CORPO continuation…

G.R. No. L-18338 October 31, 1962

KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA, petitioner,

vs.
RICARDO TANTONGCO and THE COURT OF INDUSTRIAL RELATIONS, respondents.

Carlos E. Santiago for petitioner.

Fornier and Alvarez Law Office for respondent Ricardo Tantongco.
Court of Industrial Relations Legal Division for respondent Court of Industrial Relations.

PAREDES, J.:

On January 18, 1957, the respondent Court of Industrial Relations promulgated an Order in Cases
Nos. 584[V], (1), (2), (3), (5) and (6), all entitled "Kaisahan Ng Mg Manggagawa sa La Campana
(KKM) vs. La Campana Starch and Coffee Factory, and the Administrator of the Estate of Ramon
Tantongco", ordering the reinstatement and payment of back wages of twelve (12) employees
involved in said cases. The respondents therein, after their motion for reconsideration had been
denied by the Court (CIR), presented a petition for Certiorari with this Court, docketed as case G.R.
No. L-12355, entitled "La Campana Starch & Coffee Factory & Ricardo Tantongco, as administrator
of the Estate of Ramon Tantongco, Petitioner vs. Kaisahan Ng Mga Manggagawa sa La Campana
(KKM) and the CIR, Respondents". The above petition was dismissed by this Court in a Resolution
dated June 12, 1957, for "lack of merit".

On February 18, 1957, the order of the CIR having become final and executory, the Kaisahan filed a
motion of Execution on August 13, 1957. The employees who were ordered to be reinstated and
whose back wages should be paid, presented themselves for work on August 28, 1957. Upon refusal
of the La Campana and/or Ricardo Tantongco to comply with the final order, the Kaisahan on August
30, 1957, presented a petition to cite Ricardo Tantongco for Contempt.

Under date of September 6, 1957, Tantongco presented a "Manifestation" averring therein that he
was not anymore the administrator of the Estate of Ramon Tantongco, such estate having been
distributed and proceedings closed and his bond as administrator has already been cancelled by the
probate court and, therefore, he should not be cited for contempt.

On September 30, 1957, the CIR entered an order whereby it required the La Campana or its
Manager or the person who has charge of the management, and the Administrator of the Estate of
Ramon Tantongco, to comply with the Order of February 18, 1957 within five (5) days from receipt,
specially to (a) reinstate the persons named in said Order of February 18, 1957; and (b) to deposit the
amount of P65,534.01 with the Court. Upon the alleged refusal of the La Campana, more specifically
Ricardo Tantongco, to comply with the above order, the Kaisahan filed a manifestation informing the
CIR of said refusal. A preliminary investigation was subsequently conducted by the Acting Prosecutor
and Attorney of the respondent Court, wherein Ricardo Tantongco appeared with counsel. On
November 19, 1957, after the preliminary investigation, a complaint for Indirect Contempt was filed
against Ricardo Tantongco, "People of the Philippines vs. Ricardo Tantongco", Case No. V-24. Upon
the filing of the contempt case, Ricardo Tantongco presented a petition for Certiorari with Preliminary
Injunction, G.R. No. L-13119, entitled "Ricardo Tantongco v. Kaisahan and the Court of Industrial
Relations, praying that the CIR be enjoined from proceeding with the trial of the contempt case and
from enforcing the Order of September 30, 1957, requiring him to reinstate the 12 employees and to
deposit P65,534.01. This Court issued the writ of preliminary injunction, and after hearing, rendered a
decision on September 22, 1959, holding among others, that the respondent Ricardo Tantongco was
"the proper person and official to which the orders of the CIR are addressed and who is in duty bound
to comply with the same". The writ earlier issued was accordingly dissolved. The contempt case was
subsequently heard and on March 3, 1960, the prosecution rested its case. Tantongco manifested his
desire to file a Motion to Dismiss, as in fact he filed same on March 4, 1960. At the subsequent
hearings, Tantongco insisted on the resolution of his Motion to Dismiss. The Presiding Judge,
however, in open court, deferred resolution of said Motion until after the reception of evidence and re-
set the hearing for March 8, 1960, with the warning that should Tantongco fail to appear, the case
would be considered submitted for decision. A written order to this effect was handed down on March
5, 1960. On the scheduled hearing, Tantongco failed to appear and on April 30, 1960, Judge Jose S.
Bautista rendered judgment the pertinent portions of which read:

From the evidence thus presented, which is unrebutted, it is clear that the accused refused to
follow the order of this Court dated February 18, 1957 and September 30, 1957, such action
constitutes indirect contempt of Court.

WHEREFORE, the accused is sentenced to be imprisoned until he complies with the orders of
this Court dated February 18, 1957 and September 30, 1957.

Tantongco moved for a reconsideration of the above decision to the Court en banc, contending that
(1) the order is arbitrary and contrary to law; (2) the order is illegal, because the Court has no power
to issue such order; and (3) the order is not supported by the evidence. After hearing, the Court en
banc, on March 2, 1961, rendered judgment, the pertinent portions (majority opinion)of which, read:

. . . . The accused insisted that the evidence of the prosecution is not sufficient beyond
reasonable doubt to convict the accused of the charge in the complaint. This condition can be
seen from the evidence of the prosecution thus presented. It appears from the evidence of the
prosecution that the Order dated September 30, 1957, wherein the accused was charged of
refusing to comply was never served on the said accused. The testimonies of the different
witnesses are mere hearsay and are not therefore of probative value in a criminal complaint
where the accused is charged of indirect contempt for alleged refusal to comply with the terms
and conditions of a valid order. The witnesses merely said that the accused refused to accept
the Order of the Court dated September 30, 1957, without actually proving that such order was
really and actually served upon the accused Ricardo Tantongco. The only direct evidence to
show that the copy of such Order was supposed to have been served on the accused was the
testimony of the bailiff of the Court, Mr. Penilla; and his testimony in answer to questions
therein propounded brings to light the following:

Q — I call your attention, Mr. Witness to exhibit "H-1" wherein you have reported the
following and I quote: 'I have this day served a copy of ORDER in case No. 584-V(1), 1,
2, 3, 5, and (6) to the Manager, or his management in charge, and Mr. Ricardo
Tantongco, Luscot Str., Galas, Quezon City, thru Mr. Fernandez, on October 5, 1957,'
do you know personally Mr. Fernandez whom you have cited in the officials return of
service marked as Exhibit "H-1"?

A — I do not know, sir.

Q — If You do not know Mr. Fernandez, why did you entrust and deliver the
corresponding notice of order of decision which is supposed to be delivered to Mr.
Ricardo Tantongco?
 A — Because Mr. Ricardo Tantongco was absent at that time. (T.S.N. Page 61,
November 21, 1957).

It is clear that when the Order of September 30, 1957 was allegedly served on the accused
Ricardo Tantongco, he was absent. Consequently, such service of the Order sought to be
served, was not actually served on the accused. It is claimed that one Mr. Fernandez received
from the bailiff of the court, Mr. Penilla, the copy of the Order of the Court on October 5, 1957,
but the said bailiff had no knowledge that the said Mr. Fernandez is a personnel or employee
empowered or authorized by the accused to receive documents or communications for and in
his behalf. The evidence did not also disclose that the said Mr. Fernandez who claimed to
have received the alleged order, copy of the Order in Cases Nos. 585-V (1), (2), (3), (5) and
(6) was never presented in court to testify as to what connection he had with the accused, and
why he allegedly received such Order. There is no showing that this person is an employee of
the accused and if he is not responsible employee or in any way connected in the employ of
the accused Ricardo Tantongco, then the service of such order to such person could not be
considered in evidence sufficient to serve the purpose of the rules of court that an order has
been duly served on the accused.

Indirect contempt partakes the nature of a criminal action and under the law person so
accused of indirect contempt has the same rights before any court of justice to present
evidence in defense of his rights. One of these rights of an accused is to move for the
dismissal of a complaint if it is shown that the evidence therein submitted are not sufficient
beyond reasonable doubt that the person therein accused has committed the alleged
contempt. It is incumbent upon the Trial Court to decide first such motion to dismiss . . . .
Under the present situation, there is no direct evidence to show that the Orders of the Trial
Court involved were sufficiently and properly served upon the accused Ricardo Tantongco.
Now, why shall we put him in prison until he complies with the said Order when he did not
receive such Order in the ordinary course of business under the laws of this country?

. . . . Accused, however, refused to submit evidence until after the Trial Court has ruled on his
motion to dismiss. Under the situation, the Trial Court considered the case submitted for
decision without giving the accused the opportunity to submit his evidence in defense of his
rights.

We believe that the action taken by the Trial Court is way out of beat. The right of an accused
to move for the dismissal of a case after prosecution has rested its case is a right recognized
in this jurisdiction. . . . (People vs. Moro Nanacol, G.R. No. L-1748, Sept. 29, 1948).

xxx xxx xxx

It must be remembered that proceedings in indirect contempt is penal in nature (Villanueva vs.
Lim, 69 Phil., 650) and as such the accused is entitled to be heard in evidence . . . .

It is our view that the Order of the Trial Court date April 30, 1960, deprived the accused of his
day in court an denied him due process of law and the equal protection of the laws. It is our
honest belief that even in indirect contempt case, the accused should be given ample
opportunity to properly defend himself by availing all rights, stages, means and remedies
allowed under our democratic processes in a regime where the rule of law is supreme.

Considering that the evidence in this case thus presented a basis of the decision and/or order
of April 30, 1960 is not the evidence beyond reasonable doubt called for under the law and
proceedings criminal in nature, we are constrained to vote for the dismissal of this case.
The trial judge, Hon. Jose S. Bautista dissented, while Judge Baltazar M. Villanueva gave the
following vote:

FOR ALL THE FOREGOING CONSIDERATIONS, without advancing any opinion on the
question of sufficiency of the evidence, I hereby hold that the Motion to Dismiss by the
accused is a prejudicial question which must be first resolved by the Trial Court before it could
force the accused to present his defense should the said motion be dismissed and, therefore, I
vote for the reconsideration and setting aside of the order of the Trial Court dated April 30,
1960 and for the remand of the case for further trial in conformity with the foregoing opinion.

The majority opinion is now the subject of the present Petition for Review, the Kaisahan, as petitioner,
alleging that the respondent CIR committed a grave error of law in dismissing the case. The basis of
the allegation is the decision of the Court in G.R. No. L-13119, supra, holding that the respondent
Ricardo Tantongco was the "proper person and official to whom the orders of the CIR are addressed
and who is in duty bound to comply with the same".

Respondent CIR filed a separate Answer, and after the customary admission and denials, advanced,
in argument, the propriety of the majority decision dismissing the contempt case. It was opined that
respondent Tantongco, who was charged with indirect contempt, which partakes of a criminal
prosecution, had the right to present a Motion to Dismiss on insufficiency of evidence, after the
prosecution has rested and is entitled to a resolution of said motion before he can be compelled to
present his evidence in defense; that the trial judge in considering the case submitted, even before
evidence in defense was adduced virtually deprived Tantongco of his day in court and denied him of
his liberty without due process of law. The Answer of respondent Court also invokes the principle that
this Court has no authority or jurisdiction to Review the instant case, it appearing that the question
involved is dominantly factual. In support of this contention, the respondent Court said:

In the Resolution En Banc (Annex "J"), findings of fact were made as to whether the accused
— respondent herein — had in fact received copies of the orders which he was charged of
having refused to comply. In the said resolution a finding was made that respondent herein did
not receive copies of said orders. This is a clear findings of fact jurisprudence in this
jurisdiction is that the issue is within the corrective jurisdiction of this Honorable Tribunal
(Section 6, Republic Act No. 875; and Teodoro Don case, G.R. No. L-12506). As a matter of
fact, in the said Resolution it was there found that ". . . the evidence in this case thus presented
as basis of the decision and/or order April 30, 1960 is not the evidence beyond reasonable
doubt called for under the law and proceedings criminal in nature, . . . ." From the analysis of
the evidence as shown in Resolution, this is a factual finding.

Respondent Tantongco, in his Answer, after admitting and denying some of the allegations in the
petition, and after invoking the same grounds sponsored by the CIR claimed that the petition at bar
places him in double jeopardy since the dismissal of the case of indirect contempt against him,
admittedly a criminal prosecution amounted to an acquittal which became final immediately.

There are two issues which we are called upon to determine in the present proceedings, i.e., whether
under the facts recited in the petition, this Court can review the case and whether double jeopardy
attaches.

There is no doubt that the CIR had the jurisdiction to hear the indirect contempt case (Section 6,
Comm. Act 103). The Presiding Judge, who tried the case and sentenced the respondent, had
authority to take cognizance of the case and the Court En Banc had also the authority to review his
findings, both of facts and of law. The Court En Banc reversed the findings of the trial judge, both on
the issues of fact and law, when the majority opinion found that the record does not show that
respondent Tantongco actually received the Orders which he was called upon to comply with, a
pivotal point in the matter of evidence, and when it further held that the trial judge should not have
considered the case submitted for decision, without first resolving the motion to dismiss and
permitting respondent Tantongco to adduce evidence in this defense, in the event of an adverse
resolution.

We share the view expressed by respondent CIR that the case under consideration involves factual
findings, which under consistent rulings of this Court, we are not authorized to review, or alter, unless
such findings are completely devoid of basis, and there is grave abuse of discretion (Cristobal Olaivar
vs. Manila Elec. Company & CIR, 71 Phil. 503, and cases cited therein). The findings of fact by the
CIR are final and conclusive and are binding upon this Court when: (1) the parties were given the
opportunity to present evidence; (2) the tribunal considered the evidence presented; (3) there is
something to support the findings; and (4) the evidence supporting the findings is substantial (Ormoc
Sugar Co., Inc. vs. Osco Workers Fraternity Labor, et al., G.R. L-15826, Jan. 23, 1961). The record of
the case at bar and the well considered opinion of the majority of the respondent Court, clearly reveal
that all the above requirements concur.

Much emphasis is placed by petitioner on the decision of this Court in case G.R. No. L-13119, supra,
where we held that respondent Tantongco was the proper person to whom the orders sought to be
complied with should be directed. The majority decision of the respondent Court did not, in any way,
contradict this finding. It dismissed the contempt case, on the ground that there was no evidence on
record, to show beyond doubt, that the orders which respondent Tantongco supposedly refused to
obey, were actually received by him. Certainly, the trial judge could not convict an accused of indirect
contempt, when he did not receive said orders.

On this score alone, the petition for Certiorari to Review the Order of respondent Court, should be
dismissed, thereby rendering unnecessary the further discussion of the other issue of double
jeopardy.

CONFORMABLY WITH ALL THE FOREGOING, the petition is hereby dismissed and the decision
sought to be reviewed is affirmed with costs against petitioner Kaisahan Ng Mga Manggagawa sa La
Campana.

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala and
Makalintal, JJ.,concur.
Padilla, J., took no part.

Adm. Matter No. R-181-P July 31, 1987

ADELIO C. CRUZ, complainant,

vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.

RESOLUTION
FERNAN, J.:

In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy
Sheriff of Manila, with "malfeasance in office, corrupt practices and serious irregularities" allegedly
committed as follows:

1. Respondent sheriff attached and/or levied the money belonging to complainant Cruz when he was
not himself the judgment debtor in the final judgment of NLRC NCR Case No. 8-12389-91 sought to
be enforced but rather the company known as "Qualitrans Limousine Service, Inc.," a duly registered
corporation; and,

2. Respondent likewise caused the service of the alias writ of execution upon complainant who is a
resident of Pasay City, despite knowledge that his territorial jurisdiction covers Manila only and does
not extend to Pasay City.

In his Comments, respondent Dalisay explained that when he garnished complainant's cash deposit
at the Philtrust bank, he was merely performing a ministerial duty. While it is true that said writ was
addressed to Qualitrans Limousine Service, Inc., yet it is also a fact that complainant had executed
an affidavit before the Pasay City assistant fiscal stating that he is the owner/president of said
corporation and, because of that declaration, the counsel for the plaintiff in the labor case advised him
to serve notice of garnishment on the Philtrust bank.

On November 12, 1984, this case was referred to the Executive Judge of the Regional Trial Court of
Manila for investigation, report and recommendation.

Prior to the termination of the proceedings, however, complainant executed an affidavit of desistance
stating that he is no longer interested in prosecuting the case against respondent Dalisay and that it
was just a "misunderstanding" between them. Upon respondent's motion, the Executive Judge issued
an order dated May 29, 1986 recommending the dismissal of the case.

It has been held that the desistance of complainant does not preclude the taking of disciplinary action
against respondent. Neither does it dissuade the Court from imposing the appropriate corrective
sanction. One who holds a public position, especially an office directly connected with the
administration of justice and the execution of judgments, must at all times be free from the
appearance of impropriety.1

We hold that respondent's actuation in enforcing a judgment against complainant who is not the
judgment debtor in the case calls for disciplinary action. Considering the ministerial nature of his duty
in enforcing writs of execution, what is incumbent upon him is to ensure that only that portion of a
decision ordained or decreed in the dispositive part should be the subject of execution. 2 No more, no
less. That the title of the case specifically names complainant as one of the respondents is of no
moment as execution must conform to that directed in the dispositive portion and not in the title of the
case.

The tenor of the NLRC judgment and the implementing writ is clear enough. It directed Qualitrans
Limousine Service, Inc. to reinstate the discharged employees and pay them full backwages.
Respondent, however, chose to "pierce the veil of corporate entity" usurping a power belonging to the
court and assumed improvidently that since the complainant is the owner/president of Qualitrans
Limousine Service, Inc., they are one and the same. It is a well-settled doctrine both in law and in
equity that as a legal entity, a corporation has a personality distinct and separate from its individual
stockholders or members. The mere fact that one is president of a corporation does not render the
property he owns or possesses the property of the corporation, since the president, as individual, and
the corporation are separate entities.3

Anent the charge that respondent exceeded his territorial jurisdiction, suffice it to say that the writ of
execution sought to be implemented was dated July 9, 1984, or prior to the issuance of Administrative
Circular No. 12 which restrains a sheriff from enforcing a court writ outside his territorial jurisdiction
without first notifying in writing and seeking the assistance of the sheriff of the place where execution
shall take place.

ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L. Dalisay NEGLIGENT in the

enforcement of the writ of execution in NLRC Case-No. 8-12389-91, and a fine equivalent to three [3]
months salary is hereby imposed with a stern warning that the commission of the same or similar
offense in the future will merit a heavier penalty. Let a copy of this Resolution be filed in the personal
record of the respondent.

SO ORDERED.

THIRD DIVISION

NASECO GUARDS ASSOCIATION-PEMA G.R. No. 165442

(NAGA-PEMA),
Petitioner, Present:

CARPIO MORALES, J.,

Chairperson,
BRION,
- versus - BERSAMIN,
VILLARAMA, JR.,
andSERENO, JJ.

NATIONAL SERVICE CORPORATION Promulgated:

(NASECO),
Respondent. August 25, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

This petition for review on certiorari under Rule 45 assails the Decision[1] dated May 27,
2004 of the Court of Appeals (CA) in CA-G.R. SP No. 76667. The appellate court set aside
the January 15, 2003[2] and March 11, 2003[3] Orders of the Department of Labor and Employment
(DOLE) and ordered the latter to allow the parties to adduce evidence in support of their respective
positions.
 The facts follow.

Respondent National Service Corporation (NASECO) is a wholly-owned subsidiary of the

Philippine National Bank (PNB) organized under the Corporation Code in 1975.It supplies security
and manpower services to different clients such as the Securities and Exchange Commission, the
Philippine Deposit Insurance Corporation, Food Terminal Incorporated, Forex Corporation and
PNB. Petitioner NASECO Guards Association-PEMA (NAGA-PEMA) is the collective bargaining
representative of the regular rank and file security guards of respondent. NASECO Employees Union-
PEMA (NEMU-PEMA) is the collective bargaining representative of the regular rank and file (non-
security) employees of respondent such as messengers, janitors, typists, clerks and radio-telephone
operators.[4]

On December 2, 1993, respondent entered into a memorandum of agreement [5] with petitioner.
The terms of the agreement covered the monetary claims of the petitioner such as salary
adjustments, conversion of salary scheme under Republic Act (R.A.) No. 6758 [6] to R.A. No.
6727,[7] signing bonus, leaves and other benefits. A year after, petitioner demanded full negotiation
for a collective bargaining agreement (CBA) with the respondent and submitted its proposals thereto.

On June 8, 1995, petitioner and respondent agreed to sign a CBA on non-economic terms.[8]

On September 24, 1996, petitioner filed a notice of strike because of respondents refusal to
bargain for economic benefits in the CBA. Following conciliation hearings, the parties again
commenced CBA negotiations and started to resolve the issues on wage increase, productivity bonus,
incentive bonus, allowances, and other benefits but failed to reach an agreement.

Meanwhile, respondent and NEMU-PEMA entered into a CBA on non-economic

terms.[9] Unfortunately, a dispute among the leaders of NEMU-PEMA arose and at a certain point,
leadership of the organization was unclear. Hence, the negotiations concerning the economic terms
of the CBA were put on hold until the internal dispute could be resolved.

On April 29, 1997, petitioner filed a notice of strike before the National Conciliation and
Mediation Board (NCMB) against respondent and PNB due to a bargaining deadlock. The following
day, NEMU-PEMA likewise filed a notice of strike against respondent and PNB on the ground of
unfair labor practices.[10] Efforts by the NCMB to conciliate failed and pursuant to Article 263(g) of
the Labor Code,[11] as amended, then DOLE Secretary Cresenciano B. Trajano assumed jurisdiction
over the strike notices on June 25, 1998.[12]

On November 19, 1999, then DOLE Secretary Bienvenido E. Laguesma issued a

Resolution[13] directing petitioner and respondent to execute a new CBA incorporating therein his
dispositions regarding benefits of the employees as to wage increase, productivity bonus, vacation
and sick leave, medical allowances and signing bonus. Respondent was further ordered to negotiate,
for purposes of collective bargaining agreement, with NEMU-PEMA led by its president,
Ligaya Valencia. The charge of unfair labor practice against respondent and PNB was dismissed. [14]

Respondent promptly filed a petition for certiorari before the CA questioning the DOLE
Secretarys order and arguing that the ruling of the DOLE Secretary in favor of the unions and
awarding them monetary benefits totaling five hundred thirty-one million four hundred forty-six
thousand six hundred sixty-six and 67/100 (P531,446,666.67) was inimical and deleterious to its
financial standing and will result in closure and cessation of business for the company.

By Decision[15] dated March 19, 2001 (first CA Decision), the CA partly granted the petition and
ruled that a recomputation and reevaluation of the benefits awarded was in order.

WHEREFORE, the instant petition is partly GRANTED in that the case is

remanded to the Secretary of Labor for purposes of recomputation and reevaluation of
the CBA benefits.

SO ORDERED.[16]

In compliance with the CA directive, then DOLE Secretary Patricia A. Sto. Tomas conducted
several clarificatory hearings. On January 15, 2003, Secretary Sto. Tomas issued an Order which
provides:

From the above, it is indubitable that the total cost to NASECO of our questioned award
would amount to only P322,725,000, not P531,446,666.67 as claimed by the company.
Thus, our November 19, 1999 Order is hereby affirmed en toto.

WHEREFORE, judgment is hereby rendered:

1. [D]irecting NAGA-PEMA and NASECO to execute a new collective

bargaining agreement effective November 1, 1993, incorporating therein the
dispositions contained in our November 19, 1999 Order as well as all other
items agreed upon by the parties.

2. Ordering NASECO to negotiate with NEMA-PEMA for a new collective

bargaining agreement.

The charges of unfair labor practice against NASECO and PNB are dismissed for lack
of merit.

SO ORDERED.[17]

Respondent filed a motion for reconsideration with the DOLE Secretary which was denied
on March 11, 2003.
 Respondent thus filed a petition for certiorari with the CA arguing that the DOLE Secretary, in
issuing the January 15, 2003 Order deprived respondent of due process of law for there was
no reevaluation that took place in the DOLE. It also argued that the order merely recomputed the
DOLE Secretarys initial award of P531,446,666.67 and reduced it to P322,725,000.00, contrary to the
ruling of the CA to recompute and reevaluate. Respondent claimed that what the DOLE Secretary
should have done was to let the parties introduce evidence to show the proper computation of the
monetary awards under the approved CBA.

In its second Decision dated May 27, 2004, the CA granted the petition, thus:

WHEREFORE, the orders dated 15 January 2003 and 11 March 2003 are hereby SET
ASIDE and the case remanded to the public respondent to allow the parties to adduce
evidence in support of their respective positions.

SO ORDERED.[18]

A motion for reconsideration was filed by herein petitioner but the same was denied by the CA
on September 22, 2004[19] finding no reason to reverse and set aside its earlier decision.

Petitioner now comes to this Court for relief by way of a petition for review on certiorari seeking
to set aside and reverse the May 27, 2004 Decision and the September 22, 2004 Resolution of the
CA.

The main issue in this case is whether or not the respondents right to due process was violated. A side
issue raised by the petitioner is whether or not PNB, being the undisputed owner of and exercising control
over respondent, should be made liable to pay the CBA benefits awarded to the petitioner.

Petitioner argues first that there was no violation of due process because respondent was
never prohibited by the DOLE Secretary to submit supporting documents when the instant case was
pending on remand. Petitioner contends that due process is properly observed when there is an
opportunity to be heard, to present evidence and to file pleadings, which was never denied to
respondent.

Second, petitioner argues that the CA erred in stating that respondent was a company
operating at a loss and therefore cannot be expected to act generously and confer upon its
employees additional benefits exceeding what is mandated by law. It is the petitioners position that
based on the no loss, no profit policy of respondent with PNB, respondent in truth has no pocket of its
own and is, in effect, one (1) and the same with PNB with regard to financial gains and/or
liabilities. Thus, petitioners contend that the CBA benefits should be shouldered by PNB considering
the poor financial condition of respondent. To support such claim, petitioner submitted evidence[20] to
show that PNB is in superb financial condition and is very much capable of shouldering the CBA
award.[21]

Respondent on the other hand maintains that the DOLE Secretary violated its right to due
process when she merely recomputed the CBA award instead of reevaluating the entire case and
allowing it to present supporting documents in accordance with the first CA decision.[22] It claims that
the order of the CA to reevaluate included and required a full assessment of the case together with
reception of evidence such as financial statements, and the omission of such is a violation of its right to
due process.

As to the petitioners argument that respondent and PNB are essentially the same when it
comes to financial condition, respondent contends that although a subsidiary, it has a separate and
distinct personality from PNB with its own charter. Hence, the issue of PNBs financial well-being is
immaterial in this case.

The petition is partly meritorious.

In simple terms, the constitutional guarantee of due process requires that a litigant be given a
day in court. It is the availability of the opportunity to be heard that determines whether or not due
process was violated. A litigant may or may not avail of the opportunity to be heard but as long as
such was made available to him/her, there is no violation of the due process clause. In the case
of Lumiqued v. Exevea,[23] this Court declared that [a]s long as a party was given the opportunity to
defend his interests in due course, he cannot be said to have been denied due process of law, for this
opportunity to be heard is the very essence of due process. Moreover, this constitutional mandate is
deemed satisfied if a person is granted an opportunity to seek reconsideration of the action or ruling
complained of.

The respondents right to due process in this case has not been denied. The order in the first
CA decision to recompute and reevaluate was satisfied when the DOLE Secretary reexamined their
initial findings and adjusted the awarded benefits. A reevaluation, contrary to what the respondent
claims, is a process by which a person or office (in this case the DOLE secretary) revisits its own
initial pronouncement and makes another assessment of its findings. In simple terms, to reevaluate
is to take another look at a previous matter in issue. A reevaluation does not necessitate the
introduction of new materials for review nor does it require a full hearing for new arguments.

From a procedural standpoint, a reevaluation is a continuation of the original case and not a
new proceeding. Hence, the evidence, financial reports and other documents submitted by the parties
in the course of the original proceeding are to be visited and reviewed again. In this light, the
respondent has been given the opportunity to be heard by the DOLE Secretary.
 Also, contrary to the claim of the respondent that it was barred by the DOLE Secretary to
introduce supporting documents during the recomputation and reevaluation, the records show that an
Order by then Secretary of Labor Patricia A. Sto. Tomas dated July 11, 2002 specifically allowed both
parties to submit their respective computations as regards the awarded benefits. To wit:

WHEREFORE, the Bureau of Working Conditions is hereby directed to submit to

this Office a detailed computation of the CBA benefits indicated in the resolution
of November 19, 2001 within twenty (20) days from receipt of this Order. The parties
may submit their own computations to the Bureau for validation.

SO ORDERED.[24] (Italics supplied.)

It is thus inaccurate for the respondent to claim that it was denied due process because it had all
the opportunity to introduce any supporting document in the course of the recomputation and
reevaluation of the DOLE Secretary. Respondent admits that it did attach the financial statements and
other documents in support of its alleged financial incapacity to pay the CBA awarded benefits, the
same evidence it had earlier submitted before the CA (Memorandum in the first CA decision) in the
motion for reconsideration of the DOLE Secretarys January 15, 2003 Order.[25] There is thus no
showing that the DOLE Secretary denied respondent this basic constitutional right.

On the issue of liability, petitioner contends that PNB should be held liable to shoulder the CBA
benefits awarded to them by virtue of it being a company having full financial, managerial and
functional control over respondent as its subsidiary, and by reason of the unique no loss, no profit
scheme implemented between respondent and PNB.

We are not persuaded.

Verily, what the petitioner is asking this Court to do is to pierce the veil of corporate fiction of
respondent and hold PNB (being the mother company) liable for the CBA benefits.

In Concept Builders, Inc. v. NLRC,[26] we explained the doctrine of piercing the corporate veil,
as follows:

It is a fundamental principle of corporation law that a corporation is an entity

separate and distinct from its stockholders and from other corporations to which it may be
connected. But, this separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice. So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong, protect fraud or
defend crime, or is used as a device to defeat the labor laws, this separate personality of
the corporation may be disregarded or the veil of corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.
 Also in Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations
Commission,[27] this Court ruled:

Whether the separate personality of the corporation should be pierced hinges on

obtaining facts appropriately pleaded or proved. However, any piercing of the corporate
veil has to be done with caution, albeit the Court will not hesitate to disregard the
corporate veil when it is misused or when necessary in the interest of justice. After all,
the concept of corporate entity was not meant to promote unfair objectives.

Applying the doctrine to the case at bar, we find no reason to pierce the corporate veil of
respondent and go beyond its legal personality. Control, by itself, does not mean that the controlled
corporation is a mere instrumentality or a business conduit of the mother company. Even control over
the financial and operational concerns of a subsidiary company does not by itself call for disregarding
its corporate fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent
or illegal purpose behind the control in order to justify piercing the veil of corporate fiction. Such
fraudulent intent is lacking in this case.

Petitioner argues that the appreciation, analysis and inquiry of this case may go beyond the
presentation of respondent, and therefore must include the PNB, the bank being the undisputed whole
owner of respondent and the sole provider of funds for the companys operations and for the payment of
wages and benefits of the employees, under the no loss, no profit scheme.[28]

We disagree. There is no showing that such no loss, no profit scheme between respondent
and PNB was implemented to defeat public convenience, justify wrong, protect fraud or defend crime,
or is used as a device to defeat the labor laws, nor does the scheme show that respondent is a mere
business conduit or alter ego of PNB. Absent proof of these circumstances, respondents corporate
personality cannot be pierced.

