|1

SECOND DIVISION On March 6, 2008, the CA dismissed the petition and affirmed the
assailed SEC ruling, with the modification that the assessment of the
PHILIPPINE VETERANS BANK, G.R. No. 191995 penalty be recomputed from May 31, 2004.[6]
Petitioner,
Present: The CA also denied the Banks motion for reconsideration,[7] opening
the way for the Banks petition for review on certiorari filed with this
- versus - CARPIO, J., Court.[8]
Chairperson,
LEONARDO-DE On June 16, 2010, the Court denied the Banks petition for failure to
JUSTINA CALLANGAN, in her CASTRO,* show any reversible error in the assailed CA decision and
capacity as Director of the BRION, resolution.[9]
Corporation Finance Department PEREZ, and
of the Securities and Exchange SERENO, JJ. The Motion for Reconsideration
Commission and/or the
SECURITIES AND EXCHANGE Promulgated: The Bank reiterates that it is not a public company subject to the
COMMISSION, reportorial requirements under Section 17.1 of the SRC because its
Respondent. August 3, 2011 shares can be owned only by a specific group of people, namely,
World War II veterans and their widows, orphans and compulsory
x------------------------------------------------------------------------------------x heirs, and is not open to the investing public in general. The Bank
also asks the Court to take into consideration the financial impact to
the cause of veteranism; compliance with the reportorial
RESOLUTION requirements under the SRC, if the Bank would be considered a
public company, would compel the Bank to spend approximately P40
BRION, J.: million just to reproduce and mail the Information Statement to its
400,000 shareholders nationwide.

The Courts Ruling

We resolve the motion for reconsideration[1] filed by petitioner
Philippine Veterans Bank (the Bank) dated August 5, 2010,
addressing our June 16, 2010 Resolution that denied the Banks
petition for review on certiorari.
Factual Antecedents
We DENY the motion for reconsideration for lack of merit.
To determine whether the Bank is a public company burdened with
the reportorial requirements ordered by the SEC, we look to
Subsections 17.1 and 17.2 of the SRC, which provide:

On March 17, 2004, respondent Justina F. Callangan, the Director of
the Corporation Finance Department of the Securities and Exchange
Commission (SEC), sent the Bank a letter, informing it that it qualifies
as a public company under Section 17.2 of the Securities Regulation
Code (SRC) in relation with Rule 3(1)(m) of the Amended
Implementing Rules and Regulations of the SRC. The Bank is thus
required to comply with the reportorial requirements set forth in
Section 17.1 of the SRC.[2]
The Bank responded by explaining that it should not be considered a
public company because it is a private company whose shares of
stock are available only to a limited class or sector, i.e., to World War
II veterans, and not to the general public.[3]
In a letter dated April 20, 2004, Director Callangan rejected the
Banks explanation and assessed it a total penalty of One Million Nine
Hundred Thirty-Seven Thousand Two Hundred Sixty-Two and 80/100
Pesos (P1,937,262.80) for failing to comply with the SRC reportorial
requirements from 2001 to 2003. The Bank moved for the
reconsideration of the assessment, but Director Callangan denied the
motion in SEC-CFD Order No. 085, Series of 2005 dated July 26,
2005.[4] When the SEC En Banc also dismissed the Banks appeal for
lack of merit in its Order dated August 31, 2006, prompting the Bank
to file a petition for review with the Court of Appeals (CA).[5]
Section 17. Periodic and Other Reports of Issuers.
17.1. Every issuer satisfying the requirements in Subsection 17.2
hereof shall file with the Commission:
a) Within one hundred thirty-five (135) days, after the end of the
issuers fiscal year, or such other time as the Commission may
prescribe, an annual report which shall include, among others, a
balance sheet, profit and loss statement and statement of cash flows,
for such last fiscal year, certified by an independent certified public
accountant, and a management discussion and analysis of results of
operations; and
b) Such other periodical reports for interim fiscal periods and current
reports on significant developments of the issuer as the Commission
may prescribe as necessary to keep current information on the
operation of the business and financial condition of the issuer.
17.2. The reportorial requirements of Subsection 17.1 shall apply to
the following:
xxxx
c) An issuer with assets of at least Fifty million pesos
(P50,000,000.00) or such other amount as the Commission shall
prescribe, and having two hundred (200) or more holders each
 |2

holding at least one hundred (100) shares of a class of its equity
securities: Provided, however, That the obligation of such issuer to
file reports shall be terminated ninety (90) days after notification to
the Commission by the issuer that the number of its holders holding
at least one hundred (100) shares is reduced to less than one
hundred (100). (emphases supplied)
We also cite Rule 3(1)(m) of the Amended Implementing Rules and
Regulations of the SRC, which defines a public company as any
corporation with a class of equity securities listed on an
Exchange or with assets in excess of Fifty Million
Pesos (P50,000,000.00) and having two hundred (200) or more
holders, at least two hundred (200) of which are holding at least
one hundred (100) shares of a class of its equity securities.
From these provisions, it is clear that a public company, as
contemplated by the SRC, is not limited to a company whose shares
of stock are publicly listed; even companies like the Bank, whose
shares are offered only to a specific group of people, are considered
a public company, provided they meet the requirements enumerated
above.
Additionally, and contrary to the Banks claim, the Banks obligation to
provide its stockholders with copies of its annual report is actually for
the benefit of the veterans-stockholders, as it gives these
stockholders access to information on the Banks financial status and
operations, resulting in greater transparency on the part of the Bank.
While compliance with this requirement will undoubtedly cost the
Bank money, the benefit provided to the shareholders clearly
outweighs the expense. For many stockholders, these annual reports
are the only means of keeping in touch with the state of health of
their investments; to them, these are invaluable and continuing links
with the Bank that immeasurably contribute to the transparency in
public companies that the law envisions.
WHEREFORE, premises considered, petitioner Philippine Veterans
Banks motion for reconsideration is hereby DENIED with finality.
SO ORDERED.

The records establish, and the Bank does not dispute, that the Bank
has assets exceeding P50,000,000.00 and has 395,998
shareholders.[10] It is thus considered a public company that must
comply with the reportorial requirements set forth in Section 17.1 of
the SRC.

The Bank also argues that even assuming it is considered a public

company pursuant to Section 17 of the SRC, the Court should
interpret the pertinent SRC provisions in such a way that no financial
prejudice is done to the thousands of veterans who are stockholders
of the Bank. Given that the legislature intended the SRC to apply only
to publicly traded companies, the Court should exempt the Bank from
complying with the reportorial requirements.

On this point, the Bank is apparently referring to the obligation set

forth in Subsections 17.5 and 17.6 of the SRC, which provide:

Section 17.5. Every issuer which has a class of equity securities

satisfying any of the requirements in Subsection 17.2 shall furnish to
each holder of such equity security an annual report in such form
and containing such information as the Commission shall prescribe.

Section 17.6. Within such period as the Commission may prescribe

preceding the annual meeting of the holders of any equity security of
a class entitled to vote at such meeting, the issuer shall transmit to
such holders an annual report in conformity with Subsection
17.5. (emphases supplied)

In making this argument, the Bank ignores the fact that the first and
fundamental duty of the Court is to apply the law.[11] Construction and
interpretation come only after a demonstration that the application of
the law is impossible or inadequate unless interpretation is resorted
to.[12] In this case, we see the law to be very clear and free from any
doubt or ambiguity; thus, no room exists for construction or
interpretation.

SECOND DIVISION
VIVIAN T. RAMIREZ, ALBERTO
B. DIGNO, DANILO M.
CASQUITE, JUMADIYA A. KADIL,
FAUJIA SALIH, ANTONIO
FABIAN, ROMEL DANAG, GINA
PANTASAN, ARTHUR
MATUGAS, VIRGILIA OSARIO,
ORLANDO EBRADA, ROSANA
CABATO, WILFREDO LUNA,
LILIA BARREDO, ISABEL
ALBERTO, NORA BONIAO,
PILAR OSARIO, LYDIA ESLIT,
AMMAN SALI, AKMAD AKIL,
ROGELIO LAZARO, ISABEL
CONCILLADO, MARLON ABIAL,
HERMOCILLO NAPALCRUZ,
WALTER BUHIAN, ELISEO
AMATORIO, JOSE CASTRO,
JAMIL LAGBAY, MA. EVELYN
SANTOS, LEDENIA T. BARON,
ELSA AMATORIO, SARAH F.
BUCOY, EXPEDITO L. RELUYA,
ARNULFO ALFARO, EDGARDO
F. BORGONIA, DANILO R.
MANINGO, ABDUSAID H.
DAMBONG, LORINDA M. MUTIA,
DOMINADOR DEL ROSARIO,
JOEL E. TRONO, HUSSIN A.
JAWAJI, JUL-ASNAM JAKARIA,
LUZVIMINDA A. NOLASCO,
VILMA G. GASCO, MORITA S.
MARMETO, PROCESA JUANICO,
ANTONIO A. MONDRAGON, JR.,
JESSICA F. QUIACHON, PACITA
G. MEDINA, ARNEL S. SANTOS,
ANECITA T. TARAS, TOMINDAO
T. TARAS, NULCA C. SABDANI,
AKMAD A. SABDANI, ROWENA
J. GARCIA, LINA P. CASAS,
MARLYN G. FRANCISCO,
MERCEDITA MAQUINANO,
NICOLAS T. RIO, TERESITA A.
CASINAS, VIRGILIO F. IB-IB,
PANTALEON S. ROJAS, JR.,
EVELYN V. BEATINGO, MATILDE
G. HUSSIN, ESPERANZA I.
LLEDO, ADOLFINA DELA
MERCED, LAURA E. SANTOS,
ROGACIANA MAQUILING,
ALELIE D. SAMSON, SHIRLEY L.
ALVAREZ, MAGDALENA A.
MARCOS, VIRGINIA S.
ESPINOSA, ANTONIO C.
GUEVARA, AUGUSTA S. DE
JESUS, SERVILLA A. BANCALE,
PROSERFINA GATINAO, RASMA
A. FABRIGA, ROLANDO D.
GATINAO, ANALISA G. MEA,
|3
SARAH A. SALCEDO, ALICIA M.
JAYAG, FERNANDO G.
G.R. No. 168208 CABEROY, ROMEO R. PONCE,
EDNA S. PONCE, TEODORA T.
Present: LUY, WALDERICO F. ARIO,
MELCHOR S. BUCOY, EDITA H.
CINCO, RUDY I. LIMBAROC,
CARPIO, J., Chairperson, PETER MONTOJO, MARLYN S.
BRION, ATILANO, REGIDOR MEDALLO,
PEREZ, EDWIN O. DEMASUAY, DENNIS
SERENO, and M. SUICANO, ROSALINA Q.
REYES, JJ. ATILANO, ESTRELLA
FELICIANO, IMELDA T.
DAGALEA, MARILYN RUFINO,
Promulgated: JOSE AGUSTIN, EFREN RIVERA,
CRISALDO VALERO, SAFIA
June 13, 2012 HANDANG, LUCENA R. MEDINA,
DANNY BOY B. PANGASIAN,
ABDURASA HASIL, ROEL ALTA,
JOBERT BELTRAN, EDNA
FAUSTO, TAJMAHAR HADJULA,
ELENA MAGHANOY, ERIC B.
QUITIOL, JESSE D. FLORES,
GEMMA CANILLAS, ERNITO
CANILLAS, MARILOU JAVIER,
MARGANI MADDIN, RICHARD
SENA, FE D. CANOY, GEORGE
SALUD, EDGARDO BORGONIA,
JR., ANTONIO ATILANO, JOSE
CASTRO, and LIBERATO
BAGALANON,
Petitioners,
- versus -
MAR FISHING CO., INC.,
MIRAMAR FISHING CO., INC.,
ROBERT BUEHS AND JEROME
SPITZ.
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
SERENO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45
of the Revised Rules of Court, seeking a review of the Court of
Appeals (CA) 19 March 2004 and 12 May 2005 Resolutions in CA-
G.R. SP NO. 82651. The appellate court had dismissed the Petition
for Review on the ground that it lacked a Verification and Certification
against forum shopping.
The pertinent facts are as follows:
On 28 June 2001, respondent Mar Fishing Co., Inc. (Mar Fishing),
engaged in the business of fishing and canning of tuna, sold its
principal assets to co-respondent Miramar Fishing Co., Inc. (Miramar)
through public bidding.[1] The proceeds of the sale were paid to the
Trade and Investment Corporation of the Philippines (TIDCORP) to

cover Mar Fishings outstanding obligation in the amount of
₱897,560,041.26.[2] In view of that transfer, Mar Fishing issued a
Memorandum dated 23 October 2001 informing all its workers that
the company would cease to operate by the end of the month.[3] On
29 October 2001 or merely two days prior to the months end, it
notified the Department of Labor and Employment (DOLE) of the
closure of its business operations.[4]
Thereafter, Mar Fishings labor union, Mar Fishing Workers Union
NFL and Miramar entered into a Memorandum of Agreement.[5] The
Agreement provided that the acquiring company, Miramar, shall
absorb Mar Fishings regular rank and file employees whose
performance was satisfactory, without loss of seniority rights and
privileges previously enjoyed.[6]
Unfortunately, petitioners, who worked as rank and file employees,
were not hired or given separation pay by Miramar.[7] Thus,
petitioners filed Complaints for illegal dismissal with money claims
before the Arbitration Branch of the National Labor Relations
Commission (NLRC).
In its 30 July 2002 Decision, the Labor Arbiter (LA) found that Mar
Fishing had necessarily closed its operations, considering that
Miramar had already bought the tuna canning plant.[8] By reason of
the closure, petitioners were legally dismissed for authorized
cause.[9] In addition, even if Mar Fishing reneged on notifying the
DOLE within 30 days prior to its closure, that failure did not make the
dismissals void. Consequently, the LA ordered Mar Fishing to give
separation pay to its workers.[10]
The LA held thus:[11]
WHEREFORE, in view of the foregoing considerations, judgment is
hereby rendered in these cases:
1. Ordering Mar Fishing Company, Inc., through its president,
treasurer, manager or other proper officer or representative, to pay
the complainants their respective separation pay, as computed in
page 12 to 33 hereof, all totaling SIX MILLION THREE HUNDRED
THIRTY SIX THOUSAND FIVE HUNDRED EIGHTY SEVEN &
77/100 PESOS (₱6,336,587.77);
2. Dismissing these case [sic] as against Miramar Fishing
Company, Inc., as well as against Robert Buehs and Jerome Spitz,
for lack of cause of action;
3. Dismissing all other charges and claims of the complainants, for
lack of merit.
SO ORDERED.
Aggrieved, petitioners pursued the action before the NLRC, which
modified the LAs Decision. Noting that Mar Fishing notified the DOLE
only two days before the business closed, the labor court considered
petitioners dismissal as ineffectual.[12] Hence, it awarded, apart from
separation pay, full back wages to petitioners from the time they were
terminated on 31 October 2001 until the date when the LA upheld the
validity of their dismissal on 30 July 2002.[13]
|4
Additionally, the NLRC pierced the veil of corporate fiction and ruled
that Mar Fishing and Miramar were one and the same entity, since
their officers were the same.[14]Hence, both companies were ordered
to solidarily pay the monetary claims.[15]
On reconsideration, the NLRC modified its ruling by imposing liability
only on Mar Fishing. The labor court held that petitioners had no
cause of action against Miramar, since labor contracts cannot be
enforced against the transferee of an enterprise in the absence of a
stipulation in the contract that the transferee assumes the obligation
of the transferor.[16] Hence, the dispositive portion reads:[17]
WHEREFORE, foregoing premises considered, the assailed
resolution is MODIFIED in that only Mar Fishing Company, Inc.
through its responsible officers, is ordered to pay complainants their
separation pay, and full backwages from the date they were
terminated from employment until 30 July 2002, subject to
computation during execution stage of proceedings at the appropriate
Regional Arbitration Branch.
SO ORDERED.
Despite the award of separation pay and back wages, petitioners
filed a Rule 65 Petition before the CA. This time, they argued that
both Mar Fishing and Miramar should be made liable for their
separation pay, and that their back wages should be up to the time of
their actual reinstatement. However, finding that only 3 of the 228
petitioners[18]signed the Verification and Certification against forum
shopping, the CA instantly dismissed the action for certiorari against
the 225 other petitioners without ruling on the substantive aspects of
the case.[19]
By means of a Manifestation with Omnibus Motion,[20] petitioners
submitted a Verification and Certification against forum shopping
executed by 161 signatories. In the said pleading, petitioners asked
the CA to reconsider by invoking the rule that technical rules do not
strictly apply to labor cases.[21] Still, the CA denied petitioners
contentions and held thus:[22]
Anent the liberality in application of the rules, as alleged by
petitioners, the same deserves scant consideration. x x x.
xxx. While litigation is not a game of technicalities, and that the rules
of procedure should not be enforced strictly at the cost of substantial
justice, still it does not follow that the Rules of Court may be ignored
at will and at random to the prejudice of the orderly presentation,
assessment and just resolution of the issues. xxx.
Before this Court, 124 petitioners raise the issue of whether the CA
gravely erred in dismissing their Petition for Review on the ground
that their pleading lacked a Verification and Certification against
forum shopping.[23]
The Rules of Court provide that a petition for certiorari must be
verified and accompanied by a sworn certification of non-forum
shopping.[24] Failure to comply with these mandatory requirements
shall be sufficient ground for the dismissal of the
petition.[25] Considering that only 3 of the 228 named petitioners
signed the requirement, the CA dismissed the case against them, as
they did not execute a Verification and Certification against forum
shopping.

