Ortega vs CA, GRN 109248, July 3, 1995

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its
creation prevent the dissolution of any partnership by an act or will of a partner. Among partners, mutual agency arises
and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action for damages. (Ortega vs
CA, GRN 109248, July 3, 1995)
FACTS: The law firm of R,L,S and C was duly registered in the Mercantile Registry and reconstituted with the SEC. There
were several amendments to its articles of partnership. Respondent-Appellees senior and junior partners associated
themselves together. Ortega informed them through a letter that he is retiring from the firm of Bito, Misa and Lozada
regarding the liquidation of his participation in it. He later on filed with the SICD a petition for dissolution and liquidation of
partnership.
Hearing Officer: said withdrawal of O did not dissolve the law partnership and both parties to the case are enjoined to
abide by the provisions of the Agreement re: the liquidation of the shares of any retiring or withdrawing partner.
SEC: reversed the decision ruling that the withdrawal had in fact dissolved the partnership of BML as a partnership at will,
the law firm can be dissolved by any partner at anytime by his withdrawal regardless of good faith or bad faith. SEC
remanded the case to the HO to determine rights and obligations of parties.
CA: affirmed in toto the SEC decision and that there is no need for the appointment of a receiver as no sufficient proof
had been shown to indicate that the partnership assets were in any such danger of being lost, removed or materially
impaired.
ISSUES: whether it was a partnership at will; whether Ms withdrawal dissolved the partnership; whether such withdrawal
was made in bad faith.
SC: It was a partnership at will as it had not fixed a specified period for its undertaking. It may be dissolved at will by any
of the partners but if it was done in bad faith, such partner shall be liable for damages. Upon dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its business culminating in its termination.
The liquidation of assets is governed by the CC but an agreement between parties is binding upon them. It was not done
out of bad faith as it was spurred by an interpersonal conflict among the partners.
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, respondents.
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-G.R.
SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate court
in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4
January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC records show
that there were several subsequent amendments to the articles of partnership on 18 September 1958, to change the firm
[name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO &
MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to
BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del
Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

Classified - Confidential

"Further to my letter to you today, I would like to have a meeting with all of you with regard to the mechanics of liquidation,
and more particularly, my interest in the two floors of this building. I would like to have this resolved soon because it has to
do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of the working conditions of our employees including the
assistant attorneys. All my efforts to ameliorate the below subsistence level of the pay scale of our employees have been
thwarted by the other partners. Not only have they refused to give meaningful increases to the employees, even
attorneys, are dressed down publicly in a loud voice in a manner that deprived them of their self-respect. The result of
such policies is the formation of the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a
petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits, rent or interest
attributable to the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence, checks and
pleadings and to pay petitioners damages for the use thereof despite the dissolution of the partnership in the amount of at
least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in such amounts as
maybe proven during the trial and which the Commission may deem just and equitable under the premises but in no case
less than ten (10%) per cent of the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and exemplary damages in
the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and equitable under the
premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the
petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter
governing the liquidation of the shares of any retiring or withdrawing partner in the partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin
L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the
law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or
bad faith, since no partner can be forced to continue in the partnership against his will. In its decision, dated 17 January
1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it concludes
that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby REMANDED to the Hearing
Officer for determination of the respective rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a
receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On 4 April
1991, respondent SEC issued an order denying reconsideration, as well as rejecting the petition for receivership, and
reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).

Classified - Confidential

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died
on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of
new partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648).
He expressed concern over the need to preserve and care for the partnership assets. The other partners opposed the
prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC
decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty.
Misa's withdrawal from the partnership had changed the relation of the parties and inevitably caused the dissolution of the
partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed and paid in the manner stipulated in the partnership
agreement; (d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as
no sufficient proof had been shown to indicate that the partnership assets were in any such danger of being lost, removed
or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada,
Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of the
partnership so that he can get a physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito,
Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with approval, like
did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking.
The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of
one of the partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at
will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative of any
individual, firm and corporation engaged in commercial, industrial or other lawful businesses and occupations; to counsel
and advise such persons and entities with respect to their legal and other affairs; and to appear for and represent their
principals and client in all courts of justice and government departments and offices in the Philippines, and elsewhere
when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which
necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law
contemplates, is a specific undertaking or "project" which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to
choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to
give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his
sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance
of bad faith can prevent the dissolution of the partnership 4 but that it can result in a liability for damages. 5

