G.R. No.
159333 July 31, 2006 the Philippines, to be known as Pacfor Phils, and petitioner ATM
ARSENIO T. MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS
COMMISSION, PACIFIC FOREST RESOURCES, PHILS., INC.
and/or CELLMARK AB, respondents.
DECISION
PUNO, J.:
On appeal are the Decision1 and Resolution2 of the Court of
Appeals, dated January 30, 2003 and July 30, 2003, respectively,
in CA-G.R. SP No. 71028, affirming the ruling3 of the National
Labor Relations Commission (NLRC), which in turn set aside the
July 30, 2001 Decision4 of the labor arbiter. The labor arbiter
declared illegal the dismissal of petitioner from employment and
awarded separation pay, moral and exemplary damages, and
attorney's fees.
The facts are as follows:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor)
is a corporation organized and existing under the laws of
California, USA. It is a subsidiary of Cellulose Marketing
International, a corporation duly organized under the laws of
Sweden, with principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on
Representative Office known as Pacific Forest Resources
(Phils.), Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective
May 1, 1995, "assuming that Pacfor-Phils. is already approved by
the Securities and Exchange Commission [SEC] on the said
date."6 The Side Agreement outlines the business relationship of
the parties with regard to the Philippine operations of Pacfor.
Private respondent will establish a Pacfor representative office in
will be its President. Petitioner's base salary and the overhead
expenditures of the company shall be borne by the representative
office and funded by Pacfor/ATM, since Pacfor Phils. is equally
owned on a 50-50 equity by ATM and Pacfor-usa.
On July 14, 1995, the SEC granted the application of private
respondent Pacfor for a license to transact business in the
Philippines under the name of Pacfor or Pacfor Phils.7 In its
application, private respondent Pacfor proposed to establish its
representative office in the Philippines with the purpose of
monitoring and coordinating the market activities for paper
products. It also designated petitioner as its resident agent in the
Philippines, authorized to accept summons and processes in all
legal proceedings, and all notices affecting the corporation.8
In March 1997, the Side Agreement was amended through a
"Revised Operating and Profit Sharing Agreement for the
Representative Office Known as Pacific Forest Resources
(Philippines),"9 where the salary of petitioner was increased to
$78,000 per annum. Both agreements show that the operational
expenses will be borne by the representative office and funded by
all parties "as equal partners," while the profits and commissions
will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia
of Pacfor, seeking confirmation of his 50% equity of Pacfor
Phils.10 Private respondent Pacfor, through William Gleason, its
President, replied that petitioner is not a part-owner of Pacfor
Phils. because the latter is merely Pacfor-USA's representative
office and not an entity separate and distinct from Pacfor-USA.
"It's simply a 'theoretical company' with the purpose of dividing
the income 50-50."11 Petitioner presumably knew of this
arrangement from the start, having been the one to propose to
private respondent Pacfor the setting up of a representative
office, and "not a branch office" in the Philippines to save on
taxes.12
Petitioner claimed that he was all along made to believe that he
was in a joint venture with them. He alleged he would have been
better off remaining as an independent agent or representative of
Pacfor-USA as ATM Marketing Corp.13 Had he known that no
joint venture existed, he would not have allowed Pacfor to take
the profitable business of his own company, ATM Marketing
Corp.14 Petitioner raised other issues, such as the rentals of office
furniture, salary of the employees, company car, as well as
commissions allegedly due him. The issues were not resolved,
hence, in October 2000, petitioner wrote Pacfor-USA demanding
payment of unpaid commissions and office furniture and
equipment rentals, amounting to more than one million dollars.15
On November 27, 2000, private respondent Pacfor, through
counsel, ordered petitioner to turn over to it all papers,
documents, files, records, and other materials in his or ATM
Marketing Corporation's possession that belong to Pacfor or
Pacfor Phils.16 On December 18, 2000, private respondent Pacfor
also required petitioner to remit more than three hundred
thousand-peso Christmas giveaway fund for clients of Pacfor
Phils.17 Lastly, private respondent Pacfor withdrew all its offers of
settlement and ordered petitioner to transfer title and turn over to
it possession of the service car.18
Private respondent Pacfor likewise sent letters to its clients in the
Philippines, advising them not to deal with Pacfor Phils. In its
letter to Intercontinental Paper Industries, Inc., dated November
21, 2000, private respondent Pacfor stated:
Until further notice, please course all inquiries and
communications for Pacific Forest Resources
(Philippines) to:
Pacific Forest Resources
200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax
Please do not send any communication to Mr. Arsenio
"Boy" T. Mendiola or to the offices of ATM Marketing
Corporation at Room 504, Concorde Building, Legaspi
Village, Makati City, Philippines.19
In another letter addressed to Davao Corrugated Carton Corp.
(DAVCOR), dated December 2000, private respondent directed
said client "to please communicate directly with us on any further
questions associated with these payments or any future business.
Do not communicate with [Pacfor] and/or [ATM]."20
Petitioner construed these directives as a severance of the
"unregistered partnership" between him and Pacfor, and the
termination of his employment as resident manager of Pacfor
Phils.21 In a memorandum to the employees of Pacfor Phils.,
dated January 29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc.
demanding the turnover of all records to them effective
December 19, 2000. The company records were turned
over only on January 26, 2001. This means our jobs with
Pacific Forest were terminated effective December 19,
2000. I am concerned about your welfare. I would like to
help you by offering you to work with ATM Marketing
Corporation.
Please let me know if you are interested.22
On the basis of the "Side Agreement," petitioner insisted that he
and Pacfor equally own Pacfor Phils. Thus, it follows that he and
Pacfor likewise own, on a 50/50 basis, Pacfor Phils.' office
furniture and equipment and the service car. He also reiterated
his demand for unpaid commissions, and proposed to offset
these with the remaining Christmas giveaway fund in his
possession.23 Furthermore, he did not renew the lease contract
with Pulp and Paper, Inc., the lessor of the office premises of
Pacfor Phils., wherein he was the signatory to the lease
agreement.24
On February 2, 2001, private respondent Pacfor placed petitioner
on preventive suspension and ordered him to show cause why no
disciplinary action should be taken against him. Private
respondent Pacfor charged petitioner with willful disobedience
and serious misconduct for his refusal to turn over the service car
and the Christmas giveaway fund which he applied to his alleged
unpaid commissions. Private respondent also alleged loss of
confidence and gross neglect of duty on the part of petitioner for
allegedly allowing another corporation owned by petitioner's
relatives, High End Products, Inc. (HEPI), to use the same
telephone and facsimile numbers of Pacfor, to possibly steal and
divert the sales and business of private respondent for HEPI's
principal, International Forest Products, a competitor of private
respondent.25
Petitioner denied the charges. He reiterated that he considered
the import of Pacfor President William Gleason's letters as a
"cessation of his position and of the existence of Pacfor Phils." He
likewise informed private respondent Pacfor that ATM Marketing
Corp. now occupies Pacfor Phils.' office premises,26 and
demanded payment of his separation pay.27 On February 15,
2001, petitioner filed his complaint for illegal dismissal, recovery
of separation pay, and payment of attorney's fees with the
NLRC.28
In the meantime, private respondent Pacfor lodged fresh charges
against petitioner. In a memorandum dated March 5, 2001,
private respondent directed petitioner to explain why he should
not be disciplined for serious misconduct and conflict of interest.
Private respondent charged petitioner anew with serious
misconduct for the latter's alleged act of fraud and
misrepresentation in authorizing the release of an additional peso
salary for himself, besides the dollar salary agreed upon by the
parties. Private respondent also accused petitioner of disloyalty
and representation of conflicting interests for having continued
using the Pacfor Phils.' office for operations of HEPI. In addition,
petitioner allegedly solicited business for HEPI from a competitor
company of private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there
was constructive dismissal. By directing petitioner to turn over all
office records and materials, regardless of whether he may have
retained copies, private respondent Pacfor virtually deprived
petitioner of his job by the gradual diminution of his authority as
resident manager. Petitioner's position as resident manager
whose duty, among others, was to maintain the security of its
business transactions and communications was rendered
meaningless. The dispositive portion of the decision of the Labor
Arbiter reads:
WHEREFORE, premises considered, judgment is hereby
rendered ordering herein respondents Cellmark AB and
Pacific Forest Resources, Inc., jointly and severally to
compensate complainant Arsenio T. Mendiola separation
pay equivalent to at least one month for every year of
service, whichever is higher (sic), as reinstatement is no
longer feasible by reason of the strained relations of the
parties equivalent to five (5) months in the amount of
$32,000.00 plus the sum of P250,000.00; pay
complainant the sum of P500,000.00 as moral and
exemplary damages and ten percent (10%) of the
amounts awarded as and for attorney's fees.
All other claims are dismissed for lack of basis.
SO ORDERED.30
Private respondent Pacfor appealed to the NLRC which ruled in
its favor. On December 20, 2001, the NLRC set aside the July 30,
2001 decision of the labor arbiter, for lack of jurisdiction and lack
of merit.31 It held there was no employer-employee relationship
between the parties. Based on the two agreements between the
 parties, it concluded that petitioner is not an employee of private
respondent Pacfor, but a full co-owner (50/50 equity).
The NLRC denied petitioner's Motion for Reconsideration.32
Petitioner was not successful on his appeal to the Court of
Appeals. The appellate court upheld the ruling of the NLRC.
* We hold that petitioner is an employee of private respondent
Pacfor and that no partnership or co-ownership exists between
Petitioner's Motion for Reconsideration33 of the decision of the
Court of Appeals was denied.
aO
* Incontributed
Hence, this appeal. 34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals committed
reversible error and abused its discretion in rendering
judgment against petitioner since jurisdiction has been
acquired over the subject matter of the case as there
exists employer-employee relationship between the
parties.
B. The Respondent Court of Appeals committed
reversible error and abused its discretion in ruling that
jurisdiction over the subject matter cannot be waived and
may be alleged even for the first time on appeal or
considered by the court motu prop[r]io.35
The first issue is whether an employer-employee relationship
exists between petitioner and private respondent Pacfor.
* Petitioner argues that he is an industrial partner of the partnership
he formed with private respondent Pacfor, and also an employee
of the partnership. Petitioner insists that an industrial partner may
at the same time be an employee of the partnership, provided
there is such an agreement, which, in this case, is the "Side
Agreement" and the "Revised Operating and Profit Sharing
Agreement." The Court of Appeals denied the appeal of
petitioner, holding that "the legal basis of the complaint is not
employment but perhaps partnership, co-ownership, or
independent contractorship." Hence, the Labor Code cannot
apply.
the parties.
partnership, the members become co-owners of what is
to the firm capital and of all property that may be
acquired thereby and through the efforts of the members.36 The
property or stock of the partnership forms a community of goods,
a common fund, in which each party has a proprietary
interest.37 In fact, the New Civil Code regards a partner as a co-
owner of specific partnership property.38 Each partner possesses
a joint interest in the whole of partnership property. If the relation
does not have this feature, it is not one of partnership.39 This
essential element, the community of interest, or co-ownership of,
or joint interest in partnership property is absent in the relations
between petitioner and private respondent Pacfor. Petitioner is
not a part-owner of Pacfor Phils. William Gleason, private
respondent Pacfor's President established this fact when he said
that Pacfor Phils. is simply a "theoretical company" for the
purpose of dividing the income 50-50. He stressed that petitioner
knew of this arrangement from the very start, having been the
one to propose to private respondent Pacfor the setting up of a
representative office, and "not a branch office" in the Philippines
to save on taxes. Thus, the parties in this case, merely shared
profits. This alone does not make a partnership.40
Besides, a corporation cannot become a member of a partnership
in the absence of express authorization by statute or
charter.41 This doctrine is based on the following considerations:
(1) that the mutual agency between the partners, whereby the
corporation would be bound by the acts of persons who are not
its duly appointed and authorized agents and officers, would be
 inconsistent with the policy of the law that the corporation shall
manage its own affairs separately and exclusively; and, (2) that
such an arrangement would improperly allow corporate property
to become subject to risks not contemplated by the stockholders
when they originally invested in the corporation.42 No such
authorization has been proved in the case at bar.
¥
Be that as it may, we hold that on the basis of the evidence, an
employer-employee relationship is present in the case at bar. The
elements to determine the existence of an employment
relationship are: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal;
and (d) the employer's power to control the employee's conduct.
The most important element is the employer's control of the
employee's conduct, not only as to the result of the work to be
done, but also as to the means and methods to accomplish it.43
In the instant case, all the foregoing elements are present. First, it
was private respondent Pacfor which selected and engaged the
services of petitioner as its resident agent in the Philippines.
Second, as stipulated in their Side Agreement, private respondent
Pacfor pays petitioner his salary amounting to $65,000 per
annum which was later increased to $78,000. Third, private
respondent Pacfor holds the power of dismissal, as may be
gleaned through the various memoranda it issued against
petitioner, placing the latter on preventive suspension while
charging him with various offenses, including willful disobedience,
serious misconduct, and gross neglect of duty, and ordering him
to show cause why no disciplinary action should be taken against
him.
Lastly and most important, private respondent Pacfor has the
power of control over the means and method of petitioner in
accomplishing his work.
The power of control refers merely to the existence of the power,
and not to the actual exercise thereof. The principal consideration
is whether the employer has the right to control the manner of
doing the work, and it is not the actual exercise of the right by
interfering with the work, but the right to control, which constitutes
the test of the existence of an employer-employee
relationship.44 In the case at bar, private respondent Pacfor, as
employer, clearly possesses such right of control. Petitioner, as
private respondent Pacfor's resident agent in the Philippines, is,
exactly so, only an agent of the corporation, a representative of
Pacfor, who transacts business, and accepts service on its
behalf.
This right of control was exercised by private respondent Pacfor
during the period of November to December 2000, when it
directed petitioner to turn over to it all records of Pacfor Phils.;
when it ordered petitioner to remit the Christmas giveaway fund
intended for clients of Pacfor Phils.; and, when it withdrew all its
offers of settlement and ordered petitioner to transfer title and turn
over to it the possession of the service car. It was also during this
period when private respondent Pacfor sent letters to its clients in
the Philippines, particularly Intercontinental Paper Industries, Inc.
and DAVCOR, advising them not to deal with petitioner and/or
Pacfor Phils. In its letter to DAVCOR, private respondent Pacfor
replied to the client's request for an invoice payment extension,
and formulated a revised payment program for DAVCOR. This is
one unmistakable proof that private respondent Pacfor exercises
control over the petitioner.
Next, we shall determine if petitioner was constructively
dismissed from employment.
The evidence shows that when petitioner insisted on his 50%
equity in Pacfor Phils., and would not quit however, private
respondent Pacfor began to systematically deprive petitioner of
his duties and benefits to make him feel that his presence in the
company was no longer wanted. First, private respondent Pacfor
directed petitioner to turn over to it all records of Pacfor Phils.
This would certainly make the work of petitioner very difficult, if
not impossible. Second, private respondent Pacfor ordered
petitioner to remit the Christmas giveaway fund intended for
clients of Pacfor Phils. Then it ordered petitioner to transfer title
and turn over to it the possession of the service car. It also
advised its clients in the Philippines, particularly Intercontinental
Paper Industries, Inc. and DAVCOR, not to deal with petitioner
and/or Pacfor Phils. Lastly, private respondent Pacfor appointed a
new resident agent for Pacfor Phils.45
Although there is no reduction of the salary of petitioner,
constructive dismissal is still present because continued
employment of petitioner is rendered, at the very least,
unreasonable.46 There is an act of clear discrimination,
insensibility or disdain by the employer that continued
employment may become so unbearable on the part of the
employee so as to foreclose any choice on his part except to
resign from such employment.47
IN VIEW WHEREOF, the petition is GRANTED. The Court of
Appeals' January 30, 2003 Decision in CA-G.R. SP No. 71028
and July 30, 2003 Resolution, affirming the December 20, 2001
Decision of the National Labor Relations Commission,
are ANNULED and SET ASIDE. The July 30, 2001 Decision of
the Labor Arbiter is REINSTATED with the MODIFICATION that
the amount of P250,000.00 representing an alleged increase in
petitioner's salary shall be deducted from the grant of separation
pay for lack of evidence.
SO ORDERED.
Sandoval-Gutierrez, Corona, Azcuna, Garcia, J.J., concur.

The harassing acts of the private respondent are unjustified. They

were undertaken when petitioner sought clarification from the
private respondent about his supposed 50% equity on Pacfor
Phils. Private respondent Pacfor invokes its rights as an owner.
Allegedly, its issuance of the foregoing directives against
petitioner was a valid exercise of management prerogative. We
remind private respondent Pacfor that the exercise of
management prerogative is not absolute. "By its very nature,
encompassing as it could be, management prerogative must be
exercised in good faith and with due regard to the rights of labor –
verily, with the principles of fair play at heart and justice in mind."
The exercise of management prerogative cannot be utilized as an
implement to circumvent our laws and oppress employees.48

