LARGO, MA. VIDIA B.

1. Cease v. CA, GR NO. 33172, October 18, 1979

 2. Jaka Investments Corp. v. CIR, GR No. 147629, July 28, 2010 
3. PMI Colleges v. NLRC, GR NO. 121466, August 15, 1997
4. Wilson P. Gamboa vs. Finance Secretary Margarito B. Teves, et al.,
G.R. No. 176579, June 28, 2011
5. Palm Avenue Holding Co., Inc and Palm Avenue Realty and
Development Corporation vs. Sandiganbayan, G.R. No. 173082,
August 6, 2014

CEASE VS CA (G.R. NO. L-33172 OCTOBER 18, 1979)

Cease vs Court of Appeals

G.R. No. L-33172 October 18, 1979

Facts: sometime in June 1908, one Forrest L. Cease common predecessor

in interest of the parties together with five (5) other American citizens
organized the Tiaong Milling and Plantation Company and in the course of
its corporate existence the company acquired various properties but at the
same time all the other original incorporators were bought out by Forrest L.
Cease together with his children namely Ernest, Cecilia, Teresita,
Benjamin, Florence and one Bonifacia Tirante also considered a member
of the family; the charter of the company lapsed in June 1958; but whether
there were steps to liquidate it, the record is silent; on 13 August 1959,
Forrest L. Cease died and by extrajudicial partition of his shares, among
the children, this was disposed of on 19 October 1959; it was here where
the trouble among them came to arise because it would appear that
Benjamin and Florence wanted an actual division while the other children
wanted reincorporation; and proceeding on that, these other children
Ernesto, Teresita and Cecilia and aforementioned other stockholder
Bonifacia Tirante proceeded to incorporate themselves into the F.L. Cease
Plantation Company and registered it with the Securities and Exchange
Commission on 9 December, 1959; apparently in view of that, Benjamin
and Florence for their part initiated a Special Proceeding No. 3893 of the
Court of First Instance of Tayabas for the settlement of the estate of Forest
L. Cease on 21 April, 1960 and one month afterwards on 19 May 1960 they
filed Civil Case No. 6326 against Ernesto, Teresita and Cecilia Cease
together with Bonifacia Tirante asking that the Tiaong Milling and Plantation
Corporation be declared Identical to F.L. Cease and that its properties be
divided among his children as his intestate heirs; this Civil Case was
resisted by aforestated defendants and notwithstanding efforts of the
plaintiffs to have the properties placed under receivership, they were not
able to succeed because defendants filed a bond to remain as they have
remained in possession; after that and already, during the pendency of Civil
Case No. 6326 specifically on 21 May, 1961 apparently on the eve of the
expiry of the three (3) year period provided by the law for the liquidation of
corporations, the board of liquidators of Tiaong Milling executed an
assignment and conveyance of properties and trust agreement in favor of
F.L. Cease Plantation Co. Inc. as trustee of the Tiaong Milling and
Plantation Co. so that upon motion of the plaintiffs trial Judge ordered that
this alleged trustee be also included as party defendant; now this being the
situation, it will be remembered that there were thus two (2) proceedings
pending in the Court of First Instance of Quezon namely Civil Case No.
6326 and Special Proceeding No. 3893 but both of these were assigned to
the Honorable Respondent Judge Manolo L. Maddela p. 43 and the case
was finally heard and submitted upon stipulation of facts pp, 34-110, rollo;
and trial Judge by decision dated 27 December 1969 held for the plaintiffs
Benjamin and Florence.
 
Issue: Whether or not the properties of the Tiaong Milling and Plantation
Company forms part of the estate of the deceased Forrest L. Cease.
 
Held: Yes. The theory of “merger of Forrest L. Cease and The Tiaong
Milling as one personality”, or that “the company is only the business
conduit and alter ego of the deceased Forrest L. Cease and the registered
properties of Tiaong Milling are actually properties of Forrest L. Cease and
should be divided equally, share and share alike among his six children, …
“, the trial court did aptly apply the familiar exception to the general rule by
disregarding the legal fiction of distinct and separate corporate personality
and regarding the corporation and the individual member one and the
same.
 
It must be remembered that when Tiaong Milling adduced its defense and
raised the issue of ownership, its corporate existence already terminated
through the expiration of its charter. It is clear in Section 77 of Act No. 1459
(Corporation Law) that upon the expiration of the charter period, the
corporation ceases to exist and is dissolved ipso facto except for purposes
connected with the winding up and liquidation. The provision allows a three
year, period from expiration of the charter within which the entity gradually
settles and closes its affairs, disposes and convey its property and to divide
its capital stock, but not for the purpose of continuing the business for
which it was established. At this terminal stage of its existence, Tiaong
Milling may no longer persist to maintain adverse title and ownership of the
corporate assets as against the prospective distributees when at this time it
merely holds the property in trust, its assertion of ownership is not only a
legal contradiction, but more so, to allow it to maintain adverse interest
would certainly thwart the very purpose of liquidation and the final distribute
loll of the assets to the proper, parties.  
 
While the records showed that originally its incorporators were aliens,
friends or third-parties in relation of one to another, in the course of its
existence, it developed into a close family corporation. The Board of
Directors and stockholders belong to one family the head of which Forrest
L. Cease always retained the majority stocks and hence the control and
management of its affairs. In fact, during the reconstruction of its records in
1947 before the Security and Exchange Commission only 9 nominal shares
out of 300 appears in the name of his 3 eldest children then and another
person close to them. It is likewise noteworthy to observe that as his
children increase or perhaps become of age, he continued distributing his
shares among them adding Florence, Teresa and Marion until at the time of
his death only 190 were left to his name. Definitely, only the members of
his family benefited from the Corporation.
 
