearings,
the matter of prescription was discussed, thus:
SEN. DRILON. ... the prescription period is 10 years and there were no
payments the last demands were made, when? The last demands for
payment?
raised this in your answer. Now, we are not saying that you were
MS. OGAN. It was made January 2001 prior to the filing of the case.
SEN. DRILON. Yes, all right. Before that, when was the last demand
made? By the time they filed the complaint more than 10 years already
lapsed.
in a special board meeting on October 20, 2000. Hindi ba ganoon 'yon?
MS. OGAN. On record, Mr. Chairman, we have demands starting from -
- a series of demands which started from May 23, 1984, letter from
Marubeni to PNCC, demand payment. And we also have the letter of
September 3, 1986, letter of Marubeni to then PNCC Chair Mr. Jaime.
We have the June 24, 1986 letter from Marubeni to the PNCC
Chairman. Also the March 4, 1988 letter...
SEN. DRILON. The March 4, 1988 letter is not a demand letter.
MS. OGAN. It is exactly addressed to the Asset Privatization Trust.
SEN. DRILON. It is not a demand letter? Okay.
MS. OGAN. And we have also...
SEN. DRILON. Anyway...
THE CHAIRMAN. Please answer when you are asked, Ms. Ogan. We
want to put it on the record whether it is "yes" or "no".
MS. OGAN. Yes, sir.
SEN. DRILON. So, even assuming that all of those were demand letters,
the 10 years prescription set in and it should have prescribed in 1998,
whatever is the date, or before the case was filed in 2001.
MR. CIMAFRANCA. The 10-year period for if the contract is written,
it's 10 years and it should have prescribed in 10 years and we did raise
that in our answer, in our motion to dismiss.
SEN. DRILON. I know. You raised this in your motion to dismiss and you
negligent in not raising that. What we are just putting on the record
that indeed there is basis to argue that these claims have prescribed.
Now, the reason why there was a colorable basis on the complaint filed
in 2001 was that somehow the board of PNCC recognized the obligation
MS. OGAN. Yes, that is correct.
SEN. DRILON. Why did the PNCC recognize this obligation in 2000 when
it was very clear that at that point more than 10 years have lapsed since
the last demand letter?
MR. AGUILAR. May I volunteer an answer?
SEN. DRILON. Please.
MR. AGUILAR. I looked into that, Mr. Chairman, Your Honor. It was as a
result of and I go to the folder letter "N." In our own demand research it
was not period, Your Honor, that Punongbayan in the big folder, sir,
letter "N" it was the period where PMO was selling PNCC and
Punongbayan and Araullo Law Office came out with an investment
brochure that indicated liabilities both to national government and to
Marubeni/Radstock. So, PMO said, "For good order, can you PNCC
board confirm that by board resolution?" That's the tone of the letter.
SEN. DRILON. Confirm what? Confirm the liabilities that are contained
in the Punongbayan investment prospectus both to the national
government and to PNCC. That is the reason at least from the record,
Your Honor, how the PNCC board got to deliberate on the Marubeni.
THE CHAIRMAN. What paragraph? Second to the last paragraph?
MR. AGUILAR. Yes. Yes, Mr. Chairman. Ito po 'yong that"s to our
recollection, in the records, that was the reason.
SEN. DRILON. Is that the only reason why ...
MR. AGUILAR. From just the records, Mr. Chairman, and then
interviews with people who are still around.
SEN. DRILON. You mean, you acknowledged a prescribed obligation
because of this paragraph?
MR. AGUILAR. I dont know what legal advice we were following at that
time, Mr. Chairman.46 (Emphasis supplied)
Besides prescription, the Office of the Government Corporate Counsel
(OGCC) originally believed that PNCC had another formidable legal
weapon against Radstock, that is, the lack of authority of Alfredo
Asuncion, then Executive Vice-President of PNCC, to sign the letter of
guarantee on behalf of CDCP. During the Senate hearings, the following
exchange reveals the OGCCs original opinion:
THE CHAIRMAN. What was the opinion of the Office of the Government
Corporate Counsel?
MS. OGAN. The opinion of the Office of the Government Corporate
Counsel is that PNCC should exhaust all means to resist the case using
all defenses available to a guarantee and a surety that there is a valid
ground for PNCC's refusal to honor or make good the alleged guarantee
obligation. It appearing that from the documents submitted to the
OGCC that there is no board authority in favor or authorizing Mr.
Asuncion, then EVP, to sign or execute the letter of guarantee in behalf
of CDCP and that said letter of guarantee is not legally binding upon or
enforceable against CDCP as principals, your Honors.47
xxxx
SEN. DRILON. Now that we have read this, what was the opinion of the I bidded out these engagements, the financial advisership went to
Government Corporate Counsel, Mr. Cimafranca? Punongbayan and Araullo. The legal audit went to the Feria Law Offices.
MR. CIMAFRANCA. Yes, Senator, we did issue an opinion upon the THE CHAIRMAN. Spell it. Boy Feria?
request of PNCC and our opinion was that there was no valid obligation,
no valid guarantee. And we incorporated that in our pleadings in MR. FRANCISCO. Feria-- Feria.
court.48 (Emphasis supplied)
THE CHAIRMAN. Lugto?
Clearly, PNCC had strong defenses against the collection suit filed by
Radstock, as originally opined by the OGCC. It is quite puzzling,
MR. FRANCISCO. Yes. Yes, Your Honor. And this was the findings of the
therefore, that the PNCC Board, which had solid grounds to refute the
Feria Law Office that the Marubeni account was a legal obligation.
legitimacy of the Marubeni loans, admitted its liability and entered into
a Compromise Agreement that is manifestly and grossly prejudicial to
PNCC. So, I presented this to our board. Based on the findings of the legal
audit conducted by the Ferial Law Offices, sir.
Fourth. The basis for the admission of liability for the Marubeni loans,
which was an opinion of the Feria Law Office, was not even shown to THE CHAIRMAN. Why did you not ask the government corporate
the PNCC Board. counsel? Why did you have to ask for the opinion of an outside
counsel?
Atty. Raymundo Francisco, the APT trustee overseeing the proposed
MR. FRANCISCO. That was the that was the mandate given to us, sir,
privatization of PNCC at the time, was responsible for recommending to
that we have to engage the ...
the PNCC Board the admission of PNCCs liability for the Marubeni
loans. Atty. Francisco based his recommendation solely on a mere
alleged opinion of the Feria Law Office. Atty. Francisco did not bother to THE CHAIRMAN. Mandate given by whom?
show this "Feria opinion" to the members of the PNCC Board, except to
Atty. Renato Valdecantos, who as the then PNCC Chairman did not also MR. FRANCISCO. That is what we usually do, sir, in the APT.
show the "Feria opinion" to the other PNCC Board members. During the
Senate hearings, Atty. Francisco could not produce a copy of the "Feria
opinion." The Senators grilled Atty. Francisco on his recommendation to THE CHAIRMAN. Ah, you get outside counsel?
recognize PNCCs liability for the Marubeni loans, thus:
MR. FRANCISCO. Yes, we...
THE CHAIRMAN. x x x You were the one who wrote this letter or rather
this memorandum dated 17 October 2000 to Atty. Valdecantos. Can THE CHAIRMAN. Not necessarily the government corporate counsel?
you tell us the background why you wrote the letter acknowledging a
debt which is non-existent? MR. FRANCISCO. No, sir.
MR. FRANCISCO. I was appointed as the trustee in charge of the THE CHAIRMAN. So, on the basis of the opinion of outside counsel,
privatization of the PNCC at that time, sir. And I was tasked to do a private, you proceeded to, in effect, recognize an obligation which is
study and engage the services of financial advisors as well as legal not even entered in the books of the PNCC? You probably resuscitated a
advisors to do a legal audit and financial study on the position of PNCC. non-existing obligation anymore?
MR. FRANCISCO. Sir, I just based my recommendation on the
professional findings of the law office that we engaged, sir.
THE CHAIRMAN. Did you not ask for the opinion of the government
corporate counsel?
MR. FRANCISCO. No, sir.
THE CHAIRMAN. Why?
MR. FRANCISCO. I felt that the engagements of the law office was
sufficient, anyway we were going to raise it to the Committee on
Privatization for their approval or disapproval, sir.
THE CHAIRMAN. The COP?
MR. FRANCISCO. Yes, sir.
THE CHAIRMAN. Thats a cabinet level?
MR. FRANCISCO. Yes, sir. And we did that, sir.
THE CHAIRMAN. Now... So you sent your memo to Atty. Renato B.
Valdecantos, who unfortunately is not here but I think we have to get
his response to this. And as part of the minutes of special meeting with
the board of directors on October 20, 2000, the board resolved in its
Board Resolution No. 092-2000, the board resolved to recognize,
acknowledge and confirm PNCCs obligations as of September 30, 1999,
etcetera, etcetera. (A), or rather (B), Marubeni Corporation in the
amount of 10,740,000.
Now, we asked to be here because the franchise of PNCC is hanging in a
balance because of the on the questions on this acknowledgement. So
we want to be educated.
Now, the paper trail starts with your letter. So, thats it thats my
kuwan, Frank.
Yes, Senator Drilon.
SEN. DRILON. Thank you, Mr. Chairman.
Yes, Atty. Francisco, you have a copy of the minutes of October 20,
2000?
MR. FRANCISCO. Im sorry, sir, we dont have a copy.
SEN. DRILON. May we ask the corporate secretary of PNCC to provide
us with a copy?
Okay naman andiyan siya.
(Ms. Ogan handing the document to Mr. Francisco.)
You have familiarized yourselves with the minutes, Atty. Francisco?
MR. FRANCISCO. Yes, sir.
SEN. DRILON. Now, mention is made of a memorandum here on line 8,
page 3 of this boards minutes. It says, "Director Francisco has prepared
a memorandum requesting confirmation, acknowledgement, and
ratification of this indebtedness of PNCC to the national government
which was determined by Bureau of Treasury as of September 30, 1999
is 36,023,784,751. And with respect to PNCCs obligation to Marubeni,
this has been determined to be in the total amount of 10,743,103,388,
also as of September 30, 1999; that there is need to ratify this because
there has already been a representation made with respect to the
review of the financial records of PNCC by Punongbayan and Araullo,
which have been included as part of the package of APTs disposition to
the national governments interest in PNCC."
You recall having made this representation as found in the minutes, I
assume, Atty. Francisco?
MR. FRANCISCO. Yes, sir. But Id like to be refreshed on the
memorandum, sir, because I dont have a copy.
SEN. DRILON. Yes, this memorandum was cited earlier by Senator
Arroyo, and maybe the secretary can give him a copy? Give him a copy?
MS. OGAN. (Handing the document to Mr. Francisco.)
MR. FRANCISCO. Your Honor, I have here a memorandum to the PNCC
board through Atty. Valdecantos, which says that in the last
paragraph, if I may read? "May we request therefore, that a board
resolution be adopted, acknowledging and confirming the
aforementioned PNCC obligations with the national government and
Marubeni as borne out by the due diligence audit."
SEN. DRILON. This is the memorandum referred to in these minutes.
This memorandum dated 17 October 2000 is the memorandum
referred to in the minutes.
MR. FRANCISCO. I would assume, Mr. Chairman.
SEN. DRILON. Right.
Now, the Punongbayan representative who was here yesterday, Mr...
THE CHAIRMAN. Navarro.
SEN. DRILON. ... Navarro denied that he made this recommendation.
THE CHAIRMAN. He asked for opinion, legal opinion.
SEN. DRILON. He said that they never made this representation and the
transcript will bear us out. They said that they never made this
representation that the account of Marubeni should be recognized.
MR. FRANCISCO. Mr. Chairman, in the memorandum, I only mentioned
here the acknowledgement and confirmation of the PNCC obligations. I
was not asking for a ratification. I never mentioned ratification in the
memorandum. I just based my memo based on the due diligence audit
of the Feria Law Offices.
SEN. DRILON. Can you say that again? You never asked for a
ratification...
MR. FRANCISCO. No. I never mentioned in my memorandum that I was
asking for a ratification. I was just in my memo it says, "acknowledging
and confirming the PNCC obligation." This was what ...
SEN. DRILON. Isnt it the same as ratification? I mean, whats the
difference?
MR. FRANCISCO. I well, my memorandum was meant really just to
confirm the findings of the legal audit as ...
THE CHAIRMAN. ... but yet the action of or rather the opinion of the THE CHAIRMAN. Yet you adopted it.
Feria Law Offices was in effect adopted by the board of directors of
PNCC in its minutes of October 20, 2000 where you are the corporate MS. OGAN. Yes, sir.
secretary, Ms. Ogan.
SEN DRILON. Considering you were the corporate secretary.
MS. OGAN. Yes, Mr. Chairman.
THE CHAIRMAN. She was the corporate secretary.
THE CHAIRMAN. So, what I am saying is that this opinion or rather the
opinion of the Feria Law Offices of which you dont have a copy?
SEN. DRILON. She was just recording the minutes.

SEN. DRILON. In your mind as a lawyer, Atty. Francisco, theres a
difference between ratification and whats your term? --
acknowledgment and confirmation?
MR. FRANCISCO. Well, I guess theres no difference, Mr. Chairman.
SEN. DRILON. Right.
MS. OGAN. Yes, sir.
THE CHAIRMAN. Yes, she was recording.
THE CHAIRMAN. And the reason being that, it does not concern the
Now, we are asking you now why it was taken up?
PNCC because thats an opinion rendered for APT and not for the PNCC.
MS. OGAN. Yes, sir, Mr. Chairman, this was mentioned in the
MS. OGAN. Yes, Mr. Chairman, that was what we were told although we
memorandum of Atty. Francisco, memorandum to the board.
made several requests to the APT, sir.

SEN. DRILON. Mr. Chairman, Mr. Francisco represented APT in the

Anyway, just of record, the Punongbayan representatives here
yesterday said that they never made such representation.
In any case, now youre saying its the Feria Law Office who rendered
that opinion? Can we you know, yesterday we were asking for a copy
of this opinion but we were never furnished one. The ... no less than the
Chairman of this Committee was asking for a copy.
THE CHAIRMAN. Well, copy of the opinion...
THE CHAIRMAN. All right. Now, since it was for the APT and not for the
board of PNCC. And is that correct, Mr. Francisco?
PNCC, I ask the question why did PNCC adopt it? That was not for the
consumption of PNCC. It was for the consumption of the Asset
Privatization Trust. And that is what Atty. Francisco says and its THE CHAIRMAN. Youre an ex-officio member.
confirmed by you saying that this was a memo you dont have a copy
because this was sought for by APT and the Feria Law Offices just SEN. DRILON. Yes.
provided an opinion provided the APT with an opinion. So, as
corporate secretary, the board of directors of PNCC adopted it, MR. FRANCISCO. Ex-officio member only, sir, as trustee in charge of the
recognized the Marubeni Corporation. privatization of PNCC.

MS. OGAN. Yes, Mr. Chairman, we were never furnished a copy of this
opinion because its opinion rendered for the Asset Privatization Trust
which is its client, not the PNCC, Mr. Chairman.
THE CHAIRMAN. All right. The question is whether but you see, this is
a memorandum of Atty. Francisco to the Chairman of the Asset
Privatization Trust. You say now that you were never furnished a copy
because thats supposed to be with the Asset ...
MS. OGAN. Yes, Mr. Chairman.
You read the minutes of the October 20, 2000 meeting of the board of
directors on Item V. The resolution speaks of .. so, go ahead.
MS. OGAN. I gave my copies. Yes, sir.
THE CHAIRMAN. In effect the Feria Law Offices opinion was for the
consumption of the APT.
MS. OGAN. That was what we were told, Mr. Chairman.
THE CHAIRMAN. And you were not even provided with a copy.
SEN. DRILON. With the permission of Mr. Chair, may I ask a question...
THE CHAIRMAN. Oh, yes, Senator Drilon.
SEN. DRILON. Atty. Francisco, you sat in the PNCC board as APT
representative, you are a lawyer, there was a legal opinion of Feria,
Feria, Lugto, Lao Law Offices which you cited in your memorandum. Did
you discuss first, did you give a copy of this opinion to PNCC?
MR. FRANCISCO. I gave a copy of this opinion, sir, to our chairman who
was also a member of the board of PNCC, Mr. Valdecantos, sir.
SEN. DRILON. And because he was...
MR. FRANCISCO. Because he was my immediate boss in the APT.
SEN. DRILON. Apparently, [it] just ended up in the personal possession
of Mr. Valdecantos because the corporate secretary, Glenda Ogan, who
is supposed to be the custodian of the records of the board never saw a
copy of this.
MR. FRANCISCO. Well, sir, my the copy that I gave was to Mr.
Valdecantos because he was the one sitting in the PNCC board, sir.
SEN. DRILON. No, you sit in the board.
MR. FRANCISCO. I was just an ex-officio member. And all my reports
were coursed through our Chairman, Mr. Valdecantos, sir.
SEN. DRILON. Now, did you ever tell the board that there is a legal
position taken or at least from the documents it is possible that the
claim has prescribed?
MR. FRANCISCO. I took this up in the board meeting of the PNCC at that
time and I told them about this matter, sir.
SEN. DRILON. No, you told them that the claim could have, under the
law, could have prescribed?
MR. FRANCISCO. No, sir.
SEN. DRILON. Why? You mean, you didnt tell the board that it is
possible that this liability is no longer a valid liability because it has
prescribed?
MR. FRANCISCO. I did not dwell into the findings anymore, sir, because I
found the professional opinion of the Feria Law Office to be
sufficient.49 (Emphasis supplied)
Atty. Franciscos act of recommending to the PNCC Board the
acknowledgment of the Marubeni loans based only on an opinion of a
private law firm, without consulting the OGCC and without showing this
opinion to the members of the PNCC Board except to Atty. Valdecantos,
reflects how shockingly little his concern was for PNCC, contrary to his
claim that "he only had the interest of PNCC at heart." In fact, if what
was involved was his own money, Atty. Francisco would have preferred
not just two, but at least three different opinions on how to deal with
the matter, and he would have maintained his non-liability.
SEN. OSMEA. x x x
All right. And lastly, just to clear our minds, there has always been this
finger-pointing, of course, whenever this is typical Filipino. When
they're caught in a bind, they always point a finger, they pretend they
don't know. And it just amazes me that you have been appointed
trustees, meaning, representatives of the Filipino people, that's what
you were at APT, right? You were not Erap's representatives, you were
representative of the Filipino people and you were tasked to conserve
the assets that that had been confiscated from various cronies of the
previous administration. And here, you are asked to recognize the P10
billion debt and you point only to one law firm. If you have cancer, don't
you to a second opinion, a second doctor or a third doctor? This is just a
question. I am just asking you for your opinion if you would take the
advice of the first doctor who tells you that he's got to open you up.
MR. FRANCISCO. I would go to three or more doctors, sir.
SEN. OSMEA. Three or more. Yeah, that's right. And in this case the
APT did not do so.
MR. FRANCISCO. We relied on the findings of the
SEN. OSMEA. If these were your money, would you have gone also to
obtain a second, third opinion from other law firms. Kung pera mo itong
10 billion na ito. Siguro you're not gonna give it up that easily ano, 'di
ba?
MR. FRANCISCO. Yes, sir.
SEN. OSMEA. You'll probably keep it in court for the next 20 years.
x x x x50 (Emphasis supplied)
This is a clear admission by Atty. Francisco of bad faith in directing the
affairs of PNCC - that he would not have recognized the Marubeni loans
if his own funds were involved or if he were the owner of PNCC.
The PNCC Board admitted liability for the 10.743 billion Marubeni
loans without seeing, reading or discussing the "Feria opinion" which
was the sole basis for its admission of liability. Such act surely goes
against ordinary human nature, and amounts to gross negligence and
utter bad faith, even bordering on fraud, on the part of the PNCC Board
in directing the affairs of the corporation. Owing loyalty to PNCC and its
stockholders, the PNCC Board should have exercised utmost care and
diligence in admitting a gargantuan debt of 10.743 billion that would
certainly force PNCC into insolvency, a debt that previous PNCC Boards
in the last two decades consistently refused to admit.
Instead, the PNCC Board admitted PNCCs liability for the Marubeni
loans relying solely on a mere opinion of a private law office, which
opinion the PNCC Board members never saw, except for Atty.
Valdecantos and Atty. Francisco. The PNCC Board knew that PNCC, as a
government owned and controlled corporation (GOCC), must rely
"exclusively" on the opinion of the OGCC. Section 1 of Memorandum
Circular No. 9 dated 27 August 1998 issued by the President states:
SECTION 1. All legal matters pertaining to government-owned or
controlled corporations, their subsidiaries, other corporate off-springs
and government acquired asset corporations (GOCCs) shall be
exclusively referred to and handled by the Office of the Government
Corporate Counsel (OGCC). (Emphasis supplied)
The PNCC Board acted in bad faith in relying on the opinion of a private
lawyer knowing that PNCC is required to rely "exclusively" on the
OGCCs opinion. Worse, the PNCC Board, in admitting liability for
10.743 billion, relied on the recommendation of a private lawyer
whose opinion the PNCC Board members have not even seen.
During the oral arguments, Atty. Sison explained to the Court that the
intention of APT was for the PNCC Board merely to disclose the claim of
Marubeni as part of APT's full disclosure policy to prospective buyers of
PNCC. Atty. Sison stated that it was not the intention of APT for the
PNCC Board to admit liability for the Marubeni loans, thus:
x x x It was the Asset Privatization Trust A-P-T that was tasked to sell the
company. The A-P-T, for purposes of disclosure statements, tasked the
Feria Law Office to handle the documentation and the study of all legal
issues that had to be resolved or clarified for the information of
prospective bidders and or buyers. In the performance of its assigned
task the Feria Law Office came upon the Marubeni claim and
mentioned that the APTC and/or PNCC must disclose that there is a
claim by Marubeni against PNCC for purposes of satisfying the
requirements of full disclosure. This seemingly innocent statement or
requirement made by the Feria Law Office was then taken by two
officials of the Asset Privatization Trust and with malice aforethought
turned it into the basis for a multi-billion peso debt by the now
government owned and/or controlled PNCC. x x x.51 (Emphasis
supplied)
While the PNCC Board passed Board Resolution No. BD-099-2000
amending Board Resolution No. BD-092-2000, such amendment merely
added conditions for the recognition of the Marubeni loans, namely,
subjecting the recognition to a final determination by COA of the
amount involved and to the declaration by OGCC of the legality of
PNCCs liability. However, the PNCC Board reiterated and stood firm
that it "recognizes, acknowledges and confirms its obligations" for the
Marubeni loans. Apparently, Board Resolution No. BD-099-2000 was a
futile attempt to "revoke" Board Resolution No. BD-092-2000. Atty.
Alfredo Laya, Jr., a former PNCC Director, spoke on his protests against
Board Resolution No. BD-092-2000 at the Senate hearings, thus:
MR. LAYA. Mr. Chairman, if I can
THE CHAIRMAN. Were you also at the board?
MR. LAYA. At that time, yes, sir.
THE CHAIRMAN. Okay, go ahead.
MR. LAYA. That's why if maybe this can help clarify the sequence.
There was this meeting on October 20. This matter of the Marubeni
liability or account was also discussed. Mr. Macasaet, if I may try to
refresh. And there was some discussion, sir, and in fact, they were
saying even at that stage that there should be a COA or an OGCC audit.
Now, that was during the discussion of October 20. Later on, the
minutes came out. The practice, then, sir, was for the minutes to come
out at the start of the meeting of the subsequent. So the minutes of
October 20 came out on November 22 and then we were going over it.
And that is in the subsequent minutes of the meeting
THE CHAIRMAN. May I interrupt. You were taking up in your November
22 meeting the October 20 minutes?
MR. LAYA. Yes, sir.
THE CHAIRMAN. This minutes that we have?
MR. LAYA. Yes, sir.
THE CHAIRMAN. All right, go ahead.
MR. LAYA. Now, in the November 22 meeting, we noticed this
resolution already for confirmation of the board proceedings of
October 20. So immediately we made actually, protest would be a
better term for that we protested the wording of the resolution and
that's why we came up with this resolution amending the October 20
resolution.
SEN. DRILON. So you are saying, Mr. Laya, that the minutes of October
20 did not accurately reflect the decisions that you made on October 20
because you were saying that this recognition should be subject to
OGCC and COA? You seem to imply and we want to make it and I
want to get that for the record. You seem to imply that there was no
decision to recognize the obligation during that meeting because you
wanted it to subject it to COA and OGCC, is that correct?
MR. LAYA. Yes, your Honor.
SEN. DRILON. So how did...
MR. LAYA. That's my understanding of the proceedings at that time,
that's why in the subsequent November 22 meeting, we raised this
point about obtaining a COA and OGCC opinion.
SEN. DRILON. Yes. But you know, the November 22 meeting repeated
the wording of the resolution previously adopted only now you are
saying subject to final determination which is completely of different
import from what you are saying was your understanding of the
decision arrived at on October 20.
MR. LAYA. Yes, sir. Because our thinking then...
SEN. DRILON. What do you mean, yes, sir?
MR. LAYA. It's just a claim under discussion but then the way it is
translated, as the minutes of October 20 were not really verbatim.
SEN. DRILON. So, you never intended to recognize the obligation.
MR. LAYA. I think so, sir. That was our personally, that was my
position.
SEN. DRILON. How did it happen, Corporate Secretary Ogan, that the
minutes did not reflect what the board
THE CHAIRMAN. Ms. Pasetes
MS. PASETES. Yes, Mr. Chairman.
THE CHAIRMAN. you are the chief financial officer of PNCC.
MS. PASETES. Your Honor, before that November 22 board meeting,
management headed by Mr. Rolando Macasaet, myself and Atty. Ogan
had a discussion about the recognition of the obligations of 10 billion of
Marubeni and 36 billion of the national government on whether to
recognize this as an obligation in our books or recognize it as an
obligation in the pro forma financial statement to be used for the
privatization of PNCC because recognizing both obligations in the books
of PNCC would defeat our going concern status and that is where the
position of the president then, Mr. Macasaet, stemmed from and he
went back to the board and moved to reconsider the position of
October 20, 2000, Mr. Chair.52 (Emphasis supplied)
In other words, despite Atty. Layas objections to PNCCs admitting
liability for the Marubeni loans, the PNCC Board still admitted the same
and merely imposed additional conditions to temper somehow the
devastating effects of Board Resolution No. BD-092-2000.
The act of the PNCC Board in issuing Board Resolution No. BD-092-2000
expressly admitting liability for the Marubeni loans demonstrates the
PNCC Boards gross and willful disregard of the requisite care and
diligence in managing the affairs of PNCC, amounting to bad faith and
resulting in grave and irreparable injury to PNCC and its stockholders.
This reckless and treacherous move on the part of the PNCC Board
clearly constitutes a serious breach of its fiduciary duty to PNCC and its
stockholders, rendering the members of the PNCC Board liable under
Section 31 of the Corporation Code, which provides:
SEC. 31. Liability of directors, trustees or officers. -- Directors or trustees
who willfully and knowingly vote for or assent to patently unlawful acts
of the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or
trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members
and other persons.
When a director, trustee or officer attempts to acquire or acquires, in
violation of his duty, any interest adverse to the corporation in respect
of any matter which has been reposed in him in confidence, as to which
equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the
profits which otherwise would have accrued to the corporation.
Soon after the short-lived Estrada Administration, the PNCC Board
revoked its previous admission of liability for the Marubeni loans.
During the oral arguments, Atty. Sison narrated to the Court:
x x x After President Estrada was ousted, I was appointed as President
and Chairman of PNCC in April of 2001, this particular board resolution
was brought to my attention and I immediately put the matter before
the board. I had no problem in convincing them to reverse the
recognition as it was illegal and had no basis in fact. The vote to
overturn that resolution was unanimous. Strange to say that some who
voted to overturn the recognition were part of the old board that
approved it. Stranger still, Renato Valdecantos who was still a member
of the Board voted in favor of reversing the resolution he himself
instigated and pushed. Some of the board members who voted to
recognize the obligation of Marubeni even came to me privately and
said "pinilit lang kami." x x x.53 (Emphasis supplied)
In approving PNCC Board Resolution Nos. BD-092-2000 and BD-099-
2000, the PNCC Board caused undue injury to the Government and gave
unwarranted benefits to Radstock, through manifest partiality, evident
bad faith or gross inexcusable negligence of the PNCC Board. Such acts
are declared under Section 3(e) of RA 3019 or the Anti-Graft and
Corrupt Practices Act, as "corrupt practices xxx and xxx unlawful." Being
unlawful and criminal acts, these PNCC Board Resolutions are void ab
initio and cannot be implemented or in any way given effect by the
Executive or Judicial branch of the Government.
Not content with forcing PNCC to commit corporate suicide with the
admission of liability for the Marubeni loans under Board Resolution
Nos. BD-092-2000 and BD-099-2000, the PNCC Board drove the last nail
on PNCCs coffin when the PNCC Board entered into the manifestly and
grossly disadvantageous Compromise Agreement with Radstock. This
time, the OGCC, headed by Agnes DST Devanadera, reversed itself and
recommended approval of the Compromise Agreement to the PNCC
Board. As Atty. Sison explained to the Court during the oral arguments:
x x x While the case was pending in the Court of Appeals, Radstock in a
rare display of extreme generosity, conveniently convinced the Board of
PNCC to enter into a compromise agreement for the amount of the
judgment rendered by the RTC or 6.5 Billion Pesos. This time the
OGCC, under the leadership of now Solicitor General Agnes
Devanadera, approved the compromise agreement abandoning the
previous OGCC position that PNCC had a meritorious case and would be
hard press to lose the case. What is strange is that although the
compromise agreement we seek to stop ostensibly is for 6.5 Billion
only, truth and in fact, the agreement agrees to convey to Radstock all
or substantially all of the assets of PNCC worth 18 Billion Pesos. There
are three items that are undervalued here, the real estate that was
turned over as a result of the controversial agreement, the toll
revenues that were being assigned and the value of the new shares of
PNCC the difference is about 12 Billion Pesos. x x x (Emphasis supplied)
V.
The Compromise Agreement is Void
for Being Contrary to the Constitution,
Existing Laws, and Public Policy
For a better understanding of the present case, the pertinent terms and
conditions of the Compromise Agreement between PNCC and Radstock
are quoted below:
COMPROMISE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement made and entered into this 17th day of August 2006, in
Mandaluyong City, Metro Manila, Philippines, by and between:
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, a government
acquired asset corporation, created and existing under the laws of the
Republic of the Philippines, with principal office address at EDSA corner
Reliance Street, Mandaluyong City, Philippines, duly represented herein
by its Chairman ARTHUR N. AGUILAR, pursuant to a Board Resolution
attached herewith as Annex "A" and made an integral part hereof,
hereinafter referred to as PNCC;
- and -
RADSTOCK SECURITIES LIMITED, a private corporation incorporated in
the British Virgin Islands, with office address at Suite 1402 1 Duddell
Street, Central Hongkong duly-represented herein by its Director,
CARLOS G. DOMINGUEZ, pursuant to a Board Resolution attached
herewith as Annex "B" and made an integral part hereof, hereinafter
referred to as RADSTOCK.
WITNESSETH:
WHEREAS, on January 15, 2001, RADSTOCK, as assignee of Marubeni
Corporation, filed a complaint for sum of money and damages with
application for a writ of preliminary attachment with the Regional Trial
Court (RTC), Mandaluyong City, docketed as Civil Case No. MC-01-1398,
to collect on PNCCs guarantees on the unpaid loan obligations of CDCP
Mining Corporation as provided under an Advance Payment Agreement
and Loan Agreement;
WHEREAS, on December 10, 2002, the RTC of Mandaluyong rendered a
decision in favor of plaintiff RADSTOCK directing PNCC to pay the total
amount of Thirteen Billion One Hundred Fifty One Million Nine Hundred
Fifty-Six Thousand Five Hundred Twenty-Eight Pesos
(13,151,956,528.00) with interest from October 15, 2001 plus Ten
Million Pesos (10,000,000.00) as attorney's fees.
WHEREAS, PNCC had elevated the case to the Court of Appeals (CA-G.R.
SP No. 66654) on Certiorari and thereafter, to the Supreme Court (G.R.
No. 156887) which Courts have consistently ruled that the RTC did not
commit grave abuse of discretion when it denied PNCCs Motion to
Dismiss which sets forth similar or substantially the same grounds or
defenses as those raised in PNCC's Answer;
WHEREAS, the case has remained pending for almost six (6) years even
after the main action was appealed to the Court of Appeals;
WHEREAS, on the basis of the RTC Decision dated December 10, 2002,
the current value of the judgment debt against PNCC stands at
17,040,843,968.00 as of July 31, 2006 (the "Judgment Debt");
WHEREAS, RADSTOCK is willing to settle the case at the reduced
Compromise Amount of Six Billion One Hundred Ninety-Six Million
Pesos (6,196,000,000.00) which may be paid by PNCC, either in cash or
in kind to avoid the trouble and inconvenience of further litigation as a
gesture of goodwill and cooperation;
WHEREAS, it is an established legal policy or principle that litigants in
civil cases should be encouraged to compromise or amicably settle their
claims not only to avoid litigation but also to put an end to one already
commenced (Articles 2028 and 2029, Civil Code);
WHEREAS, this Compromise Agreement has been approved by the
respective Board of Directors of both PNCC and RADSTOCK, subject to
the approval of the Honorable Court;
NOW, THEREFORE, for and in consideration of the foregoing premises,
and the mutual covenants, stipulations and agreements herein
contained, PNCC and RADSTOCK have agreed to amicably settle the
above captioned Radstock case under the following terms and
conditions:
1. RADSTOCK agrees to receive and accept from
PNCC in full and complete settlement of the
Judgment Debt, the reduced amount of Six Billion,
One Hundred Ninety-Six Million Pesos
(6,196,000,000.00) (the "Compromise Amount").
2. This Compromise Amount shall be paid by PNCC
to RADSTOCK in the following manner:
a. PNCC shall assign to a third party assignee to be designated by
RADSTOCK all its rights and interests to the following real properties
provided the assignee shall be duly qualified to own real properties in
the Philippines;
(1) PNCCs rights over that parcel of land located in
Pasay City with a total area of One Hundred Twenty-
Nine Thousand Five Hundred Forty-Eight (129,548)
square meters, more or less, and which is covered
by and more particularly described in Transfer
Certificate of Title No. T-34997 of the Registry of
Deeds for Pasay City. The transfer value is
3,817,779,000.00.
PNCCs rights and interests in Transfer Certificate of
Title No. T-34997 of the Registry of Deeds for Pasay
City is defined and delineated by Administrative
Order No. 397, Series of 1998, and RADSTOCK is
fully aware and recognizes that PNCC has an
undertaking to cede at least 2 hectares of this
property to its creditor, the Philippine National
Bank; and that furthermore, the Government
Service Insurance System has also a current and
existing claim in the nature of boundary conflicts,
which undertaking and claim will not result in the
diminution of area or value of the property.
Radstock recognizes and acknowledges the rights
and interests of GSIS over the said property.
(2) T-452587 (T-23646) - Paraaque (5,123 sq. m.)
subject to the clarification of the Privatization and
Management Office (PMO) claims thereon. The
transfer value is 45,000,900.00.
(3) T-49499 (529715 including T-68146-G (S-29716)
(1,9747-A)-Paraaque (107 sq. m.) (54 sq. m.)
subject to the clarification of the Privatization and
Management Office (PMO) claims thereon. The
transfer value is 1,409,100.00.
(4) 5-29716-Paraaque (27,762 sq. m.) subject to
the clarification of the Privatization and
Management Office (PMO) claims thereon. The
transfer value is 242,917,500.00.
(5) P-169 - Tagaytay (49,107 sq. m.). The transfer
value is 13,749,400.00.
(6) P-170 - Tagaytay (49,100 sq. m.). The transfer
value is 13,749,400.00.
(7) N-3320 - Town and Country Estate, Antipolo
(10,000 sq. m.). The transfer value is
16,800,000.00.
(8) N-7424 - Antipolo (840 sq. m.). The transfer
value is 940,800.00.
 (9) N-7425 - Antipolo (850 sq. m.). The transfer
value is 952,000.00.
(10) N-7426 - Antipolo (958 sq. m.). The transfer
value is 1,073,100.00.
(11) T-485276 - Antipolo (741 sq. m.). The transfer
value is 830,200.00.
(12) T-485277 - Antipolo (680 sq. m.). The transfer
value is 761,600.00.
(13) T-485278 - Antipolo (701 sq. m.). The transfer
value is 785,400.00.
(14) T-131500 - Bulacan (CDCP Farms Corp.) (4,945
sq, m.). The transfer value is 6,475,000.00.
(15) T-131501 - Bulacan (678 sq. m.). The transfer
value is 887,600.00.
(16) T-26,154 (M) - Bocaue, Bulacan (2,841 sq. m.).
The transfer value is 3,779,300.00.
(17) T-29,308 (M) - Bocaue, Bulacan (733 sq. m.).
The transfer value is 974,400.00.
(18) T-29,309 (M) Bocaue, Bulacan (1,141 sq. m.).
The transfer value is 1,517,600.00.
(19) T-260578 (R. Bengzon) Sta. Rita, Guiguinto,
Bulacan (20,000 sq. m.). The transfer value is
25,200,000.00.
The transfer values of the foregoing properties are based on 70% of the
appraised value of the respective properties.
b. PNCC shall issue to RADSTOCK or its assignee common shares of the
capital stock of PNCC issued at par value which shall comprise 20% of
the outstanding capital stock of PNCC after the conversion to equity of
the debt exposure of the Privatization Management Office (PMO) and
the National Development Company (NDC) and other government
agencies and creditors such that the total government holdings shall
not fall below 70% voting equity subject to the approval of the
Securities and Exchange Commission (SEC) and ratification of PNCCs
stockholders, if necessary. The assigned value of the shares issued to
RADSTOCK is 713 Million based on the approximate last trading price
of PNCC shares in the Philippine Stock Exchange as the date of this
agreement, based further on current generally accepted accounting
standards which stipulates the valuation of shares to be based on the
lower of cost or market value.
Subject to the procurement of any and all necessary approvals from the
relevant governmental authorities, PNCC shall deliver to RADSTOCK an
instrument evidencing an undertaking of the Privatization and
Management Office (PMO) to give RADSTOCK or its assignee the right
to match any offer to buy the shares of the capital stock and debts of
PNCC held by PMO, in the event the same shares and debt are offered
for privatization.
c. PNCC shall assign to RADSTOCK or its assignee 50% of the PNCC's 6%
share in the gross toll revenue of the Manila North Tollways
Corporation (MNTC), with a Net Present Value of 1.287 Billion
computed in the manner outlined in Annex "C" herein attached as an
integral part hereof, that shall be due and owing to PNCC pursuant to
the Joint Venture Agreement between PNCC and First Philippine
Infrastructure Development Corp. dated August 29, 1995 and other
related existing agreements, commencing in 2008. It shall be
understood that as a result of this assignment, PNCC shall charge and
withhold the amounts, if any, pertaining to taxes due on the amounts
assigned.
Under the Compromise Agreement, PNCC shall pay Radstock the
reduced amount of 6,185,000,000.00 in full settlement of PNCCs
guarantee of CDCP Minings debt allegedly totaling 17,040,843,968.00
as of 31 July 2006. To satisfy its reduced obligation, PNCC undertakes to
(1) "assign to a third party assignee to be designated by Radstock all its
rights and interests" to the listed real properties therein; (2) issue to
Radstock or its assignee common shares of the capital stock of PNCC
issued at par value which shall comprise 20% of the outstanding capital
stock of PNCC; and (3) assign to Radstock or its assignee 50% of PNCCs
6% share, for the next 27 years (2008-2035), in the gross toll revenues
of the Manila North Tollways Corporation.
A. The PNCC Board has no power to compromise
the 6.185 billion amount.
Does the PNCC Board have the power to compromise the 6.185 billion
"reduced" amount? The answer is in the negative.1avvphi1
The Dissenting Opinion asserts that PNCC has the power, citing Section
36(2) of Presidential Decree No. 1445 (PD 1445), otherwise known as
the Government Auditing Code of the Philippines, enacted in 1978.
Section 36 states:
SECTION 36. Power to Compromise Claims. (1) When the interest of
the government so requires, the Commission may compromise or
release in whole or in part, any claim or settled liability to any
government agency not exceeding ten thousand pesos and with the
written approval of the Prime Minister, it may likewise compromise or
release any similar claim or liability not exceeding one hundred
thousand pesos, the application for relief therefrom shall be submitted,
through the Commission and the Prime Minister, with their
recommendations, to the National Assembly.
(2) The respective governing bodies of government-owned or controlled
corporations, and self-governing boards, commissions or agencies of
the government shall have the exclusive power to compromise or
release any similar claim or liability when expressly authorized by their
charters and if in their judgment, the interest of their respective
corporations or agencies so requires. When the charters do not so
provide, the power to compromise shall be exercised by the
Commission in accordance with the preceding paragraph. (Emphasis
supplied)
The Dissenting Opinion asserts that since PNCC is incorporated under
the Corporation Code, the PNCC Board has all the powers granted to
the governing boards of corporations incorporated under the
Corporation Code, which includes the power to compromise claims or
liabilities.
Section 36 of PD 1445, enacted on 11 June 1978, has been superseded
by a later law -- Section 20(1), Chapter IV, Subtitle B, Title I, Book V of
Executive Order No. 292 or the Administrative Code of 1987, which
provides:
Section 20. Power to Compromise Claims. - (1) When the interest of the
Government so requires, the Commission may compromise or release
in whole or in part, any settled claim or liability to any government
agency not exceeding ten thousand pesos arising out of any matter or
case before it or within its jurisdiction, and with the written approval of
the President, it may likewise compromise or release any similar claim
or liability not exceeding one hundred thousand pesos. In case the claim
or liability exceeds one hundred thousand pesos, the application for
relief therefrom shall be submitted, through the Commission and the
President, with their recommendations, to the Congress[.] x x x
(Emphasis supplied)
Under this provision,54 the authority to compromise a settled claim or
liability exceeding 100,000.00 involving a government agency, as in
this case where the liability amounts to 6.185 billion, is vested not in
COA but exclusively in Congress. Congress alone has the power to
compromise the 6.185 billion purported liability of PNCC. Without
congressional approval, the Compromise Agreement between PNCC
and Radstock involving 6.185 billion is void for being contrary to
Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the
Administrative Code of 1987.
PNCC is a "government agency" because Section 2 on Introductory
Provisions of the Revised Administrative Code of 1987 provides that
Agency of the Government refers to any of the various units of the
Government, including a department, bureau, office, instrumentality, or
government-owned or controlled corporation, or a local government or
a distinct unit therein. (Boldfacing supplied)
Thus, Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the
Administrative Code of 1987 applies to PNCC, which indisputably is a
government owned or controlled corporation.
In the same vein, the COAs stamp of approval on the Compromise
Agreement is void for violating Section 20(1), Chapter IV, Subtitle B,
Title I, Book V of the Administrative Code of 1987. Clearly, the
Dissenting Opinions reliance on the COAs finding that the terms and
conditions of the Compromise Agreement are "fair and above board" is
patently erroneous.
Citing Benedicto v. Board of Administrators of Television Stations RPN,
BBC and IBC,55 the Dissenting Opinion views that congressional approval
is not required for the validity of the Compromise Agreement because
the liability of PNCC is not yet "settled."
In Benedicto, the PCGG filed in the Sandiganbayan a civil case to
recover from the defendants (including Roberto S. Benedicto) their ill-
gotten wealth consisting of funds and other properties. The PCGG
executed a compromise agreement with Roberto S. Benedicto ceding to
the latter a substantial part of his ill-gotten assets and the State
granting him immunity from further prosecution. The Court held that
prior congressional approval is not required for the PCGG to enter into
a compromise agreement with persons against whom it has filed
actions for recovery of ill-gotten wealth.
In Benedicto, the Court found that the governments claim against
Benedicto was not yet settled unlike here where the PNCC Board
expressly admitted the liability of PNCC for the Marubeni loans. In
Benedicto, the ownership of the alleged ill-gotten assets was still being
litigated in the Sandiganbayan and no party ever admitted any liability,
unlike here where the PNCC Board had already admitted through a
formal Board Resolution PNCCs liability for the Marubeni loans. PNCCs The Dissenting Opinion is woefully wide off the mark. The PNCC is not
express admission of liability for the Marubeni loans is essentially the
premise of the execution of the Compromise Agreement. In short,
Radstocks claim against PNCC is settled by virtue of PNCCs express
admission of liability for the Marubeni loans. The Compromise
Agreement merely reduced this settled liability from 17 billion to
6.185 billion.
The provision of the Revised Administrative Code on the power to settle
claims or liabilities was precisely enacted to prevent government
agencies from admitting liabilities against the government, then
compromising such "settled" liabilities. The present case is exactly what
the law seeks to prevent, a compromise agreement on a creditors
claim settled through admission by a government agency without the
approval of Congress for amounts exceeding 100,000.00. What makes
the application of the law even more necessary is that the PNCC Boards
twin moves are manifestly and grossly disadvantageous to the
Government. First, the PNCC admitted solidary liability for a staggering
10.743 billion private debt incurred by a private corporation which
PNCC does not even control. Second, the PNCC Board agreed to pay
Radstock 6.185 billion as a compromise settlement ahead of all other
creditors, including the Government which is the biggest creditor.
The Dissenting Opinion further argues that since the PNCC is
incorporated under the Corporation Code, it has the power, through its
Board of Directors, to compromise just like any other private
corporation organized under the Corporation Code. Thus, the
Dissenting Opinion states:
Not being a government corporation created by special law, PNCC does
not owe its creation to some charter or special law, but to the
Corporation Code. Its powers are enumerated in the Corporation Code
and its articles of incorporation. As an autonomous entity, it
undoubtedly has the power to compromise, and to enter into a
settlement through its Board of Directors, just like any other private
corporation organized under the Corporation Code. To maintain
otherwise is to ignore the character of PNCC as a corporate entity
organized under the Corporation Code, by which it was vested with a
personality and identity distinct and separate from those of its
stockholders or members. (Boldfacing and underlining supplied)
"just like any other private corporation" precisely because it is not a
private corporation but indisputably a government owned corporation.
Neither is PNCC "an autonomous entity" considering that PNCC is under
the Department of Trade and Industry, over which the President
exercises control. To claim that PNCC is an "autonomous entity" is to
say that it is a lost command in the Executive branch, a concept that
violates the President's constitutional power of control over the entire
Executive branch of government.56
The government nominees in the PNCC Board, who practically compose
the entire PNCC Board, are public officers subject to the Anti-Graft and
Corrupt Practices Act, accountable to the Government and the Filipino
people. To hold that a corporation incorporated under the Corporation
Code, despite its being 90.3% owned by the Government, is "an
autonomous entity" that could solely through its Board of Directors
compromise, and transfer ownership of, substantially all its assets to a
private third party without the approval required under the
Administrative Code of 1987,57 is to invite the plunder of all such
government owned corporations.
The Dissenting Opinions claim that PNCC is an autonomous entity just
like any other private corporation is inconsistent with its assertion that
Section 36(2) of the Government Auditing Code is the governing law in
determining PNCC's power to compromise. Section 36(2) of the
Government Auditing Code expressly states that it applies to the
governing bodies of "government-owned or controlled corporations."
The phrase "government-owned or controlled corporations" refers to
both those created by special charter as well as those incorporated
under the Corporation Code. Section 2, Article IX-D of the Constitution
provides:
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 or 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.
(2) The Commission shall have exclusive authority, subject to the
limitations in this Article, to define the scope of its audit and
examination, establish the techniques and methods required therefor,
and promulgate accounting and auditing rules and regulations,
including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable expenditures,
or uses of government funds and properties. (Emphasis supplied)
In explaining the extent of the jurisdiction of COA over government
owned or controlled corporations, this Court declared in Feliciano v.
Commission on Audit:58
The COA's 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 government-
owned or controlled corporations" without original charters.
xxxx
Petitioner forgets that the constitutional criterion on the exercise of
COA's audit jurisdiction depends on the government's 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
COA's audit jurisdiction. Neither is the manner of creation of a
corporation, whether under a general or special law.
Clearly, the COAs audit jurisdiction extends to government owned or
controlled corporations incorporated under the Corporation Code.
Thus, the COA must apply the Government Auditing Code in the audit
and examination of the accounts of such government owned or
controlled corporations even though incorporated under the
Corporation Code. This means that Section 20(1), Chapter IV, Subtitle B,
Title I, Book V of the Administrative Code of 1987 on the power to
compromise, which superseded Section 36 of the Government Auditing
Code, applies to the present case in determining PNCCs power to
compromise. In fact, the COA has been regularly auditing PNCC on a
post-audit basis in accordance with Section 2, Article IX-D of the
Constitution, the Government Auditing Code, and COA rules and
regulations.
B. PNCCs toll fees are public funds.
PD 1113 granted PNCC a 30-year franchise to construct, operate and
maintain toll facilities in the North and South Luzon Expressways.
Section 1 of PD 111359 provides:
Section 1. Any provision of law to the contrary notwithstanding, there is
hereby granted to the Construction and Development Corporation of
the Philippines (CDCP), a corporation duly organized and registered
under the laws of the Philippines, hereinafter called the GRANTEE, for a
period of thirty (30) years from May 1, 1977 the right, privilege and
authority to construct, operate and maintain toll facilities covering the
expressways from Balintawak (Station 9 + 563) to Carmen, Rosales,
Pangasinan and from Nichols, Pasay City (Station 10 + 540) to Lucena,
Quezon, hereinafter referred to collectively as North Luzon Expressway,
respectively.
The franchise herein granted shall include the right to collect toll fees at
such rates as may be fixed and/or authorized by the Toll Regulatory
Board hereinafter referred to as the Board created under Presidential
Decree No. 1112 for the use of the expressways above-mentioned.
(Emphasis supplied)
Section 2 of PD 1894,60 which amended PD 1113 to include in PNCCs
franchise the Metro Manila expressway, also provides:
Section 2. The term of the franchise provided under Presidential Decree
No. 1113 for the North Luzon Expressway and the South Luzon
Expressway which is thirty (30) years from 1 May 1977 shall remain the
same; provided that, the franchise granted for the Metro Manila
Expressway and all extensions linkages, stretches and diversions that
may be constructed after the date of approval of this decree shall
likewise have a term of thirty (30) years commencing from the date of
completion of the project. (Emphasis supplied)
Based on these provisions, the franchise of the PNCC expired on 1 May
2007 or thirty years from 1 May 1977.
PNCC, however, claims that under PD 1894, the North Luzon
Expressway (NLEX) shall have a term of 30 years from the date of its
completion in 2005. PNCC argues that the proviso in Section 2 of PD
1894 gave "toll road projects completed within the franchise period and
after the approval of PD No. 1894 on 12 December 1983 their own
thirty-year term commencing from the date of the completion of the
said project, notwithstanding the expiry of the said franchise."
This contention is untenable.
The proviso in Section 2 of PD 1894 refers to the franchise granted for
the Metro Manila Expressway and all extensions linkages, stretches and
diversions constructed after the approval of PD 1894. It does not
pertain to the NLEX because the term of the NLEX franchise, "which is
30 years from 1 May 1977, shall remain the same," as expressly
provided in the first sentence of the same Section 2 of PD 1894. To
construe that the NLEX franchise had a new term of 30 years starting
from 2005 glaringly conflicts with the plain, clear and unequivocal
language of the first sentence of Section 2 of PD 1894. That would be
clearly absurd.
There is no dispute that Congress did not renew PNCCs franchise after
its expiry on 1 May 2007. However, PNCC asserts that it "remains a
viable corporate entity even after the expiration of its franchise under
Presidential Decree No. 1113." PNCC points out that the Toll Regulatory
Board (TRB) granted PNCC a "Tollway Operation Certificate" (TOC)
which conferred on PNCC the authority to operate and maintain toll
facilities, which includes the power to collect toll fees. PNCC further
posits that the toll fees are private funds because they represent "the
consideration given to tollway operators in exchange for costs they
incurred or will incur in constructing, operating and maintaining the
tollways."
This contention is devoid of merit.
With the expiration of PNCCs franchise, the assets and facilities of
PNCC were automatically turned over, by operation of law, to the
government at no cost. Sections 2(e) and 9 of PD 1113 and Section 5 of
PD 1894 provide:
Section 2 [of PD 1113]. In consideration of this franchise, the GRANTEE
shall:
(e) Turn over the toll facilities and all equipment directly related thereto
to the government upon expiration of the franchise period without
cost.
Section 9 [of PD 1113]. For the purposes of this franchise, the
Government, shall turn over to the GRANTEE (PNCC) not later than April
30, 1977 all physical assets and facilities including all equipment and
appurtenances directly related to the operations of the North and
South Toll Expressways: Provided, That, the extensions of such
Expressways shall also be turned over to GRANTEE upon completion of
their construction or of functional sections thereof: Provided, However,
That upon termination of the franchise period, said physical assets and
facilities including improvements thereon, together with equipment
and appurtenances directly related to their operations, shall be turned
over to the Government without any cost or obligation on the part of
the latter. (Emphasis supplied)
Section 5 [of PD No. 1894]. In consideration of this franchise, the
GRANTEE shall:
(a) Construct, operate and maintain at its own expense the
Expressways; and
(b) Turn over, without cost, the toll facilities and all
equipment, directly related thereto to the Government upon
expiration of the franchise period. (Emphasis supplied)
The TRB does not have the power to give back to PNCC the toll assets
and facilities which were automatically turned over to the Government,
by operation of law, upon the expiration of the franchise of the PNCC
on 1 May 2007. Whatever power the TRB may have to grant authority
to operate a toll facility or to issue a "Tollway Operation Certificate,"
such power does not obviously include the authority to transfer back to
PNCC ownership of National Government assets, like the toll assets and
facilities, which have become National Government property upon the
expiry of PNCCs franchise. Such act by the TRB would repeal Section 5
of PD 1894 which automatically vested in the National Government
ownership of PNCCs toll assets and facilities upon the expiry of PNCCs
franchise. The TRB obviously has no power to repeal a law. Further, PD
1113, as amended by PD 1894, granting the franchise to PNCC, is a later
law that must necessarily prevail over PD 1112 creating the TRB. Hence,
the provisions of PD 1113, as amended by PD 1894, are controlling.
The governments ownership of PNCC's toll assets and facilities
inevitably results in the governments ownership of the toll fees and the
net income derived from these toll assets and facilities. Thus, the toll
fees form part of the National Governments General Fund, which
includes public moneys of every sort and other resources pertaining to
any agency of the government.61 Even Radstocks counsel admits that
the toll fees are public funds, to wit:
ASSOCIATE JUSTICE CARPIO:
Okay. Now, when the franchise of PNCC expired on May 7, 2007, under
the terms of the franchise under PD 1896, all the assets, toll way assets,
equipment, etcetera of PNCC became owned by government at no cost,
correct, under the franchise?
DEAN AGABIN:
Yes, Your Honor.
ASSOCIATE JUSTICE CARPIO:
Okay. So this is now owned by the national government. [A]ny income
from these assets of the national government is national government
income, correct?
DEAN AGABIN:
Yes, Your Honor.62 DEAN AGABIN: DEAN AGABIN:

xxxx Yes, Your Honor. Yes.64 (Emphasis supplied)

ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO: Forming part of the General Fund, the toll fees can only be disposed of
in accordance with the fundamental principles governing financial
x x x My question is very simple x x x Is the income from these assets of But its part of the general fund. Now, if it is part of the general fund, transactions and operations of any government agency, to wit: (1) no
the national government (interrupted) who has the authority to spend that money? money shall be paid out of the Treasury except in pursuance of an
appropriation made by law, as expressly mandated by Section 29(1),
Article VI of the Constitution; and (2) government funds or property
DEAN AGABIN: DEAN AGABIN:
shall be spent or used solely for public purposes, as expressly mandated
by Section 4(2) of PD 1445 or the Government Auditing Code.65
Yes, Your Honor.63 Well, the National Government itself.
Section 29(1), Article VI of the Constitution provides:
xxxx ASSOCIATE JUSTICE CARPIO:
Section 29(1). No money shall be paid out of the Treasury except in
ASSOCIATE JUSTICE CARPIO: Who in the National Government, the Executive, Judiciary or pursuance of an appropriation made by law.
Legislative?
So, its the government [that] decides whether it goes to the general The power to appropriate money from the General Funds of the
fund or another fund. [W]hat is that other fund? Is there another fund DEAN AGABIN: Government belongs exclusively to the Legislature. Any act in violation
where revenues of the government go? of this iron-clad rule is unconstitutional.
Well, the funds are usually appropriated by the Congress.
DEAN AGABIN: Reinforcing this Constitutional mandate, Sections 84 and 85 of PD 1445
ASSOCIATE JUSTICE CARPIO: require that before a government agency can enter into a contract
Its the same fund, Your Honor, except that (interrupted) involving the expenditure of government funds, there must be an
x x x you mean to say there are exceptions that money from the general appropriation law for such expenditure, thus:
ASSOCIATE JUSTICE CARPIO: fund can be spent by the Executive without going t[hrough] Congress,
or xxx is [that] the absolute rule? Section 84. Disbursement of government funds.
So it goes to the general fund?
DEAN AGABIN: 1. Revenue funds shall not be paid out of any public treasury or
DEAN AGABIN: depository except in pursuance of an appropriation law or other specific
Well, in so far as the general fund is concerned, that is the absolute rule statutory authority.

Except that it can be categorized as a private fund in a commercial
sense, and it can be categorized as a public fund in a Public Law sense.
ASSOCIATE JUSTICE CARPIO:
Okay. So we agree that, okay, it goes to the general fund. I agree with
you, but you are saying it is categorized still as a private funds?
set aside by the National Government.
xxxx
ASSOCIATE JUSTICE CARPIO:
Section 85. Appropriation before entering into contract.
x x x you are saying this is general fund money - the collection from the
assets[?] 1. No contract involving the expenditure of public funds shall be
entered into unless there is an appropriation therefor, the unexpended
balance of which, free of other obligations, is sufficient to cover the
proposed expenditure.
xxxx
Section 86 of PD 1445, on the other hand, requires that the proper
accounting official must certify that funds have been appropriated for
the purpose.66 Section 87 of PD 1445 provides that any contract
entered into contrary to the requirements of Sections 85 and 86 shall
be void, thus:
Section 87. Void contract and liability of officer. Any contract entered
into contrary to the requirements of the two immediately preceding
sections shall be void, and the officer or officers entering into the
contract shall be liable to the government or other contracting party for
any consequent damage to the same extent as if the transaction had
been wholly between private parties. (Emphasis supplied)
Applying Section 29(1), Article VI of the Constitution, as implanted in
Sections 84 and 85 of the Government Auditing Code, a law must first
be enacted by Congress appropriating 6.185 billion as compromise
money before payment to Radstock can be made.67 Otherwise, such
payment violates a prohibitory law and thus void under Article 5 of the
Civil Code which states that "[a]cts executed against the provisions of
mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity."
Indisputably, without an appropriation law, PNCC cannot lawfully pay
6.185 billion to Radstock. Any contract allowing such payment, like the
Compromise Agreement, "shall be void" as provided in Section 87 of
the Government Auditing Code. In Comelec v. Quijano-Padilla,68 this
Court ruled:
Petitioners are justified in refusing to formalize the contract with
PHOTOKINA. Prudence dictated them not to enter into a contract not
backed up by sufficient appropriation and available funds. Definitely, to
act otherwise would be a futile exercise for the contract would
inevitably suffer the vice of nullity. In Osmea vs. Commission on Audit,
this Court held:
The Auditing Code of the Philippines (P.D. 1445) further provides that Okay, I agree with you. Now, you are saying that money can be paid out
no contract involving the expenditure of public funds shall be entered of the general fund only through an appropriation by Congress, correct?
into unless there is an appropriation therefor and the proper Thats what you are saying.
accounting official of the agency concerned shall have certified to the
officer entering into the obligation that funds have been duly DEAN AGABIN:
appropriated for the purpose and the amount necessary to cover the
proposed contract for the current fiscal year is available for expenditure
Yes, Your Honor.
on account thereof. Any contract entered into contrary to the foregoing
requirements shall be VOID.
ASSOCIATE JUSTICE CARPIO:
Clearly then, the contract entered into by the former Mayor Duterte
was void from the very beginning since the agreed cost for the project I agree with you also. Okay, now, can PNCC xxx use this money to pay
Radstock without Congressional approval?
(,368,920.00) was way beyond the appropriated amount
(,419,180.00) as certified by the City Treasurer. Hence, the contract
was properly declared void and unenforceable in COA's 2nd DEAN AGABIN:
Indorsement, dated September 4, 1986. The COA declared and we
agree, that: Well, I believe that that may not be necessary. Your Honor, because
earlier, the government had already decreed that PNCC should be
The prohibition contained in Sec. 85 of PD 1445 (Government Auditing properly paid for the reclamation works which it had done. And so
Code) is explicit and mandatory. Fund availability is, as it has always (interrupted)
been, an indispensable prerequisite to the execution of any
government contract involving the expenditure of public funds by all ASSOCIATE JUSTICE CARPIO:
government agencies at all levels. Such contracts are not to be
considered as final or binding unless such a certification as to funds
No. I am talking of the funds.
availability is issued (Letter of Instruction No. 767, s. 1978). Antecedent
of advance appropriation is thus essential to government liability on
DEAN AGABIN:
contracts (Zobel vs. City of Manila, 47 Phil. 169). This contract being
violative of the legal requirements aforequoted, the same contravenes
Sec. 85 of PD 1445 and is null and void by virtue of Sec. 87. And so it is like a foreign obligation.
Verily, the contract, as expressly declared by law, is inexistent and void ASSOCIATE JUSTICE CARPIO:
ab initio. This is to say that the proposed contract is without force and
effect from the very beginning or from its incipiency, as if it had never
Counsel, I'm talking of the general funds, collection from the toll fees.
been entered into, and hence, cannot be validated either by lapse of
Okay. You said, they go to the general fund. You also said, money from
time or ratification. (Emphasis supplied)
the general fund can be spent only if there is an appropriation law by
Congress.
Significantly, Radstocks counsel admits that an appropriation law is
needed before PNCC can use toll fees to pay Radstock, thus:
DEAN AGABIN:
ASSOCIATE JUSTICE CARPIO:
Yes, Your Honor.
There is no law. ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO:

DEAN AGABIN: No, no. I am saying that You just agreed that all those collections now
will go to the National Government forming part of the general fund. If,
Yes, except that, Your Honor, this fund has not yet gone to the general somehow, PNCC is holding this money in the meantime, it holds xxx it in
fund. trust, correct? Because you said, it goes to the general fund, National
Government. So it must be holding this in trust for the National
Government.
ASSOCIATE JUSTICE CARPIO:
Yeah, but that is not the six percent. Out of the six percent, that goes
now to PNCC, thats entirely national government. But the National
Government and the PNCC can agree on service fees for collecting, to
pay toll collectors.
DEAN AGABIN:

DEAN AGABIN: Yes, Your Honor.

No. Its being collected everyday. As of May 7, 2007, national
government owned those assets already. All those x x x collections that
would have gone to PNCC are now national government owned. It goes
to the general fund. And any body who uses that without appropriation
from Congress commits malversation, I tell you.
DEAN AGABIN:
That is correct, Your Honor, as long as it has already gone into the
general fund.
ASSOCIATE JUSTICE CARPIO:
Oh, you mean to say that its still being held now by the agent, PNCC. It
has not been remitted to the National Government?
DEAN AGABIN:
Yes, Your Honor. ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO: But those are expenses. We are talking of the net income. It goes to the
general fund. And its only Congress that can authorize that
Okay. Can the person holding in trust use it to pay his private debt? expenditure. Not even the Court of Appeals can give its stamp of
approval that it goes to Radstock, correct?
DEAN AGABIN:
DEAN AGABIN:
No, Your Honor.
Yes, Your Honor.69 (Emphasis supplied)
ASSOCIATE JUSTICE CARPIO:
Without an appropriation law, the use of the toll fees to pay Radstock
Cannot be. would constitute malversation of public funds. Even counsel for
Radstock expressly admits that the use of the toll fees to pay Radstock
constitutes malversation of public funds, thus:
DEAN AGABIN:

Well, if PNCC (interrupted) ASSOCIATE JUSTICE CARPIO:

But I assume that there must be some portion of the collections which
properly pertain to PNCC.
ASSOCIATE JUSTICE CARPIO: x x x As of May 7, 2007, [the] national government owned those assets
already. All those x x x collections that would have gone to PNCC are
ASSOCIATE JUSTICE CARPIO:
now national government owned. It goes to the general fund. And any
But if (interrupted)
body who uses that without appropriation from Congress commits
If there is some portion that xxx may be [for] operating expenses of malversation, I tell you.
DEAN AGABIN: PNCC. But that is not
DEAN AGABIN:
If this is the share that properly belongs to PNCC as a private entity DEAN AGABIN:
(interrupted)
That is correct, Your Honor, as long as it has already gone into the
Even profit, Your Honor. general fund.
ASSOCIATE JUSTICE CARPIO:
Oh, you mean to say that its still being held now by the agent, PNCC. It
has not been remitted to the National Government?
DEAN AGABIN:
Well, if PNCC (interrupted)
ASSOCIATE JUSTICE CARPIO:
But if (interrupted)
DEAN AGABIN:
If this is the share that properly belongs to PNCC as a private entity
(interrupted)
ASSOCIATE JUSTICE CARPIO:
No, no. I am saying that You just agreed that all those collections now
will go to the National Government forming part of the general fund. If,
somehow, PNCC is holding this money in the meantime, it holds x x x it
in trust, correct? Because you said, it goes to the general fund, National
Government. So it must be holding this in trust for the National
Government.
DEAN AGABIN:
Yes, Your Honor.70 (Emphasis supplied)
Indisputably, funds held in trust by PNCC for the National Government
cannot be used by PNCC to pay a private debt of CDCP Mining to
Radstock, otherwise the PNCC Board will be liable for malversation of
public funds.
In addition, to pay Radstock 6.185 billion violates the fundamental
public policy, expressly articulated in Section 4(2) of the Government
Auditing Code,71 that government funds or property shall be spent or MR. AGUILAR. I think it was if I may just speculate. It was just
used solely for pubic purposes, thus: common ownership at that time.
Section 4. Fundamental Principles. x x x (2) Government funds or SEN. OSMEA. Al right. Now Also, the ...
property shall be spent or used solely for public purposes. (Emphasis
supplied) MR. AGUILAR. Ah, 13 percent daw, your Honor.
There is no question that the subject of the Compromise Agreement is SEN. OSMEA. Huh?
CDCP Minings private debt to Marubeni, which Marubeni subsequently
assigned to Radstock. Counsel for Radstock admits that Radstock holds
MR. AGUILAR. Thirteen percent ho.
a private debt of CDCP Mining, thus:
SEN. OSMEA. Whats 13 percent?
ASSOCIATE JUSTICE CARPIO:
MR. AGUILAR. We owned ...
So your client is holding a private debt of CDCP Mining, correct?
MS. PASETES. Thirteen percent of ...
DEAN AGABIN:
SEN. OSMEA. PNCC owned ...
Correct, Your Honor.72 (Emphasis supplied)
MS. PASETES. (Mike off) CDCP ...
CDCP Mining obtained the Marubeni loans when CDCP Mining and
PNCC (then CDCP) were still privately owned and managed
SEN. DRILON. Use the microphone, please.
corporations. The Government became the majority stockholder of
PNCC only because government financial institutions converted their
loans to PNCC into equity when PNCC failed to pay the loans. However, MS. PASETES. Sorry. Your Honor, the ownership of CDCP of CDCP Basay
CDCP Mining have always remained a majority privately owned Mining ...
corporation with PNCC owning only 13% of its equity as admitted by
former PNCC Chairman Arthur N. Aguilar and PNCC SVP Finance Miriam SEN. OSMEA. No, no, the ownership of CDCP. CDCP Mining, how many
M. Pasetes during the Senate hearings, thus: percent of the equity of CDCP Mining was owned by PNCC, formerly
CDCP?
SEN. OSMEA. x x x I just wanted to know is CDCP Mining a 100
percent subsidiary of PNCC? MS. PASETES. Thirteen percent.
MR. AGUILAR. Hindi ho. Ah, no. SEN. OSMEA. Thirteen. And as a 13 percent owner, they agreed to sign
jointly and severally?
SEN. OSMEA. If theyre not a 100 percent, why would they sign jointly
and severally? I just want to plug the loopholes. MS. PASETES. Yes.
SEN. OSMEA. One-three?
So poor PNCC and CDCP got taken to the cleaners here. They sign for a
100 percent and they only own 13 percent.
x x x x73 (Emphasis supplied)
PNCC cannot use public funds, like toll fees that indisputably form part
of the General Fund, to pay a private debt of CDCP Mining to Radstock.
Such payment cannot qualify as expenditure for a public purpose. The
toll fees are merely held in trust by PNCC for the National Government,
which is the owner of the toll fees.
Considering that there is no appropriation law passed by Congress for
the 6.185 billion compromise amount, the Compromise Agreement is
void for being contrary to law, specifically Section 29(1), Article VI of the
Constitution and Section 87 of PD 1445. And since the payment of the
6.185 billion pertains to CDCP Minings private debt to Radstock, the
Compromise Agreement is also void for being contrary to the
fundamental public policy that government funds or property shall be
spent or used solely for public purposes, as provided in Section 4(2) of
the Government Auditing Code.
C. Radstock is not qualified to own land in the Philippines.
Radstock is a private corporation incorporated in the British Virgin
Islands. Its office address is at Suite 14021 Duddell Street, Central
Hongkong. As a foreign corporation, with unknown owners whose
nationalities are also unknown, Radstock is not qualified to own land in
the Philippines pursuant to Section 7, in relation to Section 3, Article XII
of the Constitution. These provisions state:
Section. 3. Lands of the public domain are classified into agricultural,
forest or timber, mineral lands, and national parks. Agricultural lands of
the public domain may be further classified by law according to the uses
to which they may be devoted. Alienable lands of the public domain
shall be limited to agricultural lands. Private corporations or
associations may not hold such lands of the public domain except by
lease, for a period not exceeding twenty-five years, renewable for not
more than twenty-five years, and not to exceed one hundred thousand
hectares in area. Citizens of the Philippines may lease not more than
five hundred hectares, or acquire not more than twelve hectares Yes, xxx you said, Radstock will assign the right of ownership to the
thereof by purchase, homestead, or grant. qualified assignee[.] So my question is, can a foreigner own the right to
ownership of a land when it cannot own the land itself?
Taking into account the requirements of conservation, ecology, and
development, and subject to the requirements of agrarian reform, the ATTY. AGRA:
Congress shall determine, by law, the size of lands of the public domain
which may be acquired, developed, held, or leased and the conditions The foreigner cannot own the land, Your Honor.
therefor.
ASSOCIATE JUSTICE CARPIO:
xxxx
But you are saying it can own the right of ownership to the land,
Section 7. Save in cases of hereditary succession, no private lands shall because you are saying, the right of ownership will be assigned by
be transferred or conveyed except to individuals, corporations, or Radstock.
associations qualified to acquire or hold lands of the public domain.
ATTY. AGRA:
The OGCC admits that Radstock cannot own lands in the Philippines.
However, the OGCC claims that Radstock can own the rights to
The rights over the properties, Your Honors, if theres a valid
ownership of lands in the Philippines, thus:
assignment made to a qualified party, then the assignment will be
made.
ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO:
Under the law, a foreigner cannot own land, correct?
Who makes the assignment?
ATTY. AGRA:
ATTY. AGRA:
Yes, Your Honor.
It will be Radstock, Your Honor.
ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO:
Can a foreigner who xxx cannot own land assign the right of ownership
to the land?
So, if Radstock makes the assignment, it must own its rights, otherwise,
it cannot assign it, correct?
ATTY. AGRA:
ATTY. AGRA:
Again, Your Honor, at that particular time, it will be PNCC, not through
Radstock, that chain of events should be, theres a qualified nominee
Pursuant to the compromise agreement, once approved, yes, Your
(interrupted)
Honors.
ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO: No, Your Honor, I believe it (interrupted)

So, you are saying that Radstock can own the rights to ownership of the But if it cannot - - Its not perfected, how can it assign? ASSOCIATE JUSTICE CARPIO:
land?
ATTY. AGRA: Yeah, but it does not own the land, but it still holding the land in favor
ATTY. AGRA: of the other party to the Compromise Agreement
Not directly, Your Honors. Again, there must be a qualified nominee
Yes, Your Honors. assigned by Radstock. ATTY. AGRA:

ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO: Pursuant to the compromise agreement, that will happen.