As resident agent of private respondent corporation, petitioner

occupied a position involving trust and confidence. In the light of
the strained relations between the parties, the full restoration of
an employment relationship based on trust and confidence is no
longer possible. He should be awarded separation pay, in lieu of
reinstatement.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it
Managing PARTNER, GREGORIA ARANETA,
INC.,plaintiff-appellee,
vs.
QUIRINO BOLAÑOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First
Instance of Rizal, Quezon City Branch, to recover
possesion of registered land situated in barrio Tatalon,
Quezon City.
Plaintiff's complaint was amended three times with
respect to the extent and description of the land sought to
be recovered. The original complaint described the land
as a portion of a lot registered in plaintiff's name under
Transfer Certificate of Title No. 37686 of the land record
of Rizal Province and as containing an area of 13
hectares more or less. But the complaint was amended
by reducing the area of 6 hectares, more or less, after the
defendant had indicated the plaintiff's surveyors the
portion of land claimed and occupied by him. The second
amendment became necessary and was allowed
following the testimony of plaintiff's surveyors that a
portion of the area was embraced in another certificate of
title, which was plaintiff's Transfer Certificate of Title No.
37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had
testified that the area occupied and claimed by defendant
was about 13 hectares, as shown in his Exhibit 1, plaintiff
again, with the leave of court, amended its complaint to
make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in
himself thru "open, continuous, exclusive and public and
notorious possession (of land in dispute) under claim of
ownership, adverse to the entire world by defendant and
his predecessor in interest" from "time in-memorial". The
answer further alleges that registration of the land in
dispute was obtained by plaintiff or its predecessors in
interest thru "fraud or error and without knowledge (of) or
interest either personal or thru publication to defendant
and/or predecessors in interest." The answer therefore
prays that the complaint be dismissed with costs and
plaintiff required to reconvey the land to defendant or pay
its value.
After trial, the lower court rendered judgment for plaintiff,
declaring defendant to be without any right to the land in
question and ordering him to restore possession thereof
to plaintiff and to pay the latter a monthly rent of P132.62
from January, 1940, until he vacates the land, and also to
pay the costs.
Appealing directly to this court because of the value of
the property involved, defendant makes the following
assignment or errors:
I. The trial court erred in not dismissing the case on the
ground that the case was not brought by the real property
in interest.
II. The trial court erred in admitting the third amended
complaint.
III. The trial court erred in denying defendant's motion to
strike.
IV. The trial court erred in including in its decision land not
involved in the litigation.
V. The trial court erred in holding that the land in dispute
is covered by transfer certificates of Title Nos. 37686 and
37677.
Vl. The trial court erred in not finding that the defendant is
the true and lawful owner of the land.
VII. The trial court erred in finding that the defendant is
liable to pay the plaintiff the amount of P132.62 monthly
from January, 1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to
reconvey the land in litigation to the defendant.
As to the first assigned error, there is nothing to the
contention that the present action is not brought by the
real party in interest, that is, by J. M. Tuason and Co.,
Inc. What the Rules of Court require is that an action be
brought in the name of, but not necessarily by, the real
party in interest. (Section 2, Rule 2.) In fact the practice is
|
for an attorney-at-law to bring the action, that is to file the
complaint, in the name of the plaintiff. That practice
appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and
Araneta, "counsel for plaintiff" and commences with the
statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the
plaintiff is "represented herein by its Managing Partner
Gregorio Araneta, Inc.", another corporation, but there is
nothing against one corporation being represented by
another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. can not act as
managing partner for plaintiff on the theory that it is illegal
for two corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation has
no power to enter into a partnership, it may nevertheless
enter into a joint venture with another where the nature of
that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80
A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.)
There is nothing in the record to indicate that the venture
in which plaintiff is represented by Gregorio Araneta, Inc.
as "its managing partner" is not in line with the corporate
business of either of them.
Errors II, III, and IV, referring to the admission of the third
amended complaint, may be answered by mere
reference to section 4 of Rule 17, Rules of Court, which
sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. — When
issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all
 respects, as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary
to cause them to conform to the evidence and to raise
these issues may be made upon motion of any party at
my time, even of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within
the issues made by the pleadings, the court may allow the
pleadings to be amended and shall be so freely when the
presentation of the merits of the action will be subserved
thereby and the objecting party fails to satisfy the court
that the admission of such evidence would prejudice him
in maintaining his action or defense upon the merits. The
court may grant a continuance to enable the objecting
party to meet such evidence.
Under this provision amendment is not even necessary
for the purpose of rendering judgment on issues proved
though not alleged. Thus, commenting on the provision,
Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New
Federal Rules of Civil Procedure, ruled that where the
facts shown entitled plaintiff to relief other than that asked
for, no amendment to the complaint is necessary,
especially where defendant has himself raised the point
on which recovery is based, and that the appellate court
treat the pleadings as amended to conform to the
evidence, although the pleadings were not actually
amended. (I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II,
III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting,
though his attorney, at the early stage of the trial, that the
land in dispute "is that described or represented in Exhibit
A and in Exhibit B enclosed in red pencil with the name
Quirino Bolaños," defendant later changed his lawyer and
also his theory and tried to prove that the land in dispute
was not covered by plaintiff's certificate of title. The
evidence, however, is against defendant, for it clearly
establishes that plaintiff is the registered owner of lot No.
4-B-3-C, situate in barrio Tatalon, Quezon City, with an
area of 5,297,429.3 square meters, more or less, covered
by transfer certificate of title No. 37686 of the land
records of Rizal province, and of lot No. 4-B-4, situated in
the same barrio, having an area of 74,789 square meters,
more or less, covered by transfer certificate of title No.
37677 of the land records of the same province, both lots
having been originally registered on July 8, 1914 under
original certificate of title No. 735. The identity of the lots
was established by the testimony of Antonio Manahan
and Magno Faustino, witnesses for plaintiff, and the
identity of the portion thereof claimed by defendant was
established by the testimony of his own witness, Quirico
Feria. The combined testimony of these three witnesses
clearly shows that the portion claimed by defendant is
made up of a part of lot 4-B-3-C and major on portion of
lot 4-B-4, and is well within the area covered by the two
transfer certificates of title already mentioned. This fact
also appears admitted in defendant's answer to the third
amended complaint.
As the land in dispute is covered by plaintiff's Torrens
certificate of title and was registered in 1914, the decree
of registration can no longer be impugned on the ground
of fraud, error or lack of notice to defendant, as more
than one year has already elapsed from the issuance and
entry of the decree. Neither court the decree be
collaterally attacked by any person claiming title to, or
interest in, the land prior to the registration proceedings.
(Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could
title to that land in derogation of that of plaintiff, the
registered owner, be acquired by prescription or adverse
possession. (Section 46, Act No. 496.) Adverse,
notorious and continuous possession under claim of
ownership for the period fixed by law is ineffective against
a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc.,
45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled
that the right to secure possession under a decree of
registration does not prescribed. (Francisco vs. Cruz, 43
Off. Gaz., 5105, 5109-5110.) A recent decision of this
Court on this point is that rendered in the case of Jose
Alcantara et al., vs. Mariano et al., 92 Phil., 796. This
disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence
to sustain the finding that defendant should be sentenced
to pay plaintiff P132.62 monthly from January, 1940, until
he vacates the premises.' But it appears from the record
that that reasonable compensation for the use and
occupation of the premises, as stipulated at the hearing
was P10 a month for each hectare and that the area
occupied by defendant was 13.2619 hectares. The total
rent to be paid for the area occupied should therefore be
P132.62 a month. It is appears from the testimony of J. A.
Araneta and witness Emigdio Tanjuatco that as early as
1939 an action of ejectment had already been filed
against defendant. And it cannot be supposed that
defendant has been paying rents, for he has been
asserting all along that the premises in question 'have
always been since time immemorial in open, continuous,
exclusive and public and notorious possession and under
claim of ownership adverse to the entire world by
defendant and his predecessors in interest.' This
assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors
alleged and needs for further consideration.
During the pendency of this case in this Court appellant,
thru other counsel, has filed a motion to dismiss alleging
that there is pending before the Court of First Instance of
Rizal another action between the same parties and for
the same cause and seeking to sustain that allegation
with a copy of the complaint filed in said action. But an
examination of that complaint reveals that appellant's
allegation is not correct, for the pretended identity of
parties and cause of action in the two suits does not
appear. That other case is one for recovery of ownership,
while the present one is for recovery of possession. And
while appellant claims that he is also involved in that
order action because it is a class suit, the complaint does
not show that such is really the case. On the contrary, it
appears that the action seeks relief for each individual
plaintiff and not relief for and on behalf of others. The
motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with
costs against the plaintiff.
Paras, C.J., Pablo, Bengzon, Montemayor, Jugo,
Bautista Angelo, Labrador, and Concepcion, JJ.,concur.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO,
GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and
AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN
GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and
LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the
COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended
decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and
05617 which set aside the earlier decision dated June 5, 1986, of
the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares
Manufacturing Corporation (Saniwares), American Standard Inc.
(ASI) cannot nominate more than three (3) directors; that the
Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders
can nominate only six (6) candidates and in the event they cannot
agree on the six (6) nominees, they shall vote only among
themselves to determine who the six (6) nominees will be, with
cumulative voting to be allowed but without interference from
ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for
the primary purpose of manufacturing and marketing sanitary
wares. One of the incorporators, Mr. Baldwin Young went abroad
to look for foreign partners, European or American who could
help in its expansion plans. On August 15, 1962, ASI, a foreign
corporation domiciled in Delaware, United States entered into an
Agreement with Saniwares and some Filipino investors whereby
ASI and the Filipino investors agreed to participate in the
ownership of an enterprise which would engage primarily in the
business of manufacturing in the Philippines and selling here and
abroad vitreous china and sanitary wares. The parties agreed that
the business operations in the Philippines shall be carried on by
an incorporated enterprise and that the name of the corporation
shall initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues
in these cases on the nomination and election of the directors of
the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation
shall be substantially in the form annexed hereto
as Exhibit A and, insofar as permitted under
Philippine law, shall specifically provide for
(1) Cumulative voting for
directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be
vested in a Board of Directors, which shall consist
of nine individuals. As long as American-Standard
shall own at least 30% of the outstanding stock of
the Corporation, three of the nine directors shall
be designated by American-Standard, and the
other six shall be designated by the other
stockholders of the Corporation. (pp. 51 & 53,
Rollo of 75875)
At the request of ASI, the agreement contained provisions
designed to protect it as a minority group, including the grant of
veto powers over a number of corporate acts and the right to
designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate
transactions.
Later, the 30% capital stock of ASI was increased to 40%. The
corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the
capital stock of the corporation shall be owned by Philippine
nationals.
The joint enterprise thus entered into by the Filipino investors and
the American corporation prospered. Unfortunately, with the
business successes, there came a deterioration of the initially
harmonious relations between the two groups. According to the
Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI
objected as it apparently had other subsidiaries of joint joint
venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders'
meeting was held. The meeting was presided by Baldwin Young.
The minutes were taken by the Secretary, Avelino Cruz. After
disposing of the preliminary items in the agenda, the stockholders
then proceeded to the election of the members of the board of
directors. The ASI group nominated three persons namely;
Wolfgang Aurbach, John Griffin and David P. Whittingham. The
Philippine investors nominated six, namely; Ernesto Lagdameo,
Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee,
and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr.
Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay.
The chairman, Baldwin Young ruled the last two nominations out
of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual
stockholders' meetings to nominate only nine persons as
nominees for the nine-member board of directors, and the legal
advice of Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the
Chairman and heated arguments ensued. An
appeal was made by the ASI representative to the
body of stockholders present that a vote be taken
on the ruling of the Chairman. The Chairman,
Baldwin Young, declared the appeal out of order
and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary
to cast all the votes present and represented by
proxy equally for the 6 nominees of the Philippine
Investors and the 3 nominees of ASI, thus
effectively excluding the 2 additional persons
nominated, namely, Luciano E. Salazar and
Charles Chamsay. The ASI representative, Mr.
Jaqua protested the decision of the Chairman and
announced that all votes accruing to ASI shares, a
total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No.
05617) were being cumulatively voted for the
three ASI nominees and Charles Chamsay, and
instructed the Secretary to so vote. Luciano E.
Salazar and other proxy holders announced that
all the votes owned by and or represented by
them 467,197 shares (p. 27, Rollo, AC-G.R. SP
No. 05617) were being voted cumulatively in favor
of Luciano E. Salazar. The Chairman, Baldwin
Young, nevertheless instructed the Secretary to
cast all votes equally in favor of the three ASI
nominees, namely, Wolfgang Aurbach, John
Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely,
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F.
Lee, and Baldwin Young. The Secretary then
certified for the election of the following Wolfgang
Aurbach, John Griffin, David Whittingham Ernesto
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, Raul A. Boncan,
Baldwin Young. The representative of ASI then
moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p.
28, Rollo, AC-G.R. SP No. 05617). This motion to
adjourn was accepted by the Chairman, Baldwin
Young, who announced that the motion was
carried and declared the meeting adjourned.
Protests against the adjournment were registered
and having been ignored, Mr. Jaqua the ASI
representative, stated that the meeting was not
adjourned but only recessed and that the meeting
would be reconvened in the next room. The
Chairman then threatened to have the
stockholders who did not agree to the decision of
the Chairman on the casting of votes bodily
thrown out. The ASI Group, Luciano E. Salazar
and other stockholders, allegedly representing 53
or 54% of the shares of Saniwares, decided to
continue the meeting at the elevator lobby of the
American Standard Building. The continued
meeting was presided by Luciano E. Salazar,
while Andres Gatmaitan acted as Secretary. On
the basis of the cumulative votes cast earlier in
the meeting, the ASI Group nominated its four
nominees; Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E.
Salazar voted for himself, thus the said five
directors were certified as elected directors by the
Acting Secretary, Andres Gatmaitan, with the
explanation that there was a tie among the other
six (6) nominees for the four (4) remaining
positions of directors and that the body decided
not to break the tie. (pp. 37-39, Rollo of 75975-
76)
These incidents triggered off the filing of separate petitions by the
parties with the Securities and Exchange Commission (SEC). The
first petition filed was for preliminary injunction by Saniwares,
Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto
R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was
denominated as SEC Case No. 2417. The second petition was
for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar
and Charles Chamsay against the group of Young and Lagdameo
(petitioners in SEC Case No. 2417) and Avelino F. Cruz. The
case was docketed as SEC Case No. 2718. Both sets of parties
except for Avelino Cruz claimed to be the legitimate directors of
the corporation.
The two petitions were consolidated and tried jointly by a hearing
officer who rendered a decision upholding the election of the
Lagdameo Group and dismissing the quo warranto petition of
Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with
the Intermediate Appellate Court by Wolfgang Aurbach, John
Griffin, David Whittingham and Charles Chamsay (docketed as
AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as
AC-G.R. SP No. 05617). The petitions were consolidated and the
appellate court in its decision ordered the remand of the case to
the Securities and Exchange Commission with the directive that a
new stockholders' meeting of Saniwares be ordered convoked as
soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees
Lagdameo Group) the appellate court (Court of Appeals)
rendered the questioned amended decision. Petitioners Wolfgang
Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT,
UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF
THE BOARD OF DIRECTORS OF SANIWARES
WHEN IN FACT THERE WAS NO ELECTION AT
ALL.
II. THE COURT OF APPEALS PROHIBITS THE
STOCKHOLDERS FROM EXERCISING THEIR
FULL VOTING RIGHTS REPRESENTED BY THE
NUMBER OF SHARES IN SANIWARES, THUS
DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR
PROPERTY RIGHTS WITHOUT DUE PROCESS
OF LAW.
III. THE COURT OF APPEALS IMPOSES
CONDITIONS AND READS PROVISIONS INTO
THE AGREEMENT OF THE PARTIES WHICH
WERE NOT THERE, WHICH ACTION IT
CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the
amended decision on the following grounds:
11.1.
ThatAmendedDecisionwouldsanctiontheCA'sdisre
gard of binding contractual agreements entered
into by stockholders and the replacement of the
conditions of such agreements with terms never
contemplated by the stockholders but merely
dictated by the CA .
11.2. The Amended decision would likewise
sanction the deprivation of the property rights of
stockholders without due process of law in order
that a favored group of stockholders may be
illegally benefitted and guaranteed a continuing
monopoly of the control of a corporation. (pp. 14-
15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend
that:
 I Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd
THE AMENDED DECISION OF THE
RESPONDENT COURT, WHILE RECOGNIZING
THAT THE STOCKHOLDERS OF SANIWARES
ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE
AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT
CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY
ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF
SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are
discussed jointly.
The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders'
meeting held on March 8, 1983. To answer this question the
following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint venture
or a corporation and (2) whether or not the ASI Group may vote
their additional 10% equity during elections of Saniwares' board
of directors.
The rule is that whether the parties to a particular contract have
thereby established among themselves a joint venture or some
other relation depends upon their actual intention which is
determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares,
Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678;
751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76)
contend that the actual intention of the parties should be viewed
strictly on the "Agreement" dated August 15,1962 wherein it is
clearly stated that the parties' intention was to form a corporation
and not a joint venture.
They specifically mention number 16 under Miscellaneous
Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to
constitute any of the parties hereto partners or
joint venturers in respect of any transaction
hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to
show that the parties' agreement was to establish a joint venture
presented by the Lagdameo and Young Group on the ground that
it contravenes the parol evidence rule under section 7, Rule 130
of the Revised Rules of Court. According to them, the Lagdameo
and Young Group never pleaded in their pleading that the
"Agreement" failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms
of an agreement have been reduced to writing, it
is to be considered as containing all such terms,
and therefore, there can be, between the parties
and their successors in interest, no evidence of
the terms of the agreement other than the
contents of the writing, except in the following
cases:
 (a) Where a mistake or imperfection of the writing,
or its failure to express the true intent and
agreement of the parties or the validity of the
agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the
writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group
pleaded in their Reply and Answer to Counterclaim in SEC Case
No. 2417 that the Agreement failed to express the true intent of
the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement
would make it appear that the parties thereto
disclaim being partners or joint venturers such
disclaimer is directed at third parties and is not
inconsistent with, and does not preclude, the
existence of two distinct groups of stockholders in
Saniwares one of which (the Philippine Investors)
shall constitute the majority, and the other ASI
shall constitute the minority stockholder. In any
event, the evident intention of the Philippine
Investors and ASI in entering into the Agreement
is to enter into ajoint venture enterprise, and if
some words in the Agreement appear to be
contrary to the evident intention of the parties, the
latter shall prevail over the former (Art. 1370, New
Civil Code). The various stipulations of a contract
shall be interpreted together attributing to the
doubtful ones that sense which may result from all
of them taken jointly (Art. 1374, New Civil Code).
Moreover, in order to judge the intention of the
contracting parties, their contemporaneous and
subsequent acts shall be principally considered.
(Art. 1371, New Civil Code). (Part I, Original
Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence
tending to prove that the parties joined their efforts
in furtherance of an enterprise for their joint profit,
the question whether they intended by their
agreement to create a joint adventure, or to
assume some other relation is a question of fact
for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ.
A.) 238 SW 725; Hoge v. George, 27 Wyo, 423,
200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of
the Agreement as well as the testimonial evidence presented by
the Lagdameo and Young Group shows that the parties agreed to
establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which
govern its policy making body are all consistent with a joint
venture and not with an ordinary corporation. As stated by the
SEC:
According to the unrebutted testimony of Mr.
Baldwin Young, he negotiated the Agreement with
ASI in behalf of the Philippine nationals. He
testified that ASI agreed to accept the role of
minority vis-a-vis the Philippine National group of
investors, on the condition that the Agreement
should contain provisions to protect ASI as the
minority.
An examination of the Agreement shows that
certain provisions were included to protect the
interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain
enumerated corporate acts [Sec. 3 (b) (ii) (a) of
the Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee
and the vote of this member is required for certain
transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-
majority vote for the amendment of the articles
and by-laws of Saniwares [Sec. 3 (a) (iv) and (b)
(iii)]. ASI is also given the right to designate the
president and plant manager [Sec. 5 (6)]. The
Agreement further provides that the sales policy of
Saniwares shall be that which is normally followed
by ASI [Sec. 13 (a)] and that Saniwares should
not export "Standard" products otherwise than
through ASI's Export Marketing Services [Sec. 13
(6)]. Under the Agreement, ASI agreed to provide
technology and know-how to Saniwares and the
latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the
Agreement requiring a 7 out of 9 votes of the
board of directors for certain actions, in effect
gave ASI (which designates 3 directors under the
Agreement) an effective veto power. Furthermore,
the grant to ASI of the right to designate certain
officers of the corporation; the super-majority
voting requirements for amendments of the
articles and by-laws; and most significantly to the
issues of tms case, the provision that ASI shall
designate 3 out of the 9 directors and the other
stockholders shall designate the other 6, clearly
indicate that there are two distinct groups in
Saniwares, namely ASI, which owns 40% of the
capital stock and the Philippine National
stockholders who own the balance of 60%, and
that 2) ASI is given certain protections as the
minority stockholder.
Premises considered, we believe that under the
Agreement there are two groups of stockholders
who established a corporation with provisions for
a special contractual relationship between the
parties, i.e., ASI and the other stockholders. (pp.
4-5)
Section 5 (a) of the agreement uses the word "designated" and
not "nominated" or "elected" in the selection of the nine directors
on a six to three ratio. Each group is assured of a fixed number of
directors in the board.
Moreover, ASI in its communications referred to the enterprise as
joint venture. Baldwin Young also testified that Section 16(c) of
the Agreement that "Nothing herein contained shall be construed
to constitute any of the parties hereto partners or joint venturers
in respect of any transaction hereunder" was merely to obviate
the possibility of the enterprise being treated as partnership for
tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the
industrial and manufacturing capacities of a local firm are
constrained to seek the technology and marketing assistance of
huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a
minority owner of a firm in exchange for its manufacturing
expertise, use of its brand names, and other such assistance.
However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole
or monopolistic operations and merely uses the joint venture
arrangement to gain a foothold or test the Philippine waters, so to
speak. Or the covetousness may come later. As the Philippine
firm enlarges its operations and becomes profitable, the foreign
group undermines the local majority ownership and actively tries
to completely or predominantly take over the entire company.
This undermining of joint ventures is not consistent with fair
dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend
protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court
of Appeal
In fact, the Philippine Corporation Code itself
recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting
rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more
stockholders, if in writing and signed by the
parties thereto, may provide that in exercising any
voting rights, the shares held by them shall be
voted as therein provided, or as they may agree,
or as determined in accordance with a procedure
agreed upon by them.
Appellants contend that the above provision is
included in the Corporation Code's chapter on
close corporations and Saniwares cannot be a
close corporation because it has 95 stockholders.
Firstly, although Saniwares had 95 stockholders
at the time of the disputed stockholders meeting,
these 95 stockholders are not separate from each
other but are divisible into groups representing a
single Identifiable interest. For example, ASI, its
nominees and lawyers count for 13 of the 95
stockholders. The YoungYutivo family count for
another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders,
the Dy family for 7 stockholders, etc. If the
members of one family and/or business or interest
group are considered as one (which, it is
respectfully submitted, they should be for
purposes of determining how closely held
Saniwares is there were as of 8 March 1983,
practically only 17 stockholders of Saniwares.
(Please refer to discussion in pp. 5 to 6 of
appellees' Rejoinder Memorandum dated 11
December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is
technically not a close corporation because it has
more than 20 stockholders, the undeniable fact is
that it is a close-held corporation. Surely,
appellants cannot honestly claim that Saniwares
is a public issue or a widely held corporation.
In the United States, many courts have taken a
realistic approach to joint venture corporations
and have not rigidly applied principles of
corporation law designed primarily for public issue
corporations. These courts have indicated that
express arrangements between corporate joint
ventures should be construed with less emphasis
on the ordinary rules of law usually applied to
corporate entities and with more consideration
given to the nature of the agreement between the
joint venturers (Please see Wabash Ry v.
American Refrigerator Transit Co., 7 F 2d 335;
Chicago, M & St. P. Ry v. Des Moines Union Ry;
254 Ass'n. 247 US. 490'; Seaboard Airline Ry v.
Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d
771; Deboy v. Harris, 207 Md., 212,113 A 2d 903;
Hathway v. Porter Royalty Pool, Inc., 296 Mich.
90, 90, 295 N.W. 571; Beardsley v. Beardsley,
138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958).
These American cases dealt with legal questions
as to the extent to which the requirements arising
from the corporate form of joint venture
corporations should control, and the courts ruled
that substantial justice lay with those litigants who
relied on the joint venture agreement rather than
the litigants who relied on the orthodox principles
of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in
organizing the joint venture deviate from the
traditional pattern of corporation management. A
noted authority has pointed out that just as in
close corporations, shareholders' agreements in
joint venture corporations often contain provisions
which do one or more of the following: (1) require
greater than majority vote for shareholder and
director action; (2) give certain shareholders or
groups of shareholders power to select a specified
number of directors; (3) give to the shareholders
control over the selection and retention of
employees; and (4) set up a procedure for the
settlement of disputes by arbitration (See I O'
Neal, Close Corporations, 1971 ed., Section
1.06a, pp. 15-16) (Decision of SEC Hearing
Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation
Code does not necessarily imply that agreements
regarding the exercise of voting rights are allowed
only in close corporations. As Campos and Lopez-
Campos explain:
Paragraph 2 refers to pooling and voting
agreements in particular. Does this provision
necessarily imply that these agreements can be
valid only in close corporations as defined by the
Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a
close corporation under section 96, can some of
them enter into an agreement to vote as a unit in
the election of directors? It is submitted that there
is no reason for denying stockholders of
corporations other than close ones the right to
enter into not voting or pooling agreements to
protect their interests, as long as they do not
intend to commit any wrong, or fraud on the other
stockholders not parties to the agreement. Of
course, voting or pooling agreements are perhaps
more useful and more often resorted to in close
corporations. But they may also be found
necessary even in widely held corporations.
Moreover, since the Code limits the legal meaning
of close corporations to those which comply with
the requisites laid down by section 96, it is entirely
possible that a corporation which is in fact a close
corporation will not come within the definition. In
such case, its stockholders should not be
precluded from entering into contracts like voting
agreements if these are otherwise valid. (Campos
& Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the
Agreement relating to the designation or
nomination of directors restricts the right of the
Agreement's signatories to vote for directors, such
contractual provision, as correctly held by the
SEC, is valid and binding upon the signatories
thereto, which include appellants. (Rollo No.
75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may
vote their additional equity during elections of Saniwares' board of
directors, the Court of Appeals correctly stated:
As in other joint venture companies, the extent of
ASI's participation in the management of the
corporation is spelled out in the Agreement.
Section 5(a) hereof says that three of the nine
directors shall be designated by ASI and the
remaining six by the other stockholders, i.e., the
Filipino stockholders. This allocation of board
seats is obviously in consonance with the minority
position of ASI.
Having entered into a well-defined contractual
relationship, it is imperative that the parties should
honor and adhere to their respective rights and
obligations thereunder. Appellants seem to
contend that any allocation of board seats, even in
joint venture corporations, are null and void to the
extent that such may interfere with the
stockholder's rights to cumulative voting as
provided in Section 24 of the Corporation Code.
This Court should not be prepared to hold that any
agreement which curtails in any way cumulative
voting should be struck down, even if such
agreement has been freely entered into by
experienced businessmen and do not prejudice
those who are not parties thereto. It may well be
that it would be more cogent to hold, as the
Securities and Exchange Commission has held in
the decision appealed from, that cumulative voting
rights may be voluntarily waived by stockholders
who enter into special relationships with each
other to pursue and implement specific purposes,
as in joint venture relationships between foreign
and local stockholders, so long as such
agreements do not adversely affect third parties.
In any event, it is believed that we are not here
called upon to make a general rule on this
question. Rather, all that needs to be done is to
give life and effect to the particular contractual
rights and obligations which the parties have
assumed for themselves.
On the one hand, the clearly established minority
position of ASI and the contractual allocation of
board seats Cannot be disregarded. On the other
hand, the rights of the stockholders to cumulative
voting should also be protected.
In our decision sought to be reconsidered, we
opted to uphold the second over the first. Upon
further reflection, we feel that the proper and just
solution to give due consideration to both factors
suggests itself quite clearly. This Court should
recognize and uphold the division of the
stockholders into two groups, and at the same
time uphold the right of the stockholders within
each group to cumulative voting in the process of
determining who the group's nominees would be.
In practical terms, as suggested by appellant
Luciano E. Salazar himself, this means that if the
Filipino stockholders cannot agree who their six
nominees will be, a vote would have to be taken
among the Filipino stockholders only. During this
voting, each Filipino stockholder can cumulate his
votes. ASI, however, should not be allowed to
interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more
than the three directors it is allowed to designate
under the Agreement, and may even be able to
get a majority of the board seats, a result which is
clearly contrary to the contractual intent of the
parties.
 Such a ruling will give effect to both the allocation
of the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the
appellees on possible violation or circumvention of
the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of
the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875,
pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory
that the ASI Group has the right to vote their additional equity
pursuant to Section 24 of the Corporation Code which gives the
stockholders of a corporation the right to cumulate their votes in
electing directors. Petitioner Salazar adds that this right if granted
to the ASI Group would not necessarily mean a violation of the
Anti-Dummy Act (Commonwealth Act 108, as amended). He cites
section 2-a thereof which provides:
And provided finally that the election of aliens as
members of the board of directors or governing
body of corporations or associations engaging in
partially nationalized activities shall be allowed in
proportion to their allowable participation or share
in the capital of such entities. (amendments
introduced by Presidential Decree 715, section 1,
promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section
24 of the Corporation Code. The point of query, however, is
whether or not that provision is applicable to a joint venture with
clearly defined agreements:
The legal concept of ajoint venture is of common
law origin. It has no precise legal definition but it
has been generally understood to mean an
organization formed for some temporary purpose.
(Gates v. Megargel, 266 Fed. 811 [1920]) It is in
fact hardly distinguishable from the partnership,
since their elements are similar community of
interest in the business, sharing of profits and
losses, and a mutual right of control. Blackner v.
Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v.
Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P.
2d. 242 [1955]). The main distinction cited by
most opinions in common law jurisdictions is that
the partnership contemplates a general business
with some degree of continuity, while the joint
venture is formed for the execution of a single
transaction, and is thus of a temporary nature.
(Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500
[1931]; Harmon v. Martin, 395 111. 595, 71 NE
2d. 74 [1947]; Gates v. Megargel 266 Fed. 811
[1920]). This observation is not entirely accurate
in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a
particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a
joint venture is a form of partnership and should
thus be governed by the law of partnerships. The
Supreme Court has however recognized a
distinction between these two business forms, and
has held that although a corporation cannot enter
into a partnership contract, it may however
engage in a joint venture with others. (At p. 12,
Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos
and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and
operations of contracts generally apply to a contract of joint
venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that
the resolution of the question of whether or not the ASI Group
may vote their additional equity lies in the agreement of the
parties.
Necessarily, the appellate court was correct in upholding the
agreement of the parties as regards the allocation of director
seats under Section 5 (a) of the "Agreement," and the right of
each group of stockholders to cumulative voting in the process of
determining who the group's nominees would be under Section 3
(a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a)
of the Agreement relates to the manner of nominating the
members of the board of directors while Section 3 (a) (1) relates
to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties
as regards the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect
even a Filipino director who would be beholden to them would
obliterate their minority status as agreed upon by the parties. As
aptly stated by the appellate court:
... ASI, however, should not be allowed to
interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more
than the three directors it is allowed to designate
under the Agreement, and may even be able to
get a majority of the board seats, a result which is
clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation
of the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the
appellees on possible violation or circumvention of
the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of
the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39,
Rollo, 75875)
Equally important as the consideration of the contractual intent of
the parties is the consideration as regards the possible
domination by the foreign investors of the enterprise in violation of
the nationalization requirements enshrined in the Constitution and
circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI
group to elect board directors in proportion to their share in the
capital of the entity. It is to be noted, however, that the same law
also limits the election of aliens as members of the board of
directors in proportion to their allowance participation of said
entity. In the instant case, the foreign Group ASI was limited to
designate three directors. This is the allowable participation of the
ASI Group. Hence, in future dealings, this limitation of six to three
board seats should always be maintained as long as the joint
venture agreement exists considering that in limiting 3 board
seats in the 9-man board of directors there are provisions already
agreed upon and embodied in the parties' Agreement to protect
the interests arising from the minority status of the foreign
investors.
With these findings, we the decisions of the SEC Hearing Officer
and SEC which were impliedly affirmed by the appellate court
declaring Messrs. Wolfgang Aurbach, John Griffin, David P
Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A.
Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and
George F. Lee as the duly elected directors of Saniwares at the
March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners
in G.R. No. 75951) object to a cumulative voting during the
election of the board of directors of the enterprise as ruled by the
appellate court and submits that the six (6) directors allotted the
Filipino stockholders should be selected by consensus pursuant
to section 5 (a) of the Agreement which uses the word
"designate" meaning "nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take
control of the enterprise if the Filipino stockholders are allowed to
select their nominees separately and not as a common slot
determined by the majority of their group.
is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin,
David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul
A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and
George F. Lee are declared as the duly elected directors of
Saniwares at the March 8,1983 annual stockholders' meeting. In
all other respects, the questioned decision is AFFIRMED. Costs
against the petitioners in G.R. Nos. 75975-76 and G.R. No.
75875.

Section 5 (a) of the Agreement which uses the word designates in SO ORDERED.
the allocation of board directors should not be interpreted in
isolation. This should be construed in relation to section 3 (a) (1) Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.
of the Agreement. As we stated earlier, section 3(a) (1) relates to
the manner of voting for these nominees which is cumulative
voting while section 5(a) relates to the manner of nominating the
members of the board of directors. The petitioners in G.R. No.
75951 agreed to this procedure, hence, they cannot now impugn

its legality.

The insinuation that the ASI Group may be able to control the
enterprise under the cumulative voting procedure cannot,
however, be ignored. The validity of the cumulative voting
procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest
is to increase the ASI share in the management of Saniwares.
The joint venture character of the enterprise must always be
taken into account, so long as the company exists under its
original agreement. Cumulative voting may not be used as a
device to enable ASI to achieve stealthily or indirectly what they
cannot accomplish openly. There are substantial safeguards in
the Agreement which are intended to preserve the majority status
of the Filipino investors as well as to maintain the minority status
of the foreign investors group as earlier discussed. They should
be maintained.