The accounts of the corporation and therefore its operation, as well as that
of the family appears to be indistinguishable and apparently joined
together. As admitted by the defendants corporation ‘never’ had any
account with any banking institution or if any account was carried in a bank
on its behalf, it was in the name of Mr. Forrest L. Cease. In brief, the
operation of the Corporation is merged with those of the majority
stockholders, the latter using the former as his instrumentality and for the
exclusive benefits of all his family. From the foregoing indication, therefore,
there is truth in plaintiff’s allegation that the corporation is only a business
conduit of his father and an extension of his personality, they are one and
the same thing. Thus, the assets of the corporation are also the estate of
Forrest L. Cease, the father of the parties herein who are all legitimate
children of full blood.  
 
A rich store of jurisprudence has established the rule known as the doctrine
of disregarding or piercing the veil of corporate fiction. Generally, a
corporation is invested by law with a personality separate and distinct from
that of the persons composing it as well as from that of any other legal
entity to which it may be related. By virtue of this attribute, a corporation
may not, generally, be made to answer for acts or liabilities of its
stockholders or those of the legal entities to which it may be connected,
and vice versa. This separate and distinct personality is, however, merely a
fiction created by law for convenience and to promote the ends of justice.
For this reason, it may not be used or invoked for ends subversive of the
policy and purpose behind its creation. This is particularly true where the
fiction is used to defeat public convenience, justify wrong, protect fraud,
defend crime, confuse legitimate legal or judicial issues , perpetrate
deception or otherwise circumvent the law. This is likewise true where the
corporate entity is being used as an alter ego, adjunct, or business conduit
for the sole benefit of the stockholders or of another corporate entity.

