G.R. No.

90580

April 8, 1991

RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN SAW, petitioners,
vs.
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding Judge of Branch 43, (Regional Trial Court of
Manila), FREEMAN MANAGEMENT AND DEVELOPMENT CORPORATION, EQUITABLE BANKING CORPORATION,
FREEMAN INCORPORATED, SAW CHIAO LIAN, THE REGISTER OF DEEDS OF CALOOCAN CITY, and DEPUTY
SHERIFF ROSALIO G. SIGUA, respondents.
Benito O. Ching, Jr. for petitioners.
William R. Vetor for Equitable Banking Corp.
Pineda, Uy & Janolo for Freeman, Inc. and Saw Chiao.

CRUZ, J.:
A collection suit with preliminary attachment was filed by Equitable Banking Corporation against Freeman, Inc. and Saw
Chiao Lian, its President and General Manager. The petitioners moved to intervene, alleging that (1) the loan transactions
between Saw Chiao Lian and Equitable Banking Corp. were not approved by the stockholders representing at least 2/3 of
corporate capital; (2) Saw Chiao Lian had no authority to contract such loans; and (3) there was collusion between the
officials of Freeman, Inc. and Equitable Banking Corp. in securing the loans. The motion to intervene was denied, and the
petitioners appealed to the Court of Appeals.
Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement which they submitted to and was
approved by the lower court. But because it was not complied with, Equitable secured a writ of execution, and two lots
owned by Freeman, Inc. were levied upon and sold at public auction to Freeman Management and Development Corp.
The Court of Appeals1 sustained the denial of the petitioners' motion for intervention, holding that "the compromise
agreement between Freeman, Inc., through its President, and Equitable Banking Corp. will not necessarily prejudice
petitioners whose rights to corporate assets are at most inchoate, prior to the dissolution of Freeman, Inc. . . . And
intervention under Sec. 2, Rule 12 of the Revised Rules of Court is proper only when one's right is actual, material, direct
and immediate and not simply contingent or expectant."
It also ruled against the petitioners' argument that because they had already filed a notice of appeal, the trial judge had
lost jurisdiction over the case and could no longer issue the writ of execution.
The petitioners are now before this Court, contending that:
1. The Honorable Court of Appeals erred in holding that the petitioners cannot intervene in Civil Case No. 8844404 because their rights as stockholders of Freeman are merely inchoate and not actual, material, direct and
immediate prior to the dissolution of the corporation;
2. The Honorable Court of Appeals erred in holding that the appeal of the petitioners in said Civil Case No. 8844404 was confined only to the order denying their motion to intervene and did not divest the trial court of its
jurisdiction over the whole case.
The petitioners base their right to intervene for the protection of their interests as stockholders on Everett v. Asia Banking
Corp.2 where it was held:
The well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs done to the corporation,
but that the action must be brought by the Board of Directors, . . . has its exceptions. (If the corporation [were]
under the complete control of the principal defendants, . . . it is obvious that a demand upon the Board of
Directors to institute action and prosecute the same effectively would have been useless, and the law does not
require litigants to perform useless acts.

Equitable demurs, contending that the collection suit against Freeman, Inc, and Saw Chiao Lian is essentially in
personam and, as an action against defendants in their personal capacities, will not prejudice the petitioners as
stockholders of the corporation. The Everett case is not applicable because it involved an action filed by the minority
stockholders where the board of directors refused to bring an action in behalf of the corporation. In the case at bar, it was
Freeman, Inc. that was being sued by the creditor bank.
Equitable also argues that the subject matter of the intervention falls properly within the original and exclusive jurisdiction
of the Securities and Exchange Commission under P.D. No. 902-A. In fact, at the time the motion for intervention was
filed, there was pending between Freeman, Inc. and the petitioners SEC Case No. 03577 entitled "Dissolution,
Accounting, Cancellation of Certificate of Registration with Restraining Order or Preliminary Injunction and Appointment of
Receiver." It also avers in its Comment that the intervention of the petitioners could have only caused delay and prejudice
to the principal parties.
On the second assignment of error, Equitable maintains that the petitioners' appeal could only apply to the denial of their
motion for intervention and not to the main case because their personality as party litigants had not been recognized by
the trial court.
After examining the issues and arguments of the parties, the Court finds that the respondent court committed no
reversible error in sustaining the denial by the trial court of the petitioners' motion for intervention.
In the case of Magsaysay-Labrador v. Court of Appeals,3 we ruled as follows:
Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the respondent court's
holding that petitioners herein have no legal interest in the subject matter in litigation so as to entitle them to
intervene in the proceedings below. In the case of Batama Farmers' Cooperative Marketing Association, Inc. v.
Rosal, we held: "As clearly stated in Section 2 of Rule 12 of the Rules of Court, to be permitted to intervene in a
pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the
parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other
disposition of the property in the custody of the court or an officer thereof."
To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise
qualified; and [b] consideration must be given as to whether the adjudication of the rights of the original parties
may be delayed or prejudiced, or whether the intervenor's rights may be protected in a separate proceeding or
not. Both requirements must concur as the first is not more important than the second.
The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation
and of such direct and immediate character that the intervenor will either gain or lose by the direct legal operation
and effect of the judgment. Otherwise, if persons not parties of the action could be allowed to intervene,
proceedings will become unnecessarily complicated, expensive and interminable. And this is not the policy of the
law.
The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and which would
put the intervenor in a legal position to litigate a fact alleged in the complaint, without the establishment of which
plaintiff could not recover.
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural,
consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in
the management of the corporation and to share in the profits thereof and in the properties and assets thereof on
dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not
vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being
equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is
owned by the corporation as a distinct legal person.
On the second assignment of error, the respondent court correctly noted that the notice of appeal was filed by the
petitioners on October 24, 1988, upon the denial of their motion to intervene, and the writ of execution was issued by the
lower court on January 30, 1989. The petitioners' appeal could not have concerned the "whole" case (referring to the
decision) because the petitioners "did not appeal the decision as indeed they cannot because they are not parties to the

case despite their being stockholders of respondent Freeman, Inc." They could only appeal the denial of their motion for
intervention as they were never recognized by the trial court as party litigants in the main case.
Intervention is "an act or proceeding by which a third person is permitted to become a party to an action or proceeding
between other persons, and which results merely in the addition of a new party or parties to an original action, for the
purpose of hearing and determining at the same time all conflicting claims which may be made to the subject matter in
litigation.4
It is not an independent proceeding, but an ancillary and supplemental one which, in the nature of things, unless
otherwise provided for by the statute or Rules of Court, must be in subordination to the main proceeding. 5 It may be laid
down as a general rule that an intervenor is limited to the field of litigation open to the original parties. 6
In the case at bar, there is no more principal action to be resolved as a writ of execution had already been issued by the
lower court and the claim of Equitable had already been satisfied. The decision of the lower court had already become
final and in fact had already been enforced. There is therefore no more principal proceeding in which the petitioners may
intervene.
As we held in the case of Barangay Matictic v. Elbinias:7
An intervention has been regarded, as merely "collateral or accessory or ancillary to the principal action and not
an independent proceedings; and interlocutory proceeding dependent on and subsidiary to, the case between the
original parties." (Fransisco, Rules of Court, Vol. 1, p. 721). With the final dismissal of the original action, the
complaint in intervention can no longer be acted upon. In the case of Clareza v. Resales, 2 SCRA 455, 457-458, it
was stated that:
That right of the intervenor should merely be in aid of the right of the original party, like the plaintiffs in this
case. As this right of the plaintiffs had ceased to exist, there is nothing to aid or fight for. So the right of
intervention has ceased to exist.
Consequently, it will be illogical and of no useful purpose to grant or even consider further herein petitioner's
prayer for the issuance of a writ of mandamus to compel the lower court to allow and admit the petitioner's
complaint in intervention. The dismissal of the expropriation case has no less the inherent effect of also
dismissing the motion for intervention which is but the unavoidable consequence.
The Court observes that even with the denial of the petitioners' motion to intervene, nothing is really lost to
them.1wphi1The denial did not necessarily prejudice them as their rights are being litigated in the case now before the
Securities and Exchange Commission and may be fully asserted and protected in that separate proceeding.
WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so ordered.
Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

G.R. No. L-69899 July 15, 1985

ROMMEL CORRO, petitioner,
vs.
HON. ESTEBAN LISING Presiding Judge, Regional Trial Court, Quezon City, Branch XCV HON. REMIGIO ZARI
Regional Trial Court, Quezon City, Branch 98; CITY FISCAL'S OFFICE, Quezon City; LT. COL. BERLIN A.
CASTILLO and 1ST LT. GODOFREDO M. IGNACIO, respondents,
Reynaldo L. Bagatsing for petitioner.
RELOVA, J.:

On September 29, 1983, respondent Regional Trial Court judge Esteban Lising of Quezon City, upon application filed by
Lt. Col. Berlin Castillo of the Philippine Constabulary Criminal Investigation Service, issued Search Warrant No. Q-00002
authorizing the search and seizure of
1. Printed copies of Philippine Times;
2. Manuscripts/drafts of articles for publication in the Philippine Times;
3. Newspaper dummies of the Philippine Times;
4. Subversive documents, articles, printed matters, handbills, leaflets, banners;
5. Typewriters, duplicating machines, mimeographing and tape recording machines, video machines and
tapes
which have been used and are being used as instrument and means of committing the crime of inciting to sedition defined
and penalized under Article 142 of the Revised Penal Code, as amended by PD 1835 ... (p. 24, Rollo)
On November 6, 1984, petitioner filed an urgent motion to recall warrant and to return documents/personal properties
alleging among others that:
2. ... the properties seized are typewriters, duplicating machines, mimeographing and tape recording
machines, video machines and tapes which are not in any way, inanimate or mute things as they are,
connected with the offense of inciting to sedition.
3. More so, documents or papers seized purporting to do the body of the crime has been rendered moot
and academic due to the findings of the Agrava Board that a military conspiracy was responsible for the
slaying of the late Senator Benigno Aquino, Jr. on August 21, 1983 at the Manila International Airport. The
Agrava Board which has the exclusive jurisdiction to determine the facts and circumstances behind the
killing had virtually affirmed by evidence testamentary and documentary the fact that soldiers killed
Benigno Aquino, Jr.
4. More so, the grave offense of libel, RTC, Q.C. Branch XCV has dismissed said case against the
accused on all documents pertinent and more so as we repeat, rendered moot and academic by the
recent Agrava Report. (p. 27, Rollo)
On January 28, 1985, respondent Judge Lising denied the motion in a resolution, pertinent portions of which state:
... The said articles presently form part of the evidence of the prosecution and they are not under the
control of the prosecuting arm of the government. Under these circumstances, the proper forum from
which the petition to withdraw the articles should be addressed, is the Office of the City Fiscal, Quezon
City and not with this Branch of the Court. It is to be further noted that it is not even with this Branch of the
Court that the offense of inciting to sedition is pending. (p 29, Rollo)
Hence, this petition for certiorari and mandamus, with application for preliminary injunction and restraining order to enjoin
respondent Regional Trial Court, National Capital Region, Branch 98 from proceeding with the trial of Criminal Case No.
S3-Q-29243, praying (a) that Search Warrant No. Q-00002 issued by respondent Judge Esteban M. Lising be declared
null and void ab initio and that a mandatory injunction be issued directing respondents City Fiscal's Office of Quezon City
and Lt. Col. Berlin Castillo and 1st Lt. Godofredo Ignacio jointly and severally to return immediately the
documents/properties illegally seized from herein petitioner and that final injunction be issued enjoining respondents City
Fiscal's Office of Quezon City, Lt. Col. Castillo and 1st Lt. Ignacio from utilizing said documents/properties as evidence in
Criminal Case No. 29243; and (b) that respondent PC-CIS officers Lt. Col. Berlin A. Castillo and lst Lt. Godofredo Ignacio

be directed to reopen the padlocked office premises of the Philippine Times at 610 Mezzanine Floor, Gochengco Building,
T.M., Kalaw, Ermita, Manila.
In Our Resolution of February 19, 1985, respondents were required to file their comment. The plea for temporary
restraining order was granted and respondents City Fiscal's Office of Quezon City, Lt. Col. Berlin Castillo and 1st Lt.
Godofredo Ignacio were enjoined from introducing as evidence for the state the documents/properties seized under
Search Warrant No. Q-00002 in Criminal Cage No. Q-29243 (Sedition case against petitioner), pending before the
Regional Trial Court of Quezon City, Branch 98, effective immediately and continuing until further orders from the Court.
Respondents would have this Court dismiss the petition on the ground that (1) the present action is premature because
petitioner should have filed a motion for reconsideration of respondent Judge Lising's order of January 28, 1985; (2)
probable cause exists justifying the issuance of a search warrant; (3) the articles seized were adequately described in the
search warrant; (4) a search was conducted in an orderly manner; (5) the padlocking of the searched premises was with
the consent of petitioner's wife; (6) the findings of the Agrava Board is irrelevant to the issue of the validity of the search
warrant; (7) press freedom is not an issue; and, (8) the petition is barred by laches.
There is merit in the petition.
Respondents contend that petitioner should have filed a motion for reconsideration of the order in question before coming
to Us. This is not always so. When the questions raised before the Supreme Court are the same as those which were
squarely raised in and passed upon by the lower court, the filing of the motion for reconsideration in said court before
certiorari can be instituted in the Supreme Court is no longer a pre-requisite. As held in Bache & Co. (Phil.), Inc. vs. Ruiz,
37 SCRA 823, (t)he rule requiring the filing of a motion for reconsideration before an application for a writ of certiorari can
be entertained was never intended to be applied without considering the circumstances. The rule does not apply where,
the deprivation of petitioners' fundamental right to due process taints the proceeding against them in the court below not
only with irregularity but also with nullity." Likewise, in Pajo, et al. vs. Ago, et al., 108 Phil. 905 and in Gonzales vs. Court
of Appeals, 3 SCRA 465, this Court ruled that "it is only when questions are raised for the first time before the high court in
a certiorari case that the writ shall not issue, unless the lower court had first been given an opportunity to pass upon the
same." Further, in the case of Matute vs. Court of Appeals, 26 SCRA 768, We held that "while as a matter of policy a
motion for reconsideration in the lower court has often been considered a condition sine qua non for the granting of a writ
of certiorari, this rule does not apply where the proceeding in which the error occurred is a patent nullity or where 'the
deprivation of petitioner's fundamental right to due process ... taints the proceeding against him in the court below not only
with irregularity but with nullity (Luzon Surety Co. v. Marbella et al., L-16038, Sept. 30, 1960), or when special
circumstances warrant immediate and more direct action. ..." The records of this petition clearly disclose that the issues
herein raised have already been presented to and passed upon by the court a quo.
Section 3, Article IV of the 1973 Constitution provides:
SEC. 3. ...no search warrant or warrant of arrest issue except upon probable cause to be determined by
the judge, or such other responsible officer as may be authorized by law, after examination under oath or
affirmation of the complainant and the witnesses he may produce, and particularly describing the place to
be searched and the persons or things to be seized.
and, Section 3, Rule 126 of the New Rules of Court, states that:
SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable
cause in connection with one specific offense to be determined by the judge or justice of the peace after
examination under oath or affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched and the persons or things to be seized.
Probable cause may be defined as "such reasons, supported by facts and circumstances, as will warrant a cautious man
in the belief that his actions, and the means taken in prosecuting it, are legally just and proper (Burton vs. St. Paul, M & M.
Ry. Co., 33 Minn. 189, cited in U.S. vs. Addison, 28 Phil. 566)." Thus, an application for search warrant must state with
particularly the alleged subversive materials published or intended to be published by the publisher and editor of the

