Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 200620 March 18, 2015

ROBERTO L. ABAD, MANUEL D. ANDAL, BENITO V. ARANETA, PHILIP G. BRODETT,

ENRIQUE L. LOCSIN and ROBERTO V. SAN JOSE, Petitioners,
vs.
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, represented by VICTOR
AFRICA, Respondent.

DECISION

VILLARAMA, JR., J.:

This case is a remnant of the multiple suits generated by the two factions battling for control of two
sequestered corporations since 2004, a controversy we already resolved with finality in 2013.

Assailed in this petition for review under Rule 45 are the Decision dated October 21, 2011 and
1

Resolution dated February 10, 2012 of the Court of Appeals (CA) in CA-G.R. SP No. 99789. The
2

CA reversed the Order dated June 21, 2007 of the Regional Trial Court (RTC) of Makati City,
3

Branch 149 in Civil Case No. 06-095.

Respondent Philippine Communications Satellite Corporation (PHILCOMSAT), along with Philippine

Overseas Telecommunications Corporation (POTC) were among those private companies
sequestered by the Philippine Commission on Good Government (PCGG) after the EDSA People
Power Revolution in 1986. PHILCOMSAT owns 81% of the outstanding capital stock of Philcomsat
Holdings Corporation (PHC). The majority shareholders of PHILCOMSAT are also the seven
families who have owned and controlled POTC (Ilusorio, Nieto, Poblador, Africa, Benedicto, Ponce
Enrile and Elizalde).

During the administration of President Gloria Macapagal-Arroyo, Enrique L. Locsin and Manuel D.
Andal, along with Julio Jalandoni, were appointed nominee-directors representing the Republic of
the Philippines through the PCGG in the board of directors of POTC and the board of directors of
PHILCOMSAT. These PCGG nominees have aligned with the Nieto family against the group of
Africa and Ilusorio (Africa-Bildner), in the ensuing battle for control over the respective boards of
POTC, PHILCOMSAT and PHC. Benito Araneta was also a nominee of PCGG during the term of
President Joseph Ejercito Estrada.

On August 31, 2004, the following were elected during the annual stockholders’ meeting of PHC
conducted by the Nieto-PCGG group: Locsin (Director and Acting Chairman); Oliverio Laperal
(Director and Vice- Chairman); Manuel H. Nieto, Jr. (Director, President and Chief Executive
Officer); Philip G. Brodett (Director and Vice-President); Andal (Director, Treasurer and Chief
Financial Officer); Roberto V. San Jose (Director and Corporate Secretary); Jalandoni, Lokin, Jr.,
Prudencio Somera, Roberto Abad and Benito Araneta as Directors. Said election at PHC was the
offshoot of separate elections conducted by the two factions in POTC and PHILCOMSAT, the Africa-
Bildner group and the Nieto-PCGG group.

In the July 28, 2004 stockholders’ meetings of POTC and PHILCOMSAT, Victor Africa was among
those in the Africa-Bildner group who were elected as Directors. He was designated as the POTC
proxy to the PHILCOMSAT stockholders’ meeting. While Locsin, Andal and Nieto, Jr. were also
elected as Directors, they did not accept their election as POTC and PHILCOMSAT Directors.
Instead, the Nieto-PCGG group held the stockholders’ meeting for PHILCOMSAT on August 9, 2004
at the Manila Golf Club. Immediately after the stockholders’ meeting, an organizational meeting was
held, and Nieto, Jr. and Locsin were respectively elected as Chairman and President of
PHILCOMSAT. At the same meeting, they issued a proxy in favor of Nieto, Jr. and/or Locsin
authorizing them to represent PHILCOMSAT and vote the PHILCOMSAT shares in the stockholders’
meeting of PHC scheduled on August 31, 2004.