JAKA INVESTMENTS CORPORATION v. VS.CIR, GR No. 147629, 2010-

07-28
Facts:
Sometime in 1994, petitioner sought to invest in JAKA Equities
Corporation (JEC), which was then planning to undertake an initial
public offering (IPO) and listing of its shares of stock with the
Philippine Stock Exchange.  JEC increased its authorized capital
stock... from One Hundred Eighty-Five Million Pesos
(P185,000,000.00) to Two Billion Pesos (P2,000,000,000.00).  Petitioner
proposed to subscribe to Five Hundred Eight Million Eight Hundred
Six Thousand Two Hundred Pesos (P508,806,200.00) out of the
increase in the authorized... capital stock of JEC through a tax-free
exchange under Section 34(c)(2) of the National Internal Revenue
Code (NIRC) of 1977, as amended, which was effected by the
execution of a Subscription Agreement and Deed of Assignment of
Property in Payment of Subscription.
The intended IPO and listing of shares of JEC did not materialize.
However, JEC still decided to proceed with the increase in its
authorized capital stock and petitioner agreed to subscribe thereto,
but under different terms of payment.  Thus, petitioner and JEC
executed... the Amended Subscription Agreement
On October 14, 1994, petitioner paid One Million Three Thousand
Eight Hundred Ninety-Five Pesos and Sixty-Five Centavos
(P1,003,895.65) for basic documentary stamp tax inclusive of the 25%
surcharge for late payment on the Amended Subscription Agreement
Petitioner, after seeing the RDO's certifications, the total amount of
which was less than the actual amount it had paid as documentary
stamp tax, concluded that it had overpaid.  Petitioner subsequently
sought a refund for the alleged excess documentary stamp tax and...
surcharges it had paid on the Amended Subscription Agreement in
the amount of Four Hundred Ten Thousand Three Hundred Sixty-
Seven Pesos (P410,367.00)
On October 11, 1996, petitioner filed a petition for refund before the
Court of Tax Appeals
The Court of Tax Appeals likewise denied... petitioner's Motion for
Reconsideration
Petitioner appealed to the Court of Appeals by way of petition for
review.  The Court of Appeals sustained the Court of Tax Appeals in
its Decision
Petitioner's main contention in this claim for refund is that the tax
base for the documentary stamp tax on the Amended Subscription
Agreement should have been only the shares of stock in RGHC, PGCI,
and UCPB that petitioner had transferred to JEC as payment for its
subscription... to the JEC shares, and should not have included the
cash portion of its payment, based on Section 176 of the National
Internal Revenue Code
Petitioner argues that the cash component of its payment for its
subscription to the JEC shares, totaling Three Hundred Seventy
Million Seven Hundred Sixty-Six Thousand Pesos (P370,766,000.00)
should not have been charged any documentary stamp... tax. 
Petitioner claims that there was overpayment because the tax due on
the transferred shares was only Five Hundred Ninety-Three Thousand
Five Hundred Twenty-Eight and 15/100 Pesos (P593,528.15), as
indicated in the certifications issued by RDO Esquivias.
Respondent maintains that the documentary stamp tax imposed in
this case is on the original issue of certificates of stock of JEC on the
subscription by the petitioner of the P508,806,200.00 shares out of the
increase in the authorized capital stock of the former pursuant to
Section 175 of the NIRC.  The documentary stamp tax was not
imposed on the shares of stock owned by petitioner in RGHC, PGCI,
and UCPB, which merely form part of the partial payment of the
subscribed shares in JEC.
Respondent stresses that the documentary stamp tax can be levied or
collected from the person making, signing, issuing, accepting, or
transferring the obligation or property, as provided in Section 173 of
the Tax Code.
Issues:
whether petitioner is entitled to a partial refund of the documentary
stamp tax and surcharges it paid on the execution of the Amended
Subscription Agreement.
Ruling:
In claims for refund, the burden of proof is on the taxpayer to prove
entitlement to such refund.
It was thus incumbent upon petitioner to show clearly its basis for
claiming that it is entitled to a tax refund.  This, to our mind, the
petitioner failed to do.
We find nothing ambiguous nor obscure in the language of Section
173, taken in relation to Section 175 of the 1994 Tax Code x x x insofar
as the same is brought to bear upon the circumstances in the instant
case.  These provisions furnish the best means of their own...
exposition that a documentary stamp tax (DST) is due and payable on
documents, instruments, loan agreements and papers, acceptances,
assignments, sales and transfers which evidenced the transaction
agreed upon by the parties and should be paid by the person making,
signing,... issuing, accepting or transferring the property, right or
obligation.
Understood to mean what it plainly expressed, the DST imposition is
essentially addressed and directly brought to bear upon the
DOCUMENT evidencing the transaction of the parties which
establishes its rights and obligations.
In the case at bar, the rights and obligations between petitioner JAKA
Investments Corporation and JAKA Equities Corporation are
established and enforceable at the time the "Amended Subscription
Agreement and Deed of Assignment of Property in Payment of
Subscription" were signed... by the parties and their witness, so is the
right of the state to tax the aforestated document evidencing the
transaction.  DST is a tax on the document itself and therefore the rate
of tax must be determined on the basis of what is written or indicated
on the instrument... itself independent of any adjustment which the
parties may agree on in the future
Petitioner alleges, though, that considering that the assessment of
payment of documentary stamp tax was made payable only to the
aforesaid issuances of certificates of [stock] exclusive of that of
FEBTC shares of stock which were paid in cash, and that it has paid
a... total of Php1,003,895.65 inclusive of surcharges for late payment,
the petitioner is entitled to a refund of Php410,367.00.  This argument
does not hold water.  As discussed earlier, a documentary stamp is
levied upon the privilege, the opportunity and the facility... offered at
exchanges for the transaction of the business.  This being the case,
and as correctly found by the tax court, the documentary stamp tax
imposition is essentially addressed and directly brought to bear upon
the document evidencing the transaction of the parties... which
establishes its rights and obligations, which in the case at bar, was
established and enforceable upon the execution of the Amended
Subscription Agreement and Deed of Assignment of Property in
Payment of Subscription.
A documentary stamp tax is in the nature of an excise tax. It is not
imposed upon the business transacted but is an excise upon the
privilege, opportunity or facility offered at exchanges for the
transaction of the business. It is an excise upon the facilities used in
the... transaction of the business separate and apart from the
business itself.  Documentary stamp taxes are levied on the exercise
by persons of certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships through the
execution of... specific instruments.
Thus, we have held that documentary stamp taxes are levied
independently of the legal status of the transactions giving rise
thereto. The documentary stamp taxes must be paid upon the
issuance of the said instruments, without regard to whether the
contracts... which gave rise to them are rescissible, void, voidable, or
unenforceable.
Petitioner claims overpayment of the documentary stamp tax but its
basis for such is not clear at all.  While insisting that the documentary
stamp tax it had paid for was not based on the original issuance of
JEC shares as provided in Section 175 of the 1994 Tax Code,...
petitioner failed in showing, even through a mere basic computation
of the tax base and the tax rate, that the documentary stamp tax was
based on the transfer of shares under Section 176 either.  It would
have been helpful for petitioner's cause had it submitted proof of...
the par value of the shares of stock involved, to show the actual basis
for the documentary stamp tax computation.  For comparison, the
original Subscription Agreement ought to have been submitted as
well.
The fact that it was petitioner and not JEC that paid for the
documentary stamp tax on the original issuance of shares is of no
moment, as Section 173 of the 1994 Tax Code states that the
documentary stamp tax shall be paid by the person making, signing,
issuing, accepting or... transferring the property, right or obligation.

PMI COLLEGES vs. THE NATIONAL LABOR RELATIONS

COMMISSION and ALEJANDRO GALVAN
G.R. No. 121466. August 15, 1997

FACTS:

1. On July 7, 1991, petitioner hired private respondent as contractual

instructor. Pursuant to this engagement, private respondent then
organized classes in marine engineering.
 2. Initially, private respondent and other instructors were compensated
for services rendered during the first three periods of the
abovementioned contract.
3. However, for reasons unknown to private respondent, he stopped
receiving payment for the succeeding rendition of services.
4. This claim of nonpayment was embodied in a letter. However the
salary of private respondent corresponding to the shipyard and plant
visits and the ongoing on the job training of Class 41 on board MV
Sweet Glory of Sweet Lines, Inc. was not yet included.
5. Private respondent’s claims, as expected, were resisted by petitioner.
6. It alleged that classes in the courses offered which complainant
claimed to have remained unpaid were not held or conducted in the
school premises of PMI Colleges.
7. Petitioner maintained that it exercised no appropriate and proper
supervision of the said classes which activities allegedly violated
certain rules and regulations of the DECS.
8. Later in the proceedings, petitioner manifested that Mr. Tomas G.
Cloma, Jr., a member of the petitioners Board of Trustees wrote a
letter to the Chairman of the Board on May 23, 1994, clarifying the
case of private respondent and stating therein, inter alia, that under
petitioners bylaws only the Chairman is authorized to sign any
contract and that private respondent, in any event, failed to submit
documents on the alleged shipyard and plant visits in Cavite Naval
Base.