It is apparent that petitioner wants the Court to disregard the corporate personality of
respondent and directly go after PNB in order for it to collect the CBA benefits. On the same breath,
however, petitioner argues that ultimately it is PNB, by virtue of the no loss, no profit scheme, which
shoulders and provides the funds for financial liabilities of respondent including wages and benefits of
employees. If such scheme was indeed true as the petitioner presents it, then there was absolutely
no need to pierce the veil of corporate fiction of respondent. Moreover, the Court notes the pendency
of a separate suit for absorption or regularization of NASECO employees filed by petitioner and
NEMU-PEMA against PNB and respondent, docketed as NLRC NCR Case No. 06-03944-96), which
is still on appeal with the National Labor Relations Commission (NLRC), as per manifestation by
respondent. In the said case, petitioner submitted for resolution by the labor tribunal the issues of
whether PNB is the employer of NASECOs work force and whether NASECO is a labor-only
contractor.[29]
 WHEREFORE, the petition is PARTLY GRANTED. The Decision dated May 27, 2004 and
Resolution dated September 22, 2004 in CA-G.R. SP No. 76667 are hereby REVERSED and SET
ASIDE as to the order to remand the case to the Secretary of Labor for introduction of supporting
evidence. Accordingly, the Orders of the Secretary of Labor dated January 15, 2003 and March 11,
2003 are REINSTATED and UPHELD.

No costs.

SO ORDERED.

G.R. No. 199687

PACIFIC REHOUSE CORPORATION, Petitioners,

vs.
COURT OF APPEALS and EXPORT AND INDUSTRY BANK, INC., Respondents.

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

G.R. No. 201537

PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE CORPORATION, MIZPAH

HOLDINGS, INC., FORUM HOLDINGS CORPORATION and EAST ASIA OIL COMPANY,
INC., Petitioners,
vs.
EXPORT AND INDUSTRY BANK, INC., Respondent.

DECISION

REYES, J.:

On the scales of justice precariously lie the right of a prevailing party to his victor's cup, no more, no
less; and the right of a separate entity from being dragged by the ball and chain of the vanquished
party.

The facts of this case as garnered from the Decision1 dated April 26, 2012 of the Court of Appeals
(CA) in CA-G.R. SP No. 120979 are as follows:

We trace the roots of this case to a complaint instituted with the Makati City Regional Trial Court
(RTC), Branch 66, against EIB Securities Inc. (E-Securities) for unauthorized sale of 32,180,000
DMCI shares of private respondents Pacific Rehouse Corporation, Pacific Concorde Corporation,
Mizpah Holdings, Inc., Forum Holdings Corporation, and East Asia Oil Company, Inc. In its October
18, 2005 Resolution, the RTC rendered judgment on the pleadings. The fallo reads:

WHEREFORE, premises considered, judgment is hereby rendered directing the defendant [E-
Securities] to return the plaintiffs’ [private respondents herein] 32,180,000 DMCI shares, as of
judicial demand.
On the other hand, plaintiffs are directed to reimburse the defendant the amount of [P]10,942,200.00,
representing the buy back price of the 60,790,000 KPP shares of stocks at [P]0.18 per share.

SO ORDERED. x x x

The Resolution was ultimately affirmed by the Supreme Court and attained finality.

When the Writ of Execution was returned unsatisfied, private respondents moved for the issuance of
an alias writ of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation as
E- Securities is "a wholly-owned controlled and dominated subsidiary of Export and Industry Bank,
Inc., and is[,] thus[,] a mere alter ego and business conduit of the latter. E-Securities opposed the
motion[,] arguing that it has a corporate personality that is separate and distinct from petitioner. On
July 27, 2011, private respondents filed their (1) Reply attaching for the first time a sworn statement
executed by Atty. Ramon F. Aviado, Jr., the former corporate secretary of petitioner and E-Securities,
to support their alter ego theory; and (2) Ex-Parte Manifestation alleging service of copies of the Writ
of Execution and Motion for Alias Writ of Execution on petitioner.

On July 29, 2011, the RTC concluded that E-Securities is a mere business conduit or alter ego of
petitioner, the dominant parent corporation, which justifies piercing of the veil of corporate fiction. The
trial court brushed aside E-Securities’ claim of denial of due process on petitioner as "xxx case
records show that notices regarding these proceedings had been tendered to the latter, which refused
to even receive them. Clearly, [petitioner] had been sufficiently put on notice and afforded the chance
to give its side[,] yet[,] it chose not to." Thus, the RTC disposed as follows:

WHEREFORE, xxx,

Let an Alias Writ of Execution be issued relative to the above-entitled case and pursuant to the
RESOLUTION dated October 18, 2005 and to this Order directing defendant EIB Securities, Inc.,
and/or Export and Industry Bank, Inc., to fully comply therewith.

The Branch Sheriff of this Court is directed to cause the immediate implementation of the given alias
writ in accordance with the Order of Execution to be issued anew by the Branch Clerk of Court.

SO ORDERED. x x x

With this development, petitioner filed an Omnibus Motion (Ex Abundanti Cautela) questioning
the alias writ because it was not impleaded as a party to the case. The RTC denied the motion in its
Order dated August 26, 2011 and directed the garnishment of P1,465,799,000.00, the total amount of
the 32,180,000 DMCI shares at P45.55 per share, against petitioner and/or E-Securities.2 x x x.
(Citations omitted)

The Regional Trial Court (RTC) ratiocinated that being one and the same entity in the eyes of the law,
the service of summons upon EIB Securities, Inc. (E-Securities) has bestowed jurisdiction over both
the parent and wholly-owned subsidiary.3 The RTC cited the cases of Sps. Violago v. BA Finance
Corp. et al.4 and Arcilla v. Court of Appeals5where the doctrine of piercing the veil of corporate fiction
was applied notwithstanding that the affected corporation was not brought to the court as a party.
Thus, the RTC held in its Order6 dated August 26, 2011:

WHEREFORE, premises considered, the Motion for Reconsideration with Motion to Inhibit filed by
defendant EIB Securities, Inc. is denied for lack of merit. The Omnibus Motion Ex Abundanti C[au]tela
is likewise denied for lack of merit.
Pursuant to Rule 39, Section 10 (a) of the Rules of Court, the Branch Clerk of Court or the Branch
Sheriff of this Court is hereby directed to acquire 32,180,000 DMCI shares of stock from the
Philippine Stock Exchange at the cost of EIB Securities, Inc. and Export and Industry Bank[,] Inc. and
to deliver the same to the plaintiffs pursuant to this Court’s Resolution dated October 18, 2005.

To implement this Order, let GARNISHMENT issue against ALL THOSE HOLDING MONEYS,
PROPERTIES OF ANY AND ALL KINDS, REAL OR PERSONAL BELONGING TO OR OWNED BY
DEFENDANT EIB SECURITIES, INC. AND/OR EXPORT AND INDUSTRY BANK[,] INC., [sic] in
such amount as may be sufficient to acquire 32,180,000 DMCI shares of stock to the Philippine Stock
Exchange, based on the closing price of Php45.55 per share of DMCI shares as of August 1, 2011,
the date of the issuance of the Alias Writ of Execution, or the total amount of PhP1,465,799,000.00.

SO ORDERED.7

CA-G.R. SP No. 120979

Export and Industry Bank, Inc. (Export Bank) filed before the CA a petition for certiorari with prayer for
the issuance of a temporary restraining order (TRO)8 seeking the nullification of the RTC Order dated
August 26, 2011 for having been made with grave abuse of discretion amounting to lack or excess of
jurisdiction. In its petition, Export Bank made reference to several rulings9 of the Court upholding the
separate and distinct personality of a corporation.

In a Resolution10 dated September 2, 2011, the CA issued a 60-day TRO enjoining the execution of
the Orders of the RTC dated July 29, 2011 and August 26, 2011, which granted the issuance of an
alias writ of execution and ordered the garnishment of the properties of E-Securities and/or Export
Bank. The CA also set a hearing to determine the necessity of issuing a writ of injunction, viz:

Considering the amount ordered to be garnished from petitioner Export and Industry Bank, Inc. and
the fiduciary duty of the banking institution to the public, there is grave and irreparable injury that may
be caused to [Export Bank] if the assailed Orders are immediately implemented. We thus resolve to
GRANT the Temporary Restraining Order effective for a period of sixty (60) days from notice,
restraining/enjoining the Sheriff of the Regional Trial Court of Makati City or his deputies, agents,
representatives or any person acting in their behalf from executing the July 29, 2011 and August 26,
2011 Orders. [Export Bank] is DIRECTED to POST a bond in the sum of fifty million pesos
(P50,000,000.00) within ten (10) days from notice, to answer for any damage which private
respondents may suffer by reason of this Temporary Restraining Order; otherwise, the same shall
automatically become ineffective.

Let the HEARING be set on September 27, 2011 at 2:00 in the afternoon at the Paras Hall, Main
Building, Court of Appeals, to determine the necessity of issuing a writ of preliminary injunction. The
Division Clerk of Court is DIRECTED to notify the parties and their counsel with dispatch.

xxxx

SO ORDERED.11

Pacific Rehouse Corporation (Pacific Rehouse), Pacific Concorde Corporation, Mizpah Holdings, Inc.,
Forum Holdings Corporation and East Asia Oil Company, Inc. (petitioners) filed their Comment 12 to
Export Bank’s petition and proffered that the cases mentioned by Export Bank are inapplicable owing
to their clearly different factual antecedents. The petitioners alleged that unlike the other cases, there
are circumstances peculiar only to E-Securities and Export Bank such as: 499,995 out of 500,000
outstanding shares of stocks of E-Securities are owned by Export Bank;13 Export Bank had actual
knowledge of the subject matter of litigation as the lawyers who represented E-Securities are also
lawyers of Export Bank.14 As an alter ego, there is no need for a finding of fraud or illegality before the
doctrine of piercing the veil of corporate fiction can be applied. 15

After oral arguments before the CA, the parties were directed to file their respective memoranda.16

On October 25, 2011, the CA issued a Resolution,17 granting Export Bank’s application for the
issuance of a writ of preliminary injunction, viz:

WHEREFORE, finding [Export Bank’s] application for the ancillary injunctive relief to be meritorious,
and it further appearing that there is urgency and necessity in restraining the same, a Writ of
Preliminary Injunction is hereby GRANTED and ISSUED against the Sheriff of the Regional Trial
Court of Makati City, Branch 66, or his deputies, agents, representatives or any person acting in their
behalf from executing the July 29, 2011 and August 26, 2011 Orders. Public respondents are ordered
to CEASE and DESIST from enforcing and implementing the subject orders until further notice from
this Court.18

The petitioners filed a Manifestation19 and Supplemental Manifestation20 challenging the above-
quoted CA resolution for lack of concurrence of Associate Justice Socorro B. Inting (Justice Inting),
who was then on official leave.

On December 22, 2011, the CA, through a Special Division of Five, issued another
Resolution,21 which reiterated the Resolution dated October 25, 2011 granting the issuance of a writ
of preliminary injunction.

On January 2, 2012, one of the petitioners herein, Pacific Rehouse filed before the Court a petition
for certiorari22under Rule 65, docketed as G.R. No. 199687, demonstrating its objection to the
Resolutions dated October 25, 2011 and December 22, 2011 of the CA.

On April 26, 2012, the CA rendered the assailed Decision 23 on the merits of the case, granting Export
Bank’s petition. The CA disposed of the case in this wise:

We GRANT the petition. The Orders dated July 29, 2011 and August 26, 2011 of the Makati City
Regional Trial Court, Branch 66, insofar as [Export Bank] is concerned, are NULLIFIED. The Writ of
Preliminary Injunction (WPI) is rendered PERMANENT.

SO ORDERED.24

The CA explained that the alter ego theory cannot be sustained because ownership of a subsidiary by
the parent company is not enough justification to pierce the veil of corporate fiction. There must be
proof, apart from mere ownership, that Export Bank exploited or misused the corporate fiction of E-
Securities. The existence of interlocking incorporators, directors and officers between the two
corporations is not a conclusive indication that they are one and the same. 25 The records also do not
show that Export Bank has complete control over the business policies, affairs and/or transactions of
E-Securities. It was solely E-Securities that contracted the obligation in furtherance of its legitimate
corporate purpose; thus, any fall out must be confined within its limited liability. 26

The petitioners, without filing a motion for reconsideration, filed a Petition for Review27 under Rule 45
docketed as G.R. No. 201537,28 impugning the Decision dated April 26, 2012 of the CA.
Considering that G.R. Nos. 199687 and 201537 originated from the same set of facts, involved the
same parties and raised intertwined issues, the cases were then consolidated per Resolution dated
September 26, 2012, for a thorough discussion of the merits of the case.

Issues

In précis, the issues for resolution of this Court are the following:

In G.R. No. 199687,

WHETHER THE CA COMMITTED GRAVE ABUSE OF DISCRETION IN GRANTING EXPORT

BANK’S APPLICATION FOR THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION.

In G.R. No. 201537,

I.

WHETHER THE CA COMMITTED A REVERSIBLE ERROR IN RULING THAT EXPORT BANK MAY
NOT BE HELD LIABLE FOR A FINAL AND EXECUTORY JUDGMENT AGAINST E-SECURITIES IN
AN ALIAS WRIT OF EXECUTION BY PIERCING ITS VEIL OF CORPORATE FICTION; and

II.

WHETHER THE CA COMMITTED A REVERSIBLE ERROR IN RULING THAT THE ALTER EGO
DOCTRINE IS NOT APPLICABLE.

Ruling of the Court

G.R. No. 199687

The Resolution dated October 25, 2011 was initially challenged by the petitioners in its
Manifestation29 and Supplemental Manifestation30 due to the lack of concurrence of Justice Inting,
which according to the petitioners rendered the aforesaid resolution null and void.

To the petitioners’ mind, Section 5, Rule VI of the Internal Rules of the CA (IRCA) 31 requires the
submission of the resolution granting an application for TRO or preliminary injunction to the absent
Justice/s when they report back to work for ratification, modification or recall, such that when the
absent Justice/s do not agree with the issuance of the TRO or preliminary injunction, the resolution is
recalled and without force and effect.32 Since the resolution which granted the application for
preliminary injunction appears short of the required number of consensus, owing to the absence of
Justice Inting’s signature, the petitioners contest the validity of said resolution.

The petitioners also impugn the CA Resolution dated December 22, 2011 rendered by the Special
Division of Five. The petitioners maintain that pursuant to Batas Pambansa Bilang 129 33 and the
IRCA,34 such division is created only when the three members of a division cannot reach a
unanimous vote in deciding a case on the merits.35Furthermore, for petitioner Pacific Rehouse, this
Resolution is likewise infirm because the purpose of the formation of the Special Division of Five is to
decide the case on the merits and not to grant Export Bank’s application for a writ of preliminary
injunction.36
We hold that the opposition to the CA resolutions is already nugatory because the CA has already
rendered its Decision on April 16, 2012, which disposed of the substantial merits of the case.
Consequently, the petitioners’ concern that the Special Division of Five should have been created to
resolve cases on the merits has already been addressed by the rendition of the CA Decision dated
April 16, 2012.

"It is well-settled that courts will not determine questions that have become moot and academic
because there is no longer any justiciable controversy to speak of. The judgment will not serve any
useful purpose or have any practical legal effect because, in the nature of things, it cannot be
enforced."37 In such cases, there is no actual substantial relief to which the petitioners would be
entitled to and which would be negated by the dismissal of the petition. 38Thus, it would be futile and
pointless to address the issue in G.R. No. 199687 as this has become moot and academic.

G.R. No. 201537

The petitioners bewail that the certified true copy of the CA Decision dated April 26, 2012 along with
its Certification at the bottom portion were not signed by the Chairperson39 of the Special Division of
Five; thus, it is not binding upon the parties.40 The petitioners quoted this Court’s pronouncement
in Limkaichong v. Commission on Elections,41that a decision must not only be signed by the Justices
who took part in the deliberation, but must also be promulgated to be considered a Decision. 42

A cursory glance on a copy of the signature page43 of the decision attached to the records would
show that, indeed, the same was not signed by CA Associate Justice Magdangal M. De Leon.
However, it must be noted that the CA, on May 7, 2012, issued a Resolution44 explaining that due to
inadvertence, copies of the decision not bearing the signature of the Chairperson were sent to the
parties on the same day of promulgation. The CA directed the Division Clerk of Court to furnish the
parties with copies of the signature page with the Chairperson’s signature. Consequently, as the
mistake was immediately clarified and remedied by the CA, the lack of the Chairperson’s signature on
the copies sent to the parties has already become a non-issue.

It must be emphasized that the instant cases sprang from Pacific Rehouse Corporation v. EIB
Securities, Inc.45which was decided by this Court last October 13, 2010. Significantly, Export Bank
was not impleaded in said case but was unexpectedly included during the execution stage, in addition
to E-Securities, against whom the writ of execution may be enforced in the Order46 dated July 29,
2011 of the RTC. In including Export Bank, the RTC considered E-Securities as a mere business
conduit of Export Bank.47 Thus, one of the arguments interposed by the latter in its Opposition 48 that it
was never impleaded as a defendant was simply set aside.

This action by the RTC begs the question: may the RTC enforce the alias writ of execution against
Export Bank?

The question posed before us is not novel.

The Court already ruled in Kukan International Corporation v. Reyes49 that compliance with the
recognized modes of acquisition of jurisdiction cannot be dispensed with even in piercing the veil of
corporate fiction, to wit:

The principle of piercing the veil of corporate fiction, and the resulting treatment of two related
corporations as one and the same juridical person with respect to a given transaction, is basically
applied only to determine established liability; it is not available to confer on the court a jurisdiction it
has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a corporation
not impleaded in a suit cannot be subject to the court’s process of piercing the veil of its
corporate fiction. In that situation, the court has not acquired jurisdiction over the corporation and,
hence, any proceedings taken against that corporation and its property would infringe on its right to
due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as much:

"23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x

This is so because the doctrine of piercing the veil of corporate fiction comes to play only
during the trial of the case after the court has already acquired jurisdiction over the
corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is
imperative that the court must first have jurisdiction over the corporation. x x x"50 (Citations omitted)

From the preceding, it is therefore correct to say that the court must first and foremost acquire
jurisdiction over the parties; and only then would the parties be allowed to present evidence for and/or
against piercing the veil of corporate fiction. If the court has no jurisdiction over the corporation, it
follows that the court has no business in piercing its veil of corporate fiction because such action
offends the corporation’s right to due process.

"Jurisdiction over the defendant is acquired either upon a valid service of summons or the defendant’s
voluntary appearance in court. When the defendant does not voluntarily submit to the court’s
jurisdiction or when there is no valid service of summons, ‘any judgment of the court which has no
jurisdiction over the person of the defendant is null and void.’"51 "The defendant must be properly
apprised of a pending action against him and assured of the opportunity to present his defenses to
the suit. Proper service of summons is used to protect one’s right to due process."52

As Export Bank was neither served with summons, nor has it voluntarily appeared before the court,
the judgment sought to be enforced against E-Securities cannot be made against its parent company,
Export Bank. Export Bank has consistently disputed the RTC jurisdiction, commencing from its filing
of an Omnibus Motion53 by way of special appearance during the execution stage until the filing of its
Comment54 before the Court wherein it was pleaded that "RTC [of] Makati[, Branch] 66 never
acquired jurisdiction over Export [B]ank. Export [B]ank was not pleaded as a party in this case. It was
never served with summons by nor did it voluntarily appear before RTC [of] Makati[, Branch] 66 so as
to be subjected to the latter’s jurisdiction."55

In dispensing with the requirement of service of summons or voluntary appearance of Export Bank,
the RTC applied the cases of Violago and Arcilla. The RTC concluded that in these cases, the Court
decided that the doctrine of piercing the veil of corporate personality can be applied even when one of
the affected parties has not been brought to the Court as a party. 56

A closer perusal on the rulings of this Court in Violago and Arcilla, however, reveals that the RTC
misinterpreted the doctrines on these cases. We agree with the CA that these cases are not
congruent to the case at bar. In Violago, Spouses Pedro and Florencia Violago (Spouses Violago)
filed a third party complaint against their cousin Avelino Violago (Avelino), who is also the president of
Violago Motor Sales Corporation (VMSC), for selling them a vehicle which was already sold to
someone else. VMSC was not impleaded as a third party defendant. Avelino contended that he was
not a party to the transaction personally, but VMSC. The Court ruled that "[t]he fact that VMSC was
not included as defendant in [Spouses Violago’s] third party complaint does not preclude recovery by
Spouses Violago from Avelino; neither would such non-inclusion constitute a bar to the application of
the piercing-of-the-corporate-veil doctrine."57 It should be pointed out that although VMSC was not
made a third party defendant, the person who was found liable in Violago, Avelino, was properly
made a third party defendant in the first instance. The present case could not be any more poles
apart from Violago, because Export Bank, the parent company which was sought to be accountable
for the judgment against E-Securities, is not a party to the main case.
In Arcilla, meanwhile, Calvin Arcilla (Arcilla) obtained a loan in the name of Csar Marine Resources,
Inc. (CMRI) from Emilio Rodulfo. A complaint was then filed against Arcilla for non-payment of the
loan. CMRI was not impleaded as a defendant. The trial court eventually ordered Arcilla to pay the
judgment creditor for such loan. Arcilla argued that he is not personally liable for the adjudged award
because the same constitutes a corporate liability which cannot even bind the corporation as the
latter is not a party to the collection suit. The Court made the succeeding observations:

[B]y no stretch of even the most fertile imagination may one be able to conclude that the challenged
Amended Decision directed Csar Marine Resources, Inc. to pay the amounts adjudged. By its clear
and unequivocal language, it is the petitioner who was declared liable therefor and consequently
made to pay. x x x, even if We are to assume arguendo that the obligation was incurred in the name
of the corporation, the petitioner would still be personally liable therefor because for all legal intents
and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing
more than his business conduit and alter ego. The fiction of a separate juridical personality conferred
upon such corporation by law should be disregarded. x x x.58 (Citation omitted)

It is important to bear in mind that although CMRI was not a party to the suit, it was Arcilla, the
defendant himself who was found ultimately liable for the judgment award. CMRI and its properties
were left untouched from the main case, not only because of the application of the alter ego doctrine,
but also because it was never made a party to that case.

The disparity between the instant case and those of Violago and Arcilla is that in said cases, although
the corporations were not impleaded as defendant, the persons made liable in the end were already
parties thereto since the inception of the main case. Consequently, it cannot be said that the Court
had, in the absence of fraud and/or bad faith, applied the doctrine of piercing the veil of corporate
fiction to make a non-party liable. In short, liabilities attached only to those who are parties. None of
the non-party corporations (VMSC and CMRI) were made liable for the judgment award against
Avelino and Arcilla.

The Alter Ego Doctrine is not applicable

"The question of whether one corporation is merely an alter ego of another is purely one of fact. So is
the question of whether a corporation is a paper company, a sham or subterfuge or whether petitioner
adduced the requisite quantum of evidence warranting the piercing of the veil of respondent’s
corporate entity."59

As a rule, the parties may raise only questions of law under Rule 45, because the Supreme Court is
not a trier of facts. Generally, we are not duty-bound to analyze again and weigh the evidence
introduced in and considered by the tribunals below.60 However, justice for all is of primordial
importance that the Court will not think twice of reviewing the facts, more so because the RTC and
the CA arrived in contradicting conclusions.

"It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to
promote justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter
ego of another corporation."61
"Where one corporation is so organized and controlled and its affairs are conducted so that it is, in
fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
"instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or even
complete stock control but such domination of finances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its
principal. It must be kept in mind that the control must be shown to have been exercised at the time
the acts complained of took place. Moreover, the control and breach of duty must proximately cause
the injury or unjust loss for which the complaint is made." 62

The Court has laid down a three-pronged control test to establish when the alter ego doctrine should
be operative:

(1) Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must [have] proximately caused the injury or
unjust loss complained of.63

The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying the
‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how
the corporation operated and the individual defendant’s relationship to that operation. 64 Hence, all
three elements should concur for the alter ego doctrine to be applicable.

In its decision, the RTC maintained that the subsequently enumerated factors betray the true nature
of E-Securities as a mere alter ego of Export Bank:

1. Defendant EIB Securities, a subsidiary corporation 100% totally owned by Export and
Industry Bank, Inc., was only re-activated by the latter in 2002-2003 and the continuance of its
operations was geared for no other reason tha[n] to serve as the securities brokerage arm
of said parent corporation bank;

2. It was the parent corporation bank that provided and infused the fresh working cash capital
needed by defendant EIB Securities which prior thereto was non-operating and severely cash-
strapped. [This was so attested by the then Corporate Secretary of both corporations, Atty.
Ramon Aviado, Jr., in his submitted Sworn Statement which is deemed allowable "evidence on
motion", under Sec. 7, Rule 133, Rules on Evidence; Bravo vs. Borja, 134 SCRA 438];

3. For effective control purposes, defendant EIB Securities and its operating office and staff
are all housed in Exportbank Plaza located at Chino Roces cor. Sen. Gil Puyat Avenue, Makati
City which is the same building w[h]ere the bank parent corporation has its headquarters;

4. As shown in the General Information Sheets annually filed with the S.E.C. from 2002 to
2011, both defendant EIB Securities and the bank parent corporation share common key
Directors and corporate officers. Three of the 5-man Board of Directors of defendant EIB
Securities are Directors of the bank parent corporation, namely: Jaime C. Gonzales, Pauline C.
Tan and Dionisio E. Carpio, Jr. In addition, Mr. Gonzales is Chairman of the Board of both
 corporations, whereas Pauline C. Tan is concurrently President/General Manager of EIB
Securities, and Dionisio Carpio Jr., is not only director of the bank, but also Director Treasurer
of defendant EIB Securities;

5. As admitted by the bank parent corporation in its consolidated audited financial statements[,]
EIB Securities is a CONTROLLED SUBSIDIARY, and for which reason its financial condition
and results of operations are included and integrated as part of the group’s consolidated
financial statements, examined and audited by the same auditing firm;

6. The lawyers handling the suits and legal matters of defendant EIB Securities are the same
lawyers in the Legal Department of the bank parent corporation.1âwphi1 The Court notes that
in [the] above-entitled suit, the lawyers who at the start represented said defendant EIB
Securities and filed all the pleadings and filings in its behalf are also the lawyers in the Legal
Services Division of the bank parent corporation. They are Attys. Emmanuel A. Silva,
Leonardo C. Bool, Riva Khristine E. Maala and Ma. Esmeralda R. Cunanan, all of whom
worked at the Legal Services Division of Export Industry Bank located at 36/F, Exportbank
Plaza, Don Chino Roces Avenue, cor. Sen. Gil Puyat Avenue, Makati City.

7. Finally[,] and this is very significant, the control and sway that the bank parent corporation
held over defendant EIB Securities was prevailing in June 2004 when the very act complained
of in plaintiff’s Complaint took place, namely the unauthorized disposal of the 32,180,000
DMCI shares of stock. Being then under the direction and control of the bank parent
corporation, the unauthorized disposal of those shares by defendant EIB Securities is
attributable to, and the responsibility of the former.65

All the foregoing circumstances, with the exception of the admitted stock ownership, were however
not properly pleaded and proved in accordance with the Rules of Court. 66 These were merely raised
by the petitioners for the first time in their Motion for Issuance of an Alias Writ of Execution67 and
Reply,68 which the Court cannot consider. "Whether the separate personality of the corporation
should be pierced hinges on obtaining facts appropriately pleaded or proved." 69

Albeit the RTC bore emphasis on the alleged control exercised by Export Bank upon its subsidiary E-
Securities, "[c]ontrol, by itself, does not mean that the controlled corporation is a mere instrumentality
or a business conduit of the mother company. Even control over the financial and operational
concerns of a subsidiary company does not by itself call for disregarding its corporate fiction. There
must be a perpetuation of fraud behind the control or at least a fraudulent or illegal purpose behind
the control in order to justify piercing the veil of corporate fiction. Such fraudulent intent is lacking in
this case."70

Moreover, there was nothing on record demonstrative of Export Bank’s wrongful intent in setting up a
subsidiary, E-Securities. If used to perform legitimate functions, a subsidiary’s separate existence
shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined
to those arising in their respective business.71 To justify treating the sole stockholder or holding
company as responsible, it is not enough that the subsidiary is so organized and controlled as to
make it "merely an instrumentality, conduit or adjunct" of its stockholders. It must further appear that
to recognize their separate entities would aid in the consummation of a wrong. 72

As established in the main case73 and reiterated by the CA, the subject 32,180,000 DMCI shares
which E-Securities is obliged to return to the petitioners were originally bought at an average price of
P0.38 per share and were sold for an average price of P0.24 per share. The proceeds were then
used to buy back 61,100,000 KPP shares earlier sold by E-Securities. Quite unexpectedly however,
the total amount of these DMCI shares ballooned to P1,465,799,000.00. 74 It must be taken into
account that this unexpected turnabout did not inure to the benefit of E-Securities, much less Export
Bank.

Furthermore, ownership by Export Bank of a great majority or all of stocks of E-Securities and the
existence of interlocking directorates may serve as badges of control, but ownership of another
corporation, per se, without proof of actuality of the other conditions are insufficient to establish an
alter ego relationship or connection between the two corporations, which will justify the setting aside
of the cover of corporate fiction. The Court has declared that "mere ownership by a single stockholder
or by another corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality." The Court has likewise ruled
that the "existence of interlocking directors, corporate officers and shareholders is not enough
justification to pierce the veil of corporate fiction in the absence of fraud or other public policy
considerations."75

While the courts have been granted the colossal authority to wield the sword which pierces through
the veil of corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold
the doctrine of separate entity, when rightly so; as it has for so long encouraged businessmen to
enter into economic endeavors fraught with risks and where only a few dared to venture.

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A
court should be mindful of the milieu where it is to be applied. It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in
disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an erroneous
application.76

In closing, we understand that the petitioners are disgruntled at the turnout of this case-that they
cannot enforce the award due them on its entirety; however, the Court cannot supplant a remedy
which is not sanctioned by our laws and prescribed rules.

WHEREFORE, the petition in G.R. No. 199687 is hereby DISMISSED for having been rendered moot
and academic. The petition in G.R. No. 201537, meanwhile, is hereby DENIED for lack of merit.
Consequently, the Decision dated April 26, 2012 of the Court of Appeals in CA-G.R. SP No. 120979
is AFFIRMED.

SO ORDERED.

G.R. No. 182729 September 29, 2010

KUKAN INTERNATIONAL CORPORATION, Petitioner,

vs.
HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila,
Branch 21, and ROMEO M. MORALES, doing business under the name and style "RM Morales
Trophies and Plaques,"Respondents.

DECISION
VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January 23, 2008
Decision1and the April 16, 2008 Resolution2 rendered by the Court of Appeals (CA) in CA-G.R. SP
No. 100152.

The assailed CA decision affirmed the March 12, 2007 3 and June 7, 20074 Orders of the Regional
Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173, entitled Romeo M. Morales,
doing business under the name and style RM Morales Trophies and Plaques v. Kukan, Inc. In the
said orders, the RTC disregarded the separate corporate identities of Kukan, Inc. and Kukan
International Corporation and declared them to be one and the same entity. Accordingly, the RTC
held Kukan International Corporation, albeit not impleaded in the underlying complaint of Romeo M.
Morales, liable for the judgment award decreed in a Decision dated November 28, 2002 5 in favor of
Morales and against Kukan, Inc.

The Facts

Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation of signages
in a building being constructed in Makati City. Morales tendered the winning bid and was awarded the
PhP 5 million contract. Some of the items in the project award were later excluded resulting in the
corresponding reduction of the contract price to PhP 3,388,502. Despite his compliance with his
contractual undertakings, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance
of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands. Shortchanged, Morales
filed a Complaint6 with the RTC against Kukan, Inc. for a sum of money, the case docketed as Civil
Case No. 99-93173 and eventually raffled to Branch 17 of the court.

Following the joinder of issues after Kukan, Inc. filed an answer with counterclaim, trial ensued.
However, starting November 2000, Kukan, Inc. no longer appeared and participated in the
proceedings before the trial court, prompting the RTC to declare Kukan, Inc. in default and paving the
way for Morales to present his evidence ex parte.

On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc.,
disposing as follows:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by
preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:

1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED
TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February
17, 1999 until full payment;

2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable attorney’s

fees; and

4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX
CENTAVOS (P7,960.06) as litigation expenses.
For lack of factual foundation, the counterclaim is DISMISSED.