Thereafter, the two factions took various legal steps including the filing of suits and countersuits to
gain legitimacy for their respective election as directors and officers of POTC and PHILCOMSAT.
The Africa group had sought the invalidation of the proxy issued in favor of Nieto, Jr. and/or Locsin
and consequent nullification of the elections held during the annual stockholders’ meeting of PHC on
August 31, 2004 (Civil Case No. 04-1049 of RTC, Makati City, Branch 138). Prior to this, there was
the pending case involving the compromise agreement dated June 28, 1996 entered into by Atty.
Potenciano Ilusorio with the Republic of the Philippines and the PCGG relative to the Ilusorio family’s
shareholdings in POTC, including those shares forcibly taken from him by former President
Ferdinand Marcos which were placed in the name of Independent Realty Corporation (IRC) and Mid-
Pasig Land Development (Mid-Pasig). By Decision dated June 15, 2005, this Court affirmed the
validity of the said compromise agreement in G.R. Nos. 141796 and 141804. As a result of the
compromise agreement, the Ilusorio, Africa, Poblador, Benedicto and Ponce Enrile families gained
majority control (51.37%) and the Nieto family and PCGG became the minority.

On November 17, 2005, Africa in his capacity as President and CEO of PHILCOMSAT, and as
stockholder in his own right, wrote the board and management of PHC that PHILCOMSAT will
exercise its right of inspection over the books, records, papers, etc. pertinent to the business
transactions of PHC for the 3rd quarter of 2005, specifically the company’s financial documents. 4

In his letter dated November 22, 2005, Nieto, Jr. said that Africa’s request will be referred to the PHC
Board of Directors or Executive Committee in view of the several pending cases involving the Africa
and Nieto-PCGG groups on one hand, and the PHC and its board of directors on the other. He
further advised Africa to inform them in writing of his reasons and purposes for such inspection. In 5

reply, Africa reiterated his request for inspection asserting that the PHILCOMSAT board of directors
was elected on September 22, 2005 under circumstances in consonance with the final decision of
this Court and that there is no case against its legitimacy.
6

On the day of the scheduled inspection, PHILCOMSAT sent its representatives, Atty. Samuel Divina
and Enrico Songco. However, Brodett disallowed the conduct of the inspection which prompted
PHILCOMSAT through its counsel to make a written query whether the refusal of Brodett to permit
the conduct of PHC’s inspection of corporate books and financial documents was with the
knowledge and authority of PHC’s board of directors. But no reply or communication was received
by Africa from the PHC. 7

On February 2, 2006, PHILCOMSAT filed in the RTC a Complaint for Inspection of Books against
8

the incumbent PHC directors and/or officers, to enforce its right under Sections 74 and 75 of
the Corporation Code of the Philippines. The original defendants were Julio J. Jalandoni, Luis K.
Lokin, Jr., Oliverio G. Laperal, Nieto, Jr., Prudencio C. Somera, and herein petitioners Andal, Locsin,
Brodett, San Jose and Araneta.

In its Order dated June 21, 2007, the RTC dismissed the complaint for lack of jurisdiction. Citing Del
Moral v. Republic of the Philippines and Olaguer v. RTC, National Capital Judicial Region, Br. 48,
9

Manila, said court ruled that it is the Sandiganbayan which has jurisdiction considering that plaintiff
10

is a sequestered corporation of the Republic through the PCGG alleging a right of inspection over
PHC but which right or authority was being raised as a defense by the defendants.
PHILCOMSAT appealed to the CA thru a petition for review under Rule 43 arguing that it is the RTC
and not Sandiganbayan which has jurisdiction over the case involving a stockholder’s right to inspect
corporate books and records. Petitioners countered that the main controversy is rooted upon the
issue of who are the rightful representative and board of directors of PHILCOMSAT. Accordingly,
PHILCOMSAT’s right of inspection hinges on the resolution of the ongoing power struggle within
PHILCOMSAT, specifically on the issue of who between the Africa and Nieto-Locsin groups is the
legitimate board of directors. It was further pointed out that POTC and PHILCOMSAT were both
under sequestration by the PCGG, and hence all issues and controversies arising therefrom or
related or incidental thereto fall under the exclusive and original jurisdiction of the Sandiganbayan.
Petitioners also contended that the petition should be dismissed on the ground of litis pendentia as
the CA may take judicial notice of the fact that many cases involving Africa’s purported authority to
represent PHILCOMSAT are pending before several courts, which issue must necessarily be
resolved to determine who possesses the right of inspection of PHC’s books and records.