ISSUE:
            Whether or not the contract of employment is invalid

RULING:
            The court cannot concede that such contract would be invalid just
because the signatory thereon was not the Chairman of the Board which
allegedly violated petitioner’s bylaws. Since bylaws operate merely as
internal rules among the stockholders, they cannot affect or prejudice third
persons who deal with the corporation, unless they have knowledge of the
same. No proof appears on record that private respondent ever knew
anything about the provisions of said bylaws.
 In fact, petitioner itself merely asserts the same without even
bothering to attach a copy or excerpt thereof to show that there is such a
provision. How can it now expect the Labor Arbiter and the NLRC to
believe it? That this allegation has never been denied by private
respondent does not necessarily signify admission of its existence because
technicalities of law and procedure and the rules obtaining in the courts of
law do not strictly apply to proceedings of this nature.

Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al., G.R. No.

176579, June 28, 2011
DECISION

CARPIO, J.:

I.      THE FACTS

This is a petition to nullify the sale of shares of stock of Philippine

Telecommunications Investment Corporation (PTIC) by the government of
the Republic of the Philippines, acting through the Inter-Agency
Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH),
an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-
based investment management and holding company and a shareholder of
the Philippine Long Distance Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved
an indirect sale of 12 million shares (or about 6.3 percent of the outstanding
common shares) of PLDT owned by PTIC to First Pacific. With the this
sale, First Pacific’s common shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the total common shareholdings
of foreigners in PLDT to about 81.47%. This, according to the petitioner,
 violates Section 11, Article XII of the 1987 Philippine Constitution which
limits foreign ownership of the capital of a public utility to not more than
40%, thus:

Section 11. No franchise, certificate, or any other form of

authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens; nor shall
such franchise, certificate, or authorization be exclusive in character or for
a longer period than fifty years. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body
of any public utility enterprise shall be limited to their proportionate share in
its capital, and all the executive and managing officers of such corporation
or association must be citizens of the Philippines. (Emphasis supplied)

II.    THE ISSUE

Does the term “capital” in Section 11, Article XII of the Constitution
refer to the total common shares only, or to the total outstanding capital
stock (combined total of common and non-voting preferred shares) of
PLDT, a public utility?

III.   THE RULING

[The Court partly granted the petition and held that the term “capital”
in Section 11, Article XII of the Constitution refers only to shares of stock
entitled to vote in the election of directors of a public utility, i.e., to the total
common shares in PLDT.]
 Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting
rights, the term “capital” in Section 11, Article XII of the Constitution refers
only to common shares. However, if the preferred shares also have the
right to vote in the election of directors, then the term “capital” shall include
such preferred shares because the right to participate in the control or
management of the corporation is exercised through the right to vote in the
election of directors. In short, the term “capital” in Section 11, Article XII
of the Constitution refers only to shares of stock that can vote in the
election of directors.
   
To construe broadly the term “capital” as the total outstanding capital
stock, including both common and non-voting preferred shares, grossly
contravenes the intent and letter of the Constitution that the “State shall
develop a self-reliant and independent national economy effectively
controlled by Filipinos.” A broad definition unjustifiably disregards who
owns the all-important voting stock, which necessarily equates to control of
the public utility.
   
Holders of PLDT preferred shares are explicitly denied of the right to
vote in the election of directors. PLDT’s Articles of Incorporation expressly
state that “the holders of Serial Preferred Stock shall not be entitled to
vote at any meeting of the stockholders for the election of directors or
for any other purpose or otherwise participate in any action taken by the
corporation or its stockholders, or to receive notice of any meeting of
stockholders.” On the other hand, holders of common shares are granted
the exclusive right to vote in the election of directors. PLDT’s Articles of
Incorporation state that “each holder of Common Capital Stock shall have
one vote in respect of each share of such stock held by him on all matters
voted upon by the stockholders, and the holders of Common Capital
Stock shall have the exclusive right to vote for the election of
directors and for all other purposes.”
  
 It must be stressed, and respondents do not dispute, that foreigners
hold a majority of the common shares of PLDT. In fact, based on PLDT’s
2010 General Information Sheet (GIS), which is a document required to be
submitted annually to the Securities and Exchange Commission, foreigners
hold 120,046,690 common shares of PLDT whereas Filipinos hold only
66,750,622 common shares. In other words, foreigners hold 64.27% of the
total number of PLDT’s common shares, while Filipinos hold only 35.73%.
Since holding a majority of the common shares equates to control, it is
clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership
of public utilities expressly mandated in Section 11, Article XII of the
Constitution.

As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par

value of PLDT common shares is P5.00 per share, whereas the par value
of preferred shares is P10.00 per share. In other words, preferred shares
have twice the par value of common shares but cannot elect directors and
have only 1/70 of the dividends of common shares. Moreover, 99.44% of
the preferred shares are owned by Filipinos while foreigners own only a
minuscule 0.56% of the preferred shares. Worse, preferred shares
constitute 77.85% of the authorized capital stock of PLDT while common
shares constitute only 22.15%. This undeniably shows that beneficial
interest in PLDT is not with the non-voting preferred shares but with the
common shares, blatantly violating the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership in a public utility.
  
