Professional Documents
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CORPO - Full Text
CORPO - Full Text
159333 July 31, 2006 the Philippines, to be known as Pacfor Phils, and petitioner ATM
will be its President. Petitioner's base salary and the overhead
ARSENIO T. MENDIOLA, petitioner, expenditures of the company shall be borne by the representative
vs. office and funded by Pacfor/ATM, since Pacfor Phils. is equally
COURT OF APPEALS, NATIONAL LABOR RELATIONS owned on a 50-50 equity by ATM and Pacfor-usa.
COMMISSION, PACIFIC FOREST RESOURCES, PHILS., INC.
and/or CELLMARK AB, respondents. On July 14, 1995, the SEC granted the application of private
respondent Pacfor for a license to transact business in the
DECISION Philippines under the name of Pacfor or Pacfor Phils.7 In its
application, private respondent Pacfor proposed to establish its
PUNO, J.: representative office in the Philippines with the purpose of
monitoring and coordinating the market activities for paper
products. It also designated petitioner as its resident agent in the
On appeal are the Decision1 and Resolution2 of the Court of
Philippines, authorized to accept summons and processes in all
Appeals, dated January 30, 2003 and July 30, 2003, respectively,
legal proceedings, and all notices affecting the corporation.8
in CA-G.R. SP No. 71028, affirming the ruling3 of the National
Labor Relations Commission (NLRC), which in turn set aside the
July 30, 2001 Decision4 of the labor arbiter. The labor arbiter In March 1997, the Side Agreement was amended through a
declared illegal the dismissal of petitioner from employment and "Revised Operating and Profit Sharing Agreement for the
awarded separation pay, moral and exemplary damages, and Representative Office Known as Pacific Forest Resources
attorney's fees. (Philippines),"9 where the salary of petitioner was increased to
$78,000 per annum. Both agreements show that the operational
expenses will be borne by the representative office and funded by
The facts are as follows:
all parties "as equal partners," while the profits and commissions
will be shared among them.
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor)
is a corporation organized and existing under the laws of
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia
California, USA. It is a subsidiary of Cellulose Marketing
of Pacfor, seeking confirmation of his 50% equity of Pacfor
International, a corporation duly organized under the laws of
Phils.10 Private respondent Pacfor, through William Gleason, its
Sweden, with principal office in Gothenburg, Sweden.
President, replied that petitioner is not a part-owner of Pacfor
Phils. because the latter is merely Pacfor-USA's representative
Private respondent Pacfor entered into a "Side Agreement on office and not an entity separate and distinct from Pacfor-USA.
Representative Office known as Pacific Forest Resources "It's simply a 'theoretical company' with the purpose of dividing
(Phils.), Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective the income 50-50."11 Petitioner presumably knew of this
May 1, 1995, "assuming that Pacfor-Phils. is already approved by arrangement from the start, having been the one to propose to
the Securities and Exchange Commission [SEC] on the said private respondent Pacfor the setting up of a representative
date."6 The Side Agreement outlines the business relationship of office, and "not a branch office" in the Philippines to save on
the parties with regard to the Philippine operations of Pacfor. taxes.12
Private respondent will establish a Pacfor representative office in
Petitioner claimed that he was all along made to believe that he Please do not send any communication to Mr. Arsenio
was in a joint venture with them. He alleged he would have been "Boy" T. Mendiola or to the offices of ATM Marketing
better off remaining as an independent agent or representative of Corporation at Room 504, Concorde Building, Legaspi
Pacfor-USA as ATM Marketing Corp.13 Had he known that no Village, Makati City, Philippines.19
joint venture existed, he would not have allowed Pacfor to take
the profitable business of his own company, ATM Marketing In another letter addressed to Davao Corrugated Carton Corp.
Corp.14 Petitioner raised other issues, such as the rentals of office (DAVCOR), dated December 2000, private respondent directed
furniture, salary of the employees, company car, as well as said client "to please communicate directly with us on any further
commissions allegedly due him. The issues were not resolved, questions associated with these payments or any future business.
hence, in October 2000, petitioner wrote Pacfor-USA demanding Do not communicate with [Pacfor] and/or [ATM]."20
payment of unpaid commissions and office furniture and
equipment rentals, amounting to more than one million dollars.15 Petitioner construed these directives as a severance of the
"unregistered partnership" between him and Pacfor, and the
On November 27, 2000, private respondent Pacfor, through termination of his employment as resident manager of Pacfor
counsel, ordered petitioner to turn over to it all papers, Phils.21 In a memorandum to the employees of Pacfor Phils.,
documents, files, records, and other materials in his or ATM dated January 29, 2001, he stated:
Marketing Corporation's possession that belong to Pacfor or
Pacfor Phils.16 On December 18, 2000, private respondent Pacfor I received a letter from Pacific Forest Resources, Inc.
also required petitioner to remit more than three hundred demanding the turnover of all records to them effective
thousand-peso Christmas giveaway fund for clients of Pacfor December 19, 2000. The company records were turned
Phils.17 Lastly, private respondent Pacfor withdrew all its offers of over only on January 26, 2001. This means our jobs with
settlement and ordered petitioner to transfer title and turn over to Pacific Forest were terminated effective December 19,
it possession of the service car.18 2000. I am concerned about your welfare. I would like to
help you by offering you to work with ATM Marketing
Private respondent Pacfor likewise sent letters to its clients in the Corporation.
Philippines, advising them not to deal with Pacfor Phils. In its
letter to Intercontinental Paper Industries, Inc., dated November Please let me know if you are interested.22
21, 2000, private respondent Pacfor stated:
On the basis of the "Side Agreement," petitioner insisted that he
Until further notice, please course all inquiries and and Pacfor equally own Pacfor Phils. Thus, it follows that he and
communications for Pacific Forest Resources Pacfor likewise own, on a 50/50 basis, Pacfor Phils.' office
(Philippines) to: furniture and equipment and the service car. He also reiterated
his demand for unpaid commissions, and proposed to offset
Pacific Forest Resources these with the remaining Christmas giveaway fund in his
200 Tamal Plaza, Suite 200 possession.23 Furthermore, he did not renew the lease contract
Corte Madera, CA, USA 94925 with Pulp and Paper, Inc., the lessor of the office premises of
(415) 927 1700 phone
(415) 381 4358 fax
Pacfor Phils., wherein he was the signatory to the lease using the Pacfor Phils.' office for operations of HEPI. In addition,
agreement.24 petitioner allegedly solicited business for HEPI from a competitor
company of private respondent Pacfor.29
On February 2, 2001, private respondent Pacfor placed petitioner
on preventive suspension and ordered him to show cause why no Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there
disciplinary action should be taken against him. Private was constructive dismissal. By directing petitioner to turn over all
respondent Pacfor charged petitioner with willful disobedience office records and materials, regardless of whether he may have
and serious misconduct for his refusal to turn over the service car retained copies, private respondent Pacfor virtually deprived
and the Christmas giveaway fund which he applied to his alleged petitioner of his job by the gradual diminution of his authority as
unpaid commissions. Private respondent also alleged loss of resident manager. Petitioner's position as resident manager
confidence and gross neglect of duty on the part of petitioner for whose duty, among others, was to maintain the security of its
allegedly allowing another corporation owned by petitioner's business transactions and communications was rendered
relatives, High End Products, Inc. (HEPI), to use the same meaningless. The dispositive portion of the decision of the Labor
telephone and facsimile numbers of Pacfor, to possibly steal and Arbiter reads:
divert the sales and business of private respondent for HEPI's
principal, International Forest Products, a competitor of private WHEREFORE, premises considered, judgment is hereby
respondent.25 rendered ordering herein respondents Cellmark AB and
Pacific Forest Resources, Inc., jointly and severally to
Petitioner denied the charges. He reiterated that he considered compensate complainant Arsenio T. Mendiola separation
the import of Pacfor President William Gleason's letters as a pay equivalent to at least one month for every year of
"cessation of his position and of the existence of Pacfor Phils." He service, whichever is higher (sic), as reinstatement is no
likewise informed private respondent Pacfor that ATM Marketing longer feasible by reason of the strained relations of the
Corp. now occupies Pacfor Phils.' office premises,26 and parties equivalent to five (5) months in the amount of
demanded payment of his separation pay.27 On February 15, $32,000.00 plus the sum of P250,000.00; pay
2001, petitioner filed his complaint for illegal dismissal, recovery complainant the sum of P500,000.00 as moral and
of separation pay, and payment of attorney's fees with the exemplary damages and ten percent (10%) of the
NLRC.28 amounts awarded as and for attorney's fees.
In the meantime, private respondent Pacfor lodged fresh charges All other claims are dismissed for lack of basis.
against petitioner. In a memorandum dated March 5, 2001,
private respondent directed petitioner to explain why he should SO ORDERED.30
not be disciplined for serious misconduct and conflict of interest.
Private respondent charged petitioner anew with serious Private respondent Pacfor appealed to the NLRC which ruled in
misconduct for the latter's alleged act of fraud and its favor. On December 20, 2001, the NLRC set aside the July 30,
misrepresentation in authorizing the release of an additional peso 2001 decision of the labor arbiter, for lack of jurisdiction and lack
salary for himself, besides the dollar salary agreed upon by the of merit.31 It held there was no employer-employee relationship
parties. Private respondent also accused petitioner of disloyalty between the parties. Based on the two agreements between the
and representation of conflicting interests for having continued
parties, it concluded that petitioner is not an employee of private Agreement." The Court of Appeals denied the appeal of
respondent Pacfor, but a full co-owner (50/50 equity). petitioner, holding that "the legal basis of the complaint is not
employment but perhaps partnership, co-ownership, or
The NLRC denied petitioner's Motion for Reconsideration.32 independent contractorship." Hence, the Labor Code cannot
apply.
Petitioner was not successful on his appeal to the Court of
Appeals. The appellate court upheld the ruling of the NLRC.
* We hold that petitioner is an employee of private respondent
Pacfor and that no partnership or co-ownership exists between
Petitioner's Motion for Reconsideration33 of the decision of the the parties.
Court of Appeals was denied.
aO
* Incontributed
partnership, the members become co-owners of what is
Hence, this appeal. 34 to the firm capital and of all property that may be
acquired thereby and through the efforts of the members.36 The
property or stock of the partnership forms a community of goods,
Petitioner assigns the following errors:
a common fund, in which each party has a proprietary
interest.37 In fact, the New Civil Code regards a partner as a co-
A. The Respondent Court of Appeals committed owner of specific partnership property.38 Each partner possesses
reversible error and abused its discretion in rendering a joint interest in the whole of partnership property. If the relation
judgment against petitioner since jurisdiction has been does not have this feature, it is not one of partnership.39 This
acquired over the subject matter of the case as there essential element, the community of interest, or co-ownership of,
exists employer-employee relationship between the or joint interest in partnership property is absent in the relations
parties. between petitioner and private respondent Pacfor. Petitioner is
not a part-owner of Pacfor Phils. William Gleason, private
B. The Respondent Court of Appeals committed respondent Pacfor's President established this fact when he said
reversible error and abused its discretion in ruling that that Pacfor Phils. is simply a "theoretical company" for the
jurisdiction over the subject matter cannot be waived and purpose of dividing the income 50-50. He stressed that petitioner
may be alleged even for the first time on appeal or knew of this arrangement from the very start, having been the
considered by the court motu prop[r]io.35 one to propose to private respondent Pacfor the setting up of a
representative office, and "not a branch office" in the Philippines
The first issue is whether an employer-employee relationship to save on taxes. Thus, the parties in this case, merely shared
exists between petitioner and private respondent Pacfor. profits. This alone does not make a partnership.40
* Petitioner argues that he is an industrial partner of the partnership Besides, a corporation cannot become a member of a partnership
he formed with private respondent Pacfor, and also an employee in the absence of express authorization by statute or
of the partnership. Petitioner insists that an industrial partner may charter.41 This doctrine is based on the following considerations:
at the same time be an employee of the partnership, provided (1) that the mutual agency between the partners, whereby the
there is such an agreement, which, in this case, is the "Side corporation would be bound by the acts of persons who are not
Agreement" and the "Revised Operating and Profit Sharing its duly appointed and authorized agents and officers, would be
inconsistent with the policy of the law that the corporation shall doing the work, and it is not the actual exercise of the right by
manage its own affairs separately and exclusively; and, (2) that interfering with the work, but the right to control, which constitutes
such an arrangement would improperly allow corporate property the test of the existence of an employer-employee
to become subject to risks not contemplated by the stockholders relationship.44 In the case at bar, private respondent Pacfor, as
when they originally invested in the corporation.42 No such employer, clearly possesses such right of control. Petitioner, as
authorization has been proved in the case at bar. private respondent Pacfor's resident agent in the Philippines, is,
exactly so, only an agent of the corporation, a representative of
Pacfor, who transacts business, and accepts service on its
¥
Be that as it may, we hold that on the basis of the evidence, an
employer-employee relationship is present in the case at bar. The behalf.
elements to determine the existence of an employment
relationship are: (a) the selection and engagement of the This right of control was exercised by private respondent Pacfor
employee; (b) the payment of wages; (c) the power of dismissal; during the period of November to December 2000, when it
and (d) the employer's power to control the employee's conduct. directed petitioner to turn over to it all records of Pacfor Phils.;
The most important element is the employer's control of the when it ordered petitioner to remit the Christmas giveaway fund
employee's conduct, not only as to the result of the work to be intended for clients of Pacfor Phils.; and, when it withdrew all its
done, but also as to the means and methods to accomplish it.43 offers of settlement and ordered petitioner to transfer title and turn
over to it the possession of the service car. It was also during this
In the instant case, all the foregoing elements are present. First, it period when private respondent Pacfor sent letters to its clients in
was private respondent Pacfor which selected and engaged the the Philippines, particularly Intercontinental Paper Industries, Inc.
services of petitioner as its resident agent in the Philippines. and DAVCOR, advising them not to deal with petitioner and/or
Second, as stipulated in their Side Agreement, private respondent Pacfor Phils. In its letter to DAVCOR, private respondent Pacfor
Pacfor pays petitioner his salary amounting to $65,000 per replied to the client's request for an invoice payment extension,
annum which was later increased to $78,000. Third, private and formulated a revised payment program for DAVCOR. This is
respondent Pacfor holds the power of dismissal, as may be one unmistakable proof that private respondent Pacfor exercises
gleaned through the various memoranda it issued against control over the petitioner.
petitioner, placing the latter on preventive suspension while
charging him with various offenses, including willful disobedience, Next, we shall determine if petitioner was constructively
serious misconduct, and gross neglect of duty, and ordering him dismissed from employment.
to show cause why no disciplinary action should be taken against
him. The evidence shows that when petitioner insisted on his 50%
equity in Pacfor Phils., and would not quit however, private
Lastly and most important, private respondent Pacfor has the respondent Pacfor began to systematically deprive petitioner of
power of control over the means and method of petitioner in his duties and benefits to make him feel that his presence in the
accomplishing his work. company was no longer wanted. First, private respondent Pacfor
directed petitioner to turn over to it all records of Pacfor Phils.
The power of control refers merely to the existence of the power, This would certainly make the work of petitioner very difficult, if
and not to the actual exercise thereof. The principal consideration not impossible. Second, private respondent Pacfor ordered
is whether the employer has the right to control the manner of petitioner to remit the Christmas giveaway fund intended for
clients of Pacfor Phils. Then it ordered petitioner to transfer title IN VIEW WHEREOF, the petition is GRANTED. The Court of
and turn over to it the possession of the service car. It also Appeals' January 30, 2003 Decision in CA-G.R. SP No. 71028
advised its clients in the Philippines, particularly Intercontinental and July 30, 2003 Resolution, affirming the December 20, 2001
Paper Industries, Inc. and DAVCOR, not to deal with petitioner Decision of the National Labor Relations Commission,
and/or Pacfor Phils. Lastly, private respondent Pacfor appointed a are ANNULED and SET ASIDE. The July 30, 2001 Decision of
new resident agent for Pacfor Phils.45 the Labor Arbiter is REINSTATED with the MODIFICATION that
the amount of P250,000.00 representing an alleged increase in
Although there is no reduction of the salary of petitioner, petitioner's salary shall be deducted from the grant of separation
constructive dismissal is still present because continued pay for lack of evidence.
employment of petitioner is rendered, at the very least,
unreasonable.46 There is an act of clear discrimination, SO ORDERED.
insensibility or disdain by the employer that continued
employment may become so unbearable on the part of the Sandoval-Gutierrez, Corona, Azcuna, Garcia, J.J., concur.
employee so as to foreclose any choice on his part except to
resign from such employment.47
|
the property involved, defendant makes the following for an attorney-at-law to bring the action, that is to file the
assignment or errors: complaint, in the name of the plaintiff. That practice
appears to have been followed in this case, since the
I. The trial court erred in not dismissing the case on the complaint is signed by the law firm of Araneta and
ground that the case was not brought by the real property Araneta, "counsel for plaintiff" and commences with the
in interest. statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the
II. The trial court erred in admitting the third amended plaintiff is "represented herein by its Managing Partner
complaint.
Gregorio Araneta, Inc.", another corporation, but there is
III. The trial court erred in denying defendant's motion to nothing against one corporation being represented by
strike. another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. can not act as
IV. The trial court erred in including in its decision land not managing partner for plaintiff on the theory that it is illegal
involved in the litigation. for two corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation has
V. The trial court erred in holding that the land in dispute no power to enter into a partnership, it may nevertheless
is covered by transfer certificates of Title Nos. 37686 and enter into a joint venture with another where the nature of
37677. that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80
Vl. The trial court erred in not finding that the defendant is
the true and lawful owner of the land. A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.)
There is nothing in the record to indicate that the venture
VII. The trial court erred in finding that the defendant is in which plaintiff is represented by Gregorio Araneta, Inc.
liable to pay the plaintiff the amount of P132.62 monthly as "its managing partner" is not in line with the corporate
from January, 1940, until he vacates the premises. business of either of them.
VIII. The trial court erred in not ordering the plaintiff to Errors II, III, and IV, referring to the admission of the third
reconvey the land in litigation to the defendant. amended complaint, may be answered by mere
reference to section 4 of Rule 17, Rules of Court, which
As to the first assigned error, there is nothing to the sanctions such amendment. It reads:
contention that the present action is not brought by the
real party in interest, that is, by J. M. Tuason and Co., Sec. 4. Amendment to conform to evidence. — When
Inc. What the Rules of Court require is that an action be issues not raised by the pleadings are tried by express or
brought in the name of, but not necessarily by, the real implied consent of the parties, they shall be treated in all
respects, as if they had been raised in the pleadings. A and in Exhibit B enclosed in red pencil with the name
Such amendment of the pleadings as may be necessary Quirino Bolaños," defendant later changed his lawyer and
to cause them to conform to the evidence and to raise also his theory and tried to prove that the land in dispute
these issues may be made upon motion of any party at
was not covered by plaintiff's certificate of title. The
my time, even of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within evidence, however, is against defendant, for it clearly
the issues made by the pleadings, the court may allow the establishes that plaintiff is the registered owner of lot No.
pleadings to be amended and shall be so freely when the 4-B-3-C, situate in barrio Tatalon, Quezon City, with an
presentation of the merits of the action will be subserved area of 5,297,429.3 square meters, more or less, covered
thereby and the objecting party fails to satisfy the court by transfer certificate of title No. 37686 of the land
that the admission of such evidence would prejudice him records of Rizal province, and of lot No. 4-B-4, situated in
in maintaining his action or defense upon the merits. The
the same barrio, having an area of 74,789 square meters,
court may grant a continuance to enable the objecting
party to meet such evidence. more or less, covered by transfer certificate of title No.
37677 of the land records of the same province, both lots
Under this provision amendment is not even necessary having been originally registered on July 8, 1914 under
for the purpose of rendering judgment on issues proved original certificate of title No. 735. The identity of the lots
though not alleged. Thus, commenting on the provision, was established by the testimony of Antonio Manahan
Chief Justice Moran says in this Rules of Court: and Magno Faustino, witnesses for plaintiff, and the
identity of the portion thereof claimed by defendant was
Under this section, American courts have, under the New established by the testimony of his own witness, Quirico
Federal Rules of Civil Procedure, ruled that where the Feria. The combined testimony of these three witnesses
facts shown entitled plaintiff to relief other than that asked clearly shows that the portion claimed by defendant is
for, no amendment to the complaint is necessary, made up of a part of lot 4-B-3-C and major on portion of
especially where defendant has himself raised the point lot 4-B-4, and is well within the area covered by the two
on which recovery is based, and that the appellate court transfer certificates of title already mentioned. This fact
treat the pleadings as amended to conform to the
evidence, although the pleadings were not actually also appears admitted in defendant's answer to the third
amended. (I Moran, Rules of Court, 1952 ed., 389-390.) amended complaint.
Our conclusion therefore is that specification of error II, As the land in dispute is covered by plaintiff's Torrens
III, and IV are without merit.. certificate of title and was registered in 1914, the decree
of registration can no longer be impugned on the ground
Let us now pass on the errors V and VI. Admitting, of fraud, error or lack of notice to defendant, as more
though his attorney, at the early stage of the trial, that the than one year has already elapsed from the issuance and
land in dispute "is that described or represented in Exhibit entry of the decree. Neither court the decree be
collaterally attacked by any person claiming title to, or exclusive and public and notorious possession and under
interest in, the land prior to the registration proceedings. claim of ownership adverse to the entire world by
(Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could defendant and his predecessors in interest.' This
title to that land in derogation of that of plaintiff, the assignment of error is thus clearly without merit.
registered owner, be acquired by prescription or adverse
possession. (Section 46, Act No. 496.) Adverse, Error No. VIII is but a consequence of the other errors
notorious and continuous possession under claim of alleged and needs for further consideration.
ownership for the period fixed by law is ineffective against
a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc., During the pendency of this case in this Court appellant,
45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled thru other counsel, has filed a motion to dismiss alleging
that the right to secure possession under a decree of that there is pending before the Court of First Instance of
registration does not prescribed. (Francisco vs. Cruz, 43 Rizal another action between the same parties and for
Off. Gaz., 5105, 5109-5110.) A recent decision of this the same cause and seeking to sustain that allegation
Court on this point is that rendered in the case of Jose with a copy of the complaint filed in said action. But an
Alcantara et al., vs. Mariano et al., 92 Phil., 796. This examination of that complaint reveals that appellant's
disposes of the alleged errors V and VI. allegation is not correct, for the pretended identity of
parties and cause of action in the two suits does not
As to error VII, it is claimed that `there was no evidence appear. That other case is one for recovery of ownership,
to sustain the finding that defendant should be sentenced while the present one is for recovery of possession. And
to pay plaintiff P132.62 monthly from January, 1940, until while appellant claims that he is also involved in that
he vacates the premises.' But it appears from the record order action because it is a class suit, the complaint does
that that reasonable compensation for the use and not show that such is really the case. On the contrary, it
occupation of the premises, as stipulated at the hearing appears that the action seeks relief for each individual
was P10 a month for each hectare and that the area plaintiff and not relief for and on behalf of others. The
occupied by defendant was 13.2619 hectares. The total motion for dismissal is clearly without merit.
rent to be paid for the area occupied should therefore be
P132.62 a month. It is appears from the testimony of J. A. Wherefore, the judgment appealed from is affirmed, with
Araneta and witness Emigdio Tanjuatco that as early as costs against the plaintiff.
1939 an action of ejectment had already been filed
against defendant. And it cannot be supposed that Paras, C.J., Pablo, Bengzon, Montemayor, Jugo,
defendant has been paying rents, for he has been Bautista Angelo, Labrador, and Concepcion, JJ.,concur.
asserting all along that the premises in question 'have
always been since time immemorial in open, continuous,
Republic of the Philippines Belo, Abiera & Associates for petitioners in 75875.
SUPREME COURT
Manila Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
THIRD DIVISION
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. These consolidated petitions seek the review of the amended
WHITTINGHAM and CHARLES CHAMSAY, petitioners, decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and
vs. 05617 which set aside the earlier decision dated June 5, 1986, of
SANITARY WARES MANUFACTURING CORPORATOIN, the then Intermediate Appellate Court and directed that in all
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., subsequent elections for directors of Sanitary Wares
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. Manufacturing Corporation (Saniwares), American Standard Inc.
BONCAN, BALDWIN YOUNG and AVELINO V. (ASI) cannot nominate more than three (3) directors; that the
CRUZ, respondents. Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders
G.R. No. 75951 December 15, 1989 can nominate only six (6) candidates and in the event they cannot
agree on the six (6) nominees, they shall vote only among
themselves to determine who the six (6) nominees will be, with
SANITARY WARES MANUFACTURING CORPORATION, cumulative voting to be allowed but without interference from
ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, ASI.
GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and
AVELINO V. CRUX, petitioners,
vs. The antecedent facts can be summarized as follows:
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN
GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and In 1961, Saniwares, a domestic corporation was incorporated for
LUCIANO SALAZAR, respondents. the primary purpose of manufacturing and marketing sanitary
wares. One of the incorporators, Mr. Baldwin Young went abroad
to look for foreign partners, European or American who could
G.R. Nos. 75975-76 December 15, 1989
help in its expansion plans. On August 15, 1962, ASI, a foreign
corporation domiciled in Delaware, United States entered into an
LUCIANO E. SALAZAR, petitioner, Agreement with Saniwares and some Filipino investors whereby
vs. ASI and the Filipino investors agreed to participate in the
SANITARY WARES MANUFACTURING CORPORATION, ownership of an enterprise which would engage primarily in the
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., business of manufacturing in the Philippines and selling here and
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. abroad vitreous china and sanitary wares. The parties agreed that
BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the the business operations in the Philippines shall be carried on by
COURT OF APPEALS, respondents.
an incorporated enterprise and that the name of the corporation Later, the 30% capital stock of ASI was increased to 40%. The
shall initially be "Sanitary Wares Manufacturing Corporation." corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the
The Agreement has the following provisions relevant to the issues capital stock of the corporation shall be owned by Philippine
in these cases on the nomination and election of the directors of nationals.
the corporation:
The joint enterprise thus entered into by the Filipino investors and
3. Articles of Incorporation the American corporation prospered. Unfortunately, with the
business successes, there came a deterioration of the initially
(a) The Articles of Incorporation of the Corporation harmonious relations between the two groups. According to the
shall be substantially in the form annexed hereto Filipino group, a basic disagreement was due to their desire to
as Exhibit A and, insofar as permitted under expand the export operations of the company to which ASI
Philippine law, shall specifically provide for objected as it apparently had other subsidiaries of joint joint
venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders'
(1) Cumulative voting for
meeting was held. The meeting was presided by Baldwin Young.
directors:
The minutes were taken by the Secretary, Avelino Cruz. After
disposing of the preliminary items in the agenda, the stockholders
xxx xxx xxx then proceeded to the election of the members of the board of
directors. The ASI group nominated three persons namely;
5. Management Wolfgang Aurbach, John Griffin and David P. Whittingham. The
Philippine investors nominated six, namely; Ernesto Lagdameo,
(a) The management of the Corporation shall be Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee,
vested in a Board of Directors, which shall consist and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr.
of nine individuals. As long as American-Standard Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay.
shall own at least 30% of the outstanding stock of The chairman, Baldwin Young ruled the last two nominations out
the Corporation, three of the nine directors shall of order on the basis of section 5 (a) of the Agreement, the
be designated by American-Standard, and the consistent practice of the parties during the past annual
other six shall be designated by the other stockholders' meetings to nominate only nine persons as
stockholders of the Corporation. (pp. 51 & 53, nominees for the nine-member board of directors, and the legal
Rollo of 75875) advice of Saniwares' legal counsel. The following events then,
transpired:
At the request of ASI, the agreement contained provisions
designed to protect it as a minority group, including the grant of ... There were protests against the action of the
veto powers over a number of corporate acts and the right to Chairman and heated arguments ensued. An
designate certain officers, such as a member of the Executive appeal was made by the ASI representative to the
Committee whose vote was required for important corporate body of stockholders present that a vote be taken
transactions. on the ruling of the Chairman. The Chairman,
Baldwin Young, declared the appeal out of order carried and declared the meeting adjourned.
and no vote on the ruling was taken. The Protests against the adjournment were registered
Chairman then instructed the Corporate Secretary and having been ignored, Mr. Jaqua the ASI
to cast all the votes present and represented by representative, stated that the meeting was not
proxy equally for the 6 nominees of the Philippine adjourned but only recessed and that the meeting
Investors and the 3 nominees of ASI, thus would be reconvened in the next room. The
effectively excluding the 2 additional persons Chairman then threatened to have the
nominated, namely, Luciano E. Salazar and stockholders who did not agree to the decision of
Charles Chamsay. The ASI representative, Mr. the Chairman on the casting of votes bodily
Jaqua protested the decision of the Chairman and thrown out. The ASI Group, Luciano E. Salazar
announced that all votes accruing to ASI shares, a and other stockholders, allegedly representing 53
total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. or 54% of the shares of Saniwares, decided to
05617) were being cumulatively voted for the continue the meeting at the elevator lobby of the
three ASI nominees and Charles Chamsay, and American Standard Building. The continued
instructed the Secretary to so vote. Luciano E. meeting was presided by Luciano E. Salazar,
Salazar and other proxy holders announced that while Andres Gatmaitan acted as Secretary. On
all the votes owned by and or represented by the basis of the cumulative votes cast earlier in
them 467,197 shares (p. 27, Rollo, AC-G.R. SP the meeting, the ASI Group nominated its four
No. 05617) were being voted cumulatively in favor nominees; Wolfgang Aurbach, John Griffin, David
of Luciano E. Salazar. The Chairman, Baldwin Whittingham and Charles Chamsay. Luciano E.
Young, nevertheless instructed the Secretary to Salazar voted for himself, thus the said five
cast all votes equally in favor of the three ASI directors were certified as elected directors by the
nominees, namely, Wolfgang Aurbach, John Acting Secretary, Andres Gatmaitan, with the
Griffin and David Whittingham and the six explanation that there was a tie among the other
originally nominated by Rogelio Vinluan, namely, six (6) nominees for the four (4) remaining
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto positions of directors and that the body decided
Lagdameo, Jr., Enrique Lagdameo, George F. not to break the tie. (pp. 37-39, Rollo of 75975-
Lee, and Baldwin Young. The Secretary then 76)
certified for the election of the following Wolfgang
Aurbach, John Griffin, David Whittingham Ernesto These incidents triggered off the filing of separate petitions by the
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique parties with the Securities and Exchange Commission (SEC). The
Lagdameo, George F. Lee, Raul A. Boncan, first petition filed was for preliminary injunction by Saniwares,
Baldwin Young. The representative of ASI then Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto
moved to recess the meeting which was duly R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
seconded. There was also a motion to adjourn (p. Luciano Salazar and Charles Chamsay. The case was
28, Rollo, AC-G.R. SP No. 05617). This motion to denominated as SEC Case No. 2417. The second petition was
adjourn was accepted by the Chairman, Baldwin for quo warranto and application for receivership by Wolfgang
Young, who announced that the motion was Aurbach, John Griffin, David Whittingham, Luciano E. Salazar
and Charles Chamsay against the group of Young and Lagdameo II. THE COURT OF APPEALS PROHIBITS THE
(petitioners in SEC Case No. 2417) and Avelino F. Cruz. The STOCKHOLDERS FROM EXERCISING THEIR
case was docketed as SEC Case No. 2718. Both sets of parties FULL VOTING RIGHTS REPRESENTED BY THE
except for Avelino Cruz claimed to be the legitimate directors of NUMBER OF SHARES IN SANIWARES, THUS
the corporation. DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR
The two petitions were consolidated and tried jointly by a hearing PROPERTY RIGHTS WITHOUT DUE PROCESS
officer who rendered a decision upholding the election of the OF LAW.
Lagdameo Group and dismissing the quo warranto petition of
Salazar and Chamsay. The ASI Group and Salazar appealed the III. THE COURT OF APPEALS IMPOSES
decision to the SEC en banc which affirmed the hearing officer's CONDITIONS AND READS PROVISIONS INTO
decision. THE AGREEMENT OF THE PARTIES WHICH
WERE NOT THERE, WHICH ACTION IT
The SEC decision led to the filing of two separate appeals with CANNOT LEGALLY DO. (p. 17, Rollo-75875)
the Intermediate Appellate Court by Wolfgang Aurbach, John
Griffin, David Whittingham and Charles Chamsay (docketed as Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the
AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as amended decision on the following grounds:
AC-G.R. SP No. 05617). The petitions were consolidated and the
appellate court in its decision ordered the remand of the case to 11.1.
the Securities and Exchange Commission with the directive that a ThatAmendedDecisionwouldsanctiontheCA'sdisre
new stockholders' meeting of Saniwares be ordered convoked as gard of binding contractual agreements entered
soon as possible, under the supervision of the Commission. into by stockholders and the replacement of the
conditions of such agreements with terms never
Upon a motion for reconsideration filed by the appellees contemplated by the stockholders but merely
Lagdameo Group) the appellate court (Court of Appeals) dictated by the CA .
rendered the questioned amended decision. Petitioners Wolfgang
Aurbach, John Griffin, David P. Whittingham and Charles 11.2. The Amended decision would likewise
Chamsay in G.R. No. 75875 assign the following errors: sanction the deprivation of the property rights of
stockholders without due process of law in order
I. THE COURT OF APPEALS, IN EFFECT, that a favored group of stockholders may be
UPHELD THE ALLEGED ELECTION OF illegally benefitted and guaranteed a continuing
PRIVATE RESPONDENTS AS MEMBERS OF monopoly of the control of a corporation. (pp. 14-
THE BOARD OF DIRECTORS OF SANIWARES 15, Rollo-75975-76)
WHEN IN FACT THERE WAS NO ELECTION AT
ALL. On the other hand, the petitioners in G.R. No. 75951 contend
that:
I Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd
751, 128 P 2nd 668)
THE AMENDED DECISION OF THE
RESPONDENT COURT, WHILE RECOGNIZING The ASI Group and petitioner Salazar (G.R. Nos. 75975-76)
THAT THE STOCKHOLDERS OF SANIWARES contend that the actual intention of the parties should be viewed
ARE DIVIDED INTO TWO BLOCKS, FAILS TO strictly on the "Agreement" dated August 15,1962 wherein it is
FULLY ENFORCE THE BASIC INTENT OF THE clearly stated that the parties' intention was to form a corporation
AGREEMENT AND THE LAW. and not a joint venture.
(b) When there is an intrinsic ambiguity in the In an action at law, where there is evidence
writing. tending to prove that the parties joined their efforts
in furtherance of an enterprise for their joint profit,
Contrary to ASI Group's stand, the Lagdameo and Young Group the question whether they intended by their
pleaded in their Reply and Answer to Counterclaim in SEC Case agreement to create a joint adventure, or to
No. 2417 that the Agreement failed to express the true intent of assume some other relation is a question of fact
the parties, to wit: for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ.
xxx xxx xxx A.) 238 SW 725; Hoge v. George, 27 Wyo, 423,
200 P 96 33 C.J. p. 871)
4. While certain provisions of the Agreement
would make it appear that the parties thereto In the instant cases, our examination of important provisions of
disclaim being partners or joint venturers such the Agreement as well as the testimonial evidence presented by
disclaimer is directed at third parties and is not the Lagdameo and Young Group shows that the parties agreed to
inconsistent with, and does not preclude, the establish a joint venture and not a corporation. The history of the
existence of two distinct groups of stockholders in organization of Saniwares and the unusual arrangements which
Saniwares one of which (the Philippine Investors) govern its policy making body are all consistent with a joint
shall constitute the majority, and the other ASI venture and not with an ordinary corporation. As stated by the
shall constitute the minority stockholder. In any SEC:
event, the evident intention of the Philippine
Investors and ASI in entering into the Agreement According to the unrebutted testimony of Mr.
is to enter into ajoint venture enterprise, and if Baldwin Young, he negotiated the Agreement with
some words in the Agreement appear to be ASI in behalf of the Philippine nationals. He
contrary to the evident intention of the parties, the testified that ASI agreed to accept the role of
latter shall prevail over the former (Art. 1370, New minority vis-a-vis the Philippine National group of
Civil Code). The various stipulations of a contract investors, on the condition that the Agreement
shall be interpreted together attributing to the should contain provisions to protect ASI as the
doubtful ones that sense which may result from all minority.
of them taken jointly (Art. 1374, New Civil Code).
Moreover, in order to judge the intention of the An examination of the Agreement shows that
contracting parties, their contemporaneous and certain provisions were included to protect the
subsequent acts shall be principally considered. interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain stockholders who own the balance of 60%, and
enumerated corporate acts [Sec. 3 (b) (ii) (a) of that 2) ASI is given certain protections as the
the Agreement]. ASI is contractually entitled to minority stockholder.
designate a member of the Executive Committee
and the vote of this member is required for certain Premises considered, we believe that under the
transactions [Sec. 3 (b) (i)]. Agreement there are two groups of stockholders
who established a corporation with provisions for
The Agreement also requires a 75% super- a special contractual relationship between the
majority vote for the amendment of the articles parties, i.e., ASI and the other stockholders. (pp.
and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) 4-5)
(iii)]. ASI is also given the right to designate the
president and plant manager [Sec. 5 (6)]. The Section 5 (a) of the agreement uses the word "designated" and
Agreement further provides that the sales policy of not "nominated" or "elected" in the selection of the nine directors
Saniwares shall be that which is normally followed on a six to three ratio. Each group is assured of a fixed number of
by ASI [Sec. 13 (a)] and that Saniwares should directors in the board.
not export "Standard" products otherwise than
through ASI's Export Marketing Services [Sec. 13 Moreover, ASI in its communications referred to the enterprise as
(6)]. Under the Agreement, ASI agreed to provide joint venture. Baldwin Young also testified that Section 16(c) of
technology and know-how to Saniwares and the the Agreement that "Nothing herein contained shall be construed
latter paid royalties for the same. (At p. 2). to constitute any of the parties hereto partners or joint venturers
in respect of any transaction hereunder" was merely to obviate
xxx xxx xxx the possibility of the enterprise being treated as partnership for
tax purposes and liabilities to third parties.
It is pertinent to note that the provisions of the
Agreement requiring a 7 out of 9 votes of the Quite often, Filipino entrepreneurs in their desire to develop the
board of directors for certain actions, in effect industrial and manufacturing capacities of a local firm are
gave ASI (which designates 3 directors under the constrained to seek the technology and marketing assistance of
Agreement) an effective veto power. Furthermore, huge multinational corporations of the developed world.
the grant to ASI of the right to designate certain Arrangements are formalized where a foreign group becomes a
officers of the corporation; the super-majority minority owner of a firm in exchange for its manufacturing
voting requirements for amendments of the expertise, use of its brand names, and other such assistance.
articles and by-laws; and most significantly to the However, there is always a danger from such arrangements. The
issues of tms case, the provision that ASI shall foreign group may, from the start, intend to establish its own sole
designate 3 out of the 9 directors and the other or monopolistic operations and merely uses the joint venture
stockholders shall designate the other 6, clearly arrangement to gain a foothold or test the Philippine waters, so to
indicate that there are two distinct groups in speak. Or the covetousness may come later. As the Philippine
Saniwares, namely ASI, which owns 40% of the firm enlarges its operations and becomes profitable, the foreign
capital stock and the Philippine National group undermines the local majority ownership and actively tries
to completely or predominantly take over the entire company. stockholders. The YoungYutivo family count for
This undermining of joint ventures is not consistent with fair another 13 stockholders, the Chamsay family for 8
dealing to say the least. To the extent that such subversive stockholders, the Santos family for 9 stockholders,
actions can be lawfully prevented, the courts should extend the Dy family for 7 stockholders, etc. If the
protection especially in industries where constitutional and legal members of one family and/or business or interest
requirements reserve controlling ownership to Filipino citizens. group are considered as one (which, it is
respectfully submitted, they should be for
The Lagdameo Group stated in their appellees' brief in the Court purposes of determining how closely held
of Appeal Saniwares is there were as of 8 March 1983,
practically only 17 stockholders of Saniwares.
In fact, the Philippine Corporation Code itself (Please refer to discussion in pp. 5 to 6 of
recognizes the right of stockholders to enter into appellees' Rejoinder Memorandum dated 11
agreements regarding the exercise of their voting December 1984 and Annex "A" thereof).
rights.
Secondly, even assuming that Saniwares is
Sec. 100. Agreements by stockholders.- technically not a close corporation because it has
more than 20 stockholders, the undeniable fact is
that it is a close-held corporation. Surely,
xxx xxx xxx
appellants cannot honestly claim that Saniwares
is a public issue or a widely held corporation.
2. An agreement between two or more
stockholders, if in writing and signed by the
In the United States, many courts have taken a
parties thereto, may provide that in exercising any
realistic approach to joint venture corporations
voting rights, the shares held by them shall be
voted as therein provided, or as they may agree, and have not rigidly applied principles of
or as determined in accordance with a procedure corporation law designed primarily for public issue
agreed upon by them. corporations. These courts have indicated that
express arrangements between corporate joint
ventures should be construed with less emphasis
Appellants contend that the above provision is on the ordinary rules of law usually applied to
included in the Corporation Code's chapter on corporate entities and with more consideration
close corporations and Saniwares cannot be a given to the nature of the agreement between the
close corporation because it has 95 stockholders. joint venturers (Please see Wabash Ry v.
Firstly, although Saniwares had 95 stockholders American Refrigerator Transit Co., 7 F 2d 335;
at the time of the disputed stockholders meeting, Chicago, M & St. P. Ry v. Des Moines Union Ry;
these 95 stockholders are not separate from each 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v.
other but are divisible into groups representing a Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d
single Identifiable interest. For example, ASI, its 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903;
nominees and lawyers count for 13 of the 95 Hathway v. Porter Royalty Pool, Inc., 296 Mich.
90, 90, 295 N.W. 571; Beardsley v. Beardsley, Paragraph 2 refers to pooling and voting
138 U.S. 262; "The Legal Status of Joint Venture agreements in particular. Does this provision
Corporations", 11 Vand Law Rev. p. 680,1958). necessarily imply that these agreements can be
These American cases dealt with legal questions valid only in close corporations as defined by the
as to the extent to which the requirements arising Code? Suppose that a corporation has twenty five
from the corporate form of joint venture stockholders, and therefore cannot qualify as a
corporations should control, and the courts ruled close corporation under section 96, can some of
that substantial justice lay with those litigants who them enter into an agreement to vote as a unit in
relied on the joint venture agreement rather than the election of directors? It is submitted that there
the litigants who relied on the orthodox principles is no reason for denying stockholders of
of corporation law. corporations other than close ones the right to
enter into not voting or pooling agreements to
As correctly held by the SEC Hearing Officer: protect their interests, as long as they do not
intend to commit any wrong, or fraud on the other
It is said that participants in a joint venture, in stockholders not parties to the agreement. Of
organizing the joint venture deviate from the course, voting or pooling agreements are perhaps
traditional pattern of corporation management. A more useful and more often resorted to in close
noted authority has pointed out that just as in corporations. But they may also be found
close corporations, shareholders' agreements in necessary even in widely held corporations.
joint venture corporations often contain provisions Moreover, since the Code limits the legal meaning
which do one or more of the following: (1) require of close corporations to those which comply with
greater than majority vote for shareholder and the requisites laid down by section 96, it is entirely
director action; (2) give certain shareholders or possible that a corporation which is in fact a close
groups of shareholders power to select a specified corporation will not come within the definition. In
number of directors; (3) give to the shareholders such case, its stockholders should not be
control over the selection and retention of precluded from entering into contracts like voting
employees; and (4) set up a procedure for the agreements if these are otherwise valid. (Campos
settlement of disputes by arbitration (See I O' & Lopez-Campos, op cit, p. 405)
Neal, Close Corporations, 1971 ed., Section
1.06a, pp. 15-16) (Decision of SEC Hearing In short, even assuming that sec. 5(a) of the
Officer, P. 16) Agreement relating to the designation or
nomination of directors restricts the right of the
Thirdly paragraph 2 of Sec. 100 of the Corporation Agreement's signatories to vote for directors, such
Code does not necessarily imply that agreements contractual provision, as correctly held by the
regarding the exercise of voting rights are allowed SEC, is valid and binding upon the signatories
only in close corporations. As Campos and Lopez- thereto, which include appellants. (Rollo No.