Classified - Confidential

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its
creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency
arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve
the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated
in the carrying on, as might be distinguished from the winding up of, the business. 8 Upon its dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its business culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code;
10 however, an agreement of the partners, like any other contract, is binding among them and normally takes precedence
to the extent applicable over the Code's general provisions. We here take note of paragraph 8 of the "Amendment to
Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and paid in
accordance with the existing agreements and his partnership participation shall revert to the Senior Partners for allocation
as the Senior Partners may determine; provided, however, that with respect to the two (2) floors of office condominium
which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street,
Salcedo Village, Makati, Metro Manila, their true value at the time of such death or retirement shall be determined by two
(2) independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of a
deceased partner, as the case may be. In the event of any disagreement between the said appraisers a third appraiser
will be appointed by them whose decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation above mentioned
which shall be paid monthly within the first ten (10) days of every month in installments of not less than P20,000.00 for the
Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior
Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation by
a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common
factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been
spurred by "interpersonal conflict" among the partners. It would not be right, we agree, to let any of the partners remain in
the partnership under such an atmosphere of animosity; certainly, not against their will. 12 Indeed, for as long as the
reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly
visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context
here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.
Tocao vs CA 365 SCRA 463
FACTS:
Petitioner Tocao and private respondent Anay entered into a Joint Venture for the importation and local distribution of
kitchen cookwares. Petitioner Belo is the one who financed the Joint Venture. Belo acted as Capitalist, Tocao as
President and General Manager while Anay as Head of the Marketing Department and later became the Vice-President
for sales. The job of marketing the products was assigned to respondent Anay considering h The parties agreed that
Respondent Anay would be entitled to receive TEN (10%) PERCENT of the Annual Net Profits of the business, 6%
Commission and other benefits. However, the said agreement was not reduced into writing. The cookware business of the
parties becomes successful and it operated under the Name GEMINESSE ENTERPRISE, a sole proprietorship
registered in Tocaos Name. However, respondent Anay learned later on that petitioner Tocao removed her as the VicePresident of GEMINESE ENTERPRISE. She was already barred from holding her office. Thus she filed a complaint for
sum of money w/ damages before RTC of Makati against Petitioner Tocao and Belo.er experienced and established
relationship with West Bend Company, a manufacturer of kitchen wares in USA.
ISSUE:

Classified - Confidential

Whether or not partnership exists between the parties.

RULING:
NOTE: Petitioners argue that respondent was their employee and no partnership existed between them.
There is partnership when: (1) Two or more persons bind themselves to contribute money, property or industry to a
common fund; and (2) Intention on the part of the partners to divide the profits among themselves.
It may be constituted in any form. A contract of partnership is consensual, hence, an oral contract of partnership is as
good as a written one. It was admitted by the petitioners that respondent Anay had the expertise to engage in the
business of distributorship of cookware. Private respondent contributed such expertise to the partnership, hence, under
the law she was the industrial or managing partner. It was through her efforts that the business was propelled to financial
success. The business venture operated under GEMINESSE ENTERPRISE did not result in an employer-employee
relationship between petitioners and private respondents.
REASONS:
1. Private respondent had a voice in the management of the affairs of the cookware distributorship which includes the
selection of the people who would constitute the administrative staff and the sales force;
2. Petitioners and private respondent received the same On the other hand, the contention of petitioner Belo that he is a
mere guarantor and not a partner is bereft of merit. In fact he is the one who financed the partnership. He had a
proprietary interest in the business. His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business.
NOTE: Petitioners filed a Motion for Reconsideration of the above decision. The SC PARTIALLY GRANTED the MR and
ruled as follows:
1. That petitioner Belo acted merely as guarantor of Geminesse Enterprise.
2. No evidence was presented to show that petitioner Belo participated in the profits of the business enterprise.
Respondent herself professed lack of knowledge that petitioner Belo received any share in the net income of the
partnership. On the other hand, petitioner Tocao declared that petitioner Belo was not entitled to any share in the profits of
Geminesse Enterprise.
3. With no participation in the profits, petitioner Belo cannot be deemed a partner since the essence of a partnership is
that the partners share in the profits and losses.
Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no cause of
action against him and her complaint against him should accordingly be dismissed. income in the business;
3. Private respondent is receiving share in the profits of the business;
G.R. No. 127405
September 20, 2001
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs.
COURT OF APPEALS and NENITA A. ANAY, respondent.
The inherent powers of a Court to amend and control its processes and orders so as to make them conformable to law
and justice includes the right to reverse itself, especially when in its honest opinion it has committed an error or mistake in
judgment, and that to adhere to its decision will cause injustice to a party litigant.1
On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for Reconsideration of our Decision
dated October 4, 2000. They maintain that there was no partnership between petitioner Belo, on the one hand, and
respondent Nenita A. Anay, on the other hand; and that the latter being merely an employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo acted merely as guarantor
of Geminesse Enterprise. This was categorically affirmed by respondent's own witness, Elizabeth Bantilan, during her
cross-examination. Furthermore, Bantilan testified that it was Peter Lo who was the company's financier. Thus:
Q - You mentioned a while ago the name William Belo. Now, what is the role of William Belo with Geminesse
Enterprise?
A

William Belo is the friend of Marjorie Tocao and he was the guarantor of the company.