Philippine Times, Rommel Corro. As We have stated in Burgos, Sr. vs. Chief of Staff of the Armed Forces of the
Philippines, 133 SCRA 800, "mere generalization will not suffice." A search warrant should particularly describe the place
to be searched and the things to be seized. "The evident purpose and intent of this requirement is to limit the things to be
seized to those, and only those, particularly described in the search warrant- to leave the officers of the law with no
discretion regarding what articles they should seize, to the end that unreasonable searches and seizures may not be
committed, that abuses may not be committed Bache & Co. Phil. Inc. vs, Ruiz, supra)." The affidavit of Col. Castillo
states that in several issues of the Philippine Times:
... we found that the said publication in fact foments distrust and hatred against the government of the
Philippines and its duly constituted authorities, defined and penalized by Article 142 of the Revised Penal
Code as amended by Presidential Decree No. 1835; (p. 22, Rollo)
and, the affidavit of Lt. Ignacio reads, among others
... the said periodical published by Rommel Corro, contains articles tending to incite distrust and hatred
for the Government of the Philippines or any of its duly constituted authorities. (p. 23, Rollo)
The above statements are mere conclusions of law and will not satisfy the requirements of probable cause. They can not
serve as basis for the issuance of search warrant, absent of the existence of probable cause. In fact, as a consequence of
the search warrant issued, the items confiscated from the premises of the office of the Philippine Times at 610 Mezzanine
Floor, Gochengco Bldg., T.M. Kalaw, Ermita, Manila were the following:
1. One bundle of assorted negative;
2. One bundle of assorted lay out;
3. Three folders of assorted articles/writings used by Philippine Times news and other paraphernalias;
4. Four tape alleged speech of Mayor Climaco, two alleged speeches of Aquino and a speech of one
various artist;
5. One bundle Dummies;
6. Ten bundles of assorted copies of Philippine Times issued on different dates (Nos. 6, 7, 8, 9, 10, 11, 12,
13, 14 & 15):
7. One Typewriter Remington Brand Long Carriage with No. J-2479373;
8. OneTypewriterAdler-short with No. 9003011;
9. Three (3) bundles of Philippine Times latest issue for Baguio City (p. 26, Rollo)
In Stonehill vs. Diokno, 20 SCRA 383, this Court held that search warrants authorizing the seizure of books of accounts
and records "showing all the business transactions" of certain persons, regardless of whether the transactions were legal
or illegal, contravene the explicit comment of the Bill of Rights that the things to be seized should be particularly described
and defeat its major objective of eliminating general warrants. In the case at bar, the search warrant issued by respondent
judge allowed seizure of printed copies of the Philippine Times, manuscripts/drafts of articles for publication, newspaper
dummies, subversive documents, articles, etc., and even typewriters, duplicating machines, mimeographing and tape
recording machines. Thus, the language used is so all embracing as to include all conceivable records and equipment of
petitioner regardless of whether they are legal or illegal. The search warrant under consideration was in the nature of a
general warrant which is constitutionally objectionable.

Respondents do not deny the fact that the business office of the "Philippine Times" of which petitioner was the publishereditor was padlocked and sealed. The consequence is, the printing and publication of said newspaper were discontinued.
In Burgos, Sr. vs. Chief of Staff of the Armed Forces of the Philippines, supra, We held that "[sluch closure is in the nature
of previous restraint or censorship abhorrent to the freedom of the press guaranteed under the fundamental law, and
constitutes a virtual denial of petitioners' freedom to express themselves in print. This state of being is patently
anathematic to a democratic framework where a free, alert and even militant press is essential for the political
enlightenment and growth of the citizenry."
Finally, respondents argue that while the search warrant was issued on September 29, 1983 and was executed on the
very same day, it was only on November 6, 1984, or one (1) year, one (1) month and six (6) days when petitioner filed his
motion for the recall of the warrant and the return of the documents/personal properties. Having failed to act seasonably,
respondents claim that petitioner is guilty of laches.
Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due
diligence, could or should have been done earlier. The negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it (Tijam vs.
Sibonghanoy, L-21450, April 15, 1968, 23 SCRA 35).
In his petition, Corro alleged that on October 1, 1983, less than forty-two (42) hours after the military operatives shut down
his newspaper on September 29, 1983, he was invited by the Director-General PC/INP, and subsequently detained.
Thereafter, he was charged with the crime of inciting to sedition before the City Fiscal's Office in Quezon City, and on
October 7, 1983, a preventive detention action was served upon him. Consequently, he had to file a petition for habeas
corpus. It was only on November 8, 1984 when this Court issued its Resolution in G.R. No. 68976, entitled: In the Matter
of the Petition for Habeas Corpus of Rommel Corro Angle Corro vs. Minister Juan Ponce Enrile, et al., releasing Rommel
Corro on recognizance of his lawyers, Attys. Humberto B. Basco, Reynaldo Bagatsing and Edilberto Balce, In the same
month, November 1984, petitioner filed his motion to recall warrant and to return the seized documents. When respondent
judge denied the motion, he came to Us.
Considering the above circumstances, the claim that petitioner had abandoned his right to the possession of the seized
properties is incorrect.
WHEREFORE, Search Warrant No. Q-00002 issued by the respondent judge on September 29, 1983 is declared null and
void and, accordingly, SET ASIDE.
The prayer for a writ of mandatory injunction for the return of the seized articles is GRANTED and all properties seized
thereunder are hereby ordered RELEASED to petitioner. Further, respondents Lt. Col. Berlin A. Castillo and lst Lt.
Godofredo M. Ignacio are ordered to RE-OPEN the padlocked office premises of the Philippine Times at 610 Mezzanine
Floor, Gochengco Bldg., T.M. Kalaw, Ermita, Manila.
SO ORDERED.
Teehankee, Makasiar, Concepcion, Jr., Melencio-Herrera, Plana, Escolin, Gutierrez, Jr., De la Fuente, Cuevas and
Alampay, JJ., concur.
Fernando, C.J., concur in the result.
Aquino, J., took no part.

G.R. No. L-27155 May 18, 1978

PHILIPPINE NATIONAL BANK, petitioner,

vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL
INSURANCE COMPANY, INC., respondents.
Medina, Locsin, Corua, & Sumbillo for petitioner.
Manuel Lim & Associates for private respondents.
ANTONIO, J.:
Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of
Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio, as
third-party plaintiff, the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully
paid, P200.00 attorney's fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the Philippine
American General Insurance Co., Inc., to be paid directly to the Philippine American General Insurance Co., Inc. in full
satisfaction of the judgment rendered against Rita Gueco Tapnio in favor of the former; plus P500.00 attorney's fees for
Rita Gueco Tapnio and costs. The basic action is the complaint filed by Philamgen (Philippine American General
Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of the sum of P2,379.71
paid by Philamgen to the Philippine National Bank on behalf of respondents Tapnio and Gueco, pursuant to an indemnity
agreement. Petitioner Bank was made third-party defendant by Tapnio and Gueco on the theory that their failure to pay
the debt was due to the fault or negligence of petitioner.
The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of Manila,
are quoted hereunder:
Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the Philippine National Bank
Branch at San Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco Tapnio's account with said
Bank. In turn, to guarantee the payment of whatever amount the bonding company would pay to the Philippine National
Bank, both defendants executed the indemnity agreement, Exh. B. Under the terms and conditions of this indemnity
agreement, whatever amount the plaintiff would pay would earn interest at the rate of 12% per annum, plus attorney's fees
in the amount of 15 % of the whole amount due in case of court litigation.
The original amount of the bond was for P4,000.00; but the amount was later reduced to P2,000.00.
It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2,000.00, plus accumulated
interests unpaid, which she failed to pay despite demands. The Bank wrote a letter of demand to plaintiff, as per Exh. C;
whereupon, plaintiff paid the bank on September 18, 1957, the full amount due and owing in the sum of P2,379.91, for
and on account of defendant Rita Gueco's obligation (Exhs. D and D-1).
Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and F), but to no avail.
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was made upon her by
plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that she did not consider herself to be indebted to the
Bank at all because she had an agreement with one Jacobo-Nazon whereby she had leased to the latter her unused
export sugar quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a
total of P2,800.00, which was already in excess of her obligation guaranteed by plaintiff's bond, Exh. A. This lease
agreement, according to her, was with the knowledge of the bank. But the Bank has placed obstacles to the
consummation of the lease, and the delay caused by said obstacles forced 'Nazon to rescind the lease contract. Thus,
Rita Gueco Tapnio filed her third-party complaint against the Bank to recover from the latter any and all sums of money
which may be adjudged against her and in favor of the plaitiff plus moral damages, attorney's fees and costs.
Insofar as the contentions of the parties herein are concerned, we quote with approval the following findings of the lower
court based on the evidence presented at the trial of the case:
It has been established during the trial that Mrs. Tapnio had an export sugar quota of 1,000 piculs for the agricultural year
1956-1957 which she did not need. She agreed to allow Mr. Jacobo C. Tuazon to use said quota for the consideration of
P2,500.00 (Exh. "4"-Gueco). This agreement was called a contract of lease of sugar allotment.
At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National Bank at San Fernando, Pampanga. Her
indebtedness was known as a crop loan and was secured by a mortgage on her standing crop including her sugar quota
allocation for the agricultural year corresponding to said standing crop. This arrangement was necessary in order that
when Mrs. Tapnio harvests, the P.N.B., having a lien on the crop, may effectively enforce collection against her. Her sugar
cannot be exported without sugar quota allotment Sometimes, however, a planter harvest less sugar than her quota, so
her excess quota is utilized by another who pays her for its use. This is the arrangement entered into between Mrs. Tapnio
and Mr. Tuazon regarding the former's excess quota for 1956-1957 (Exh. "4"-Gueco).
Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said Bank, The same was
submitted to the branch manager at San Fernando, Pampanga. The latter required the parties to raise the consideration of
P2.80 per picul or a total of P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease rental acceptable to the
Bank, is P2.80 per picul." In a letter addressed to the branch manager on August 10, 1956, Mr. Tuazon informed the
manager that he was agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he
was ready to pay said amount as the funds were in his folder which was kept in the bank.
Explaining the meaning of Tuazon's statement as to the funds, it was stated by him that he had an approved loan from the
bank but he had not yet utilized it as he was intending to use it to pay for the quota. Hence, when he said the amount

needed to pay Mrs. Tapnio was in his folder which was in the bank, he meant and the manager understood and knew he
had an approved loan available to be used in payment of the quota. In said Exh. "6-Gueco", Tuazon also informed the
manager that he would want for a notice from the manager as to the time when the bank needed the money so that
Tuazon could sign the corresponding promissory note.
Further Consideration of the evidence discloses that when the branch manager of the Philippine National Bank at San
Fernando recommended the approval of the contract of lease at the price of P2.80 per picul (Exh. 1 1-Bank), whose
recommendation was concurred in by the Vice-president of said Bank, J. V. Buenaventura, the board of directors required
that the amount be raised to 13.00 per picul. This act of the board of directors was communicated to Tuazon, who in turn
asked for a reconsideration thereof. On November 19, 1956, the branch manager submitted Tuazon's request for
reconsideration to the board of directors with another recommendation for the approval of the lease at P2.80 per picul, but
the board returned the recommendation unacted upon, considering that the current price prevailing at the time was P3.00
per picul (Exh. 9-Bank).
The parties were notified of the refusal on the part of the board of directors of the Bank to grant the motion for
reconsideration. The matter stood as it was until February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank informing
the Bank that he was no longer interested to continue the deal, referring to the lease of sugar quota allotment in favor of
defendant Rita Gueco Tapnio. The result is that the latter lost the sum of P2,800.00 which she should have received from
Tuazon and which she could have paid the Bank to cancel off her indebtedness,
The court below held, and in this holding we concur that failure of the negotiation for the lease of the sugar quota
allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the directors of the Philippine National Bank, The refusal
on the part of the bank to approve the lease at the rate of P2.80 per picul which, as stated above, would have enabled
Rita Gueco Tapnio to realize the amount of P2,800.00 which was more than sufficient to pay off her indebtedness to the
Bank, and its insistence on the rental price of P3.00 per picul thus unnecessarily increasing the value by only a difference
of P200.00. inevitably brought about the rescission of the lease contract to the damage and prejudice of Rita Gueco
Tapnio in the aforesaid sum of P2,800.00. The unreasonableness of the position adopted by the board of directors of the
Philippine National Bank in refusing to approve the lease at the rate of P2.80 per picul and insisting on the rate of P3.00
per picul, if only to increase the retail value by only P200.00 is shown by the fact that all the accounts of Rita Gueco
Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests
on her properties, and surety bonds, aside from the fact that from Exh. 8-Bank, it appears that she was offering to execute
a real estate mortgage in favor of the Bank to replace the surety bond This statement is further bolstered by the fact that
Rita Gueco Tapnio apparently had the means to pay her obligation fact that she has been granted several value of almost
P80,000.00 for the agricultural years from 1952 to 56. 1
Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the present
petition.
The petitioner contends that the Court of Appeals erred:
(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita
Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract, and its
unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul; and
(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner,
the latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota leased by
respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under
the Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which include the
right to approve or disapprove the said lease of sugar quota and in the exercise of that authority, its
Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject of the
lease between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and the
Corporation Law, petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with respect to fixing
of rental prices of export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not act arbitrarily since
the said Board was guided by statistics of sugar price and prices of sugar quotas prevailing at the time. Since the fixing of
the rental of the sugar quota is a function lodged with petitioner's Board of Directors and is a matter of policy, the
respondent Court of Appeals could not substitute its own judgment for that of said Board of Directors, which acted in good
faith, making as its basis therefore the prevailing market price as shown by statistics which were then in their possession.
Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a creditor, it
shall be deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required to return to
respondent Philamgen the sum of P2,379.71, plus interest, which amount had been previously paid to petitioner by said
insurance company in behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and without recourse against
respondent Rita Gueco Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing only
errors of law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of the
evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon was
executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at San
Fernando, Pampanga. This arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a

mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to said
standing crop. The latter required the parties to raise the consideration to P2.80 per picul, the minimum lease rental
acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10,
1956, that he was agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he was
ready to pay the said sum of P2,800.00 as the funds were in his folder which was kept in the said Bank. This referred to
the approved loan of Tuazon from the Bank which he intended to use in paying for the use of the sugar quota. The Branch
Manager submitted the contract of lease of sugar quota allocation to the Head Office on September 7, 1956, with a
recommendation for approval, which recommendation was concurred in by the Vice-President of the Bank, Mr. J. V.
Buenaventura. This notwithstanding, the Board of Directors of petitioner required that the consideration be raised to P3.00
per picul.
Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On November
19, 1956, the Branch Manager submitted the request for reconsideration and again recommended the approval of the
lease at P2.80 per picul, but the Board returned the recommendation unacted, stating that the current price prevailing at
that time was P3.00 per picul.
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the lease
of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in her
loss in the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been implemented.
It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of the
lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the Branch
Manager of the Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was
acceptable to him and that he even offered to use the loan secured by him from petitioner to pay in full the sum of
P2,800.00 which was the total consideration of the lease. This arrangement was not only satisfactory to the Branch
Manager but it was also approves by Vice-President J. V. Buenaventura of the PNB. Under that arrangement, Rita Gueco
Tapnio could have realized the amount of P2,800.00, which was more than enough to pay the balance of her
indebtedness to the Bank which was secured by the bond of Philamgen.
There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the disapproval
of the lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is liable for the
damage caused.
As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the
same must be utilized during the milling season, because any allotment which is not filled during such milling season may
be reallocated by the Sugar Quota Administration to other holders of allotments. 3 There was no proof that there was any
other person at that time willing to lease the sugar quota allotment of private respondents for a price higher than P2.80 per
picul. "The fact that there were isolated transactions wherein the consideration for the lease was P3.00 a picul", according
to the trial court, "does not necessarily mean that there are always ready takers of said price. " The unreasonableness of
the position adopted by the petitioner's Board of Directors is shown by the fact that the difference between the amount of
P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by the Board amounted only to a total sum of
P200.00. Considering that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on
standing crops, assignment of leasehold rights and interests on her properties, and surety bonds and that she had
apparently "the means to pay her obligation to the Bank, as shown by the fact that she has been granted several sugar
crop loans of the total value of almost P80,000.00 for the agricultural years from 1952 to 1956", there was no reasonable
basis for the Board of Directors of petitioner to have rejected the lease agreement because of a measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was
mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest of
private respondents, that degree of care, precaution and vigilance which the circumstances justly demand in approving or
disapproving the lease of said sugar quota. The law makes it imperative that every person "must in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good
faith, 4 This petitioner failed to do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval of
the lease private respondents would be unable to utilize the sugar quota in question. In failing to observe the reasonable
degree of care and vigilance which the surrounding circumstances reasonably impose, petitioner is consequently liable for
the damages caused on private respondents. Under Article 21 of the New Civil Code, "any person who wilfully causes loss
or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for
the damage." The afore-cited provisions on human relations were intended to expand the concept of torts in this
jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which is impossible for human
foresight to specifically provide in the statutes. 5
A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules
governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the
principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person.
All of the authorities agree that a principal or master is liable for every tort which he expressly directs or authorizes, and
this is just as true of a corporation as of a natural person, A corporation is liable, therefore, whenever a tortious act is
committed by an officer or agent under express direction or authority from the stockholders or members acting as a body,
or, generally, from the directors as the governing body." 6
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.

Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur.

G.R. No. 102970 May 13, 1993

LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private respondent.

DAVIDE, JR., J.:

The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August
1991, 1reversing and setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial Court (RTC)
of Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is challenged in this
petition for review on certiorari under Rule 45 of the Rules Court.
Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp collection of the
plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been rented from the defendant pursuant to
a contract denominated as a Lease Agreement. 3 Judgment therein was rendered in favor of the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendant, Security Bank & Trust Company, ordering the defendant bank to pay the plaintiff the sum of
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal expenses.
The counterclaim set up by the defendant are hereby dismissed for lack of merit.
No costs.
SO ORDERED. 4
The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision as
follows:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its
Binondo Branch located at the Fookien Times Building, Soler St., Binondo, Manila wherein he placed his
collection of stamps. The said safety deposit box leased by the plaintiff was at the bottom or at the lowest
level of the safety deposit boxes of the defendant bank at its aforesaid Binondo Branch.

During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's
premises, seeped into the safety deposit box leased by the plaintiff and caused, according to the plaintiff,
damage to his stamps collection. The defendant bank rejected the plaintiff's claim for compensation for
his damaged stamps collection, so, the plaintiff instituted an action for damages against the defendant
bank.
The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the
"Rules and Regulations Governing the Lease of Safe Deposit Boxes" (Exhs. "A-1", "1-A"), particularly
paragraphs 9 and 13, which reads (sic):
"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to prevent the
opening of the safe by any person other than the Renter, his authorized agent or legal representative;
xxx xxx xxx
"13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the
control of the same. The Bank has no interest whatsoever in said contents, except as herein provided,
and it assumes absolutely no liability in connection therewith."
The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54 was
one of lease and not of deposit and, therefore, governed by the lease agreement (Exhs. "A", "L") which
should be the applicable law; that the destruction of the plaintiff's stamps collection was due to a calamity
beyond obligation on its part to notify the plaintiff about the floodwaters that inundated its premises at
Binondo branch which allegedly seeped into the safety deposit box leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit box be
conducted, which was done on December 8, 1988 by its clerk of court in the presence of the parties and
their counsels. A report thereon was then submitted on December 12, 1988 (Records, p. 98-A) and
confirmed in open court by both parties thru counsel during the hearing on the same date (Ibid., p. 102)
stating:
"That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the
Acting Branch Manager Jimmy B. Ynion in the presence of the undersigned, plaintiff's
and defendant's counsel. Said Safety Box when opened contains two albums of different
sizes and thickness, length and width and a tin box with printed word 'Tai Ping Shiang
Roast Pork in pieces with Chinese designs and character."
Condition of the above-stated Items
"Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The leaves of the
album are attached to every page and cannot be lifted without destroying it, hence the stamps contained
therein are no longer visible.
2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick. Some of its pages can
still be lifted. The stamps therein can still be distinguished but beyond restoration. Others have lost its
original form.
3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to the cover of
the box. The condition of the album is the second abovementioned album." 5

The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court's decision to the
public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737.
In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter erred in (a)
holding that the lease agreement is a contract of adhesion; (b) finding that the defendant had failed to exercise the
required diligence expected of a bank in maintaining the safety deposit box; (c) awarding to the plaintiff actual damages in
the amount of P20,000.00, moral damages in the amount of P100,000.00 and attorney's fees and legal expenses in the
amount of P5,000.00; and (d) dismissing the counterclaim.
On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee's complaint is
hereby DISMISSED. The appellant bank's counterclaim is likewise DISMISSED. No costs. 6
In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and ruled that:
a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions of the contract of
lease which the appellee (now petitioner) had voluntarily and knowingly executed with SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein the
bank became a depositary of the subject stamp collection; hence, as contended by SBTC, the provisions of Book IV, Title
XII of the Civil Code on deposits do not apply;
c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's liability:
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the
opening of the Safe by any person other than the Renter, his authorized agent or legal representative.
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the
control of the same. The Bank has no interest whatsoever in said contents, except as herein provided,
and it assumes absolutely no liability in connection therewith.
are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety
deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC, caused the
damage to the stamp collection; said floods were fortuitous events which SBTC should not be held liable for since it was
not shown to have participated in the aggravation of the damage to the stamp collection; on the contrary, it offered its
services to secure the assistance of an expert in order to save most of the stamps, but the appellee refused; appellee
must then bear the lose under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner filed the instant
petition wherein he contends that:
I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT
COURT WHEN IT RULED THAT RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE REQUIRED
DILIGENCE IN MAINTAINING THE SAFETY DEPOSIT BOX OF THE PETITIONER CONSIDERING
THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE CONTRARY.

II
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE RESPONDENT FROM
ANY LIABILITY WHATSOEVER BY REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF
THE AGREEMENT (EXHS. "A" AND "A-1").
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF THE TRIAL
COURT FOR ACTUAL AND MORAL DAMAGES, INCLUDING ATTORNEY'S FEES AND LEGAL
EXPENSES, IN FAVOR OF THE PETITIONER. 8
We subsequently gave due course the petition and required both parties to submit their respective memoranda, which
they complied with. 9
Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence expected of a
bank maintaining such safety deposit box . . . in the light of the environmental circumstance of said safety deposit box
after the floods of 1985 and 1986." He argues that such a conclusion is supported by the evidence on record, to wit: SBTC
was fully cognizant of the exact location of the safety deposit box in question; it knew that the premises were inundated by
floodwaters in 1985 and 1986 and considering that the bank is guarded twenty-four (24) hours a day , it is safe to
conclude that it was also aware of the inundation of the premises where the safety deposit box was located; despite such
knowledge, however, it never bothered to inform the petitioner of the flooding or take any appropriate measures to insure
the safety and good maintenance of the safety deposit box in question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court of Appeals, when
supported by substantial exidence, are not reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity between the factual
findings and conclusions of the Court of Appeals and the trial court. 11 Such a disparity obtains in the present case.
As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement " covering Safe
Deposit Box No. 54 (Exhibit "A and "1") is just that a contract of lease and not a contract of deposit, and that
paragraphs 9 and 13 thereof, which expressly limit the bank's liability as follows:
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the
opening of the Safe by any person other than the Renter, his autliorized agent or legal representative;
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the
control of the same. The Bank has no interest whatsoever said contents, except as herein provided, and it
assumes absolutely no liability in connection therewith. 12
are valid and binding upon the parties. In the challenged decision, the public respondent further avers that even without
such a limitation of liability, SBTC should still be absolved from any responsibility for the damage sustained by the
petitioner as it appears that such damage was occasioned by a fortuitous event and that the respondent bank was free
from any participation in the aggravation of the injury.
We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed with merit.
In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly rejected the
contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of the
Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code

provision on deposit; 14 it is, as We declared, a special kind of deposit. The prevailing rule in American jurisprudence
that the relation between a bank renting out safe deposit boxes and its customer with respect to the contents of the box is
that of a bailor and bailee, the bailment for hire and mutual benefit 15 has been adopted in this jurisdiction, thus:
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear
that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the
General Banking Act [R.A. 337, as amended] pertinently provides:
"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions
other than building and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit
boxes for the safequarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section
asdepositories or as agents. . . ."(emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of
the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function. A contract of deposit may be entered into orally or in writing (Art. 1969, Civil Code] and, pursuant
to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in
the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be
liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the
tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of
diligence required, that of a good father of a family is to be observed [Art. 1173, id.]. Hence, any
stipulation exempting the depositary from any liability arising from the loss of the thing deposited on
account of fraud, negligence or delay would be void for being contrary to law and public policy. In the
instant case, petitioner maintains that conditions 13 and l4 of the questioned contract of lease of the
safety deposit box, which read:
"13. The bank is a depositary of the contents of the safe and it has neither the possession nor control of
the same.
"14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it
assumes absolutely no liability in connection therewith."
are void as they are contrary to law and public policy. We find Ourselves in agreement with this
proposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a
depositary under Section 72 (a) of the General Banking Act. Both exempt the latter from any liability
except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence only
with respect to who shall be admitted to any rented safe, to wit:
"8. The Bank shall use due diligence that no unauthorized person shall be admitted to
any rented safe and beyond this, the Bank will not be responsible for the contents of any
safe rented from it."
Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It
is not correct to assert that the Bank has neither the possession nor control of the contents of the box
since in fact, the safety deposit box itself is located in its premises and is under its absolute control;

moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot
open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly
then, to the extent above stated, the foregoing conditions in the contract in question are void and
ineffective. It has been said:
"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit
company, the parties, since the relation is a contractual one, may by special contract
define their respective duties or provide for increasing or limiting the liability of the deposit
company, provided such contract is not in violation of law or public policy. It must clearly
appear that there actually was such a special contract, however, in order to vary the
ordinary obligations implied by law from the relationship of the parties; liability of the
deposit company will not be enlarged or restricted by words of doubtful meaning. The
company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the
contents by its own fraud or negligence or that, of its agents or servants, and if a
provision of the contract may be construed as an attempt to do so, it will be held
ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box
cannot limit its liability for loss of the contents thereof through its own negligence, the
view has been taken that such a lessor may limit its liability to some extent by agreement
or stipulation ."[10 AM JUR 2d., 466]. (citations omitted) 16
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-Industrial
Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both condition No. 8
in CA Agro-Industrial Development Corp. and condition No. 9 in the present case limit the scope of the exercise of due
diligence by the banks involved to merely seeing to it that only the renter, his authorized agent or his legal representative
should open or have access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not
bound to exercise diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agrolndustrial Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13 of the "Lease
Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must be stricken down for being contrary to
law and public policy as they are meant to exempt SBTC from any liability for damage, loss or destruction of the contents
of the safety deposit box which may arise from its own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot
take refuge under the said conditions.
Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp
collection because the flooding was a fortuitous event and there was no showing of SBTC's participation in the
aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.'
In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Espaola 17 says: "In a legal
sense and, consequently, also in relation to contracts, a "caso fortuito" prevents (sic) 18 the following
essential characteristics: (1) the cause of the unforeseen ands unexpected occurrence, or of the failure of
the debtor to comply with his obligation, must be independent of the human will; (2) it must be impossible
to foresee the event which constitutes the "caso fortuito," or if it can be foreseen, it must be impossible to
avoid; (3) the occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a
normal manner; and (4) the obligor must be free from any participation in the aggravation of the injury
resulting to the creditor." (cited in Servando vs. Phil., Steam Navigation Co., supra). 19
Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant bank
and the latter was not shown to have participated in aggravating damage (sic) to the stamps collection of

the appellee. In fact, the appellant bank offered its services to secure the assistance of an expert to save
most of the then good stamps but the appelle refused and let (sic) these recoverable stamps inside the
safety deposit box until they were ruined. 20
Both the law and authority cited are clear enough and require no further elucidation. Unfortunately, however, the public
respondent failed to consider that in the instant case, as correctly held by the trial court, SBTC was guilty of negligence.
The facts constituting negligence are enumerated in the petition and have been summarized in this ponencia. SBTC's
negligence aggravated the injury or damage to the stamp collection. SBTC was aware of the floods of 1985 and 1986; it
also knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it should
have lost no time in notifying the petitioner in order that the box could have been opened to retrieve the stamps, thus
saving the same from further deterioration and loss. In this respect, it failed to exercise the reasonable care and prudence
expected of a good father of a family, thereby becoming a party to the aggravation of the injury or loss. Accordingly, the
aforementioned fourth characteristic of a fortuitous event is absent Article 1170 of the Civil Code, which reads:
Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who
in any manner contravene the tenor thereof, are liable for damages,
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language of
the trial court, the "product of 27 years of patience and diligence" 21 caused the petitioner pecuniary loss; hence, he must
be compensated therefor.
We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the relationship between
the petitioner and SBTC is based on a contract, either of them may be held liable for moral damages for breach thereof
only if said party had acted fraudulently or in bad faith. 22 There is here no proof of fraud or bad faith on the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the public
respondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737, are
hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in Civil Case
No. 87-42601 is hereby REINSTATED in full, except as to the award of moral damages which is hereby set aside.
Costs against the private respondent.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.

[G.R. Nos. 116124-25. November 22, 2000]

BIBIANO O. REYNOSO, IV, petitioner,
CORPORATION, respondents.

vs.

HON.

COURT

OF

APPEALS

and

GENERAL

CREDIT

DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the consolidated decision of the Court of Appeals dated July 7, 1994, which
reversed the separate decisions of the Regional Trial Court of Pasig City and the Regional Trial Court of Quezon City in
two cases between petitioner Reynoso and respondent General Credit Corporation (GCC).

Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, CCC), a financing and investment firm,
decided to organize franchise companies in different parts of the country, wherein it shall hold thirty percent (30%)
equity. Employees of the CCC were designated as resident managers of the franchise companies. Petitioner Bibiano O.
Reynoso, IV was designated as the resident manager of the franchise company in Quezon City, known as the Commercial
Credit Corporation of Quezon City (hereinafter, CCC-QC).
CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted the management
and full control of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its
receivables to CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the so-called
DOSRI Rule, prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons with
related interests therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC decided to
form CCC Equity Corporation, (hereinafter, CCC-Equity), a wholly-owned subsidiary, to which CCC transferred its thirty
(30%) percent equity in CCC-QC, together with two seats in the latters Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso, became
employees of CCC-Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew his salaries and
allowances from CCC-Equity. Furthermore, although an employee of CCC-Equity, petitioner, as well as all employees of
CCC-QC, became qualified members of the Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its employees. The
business activities of CCC-QC pertain to the acceptance of funds from depositors who are issued interest-bearing
promissory notes. The amounts deposited are then loaned out to various borrowers. Petitioner, in order to boost the
business activities of CCC-QC, deposited his personal funds in the company. In return, CCC-QC issued to him its interestbearing promissory notes.
On August 15, 1980, a complaint for sum of money with preliminary attachment, [1] docketed as Civil Case No. Q30583, was instituted in the then Court of First Instance of Rizal by CCC-QC against petitioner, who had in the meantime
been dismissed from his employment by CCC-Equity. The complaint was subsequently amended in order to include
Hidelita Nuval, petitioners wife, as a party defendant. [2] The complaint alleged that petitioner embezzled the funds of CCCQC amounting to P1,300,593.11. Out of this amount, at least P630,000.00 was used for the purchase of a house and lot
located at No. 12 Macopa Street, Valle Verde I, Pasig City. The property was mortgaged to CCC, and was later
foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of
P1,300,593.11 represented his money placements in CCC-QC, as shown by twenty-three (23) checks which he issued to
the said company.[3]
The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86, pursuant to the
Judiciary Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion of which states:
Premises considered, the Court finds the complaint without merit. Accordingly, said complaint is hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation and mental anguish.
On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered:
a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2, 1980 until fully paid;

b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from June 24, 1981, the date of
filing of Amended Answer, until fully paid; from this amount may be deducted the remaining obligation of defendant under
the promissory note of October 24, 1977, in the sum of P9,738.00 plus penalty at the rate of 1% per month from
December 24, 1977 until fully paid;
c) to pay defendants P200,000.00 as moral damages;
d) to pay defendants P100,000.00 as exemplary damages;
e) to pay defendants P25,000.00 as and for attorney's fees; plus costs of the suit.
SO ORDERED.
Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit Corporation of
Quezon City was dismissed for failure to pay docket fees. Petitioner, on the other hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24, 1989. [4] However, the
judgment remained unsatisfied,[5] prompting petitioner to file a Motion for Alias Writ of Execution, Examination of Judgment
Debtor, and to Bring Financial Records for Examination to Court. CCC-QC filed an Opposition to petitioners motion,
[6]
alleging that the possession of its premises and records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing General Credit
Corporation to file its comment on petitioners motion for alias writ of execution. [7] General Credit Corporation filed a
Special Appearance and Opposition on December 2, 1991, [8] alleging that it was not a party to the case, and therefore
petitioner should direct his claim against CCC-QC and not General Credit Corporation. Petitioner filed his reply,[9] stating
that the CCC-QC is an adjunct instrumentality, conduit and agency of CCC.Furthermore, petitioner invoked the decision of
the Securities and Exchange Commission in SEC Case No. 2581, entitled, Avelina G. Ramoso, et al., Petitioner versus
General Credit Corp., et al., Respondents, where it was declared that General Credit Corporation, CCC-Equity and other
franchised companies including CCC-QC were declared as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an alias writ of execution.
On December 20, 1991, General Credit Corporation filed an Omnibus Motion, [11] alleging that SEC Case No. 2581 was
still pending appeal, and maintaining that the levy on properties of the General Credit Corporation by the deputy sheriff of
the court was erroneous.
[10]

In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation is just the new name of
Commercial Credit Corporation; hence, General Credit Corporation and Commercial Credit Corporation should be treated
as one and the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus Motion. [12] On March 5, 1992, it
issued an Order directing the issuance of an alias writ of execution. [13]
Previously, on February 21, 1992, General Credit Corporation instituted a complaint before the Regional Trial Court
of Pasig against Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity as Deputy Sheriff of Quezon City,
[14]
docketed as Civil Case No. 61777, praying that the levy on its parcel of land located in Pasig, Metro Manila and
covered by Transfer Certificate of Title No. 29940 be declared null and void, and that defendant sheriff be enjoined from
consolidating ownership over the land and from further levying on other properties of General Credit Corporation to
answer for any liability under the decision in Civil Case No. Q-30583.

The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order. Thus, General Credit
Corporation instituted two (2) petitions for certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 27518 [15] and
CA-G.R. SP No. 27683. These cases were later consolidated.
On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the dispositive portion of
which reads:
WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal to issue a restraining order as
having been rendered moot by our Resolution of 7 April 1992 which, by way of injunctive relief, provided that "the
respondents and their representatives are hereby enjoined from conducting an auction sale (on execution) of petitioner's
properties as well as initiating similar acts of levying (upon) and selling on execution other properties of said
petitioner". The injunction thus granted, as modified by the words in parenthesis, shall remain in force until Civil Case No.
61777 shall have been finally terminated.
In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE, for having been issued in
excess of jurisdiction, the Order of 13 February 1992 in Civil Case No. Q-30583 as well as any other order or process
through which the petitioner is made liable under the judgment in said Civil Case No. Q-30583.
No damages and no costs.
SO ORDERED.[16]
Hence, this petition for review anchored on the following arguments:
1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT NULLIFIED AND SET ASIDE
THE 13 FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS OF BRANCH 86 OF THE REGIONAL TRIAL
COURT OF QUEZON CITY THROUGH WHICH GENERAL CREDIT CORPORATION IS MADE LIABLE UNDER THE
JUDGMENT THAT WAS RENDERED IN CIVIL CASE NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT ENJOINED THE AUCTION
SALE ON EXECUTION OF THE PROPERTIES OF GENERAL CREDIT CORPORATION AS WELL AS INITIATING
SIMILAR ACTS OF LEVYING UPON AND SELLING ON EXECUTION OF OTHER PROPERTIES OF GENERAL CREDIT
CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL CREDIT CORPORATION IS A
STRANGER TO CIVIL CASE NO. Q-30583, INSTEAD OF, DECLARING THAT COMMERCIAL CREDIT CORPORATION
OF QUEZON CITY IS THE ALTER EGO, INSTRUMENTALITY, CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT
CORPORATION AND ITS SUCCESSOR GENERAL CREDIT CORPORATION.
At the outset, it must be stressed that there is no longer any controversy over petitioners claims against his former
employer, CCC-QC, inasmuch as the decision in Civil Case No. Q-30583 of the Regional Trial Court of Quezon City has
long become final and executory. The only issue, therefore, to be resolved in the instant petition is whether or not the
judgment in favor of petitioner may be executed against respondent General Credit Corporation. The latter contends that it
is a corporation separate and distinct from CCC-QC and, therefore, its properties may not be levied upon to satisfy the
monetary judgment in favor of petitioner. In short, respondent raises corporate fiction as its defense. Hence, we are
necessarily called upon to apply the doctrine of piercing the veil of corporate entity in order to determine if General Credit
Corporation, formerly CCC, may be held liable for the obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or incident to its existence. [17] It is an artificial being invested by law
with a personality separate and distinct from those of the persons composing it as well as from that of any other legal

entity to which it may be related. [18] It was evolved to make possible the aggregation and assembling of huge amounts of
capital upon which big business depends. It also has the advantage of non-dependence on the lives of those who
compose it even as it enjoys certain rights and conducts activities of natural persons.
Precisely because the corporation is such a prevalent and dominating factor in the business life of the country, the
law has to look carefully into the exercise of powers by these artificial persons it has created.
Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to use its
supervisory and adjudicative powers where the corporate fiction is used as an unfair device to achieve an inequitable
result, defraud creditors, evade contracts and obligations, or to shield it from the effects of a court decision. The corporate
fiction has to be disregarded when necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al., [19] we held:
When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who
compose it will be lifted to allow for its consideration merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases
where it was used, among others, to avoid a judgment credit; [20] to avoid inclusion of corporate assets as part of the estate
of a decedent;[21] to avoid liability arising from debt; [22] when made use of as a shield to perpetrate fraud and/or confuse
legitimate issues;[23] or to promote unfair objectives or otherwise to shield them. [24]
In the appealed judgment, the Court of Appeals sustained respondents arguments of separateness and its character
as a different corporation which is a non-party or stranger to this case.
The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so
controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. But even when
there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when
such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. [25]
We stated in Tomas Lao Construction v. National Labor Relations Commission, [26] that the legal fiction of a
corporation being a judicial entity with a distinct and separate personality was envisaged for convenience and to serve
justice. Therefore, it should not be used as a subterfuge to commit injustice and circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly
identify it as a component of the CCC group of companies engaged in one and the same business, i.e., investment and
financing. Aside from CCC-Quezon City, other franchise companies were organized such as CCC-North Manila and CCCCagayan Valley. The organization of subsidiary corporations as what was done here is usually resorted to for the
aggrupation of capital, the ability to cover more territory and population, the decentralization of activities best
decentralized, and the securing of other legitimate advantages. But when the mother corporation and its subsidiary cease
to act in good faith and honest business judgment, when the corporate device is used by the parent to avoid its liability for
legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the
law steps in to remedy the problem. When that happens, the corporate character is not necessarily abrogated. It
continues for legitimate objectives.However, it is pierced in order to remedy injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The exclusive
management contract insured that CCC-QC would be managed and controlled by CCC and would not deviate from the
commands of the mother corporation. In addition to the exclusive management contract, CCC appointed its own
employee, petitioner, as the resident manager of CCC-QC.

Petitioners designation as resident manager implies that he was placed in CCC-QC by a superior authority. In fact,
even after his assignment to the subsidiary corporation, petitioner continued to receive his salaries, allowances, and
benefits from CCC, which later became respondent General Credit Corporation. Not only that. Petitioner and the other
permanent employees of CCC-QC were qualified members and participants of the Employees Pension Plan of CCC.
There are other indications in the record which attest to the applicability of the identity rule in this case, namely: the
unity of interests, management, and control; the transfer of funds to suit their individual corporate conveniences; and the
dominance of policy and practice by the mother corporation insure that CCC-QC was an instrumentality or agency of
CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of business involving a
single transaction process. Under their discounting arrangements, CCC financed the operations of CCC-QC. The
subsidiary sold, discounted, or assigned its accounts receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the pervasive and intensive
auditing function of CCC over CCC-QC. [27] The two corporations also shared the same office space. CCC-QC had no
office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the director-representative of
CCC. The lawyers who filed the complaint and amended complaint were all in-house lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General Credit Corporation, is not a formal
party in the case. The reason for this is that the complaint was filed by CCC-QC against petitioner. The choice of parties
was with CCC-QC. The judgment award in this case arose from the counterclaim which petitioner set up against CCCQC.
The circumstances which led to the filing of the aforesaid complaint are quite revealing. As narrated above, the
discounting agreements through which CCC controlled the finances of its subordinates became unlawful when Central
Bank adopted the DOSRI prohibitions. Under this rule the directors, officers, and stockholders are prohibited from
borrowing from their company. Instead of adhering to the letter and spirit of the regulations by avoiding DOSRI loans
altogether, CCC used the corporate device to continue the prohibited practice. CCC organized still another corporation,
the CCC-Equity Corporation. However, as a wholly owned subsidiary, CCC-Equity was in fact only another name for
CCC. Key officials of CCC, including the resident managers of subsidiary corporations, were appointed to positions in
CCC-Equity.
In order to circumvent the Central Banks disapproval of CCC-QCs mode of reducing its DOSRI lender accounts and
its directive to follow Central Bank requirements, resident managers, including petitioner, were told to observe a pseudocompliance with the phasing out orders. For his unwillingness to satisfactorily conform to these directives and his
reluctance to resort to illegal practices, petitioner earned the ire of his employers. Eventually, his services were
terminated, and criminal and civil cases were filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC because of difficulties faced by the firm in
implementing the required phase-out program. Funds from his current account in the Far East Bank and Trust Company
were transferred to CCC-QC. These monies were alleged in the criminal complaints against him as having been
stolen.Complaints for qualified theft and estafa were brought by CCC-QC against petitioner. These criminal cases were
later dismissed. Similarly, the civil complaint which was filed with the Court of First Instance of Pasig and later transferred
to the Regional Trial Court of Quezon City was dismissed, but his counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed CCC-QC, in obvious fraud
of its creditors. CCC-QC, instead of opposing its closure, cooperated in its own demise. Conveniently, CCC-QC stated in
its opposition to the motion for alias writ of execution that all its properties and assets had been transferred and taken over
by CCC.

Under the foregoing circumstances, the contention of respondent General Credit Corporation, the new name of CCC,
that the corporate fiction should be appreciated in its favor is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations, [28] reiterated in Concept Builders Inc. v. National
Labor Relations,[29] it is very obvious that respondent seeks the protective shield of a corporate fiction whose veil the
present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation
of its employees.
If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and work an
injustice. The decision raised to us for review is an invitation to multiplicity of litigation. As we stated in Islamic Directorate
vs. Court of Appeals,[30] the ends of justice are not served if further litigation is encouraged when the issue is determinable
based on the records.
A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother corporation, is
placed beyond the legal reach of the judgment creditor who, after protracted litigation, has been found entitled to positive
relief. Courts have been organized to put an end to controversy. This purpose should not be negated by an inapplicable
and wrong use of the fiction of the corporate veil.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The injunction against the
holding of an auction sale for the execution of the decision in Civil Case No. Q-30583 of properties of General Credit
Corporation, and the levying upon and selling on execution of other properties of General Credit Corporation, is LIFTED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