Finding merit in petitioners’ arguments, the CA granted the petition, as follows:

WHEREFORE, the Petition is hereby GRANTED. The Order of dismissal dated 21 June 2007 of the
Regional Trial Court of Makati City, Branch 149, in Civil Case No. 06-095, is REVERSED and SET
ASIDE. Accordingly, the case is remanded to the court a quo for further proceedings. The court
a quo is reminded to hear and decide the case with dispatch.

SO ORDERED. 11

With the denial of their motion for reconsideration, petitioners are now before this Court.

The issues submitted for our resolution are: (1) whether it is the Sandiganbayan or RTC which has
jurisdiction over a stockholders’ suit to enforce its right of inspection under Section 74 of
the Corporation Code; and (2) whether the complaint failed to state a cause of action considering
that PHILCOMSAT never authorized Africa or any other person to file the said complaint.

The petition has no merit.

Both issues presented in this case pertaining to the jurisdiction of the RTC in intra-corporate
disputes within the sequestered corporations of PCGG, and who between the contending groups
held the controlling interest in POTC, and consequently in PHILCOMSAT and PHC, have already
been resolved in the consolidated petitions docketed as G.R. No. 184622 (Philippine Overseas
Telecommunications Corp. [POTC] and Philippine Communications Satellite Corporation
[PHILCOMSAT] v. Victor Africa, et al.), G.R. Nos. 184712-14 (POTC and PHILCOMSAT v. Hon.
Jenny Lin Aldecoa-Delorino, Pairing Judge of RTC Makati City, Br. 138, et al.), G.R. No. 186066
(Philcomsat Holdings Corp., represented by Concepcion Poblador v. PHILCOMSAT, represented by
Victor Africa), and G.R. No. 186590 (Philcomsat Holdings Corp., represented by Erlinda I. Bildner v.
Philcomsat Holdings Corp., represented by Enrique L. Locsin). 12

On the first issue, we ruled that it is the RTC and not the Sandiganbayan which has jurisdiction over
cases which do not involve a sequestration-related incident but an intra-corporate controversy.

Originally, Section 5 of Presidential Decree (P.D.) No. 902-A vested the original and exclusive
jurisdiction over cases involving the following in the SEC, to wit:

xxxx

(a)Devices or schemes employed by, or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which may be
 detrimental to the interest of the public and/or of the stockholder, partners, members of
associations or organization registered with the Commission;

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

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

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

such corporations, partnership or associations;

(d)Petitions of corporations, partnerships or associations to be declared in the state of

suspension of payment in cases where the corporation, partnership or association
possesses sufficient property to cover all its debts but foresees the impossibility of meeting
them when they respective fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities but is under the management of a
Rehabilitation Receiver or Management Committee created pursuant to this Decree.

Upon the enactment of Republic Act No. 8799 (The Securities Regulation Code), effective on August
8, 2000, the jurisdiction of the SEC over intra-corporate controversies and the other cases
enumerated in Section 5 of P.D. No. 902-A was transferred to the Regional Trial Court pursuant to
Section 5.2 of the law, which provides:

5.2. The Commission’s jurisdiction over all cases enumerated in Section 5 of Presidential Decree
No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial
Court; Provided, That the Supreme Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra- corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of this Code. The Commission shall
retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000
until finally disposed.

To implement Republic Act No. 8799, the Court promulgated its resolution of November 21, 2000 in
A.M. No. 00-11-03-SC designating certain branches of the RTC to try and decide the cases
enumerated in Section 5 of P.D. No. 902-A. Among the RTCs designated as special commercial
courts was the RTC (Branch 138) in Makati City, the trial court for Civil Case No. 04-1049.

On March 13, 2001, the Court adopted and approved the Interim Rules of Procedure for Intra-
Corporate Controversies under Republic Act No. 8799 in A.M. No. 01-2-04-SC, effective on April 1,
2001, whose Section 1 and Section 2, Rule 6 state:

Section 1. Cases covered. – The provisions of this rule shall apply to election contests in stock and
non-stock corporations.