Campos explain: 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may In any event, it is believed that we are not here
vote their additional equity during elections of Saniwares' board of called upon to make a general rule on this
directors, the Court of Appeals correctly stated: question. Rather, all that needs to be done is to
give life and effect to the particular contractual
As in other joint venture companies, the extent of rights and obligations which the parties have
ASI's participation in the management of the assumed for themselves.
corporation is spelled out in the Agreement.
Section 5(a) hereof says that three of the nine On the one hand, the clearly established minority
directors shall be designated by ASI and the position of ASI and the contractual allocation of
remaining six by the other stockholders, i.e., the board seats Cannot be disregarded. On the other
Filipino stockholders. This allocation of board hand, the rights of the stockholders to cumulative
seats is obviously in consonance with the minority voting should also be protected.
position of ASI.
In our decision sought to be reconsidered, we
Having entered into a well-defined contractual opted to uphold the second over the first. Upon
relationship, it is imperative that the parties should further reflection, we feel that the proper and just
honor and adhere to their respective rights and solution to give due consideration to both factors
obligations thereunder. Appellants seem to suggests itself quite clearly. This Court should
contend that any allocation of board seats, even in recognize and uphold the division of the
joint venture corporations, are null and void to the stockholders into two groups, and at the same
extent that such may interfere with the time uphold the right of the stockholders within
stockholder's rights to cumulative voting as each group to cumulative voting in the process of
provided in Section 24 of the Corporation Code. determining who the group's nominees would be.
This Court should not be prepared to hold that any In practical terms, as suggested by appellant
agreement which curtails in any way cumulative Luciano E. Salazar himself, this means that if the
voting should be struck down, even if such Filipino stockholders cannot agree who their six
agreement has been freely entered into by nominees will be, a vote would have to be taken
experienced businessmen and do not prejudice among the Filipino stockholders only. During this
those who are not parties thereto. It may well be voting, each Filipino stockholder can cumulate his
that it would be more cogent to hold, as the votes. ASI, however, should not be allowed to
Securities and Exchange Commission has held in interfere in the voting within the Filipino group.
the decision appealed from, that cumulative voting Otherwise, ASI would be able to designate more
rights may be voluntarily waived by stockholders than the three directors it is allowed to designate
who enter into special relationships with each under the Agreement, and may even be able to
other to pursue and implement specific purposes, get a majority of the board seats, a result which is
as in joint venture relationships between foreign clearly contrary to the contractual intent of the
and local stockholders, so long as such parties.
agreements do not adversely affect third parties.
Such a ruling will give effect to both the allocation (Gates v. Megargel, 266 Fed. 811 [1920]) It is in
of the board seats and the stockholder's right to fact hardly distinguishable from the partnership,
cumulative voting. Moreover, this ruling will also since their elements are similar community of
give due consideration to the issue raised by the interest in the business, sharing of profits and
appellees on possible violation or circumvention of losses, and a mutual right of control. Blackner v.
the Anti-Dummy Law (Com. Act No. 108, as Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
amended) and the nationalization requirements of Peterson, 95 P. 2d., 1043 [1939]; Buckley v.
the Constitution and the laws if ASI is allowed to Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P.
nominate more than three directors. (Rollo-75875, 2d. 242 [1955]). The main distinction cited by
pp. 38-39) most opinions in common law jurisdictions is that
the partnership contemplates a general business
The ASI Group and petitioner Salazar, now reiterate their theory with some degree of continuity, while the joint
that the ASI Group has the right to vote their additional equity venture is formed for the execution of a single
pursuant to Section 24 of the Corporation Code which gives the transaction, and is thus of a temporary nature.
stockholders of a corporation the right to cumulate their votes in (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500
electing directors. Petitioner Salazar adds that this right if granted [1931]; Harmon v. Martin, 395 111. 595, 71 NE
to the ASI Group would not necessarily mean a violation of the 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811
Anti-Dummy Act (Commonwealth Act 108, as amended). He cites [1920]). This observation is not entirely accurate
section 2-a thereof which provides: in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a
And provided finally that the election of aliens as particular partnership may have for its object a
members of the board of directors or governing specific undertaking. (Art. 1783, Civil Code). It
body of corporations or associations engaging in would seem therefore that under Philippine law, a
partially nationalized activities shall be allowed in joint venture is a form of partnership and should
proportion to their allowable participation or share thus be governed by the law of partnerships. The
in the capital of such entities. (amendments Supreme Court has however recognized a
introduced by Presidential Decree 715, section 1, distinction between these two business forms, and
promulgated May 28, 1975) has held that although a corporation cannot enter
into a partnership contract, it may however
engage in a joint venture with others. (At p. 12,
The ASI Group's argument is correct within the context of Section
Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos
24 of the Corporation Code. The point of query, however, is
and Lopez-Campos Comments, Notes and
whether or not that provision is applicable to a joint venture with
Selected Cases, Corporation Code 1981)
clearly defined agreements:
Moreover, the usual rules as regards the construction and
The legal concept of ajoint venture is of common
law origin. It has no precise legal definition but it operations of contracts generally apply to a contract of joint
has been generally understood to mean an venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).
organization formed for some temporary purpose.
Bearing these principles in mind, the correct view would be that the Anti-Dummy Law (Com. Act No. 108, as
the resolution of the question of whether or not the ASI Group amended) and the nationalization requirements of
may vote their additional equity lies in the agreement of the the Constitution and the laws if ASI is allowed to
parties. nominate more than three directors. (At p. 39,
Rollo, 75875)
Necessarily, the appellate court was correct in upholding the
agreement of the parties as regards the allocation of director Equally important as the consideration of the contractual intent of
seats under Section 5 (a) of the "Agreement," and the right of the parties is the consideration as regards the possible
each group of stockholders to cumulative voting in the process of domination by the foreign investors of the enterprise in violation of
determining who the group's nominees would be under Section 3 the nationalization requirements enshrined in the Constitution and
(a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) circumvention of the Anti-Dummy Act. In this regard, petitioner
of the Agreement relates to the manner of nominating the Salazar's position is that the Anti-Dummy Act allows the ASI
members of the board of directors while Section 3 (a) (1) relates group to elect board directors in proportion to their share in the
to the manner of voting for these nominees. capital of the entity. It is to be noted, however, that the same law
also limits the election of aliens as members of the board of
This is the proper interpretation of the Agreement of the parties directors in proportion to their allowance participation of said
as regards the election of members of the board of directors. entity. In the instant case, the foreign Group ASI was limited to
designate three directors. This is the allowable participation of the
To allow the ASI Group to vote their additional equity to help elect ASI Group. Hence, in future dealings, this limitation of six to three
even a Filipino director who would be beholden to them would board seats should always be maintained as long as the joint
obliterate their minority status as agreed upon by the parties. As venture agreement exists considering that in limiting 3 board
aptly stated by the appellate court: seats in the 9-man board of directors there are provisions already
agreed upon and embodied in the parties' Agreement to protect
... ASI, however, should not be allowed to the interests arising from the minority status of the foreign
interfere in the voting within the Filipino group. investors.
Otherwise, ASI would be able to designate more
than the three directors it is allowed to designate With these findings, we the decisions of the SEC Hearing Officer
under the Agreement, and may even be able to and SEC which were impliedly affirmed by the appellate court
get a majority of the board seats, a result which is declaring Messrs. Wolfgang Aurbach, John Griffin, David P
clearly contrary to the contractual intent of the Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A.
parties. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and
George F. Lee as the duly elected directors of Saniwares at the
March 8,1983 annual stockholders' meeting.
Such a ruling will give effect to both the allocation
of the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also On the other hand, the Lagdameo and Young Group (petitioners
give due consideration to the issue raised by the in G.R. No. 75951) object to a cumulative voting during the
appellees on possible violation or circumvention of election of the board of directors of the enterprise as ruled by the
appellate court and submits that the six (6) directors allotted the
Filipino stockholders should be selected by consensus pursuant is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin,
to section 5 (a) of the Agreement which uses the word David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul
"designate" meaning "nominate, delegate or appoint." A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and
George F. Lee are declared as the duly elected directors of
They also stress the possibility that the ASI Group might take Saniwares at the March 8,1983 annual stockholders' meeting. In
control of the enterprise if the Filipino stockholders are allowed to all other respects, the questioned decision is AFFIRMED. Costs
select their nominees separately and not as a common slot against the petitioners in G.R. Nos. 75975-76 and G.R. No.
determined by the majority of their group. 75875.
Section 5 (a) of the Agreement which uses the word designates in SO ORDERED.
the allocation of board directors should not be interpreted in
isolation. This should be construed in relation to section 3 (a) (1) Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.
of the Agreement. As we stated earlier, section 3(a) (1) relates to
the manner of voting for these nominees which is cumulative
voting while section 5(a) relates to the manner of nominating the
members of the board of directors. The petitioners in G.R. No.
75951 agreed to this procedure, hence, they cannot now impugn
its legality.
The insinuation that the ASI Group may be able to control the
enterprise under the cumulative voting procedure cannot,
however, be ignored. The validity of the cumulative voting
procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest
is to increase the ASI share in the management of Saniwares.
The joint venture character of the enterprise must always be
taken into account, so long as the company exists under its
original agreement. Cumulative voting may not be used as a
device to enable ASI to achieve stealthily or indirectly what they
cannot accomplish openly. There are substantial safeguards in
the Agreement which are intended to preserve the majority status
of the Filipino investors as well as to maintain the minority status
of the foreign investors group as earlier discussed. They should
be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No.
75875 are DISMISSED and the petition in G.R. No. 75951 is
partly GRANTED. The amended decision of the Court of Appeals
Republic of the Philippines trip plane ticket to Manila. He also phoned his sister Elsie Carloto-
SUPREME COURT Concha to send him ONE THOUSAND PESOS (P1,000.00) for
Manila his pocket money in going to Manila and some rediscounting
papers thru petitioner's LBC Office at Dipolog City. 3
SECOND DIVISION
On November 16, 1984, Mrs. Concha thru her clerk, Adelina
Antigo consigned thru LBC Dipolog Branch the pertinent
documents and the sum of ONE THOUSAND PESOS
G.R. No. 108670 September 21, 1994 (P1,000.00) to respondent Carloto at No. 2 Greyhound
Subdivision, Kinasangan, Pardo, Cebu City. This was evidenced
LBC EXPRESS, INC., petitioner, by LBC Air Cargo, Inc., Cashpack Delivery Receipt No. 34805.
vs.
THE COURT OF APPEALS, ADOLFO M. CARLOTO, and On November 17, 1984, the documents arrived without the
RURAL BANK OF LABASON, INC., respondents. cashpack. Respondent Carloto made personal follow-ups on that
same day, and also on November 19 and 20, 1984 at LBC's office
in Cebu but petitioner failed to deliver to him the cashpack.
Emmanuel D. Agustin for petitioner.
Consequently, respondent Carloto said he was compelled to go
Bernardo P. Concha for private respondents.
to Dipolog City on November 24, 1984 to claim the money at
LBC's office. His effort was once more in vain. On November 27,
1984, he went back to Cebu City at LBC's office. He was,
however, advised that the money has been returned to LBC's
PUNO, J.: office in Dipolog City upon shipper's request. Again, he
demanded for the ONE THOUSAND PESOS (P1,000.00) and
In this Petition for Review on Certiorari, petitioner LBC questions refund of FORTY-NINE PESOS (P49.00) LBC revenue charges.
the decision 1 of respondent Court of Appeals affirming the He received the money only on December 15, 1984 less the
judgment of the Regional Trial Court of Dipolog City, Branch 8, revenue charges.
awarding moral and exemplary damages, reimbursement of
P32,000.00, and costs of suit; but deleting the amount of
Respondent Carloto claimed that because of the delay in the
attorney's fees.
transmittal of the cashpack, he failed to submit the rediscounting
documents to Central Bank on time. As a consequence, his rural
Private respondent Adolfo Carloto, incumbent President-Manager bank was made to pay the Central Bank THIRTY-TWO
of private respondent Rural Bank of Labason, alleged that on THOUSAND PESOS (P32,000.00) as penalty interest. 4He
November 12, 1984, he was in Cebu City transacting business allegedly suffered embarrassment and humiliation.
with the Central Bank Regional Office. He was instructed to
proceed to Manila on or before November 21, 1984 to follow-up
Petitioner LBC, on the other hand, alleged that the cashpack was
the Rural Bank's plan of payment of rediscounting obligations with
forwarded via PAL to LBC Cebu City branch on November 22,
Central Bank's main office in Manila. 2 He then purchased a round
1984. 5 On the same day, it was delivered at respondent Carloto's rediscount its due bills on time arising from the
residence at No. 2 Greyhound Subdivision, Kinasangan, Pardo, defendant's failure to deliver the cashpack, with
Cebu City. However, he was not around to receive it. The delivery legal interest computed from the date of filing of
man served instead a claim notice to insure he would personally this case; and
receive the money. This was annotated on Cashpack Delivery
Receipt No. 342805. Notwithstanding the said notice, respondent 3. Ordering defendant to pay the costs of these
Carloto did not claim the cashpack at LBC Cebu. On November proceedings.
23, 1984, it was returned to the shipper, Elsie Carloto-Concha at
Dipolog City. SO ORDERED. 6
Claiming that petitioner LBC wantonly and recklessly disregarded On appeal, respondent court modified the judgment by deleting
its obligation, respondent Carloto instituted an action for the award of attorney's fees. Petitioner's Motion for
Damages Arising from Non-performance of Obligation docketed Reconsideration was denied in a Resolution dated January 11,
as Civil Case No. 3679 before the Regional Trial Court of Dipolog 1993.
City on January 4, 1985. On June 25, 1988, an amended
complaint was filed where respondent rural bank joined as one of
Hence, this petition raising the following questions, to wit:
the plaintiffs and prayed for the reimbursement of THIRTY-TWO
THOUSAND PESOS (P32,000.00).
1. Whether or not respondent Rural Bank of Labason Inc., being
an artificial person should be awarded moral damages.
After hearing, the trial court rendered its decision, the dispositive
of Cadette
portion of which reads: in favor
and Rural
2. Whether or not the award of THIRTY-TWO THOUSAND
PESOS (P32,000.00) was made with grave abuse of discretion.
WHEREFORE, judgment is hereby rendered:
3. Whether or not the respondent Court of Appeals gravely
1. Ordering the defendant LBC Air Cargo, Inc. to
abused its discretion in affirming the trial court's decision ordering
pay unto plaintiff Adolfo M. Carloto and Rural petitioner LBC to pay moral and exemplary damages despite
Bank of Labason, Inc., moral damages in the performance of its obligation.
amount of P10,000.00; exemplary damages in the
amount of P5,000.00; attorney's fees in the
amount of P3,000.00 and litigation expenses of We find merit in the petition.
P1,000.00;
The respondent court erred in awarding moral damages to the
7
2. Sentencing defendant LBC Air Cargo, Inc., to Rural Bank of Labason, Inc., an artificial person.
reimburse plaintiff Rural Bank of Labason, Inc. the
sum of P32,000.00 which the latter paid as Moral damages are granted in recompense for physical suffering,
penalty interest to the Central Bank of the mental anguish, fright, serious anxiety, besmirched reputation,
Philippines as penalty interest for failure to wounded feelings, moral shock, social humiliation, and similar
injury. 7A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no We also hold that respondents failed to show that petitioner LBC's
{
emotions, no senses; therefore, it cannot experience physical late delivery of the cashpack was motivated by personal malice or
suffering and mental anguish. 8 Mental suffering can be bad faith, whether intentional or thru gross negligence. In fact, it
experienced only by one having a nervous system and it flows was proved during the trial that the cashpack was consigned on
from real ills, sorrows, and griefs of life 9 — all of which cannot be November 16, 1984, a Friday. It was sent to Cebu on November
suffered by respondent bank as an artificial person. 19, 1984, the next business day. Considering this circumstance,
petitioner cannot be charged with gross neglect of duty. Bad faith
We can neither sustain the award of moral damages in favor of under the law can not be presumed; it must be established by
the private respondents. The right to recover moral damages is clearer and convincing evidence. 13 Again, the unbroken
based on equity. Moral damages are recoverable only if the case jurisprudence is that in breach of contract cases where the
falls under Article 2219 of the Civil Code in relation to Article defendant is not shown to have acted fraudulently or in bad faith,
21. 10 Part of conventional wisdom is that he who comes to court liability for damages is limited to the natural and probable
to demand equity, must come with clean hands. consequences of the branch of the obligation which the parties
had foreseen or could reasonable have foreseen. The damages,
In the case at bench, respondent Carloto is not without fault. He however, will not include liability for moral damages. 14
was fully aware that his rural bank's obligation would mature on
November 21, 1984 and his bank has set aside cash for these Prescinding from these premises, the award of exemplary
bills payable. 11 He was all set to go to Manila to settle this damages made by the respondent court would have no legal leg
obligation. He has received the documents necessary for the to support itself. Under Article 2232 of the Civil Code, in a
approval of their rediscounting application with the Central Bank. contractual or quasi-contractual relationship, exemplary damages
He has also received the plane ticket to go to Manila. may be awarded only if the defendant had acted in "a wanton,
Nevertheless, he did not immediately proceed to Manila but fraudulent, reckless, oppressive, or malevolent manner." The
instead tarried for days allegedly claiming his ONE THOUSAND established facts of not so warrant the characterization of the
PESOS (P1,000.00) pocket money. Due to his delayed trip, he action of petitioner LBC.
failed to submit the rediscounting papers to the Central Bank on
time and his bank was penalized THIRTY-TWO THOUSAND IN VIEW WHEREOF, the Decision of the respondent court dated
PESOS (P32,000.00) for failure to pay its obligation on its due September 30, 1992 is REVERSED and SET ASIDE; and the
date. The undue importance given by respondent Carloto to his Complaint in Civil Case No. 3679 is ordered DISMISSED. No
ONE THOUSAND PESOS (P1,000.00) pocket money is costs.
inexplicable for it was not indispensable for him to follow up his
bank's rediscounting application with Central Bank. According to SO ORDERED.
said respondent, he needed the money to "invite people for a
snack or dinner." 12 The attitude of said respondent speaks ill of Narvasa, C.J., Padilla, Regalado and Mendoza, JJ.,
his ways of business dealings and cannot be countenanced by concur.
this Court. Verily, it will be revolting to our sense of ethics to use it
as basis for awarding damages in favor of private respondent
Carloto and the Rural Bank of Labason, Inc.
FIRST DIVISION DZRC-AM which is owned by Filipinas Broadcasting
Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi
G.R. No. 141994 January 17, 2005 City, the Albay municipalities and other Bicol areas.6
FILIPINAS BROADCASTING NETWORK, INC., petitioner, In the morning of 14 and 15 December 1989, Rima and
vs. Alegre exposed various alleged complaints from
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL
students, teachers and parents against Ago Medical and
CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and
ANGELITA F. AGO, respondents. Educational Center-Bicol Christian College of Medicine
("AMEC") and its administrators. Claiming that the
DECISION broadcasts were defamatory, AMEC and Angelita Ago
("Ago"), as Dean of AMEC’s College of Medicine, filed a
CARPIO, J.: complaint for damages7 against FBNI, Rima and Alegre
on 27 February 1990. Quoted are portions of the
The Case allegedly libelous broadcasts:
This petition for review1 assails the 4 January 1999 JUN ALEGRE:
Decision2 and 26 January 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 40151. The Court of Appeals Let us begin with the less burdensome: if you have
affirmed with modification the 14 December 1992 children taking medical course at AMEC-BCCM,
Decision3 of the Regional Trial Court of Legazpi City, advise them to pass all subjects because if they fail
Branch 10, in Civil Case No. 8236. The Court of Appeals in any subject they will repeat their year level, taking
held Filipinas Broadcasting Network, Inc. and its up all subjects including those they have passed
broadcasters Hermogenes Alegre and Carmelo Rima already. Several students had approached me stating
liable for libel and ordered them to solidarily pay Ago that they had consulted with the DECS which told them
Medical and Educational Center-Bicol Christian College that there is no such regulation. If [there] is no such
of Medicine moral damages, attorney’s fees and costs of regulation why is AMEC doing the same?
suit.
xxx
The Antecedents
Second: Earlier AMEC students in Physical Therapy
"Exposé" is a radio documentary4 program hosted by had complained that the course is not recognized by
Carmelo ‘Mel’ Rima ("Rima") and Hermogenes ‘Jun’ DECS. xxx
Alegre ("Alegre").5 Exposé is aired every morning over
Third: Students are required to take and pay for the On the other hand, the administrators of AMEC-
subject even if the subject does not have an BCCM, AMEC Science High School and the AMEC-
instructor - such greed for money on the part of Institute of Mass Communication in their effort to
AMEC’s administration. Take the subject Anatomy: minimize expenses in terms of salary are absorbing
students would pay for the subject upon enrolment or continues to accept "rejects". For example how
because it is offered by the school. However there would many teachers in AMEC are former teachers of Aquinas
be no instructor for such subject. Students would be University but were removed because of immorality?
informed that course would be moved to a later date Does it mean that the present administration of AMEC
because the school is still searching for the appropriate have the total definite moral foundation from catholic
instructor. administrator of Aquinas University. I will prove to you my
friends, that AMEC is a dumping ground, garbage, not
xxx merely of moral and physical misfits. Probably they
only qualify in terms of intellect. The Dean of Student
It is a public knowledge that the Ago Medical and Affairs of AMEC is Justita Lola, as the family name
Educational Center has survived and has been surviving implies. She is too old to work, being an old woman. Is
for the past few years since its inception because of the AMEC administration exploiting the very [e]nterprising
funds support from foreign foundations. If you will take a or compromising and undemanding Lola? Could it be that
look at the AMEC premises you’ll find out that the names AMEC is just patiently making use of Dean Justita Lola
of the buildings there are foreign soundings. There is a were if she is very old. As in atmospheric situation – zero
McDonald Hall. Why not Jose Rizal or Bonifacio Hall? visibility – the plane cannot land, meaning she is very old,
That is a very concrete and undeniable evidence that the low pay follows. By the way, Dean Justita Lola is also the
support of foreign foundations for AMEC is substantial, chairman of the committee on scholarship in AMEC. She
isn’t it? With the report which is the basis of the expose in had retired from Bicol University a long time ago but
DZRC today, it would be very easy for detractors and AMEC has patiently made use of her.
enemies of the Ago family to stop the flow of support of
foreign foundations who assist the medical school on the xxx
basis of the latter’s purpose. But if the purpose of the
institution (AMEC) is to deceive students at cross MEL RIMA:
purpose with its reason for being it is possible for these
foreign foundations to lift or suspend their donations xxx My friends based on the expose, AMEC is a dumping
temporarily.8 ground for moral and physically misfit people. What does
this mean? Immoral and physically misfits as teachers.
xxx
May I say I’m sorry to Dean Justita Lola. But this is the selection and supervision of its employees, particularly
truth. The truth is this, that your are no longer fit to teach. Rima and Alegre.
You are too old. As an aviation, your case is zero
visibility. Don’t insist. On 18 June 1990, FBNI, Rima and Alegre, through Atty.
Rozil Lozares, filed an Answer10 alleging that the
xxx Why did AMEC still absorb her as a teacher, a dean, broadcasts against AMEC were fair and true. FBNI, Rima
and chairman of the scholarship committee at that. The and Alegre claimed that they were plainly impelled by a
reason is practical cost saving in salaries, because an old sense of public duty to report the "goings-on in AMEC,
person is not fastidious, so long as she has money to buy [which is] an institution imbued with public interest."
the ingredient of beetle juice. The elderly can get by –
that’s why she (Lola) was taken in as Dean. Thereafter, trial ensued. During the presentation of the
evidence for the defense, Atty. Edmundo Cea,
xxx collaborating counsel of Atty. Lozares, filed a Motion to
Dismiss11 on FBNI’s behalf. The trial court denied the
xxx On our end our task is to attend to the interests of motion to dismiss. Consequently, FBNI filed a separate
students. It is likely that the students would be influenced Answer claiming that it exercised due diligence in the
by evil. When they become members of society selection and supervision of Rima and Alegre. FBNI
outside of campus will be liabilities rather than claimed that before hiring a broadcaster, the broadcaster
assets. What do you expect from a doctor who while should (1) file an application; (2) be interviewed; and (3)
studying at AMEC is so much burdened with undergo an apprenticeship and training program after
unreasonable imposition? What do you expect from a passing the interview. FBNI likewise claimed that it
student who aside from peculiar problems – because not always reminds its broadcasters to "observe truth,
all students are rich – in their struggle to improve their fairness and objectivity in their broadcasts and to refrain
social status are even more burdened with false from using libelous and indecent language." Moreover,
regulations. xxx9 (Emphasis supplied) FBNI requires all broadcasters to pass the Kapisanan ng
mga Brodkaster sa Pilipinas ("KBP") accreditation test
The complaint further alleged that AMEC is a reputable and to secure a KBP permit.
learning institution. With the supposed exposés, FBNI,
Rima and Alegre "transmitted malicious imputations, and On 14 December 1992, the trial court rendered a
as such, destroyed plaintiffs’ (AMEC and Ago) Decision12 finding FBNI and Alegre liable for libel except
reputation." AMEC and Ago included FBNI as defendant Rima. The trial court held that the broadcasts are
for allegedly failing to exercise due diligence in the libelous per se. The trial court rejected the broadcasters’
claim that their utterances were the result of straight
reporting because it had no factual basis. The affirmed the trial court’s judgment with modification. The
broadcasters did not even verify their reports before appellate court made Rima solidarily liable with FBNI and
airing them to show good faith. In holding FBNI liable for Alegre. The appellate court denied Ago’s claim for
libel, the trial court found that FBNI failed to exercise damages and attorney’s fees because the broadcasts
diligence in the selection and supervision of its were directed against AMEC, and not against her. The
employees. dispositive portion of the Court of Appeals’ decision
reads:
In absolving Rima from the charge, the trial court ruled
that Rima’s only participation was when he agreed with WHEREFORE, the decision appealed from is
Alegre’s exposé. The trial court found Rima’s statement hereby AFFIRMED, subject to the modification that
within the "bounds of freedom of speech, expression, and broadcaster Mel Rima is SOLIDARILY
of the press." The dispositive portion of the decision ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
reads:
SO ORDERED.14
WHEREFORE, premises considered, this court finds for
the plaintiff. Considering the degree of damages FBNI, Rima and Alegre filed a motion for reconsideration
caused by the controversial utterances, which are which the Court of Appeals denied in its 26 January 2000
not found by this court to be really very serious and Resolution.
damaging, and there being no showing that indeed
the enrollment of plaintiff school dropped, defendants Hence, FBNI filed this petition.15
Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting
Network (owner of the radio station DZRC), are hereby The Ruling of the Court of Appeals
jointly and severally ordered to pay plaintiff Ago Medical
and Educational Center-Bicol Christian College of The Court of Appeals upheld the trial court’s ruling that
Medicine (AMEC-BCCM) the amount of ₱300,000.00 the questioned broadcasts are libelous per seand that
moral damages, plus ₱30,000.00 reimbursement of FBNI, Rima and Alegre failed to overcome the legal
attorney’s fees, and to pay the costs of suit. presumption of malice. The Court of Appeals found Rima
and Alegre’s claim that they were actuated by their moral
SO ORDERED. 13 (Emphasis supplied) and social duty to inform the public of the students’ gripes
as insufficient to justify the utterance of the defamatory
Both parties, namely, FBNI, Rima and Alegre, on one remarks.
hand, and AMEC and Ago, on the other, appealed the
decision to the Court of Appeals. The Court of Appeals
Finding no factual basis for the imputations against FBNI raises the following issues for resolution:
AMEC’s administrators, the Court of Appeals ruled that
the broadcasts were made "with reckless disregard as to I. WHETHER THE BROADCASTS ARE LIBELOUS;
whether they were true or false." The appellate court
pointed out that FBNI, Rima and Alegre failed to present II. WHETHER AMEC IS ENTITLED TO MORAL
in court any of the students who allegedly complained DAMAGES;
against AMEC. Rima and Alegre merely gave a single
name when asked to identify the students. According to III. WHETHER THE AWARD OF ATTORNEY’S FEES IS
PROPER; and
the Court of Appeals, these circumstances cast doubt on
the veracity of the broadcasters’ claim that they were IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH
"impelled by their moral and social duty to inform the RIMA AND ALEGRE FOR PAYMENT OF MORAL
public about the students’ gripes." DAMAGES, ATTORNEY’S FEES AND COSTS OF SUIT.
The Court of Appeals found Rima also liable for libel The Court’s Ruling
since he remarked that "(1) AMEC-BCCM is a dumping
ground for morally and physically misfit teachers; (2) We deny the petition.
AMEC obtained the services of Dean Justita Lola to
minimize expenses on its employees’ salaries; and (3) This is a civil action for damages as a result of the
AMEC burdened the students with unreasonable allegedly defamatory remarks of Rima and Alegre against
imposition and false regulations."16 AMEC.17 While AMEC did not point out clearly the legal
basis for its complaint, a reading of the complaint reveals
The Court of Appeals held that FBNI failed to exercise that AMEC’s cause of action is based on Articles 30 and
due diligence in the selection and supervision of its 33 of the Civil Code. Article 3018 authorizes a separate
employees for allowing Rima and Alegre to make the civil action to recover civil liability arising from a criminal
radio broadcasts without the proper KBP accreditation. offense. On the other hand, Article 3319 particularly
The Court of Appeals denied Ago’s claim for damages provides that the injured party may bring a separate civil
and attorney’s fees because the libelous remarks were action for damages in cases of defamation, fraud, and
directed against AMEC, and not against her. The Court of physical injuries. AMEC also invokes Article 1920 of the
Appeals adjudged FBNI, Rima and Alegre solidarily liable Civil Code to justify its claim for damages. AMEC cites
to pay AMEC moral damages, attorney’s fees and costs Articles 217621 and 218022 of the Civil Code to hold FBNI
of suit.
1awphi1.nét solidarily liable with Rima and Alegre.
Issues I.
Whether the broadcasts are libelous Every defamatory imputation is presumed
malicious.25 Rima and Alegre failed to show adequately
A libel23 is a public and malicious imputation of a crime, or their good intention and justifiable motive in airing the
of a vice or defect, real or imaginary, or any act or supposed gripes of the students. As hosts of a
omission, condition, status, or circumstance tending to documentary or public affairs program, Rima and Alegre
cause the dishonor, discredit, or contempt of a natural or should have presented the public issues "free
juridical person, or to blacken the memory of one who is from inaccurate and misleading information."26 Hearing
dead.24 the students’ alleged complaints a month before the
exposé,27 they had sufficient time to verify their sources
There is no question that the broadcasts were made and information. However, Rima and Alegre hardly made
public and imputed to AMEC defects or circumstances a thorough investigation of the students’ alleged gripes.
tending to cause it dishonor, discredit and contempt. Neither did they inquire about nor confirm the purported
Rima and Alegre’s remarks such as "greed for money on irregularities in AMEC from the Department of Education,
the part of AMEC’s administrators"; "AMEC is a dumping Culture and Sports. Alegre testified that he merely went
ground, garbage of xxx moral and physical misfits"; and to AMEC to verify his report from an alleged AMEC
AMEC students who graduate "will be liabilities rather official who refused to disclose any information. Alegre
than assets" of the society are libelous per se. Taken as simply relied on the words of the students "because they
a whole, the broadcasts suggest that AMEC is a money- were many and not because there is proof that what they
making institution where physically and morally unfit are saying is true."28 This plainly shows Rima and
teachers abound. Alegre’s reckless disregard of whether their report was
true or not.
However, FBNI contends that the broadcasts are not
malicious. FBNI claims that Rima and Alegre were plainly Contrary to FBNI’s claim, the broadcasts were not "the
impelled by their civic duty to air the students’ gripes. result of straight reporting." Significantly, some courts in
FBNI alleges that there is no evidence that ill will or spite the United States apply the privilege of "neutral
motivated Rima and Alegre in making the broadcasts. reportage" in libel cases involving matters of public
FBNI further points out that Rima and Alegre exerted interest or public figures. Under this privilege, a
efforts to obtain AMEC’s side and gave Ago the republisher who accurately and disinterestedly reports
opportunity to defend AMEC and its administrators. FBNI certain defamatory statements made against public
concludes that since there is no malice, there is no libel. figures is shielded from liability, regardless of the
republisher’s subjective awareness of the truth or falsity
FBNI’s contentions are untenable. of the accusation.29 Rima and Alegre cannot invoke the
privilege of neutral reportage because unfounded
comments abound in the broadcasts. Moreover, there is immaterial that the opinion happens to be mistaken, as
no existing controversy involving AMEC when the long as it might reasonably be inferred from the
broadcasts were made. The privilege of neutral reportage facts.32 (Emphasis supplied)
applies where the defamed person is a public figure who
is involved in an existing controversy, and a party to that True, AMEC is a private learning institution whose
controversy makes the defamatory statement.30 business of educating students is "genuinely imbued with
public interest." The welfare of the youth in general and
However, FBNI argues vigorously that malice in law does AMEC’s students in particular is a matter which the public
not apply to this case. Citing Borjal v. Court of has the right to know. Thus, similar to the newspaper
Appeals,31 FBNI contends that the broadcasts "fall within articles in Borjal, the subject broadcasts dealt with
the coverage of qualifiedly privileged communications" for matters of public interest. However, unlike in Borjal, the
being commentaries on matters of public interest. Such questioned broadcasts are not based on established
being the case, AMEC should prove malice in fact or facts. The record supports the following findings of the
actual malice. Since AMEC allegedly failed to prove trial court:
actual malice, there is no libel.
xxx Although defendants claim that they were motivated
FBNI’s reliance on Borjal is misplaced. In Borjal, the by consistent reports of students and parents against
Court elucidated on the "doctrine of fair comment," thus: plaintiff, yet, defendants have not presented in court, nor
even gave name of a single student who made the
[F]air commentaries on matters of public interest are complaint to them, much less present written complaint or
privileged and constitute a valid defense in an action for petition to that effect. To accept this defense of
libel or slander. The doctrine of fair comment means that defendants is too dangerous because it could easily give
while in general every discreditable imputation publicly license to the media to malign people and establishments
made is deemed false, because every man is presumed based on flimsy excuses that there were reports to them
innocent until his guilt is judicially proved, and every false although they could not satisfactorily establish it. Such
imputation is deemed malicious, nevertheless, when the laxity would encourage careless and irresponsible
discreditable imputation is directed against a public broadcasting which is inimical to public interests.
person in his public capacity, it is not necessarily
actionable. In order that such discreditable imputation Secondly, there is reason to believe that defendant radio
to a public official may be actionable, it must either broadcasters, contrary to the mandates of their duties,
be a false allegation of fact or a comment based on a did not verify and analyze the truth of the reports before
false supposition. If the comment is an expression of they aired it, in order to prove that they are in good faith.
opinion, based on established facts, then it is
Alegre contended that plaintiff school had no permit and presented to prove the bases for these claims, at least in
is not accredited to offer Physical Therapy courses. Yet, order to give semblance of good faith.
plaintiff produced a certificate coming from DECS that as
of Sept. 22, 1987 or more than 2 years before the As for the allegation that plaintiff is the dumping ground
controversial broadcast, accreditation to offer Physical for misfits, and immoral teachers, defendant[s] singled
Therapy course had already been given the plaintiff, out Dean Justita Lola who is said to be so old, with zero
which certificate is signed by no less than the Secretary visibility already. Dean Lola testified in court last Jan. 21,
of Education and Culture herself, Lourdes R. Quisumbing 1991, and was found to be 75 years old. xxx Even older
(Exh. C-rebuttal). Defendants could have easily known people prove to be effective teachers like Supreme Court
this were they careful enough to verify. And yet, Justices who are still very much in demand as law
defendants were very categorical and sounded too professors in their late years. Counsel for defendants is
positive when they made the erroneous report that past 75 but is found by this court to be still very sharp and
plaintiff had no permit to offer Physical Therapy courses effective. So is plaintiffs’ counsel.
l^vvphi1.net
{
during the tax years 1946 to 1951 P9,599.07 . . Keepers of restaurants, refreshment parlors and other
eating places shall pay a tax three per centum, and
Surcharge therein 2,399.77 keepers of bar and cafes where wines or liquors are
served five per centum of their gross receipts . . .". It has
As fixed tax for the years 1946 to 1952 70.00 been held that the liability for fixed and percentage taxes,
Compromise penalty 500.00 as provided by these sections, does not ipso facto attach
by mere reason of the operation of a bar and restaurant.
For the liability to attach, the operator thereof must be
The Club wrote the Collector, requesting for the engaged in the business as a barkeeper and
cancellation of the assessment. The request having been restaurateur. The plain and ordinary meaning
denied, the Club filed the instant petition for review. of business is restricted to activities or affairs where profit
is the purpose or livelihood is the motive, and the term
The dominant issues involved in this case are twofold: business when used without qualification, should be
construed in its plain and ordinary meaning, restricted to
1. Whether the respondent Club is liable for the payment activities for profit or livelihood (The Coll. of Int. Rev. v.
of the sum of 12,068.84, as fixed and percentage taxes Manila Lodge No. 761 of the BPOE [Manila Elks Club] &
and surcharges prescribed in sections 182, 183 and 191 Court of Tax Appeals, G.R. No. L-11176, June 29, 1959,
of the Tax Code, under which the assessment was made, giving full definitions of the word "business"; Coll. of Int.
in connection with the operation of its bar and restaurant, Rev. v. Sweeney, et al. [International Club of Iloilo, Inc.],
during the periods mentioned above; and G.R. No. L-12178, Aug. 21, 1959, the facts of which are
similar to the ones at bar; Manila Polo Club v. B. L. Meer,
2. Whether it is liable for the payment of the sum of etc., No. L-10854, Jan. 27, 1960).
P500.00 as compromise penalty.
Having found as a fact that the Club was organized to
Section 182, of the Tax Code states, "Unless otherwise develop and cultivate sports of all class and
provided, every person engaging in a business on which denomination, for the healthful recreation and
the percentage tax is imposed shall pay in full a fixed entertainment of its stockholders and members; that upon
annual tax of ten pesos for each calendar year or fraction its dissolution, its remaining assets, after paying debts,
thereof in which such person shall engage in said shall be donated to a charitable Philippine Institution in
business." Section 183 provides in general that "the Cebu; that it is operated mainly with funds derived from
percentage taxes on business shall be payable at the end membership fees and dues; that the Club's bar and
of each calendar quarter in the amount lawfully due on restaurant catered only to its members and their guests;
the business transacted during each quarter; etc." And
that there was in fact no cash dividend distribution to its the corporate form or by the commercial aspect of the
stockholders and that whatever was derived on retail business prosecuted, but may be shown by extrinsic
from its bar and restaurant was used to defray its overall evidence, including the by-laws and the method of
overhead expenses and to improve its golf-course (cost- operation. From the extrinsic evidence adduced, the Tax
plus-expenses-basis), it stands to reason that the Club is Court concluded that the Club is not engaged in the
not engaged in the business of an operator of bar and business as a barkeeper and restaurateur.
restaurant (same authorities, cited above).
Moreover, for a ostock corporation to exist, two requisites
It is conceded that the Club derived profit from the must be complied with, to wit: (1) a capital stock divided
operation of its bar and restaurant, but such fact does not into shares and (2) an authority to distribute to the
necessarily convert it into a profit-making enterprise. The holders of such shares, dividends or allotments of the
bar and restaurant are necessary adjuncts of the Club to surplus profits on the basis of the shares held (sec. 3, Act
foster its purposes and the profits derived therefrom are No. 1459). In the case at bar, nowhere in its articles of
necessarily incidental to the primary object of developing incorporation or by-laws could be found an authority for
and cultivating sports for the healthful recreation and the distribution of its dividends or surplus profits. Strictly
entertainment of the stockholders and members. That a speaking, it cannot, therefore, be considered a stock
Club makes some profit, does not make it a profit-making corporation, within the contemplation of the corporation
Club. As has been remarked a club should always strive, law.
whenever possible, to have surplus (Jesus Sacred Heart
College v. Collector of Int. Rev., G.R. No. L-6807, May A tax is a burden, and, as such, it should not be deemed
24, 1954; Collector of Int. Rev. v. Sinco Educational imposed upon fraternal, civic, non-profit, nonstock
Corp., G.R. No. L-9276, Oct. 23, 1956). 1äwphï1.ñët organizations, unless the intent to the contrary is manifest
and patent" (Collector v. BPOE Elks Club, et al., supra),
It is claimed that unlike the two cases just cited (supra), which is not the case in the present appeal.
which are non-stock, the appellee Club is a stock
corporation. This is unmeritorious. The facts that the Having arrived at the conclusion that respondent Club is
capital stock of the respondent Club is divided into not engaged in the business as an operator of a bar and
shares, does not detract from the finding of the trial court restaurant, and therefore, not liable for fixed and
that it is not engaged in the business of operator of bar percentage taxes, it follows that it is not liable for any
and restaurant. What is determinative of whether or not penalty, much less of a compromise penalty.
the Club is engaged in such business is its object or
purpose, as stated in its articles and by-laws. It is a WHEREFORE, the decision appealed from is affirmed
familiar rule that the actual purpose is not controlled by without costs.
Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Barrera and Dizon, JJ., concur.
Bengzon, C.J., is on leave.
Danilo Mercado and the award of various monetary
claims.
Republic of the Philippines
SUPREME COURT The factual background of this case is as follows:
Manila
Private respondent Danilo Mercado was first employed
SECOND DIVISION by herein petitioner Philippine National Oil Company-
Energy Development Corporation (PNOC-EDC for
G.R. No. 79182 September 11, 1991 brevity) on August 13, 1979. He held various positions
ranging from clerk, general clerk to shipping clerk during
PNOC-ENERGY DEVELOPMENT CORPORATION, petitioner, his employment at its Cebu office until his transfer to its
vs. establishment at Palimpinon, Dumaguete, Oriental
NATIONAL LABOR RELATIONS COMMISSION (Third
Negros on September 5, 1984. On June 30, 1985, private
Division) and DANILO MERCADO,respondents.
respondent Mercado was dismissed. His last salary was
Bacorro & Associates for petitioner. P1,585.00 a month basic pay plus P800.00 living
allowance (Labor Arbiter's Decision, Annex "E" of
Alberto L. Dalmacion for private respondent. Petition, Rollo, p. 52).
f
The Civil Service embraces all branches, subdivision,
instrumentalities and agencies of the Government,
2. Assuming the affirmative, whether or not the Labor including government-owned or controlled corporations
Arbiter and the NLRC are justified in ordering the with original charters.
reinstatement of private respondent, payment of his
savings, and proportionate 13th month pay and payment
such circumstances cannot give validity to the decision of
of damages as well as attorney's fee.
the Labor Arbiter (Ibid., pp. 192-193).