G.R. No. 177493, March 19, 2014

ERIC GODFREY STANLEY LIVESEY, Petitioner, v. BINSWANGER PHILIPPINES, INC. AND KEITH
ELLIOT, Respondents.
DECISION
BRION, J.:
We resolve this petition for review on certiorari1 assailing the decision2 dated August 18, 2006 and the resolution3 dated
March 29, 2007 of the Court of Appeals (CA) in CAG.R. SP No. 94461.
The Antecedents
In December 2001, petitioner Eric Godfrey Stanley Livesey filed a complaint for illegal dismissal with money
claims4 against CBB Philippines Strategic Property Services, Inc. (CBB) and Paul Dwyer. CBB was a domestic corporation
engaged in real estate brokerage and Dwyer was its President.
Livesey alleged that on April 12, 2001, CBB hired him as Director and Head of Business Space Development, with a
monthly salary of US$5,000.00; shareholdings in CBBs offshore parent company; and other benefits. In August 2001, he
was appointed as Managing Director and his salary was increased to US$16,000.00 a month. Allegedly, despite the
several deals for CBB he drew up, CBB failed to pay him a significant portion of his salary. For this reason, he was
compelled to resign on December 18, 2001. He claimed CBB owed him US$23,000.00 in unpaid salaries.
CBB denied liability. It alleged that it engaged Livesey as a corporate officer in April 2001: he was elected VicePresident
(with a salary of P75,000.00/month), and thereafter, he became President (at P1,200,000.00/year). It claimed that Livesey

was later designated as Managing Director when it became an extension office of its principal in Hongkong. 5
On December 17, 2001, Livesey demanded that CBB pay him US$25,000.00 in unpaid salaries and, at the same time,
tendered his resignation. CBB posited that the labor arbiter (LA) had no jurisdiction as the complaint involved an intra
corporate dispute.
In his decision dated September 20, 2002,6 LA Jaime M. Reyno found that Livesey had been illegally dismissed. LA
Reyno ordered CBB to reinstate Livesey to his former position as Managing Director and to pay him US$23,000.00 in
accrued salaries (from July to December 2001), and US$5,000.00 a month in back salaries from January 2002 until
reinstatement; and 10% of the total award as attorneys fees.
Thereafter, the parties entered into a compromise agreement 7 which LA Reyno approved in an order dated November 6,
2002.8 Under the agreement, Livesey was to receive US$31,000.00 in full satisfaction of LA Reynos decision, broken
down into US$13,000.00 to be paid by CBB to Livesey or his authorized representative upon the signing of the
agreement; US$9,000.00 on or before June 30, 2003; and US$9,000.00 on or before September 30, 2003. Further, the
agreement provided that unless and until the agreement is fully satisfied, CBB shall not: (1) sell, alienate, or otherwise
dispose of all or substantially all of its assets or business; (2) suspend, discontinue, or cease its entire, or a substantial
portion of its business operations; (3) substantially change the nature of its business; and (4) declare bankruptcy or
insolvency.
CBB paid Livesey the initial amount of US$13,000.00, but not the next two installments as the company ceased
operations. In reaction, Livesey moved for the issuance of a writ of execution. LA Eduardo G. Magno granted the writ, 9 but
it was not enforced. Livesey then filed a motion for the issuance of an alias writ of execution, 10 alleging that in the process
of serving respondents the writ, he learned that respondents, in a clear and willful attempt to avoid their liabilities to
complainant x x x have organized another corporation, [Binswanger] Philippines, Inc. 11 He claimed that there was
evidence showing that CBB and Binswanger Philippines, Inc. (Binswanger) are one and the same corporation, pointing
out that CBB stands for Chesterton Blumenauer Binswanger.12 Invoking the doctrine of piercing the veil of corporate
fiction, Livesey prayed that an alias writ of execution be issued against respondents Binswanger and Keith Elliot, CBBs
former President, and now Binswangers President and Chief Executive Officer (CEO).
The Compulsory Arbitration Rulings
In an order13 dated March 22, 2004, LA Catalino R. Laderas denied Liveseys motion for an alias writ of execution, holding
that the doctrine of piercing the corporate veil was inapplicable in the case. He explained that the stockholders of the two
corporations were not the same. Further, LA Laderas stressed that LA Reynos decision had already become final and
could no longer be altered or modified to include additional respondents.
Livesey filed an appeal which the National Labor Relations Commission (NLRC) granted in its decision14 dated September
7, 2005. It reversed LA Laderas March 22, 2004 order and declared the respondents jointly and severally liable with CBB
for LA Reynos decision15 of September 20, 2002 in favor of Livesey. The respondents moved for reconsideration, filed by
an Atty. Genaro S. Jacosalem,16 not by their counsel of record at the time, Corporate Counsels Philippines, Law Offices.
The NLRC denied the motion in its resolution of January 6, 2006. 17 The respondents then sought relief from the CA
through a petition for certiorari under Rule 65 of the Rules of Court.
The respondents charged the NLRC with grave abuse of discretion for holding them liable to Livesey and in exercising
jurisdiction over an intracorporate dispute. They maintained that Binswanger is a separate and distinct corporation from
CBB and that Elliot signed the compromise agreement in CBBs behalf, not in his personal capacity. It was error for the
NLRC, they argued, when it applied the doctrine of piercing the veil of corporate fiction to the case, despite the absence of
clear evidence in that respect.
For his part, Livesey contended that the petition should be dismissed outright for being filed out of time. He claimed that
the respondents counsel of record received a copy of the NLRC resolution denying their motion for reconsideration as
early as January 19, 2006, yet the petition was filed only on May 15, 2006. He insisted that in any event, there was ample
evidence supporting the application of the doctrine of piercing the veil of corporate fiction to the case.
The CA Decision
The CA granted the petition,18 reversed the NLRC decision19 of September 7, 2005 and reinstated LA Laderas order20 of
March 22, 2004. The CA found untenable Liveseys contention that the petition forcertiorari was filed out of time, stressing
that while there was no valid substitution or withdrawal of the respondents former counsel, the NLRC impliedly recognized
Atty. Jacosalem as their new counsel when it resolved the motion for reconsideration which he filed.

On the merits of the case, the CA disagreed with the NLRC finding that the respondents are jointly and severally liable
with CBB in the case. It emphasized that the mere fact that Binswanger and CBB have the same President is not in itself
sufficient to pierce the veil of corporate fiction of the two entities, and that although Elliot was formerly CBBs President,
this circumstance alone does not make him answerable for CBBs liabilities, there being no proof that he was motivated by
malice or bad faith when he signed the compromise agreement in CBBs behalf; neither was there proof that Binswanger
was formed, or that it was operated, for the purpose of shielding fraudulent or illegal activities of its officers or stockholders
or that the corporate veil was used to conceal fraud, illegality or inequity at the expense of third persons like Livesey.
Livesey moved for reconsideration, but the CA denied the motion in its resolution dated March 29, 2007. 21 Hence, the
present petition.
The Petition
Livesey prays for a reversal of the CA rulings on the basis of the following arguments:chanRoblesvirtualLawlibrary
1. The CA erred in not denying the respondents petition for certiorari dated May 12, 2006 for being filed out of time.
Livesey assails the CAs reliance on the Courts pronouncement in Rinconada Telephone Co., Inc. v. Hon. Buenviaje22 to
justify its ruling that the receipt on March 17, 2006 by Atty. Jacosalem of the NLRCs denial of the respondents motion for
reconsideration was the reckoning date for the filing of the petition for certiorari, not the receipt of a copy of the same
resolution on January 19, 2006 by the respondents counsel of record, the Corporate Counsels Philippines, Law Offices.
The cited Courts pronouncement reads:chanRoblesvirtualLawlibrary
In view of respondent judges recognition of Atty. Santos as new counsel for petitioner without even a valid substitution or
withdrawal of petitioners former counsel, said new counsel logically awaited for service to him of any action taken on his
motion for reconsideration. Respondent judges sudden change of posture in insisting that Atty. Maggay is the counsel of
record is, therefore, a whimsical and capricious exercise of discretion that prevented petitioner and Atty. Santos from
taking a timely appeal[.]23
With the above citation, Livesey points out, the CA opined that a copy of the NLRC resolution denying the respondents
motion for reconsideration should have been served on Atty. Jacosalem and no longer on the counsel of record, so that
the sixty (60)day period for the filing of the petition should be reckoned from March 17, 2006 when Atty. Jacosalem
secured a copy of the resolution from the NLRC (the petition was filed by a Jeffrey Jacosalem on May 15, 2006). 24 Livesey
submits that the CAs reliance on Rinconada was misplaced. He argues that notwithstanding the signing by Atty.
Jacosalem of the motion for reconsideration, it was only proper that the NLRC served a copy of the resolution on the
Corporate Counsels Philippines, Law Offices as it was still the respondents counsel at the time. 25 He adds that Atty.
Jacosalem never participated in the NLRC proceedings because he did not enter his appearance as the respondents
counsel before the labor agency; further, he did not even indicate his office address on the motion for reconsideration he
signed.
2. The CA erred in not applying the doctrine of piercing the veil of corporate fiction to the case.
Livesey bewails the CAs refusal to pierce Binswangers corporate veil in his bid to make the company and Elliot liable,
together with CBB, for the judgment award to him. He insists that CBB and Binswanger are one and the same corporation
as shown by the overwhelming evidence he presented to the LA, the NLRC and the CA, as
follows:chanRoblesvirtualLawlibrary
a. CBB stands for Chesterton Blumenauer Binswanger.26
b. After executing the compromise agreement with him, through Elliot, CBB ceased operations following a transaction
where a substantial amount of CBB shares changed hands. Almost simultaneously with CBBs closing (in July 2003),
Binswanger was established with its headquarters set up beside CBBs office at Unit 501, 5/F Peninsula Court Building in
Makati City.27
c. Key CBB officers and employees moved to Binswanger led by Elliot, former CBB President who became Binswangers
President and CEO; Ferdie Catral, former CBB Director and Head of Operations; Evangeline Agcaoili and Janet Pei.
d. Summons served on Binswanger in an earlier labor case was received by Binswanger using CBBs receiving stamp. 28
e. A Leslie Young received on August 23, 2003 an online query on whether CBB was the same as Blumaneuver
Binswanger (BB). Signing as Web Editor, Binswanger/CBB, Young replied via email:29

We are known as either CBB (Chesterton Blumenauer Binswanger) or as Chesterton Petty Ltd. in the Philippines. Contact
info for our office in Manila is as follows:
Manila Philippines
CBB Philippines
Unit 509, 5th Floor
Peninsula Court, Paseo de Roxas corner
Makati Avenue
1226 Makati City
Philippines
Contact: Keith Elliot
f. In a letter dated August 21, 2003,30 Elliot noted a Binswanger bid solicitation for a project with the Philippine National
Bank (PNB) which was actually a CBB project as shown by a CBB draft proposal to PNB dated January 24, 2003. 31
g. The affidavit32 dated October 1, 2003 of Hazel de Guzman, another former CBB employee who also filed an illegal
dismissal case against the company, attested to the existence of Liveseys documentary evidence in his own case and
who deposed that at one time, Elliot told her of CBBs plan to close the corporation and to organize another for the
purpose of evading CBBs liabilities.
h. The findings33 of facts of LA Veneranda C. Guerrero who ruled in De Guzmans favor that bolstered his own evidence in
the present case.
3. The CA erred in not holding Elliot liable for the judgment award.
Livesey questions the CAs reliance on Laperal Development Corporation v. Court of Appeals, 34 Sunio, et al. v. NLRC, et
al.,35 and Palay, Inc., et al. v. Clave, etc., et al.,36 in support of its ruling that Elliot is not liable to him for the LAs award. He
argues that in these cases, the Court upheld the separate personalities of the corporations and their officers/employees
because there was no evidence that the individuals sought to be held liable were in bad faith or that there were badges of
fraud in their actions against the aggrieved party or parties in said cases. He reiterates his submission to the CA that the
circumstances of the present case are different from those of the cited cases. He posits that the closure of CBB and its
immediate replacement by Binswanger could not have been possible without Elliots guiding hand, such that when CBB
ceased operations, Elliot (CBBs President and CEO) moved to Binswanger in the same position. More importantly,
Livesey points out, as signatory for CBB in the compromise agreement between him (Livesey) and CBB, Elliot knew that it
had not been and would never be fully satisfied.
Livesey thus laments Elliots devious scheme of leaving him an unsatisfied award, stressing that Elliot was the chief
orchestrator of CBB and Binswangers fraudulent act of evading the full satisfaction of the compromise agreement. In this
light, he submits that the Courts ruling in A.C. Ransom Labor UnionCCLU v. NLRC,37 which deals with the issue of who
is liable for the workers backwages when a corporation ceases operations, should apply to his situation.
The Respondents Position
Through their comment38 and memorandum,39 the respondents pray that the petition be denied for the following
reasons:chanRoblesvirtualLawlibrary
1. The NLRC had no jurisdiction over the dispute between Livesey and CBB/Dwyer as it involved an intracorporate
controversy; under Republic Act No. 8799, the Regional Trial Court exercises jurisdiction over the case.
As shown by the records, Livesey was appointed as CBBs Managing Director during the relevant period and was also a
shareholder, making him a corporate officer.
2. There was no employeremployee relationship between Livesey and Binswanger. Under Article 217 of the Labor Code,
the labor arbiters and the NLRC have jurisdiction only over disputes where there is an employeremployee relationship
between the parties.
3. The NLRC erred in applying the doctrine of piercing the veil of corporate fiction to the case based only on mere
assumptions. Point by point, they take exception to Liveseys submissions as follows:chanRoblesvirtualLawlibrary
a. The email statement in reply to an online query of Young (CBBs Web Editor) that CBB is known as Chesterton
Blumenauer Binswanger or Chesterton Petty. Ltd. to establish a connection between CBB and Binswanger is
inconclusive as there was no mention in the statement of Binswanger Philippines, Inc.

b. The affidavit of De Guzman, former CBB Associate Director, who also resigned from the company like Livesey,
has no probative value as it was selfserving and contained only misrepresentation of facts, conjectures and
surmises.
c.

When Binswanger was organized and incorporated, CBB had already been abandoned by its Board of Directors
and no longer subsidized by CBBHongkong; it had no business operations to work with.

d. The mere transfer of Elliot and Catral from CBB to Binswanger is not a ground to pierce the corporate veil in the
present case absent a clear evidence supporting the application of the doctrine. The NLRC applied the doctrine
on the basis only of LA Guerreros decision in the De Guzman case.
e. The respondents petition for certiorari was filed on time. Atty. Jacosalem, who was presumed to have been
engaged as the respondents counsel, was deemed to have received a copy of the NLRC resolution (denying the
motion for reconsideration) on March 17, 2006 when he requested and secured a copy from the NLRC. The
petition was filed on May 15, 2006 or fiftynine (59) days from March 17, 2006. Atty. Jacosalem may have failed
to indicate his address on the motion for reconsideration he filed but that is not a reason for him to be deprived of
the notices and processes of the case.

The Courts Ruling

The procedural question
The respondents petition for certiorari before the CA was filed out of time. The sixty (60)day filing period under Rule 65
of the Rules of Court should have been counted from January 19, 2006, the date of receipt of a copy of the NLRC
resolution denying the respondents motion for reconsideration by the Corporate Counsels Philippines, Law Offices which
was the respondents counsel of record at the time. The respondents cannot insist that Atty. Jacosalems receipt of a copy
of the resolution on March 17, 2006 as the reckoning date for the filing of the petition as we shall discuss below.
The CA chided the NLRC for serving a copy of the resolution on the Corporate Counsels Philippines, Law Offices, instead
of on Atty. Jacosalem as it believed that the labor tribunal impliedly recognized Atty. Jacosalem as the respondents
counsel when it acted on the motion for reconsideration that he signed. As we see it, the fault was not on the NLRC but
on Atty. Jacosalem himself as he left no forwarding address with the NLRC, a serious lapse that even he admitted. 40 This
is a matter that cannot just be taken for granted as it betrays a careless legal representation that can cause adverse
consequences to the other party.
To our mind, Atty. Jacosalems nonobservance of a simple, but basic requirement in the practice of law lends credence to
Liveseys claim that the lawyer did not formally enter his appearance before the NLRC as the respondents new counsel; if
it had been otherwise, he would have supplied his office address to the NLRC. Also, had he exercised due diligence in the
performance of his duty as counsel, he could have inquired earlier with the NLRC and should not have waited as late as
March 17, 2006 about the outcome of the respondents motion for reconsideration which was filed as early as October 28,
2005.
To reiterate, the filing of the respondents petition for certiorari should have been reckoned from January 19, 2006 when a
copy of the subject NLRC resolution was received by the Corporate Counsels Philippines, Law Offices, which, as of that
date, had not been discharged or had withdrawn and therefore remained to be the respondents counsel of record.
Clearly, the petition for certiorariwas filed out of time. Section 6(a), Rule III of the NLRC Revised Rules of Procedure
provides that [f]or purposes of appeal, the period shall be counted from receipt of such decisions, resolutions, or orders
by the counsel or representative of record.
We now come to the issue of whether the NLRC had jurisdiction over the controversy between Livesey and CBB/Dwyer
on the ground that it involved an intracorporate dispute.
Based on the facts of the case, we find this issue to have been rendered academic by the compromise agreement
between Livesey and CBB and approved by LA Reyno.41 That CBB reneged in the fulfillment of its obligation under the
agreement is no reason to revive the issue and further frustrate the full settlement of the obligation as agreed upon.
The substantive aspect of the case
Even if we rule that the respondents appeal before the CA had been filed on time, we believe and so hold that the
appellate court committed a reversible error of judgment in its challenged decision.