What do you mean by guarantor?

A - He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for us. We can
borrow money from him.

Classified - Confidential

You mentioned a certain Peter Lo. Who is this Peter Lo?

Peter Lo is based in Singapore.

What is the role of Peter Lo in the Geminesse Enterprise?

He is the one fixing our orders that open the L/C.

You mean Peter Lo is the financier?

Yes, he is the financier.

And the defendant William Belo is merely the guarantor of Geminesse Enterprise, am I correct?

Yes, sir2

The foregoing was neither refuted nor contradicted by respondent's evidence. It should be recalled that the business
relationship created between petitioner Tocao and respondent Anay was an informal partnership, which was not even
recorded with the Securities and Exchange Commission. As such, it was understandable that Belo, who was after all
petitioner Tocao's good friend and confidante, would occasionally participate in the affairs of the business, although never
in a formal or official capacity.3 Again, respondent's witness, Elizabeth Bantilan, confirmed that petitioner Belo's presence
in Geminesse Enterprise's meetings was merely as guarantor of the company and to help petitioner Tocao.4
Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the business enterprise.
Respondent herself professed lack of knowledge that petitioner Belo received any share in the net income of the
partnership.5 On the other hand, petitioner Tocao declared that petitioner Belo was not entitled to any share in the profits
of Geminesse Enterprise.6 With no participation in the profits, petitioner Belo cannot be deemed a partner since the
essence of a partnership is that the partners share in the profits and losses.7
Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no cause of
action against him and her complaint against him should accordingly be dismissed.
As regards the award of damages, petitioners argue that respondent should be deemed in bad faith for failing to account
for stocks of Geminesse Enterprise amounting to P208,250.00 and that, accordingly, her claim for damages should be
barred to that extent. We do not agree. Given the circumstances surrounding private respondent's sudden ouster from the
partnership by petitioner Tocao, her act of withholding whatever stocks were in her possession and control was justified, if
only to serve as security for her claims against the partnership. However, while we do not agree that the same renders
private respondent in bad faith and should bar her claim for damages, we find that the said sum of P208,250.00 should be
deducted from whatever amount is finally adjudged in her favor on the basis of the formal account of the partnership
affairs to be submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY GRANTED. The
Regional Trial Court of Makati is hereby ordered to DISMISS the complaint, docketed as Civil Case No. 88-509, as
against petitioner William T. Belo only. The sum of P208,250.00 shall be deducted from whatever amount petitioner
Marjorie Tocao shall be held liable to pay respondent after the normal accounting of the partnership affairs.
SO ORDERED.
JG Summit Holdings Inc. vs. CA G.R. No. 124293, November 20, 2000
FACTS:
The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture
Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation and management of the Subic
National Shipyard, Inc., later became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA,
NIDC and Kawasaki would maintain a shareholding proportion of 60%-40% and that the parties have the right of first
refusal in case of a sale.
Through a series of transfers, NIDCs rights, title and interest in PHILSECO eventually went to the National Government.
In the interest of national economy, it was decided that PHILSECO should be privatized by selling 87.67% of its total
outstanding capital stock to private entities. After negotiations, it was agreed that Kawasakis right of first refusal under the

Classified - Confidential

JVA be exchanged for the right to top by five percent the highest bid for said shares. Kawasaki that Philyards Holdings,
Inc. (PHI), in which it was a stockholder, would exercise this right in its stead.
During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5% percent the
highest bid, it was able to top JG Summits bid. JG Summit protested, contending that PHILSECO, as a shipyard is a
public utility and, hence, must observe the 60%-40% Filipino-foreign capitalization. By buying 87.67% of PHILSECOs
capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock.
ISSUE:
Whether or not PHILSECO is a public utility
Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECOs stocks
HELD:
In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec. 13, CA No. 146. On the other
hand, Kawasaki/PHI argued that PD No. 666 explicitly stated that a shipyard was not a public utility. But the SC stated
that sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP Blg. 391 and when BP Blg. 391 was subsequently
repealed by EO 226, the latter law did not revive sec. 1 of PD No. 666. Therefore, the law that states that a shipyard is a
public utility still stands.
A shipyard such as PHILSECO being a public utility as provided by law is therefore required to comply with the 60%-40%
capitalization under the Constitution. Likewise, the JVA between NIDC and Kawasaki manifests an intention of the parties
to abide by this constitutional mandate. Thus, under the JVA, should the NIDC opt to sell its shares of stock to a third
party, Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock would not exceed
40% of the entire shares of stock. The NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a
government corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase of
stocks even beyond 60% of the capitalization as the Constitution clearly limits only foreign capitalization.
Kawasaki was bound by its contractual obligation under the JVA that limits its right of first refusal to 40% of the total
capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the capitalization of the joint venture on
account of both constitutional and contractual proscriptions.
J.G. SUMMIT HOLDINGS, INC., petitioner, vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION
TRUST; and PHILYARDS HOLDINGS, INC., respondents.
For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc. for reconsideration of
our Resolution dated September 24, 2003 and to elevate this case to the Court En Banc. The petitioner questions the
Resolution which reversed our Decision of November 20, 2000, which in turn reversed and set aside a Decision of the
Court of Appeals promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as follows:
On January 27, 1997, the National Investment and Development Corporation (NIDC), a government corporation, entered
into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the
construction, operation and management of the Subic National Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute
P330 million for the capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its salient features is
the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its interest in the
joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third party without
giving the other under the same terms the right of first refusal. This provision shall not apply if the transferee is a
corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank
(PNB). Such interests were subsequently transferred to the National Government pursuant to Administrative Order No.
14. On December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and