Section 2. Definition. – An election contest refers to any controversy or dispute involving title or
claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner
and validity of elections, and the qualifications of candidates, including the proclamation of
winners, to the office of director, trustee or other officer directly elected by the stockholders in a
close corporation or by members of a non-stock corporation where the articles of incorporation or by-
laws so provide. (bold underscoring supplied)
Conformably with Republic Act No. 8799, and with the ensuing resolutions of the Court on
the implementation of the transfer of jurisdiction to the Regional Trial Court, the RTC (Branch
138) in Makati had the authority to hear and decide the election contest between the parties
herein. There should be no disagreement that jurisdiction over the subject matter of an action, being
conferred by law, could neither be altered nor conveniently set aside by the courts and the parties.

To buttress its position, however, the Nieto-Locsin Group relied on Section 2 of Executive Order No.
14, which expressly mandated that the PCGG "shall file all such cases, whether civil or criminal, with
the Sandiganbayan, which shall have exclusive and original jurisdiction thereof."

The reliance was unwarranted.

Section 2 of Executive Order No. 14 had no application herein simply because the subject matter
involved was an intra-corporate controversy, not any incidents arising from, incidental to, or related
to any case involving assets whose nature as ill-gotten wealth was yet to be determined. In San
Miguel Corporation v. Kahn, the Court held that:

The subject matter of his complaint in the SEC does not therefore fall within the ambit of this Court’s
Resolution of August 10, 1988 on the cases just mentioned, to the effect that, citing PCGG v. Pena,
et al., all cases of the Commission regarding ‘the funds, moneys, assets, and properties illegally
acquired or misappropriated by former President Ferdinand Marcos, Mrs. Imelda Romualdez
Marcos, their close relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees,
whether civil or criminal, are lodged within the exclusive and original jurisdiction of the
Sandiganbayan,’ and all incidents arising from, incidental to, or related to, such cases necessarily
fall likewise under the Sandiganbayan’s exclusive and original jurisdiction, subject to review on
certiorari exclusively by the Supreme Court." His complaint does not involve any property illegally
acquired or misappropriated by Marcos, et al., or "any incidents arising from, incidental to, or related
to" any case involving such property, but assets indisputably belonging to San Miguel Corporation
which were, in his (de los Angeles') view, being illicitly committed by a majority of its board of
directors to answer for loans assumed by a sister corporation, Neptunia Co., Ltd.

De los Angeles’ complaint, in fine, is confined to the issue of the validity of the assumption by the
corporation of the indebtedness of Neptunia Co., Ltd., allegedly for the benefit of certain of its
officers and stockholders, an issue evidently distinct from, and not even remotely requiring inquiry
into the matter of whether or not the 33,133,266 SMC shares sequestered by the PCGG belong to
Marcos and his cronies or dummies (on which, issue, as already pointed out, de los Angeles, in
common with the PCGG, had in fact espoused the affirmative). De los Angeles’ dispute, as
stockholder and director of SMC, with other SMC directors, an intra-corporate one, to be sure, is of
no concern to the Sandiganbayan, having no relevance whatever to the ownership of the
sequestered stock. The contention, therefore, that in view of this Court's ruling as regards the
sequestered SMC stock above adverted to, the SEC has no jurisdiction over the de los Angeles
complaint, cannot be sustained and must be rejected. The dispute concerns acts of the board of
directors claimed to amount to fraud and misrepresentation which may be detrimental to the
interest of the stockholders, or is one arising out of intra-corporate relations between and
among stockholders, or between any or all of them and the corporation of which they are
stockholders.

Moreover, the jurisdiction of the Sandiganbayan has been held not to extend even to a case
involving a sequestered company notwithstanding that the majority of the members of the
board of directors were PCGG nominees. The Court marked this distinction clearly in Holiday Inn
(Phils.), Inc. v. Sandiganbayan, holding thusly:

The subject-matter of petitioner’s proposed complaint-in-intervention involves basically, an

interpretation of contract, i.e., whether or not the right of first refusal could and/or should have been
observed, based on the Addendum/Agreement of July 14, 1988, which extended the terms and
conditions of the original agreement of January 1, 1976. The question of whether or not the
sequestered property was lawfully acquired by Roberto S. Benedicto has no bearing on the legality
of the termination of the management contract by NRHDC’s Board of Directors. The two are
independent and unrelated issues and resolution of either may proceed independently of each other.
Upholding the legality of Benedicto’s acquisition of the sequestered property is not a guarantee that
HIP’s management contract would be upheld, for only the Board of Directors of NRHDC is qualified
to make such a determination.