IT IS SO ORDERED.7

After the above decision became final and executory, Morales moved for and secured a writ of
execution8 against Kukan, Inc. The sheriff then levied upon various personal properties found at what
was supposed to be Kukan, Inc.’s office at Unit 2205, 88 Corporate Center, Salcedo Village, Makati
City. Alleging that it owned the properties thus levied and that it was a different corporation from
Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party Claim. Notably, KIC
was incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in Civil Case
No. 99-93173.

In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30, 2003. In it,
Morales prayed, applying the principle of piercing the veil of corporate fiction, that an order be issued
for the satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in the
possession of KIC, it being alleged that both corporations are but one and the same entity. KIC
opposed Morales’ motion. By Order of May 29, 20039as reiterated in a subsequent order, the court
denied the omnibus motion.

In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true relationship
between the two, Morales filed a Motion for Examination of Judgment Debtors dated May 4, 2005. In
this motion Morales sought that subponae be issued against the primary stockholders of Kukan, Inc.,
among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial court in an Order
dated May 24, 2005.10

Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually
granted the motion. The case was re-raffled to Branch 21, presided by public respondent Judge Amor
Reyes.

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction to
declare KIC as having no existence separate from Kukan, Inc. This time around, the RTC, by Order
dated March 12, 2007, granted the motion, the dispositive portion of which reads:

WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby declares as
follows:

1. defendant Kukan, Inc. and newly created Kukan International Corp. as one and the same
corporation;

2. the levy made on the properties of Kukan International Corp. is hereby valid;

3. Kukan International Corp. and Michael Chan are jointly and severally liable to pay the
amount awarded to plaintiff pursuant to the decision of November [28], 2002 which has long
been final and executory.

SO ORDERED.

From the above order, KIC moved but was denied reconsideration in another Order dated June 7,
2007.
KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC
Orders.

On January 23, 2008, the CA rendered the assailed decision, the dispositive portion of which states:

WHEREFORE, premises considered, the petition is hereby DENIED and the assailed Orders dated
March 12, 2007 and June 7, 2007 of the court a quo are both AFFIRMED. No costs.

SO ORDERED.11

The CA later denied KIC’s motion for reconsideration in the assailed resolution.

Hence, the instant petition for review, with the following issues KIC raises for the Court’s
consideration:

1. There is no legal basis for the [CA] to resolve and declare that petitioner’s Constitutional
Right to Due Process was not violated by the public respondent in rendering the Orders dated
March 12, 2007 and June 7, 2007 and in declaring petitioner to be liable for the judgment
obligations of the corporation "Kukan, Inc." to private respondent – as petitioner is a stranger to
the case and was never made a party in the case before the trial court nor was it ever served a
summons and a copy of the complaint.

2. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12,
2007 and June 7, 2007 rendered by public respondent declaring the petitioner liable to the
judgment obligations of the corporation "Kukan, Inc." to private respondent are valid as said
orders of the public respondent modify and/or amend the trial court’s final and executory
decision rendered on November 28, 2002.

3. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12,
2007 and June 7, 2007 rendered by public respondent declaring the petitioner [KIC] and the
corporation "Kukan, Inc." as one and the same, and, therefore, the Veil of Corporate Fiction
between them be pierced – as the procedure undertaken by public respondent which the [CA]
upheld is not sanctioned by the Rules of Court and/or established jurisprudence enunciated by
this Honorable Supreme Court.12

In gist, the issues to be resolved boil down to the question of, first, whether the trial court can, after
the judgment against Kukan, Inc. has attained finality, execute it against the property of KIC; second,
whether the trial court acquired jurisdiction over KIC; and third, whether the trial and appellate courts
correctly applied, under the premises, the principle of piercing the veil of corporate fiction.

The Ruling of the Court

The petition is meritorious.

First Issue: Against Whom Can a Final and

Executory Judgment Be Executed

The preliminary question that must be answered is whether or not the trial court can, after adjudging
Kukan, Inc. liable for a sum of money in a final and executory judgment, execute such judgment debt
against the property of KIC.
The poser must be answered in the negative.

In Carpio v. Doroja,13 the Court ruled that the deciding court has supervisory control over the
execution of its judgment:

A case in which an execution has been issued is regarded as still pending so that all proceedings on
the execution are proceedings in the suit. There is no question that the court which rendered the
judgment has a general supervisory control over its process of execution, and this power carries with
it the right to determine every question of fact and law which may be involved in the execution.

We reiterated the above holding in Javier v. Court of Appeals14 in this wise: "The said branch has a
general supervisory control over its processes in the execution of its judgment with a right to
determine every question of fact and law which may be involved in the execution."

The court’s supervisory control does not, however, extend as to authorize the alteration or
amendment of a final and executory decision, save for certain recognized exceptions, among which is
the correction of clerical errors. Else, the court violates the principle of finality of judgment and its
immutability, concepts which the Court, in Tan v. Timbal,15 defined:

As we held in Industrial Management International Development Corporation vs. NLRC:

It is an elementary principle of procedure that the resolution of the court in a given issue as embodied
in the dispositive part of a decision or order is the controlling factor as to settlement of rights of the
parties. Once a decision or order becomes final and executory, it is removed from the power or
jurisdiction of the court which rendered it to further alter or amend it. It thereby becomes immutable
and unalterable and any amendment or alteration which substantially affects a final and executory
judgment is null and void for lack of jurisdiction, including the entire proceedings held for that
purpose. An order of execution which varies the tenor of the judgment or exceeds the terms thereof is
a nullity. (Emphasis supplied.)

Republic v. Tango16 expounded on the same principle and its exceptions:

Deeply ingrained in our jurisprudence is the principle that a decision that has acquired finality
becomes immutable and unalterable. As such, it may no longer be modified in any respect even
if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made
by the court that rendered it or by the highest court of the land. x x x

The doctrine of finality of judgment is grounded on the fundamental principle of public policy and
sound practice that, at the risk of occasional error, the judgment of courts and the award of quasi-
judicial agencies must become final on some definite date fixed by law. The only exceptions to the
general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no
prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the
decision which render its execution unjust and inequitable. None of the exceptions obtains here to
merit the review sought. (Emphasis added.)

So, did the RTC, in breach of the doctrine of immutability and inalterability of judgment, order the
execution of its final decision in a manner as would amount to its prohibited alteration or modification?

We repair to the dispositive portion of the final and executory RTC decision. Pertinently, it provides:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by
preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:
 1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED
TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February
17, 1999 until full payment;

2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

3. to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable attorney’s

fees; and

4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX
CENTAVOS (P7,960.06) as litigation expenses.

x x x x (Emphasis supplied.)

As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the
aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of execution,
answerable for the above judgment liability is a clear case of altering a decision, an instance of
granting relief not contemplated in the decision sought to be executed. And the change does not fall
under any of the recognized exceptions to the doctrine of finality and immutability of judgment. It is a
settled rule that a writ of execution must conform to the fallo of the judgment; as an inevitable
corollary, a writ beyond the terms of the judgment is a nullity. 17

Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination
of the other issues raised by KIC would be proper.

Second Issue: Propriety of the RTC

Assuming Jurisdiction over KIC

The next issue turns on the validity of the execution the trial court authorized against KIC and its
property, given that it was neither made a party nor impleaded in Civil Case No. 99-93173, let alone
served with summons. In other words, did the trial court acquire jurisdiction over KIC?

In the assailed decision, the appellate court deemed KIC to have voluntarily submitted itself to the
jurisdiction of the trial court owing to its filing of four (4) pleadings adverted to earlier, namely: (a) the
Affidavit of Third-Party Claim;18(b) the Comment and Opposition to Plaintiff’s Omnibus Motion;19 (c)
the Motion for Reconsideration of the RTC Order dated March 12, 2007; 20 and (d) the Motion for
Leave to Admit Reply.21 The CA, citing Section 20, Rule 14 of the Rules of Court, stated that "the
procedural rule on service of summons can be waived by voluntary submission to the court’s
jurisdiction through any form of appearance by the party or its counsel." 22

We cannot give imprimatur to the appellate court’s appreciation of the thrust of Sec. 20, Rule 14 of
the Rules in concluding that the trial court acquired jurisdiction over KIC.

Orion Security Corporation v. Kalfam Enterprises, Inc.23 explains how courts acquire jurisdiction over
the parties in a civil case:

Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On the other hand,
jurisdiction over the defendants in a civil case is acquired either through the service of summons upon
them or through their voluntary appearance in court and their submission to its authority. (Emphasis
supplied.)
In the fairly recent Palma v. Galvez,24 the Court reiterated its holding in Orion Security Corporation,
stating: "[I]n civil cases, the trial court acquires jurisdiction over the person of the defendant either by
the service of summons or by the latter’s voluntary appearance and submission to the authority of the
former."

The court’s jurisdiction over a party-defendant resulting from his voluntary submission to its authority
is provided under Sec. 20, Rule 14 of the Rules, which states:

Section 20. Voluntary appearance. – The defendant’s voluntary appearance in the actions shall be
equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside from
lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance.

To be sure, the CA’s ruling that any form of appearance by the party or its counsel is deemed as
voluntary appearance finds support in the kindred Republic v. Ker & Co., Ltd. 25 and De Midgely v.
Ferandos.26

Republic and De Midgely, however, have already been modified if not altogether superseded 27 by La
Naval Drug Corporation v. Court of Appeals,28 wherein the Court essentially ruled and elucidated on
the current view in our jurisdiction, to wit: "[A] special appearance before the court––challenging its
jurisdiction over the person through a motion to dismiss even if the movant invokes other grounds––is
not tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his person;
and such is not constitutive of a voluntary submission to the jurisdiction of the court." 29

In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is
conceded that it raised affirmative defenses through its aforementioned pleadings, KIC never
abandoned its challenge, however implicit, to the RTC’s jurisdiction over its person. The challenge
was subsumed in KIC’s primary assertion that it was not the same entity as Kukan, Inc. Pertinently, in
its Comment and Opposition to Plaintiff’s Omnibus Motion dated May 20, 2003, KIC entered its
"special but not voluntary appearance" alleging therein that it was a different entity and has a
separate legal personality from Kukan, Inc. And KIC would consistently reiterate this assertion in all
its pleadings, thus effectively resisting all along the RTC’s jurisdiction of its person. It cannot be
overemphasized that KIC could not file before the RTC a motion to dismiss and its attachments in
Civil Case No. 99-93173, precisely because KIC was neither impleaded nor served with summons.
Consequently, KIC could only assert and claim through its affidavits, comments, and motions filed by
special appearance before the RTC that it is separate and distinct from Kukan, Inc.

Following La Naval Drug Corporation,30 KIC cannot be deemed to have waived its objection to the
court’s lack of jurisdiction over its person. It would defy logic to say that KIC unequivocally submitted
itself to the jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different
entities. In the scheme of things obtaining, KIC had no other option but to insist on its separate
identity and plead for relief consistent with that position.

Third Issue: Piercing the

Veil of Corporate Fiction

The third and main issue in this case is whether or not the trial and appellate courts correctly applied
the principle of piercing the veil of corporate entity––called also as disregarding the fiction of a
separate juridical personality of a corporation––to support a conclusion that Kukan, Inc. and KIC are
but one and the same corporation with respect to the contract award referred to at the outset. This
principle finds its context on the postulate that a corporation is an artificial being invested with a
personality separate and distinct from those of the stockholders and from other corporations to which
it may be connected or related.31
In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission,32 the
Court revisited the subject principle of piercing the veil of corporate fiction and wrote:

Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation as a
mere collection of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the group. Another
formulation of this doctrine is that when two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical
or as one and the same.

Whether the separate personality of the corporation should be pierced hinges on obtaining
facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done
with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or
when necessary in the interest of justice. x x x (Emphasis supplied.)

The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.:

While a corporation may exist for any lawful purpose, the law will regard it as an association of
persons or, in case of two corporations, merge them into one, when its corporate legal entity is used
as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The
doctrine applies only when such corporate fiction is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or
where a corporation is the mere alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.

To disregard the separate juridical personality of a corporation, the wrongdoing must be established
clearly and convincingly. It cannot be presumed.33 (Emphasis supplied.)

Now, as before the appellate court, petitioner KIC maintains that the RTC violated its right to due
process when, in the execution of its November 28, 2002 Decision, the court authorized the issuance
of the writ against KIC for Kukan, Inc.’s judgment debt, albeit KIC has never been a party to the
underlying suit. As a counterpoint, Morales argues that KIC’s specific concern on due process and on
the validity of the writ to execute the RTC’s November 28, 2002 Decision would be mooted if it were
established that KIC and Kukan, Inc. are indeed one and the same corporation.

Morales’ contention is untenable.

The principle of piercing the veil of corporate fiction, and the resulting treatment of two related
corporations as one and the same juridical person with respect to a given transaction, is basically
applied only to determine established liability; 34 it is not available to confer on the court a jurisdiction it
has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a corporation
not impleaded in a suit cannot be subject to the court’s process of piercing the veil of its corporate
fiction. In that situation, the court has not acquired jurisdiction over the corporation and, hence, any
proceedings taken against that corporation and its property would infringe on its right to due process.
Aguedo Agbayani, a recognized authority on Commercial Law, stated as much:

23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x

This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the
trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before
this doctrine can be applied, based on the evidence presented, it is imperative that the court must first
have jurisdiction over the corporation.35 x x x (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the
corporation or corporations involved before its or their separate personalities are disregarded; and (2)
the doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a
cause of action duly commenced involving parties duly brought under the authority of the court by
way of service of summons or what passes as such service.

The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the matter of the
time and manner of raising the principle in question, it is undisputed that no full-blown trial involving
KIC was had when the RTC disregarded the corporate veil of KIC. The reason for this actuality is
simple and undisputed: KIC was not impleaded in Civil Case No. 99-93173 and that the RTC did not
acquire jurisdiction over it. It was dragged to the case after it reacted to the improper execution of its
properties and veritably hauled to court, not thru the usual process of service of summons, but by
mere motion of a party with whom it has no privity of contract and after the decision in the main case
had already become final and executory. As to the propriety of a plea for the application of the
principle by mere motion, the following excerpts are instructive:

Generally, a motion is appropriate only in the absence of remedies by regular pleadings, and is not
available to settle important questions of law, or to dispose of the merits of the case. A motion is
usually a proceeding incidental to an action, but it may be a wholly distinct or independent
proceeding. A motion in this sense is not within this discussion even though the relief demanded is
denominated an "order."

A motion generally relates to procedure and is often resorted to in order to correct errors which have
crept in along the line of the principal action’s progress. Generally, where there is a procedural defect
in a proceeding and no method under statute or rule of court by which it may be called to the attention
of the court, a motion is an appropriate remedy. In many jurisdictions, the motion has replaced the
common-law pleas testing the sufficiency of the pleadings, and various common-law writs, such as
writ of error coram nobis and audita querela. In some cases, a motion may be one of several
remedies available. For example, in some jurisdictions, a motion to vacate an order is a remedy
alternative to an appeal therefrom.

Statutes governing motions are given a liberal construction.36 (Emphasis supplied.)

The bottom line issue of whether Morales can proceed against KIC for the judgment debt of Kukan,
Inc.––assuming hypothetically that he can, applying the piercing the corporate veil principle––
resolves itself into the question of whether a mere motion is the appropriate vehicle for such purpose.

Verily, Morales espouses the application of the principle of piercing the corporate veil to hold KIC
liable on theory that Kukan, Inc. was out to defraud him through the use of the separate and distinct
personality of another corporation, KIC. In net effect, Morales’ adverted motion to pierce the veil of
corporate fiction dated January 3, 2007 stated a new cause of action, i.e., for the liability of judgment
debtor Kukan, Inc. to be borne by KIC on the alleged identity of the two corporations. This new cause
of action should be properly ventilated in another complaint and subsequent trial where the doctrine
of piercing the corporate veil can, if appropriate, be applied, based on the evidence adduced.
Establishing the claim of Morales and the corresponding liability of KIC for Kukan Inc.’s indebtedness
could hardly be the subject, under the premises, of a mere motion interposed after the principal action
against Kukan, Inc. alone had peremptorily been terminated. After all, a complaint is one where the
plaintiff alleges causes of action.
In any event, the principle of piercing the veil of corporate fiction finds no application to the instant
case.

As a general rule, courts should be wary of lifting the corporate veil between corporations, however
related. Philippine National Bank v. Andrada Electric Engineering Company37 explains why:

A corporation is an artificial being created by operation of law. x x x It has a personality separate and
distinct from the persons composing it, as well as from any other legal entity to which it may be
related. This is basic.

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil
pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of
public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against third persons.

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A
court should be mindful of the milieu where it is to be applied. It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in
disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an erroneous
application.

This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate
assets as part of the estate of the decedent, to escape liability arising from a debt, or to perpetuate
fraud and/or confuse legitimate issues either to promote or to shield unfair objectives or to cover up
an otherwise blatant violation of the prohibition against forum-shopping. Only in these and similar
instances may the veil be pierced and disregarded. (Emphasis supplied.)

In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing
proof that the separate and distinct personality of the corporation was purposefully employed to
evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. To be sure,
the Court has, on numerous occasions,38applied the principle where a corporation is dissolved and its
assets are transferred to another to avoid a financial liability of the first corporation with the result that
the second corporation should be considered a continuation and successor of the first entity.

In those instances when the Court pierced the veil of corporate fiction of two corporations, there was
a confluence of the following factors:

1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation to avoid a financial
liability of the first corporation; and

3. Both corporations are owned and controlled by the same persons such that the second
corporation should be considered as a continuation and successor of the first corporation.

In the instant case, however, the second and third factors are conspicuously absent. There is,
therefore, no compelling justification for disregarding the fiction of corporate entity separating Kukan,
Inc. from KIC. In applying the principle, both the RTC and the CA miserably failed to identify the
presence of the abovementioned factors. Consider:
The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based on the
following premises and arguments:

While it is true that a corporation has a separate and distinct personality from its stockholder, director
and officers, the law expressly provides for an exception. When Michael Chan, the Managing Director
of defendant Kukan, Inc. (majority stockholder of the newly formed corporation [KIC]) confirmed the
award to plaintiff to supply and install interior signages in the Enterprise Center he (Michael Chan,
Managing Director of defendant Kukan, Inc.) knew that there was no sufficient corporate funds to pay
its obligation/account, thus implying bad faith on his part and fraud in contracting the obligation.
Michael Chan neither returned the interior signages nor tendered payment to the plaintiff. This
circumstance may warrant the piercing of the veil of corporation fiction. Having been guilty of bad faith
in the management of corporate matters the corporate trustee, director or officer may be held
personally liable. x x x

Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the
circumstances of the case. x x x [A]nd the circumstances are: the signature of Michael Chan,
Managing Director of Kukan, Inc. appearing in the confirmation of the award sent to the plaintiff;
signature of Chan Kai Kit, a British National appearing in the Articles of Incorporation and signature of
Michael Chan also a British National appearing in the Articles of Incorporation [of] Kukan International
Corp. give the impression that they are one and the same person, that Michael Chan and Chan Kai
Kit are both majority stockholders of Kukan International Corp. and Kukan, Inc. holding 40% of the
stocks; that Kukan International Corp. is practically doing the same kind of business as that of Kukan,
Inc.39 (Emphasis supplied.)

As is apparent from its disquisition, the RTC brushed aside the separate corporate existence of
Kukan, Inc. and KIC on the main argument that Michael Chan owns 40% of the common shares of
both corporations, obviously oblivious that overlapping stock ownership is a common business
phenomenon. It must be remembered, however, that KIC’s properties were the ones seized upon levy
on execution and not that of Kukan, Inc. or of Michael Chan for that matter. Mere ownership by a
single stockholder or by another corporation of a substantial block of shares of a corporation does
not, standing alone, provide sufficient justification for disregarding the separate corporate
personality.40 For this ground to hold sway in this case, there must be proof that Chan had control or
complete dominion of Kukan and KIC’s finances, policies, and business practices; he used such
control to commit fraud; and the control was the proximate cause of the financial loss complained of
by Morales. The absence of any of the elements prevents the piercing of the corporate veil.41 And
indeed, the records do not show the presence of these elements.

On the other hand, the CA held:

In the present case, the facts disclose that Kukan, Inc. entered into a contractual obligation x x x
worth more than three million pesos although it had only Php5,000.00 paid-up capital; [KIC] was
incorporated shortly before Kukan, Inc. suddenly ceased to appear and participate in the trial; [KIC’s]
purpose is related and somewhat akin to that of Kukan, Inc.; and in [KIC] Michael Chan, a.k.a., Chan
Kai Kit, holds forty percent of the outstanding stocks, while he formerly held the same amount of
stocks in Kukan Inc. These would lead to the inescapable conclusion that Kukan, Inc. committed
fraudulent representation by awarding to the private respondent the contract with full knowledge that
it was not in a position to comply with the obligation it had assumed because of inadequate paid-up
capital. It bears stressing that shareholders should in good faith put at the risk of the business,
unencumbered capital reasonably adequate for its prospective liabilities. The capital should not be
illusory or trifling compared with the business to be done and the risk of loss.
Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc. Michael Chan, a.k.a. Chan
Kai Kit has the largest block of shares in both business enterprises. The emergence of the former
was cleverly timed with the hasty withdrawal of the latter during the trial to avoid the financial liability
that was eventually suffered by the latter. The two companies have a related business purpose.
Considering these circumstances, the obvious conclusion is that the creation of Kukan International
Corporation served as a device to evade the obligation incurred by Kukan, Inc. and yet profit from the
goodwill attained by the name "Kukan" by continuing to engage in the same line of business with the
same list of clients.42 (Emphasis supplied.)

Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and the similarity of the
business activities in which both corporations are engaged as a jumping board to its conclusion that
the creation of KIC "served as a device to evade the obligation incurred by Kukan, Inc." The appellate
court, however, left a gaping hole by failing to demonstrate that Kukan, Inc. and its stockholders
defrauded Morales. In fine, there is no showing that the incorporation, and the separate and distinct
personality, of KIC was used to defeat Morales’ right to recover from Kukan, Inc. Judging from the
records, no serious attempt was made to levy on the properties of Kukan, Inc. Morales could not,
thus, validly argue that Kukan, Inc. tried to avoid liability or had no property against which to proceed.

Morales further contends that Kukan, Inc.’s closure is evidenced by its failure to file its 2001 General
Information Sheet (GIS) with the Securities and Exchange Commission. However, such fact does not
necessarily mean that Kukan, Inc. had altogether ceased operations, as Morales would have this
Court believe, for it is stated on the face of the GIS that it is only upon a failure to file the corporate
GIS for five (5) consecutive years that non-operation shall be presumed.

The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up capital of
PhP 5,000 is not an indication of the intent on the part of its management to defraud creditors. Paid-
up capital is merely seed money to start a corporation or a business entity. As in this case, it merely
represented the capitalization upon incorporation in 1997 of Kukan, Inc. Paid-up capitalization of PhP
5,000 is not and should not be taken as a reflection of the firm’s capacity to meet its recurrent and
long-term obligations. It must be borne in mind that the equity portion cannot be equated to the
viability of a business concern, for the best test is the working capital which consists of the liquid
assets of a given business relating to the nature of the business concern.lawphil

Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation be viewed as a badge
of fraud, for it is in compliance with Sec. 13 of the Corporation Code,43 which only requires a minimum
paid-up capital of PhP 5,000.1avvphi1

The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as
they are by the same stockholders, stands without factual basis. It is true that Michael Chan, a.k.a.
Chan Kai Kit, owns 40% of the outstanding capital stock of both corporations. But such circumstance,
standing alone, is insufficient to establish identity. There must be at least a substantial identity of
stockholders for both corporations in order to consider this factor to be constitutive of corporate
identity.

It would not avail Morales any to rely44 on General Credit Corporation v. Alsons Development and
Investment Corporation.45 General Credit Corporation is factually not on all fours with the instant
case. There, the common stockholders of the corporations represented 90% of the outstanding
capital stock of the companies, unlike here where Michael Chan merely represents 40% of the
outstanding capital stock of both KIC and Kukan, Inc., not even a majority of it. In that case,
moreover, evidence was adduced to support the finding that the funds of the second corporation
came from the first. Finally, there was proof in General Credit Corporation of complete control, such
that one corporation was a mere dummy or alter ego of the other, which is absent in the instant case.
Evidently, the aforementioned case relied upon by Morales cannot justify the application of the
principle of piercing the veil of corporate fiction to the instant case. As shown by the records, the
name Michael Chan, the similarity of business activities engaged in, and incidentally the word
"Kukan" appearing in the corporate names provide the nexus between Kukan, Inc. and KIC. As
illustrated, these circumstances are insufficient to establish the identity of KIC as the alter ego or
successor of Kukan, Inc.

It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those who
seek to pierce the veil must clearly establish that the separate and distinct personalities of the
corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the concrete
and on the assumption that the RTC has validly acquired jurisdiction over the party concerned,
Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter
KIC purposely formed and operated to defraud him. Morales has not to us discharged his burden.

WHEREFORE, the petition is hereby GRANTED. The CA’s January 23, 2008 Decision and April 16,
2008 Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy
placed upon the personal properties of Kukan International Corporation is hereby ordered lifted and
the personal properties ordered returned to Kukan International Corporation. The RTC of Manila,
Branch 21 is hereby directed to execute the RTC Decision dated November 28, 2002 against Kukan,
Inc. with reasonable dispatch.

No costs.

SO ORDERED.

G.R. No. 167530 March 13, 2013

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.

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

G.R. No. 167561

ASSET PRIVATIZATION TRUST, Petitioner,

vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.

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

G.R. No. 167603

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.
 DECISION

LEONARDO-DE CASTRO, J.:

These petitions for review on certiorari1 assail the Decision 2 dated November 30, 2004 and the
Resolution3 dated March 22, 2005 of the Court of Appeals in CA-G.R. CV No. 57553. The said
Decision affirmed the Decision4 dated November 6, 1995 of the Regional Trial Court (RTC) of Makati
City, Branch 62, granting a judgment award of ₱8,370,934.74, plus legal interest, in favor of
respondent Hydro Resources Contractors Corporation (HRCC) with the modification that the
Privatization and Management Office (PMO), successor of petitioner Asset Privatization Trust
(APT),5 has been held solidarily liable with Nonoc Mining and Industrial Corporation (NMIC)6 and
petitioners Philippine National Bank (PNB) and Development Bank of the Philippines (DBP), while the
Resolution denied reconsideration separately prayed for by PNB, DBP, and APT.

Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the properties
of Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and
PNB acquired substantially all the assets of MMIC and resumed the business operations of the
defunct MMIC by organizing NMIC.7 DBP and PNB owned 57% and 43% of the shares of NMIC,
respectively, except for five qualifying shares.8As of September 1984, the members of the Board of
Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo Agulto, and
Faustino Agbada, were either from DBP or PNB.9

Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road
Construction Program in 1985 for a total contract price of ₱35,770,120. After computing the payments
already made by NMIC under the program and crediting the NMIC’s receivables from

Hercon, Inc., the latter found that NMIC still has an unpaid balance of ₱8,370,934.74.10 Hercon, Inc.
made several demands on NMIC, including a letter of final demand dated August 12, 1986, and when
these were not heeded, a complaint for sum of money was filed in the RTC of Makati, Branch 136
seeking to hold petitioners NMIC, DBP, and PNB solidarily liable for the amount owing Hercon,
Inc.11 The case was docketed as Civil Case No. 15375.

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This
prompted the amendment of the complaint to substitute HRCC for Hercon, Inc. 12

Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50
creating the APT for the expeditious disposition and privatization of certain government corporations
and/or the assets thereof. Pursuant to the said Proclamation, on February 27, 1987, DBP and PNB
executed their respective deeds of transfer in favor of the National Government assigning,
transferring and conveying certain assets and liabilities, including their respective stakes in NMIC.13 In
turn and on even date, the National Government transferred the said assets and liabilities to the APT
as trustee under a Trust Agreement.14 Thus, the complaint was amended for the second time to
implead and include the APT as a defendant.

In its answer,15 NMIC claimed that HRCC had no cause of action. It also asserted that its contract
with HRCC was entered into by its then President without any authority. Moreover, the said contract
allegedly failed to comply with laws, rules and regulations concerning government contracts. NMIC
further claimed that the contract amount was manifestly excessive and grossly disadvantageous to
the government. NMIC made counterclaims for the amounts already paid to Hercon, Inc. and
attorney’s fees, as well as payment for equipment rental for four trucks, replacement of parts and
other services, and damage to some of NMIC’s properties.16
For its part, DBP’s answer17 raised the defense that HRCC had no cause of action against it because
DBP was not privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical personality is separate
from that of DBP. DBP further interposed a counterclaim for attorney’s fees. 18

PNB’s answer19 also invoked lack of cause of action against it. It also raised estoppel on HRCC’s part
and laches as defenses, claiming that the inclusion of PNB in the complaint was the first time a
demand for payment was made on it by HRCC. PNB also invoked the separate juridical personality of
NMIC and made counterclaims for moral damages and attorney’s fees. 20

APT set up the following defenses in its answer21: lack of cause of action against it, lack of privity
between Hercon, Inc. and APT, and the National Government’s preferred lien over the assets of
NMIC.22

After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in favor of HRCC. It
pierced the corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC:

On the issue of whether or not there is sufficient ground to pierce the veil of corporate fiction, this
Court likewise finds for the plaintiff.

From the documentary evidence adduced by the plaintiff, some of which were even adopted by
defendants and DBP and PNB as their own evidence (Exhibits "I", "I-1", "I-2", "I-3", "I-4", "I-5", "I5-A",
"I-5-B", "I-5-C", "I-5-D" and submarkings, inclusive), it had been established that except for five (5)
qualifying shares, NMIC is owned by defendants DBP and PNB, with the former owning 57% thereof,
and the latter 43%. As of September 24, 1984, all the members of NMIC’s Board of Directors,
namely, Messrs. Jose Tengco, Jr., Rolando M. Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino
Agbada are either from DBP or PNB (Exhibits "I-5", "I-5-C", "I-5-D").

The business of NMIC was then also being conducted and controlled by both DBP and PNB. In fact, it
was Rolando M. Zosa, then Governor of DBP, who was signing and entering into contracts with third
persons, on behalf of NMIC.

In this jurisdiction, it is well-settled that "where it appears that the business enterprises are owned,
conducted and controlled by the same parties, both law and equity will, when necessary to protect the
rights of third persons, disregard legal fiction that two (2) corporations are distinct entities, and treat
them as identical." (Phil. Veterans Investment Development Corp. vs. CA, 181 SCRA 669).

From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both
DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s
unpaid obligations to plaintiff.23

Having found DBP and PNB solidarily liable with NMIC, the dispositive portion of the Decision of the
trial court reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff HYDRO
RESOURCES CONTRACTORS CORPORATION and against the defendants NONOC

MINING AND INDUSTRIAL CORPORATION, DEVELOPMENT BANK OF THE PHILIPPINES and

PHILIPPINE NATIONAL BANK, ordering the aforenamed defendants, to pay the plaintiff jointly and
severally, the sum of ₱8,370,934.74 plus legal interest thereon from date of demand, and attorney’s
fees equivalent to 25% of the judgment award.
The complaint against APT is hereby dismissed. However, APT, as trustee of NONOC MINING AND
INDUSTRIAL CORPORATION is directed to ensure compliance with this Decision. 24

DBP and PNB filed their respective appeals in the Court of Appeals. Both insisted that it was wrong
for the RTC to pierce the veil of NMIC’s corporate personality and hold DBP and PNB solidarily liable
with NMIC.25

The Court of Appeals rendered the Decision dated November 30, 2004, affirmed the piercing of the
veil of the corporate personality of NMIC and held DBP, PNB, and APT solidarily liable with NMIC. In
particular, the Court of Appeals made the following findings:

In the case before Us, it is indubitable that [NMIC] was owned by appellants DBP and PNB to the
extent of 57% and 43% respectively; that said two (2) appellants are the only stockholders, with the
qualifying stockholders of five (5) consisting of its own officers and included in its charter merely to
comply with the requirement of the law as to number of incorporators; and that the directorates of
DBP, PNB and [NMIC] are interlocked.

xxxx

We find it therefore correct for the lower court to have ruled that:

"From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both
DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s
unpaid obligation to plaintiff."26(Citation omitted.)