Classified - Confidential

dispose of non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust agreement was
entered into between the National Government and the APT wherein the latter was named the trustee of the National
Government's share in PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge
obligations to PNB, the National Government's shareholdings in PHILSECO increased to 97.41% thereby reducing
KAWASAKI's shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National
Government's share in PHILSECO to private entities. After a series of negotiations between the APT and KAWASAKI,
they agreed that the latter's right of first refusal under the JVA be "exchanged" for the right to top by five percent (5%) the
highest bid for the said shares. They further agreed that KAWASAKI would be entitled to name a company in which it was
a stockholder, which could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards
Holdings, Inc. (PHI)1 would exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the JVA between
NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the National Government's 87.6%
equity share in PHILSECO. The provisions of the ASBR were explained to the interested bidders who were notified that
the bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Government's equity in
PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECO's outstanding capital stock),
which will be sold as a whole block in accordance with the rules herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of Trustees and the
Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National
Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following the bidding,
for the purpose of determining whether or not it should be endorsed by the APT Board of Trustees to the COP, and the
latter approves the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS]
Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice
from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus
five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their "Option to Top the Highest
Bid," they shall so notify the APT about such exercise of their option and deposit with APT the amount equivalent to ten
percent (10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in paragraph
6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring
them as the preferred bidder and they shall have a period of ninety (90) days from the receipt of the APT's notice within
which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their "Option to Top the
Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms, including
any addenda or amendments thereto issued during the bidding period. The bidder shall likewise be responsible for
informing itself with respect to any and all conditions concerning the PHILSECO Shares which may, in any manner, affect
the bidder's proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk and no relief for
error or omission will be given by APT or COP. . . .

Classified - Confidential

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.2 submitted a bid of Two Billion and Thirty
Million Pesos (P2,030,000,000.00) with an acknowledgment of KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APT's recommendation
based on the result of this bidding. Should the COP approve the highest bid, APT shall advise Kawasaki Heavy Industries,
Inc. and/or its nominee, [PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the National Government.
Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days
from the date of receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by offering
a bid equivalent to the highest bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 "subject to the right of
Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the grounds that:
(a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and
Insular Life violated the ASBR because the last four (4) companies were the losing bidders thereby circumventing the law
and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to
top to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding
or auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject
bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top the highest bid and that
the COP had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock
Purchase Agreement. Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On
May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the same
for lack of merit. It ruled that the petition for mandamus was not the proper remedy to question the constitutionality or
legality of the right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the matter must be
brought "by the proper party in the proper forum at the proper time and threshed out in a full blown trial." The Court of
Appeals further ruled that the right of first refusal and the right to top are prima facie legal and that the petitioner, "by
participating in the public bidding, with full knowledge of the right to top granted to KAWASAKI/[PHILYARDS]
isestopped from questioning the validity of the award given to [PHILYARDS] after the latter exercised the right to top
and had paid in full the purchase price of the subject shares, pursuant to the ASBR." Petitioner filed a Motion for
Reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with
this Court alleging grave abuse of discretion on the part of the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of Appeals erred when it
dismissed the petition on the sole ground of the impropriety of the special civil action of mandamus because the petition
was also one of certiorari. It further ruled that a shipyard like PHILSECO is a public utility whose capitalization must be
sixty percent (60%) Filipino-owned. Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding
Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal not only
because it violates the rules on competitive bidding but more so, because it allows foreign corporations to own more
than 40% equity in the shipyard. It also held that "although the petitioner had the opportunity to examine the ASBR before
it participated in the bidding, it cannot be estopped from questioning the unconstitutional, illegal and inequitable provisions
thereof." Thus, this Court voided the transfer of the national government's 87.67% share in PHILSECO to Philyard[s]
Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of the
Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty
Million Pesos (P2,030,000,000.00), less its bid deposit plus interests upon the finality of this Decision. In turn, APT is
ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of PHILSECO's total
capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five Hundred Thousand
Pesos (P2,131,500,000.00); and