Petitioners invoke substantial compliance with procedural rules when
their Manifestation already contains a Verification and Certification
against forum shopping executed by 161 signatories. They heavily
rely on Jaro v. Court of Appeals,[26] citing Piglas-Kamao v. National
Labor Relations Commission and Cusi-Hernandez v. Diaz, in which
we discussed that the subsequent submission of the missing
documentary attachments with the Motion for Reconsideration
amounted to substantial compliance.
However, this very case does not involve a failure to attach the
Annexes. Rather, the procedural infirmity consists of omission the
failure to sign a Verification and Certification against forum shopping.
Addressing this defect squarely, we have already resolved that
because of noncompliance with the requirements governing the
certification of non-forum shopping, no error could be validly
attributed to the CA when it ordered the dismissal of the special civil
action for certiorari.[27] The lack of certification against forum
shopping is not curable by mere amendment of a complaint, but shall
be a cause for the dismissal of the case without prejudice. [28] Indeed,
the general rule is that subsequent compliance with the
requirements will not excuse a party's failure to comply in the
first instance.[29] Thus, on procedural aspects, the appellate court
correctly dismissed the case.
However, this Court has recognized that the merit of a case is a
special circumstance or compelling reason that justifies the relaxation
of the rule requiring verification and certification of non-forum
shopping.[30] In order to fully resolve the issue, it is thus necessary to
determine whether technical rules were brushed aside at the
expense of substantial justice.[31] This Court will then delve into the
issue on (1) the solidary liability of Mar Fishing and Miramar to pay
petitioners monetary claims and (2) the reckoning period for the
award of back wages.
For a dismissal based on the closure of business to be valid, three
(3) requirements must be established. Firstly, the cessation of or
withdrawal from business operations must be bona fide in character.
Secondly, there must be payment to the employees of termination
pay amounting to at least one-half (1/2) month pay for each year of
service, or one (1) month pay, whichever is higher. Thirdly, the
company must serve a written notice on the employees and on the
DOLE at least one (1) month before the intended termination.[32]
In their Petition for Review on Certiorari, petitioners did not dispute
the conclusion of the LA and the NLRC that Mar Fishing had an
authorized cause to dismiss its workers. Neither did petitioners
challenge the computation of their separation pay.
Rather, they questioned the holding that only Mar Fishing was liable
for their monetary claims.[33]
Basing their conclusion on the Memorandum of Agreement and
Supplemental Agreement between Miramar and Mar Fishings labor
union, as well as the General Information Sheets and Company
Profiles of the two companies, petitioners assert that Miramar simply
took over the operations of Mar Fishing. In addition, they assert that
these companies are one and the same entity, given the commonality
of their directors and the similarity of their business venture in tuna
canning plant operations.[34]
At the fore, the question of whether one corporation is merely an alter
ego of another is purely one of fact generally beyond the jurisdiction
|5
of this Court.[35] In any case, given only these bare reiterations, this
Court sustains the ruling of the LA as affirmed by the NLRC that
Miramar and Mar Fishing are separate and distinct entities, based on
the marked differences in their stock ownership.[36] Also, the fact that
Mar Fishings officers remained as such in Miramar does not by itself
warrant a conclusion that the two companies are one and the same.
As this Court held in Sesbreo v. Court of Appeals, the mere showing
that the corporations had a common director sitting in all the boards
without more does not authorize disregarding their separate juridical
personalities.[37]
Neither can the veil of corporate fiction between the two companies
be pierced by the rest of petitioners submissions, namely, the alleged
take-over by Miramar of Mar Fishings operations and the evident
similarity of their businesses. At this point, it bears emphasizing that
since piercing the veil of corporate fiction is frowned upon, 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 a fraud, or perpetrate a deception.[38] This, unfortunately,
petitioners have failed to do. In Indophil Textile Mill Workers Union
vs. Calica, we ruled thus:[39]
In the case at bar, petitioner seeks to pierce the veil of corporate
entity of Acrylic, alleging that the creation of the corporation is a
devi[c]e to evade the application of the CBA between petitioner Union
and private respondent company. While we do not discount the
possibility of the similarities of the businesses of private respondent
and Acrylic, neither are we inclined to apply the doctrine invoked by
petitioner in granting the relief sought. The fact that the businesses
of private respondent and Acrylic are related, that some of the
employees of the private respondent are the same persons
manning and providing for auxiliary services to the units of
Acrylic, and that the physical plants, offices and facilities are
situated in the same compound, it is our considered opinion
that these facts are not sufficient to justify the piercing of the
corporate veil of Acrylic. (Emphasis supplied.)
Having been found by the trial courts to be a separate entity, Mar
Fishing and not Miramar is required to compensate petitioners.
Indeed, the back wages and retirement pay earned from the former
employer cannot be filed against the new owners or operators of an
enterprise.[40]
Evidently, the assertions of petitioners fail on both procedural and
substantive aspects. Therefore, no special reasons exist to reverse
the CAs dismissal of the case due to their failure to abide by the
mandatory procedure for filing a petition for review on certiorari.
Given the correctness of the appellate courts ruling and the lack of
appropriate remedies, this Court will no longer dwell on the exact
computation of petitioners claims for back wages, which have been
sufficiently threshed out by the LA and the NLRC. Judicial review of
labor cases does not go beyond an evaluation of the sufficiency of
the evidence upon which labor officials' findings rest.[41]
While we sympathize with the situation of the workers in this case,
we cannot disregard, absent compelling reasons, the factual
determinations and the legal doctrines that support the findings of the
courts a quo. Generally, the findings of fact and the conclusion of the
labor courts are not only accorded great weight and respect, but are
even clothed with finality and deemed binding on this Court, as long
as they are supported by substantial evidence.[42]
 |6

On a final note, this Court reminds the parties seeking the ultimate
relief of certiorari to observe the rules, since nonobservance thereof
cannot be brushed aside as a mere technicality.[43] Procedural rules
are not to be belittled or simply disregarded, for these prescribed
procedures ensure an orderly and speedy administration of justice.[44]
IN VIEW THEREOF, the assailed 19 March 2004 and 12 May 2005
Resolutions of the Court of Appeals in CA-GR SP NO. 82651
are AFFIRMED. Hence, the 04 July 2005 Petition for Review filed by
petitioners is hereby DENIED for lack of merit.

SO ORDERED.
 |7

FIRST DIVISION PNB Check No. 30 September 1995 270,000

892687

CEBU MACTAN MEMBERS G.R. No. 159624 PNB Check No. 25 December 1995 270,000
CENTER, INC., 892688
Petitioner, Present: ------------------
Total P6,500,000
PUNO, C.J., Chairperson, On 13 April 1994, CMMCI, through Sugimoto, obtained another loan
CARPIO, amounting to P10,000,000 from Tsukahara. Sugimoto executed and
CORONA, signed a promissory note in his capacity as CMMCI President and
- versus - LEONARDO-DE CASTRO, Chairman, as well as in his personal capacity.[5] The promissory note
and states:
BERSAMIN, JJ.
MASAHIRO TSUKAHARA, Promulgated: FOR VALUE RECEIVED, the undersigned CEBU MACTAN
Respondent. July 17, 2009 MEMBERS CENTER, INC., a corporation duly organized and
x-----------------------------------------------------------------------x existing under and by virtue of the laws of the Republic of the
Philippines, through its undersigned chairman and president,
MITSUMASA SUGIMOTO, hereby promise to pay MASAHIRO
DECISION TSUKAHARA or order the sum of TEN MILLION PESOS
(P10,000,000.00) on or before August 30, 1996, plus interest thereon
at the rate of EIGHTEEN PERCENT (18%) per annum computed
CARPIO, J.: from the date of this instrument until fully paid.

The Case xxx

CEBU MACTAN MEMBERS CENTER, INC.

This is a petition for review[1] of the Court of Appeals Decision[2] dated By:
29 July 2003 in CA-G.R. CV No. 68321. The Court of Appeals (Signed)
affirmed the Decision[3] dated 24 September 1999 of the Regional MITSUMASA SUGIMOTO
Trial Court of Cebu City, Branch 58 (RTC). In his capacity as Chairman and President
and in his personal capacity.

xxx
The Antecedent Facts
Upon maturity, the seven checks were presented for payment by
In February 1994, petitioner Cebu Mactan Members Center, Inc. Tsukahara, but the same were dishonored by PNB, the drawee bank.
(CMMCI), through Mitsumasa Sugimoto (Sugimoto), the President After several failed attempts to collect the loan amount
and Chairman of the Board of Directors of CMMCI, obtained a loan totaling P16,500,000, Tsukahara filed the instant case for collection
amounting to P6,500,000 from respondent Masahiro Tsukahara. As of sum of money against CMMCI and Sugimoto.
payment for the loan, CMMCI issued seven postdated checks of
CMMCI payable to Tsukahara, with details as follows:[4] Tsukahara alleged that the amount of P16,500,000 was used by
CMMCI for the improvement of its beach resort, which included the
construction of a wave fence, the purchase of airconditioners and
curtains, and the provision of salaries of resort employees. He also
Check No. Date Amount asserted that Sugimoto, as the President of CMMCI, has the power
PNB Check No. 6 May 1994 P4,860,000 to borrow money for said corporation by any legal means whatsoever
892657 and to sign, endorse and deliver all checks and promissory notes on
behalf of the corporation.[6]
PNB Check No. 6 September 1994 280,000 CMMCI, on the other hand, denied borrowing the amount from
892683 Tsukahara, and claimed that both loans were personal loans of
PNB Check No. 25 December 1994 270,000 Sugimoto. The company also contended that if the loans were those
892684 of CMMCI, the same should have been supported by resolutions
issued by CMMCIs Board of Directors.
PNB Check No. 31 March 1995 270,000
892685
PNB Check No. 30 June 1995 280,000 On 24 September 1999, the RTC rendered a Decision, the
892686 dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendants by ordering the
defendants to pay jointly and severally to the plaintiff the sum of Six
Millions (sic) Five Hundred Thousand Pesos (P6,500,000.00),
Philippine Currency, with interest thereon at the legal rate from the
filing of the amended complaint on September 13, 1996 until fully
paid, the sum of Ten Million Pesos (P10,000,000.00), Philippine
Currency, with interest of eighteen percent (18%) per annum from
April 13, 1994 until fully paid, the sum of One Hundred Fifty
Thousand Pesos (P150,000.00), Philippine Currency, as and for
attorneys fees and costs of suit.
As the defendant Mitsumasa Sugimoto, who was served with
summons by publication, was declared in default, let this decision be
served upon him by publication once in a newspaper of general
circulation at the expense of the plaintiff, pursuant to Section 9, Rule
13 of the 1997 Revised Rules of Civil Procedure.
SO ORDERED.[7]
The Court of Appeals Ruling
On appeal, the Court of Appeals rendered judgment, affirming the
decision of the RTC, thus:
WHEREFORE, the instant appeal is hereby DISMISSED and the
Decision dated September 24, 1999 AFFIRMED.
SO ORDERED.[8]
Hence, this petition.
The Issue
The sole issue for resolution in this case is: Whether the Court of
Appeals erred in holding that CMMCI is liable for the loan contracted
by its President without a resolution issued by the CMMCI Board of
Directors.
The Courts Ruling
We find the petition without merit.
A corporation, being a juridical entity, may act through its board of
directors, which exercises almost all corporate powers, lays down all
corporate business policies and is responsible for the efficiency of
management.[9] The general rule is that, in the absence of authority
from the board of directors, no person, not even its officers, can
validly bind a corporation.[10] Section 23 of the Corporation Code of
the Philippines provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the board
of directors or trustees x x x.
|8
In Peoples Aircargo and Warehousing Co., Inc. v. Court of
Appeals,[11] we held that under Section 23, the power and the
responsibility to decide whether the corporation should enter into a
contract that will bind the corporation are lodged in the board of
directors, subject to the articles of incorporation, by-laws, or relevant
provisions of law. However, just as a natural person may authorize
another to do certain acts for and on his behalf, the board of directors
may validly delegate some of its functions and powers to officers,
committees or agents.[12] The authority of such individuals to bind the
corporation is generally derived from law, corporate by-laws or
authorization from the board, either expressly or impliedly by habit,
custom or acquiescence in the general course of business.[13] This
Court has held, thus:
A corporate officer or agent may represent and bind the corporation
in transactions with third persons to the extent that [the] authority to
do so has been conferred upon him, and this includes powers which
have been intentionally conferred, and also such powers as, in the
usual course of the particular business, are incidental to, or may be
implied from, the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation has caused
persons dealing with the officer or agent to believe that it has
conferred.[14]
In this case, the corporate by-laws of CMMCI provide:
ARTICLE III
Officers
xxx
2. President. The President shall be elected by the Board of Directors
from their own number. He shall have the following powers and
duties:
xxx
c. Borrow money for the company by any legal means whatsoever,
including the arrangement of letters of credit and overdrafts with any
and all banking institutions;
d. Execute on behalf of the company all contracts and
agreements which the said company may enter into;
e. Sign, indorse, and deliver all checks, drafts, bill of
exchange, promissory notes and orders of payment of sum of money
in the name and on behalf of the corporation;[15]
It is clear from the foregoing that the president of CMMCI is given the
power to borrow money, execute contracts, and sign and indorse
checks and promissory notes, in the name and on behalf of CMMCI.
With such powers expressly conferred under the corporate by-laws,
the CMMCI president, in exercising such powers, need not secure a
resolution from the companys board of directors. We quote with
approval the ruling of the appellate court, viz:
 |9

x x x The court a quo correctly ruled that a board resolution in this

case is a superfluity given the express provision of the corporate by-
laws.

To insist that a board resolution is still required in order to bind the

corporation with respect to the obligations contracted by its president
is to defeat the purpose of the by-laws. By-laws of a corporation
should be construed and given effect according to the general rules
governing the construction of contracts. They, as the self-imposed
private laws of a corporation, have, when valid, substantially the
same force and effect as laws of the corporation, as have the
provisions of its charter insofar as the corporation and the persons
within it are concerned. They are in effect written into the charter and
in this sense, they become part of the fundamental law of the
corporation. And the corporation and its directors (or trustees) and
officers are bound by and must comply with them.

The corporation is now estopped from denying the authority of its

president to bind the former into contractual relations. x x x[16]
Thus, given the presidents express powers under the CMMCIs by-
laws, Sugimoto, as the president of CMMCI, was more than equipped
to enter into loan transactions on CMMCIs behalf. Accordingly, the
loans obtained by Sugimoto from Tsukahara on behalf of CMMCI are
valid and binding against the latter, and CMMCI may be held liable to
pay such loans.

WHEREFORE, we DENY the petition. We AFFIRM the Court of

Appeals Decision dated 29 July 2003 in CA-G.R. CV No. 68321.

SO ORDERED.