Likewise, the Sandiganbayan correctly denied jurisdiction over the proposed complaint-in-
intervention. The original and exclusive jurisdiction given to the Sandiganbayan over PCGG cases
pertains to (a) cases filed by the PCGG, pursuant to the exercise of its powers under Executive
Order Nos. 1, 2 and 14, as amended by the Office of the President, and Article XVIII, Section 26 of
the Constitution, i.e., where the principal cause of action is the recovery of ill-gotten wealth, as well
as all incidents arising from, incidental to, or related to such cases and (b) cases filed by those who
wish to question or challenge the commission’s acts or orders in such cases.

Evidently, petitioner’s proposed complaint-in- intervention is an ordinary civil case that does not
pertain to the Sandiganbayan. As the Solicitor General stated, the complaint is not directed against
PCGG as an entity, but against a private corporation, in which case it is not per se, a PCGG case.

In the cases now before the Court, what are sought to be determined are the propriety of the
election of a party as a Director, and his authority to act in that capacity. Such issues should
be exclusively determined only by the RTC pursuant to the pertinent law on jurisdiction
because they did not concern the recovery of ill-gotten wealth. (Emphasis supplied)
13

In the case at bar, the complaint concerns PHILCOMSAT’s demand to exercise its right of inspection
as stockholder of PHC but which petitioners refused on the ground of the ongoing power struggle
within POTC and PHILCOMSAT that supposedly prevents PHC from recognizing PHILCOMSAT’s
representative (Africa) as possessing such right or authority from the legitimate directors and
officers. Clearly, the controversy is intra-corporate in nature as they arose out of intra-corporate
relations between and among stockholders, and between stockholders and the corporation.

As to the issue of whether the complaint should be dismissed for failure to state a cause of action
since PHILCOMSAT never authorized Africa to file it, we rule in the negative.

A complaint should not be dismissed for insufficiency of cause of action if it appears clearly from the
complaint and its attachments that the plaintiff is entitled to relief. Conversely, a complaint may be
dismissed for lack of cause of action if it is obvious from the complaint and its annexes that the
plaintiff is not entitled to any relief. Here, attached to the complaint is the Board Secretary’s
14

Certificate stating, among others, that PHILCOMSAT board of directors had authorized its President
15

to exercise the right of inspection in its subsidiary PHC, and to file a case in court in case of refusal
by PHC.

Petitioners insist that the board meeting held on September 22, 2005 where the aforesaid resolution
was approved, is void for want of a quorum "as the majority of the legitimate directors of
PHILCOMSAT were not present at and notified of the meeting." This clearly alludes to the Nieto-
PCGG group’s non-recognition of the election of the board of directors of POTC and PHILCOMSAT
conducted by the Africa-Bildner group.

The issue thus boils down to the legitimacy of the Africa-Bildner group as the controlling interest in
PHILCOMSAT.
In the same cited case of Philippine Overseas Telecommunications Corp. (POTC) v. Africa, we 16

have further settled with finality, under the doctrine of stare decisis, the question of who between the
contending factions (Africa-Bildner) and (Nieto-PCGG) held the controlling interest in POTC, and
consequently PHILCOMSAT and PHC. Thus:

The question of who held the majority shareholdings in POTC and PHILCOMSAT was
definitively laid to rest in G.R. No. 141796 and G.R. No. 141804, whereby the Court upheld the
validity of the compromise agreement the Government had concluded with Atty. Ilusorio. Said
the Court:

With the imprimatur of no less than the former President Fidel V. Ramos and the approval of the
Sandiganbayan, the Compromise Agreement must be accorded utmost respect. Such amicable 1avvphi1

settlement is not only allowed but even encouraged. Thus, in Republic vs. Sandiganbayan, we held:

xxxx

The authority of the PCGG to enter into Compromise Agreements in civil cases and to grant
immunity, under certain circumstances, in criminal cases is now settled and established. In Republic
of the Philippines and Jose O. Campos, Jr. vs. Sandiganbayan, et al. (173 SCRA 72 [1989]), this
Court categorically stated that amicable settlements and compromises are not only allowed but
actually encouraged in civil cases. A specific grant of immunity from criminal prosecutions was also
sustained. In Benedicto vs. Board of Administrators of Television Stations RPN, BBC, and IBC (207
SCRA 659 [1992]), the Court ruled that the authority of the PCGG to validly enter into Compromise
Agreement for the purpose of avoiding litigation or putting an end to one already commenced was
indisputable. x x x (italics supplied)

Having been sealed with court approval, the Compromise Agreement has the force of res
judicata between the parties and should be complied with in accordance with its terms. Pursuant
thereto, Victoria C. de los Reyes, Corporate Secretary of the POTC, transmitted to Mr. Magdangal B.
Elma, then Chief Presidential Legal Counsel and Chairman of PCGG, Stock Certificate No. 131
dated January 10, 2000, issued in the name of the Republic of the Philippines, for 4,727 POTC
shares. Thus, the Compromise Agreement was partly implemented.

As a result of the Government having expressly recognized that 673 POTC shares belonged
to Atty. Ilusorio, Atty. Ilusorio and his group gained the majority control of POTC.

Applying the ruling in G.R. No. 141796 and G.R. No. 141804 to Civil Case No. 04-1049, the RTC
(Branch 138) correctly concluded that the Nieto-PCGG Group, because it did not have the
majority control of POTC, could not have validly convened and held the stockholders’
meeting and election of POTC officers on August 5, 2004 during which Nieto, Jr. and PCGG
representative Guy De Leon were respectively elected as President and Chairman; and that
there could not be a valid authority for Nieto, Jr. and/or Locsin to vote the proxies of the
group in the PHILCOMSAT meeting.

For the same reason, the POTC proxies used by Nieto, Jr. and Locsin to elect themselves
respectively as Chairman and President of PHILCOMSAT; and the PHILCOMSAT proxies
used by Nieto, Jr. and Locsin in the August 31, 2004 PHC elections to elect themselves
respectively as President and Acting Chairman of PHC, were all invalid for not having the
support of the majority shareholders of said corporations.

While it is true that judicial decisions should be given a prospective effect, such prospectivity did not
apply to the June 15, 2005 ruling in G.R. No. 141796 and G.R. No. 141804 because the ruling did
not enunciate a new legal doctrine or change the interpretation of the law as to prejudice the parties
and undo their situations established under an old doctrine or prior interpretation. Indeed, the ruling
only affirmed the compromise agreement consummated on June 28, 1996 and approved by the
Sandiganbayan on June 8, 1998, and accordingly implemented through the cancellation of the
shares in the names of IRC and MLDC and their registration in the names of Atty. Ilusorio to the
extent of 673 shares, and of the Republic to the extent of 4,727 shares. In a manner of speaking, the
decision of the Court in G.R. No. 141796 and G.R. No. 141804 promulgated on June 15, 2005
declared the compromise agreement valid, and such validation properly retroacted to the date of the
judicial approval of the compromise agreement on June 8, 1998.

Consequently, although the assailed elections were conducted by the Nieto-PCGG group on August
31 , 2004 but the ruling in G.R. No. 141796 and G.R. No. 141804 was promulgated only on June 15,
2005 , the ruling was the legal standard by which the issues raised in Civil Case No. 04-1049 should
be resolved . (Emphasis supplied)
17

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated October 21, 2011 and
Resolution dated February 10, 2012 of the Court of Appeals in CA-G.R. SP No. 99789 are
hereby AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice
 Fluor Daniel Phil vs. CIR

The Taxpayer Was Deprived of Due Process When the Tax Assessment Was Changed Without Opportunity
for Protest.