Yes? Its very clear, its an indirect way of selling property that is prohibited ASSOCIATE JUSTICE CARPIO:
by law, is it not?
ATTY. AGRA: Okay. May I (interrupted)
ATTY. AGRA:
The premise, Your Honor, you mentioned a while ago was, if this Court ATTY. AGRA:
approves said compromise (interrupted) Again, Your Honor, know, believe this is a Compromise Agreement. This
is a dacion en pago. Again, Your Honor, if the compromise agreement ended with a
ASSOCIATE JUSTICE CARPIO: statement that Radstock will be the owner of the property (interrupted)
ASSOCIATE JUSTICE CARPIO:
No, no. Whether there is such a compromise agreement - - Its an ASSOCIATE JUSTICE CARPIO:
academic question I am asking you, can a foreigner assign rights to So, dacion en pago is an exception to the constitutional prohibition.
ownership of a land in the Philippines? Yeah. Unfortunately, it says, to a qualified assignee.
ATTY. AGRA:
ATTY. AGRA: ATTY. AGRA:
No, Your Honor. PNCC, will still hold on to the property, absent a valid
Under the Compromise Agreement, Your Honors, these rights should be assignment of properties. Yes, Your Honor.
respected.
ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO:
But what rights will PNCC have over that land when it has already And at this point, when it is signed and execut[ed] and approved, PNCC
So, it can? signed the compromise? It is just waiting for instruction xxx from has no dominion over that land anymore. Who has dominion over it?
Radstock what to do with it? So, its a trustee of somebody, because it
ATTY. AGRA: does not, it cannot, [it] has no dominion over it anymore? Its just
ATTY. AGRA:
holding it for Radstock. So, PNCC becomes a dummy, at that point, of
Radstock, correct?
It can. Your Honor. But again, this right must, cannot be perfected or Pending the assignment to a qualified party, Your Honor, PNCC will hold
cannot be, could not take effect. on to the property.
ATTY. AGRA:
ASSOCIATE JUSTICE CARPIO:
Hold on, but who x x x can exercise acts of dominion, to sell it, to lease
it?
ATTY. AGRA:
Again, Your Honor, without the valid assignment to a qualified nominee,
the compromise agreement in so far as the transfer of these properties
will not become effective. It is subject to such condition. Your
Honor.74 (Emphasis supplied)
There is no dispute that Radstock is disqualified to own lands in the
Philippines. Consequently, Radstock is also disqualified to own the
rights to ownership of lands in the Philippines. Contrary to the OGCCs
claim, Radstock cannot own the rights to ownership of any land in the
Philippines because Radstock cannot lawfully own the land itself.
Otherwise, there will be a blatant circumvention of the Constitution,
which prohibits a foreign private corporation from owning land in the
Philippines. In addition, Radstock cannot transfer the rights to
ownership of land in the Philippines if it cannot own the land itself. It is
basic that an assignor or seller cannot assign or sell something he does
not own at the time the ownership, or the rights to the ownership, are
to be transferred to the assignee or buyer.75
The third party assignee under the Compromise Agreement who will be
designated by Radstock can only acquire rights duplicating those which
its assignor (Radstock) is entitled by law to exercise.76 Thus, the
assignee can acquire ownership of the land only if its assignor,
Radstock, owns the land. Clearly, the assignment by PNCC of the real
properties to a nominee to be designated by Radstock is a
circumvention of the Constitutional prohibition against a private foreign
corporation owning lands in the Philippines. Such circumvention
renders the Compromise Agreement void.
D. Public bidding is required for
the disposal of government properties.
Under Section 79 of the Government Auditing Code,77 the disposition
of government lands to private parties requires public bidding.78 COA
Circular No. 89-926, issued on 27 January 1989, sets forth the guidelines
on the disposal of property and other assets of the government. Part V
of the COA Circular provides:
V. MODE OF DISPOSAL/DIVESTMENT: -
This Commission recognizes the following modes of
disposal/divestment of assets and property of national government
agencies, local government units and government-owned or controlled
corporations and their subsidiaries, aside from other such modes as
may be provided for by law.
1. Public Auction
in OPMC, PIEDRAS was entitled to subscribe to 3,749,906,250 class "A"
Conformably to existing state policy, the divestment or disposal of
government property as contemplated herein shall be undertaken
primarily thru public auction. Such mode of divestment or disposal shall
observe and adhere to established mechanics and procedures in public
bidding, viz:
a. adequate publicity and notification so as to attract the
greatest number of interested parties; (vide, Sec. 79, P.D.
1445)
b. sufficient time frame between publication and date of
auction;
c. opportunity afforded to interested parties to inspect the
property or assets to be disposed of;
d. confidentiality of sealed proposals;
e. bond and other prequalification requirements to guarantee
performance; and
f. fair evaluation of tenders and proper notification of award.
It is understood that the Government reserves the right to reject any or
all of the tenders. (Emphasis supplied)
Under the Compromise Agreement, PNCC shall dispose of substantial
parcels of land, by way of dacion en pago, in favor of Radstock. Citing
Uy v. Sandiganbayan,79 PNCC argues that a dacion en pago is an
exception to the requirement of a public bidding.
PNCCs reliance on Uy is misplaced. There is nothing in Uy declaring that
public bidding is dispensed with in a dacion en pago transaction. The
Court explained the transaction in Uy as follows:
We do not see any infirmity in either the MOA or the SSA executed
between PIEDRAS and respondent banks. By virtue of its shareholdings
and 2,499,937,500 class "B" OPMC shares. Admittedly, it was financially
sound for PIEDRAS to exercise its pre-emptive rights as an existing
shareholder of OPMC lest its proportionate shareholdings be diluted to
its detriment. However, PIEDRAS lacked the necessary funds to pay for
the additional subscription. Thus, it resorted to contract loans from
respondent banks to finance the payment of its additional subscription.
The mode of payment agreed upon by the parties was that the payment
would be made in the form of part of the shares subscribed to by
PIEDRAS. The OPMC shares therefore were agreed upon by the parties
to be equivalent payment for the amount advanced by respondent
banks. We see the wisdom in the conditions of the loan transaction. In
order to save PIEDRAS and/or the government from the trouble of
selling the shares in order to raise funds to pay off the loans, an easier
and more direct way was devised in the form of the dacion en pago
agreements.
Moreover, we agree with the Sandiganbayan that neither PIEDRAS nor
the government sustained any loss in these transactions. In fact, after
deducting the shares to be given to respondent banks as payment for
the shares, PIEDRAS stood to gain about 1,540,781,554 class "A" and
710,550,000 class "B" OPMC shares virtually for free. Indeed, the
question that must be asked is whether or not PIEDRAS, in the exercise
of its pre-emptive rights, would have been able to acquire any of these
shares at all if it did not enter into the financing agreements with the
respondent banks.80
Suffice it to state that in Uy, neither PIEDRAS81 nor the government
suffered any loss in the dacion en pagotransactions, unlike here where
the government stands to lose at least 6.185 billion worth of assets.
Besides, a dacion en pago is in essence a form of sale, which basically
involves a disposition of a property. In Filinvest Credit Corp. v.
Philippine Acetylene, Co., Inc.,82 the Court defined dacion en pago in
this wise:
Dacion en pago, according to Manresa, is the transmission of the
ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of obligation. In dacion en pago, as a
special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding
debt. The undertaking really partakes in one sense of the nature of sale,
that is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtor's debt.As such,
the essential elements of a contract of sale, namely, consent, object
certain, and cause or consideration must be present. In its modern
concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation is considered as the
object of the contract of sale, while the debt is considered as the
purchase price. In any case, common consent is an essential
prerequisite, be it sale or innovation to have the effect of totally
extinguishing the debt or obligation.83 (Emphasis supplied)
E. PNCC must follow rules on preference of credit.
Radstock is only one of the creditors of PNCC. Asiavest is PNCCs
judgment creditor. In its Board Resolution No. BD-092-2000, PNCC
admitted not only its debt to Marubeni but also its debt to the National
Government84 in the amount of 36 billion.85 During the Senate
hearings, PNCC admitted that it owed the Government 36 billion, thus:
SEN. OSMEA. All right. Now, second question is, the management of
PNCC also recognize the obligation to the national government of 36
billion. It is part of the board resolution.
MS. OGAN. Yes, sir, it is part of the October 20 board resolution.
SEN. OSMEA. All right. So if you owe the national government 36
billion and you owe Marubeni 10 billion, you know, I would just declare
bankruptcy and let an orderly disposition of assets be done. What
happened in this case to the claim, the 36 billion claim of the national
government? How was that disposed of by the PNCC? Mas malaki ang
utang ninyo sa national government, 36 billion. Ang gagawin ninyo,
babayaran lahat ang utang ninyo sa Marubeni without any assets left to
satisfy your obligations to the national government. There should have
been, at least, a pari passu payment of all your obligations, 'di ba?
MS. PASETES. Mr. Chairman...
SEN. OSMEA. Yes.
MS. PASETES. PNCC still carries in its books an equity account called
equity adjustments arising from transfer of obligations to national
government - - 5.4 billion - - in addition to shares held by government
amounting to 1.2 billion.
SEN. OSMEA. What is the 36 billion?
THE CHAIRMAN. Ms. Pasetes...
SEN. OSMEA. Wait, wait, wait.
THE CHAIRMAN. Baka ampaw yun eh.
SEN. OSMEA. Teka muna. What is the 36 billion that appear in the
resolution of the board in September 2000 (sic)? This is the same
resolution that recognizes, acknowledges and confirms PNCC's
obligations to Marubeni. And subparagraph (a) says "Government of
the Philippines, in the amount of 36,023,784,000 and change. And then
(b) Marubeni Corporation in the amount of 10,743,000,000. So,
therefore, in the same resolution, you acknowledged that had
something like P46.7 billion in obligations. Why did PNCC settle the 10
billion and did not protect the national government's 36 billion? And
then, number two, why is it now in your books, the 36 billion is now
down to five? If you use that ratio, then Marubeni should be down to
one.
MS. PASETES. Sir, the amount of 36 billion is principal plus interest and
penalties.
SEN. OSMEA. And what about Marubeni? Is that just principal only?
MS. PASETES. Principal and interest.
SEN. OSMEA. So, I mean, you know, it's equal treatment. Ten point
seven billion is principal plus penalties plus interest, hindi ba?
MS. PASETES. Yes, sir. Yes, Your Honor.
SEN. OSMEA. All right. So now, what you are saying is that you gonna
pay Marubeni 6 billion and change and the national government is only
recognizing 5 billion. I don't think that's protecting the interest of the
national government at all.86
In giving priority and preference to Radstock, the Compromise
Agreement is certainly in fraud of PNCCs other creditors, including the
National Government, and violates the provisions of the Civil Code on
concurrence and preference of credits.
This Court has held that while the Corporation Code allows the transfer
of all or substantially all of the assets of a corporation, the transfer
should not prejudice the creditors of the assignor
corporation.87 Assuming that PNCC may transfer all or substantially all
its assets, to allow PNCC to do so without the consent of its creditors or
without requiring Radstock to assume PNCCs debts will defraud the
other PNCC creditors88 since the assignment will place PNCCs assets
beyond the reach of its other creditors.89 As this Court held in Caltex
(Phil.), Inc. v. PNOC Shipping and Transport Corporation:90
While the Corporation Code allows the transfer of all or substantially all
the properties and assets of a corporation, the transfer should not
prejudice the creditors of the assignor. The only way the transfer can
proceed without prejudice to the creditors is to hold the assignee liable
for the obligations of the assignor. The acquisition by the assignee of all
or substantially all of the assets of the assignor necessarily includes the
assumption of the assignor's liabilities, unless the creditors who did not
consent to the transfer choose to rescind the transfer on the ground of
fraud. To allow an assignor to transfer all its business, properties and
assets without the consent of its creditors and without requiring the
assignee to assume the assignor's obligations will defraud the creditors.
The assignment will place the assignor's assets beyond the reach of its
creditors. (Emphasis supplied)
Also, the law, specifically Article 138791 of the Civil Code, presumes that
there is fraud of creditors when property is alienated by the debtor
after judgment has been rendered against him, thus:
Alienations by onerous title are also presumed fraudulent when made
by persons against whom some judgment has been rendered in any
instance or some writ of attachment has been issued. The decision or
attachment need not refer to the property alienated, and need not
have been obtained by the party seeking rescission. (Emphasis supplied)
As stated earlier, Asiavest is a judgment creditor of PNCC in G.R. No.
110263 and a court has already issued a writ of execution in its favor.
Thus, when PNCC entered into the Compromise Agreement conveying
several prime lots in favor of Radstock, by way of dacion en pago, there
is a legal presumption that such conveyance is fraudulent under Article
1387 of the Civil Code.92 This presumption is strengthened by the fact
that the conveyance has virtually left PNCCs other creditors, including
the biggest creditor the National Government - with no other asset to
garnish or levy.
Notably, the presumption of fraud or intention to defraud creditors is
not just limited to the two instances set forth in the first and second
paragraphs of Article 1387 of the Civil Code. Under the third paragraph
of the same article, "the design to defraud creditors may be proved in
any other manner recognized by the law of evidence." In Oria v.
Mcmicking,93 this Court considered the following instances as badges of
fraud:
1. The fact that the consideration of the conveyance is
fictitious or is inadequate.
2. A transfer made by a debtor after suit has begun and while
it is pending against him.
3. A sale upon credit by an insolvent debtor. PNCC owes the National Government 36 billion, a substantial part of
which constitutes taxes and fees, thus:
4. Evidence of large indebtedness or complete insolvency.
SEN. ROXAS. Thank you, Mr. Chairman.
5. The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly Mr. PNCC Chairman, could you describe for us the composition of your
embarrassed financially. debt of about five billion there are in thousands, so this looks like five
and half billion. Current portion of long-term debt, about five billion.
What is this made of?
6. The fact that the transfer is made between father and son,
when there are present other of the above circumstances.
MS. PASETES. The five billion is composed of what is owed the Bureau
of Treasury and the Toll Regulatory Board for concession fees thats
7. The failure of the vendee to take exclusive possession of all
almost three billion and another 2.4 billion owed Philippine National
the property. (Emphasis supplied)
Bank.
Among the circumstances indicating fraud is a transfer of all or nearly
all of the debtors assets, especially when the debtor is greatly SEN. ROXAS. So, how much is the Bureau of Treasury?
embarrassed financially. Accordingly, neither a declaration of insolvency
nor the institution of insolvency proceedings is a condition sine qua non MS. PASETES. Three billion.
for a transfer of all or nearly all of a debtors assets to be regarded in
fraud of creditors. It is sufficient that a debtor is greatly embarrassed SEN. ROXAS. Three Why do you owe the Bureau of Treasury three
financially. billion?
In this case, PNCCs huge negative net worth - at least 6 billion as MS. PASETES. That represents the concession fees due Toll Regulatory
expressly admitted by PNCCs counsel during the oral arguments, or Board principal plus interest, Your Honor.
14 billion based on the 2006 COA Audit Report - necessarily translates
to an extremely embarrassing financial situation. With its huge negative
x x x x94 (Emphasis supplied)
net worth arising from unpaid billions of pesos in debt, PNCC cannot
claim that it is financially stable. As a consequence, the Compromise
In addition, PNCCs 2006 Audit Report by COA states as follows:
Agreement stipulating a transfer in favor of Radstock of substantially all
of PNCCs assets constitutes fraud. To legitimize the Compromise
Agreement just because there is still no judicial declaration of PNCCs TAX MATTERS
insolvency will work fraud on PNCCs other creditors, the biggest
creditor of which is the National Government. To insist that PNCC is The Company was assessed by the Bureau of Internal Revenue (BIR) of
very much liquid, given its admitted huge negative net worth, is nothing its deficiencies in various taxes. However, no provision for any liability
but denial of the truth. The toll fees that PNCC collects belong to the
has been made yet in the Companys financial statements.
National Government. Obviously, PNCC cannot claim it is liquid based
on its collection of such toll fees, because PNCC merely holds such toll
fees in trust for the National Government. PNCC does not own the toll 1980 deficiency income tax, deficiency contractors tax and deficiency
fees, and such toll fees do not form part of PNCCs assets. documentary stamp tax assessments by the BIR totaling 212.523
Million.
xxxx
Deficiency business tax of 64 Million due the Belgian Consortium,
PNCCs partner in its LRT Project.
1992 deficiency income tax, deficiency value-added tax and deficiency
expanded withholding tax of 1.04 Billion which was reduced to 709
Million after the Companys written protest.
xxxx
2002 deficiency internal revenue taxes totaling 72.916 Million.
x x x x.95 (Emphasis supplied)
Clearly, PNCC owes the National Government substantial taxes and fees
amounting to billions of pesos.
The 36 billion debt to the National Government was acknowledged by
the PNCC Board in the same board resolution that recognized the
Marubeni loans. Since PNCC is clearly insolvent with a huge negative
net worth, the government enjoys preference over Radstock in the
satisfaction of PNCCs liability arising from taxes and duties, pursuant to
the provisions of the Civil Code on concurrence and preference of
credits. Articles 2241,96 224297 and 224398 of the Civil Code expressly
mandate that taxes and fees due the National Government "shall be
preferred" and "shall first be satisfied" over claims like those arising
from the Marubeni loans which "shall enjoy no preference" under
Article 2244.99
However, in flagrant violation of the Civil Code, the PNCC Board favored
Radstock over the National Government in the order of credits. This
would strip PNCC of its assets leaving virtually nothing for the National
Government. This action of the PNCC Board is manifestly and grossly
disadvantageous to the National Government and amounts to fraud.
During the Senate hearings, Senator Osmea pointed out that in the
Board Resolution of 20 October 2000, PNCC acknowledged its
obligations to the National Government amounting to 36,023,784,000
and to Marubeni amounting to 10,743,000,000. Yet, Senator Osmea
noted that in the PNCC books at the time of the hearing, the 36 billion
obligation to the National Government was reduced to 5 billion.
PNCCs Miriam M. Pasetes could not properly explain this discrepancy,
except by stating that the 36 billion includes the principal plus interest
and penalties, thus:
SEN. OSMEA. Teka muna. What is the 36 billion that appear in the
resolution of the board in September 2000 (sic)? This is the same
resolution that recognizes, acknowledges and confirms PNCC's
obligations to Marubeni. And subparagraph (a) says "Government of
the Philippines, in the amount of 36,023,784,000 and change. And then
(b) Marubeni Corporation in the amount of 10,743,000,000. So,
therefore, in the same resolution, you acknowledged that had
something like P46.7 billion in obligations. Why did PNCC settle the 10
billion and did not protect the national government's 36 billion? And
then, number two, why is it now in your books, the 36 billion is now
down to five? If you use that ratio, then Marubeni should be down to
one.
MS. PASETES. Sir, the amount of 36 billion is principal plus interest and
penalties.
SEN. OSMEA. And what about Marubeni? Is that just principal only?
MS. PASETES. Principal and interest.
SEN. OSMEA. So, I mean, you know, it's equal treatment. Ten point
seven billion is principal plus penalties plus interest, hindi ba?
MS. PASETES. Yes, sir. Yes, Your Honor.
SEN. OSMEA. All right. So now, what you are saying is that you gonna
pay Marubeni 6 billion and change and the national government is only
recognizing 5 billion. I don't think that's protecting the interest of the
national government at all.100
PNCC failed to explain satisfactorily why in its books the obligation to
the National Government was reduced when no payment to the
National Government appeared to have been made. PNCC failed to
justify why it made it appear that the obligation to the National
Government was less than the obligation to Marubeni. It is another
obvious ploy to justify the preferential treatment given to Radstock to
the great prejudice of the National Government.
VI.
Supreme Court is Not Legitimizer of Violations of Laws
During the oral arguments, counsels for Radstock and PNCC admitted
that the Compromise Agreement violates the Constitution and existing
laws. However, they rely on this Court to approve the Compromise
Agreement to shield their clients from possible criminal acts arising
from violation of the Constitution and existing laws. In their view, once
this Court approves the Compromise Agreement, their clients are home
free from prosecution, and can enjoy the 6.185 billion loot. The
following exchanges during the oral arguments reveal this view:
ASSOCIATE JUSTICE CARPIO:
If there is no agreement, they better remit all of that to the National
Government. They cannot just hold that. They are holding that [in]
trust, as you said, x x x you agree, for the National Government.
DEAN AGABIN:
Yes, thats why, they are asking the Honorable Court to approve the
compromise agreement.
ASSOCIATE JUSTICE CARPIO:
We cannot approve that if the power to authorize the expenditure
[belongs] to Congress. How can we usurp x x x the power of Congress
to authorize that expenditure[?] Its only Congress that can authorize
the expenditure of funds from the general funds.
DEAN AGABIN:
But, Your Honor, if the Honorable Court would approve of this
compromise agreement, I believe that this would be binding on
Congress.
ASSOCIATE JUSTICE CARPIO: The premise, Your Honor, you mentioned a while ago was, if this Court
approves said compromise (interrupted).102(Emphasis supplied)
Ignore the Constitutional provision that money shall be paid out of the
National Treasury only pursuant to an appropriation by law. You want This Court is not, and should never be, a rubber stamp for litigants
us to ignore that[?] hankering to pocket public funds for their selfish private gain. This Court
is the ultimate guardian of the public interest, the last bulwark against
DEAN AGABIN: those who seek to plunder the public coffers. This Court cannot, and
must never, bring itself down to the level of legitimizer of violations of
the Constitution, existing laws or public policy.
Not really, Your Honor, but I suppose that Congress would have no
choice, because this is a final judgment of the Honorable Court. 101
Conclusion
xxxx
In sum, the acts of the PNCC Board in (1) issuing Board Resolution Nos.
BD-092-2000 and BD-099-2000 expressly admitting liability for the
ASSOCIATE JUSTICE CARPIO:
Marubeni loans, and (2) entering into the Compromise Agreement,
constitute evident bad faith and gross inexcusable negligence,
So, if Radstock makes the assignment, it must own its rights, otherwise,
amounting to fraud, in the management of PNCCs affairs. Being public
it cannot assign it, correct?
officers, the government nominees in the PNCC Board must answer not
only to PNCC and its stockholders, but also to the Filipino people for
ATTY. AGRA: grossly mishandling PNCCs finances.
ratified." No court, not even this Court, can ratify or approve the
Compromise Agreement. This Court must perform its duty to defend
and uphold the Constitution, existing laws, and fundamental public
policy. This Court must not shirk in declaring the Compromise
Agreement inexistent and void ab initio.
WHEREFORE, we GRANT the petition in G.R. No. 180428. We SET ASIDE
the Decision dated 25 January 2007 and the Resolutions dated 12 June
2007 and 5 November 2007 of the Court of Appeals. We DECLARE (1)
PNCC Board Resolution Nos. BD-092-2000 and BD-099-2000 admitting
liability for the Marubeni loans VOID AB INITIO for causing undue injury
to the Government and giving unwarranted benefits to a private party,
constituting a corrupt practice and unlawful act under Section 3(e) of
the Anti-Graft and Corrupt Practices Act, and (2) the Compromise
Agreement between the Philippine National Construction Corporation
and Radstock Securities Limited INEXISTENT AND VOID AB INITIO for
being contrary to Section 29(1), Article VI and Sections 3 and 7, Article
XII of the Constitution; Section 20(1), Chapter IV, Subtitle B, Title I, Book
V of the Administrative Code of 1987; Sections 4(2), 79, 84(1), and 85 of
the Government Auditing Code; and Articles 2241, 2242, 2243 and 2244
of the Civil Code.

Pursuant to the compromise agreement, once approved, yes, Your Under Article 1409 of the Civil Code, the Compromise Agreement is
We GRANT the intervention of Asiavest Merchant Bankers Berhad in
Honors. "inexistent and void from the beginning," and "cannot be ratified," thus:
G.R. No. 178158 but DECLARE that Strategic Alliance Development
Corporation has no legal standing to sue.
ASSOCIATE JUSTICE CARPIO: Art. 1409. The following contracts are inexistent and void from the
beginning:
SO ORDERED.
So, you are saying that Radstock can own the rights to ownership of the
land? (1) Those whose cause, object or purpose is contrary to law,
ANTONIO T. CARPIO
morals, good customs, public order or public policy;
Associate Justice
ATTY. AGRA:
xxx
WE CONCUR:
Yes, Your Honors.
(7) Those expressly prohibited or declared void by law.
REYNATO S. PUNO
ASSOCIATE JUSTICE CARPIO: Chief Justice
These contracts cannot be ratified. x x x. (Emphasis supplied)
Yes?
The Compromise Agreement is indisputably contrary to the CONCHITA CARPIO
RENATO C. CORONA
ATTY. AGRA: Constitution, existing laws and public policy. Under Article 1409, the MORALES
Associate Justice
Compromise Agreement is expressly declared void and "cannot be Associate Justice
 Franklin M. Drilon puts the actual value of the compromise at 10Rollo, pp. 31-43. Penned by Associate Justice (now a
PRESBITERO J. VELASCO, 17.676 billion. member of this Court) Mariano C. Del Castillo, concurred in by
MINITA V. CHICO-NAZARIO
JR. then Presiding Justice Ruben T. Reyes and Associate Justice
Associate Justice
Associate Justice 2AN Arcangelita Romilla Lontok.
ACT RENEWING THE FRANCHISE OF THE PHILIPPINE
NATIONAL CONSTRUCTION CORPORATION (PNCC),
ANTONIO EDUARDO B. TERESITA J. LEONARDO-DE FORMERLY KNOWN AS THE CONSTRUCTION AND 11 http://www.pncc.com.ph/
NACHURA CASTRO DEVELOPMENT CORPORATION OF THE PHILIPPINES (CDCP),
Associate Justice Associate Justice GRANTED UNDER PRESIDENTIAL DECREE NO. 1113, AS 12 http://www.pncc.com.ph/
AMENDED BY PRESIDENTIAL DECREE NO. 1894, TO ANOTHER
(25) YEARS FROM THE DATE OF THE APPROVAL OF THIS ACT
ARTURO D. BRION DIOSDADO M. PERALTA 13 Id.
AND FOR OTHER PURPOSES.
Associate Justice Associate Justice
14 Id.
3On 7 February 2007, Senator Franklin Drilon introduced P.S.
LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO Res. No. 618 or the RESOLUTION DIRECTING THE SENATE
Associate Justice Associate Justice COMMITTEE ON FINANCE TO CONDUCT AN INQUIRY, IN AID 15 The members of the PNCC Board who were present during
OF LEGISLATION, INTO THE COMPROMISE AGREEMENT the meeting were Renato B. Valdecantos, Chairman, Rolando
ROBERTO A. ABAD MARTIN S. VILLARAMA, JR. ENTERED INTO BY THE PHILIPPINE NATIONAL CONSTRUCTION L. Macasaet, President and Chief Executive Officer, Braulio B.
Associate Justice Associate Justice CORPORATION (PNCC) WITH RADSTOCK SECURITIES LIMITED, Balbas, Jr., Romulo F. Coronado, Basilio R. Cruz, Jr., Alfredo F.
FOR THE PURPOSE OF PROVIDING REMEDIAL LEGISLATION Laya, Jr., Victor Pineda, Edwin Tanonliong, Jose Luis Vera,
AND POLICY PARAMETERS ON COMPROMISE AGREEMENTS Hermogenes Concepcion, Jr., and Raymundo Francisco,
TO PROTECT GOVERNMENT ASSETS AND ENSURE THE Directors.
CERTIFICATION
JUDICIOUS USE OF GOVERNMENT FUNDS. This Resolution was
submitted to the Senate and referred to the Committee on 16 Penned by Judge Amalia F. Dy.
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
Finance.
conclusions in the above Decision had been reached in consultation
17Philippine National Construction Corporation v. Dy, G.R. No.
before the case was assigned to the writer of the opinion of the Court.
4 Delivered on 21 December 2006 during the Plenary Session. 156887, 3 October 2005, 472 SCRA 1, 12.
REYNATO S. PUNO
5Record of the Senate, Vol. III, Session No. 55, 21 December 18
Chief Justice Rollo, pp. 237-290.
2006.
19 Pinlac v. Court of Appeals, 457 Phil. 527 (2003).
6Transcript of Committee Hearings, 19 December 2006, pp.
69-70. 20 Id.
Footnotes
7 Id., 14 December 2006, pp. 62-64. 21Office of the Ombudsman v. Masing, G.R. No. 165416, 22
1 This is a conservative amount since the real properties January 2008, 542 SCRA 253, 265.
8 Id. at 64-66.
conveyed under the Compromise Agreement are valued only
at 70% of their appraised value. In addition, payment from 22439 Phil. 149 (2002), citing Mago v. Court of Appeals, 363
50% of the toll fees for 27 years, amounting to 9.382 billion, 9 Under Rule 45 of the Rules of Court. Phil. 225 (1999) and Director of Lands v. Court of Appeals, No.
is given a net present value of only 1.287 billion. Senator L-45168, 25 September 1979, 93 SCRA 239.
23363 Phil. 225, 234 (1999), which in turn cited Director of 35 Section 31 of the Corporation Code. stock of 445.68 million would not be sufficient to
Lands v. Court of Appeals, No. L-45168, 25 September 1979, cover the recorded outstanding obligations of 5.55
93 SCRA 239, 245-246. 36 Id. billion or the BTr confirmed amount of 48.05
billion.
24
National Power Corporation v. Province of Quezon and 37Philippine National Construction Corporation v. Dy, supra
Municipality of Pagbilao, G.R. No. 171586, 15 July 2009. 42Annual Audit Report on the PNCC For the Year Ended
note 17 at 10.
December 31, 2006.
25Hi-Yield Realty Incorporated v. Court of Appeals, G.R. No. 38No stopping PNCC-Radstock deal, Daxim Lucas, 26 April
168863, 23 June 2009. 43 TSN, Oral Arguments, pp. 299-304.
2007
(http://business.inquirer.net/ money/topstories/view/200704
26 Id. 26-62559/No stopping PNCC-Radstock_deal). 44 Article 1139 of the Civil Code.