Petitioner PNOC-EDC alleges that it is a corporation
wholly owned and controlled by the government; that the This issue has already been laid to rest in the case
Energy Development Corporation is a subsidiary of the of PNOC-EDC vs. Leogardo, 175 SCRA 26 (July 5,
1989), involving the same petitioner and the same issue,
Philippine National Oil Company which is a government
entity created under Presidential Decree No. 334, as where this Court ruled that the doctrine that employees of
amended; that being a government-owned and controlled government-owned and/or con controlled corporations,
corporation, it is governed by the Civil Service Law as whether created by special law or formed as subsidiaries
provided for in Section 1, Article XII-B of the 1973 under the General Corporation law are governed by the
Civil Service Law and not by the Labor Code, has been
Constitution, Section 56 of Presidential Decree No. 807
(Civil Service Decree) and Article 277 of Presidential supplanted by the present Constitution. "Thus, under the
Decree No. 442, as amended (Labor Code). present state of the law, the test in determining whether a
government-owned or controlled corporation is subject to
The 1973 Constitution provides: the Civil Service Law are the manner of its creation, such
that government corporations created by special charter
The Civil Service embraces every branch, agency, are subject to its provisions while those incorporated
subdivision and instrumentality of the government under the General Corporation Law are not within its
including government-owned or controlled corporations. coverage."
Petitioner PNOC-EDC argued that since Labor Arbiter Specifically, the PNOC-EDC having been incorporated
Minoria rendered the decision at the time when the 1973 under the General Corporation Law was held to be a
Constitution was in force, said decision is null and void government owned or controlled corporation whose
because under the 1973 Constitution, government-owned
employees are subject to the provisions of the Labor Petitioner PNOC-EDC filed its Position Paper/Motion to
Code (Ibid.). Dismiss dated January 15, 1986 (Annex "C" of the
Petition Rollo, pp. 41-45) before the Regional Arbitration
The fact that the case arose at the time when the 1973 Branch No. VII of Cebu City and its Motion for
Constitution was still in effect, does not deprive the NLRC Reconsideration and/or Appeal dated July 28, 1986
of jurisdiction on the premise that it is the 1987 (Annex "F" of the Petition, Rollo, pp. 57-64) before the
Constitution that governs because it is the Constitution in NLRC of Cebu City. Indisputably, the requirements of due
place at the time of the decision (NASECO v. NLRC, process are satisfied when the parties are given an
G.R. No. 69870, 168 SCRA 122 [1988]). opportunity to submit position papers. What the
fundamental law abhors is not the absence of previous
In the case at bar, the decision of the NLRC was notice but rather the absolute lack of opportunity to
promulgated on July 3, 1987. Accordingly, this case falls ventilate a party's side. There is no denial of due process
squarely under the rulings of the aforementioned cases. where the party submitted its position paper and flied its
motion for reconsideration (Odin Security Agency vs. De
As regards the second issue, the record shows that la Serna, 182 SCRA 472 [February 21, 1990]).
PNOC-EDC's accusations of dishonesty and violations of Petitioner's subsequent Motion for Reconsideration
company rules are not supported by evidence. and/or Appeal has the effect of curing whatever
Nonetheless, while acknowledging the rule that irregularity might have been committed in the
administrative bodies are not governed by the strict rules proceedings below (T.H. Valderama and Sons, Inc. vs.
of evidence, petitioner PNOC-EDC alleges that the labor Drilon, 181 SCRA 308 [January 22, 1990]).
arbiter's propensity to decide the case through the
position papers submitted by the parties is violative of Furthermore, it has been consistently held that findings of
due process thereby rendering the decision null and void administrative agencies which have acquired expertise
(Ibid., p. 196). because their jurisdiction is confined to specific matters
are accorded not only respect but even finality (Asian
On the other hand, private respondent contends that as Construction and Development Corporation vs. NLRC,
can be seen from petitioner's Motion for Reconsideration 187 SCRA 784 [July 27, 1990]; Lopez Sugar Corporation
and/or Appeal dated July 28, 1986 (Annex "F" of the vs. Federation of Free Workers, 189 SCRA 179 [August
Petition, Rollo, pp. 57- 64), the latter never questioned 30, 1990]). Judicial review by this Court does not go so
the findings of facts of the Labor Arbiter but simply limited far as to evaluate the sufficiency of the evidence but is
its objection to the lack of legal basis in view of its stand limited to issues of jurisdiction or grave abuse of
that the NLRC had no jurisdiction over the case (Private discretion (Filipinas Manufacturers Bank vs. NLRC, 182
Respondent's Memorandum, Rollo, p. 104). SCRA 848 [February 28, 1990]). A careful study of the
records shows no substantive reason to depart from Melencio-Herrera (Chairperson), Padilla and Regalado,
these established principles. JJ., concur.
Sarmiento, J., is on leave.
While it is true that loss of trust or breach of confidence is
a valid ground for dismissing an employee, such loss or
breach of trust must have some basis (Gubac v. NLRC,
187 SCRA 412 [July 13, 1990]). As found by the Labor
Arbiter, the accusations of petitioner PNOC-EDC against
private respondent Mercado have no basis. Mrs.
Leonardo Nodado, from whom the nipa shingles were
purchased, sufficiently explained in her affidavit (Rollo, p.
36) that the total purchase price of P1,680.00 was paid
by respondent Mercado as agreed upon. The alleged
discount given by Mrs. Nodado is not supported by
evidence as well as the alleged appropriation of P8.66
from the cost of fabrication of rubber stamps. The Labor
Arbiter, likewise, found no evidence to support the
alleged violation of company rules. On the contrary, he
found respondent Mercado's explanation in his affidavit
(Rollo, pp. 38-40) as to the alleged violations to be
satisfactory. Moreover, these findings were never
contradicted by petitioner petitioner PNOC-EDC.
PREMISES CONSIDERED, the petition is DENIED and
the resolution of respondent NLRC dated July 3, 1987 is
AFFIRMED with the modification that the moral damages
are reduced to Ten Thousand (P10,000.00) Pesos, and
the exemplary damages reduced to Five Thousand
(P5,000.00) Pesos.
SO ORDERED.
Republic of the Philippines advanced, and agrarian reform laws enacted, the latest
SUPREME COURT being what is considered a comprehensive piece, the
Manila face of land reform varies and is masked in myriads of
ways. The stated goal, however, remains the same: clear
EN BANC the way for the true freedom of the farmer.3
G.R. No. 171101 July 5, 2011 Land reform, or the broader term "agrarian reform," has
been a government policy even before the
HACIENDA LUISITA, INCORPORATED, Petitioner, Commonwealth era. In fact, at the onset of the American
LUISITA INDUSTRIAL PARK CORPORATION and RIZAL regime, initial steps toward land reform were already
COMMERCIAL BANKING CORPORATION, Petitioners-in-
taken to address social unrest.4 Then, under the 1935
Intervention,
vs. Constitution, specific provisions on social justice and
PRESIDENTIAL AGRARIAN REFORM COUNCIL; expropriation of landed estates for distribution to tenants
SECRETARY NASSER PANGANDAMAN OF THE as a solution to land ownership and tenancy issues were
DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA incorporated.
MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE
GALANG, NOEL MALLARI, and JULIO SUNIGA1 and his In 1955, the Land Reform Act (Republic Act No. [RA]
SUPERVISORY GROUP OF THE HACIENDA LUISITA, INC.
1400) was passed, setting in motion the expropriation of
and WINDSOR ANDAYA, Respondents.
all tenanted estates.5
DECISION
On August 8, 1963, the Agricultural Land Reform Code
VELASCO, JR., J.: (RA 3844) was enacted,6 abolishing share tenancy and
converting all instances of share tenancy into leasehold
"Land for the landless," a shibboleth the landed gentry tenancy.7 RA 3844 created the Land Bank of the
doubtless has received with much misgiving, if not Philippines (LBP) to provide support in all phases of
resistance, even if only the number of agrarian suits filed agrarian reform.
serves to be the norm. Through the years, this battle cry
and root of discord continues to reflect the seemingly As its major thrust, RA 3844 aimed to create a system of
ceaseless discourse on, and great disparity in, the owner-cultivatorship in rice and corn, supposedly to be
distribution of land among the people, "dramatizing the accomplished by expropriating lands in excess of 75
increasingly urgent demand of the dispossessed x x x for hectares for their eventual resale to tenants. The law,
a plot of earth as their place in the sun."2 As however, had this restricting feature: its operations were
administrations and political alignments change, policies confined mainly to areas in Central Luzon, and its
implementation at any level of intensity limited to the pilot regardless of tenurial arrangement and commodity
project in Nueva Ecija.8 produced, as provided in the Constitution.
Subsequently, Congress passed the Code of Agrarian On July 22, 1987, Executive Order No. 229 (EO 229) was
Reform (RA 6389) declaring the entire country a land issued providing, as its title14 indicates, the mechanisms
reform area, and providing for the automatic conversion for CARP implementation. It created the Presidential
of tenancy to leasehold tenancy in all areas. From 75 Agrarian Reform Council (PARC) as the highest policy-
hectares, the retention limit was cut down to seven making body that formulates all policies, rules, and
hectares.9 regulations necessary for the implementation of CARP.
Barely a month after declaring martial law in September On June 15, 1988, RA 6657 or the Comprehensive
1972, then President Ferdinand Marcos issued Agrarian Reform Law of 1988, also known as CARL or
Presidential Decree No. 27 (PD 27) for the "emancipation the CARP Law, took effect, ushering in a new process of
of the tiller from the bondage of the soil."10 Based on this land classification, acquisition, and distribution. As to be
issuance, tenant-farmers, depending on the size of the expected, RA 6657 met stiff opposition, its validity or
landholding worked on, can either purchase the land they some of its provisions challenged at every possible
tilled or shift from share to fixed-rent leasehold turn. Association of Small Landowners in the Philippines,
tenancy.11 While touted as "revolutionary," the scope of Inc. v. Secretary of Agrarian Reform 15 stated the
the agrarian reform program PD 27 enunciated covered observation that the assault was inevitable, the CARP
only tenanted, privately-owned rice and corn lands.12 being an untried and untested project, "an experiment
[even], as all life is an experiment," the Court said,
Then came the revolutionary government of then borrowing from Justice Holmes.
President Corazon C. Aquino and the drafting and
eventual ratification of the 1987 Constitution. Its The Case
provisions foreshadowed the establishment of a legal
framework for the formulation of an expansive approach In this Petition for Certiorari and Prohibition under Rule
to land reform, affecting all agricultural lands and 65 with prayer for preliminary injunctive relief, petitioner
covering both tenant-farmers and regular farmworkers.13 Hacienda Luisita, Inc. (HLI) assails and seeks to set
aside PARC Resolution No. 2005-32-0116 and Resolution
So it was that Proclamation No. 131, Series of 1987, was No. 2006-34-0117 issued on December 22, 2005 and May
issued instituting a comprehensive agrarian reform 3, 2006, respectively, as well as the implementing Notice
program (CARP) to cover all agricultural lands, of Coverage dated January 2, 2006 (Notice of
Coverage).18
The Facts As of March 31, 1958, Tadeco had fully paid the
purchase price for the acquisition of Hacienda Luisita and
At the core of the case is Hacienda Luisita de Tarlac Tabacalera’s interest in CAT.22
(Hacienda Luisita), once a 6,443-hectare mixed
agricultural-industrial-residential expanse straddling The details of the events that happened next involving
several municipalities of Tarlac and owned by Compañia the hacienda and the political color some of the parties
General de Tabacos de Filipinas (Tabacalera). In 1957, embossed are of minimal significance to this narration
the Spanish owners of Tabacalera offered to sell and need no belaboring. Suffice it to state that on May 7,
Hacienda Luisita as well as their controlling interest in the 1980, the martial law administration filed a suit before the
sugar mill within the hacienda, the Central Azucarera de Manila Regional Trial Court (RTC) against Tadeco, et al.,
Tarlac (CAT), as an indivisible transaction. The Tarlac for them to surrender Hacienda Luisita to the then
Development Corporation (Tadeco), then owned and/or Ministry of Agrarian Reform (MAR, now the Department
controlled by the Jose Cojuangco, Sr. Group, was willing of Agrarian Reform [DAR]) so that the land can be
to buy. As agreed upon, Tadeco undertook to pay the distributed to farmers at cost. Responding, Tadeco or its
purchase price for Hacienda Luisita in pesos, while that owners alleged that Hacienda Luisita does not have
for the controlling interest in CAT, in US dollars.19 tenants, besides which sugar lands––of which the
hacienda consisted––are not covered by existing
To facilitate the adverted sale-and-purchase package, the agrarian reform legislations. As perceived then, the
Philippine government, through the then Central Bank of government commenced the case against Tadeco as a
the Philippines, assisted the buyer to obtain a dollar loan political message to the family of the late Benigno
from a US bank.20 Also, the Government Service Aquino, Jr.23
Insurance System (GSIS) Board of Trustees extended on
November 27, 1957 a PhP 5.911 million loan in favor of Eventually, the Manila RTC rendered judgment ordering
Tadeco to pay the peso price component of the sale. One Tadeco to surrender Hacienda Luisita to the MAR.
of the conditions contained in the approving GSIS Therefrom, Tadeco appealed to the Court of Appeals
Resolution No. 3203, as later amended by Resolution No. (CA).
356, Series of 1958, reads as follows:
On March 17, 1988, the Office of the Solicitor General
That the lots comprising the Hacienda Luisita shall be (OSG) moved to withdraw the government’s case against
subdivided by the applicant-corporation and sold at cost Tadeco, et al. By Resolution of May 18, 1988, the CA
to the tenants, should there be any, and whenever dismissed the case the Marcos government initially
conditions should exist warranting such action under the instituted and won against Tadeco, et al. The dismissal
provisions of the Land Tenure Act;21 action was, however, made subject to the obtention by
Tadeco of the PARC’s approval of a stock distribution Like EO 229, RA 6657, under the latter’s Sec. 31, also
plan (SDP) that must initially be implemented after such provides two (2) alternative modalities, i.e., land or stock
approval shall have been secured.24 The appellate court transfer, pursuant to either of which the corporate
wrote: landowner can comply with CARP, but subject to well-
defined conditions and timeline requirements. Sec. 31 of
The defendants-appellants x x x filed a motion on April RA 6657 provides:
13, 1988 joining the x x x governmental agencies
concerned in moving for the dismissal of the case SEC. 31. Corporate Landowners.¾Corporate landowners
subject, however, to the following conditions embodied in may voluntarily transfer ownership over their agricultural
the letter dated April 8, 1988 (Annex 2) of the Secretary landholdings to the Republic of the Philippines pursuant
of the [DAR] quoted, as follows: to Section 20 hereof or to qualified beneficiaries x x x.
1. Should TADECO fail to obtain approval of the stock Upon certification by the DAR, corporations owning
distribution plan for failure to comply with all the agricultural lands may give their qualified beneficiaries
requirements for corporate landowners set forth in the the right to purchase such proportion of the capital
guidelines issued by the [PARC]: or
stock of the corporation that the agricultural land,
actually devoted to agricultural activities, bears in
2. If such stock distribution plan is approved by PARC, but
TADECO fails to initially implement it. relation to the company’s total assets, under such
terms and conditions as may be agreed upon by them. In
xxxx no case shall the compensation received by the workers
at the time the shares of stocks are distributed be
WHEREFORE, the present case on appeal is hereby reduced. x x x
dismissed without prejudice, and should be revived if any
of the conditions as above set forth is not duly complied Corporations or associations which voluntarily divest a
with by the TADECO.25 proportion of their capital stock, equity or participation in
favor of their workers or other qualified beneficiaries
Markedly, Section 10 of EO 22926 allows corporate under this section shall be deemed to have complied with
landowners, as an alternative to the actual land transfer the provisions of this Act: Provided, That the following
scheme of CARP, to give qualified beneficiaries the right conditions are complied with:
to purchase shares of stocks of the corporation under a
stock ownership arrangement and/or land-to-share ratio. (a) In order to safeguard the right of beneficiaries who
own shares of stocks to dividends and other financial
benefits, the books of the corporation or association shall
be subject to periodic audit by certified public accountants organized a spin-off corporation, HLI, as vehicle to
chosen by the beneficiaries; facilitate stock acquisition by the farmworkers. For this
purpose, Tadeco assigned and conveyed to HLI the
(b) Irrespective of the value of their equity in the agricultural land portion (4,915.75 hectares) and other
corporation or association, the beneficiaries shall be
farm-related properties of Hacienda Luisita in exchange
assured of at least one (1) representative in the board of
directors, or in a management or executive committee, if for HLI shares of stock.29
one exists, of the corporation or association;
Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa,
(c) Any shares acquired by such workers and Jose Cojuangco, Jr., and Paz C. Teopaco were the
beneficiaries shall have the same rights and features as incorporators of HLI.30
all other shares; and
To accommodate the assets transfer from Tadeco to HLI,
(d) Any transfer of shares of stocks by the original the latter, with the Securities and Exchange
beneficiaries shall be void ab initio unless said transaction
Commission’s (SEC’s) approval, increased its capital
is in favor of a qualified and registered beneficiary within
the same corporation. stock on May 10, 1989 from PhP 1,500,000 divided into
1,500,000 shares with a par value of PhP 1/share to PhP
If within two (2) years from the approval of this Act, the 400,000,000 divided into 400,000,000 shares also with
[voluntary] land or stock transfer envisioned above is not par value of PhP 1/share, 150,000,000 of which were to
made or realized or the plan for such stock distribution be issued only to qualified and registered beneficiaries of
approved by the PARC within the same period, the the CARP, and the remaining 250,000,000 to any
agricultural land of the corporate owners or corporation stockholder of the corporation.31
shall be subject to the compulsory coverage of this Act.
(Emphasis added.) As appearing in its proposed SDP, the properties and
assets of Tadeco contributed to the capital stock of HLI,
Vis-à-vis the stock distribution aspect of the aforequoted as appraised and approved by the SEC, have an
Sec. 31, DAR issued Administrative Order No. 10, Series aggregate value of PhP 590,554,220, or after deducting
of 1988 (DAO 10),27 entitled Guidelines and Procedures the total liabilities of the farm amounting to PhP
for Corporate Landowners Desiring to Avail Themselves 235,422,758, a net value of PhP 355,531,462. This
of the Stock Distribution Plan under Section 31 of RA translated to 355,531,462 shares with a par value of PhP
6657. 1/share.32
From the start, the stock distribution scheme appeared to On May 9, 1989, some 93% of the then farmworker-
be Tadeco’s preferred option, for, on August 23, 1988,28 it beneficiaries (FWBs) complement of Hacienda Luisita
signified in a referendum their acceptance of the the FIRST PARTY, until such time as the entire block of
proposed HLI’s Stock Distribution Option Plan. On May 118,391,976.85 shares shall have been completely
11, 1989, the Stock Distribution Option Agreement acquired and distributed to the THIRD PARTY.
(SDOA), styled as a Memorandum of Agreement
4.The SECOND PARTY shall guarantee to the qualified
(MOA),33 was entered into by Tadeco, HLI, and the 5,848 beneficiaries of the [SDP] that every year they will receive
qualified FWBs34 and attested to by then DAR Secretary on top of their regular compensation, an amount that
Philip Juico. The SDOA embodied the basis and approximates the equivalent of three (3%) of the total
mechanics of the SDP, which would eventually be gross sales from the production of the agricultural land,
submitted to the PARC for approval. In the SDOA, the whether it be in the form of cash dividends or incentive
parties agreed to the following: bonuses or both.
1. The percentage of the value of the agricultural land of 5. Even if only a part or fraction of the shares earmarked
Hacienda Luisita (P196,630,000.00) in relation to the total for distribution will have been acquired from the FIRST
assets (P590,554,220.00) transferred and conveyed to PARTY and distributed to the THIRD PARTY, FIRST
the SECOND PARTY [HLI] is 33.296% that, under the PARTY shall execute at the beginning of each fiscal year
law, is the proportion of the outstanding capital stock of an irrevocable proxy, valid and effective for one (1) year,
the SECOND PARTY, which is P355,531,462.00 or in favor of the farmworkers appearing as shareholders of
355,531,462 shares with a par value of P1.00 per share, the SECOND PARTY at the start of said year which will
that has to be distributed to the THIRD PARTY [FWBs] empower the THIRD PARTY or their representative to
under the stock distribution plan, the said 33.296% vote in stockholders’ and board of directors’ meetings of
thereof being P118,391,976.85 or 118,391,976.85 the SECOND PARTY convened during the year the entire
shares. 33.296% of the outstanding capital stock of the SECOND
PARTY earmarked for distribution and thus be able to
2. The qualified beneficiaries of the stock distribution plan gain such number of seats in the board of directors of the
shall be the farmworkers who appear in the annual SECOND PARTY that the whole 33.296% of the shares
payroll, inclusive of the permanent and seasonal subject to distribution will be entitled to.
employees, who are regularly or periodically employed by
the SECOND PARTY. 6. In addition, the SECOND PARTY shall within a
reasonable time subdivide and allocate for free and
3. At the end of each fiscal year, for a period of 30 years, without charge among the qualified family-beneficiaries
the SECOND PARTY shall arrange with the FIRST residing in the place where the agricultural land is
PARTY [Tadeco] the acquisition and distribution to the situated, residential or homelots of not more than 240
THIRD PARTY on the basis of number of days worked sq.m. each, with each family-beneficiary being assured of
and at no cost to them of one-thirtieth (1/30) of receiving and owning a homelot in the barangay where it
actually resides on the date of the execution of this
118,391,976.85 shares of the capital stock of the
Agreement.
SECOND PARTY that are presently owned and held by
7. This Agreement is entered into by the parties in the Notably, in a follow-up referendum the DAR conducted
spirit of the (C.A.R.P.) of the government and with the on October 14, 1989, 5,117 FWBs, out of 5,315 who
supervision of the [DAR], with the end in view of participated, opted to receive shares in HLI.36 One
improving the lot of the qualified beneficiaries of the [SDP]
hundred thirty-two (132) chose actual land distribution.37
and obtaining for them greater benefits. (Emphasis
added.)
After a review of the SDP, then DAR Secretary Miriam
As may be gleaned from the SDOA, included as part of Defensor-Santiago (Sec. Defensor-Santiago) addressed
the distribution plan are: (a) production-sharing a letter dated November 6, 198938 to Pedro S. Cojuangco
equivalent to three percent (3%) of gross sales from the (Cojuangco), then Tadeco president, proposing that the
production of the agricultural land payable to the FWBs in SDP be revised, along the following lines:
cash dividends or incentive bonus; and (b) distribution of
free homelots of not more than 240 square meters each 1. That over the implementation period of the [SDP],
[Tadeco]/HLI shall ensure that there will be no dilution in
to family-beneficiaries. The production-sharing, as the the shares of stocks of individual [FWBs];
SDP indicated, is payable "irrespective of whether [HLI]
makes money or not," implying that the benefits do not 2. That a safeguard shall be provided by [Tadeco]/HLI
partake the nature of dividends, as the term is ordinarily against the dilution of the percentage shareholdings of the
understood under corporation law. [FWBs], i.e., that the 33% shareholdings of the [FWBs]
will be maintained at any given time;
While a little bit hard to follow, given that, during the
period material, the assigned value of the agricultural 3. That the mechanics for distributing the stocks be
land in the hacienda was PhP 196.63 million, while the explicitly stated in the [MOA] signed between the
total assets of HLI was PhP 590.55 million with net [Tadeco], HLI and its [FWBs] prior to the implementation
of the stock plan;
assets of PhP 355.53 million, Tadeco/HLI would admit
that the ratio of the land-to-shares of stock corresponds 4. That the stock distribution plan provide for clear and
to 33.3% of the outstanding capital stock of the HLI definite terms for determining the actual number of seats
equivalent to 118,391,976.85 shares of stock with a par to be allocated for the [FWBs] in the HLI Board;
value of PhP 1/share.
5. That HLI provide guidelines and a timetable for the
Subsequently, HLI submitted to DAR its SDP, designated distribution of homelots to qualified [FWBs]; and
as "Proposal for Stock Distribution under
C.A.R.P.,"35 which was substantially based on the SDOA. 6. That the 3% cash dividends mentioned in the [SDP] be
expressly provided for [in] the MOA.
In a letter-reply of November 14, 1989 to Sec. Defensor- (g) Social service benefits, such as but not limited to free
Santiago, Tadeco/HLI explained that the proposed hospitalization/medical/maternity services, old age/death
revisions of the SDP are already embodied in both the benefits and no interest bearing salary/educational loans
and rice sugar accounts. 42
SDP and MOA.39 Following that exchange, the PARC,
under then Sec. Defensor-Santiago, by Resolution No.
Two separate groups subsequently contested this claim
89-12-240 dated November 21, 1989, approved the SDP
of HLI.
of Tadeco/HLI.41
On August 15, 1995, HLI applied for the conversion of
At the time of the SDP approval, HLI had a pool of
500 hectares of land of the hacienda from agricultural to
farmworkers, numbering 6,296, more or less, composed
industrial use,43 pursuant to Sec. 65 of RA 6657,
of permanent, seasonal and casual master list/payroll
providing:
and non-master list members.
SEC. 65. Conversion of Lands.¾After the lapse of five (5)
From 1989 to 2005, HLI claimed to have extended the
years from its award, when the land ceases to be
following benefits to the FWBs: economically feasible and sound for agricultural
purposes, or the locality has become urbanized and the
(a) 3 billion pesos (P3,000,000,000) worth of salaries,
wages and fringe benefits land will have a greater economic value for residential,
commercial or industrial purposes, the DAR, upon
(b) 59 million shares of stock distributed for free to the application of the beneficiary or the landowner, with due
FWBs; notice to the affected parties, and subject to existing
laws, may authorize the reclassification, or conversion of
(c) 150 million pesos (P150,000,000) representing 3% of the land and its disposition: Provided, That the
the gross produce; beneficiary shall have fully paid its obligation.
(d) 37.5 million pesos (P37,500,000) representing 3% The application, according to HLI, had the backing of
from the sale of 500 hectares of converted agricultural 5,000 or so FWBs, including respondent Rene Galang,
land of Hacienda Luisita;
and Jose Julio Suniga, as evidenced by the Manifesto of
(e) 240-square meter homelots distributed for free; Support they signed and which was submitted to the
DAR.44 After the usual processing, the DAR, thru then
(f) 2.4 million pesos (P2,400,000) representing 3% from Sec. Ernesto Garilao, approved the application on August
the sale of 80 hectares at 80 million pesos (P80,000,000) 14, 1996, per DAR Conversion Order No. 030601074-
for the SCTEX; 764-(95), Series of 1996,45 subject to payment of three
percent (3%) of the gross selling price to the FWBs and
to HLI’s continued compliance with its undertakings under four hectares, respectively. TCT No. 310986 was,
the SDP, among other conditions. accordingly, partially canceled.
On December 13, 1996, HLI, in exchange for subscription Later on, in a Deed of Absolute Assignment dated
of 12,000,000 shares of stocks of Centennary Holdings, November 25, 2004, LIPCO transferred the parcels
Inc. (Centennary), ceded 300 hectares of the converted covered by its TCT Nos. 365800 and 365801 to the Rizal
area to the latter.46Consequently, HLI’s Transfer Commercial Banking Corporation (RCBC) by way
Certificate of Title (TCT) No. 28791047 was canceled and of dacion en pago in payment of LIPCO’s PhP
TCT No. 29209148 was issued in the name of Centennary. 431,695,732.10 loan obligations. LIPCO’s titles were
HLI transferred the remaining 200 hectares covered by canceled and new ones, TCT Nos. 391051 and 391052,
TCT No. 287909 to Luisita Realty Corporation (LRC)49 in were issued to RCBC.
two separate transactions in 1997 and 1998, both
uniformly involving 100 hectares for PhP 250 million Apart from the 500 hectares alluded to, another 80.51
each.50 hectares were later detached from the area coverage of
Hacienda Luisita which had been acquired by the
Centennary, a corporation with an authorized capital government as part of the Subic-Clark-Tarlac
stock of PhP 12,100,000 divided into 12,100,000 shares Expressway (SCTEX) complex. In absolute terms,
and wholly-owned by HLI, had the following 4,335.75 hectares remained of the original 4,915
incorporators: Pedro Cojuangco, Josephine C. Reyes, hectares Tadeco ceded to HLI.56
Teresita C. Lopa, Ernesto G. Teopaco, and Bernardo R.
Lahoz. Such, in short, was the state of things when two separate
petitions, both undated, reached the DAR in the latter
Subsequently, Centennary sold51 the entire 300 hectares part of 2003. In the first, denominated as
to Luisita Industrial Park Corporation (LIPCO) for PhP Petition/Protest,57 respondents Jose Julio Suniga and
750 million. The latter acquired it for the purpose of Windsor Andaya, identifying themselves as head of the
developing an industrial complex.52 As a result, Supervisory Group of HLI (Supervisory Group), and 60
Centennary’s TCT No. 292091 was canceled to be other supervisors sought to revoke the SDOA, alleging
replaced by TCT No. 31098653 in the name of LIPCO. that HLI had failed to give them their dividends and the
one percent (1%) share in gross sales, as well as the
From the area covered by TCT No. 310986 was carved thirty-three percent (33%) share in the proceeds of the
out two (2) parcels, for which two (2) separate titles were sale of the converted 500 hectares of land. They further
issued in the name of LIPCO, specifically: (a) TCT No. claimed that their lives have not improved contrary to the
36580054 and (b) TCT No. 365801,55 covering 180 and promise and rationale for the adoption of the SDOA. They
also cited violations by HLI of the SDOA’s terms.58 They After investigation and evaluation, the Special Task Force
prayed for a renegotiation of the SDOA, or, in the submitted its "Terminal Report: Hacienda Luisita,
alternative, its revocation. Incorporated (HLI) Stock Distribution Plan (SDP)
Conflict"64 dated September 22, 2005 (Terminal Report),
Revocation and nullification of the SDOA and the finding that HLI has not complied with its obligations
distribution of the lands in the hacienda were the call in under RA 6657 despite the implementation of the
the second petition, styled as Petisyon (Petition).59 The SDP.65 The Terminal Report and the Special Task Force’s
Petisyon was ostensibly filed on December 4, 2003 by recommendations were adopted by then DAR Sec.
Alyansa ng mga Manggagawang Bukid ng Hacienda Nasser Pangandaman (Sec. Pangandaman).66
Luisita (AMBALA), where the handwritten name of
respondents Rene Galang as "Pangulo AMBALA" and Subsequently, Sec. Pangandaman recommended to the
Noel Mallari as "Sec-Gen. AMBALA"60 appeared. As PARC Executive Committee (Excom) (a) the
alleged, the petition was filed on behalf of AMBALA’s recall/revocation of PARC Resolution No. 89-12-2 dated
members purportedly composing about 80% of the 5,339 November 21, 1989 approving HLI’s SDP; and (b) the
FWBs of Hacienda Luisita. acquisition of Hacienda Luisita through the compulsory
acquisition scheme. Following review, the PARC
HLI would eventually answer61 the petition/protest of the Validation Committee favorably endorsed the DAR
Supervisory Group. On the other hand, HLI’s answer62 to Secretary’s recommendation afore-stated.67
the AMBALA petition was contained in its letter dated
January 21, 2005 also filed with DAR. On December 22, 2005, the PARC issued the assailed
Resolution No. 2005-32-01, disposing as follows:
Meanwhile, the DAR constituted a Special Task Force to
attend to issues relating to the SDP of HLI. Among other NOW, THEREFORE, on motion duly seconded,
duties, the Special Task Force was mandated to review RESOLVED, as it is HEREBY RESOLVED, to approve
the terms and conditions of the SDOA and PARC and confirm the recommendation of the PARC Executive
Resolution No. 89-12-2 relative to HLI’s SDP; evaluate Committee adopting in toto the report of the PARC
HLI’s compliance reports; evaluate the merits of the ExCom Validation Committee affirming the
petitions for the revocation of the SDP; conduct ocular recommendation of the DAR to recall/revoke the SDO
inspections or field investigations; and recommend plan of Tarlac Development Corporation/Hacienda Luisita
appropriate remedial measures for approval of the Incorporated.
Secretary.63
RESOLVED, further, that the lands subject of the
recalled/revoked TDC/HLI SDO plan be forthwith placed
under the compulsory coverage or mandated land On July 13, 2006, the OSG, for public respondents PARC
acquisition scheme of the [CARP]. and the DAR, filed its Comment76 on the petition.
Supervisory Group, AMBALA and their The same holds true with respect to the Supervisory
respective leaders are real parties-in-interest Group whose members were admittedly employed by HLI
and whose names and signatures even appeared in the
HLI would deny real party-in-interest status to the annex of the SDOA. Being qualified beneficiaries of the
purported leaders of the Supervisory Group and SDP, Suniga and the other 61 supervisors are certainly
AMBALA, i.e., Julio Suniga, Windsor Andaya, and Rene parties who would benefit or be prejudiced by the
Galang, who filed the revocatory petitions before the judgment recalling the SDP or replacing it with some
DAR. As HLI would have it, Galang, the self-styled head other modality to comply with RA 6657.
of AMBALA, gained HLI employment in June 1990 and,
thus, could not have been a party to the SDOA executed Even assuming that members of the Supervisory Group
a year earlier.85 As regards the Supervisory Group, HLI are not regular farmworkers, but are in the category of
alleges that supervisors are not regular farmworkers, but "other farmworkers" mentioned in Sec. 4, Article XIII of
the company nonetheless considered them FWBs under the Constitution,89 thus only entitled to a share of the fruits
the SDOA as a mere concession to enable them to enjoy of the land, as indeed Fortich teaches, this does not
the same benefits given qualified regular farmworkers. detract from the fact that they are still identified as being
However, if the SDOA would be canceled and land among the "SDP qualified beneficiaries." As such, they
distribution effected, so HLI claims, citing Fortich v. are, thus, entitled to bring an action upon the SDP.90 At
Corona,86 the supervisors would be excluded from any rate, the following admission made by Atty. Gener
receiving lands as farmworkers other than the regular Asuncion, counsel of HLI, during the oral arguments
farmworkers who are merely entitled to the "fruits of the should put to rest any lingering doubt as to the status of
land."87 protesters Galang, Suniga, and Andaya:
The SDOA no less identifies "the SDP qualified Justice Bersamin: x x x I heard you a while ago that you
beneficiaries" as "the farmworkers who appear in the were conceding the qualified farmer beneficiaries of
annual payroll, inclusive of the permanent and seasonal Hacienda Luisita were real parties in interest?
employees, who are regularly or periodically employed by
Atty. Asuncion: Yes, Your Honor please, real party in authorization document, which would logically include a
interest which that question refers to the complaints of list of the names of the authorizing FWBs, has yet to be
protest initiated before the DAR and the real party in submitted to be part of the records.
interest there be considered as possessed by the farmer
beneficiaries who initiated the protest.91 PARC’s Authority to Revoke a Stock Distribution Plan
Further, under Sec. 50, paragraph 4 of RA 6657, farmer- On the postulate that the subject jurisdiction is conferred
leaders are expressly allowed to represent themselves, by law, HLI maintains that PARC is without authority to
their fellow farmers or their organizations in any revoke an SDP, for neither RA 6657 nor EO 229
proceedings before the DAR. Specifically: expressly vests PARC with such authority. While, as HLI
argued, EO 229 empowers PARC to approve the plan for
SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x stock distribution in appropriate cases, the empowerment
only includes the power to disapprove, but not to recall its
xxxx previous approval of the SDP after it has been
implemented by the parties.93 To HLI, it is the court which
Responsible farmer leaders shall be allowed to has jurisdiction and authority to order the revocation or
represent themselves, their fellow farmers or their rescission of the PARC-approved SDP.
organizations in any proceedings before the DAR:
Provided, however, that when there are two or more We disagree.
representatives for any individual or group, the
representatives should choose only one among Under Sec. 31 of RA 6657, as implemented by DAO 10,
themselves to represent such party or group before any the authority to approve the plan for stock distribution of
DAR proceedings. (Emphasis supplied.) the corporate landowner belongs to PARC. However,
contrary to petitioner HLI’s posture, PARC also has the
Clearly, the respective leaders of the Supervisory Group power to revoke the SDP which it previously approved. It
and AMBALA are contextually real parties-in-interest may be, as urged, that RA 6657 or other executive
allowed by law to file a petition before the DAR or PARC. issuances on agrarian reform do not explicitly vest the
PARC with the power to revoke/recall an approved SDP.
This is not necessarily to say, however, that Galang Such power or authority, however, is deemed possessed
represents AMBALA, for as records show and as HLI by PARC under the principle of necessary implication, a
aptly noted,92 his "petisyon" filed with DAR did not carry basic postulate that what is implied in a statute is as
the usual authorization of the individuals in whose behalf much a part of it as that which is expressed.94
it was supposed to have been instituted. To date, such
We have explained that "every statute is understood, by As public respondents aptly observe, to deny PARC such
implication, to contain all such provisions as may be revocatory power would reduce it into a toothless agency
necessary to effectuate its object and purpose, or to of CARP, because the very same agency tasked to
make effective rights, powers, privileges or jurisdiction ensure compliance by the corporate landowner with the
which it grants, including all such collateral and approved SDP would be without authority to impose
subsidiary consequences as may be fairly and logically sanctions for non-compliance with it.98 With the view We
inferred from its terms."95 Further, "every statutory grant take of the case, only PARC can effect such revocation.
of power, right or privilege is deemed to include all The DAR Secretary, by his own authority as such, cannot
incidental power, right or privilege.96 plausibly do so, as the acceptance and/or approval of the
SDP sought to be taken back or undone is the act of
Gordon v. Veridiano II is instructive: PARC whose official composition includes, no less, the
President as chair, the DAR Secretary as vice-chair, and
The power to approve a license includes by implication, at least eleven (11) other department heads.99
even if not expressly granted, the power to revoke it. By
extension, the power to revoke is limited by the authority On another but related issue, the HLI foists on the Court
to grant the license, from which it is derived in the first the argument that subjecting its landholdings to
place. Thus, if the FDA grants a license upon its finding compulsory distribution after its approved SDP has been
that the applicant drug store has complied with the implemented would impair the contractual obligations
requirements of the general laws and the implementing created under the SDOA.
administrative rules and regulations, it is only for their
violation that the FDA may revoke the said license. By The broad sweep of HLI’s argument ignores certain
the same token, having granted the permit upon his established legal precepts and must, therefore, be
ascertainment that the conditions thereof as applied x x x rejected.
have been complied with, it is only for the violation of
such conditions that the mayor may revoke the said A law authorizing interference, when appropriate, in the
permit.97 (Emphasis supplied.) contractual relations between or among parties is
deemed read into the contract and its implementation
Following the doctrine of necessary implication, it may be cannot successfully be resisted by force of the non-
stated that the conferment of express power to approve a impairment guarantee. There is, in that instance, no
plan for stock distribution of the agricultural land of impingement of the impairment clause, the non-
corporate owners necessarily includes the power to impairment protection being applicable only to laws that
revoke or recall the approval of the plan. derogate prior acts or contracts by enlarging, abridging or
in any manner changing the intention of the parties.
Impairment, in fine, obtains if a subsequent law changes SDOA is a special contract imbued with public interest,
the terms of a contract between the parties, imposes new entered into and crafted pursuant to the provisions of RA
conditions, dispenses with those agreed upon or 6657. It embodies the SDP, which requires for its validity,
withdraws existing remedies for the enforcement of the or at least its enforceability, PARC’s approval. And the
rights of the parties.100 Necessarily, the constitutional fact that the certificate of compliance103––to be issued by
proscription would not apply to laws already in effect at agrarian authorities upon completion of the distribution of
the time of contract execution, as in the case of RA 6657, stocks––is revocable by the same issuing authority
in relation to DAO 10, vis-à-vis HLI’s SDOA. As held in supports the idea that everything about the
Serrano v. Gallant Maritime Services, Inc.: implementation of the SDP is, at the first instance,
subject to administrative adjudication.
The prohibition [against impairment of the obligation of
contracts] is aligned with the general principle that laws HLI also parlays the notion that the parties to the SDOA
newly enacted have only a prospective operation, and should now look to the Corporation Code, instead of to
cannot affect acts or contracts already perfected; RA 6657, in determining their rights, obligations and
however, as to laws already in existence, their provisions remedies. The Code, it adds, should be the applicable
are read into contracts and deemed a part thereof. Thus, law on the disposition of the agricultural land of HLI.
the non-impairment clause under Section 10, Article II [of
the Constitution] is limited in application to laws about to Contrary to the view of HLI, the rights, obligations and
be enacted that would in any way derogate from existing remedies of the parties to the SDOA embodying the SDP
acts or contracts by enlarging, abridging or in any manner are primarily governed by RA 6657. It should abundantly
changing the intention of the parties thereto.101 (Emphasis be made clear that HLI was precisely created in order to
supplied.) comply with RA 6657, which the OSG aptly described as
the "mother law" of the SDOA and the SDP.104 It is, thus,
Needless to stress, the assailed Resolution No. 2005-32- paradoxical for HLI to shield itself from the coverage of
01 is not the kind of issuance within the ambit of Sec. 10, CARP by invoking exclusive applicability of the
Art. III of the Constitution providing that "[n]o law Corporation Code under the guise of being a corporate
impairing the obligation of contracts shall be passed." entity.