FACTS

A Formal Letter of Demand was sent by respondent assessing petitioner deficiency taxes for 2004 comprising
Income Tax, VAT and Expanded Withholding Tax. Included in the EWT assessment was the alleged deficient
on petitioner’s payments of maintenance service fees for software maintenance to Fluor International, Inc.
(FII). Respondent stating that since there was no documentary evidence to show the true nature of the contract,
the fees should be treated as income from services and thus, subject to EWT at 32%.

Petitioner then filed a protest requesting reinvestigation or reconsideration and applied for abatement of
penalties, surcharges and interest. In response to petitioner's protest, respondent issued a Final Decision on
Disputed Assessment (FDDA) cancelling the deficiency EWT but issuing an assessment for Final Withholding
Tax (FWT) on the same software fees albeit using a lower 15% rate under the RP-US Tax Treaty as provided
in RMC-44-054.

ISSUE

W/N petitioner was deprived of due process when the FDDA changed the assessment from deficiency EWT to
deficiency FWT.

RULING

Yes. The change of the assessment in the FDDA itself constituted a new assessment. As such, the taxpayer
should have given the chance to dispute the same via the process laid down in the Tax Code which is by way
of filing a protest. Given that this is was not complied with and what was issued was already an FDDA, the
circumstances certainly deprived the petitioner of a reasonable opportunity to be heard and submit evidence in
support of its defense which is a clear violation of due process requirements.

The concept of “license generating royalty income” in RMC 44-05 is nowhere to be found in RMC 77-03,
hence, the retroactive application by the CIR of RMC 44-05 has no leg to stand on.

Abad vs. Phil. Comm. Satellite Corp.

G.R. No. 200620 Mar 18, 2015
A power struggle between two factions ensues as they battle for control of sequestered corporations, leading to
a jurisdictional dispute over a stockholders' suit to enforce the right of inspection of corporate books and
records. The court rules in favor of the Regional Trial Court (RTC) having jurisdiction and validates the
complaint, stating that the Sandiganbayan does not have jurisdiction over intra-corporate controversies within
sequestered companies.

Facts:

The case involves a power struggle between two factions battling for control of sequestered corporations,
namely the Philippine Communications Satellite Corporation (PHILCOMSAT) and the Philippine Overseas
Telecommunications Corporation (POTC).

PHILCOMSAT owns 81% of the outstanding capital stock of Philcomsat Holdings Corporation (PHC).

The majority shareholders of PHILCOMSAT are also the seven families who have owned and controlled
POTC.

The two factions, the Africa-Bildner group and the Nieto-PCGG group, have been engaged in a battle for
control over the respective boards of POTC, PHILCOMSAT, and PHC.

The issue in this case revolves around the jurisdiction over a stockholders' suit to enforce the right of
inspection of corporate books and records.

Issue:

Whether it is the Sandiganbayan or the Regional Trial Court (RTC) which has jurisdiction over a stockholders'
suit to enforce the right of inspection under Section 74 of the Corporation Code.

Whether the complaint failed to state a cause of action considering that PHILCOMSAT never authorized
Africa or any other person to file the said complaint.

Ruling:

The Court ruled in favor of the Regional Trial Court (RTC) having jurisdiction over the stockholders' suit to
enforce the right of inspection.
The Court held that the RTC, and not the Sandiganbayan, has jurisdiction over cases that do not involve
sequestration-related incidents but are intra-corporate controversies.

The Court also ruled that the complaint did state a cause of action as it was supported by a Board Secretary's
Certificate stating that PHILCOMSAT's board of directors had authorized its President to exercise the right of
inspection and to file a case in court in case of refusal by PHC.

Ratio:

The Court based its decision on the provisions of the Corporation Code and the Securities Regulation Code.

It noted that the jurisdiction over intra-corporate controversies was transferred from the Securities and
Exchange Commission (SEC) to the Regional Trial Court (RTC) under the Securities Regulation Code.

The Court emphasized that the Sandiganbayan's jurisdiction does not extend to cases involving intra-corporate
controversies within sequestered companies.