The Court of Appeals then concluded that, "in keeping with the concept of justice and fair play," the
corporate veil of NMIC should be pierced, ratiocinating:

For to treat NMIC as a separate legal entity from DBP and PNB for the purpose of securing beneficial
contracts, and then using such separate entity to evade the payment of a just debt, would be the
height of injustice and iniquity. Surely that could not have been the intendment of the law with respect
to corporations. x x x.27

The dispositive portion of the Decision of the Court of Appeals reads:

WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. The
judgment in favor of appellee Hydro Resources Contractors Corporation in the amount of
₱8,370,934.74 with legal interest from date of demand is hereby AFFIRMED, but the dismissal of the
case as against Assets Privatization Trust is REVERSED, and its successor the Privatization and
Management Office is INCLUDED as one of those jointly and severally liable for such indebtedness.
The award of attorney’s fees is DELETED.

All other claims and counter-claims are hereby DISMISSED.

Costs against appellants.28

The respective motions for reconsideration of DBP, PNB, and APT were denied. 29

Hence, these consolidated petitions.30

All three petitioners assert that NMIC is a corporate entity with a juridical personality separate and
distinct from both PNB and DBP. They insist that the majority ownership by DBP and PNB of NMIC is
not a sufficient ground for disregarding the separate corporate personality of NMIC because NMIC
was not a mere adjunct, business conduit or alter ego of DBP and PNB. According to them, the
application of the doctrine of piercing the corporate veil is unwarranted as nothing in the records
would show that the ownership and control of the shareholdings of NMIC by DBP and PNB were used
to commit fraud, illegality or injustice. In the absence of evidence that the stock control by DBP and
PNB over NMIC was used to commit some fraud or a wrong and that said control was the proximate
cause of the injury sustained by HRCC, resort to the doctrine of "piercing the veil of corporate entity"
is misplaced.31

DBP and PNB further argue that, assuming they may be held solidarily liable with NMIC to pay
NMIC’s exclusive and separate corporate indebtedness to HRCC, such liability of the two banks was
transferred to and assumed by the National Government through the APT, now the PMO, under the
respective deeds of transfer both dated February 27, 1997 executed by DBP and PNB pursuant to
Proclamation No. 50 dated December 8, 1986 and Administrative Order No. 14 dated February 3,
1987.32

For its part, the APT contends that, in the absence of an unqualified assumption by the National
Government of all liabilities incurred by NMIC, the National Government through the APT could not be
held liable for NMIC’s contractual liability. The APT asserts that HRCC had not sufficiently shown that
the APT is the successor-in-interest of all the liabilities of NMIC, or of DBP and PNB as transferors,
and that the adjudged liability is included among the liabilities assigned and transferred by DBP and
PNB in favor of the National Government.33

HRCC counters that both the RTC and the CA correctly applied the doctrine of "piercing the veil of
corporate fiction." It claims that NMIC was the alter ego of DBP and PNB which owned, conducted
and controlled the business of NMIC as shown by the following circumstances: NMIC was owned by
DBP and PNB, the officers of DBP and PNB were also the officers of NMIC, and DBP and PNB
financed the operations of NMIC. HRCC further argues that a parent corporation may be held liable
for the contracts or obligations of its subsidiary corporation where the latter is a mere agency,
instrumentality or adjunct of the parent corporation.34

Moreover, HRCC asserts that the APT was properly held solidarily liable with DBP, PNB, and NMIC
because the APT assumed the obligations of DBP and PNB as the successor-in-interest of the said
banks with respect to the assets and liabilities of NMIC.35 As trustee of the Republic of the
Philippines, the APT also assumed the responsibility of the Republic pursuant to the following
provision of Section 2.02 of the respective deeds of transfer executed by DBP and PNB in favor of the
Republic:

SECTION 2. TRANSFER OF BANK’S LIABILITIES

xxxx

2.02 With respect to the Bank’s liabilities which are contingent and those liabilities where the Bank’s
creditors consent to the transfer thereof is not obtained, said liabilities shall remain in the books of the
BANK with the GOVERNMENT funding the payment thereof.36

After a careful review of the case, this Court finds the petitions impressed with merit.

A corporation is an artificial entity created by operation of law. It possesses the right of succession
and such powers, attributes, and properties expressly authorized by law or incident to its
existence.37 It has a personality separate and distinct from that of its stockholders and from that of
other corporations to which it may be connected.38 As a consequence of its status as a distinct legal
entity and as a result of a conscious policy decision to promote capital formation, 39 a corporation
incurs its own liabilities and is legally responsible for payment of its obligations. 40 In other words, by
virtue of the separate juridical personality of a corporation, the corporate debt or credit is not the debt
or credit of the stockholder.41 This protection from liability for shareholders is the principle of limited
liability.42

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil
pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of
public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against third persons. 43

However, the rule is that a court should be careful in assessing the milieu where the doctrine of the
corporate veil may be applied. Otherwise an injustice, although unintended, may result from its
erroneous application.44 Thus, cutting through the corporate cover requires an approach
characterized by due care and caution:

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A
court should be mindful of the milieu where it is to be applied. It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in
disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. x x x.45 (Emphases supplied; citations omitted.)

Sarona v. National Labor Relations Commission46 has defined the scope of application of the doctrine
of piercing the corporate veil:

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation. (Citation omitted.)

Here, HRCC has alleged from the inception of this case that DBP and PNB (and the APT as assignee
of DBP and PNB) should be held solidarily liable for using NMIC as alter ego. 47 The RTC sustained
the allegation of HRCC and pierced the corporate veil of NMIC pursuant to the alter ego theory when
it concluded that NMIC "is a mere adjunct, business conduit or alter ego of both DBP and
PNB."48 The Court of Appeals upheld such conclusion of the trial court.49 In other words, both the trial
and appellate courts relied on the alter ego theory when they disregarded the separate corporate
personality of NMIC.

In this connection, case law lays down a three-pronged test to determine the application of the alter
ego theory, which is also known as the instrumentality theory, namely:

(1) Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;
 (2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of.50 (Emphases omitted.)

The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be
completely under the control and domination of the parent. 51 It examines the parent corporation’s
relationship with the subsidiary.52 It inquires whether a subsidiary corporation is so organized and
controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity will be ignored. 53 It seeks to
establish whether the subsidiary corporation has no autonomy and the parent corporation, though
acting through the subsidiary in form and appearance, "is operating the business directly for itself." 54

The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful.55 It examines the relationship of the
plaintiff to the corporation.56 It recognizes that piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff creditor.57 As such, it requires a showing of "an
element of injustice or fundamental unfairness."58

The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control,
exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered.59 A
causal connection between the fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the plaintiff should be established. The
plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by the
defendant’s exercise of control and improper use of the corporate form and, thereby, suffer
damages.60

To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of
three elements: control of the corporation by the stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the
fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing
the corporate veil.61

This Court finds that none of the tests has been satisfactorily met in this case.

In applying the alter ego doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant’s relationship to that operation. 62 With respect to
the control element, it refers not to paper or formal control by majority or even complete stock control
but actual control which amounts to "such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal."63 In addition, the control must be shown to have been exercised at the time
the acts complained of took place.64

Both the RTC and the Court of Appeals applied the alter ego theory and penetrated the corporate
cover of NMIC based on two factors: (1) the ownership by DBP and PNB of effectively all the stocks
of NMIC, and (2) the alleged interlocking directorates of DBP, PNB and NMIC. 65 Unfortunately, the
conclusion of the trial and appellate courts that the DBP and PNB fit the alter ego theory with respect
to NMIC’s transaction with HRCC on the premise of complete stock ownership and interlocking
directorates involved a quantum leap in logic and law exposing a gap in reason and fact.
While ownership by one corporation of all or a great majority of stocks of another corporation and
their interlocking directorates may serve as indicia of control, by themselves and without more,
however, these circumstances are insufficient to establish an alter ego relationship or connection
between DBP and PNB on the one hand and NMIC on the other hand, that will justify the puncturing
of the latter’s corporate cover. This Court has declared that "mere ownership by a single stockholder
or by another corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality." 66 This Court has likewise ruled
that the "existence of interlocking directors, corporate officers and shareholders is not enough
justification to pierce the veil of corporate fiction in the absence of fraud or other public policy
considerations."67

True, the findings of fact of the Court of Appeals are conclusive and cannot be reviewed on appeal to
this Court, provided they are borne out of the record or are based on substantial evidence.68 It is
equally true that the question of whether one corporation is merely an alter ego of another is purely
one of fact. So is the question of whether a corporation is a paper company, a sham or subterfuge or
whether the requisite quantum of evidence has been adduced warranting the piercing of the veil of
corporate personality.69 Nevertheless, it has been held in Sarona v. National Labor Relations
Commission70 that this Court has the power to resolve a question of fact, such as whether a
corporation is a mere alter ego of another entity or whether the corporate fiction was invoked for
fraudulent or malevolent ends, if the findings in the assailed decision are either not supported by the
evidence on record or based on a misapprehension of facts.

In this case, nothing in the records shows that the corporate finances, policies and practices of NMIC
were dominated by DBP and PNB in such a way that NMIC could be considered to have no separate
mind, will or existence of its own but a mere conduit for DBP and PNB. On the contrary, the evidence
establishes that HRCC knew and acted on the knowledge that it was dealing with NMIC, not with
NMIC’s stockholders. The letter proposal of Hercon, Inc., HRCC’s predecessor-in-interest, regarding
the contract for NMIC’s mine stripping and road construction program was addressed to and
accepted by NMIC.71 The various billing reports, progress reports, statements of accounts and
communications of Hercon, Inc./HRCC regarding NMIC’s mine stripping and road construction
program in 1985 concerned NMIC and NMIC’s officers, without any indication of or reference to the
control exercised by DBP and/or PNB over NMIC’s affairs, policies and practices. 72

HRCC has presented nothing to show that DBP and PNB had a hand in the act complained of, the
alleged undue disregard by NMIC of the demands of HRCC to satisfy the unpaid claims for services
rendered by HRCC in connection with NMIC’s mine stripping and road construction program in 1985.
On the contrary, the overall picture painted by the evidence offered by HRCC is one where HRCC
was dealing with NMIC as a distinct juridical person acting through its own corporate officers. 73

Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were
interlocking has no basis. HRCC’s Exhibit "I-5,"74 the initial General Information Sheet submitted by
NMIC to the Securities and Exchange Commission, relied upon by the trial court and the Court of
Appeals may have proven that DBP and PNB owned the stocks of NMIC to the extent of 57% and
43%, respectively. However, nothing in it supports a finding that NMIC, DBP, and PNB had
interlocking directors as it only indicates that, of the five members of NMIC’s board of directors, four
were nominees of either DBP or PNB and only one was a nominee of both DBP and PNB.75 Only two
members of the board of directors of NMIC, Jose Tengco, Jr. and Rolando Zosa, were established to
be members of the board of governors of DBP and none was proved to be a member of the board of
directors of PNB.76 No director of NMIC was shown to be also sitting simultaneously in the board of
governors/directors of both DBP and PNB.
In reaching its conclusion of an alter ego relationship between DBP and PNB on the one hand and
NMIC on the other hand, the Court of Appeals invoked Sibagat Timber Corporation v. Garcia, 77 which
it described as "a case under a similar factual milieu."78 However, in Sibagat Timber Corporation, this
Court took care to enumerate the circumstances which led to the piercing of the corporate veil of
Sibagat Timber Corporation for being the alter ego of Del Rosario & Sons Logging Enterprises, Inc.
Those circumstances were as follows: holding office in the same building, practical identity of the
officers and directors of the two corporations and assumption of management and control of Sibagat
Timber Corporation by the directors/officers of Del Rosario & Sons Logging Enterprises, Inc.

Here, DBP and PNB maintain an address different from that of NMIC. 79 As already discussed, there
was insufficient proof of interlocking directorates. There was not even an allegation of similarity of
corporate officers. Instead of evidence that DBP and PNB assumed and controlled the management
of NMIC, HRCC’s evidence shows that NMIC operated as a distinct entity endowed with its own legal
personality. Thus, what obtains in this case is a factual backdrop different from, not similar to, Sibagat
Timber Corporation.

In relation to the second element, to disregard the separate juridical personality of a corporation, the
wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly
established; it cannot be presumed. Without a demonstration that any of the evils sought to be
prevented by the doctrine is present, it does not apply. 80

In this case, the Court of Appeals declared:

We are not saying that PNB and DBP are guilty of fraud in forming NMIC, nor are we implying that
NMIC was used to conceal fraud. x x x.81

Such a declaration clearly negates the possibility that DBP and PNB exercised control over NMIC
which DBP and PNB used "to commit fraud or wrong, to perpetuate the violation of a statutory or
other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal rights." It is a
recognition that, even assuming that DBP and PNB exercised control over NMIC, there is no
evidence that the juridical personality of NMIC was used by DBP and PNB to commit a fraud or to do
a wrong against HRCC.

There being a total absence of evidence pointing to a fraudulent, illegal or unfair act committed
against HRCC by DBP and PNB under the guise of NMIC, there is no basis to hold that NMIC was a
mere alter ego of DBP and PNB. As this Court ruled in Ramoso v. Court of Appeals 82:

As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient
reason to the contrary appears. When the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of
persons. Also, the corporate entity may be disregarded in the interest of justice in such cases as
fraud that may work inequities among members of the corporation internally, involving no rights of the
public or third persons. In both instances, there must have been fraud, and proof of it. For the
separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and
convincingly established. It cannot be presumed.

As regards the third element, in the absence of both control by DBP and PNB of NMIC and fraud or
fundamental unfairness perpetuated by DBP and PNB through the corporate cover of NMIC, no harm
could be said to have been proximately caused by DBP and PNB on HRCC for which HRCC could
hold DBP and PNB solidarily liable with NMIC.1âwphi1
Considering that, under the deeds of transfer executed by DBP and PNB, the liability of the APT as
transferee of the rights, titles and interests of DBP and PNB in NMIC will attach only if DBP and PNB
are held liable, the APT incurs no liability for the judgment indebtedness of NMIC. Even HRCC
recognizes that "as assignee of DBP and PNB 's loan receivables," the APT simply "stepped into the
shoes of DBP and PNB with respect to the latter's rights and obligations" in NMIC. 83 As such
assignee, therefore, the APT incurs no liability with respect to NMIC other than whatever liabilities
may be imputable to its assignors, DBP and PNB.

Even under Section 2.02 of the respective deeds of transfer executed by DBP and PNB which HRCC
invokes, the APT cannot be held liable. The contingent liability for which the National Government,
through the APT, may be held liable under the said provision refers to contingent liabilities of DBP
and PNB. Since DBP and PNB may not be held solidarily liable with NMIC, no contingent liability may
be imputed to the APT as well. Only NMIC as a distinct and separate legal entity is liable to pay its
corporate obligation to HRCC in the amount of ₱8,370,934.74, with legal interest thereon from date of
demand.

As trustee of the. assets of NMIC, however, the APT should ensure compliance by NMIC of the
judgment against it. The APT itself acknowledges this.84

WHEREFORE, the petitions are hereby GRANTED.

The complaint as against Development Bank of the Philippines, the Philippine National Bank, and the
Asset Privatization Trust, now the Privatization and Management Office, is DISMISSED for lack of
merit. The Asset Privatization Trust, now the Privatization and Management Office, as trustee of
Nonoc Mining and Industrial Corporation, now the Philnico Processing Corporation, is DIRECTED to
ensure compliance by the Nonoc Mining and Industrial Corporation, now the Philnico Processing
Corporation, with this Decision.

SO ORDERED.

G.R. No. 156759 June 5, 2013

ALLEN A. MACASAET, NICOLAS V. QUIJANO, JR., ISAIAS ALBANO, LILY REYES, JANET
BAY, JESUS R. GALANG, AND RANDY HAGOS, Petitioners,
vs.
FRANCISCO R. CO, JR., Respondent.

DECISION

BERSAMIN, J.:

To warrant the substituted service of the summons and copy of the complaint, the serving officer must
first attempt to effect the same upon the defendant in person. Only after the attempt at personal
service has become futile or impossible within a reasonable time may the officer resort to substituted
service.

The Case
Petitioners – defendants in a suit for libel brought by respondent – appeal the decision promulgated
on March 8, 20021 and the resolution promulgated on January 13, 2003,2 whereby the Court of
Appeals (CA) respectively dismissed their petition for certiorari, prohibition and mandamus and
denied their motion for reconsideration. Thereby, the CA upheld the order the Regional Trial Court
(RTC), Branch 51, in Manila had issued on March 12, 2001 denying their motion to dismiss because
the substituted service of the summons and copies of the complaint on each of them had been valid
and effective.3

Antecedents

On July 3, 2000, respondent, a retired police officer assigned at the Western Police District in Manila,
sued Abante Tonite, a daily tabloid of general circulation; its Publisher Allen A. Macasaet; its
Managing Director Nicolas V. Quijano; its Circulation Manager Isaias Albano; its Editors Janet Bay,
Jesus R. Galang and Randy Hagos; and its Columnist/Reporter Lily Reyes (petitioners), claiming
damages because of an allegedly libelous article petitioners published in the June 6, 2000 issue of
Abante Tonite. The suit, docketed as Civil Case No. 00-97907, was raffled to Branch 51 of the RTC,
which in due course issued summons to be served on each defendant, including Abante Tonite, at
their business address at Monica Publishing Corporation, 301-305 3rd Floor, BF Condominium
Building, Solana Street corner A. Soriano Street, Intramuros, Manila.4

In the morning of September 18, 2000, RTC Sheriff Raul Medina proceeded to the stated address to
effect the personal service of the summons on the defendants. But his efforts to personally serve
each defendant in the address were futile because the defendants were then out of the office and
unavailable. He returned in the afternoon of that day to make a second attempt at serving the
summons, but he was informed that petitioners were still out of the office. He decided to resort to
substituted service of the summons, and explained why in his sheriff’s return dated September 22,
2005,5 to wit:

SHERIFF’S RETURN

This is to certify that on September 18, 2000, I caused the service of summons together with copies
of complaint and its annexes attached thereto, upon the following:

1. Defendant Allen A. Macasaet, President/Publisher of defendant AbanteTonite, at Monica

Publishing Corporation, Rooms 301-305 3rd Floor, BF Condominium Building, Solana corner
A. Soriano Streets, Intramuros, Manila, thru his secretary Lu-Ann Quijano, a person of
sufficient age and discretion working therein, who signed to acknowledge receipt thereof. That
effort (sic) to serve the said summons personally upon said defendant were made, but the
same were ineffectual and unavailing on the ground that per information of Ms. Quijano said
defendant is always out and not available, thus, substituted service was applied;

2. Defendant Nicolas V. Quijano, at the same address, thru his wife Lu-Ann Quijano, who
signed to acknowledge receipt thereof. That effort (sic) to serve the said summons personally
upon said defendant were made, but the same were ineffectual and unavailing on the ground
that per information of (sic) his wife said defendant is always out and not available, thus,
substituted service was applied;

3. Defendants Isaias Albano, Janet Bay, Jesus R. Galang, Randy Hagos and Lily Reyes, at the
same address, thru Rene Esleta, Editorial Assistant of defendant AbanteTonite, a person of
sufficient age and discretion working therein who signed to acknowledge receipt thereof. That
effort (sic) to serve the said summons personally upon said defendants were made, but the
same were ineffectual and unavailing on the ground that per information of (sic) Mr. Esleta said
 defendants is (sic) always roving outside and gathering news, thus, substituted service was
applied.

Original copy of summons is therefore, respectfully returned duly served.

Manila, September 22, 2000.

On October 3, 2000, petitioners moved for the dismissal of the complaint through counsel’s special
appearance in their behalf, alleging lack of jurisdiction over their persons because of the invalid and
ineffectual substituted service of summons. They contended that the sheriff had made no prior
attempt to serve the summons personally on each of them in accordance with Section 6 and Section
7, Rule 14 of the Rules of Court. They further moved to drop Abante Tonite as a defendant by virtue
of its being neither a natural nor a juridical person that could be impleaded as a party in a civil action.

At the hearing of petitioners’ motion to dismiss, Medina testified that he had gone to the office
address of petitioners in the morning of September 18, 2000 to personally serve the summons on
each defendant; that petitioners were out of the office at the time; that he had returned in the
afternoon of the same day to again attempt to serve on each defendant personally but his attempt
had still proved futile because all of petitioners were still out of the office; that some competent
persons working in petitioners’ office had informed him that Macasaet and Quijano were always out
and unavailable, and that Albano, Bay, Galang, Hagos and Reyes were always out roving to gather
news; and that he had then resorted to substituted service upon realizing the impossibility of his
finding petitioners in person within a reasonable time.

On March 12, 2001, the RTC denied the motion to dismiss, and directed petitioners to file their
answers to the complaint within the remaining period allowed by the Rules of Court, 6 relevantly
stating:

Records show that the summonses were served upon Allen A. Macasaet, President/Publisher of
defendant AbanteTonite, through LuAnn Quijano; upon defendants Isaias Albano, Janet Bay, Jesus
R. Galang, Randy Hagos and Lily Reyes, through Rene Esleta, Editorial Assistant of defendant
Abante Tonite (p. 12, records). It is apparent in the Sheriff’s Return that on several occasions, efforts
to served (sic) the summons personally upon all the defendants were ineffectual as they were always
out and unavailable, so the Sheriff served the summons by substituted service.

Considering that summonses cannot be served within a reasonable time to the persons of all the
defendants, hence substituted service of summonses was validly applied. Secretary of the President
who is duly authorized to receive such document, the wife of the defendant and the Editorial Assistant
of the defendant, were considered competent persons with sufficient discretion to realize the
importance of the legal papers served upon them and to relay the same to the defendants named
therein (Sec. 7, Rule 14, 1997 Rules of Civil Procedure).

WHEREFORE, in view of the foregoing, the Motion to Dismiss is hereby DENIED for lack of merit..

Accordingly, defendants are directed to file their Answers to the complaint within the period still open
to them, pursuant to the rules.

SO ORDERED.

Petitioners filed a motion for reconsideration, asserting that the sheriff had immediately resorted to
substituted service of the summons upon being informed that they were not around to personally
receive the summons, and that Abante Tonite, being neither a natural nor a juridical person, could not
be made a party in the action.

On June 29, 2001, the RTC denied petitioners’ motion for reconsideration. 7 It stated in respect of the
service of summons, as follows:

The allegations of the defendants that the Sheriff immediately resorted to substituted service of
summons upon them when he was informed that they were not around to personally receive the
same is untenable. During the hearing of the herein motion, Sheriff Raul Medina of this Branch of the
Court testified that on September 18, 2000 in the morning, he went to the office address of the
defendants to personally serve summons upon them but they were out. So he went back to serve
said summons upon the defendants in the afternoon of the same day, but then again he was informed
that the defendants were out and unavailable, and that they were always out because they were
roving around to gather news. Because of that information and because of the nature of the work of
the defendants that they are always on field, so the sheriff resorted to substituted service of
summons. There was substantial compliance with the rules, considering the difficulty to serve the
summons personally to them because of the nature of their job which compels them to be always out
and unavailable. Additional matters regarding the service of summons upon defendants were
sufficiently discussed in the Order of this Court dated March 12, 2001.

Regarding the impleading of Abante Tonite as defendant, the RTC held, viz:

"Abante Tonite" is a daily tabloid of general circulation. People all over the country could buy a copy
of "Abante Tonite" and read it, hence, it is for public consumption. The persons who organized said
publication obviously derived profit from it. The information written on the said newspaper will affect
the person, natural as well as juridical, who was stated or implicated in the news. All of these facts
imply that "Abante Tonite" falls within the provision of Art. 44 (2 or 3), New Civil Code. Assuming
arguendo that "Abante Tonite" is not registered with the Securities and Exchange Commission, it is
deemed a corporation by estoppels considering that it possesses attributes of a juridical person,
otherwise it cannot be held liable for damages and injuries it may inflict to other persons.

Undaunted, petitioners brought a petition for certiorari, prohibition, mandamusin the CA to nullify the
orders of the RTC dated March 12, 2001 and June 29, 2001.

Ruling of the CA

On March 8, 2002, the CA promulgated its questioned decision,8 dismissing the petition for certiorari,
prohibition, mandamus, to wit:

We find petitioners’ argument without merit. The rule is that certiorari will prosper only if there is a
showing of grave abuse of discretion or an act without or in excess of jurisdiction committed by the
respondent Judge. A judicious reading of the questioned orders of respondent Judge would show that
the same were not issued in a capricious or whimsical exercise of judgment. There are factual bases
and legal justification for the assailed orders. From the Return, the sheriff certified that "effort to serve
the summons personally xxx were made, but the same were ineffectual and unavailing xxx.

and upholding the trial court’s finding that there was a substantial compliance with the rules that
allowed the substituted service.

Furthermore, the CA ruled:

Anent the issue raised by petitioners that "Abante Tonite is neither a natural or juridical person who
may be a party in a civil case," and therefore the case against it must be dismissed and/or dropped, is
untenable.

The respondent Judge, in denying petitioners’ motion for reconsideration, held that:

xxxx

Abante Tonite’s newspapers are circulated nationwide, showing ostensibly its being a corporate
entity, thus the doctrine of corporation by estoppel may appropriately apply.

An unincorporated association, which represents itself to be a corporation, will be estopped from

denying its corporate capacity in a suit against it by a third person who relies in good faith on such
representation.

There being no grave abuse of discretion committed by the respondent Judge in the exercise of his
jurisdiction, the relief of prohibition is also unavailable.

WHEREFORE, the instant petition is DENIED. The assailed Orders of respondent Judge are
AFFIRMED.

SO ORDERED.9

On January 13, 2003, the CA denied petitioners’ motion for reconsideration. 10

Issues

Petitioners hereby submit that:

1. THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN HOLDING THAT THE

TRIAL COURT ACQUIRED JURISDICTION OVER HEREIN PETITIONERS.

2. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR BY SUSTAINING THE

INCLUSION OF ABANTE TONITE AS PARTY IN THE INSTANT CASE.11

Ruling

The petition for review lacks merit.

Jurisdiction over the person, or jurisdiction in personam –the power of the court to render a personal
judgment or to subject the parties in a particular action to the judgment and other rulings rendered in
the action – is an element of due process that is essential in all actions, civil as well as criminal,
except in actions in rem or quasi in rem. Jurisdiction over the defendantin an action in rem or quasi in
rem is not required, and the court acquires jurisdiction over an actionas long as it acquires jurisdiction
over the resthat is thesubject matter of the action. The purpose of summons in such action is not the
acquisition of jurisdiction over the defendant but mainly to satisfy the constitutional requirement of due
process.12

The distinctions that need to be perceived between an action in personam, on the one hand, and an
action inrem or quasi in rem, on the other hand, are aptly delineated in Domagas v. Jensen, 13 thusly:
The settled rule is that the aim and object of an action determine its character. Whether a proceeding
is in rem, or in personam, or quasi in rem for that matter, is determined by its nature and purpose,
and by these only. A proceeding in personam is a proceeding to enforce personal rights and
obligations brought against the person and is based on the jurisdiction of the person, although it may
involve his right to, or the exercise of ownership of, specific property, or seek to compel him to control
or dispose of it in accordance with the mandate of the court. The purpose of a proceeding in
personam is to impose, through the judgment of a court, some responsibility or liability directly upon
the person of the defendant. Of this character are suits to compel a defendant to specifically perform
some act or actions to fasten a pecuniary liability on him. An action in personam is said to be one
which has for its object a judgment against the person, as distinguished from a judgment against the
property to determine its state. It has been held that an action in personam is a proceeding to enforce
personal rights or obligations; such action is brought against the person. As far as suits for injunctive
relief are concerned, it is well-settled that it is an injunctive act in personam. In Combs v. Combs, the
appellate court held that proceedings to enforce personal rights and obligations and in which personal
judgments are rendered adjusting the rights and obligations between the affected parties is in
personam. Actions for recovery of real property are in personam.

On the other hand, a proceeding quasi in rem is one brought against persons seeking to subject the
property of such persons to the discharge of the claims assailed. In an action quasi in rem, an
individual is named as defendant and the purpose of the proceeding is to subject his interests therein
to the obligation or loan burdening the property. Actions quasi in rem deal with the status, ownership
or liability of a particular property but which are intended to operate on these questions only as
between the particular parties to the proceedings and not to ascertain or cut off the rights or interests
of all possible claimants. The judgments therein are binding only upon the parties who joined in the
action.

As a rule, Philippine courts cannot try any case against a defendant who does not reside and is not
found in the Philippines because of the impossibility of acquiring jurisdiction over his person unless he
voluntarily appears in court; but when the case is an action in rem or quasi in rem enumerated in
Section 15, Rule 14 of the Rules of Court, Philippine courts have jurisdiction to hear and decide the
case because they have jurisdiction over the res, and jurisdiction over the person of the non-resident
defendant is not essential. In the latter instance, extraterritorial service of summons can be made
upon the defendant, and such extraterritorial service of summons is not for the purpose of vesting the
court with jurisdiction, but for the purpose of complying with the requirements of fair play or due
process, so that the defendant will be informed of the pendency of the action against him and the
possibility that property in the Philippines belonging to him or in which he has an interest may be
subjected to a judgment in favor of the plaintiff, and he can thereby take steps to protect his interest if
he is so minded. On the other hand, when the defendant in an action in personam does not reside
and is not found in the Philippines, our courts cannot try the case against him because of the
impossibility of acquiring jurisdiction over his person unless he voluntarily appears in court. 14

As the initiating party, the plaintiff in a civil action voluntarily submits himself to the jurisdiction of the
court by the act of filing the initiatory pleading. As to the defendant, the court acquires jurisdiction over
his person either by the proper service of the summons, or by a voluntary appearance in the action.15

Upon the filing of the complaint and the payment of the requisite legal fees, the clerk of court forthwith
issues the corresponding summons to the defendant.16 The summons is directed to the defendant
and signed by the clerk of court under seal. It contains the name of the court and the names of the
parties to the action; a direction that the defendant answers within the time fixed by the Rules of
Court; and a notice that unless the defendant so answers, the plaintiff will take judgment by default
and may be granted the relief applied for.17 To be attached to the original copy of the summons and
all copies thereof is a copy of the complaint (and its attachments, if any) and the order, if any, for the
appointment of a guardian ad litem.18

The significance of the proper service of the summons on the defendant in an action in personam
cannot be overemphasized. The service of the summons fulfills two fundamental objectives, namely:
(a) to vest in the court jurisdiction over the person of the defendant; and (b) to afford to the defendant
the opportunity to be heard on the claim brought against him.19 As to the former, when jurisdiction in
personam is not acquired in a civil action through the proper service of the summons or upon a valid
waiver of such proper service, the ensuing trial and judgment are void. 20 If the defendant knowingly
does an act inconsistent with the right to object to the lack of personal jurisdiction as to him, like
voluntarily appearing in the action, he is deemed to have submitted himself to the jurisdiction of the
court.21 As to the latter, the essence of due process lies in the reasonable opportunity to be heard and
to submit any evidence the defendant may have in support of his defense. With the proper service of
the summons being intended to afford to him the opportunity to be heard on the claim against him, he
may also waive the process.21 In other words, compliance with the rules regarding the service of the
summons is as much an issue of due process as it is of jurisdiction.23

Under the Rules of Court, the service of the summons should firstly be effected on the defendant
himself whenever practicable. Such personal service consists either in handing a copy of the
summons to the defendant in person, or, if the defendant refuses to receive and sign for it, in
tendering it to him.24 The rule on personal service is to be rigidly enforced in order to ensure the
realization of the two fundamental objectives earlier mentioned. If, for justifiable reasons, the
defendant cannot be served in person within a reasonable time, the service of the summons may
then be effected either (a) by leaving a copy of the summons at his residence with some person of
suitable age and discretion then residing therein, or (b) by leaving the copy at his office or regular
place of business with some competent person in charge thereof.25 The latter mode of service is
known as substituted service because the service of the summons on the defendant is made through
his substitute.