In short, Filipinos hold less than 60 percent of the voting stock, and
earn less than 60 percent of the dividends, of PLDT. This directly
contravenes the express command in Section 11, Article XII of the
Constitution that “[n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to x
x x corporations x x x organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens x x x.”
 To repeat, (1) foreigners own 64.27% of the common shares of
PLDT, which class of shares exercises the sole right to vote in the election
of directors, and thus exercise control over PLDT; (2) Filipinos own only
35.73% of PLDT’s common shares, constituting a minority of the voting
stock, and thus do not exercise control over PLDT; (3) preferred shares,
99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn
only 1/70 of the dividends that common shares earn; (5) preferred shares
have twice the par value of common shares; and (6) preferred shares
constitute 77.85% of the authorized capital stock of PLDT and common
shares only 22.15%. This kind of ownership and control of a public utility is
a mockery of the Constitution.

[Thus, the Respondent Chairperson of the Securities and Exchange

Commission was DIRECTED by the Court to apply the foregoing definition
of the term “capital” in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone Company,
and if there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.]

Philippine Supreme Court Jurisprudence

G.R. No. 173082, August 06, 2014 - PALM AVENUE HOLDING CO., INC.,
AND PALM AVENUE REALTY AND DEVELOPMENT CORPORATION,
Petitioners, v. SANDIGANBAYAN 5TH DIVISION, REPUBLIC OF THE
PHILIPPINES, REPRESENTED BY THE PRESIDENTIAL COMMISSION
ON GOOD GOVERNMENT (PCGG), Respondent.; [G.R. No. 195795] -
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, Petitioner, v.
HON. SANDIGANBAYAN, PALM AVENUE REALTY AND
DEVELOPMENT CORPORATION AND PALM AVENUE HOLDING
COMPANY, INC., Respondents.:
G.R. No. 173082, August 06, 2014 - PALM AVENUE HOLDING CO., INC.,
AND PALM AVENUE REALTY AND DEVELOPMENT CORPORATION,
Petitioners, v. SANDIGANBAYAN 5TH DIVISION, REPUBLIC OF THE
PHILIPPINES, REPRESENTED BY THE PRESIDENTIAL COMMISSION
ON GOOD GOVERNMENT (PCGG), Respondent.; [G.R. No. 195795] -
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, Petitioner, v.
HON. SANDIGANBAYAN, PALM AVENUE REALTY AND
DEVELOPMENT CORPORATION AND PALM AVENUE HOLDING
COMPANY, INC., Respondents.

THIRD DIVISION

G.R. No. 173082, August 06, 2014

PALM AVENUE HOLDING CO., INC., AND PALM AVENUE REALTY

AND DEVELOPMENT
CORPORATION, Petitioners, v. SANDIGANBAYAN 5TH DIVISION,
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
(PCGG), Respondent.

[G.R. No. 195795]

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE

PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT, Petitioner, v. HON. SANDIGANBAYAN, PALM AVENUE
REALTY AND DEVELOPMENT CORPORATION AND PALM AVENUE
HOLDING COMPANY, INC., Respondents.

DECISION

PERALTA, J.:

For resolution before the Court are the consolidated cases of G.R. No.
173082 and G.R. No. 195795.  In G.R. No. 173082, Palm Avenue Holding
Co., Inc. and Palm Avenue Realty and Development Corporation (the Palm
Companies), through a Petition for Certiorari under Rule 65 of the Rules of
Court, seek to annul the Resolutions of the Sandiganbayan (Fifth Division),
promulgated  on January 10, 20031 and June 14, 20062 in Civil Case No.
0035, entitled Republic of the Philippines v. Benjamin “Kokoy”
Romualdez [in which intervention by Trans Middle East (Phil.) Equities, Inc.
was allowed].  On the other hand, the Republic of the Philippines (the
Republic), in G.R. No. 195795, via a Petition for Certiorari and Prohibition,
with application for temporary restraining order and/or writ of preliminary-
injunction, prays for the nullification of the Sandiganbayan Resolutions
dated October 21, 20103 and January 11, 20114 rendered in the same
case.

The factual and procedural antecedents are as follows:cralawlawlibrary

Through a writ of sequestration dated October 27, 1986, the Presidential

Commission on Good Government (PCGG) sequestered all the assets,
properties, records, and documents of the Palm Companies.  Said
sequestered assets included 16,237,339 Benguet Corporation shares of
stock, registered in the name of the Palm Companies.  The PCGG had
relied on a letter from the Palm Companies’ Attorney-in-Fact, Jose S.
Sandejas, specifically identifying Benjamin “Kokoy” Romualdez, a known
crony of former President Ferdinand E. Marcos, as the beneficial owner of
the Benguet Corporation shares in the Palm Companies’ name.

The Republic, represented by the PCGG, filed a complaint with the

Sandiganbayan docketed as Civil Case No. 0035 but did not initially
implead the Palm Companies as defendants.  However, the
Sandiganbayan issued a Resolution dated June 16, 1989 where it ordered
said companies to be impleaded.  The Court subsequently affirmed this
order to implead in G.R. No. 906675 on November 5, 1991.  Pursuant to
said order, the Republic filed an amended complaint dated January 17,
1997 and named therein the Palm Companies as defendants.  The graft
court admitted the amended complaint on October 15, 2001.