Classified - Confidential

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x resolution: (1) Whether
PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right of first refusal only up to
40% of the total capitalization of PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the
principles of competitive bidding.3 (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first issue, we held that
Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public utility, as by nature, a shipyard is not a
public utility4 and that no law declares a shipyard to be a public utility.5 On the second issue, we found nothing in the
1977 Joint Venture Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from
acquiring more than 40% of PHILSECOs total capitalization.6 On the final issue, we held that the right to top granted to
KAWASAKI in exchange for its right of first refusal did not violate the principles of competitive bidding.7
On October 20, 2003, the petitioner filed a Motion for Reconsideration8 and a Motion to Elevate This Case to the Court En
Banc.9 Public respondents Committee on Privatization (COP) and Asset Privatization Trust (APT), and private respondent
Philyards Holdings, Inc. (PHILYARDS) filed their Comments on J.G. Summit Holdings, Inc.s (JG Summits) Motion for
Reconsideration and Motion to Elevate This Case to the Court En Banc on January 29, 2004 and February 3, 2004,
respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are the following:
1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.
2. Whether the motion for reconsideration raises any new matter or cogent reason to warrant a reconsideration of this
Courts Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc
The petitioner prays for the elevation of the case to the Court en banc on the following grounds:
1. The main issue of the propriety of the bidding process involved in the present case has been confused with the policy
issue of the supposed fate of the shipping industry which has never been an issue that is determinative of this case.10
2. The present case may be considered under the Supreme Court Resolution dated February 23, 1984 which included
among en banc cases those involving a novel question of law and those where a doctrine or principle laid down by the
Court en banc or in division may be modified or reversed.11
3. There was clear executive interference in the judicial functions of the Court when the Honorable Jose Isidro Camacho,
Secretary of Finance, forwarded to Chief Justice Davide, a memorandum dated November 5, 2001, attaching a copy of
the Foreign Chambers Report dated October 17, 2001, which matter was placed in the agenda of the Court and noted by
it in a formal resolution dated November 28, 2001.12
Opposing J.G. Summits motion to elevate the case en banc, PHILYARDS points out the petitioners inconsistency in
previously opposing PHILYARDS Motion to Refer the Case to the Court En Banc. PHILYARDS contends that J.G.
Summit should now be estopped from asking that the case be referred to the Court en banc. PHILYARDS further
contends that the Supreme Court en banc is not an appellate court to which decisions or resolutions of its divisions may
be appealed citing Supreme Court Circular No. 2-89 dated February 7, 1989.13 PHILYARDS also alleges that there is no
novel question of law involved in the present case as the assailed Resolution was based on well-settled jurisprudence.
Likewise, PHILYARDS stresses that the Resolution was merely an outcome of the motions for reconsideration filed by it
and the COP and APT and is "consistent with the inherent power of courts to amend and control its process and orders
so as to make them conformable to law and justice. (Rule 135, sec. 5)"14 Private respondent belittles the petitioners
allegations regarding the change in ponente and the alleged executive interference as shown by former Secretary of