27 Id. 39Transcript of Committee Hearings, 14 December 2006, pp. 45 Article 1155 of the Civil Code.
26-28.
28 Id. 46Transcript of Committee Hearings, 14 December 2006, pp.
40 P.S. Res. No. 618, introduced by Senator Franklin M. Drilon. 23-26.
29 TSN, Oral Arguments, pp. 19-20.
41The Annual Audit Report on the PNCC For the Year Ended 47 Id., 19 December 2006, p. 47.
30 Del Mar v. PAGCOR, 400 Phil. 307 (2000). December 31, 2006 pertinently provides: "There is a variance
of 43.959 Billion between PNCC recorded balance of 48 Id., 14 December 2006, p. 108.
31
obligations to various Government Financial Institutions (GFIs)
Agote v. Lorenzo, G.R. No. 142675, 22 July 2005, 464 SCRA
and the amount confirmed by the Bureau of Treasury (BTr). 49
60. Id., 19 December 2006, pp. 13-25.
Said obligations are still not fully converted to equity as
prescribed under LOI 1295. If converted, the available capital
32G.R. No. 102782, 11 December 1991, 204 SCRA 837, 842- 50 Id. at 82-83.
stock of 44.568 Million would not be sufficient to cover the
843. recorded outstanding obligations of 5.552 Billion or the BTr
confirmed amount of 50.893 Billion." 51 TSN, Oral Arguments, pp. 12-13.
33Villanueva, Philippine Corporate Law, 2001, p. 318. Section
31 of the Corporation Code. The Annual Audit Report on the PNCC For the Year 52Transcript of Committee Hearings, 19 December 2006, pp.
Ended December 31, 2007 pertinently provides: 36-39.
34Villanueva, Philippine Corporate Law, 2001, pp. 321-322. "The Corporation's liabilities are understated by
Section 25 of the Corporation Code pertinently provides: 42.50 billion due to non-recognition of advances 53 TSN, Oral Arguments, pp. 19-20.
made by the Bureau of Treasury for the account of
xxxx PNCC. x x x The Corporation has designed a
54See The Alexandra Condominium Corporation v. Laguna
corporate strategic plan to include the servicing of
accounts with the BTr via conversion of the Lake Development Authority, G.R. No.169228, 11 September
The directors or trustees and officers to be elected obligations into long-term debt or equity. However, 2009.
shall perform the duties enjoined on them by law said obligations are still not converted to long term-
and by the by-laws of the corporation. x x x x debt and fully converted to equity as prescribed 55 G.R. No. 87710, 31 March 1992, 207 SCRA 659.
under LOI 1295. If converted, the available capital
56Rufino v. Endriga, G.R. Nos. 139554 and 139565, 21 July
2006, 496 SCRA 13.
57Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the
Administrative Code of 1987.
58
464 Phil. 441, 453, 461-462 (2004).
59PRESIDENTIAL DECREE NO. 1113 - GRANTING THE
CONSTRUCTION AND DEVELOPMENT CORPORATION OF THE
PHILIPPINES (CDCP) A FRANCHISE TO OPERATE, CONSTRUCT
AND MAINTAIN TOLL FACILITIES IN THE NORTH AND SOUTH
LUZON TOLL EXPRESSWAYS AND FOR OTHER PURPOSES.
60PRESIDENTIAL DECREE NO. 1894 - AMENDING THE
FRANCHISE OF THE PHILIPPINE NATIONAL CONSTRUCTION
CORPORATION TO CONSTRUCT, MAINTAIN AND OPERATE
TOLL FACILITIES IN THE NORTH LUZON AND SOUTH LUZON
EXPRESSWAYS TO INCLUDE THE METRO MANILA
EXPRESSWAY TO SERVE AS AN ADDITIONAL ARTERY IN THE
TRANSPORTATION OF TRADE AND COMMERCE IN THE METRO
MANILA AREA
61 Section 3, Definition of Terms, Government Auditing Code.
62 TSN, Oral Arguments, pp. 504-506.
63
Id. at 508.
64 Id. at 515-518.
65
Section 4 of the Government Auditing Code provides:
"Fundamental principles. Financial transactions and
operations of any government agency shall be
governed by the fundamental principles set forth
hereunder, to wit:
1. No money shall be paid out of any
public treasury of depository except in
pursuance of an appropriation law or
other specific statutory authority;
2. Government funds or property shall be
spent or used solely for public purposes;
3. Trust funds shall be available and may
be spent only for the specific purpose for
which the trust was created or the funds
received;
4. Fiscal responsibility shall, to the
greatest extent, be shared by all those
exercising authority over the financial
affairs, transactions, and operations of the
government agency;
5. Disbursements or disposition of
government funds or property shall
invariably bear the approval of the proper
officials;
6. Claims against government funds shall
be supported with complete
documentation;
7. All laws and regulations applicable to
financial transactions shall be faithfully
adhered to;
8. Generally accepted principles and
practices of accounting as well as of sound
management and fiscal administration
shall be observed, provided that they do
not contravene existing laws and
regulations. (Emphasis supplied)
66Section 86. Certificate showing appropriation to meet
contract. Except in the case of a contract for personal service,
for supplies for current consumption or to be carried in stock
not exceeding the estimated consumption for three months,
or banking transactions of government-owned or controlled
banks no contract involving the expenditure of public funds
by any government agency shall be entered into or authorized
unless the proper accounting official of the agency concerned
shall have certified to the officer entering into the obligation
that funds have been duly appropriated for the purpose and
that the amount necessary to cover the proposed contract for
the current fiscal year is available for expenditure on account
thereof, subject to verification by the auditor concerned. The
certificate signed by the proper accounting official and the
auditor who verified it, shall be attached to and become an
integral part of the proposed contract, and the sum so
certified shall not thereafter be available for expenditure for
any other purpose until the obligation of the government
agency concerned under the contract is fully extinguished.
See Melchor v. COA, G.R. No. 95398, 16 August
1991, 200 SCRA 704; Osmea v. COA, G.R. No.
98355, 2 March 1994, 230 SCRA 585; Comelec v.
Quijano-Padilla, 438 Phil. 72 (2002).
67See Guingona, Jr. v. Carague, G.R. No. 94571, 22 April 1991,
196 SCRA 221.
68 438 Phil. 72, 96-98 (2002).
69
TSN, Oral Arguments, pp. 518-526.
70 Id. at 521-523.
71The Court applied this provision in Brgy. Sindalan, San
Fernando, Pampanga v. Court of Appeals, G.R. No. 150640, 22
March 2007, 518 SCRA 649.
72 TSN, Oral Arguments, p. 504.
73Transcript of Committee Hearings, 14 December 2006, pp.
64-66.
74 TSN, Oral Arguments, pp. 470-480.
75Article
1459 of the Civil Code provides: "The thing must be
licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered." The vendor
cannot transfer ownership of the thing if he does not own the
thing or own rights of ownership to the thing. The only
possible exception is in a short sale of securities or
commodities, where the seller borrows from the broker or
third party the securities or commodities the ownership of
which is immediately transferred to the buyer. This is feasible
only when the subject matter of the transaction is a fungible
object.
76 See Casabuena v. Court of Appeals, 350 Phil. 237 (1998).
77 Section 79 of the Government Auditing Codes provides as
follows: "When government property has become
unserviceable for any cause, or is no longer needed, it shall,
upon application of the officer accountable therefor, be
inspected by the head of the agency or his duly authorized
representative in the presence of the auditor concerned and,
if found to be valueless or unsaleable, it may be destroyed in
their presence. If found to be valuable, it may be sold at
public auction to the highest bidder under the supervision of
the proper committee on award or similar body in the
presence of the auditor concerned or other authorized
representative of the Commission, after advertising by
printed notice in the Official Gazette, or for not less than
three consecutive days in any newspaper of general
circulation, or where the value of the property does not
warrant the expense of publication, by notices posted for a
like period in at least three public places in the locality where
the property is to be sold. In the event that the public auction
fails, the property may be sold at a private sale at such price
as may be fixed by the same committee or body concerned
and approved by the Commission." (Emphasis supplied)
78 Chavez v. Public Estates Authority, 433 Phil. 506 (2002). Alienations by onerous title are also presumed
fraudulent when made by persons against whom
79 G.R. No. 111544, 6 July 2004, 433 SCRA 424. some judgment has been rendered in any instance
or some writ of attachment has been issued. The
80
decision or attachment need not refer to the
Id. at 438-439.
property alienated, and need not have been
obtained by the party seeking rescission.
81 Piedras Petroleum Company, Inc.
In addition to these presumptions, the design to
82 197 Phil. 394 (1982).
defraud creditors may be proved in any other
manner recognized by law and of evidence.
83 Id. at 402-403.
92See China Banking Corporation v. Court of Appeals, 384
84 TSN, Oral Arguments, pp. 355-356. Phil. 116 (2000).
85According to this article, the current amount of PNCCs debt 9321 Phil. 243 (1912), cited in China Banking Corporation v.
is 50 billion. The PNCCs Legacy of Debt by GEMMA B. Court of Appeals, 384 Phil. 116 (2000) and Caltex v. PNOC
Shipping and Transport Corporation, G.R. No. 150711, 10
BAGAYAUA, abs-cbnNEWS.com/Newsbreak 01/13/2009
(http://www.abs- August 2006, 498 SCRA 400.
cbnnews.com/nation/01/13/09/pncc%E2%80%99s-legacy-
debt#comment-form) 94Transcript of Committee Hearings, 18 December 2006, pp.
163-165.
86Transcript of the Committee Hearings, 18 December 2006,
pp. 122-124. 952006 Annual Audit Report, pp. 23-24; 2007 Annual Audit
Report, pp. 23-24.
87Caltex (Philippines), Inc. v. PNOC Shipping and Transport
Corporation, G.R. No. 150711, 10 August 2006, 498 SCRA 400. 96Article 2241. With reference to specific movable property
of the debtor, the following claims or liens shall be preferred:
88 Id.
(1) Duties, taxes and fees due thereon to the State
89 Id. or any subdivision thereof;
90 Id. (2) Claims arising from misappropriation, breach of
trust, or malfeasance by public officials committed
91Article in the performance of their duties, on the movables,
1387. All contracts by virtue of which the debtor
money or securities obtained by them;
alienates property by gratuitous title are presumed to have
been entered into in fraud of creditors, when the donor did
(3) Claims for the unpaid price of movable sold, on
not reserve sufficient property to pay all debts contracted
said movables, so long as they are in the possession
before the donation.
of the debtor, up to the amount of the same; and if
the movable has been resold by the debtor and the
price is still unpaid, the lien may be enforced on the
price; this right is not lost by the immobilization of
the thing by destination, provided it has not lost its
form, substance and identity; neither is the right
lost by the sale of the thing together with other
property for a lump sum, when the price thereof
can be determined proportionally;
(4) Credits guaranteed with a pledge so long as the
things pledged are in the hands of the creditor, or
those guaranteed by a chattel mortgage, upon the
things pledged or mortgaged, up to the value
thereof;
(5) Credits for the making, repair, safekeeping or
preservation of personal property, on the movable
thus made, repaired, kept or possessed;
(6) Claims for laborers wages, on the goods
manufactured or the work done;
(7) For expenses of salvage, upon the goods
salvaged;
(8) Credits between the landlord and the tenant,
arising from the contract of tenancy on shares, on
the share of each in the fruits or harvest;
(9) Credits for transportation, upon the goods
carried, for the price of the contract and incidental
expenses, until their delivery and for thirty days
thereafter;
(10) Credits for lodging and supplies usually
furnished to travelers by hotel keepers, on the
movables belonging to the guest as long as such
movables are in the hotel, but not for money loaned
to the guests;
(11) Credits for seeds and expenses for cultivation
and harvest advanced to the debtor, upon the fruits
harvested.
(12) Credits for rent for one year, upon the personal
property of the lessee existing on the immovable
leased and on the fruits of the same, but not on
money or instruments of credits;
(13) Claims in favor of the depositor if the
depositary has wrongfully sold the thing deposited,
upon the price of the sale.
In the foregoing cases, if the movables to which the
lieu or preference attaches have been wrongfully
taken, the creditor may demand them from any
possessor, within thirty days from the unlawful
seizure. (Emphasis supplied)
97Article2242. With reference to specific immovable property
and real rights of the debtor, the following claims, mortgages
and liens shall be preferred, and shall constitute an
encumbrance on the immovable or real right:
(1) Taxes due upon the land or building;
(2) For the unpaid price of real property sold, upon
the immovable sold;
(3) Claims of laborers, masons, mechanics and other
workmen, as well as of architects, engineers and
contractors, engaged in the construction,
reconstruction or repair of buildings, canals or other
works, upon said buildings, canals or other works;
(4) Claims of furnishers of materials used in the
construction, reconstruction, or repair of buildings,
canals or other works, upon said buildings, canals or
other works;
(5) Mortgage credits recorded in the Registry of
Property, upon the real estate mortgaged;
(6) Expenses for the preservation or improvement
of real property when the law authorizes
reimbursement, upon the immovable preserved or
improved;
(7) Credits annotated in the Registry of Property, in
virtue of a judicial order, by attachments or
executions, upon the property affected, and only as
to later credits;
(8) Claims or co-heirs for warranty in the partition of
an immovable among them, upon the real property
thus divided;
(9) Claims of donors of real property for pecuniary
charges or other conditions imposed upon the
donee, upon the immovable donated;
(10) Credits of insurers, upon the property insured,
for the insurance premium for two years. (Emphasis
supplied
G.R. No. L-14441 December 17, 1966
PEDRO R. PALTING, petitioner,
vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.
BARRERA, J.:
This is a petition for review of the order of August 29, 1958, later
supplemented and amplified by another dated September 9, 1958, of
the Securities and Exchange Commission denying the opposition to, and
instead, granting the registration, and licensing the sale in the
Philippines, of 5,000,000 shares of the capital stock of the respondent-
appellee San Jose Petroleum, Inc. (hereafter referred to as SAN JOSE
PETROLEUM), a corporation organized and existing in the Republic of
Panama.
On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine
Securities and Exchange Commission a sworn registration statement,
for the registration and licensing for sale in the Philippines Voting Trust
Certificates representing 2,000,000 shares of its capital stock of a par
value of $0.35 a share, at P1.00 per share. It was alleged that the entire
proceeds of the sale of said securities will be devoted or used
exclusively to finance the operations of San Jose Oil Company, Inc. (a
domestic mining corporation hereafter to be referred to as SAN JOSE
OIL) which has 14 petroleum exploration concessions covering an area
of a little less than 1,000,000 hectares, located in the provinces of
Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and
Agusan. It was the express condition of the sale that every purchaser of
the securities shall not receive a stock certificate, but a registered or
bearer-voting-trust certificate from the voting trustees named therein
James L. Buckley and Austin G.E. Taylor, the first residing in
Connecticut, U.S.A., and the second in New York City. While this
application for registration was pending consideration by the Securities
and Exchange Commission, SAN JOSE PETROLEUM filed an amended
Statement on June 20, 1958, for registration of the sale in the
Philippines of its shares of capital stock, which was increased from
2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to
P0.70 per share. At this time the par value of the shares has also been
reduced from $.35 to $.01 per share.1
Pedro R. Palting and others, allegedly prospective investors in the
shares of SAN JOSE PETROLEUM, filed with the Securities and Exchange
Commission an opposition to registration and licensing of the securities
on the grounds that (1) the tie-up between the issuer, SAN JOSE
PETROLEUM, a Panamanian corporation and SAN JOSE OIL, a domestic
corporation, violates the Constitution of the Philippines, the
Corporation Law and the Petroleum Act of 1949; (2) the issuer has not
been licensed to transact business in the Philippines; (3) the sale of the
shares of the issuer is fraudulent, and works or tends to work a fraud
upon Philippine purchasers; and (4) the issuer as an enterprise, as well
as its business, is based upon unsound business principles. Answering
the foregoing opposition of Palting, et al., the registrant SAN JOSE
PETROLEUM claimed that it was a "business enterprise" enjoying parity
rights under the Ordinance appended to the Constitution, which parity
right, with respect to mineral resources in the Philippines, may be
exercised, pursuant to the Laurel-Langley Agreement, only through the
medium of a corporation organized under the laws of the Philippines.
Thus, registrant which is allegedly qualified to exercise rights under the
Parity Amendment, had to do so through the medium of a domestic
corporation, which is the SAN JOSE OIL. It refused the contention that
the Corporation Law was being violated, by alleging that Section 13
thereof applies only to foreign corporations doing business in the
Philippines, and registrant was not doing business here. The mere fact
that it was a holding company of SAN JOSE OIL and that registrant
undertook the financing of and giving technical assistance to said
corporation did not constitute transaction of business in the Philippines.
Registrant also denied that the offering for sale in the Philippines of its
shares of capital stock was fraudulent or would work or tend to work
fraud on the investors. On August 29, 1958, and on September 9, 1958
the Securities and Exchange Commissioner issued the orders object of
the present appeal.
The issues raised by the parties in this appeal are as follows:
1. Whether or not petitioner Pedro R. Palting, as a
"prospective investor" in respondent's securities, has
personality to file the present petition for review of the order
of the Securities and Exchange Commission;
2. Whether or not the issue raised herein is already moot and
academic;
3. Whether or not the "tie-up" between the respondent SAN
JOSE PETROLEUM, a foreign corporation, and SAN JOSE OIL
COMPANY, INC., a domestic mining corporation, is violative of
the Constitution, the Laurel-Langley Agreement, the
Petroleum Act of 1949, and the Corporation Law; and
4. Whether or not the sale of respondent's securities is
fraudulent, or would work or tend to work fraud to
purchasers of such securities in the Philippines.
1. In answer to the notice and order of the Securities and Exchange
Commissioner, published in 2 newspapers of general circulation in the
Philippines, for "any person who is opposed" to the petition for
registration and licensing of respondent's securities, to file his
opposition in 7 days, herein petitioner so filed an opposition. And, the
Commissioner, having denied his opposition and instead, directed the
registration of the securities to be offered for sale, oppositor Palting
instituted the present proceeding for review of said order.
Respondent raises the question of the personality of petitioner to bring
this appeal, contending that as a mere "prospective investor", he is not
an "Aggrieved" or "interested" person who may properly maintain the
suit. Citing a 1931 ruling of Utah State Supreme Court2 it is claimed that
the phrase "party aggrieved" used in the Securities Act3and the Rules of
Court4 as having the right to appeal should refer only to issuers, dealers
and salesmen of securities.
It is true that in the cited case, it was ruled that the phrase "person
aggrieved" is that party "aggrieved by the judgment or decree where it
operates on his rights of property or bears directly upon his interest",
that the word "aggrieved" refers to "a substantial grievance, a denial of
some personal property right or the imposition upon a party of a
burden or obligation." But a careful reading of the case would show
that the appeal therein was dismissed because the court held that an
order of registration was not final and therefore not appealable. The
foregoing pronouncement relied upon by herein respondent was made
in construing the provision regarding an order of revocation which the
court held was the one appealable. And since the law provides that in
revoking the registration of any security, only the issuer and every
registered dealer of the security are notified, excluding any person or
group of persons having no such interest in the securities, said court
concluded that the phrase "interested person" refers only to issuers,
dealers or salesmen of securities.
We cannot consider the foregoing ruling by the Utah State Court as
controlling on the issue in this case. Our Securities Act in Section 7(c)
thereof, requires the publication and notice of the registration
statement. Pursuant thereto, the Securities and Exchange
Commissioner caused the publication of an order in part reading as
follows:
 . . . Any person who is opposed with this petition must file his
written opposition with this Commission within said period (2
weeks). . . .
In other words, as construed by the administrative office entrusted with
the enforcement of the Securities Act, any person (who may not be
"aggrieved" or "interested" within the legal acceptation of the word) is
allowed or permitted to file an opposition to the registration of
securities for sale in the Philippines. And this is in consonance with the
generally accepted principle that Blue Sky Laws are enacted to protect
investors and prospective purchasers and to prevent fraud and preclude
the sale of securities which are in fact worthless or worth substantially
less than the asking price. It is for this purpose that herein petitioner
duly filed his opposition giving grounds therefor. Respondent SAN JOSE
PETROLEUM was required to reply to the opposition. Subsequently
both the petition and the opposition were set for hearing during which
the petitioner was allowed to actively participate and did so by cross-
examining the respondent's witnesses and filing his memorandum in
support of his opposition. He therefore to all intents and purposes
became a party to the proceedings. And under the New Rules of
Court,5 such a party can appeal from a final order, ruling or decision of
the Securities and Exchange Commission. This new Rule eliminating the
word "aggrieved" appearing in the old Rule, being procedural in
nature,6 and in view of the express provision of Rule 144 that the new
rules made effective on January 1, 1964 shall govern not only cases
brought after they took effect but all further proceedings in cases
then pending, except to the extent that in the opinion of the Court their
application would not be feasible or would work injustice, in which
event the former procedure shall apply, we hold that the present
appeal is properly within the appellate jurisdiction of this Court.
The order allowing the registration and sale of respondent's securities is
clearly a final order that is appealable. The mere fact that such
authority may be later suspended or revoked, depending on future
developments, does not give it the character of an interlocutory or
provisional ruling. And the fact that seven days after the publication of
the order, the securities are deemed registered (Sec. 7, Com. Act 83, as
amended), points to the finality of the order. Rights and obligations
necessarily arise therefrom if not reviewed on appeal.
Our position on this procedural matter that the order is appealable
and the appeal taken here is proper is strengthened by the
intervention of the Solicitor General, under Section 23 of Rule 3 of the
Rules of Court, as the constitutional issues herein presented affect the
validity of Section 13 of the Corporation Law, which, according to the
respondent, conflicts with the Parity Ordinance and the Laurel-Langley
Agreement recognizing, it is claimed, its right to exploit our petroleum
resources notwithstanding said provisions of the Corporation Law.
2. Respondent likewise contends that since the order of
Registration/Licensing dated September 9, 1958 took effect 30 days
from September 3, 1958, and since no stay order has been issued by the
Supreme Court, respondent's shares became registered and licensed
under the law as of October 3, 1958. Consequently, it is asserted, the
present appeal has become academic. Frankly we are unable to follow
respondent's argumentation. First it claims that the order of August 29
and that of September 9, 1958 are not final orders and therefor are not
appealable. Then when these orders, according to its theory became
final and were implemented, it argues that the orders can no longer be
appealed as the question of registration and licensing became moot
and academic.
But the fact is that because of the authority to sell, the securities are, in
all probabilities, still being traded in the open market. Consequently the
issue is much alive as to whether respondent's securities should
continue to be the subject of sale. The purpose of the inquiry on this
matter is not fully served just because the securities had passed out of
the hands of the issuer and its dealers. Obviously, so long as the
securities are outstanding and are placed in the channels of trade and
commerce, members of the investing public are entitled to have the
question of the worth or legality of the securities resolved one way or
another.
But more fundamental than this consideration, we agree with the late
Senator Claro M. Recto, who appeared as amicus curiae in this case,
that while apparently the immediate issue in this appeal is the right of
respondent SAN JOSE PETROLEUM to dispose of and sell its securities to
the Filipino public, the real and ultimate controversy here would
actually call for the construction of the constitutional provisions
governing the disposition, utilization, exploitation and development of
our natural resources. And certainly this is neither moot nor academic.
3. We now come to the meat of the controversy the "tie-up"
between SAN JOSE OIL on the one hand, and the respondent SAN JOSE
PETROLEUM and its associates, on the other. The relationship of these
corporations involved or affected in this case is admitted and
established through the papers and documents which are parts of the
records: SAN JOSE OIL, is a domestic mining corporation, 90% of the
outstanding capital stock of which is owned by respondent SAN JOSE
PETROLEUM, a foreign (Panamanian) corporation, the majority interest
of which is owned by OIL INVESTMENTS, Inc., another foreign
(Panamanian) company. This latter corporation in turn is wholly (100%)
owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL
PETROLEUM COMPANY, C.A., both organized and existing under the
laws of Venezuela. As of September 30, 1956, there were 9,976
stockholders of PANCOASTAL PETROLEUM found in 49 American states
and U.S. territories, holding 3,476,988 shares of stock; whereas, as of
November 30, 1956, PANTEPEC OIL COMPANY was said to have
3,077,916 shares held by 12,373 stockholders scattered in 49 American
state. In the two lists of stockholders, there is no indication of the
citizenship of these stockholders,7 or of the total number of authorized
stocks of each corporation, for the purpose of determining the
corresponding percentage of these listed stockholders in relation to the
respective capital stock of said corporation.
Petitioner, as well as the amicus curiae and the Solicitor
General8 contend that the relationship between herein respondent SAN
JOSE PETROLEUM and its subsidiary, SAN JOSE OIL, violates the
Petroleum Law of 1949, the Philippine Constitution, and Section 13 of
the Corporation Law, which inhibits a mining corporation from
acquiring an interest in another mining corporation. It is respondent's
theory, on the other hand, that far from violating the Constitution; such
relationship between the two corporations is in accordance with the
Laurel-Langley Agreement which implemented the Ordinance
Appended to the Constitution, and that Section 13 of the Corporation
Law is not applicable because respondent is not licensed to do business,
as it is not doing business, in the Philippines.
Article XIII, Section 1 of the Philippine Constitution provides:
SEC. 1. All agricultural, timber, and mineral lands of the public
domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, and other natural resources
 of the Philippines belong to the State, and their disposition,
exploitation, development, or utilization shall be limited to
citizens of the Philippines, or to corporations or associations at
least sixty per centum of the capital of which is owned by such
citizens, subject to any existing right, grant, lease or
concession at the time of the inauguration of this
Government established under this Constitution. . . .
(Emphasis supplied)
In the 1946 Ordinance Appended to the Constitution, this right (to
utilize and exploit our natural resources) was extended to citizens of the
United States, thus:
Notwithstanding the provisions of section one, Article
Thirteen, and section eight, Article Fourteen, of the foregoing
Constitution, during the effectivity of the Executive
Agreement entered into by the President of the Philippines
with the President of the United States on the fourth of July,
nineteen hundred and forty-six, pursuant to the provisions of
Commonwealth Act Numbered Seven hundred and thirty-
three, but in no case to extend beyond the third of July,
nineteen hundred and seventy-four, the disposition,
exploitation, development, and utilization of all agricultural,
timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, and other natural resources of the
Philippines, and the operation of public utilities shall, if open
to any person, be open to citizens of the United States, and to
all forms of business enterprises owned or controlled, directly
or indirectly, by citizens of the United States in the same
manner as to, and under the same conditions imposed upon,
citizens of the Philippines or corporations or associations
owned or controlled by citizens of the Philippines (Emphasis
supplied.)
In the 1954 Revised Trade Agreement concluded between the United
States and the Philippines, also known as the Laurel-Langley
Agreement, embodied in Republic Act 1355, the following provisions
appear:
ARTICLE VI
1. The disposition, exploitation, development and utilization
of all agricultural, timber, and mineral lands of the public
domain, waters, minerals, coal, petroleum and other mineral
oils, all forces and sources of potential energy, and other
natural resources of either Party, and the operation of public
utilities, shall, if open to any person, be open to citizens of the
other Party and to all forms of business enterprise owned or
controlled, directly or indirectly, by citizens of such other Party
in the same manner as to and under the same conditions
imposed upon citizens or corporations or associations owned
or controlled by citizens of the Party granting the right.
2. The rights provided for in Paragraph 1 may be exercised, . .
. in the case of citizens of the United States, with respect to
natural resources in the public domain in the Philippines, only
through the medium of a corporation organized under the
laws of the Philippines and at least 60% of the capital stock of
which is owned or controlled by citizens of the United States. .
..
3. The United States of America reserves the rights of the
several States of the United States to limit the extent to which
citizens or corporations or associations owned or controlled
by citizens of the Philippines may engage in the activities
specified in this Article. The Republic of the Philippines
reserves the power to deny any of the rights specified in this
Article to citizens of the United States who are citizens of
States, or to corporations or associations at least 60% of
whose capital stock or capital is owned or controlled by
citizens of States, which deny like rights to citizens of the
Philippines, or to corporations or associations which are
owned or controlled by citizens of the Philippines. . .
. (Emphasis supplied.)
Re-stated, the privilege to utilize, exploit, and develop the natural
resources of this country was granted, by Article XIII of the Constitution,
to Filipino citizens or to corporations or associations 60% of the capital
of which is owned by such citizens. With the Parity Amendment to the
Constitution, the same right was extended to citizens of the United
States and business enterprises owned or controlled directly or
indirectly, by citizens of the United States.
There could be no serious doubt as to the meaning of the word
"citizens" used in the aforementioned provisions of the Constitution.
The right was granted to 2 types of persons: natural persons (Filipino or
American citizens) and juridical persons (corporations 60% of which
capital is owned by Filipinos and business enterprises owned or
controlled directly or indirectly, by citizens of the United States). In
American law, "citizen" has been defined as "one who, under the
constitution and laws of the United States, has a right to vote for
representatives in congress and other public officers, and who is
qualified to fill offices in the gift of the people. (1 Bouvier's Law
Dictionary, p. 490.) A citizen is
One of the sovereign people. A constituent member of the
sovereignty, synonymous with the people." (Scott v. Sandford,
19 Ho. [U.S.] 404, 15 L. Ed. 691.)
A member of the civil state entitled to all its privileges.
(Cooley, Const. Lim. 77. See U.S. v. Cruikshank 92 U.S. 542, 23
L. Ed. 588; Minor v. Happersett 21 Wall. [U.S.] 162, 22 L. Ed.
627.)
These concepts clarified, is herein respondent SAN JOSE PETROLEUM an
American business enterprise entitled to parity rights in the Philippines?
The answer must be in the negative, for the following reasons:
Firstly It is not owned or controlled directly by citizens of the United
States, because it is owned and controlled by a corporation, the OIL
INVESTMENTS, another foreign (Panamanian) corporation.
Secondly Neither can it be said that it is indirectly owned and
controlled by American citizens through the OIL INVESTMENTS, for this
latter corporation is in turn owned and controlled, not by citizens of the
United States, but still by two foreign (Venezuelan) corporations, the
PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM.
Thirdly Although it is claimed that these two last corporations are
owned and controlled respectively by 12,373 and 9,979 stockholders
residing in the different American states, there is no showing in the
certification furnished by respondent that the stockholders of
PANCOASTAL or those of them holding the controlling stock, are
citizens of the United States.
Fourthly Granting that these individual stockholders are American
citizens, it is yet necessary to establish that the different states of which
they are citizens, allow Filipino citizens or corporations or associations
owned or controlled by Filipino citizens, to engage in the exploitation,
etc. of the natural resources of these states (see paragraph 3, Article VI
of the Laurel-Langley Agreement, supra). Respondent has presented no
proof to this effect.
Fifthly But even if the requirements mentioned in the two
immediately preceding paragraphs are satisfied, nevertheless to hold
that the set-up disclosed in this case, with a long chain of intervening
foreign corporations, comes within the purview of the Parity
Amendment regarding business enterprises indirectly owned or
controlled by citizens of the United States, is to unduly stretch and
strain the language and intent of the law. For, to what extent must the
word "indirectly" be carried? Must we trace the ownership or control of
these various corporations ad infinitum for the purpose of determining
whether the American ownership-control-requirement is satisfied? Add
to this the admitted fact that the shares of stock of the PANTEPEC and
PANCOASTAL which are allegedly owned or controlled directly by
citizens of the United States, are traded in the stock exchange in New
York, and you have a situation where it becomes a practical
impossibility to determine at any given time, the citizenship of the
controlling stock required by the law. In the circumstances, we have to
hold that the respondent SAN JOSE PETROLEUM, as presently
constituted, is not a business enterprise that is authorized to exercise
the parity privileges under the Parity Ordinance, the Laurel-Langley
Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is,
consequently, illegal.
What, then, would be the Status of SAN JOSE OIL, about 90% of whose
stock is owned by SAN JOSE PETROLEUM? This is a query which we
need not resolve in this case as SAN JOSE OIL is not a party and it is not
necessary to do so to dispose of the present controversy. But it is a
matter that probably the Solicitor General would want to look into.
There is another issue which has been discussed extensively by the
parties. This is whether or not an American mining corporation may
lawfully "be in anywise interested in any other corporation (domestic or
foreign) organized for the purpose of engaging in agriculture or in
mining," in the Philippines or whether an American citizen owning stock
in more than one corporation organized for the purpose of engaging in
agriculture or in mining, may own more than 15% of the capital stock
then outstanding and entitled to vote, of each of such corporations, in
view of the express prohibition contained in Section 13 of the Philippine
Corporation Law. The petitioner in this case contends that the
provisions of the Corporation Law must be applied to American citizens
and business enterprise otherwise entitled to exercise the parity
privileges, because both the Laurel-Langley Agreement (Art. VI, par. 1)
and the Petroleum Act of 1948 (Art. 31), specifically provide that the
enjoyment by them of the same rights and obligations granted under
the provisions of both laws shall be "in the same manner as to, and
under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the
Philippines." The petitioner further contends that, as the enjoyment of
the privilege of exploiting mineral resources in the Philippines by
Filipino citizens or corporations owned or controlled by citizens of the
Philippines (which corporation must necessarily be organized under the
Corporation Law), is made subject to the limitations provided in Section
13 of the Corporation Law, so necessarily the exercise of the parity
rights by citizens of the United States or business enterprise owned or
controlled, directly or indirectly, by citizens of the United States, must
equally be subject to the same limitations contained in the aforesaid
Section 13 of the Corporation Law.
In view of the conclusions we have already arrived at, we deem it not
indispensable for us to pass upon this legal question, especially taking
into account the statement of the respondent (SAN JOSE PETROLEUM)
that it is essentially a holding company, and as found by the Securities
and Exchange Commissioner, its principal activity is limited to the
financing and giving technical assistance to SAN JOSE OIL.
4. Respondent SAN JOSE PETROLEUM, whose shares of stock were
allowed registration for sale in the Philippines, was incorporated under
the laws of Panama in April, 1956 with an authorized capital stock of
$500,000.00, American currency, divided into 50,000,000 shares at par
value of $0.01 per share. By virtue of a 3-party Agreement of June 14,
1956, respondent was supposed to have received from OIL
INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE OIL (at
par value of $0.01 per share), plus a note for $250,000.00 due in 6
months, for which respondent issued in favor of OIL INVESTMENTS
16,000,000 shares of its capital stock, at $0.01 per share or with a value
of $160,000.00, plus a note for $230,297.97 maturing in 2 years at 6%
per annum interest,9 and the assumption of payment of the unpaid
price of 7,500,000 (of the 8,000,000 shares of SAN JOSE OIL).
On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was
increased from $500,000.00 to $17,500,000.00 by increasing the par
value of the same 50,000,000 shares, from $0.01 to $0.35. Without any
additional consideration, the 16,000,000 shares of $0.01 previously
issued to OIL INVESTMENTS with a total value of $160,000.00 were
changed with 16,000,000 shares of the recapitalized stock at $0.35 per
share, or valued at $5,600,000.00. And, to make it appear that cash was
received for these re-issued 16,000,000 shares, the board of directors
of respondent corporation placed a valuation of $5,900,000.00 on the
8,000,000 shares of SAN JOSE OIL (still having par value of $0.10 per
share) which were received from OIL INVESTMENTS as part-
consideration for the 16,000,000 shares at $0.01 per share.
In the Balance Sheet of respondent, dated July 12, 1956, from the
$5,900,000.00, supposedly the value of the 8,000,000 shares of SAN
JOSE OIL, the sum of $5,100,000.00 was deducted, corresponding to the
alleged difference between the "value" of the said shares and the
subscription price thereof which is $800,000.00 (at $0.10 per share).
From this $800,000.00, the subscription price of the SAN JOSE OIL
shares, the amount of $319,702.03 was deducted, as allegedly unpaid
subscription price, thereby giving a difference of $480,297.97, which
was placed as the amount allegedly paid in on the subscription price of
the 8,000,000 SAN JOSE OIL shares. Then, by adding thereto the note
receivable from OIL INVESTMENTS, for $250,000.00 (part-consideration
for the 16,000,000 SAN JOSE PETROLEUM shares), and the sum of
$6,516.21, as deferred expenses, SAN JOSE PETROLEUM appeared to
have assets in the sum of $736,814.18.
These figures are highly questionable. Take the item $5,900,000.00 the
valuation placed on the 8,000,000 shares of SAN JOSE OIL. There
appears no basis for such valuation other than belief by the board of
directors of respondent that "should San Jose Oil Company be granted
the bulk of the concessions applied for upon reasonable terms, that it
would have a reasonable value of approximately $10,000,000." 10 Then,
of this amount, the subscription price of $800,000.00 was deducted and
called it "difference between the (above) valuation and the subscription
price for the 8,000,000 shares." Of this $800,000.00 subscription price,
they deducted the sum of $480,297.97 and the difference was placed as
the unpaid portion of the subscription price. In other words, it was
made to appear that they paid in $480,297.97 for the 8,000,000 shares
of SAN JOSE OIL. This amount ($480,297.97) was supposedly that
$250,000.00 paid by OIL INVESMENTS for 7,500,000 shares of SAN JOSE
OIL, embodied in the June 14 Agreement, and a sum of $230,297.97 the
amount expended or advanced by OIL INVESTMENTS to SAN JOSE OIL.
And yet, there is still an item among respondent's liabilities, for
$230,297.97 appearing as note payable to Oil Investments, maturing in
two (2) years at six percent (6%) per annum. 11 As far as it appears from
the records, for the 16,000,000 shares at $0.35 per share issued to OIL
INVESTMENTS, respondent SAN JOSE PETROLEUM received from OIL
INVESTMENTS only the note for $250,000.00 plus the 8,000,000 shares
of SAN JOSE OIL, with par value of $0.10 per share or a total of
$1,050,000.00 the only assets of the corporation. In other words,
respondent actually lost $4,550,000.00, which was received by OIL
INVESTMENTS.
But this is not all. Some of the provisions of the Articles of Incorporation
of respondent SAN JOSE PETROLEUM are noteworthy; viz:
(1) the directors of the Company need not be shareholders;
(2) that in the meetings of the board of directors, any director
may be represented and may vote through a proxy who also
need not be a director or stockholder; and
(3) that no contract or transaction between the corporation
and any other association or partnership will be affected,
except in case of fraud, by the fact that any of the directors or
officers of the corporation is interested in, or is a director or
officer of, such other association or partnership, and that no
such contract or transaction of the corporation with any other
person or persons, firm, association or partnership shall be
affected by the fact that any director or officer of the
corporation is a party to or has an interest in, such contract or
transaction, or has in anyway connected with such other
person or persons, firm, association or partnership; and
finally, that all and any of the persons who may become
director or officer of the corporation shall be relieved from all
responsibility for which they may otherwise be liable by
reason of any contract entered into with the corporation,
whether it be for his benefit or for the benefit of any other
person, firm, association or partnership in which he may be
interested.
These provisions are in direct opposition to our corporation law and
corporate practices in this country. These provisions alone would
outlaw any corporation locally organized or doing business in this
jurisdiction. Consider the unique and unusual provision that no contract
or transaction between the company and any other association or
corporation shall be affected except in case of fraud, by the fact that
any of the directors or officers of the company may be interested in or
are directors or officers of such other association or corporation; and
that none of such contracts or transactions of this company with any
person or persons, firms, associations or corporations shall be affected
by the fact that any director or officer of this company is a party to or
has an interest in such contract or transaction or has any connection
with such person or persons, firms associations or corporations; and
that any and all persons who may become directors or officers of this
company are hereby relieved of all responsibility which they would
otherwise incur by reason of any contract entered into which this
company either for their own benefit, or for the benefit of any person,
firm, association or corporation in which they may be interested.
The impact of these provisions upon the traditional judiciary
relationship between the directors and the stockholders of a
corporation is too obvious to escape notice by those who are called
upon to protect the interest of investors. The directors and officers of
the company can do anything, short of actual fraud, with the affairs of
the corporation even to benefit themselves directly or other persons or
entities in which they are interested, and with immunity because of the
advance condonation or relief from responsibility by reason of such
acts. This and the other provision which authorizes the election of non-
stockholders as directors, completely disassociate the stockholders
from the government and management of the business in which they
have invested.
To cap it all on April 17, 1957, admittedly to assure continuity of the
management and stability of SAN JOSE PETROLEUM, OIL INVESTMENTS,
as holder of the only subscribed stock of the former corporation and
acting "on behalf of all future holders of voting trust certificates,"
entered into a voting trust agreement12 with James L. Buckley and
Austin E. Taylor, whereby said Trustees were given authority to vote the
shares represented by the outstanding trust certificates (including those
that may henceforth be issued) in the following manner:
(a) At all elections of directors, the Trustees will designate a
suitable proxy or proxies to vote for the election of directors
designated by the Trustees in their own discretion, having in
mind the best interests of the holders of the voting trust
certificates, it being understood that any and all of the
Trustees shall be eligible for election as directors;
(b) On any proposition for removal of a director, the Trustees
shall designate a suitable proxy or proxies to vote for or
against such proposition as the Trustees in their own
discretion may determine, having in mind the best interest of
the holders of the voting trust certificates;
(c) With respect to all other matters arising at any meeting of
stockholders, the Trustees will instruct such proxy or proxies
attending such meetings to vote the shares of stock held by
the Trustees in accordance with the written instructions of
each holder of voting trust certificates. (Emphasis supplied.)
It was also therein provided that the said Agreement shall be binding
upon the parties thereto, their successors, and upon all holders of
voting trust certificates.
And these are the voting trust certificates that are offered to investors
as authorized by Security and Exchange Commissioner. It can not be
doubted that the sale of respondent's securities would, to say the least,
work or tend to work fraud to Philippine investors.
FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent
to dismiss this appeal, is denied and the orders of the Securities and
Exchange Commissioner, allowing the registration of Respondent's
securities and licensing their sale in the Philippines are hereby set aside.
The case is remanded to the Securities and Exchange Commission for
appropriate action in consonance with this decision. With costs. Let a
copy of this decision be furnished the Solicitor General for whatever
action he may deem advisable to take in the premises. So ordered.
G.R. No. 172671 April 16, 2009
MARISSA R. UNCHUAN, Petitioner,
vs.
ANTONIO J.P. LOZADA, ANITA LOZADA and THE REGISTER OF DEEDS
OF CEBU CITY, Respondents.
DECISION
QUISUMBING, J.:
For review are the Decision1 dated February 23, 2006 and
Resolution2 dated April 12, 2006 of the Court of Appeals in CA-G.R. CV.
No. 73829. The appellate court had affirmed with modification the
Order3 of the Regional Trial Court (RTC) of Cebu City, Branch 10
reinstating its Decision4 dated June 9, 1997.
The facts of the case are as follows:
Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the
registered co-owners of Lot Nos. 898-A-3 and 898-A-4 covered by
Transfer Certificates of Title (TCT) Nos. 532585 and 532576 in Cebu City.
The sisters, who were based in the United States, sold the lots to their
nephew Antonio J.P. Lozada (Antonio) under a Deed of Sale7 dated
March 11, 1994. Armed with a Special Power of Attorney8 from Anita,
Peregrina went to the house of their brother, Dr. Antonio Lozada (Dr.
Lozada), located at 4356 Faculty Avenue, Long Beach California.9Dr.
Lozada agreed to advance the purchase price of US$367,000 or
10,000,000 for Antonio, his nephew. The Deed of Sale was later
notarized and authenticated at the Philippine Consuls Office. Dr. In a Decision dated June 9, 1997, RTC Judge Leonardo B. Caares
Lozada then forwarded the deed, special power of attorney, and disposed of the consolidated cases as follows:
owners copies of the titles to Antonio in the Philippines. Upon receipt
of said documents, the latter recorded the sale with the Register of WHEREFORE, judgment is hereby rendered in Civil Case No. CEB-16145,
Deeds of Cebu. Accordingly, TCT Nos. 12832210 and 12832311 were to wit:
issued in the name of Antonio Lozada.
1. Plaintiff Antonio J.P. Lozada is declared the absolute owner
Pending registration of the deed, petitioner Marissa R. Unchuan caused of the properties in question;
the annotation of an adverse claim on the lots. Marissa claimed that
Anita donated an undivided share in the lots to her under an
2. The Deed of Donation (Exh. "9") is declared null and void,
unregistered Deed of Donation12 dated February 4, 1987.
and Defendant Marissa R. Unchuan is directed to surrender
the original thereof to the Court for cancellation;
Antonio and Anita brought a case against Marissa for quieting of title
with application for preliminary injunction and restraining order.
3. The Register of Deeds of Cebu City is ordered to cancel the
Marissa for her part, filed an action to declare the Deed of Sale void and
annotations of the Affidavit of Adverse Claim of defendant
to cancel TCT Nos. 128322 and 128323. On motion, the cases were
Marissa R. Unchuan on TCT Nos. 53257 and 53258 and on
consolidated and tried jointly.
such all other certificates of title issued in lieu of the
aforementioned certificates of title;
At the trial, respondents presented a notarized and duly authenticated
sworn statement, and a videotape where Anita denied having donated
4. Defendant Marissa R. Unchuan is ordered to pay Antonio
land in favor of Marissa. Dr. Lozada testified that he agreed to advance
J.P. Lozada and Anita Lozada Slaughter the sum of
payment for Antonio in preparation for their plan to form a
100,000.00 as moral damages; exemplary damages of
corporation. The lots are to be eventually infused in the capitalization of
50,000.00; 50,000.00 for litigation expenses and attorneys
Damasa Corporation, where he and Antonio are to have 40% and 60%
fees of 50,000.00; and
stake, respectively. Meanwhile, Lourdes G. Vicencio, a witness for
respondents confirmed that she had been renting the ground floor of
Anitas house since 1983, and tendering rentals to Antonio. 5. The counterclaims of defendant Marissa R. Unchuan [are]
DISMISSED.
For her part, Marissa testified that she accompanied Anita to the office
of Atty. Cresencio Tomakin for the signing of the Deed of Donation. She In Civil Case No. CEB-16159, the complaint is hereby DISMISSED.
allegedly kept it in a safety deposit box but continued to funnel monthly
rentals to Peregrinas account. In both cases, Marissa R. Unchuan is ordered to pay the costs of suit.
A witness for petitioner, one Dr. Cecilia Fuentes, testified on Peregrinas SO ORDERED.13
medical records. According to her interpretation of said records, it was
physically impossible for Peregrina to have signed the Deed of Sale on On motion for reconsideration by petitioner, the RTC of Cebu City,
March 11, 1994, when she was reported to be suffering from edema. Branch 10, with Hon. Jesus S. dela Pea as Acting Judge, issued an
Peregrina died on April 4, 1994. Order14 dated April 5, 1999. Said order declared the Deed of Sale void,
ordered the cancellation of the new TCTs in Antonios name, and
directed Antonio to pay Marissa 200,000 as moral damages, 100,000
as exemplary damages, 100,000 attorneys fees and 50,000 for
expenses of litigation. The trial court also declared the Deed of
Donation in favor of Marissa valid. The RTC gave credence to the
medical records of Peregrina.
Respondents moved for reconsideration. On July 6, 2000, now with
Hon. Soliver C. Peras, as Presiding Judge, the RTC of Cebu City, Branch
10, reinstated the Decision dated June 9, 1997, but with the
modification that the award of damages, litigation expenses and
attorneys fees were disallowed.
Petitioner appealed to the Court of Appeals. On February 23, 2006 the
appellate court affirmed with modification the July 6, 2000 Order of the
RTC. It, however, restored the award of 50,000 attorneys fees and
50,000 litigation expenses to respondents.
Thus, the instant petition which raises the following issues:
I.
WHETHER THE COURT OF APPEALS ERRED AND VIOLATED PETITIONERS
RIGHT TO DUE PROCESS WHEN IT FAILED TO RESOLVE PETITIONERS
THIRD ASSIGNED ERROR.
II.
WHETHER THE HONORABLE SUPREME COURT MAY AND SHOULD
REVIEW THE CONFLICTING FACTUAL FINDINGS OF THE HONORABLE
REGIONAL TRIAL COURT IN ITS OWN DECISION AND RESOLUTIONS ON
THE MOTIONS FOR RECONSIDERATION, AND THAT OF THE HONORABLE
COURT OF APPEALS.
III.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT PETITIONERS CASE IS BARRED BY LACHES.
IV.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE DEED OF DONATION EXECUTED IN FAVOR OF PETITIONER IS
VOID.
V.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT ANITA LOZADAS VIDEOTAPED STATEMENT IS
HEARSAY.15
Simply stated, the issues in this appeal are: (1) Whether the Court of
Appeals erred in upholding the Decision of the RTC which declared
Antonio J.P. Lozada the absolute owner of the questioned properties;
(2) Whether the Court of Appeals violated petitioners right to due
process; and (3) Whether petitioners case is barred by laches.
Petitioner contends that the appellate court violated her right to due
process when it did not rule on the validity of the sale between the
sisters Lozada and their nephew, Antonio. Marissa finds it anomalous
that Dr. Lozada, an American citizen, had paid the lots for Antonio.
Thus, she accuses the latter of being a mere dummy of the former.
Petitioner begs the Court to review the conflicting factual findings of
the trial and appellate courts on Peregrinas medical condition on
March 11, 1994 and Dr. Lozadas financial capacity to advance payment
for Antonio. Likewise, petitioner assails the ruling of the Court of
Appeals which nullified the donation in her favor and declared her case
barred by laches. Petitioner finally challenges the admissibility of the
videotaped statement of Anita who was not presented as a witness.
On their part, respondents pray for the dismissal of the petition for
petitioners failure to furnish the Register of Deeds of Cebu City with a
copy thereof in violation of Sections 316 and 4,17 Rule 45 of the Rules. In
addition, they aver that Peregrinas unauthenticated medical records
were merely falsified to make it appear that she was confined in the
hospital on the day of the sale. Further, respondents question the
credibility of Dr. Fuentes who was neither presented in court as an
expert witness18 nor professionally involved in Peregrinas medical care.
Further, respondents impugn the validity of the Deed of Donation in
favor of Marissa. They assert that the Court of Appeals did not violate
petitioners right to due process inasmuch as it resolved collectively all
the factual and legal issues on the validity of the sale.
Faithful adherence to Section 14,19 Article VIII of the 1987 Constitution
is indisputably a paramount component of due process and fair play.
The parties to a litigation should be informed of how it was decided,
with an explanation of the factual and legal reasons that led to the
conclusions of the court.20
In the assailed Decision, the Court of Appeals reiterates the rule that a
notarized and authenticated deed of sale enjoys the presumption of
regularity, and is admissible without further proof of due execution. On
the basis thereof, it declared Antonio a buyer in good faith and for
value, despite petitioners contention that the sale violates public
policy. While it is a part of the right of appellant to urge that the
decision should directly meet the issues presented for
resolution,21 mere failure by the appellate court to specify in its
decision all contentious issues raised by the appellant and the reasons
for refusing to believe appellants contentions is not sufficient to hold
the appellate courts decision contrary to the requirements of the
law22 and the Constitution.23 So long as the decision of the Court of
Appeals contains the necessary findings of facts to warrant its
conclusions, we cannot declare said court in error if it withheld "any
specific findings of fact with respect to the evidence for the
defense."24 We will abide by the legal presumption that official duty has
been regularly performed,25 and all matters within an issue in a case
were laid down before the court and were passed upon by it.26
In this case, we find nothing to show that the sale between the sisters
Lozada and their nephew Antonio violated the public policy prohibiting
aliens from owning lands in the Philippines. Even as Dr. Lozada
advanced the money for the payment of Antonios share, at no point
were the lots registered in Dr. Lozadas name. Nor was it contemplated
that the lots be under his control for they are actually to be included as
capital of Damasa Corporation. According to their agreement, Antonio
and Dr. Lozada are to hold 60% and 40% of the shares in said
corporation, respectively. Under Republic Act No. 7042,27 particularly
Section 3,28 a corporation organized under the laws of the Philippines of
which at least 60% of the capital stock outstanding and entitled to vote
is owned and held by citizens of the Philippines, is considered a
Philippine National. As such, the corporation may acquire disposable
lands in the Philippines. Neither did petitioner present proof to belie
Antonios capacity to pay for the lots subjects of this case.
Petitioner, likewise, calls on the Court to ascertain Peregrinas physical
ability to execute the Deed of Sale on March 11, 1994. This essentially
necessitates a calibration of facts, which is not the function of this
Court.29 Nevertheless, we have sifted through the Decisions of the RTC
and the Court of Appeals but found no reason to overturn their factual
findings. Both the trial court and appellate court noted the lack of
substantial evidence to establish total impossibility for Peregrina to
execute the Deed of Sale.
In support of its contentions, petitioner submits a copy of Peregrinas
medical records to show that she was confined at the Martin Luther
Hospital from February 27, 1994 until she died on April 4, 1994.
However, a Certification30 from Randy E. Rice, Manager for the Health
Information Management of the hospital undermines the authenticity
of said medical records. In the certification, Rice denied having certified
or having mailed copies of Peregrinas medical records to the
Philippines. As a rule, a document to be admissible in evidence, should
be previously authenticated, that is, its due execution or genuineness
should be first shown.31 Accordingly, the unauthenticated medical
records were excluded from the evidence. Even assuming that
Peregrina was confined in the cited hospital, the Deed of Sale was
executed on March 11, 1994, a month before Peregrina reportedly
succumbed to Hepato Renal Failure caused by Septicemia due to
Myflodysplastic Syndrome.32 Nothing in the records appears to show
that Peregrina was so incapacitated as to prevent her from executing
the Deed of Sale. Quite the contrary, the records reveal that close to
the date of the sale, specifically on March 9, 1994, Peregrina was even
able to issue checks33 to pay for her attorneys professional fees and her
own hospital bills. At no point in the course of the trial did petitioner
dispute this revelation.
Now, as to the validity of the donation, the provision of Article 749 of
the Civil Code is in point:
art. 749. In order that the donation of an immovable may be valid, it
must be made in a public document, specifying therein the property
donated and the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a
separate public document, but it shall not take effect unless it is done
during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be
notified thereof in an authentic form, and this step shall be noted in
both instruments.
When the law requires that a contract be in some form in order that it
may be valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable.34 Here, the Deed
of Donation does not appear to be duly notarized. In page three of the
deed, the stamped name of Cresencio Tomakin appears above the
words Notary Public until December 31, 1983 but below it were the
typewritten words Notary Public until December 31, 1987. A closer
examination of the document further reveals that the
number 7 in 1987 and Series of 1987 were merely superimposed.35 This
was confirmed by petitioners nephew Richard Unchuan who testified
that he saw petitioners husband write 7 over 1983 to make it appear
that the deed was notarized in 1987. Moreover, a Certification36 from
Clerk of Court Jeoffrey S. Joaquino of the Notarial Records Division
disclosed that the Deed of Donation purportedly identified in Book No.
4, Document No. 48, and Page No. 35 Series of 1987 was not reported
and filed with said office. Pertinent to this, the Rules require a party
producing a document as genuine which has been altered and appears
to have been altered after its execution, in a part material to the
question in dispute, to account for the alteration. He may show that the
alteration was made by another, without his concurrence, or was made
with the consent of the parties affected by it, or was otherwise properly
or innocently made, or that the alteration did not change the meaning
or language of the instrument. If he fails to do that, the document shall,
as in this case, not be admissible in evidence.371avvphi1
Remarkably, the lands described in the Deed of Donation are covered
by TCT Nos. 7364538 and 73646,39 both of which had been previously
cancelled by an Order40 dated April 8, 1981 in LRC Record No. 5988. We
find it equally puzzling that on August 10, 1987, or six months after
Anita supposedly donated her undivided share in the lots to petitioner,
the Unchuan Development Corporation, which was represented by
petitioners husband, filed suit to compel the Lozada sisters to
surrender their titles by virtue of a sale. The sum of all the
circumstances in this case calls for no other conclusion than that the
Deed of Donation allegedly in favor of petitioner is void. Having said
that, we deem it unnecessary to rule on the issue of laches as the
execution of the deed created no right from which to reckon delay in
making any claim of rights under the instrument.
Finally, we note that petitioner faults the appellate court for not
excluding the videotaped statement of Anita as hearsay evidence.
Evidence is hearsay when its probative force depends, in whole or in
part, on the competency and credibility of some persons other than the
witness by whom it is sought to be produced. There are three reasons
for excluding hearsay evidence: (1) absence of cross-examination; (2)
absence of demeanor evidence; and (3) absence of oath.41 It is a
hornbook doctrine that an affidavit is merely hearsay evidence where
its maker did not take the witness stand.42 Verily, the sworn statement
of Anita was of this kind because she did not appear in court to affirm
her averments therein. Yet, a more circumspect examination of our
rules of exclusion will show that they do not cover admissions of a
party;43 the videotaped statement of Anita appears to belong to this
class. Section 26 of Rule 130 provides that "the act, declaration or
omission of a party as to a relevant fact may be given in evidence
against him. It has long been settled that these admissions are
admissible even if they are hearsay.44 Indeed, there is a vital distinction
between admissions against interest and declaration against interest.
Admissions against interest are those made by a party to a litigation or
by one in privity with or identified in legal interest with such party, and
are admissible whether or not the declarant is available as a witness.
Declaration against interest are those made by a person who is neither
a party nor in privity with a party to the suit, are secondary evidence
and constitute an exception to the hearsay rule. They are admissible
only when the declarant is unavailable as a witness.45 Thus, a mans
acts, conduct, and declaration, wherever made, if voluntary, are
admissible against him, for the reason that it is fair to presume that
they correspond with the truth, and it is his fault if they do
not.46 However, as a further qualification, object evidence, such as the
videotape in this case, must be authenticated by a special testimony
showing that it was a faithful reproduction.47 Lacking this, we are
constrained to exclude as evidence the videotaped statement of Anita.
Even so, this does not detract from our conclusion concerning
petitioners failure to prove, by preponderant evidence, any right to the
lands subject of this case.
Anent the award of moral damages in favor of respondents, we find no
factual and legal basis therefor. Moral damages cannot be awarded in
the absence of a wrongful act or omission or fraud or bad faith. When
the action is filed in good faith there should be no penalty on the right
to litigate. One may have erred, but error alone is not a ground for
moral damages.48 The award of moral damages must be solidly
anchored on a definite showing that respondents actually experienced
emotional and mental sufferings. Mere allegations do not suffice; they
must be substantiated by clear and convincing proof.49 As exemplary
damages can be awarded only after the claimant has shown
entitlement to moral damages,50 neither can it be granted in this case.
WHEREFORE, the instant petition is DENIED. The Decision dated
February 23, 2006, and Resolution dated April 12, 2006 of the Court of
Appeals in CA-G.R. CV. No. 73829 are AFFIRMED with MODIFICATION.
The awards of moral damages and exemplary damages in favor of
respondents are deleted. No pronouncement as to costs.
SO ORDERED.
G.R. No. 114222 April 6, 1995
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G.
BIAZON, petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the
Department of Transportation and Communications, and EDSA LRT
CORPORATION, LTD., respondents.
QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit
respondents from further implementing and enforcing the "Revised and
Restated Agreement to Build, Lease and Transfer a Light Rail Transit
System for EDSA" dated April 22, 1992, and the "Supplemental
Agreement to the 22 April 1992 Revised and Restated Agreement To
Build, Lease and Transfer a Light Rail Transit System for EDSA" dated
May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon
are members of the Philippine Senate and are suing in their capacities
as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the
incumbent Secretary of the Department of Transportation and
Communications (DOTC), while private respondent EDSA LRT
Corporation, Ltd. is a private corporation organized under the laws of
Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along
EDSA, a major thoroughfare in Metropolitan Manila, which shall
traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The
plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was
intended to provide a mass transit system along EDSA and alleviate the
congestion and growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin
Enterprises, Inc., represented by Elijahu Levin to DOTC Secretary Oscar
Orbos, proposing to construct the EDSA LRT III on a Build-Operate-
Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical
team to discuss the project with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the
Financing, Construction, Operation and Maintenance of Infrastructure
Projects by the Private Sector, and For Other Purposes," was signed by
President Corazon C. Aquino. Referred to as the Build-Operate-Transfer
(BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing,
construction and operation of government projects through private
initiative and investment: Build-Operate-Transfer (BOT) or Build-
Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA
LRT III project underway, DOTC, on January 22, 1991 and March 14,
1991, issued Department Orders Nos. 91-494 and 91-496, respectively
creating the Prequalification Bids and Awards Committee (PBAC) and
the Technical Committee.
After its constitution, the PBAC issued guidelines for the
prequalification of contractors for the financing and implementation of
the project The notice, advertising the prequalification of bidders, was
published in three newspapers of general circulation once a week for
three consecutive weeks starting February 21, 1991.
The deadline set for submission of prequalification documents was
March 21, 1991, later extended to April 1, 1991. Five groups responded
to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd.
of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co.,
Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and
domestic corporations: namely, Kaiser Engineers International, Inc.,
ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD
Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All
Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L.
Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction
Group, Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents, the
prequalification criteria proposed by the Technical Committee were
adopted by the PBAC. The criteria totalling 100 percent, are as follows:
(a) Legal aspects 10 percent; (b) Management/Organizational
capability 30 percent; and (c) Financial capability 30 percent; and
(d) Technical capability 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the
formulation of the Implementation Rules and Regulations thereof,
approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution
on May 9, 1991 declaring that of the five applicants, only the EDSA LRT
Consortium "met the requirements of garnering at least 21 points per
criteria [sic], except for Legal Aspects, and obtaining an over-all passing
mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to
provided that the BOT/BT contractor-applicant meet the requirements
specified in the Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to