In the meantime, on February 11, 1997, the Palm Companies filed an

Urgent Motion to Lift the Writ of Sequestration, but was denied on January
10, 2003.  The dispositive portion of the Sandiganbayan Resolution
reads:chanRoblesvirtualLawlibrary

WHEREFORE, in view of the foregoing:cralawlawlibrary

1) The “URGENT MOTION TO NULLIFY WRIT OF SEQUESTRATION”

dated January 28, 1997 filed by movant Trans Middle East (Phils.) Equities,
Inc., is hereby GRANTED.  Accordingly, Sequestration Order No. 86-0056
dated April 15, 1986 is hereby declared null and void for having been
issued by one PCGG Commissioner only in direct contravention of Section
3 of the PCGG’s own Rules and Regulations.  Conformably, however, with
the manifestation of the movant Trans Middle East (Phils.) Equities, Inc.
itself, the Court will not order the return of its shares of stocks sequestered
per Sequestration Order No. 86-0056 dated April 15, 1986, but orders that
the same, including the interests earned thereon, to be deposited with the
Land Bank of the Philippines in escrow for the persons, natural or juridical,
who shall eventually be adjudged lawfully entitled thereto.

2) The “URGENT MOTION TO LIFT THE WRIT OF SEQUESTRATION”

dated February 11, 1997 of Palm Avenue Realty and Development
Corporation and Palm Avenue Holdings, Co., Inc. is hereby DENIED for
lack of merit.

SO ORDERED.6

They filed a Motion for Reconsideration, but the same was likewise denied
on June 14, 2006.  Hence, the Palm Companies filed the petition in G.R.
No. 173082.

On September 22, 2006, the Palm Companies filed a Motion to Release

Sequestered Funds with the Sandiganbayan.  In a Resolution dated
January 18, 2007, the Sandiganbayan granted said motion and ordered the
release of the sequestered funds for the purchase of additional shares in
Benguet Corporation, and appointed a comptroller for this purpose.  On
May 29, 2007, the companies filed a Motion for Bill of Particulars to direct
the Republic to submit a bill of particulars regarding matters in the
amended complaint which were not alleged with certainty or particularity. 
On December 21, 2007, the Republic submitted its bill of particulars. 
Thereafter, the Palm Companies filed a motion to dismiss the Republic’s
complaint.  They argued that the bill of particulars did not satisfactorily
comply with the requested details.

On August 5, 2008, the Palm Companies filed a Motion to Order Payment

of Interest on Balance of the Sequestered Funds.  Later, on September 29,
2008, the Sandiganbayan granted the Palm Companies’ motion to dismiss
and dismissed the Republic’s complaint as to them.  This was affirmed by
the Court in a Resolution7 dated January 20, 2010 in G.R. No. 189771. 
The Sandiganbayan also granted the Palm Companies’ Motion to Order
Payment of Interest on Balance of the Sequestered Funds on October 28,
2009.

Thereafter, the Palm Companies filed another motion dated May 14, 2010,
this time, to order the PCGG to release all the companies’ shares of stock
and funds in its custody.  The Sandiganbayan then issued its October 21,
2010 Resolution, granting the companies’ foregoing motion.  The graft
court disposed of the case as follows:chanRoblesvirtualLawlibrary

WHEREFORE, in view of the foregoing, Palm Avenue Holding Company,

Inc. and Palm Avenue Realty and Development Corporation’s Motion to
Order the PCGG to Release to the Palm Companies all the shares of
stocks and funds in their custody that pertain to the Palm Companies is
hereby GRANTED.

SO ORDERED.8

Upon denial of the Republic’s motion for reconsideration, it filed the petition
in G.R. No. 195795.

In G.R. No. 173082, the Palm Companies present this lone issue to be
resolved by the Court:chanRoblesvirtualLawlibrary

[WHETHER OR NOT] RESPONDENT COURT ACTED WITH GRAVE

ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN
DENYING PETITIONERS’ MOTION TO LIFT THE WRIT OF
SEQUESTRATION NOTWITHSTANDING THE FACT [THAT] SAID WRIT
SHOULD BE DEEMED AUTOMATICALLY LIFTED PURSUANT TO
SECTION 26, ARTICLE XVIII OF THE 1987 CONSTITUTION FOR
FAILURE TO IMPLEAD PETITIONERS WITHIN THE PERIOD OF SIX (6)
MONTHS PRESCRIBED IN THE SAID CONSTITUTION.9

The Palm Companies pray for the lifting of the Writ of Sequestration
against their assets, since they were not impleaded as parties-defendants
in Civil Case No. 0035 within the period prescribed by the Constitution.

On the other hand, the Republic, through the PCGG, contends in G.R. No.
195795 that:chanRoblesvirtualLawlibrary

THE RESPONDENT COURT COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN
GRANTING THE PALM COMPANIES’ MOTION TO RELEASE ALL
SHARES OF STOCK AND FUNDS IN THE CUSTODY OF THE
PCGG.10chanrobleslaw

The Republic argues that the dismissal of the complaint as to the Palm
Companies is not tantamount to a declaration that their sequestered assets
are no longer ill-gotten.

The issues presented being essentially interrelated, the Court shall make a
simultaneous discussion.