Classified - Confidential

Finance Jose Isidro Camachos memorandum dated November 5, 2001 arguing that these do not justify a referral of the
present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G. Summit further argued that:
its Opposition to the Office of the Solicitor Generals Motion to Refer is different from its own Motion to Elevate; different
grounds are invoked by the two motions; there was unwarranted "executive interference"; and the change in ponente is
merely noted in asserting that this case should be decided by the Court en banc.15
We find no merit in petitioners contention that the propriety of the bidding process involved in the present case has been
confused with the policy issue of the fate of the shipping industry which, petitioner maintains, has never been an issue that
is determinative of this case. The Courts Resolution of September 24, 2003 reveals a clear and definitive ruling on the
propriety of the bidding process. In discussing whether the right to top granted to KAWASAKI in exchange for its right of
first refusal violates the principles of competitive bidding, we made an exhaustive discourse on the rules and principles of
public bidding and whether they were complied with in the case at bar.16 This Court categorically ruled on the petitioners
argument that PHILSECO, as a shipyard, is a public utility which should maintain a 60%-40% Filipino-foreign equity ratio,
as it was a pivotal issue. In doing so, we recognized the impact of our ruling on the shipbuilding industry which was
beyond avoidance.17
We reject petitioners argument that the present case may be considered under the Supreme Court Resolution dated
February 23, 1984 which included among en banc cases those involving a novel question of law and those where a
doctrine or principle laid down by the court en banc or in division may be modified or reversed. The case was resolved
based on basic principles of the right of first refusal in commercial law and estoppel in civil law. Contractual obligations
arising from rights of first refusal are not new in this jurisdiction and have been recognized in numerous cases.18 Estoppel
is too known a civil law concept to require an elongated discussion. Fundamental principles on public bidding were
likewise used to resolve the issues raised by the petitioner. To be sure, petitioner leans on the right to top in a public
bidding in arguing that the case at bar involves a novel issue. We are not swayed. The right to top was merely a condition
or a reservation made in the bidding rules which was fully disclosed to all bidding parties. In Bureau Veritas, represented
by Theodor H. Hunermann v. Office of the President, et al., 19 we dealt with this conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28 April 1962, 4 SCRA
1245), that in an "invitation to bid, there is a condition imposed upon the bidders to the effect that the bidding shall be
subject to the right of the government to reject any and all bids subject to its discretion. In the case at bar, the government
has made its choice and unless an unfairness or injustice is shown, the losing bidders have no cause to complain nor right
to dispute that choice. This is a well-settled doctrine in this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted with that
function. The discretion given to the authorities on this matter is of such wide latitude that the Courts will not interfere
therewith, unless it is apparent that it is used as a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486
[1960]). x x x The exercise of this discretion is a policy decision that necessitates prior inquiry, investigation, comparison,
evaluation, and deliberation. This task can best be discharged by the Government agencies concerned, not by the Courts.
The role of the Courts is to ascertain whether a branch or instrumentality of the Government has transgressed its
constitutional boundaries. But the Courts will not interfere with executive or legislative discretion exercised within those
boundaries. Otherwise, it strays into the realm of policy decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award of a contract made by
a government entity. Grave abuse of discretion implies a capricious, arbitrary and whimsical exercise of power (Filinvest
Credit Corp. v. Intermediate Appellate Court, No. 65935, 30 September 1988, 166 SCRA 155). The abuse of discretion
must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined
by law, as to act at all in contemplation of law, where the power is exercised in an arbitrary and despotic manner by
reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July 1988, 163 SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on the part of public respondents when they
awarded the CISS contract to Respondent SGS. In the "Invitation to Prequalify and Bid" (Annex "C," supra), the CISS
Committee made an express reservation of the right of the Government to "reject any or all bids or any part thereof or
waive any defects contained thereon and accept an offer most advantageous to the Government." It is a well-settled rule
that where such reservation is made in an Invitation to Bid, the highest or lowest bidder, as the case may be, is not
entitled to an award as a matter of right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112).
Even the lowest Bid or any Bid may be rejected or, in the exercise of sound discretion, the award may be made to another
than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788). (emphases supplied)1awphi1.nt

Classified - Confidential

Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the government in the bidding
rules which was made known to all parties. It was a condition imposed on all bidders equally, based on the APTs exercise
of its discretion in deciding on how best to privatize the governments shares in PHILSECO. It was not a whimsical or
arbitrary condition plucked from the ether and inserted in the bidding rules but a condition which the APT approved as the
best way the government could comply with its contractual obligations to KAWASAKI under the JVA and its mandate of
getting the most advantageous deal for the government. The right to top had its history in the mutual right of first refusal in
the JVA and was reached by agreement of the government and KAWASAKI.
Further, there is no "executive interference" in the functions of this Court by the mere filing of a memorandum by
Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted" to acknowledge its filing. It had no
further legal significance. Notably too, the assailed Resolution dated September 24, 2003 was decided unanimously by
the Special First Division in favor of the respondents.
Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court20 and the Court en banc is
not an appellate court to which decisions or resolutions of a Division may be appealed.21
For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioners Motion for Reconsideration. First, that a fair resolution of the
case should be based on contract law, not on policy considerations; the contracts do not authorize the right to top to be
derived from the right of first refusal.22 Second, that neither the right of first refusal nor the right to top can be legally
exercised by the consortium which is not the proper party granted such right under either the JVA or the Asset Specific
Bidding Rules (ASBR).23 Third, that the maintenance of the 60%-40% relationship between the National Investment and
Development Corporation (NIDC) and KAWASAKI arises from contract and from the Constitution because PHILSECO is a
landholding corporation and need not be a public utility to be bound by the 60%-40% constitutional limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to show compelling
reasons to warrant a reconsideration of the Decision of the Court.25 PHILYARDS denies that the Decision is based
mainly on policy considerations and points out that it is premised on principles governing obligations and contracts and
corporate law such as the rule requiring respect for contractual stipulations, upholding rights of first refusal, and
recognizing the assignable nature of contracts rights.26 Also, the ruling that shipyards are not public utilities relies on
established case law and fundamental rules of statutory construction. PHILYARDS stresses that KAWASAKIs right of first
refusal or even the right to top is not limited to the 40% equity of the latter.27 On the landholding issue raised by J.G.
Summit, PHILYARDS emphasizes that this is a non-issue and even involves a question of fact. Even assuming that this
Court can take cognizance of such question of fact even without the benefit of a trial, PHILYARDS opines that landholding
by PHILSECO at the time of the bidding is irrelevant because what is essential is that ultimately a qualified entity would
eventually hold PHILSECOs real estate properties.28 Further, given the assignable nature of the right of first refusal, any
applicable nationality restrictions, including landholding limitations, would not affect the right of first refusal itself, but only
the manner of its exercise.29 Also, PHILYARDS argues that if this Court takes cognizance of J.G. Summits allegations of
fact regarding PHILSECOs landholding, it must also recognize PHILYARDS assertions that PHILSECOs landholdings
were sold to another corporation.30 As regards the right of first refusal, private respondent explains that KAWASAKIs
reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of its contractually granted right of
first refusal.31 Also, the bidding was valid because PHILYARDS exercised the right to top and it was of no moment that
losing bidders later joined PHILYARDS in raising the purchase price.32
In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:
1. The conversion of the right of first refusal into a right to top by 5% does not violate any provision in the JVA between
NIDC and KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by the constitutional restriction on foreign ownership.
3. The petitioner is legally estopped from assailing the validity of the proceedings of the public bidding as it voluntarily
submitted itself to the terms of the ASBR which included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact that PHILYARDS formed a
consortium to raise the required amount to exercise the right to top the highest bid by 5% does not violate the JVA or the
ASBR.