the President of the Philippines and was replaced by Secretary Pete
Nicomedes Prado. The latter sent to President Aquino two letters dated
May 31, 1991 and June 14, 1991, respectively recommending the award
of the EDSA LRT III project to the sole complying bidder, the EDSA LRT
Consortium, and requesting for authority to negotiate with the said firm
for the contract pursuant to paragraph 14(b) of the Implementing Rules
and Regulations of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the
President, issued a directive to the DOTC to proceed with the
negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its
bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements,
DOTC and respondent EDSA LRT Corporation, Ltd., in substitution of the
EDSA LRT Consortium, entered into an "Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA" under the terms of the
BOT Law (Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the
contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon,
who replaced Executive Secretary Orbos, informed Secretary Prado that
the President could not grant the requested approval for the following
reasons: (1) that DOTC failed to conduct actual public bidding in
compliance with Section 5 of the BOT Law; (2) that the law authorized
public bidding as the only mode to award BOT projects, and the
prequalification proceedings was not the public bidding contemplated
under the law; (3) that Item 14 of the Implementing Rules and
Regulations of the BOT Law which authorized negotiated award of
contract in addition to public bidding was of doubtful legality; and (4)
that congressional approval of the list of priority projects under the BOT
or BT Scheme provided in the law had not yet been granted at the time
the contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and
private respondents re-negotiated the agreement. On April 22, 1992,
the parties entered into a "Revised and Restated Agreement to Build,
Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-
78) inasmuch as "the parties [are] cognizant of the fact the DOTC has
full authority to sign the Agreement without need of approval by the
President pursuant to the provisions of Executive Order No. 380 and
that certain events [had] supervened since November 7, 1991 which
necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6,
1992, DOTC, represented by Secretary Jesus Garcia vice Secretary
Prado, and private respondent entered into a "Supplemental
Agreement to the 22 April 1992 Revised and Restated Agreement to
Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to
"clarify their respective rights and responsibilities" and to submit [the]
Supplemental Agreement to the President, of the Philippines for his
approval" (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V.
Ramos for his consideration and approval. In a Memorandum to
Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo,
p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles
from the Czech and Slovak Federal Republics and will have a maximum
carrying capacity of 450,000 passengers a day, or 150 million a year to
be achieved-through 54 such vehicles operating simultaneously. The
EDSA LRT III will run at grade, or street level, on the mid-section of EDSA
for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North
Avenue, Quezon City. The system will have its own power facility
(Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also
have thirteen (13) passenger stations and one depot in 16-hectare
government property at North Avenue (Supplemental Agreement, Sec.
11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project
required for a complete operational light rail transit system (Revised
and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date
is 1,080 days or approximately three years from the implementation
date of the contract inclusive of mobilization, site works, initial and final
testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83).
Upon full or partial completion and viability thereof, private respondent
shall deliver the use and possession of the completed portion to DOTC
which shall operate the same (Supplemental Agreement, Sec. 5; Revised
and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay
private respondent rentals on a monthly basis through an Irrevocable
Letter of Credit. The rentals shall be determined by an independent and
internationally accredited inspection firm to be appointed by the
parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed
upon, private respondent's capital shall be recovered from the rentals
to be paid by the DOTC which, in turn, shall come from the earnings of
the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p.
54). After 25 years and DOTC shall have completed payment of the
rentals, ownership of the project shall be transferred to the latter for a
consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec.
11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of
Republic Act No. 6957, Entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by
the Private Sector, and for Other Purposes" was signed into law by the
President. The law was published in two newspapers of general
circulation on May 12, 1994, and took effect 15 days thereafter or on
May 28, 1994. The law expressly recognizes BLT scheme and allows
direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS
AMENDED BY THE SUPPLEMENTAL AGREEMENT OF
MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT
CORPORATION, LTD., A FOREIGN CORPORATION,
THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY,
VIOLATES THE CONSTITUTION AND, HENCE, IS
UNCONSTITUTIONAL;
 (2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED
IN THE AGREEMENTS IS NOT DEFINED NOR
RECOGNIZED IN R.A. NO. 6957 OR ITS
IMPLEMENTING RULES AND REGULATIONS AND,
HENCE, IS ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A
NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND,
HENCE, IS UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF
RESPONDENT EDSA LRT CORPORATION, LTD.
VIOLATES THE REQUIREMENTS PROVIDED IN THE
IMPLEMENTING RULES AND REGULATIONS OF THE
BOT LAW AND, HENCE, IS ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER
NO 380 FOR THEIR FAILURE TO BEAR PRESIDENTIAL
APPROVAL AND, HENCE, ARE ILLEGAL AND
INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY
DISADVANTAGEOUS TO THE GOVERNMENT (Rollo,
pp. 15-16).
Secretary Garcia and private respondent filed their comments
separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal
standing to institute the present petition;
(2) The writ of prohibition is not the proper remedy and the petition
requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer
scheme allowed by the BOT Law;
(4) The nationality requirement for public utilities mandated by the
Constitution does not apply to private respondent;
(5) The Agreements executed by and between respondents have been
approved by President Ramos and are not disadvantageous to the
government;
(6) The award of the contract to private respondent through
negotiation and not public bidding is allowed by the BOT Law; and
(7) Granting that the BOT Law requires public bidding, this has been
amended by R.A No. 7718 passed by the Legislature On May 12, 1994,
which provides for direct negotiation as a mode of award of
infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to initiate
the instant action. Petitioners, however, countered that the action was
filed by them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to
question contracts entered into by the national government or
government-owned or controlled corporations allegedly in
contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110
[1994]) and to disallow the same when only municipal contracts are
involved (Bugnay Construction and Development Corporation v. Laron,
176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed,
we have no choice but to follow it and uphold the legal standing of
petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated
Agreement of April 22, 1992 and the Supplemental Agreement of May
6, 1993 are unconstitutional and invalid for the following reasons:
(1) the EDSA LRT III is a public utility, and the
ownership and operation thereof is limited by the
Constitution to Filipino citizens and domestic
corporations, not foreign corporations like private
respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided
in the agreements is not the BOT or BT Scheme
under the law;
(3) the contract to construct the EDSA LRT III was
awarded to private respondent not through public
bidding which is the only mode of awarding
infrastructure projects under the BOT law; and
(4) the agreements are grossly disadvantageous to
the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract
to construct the EDSA LRT III was awarded by public respondent, is
admittedly a foreign corporation "duly incorporated and existing under
the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that
once the EDSA LRT III is constructed, private respondent, as lessor, will
turn it over to DOTC, as lessee, for the latter to operate the system and
pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a
foreign corporation own EDSA LRT III; a public
utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private
respondent owns are the rail tracks, rolling stocks like the coaches, rail
stations, terminals and the power plant, not a public utility. While a
franchise is needed to operate these facilities to serve the public, they
do not by themselves constitute a public utility. What constitutes a
public utility is not their ownership but their use to serve the public
(Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557
558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the
operation of a public utility. However, it does not require a franchise
before one can own the facilities needed to operate a public utility so
long as it does not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of
authorization for the operation of a public
utility shall be granted except to citizens of the
Philippines or to corporations or associations
organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such
citizens, nor shall such franchise, certificate or
authorization be exclusive character or for a longer
period than fifty years . . . (Emphasis supplied).
In law, there is a clear distinction between the "operation" of a public
utility and the ownership of the facilities and equipment used to serve
the public.
Ownership is defined as a relation in law by virtue of which a thing
pertaining to one person is completely subjected to his will in
everything not prohibited by law or the concurrence with the rights of
another (Tolentino, II Commentaries and Jurisprudence on the Civil
Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law
so that a property cannot be operated and used to serve the public as a
public utility unless the operator has a franchise. The operation of a rail
system as a public utility includes the transportation of passengers from
one point to another point, their loading and unloading at designated
places and the movement of the trains at pre-scheduled times
(cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7
A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30
Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).
The right to operate a public utility may exist independently and
separately from the ownership of the facilities thereof. One can own
said facilities without operating them as a public utility, or conversely,
one may operate a public utility without owning the facilities used to
serve the public. The devotion of property to serve the public may be
done by the owner or by the person in control thereof who may not
necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the
ownership of the facilities used to serve the public can be very well
appreciated when we consider the transportation industry.
Enfranchised airline and shipping companies may lease their aircraft
and vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to
operate the EDSA. LRT III, it admits that it is not enfranchised to operate
a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57).
In view of this incapacity, private respondent and DOTC agreed that on
completion date, private respondent will immediately deliver
possession of the LRT system by way of lease for 25 years, during which
period DOTC shall operate the same as a common carrier and private
respondent shall provide technical maintenance and repair services to
DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo,
pp. 57-58, 61-62). Technical maintenance consists of providing (1)
repair and maintenance facilities for the depot and rail lines, services
for routine clearing and security; and (2) producing and distributing
maintenance manuals and drawings for the entire system (Revised and
Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization
with the operation, use, maintenance and repair of the rolling stock,
power plant, substations, electrical, signaling, communications and all
other equipment as supplied in the agreement (Revised and Restated
Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical
and live training of DOTC operational personnel which includes actual
driving of light rail vehicles under simulated operating conditions,
control of operations, dealing with emergencies, collection, counting
and securing cash from the fare collection system (Revised and
Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC will work
under the direction and control of private respondent only during
training (Revised and Restated Agreement, Annex E, Sec. 3.1). The
training objectives, however, shall be such that upon completion of the
EDSA LRT III and upon opening of normal revenue operation, DOTC shall
have in their employ personnel capable of undertaking training of all
new and replacement personnel (Revised and Restated Agreement,
Annex E Sec. 5.1). In other words, by the end of the three-year
construction period and upon commencement of normal revenue
operation, DOTC shall be able to operate the EDSA LRT III on its own
and train all new personnel by itself.
Fees for private respondent' s services shall be included in the rent,
which likewise includes the project cost, cost of replacement of plant
equipment and spare parts, investment and financing cost, plus a
reasonable rate of return thereon (Revised and Restated Agreement,
Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the
obligations and liabilities of a common carrier. For this purpose, DOTC
shall indemnify and hold harmless private respondent from any losses,
damages, injuries or death which may be claimed in the operation or
implementation of the system, except losses, damages, injury or death
due to defects in the EDSA LRT III on account of the defective condition
of equipment or facilities or the defective maintenance of such
equipment facilities (Revised and Restated Agreement, Secs. 12.1 and
12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect
fees from the riding public. It will have no dealings with the public and
the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor
during the lease period must be distinguished from the role of the
Philippine Gaming Management Corporation (PGMC) in the case
of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the
Contract of Lease between PGMC and the Philippine Charity
Sweepstakes Office (PCSO) was actually a collaboration or joint venture
agreement prescribed under the charter of the PCSO. In the Contract of
Lease; PGMC, the lessor obligated itself to build, at its own expense, all
the facilities necessary to operate and maintain a nationwide on-line
lottery system from whom PCSO was to lease the facilities and operate
the same. Upon due examination of the contract, the Court found that
PGMC's participation was not confined to the construction and setting
up of the on-line lottery system. It spilled over to the actual operation
thereof, becoming indispensable to the pursuit, conduct, administration
and control of the highly technical and sophisticated lottery system. In
effect, the PCSO leased out its franchise to PGMC which actually
operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility
is not a public utility (Providence and W.R. Co. v. United States, 46 F. 2d
149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of
Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate
Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed.
1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry
and beer cars who supply cars under contract to railroad companies
considered as public utilities (Crystal Car Line v. State Tax Commission,
174 p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso
facto characterize the corporation as one operating a public utility. The
moment for determining the requisite Filipino nationality is when the
entity applies for a franchise, certificate or any other form of
authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements
in question is not recognized in the BOT Law and its Implementing Rules
and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a) Build-operate-and-transfer scheme A
contractual arrangement whereby the contractor
undertakes the construction including financing, of
a given infrastructure facility, and the operation and
maintenance thereof. The contractor operates the
facility over a fixed term during which it is allowed
to charge facility users appropriate tolls, fees,
rentals and charges sufficient to enable the
contractor to recover its operating and maintenance
expenses and its investment in the project plus a
reasonable rate of return thereon. The contractor
transfers the facility to the government agency or
local government unit concerned at the end of the
fixed term which shall not exceed fifty (50) years.
For the construction stage, the contractor may
obtain financing from foreign and/or domestic
sources and/or engage the services of a foreign
and/or Filipino constructor [sic]: Provided, That the
ownership structure of the contractor of an
infrastructure facility whose operation requires a
public utility franchise must be in accordance with
the Constitution: Provided, however, That in the
case of corporate investors in the build-operate-
and-transfer corporation, the citizenship of each
stockholder in the corporate investors shall be the
basis for the computation of Filipino equity in the
said corporation: Provided, further, That, in the case
of foreign constructors [sic], Filipino labor shall be
employed or hired in the different phases of the
construction where Filipino skills are available:
Provided, furthermore, that the financing of a
foreign or foreign-controlled contractor from
Philippine government financing institutions shall
not exceed twenty percent (20%) of the total cost of
the infrastructure facility or project: Provided,
finally, That financing from foreign sources shall not
require a guarantee by the Government or by
government-owned or controlled corporations. The
build-operate-and-transfer scheme shall include a
supply-and-operate situation which is a contractual
agreement whereby the supplier of equipment and
machinery for a given infrastructure facility, if the
interest of the Government so requires, operates
the facility providing in the process technology
transfer and training to Filipino nationals.
(b) Build-and-transfer scheme "A contractual
arrangement whereby the contractor undertakes
the construction including financing, of a given
infrastructure facility, and its turnover after
completion to the government agency or local
government unit concerned which shall pay the
contractor its total investment expended on the
project, plus a reasonable rate of return thereon.
This arrangement may be employed in the
construction of any infrastructure project including
critical facilities which for security or strategic
reasons, must be operated directly by the
government (Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor
undertakes the construction and financing in infrastructure facility, and
operates and maintains the same. The contractor operates the facility
for a fixed period during which it may recover its expenses and
investment in the project plus a reasonable rate of return thereon.
After the expiration of the agreed term, the contractor transfers the
ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and
financing of the facility, but after completion, the ownership and
operation thereof are turned over to the government. The government,
in turn, shall pay the contractor its total investment on the project in
addition to a reasonable rate of return. If payment is to be effected
through amortization payments by the government infrastructure
agency or local government unit concerned, this shall be made in
accordance with a scheme proposed in the bid and incorporated in the
contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the
infrastructure facility must comply with the citizenship requirement of
the Constitution on the operation of a public utility. No such a
requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar
any other arrangement for the payment by the government of the
project cost. The law must not be read in such a way as to rule out or
unduly restrict any variation within the context of the two schemes.
Indeed, no statute can be enacted to anticipate and provide all the fine
points and details for the multifarious and complex situations that may
be encountered in enforcing the law (Director of Forestry v. Munoz, 23
SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United
States v. Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the
BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to
pay for the project is made lighter by allowing it to amortize payments
out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals
are to be paid on a monthly basis according to a schedule of rates
through and under the terms of a confirmed Irrevocable Revolving
Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the
end of 25 years and when full payment shall have been made to and
received by private respondent, it shall transfer to DOTC, free from any
lien or encumbrances, all its title to, rights and interest in, the project
for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1;
Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).
A lease is a contract where one of the parties binds himself to give to
another the enjoyment or use of a thing for a certain price and for a
period which may be definite or indefinite but not longer than 99 years
(Civil Code of the Philippines, Art. 1643). There is no transfer of
ownership at the end of the lease period. But if the parties stipulate
that title to the leased premises shall be transferred to the lessee at the
end of the lease period upon the payment of an agreed sum, the lease
becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in
United States currency, not Philippine pesos. The EDSA LRT III Project is
a high priority project certified by Congress and the National Economic
and Development Authority as falling under the Investment Priorities
Plan of Government (Rollo, pp. 310-311). It is, therefore, outside the
application of the Uniform Currency Act (R.A. No. 529), which reads as
follows:
Sec. 1. Every provision contained in, or made
with respect to, any domestic obligation to wit, any
obligation contracted in the Philippines which
provisions purports to give the obligee the right to
require payment in gold or in a particular kind of
coin or currency other than Philippine currency or in
an amount of money of the Philippines measured
thereby, be as it is hereby declared against public
policy, and null, void, and of no effect, and no such
provision shall be contained in, or made with
respect to, any obligation hereafter incurred. The
above prohibition shall not apply to (a) . . .; (b)
transactions affecting high-priority economic
projects for agricultural, industrial and power
development as may be determined by
the National Economic Council which are financed
by or through foreign funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was
awarded through negotiation and before congressional approval on
January 22 and 23, 1992 of the List of National Projects to be
undertaken by the private sector pursuant to the BOT Law (Rollo, pp.
309-312) does not suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based
projects packaged with commercial development opportunities" (Rollo,
p. 310) under which the EDSA LRT III projects falls, amounts to a
ratification of the prior award of the EDSA LRT III contract under the
BOT Law.
Petitioners insist that the prequalifications process which led to the
negotiated award of the contract appears to have been rigged from the
very beginning to do away with the usual open international public
bidding where qualified internationally known applicants could fairly
participate.
The records show that only one applicant passed the prequalification
process. Since only one was left, to conduct a public bidding in
accordance with Section 5 of the BOT Law for that lone participant will
be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217
SCRA 49, 61 [1993]).
Contrary to the comments of the Executive Secretary Drilon, Section 5
of the BOT Law in relation to Presidential Decree No. 1594 allows the
negotiated award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules
and Regulations for Government Infrastructure Contracts," allows the
negotiated award of government projects in exceptional cases. Sections
4 of the said law reads as follows:
Bidding. Construction projects shall generally be
undertaken by contract after competitive public
bidding. Projects may be undertaken by
administration or force account or by negotiated
contract only in exceptional cases where time is of
the essence, or where there is lack of qualified
bidders or contractors, or where there is conclusive
evidence that greater economy and efficiency would
be achieved through this arrangement, and in
accordance with provision of laws and acts on the
matter, subject to the approval of the Minister of
Public Works and Transportation and
Communications, the Minister of Public Highways,
or the Minister of Energy, as the case may be, if the
project cost is less than P1 Million, and the
President of the Philippines, upon recommendation
of the Minister, if the project cost is P1 Million or
more (Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or contractors, the
award of government infrastructure contracts may he made by
negotiation. Presidential Decree No. 1594 is the general law on
government infrastructure contracts while the BOT Law governs
particular arrangements or schemes aimed at encouraging private
sector participation in government infrastructure projects. The two laws
are not inconsistent with each other but are in pari materia and should
be read together accordingly.
In the instant case, if the prequalification process was actually tainted
by foul play, one wonders why none of the competing firms ever
brought the matter before the PBAC, or intervened in this case before
us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213
SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205 SCRA
705 [1992]).
The challenged agreements have been approved by President Ramos
himself. Although then Executive Secretary Drilon may have
disapproved the "Agreement to Build, Lease and Transfer a Light Rail
Transit System for EDSA," there is nothing in our laws that prohibits
parties to a contract from renegotiating and modifying in good faith the
terms and conditions thereof so as to meet legal, statutory and
constitutional requirements. Under the circumstances, to require the
parties to go back to step one of the prequalification process would just
be an idle ceremony. Useless bureaucratic "red tape" should be
eschewed because it discourages private sector participation, the "main
engine" for national growth and development (R.A. No. 6957, Sec. 1),
and renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2
thereof as:
(e) Build-lease-and-transfer A contractual
arrangement whereby a project proponent is
authorized to finance and construct an
infrastructure or development facility and upon its
completion turns it over to the government agency
or local government unit concerned on a lease
arrangement for a fixed period after which
ownership of the facility is automatically transferred
to the government unit concerned.
Section 5-A of the law, which expressly allows direct negotiation of
contracts, provides:
Direct Negotiation of Contracts. Direct
negotiation shall be resorted to when there is only
one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor
applies for prequalification and it meets the
prequalification requirements, after which it is
required to submit a bid proposal which is
subsequently found by the agency/local
government unit (LGU) to be complying.
(b) If, after advertisement, more than one
contractor applied for prequalification but only one
meets the prequalification requirements, after
which it submits bid/proposal which is found by the
agency/local government unit (LGU) to be
complying.
(c) If, after prequalification of more than one
contractor only one submits a bid which is found by
the agency/LGU to be complying.
(d) If, after prequalification, more than one
contractor submit bids but only one is found by the
agency/LGU to be complying. Provided, That, any of
the disqualified prospective bidder [sic] may appeal
the decision of the implementing agency,
agency/LGUs prequalification bids and awards
committee within fifteen (15) working days to the
head of the agency, in case of national projects or to
the Department of the Interior and Local
Government, in case of local projects from the date
the disqualification was made known to the
disqualified bidder: Provided, furthermore, That the
implementing agency/LGUs concerned should act
on the appeal within forty-five (45) working days
from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of
contracts are not contemplated by the BOT Law has now been rendered
moot and academic by R.A. No. 7718. Section 3 of this law authorizes all
government infrastructure agencies, government-owned and controlled
corporations and local government units to enter into contract with any
duly prequalified proponent for the financing, construction, operation
and maintenance of any financially viable infrastructure or
development facility through a BOT, BT, BLT, BOO (Build-own-and-
operate), CAO (Contract-add-operate), DOT (Develop-operate-and-
transfer), ROT (Rehabilitate-operate-and-transfer), and ROO
(Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once and applicant has prequalified, it can enter
into any of the schemes enumerated in Section 2 thereof, including a
BLT arrangement, enumerated and defined therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide
financial incentives and "a climate of minimum government regulations
and procedures and specific government undertakings in support of the
private sector" (Sec. 1). A curative statute makes valid that which
before enactment of the statute was invalid. Thus, whatever doubts
and alleged procedural lapses private respondent and DOTC may have
engendered and committed in entering into the questioned contracts,
these have now been cured by R.A. No. 7718 (cf. Development Bank of
the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V.
Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43
[1922].
4. Lastly, petitioners claim that the agreements are grossly
disadvantageous to the government because the rental rates are
excessive and private respondent's development rights over the 13
stations and the depot will rob DOTC of the best terms during the most
productive years of the project.
It must be noted that as part of the EDSA LRT III project, private
respondent has been granted, for a period of 25 years, exclusive rights
over the depot and the air space above the stations for development
into commercial premises for lease, sublease, transfer, or advertising
(Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in
consideration of these development rights, private respondent shall pay
DOTC in Philippine currency guaranteed revenues generated therefrom
in the amounts set forth in the Supplemental Agreement (Sec. 11; Rollo,
p. 93). In the event that DOTC shall be unable to collect the guaranteed
revenues, DOTC shall be allowed to deduct any shortfalls from the
monthly rent due private respondent for the construction of the EDSA
LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights,
titles, interests and income over all contracts on the commercial spaces
shall revert to DOTC upon expiration of the 25-year period.
(Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study
by DOTC. The determination by the proper administrative agencies and
officials who have acquired expertise, specialized skills and knowledge
in the performance of their functions should be accorded respect
absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. &
Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of
Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with
regularity and strong evidence is necessary to rebut this presumption.
Petitioners have not presented evidence on the reasonable rentals to
be paid by the parties to each other. The matter of valuation is an
esoteric field which is better left to the experts and which this Court is
not eager to undertake.
That the grantee of a government contract will profit therefrom and to
that extent the government is deprived of the profits if it engages in the
business itself, is not worthy of being raised as an issue. In all cases
where a party enters into a contract with the government, he does so,
not out of charity and not to lose money, but to gain pecuniarily.
5. Definitely, the agreements in question have been entered into by
DOTC in the exercise of its governmental function. DOTC is the primary
policy, planning, programming, regulating and administrative entity of
the Executive branch of government in the promotion, development
and regulation of dependable and coordinated networks of
transportation and communications systems as well as in the fast, safe,
efficient and reliable postal, transportation and communications
services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the
Executive department, DOTC in particular that has the power, authority
and technical expertise determine whether or not a specific
transportation or communication project is necessary, viable and
beneficial to the people. The discretion to award a contract is vested in
the government agencies entrusted with that function (Bureau Veritas
v. Office of the President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED
Bellosillo and Kapunan, JJ., concur.
Padilla and Regalado, JJ., concurs in the result.
Romero, J., is on leave.
Separate Opinions
MENDOZA, J., concurring:
I concur in all but Part III of the majority opinion. Because I hold that
petitioners do not have standing to sue, I join to dismiss the petition in
this case. I write only to set forth what I understand the grounds for our
decisions on the doctrine of standing are and, why in accordance with
these decisions, petitioners do not have the rights to sue, whether as
legislators, taxpayers or citizens. As members of Congress, because they
allege no infringement of prerogative as legislators.1 As taxpayers
because petitioners allege neither an unconstitutional exercise of the
taxing or spending powers of Congress (Art VI, 24-25 and 29)2 nor an
illegal disbursement of public money.3 As this Court pointed out
in Bugnay Const. and Dev. Corp. v. Laron,4 a party suing as taxpayer
"must specifically prove that he has sufficient interest in preventing the
illegal expenditure of money raised by taxation and that he will sustain
a direct injury as a result of the enforcement of the questioned statute
or contract. It is not sufficient that he has merely a general interest
common to all members of the public." In that case, it was held that a
contract, whereby a local government leased property to a private
party with the understanding that the latter would build a market
building and at the end of the lease would transfer the building of the
lessor, did not involve a disbursement of public funds so as to give
taxpayer standing to question the legality of the contract. I see no
substantial difference, as far as the standing is of taxpayers to question
public contracts is concerned, between the contract there and the
build-lease-transfer (BLT) contract being questioned by petitioners in
this case.
Nor do petitioners have standing to bring this suit as citizens. In the
cases5 in which citizens were authorized to sue, this Court found
standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it
subsequently granted relief to petitioners by invalidating the challenged
statutes or governmental actions. Thus in the Lotto case6 relied upon by
the majority for upholding petitioners standing, this Court took into
account the "paramount public interest" involved which "immeasurably
affect[ed] the social, economic, and moral well-being of the people . . .
and the counter-productive and retrogressive effects of the envisioned
on-line lottery system:"7 Accordingly, the Court invalidated the contract
for the operation of lottery.
But in the case at bar, the Court precisely finds the opposite by finding
petitioners' substantive contentions to be without merit To the extent
therefore that a party's standing is affected by a determination of the
substantive merit of the case or a preliminary estimate thereof,
petitioners in the case at bar must be held to be without standing. This
is in line with our ruling in Lawyers League for a Better Philippines v.
Aquino8 and In re Bermudez 9 where we dismissed citizens' actions on
the ground that petitioners had no personality to sue and their
petitions did not state a cause of action. The holding that petitioners
did not have standing followed from the finding that they did not have a
cause of action.
In order that citizens' actions may be allowed a party must show that he
personally has suffered some actual or threatened injury as a result of
the allegedly illegal conduct of the government; the injury is fairly
traceable to the challenged action; and the injury is likely to be
redressed by a favorable action. 10 As the U.S. Supreme Court has held:
Typically, . . . the standing inquiry requires careful
judicial examination of a complaint's allegation to
ascertain whether the particular plaintiff is entitled
to an adjudication of the particular claims asserted.
Is the injury too abstract, or otherwise not
appropriate, to be considered judicially cognizable?
Is the line of causation between the illegal conduct
and injury too attenuated? Is the prospect of
obtaining relief from the injury as a result of a
favorable ruling too speculative? These questions
and any others relevant to the standing inquiry
must be answered by reference to the Art III notion
that federal courts may exercise power only "in the
last resort, and as a necessity, Chicago & Grand
Trunk R. Co. v. Wellman, 143 US 339, 345, 36 L Ed
176,12 S Ct 400 (1892), and only when adjudication
is "consistent with a system of separated powers
and [the dispute is one] traditionally thought to be
capable of resolution through the judicial process,"
 Flast v Cohen, 392 US 83, 97, 20 L Ed 2d 947, 88 S Ct
1942 (1968). See Valley Forge, 454 US, at 472-473,
70 L Ed 2d 700, 102 S Ct 752.11
Today's holding that a citizen, qua citizen, has standing to question a
government contract unduly expands the scope of public actions and
sweeps away the case and controversy requirement so carefully
embodied in Art. VIII, 5 in defining the jurisdiction of this Court. The
result is to convert the Court into an office of ombudsman for the
ventilation of generalized grievances. Consistent with the view that this
case has no merit I submit with respect that petitioners, as
representatives of the public interest, have no standing.
Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.
DAVIDE, JR., J., dissenting:
After wading through the record of the vicissitudes of the challenged
contract and evaluating the issues raised and the arguments adduced
by the parties, I find myself unable to joint majority in the well-
written ponencia of Mr. Justice Camilo P. Quiason.
I most respectfully submit that the challenged contract is void for at
least two reasons: (a) it is an-ultra-vires act of the Department of
Transportation and Communications (DOTC) since under R.A. 6957 the
DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT)
contract; and (b) even assuming arguendo that it has, the contract was
entered into without complying with the mandatory requirement of
public bidding.
I then "[t]he law must not be read in such a way as to rule outer unduly
Respondents admit that the assailed contract was entered into under
R.A. 6957. This law, fittingly entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by
the Private Sector, and For Other Purposes," recognizes only two (2)
kinds of contractual arrangements between the private sector and
government infrastructure agencies: (a) the Build-Operate-and-Transfer
(BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This
conclusion finds support in Section 2 thereof which defines only the
BOT and BT schemes, in Section 3 which explicitly provides for said a. Section 2 by adding to the original BOT and BT
schemes thus: schemes the following schemes:
Sec. 3 Private Initiative in Infrastructure.
(1) All
Build-own-and-operate (BOO)
government infrastructure agencies, including
(2) Build-Lease-and-transfer (BLT)
government-owned and controlled corporations
(3) Build-transfer-and-operate (BTO)
and local government units, are hereby authorized
to enter into contract with any duly (4) prequalified
Contract-add-and-operate (CAO)
private contractor for the financing, construction,
operation and maintenance of any (5)financially
Develop-operate-and-transfer
viable (DOT)
infrastructure facilities through the(6)build-operate-
Rehabilitate-operate-and-transfer (ROT)
and transfer or build-and-transfer(7) scheme, subject
Rehabilitate-own-and-operate (ROO).
to the terms and conditions hereinafter set forth;
(Emphasis supplied).
b) Section 3 of R.A. No. 6957 by deleting therefrom
the phrase "through the build-operate-and-transfer
and in Section 5 which requires public bidding of projects under both
or build-and-transfer scheme."
schemes.
II
All prior acts and negotiations leading to the perfection of the
challenged contract were clearly intended and pursued for such
schemes. Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as
follows:
A Build-Lease-and-Transfer (BLT) scheme is not authorized under the
said law, and none of the aforesaid prior acts and negotiations were Sec. 5 Public Bidding of Projects. Upon approval
designed for such unauthorized scheme. Hence, the DOTC is without of the projects mentioned in Section 4 of this Act,
any power or authority to enter into the BLT contract in question. the concerned head of the infrastructure agency or
local government unit shall forthwith cause to be
published, once every week for three (3)
The majority opinion maintains, however, that since "[t]here is no
consecutive weeks, in at least two (2) newspapers
mention in the BOT Law that the BOT and the BT schemes bar any other
of general circulation and in at least one (1) local
arrangement for the payment by the government of the project cost,"
newspaper which is circulated in the region,
province, city or municipality in which the project is
restrict any variation within the context of the two schemes." This
to be constructed a notice inviting all duly
interpretation would be correct if the law itself provides a room for
prequalified infrastructure contractors to
flexibility. We find no such provisions in R.A. No. 6957 if it intended to
participate in the public bidding for the projects so
include a BLT scheme, then it should have so stated, for contracts of
approved. In the case of a build-operate-and-
lease are not unknown in our jurisdiction, and Congress has enacted
transfer arrangement, the contract shall be
several laws relating to leases. That the BLT scheme was never intended
awarded to the lowest complying bidder based on
as a permissible variation "within the context" of the BOT and BT
the present value of its proposed tolls, fees, rentals,
schemes is conclusively established by the passage of R.A. No. 7718
and charges over a fixed term for the facility to be
which amends:
constructed, operated, and maintained according to
 the prescribed minimum design and performance
standards plans, and specifications. For this
purpose, the winning contractor shall be
automatically granted by the infrastructure agency
or local government unit the franchise to operate
and maintain the facility, including the collection of
tolls, fees, rentals; and charges in accordance with
Section 6 hereof.
In the case of a build-and-transfer arrangement, the
contract shall be awarded to the lowest complying
bidder based on the present value of its proposed,
schedule of amortization payments for the facility to
be constructed according to the prescribed
minimum design and performance standards, plans
and specifications: Provided, however, That a
Filipino constructor who submits an equally
advantageous bid shall be given preference.
A copy of each build-operate-and-transfer or build-
and-transfer contract shall forthwith be submitted
to Congress for its information.
The requirement of public bidding is not an idle ceremony. It has been
aptly said that in our jurisdiction "public bidding is the policy and
medium adhered to in Government procurement and construction
contracts under existing laws and regulations. It is the accepted method
for arriving at a fair and reasonable price and ensures that overpricing,
favoritism, and other anomalous practices are eliminated or minimized.
And any Government contract entered into without the required
bidding is null and void and cannot adversely affect the rights of third
parties." (Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT
CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex
vs. Delgado Bros., 96 Phil. 368 [1954]).
The Office of the President, through then Executive Secretary Franklin
Drilon Correctly disapproved the contract because no public bidding is
strict compliance with Section 5 of R.A. No. 6957 was conducted.
Secretary Drilon Further bluntly stated that the provision of the
Implementing Rules of said law authorizing negotiated contracts was of
doubtful legality. Indeed, it is null and void because the law itself does (b) If, after advertisement, more
not recognize or allow negotiated contracts. than one contractor applied for
prequalification but only one
However the majority opinion posits the view that since only private meets the prequalification
respondent EDSA LRT was prequalified, then a public bidding would be requirements, after which it
"an absurd and pointless exercise." I submit that the mandatory submits bid/proposal which is
requirement of public bidding cannot be legally dispensed with simply found by the agency/local
because only one was qualified to bid during the prequalification government unit (LGU) to be
proceedings. Section 5 mandates that the BOT or BT contract should be complying,
awarded "to the lowest complying bidder," which logically means that
there must at least be two (2) bidders. If this minimum requirement is (c) If after prequalification of
not met, then the proposed bidding should be deferred and a new more than one contractor only
prequalification proceeding be scheduled. Even those who were earlier one submits a bid which is found
disqualified may by then have qualified because they may have, in the by the agency/LGU to be
meantime, exerted efforts to meet all the qualifications. complying.
This view of the majority would open the floodgates to the rigging of (d) If, after prequalification,
prequalification proceedings or to unholy conspiracies among more than one contractor, only
prospective bidders, which would even include dishonest government one submit bids but only one is
officials. They could just agree, for a certain consideration, that only found by the agency/LGU to be
one of them qualify in order that the latter would automatically corner complying: Provided, That, any
the contract and obtain the award. of the disqualified prospective
bidder may appeal the decision
That section 5 admits of no exception and that no bidding could be contractor of the implementing
validly had with only one bidder is likewise conclusively shown by the agency/LGUs prequalification
amendments introduced by R.A. No. 7718 Per section 7 thereof, a new bids an award committee within
section denominated as Section 5-A was introduced in R.A. No. 6957 to fifteen (15) working days to the
allow direct negotiation contracts. This new section reads: head of the agency, in case of
national projects or to the
Department of the Interior and
Sec. 5-A. Direct Negotiation Of Contracts Direct
Local Government, in case of
negotiation, shall be resorted to when there is only
local projects from the date the
one complying bidder left as defined hereunder.
disqualification was made
known to the disqualified
(a) If, after advertisement, only bidder Provided, That the
one contractor applies for implementing agency/LGUs
prequalification requirements, concerned should act on the
after which it is required to appeal within forty-five (45)
submit a bid/proposal which working days from receipt
subsequently found by the thereof.
agency/local government unit
(LGU) to be complying.
Can this amendment be given retroactive effect to the challenged
contract so that it may now be considered a permissible negotiated
contract? I submit that it cannot be R.A. No. 7718 does not provide that
it should be given retroactive effect to pre-existing contracts. Section 18
thereof says that it "shall take effect fifteen (15) days after its
publication in at least two (2) newspapers of general circulation." If it
were the intention of Congress to give said act retroactive effect then it
would have so expressly provided. Article 4 of the Civil Code provides
that "[l]aws shall have no retroactive effect, unless the contrary is
provided."
The presumption is that all laws operate prospectively, unless the
contrary clearly appears or is clearly, plainly, and unequivocally
expressed or necessarily implied. In every case of doubt, the doubt will
be resolved against the retroactive application of laws. (Ruben E
Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to
amendatory acts, or acts which change an existing statute, Sutherland
states:
In accordance with the rule applicable to original
acts, it is presumed that provisions added by the
amendment affecting substantive rights are
intended to operate prospectively. Provisions added
by the amendment that affect substantive rights will
not be construed to apply to transactions and
events completed prior to its enactment unless the
legislature has expressed its intent to that effect or
such intent is clearly implied by the language of the
amendment or by the circumstances surrounding its
enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S
STATUTES AND STATUTORY CONSTRUCTION 434-
436 [1943 ed.]).
I vote then to grant the instant petition and to declare void the
challenged contract and its supplement.
FELICIANO, J., dissenting:
After considerable study and effort, and with much reluctance, I find I
must dissent in the instant case. I agree with many of the things set out
in the majority opinion written by my distinguished brother in the Court
Quiason, J. At the end of the day, however, I find myself unable to
join in the result reached by the majority.
I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which
is appropriately drawn on fairly narrow grounds. At the same time; I
wish to address briefly one of the points made by Justice Quiason in the
majority opinion in his effort to meet the difficulties posed by Davide
Jr., J.
I refer to the invocation of the provisions of presidential Decree No.
1594 dated 11 June 1978 entitled: "Prescribing policies, Guidelines,
Rules and Regulations for Government Infrastructure Contracts" More
specifically, the majority opinion invokes paragraph 1 of Section 4 of
this Degree which reads as follows:
Sec. 4. Bidding. Construction projects shall,
generally be undertaken by contract after
competitive public bidding. Projects may be
undertaken by administration or force account or by
negotiated contract only in exceptional cases where
time is of the essence, or where there is lack of
qualified bidders or contractors, or where there is a
conclusive evidence that greater economy and
efficiency would be achieved through this
arrangement, and in accordance with provisions of
laws and acts on the matter, subject to the approval
of the Ministry of public Works, Transportation and
Communications, the Minister of Public Highways,
or the Minister of Energy, as the case may be, if the
project cost is less than P1 Million, and of the
President of the Philippines, upon the
recommendation of the Minister, if the project cost
is P1 Million or more.
xxx xxx xxx
I understand the unspoken theory in the majority opinion to be that
above Section 4 and presumably the rest of Presidential Decree No.
1594 continue to exist and to run parallel to the provisions of Republic
Act No. 6957, whether in its original form or as amended by Republic
Act No. 7718.
A principal difficulty with this approach is that Presidential Decree No.
1594 purports to apply to all "government contracts for
infrastructure and other construction projects." But Republic Act No.
6957 as amended by Republic Act No. 7718, relates only to
"infrastructure projects" which are financed, constructed, operated and
maintained "by the private sector" "through the build/operate-and-
transfer or build-and-transfer scheme" under Republic Act No. 6597 and
under a series of other comparable schemes under Republic Act No.
7718. In other words, Republic Act No. 6957 and Republic Act. No. 7718
must be held, in my view, to be special statutes applicable to a more
limited field of "infrastructure projects" than the wide-ranging scope of
application of the general statute i.e., Presidential Decree No. 1594.
Thus, the high relevance of the point made by Mr. Justice Davide that
Republic Act No. 6957 in specific connection with BCT- and BLT type and
BLT type of contracts imposed an unqualified requirement of public
bidding set out in Section 5 thereof.
It should also be pointed out that under Presidential Decree No. 1594,
projects may be undertaken "by administration or force account or by
negotiated contract only"
(1) in exceptional cases where time is of the
essence; or
(2) where there is lack of bidders or contractors; or
(3) where there is a conclusive evidence that greater
economy and efficiency would be achieved through
these arrangements, and in accordance with
provision[s] of laws and acts on the matter.
It must, upon the one hand, be noted that the special law Republic Act
No. 6957 made absolutely no mention of negotiated contracts being
permitted to displace the requirement of public bidding. Upon the
other hand, Section 5-a, inserted in Republic Act No. 6957 by the
amending statute Republic Act No. 7718, does not purport to authorize
direct negotiation of contracts situations where there is a lack of pre-
qualified contractors or, complying bidders. Thus, even under the
amended special statute, entering into contracts by negotiation
is not permissible in the other (2) categories of cases referred to in
Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases
where time is of the essence" and "when there is conclusive evidence
that greater economy and efficiency would be achieved through these
arrangements, etc."
The result I reach is that insofar as BOT, etc.-types of contracts are
concerned, the applicable public bidding requirement is that set out in
Republic Act No. 6957 and, with respect to such type of contracts
opened for pre-qualification and bidding after the date of effectivity of
Republic Act No. 7718, The provision of Republic Act No. 7718. The
assailed contract was entered into before Republic Act. No. 7718 was
enacted.
The difficulties. of applying the provisions of Presidential Degree No.
1594 to the Edsa LRT-type of contracts are aggravated when one
considers the detailed "Implementing Rules and Regulations as
amended April 1988" issued under that Presidential Decree.1 For
instance:
IB [2.5.2] 2.4.2 By Negotiated Contract
xxx xxx xxx
a. In times of emergencies
arising from natural calamities
where immediate action is
necessary to prevent imminent
loss of life and/or property.
b. Failure to award the
contract after competitive public
bidding for valid cause or causes
[such as where the prices
obtained through public bidding
are all above the AAE and the
bidders refuse to reduce their
prices to the AAE].
In these cases, bidding may be undertaken through
sealed canvass of at least three (3) qualified
contractors. Authority to negotiate contracts for
projects under these exceptional cases shall be
subject to prior approval by heads of agencies
within their limits of approving authority.
c. Where the subject project is
adjacent or contiguous to an on-
going project and it could be
economically prosecuted by the
same contractor provided that
he has no negative slippage and
has demonstrated a satisfactory
performance. (Emphasis
supplied).
Note that there is no reference at all in these Presidential Decree No.
1594 Implementing Rules and Regulations to absence of pre-qualified
applicants and bidders as justifying negotiation of contracts as
distinguished from requiring public bidding or a second public bidding.
Note also the following provision of the same Implementing Rules and
Regulations:
IB 1 Prequalification
The following may be become contractors for
government projects:
1 Filipino
a. Citizens (single proprietorship)
b. Partnership of corporation duly organized under
the laws of the Philippines, and at least seventy five
percent (75%) of the capital stock of which belongs
to Filipino citizens.
2. Contractors forming themselves into a joint
venture, i.e., a group of two or more contractors
that intend to be jointly and severally responsible
for a particular contract, shall for purposes of
bidding/tendering comply with LOI 630, and, aside
from being currently and properly accredited by the
Philippine Contractors Accreditation Board, shall
comply with the provisions of R.A. 4566, provided
thatjoint ventures in which Filipino ownership is less
than seventy five percent ( 75%) may be prequalified
where the structures to be built require
the application of techniques and/or
technologies which are not adequately possessed by
a Filipino entity as defined above.
[The foregoing shall not negate any existing and
future commitments with respect to the bidding
and aware of contracts financed partly or wholly
with funds from international lending institutions
like the Asian Development Bank and the Worlds
Bank as well as from bilateral and other similar
sources.(Emphases supplied)
The record of this case is entirely silent on the extent of Philippine
equity in the Edsa LRT Corporation; there is no suggestion that this
corporation is organized under Philippine law and is at least seventy-
five (75%) percent owned by Philippine citizens.
Public bidding is the normal method by which a government keeps
contractors honest and is able to assure itself that it would be getting
the best possible value for its money in any construction or similar
project. It is not for nothing that multilateral financial organizations like
the World Bank and the Asian Development Bank uniformly require
projects financed by them to be implemented and carried out by public
bidding. Public bidding is much too important a requirement casually to
loosen by a latitudinarian exercise in statutory construction.
The instant petition should be granted and the challenged contract and
its supplement should be nullified and set aside. A true public bidding,
complete with a new prequalification proceeding, should be required
for the Edsa LRT Project.
Separate Opinions
MENDOZA, J., concurring:
I concur in all but Part III of the majority opinion. Because I hold that
petitioners do not have standing to sue, I join to dismiss the petition in
this case. I write only to set forth what I understand the grounds for our
decisions petitioners do not have the rights to sue, whether as
legislators, taxpayers or citizens. As members of Congress, because they
allege no infringement of prerogative as legislators.1 As taxpayers
because petitioners allege neither an unconstitutional exercise of the
taxing or spending powers of Congress (Art VI, 24-25 and 29)2 nor an
illegal disbursement of public money.3 As this Court pointed out
in Bugnay Const. and Dev. Corp. v. Laron,4 a party suing as taxpayer
"must specifically prove that he has sufficient interest in preventing the
illegal expenditure of money raised by taxation and that he will sustain
a direct injury as a result of the enforcement of the questioned statute
or contract, It is not sufficient that has merely a general interest
common to all members of the public." In that case, it was held that a
contract, whereby a local government leased property to a private
party with the understanding that the latter would build a market
building and at the end of the lease would transfer the building of the
lessor, did not involve a disbursement of public funds so as to give
taxpayer standing to question the legality of the contract contracts I see
no substantial difference, as far as the standing is of taxpayers is
concerned, between the contract there and the build-lease-transfer
(BLT) contract being questioned by petitioners in this case.
Nor do petitioners have standing to bring this suit as citizens. In the
cases5 in which citizens were authorized to sue, this Court found
standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it
subsequently granted relief to petitioners by invalidating the challenged
statutes or governmental actions. Thus in the Lotto case6 relied upon by
the majority for upholding petitioners standing, this Court took into
account the "paramount public interest" involved which "immeasurably
affect[ed] the social, economic, and moral well-being of the people . . .
and the counter-productive and retrogressive effects of the envisioned
on-line lottery system:"7 Accordingly, the Court invalidated the contract
for the operation of lottery.
But in the case at bar, the Court precisely finds the opposite by finding
petitioners' substantive contentions to be without merit To the extent
therefore that a party's standing is affected by a determination of the
substantive merit of the case or a preliminary estimate thereof,
petitioners in the case at bar must be held to be without standing. This
is in line with our ruling in Lawyers League for a Better Philippines v.
Aquino8 and In re Bermudez9 where we dismissed citizens' actions on
the ground that petitioners had no personality to sue and their
petitions did not state a cause of action. The holding that petitioners
did not have standing followed from the finding that they did not have a
cause of action.
DAVIDE, JR., J., dissenting:
In order that citizens' actions may be allowed a party must show that he
personally has suffered some actual or threatened injury as a result of
the allegedly illegal conduct of the government; the injury is fairly
traceable to the challenged action; and the injury is likely to be
redressed by a favorable action. 10 As the U.S. Supreme Court has held:
Typically, . . . the standing inquiry requires careful
judicial examination of a complaint's allegation to
ascertain whether the particular plaintiff is entitled
to an adjudication of the particular claims asserted.
Is the injury too abstract, or otherwise not
appropriate, to be considered judicially cognizable?
Is the line of causation between the illegal conduct
and injury too attenuated? Is the prospect of
obtaining relief from the injury as a result of a
favorable ruling too speculative? These questions
and any others relevant to the standing inquiry
must be answered by reference to the Art III notion
that federal courts may exercise power only "in the
last resort, and as a necessity, Chicago & Grand
Trunk R. Co. v. Wellman, 143 US 339, 345, 36 L Ed
176,12 S Ct 400 (1892), and only when adjudication
is "consistent with a system of separated powers
and [the dispute is one] traditionally thought to be
capable of resolution through the judicial process,"
Flast v Cohen, 392 US 83, 97, 20 L Ed 2d 947, .88 S
Ct 1942 (1968). See Valley Forge, 454 US, at 472-
473, 70 L Ed 2d 700, 102 S Ct 752.11
Today's holding that a citizen, qua citizen, has standing to question a
government contract unduly expands the scope of public actions and
sweeps away the case and controversy requirement so carefully
embodied in Art. VIII, 5 in defining the jurisdiction of this Court. The
result is to convert the Court into an office of ombudsman for the
ventilation of generalized grievances. Consistent with the view that this
case has no merit I submit with respect that petitioners, as
representatives of the public interest, have no standing.
Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.
After wading through the record of the vicissitudes of the challenged
contract and evaluating the issues raised and the arguments adduced
by the parties, I find myself unable to joint majority in the well-
written ponencia of Mr. Justice Camilo P. Quiason.
I most respectfully submit that the challenged contract is void for at
least two reasons: (a) it is an-ultra-vires act of the Department of
Transportation and Communications (DOTC) since under R.A. 6957 the
DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT)
contract; and (b) even assuming arguendo that it has, the contract was
entered into without complying with the mandatory requirement of
public bidding.
I
Respondents admit that the assailed contract was entered into under
R.A. 6957. This law, fittingly entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by
the Private Sector, and For Other Purposes," recognizes only two (2)
kinds of contractual arrangements between the private sector and
government infrastructure agencies: (a) the Build-Operate-and-Transfer
(BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This
conclusion finds support in Section 2 thereof which defines only the
BOT and BT schemes, in Section 3 which explicitly provides for said
schemes thus:
 Sec. 3 Private Initiative in Infrastructure. All 1) Build-own-and-operate (BOO) automatically granted by the infrastructure agency
government infrastructure agencies, including or local government unit the franchise to operate
2) Build-Lease-and-transfer (BLT)
government-owned and controlled corporations and maintain the facility, including the collection of
and local government units, are hereby authorized 3) Build-transfer-and-operate (BTO) tolls, fees, rentals; and charges in accordance with
to enter into contract with any duly prequalified 4) Contract-add-and-operate (CAO) Section 6 hereof.
private contractor for the financing, construction,
operation and maintenance of any financially viable5) Develop-operate-and-transfer (DOT)
In the case of a build-and-transfer arrangement, the
6) Rehabilitate-operate-and-transfer (ROT)
infrastructure facilities through the build-operate- contract shall be awarded to the lowest complying
and transfer or build-and-transfer scheme, subject 7) Rehabilitate-own-and-operate (ROO). bidder based on the present value of its proposed,
to the terms and conditions hereinafter set forth; schedule of amortization payments for the facility to
(Emphasis supplied). be constructed according to the prescribed
b) Section 3 of R.A. No. 6957 by deleting therefrom
minimum design and performance standards, plans
the phrase "through the build-operate-and-transfer
and in Section 5 which requires public bidding of projects under both and specifications: Provided, however, That a
or build-and-transfer scheme.
schemes. Filipino constructor who submits an equally
advantageous bid shall be given preference.
II
All prior acts and negotiations leading to the perfection of the
challenged contract were clearly intended and pursued for such A copy of each build-operate-and-transfer or build-
schemes. Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as and-transfer contract shall forthwith be submitted
follows: to Congress for its information.
A Build-Lease-and-Transfer (BLT) scheme is not authorized under the
said law, and none of the aforesaid prior acts and negotiations were Sec. 5 Public Bidding of Projects. Upon approval The requirement of public bidding is not an idle ceremony. It has been
designed for such unauthorized scheme. Hence, the DOTC is without of the projects mentioned in Section 4 of this Act, aptly said that in our jurisdiction "public bidding is the policy and
any power or authority to enter into the BLT contract in question. the concerned head of the infrastructure agency or medium adhered to in Government procurement and construction
local government unit shall forthwith cause to be contracts under existing laws and regulations. It is the accepted method
published, once every week for three (3) for arriving at a fair and reasonable price and ensures that overpricing,
The majority opinion maintains, however, that since "[t]here is no
consecutive weeks, in at least two (2) newspapers favoritism, and other anomalous practices are eliminated or minimized.
mention in the BOT Law that the BOT and the BT schemes bar any other
of general circulation and in at least one (1) local And any Government contract entered into without the required
arrangement for the payment by the government of the project cost,"
newspaper which is circulated in the region, bidding is null and void and cannot adversely affect the rights of third
then "[t]he law must not be read in such a way as to rule outer unduly
province, city or municipality in which the project is parties." (Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT
restrict any variation within the context of the two schemes." This
to be constructed a notice inviting all duly CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex
interpretation would be correct if the law itself provides a room for
prequalified infrastructure contractors to vs. Delgado Bros., 96 Phil. 368 [1954]).
flexibility. We find no such provisions in R.A. No. 6957 if it intended to
participate in the public bidding for the projects so
include a BLT scheme, then it should have so stated, for contracts of
approved. In the case of a build-operate-and-
lease are not unknown in our jurisdiction, and Congress has enacted The Office of the president secretary through then Executive Secretary
transfer arrangement, the contract shall be
several laws relating to leases. That the BLT scheme was never intended Franklin Drilon Correctly disapproved the contract because no public
awarded to the lowest complying bidder based on
as a permissible variation "within the context" of the BOT and BT bidding is strict compliance with Section 5 of R.A. No. 6957 was
the present value of its proposed tolls, fees, rentals,
schemes is conclusively established by the passage of R.A. No. 7718 conducted. Secretary Drilon Further bluntly stated that the provision of
and charges over a fixed term for the facility to be
which amends: the Implementing Rules of said law authorizing negotiated contracts
constructed, operated, and maintained according to
was of doubtful legality. Indeed, it is null and void because the law itself
the prescribed minimum design and performance
a. Section. 2 by adding to the original BOT and BT does not recognize or allow negotiated contracts.
standards plans, and specifications. For this
schemes the following schemes: purpose, the winning contractor shall be
However the majority opinion posits the view that since only private meets the prequalification it should be given retroactive effect to pre-existing contracts. Section 18
respondent EDSA LRT was prequalified, then a public bidding would be .requirements, after which it thereof says that it "shall take effect fifteen (15) after its publication in
"an absurd and pointless exercise." I submit that the mandatory submits bid/proposal which is at least two (2) newspapers of general circulation." If it were the
requirement of public bidding cannot be legally dispensed with simply found by the agency/local intention of Congress to give said act retroactive effect then it would
because only one was qualified to bid during the prequalification government unit (LGU) to be have so expressly provided. Article 4 of the Civil Code provides that
proceedings. Section 5 mandates that the BOT or BT contract should be complying, "[l]aws shall have no retroactive effect, unless the contrary is provided."
awarded "to the lowest complying bidder," which logically means that
there must at least be two (2) bidders. If this minimum requirement is (c) If after prequalification of The presumption is that all laws operate prospectively, unless the