SECOND DIVISION
G.R. No. 199481 December 3, 2012
ILDEFONSO S. CRISOLOGO, Petitioner,
vs.
PEOPLE OF THE PHILIPPINES and CHINA
BANKING CORPORATION, Respondents.
DECISION
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari1 under Rule 45
of the Rules of Court assails the November 23, 2011
Decision2of the Court of Appeals (CA) in CA-G.R. CV
No. 80350, which affirmed the December 4, 2002
Decision3 of the Regional Trial Courtt (RTC); Manila,
Branch 21. The RTC Decision acquitted petitioner
Ildefonso S. Crisologo (petitioner) of the charges for
violation of Presidential Decree (P.D.) No. 115 (Trust
Receipts Law) in relation to Article 315 1(b) of the
Revised Penal Code (RPC), but adjudged him civilly
liable under the subject letters of credit.
The Factual Antecedents
Sometime in January and February 1989, petitioner,
as President of Novachemical Industries, Inc.
(Novachem), applied for commercial letters of credit
from private respondent China Banking Corporation
(Chinabank) to finance the purchase of 1,6004 kgs. of
amoxicillin trihydrate micronized from Hyundai
Chemical Company based in Seoul, South Korea and
glass containers from San Miguel Corporation (SMC).
Subsequently, Chinabank issued Letters of Credit
Nos. 89/03015 and DOM-330416 in the respective
amounts of US$114,400.007 (originally
US$135,850.00)8with a peso equivalent of
P2,139,119.809 and P1,712,289.90. After petitioner
received the goods, he executed for and in behalf of
Novachem the corresponding trust receipt
agreements dated May 24, 1989 and August 31, 1989
in favor of Chinabank.
On January 28, 2004, Chinabank, through its Staff
Assistant, Ms. Maria Rosario De Mesa (Ms. De
Mesa), filed before the City Prosecutor's Office of
Manila a Complaint-Affidavit10 charging petitioner for
violation of P.D. No. 115 in relation to Article 315 1(b)
of the RPC for his purported failure to turn-over the
goods or the proceeds from the sale thereof, despite
repeated demands. It averred that the latter, with
intent to defraud, and with unfaithfulness and abuse of
confidence, misapplied, misappropriated and
| 10
converted the goods subject of the trust agreements,
to its damage and prejudice.
In his defense, petitioner claimed that as a regular
client of Chinabank, Novachem was granted a credit
line and letters of credit (L/Cs) secured by trust receipt
agreements. The subject L/Cs were included in the
special term-payment arrangement mutually agreed
upon by the parties, and payable in installments. In
the payment of its obligations, Novachem would
normally give instructions to Chinabank as to what
particular L/C or trust receipt obligation its payments
would be applied. However, the latter deviated from
the special arrangement and misapplied payments
intended for the subject L/Cs and exacted
unconscionably high interests and penalty charges.
The City Prosecutor found probable cause to indict
petitioner as charged and filed the corresponding
informations before the RTC of Manila, docketed as
Criminal Case Nos. 94-139613 and 94-139614.
The RTC Ruling
After due proceedings, the RTC rendered a
Decision11 dated December 4, 2002 acquitting
petitioner of the criminal charges for failure of the
prosecution to prove his guilt beyond reasonable
doubt. It, however, adjudged him civilly liable to
Chinabank, without need for a separate civil action,
for the amounts of P1,843,567.90 and P879,166.81
under L/C Nos. 89/0301 and DOM-33041,
respectively, less the payment of P500,000.00 made
during the preliminary investigation, with legal interest
from the filing of the informations on October 27, 1994
until full payment, and for the costs.
The CA Ruling
On appeal of the civil aspect, the CA affirmed12 the
RTC Decision holding petitioner civilly liable. It noted
that petitioner signed the "Guarantee Clause" of the
trust receipt agreements in his personal capacity and
even waived the benefit of excussion against
Novachem. As such, he is personally and solidarily
liable with Novachem.
The Petition
In the instant petition, petitioner contends that the CA
erred in declaring him civilly liable under the subject
L/Cs which are corporate obligations of Novachem,
and that the adjudged amounts were without factual
basis because the obligations had already been
settled. He also questions the unilaterally-imposed
interest rates applied by Chinabank and, accordingly,

prays for the application of the stipulated interest rate
of 18% per annum (p.a.) on the corporation’s
obligations. He further assails the authority of Ms. De
Mesa to prosecute the case against him sans
authority from Chinabank's Board of Directors.
The Court's Ruling
The petition is partly meritorious.
Section 13 of the Trust Receipts Law explicitly
provides that if the violation or offense is committed
by a corporation, as in this case, the penalty provided
for under the law shall be imposed upon the directors,
officers, employees or other officials or person
responsible for the offense, without prejudice to the
civil liabilities arising from the criminal offense.
In this case, petitioner was acquitted of the charge for
violation of the Trust Receipts Law in relation to
Article 315 1(b)13 of the RPC. As such, he is relieved of
the corporate criminal liability as well as the
corresponding civil liability arising therefrom.
However, as correctly found by the RTC and the CA,
he may still be held liable for the trust receipts and
L/C transactions he had entered into in behalf of
Novachem.
Settled is the rule that debts incurred by directors,
officers, and employees acting as corporate agents
are not their direct liability but of the corporation they
represent, except if they contractually agree/stipulate
or assume to be personally liable for the corporation’s
debts,14 as in this case.
The RTC and the CA adjudged petitioner personally
and solidarily liable with Novachem for the obligations
secured by the subject trust receipts based on the
finding that he signed the guarantee clauses therein in
his personal capacity and even waived the benefit of
excussion. However, a review of the records shows
that petitioner signed only the guarantee clauses of
the Trust Receipt dated May 24, 198915 and the
corresponding Application and Agreement for
Commercial Letter of Credit No. L/C No.
89/0301.16 With respect to the Trust Receipt17 dated
August 31, 1989 and Irrevocable Letter of Credit18 No.
L/C No. DOM-33041 issued to SMC for the glass
containers, the second pages of these documents that
would have reflected the guarantee clauses were
missing and did not form part of the prosecution's
formal offer of evidence. In relation thereto,
Chinabank stipulated19 before the CA that the second
page of the August 31, 1989 Trust Receipt attached to
the complaint before the court a quo would serve as
the missing page. A perusal of the said page,
| 11
however, reveals that the same does not bear the
signature of the petitioner in the guarantee clause.
Hence, it was error for the CA to hold petitioner
likewise liable for the obligation secured by the said
trust receipt (L/C No. DOM-33041). Neither was
sufficient evidence presented to prove that petitioner
acted in bad faith or with gross negligence as regards
the transaction that would have held him civilly liable
for his actions in his capacity as President of
Novachem. 1âwphi 1
On the matter of interest, while petitioner assailed the
unilateral imposition of interest at rates above the
stipulated 18% p.a., he failed to submit a summary of
the pertinent dates when excessive interests were
imposed and the purported over-payments that should
be refunded. Having failed to prove his affirmative
defense, the Court finds no reason to disturb the
amount awarded to Chinabank. Settled is the rule that
in civil cases, the party who asserts the affirmative of
an issue has the onus to prove his assertion in order
to obtain a favorable judgment. Thus, the burden rests
on the debtor to prove payment rather than on the
creditor to prove non-payment.20
Lastly, the Court affirms Ms. De Mesa's capacity to
sue on behalf of Chinabank despite the lack of proof
of authority to represent the latter. The Court noted
that as Staff Assistant of Chinabank, Ms. De Mesa
was tasked, among others, to review applications for
L/Cs, verify the documents of title and possession of
goods covered by L/Cs, as well as pertinent
documents under trust receipts (TRs);
prepare/send/cause the preparation of statements of
accounts reflecting the outstanding balance under the
said L/Cs and/or TRs, and accept the corresponding
payments; refer unpaid obligations to Chinabank's
lawyers and follow-up results thereon. As such, she
was in a position to verify the truthfulness and
correctness of the allegations in the Complaint-
Affidavit. Besides, petitioner voluntarily submitted21 to
the jurisdiction of the court a quo and did not question
Ms. De Mesa's authority to represent Chinabank in
the instant case until an adverse decision was
rendered against him.
WHEREFORE, the assailed November 23, 2011
Decision of the Court of Appeals in CA-G.R. CV No.
80350 is AFFIRMED with the modification absolving
petitioner lldefonso S. Crisologo from any civil liability
to private respondent China Banking Corporation with
respect to the Trust Receipt dated August 31, 1989
and L/C No. DOM-33041. The rest of the Decision
stands.
SO ORDERED.

EN BANC
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
| 12
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
| 13
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:
| 14
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:
| 15
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:
| 16
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)
| 17
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:
| 18
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
| 19
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. 518630 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
| 20
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?
| 21
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."
| 22
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
| 23
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.
| 24
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
| 25
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
| 26
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."
| 27
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
| 28
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:
| 29
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
| 30
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.
1avv phi1
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
| 31
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
 | 32

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.
 | 33

THIRD DIVISION and the Certificate of Finality thereof. To hasten the disposition of the
case, the court conditionally admitted the corrected birth certificate as
JOSELITO MUSNI PUNO G.R. No. 177066 genuine and authentic and ordered respondent to file its answer
(as heir of the late Carlos Puno), within fifteen days from the order and set the case for pretrial.[3]
Petitioner, Present:
On October 11, 2005, the court rendered a Decision, the dispositive
YNARES- portion of which reads:
SANTIAGO, J.,
Chairperson, WHEREFORE, judgment is hereby rendered ordering Jesusa Puno
- versus - CHICO-NAZARIO, and/or Felicidad Fermin to allow the plaintiff to inspect the corporate
VELASCO, JR., books and records of the company from 1962 up to the present
NACHURA, and including the financial statements of the corporation.
PERALTA, JJ.
The costs of copying shall be shouldered by the plaintiff. Any
PUNO ENTERPRISES, INC., expenses to be incurred by the defendant to be able to comply with
represented by JESUSA PUNO, Promulgated: this order shall be the subject of a bill of costs.
Respondent.
September 11, 2009 SO ORDERED.[4]

x------------------------------------------------------------------------------------x On appeal, the CA ordered the dismissal of the complaint in its

DECISION
NACHURA, J.:
Upon the death of a stockholder, the heirs do not automatically
become stockholders of the corporation; neither are they mandatorily
entitled to the rights and privileges of a stockholder. This, we declare
in this petition for review on certiorari of the Court of Appeals (CA)
Decision[1] dated October 11, 2006 and Resolution dated March 6,
2007 in CA-G.R. CV No. 86137.
Decision dated October 11, 2006. According to the CA, petitioner
was not able to establish the paternity of and his filiation to Carlos L.
Puno since his birth certificate was prepared without the intervention
of and the participatory acknowledgment of paternity by Carlos L.
Puno. Accordingly, the CA said that petitioner had no right to demand
that he be allowed to examine respondents books. Moreover,
petitioner was not a stockholder of the corporation but was merely
claiming rights as an heir of Carlos L. Puno, an incorporator of the
corporation. His action for specific performance therefore appeared
to be premature; the proper action to be taken was to prove the
paternity of and his filiation to Carlos L. Puno in a petition for the
settlement of the estate of the latter.[5]

The facts of the case follow: Petitioners motion for reconsideration was denied by the CA in its
Resolution[6] dated March 6, 2007.
Carlos L. Puno, who died on June 25, 1963, was an incorporator of
respondent Puno Enterprises, Inc. On March 14, 2003, petitioner In this petition, petitioner raises the following issues:
Joselito Musni Puno, claiming to be an heir of Carlos L. Puno,
initiated a complaint for specific performance against I. THE HONORABLE COURT OF APPEALS ERRED IN
respondent. Petitioner averred that he is the son of the deceased NOT RULING THAT THE JOSELITO PUNO IS ENTITLED TO THE
with the latters common-law wife, Amelia Puno. As surviving heir, he RELIEFS DEMANDED HE BEING THE HEIR OF THE LATE
claimed entitlement to the rights and privileges of his late father as CARLOS PUNO, ONE OF THE INCORPORATORS [OF]
stockholder of respondent. The complaint thus prayed that RESPONDENT CORPORATION.
respondent allow petitioner to inspect its corporate book, render an
accounting of all the transactions it entered into from 1962, and give II. HONORABLE COURT OF APPEALS ERRED IN
petitioner all the profits, earnings, dividends, or income pertaining to RULING THAT FILIATION OF JOSELITO PUNO, THE
the shares of Carlos L. Puno.[2] PETITIONER[,] IS NOT DULY PROVEN OR ESTABLISHED.

Respondent filed a motion to dismiss on the ground that petitioner did III. THE HONORABLE COURT ERRED IN NOT RULING
not have the legal personality to sue because his birth certificate THAT JOSELITO MUNO AND JOSELITO PUNO REFERS TO THE
names him as Joselito Musni Muno. Apropos, there was yet a need ONE AND THE SAME PERSON.
for a judicial declaration that Joselito Musni Puno and Joselito Musni
Muno were one and the same. IV. THE HONORABLE COURT OF APPEALS ERRED IN
NOT RULING THAT WHAT RESPONDENT MERELY DISPUTES IS
The court ordered that the proceedings be held in abeyance, THE SURNAME OF THE PETITIONER WHICH WAS MISSPELLED
ratiocinating that petitioners certificate of live birth was no proof of his AND THE FACTUAL ALLEGATION E.G. RIGHTS OF PETITIONER
paternity and relation to Carlos L. Puno. AS HEIR OF CARLOS PUNO ARE DEEMED ADMITTED
HYPOTHETICALLY IN THE RESPONDENT[S] MOTION TO
Petitioner submitted the corrected birth certificate with the name DISMISS.
Joselito M. Puno, certified by the Civil Registrar of the City of Manila,

V. THE HONORABLE COURT OF APPEALS THEREFORE
ERRED I[N] DECREEING THAT PETITIONER IS NOT ENTITLED
TO INSPECT THE CORPORATE BOOKS OF DEFENDANT
CORPORATION.[7]
The petition is without merit. Petitioner failed to establish the right to
inspect respondent corporations books and receive dividends on the
stocks owned by Carlos L. Puno.
Petitioner anchors his claim on his being an heir of the deceased
stockholder. However, we agree with the appellate court that
petitioner was not able to prove satisfactorily his filiation to the
deceased stockholder; thus, the former cannot claim to be an heir of
the latter.
Incessantly, we have declared that factual findings of the CA
supported by substantial evidence, are conclusive and binding.[8] In
an appeal via certiorari, the Court may not review the factual
findings of the CA. It is not the Courts function under Rule 45 of the
Rules of Court to review, examine, and evaluate or weigh the
probative value of the evidence presented.[9]
A certificate of live birth purportedly identifying the putative father is
not competent evidence of paternity when there is no showing that
the putative father had a hand in the preparation of the certificate.
The local civil registrar has no authority to record the paternity of an
illegitimate child on the information of a third person.[10] As correctly
observed by the CA, only petitioners mother supplied the data in the
birth certificate and signed the same. There was no evidence that
Carlos L. Puno acknowledged petitioner as his son.
As for the baptismal certificate, we have already decreed that it can
only serve as evidence of the administration of the sacrament on the
date specified but not of the veracity of the entries with respect to the
childs paternity.[11]
In any case, Sections 74 and 75 of the Corporation Code enumerate
the persons who are entitled to the inspection of corporate books,
thus
Sec. 74. Books to be kept; stock transfer agent. x x x.
The records of all business transactions of the corporation and the
minutes of any meeting shall be open to the inspection of
any director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, in writing,
for a copy of excerpts from said records or minutes, at his expense.
xxxx
Sec. 75. Right to financial statements. Within ten (10) days from
receipt of a written request of any stockholder or member, the
corporation shall furnish to him its most recent financial statement,
which shall include a balance sheet as of the end of the last taxable
year and a profit or loss of statement for said taxable year, showing
in reasonable detail its assets and liabilities and the result of its
operations.[12]
| 34
The stockholders right of inspection of the corporations books and
records is based upon his ownership of shares in the corporation and
the necessity for self-protection. After all, a shareholder has the right
to be intelligently informed about corporate affairs.[13] Such right rests
upon the stockholders underlying ownership of the corporations
assets and property.[14]
Similarly, only stockholders of record are entitled to receive dividends
declared by the corporation, a right inherent in the ownership of the
shares.[15]
Upon the death of a shareholder, the heirs do not automatically
become stockholders of the corporation and acquire the rights and
privileges of the deceased as shareholder of the corporation. The
stocks must be distributed first to the heirs in estate proceedings, and
the transfer of the stocks must be recorded in the books of the
corporation. Section 63 of the Corporation Code provides that no
transfer shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation.[16] During such
interim period, the heirs stand as the equitable owners of the stocks,
the executor or administrator duly appointed by the court being
vested with the legal title to the stock.[17]Until a settlement and
division of the estate is effected, the stocks of the decedent are held
by the administrator or executor.[18] Consequently, during such time,
it is the administrator or executor who is entitled to exercise the rights
of the deceased as stockholder.
Thus, even if petitioner presents sufficient evidence in this case to
establish that he is the son of Carlos L. Puno, he would still not be
allowed to inspect respondents books and be entitled to receive
dividends from respondent, absent any showing in its transfer book
that some of the shares owned by Carlos L. Puno were transferred to
him. This would only be possible if petitioner has been recognized as
an heir and has participated in the settlement of the estate of the
deceased.
Corollary to this is the doctrine that a determination of whether a
person, claiming proprietary rights over the estate of a deceased
person, is an heir of the deceased must be ventilated in a special
proceeding instituted precisely for the purpose of settling the estate
of the latter. The status of an illegitimate child who claims to be an
heir to a decedents estate cannot be adjudicated in an ordinary civil
action, as in a case for the recovery of property.[19] The doctrine
applies to the instant case, which is one for specific performance to
direct respondent corporation to allow petitioner to exercise rights
that pertain only to the deceased and his representatives.
WHEREFORE, premises considered, the petition is DENIED. The
Court of Appeals Decision dated October 11, 2006 and Resolution
dated March 6, 2007 are AFFIRMED.
SO ORDERED.