The Court relied on previous rulings that upheld the validity of a compromise agreement between the
government and a shareholder, which resulted in the majority control of POTC being transferred to the Ilusorio
family.

Based on these rulings, the Court concluded that the Nieto-PCGG group, which did not have majority control
of POTC, could not validly hold stockholders' meetings and elections for PHILCOMSAT and PHC.

Therefore, the proxies used by the Nieto-PCGG group were invalid, and PHILCOMSAT had the right to
enforce its right of inspection as a stockholder of PHC.

Abad vs. Phil. Comm. Satellite Corp.

G.R. No. 200620 Mar 18, 2015 VILLARAMA, JR., J

SUMMARY:
A power struggle between two factions ensues as they battle for control of sequestered corporations, leading to a
jurisdictional dispute over a stockholders' suit to enforce the right of inspection of corporate books and records. The
court rules in favor of the Regional Trial Court (RTC) having jurisdiction and validates the complaint, stating that
the Sandiganbayan does not have jurisdiction over intra-corporate controversies within sequestered companies.

Background of the Case

The case involves a power struggle between two factions battling for control of sequestered corporations.
The main point of contention is the jurisdiction over a stockholders' suit to enforce the right of inspection of
corporate books and records.

The Court of Appeals reversed the dismissal of the case by the Regional Trial Court, ruling that the RTC has
jurisdiction over the intra-corporate controversy.

Parties Involved and Sequestered Corporations

The case revolves around the Philippine Communications Satellite Corporation (PHILCOMSAT) and the Philippine
Overseas Telecommunications Corporation (POTC).

Both corporations were sequestered by the Philippine Commission on Good Government (PCGG) after the EDSA
People Power Revolution in 1986.

PHILCOMSAT owns 81% of the outstanding capital stock of Philcomsat Holdings Corporation (PHC).

The majority shareholders of PHILCOMSAT are also the seven families who have owned and controlled POTC.

Appointment of Nominee-Directors and Power Struggle

During the administration of President Gloria Macapagal-Arroyo, certain individuals were appointed as nominee-
directors representing the Republic of the Philippines through the PCGG in the board of directors of POTC and
PHILCOMSAT.

These PCGG nominees aligned with one faction (Nieto-PCGG group) against another faction (Africa-Bildner group)
in the battle for control over the respective boards of POTC, PHILCOMSAT, and PHC.

Election of Directors and Officers

The case involves the election of directors and officers in the various corporations.

The Nieto-PCGG group held a stockholders' meeting for PHILCOMSAT and elected their own directors and
officers.

The Africa-Bildner group also claimed legitimacy and filed cases to challenge the election conducted by the Nieto-
PCGG group.

Right of Inspection of Corporate Books and Records

The main issue in this case is the right of PHILCOMSAT to inspect the books and records of PHC.

PHILCOMSAT demanded the exercise of this right, but the petitioners (representing the Nieto-PCGG group)
refused to allow the inspection.

PHILCOMSAT filed a complaint in the Regional Trial Court (RTC) to enforce its right of inspection, but the RTC
dismissed the case for lack of jurisdiction, ruling that the Sandiganbayan has jurisdiction over the case.

Appeal to the Court of Appeals

PHILCOMSAT appealed to the Court of Appeals (CA), arguing that the RTC has jurisdiction over the case.

The CA agreed with PHILCOMSAT and reversed the RTC's dismissal of the case.

The CA ruled that the case involves an intra-corporate controversy and should be within the jurisdiction of the RTC.

Appeal to the Supreme Court

The petitioners (representing the Nieto-PCGG group) appealed to the Supreme Court, arguing that the
Sandiganbayan should have jurisdiction over the case.

However, the Supreme Court affirmed the CA's decision, ruling that the RTC has jurisdiction over the case.

The Supreme Court also ruled that the complaint filed by PHILCOMSAT stated a cause of action, as it was
authorized by the board of directors of PHILCOMSAT.

Conclusion

The Supreme Court upheld the jurisdiction of the RTC over the stockholders' suit to enforce the right of inspection
of corporate books and records.

The Court also affirmed that the complaint filed by PHILCOMSAT stated a cause of action.