It is no longer debatable that the statutory requirements of substituted service must be followed
strictly, faithfully and fully, and any substituted service other than that authorized by statute is
considered ineffective.26 This is because substituted service, being in derogation of the usual method
of service, is extraordinary in character and may be used only as prescribed and in the circumstances
authorized by statute.27 Only when the defendant cannot be served personally within a reasonable
time may substituted service be resorted to. Hence, the impossibility of prompt personal service
should be shown by stating the efforts made to find the defendant himself and the fact that such
efforts failed, which statement should be found in the proof of service or sheriff’s
return.28 Nonetheless, the requisite showing of the impossibility of prompt personal service as basis
for resorting to substituted service may be waived by the defendant either expressly or impliedly.29

There is no question that Sheriff Medina twice attempted to serve the summons upon each of
petitioners in person at their office address, the first in the morning of September 18, 2000 and the
second in the afternoon of the same date. Each attempt failed because Macasaet and Quijano were
"always out and not available" and the other petitioners were "always roving outside and gathering
news." After Medina learned from those present in the office address on his second attempt that there
was no likelihood of any of petitioners going to the office during the business hours of that or any
other day, he concluded that further attempts to serve them in person within a reasonable time would
be futile. The circumstances fully warranted his conclusion. He was not expected or required as the
serving officer to effect personal service by all means and at all times, considering that he was
expressly authorized to resort to substituted service should he be unable to effect the personal
service within a reasonable time. In that regard, what was a reasonable time was dependent on the
circumstances obtaining. While we are strict in insisting on personal service on the defendant, we do
not cling to such strictness should the circumstances already justify substituted service instead. It is
the spirit of the procedural rules, not their letter, that governs.30

In reality, petitioners’ insistence on personal service by the serving officer was demonstrably
superfluous. They had actually received the summonses served through their substitutes, as borne
out by their filing of several pleadings in the RTC, including an answer with compulsory counterclaim
ad cautelam and a pre-trial brief ad cautelam. They had also availed themselves of the modes of
discovery available under the Rules of Court. Such acts evinced their voluntary appearance in the
action.

Nor can we sustain petitioners’ contention that Abante Tonite could not be sued as a defendant due
to its not being either a natural or a juridical person. In rejecting their contention, the CA categorized
Abante Tonite as a corporation by estoppel as the result of its having represented itself to the reading
public as a corporation despite its not being incorporated. Thereby, the CA concluded that the RTC
did not gravely abuse its discretion in holding that the non-incorporation of Abante Tonite with the
Securities and Exchange Commission was of no consequence, for, otherwise, whoever of the public
who would suffer any damage from the publication of articles in the pages of its tabloids would be left
without recourse. We cannot disagree with the CA, considering that the editorial box of the daily
tabloid disclosed that basis, nothing in the box indicated that Monica Publishing Corporation had
owned Abante Tonite.

WHEREFORE, the Court AFFIRMS the decision promulgated on March 8, 2002; and ORDERS
petitioners to pay the costs of suit.

SO ORDERED.

G.R. No.197530 July 9, 2014

ABOITIZ EQUITY VENTURES, INC., Petitioner,

vs.
VICTOR S. CHIONGBIAN, BENJAMIN D. GOTHONG, and CARLOS A. GOTHONG LINES, INC.
(CAGLI),Respondents.

DECISION

LEONEN, J.:

This is a petition for review on certiorari with an application for the issuance of a temporary restraining
order and/or writ of preliminary injunction under Rule 45 of the Rules of Court. This petition prays that
the assailed orders dated May 5, 20111 and June 24, 20112 of the Regional Trial Court, Cebu City,
Branch 10 in Civil Case No. CEB-37004 be nullified and set aside and that judgment be rendered
dismissing with prejudice the complaint3 dated July 20, 2010 filed by respondents Carlos A. Gothong
Lines, Inc. ("CAGLI") and Benjamin D. Gothong. On January 8, 1996, Aboitiz Shipping Corporation
("ASC"), principally owned by the Aboitiz family, CAGLI, principally owned by the Gothong family, and
William Lines, Inc.("WLI"), principally owned by the Chiongbian family, entered into anagreement (the
"Agreement"),4 whereby ASC and CAGLI would transfer their shipping assets to WLI in exchange for
WLI’s shares of stock.5 WLI, in turn, would run their merged shipping businesses and, henceforth, be
known as WG&A, Inc. ("WG&A").6
Sec. 11.06 of the Agreement required all disputes arising out of or in connection with the Agreement
tobe settled by arbitration:

11.06 Arbitration

All disputes arising out of or in connection with this Agreement including any issue as to this
Agreement’s validity or enforceability, which cannot be settled amicably among the parties, shall be
finally settled by arbitration in accordance with the Arbitration Law (Republic Act No. 876) by an
arbitration tribunal composed of four (4) arbitrators. Each of the parties shall appoint one (1)
arbitrator, the three (3) to appoint the fourth arbitrator who shall act as Chairman. Any award by the
arbitration tribunal shall be final and binding upon the parties and shall be enforced by judgment of
the Courts of Cebu or Metro Manila.7

Among the attachments to the Agreement was Annex SL-V.8 This was a letter dated January 8,1996,
from WLI, through its President (herein respondent) Victor S. Chiongbian addressed to CAGLI,
through its Chief Executive Officer Bob D. Gothong and Executive Vice President for Engineering
(herein respondent) Benjamin D. Gothong. On its second page, Annex SL-V bore the signatures
ofBob D. Gothong and respondent Benjamin D. Gothong by way of a conforme on behalf of CAGLI.

Annex SL-V confirmed WLI’s commitment to acquire certain inventories of CAGLI. These inventories
would havea total aggregate value of, at most, ₱400 million, "as determinedafter a special
examination of the [i]nventories."9Annex SL-V also specificallystated that such acquisition was
"pursuant to the Agreement."10

The entirety of Annex SL-V’s substantive portion reads:

We refer to the Agreement dated January 8, 1996 (the "Agreement") among William Lines, Inc.
("Company C"), Aboitiz Shipping Corporation ("Company A") and Carlos A. Gothong Lines, Inc.
("Company B") regarding the transfer of various assets of Company A and Company B to Company C
in exchangefor shares of capital stock of Company C. Terms defined in the Agreement are used
herein as therein defined.

This will confirm our commitment to acquire certain spare parts and materials inventory (the
"Inventories") of Company B pursuant to the Agreement.

The total aggregate value of the Inventories to be acquired shall not exceed ₱400 Million as
determined after a special examination of the Inventories as performed by SGV & Co. to be
completed on or before the Closing Date under the agreed procedures determined by the parties.

Subject to documentation acceptable to both parties, the Inventories to be acquired shall be

determined not later than thirty (30) days after the Closing Date and the payments shall be made in
equal quarterly instalments over a period of two years with the first payment due on March 31,
1996.11

Pursuant to Annex SL-V, inventories were transferred from CAGLI to WLI. These inventories were
assessed to have a value of 514 million, which was later adjusted to 558.89 million.12 Of the total
amount of 558.89 million, "CAGLIwas paid the amount of 400 Million." 13 In addition to the payment of
400 million,petitioner Aboitiz Equity Ventures ("AEV") noted that WG&A shares with a book value of
38.5 million were transferred to CAGLI.14

As there was still a balance, in2001, CAGLI sent WG&A (the renamed WLI) demand letters "for the
return of or the payment for the excess [i]nventories."15 AEV alleged that to satisfy CAGLI’s demand,
WLI/WG&A returned inventories amounting to 120.04 million. 16 As proof of this, AEV attached copies
of delivery receipts signed by CAGLI’s representatives as Annex "K" of the present petition. 17

Sometime in 2002, the Chiongbian and Gothong families decided to leave the WG&A enterprise and
sell their interest in WG&A to the Aboitiz family. As such, a share purchase agreement 18 ("SPA") was
entered into by petitioner AEV and the respective shareholders groups of the Chiongbians and
Gothongs. In the SPA, AEV agreedto purchase the Chiongbian group's 40.61% share and the
Gothong group's 20.66% share in WG&A’s issued and outstanding stock.19

Section 6.5 of the SPA provided for arbitration as the mode of settling any dispute arising from the
SPA. It reads:

6.5 Arbitration. Should there be any dispute arising between the parties relating to this Agreement
including the interpretation or performance hereof which cannot beresolved by agreement of the
parties within fifteen (15) days after written notice by a party to another, such matter shall then be
finally settled by arbitration in Cebu City in accordance with the Philippine Arbitration Law.
Substantive aspects of the dispute shall be settled by applying the laws of the Philippines. The
decision of the arbitrators shall be final and binding upon the parties hereto and the expense of
arbitration (including without limitation the award of attorney’s fees to the prevailing party) shall be
paid as the arbitrators shall determine.20

Section 6.8 of the SPA further provided that the Agreement (of January 8, 1996) shall be deemed
terminated except its Annex SL-V. It reads:

6.8 Termination of Shareholders Agreement. The Buyer and the Sellers hereby agree that on Closing,
the Agreement among Aboitiz Shipping Corporation, Carlos A. Gothong Lines, Inc. and William Lines,
Inc. dated January 8, 1996, as the same has been amended from time to time (the "Shareholders’
Agreement") shall all be considered terminated, except with respect to such rights and obligations
that the parties to the Shareholders’ Agreement have under a letter dated January 8, 1996 (otherwise
known as "SL-V") from William Lines, Inc. to Carlos A. Gothong Lines, Inc. regarding certain spare
parts and materials inventory, which rights and obligations shall survive through the date prescribed
by the applicable statute of limitations.21

As part of the SPA, the parties entered into an Escrow Agreement22 whereby ING Bank N.V.-Manila
Branch was to take custody of the shares subject of the SPA.23 Section 14.7 of the Escrow
Agreement provided that all disputes arising from it shall be settled through arbitration:

14.7 All disputes, controversies or differences which may arise by and among the parties hereto out
of, or in relation to, or in connection with this Agreement, orfor the breach thereof shall be finally
settled by arbitration in Cebu City in accordance with the Philippine Arbitration Law. The award
rendered by the arbitrator(s) shall be final and binding upon the parties concerned. However,
notwithstanding the foregoing provision, the parties reserve the right to seek redress before the
regular court and avail of any provisional remedies in the event of any misconduct, negligence, fraud
or tortuous acts which arise from any extra-contractual conduct that affects the ability ofa party to
comply with his obligations and responsibilities under this Agreement. 24

As a result of the SPA, AEV became a stockholder of WG&A. Subsequently, WG&A was renamed
Aboitiz Transport Shipping Corporation ("ATSC").25

Petitioner AEV alleged that in2008, CAGLI resumed making demands despite having already
received 120.04 million worth of excess inventories.26 CAGLI initially made its demand to ATSC (the
renamed WLI/WG&A) through a letter27 dated February 14, 2008. As alleged by AEV, however,
CAGLI subsequently resorted to a "shotgun approach"28 and directed its subsequent demand letters
to AEV29 as well as to FCLC30 (a company related to respondent Chiongbian).

AEV responded to CAGLI’s demands through several letters.31 In these letters, AEV rebuffed
CAGLI's demands noting that: (1) CAGLI already received the excess inventories;(2) it was not a
party to CAGLI's claim as it had a personality distinct from WLI/WG&A/ATSC; and (3) CAGLI's claim
was already barred by prescription.

In a reply-letter32 dated May 5, 2008, CAGLI claimed that it was unaware of the delivery to it of the
excess inventories and asked for copies of the corresponding delivery receipts. 33 CAGLI threatened
that unless it received proof of payment or return ofexcess inventories having been made on or
before March 31, 1996, it would pursue arbitration.34

In letters written for AEV (the first dated October 16, 2008 by Aboitiz and Company, Inc.’s Associate
General Counsel Maria Cristina G. Gabutina35 and the second dated October 27, 2008 by SyCip
Salazar Hernandez and Gatmaitan36), it was noted that the excess inventories were delivered to GT
Ferry Warehouse.37 Attached to these letters were a listing and/or samples38 of the corresponding
delivery receipts. In these letters it was also noted that the amount of excess inventories delivered
(120.04 million) was actually in excess of the value of the supposedly unreturned inventories (119.89
million).39 Thus, it was pointed out that it was CAGLI which was liable to return the difference between
120.04 million and 119.89 million.40 Its claims not having been satisfied, CAGLI filed on November 6,
2008 the first of two applications for arbitration ("first complaint")41 against respondent Chiongbian,
ATSC, ASC, and petitioner AEV, before the Cebu City Regional Trial Court, Branch 20. The first
complaint was docketed as Civil Case No. CEB-34951.

In response, AEV filed a motion to dismiss42 dated February 5, 2009. AEV argued that CAGLI failed
to state a cause of action as there was no agreement to arbitrate between CAGLI and
AEV.43 Specifically, AEV pointed out that: (1) AEV was never a party to the January 8, 1996
Agreement or to its Annex SL-V;44 (2) while AEV is a party to the SPA and Escrow Agreement,
CAGLI's claim had no connection to either agreement; (3) the unsigned and unexecuted SPA
attached to the complaint cannot be a source of any right to arbitrate; 45 and (4) CAGLI did not say
how WLI/WG&A/ATSC's obligation to return the excess inventories can be charged to AEV.

On December 4, 2009, the Cebu City Regional Trial Court, Branch 20 issued an order 46 dismissing
the first complaint with respect to AEV. It sustained AEV’s assertion that there was no agreement
binding AEV and CAGLI to arbitrate CAGLI’s claim.47 Whether by motion for reconsideration, appeal
or other means, CAGLI did not contest this dismissal.

On February 26, 2010, the Cebu CityRegional Trial Court, Branch 20 issued an order48 directing the
parties remaining in the first complaint (after the discharge of AEV) to proceed with arbitration.

The February 26, 2010 order notwithstanding, CAGLI filed a notice of dismissal49 dated July 8, 2010,
withdrawing the first complaint. In an order50 dated August 13, 2010, the Cebu City Regional Trial
Court, Branch 20 allowed this withdrawal.

ATSC (the renamed WLI/WG&A) filed a motion for reconsideration 51 dated September 20, 2010 to
the allowance of CAGLI's notice of dismissal. This motion was denied in an order 52 dated April 15,
2011.

On September 1, 2010, while the first complaint was still pending (n.b., it was only on April 15, 2011
that the Cebu City Regional Trial Court, Branch 20 denied ATSC’s motion for reconsideration
assailing the allowance of CAGLI’s notice of disallowance), CAGLI, now joined by respondent
Benjamin D. Gothong, filed a second application for arbitration ("second complaint") 53 before the
Cebu City Regional Trial Court, Branch 10. The second complaint was docketed as Civil Case No.
CEB-37004 and was also in view of the return of the same excess inventories subject of the first
complaint.

On October 28, 2010, AEV filed a motion to dismiss54 the second complaint on the following
grounds:55 (1) forum shopping; (2) failure to state a cause of action; (3) res judicata; and (4) litis
pendentia.

In the first of the two (2) assailed orders dated May 5, 2011, 56 the Cebu City Regional Trial Court,
Branch 10 denied AEV's motion to dismiss.

On the matter of litis pendentia, the Regional Trial Court, Branch 10 noted that the first complaint was
dismissed with respect to AEV on December 4, 2009, while the second complaint was filed on
September 1, 2010. As such, the first complaint was no longer pending at the time of the filing of the
second complaint.57 On the matter of res judicata, the trial court noted that the dismissal without
prejudice of the first complaint "[left] the parties free to litigate the matter in a subsequent action, as
though the dismiss[ed] action had not been commenced." 58 It added that since litis pendentia and res
judicata did not exist, CAGLI could not be charged with forum shopping.59 On the matter of an
agreement to arbitrate, the Regional Trial Court, Branch 10 pointed to the SPA as "clearly
express[ing] the intention of the parties to bring to arbitration process all disputes, if amicable
settlement fails."60 It further dismissed AEV’s claim that it was not a party to the SPA, as "already
touching on the merits of the case"61 and therefore beyond its duty "to determine if they should
proceed to arbitration or not."62

In the second assailed order63 dated June 24, 2011, the Cebu City Regional Trial Court, Branch 10
deniedAEV's motion for reconsideration.

Aggrieved, AEV filed the present petition.64 AEV asserts that the second complaint is barred by res
judicata and litis pendentia and that CAGLI engaged in blatant forum shopping. 65 It insists that it is not
bound by an agreement to arbitrate with CAGLI and that, even assuming that it may be required to
arbitrate, it is being ordered to do so under terms that are "manifestly contrary to the . . . agreements
on which CAGLI based its demand for arbitration." 66

For resolution are the following issues:

I. Whether the complaint in Civil Case No. CEB-37004 constitutes forum shopping and/or is barred by
res judicata and/or litis pendentia

II. Whether petitioner, Aboitiz Equity Ventures, Inc., is bound by an agreement to arbitrate with Carlos
A. Gothong Lines, Inc., with respect to the latter’s claims for unreturned inventories delivered to
William Lines, Inc./WG&A, Inc./Aboitiz Transport System Corporation

AEV availed of the wrong

remedy in seeking relief from
this court

Before addressing the specific mattersraised by the present petition, we emphasize that AEV is in
error inseeking relief from this court via a petition for review on certiorari under Rule45 of the Rules of
Court. As such, we are well in a position to dismiss the present petition outright. Nevertheless, as the
actions of the Cebu City Regional Trial Court, Branch 10 are tainted with grave abuse of discretion
amounting to lack or excess of jurisdiction, this court treats the present Rule 45 petition as a Rule 65
petition and gives it due course.

A petition for review on certiorari under Rule 45 is a mode of appeal. This is eminently clear from the
very title and from the first section of Rule 45 (as amended by A.M. No. 07-7-12-SC):

Rule 45
APPEAL BY CERTIORARITO THE SUPREME COURT

SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorarifrom a
judgment, final order or resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax
Appeals, the Regional Trial Court or other courts, whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The petition may include an application for a
writ of preliminary injunction or other provisional remedies and shall raise only questions of law, which
must be distinctly set forth. The petitioner may seek the same provisional remedies by verified motion
filed inthe same action or proceeding at any time during its pendency. (Emphasis supplied)

Further, it is elementary that anappeal may only be taken from a judgment or final order that
completely disposes of the case.67 As such, no appeal may be taken from an interlocutory
order68 (i.e., "one which refers to something between the commencement and end of the suit which
decides some point or matter but it is not the final decision of the whole controversy"69). As explained
in Sime Darby Employees Association v. NLRC,70 "[a]n interlocutory order is not appealable until after
the rendition of the judgment on the merits for a contrary rule would delay the administration of justice
and unduly burden the courts."71

An order denying a motion to dismiss is interlocutory in character. Hence, it may not be the subject of
an appeal. The interlocutory nature of an order denying a motion to dismiss and the remedies for
assailing such an order were discussed in Douglas Lu Ym v. Nabua:72

An order denying a motion to dismiss is an interlocutory order which neither terminates nor finally
disposes of a case, as it leaves something to be done by the court before the case is finally decided
on the merits. As such, the general rule is that the denial of a motion to dismiss cannot be questioned
in a special civil action for certiorariwhich is a remedy designed to correct errors ofjurisdiction and not
errors of judgment. Neither can a denial of a motion todismiss be the subject of an appeal unless and
until a final judgment or order is rendered.In order to justify the grant of the extraordinary remedy of
certiorari, the denial of the motion to dismiss must have been tainted with grave abuse of discretion
amounting to lack or excess of jurisdiction.73 (Emphasis supplied)

Thus, where a motion to dismiss is denied, the proper recourse is for the movant to file an
answer.74 Nevertheless, where the order denying the motion to dismiss is tainted with grave abuse of
discretion amounting to lack or excess of jurisdiction, the movant may assail such order via a Rule 65
(i.e., certiorari, prohibition, and/or mandamus) petition. This is expressly recognized in the third
paragraph of Rule 41, Section 1 of the Rules of Court.75 Following the enumeration in the second
paragraph of Rule 41, Section 1 of the instances when an appeal may not be taken, the third
paragraph specifies that "[in] any of the foregoing circumstances, the aggrieved party may file an
appropriate special civil action as provided in Rule 65."76

Per these rules, AEV is in error for having filed what it itself calls a "Petition for Review on Certiorari
[Appeal by Certiorari under Rule 45 of the Rules of Court]."77 Since AEV availed of the improper
remedy, this court is well in a position to dismiss the present petition.
Nevertheless, there have been instances when a petition for review on certiorari under Rule 45 was
treated by this court as a petition for certiorari under Rule 65. As explained in China Banking
Corporation v. Asian Construction and Development Corporation:78

[I]n many instances, the Court has treated a petition for review on certiorariunder Rule 45 as a
petition for certiorari under Rule 65 of the Rules of Court, such as in cases where the subject of the
recourse was one of jurisdiction, or the act complained of was perpetrated by a court with grave
abuse of discretion amounting to lack or excess of jurisdiction.79

In this case, the May 5, 2011 and June 24, 2011 orders of the Cebu City Regional Trial Court, Branch
10 in Civil Case No. CEB-37004 are assailed for having denied AEV’s motion todismiss despite: first,
the second complaint having been filed in a manner constituting forum shopping; second, the prior
judgment on the merits made in Civil Case No. CEB-34951, thereby violating the principle ofres
judicata; and third, the (then) pendency of Civil Case No. CEB-34951 with respect to the parties that,
unlike AEV, were not discharged from the case, thereby violating the principle of litis pendentia. The
same orders are assailed for having allowed CAGLI’s application for arbitration to continue despite
supposedly clear and unmistakable evidence that AEV is not bound by an agreement to arbitrate with
CAGLI.

As such, the Cebu City, Regional Trial Court, Branch 10’s orders are assailed for having been made
with grave abuse of discretion amounting to lack or excess of jurisdiction in that the Cebu City
Regional Trial Court, Branch 10 chose to continue taking cognizance of the second complaint,
despite there being compelling reasons for its dismissal and the Cebu City, Regional Trial Court
Branch 20’s desistance. Conformably, we treat the present petition as a petition for certiorari under
Rule 65 of the Rules of Court and give it due course.

The complaint in Civil Case

No. CEB-37004 constitutes
forum shopping and is barred
by res judicata

The concept of and rationale against forum shopping were explained by this court in Top Rate
Construction & General Services, Inc. v. Paxton Development Corporation:80

FORUM SHOPPING is committed by a party who institutes two or more suits in different courts,
either simultaneously or successively, in order to ask the courts to rule on the same or related causes
or to grant the same or substantially the same reliefs, on the supposition that one or the other court
would make a favorabledisposition or increase a party's chances of obtaining a favorable decision or
action. It is an act of malpractice for it trifles with the courts, abuses their processes, degrades the
administration of justice and adds to the already congested court dockets. What is critical is the
vexation brought upon the courts and the litigants by a party who asks different courts to rule on the
same or related causes and grant the same or substantially the same reliefs and in the process
creates the possibility of conflicting decisions being rendered by the different fora upon the same
issues, regardless of whether the court in which one of the suits was brought has no jurisdiction over
the action.81

Equally settled is the test for determining forum shopping. As this court explained in Yap v. Chua: 82

To determine whether a party violated the rule against forum shopping, the most important factor
toask is whether the elements of litis pendentiaare present, or whether a final judgment in one case
will amount to res judicatain another; otherwise stated, the test for determining forum shopping is
whether in the two (or more) cases pending, there is identity of parties, rights or causes of action, and
reliefs sought.83

Litis pendentia "refers to that situation wherein another action is pending between the same parties
for the same cause ofaction, such that the second action becomes unnecessary and vexatious." 84 It
requires the concurrence of three (3) requisites: "(1)the identity of parties, or at least such as
representing the same interests in both actions; (2) the identity of rights asserted and relief prayed
for,the relief being founded on the same facts; and (3) the identity of the two cases such that
judgment in one, regardless of which party issuccessful, would amount tores judicatain the other." 85

In turn, prior judgment or res judicata bars a subsequent case when the following requisites concur:
"(1) the former judgment is final; (2) it is rendered by a court having jurisdiction over the subject
matter and the parties; (3) it is a judgment or an order on the merits; (4) there is — between the first
and the second actions — identityof parties, of subject matter, and of causes of action." 86

Applying the cited concepts and requisites, we find that the complaint in Civil Case No. CEB-37004 is
barred byres judicata and constitutes forum shopping.

First, between the first and second complaints, there is identity of parties. The first complaint was
brought by CAGLI as the sole plaintiff against Victor S. Chiongbian, ATSC, and AEV as defendants.
In the second complaint, CAGLI was joined by Benjamin D. Gothong as (co-)plaintiff. As to the
defendants, ATSC was deleted while Chiongbian and AEV were retained.

While it is true that the parties to the first and second complaints are not absolutely identical, this
court has clarified that, for purposes of forum shopping, "[a]bsolute identity of parties is not required
[and that it] is enough that there is substantial identity of parties." 87

Even as the second complaint alleges that Benjamin D. Gothong "is . . . suing in his personal
capacity,"88 Gothong failed to show any personal interest in the reliefs sought by the second
complaint. Ultimately, what is at stake in the second complaint is the extent to which CAGLI may
compel AEV and Chiongbian to arbitrate in order that CAGLI may then recover the value of its alleged
unreturned inventories. This claim for recovery is pursuant to the agreement evinced in Annex SL-V.
Annex SL-V was entered into by CAGLI and not by Benjamin D. Gothong. While it is true that
Benjamin D. Gothong, along with Bob D. Gothong, signed Annex SL-V, he did so only in a
representative, and not in a personal, capacity. As such, Benjamin D. Gothong cannot claim any right
that personally accrues to him on account of Annex SL-V. From this, it follows that Benjamin D.
Gothong is not a real party in interest — "one who stands to be benefitted or injured by the judgment
in the suit or the party entitled to the avails of the suit"89 — and that his inclusion in the second
complaint is an unnecessary superfluity.

Second, there is identity in subject matter and cause of action. There is identity in subject matter as
both complaints are applications for the same relief. There is identity in cause ofaction as both
complaints are grounded on the right to be paid for or to receive the value of excess inventories (and
the supposed corresponding breach thereof) as spelled out in Annex SL-V.

The first and second complaints are both applications for arbitration and are founded on the same
instrument — Annex SL-V. Moreover, the intended arbitrations in both complaintscater to the
sameultimate purpose, i.e., that CAGLI may recover the value of its supposedly unreturned
inventories earlier delivered to WLI/WG&A/ATSC.

In both complaints, the supposedpropriety of compelling the defendants to submit themselves to

arbitration are anchored on the same bases: (1) Section 6.8 of the SPA, which provides that the
January 8, 1996 Agreement shall be deemed terminatedbut that the rights and obligations arising
from Annex SL-V shall continue to subsist;90 (2) Section 6.5 of the SPA, which requires arbitration as
the mode for settling disputes relating to the SPA;91 and, (3) defendants’ refusal to submit themselves
to arbitration vis-a-vis Republic Act No. 876, which provides that "[a] party aggrieved by the failure,
neglect or refusal of another to perform under an agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration proceed in the manner provided for in
such agreement."92

Both complaints also rely on the same factual averments: 93

1. that ASC, CAGLI, and WLI entered into an agreement on January 8, 1996;

2. that under Annex SL-V of the Agreement, WLI/WG&A "committed to acquire certain
[inventories], the total aggregate value of which shall not exceed ₱400 Million"; 94

3. that after examination, it was ascertained that the value of the transferred inventories
exceeded ₱400 million;

4. that pursuant to Annex SL-V, WG&A paid CAGLI ₱400 million but that the former failed to
return or pay for spare parts representing a value in excess of ₱400 million;

5. "[t]hat on August 31, 2001, [CAGLI] wrote the WG&A through its AVP Materials
Management, Ms. Concepcion M. Magat, asking for the return of the excess spare parts";95

6. that on September 5, 2001, WG&A’s Ms. Magat replied that the matter is beyond her
authority level and that she must elevate it to higher management;

7. that several communications demanding the return of the excess spare parts were sent to
WG&Abut these did not elicit any response; and

8. "[t]hat the issue of excess spare parts, was taken over by events, when on July 31,
2002,"96 the Chiongbians and Gothongs entered into an Escrow Agreement with AEV.

Third, the order dated December 4, 2009 of the Cebu City Regional Trial Court, Branch 20, which
dismissed the first complaint with respect to AEV, attained finality when CAGLI did not file a motion
for reconsideration, appealed, or, in any other manner, questioned the order.

Fourth, the parties did not dispute that the December 4, 2009 order was issued by a court having
jurisdiction over the subject matter and the parties. Specifically as to jurisdiction over the
parties,jurisdiction was acquired over CAGLI as plaintiff when it filed the first complaint and sought
relief from the Cebu City Regional Trial Court, Branch 20; jurisdiction over defendants AEV, ATSC,
and Victor S.Chiongbian was acquired with the service of summons upon them. Fifth, the dismissal of
the first complaint with respect to AEV was a judgment on the merits. As explained in Cabreza, Jr. v.
Cabreza:97

A judgment may be considered as one rendered on the merits "when it determines the rights and
liabilities of the parties based on the disclosed facts, irrespective of formal, technical or
dilatoryobjections"; or when the judgment is rendered "aftera determination of which party is right, as
distinguished from a judgment rendered upon some preliminary or formal or merely technical point."98
Further, as this court clarified in Mendiola v. Court of Appeals, 99 "[i]t is not necessary . . . that there
[be] a trial"100 in order that a judgment be considered as one on the merits.

Prior to issuing the December 4, 2009 order dismissing the first complaint with respect to AEV, the
Cebu City Regional Trial Court, Branch 20 allowed the parties the full opportunity to establish the
facts and to ventilate their arguments relevant to the complaint. Specifically, the Cebu City Regional
Trial Court, Branch 20 admitted: 1) AEV’s motion to dismiss;101 2) CAGLI’s opposition to the motion to
dismiss;102 3) AEV’s reply and opposition;103 4) CAGLI’s rejoinder;104 and 5) AEV’s surrejoinder.105

Following these, the Cebu City Regional Trial Court, Branch 20 arrived at the following findings and
made a definitive determination that CAGLI had no right to compel AEV to subject itself to arbitration
with respect to CAGLI’s claims under Annex SL-V:

After going over carefully the contentions and arguments of both parties, the court has found that no
contract or document exists binding CAGLI and AEV to arbitrate the former’s claim. The WLI Letter
upon which the claim is based confirms only the commitment of William Lines, Inc. (WLI) to purchase
certain material inventories from CAGLI. It does not involve AEV. The court has searched in vain for
any agreement or document showing that said commitment was passed on to and assumed by AEV.
Such agreement or document, if one exists, being an actionable document, should have been
attached to the complaint. While the Agreement of January 8, 1996 and the Share Purchase
Agreement provide for arbitration of disputes, they refer to disputes arising from or in connection with
the Agreements themselves. No reference is made, as included therein, to the aforesaid commitment
of WLI or to any claim that CAGLI may pursue based thereon or relative thereto. Section 6.8 of the
Share Purchase Agreement, cited by plaintiff CAGLI, does not incorporate therein, expressly or
impliedly, the WLI commitment above-mentioned. It only declares that the rights and obligations of
the parties under the WLI Letter shall survive even after the termination of the Shareholder’s
Agreement. It does not speak of arbitration. Finally, the complaint does not allege the existence of a
contract obliging CAGLI and AEV to arbitrate CAGLI’s claim under the WLI Letter. Consequently,
there is no legal or factual basis for the present complaint for application for arbitration. 106 (Emphasis
supplied)

In the assailed order dated May 5, 2011, the Cebu City Regional Trial Court, Branch 10 made much
of the Cebu City Regional Trial Court, Branch 20’s pronouncement in the latter’s December 4, 2009
order that "the [first] complaint fails to state a cause of action." 107 Based on this, the Cebu City
Regional Trial Court, Branch 10 concluded that the dismissal of the first complaint was one made
without prejudice, thereby "leav[ing] the parties free to litigate the matter ina subsequent action, as
though the dismissal [sic] action had not been commenced." 108

The Cebu City Regional Trial Court, Branch 10 is in serious error. In holding that the second
complaint was not barred by res judicata, the Cebu City Regional Trial Court, Branch 10 ignored
established jurisprudence.