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No.
75875 are DISMISSED and the petition in G.R. No. 75951 is
partly GRANTED. The amended decision of the Court of Appeals
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 108670 September 21, 1994
LBC EXPRESS, INC., petitioner,
vs.
THE COURT OF APPEALS, ADOLFO M. CARLOTO, and
RURAL BANK OF LABASON, INC., respondents.
Emmanuel D. Agustin for petitioner.
Bernardo P. Concha for private respondents.
PUNO, J.:
In this Petition for Review on Certiorari, petitioner LBC questions
the decision 1 of respondent Court of Appeals affirming the
judgment of the Regional Trial Court of Dipolog City, Branch 8,
awarding moral and exemplary damages, reimbursement of
P32,000.00, and costs of suit; but deleting the amount of
attorney's fees.
Private respondent Adolfo Carloto, incumbent President-Manager
of private respondent Rural Bank of Labason, alleged that on
November 12, 1984, he was in Cebu City transacting business
with the Central Bank Regional Office. He was instructed to
proceed to Manila on or before November 21, 1984 to follow-up
the Rural Bank's plan of payment of rediscounting obligations with
Central Bank's main office in Manila. 2 He then purchased a round
trip plane ticket to Manila. He also phoned his sister Elsie Carloto-
Concha to send him ONE THOUSAND PESOS (P1,000.00) for
his pocket money in going to Manila and some rediscounting
papers thru petitioner's LBC Office at Dipolog City. 3
On November 16, 1984, Mrs. Concha thru her clerk, Adelina
Antigo consigned thru LBC Dipolog Branch the pertinent
documents and the sum of ONE THOUSAND PESOS
(P1,000.00) to respondent Carloto at No. 2 Greyhound
Subdivision, Kinasangan, Pardo, Cebu City. This was evidenced
by LBC Air Cargo, Inc., Cashpack Delivery Receipt No. 34805.
On November 17, 1984, the documents arrived without the
cashpack. Respondent Carloto made personal follow-ups on that
same day, and also on November 19 and 20, 1984 at LBC's office
in Cebu but petitioner failed to deliver to him the cashpack.
Consequently, respondent Carloto said he was compelled to go
to Dipolog City on November 24, 1984 to claim the money at
LBC's office. His effort was once more in vain. On November 27,
1984, he went back to Cebu City at LBC's office. He was,
however, advised that the money has been returned to LBC's
office in Dipolog City upon shipper's request. Again, he
demanded for the ONE THOUSAND PESOS (P1,000.00) and
refund of FORTY-NINE PESOS (P49.00) LBC revenue charges.
He received the money only on December 15, 1984 less the
revenue charges.
Respondent Carloto claimed that because of the delay in the
transmittal of the cashpack, he failed to submit the rediscounting
documents to Central Bank on time. As a consequence, his rural
bank was made to pay the Central Bank THIRTY-TWO
THOUSAND PESOS (P32,000.00) as penalty interest. 4He
allegedly suffered embarrassment and humiliation.
Petitioner LBC, on the other hand, alleged that the cashpack was
forwarded via PAL to LBC Cebu City branch on November 22,
1984. 5 On the same day, it was delivered at respondent Carloto's
residence at No. 2 Greyhound Subdivision, Kinasangan, Pardo,
Cebu City. However, he was not around to receive it. The delivery
man served instead a claim notice to insure he would personally
receive the money. This was annotated on Cashpack Delivery
Receipt No. 342805. Notwithstanding the said notice, respondent
Carloto did not claim the cashpack at LBC Cebu. On November
23, 1984, it was returned to the shipper, Elsie Carloto-Concha at
Dipolog City.
Claiming that petitioner LBC wantonly and recklessly disregarded
its obligation, respondent Carloto instituted an action for
Damages Arising from Non-performance of Obligation docketed
as Civil Case No. 3679 before the Regional Trial Court of Dipolog
City on January 4, 1985. On June 25, 1988, an amended
complaint was filed where respondent rural bank joined as one of
the plaintiffs and prayed for the reimbursement of THIRTY-TWO
THOUSAND PESOS (P32,000.00).
After hearing, the trial court rendered its decision, the dispositive
of Cadette
portion of which reads: in favor
and Rural
WHEREFORE, judgment is hereby rendered:
1. Ordering the defendant LBC Air Cargo, Inc. to
pay unto plaintiff Adolfo M. Carloto and Rural
Bank of Labason, Inc., moral damages in the
amount of P10,000.00; exemplary damages in the
amount of P5,000.00; attorney's fees in the
amount of P3,000.00 and litigation expenses of
P1,000.00;
2. Sentencing defendant LBC Air Cargo, Inc., to
reimburse plaintiff Rural Bank of Labason, Inc. the
sum of P32,000.00 which the latter paid as
penalty interest to the Central Bank of the
Philippines as penalty interest for failure to
rediscount its due bills on time arising from the
defendant's failure to deliver the cashpack, with
legal interest computed from the date of filing of
this case; and
3. Ordering defendant to pay the costs of these
proceedings.
SO ORDERED. 6
On appeal, respondent court modified the judgment by deleting
the award of attorney's fees. Petitioner's Motion for
Reconsideration was denied in a Resolution dated January 11,
1993.
Hence, this petition raising the following questions, to wit:
1. Whether or not respondent Rural Bank of Labason Inc., being
an artificial person should be awarded moral damages.
2. Whether or not the award of THIRTY-TWO THOUSAND
PESOS (P32,000.00) was made with grave abuse of discretion.
3. Whether or not the respondent Court of Appeals gravely
abused its discretion in affirming the trial court's decision ordering
petitioner LBC to pay moral and exemplary damages despite
performance of its obligation.
We find merit in the petition.
The respondent court erred in awarding moral damages to the
7
Rural Bank of Labason, Inc., an artificial person.
Moral damages are granted in recompense for physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar
injury. 7A corporation, being an artificial person and having
 existence only in legal contemplation, has no feelings, no
{
emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. 8 Mental suffering can be
experienced only by one having a nervous system and it flows
from real ills, sorrows, and griefs of life 9 — all of which cannot be
suffered by respondent bank as an artificial person.
We can neither sustain the award of moral damages in favor of
the private respondents. The right to recover moral damages is
based on equity. Moral damages are recoverable only if the case
falls under Article 2219 of the Civil Code in relation to Article
21. 10 Part of conventional wisdom is that he who comes to court
to demand equity, must come with clean hands.
In the case at bench, respondent Carloto is not without fault. He
was fully aware that his rural bank's obligation would mature on
November 21, 1984 and his bank has set aside cash for these
bills payable. 11 He was all set to go to Manila to settle this
obligation. He has received the documents necessary for the
approval of their rediscounting application with the Central Bank.
He has also received the plane ticket to go to Manila.
Nevertheless, he did not immediately proceed to Manila but
instead tarried for days allegedly claiming his ONE THOUSAND
PESOS (P1,000.00) pocket money. Due to his delayed trip, he
failed to submit the rediscounting papers to the Central Bank on
time and his bank was penalized THIRTY-TWO THOUSAND
PESOS (P32,000.00) for failure to pay its obligation on its due
date. The undue importance given by respondent Carloto to his
ONE THOUSAND PESOS (P1,000.00) pocket money is
inexplicable for it was not indispensable for him to follow up his
bank's rediscounting application with Central Bank. According to
said respondent, he needed the money to "invite people for a
snack or dinner." 12 The attitude of said respondent speaks ill of
his ways of business dealings and cannot be countenanced by
this Court. Verily, it will be revolting to our sense of ethics to use it
as basis for awarding damages in favor of private respondent
Carloto and the Rural Bank of Labason, Inc.
We also hold that respondents failed to show that petitioner LBC's
late delivery of the cashpack was motivated by personal malice or
bad faith, whether intentional or thru gross negligence. In fact, it
was proved during the trial that the cashpack was consigned on
November 16, 1984, a Friday. It was sent to Cebu on November
19, 1984, the next business day. Considering this circumstance,
petitioner cannot be charged with gross neglect of duty. Bad faith
under the law can not be presumed; it must be established by
clearer and convincing evidence. 13 Again, the unbroken
jurisprudence is that in breach of contract cases where the
defendant is not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and probable
consequences of the branch of the obligation which the parties
had foreseen or could reasonable have foreseen. The damages,
however, will not include liability for moral damages. 14
Prescinding from these premises, the award of exemplary
damages made by the respondent court would have no legal leg
to support itself. Under Article 2232 of the Civil Code, in a
contractual or quasi-contractual relationship, exemplary damages
may be awarded only if the defendant had acted in "a wanton,
fraudulent, reckless, oppressive, or malevolent manner." The
established facts of not so warrant the characterization of the
action of petitioner LBC.
IN VIEW WHEREOF, the Decision of the respondent court dated
September 30, 1992 is REVERSED and SET ASIDE; and the
Complaint in Civil Case No. 3679 is ordered DISMISSED. No
costs.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Mendoza, JJ.,
concur.
 FIRST DIVISION
G.R. No. 141994 January 17, 2005
FILIPINAS BROADCASTING NETWORK, INC., petitioner,
vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL
CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and
ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review1 assails the 4 January 1999
Decision2 and 26 January 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 40151. The Court of Appeals
affirmed with modification the 14 December 1992
Decision3 of the Regional Trial Court of Legazpi City,
Branch 10, in Civil Case No. 8236. The Court of Appeals
held Filipinas Broadcasting Network, Inc. and its
broadcasters Hermogenes Alegre and Carmelo Rima
liable for libel and ordered them to solidarily pay Ago
Medical and Educational Center-Bicol Christian College
of Medicine moral damages, attorney’s fees and costs of
suit.
The Antecedents
"Exposé" is a radio documentary4 program hosted by
Carmelo ‘Mel’ Rima ("Rima") and Hermogenes ‘Jun’
Alegre ("Alegre").5 Exposé is aired every morning over
DZRC-AM which is owned by Filipinas Broadcasting
Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi
City, the Albay municipalities and other Bicol areas.6
In the morning of 14 and 15 December 1989, Rima and
Alegre exposed various alleged complaints from
students, teachers and parents against Ago Medical and
Educational Center-Bicol Christian College of Medicine
("AMEC") and its administrators. Claiming that the
broadcasts were defamatory, AMEC and Angelita Ago
("Ago"), as Dean of AMEC’s College of Medicine, filed a
complaint for damages7 against FBNI, Rima and Alegre
on 27 February 1990. Quoted are portions of the
allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have
children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they fail
in any subject they will repeat their year level, taking
up all subjects including those they have passed
already. Several students had approached me stating
that they had consulted with the DECS which told them
that there is no such regulation. If [there] is no such
regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy
had complained that the course is not recognized by
DECS. xxx
Third: Students are required to take and pay for the
subject even if the subject does not have an
instructor - such greed for money on the part of
AMEC’s administration. Take the subject Anatomy:
students would pay for the subject upon enrolment
because it is offered by the school. However there would
be no instructor for such subject. Students would be
informed that course would be moved to a later date
because the school is still searching for the appropriate
instructor.
xxx
It is a public knowledge that the Ago Medical and
Educational Center has survived and has been surviving
for the past few years since its inception because of
funds support from foreign foundations. If you will take a
look at the AMEC premises you’ll find out that the names
of the buildings there are foreign soundings. There is a
McDonald Hall. Why not Jose Rizal or Bonifacio Hall?
That is a very concrete and undeniable evidence that the
support of foreign foundations for AMEC is substantial,
isn’t it? With the report which is the basis of the expose in
DZRC today, it would be very easy for detractors and
enemies of the Ago family to stop the flow of support of
foreign foundations who assist the medical school on the
basis of the latter’s purpose. But if the purpose of the
institution (AMEC) is to deceive students at cross
purpose with its reason for being it is possible for these
foreign foundations to lift or suspend their donations
temporarily.8
xxx
On the other hand, the administrators of AMEC-
BCCM, AMEC Science High School and the AMEC-
Institute of Mass Communication in their effort to
minimize expenses in terms of salary are absorbing
or continues to accept "rejects". For example how
many teachers in AMEC are former teachers of Aquinas
University but were removed because of immorality?
Does it mean that the present administration of AMEC
have the total definite moral foundation from catholic
administrator of Aquinas University. I will prove to you my
friends, that AMEC is a dumping ground, garbage, not
merely of moral and physical misfits. Probably they
only qualify in terms of intellect. The Dean of Student
Affairs of AMEC is Justita Lola, as the family name
implies. She is too old to work, being an old woman. Is
the AMEC administration exploiting the very [e]nterprising
or compromising and undemanding Lola? Could it be that
AMEC is just patiently making use of Dean Justita Lola
were if she is very old. As in atmospheric situation – zero
visibility – the plane cannot land, meaning she is very old,
low pay follows. By the way, Dean Justita Lola is also the
chairman of the committee on scholarship in AMEC. She
had retired from Bicol University a long time ago but
AMEC has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping
ground for moral and physically misfit people. What does
this mean? Immoral and physically misfits as teachers.
May I say I’m sorry to Dean Justita Lola. But this is the
truth. The truth is this, that your are no longer fit to teach.
You are too old. As an aviation, your case is zero
visibility. Don’t insist.
xxx Why did AMEC still absorb her as a teacher, a dean,
and chairman of the scholarship committee at that. The
reason is practical cost saving in salaries, because an old
person is not fastidious, so long as she has money to buy
the ingredient of beetle juice. The elderly can get by –
that’s why she (Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of
students. It is likely that the students would be influenced
by evil. When they become members of society
outside of campus will be liabilities rather than
assets. What do you expect from a doctor who while
studying at AMEC is so much burdened with
unreasonable imposition? What do you expect from a
student who aside from peculiar problems – because not
all students are rich – in their struggle to improve their
social status are even more burdened with false
regulations. xxx9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable
learning institution. With the supposed exposés, FBNI,
Rima and Alegre "transmitted malicious imputations, and
as such, destroyed plaintiffs’ (AMEC and Ago)
reputation." AMEC and Ago included FBNI as defendant
for allegedly failing to exercise due diligence in the
selection and supervision of its employees, particularly
Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty.
Rozil Lozares, filed an Answer10 alleging that the
broadcasts against AMEC were fair and true. FBNI, Rima
and Alegre claimed that they were plainly impelled by a
sense of public duty to report the "goings-on in AMEC,
[which is] an institution imbued with public interest."
Thereafter, trial ensued. During the presentation of the
evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to
Dismiss11 on FBNI’s behalf. The trial court denied the
motion to dismiss. Consequently, FBNI filed a separate
Answer claiming that it exercised due diligence in the
selection and supervision of Rima and Alegre. FBNI
claimed that before hiring a broadcaster, the broadcaster
should (1) file an application; (2) be interviewed; and (3)
undergo an apprenticeship and training program after
passing the interview. FBNI likewise claimed that it
always reminds its broadcasters to "observe truth,
fairness and objectivity in their broadcasts and to refrain
from using libelous and indecent language." Moreover,
FBNI requires all broadcasters to pass the Kapisanan ng
mga Brodkaster sa Pilipinas ("KBP") accreditation test
and to secure a KBP permit.
On 14 December 1992, the trial court rendered a
Decision12 finding FBNI and Alegre liable for libel except
Rima. The trial court held that the broadcasts are
libelous per se. The trial court rejected the broadcasters’
claim that their utterances were the result of straight
reporting because it had no factual basis. The
broadcasters did not even verify their reports before
airing them to show good faith. In holding FBNI liable for
libel, the trial court found that FBNI failed to exercise
diligence in the selection and supervision of its
employees.
In absolving Rima from the charge, the trial court ruled
that Rima’s only participation was when he agreed with
Alegre’s exposé. The trial court found Rima’s statement
within the "bounds of freedom of speech, expression, and
of the press." The dispositive portion of the decision
reads:
WHEREFORE, premises considered, this court finds for
the plaintiff. Considering the degree of damages
caused by the controversial utterances, which are
not found by this court to be really very serious and
damaging, and there being no showing that indeed
the enrollment of plaintiff school dropped, defendants
Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting
Network (owner of the radio station DZRC), are hereby
jointly and severally ordered to pay plaintiff Ago Medical
and Educational Center-Bicol Christian College of
Medicine (AMEC-BCCM) the amount of ₱300,000.00
moral damages, plus ₱30,000.00 reimbursement of
attorney’s fees, and to pay the costs of suit.
SO ORDERED. 13 (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one
hand, and AMEC and Ago, on the other, appealed the
decision to the Court of Appeals. The Court of Appeals
affirmed the trial court’s judgment with modification. The
appellate court made Rima solidarily liable with FBNI and
Alegre. The appellate court denied Ago’s claim for
damages and attorney’s fees because the broadcasts
were directed against AMEC, and not against her. The
dispositive portion of the Court of Appeals’ decision
reads:
WHEREFORE, the decision appealed from is
hereby AFFIRMED, subject to the modification that
broadcaster Mel Rima is SOLIDARILY
ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.14
FBNI, Rima and Alegre filed a motion for reconsideration
which the Court of Appeals denied in its 26 January 2000
Resolution.
Hence, FBNI filed this petition.15
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial court’s ruling that
the questioned broadcasts are libelous per seand that
FBNI, Rima and Alegre failed to overcome the legal
presumption of malice. The Court of Appeals found Rima
and Alegre’s claim that they were actuated by their moral
and social duty to inform the public of the students’ gripes
as insufficient to justify the utterance of the defamatory
remarks.
Finding no factual basis for the imputations against
AMEC’s administrators, the Court of Appeals ruled that
the broadcasts were made "with reckless disregard as to
whether they were true or false." The appellate court
pointed out that FBNI, Rima and Alegre failed to present
in court any of the students who allegedly complained
against AMEC. Rima and Alegre merely gave a single
name when asked to identify the students. According to
the Court of Appeals, these circumstances cast doubt on
the veracity of the broadcasters’ claim that they were
"impelled by their moral and social duty to inform the
public about the students’ gripes."
The Court of Appeals found Rima also liable for libel
since he remarked that "(1) AMEC-BCCM is a dumping
ground for morally and physically misfit teachers; (2)
AMEC obtained the services of Dean Justita Lola to
minimize expenses on its employees’ salaries; and (3)
AMEC burdened the students with unreasonable
imposition and false regulations."16
The Court of Appeals held that FBNI failed to exercise
due diligence in the selection and supervision of its
employees for allowing Rima and Alegre to make the
radio broadcasts without the proper KBP accreditation.
The Court of Appeals denied Ago’s claim for damages
and attorney’s fees because the libelous remarks were
directed against AMEC, and not against her. The Court of
Appeals adjudged FBNI, Rima and Alegre solidarily liable
to pay AMEC moral damages, attorney’s fees and costs
of suit.
1awphi1.nét
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL
DAMAGES;
III. WHETHER THE AWARD OF ATTORNEY’S FEES IS
PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH
RIMA AND ALEGRE FOR PAYMENT OF MORAL
DAMAGES, ATTORNEY’S FEES AND COSTS OF SUIT.
The Court’s Ruling
We deny the petition.
This is a civil action for damages as a result of the
allegedly defamatory remarks of Rima and Alegre against
AMEC.17 While AMEC did not point out clearly the legal
basis for its complaint, a reading of the complaint reveals
that AMEC’s cause of action is based on Articles 30 and
33 of the Civil Code. Article 3018 authorizes a separate
civil action to recover civil liability arising from a criminal
offense. On the other hand, Article 3319 particularly
provides that the injured party may bring a separate civil
action for damages in cases of defamation, fraud, and
physical injuries. AMEC also invokes Article 1920 of the
Civil Code to justify its claim for damages. AMEC cites
Articles 217621 and 218022 of the Civil Code to hold FBNI
solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel23 is a public and malicious imputation of a crime, or
of a vice or defect, real or imaginary, or any act or
omission, condition, status, or circumstance tending to
cause the dishonor, discredit, or contempt of a natural or
juridical person, or to blacken the memory of one who is
dead.24
There is no question that the broadcasts were made
public and imputed to AMEC defects or circumstances
tending to cause it dishonor, discredit and contempt.
Rima and Alegre’s remarks such as "greed for money on
the part of AMEC’s administrators"; "AMEC is a dumping
ground, garbage of xxx moral and physical misfits"; and
AMEC students who graduate "will be liabilities rather
than assets" of the society are libelous per se. Taken as
a whole, the broadcasts suggest that AMEC is a money-
making institution where physically and morally unfit
teachers abound.
However, FBNI contends that the broadcasts are not
malicious. FBNI claims that Rima and Alegre were plainly
impelled by their civic duty to air the students’ gripes.
FBNI alleges that there is no evidence that ill will or spite
motivated Rima and Alegre in making the broadcasts.
FBNI further points out that Rima and Alegre exerted
efforts to obtain AMEC’s side and gave Ago the
opportunity to defend AMEC and its administrators. FBNI
concludes that since there is no malice, there is no libel.
FBNI’s contentions are untenable.
Every defamatory imputation is presumed
malicious.25 Rima and Alegre failed to show adequately
their good intention and justifiable motive in airing the
supposed gripes of the students. As hosts of a
documentary or public affairs program, Rima and Alegre
should have presented the public issues "free
from inaccurate and misleading information."26 Hearing
the students’ alleged complaints a month before the
exposé,27 they had sufficient time to verify their sources
and information. However, Rima and Alegre hardly made
a thorough investigation of the students’ alleged gripes.
Neither did they inquire about nor confirm the purported
irregularities in AMEC from the Department of Education,
Culture and Sports. Alegre testified that he merely went
to AMEC to verify his report from an alleged AMEC
official who refused to disclose any information. Alegre
simply relied on the words of the students "because they
were many and not because there is proof that what they
are saying is true."28 This plainly shows Rima and
Alegre’s reckless disregard of whether their report was
true or not.
Contrary to FBNI’s claim, the broadcasts were not "the
result of straight reporting." Significantly, some courts in
the United States apply the privilege of "neutral
reportage" in libel cases involving matters of public
interest or public figures. Under this privilege, a
republisher who accurately and disinterestedly reports
certain defamatory statements made against public
figures is shielded from liability, regardless of the
republisher’s subjective awareness of the truth or falsity
of the accusation.29 Rima and Alegre cannot invoke the
privilege of neutral reportage because unfounded
comments abound in the broadcasts. Moreover, there is
no existing controversy involving AMEC when the
broadcasts were made. The privilege of neutral reportage
applies where the defamed person is a public figure who
is involved in an existing controversy, and a party to that
controversy makes the defamatory statement.30
However, FBNI argues vigorously that malice in law does
not apply to this case. Citing Borjal v. Court of
Appeals,31 FBNI contends that the broadcasts "fall within
the coverage of qualifiedly privileged communications" for
being commentaries on matters of public interest. Such
being the case, AMEC should prove malice in fact or
actual malice. Since AMEC allegedly failed to prove
actual malice, there is no libel.
FBNI’s reliance on Borjal is misplaced. In Borjal, the
Court elucidated on the "doctrine of fair comment," thus:
[F]air commentaries on matters of public interest are
privileged and constitute a valid defense in an action for
libel or slander. The doctrine of fair comment means that
while in general every discreditable imputation publicly
made is deemed false, because every man is presumed
innocent until his guilt is judicially proved, and every false
imputation is deemed malicious, nevertheless, when the
discreditable imputation is directed against a public
person in his public capacity, it is not necessarily
actionable. In order that such discreditable imputation
to a public official may be actionable, it must either
be a false allegation of fact or a comment based on a
false supposition. If the comment is an expression of
opinion, based on established facts, then it is
immaterial that the opinion happens to be mistaken, as
long as it might reasonably be inferred from the
facts.32 (Emphasis supplied)
True, AMEC is a private learning institution whose
business of educating students is "genuinely imbued with
public interest." The welfare of the youth in general and
AMEC’s students in particular is a matter which the public
has the right to know. Thus, similar to the newspaper
articles in Borjal, the subject broadcasts dealt with
matters of public interest. However, unlike in Borjal, the
questioned broadcasts are not based on established
facts. The record supports the following findings of the
trial court:
xxx Although defendants claim that they were motivated
by consistent reports of students and parents against
plaintiff, yet, defendants have not presented in court, nor
even gave name of a single student who made the
complaint to them, much less present written complaint or
petition to that effect. To accept this defense of
defendants is too dangerous because it could easily give
license to the media to malign people and establishments
based on flimsy excuses that there were reports to them
although they could not satisfactorily establish it. Such
laxity would encourage careless and irresponsible
broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio
broadcasters, contrary to the mandates of their duties,
did not verify and analyze the truth of the reports before
they aired it, in order to prove that they are in good faith.
Alegre contended that plaintiff school had no permit and
is not accredited to offer Physical Therapy courses. Yet,
plaintiff produced a certificate coming from DECS that as
of Sept. 22, 1987 or more than 2 years before the
controversial broadcast, accreditation to offer Physical
Therapy course had already been given the plaintiff,
which certificate is signed by no less than the Secretary
of Education and Culture herself, Lourdes R. Quisumbing
(Exh. C-rebuttal). Defendants could have easily known
this were they careful enough to verify. And yet,
defendants were very categorical and sounded too
positive when they made the erroneous report that
plaintiff had no permit to offer Physical Therapy courses
which they were offering.
The allegation that plaintiff was getting tremendous aids
from foreign foundations like Mcdonald Foundation prove
not to be true also. The truth is there is no Mcdonald
Foundation existing. Although a big building of plaintiff
school was given the name Mcdonald building, that was
only in order to honor the first missionary in Bicol of
plaintiffs’ religion, as explained by Dr. Lita Ago. Contrary
to the claim of defendants over the air, not a single
centavo appears to be received by plaintiff school from
the aforementioned McDonald Foundation which does
not exist.
Defendants did not even also bother to prove their claim,
though denied by Dra. Ago, that when medical students
fail in one subject, they are made to repeat all the other
subject[s], even those they have already passed, nor
their claim that the school charges laboratory fees even if
there are no laboratories in the school. No evidence was
presented to prove the bases for these claims, at least in
order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground
for misfits, and immoral teachers, defendant[s] singled
out Dean Justita Lola who is said to be so old, with zero
visibility already. Dean Lola testified in court last Jan. 21,
1991, and was found to be 75 years old. xxx Even older
people prove to be effective teachers like Supreme Court
Justices who are still very much in demand as law
professors in their late years. Counsel for defendants is
past 75 but is found by this court to be still very sharp and
effective. So is plaintiffs’ counsel.
l^vvphi1.net
Dr. Lola was observed by this court not to be physically
decrepit yet, nor mentally infirmed, but is still alert and
docile.
The contention that plaintiffs’ graduates become liabilities
rather than assets of our society is a mere conclusion.
Being from the place himself, this court is aware that
majority of the medical graduates of plaintiffs pass the
board examination easily and become prosperous and
responsible professionals.33
Had the comments been an expression of opinion based
on established facts, it is immaterial that the opinion
happens to be mistaken, as long as it might reasonably
be inferred from the facts.34 However, the comments of
Rima and Alegre were not backed up by facts. Therefore,
the broadcasts are not privileged and remain libelous per
se.
The broadcasts also violate the Radio Code35 of
the Kapisanan ng mga Brodkaster sa Pilipinas,
Ink. ("Radio Code"). Item I(B) of the Radio Code
provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues
free from personal bias, prejudice and inaccurate and
misleading information. x x x Furthermore, the station
shall strive to present balanced discussion of issues. x x
x.
xxx
7. The station shall be responsible at all times in the
supervision of public affairs, public issues and
commentary programs so that they conform to the
provisions and standards of this code.
8. It shall be the responsibility of the newscaster,
commentator, host and announcer to protect public
interest, general welfare and good order in the
presentation of public affairs and public
issues.36 (Emphasis supplied)
The broadcasts fail to meet the standards prescribed in
the Radio Code, which lays down the code of ethical
conduct governing practitioners in the radio broadcast
industry. The Radio Code is a voluntary code of conduct
imposed by the radio broadcast industry on its own
members. The Radio Code is a public warranty by the
radio broadcast industry that radio broadcast practitioners
are subject to a code by which their conduct are
measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio
broadcast practitioners live up to the code of conduct of
their profession, just like other professionals. A
professional code of conduct provides the standards for
determining whether a person has acted justly, honestly
and with good faith in the exercise of his rights and
performance of his duties as required by Article 1937 of
the Civil Code. A professional code of conduct also
provides the standards for determining whether a person
who willfully causes loss or injury to another has acted in
a manner contrary to morals or good customs under
Article 2138 of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral
damages because it is a corporation.39
A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or
moral shock.40 The Court of Appeals cites Mambulao
Lumber Co. v. PNB, et al.41 to justify the award of moral
damages. However, the Court’s statement
in Mambulao that "a corporation may have a good
reputation which, if besmirched, may also be a ground for
the award of moral damages" is an obiter dictum.42
Nevertheless, AMEC’s claim for moral damages falls
under item 7 of Article 221943 of the Civil Code. This
provision expressly authorizes the recovery of moral
damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the
plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly
complain for libel or any other form of defamation and
claim for moral damages.44
Moreover, where the broadcast is libelous per se, the law
implies damages.45 In such a case, evidence of an honest
mistake or the want of character or reputation of the party
libeled goes only in mitigation of damages.46 Neither in
such a case is the plaintiff required to introduce evidence
of actual damages as a condition precedent to the
recovery of some damages.47 In this case, the broadcasts
are libelous per se. Thus, AMEC is entitled to moral
damages.
However, we find the award of ₱300,000 moral damages
unreasonable. The record shows that even though the
broadcasts were libelous per se, AMEC has not suffered
any substantial or material damage to its reputation.
Therefore, we reduce the award of moral damages from
₱300,000 to ₱150,000.
III.
Whether the award of attorney’s fees is proper
FBNI contends that since AMEC is not entitled to moral
damages, there is no basis for the award of attorney’s
fees. FBNI adds that the instant case does not fall under
the enumeration in Article 220848of the Civil Code.
The award of attorney’s fees is not proper because
AMEC failed to justify satisfactorily its claim for attorney’s
fees. AMEC did not adduce evidence to warrant the
award of attorney’s fees. Moreover, both the trial and
appellate courts failed to explicitly state in their respective
decisions the rationale for the award of attorney’s
fees.49 In Inter-Asia Investment Industries, Inc. v. Court of
Appeals ,50 we held that:
[I]t is an accepted doctrine that the award thereof as an
item of damages is the exception rather than the rule,
and counsel’s fees are not to be awarded every time a
party wins a suit. The power of the court to award
attorney’s fees under Article 2208 of the Civil Code
demands factual, legal and equitable justification,
without which the award is a conclusion without a
premise, its basis being improperly left to
speculation and conjecture. In all events, the court
must explicitly state in the text of the decision, and not
only in the decretal portion thereof, the legal reason for
the award of attorney’s fees.51 (Emphasis supplied)
While it mentioned about the award of attorney’s fees by
stating that it "lies within the discretion of the court and
depends upon the circumstances of each case," the
Court of Appeals failed to point out any circumstance to
justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre for moral
damages, attorney’s fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and
Alegre for the payment of damages and attorney’s fees
because it exercised due diligence in the selection and
supervision of its employees, particularly Rima and
Alegre. FBNI maintains that its broadcasters, including
Rima and Alegre, undergo a "very regimented process"
before they are allowed to go on air. "Those who apply
for broadcaster are subjected to interviews, examinations
and an apprenticeship program."
FBNI further argues that Alegre’s age and lack of training
are irrelevant to his competence as a broadcaster. FBNI
points out that the "minor deficiencies in the KBP
accreditation of Rima and Alegre do not in any way prove
that FBNI did not exercise the diligence of a good father
of a family in selecting and supervising them." Rima’s
accreditation lapsed due to his non-payment of the KBP
annual fees while Alegre’s accreditation card was
delayed allegedly for reasons attributable to the KBP
Manila Office. FBNI claims that membership in the KBP is
merely voluntary and not required by any law or
government regulation.
FBNI’s arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors
are jointly and severally liable for the tort which they
commit.52 Joint tort feasors are all the persons who
command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of
a tort, or who approve of it after it is done, if done for their
benefit.53 Thus, AMEC correctly anchored its cause of
action against FBNI on Articles 2176 and 2180 of the
Civil Code.1a\^/phi1.net
As operator of DZRC-AM and employer of Rima and
Alegre, FBNI is solidarily liable to pay for damages
arising from the libelous broadcasts. As stated by the
Court of Appeals, "recovery for defamatory statements
published by radio or television may be had from
the owner of the station, a licensee, the operator of
the station, or a person who procures, or participates in,
the making of the defamatory statements."54 An employer
and employee are solidarily liable for a defamatory
statement by the employee within the course and scope
of his or her employment, at least when the employer
authorizes or ratifies the defamation.55 In this case, Rima
and Alegre were clearly performing their official duties as
hosts of FBNI’s radio program Exposé when they aired
the broadcasts. FBNI neither alleged nor proved that
Rima and Alegre went beyond the scope of their work at
that time. There was likewise no showing that FBNI did
not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that
FBNI exercised due diligence in
the selection and supervision of its employees,
particularly Rima and Alegre. FBNI merely showed that it
exercised diligence in the selection of its broadcasters
without introducing any evidence to prove that it observed
the same diligence in the supervision of Rima and
Alegre. FBNI did not show how it exercised diligence in
supervising its broadcasters. FBNI’s alleged constant
reminder to its broadcasters to "observe truth, fairness
and objectivity and to refrain from using libelous and SO ORDERED.
indecent language" is not enough to prove due diligence
in the supervision of its broadcasters. Adequate training Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-
of the broadcasters on the industry’s code of conduct, Santiago, and Azcuna, JJ., concur.
sufficient information on libel laws, and continuous
evaluation of the broadcasters’ performance are but a
few of the many ways of showing diligence in the
supervision of broadcasters.

FBNI claims that it "has taken all the precaution in
the selection of Rima and Alegre as broadcasters,
bearing in mind their qualifications." However, no clear
and convincing evidence shows that Rima and Alegre
underwent FBNI’s "regimented process" of application.
Furthermore, FBNI admits that Rima and Alegre had
deficiencies in their KBP accreditation,56 which is one of
FBNI’s requirements before it hires a broadcaster.
Significantly, membership in the KBP, while voluntary,
indicates the broadcaster’s strong commitment to

observe the broadcast industry’s rules and regulations.

Clearly, these circumstances show FBNI’s lack of

diligence in selecting and supervising Rima and Alegre.

Hence, FBNI is solidarily liable to pay damages together
with Rima and Alegre.

WHEREFORE, we DENY the instant petition. We
AFFIRM the Decision of 4 January 1999 and Resolution
of 26 January 2000 of the Court of Appeals in CA-G.R.
CV No. 40151 with the MODIFICATION that the award of
moral damages is reduced from ₱300,000 to ₱150,000
and the award of attorney’s fees is deleted. Costs against
petitioner.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-12719 May 31, 1962
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.
Office of the Solicitor General for petitioner.
V. Jaime and L. E. Petilla for respondent.
PAREDES, J.:
This is a petition to review the decision of the Court of
Tax Appeals, reversing the decision of the Collector of
Internal Revenue, assessing against and demanding
from the "Club Filipino, Inc. de Cebu", the sum of
P12,068.84 as fixed and percentage taxes, surcharge
and compromise penalty, allegedly due from it as a
keeper of bar and restaurant.
As found by the Court of Tax Appeals, the "Club Filipino,
Inc. de Cebu," (Club, for short), is a civic corporation
organized under the laws of the Philippines with an
original authorized capital stock of P22,000.00, which
was subsequently increased to P200,000.00, among
others, to it "proporcionar, operar, y mantener un campo
de golf, tenis, gimnesio (gymnasiums), juego de bolos
(bowling alleys), mesas de billar y pool, y toda clase de
juegos no prohibidos por leyes generales y ordenanzas
generales; y desarollar y cultivar deportes de toda clase y
denominacion cualquiera para el recreo y entrenamiento
saludable de sus miembros y accionistas" (sec. 2,
Escritura de Incorporacion del Club Filipino, Inc. Exh. A).
Neither in the articles or by-laws is there a provision
relative to dividends and their distribution, although it is
covenanted that upon its dissolution, the Club's
remaining assets, after paying debts, shall be donated to
a charitable Philippine Institution in Cebu (Art. 27,
Estatutos del Club, Exh. A-a.).
The Club owns and operates a club house, a bowling
alley, a golf course (on a lot leased from the
government), and a bar-restaurant where it sells wines
and liquors, soft drinks, meals and short orders to its
members and their guests. The bar-restaurant was a
necessary incident to the operation of the club and its
golf-course. The club is operated mainly with funds
derived from membership fees and dues. Whatever
profits it had, were used to defray its overhead expenses
and to improve its golf-course. In 1951. as a result of a
capital surplus, arising from the re-valuation of its real
properties, the value or price of which increased, the Club
declared stock dividends; but no actual cash dividends
were distributed to the stockholders. In 1952, a BIR agent
discovered that the Club has never paid percentage tax
on the gross receipts of its bar and restaurant, although it
secured B-4, B-9(a) and B-7 licenses. In a letter dated
December 22, 1852, the Collector of Internal Revenue
assessed against and demanded from the Club, the
following sums: —

As percentage tax on its gross receipts
{
during the tax years 1946 to 1951 P9,599.07
Surcharge therein 2,399.77
As fixed tax for the years 1946 to 1952 70.00
Compromise penalty 500.00
The Club wrote the Collector, requesting for the
cancellation of the assessment. The request having been
denied, the Club filed the instant petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment
of the sum of 12,068.84, as fixed and percentage taxes
and surcharges prescribed in sections 182, 183 and 191
of the Tax Code, under which the assessment was made,
in connection with the operation of its bar and restaurant,
during the periods mentioned above; and
2. Whether it is liable for the payment of the sum of
P500.00 as compromise penalty.
Section 182, of the Tax Code states, "Unless otherwise
provided, every person engaging in a business on which
the percentage tax is imposed shall pay in full a fixed
annual tax of ten pesos for each calendar year or fraction
thereof in which such person shall engage in said
business." Section 183 provides in general that "the
percentage taxes on business shall be payable at the end
of each calendar quarter in the amount lawfully due on
the business transacted during each quarter; etc." And
section 191, same Tax Code, provides "Percentage tax .
. . Keepers of restaurants, refreshment parlors and other
eating places shall pay a tax three per centum, and
keepers of bar and cafes where wines or liquors are
served five per centum of their gross receipts . . .". It has
been held that the liability for fixed and percentage taxes,
as provided by these sections, does not ipso facto attach
by mere reason of the operation of a bar and restaurant.
For the liability to attach, the operator thereof must be
engaged in the business as a barkeeper and
restaurateur. The plain and ordinary meaning
of business is restricted to activities or affairs where profit
is the purpose or livelihood is the motive, and the term
business when used without qualification, should be
construed in its plain and ordinary meaning, restricted to
activities for profit or livelihood (The Coll. of Int. Rev. v.
Manila Lodge No. 761 of the BPOE [Manila Elks Club] &
Court of Tax Appeals, G.R. No. L-11176, June 29, 1959,
giving full definitions of the word "business"; Coll. of Int.
Rev. v. Sweeney, et al. [International Club of Iloilo, Inc.],
G.R. No. L-12178, Aug. 21, 1959, the facts of which are
similar to the ones at bar; Manila Polo Club v. B. L. Meer,
etc., No. L-10854, Jan. 27, 1960).
Having found as a fact that the Club was organized to
develop and cultivate sports of all class and
denomination, for the healthful recreation and
entertainment of its stockholders and members; that upon
its dissolution, its remaining assets, after paying debts,
shall be donated to a charitable Philippine Institution in
Cebu; that it is operated mainly with funds derived from
membership fees and dues; that the Club's bar and
restaurant catered only to its members and their guests;
that there was in fact no cash dividend distribution to its
stockholders and that whatever was derived on retail
from its bar and restaurant was used to defray its overall
overhead expenses and to improve its golf-course (cost-
plus-expenses-basis), it stands to reason that the Club is
not engaged in the business of an operator of bar and
restaurant (same authorities, cited above).
It is conceded that the Club derived profit from the
operation of its bar and restaurant, but such fact does not
necessarily convert it into a profit-making enterprise. The
bar and restaurant are necessary adjuncts of the Club to
foster its purposes and the profits derived therefrom are
necessarily incidental to the primary object of developing
and cultivating sports for the healthful recreation and
entertainment of the stockholders and members. That a
Club makes some profit, does not make it a profit-making
Club. As has been remarked a club should always strive,
whenever possible, to have surplus (Jesus Sacred Heart
College v. Collector of Int. Rev., G.R. No. L-6807, May
24, 1954; Collector of Int. Rev. v. Sinco Educational
Corp., G.R. No. L-9276, Oct. 23, 1956). 1äwphï1.ñët
It is claimed that unlike the two cases just cited (supra),
which are non-stock, the appellee Club is a stock
corporation. This is unmeritorious. The facts that the
capital stock of the respondent Club is divided into
shares, does not detract from the finding of the trial court
that it is not engaged in the business of operator of bar
and restaurant. What is determinative of whether or not
the Club is engaged in such business is its object or
purpose, as stated in its articles and by-laws. It is a
familiar rule that the actual purpose is not controlled by
the corporate form or by the commercial aspect of the
business prosecuted, but may be shown by extrinsic
evidence, including the by-laws and the method of
operation. From the extrinsic evidence adduced, the Tax
Court concluded that the Club is not engaged in the
business as a barkeeper and restaurateur.
Moreover, for a ostock corporation to exist, two requisites
must be complied with, to wit: (1) a capital stock divided
into shares and (2) an authority to distribute to the
holders of such shares, dividends or allotments of the
surplus profits on the basis of the shares held (sec. 3, Act
No. 1459). In the case at bar, nowhere in its articles of
incorporation or by-laws could be found an authority for
the distribution of its dividends or surplus profits. Strictly
speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation
law.
A tax is a burden, and, as such, it should not be deemed
imposed upon fraternal, civic, non-profit, nonstock
organizations, unless the intent to the contrary is manifest
and patent" (Collector v. BPOE Elks Club, et al., supra),
which is not the case in the present appeal.
Having arrived at the conclusion that respondent Club is
not engaged in the business as an operator of a bar and
restaurant, and therefore, not liable for fixed and
percentage taxes, it follows that it is not liable for any
penalty, much less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed
without costs.
Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Barrera and Dizon, JJ., concur.
Bengzon, C.J., is on leave.

































Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 79182 September 11, 1991
PNOC-ENERGY DEVELOPMENT CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (Third
Division) and DANILO MERCADO,respondents.
Bacorro & Associates for petitioner.
Alberto L. Dalmacion for private respondent.
PARAS, J.:
This is a petition for certiorari to set aside the
Resolution * dated July 3, 1987 of respondent National
Labor Relations Commission (NLRC for brevity) which
affirmed the decision dated April 30, 1986 of Labor
Arbiter Vito J. Minoria of the NLRC, Regional Arbitration
Branch No. VII at Cebu City in Case No. RAB-VII-0556-
85 entitled "Danilo Mercado, Complainant, vs. Philippine
National Oil Company-Energy Development Corporation,
Respondent", ordering the reinstatement of complainant
Danilo Mercado and the award of various monetary
claims.
The factual background of this case is as follows:
Private respondent Danilo Mercado was first employed
by herein petitioner Philippine National Oil Company-
Energy Development Corporation (PNOC-EDC for
brevity) on August 13, 1979. He held various positions
ranging from clerk, general clerk to shipping clerk during
his employment at its Cebu office until his transfer to its
establishment at Palimpinon, Dumaguete, Oriental
Negros on September 5, 1984. On June 30, 1985, private
respondent Mercado was dismissed. His last salary was
P1,585.00 a month basic pay plus P800.00 living
allowance (Labor Arbiter's Decision, Annex "E" of
Petition, Rollo, p. 52).
The grounds for the dismissal of Mercado are allegedly
serious acts of dishonesty committed as follows:
1. On ApriI 12, 1985, Danilo Mercado was ordered to
purchase 1,400 pieces of nipa shingles from Mrs.
Leonardo Nodado of Banilad, Dumaguete City, for the
total purchase price of Pl,680.00. Against company policy,
regulations and specific orders, Danilo Mercado withdrew
the nipa shingles from the supplier but paid the amount of
P1,000.00 only. Danilo Mercado appropriated the balance
of P680.00 for his personal use;
2. In the same transaction stated above, the supplier
agreed to give the company a discount of P70.00 which
Danilo Mercado did not report to the company;
 3. On March 28, 1985, Danilo Mercado was instructed to
contract the services of Fred R. Melon of Dumaguete City,
for the fabrication of rubber stamps, for the total amount
of P28.66. Danilo Mercado paid the amount of P20.00 to
Fred R. Melon and appropriated for his personal use the
balance of P8.66.
In addition, private respondent, Danilo Mercado violated
company rules and regulations in the following instances:
1. On June 5, 1985, Danilo Mercado was absent from
work without leave, without proper turn-over of his work,
causing disruption and delay of company work activities;
2. On June 15, 1985, Danilo Mercado went on vacation
leave without prior leave, against company policy, rules
and regulations. (Petitioner's Memorandum, Rollo, p.
195).
On September 23, 1985, private respondent Mercado
filed a complaint for illegal dismissal, retirement benefits,
separation pay, unpaid wages, etc. against petitioner
PNOC-EDC before the NLRC Regional Arbitration
Branch No. VII docketed as Case No. RAB-VII-0556-85.
After private respondent Mercado filed his position paper
on December 16, 1985 (Annex "B" of the Petition, Rollo,
pp. 28-40), petitioner PNOC-EDC filed its Position
Paper/Motion to Dismiss on January 15, 1986, praying for
the dismissal of the case on the ground that the Labor
Arbiter and/or the NLRC had no jurisdiction over the case
(Annex "C" of the Petition, Rollo, pp. 41-45), which was
assailed by private respondent Mercado in his Opposition
to the Position Paper/Motion to Dismiss dated March 12,
1986 (Annex "D" of the Petition, Rollo, pp. 46-50).
The Labor Arbiter ruled in favor of private respondent
Mercado. The dispositive onion of said decision reads as
follows:
WHEREFORE, in view of the foregoing, respondents are
hereby ordered:
1) To reinstate complainant to his former position with full
back wages from the date of his dismissal up to the time
of his actual reinstatement without loss of seniority rights
and other privileges;
2) To pay complainant the amount of P10,000.00
representing his personal share of his savings account
with the respondents;
3) To pay complainants the amount of P30,000.00 moral
damages; P20,000.00 exemplary damages and
P5,000.00 attorney's fees;
4) To pay complainant the amount of P792.50 as his
proportionate 13th month pay for 1985.
Respondents are hereby further ordered to deposit the
aforementioned amounts with this Office within ten days
from receipt of a copy of this decision for further
disposition.
SO ORDERED.
(Labor Arbiter's Decision, Rollo, p. 56)
The appeal to the NLRC was dismissed for lack of merit
on July 3, 1987 and the assailed decision was affirmed.
Hence, this petition.
The issues raised by petitioner in this instant petition are:
1. Whether or not matters of employment affecting the
PNOC-EDC, a government-owned and controlled
corporation, are within the jurisdiction of the Labor Arbiter
and the NLRC.
2. Assuming the affirmative, whether or not the Labor
Arbiter and the NLRC are justified in ordering the
reinstatement of private respondent, payment of his
savings, and proportionate 13th month pay and payment
of damages as well as attorney's fee.
Petitioner PNOC-EDC alleges that it is a corporation
wholly owned and controlled by the government; that the
Energy Development Corporation is a subsidiary of the
Philippine National Oil Company which is a government
entity created under Presidential Decree No. 334, as
amended; that being a government-owned and controlled
corporation, it is governed by the Civil Service Law as
provided for in Section 1, Article XII-B of the 1973
Constitution, Section 56 of Presidential Decree No. 807
(Civil Service Decree) and Article 277 of Presidential
Decree No. 442, as amended (Labor Code).
The 1973 Constitution provides:
The Civil Service embraces every branch, agency,
subdivision and instrumentality of the government
including government-owned or controlled corporations.
Petitioner PNOC-EDC argued that since Labor Arbiter
Minoria rendered the decision at the time when the 1973
Constitution was in force, said decision is null and void
because under the 1973 Constitution, government-owned
and controlled corporations were governed by the Civil
Service Law. Even assuming that PNOC-EDC has no
original or special charter and Section 2(i), Article IX-B of
the 1987 Constitution provides that:
f
The Civil Service embraces all branches, subdivision,
instrumentalities and agencies of the Government,
including government-owned or controlled corporations
with original charters.
such circumstances cannot give validity to the decision of
the Labor Arbiter (Ibid., pp. 192-193).
This issue has already been laid to rest in the case
of PNOC-EDC vs. Leogardo, 175 SCRA 26 (July 5,
1989), involving the same petitioner and the same issue,
where this Court ruled that the doctrine that employees of
government-owned and/or con controlled corporations,
whether created by special law or formed as subsidiaries
under the General Corporation law are governed by the
Civil Service Law and not by the Labor Code, has been
supplanted by the present Constitution. "Thus, under the
present state of the law, the test in determining whether a
government-owned or controlled corporation is subject to
the Civil Service Law are the manner of its creation, such
that government corporations created by special charter
are subject to its provisions while those incorporated
under the General Corporation Law are not within its
coverage."
Specifically, the PNOC-EDC having been incorporated
under the General Corporation Law was held to be a
government owned or controlled corporation whose
employees are subject to the provisions of the Labor
Code (Ibid.).
The fact that the case arose at the time when the 1973
Constitution was still in effect, does not deprive the NLRC
of jurisdiction on the premise that it is the 1987
Constitution that governs because it is the Constitution in
place at the time of the decision (NASECO v. NLRC,
G.R. No. 69870, 168 SCRA 122 [1988]).
In the case at bar, the decision of the NLRC was
promulgated on July 3, 1987. Accordingly, this case falls
squarely under the rulings of the aforementioned cases.
As regards the second issue, the record shows that
PNOC-EDC's accusations of dishonesty and violations of
company rules are not supported by evidence.
Nonetheless, while acknowledging the rule that
administrative bodies are not governed by the strict rules
of evidence, petitioner PNOC-EDC alleges that the labor
arbiter's propensity to decide the case through the
position papers submitted by the parties is violative of
due process thereby rendering the decision null and void
(Ibid., p. 196).
On the other hand, private respondent contends that as
can be seen from petitioner's Motion for Reconsideration
and/or Appeal dated July 28, 1986 (Annex "F" of the
Petition, Rollo, pp. 57- 64), the latter never questioned
the findings of facts of the Labor Arbiter but simply limited
its objection to the lack of legal basis in view of its stand
that the NLRC had no jurisdiction over the case (Private
Respondent's Memorandum, Rollo, p. 104).
Petitioner PNOC-EDC filed its Position Paper/Motion to
Dismiss dated January 15, 1986 (Annex "C" of the
Petition Rollo, pp. 41-45) before the Regional Arbitration
Branch No. VII of Cebu City and its Motion for
Reconsideration and/or Appeal dated July 28, 1986
(Annex "F" of the Petition, Rollo, pp. 57-64) before the
NLRC of Cebu City. Indisputably, the requirements of due
process are satisfied when the parties are given an
opportunity to submit position papers. What the
fundamental law abhors is not the absence of previous
notice but rather the absolute lack of opportunity to
ventilate a party's side. There is no denial of due process
where the party submitted its position paper and flied its
motion for reconsideration (Odin Security Agency vs. De
la Serna, 182 SCRA 472 [February 21, 1990]).
Petitioner's subsequent Motion for Reconsideration
and/or Appeal has the effect of curing whatever
irregularity might have been committed in the
proceedings below (T.H. Valderama and Sons, Inc. vs.
Drilon, 181 SCRA 308 [January 22, 1990]).
Furthermore, it has been consistently held that findings of
administrative agencies which have acquired expertise
because their jurisdiction is confined to specific matters
are accorded not only respect but even finality (Asian
Construction and Development Corporation vs. NLRC,
187 SCRA 784 [July 27, 1990]; Lopez Sugar Corporation
vs. Federation of Free Workers, 189 SCRA 179 [August
30, 1990]). Judicial review by this Court does not go so
far as to evaluate the sufficiency of the evidence but is
limited to issues of jurisdiction or grave abuse of
discretion (Filipinas Manufacturers Bank vs. NLRC, 182
SCRA 848 [February 28, 1990]). A careful study of the
records shows no substantive reason to depart from Melencio-Herrera (Chairperson), Padilla and Regalado,
these established principles. JJ., concur.
Sarmiento, J., is on leave.
While it is true that loss of trust or breach of confidence is
a valid ground for dismissing an employee, such loss or
breach of trust must have some basis (Gubac v. NLRC,
187 SCRA 412 [July 13, 1990]). As found by the Labor
Arbiter, the accusations of petitioner PNOC-EDC against
private respondent Mercado have no basis. Mrs.
Leonardo Nodado, from whom the nipa shingles were
purchased, sufficiently explained in her affidavit (Rollo, p.
36) that the total purchase price of P1,680.00 was paid
by respondent Mercado as agreed upon. The alleged
discount given by Mrs. Nodado is not supported by
evidence as well as the alleged appropriation of P8.66
from the cost of fabrication of rubber stamps. The Labor
Arbiter, likewise, found no evidence to support the

alleged violation of company rules. On the contrary, he
found respondent Mercado's explanation in his affidavit

(Rollo, pp. 38-40) as to the alleged violations to be

satisfactory. Moreover, these findings were never

contradicted by petitioner petitioner PNOC-EDC.

PREMISES CONSIDERED, the petition is DENIED and
the resolution of respondent NLRC dated July 3, 1987 is
AFFIRMED with the modification that the moral damages
are reduced to Ten Thousand (P10,000.00) Pesos, and
the exemplary damages reduced to Five Thousand
(P5,000.00) Pesos.

SO ORDERED.