THIRD DIVISION
ADVENT CAPITAL AND G.R. No. 183050
FINANCE CORPORATION,
Petitioner, Present:
- versus - VELASCO,JR., J., Chairper
NICASIO I. ALCANTARA and son,
EDITHA I. ALCANTARA, Respond PERALTA,
ents. ABAD,
VILLARAMA, JR.,* and
MENDOZA, JJ.
Promulgated:
January 25, 2012
DECISION
ABAD, J.:
This case is about the validity of a rehabilitation courts order that
compelled a third party, in possession of money allegedly belonging
to the debtor of a company under rehabilitation, to deliver such
money to its court-appointed receiver over the debtors objection.
The Facts and the Case
On July 16, 2001 petitioner Advent Capital and Finance Corporation
(Advent Capital) filed a petition for rehabilitation[1] with the Regional
Trial Court (RTC) of Makati City.[2]Subsequently, the RTC named
Atty. Danilo L. Concepcion as rehabilitation receiver.[3] Upon audit of
Advent Capitals books, Atty. Concepcion found that respondents
Nicasio and Editha Alcantara (collectively, the Alcantaras) owed
Advent Capital P27,398,026.59, representing trust fees that it
supposedly earned for managing their several trust accounts.[4]
Prompted by this finding, Atty. Concepcion requested Belson
Securities, Inc. (Belson) to deliver to him, as Advent Capitals
rehabilitation receiver, the P7,635,597.50 in cash dividends that
Belson held under the Alcantaras Trust Account 95-013. Atty.
Concepcion claimed that the dividends, as trust fees, formed part of
Advent Capitals assets. Belson refused, however, citing the
Alcantaras objections as well as the absence of an appropriate order
from the rehabilitation court.[5]
Thus, Atty. Concepcion filed a motion before the rehabilitation court
to direct Belson to release the money to him. He said that, as
rehabilitation receiver, he had the duty to take custody and control of
Advent Capitals assets, such as the sum of money that Belson held
on behalf of Advent Capitals Trust Department.[6]
The Alcantaras made a special appearance before the rehabilitation
court[7] to oppose Atty. Concepcions motion. They claimed that the
money in the trust account belonged to them under their Trust
Agreement[8] with Advent Capital. The latter, they said, could not
claim any right or interest in the dividends generated by their
investments since Advent Capital merely held these in trust for the
| 35
Alcantaras, the trustors-beneficiaries. For this reason, Atty.
Concepcion had no right to compel the delivery of the dividends to
him as receiver. The Alcantaras concluded that, under the
circumstances, the rehabilitation court had no jurisdiction over the
subject dividends.
On February 5, 2007 the rehabilitation court granted Atty.
Concepcions motion.[9] It held that, under Rule 59, Section 6 of the
Rules of Court, a receiver has the duty to immediately take
possession of all of the corporations assets and administer the same
for the benefit of corporate creditors. He has the duty to collect debts
owing to the corporation, which debts form part of its
assets. Complying with the rehabilitation courts order and Atty.
Concepcions demand letter, Belson turned over the subject dividends
to him.
Meanwhile, the Alcantaras filed a special civil action
of certiorari before the Court of Appeals (CA), seeking to annul the
rehabilitation courts order. On January 30, 2008 the CA rendered a
decision,[10] granting the petition and directing Atty. Concepcion to
account for the dividends and deliver them to the Alcantaras. The CA
ruled that the Alcantaras owned those dividends. They did not form
part of Advent Capitals assets as contemplated under the Interim
Rules of Procedure on Corporate Rehabilitation (Interim Rules).
The CA pointed out that the rehabilitation proceedings in this case
referred only to the assets and liabilities of the company proper, not
to those of its Trust Department which held assets belonging to other
people. Moreover, even if the Trust Agreement provided that Advent
Capital, as trustee, shall have first lien on the Alcantaras financial
portfolio for the payment of its trust fees, the cash dividends in
Belsons care cannot be summarily applied to the payment of such
charges. To enforce its lien, Advent Capital has to file a collection
suit. The rehabilitation court cannot simply enforce the latters claim
by ordering Belson to deliver the money to it.[11]
The CA denied Atty. Concepcion and Advent Capitals motion for
reconsideration,[12] prompting the filing of the present petition for
review under Rule 45.
The Issue Presented
The sole issue in this case is whether or not the cash dividends held
by Belson and claimed by both the Alcantaras and Advent Capital
constitute corporate assets of the latter that the rehabilitation court
may, upon motion, require to be conveyed to the rehabilitation
receiver for his disposition.
Ruling of the Court
Advent Capital asserts that the cash dividends in Belsons possession
formed part of its assets based on paragraph 9 of its Trust
Agreement with the Alcantaras, which states:
9. Trust Fee: Other Expenses As compensation for its services
hereunder, the TRUSTEE shall be entitled to a trust or
management fee of 1 (one) % per annum based on the quarterly
average market value of the Portfolio or a minimum annual fee
of P5,000.00, whichever is higher. The said trust or management
fee shall automatically be deducted from the Portfolio at the end
of each calendar quarter. The TRUSTEE shall likewise be

reimbursed for all reasonable and necessary expenses incurred
by it in the discharge of its powers and duties under this
Agreement, and in all cases, the TRUSTEE shall have a first lien
on the Portfolio for the payment of the trust fees and other
reimbursable expenses.
According to Advent Capital, it could automatically deduct its
management fees from the Alcantaras portfolio that they entrusted to
it. Paragraph 9 of the Trust Agreement provides that Advent Capital
could automatically deduct its trust fees from the Alcantaras portfolio,
at the end of each calendar quarter, with the corresponding duty to
submit to the Alcantaras a quarterly accounting report within 20 days
after.[13]
But the problem is that the trust fees that Advent Capitals receiver
was claiming were for past quarters. Based on the stipulation, these
should have been deducted as they became due. As it happened, at
the time Advent Capital made its move to collect its supposed
management fees, it neither had possession nor control of the money
it wanted to apply to its claim. Belson, a third party, held the money in
the Alcantaras names. Whether it should deliver the same to Advent
Capital or to the Alcantaras is not clear. What is clear is that the issue
as to who should get the same has been seriously contested.
The practice in the case of banks is that they automatically collect
their management fees from the funds that their clients entrust to
them for investment or lending to others. But the banks can freely do
this since it holds or has control of their clients money and since their
trust agreement authorized the automatic collection. If the depositor
contests the deduction, his remedy is to bring an action to recover
the amount he claims to have been illegally deducted from his
account.
Here, Advent Capital does not allege that Belson had already
deducted the management fees owing to it from the Alcantaras
portfolio at the end of each calendar quarter.Had this been done, it
may be said that the money in Belsons possession would technically
be that of Advent Capital. Belson would be holding such amount in
trust for the latter.And it would be for the Alcantaras to institute an
action in the proper court against Advent Capital and Belson for
misuse of its funds.
But the above did not happen. Advent Capital did not exercise its
right to cause the automatic deduction at the end of every quarter of
its supposed management fee when it had full control of the
dividends. That was its fault. For their part, the Alcantaras had the
right to presume that Advent Capital had deducted its fees in the
manner stated in the contract. The burden of proving that the fees
were not in fact collected lies with Advent Capital.
Further, Advent Capital or its rehabilitation receiver cannot
unilaterally decide to apply the entire amount of cash dividends
retroactively to cover the accumulated trust fees. Advent Capital
merely managed in trust for the benefit of the Alcantaras the latters
portfolio, which under Paragraph 2[14] of the Trust Agreement,
includes not only the principal but also its income or proceeds. The
trust property is only fictitiously attributed by law to the trustee to the
extent that the rights and powers vested in a nominal owner shall be
used by him on behalf of the real owner.[15]
| 36
The real owner of the trust property is the trustor-beneficiary. In this
case, the trustors-beneficiaries are the Alcantaras. Thus, Advent
Capital could not dispose of the Alcantaras portfolio on its own. The
income and principal of the portfolio could only be withdrawn upon
the Alcantaras written instruction or order to Advent Capital.[16] The
latter could not also assign or encumber the portfolio or its income
without the written consent of the Alcantaras.[17] All these are
stipulated in the Trust Agreement.
Ultimately, the issue is what court has jurisdiction to hear and
adjudicate the conflicting claims of the parties over the dividends that
Belson held in trust for their owners.Certainly, not the rehabilitation
court which has not been given the power to resolve ownership
disputes between Advent Capital and third parties. Neither Belson
nor the Alcantaras are its debtors or creditors with interest in the
rehabilitation.
Advent Capital must file a separate action for collection to recover the
trust fees that it allegedly earned and, with the trial courts
authorization if warranted, put the money in escrow for payment to
whoever it rightly belongs. Having failed to collect the trust fees at the
end of each calendar quarter as stated in the contract, all it had
against the Alcantaras was a claim for payment which is a proper
subject for an ordinary action for collection. It cannot enforce its
money claim by simply filing a motion in the rehabilitation case for
delivery of money belonging to the Alcantaras but in the possession
of a third party.
Rehabilitation proceedings are summary and non-adversarial in
nature, and do not contemplate adjudication of claims that must be
threshed out in ordinary court proceedings. Adversarial proceedings
similar to that in ordinary courts are inconsistent with the commercial
nature of a rehabilitation case. The latter must be resolved quickly
and expeditiously for the sake of the corporate debtor, its creditors
and other interested parties. Thus, the Interim Rules incorporate the
concept of prohibited pleadings, affidavit evidence in lieu of oral
testimony, clarificatory hearings instead of the traditional approach of
receiving evidence, and the grant of authority to the court to decide
the case, or any incident, on the basis of affidavits and documentary
evidence.[18]
Here, Advent Capitals claim is disputed and requires a full trial on the
merits. It must be resolved in a separate action where the Alcantaras
claim and defenses may also be presented and heard. Advent
Capital cannot say that the filing of a separate action would defeat
the purpose of corporate rehabilitation. In the first place, the Interim
Rules do not exempt a company under rehabilitation from availing of
proper legal procedure for collecting debt that may be due
it. Secondly, Court records show that Advent Capital had in fact
sought to recover one of its assets by filing a separate action
for replevin involving a car that was registered in its name.[19]
WHEREFORE, the petition is DENIED for lack of merit and the
assailed decision and resolution of the Court of Appeals in CA-G.R.
SP 98692 are AFFIRMED, without prejudice to any action that
petitioner Advent Capital and Finance Corp. or its rehabilitation
receiver might institute regarding the trust fees subject of this case.
SO ORDERED.
 | 37

THIRD DIVISION 1. G/F Level BAS covered by Condominium Certificate of

Title (CCT) No. 21030 utilized as the PHCCs administration office,
PHILIP L. GO, PACIFICO Q. G.R. No. 194024 and
LIM and ANDREW Q. LIM
Petitioners, Present: 2. G/F Level 4-A covered by CCT No. PT-27396/C-136-II
used as living quarters by the building administrator.
VELASCO, Although used by PHCC, DPDCI was assessed association dues for
JR., J., Chairperson, these two units.
- versus - PERALTA,
ABAD, Meanwhile, in March 1999, petitioner Pacifico Lim, as president of
MENDOZA, and DPDCI, filed an Application for Alteration of Plan[4] pertaining to the
PERLAS-BERNABE, JJ. construction of 22 storage units in the spaces adjunct to the parking
area of the building. The application, however, was disapproved as
the proposed alteration would obstruct light and ventilation.
DISTINCTION PROPERTIES
DEVELOPMENT AND In August 2004, through its Board,[5] PHCC approved a settlement
CONSTRUCTION, INC. Promulgated: offer from DPDCI for the set-off of the latters association dues
Respondent. arrears with the assignment of title over CCT Nos. 21030 and PT-
April 25, 2012 27396/C-136-II and their conversion into common areas. Thus, CCT
Nos. PT-43400 and PT-43399 were issued by the Registrar of Deeds
X -------------------------------------------------------------------------------------- X of Pasig City in favor of PHCC in lieu of the old titles. The said
settlement between the two corporations likewise included the
DECISION reversion of the 22 storage spaces into common areas. With the
conformity of PHCC, DPDCIs application for alteration (conversion of
unconstructed 22 storage units and units GF4-A and BAS from
MENDOZA, J.: saleable to common areas) was granted by the Housing and Land
Use Regulatory Board (HLURB).[6]
Before the Court is a petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure assailing the March 17, 2010 In August 2008, petitioners, as condominium unit-owners, filed a
Decision[1] and October 7, 2010 Resolution[2] of the Court of Appeals complaint[7] before the HLURB against DPDCI for unsound business
(CA) in CA-G.R. SP No. 110013 entitled Distinction Properties practices and violation of the MDDR. The case was docketed as
Development & Construction, Inc. v. Housing Land Use Regulatory REM- 080508-13906. They alleged that DPDCI committed
Board (NCR), Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim. misrepresentation in their circulated flyers and brochures as to the
Factual and Procedural Antecedents: facilities or amenities that would be available in the condominium and
failed to perform its obligation to comply with the MDDR.
Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim (petitioners) are In defense, DPDCI denied that it had breached its promises and
registered individual owners of condominium units in Phoenix Heights representations to the public concerning the facilities in the
Condominium located at H. Javier/Canley Road, Bo. Bagong condominium. It alleged that the brochure attached to the complaint
Ilog, Pasig City, Metro Manila. was a mere preparatory draft and not the official one actually
Respondent Distinction Properties Development and Construction, distributed to the public, and that the said brochure contained a
Inc. (DPDCI) is a corporation existing under the laws of disclaimer as to the binding effect of the supposed offers
the Philippines with principal office at No. 1020 Soler Street, therein. Also, DPDCI questioned the petitioners personality to sue as
Binondo, Manila. It was incorporated as a real estate developer, the action was a derivative suit.
engaged in the development of condominium projects, among which
was the Phoenix Heights Condominium. After due hearing, the HLURB rendered its decision[8] in favor of
In February 1996, petitioner Pacifico Lim, one of the incorporators petitioners. It held as invalid the agreement entered into between
and the then president of DPDCI, executed a Master Deed and DPDCI and PHCC, as to the alteration or conversion of the subject
Declaration of Restrictions (MDDR)[3]of Phoenix Heights units into common areas, which it previously approved, for the reason
Condominium, which was filed with the Registry of Deeds. As the that it was not approved by the majority of the members of PHCC as
developer, DPDCI undertook, among others, the marketing aspect of required under Section 13 of the MDDR. It stated that DPDCIs
the project, the sale of the units and the release of flyers and defense, that the brochure was a mere draft, was against human
brochures. experience and a convenient excuse to avoid its obligation to provide
the facility of the project. The HLURB further stated that the case was
Thereafter, Phoenix Heights Condominium Corporation (PHCC) was not a derivative suit but one which involved contracts of sale of the
formally organized and incorporated. Sometime in 2000, DPDCI respective units between the complainants and DPDCI, hence, within
turned over to PHCC the ownership and possession of the its jurisdiction pursuant to Section 1, Presidential Decree (P.D.) No.
condominium units, except for the two saleable commercial 957 (The Subdivision and Condominium Buyers Protective
units/spaces: Decree),as amended. The decretal portion of the HLURB decision
reads:

WHEREFORE, in view of the foregoing, judgment is hereby
rendered:
1. Ordering respondent to restore/provide proper gym
facilities, to restore the hallway at the mezzanine floor.
2. Declaring the conversion/alteration of 22 storage units and
Units GF4-A and BAS as illegal, and consequently, and ordering
respondent to continue paying the condominium dues for these units,
with interest and surcharge.
3. Ordering the Respondent to pay the sum of Php998,190.70,
plus interests and surcharges, as condominium dues in arrears and
turnover the administration office to PHCC without any charges
pursuant to the representation of the respondent in the brochures it
circulated to the public with a corresponding credit to complainants
individual shares as members of PHCC entitled to such refund or
reimbursements.
4. Ordering the Respondent to refund to the PHCC the
amount of Php1,277,500.00, representing the cost of the deep well,
with interests and surcharges with a corresponding credit to
complainants individual shares as members of PHCC entitled to such
refund or reimbursements.
5. Ordering the Respondent to pay the complainants moral
and exemplary damages in the amount of ₱10,000.00 and attorneys
fees in the amount of ₱10,000.00.
All other claims and counterclaims are hereby dismissed accordingly.
IT IS SO ORDERED.[9]
Aggrieved, DPDCI filed with the CA its Petition for Certiorari and
Prohibition[10] dated August 11, 2009, on the ground that the HLURB
decision was a patent nullity constituting an act without or beyond its
jurisdiction and that it had no other plain, speedy and adequate
remedy in the course of law.
On March 17, 2010, the CA rendered the assailed decision which
disposed of the case in favor of DPDCI as follows:
WHEREFORE, in view of the foregoing, the petition is
GRANTED. Accordingly, the assailed Decision of the HLURB in Case
No. REM-0800508-13906 is ANNULLED and SET ASIDE and a new
one is entered DISMISSING the Complaint a quo.
IT IS SO ORDERED.[11]
The CA ruled that the HLURB had no jurisdiction over the complaint
filed by petitioners as the controversy did not fall within the scope of
the administrative agencys authority under P.D. No. 957. The HLURB
not only relied heavily on the brochures which, according to the CA,
did not set out an enforceable obligation on the part of DPDCI, but
also erroneously cited Section 13 of the MDDR to support its finding
of contractual violation.
The CA held that jurisdiction over PHCC, an indispensable party, was
neither acquired nor waived by estoppel. Citing Carandang v. Heirs
of De Guzman,[12] it held that, in any event, the action should be
dismissed because the absence of PHCC, an indispensable party,
| 38
rendered all subsequent actuations of the court void, for want of
authority to act, not only as to the absent parties but even as to those
present.
Finally, the CA held that the rule on exhaustion of administrative
remedies could be relaxed. Appeal was not a speedy and adequate
remedy as jurisdictional questions were continuously raised but
ignored by the HLURB. In the present case, however, [t]he bottom
line is that the challenged decision is one that had been rendered in
excess of jurisdiction, if not with grave abuse of discretion amounting
to lack or excess of jurisdiction.[13]
Petitioners filed a motion for reconsideration[14] of the said
decision. The motion, however, was denied by the CA in its
Resolution dated October 7, 2010.
Hence, petitioners interpose the present petition before this Court
anchored on the following
GROUNDS
(1)
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
HLURB HAS NO JURISDICTION OVER THE INSTANT CASE;
(2)
THE COURT OF APPEALS ALSO ERRED IN FINDING THAT
PHCC IS AN INDISPENSABLE PARTY WHICH WARRANTED THE
DISMISSAL OF THE CASE BY REASON OF IT NOT HAVING
BEEN IMPLEADED IN THE CASE;
(3)
THE COURT OF APPEALS HAS LIKEWISE ERRED IN RELAXING
THE RULE ON NON-EXHAUSTION OF ADMINISTRATIVE
REMEDIES BY DECLARING THAT THE APPEAL MAY NOT BE A
SPEEDY AND ADEQUATE REMEDY WHEN JURISDICTIONAL
QUESTIONS WERE CONTINUOUSLY RAISED BUT IGNORED BY
THE HLURB; and
(4)
THAT FINALLY, THE COURT A QUO ALSO ERRED IN NOT
GIVING DUE RESPECT OR EVEN FINALITY TO THE FINDINGS
OF THE HLURB.[15]
Petitioners contend that the HLURB has jurisdiction over the subject
matter of this case. Their complaint with the HLURB clearly alleged
and demanded specific performance upon DPDCI of the latters
contractual obligation under their individual contracts to provide a
back-up water system as part of the amenities provided for in the
brochure, together with an administration office, proper gym facilities,
restoration of a hallway, among others. They point out that the
violation by DPDCI of its obligations enumerated in the said
complaint squarely put their case within the ambit of Section 1, P.D.
No. 957, as amended, enumerating the cases that are within the
exclusive jurisdiction of the HLURB. Likewise, petitioners argue that
the case was not a derivative suit as they were not suing for and in
behalf of PHCC. They were suing, in their individual capacities as
condominium unit buyers, their developer for breach of contract. In
support of their view that PHCC was not an indispensable party,
petitioners even quoted the dispositive portion of the HLURB decision
to show that complete relief between or among the existing parties

may be obtained without the presence of PHCC as a party to this
case. Petitioners further argue that DPDCIs petition before the CA
should have been dismissed outright for failure to comply with
Section 1, Rule XVI of the 2004 Rules of Procedure of the HLURB
providing for an appeal to the Board of Commissioners by a party
aggrieved by a decision of a regional officer.
DPDCI, in its Comment,[16] strongly objects to the arguments of
petitioners and insists that the CA did not err in granting its petition. It
posits that the HLURB has no jurisdiction over the complaint filed by
petitioners because the controversies raised therein are in the nature
of intra-corporate disputes. Thus, the case does not fall within the
jurisdiction of the HLURB under Section 1, P.D. No. 957 and P.D. No.
1344. According to DPDCI, petitioners sought to address the
invalidation of the corporate acts duly entered and executed by
PHCC as a corporation of which petitioners are admittedly members
of, and not the acts pertaining to their ownership of the units. Such
being the case, PHCC should have been impleaded as a party to the
complaint. Its non-inclusion as an indispensable party warrants the
dismissal of the case. DPDCI further avers that the doctrine of
exhaustion is inapplicable inasmuch as the issues raised in the
petition with the CA are purely legal; that the challenged
administrative act is patently illegal; and that the procedure of the
HLURB does not provide a plain, speedy and adequate remedy and
its application may cause great and irreparable damage. Finally, it
claims that the decision of the HLURB Arbiter has not attained
finality, the same having been issued without jurisdiction.
Essentially, the issues to be resolved are: (1) whether the HLURB
has jurisdiction over the complaint filed by the petitioners; (2) whether
PHCC is an indispensable party; and (3) whether the rule on
exhaustion of administrative remedies applies in this case.
The petition fails.
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.[17] Thus, it was ruled that the jurisdiction
of the HLURB to hear and decide cases is determined by the nature
of the cause of action, the subject matter or property involved and the
parties.[18]
Generally, the extent to which an administrative agency may exercise
its powers depends largely, if not wholly, on the provisions of the
statute creating or empowering such agency.[19] With respect to the
HLURB, to determine if said agency has jurisdiction over petitioners
cause of action, an examination of the laws defining the HLURBs
jurisdiction and authority becomes imperative. P.D. No.
957,[20] specifically Section 3, granted the National Housing
Authority (NHA) the "exclusive jurisdiction to regulate the real estate
| 39
trade and business." Then came P.D. No. 1344[21] expanding the
jurisdiction of the NHA (now HLURB), as follows:
SECTION 1. In the exercise of its functions to regulate the real estate
trade and business and in addition to its powers provided for in
Presidential Decree No. 957, the National Housing Authority shall
have exclusive jurisdiction to hear and decide cases of the following
nature:
(a) Unsound real estate business practices;
(b) Claims involving refund and any other claims filed by subdivision
lot or condominium unit buyer against the project owner, developer,
dealer, broker or salesman; and
(c) Cases involving specific performance of contractual and statutory
obligations filed by buyers of subdivision lot or condominium unit
against the owner, developer, dealer, broker or salesman.
This provision must be read in light of the laws preamble, which
explains the reasons for enactment of the law or the contextual basis
for its interpretation.[22] A statute derives its vitality from the purpose
for which it is enacted, and to construe it in a manner that disregards
or defeats such purpose is to nullify or destroy the law.[23] P.D. No.
957, as amended, aims to protect innocent subdivision lot and
condominium unit buyers against fraudulent real estate practices.[24]
The HLURB is given a wide latitude in characterizing or categorizing
acts which may constitute unsound business practice or breach of
contractual obligations in the real estate trade. This grant of
expansive jurisdiction to the HLURB does not mean, however, that all
cases involving subdivision lots or condominium units automatically
fall under its jurisdiction. The CA aptly quoted the case of Christian
General Assembly, Inc. v. Ignacio,[25] wherein the Court held that:
The mere relationship between the parties, i.e., that of being
subdivision owner/developer and subdivision lot buyer, does not
automatically vest jurisdiction in the HLURB. For an action to fall
within the exclusive jurisdiction of the HLURB, the decisive
element is the nature of the action as enumerated in Section 1 of
P.D. 1344. On this matter, we have consistently held that the
concerned administrative agency, the National Housing Authority
(NHA) before and now the HLURB, has jurisdiction over complaints
aimed at compelling the subdivision developer to comply with its
contractual and statutory obligations.[26] [Emphases supplied]
In this case, the complaint filed by petitioners alleged causes of
action that apparently are not cognizable by the HLURB considering
the nature of the action and the reliefs sought. A perusal of the
complaint discloses that petitioners are actually seeking to nullify and
invalidate the duly constituted acts of PHCC - the April 29, 2005
Agreement[27]entered into by PHCC with DPDCI and its Board
Resolution[28] which authorized the acceptance of the proposed
offsetting/settlement of DPDCIs indebtedness and approval of the
conversion of certain units from saleable to common areas. All these
were approved by the HLURB. Specifically, the reliefs sought or
prayers are the following:
1. Ordering the respondent to restore the gym to its original
location;
2. Ordering the respondent to restore the hallway at the second
floor;

3. Declaring the conversion/alteration of 22 storage units and
Units GF4-A and BAS as illegal, and consequently, ordering
respondent to continue paying the condominium dues for these units,
with interest and surcharge;
4. Ordering the respondent to pay the sum of PHP998,190.70,
plus interest and surcharges, as condominium dues in arrears and
turnover the administration office to PHCC without any charges
pursuant to the representation of the respondent in the brochures it
circulated to the public;
5. Ordering the respondent to refund to the PHCC the amount of
PHP1,277,500.00, representing the cost of the deep well, with
interests and surcharges;
6. Ordering the respondent to pay the complainants
moral/exemplary damages in the amount of PHP100,000.00; and
7. Ordering the respondent to pay the complainant attorneys fees
in the amount of PHP100,000.00, and PHP3,000.00 for every hearing
scheduled by the Honorable Office.[29]
As it is clear that the acts being assailed are those of PHHC,
this case cannot prosper for failure to implead the proper party,
PHCC.
An indispensable party is defined as one who has such an interest in
the controversy or subject matter that a final adjudication cannot be
made, in his absence, without injuring or affecting that interest.[30] In
the recent case of Nagkakaisang Lakas ng Manggagawa sa Keihin
(NLMK-OLALIA-KMU) v. Keihin Philippines Corporation,[31] the Court
had the occasion to state that:
Under Section 7, Rule 3 of the Rules of Court, "parties in interest
without whom no final determination can be had of an action shall be
joined as plaintiffs or defendants." If there is a failure to implead an
indispensable party, any judgment rendered would have no
effectiveness. It is "precisely when an indispensable party is not
before the court (that) an action should be dismissed. The
absence of an indispensable party renders all subsequent
actions of the court null and void for want of authority to act, not
only as to the absent parties but even to those present." The
purpose of the rules on joinder of indispensable parties is a complete
determination of all issues not only between the parties themselves,
but also as regards other persons who may be affected by the
judgment. A decision valid on its face cannot attain real finality where
there is want of indispensable parties.[32] (Underscoring supplied)
Similarly, in the case of Plasabas v. Court of Appeals,[33] the Court
held that a final decree would necessarily affect the rights of
indispensable parties so that the Court could not proceed without
their presence. In support thereof, the Court in Plasabas cited the
following authorities, thus:
"The general rule with reference to the making of parties in a civil
action requires the joinder of all indispensable parties under any and
all conditions, their presence being a sine qua non of the exercise of
judicial power. (Borlasa v. Polistico, 47 Phil. 345, 348) For this
reason, our Supreme Court has held that when it appears of record
| 40
that there are other persons interested in the subject matter of the
litigation, who are not made parties to the action, it is the duty of the
court to suspend the trial until such parties are made either plaintiffs
or defendants. (Pobre, et al. v. Blanco, 17 Phil. 156). x x x Where the
petition failed to join as party defendant the person interested in
sustaining the proceeding in the court, the same should be
dismissed. x x x When an indispensable party is not before the
court, the action should be dismissed. (People, et al. v.
Rodriguez, et al., G.R. Nos. L-14059-62, September 30, 1959) (sic)
"Parties in interest without whom no final determination can be had of
an action shall be joined either as plaintiffs or defendants. (Sec. 7,
Rule 3, Rules of Court). The burden of procuring the presence of
all indispensable parties is on the plaintiff. (39 Amjur [sic] 885).
The evident purpose of the rule is to prevent the multiplicity of suits
by requiring the person arresting a right against the defendant to
include with him, either as co-plaintiffs or as co-defendants, all
persons standing in the same position, so that the whole matter in
dispute may be determined once and for all in one litigation. (Palarca
v. Baginsi, 38 Phil. 177, 178).
From all indications, PHCC is an indispensable party and should
have been impleaded, either as a plaintiff or as a defendant,[34] in the
complaint filed before the HLURB as it would be directly and
adversely affected by any determination therein. To belabor the point,
the causes of action, or the acts complained of, were the acts of
PHCC as a corporate body. Note that in the judgment rendered by
the HLURB, the dispositive portion in particular, DPDCI was ordered
(1) to pay ₱998,190.70, plus interests and surcharges, as
condominium dues in arrears and turnover the administration office to
PHCC; and (2) to refund to PHCC ₱1,277,500.00, representing the
cost of the deep well, with interests and surcharges. Also, the
HLURB declared as illegal the agreement regarding the conversion
of the 22 storage units and Units GF4-A and BAS, to which
agreement PHCC was a party.
Evidently, the cause of action rightfully pertains to PHCC. Petitioners
cannot exercise the same except through a derivative suit. In the
complaint, however, there was no allegation that the action was a
derivative suit. In fact, in the petition, petitioners claim that their
complaint is not a derivative suit.[35] In the cited case of Chua v. Court
of Appeals,[36] the Court ruled:
For a derivative suit to prosper, it is required that the minority
stockholder suing for and on behalf of the corporation must allege in
his complaint that he is suing on a derivative cause of action on
behalf of the corporation and all other stockholders similarly
situated who may wish to join him in the suit. It is a condition sine
qua non that the corporation be impleaded as a party because
not only is the corporation an indispensable party, but it is also
the present rule that it must be served with process. The judgment
must be made binding upon the corporation in order that the
corporation may get the benefit of the suit and may not bring
subsequent suit against the same defendants for the same cause of
action. In other words, the corporation must be joined as party
because it is its cause of action that is being litigated and
because judgment must be a res adjudicata against it. (Underscoring
supplied)