Parenthetically, HLI tags the SDOA as an ordinary civil Without in any way minimizing the relevance of the
law contract and, as such, a breach of its terms and Corporation Code since the FWBs of HLI are also
conditions is not a PARC administrative matter, but one stockholders, its applicability is limited as the rights of the
that gives rise to a cause of action cognizable by regular parties arising from the SDP should not be made to
courts.102 This contention has little to commend itself. The supplant or circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law the value of the agricultural land of Hacienda Luisita in
providing for the formation, organization and regulation of relation to the total assets transferred and conveyed by
private corporations. On the other hand, RA 6657 is the Tadeco to HLI comprises only 33.296%, following this
special law on agrarian reform. As between a general equation: value of the agricultural lands divided by total
and special law, the latter shall prevail—generalia corporate assets. By no stretch of imagination would said
specialibus non derogant.105Besides, the present impasse percentage amount to a disposition of all or practically all
between HLI and the private respondents is not an intra- of HLI’s corporate assets should compulsory land
corporate dispute which necessitates the application of acquisition and distribution ensue.
the Corporation Code. What private respondents
questioned before the DAR is the proper implementation This brings us to the validity of the revocation of the
of the SDP and HLI’s compliance with RA 6657. approval of the SDP sixteen (16) years after its execution
Evidently, RA 6657 should be the applicable law to the pursuant to Sec. 31 of RA 6657 for the reasons set forth
instant case. in the Terminal Report of the Special Task Force, as
endorsed by PARC Excom. But first, the matter of the
HLI further contends that the inclusion of the agricultural constitutionality of said section.
land of Hacienda Luisita under the coverage of CARP
and the eventual distribution of the land to the FWBs Constitutional Issue
would amount to a disposition of all or practically all of the
corporate assets of HLI. HLI would add that this FARM asks for the invalidation of Sec. 31 of RA 6657,
contingency, if ever it comes to pass, requires the insofar as it affords the corporation, as a mode of CARP
applicability of the Corporation Code provisions on compliance, to resort to stock distribution, an
corporate dissolution. arrangement which, to FARM, impairs the fundamental
right of farmers and farmworkers under Sec. 4, Art. XIII of
We are not persuaded. the Constitution.106
Indeed, the provisions of the Corporation Code on To a more specific, but direct point, FARM argues that
corporate dissolution would apply insofar as the winding Sec. 31 of RA 6657 permits stock transfer in lieu of
up of HLI’s affairs or liquidation of the assets is outright agricultural land transfer; in fine, there is stock
concerned. However, the mere inclusion of the certificate ownership of the farmers or farmworkers
agricultural land of Hacienda Luisita under the coverage instead of them owning the land, as envisaged in the
of CARP and the land’s eventual distribution to the FWBs Constitution. For FARM, this modality of distribution is an
will not, without more, automatically trigger the dissolution anomaly to be annulled for being inconsistent with the
of HLI. As stated in the SDOA itself, the percentage of
basic concept of agrarian reform ingrained in Sec. 4, Art. farmers, has yet to explain its failure to challenge the
XIII of the Constitution.107 constitutionality of Sec. 3l of RA 6657, since as early as
November 21, l989 when PARC approved the SDP of
Reacting, HLI insists that agrarian reform is not only Hacienda Luisita or at least within a reasonable time
about transfer of land ownership to farmers and other thereafter and why its members received benefits from
qualified beneficiaries. It draws attention in this regard to the SDP without so much of a protest. It was only on
Sec. 3(a) of RA 6657 on the concept and scope of the December 4, 2003 or 14 years after approval of the SDP
term "agrarian reform." The constitutionality of a law, via PARC Resolution No. 89-12-2 dated November 21,
HLI added, cannot, as here, be attacked collaterally. 1989 that said plan and approving resolution were sought
to be revoked, but not, to stress, by FARM or any of its
The instant challenge on the constitutionality of Sec. 31 members, but by petitioner AMBALA. Furthermore, the
of RA 6657 and necessarily its counterpart provision in AMBALA petition did NOT question the constitutionality of
EO 229 must fail as explained below. Sec. 31 of RA 6657, but concentrated on the purported
flaws and gaps in the subsequent implementation of the
When the Court is called upon to exercise its power of SDP. Even the public respondents, as represented by the
judicial review over, and pass upon the constitutionality Solicitor General, did not question the constitutionality of
of, acts of the executive or legislative departments, it the provision. On the other hand, FARM, whose 27
does so only when the following essential requirements members formerly belonged to AMBALA, raised the
are first met, to wit: constitutionality of Sec. 31 only on May 3, 2007 when it
filed its Supplemental Comment with the Court. Thus, it
(1) there is an actual case or controversy; took FARM some eighteen (18) years from November 21,
1989 before it challenged the constitutionality of Sec. 31
(2) that the constitutional question is raised at the earliest of RA 6657 which is quite too late in the day. The FARM
possible opportunity by a proper party or one with locus members slept on their rights and even accepted benefits
standi; and from the SDP with nary a complaint on the alleged
unconstitutionality of Sec. 31 upon which the benefits
(3) the issue of constitutionality must be the very lis mota
of the case.108 were derived. The Court cannot now be goaded into
resolving a constitutional issue that FARM failed to assail
Not all the foregoing requirements are satisfied in the after the lapse of a long period of time and the
case at bar. occurrence of numerous events and activities which
resulted from the application of an alleged
While there is indeed an actual case or controversy, unconstitutional legal provision.
intervenor FARM, composed of a small minority of 27
It has been emphasized in a number of cases that the breach of the Constitution, and not one that is doubtful,
question of constitutionality will not be passed upon by speculative, or argumentative.112(Italics in the original.)
the Court unless it is properly raised and presented in an
appropriate case at the first opportunity.109 FARM is, The lis mota in this case, proceeding from the basic
therefore, remiss in belatedly questioning the positions originally taken by AMBALA (to which the
constitutionality of Sec. 31 of RA 6657. The second FARM members previously belonged) and the
requirement that the constitutional question should be Supervisory Group, is the alleged non-compliance by HLI
raised at the earliest possible opportunity is clearly with the conditions of the SDP to support a plea for its
wanting. revocation. And before the Court, the lis mota is whether
or not PARC acted in grave abuse of discretion when it
The last but the most important requisite that the ordered the recall of the SDP for such non-compliance
constitutional issue must be the very lis mota of the case and the fact that the SDP, as couched and implemented,
does not likewise obtain. The lis mota aspect is not offends certain constitutional and statutory provisions. To
present, the constitutional issue tendered not being be sure, any of these key issues may be resolved without
critical to the resolution of the case. The unyielding rule plunging into the constitutionality of Sec. 31 of RA 6657.
has been to avoid, whenever plausible, an issue assailing Moreover, looking deeply into the underlying petitions of
the constitutionality of a statute or governmental act.110 If AMBALA, et al., it is not the said section per se that is
some other grounds exist by which judgment can be invalid, but rather it is the alleged application of the said
made without touching the constitutionality of a law, such provision in the SDP that is flawed.
recourse is favored.111 Garcia v. Executive Secretary
explains why: It may be well to note at this juncture that Sec. 5 of RA
9700,113 amending Sec. 7 of RA 6657, has all but
Lis Mota — the fourth requirement to satisfy before this superseded Sec. 31 of RA 6657 vis-à-vis the stock
Court will undertake judicial review — means that the distribution component of said Sec. 31. In its pertinent
Court will not pass upon a question of unconstitutionality, part, Sec. 5 of RA 9700 provides: "[T]hat after June 30,
although properly presented, if the case can be disposed 2009, the modes of acquisition shall be limited to
of on some other ground, such as the application of the voluntary offer to sell and compulsory acquisition." Thus,
statute or the general law. The petitioner must be able to for all intents and purposes, the stock distribution scheme
show that the case cannot be legally resolved unless the under Sec. 31 of RA 6657 is no longer an available
constitutional question raised is determined. This option under existing law. The question of whether or not
requirement is based on the rule that every law has in its it is unconstitutional should be a moot issue.
favor the presumption of constitutionality; to justify its
nullification, there must be a clear and unequivocal
It is true that the Court, in some cases, has proceeded to The wording of the provision is unequivocal––the farmers
resolve constitutional issues otherwise already moot and and regular farmworkers have a right TO OWN
academic114 provided the following requisites are present: DIRECTLY OR COLLECTIVELY THE LANDS THEY
TILL. The basic law allows two (2) modes of land
x x x first, there is a grave violation of the Constitution; distribution—direct and indirect ownership. Direct transfer
second, the exceptional character of the situation and the to individual farmers is the most commonly used method
paramount public interest is involved; third, when the by DAR and widely accepted. Indirect transfer through
constitutional issue raised requires formulation of collective ownership of the agricultural land is the
controlling principles to guide the bench, the bar, and the alternative to direct ownership of agricultural land by
public; fourth, the case is capable of repetition yet individual farmers. The aforequoted Sec. 4 EXPRESSLY
evading review. authorizes collective ownership by farmers. No language
can be found in the 1987 Constitution that disqualifies or
These requisites do not obtain in the case at bar. prohibits corporations or cooperatives of farmers from
being the legal entity through which collective ownership
For one, there appears to be no breach of the can be exercised. The word "collective" is defined as
fundamental law. Sec. 4, Article XIII of the Constitution "indicating a number of persons or things considered as
reads: constituting one group or aggregate,"115 while
"collectively" is defined as "in a collective sense or
The State shall, by law, undertake an agrarian reform manner; in a mass or body."116 By using the word
program founded on the right of the farmers and regular "collectively," the Constitution allows for indirect
farmworkers, who are landless, to OWN directly or ownership of land and not just outright agricultural land
COLLECTIVELY THE LANDS THEY TILL or, in the case transfer. This is in recognition of the fact that land reform
of other farmworkers, to receive a just share of the fruits may become successful even if it is done through the
thereof. To this end, the State shall encourage and medium of juridical entities composed of farmers.
undertake the just distribution of all agricultural lands,
subject to such priorities and reasonable retention limits Collective ownership is permitted in two (2) provisions of
as the Congress may prescribe, taking into account RA 6657. Its Sec. 29 allows workers’ cooperatives or
ecological, developmental, or equity considerations, and associations to collectively own the land, while the
subject to the payment of just compensation. In second paragraph of Sec. 31 allows corporations or
determining retention limits, the State shall respect the associations to own agricultural land with the farmers
right of small landowners. The State shall further provide becoming stockholders or members. Said provisions
incentives for voluntary land-sharing. (Emphasis read:
supplied.)
SEC. 29. Farms owned or operated by corporations or the succeeding Sec. 31, as differentiated from individual
other business associations.—In the case of farms farmers, are authorized vehicles for the collective
owned or operated by corporations or other business ownership of agricultural land. Cooperatives can be
associations, the following rules shall be observed by the registered with the Cooperative Development Authority
PARC. and acquire legal personality of their own, while
corporations are juridical persons under the Corporation
In general, lands shall be distributed directly to the Code. Thus, Sec. 31 is constitutional as it simply
individual worker-beneficiaries. implements Sec. 4 of Art. XIII of the Constitution that land
can be owned COLLECTIVELY by farmers. Even the
In case it is not economically feasible and sound to divide framers of the l987 Constitution are in unison with respect
the land, then it shall be owned collectively by the worker to the two (2) modes of ownership of agricultural lands
beneficiaries who shall form a workers’ cooperative or tilled by farmers––DIRECT and COLLECTIVE, thus:
association which will deal with the corporation or
business association. x x x (Emphasis supplied.) MR. NOLLEDO. And when we talk of the phrase "to own
directly," we mean the principle of direct ownership by the
SEC. 31. Corporate Landowners.— x x x tiller?
Upon certification by the DAR, corporations owning MR. NOLLEDO. And when we talk of "collectively," we
agricultural lands may give their qualified beneficiaries mean communal ownership, stewardship or State
the right to purchase such proportion of the capital stock ownership?
of the corporation that the agricultural land, actually
devoted to agricultural activities, bears in relation to the MS. NIEVA. In this section, we conceive of cooperatives;
company’s total assets, under such terms and conditions that is farmers’ cooperatives owning the land, not the
as may be agreed upon by them. In no case shall the State.
compensation received by the workers at the time the
shares of stocks are distributed be reduced. The same MR. NOLLEDO. And when we talk of "collectively,"
principle shall be applied to associations, with respect to referring to farmers’ cooperatives, do the farmers own
their equity or participation. x x x (Emphasis supplied.) specific areas of land where they only unite in their
efforts?
Clearly, workers’ cooperatives or associations under Sec.
29 of RA 6657 and corporations or associations under MS. NIEVA. That is one way.
MR. NOLLEDO. Because I understand that there are two is collective or group work by farmers of the agricultural
basic systems involved: the "moshave" type of agriculture land. Irrespective of whether the landowner is a
and the "kibbutz." So are both contemplated in the cooperative, association or corporation composed of
report? farmers, as long as concerted group work by the farmers
on the land is present, then it falls within the ambit of
MR. TADEO. Ang dalawa kasing pamamaraan ng collective ownership scheme.
pagpapatupad ng tunay na reporma sa lupa ay ang
pagmamay-ari ng lupa na hahatiin sa individual na Likewise, Sec. 4, Art. XIII of the Constitution makes
pagmamay-ari – directly – at ang tinatawag na sama- mention of a commitment on the part of the State to
samang gagawin ng mga magbubukid. Tulad sa Negros, pursue, by law, an agrarian reform program founded on
ang gusto ng mga magbubukid ay gawin nila itong the policy of land for the landless, but subject to such
"cooperative or collective farm." Ang ibig sabihin ay priorities as Congress may prescribe, taking into account
sama-sama nilang sasakahin. such abstract variable as "equity considerations." The
textual reference to a law and Congress necessarily
xxxx implies that the above constitutional provision is not self-
executory and that legislation is needed to implement
MR. TINGSON. x x x When we speak here of "to own the urgently needed program of agrarian reform. And RA
directly or collectively the lands they till," is this land for 6657 has been enacted precisely pursuant to and as a
the tillers rather than land for the landless? Before, we mechanism to carry out the constitutional directives. This
used to hear "land for the landless," but now the slogan is piece of legislation, in fact, restates118 the agrarian reform
"land for the tillers." Is that right? policy established in the aforementioned provision of the
Constitution of promoting the welfare of landless farmers
MR. TADEO. Ang prinsipyong umiiral dito ay iyong land and farmworkers. RA 6657 thus defines "agrarian reform"
for the tillers. Ang ibig sabihin ng "directly" ay tulad sa as "the redistribution of lands … to farmers and regular
implementasyon sa rice and corn lands kung saan inaari farmworkers who are landless … to lift the economic
na ng mga magsasaka ang lupang binubungkal nila. Ang status of the beneficiaries and all other arrangements
ibig sabihin naman ng "collectively" ay sama-samang alternative to the physical redistribution of lands,
paggawa sa isang lupain o isang bukid, katulad ng such as production or profit sharing, labor administration
sitwasyon sa Negros.117 (Emphasis supplied.) and the distribution of shares of stock which will allow
beneficiaries to receive a just share of the fruits of the
As Commissioner Tadeo explained, the farmers will work lands they work."
on the agricultural land "sama-sama" or collectively.
Thus, the main requisite for collective ownership of land
With the view We take of this case, the stock distribution This contention has no merit.
option devised under Sec. 31 of RA 6657 hews with the
agrarian reform policy, as instrument of social justice While it is true that the farmer is issued stock certificates
under Sec. 4 of Article XIII of the Constitution. Albeit land and does not directly own the land, still, the Corporation
ownership for the landless appears to be the dominant Code is clear that the FWB becomes a stockholder who
theme of that policy, We emphasize that Sec. 4, Article acquires an equitable interest in the assets of the
XIII of the Constitution, as couched, does not constrict corporation, which include the agricultural lands. It was
Congress to passing an agrarian reform law planted on explained that the "equitable interest of the shareholder
direct land transfer to and ownership by farmers and no in the property of the corporation is represented by the
other, or else the enactment suffers from the vice of term stock, and the extent of his interest is described by
unconstitutionality. If the intention were otherwise, the the term shares. The expression shares of stock when
framers of the Constitution would have worded said qualified by words indicating number and ownership
section in a manner mandatory in character. expresses the extent of the owner’s interest in the
corporate property."119 A share of stock typifies an aliquot
For this Court, Sec. 31 of RA 6657, with its direct and part of the corporation’s property, or the right to share in
indirect transfer features, is not inconsistent with the its proceeds to that extent when distributed according to
State’s commitment to farmers and farmworkers to law and equity and that its holder is not the owner of any
advance their interests under the policy of social justice. part of the capital of the corporation.120 However, the
The legislature, thru Sec. 31 of RA 6657, has chosen a FWBs will ultimately own the agricultural lands owned by
modality for collective ownership by which the the corporation when the corporation is eventually
imperatives of social justice may, in its estimation, be dissolved and liquidated.
approximated, if not achieved. The Court should be
bound by such policy choice. Anent the alleged loss of control of the farmers over the
agricultural land operated and managed by the
FARM contends that the farmers in the stock distribution corporation, a reading of the second paragraph of Sec.
scheme under Sec. 31 do not own the agricultural land 31 shows otherwise. Said provision provides that
but are merely given stock certificates. Thus, the farmers qualified beneficiaries have "the right to purchase such
lose control over the land to the board of directors and proportion of the capital stock of the corporation that the
executive officials of the corporation who actually agricultural land, actually devoted to agricultural activities,
manage the land. They conclude that such arrangement bears in relation to the company’s total assets." The
runs counter to the mandate of the Constitution that any wording of the formula in the computation of the number
agrarian reform must preserve the control over the land in of shares that can be bought by the farmers does not
the hands of the tiller. mean loss of control on the part of the farmers. It must be
remembered that the determination of the percentage of A view has been advanced that there can be no agrarian
the capital stock that can be bought by the farmers reform unless there is land distribution and that actual
depends on the value of the agricultural land and the land distribution is the essential characteristic of a
value of the total assets of the corporation. constitutional agrarian reform program. On the contrary,
there have been so many instances where, despite actual
There is, thus, nothing unconstitutional in the formula land distribution, the implementation of agrarian reform
prescribed by RA 6657. The policy on agrarian reform is was still unsuccessful. As a matter of fact, this Court may
that control over the agricultural land must always be in take judicial notice of cases where FWBs sold the
the hands of the farmers. Then it falls on the shoulders of awarded land even to non-qualified persons and in
DAR and PARC to see to it the farmers should always violation of the prohibition period provided under the law.
own majority of the common shares entitled to elect the This only proves to show that the mere fact that there is
members of the board of directors to ensure that the land distribution does not guarantee a successful
farmers will have a clear majority in the board. Before the implementation of agrarian reform.
SDP is approved, strict scrutiny of the proposed SDP
must always be undertaken by the DAR and PARC, such As it were, the principle of "land to the tiller" and the old
that the value of the agricultural land contributed to the pastoral model of land ownership where non-human
corporation must always be more than 50% of the total juridical persons, such as corporations, were prohibited
assets of the corporation to ensure that the majority of from owning agricultural lands are no longer realistic
the members of the board of directors are composed of under existing conditions. Practically, an individual farmer
the farmers. The PARC composed of the President of the will often face greater disadvantages and difficulties than
Philippines and cabinet secretaries must see to it that those who exercise ownership in a collective manner
control over the board of directors rests with the farmers through a cooperative or corporation. The former is too
by rejecting the inclusion of non-agricultural assets which often left to his own devices when faced with failing crops
will yield the majority in the board of directors to non- and bad weather, or compelled to obtain usurious loans
farmers. Any deviation, however, by PARC or DAR from in order to purchase costly fertilizers or farming
the correct application of the formula prescribed by the equipment. The experiences learned from failed land
second paragraph of Sec. 31 of RA 6675 does not make reform activities in various parts of the country are lack of
said provision constitutionally infirm. Rather, it is the financing, lack of farm equipment, lack of fertilizers, lack
application of said provision that can be challenged. of guaranteed buyers of produce, lack of farm-to-market
Ergo, Sec. 31 of RA 6657 does not trench on the roads, among others. Thus, at the end of the day, there is
constitutional policy of ensuring control by the farmers. still no successful implementation of agrarian reform to
speak of in such a case.
Although success is not guaranteed, a cooperative or a Consequently, before a statute or its provisions duly
corporation stands in a better position to secure funding challenged are voided, an unequivocal breach of, or a
and competently maintain the agri-business than the clear conflict with the Constitution, not merely a doubtful
individual farmer. While direct singular ownership over or argumentative one, must be demonstrated in such a
farmland does offer advantages, such as the ability to manner as to leave no doubt in the mind of the Court. In
make quick decisions unhampered by interference from other words, the grounds for nullity must be beyond
others, yet at best, these advantages only but offset the reasonable doubt.123 FARM has not presented compelling
disadvantages that are often associated with such arguments to overcome the presumption of
ownership arrangement. Thus, government must be constitutionality of Sec. 31 of RA 6657.
flexible and creative in its mode of implementation to
better its chances of success. One such option is The wisdom of Congress in allowing an SDP through a
collective ownership through juridical persons composed corporation as an alternative mode of implementing
of farmers. agrarian reform is not for judicial determination.
Established jurisprudence tells us that it is not within the
Aside from the fact that there appears to be no violation province of the Court to inquire into the wisdom of the
of the Constitution, the requirement that the instant case law, for, indeed, We are bound by words of the statute.124
be capable of repetition yet evading review is also
wanting. It would be speculative for this Court to assume II.
that the legislature will enact another law providing for a
similar stock option. The stage is now set for the determination of the
propriety under the premises of the revocation or recall of
As a matter of sound practice, the Court will not interfere HLI’s SDP. Or to be more precise, the inquiry should be:
inordinately with the exercise by Congress of its official whether or not PARC gravely abused its discretion in
functions, the heavy presumption being that a law is the revoking or recalling the subject SDP and placing the
product of earnest studies by Congress to ensure that no hacienda under CARP’s compulsory acquisition and
constitutional prescription or concept is distribution scheme.
infringed.121 Corollarily, courts will not pass upon
questions of wisdom, expediency and justice of The findings, analysis and recommendation of the DAR’s
legislation or its provisions. Towards this end, all Special Task Force contained and summarized in its
reasonable doubts should be resolved in favor of the Terminal Report provided the bases for the assailed
constitutionality of a law and the validity of the acts and PARC revocatory/recalling Resolution. The findings may
processes taken pursuant thereof.122 be grouped into two: (1) the SDP is contrary to either the
policy on agrarian reform, Sec. 31 of RA 6657, or DAO
10; and (2) the alleged violation by HLI of the Public respondents, on the other hand, aver that the
conditions/terms of the SDP. In more particular terms, the assailed resolution rests on solid grounds set forth in the
following are essentially the reasons underpinning Terminal Report, a position shared by AMBALA, which, in
PARC’s revocatory or recall action: some pleadings, is represented by the same counsel as
that appearing for the Supervisory Group.
(1) Despite the lapse of 16 years from the approval of
HLI’s SDP, the lives of the FWBs have hardly improved FARM, for its part, posits the view that legal bases obtain
and the promised increased income has not materialized; for the revocation of the SDP, because it does not
conform to Sec. 31 of RA 6657 and DAO 10. And training
(2) HLI has failed to keep Hacienda Luisita intact and
its sight on the resulting dilution of the equity of the FWBs
unfragmented;
appearing in HLI’s masterlist, FARM would state that the
(3) The issuance of HLI shares of stock on the basis of SDP, as couched and implemented, spawned disparity
number of hours worked––or the so-called "man days"–– when there should be none; parity when there should
is grossly onerous to the FWBs, as HLI, in the guise of have been differentiation.126
rotation, can unilaterally deny work to anyone. In
elaboration of this ground, PARC’s Resolution No. 2006- The petition is not impressed with merit.
34-01, denying HLI’s motion for reconsideration of
Resolution No. 2005-32-01, stated that the man days
In the Terminal Report adopted by PARC, it is stated that
criterion worked to dilute the entitlement of the original
share beneficiaries;125 the SDP violates the agrarian reform policy under Sec. 2
of RA 6657, as the said plan failed to enhance the dignity
(4) The distribution/transfer of shares was not in and improve the quality of lives of the FWBs through
accordance with the timelines fixed by law; greater productivity of agricultural lands. We disagree.
(5) HLI has failed to comply with its obligations to grant Sec. 2 of RA 6657 states:
3% of the gross sales every year as production-sharing
benefit on top of the workers’ salary; and SECTION 2. Declaration of Principles and Policies.¾It is
the policy of the State to pursue a Comprehensive
(6) Several homelot awardees have yet to receive their Agrarian Reform Program (CARP). The welfare of the
individual titles.
landless farmers and farm workers will receive the
highest consideration to promote social justice and to
Petitioner HLI claims having complied with, at least
substantially, all its obligations under the SDP, as move the nation towards sound rural development and
approved by PARC itself, and tags the reasons given for industrialization, and the establishment of owner
the revocation of the SDP as unfounded.
cultivatorship of economic-sized farms as the basis of imagination can said provision be construed as a
Philippine agriculture. guarantee in improving the lives of the FWBs. At best, it
merely provides for a possibility or favorable chance of
To this end, a more equitable distribution and ownership uplifting the economic status of the FWBs, which may or
of land, with due regard to the rights of landowners to just may not be attained.
compensation and to the ecological needs of the nation,
shall be undertaken to provide farmers and farm workers Pertinently, improving the economic status of the FWBs
with the opportunity to enhance their dignity and improve is neither among the legal obligations of HLI under the
the quality of their lives through greater productivity of SDP nor an imperative imposition by RA 6657 and DAO
agricultural lands. 10, a violation of which would justify discarding the stock
distribution option. Nothing in that option agreement, law
The agrarian reform program is founded on the right of or department order indicates otherwise.
farmers and regular farm workers, who are landless, to
own directly or collectively the lands they till or, in the Significantly, HLI draws particular attention to its having
case of other farm workers, to receive a share of the paid its FWBs, during the regime of the SDP (1989-
fruits thereof. To this end, the State shall encourage the 2005), some PhP 3 billion by way of salaries/wages and
just distribution of all agricultural lands, subject to the higher benefits exclusive of free hospital and medical
priorities and retention limits set forth in this Act, having benefits to their immediate family. And attached as Annex
taken into account ecological, developmental, and equity "G" to HLI’s Memorandum is the certified true report of
considerations, and subject to the payment of just the finance manager of Jose Cojuangco & Sons
compensation. The State shall respect the right of small Organizations-Tarlac Operations, captioned as
landowners and shall provide incentives for voluntary "HACIENDA LUISITA, INC. Salaries, Benefits and Credit
land-sharing. (Emphasis supplied.) Privileges (in Thousand Pesos) Since the Stock Option
was Approved by PARC/CARP," detailing what HLI gave
Paragraph 2 of the above-quoted provision specifically their workers from 1989 to 2005. The sum total, as added
mentions that "a more equitable distribution and up by the Court, yields the following numbers: Total
ownership of land x x x shall be undertaken to provide Direct Cash Out (Salaries/Wages & Cash Benefits) =
farmers and farm workers with the opportunity to PhP 2,927,848; Total Non-Direct Cash Out
enhance their dignity and improve the quality of their lives (Hospital/Medical Benefits) = PhP 303,040. The cash out
through greater productivity of agricultural lands." Of note figures, as stated in the report, include the cost of
is the term "opportunity" which is defined as a favorable homelots; the PhP 150 million or so representing 3% of
chance or opening offered by the gross produce of the hacienda; and the PhP 37.5
circumstances.127 Considering this, by no stretch of million representing 3% from the proceeds of the sale of
the 500-hectare converted lands. While not included in been awarded with an agricultural land, he just
the report, HLI manifests having given the FWBs 3% of subsequently sells it and is eventually left with nothing in
the PhP 80 million paid for the 80 hectares of land the end.
traversed by the SCTEX.128 On top of these, it is worth
remembering that the shares of stocks were given by HLI In all then, the onerous condition of the FWBs’ economic
to the FWBs for free. Verily, the FWBs have benefited status, their life of hardship, if that really be the case, can
from the SDP. hardly be attributed to HLI and its SDP and provide a
valid ground for the plan’s revocation.
To address urgings that the FWBs be allowed to
disengage from the SDP as HLI has not anyway earned Neither does HLI’s SDP, whence the DAR-attested
profits through the years, it cannot be over-emphasized SDOA/MOA is based, infringe Sec. 31 of RA 6657, albeit
that, as a matter of common business sense, no public respondents erroneously submit otherwise.
corporation could guarantee a profitable run all the time.
As has been suggested, one of the key features of an The provisions of the first paragraph of the adverted Sec.
SDP of a corporate landowner is the likelihood of the 31 are without relevance to the issue on the propriety of
corporate vehicle not earning, or, worse still, losing the assailed order revoking HLI’s SDP, for the paragraph
money.129 deals with the transfer of agricultural lands to the
government, as a mode of CARP compliance, thus:
The Court is fully aware that one of the criteria under
DAO 10 for the PARC to consider the advisability of SEC. 31. Corporate Landowners.¾Corporate landowners
approving a stock distribution plan is the likelihood that may voluntarily transfer ownership over their agricultural
the plan "would result in increased income and greater landholdings to the Republic of the Philippines pursuant
benefits to [qualified beneficiaries] than if the lands were to Section 20 hereof or to qualified beneficiaries under
divided and distributed to them individually."130 But as such terms and conditions, consistent with this Act, as
aptly noted during the oral arguments, DAO 10 ought to they may agree, subject to confirmation by the DAR.
have not, as it cannot, actually exact assurance of
success on something that is subject to the will of man, The second and third paragraphs, with their sub-
the forces of nature or the inherent risky nature of paragraphs, of Sec. 31 provide as follows:
business.131 Just like in actual land distribution, an SDP
cannot guarantee, as indeed the SDOA does not Upon certification by the DAR, corporations owning
guarantee, a comfortable life for the FWBs. The Court agricultural lands may give their qualified beneficiaries
can take judicial notice of the fact that there were many the right to purchase such proportion of the capital
instances wherein after a farmworker beneficiary has stock of the corporation that the agricultural land,
actually devoted to agricultural activities, bears in The mandatory minimum ratio of land-to-shares of stock
relation to the company’s total assets, under such supposed to be distributed or allocated to qualified
terms and conditions as may be agreed upon by them. In beneficiaries, adverting to what Sec. 31 of RA 6657
no case shall the compensation received by the workers refers to as that "proportion of the capital stock of the
at the time the shares of stocks are distributed be corporation that the agricultural land, actually devoted to
reduced. x x x agricultural activities, bears in relation to the company’s
total assets" had been observed.
Corporations or associations which voluntarily divest a
proportion of their capital stock, equity or participation in Paragraph one (1) of the SDOA, which was based on the
favor of their workers or other qualified beneficiaries SDP, conforms to Sec. 31 of RA 6657. The stipulation
under this section shall be deemed to have complied with reads:
the provisions of this Act: Provided, That the following
conditions are complied with: 1. The percentage of the value of the agricultural land of
Hacienda Luisita (P196,630,000.00) in relation to the total
(a) In order to safeguard the right of beneficiaries who assets (P590,554,220.00) transferred and conveyed to
own shares of stocks to dividends and other financial the SECOND PARTY is 33.296% that, under the law,
benefits, the books of the corporation or association shall is the proportion of the outstanding capital stock of the
be subject to periodic audit by certified public accountants
SECOND PARTY, which is P355,531,462.00 or
chosen by the beneficiaries;
355,531,462 shares with a par value of P1.00 per share,
(b) Irrespective of the value of their equity in the that has to be distributed to the THIRD PARTY under the
corporation or association, the beneficiaries shall be stock distribution plan, the said 33.296% thereof
assured of at least one (1) representative in the board of being P118,391,976.85 or 118,391,976.85 shares.
directors, or in a management or executive committee, if
one exists, of the corporation or association; The appraised value of the agricultural land is PhP
196,630,000 and of HLI’s other assets is PhP
(c) Any shares acquired by such workers and 393,924,220. The total value of HLI’s assets is, therefore,
beneficiaries shall have the same rights and features as
PhP 590,554,220.132 The percentage of the value of the
all other shares; and
agricultural lands (PhP 196,630,000) in relation to the
(d) Any transfer of shares of stocks by the original total assets (PhP 590,554,220) is 33.296%, which
beneficiaries shall be void ab initio unless said transaction represents the stockholdings of the 6,296 original
is in favor of a qualified and registered beneficiary within qualified farmworker-beneficiaries (FWBs) in HLI. The
the same corporation. total number of shares to be distributed to said qualified
FWBs is 118,391,976.85 HLI shares. This was arrived at
by getting 33.296% of the 355,531,462 shares which is directors of the SECOND PARTY that the whole 33.296%
the outstanding capital stock of HLI with a value of PhP of the shares subject to distribution will be entitled to.
355,531,462. Thus, if we divide the 118,391,976.85 HLI
shares by 6,296 FWBs, then each FWB is entitled to Also, no allegations have been made against HLI
18,804.32 HLI shares. These shares under the SDP are restricting the inspection of its books by accountants
to be given to FWBs for free. chosen by the FWBs; hence, the assumption may be
made that there has been no violation of the statutory
The Court finds that the determination of the shares to be prescription under sub-paragraph (a) on the auditing of
distributed to the 6,296 FWBs strictly adheres to the HLI’s accounts.
formula prescribed by Sec. 31(b) of RA 6657.
Public respondents, however, submit that the distribution
Anent the requirement under Sec. 31(b) of the third of the mandatory minimum ratio of land-to-shares of
paragraph, that the FWBs shall be assured of at least stock, referring to the 118,391,976.85 shares with par
one (1) representative in the board of directors or in a value of PhP 1 each, should have been made in full
management or executive committee irrespective of the within two (2) years from the approval of RA 6657, in line
value of the equity of the FWBs in HLI, the Court finds with the last paragraph of Sec. 31 of said law.133
that the SDOA contained provisions making certain the
FWBs’ representation in HLI’s governing board, thus: Public respondents’ submission is palpably erroneous.
We have closely examined the last paragraph alluded to,
5. Even if only a part or fraction of the shares earmarked with particular focus on the two-year period mentioned,
for distribution will have been acquired from the FIRST and nothing in it remotely supports the public
PARTY and distributed to the THIRD PARTY, FIRST respondents’ posture. In its pertinent part, said Sec. 31
PARTY shall execute at the beginning of each fiscal year provides:
an irrevocable proxy, valid and effective for one (1) year,
in favor of the farmworkers appearing as shareholders of SEC. 31. Corporate Landowners x x x
the SECOND PARTY at the start of said year which will
empower the THIRD PARTY or their representative to If within two (2) years from the approval of this Act, the
vote in stockholders’ and board of directors’ meetings of [voluntary] land or stock transfer envisioned above is not
the SECOND PARTY convened during the year the made or realized or the plan for such stock distribution
entire 33.296% of the outstanding capital stock of the approved by the PARC within the same period, the
SECOND PARTY earmarked for distribution and thus be agricultural land of the corporate owners or corporation
able to gain such number of seats in the board of shall be subject to the compulsory coverage of this Act.
(Word in bracket and emphasis added.)
Properly viewed, the words "two (2) years" clearly refer to unfragmented is viable with potential for growth and
the period within which the corporate landowner, to avoid increased profitability."
land transfer as a mode of CARP coverage under RA
6657, is to avail of the stock distribution option or to have The PARC is wrong.
the SDP approved. The HLI secured approval of its SDP
in November 1989, well within the two-year period In the first place, Sec. 5(a)––just like the succeeding Sec.
reckoned from June 1988 when RA 6657 took effect. 5(b) of DAO 10 on increased income and greater benefits
to qualified beneficiaries––is but one of the stated criteria
Having hurdled the alleged breach of the agrarian reform to guide PARC in deciding on whether or not to accept an
policy under Sec. 2 of RA 6657 as well as the statutory SDP. Said Sec. 5(a) does not exact from the corporate
issues, We shall now delve into what PARC and landowner-applicant the undertaking to keep the farm
respondents deem to be other instances of violation of intact and unfragmented ad infinitum. And there is logic to
DAO 10 and the SDP. HLI’s stated observation that the key phrase in the
provision of Sec. 5(a) is "viability of corporate
On the Conversion of Lands operations": "[w]hat is thus required is not the agricultural
land remaining intact x x x but the viability of the
Contrary to the almost parallel stance of the respondents, corporate operations with its agricultural land being intact
keeping Hacienda Luisita unfragmented is also not and unfragmented. Corporate operation may be viable
among the imperative impositions by the SDP, RA 6657, even if the corporate agricultural land does not remain
and DAO 10. intact or [un]fragmented."134
The Terminal Report states that the proposed distribution It is, of course, anti-climactic to mention that DAR viewed
plan submitted in 1989 to the PARC effectively assured the conversion as not violative of any issuance, let alone
the intended stock beneficiaries that the physical integrity undermining the viability of Hacienda Luisita’s operation,
of the farm shall remain inviolate. Accordingly, the as the DAR Secretary approved the land conversion
Terminal Report and the PARC-assailed resolution would applied for and its disposition via his Conversion Order
take HLI to task for securing approval of the conversion dated August 14, 1996 pursuant to Sec. 65 of RA 6657
to non-agricultural uses of 500 hectares of the hacienda. which reads:
In not too many words, the Report and the resolution
view the conversion as an infringement of Sec. 5(a) of Sec. 65. Conversion of Lands.¾After the lapse of five
DAO 10 which reads: "a. that the continued operation of years from its award when the land ceases to be
the corporation with its agricultural land intact and economically feasible and sound for agricultural
purposes, or the locality has become urbanized and the
land will have a greater economic value for residential, Report, it would appear that the Special Task Force
commercial or industrial purposes, the DAR upon rejected HLI’s claim of compliance on the basis of this
application of the beneficiary or landowner with due ratiocination:
notice to the affected parties, and subject to existing
laws, may authorize the x x x conversion of the land and • The Task Force position: Though, allegedly, the
its dispositions. x x x Supervisory Group receives the 3% gross production
share and that others alleged that they received 30 million
pesos still others maintain that they have not received
On the 3% Production Share anything yet. Item No. 4 of the MOA is clear and must be
followed. There is a distinction between the total gross
On the matter of the alleged failure of HLI to comply with sales from the production of the land and the proceeds
sharing the 3% of the gross production sales of the from the sale of the land. The former refers to the
hacienda and pay dividends from profit, the entries in its fruits/yield of the agricultural land while the latter is the
financial books tend to indicate compliance by HLI of the land itself. The phrase "the beneficiaries are entitled every
profit-sharing equivalent to 3% of the gross sales from year to an amount approximately equivalent to 3% would
only be feasible if the subject is the produce since there is
the production of the agricultural land on top of (a) the at least one harvest per year, while such is not the case in
salaries and wages due FWBs as employees of the the sale of the agricultural land. This negates then the
company and (b) the 3% of the gross selling price of the claim of HLI that, all that the FWBs can be entitled to, if
converted land and that portion used for the SCTEX. A any, is only 3% of the purchase price of the converted
plausible evidence of compliance or non-compliance, as land.
the case may be, could be the books of account of HLI. • Besides, the Conversion Order dated 14 August 1996
Evidently, the cry of some groups of not having received provides that "the benefits, wages and the like, presently
received by the FWBs shall not in any way be reduced or
their share from the gross production sales has not adversely affected. Three percent of the gross selling
adequately been validated on the ground by the Special price of the sale of the converted land shall be awarded to
Task Force. the beneficiaries of the SDO." The 3% gross production
share then is different from the 3% proceeds of the sale of
Indeed, factual findings of administrative agencies are the converted land and, with more reason, the 33% share
conclusive when supported by substantial evidence and being claimed by the FWBs as part owners of the
are accorded due respect and weight, especially when Hacienda, should have been given the FWBs, as
stockholders, and to which they could have been entitled
they are affirmed by the CA.135However, such rule is not if only the land were acquired and redistributed to them
absolute. One such exception is when the findings of an under the CARP.
administrative agency are conclusions without citation of
specific evidence on which they are based,136 such as in xxxx
this particular instance. As culled from its Terminal
• The FWBs do not receive any other benefits under the cooperatives or corporations mentioned in the preceding
MOA except the aforementioned [(viz: shares of stocks section shall be provided with homelots and small
(partial), 3% gross production sale (not all) and homelots farmlots for their family use, to be taken from the land
(not all)].
owned by the cooperative or corporation.
Judging from the above statements, the Special Task
The "preceding section" referred to in the above-quoted
Force is at best silent on whether HLI has failed to
provision is as follows:
comply with the 3% production-sharing obligation or the
3% of the gross selling price of the converted land and
SEC. 29. Farms Owned or Operated by Corporations or
the SCTEX lot. In fact, it admits that the FWBs, though
Other Business Associations.¾In the case of farms
not all, have received their share of the gross production
owned or operated by corporations or other business
sales and in the sale of the lot to SCTEX. At most, then,
associations, the following rules shall be observed by the
HLI had complied substantially with this SDP undertaking
PARC.
and the conversion order. To be sure, this slight breach
would not justify the setting to naught by PARC of the
In general, lands shall be distributed directly to the
approval action of the earlier PARC. Even in contract law,
individual worker-beneficiaries.
rescission, predicated on violation of reciprocity, will not
be permitted for a slight or casual breach of contract;
In case it is not economically feasible and sound to divide
rescission may be had only for such breaches that are
the land, then it shall be owned collectively by the worker-
substantial and fundamental as to defeat the object of the
beneficiaries who shall form a workers’ cooperative or
parties in making the agreement.137
association which will deal with the corporation or
business association. Until a new agreement is entered
Despite the foregoing findings, the revocation of the
into by and between the workers’ cooperative or
approval of the SDP is not without basis as shown below.
association and the corporation or business association,
any agreement existing at the time this Act takes effect
On Titles to Homelots
between the former and the previous landowner shall be
respected by both the workers’ cooperative or association
Under RA 6657, the distribution of homelots is required
and the corporation or business association.
only for corporations or business associations owning or
operating farms which opted for land distribution. Sec. 30
Noticeably, the foregoing provisions do not make
of RA 6657 states:
reference to corporations which opted for stock
distribution under Sec. 31 of RA 6657. Concomitantly,
SEC. 30. Homelots and Farmlots for Members of
Cooperatives.¾The individual members of the
said corporations are not obliged to provide for it except not yet fully complied with its undertaking to distribute
by stipulation, as in this case. homelots to the FWBs under the SDP.
Under the SDP, HLI undertook to "subdivide and allocate On "Man Days" and the Mechanics of Stock Distribution
for free and without charge among the qualified family-
beneficiaries x x x residential or homelots of not more In our review and analysis of par. 3 of the SDOA on the
than 240 sq. m. each, with each family beneficiary being mechanics and timelines of stock distribution, We find
assured of receiving and owning a homelot in the barrio that it violates two (2) provisions of DAO 10. Par. 3 of the
or barangay where it actually resides," "within a SDOA states:
reasonable time."
3. At the end of each fiscal year, for a period of 30 years,
More than sixteen (16) years have elapsed from the time the SECOND PARTY [HLI] shall arrange with the FIRST
the SDP was approved by PARC, and yet, it is still the PARTY [TDC] the acquisition and distribution to the
contention of the FWBs that not all was given the 240- THIRD PARTY [FWBs] on the basis of number of days
square meter homelots and, of those who were already worked and at no cost to them of one-thirtieth (1/30) of
given, some still do not have the corresponding titles. 118,391,976.85 shares of the capital stock of the
SECOND PARTY that are presently owned and held by
During the oral arguments, HLI was afforded the chance the FIRST PARTY, until such time as the entire block of
to refute the foregoing allegation by submitting proof that 118,391,976.85 shares shall have been completely
the FWBs were already given the said homelots: acquired and distributed to the THIRD PARTY.
Justice Velasco: x x x There is also an allegation that the Based on the above-quoted provision, the distribution of
farmer beneficiaries, the qualified family beneficiaries the shares of stock to the FWBs, albeit not entailing a
were not given the 240 square meters each. So, can you cash out from them, is contingent on the number of "man
also [prove] that the qualified family beneficiaries were days," that is, the number of days that the FWBs have
already provided the 240 square meter homelots. worked during the year. This formula deviates from Sec.
1 of DAO 10, which decrees the distribution of equal
Atty. Asuncion: We will, your Honor please.138 number of shares to the FWBs as the minimum ratio of
shares of stock for purposes of compliance with Sec. 31
Other than the financial report, however, no other of RA 6657. As stated in Sec. 4 of DAO 10:
substantial proof showing that all the qualified
beneficiaries have received homelots was submitted by Section 4. Stock Distribution Plan.¾The [SDP] submitted
HLI. Hence, this Court is constrained to rule that HLI has by the corporate landowner-applicant shall provide for the
distribution of an equal number of shares of the same or category constitutes an augmentation share/s that the
class and value, with the same rights and features as all corporate landowner may give under an additional stock
other shares, to each of the qualified beneficiaries. This distribution scheme, taking into account such variables as
distribution plan in all cases, shall be at least the rank, seniority, salary, position and like factors which the
minimum ratio for purposes of compliance with Section management, in the exercise of its sound discretion, may
31 of R.A. No. 6657. deem desirable.140
On top of the minimum ratio provided under Section 3 of Before anything else, it should be stressed that, at the
this Implementing Guideline, the corporate landowner- time PARC approved HLI’s SDP, HLI
applicant may adopt additional stock distribution schemes recognized 6,296 individuals as qualified FWBs. And
taking into account factors such as rank, seniority, salary, under the 30-year stock distribution program envisaged
position and other circumstances which may be deemed under the plan, FWBs who came in after 1989, new
desirable as a matter of sound company policy. FWBs in fine, may be accommodated, as they appear to
(Emphasis supplied.) have in fact been accommodated as evidenced by their
receipt of HLI shares.