Referring to the earlier cases of Manalo v. Court of Appeals109 and Mendiola v. Court of
Appeals,110 this court emphasized in Luzon Development Bank v. Conquilla111 that dismissal for
failure to state a cause of action may very well be considered a judgment on the merits and, thereby,
operate as res judicata on a subsequent case:

[E]ven a dismissal on the ground of "failure to state a cause of action" may operate as res judicata on
a subsequent case involving the same parties, subject matter, and causes of action, provided that the
order of dismissalactually ruled on the issues raised.What appears to be essential to a judgment on
the merits is that it be a reasoned decision, which clearly states the facts and the law on which it is
based.112 (Emphasis supplied)
To reiterate, the Cebu City Regional Trial Court, Branch 20 made a definitive determination that
CAGLI had no right to compel AEV to subject itself to arbitrationvis-a-vis CAGLI’s claims under Annex
SL-V. This determination was arrived at after due consideration of the facts established and the
arguments advancedby the parties. Accordingly, the Cebu City Regional Trial Court, Branch 20’s
December 4, 2009 order constituted a judgment on the merits and operated as res judicata on the
second complaint.

In sum, the requisites for res judicata have been satisfied and the second complaint should, thus,
have been dismissed. From this, it follows that CAGLI committed an act of forum shopping in filing the
second complaint. CAGLI instituted two suits in two regional trial court branches, albeit successively
and not simultaneously. It asked both branches to rule on the exact same cause and to grant the
exact same relief. CAGLI did so after it had obtained an unfavorable decision (at least with respect to
AEV) from the Cebu City Regional Trial Court, Branch 20. These circumstances afford the reasonable
inference that the second complaint was filed in the hopes of a more favorable ruling.

Notwithstanding our pronouncements sustaining AEV’s allegations that CAGLI engaged in forum
shopping and that the second complaint was barred by res judicata, we find that at the time of the
filing of the second complaint, AEV had already been discharged from the proceedings relating to the
first complaint. Thus, asbetween AEV and CAGLI, the first complaint was no longer pending at the
time of the filing of the second complaint. Accordingly, the second complaint could not have been
barred by litis pendentia.

There is no agreement
binding AEV to arbitrate
with CAGLI on the latter’s
claims arising from Annex SL-V

For arbitration to be proper, it is imperative thatit be grounded on an agreement between the parties.
This was adequately explained in Ormoc Sugarcane Planters’ Association,Inc. v. Court of Appeals: 113

Section 2 of R.A. No. 876 (the Arbitration Law) pertinently provides:

Sec. 2. Persons and matterssubject to arbitration. – Two or more persons or parties may submit to
the arbitration of one or more arbitrators any controversy existing between them at the time of the
submission and which may be the subject of an action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy thereafter arising between them. Such submission
or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the
revocation of any contract. . . . (Emphasis ours)

The foregoing provision speaks of two modes of arbitration: (a) an agreement to submit to arbitration
somefuture dispute, usually stipulated upon in a civil contract between the parties, and known as an
agreement to submit to arbitration, and (b) an agreement submitting an existing matter of difference
to arbitrators, termed the submission agreement. Article XX of the milling contract is an agreement to
submit to arbitrationbecause it was made in anticipation of a dispute that might arise between the
parties after the contract’s execution.

Except where a compulsory arbitration is provided by statute, the first step toward the settlement of a
difference by arbitration is the entry by the parties into a valid agreement to arbitrate.An agreement to
arbitrate is a contract, the relation ofthe parties is contractual, and the rights and liabilities of the
parties are controlled by the law of contracts. In an agreement for arbitration, the ordinary elements of
a valid contract must appear, including an agreement toarbitrate some specific thing, and an
agreement to abide by the award, either in express language or by implication. 114 (Emphasis
supplied)

In this petition, not one of the parties — AEV, CAGLI, Victor S. Chiongbian, and Benjamin D. Gothong
— has alleged and/or shown that the controversy is properly the subject of "compulsory arbitration
[as] provided by statute."115 Thus, the propriety of compelling AEV to submit itself to arbitration must
necessarilybe founded on contract.

Four (4) distinct contracts have been cited in the present petition:

1. The January 8, 1996 Agreement in which ASC, CAGLI, and WLI merged their shipping
enterprises, with WLI (subsequently renamed WG&A) as the surviving entity. Section 11.06 of
this Agreement provided for arbitration as the mechanism for settling all disputes arising out of
or in connection with the Agreement.

2. Annex SL-V of the Agreement between CAGLI and WLI (and excluded ASC and any other
Aboitiz-controlled entity), and which confirmed WLI’s commitment to acquire certain
inventories, worth not more than 400 million, of CAGLI. Annex SL-V stated that the acquisition
was "pursuant to the Agreement."116 It did not contain an arbitration clause.

3. The September 23, 2003 Share Purchase Agreement or SPA in which AEV agreed to
purchasethe Chiongbian and Gothong groups' shares in WG&A’s issued and outstanding
stock. Section 6.5 of the SPA provided for arbitration as the mode of settling any dispute
arising from the SPA. Section 6.8 of the SPA further provided that the Agreement of January 8,
1996 shall be deemed terminatedexcept its Annex SL-V.

4. The Escrow Agreement whereby ING Bank N.V.-Manila Branch was to take custody of the
shares subject of the SPA. Section 14.7 of the Escrow Agreement provided that all disputes
arising from it shall be settled via arbitration.

The obligation for WLI to acquire certain inventories of CAGLI and which is the subject of the present
petition was contained in Annex SL-V. It is therefore this agreement which deserves foremost
consideration. As to this particular agreement, these points must be underscored: first, that it has no
arbitration clause; second, Annex SL-V is only between WLI and CAGLI.

On the first point, it is clear, pursuant to this court’s pronouncements in Ormoc Sugarcane Planters’
Association, that neither WLI nor CAGLI can compel arbitration under Annex SL-V. Plainly, there is
no agreement to arbitrate.

It is of no moment that Annex SL-Vstates that it was made "pursuant to the Agreement" or that
Section 11.06 of the January 8, 1996 Agreement provides for arbitration as the mode of settling
disputes arising out of or in connection with the Agreement.

For one, to say that Annex SL-V was made"pursuant to the Agreement" is merely to acknowledge: (1)
the factual context in which Annex SL-V was executed and (2) that it was that context that facilitated
the agreement embodied in it. Absentany other clear or unequivocal pronouncement integrating
Annex SL-V into the January 8, 1996 Agreement, it would be too much of a conjecture to jump to the
conclusion that Annex SL-V is governed by the exact same stipulations which govern the January 8,
1996 Agreement.

Likewise, a reading of the Agreement’s arbitration clause will reveal that it does not contemplate
disputes arising from Annex SL-V.
Section 11.06 of the January 8, 1996 Agreement requires the formation of an arbitration tribunal
composed of four (4) arbitrators. Each of the parties — WLI, CAGLI, and ASC — shall appoint one (1)
arbitrator, and the fourth arbitrator, who shall actas chairman, shall be appointed by the three (3)
arbitrators appointed by the parties. From the manner by which the arbitration tribunal is to be
constituted, the necessary implication is that the arbitration clause is applicable tothree-party disputes
— as will arise from the tripartite January 8, 1996 Agreement — and not to two-party disputesas will
arise from the two-party Annex SL-V.

From the second point — that Annex SL-V is only between WLI and CAGLI — it necessarily follows
that none but WLI/WG&A/ATSC and CAGLI are bound by the terms of Annex SL-V. It is elementary
that contracts are characterized by relativity or privity, that is, that "[c]ontracts take effect only
between the parties, their assigns and heirs."117 As such, one who is not a party to a contract may not
seek relief for such contract’s breach. Likewise, one who is not a party to a contract may not be held
liable for breach of any its terms.

While the principle of privity or relativity of contracts acknowledges that contractual obligations are
transmissible to a party’s assigns and heirs, AEV is not WLI’s successor-in-interest. In the period
relevant to this petition, the transferee of the inventories transferred by CAGLI pursuant to Annex SL-
V assumed three (3) names: (1) WLI, the original name of the entity that survived the merger under
the January 8, 1996 Agreement; (2) WG&A, the name taken by WLI in the wake of the Agreement;
and (3) ATSC, the name taken by WLI/WG&A inthe wake of the SPA. As such, it is now ATSC that is
liable under Annex SL-V.

Pursuant to the January 8, 1996 Agreement, the Aboitiz group (via ASC) and the Gothong group
(viaCAGLI) became stockholders of WLI/WG&A, along with the Chiongbiangroup (which initially
controlled WLI). This continued until, pursuant to the SPA, the Gothong group and the Chiongbian
group transferred their shares to AEV. With the SPA, AEV became a stockholder of WLI/WG&A,
which was subsequently renamed ATSC. Nonetheless, AEV’s status asATSC’s stockholder does not
subject it to ATSC’s obligations

It is basic that a corporation has a personality separate and distinct from that of its individual
stockholders. Thus, a stockholder does not automatically assume the liabilities of the corporation of
which he is a stockholder. As explained in Philippine National Bankv. Hydro Resources Contractors
Corporation:118

A corporation is an artificial entitycreated by operation of law. It possesses the right of succession and
such powers, attributes, and properties expressly authorized by law or incident to its existence. It has
a personality separate and distinct from that of its stockholders and from that of other corporations to
which it may be connected. As a consequence of its status as a distinct legal entityand as a result of
a conscious policy decision to promote capital formation, a corporation incurs its own liabilities and is
legally responsible for payment of its obligations. In other words, by virtue of the separate juridical
personality ofa corporation, the corporate debt or credit is not the debt or credit of the stockholder.
This protection from liability for shareholders is the principle of limited liability. 119

In fact, even the ownership by a single stockholder of all or nearly all the capital stock of a corporation
is not, in and of itself, a ground for disregarding a corporation’s separate personality. As explained in
Secosa v. Heirs of Francisco:120

It is a settled precept in this jurisdiction that a corporation is invested by law with a personality
separate from thatof its stockholders or members. It has a personality separate and distinct from
those of the persons composing it as well as from that of any other entity to which it may be related.
Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not in itself sufficient ground for disregarding the separate corporate
personality.A corporation’s authority to act and its liability for its actions are separate and apart from
the individuals who own it.

The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation and
its officers and stockholders. As a general rule, a corporation will be looked upon as a legal entity,
unless and until sufficient reason to the contrary appears. When the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons. Also, the corporate entity may be disregarded in the interest
of justice in such cases asfraud that may work inequities among members of the corporation
internally, involving no rights of the public or third persons. In both instances, there must have been
fraud and proof of it. For the separate juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established. It cannot be presumed. 121 (Emphasis
supplied)

AEV’s status as ATSC’s stockholder is, in and of itself, insufficient to make AEV liable for ATSC’s
obligations. Moreover, the SPA does not contain any stipulation which makes AEV assume ATSC’s
obligations. It is true that Section 6.8 of the SPA stipulates that the rights and obligations arising from
Annex SL-V are not terminated. But all that Section 6.8 does is recognize that the obligations under
Annex SL-V subsist despite the termination of the January 8, 1996 Agreement. At no point does the
text of Section 6.8 support the position that AEV steps into the shoes of the obligor under Annex SL-V
and assumes its obligations.

Neither does Section 6.5 of the SPAsuffice to compel AEV to submit itself to arbitration. While it is
true that Section 6.5 mandates arbitration as the mode for settling disputes between the parties to the
SPA, Section 6.5 does not indiscriminatelycover any and all disputes which may arise between the
parties to the SPA. Rather, Section 6.5 is limited to "dispute[s] arising between the parties relating
tothis Agreement [i.e., the SPA]."122 To belabor the point, the obligation which is subject of the
present dispute pertains to Annex SL-V, not to the SPA. That the SPA, in Section 6.8, recognizes the
subsistence of Annex SL-Vis merely a factual recognition. It does not create new obligations and
does not alter or modify the obligations spelled out in Annex SL-V.

AEV was drawn into the present controversy on account of its having entered into the SPA. This SPA
made AEV a stockholder of WLI/WG&A/ATSC. Even then, AEV retained a personality separate and
distinct from WLI/WG&A/ATSC. The SPA did not render AEV personally liable for the obligations of
the corporation whose stocks it held.

The obligation animating CAGLI’s desire to arbitrate is rooted in Annex SL-V. Annex SL-V is a
contractentirely different from the SPA. It created distinct obligations for distinctparties. AEV was
never a party to Annex SL-V. Rather than pertaining to AEV, Annex SL-V pertained to a different
entity: WLI (renamed WG&A then renamed ATSC). AEV is, thus, not bound by Annex SL-V.

On one hand, Annex SL-V does not stipulate that disputes arising from it are to be settled via
arbitration.On the other hand, the SPA requires arbitration as the mode for settling disputes relating to
it and recognizes the subsistence of the obligations under Annex SL-V. But as a separate contract,
the mere mention of Annex SL-V in the SPA does not suffice to place Annex SL-V under the ambit of
the SPA or to render it subject to the SPA’s terms, such as the requirement to arbitrate.

WHEREFORE, the petition is GRANTED. The assailed orders dated May 5, 2011 and June 24,2011
of the Regional Trial Court, Cebu City, Branch 10 in Civil Case No. CEB-37004 are declared VOID.
The Regional Trial Court, Cebu City, Branch 10 is ordered to DISMISSCivil Case No. CEB-37004.
SO ORDERED.

G.R. No. 181416 November 11, 2013

MEDICAL PLAZA MAKATI CONDOMINIUM CORPORATION, Petitioner,

vs.
ROBERT H. CULLEN, Respondent.

DECISION

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Court of
Appeals (CA) Decision1 dated July 10, 2007 and Resolution2 dated January 25, 2008 in CA-G.R. CV
No. 86614. The assailed decision reversed and set aside the September 9, 2005 Order3 of the
Regional Trial Court (RTC) of Makati, Branch 58 in Civil Case No. 03-1018; while the assailed
resolution denied the separate motions for reconsideration filed by petitioner Medical Plaza Makati
Condominium Corporation (MPMCC) and Meridien Land Holding, Inc. (MLHI).

The factual and procedural antecedents are as follows:

Respondent Robert H. Cullen purchased from MLHI condominium Unit No. 1201 of the Medical Plaza
Makati covered by Condominium Certificate of Title No. 45808 of the Register of Deeds of Makati.
Said title was later cancelled and Condominium Certificate of Title No. 64218 was issued in the name
of respondent.

On September 19, 2002, petitioner, through its corporate secretary, Dr. Jose Giovanni E. Dimayuga,
demanded from respondent payment for alleged unpaid association dues and assessments
amounting to ₱145,567.42. Respondent disputed this demand claiming that he had been religiously
paying his dues shown by the fact that he was previously elected president and director of
petitioner.4 Petitioner, on the other hand, claimed that respondent’s obligation was a carry-over of that
of MLHI.5 Consequently, respondent was prevented from exercising his right to vote and be voted for
during the 2002 election of petitioner’s Board of Directors.6 Respondent thus clarified from MLHI the
veracity of petitioner’s claim, but MLHI allegedly claimed that the same had already been
settled.7 This prompted respondent to demand from petitioner an explanation why he was considered
a delinquent payer despite the settlement of the obligation. Petitioner failed to make such explanation.
Hence, the Complaint for Damages8 filed by respondent against petitioner and MLHI, the pertinent
portions of which read:

xxxx

6. Thereafter, plaintiff occupied the said condominium unit no. 1201 and religiously paid all the
corresponding monthly contributions/association dues and other assessments imposed on the
same. For the years 2000 and 2001, plaintiff served as President and Director of the Medical
Plaza Makati Condominium Corporation;
7. Nonetheless, on September 19, 2002, plaintiff was shocked/surprised to receive a letter
from the incumbent Corporate Secretary of the defendant Medical Plaza Makati, demanding
payment of alleged unpaid association dues and assessments arising from plaintiff’s
condominium unit no. 1201. The said letter further stressed that plaintiff is considered a
delinquent member of the defendant Medical Plaza Makati.

x x x;

8. As a consequence, plaintiff was not allowed to file his certificate of candidacy as director.
Being considered a delinquent, plaintiff was also barred from exercising his right to vote in the
election of new members of the Board of Directors x x x;

9. x x x Again, prior to the said election date, x x x counsel for the defendant [MPMCC] sent a
demand letter to plaintiff, anent the said delinquency, explaining that the said unpaid amount is
a carry-over from the obligation of defendant Meridien. x x x;

10. Verification with the defendant [MPMCC] resulted to the issuance of a certification stating
that Condominium Unit 1201 has an outstanding unpaid obligation in the total amount of
₱145,567.42 as of November 30, 2002, which again, was attributed by defendant [MPMCC] to
defendant Meridien. x x x;

11. Due to the seriousness of the matter, and the feeling that defendant Meridien made false
representations considering that it fully warranted to plaintiff that condominium unit 1201 is free
and clear from all liens and encumbrances, the matter was referred to counsel, who
accordingly sent a letter to defendant Meridien, to demand for the payment of said unpaid
association dues and other assessments imposed on the condominium unit and being claimed
by defendant [MPMCC]. x x x;

12. x x x defendant Meridien claimed however, that the obligation does not exist considering
that the matter was already settled and paid by defendant Meridien to defendant [MPMCC]. x x
x;

13. Plaintiff thus caused to be sent a letter to defendant [MPMCC] x x x. The said letter x x x
sought an explanation on the fact that, as per the letter of defendant Meridien, the delinquency
of unit 1201 was already fully paid and settled, contrary to the claim of defendant [MPMCC]. x
x x;

14. Despite receipt of said letter on April 24, 2003, and to date however, no explanation was
given by defendant [MPMCC], to the damage and prejudice of plaintiff who is again obviously
being barred from voting/participating in the election of members of the board of directors for
the year 2003;

15. Clearly, defendant [MPMCC] acted maliciously by insisting that plaintiff is a delinquent
member when in fact, defendant Meridien had already paid the said delinquency, if any. The
branding of plaintiff as delinquent member was willfully and deceitfully employed so as to
prevent plaintiff from exercising his right to vote or be voted as director of the condominium
corporation; 16. Defendant [MPMCC]’s ominous silence when confronted with claim of
payment made by defendant Meridien is tantamount to admission that indeed, plaintiff is not
really a delinquent member;

17. Accordingly, as a direct and proximate result of the said acts of defendant [MPMCC],
plaintiff experienced/suffered from mental anguish, moral shock, and serious anxiety. Plaintiff,
 being a doctor of medicine and respected in the community further suffered from social
humiliation and besmirched reputation thereby warranting the grant of moral damages in the
amount of ₱500,000.00 and for which defendant [MPMCC] should be held liable;

18. By way of example or correction for the public good, and as a stern warning to all similarly
situated, defendant [MPMCC] should be ordered to pay plaintiff exemplary damages in the
amount of ₱200,000.00;

19. As a consequence, and so as to protect his rights and interests, plaintiff was constrained to
hire the services of counsel, for an acceptance fee of ₱100,000.00 plus ₱2,500.00 per every
court hearing attended by counsel;

20. In the event that the claim of defendant [MPMCC] turned out to be true, however, the
herein defendant Meridien should be held liable instead, by ordering the same to pay the said
delinquency of condominium unit 1201 in the amount of ₱145,567.42 as of November 30, 2002
as well as the above damages, considering that the non-payment thereof would be the
proximate cause of the damages suffered by plaintiff;9

Petitioner and MLHI filed their separate motions to dismiss the complaint on the ground of lack of
jurisdiction.10MLHI claims that it is the Housing and Land Use Regulatory Board (HLURB) which is
vested with the exclusive jurisdiction to hear and decide the case. Petitioner, on the other hand,
raises the following specific grounds for the dismissal of the complaint: (1) estoppel as respondent
himself approved the assessment when he was the president; (2) lack of jurisdiction as the case
involves an intra-corporate controversy; (3) prematurity for failure of respondent to exhaust all intra-
corporate remedies; and (4) the case is already moot and academic, the obligation having been
settled between petitioner and MLHI.11

On September 9, 2005, the RTC rendered a Decision granting petitioner’s and MLHI’s motions to
dismiss and, consequently, dismissing respondent’s complaint.

The trial court agreed with MLHI that the action for specific performance filed by respondent clearly
falls within the exclusive jurisdiction of the HLURB.12 As to petitioner, the court held that the complaint
states no cause of action, considering that respondent’s obligation had already been settled by MLHI.
It, likewise, ruled that the issues raised are intra-corporate between the corporation and member.13

On appeal, the CA reversed and set aside the trial court’s decision and remanded the case to the
RTC for further proceedings. Contrary to the RTC conclusion, the CA held that the controversy is an
ordinary civil action for damages which falls within the jurisdiction of regular courts. 14 It explained that
the case hinged on petitioner’s refusal to confirm MLHI’s claim that the subject obligation had already
been settled as early as 1998 causing damage to respondent. 15 Petitioner’s and MLHI’s motions for
reconsideration had also been denied.16

Aggrieved, petitioner comes before the Court based on the following grounds:

I.

THE COURT A QUO HAS DECIDED A QUESTION OF SUBSTANCE, NOT THERETOFORE

DETERMINED BY THE SUPREME COURT, OR HAS DECIDED IT IN A WAY NOT IN ACCORD
WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
DECLARED THE INSTANT CASE AN ORDINARY ACTION FOR DAMAGES INSTEAD OF AN
INTRA-CORPORATE CONTROVERSY COGNIZABLE BY A SPECIAL COMMERCIAL COURT.
 II.

THE COURT A QUO HAS DECIDED THE INSTANT CASE IN A WAY NOT IN ACCORD WITH LAW
OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT TOOK
COGNIZANCE OF THE APPEAL WHILE RAISING ONLY PURE QUESTIONS OF LAW.17

The petition is meritorious.

It is a settled rule that jurisdiction over the subject matter is determined by the allegations in the
complaint. It is not affected by the pleas or the theories set up by the defendant in an answer or a
motion to dismiss. Otherwise, jurisdiction would become dependent almost entirely upon the whims of
the defendant.18 Also illuminating is the Court’s pronouncement in Go v. Distinction Properties
Development and Construction, Inc.:19

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law
and determined by the allegations in the complaint which comprise a concise statement of the
ultimate facts constituting the plaintiff’s cause of action. The nature of an action, as well as which
court or body has jurisdiction over it, is determined based on the allegations contained in the
complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or
some of the claims asserted therein. The averments in the complaint and the character of the relief
sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction also
remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some of the
claims asserted therein. x x x20

Based on the allegations made by respondent in his complaint, does the controversy involve intra-
corporate issues as would fall within the jurisdiction of the RTC sitting as a special commercial court
or an ordinary action for damages within the jurisdiction of regular courts?

In determining whether a dispute constitutes an intra-corporate controversy, the Court uses two tests,
namely, the relationship test and the nature of the controversy test. 21

An intra-corporate controversy is one which pertains to any of the following relationships: (1) between
the corporation, partnership or association and the public; (2) between the corporation, partnership or
association and the State insofar as its franchise, permit or license to operate is concerned; (3)
between the corporation, partnership or association and its stockholders, partners, members or
officers; and (4) among the stockholders, partners or associates themselves. 22 Thus, under the
relationship test, the existence of any of the above intra-corporate relations makes the case intra-
corporate.23

Under the nature of the controversy test, "the controversy must not only be rooted in the existence of
an intra-corporate relationship, but must as well pertain to the enforcement of the parties’ correlative
rights and obligations under the Corporation Code and the internal and intra-corporate regulatory
rules of the corporation."24 In other words, jurisdiction should be determined by considering both the
relationship of the parties as well as the nature of the question involved.25

Applying the two tests, we find and so hold that the case involves intra-corporate controversy. It
obviously arose from the intra-corporate relations between the parties, and the questions involved
pertain to their rights and obligations under the Corporation Code and matters relating to the
regulation of the corporation.26

Admittedly, petitioner is a condominium corporation duly organized and existing under Philippine
laws, charged with the management of the Medical Plaza Makati. Respondent, on the other hand, is
the registered owner of Unit No. 1201 and is thus a stockholder/member of the condominium
corporation. Clearly, there is an intra-corporate relationship between the corporation and a
stockholder/member.

The nature of the action is determined by the body rather than the title of the
complaint.1âwphi1 Though denominated as an action for damages, an examination of the allegations
made by respondent in his complaint shows that the case principally dwells on the propriety of the
assessment made by petitioner against respondent as well as the validity of petitioner’s act in
preventing respondent from participating in the election of the corporation’s Board of Directors.
Respondent contested the alleged unpaid dues and assessments demanded by petitioner.

The issue is not novel. The nature of an action involving any dispute as to the validity of the
assessment of association dues has been settled by the Court in Chateau de Baie Condominium
Corporation v. Moreno.27 In that case, respondents therein filed a complaint for intra-corporate
dispute against the petitioner therein to question how it calculated the dues assessed against them,
and to ask an accounting of association dues. Petitioner, however, moved for the dismissal of the
case on the ground of lack of jurisdiction alleging that since the complaint was against the
owner/developer of a condominium whose condominium project was registered with and licensed by
the HLURB, the latter has the exclusive jurisdiction. In sustaining the denial of the motion to dismiss,
the Court held that the dispute as to the validity of the assessments is purely an intra-corporate
matter between petitioner and respondent and is thus within the exclusive jurisdiction of the RTC
sitting as a special commercial court. More so in this case as respondent repeatedly questioned his
characterization as a delinquent member and, consequently, petitioner’s decision to bar him from
exercising his rights to vote and be voted for. These issues are clearly corporate and the demand for
damages is just incidental. Being corporate in nature, the issues should be threshed out before the
RTC sitting as a special commercial court. The issues on damages can still be resolved in the same
special commercial court just like a regular RTC which is still competent to tackle civil law issues
incidental to intra-corporate disputes filed before it.28

Moreover, Presidential Decree No. 902-A enumerates the cases over which the Securities and
Exchange Commission (SEC) exercises exclusive jurisdiction:

xxxx

b) Controversies arising out of intra-corporate or partnership relations, between and among

stockholders, members or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members, or associates,
respectively; and between such corporation, partnership or association and the State insofar
as it concerns their individual franchise or right to exist as such entity; and

c) Controversies in the election or appointment of directors, trustees, officers, or managers of

such corporations, partnerships, or associations.29

To be sure, this action partakes of the nature of an intra-corporate controversy, the jurisdiction over
which pertains to the SEC. Pursuant to Section 5.2 of Republic Act No. 8799, otherwise known as the
Securities Regulation Code, the jurisdiction of the SEC over all cases enumerated under Section 5 of
Presidential Decree No. 902-A has been transferred to RTCs designated by this Court as Special
Commercial Courts.30 While the CA may be correct that the RTC has jurisdiction, the case should
have been filed not with the regular court but with the branch of the RTC designated as a special
commercial court. Considering that the RTC of Makati City, Branch 58 was not designated as a
special commercial court, it was not vested with jurisdiction over cases previously cognizable by the
SEC.31The CA, therefore, gravely erred in remanding the case to the RTC for further proceedings.
Indeed, Republic Act (RA) No. 9904, or the Magna Carta for Homeowners and Homeowners’
Associations, approved on January 7, 2010 and became effective on July 10, 2010, empowers the
HLURB to hear and decide inter-association and/or intra-association controversies or conflicts
concerning homeowners’ associations. However, we cannot apply the same in the present case as it
involves a controversy between a condominium unit owner and a condominium corporation. While the
term association as defined in the law covers homeowners’ associations of other residential real
property which is broad enough to cover a condominium corporation, it does not seem to be the
legislative intent. A thorough review of the deliberations of the bicameral conference committee would
show that the lawmakers did not intend to extend the coverage of the law to such kind of association.
We quote hereunder the pertinent portion of the Bicameral Conference Committee’s deliberation, to
wit:

THE CHAIRMAN (SEN. ZUBIRI). Let’s go back, Mr. Chair, very quickly on homeowners.

THE ACTING CHAIRMAN (REP. ZIALCITA). Ang sa akin lang, I think our views are similar, Your
Honor, Senator Zubiri, the entry of the condominium units might just complicate the whole matters. So
we’d like to put it on record that we’re very much concerned about the plight of the Condominium Unit
Homeowners’ Association. But this could very well be addressed on a separate bill that I’m willing to
co-sponsor with the distinguished Senator Zubiri, to address in the Condominium Act of the
Philippines, rather than address it here because it might just create a red herring into the entire thing
and it will just complicate matters, hindi ba?

THE CHAIRMAN (SEN. ZUBIRI). I also agree with you although I sympathize with them---although
we sympathize with them and we feel that many times their rights have been also violated by abusive
condominium corporations. However, there are certain things that we have to reconcile. There are
certain issues that we have to reconcile with this version.

In the Condominium Code, for example, they just raised a very peculiar situation under the
Condominium Code --- Condominium Corporation Act. It’s five years the proxy, whereas here, it’s
three years. So there would already be violation or there will be already a problem with their version
and our version. Sino ang matutupad doon? Will it be our version or their version?

So I agree that has to be studied further. And because they have a law pertaining to the condominium
housing units, I personally feel that it would complicate matters if we include them. Although I agree
that they should be looked after and their problems be looked into.

Probably we can ask our staff, Your Honor, to come up already with the bill although we have no
more time. Hopefully we can tackle this again on the 15th Congress. But I agree with the sentiments
and the inputs of the Honorable Chair of the House panel.

May we ask our resource persons to also probably give comments?

Atty. Dayrit.

MR. DAYRIT.

Yes I agree with you. There are many, I think, practices in their provisions in the Condominium Law
that may be conflicting with this version of ours.

For instance, in the case of, let’s say, the condominium, the so-called common areas and/or maybe
so called open spaces that they may have, especially common areas, they are usually owned by the
condominium corporation. Unlike a subdivision where the open spaces and/or the common areas are
not necessarily owned by the association. Because sometimes --- generally these are donated to the
municipality or to the city. And it is only when the city or municipality gives the approval or the
conformity that this is donated to the homeowners’ association. But generally, under PD [Presidential
Decree] 957, it’s donated. In the Condominium Corporation, hindi. Lahat ng mga open spaces and
common areas like corridors, the function rooms and everything, are owned by the corporation. So
that’s one main issue that can be conflicting.

THE CHAIRMAN (SEN. ZUBIRI). I’ll just ask for a one-minute suspension so we can talk.

THE ACTING CHAIRMAN (REP. ZIALCITA). Unless you want to put a catchall phrase like what we
did in the Senior Citizen’s Act. Something like, to the extent --- paano ba iyon? To the extent that it is
practicable and applicable, the rights and benefits of the homeowners, are hereby extended to the ---
mayroon kaming ginamit na phrase eh...to the extent that it be practicable and applicable to the unit
homeoweners, is hereby extended, something like that. It’s a catchall phrase. But then again, it might
create a...

MR. JALANDONI. It will become complicated. There will be a lot of conflict of laws between the two
laws.

THE ACTING CHAIRMAN (REP. ZIALCITA). Kaya nga eh. At saka, I don’t know. I think the ---
mayroon naman silang protection sa ano eh, di ba? Buyers decree doon sa Condominium Act. I’m
sure there are provisions there eh. Huwag na lang, huwag na lang.

MR. JALANDONI. Mr. Chairman, I think it would be best if your previous comments that you’d be
supporting an amendment.1âwphi1 I think that would be --- Well, that would be the best course of
action with all due respect.