Without PHCC as a party, there can be no final adjudication of the
HLURBs judgment. The CA was, thus, correct in ordering the
dismissal of the case for failure to implead an indispensable party.
To justify its finding of contractual violation, the HLURB cited a
provision in the MDDR, to wit:
Section 13. Amendment. After the corporation shall have been
created, organized and operating, this MDDR may be amended, in
whole or in part, by the affirmative vote of Unit owners constituting at
least fifty one (51%) percent of the Unit shares in the Project at a
meeting duly called pursuant to the Corporation By Laws and subject
to the provisions of the Condominium Act.
This citation, however, is misplaced as the above-quoted provision
pertains to the amendment of the MDDR. It should be stressed that
petitioners are not asking for any change or modification in the terms
of the MDDR. What they are really praying for is a declaration that
the agreement regarding the alteration/conversion is illegal. Thus, the
Court sustains the CAs finding that:
There was nothing in the records to suggest that DPDCI sought the
amendment of a part or the whole of such MDDR. The cited section
is somewhat consistent only with the principle that an amendment of
a corporations Articles of Incorporation must be assented to by the
stockholders holding more than 50% of the shares. The MDDR does
not contemplate, by such provision, that all corporate acts ought to
be with the concurrence of a majority of the unit owners.[37]
Moreover, considering that petitioners, who are members of PHCC,
are ultimately challenging the agreement entered into by PHCC with
DPDCI, they are assailing, in effect, PHCCs acts as a body
corporate. This action, therefore, partakes the nature of an intra-
corporate controversy, the jurisdiction over which used to belong to
the Securities and Exchange Commission (SEC), but transferred to
the courts of general jurisdiction or the appropriate Regional Trial
Court (RTC), pursuant to Section 5b of P.D. No. 902-A,[38] as
amended by Section 5.2 of Republic Act (R.A.) No. 8799.[39]
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 in so far 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."[40]
Based on the foregoing definition, there is no doubt that the
controversy in this case is essentially intra-corporate in character, for
being between a condominium corporation and its members-unit
owners. In the recent case of Chateau De Baie Condominium
Corporation v. Sps. Moreno,[41] an action involving the legality of
assessment dues against the condominium owner/developer, the
Court held that, the matter being an intra-corporate dispute, the RTC
had jurisdiction to hear the same pursuant to R.A. No. 8799.
As to the alleged failure to comply with the rule on exhaustion of
administrative remedies, the Court again agrees with the position of
| 41
the CA that the circumstances prevailing in this case warranted a
relaxation of the rule.
The doctrine of exhaustion of administrative remedies is a
cornerstone of our judicial system. The thrust of the rule is that courts
must allow administrative agencies to carry out their functions and
discharge their responsibilities within the specialized areas of their
respective competence.[42] It has been held, however, that the
doctrine of exhaustion of administrative remedies and the doctrine of
primary jurisdiction are not ironclad rules. In the case of Republic of
the Philippines v. Lacap,[43] the Court enumerated the numerous
exceptions to these rules, namely: (a) where there is estoppel on the
part of the party invoking the doctrine; (b) where the challenged
administrative act is patently illegal, amounting to lack of
jurisdiction; (c) where there is unreasonable delay or official inaction
that will irretrievably prejudice the complainant; (d) where the amount
involved is relatively so small as to make the rule impractical and
oppressive; (e) where the question involved is purely legal and will
ultimately have to be decided by the courts of justice; (f) where
judicial intervention is urgent; (g) where the application of the doctrine
may cause great and irreparable damage; (h) where the controverted
acts violate due process; (i) where the issue of non-exhaustion of
administrative remedies has been rendered moot; (j) where there is
no other plain, speedy and adequate remedy; (k) where strong public
interest is involved; and (l) in quo warranto
proceedings.[44] [Underscoring supplied]
The situations (b) and (e) in the foregoing enumeration obtain in this
case.
The challenged decision of the HLURB is patently illegal having been
rendered in excess of jurisdiction, if not with grave abuse of
discretion amounting to lack or excess of jurisdiction. Also, the issue
on jurisdiction is purely legal which will have to be decided ultimately
by a regular court of law. As the Court wrote in Vigilar v. Aquino:[45]
It does not involve an examination of the probative value of the
evidence presented by the parties. There is a question of law when
the doubt or difference arises as to what the law is on a certain state
of facts, and not as to the truth or the falsehood of alleged facts. Said
question at best could be resolved only tentatively by the
administrative authorities. The final decision on the matter rests not
with them but with the courts of justice. Exhaustion of administrative
remedies does not apply, because nothing of an administrative
nature is to be or can be done. The issue does not require technical
knowledge and experience but one that would involve the
interpretation and application of law.
Finally, petitioners faulted the CA in not giving respect and even
finality to the findings of fact of the HLURB. Their reliance on the
case of Dangan v. NLRC,[46] reiterating the well-settled principles
involving decisions of administrative agencies, deserves scant
consideration as the decision of the HLURB in this case is manifestly
not supported by law and jurisprudence.
Petitioners, therefore, cannot validly invoke DPDCIs failure to fulfill its
obligation on the basis of a plain draft leaflet which petitioners were
able to obtain, specifically Pacifico Lim, having been a president of
DPDCI. To accord petitioners the right to demand compliance with
 | 42

the commitment under the said brochure is to allow them to profit by

their own act. This, the Court cannot tolerate.
In sum, inasmuch as the HLURB has no jurisdiction over petitioners
complaint, the Court sustains the subject decision of the CA that the
HLURB decision is null and void ab initio. This disposition, however,
is without prejudice to any action that the parties may rightfully file in
the proper forum.

WHEREFORE, the petition is DENIED.

SO ORDERED.
 | 43

THIRD DIVISION elected as the new Board of Directors and officers of Legaspi Towers
300, Inc. Subsequently, they submitted a General Information
LEGASPI TOWERS 300, INC., G.R. No. 170783 Sheet to the Securities and Exchange Commission (SEC) with the
LILIA MARQUINEZ following new set of officers: Amelia P. Muer, President; Samuel M.
PALANCA, ROSANNA D. Tanchoco, Internal Vice President; Romeo V. Tankiang, External
IMAI, GLORIA DOMINGO and Present: Vice-President; Rudel H. Panganiban, Secretary; Dolores B.
RAY VINCENT, Agbayani, Assistant Secretary; Arlenedal A. Yasuma, Treasurer;
Petitioners, Godofredo M. Caguioa, Assistant Treasurer; and Edgardo M.
PERALTA, J., Acting Salandanan, Internal Auditor.
- versus - Chairperson,* On April 13, 2004, petitioners filed a Complaint for the Declaration of
BERSAMIN,** Nullity of Elections with Prayers for the lssuance of Temporary
AMELIA P. MUER, SAMUEL ABAD, Restraining Orders and Writ of Preliminary Injunction and
M. TANCHOCO, ROMEO VILLARAMA, JR.,*** and Damages against respondents with the RTC of Manila. Before
TANKIANG, RUDEL PERLAS-BERNABE, JJ. respondents could file an Answer to the
PANGANIBAN, DOLORES original Complaint, petitioners filed an Amended Complaint, which
AGBAYANI, ARLENEDAL A. was admitted by the RTC in an Order dated April 14, 2004.
YASUMA, GODOFREDO M. Promulgated:
CAGUIOA and EDGARDO M. On April 20, 2004, before respondents could submit an Answer to
SALANDANAN, June 18, 2012 the Amended Complaint, petitioners again filed an Urgent Ex-Parte
Respondents. Motion to Admit Second Amended Complaint and for the lssuance of
x-----------------------------------------------------------------------------------------x Ex-Parte Temporary Restraining Order Effective only for Seventy-
Two (72) Hours. It was stated in the said pleading that the case was
raffled to Branch 24, but Presiding Judge Antonio Eugenio, Jr.
DECISION inhibited himself from handling the case; and when the case was
assigned to Branch 46, Presiding Judge Artemio S. Tipon also
inhibited himself from the case.
PERALTA, J.:
On April 21, 2004, Executive Judge Enrico A. Lanzanas of the RTC
of Manila acted on the Motion for the Issuance of an Ex
This is a petition for review on certiorari of the Court of Appeals Parte Temporary Restraining Order, and issued an Order
Decision[1] dated July 22, 2005 in CA-G.R. CV No. 87684, and its disposing, thus:
Resolution[2] dated November 24, 2005, denying petitioners motion
for reconsideration. WHEREFORE, pursuant to administrative Circular No. 20-95 of the
The Court of Appeals held that Judge Antonio I. De Castro of the Supreme Court, a seventy-two (72) hour Temporary Restraining
Regional Trial Court (RTC) of Manila, Branch 3, did not commit grave Order is hereby issued, enjoining defendants from taking over
abuse of discretion in issuing the Orders dated July 21, 2004 and management, or to maintain a status quo, in order to prevent further
September 24, 2004 in Civil Case No. 04-109655, denying irreparable damages and prejudice to the corporation, as day-to-day
petitioners Motion to Admit Second Amended Complaint. activities will be disrupted and will be paralyzed due to the legal
controversy.[3]
The facts, as stated by the Court of Appeals, are as follows:

Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners Lilia

Marquinez Palanca, Rosanna D. Imai, Gloria Domingo and Ray
Vincent, the incumbent Board of Directors, set the annual meeting of
the members of the condominium corporation and the election of the
new Board of Directors for the years 2004-2005 on April 2,
2004 at 5:00 p.m. at the lobby of Legaspi Towers 300, Inc.
Out of a total number of 5,723 members who were entitled to vote,
1,358 were supposed to vote through their respective proxies and
their votes were critical in determining the existence of a quorum,
which was at least 2,863 (50% plus 1). The Committee on Elections
of Legaspi Towers 300, Inc., however, found most of the proxy votes,
at its face value, irregular, thus, questionable; and for lack of time to
authenticate the same, petitioners adjourned the meeting for lack of
quorum.
However, the group of respondents challenged the adjournment of
the meeting. Despite petitioners' insistence that no quorum was
obtained during the annual meeting held on April 2, 2004,
respondents pushed through with the scheduled election and were
On the same date, April 21, 2004, respondents filed their Answer[4] to
the Amended Complaint, alleging that the election on April 2,
2004 was lawfully conducted. Respondents cited the Report[5] of SEC
Counsel Nicanor P. Patricio, who was ordered by the SEC to attend
the annual meeting of Legaspi Towers 300, Inc. on April 2, 2004.
Atty. Patricio stated in his Report that at 5:40 p.m. of April 2, 2004, a
representative of the Board of the condominium corporation stated
that the scheduled elections could not proceed because the Election
Committee was not able to validate the authenticity of the proxies
prior to the election due to limited time available as the submission
was made only the day before. Atty. Patricio noted that the Board
itself fixed the deadline for submission of proxies at 5:00 p.m. of April
1, 2004. One holder of proxy stood up and questioned the motives of
the Board in postponing the elections. The Board objected to this and
moved for a declaration of adjournment. There was an objection to
the adjournment, which was ignored by the Board. When the Board

adjourned the meeting despite the objections of the unit owners, the
unit owners who objected to the adjournment gathered themselves at
the same place of the meeting and proceeded with the meeting. The
attendance was checked from among the members who stayed at
the meeting. Proxies were counted and recorded, and there was a
declaration of a quorum out of a total of 5,721 votes, 2,938 were
present either in person or proxy. Thereafter, ballots were prepared,
proxies were counterchecked with the number of votes entitled to
each unit owner, and then votes were cast. At about 9:30 p.m.,
canvassing started, and by 11:30 p.m., the newly-elected members
of the Board of Directors for the years 2004-2005 were named.
Respondents contended that from the proceedings of the election
reported by SEC representative, Atty. Patricio, it was clear that the
election held on April 2, 2004 was legitimate and lawful; thus, they
prayed for the dismissal of the complaint for lack cause of action
against them.
This case was scheduled to be re-raffled to regular courts on April
22, 2004, and was assigned to Judge Antonio I. De Castro of the
RTC of Manila, Branch 3 (trial court).
On April 26, 2004, the trial court conducted a hearing on the
injunction sought by petitioners, and issued an Order clarifying that
the TRO issued by Executive Judge Enrico A. Lanzanas, enjoining
respondents from taking over management, was not applicable as
the current Board of Directors (respondents) had actually assumed
management of the corporation. The trial court stated that the status
quo mentioned in the said TRO shall mean that the current board of
directors shall continue to manage the affairs of the condominium
corporation, but the court shall monitor all income earned and
expenses incurred by the corporation. The trial court stated:
Precisely this complaint seeks to annul the election of the Board due
to alleged questionable proxy votes which could not have produced a
quorum. As such, there is nothing to enjoin and so injunction shall
fail. As an answer has been filed, the case is ripe for pre-trial and the
parties are directed to file their pre-trial briefs by May 3, 2004.
As plaintiffs second amended complaint is admitted by the
Court, defendants are given up to May 3, 2004 to file a comment
thereto. In the meantime, the banks and other persons & entities are
advised to recognize the Board headed by its president, Amelia
Muer. All transactions made by the Board and its officers for the
corporation are considered legal for all intents and purposes.[6]
On May 3, 2004, respondents filed a Comment on the Motion to
Amend Complaint, praying that the name of Legaspi Towers 300,
Inc., as party-plaintiff in the Second Amended Complaint, be deleted
as the said inclusion by petitioners was made without the authority of
the current Board
of Directors, which had been recognized by the trial court in its Order
dated April 26, 2004.
During the pre-trial conference held on July 21, 2004, the trial
court resolved various incidents in the case and other issues raised
by the contending parties. One of the incidents acted upon by the trial
court was petitioners' motion to amend complaint to implead Legaspi
Towers 300, Inc. as plaintiff, which motion was denied with the
| 44
issuance of two Orders both dated July 21, 2004. The first
Order[7] held that the said motion could not be admitted for being
improper, thus:
xxxx
On plaintiffs motion to admit amended complaint (to include Legaspi
Towers 300, Inc. as plaintiff), the Court rules to deny the motion for
being improper. (A separate Order of even date is issued.) As prayed
for, movants are given 10 days from today to file a motion for
reconsideration thereof, while defendants are given 10 days from
receipt thereof to reply.[8]
The second separate Order,[9] also dated July 21, 2004, reads:
This resolves plaintiffs motion to amend complaint to include Legaspi
Towers 300, Inc. as party-plaintiff and defendants comment
thereto. Finding no merit therein and for the reasons stated in the
comment, the motion is hereby DENIED.
Petitioners filed a Motion for Reconsideration of the Orders dated
July 21, 2004. In the Order[10] dated September 24, 2004, the trial
court denied the motion for reconsideration for lack of merit.
Petitioners filed a petition for certiorari with the Court of Appeals
alleging that the trial court gravely abused its discretion amounting to
lack or excess of jurisdiction in issuing the Orders dated July 21,
2004 and September 24, 2004, and praying that judgment be
rendered annulling the said Orders and directing RTC Judge De
Castro to admit their Second Amended Complaint.
In a Decision dated July 22, 2005, the Court of Appeals dismissed
the petition for lack of merit. It held that RTC Judge De Castro did not
commit grave abuse of discretion in denying petitioners' Motion To
Admit Second Amended Complaint.
The Court of Appeals stated that petitioners complaint sought to
nullify the election of the Board of Directors held on April 2, 2004, and
to protect and enforce their individual right to vote. The appellate
court held that as the right to vote is a personal right of a stockholder
of a corporation, such right can only be enforced through a direct
action; hence, Legaspi Towers 300, Inc. cannot be impleaded as
plaintiff in this case.
Petitioners motion for reconsideration was denied by the Court of
Appeals in a Resolution dated November 24, 2005.
Petitioners filed this petition raising the following issues:
I
THE HONORABLE COURT OF APPEALS ERRED IN RESOLVING
THAT PUBLIC RESPONDENT-APPELLEE DID NOT COMMIT ANY
WHIMSICAL, ARBITRARY AND OPPRESSIVE EXERCISE OF
JUDICIAL AUTHORITY WHEN THE LATTER REVERSED HIS
EARLIER RULING ALREADY ADMITTING THE SECOND
AMENDED COMPLAINT OF PETITIONERS-APPELLANTS.
II