not met, then the proposed bidding should be deferred and a new more than one contractor only contrary clearly appears or is clearly, plainly, and unequivocally
prequalification proceeding be scheduled. Even those who were earlier one submits a bid which is found expressed or necessarily implied. In every case of doubt, the doubt will
disqualified may by then have qualified because they may have, in the by the agency/LGU to be be resolved against the retroactive application of laws. (Ruben E
meantime, exerted efforts to meet all the qualifications. complying. Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to
amendatory acts, or acts which change an existing statute, Sutherland
This view of the majority would open the floodgates to the rigging of (d) If, after prequalification, states:
prequalification proceedings or to unholy conspiracies among more than one contractor, only
prospective bidders, which would even include dishonest government one submit bids but only one is In accordance with the rule applicable to original
officials. They could just agree, for a certain consideration, that only found by the agency/LGU to be acts, it is presumed that provisions added by the
one of them qualify in order that the latter would automatically corner complying: Provided, That, any amendment affecting substantive rights are
the contract and obtain the award. of the disqualified prospective intended to operate prospectively. Provisions added
bidder may appeal the decision by the amendment that affect substantive rights will
That section 5 admits of no exception and that no bidding could be contractor of the implementing not be construed to apply to transactions and
validly had with only one bidder is likewise conclusively shown by the agency/LGUs prequalification events completed prior to its enactment unless the
amendments introduced by R.A. No. 7718 Per section 7 thereof, a new bids an award committee within legislature has expressed its intent to that effect or
section denominated as Section 5-A was introduced in R.A. No. 6957 to fifteen (15) working days to the such intent is clearly implied by the language of the
allow direct negotiation contracts. This new section reads: head of the agency of national amendment or by the circumstances surrounding its
projects or to the Department of enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S
Sec. 5-A. Direct Negotiation Of Contracts Direct the Interior and Local STATUTES AND STATUTORY CONSTRUCTION 434-
negotiation, shall be resorted to when there is only Government, in case of local 436 [1943 ed.]).
one complying bidder left as defined hereunder. projects from the date the
disqualification was made I vote then to grant the instant petition and to declare void the
known to the disqualified challenged contract and its supplement.
(a) If, after advertisement, only
bidder Provided, That the
one contractor applies for
implementing agency/LGUs
prequalification requirements FELICIANO, J., dissenting:
concerned should act on the
submit a bid/proposal which
appeal within forty-five (45)
subsequently found by the After considerable study and effort, and with much reluctance, I find I
working days from receipt
agency/local government unit must dissent in the instant case. I agree with many of the things set out
thereof.
(LGU) to be complying. in the majority opinion written by my distinguished brother in the Court
Quiason, J. At the end of the day, however, I find myself unable to
Can this amendment be given retroactive effect to the challenged
(b) If, after advertisement, more join in the result reached by the majority.
contract so that it may now be considered a permissible negotiated
than one contractor applied for
contract? I submit that it cannot be R.A. No. 7718 does not provide that
prequalification but only one
I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which
is appropriately drawn on fairly narrow grounds. At the same time; I
wish to address briefly one of Justice Quiason in the majority opinion in
his effort to meet the difficulties posed by Davide Jr., J.
I refer to the invocation of the provisions of presidential Decree No.
1594 dated 11 June 1978 entitled: "Prescribing policies, Guidelines,
Rules and Regulations for Government Infrastructure Contracts" More
specifically, the majority opinion invokes paragraph 1 of Section 4 of
this Degree which reads as follows:
Sec. 4. Bidding. Construction projects shall,
generally be undertaken by contract after
competitive public bidding. Projects may be
undertaken by administration or force account or by
negotiated contract only in exceptional cases where
time is of the essence, or where there is lack of
qualified bidders or contractors, or where there is a
conclusive evidence that greater economy and
efficiency would be achieved through this
arrangement, and in accordance with provisions of
laws and acts on the matter, subject to the approval
of the Ministry of public Works, Transportation and
Communications, the Minister of Public Highways,
or the Minister of Energy, as the case may be, if the
project cost is less than P1 Million, and of the
president of the Philippines, upon the
recommendation of the Minister, if the project cost
is P1 Million or more.
xxx xxx xxx
I understand the unspoken theory in the majority opinion utility and the
ownership of the facilities used to serve the public can be very w1594
continue to exist and to run parallel to the provisions of Republic Act
No. 6957, whether in its original form or as amended by Republic Act
No. 7718.
A principal difficulty with this approach is that Presidential Decree No.
1594 purports to apply to all "government contracts for
infrastructure and other construction projects" But Republic Act No.
6957 as amended by Republic Act No. 7718, relates on to
"infrastructure projects" which are financed, constructed, operated and
maintained "by the private sector" "through the build/operate-and-
transfer or build-and-transfer scheme" under Republic Act No. 6597 and
under a series of other comparable schemes under Republic Act No.
7718. In other words, Republic Act No. 6957 and Republic Act. No: 7718
must be held, in my view, to be special statutes applicable to a more
limited field of "infrastructure projects" than the wide-ranging scope of
application of the general statute i.e., Presidential Decree No. 1594.
Thus, the high relevance of the point made by Mr. Justice Davide that
Republic Act No. 6957 in specific connection with BCT- and BLT type and
BLT type of contracts imposed an unqualified requirement of public
bidding set out in Section 5 thereof.
It should also be pointed out that under Presidential Decree No. 1594,
projects may be undertaken "by administration or force account or by
negotiated contract only "
(1) in exceptional cases where time is of the
essence; or
(2) where there is lack of bidders or contractors; or
(3) where there is a conclusive evidence that greater
economy and efficiency would be achieved through
these arrangements, and in accordance with
provision[s] of laws and acts on the matter.
It must, upon the one hand, be noted that the special law Republic Act-
No. 6957 made absolutely no mention of negotiated contracts being
permitted to displace the requirement of public bidding. Upon the
other hand, Section 5-a, inserted in Republic Act No. 6957 by the
amending statute Republic Act No. 7718, does not purport to authorize
direct negotiation of contracts situations where there is a lack of pre-
qualified contractors or, complying bidders. Thus, even under the
amended special statute, entering into contracts by negotiation
is not permissible in the other (2) categories of cases referred to in
Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases
where time is of the essence" and "when there is conclusive evidence
that greater economy and efficiency would be achieved through these
arrangements, etc."
The result I reach is that insofar as BOT, etc.-types of contracts are
concerned, the applicable public bidding requirement is that set out in
Republic Act No. 6957 and, with respect to such type of contracts
opened for pre-qualification and bidding after the date of effectivity of
Republic Act No. 7718. The provision of Republic Act No. 7718. The
assailed contract was entered into before Republic Act. No. 7718 was
enacted.
The difficulties. of applying the provisions of presidential Degree No.
1594 to the Edsa LRT-type of contracts are aggravated when one
considers the detailed" Implementing Rules and Regulations as
amended April 1988" issued under that Presidential Decree.1 For
instance:
IB [2.5.2] 2.4.2 By Negotiated Contract
xxx xxx xxx
a. In times of emergencies
arising from natural calamities
where immediate action is
necessary to prevent imminent
loss of life and/or property.
b. Failure to award the
contract after competitive public
bidding for valid cause or causes
[such as where the prices
obtained through public bidding
are all above the AAE and the
bidders refuse to reduce their
prices to the AAE].
In these cases, bidding may be undertaken through
sealed canvass of at least three (3) qualified
contractors. Authority to negotiate contracts for
projects under these exceptional cases shall be
subject to prior approval by heads of agencies
within their limits of approving authority.
 c. Where the subject project is
adjacent or contiguous to an on-
going project and it could be
economically prosecuted by the
same contractor provided that
he has no negative slippage and
has demonstrated a satisfactory
performance. (Emphasis
supplied).
Note that there is no reference at all in these presidential Decree No.
1594 Implementing Rules and Regulations to absence of pre-qualified
applicants and bidders as justifying negotiation of contracts as
distinguished from requiring public bidding or a second public bidding.
Note also the following provision of the same Implementing Rules and
Regulations:
IB 1 Prequalification
The following may be become contractors for
government projects:
1 Filipino
a. Citizens (single proprietorship)
b. Partnership of corporation duly organized under
the laws of the Philippines, and at least seventy five
percent (75%) of the capital stock of which belongs
to Filipino citizens.
2. Contractors forming themselves into a joint
venture, i.e., a group of two or more contractors
that intend to be jointly and severally responsible
for a particular contract, shall for purposes of
bidding/tendering comply with LOI 630, and, aside
from being currently and properly accredited by the
Philippine Contractors Accreditation Board, shall
comply with the provisions of R.A. 4566, provided
thatjoint ventures in which Filipino ownership is less
than seventy five percent ( 75%) may be prequalified
where the structures to be built require
the application of techniques and/or
technologies which are not adequately possessed by
a Filipino entity as defined above.
[The foregoing shall not negate any existing and
future commitments with respect to the bidding
and aware of contracts financed partly or wholly
with funds from international lending institutions
like the Asian Development Bank and the Worlds
Bank as well as from bilateral and other similar
sources.(Emphases supplied)
The record of this case is entirely silent on the extent of Philippine
equity in the Edsa LRT Corporation; there is no suggestion that this
corporation is organized under Philippine law and is at least seventy-
five (75%) percent owned by Philippine citizens.
Public bidding is the normal method by which a government keeps
contractors honest and is able to assure itself that it would be getting
the best possible value for its money in any construction or similar
project. It is not for nothing that multilateral financial organizations like
the World Bank and the Asian Development Bank uniformly require
projects financed by them to be implemented and carried out by public
bidding. Public bidding is much too important a requirement casually to
loosen by a latitudinarian exercise in statutory construction.
The instant petition should be granted and the challenged contract and
its supplement should be nullified and set aside. A true public bidding,
complete with a new prequalification proceeding, should be required
for the Edsa LRT Project.
G.R. No. 181293, February 23, 2015
ANA THERESIA RISA HONTIVEROS-BARAQUEL, DANIEL L. EDRALIN,
VICTOR M. GONZALES, SR., JOSE APOLLO R. ADO, RENE D. SORIANO,
ALLIANCE OF PROGRESSIVE LABOR, BUKLURAN NG
MANGGAGAWANG PILIPINO, LAHING PILIPINO MULTI-PURPOSE
TRANSPORT SERVICE COOPERATIVE, PNCC SKYWAY CORPORATION
EMPLOYEES UNION (PSCEU), AND PNCC TRAFFIC MANAGEMENT &
SECURITY DEPARTMENT WORKERS ORGANIZATION
(PTMSDWO), Petitioners, v. TOLL REGULATORY BOARD, THE
SECRETARY OF THE DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS (DOTC), PNCC SKYWAY CORPORATION,
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, SKYWAY O &
M CORPORATION, AND CITRA METRO MANILA TOLLWAYS
CORP., Respondents.
DECISION
SERENO, C.J.:
This is an original petition for certiorari and prohibition under Rule 65 of
the Rules of Court, with a prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order, seeking the
annulment of the following:
1. The Amendment to the Supplemental Toll Operation
Agreement executed on 18 July 2007 between the Republic of
the Philippines, the Philippine National Construction
Corporation, and Citra Metro Manila Tollways
Corporation;ChanRoblesVirtualawlibrary
2. The Memorandum dated 20 July 2007 of the Secretary of
Transportation and Communications, approving the
Amendment to the Supplemental Toll Operation
Agreement;ChanRoblesVirtualawlibrary
3. The Memorandum of Agreement executed on 21 December
2007 between the Philippine National Construction
Corporation, PNCC Skyway Corporation, and Citra Metro
Manila Tollways Corporation; and
 4. The Toll Operation Certificate issued by the Toll Regulatory
Board on 28 December 2007 in favor of Skyway O & M
Corporation.
The annulment of the above is sought for being unconstitutional,
contrary to law, and grossly disadvantageous to the government.
Petitioners also seek to prohibit Skyway O & M Corporation from
assuming operations and maintenance responsibilities over the Skyway
toll facilities.chanroblesvirtuallawlibrary
ANTECEDENT FACTS
The Toll Regulatory Board (TRB) was created on 31 March 1977 by
Presidential Decree No. (P.D.) 11121in order to supervise and regulate,
on behalf of the government, the collection of toll fees and the
operation of toll facilities by the private sector.
On the same date, P.D. 11132 was issued granting to the Construction
and Development Corporation of the Philippines (now Philippine
National Construction Corporation or PNCC) the right, privilege, and
authority to construct, operate, and maintain toll facilities in the North
and South Luzon Toll Expressways for a period of 30 years starting 1
May 1977.
TRB and PNCC later entered into a Toll Operation Agreement,3 which
prescribed the operating conditions of the right granted to PNCC under
P.D. 1113.
P.D. 1113 was amended by P.D. 1894,4 which granted PNCC the right,
privilege, and authority to construct, maintain, and operate the North
Luzon, South Luzon and Metro Manila Expressways, together with the
toll facilities appurtenant thereto. The term of 30 years provided under
P. D. 1113 starting from 1 May 1977 remained the same for the North
and the South Luzon Expressways, while the franchise granted for the
Metro Manila Expressway (MME) provided a term of 30 years
commencing from the date of completion of the project.
On 22 September 1993, PNCC entered into an agreement5 with PT Citra
Lamtoro Gung Persada (CITRA), a limited liability company organized
and established under the laws of the Republic of Indonesia, whereby
the latter committed to provide PNCC with a pre-feasibility study on the
proposed MME project. The agreement was supplemented6 on 14
February 1994 with a related undertaking on the part of CITRA. CITRA
was to provide a preliminary feasibility study on the Metro Manila
Skyways (MMS) project, a system of elevated roadway networks
passing through the heart of the Metropolitan Manila area. In order to
accelerate the actual implementation of both the MME and the MMS
projects, PNCC and CITRA entered into a second agreement.7 Through
that agreement, CITRA committed to finance and undertake the
preparation, updating, and revalidation of previous studies on the
construction, operation, and maintenance of the projects.
As a result of the feasibility and related studies, PNCC and CITRA
submitted, through the TRB, a Joint Investment Proposal (JIP) to the
Republic of the Philippines.8 The JIP embodied the implementation
schedule for the financing, design and construction of the MMS in three
stages: the South Metro Manila Skyway, the North Metro Manila
Skyway, and the Central Metro Manila Skyway.9cralawred
The TRB reviewed, evaluated and approved the JIP, particularly as it
related to Stage 1, Phases 1 and 2; and Stage 2, Phase 1 of the South
Metro Manila Skyway.
On 30 August 1995, PNCC and CITRA entered into a Business and Joint
Venture Agreement10 and created the Citra Metro Manila Tollways
Corporation (CMMTC). CMMTC was a joint venture corporation
organized under Philippine laws to serve as a channel through which
CITRA shall participate in the construction and development of the
project.
On 27 November 1995, the Republic of the Philippines through the
TRB as Grantor, CMMTC as Investor, and PNCC as Operator executed
a Supplemental Toll Operation Agreement (STOA)11 covering Stage 1,
Phases 1 and 2; and Stage 2, Phase 1 of the South Metro Manila
Skyway. Under the STOA, the design and construction of the project
roads became the primary and exclusive privilege and responsibility of
CMMTC. The operation and maintenance of the project roads became
the primary and exclusive privilege and responsibility of the PNCC
Skyway Corporation (PSC), a wholly owned subsidiary of PNCC, which
undertook and performed the latters obligations under the STOA.
CMMTC completed the design and construction of Stage 1 of the South
Metro Manila Skyway, which was operated and maintained by
PSC.12cralawred
On 18 July 2007, the Republic of the Philippines, through the TRB,
CMMTC, and PNCC executed the assailed Amendment to the
Supplemental Toll Operation Agreement (ASTOA).13 The ASTOA
incorporated the amendments, revisions, and modifications necessary
to cover the design and construction of Stage 2 of the South Metro
Manila Skyway. Also under the ASTOA, Skyway O & M Corporation
(SOMCO) replaced PSC in performing the operations and maintenance
of Stage 1 of the South Metro Manila Skyway.
Pursuant to the authority granted to him under Executive Order No.
(E.O.) 49714 dated 24 January 2006, Department of Transportation and
Communications (DOTC) Secretary Leandro Mendoza approved the
ASTOA through the challenged Memorandum dated 20 July
2007.15cralawred
On 21 December 2007, PNCC, PSC, and CMMTC entered into the
assailed Memorandum of Agreement (MOA)16 providing for the
successful and seamless assumption by SOMCO of the operations and
maintenance of Stage 1 of the South Metro Manila Skyway. Under the
MOA, PSC received the amount of ?320 million which was used for the
settlement of its liabilities arising from the consequent retrenchment or
separation of its affected employees.
The TRB issued the challenged Toll Operation Certificate (TOC)17 to
SOMCO on 28 December 2007, authorizing the latter to operate and
maintain Stage 1 of the South Metro Manila Skyway effective 10:00
p.m. on 31 December 2007.
Meanwhile, on 28 December 2007, petitioner PNCC Traffic
Management and Security Department Workers Organization
(PTMSDWO) filed a Notice of Strike against PSC on the ground of unfair
labor practice, specifically union busting.18 The Secretary of Labor and
Employment19 assumed jurisdiction over the dispute in an Order dated
31 December 2007 and set the initial hearing of the case on 2 January
2008.20cralawred
On 3 January 2008, petitioners PTMSDWO and PNCC Skyway
Corporation Employees Union (PSCEU) filed before the Regional Trial
Court of Paraaque City, Branch 258 (RTC), a complaint against
respondents TRB, PNCC, PSC, CMMTC, and SOMCO. The complaint was
for injunction and prohibition with a prayer for a writ of preliminary
injunction and/or a temporary restraining order, and sought to prohibit
the implementation of the ASTOA and the MOA, as well as the
assumption of the toll operations by SOMCO.21Petitioners PSCEU and
PTMSDWO also sought the subsequent nullification of the ASTOA and
the MOA for being contrary to law and for being grossly
disadvantageous to the government.22 They later filed an Amended
Complaint23 dated 8 January 2008, additionally praying that PSC be
allowed to continue the toll operations. With the exception of TRB, all
defendants therein filed their Opposition.
On 23 January 2008, the RTC issued an Order24 denying the prayer for
the issuance of a temporary restraining order and/or writ of preliminary
injunction. According to the RTC, petitioners were seeking to enjoin a
national government infrastructure project. Under Republic Act No.
(R.A.) 8975,25 lower courts are prohibited from issuing a temporary
restraining order or preliminary injunction against the government or
any person or entity acting under the governments direction to
restrain the execution, implementation, or operation of any such
contract or project. Furthermore, the RTC ruled that it could no longer
issue a temporary restraining order or preliminary injunction,
considering that the act sought to be restrained had already been
consummated.26 The ASTOA, the MOA, and the assumption of the toll
operations by SOMCO took effect at 10:00 p.m. on 31 December 2007,
while petitioners PSCEU and PTMSDWO sought to prohibit their
implementation only on 3 January 2008.
In view of its denial of the ancillary prayer, the RTC required defendants
to file their respective Answers to the Amended Complaint.27cralawred
On 28 January 2008, petitioners PSCEU and PTMSDWO filed a Notice of
Dismissal with Urgent Ex-Parte Motion for the Issuance of Order
Confirming the Dismissal,28 considering that no Answers had yet been
filed. On the basis thereof, the RTC dismissed the case without
prejudice on 29 January 2008.29cralawred
On 4 February 2008, petitioners filed the instant Petition30 before this
Court. On 13 February 2008, we required respondents to comment on
the same.31cralawred
Meanwhile, defendants PNCC32 and PSC33 filed their respective Motions
for Partial Reconsideration of the Order of the RTC dismissing the case
without prejudice. Both argued that the RTC should have dismissed the
case with prejudice. They pointed out that petitioners PSCEU and
PTMSDWO had acted in bad faith by filing the complaint before the
RTC, despite the pendency of a labor case over which the Secretary of
Labor and Employment had assumed jurisdiction. Defendant CMMTC
joined PNCC and PSC in moving for a partial reconsideration of the RTC
Order.34cralawred
The RTC denied the Motions for Partial Reconsideration in an Order
dated 13 June 2008.35cralawred
Before this Court, SOMCO,36 PSC,37 PNCC,38 CMMTC,39 and TRB40 filed
their respective Comments on the Petition.
THE PARTIES POSITIONS
Petitioners argue that the franchise for toll operations was exclusively
vested by P.D. 1113 in PNCC, which exercised the powers under its
franchise through PSC in accordance with the STOA. By agreeing to the
arrangement whereby SOMCO would replace PSC in the toll operations
and management, PNCC seriously breached the terms and conditions of
its undertaking under the franchise and effectively abdicated its rights
and privileges in favor of SOMCO.
Furthermore, the TOC granted to SOMCO was highly irregular and
contrary to law, because 1) it did not indicate the conditions that shall
be imposed on SOMCO as provided under P.D. 1112;41 2) none of the
requirements on public bidding, negotiations, or even publication was
complied with before the issuance of the TOC to SOMCO; 3) applying
the stricter grandfather rule, SOMCO does not qualify as a facility
operator as defined under R.A. 6957,42 as amended by R.A. 7718;43 and
4) there were no public notices and hearings conducted wherein all
legitimate issues and concerns about the transfer of the toll operations
would have been properly ventilated.
Petitioners also claim that the approval by the DOTC Secretary of the
ASTOA could not take the place of the presidential approval required
under P.D. 111344 and P.D. 189445 concerning the franchise granted to
PNCC.
Finally, petitioners claim that the assumption of the toll operations by
SOMCO was grossly disadvantageous to the government, because 1) for
a measly capital investment of P2.5 million, SOMCO stands to earn P400
million in gross revenues based on official and historical records; 2) with
its measly capital, SOMCO would not be able to cover the direct
overhead for personal services in the amount of P226 million as borne
out by Commission on Audit reports; 3) the net revenue from toll
operations would go to private shareholders of SOMCO, whereas all
earnings of PSC when it was still in charge of the toll operations went to
PNCC the mother company whose earnings, as an acquired-asset
corporation, formed part of the public treasury; 4) the new
arrangement would result in the poor delivery of toll services by
SOMCO, which had no proven track record; 5) PSC received only P320
million as settlement for the transfer of toll operations to SOMCO.
All respondents counter that petitioners do not have the requisite legal
standing to file the petition. According to respondents, petitioner
Hontiveros-Baraquel filed the instant petition as a legislator in her
capacity as party-list representative of Akbayan. As such, she was only
allowed to sue to question the validity of any official action when it
infringed on her prerogative as a legislator.46 Presently, she has cited no
such prerogative, power, or privilege that is adversely affected by the
assailed acts.47cralawred
While suing as citizens, the individual petitioners have not shown any
personal or substantial interest in the case indicating that they
sustained or will sustain direct injury as a result of the implementation
of the assailed acts.48 The maintenance of the suit by petitioners as
taxpayers has no merit either because the assailed acts do not involve
the disbursement of public funds.49 Finally, the bringing of the suit by
petitioners as peoples organizations does not automatically confer
legal standing, especially since petitioner-organizations do not even
allege that they represent their members,50 nor do they cite any
particular constitutional provision that has been violated or disregarded
by the assailed acts.51 In fact, the suit raises only issues of contract law,
and none of the petitioners is a party or is privy to the assailed
agreements and issuances.52cralawred
Respondents also argue that petitioners violate the hierarchy of courts.
In particular, it is alleged that while lower courts are prohibited from
issuing temporary restraining orders or preliminary injunctions against
national government projects under R.A. 8975, the law does not
preclude them from assuming jurisdiction over complaints that seek the
nullification of a national government project as ultimate
relief.53cralawred
As a final procedural challenge to the petition, respondents aver that
petitioners are guilty of forum shopping. When petitioners filed the
instant petition, the case before the RTC seeking similar reliefs was still
pending, as respondents PNCC, PSC and CMMTC had moved for the
partial reconsideration of the RTCs Order of dismissal within the
reglementary period.54 Furthermore, the instant case and the one
before the RTC were filed while petitioners labor grievances seeking
similar reliefs were also being heard before the Department of Labor
and Employment.55cralawred
On the merits of the arguments in the petition, respondents argue that
nothing in the ASTOA, the approval thereof by the DOTC Secretary, the
MOA, or the TOC was violative of the Constitution.
It is argued that the authority to operate a public utility can be granted
by administrative agencies when authorized by law.56 Under P.D. 1112,
the TRB is empowered to grant authority and enter into contracts for
the construction, operation, and maintenance of a toll facility,57 such as
the ASTOA in this case. Also, the ASTOA was an amendment, not to the
legislative franchise of PNCC, but to the STOA previously executed
between the Republic of the Philippines through the TRB, PNCC, and
CMMTC.58 In fact, PNCCs franchise was never sold, transferred, or
otherwise assigned to SOMCO59 in the same way that PSCs previous
assumption of the operation and maintenance of the South Metro
Manila Skyway did not amount to a sale, transfer or assignment of
PNCCs franchise.60cralawred
There can be no valid objection to the approval of the ASTOA by the
DOTC Secretary, because he was authorized by the President to do so
by virtue of E.O. 497.61 Also, the phrase subject to the approval of the
President of the Philippines in P.D. 1112 and 1113 does not in any way
mean that the presidential approval must be obtained prior to the
execution of a contract, or that the approval be made personally by the
President.62 The presidential approval may be obtained under the
doctrine of qualified political agency.63cralawred
Respondents argue that there is no merit in the claim that the TOC
granted to SOMCO was highly irregular and contrary to law. First, the
TOC clearly states that the toll operation and maintenance by SOMCO
shall be regulated by the Republic of the Philippines in accordance with
P.D. 1112, the STOA, the toll operations and maintenance rules and
regulations, and lawful orders, instructions, and conditions that may be
imposed from time to time.64 Second, there is no need to comply with
the public bidding and negotiation requirements, because the South
Metro Manila Skyway is an ongoing project, not a new
one.65 Furthermore, the STOA, which was the basis for the ASTOA, was
concluded way before the effectivity of R.A. 918466 in 2003.67cralawred
Third, SOMCO is a Filipino corporation with substantial 72% Filipino
ownership.68 Fourth, the law requires prior notice and hearing only in
an administrative bodys exercise of quasi-judicial functions.69 In this
case, the transfer of the toll operations and maintenance to SOMCO
was a contractual arrangement entered into in accordance with
law.70cralawred
Finally, the assumption of the toll operation and maintenance by
SOMCO is not disadvantageous to the government. Petitioners belittle
the P2.5 million capitalization of SOMCO, considering that PSCs
capitalization at the time it was incorporated was merely
P500,000.71cralawred
Respondents claim that under the ASTOA, PNCC shall get a direct share
in the toll revenues without any corollary obligation, unlike the
arrangement in the STOA whereby PNCCs 10% share in the toll
revenues was intended primarily for the toll operation and
maintenance by PSC.72cralawred
Finally, respondents assert that there is no reason to fear that the
assumption by SOMCO would result in poor delivery of toll services.
CITRA and the other shareholders of SOMCO are entities with
experience and proven track record in toll operations.73 Also, SOMCO
hired or absorbed more than 300 PSC employees,74 who brought with
them their work expertise and experience.chanroblesvirtuallawlibrary
ISSUES
The instant case shall be resolved on the basis of the following issues:
Procedural:
I. Whether petitioners have standing;
II. Whether petitioners are guilty of forum-shopping;
Substantive:
III. Whether the TRB has the power to grant authority to operate
a toll facility;
IV. Whether the TOC issued to SOMCO was valid;
V. Whether the approval of the ASTOA by the DOTC Secretary
was valid; and
VI. Whether the assumption of toll operations by SOMCO is
disadvantageous to the government.
Our Ruling
I
Not all petitioners have
personality to sue.
Standing is a constitutional law concept allowing suits to be brought not
necessarily by parties personally injured by the operation of a law or
official action, but by concerned citizens, taxpayers, or voters who sue
in the public interest.75 Determining the standing of concerned citizens,
taxpayers, or voters requires a partial consideration of the substantive
merit of the constitutional question,76 or at least a preliminary estimate
thereof.77cralawred
In this case, petitioners raise the power of Congress to grant franchises
as a constitutional question. They allege that the execution of the
ASTOA and the MOA, the approval of the ASTOA by the DOTC Secretary
and the issuance of the TOC infringed on the constitutional power of
Congress, which has the sole authority to grant franchises for the
operation of public utilities.
This Court has had a few occasions to rule that a franchise from
Congress is not required before each and every public utility may
operate.78 Unless there is a law that specifically requires a franchise for
the operation of a public utility, particular agencies in the executive
branch may issue authorizations and licenses for the operation of
certain classes of public utilities.79 In the instant case, there is no law
that states that a legislative franchise is necessary for the operation of
toll facilities.
In PAL v. Civil Aeronautics Board,80 this Court
enunciated:chanRoblesvirtualLawlibrary
Congress has granted certain administrative agencies the power to
grant licenses for, or to authorize the operation of certain public
utilities. With the growing complexity of modern life, the multiplication
of the subjects of governmental regulation, and the increased difficulty
of administering the laws, there is a constantly growing tendency
towards the delegation of greater powers by the legislature, and
towards the approval of the practice by the courts. It is generally
recognized that a franchise may be derived indirectly from the state
through a duly designated agency, and to this extent, the power to
grant franchises has frequently been delegated, even to agencies other
than those of a legislative nature. In pursuance of this, it has been held
that privileges conferred by grant by local authorities as agents for the
state constitute as much a legislative franchise as though the grant had
been made by an act of the Legislature.81cralawlawlibrary
It is thus clear that Congress does not have the sole authority to grant
franchises for the operation of public utilities. Considering the
foregoing, we find that the petition raises no issue of constitutional
import. More particularly, no legislative prerogative, power, or privilege
has been impaired. Hence, legislators have no standing to file the
instant petition, for they are only allowed to sue to question the validity
of any official action when it infringes on their prerogatives as members
of Congress.82 Standing is accorded to them only if there is an
unmistakable showing that the challenged official act affects or impairs
their rights and prerogatives as legislators.83cralawred
In line with our ruling in Kilosbayan, Inc. v. Morato,84 the rule
concerning a real party in interest which is applicable to private
litigation rather than the liberal rule on standing, should be applied to
petitioners.
A real party in interest is one who stands to be benefited or injured by
the judgment in the suit, or the party entitled to the avails of the
suit.85 Ones interest must be personal and not one based on a desire to
vindicate the constitutional right of some third and unrelated
party.86 The purposes of the rule are to prevent the prosecution of
actions by persons without any right or title to or interest in the case; to
require that the actual party entitled to legal relief be the one to
prosecute the action; to avoid a multiplicity of suits; and to discourage
litigation and keep it within certain bounds, pursuant to sound public
policy.87cralawred
At bottom, what is being questioned in the petition is the
relinquishment by PSC of the toll operations in favor of SOMCO,
effectively leading to the cessation of the formers business. In this
case, we find that among petitioners, the only real parties in interest
are the labor unions PSCEU and PTMSDWO.
PSCEU and PTMSDWO filed the petition not as a representative suit on
behalf of their members who are rank-and-file employees of PSC, but as
peoples organizations invested with a public duty to defend the rule
of law.88 PSCEU and PTMSDWO cite Kilosbayan v. Ermita89 as authority
to support their standing to file the instant suit.
It is well to point out that the Court, in Ermita, accorded standing to
peoples organizations to file the suit, because the matter involved
therein was the qualification of a person to be appointed as a member
of this Court an issue of utmost and far-reaching constitutional
importance.90 As discussed, the instant petition raises no genuine
constitutional issues.
Nevertheless, for a different reason, we accord standing to PSCEU and
PTMSDWO to file the instant suit. With the transfer of toll operations to
SOMCO and the resulting cessation of PSCs business comes the
retrenchment and separation of all its employees. The existence of
petitioner labor unions would terminate with the dissolution of its
employer and the separation of its members. This is why the petition
also prays that this Court issue an order that would smoothly preserve
the toll operations services of respondent PNCC and/or respondent PSC
under its legislative franchise.91 We have recognized that the right of
self-preservation is inherent in every labor union or any organization for
that matter.92 Thus, PSCEU and PTMSDWO, as real parties in interest,
have the personality to question the assumption of the toll operations
by SOMCO.
II
PSCEU and PTMSDWO are not
guilty of forum-shopping.
Forum shopping refers to the act of availing of several remedies in
different courts and/or administrative agencies, either simultaneously
or successively, when these remedies are substantially founded on the
same material facts and circumstances and raise basically the same
issues either pending in or already resolved by some other court or
administrative agency.93 What is pivotal in determining whether forum
shopping exists is the vexation caused to the courts and litigants and
the possibility of conflicting decisions being rendered by different
courts and/or administrative agencies upon the same issues.94cralawred
The elements of forum shopping are as follows: a) identity of parties or
at least such parties that represent the same interests in both actions;
b) identity of rights asserted and the relief prayed for, the relief
founded on the same facts; and c) identity of the two preceding
particulars, such that any judgment rendered in one action will amount
to res judicata in the other.95cralawred
Respondents argue that petitioners PSCEU and PTMSDWO committed
forum shopping by filing the complaint for injunction and prohibition
before the RTC during the pendency of NCMB-NCR-NS-12-188-07
entitled In Re: Labor Dispute at PNCC Skyway Corporation. It was a case
they also filed, over which the Secretary of Labor and Employment has
assumed jurisdiction.
The case involves a Notice of Strike filed against PSC on the ground of
unfair labor practice. While the specific act in question is not specified,
the prohibited acts constituting unfair labor practice96 essentially relate
to violations concerning the workers right to self-organization.97 When
compared with the complaint filed with the RTC for injunction and
prohibition seeking to prohibit the implementation of the ASTOA and
the MOA, as well as the assumption of the toll operations by SOMCO
for being unconstitutional, contrary to law and disadvantageous to the
government, it is easily discernible that there is no identity of rights
asserted and relief prayed for. These cases are distinct and dissimilar in
their nature and character.
For the sake of argument, let us assume that, in order to hurt the
unions, PSC feigned a cessation of business that led to the
retrenchment and separation of all employees. That is an unfair labor
practice. In that complaint, the unions cannot be expected to ask for, or
the Secretary of Labor and Employment to grant, the annulment of the
ASTOA and the MOA and the continuation of toll operations by PSC. The
Secretary would only focus on the legality of the retrenchment and
separation, and on the presence or absence of bad faith in PSCs
cessation of business. On the other hand, the complaint before the RTC
would require it to focus on the legality of the ASTOA, the MOA and the
transfer of toll operations. Ultimately, even if the Secretary of Labor
and Employment makes a finding of unfair labor practice, this
determination would not amount to res judicata as regards the case
before the RTC.
We also reject the claim of respondents that petitioners PSCEU and
PTMSDWO committed forum shopping by filing the instant petition
before this Court while the motion for partial reconsideration of the
RTCs Order of dismissal without prejudice was still pending. Section 1,
Rule 17 of the Rules of Court states:chanRoblesvirtualLawlibrary
SECTION 1. Dismissal upon notice by plaintiff. A complaint may be
dismissed by the plaintiff by filing a notice of dismissal at any time
before service of the answer or of a motion for summary judgment.
Upon such notice being filed, the court shall issue an order confirming
the dismissal. Unless otherwise stated in the notice, the dismissal is
without prejudice, except that a notice operates as an adjudication
upon the merits when filed by a plaintiff who has once dismissed in a
competent court an action based on or including the same
claim.cralawlawlibrary
In this case, petitioners PSCEU and PTMSDWO had filed a notice of
dismissal of the complaint before the RTC on 28 January 2008, before
respondents filed their Answers. The following day, the RTC issued an
order confirming the dismissal. Under the above-cited rule, this
confirmation is the only qualification imposed on the right of a party to
dismiss the action before the adverse party files an answer.98 In this
case, the dismissal of the action therefore became effective upon that
confirmation by the RTC despite the subsequent filing of the motions
for partial reconsideration.
Thus, when the instant petition was filed on 4 February 2008, the
complaint before the RTC was no longer pending. The complaint was
dismissed without prejudice by virtue of the notice of dismissal filed by
petitioners PSCEU and PTMSDWO. Consequently, there was not even
any need for petitioners to mention the prior filing and dismissal of the
complaint in the certificate of non-forum shopping in the instant
petition,99 but they did so anyway.100cralawred
Parenthetically, in their motions for partial reconsideration,
respondents PNCC and PSC insisted that the dismissal should have been
with prejudice, because petitioners allegedly acted in bad faith in filing
the notice of dismissal, were guilty of forum shopping, and did not
notify respondents of their intention to file a notice of dismissal. With
regard to the first and the third allegation, petitioners may ask for
dismissal at any time before the filing of the answer as a matter of right,
even if the notice cites the most ridiculous of grounds for
dismissal.101 As to the second, we have already ruled that there was no
forum shopping as regards the successive filings of the labor case and
the complaint before the RTC.chanroblesvirtuallawlibrary
III
TRB has the power to grant
authority to operate a toll facility.
This matter has already been settled by the Court in Francisco, Jr. v.
TRB,102 which ruled thus:chanRoblesvirtualLawlibrary
It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation
to Section 4 of P.D. 1894 have invested the TRB with sufficient power to
grant a qualified person or entity with authority to construct, maintain,
and operate a toll facility and to issue the corresponding toll operating
permit or TOC.
Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply
provide the power to grant authority to operate toll
facilities:chanRoblesvirtualLawlibrary
Section 3. Powers and Duties of the Board. The Board shall have in
addition to its general powers of administration the following powers
and duties:
(a) Subject to the approval of the President of the Philippines, to enter
into contracts in behalf of the Republic of the Philippines with persons,
natural or juridical, for the construction, operation and maintenance of
toll facilities such as but not limited to national highways, roads,
bridges, and public thoroughfares. Said contract shall be open to
citizens of the Philippines and/or to corporations or associations
qualified under the Constitution and authorized by law to engage in toll
operations;ChanRoblesVirtualawlibrary
xxxx
(e) To grant authority to operate a toll facility and to issue therefore the
necessary Toll Operation Certificate subject to such conditions as shall
be imposed by the Board including inter alia the following:
(1) That the Operator shall desist from collecting toll upon the
expiration of the Toll Operation Certificate.
(2) That the entire facility operated as a toll system including all
operation and maintenance equipment directly related thereto shall
be turned over to the government immediately upon the expiration
of the Toll Operation Certificate.
(3) That the toll operator shall not lease, transfer, grant the usufruct of,
sell or assign the rights or privileges acquired under the Toll
Operation Certificate to any person, firm, company, corporation or
other commercial or legal entity, nor merge with any other
company or corporation organized for the same purpose, without
the prior approval of the President of the Philippines. In the event of
any valid transfer of the Toll Operation Certificate, the Transferee
shall be subject to all the conditions, terms, restrictions and
limitations of this Decree as fully and completely and to the same
extent as if the Toll Operation Certificate has been granted to the
same person, firm, company, corporation or other commercial or
legal entity.
(4) That in time of war, rebellion, public peril, emergency, calamity,
disaster or disturbance of peace and order, the President of the
Philippines may cause the total or partial closing of the toll facility or
order to take over thereof by the Government without prejudice to
the payment of just compensation.
(5) That no guarantee, Certificate of Indebtedness, collateral, securities,
or bonds shall be issued by any government agency or government-
owned or controlled corporation on any financing program of the
toll operator in connection with his undertaking under the Toll
Operation Certificate.
(6) The Toll Operation Certificate may be amended, modified or
revoked whenever the public interest so requires.
(a) The Board shall promulgate rules and regulations governing the
procedures for the grant of Toll Certificates. The rights and
privileges of a grantee under a Toll Operation Certificate shall be
defined by the Board.
 (b) To issue rules and regulations to carry out the purposes of this
Decree.
SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and
supervision over the GRANTEE with respect to the Expressways, the toll
facilities necessarily appurtenant thereto and, subject to the provisions
of Section 8 and 9 hereof, the toll that the GRANTEE will charge the
users thereof.
By explicit provision of law, the TRB was given the power to grant
administrative franchise for toll facility projects.103 (Emphases
supplied)cralawlawlibrary
We cannot abide by the contention of petitioners that the franchise for
toll operations was exclusively vested in PNCC, which effectively
breached its franchise when it transferred the toll operations to
SOMCO. First, there is nothing in P.D. 1113 or P.D. 1894 that states that
the franchise granted to PNCC is to the exclusion of all others.
Second, if we were to go by the theory of petitioners, it is only the
operation and maintenance of the toll facilities that is vested with
PNCC. This interpretation is contrary to the wording of P.D. 1113 and
P.D. 1894 granting PNCC the right, privilege and authority to construct,
operate and maintain the North Luzon, South Luzon and Metro Manila
Expressways and their toll facilities.
It appears that petitioners have confused the franchise granted under
P.D. 1113 and P.D. 1894 with particular provisions in the STOA. To
clarify, the operation and maintenance of the project roads were the
primary and exclusive privilege and responsibility of PNCC through PSC
under the STOA. On the other hand, the design and construction of the
project roads were the primary and exclusive privilege and
responsibility of CMMTC. However, with the execution of the ASTOA,
the parties agreed that SOMCO shall replace PSC in undertaking the
operations and maintenance of the project roads. Thus, the exclusivity
clause was a matter of agreement between the parties, which
amended it in a later contract; it was not a matter provided under the
law.
Third, aside from having been granted the power to grant
administrative franchises for toll facility projects, TRB is also
empowered to modify, amend, and impose additional conditions on the
franchise of PNCC in an appropriate contract, particularly when public
interest calls for it. This is provided under Section 3 of P.D. 1113 and
Section 6 of P.D. 1894, to wit:chanRoblesvirtualLawlibrary
SECTION 3. This franchise is granted subject to such conditions as may
be imposed by the [Toll Regulatory] Board in an appropriate contract to
be executed for this purpose, and with the understanding and upon the
condition that it shall be subject to amendment, alteration or repeal
when public interest so requires.chanrobleslaw
xxx
SECTION 6. This franchise is granted subject to such conditions,
consistent with the provisions of this Decree, as may be imposed by the
Toll Regulatory Board in the Toll Operation Agreement and such other
modifications or amendments that may be made thereto, and with the
understanding and upon the condition that it shall be subject to
amendment or alteration when public interest so
dictates.cralawlawlibrary
Section 6 of P.D. 1894 specifically mentions the Toll Operation
Agreement. The STOA was one such modification or amendment of the
franchise of PNCC. So was the ASTOA, which further modified the
franchise. PNCC cannot be said to have breached its franchise when it
transferred the toll operations to SOMCO. PNCC remained the franchise
holder for the construction, operation, and maintenance of the project
roads; it only opted to partner with investors in the exercise of its
franchise leading to the organization of companies such as PSC and
SOMCO.
Again, considering that PNCC was granted the right, privilege, and
authority to construct, operate, and maintain the North Luzon, South
Luzon, and Metro Manila Expressways and their toll facilities, we have
not heard petitioners decrying the breach by PNCC of its franchise
when it agreed to make CMMTC responsible for the design and
construction of the project roads under the STOA.
IV
The TOC issued to SOMCO was not irregular.
Petitioners argue that the conditions provided under Section 3(e) of
P.D. 1112104 were not imposed on SOMCO, because these do not
appear on the face of the TOC. Petitioners are mistaken.
The TOC, as a grant of authority from the government, is subject to the
latters control insofar as the grant affects or concerns the
public.105 Like all other franchises or licenses issued by the government,
the TOC is issued subject to terms, conditions, and limitations under
existing laws and agreements. This rule especially holds true in this
instance since the TRB has the power to issue the necessary Toll
Operation Certificate subject to such conditions as shall be imposed by
the Board including inter alia those specified under Section 3(e) of P.D.
1112. Thus, impliedly written into every TOC are the conditions
prescribed therein.
In any case, part of the TOC issued to SOMCO
reads:chanRoblesvirtualLawlibrary
Pursuant to Section 3(e) of Presidential Decree No. 1112 or the Toll
Operation Decree, Skyway O & M Corporation is hereby given authority
to operate and maintain Stage 1 of the South Metro Manila Skyway
effective as of 10:00 p.m. of 31 December 2007.
This authorization is issued upon the clear understanding that the
operation and maintenance of Stage 1 of the South Metro Manila
Skyway as a toll facility and the collection of toll fees shall be closely
supervised and regulated by the Grantor, by and through the Board of
Directors, in accordance with the terms and conditions set forth in the
STOA, as amended, the rules and regulations duly promulgated by the
Grantor for toll road operations and maintenance, as well as the lawful
orders, instructions and conditions which the Grantor, through the TRB,
may impose from time to time in view of the public nature of the
facility.cralawlawlibrary
As regards the allegation that none of the requirements for public
bidding was observed before the TOC was issued to SOMCO, this matter
was also squarely answered by the Court in Francisco, Jr. v. TRB,106 to
wit:chanRoblesvirtualLawlibrary
Where, in the instant case, a franchisee undertakes the tollway projects
of construction, rehabilitation and expansion of the tollways under its
franchise, there is no need for a public bidding. In pursuing the projects
with the vast resource requirements, the franchisee can partner with
other investors, which it may choose in the exercise of its management
prerogatives. In this case, no public bidding is required upon the
franchisee in choosing its partners as such process was done in the
exercise of management prerogatives and in pursuit of its right
of delectus personae. Thus, the subject tollway projects were
undertaken by companies, which are the product of the joint ventures
between PNCC and its chosen partners.107cralawlawlibrary
Under the STOA in this case, PNCC partnered with CMMTC in Stages 1
and 2 of the South Metro Manila Skyway. The STOA gave birth to PSC,
which was put in charge of the operation and maintenance of the
project roads. The ASTOA had to be executed for Stage 2 to
accommodate changes and modifications in the original design. The
ASTOA then brought forth the incorporation of SOMCO to replace PSC
in the operations and maintenance of Stage 1 of the South Metro
Manila Skyway. Clearly, no public bidding was necessary because PNCC,
the franchisee, merely exercised its management prerogative when it
decided to undertake the construction, operation, and maintenance of
the project roads through companies which are products of joint
ventures with chosen partners.
Petitioners also insist that SOMCO is not qualified to operate a toll
facility, because it does not meet the nationality requirement for a
corporation when scrutinized under the grandfather rule. Other than
advancing this argument, however, petitioners have not shown how
SOMCO fails to meet the nationality requirement for a public utility
operator. Petitioners only aver in their petition that 40% of SOMCO is
owned by CMMTC, a foreign company, while the rest is owned by the
following: a) Toll Road Operation and Maintenance Venture
Corporation (TROMVC), almost 40% of which is owned by a
Singaporean company; b) Assetvalues Holding Company, Inc. (AHCI), of
which almost 40% is Dutch-owned; and c) Metro Strategic
Infrastructure Holdings, Inc. (MSIHI), 40% of which is owned by Metro
Pacific Corporation, whose ownership or nationality was not
specified.108cralawred
Section 11, Article XII of the Constitution provides that [n]o 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 x x
x. Clearly, under the Constitution, a corporation at least 60% of whose
capital is owned by Filipinos is of Philippine nationality. Considering this
constitutional provision, petitioners silence on the ownership of the
remaining 60% of the corporations cited is very telling.
In order to rebut petitioners allegations, respondents readily present
matrices showing the itemization of percentage ownerships of the
subscribed capital stock of SOMCO, as well as that of TROMVC, AHCI,
and MSIHI. Respondents attempt to show that all these corporations
are of Philippine nationality, with 60% of their capital stock owned by
Filipino citizens. We need not reproduce the itemization here. Suffice it
to say that in their Consolidated Reply,109 petitioners did not refute the
unanimous claim of respondents. It is axiomatic that one who alleges a
fact has the burden of proving it. On this matter, we find that
petitioners have failed to prove their allegation that SOMCO is not
qualified to operate a toll facility for failure to meet the nationality
requirement under the Constitution.
Finally, no public notices and hearings were necessary prior to the
issuance of the TOC to SOMCO. For the same reason that a public
bidding is not necessary, PNCC cannot be required to call for public
hearings concerning matters within its prerogative. At any rate, we
have studied P.D. 1112 and the Implementing Rules and Regulations
Authorizing the Establishment of Toll Facilities and found no provision
requiring the issuance of public notices and the conduct of public
hearings prior to the issuance of a TOC.chanroblesvirtuallawlibrary
V omitted)cralawlawlibrary
Approval of the ASTOA by the
DOTC Secretary was approval by
the President.
The doctrine of qualified political agency declares that, save in matters
on which the Constitution or the circumstances require the President to
act personally, executive and administrative functions are exercised
through executive departments headed by cabinet secretaries, whose
acts are presumptively the acts of the President unless disapproved by
the latter.110 As explained in Villena v. Executive Secretary,111 this
doctrine is rooted in the Constitution:chanRoblesvirtualLawlibrary
x x x With reference to the Executive Department of the government,
there is one purpose which is crystal-clear and is readily visible without
the projection of judicial searchlight, and that is, the establishment of a
single, not plural, Executive. The first section of Article VII of the
Constitution, dealing with the Executive Department, begins with the
enunciation of the principle that The executive power shall be vested
in a President of the Philippines. This means that the President of the
Philippines is the Executive of the Government of the Philippines, and
no other. The heads of the executive departments occupy political
positions and hold office in an advisory capacity, and, in the language of
Thomas Jefferson, should be of the President's bosom confidence,
and, in the language of Attorney-General Cushing, are subject to the
direction of the President. Without minimizing the importance of the
heads of the various departments, their personality is in reality but the
projection of that of the President. Stated otherwise, and as forcibly
characterized by Chief Justice Taft of the Supreme Court of the United
States, each head of a department is, and must be, the Presidents
alter ego in the matters of that department where the President is
required by law to exercise authority. Secretaries of departments, of
course, exercise certain powers under the law but the law cannot
impair or in any way affect the constitutional power of control and
direction of the President. As a matter of executive policy, they may be
granted departmental autonomy as to certain matters but this is by
mere concession of the executive, in the absence of valid legislation in
the particular field. If the President, then, is the authority in the
Executive Department, he assumes the corresponding responsibility.
The head of a department is a man of his confidence; he controls and
directs his acts; he appoints him and can remove him at pleasure; he is
the executive, not any of his secretaries.112 x x x (Citations
Applying the doctrine of qualified political agency, we have ruled that
the Secretary of Environment and Natural Resources can validly order
the transfer of a regional office by virtue of the power of the President
to reorganize the national government.113 In Constantino v.
Cuisia,114 the Court upheld the authority of the Secretary of Finance to
execute debt-relief contracts. The authority emanates from the power
of the President to contract foreign loans under Section 20, Article VII of
the Constitution. In Angeles v. Gaite,115 the Court ruled that there can
be no issue with regard to the Presidents act of limiting his power to
review decisions and orders of the Secretary of Justice, especially since
the decision or order was issued by the secretary, the Presidents own
alter ego.116cralawred
There can be no question that the act of the secretary is the act of the
President, unless repudiated by the latter. In this case, approval of the
ASTOA by the DOTC Secretary had the same effect as approval by the
President. The same would be true even without the issuance of E.O.
497, in which the President, on 24 January 2006, specifically delegated
to the DOTC Secretary the authority to approve contracts entered into
by the TRB.
Petitioners are unimpressed. They cite Section 8 of P.D. 1113 and
Section 13 of P.D. 1894 as follows:chanRoblesvirtualLawlibrary
SECTION 8. The GRANTEE shall not lease, transfer, grant the usufruct of,
sell or assign this franchise nor the rights or privileges acquired hereby,
to any person, firm, company, corporation or other commercial or legal
entity, nor merge with any other company or corporation without the
prior approval of the President of the Philippines. In the event that this
franchise is sold, transferred or assigned, the transferee shall be subject
to all the conditions, terms, restrictions and limitations of this Decree as
fully and completely and to the same extents as if the franchise has
been granted to the same person, firm, company, corporation or other
commercial or legal entity. (Emphasis supplied)
SECTION 13. The GRANTEE shall not lease, transfer, grant the usufruct
of, sell or assign this franchise nor the rights or privileges required
hereby, to any person, firm, company, corporation or other legal entity,
nor merge with any other company or corporation without the prior
approval of the President of the Philippines.
In the event that this franchise is sold, transferred or assigned, the
transferee shall be subject to all the conditions, terms, restrictions and
limitations of this Decree as fully and completely and to the same
extent as if the franchise has been granted to the said person, firm,
company, corporation or other legal entity. (Emphasis supplied)
cralawlawlibrary
Petitioners insist that based on the above provisions, it is the President
who should give personal approval considering that the power to grant
franchises was exclusively vested in Congress. Hence, to allow the DOTC
Secretary to exercise the power of approval would supposedly dilute
that legislative prerogative.
The argument of petitioners is founded on the assumption that PNCC in
some way leased, transferred, granted the usufruct of, sold, or assigned
to SOMCO its franchise or the rights or privileges PNCC had acquired by
it. Here lies the error in petitioners stand. First, as discussed above, the
power to grant franchises or issue authorizations for the operation of a
public utility is not exclusively exercised by Congress. Second, except
where the situation falls within that special class that demands the
exclusive and personal exercise by the President of constitutionally
vested power,117 the President acts through alter egos whose acts are
as if the Chief Executives own.
Third, no lease, transfer, grant of usufruct, sale, or assignment of
franchise by PNCC or its merger with another company ever took place.
The creation of the TRB and the grant of franchise to PNCC were made
in the light of the recognition on the part of the government that the
private sector had to be involved as an alternative source of financing
for the pursuance of national infrastructure projects. As the franchise
holder for the construction, maintenance and operation of
infrastructure toll facilities, PNCC was equipped with the right and
privilege, but not necessarily the means, to undertake the project. This
is where joint ventures with private investors become necessary.
A joint venture is an association of companies jointly undertaking a
commercial endeavor, with all of them contributing assets and sharing
risks, profits, and losses.118 It is hardly distinguishable from a
partnership considering that their elements are similar and, thus,
generally governed by the law on partnership.119cralawred
In joint ventures with investor companies, PNCC contributes the
franchise it possesses, while the partner contributes the financing
both necessary for the construction, maintenance, and operation of the
toll facilities. PNCC did not thereby lease, transfer, grant the usufruct of,
sell, or assign its franchise or other rights or privileges. This remains
true even though the partnership acquires a distinct and separate
personality from that of the joint venturers or leads to the formation of
a new company that is the product of such joint venture, such as PSC
and SOMCO in this case.
Hence, when we say that the approval by the DOTC Secretary in this
case was approval by the President, it was not in connection with the
franchise of PNCC, as required under Section 8 of P.D. 1113 and Section
13 of P.D. 1894. Rather, the approval was in connection with the
powers of the TRB to enter into contracts on behalf of the government
as provided under Section 3(a) of P.D. 1112, which
states:chanRoblesvirtualLawlibrary
SECTION 3. Powers and Duties of the Board. The Board shall have in
addition to its general powers of administration the following powers
and duties:
(a) Subject to the approval of the President of the Philippines, to enter
into contracts in behalf of the Republic of the Philippines with persons,
natural or juridical, for the construction, operation and maintenance of
toll facilities such as but not limited to national highways, roads,
bridges, and public thoroughfares. Said contract shall be open to
citizens of the Philippines and/or to corporations or associations
qualified under the Constitution and authorized by law to engage in toll
operations; (Emphasis supplied)
cralawlawlibrary
VI
Petitioners have not shown that the
transfer of toll operations to SOMCO was
grossly disadvantageous to the government.
In support of their contention that the transfer of toll operations from
PSC to SOMCO was grossly disadvantageous to the government,
petitioners belittle the initial capital investment, private ownership, and
track record of SOMCO.
When one uses the term grossly disadvantageous to the government,
the allegations in support thereof must reflect the meaning accorded to
the phrase. Gross means glaring, reprehensible, culpable, flagrant,
and shocking.120 It requires that the mere allegation shows that the
disadvantage on the part of the government is unmistakable, obvious,
and certain.
In this case, we find that the allegations of petitioners are nothing more
than speculations, apprehensions, and suppositions. They speculate
that with its measly capital investment, SOMCO would not be able to
cover the overhead expenses for personal services alone. They fear that
the revenue from toll operations would go to private pockets in
exchange for a small settlement amount to be given to PSC. Given that
SOMCO has no proven track record, petitioners deduce that its
assumption of the toll operations would lead to poor delivery of toll
services to the public.
The aim in the establishment of toll facilities is to draw from private
resources the financing of government infrastructure projects.
Naturally, these private investors would want to receive reasonable
return on their investments. Thus, the collection of toll fees for the use
of public improvements has been authorized, subject to supervision and
regulation by the national government.121 As regards the P320 million
settlement given to PSC, the amount was to be used principally for the
payment of its liabilities of PSC arising from the retrenchment of its
employees. We note that under the MOA, the residual assets of PSC
shall still be offered for sale to CMMTC, subject to valuation.122 Thus, it
would be inaccurate to say that PSC would receive only P320 million for
the entire arrangement.
It is quite understandable that SOMCO does not yet have a proven track
record in toll operations, considering that it was only the ASTOA and
the MOA that gave birth to it. We are not prepared to rule that this lack
of track record would result in poor delivery of toll services, especially
because most of the former employees of PSC have been rehired by
SOMCO, an allegation of respondents that was never refuted by
petitioners. Neither are we prepared to take the amount of SOMCOs
initial capital investment against it, as it is considerably higher than
?500,000, the authorized capital stock of PSC as of 2002.123cralawred
A FINAL NOTE
R.A. 8975 prohibits lower courts from issuing any temporary restraining
order, preliminary injunction, or preliminary mandatory injunction
against the government or any of its subdivisions, officials or any
person or entity, whether public or private, acting under the
governments direction to restrain, prohibit or compel acts related to
the implementation and completion of government infrastructure
projects.
The rationale for the law is easily discernible. Injunctions and
restraining orders tend to derail the expeditious and efficient
implementation and completion of government infrastructure projects;
increase construction, maintenance and repair costs; and delay the
enjoyment of the social and economic benefits therefrom. Thus, unless
the matter is of extreme urgency involving a constitutional issue, judges
of lower courts who shall issue injunctive writs or restraining orders in of directly seeking recourse before this Court, relying on the gravitas of
violation of the law shall be administratively liable. a personality yet making serious claims without the proof to support
them.
The law is clear that what is prohibited is merely the issuance of
provisional orders enjoining the implementation of a national WHEREFORE, the petition is DISMISSED. The prayer for the issuance of
government project. R.A. 8975 does not bar lower courts from a writ of preliminary injunction and/or temporary restraining order
assuming jurisdiction over complaints that seek the nullification or is DENIED.
implementation of a national government infrastructure project as
ultimate relief.124cralawred SO ORDERED.cralawlawlibrary
There is no question that the ultimate prayer in the instant case is the Leonardo-De Castro, Bersamin, Perez, and Perlas-Bernabe, JJ., concur.
nullification of a national government project considering that the
ASTOA involved the design and construction of Stage 2 of the South Endnotes:
Metro Manila Skyway, as well as the operation and maintenance of
Stage 1 thereof. The prayer is grounded on the contracts alleged
unconstitutionality, violation of the law, and gross disadvantage to the 1 The Toll Operation Decree.
government. Such principal action and relief were within the
jurisdiction of the RTC, which acted correctly when it ordered 2Granting the Construction and Development Corporation of the
respondents to file their respective answers to the complaint, even
Philippines (CDCP) a Franchise to Operate, Construct and Maintain Toll
while it denied the prayer for the issuance of a writ of preliminary
Facilities in the North and South Luzon Toll Expressways and for other
injunction and/or temporary restraining order in observance of R.A.
Purposes.
8975.
3Rollo, pp. 312-326.
It was therefore error on the part of petitioners to come directly before
this Court for the sole reason that the lower courts will not be able to 4Amending the Franchise of the Philippine National Construction
grant the prayer for the issuance of a writ of preliminary injunction
Corporation to Construct, Maintain and Operate Toll Facilities in the
and/or temporary restraining order to enjoin the assumption of toll
North Luzon and South Luzon Expressways to Include the Metro Manila
operations by SOMCO. The error even takes on a whole new meaning,
Expressway to Serve as an Additional Artery in the Transportation of
because SOMCO assumed responsibility for the operations and
Trade and Commerce in the Metro Manila Area.
maintenance of the South Metro Manila Skyway at 10:00 p.m. on 31
December 2007. On the other hand, the complaint before the RTC 5 Id. at 328-330.
seeking to enjoin the assumption by SOMCO was filed only on 3 January
2008, while the instant petition was filed on 4 February 2008. 6 Id. at 331-340.
As we held in Aznar Brothers Realty, Inc. v.CA,125
injunction does not lie 7 Id. at 342-354.
when the act sought to be enjoined has already become a fait
accompli or an accomplished or consummated act. 8 Id. at 227.
Parties must observe the hierarchy of courts before seeking relief from 9 Id.
this Court. Observance thereof minimizes the imposition on the already
limited time of this Court and prevents delay, intended or otherwise, in 10 Id. at 355-377.
the adjudication of cases.126 We do not appreciate the litigants practice
11 Id. at 378-446. 23 Id. at 715-733. following powers and duties:

12 Id. at 51. 24 Id. at 110-115. (e) To grant authority to operate a toll facility and to issue therefore the
necessary Toll Operation Certificate subject to such conditions as shall
13 Id. at 51-95. 25 An Act to Ensure the Expeditious Implementation and Completion of be imposed by the Board including inter alia the following:
Government Infrastructure Projects by Prohibiting Lower Courts from
14DELEGATING TO THE SECRETARY OF TRANSPORTATION AND Issuing Temporary Restraining Orders, Preliminary Injunctions or 1) That the Operator shall desist from collecting toll upon the expiration
COMMUNICATIONS THE APPROVAL OF CONTRACTS ENTERED INTO BY Preliminary Mandatory Injunctions, Providing Penalties for Violations of the Toll Operation Certificate.
THE TOLL REGULATORY BOARD thereof, and for other Purposes.
2) That the entire facility operated as a toll system including all
WHEREAS, the Toll Operation Decree of 31st March 1977 grants to the 26Rollo, p. 115. operation and maintenance equipment directly related thereto shall be
Toll Regulatory Board the power, subject to the approval of the turned over to the government immediately upon the expiration of the
President of the Philippines, to enter into contracts in behalf of the 27 Id. Toll Operation Certificate.
Republic of the Philippines with persons, natural or juridical, for the
construction, operation and maintenance of toll facilities such as but 28 Id. at 116-118. 3) That the toll operator shall not lease, transfer, grant the usufruct of,
not limited to national highways, roads, bridges, and public sell or assign the rights or privileges acquired under the Toll Operation
thoroughfares;ChanRoblesVirtualawlibrary 29 Id. at 119. Certificate to any person, firm, company, corporation or other
commercial or legal entity, nor merge with any other company or
NOW THEREFORE I, GLORIA M. ARROYO, President of the Philippines do 30 Id. at 3-48. corporation organized for the same purpose, without the prior approval
hereby delegate to the Secretary of Transportation and of the President of the Philippines. In the event of any valid transfer of
Communications the authority to approve contracts entered into by the 31 Id. at 126-127. the Toll Operation Certificate, the Transferee shall be subject to all the
Toll Regulatory Board. conditions, terms, restrictions and limitations of this Decree as fully and
32 Id. at 945-951. completely and to the same extent as if the Toll Operation Certificate
DONE in the City of Manila, this 24th day of January, in the year of Our has been granted to the same person, firm, company, corporation or
Lord, Two Thousand and Six. 33 Id. at 952-958. other commercial or legal entity.