The above proviso gives two (2) sets or categories of
shares of stock which a qualified beneficiary can acquire Now then, by providing that the number of shares of the
from the corporation under the SDP. The first pertains, as original 1989 FWBs shall depend on the number of "man
earlier explained, to the mandatory minimum ratio of days," HLI violated the afore-quoted rule on stock
shares of stock to be distributed to the FWBs in distribution and effectively deprived the FWBs of equal
compliance with Sec. 31 of RA 6657. This minimum ratio shares of stock in the corporation, for, in net effect, these
contemplates of that "proportion of the capital stock of the 6,296 qualified FWBs, who theoretically had given up
corporation that the agricultural land, actually devoted to their rights to the land that could have been distributed to
agricultural activities, bears in relation to the company’s them, suffered a dilution of their due share entitlement.
total assets."139 It is this set of shares of stock which, in As has been observed during the oral arguments, HLI
line with Sec. 4 of DAO 10, is supposed to be allocated has chosen to use the shares earmarked for farmworkers
"for the distribution of an equal number of shares of stock as reward system chips to water down the shares of the
of the same class and value, with the same rights and original 6,296 FWBs.141 Particularly:
features as all other shares, to each of the qualified
beneficiaries." Justice Abad: If the SDOA did not take place, the other
thing that would have happened is that there would be
On the other hand, the second set or category of shares CARP?
partakes of a gratuitous extra grant, meaning that this set
Atty. Dela Merced: Yes, Your Honor. Justice Abad: Did those new workers give up any right
that would have belong to them in 1989 when the land
Justice Abad: That’s the only point I want to know x x x. was supposed to have been placed under CARP?
Now, but they chose to enter SDOA instead of placing
the land under CARP. And for that reason those who Atty. Dela Merced: If you are talking or referring…
would have gotten their shares of the land actually gave (interrupted)
up their rights to this land in place of the shares of the
stock, is that correct? Justice Abad: None! You tell me. None. They gave up no
rights to land?
Atty. Dela Merced: It would be that way, Your Honor.
Atty. Dela Merced: They did not do the same thing as we
Justice Abad: Right now, also the government, in a way, did in 1989, Your Honor.
gave up its right to own the land because that way the
government takes own [sic] the land and distribute it to Justice Abad: No, if they were not workers in 1989 what
the farmers and pay for the land, is that correct? land did they give up? None, if they become workers later
on.
Atty. Dela Merced: Yes, Your Honor.
Atty. Dela Merced: None, Your Honor, I was referring,
Justice Abad: And then you gave thirty-three percent Your Honor, to the original… (interrupted)
(33%) of the shares of HLI to the farmers at that time that
numbered x x x those who signed five thousand four Justice Abad: So why is it that the rights of those who
hundred ninety eight (5,498) beneficiaries, is that correct? gave up their lands would be diluted, because the
company has chosen to use the shares as reward system
Atty. Dela Merced: Yes, Your Honor. for new workers who come in? It is not that the new
workers, in effect, become just workers of the corporation
Justice Abad: But later on, after assigning them their whose stockholders were already fixed. The TADECO
shares, some workers came in from 1989, 1990, 1991, who has shares there about sixty six percent (66%) and
1992 and the rest of the years that you gave additional the five thousand four hundred ninety eight (5,498)
shares who were not in the original list of owners? farmers at the time of the SDOA? Explain to me. Why,
why will you x x x what right or where did you get that
Atty. Dela Merced: Yes, Your Honor. right to use this shares, to water down the shares of
those who should have been benefited, and to use it as a
reward system decided by the company?142
From the above discourse, it is clear as day that the plan within three (3) months from receipt by the corporate
original 6,296 FWBs, who were qualified beneficiaries at landowner of the approval of the plan by PARC. In fact,
the time of the approval of the SDP, suffered from based on the said provision, the transfer of the shares of
watering down of shares. As determined earlier, each stock in the names of the qualified FWBs should be
original FWB is entitled to 18,804.32 HLI shares. The recorded in the stock and transfer books and must be
original FWBs got less than the guaranteed 18,804.32 submitted to the SEC within sixty (60) days from
HLI shares per beneficiary, because the acquisition and implementation. As stated:
distribution of the HLI shares were based on "man days"
or "number of days worked" by the FWB in a year’s time. Section 11. Implementation/Monitoring of Plan.¾The
As explained by HLI, a beneficiary needs to work for at approved stock distribution plan shall
least 37 days in a fiscal year before he or she becomes be implemented within three (3) months from receipt by
entitled to HLI shares. If it falls below 37 days, the FWB, the corporate landowner-applicant of the approval thereof
unfortunately, does not get any share at year end. The by the PARC, and the transfer of the shares of stocks in
number of HLI shares distributed varies depending on the the names of the qualified beneficiaries shall be recorded
number of days the FWBs were allowed to work in one in stock and transfer books and submitted to the
year. Worse, HLI hired farmworkers in addition to the Securities and Exchange Commission (SEC) within sixty
original 6,296 FWBs, such that, as indicated in the (60) days from the said implementation of the stock
Compliance dated August 2, 2010 submitted by HLI to distribution plan. (Emphasis supplied.)
the Court, the total number of farmworkers of HLI as of
said date stood at 10,502. All these farmworkers, which It is evident from the foregoing provision that the
include the original 6,296 FWBs, were given shares out implementation, that is, the distribution of the shares of
of the 118,931,976.85 HLI shares representing the stock to the FWBs, must be made within three (3) months
33.296% of the total outstanding capital stock of HLI. from receipt by HLI of the approval of the stock
Clearly, the minimum individual allocation of each original distribution plan by PARC. While neither of the clashing
FWB of 18,804.32 shares was diluted as a result of the parties has made a compelling case of the thrust of this
use of "man days" and the hiring of additional provision, the Court is of the view and so holds that the
farmworkers. intent is to compel the corporate landowner to complete,
not merely initiate, the transfer process of shares within
Going into another but related matter, par. 3 of the SDOA that three-month timeframe. Reinforcing this conclusion is
expressly providing for a 30-year timeframe for HLI-to- the 60-day stock transfer recording (with the SEC)
FWBs stock transfer is an arrangement contrary to what requirement reckoned from the implementation of the
Sec. 11 of DAO 10 prescribes. Said Sec. 11 provides for SDP.
the implementation of the approved stock distribution
To the Court, there is a purpose, which is at once pay the government. To be sure, the reason underpinning
discernible as it is practical, for the three-month the 30-year accommodation does not apply to corporate
threshold. Remove this timeline and the corporate landowners in distributing shares of stock to the qualified
landowner can veritably evade compliance with agrarian beneficiaries, as the shares may be issued in a much
reform by simply deferring to absurd limits the shorter period of time.
implementation of the stock distribution scheme.
Taking into account the above discussion, the revocation
The argument is urged that the thirty (30)-year of the SDP by PARC should be upheld for violating DAO
distribution program is justified by the fact that, under 10. It bears stressing that under Sec. 49 of RA 6657, the
Sec. 26 of RA 6657, payment by beneficiaries of land PARC and the DAR have the power to issue rules and
distribution under CARP shall be made in thirty (30) regulations, substantive or procedural. Being a product of
annual amortizations. To HLI, said section provides a such rule-making power, DAO 10 has the force and effect
justifying dimension to its 30-year stock distribution of law and must be duly complied with.143 The PARC is,
program. therefore, correct in revoking the SDP. Consequently, the
PARC Resolution No. 89-12-2 dated November 21, l989
HLI’s reliance on Sec. 26 of RA 6657, quoted in part approving the HLI’s SDP is nullified and voided.
below, is obviously misplaced as the said provision
clearly deals with land distribution. III.
SEC. 26. Payment by Beneficiaries.¾Lands awarded We now resolve the petitions-in-intervention which, at
pursuant to this Act shall be paid for by the beneficiaries bottom, uniformly pray for the exclusion from the
to the LBP in thirty (30) annual amortizations x x x. coverage of the assailed PARC resolution those portions
of the converted land within Hacienda Luisita which
Then, too, the ones obliged to pay the LBP under the RCBC and LIPCO acquired by purchase.
said provision are the beneficiaries. On the other hand, in
the instant case, aside from the fact that what is involved Both contend that they are innocent purchasers for value
is stock distribution, it is the corporate landowner who of portions of the converted farm land. Thus, their plea for
has the obligation to distribute the shares of stock among the exclusion of that portion from PARC Resolution 2005-
the FWBs. 32-01, as implemented by a DAR-issued Notice of
Coverage dated January 2, 2006, which called for
Evidently, the land transfer beneficiaries are given thirty mandatory CARP acquisition coverage of lands subject of
(30) years within which to pay the cost of the land thus the SDP.
awarded them to make it less cumbersome for them to
To restate the antecedents, after the conversion of the reasonably prudent man to inquire into the status of the
500 hectares of land in Hacienda Luisita, HLI transferred title of the property in litigation.146 A higher level of care
the 300 hectares to Centennary, while ceding the and diligence is of course expected from banks, their
remaining 200-hectare portion to LRC. Subsequently, business being impressed with public interest.147
LIPCO purchased the entire three hundred (300)
hectares of land from Centennary for the purpose of Millena v. Court of Appeals describes a purchaser in
developing the land into an industrial good faith in this wise:
complex.144 Accordingly, the TCT in Centennary’s name
was canceled and a new one issued in LIPCO’s name. x x x A purchaser in good faith is one who buys property
Thereafter, said land was subdivided into two (2) more of another, without notice that some other person has a
parcels of land. Later on, LIPCO transferred about 184 right to, or interest in, such property at the time of such
hectares to RCBC by way of dacion en pago, by virtue of purchase, or before he has notice of the claim or interest
which TCTs in the name of RCBC were subsequently of some other persons in the property. Good faith, or the
issued. lack of it, is in the final analysis a question of intention;
but in ascertaining the intention by which one is actuated
Under Sec. 44 of PD 1529 or the Property Registration on a given occasion, we are necessarily controlled by the
Decree, "every registered owner receiving a certificate of evidence as to the conduct and outward acts by which
title in pursuance of a decree of registration and every alone the inward motive may, with safety, be determined.
subsequent purchaser of registered land taking a Truly, good faith is not a visible, tangible fact that can be
certificate of title for value and in good faith shall hold the seen or touched, but rather a state or condition of mind
same free from all encumbrances except those noted on which can only be judged by actual or fancied tokens or
the certificate and enumerated therein."145 signs. Otherwise stated, good faith x x x refers to the
state of mind which is manifested by the acts of the
It is settled doctrine that one who deals with property individual concerned.148 (Emphasis supplied.)
registered under the Torrens system need not go beyond
the four corners of, but can rely on what appears on, the In fine, there are two (2) requirements before one may be
title. He is charged with notice only of such burdens and considered a purchaser in good faith, namely: (1) that the
claims as are annotated on the title. This principle admits purchaser buys the property of another without notice
of certain exceptions, such as when the party has actual that some other person has a right to or interest in such
knowledge of facts and circumstances that would impel a property; and (2) that the purchaser pays a full and fair
reasonably cautious man to make such inquiry, or when price for the property at the time of such purchase or
the purchaser has knowledge of a defect or the lack of before he or she has notice of the claim of another.
title in his vendor or of sufficient facts to induce a
It can rightfully be said that both LIPCO and RCBC are–– title was received was himself the owner of the land, with
based on the above requirements and with respect to the the right to convey it. There is good faith where there is
adverted transactions of the converted land in question–– an honest intention to abstain from taking any
purchasers in good faith for value entitled to the benefits unconscientious advantage from another."150 It is the
arising from such status. opposite of fraud.
First, at the time LIPCO purchased the entire three To be sure, intervenor RCBC and LIPCO knew that the
hundred (300) hectares of industrial land, there was no lots they bought were subjected to CARP coverage by
notice of any supposed defect in the title of its transferor, means of a stock distribution plan, as the DAR
Centennary, or that any other person has a right to or conversion order was annotated at the back of the titles
interest in such property. In fact, at the time LIPCO of the lots they acquired. However, they are of the honest
acquired said parcels of land, only the following belief that the subject lots were validly converted to
annotations appeared on the TCT in the name of commercial or industrial purposes and for which said lots
Centennary: the Secretary’s Certificate in favor of were taken out of the CARP coverage subject of PARC
Teresita Lopa, the Secretary’s Certificate in favor of Resolution No. 89-12-2 and, hence, can be legally and
Shintaro Murai, and the conversion of the property from validly acquired by them. After all, Sec. 65 of RA 6657
agricultural to industrial and residential use.149 explicitly allows conversion and disposition of agricultural
lands previously covered by CARP land acquisition "after
The same is true with respect to RCBC. At the time it the lapse of five (5) years from its award when the land
acquired portions of Hacienda Luisita, only the following ceases to be economically feasible and sound for
general annotations appeared on the TCTs of LIPCO: the agricultural purposes or the locality has become
Deed of Restrictions, limiting its use solely as an urbanized and the land will have a greater economic
industrial estate; the Secretary’s Certificate in favor of value for residential, commercial or industrial purposes."
Koji Komai and Kyosuke Hori; and the Real Estate Moreover, DAR notified all the affected parties, more
Mortgage in favor of RCBC to guarantee the payment of particularly the FWBs, and gave them the opportunity to
PhP 300 million. comment or oppose the proposed conversion. DAR, after
going through the necessary processes, granted the
It cannot be claimed that RCBC and LIPCO acted in bad conversion of 500 hectares of Hacienda Luisita pursuant
faith in acquiring the lots that were previously covered by to its primary jurisdiction under Sec. 50 of RA 6657 to
the SDP. Good faith "consists in the possessor’s belief determine and adjudicate agrarian reform matters and its
that the person from whom he received it was the owner original exclusive jurisdiction over all matters involving
of the same and could convey his title. Good faith the implementation of agrarian reform. The DAR
requires a well-founded belief that the person from whom conversion order became final and executory after none
of the FWBs interposed an appeal to the CA. In this registration. Where innocent third persons, relying on
factual setting, RCBC and LIPCO purchased the lots in the correctness of the certificate of title thus issued,
question on their honest and well-founded belief that the acquire rights over the property, the court cannot
previous registered owners could legally sell and convey disregard such rights and order the cancellation of
the lots though these were previously subject of CARP the certificate. The effect of such outright cancellation
coverage. Ergo, RCBC and LIPCO acted in good faith in will be to impair public confidence in the certificate of title.
acquiring the subject lots. The sanctity of the Torrens system must be preserved;
otherwise, everyone dealing with the property registered
And second, both LIPCO and RCBC purchased portions under the system will have to inquire in every instance as
of Hacienda Luisita for value. Undeniably, LIPCO to whether the title had been regularly or irregularly
acquired 300 hectares of land from Centennary for the issued, contrary to the evident purpose of the law.
amount of PhP 750 million pursuant to a Deed of Sale
dated July 30, 1998.151 On the other hand, in a Deed of Being purchasers in good faith, the Chuas already
Absolute Assignment dated November 25, 2004, LIPCO acquired valid title to the property. A purchaser in
conveyed portions of Hacienda Luisita in favor of RCBC good faith holds an indefeasible title to the property
by way of dacion en pago to pay for a loan of PhP and he is entitled to the protection of the law.152 x x x
431,695,732.10. (Emphasis supplied.)
As bona fide purchasers for value, both LIPCO and To be sure, the practicalities of the situation have to a
RCBC have acquired rights which cannot just be point influenced Our disposition on the fate of RCBC and
disregarded by DAR, PARC or even by this Court. As LIPCO. After all, the Court, to borrow from Association of
held in Spouses Chua v. Soriano: Small Landowners in the Philippines, Inc.,153 is not a
"cloistered institution removed" from the realities on the
With the property in question having already passed to ground. To note, the approval and issuances of both the
the hands of purchasers in good faith, it is now of no national and local governments showing that certain
moment that some irregularity attended the issuance of portions of Hacienda Luisita have effectively ceased,
the SPA, consistent with our pronouncement in Heirs of legally and physically, to be agricultural and, therefore, no
Spouses Benito Gavino and Juana Euste v. Court of longer CARPable are a matter of fact which cannot just
Appeals, to wit: be ignored by the Court and the DAR. Among the
approving/endorsing issuances:154
x x x the general rule that the direct result of a previous
void contract cannot be valid, is inapplicable in this case (a) Resolution No. 392 dated 11 December 1996 of the
as it will directly contravene the Torrens system of Sangguniang Bayan of Tarlac favorably endorsing the
300-hectare industrial estate project of LIPCO;
(b) BOI Certificate of Registration No. 96-020 dated 20 7916," designating the Luisita Industrial Park II consisting
December 1996 issued in accordance with the Omnibus of three hundred hectares (300 has.) of industrial land as
Investments Code of 1987; a Special Economic Zone; and
(c) PEZA Certificate of Board Resolution No. 97-202 (j) Certificate of Registration No. EZ-98-05 dated 07 May
dated 27 June 1997, approving LIPCO’s application for a 1998 issued by the PEZA, stating that pursuant to
mixed ecozone and proclaiming the three hundred (300) Presidential Proclamation No. 1207 dated 22 April 1998
hectares of the industrial land as a Special Economic and Republic Act No. 7916, LIPCO has been registered
Zone; as an Ecozone Developer/Operator of Luisita Industrial
Park II located in San Miguel, Tarlac, Tarlac.
(d) Resolution No. 234 dated 08 August 1997 of the
Sangguniang Bayan of Tarlac, approving the Final While a mere reclassification of a covered agricultural
Development Permit for the Luisita Industrial Park II land or its inclusion in an economic zone does not
Project; automatically allow the corporate or individual landowner
to change its use,158 the reclassification process is a
(e) Development Permit dated 13 August 1997 for the
prima facie indicium that the land has ceased to be
proposed Luisita Industrial Park II Project issued by the
Office of the Sangguniang Bayan of Tarlac;155 economically feasible and sound for agricultural uses.
And if only to stress, DAR Conversion Order No.
(f) DENR Environmental Compliance Certificate dated 01 030601074-764-(95) issued in 1996 by then DAR
October 1997 issued for the proposed project of building Secretary Garilao had effectively converted 500 hectares
an industrial complex on three hundred (300) hectares of of hacienda land from agricultural to
industrial land;156 industrial/commercial use and authorized their
disposition.
(g) Certificate of Registration No. 00794 dated 26
December 1997 issued by the HLURB on the project of
In relying upon the above-mentioned approvals,
Luisita Industrial Park II with an area of three million
(3,000,000) square meters;157 proclamation and conversion order, both RCBC and
LIPCO cannot be considered at fault for believing that
(h) License to Sell No. 0076 dated 26 December 1997 certain portions of Hacienda Luisita are
issued by the HLURB authorizing the sale of lots in the industrial/commercial lands and are, thus, outside the
Luisita Industrial Park II; ambit of CARP. The PARC, and consequently DAR,
gravely abused its discretion when it placed LIPCO’s and
(i) Proclamation No. 1207 dated 22 April 1998 entitled RCBC’s property which once formed part of Hacienda
"Declaring Certain Parcels of Private Land in Barangay Luisita under the CARP compulsory acquisition scheme
San Miguel, Municipality of Tarlac, Province of Tarlac, as via the assailed Notice of Coverage.
a Special Economic Zone pursuant to Republic Act No.
As regards the 80.51-hectare land transferred to the obedience and respect. Parties may have acted under it
government for use as part of the SCTEX, this should and may have changed their positions. What could be
also be excluded from the compulsory agrarian reform more fitting than that in a subsequent litigation regard be
coverage considering that the transfer was consistent had to what has been done while such legislative or
with the government’s exercise of the power of eminent executive act was in operation and presumed to be valid
domain159 and none of the parties actually questioned the in all respects. It is now accepted as a doctrine that prior
transfer. to its being nullified, its existence as a fact must be
reckoned with. This is merely to reflect awareness that
While We affirm the revocation of the SDP on Hacienda precisely because the judiciary is the government organ
Luisita subject of PARC Resolution Nos. 2005-32- which has the final say on whether or not a legislative or
01 and 2006-34-01, the Court cannot close its eyes to executive measure is valid, a period of time may have
certain "operative facts" that had occurred in the interim. elapsed before it can exercise the power of judicial
Pertinently, the "operative fact" doctrine realizes that, in review that may lead to a declaration of nullity. It would
declaring a law or executive action null and void, or, by be to deprive the law of its quality of fairness and justice
extension, no longer without force and effect, undue then, if there be no recognition of what had transpired
harshness and resulting unfairness must be avoided. prior to such adjudication.
This is as it should realistically be, since rights might
have accrued in favor of natural or juridical persons and In the language of an American Supreme Court decision:
obligations justly incurred in the meantime.160 The actual "The actual existence of a statute, prior to such a
existence of a statute or executive act is, prior to such a determination of [unconstitutionality], is an operative fact
determination, an operative fact and may have and may have consequences which cannot justly be
consequences which cannot justly be ignored; the past ignored. The past cannot always be erased by a new
cannot always be erased by a new judicial declaration.161 judicial declaration. The effect of the subsequent ruling as
to invalidity may have to be considered in various
The oft-cited De Agbayani v. Philippine National aspects,––with respect to particular relations, individual
Bank162 discussed the effect to be given to a legislative or and corporate, and particular conduct, private and
executive act subsequently declared invalid: official." x x x
x x x It does not admit of doubt that prior to the Given the above perspective and considering that more
declaration of nullity such challenged legislative or than two decades had passed since the PARC’s approval
executive act must have been in force and had to be of the HLI’s SDP, in conjunction with numerous activities
complied with. This is so as until after the judiciary, in an performed in good faith by HLI, and the reliance by the
appropriate case, declares its invalidity, it is entitled to FWBs on the legality and validity of the PARC-approved
SDP, perforce, certain rights of the parties, more revocation of the SDOA. Sec. Pangandaman’s
particularly the FWBs, have to be respected pursuant to recommendation was favorably endorsed by the PARC
the application in a general way of the operative fact Validation Committee to the PARC Excom, and these
doctrine. recommendations were referred to in the assailed
Resolution No. 2005-32-01. Clearly, it is not the SDOA
A view, however, has been advanced that the operative which was made the basis for the implementation of the
fact doctrine is of minimal or altogether without relevance stock distribution scheme.
to the instant case as it applies only in considering the
effects of a declaration of unconstitutionality of a statute, That the operative fact doctrine squarely applies to
and not of a declaration of nullity of a contract. This is executive acts––in this case, the approval by PARC of
incorrect, for this view failed to consider is that it is NOT the HLI proposal for stock distribution––is well-settled in
the SDOA dated May 11, 1989 which was revoked in the our jurisprudence. In Chavez v. National Housing
instant case. Rather, it is PARC’s approval of the HLI’s Authority,163 We held:
Proposal for Stock Distribution under CARP which
embodied the SDP that was nullified. Petitioner postulates that the "operative fact" doctrine is
inapplicable to the present case because it is an
A recall of the antecedent events would show that on equitable doctrine which could not be used to
May 11, 1989, Tadeco, HLI, and the qualified FWBs countenance an inequitable result that is contrary to its
executed the SDOA. This agreement provided the basis proper office.
and mechanics of the SDP that was subsequently
proposed and submitted to DAR for approval. It was only On the other hand, the petitioner Solicitor General argues
after its review that the PARC, through then Sec. that the existence of the various agreements
Defensor-Santiago, issued the assailed Resolution No. implementing the SMDRP is an operative fact that can no
89-12-2 approving the SDP. Considerably, it is not the longer be disturbed or simply ignored, citing Rieta v.
SDOA which gave legal force and effect to the stock People of the Philippines.
distribution scheme but instead, it is the approval of the
SDP under the PARC Resolution No. 89-12-2 that gave it The argument of the Solicitor General is meritorious.
its validity.
The "operative fact" doctrine is embodied in De Agbayani
The above conclusion is bolstered by the fact that in Sec. v. Court of Appeals, wherein it is stated that a legislative
Pangandaman’s recommendation to the PARC Excom, or executive act, prior to its being declared as
what he proposed is the recall/revocation of PARC unconstitutional by the courts, is valid and must be
Resolution No. 89-12-2 approving HLI’s SDP, and not the complied with, thus:
xxx xxx xxx We do not agree. In Tañada, the Court addressed the
possible effects of its declaration of the invalidity of
This doctrine was reiterated in the more recent case of various presidential issuances. Discussing therein how
City of Makati v. Civil Service Commission, wherein we such a declaration might affect acts done on a
ruled that: presumption of their validity, the Court said:
Moreover, we certainly cannot nullify the City ". . .. In similar situations in the past this Court had taken
Government's order of suspension, as we have no the pragmatic and realistic course set forth in Chicot
reason to do so, much less retroactively apply such County Drainage District vs. Baxter Bank to wit:
nullification to deprive private respondent of a compelling
and valid reason for not filing the leave application. For ‘The courts below have proceeded on the theory that the
as we have held, a void act though in law a mere scrap of Act of Congress, having been found to be
paper nonetheless confers legitimacy upon past acts or unconstitutional, was not a law; that it was inoperative,
omissions done in reliance thereof. Consequently, the conferring no rights and imposing no duties, and hence
existence of a statute or executive order prior to its being affording no basis for the challenged decree. . . . It is
adjudged void is an operative fact to which legal quite clear, however, that such broad statements as to
consequences are attached. It would indeed be ghastly the effect of a determination of unconstitutionality must
unfair to prevent private respondent from relying upon the be taken with qualifications. The actual existence of a
order of suspension in lieu of a formal leave application. statute, prior to [the determination of its invalidity], is an
(Citations omitted; Emphasis supplied.) operative fact and may have consequences which cannot
justly be ignored. The past cannot always be erased by a
The applicability of the operative fact doctrine to new judicial declaration. The effect of the subsequent
executive acts was further explicated by this Court in ruling as to invalidity may have to be considered in
Rieta v. People,164 thus: various aspects — with respect to particular conduct,
private and official. Questions of rights claimed to have
Petitioner contends that his arrest by virtue of Arrest become vested, of status, of prior determinations deemed
Search and Seizure Order (ASSO) No. 4754 was invalid, to have finality and acted upon accordingly, of public
as the law upon which it was predicated — General policy in the light of the nature both of the statute and of
Order No. 60, issued by then President Ferdinand E. its previous application, demand examination. These
Marcos — was subsequently declared by the Court, in questions are among the most difficult of those which
Tañada v. Tuvera, 33 to have no force and effect. Thus, have engaged the attention of courts, state and federal,
he asserts, any evidence obtained pursuant thereto is and it is manifest from numerous decisions that an all-
inadmissible in evidence.
inclusive statement of a principle of absolute retroactive say that it was the SDOA which was annulled in the
invalidity cannot be justified.’ instant case. Evidently, the operative fact doctrine is
applicable.
xxx xxx xxx
IV.
"Similarly, the implementation/enforcement of presidential
decrees prior to their publication in the Official Gazette is While the assailed PARC resolutions effectively nullifying
‘an operative fact which may have consequences which the Hacienda Luisita SDP are upheld, the revocation
cannot be justly ignored. The past cannot always be must, by application of the operative fact principle, give
erased by a new judicial declaration . . . that an all- way to the right of the original 6,296 qualified FWBs to
inclusive statement of a principle of absolute retroactive choose whether they want to remain as HLI stockholders
invalidity cannot be justified.’" or not. The Court cannot turn a blind eye to the fact that
in 1989, 93% of the FWBs agreed to the SDOA (or the
The Chicot doctrine cited in Tañada advocates that, prior MOA), which became the basis of the SDP approved by
to the nullification of a statute, there is an imperative PARC per its Resolution No. 89-12-2 dated November
necessity of taking into account its actual existence as an 21, 1989. From 1989 to 2005, the FWBs were said to
operative fact negating the acceptance of "a principle of have received from HLI salaries and cash benefits,
absolute retroactive invalidity." Whatever was done while hospital and medical benefits, 240-square meter
the legislative or the executive act was in operation homelots, 3% of the gross produce from agricultural
should be duly recognized and presumed to be valid in all lands, and 3% of the proceeds of the sale of the 500-
respects. The ASSO that was issued in 1979 under hectare converted land and the 80.51-hectare lot sold to
General Order No. 60 — long before our Decision in SCTEX. HLI shares totaling 118,391,976.85 were
Tañada and the arrest of petitioner — is an operative fact distributed as of April 22, 2005.166 On August 6, 20l0, HLI
that can no longer be disturbed or simply ignored. and private respondents submitted a Compromise
(Citations omitted; Emphasis supplied.) Agreement, in which HLI gave the FWBs the option of
acquiring a piece of agricultural land or remain as HLI
To reiterate, although the assailed Resolution No. 2005- stockholders, and as a matter of fact, most FWBs
32-01 states that it revokes or recalls the SDP, what it indicated their choice of remaining as stockholders.
actually revoked or recalled was the PARC’s approval of These facts and circumstances tend to indicate that
the SDP embodied in Resolution No. 89-12-2. some, if not all, of the FWBs may actually desire to
Consequently, what was actually declared null and void continue as HLI shareholders. A matter best left to their
was an executive act, PARC Resolution No. 89-12- own discretion.
2,165 and not a contract (SDOA). It is, therefore, wrong to
With respect to the other FWBs who were not listed as There is a claim that, since the sale and transfer of the
qualified beneficiaries as of November 21, 1989 when the 500 hectares of land subject of the August 14, 1996
SDP was approved, they are not accorded the right to Conversion Order and the 80.51-hectare SCTEX lot
acquire land but shall, however, continue as HLI came after compulsory coverage has taken place, the
stockholders. All the benefits and homelots167 received by FWBs should have their corresponding share of the
the 10,502 FWBs (6,296 original FWBs and 4,206 non- land’s value. There is merit in the claim. Since the SDP
qualified FWBs) listed as HLI stockholders as of August approved by PARC Resolution No. 89-12-2 has been
2, 2010 shall be respected with no obligation to refund or nullified, then all the lands subject of the SDP will
return them since the benefits (except the homelots) were automatically be subject of compulsory coverage under
received by the FWBs as farmhands in the agricultural Sec. 31 of RA 6657. Since the Court excluded the 500-
enterprise of HLI and other fringe benefits were granted hectare lot subject of the August 14, 1996 Conversion
to them pursuant to the existing collective bargaining Order and the 80.51-hectare SCTEX lot acquired by the
agreement with Tadeco. If the number of HLI shares in government from the area covered by SDP, then HLI and
the names of the original FWBs who opt to remain as HLI its subsidiary, Centennary, shall be liable to the FWBs for
stockholders falls below the guaranteed allocation of the price received for said lots. HLI shall be liable for the
18,804.32 HLI shares per FWB, the HLI shall assign value received for the sale of the 200-hectare land to
additional shares to said FWBs to complete said LRC in the amount of PhP 500,000,000 and the
minimum number of shares at no cost to said FWBs. equivalent value of the 12,000,000 shares of its
subsidiary, Centennary, for the 300-hectare lot sold to
With regard to the homelots already awarded or LIPCO for the consideration of PhP 750,000,000.
earmarked, the FWBs are not obliged to return the same Likewise, HLI shall be liable for PhP 80,511,500 as
to HLI or pay for its value since this is a benefit granted consideration for the sale of the 80.51-hectare SCTEX
under the SDP. The homelots do not form part of the lot.
4,915.75 hectares covered by the SDP but were taken
from the 120.9234 hectare residential lot owned by We, however, note that HLI has allegedly paid 3% of the
Tadeco. Those who did not receive the homelots as of proceeds of the sale of the 500-hectare land and 80.51-
the revocation of the SDP on December 22, 2005 when hectare SCTEX lot to the FWBs. We also take into
PARC Resolution No. 2005-32-01 was issued, will no account the payment of taxes and expenses relating to
longer be entitled to homelots. Thus, in the determination the transfer of the land and HLI’s statement that most, if
of the ultimate agricultural land that will be subjected to not all, of the proceeds were used for legitimate corporate
land distribution, the aggregate area of the homelots will purposes. In order to determine once and for all whether
no longer be deducted. or not all the proceeds were properly utilized by HLI and
its subsidiary, Centennary, DAR will engage the services
of a reputable accounting firm to be approved by the distributed to FWBs by DAR had they not opted to stay in
parties to audit the books of HLI to determine if the HLI.
proceeds of the sale of the 500-hectare land and the
80.51-hectare SCTEX lot were actually used for HLI shall be paid just compensation for the remaining
legitimate corporate purposes, titling expenses and in agricultural land that will be transferred to DAR for land
compliance with the August 14, 1996 Conversion Order. distribution to the FWBs. We find that the date of the
The cost of the audit will be shouldered by HLI. If after "taking" is November 21, 1989, when PARC approved
such audit, it is determined that there remains a balance HLI’s SDP per PARC Resolution No. 89-12-2. DAR shall
from the proceeds of the sale, then the balance shall be coordinate with LBP for the determination of just
distributed to the qualified FWBs. compensation. We cannot use May 11, 1989 when the
SDOA was executed, since it was the SDP, not the
A view has been advanced that HLI must pay the FWBs SDOA, that was approved by PARC.
yearly rent for use of the land from 1989. We disagree. It
should not be forgotten that the FWBs are also The instant petition is treated pro hac vice in view of the
stockholders of HLI, and the benefits acquired by the peculiar facts and circumstances of the case.
corporation from its possession and use of the land
ultimately redounded to the FWBs’ benefit based on its WHEREFORE, the instant petition is DENIED. PARC
business operations in the form of salaries, and other Resolution No. 2005-32-01 dated December 22, 2005 and
fringe benefits under the CBA. To still require HLI to pay Resolution No. 2006-34-01 dated May 3, 2006, placing the
rent to the FWBs will result in double compensation. lands subject of HLI’s SDP under compulsory coverage
on mandated land acquisition scheme of the CARP, are
For sure, HLI will still exist as a corporation even after the hereby AFFIRMED with the MODIFICATION that the
revocation of the SDP although it will no longer be original 6,296 qualified FWBs shall have the option to
operating under the SDP, but pursuant to the Corporation remain as stockholders of HLI. DAR shall immediately
Code as a private stock corporation. The non-agricultural schedule meetings with the said 6,296 FWBs and explain
assets amounting to PhP 393,924,220 shall remain with to them the effects, consequences and legal or practical
HLI, while the agricultural lands valued at PhP implications of their choice, after which the FWBs will be
196,630,000 with an original area of 4,915.75 hectares asked to manifest, in secret voting, their choices in the
shall be turned over to DAR for distribution to the FWBs. ballot, signing their signatures or placing their
To be deducted from said area are the 500-hectare lot thumbmarks, as the case may be, over their printed
subject of the August 14, 1996 Conversion Order, the names.
80.51-hectare SCTEX lot, and the total area of 6,886.5
square meters of individual lots that should have been
Of the 6,296 FWBs, he or she who wishes to continue as The aforementioned area composed of 6,886.5-square
an HLI stockholder is entitled to 18,804.32 HLI shares, meter lots allotted to the FWBs who stayed with the
and, in case the HLI shares already given to him or her is corporation shall form part of the HLI assets.
less than 18,804.32 shares, the HLI is ordered to issue or
distribute additional shares to complete said prescribed HLI is directed to pay the 6,296 FWBs the consideration
number of shares at no cost to the FWB within thirty (30) of PhP 500,000,000 received by it from Luisita Realty,
days from finality of this Decision. Other FWBs who do Inc. for the sale to the latter of 200 hectares out of the
not belong to the original 6,296 qualified beneficiaries are 500 hectares covered by the August 14, 1996 Conversion
not entitled to land distribution and shall remain as HLI Order, the consideration of PhP 750,000,000 received by
shareholders. All salaries, benefits, 3% production share its owned subsidiary, Centennary Holdings, Inc. for the
and 3% share in the proceeds of the sale of the 500- sale of the remaining 300 hectares of the aforementioned
hectare converted land and the 80.51-hectare SCTEX lot 500-hectare lot to Luisita Industrial Park Corporation, and
and homelots already received by the 10,502 FWBs, the price of PhP 80,511,500 paid by the government
composed of 6,296 original FWBs and 4,206 non- through the Bases Conversion Development Authority for
qualified FWBs, shall be respected with no obligation to the sale of the 80.51-hectare lot used for the construction
refund or return them. of the SCTEX road network. From the total amount of
PhP 1,330,511,500 (PhP 500,000,000 + PhP
Within thirty (30) days after determining who from among 750,000,000 + PhP 80,511,500 = PhP 1,330,511,500)
the original FWBs will stay as stockholders, DAR shall shall be deducted the 3% of the total gross sales from the
segregate from the HLI agricultural land with an area of production of the agricultural land and the 3% of the
4,915.75 hectares subject of PARC’s SDP-approving proceeds of said transfers that were paid to the FWBs,
Resolution No. 89-12-2 the following: (a) the 500-hectare the taxes and expenses relating to the transfer of titles to
lot subject of the August 14, l996 Conversion Order; (b) the transferees, and the expenditures incurred by HLI
the 80.51-hectare lot sold to, or acquired by, the and Centennary Holdings, Inc. for legitimate corporate
government as part of the SCTEX complex; and (c) the purposes. For this purpose, DAR is ordered to engage
aggregate area of 6,886.5 square meters of individual the services of a reputable accounting firm approved by
lots that each FWB is entitled to under the CARP had he the parties to audit the books of HLI and Centennary
or she not opted to stay in HLI as a stockholder. After the Holdings, Inc. to determine if the PhP 1,330,511,500
segregation process, as indicated, is done, the remaining proceeds of the sale of the three (3) aforementioned lots
area shall be turned over to DAR for immediate land were used or spent for legitimate corporate purposes.
distribution to the original qualified FWBs who opted not Any unspent or unused balance as determined by the
to remain as HLI stockholders. audit shall be distributed to the 6,296 original FWBs.
HLI is entitled to just compensation for the agricultural
land that will be transferred to DAR to be reckoned from
November 21, 1989 per PARC Resolution No. 89-12-2.
DAR and LBP are ordered to determine the
compensation due to HLI.
DAR shall submit a compliance report after six (6)
months from finality of this judgment. It shall also submit,
after submission of the compliance report, quarterly
reports on the execution of this judgment to be submitted
within the first 15 days at the end of each quarter, until
fully implemented.
The temporary restraining order is lifted.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
under the laws of the Philippines,4 on the ground that
petitioner lacked legal capacity to sue.5
Republic of the Philippines
SUPREME COURT The Antecedents
Manila
On 14 January 2003, Kanemitsu Yamaoka (hereinafter
SECOND DIVISION referred to as the "licensor"), co-patentee of U.S. Patent
No. 5,484,619, Philippine Letters Patent No. 31138, and
G.R. No. 185582 February 29, 2012 Indonesian Patent No. ID0003911 (collectively referred to
as the "Yamaoka Patent"),6 and five (5) Philippine tuna
TUNA PROCESSING, INC., Petitioner, processors, namely, Angel Seafood Corporation, East
vs. Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa
PHILIPPINE KINGFORD, INC., Respondent. Cruz Seafoods, Inc., and respondent Kingford
(collectively referred to as the
DECISION "sponsors"/"licensees")7 entered into a Memorandum of
Agreement (MOA),8 pertinent provisions of which read:
PEREZ, J.:
1. Background and objectives. The Licensor, co-owner
Can a foreign corporation not licensed to do business in of U.S.Patent No. 5,484,619, Philippine Patent No. 31138,
the Philippines, but which collects royalties from entities and Indonesian Patent No. ID0003911 xxx wishes to form
in the Philippines, sue here to enforce a foreign arbitral an alliance with Sponsors for purposes of enforcing his
award? three aforementioned patents, granting licenses under
those patents, and collecting royalties.
In this Petition for Review on Certiorari under Rule
45,1 petitioner Tuna Processing, Inc. (TPI), a foreign The Sponsors wish to be licensed under the
aforementioned patents in order to practice the processes
corporation not licensed to do business in the Philippines, claimed in those patents in the United States, the
prays that the Resolution2 dated 21 November 2008 of the Philippines, and Indonesia, enforce those patents and
Regional Trial Court (RTC) of Makati City be declared collect royalties in conjunction with Licensor.
void and the case be remanded to the RTC for further
proceedings. In the assailed Resolution, the RTC xxx
dismissed petitioner’s Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral 4. Establishment of Tuna Processors, Inc. The parties
Award3 against respondent Philippine Kingford, Inc. hereto agree to the establishment of Tuna Processors,
(Kingford), a corporation duly organized and existing Inc. ("TPI"), a corporation established in the State of
California, in order to implement the objectives of this KINGFORD to CLAIMANT TPI, is the sum of ONE
Agreement. MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT
HUNDRED FORTY SIX DOLLARS AND TEN CENTS
5. Bank account. TPI shall open and maintain bank ($1,750,846.10).
accounts in the United States, which will be used
exclusively to deposit funds that it will collect and to
disburse cash it will be obligated to spend in connection (A) For breach of the MOA by not paying past due
with the implementation of this Agreement. assessments, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of TWO HUNDRED
TWENTY NINE THOUSAND THREE HUNDRED AND
6. Ownership of TPI. TPI shall be owned by the FIFTY FIVE DOLLARS AND NINETY CENTS
Sponsors and Licensor. Licensor shall be assigned one ($229,355.90) which is 20% of MOA assessments since
share of TPI for the purpose of being elected as member September 1, 2005[;]
of the board of directors. The remaining shares of TPI
shall be held by the Sponsors according to their
respective equity shares. 9 (B) For breach of the MOA in failing to cooperate
with CLAIMANT TPI in fulfilling the objectives of
the MOA, RESPONDENT KINGFORD shall
xxx pay CLAIMANT the total sum of TWO HUNDRED
SEVENTY ONE THOUSAND FOUR HUNDRED NINETY
The parties likewise executed a Supplemental DOLLARS AND TWENTY CENTS ($271,490.20)[;]14 and
Memorandum of Agreement10 dated 15 January 2003 and
an Agreement to Amend Memorandum of (C) For violation of THE LANHAM ACT and infringement
Agreement11 dated 14 July 2003. of the YAMAOKA 619 PATENT, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of ONE
Due to a series of events not mentioned in the petition, MILLION TWO HUNDRED FIFTY THOUSAND
DOLLARS AND NO CENTS ($1,250,000.00). xxx
the licensees, including respondent Kingford, withdrew
from petitioner TPI and correspondingly reneged on their xxx15
obligations.12 Petitioner submitted the dispute for
arbitration before the International Centre for Dispute To enforce the award, petitioner TPI filed on 10 October
Resolution in the State of California, United States and 2007 a Petition for Confirmation, Recognition, and
won the case against respondent.13 Pertinent portions of Enforcement of Foreign Arbitral Award before the RTC of
the award read: Makati City. The petition was raffled to Branch 150
presided by Judge Elmo M. Alameda.
13.1 Within thirty (30) days from the date of transmittal of
this Award to the Parties, pursuant to the terms of this At Branch 150, respondent Kingford filed a Motion to
award, the total sum to be paid by RESPONDENT Dismiss.16 After the court denied the motion for lack of
merit,17 respondent sought for the inhibition of Judge sued or proceeded against before Philippine courts or
Alameda and moved for the reconsideration of the order administrative tribunals on any valid cause of action
denying the motion.18 Judge Alameda inhibited himself recognized under Philippine laws.
notwithstanding "[t]he unfounded allegations and
unsubstantiated assertions in the motion."19 Judge Cedrick It is pursuant to the aforequoted provision that the court a
O. Ruiz of Branch 61, to which the case was re-raffled, in quo dismissed the petition. Thus:
turn, granted respondent’s Motion for Reconsideration
and dismissed the petition on the ground that the Herein plaintiff TPI’s "Petition, etc." acknowledges that it
petitioner lacked legal capacity to sue in the Philippines.20 "is a foreign corporation established in the State of
California" and "was given the exclusive right to license
Petitioner TPI now seeks to nullify, in this instant Petition or sublicense the Yamaoka Patent" and "was assigned
for Review on Certiorari under Rule 45, the order of the the exclusive right to enforce the said patent and collect
trial court dismissing its Petition for Confirmation, corresponding royalties" in the Philippines. TPI likewise
Recognition, and Enforcement of Foreign Arbitral Award. admits that it does not have a license to do business in
the Philippines.