THERE IS NO LEGAL BASIS FOR THE HONORABLE COURT OF
APPEALS TO RESOLVE THAT PETITIONERS-APPELLANTS
HAVE NO RIGHT AS BOARD OF DIRECTORS TO BRING AN
ACTION IN BEHALF OF LEGASPI TOWERS 300, INC.
III
THERE IS NO LEGAL BASIS FOR THE HONORABLE COURT OF
APPEALS TO RESOLVE THAT THE ELECTIONS CONDUCTED
IN LEGASPI TOWERS 300, INC. FOR THE PERIOD OF 2005 TO
2006 HAVE RENDERED THE ISSUE IN CIVIL CASE NO. 04-10655
MOOT AND ACADEMIC.[11]
Petitioners contend that the Court of Appeals erred in not finding that
RTC Judge Antonio I. De Castro committed grave abuse of discretion
amounting to lack or excess of jurisdiction in denying the admission
of the Second Amended Complaint in the Orders dated July 21, 2004
and September 24, 2004, despite the fact that he had already
ordered its admission in a previous Order dated April 26, 2004.
Petitioners contention is unmeritorious.
It is clear that in the Orders dated July 21, 2004, the trial court did not
admit the Second Amended Complaint wherein petitioners made the
condominium corporation, Legaspi Towers 300, Inc., the party-
plaintiff. In the Order dated September 24, 2004, denying petitioners
motion for reconsideration of the Orders dated July 21, 2004, the
RTC explained its action, thus:
x x x The word admitted in the 3rd paragraph of the Order dated April
26, 2004 should read received for which defendants were told to
comment thereon as an answer has been filed. It was an oversight of
the clerical error in said Order.
The Order of July 21, 2004 states amended complaint in the
3rd paragraph thereof and so it does not refer to the second amended
complaint. The amended complaint was admitted by the court of
origin Br. 24 in its Order of April 14, 2004 as there was no responsive
pleading yet.
Nonetheless, admission of the second amended complaint is
improper. Why should Legaspi Towers 300, Inc. x x x be included as
party-plaintiff when defendants are members thereof too like
plaintiffs. Both parties are deemed to be acting in their personal
capacities as they both claim to be the lawful board of directors. The
motion for reconsideration for the admission of the second amended
complaint is hereby DENIED.[12]
The courts have the inherent power to amend and control their
processes and orders so as to make them conformable to law and
justice.[13] A judge has an inherent right, while his judgment is still
under his control, to correct errors, mistakes, or injustices.[14]
Next, petitioners state that the Court of Appeals seems to be under
the impression that the action instituted by them is one brought forth
solely by way of a derivative suit. They clarified that the inclusion of
Legaspi Towers 300, Inc. as a party-plaintiff in the Second Amended
Complaint was, first and foremost, intended as a direct action by the
| 45
corporation acting through them (petitioners) as the reconstituted
Board of Directors of Legaspi Towers 300, Inc. Petitioners allege that
their act of including the corporation as party-plaintiff is consistent
with their position that the election conducted by respondents was
invalid; hence, petitioners, under their by-laws, could reconstitute
themselves as the Board of Directors of Legaspi Towers 300, Inc. in
a hold-over capacity for the succeeding term. By so doing, petitioners
had the right as the rightful Board of Directors to bring the action in
representation of Legaspi Towers 300, Inc. Thus, the
Second Amended Complaint was intended by the petitioners as a
direct suit by the corporation joined in by the petitioners to protect
and enforce their common rights.
Petitioners contend that Legaspi Towers 300, Inc. is a real party-in-
interest as it stands to be affected the most by the controversy,
because it involves the determination of whether or not the
corporations by-laws was properly carried out in the meeting held on
April 2, 2004, when despite the adjournment of the meeting for lack
of quorum, the elections were still conducted. Although petitioners
admit that the action involves their right to vote, they argue that it also
involves the right of the condominium corporation to be managed and
run by the duly-elected Board of Directors, and to seek redress
against those who wrongfully occupy positions of the corporation and
who may mismanage the corporation.
Petitioners argument is unmeritorious.
The Court notes that in the Amended Complaint, petitioners as
plaintiffs stated that they are the incumbent reconstituted Board of
Directors of Legaspi Towers 300, Inc., and that defendants, herein
respondents, are the newly-elected members of the Board of
Directors; while in the Second Amended Complaint, the plaintiff is
Legaspi Towers 300, Inc., represented by petitioners as the allegedly
incumbent reconstituted Board of Directors of Legaspi Towers 300,
Inc.
The Second Amended Complaint states who the plaintiffs are, thus:
1. That the plaintiffs are: LEGASPI TOWERS 300, INC., non-
stock corporation xxx duly represented by the incumbent
reconstituted Board of Directors of Legaspi Towers 300, Inc.,
namely: ELIADORA FE BOTE VERA xxx, as President; BRUNO C.
HAMAN xxx, as Director; LILY MARQUINEZ PALANCA xxx, as
Secretary; ROSANNA DAVID IMAI xxx, as Treasurer; and members
of the Board of Directors, namely: ELIZABETH GUERRERO xxx,
GLORIA DOMINGO xxx, and RAY VINCENT.[15]
The Court agrees with the Court of Appeals that the Second
Amended Complaint is meant to be a derivative suit filed by
petitioners in behalf of the corporation. The Court of Appeals stated
in its Decision that petitioners justified the inclusion of Legaspi
Towers 300, Inc. as plaintiff in Civil Case No. 0410655 by invoking
the doctrine of derivative suit, as petitioners specifically argued, thus:
xxxx
x x x [T]he sudden takeover by private respondents of the
management of Legaspi Towers 300, Inc. has only proven the
rightfulness of petitioners move to include Legaspi Towers 300, Inc.

as party-plaintiff. This is because every resolution passed by private
respondents sitting as a board result[s] in violation of Legaspi Towers
300, Inc.s right to be managed and represented by herein petitioners.
In short, the amendment of the complaint [to include] Legaspi Towers
300, Inc. was done in order to protect the interest and enforce the
right of the Legaspi [Towers 300,] Inc. to be administered and
managed [by petitioners] as the duly constituted Board of
Directors. This is no different from and may in fact be considered
as a DERIVATIVE SUIT instituted by an individual stockholder
against those controlling the corporation but is being instituted
in the name of and for the benefit of the corporation whose
right/s are being violated.[16]
Is a derivative suit proper in this case?
Cua, Jr. v. Tan[17] differentiates a derivative suit and an
individual/class suit as follows:
A derivative suit must be differentiated from individual and
representative or class suits, thus:
Suits by stockholders or members of a corporation based on wrongful
or fraudulent acts of directors or other persons may be classified into
individual suits, class suits, and derivative suits. Where a stockholder
or member is denied the right of inspection, his suit would
be individual because the wrong is done to him personally and
not to the other stockholders or the corporation. Where
the wrong is done to a group of stockholders, as where preferred
stockholders' rights are violated, a class or representative suit will
be proper for the protection of all stockholders belonging to the
same group. But where the acts complained of constitute a
wrong to the corporation itself, the cause of action belongs to
the corporation and not to the individual stockholder or member.
Although in most every case of wrong to the corporation, each
stockholder is necessarily affected because the value of his interest
therein would be impaired, this fact of itself is not sufficient to give
him an individual cause of action since the corporation is a person
distinct and separate from him, and can and should itself sue the
wrongdoer. Otherwise, not only would the theory of separate entity
be violated, but there would be multiplicity of suits as well as a
violation of the priority rights of creditors. Furthermore, there is the
difficulty of determining the amount of damages that should be paid
to each individual stockholder.
However, in cases of mismanagement where the wrongful acts
are committed by the directors or trustees themselves, a
stockholder or member may find that he has no redress because the
former are vested by law with the right to decide whether or not the
corporation should sue, and they will never be willing to sue
themselves. The corporation would thus be helpless to seek remedy.
Because of the frequent occurrence of such a situation, the
common law gradually recognized the right of a stockholder to
sue on behalf of a corporation in what eventually became known
as a "derivative suit." It has been proven to be an effective remedy
of the minority against the abuses of management. Thus, an
individual stockholder is permitted to institute a derivative
suit on behalf of the corporation wherein he holds stock in order
to protect or vindicate corporate rights, whenever officials of the
corporation refuse to sue or are the ones to be sued or hold the
control of the corporation. In such actions, the suing
| 46
stockholder is regarded as the nominal party, with the
corporation as the party-in- interest.[18]
Since it is the corporation that is the real party-in-interest in a
derivative suit, then the reliefs prayed for must be for the benefit or
interest of the corporation.[19] When the reliefs prayed for do not
pertain to the corporation, then it is an improper derivative suit.[20]
The requisites for a derivative suit are as follows:
a) the party bringing suit should be a shareholder as of the time of
the act or transaction complained of, the number of his shares not
being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a
demand on the board of directors for the appropriate relief but the
latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation
and not to the particular stockholder bringing the suit.[21]
In this case, petitioners, as members of the Board of Directors of the
condominium corporation before the election in question, filed a
complaint against the newly-elected members of the Board of
Directors for the years 2004-2005, questioning the validity of the
election held on April 2, 2004, as it was allegedly marred by lack of
quorum, and praying for the nullification of the said election.
As stated by the Court of Appeals, petitioners complaint seek to
nullify the said election, and to protect and enforce their individual
right to vote. Petitioners seek the nullification of the election of the
Board of Directors for the years 2004-2005, composed of herein
respondents, who pushed through with the election even if petitioners
had adjourned the meeting allegedly due to lack of
quorum. Petitioners are the injured party, whose rights to vote and to
be voted upon were directly affected by the election of the new set of
board of directors. The party-in-interest are the petitioners as
stockholders, who wield such right to vote. The cause of action
devolves on petitioners, not the condominium corporation, which did
not have the right to vote. Hence, the complaint for nullification of the
election is a direct action by petitioners, who were the members of
the Board of Directors of the corporation before the election, against
respondents, who are the newly-elected Board of Directors. Under
the circumstances, the derivative suit filed by petitioners in behalf of
the condominium corporation in the Second Amended Complaint is
improper.
The stockholders right to file a derivative suit is not based on any
express provision of The Corporation Code, but is impliedly
recognized when the law makes corporate directors or officers liable
for damages suffered by the corporation and its stockholders for
violation of their fiduciary duties,[22] which is not the issue in this case.
Further, petitioners change of argument before this Court, asserting
that the Second Amended Complaint is a direct action filed by the
corporation, represented by the petitioners as the incumbent Board of
Directors, is an afterthought, and lacks merit, considering that the
 | 47

newly-elected Board of Directors had assumed their function to

manage corporate affairs.[23]
In fine, the Court of Appeals correctly upheld the Orders of the trial
court dated July 21, 2004 and September 24, 2004 denying
petitioners Motion to Admit Second Amended Complaint.
Lastly, petitioners contend that the Court of Appeals erred in
resolving that the recent elections conducted by Legaspi Towers,
300, Inc. have rendered the issue raised viathe special civil action
for certiorari before the appellate court moot and academic.

The Court of Appeals, in its Resolution dated November 24, 2005,

stated:

x x x [T]he election of the corporations new set of directors for the

years 2005-2006 has, finally, rendered the petition at bench moot
and academic. As correctly argued by private respondents, the
nullification of the orders assailed by petitioners would, therefore, be
of little or no practical and legal purpose.[24]

The statement of the Court of Appeals is correct.

Petitioners question the validity of the election of the Board of

Directors for the years 2004-2005, which election they seek to nullify
in Civil Case No. 04-109655.However, the valid election of a new set
of Board of Directors for the years 2005-2006 would, indeed, render
this petition moot and academic.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 87684, dated July 22, 2005, and its
Resolution dated November 24, 2005 are AFFIRMED.

Costs against petitioners.

SO ORDERED.

THIRD DIVISION
STEELCASE, INC., G.R. No. 171995
Petitioner,
Present:
VELASCO,
JR., J., Chairperson,
- versus - PERALTA,
ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.
Promulgated:
DESIGN INTERNATIONAL
SELECTIONS, INC., April 18, 2012
Respondent.
x-----------------------------------------------------------------------------------------x
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 assailing the
March 31, 2005 Decision[1] of the Court of Appeals (CA) which
affirmed the May 29, 2000 Order[2]of the Regional Trial Court, Branch
60, Makati City (RTC), dismissing the complaint for sum of money in
Civil Case No. 99-122 entitled Steelcase, Inc. v. Design International
Selections, Inc.
The Facts
Petitioner Steelcase, Inc. (Steelcase) is a foreign corporation existing
under the laws of Michigan, United States of America (U.S.A.), and
engaged in the manufacture of office furniture with dealers
worldwide.[3] Respondent Design International Selections,
Inc. (DISI) is a corporation existing under Philippine Laws and
engaged in the furniture business, including the distribution of
furniture.[4]
Sometime in 1986 or 1987, Steelcase and DISI orally entered into a
dealership agreement whereby Steelcase granted DISI the right to
market, sell, distribute, install, and service its products to end-user
customers within the Philippines. The business relationship continued
smoothly until it was terminated sometime in January 1999 after the
agreement was breached with neither party admitting any fault.[5]
On January 18, 1999, Steelcase filed a complaint[6] for sum of money
against DISI alleging, among others, that DISI had an unpaid account
of US$600,000.00. Steelcase prayed that DISI be ordered to pay
actual or compensatory damages, exemplary damages, attorneys
fees, and costs of suit.
In its Answer with Compulsory Counterclaims[7] dated February 4,
1999, DISI sought the following: (1) the issuance of a temporary
| 48
restraining order (TRO) and a writ of preliminary injunction to enjoin
Steelcase from selling its products in the Philippines except through
DISI; (2) the dismissal of the complaint for lack of merit; and (3) the
payment of actual, moral and exemplary damages together with
attorneys fees and expenses of litigation. DISI alleged that the
complaint failed to state a cause of action and to contain the required
allegations on Steelcases capacity to sue in the Philippines despite
the fact that it (Steelcase) was doing business in
the Philippines without the required license to do so. Consequently, it
posited that the complaint should be dismissed because of
Steelcases lack of legal capacity to sue in Philippine courts.
On March 3, 1999, Steelcase filed its Motion to Admit Amended
Complaint[8] which was granted by the RTC, through then Acting
Presiding Judge Roberto C. Diokno, in its Order[9] dated April 26,
1999. However, Steelcase sought to further amend its complaint by
filing a Motion to Admit Second Amended Complaint[10] on March 13,
1999.
In his Order[11] dated November 15, 1999, Acting Presiding Judge
Bonifacio Sanz Maceda dismissed the complaint, granted the TRO
prayed for by DISI, set aside the April 26, 1999 Order of the RTC
admitting the Amended Complaint, and denied Steelcases Motion to
Admit Second Amended Complaint. The RTC stated that in requiring
DISI to meet the Dealer Performance Expectation and in terminating
the dealership agreement with DISI based on its failure to improve its
performance in the areas of business planning, organizational
structure, operational effectiveness, and efficiency, Steelcase
unwittingly revealed that it participated in the operations of DISI. It
then concluded that Steelcase was doing business in the Philippines,
as contemplated by Republic Act (R.A.) No. 7042 (The Foreign
Investments Act of 1991), and since it did not have the license to do
business in the country, it was barred from seeking redress from our
courts until it obtained the requisite license to do so. Its determination
was further bolstered by the appointment by Steelcase of a
representative in the Philippines. Finally, despite a showing that DISI
transacted with the local customers in its own name and for its own
account, it was of the opinion that any doubt in the factual
environment should be resolved in favor of a pronouncement that a
foreign corporation was doing business in the Philippines,
considering the twelve-year period that DISI had been distributing
Steelcase products in the Philippines.
Steelcase moved for the reconsideration of the questioned Order but
the motion was denied by the RTC in its May 29, 2000 Order.[12]
Aggrieved, Steelcase elevated the case to the CA by way of appeal,
assailing the November 15, 1999 and May 29, 2000 Orders of the
RTC. On March 31, 2005, the CA rendered its Decision affirming the
RTC orders, ruling that Steelcase was a foreign corporation doing or
transacting business in the Philippines without a license. The CA
stated that the following acts of Steelcase showed its intention to
pursue and continue the conduct of its business in the Philippines: (1)
sending a letter to Phinma, informing the latter that the distribution
rights for its products would be established in the near future and
directing other questions about orders for Steelcase products to
Steelcase International; (2) cancelling orders from DISIs customers,
particularly Visteon, Phils., Inc. (Visteon); (3) continuing to send its
products to the Philippines through Modernform Group Company
Limited (Modernform), as evidenced by an Ocean Bill of Lading; and