The NLRC committed no grave abuse of discretion in reversing LA Laderas ruling as there is substantial evidence in the
records that Livesey was prevented from fully receiving his monetary entitlements under the compromise agreement
between him and CBB, with Elliot signing for CBB as its President and CEO. Substantial evidence is more than a scintilla;
it means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. 42
Shortly after Elliot forged the compromise agreement with Livesey, CBB ceased operations, a corporate event that was
not disputed by the respondents. Then Binswanger suddenly appeared. It was established almost simultaneously with
CBBs closure, with no less than Elliot as its President and CEO. Through the confluence of events surrounding CBBs
closure and Binswangers sudden emergence, a reasonable mind would arrive at the conclusion that Binswanger is
CBBs alter ego or that CBB and Binswanger are one and the same corporation. There are also indications of badges of
fraud in Binswangers incorporation. It was a business strategy to evade CBBs financial liabilities, including its
outstanding obligation to Livesey.
The respondents impugned the probative value of Liveseys documentary evidence and insist that the NLRC erred in
applying the doctrine of piercing the veil of corporate fiction in the case to avoid liability. They consider the NLRC
conclusions as mere assumptions.
We disagree.
It has long been settled that the law vests a corporation with a personality distinct and separate from its stockholders or
members. In the same vein, a corporation, by legal fiction and convenience, is an entity shielded by a protective mantle
and imbued by law with a character alien to the persons comprising it. 43 Nonetheless, the shield is not at all times
impenetrable and cannot be extended to a point beyond its reason and policy. Circumstances might deny a claim for
corporate personality, under the doctrine of piercing the veil of corporate fiction.
Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes. 44 Under the doctrine, the corporate existence may
be disregarded where the entity is formed or used for nonlegitimate purposes, such as to evade a just and due
obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable considerations, other
unjustifiable aims or intentions,45 in which case, the fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical.46
In the present case, we see an indubitable link between CBBs closure and Binswangers incorporation. CBB
ceased to exist only in name; it reemerged in the person of Binswanger for an urgent purpose to avoid
payment by CBB of the last two installments of its monetary obligation to Livesey, as well as its other financial
liabilities. Freed of CBBs liabilities, especially that owing to Livesey, Binswanger can continue, as it did
continue, CBBs real estate brokerage business.
Liveseys evidence, whose existence the respondents never denied, converged to show this continuity of business
operations from CBB to Binswanger. It was not just coincidence that Binswanger is engaged in the same line of business
CBB embarked on: (1) it even holds office in the very same building and on the very same floor where CBB once stood;
(2) CBBs key officers, Elliot, no less, and Catral moved over to Binswanger, performing the tasks they were doing at CBB;
(3) notwithstanding CBBs closure, Binswangers Web Editor (Young), in an email correspondence, supplied the
information that Binswanger is now known as either CBB (Chesterton Blumenauer Binswanger or as Chesterton Petty,
Ltd., in the Philippines; (4) the use of Binswanger of CBBs paraphernalia (receiving stamp) in connection with a labor
case where Binswanger was summoned by the authorities, although Elliot claimed that he bought the item with his own
money; and (5) Binswangers takeover of CBBs project with the PNB.
While the ostensible reason for Binswangers establishment is to continue CBBs business operations in the Philippines,
which by itself is not illegal, the close proximity between CBBs disestablishment and Binswangers coming into existence
points to an unstated but urgent consideration which, as we earlier noted, was to evade CBBs unfulfilled financial
obligation to Livesey under the compromise agreement. 47
This underhanded objective, it must be stressed, can only be attributed to Elliot as it was apparent that Binswangers
stockholders had nothing to do with Binswangers operations as noted by the NLRC and which the respondents did not
deny.48 Elliot was well aware of the compromise agreement between Livesey and CBB, as he agreed and accepted the
terms of the agreement49 for CBB. He was also well aware that the last two installments of CBBs obligation to Livesey
were due on June 30, 2003 and September 30, 2003. These installments were not met and the reason is that after the
alleged sale of the majority of CBBs shares of stock, it closed down.
With CBBs closure, Livesey asked why people would buy into a corporation and simply close it down immediately

thereafter?50 The answer to pave the way for CBBs reappearance as Binswanger. Elliots guiding hand, as Livesey
puts it, is very much evident in CBBs demise and Binswangers creation. Elliot knew that CBB had not fully complied with
its financial obligation under the compromise agreement. He made sure that it would not be fulfilled when he allowed
CBBs closure, despite the condition in the agreement that unless and until the Compromise Amount has been fully
settled and paid by the Company in favor of Mr. Livesey, the Company shall not x x x suspend, discontinue, or cease its
entire or a substantial portion of its business operations[.] 51
What happened to CBB, we believe, supports Liveseys assertion that De Guzman, CBBs former Associate Director,
informed him that at one time Elliot told her of CBBs plan to close the corporation and organize another for the purpose of
evading CBBs liabilities to Livesey and its other financial liabilities. 52 This wrongful intent we cannot and must not
condone, for it will give a premium to an iniquitous business strategy where a corporation is formed or used for a non
legitimate purpose, such as to evade a just and due obligation. 53 We, therefore, find Elliot as liable as Binswanger for
CBBs unfulfilled obligation to Livesey.
WHEREFORE, premises considered, we hereby GRANT the petition. The decision dated August 18, 2006 and the
Resolution dated March 29, 2007 of the Court of Appeals are SET ASIDE. Binswanger Philippines, Inc. and Keith Elliot
(its President and CEO) are declared jointly and severally liable for the second and third installments of CBBs liability to
Eric Godfrey Stanley Livesey under the compromise agreement dated October 14, 2002. Let the case record be
remanded to the National Labor Relations Commission for execution of this Decision.
Costs against the respondents.
SO ORDERED.
Carpio, (Chairperson), Del Castillo, Perez, and Reyes,* JJ., concur.

G.R. No. 195580

April 21, 2014

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining Development Corp.
(Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which seeks to reverse the
October 1, 2010 Decision1 and the February 15, 2011 Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in mining and exploring certain areas of the province of
Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it learned that the areas
where it wanted to undertake exploration and mining activities where already covered by Mineral Production Sharing
Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA
and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of
Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay Sumbiling,
Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in Barangay
Malatagao, Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and,
on November 6, 2006, assigned to petitioner McArthur.2

Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining &
Development Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, DENR
on January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in
barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or
assigned its rights and interests over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPAIVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan.
SMMI subsequently conveyed, transferred and assigned its rights and interest over the said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the
denial of petitioners applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was the driving force behind petitioners filing of the MPSAs over the areas
covered by applications since it knows that it can only participate in mining activities through corporations which are
deemed Filipino citizens. Redmont argued that given that petitioners capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No. (RA) 7942
or the Philippine Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in singular or plural, shall
mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation, partnership,
association, or cooperative organized or authorized for the purpose of engaging in mining, with technical and financial
capability to undertake mineral resources development and duly registered in accordance with law at least sixty per cent
(60%) of the capital of which is owned by citizens of the Philippines: Provided, That a legally organized foreign-owned
corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or technical
assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial or
Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTAIVB-07 for Narra, which are granted to foreign-owned corporations. Nevertheless, they claimed that the issue on
nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is
owned by citizens of the Philippines. They asserted that though MBMI owns 40% of the shares of PLMC (which owns
5,997 shares of Narra),3 40% of the shares of MMC (which owns 5,997 shares of McArthur)4and 40% of the shares of
SLMC (which, in turn, owns 5,997 shares of Tesoro), 5 the shares of MBMI will not make it the owner of at least 60% of the
capital stock of each of petitioners. They added that the best tool used in determining the nationality of a corporation is the
"control test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of 1991. They also claimed that the POA of
DENR did not have jurisdiction over the issues in Redmonts petition since they are not enumerated in Sec. 77 of RA
7942. Finally, they stressed that Redmont has no personality to sue them because it has no pending claim or application
over the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to engage in mining activities. On the other hand,
[Redmont] having filed its own applications for an EPA over the areas earlier covered by the MPSA application of
respondents may be considered if and when they are qualified under the law. The violation of the requirements for the
issuance and/or grant of permits over mining areas is clearly established thus, there is reason to believe that the
cancellation and/or revocation of permits already issued under the premises is in order and open the areas covered to
other qualified applicants.
xxxx

WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and Development,
Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being considered as Foreign Corporations.
Their Mineral Production Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND VOID. 6
The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian
company and declared their MPSAs null and void. In the same Resolution, it gave due course to Redmonts EPAs.
Thereafter, on February 7, 2008, the POA issued an Order7 denying the Motion for Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Appeal 8 and Memorandum
of Appeal9 with the Mines Adjudication Board (MAB) while Narra separately filed its Notice of Appeal 10 and Memorandum
of Appeal.11
In their respective memorandum, petitioners emphasized that they are qualified persons under the law. Also, through a
letter, they informed the MAB that they had their individual MPSA applications converted to FTAAs. McArthurs FTAA was
denominated as AFTA-IVB-0912 on May 2007, while Tesoros MPSA application was converted to AFTA-IVB-0813 on May
28, 2007, and Narras FTAA was converted to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint 15 with the Securities and
Exchange Commission (SEC), seeking the revocation of the certificates for registration of petitioners on the ground that
they are foreign-owned or controlled corporations engaged in mining in violation of Philippine laws. Thereafter, Redmont
filed on September 1, 2008 a Manifestation and Motion to Suspend Proceeding before the MAB praying for the
suspension of the proceedings on the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City, Branch 92 (RTC) a
Complaint16 for injunction with application for issuance of a temporary restraining order (TRO) and/or writ of preliminary
injunction, docketed as Civil Case No. 08-63379. Redmont prayed for the deferral of the MAB proceedings pending the
resolution of the Complaint before the SEC.
But before the RTC can resolve Redmonts Complaint and applications for injunctive reliefs, the MAB issued an Order on
September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS ASIDE the
Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case Nos.
2001-01, 2007-02 and 2007-03, and its Order dated 07 February 2008 denying the Motions for Reconsideration of the
Appellants. The Petition filed by Redmont Consolidated Mines Corporation on 02 January 2007 is hereby ordered
DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmonts application for a TRO and setting the
case for hearing the prayer for the issuance of a writ of preliminary injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration 19 of the September 10, 2008 Order of the
MAB. Subsequently, it filed a Supplemental Motion for Reconsideration 20 on September 29, 2008.
Before the MAB could resolve Redmonts Motion for Reconsideration and Supplemental Motion for Reconsideration,
Redmont filed before the RTC a Supplemental Complaint 21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of preliminary injunction enjoining the MAB
from finally disposing of the appeals of petitioners and from resolving Redmonts Motion for Reconsideration and
Supplement Motion for Reconsideration of the MABs September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying Redmonts Motion for Reconsideration and
Supplemental Motion for Reconsideration and resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB. On October 1,
2010, the CA rendered a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10, 2008 and July 1, 2009
of the Mining Adjudication Board are reversed and set aside. The findings of the Panel of Arbitrators of the Department of
Environment and Natural Resources that respondents McArthur, Tesoro and Narra are foreign corporations is upheld and,

therefore, the rejection of their applications for Mineral Product Sharing Agreement should be recommended to the
Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical Assistance
Agreement (FTAA) or conversion of their MPSA applications to FTAA, the matter for its rejection or approval is left for
determination by the Secretary of the DENR and the President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was doubt as to the nationality of petitioners when it realized
that petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians. Pursuant to the first
sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules
which implemented the requirement of the Constitution and other laws pertaining to the exploitation of natural resources,
the CA used the "grandfather rule" to determine the nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.
Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or
capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if
less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be recorded as belonging to aliens. 24 (emphasis supplied)
In determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding common
shareholders. Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of
the petitioners as well as at least 60% equity interest of other majority shareholders of petitioners through joint venture
agreements. The CA found that through a "web of corporate layering, it is clear that one common controlling investor in all
mining corporations involved x x x is MBMI."25 Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in
partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA applications suspicious in
nature and, as a consequence, it recommended the rejection of petitioners MPSA applications by the Secretary of the
DENR.
With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the POA has jurisdiction over
them and that it also has the power to determine the of nationality of petitioners as a prerequisite of the Constitution prior
the conferring of rights to "co-production, joint venture or production-sharing agreements" of the state to mining rights.
However, it also stated that the POAs jurisdiction is limited only to the resolution of the dispute and not on the approval or
rejection of the MPSAs. It stipulated that only the Secretary of the DENR is vested with the power to approve or reject
applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which considered petitioners McArthur,
Tesoro and Narra as foreign corporations. Nevertheless, the CA determined that the POAs declaration that the MPSAs of
McArthur, Tesoro and Narra are void is highly improper.
While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a petition dated May 7,
2010 seeking the cancellation of petitioners FTAAs. The OP rendered a Decision 26 on April 6, 2011, wherein it canceled
and revoked petitioners FTAAs for violating and circumventing the "Constitution x x x[,] the Small Scale Mining Law and
Environmental Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584." 27 The OP,
in affirming the cancellation of the issued FTAAs, agreed with Redmont stating that petitioners committed violations
against the abovementioned laws and failed to submit evidence to negate them. The Decision further quoted the
December 14, 2007 Order of the POA focusing on the alleged misrepresentation and claims made by petitioners of being
domestic or Filipino corporations and the admitted continued mining operation of PMDC using their locally secured Small
Scale Mining Permit inside the area earlier applied for an MPSA application which was eventually transferred to Narra. It
also agreed with the POAs estimation that the filing of the FTAA applications by petitioners is a clear admission that they
are "not capable of conducting a large scale mining operation and that they need the financial and technical assistance of
a foreign entity in their operation, that is why they sought the participation of MBMI Resources, Inc." 28 The Decision further
quoted:

The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the violations and
lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA application conversion
which is allowed foreign corporation of the earlier MPSA is an admission that indeed the respondent is not Filipino but
rather of foreign nationality who is disqualified under the laws. Corporate documents of MBMI Resources, Inc. furnished
its stockholders in their head office in Canada suggest that they are conducting operation only through their local
counterparts.29
The Motion for Reconsideration of the Decision was further denied by the OP in a Resolution 30 dated July 6, 2011.
Petitioners then filed a Petition for Review on Certiorari of the OPs Decision and Resolution with the CA, docketed as CAG.R. SP No. 120409. In the CA Decision dated February 29, 2012, the CA affirmed the Decision and Resolution of the OP.
Thereafter, petitioners appealed the same CA decision to this Court which is now pending with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners put forth the following
errors of the CA:
I.
The Court of Appeals erred when it did not dismiss the case for mootness despite the fact that the subject matter
of the controversy, the MPSA Applications, have already been converted into FTAA applications and that the same
have already been granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction considering that the Panel of
Arbitrators has no jurisdiction to determine the nationality of Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on account of Redmonts willful forum shopping.
IV.
The Court of Appeals ruling that Narra, Tesoro and McArthur are foreign corporations based on the "Grandfather
Rule" is contrary to law, particularly the express mandate of the Foreign Investments Act of 1991, as amended,
and the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule.
VI.
The Court of Appeals erred when it concluded that the conversion of the MPSA Applications into FTAA
Applications were of "suspicious nature" as the same is based on mere conjectures and surmises without any
shred of evidence to show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case as moot is without merit.
Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable controversy by virtue of
supervening events, so that a declaration thereon would be of no practical use or value." 32 Thus, the courts "generally
decline jurisdiction over the case or dismiss it on the ground of mootness." 33