Section 26, Article XVIII of the 1987 Constitution

provides:chanRoblesvirtualLawlibrary

xxxx

A sequestration or freeze order shall be issued only upon showing of a

prima facie case. The order and the list of the sequestered or frozen
properties shall forthwith be registered with the proper court. For orders
issued before the ratification of this Constitution, the corresponding
judicial action or proceeding shall be filed within six months from its
ratification. For those issued after such ratification, the judicial action or
proceeding shall be commenced within six months from the issuance
thereof.
The sequestration or freeze order is deemed automatically lifted if no
judicial action or proceeding is commenced as herein provided. 11

The aforesaid provision mandates the Republic to file the corresponding

judicial action or proceedings within a six-month period (from its ratification
on February 2, 1987) in order to maintain sequestration, non-compliance
with which would result in the automatic lifting of the sequestration order. 
The Court’s ruling in Presidential Commission on Good Government v.
Sandiganbayan,12 which remains good law, reiterates the necessity of the
Republic to actually implead corporations as defendants in the complaint,
out of recognition for their distinct and separate personalities, failure to do
so would necessarily be denying such entities their right to due process. 13 
Here, the writ of sequestration issued against the assets of the Palm
Companies is not valid because the suit in Civil Case No. 0035 against
Benjamin Romualdez as shareholder in the Palm Companies is not a suit
against the latter.  The Court has held, contrary to the assailed
Sandiganbayan Resolution in G.R. No. 173082, that failure to implead
these corporations as defendants and merely annexing a list of such
corporations to the complaints is a violation of their right to due process for
it would be, in effect, disregarding their distinct and separate personality
without a hearing.14  Here, the Palm Companies were merely mentioned as
Item Nos. 47 and 48, Annex A of the Complaint, as among the corporations
where defendant Romualdez owns shares of stocks.  Furthermore, while
the writ of sequestration was issued on October 27, 1986, the Palm
Companies were impleaded in the case only in 1997, or already a decade
from the ratification of the Constitution in 1987, way beyond the prescribed
period.

The argument that the beneficial owner of these corporations was, anyway,
impleaded as party-defendant can only be interpreted as a tacit admission
of the failure to file the corresponding judicial action against said
corporations pursuant to the constitutional mandate.  Whether or not the
impleaded defendant in Civil Case No. 0035 is indeed the beneficial owner
of the Palm Companies is a matter which the PCGG merely assumes and
still has to prove in said case.15cralawred
The sequestration order issued against the Palm Companies is therefore
deemed automatically lifted due to the failure of the Republic to commence
the proper judicial action or to implead them therein within the period under
the Constitution.  However, the lifting of the writ of sequestration will not
necessarily be fatal to the main case since the same does not ipso
facto mean that the sequestered properties are, in fact, not ill-gotten.  The
effect of the lifting of the sequestration will merely be the termination of the
government’s role as conservator.  In other words, the PCGG may no
longer exercise administrative or housekeeping powers, and its nominees
may no longer vote the sequestered shares to enable them to sit in the
corporate board of the subject company.16cralawred

The Republic, through the PCGG, may argue that it has substantially
complied with the Constitutional requirements to support its sequestration
order when it filed an amended complaint which impleaded the Palm
Companies, and which was subsequently admitted by the Sandiganbayan. 
Even so, a careful perusal of the records reveals the existence of legal and
factual grounds to warrant the lifting of the writ of sequestration against the
assets of the Palm Companies.

Since the Republic did not originally include the Palm Companies in Civil
Case No. 0035, the Sandiganbayan issued a Resolution ordering said
companies to be impleaded, which was affirmed by the Court in G.R. No.
90667 on November 5, 1991.  The Court declared in said case that the
Palm Companies are real parties-in-interest in Civil Case No. 0035,
because they still appear to be the registered owners of the remaining
disputed shares.  That Romualdez is considered as their true or real owner
is just a claim that still needs to be proved in court. 17cralawred

Section 2, Rule 3 of the Rules of Court states:chanRoblesvirtualLawlibrary

Sec. 2. Parties in interest. – A real party-in-interest is the party who stands

to be benefited or injured by the judgment in the suit, or the party entitled to
the avails of the suit. Unless otherwise authorized by law or these Rules,
every action must be prosecuted or defended in the name of the real party-
in-interest.
This provision has two requirements: 1) to institute an action, the plaintiff
must be the real party-in-interest; and 2) the action must be prosecuted in
the name of the real party-in-interest. Interest within the meaning of the
Rules of Court means material interest or an interest in issue to be affected
by the decree or judgment of the case, as distinguished from mere curiosity
about the question involved. One having no material interest to protect
cannot invoke the jurisdiction of the court as the plaintiff in an action. When
the plaintiff is not the real party-in-interest, the case is dismissible on the
ground of lack of cause of action.

Pursuant to said order, the Republic filed an amended complaint which

named the Palm Companies as defendants.  Thereafter, the companies
filed a Motion for Bill of Particulars for the Republic to clarify certain matters
in its amended complaint.  Upon submission of the bill of particulars, the
Palm Companies filed a motion to dismiss the Republic’s complaint.  Later,
the Sandiganbayan, sustained by the Court in G.R. No. 189771, granted
said motion to dismiss.  The Sandiganbayan thus
pronounced:chanRoblesvirtualLawlibrary

xxxx

Clearly, as in the previously discussed paragraphs, the above answers set

forth by the plaintiff in its Bill of Particulars are indefinite and deficient
inasmuch as the question of what are the alleged illegally acquired funds or
properties of the Palm Avenue Companies which they are liable to return,
remains unanswered, a product of uncertainty.