Classified - Confidential

5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does not apply to PHILSECO
because as admitted by petitioner itself, PHILSECO no longer owns real property.
6. Petitioners motion to elevate the case to the Court en banc is baseless and would only delay the termination of this
case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the public and private
respondents in this wise:
1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders through the exercise of a
right to top, which is contrary to law and the constitution is null and void for being violative of substantive due process and
the abuse of right provision in the Civil Code.
a. The bidders[] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a genuine competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this case but is shamelessly ignored by the
respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of first refusal was agreed upon and at the time of the bidding are
most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to the right to top.
a. The history behind the birth of the right to top shows fraud and bad faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in this case.
a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law or against public policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summits insistence that the right to top cannot be sourced from the right of first refusal is not new and we have
already ruled on the issue in our Resolution of September 24, 2003. We upheld the mutual right of first refusal in the
JVA.34 We also ruled that nothing in the JVA prevents KAWASAKI from acquiring more than 40% of PHILSECOs total
capitalization.35 Likewise, nothing in the JVA or ASBR bars the conversion of the right of first refusal to the right to top. In
sum, nothing new and of significance in the petitioners pleading warrants a reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first refusal nor the right to top can legally be
exercised by the consortium which is not the proper party granted such right under either the JVA or the ASBR. Thus, we
held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance, Mitsui and
ICTSI), has joined PHILYARDS in the latter's effort to raise P2.131 billion necessary in exercising the right to top is not
contrary to law, public policy or public morals. There is nothing in the ASBR that bars the losing bidders from joining either
the winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did),

Classified - Confidential

to raise the purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the participation of
the losing bidders in the public bidding was done with fraudulent intent. Absent any proof of fraud, the formation by
[PHILYARDS] of a consortium is legitimate in a free enterprise system. The appellate court is thus correct in holding the
petitioner estopped from questioning the validity of the transfer of the National Government's shares in PHILSECO to
respondent.36
Further, we see no inherent illegality on PHILYARDS act in seeking funding from parties who were losing bidders. This is
a purely commercial decision over which the State should not interfere absent any legal infirmity. It is emphasized that the
case at bar involves the disposition of shares in a corporation which the government sought to privatize. As such, the
persons with whom PHILYARDS desired to enter into business with in order to raise funds to purchase the shares are
basically its business. This is in contrast to a case involving a contract for the operation of or construction of a government
infrastructure where the identity of the buyer/bidder or financier constitutes an important consideration. In such cases, the
government would have to take utmost precaution to protect public interest by ensuring that the parties with which it is
contracting have the ability to satisfactorily construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company, KAWASAKI could
exercise its right of first refusal only up to 40% of the shares of PHILSECO due to the constitutional prohibition on
landholding by corporations with more than 40% foreign-owned equity. It further argues that since KAWASAKI already
held at least 40% equity in PHILSECO, the right of first refusal was inutile and as such, could not subsequently be
converted into the right to top. 37 Petitioner also asserts that, at present, PHILSECO continues to violate the constitutional
provision on landholdings as its shares are more than 40% foreign-owned.38 PHILYARDS admits that it may have
previously held land but had already divested such landholdings.39 It contends, however, that even if PHILSECO owned
land, this would not affect the right of first refusal but only the exercise thereof. If the land is retained, the right of first
refusal, being a property right, could be assigned to a qualified party. In the alternative, the land could be divested before
the exercise of the right of first refusal. In the case at bar, respondents assert that since the right of first refusal was validly
converted into a right to top, which was exercised not by KAWASAKI, but by PHILYARDS which is a Filipino corporation
(i.e., 60% of its shares are owned by Filipinos), then there is no violation of the Constitution.40 At first, it would seem that
questions of fact beyond cognizance by this Court were involved in the issue. However, the records show that
PHILYARDS admits it had owned land up until the time of the bidding.41 Hence, the only issue is whether KAWASAKI
had a valid right of first refusal over PHILSECO shares under the JVA considering that PHILSECO owned land until the
time of the bidding and KAWASAKI already held 40% of PHILSECOs equity.
We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and NIDC. First of all, the
right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA.
This right allows them to purchase the shares of their co-shareholder before they are offered to a third party. The
agreement of co-shareholders to mutually grant this right to each other, by itself, does not constitute a violation of the
provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations. As PHILYARDS correctly puts
it, if PHILSECO still owns land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to
maintain the 60%-40% ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof
of any fraudulent intent. The transfer could be made either to a nominee or such other party which the holder of the right
of first refusal feels it can comfortably do business with. Alternatively, PHILSECO may divest of its landholdings, in which
case KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECOs equity. In fact, it can even be said
that if the foreign shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholders ownership of
the shares which is adversely affected but the capacity of the corporation to own land that is, the corporation becomes
disqualified to own land. This finds support under the basic corporate law principle that the corporation and its
stockholders are separate juridical entities. In this vein, the right of first refusal over shares pertains to the shareholders
whereas the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO owns land cannot deprive
stockholders of their right of first refusal. No law disqualifies a person from purchasing shares in a landholding corporation
even if the latter will exceed the allowed foreign equity, what the law disqualifies is the corporation from owning land. This
is the clear import of the following provisions in the Constitution:
Section 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. In cases of water rights for irrigation, water supply, fisheries,
or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.