 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 171101 July 5, 2011
HACIENDA LUISITA, INCORPORATED, Petitioner,
LUISITA INDUSTRIAL PARK CORPORATION and RIZAL
COMMERCIAL BANKING CORPORATION, Petitioners-in-
Intervention,
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL;
SECRETARY NASSER PANGANDAMAN OF THE
DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA
MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE
GALANG, NOEL MALLARI, and JULIO SUNIGA1 and his
SUPERVISORY GROUP OF THE HACIENDA LUISITA, INC.
and WINDSOR ANDAYA, Respondents.
DECISION
VELASCO, JR., J.:
"Land for the landless," a shibboleth the landed gentry
doubtless has received with much misgiving, if not
resistance, even if only the number of agrarian suits filed
serves to be the norm. Through the years, this battle cry
and root of discord continues to reflect the seemingly
ceaseless discourse on, and great disparity in, the
distribution of land among the people, "dramatizing the
increasingly urgent demand of the dispossessed x x x for
a plot of earth as their place in the sun."2 As
administrations and political alignments change, policies
advanced, and agrarian reform laws enacted, the latest
being what is considered a comprehensive piece, the
face of land reform varies and is masked in myriads of
ways. The stated goal, however, remains the same: clear
the way for the true freedom of the farmer.3
Land reform, or the broader term "agrarian reform," has
been a government policy even before the
Commonwealth era. In fact, at the onset of the American
regime, initial steps toward land reform were already
taken to address social unrest.4 Then, under the 1935
Constitution, specific provisions on social justice and
expropriation of landed estates for distribution to tenants
as a solution to land ownership and tenancy issues were
incorporated.
In 1955, the Land Reform Act (Republic Act No. [RA]
1400) was passed, setting in motion the expropriation of
all tenanted estates.5
On August 8, 1963, the Agricultural Land Reform Code
(RA 3844) was enacted,6 abolishing share tenancy and
converting all instances of share tenancy into leasehold
tenancy.7 RA 3844 created the Land Bank of the
Philippines (LBP) to provide support in all phases of
agrarian reform.
As its major thrust, RA 3844 aimed to create a system of
owner-cultivatorship in rice and corn, supposedly to be
accomplished by expropriating lands in excess of 75
hectares for their eventual resale to tenants. The law,
however, had this restricting feature: its operations were
confined mainly to areas in Central Luzon, and its
implementation at any level of intensity limited to the pilot
project in Nueva Ecija.8
Subsequently, Congress passed the Code of Agrarian
Reform (RA 6389) declaring the entire country a land
reform area, and providing for the automatic conversion
of tenancy to leasehold tenancy in all areas. From 75
hectares, the retention limit was cut down to seven
hectares.9
Barely a month after declaring martial law in September
1972, then President Ferdinand Marcos issued
Presidential Decree No. 27 (PD 27) for the "emancipation
of the tiller from the bondage of the soil."10 Based on this
issuance, tenant-farmers, depending on the size of the
landholding worked on, can either purchase the land they
tilled or shift from share to fixed-rent leasehold
tenancy.11 While touted as "revolutionary," the scope of
the agrarian reform program PD 27 enunciated covered
only tenanted, privately-owned rice and corn lands.12
Then came the revolutionary government of then
President Corazon C. Aquino and the drafting and
eventual ratification of the 1987 Constitution. Its
provisions foreshadowed the establishment of a legal
framework for the formulation of an expansive approach
to land reform, affecting all agricultural lands and
covering both tenant-farmers and regular farmworkers.13
So it was that Proclamation No. 131, Series of 1987, was
issued instituting a comprehensive agrarian reform
program (CARP) to cover all agricultural lands,
regardless of tenurial arrangement and commodity
produced, as provided in the Constitution.
On July 22, 1987, Executive Order No. 229 (EO 229) was
issued providing, as its title14 indicates, the mechanisms
for CARP implementation. It created the Presidential
Agrarian Reform Council (PARC) as the highest policy-
making body that formulates all policies, rules, and
regulations necessary for the implementation of CARP.
On June 15, 1988, RA 6657 or the Comprehensive
Agrarian Reform Law of 1988, also known as CARL or
the CARP Law, took effect, ushering in a new process of
land classification, acquisition, and distribution. As to be
expected, RA 6657 met stiff opposition, its validity or
some of its provisions challenged at every possible
turn. Association of Small Landowners in the Philippines,
Inc. v. Secretary of Agrarian Reform 15 stated the
observation that the assault was inevitable, the CARP
being an untried and untested project, "an experiment
[even], as all life is an experiment," the Court said,
borrowing from Justice Holmes.
The Case
In this Petition for Certiorari and Prohibition under Rule
65 with prayer for preliminary injunctive relief, petitioner
Hacienda Luisita, Inc. (HLI) assails and seeks to set
aside PARC Resolution No. 2005-32-0116 and Resolution
No. 2006-34-0117 issued on December 22, 2005 and May
3, 2006, respectively, as well as the implementing Notice
of Coverage dated January 2, 2006 (Notice of
Coverage).18
 The Facts
At the core of the case is Hacienda Luisita de Tarlac
(Hacienda Luisita), once a 6,443-hectare mixed
agricultural-industrial-residential expanse straddling
several municipalities of Tarlac and owned by Compañia
General de Tabacos de Filipinas (Tabacalera). In 1957,
the Spanish owners of Tabacalera offered to sell
Hacienda Luisita as well as their controlling interest in the
sugar mill within the hacienda, the Central Azucarera de
Tarlac (CAT), as an indivisible transaction. The Tarlac
Development Corporation (Tadeco), then owned and/or
controlled by the Jose Cojuangco, Sr. Group, was willing
to buy. As agreed upon, Tadeco undertook to pay the
purchase price for Hacienda Luisita in pesos, while that
for the controlling interest in CAT, in US dollars.19
To facilitate the adverted sale-and-purchase package, the
Philippine government, through the then Central Bank of
the Philippines, assisted the buyer to obtain a dollar loan
from a US bank.20 Also, the Government Service
Insurance System (GSIS) Board of Trustees extended on
November 27, 1957 a PhP 5.911 million loan in favor of
Tadeco to pay the peso price component of the sale. One
of the conditions contained in the approving GSIS
Resolution No. 3203, as later amended by Resolution No.
356, Series of 1958, reads as follows:
That the lots comprising the Hacienda Luisita shall be
subdivided by the applicant-corporation and sold at cost
to the tenants, should there be any, and whenever
conditions should exist warranting such action under the
provisions of the Land Tenure Act;21
As of March 31, 1958, Tadeco had fully paid the
purchase price for the acquisition of Hacienda Luisita and
Tabacalera’s interest in CAT.22
The details of the events that happened next involving
the hacienda and the political color some of the parties
embossed are of minimal significance to this narration
and need no belaboring. Suffice it to state that on May 7,
1980, the martial law administration filed a suit before the
Manila Regional Trial Court (RTC) against Tadeco, et al.,
for them to surrender Hacienda Luisita to the then
Ministry of Agrarian Reform (MAR, now the Department
of Agrarian Reform [DAR]) so that the land can be
distributed to farmers at cost. Responding, Tadeco or its
owners alleged that Hacienda Luisita does not have
tenants, besides which sugar lands––of which the
hacienda consisted––are not covered by existing
agrarian reform legislations. As perceived then, the
government commenced the case against Tadeco as a
political message to the family of the late Benigno
Aquino, Jr.23
Eventually, the Manila RTC rendered judgment ordering
Tadeco to surrender Hacienda Luisita to the MAR.
Therefrom, Tadeco appealed to the Court of Appeals
(CA).
On March 17, 1988, the Office of the Solicitor General
(OSG) moved to withdraw the government’s case against
Tadeco, et al. By Resolution of May 18, 1988, the CA
dismissed the case the Marcos government initially
instituted and won against Tadeco, et al. The dismissal
action was, however, made subject to the obtention by
Tadeco of the PARC’s approval of a stock distribution
plan (SDP) that must initially be implemented after such
approval shall have been secured.24 The appellate court
wrote:
The defendants-appellants x x x filed a motion on April
13, 1988 joining the x x x governmental agencies
concerned in moving for the dismissal of the case
subject, however, to the following conditions embodied in
the letter dated April 8, 1988 (Annex 2) of the Secretary
of the [DAR] quoted, as follows:
1. Should TADECO fail to obtain approval of the stock
distribution plan for failure to comply with all the
requirements for corporate landowners set forth in the
guidelines issued by the [PARC]: or
2. If such stock distribution plan is approved by PARC, but
TADECO fails to initially implement it.
xxxx
WHEREFORE, the present case on appeal is hereby
dismissed without prejudice, and should be revived if any
of the conditions as above set forth is not duly complied
with by the TADECO.25
Markedly, Section 10 of EO 22926 allows corporate
landowners, as an alternative to the actual land transfer
scheme of CARP, to give qualified beneficiaries the right
to purchase shares of stocks of the corporation under a
stock ownership arrangement and/or land-to-share ratio.
Like EO 229, RA 6657, under the latter’s Sec. 31, also
provides two (2) alternative modalities, i.e., land or stock
transfer, pursuant to either of which the corporate
landowner can comply with CARP, but subject to well-
defined conditions and timeline requirements. Sec. 31 of
RA 6657 provides:
SEC. 31. Corporate Landowners.¾Corporate landowners
may voluntarily transfer ownership over their agricultural
landholdings to the Republic of the Philippines pursuant
to Section 20 hereof or to qualified beneficiaries x x x.
Upon certification by the DAR, corporations owning
agricultural lands may give their qualified beneficiaries
the right to purchase such proportion of the capital
stock of the corporation that the agricultural land,
actually devoted to agricultural activities, bears in
relation to the company’s total assets, under such
terms and conditions as may be agreed upon by them. In
no case shall the compensation received by the workers
at the time the shares of stocks are distributed be
reduced. x x x
Corporations or associations which voluntarily divest a
proportion of their capital stock, equity or participation in
favor of their workers or other qualified beneficiaries
under this section shall be deemed to have complied with
the provisions of this Act: Provided, That the following
conditions are complied with:
(a) In order to safeguard the right of beneficiaries who
own shares of stocks to dividends and other financial
benefits, the books of the corporation or association shall
 be subject to periodic audit by certified public accountants
chosen by the beneficiaries;
(b) Irrespective of the value of their equity in the
corporation or association, the beneficiaries shall be
assured of at least one (1) representative in the board of
directors, or in a management or executive committee, if
one exists, of the corporation or association;
(c) Any shares acquired by such workers and
beneficiaries shall have the same rights and features as
all other shares; and
(d) Any transfer of shares of stocks by the original
beneficiaries shall be void ab initio unless said transaction
is in favor of a qualified and registered beneficiary within
the same corporation.
If within two (2) years from the approval of this Act, the
[voluntary] land or stock transfer envisioned above is not
made or realized or the plan for such stock distribution
approved by the PARC within the same period, the
agricultural land of the corporate owners or corporation
shall be subject to the compulsory coverage of this Act.
(Emphasis added.)
Vis-à-vis the stock distribution aspect of the aforequoted
Sec. 31, DAR issued Administrative Order No. 10, Series
of 1988 (DAO 10),27 entitled Guidelines and Procedures
for Corporate Landowners Desiring to Avail Themselves
of the Stock Distribution Plan under Section 31 of RA
6657.
From the start, the stock distribution scheme appeared to
be Tadeco’s preferred option, for, on August 23, 1988,28 it
organized a spin-off corporation, HLI, as vehicle to
facilitate stock acquisition by the farmworkers. For this
purpose, Tadeco assigned and conveyed to HLI the
agricultural land portion (4,915.75 hectares) and other
farm-related properties of Hacienda Luisita in exchange
for HLI shares of stock.29
Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa,
Jose Cojuangco, Jr., and Paz C. Teopaco were the
incorporators of HLI.30
To accommodate the assets transfer from Tadeco to HLI,
the latter, with the Securities and Exchange
Commission’s (SEC’s) approval, increased its capital
stock on May 10, 1989 from PhP 1,500,000 divided into
1,500,000 shares with a par value of PhP 1/share to PhP
400,000,000 divided into 400,000,000 shares also with
par value of PhP 1/share, 150,000,000 of which were to
be issued only to qualified and registered beneficiaries of
the CARP, and the remaining 250,000,000 to any
stockholder of the corporation.31
As appearing in its proposed SDP, the properties and
assets of Tadeco contributed to the capital stock of HLI,
as appraised and approved by the SEC, have an
aggregate value of PhP 590,554,220, or after deducting
the total liabilities of the farm amounting to PhP
235,422,758, a net value of PhP 355,531,462. This
translated to 355,531,462 shares with a par value of PhP
1/share.32
On May 9, 1989, some 93% of the then farmworker-
beneficiaries (FWBs) complement of Hacienda Luisita
signified in a referendum their acceptance of the
proposed HLI’s Stock Distribution Option Plan. On May
11, 1989, the Stock Distribution Option Agreement
(SDOA), styled as a Memorandum of Agreement
(MOA),33 was entered into by Tadeco, HLI, and the 5,848
qualified FWBs34 and attested to by then DAR Secretary
Philip Juico. The SDOA embodied the basis and
mechanics of the SDP, which would eventually be
submitted to the PARC for approval. In the SDOA, the
parties agreed to the following:
1. The percentage of the value of the agricultural land of
Hacienda Luisita (P196,630,000.00) in relation to the total
assets (P590,554,220.00) transferred and conveyed to
the SECOND PARTY [HLI] is 33.296% that, under the
law, is the proportion of the outstanding capital stock of
the SECOND PARTY, which is P355,531,462.00 or
355,531,462 shares with a par value of P1.00 per share,
that has to be distributed to the THIRD PARTY [FWBs]
under the stock distribution plan, the said 33.296%
thereof being P118,391,976.85 or 118,391,976.85
shares.
2. The qualified beneficiaries of the stock distribution plan
shall be the farmworkers who appear in the annual
payroll, inclusive of the permanent and seasonal
employees, who are regularly or periodically employed by
the SECOND PARTY.
3. At the end of each fiscal year, for a period of 30 years,
the SECOND PARTY shall arrange with the FIRST
PARTY [Tadeco] the acquisition and distribution to the
THIRD PARTY on the basis of number of days worked
and at no cost to them of one-thirtieth (1/30) of
118,391,976.85 shares of the capital stock of the
SECOND PARTY that are presently owned and held by
the FIRST PARTY, until such time as the entire block of
118,391,976.85 shares shall have been completely
acquired and distributed to the THIRD PARTY.
4.The SECOND PARTY shall guarantee to the qualified
beneficiaries of the [SDP] that every year they will receive
on top of their regular compensation, an amount that
approximates the equivalent of three (3%) of the total
gross sales from the production of the agricultural land,
whether it be in the form of cash dividends or incentive
bonuses or both.
5. Even if only a part or fraction of the shares earmarked
for distribution will have been acquired from the FIRST
PARTY and distributed to the THIRD PARTY, FIRST
PARTY shall execute at the beginning of each fiscal year
an irrevocable proxy, valid and effective for one (1) year,
in favor of the farmworkers appearing as shareholders of
the SECOND PARTY at the start of said year which will
empower the THIRD PARTY or their representative to
vote in stockholders’ and board of directors’ meetings of
the SECOND PARTY convened during the year the entire
33.296% of the outstanding capital stock of the SECOND
PARTY earmarked for distribution and thus be able to
gain such number of seats in the board of directors of the
SECOND PARTY that the whole 33.296% of the shares
subject to distribution will be entitled to.
6. In addition, the SECOND PARTY shall within a
reasonable time subdivide and allocate for free and
without charge among the qualified family-beneficiaries
residing in the place where the agricultural land is
situated, residential or homelots of not more than 240
sq.m. each, with each family-beneficiary being assured of
receiving and owning a homelot in the barangay where it
actually resides on the date of the execution of this
Agreement.
 7. This Agreement is entered into by the parties in the
spirit of the (C.A.R.P.) of the government and with the
supervision of the [DAR], with the end in view of
improving the lot of the qualified beneficiaries of the [SDP]
and obtaining for them greater benefits. (Emphasis
added.)
As may be gleaned from the SDOA, included as part of
the distribution plan are: (a) production-sharing
equivalent to three percent (3%) of gross sales from the
production of the agricultural land payable to the FWBs in
cash dividends or incentive bonus; and (b) distribution of
free homelots of not more than 240 square meters each
to family-beneficiaries. The production-sharing, as the
SDP indicated, is payable "irrespective of whether [HLI]
makes money or not," implying that the benefits do not
partake the nature of dividends, as the term is ordinarily
understood under corporation law.
While a little bit hard to follow, given that, during the
period material, the assigned value of the agricultural
land in the hacienda was PhP 196.63 million, while the
total assets of HLI was PhP 590.55 million with net
assets of PhP 355.53 million, Tadeco/HLI would admit
that the ratio of the land-to-shares of stock corresponds
to 33.3% of the outstanding capital stock of the HLI
equivalent to 118,391,976.85 shares of stock with a par
value of PhP 1/share.
Subsequently, HLI submitted to DAR its SDP, designated
as "Proposal for Stock Distribution under
C.A.R.P.,"35 which was substantially based on the SDOA.
Notably, in a follow-up referendum the DAR conducted
on October 14, 1989, 5,117 FWBs, out of 5,315 who
participated, opted to receive shares in HLI.36 One
hundred thirty-two (132) chose actual land distribution.37
After a review of the SDP, then DAR Secretary Miriam
Defensor-Santiago (Sec. Defensor-Santiago) addressed
a letter dated November 6, 198938 to Pedro S. Cojuangco
(Cojuangco), then Tadeco president, proposing that the
SDP be revised, along the following lines:
1. That over the implementation period of the [SDP],
[Tadeco]/HLI shall ensure that there will be no dilution in
the shares of stocks of individual [FWBs];
2. That a safeguard shall be provided by [Tadeco]/HLI
against the dilution of the percentage shareholdings of the
[FWBs], i.e., that the 33% shareholdings of the [FWBs]
will be maintained at any given time;
3. That the mechanics for distributing the stocks be
explicitly stated in the [MOA] signed between the
[Tadeco], HLI and its [FWBs] prior to the implementation
of the stock plan;
4. That the stock distribution plan provide for clear and
definite terms for determining the actual number of seats
to be allocated for the [FWBs] in the HLI Board;
5. That HLI provide guidelines and a timetable for the
distribution of homelots to qualified [FWBs]; and
6. That the 3% cash dividends mentioned in the [SDP] be
expressly provided for [in] the MOA.
In a letter-reply of November 14, 1989 to Sec. Defensor-
Santiago, Tadeco/HLI explained that the proposed
revisions of the SDP are already embodied in both the
SDP and MOA.39 Following that exchange, the PARC,
under then Sec. Defensor-Santiago, by Resolution No.
89-12-240 dated November 21, 1989, approved the SDP
of Tadeco/HLI.41
At the time of the SDP approval, HLI had a pool of
farmworkers, numbering 6,296, more or less, composed
of permanent, seasonal and casual master list/payroll
and non-master list members.
From 1989 to 2005, HLI claimed to have extended the
following benefits to the FWBs:
(a) 3 billion pesos (P3,000,000,000) worth of salaries,
wages and fringe benefits
(b) 59 million shares of stock distributed for free to the
FWBs;
(c) 150 million pesos (P150,000,000) representing 3% of
the gross produce;
(d) 37.5 million pesos (P37,500,000) representing 3%
from the sale of 500 hectares of converted agricultural
land of Hacienda Luisita;
(e) 240-square meter homelots distributed for free;
(f) 2.4 million pesos (P2,400,000) representing 3% from
the sale of 80 hectares at 80 million pesos (P80,000,000)
for the SCTEX;
(g) Social service benefits, such as but not limited to free
hospitalization/medical/maternity services, old age/death
benefits and no interest bearing salary/educational loans
and rice sugar accounts. 42
Two separate groups subsequently contested this claim
of HLI.
On August 15, 1995, HLI applied for the conversion of
500 hectares of land of the hacienda from agricultural to
industrial use,43 pursuant to Sec. 65 of RA 6657,
providing:
SEC. 65. Conversion of Lands.¾After the lapse of five (5)
years from its award, when the land ceases to be
economically feasible and sound for agricultural
purposes, or the locality has become urbanized and the
land will have a greater economic value for residential,
commercial or industrial purposes, the DAR, upon
application of the beneficiary or the landowner, with due
notice to the affected parties, and subject to existing
laws, may authorize the reclassification, or conversion of
the land and its disposition: Provided, That the
beneficiary shall have fully paid its obligation.
The application, according to HLI, had the backing of
5,000 or so FWBs, including respondent Rene Galang,
and Jose Julio Suniga, as evidenced by the Manifesto of
Support they signed and which was submitted to the
DAR.44 After the usual processing, the DAR, thru then
Sec. Ernesto Garilao, approved the application on August
14, 1996, per DAR Conversion Order No. 030601074-
764-(95), Series of 1996,45 subject to payment of three
percent (3%) of the gross selling price to the FWBs and
to HLI’s continued compliance with its undertakings under
the SDP, among other conditions.
On December 13, 1996, HLI, in exchange for subscription
of 12,000,000 shares of stocks of Centennary Holdings,
Inc. (Centennary), ceded 300 hectares of the converted
area to the latter.46Consequently, HLI’s Transfer
Certificate of Title (TCT) No. 28791047 was canceled and
TCT No. 29209148 was issued in the name of Centennary.
HLI transferred the remaining 200 hectares covered by
TCT No. 287909 to Luisita Realty Corporation (LRC)49 in
two separate transactions in 1997 and 1998, both
uniformly involving 100 hectares for PhP 250 million
each.50
Centennary, a corporation with an authorized capital
stock of PhP 12,100,000 divided into 12,100,000 shares
and wholly-owned by HLI, had the following
incorporators: Pedro Cojuangco, Josephine C. Reyes,
Teresita C. Lopa, Ernesto G. Teopaco, and Bernardo R.
Lahoz.
Subsequently, Centennary sold51 the entire 300 hectares
to Luisita Industrial Park Corporation (LIPCO) for PhP
750 million. The latter acquired it for the purpose of
developing an industrial complex.52 As a result,
Centennary’s TCT No. 292091 was canceled to be
replaced by TCT No. 31098653 in the name of LIPCO.
From the area covered by TCT No. 310986 was carved
out two (2) parcels, for which two (2) separate titles were
issued in the name of LIPCO, specifically: (a) TCT No.
36580054 and (b) TCT No. 365801,55 covering 180 and
four hectares, respectively. TCT No. 310986 was,
accordingly, partially canceled.
Later on, in a Deed of Absolute Assignment dated
November 25, 2004, LIPCO transferred the parcels
covered by its TCT Nos. 365800 and 365801 to the Rizal
Commercial Banking Corporation (RCBC) by way
of dacion en pago in payment of LIPCO’s PhP
431,695,732.10 loan obligations. LIPCO’s titles were
canceled and new ones, TCT Nos. 391051 and 391052,
were issued to RCBC.
Apart from the 500 hectares alluded to, another 80.51
hectares were later detached from the area coverage of
Hacienda Luisita which had been acquired by the
government as part of the Subic-Clark-Tarlac
Expressway (SCTEX) complex. In absolute terms,
4,335.75 hectares remained of the original 4,915
hectares Tadeco ceded to HLI.56
Such, in short, was the state of things when two separate
petitions, both undated, reached the DAR in the latter
part of 2003. In the first, denominated as
Petition/Protest,57 respondents Jose Julio Suniga and
Windsor Andaya, identifying themselves as head of the
Supervisory Group of HLI (Supervisory Group), and 60
other supervisors sought to revoke the SDOA, alleging
that HLI had failed to give them their dividends and the
one percent (1%) share in gross sales, as well as the
thirty-three percent (33%) share in the proceeds of the
sale of the converted 500 hectares of land. They further
claimed that their lives have not improved contrary to the
promise and rationale for the adoption of the SDOA. They
also cited violations by HLI of the SDOA’s terms.58 They
prayed for a renegotiation of the SDOA, or, in the
alternative, its revocation.
Revocation and nullification of the SDOA and the
distribution of the lands in the hacienda were the call in
the second petition, styled as Petisyon (Petition).59 The
Petisyon was ostensibly filed on December 4, 2003 by
Alyansa ng mga Manggagawang Bukid ng Hacienda
Luisita (AMBALA), where the handwritten name of
respondents Rene Galang as "Pangulo AMBALA" and
Noel Mallari as "Sec-Gen. AMBALA"60 appeared. As
alleged, the petition was filed on behalf of AMBALA’s
members purportedly composing about 80% of the 5,339
FWBs of Hacienda Luisita.
HLI would eventually answer61 the petition/protest of the
Supervisory Group. On the other hand, HLI’s answer62 to
the AMBALA petition was contained in its letter dated
January 21, 2005 also filed with DAR.
Meanwhile, the DAR constituted a Special Task Force to
attend to issues relating to the SDP of HLI. Among other
duties, the Special Task Force was mandated to review
the terms and conditions of the SDOA and PARC
Resolution No. 89-12-2 relative to HLI’s SDP; evaluate
HLI’s compliance reports; evaluate the merits of the
petitions for the revocation of the SDP; conduct ocular
inspections or field investigations; and recommend
appropriate remedial measures for approval of the
Secretary.63
After investigation and evaluation, the Special Task Force
submitted its "Terminal Report: Hacienda Luisita,
Incorporated (HLI) Stock Distribution Plan (SDP)
Conflict"64 dated September 22, 2005 (Terminal Report),
finding that HLI has not complied with its obligations
under RA 6657 despite the implementation of the
SDP.65 The Terminal Report and the Special Task Force’s
recommendations were adopted by then DAR Sec.
Nasser Pangandaman (Sec. Pangandaman).66
Subsequently, Sec. Pangandaman recommended to the
PARC Executive Committee (Excom) (a) the
recall/revocation of PARC Resolution No. 89-12-2 dated
November 21, 1989 approving HLI’s SDP; and (b) the
acquisition of Hacienda Luisita through the compulsory
acquisition scheme. Following review, the PARC
Validation Committee favorably endorsed the DAR
Secretary’s recommendation afore-stated.67
On December 22, 2005, the PARC issued the assailed
Resolution No. 2005-32-01, disposing as follows:
NOW, THEREFORE, on motion duly seconded,
RESOLVED, as it is HEREBY RESOLVED, to approve
and confirm the recommendation of the PARC Executive
Committee adopting in toto the report of the PARC
ExCom Validation Committee affirming the
recommendation of the DAR to recall/revoke the SDO
plan of Tarlac Development Corporation/Hacienda Luisita
Incorporated.
RESOLVED, further, that the lands subject of the
recalled/revoked TDC/HLI SDO plan be forthwith placed
under the compulsory coverage or mandated land
acquisition scheme of the [CARP].
APPROVED.68
A copy of Resolution No. 2005-32-01 was served on HLI
the following day, December 23, without any copy of the
documents adverted to in the resolution attached. A
letter-request dated December 28, 200569 for certified
copies of said documents was sent to, but was not acted
upon by, the PARC secretariat.
Therefrom, HLI, on January 2, 2006, sought
reconsideration.70 On the same day, the DAR Tarlac
provincial office issued the Notice of Coverage71 which
HLI received on January 4, 2006.
Its motion notwithstanding, HLI has filed the instant
recourse in light of what it considers as the DAR’s hasty
placing of Hacienda Luisita under CARP even before
PARC could rule or even read the motion for
reconsideration.72 As HLI later rued, it "can not know from
the above-quoted resolution the facts and the law upon
which it is based."73
PARC would eventually deny HLI’s motion for
reconsideration via Resolution No. 2006-34-01 dated May
3, 2006.
By Resolution of June 14, 2006,74 the Court, acting on
HLI’s motion, issued a temporary restraining
order,75 enjoining the implementation of Resolution
No. 2005-32-01 and the notice of coverage.
On July 13, 2006, the OSG, for public respondents PARC
and the DAR, filed its Comment76 on the petition.
On December 2, 2006, Noel Mallari, impleaded by HLI as
respondent in his capacity as "Sec-Gen. AMBALA," filed
his Manifestation and Motion with Comment Attached
dated December 4, 2006 (Manifestation and Motion).77 In
it, Mallari stated that he has broken away from AMBALA
with other AMBALA ex-members and formed
Farmworkers Agrarian Reform Movement, Inc.
(FARM).78 Should this shift in alliance deny him standing,
Mallari also prayed that FARM be allowed to intervene.
As events would later develop, Mallari had a parting of
ways with other FARM members, particularly would-be
intervenors Renato Lalic, et al. As things stand, Mallari
returned to the AMBALA fold, creating the AMBALA-Noel
Mallari faction and leaving Renato Lalic, et al. as the
remaining members of FARM who sought to intervene.
On January 10, 2007, the Supervisory Group79 and the
AMBALA-Rene Galang faction submitted their
Comment/Opposition dated December 17, 2006.80
On October 30, 2007, RCBC filed a Motion for Leave to
Intervene and to File and Admit Attached Petition-In-
Intervention dated October 18, 2007.81 LIPCO later
followed with a similar motion.82 In both motions, RCBC
and LIPCO contended that the assailed resolution
effectively nullified the TCTs under their respective
names as the properties covered in the TCTs were
veritably included in the January 2, 2006 notice of
coverage. In the main, they claimed that the revocation of
the SDP cannot legally affect their rights as innocent
purchasers for value. Both motions for leave to intervene
were granted and the corresponding petitions-in-
intervention admitted.
On August 18, 2010, the Court heard the main and
intervening petitioners on oral arguments. On the other
hand, the Court, on August 24, 2010, heard public
respondents as well as the respective counsels of the
AMBALA-Mallari-Supervisory Group, the AMBALA-
Galang faction, and the FARM and its 27
members83 argue their case.
Prior to the oral arguments, however, HLI; AMBALA,
represented by Mallari; the Supervisory Group,
represented by Suniga and Andaya; and the United
Luisita Workers Union, represented by Eldifonso Pingol,
filed with the Court a joint submission and motion for
approval of a Compromise Agreement (English and
Tagalog versions) dated August 6, 2010.
On August 31, 2010, the Court, in a bid to resolve the
dispute through an amicable settlement, issued a
Resolution84 creating a Mediation Panel composed of
then Associate Justice Ma. Alicia Austria-Martinez, as
chairperson, and former CA Justices Hector Hofileña and
Teresita Dy-Liacco Flores, as members. Meetings on five
(5) separate dates, i.e., September 8, 9, 14, 20, and 27,
2010, were conducted. Despite persevering and
painstaking efforts on the part of the panel, mediation had
to be discontinued when no acceptable agreement could
be reached.
The Issues
HLI raises the following issues for our consideration:
I.
WHETHER OR NOT PUBLIC RESPONDENTS PARC
AND SECRETARY PANGANDAMAN HAVE
JURISDICTION, POWER AND/OR AUTHORITY TO
NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA.
II.
[IF SO], x x x CAN THEY STILL EXERCISE SUCH
JURISDICTION, POWER AND/OR AUTHORITY AT THIS
TIME, I.E., AFTER SIXTEEN (16) YEARS FROM THE
EXECUTION OF THE SDOA AND ITS
IMPLEMENTATION WITHOUT VIOLATING SECTIONS 1
AND 10 OF ARTICLE III (BILL OF RIGHTS) OF THE
CONSTITUTION AGAINST DEPRIVATION OF
PROPERTY WITHOUT DUE PROCESS OF LAW AND
THE IMPAIRMENT OF CONTRACTUAL RIGHTS AND
OBLIGATIONS? MOREOVER, ARE THERE LEGAL
GROUNDS UNDER THE CIVIL CODE, viz, ARTICLE
1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x
ARTICLE 1390 x x x AND ARTICLE 1409 x x x THAT
CAN BE INVOKED TO NULLIFY, RECALL, REVOKE,
OR RESCIND THE SDOA?
III.
WHETHER THE PETITIONS TO NULLIFY, RECALL,
REVOKE OR RESCIND THE SDOA HAVE ANY LEGAL
BASIS OR GROUNDS AND WHETHER THE
PETITIONERS THEREIN ARE THE REAL PARTIES-IN-
INTEREST TO FILE SAID PETITIONS.
 IV.
WHETHER THE RIGHTS, OBLIGATIONS AND
REMEDIES OF THE PARTIES TO THE SDOA ARE
NOW GOVERNED BY THE CORPORATION CODE
(BATAS PAMBANSA BLG. 68) AND NOT BY THE x x x
[CARL] x x x.
On the other hand, RCBC submits the following issues:
I.
RESPONDENT PARC COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT DID NOT EXCLUDE THE
SUBJECT PROPERTY FROM THE COVERAGE OF THE
CARP DESPITE THE FACT THAT PETITIONER-
INTERVENOR RCBC HAS ACQUIRED VESTED
RIGHTS AND INDEFEASIBLE TITLE OVER THE
SUBJECT PROPERTY AS AN INNOCENT PURCHASER
FOR VALUE.
A. THE ASSAILED RESOLUTION NO. 2005-32-
01 AND THE NOTICE OF COVERAGE DATED
02 JANUARY 2006 HAVE THE EFFECT OF
NULLIFYING TCT NOS. 391051 AND 391052 IN
THE NAME OF PETITIONER-INTERVENOR
RCBC.
B. AS AN INNOCENT PURCHASER FOR
VALUE, PETITIONER-INTERVENOR RCBC
CANNOT BE PREJUDICED BY A SUBSEQUENT
REVOCATION OR RESCISSION OF THE SDOA.
II.
THE ASSAILED RESOLUTION NO. 2005-32-01 AND
THE NOTICE OF COVERAGE DATED 02 JANUARY
2006 WERE ISSUED WITHOUT AFFORDING
PETITIONER-INTERVENOR RCBC ITS RIGHT TO DUE
PROCESS AS AN INNOCENT PURCHASER FOR
VALUE.
LIPCO, like RCBC, asserts having acquired vested and
indefeasible rights over certain portions of the converted
property, and, hence, would ascribe on PARC the
commission of grave abuse of discretion when it included
those portions in the notice of coverage. And apart from
raising issues identical with those of HLI, such as but not
limited to the absence of valid grounds to warrant the
rescission and/or revocation of the SDP, LIPCO would
allege that the assailed resolution and the notice of
coverage were issued without affording it the right to due
process as an innocent purchaser for value. The
government, LIPCO also argues, is estopped from
recovering properties which have since passed to
innocent parties.
Simply formulated, the principal determinative issues
tendered in the main petition and to which all other
related questions must yield boil down to the following:
(1) matters of standing; (2) the constitutionality of Sec. 31
of RA 6657; (3) the jurisdiction of PARC to recall or
revoke HLI’s SDP; (4) the validity or propriety of such
recall or revocatory action; and (5) corollary to (4), the
validity of the terms and conditions of the SDP, as
embodied in the SDOA.
Our Ruling
 I.
We first proceed to the examination of the preliminary
issues before delving on the more serious challenges
bearing on the validity of PARC’s assailed issuance and
the grounds for it.
Supervisory Group, AMBALA and their
respective leaders are real parties-in-interest
HLI would deny real party-in-interest status to the
purported leaders of the Supervisory Group and
AMBALA, i.e., Julio Suniga, Windsor Andaya, and Rene
Galang, who filed the revocatory petitions before the
DAR. As HLI would have it, Galang, the self-styled head
of AMBALA, gained HLI employment in June 1990 and,
thus, could not have been a party to the SDOA executed
a year earlier.85 As regards the Supervisory Group, HLI
alleges that supervisors are not regular farmworkers, but
the company nonetheless considered them FWBs under
the SDOA as a mere concession to enable them to enjoy
the same benefits given qualified regular farmworkers.
However, if the SDOA would be canceled and land
distribution effected, so HLI claims, citing Fortich v.
Corona,86 the supervisors would be excluded from
receiving lands as farmworkers other than the regular
farmworkers who are merely entitled to the "fruits of the
land."87
The SDOA no less identifies "the SDP qualified
beneficiaries" as "the farmworkers who appear in the
annual payroll, inclusive of the permanent and seasonal
employees, who are regularly or periodically employed by
[HLI]."88 Galang, per HLI’s own admission, is employed by
HLI, and is, thus, a qualified beneficiary of the SDP; he
comes within the definition of a real party-in-interest
under Sec. 2, Rule 3 of the Rules of Court, meaning, one
who stands to be benefited or injured by the judgment in
the suit or is the party entitled to the avails of the suit.
The same holds true with respect to the Supervisory
Group whose members were admittedly employed by HLI
and whose names and signatures even appeared in the
annex of the SDOA. Being qualified beneficiaries of the
SDP, Suniga and the other 61 supervisors are certainly
parties who would benefit or be prejudiced by the
judgment recalling the SDP or replacing it with some
other modality to comply with RA 6657.
Even assuming that members of the Supervisory Group
are not regular farmworkers, but are in the category of
"other farmworkers" mentioned in Sec. 4, Article XIII of
the Constitution,89 thus only entitled to a share of the fruits
of the land, as indeed Fortich teaches, this does not
detract from the fact that they are still identified as being
among the "SDP qualified beneficiaries." As such, they
are, thus, entitled to bring an action upon the SDP.90 At
any rate, the following admission made by Atty. Gener
Asuncion, counsel of HLI, during the oral arguments
should put to rest any lingering doubt as to the status of
protesters Galang, Suniga, and Andaya:
Justice Bersamin: x x x I heard you a while ago that you
were conceding the qualified farmer beneficiaries of
Hacienda Luisita were real parties in interest?
Atty. Asuncion: Yes, Your Honor please, real party in
interest which that question refers to the complaints of
protest initiated before the DAR and the real party in
interest there be considered as possessed by the farmer
beneficiaries who initiated the protest.91
Further, under Sec. 50, paragraph 4 of RA 6657, farmer-
leaders are expressly allowed to represent themselves,
their fellow farmers or their organizations in any
proceedings before the DAR. Specifically:
SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x
xxxx
Responsible farmer leaders shall be allowed to
represent themselves, their fellow farmers or their
organizations in any proceedings before the DAR:
Provided, however, that when there are two or more
representatives for any individual or group, the
representatives should choose only one among
themselves to represent such party or group before any
DAR proceedings. (Emphasis supplied.)
Clearly, the respective leaders of the Supervisory Group
and AMBALA are contextually real parties-in-interest
allowed by law to file a petition before the DAR or PARC.
This is not necessarily to say, however, that Galang
represents AMBALA, for as records show and as HLI
aptly noted,92 his "petisyon" filed with DAR did not carry
the usual authorization of the individuals in whose behalf
it was supposed to have been instituted. To date, such
authorization document, which would logically include a
list of the names of the authorizing FWBs, has yet to be
submitted to be part of the records.
PARC’s Authority to Revoke a Stock Distribution Plan
On the postulate that the subject jurisdiction is conferred
by law, HLI maintains that PARC is without authority to
revoke an SDP, for neither RA 6657 nor EO 229
expressly vests PARC with such authority. While, as HLI
argued, EO 229 empowers PARC to approve the plan for
stock distribution in appropriate cases, the empowerment
only includes the power to disapprove, but not to recall its
previous approval of the SDP after it has been
implemented by the parties.93 To HLI, it is the court which
has jurisdiction and authority to order the revocation or
rescission of the PARC-approved SDP.
We disagree.
Under Sec. 31 of RA 6657, as implemented by DAO 10,
the authority to approve the plan for stock distribution of
the corporate landowner belongs to PARC. However,
contrary to petitioner HLI’s posture, PARC also has the
power to revoke the SDP which it previously approved. It
may be, as urged, that RA 6657 or other executive
issuances on agrarian reform do not explicitly vest the
PARC with the power to revoke/recall an approved SDP.
Such power or authority, however, is deemed possessed
by PARC under the principle of necessary implication, a
basic postulate that what is implied in a statute is as
much a part of it as that which is expressed.94
We have explained that "every statute is understood, by
implication, to contain all such provisions as may be
necessary to effectuate its object and purpose, or to
make effective rights, powers, privileges or jurisdiction
which it grants, including all such collateral and
subsidiary consequences as may be fairly and logically
inferred from its terms."95 Further, "every statutory grant
of power, right or privilege is deemed to include all
incidental power, right or privilege.96
Gordon v. Veridiano II is instructive:
The power to approve a license includes by implication,
even if not expressly granted, the power to revoke it. By
extension, the power to revoke is limited by the authority
to grant the license, from which it is derived in the first
place. Thus, if the FDA grants a license upon its finding
that the applicant drug store has complied with the
requirements of the general laws and the implementing
administrative rules and regulations, it is only for their
violation that the FDA may revoke the said license. By
the same token, having granted the permit upon his
ascertainment that the conditions thereof as applied x x x
have been complied with, it is only for the violation of
such conditions that the mayor may revoke the said
permit.97 (Emphasis supplied.)
Following the doctrine of necessary implication, it may be
stated that the conferment of express power to approve a
plan for stock distribution of the agricultural land of
corporate owners necessarily includes the power to
revoke or recall the approval of the plan.
As public respondents aptly observe, to deny PARC such
revocatory power would reduce it into a toothless agency
of CARP, because the very same agency tasked to
ensure compliance by the corporate landowner with the
approved SDP would be without authority to impose
sanctions for non-compliance with it.98 With the view We
take of the case, only PARC can effect such revocation.
The DAR Secretary, by his own authority as such, cannot
plausibly do so, as the acceptance and/or approval of the
SDP sought to be taken back or undone is the act of
PARC whose official composition includes, no less, the
President as chair, the DAR Secretary as vice-chair, and
at least eleven (11) other department heads.99
On another but related issue, the HLI foists on the Court
the argument that subjecting its landholdings to
compulsory distribution after its approved SDP has been
implemented would impair the contractual obligations
created under the SDOA.
The broad sweep of HLI’s argument ignores certain
established legal precepts and must, therefore, be
rejected.
A law authorizing interference, when appropriate, in the
contractual relations between or among parties is
deemed read into the contract and its implementation
cannot successfully be resisted by force of the non-
impairment guarantee. There is, in that instance, no
impingement of the impairment clause, the non-
impairment protection being applicable only to laws that
derogate prior acts or contracts by enlarging, abridging or
in any manner changing the intention of the parties.
Impairment, in fine, obtains if a subsequent law changes
the terms of a contract between the parties, imposes new
conditions, dispenses with those agreed upon or
withdraws existing remedies for the enforcement of the
rights of the parties.100 Necessarily, the constitutional
proscription would not apply to laws already in effect at
the time of contract execution, as in the case of RA 6657,
in relation to DAO 10, vis-à-vis HLI’s SDOA. As held in
Serrano v. Gallant Maritime Services, Inc.:
The prohibition [against impairment of the obligation of
contracts] is aligned with the general principle that laws
newly enacted have only a prospective operation, and
cannot affect acts or contracts already perfected;
however, as to laws already in existence, their provisions
are read into contracts and deemed a part thereof. Thus,
the non-impairment clause under Section 10, Article II [of
the Constitution] is limited in application to laws about to
be enacted that would in any way derogate from existing
acts or contracts by enlarging, abridging or in any manner
changing the intention of the parties thereto.101 (Emphasis
supplied.)
Needless to stress, the assailed Resolution No. 2005-32-
01 is not the kind of issuance within the ambit of Sec. 10,
Art. III of the Constitution providing that "[n]o law
impairing the obligation of contracts shall be passed."
Parenthetically, HLI tags the SDOA as an ordinary civil
law contract and, as such, a breach of its terms and
conditions is not a PARC administrative matter, but one
that gives rise to a cause of action cognizable by regular
courts.102 This contention has little to commend itself. The
SDOA is a special contract imbued with public interest,
entered into and crafted pursuant to the provisions of RA
6657. It embodies the SDP, which requires for its validity,
or at least its enforceability, PARC’s approval. And the
fact that the certificate of compliance103––to be issued by
agrarian authorities upon completion of the distribution of
stocks––is revocable by the same issuing authority
supports the idea that everything about the
implementation of the SDP is, at the first instance,
subject to administrative adjudication.
HLI also parlays the notion that the parties to the SDOA
should now look to the Corporation Code, instead of to
RA 6657, in determining their rights, obligations and
remedies. The Code, it adds, should be the applicable
law on the disposition of the agricultural land of HLI.
Contrary to the view of HLI, the rights, obligations and
remedies of the parties to the SDOA embodying the SDP
are primarily governed by RA 6657. It should abundantly
be made clear that HLI was precisely created in order to
comply with RA 6657, which the OSG aptly described as
the "mother law" of the SDOA and the SDP.104 It is, thus,
paradoxical for HLI to shield itself from the coverage of
CARP by invoking exclusive applicability of the
Corporation Code under the guise of being a corporate
entity.
Without in any way minimizing the relevance of the
Corporation Code since the FWBs of HLI are also
stockholders, its applicability is limited as the rights of the
parties arising from the SDP should not be made to
supplant or circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law
providing for the formation, organization and regulation of
private corporations. On the other hand, RA 6657 is the
special law on agrarian reform. As between a general
and special law, the latter shall prevail—generalia
specialibus non derogant.105Besides, the present impasse
between HLI and the private respondents is not an intra-
corporate dispute which necessitates the application of
the Corporation Code. What private respondents
questioned before the DAR is the proper implementation
of the SDP and HLI’s compliance with RA 6657.
Evidently, RA 6657 should be the applicable law to the
instant case.
HLI further contends that the inclusion of the agricultural
land of Hacienda Luisita under the coverage of CARP
and the eventual distribution of the land to the FWBs
would amount to a disposition of all or practically all of the
corporate assets of HLI. HLI would add that this
contingency, if ever it comes to pass, requires the
applicability of the Corporation Code provisions on
corporate dissolution.
We are not persuaded.
Indeed, the provisions of the Corporation Code on
corporate dissolution would apply insofar as the winding