In sum, the allegations contained in plaintiff Republic’s Bill of Particulars

are incomplete and indefinite as they merely express conclusions of law
and presumptions unsupported by factual premises.

Furthermore, the details desired by defendants Palm Avenue Companies in

their motion for bill of particulars, such as the acts constituting their
involvement in the Marcoses’ alleged scheme to pillage the nation’s wealth,
the alleged properties which they supposedly acquired illegally and
therefore should return to the government, and other relevant facts, are not
evidentiary in nature.  On the contrary, those particulars are material facts
that should be clearly and definitely averred in the complaint in order that
the defendants may, in fairness, be informed of the claims against them to
the end that they may be prepared to meet the issues at trial.

xxxx

In view, therefore, of plaintiff Republic’s failure to file the proper bill of

particulars which would completely amplify the charges against
defendant Palm Avenue Companies, and applying the above-quoted
ruling of the High Court in the Virata case, this Court deems it just and
proper to order the dismissal of the Third Amended Complaint in so
far as the charges against the Palm Avenue Companies are
concerned.

Finally, we sustain defendant-movants’ argument that the failure of the

plaintiff to sufficiently provide the ultimate and material facts they
required in their motion for bill of particulars, makes the third
amended complaint dismissible for failure to state a cause of action. 18

Simple justice demands that the Palm Companies must know what the
complaint against them is all about.  The law requires no less.  In the
similar case of Virata v. Sandiganbayan,19 petitioner Virata filed a motion
for a bill of particulars, asserting that the allegations against him are vague
and are not averred with sufficient definiteness as to enable him to
effectively prepare his responsive pleading.  The Court held therein that a
complaint must contain the ultimate facts constituting plaintiff's cause of
action.  A cause of action has the following elements: (1) a right in favor of
the plaintiff; (2) an obligation on the part of the named defendant to respect
such right; and (3) an act or omission on the part of such defendant
violative of the right of the plaintiff or constituting a breach of the obligation
of the defendant to the plaintiff.  As long as the complaint contains these
three elements, a cause of action exists.  Although the allegations therein
may be vague, dismissal of the action is not the proper remedy because
the defendant may ask for more particulars.  As such, a party may move for
a more definite statement or for a bill of particulars of any matter which is
not averred with sufficient definiteness or particularity. This is to enable him
to properly prepare his responsive pleading or to prepare for trial. 20  The
Court in said case found that there were certain matters in the allegations
which lacked in substantial particularity.  They were broad and definitely
vague which required specifications in order that Virata could properly
define the issues and formulate his defenses.  The two bills of particulars
filed by the Republic were ruled to have failed in properly amplifying the
charges leveled against Virata because, not only are they mere reiteration
or repetition of the allegations set forth in the expanded Second Amended
Complaint, but, to the large extent, they contain vague, immaterial and
generalized assertions which are inadmissible under our procedural rules. 
As such, for failure of the Republic to obey the Court's directive and the
Sandiganbayan's order to file the proper bill of particulars which would
completely amplify the charges against Virata, the Court deemed it just and
proper to order the dismissal of the expanded Second Amended Complaint,
insofar as the charges against Virata are concerned.  The Court relied on
Section 3, Rule 17 of the Rules of Court, which provides
that:chanRoblesvirtualLawlibrary

Sec. 3. Failure to prosecute. — If plaintiff fails to appear at the time of the

trial, or to prosecute his action for an unreasonable length of time, or to
comply with these rules or any order of the court, the action may be
dismissed upon motion of the defendant or upon the court's own
motion. This dismissal shall have the effect of an adjudication upon the
merits, unless otherwise provided by court.21

Similarly, the Republic in the case at bar failed to file a proper bill of
particulars which would completely clarify and amplify the charges against
the Palm Companies.  For said failure to comply with the graft court's order
to file the required bill of particulars that would completely and fully inform
the Palm Companies of the charges against them, the amended complaint
impleading said companies necessarily failed to state a cause of action,
warranting the dismissal of the case as to them.  By the dismissal of the
case as against the Palm Companies, there is ipso facto no more writ of
sequestration to speak of.

The Republic cannot simply rely on the presumption that the PCGG has
acted pursuant to law and based on prima facie evidence, for the same will
undermine the basic constitutional principle that public officers and
employees must at all times be accountable to the people.  Indeed,
sequestration is an extraordinary and harsh remedy.  As such, it should be
confined to its lawful parameters and exercised with due regard to the
requirements of fairness, due process, and justice. 22  While the Court
acknowledges the Government's admirable efforts to recover ill-gotten
wealth allegedly taken by the corporations, it cannot, however, choose to
turn a blind eye to the demands of the law, justice, and fairness. 23cralawred

WHEREFORE, in view of the foregoing, the petition in G.R. No. 173082 is

GRANTED.  The Resolutions of the Sandiganbayan (Fifth Division)
promulgated on January 10, 2003 and June 14, 2006 in Civil Case No.
0035 are REVERSED AND SET ASIDE, and the writ of sequestration
against the assets and properties of Palm Avenue Holding Co., Inc. and
Palm Avenue Realty and Development Corporation is
consequently LIFTED.  The petition in G.R. No. 195795 is DISMISSED for
lack of merit.  The Sandiganbayan Resolutions dated October 21, 2010 and
January 11, 2011 are hereby AFFIRMED.

SO ORDERED.