(4) going beyond the mere appointment of DISI as a dealer by
making several impositions on management and operations of
DISI. Thus, the CA ruled that Steelcase was barred from access to
our courts for being a foreign corporation doing business here without
the requisite license to do so.
Steelcase filed a motion for reconsideration but it was denied by the
CA in its Resolution dated March 23, 2006.[13]
Hence, this petition.
The Issues
Steelcase filed the present petition relying on the following grounds:
I accounts. DISI cited other established circumstances which prove
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
WHEN IT FOUND THAT STEELCASE HAD BEEN DOING
BUSINESS IN THE PHILIPPINES WITHOUT A LICENSE.
II
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
NOT FINDING THAT RESPONDENT WAS ESTOPPED FROM
CHALLENGING STEELCASES LEGAL CAPACITY
TO SUE, AS AN AFFIRMATIVE DEFENSE IN ITS ANSWER.
The issues to be resolved in this case are:
(1) Whether or not Steelcase is doing business in
the Philippines without a license; and
(2) Whether or not DISI is estopped from challenging the Steelcases
legal capacity to sue.
The Courts Ruling
The Court rules in favor of the petitioner.
Steelcase is an unlicensed foreign corporation NOT doing
business in the Philippines
Anent the first issue, Steelcase argues that Section 3(d) of R.A. No.
7042 or the Foreign Investments Act of 1991 (FIA) expressly states
that the phrase doing business excludes the appointment by a
foreign corporation of a local distributor domiciled in the Philippines
which transacts business in its own name and for its own
account. Steelcase claims that it was not doing business in the
Philippines when it entered into a dealership agreement with DISI
where the latter, acting as the formers appointed local distributor,
transacted business in its own name and for its own
account. Specifically, Steelcase contends that it was DISI that sold
| 49
Steelcases furniture directly to the end-users or customers who, in
turn, directly paid DISI for the furniture they bought. Steelcase further
claims that DISI, as a non-exclusive dealer in the Philippines, had the
right to market, sell, distribute and service Steelcase products in its
own name and for its own account. Hence, DISI was an independent
distributor of Steelcase products, and not a mere agent or conduit of
Steelcase.
On the other hand, DISI argues that it was appointed by Steelcase as
the latters exclusive distributor of Steelcase products. DISI likewise
asserts that it was not allowed by Steelcase to transact business in
its own name and for its own account as Steelcase dictated the
manner by which it was to conduct its business, including the
management and solicitation of orders from customers, thereby
assuming control of its operations. DISI further insists that Steelcase
treated and considered DISI as a mere conduit, as evidenced by the
fact that Steelcase itself directly sold its products to customers
located in the Philippines who were classified as part of their global
that Steelcase was doing business in the Philippines including the
following: (1) the sale and delivery by Steelcase of furniture to Regus,
a Philippine client, through Modernform, a Thai corporation allegedly
controlled by Steelcase; (2) the imposition by Steelcase of certain
requirements over the management and operations of DISI; (3) the
representations made by Steven Husak as Country Manager of
Steelcase; (4) the cancellation by Steelcase of orders placed by
Philippine clients; and (5) the expression by Steelcase of its desire to
maintain its business in the Philippines. Thus, Steelcase has no legal
capacity to sue in Philippine Courts because it was doing business in
the Philippines without a license to do so.
The Court agrees with the petitioner.
The rule that an unlicensed foreign corporations doing business in
the Philippine do not have the capacity to sue before the local courts
is well-established. Section 133 of the Corporation Code of
the Philippines explicitly states:
Sec. 133. Doing business without a license. - No foreign corporation
transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of
the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws.
The phrase doing business is clearly defined in Section 3(d) of R.A.
No. 7042 (Foreign Investments Act of 1991), to wit:
d) The phrase doing business shall include soliciting orders, service
contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled in the Philippines
or who in any calendar year stay in the country for a period or periods
totalling one hundred eighty (180) days or more; participating in the
management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in

progressive prosecution of, commercial gain or of the purpose and
object of the business organization: Provided, however, That the
phrase doing business shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of
rights as such investor; nor having a nominee director or officer to
represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own
account; (Emphases supplied)
This definition is supplemented by its Implementing Rules and
Regulations, Rule I, Section 1(f) which elaborates on the meaning of
the same phrase:
f. Doing business shall include soliciting orders, service contracts,
opening offices, whether liaison offices or branches; appointing
representatives or distributors, operating under full control of the
foreign corporation, domiciled in the Philippines or who in any
calendar year stay in the country for a period totalling one hundred
eighty [180] days or more; participating in the management,
supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and contemplate
to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to and in progressive
prosecution of commercial gain or of the purpose and object of the
business organization.
The following acts shall not be deemed doing business in
the Philippines:
1. Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of
rights as such investor;
2. Having a nominee director or officer to represent its interest in
such corporation;
3. Appointing a representative or distributor domiciled in
the Philippines which transacts business in the representative's
or distributor's own name and account;
4. The publication of a general advertisement through any print or
broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by another entity in
the Philippines;
6. Consignment by a foreign entity of equipment with a local
company to be used in the processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of
sale which are not on a continuing basis, such as installing in the
Philippines machinery it has manufactured or exported to the
Philippines, servicing the same, training domestic workers to operate
it, and similar incidental services. (Emphases supplied)
| 50
From the preceding citations, the appointment of a distributor in
the Philippines is not sufficient to constitute doing business unless it
is under the full control of the foreign corporation. On the other hand,
if the distributor is an independent entity which buys and distributes
products, other than those of the foreign corporation, for its own
name and its own account, the latter cannot be considered to be
doing business in the Philippines.[14] It should be kept in mind that the
determination of whether a foreign corporation is doing business in
the Philippines must be judged in light of the attendant
circumstances.[15]
In the case at bench, it is undisputed that DISI was founded in 1979
and is independently owned and managed by the spouses Leandro
and Josephine Bantug.[16] In addition to Steelcase products, DISI also
distributed products of other companies including carpet tiles,
relocatable walls and theater settings.[17] The dealership agreement
between Steelcase and DISI had been described by the owner
himself as:
xxx basically a buy and sell arrangement whereby we would inform
Steelcase of the volume of the products needed for a particular
project and Steelcase would, in turn, give special quotations or
discounts after considering the value of the entire package. In making
the bid of the project, we would then add out profit margin over
Steelcases prices.After the approval of the bid by the client, we would
thereafter place the orders to Steelcase. The latter, upon our
payment, would then ship the goods to the Philippines, with us
shouldering the freight charges and taxes.[18] [Emphasis supplied]
This clearly belies DISIs assertion that it was a mere conduit through
which Steelcase conducted its business in the country. From the
preceding facts, the only reasonable conclusion that can be reached
is that DISI was an independent contractor, distributing various
products of Steelcase and of other companies, acting in its own
name and for its own account.
The CA, in finding Steelcase to be unlawfully engaged in business in
the Philippines, took into consideration the delivery by Steelcase of a
letter to Phinma informing the latter that the distribution rights for its
products would be established in the near future, and also its
cancellation of orders placed by Visteon. The foregoing acts were
apparently misinterpreted by the CA. Instead of supporting the claim
that Steelcase was doing business in the country, the said acts prove
otherwise. It should be pointed out that no sale was concluded as a
result of these communications. Had Steelcase indeed been doing
business in the Philippines, it would have readily accepted and
serviced the orders from the abovementioned Philippine
companies. Its decision to voluntarily cease to sell its products in the
absence of a local distributor indicates its refusal to engage in
activities which might be construed as doing business.
Another point being raised by DISI is the delivery and sale of
Steelcase products to a Philippine client by Modernform allegedly an
agent of Steelcase. Basic is the rule in corporation law that a
corporation has a separate and distinct personality from its
stockholders and from other corporations with which it may be
connected.[19] Thus, despite the admission by Steelcase that it owns
25% of Modernform, with the remaining 75% being owned and

controlled by Thai stockholders,[20] it is grossly insufficient to justify
piercing the veil of corporate fiction and declare that Modernform
acted as the alter ego of Steelcase to enable it to improperly conduct
business in the Philippines. The records are bereft of any evidence
which might lend even a hint of credence to DISIs assertions. As
such, Steelcase cannot be deemed to have been doing business in
the Philippinesthrough Modernform.
Finally, both the CA and DISI rely heavily on the Dealer Performance
Expectation required by Steelcase of its distributors to prove that
DISI was not functioning independently from Steelcase because the
same imposed certain conditions pertaining to business planning,
organizational structure, operational effectiveness and efficiency, and
financial stability. It is actually logical to expect that Steelcase, being
one of the major manufacturers of office systems furniture, would
require its dealers to meet several conditions for the grant and
continuation of a distributorship agreement. The imposition of
minimum standards concerning sales, marketing, finance and
operations is nothing more than an exercise of sound business
practice to increase sales and maximize profits for the benefit of both
Steelcase and its distributors. For as long as these requirements do
not impinge on a distributors independence, then there is nothing
wrong with placing reasonable expectations on them.
All things considered, it has been sufficiently demonstrated that DISI
was an independent contractor which sold Steelcase products in its
own name and for its own account. As a result, Steelcase cannot be
considered to be doing business in the Philippines by its act of
appointing a distributor as it falls under one of the exceptions under
R.A. No. 7042.
DISI is estopped from challenging Steelcases legal capacity to
sue
Regarding the second issue, Steelcase argues that assuming
arguendo that it had been doing business in the Philippines without a
license, DISI was nonetheless estopped from challenging Steelcases
capacity to sue in the Philippines. Steelcase claims that since DISI
was aware that it was doing business in the Philippines without a
license and had benefited from such business, then DISI should be
estopped from raising the defense that Steelcase lacks the capacity
to sue in the Philippines by reason of its doing business without a
license.
On the other hand, DISI argues that the doctrine of estoppel cannot
give Steelcase the license to do business in the Philippines or
permission to file suit in the Philippines. DISI claims that when
Steelcase entered into a dealership agreement with DISI in 1986, it
was not doing business in the Philippines. It was after such
dealership was put in place that it started to do business without first
obtaining the necessary license. Hence, estoppel cannot work
against it. Moreover, DISI claims that it suffered as a result of
Steelcases doing business and that it never benefited from the
dealership and, as such, it cannot be estopped from raising the issue
of lack of capacity to sue on the part of Steelcase.
The argument of Steelcase is meritorious.
| 51
If indeed Steelcase had been doing business in
the Philippines without a license, DISI would nonetheless be
estopped from challenging the formers legal capacity to sue.
It cannot be denied that DISI entered into a dealership agreement
with Steelcase and profited from it for 12 years from 1987 until
1999. DISI admits that it complied with its obligations under the
dealership agreement by exerting more effort and making substantial
investments in the promotion of Steelcase products. It also claims
that it was able to establish a very good reputation and goodwill for
Steelcase and its products, resulting in the establishment and
development of a strong market for Steelcase products in
the Philippines. Because of this, DISI was very proud to be awarded
the Steelcase International Performance Award for meeting sales
objectives, satisfying customer needs, managing an effective
company and making a profit.[21]
Unquestionably, entering into a dealership agreement with
Steelcase charged DISI with the knowledge that Steelcase was not
licensed to engage in business activities in the Philippines. This
Court has carefully combed the records and found no proof that, from
the inception of the dealership agreement in 1986 until September
1998, DISI even brought to Steelcases attention that it was
improperly doing business in the Philippines without a license. It was
only towards the latter part of 1998 that DISI deemed it necessary to
inform Steelcase of the impropriety of the conduct of its business
without the requisite Philippine license. It should, however, be noted
that DISI only raised the issue of the absence of a license with
Steelcase after it was informed that it owed the latter US$600,000.00
for the sale and delivery of its products under their special credit
arrangement.
By acknowledging the corporate entity of Steelcase and entering into
a dealership agreement with it and even benefiting from it, DISI is
estopped from questioning Steelcases existence and capacity to
sue. This is consistent with the Courts ruling in Communication
Materials and Design, Inc. v. Court of Appeals[22] where it was written:
Notwithstanding such finding that ITEC is doing business in the
country, petitioner is nonetheless estopped from raising this fact to
bar ITEC from instituting this injunction case against it.
A foreign corporation doing business in the Philippines may sue
in Philippine Courts although not authorized to do business
here against a Philippine citizen or entity who had contracted
with and benefited by said corporation. To put it in another way,
a party is estopped to challenge the personality of a corporation
after having acknowledged the same by entering into a contract
with it. And the doctrine of estoppel to deny corporate existence
applies to a foreign as well as to domestic corporations. One who has
dealt with a corporation of foreign origin as a corporate entity is
estopped to deny its corporate existence and capacity: The principle
will be applied to prevent a person contracting with a foreign
corporation from later taking advantage of its noncompliance with the
statutes chiefly in cases where such person has received the benefits
of the contract.
The rule is deeply rooted in the time-honored axiom of
Commodum ex injuria sua non habere debet no person ought to

derive any advantage of his own wrong. This is as it should be
for as mandated by law, every person must in the exercise of his
rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
Concededly, corporations act through agents, like directors and
officers. Corporate dealings must be characterized by utmost good
faith and fairness. Corporations cannot just feign ignorance of the
legal rules as in most cases, they are manned by sophisticated
officers with tried management skills and legal experts with practiced
eye on legal problems. Each party to a corporate transaction is
expected to act with utmost candor and fairness and, thereby allow a
reasonable proportion between benefits and expected burdens. This
is a norm which should be observed where one or the other is a
foreign entity venturing in a global market.
xxx
By entering into the "Representative Agreement" with ITEC,
petitioner is charged with knowledge that ITEC was not licensed to
engage in business activities in the country, and is thus estopped
from raising in defense such incapacity of ITEC, having chosen to
ignore or even presumptively take advantage of the
same.[23] (Emphases supplied)
The case of Rimbunan Hijau Group of Companies v. Oriental Wood
Processing Corporation[24] is likewise instructive:
Respondents unequivocal admission of the transaction which gave
rise to the complaint establishes the applicability of estoppel against
it. Rule 129, Section 4 of the Rules on Evidence provides that a
written admission made by a party in the course of the proceedings in
the same case does not require proof. We held in the case of Elayda
v. Court of Appeals, that an admission made in the pleadings cannot
be controverted by the party making such admission and are
conclusive as to him. Thus, our consistent pronouncement, as held in
cases such as Merril Lynch Futures v. Court of Appeals, is apropos:
The rule is that a party is estopped to challenge the personality
of a corporation after having acknowledged the same by
entering into a contract with it. And the doctrine of estoppel to
deny corporate existence applies to foreign as well as to
domestic corporations; one who has dealt with a corporation of
foreign origin as a corporate entity is estopped to deny its
existence and capacity. The principle will be applied to prevent a
person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in
cases where such person has received the benefits of the
contract . . .
All things considered, respondent can no longer invoke petitioners
lack of capacity to sue in this jurisdiction. Considerations of fair play
dictate that after having contracted and benefitted from its business
transaction with Rimbunan, respondent should be barred from
questioning the latters lack of license to transact business in the
Philippines.
| 52
In the case of Antam Consolidated, Inc. v. CA, this Court noted that it
is a common ploy of defaulting local companies which are sued by
unlicensed foreign corporations not engaged in business in
the Philippines to invoke the latters lack of capacity to sue. This
practice of domestic corporations is particularly reprehensible
considering that in requiring a license, the law never intended to
prevent foreign corporations from performing single or isolated acts in
this country, or to favor domestic corporations who renege on their
obligations to foreign firms unwary enough to engage in solitary
transactions with them. Rather, the law was intended to bar foreign
corporations from acquiring a domicile for the purpose of business
without first taking the steps necessary to render them amenable to
suits in the local courts. It was to prevent the foreign companies from
enjoying the good while disregarding the bad.
As a matter of principle, this Court will not step in to shield
defaulting local companies from the repercussions of their
business dealings. While the doctrine of lack of capacity to sue
based on failure to first acquire a local license may be resorted
to in meritorious cases, it is not a magic incantation. It cannot
be called upon when no evidence exists to support its
invocation or the facts do not warrant its application. In this
case, that the respondent is estopped from challenging the
petitioners capacity to sue has been conclusively established, and
the forthcoming trial before the lower court should weigh instead on
the other defenses raised by the respondent.[25] (Emphases supplied)
As shown in the previously cited cases, this Court has time and again
upheld the principle that a foreign corporation doing business in the
Philippines without a license may still sue before the Philippine courts
a Filipino or a Philippine entity that had derived some benefit from
their contractual arrangement because the latter is considered to be
estopped from challenging the personality of a corporation after it had
acknowledged the said corporation by entering into a contract with
it.[26]
In Antam Consolidated, Inc. v. Court of Appeals,[27] this Court had the
occasion to draw attention to the common ploy of invoking the
incapacity to sue of an unlicensed foreign corporation utilized by
defaulting domestic companies which seek to avoid the suit by the
former. The Court cannot allow this to continue by always ruling in
favor of local companies, despite the injustice to the overseas
corporation which is left with no available remedy.
During this period of financial difficulty, our nation greatly needs to
attract more foreign investments and encourage trade between
the Philippines and other countries in order to rebuild and strengthen
our economy. While it is essential to uphold the sound public policy
behind the rule that denies unlicensed foreign corporations doing
business in the Philippines access to our courts, it must never be
used to frustrate the ends of justice by becoming an all-
encompassing shield to protect unscrupulous domestic enterprises
from foreign entities seeking redress in our country. To do otherwise
could seriously jeopardize the desirability of the Philippines as an
investment site and would possibly have the deleterious effect of
hindering trade between Philippine companies and international
corporations.
 | 53

WHEREFORE, the March 31, 2005 Decision of the Court of Appeals

and its March 23, 2006 Resolution are hereby REVERSED and SET
ASIDE. The dismissal order of the Regional Trial Court
dated November 15, 1999 is hereby set aside. Steelcases Amended
Complaint is hereby ordered REINSTATED and the case
is REMANDED to the RTC for appropriate action.

SO ORDERED.