Issue
There is no doubt, therefore, in the mind of this Court that
The core issue in this case is whether or not the court a TPI has been doing business in the Philippines, but sans
quo was correct in so dismissing the petition on the a license to do so issued by the concerned government
ground of petitioner’s lack of legal capacity to sue. agency of the Republic of the Philippines, when it
collected royalties from "five (5) Philippine tuna
Our Ruling processors[,] namely[,] Angel Seafood Corporation, East
Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa
The petition is impressed with merit. Cruz Seafoods, Inc. and respondent Philippine Kingford,
Inc." This being the real situation, TPI cannot be
The Corporation Code of the Philippines expressly permitted to maintain or intervene in any action, suit or
provides: proceedings in any court or administrative agency of the
Philippines." A priori, the "Petition, etc." extant of the
Sec. 133. Doing business without a license. - No plaintiff TPI should be dismissed for it does not have the
foreign corporation transacting business in the legal personality to sue in the Philippines.21
Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any The petitioner counters, however, that it is entitled to
action, suit or proceeding in any court or administrative seek for the recognition and enforcement of the subject
agency of the Philippines; but such corporation may be
foreign arbitral award in accordance with Republic Act Koruga’s invocation of the provisions of the Corporation
No. 9285 (Alternative Dispute Resolution Act of Code is misplaced. In an earlier case with similar
2004),22 the Convention on the Recognition and antecedents, we ruled that:
Enforcement of Foreign Arbitral Awards drafted during
the United Nations Conference on International "The Corporation Code, however, is a general law
Commercial Arbitration in 1958 (New York Convention), applying to all types of corporations, while the New
and the UNCITRAL Model Law on International Central Bank Act regulates specifically banks and other
Commercial Arbitration (Model Law),23 as none of these financial institutions, including the dissolution and
specifically requires that the party seeking for the liquidation thereof. As between a general and special law,
enforcement should have legal capacity to sue. It anchors the latter shall prevail – generalia specialibus non
its argument on the following: derogant." (Emphasis supplied)26
In the present case, enforcement has been effectively Further, in the recent case of Hacienda Luisita,
refused on a ground not found in the [Alternative Dispute Incorporated v. Presidential Agrarian Reform
Resolution Act of 2004], New York Convention, or Model Council,27 this Court held:
Law. It is for this reason that TPI has brought this matter
before this most Honorable Court, as it [i]s imperative to Without doubt, the Corporation Code is the general law
clarify whether the Philippines’ international obligations providing for the formation, organization and regulation of
and State policy to strengthen arbitration as a means of private corporations. On the other hand, RA 6657 is the
dispute resolution may be defeated by misplaced special law on agrarian reform. As between a general
technical considerations not found in the relevant laws.24 and special law, the latter shall prevail—generalia
specialibus non derogant.28
Simply put, how do we reconcile the provisions of
the Corporation Code of the Philippines on one hand, and Following the same principle, the Alternative Dispute
the Alternative Dispute Resolution Act of 2004, the New Resolution Act of 2004 shall apply in this case as
York Convention and the Model Law on the other? the Act, as its title - An Act to Institutionalize the Use of
an Alternative Dispute Resolution System in the
In several cases, this Court had the occasion to discuss Philippines and to Establish the Office for Alternative
the nature and applicability of the Corporation Code of Dispute Resolution, and for Other Purposes - would
the Philippines, a general law, viz-a-viz other special suggest, is a law especially enacted "to actively promote
laws. Thus, in Koruga v. Arcenas, Jr.,25 this Court rejected party autonomy in the resolution of disputes or the
the application of the Corporation Code and applied the freedom of the party to make their own arrangements to
New Central Bank Act. It ratiocinated: resolve their disputes."29 It specifically provides exclusive
grounds available to the party opposing an application for Sec. 19. Adoption of the Model Law on International
recognition and enforcement of the arbitral award.30 Commercial Arbitration. International commercial
arbitration shall be governed by the Model Law on
Inasmuch as the Alternative Dispute Resolution Act of International Commercial Arbitration (the "Model Law")
2004, a municipal law, applies in the instant petition, we adopted by the United Nations Commission on
do not see the need to discuss compliance with International Trade Law on June 21, 1985 xxx."
international obligations under the New York
Convention and the Model Law. After all, both already Now, does a foreign corporation not licensed to do
form part of the law. business in the Philippines have legal capacity to sue
under the provisions of the Alternative Dispute Resolution
In particular, the Alternative Dispute Resolution Act of Act of 2004? We answer in the affirmative.
2004 incorporated the New York Convention in the Act by
specifically providing: Sec. 45 of the Alternative Dispute Resolution Act of
2004 provides that the opposing party in an application
SEC. 42. Application of the New York Convention. - The for recognition and enforcement of the arbitral award may
New York Convention shall govern the recognition and raise only those grounds that were enumerated under
enforcement of arbitral awards covered by the said Article V of the New York Convention, to wit:
Convention.
Article V
xxx
1. Recognition and enforcement of the award may be
SEC. 45. Rejection of a Foreign Arbitral Award. - A party refused, at the request of the party against whom it is
invoked, only if that party furnishes to the competent
to a foreign arbitration proceeding may oppose an authority where the recognition and enforcement is
application for recognition and enforcement of the arbitral sought, proof that:
award in accordance with the procedural rules to be
promulgated by the Supreme Court only on those (a) The parties to the agreement referred to in
grounds enumerated under Article V of the New York article II were, under the law applicable to them,
Convention. Any other ground raised shall be under some incapacity, or the said agreement is
disregarded by the regional trial court. not valid under the law to which the parties have
subjected it or, failing any indication thereon,
under the law of the country where the award was
It also expressly adopted the Model Law, to wit: made; or
(b) The party against whom the award is invoked (b) The recognition or enforcement of the award
was not given proper notice of the appointment of would be contrary to the public policy of that
the arbitrator or of the arbitration proceedings or country.
was otherwise unable to present his case; or
Clearly, not one of these exclusive grounds touched on
(c) The award deals with a difference not the capacity to sue of the party seeking the recognition
contemplated by or not falling within the terms of and enforcement of the award.
the submission to arbitration, or it contains
decisions on matters beyond the scope of the
submission to arbitration, provided that, if the Pertinent provisions of the Special Rules of Court on
decisions on matters submitted to arbitration can Alternative Dispute Resolution,31 which was promulgated
be separated from those not so submitted, that by the Supreme Court, likewise support this position.
part of the award which contains decisions on
matters submitted to arbitration may be Rule 13.1 of the Special Rules provides that "[a]ny party
recognized and enforced; or to a foreign arbitration may petition the court to recognize
and enforce a foreign arbitral award." The contents of
(d) The composition of the arbitral authority or the
such petition are enumerated in Rule 13.5.32 Capacity to
arbitral procedure was not in accordance with the
agreement of the parties, or, failing such sue is not included. Oppositely, in the Rule on local
agreement, was not in accordance with the law of arbitral awards or arbitrations in instances where "the
the country where the arbitration took place; or place of arbitration is in the Philippines,"33 it is specifically
required that a petition "to determine any question
(e) The award has not yet become binding on the concerning the existence, validity and enforceability of
parties, or has been set aside or suspended by a such arbitration agreement"34 available to the parties
competent authority of the country in which, or before the commencement of arbitration and/or a petition
under the law of which, that award was made.
for "judicial relief from the ruling of the arbitral tribunal on
a preliminary question upholding or declining its
2. Recognition and enforcement of an arbitral award may
also be refused if the competent authority in the country jurisdiction"35 after arbitration has already commenced
where recognition and enforcement is sought finds that: should state "[t]he facts showing that the persons named
as petitioner or respondent have legal capacity to sue or
(a) The subject matter of the difference is not be sued."36
capable of settlement by arbitration under the law
of that country; or Indeed, it is in the best interest of justice that in the
enforecement of a foreign arbitral award, we deny
availment by the losing party of the rule that bars foreign
corporations not licensed to do business in the
Philippines from maintaining a suit in our courts. When a enforcement of the award in Philippine court, since
party enters into a contract containing a foreign the Model Law prescribes substantially identical exclusive
arbitration clause and, as in this case, in fact submits grounds for refusing recognition or enforcement.40
itself to arbitration, it becomes bound by the contract, by
the arbitration and by the result of arbitration, conceding Premises considered, petitioner TPI, although not
thereby the capacity of the other party to enter into the licensed to do business in the Philippines, may seek
contract, participate in the arbitration and cause the recognition and enforcement of the foreign arbitral award
implementation of the result. Although not on all fours in accordance with the provisions of the Alternative
with the instant case, also worthy to consider is the Dispute Resolution Act of 2004.
questions, this Court has the ultimate say so that we 26. Admittedly, reference to "Branch 67" in petitioner
merely abbreviate the review process if we, because of TPI’s "Motion for Time to File a Petition for Review on
the unique circumstances of a case, choose to hear and Certiorari under Rule 45" is a typographical error. As
decide the legal issues outright.45 correctly pointed out by respondent Kingford, the order
sought to be assailed originated from Regional Trial
Moreover, the novelty and the paramount importance of Court, Makati City, Branch 61.
the issue herein raised should be seriously
considered.46 Surely, there is a need to take cognizance of 27. xxx Upon confirmation with the Regional Trial Court,
the case not only to guide the bench and the bar, but if Makati City, Branch 61, a copy of petitioner TPI’s motion
only to strengthen arbitration as a means of dispute was received by the Metropolitan Trial Court, Makati City,
resolution, and uphold the policy of the State embodied in Branch 67. On 8 January 2009, the motion was
the Alternative Dispute Resolution Act of 2004, to wit: forwarded to the Regional Trial Court, Makati City,
Branch 61.48
Sec. 2. Declaration of Policy. - It is hereby declared the
policy of the State to actively promote party autonomy in All considered, petitioner TPI, although a foreign
the resolution of disputes or the freedom of the party to corporation not licensed to do business in the Philippines,
make their own arrangements to resolve their disputes. is not, for that reason alone, precluded from filing
Towards this end, the State shall encourage and actively the Petition for Confirmation, Recognition, and
promote the use of Alternative Dispute Resolution (ADR)
Enforcement of Foreign Arbitral Award before a
Philippine court.
WHEREFORE, the Resolution dated 21 November 2008
of the Regional Trial Court, Branch 61, Makati City in
Special Proceedings No. M-6533 is
hereby REVERSED and SET ASIDE. The case
is REMANDED to Branch 61 for further proceedings.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice
G.R. No. 144805 June 8, 2006 was the General Manager and President of EC, while
Claude Frederick Delsaux was the Regional Director for
EDUARDO V. LINTONJUA, JR. and ANTONIO K. Asia of ESAC. Both had their offices in Belgium.
LITONJUA, Petitioners,
vs.
In 1986, the management of ESAC grew concerned
ETERNIT CORPORATION (now ETERTON MULTI-
RESOURCES CORPORATION), ETEROUTREMER, S.A. and about the political situation in the Philippines and wanted
FAR EAST BANK & TRUST COMPANY, Respondents. to stop its operations in the country. The Committee for
Asia of ESAC instructed Michael Adams, a member of
DECISION EC’s Board of Directors, to dispose of the eight parcels of
land. Adams engaged the services of realtor/broker Lauro
CALLEJO, SR., J.: G. Marquez so that the properties could be offered for
sale to prospective buyers. Glanville later showed the
On appeal via a Petition for Review on Certiorari is the properties to Marquez.
Decision1 of the Court of Appeals (CA) in CA-G.R. CV
No. 51022, which affirmed the Decision of the Regional Marquez thereafter offered the parcels of land and the
Trial Court (RTC), Pasig City, Branch 165, in Civil Case improvements thereon to Eduardo B. Litonjua, Jr. of the
No. 54887, as well as the Resolution2 of the CA denying Litonjua & Company, Inc. In a Letter dated September
the motion for reconsideration thereof. 12, 1986, Marquez declared that he was authorized to
sell the properties for P27,000,000.00 and that the terms
The Eternit Corporation (EC) is a corporation duly of the sale were subject to negotiation.4
organized and registered under Philippine laws. Since
1950, it had been engaged in the manufacture of roofing Eduardo Litonjua, Jr. responded to the offer. Marquez
materials and pipe products. Its manufacturing operations showed the property to Eduardo Litonjua, Jr., and his
were conducted on eight parcels of land with a total area brother Antonio K. Litonjua. The Litonjua siblings offered
of 47,233 square meters. The properties, located in to buy the property for P20,000,000.00 cash. Marquez
Mandaluyong City, Metro Manila, were covered by apprised Glanville of the Litonjua siblings’ offer and
Transfer Certificates of Title Nos. 451117, 451118, relayed the same to Delsaux in Belgium, but the latter did
451119, 451120, 451121, 451122, 451124 and 451125 not respond. On October 28, 1986, Glanville telexed
under the name of Far East Bank & Trust Company, as Delsaux in Belgium, inquiring on his position/
trustee. Ninety (90%) percent of the shares of stocks of counterproposal to the offer of the Litonjua siblings. It
EC were owned by Eteroutremer S.A. Corporation was only on February 12, 1987 that Delsaux sent a telex
(ESAC), a corporation organized and registered under to Glanville stating that, based on the "Belgian/Swiss
the laws of Belgium.3 Jack Glanville, an Australian citizen, decision," the final offer was "US$1,000,000.00
and P2,500,000.00 to cover all existing obligations prior sale would no longer proceed. Glanville followed it up
to final liquidation."5 with a Letter dated May 7, 1987, confirming that he had
been instructed by his principal to inform Marquez that
Marquez furnished Eduardo Litonjua, Jr. with a copy of "the decision has been taken at a Board Meeting not to
the telex sent by Delsaux. Litonjua, Jr. accepted the sell the properties on which Eternit Corporation is
counterproposal of Delsaux. Marquez conferred with situated."10
Glanville, and in a Letter dated February 26, 1987,
confirmed that the Litonjua siblings had accepted the Delsaux himself later sent a letter dated May 22, 1987,
counter-proposal of Delsaux. He also stated that the confirming that the ESAC Regional Office had decided
Litonjua siblings would confirm full payment within 90 not to proceed with the sale of the subject land, to wit:
days after execution and preparation of all documents of
sale, together with the necessary governmental May 22, 1987
clearances.6
Mr. L.G. Marquez
The Litonjua brothers deposited the amount of L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
US$1,000,000.00 with the Security Bank & Trust 6767 Ayala Avenue
Company, Ermita Branch, and drafted an Escrow Makati, Metro Manila
Agreement to expedite the sale.7 Philippines
The Litonjuas then filed a complaint for specific The counterclaim of Eternit Corporation now Eterton
performance and damages against EC (now the Eterton Multi-Resources Corporation and Eteroutremer, S.A. is
Multi-Resources Corporation) and the Far East Bank & also dismissed for lack of merit.13
Trust Company, and ESAC in the RTC of Pasig City. An
amended complaint was filed, in which defendant EC was The trial court declared that since the authority of the
substituted by Eterton Multi-Resources Corporation; agents/realtors was not in writing, the sale is void and not
Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and merely unenforceable, and as such, could not have been
Deogracias G. Eufemio were impleaded as additional ratified by the principal. In any event, such ratification
defendants on account of their purchase of ESAC shares cannot be given any retroactive effect. Plaintiffs could not
of stocks and were the controlling stockholders of EC. assume that defendants had agreed to sell the property
without a clear authorization from the corporation
In their answer to the complaint, EC and ESAC alleged concerned, that is, through resolutions of the Board of
that since Eteroutremer was not doing business in the Directors and stockholders. The trial court also pointed
Philippines, it cannot be subject to the jurisdiction of
out that the supposed sale involves substantially all the reconsideration, which was also denied by the appellate
assets of defendant EC which would result in the court.
eventual total cessation of its operation.14
The CA ruled that Marquez, who was a real estate
The Litonjuas appealed the decision to the CA, alleging broker, was a special agent within the purview of Article
that "(1) the lower court erred in concluding that the real 1874 of the New Civil Code. Under Section 23 of the
estate broker in the instant case needed a written Corporation Code, he needed a special authority from
authority from appellee corporation and/or that said EC’s board of directors to bind such corporation to the
broker had no such written authority; and (2) the lower sale of its properties. Delsaux, who was merely the
court committed grave error of law in holding that representative of ESAC (the majority stockholder of EC)
appellee corporation is not legally bound for specific had no authority to bind the latter. The CA pointed out
performance and/or damages in the absence of an that Delsaux was not even a member of the board of
enabling resolution of the board of directors."15 They directors of EC. Moreover, the Litonjuas failed to prove
averred that Marquez acted merely as a broker or go- that an agency by estoppel had been created between
between and not as agent of the corporation; hence, it the parties.
was not necessary for him to be empowered as such by
any written authority. They further claimed that an agency In the instant petition for review, petitioners aver that
by estoppel was created when the corporation clothed
Marquez with apparent authority to negotiate for the sale I
of the properties. However, since it was a bilateral
contract to buy and sell, it was equivalent to a perfected THE COURT OF APPEALS ERRED IN HOLDING
contract of sale, which the corporation was obliged to THAT THERE WAS NO PERFECTED
CONTRACT OF SALE.
consummate.
II
In reply, EC alleged that Marquez had no written authority
from the Board of Directors to bind it; neither were THE APPELLATE COURT COMMITTED GRAVE
Glanville and Delsaux authorized by its board of directors ERROR OF LAW IN HOLDING THAT MARQUEZ
to offer the property for sale. Since the sale involved NEEDED A WRITTEN AUTHORITY FROM
substantially all of the corporation’s assets, it would RESPONDENT ETERNIT BEFORE THE SALE
necessarily need the authority from the stockholders. CAN BE PERFECTED.
7. More importantly, Exhibits "G" and "H" of the In the meantime, I remain
Respondents, which evidenced the fact that Petitioners’
offer was allegedly REJECTED by both Glanville and Yours sincerely,
Delsaux.18
C.F. DELSAUX19
Petitioners insist that it is incongruous for Glanville and
Delsaux to make a counter-offer to petitioners’ offer and Petitioners further emphasize that they acted in good
thereafter reject such offer unless they were authorized to faith when Glanville and Delsaux were knowingly
do so by respondent EC. Petitioners insist that Delsaux permitted by respondent EC to sell the properties within
confirmed his authority to sell the properties in his letter the scope of an apparent authority. Petitioners insist that
to Marquez, to wit: respondents held themselves to the public as possessing
power to sell the subject properties.
Dear Sir,
By way of comment, respondents aver that the issues
Re: Land of Eternit Corporation raised by the petitioners are factual, hence, are
proscribed by Rule 45 of the Rules of Court. On the
I would like to confirm officially that our Group has
merits of the petition, respondents EC (now EMC) and
decided not to proceed with the sale of the land
which was proposed to you. ESAC reiterate their submissions in the CA. They
maintain that Glanville, Delsaux and Marquez had no
The Committee for Asia of our Group met recently authority from the stockholders of respondent EC and its
(meeting every six months) and examined the Board of Directors to offer the properties for sale to the
position as far as the Philippines are (sic) petitioners, or to any other person or entity for that
concerned. Considering the new political situation matter. They assert that the decision and resolution of the
since the departure of MR. MARCOS and a CA are in accord with law and the evidence on record,
certain stabilization in the Philippines, the
and should be affirmed in toto.
Committee has decided not to stop our operations
in Manila[.] [I]n fact production started again last
week, and (sic) to reorganize the participation in Petitioners aver in their subsequent pleadings that
the Corporation. respondent EC, through Glanville and Delsaux,
conformed to the written authority of Marquez to sell the
properties. The authority of Glanville and Delsaux to bind
respondent EC is evidenced by the fact that Glanville and that the trial and appellate courts ignored, misconstrued,
Delsaux negotiated for the sale of 90% of stocks of or misapplied facts and circumstances of substance
respondent EC to Ruperto Tan on June 1, 1997. Given which, if considered, would warrant a modification or
the significance of their positions and their duties in reversal of the outcome of the case.22
respondent EC at the time of the transaction, and the fact
that respondent ESAC owns 90% of the shares of stock It must be stressed that issues of facts may not be raised
of respondent EC, a formal resolution of the Board of in the Court under Rule 45 of the Rules of Court because
Directors would be a mere ceremonial formality. What is the Court is not a trier of facts. It is not to re-examine and
important, petitioners maintain, is that Marquez was able assess the evidence on record, whether testimonial and
to communicate the offer of respondent EC and the documentary. There are, however, recognized exceptions
petitioners’ acceptance thereof. There was no time that where the Court may delve into and resolve factual
they acted without the knowledge of respondents. In fact, issues, namely:
respondent EC never repudiated the acts of Glanville,
Marquez and Delsaux. (1) When the conclusion is a finding grounded entirely on
speculations, surmises, or conjectures; (2) when the
The petition has no merit. inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion;
Anent the first issue, we agree with the contention of (4) when the judgment is based on a misapprehension of
respondents that the issues raised by petitioner in this facts; (5) when the findings of fact are conflicting; (6)
case are factual. Whether or not Marquez, Glanville, and when the Court of Appeals, in making its findings, went
Delsaux were authorized by respondent EC to act as its beyond the issues of the case and the same is contrary
agents relative to the sale of the properties of respondent to the admissions of both appellant and appellee; (7)
EC, and if so, the boundaries of their authority as agents, when the findings of the Court of Appeals are contrary to
is a question of fact. In the absence of express written those of the trial court; (8) when the findings of fact are
terms creating the relationship of an agency, the conclusions without citation of specific evidence on which
existence of an agency is a fact question.20 Whether an they are based; (9) when the Court of Appeals manifestly
agency by estoppel was created or whether a person overlooked certain relevant facts not disputed by the
acted within the bounds of his apparent authority, and parties, which, if properly considered, would justify a
whether the principal is estopped to deny the apparent different conclusion; and (10) when the findings of fact of
authority of its agent are, likewise, questions of fact to be the Court of Appeals are premised on the absence of
resolved on the basis of the evidence on record.21 The evidence and are contradicted by the evidence on
findings of the trial court on such issues, as affirmed by record.23
the CA, are conclusive on the Court, absent evidence
We have reviewed the records thoroughly and find that Indeed, a corporation is a juridical person separate and
the petitioners failed to establish that the instant case distinct from its members or stockholders and is not
falls under any of the foregoing exceptions. Indeed, the affected by the personal rights,
assailed decision of the Court of Appeals is supported by
the evidence on record and the law. obligations and transactions of the latter.25 It may act only
through its board of directors or, when authorized either
It was the duty of the petitioners to prove that respondent by its by-laws or by its board resolution, through its
EC had decided to sell its properties and that it had officers or agents in the normal course of business. The
empowered Adams, Glanville and Delsaux or Marquez to general principles of agency govern the relation between
offer the properties for sale to prospective buyers and to the corporation and its officers or agents, subject to the
accept any counter-offer. Petitioners likewise failed to articles of incorporation, by-laws, or relevant provisions of
prove that their counter-offer had been accepted by law.26
respondent EC, through Glanville and Delsaux. It must be
stressed that when specific performance is sought of a Under Section 36 of the Corporation Code, a corporation
contract made with an agent, the agency must be may sell or convey its real properties, subject to the
established by clear, certain and specific proof.24 limitations prescribed by law and the Constitution, as
follows:
Section 23 of Batas Pambansa Bilang 68, otherwise
known as the Corporation Code of the Philippines, SEC. 36. Corporate powers and capacity. – Every
provides: corporation incorporated under this Code has the power
and capacity:
EE
SEC. 23. The Board of Directors or Trustees. – Unless
otherwise provided in this Code, the corporate powers of xxxx
all corporations formed under this Code shall be
exercised, all business conducted and all property of 7. To purchase, receive, take or grant, hold, convey, sell,
such corporations controlled and held by the board of lease, pledge, mortgage and otherwise deal with such
directors or trustees to be elected from among the real and personal property, including securities and
holders of stocks, or where there is no stock, from among bonds of other corporations, as the transaction of a lawful
the members of the corporation, who shall hold office for business of the corporation may reasonably and
one (1) year and until their successors are elected and necessarily require, subject to the limitations prescribed
qualified. by the law and the Constitution.
The property of a corporation, however, is not the latter.32 Consent of both principal and agent is necessary
property of the stockholders or members, and as such, to create an agency. The principal must intend that the
may not be sold without express authority from the board agent shall act for him; the agent must intend to accept
of directors.27 Physical acts, like the offering of the the authority and act on it, and the intention of the parties
properties of the corporation for sale, or the acceptance must find expression either in words or conduct between
of a counter-offer of prospective buyers of such them.33
properties and the execution of the deed of sale covering
such property, can be performed by the corporation only An agency may be expressed or implied from the act of
by officers or agents duly authorized for the purpose by the principal, from his silence or lack of action, or his
corporate by-laws or by specific acts of the board of failure to repudiate the agency knowing that another
directors.28 Absent such valid delegation/authorization, person is acting on his behalf without authority.
the rule is that the declarations of an individual director Acceptance by the agent may be expressed, or implied
relating to the affairs of the corporation, but not in the from his acts which carry out the agency, or from his
course of, or connected with, the performance of silence or inaction according to the
authorized duties of such director, are not binding on the circumstances.34 Agency may be oral unless the law
corporation.29 requires a specific form.35 However, to create or convey
real rights over immovable property, a special power of
While a corporation may appoint agents to negotiate for attorney is necessary.36 Thus, when a sale of a piece of
the sale of its real properties, the final say will have to be land or any portion thereof is through an agent, the
with the board of directors through its officers and agents authority of the latter shall be in writing, otherwise, the
as authorized by a board resolution or by its by-laws.30 An sale shall be void.37
unauthorized act of an officer of the corporation is not
binding on it unless the latter ratifies the same expressly In this case, the petitioners as plaintiffs below, failed to
or impliedly by its board of directors. Any sale of real adduce in evidence any resolution of the Board of
property of a corporation by a person purporting to be an Directors of respondent EC empowering Marquez,
agent thereof but without written authority from the Glanville or Delsaux as its agents, to sell, let alone offer
corporation is null and void. The declarations of the agent for sale, for and in its behalf, the eight parcels of land
alone are generally insufficient to establish the fact or owned by respondent EC including the improvements
extent of his/her authority.31 thereon. The bare fact that Delsaux may have been
authorized to sell to Ruperto Tan the shares of stock of
By the contract of agency, a person binds himself to respondent ESAC, on June 1, 1997, cannot be used as
render some service or to do something in representation basis for petitioners’ claim that he had likewise been
on behalf of another, with the consent or authority of the authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams While Glanville was the President and General Manager
and Glanville acted on the authority of Delsaux, who, in of respondent EC, and Adams and Delsaux were
turn, acted on the authority of respondent ESAC, through members of its Board of Directors, the three acted for and
its Committee for Asia,38the Board of Directors of in behalf of respondent ESAC, and not as duly authorized
respondent ESAC,39 and the Belgian/Swiss component of agents of respondent EC; a board resolution evincing the
the management of respondent ESAC.40 As such, Adams grant of such authority is needed to bind EC to any
and Glanville engaged the services of Marquez to offer to agreement regarding the sale of the subject properties.
sell the properties to prospective buyers. Thus, on Such board resolution is not a mere formality but is a
September 12, 1986, Marquez wrote the petitioner that condition sine qua non to bind respondent EC.
he was authorized to offer for sale the property Admittedly, respondent ESAC owned 90% of the shares
for P27,000,000.00 and the other terms of the sale of stocks of respondent EC; however, the mere fact that a
subject to negotiations. When petitioners offered to corporation owns a majority of the shares of stocks of
purchase the property for P20,000,000.00, through another, or even all of such shares of stocks, taken
Marquez, the latter relayed petitioners’ offer to Glanville; alone, will not justify their being treated as one
Glanville had to send a telex to Delsaux to inquire the corporation.43
position of respondent ESAC to petitioners’ offer.
However, as admitted by petitioners in their It bears stressing that in an agent-principal relationship,
Memorandum, Delsaux was unable to reply immediately the personality of the principal is extended through the
to the telex of Glanville because Delsaux had to wait for facility of the agent. In so doing, the agent, by legal
confirmation from respondent ESAC.41 When Delsaux fiction, becomes the principal, authorized to perform all
finally responded to Glanville on February 12, 1987, he acts which the latter would have him do. Such a
made it clear that, based on the "Belgian/Swiss decision" relationship can only be effected with the consent of the
the final offer of respondent ESAC was US$1,000,000.00 principal, which must not, in any way, be compelled by
plus P2,500,000.00 to cover all existing obligations prior law or by any court.44
to final liquidation.42 The offer of Delsaux emanated only
from the "Belgian/Swiss decision," and not the entire The petitioners cannot feign ignorance of the absence of
management or Board of Directors of respondent ESAC. any regular and valid authority of respondent EC
While it is true that petitioners accepted the counter-offer empowering Adams, Glanville or Delsaux to offer the
of respondent ESAC, respondent EC was not a party to properties for sale and to sell the said properties to the
the transaction between them; hence, EC was not bound petitioners. A person dealing with a known agent is not
by such acceptance. authorized, under any circumstances, blindly to trust the
agents; statements as to the extent of his powers; such
person must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent allowed the agent to assume such authority; (2) the third
acts within the scope of his authority.45 The settled rule is person, in good faith, relied upon such representation; (3)
that, persons dealing with an assumed agent are bound relying upon such representation, such third person has
at their peril, and if they would hold the principal liable, to changed his position to his detriment.48 An agency by
ascertain not only the fact of agency but also the nature estoppel, which is similar to the doctrine of apparent
and extent of authority, and in case either is controverted, authority, requires proof of reliance upon the
the burden of proof is upon them to prove it.46 In this representations, and that, in turn, needs proof that the
case, the petitioners failed to discharge their burden; representations predated the action taken in
hence, petitioners are not entitled to damages from reliance.49 Such proof is lacking in this case. In their
respondent EC. communications to the petitioners, Glanville and Delsaux
positively and unequivocally declared that they were
It appears that Marquez acted not only as real estate acting for and in behalf of respondent ESAC.
broker for the petitioners but also as their agent. As
gleaned from the letter of Marquez to Glanville, on Neither may respondent EC be deemed to have ratified
February 26, 1987, he confirmed, for and in behalf of the the transactions between the petitioners and respondent
petitioners, that the latter had accepted such offer to sell ESAC, through Glanville, Delsaux and Marquez. The
the land and the improvements thereon. However, we transactions and the various communications inter se
agree with the ruling of the appellate court that Marquez were never submitted to the Board of Directors of
had no authority to bind respondent EC to sell the subject respondent EC for ratification.
properties. A real estate broker is one who negotiates the
sale of real properties. His business, generally speaking, IN LIGHT OF ALL THE FOREGOING, the petition is
is only to find a purchaser who is willing to buy the land DENIED for lack of merit. Costs against the petitioners.
upon terms fixed by the owner. He has no authority to
bind the principal by signing a contract of sale. Indeed, an SO ORDERED.
authority to find a purchaser of real property does not
include an authority to sell.47 ROMEO J. CALLEJO, SR.
Associate Justice
Equally barren of merit is petitioners’ contention that
respondent EC is estopped to deny the existence of a
principal-agency relationship between it and Glanville or
Delsaux. For an agency by estoppel to exist, the following
must be established: (1) the principal manifested a
representation of the agent’s authority or knowlingly
by the shareholders, not by their appointment thereto by the
President of the Republic.
Republic of the Philippines
SUPREME COURT The Case
Manila
Before us is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court assailing the Decision of the Court of
THIRD DIVISION Appeals 1 (CA) promulgated on October 23, 1997, as well as its
subsequent Resolution 2 dated December 2, 1997, denying
petitioner's Motion for Reconsideration.
G.R. No. 131715 December 8, 1999 The CA effectively affirmed 3 the October 2, 1996 Order issued by
the Securities and Exchange Commission, 4 which disposed as
PHILIPPINE NATIONAL CONSTRUCTION follows:
CORPORATION, petitioner,
vs. WHEREFORE, premises, considered, this Petition
ERNESTO PABION and LOUELLA RAMIRO, respondents. is hereby GRANTED. The President or the
Chairman of the PNCC is hereby ordered to call a
special stockholder's meeting within thirty (30)
days from receipt of this order for the purpose of
PANGANIBAN, J.: electing the members of the Board to hold office
up to March, 1997 or until the next stockholders'
The Securities and Exchange Commission (SEC) has jurisdiction meeting will be held. Accordingly, the Corporate
over corporations organized pursuant to the Corporation Code, Secretary of PNCC is hereby directed to issue
even if the majority or controlling shares are owned by the required notices to the stockholders. 5
government. Hence, it can competently order the holding of a
shareholders' meeting for the purpose of electing the corporate In a subsequent Resolution dated April 11, 1997, 6 SEC denied
board of directors. While the SEC may not have authority over reconsideration, clarification and annulment of said Order.
government corporations with original charters or those created
by special law, it does have jurisdiction over "acquired asset The Facts
corporations" as defined in AO 59. Specifically, the Philippine
National Construction Company (PNCC) may be ordered by SEC The Court of Appeals adequately narrates the facts in this wise:
to hold a shareholders' meeting to elect its board of directors in
accordance with its Articles of Incorporation and By-Laws as well On September 16, 1994, private
as with the Corporation Code. The chairman and the members of respondents Ernesto Pabion and Louella Ramiro,
the PNCC Board of Directors hold office by virtue of their election claiming to be stockholders of the PNCC, filed
with the SEC a verified petition, therein alleging
that since 1982 or for a period of twelve (12) Chairman of the board shall
€
years, there has been no stockholders' meeting of likewise be appointed by the
the PNCC to elect the corporation's board of President upon the
directors, thus enabling the incumbent directors to recommendation of the Secretary.
hold on to their position beyond their 1-year term,
in violation of PNCC's By-Laws and the In the same answer, PNCC expressed the fear
Corporation Code. Pabion and Ramiro, therefore, that if granted, the prayer in the verified petition
prayed the SEC to issue an order "ordering the would amount to a contravention of AO No. 59
officers of PNCC or, in the alternative, authorizing and an interference with the President's power of
petitioners, to call and hold a meeting of the control and appointment over government-owned
stockholders . . . for the purpose of electing new and/or controlled corporations (GOCCs). PNCC
directors . . . ." Docketed as SEC Case No. 09-94- added that under Executive Order No. 399, series
4876, the verified petition was assigned to SEC of 1951, a GOCC is not required to hold a general
Hearing Officer Manuel Perea. meeting of stockholders but, instead, the general
manager thereof is merely required to submit an
In due time, PNCC filed its answer. annual report to the President of the Philippines.
Therein, PNCC claimed that it is a government-
owned corporation whose "organizational and In the ensuing pre-trial conference conducted by
functional management, administration, and Hearing Officer Perea, the parties defined the
supervision" are governed by Administrative Order issues, as follows:
(AO) No. 59, issued by then President Corazon
Aquino on February 16, 1988. PNCC asserts that (a) Whether or not
its board of directors does not hold office by virtue PNCC is a GOCC
of a stockholder's election but by appointment of subject to and
the President of the Philippines, relying on Article governed by LOI
IV, Section 16 [1], of AO No. 59, which reads: 1295 (1983), AO
No. 59 (1988) and
(1) Governing Boards. — GOCC Executive Order
(government-owned and/or No. 399 (1951), or
controlled corporation) shall be by its articles-of-
governed by a Board of Directors incorporation and
or equivalent body composed of by-laws only.
an appropriate number of
members to be appointed by the (b) Whether or not
President of the Philippines upon PNCC is required
the recommendation of the to call a regular
Secretary of whose Department annual
the GOCC is attached. The
stockholder's competence of the Commission to
meetings. determine.
on the basis of which the parties agreed to submit Unless said ruling/opinion is
the case for resolution after they shall have filed obtained by either or both parties,
their respective memoranda, which they did. further proceedings should be held
in abeyance.
It appears, however, that in a motion dated
September 4, 1995, Pabion and Ramiro prayed SO ORDERED.
for the re-opening of the pre-trial conference on
the ground that the "common assumption" on the Their motion for reconsideration of the
75% ownership by several government financial aforequoted order having been denied by the
institutions (GFIs) in the PNCC was proved false same Hearing Officer in his subsequent order of
by their discovery that the GFI[s] are merely a April 10, 1996, Pabion and Ramiro then went to
minority among the owners of PNCC. They, the Commission en banc via a petition
therefore, moved that a trial be conducted to for certiorari. Thus came about SEC-EB
determine the extent of ownership by the No. 495 wherein therein
government in the PNCC. petitioners Pabion and Ramiro sought the
nullification of Hearing Officer Perea's twin orders
Acting on the aforementioned motion, SEC of January 30, 1996 and April 10, 1996 for having
Hearing Officer Perea issued, on January 30, been allegedly issued with grave abuse of
1996, the following order: discretion amounting to lack or in excess of
jurisdiction. In the same recourse, the two likewise
In view of the necessity of a prior asked the SEC en banc to direct Perea to proceed
determination of whether or not with the trial on the merits of SEC Case No. 09-
respondent Philippine National 94-4876.
Construction Corporation (PNCC)
is a government owned or In its first assailed order of October 2, 1996, the
controlled corporation before SEC en banc declared Hearing Officer Perea to
resolving the instant incident, have acted with grave abuse of discretion in
either or both of the parties are issuing his two (2) questioned orders. The
hereby directed to secure a Commission ruled that Perea should have
ruling/opinion from competent conducted a trial on the merits to resolve the
authority as to whether or not the factual issue of whether PNCC is majority or only
PNCC is a government minority-owned by the government. Explains the
corporation or not, as the matter Commission en banc in its challenged order:
does not fall within the
Sec. 5 [b] of P.D. # 902-A confers to what law governs a corporation is the manner
on SEC original and exclusive of its creation, adding that PNCC is an "acquired
jurisdiction to hear and decide asset corporation" which, by express provision of
intra-corporate controversies. The Section 2 of AO No. 59, "is not considered as a
main issue in the petition is clearly GOCC". And taking judicial notice of PNCC's by-
an intra-corporate dispute as it is a laws thereunder the corporation's directors "shall
controversy between the be elected at the annual meeting of the
petitioners as stockholders of stockholders", the Commission en
PNCC and respondent corporation banc concluded that PNCC "is therefore, required
PNCC regarding the holding of to conduct a regular stockholder's meeting for the
regular stockholder's meeting. purpose of electing its Board of Directors,
This matter, therefore, falls within considering that the Corporation Code and its own
the scope of the jurisdiction of the By-Laws require the holding of such meeting.
SEC. In resolving the main issue
of whether PNCC should hold xxx xxx xxx
regular stockholder's meetings,
the hearing officer has jurisdiction A timely motion for reconsideration was filed by
to resolve the incidental issue of the PNCC but the same was denied by the
whether PNCC is a GOCC or not. Commission en banc in its assailed Resolution of
Having validly acquired original April 11, 1997. 7 (citations omitted but bold types
and exclusive jurisdiction over the and italics found in original)
instant petition, the public
respondent is mandated to hear Ruling of the Court of Appeals
and decide all the issues involved
in the dispute.
Upholding SEC, the Court of Appeals declared that PNCC,
though majority-owned by government financial institutions
In the same order, the Commission en banc,
(GFIs), retained its character as a private corporation. As such,
instead of remanding the case to the Hearing
PNCC was required under the Corporation Code to hold regular
Officer to resolve the question of whether PNCC
shareholders' meetings to elect its board of directors. The CA
is government-owned or controlled, itself resolved
ruled:
the issue by holding that PNCC, "being
incorporated under the Corporation Code, is,
therefore, subject to Section 50 of the Corporation The petition lacks merit.
Code which requires the holding of regular
stockholders' meeting for the purpose of selecting Although the case reached the SEC en
PNCC's Board of Directors", citing, as basis banc through a petition for certiorari, the said body
therefor the ruling in PNOC-EDC vs. NLRC, 20 is not helpless to resolve the controversy on its
SCRA 487, to the effect that the determination as substantive merits. There are indications that
PNCC is not a GOCC which the SEC en leaving no root or branch to bear
banc cannot ignore. A trial for the purpose of the seeds of future litigation. Thus,
determining the status of PNCC is unnecessary in Francisco v. City of Davao (12
since the issue can be resolved on the basis of SCRA 682), this Court resolved to
records. A remand will only delay the resolution of decide the case on the merits
the case and frustrate the ends of justice. instead of remanding it to the trial
court for further proceedings since
It may be so, as pointed out by petitioner PNCC, the ends of justice would not be
that the rule which allows the SEC en banc to subserved by the remand of the
correct instances of grave abuse of discretion is case. In Republic v. Security
patterned after Rule 65 of the 1997 Rules of Civil Credit and Acceptance
Procedure, and therefore, it is only proper that the Corporation, et. al. (19 SCRA 58),
SEC en bancadhere to the pronouncements of the this Court, finding that the main
Supreme Court on the proper treatment of issue is one of law, resolved to
petitions for review on certiorari under Rule 65. It decide the case on the merits
is equally true, however, that the rule enunciated "because public interest demands
in several cases to the effect that the inquiry in a an early disposition of the case",
petition for certiorari is limited only to searching for and in Republic v. Central Surety
traces of grave abuse [of] discretion is not cast in and Insurance Company, (25
stone. For sure, the Supreme Court no less has SCRA 641), this Court denied
resolved factual issues in certiorari cases on the remand of the third-party
basis of the records before it. If the Supreme complaint to the trial court for
Court can relax the restriction on the disposition further proceedings, citing
of certiorari cases, We see no reason why a mere precedents where this Court, in
quasi-administrative body unsaddled by the similar situations, resolved to
stringent rules of procedure, like the SEC en decide the cases on the merits,
banc, cannot follow the High Court's example, instead of remanding them to the
more so when, as rationalized by the same Court trial court where (a) the ends of
in Gokongwei, Jr. vs. Securities and Exchange justice would not be subserved by
Commission, et. al., 89 SCRA 336, 360, the the remand of the case; or (b)
underlying justification for the relaxation of the rule where public interest demand an
applies to the instant case as well. Says the High early disposition of the case; or (c)
Court in that case: where the trial court ha[s] already
received all the evidence
It is an accepted rule of procedure presented by both parties and the
that the Supreme court should Supreme Court is now in a
always strive to settle the entire position, based upon said
controversy in single proceeding,
evidence, to decide the case on corporate controversies emanates from law and
the merits. . . . PNCC cannot divest the Commission of that
jurisdiction. As the body charged with exclusive
Moreover, it cannot be denied that the parties authority over intra-corporate controversies, aside
herein are embroiled in an intra-corporate from being possessed under Section 3 of PD No.
controversy and the question on the identity of 902-A, as amended, with absolute jurisdiction
PNCC is only an incident of that over all corporations which are grantees of
controversy. Pabion and Ramiro are among the primary franchise from the government, the
stockholders of PNCC, a circumstance which SEC en banc can be trusted with the competence
classifies the dispute as an intra-corporate to distinguish a private corporation from a GOCC.
controversy. The authority of the Commission to
determine whether or not PNCC can be The second assigned error must likewise fall.
compelled to hold a stockholders' meeting is
unquestioned as even PNCC itself concedes that Administrative Order No. 59 does not consider the
the "issues of the propriety of calling a so-called acquired asset corporations, although
stockholders" meeting is within the competence of majority owned by the government, as GOCCs.
the SEC". The source of authority of the SEC over The salient provisions of AO No. 59 read, as
the present case can be found in Section 5(b) of follows:
Presidential Decree (PD) No. 902-A, as amended,
which empowers the SEC to hear and resolve Sec. 2. Definition of Terms. — As used in this
cases involving "controversies arising out of intra- Administrative Order, the following terms shall
corporate or partnership relations, between and mean:
among are stockholders, members, or associates;
between any or all of them and the corporation, (a) Government-
partnership or association of which they are
⇐
owned and/or
stockholders, members or associates,
controlled
respectively; and between such corporation,
corporation,
partnership or association and the State insofar as
hereinafter referred
it concerns their individual franchise or right to
to as GOCC or
exist as such entity.
government
corporation, is a
The finding of the SEC en banc that PNCC is not corporation which
a GOCC was made in the exercise of its is created by
jurisdiction over an intra-corporate controversy. To special law or
disallow the Commission to determine the nature organized under
of petitioner PNCC is to deprive it of the power to the Corporation
resolve the intra-corporate controversy between
the parties. The jurisdiction of the SEC over intra- €
Code in which the
government,
directly or sequestration
indirectly, has
= Ior (2)
proceeding;
ownership of the which is a
majority of the subsidiary of a
€
capital or has
voting
control; Provided, E
government
corporation
organized
That an acquired exclusively to own
=
asset corporation and manage, or
as defined in the
next paragraph
€
lease, or operate
specific physical
shall not be assets acquired by
E
considered as
GOCC or
E
a government
financial institution
government in satisfaction of
corporation. debts incurred
=
therewith, and
e
(b) Acquired asset
corporation is a
which in any case
by law or by
corporation (1) enunciated policy
which is under is required to be
=
private ownership, =
disposed of to
the voting or private ownership
outstanding shares
of which (i) were I
within a specified
period of time.
conveyed to the
government In order to be considered as an acquired asset
agency,
= corporation, the aforequoted provision requires,
instrumentality or among other things, that the corporation's
corporation in conveyance of its outstanding shares to the
I
satisfaction of government must be aimed at the satisfaction of
debts whether by its debts. While, on one breath, petitioner admits
=
foreclosure or that the GFIs gained majority ownership of PNCC
otherwise, or (ii) by converting their loans into equity, on another
were duly acquired breath, petitioner denies that the debt-to-equity
=
by the government conversion resulted in the satisfaction of the
through final outstanding debts of PNCC because it did not pay
=
judgment in a the loans. If the loans remained unpaid as
maintained by PNCC, what then was the effect on product of strained interpretation of AO No. 59.
its debt when the GFIs converted their loans into The Administrative Order shows that there are
equity? It would be the height of irresponsibility for only two (2) classes of acquired asset
PNCC to surrender majority ownership of its corporations. Although the description of each
voting or outstanding shares without getting class is compressed in a single paragraph, the
something in return. When PNCC ceded the disjunctive word "or" separates the first class from
majority ownership to the GFIs, there could be no the second class which connotes a variance in
other motivation behind the action than PNCC's their characteristics. The word "or" is a disjunctive
desire to satisfy its obligation to the creditors. term signifying disassociation and independence
PNCC's effort to ward off the of one thing from each of the other things
exclusionary proviso of AO No. 59 only produces enumerated. It should, as a rule, be construed in
incongruity in its position. the sense in which it ordinarily implies, as a
disjunctive word. Each class has its own set of
The Case of Quimpo vs. Tanodbayan, 146 SCRA conditions. The conversion by the GFIs of their
137, cannot assist the petitioner's cause. There, loans into equity in PNOC is sufficient to transform
the Supreme Court's inquiry centered on whether it as an acquired asset corporation. The
or not Petrophil Corporation is a GOCC because requirement for a pretender for the status of an
an affirmative answer will affirm the Tanodbayan's acquired asset corporation to be subject to a law
jurisdiction over the Petrophil employees pursuant or policy that commands its privatization applies to
to the provisions of the Anti-Graft and Corrupt another class of acquired asset corporations
Practices Act. In declaring that Petrophil is a which does not include
GOCC, the Supreme Court deemed it crucial to its PNCC. 8 (citations omitted, emphasis in the
conclusion that Petrophil was purchased by the original)
government through the Philippine National Oil
Corporation, itself a GOCC. The situation of The Issue
Petrophil bears no parallelism with that of PNCC
because the latter was not purchased by the Disagreeing with the appellate court, petitioner lodged this
GFIs. The GFIs became majority owners of PNCC recourse before us 9 and presents these issues:
because they converted their loans into equity.