Classified - Confidential

xxx xxx xxx

Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain.42 (emphases supplied)
The petitioner further argues that "an option to buy land is void in itself (Philippine Banking Corporation v. Lui She, 21
SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a Japanese corporation, is similarly void. Hence, the
right to top, sourced from the right of first refusal, is also void."43 Contrary to the contention of petitioner, the case of Lui
She did not that say "an option to buy land is void in itself," for we ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real
property on condition that he is granted Philippine citizenship. As this Court said in Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the use of lands for residential purposes. Since their
residence in the Philippines is temporary, they may be granted temporary rights such as a lease contract which is not
forbidden by the Constitution. Should they desire to remain here forever and share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner
cannot sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is a
virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land (jus
possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi) rights the sum
total of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an alien. And yet
this is just exactly what the parties in this case did within this pace of one year, with the result that Justina Santos'[s]
ownership of her property was reduced to a hollow concept. If this can be done, then the Constitutional ban against alien
landholding in the Philippines, as announced in Krivenko vs. Register of Deeds, is indeed in grave peril.44 (emphases
supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of ownership as the owner could not
sell or dispose of his properties. The contract in Lui She prohibited the owner of the land from selling, donating,
mortgaging, or encumbering the property during the 50-year period of the option to buy. This is not so in the case at bar
where the mutual right of first refusal in favor of NIDC and KAWASAKI does not amount to a virtual transfer of land to a
non-Filipino. In fact, the case at bar involves a right of first refusal over shares of stock while the Lui She case involves an
option to buy the land itself. As discussed earlier, there is a distinction between the shareholders ownership of shares and
the corporations ownership of land arising from the separate juridical personalities of the corporation and its
shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to violate the Constitution
as its foreign equity is above 40% and yet owns long-term leasehold rights which are real rights.45 It cites Article 415 of
the Civil Code which includes in the definition of immovable property, "contracts for public works, and servitudes and other
real rights over immovable property."46 Any existing landholding, however, is denied by PHILYARDS citing its recent
financial statements.47 First, these are questions of fact, the veracity of which would require introduction of evidence. The
Court needs to validate these factual allegations based on competent and reliable evidence. As such, the Court cannot
resolve the questions they pose. Second, J.G. Summit misreads the provisions of the Constitution cited in its own
pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40% corporation, and this
violates the Constitution x x x The violation continues to this day because under the law, it continues to own real
property
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution (the JVA was signed
in 1977), provided:
"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain."

Classified - Confidential

32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public domain are corporations at
least 60% of which is owned by Filipino citizens (Sec. 22, Commonwealth Act 141, as amended). (emphases supplied)
As correctly observed by the public respondents, the prohibition in the Constitution applies only to ownership of land.48 It
does not extend to immovable or real property as defined under Article 415 of the Civil Code. Otherwise, we would have a
strange situation where the ownership of immovable property such as trees, plants and growing fruit attached to the
land49 would be limited to Filipinos and Filipino corporations only.
III.
WHEREFORE, in view of the foregoing, the petitioners Motion for Reconsideration is DENIED WITH FINALITY and the
decision appealed from is AFFIRMED. The Motion to Elevate This Case to the Court En Banc is likewise DENIED for lack
of merit.
SO ORDERED.

Classified - Confidential