THE ACTING CHAIRMAN (REP. ZIALCITA). Yeah. Okay. Thank you. So iyon na lang final proposal
naming ‘yung catchall phrase, "With respect to the..."32

xxxx

THE CHAIRMAN (SEN. ZUBIRI). xxx And so, what is their final decision on the definition of
homeowners?

THE ACTING CHAIRMAN (REP. ZIALCITA).

We stick to the original, Mr. Chairman. We’ll just open up a whole can of worms and a whole new ball
game will come into play. Besides, I am not authorized, neither are you, by our counterparts to
include the condominium owners.

THE CHAIRMAN (SEN. ZUBIRI).

Basically that is correct. We are not authorized by the Senate nor – because we have discussed this
lengthily on the floor, actually, several months on the floor. And we don’t have the authority as well for
other Bicam members to add a provision to include a separate entity that has already their legal or
their established Republic Act tackling on that particular issue. But we just like to put on record, we
sympathize with the plight of our friends in the condominium associations and we will just guarantee
them that we will work on an amendment to the Condominium Corporation Code. So with that – we
skipped, that is correct, we have to go back to homeowners’ association definition, Your Honor,
because we had skipped it altogether. So just quickly going back to Page 7 because there are
amendments to the definition of homeowners. If it is alright with the House Panel, adopt the opening
phrase of Subsection 7 of the Senate version as opening phrase of Subsection 10 of the reconciled
version.

x x x x33

To be sure, RA 4726 or the Condominium Act was enacted to specifically govern a condominium.
Said law sanctions the creation of the condominium corporation which is especially formed for the
purpose of holding title to the common area, in which the holders of separate interests shall
automatically be members or shareholders, to the exclusion of others, in proportion to the
appurtenant interest of their respective units.34 The rights and obligations of the condominium unit
owners and the condominium corporation are set forth in the above Act.

Clearly, condominium corporations are not covered by the amendment. Thus, the intra-corporate
dispute between petitioner and respondent is still within the jurisdiction of the RTC sitting as a special
commercial court and not the HLURB. The doctrine laid down by the Court in Chateau de Baie
Condominium Corporation v. Moreno35 which in turn cited Wack Wack Condominium Corporation, et
al v. CA36 is still a good law.

WHEREFORE, we hereby GRANT the petition and REVERSE the Court of Appeals Decision dated
July 10, 2007 and Resolution dated January 25, 2008 in CA-G.R. CV No. 86614. The Complaint
before the Regional Trial Court of Makati City, Branch 58, which is not a special commercial court,
docketed as Civil Case No. 03-1018 is ordered DISMISSED for lack of jurisdiction. Let the case be
REMANDED to the Executive Judge of the Regional Trial Court of Makati City for re-raffle purposes
among the designated special commercial courts.

SO ORDERED.

G.R. No. 176579 October 9, 2012

HEIRS OF WILSON P. GAMBOA,* Petitioners,

vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN P.
SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS,
RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST
PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS
INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD.,
PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY, CHAIR FE BARIN OF THE SECURITIES AND EXCHANGE COMMISSION, and
PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.

PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.

RESOLUTION

CARPIO, J.:
This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine
Stock Exchange's (PSE) President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L.
Nazareno (Nazareno ),3 and ( 4) the Securities and Exchange Commission (SEC)4 (collectively,
movants ).

The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalfofthe
SEC,5 assailing the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment
on behalf of the State,6declaring expressly that it agrees with the Court's definition of the term
"capital" in Section 11, Article XII of the Constitution. During the Oral Arguments on 26 June 2012, the
OSG reiterated its position consistent with the Court's 28 June 2011 Decision.

We deny the motions for reconsideration.

I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.

As we emphatically stated in the 28 June 2011 Decision, 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 Philippine 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 threshold legal issue
presented in this case.

Contrary to Pangilinan’s narrow view, the serious economic consequences resulting in the
interpretation of the term "capital" in Section 11, Article XII of the Constitution undoubtedly demand
an immediate adjudication of this issue. Simply put, the far-reaching implications of this issue
justify the treatment of the petition as one for mandamus.7

In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise and expedient to
resolve the case although the petition for declaratory relief could be outrightly dismissed for being
procedurally defective. There, appellant admittedly had already committed a breach of the Public
Service Act in relation to the Anti-Dummy Law since it had been employing non- American aliens long
before the decision in a prior similar case. However, the main issue in Luzon Stevedoring was of
transcendental importance, involving the exercise or enjoyment of rights, franchises, privileges,
properties and businesses which only Filipinos and qualified corporations could exercise or enjoy
under the Constitution and the statutes. Moreover, the same issue could be raised by appellant in an
appropriate action. Thus, in Luzon Stevedoring the Court deemed it necessary to finally dispose of
the case for the guidance of all concerned, despite the apparent procedural flaw in the petition.

The circumstances surrounding the present case, such as the supposed procedural defect of the
petition and the pivotal legal issue involved, resemble those in Luzon Stevedoring. Consequently, in
the interest of substantial justice and faithful adherence to the Constitution, we opted to resolve this
case for the guidance of the public and all concerned parties.

II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."

Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been
settled and defined to refer to the total outstanding shares of stock, whether voting or non-voting. In
fact, movants claim that the SEC, which is the administrative agency tasked to enforce the 60-40
ownership requirement in favor of Filipino citizens in the Constitution and various statutes, has
consistently adopted this particular definition in its numerous opinions. Movants point out that with the
28 June 2011 Decision, the Court in effect introduced a "new" definition or "midstream redefinition" 9 of
the term "capital" in Section 11, Article XII of the Constitution.

This is egregious error.

For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the term
"capital" found in various economic provisions of the 1935, 1973 and 1987 Constitutions. There has
never been a judicial precedent interpreting the term "capital" in the 1935, 1973 and 1987
Constitutions, until now. Hence, it is patently wrong and utterly baseless to claim that the Court in
defining the term "capital" in its 28 June 2011 Decision modified, reversed, or set aside the purported
long-standing definition of the term "capital," which supposedly refers to the total outstanding shares
of stock, whether voting or non-voting. To repeat, until the present case there has never been a Court
ruling categorically defining the term "capital" found in the various economic provisions of the 1935,
1973 and 1987 Philippine Constitutions.

The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term
"capital" as referring to both voting and non-voting shares (combined total of common and preferred
shares) are, in the first place, conflicting and inconsistent. There is no basis whatsoever to the claim
that the SEC and the DOJ have consistently and uniformly adopted a definition of the term "capital"
contrary to the definition that this Court adopted in its 28 June 2011 Decision.

In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term "capital" in Section 9,
Article XIV of the 1973 Constitution was raised, that is, whether the term "capital" includes "both
preferred and common stocks." The issue was raised in relation to a stock-swap transaction between
a Filipino and a Japanese corporation, both stockholders of a domestic corporation that owned lands
in the Philippines. Then Minister of Justice Estelito P. Mendoza ruled that the resulting ownership
structure of the corporation would be unconstitutional because 60% of the voting stock would be
owned by Japanese while Filipinos would own only 40% of the voting stock, although when the non-
voting stock is added, Filipinos would own 60% of the combined voting and non-voting stock. This
ownership structure is remarkably similar to the current ownership structure of PLDT. Minister
Mendoza ruled:

xxxx

Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and
preferred) while the Japanese investors control sixty percent (60%) of the common (voting) shares.

It is your position that x x x since Section 9, Article XIV of the Constitution uses the word
"capital," which is construed "to include both preferred and common shares" and "that where
the law does not distinguish, the courts shall not distinguish."

xxxx

In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in

question may not be constitutionally upheld. While it may be ordinary corporate practice to
classify corporate shares into common voting shares and preferred non-voting shares, any
arrangement which attempts to defeat the constitutional purpose should be eschewed. Thus, the
resultant equity arrangement which would place ownership of 60%11 of the common (voting)
shares in the Japanese group, while retaining 60% of the total percentage of common and
preferred shares in Filipino hands would amount to circumvention of the principle of control
by Philippine stockholders that is implicit in the 60% Philippine nationality requirement in the
Constitution. (Emphasis supplied)

In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9,
Article XIV of the 1973 Constitution includes "both preferred and common stocks" treated as the
same class of shares regardless of differences in voting rights and privileges. Minister Mendoza
stressed that the 60-40 ownership requirement in favor of Filipino citizens in the Constitution is not
complied with unless the corporation "satisfies the criterion of beneficial ownership" and that in
applying the same "the primordial consideration is situs of control."

On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan
Pantaleon & San Jose, then SEC General Counsel Vernette G. Umali-Paco applied the Voting
Control Test, that is, using only the voting stock to determine whether a corporation is a Philippine
national. The Opinion states:

Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national
because: (1) sixty percent (60%) of its outstanding capital stock entitled to vote is owned by a
Philippine national, the Trustee; and (2) at least sixty percent (60%) of the ERF will accrue to the
benefit of Philippine nationals. Still pursuant to the Control Test, MLRC’s investment in 60% of
BFDC’s outstanding capital stock entitled to vote shall be deemed as of Philippine nationality,
thereby qualifying BFDC to own private land.

Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals,
considering that: (1) sixty percent (60%) of their respective outstanding capital stock entitled to
vote is owned by a Philippine national (i.e., by the Trustee, in the case of MLRC; and by MLRC, in
the case of BFDC); and (2) at least 60% of their respective board of directors are Filipino citizens.
(Boldfacing and italicization supplied)

Clearly, these DOJ and SEC opinions are compatible with the Court’s interpretation of the 60-40
ownership requirement in favor of Filipino citizens mandated by the Constitution for certain economic
activities. At the same time, these opinions highlight the conflicting, contradictory, and inconsistent
positions taken by the DOJ and the SEC on the definition of the term "capital" found in the economic
provisions of the Constitution.

The opinions issued by SEC legal officers do not have the force and effect of SEC rules and
regulations because only the SEC en banc can adopt rules and regulations. As expressly provided in
Section 4.6 of the Securities Regulation Code,12 the SEC cannot delegate to any of its individual
Commissioner or staff the power to adopt any rule or regulation. Further, under Section 5.1 of the
same Code, it is the SEC as a collegial body, and not any of its legal officers, that is
empowered to issue opinions and approve rules and regulations. Thus:

4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department
or office of the Commission, an individual Commissioner or staff member of the
Commission except its review or appellate authority and its power to adopt, alter and supplement
any rule or regulation.

The Commission may review upon its own initiative or upon the petition of any interested party any
action of any department or office, individual Commissioner, or staff member of the Commission.

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency
and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have, among others, the following powers and functions:

xxxx

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and
provide guidance on and supervise compliance with such rules, regulations and orders;

x x x x (Emphasis supplied)

Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that
have the effect of SEC rules or regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the Code,
only the SEC en banc can "issue opinions" that have the force and effect of rules or regulations.
Section 4.6 of the Code bars the SEC en banc from delegating to any individual Commissioner or
staff the power to adopt rules or regulations. In short, any opinion of individual Commissioners or
SEC legal officers does not constitute a rule or regulation of the SEC.

The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual
commissioners or legal staff, is empowered to issue opinions which have the same binding effect as
SEC rules and regulations, thus:

JUSTICE CARPIO:

So, under the law, it is the Commission En Banc that can issue an

SEC Opinion, correct?

COMMISSIONER GAITE:13

That’s correct, Your Honor.

JUSTICE CARPIO:

Can the Commission En Banc delegate this function to an SEC officer?

COMMISSIONER GAITE:

Yes, Your Honor, we have delegated it to the General Counsel.

JUSTICE CARPIO:

It can be delegated. What cannot be delegated by the Commission En Banc to a

commissioner or an individual employee of the Commission?

COMMISSIONER GAITE:

Novel opinions that [have] to be decided by the En Banc...

JUSTICE CARPIO:
 What cannot be delegated, among others, is the power to adopt or amend rules and
regulations, correct?

COMMISSIONER GAITE:

That’s correct, Your Honor.

JUSTICE CARPIO:

So, you combine the two (2), the SEC officer, if delegated that power, can issue
an opinion but that opinion does not constitute a rule or regulation, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

So, all of these opinions that you mentioned they are not rules and regulations,
correct?

COMMISSIONER GAITE:

They are not rules and regulations.

JUSTICE CARPIO:

If they are not rules and regulations, they apply only to that particular situation and will
not constitute a precedent, correct?

COMMISSIONER GAITE:

Yes, Your Honor.14 (Emphasis supplied)

Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and
opinions on behalf of the SEC, has adopted even the Grandfather Rule in determining compliance
with the 60-40 ownership requirement in favor of Filipino citizens mandated by the Constitution for
certain economic activities. This prevailing SEC ruling, which the SEC correctly adopted to thwart any
circumvention of the required Filipino "ownership and control," is laid down in the 25 March 2010
SEC en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al.,15 to wit:

The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our
natural resources. Necessarily, therefore, the Rule interpreting the constitutional provision
should not diminish that right through the legal fiction of corporate ownership and control. But
the constitutional provision, as interpreted and practiced via the 1967 SEC Rules, has favored
foreigners contrary to the command of the Constitution. Hence, the Grandfather Rule must be
applied to accurately determine the actual participation, both direct and indirect, of foreigners
in a corporation engaged in a nationalized activity or business.

Compliance with the constitutional limitation(s) on engaging in nationalized activities must be

determined by ascertaining if 60% of the investing corporation’s outstanding capital stock is owned by
"Filipino citizens", or as interpreted, by natural or individual Filipino citizens. If such investing
corporation is in turn owned to some extent by another investing corporation, the same process must
be observed. One must not stop until the citizenships of the individual or natural stockholders of layer
after layer of investing corporations have been established, the very essence of the Grandfather Rule.

Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather
Rule. In one of the discussions on what is now Article XII of the present Constitution, the framers
made the following exchange:

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 a draft. The phrase that is contained here which we adopted from the UP
draft is ‘60 percent of voting stock.’

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another corporation,
say, a corporation with 60-40 percent equity invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied; italicization in the original)

This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership
requirement in favor of Filipino citizens in the Constitution to engage in certain economic activities
applies not only to voting control of the corporation, but also to the beneficial ownership of the
corporation. Thus, in our 28 June 2011 Decision we stated:

Mere legal title is insufficient to meet the 60 percent Filipinoowned "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]."
(Emphasis supplied)

Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine
whether a corporation is a "Philippine national."
The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions
which respondents relied upon, is merely preliminary and an opinion only of such officers. To repeat,
any such opinion does not constitute an SEC rule or regulation. In fact, many of these opinions
contain a disclaimer which expressly states: "x x x the foregoing opinion is based solely on facts
disclosed in your query and relevant only to the particular issue raised therein and shall not be used
in the nature of a standing rule binding upon the Commission in other cases whether of
similar or dissimilar circumstances."16 Thus, the opinions clearly make a caveat that they do not
constitute binding precedents on any one, not even on the SEC itself.

Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither
conclusive nor controlling and thus, do not bind the Court. It is hornbook doctrine that any
interpretation of the law that administrative or quasi-judicial agencies make is only preliminary, never
conclusive on the Court. The power to make a final interpretation of the law, in this case the term
"capital" in Section 11, Article XII of the 1987 Constitution, lies with this Court, not with any other
government entity.

In his motion for reconsideration, the PSE President cites the cases of National Telecommunications
Commission v. Court of Appeals17 and Philippine Long Distance Telephone Company v. National
Telecommunications Commission18 in arguing that the Court has already defined the term "capital" in
Section 11, Article XII of the 1987 Constitution.19

The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of
Appeals20 and Philippine Long Distance Telephone Company v. National Telecommunications
Commission,21 the Court did not define the term "capital" as found in Section 11, Article XII of the
1987 Constitution. In fact, these two cases never mentioned, discussed or cited Section 11,
Article XII of the Constitution or any of its economic provisions, and thus cannot serve as
precedent in the interpretation of Section 11, Article XII of the Constitution. These two cases
dealt solely with the determination of the correct regulatory fees under Section 40(e) and (f) of the
Public Service Act, to wit:

(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of other
public services and/or in the regulation or fixing of their rates, twenty centavos for each one hundred
pesos or fraction thereof, of the capital stock subscribed or paid, or if no shares have been issued,
of the capital invested, or of the property and equipment whichever is higher.

(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or fraction
thereof, of the increased capital. (Emphasis supplied)

The Court’s interpretation in these two cases of the terms "capital stock subscribed or paid," "capital
stock" and "capital" does not pertain to, and cannot control, the definition of the term "capital" as used
in Section 11, Article XII of the Constitution, or any of the economic provisions of the Constitution
where the term "capital" is found. The definition of the term "capital" found in the Constitution must not
be taken out of context. A careful reading of these two cases reveals that the terms "capital stock
subscribed or paid," "capital stock" and "capital" were defined solely to determine the basis for
computing the supervision and regulation fees under Section 40(e) and (f) of the Public Service Act.

III.
Filipinization of Public Utilities

The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies the
ideals that the Constitution intends to achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and
humane society, and establish a Government that shall embody our ideals and aspirations, promote
the common good, conserve and develop our patrimony, and secure to ourselves and our
posterity, the blessings of independence and democracy under the rule of law and a regime of truth,
justice, freedom, love, equality, and peace, do ordain and promulgate this Constitution. (Emphasis
supplied)

Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy
the development of a national economy "effectively controlled" by Filipinos:

Section 19. The State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos.

Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:

Section 10. The Congress shall, upon recommendation of the economic and planning agency, when
the national interest dictates, 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. The Congress shall enact measures that will
encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the
State shall give preference to qualified Filipinos.

The State shall regulate and exercise authority over foreign investments within its national jurisdiction
and in accordance with its national goals and priorities. 23

Under Section 10, Article XII of the 1987 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.

With respect to public utilities, the 1987 Constitution specifically ordains:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive
in character or for a longer period than fifty years. Neither shall any such 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)
This provision, which mandates the Filipinization of public utilities, requires that any form of
authorization for the operation of public utilities shall be granted only to "citizens of the Philippines or
to corporations or associations organized under the laws of the Philippines at least sixty per centum
of whose capital is owned by such citizens." "The provision is [an express] recognition of the
sensitive and vital position of public utilities both in the national economy and for national
security."24

The 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1)
Filipino citizens, or (2) corporations or associations at least 60 percent of whose "capital" is owned by
Filipino citizens. Hence, in the case of individuals, only Filipino citizens can validly own and operate a
public utility. In the case of corporations or associations, at least 60 percent of their "capital" must be
owned by Filipino citizens. In other words, under Section 11, Article XII of the 1987 Constitution,
to own and operate a public utility a corporation’s capital must at least be 60 percent owned
by Philippine nationals.

IV.
Definition of "Philippine National"

Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress
enacted Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA), as amended, which
defined a "Philippine national" as follows:

SEC. 3. Definitions. - As used in this Act:

a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws
of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines; or a corporation organized
abroad and registered as doing business in the Philippines under the Corporation Code of which one
hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where
the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders
own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must
be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of
the Board of Directors of each of both corporations must be citizens of the Philippines, in order that
the corporation, shall be considered a "Philippine national." (Boldfacing, italicization and underscoring
supplied)

Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a
domestic corporation at least "60% of the capital stock outstanding and entitled to vote" is owned
by Philippine citizens.

The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in
its predecessor statute, Executive Order No. 226 or the Omnibus Investments Code of 1987,25 which
was issued by then President Corazon C. Aquino. Article 15 of this Code states:

Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership or
association wholly-owned by citizens of the Philippines; or a corporation organized under the laws
of the Philippines of which at least sixty per cent (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 per cent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That
where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least
sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be
owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of
the Board of Directors of both corporations must be citizens of the Philippines in order that the
corporation shall be considered a Philippine national. (Boldfacing, italicization and underscoring
supplied)

Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x x which is not a
‘Philippine national’ x x x shall do business

x x x in the Philippines x x x without first securing from the Board of Investments a written certificate
to the effect that such business or economic activity x x x would not conflict with the Constitution or
laws of the Philippines."27 Thus, a "non-Philippine national" cannot own and operate a reserved
economic activity like a public utility. This means, of course, that only a "Philippine national" can own
and operate a public utility.

In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code of
1987 was a reiteration of the meaning of such term as provided in Article 14 of the Omnibus
Investments Code of 1981,28 to wit:

Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws
of the Philippines of which at least sixty per cent (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 per cent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That
where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least
sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be
owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of
the Board of Directors of both corporations must be citizens of the Philippines in order that the
corporation shall be considered a Philippine national. (Boldfacing, italicization and underscoring
supplied)

Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x which is not a
‘Philippine national’ x x x shall do business x x x in the Philippines x x x without first securing a written
certificate from the Board of Investments to the effect that such business or economic activity x x x
would not conflict with the Constitution or laws of the Philippines."29 Thus, a "non-Philippine national"
cannot own and operate a reserved economic activity like a public utility. Again, this means that only
a "Philippine national" can own and operate a public utility.

Prior to the Omnibus Investments Code of 1981, Republic Act No. 5186 30 or the Investment
Incentives Act, which took effect on 16 September 1967, contained a similar definition of a "Philippine
national," to wit:

(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or association wholly
owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines
of which at least sixty per cent 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 per cent
of the fund will accrue to the benefit of Philippine Nationals: Provided, That where a corporation and
its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent of the capital
stock outstanding and entitled to vote of both corporations must be owned and held by the citizens of
the Philippines and at least sixty per cent of the members of the Board of Directors of both
corporations must be citizens of the Philippines in order that the corporation shall be considered a
Philippine National. (Boldfacing, italicization and underscoring supplied)

Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took effect
on 30 September 1968, if the investment in a domestic enterprise by non-Philippine nationals
exceeds 30% of its outstanding capital stock, such enterprise must obtain prior approval from the
Board of Investments before accepting such investment. Such approval shall not be granted if the
investment "would conflict with existing constitutional provisions and laws regulating the degree of
required ownership by Philippine nationals in the enterprise." 31 A "non-Philippine national" cannot own
and operate a reserved economic activity like a public utility. Again, this means that only a "Philippine
national" can own and operate a public utility.

The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino
citizen, or a domestic corporation "at least sixty percent (60%) of the capital stock
outstanding and entitled to vote" is owned by Filipino citizens. A domestic corporation is a
"Philippine national" only if at least 60% of its voting stock is owned by Filipino citizens. This
definition of a "Philippine national" is crucial in the present case because the FIA reiterates and
clarifies Section 11, Article XII of the 1987 Constitution, which limits the ownership and operation of
public utilities to Filipino citizens or to corporations or associations at least 60% Filipino-owned.

The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature of
business and area of investment. The FIA spells out the procedures by which non-Philippine
nationals can invest in the Philippines. Among the key features of this law is the concept of a negative
list or the Foreign Investments Negative List.32 Section 8 of the law states:

SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment Negative
List]. - The Foreign Investment Negative List shall have two 2 component lists: A and B:

a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of
the Constitution and specific laws.

b. List B shall contain the areas of activities and enterprises regulated pursuant to law:

1. which are defense-related activities, requiring prior clearance and authorization from the
Department of National Defense [DND] to engage in such activity, such as the manufacture, repair,
storage and/or distribution of firearms, ammunition, lethal weapons, military ordinance, explosives,
pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically
authorized, with a substantial export component, to a non-Philippine national by the Secretary of
National Defense; or

2. which have implications on public health and morals, such as the manufacture and distribution of
dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam
bathhouses and massage clinics. (Boldfacing, underscoring and italicization supplied)

Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign
Investment Negative List A consists of "areas of activities reserved to Philippine nationals by
mandate of the Constitution and specific laws," where foreign equity participation in any
enterprise shall be limited to the maximum percentage expressly prescribed by the
Constitution and other specific laws. In short, to own and operate a public utility in the
Philippines one must be a "Philippine national" as defined in the FIA. The FIA is abundant
notice to foreign investors to what extent they can invest in public utilities in the Philippines.

To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the
ownership and operation of public utilities, which the Constitution expressly reserves to Filipino
citizens and to corporations at least 60% owned by Filipino citizens. In other words, Negative List A
of the FIA reserves the ownership and operation of public utilities only to "Philippine
nationals," defined in Section 3(a) of the FIA as "(1) a citizen of the Philippines; x x x or (3) a
corporation organized under the laws of the Philippines of which at least sixty percent (60%)
of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or (4) a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock
outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine national and at least
sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals."

Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus
Investments Code of 1981, to the enactment of the Omnibus Investments Code of 1987, and to the
passage of the present Foreign Investments Act of 1991, or for more than four decades, the
statutory definition of the term "Philippine national" has been uniform and consistent: it
means a Filipino citizen, or a domestic corporation at least 60% of the voting stock is owned
by Filipinos. Likewise, these same statutes have uniformly and consistently required that only
"Philippine nationals" could own and operate public utilities in the Philippines. The following
exchange during the Oral Arguments is revealing:

JUSTICE CARPIO:

Counsel, I have some questions. You are aware of the Foreign Investments Act of
1991, x x x? And the FIA of 1991 took effect in 1991, correct? That’s over twenty (20)
years ago, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine
nationals can own and operate public utilities[], correct?

COMMISSIONER GAITE:

Yes, Your Honor.

JUSTICE CARPIO:

And the same Foreign Investments Act of 1991 defines a "Philippine national" either as
a citizen of the Philippines, or if it is a corporation at least sixty percent (60%) of the
voting stock is owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:
 Correct, Your Honor.

JUSTICE CARPIO:

And, you are also aware that under the predecessor law of the Foreign Investments Act
of 1991, the Omnibus Investments Act of 1987, the same provisions apply: x x x only
Philippine nationals can own and operate a public utility and the Philippine national, if it
is a corporation, x x x sixty percent (60%) of the capital stock of that corporation must
be owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And even prior to the Omnibus Investments Act of 1987, under the Omnibus
Investments Act of 1981, the same rules apply: x x x only a Philippine national can own
and operate a public utility and a Philippine national, if it is a corporation, sixty percent
(60%) of its x x x voting stock, must be owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And even prior to that, under [the]1967 Investments Incentives Act and the Foreign
Company Act of 1968, the same rules applied, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

So, for the last four (4) decades, x x x, the law has been very consistent – only a
Philippine national can own and operate a public utility, and a Philippine national,
if it is a corporation, x x x at least sixty percent (60%) of the voting stock must be
owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.33 (Emphasis supplied)

Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which
categorically prescribe that certain economic activities, like the ownership and operation of public
utilities, are reserved to corporations "at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines." Foreign Investment Negative List A
refers to "activities reserved to Philippine nationals by mandate of the Constitution and specific
laws." The FIA is the basic statute regulating foreign investments in the Philippines.
Government agencies tasked with regulating or monitoring foreign investments, as well as counsels
of foreign investors, should start with the FIA in determining to what extent a particular foreign
investment is allowed in the Philippines. Foreign investors and their counsels who ignore the FIA do
so at their own peril. Foreign investors and their counsels who rely on opinions of SEC legal officers
that obviously contradict the FIA do so also at their own peril.

Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise a
red flag. There are already numerous opinions of SEC legal officers that cite the definition of a
"Philippine national" in Section 3(a) of the FIA in determining whether a particular corporation is
qualified to own and operate a nationalized or partially nationalized business in the Philippines. This
shows that SEC legal officers are not only aware of, but also rely on and invoke, the provisions of the
FIA in ascertaining the eligibility of a corporation to engage in partially nationalized industries. The
following are some of such opinions:

1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;

2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine Overseas
Employment Administration;

3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S.

Calma;

4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;

5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los
Angeles;

6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and

7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S.
Arbolado.

The SEC legal officers’ occasional but blatant disregard of the definition of the term "Philippine
national" in the FIA signifies their lack of integrity and competence in resolving issues on the 60-40
ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution.

The PSE President argues that the term "Philippine national" defined in the FIA should be limited and
interpreted to refer to corporations seeking to avail of tax and fiscal incentives under investment
incentives laws and cannot be equated with the term "capital" in Section 11, Article XII of the 1987
Constitution. Pangilinan similarly contends that the FIA and its predecessor statutes do not apply to
"companies which have not registered and obtained special incentives under the schemes
established by those laws."

Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any
enterprise. Tax and fiscal incentives to investments are granted separately under the Omnibus
Investments Code of 1987, not under the FIA. In fact, the FIA expressly repealed Articles 44 to 56 of
Book II of the Omnibus Investments Code of 1987, which articles previously regulated foreign
investments in nationalized or partially nationalized industries.

The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized
industries. There is nothing in the FIA, or even in the Omnibus Investments Code of 1987 or its
predecessor statutes, that states, expressly or impliedly, that the FIA or its predecessor statutes do
not apply to enterprises not availing of tax and fiscal incentives under the Code. The FIA and its
predecessor statutes apply to investments in all domestic enterprises, whether or not such
enterprises enjoy tax and fiscal incentives under the Omnibus Investments Code of 1987 or its
predecessor statutes. The reason is quite obvious – mere non-availment of tax and fiscal
incentives by a non-Philippine national cannot exempt it from Section 11, Article XII of the
Constitution regulating foreign investments in public utilities. In fact, the Board of
Investments’ Primer on Investment Policies in the Philippines,34 which is given out to foreign
investors, provides:

PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES

Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives,
(i.e., the activity is not listed in the IPP, and they are not exporting at least 70% of their production)
may go ahead and make the investments without seeking incentives. They only have to be guided
by the Foreign Investments Negative List (FINL).

The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas
outside of this list are fully open to foreign investors. (Emphasis supplied)

V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.

The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the
Constitution to engage in certain economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the corporation. To repeat, we held:

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]."
(Emphasis supplied)

This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is
held by "a trustee of funds for pension or other employee retirement or separation benefits," the
trustee is a Philippine national if "at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals." Likewise, Section 1(b) of the Implementing Rules of the FIA provides that "for
stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is
not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled
with appropriate voting rights, is essential."

Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to
voting control of the corporation but also to the beneficial ownership of the corporation, it is therefore
imperative that such requirement apply uniformly and across the board to all classes of shares,
regardless of nomenclature and category, comprising the capital of a corporation. Under the
Corporation Code, capital stock35 consists of all classes of shares issued to stockholders, that is,
common shares as well as preferred shares, which may have different rights, privileges or restrictions
as stated in the articles of incorporation.36

The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but
disallows denial of the right to vote in specific corporate matters. Thus, common shares have the right
to vote in the election of directors, while preferred shares may be denied such right. Nonetheless,
preferred shares, even if denied the right to vote in the election of directors, are entitled to vote on the
following corporate matters: (1) amendment of articles of incorporation; (2) increase and decrease of
capital stock; (3) incurring, creating or increasing bonded indebtedness; (4) sale, lease, mortgage or
other disposition of substantially all corporate assets; (5) investment of funds in another business or
corporation or for a purpose other than the primary purpose for which the corporation was organized;
(6) adoption, amendment and repeal of by-laws; (7) merger and consolidation; and (8) dissolution of
corporation.37

Since a specific class of shares may have rights and privileges or restrictions different from the rest of
the shares in a corporation, the 60-40 ownership requirement in favor of Filipino citizens in Section
11, Article XII of the Constitution must apply not only to shares with voting rights but also to shares
without voting rights. Preferred shares, denied the right to vote in the election of directors, are anyway
still entitled to vote on the eight specific corporate matters mentioned above. Thus, if a corporation,
engaged in a partially nationalized industry, issues a mixture of common and preferred non-
voting shares, at least 60 percent of the common shares and at least 60 percent of the
preferred non-voting shares must be owned by Filipinos. Of course, if a corporation issues only a
single class of shares, at least 60 percent of such shares must necessarily be owned by Filipinos. In
short, the 60-40 ownership requirement in favor of Filipino citizens must apply separately to
each class of shares, whether common, preferred non-voting, preferred voting or any other
class of shares. This uniform application of the 60-40 ownership requirement in favor of Filipino
citizens clearly breathes life to the constitutional command that the ownership and operation of public
utilities shall be reserved exclusively to corporations at least 60 percent of whose capital is Filipino-
owned. Applying uniformly the 60-40 ownership requirement in favor of Filipino citizens to each class
of shares, regardless of differences in voting rights, privileges and restrictions, guarantees effective
Filipino control of public utilities, as mandated by the Constitution.