The manner of partial acquisition of PNCC by the 1. WHETHER OR NOT PNCC IS A GOCC;
GFIs fits the condition set forth in Section 2,
paragraph (b), subparagraph, (1) (i) of AO no.
2. WHETHER OR NOT THE SEC HAS
59, supra.
JURISDICTION TO ORDER PNCC TO HOLD A
STOCKHOLDERS' MEETING FOR THE
PNCC's position that it cannot be considered as PURPOSE OF ELECTING THE MEMBERS OF
an acquired asset corporation in the absence of ITS BOARD OF DIRECTORS;
law or "enunciated policy" mandating its
privatization within a definite period can only be a
3. WHETHER OR NOT PNCC IS REQUIRED assumption, petitioner asserts that SEC is without competence to
UNDER THE LAW TO HOLD A determine whether PNCC is a GOCC. 11 It insists that such a
STOCKHOLDERS' MEETING FOR THIS determination falls solely upon the President of Philippines and is
PURPOSE; AND therefore beyond SEC's jurisdiction.
4. WHETHER OR NOT THE SEC, We disagree. It is certainly absurd to say that SEC is without
IN CERTIORARI PROCEEDINGS, CAN RULE jurisdiction to determine if PNCC is a GOCC simply because the
ON THE MERITS OF A CASE EVEN BEFORE latter claims to be one. The President does not "determine"
THE HEARING OFFICER HAS RECEIVED whether a corporation is a GOCC or not. It is the law that does.
EVIDENCE. 10 PNCC's status as a GOCC can be ruled upon by SEC — as well
as by other competent authorities for that matter — based on law,
We shall take up the above issues in the following sequence: 1) specifically the Revised Administrative Code of 1987 12 which
Whether SEC can determine the corporate status of PNCC, 2) provides inter alia as follows:
whether SEC has jurisdiction over GOCCs, and 3) whether PNCC
is an acquired asset corporation. Sec. 2. General Terms Defined. — Unless the
O
specific words of the text, or the context as a
The Court's Ruling whole, or a particular statute, shall require a
different meaning:
The Petition has no merit. Simply stated, PNCC claims that SEC
has no jurisdiction over it and that members of the corporation's xxx xxx xxx
board of directors hold office, not by virtue of a shareholders'
election but by appointment of the President of the Philippines.
We hold that SEC has authority over PNCC and that the latter's
* (13) Government-owned or controlled
corporation — refers to any agency organized as
directors owe their offices to their shareholders and not to a stock or non-stock corporation, vested with
presidential fiat. To justify these plain conclusions, we need to functions relating to public needs whether
wade through rather complicated legal processes and reasoning governmental or proprietary in nature, and owned
in resolving seriatim the legal issues raised by petitioners. by the Government directly or through its
instrumentalities either wholly, or, where
First Issue: applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) per cent of its
May SEC Determine capital stock: Provided, That government owned
or controlled corporations may be further
categorized by the Department of Budget, the
Whether PNCC Is a GOCC?
Civil Service Commission, and the Commission
on Audit for purposes of the exercise and
Underlying this confusing controversy is the misconception that discharge of their respective powers, functions
government owned and/or controlled corporations (GOCCs) are and responsibilities with respect to such
beyond the jurisdiction of SEC. From this broad and sweeping corporations. (emphasis ours)
Thus, we agree with the CA that "the SEC en banc cab be trusted its actions on the fact that PNCC was organized pursuant to the
with the competence to distinguish a private corporation from a general corporation law and is thus subject to SEC regulation.
GOCC." 13 Whether such determination is correct would be an
altogether different matter. We agree with SEC because a remand would have merely
delayed unnecessarily the resolution of the question. As we have
SEC Ruled on the Merits said before and say so again:
Petitioner argues that certiorari, which was used by private A litigation is not a game of technicalities in which
respondents to challenge the ruling of the hearing officer before one, more deeply schooled and skilled in the
the SEC en banc, is generally limited to determining whether or subtle art of movement and position, entraps and
not there has been grave abuse of discretion committed by the destroys the other. It is, rather, a contest in which
officer below. It further claims that the SEC rule 14used by each contending party fully and fairly lays before
respondents was patterned after Rule 65 of the 1997 Rules of the court the facts in issue and then, brushing
Court. 15 Hence, the same principles governing the latter should aside as wholly trivial and indecisive all
apply to the former. It thus submits that SEC erred when it ruled imperfections of form and technicalities of
not only on the issue of jurisdiction but also on the merits of the procedure, ask that justice be done upon the
case. It contends that SEC en bancshould have limited itself to merits. Lawsuits, unlike duels, are not to be won
the issue of grave abuse and thereafter remanded the case below by a rapier's thrust. Technicality, when it deserts
for further proceedings. its proper office as an aid to justice and becomes
its great hindrance and chief enemy, deserves
Again, we disagree. What petitioner invokes is a general rule that scant consideration from courts. There should be
admits of exceptions. 16 As the CA aptly pointed out, this general no vested rights in technicalities. 21
rule "is not cast in stone." 17 Indeed, one chiseled exception arises
when the court or administrative agency is in a position to resolve Indeed, justice unnecessarily delayed is justice necessarily
the dispute on the merits based on the records before it. 18 That is, denied.
a reviewing court or agency may decide the lis mota of a case on
its merits if there are enough undisputed facts to warrant such Second Issue:
resolution.
Does SEC Have Jurisdiction over GOCCs?
Here we stress that SEC's ruling was factually based on the
judicial admission of petitioner that there was a debt-to-equity As adverted to above, petitioner proceeds from the erroneous
conversion of PNCC's obligations to several government financial proposition that SEC's "jurisdiction does not extend to . . . [a]
institutions (GFIs) pursuant to LOI 1295. 19 PNCC admits that at government-owned and controlled corporation or GOCC . .
least 76.48 percent of its equity is owned by GFI's. 20 Thus, in ." 22 This is an inaccurate generalization. GOCCs may either be
view of such admission extant on the records, SEC en banc was (1) with original charter or created by special law; or (2)
in a position to validly dispose of the controversy directly, without incorporated under general law, 23 via either the Old Corporation
need of remanding the matter to the hearing officer. It aptly based Code 24 or the New Corporation Code. 25
We concede that SEC has no jurisdiction over corporations of the does not really contradict the nature of the question presented
first type — GOCCs with original charter or created by special law and agrees that there is an intra-corporate question involved.
— primarily because they are governed by their charters. 26 But However, it emphasizes that the "main" question to be resolved is
even this concession is not absolute, since the Corporation Code the status of PNCC as a GOCC 33 which, it submits, is outside
may apply suppletorily, either by operation of law 27 or through SEC's competence to rule on. 34 As already explained, there is no
express provisions in the charter. 28 reason why SEC cannot make such determination which, though
not final and may be cannot subject to review, is nonetheless
On the other hand, we have no doubt that over GOCCs made pursuant to its exercise of its original and exclusive
established or organized under the Corporation Code, SEC can jurisdiction over cases involving controversies in the election of
exercise jurisdiction. These GOCCs are regarded as private directors. 35
corporations despite common misconceptions. 29 That the
government may own the controlling shares in the corporation SEC May Compel
does not diminish the fact that the latter owes its existence to the
Corporation Code. More pointedly, Section 143 of the Corporation Stockholders' Meeting
Code 30 gives SEC the authority and power to implement its
provisions, specifically for the purpose of regulating the entities Prescinding from the above premises, it necessarily follows that
created pursuant to such provisions. These entities include SEC can compel PNCC to hold a stockholders' meeting for the
corporations in which the controlling shares are owned by the purpose of electing members of the latter's board of
government or its agencies. directors. 36 This is clearly provided for by Section 50 of the
Corporation Code, which we quote:
Glaringly erroneous, therefore, is petitioner's reliance on Quimpo
v. Tanodbayan 31 and its theory that it is immaterial "whether a Sec. 50. Regular and special meetings of
corporation is acquired by purchase or through the conversion of stockholders or members. — . . . Whenever, for
the loans of the GFIs into equity in a corporation [because] such any cause, there is no person authorized to call a
corporation loses its status as a private corporation and attains a meeting, the Securities and Exchange
new status as a GOCC." 32 First, based on the discussion above, Commission, upon petition of a stockholder or
PNCC does not "lose" its status as a private corporation, even if member, and on the showing of good cause
we were to assume that it is a GOCC. Second, neither would therefor, may issue an order to the petitioning
such loss of status prevent it from being further classified into an stockholder or member directing him to call a
acquired asset corporation, as will be discussed below. meeting of the corporation by giving proper notice
required by this Code or by the by-laws. The
The Controversy Is Within petitioning stockholder or member shall preside
thereat until at least a majority of the stockholders
SEC Jurisdiction or members present have chosen one of their
member[s] as presiding officer. (emphasis ours)
SEC's assumption of jurisdiction over this case is proper, as the
controversy involves the election of PNCC's directors. Petitioner
As respondents point out, the SEC's action is also justified by its refusal of PNCC's Board of Directors to call said
regulatory and administrative powers 37 to implement the meeting, petitioners, as stockholders of PNCC,
Corporation Code, specifically to compel the PNCC to hold a can rightfully petition the SEC to order the same.
stockholders' meeting for election purposes. Apropos here is the
SEC's ruling as follows: Third Issue:
The Commission takes judicial notice of the What is the Status of PNCC?
PNCC by-laws as follows:
Petitioner differs from the foregoing conclusion and avers that
Art. V, Sec. 5 there is no necessity to hold a stockholders' meeting to elect
members of the board of directors, because the President of the
(1) The Board of Directors shall be Philippines is empowered to appoint them, by virtue of Article IV,
composed of eleven (11) directors. Section 16 (1) of Administrative Order No. 59 38 (December 5,
1988):
(2) The directors shall be elected
at the annual meeting of the xxx xxx xxx
stockholders, each director to hold
office for a term on one (1) year (1) Governing Boards. — A GOCC
and until his successor is duly shall be governed by a Board of
elected and qualified. Directors or equivalent body
composed of an appropriate
Art. IV Sec. 4 number of members to be
appointed by the President of the
(1) The annual meeting of the Philippines upon the
stockholders shall be held at 3:00 recommendation of the Secretary
P.M. on the fourth (4th) Tuesday to whose Department the GOCC is
of March every year. attached. The Chairman of the
Board shall likewise be appointed
Respondent PNCC is therefore required to by the President upon the
conduct a regular stockholders' meeting for the recommendation of the Secretary.
purpose of electing its Board of Directors,
considering that the Corporation Code and its own Respondents counter that the above-quoted provision is
By-Laws require the holding of such meeting. The inapplicable, since PNCC is not a GOCC. Instead, it is an
failure of PNCC to call and hold annual acquired asset corporation, based on the definition given in
stockholders' meetings since 1983 or for thirteen Section 2 (a) of the same law, AO 59:
(13) years constitutes a gross, continuing violation
of its by-laws and the Corporation Code. For the xxx xxx xxx
(a) Government-owned and/or within a specified period of time.
controlled corporation, hereinafter (emphasis supplied)
referred to as GOCC or
government corporation, is a Thus, at this point these questions arise: (a) Is PNCC an acquired
corporation which is created by asset corporation? (b) Is Section 2 of AO 59 inconsistent with
special law or organized under the Section 2 (13) of EO 292? (c) Is Section 16 of AO 59 applicable
Corporation Code in which the to PNCC?
Government, directly or indirectly,
has ownership of the majority of PNCC Is an Acquired
the capital or has voting
control; Provided that an acquired
Asset Corporation
asset corporation as defined in the
next paragraph shall not be
considered as GOCC or We agree with the respondents that PNCC falls under the
government corporation. exception carved out from Section 2 (a and b) above which
removes an acquired asset corporation from the category of a
GOCC. 39 In the context of the entire administrative order and in
*(b) Acquired asset corporation is a
corporation (1) which is under
relation to presidential issuances, 40 these provisions clearly
indicate that PNCC is indeed an acquired asset corporation. This
private ownership, the voting or
is because PNCC is a corporation that is, to quote said AO,
outstanding shares of which (i)
"under private ownership, the voting or outstanding shares of
were conveyed to the government
which (i) were conveyed to the government" financial institutions
or to a government agency,
"in satisfaction of debts . . .."
instrumentality or corporation in
satisfaction of debts whether by
foreclosure or otherwise, or (ii) Petitioner posits the interpretation that an acquired asset
were duly acquired by the corporation is one that is set to be privatized pursuant to a law or
government through final judgment an enunciated policy. 41 On this particular point, we agree. It
in a sequestration proceeding; or should be noted that under Section 2 (b) of AO 59, there are two
(2) which is a subsidiary of a kinds of acquired assets corporations: one, a corporation which is
government corporation organized "under private ownership, the voting or outstanding shares of
exclusively to own and manage, or which" were either conveyed to the government or to a
lease, or operate specific physical government agency, instrumentality or corporation in satisfaction
assets acquired by a government of debts whether by foreclosure or otherwise, or were duly
financial institution in satisfaction acquired by the government in a sequestration proceeding;
of debts incurred therewith, and and two, a corporation which is a subsidiary of a government
which in any case by law or by entity organized exclusively to own and manage, or lease or
enunciated policy is required to be operate specific physical assets acquired by a government
disposed of to private ownership financial institution in satisfaction of debts incurred therewith.
Both kinds of acquired asset corporations are by law or by the National Development Company (NDC). Certain
enunciated policy required to be privatized within a specified shares in PNCC were included. This fact was confirmed
period. Such interpretation of AO 59 is supported by Section 18 by President Fidel V. Ramos who issued AO 397 46 on
thereof which provides: May 13, 1998. The said administrative order states that
"PNCC is one of the corporations slated to be
Sec. 18. Dissolution of Acquired Asset privatized." 47
Corporations. — All executive agencies, offices
and instrumentalities shall take steps to When confronted with the same question, the Department of
dissolve any acquired asset corporation which has Justice (DOJ) in DOJ Opinion No. 37, Series of 1995, stated that
not been disposed of to the private sector within PNCC was an acquired asset corporation, as follows:
five (5) years from the date of the decision to
dissolve the corporation. . . . 42 (emphasis At the outset, we note from the attached papers
supplied) that in its letter dated May 20, 1991 to the PNCC,
the Office of the President already declared that
Reading these sections together, it becomes evident that an PNCC is an "acquired asset corporation as
acquired asset corporation is singled out for eventual disposition defined in Administrative Order No. 59".
to the private sector or, failing in that, for dissolution. 43 (emphasis supplied)
True, respondents failed to show that PNCC was headed either DOJ Opinion No. 22, Series of 1998, had a similar tenor:
for privatization or for dissolution. However, Article I, Section 1 of
Proclamation No. 50, 44 provides the enunciated policy required The question whether PNCC is a government-
under AO 59 in this wise: owned or controlled corporation (GOCC) and,
therefore, a government entity ha[s] been
Sec. 1. Statement of Policy. — It shall be the previously passed upon by the Office of the
policy of the State to promote privatization through President. In a letter dated May 20, 1991, Deputy
an orderly, coordinated and efficient program for Executive Secretary Sonny Coloma informed the
the prompt disposition of the large number of non- then PNCC President that PNCC is "an acquired
performing assets of the government financial asset corporations defined under Section 2 of
institutions, and certain government-owned or Administrative Order No. 59". The conclusion,
controlled corporations which have been found although not explicitly stated in said letter, is that
unnecessary or inappropriate for the government PNCC is not a GOCC." (emphasis supplied)
sector to maintain.
While not controlling, official opinions of the justice secretary are
Pursuant to this policy, AO 64, 45 which was issued by persuasive. We uphold such opinions in the present milieu.
then President Corazon Aquino, transferred to the
national government certain assets held by the Philippine There Is No Inconsistency
Export and Foreign Loan Guarantee (Philguarantee) and
With the Administrative Code (b) Acquired asset corporation is a
corporation (1) which is under
Its earlier posturing notwithstanding, petitioner simultaneously private ownership, the voting or
asserts that AO 59 is insufficient in its definition of "GOCC," which outstanding shares of which (i)
is allegedly inconsistent with that found in Executive Order (EO) were conveyed to the government
292, 48otherwise known as the Revised Administrative Code or to a government agency,
(RAC). The inconsistency, according to petitioner, lies in the fact instrumentality or corporation in
that AO 59 distinguishes between a GOCC and an acquired asset satisfaction of debts whether by
corporation, while EO 292 does not. Petitioner maintains that foreclosure or otherwise, or (ii)
"[s]ince A.O. No. 59 is a mere administrative issuance of the were duly acquired by the
President, it is clear that its definition of a GOCC cannot prevail government through final judgment
over that given by E.O. No. 292, which is a law." 49 in a sequestration proceeding; or
(2) which is a subsidiary of a
We do not find any inconsistency. The definition given in AO 59 government corporation organized
explicitly applies only to that particular administrative order. We exclusively to own and manage, or
quote the section in full: lease, or operate specific physical
assets acquired by a government
financial institution in satisfaction
Sec. 2. Definition of Terms. — As used in this
of debts incurred therewith, and
Administrative Order, the following terms shall
which in any case by law or by
mean:
enunciated policy is required to be
disposed of to private ownership
(a) Government-owned and/or within a specified period of time."
controlled corporation, hereinafter (boldface and emphasis supplied)
referred to as GOCC or
government corporation, is a
AO 59 does not purport to have established a new kind of
corporation which is created by
corporation that supersedes EO 292. Neither does the former
special law or organized under the
seek to revise the definition of "GOCC" given in the latter. What
Corporation Code in which the
AO 59 in fact does is to distinguish GOCCs in general from those
Government, directly or indirectly,
that are sought to be privatized. In fact, the definition given in EO
has ownership of the majority of
292 itself states that the GOCCs may be further
the capital or has voting
categorized. 50 This caveat suggests that the definition is broad
control; Provided that an acquired
enough to admit distinctions as to the kinds of GOCCs defined
asset corporation as defined in the
under AO 59.
next paragraph shall not be
considered as GOCC or
government corporation. Thus, contrary to respondent's assertion that PNCC is not a
GOCC, 51 we hold that it may be deemed so under EO 292.
However, for purposes of AO 59, particularly in the application of
Section 16 thereof, PNCC is an acquired asset corporation. In Assuming arguendo that PNCC is a GOCC and not an acquired
this light, the alleged inconsistency is more apparent than real. It asset corporation under AO 59, Section 16 thereof is
should be emphasized that an acquired asset corporation is a inapplicable. First, the GOCC referred to in Section 16 (1) of AO
GOCC set to be privatized pursuant to the government's 59 is that which is attached to a department of the executive
policy 52 as enunciated in Proclamation 50, 53 which defines branch vis-à-vis the inter-departmental supervision announced in
"assets" to include GOCCs thus: the said Administrative Order. Here, the President shall appoint
members of the board "upon the recommendation of the
Sec. 2. Definition of Terms. — As used in this Secretary to whose Department the GOCC is attached." Second,
Proclamation and unless the context otherwise the GOCC referred to in Section 16 is one with an original
requires, the term: charter, and not one created under general corporation law. This
evident from a reading of Section 16 (2) of AO 59:
(1) Assets shall include . . . (iv) the government
institutions themselves, whether as parent or (2) Powers and Functions of the Board. — Insofar
subsidiary corporations. as it is not inconsistent with the charter of a given
GOCC, the Board of Directors or equivalent body
(2) Government institutions shall refer to shall have the following powers and functions:
government-owned or controlled corporations,
financial or otherwise, whether organized by xxx xxx xxx (emphasis supplied)
special charter as in the case of a parent
cooperation, or under general law as in the case In sum, it is clear that PNCC is an acquired asset corporation
of a subsidiary corporation." (emphasis ours) under AO 59. Thus, Section 16 (1) of AO 59 is inapplicable. The
alleged derogation of the President's power over GOCCs is
Under Section 5 54 of same Proclamation thereof, the Committee without basis. We note, at this point, petitioner's admission that
on Privatization is empowered to identify and transfer these members of the PNCC board of directors are nominated by the
assets for disposition to the private sector. GFIs in proportion to their equity ownership therein. 57 Petitioner's
vacillation in seeking to apply Section 16 (1) of AO 59 while at
The allusions to an implied repeal by EO 292 of Section 2 (a and same time asserting the invalidity of Section 2 (a and b) thereof
b) of AO 59 deserves scant consideration. Suffice it to say that, betrays the stark weakness of its position.
as respondents pointed out, it would be absurd for an earlier law
to impliedly repeal a subsequent one. 55 In any case, implied One final point. Petitioner is represented in this litigation by
repeal is generally not favored. 56Equally important, there is really private counsel, not by the government corporate counsel or by
no inconsistency. the solicitor general. In fact, the OSG's Memorandum submitted
in representation of SEC debunks the Petition and sides with
Sec. 26 of AO 59 Is respondents. Petitioner should not find it strange then that it is
rightly adjudged as a private corporation subject to regulation by
the SEC, since by its very act of retaining private counsel and by
Inapplicable to PNCC
the government's act of opposing its claims, it is indeed a SEC-
regulated entity.
Epilogue
Lest the focus of our disposition of this case be lost in the maze
of arguments strewn before us, we stress that PNCC is a
corporation created in accordance with the general corporation
statute. Hence, it is essentially a private corporation,
notwithstanding the government's interest therein through the
debt-to-equity conversion imposed by PD 1295. Being a private
corporation, PNCC is subject to SEC regulation and jurisdiction.
Petitioner contends that Proclamation 50 58 and AO 59 59 limit the
exercise of that jurisdiction. But, after wading into the complex
issues submitted by the parties, we have shown that such laws
and issuances are not applicable to this particular case. We must
emphasize also, and this should be clear to all concerned, that
our ruling here does not in any way affect the factual issue of
whether the government owns a majority of the shares in PNCC.
This matter, as; can be gleaned from the factual narration of the
CA, was not settled below. However, from our painstaking
explanation above, it should be obvious that this issue of fact is
irrelevant to the disposition of the legal issues herein raised. To
repeat, whether PNCC is majority-owned by the government or
not is unimportant since our decision is essentially based on the
verity that PNCC is a private corporation created pursuant to the
general corporation law.
WHEREFORE, the Petition is hereby DENIED. The assailed
Decision and the Resolution of the Court of Appeals are
AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
Republic of the Philippines WHEREFORE, the instant petition is dismissed. The
SUPREME COURT Motion for Leave to File and Admit Attached
Manila Supplemental Petition is denied and the supplemental
petition attached thereto is not admitted.
THIRD DIVISION
The Public Estates Authority (PEA) is a government
G.R. No. 191109 July 18, 2012 corporation created by virtue of Presidential Decree
(P.D.) No. 1084 (Creating the Public Estates Authority,
REPUBLIC OF THE PHILIPPINES, represented by the Defining its Powers and Functions, Providing Funds
PHILIPPINE RECLAMATION AUTHORITY (PRA), Petitioner, Therefor and For Other Purposes) which took effect on
vs.
CITY OF PARANAQUE, Respondent. February 4,
In view of the finding of this court that petitioner is not On October 26, 2004, then President Gloria Macapagal-
exempt from payment of real property taxes, respondent Arroyo issued E.O. No. 380 transforming PEA into PRA,
Parañaque City Treasurer Liberato M. Carabeo did not which shall perform all the powers and functions of the
act xxx without or in excess of jurisdiction, or with grave PEA relating to reclamation activities.
abuse of discretion amounting to lack or in excess of
jurisdiction in issuing the warrants of levy on the subject By virtue of its mandate, PRA reclaimed several portions
properties. of the foreshore and offshore areas of Manila Bay,
including those located in Parañaque City, and was subject properties on April 7, 2003 had already been
issued Original Certificates of Title (OCT Nos. 180, 202, consummated.
206, 207, 289, 557, and 559) and Transfer Certificates of
Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and On August 3, 2009, after an exchange of several
9686) over the reclaimed lands. pleadings and the failure of both parties to arrive at a
compromise agreement, PRA filed a Motion for Leave to
On February 19, 2003, then Parañaque City Treasurer File and Admit Attached Supplemental Petition which
Liberato M. Carabeo (Carabeo) issued Warrants of Levy sought to declare as null and void the assessment for
on PRA’s reclaimed properties (Central Business Park real property taxes, the levy based on the said
and Barangay San Dionisio) located in Parañaque City assessment, the public auction sale conducted on April 7,
based on the assessment for delinquent real property 2003, and the Certificates of Sale issued pursuant to the
taxes made by then Parañaque City Assessor Soledad auction sale.
Medina Cue for tax years 2001 and 2002.
On January 8, 2010, the RTC rendered its decision
On March 26, 2003, PRA filed a petition for prohibition dismissing PRA’s petition. In ruling that PRA was not
with prayer for temporary restraining order (TRO) and/or exempt from payment of real property taxes, the RTC
writ of preliminary injunction against Carabeo before the reasoned out that it was a GOCC under Section 3 of P.D.
RTC. No. 1084. It was organized as a stock corporation
because it had an authorized capital stock divided into no
On April 3, 2003, after due hearing, the RTC issued an par value shares. In fact, PRA admitted its corporate
order denying PRA’s petition for the issuance of a personality and that said properties were registered in its
temporary restraining order. name as shown by the certificates of title. Therefore, as a
GOCC, local tax exemption is withdrawn by virtue of
On April 4, 2003, PRA sent a letter to Carabeo requesting Section 193 of Republic Act (R.A.) No. 7160 Local
the latter not to proceed with the public auction of the Government Code (LGC) which was the prevailing law in
subject reclaimed properties on April 7, 2003. In 2001 and 2002 with respect to real property taxation. The
response, Carabeo sent a letter stating that the public RTC also ruled that the tax exemption claimed by PRA
auction could not be deferred because the RTC had under E.O. No. 654 had already been expressly repealed
already denied PRA’s TRO application. by R.A. No. 7160 and that PRA failed to comply with the
procedural requirements in Section 206 thereof.
On April 25, 2003, the RTC denied PRA’s prayer for the
issuance of a writ of preliminary injunction for being moot
and academic considering that the auction sale of the
Not in conformity, PRA filed this petition for certiorari Section 2(10) of the Introductory Provisions of the
assailing the January 8, 2010 RTC Order based on the Administrative Code. Although it has a capital stock
following GROUNDS divided into shares, it is not authorized to distribute
dividends and allotment of surplus and profits to its
I stockholders. Therefore, it may not be classified as a
stock corporation because it lacks the second requisite of
THE TRIAL COURT GRAVELY ERRED IN a stock corporation which is the distribution of dividends
FINDING THAT PETITIONER IS LIABLE TO PAY and allotment of surplus and profits to the stockholders.
REAL PROPERTY TAX ON THE SUBJECT
RECLAIMED LANDS CONSIDERING
It insists that it may not be classified as a non-stock
THAT PETITIONER IS AN INCORPORATED corporation because it has no members and it is not
INSTRUMENTALITY OF THE NATIONAL organized for charitable, religious, educational,
GOVERNMENT AND IS, THEREFORE, EXEMPT professional, cultural, recreational, fraternal, literary,
FROM PAYMENT OF REAL PROPERTY TAX scientific, social, civil service, or similar purposes, like
UNDER SECTIONS 234(A) AND 133(O) OF trade, industry, agriculture and like chambers as provided
REPUBLIC ACT 7160 OR THE LOCAL in Section 88 of the Corporation Code.
GOVERNMENT CODE VIS-À-VIS MANILA
INTERNATIONAL AIRPORT AUTHORITY V.
COURT OF APPEALS. Moreover, PRA points out that it was not created to
compete in the market place as there was no competing
II reclamation company operated by the private sector.
Also, while PRA is vested with corporate powers under
THE TRIAL COURT GRAVELY ERRED IN P.D. No. 1084, such circumstance does not make it a
FAILING TO CONSIDER THAT RECLAIMED corporation but merely an incorporated instrumentality
LANDS ARE PART OF THE PUBLIC DOMAIN and that the mere fact that an incorporated
AND, HENCE, EXEMPT FROM REAL instrumentality of the National Government holds title to
PROPERTY TAX. real property does not make said instrumentality a
GOCC. Section 48, Chapter 12, Book I of the
PRA asserts that it is not a GOCC under Section 2(13) of Administrative Code of 1987 recognizes a scenario
the Introductory Provisions of the Administrative Code.
where a piece of land owned by the Republic is titled in
Neither is it a GOCC under Section 16, Article XII of the
the name of a department, agency or instrumentality.
1987 Constitution because it is not required to meet the
test of economic viability. Instead, PRA is a government Thus, PRA insists that, as an incorporated instrumentality
instrumentality vested with corporate powers and of the National Government, it is exempt from payment of
performing an essential public service pursuant to
real property tax except when the beneficial use of the granted to or presently enjoyed by all persons, whether
real property is granted to a taxable person. PRA claims natural or juridical, including GOCCs.
that based on Section 133(o) of the LGC, local
governments cannot tax the national government which Hence, since PRA is a GOCC, it is not exempt from the
delegate to local governments the power to tax. payment of real property tax.
{
Section 16. The Congress shall not, except by general development consistent with the public interest.
law, provide for the formation, organization, or regulation
of private corporations. Government-owned or controlled Section 4. Purposes. The Authority is hereby created for
corporations may be created or established by special the following purposes:
charters in the interest of the common good and subject
to the test of economic viability. (a) To reclaim land, including foreshore and submerged
areas, by dredging, filling or other means, or to acquire
The fundamental provision above authorizes Congress to reclaimed land;
create GOCCs through special charters on two
(b) To develop, improve, acquire, administer, deal in, The Constitution expressly authorizes the legislature to
subdivide, dispose, lease and sell any and all kinds of create "government-owned or controlled corporations"
lands, buildings, estates and other forms of real property, through special charters only if these entities are required
owned, managed, controlled and/or operated by the
to meet the twin conditions of common good and
government.
economic viability. In other words, Congress has no
(c) To provide for, operate or administer such services as power to create government-owned or controlled
may be necessary for the efficient, economical and corporations with special charters unless they are made
beneficial utilization of the above properties. to comply with the two conditions of common good and
economic viability. The test of economic viability applies
The twin requirement of common good and economic only to government-owned or controlled corporations that
viability was lengthily discussed in the case of Manila perform economic or commercial activities and need to
International Airport Authority v. Court of Appeals,9 the compete in the market place. Being essentially economic
pertinent portion of which reads: vehicles of the State for the common good — meaning
for economic development purposes — these
Third, the government-owned or controlled corporations government-owned or controlled corporations with
created through special charters are those that meet the special charters are usually organized as stock
two conditions prescribed in Section 16, Article XII of the corporations just like ordinary private corporations.
Constitution.
In contrast, government instrumentalities vested with
The first condition is that the government-owned or corporate powers and performing governmental or public
controlled corporation must be established for the functions need not meet the test of economic viability.
common good. The second condition is that the These instrumentalities perform essential public services
government-owned or controlled corporation must meet for the common good, services that every modern State
the test of economic viability. Section 16, Article XII of the must provide its citizens. These instrumentalities need
1987 Constitution provides: not be economically viable since the government may
even subsidize their entire operations. These
SEC. 16. The Congress shall not, except by general law, instrumentalities are not the "government-owned or
provide for the formation, organization, or regulation of controlled corporations" referred to in Section 16, Article
private corporations. Government-owned or controlled XII of the 1987 Constitution.
corporations may be created or established by special
charters in the interest of the common good and subject Thus, the Constitution imposes no limitation when the
to the test of economic viability. legislature creates government instrumentalities vested
with corporate powers but performing essential
governmental or public functions. Congress has plenary good. That is the reason why this year, out of a budget of
authority to create government instrumentalities vested P115 billion for the entire government, about P28 billion
with corporate powers provided these instrumentalities of this will go into equity infusions to support a few
perform essential government functions or public government financial institutions. And this is all taxpayers'
services. However, when the legislature creates through money which could have been relocated to agrarian
special charters corporations that perform economic or reform, to social services like health and education, to
commercial activities, such entities — known as augment the salaries of grossly underpaid public
"government-owned or controlled corporations" — must employees. And yet this is all going down the drain.
meet the test of economic viability because they compete
in the market place. Therefore, when we insert the phrase "ECONOMIC
VIABILITY" together with the "common good," this
This is the situation of the Land Bank of the Philippines becomes a restraint on future enthusiasts for state
and the Development Bank of the Philippines and similar capitalism to excuse themselves from the responsibility of
government-owned or controlled corporations, which meeting the market test so that they become viable. And
derive their incometo meet operating expenses solely so, Madam President, I reiterate, for the committee's
from commercial transactions in competition with the consideration and I am glad that I am joined in this
private sector. The intent of the Constitution is to prevent proposal by Commissioner Foz, the insertion of the
the creation of government-owned or controlled standard of "ECONOMIC VIABILITY OR THE
corporations that cannot survive on their own in the ECONOMIC TEST," together with the common good. 1âwphi1
MR. OPLE: Madam President, the reason for this The second sentence was added by the 1986
concern is really that when the government creates a Constitutional Commission. The significant addition,
corporation, there is a sense in which this corporation however, is the phrase "in the interest of the common
becomes exempt from the test of economic performance. good and subject to the test of economic viability." The
We know what happened in the past. If a government addition includes the ideas that they must show capacity
corporation loses, then it makes its claim upon the to function efficiently in business and that they should not
taxpayers' money through new equity infusions from the go into activities which the private sector can do better.
government and what is always invoked is the common Moreover, economic viability is more than financial
viability but also includes capability to make profit and operate commercially and compete in the private market.
generate benefits not quantifiable in financial terms. Instead, PRA is a government instrumentality vested with
corporate powers and performing an essential public
Clearly, the test of economic viability does not apply to service pursuant to Section 2(10) of the Introductory
government entities vested with corporate powers and Provisions of the Administrative Code. Being an
performing essential public services. The State is incorporated government instrumentality, it is exempt
obligated to render essential public services regardless of from payment of real property tax.
the economic viability of providing such service. The non-
economic viability of rendering such essential public Clearly, respondent has no valid or legal basis in taxing
service does not excuse the State from withholding such the subject reclaimed lands managed by PRA. On the
essential services from the public. other hand, Section 234(a) of the LGC, in relation to its
Section 133(o), exempts PRA from paying realty taxes
However, government-owned or controlled corporations and protects it from the taxing powers of local
with special charters, organized essentially for economic government units.
or commercial objectives, must meet the test of economic
viability. These are the government-owned or controlled Sections 234(a) and 133(o) of the LGC provide, as
corporations that are usually organized under their follows:
special charters as stock corporations, like the Land Bank
of the Philippines and the Development Bank of the SEC. 234. Exemptions from Real Property Tax – The
Philippines. These are the government-owned or following are exempted from payment of the real property
controlled corporations, along with government-owned or tax:
controlled corporations organized under the Corporation
Code, that fall under the definition of "government-owned (a) Real property owned by the Republic of the
or controlled corporations" in Section 2(10) of the Philippines or any of its political subdivisions except when
Administrative Code. [Emphases supplied] the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
This Court is convinced that PRA is not a GOCC either
under Section 2(3) of the Introductory Provisions of the xxxx
Administrative Code or under Section 16, Article XII of
the 1987 Constitution. The facts, the evidence on record SEC. 133. Common Limitations on the Taxing Powers of
and jurisprudence on the issue support the position that Local Government Units. – Unless otherwise provided
PRA was not organized either as a stock or a non-stock herein, the exercise of the taxing powers of provinces,
corporation. Neither was it created by Congress to
cities, municipalities, and barangays shall not extend to property. Such arrangement does not result in the loss of
the levy of the following: the tax exemption, unless "the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable
xxxx person."10
(o) Taxes, fees or charges of any kinds on the National The rationale behind Section 133(o) has also been
Government, its agencies and instrumentalities, and local explained in the case of the Manila International Airport
government units. [Emphasis supplied] Authority,11 to wit:
It is clear from Section 234 that real property owned by Section 133(o) recognizes the basic principle that local
the Republic of the Philippines (the Republic) is exempt governments cannot tax the national government, which
from real property tax unless the beneficial use thereof historically merely delegated to local governments the
has been granted to a taxable person. In this case, there power to tax. While the 1987 Constitution now includes
is no proof that PRA granted the beneficial use of the taxation as one of the powers of local governments, local
subject reclaimed lands to a taxable entity. There is no governments may only exercise such power "subject to
showing on record either that PRA leased the subject such guidelines and limitations as the Congress may
reclaimed properties to a private taxable entity. provide."
This exemption should be read in relation to Section When local governments invoke the power to tax on
133(o) of the same Code, which prohibits local national government instrumentalities, such power is
governments from imposing "taxes, fees or charges of construed strictly against local governments. The rule is
any kind on the National Government, its agencies and that a tax is never presumed and there must be clear
instrumentalities x x x." The Administrative Code allows language in the law imposing the tax. Any doubt whether
real property owned by the Republic to be titled in the a person, article or activity is taxable is resolved against
name of agencies or instrumentalities of the national taxation. This rule applies with greater force when local
government. Such real properties remain owned by the governments seek to tax national government
Republic and continue to be exempt from real estate tax. instrumentalities.
Indeed, the Republic grants the beneficial use of its real Another rule is that a tax exemption is strictly construed
property to an agency or instrumentality of the national against the taxpayer claiming the exemption. However,
government. This happens when the title of the real when Congress grants an exemption to a national
property is transferred to an agency or instrumentality government instrumentality from local taxation, such
even as the Republic remains the owner of the real exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in The states have no power by taxation or otherwise, to
Maceda v. Macaraig, Jr.: retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to
The reason for the rule does not apply in the case of carry into execution the powers vested in the federal
exemptions running to the benefit of the government itself government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L
or its agencies. In such case the practical effect of an Ed. 579)
exemption is merely to reduce the amount of money that
has to be handled by government in the course of its This doctrine emanates from the "supremacy" of the
operations. For these reasons, provisions granting National Government over local governments.
exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies. "Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of
There is, moreover, no point in national and local the States to touch, in that way (taxation) at least, the
governments taxing each other, unless a sound and instrumentalities of the United States (Johnson v.
compelling policy requires such transfer of public funds Maryland, 254 US 51) and it can be agreed that no state
from one government pocket to another. or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from
There is also no reason for local governments to tax consummating its federal responsibilities, or even to
national government instrumentalities for rendering seriously burden it in the accomplishment of them."
essential public services to inhabitants of local (Antieau, Modern Constitutional Law, Vol. 2, p. 140,
governments. The only exception is when the legislature emphasis supplied)
clearly intended to tax government instrumentalities for
the delivery of essential public services for sound and Otherwise, mere creatures of the State can defeat
compelling policy considerations. There must be express National policies thru extermination of what local
language in the law empowering local governments to tax authorities may perceive to be undesirable activities or
national government instrumentalities. Any doubt whether enterprise using the power to tax as "a tool for
such power exists is resolved against local governments. regulation." (U.S. v. Sanchez, 340 US 42)
Thus, Section 133 of the Local Government Code states The power to tax which was called by Justice Marshall as
that "unless otherwise provided" in the Code, local the "power to destroy" (McCulloch v. Maryland, supra)
governments cannot tax national government cannot be allowed to defeat an instrumentality or creation
instrumentalities. As this Court held in Basco v. Philippine of the very entity which has the inherent power to wield it.
Amusements and Gaming Corporation: [Emphases supplied]
The Court agrees with PRA that the subject reclaimed Art. 420. The following things are property of public
lands are still part of the public domain, owned by the dominion:
State and, therefore, exempt from payment of real estate
taxes. (1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the
Section 2, Article XII of the 1987 Constitution reads in State, banks, shores, roadsteads, and others of similar
character;
part, as follows:
(2) Those which belong to the State, without being for
Section 2. All lands of the public domain, waters, public use, and are intended for some public service or for
minerals, coal, petroleum, and other mineral oils, all the development of the national wealth. [Emphases
forces of potential energy, fisheries, forests or timber, supplied]
wildlife, flora and fauna, and other natural resources are
owned by the State. With the exception of agricultural Here, the subject lands are reclaimed lands, specifically
lands, all other natural resources shall not be alienated. portions of the foreshore and offshore areas of Manila
The exploration, development, and utilization of natural Bay. As such, these lands remain public lands and form
resources shall be under the full control and supervision part of the public domain. In the case of Chavez v. Public
of the State. The State may directly undertake such Estates Authority and AMARI Coastal Development
activities, or it may enter into co-production, joint venture, Corporation,12 the Court held that foreshore and
or production-sharing agreements with Filipino citizens, submerged areas irrefutably belonged to the public
or corporations or associations at least 60 per centum of domain and were inalienable unless reclaimed, classified
whose capital is owned by such citizens. Such as alienable lands open to disposition and further
agreements may be for a period not exceeding twenty- declared no longer needed for public service. The fact
five years, renewable for not more than twenty-five years, that alienable lands of the public domain were transferred
and under such terms and conditions as may provided by to the PEA (now PRA) and issued land patents or
law. In cases of water rights for irrigation, water supply, certificates of title in PEA’s name did not automatically
fisheries, or industrial uses other than the development of make such lands private. This Court also held therein that
waterpower, beneficial use may be the measure and limit reclaimed lands retained their inherent potential as areas
of the grant. for public use or public service.