15Rollo, p. 96. 34 Id. at 959-971. 4) That in time of war, rebellion, public peril, emergency, calamity,
disaster or disturbance of peace and order, the President of the
16 Id. at 97-107. 35 Id. at 1205-1206. Philippines may cause the total or partial closing of the toll facility or
order to take over thereof by the Government without prejudice to the
17 Id. at 49-50. 36 Id. at 222-310. payment of just compensation.

18 Id. at 528. 37 Id. at 469-504. 5) That no guarantee, Certificate of Indebtedness, collateral, securities,
or bonds shall be issued by any government agency or government-
19 Former Secretary Arturo D. Brion, now a Member of this Court. 38 Id. at 532-568. owned or controlled corporation on any financing program of the toll
operator in connection with his undertaking under the Toll Operation
20 Id. at 528-529. 39 Id. at 569-670. Certificate.

21 Id. at 111. 40 Id. at 1111-1163. 6) The Toll Operation Certificate may be amended, modified or revoked
whenever the public interest so requires.
22 Id. 41SECTION 3. Powers and Duties of the [Toll Regulatory] Board. The
Board shall have in addition to its general powers of administration the 42 An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and for
other Purposes.
Section 2. Definition of Terms. The following terms used in this Act
shall have the meanings stated below:
(m) Facility operator A company registered with the Securities and
Exchange Commission, which may or may not be the project proponent,
and which is responsible for all aspects of operation and maintenance
of the infrastructure or development facility, including but not limited
to the collection of tolls, fees, rentals or charges from facility users:
Provided, That in case the facility requires a public utility franchise,
the facility operator shall be Filipino or at least sixty per centum (60%)
owned by Filipinos. (Emphasis supplied)
43
An Act Amending Certain Sections of Republic Act No. 6957, Entitled
An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and for
other Purposes.
44
Section 8. The GRANTEE [PNCC] shall not lease, transfer, grant the
usufruct of, sell or assign this franchise nor the rights or privileges
acquired hereby, to any person, firm, company, corporation or other
commercial or legal entity, nor merge with any other company or
corporation without the prior approval of the President of the
Philippines. In the event that this franchise is sold, transferred or
assigned, the transferee shall be subject to all the conditions, terms,
restrictions and limitations of this Decree as fully and completely and to
the same extents as if the franchise has been granted to the same
person, firm, company, corporation or other commercial or legal entity.
(Emphasis supplied)
45Section 13. The GRANTEE [PNCC] shall not lease, transfer, grant the
usufruct of, sell or assign this franchise nor the rights or privileges
required hereby, to any person, firm, company, corporation or other
legal entity, nor merge with any other company or corporation without
the prior approval of the President of the Philippines.
In the event that this franchise is sold, transferred or assigned, the
transferee shall be subject to all the conditions, terms, restrictions and
limitations of this Decree as fully and completely and to the same
extent as if the franchise has been granted to the said person, firm,
company, corporation or other legal entity. (Emphasis supplied)
G.R. No. L-59447 December 27, 1982
REPUBLIC OF THE PHILIPPINES, represented by the Director of Lands
and the Director of Forest Development, petitioner,
vs.
HONORABLE COURT OF APPEALS and IGLESIA NI CRISTO, represented
by its Executive Minister ERANO G. MANALO, respondents.
G.R. No. L-60188 December 27, 1982
REPUBLIC OF THE PHILIPPINES, represented by the Director of
Lands, petitioner,
vs.
JUDGE DOMINADOR S. CENDAA of CFI-La Union, Branch II and
IGLESIA NI CRISTO, respondents.
Solicitor General for petitioner.
Eliseo M. Cruz for respondents.
PLANA, J.:
These are two land registration cases instituted by the Iglesia Ni Cristo
(INC), a corporation sole, under Section 48 (b) of the Public Land Act
which reads:
Sec 48. The following described citizens of the
Philippines occupying lands of the public domain or
claiming to own any such lands or an interest
therein, but whose titles have not been perfected or
completed, may apply to the Court of First Instance
of the province where the land is located for
confirmation of their claims and the issuance of a
certificate of title therefor, under the Land
Registration Act, to wit . . .
xxx xxx xxx
(b) Those who by themselves or through their
predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and
occupation of agricultural lands of the public
domain, under a bona fide claim of acquisition or
ownership, for at least thirty years immediately
preceding the filing of the application for
confirmation of title except when prevented by war
or force majeure. These shall be conclusively
presumed to have performed all the conditions
essential to a Government grant and shall be
entitled to a certificate of title under the provisions
of this chapter. ...
In both cases, the applications for land registration were granted by the
lower courts, impelling the Republic to elevate the cases to this forum
on this basic legal issue: whether the lands applied for may be
registered in the name of INC. in the light of the Constitutional
provision that "no private corporation or association may hold alienable
lands of the public domain except by lease." (Article XIV, Section 11). An
ancillary question refers to the nature of the lands subject to
registration proceedings whether they are private or public.
The issues are not new. In at least two decisions, (Meralco vs. Judge
Castro Bartolome et al 114 SCRA 799; Republic vs. Judge Candido P.
Villanueva, 114 SCRA 875), this court has ruled on the questions.
Specifically, in Republic vs. Judge Villanueva, this court, speaking thru
Justice Ramon C. Aquino, said:
As correctly contended by the Solicitor General, the
Iglesia Ni Cristo, as a corporation sole or a juridical
person, is disqualified to acquire or hold alienable
lands of the public domain, like the two lots in
question, because of the constitutional prohibition
already mentioned and because the said church is
not entitled to avail itself of the benefits of section
48 (b) which applies only to Filipino citizens or
natural persons. A corporation sole (an "unhappy
freak of English law") has no nationality (Roman
Catholic Apostolic Adm. of Davao, Inc. vs. Land
Registration Commission, 102 Phil. 596. See Register
of Deeds vs. Ung Siu Si Temple 97 Phil. 58 and sec.
49 of the Public Land Law).
The contention in the comments of the Iglesia Ni
Cristo (its lawyer did not file any brief) that the two
lots are private lands, following the rule laid down
in Susi vs. Razon and Director of Lands, 48 Phil. 424,
is not correct. What was considered private land in
the Susi case was a parcel of land possessed by a
Filipino citizen since time immemorial, as in Carifio
vs. Insular Government, 212 U.S. 449, 531 L. ed.
594, 41 Phil. 935 and 7 Phil. 132. The lots sought to
be registered in this case do not fall within that
category. They are still public lands. A land
registration proceeding under section 48 (b)
"presupposes that the land is public" (Mindanao vs.
Director of Lands, L-19535, July 10, 1967, 20 SCRA
641, 644).
As held in Oh Cho vs. Director of Lands, 75 Phil. 890,
"all lands that were not acquired from the
Government, either by purchase or by grant, belong
to the public domain. An exception to the rule
would be any land that should have been in the
possession of an occupant and of his predecessors-
in-interest since time immemorial, for such
possession would justify the presumption that the
land had never been part of the public domain or
that it had been a private property even before the
Spanish conquest. "
In Uy Un vs. Perez, 71 Phil. 508, it was noted that
the right of an occupant of public agricultural land
to obtain a confirmation of his title under section 48
(b) of the Public Land Law is a "derecho dominical
incoativo" and that before the issuance of the
certificate of title the occupant is not in the juridical
sense the true owner of the land since it still
pertains to the State. (114 SCRA 881-882)
Following the above cases, this court sustains the stand of the Republic,
without need to inquire into the veracity of the allegation in G.R. L-
59447 that the evidence presented therein do not prove INC. continuity
of possession of the land for the period prescribed by law. The appealed
decisions of the lower courts are hereby set aside and the INC.
applications for registration are hereby dismissed. No costs.
SO ORDERED.
Melencio-Herrera, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
Separate Opinions
TEEHANKEE, J, dissenting:
I am constrained to dissent from the majority decision which applies the
precedent set forth in the case of Republic vs. Villanueva and Iglesia ni
Cristo 1 and the companion case of MERALCO vs. Castro-Bartolome 2,
both decided on June 29, 1982, for the same grounds and
considerations stated in my joint dissenting opinion therein which I
herewith reproduce by reference for brevity's sake 3, as well as in my
dissenting opinion in Republic vs. Gonong and Iglesia ni Cristo. 4
I just wish to add that it is premature to apply the Villanueva case as a
precedent since the same as well as the Gonong case are not yet final
and the Court en banc is up to now considering the Iglesia ni Cristo's
pending motion for reconsideration filed in the Villanueva case which
raises a number of serious constitutional issues, among them the
constitutional guaranty of free exercise of religion which as stressed
in Basa vs. Federacion Obrero 5 is a fundamental personal right and
liberty and has a preferred position in the constitutional system and
hierarchy of values, and the Iglesia ni Cristo's constitutional right to
equal protection of law in the light of the precedent in Roman Catholic
Apostolic Administrator of Davao, Inc. vs. Land Registration
Commission 6 which recognizes the right of therein petitioner Roman
Catholic Apostolic Administrator as a corporation sole to register lands
purchased from Filipino citizens. As contended by respondent Iglesia ni
Cristo in the case at bar, to "require (it) to establish its chapels on
properties already titled is an emasculation of its right to equal
treatment before the law." 7 Such serious constitutional issues should
be referred to the Court en banc for proper determination, since our
Division is incompetent to rule thereon.
What was held by the Court in the above-cited case of Roman Catholic
Apostolic Administrator is equally applicable to the Iglesia ni Cristo in
the case at bar, mutatis mutandis, as follows: The provisions of the
Corporation Law (section 157 of the old Corporation Law and section
112 of the new Corporation Law) "leave(s) no room for doubt that the
bishops or archbishops, as the case may be, as corporations sole are
merely administrators of the church properties that come to their
possession, and which they hold in trust for the church. It can also be
said that while it is true that properties cannot be avoided to rise upon
his death. Through this legal fiction, however, church properties
acquired by the incumbent of a corporation sole pass, by operation of
law, upon his death not to his personal heirs but to his successor in
office. It could be seen, therefore, that a corporation sole is created not
only to administer the temporalities of the church or religious society
where he belongs but also to hold and transmit the same to his
successor in said office. If the ownership or title to the properties do
not pass to the administrators, who are the owners of church
properties? ... Considering that nowhere can We find any provision
conferring ownership of church properties on the Pope although he
appears to be the supreme administrator or guardian of his flock, nor
on the corporations sole or heads of dioceses as they are admittedly
mere administrators of said properties, ownership of these
temporalities logically fall and devolve upon the church, diocese or
congregation acquiring the same," and "indeed it is absurd to conceive
that while the corporations sole that might be in need of acquiring
lands for the erection of temples where the faithful can pray, or schools
and cemeteries which they are expressly authorized by law to acquire in
connection with the propagation of the Roman Catholic Apostolic faith
or in furtherance of their freedom of religion, they could not register
said properties in their name. As professor Javier J. Nepomuceno very
well says 'Man in his search for the immortal and imponderable, has,
even before the dawn of recorded history, erected temples to the
Unknown God, and there is no doubt that he will continue to do so for
all time to come, as long as he continues 'imploring the aid of Divine
Providence' (Nepomuceno's Corporation Sole, VI Ateneo Law Journal,
No. 1, p. 41, September, 1956)."
There appears no justification, therefore, to consider religious
corporations sole such as the Iglesia ni Cristo as disqualified from filing
the corresponding applications for registration of the parcels of land
acquired by them from private persons on the ground that they are not
natural persons when the real owners and beneficiaries of such lands
are in fact the members of the said church and congregation who are
natural persons. I therefore vote for the denial of the two petitions at
bar and to uphold the questioned decisions granting the Iglesia ni Cristo
applications for land registration and upholding its title to the lands
involved.
Separate Opinions
TEEHANKEE, J, dissenting:
I am constrained to dissent from the majority decision which applies the
precedent set forth in the case of Republic vs. Villanueva and Iglesia ni
Cristo 1 and the companion case of MERALCO vs. Castro-Bartolome 2,
both decided on June 29, 1982, for the same grounds and
considerations stated in my joint dissenting opinion therein which I
herewith reproduce by reference for brevity's sake 3, as well as in my
dissenting opinion in Republic vs. Gonong and Iglesia ni Cristo. 4
I just wish to add that it is premature to apply the Villanueva case as a
precedent since the same as well as the Gonong case are not yet final
and the Court en banc is up to now considering the Iglesia ni Cristo's
pending motion for reconsideration filed in the Villanueva case which
raises a number of serious constitutional issues, among them the
constitutional guaranty of free exercise of religion which as stressed
in Basa vs. Federacion Obrero 5 is a fundamental personal right and
liberty and has a preferred position in the constitutional system and
hierarchy of values, and the Iglesia ni Cristo's constitutional right to
equal protection of law in the light of the precedent in Roman Catholic
Apostolic Administrator of Davao, Inc. vs. Land Registration
Commission 6 which recognizes the right of therein petitioner Roman
Catholic Apostolic Administrator as a corporation sole to register lands
purchased from Filipino citizens. As contended by respondent Iglesia ni
Cristo in the case at bar, to "require (it) to establish its chapels on
properties already titled is an emasculation of its right to equal
treatment before the law." 7 Such serious constitutional issues should
be referred to the Court en banc for proper determination, since our
Division is incompetent to rule thereon.
What was held by the Court in the above-cited case of Roman Catholic
Apostolic Administrator is equally applicable to the Iglesia ni Cristo in
the case at bar, mutatis mutandis, as follows: The provisions of the
Corporation Law (section 157 of the old Corporation Law and section
112 of the new Corporation Law) "leave(s) no room for doubt that the
bishops or archbishops, as the case may be, as corporations sole are
merely administrators of the church properties that come to their
possession, and which they hold in trust for the church. It can also be
said that while it is true that properties cannot be avoided to rise upon
his death. Through this legal fiction, however, church properties
acquired by the incumbent of a corporation sole pass, by operation of
law, upon his death not to his personal heirs but to his successor in
office. It could be seen, therefore, that a corporation sole is created
not only to administer the temporalities of the church or religious
society where he belongs but also to hold and transmit the same to
his successor in said office. If the ownership or title to the properties
do not pass to the administrators, who are the owners of church
properties? ... Considering that nowhere can We find any provision
conferring ownership of church properties on the Pope although he
appears to be the supreme administrator or guardian of his flock, nor
on the corporations sole or heads of dioceses as they are admittedly
mere administrators of said properties, ownership of these
temporalities logically fall and devolve upon the church, diocese or
congregation acquiring the same," and "indeed it is absurd to
conceive that while the corporations sole that might be in need of
acquiring lands for the erection of temples where the faithful can
pray, or schools and cemeteries which they are expressly authorized
by law to acquire in connection with the propagation of the Roman
Catholic Apostolic faith or in furtherance of their freedom of religion,
they could not register said properties in their name. As professor
Javier J. Nepomuceno very well says 'Man in his search for the
immortal and imponderable, has, even before the dawn of recorded
history, erected temples to the Unknown God, and there is no doubt
that he will continue to do so for all time to come, as long as he
continues 'imploring the aid of Divine Providence' (Nepomuceno's
Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41, September,
1956)."
There appears no justification, therefore, to consider religious
corporations sole such as the Iglesia ni Cristo as disqualified from filing
the corresponding applications for registration of the parcels of land
acquired by them from private persons on the ground that they are
not natural persons when the real owners and beneficiaries of such
lands are in fact the members of the said church and congregation
who are natural persons. I therefore vote for the denial of the two
petitions at bar and to uphold the questioned decisions granting the
Iglesia ni Cristo applications for land registration and upholding its
title to the lands involved.