The "mootness" principle, however, does accept certain exceptions and the mere raising of an issue of "mootness" will not
deter the courts from trying a case when there is a valid reason to do so. In David v. Macapagal-Arroyo (David), the Court
provided four instances where courts can decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public interest is involved;
3.) When constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and
the public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant case. We of this Court note that a grave violation of the
Constitution, specifically Section 2 of Article XII, is being committed by a foreign corporation right under our countrys nose
through a myriad of corporate layering under different, allegedly, Filipino corporations. The intricate corporate layering
utilized by the Canadian company, MBMI, is of exceptional character and involves paramount public interest since it
undeniably affects the exploitation of our Countrys natural resources. The corresponding actions of petitioners during the
lifetime and existence of the instant case raise questions as what principle is to be applied to cases with similar issues. No
definite ruling on such principle has been pronounced by the Court; hence, the disposition of the issues or errors in the
instant case will serve as a guide "to the bench, the bar and the public." 35 Finally, the instant case is capable of repetition
yet evading review, since the Canadian company, MBMI, can keep on utilizing dummy Filipino corporations through
various schemes of corporate layering and conversion of applications to skirt the constitutional prohibition against foreign
mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error presented by petitioners since both involve the
conversion of MPSA applications to FTAA applications. Petitioners propound that the CA erred in ruling against them since
the questioned MPSA applications were already converted into FTAA applications; thus, the issue on the prohibition
relating to MPSA applications of foreign mining corporations is academic. Also, petitioners would want us to correct the
CAs finding which deemed the aforementioned conversions of applications as suspicious in nature, since it is based on
mere conjectures and surmises and not supported with evidence.
We disagree.
The CAs analysis of the actions of petitioners after the case was filed against them by respondent is on point. The
changing of applications by petitioners from one type to another just because a case was filed against them, in truth,
would raise not a few sceptics eyebrows. What is the reason for such conversion? Did the said conversion not stem from
the case challenging their citizenship and to have the case dismissed against them for being "moot"? It is quite obvious
that it is petitioners strategy to have the case dismissed against them for being "moot."
Consider the history of this case and how petitioners responded to every action done by the court or appropriate
government agency: on January 2, 2007, Redmont filed three separate petitions for denial of the MPSA applications of
petitioners before the POA. On June 15, 2007, petitioners filed a conversion of their MPSA applications to FTAAs. The
POA, in its December 14, 2007 Resolution, observed this suspect change of applications while the case was pending
before it and held:
The filing of the Financial or Technical Assistance Agreement application is a clear admission that the respondents are not
capable of conducting a large scale mining operation and that they need the financial and technical assistance of a foreign
entity in their operation that is why they sought the participation of MBMI Resources, Inc. The participation of MBMI in the
corporation only proves the fact that it is the Canadian company that will provide the finances and the resources to
operate the mining areas for the greater benefit and interest of the same and not the Filipino stockholders who only have
a less substantial financial stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the violations
and lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA application conversion

which is allowed foreign corporation of the earlier MPSA is an admission that indeed the respondent is not Filipino but
rather of foreign nationality who is disqualified under the laws. Corporate documents of MBMI Resources, Inc. furnished
its stockholders in their head office in Canada suggest that they are conducting operation only through their local
counterparts.36
On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing and setting aside the
September 10, 2008 and July 1, 2009 Orders of the MAB. In the said Decision, the CA upheld the findings of the POA of
the DENR that the herein petitioners are in fact foreign corporations thus a recommendation of the rejection of their MPSA
applications were recommended to the Secretary of the DENR. With respect to the FTAA applications or conversion of the
MPSA applications to FTAAs, the CA deferred the matter for the determination of the Secretary of the DENR and the
President of the Republic of the Philippines.37
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal of the petition asserting
that on April 5, 2010, then President Gloria Macapagal-Arroyo signed and issued in their favor FTAA No. 05-2010-IVB,
which rendered the petition moot and academic. However, the CA, in a Resolution dated February 15, 2011 denied their
motion for being a mere "rehash of their claims and defenses." 38 Standing firm on its Decision, the CA affirmed the ruling
that petitioners are, in fact, foreign corporations. On April 5, 2011, petitioners elevated the case to us via a Petition for
Review on Certiorari under Rule 45, questioning the Decision of the CA. Interestingly, the OP rendered a Decision dated
April 6, 2011, a day after this petition for review was filed, cancelling and revoking the FTAAs, quoting the Order of the
POA and stating that petitioners are foreign corporations since they needed the financial strength of MBMI, Inc. in order to
conduct large scale mining operations. The OP Decision also based the cancellation on the misrepresentation of facts and
the violation of the "Small Scale Mining Law and Environmental Compliance Certificate as well as Sections 3 and 8 of the
Foreign Investment Act and E.O. 584."39 On July 6, 2011, the OP issued a Resolution, denying the Motion for
Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact of the OPs Decision
and Resolution. In their Reply, petitioners chose to ignore the OP Decision and continued to reuse their old arguments
claiming that they were granted FTAAs and, thus, the case was moot. Petitioners filed a Manifestation and Submission
dated October 19, 2012,40 wherein they asserted that the present petition is moot since, in a remarkable turn of events,
MBMI was able to sell/assign all its shares/interest in the "holding companies" to DMCI Mining Corporation (DMCI), a
Filipino corporation and, in effect, making their respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case dismissed for being "moot." Their final act,
wherein MBMI was able to allegedly sell/assign all its shares and interest in the petitioner "holding companies" to DMCI,
only proves that they were in fact not Filipino corporations from the start. The recent divesting of interest by MBMI will not
change the stand of this Court with respect to the nationality of petitioners prior the suspicious change in their corporate
structures. The new documents filed by petitioners are factual evidence that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that petitioner corporations have violated
several mining laws and made misrepresentations and falsehood in their applications for FTAA which lead to the
revocation of the said FTAAs, demonstrating that petitioners are not beyond going against or around the law using shifty
actions and strategies. Thus, in this instance, we can say that their claim of mootness is moot in itself because their
defense of conversion of MPSAs to FTAAs has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners nationality, whether Filipino or foreign. In their previous
petitions, they had been adamant in insisting that they were Filipino corporations, until they submitted their Manifestation
and Submission dated October 19, 2012 where they stated the alleged change of corporate ownership to reflect their
Filipino ownership. Thus, there is a need to determine the nationality of petitioner corporations.
Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the
grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented
the requirement of the Constitution and other laws pertaining to the controlling interests in enterprises engaged in the
exploitation of natural resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.
Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or

capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if
less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging
to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at least 60%
of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality," pertains to the control
test or the liberal rule. On the other hand, the second part of the DOJ Opinion which provides, "if the percentage of the
Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in advocating the application of the "control test" under RA
7042, as amended by RA 8179, otherwise known as the Foreign Investments Act (FIA), rather than using the stricter
grandfather rule. The pertinent provision under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or association wholly
owned by the citizens of the Philippines; a corporation organized under the laws of the Philippines of which at least sixty
percent (60%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for
pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That were a corporation and its nonFilipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held
by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors, in order that the
corporation shall be considered a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a "Philippine
National" under Sec. 3 of the FIA does not provide for it. They further claim that the grandfather rule "has been abandoned
and is no longer the applicable rule."41 They also opined that the last portion of Sec. 3 of the FIA admits the application of
a "corporate layering" scheme of corporations. Petitioners claim that the clear and unambiguous wordings of the statute
preclude the court from construing it and prevent the courts use of discretion in applying the law. They said that the plain,
literal meaning of the statute meant the application of the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution and
pertinent laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has already
been abandoned must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential
energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the
exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture or production-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and
under such terms and conditions as may be provided by law.
xxxx
The President may enter into agreements with Foreign-owned corporations involving either technical or financial
assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by law, based on real contributions to the economic growth and
general welfare of the country. In such agreements, the State shall promote the development and use of local scientific
and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into different types of agreements for the
exploration, development, and utilization of natural resources with entities who are deemed Filipino due to 60 percent
ownership of capital is pertinent to this case, since the issues are centered on the utilization of our countrys natural

resources or specifically, mining. Thus, there is a need to ascertain the nationality of petitioners since, as the Constitution
so provides, such agreements are only allowed corporations or associations "at least 60 percent of such capital is owned
by such citizens." The deliberations in the Records of the 1986 Constitutional Commission shed light on how a citizenship
of a corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairmans interpretation of an independent national economy is freedom from
undue foreign control? What is the meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and the welfare of the
Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not simply freedom from foreign
control? I think that is the meaning of independence, because as phrased, it still allows for foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain the 60/40 possibility in the
cultivation of natural resources, 40 percent involves some control; not total control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in
Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the question: Where do we base the equity requirement, is it
on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation? Will the
Committee please enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the members of the team from the UP Law Center who provided
us with a draft. The phrase that is contained here which we adopted from the UP draft is 60 percent of the voting stock.
MR. NOLLEDO: That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital
stock shall be entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity
invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather
rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases where
corporate layering is present.

Elementary in statutory construction is when there is conflict between the Constitution and a statute, the Constitution will
prevail. In this instance, specifically pertaining to the provisions under Art. XII of the Constitution on National Economy and
Patrimony, Sec. 3 of the FIA will have no place of application. As decreed by the honorable framers of our Constitution, the
grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a corporation for purposes,
among others, of determining compliance with nationality requirements (the Investee Corporation). Such manner of
computation is necessary since the shares in the Investee Corporation may be owned both by individual stockholders
(Investing Individuals) and by corporations and partnerships (Investing Corporation). The said rules thus provide for the
determination of nationality depending on the ownership of the Investee Corporation and, in certain instances, the
Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee Corporation. The
first case is the liberal rule, later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains to the
portion in said Paragraph 7 of the 1967 SEC Rules which states, (s)hares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality. Under the
liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino stockholdings of the
Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of the
1967 SEC Rules which states, "but if the percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality." Under
the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee Corporation
must be traced (i.e., "grandfathered") to determine the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and
added to the shares directly owned in the Investee Corporation x x x.
xxxx
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule
applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation
with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture
corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipinoforeign equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied)
After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the grandfather
rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate ownership of
petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur
and Tesoro, since their common investor, the 100% Canadian corporationMBMI, funded them. However, petitioners
also claim that there is "doubt" only when the stockholdings of Filipinos are less than 60%. 43
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this Court.
DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where "doubt" as to
the ownership of the corporation exists. It would be ludicrous to limit the application of the said word only to the instances
where the stockholdings of non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The
corporations interested in circumventing our laws would clearly strive to have "60% Filipino Ownership" at face value. It
would be senseless for these applying corporations to state in their respective articles of incorporation that they have less
than 60% Filipino stockholders since the applications will be denied instantly. Thus, various corporate schemes and
layerings are utilized to circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law,
creating a cloud of doubt in the Courts mind. To determine, therefore, the actual participation, direct or indirect, of MBMI,
the grandfather rule must be used.
McArthur Mining, Inc.

To establish the actual ownership, interest or participation of MBMI in each of petitioners corporate structure, they have to
be "grandfathered."
As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its application from SMMI.
McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided into 10,000 common shares at one thousand
pesos (PhP 1,000) per share, subscribed to by the following: 44
Name

Nationality

Number of
Shares

Amount
Subscribed

Amount Paid

Madridejos Mining
Corporation

Filipino

5,997

PhP 5,997,000.00

PhP 825,000.00

MBMI Resources,
Inc.

Canadian

3,998

PhP 3,998,000.0

PhP 1,878,174.60

Lauro L. Salazar

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando B.
Esguerra

Filipino

PhP 1,000.00

PhP 1,000.00

Manuel A. Agcaoili

Filipino

PhP 1,000.00

PhP 1,000.00

Michael T. Mason

American

PhP 1,000.00

PhP 1,000.00

Kenneth Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP 10,000,000.00

PhP 2,708,174.60
(emphasis supplied)

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

Nationality

Number of
Shares

Amount
Subscribed

Olympic Mines &

Filipino

6,663

PhP 6,663,000.00

Amount Paid

PhP 0
Development
Corp.
MBMI
Resources,

Canadian

3,331

PhP 3,331,000.00

PhP 2,803,900.00

Amanti Limson

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando B.

Filipino

PhP 1,000.00

PhP 1,000.00

Lauro Salazar

Filipino

PhP 1,000.00

PhP 1,000.00

Emmanuel G.

Filipino

PhP 1,000.00

PhP 1,000.00

Inc.

Esguerra

Hernando
Michael T. Mason

American

PhP 1,000.00

PhP 1,000.00

Kenneth Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP 10,000,000.00

PhP 2,809,900.00
(emphasis supplied)

Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect to the number of
shares they subscribed to in the corporation, which is quite absurd since Olympic is the major stockholder in MMC.
MBMIs 2006 Annual Report sheds light on why Olympic failed to pay any amount with respect to the number of shares it
subscribed to. It states that Olympic entered into joint venture agreements with several Philippine companies, wherein it
holds directly and indirectly a 60% effective equity interest in the Olympic Properties. 46 Quoting the said Annual report:
On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") entered into a series of
agreements including a Property Purchase and Development Agreement (the Transaction Documents) with respect to
three nickel laterite properties in Palawan, Philippines (the "Olympic Properties"). The Transaction Documents effectively
establish a joint venture between the Company and Olympic for purposes of developing the Olympic Properties. The
Company holds directly and indirectly an initial 60% interest in the joint venture. Under certain circumstances and upon
achieving certain milestones, the Company may earn up to a 100% interest, subject to a 2.5% net revenue
royalty.47 (emphasis supplied)
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized by
MBMI to gain control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur,
making the latter a foreign corporation.
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP 10,000,000) divided
into ten thousand (10,000) common shares at PhP 1,000 per share, as demonstrated below:
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name

Number of

Amount

Shares

Subscribed

Filipino

5,997

PhP 5,997,000.00

PhP 825,000.00

Canadian

3,998

PhP 3,998,000.00

PhP 1,878,174.60

Lauro L. Salazar

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando B.

Filipino

PhP 1,000.00

PhP 1,000.00

Sara Marie

Nationality

Amount Paid

Mining, Inc.
MBMI
Resources, Inc.

Esguerra
Manuel A.

Filipino

PhP 1,000.00

PhP 1,000.00

Michael T. Mason

American

PhP 1,000.00

PhP 1,000.00

Kenneth Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP 10,000,000.00

PhP 2,708,174.60

Agcaoili

(emphasis supplied)

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate structure
of petitioner McArthur, down to the last centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra,
Agcaoili, Mason and Cawkell. The figures under "Nationality," "Number of Shares," "Amount Subscribed," and "Amount
Paid" are exactly the same. Delving deeper, we scrutinize SMMIs corporate structure:
Sara Marie Mining, Inc.
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name

Number of

Amount

Shares

Subscribed

Filipino

6,663

PhP 6,663,000.00

PhP 0

Canadian

3,331

PhP 3,331,000.00

PhP 2,794,000.00

Amanti Limson

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando B.

Filipino

PhP 1,000.00

PhP 1,000.00

Lauro Salazar

Filipino

PhP 1,000.00

PhP 1,000.00

Emmanuel G.