Similarly, Article 420 of the Civil Code enumerates As the central implementing agency tasked to undertake
properties belonging to the State: reclamation projects nationwide, with authority to sell
reclaimed lands, PEA took the place of DENR as the
government agency charged with leasing or selling
reclaimed lands of the public domain. The reclaimed Reclaimed lands such as the subject lands in issue are
lands being leased or sold by PEA are not private lands, reserved lands for public use. They are properties of
in the same manner that DENR, when it disposes of other public dominion. The ownership of such lands remains
alienable lands, does not dispose of private lands but with the State unless they are withdrawn by law or
alienable lands of the public domain. Only when qualified presidential proclamation from public use.
private parties acquire these lands will the lands become
private lands. In the hands of the government agency Under Section 2, Article XII of the 1987 Constitution, the
tasked and authorized to dispose of alienable of foreshore and submerged areas of Manila Bay are part of
disposable lands of the public domain, these lands are the "lands of the public domain, waters x x x and other
still public, not private lands. natural resources" and consequently "owned by the
State." As such, foreshore and submerged areas "shall
Furthermore, PEA's charter expressly states that PEA not be alienated," unless they are classified as
"shall hold lands of the public domain" as well as "any "agricultural lands" of the public domain. The mere
and all kinds of lands." PEA can hold both lands of the reclamation of these areas by PEA does not convert
public domain and private lands. Thus, the mere fact that these inalienable natural resources of the State into
alienable lands of the public domain like the Freedom alienable or disposable lands of the public domain. There
Islands are transferred to PEA and issued land patents or must be a law or presidential proclamation officially
certificates of title in PEA's name does not automatically classifying these reclaimed lands as alienable or
make such lands private.13 disposable and open to disposition or concession.
Moreover, these reclaimed lands cannot be classified as
Likewise, it is worthy to mention Section 14, Chapter 4, alienable or disposable if the law has reserved them for
Title I, Book III of the Administrative Code of 1987, thus: some public or quasi-public use.
SEC 14. Power to Reserve Lands of the Public and As the Court has repeatedly ruled, properties of public
Private Dominion of the Government.- dominion are not subject to execution or foreclosure
sale.14 Thus, the assessment, levy and foreclosure made
(1)The President shall have the power to reserve for on the subject reclaimed lands by respondent, as well as
settlement or public use, and for specific public purposes, the issuances of certificates of title in favor of respondent,
any of the lands of the public domain, the use of which is are without basis.
not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose WHEREFORE, the petition is GRANTED. The January 8,
indicated until otherwise provided by law or proclamation. 2010 Order of the Regional Trial Court, Branch 195,
Parañaque City, is REVERSED and SET ASIDE. All
reclaimed properties owned by the Philippine
Reclamation Authority are hereby declared EXEMPT
from real estate taxes. All real estate tax assessments,
including the final notices of real estate tax delinquencies,
issued by the City of Parañaque on the subject reclaimed
properties; the assailed auction sale, dated April 7, 2003;
and the Certificates of Sale subsequently issued by the
Parañaque City Treasurer in favor of the City of
Parañaque, are all declared VOID.
SO ORDERED.
JOSE CATRLA MENDOZA
Associate justice
G.R. No. 155650 July 20, 2006 any other mode unless specifically approved by the
President of the Philippines.5
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs. On 21 March 1997, the Office of the Government
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR
Corporate Counsel (OGCC) issued Opinion No. 061. The
OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG
PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY OGCC opined that the Local Government Code of 1991
TREASURER OF PARAÑAQUE, respondents. withdrew the exemption from real estate tax granted to
MIAA under Section 21 of the MIAA Charter. Thus, MIAA
DECISION negotiated with respondent City of Parañaque to pay the
real estate tax imposed by the City. MIAA then paid some
CARPIO, J.: of the real estate tax already due.
Another rule is that a tax exemption is strictly construed Thus, Section 133 of the Local Government Code states
against the taxpayer claiming the exemption. However, that "unless otherwise provided" in the Code, local
when Congress grants an exemption to a national governments cannot tax national government
government instrumentality from local taxation, such instrumentalities. As this Court held in Basco v.
exemption is construed liberally in favor of the national Philippine Amusements and Gaming Corporation:
government instrumentality. As this Court declared
in Maceda v. Macaraig, Jr.: The states have no power by taxation or
otherwise, to retard, impede, burden or in any
The reason for the rule does not apply in the case of manner control the operation of constitutional laws
exemptions running to the benefit of the government itself enacted by Congress to carry into execution the
or its agencies. In such case the practical effect of an powers vested in the federal government. (MC
exemption is merely to reduce the amount of money that Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
has to be handled by government in the course of its
operations. For these reasons, provisions granting This doctrine emanates from the "supremacy" of the
exemptions to government agencies may be construed National Government over local governments.
liberally, in favor of non tax-liability of such agencies.19
"Justice Holmes, speaking for the Supreme Court,
There is, moreover, no point in national and local made reference to the entire absence of power on
governments taxing each other, unless a sound and the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the
United States (Johnson v. Maryland, 254 US 51) (1) Those intended for public use, such as roads,
and it can be agreed that no state or political canals, rivers, torrents, ports and bridges constructed
subdivision can regulate a federal instrumentality by the State, banks, shores, roadsteads, and others of
in such a way as to prevent it from consummating similar character;
its federal responsibilities, or even to seriously
burden it in the accomplishment of them." (2) Those which belong to the State, without being for
(Antieau, Modern Constitutional Law, Vol. 2, p. public use, and are intended for some public service or for
140, emphasis supplied) the development of the national wealth. (Emphasis
supplied)
Otherwise, mere creatures of the State can defeat
National policies thru extermination of what local ARTICLE 421. All other property of the State, which is not
authorities may perceive to be undesirable activities or of the character stated in the preceding article, is
enterprise using the power to tax as "a tool for regulation" patrimonial property.
(U.S. v. Sanchez, 340 US 42).
ARTICLE 422. Property of public dominion, when no
The power to tax which was called by Justice Marshall as longer intended for public use or for public service, shall
the "power to destroy" (Mc Culloch v. Maryland, supra) form part of the patrimonial property of the State.
cannot be allowed to defeat an instrumentality or creation
of the very entity which has the inherent power to wield No one can dispute that properties of public dominion
it. 20
mentioned in Article 420 of the Civil Code, like "roads,
canals, rivers, torrents, ports and bridges
2. Airport Lands and Buildings of MIAA are Owned by the
Republic constructed by the State," are owned by the State. The
term "ports" includes seaports and airports. The
a. Airport Lands and Buildings are of Public Dominion MIAA Airport Lands and Buildings constitute a "port"
constructed by the State. Under Article 420 of the Civil
The Airport Lands and Buildings of MIAA are property Code, the MIAA Airport Lands and Buildings are
of public dominion and therefore owned by the State properties of public dominion and thus owned by the
or the Republic of the Philippines. The Civil Code State or the Republic of the Philippines.
provides:
The Airport Lands and Buildings are devoted to public
ARTICLE 419. Property is either of public dominion or of use because they are used by the public for
private ownership. international and domestic travel and transportation.
The fact that the MIAA collects terminal fees and other
ARTICLE 420. The following things are property of charges from the public does not remove the character of
public dominion: the Airport Lands and Buildings as properties for public
use. The operation by the government of a tollway does The Airport Lands and Buildings of MIAA, which its
not change the character of the road as one for public Charter calls the "principal airport of the Philippines for
use. Someone must pay for the maintenance of the road, both international and domestic air traffic,"22 are
either the public indirectly through the taxes they pay the properties of public dominion because they are intended
government, or only those among the public who actually for public use. As properties of public dominion, they
use the road through the toll fees they pay upon using the indisputably belong to the State or the Republic of
road. The tollway system is even a more efficient and the Philippines.
equitable manner of taxing the public for the maintenance
of public roads. b. Airport Lands and Buildings are Outside the Commerce of
Man
The charging of fees to the public does not determine the
character of the property whether it is of public dominion The Airport Lands and Buildings of MIAA are devoted to
or not. Article 420 of the Civil Code defines property of public use and thus are properties of public dominion. As
public dominion as one "intended for public use." Even if properties of public dominion, the Airport Lands and
the government collects toll fees, the road is still Buildings are outside the commerce of man. The
"intended for public use" if anyone can use the road Court has ruled repeatedly that properties of public
under the same terms and conditions as the rest of the dominion are outside the commerce of man. As early as
public. The charging of fees, the limitation on the kind of 1915, this Court already ruled in Municipality of Cavite
vehicles that can use the road, the speed restrictions and v. Rojas that properties devoted to public use are outside
other conditions for the use of the road do not affect the the commerce of man, thus:
public character of the road.
According to article 344 of the Civil Code: "Property for
public use in provinces and in towns comprises the
The terminal fees MIAA charges to passengers, as well provincial and town roads, the squares, streets, fountains,
as the landing fees MIAA charges to airlines, constitute and public waters, the promenades, and public works of
the bulk of the income that maintains the operations of general service supported by said towns or provinces."
MIAA. The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees The said Plaza Soledad being a promenade for public
are often termed user's tax. This means taxing those use, the municipal council of Cavite could not in 1907
among the public who actually use a public facility withdraw or exclude from public use a portion thereof in
instead of taxing all the public including those who never order to lease it for the sole benefit of the defendant
use the particular public facility. A user's tax is more Hilaria Rojas. In leasing a portion of said plaza or public
place to the defendant for private use the plaintiff
equitable — a principle of taxation mandated in the 1987 municipality exceeded its authority in the exercise of its
Constitution.21
powers by executing a contract over a thing of which it Properties of public dominion, being for public use, are
could not dispose, nor is it empowered so to do. not subject to levy, encumbrance or disposition through
public or private sale. Any encumbrance, levy on
The Civil Code, article 1271, prescribes that everything execution or auction sale of any property of public
which is not outside the commerce of man may be the
dominion is void for being contrary to public policy.
object of a contract, and plazas and streets are outside
of this commerce, as was decided by the supreme court Essential public services will stop if properties of public
of Spain in its decision of February 12, 1895, which says: dominion are subject to encumbrances, foreclosures and
"Communal things that cannot be sold because they auction sale. This will happen if the City of Parañaque
are by their very nature outside of commerce are can foreclose and compel the auction sale of the 600-
those for public use, such as the plazas, streets, hectare runway of the MIAA for non-payment of real
common lands, rivers, fountains, etc." (Emphasis estate tax.
supplied) 23
Before MIAA can encumber26 the Airport Lands and
Again in Espiritu v. Municipal Council, the Court Buildings, the President must first withdraw from public
declared that properties of public dominion are outside
use the Airport Lands and Buildings. Sections 83 and 88
the commerce of man:
of the Public Land Law or Commonwealth Act No. 141,
which "remains to this day the existing general law
xxx Town plazas are properties of public dominion, to
be devoted to public use and to be made available to the governing the classification and disposition of lands of the
public in general. They are outside the commerce of public domain other than timber and mineral
man and cannot be disposed of or even leased by the lands,"27provide:
municipality to private parties. While in case of war or
during an emergency, town plazas may be occupied SECTION 83. Upon the recommendation of the Secretary
temporarily by private individuals, as was done and as of Agriculture and Natural Resources, the President may
was tolerated by the Municipality of Pozorrubio, when the designate by proclamation any tract or tracts of land of the
emergency has ceased, said temporary occupation or use public domain as reservations for the use of the Republic
must also cease, and the town officials should see to it of the Philippines or of any of its branches, or of the
that the town plazas should ever be kept open to the inhabitants thereof, in accordance with regulations
public and free from encumbrances or illegal private prescribed for this purposes, or for quasi-public uses or
constructions.24 (Emphasis supplied) purposes when the public interest requires it, including
reservations for highways, rights of way for railroads,
The Court has also ruled that property of public dominion, hydraulic power sites, irrigation systems, communal
being outside the commerce of man, cannot be the pastures or lequas communales, public parks, public
subject of an auction sale.25 quarries, public fishponds, working men's village and
other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved There is no question, therefore, that unless the Airport
under the provisions of Section eighty-three shall Lands and Buildings are withdrawn by law or presidential
be non-alienable and shall not be subject to proclamation from public use, they are properties of
occupation, entry, sale, lease, or other disposition
public dominion, owned by the Republic and outside the
until again declared alienable under the provisions of
this Act or by proclamation of the President. commerce of man.
(Emphasis and underscoring supplied)
c. MIAA is a Mere Trustee of the Republic
Thus, unless the President issues a proclamation
withdrawing the Airport Lands and Buildings from public MIAA is merely holding title to the Airport Lands and
use, these properties remain properties of public Buildings in trust for the Republic. Section 48, Chapter
dominion and are inalienable. Since the Airport Lands 12, Book I of the Administrative Code allows
and Buildings are inalienable in their present status as instrumentalities like MIAA to hold title to real
properties of public dominion, they are not subject to levy properties owned by the Republic, thus:
on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their SEC. 48. Official Authorized to Convey Real Property. —
Whenever real property of the Government is authorized
ownership remains with the State or the Republic of the by law to be conveyed, the deed of conveyance shall be
Philippines. executed in behalf of the government by the following:
The authority of the President to reserve lands of the (1) For property belonging to and titled in the name of the
public domain for public use, and to withdraw such public Republic of the Philippines, by the President, unless the
use, is reiterated in Section 14, Chapter 4, Title I, Book III authority therefor is expressly vested by law in another
of the Administrative Code of 1987, which states: officer.
SEC. 14. Power to Reserve Lands of the Public and (2) For property belonging to the Republic of the
Private Domain of the Government. — (1) The President Philippines but titled in the name of any political
shall have the power to reserve for settlement or subdivision or of any corporate agency or
public use, and for specific public purposes, any of instrumentality, by the executive head of the agency or
the lands of the public domain, the use of which is instrumentality. (Emphasis supplied)
not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public In MIAA's case, its status as a mere trustee of the Airport
purpose indicated until otherwise provided by law or Lands and Buildings is clearer because even its
proclamation; executive head cannot sign the deed of conveyance on
behalf of the Republic. Only the President of the Republic
x x x x. (Emphasis supplied) can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a SECTION 25. Abolition of the Manila International Airport
Reorganization as a Division in the Bureau of Air Transportation and
Transitory Provisions. — The Manila International Airport
The MIAA Charter, which is a law, transferred to MIAA including the Manila Domestic Airport as a division under
the title to the Airport Lands and Buildings from the the Bureau of Air Transportation is hereby abolished.
Bureau of Air Transportation of the Department of
x x x x.
Transportation and Communications. The MIAA Charter
provides:
The MIAA Charter transferred the Airport Lands and
Buildings to MIAA without the Republic receiving cash,
SECTION 3. Creation of the Manila International Airport
Authority. — x x x x promissory notes or even stock since MIAA is not a stock
corporation.
The land where the Airport is presently located as
well as the surrounding land area of approximately The whereas clauses of the MIAA Charter explain the
six hundred hectares, are hereby transferred, rationale for the transfer of the Airport Lands and
conveyed and assigned to the ownership and Buildings to MIAA, thus:
administration of the Authority, subject to existing
rights, if any. The Bureau of Lands and other appropriate WHEREAS, the Manila International Airport as the
government agencies shall undertake an actual survey of principal airport of the Philippines for both international
the area transferred within one year from the and domestic air traffic, is required to provide standards of
promulgation of this Executive Order and the airport accommodation and service comparable with the
corresponding title to be issued in the name of the best airports in the world;
Authority. Any portion thereof shall not be disposed
through sale or through any other mode unless
specifically approved by the President of the WHEREAS, domestic and other terminals, general
Philippines. (Emphasis supplied) aviation and other facilities, have to be upgraded to meet
the current and future air traffic and other demands of
aviation in Metro Manila;
SECTION 22. Transfer of Existing Facilities and Intangible
Assets. — All existing public airport facilities, runways,
lands, buildings and other property, movable or WHEREAS, a management and organization study has
immovable, belonging to the Airport, and all assets, indicated that the objectives of providing high
powers, rights, interests and privileges belonging to the standards of accommodation and service within the
Bureau of Air Transportation relating to airport works or context of a financially viable operation, will best be
air operations, including all equipment which are achieved by a separate and autonomous body; and
necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority. WHEREAS, under Presidential Decree No. 1416, as
(Emphasis supplied) amended by Presidential Decree No. 1772, the President
of the Philippines is given continuing authority to Airport Lands and Buildings. This only confirms that the
reorganize the National Government, which authority Airport Lands and Buildings belong to the Republic.
includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis
e. Real Property Owned by the Republic is Not Taxable
supplied)
Section 234(a) of the Local Government Code exempts
The transfer of the Airport Lands and Buildings from the
from real estate tax any "[r]eal property owned by the
Bureau of Air Transportation to MIAA was not meant to
Republic of the Philippines." Section 234(a) provides:
transfer beneficial ownership of these assets from the
Republic to MIAA. The purpose was merely SEC. 234. Exemptions from Real Property Tax. — The
to reorganize a division in the Bureau of Air following are exempted from payment of the real
Transportation into a separate and autonomous property tax:
body. The Republic remains the beneficial owner of the
Airport Lands and Buildings. MIAA itself is owned solely (a) Real property owned by the Republic of the
by the Republic. No party claims any ownership rights Philippines or any of its political subdivisions except
over MIAA's assets adverse to the Republic. when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
The MIAA Charter expressly provides that the Airport
Lands and Buildings "shall not be disposed through x x x. (Emphasis supplied)
sale or through any other mode unless specifically
This exemption should be read in relation with Section
approved by the President of the Philippines." This
133(o) of the same Code, which prohibits local
only means that the Republic retained the beneficial
governments from imposing "[t]axes, fees or charges of
ownership of the Airport Lands and Buildings because
any kind on the National Government, its agencies
under Article 428 of the Civil Code, only the "owner has
and instrumentalities x x x." The real properties owned
the right to x x x dispose of a thing." Since MIAA cannot
by the Republic are titled either in the name of the
dispose of the Airport Lands and Buildings, MIAA does
Republic itself or in the name of agencies or
not own the Airport Lands and Buildings.
instrumentalities of the National Government. The
Administrative Code allows real property owned by the
At any time, the President can transfer back to the
Republic to be titled in the name of agencies or
Republic title to the Airport Lands and Buildings without
instrumentalities of the national government. Such real
the Republic paying MIAA any consideration. Under
properties remain owned by the Republic and continue to
Section 3 of the MIAA Charter, the President is the only
be exempt from real estate tax.
one who can authorize the sale or disposition of the
The Republic may grant the beneficial use of its real for its patients, whether paying or non-paying, are exempt
property to an agency or instrumentality of the national from real property taxes.29
government. This happens when title of the real property
is transferred to an agency or instrumentality even as the 3. Refutation of Arguments of Minority
Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax The minority asserts that the MIAA is not exempt from
exemption. Section 234(a) of the Local Government real estate tax because Section 193 of the Local
Code states that real property owned by the Republic Government Code of 1991 withdrew the tax exemption of
loses its tax exemption only if the "beneficial use thereof "all persons, whether natural or juridical" upon the
has been granted, for consideration or otherwise, to effectivity of the Code. Section 193 provides:
a taxable person." MIAA, as a government
SEC. 193. Withdrawal of Tax Exemption
instrumentality, is not a taxable person under Section Privileges – Unless otherwise provided in this Code,
133(o) of the Local Government Code. Thus, even if we tax exemptions or incentives granted to, or presently
assume that the Republic has granted to MIAA the enjoyed by all persons, whether natural or juridical,
beneficial use of the Airport Lands and Buildings, such including government-owned or controlled corporations,
fact does not make these real properties subject to real except local water districts, cooperatives duly registered
estate tax. under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions are hereby withdrawn upon
However, portions of the Airport Lands and Buildings that effectivity of this Code. (Emphasis supplied)
MIAA leases to private entities are not exempt from real
The minority states that MIAA is indisputably a juridical
estate tax. For example, the land area occupied by
person. The minority argues that since the Local
hangars that MIAA leases to private corporations is
Government Code withdrew the tax exemption of all
subject to real estate tax. In such a case, MIAA has
juridical persons, then MIAA is not exempt from real
granted the beneficial use of such land area for a
estate tax. Thus, the minority declares:
consideration to a taxable person and therefore such
land area is subject to real estate tax. In Lung Center of
It is evident from the quoted provisions of the Local
the Philippines v. Quezon City, the Court ruled: Government Code that the withdrawn exemptions
from realty tax cover not just GOCCs, but all persons.
Accordingly, we hold that the portions of the land leased To repeat, the provisions lay down the explicit proposition
to private entities as well as those parts of the hospital that the withdrawal of realty tax exemption applies to all
leased to private individuals are not exempt from such persons. The reference to or the inclusion of GOCCs is
taxes. On the other hand, the portions of the land only clarificatory or illustrative of the explicit provision.
occupied by the hospital and portions of the hospital used
The term "All persons" encompasses the two classes By express mandate of the Local Government Code,
of persons recognized under our laws, natural and local governments cannot impose any kind of tax on
juridical persons. Obviously, MIAA is not a natural national government instrumentalities like the MIAA.
person. Thus, the determinative test is not just
Local governments are devoid of power to tax the
whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in national government, its agencies and instrumentalities.
the original) The taxing powers of local governments do not extend to
the national government, its agencies and
The minority posits that the "determinative test" whether instrumentalities, "[u]nless otherwise provided in this
MIAA is exempt from local taxation is its status — Code" as stated in the saving clause of Section 133. The
whether MIAA is a juridical person or not. The minority saving clause refers to Section 234(a) on the exception to
also insists that "Sections 193 and 234 may be examined the exemption from real estate tax of real property owned
in isolation from Section 133(o) to ascertain MIAA's claim by the Republic.
of exemption."
The minority, however, theorizes that unless exempted in
The argument of the minority is fatally flawed. Section Section 193 itself, all juridical persons are subject to tax
193 of the Local Government Code expressly withdrew by local governments. The minority insists that the
the tax exemption of all juridical persons "[u]nless juridical persons exempt from local taxation are limited to
otherwise provided in this Code." Now, Section 133(o) the three classes of entities specifically enumerated as
of the Local Government Code expressly provides exempt in Section 193. Thus, the minority states:
otherwise, specifically prohibiting local governments
from imposing any kind of tax on national government x x x Under Section 193, the exemption is limited to (a)
instrumentalities. Section 133(o) states: local water districts; (b) cooperatives duly registered
under Republic Act No. 6938; and (c) non-stock and non-
profit hospitals and educational institutions. It would be
SEC. 133. Common Limitations on the Taxing Powers of belaboring the obvious why the MIAA does not fall within
Local Government Units. – Unless otherwise provided any of the exempt entities under Section 193. (Emphasis
herein, the exercise of the taxing powers of provinces, supplied)
cities, municipalities, and barangays shall not extend to
the levy of the following:
The minority's theory directly contradicts and completely
xxxx negates Section 133(o) of the Local Government Code.
This theory will result in gross absurdities. It will make the
(o) Taxes, fees or charges of any kinds on the National national government, which itself is a juridical person,
Government, its agencies and instrumentalities, and local subject to tax by local governments since the national
government units. (Emphasis and underscoring supplied) government is not included in the enumeration of exempt
entities in Section 193. Under this theory, local imposing any kind of tax on the national government, its
governments can impose any kind of local tax, and not agencies and instrumentalities.
only real estate tax, on the national government.
Section 133 of the Local Government Code starts with
Under the minority's theory, many national government the saving clause "[u]nless otherwise provided in this
instrumentalities with juridical personalities will also be Code." This means that unless the Local Government
subject to any kind of local tax, and not only real estate Code grants an express authorization, local governments
tax. Some of the national government instrumentalities have no power to tax the national government, its
vested by law with juridical personalities are: Bangko agencies and instrumentalities. Clearly, the rule is local
Sentral ng Pilipinas,30Philippine Rice Research governments have no power to tax the national
Institute,31 Laguna Lake government, its agencies and instrumentalities. As an
exception to this rule, local governments may tax the
Development Authority,32 Fisheries Development national government, its agencies and instrumentalities
Authority,33 Bases Conversion Development only if the Local Government Code expressly so
Authority,34 Philippine Ports Authority,35 Cagayan de Oro provides.
Port Authority,36 San Fernando Port Authority,37 Cebu Port
Authority,38 and Philippine National Railways.39 The saving clause in Section 133 refers to the exception
to the exemption in Section 234(a) of the Code, which
The minority's theory violates Section 133(o) of the Local makes the national government subject to real estate tax
Government Code which expressly prohibits local when it gives the beneficial use of its real properties to a
governments from imposing any kind of tax on national taxable entity. Section 234(a) of the Local Government
government instrumentalities. Section 133(o) does not Code provides:
distinguish between national government
instrumentalities with or without juridical personalities. SEC. 234. Exemptions from Real Property Tax – The
Where the law does not distinguish, courts should not following are exempted from payment of the real property
distinguish. Thus, Section 133(o) applies to all national tax:
government instrumentalities, with or without juridical
(a) Real property owned by the Republic of the
personalities. The determinative test whether MIAA is Philippines or any of its political subdivisions except when
exempt from local taxation is not whether MIAA is a the beneficial use thereof has been granted, for
juridical person, but whether it is a national government consideration or otherwise, to a taxable person.
instrumentality under Section 133(o) of the Local
Government Code. Section 133(o) is the specific x x x. (Emphasis supplied)
provision of law prohibiting local governments from
Under Section 234(a), real property owned by the minority's assumption of an irreconcilable conflict in the
Republic is exempt from real estate tax. The exception to statutory provisions is an egregious error for two reasons.
this exemption is when the government gives the
beneficial use of the real property to a taxable entity. First, there is no conflict whatsoever between Sections
133 and 193 because Section 193 expressly admits its
The exception to the exemption in Section 234(a) is the subordination to other provisions of the Code when
only instance when the national government, its agencies Section 193 states "[u]nless otherwise provided in this
and instrumentalities are subject to any kind of tax by Code." By its own words, Section 193 admits the
local governments. The exception to the exemption superiority of other provisions of the Local Government
applies only to real estate tax and not to any other tax. Code that limit the exercise of the taxing power in Section
The justification for the exception to the exemption is that 193. When a provision of law grants a power but
the real property, although owned by the Republic, is not withholds such power on certain matters, there is no
devoted to public use or public service but devoted to the conflict between the grant of power and the withholding of
private gain of a taxable person. power. The grantee of the power simply cannot exercise
the power on matters withheld from its power.
The minority also argues that since Section 133 precedes
Section 193 and 234 of the Local Government Code, the Second, Section 133 is entitled "Common Limitations on
later provisions prevail over Section 133. Thus, the the Taxing Powers of Local Government Units." Section
minority asserts: 133 limits the grant to local governments of the power to
tax, and not merely the exercise of a delegated power to
x x x Moreover, sequentially Section 133 antecedes tax. Section 133 states that the taxing powers of local
Section 193 and 234. Following an accepted rule of governments "shall not extend to the levy" of any kind of
construction, in case of conflict the subsequent provisions tax on the national government, its agencies and
should prevail. Therefore, MIAA, as a juridical person, is
instrumentalities. There is no clearer limitation on the
subject to real property taxes, the general exemptions
attaching to instrumentalities under Section 133(o) of the taxing power than this.
Local Government Code being qualified by Sections 193
and 234 of the same law. (Emphasis supplied) Since Section 133 prescribes the "common limitations"
on the taxing powers of local governments, Section 133
The minority assumes that there is an irreconcilable logically prevails over Section 193 which grants local
conflict between Section 133 on one hand, and Sections governments such taxing powers. By their very meaning
193 and 234 on the other. No one has urged that there is and purpose, the "common limitations" on the taxing
such a conflict, much less has any one presenteda power prevail over the grant or exercise of the taxing
persuasive argument that there is such a conflict. The power. If the taxing power of local governments in
Section 193 prevails over the limitations on such taxing The minority's argument is a non sequitur. True, Section
power in Section 133, then local governments can 2 of the Administrative Code recognizes that a statute
impose any kind of tax on the national government, its may require a different meaning than that defined in the
agencies and instrumentalities — a gross absurdity. Administrative Code. However, this does not
automatically mean that the definition in the
Local governments have no power to tax the national Administrative Code does not apply to the Local
government, its agencies and instrumentalities, except as Government Code. Section 2 of the Administrative Code
otherwise provided in the Local Government Code clearly states that "unless the specific words x x x of a
pursuant to the saving clause in Section 133 stating particular statute shall require a different meaning," the
"[u]nless otherwise provided in this Code." This exception definition in Section 2 of the Administrative Code shall
— which is an exception to the exemption of the Republic apply. Thus, unless there is specific language in the
from real estate tax imposed by local governments — Local Government Code defining the phrase
refers to Section 234(a) of the Code. The exception to the "government-owned or controlled corporation" differently
exemption in Section 234(a) subjects real property owned from the definition in the Administrative Code, the
by the Republic, whether titled in the name of the national definition in the Administrative Code prevails.
government, its agencies or instrumentalities, to real
estate tax if the beneficial use of such property is given to The minority does not point to any provision in the Local
a taxable entity. Government Code defining the phrase "government-
owned or controlled corporation" differently from the
The minority also claims that the definition in the definition in the Administrative Code. Indeed, there is
Administrative Code of the phrase "government-owned or none. The Local Government Code is silent on the
controlled corporation" is not controlling. The minority definition of the phrase "government-owned or controlled
points out that Section 2 of the Introductory Provisions of corporation." The Administrative Code, however,
the Administrative Code admits that its definitions are not expressly defines the phrase "government-owned or
controlling when it provides: controlled corporation." The inescapable conclusion is
that the Administrative Code definition of the phrase
SEC. 2. General Terms Defined. — Unless the specific "government-owned or controlled corporation" applies to
words of the text, or the context as a whole, or a particular the Local Government Code.
statute, shall require a different meaning:
The third whereas clause of the Administrative Code
xxxx states that the Code "incorporates in a unified document
the major structural, functional and procedural principles
The minority then concludes that reliance on the
and rules of governance." Thus, the Administrative Code
Administrative Code definition is "flawed."
is the governing law defining the status and relationship First, the Administrative Code definition of the phrase
of government departments, bureaus, offices, agencies "government-owned or controlled corporation" does not
and instrumentalities. Unless a statute expressly provides distinguish between one incorporated under the
for a different status and relationship for a specific Corporation Code or under a special charter. Where the
government unit or entity, the provisions of the law does not distinguish, courts should not distinguish.
Administrative Code prevail.
Second, Congress has created through special charters
The minority also contends that the phrase "government- several government-owned corporations organized as
owned or controlled corporation" should apply only to stock corporations. Prime examples are the Land Bank of
corporations organized under the Corporation Code, the the Philippines and the Development Bank of the
general incorporation law, and not to corporations Philippines. The special charter40 of the Land Bank of the
created by special charters. The minority sees no reason Philippines provides:
why government corporations with special charters
should have a capital stock. Thus, the minority declares: SECTION 81. Capital. — The authorized capital stock of
the Bank shall be nine billion pesos, divided into seven
I submit that the definition of "government-owned or hundred and eighty million common shares with a par
controlled corporations" under the Administrative Code value of ten pesos each, which shall be fully subscribed
refer to those corporations owned by the government or by the Government, and one hundred and twenty million
its instrumentalities which are created not by legislative preferred shares with a par value of ten pesos each,
enactment, but formed and organized under the which shall be issued in accordance with the provisions of
Corporation Code through registration with the Securities Sections seventy-seven and eighty-three of this Code.
and Exchange Commission. In short, these are GOCCs (Emphasis supplied)
without original charters.
Likewise, the special charter41 of the Development Bank
xxxx of the Philippines provides:
It might as well be worth pointing out that there is no point SECTION 7. Authorized Capital Stock – Par value. — The
in requiring a capital structure for GOCCs whose full capital stock of the Bank shall be Five Billion Pesos to be
ownership is limited by its charter to the State or Republic. divided into Fifty Million common shares with par value of
Such GOCCs are not empowered to declare dividends or P100 per share. These shares are available for
alienate their capital shares. subscription by the National Government. Upon the
effectivity of this Charter, the National Government shall
The contention of the minority is seriously flawed. It is not subscribe to Twenty-Five Million common shares of stock
in accord with the Constitution and existing legislations. It worth Two Billion Five Hundred Million which shall be
deemed paid for by the Government with the net asset
will also result in gross absurdities. values of the Bank remaining after the transfer of assets
and liabilities as provided in Section 30 hereof. (Emphasis to the test of economic viability. (Emphasis and
supplied) underscoring supplied)
Other government-owned corporations organized as The Constitution expressly authorizes the legislature to
stock corporations under their special charters are the create "government-owned or controlled corporations"
Philippine Crop Insurance Corporation,42 Philippine through special charters only if these entities are required
International Trading Corporation,43 and the Philippine to meet the twin conditions of common good and
National Bank44 before it was reorganized as a stock economic viability. In other words, Congress has no
corporation under the Corporation Code. All these power to create government-owned or controlled
government-owned corporations organized under special corporations with special charters unless they are made
charters as stock corporations are subject to real estate to comply with the two conditions of common good and
tax on real properties owned by them. To rule that they economic viability. The test of economic viability applies
are not government-owned or controlled corporations only to government-owned or controlled corporations that
because they are not registered with the Securities and perform economic or commercial activities and need to
Exchange Commission would remove them from the compete in the market place. Being essentially economic
reach of Section 234 of the Local Government Code, thus vehicles of the State for the common good — meaning
exempting them from real estate tax. for economic development purposes — these
government-owned or controlled corporations with
Third, the government-owned or controlled corporations special charters are usually organized as stock
created through special charters are those that meet the corporations just like ordinary private corporations.
two conditions prescribed in Section 16, Article XII of the
Constitution. The first condition is that the government- In contrast, government instrumentalities vested with
owned or controlled corporation must be established for corporate powers and performing governmental or public
the common good. The second condition is that the functions need not meet the test of economic viability.
government-owned or controlled corporation must meet These instrumentalities perform essential public services
the test of economic viability. Section 16, Article XII of the for the common good, services that every modern State
1987 Constitution provides: must provide its citizens. These instrumentalities need
not be economically viable since the government may
SEC. 16. The Congress shall not, except by general law, even subsidize their entire operations. These
provide for the formation, organization, or regulation of instrumentalities are not the "government-owned or
private corporations. Government-owned or controlled controlled corporations" referred to in Section 16, Article
corporations may be created or established by special
XII of the 1987 Constitution.
charters in the interest of the common good and subject
Thus, the Constitution imposes no limitation when the through new equity infusions from the government and
legislature creates government instrumentalities vested what is always invoked is the common good. That is the
with corporate powers but performing essential reason why this year, out of a budget of P115 billion for
the entire government, about P28 billion of this will go into
governmental or public functions. Congress has plenary equity infusions to support a few government financial
authority to create government instrumentalities vested institutions. And this is all taxpayers' money which could
with corporate powers provided these instrumentalities have been relocated to agrarian reform, to social services
perform essential government functions or public like health and education, to augment the salaries of
services. However, when the legislature creates through grossly underpaid public employees. And yet this is all
special charters corporations that perform economic or going down the drain.
commercial activities, such entities — known as
"government-owned or controlled corporations" — must Therefore, when we insert the phrase "ECONOMIC
VIABILITY" together with the "common good," this
meet the test of economic viability because they compete becomes a restraint on future enthusiasts for state
in the market place. capitalism to excuse themselves from the responsibility of
meeting the market test so that they become viable. And
This is the situation of the Land Bank of the Philippines so, Madam President, I reiterate, for the committee's
and the Development Bank of the Philippines and similar consideration and I am glad that I am joined in this
government-owned or controlled corporations, which proposal by Commissioner Foz, the insertion of the
derive their income to meet operating expenses solely standard of "ECONOMIC VIABILITY OR THE
ECONOMIC TEST," together with the common good.45
from commercial transactions in competition with the
private sector. The intent of the Constitution is to prevent
Father Joaquin G. Bernas, a leading member of the
the creation of government-owned or controlled
Constitutional Commission, explains in his textbook The
corporations that cannot survive on their own in the
1987 Constitution of the Republic of the Philippines: A
market place and thus merely drain the public coffers.
Commentary:
Commissioner Blas F. Ople, proponent of the test of
The second sentence was added by the 1986
economic viability, explained to the Constitutional Constitutional Commission. The significant addition,
Commission the purpose of this test, as follows: however, is the phrase "in the interest of the common
good and subject to the test of economic viability." The
MR. OPLE: Madam President, the reason for this concern addition includes the ideas that they must show capacity
is really that when the government creates a corporation, to function efficiently in business and that they should not
there is a sense in which this corporation becomes go into activities which the private sector can do better.
exempt from the test of economic performance. We know Moreover, economic viability is more than financial
what happened in the past. If a government corporation viability but also includes capability to make profit and
loses, then it makes its claim upon the taxpayers' money
generate benefits not quantifiable in financial an international airport requires the presence of
terms.46 (Emphasis supplied) personnel from the following government agencies:
Clearly, the test of economic viability does not apply to 1. The Bureau of Immigration and Deportation, to
government entities vested with corporate powers and document the arrival and departure of passengers,
performing essential public services. The State is screening out those without visas or travel documents, or
obligated to render essential public services regardless of those with hold departure orders;
the economic viability of providing such service. The non-
economic viability of rendering such essential public 2. The Bureau of Customs, to collect import duties or
enforce the ban on prohibited importations;
service does not excuse the State from withholding such
essential services from the public. 3. The quarantine office of the Department of Health, to
enforce health measures against the spread of infectious
However, government-owned or controlled corporations diseases into the country;
with special charters, organized essentially for economic
or commercial objectives, must meet the test of economic 4. The Department of Agriculture, to enforce measures
viability. These are the government-owned or controlled against the spread of plant and animal diseases into the
corporations that are usually organized under their country;
special charters as stock corporations, like the Land Bank
of the Philippines and the Development Bank of the 5. The Aviation Security Command of the Philippine
Philippines. These are the government-owned or National Police, to prevent the entry of terrorists and the
escape of criminals, as well as to secure the airport
controlled corporations, along with government-owned or premises from terrorist attack or seizure;
controlled corporations organized under the Corporation
Code, that fall under the definition of "government-owned 6. The Air Traffic Office of the Department of
or controlled corporations" in Section 2(10) of the Transportation and Communications, to authorize aircraft
Administrative Code. to enter or leave Philippine airspace, as well as to land
on, or take off from, the airport; and
The MIAA need not meet the test of economic viability
because the legislature did not create MIAA to compete 7. The MIAA, to provide the proper premises — such as
in the market place. MIAA does not compete in the runway and buildings — for the government personnel,
passengers, and airlines, and to manage the airport
market place because there is no competing international operations.
airport operated by the private sector. MIAA performs an
essential public service as the primary domestic and
international airport of the Philippines. The operation of
All these agencies of government perform government scope of the phrase "government-owned or controlled
functions essential to the operation of an international corporations" under Section 16, Article XII of the 1987
airport. Constitution.
MIAA performs an essential public service that every The minority belittles the use in the Local Government
modern State must provide its citizens. MIAA derives its Code of the phrase "government-owned or controlled
revenues principally from the mandatory fees and corporation" as merely "clarificatory or illustrative." This is
charges MIAA imposes on passengers and airlines. The fatal. The 1987 Constitution prescribes explicit conditions
terminal fees that MIAA charges every passenger are for the creation of "government-owned or controlled
regulatory or administrative fees47 and not income from corporations." The Administrative Code defines what
commercial transactions. constitutes a "government-owned or controlled
corporation." To belittle this phrase as "clarificatory or
MIAA falls under the definition of a government illustrative" is grave error.
instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code, which provides: To summarize, MIAA is not a government-owned or
controlled corporation under Section 2(13) of the
SEC. 2. General Terms Defined. – x x x x Introductory Provisions of the Administrative Code
because it is not organized as a stock or non-stock
(10) Instrumentality refers to any agency of the National corporation. Neither is MIAA a government-owned or
Government, not integrated within the department controlled corporation under Section 16, Article XII of the
framework, vested with special functions or jurisdiction by 1987 Constitution because MIAA is not required to meet
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational the test of economic viability. MIAA is a government
autonomy, usually through a charter. x x x (Emphasis instrumentality vested with corporate powers and
supplied) performing essential public services pursuant to Section
2(10) of the Introductory Provisions of the Administrative
The fact alone that MIAA is endowed with corporate Code. As a government instrumentality, MIAA is not
powers does not make MIAA a government-owned or subject to any kind of tax by local governments under
controlled corporation. Without a change in its capital Section 133(o) of the Local Government Code. The
structure, MIAA remains a government instrumentality exception to the exemption in Section 234(a) does not
under Section 2(10) of the Introductory Provisions of the apply to MIAA because MIAA is not a taxable entity under
Administrative Code. More importantly, as long as MIAA the Local Government Code. Such exception applies only
renders essential public services, it need not comply with if the beneficial use of real property owned by the
the test of economic viability. Thus, MIAA is outside the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are MIAA is a government instrumentality and not a
properties devoted to public use and thus are properties government-owned or controlled corporation. Under
of public dominion. Properties of public dominion are Section 133(o) of the Local Government Code, MIAA as
owned by the State or the Republic. Article 420 of the a government instrumentality is not a taxable person
Civil Code provides: because it is not subject to "[t]axes, fees or charges of
any kind" by local governments. The only exception is
Art. 420. The following things are property of public when MIAA leases its real property to a "taxable person"
dominion: as provided in Section 234(a) of the Local Government
Code, in which case the specific real property leased
(1) Those intended for public use, such as roads, canals, becomes subject to real estate tax. Thus, only portions of
rivers, torrents, ports and bridges constructed by the
the Airport Lands and Buildings leased to taxable
State, banks, shores, roadsteads, and others of similar
character; persons like private parties are subject to real estate tax
by the City of Parañaque.
(2) Those which belong to the State, without being for
public use, and are intended for some public service or for Under Article 420 of the Civil Code, the Airport Lands and
the development of the national wealth. (Emphasis Buildings of MIAA, being devoted to public use, are
supplied) properties of public dominion and thus owned by the
State or the Republic of the Philippines. Article 420
The term "ports x x x constructed by the State" includes specifically mentions "ports x x x constructed by the
airports and seaports. The Airport Lands and Buildings of State," which includes public airports and seaports, as
MIAA are intended for public use, and at the very least properties of public dominion and owned by the Republic.
intended for public service. Whether intended for public As properties of public dominion owned by the Republic,
use or public service, the Airport Lands and Buildings are there is no doubt whatsoever that the Airport Lands and
properties of public dominion. As properties of public Buildings are expressly exempt from real estate tax under
dominion, the Airport Lands and Buildings are owned by Section 234(a) of the Local Government Code. This
the Republic and thus exempt from real estate tax under Court has also repeatedly ruled that properties of public
Section 234(a) of the Local Government Code. dominion are not subject to execution or foreclosure sale.
No costs.
SO ORDERED.