up of HLI’s affairs or liquidation of the assets is
concerned. However, the mere inclusion of the
agricultural land of Hacienda Luisita under the coverage
of CARP and the land’s eventual distribution to the FWBs
will not, without more, automatically trigger the dissolution
of HLI. As stated in the SDOA itself, the percentage of
the value of the agricultural land of Hacienda Luisita in
relation to the total assets transferred and conveyed by
Tadeco to HLI comprises only 33.296%, following this
equation: value of the agricultural lands divided by total
corporate assets. By no stretch of imagination would said
percentage amount to a disposition of all or practically all
of HLI’s corporate assets should compulsory land
acquisition and distribution ensue.
This brings us to the validity of the revocation of the
approval of the SDP sixteen (16) years after its execution
pursuant to Sec. 31 of RA 6657 for the reasons set forth
in the Terminal Report of the Special Task Force, as
endorsed by PARC Excom. But first, the matter of the
constitutionality of said section.
Constitutional Issue
FARM asks for the invalidation of Sec. 31 of RA 6657,
insofar as it affords the corporation, as a mode of CARP
compliance, to resort to stock distribution, an
arrangement which, to FARM, impairs the fundamental
right of farmers and farmworkers under Sec. 4, Art. XIII of
the Constitution.106
To a more specific, but direct point, FARM argues that
Sec. 31 of RA 6657 permits stock transfer in lieu of
outright agricultural land transfer; in fine, there is stock
certificate ownership of the farmers or farmworkers
instead of them owning the land, as envisaged in the
Constitution. For FARM, this modality of distribution is an
anomaly to be annulled for being inconsistent with the
basic concept of agrarian reform ingrained in Sec. 4, Art.
XIII of the Constitution.107
Reacting, HLI insists that agrarian reform is not only
about transfer of land ownership to farmers and other
qualified beneficiaries. It draws attention in this regard to
Sec. 3(a) of RA 6657 on the concept and scope of the
term "agrarian reform." The constitutionality of a law,
HLI added, cannot, as here, be attacked collaterally.
The instant challenge on the constitutionality of Sec. 31
of RA 6657 and necessarily its counterpart provision in
EO 229 must fail as explained below.
When the Court is called upon to exercise its power of
judicial review over, and pass upon the constitutionality
of, acts of the executive or legislative departments, it
does so only when the following essential requirements
are first met, to wit:
(1) there is an actual case or controversy;
(2) that the constitutional question is raised at the earliest
possible opportunity by a proper party or one with locus
standi; and
(3) the issue of constitutionality must be the very lis mota
of the case.108
Not all the foregoing requirements are satisfied in the
case at bar.
While there is indeed an actual case or controversy,
intervenor FARM, composed of a small minority of 27
farmers, has yet to explain its failure to challenge the
constitutionality of Sec. 3l of RA 6657, since as early as
November 21, l989 when PARC approved the SDP of
Hacienda Luisita or at least within a reasonable time
thereafter and why its members received benefits from
the SDP without so much of a protest. It was only on
December 4, 2003 or 14 years after approval of the SDP
via PARC Resolution No. 89-12-2 dated November 21,
1989 that said plan and approving resolution were sought
to be revoked, but not, to stress, by FARM or any of its
members, but by petitioner AMBALA. Furthermore, the
AMBALA petition did NOT question the constitutionality of
Sec. 31 of RA 6657, but concentrated on the purported
flaws and gaps in the subsequent implementation of the
SDP. Even the public respondents, as represented by the
Solicitor General, did not question the constitutionality of
the provision. On the other hand, FARM, whose 27
members formerly belonged to AMBALA, raised the
constitutionality of Sec. 31 only on May 3, 2007 when it
filed its Supplemental Comment with the Court. Thus, it
took FARM some eighteen (18) years from November 21,
1989 before it challenged the constitutionality of Sec. 31
of RA 6657 which is quite too late in the day. The FARM
members slept on their rights and even accepted benefits
from the SDP with nary a complaint on the alleged
unconstitutionality of Sec. 31 upon which the benefits
were derived. The Court cannot now be goaded into
resolving a constitutional issue that FARM failed to assail
after the lapse of a long period of time and the
occurrence of numerous events and activities which
resulted from the application of an alleged
unconstitutional legal provision.
It has been emphasized in a number of cases that the
question of constitutionality will not be passed upon by
the Court unless it is properly raised and presented in an
appropriate case at the first opportunity.109 FARM is,
therefore, remiss in belatedly questioning the
constitutionality of Sec. 31 of RA 6657. The second
requirement that the constitutional question should be
raised at the earliest possible opportunity is clearly
wanting.
The last but the most important requisite that the
constitutional issue must be the very lis mota of the case
does not likewise obtain. The lis mota aspect is not
present, the constitutional issue tendered not being
critical to the resolution of the case. The unyielding rule
has been to avoid, whenever plausible, an issue assailing
the constitutionality of a statute or governmental act.110 If
some other grounds exist by which judgment can be
made without touching the constitutionality of a law, such
recourse is favored.111 Garcia v. Executive Secretary
explains why:
Lis Mota — the fourth requirement to satisfy before this
Court will undertake judicial review — means that the
Court will not pass upon a question of unconstitutionality,
although properly presented, if the case can be disposed
of on some other ground, such as the application of the
statute or the general law. The petitioner must be able to
show that the case cannot be legally resolved unless the
constitutional question raised is determined. This
requirement is based on the rule that every law has in its
favor the presumption of constitutionality; to justify its
nullification, there must be a clear and unequivocal
breach of the Constitution, and not one that is doubtful,
speculative, or argumentative.112(Italics in the original.)
The lis mota in this case, proceeding from the basic
positions originally taken by AMBALA (to which the
FARM members previously belonged) and the
Supervisory Group, is the alleged non-compliance by HLI
with the conditions of the SDP to support a plea for its
revocation. And before the Court, the lis mota is whether
or not PARC acted in grave abuse of discretion when it
ordered the recall of the SDP for such non-compliance
and the fact that the SDP, as couched and implemented,
offends certain constitutional and statutory provisions. To
be sure, any of these key issues may be resolved without
plunging into the constitutionality of Sec. 31 of RA 6657.
Moreover, looking deeply into the underlying petitions of
AMBALA, et al., it is not the said section per se that is
invalid, but rather it is the alleged application of the said
provision in the SDP that is flawed.
It may be well to note at this juncture that Sec. 5 of RA
9700,113 amending Sec. 7 of RA 6657, has all but
superseded Sec. 31 of RA 6657 vis-à-vis the stock
distribution component of said Sec. 31. In its pertinent
part, Sec. 5 of RA 9700 provides: "[T]hat after June 30,
2009, the modes of acquisition shall be limited to
voluntary offer to sell and compulsory acquisition." Thus,
for all intents and purposes, the stock distribution scheme
under Sec. 31 of RA 6657 is no longer an available
option under existing law. The question of whether or not
it is unconstitutional should be a moot issue.
It is true that the Court, in some cases, has proceeded to
resolve constitutional issues otherwise already moot and
academic114 provided the following requisites are present:
x x x first, there is a grave violation of the Constitution;
second, the exceptional character of the situation and the
paramount public interest is involved; third, when the
constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the
public; fourth, the case is capable of repetition yet
evading review.
These requisites do not obtain in the case at bar.
For one, there appears to be no breach of the
fundamental law. Sec. 4, Article XIII of the Constitution
reads:
The State shall, by law, undertake an agrarian reform
program founded on the right of the farmers and regular
farmworkers, who are landless, to OWN directly or
COLLECTIVELY THE LANDS THEY TILL or, in the case
of other farmworkers, to receive a just share of the fruits
thereof. To this end, the State shall encourage and
undertake the just distribution of all agricultural lands,
subject to such priorities and reasonable retention limits
as the Congress may prescribe, taking into account
ecological, developmental, or equity considerations, and
subject to the payment of just compensation. In
determining retention limits, the State shall respect the
right of small landowners. The State shall further provide
incentives for voluntary land-sharing. (Emphasis
supplied.)
The wording of the provision is unequivocal––the farmers
and regular farmworkers have a right TO OWN
DIRECTLY OR COLLECTIVELY THE LANDS THEY
TILL. The basic law allows two (2) modes of land
distribution—direct and indirect ownership. Direct transfer
to individual farmers is the most commonly used method
by DAR and widely accepted. Indirect transfer through
collective ownership of the agricultural land is the
alternative to direct ownership of agricultural land by
individual farmers. The aforequoted Sec. 4 EXPRESSLY
authorizes collective ownership by farmers. No language
can be found in the 1987 Constitution that disqualifies or
prohibits corporations or cooperatives of farmers from
being the legal entity through which collective ownership
can be exercised. The word "collective" is defined as
"indicating a number of persons or things considered as
constituting one group or aggregate,"115 while
"collectively" is defined as "in a collective sense or
manner; in a mass or body."116 By using the word
"collectively," the Constitution allows for indirect
ownership of land and not just outright agricultural land
transfer. This is in recognition of the fact that land reform
may become successful even if it is done through the
medium of juridical entities composed of farmers.
Collective ownership is permitted in two (2) provisions of
RA 6657. Its Sec. 29 allows workers’ cooperatives or
associations to collectively own the land, while the
second paragraph of Sec. 31 allows corporations or
associations to own agricultural land with the farmers
becoming stockholders or members. Said provisions
read:
SEC. 29. Farms owned or operated by corporations or
other business associations.—In the case of farms
owned or operated by corporations or other business
associations, the following rules shall be observed by the
PARC.
In general, lands shall be distributed directly to the
individual worker-beneficiaries.
In case it is not economically feasible and sound to divide
the land, then it shall be owned collectively by the worker
beneficiaries who shall form a workers’ cooperative or
association which will deal with the corporation or
business association. x x x (Emphasis supplied.)
SEC. 31. Corporate Landowners.— x x x
xxxx
Upon certification by the DAR, corporations owning
agricultural lands may give their qualified beneficiaries
the right to purchase such proportion of the capital stock
of the corporation that the agricultural land, actually
devoted to agricultural activities, bears in relation to the
company’s total assets, under such terms and conditions
as may be agreed upon by them. In no case shall the
compensation received by the workers at the time the
shares of stocks are distributed be reduced. The same
principle shall be applied to associations, with respect to
their equity or participation. x x x (Emphasis supplied.)
Clearly, workers’ cooperatives or associations under Sec.
29 of RA 6657 and corporations or associations under
the succeeding Sec. 31, as differentiated from individual
farmers, are authorized vehicles for the collective
ownership of agricultural land. Cooperatives can be
registered with the Cooperative Development Authority
and acquire legal personality of their own, while
corporations are juridical persons under the Corporation
Code. Thus, Sec. 31 is constitutional as it simply
implements Sec. 4 of Art. XIII of the Constitution that land
can be owned COLLECTIVELY by farmers. Even the
framers of the l987 Constitution are in unison with respect
to the two (2) modes of ownership of agricultural lands
tilled by farmers––DIRECT and COLLECTIVE, thus:
MR. NOLLEDO. And when we talk of the phrase "to own
directly," we mean the principle of direct ownership by the
tiller?
MR. MONSOD. Yes.
MR. NOLLEDO. And when we talk of "collectively," we
mean communal ownership, stewardship or State
ownership?
MS. NIEVA. In this section, we conceive of cooperatives;
that is farmers’ cooperatives owning the land, not the
State.
MR. NOLLEDO. And when we talk of "collectively,"
referring to farmers’ cooperatives, do the farmers own
specific areas of land where they only unite in their
efforts?
MS. NIEVA. That is one way.
MR. NOLLEDO. Because I understand that there are two
basic systems involved: the "moshave" type of agriculture
and the "kibbutz." So are both contemplated in the
report?
MR. TADEO. Ang dalawa kasing pamamaraan ng
pagpapatupad ng tunay na reporma sa lupa ay ang
pagmamay-ari ng lupa na hahatiin sa individual na
pagmamay-ari – directly – at ang tinatawag na sama-
samang gagawin ng mga magbubukid. Tulad sa Negros,
ang gusto ng mga magbubukid ay gawin nila itong
"cooperative or collective farm." Ang ibig sabihin ay
sama-sama nilang sasakahin.
xxxx
MR. TINGSON. x x x When we speak here of "to own
directly or collectively the lands they till," is this land for
the tillers rather than land for the landless? Before, we
used to hear "land for the landless," but now the slogan is
"land for the tillers." Is that right?
MR. TADEO. Ang prinsipyong umiiral dito ay iyong land
for the tillers. Ang ibig sabihin ng "directly" ay tulad sa
implementasyon sa rice and corn lands kung saan inaari
na ng mga magsasaka ang lupang binubungkal nila. Ang
ibig sabihin naman ng "collectively" ay sama-samang
paggawa sa isang lupain o isang bukid, katulad ng
sitwasyon sa Negros.117 (Emphasis supplied.)
As Commissioner Tadeo explained, the farmers will work
on the agricultural land "sama-sama" or collectively.
Thus, the main requisite for collective ownership of land
is collective or group work by farmers of the agricultural
land. Irrespective of whether the landowner is a
cooperative, association or corporation composed of
farmers, as long as concerted group work by the farmers
on the land is present, then it falls within the ambit of
collective ownership scheme.
Likewise, Sec. 4, Art. XIII of the Constitution makes
mention of a commitment on the part of the State to
pursue, by law, an agrarian reform program founded on
the policy of land for the landless, but subject to such
priorities as Congress may prescribe, taking into account
such abstract variable as "equity considerations." The
textual reference to a law and Congress necessarily
implies that the above constitutional provision is not self-
executory and that legislation is needed to implement
the urgently needed program of agrarian reform. And RA
6657 has been enacted precisely pursuant to and as a
mechanism to carry out the constitutional directives. This
piece of legislation, in fact, restates118 the agrarian reform
policy established in the aforementioned provision of the
Constitution of promoting the welfare of landless farmers
and farmworkers. RA 6657 thus defines "agrarian reform"
as "the redistribution of lands … to farmers and regular
farmworkers who are landless … to lift the economic
status of the beneficiaries and all other arrangements
alternative to the physical redistribution of lands,
such as production or profit sharing, labor administration
and the distribution of shares of stock which will allow
beneficiaries to receive a just share of the fruits of the
lands they work."
With the view We take of this case, the stock distribution
option devised under Sec. 31 of RA 6657 hews with the
agrarian reform policy, as instrument of social justice
under Sec. 4 of Article XIII of the Constitution. Albeit land
ownership for the landless appears to be the dominant
theme of that policy, We emphasize that Sec. 4, Article
XIII of the Constitution, as couched, does not constrict
Congress to passing an agrarian reform law planted on
direct land transfer to and ownership by farmers and no
other, or else the enactment suffers from the vice of
unconstitutionality. If the intention were otherwise, the
framers of the Constitution would have worded said
section in a manner mandatory in character.
For this Court, Sec. 31 of RA 6657, with its direct and
indirect transfer features, is not inconsistent with the
State’s commitment to farmers and farmworkers to
advance their interests under the policy of social justice.
The legislature, thru Sec. 31 of RA 6657, has chosen a
modality for collective ownership by which the
imperatives of social justice may, in its estimation, be
approximated, if not achieved. The Court should be
bound by such policy choice.
FARM contends that the farmers in the stock distribution
scheme under Sec. 31 do not own the agricultural land
but are merely given stock certificates. Thus, the farmers
lose control over the land to the board of directors and
executive officials of the corporation who actually
manage the land. They conclude that such arrangement
runs counter to the mandate of the Constitution that any
agrarian reform must preserve the control over the land in
the hands of the tiller.
This contention has no merit.
While it is true that the farmer is issued stock certificates
and does not directly own the land, still, the Corporation
Code is clear that the FWB becomes a stockholder who
acquires an equitable interest in the assets of the
corporation, which include the agricultural lands. It was
explained that the "equitable interest of the shareholder
in the property of the corporation is represented by the
term stock, and the extent of his interest is described by
the term shares. The expression shares of stock when
qualified by words indicating number and ownership
expresses the extent of the owner’s interest in the
corporate property."119 A share of stock typifies an aliquot
part of the corporation’s property, or the right to share in
its proceeds to that extent when distributed according to
law and equity and that its holder is not the owner of any
part of the capital of the corporation.120 However, the
FWBs will ultimately own the agricultural lands owned by
the corporation when the corporation is eventually
dissolved and liquidated.
Anent the alleged loss of control of the farmers over the
agricultural land operated and managed by the
corporation, a reading of the second paragraph of Sec.
31 shows otherwise. Said provision provides that
qualified beneficiaries have "the right to purchase such
proportion of the capital stock of the corporation that the
agricultural land, actually devoted to agricultural activities,
bears in relation to the company’s total assets." The
wording of the formula in the computation of the number
of shares that can be bought by the farmers does not
mean loss of control on the part of the farmers. It must be
remembered that the determination of the percentage of
the capital stock that can be bought by the farmers
depends on the value of the agricultural land and the
value of the total assets of the corporation.
There is, thus, nothing unconstitutional in the formula
prescribed by RA 6657. The policy on agrarian reform is
that control over the agricultural land must always be in
the hands of the farmers. Then it falls on the shoulders of
DAR and PARC to see to it the farmers should always
own majority of the common shares entitled to elect the
members of the board of directors to ensure that the
farmers will have a clear majority in the board. Before the
SDP is approved, strict scrutiny of the proposed SDP
must always be undertaken by the DAR and PARC, such
that the value of the agricultural land contributed to the
corporation must always be more than 50% of the total
assets of the corporation to ensure that the majority of
the members of the board of directors are composed of
the farmers. The PARC composed of the President of the
Philippines and cabinet secretaries must see to it that
control over the board of directors rests with the farmers
by rejecting the inclusion of non-agricultural assets which
will yield the majority in the board of directors to non-
farmers. Any deviation, however, by PARC or DAR from
the correct application of the formula prescribed by the
second paragraph of Sec. 31 of RA 6675 does not make
said provision constitutionally infirm. Rather, it is the
application of said provision that can be challenged.
Ergo, Sec. 31 of RA 6657 does not trench on the
constitutional policy of ensuring control by the farmers.
A view has been advanced that there can be no agrarian
reform unless there is land distribution and that actual
land distribution is the essential characteristic of a
constitutional agrarian reform program. On the contrary,
there have been so many instances where, despite actual
land distribution, the implementation of agrarian reform
was still unsuccessful. As a matter of fact, this Court may
take judicial notice of cases where FWBs sold the
awarded land even to non-qualified persons and in
violation of the prohibition period provided under the law.
This only proves to show that the mere fact that there is
land distribution does not guarantee a successful
implementation of agrarian reform.
As it were, the principle of "land to the tiller" and the old
pastoral model of land ownership where non-human
juridical persons, such as corporations, were prohibited
from owning agricultural lands are no longer realistic
under existing conditions. Practically, an individual farmer
will often face greater disadvantages and difficulties than
those who exercise ownership in a collective manner
through a cooperative or corporation. The former is too
often left to his own devices when faced with failing crops
and bad weather, or compelled to obtain usurious loans
in order to purchase costly fertilizers or farming
equipment. The experiences learned from failed land
reform activities in various parts of the country are lack of
financing, lack of farm equipment, lack of fertilizers, lack
of guaranteed buyers of produce, lack of farm-to-market
roads, among others. Thus, at the end of the day, there is
still no successful implementation of agrarian reform to
speak of in such a case.
Although success is not guaranteed, a cooperative or a
corporation stands in a better position to secure funding
and competently maintain the agri-business than the
individual farmer. While direct singular ownership over
farmland does offer advantages, such as the ability to
make quick decisions unhampered by interference from
others, yet at best, these advantages only but offset the
disadvantages that are often associated with such
ownership arrangement. Thus, government must be
flexible and creative in its mode of implementation to
better its chances of success. One such option is
collective ownership through juridical persons composed
of farmers.
Aside from the fact that there appears to be no violation
of the Constitution, the requirement that the instant case
be capable of repetition yet evading review is also
wanting. It would be speculative for this Court to assume
that the legislature will enact another law providing for a
similar stock option.
As a matter of sound practice, the Court will not interfere
inordinately with the exercise by Congress of its official
functions, the heavy presumption being that a law is the
product of earnest studies by Congress to ensure that no
constitutional prescription or concept is
infringed.121 Corollarily, courts will not pass upon
questions of wisdom, expediency and justice of
legislation or its provisions. Towards this end, all
reasonable doubts should be resolved in favor of the
constitutionality of a law and the validity of the acts and
processes taken pursuant thereof.122
Consequently, before a statute or its provisions duly
challenged are voided, an unequivocal breach of, or a
clear conflict with the Constitution, not merely a doubtful
or argumentative one, must be demonstrated in such a
manner as to leave no doubt in the mind of the Court. In
other words, the grounds for nullity must be beyond
reasonable doubt.123 FARM has not presented compelling
arguments to overcome the presumption of
constitutionality of Sec. 31 of RA 6657.
The wisdom of Congress in allowing an SDP through a
corporation as an alternative mode of implementing
agrarian reform is not for judicial determination.
Established jurisprudence tells us that it is not within the
province of the Court to inquire into the wisdom of the
law, for, indeed, We are bound by words of the statute.124
II.
The stage is now set for the determination of the
propriety under the premises of the revocation or recall of
HLI’s SDP. Or to be more precise, the inquiry should be:
whether or not PARC gravely abused its discretion in
revoking or recalling the subject SDP and placing the
hacienda under CARP’s compulsory acquisition and
distribution scheme.
The findings, analysis and recommendation of the DAR’s
Special Task Force contained and summarized in its
Terminal Report provided the bases for the assailed
PARC revocatory/recalling Resolution. The findings may
be grouped into two: (1) the SDP is contrary to either the
policy on agrarian reform, Sec. 31 of RA 6657, or DAO
10; and (2) the alleged violation by HLI of the
conditions/terms of the SDP. In more particular terms, the
following are essentially the reasons underpinning
PARC’s revocatory or recall action:
(1) Despite the lapse of 16 years from the approval of
HLI’s SDP, the lives of the FWBs have hardly improved
and the promised increased income has not materialized;
(2) HLI has failed to keep Hacienda Luisita intact and
unfragmented;
(3) The issuance of HLI shares of stock on the basis of
number of hours worked––or the so-called "man days"––
is grossly onerous to the FWBs, as HLI, in the guise of
rotation, can unilaterally deny work to anyone. In
elaboration of this ground, PARC’s Resolution No. 2006-
34-01, denying HLI’s motion for reconsideration of
Resolution No. 2005-32-01, stated that the man days
criterion worked to dilute the entitlement of the original
share beneficiaries;125
(4) The distribution/transfer of shares was not in
accordance with the timelines fixed by law;
(5) HLI has failed to comply with its obligations to grant
3% of the gross sales every year as production-sharing
benefit on top of the workers’ salary; and
(6) Several homelot awardees have yet to receive their
individual titles.
Petitioner HLI claims having complied with, at least
substantially, all its obligations under the SDP, as
approved by PARC itself, and tags the reasons given for
the revocation of the SDP as unfounded.
Public respondents, on the other hand, aver that the
assailed resolution rests on solid grounds set forth in the
Terminal Report, a position shared by AMBALA, which, in
some pleadings, is represented by the same counsel as
that appearing for the Supervisory Group.
FARM, for its part, posits the view that legal bases obtain
for the revocation of the SDP, because it does not
conform to Sec. 31 of RA 6657 and DAO 10. And training
its sight on the resulting dilution of the equity of the FWBs
appearing in HLI’s masterlist, FARM would state that the
SDP, as couched and implemented, spawned disparity
when there should be none; parity when there should
have been differentiation.126
The petition is not impressed with merit.
In the Terminal Report adopted by PARC, it is stated that
the SDP violates the agrarian reform policy under Sec. 2
of RA 6657, as the said plan failed to enhance the dignity
and improve the quality of lives of the FWBs through
greater productivity of agricultural lands. We disagree.
Sec. 2 of RA 6657 states:
SECTION 2. Declaration of Principles and Policies.¾It is
the policy of the State to pursue a Comprehensive
Agrarian Reform Program (CARP). The welfare of the
landless farmers and farm workers will receive the
highest consideration to promote social justice and to
move the nation towards sound rural development and
industrialization, and the establishment of owner
cultivatorship of economic-sized farms as the basis of
Philippine agriculture.
To this end, a more equitable distribution and ownership
of land, with due regard to the rights of landowners to just
compensation and to the ecological needs of the nation,
shall be undertaken to provide farmers and farm workers
with the opportunity to enhance their dignity and improve
the quality of their lives through greater productivity of
agricultural lands.
The agrarian reform program is founded on the right of
farmers and regular farm workers, who are landless, to
own directly or collectively the lands they till or, in the
case of other farm workers, to receive a share of the
fruits thereof. To this end, the State shall encourage the
just distribution of all agricultural lands, subject to the
priorities and retention limits set forth in this Act, having
taken into account ecological, developmental, and equity
considerations, and subject to the payment of just
compensation. The State shall respect the right of small
landowners and shall provide incentives for voluntary
land-sharing. (Emphasis supplied.)
Paragraph 2 of the above-quoted provision specifically
mentions that "a more equitable distribution and
ownership of land x x x shall be undertaken to provide
farmers and farm workers with the opportunity to
enhance their dignity and improve the quality of their lives
through greater productivity of agricultural lands." Of note
is the term "opportunity" which is defined as a favorable
chance or opening offered by
circumstances.127 Considering this, by no stretch of
imagination can said provision be construed as a
guarantee in improving the lives of the FWBs. At best, it
merely provides for a possibility or favorable chance of
uplifting the economic status of the FWBs, which may or
may not be attained.
Pertinently, improving the economic status of the FWBs
is neither among the legal obligations of HLI under the
SDP nor an imperative imposition by RA 6657 and DAO
10, a violation of which would justify discarding the stock
distribution option. Nothing in that option agreement, law
or department order indicates otherwise.
Significantly, HLI draws particular attention to its having
paid its FWBs, during the regime of the SDP (1989-
2005), some PhP 3 billion by way of salaries/wages and
higher benefits exclusive of free hospital and medical
benefits to their immediate family. And attached as Annex
"G" to HLI’s Memorandum is the certified true report of
the finance manager of Jose Cojuangco & Sons
Organizations-Tarlac Operations, captioned as
"HACIENDA LUISITA, INC. Salaries, Benefits and Credit
Privileges (in Thousand Pesos) Since the Stock Option
was Approved by PARC/CARP," detailing what HLI gave
their workers from 1989 to 2005. The sum total, as added
up by the Court, yields the following numbers: Total
Direct Cash Out (Salaries/Wages & Cash Benefits) =
PhP 2,927,848; Total Non-Direct Cash Out
(Hospital/Medical Benefits) = PhP 303,040. The cash out
figures, as stated in the report, include the cost of
homelots; the PhP 150 million or so representing 3% of
the gross produce of the hacienda; and the PhP 37.5
million representing 3% from the proceeds of the sale of
the 500-hectare converted lands. While not included in
the report, HLI manifests having given the FWBs 3% of
the PhP 80 million paid for the 80 hectares of land
traversed by the SCTEX.128 On top of these, it is worth
remembering that the shares of stocks were given by HLI
to the FWBs for free. Verily, the FWBs have benefited
from the SDP.
To address urgings that the FWBs be allowed to
disengage from the SDP as HLI has not anyway earned
profits through the years, it cannot be over-emphasized
that, as a matter of common business sense, no
corporation could guarantee a profitable run all the time.
As has been suggested, one of the key features of an
SDP of a corporate landowner is the likelihood of the
corporate vehicle not earning, or, worse still, losing
money.129
The Court is fully aware that one of the criteria under
DAO 10 for the PARC to consider the advisability of
approving a stock distribution plan is the likelihood that
the plan "would result in increased income and greater
benefits to [qualified beneficiaries] than if the lands were
divided and distributed to them individually."130 But as
aptly noted during the oral arguments, DAO 10 ought to
have not, as it cannot, actually exact assurance of
success on something that is subject to the will of man,
the forces of nature or the inherent risky nature of
business.131 Just like in actual land distribution, an SDP
cannot guarantee, as indeed the SDOA does not
guarantee, a comfortable life for the FWBs. The Court
can take judicial notice of the fact that there were many
instances wherein after a farmworker beneficiary has
been awarded with an agricultural land, he just
subsequently sells it and is eventually left with nothing in
the end.
In all then, the onerous condition of the FWBs’ economic
status, their life of hardship, if that really be the case, can
hardly be attributed to HLI and its SDP and provide a
valid ground for the plan’s revocation.
Neither does HLI’s SDP, whence the DAR-attested
SDOA/MOA is based, infringe Sec. 31 of RA 6657, albeit
public respondents erroneously submit otherwise.
The provisions of the first paragraph of the adverted Sec.
31 are without relevance to the issue on the propriety of
the assailed order revoking HLI’s SDP, for the paragraph
deals with the transfer of agricultural lands to the
government, as a mode of CARP compliance, thus:
SEC. 31. Corporate Landowners.¾Corporate landowners
may voluntarily transfer ownership over their agricultural
landholdings to the Republic of the Philippines pursuant
to Section 20 hereof or to qualified beneficiaries under
such terms and conditions, consistent with this Act, as
they may agree, subject to confirmation by the DAR.
The second and third paragraphs, with their sub-
paragraphs, of Sec. 31 provide as follows:
Upon certification by the DAR, corporations owning
agricultural lands may give their qualified beneficiaries
the right to purchase such proportion of the capital
stock of the corporation that the agricultural land,
actually devoted to agricultural activities, bears in
relation to the company’s total assets, under such
terms and conditions as may be agreed upon by them. In
no case shall the compensation received by the workers
at the time the shares of stocks are distributed be
reduced. x x x
Corporations or associations which voluntarily divest a
proportion of their capital stock, equity or participation in
favor of their workers or other qualified beneficiaries
under this section shall be deemed to have complied with
the provisions of this Act: Provided, That the following
conditions are complied with:
(a) In order to safeguard the right of beneficiaries who
own shares of stocks to dividends and other financial
benefits, the books of the corporation or association shall
be subject to periodic audit by certified public accountants
chosen by the beneficiaries;
(b) Irrespective of the value of their equity in the
corporation or association, the beneficiaries shall be
assured of at least one (1) representative in the board of
directors, or in a management or executive committee, if
one exists, of the corporation or association;
(c) Any shares acquired by such workers and
beneficiaries shall have the same rights and features as
all other shares; and
(d) Any transfer of shares of stocks by the original
beneficiaries shall be void ab initio unless said transaction
is in favor of a qualified and registered beneficiary within
the same corporation.
The mandatory minimum ratio of land-to-shares of stock
supposed to be distributed or allocated to qualified
beneficiaries, adverting to what Sec. 31 of RA 6657
refers to as that "proportion of the capital stock of the
corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s
total assets" had been observed.
Paragraph one (1) of the SDOA, which was based on the
SDP, conforms to Sec. 31 of RA 6657. The stipulation
reads:
1. The percentage of the value of the agricultural land of
Hacienda Luisita (P196,630,000.00) in relation to the total
assets (P590,554,220.00) transferred and conveyed to
the SECOND PARTY is 33.296% that, under the law,
is the proportion of the outstanding capital stock of the
SECOND PARTY, which is P355,531,462.00 or
355,531,462 shares with a par value of P1.00 per share,
that has to be distributed to the THIRD PARTY under the
stock distribution plan, the said 33.296% thereof
being P118,391,976.85 or 118,391,976.85 shares.
The appraised value of the agricultural land is PhP
196,630,000 and of HLI’s other assets is PhP
393,924,220. The total value of HLI’s assets is, therefore,
PhP 590,554,220.132 The percentage of the value of the
agricultural lands (PhP 196,630,000) in relation to the
total assets (PhP 590,554,220) is 33.296%, which
represents the stockholdings of the 6,296 original
qualified farmworker-beneficiaries (FWBs) in HLI. The
total number of shares to be distributed to said qualified
FWBs is 118,391,976.85 HLI shares. This was arrived at
by getting 33.296% of the 355,531,462 shares which is
the outstanding capital stock of HLI with a value of PhP
355,531,462. Thus, if we divide the 118,391,976.85 HLI
shares by 6,296 FWBs, then each FWB is entitled to
18,804.32 HLI shares. These shares under the SDP are
to be given to FWBs for free.
The Court finds that the determination of the shares to be
distributed to the 6,296 FWBs strictly adheres to the
formula prescribed by Sec. 31(b) of RA 6657.
Anent the requirement under Sec. 31(b) of the third
paragraph, that the FWBs shall be assured of at least
one (1) representative in the board of directors or in a
management or executive committee irrespective of the
value of the equity of the FWBs in HLI, the Court finds
that the SDOA contained provisions making certain the
FWBs’ representation in HLI’s governing board, thus:
5. Even if only a part or fraction of the shares earmarked
for distribution will have been acquired from the FIRST
PARTY and distributed to the THIRD PARTY, FIRST
PARTY shall execute at the beginning of each fiscal year
an irrevocable proxy, valid and effective for one (1) year,
in favor of the farmworkers appearing as shareholders of
the SECOND PARTY at the start of said year which will
empower the THIRD PARTY or their representative to
vote in stockholders’ and board of directors’ meetings of
the SECOND PARTY convened during the year the
entire 33.296% of the outstanding capital stock of the
SECOND PARTY earmarked for distribution and thus be
able to gain such number of seats in the board of
directors of the SECOND PARTY that the whole 33.296%
of the shares subject to distribution will be entitled to.
Also, no allegations have been made against HLI
restricting the inspection of its books by accountants
chosen by the FWBs; hence, the assumption may be
made that there has been no violation of the statutory
prescription under sub-paragraph (a) on the auditing of
HLI’s accounts.
Public respondents, however, submit that the distribution
of the mandatory minimum ratio of land-to-shares of
stock, referring to the 118,391,976.85 shares with par
value of PhP 1 each, should have been made in full
within two (2) years from the approval of RA 6657, in line
with the last paragraph of Sec. 31 of said law.133
Public respondents’ submission is palpably erroneous.
We have closely examined the last paragraph alluded to,
with particular focus on the two-year period mentioned,
and nothing in it remotely supports the public
respondents’ posture. In its pertinent part, said Sec. 31
provides:
SEC. 31. Corporate Landowners x x x
If within two (2) years from the approval of this Act, the
[voluntary] land or stock transfer envisioned above is not
made or realized or the plan for such stock distribution
approved by the PARC within the same period, the
agricultural land of the corporate owners or corporation
shall be subject to the compulsory coverage of this Act.
(Word in bracket and emphasis added.)
Properly viewed, the words "two (2) years" clearly refer to
the period within which the corporate landowner, to avoid
land transfer as a mode of CARP coverage under RA
6657, is to avail of the stock distribution option or to have
the SDP approved. The HLI secured approval of its SDP
in November 1989, well within the two-year period
reckoned from June 1988 when RA 6657 took effect.
Having hurdled the alleged breach of the agrarian reform
policy under Sec. 2 of RA 6657 as well as the statutory
issues, We shall now delve into what PARC and
respondents deem to be other instances of violation of
DAO 10 and the SDP.
On the Conversion of Lands
Contrary to the almost parallel stance of the respondents,
keeping Hacienda Luisita unfragmented is also not
among the imperative impositions by the SDP, RA 6657,
and DAO 10.
The Terminal Report states that the proposed distribution
plan submitted in 1989 to the PARC effectively assured
the intended stock beneficiaries that the physical integrity
of the farm shall remain inviolate. Accordingly, the
Terminal Report and the PARC-assailed resolution would
take HLI to task for securing approval of the conversion
to non-agricultural uses of 500 hectares of the hacienda.
In not too many words, the Report and the resolution
view the conversion as an infringement of Sec. 5(a) of
DAO 10 which reads: "a. that the continued operation of
the corporation with its agricultural land intact and
unfragmented is viable with potential for growth and
increased profitability."
The PARC is wrong.
In the first place, Sec. 5(a)––just like the succeeding Sec.
5(b) of DAO 10 on increased income and greater benefits
to qualified beneficiaries––is but one of the stated criteria
to guide PARC in deciding on whether or not to accept an
SDP. Said Sec. 5(a) does not exact from the corporate
landowner-applicant the undertaking to keep the farm
intact and unfragmented ad infinitum. And there is logic to
HLI’s stated observation that the key phrase in the
provision of Sec. 5(a) is "viability of corporate
operations": "[w]hat is thus required is not the agricultural
land remaining intact x x x but the viability of the
corporate operations with its agricultural land being intact
and unfragmented. Corporate operation may be viable
even if the corporate agricultural land does not remain
intact or [un]fragmented."134
It is, of course, anti-climactic to mention that DAR viewed
the conversion as not violative of any issuance, let alone
undermining the viability of Hacienda Luisita’s operation,
as the DAR Secretary approved the land conversion
applied for and its disposition via his Conversion Order
dated August 14, 1996 pursuant to Sec. 65 of RA 6657
which reads:
Sec. 65. Conversion of Lands.¾After the lapse of five
years from its award when the land ceases to be
economically feasible and sound for agricultural
purposes, or the locality has become urbanized and the
land will have a greater economic value for residential,
commercial or industrial purposes, the DAR upon
application of the beneficiary or landowner with due
notice to the affected parties, and subject to existing
laws, may authorize the x x x conversion of the land and
its dispositions. x x x
On the 3% Production Share
On the matter of the alleged failure of HLI to comply with
sharing the 3% of the gross production sales of the
hacienda and pay dividends from profit, the entries in its
financial books tend to indicate compliance by HLI of the
profit-sharing equivalent to 3% of the gross sales from
the production of the agricultural land on top of (a) the
salaries and wages due FWBs as employees of the
company and (b) the 3% of the gross selling price of the
converted land and that portion used for the SCTEX. A
plausible evidence of compliance or non-compliance, as
the case may be, could be the books of account of HLI.
Evidently, the cry of some groups of not having received
their share from the gross production sales has not
adequately been validated on the ground by the Special
Task Force.
Indeed, factual findings of administrative agencies are
conclusive when supported by substantial evidence and
are accorded due respect and weight, especially when
they are affirmed by the CA.135However, such rule is not
absolute. One such exception is when the findings of an
administrative agency are conclusions without citation of
specific evidence on which they are based,136 such as in
this particular instance. As culled from its Terminal
Report, it would appear that the Special Task Force
rejected HLI’s claim of compliance on the basis of this
ratiocination:
• The Task Force position: Though, allegedly, the
Supervisory Group receives the 3% gross production
share and that others alleged that they received 30 million
pesos still others maintain that they have not received
anything yet. Item No. 4 of the MOA is clear and must be
followed. There is a distinction between the total gross
sales from the production of the land and the proceeds
from the sale of the land. The former refers to the
fruits/yield of the agricultural land while the latter is the
land itself. The phrase "the beneficiaries are entitled every
year to an amount approximately equivalent to 3% would
only be feasible if the subject is the produce since there is
at least one harvest per year, while such is not the case in
the sale of the agricultural land. This negates then the
claim of HLI that, all that the FWBs can be entitled to, if
any, is only 3% of the purchase price of the converted
land.
• Besides, the Conversion Order dated 14 August 1996
provides that "the benefits, wages and the like, presently
received by the FWBs shall not in any way be reduced or
adversely affected. Three percent of the gross selling
price of the sale of the converted land shall be awarded to
the beneficiaries of the SDO." The 3% gross production
share then is different from the 3% proceeds of the sale of
the converted land and, with more reason, the 33% share
being claimed by the FWBs as part owners of the
Hacienda, should have been given the FWBs, as
stockholders, and to which they could have been entitled
if only the land were acquired and redistributed to them
under the CARP.
xxxx
 • The FWBs do not receive any other benefits under the cooperatives or corporations mentioned in the preceding
MOA except the aforementioned [(viz: shares of stocks section shall be provided with homelots and small
(partial), 3% gross production sale (not all) and homelots farmlots for their family use, to be taken from the land
(not all)].
owned by the cooperative or corporation.
Judging from the above statements, the Special Task
The "preceding section" referred to in the above-quoted
Force is at best silent on whether HLI has failed to
provision is as follows:
comply with the 3% production-sharing obligation or the
3% of the gross selling price of the converted land and
SEC. 29. Farms Owned or Operated by Corporations or
the SCTEX lot. In fact, it admits that the FWBs, though
Other Business Associations.¾In the case of farms
not all, have received their share of the gross production
owned or operated by corporations or other business
sales and in the sale of the lot to SCTEX. At most, then,
associations, the following rules shall be observed by the
HLI had complied substantially with this SDP undertaking
PARC.
and the conversion order. To be sure, this slight breach
would not justify the setting to naught by PARC of the
In general, lands shall be distributed directly to the
approval action of the earlier PARC. Even in contract law,
individual worker-beneficiaries.
rescission, predicated on violation of reciprocity, will not
be permitted for a slight or casual breach of contract;
In case it is not economically feasible and sound to divide
rescission may be had only for such breaches that are
the land, then it shall be owned collectively by the worker-
substantial and fundamental as to defeat the object of the
beneficiaries who shall form a workers’ cooperative or
parties in making the agreement.137
association which will deal with the corporation or
business association. Until a new agreement is entered
Despite the foregoing findings, the revocation of the
into by and between the workers’ cooperative or
approval of the SDP is not without basis as shown below.
association and the corporation or business association,
any agreement existing at the time this Act takes effect
On Titles to Homelots