Moreover, such uniform application to each class of shares insures that the "controlling interest" in
public utilities always lies in the hands of Filipino citizens. This addresses and extinguishes
Pangilinan’s worry that foreigners, owning most of the non-voting shares, will exercise greater control
over fundamental corporate matters requiring two-thirds or majority vote of all shareholders.

VI.
Intent of the framers of the Constitution

While Justice Velasco quoted in his Dissenting Opinion38 a portion of the deliberations of the
Constitutional Commission to support his claim that the term "capital" refers to the total outstanding
shares of stock, whether voting or non-voting, the following excerpts of the deliberations reveal
otherwise. It is clear from the following exchange that the term "capital" refers to controlling
interest of a corporation, thus:

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 Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law
Center who provided us a draft. The phrase that is contained here which we adopted from the
UP draft is "60 percent of voting stock."

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-
40 percent equity invests in another corporation which is permitted by the Corporation Code, does the
Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.39

xxxx

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or
controlling interest."

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read:
"corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens."

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be
owned by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us
say 40 percent of the capital is owned by them, but it is the voting capital, whereas, the
Filipinos own the nonvoting shares. So we can have a situation where the corporation is
controlled by foreigners despite being the minority because they have the voting capital. That
is the anomaly that would result here.

MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935
Constitutions is that according to Commissioner Rodrigo, there are associations that do not
have stocks. That is why we say "CAPITAL."

MR. AZCUNA. We should not eliminate the phrase "controlling interest."

MR. BENGZON. In the case of stock corporations, it is assumed.40 (Boldfacing and underscoring
supplied)

Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the
corporation.

The use of the term "capital" was intended to replace the word "stock" because associations without
stocks can operate public utilities as long as they meet the 60-40 ownership requirement in favor of
Filipino citizens prescribed in Section 11, Article XII of the Constitution. However, this did not change
the intent of the framers of the Constitution to reserve exclusively to Philippine nationals the
"controlling interest" in public utilities.

During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the
nationalists in the Convention."41 The same battle-cry resulted in the nationalization of the public
utilities.42 This is also the same intent of the framers of the 1987 Constitution who adopted the exact
formulation embodied in the 1935 and 1973 Constitutions on foreign equity limitations in partially
nationalized industries.

The OSG, in its own behalf and as counsel for the State, 43 agrees fully with the Court’s interpretation
of the term "capital." In its Consolidated Comment, the OSG explains that the deletion of the phrase
"controlling interest" and replacement of the word "stock" with the term "capital" were intended
specifically to extend the scope of the entities qualified to operate public utilities to include
associations without stocks. The framers’ omission of the phrase "controlling interest" did not mean
the inclusion of all shares of stock, whether voting or non-voting. The OSG reiterated essentially the
Court’s declaration that the Constitution reserved exclusively to Philippine nationals the ownership
and operation of public utilities consistent with the State’s policy to "develop a self-reliant and
independent national economy effectively controlled by Filipinos."

As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total
outstanding capital stock, treated as a single class regardless of the actual classification of 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." We illustrated the glaring
anomaly which would result in defining the term "capital" as the total outstanding capital stock of a
corporation, treated as a single class of shares regardless of the actual classification of shares, to
wit:

Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-
voting preferred shares owned by Filipinos, with both classes of share having a par value of one peso
(₱ 1.00) per share. Under the broad definition of the term "capital," such corporation would be
considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since
the overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is
Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the
election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less
than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, holding
more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no
control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as
well as the clear language of the Constitution, to place the control of public utilities in the hands of
Filipinos. x x x
Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino
board of directors, this situation does not guarantee Filipino control and does not in any way cure the
violation of the Constitution. The independence of the Filipino board members so elected by such
foreign shareholders is highly doubtful. As the OSG pointed out, quoting Justice George Sutherland’s
words in Humphrey’s Executor v. US,44 "x x x it is quite evident that one who holds his office only
during the pleasure of another cannot be depended upon to maintain an attitude of independence
against the latter’s will." Allowing foreign shareholders to elect a controlling majority of the board,
even if all the directors are Filipinos, grossly circumvents the letter and intent of the Constitution and
defeats the very purpose of our nationalization laws.

VII.
Last sentence of Section 11, Article XII of the Constitution

The last sentence of Section 11, Article XII of the 1987 Constitution reads:

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.

During the Oral Arguments, the OSG emphasized that there was never a question on the intent of the
framers of the Constitution to limit foreign ownership, and assure majority Filipino ownership and
control of public utilities. The OSG argued, "while the delegates disagreed as to the percentage
threshold to adopt, x x x the records show they clearly understood that Filipino control of the public
utility corporation can only be and is obtained only through the election of a majority of the members
of the board."

Indeed, the only point of contention during the deliberations of the Constitutional Commission on 23
August 1986 was the extent of majority Filipino control of public utilities. This is evident from the
following exchange:

THE PRESIDENT. Commissioner Jamir is recognized.

MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the phrase
"two thirds of whose voting stock or controlling interest," and instead substitute the words "SIXTY
PERCENT OF WHOSE CAPITAL" so that the sentence will read: "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 PERCENT OF WHOSE CAPITAL is owned by such citizens."

xxxx

THE PRESIDENT: Will Commissioner Jamir first explain?

MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous
sections in which we fixed the Filipino equity to 60 percent as against 40 percent for foreigners. It is
only in this Section 15 with respect to public utilities that the committee proposal was increased to
two-thirds. I think it would be better to harmonize this provision by providing that even in the case of
public utilities, the minimum equity for Filipino citizens should be 60 percent.

MR. ROMULO. Madam President.

THE PRESIDENT. Commissioner Romulo is recognized.

MR. ROMULO. My reason for supporting the amendment is based on the discussions I have had with
representatives of the Filipino majority owners of the international record carriers, and the subsequent
memoranda they submitted to me. x x x

Their second point is that under the Corporation Code, the management and control of a corporation
is vested in the board of directors, not in the officers but in the board of directors. The officers are only
agents of the board. And they believe that with 60 percent of the equity, the Filipino majority
stockholders undeniably control the board. Only on important corporate acts can the 40-percent
foreign equity exercise a veto, x x x.

x x x x45

MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. Commissioner Rosario Braid is recognized.

MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a memorandum by the
spokesman of the Philippine Chamber of Communications on why they would like to maintain the
present equity, I am referring to the 66 2/3. They would prefer to have a 75-25 ratio but would settle
for 66 2/3. x x x

xxxx

THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-
thirds rather than the 60 percent?

MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino
citizens.

x x x x46

While they had differing views on the percentage of Filipino ownership of capital, it is clear that the
framers of the Constitution intended public utilities to be majority Filipino-owned and controlled. To
ensure that Filipinos control public utilities, the framers of the Constitution approved, as additional
safeguard, the inclusion of the last sentence of Section 11, Article XII of the Constitution commanding
that "[t]he 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." In other words, the last sentence
of Section 11, Article XII of the Constitution mandates that (1) the participation of foreign investors in
the governing body of the corporation or association shall be limited to their proportionate share in the
capital of such entity; and (2) all officers of the corporation or association must be Filipino citizens.

Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers of
the corporation or association to be Filipino citizens specifically to prevent management contracts,
which were designed primarily to circumvent the Filipinization of public utilities, and to assure Filipino
control of public utilities, thus:

MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a
phrase which states: "THE MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION
SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me
their position paper.
THE PRESIDENT. The Commissioner may proceed.

MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which
Commissioner Romulo mentioned – Philippine Global Communications, Eastern
Telecommunications, Globe Mackay Cable – are 40-percent owned by foreign multinational
companies and 60-percent owned by their respective Filipino partners. All three, however, also have
management contracts with these foreign companies – Philcom with RCA, ETPI with Cable and
Wireless PLC, and GMCR with ITT. Up to the present time, the general managers of these carriers
are foreigners. While the foreigners in these common carriers are only minority owners, the foreign
multinationals are the ones managing and controlling their operations by virtue of their management
contracts and by virtue of their strength in the governing bodies of these carriers.47

xxxx

MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an
amendment with respect to the operating management of public utilities, and in this amendment, we
are associated with Fr. Bernas, Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will
state this amendment now.

Thank you.

MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. This is still on Section 15.

MS. ROSARIO BRAID. Yes.

MR. VILLEGAS. Yes, Madam President.

xxxx

MS. ROSARIO BRAID. Madam President, I propose a new section to read: ‘THE MANAGEMENT
BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED
BY CITIZENS OF THE PHILIPPINES."

This will prevent management contracts and assure control by Filipino citizens. Will the
committee assure us that this amendment will insure that past activities such as management
contracts will no longer be possible under this amendment?

xxxx

FR. BERNAS. Madam President.

THE PRESIDENT. Commissioner Bernas is recognized.

FR. BERNAS. Will the committee accept a reformulation of the first part?

MR. BENGZON. Let us hear it.

FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which reads:
"THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC
UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE
CAPITAL THEREOF AND..."

MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS
AND ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."

MR. BENGZON. Will Commissioner Bernas read the whole thing again?

FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF

ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN
THE CAPITAL THEREOF..." I do not have the rest of the copy.

MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that
correct?

MR. VILLEGAS. Yes.

MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept the
amendment. Is that all right with Commissioner Rosario Braid?

MS. ROSARIO BRAID. Yes.

xxxx

MR. DE LOS REYES. The governing body refers to the board of directors and trustees.

MR. VILLEGAS. That is right.

MR. BENGZON. Yes, the governing body refers to the board of directors.

MR. REGALADO. It is accepted.

MR. RAMA. The body is now ready to vote, Madam President.

VOTING

xxxx

The results show 29 votes in favor and none against; so the proposed amendment is approved.

xxxx

THE PRESIDENT. All right. Can we proceed now to vote on Section 15?

MR. RAMA. Yes, Madam President.

THE PRESIDENT. Will the chairman of the committee please read Section 15?

MR. VILLEGAS. The entire Section 15, as amended, reads: "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 60
PERCENT OF WHOSE CAPITAL is owned by such citizens." May I request Commissioner Bengzon
to please continue reading.

MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY

OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE
SHARE IN THE CAPITAL THEREOF AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF
SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."

MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE

EXCLUSIVE IN CHARACTER OR FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS
RENEWABLE FOR NOT MORE THAN TWENTY-FIVE YEARS. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment, alteration, or repeal
by Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public."

VOTING

xxxx

The results show 29 votes in favor and 4 against; Section 15, as amended, is approved. 48 (Emphasis
supplied)

The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on the
limited participation of foreign investors in the governing body of public utilities, is a reiteration of the
last sentence of Section 5, Article XIV of the 1973 Constitution,49 signifying its importance in reserving
ownership and control of public utilities to Filipino citizens.

VIII.
The undisputed facts

There is no dispute, and respondents do not claim the contrary, that (1) foreigners own 64.27% of the
common shares of PLDT, which class of shares exercises the sole right to vote in the election of
directors, and thus foreigners control PLDT; (2) Filipinos own only 35.73% of PLDT’s common
shares, constituting a minority of the voting stock, and thus Filipinos do not control 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;50 (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%.

Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the question
of whether PLDT violated the 60-40 ownership requirement in favor of Filipino citizens in Section 11,
Article XII of the 1987 Constitution. Such question indisputably calls for a presentation and
determination of evidence through a hearing, which is generally outside the province of the Court’s
jurisdiction, but well within the SEC’s statutory powers. Thus, for obvious reasons, the Court limited
its decision on the purely legal and threshold issue on the definition of the term "capital" in Section 11,
Article XII of the Constitution and directed the SEC to apply such definition in determining the exact
percentage of foreign ownership in PLDT.

IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:

xxxx

5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is
the sole basis in determining foreign equity in a public utility and that any other government rulings,
opinions, and regulations inconsistent with this declaratory relief be declared unconstitutional and a
violation of the intent and spirit of the 1987 Constitution;

6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess
of 40 percent of the total subscribed common shareholdings; and

7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine
Stock Exchange to require PLDT to make a public disclosure of all of its foreign shareholdings
and their actual and real beneficial owners.

Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)

As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its
statutory duty to investigate whether "the required percentage of ownership of the capital stock to be
owned by citizens of the Philippines has been complied with [by PLDT] as required by x x x the
Constitution."51 Such plea clearly negates SEC’s argument that it was not impleaded.

Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to
order the SEC’s compliance with its directive contained in the 28 June 2011 Decision in view of the
far-reaching implications of this case. In Domingo v. Scheer,52 the Court dispensed with the
amendment of the pleadings to implead the Bureau of Customs considering (1) the unique backdrop
of the case; (2) the utmost need to avoid further delays; and (3) the issue of public interest involved.
The Court held:

The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition
should not be dismissed because the second action would only be a repetition of the first.
In Salvador, et al., v. Court of Appeals, et al., we held that this Court has full powers, apart from that
power and authority which is inherent, to amend the processes, pleadings, proceedings and decisions
by substituting as party-plaintiff the real party-in-interest. The Court has the power to avoid delay in
the disposition of this case, to order its amendment as to implead the BOC as party-
respondent. Indeed, it may no longer be necessary to do so taking into account the unique
backdrop in this case, involving as it does an issue of public interest. After all, the Office of the
Solicitor General has represented the petitioner in the instant proceedings, as well as in the appellate
court, and maintained the validity of the deportation order and of the BOC’s Omnibus Resolution. It
cannot, thus, be claimed by the State that the BOC was not afforded its day in court, simply because
only the petitioner, the Chairperson of the BOC, was the respondent in the CA, and the petitioner in
the instant recourse. In Alonso v. Villamor, we had the occasion to state:

There is nothing sacred about processes or pleadings, their forms or contents. Their sole
purpose is to facilitate the application of justice to the rival claims of contending parties. They
were created, not to hinder and delay, but to facilitate and promote, the administration of justice. They
do not constitute the thing itself, which courts are always striving to secure to litigants. They are
designed as the means best adapted to obtain that thing. In other words, they are a means to an end.
When they lose the character of the one and become the other, the administration of justice is at fault
and courts are correspondingly remiss in the performance of their obvious duty. 53 (Emphasis
supplied)
In any event, the SEC has expressly manifested54 that it will abide by the Court’s decision and
defer to the Court’s definition of the term "capital" in Section 11, Article XII of the Constitution.
Further, the SEC entered its special appearance in this case and argued during the Oral
Arguments, indicating its submission to the Court’s jurisdiction. It is clear, therefore, that
there exists no legal impediment against the proper and immediate implementation of the
Court’s directive to the SEC.

PLDT is an indispensable party only insofar as the other issues, particularly the factual questions, are
concerned. In other words, PLDT must be impleaded in order to fully resolve the issues on (1)
whether the sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign
ownership of PLDT; (2) whether the sale of common shares to foreigners exceeded the 40 percent
limit on foreign equity in PLDT; and (3) whether the total percentage of the PLDT common shares
with voting rights complies with the 60-40 ownership requirement in favor of Filipino citizens under the
Constitution for the ownership and operation of PLDT. These issues indisputably call for an
examination of the parties’ respective evidence, and thus are clearly within the jurisdiction of the SEC.
In short, PLDT must be impleaded, and must necessarily be heard, in the proceedings before the
SEC where the factual issues will be thoroughly threshed out and resolved.

Notably, the foregoing issues were left untouched by the Court. The Court did not rule on the
factual issues raised by Gamboa, except the single and purely legal issue on the definition of the term
"capital" in Section 11, Article XII of the Constitution. The Court confined the resolution of the instant
case to this threshold legal issue in deference to the fact-finding power of the SEC.

Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in
this case even without the participation of PLDT since defining the term "capital" in Section 11, Article
XII of the Constitution does not, in any way, depend on whether PLDT was impleaded. Simply put,
PLDT is not indispensable for a complete resolution of the purely legal question in this case.55 In fact,
the Court, by treating the petition as one for mandamus,56 merely directed the SEC to apply the
Court’s definition of the term "capital" in Section 11, Article XII of the Constitution in determining
whether PLDT committed any violation of the said constitutional provision. The dispositive portion
of the Court’s ruling is addressed not to PLDT but solely to the SEC, which is the
administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the Constitution.

Since the Court limited its resolution on the purely legal issue on the definition of the term "capital" in
Section 11, Article XII of the 1987 Constitution, and directed the SEC to investigate any violation by
PLDT of the 60-40 ownership requirement in favor of Filipino citizens under the Constitution, 57 there is
no deprivation of PLDT’s property or denial of PLDT’s right to due process, contrary to Pangilinan and
Nazareno’s misimpression. Due process will be afforded to PLDT when it presents proof to the SEC
that it complies, as it claims here, with Section 11, Article XII of the Constitution.

X.
Foreign Investments in the Philippines

Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in
a sudden flight of existing foreign investors to "friendlier" countries and simultaneously deterring new
foreign investors to our country. In particular, the PSE claims that the 28 June 2011 Decision may
result in the following: (1) loss of more than ₱ 630 billion in foreign investments in PSE-listed shares;
(2) massive decrease in foreign trading transactions; (3) lower PSE Composite Index; and (4) local
investors not investing in PSE-listed shares.58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants’
apprehension. Without providing specific details, he pointed out the depressing state of the Philippine
economy compared to our neighboring countries which boast of growing economies. Further, Dr.
Villegas explained that the solution to our economic woes is for the government to "take-over"
strategic industries, such as the public utilities sector, thus:

JUSTICE CARPIO:

I would like also to get from you Dr. Villegas if you have additional information on whether this high
FDI59 countries in East Asia have allowed foreigners x x x control [of] their public utilities, so that we
can compare apples with apples.

DR. VILLEGAS:

Correct, but let me just make a comment. When these neighbors of ours find an industry strategic,
their solution is not to "Filipinize" or "Vietnamize" or "Singaporize." Their solution is to make sure
that those industries are in the hands of state enterprises. So, in these countries,
nationalization means the government takes over. And because their governments are
competent and honest enough to the public, that is the solution. x x x 60 (Emphasis supplied)

If government ownership of public utilities is the solution, then foreign investments in our public
utilities serve no purpose. Obviously, there can never be foreign investments in public utilities if, as
Dr. Villegas claims, the "solution is to make sure that those industries are in the hands of state
enterprises." Dr. Villegas’s argument that foreign investments in telecommunication companies like
PLDT are badly needed to save our ailing economy contradicts his own theory that the solution is for
government to take over these companies. Dr. Villegas is barking up the wrong tree since State
ownership of public utilities and foreign investments in such industries are diametrically opposed
concepts, which cannot possibly be reconciled.

In any event, the experience of our neighboring countries cannot be used as argument to decide the
present case differently for two reasons. First, the governments of our neighboring countries have, as
claimed by Dr. Villegas, taken over ownership and control of their strategic public utilities like the
telecommunications industry. Second, our Constitution has specific provisions limiting foreign
ownership in public utilities which the Court is sworn to uphold regardless of the experience of our
neighboring countries.

In our jurisdiction, the Constitution expressly reserves the ownership and operation of public utilities
to Filipino citizens, or corporations or associations at least 60 percent of whose capital belongs to
Filipinos. Following Dr. Villegas’s claim, the Philippines appears to be more liberal in allowing foreign
investors to own 40 percent of public utilities, unlike in other Asian countries whose governments own
and operate such industries.

XI.
Prospective Application of Sanctions

In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the
application and imposition of appropriate sanctions against PLDT if found violating Section 11, Article
XII of the Constitution.1avvphi1

As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated
Section 11, Article XII of the Constitution. Thus, there is no dispute that it is only after the SEC has
determined PLDT’s violation, if any exists at the time of the commencement of the administrative
case or investigation, that the SEC may impose the statutory sanctions against PLDT. In other words,
once the 28 June 2011 Decision becomes final, the SEC shall impose the appropriate sanctions only
if it finds after due hearing that, at the start of the administrative case or investigation, there is an
existing violation of Section 11, Article XII of the Constitution. Under prevailing jurisprudence, public
utilities that fail to comply with the nationality requirement under Section 11, Article XII and the FIA
can cure their deficiencies prior to the start of the administrative case or investigation. 61

XII.
Final Word

The Constitution expressly declares as State policy the development of an economy "effectively
controlled" by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the
ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of
whose capital with voting rights belongs to Filipinos. The FIA’s implementing rules explain that "[f]or
stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is
not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled
with appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and confirms the
interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares
with voting rights, as well as with full beneficial ownership. This is precisely because the right to
vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective
control of a corporation.

Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes
the letter and intent of the Constitution. Any other meaning of the term "capital" openly invites alien
domination of economic activities reserved exclusively to Philippine nationals. Therefore,
respondents’ interpretation will ultimately result in handing over effective control of our national
economy to foreigners in patent violation of the Constitution, making Filipinos second-class citizens in
their own country.

Filipinos have only to remind themselves of how this country was exploited under the Parity
Amendment, which gave Americans the same rights as Filipinos in the exploitation of natural
resources, and in the ownership and control of public utilities, in the Philippines. To do this the 1935
Constitution, which contained the same 60 percent Filipino ownership and control requirement as the
present 1987 Constitution, had to be amended to give Americans parity rights with Filipinos. There
was bitter opposition to the Parity Amendment62 and many Filipinos eagerly awaited its expiration. In
late 1968, PLDT was one of the American-controlled public utilities that became Filipino-controlled
when the controlling American stockholders divested in anticipation of the expiration of the Parity
Amendment on 3 July 1974.63 No economic suicide happened when control of public utilities and
mining corporations passed to Filipinos’ hands upon expiration of the Parity Amendment.

Movants’ interpretation of the term "capital" would bring us back to the same evils spawned by the
Parity Amendment, effectively giving foreigners parity rights with Filipinos, but this time even
without any amendment to the present Constitution. Worse, movants’ interpretation opens up our
national economy to effective control not only by Americans but also by all foreigners, be they
Indonesians, Malaysians or Chinese, even in the absence of reciprocal treaty arrangements. At
least the Parity Amendment, as implemented by the Laurel-Langley Agreement, gave the capital-
starved Filipinos theoretical parity – the same rights as Americans to exploit natural resources, and to
own and control public utilities, in the United States of America. Here, movants’ interpretation would
effectively mean a unilateral opening up of our national economy to all foreigners, without any
reciprocal arrangements. That would mean that Indonesians, Malaysians and Chinese nationals
could effectively control our mining companies and public utilities while Filipinos, even if they have the
capital, could not control similar corporations in these countries.

The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control
requirement for public utilities like PLOT. Any deviation from this requirement necessitates an
amendment to the Constitution as exemplified by the Parity Amendment. This Court has no power to
amend the Constitution for its power and duty is only to faithfully apply and interpret the Constitution.

WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall
be entertained.

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 Decision 1 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 Redmont’s 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 Redmont’s 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. McArthur’s FTAA was denominated as AFTA-IVB-0912 on May 2007, while
Tesoro’s MPSA application was converted to AFTA-IVB-0813 on May 28, 2007, and Narra’s 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 Redmont’s 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 Redmont’s 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 Reconsideration 19 of the September
10, 2008 Order of the MAB. Subsequently, it filed a Supplemental Motion for Reconsideration 20 on
September 29, 2008.

Before the MAB could resolve Redmont’s Motion for Reconsideration and Supplemental Motion for
Reconsideration, Redmont filed before the RTC a Supplemental Complaint 21 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
Redmont’s Motion for Reconsideration and Supplement Motion for Reconsideration of the MAB’s
September 10, 2008 Resolution.

On July 1, 2009, however, the MAB issued a second Order denying Redmont’s 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 POA’s
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 POA’s 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 POA’s 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 Resolution 30 dated
July 6, 2011. Petitioners then filed a Petition for Review on Certiorari of the OP’s 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 Redmont’s 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 country’s 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 Country’s 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 CA’s 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 CA’s 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 OP’s 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 court’s 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 country’s 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 Chairman’s 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 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 apply. (emphasis supplied)

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 corporation––MBMI, 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 stockholdings are less than 60% fails to
convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an
example of an instance where "doubt" as to the ownership of the corporation exists. It would be
ludicrous to limit the application of the said word only to the instances where the stockholdings of
non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The
corporations interested in circumventing our laws would clearly strive to have "60% Filipino
Ownership" at face value. It would be senseless for these applying corporations to state in their
respective articles of incorporation that they have less than 60% Filipino stockholders since the
applications will be denied instantly. Thus, various corporate schemes and layerings are utilized to
circumvent the application of the Constitution.

Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to
circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual
participation, direct or indirect, of MBMI, the grandfather rule must be used.

McArthur Mining, Inc.

To establish the actual ownership, interest or participation of MBMI in each of petitioners’ corporate
structure, they have to be "grandfathered."

As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its
application from SMMI. McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided
into 10,000 common shares at one thousand pesos (PhP 1,000) per share, subscribed to by the
following:44

Name Nationality Number of Amount Amount Paid

Shares Subscribed
Madridejos Filipino 5,997 PhP PhP 825,000.00
Mining 5,997,000.00
Corporation
MBMI Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60
 Resources, Inc.
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Agcaoili
Michael T. American 1 PhP 1,000.00 PhP 1,000.00
Mason
Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00
Cawkell
Total 10,000 PhP PhP 2,708,174.60
10,000,000.00 (emphasis
supplied)

Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure
and composition as McArthur. In fact, it would seem that MBMI is also a major investor and
"controls"45 MBMI and also, similar nominal shareholders were present, i.e. Fernando B. Esguerra
(Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):

Madridejos Mining Corporation

Name Nationality Number of Amount Amount Paid

Shares Subscribed
Olympic Mines Filipino 6,663 PhP PhP 0
& 6,663,000.00

Development

Corp.
MBMI Canadian 3,331 PhP PhP 2,803,900.00
Resources, 3,331,000.00

Inc.
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando
Michael T. American 1 PhP 1,000.00 PhP 1,000.00
Mason
 Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00
Cawkell
Total 10,000 PhP PhP 2,809,900.00
10,000,000.00
(emphasis
supplied)

Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with
respect to the number of shares they subscribed to in the corporation, which is quite absurd since
Olympic is the major stockholder in MMC. MBMI’s 2006 Annual Report sheds light on why Olympic
failed to pay any amount with respect to the number of shares it subscribed to. It states that Olympic
entered into joint venture agreements with several Philippine companies, wherein it holds directly and
indirectly a 60% effective equity interest in the Olympic Properties.46 Quoting the said Annual report:

On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic")
entered into a series of agreements including a Property Purchase and Development Agreement (the
Transaction Documents) with respect to three nickel laterite properties in Palawan, Philippines (the
"Olympic Properties"). The Transaction Documents effectively establish a joint venture between the
Company and Olympic for purposes of developing the Olympic Properties. The Company holds
directly and indirectly an initial 60% interest in the joint venture. Under certain circumstances and
upon achieving certain milestones, the Company may earn up to a 100% interest, subject to a 2.5%
net revenue royalty.47 (emphasis supplied)

Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company

layering was utilized by MBMI to gain control over McArthur. It is apparent that MBMI has more than
60% or more equity interest in McArthur, making the latter a foreign corporation.

Tesoro Mining and Development, Inc.

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos
(PhP 10,000,000) divided into ten thousand (10,000) common shares at PhP 1,000 per share, as
demonstrated below:

[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number Amount Amount Paid

of
Subscribed
Shares

Sara Marie Filipino 5,997 PhP PhP 825,000.00

5,997,000.00
Mining, Inc.

MBMI Canadian 3,998 PhP PhP

3,998,000.00 1,878,174.60
Resources,
Inc.
Lauro L. Filipino 1 PhP 1,000.00 PhP 1,000.00
Salazar

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Michael T. American 1 PhP 1,000.00 PhP 1,000.00

Mason

Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00

Cawkell

Total 10,000 PhP PhP

10,000,000.00 2,708,174.60

(emphasis
supplied)

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the
corporate structure of petitioner McArthur, down to the last centavo. All the other shareholders are the
same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell. The figures under "Nationality,"
"Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same. Delving deeper,
we scrutinize SMMI’s corporate structure:

Sara Marie Mining, Inc.

[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number Amount Amount Paid

of
Subscribed
Shares

Olympic Mines Filipino 6,663 PhP PhP 0

& 6,663,000.00

Development

Corp.

MBMI Canadian 3,331 PhP PhP

Resources, 3,331,000.00 2,794,000.00

Inc.
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando

Michael T. American 1 PhP 1,000.00 PhP 1,000.00

Mason

Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00

Cawkell

Total 10,000 PhP PhP

10,000,000.00 2,809,900.00

(emphasis
supplied)

After subsequently studying SMMI’s corporate structure, it is not farfetched for us to spot the glaring
similarity between SMMI and MMC’s corporate structure. Again, the presence of identical
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando,
Mason and Cawkell. The figures under the headings "Nationality," "Number of Shares," "Amount
Subscribed," and "Amount Paid" are exactly the same except for the amount paid by MBMI which
now reflects the amount of two million seven hundred ninety four thousand pesos (PhP 2,794,000).
Oddly, the total value of the amount paid is two million eight hundred nine thousand nine hundred
pesos (PhP 2,809,900).

Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s participation in

SMMI’s corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or more equity
interest in Tesoro. This makes petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it to
participate in the exploitation, utilization and development of our natural resources.

Narra Nickel Mining and Development Corporation

Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC’s MPSA
application, whose corporate structure’s arrangement is similar to that of the first two petitioners
discussed. The capital stock of Narra is ten million pesos (PhP 10,000,000), which is divided into ten
thousand common shares (10,000) at one thousand pesos (PhP 1,000) per share, shown as follows:

[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number Amount Amount Paid

of
Subscribed
 Shares

Patricia Louise Filipino 5,997 PhP PhP

5,997,000.00 1,677,000.00
Mining &

Development

Corp.

MBMI Canadian 3,998 PhP PhP

3,996,000.00 1,116,000.00
Resources,
Inc.

Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00

Mendoza, Jr.

Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernandez

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Bocalan

Bayani H. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agabin

Robert L. American 1 PhP 1,000.00 PhP 1,000.00

McCurdy

Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00

Cawkell

Total 10,000 PhP PhP

10,000,000.00 2,800,000.00
(emphasis
supplied)

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in
this corporate structure.

Patricia Louise Mining & Development Corporation

Using the grandfather method, we further look and examine PLMDC’s corporate structure:
 Name Nationality Number Amount Amount Paid
of Shares Subscribed
Palawan Alpha South Filipino 6,596 PhP PhP 0
Resources 6,596,000.00
Development
Corporation
MBMI Resources, Canadian 3,396 PhP PhP
3,396,000.00 2,796,000.00
Inc.
Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP PhP
10,000,000.00 2,708,174.60
(emphasis
supplied)

Yet again, the usual players in petitioners’ corporate structures are present. Similarly, the amount of
money paid by the 2nd tier majority stock holder, in this case, Palawan Alpha South Resources and
Development Corp. (PASRDC), is zero.

Studying MBMI’s Summary of Significant Accounting Policies dated October 31, 2005 explains the
reason behind the intricate corporate layering that MBMI immersed itself in:

JOINT VENTURES The Company’s ownership interests in various mining ventures engaged in the
acquisition, exploration and development of mineral properties in the Philippines is described as
follows:

(a) Olympic Group

The Philippine companies holding the Olympic Property, and the ownership and interests therein, are
as follows:

Olympic- Philippines (the "Olympic Group")

Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%

Tesoro Mining & Development, Inc. (Tesoro) 60.0%

Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an
effective equity interest in the Olympic Property of 60.0%. Pursuant to a shareholders’ agreement, the
Company exercises joint control over the companies in the Olympic Group.

(b) Alpha Group

The Philippine companies holding the Alpha Property, and the ownership interests therein, are as
follows:

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, MBMI’s Summary of Significant
Accounting Policies statement– –regarding the "joint venture" agreements that it entered into with the
"Olympic" and "Alpha" groups––involves 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 CA’s 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.

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

Accordingly, culled from the incidents and records of this case, it can be 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 Department’s 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 Department’s 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.

POA’s 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, POA’s 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 Redmont’s 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.1âwphi1 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 POA’s 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 MBMI’s 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.1âwphi1 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.