Filipino

PhP 1,000.00

PhP 1,000.00

Olympic Mines &

Nationality

Amount Paid

Development
Corp.
MBMI Resources,
Inc.

Esguerra

Hernando
Michael T. Mason

American

PhP 1,000.00

PhP 1,000.00

Kenneth Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP 10,000,000.00

PhP 2,809,900.00
(emphasis supplied)

After subsequently studying SMMIs corporate structure, it is not farfetched for us to spot the glaring similarity between
SMMI and MMCs corporate structure. Again, the presence of identical stockholders, namely: Olympic, MBMI, Amanti
Limson (Limson), Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the headings "Nationality,"
"Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same except for the amount paid by MBMI
which now reflects the amount of two million seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly, the total
value of the amount paid is two million eight hundred nine thousand nine hundred pesos (PhP 2,809,900).
Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympics participation in SMMIs corporate structure,
it is clear that MBMI is in control of Tesoro and owns 60% or more equity interest in Tesoro. This makes petitioner Tesoro a
non-Filipino corporation and, thus, disqualifies it to participate in the exploitation, utilization and development of our
natural resources.
Narra Nickel Mining and Development Corporation
Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDCs MPSA application, whose
corporate structures arrangement is similar to that of the first two petitioners discussed. The capital stock of Narra is ten
million pesos (PhP 10,000,000), which is divided into ten thousand common shares (10,000) at one thousand pesos (PhP
1,000) per share, shown as follows:
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name

Patricia Louise

Nationality

Number of

Amount

Amount Paid

Shares

Subscribed

Filipino

5,997

PhP 5,997,000.00

PhP 1,677,000.00

Canadian

3,998

PhP 3,996,000.00

PhP 1,116,000.00

Filipino

PhP 1,000.00

PhP 1,000.00

Mining &
Development
Corp.
MBMI
Resources, Inc.
Higinio C.

Mendoza, Jr.
Henry E.

Filipino

PhP 1,000.00

PhP 1,000.00

Filipino

PhP 1,000.00

PhP 1,000.00

Filipino

PhP 1,000.00

PhP 1,000.00

Filipino

PhP 1,000.00

PhP 1,000.00

American

PhP 1,000.00

PhP 1,000.00

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP 10,000,000.00

PhP 2,800,000.00
(emphasis supplied)

Fernandez
Manuel A.
Agcaoili
Ma. Elena A.
Bocalan
Bayani H. Agabin
Robert L.
McCurdy
Kenneth Cawkell

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this corporate
structure.
Patricia Louise Mining & Development Corporation
Using the grandfather method, we further look and examine PLMDCs corporate structure:
Name

Nationality
Number of
Shares

Palawan Alpha South Resources

Development Corporation

Amount
Subscribed

Amount Paid

Filipino

6,596

PhP
6,596,000.00

PhP 0

Canadian

3,396

PhP
3,396,000.00

PhP
2,796,000.00

Higinio C. Mendoza, Jr.

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando B. Esguerra

Filipino

PhP 1,000.00

PhP 1,000.00

Henry E. Fernandez

Filipino

PhP 1,000.00

PhP 1,000.00

Lauro L. Salazar

Filipino

PhP 1,000.00

PhP 1,000.00

Manuel A. Agcaoili

Filipino

PhP 1,000.00

PhP 1,000.00

MBMI Resources,
Inc.

Bayani H. Agabin

Filipino

PhP 1,000.00

PhP 1,000.00

Michael T. Mason

American

PhP 1,000.00

PhP 1,000.00

Kenneth Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP
10,000,000.00

PhP
2,708,174.60
(emphasis
supplied)

Yet again, the usual players in petitioners corporate structures are present. Similarly, the amount of money paid by the
2nd tier majority stock holder, in this case, Palawan Alpha South Resources and Development Corp. (PASRDC), is zero.
Studying MBMIs Summary of Significant Accounting Policies dated October 31, 2005 explains the reason behind the
intricate corporate layering that MBMI immersed itself in:
JOINT VENTURES The Companys ownership interests in various mining ventures engaged in the acquisition, exploration
and development of mineral properties in the Philippines is described as follows:
(a) Olympic Group
The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as follows:
Olympic- Philippines (the "Olympic Group")
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective equity interest in
the Olympic Property of 60.0%. Pursuant to a shareholders agreement, the Company exercises joint control over the
companies in the Olympic Group.
(b) Alpha Group
The Philippine companies holding the Alpha Property, and the ownership interests therein, are as follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Under a joint venture agreement the Company holds directly and indirectly an effective equity interest in the Alpha
Property of 60.4%. Pursuant to a shareholders agreement, the Company exercises joint control over the companies in the
Alpha Group.48 (emphasis supplied)
Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not Filipino
since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from
grandfathering petitioners corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding to the picture,
MBMIs Summary of Significant Accounting Policies statement regarding the "joint venture" agreements that it entered
into with the "Olympic" and "Alpha" groupsinvolves SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership of the
"layered" corporations boils down to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has joint
venture agreements with, practically exercising majority control over the corporations mentioned. In effect, whether
looking at the capital structure or the underlying relationships between and among the corporations, petitioners are NOT
Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are owned
by MBMI.

Application of the res inter alios acta rule

Petitioners question the CAs use of the exception of the res inter alios acta or the "admission by co-partner or agent" rule
and "admission by privies" under the Rules of Court in the instant case, by pointing out that statements made by MBMI
should not be admitted in this case since it is not a party to the case and that it is not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the party within the scope of his
authority and during the existence of the partnership or agency, may be given in evidence against such party after the
partnership or agency is shown by evidence other than such act or declaration itself. The same rule applies to the act or
declaration of a joint owner, joint debtor, or other person jointly interested with the party.
Sec. 31. Admission by privies.- Where one derives title to property from another, the act, declaration, or omission of the
latter, while holding the title, in relation to the property, is evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership relation must be shown,
and that proof of the fact must be made by evidence other than the admission itself." 49 Thus, petitioners assert that the CA
erred in finding that a partnership relationship exists between them and MBMI because, in fact, no such partnership
exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint
venture, MBMI have a joint interest" with Narra, Tesoro and McArthur. They challenged the conclusion of the CA which
pertains to the close characteristics of
"partnerships" and "joint venture agreements." Further, they asserted that before this particular partnership can be formed,
it should have been formally reduced into writing since the capital involved is more than three thousand pesos (PhP
3,000). Being that there is no evidence of written agreement to form a partnership between petitioners and MBMI, no
partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among themselves. 50 On the other hand, joint ventures have been
deemed to be "akin" to partnerships since it is difficult to distinguish between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a
partnership that it is ordinarily held that their rights, duties, and liabilities are to be tested by rules which are closely
analogous to and substantially the same, if not exactly the same, as those which govern partnership. In fact, it has been
said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law
being found applicable to one that does not apply to the other.51
Though some claim that partnerships and joint ventures are totally different animals, there are very few rules that
differentiate one from the other; thus, joint ventures are deemed "akin" or similar to a partnership. In fact, in joint venture
agreements, rules and legal incidents governing partnerships are applied. 52
Accordingly, culled from the incidents and records of this case, it can be assumed that the relationships entered between
and among petitioners and MBMI are no simple "joint venture agreements." As a rule, corporations are prohibited from
entering into partnership agreements; consequently, corporations enter into joint venture agreements with other
corporations or partnerships for certain transactions in order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was executed to circumvent
the legal prohibition against corporations entering into partnerships, then the relationship created should be deemed as
"partnerships," and the laws on partnership should be applied. Thus, a joint venture agreement between and among
corporations may be seen as similar to partnerships since the elements of partnership are present.

Considering that the relationships found between petitioners and MBMI are considered to be partnerships, then the CA is
justified in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint venture, MBMI have a joint
interest" with Narra, Tesoro and McArthur.
Panel of Arbitrators jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The POA has jurisdiction to
settle disputes over rights to mining areas which definitely involve the petitions filed by Redmont against petitioners Narra,
McArthur and Tesoro. Redmont, by filing its petition against petitioners, is asserting the right of Filipinos over mining areas
in the Philippines against alleged foreign-owned mining corporations. Such claim constitutes a "dispute" found in Sec. 77
of RA 7942:
Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have exclusive and
original jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.: 53
The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or opposition to an application
for mineral agreement. The POA therefore has the jurisdiction to resolve any adverse claim, protest, or opposition to a
pending application for a mineral agreement filed with the concerned Regional Office of the MGB. This is clear from Secs.
38 and 41 of the DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the authorized officer(s) of
the concerned office(s) shall issue a certification(s) that the publication/posting/radio announcement have been complied
with. Any adverse claim, protest, opposition shall be filed directly, within thirty (30) calendar days from the last date of
publication/posting/radio announcement, with the concerned Regional Office or through any concerned PENRO or
CENRO for filing in the concerned Regional Office for purposes of its resolution by the Panel of Arbitrators pursuant to the
provisions of this Act and these implementing rules and regulations. Upon final resolution of any adverse claim, protest or
opposition, the Panel of Arbitrators shall likewise issue a certification to that effect within five (5) working days from the
date of finality of resolution thereof. Where there is no adverse claim, protest or opposition, the Panel of Arbitrators shall
likewise issue a Certification to that effect within five working days therefrom.
xxxx
No Mineral Agreement shall be approved unless the requirements under this Section are fully complied with and any
adverse claim/protest/opposition is finally resolved by the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification issued by the Panel of Arbitrators as provided in
Section 38 hereof, the concerned Regional Director shall initially evaluate the Mineral Agreement applications in areas
outside Mineral reservations. He/She shall thereafter endorse his/her findings to the Bureau for further evaluation by the
Director within fifteen (15) working days from receipt of forwarded documents. Thereafter, the Director shall endorse the
same to the secretary for consideration/approval within fifteen working days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15) working days from receipt
of the Certification issued by the Panel of Arbitrators as provided for in Section 38 hereof, the same shall be evaluated
and endorsed by the Director to the Secretary for consideration/approval within fifteen days from receipt of such
endorsement. (emphasis supplied)

It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under Sec. 77(a)
specifically refer only to those disputes relative to the applications for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further elucidated
by Secs. 219 and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57
above, any adverse claim, protest or opposition specified in said sections may also be filed directly with the Panel of
Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.xxxx
The Regional Director or concerned Regional Director shall also cause the posting of the application on the bulletin
boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and municipality(ies), copy furnished
the barangays where the proposed contract area is located once a week for two (2) consecutive weeks in a language
generally understood in the locality. After forty-five (45) days from the last date of publication/posting has been made and
no adverse claim, protest or opposition was filed within the said forty-five (45) days, the concerned offices shall issue a
certification that publication/posting has been made and that no adverse claim, protest or opposition of whatever nature
has been filed. On the other hand, if there be any adverse claim, protest or opposition, the same shall be filed within fortyfive (45) days from the last date of publication/posting, with the Regional Offices concerned, or through the Departments
Community Environment and Natural Resources Officers (CENRO) or Provincial Environment and Natural Resources
Officers (PENRO), to be filed at the Regional Office for resolution of the Panel of Arbitrators. However previously
published valid and subsisting mining claims are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of Arbitrators. (Emphasis
supplied.)
It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under Sec. 77(a)
specifically refer only to those disputes relative to the applications for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further elucidated
by Secs. 219 and 43 of DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57
above, any adverse claim, protest or opposition specified in said sections may also be filed directly with the Panel of
Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.xxxx
The Regional Director or concerned Regional Director shall also cause the posting of the application on the bulletin
boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and municipality(ies), copy furnished
the barangays where the proposed contract area is located once a week for two (2) consecutive weeks in a language
generally understood in the locality. After forty-five (45) days from the last date of publication/posting has been made and
no adverse claim, protest or opposition was filed within the said forty-five (45) days, the concerned offices shall issue a
certification that publication/posting has been made and that no adverse claim, protest or opposition of whatever nature
has been filed. On the other hand, if there be any adverse claim, protest or opposition, the same shall be filed within fortyfive (45) days from the last date of publication/posting, with the Regional offices concerned, or through the Departments
Community Environment and Natural Resources Officers (CENRO) or Provincial Environment and Natural Resources
Officers (PENRO), to be filed at the Regional Office for resolution of the Panel of Arbitrators. However, previously
published valid and subsisting mining claims are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of Arbitrators. (Emphasis
supplied.)

These provisions lead us to conclude that the power of the POA to resolve any adverse claim, opposition, or protest
relative to mining rights under Sec. 77(a) of RA 7942 is confined only to adverse claims, conflicts and oppositions relating
to applications for the grant of mineral rights.
POAs jurisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions and it has no authority
to approve or reject said applications. Such power is vested in the DENR Secretary upon recommendation of the MGB
Director. Clearly, POAs jurisdiction over "disputes involving rights to mining areas" has nothing to do with the cancellation
of existing mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve disputes over MPSA
applications subject of Redmonts petitions. However, said jurisdiction does not include either the approval or rejection of
the MPSA applications, which is vested only upon the Secretary of the DENR. Thus, the finding of the POA, with respect
to the rejection of petitioners MPSA applications being that they are foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the POA, that has jurisdiction
over the MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute in force at the time of the commencement of the
action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall exercise exclusive original jurisdiction:
1. In all civil actions in which the subject of the litigation is incapable of pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.
x x x Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have
exclusive and original jurisdiction to hear and decide the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights to mining areas. One
such dispute is an MPSA application to which an adverse claim, protest or opposition is filed by another interested
applicant.1wphi1 In the case at bar, the dispute arose or originated from MPSA applications where petitioners are
asserting their rights to mining areas subject of their respective MPSA applications. Since respondent filed 3 separate
petitions for the denial of said applications, then a controversy has developed between the parties and it is POAs
jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the DENR Regional Office or
any concerned DENRE or CENRO are MPSA applications. Thus POA has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction. Euro-med
Laboratories v. Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that its determination requires the expertise, specialized
training and knowledge of an administrative body, relief must first be obtained in an administrative proceeding before
resort to the courts is had even if the matter may well be within their proper jurisdiction.

Whatever may be the decision of the POA will eventually reach the court system via a resort to the CA and to this Court as
a last recourse.
Selling of MBMIs shares to DMCI
As stated before, petitioners Manifestation and Submission dated October 19, 2012 would want us to declare the instant
petition moot and academic due to the transfer and conveyance of all the shareholdings and interests of MBMI to DMCI, a
corporation duly organized and existing under Philippine laws and is at least 60% Philippine-owned. 56 Petitioners
reasoned that they now cannot be considered as foreign-owned; the transfer of their shares supposedly cured the "defect"
of their previous nationality. They claimed that their current FTAA contract with the State should stand since "even whollyowned foreign corporations can enter into an FTAA with the State." 57Petitioners stress that there should no longer be any
issue left as regards their qualification to enter into FTAA contracts since they are qualified to engage in mining activities in
the Philippines. Thus, whether the "grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be
doubted since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said fact should be
disregarded. The manifestation can no longer be considered by us since it is being tackled in G.R. No. 202877 pending
before this Court.1wphi1 Thus, the question of whether petitioners, allegedly a Philippine-owned corporation due to the
sale of MBMI's shareholdings to DMCI, are allowed to enter into FTAAs with the State is a non-issue in this case.
In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation,
within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and
utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt, based on the attendant
facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the
"grandfather rule."
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals Decision dated
October 1, 2010 and Resolution dated February 15, 2011 are hereby AFFIRMED.
SO ORDERED.