between the former and the previous landowner shall be
respected by both the workers’ cooperative or association
Under RA 6657, the distribution of homelots is required
and the corporation or business association.
only for corporations or business associations owning or
operating farms which opted for land distribution. Sec. 30
Noticeably, the foregoing provisions do not make
of RA 6657 states:
reference to corporations which opted for stock
distribution under Sec. 31 of RA 6657. Concomitantly,
SEC. 30. Homelots and Farmlots for Members of
Cooperatives.¾The individual members of the
said corporations are not obliged to provide for it except
by stipulation, as in this case.
Under the SDP, HLI undertook to "subdivide and allocate
for free and without charge among the qualified family-
beneficiaries x x x residential or homelots of not more
than 240 sq. m. each, with each family beneficiary being
assured of receiving and owning a homelot in the barrio
or barangay where it actually resides," "within a
reasonable time."
More than sixteen (16) years have elapsed from the time
the SDP was approved by PARC, and yet, it is still the
contention of the FWBs that not all was given the 240-
square meter homelots and, of those who were already
given, some still do not have the corresponding titles.
During the oral arguments, HLI was afforded the chance
to refute the foregoing allegation by submitting proof that
the FWBs were already given the said homelots:
Justice Velasco: x x x There is also an allegation that the
farmer beneficiaries, the qualified family beneficiaries
were not given the 240 square meters each. So, can you
also [prove] that the qualified family beneficiaries were
already provided the 240 square meter homelots.
Atty. Asuncion: We will, your Honor please.138
Other than the financial report, however, no other
substantial proof showing that all the qualified
beneficiaries have received homelots was submitted by
HLI. Hence, this Court is constrained to rule that HLI has
not yet fully complied with its undertaking to distribute
homelots to the FWBs under the SDP.
On "Man Days" and the Mechanics of Stock Distribution
In our review and analysis of par. 3 of the SDOA on the
mechanics and timelines of stock distribution, We find
that it violates two (2) provisions of DAO 10. Par. 3 of the
SDOA states:
3. At the end of each fiscal year, for a period of 30 years,
the SECOND PARTY [HLI] shall arrange with the FIRST
PARTY [TDC] the acquisition and distribution to the
THIRD PARTY [FWBs] on the basis of number of days
worked and at no cost to them of one-thirtieth (1/30) of
118,391,976.85 shares of the capital stock of the
SECOND PARTY that are presently owned and held by
the FIRST PARTY, until such time as the entire block of
118,391,976.85 shares shall have been completely
acquired and distributed to the THIRD PARTY.
Based on the above-quoted provision, the distribution of
the shares of stock to the FWBs, albeit not entailing a
cash out from them, is contingent on the number of "man
days," that is, the number of days that the FWBs have
worked during the year. This formula deviates from Sec.
1 of DAO 10, which decrees the distribution of equal
number of shares to the FWBs as the minimum ratio of
shares of stock for purposes of compliance with Sec. 31
of RA 6657. As stated in Sec. 4 of DAO 10:
Section 4. Stock Distribution Plan.¾The [SDP] submitted
by the corporate landowner-applicant shall provide for the
distribution of an equal number of shares of the same
class and value, with the same rights and features as all
other shares, to each of the qualified beneficiaries. This
distribution plan in all cases, shall be at least the
minimum ratio for purposes of compliance with Section
31 of R.A. No. 6657.
On top of the minimum ratio provided under Section 3 of
this Implementing Guideline, the corporate landowner-
applicant may adopt additional stock distribution schemes
taking into account factors such as rank, seniority, salary,
position and other circumstances which may be deemed
desirable as a matter of sound company policy.
(Emphasis supplied.)
The above proviso gives two (2) sets or categories of
shares of stock which a qualified beneficiary can acquire
from the corporation under the SDP. The first pertains, as
earlier explained, to the mandatory minimum ratio of
shares of stock to be distributed to the FWBs in
compliance with Sec. 31 of RA 6657. This minimum ratio
contemplates of that "proportion of the capital stock of the
corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s
total assets."139 It is this set of shares of stock which, in
line with Sec. 4 of DAO 10, is supposed to be allocated
"for the distribution of an equal number of shares of stock
of the same class and value, with the same rights and
features as all other shares, to each of the qualified
beneficiaries."
On the other hand, the second set or category of shares
partakes of a gratuitous extra grant, meaning that this set
or category constitutes an augmentation share/s that the
corporate landowner may give under an additional stock
distribution scheme, taking into account such variables as
rank, seniority, salary, position and like factors which the
management, in the exercise of its sound discretion, may
deem desirable.140
Before anything else, it should be stressed that, at the
time PARC approved HLI’s SDP, HLI
recognized 6,296 individuals as qualified FWBs. And
under the 30-year stock distribution program envisaged
under the plan, FWBs who came in after 1989, new
FWBs in fine, may be accommodated, as they appear to
have in fact been accommodated as evidenced by their
receipt of HLI shares.
Now then, by providing that the number of shares of the
original 1989 FWBs shall depend on the number of "man
days," HLI violated the afore-quoted rule on stock
distribution and effectively deprived the FWBs of equal
shares of stock in the corporation, for, in net effect, these
6,296 qualified FWBs, who theoretically had given up
their rights to the land that could have been distributed to
them, suffered a dilution of their due share entitlement.
As has been observed during the oral arguments, HLI
has chosen to use the shares earmarked for farmworkers
as reward system chips to water down the shares of the
original 6,296 FWBs.141 Particularly:
Justice Abad: If the SDOA did not take place, the other
thing that would have happened is that there would be
CARP?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: That’s the only point I want to know x x x.
Now, but they chose to enter SDOA instead of placing
the land under CARP. And for that reason those who
would have gotten their shares of the land actually gave
up their rights to this land in place of the shares of the
stock, is that correct?
Atty. Dela Merced: It would be that way, Your Honor.
Justice Abad: Right now, also the government, in a way,
gave up its right to own the land because that way the
government takes own [sic] the land and distribute it to
the farmers and pay for the land, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: And then you gave thirty-three percent
(33%) of the shares of HLI to the farmers at that time that
numbered x x x those who signed five thousand four
hundred ninety eight (5,498) beneficiaries, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: But later on, after assigning them their
shares, some workers came in from 1989, 1990, 1991,
1992 and the rest of the years that you gave additional
shares who were not in the original list of owners?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: Did those new workers give up any right
that would have belong to them in 1989 when the land
was supposed to have been placed under CARP?
Atty. Dela Merced: If you are talking or referring…
(interrupted)
Justice Abad: None! You tell me. None. They gave up no
rights to land?
Atty. Dela Merced: They did not do the same thing as we
did in 1989, Your Honor.
Justice Abad: No, if they were not workers in 1989 what
land did they give up? None, if they become workers later
on.
Atty. Dela Merced: None, Your Honor, I was referring,
Your Honor, to the original… (interrupted)
Justice Abad: So why is it that the rights of those who
gave up their lands would be diluted, because the
company has chosen to use the shares as reward system
for new workers who come in? It is not that the new
workers, in effect, become just workers of the corporation
whose stockholders were already fixed. The TADECO
who has shares there about sixty six percent (66%) and
the five thousand four hundred ninety eight (5,498)
farmers at the time of the SDOA? Explain to me. Why,
why will you x x x what right or where did you get that
right to use this shares, to water down the shares of
those who should have been benefited, and to use it as a
reward system decided by the company?142
From the above discourse, it is clear as day that the
original 6,296 FWBs, who were qualified beneficiaries at
the time of the approval of the SDP, suffered from
watering down of shares. As determined earlier, each
original FWB is entitled to 18,804.32 HLI shares. The
original FWBs got less than the guaranteed 18,804.32
HLI shares per beneficiary, because the acquisition and
distribution of the HLI shares were based on "man days"
or "number of days worked" by the FWB in a year’s time.
As explained by HLI, a beneficiary needs to work for at
least 37 days in a fiscal year before he or she becomes
entitled to HLI shares. If it falls below 37 days, the FWB,
unfortunately, does not get any share at year end. The
number of HLI shares distributed varies depending on the
number of days the FWBs were allowed to work in one
year. Worse, HLI hired farmworkers in addition to the
original 6,296 FWBs, such that, as indicated in the
Compliance dated August 2, 2010 submitted by HLI to
the Court, the total number of farmworkers of HLI as of
said date stood at 10,502. All these farmworkers, which
include the original 6,296 FWBs, were given shares out
of the 118,931,976.85 HLI shares representing the
33.296% of the total outstanding capital stock of HLI.
Clearly, the minimum individual allocation of each original
FWB of 18,804.32 shares was diluted as a result of the
use of "man days" and the hiring of additional
farmworkers.
Going into another but related matter, par. 3 of the SDOA
expressly providing for a 30-year timeframe for HLI-to-
FWBs stock transfer is an arrangement contrary to what
Sec. 11 of DAO 10 prescribes. Said Sec. 11 provides for
the implementation of the approved stock distribution
plan within three (3) months from receipt by the corporate
landowner of the approval of the plan by PARC. In fact,
based on the said provision, the transfer of the shares of
stock in the names of the qualified FWBs should be
recorded in the stock and transfer books and must be
submitted to the SEC within sixty (60) days from
implementation. As stated:
Section 11. Implementation/Monitoring of Plan.¾The
approved stock distribution plan shall
be implemented within three (3) months from receipt by
the corporate landowner-applicant of the approval thereof
by the PARC, and the transfer of the shares of stocks in
the names of the qualified beneficiaries shall be recorded
in stock and transfer books and submitted to the
Securities and Exchange Commission (SEC) within sixty
(60) days from the said implementation of the stock
distribution plan. (Emphasis supplied.)
It is evident from the foregoing provision that the
implementation, that is, the distribution of the shares of
stock to the FWBs, must be made within three (3) months
from receipt by HLI of the approval of the stock
distribution plan by PARC. While neither of the clashing
parties has made a compelling case of the thrust of this
provision, the Court is of the view and so holds that the
intent is to compel the corporate landowner to complete,
not merely initiate, the transfer process of shares within
that three-month timeframe. Reinforcing this conclusion is
the 60-day stock transfer recording (with the SEC)
requirement reckoned from the implementation of the
SDP.
To the Court, there is a purpose, which is at once
discernible as it is practical, for the three-month
threshold. Remove this timeline and the corporate
landowner can veritably evade compliance with agrarian
reform by simply deferring to absurd limits the
implementation of the stock distribution scheme.
The argument is urged that the thirty (30)-year
distribution program is justified by the fact that, under
Sec. 26 of RA 6657, payment by beneficiaries of land
distribution under CARP shall be made in thirty (30)
annual amortizations. To HLI, said section provides a
justifying dimension to its 30-year stock distribution
program.
HLI’s reliance on Sec. 26 of RA 6657, quoted in part
below, is obviously misplaced as the said provision
clearly deals with land distribution.
SEC. 26. Payment by Beneficiaries.¾Lands awarded
pursuant to this Act shall be paid for by the beneficiaries
to the LBP in thirty (30) annual amortizations x x x.
Then, too, the ones obliged to pay the LBP under the
said provision are the beneficiaries. On the other hand, in
the instant case, aside from the fact that what is involved
is stock distribution, it is the corporate landowner who
has the obligation to distribute the shares of stock among
the FWBs.
Evidently, the land transfer beneficiaries are given thirty
(30) years within which to pay the cost of the land thus
awarded them to make it less cumbersome for them to
pay the government. To be sure, the reason underpinning
the 30-year accommodation does not apply to corporate
landowners in distributing shares of stock to the qualified
beneficiaries, as the shares may be issued in a much
shorter period of time.
Taking into account the above discussion, the revocation
of the SDP by PARC should be upheld for violating DAO
10. It bears stressing that under Sec. 49 of RA 6657, the
PARC and the DAR have the power to issue rules and
regulations, substantive or procedural. Being a product of
such rule-making power, DAO 10 has the force and effect
of law and must be duly complied with.143 The PARC is,
therefore, correct in revoking the SDP. Consequently, the
PARC Resolution No. 89-12-2 dated November 21, l989
approving the HLI’s SDP is nullified and voided.
III.
We now resolve the petitions-in-intervention which, at
bottom, uniformly pray for the exclusion from the
coverage of the assailed PARC resolution those portions
of the converted land within Hacienda Luisita which
RCBC and LIPCO acquired by purchase.
Both contend that they are innocent purchasers for value
of portions of the converted farm land. Thus, their plea for
the exclusion of that portion from PARC Resolution 2005-
32-01, as implemented by a DAR-issued Notice of
Coverage dated January 2, 2006, which called for
mandatory CARP acquisition coverage of lands subject of
the SDP.
To restate the antecedents, after the conversion of the
500 hectares of land in Hacienda Luisita, HLI transferred
the 300 hectares to Centennary, while ceding the
remaining 200-hectare portion to LRC. Subsequently,
LIPCO purchased the entire three hundred (300)
hectares of land from Centennary for the purpose of
developing the land into an industrial
complex.144 Accordingly, the TCT in Centennary’s name
was canceled and a new one issued in LIPCO’s name.
Thereafter, said land was subdivided into two (2) more
parcels of land. Later on, LIPCO transferred about 184
hectares to RCBC by way of dacion en pago, by virtue of
which TCTs in the name of RCBC were subsequently
issued.
Under Sec. 44 of PD 1529 or the Property Registration
Decree, "every registered owner receiving a certificate of
title in pursuance of a decree of registration and every
subsequent purchaser of registered land taking a
certificate of title for value and in good faith shall hold the
same free from all encumbrances except those noted on
the certificate and enumerated therein."145
It is settled doctrine that one who deals with property
registered under the Torrens system need not go beyond
the four corners of, but can rely on what appears on, the
title. He is charged with notice only of such burdens and
claims as are annotated on the title. This principle admits
of certain exceptions, such as when the party has actual
knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry, or when
the purchaser has knowledge of a defect or the lack of
title in his vendor or of sufficient facts to induce a
reasonably prudent man to inquire into the status of the
title of the property in litigation.146 A higher level of care
and diligence is of course expected from banks, their
business being impressed with public interest.147
Millena v. Court of Appeals describes a purchaser in
good faith in this wise:
x x x A purchaser in good faith is one who buys property
of another, without notice that some other person has a
right to, or interest in, such property at the time of such
purchase, or before he has notice of the claim or interest
of some other persons in the property. Good faith, or the
lack of it, is in the final analysis a question of intention;
but in ascertaining the intention by which one is actuated
on a given occasion, we are necessarily controlled by the
evidence as to the conduct and outward acts by which
alone the inward motive may, with safety, be determined.
Truly, good faith is not a visible, tangible fact that can be
seen or touched, but rather a state or condition of mind
which can only be judged by actual or fancied tokens or
signs. Otherwise stated, good faith x x x refers to the
state of mind which is manifested by the acts of the
individual concerned.148 (Emphasis supplied.)
In fine, there are two (2) requirements before one may be
considered a purchaser in good faith, namely: (1) that the
purchaser buys the property of another without notice
that some other person has a right to or interest in such
property; and (2) that the purchaser pays a full and fair
price for the property at the time of such purchase or
before he or she has notice of the claim of another.
It can rightfully be said that both LIPCO and RCBC are––
based on the above requirements and with respect to the
adverted transactions of the converted land in question––
purchasers in good faith for value entitled to the benefits
arising from such status.
First, at the time LIPCO purchased the entire three
hundred (300) hectares of industrial land, there was no
notice of any supposed defect in the title of its transferor,
Centennary, or that any other person has a right to or
interest in such property. In fact, at the time LIPCO
acquired said parcels of land, only the following
annotations appeared on the TCT in the name of
Centennary: the Secretary’s Certificate in favor of
Teresita Lopa, the Secretary’s Certificate in favor of
Shintaro Murai, and the conversion of the property from
agricultural to industrial and residential use.149
The same is true with respect to RCBC. At the time it
acquired portions of Hacienda Luisita, only the following
general annotations appeared on the TCTs of LIPCO: the
Deed of Restrictions, limiting its use solely as an
industrial estate; the Secretary’s Certificate in favor of
Koji Komai and Kyosuke Hori; and the Real Estate
Mortgage in favor of RCBC to guarantee the payment of
PhP 300 million.
It cannot be claimed that RCBC and LIPCO acted in bad
faith in acquiring the lots that were previously covered by
the SDP. Good faith "consists in the possessor’s belief
that the person from whom he received it was the owner
of the same and could convey his title. Good faith
requires a well-founded belief that the person from whom
title was received was himself the owner of the land, with
the right to convey it. There is good faith where there is
an honest intention to abstain from taking any
unconscientious advantage from another."150 It is the
opposite of fraud.
To be sure, intervenor RCBC and LIPCO knew that the
lots they bought were subjected to CARP coverage by
means of a stock distribution plan, as the DAR
conversion order was annotated at the back of the titles
of the lots they acquired. However, they are of the honest
belief that the subject lots were validly converted to
commercial or industrial purposes and for which said lots
were taken out of the CARP coverage subject of PARC
Resolution No. 89-12-2 and, hence, can be legally and
validly acquired by them. After all, Sec. 65 of RA 6657
explicitly allows conversion and disposition of agricultural
lands previously covered by CARP land acquisition "after
the lapse of five (5) years from its award when the land
ceases to be economically feasible and sound for
agricultural purposes or the locality has become
urbanized and the land will have a greater economic
value for residential, commercial or industrial purposes."
Moreover, DAR notified all the affected parties, more
particularly the FWBs, and gave them the opportunity to
comment or oppose the proposed conversion. DAR, after
going through the necessary processes, granted the
conversion of 500 hectares of Hacienda Luisita pursuant
to its primary jurisdiction under Sec. 50 of RA 6657 to
determine and adjudicate agrarian reform matters and its
original exclusive jurisdiction over all matters involving
the implementation of agrarian reform. The DAR
conversion order became final and executory after none
of the FWBs interposed an appeal to the CA. In this
factual setting, RCBC and LIPCO purchased the lots in
question on their honest and well-founded belief that the
previous registered owners could legally sell and convey
the lots though these were previously subject of CARP
coverage. Ergo, RCBC and LIPCO acted in good faith in
acquiring the subject lots.
And second, both LIPCO and RCBC purchased portions
of Hacienda Luisita for value. Undeniably, LIPCO
acquired 300 hectares of land from Centennary for the
amount of PhP 750 million pursuant to a Deed of Sale
dated July 30, 1998.151 On the other hand, in a Deed of
Absolute Assignment dated November 25, 2004, LIPCO
conveyed portions of Hacienda Luisita in favor of RCBC
by way of dacion en pago to pay for a loan of PhP
431,695,732.10.
As bona fide purchasers for value, both LIPCO and
RCBC have acquired rights which cannot just be
disregarded by DAR, PARC or even by this Court. As
held in Spouses Chua v. Soriano:
With the property in question having already passed to
the hands of purchasers in good faith, it is now of no
moment that some irregularity attended the issuance of
the SPA, consistent with our pronouncement in Heirs of
Spouses Benito Gavino and Juana Euste v. Court of
Appeals, to wit:
x x x the general rule that the direct result of a previous
void contract cannot be valid, is inapplicable in this case
as it will directly contravene the Torrens system of
registration. Where innocent third persons, relying on
the correctness of the certificate of title thus issued,
acquire rights over the property, the court cannot
disregard such rights and order the cancellation of
the certificate. The effect of such outright cancellation
will be to impair public confidence in the certificate of title.
The sanctity of the Torrens system must be preserved;
otherwise, everyone dealing with the property registered
under the system will have to inquire in every instance as
to whether the title had been regularly or irregularly
issued, contrary to the evident purpose of the law.
Being purchasers in good faith, the Chuas already
acquired valid title to the property. A purchaser in
good faith holds an indefeasible title to the property
and he is entitled to the protection of the law.152 x x x
(Emphasis supplied.)
To be sure, the practicalities of the situation have to a
point influenced Our disposition on the fate of RCBC and
LIPCO. After all, the Court, to borrow from Association of
Small Landowners in the Philippines, Inc.,153 is not a
"cloistered institution removed" from the realities on the
ground. To note, the approval and issuances of both the
national and local governments showing that certain
portions of Hacienda Luisita have effectively ceased,
legally and physically, to be agricultural and, therefore, no
longer CARPable are a matter of fact which cannot just
be ignored by the Court and the DAR. Among the
approving/endorsing issuances:154
(a) Resolution No. 392 dated 11 December 1996 of the
Sangguniang Bayan of Tarlac favorably endorsing the
300-hectare industrial estate project of LIPCO;
(b) BOI Certificate of Registration No. 96-020 dated 20
December 1996 issued in accordance with the Omnibus
Investments Code of 1987;
(c) PEZA Certificate of Board Resolution No. 97-202
dated 27 June 1997, approving LIPCO’s application for a
mixed ecozone and proclaiming the three hundred (300)
hectares of the industrial land as a Special Economic
Zone;
(d) Resolution No. 234 dated 08 August 1997 of the
Sangguniang Bayan of Tarlac, approving the Final
Development Permit for the Luisita Industrial Park II
Project;
(e) Development Permit dated 13 August 1997 for the
proposed Luisita Industrial Park II Project issued by the
Office of the Sangguniang Bayan of Tarlac;155
(f) DENR Environmental Compliance Certificate dated 01
October 1997 issued for the proposed project of building
an industrial complex on three hundred (300) hectares of
industrial land;156
(g) Certificate of Registration No. 00794 dated 26
December 1997 issued by the HLURB on the project of
Luisita Industrial Park II with an area of three million
(3,000,000) square meters;157
(h) License to Sell No. 0076 dated 26 December 1997
issued by the HLURB authorizing the sale of lots in the
Luisita Industrial Park II;
(i) Proclamation No. 1207 dated 22 April 1998 entitled
"Declaring Certain Parcels of Private Land in Barangay
San Miguel, Municipality of Tarlac, Province of Tarlac, as
a Special Economic Zone pursuant to Republic Act No.
7916," designating the Luisita Industrial Park II consisting
of three hundred hectares (300 has.) of industrial land as
a Special Economic Zone; and
(j) Certificate of Registration No. EZ-98-05 dated 07 May
1998 issued by the PEZA, stating that pursuant to
Presidential Proclamation No. 1207 dated 22 April 1998
and Republic Act No. 7916, LIPCO has been registered
as an Ecozone Developer/Operator of Luisita Industrial
Park II located in San Miguel, Tarlac, Tarlac.
While a mere reclassification of a covered agricultural
land or its inclusion in an economic zone does not
automatically allow the corporate or individual landowner
to change its use,158 the reclassification process is a
prima facie indicium that the land has ceased to be
economically feasible and sound for agricultural uses.
And if only to stress, DAR Conversion Order No.
030601074-764-(95) issued in 1996 by then DAR
Secretary Garilao had effectively converted 500 hectares
of hacienda land from agricultural to
industrial/commercial use and authorized their
disposition.
In relying upon the above-mentioned approvals,
proclamation and conversion order, both RCBC and
LIPCO cannot be considered at fault for believing that
certain portions of Hacienda Luisita are
industrial/commercial lands and are, thus, outside the
ambit of CARP. The PARC, and consequently DAR,
gravely abused its discretion when it placed LIPCO’s and
RCBC’s property which once formed part of Hacienda
Luisita under the CARP compulsory acquisition scheme
via the assailed Notice of Coverage.
As regards the 80.51-hectare land transferred to the
government for use as part of the SCTEX, this should
also be excluded from the compulsory agrarian reform
coverage considering that the transfer was consistent
with the government’s exercise of the power of eminent
domain159 and none of the parties actually questioned the
transfer.
While We affirm the revocation of the SDP on Hacienda
Luisita subject of PARC Resolution Nos. 2005-32-
01 and 2006-34-01, the Court cannot close its eyes to
certain "operative facts" that had occurred in the interim.
Pertinently, the "operative fact" doctrine realizes that, in
declaring a law or executive action null and void, or, by
extension, no longer without force and effect, undue
harshness and resulting unfairness must be avoided.
This is as it should realistically be, since rights might
have accrued in favor of natural or juridical persons and
obligations justly incurred in the meantime.160 The actual
existence of a statute or executive act is, prior to such a
determination, an operative fact and may have
consequences which cannot justly be ignored; the past
cannot always be erased by a new judicial declaration.161
The oft-cited De Agbayani v. Philippine National
Bank162 discussed the effect to be given to a legislative or
executive act subsequently declared invalid:
x x x It does not admit of doubt that prior to the
declaration of nullity such challenged legislative or
executive act must have been in force and had to be
complied with. This is so as until after the judiciary, in an
appropriate case, declares its invalidity, it is entitled to
obedience and respect. Parties may have acted under it
and may have changed their positions. What could be
more fitting than that in a subsequent litigation regard be
had to what has been done while such legislative or
executive act was in operation and presumed to be valid
in all respects. It is now accepted as a doctrine that prior
to its being nullified, its existence as a fact must be
reckoned with. This is merely to reflect awareness that
precisely because the judiciary is the government organ
which has the final say on whether or not a legislative or
executive measure is valid, a period of time may have
elapsed before it can exercise the power of judicial
review that may lead to a declaration of nullity. It would
be to deprive the law of its quality of fairness and justice
then, if there be no recognition of what had transpired
prior to such adjudication.
In the language of an American Supreme Court decision:
"The actual existence of a statute, prior to such a
determination of [unconstitutionality], is an operative fact
and may have consequences which cannot justly be
ignored. The past cannot always be erased by a new
judicial declaration. The effect of the subsequent ruling as
to invalidity may have to be considered in various
aspects,––with respect to particular relations, individual
and corporate, and particular conduct, private and
official." x x x
Given the above perspective and considering that more
than two decades had passed since the PARC’s approval
of the HLI’s SDP, in conjunction with numerous activities
performed in good faith by HLI, and the reliance by the
FWBs on the legality and validity of the PARC-approved
SDP, perforce, certain rights of the parties, more
particularly the FWBs, have to be respected pursuant to
the application in a general way of the operative fact
doctrine.
A view, however, has been advanced that the operative
fact doctrine is of minimal or altogether without relevance
to the instant case as it applies only in considering the
effects of a declaration of unconstitutionality of a statute,
and not of a declaration of nullity of a contract. This is
incorrect, for this view failed to consider is that it is NOT
the SDOA dated May 11, 1989 which was revoked in the
instant case. Rather, it is PARC’s approval of the HLI’s
Proposal for Stock Distribution under CARP which
embodied the SDP that was nullified.
A recall of the antecedent events would show that on
May 11, 1989, Tadeco, HLI, and the qualified FWBs
executed the SDOA. This agreement provided the basis
and mechanics of the SDP that was subsequently
proposed and submitted to DAR for approval. It was only
after its review that the PARC, through then Sec.
Defensor-Santiago, issued the assailed Resolution No.
89-12-2 approving the SDP. Considerably, it is not the
SDOA which gave legal force and effect to the stock
distribution scheme but instead, it is the approval of the
SDP under the PARC Resolution No. 89-12-2 that gave it
its validity.
The above conclusion is bolstered by the fact that in Sec.
Pangandaman’s recommendation to the PARC Excom,
what he proposed is the recall/revocation of PARC
Resolution No. 89-12-2 approving HLI’s SDP, and not the
revocation of the SDOA. Sec. Pangandaman’s
recommendation was favorably endorsed by the PARC
Validation Committee to the PARC Excom, and these
recommendations were referred to in the assailed
Resolution No. 2005-32-01. Clearly, it is not the SDOA
which was made the basis for the implementation of the
stock distribution scheme.
That the operative fact doctrine squarely applies to
executive acts––in this case, the approval by PARC of
the HLI proposal for stock distribution––is well-settled in
our jurisprudence. In Chavez v. National Housing
Authority,163 We held:
Petitioner postulates that the "operative fact" doctrine is
inapplicable to the present case because it is an
equitable doctrine which could not be used to
countenance an inequitable result that is contrary to its
proper office.
On the other hand, the petitioner Solicitor General argues
that the existence of the various agreements
implementing the SMDRP is an operative fact that can no
longer be disturbed or simply ignored, citing Rieta v.
People of the Philippines.
The argument of the Solicitor General is meritorious.
The "operative fact" doctrine is embodied in De Agbayani
v. Court of Appeals, wherein it is stated that a legislative
or executive act, prior to its being declared as
unconstitutional by the courts, is valid and must be
complied with, thus:
 xxx xxx xxx
This doctrine was reiterated in the more recent case of
City of Makati v. Civil Service Commission, wherein we
ruled that:
Moreover, we certainly cannot nullify the City
Government's order of suspension, as we have no
reason to do so, much less retroactively apply such
nullification to deprive private respondent of a compelling
and valid reason for not filing the leave application. For
as we have held, a void act though in law a mere scrap of
paper nonetheless confers legitimacy upon past acts or
omissions done in reliance thereof. Consequently, the
existence of a statute or executive order prior to its being
adjudged void is an operative fact to which legal
consequences are attached. It would indeed be ghastly
unfair to prevent private respondent from relying upon the
order of suspension in lieu of a formal leave application.
(Citations omitted; Emphasis supplied.)
The applicability of the operative fact doctrine to
executive acts was further explicated by this Court in
Rieta v. People,164 thus:
Petitioner contends that his arrest by virtue of Arrest
Search and Seizure Order (ASSO) No. 4754 was invalid,
as the law upon which it was predicated — General
Order No. 60, issued by then President Ferdinand E.
Marcos — was subsequently declared by the Court, in
Tañada v. Tuvera, 33 to have no force and effect. Thus,
he asserts, any evidence obtained pursuant thereto is
inadmissible in evidence.
We do not agree. In Tañada, the Court addressed the
possible effects of its declaration of the invalidity of
various presidential issuances. Discussing therein how
such a declaration might affect acts done on a
presumption of their validity, the Court said:
". . .. In similar situations in the past this Court had taken
the pragmatic and realistic course set forth in Chicot
County Drainage District vs. Baxter Bank to wit:
‘The courts below have proceeded on the theory that the
Act of Congress, having been found to be
unconstitutional, was not a law; that it was inoperative,
conferring no rights and imposing no duties, and hence
affording no basis for the challenged decree. . . . It is
quite clear, however, that such broad statements as to
the effect of a determination of unconstitutionality must
be taken with qualifications. The actual existence of a
statute, prior to [the determination of its invalidity], is an
operative fact and may have consequences which cannot
justly be ignored. The past cannot always be erased by a
new judicial declaration. The effect of the subsequent
ruling as to invalidity may have to be considered in
various aspects — with respect to particular conduct,
private and official. Questions of rights claimed to have
become vested, of status, of prior determinations deemed
to have finality and acted upon accordingly, of public
policy in the light of the nature both of the statute and of
its previous application, demand examination. These
questions are among the most difficult of those which
have engaged the attention of courts, state and federal,
and it is manifest from numerous decisions that an all-
inclusive statement of a principle of absolute retroactive
invalidity cannot be justified.’
xxx xxx xxx
"Similarly, the implementation/enforcement of presidential
decrees prior to their publication in the Official Gazette is
‘an operative fact which may have consequences which
cannot be justly ignored. The past cannot always be
erased by a new judicial declaration . . . that an all-
inclusive statement of a principle of absolute retroactive
invalidity cannot be justified.’"
The Chicot doctrine cited in Tañada advocates that, prior
to the nullification of a statute, there is an imperative
necessity of taking into account its actual existence as an
operative fact negating the acceptance of "a principle of
absolute retroactive invalidity." Whatever was done while
the legislative or the executive act was in operation
should be duly recognized and presumed to be valid in all
respects. The ASSO that was issued in 1979 under
General Order No. 60 — long before our Decision in
Tañada and the arrest of petitioner — is an operative fact
that can no longer be disturbed or simply ignored.
(Citations omitted; Emphasis supplied.)
To reiterate, although the assailed Resolution No. 2005-
32-01 states that it revokes or recalls the SDP, what it
actually revoked or recalled was the PARC’s approval of
the SDP embodied in Resolution No. 89-12-2.
Consequently, what was actually declared null and void
was an executive act, PARC Resolution No. 89-12-
2,165 and not a contract (SDOA). It is, therefore, wrong to
say that it was the SDOA which was annulled in the
instant case. Evidently, the operative fact doctrine is
applicable.
IV.
While the assailed PARC resolutions effectively nullifying
the Hacienda Luisita SDP are upheld, the revocation
must, by application of the operative fact principle, give
way to the right of the original 6,296 qualified FWBs to
choose whether they want to remain as HLI stockholders
or not. The Court cannot turn a blind eye to the fact that
in 1989, 93% of the FWBs agreed to the SDOA (or the
MOA), which became the basis of the SDP approved by
PARC per its Resolution No. 89-12-2 dated November
21, 1989. From 1989 to 2005, the FWBs were said to
have received from HLI salaries and cash benefits,
hospital and medical benefits, 240-square meter
homelots, 3% of the gross produce from agricultural
lands, and 3% of the proceeds of the sale of the 500-
hectare converted land and the 80.51-hectare lot sold to
SCTEX. HLI shares totaling 118,391,976.85 were
distributed as of April 22, 2005.166 On August 6, 20l0, HLI
and private respondents submitted a Compromise
Agreement, in which HLI gave the FWBs the option of
acquiring a piece of agricultural land or remain as HLI
stockholders, and as a matter of fact, most FWBs
indicated their choice of remaining as stockholders.
These facts and circumstances tend to indicate that
some, if not all, of the FWBs may actually desire to
continue as HLI shareholders. A matter best left to their
own discretion.
With respect to the other FWBs who were not listed as
qualified beneficiaries as of November 21, 1989 when the
SDP was approved, they are not accorded the right to
acquire land but shall, however, continue as HLI
stockholders. All the benefits and homelots167 received by
the 10,502 FWBs (6,296 original FWBs and 4,206 non-
qualified FWBs) listed as HLI stockholders as of August
2, 2010 shall be respected with no obligation to refund or
return them since the benefits (except the homelots) were
received by the FWBs as farmhands in the agricultural
enterprise of HLI and other fringe benefits were granted
to them pursuant to the existing collective bargaining
agreement with Tadeco. If the number of HLI shares in
the names of the original FWBs who opt to remain as HLI
stockholders falls below the guaranteed allocation of
18,804.32 HLI shares per FWB, the HLI shall assign
additional shares to said FWBs to complete said
minimum number of shares at no cost to said FWBs.
With regard to the homelots already awarded or
earmarked, the FWBs are not obliged to return the same
to HLI or pay for its value since this is a benefit granted
under the SDP. The homelots do not form part of the
4,915.75 hectares covered by the SDP but were taken
from the 120.9234 hectare residential lot owned by
Tadeco. Those who did not receive the homelots as of
the revocation of the SDP on December 22, 2005 when
PARC Resolution No. 2005-32-01 was issued, will no
longer be entitled to homelots. Thus, in the determination
of the ultimate agricultural land that will be subjected to
land distribution, the aggregate area of the homelots will
no longer be deducted.
There is a claim that, since the sale and transfer of the
500 hectares of land subject of the August 14, 1996
Conversion Order and the 80.51-hectare SCTEX lot
came after compulsory coverage has taken place, the
FWBs should have their corresponding share of the
land’s value. There is merit in the claim. Since the SDP
approved by PARC Resolution No. 89-12-2 has been
nullified, then all the lands subject of the SDP will
automatically be subject of compulsory coverage under
Sec. 31 of RA 6657. Since the Court excluded the 500-
hectare lot subject of the August 14, 1996 Conversion
Order and the 80.51-hectare SCTEX lot acquired by the
government from the area covered by SDP, then HLI and
its subsidiary, Centennary, shall be liable to the FWBs for
the price received for said lots. HLI shall be liable for the
value received for the sale of the 200-hectare land to
LRC in the amount of PhP 500,000,000 and the
equivalent value of the 12,000,000 shares of its
subsidiary, Centennary, for the 300-hectare lot sold to
LIPCO for the consideration of PhP 750,000,000.
Likewise, HLI shall be liable for PhP 80,511,500 as
consideration for the sale of the 80.51-hectare SCTEX
lot.
We, however, note that HLI has allegedly paid 3% of the
proceeds of the sale of the 500-hectare land and 80.51-
hectare SCTEX lot to the FWBs. We also take into
account the payment of taxes and expenses relating to
the transfer of the land and HLI’s statement that most, if
not all, of the proceeds were used for legitimate corporate
purposes. In order to determine once and for all whether
or not all the proceeds were properly utilized by HLI and
its subsidiary, Centennary, DAR will engage the services
of a reputable accounting firm to be approved by the
parties to audit the books of HLI to determine if the
proceeds of the sale of the 500-hectare land and the
80.51-hectare SCTEX lot were actually used for
legitimate corporate purposes, titling expenses and in
compliance with the August 14, 1996 Conversion Order.
The cost of the audit will be shouldered by HLI. If after
such audit, it is determined that there remains a balance
from the proceeds of the sale, then the balance shall be
distributed to the qualified FWBs.
A view has been advanced that HLI must pay the FWBs
yearly rent for use of the land from 1989. We disagree. It
should not be forgotten that the FWBs are also
stockholders of HLI, and the benefits acquired by the
corporation from its possession and use of the land
ultimately redounded to the FWBs’ benefit based on its
business operations in the form of salaries, and other
fringe benefits under the CBA. To still require HLI to pay
rent to the FWBs will result in double compensation.
For sure, HLI will still exist as a corporation even after the
revocation of the SDP although it will no longer be
operating under the SDP, but pursuant to the Corporation
Code as a private stock corporation. The non-agricultural
assets amounting to PhP 393,924,220 shall remain with
HLI, while the agricultural lands valued at PhP
196,630,000 with an original area of 4,915.75 hectares
shall be turned over to DAR for distribution to the FWBs.
To be deducted from said area are the 500-hectare lot
subject of the August 14, 1996 Conversion Order, the
80.51-hectare SCTEX lot, and the total area of 6,886.5
square meters of individual lots that should have been
distributed to FWBs by DAR had they not opted to stay in
HLI.
HLI shall be paid just compensation for the remaining
agricultural land that will be transferred to DAR for land
distribution to the FWBs. We find that the date of the
"taking" is November 21, 1989, when PARC approved
HLI’s SDP per PARC Resolution No. 89-12-2. DAR shall
coordinate with LBP for the determination of just
compensation. We cannot use May 11, 1989 when the
SDOA was executed, since it was the SDP, not the
SDOA, that was approved by PARC.
The instant petition is treated pro hac vice in view of the
peculiar facts and circumstances of the case.
WHEREFORE, the instant petition is DENIED. PARC
Resolution No. 2005-32-01 dated December 22, 2005 and
Resolution No. 2006-34-01 dated May 3, 2006, placing the
lands subject of HLI’s SDP under compulsory coverage
on mandated land acquisition scheme of the CARP, are
hereby AFFIRMED with the MODIFICATION that the
original 6,296 qualified FWBs shall have the option to
remain as stockholders of HLI. DAR shall immediately
schedule meetings with the said 6,296 FWBs and explain
to them the effects, consequences and legal or practical
implications of their choice, after which the FWBs will be
asked to manifest, in secret voting, their choices in the
ballot, signing their signatures or placing their
thumbmarks, as the case may be, over their printed
names.
Of the 6,296 FWBs, he or she who wishes to continue as
an HLI stockholder is entitled to 18,804.32 HLI shares,
and, in case the HLI shares already given to him or her is
less than 18,804.32 shares, the HLI is ordered to issue or
distribute additional shares to complete said prescribed
number of shares at no cost to the FWB within thirty (30)
days from finality of this Decision. Other FWBs who do
not belong to the original 6,296 qualified beneficiaries are
not entitled to land distribution and shall remain as HLI
shareholders. All salaries, benefits, 3% production share
and 3% share in the proceeds of the sale of the 500-
hectare converted land and the 80.51-hectare SCTEX lot
and homelots already received by the 10,502 FWBs,
composed of 6,296 original FWBs and 4,206 non-
qualified FWBs, shall be respected with no obligation to
refund or return them.
Within thirty (30) days after determining who from among
the original FWBs will stay as stockholders, DAR shall
segregate from the HLI agricultural land with an area of
4,915.75 hectares subject of PARC’s SDP-approving
Resolution No. 89-12-2 the following: (a) the 500-hectare
lot subject of the August 14, l996 Conversion Order; (b)
the 80.51-hectare lot sold to, or acquired by, the
government as part of the SCTEX complex; and (c) the
aggregate area of 6,886.5 square meters of individual
lots that each FWB is entitled to under the CARP had he
or she not opted to stay in HLI as a stockholder. After the
segregation process, as indicated, is done, the remaining
area shall be turned over to DAR for immediate land
distribution to the original qualified FWBs who opted not
to remain as HLI stockholders.
The aforementioned area composed of 6,886.5-square
meter lots allotted to the FWBs who stayed with the
corporation shall form part of the HLI assets.
HLI is directed to pay the 6,296 FWBs the consideration
of PhP 500,000,000 received by it from Luisita Realty,
Inc. for the sale to the latter of 200 hectares out of the
500 hectares covered by the August 14, 1996 Conversion
Order, the consideration of PhP 750,000,000 received by
its owned subsidiary, Centennary Holdings, Inc. for the
sale of the remaining 300 hectares of the aforementioned
500-hectare lot to Luisita Industrial Park Corporation, and
the price of PhP 80,511,500 paid by the government
through the Bases Conversion Development Authority for
the sale of the 80.51-hectare lot used for the construction
of the SCTEX road network. From the total amount of
PhP 1,330,511,500 (PhP 500,000,000 + PhP
750,000,000 + PhP 80,511,500 = PhP 1,330,511,500)
shall be deducted the 3% of the total gross sales from the
production of the agricultural land and the 3% of the
proceeds of said transfers that were paid to the FWBs,
the taxes and expenses relating to the transfer of titles to
the transferees, and the expenditures incurred by HLI
and Centennary Holdings, Inc. for legitimate corporate
purposes. For this purpose, DAR is ordered to engage
the services of a reputable accounting firm approved by
the parties to audit the books of HLI and Centennary
Holdings, Inc. to determine if the PhP 1,330,511,500
proceeds of the sale of the three (3) aforementioned lots
were used or spent for legitimate corporate purposes.
Any unspent or unused balance as determined by the
audit shall be distributed to the 6,296 original FWBs.
HLI is entitled to just compensation for the agricultural
land that will be transferred to DAR to be reckoned from
November 21, 1989 per PARC Resolution No. 89-12-2.
DAR and LBP are ordered to determine the
compensation due to HLI.

DAR shall submit a compliance report after six (6)
months from finality of this judgment. It shall also submit,
after submission of the compliance report, quarterly
reports on the execution of this judgment to be submitted
within the first 15 days at the end of each quarter, until
fully implemented.


The temporary restraining order is lifted.


SO ORDERED.

PRESBITERO J. VELASCO, JR.
Associate Justice
















Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 185582 February 29, 2012
TUNA PROCESSING, INC., Petitioner,
vs.
PHILIPPINE KINGFORD, INC., Respondent.
DECISION
PEREZ, J.:
Can a foreign corporation not licensed to do business in
the Philippines, but which collects royalties from entities
in the Philippines, sue here to enforce a foreign arbitral
award?
In this Petition for Review on Certiorari under Rule
45,1 petitioner Tuna Processing, Inc. (TPI), a foreign
corporation not licensed to do business in the Philippines,
prays that the Resolution2 dated 21 November 2008 of the
Regional Trial Court (RTC) of Makati City be declared
void and the case be remanded to the RTC for further
proceedings. In the assailed Resolution, the RTC
dismissed petitioner’s Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral
Award3 against respondent Philippine Kingford, Inc.
(Kingford), a corporation duly organized and existing
under the laws of the Philippines,4 on the ground that
petitioner lacked legal capacity to sue.5
The Antecedents
On 14 January 2003, Kanemitsu Yamaoka (hereinafter
referred to as the "licensor"), co-patentee of U.S. Patent
No. 5,484,619, Philippine Letters Patent No. 31138, and
Indonesian Patent No. ID0003911 (collectively referred to
as the "Yamaoka Patent"),6 and five (5) Philippine tuna
processors, namely, Angel Seafood Corporation, East
Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa
Cruz Seafoods, Inc., and respondent Kingford
(collectively referred to as the
"sponsors"/"licensees")7 entered into a Memorandum of
Agreement (MOA),8 pertinent provisions of which read:
1. Background and objectives. The Licensor, co-owner
of U.S.Patent No. 5,484,619, Philippine Patent No. 31138,
and Indonesian Patent No. ID0003911 xxx wishes to form
an alliance with Sponsors for purposes of enforcing his
three aforementioned patents, granting licenses under
those patents, and collecting royalties.
The Sponsors wish to be licensed under the
aforementioned patents in order to practice the processes
claimed in those patents in the United States, the
Philippines, and Indonesia, enforce those patents and
collect royalties in conjunction with Licensor.
xxx
4. Establishment of Tuna Processors, Inc. The parties
hereto agree to the establishment of Tuna Processors,
Inc. ("TPI"), a corporation established in the State of
 California, in order to implement the objectives of this
Agreement.
5. Bank account. TPI shall open and maintain bank
accounts in the United States, which will be used
exclusively to deposit funds that it will collect and to
disburse cash it will be obligated to spend in connection
with the implementation of this Agreement.
6. Ownership of TPI. TPI shall be owned by the
Sponsors and Licensor. Licensor shall be assigned one
share of TPI for the purpose of being elected as member
of the board of directors. The remaining shares of TPI
shall be held by the Sponsors according to their
respective equity shares. 9
xxx
The parties likewise executed a Supplemental
Memorandum of Agreement10 dated 15 January 2003 and
an Agreement to Amend Memorandum of
Agreement11 dated 14 July 2003.
Due to a series of events not mentioned in the petition,
the licensees, including respondent Kingford, withdrew
from petitioner TPI and correspondingly reneged on their
obligations.12 Petitioner submitted the dispute for
arbitration before the International Centre for Dispute
Resolution in the State of California, United States and
won the case against respondent.13 Pertinent portions of
the award read:
13.1 Within thirty (30) days from the date of transmittal of
this Award to the Parties, pursuant to the terms of this
award, the total sum to be paid by RESPONDENT
KINGFORD to CLAIMANT TPI, is the sum of ONE
MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT
HUNDRED FORTY SIX DOLLARS AND TEN CENTS
($1,750,846.10).
(A) For breach of the MOA by not paying past due
assessments, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of TWO HUNDRED
TWENTY NINE THOUSAND THREE HUNDRED AND
FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since
September 1, 2005[;]
(B) For breach of the MOA in failing to cooperate
with CLAIMANT TPI in fulfilling the objectives of
the MOA, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of TWO HUNDRED
SEVENTY ONE THOUSAND FOUR HUNDRED NINETY
DOLLARS AND TWENTY CENTS ($271,490.20)[;]14 and
(C) For violation of THE LANHAM ACT and infringement
of the YAMAOKA 619 PATENT, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of ONE
MILLION TWO HUNDRED FIFTY THOUSAND
DOLLARS AND NO CENTS ($1,250,000.00). xxx
xxx15
To enforce the award, petitioner TPI filed on 10 October
2007 a Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award before the RTC of
Makati City. The petition was raffled to Branch 150
presided by Judge Elmo M. Alameda.
At Branch 150, respondent Kingford filed a Motion to
Dismiss.16 After the court denied the motion for lack of
merit,17 respondent sought for the inhibition of Judge
Alameda and moved for the reconsideration of the order
denying the motion.18 Judge Alameda inhibited himself
notwithstanding "[t]he unfounded allegations and
unsubstantiated assertions in the motion."19 Judge Cedrick
O. Ruiz of Branch 61, to which the case was re-raffled, in
turn, granted respondent’s Motion for Reconsideration
and dismissed the petition on the ground that the
petitioner lacked legal capacity to sue in the Philippines.20
Petitioner TPI now seeks to nullify, in this instant Petition
for Review on Certiorari under Rule 45, the order of the
trial court dismissing its Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a
quo was correct in so dismissing the petition on the
ground of petitioner’s lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly
provides:
Sec. 133. Doing business without a license. - No
foreign corporation transacting business in the
Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any
action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be
sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action
recognized under Philippine laws.
It is pursuant to the aforequoted provision that the court a
quo dismissed the petition. Thus:
Herein plaintiff TPI’s "Petition, etc." acknowledges that it
"is a foreign corporation established in the State of
California" and "was given the exclusive right to license
or sublicense the Yamaoka Patent" and "was assigned
the exclusive right to enforce the said patent and collect
corresponding royalties" in the Philippines. TPI likewise
admits that it does not have a license to do business in
the Philippines.
There is no doubt, therefore, in the mind of this Court that
TPI has been doing business in the Philippines, but sans
a license to do so issued by the concerned government
agency of the Republic of the Philippines, when it
collected royalties from "five (5) Philippine tuna
processors[,] namely[,] Angel Seafood Corporation, East
Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa
Cruz Seafoods, Inc. and respondent Philippine Kingford,
Inc." This being the real situation, TPI cannot be
permitted to maintain or intervene in any action, suit or
proceedings in any court or administrative agency of the
Philippines." A priori, the "Petition, etc." extant of the
plaintiff TPI should be dismissed for it does not have the
legal personality to sue in the Philippines.21
The petitioner counters, however, that it is entitled to
seek for the recognition and enforcement of the subject
foreign arbitral award in accordance with Republic Act
No. 9285 (Alternative Dispute Resolution Act of
2004),22 the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards drafted during
the United Nations Conference on International
Commercial Arbitration in 1958 (New York Convention),
and the UNCITRAL Model Law on International
Commercial Arbitration (Model Law),23 as none of these
specifically requires that the party seeking for the
enforcement should have legal capacity to sue. It anchors
its argument on the following:
In the present case, enforcement has been effectively
refused on a ground not found in the [Alternative Dispute
Resolution Act of 2004], New York Convention, or Model
Law. It is for this reason that TPI has brought this matter
before this most Honorable Court, as it [i]s imperative to
clarify whether the Philippines’ international obligations
and State policy to strengthen arbitration as a means of
dispute resolution may be defeated by misplaced
technical considerations not found in the relevant laws.24
Simply put, how do we reconcile the provisions of
the Corporation Code of the Philippines on one hand, and
the Alternative Dispute Resolution Act of 2004, the New
York Convention and the Model Law on the other?
In several cases, this Court had the occasion to discuss
the nature and applicability of the Corporation Code of
the Philippines, a general law, viz-a-viz other special
laws. Thus, in Koruga v. Arcenas, Jr.,25 this Court rejected
the application of the Corporation Code and applied the
New Central Bank Act. It ratiocinated:
Koruga’s invocation of the provisions of the Corporation
Code is misplaced. In an earlier case with similar
antecedents, we ruled that:
"The Corporation Code, however, is a general law
applying to all types of corporations, while the New
Central Bank Act regulates specifically banks and other
financial institutions, including the dissolution and
liquidation thereof. As between a general and special law,
the latter shall prevail – generalia specialibus non
derogant." (Emphasis supplied)26
Further, in the recent case of Hacienda Luisita,
Incorporated v. Presidential Agrarian Reform
Council,27 this Court held:
Without doubt, the Corporation Code is the general law
providing for the formation, organization and regulation of
private corporations. On the other hand, RA 6657 is the
special law on agrarian reform. As between a general
and special law, the latter shall prevail—generalia
specialibus non derogant.28
Following the same principle, the Alternative Dispute
Resolution Act of 2004 shall apply in this case as
the Act, as its title - An Act to Institutionalize the Use of
an Alternative Dispute Resolution System in the
Philippines and to Establish the Office for Alternative
Dispute Resolution, and for Other Purposes - would
suggest, is a law especially enacted "to actively promote
party autonomy in the resolution of disputes or the
freedom of the party to make their own arrangements to
resolve their disputes."29 It specifically provides exclusive
grounds available to the party opposing an application for
recognition and enforcement of the arbitral award.30
Inasmuch as the Alternative Dispute Resolution Act of
2004, a municipal law, applies in the instant petition, we
do not see the need to discuss compliance with
international obligations under the New York
Convention and the Model Law. After all, both already
form part of the law.
In particular, the Alternative Dispute Resolution Act of
2004 incorporated the New York Convention in the Act by
specifically providing:
SEC. 42. Application of the New York Convention. - The
New York Convention shall govern the recognition and
enforcement of arbitral awards covered by the said
Convention.
xxx
SEC. 45. Rejection of a Foreign Arbitral Award. - A party
to a foreign arbitration proceeding may oppose an
application for recognition and enforcement of the arbitral
award in accordance with the procedural rules to be
promulgated by the Supreme Court only on those
grounds enumerated under Article V of the New York
Convention. Any other ground raised shall be
disregarded by the regional trial court.
It also expressly adopted the Model Law, to wit:
Sec. 19. Adoption of the Model Law on International
Commercial Arbitration. International commercial
arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model Law")
adopted by the United Nations Commission on
International Trade Law on June 21, 1985 xxx."
Now, does a foreign corporation not licensed to do
business in the Philippines have legal capacity to sue
under the provisions of the Alternative Dispute Resolution
Act of 2004? We answer in the affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of
2004 provides that the opposing party in an application
for recognition and enforcement of the arbitral award may
raise only those grounds that were enumerated under
Article V of the New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be
refused, at the request of the party against whom it is
invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is
sought, proof that:
(a) The parties to the agreement referred to in
article II were, under the law applicable to them,
under some incapacity, or the said agreement is
not valid under the law to which the parties have
subjected it or, failing any indication thereon,
under the law of the country where the award was
made; or
 (b) The party against whom the award is invoked
was not given proper notice of the appointment of
the arbitrator or of the arbitration proceedings or
was otherwise unable to present his case; or
(c) The award deals with a difference not
contemplated by or not falling within the terms of
the submission to arbitration, or it contains
decisions on matters beyond the scope of the
submission to arbitration, provided that, if the
decisions on matters submitted to arbitration can
be separated from those not so submitted, that
part of the award which contains decisions on
matters submitted to arbitration may be
recognized and enforced; or
(d) The composition of the arbitral authority or the
arbitral procedure was not in accordance with the
agreement of the parties, or, failing such
agreement, was not in accordance with the law of
the country where the arbitration took place; or
(e) The award has not yet become binding on the
parties, or has been set aside or suspended by a
competent authority of the country in which, or
under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may
also be refused if the competent authority in the country
where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not
capable of settlement by arbitration under the law
of that country; or
(b) The recognition or enforcement of the award
would be contrary to the public policy of that
country.
Clearly, not one of these exclusive grounds touched on
the capacity to sue of the party seeking the recognition
and enforcement of the award.
Pertinent provisions of the Special Rules of Court on
Alternative Dispute Resolution,31 which was promulgated
by the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that "[a]ny party
to a foreign arbitration may petition the court to recognize
and enforce a foreign arbitral award." The contents of
such petition are enumerated in Rule 13.5.32 Capacity to
sue is not included. Oppositely, in the Rule on local
arbitral awards or arbitrations in instances where "the
place of arbitration is in the Philippines,"33 it is specifically
required that a petition "to determine any question
concerning the existence, validity and enforceability of
such arbitration agreement"34 available to the parties
before the commencement of arbitration and/or a petition
for "judicial relief from the ruling of the arbitral tribunal on
a preliminary question upholding or declining its
jurisdiction"35 after arbitration has already commenced
should state "[t]he facts showing that the persons named
as petitioner or respondent have legal capacity to sue or
be sued."36
Indeed, it is in the best interest of justice that in the
enforecement of a foreign arbitral award, we deny
availment by the losing party of the rule that bars foreign
corporations not licensed to do business in the
Philippines from maintaining a suit in our courts. When a
party enters into a contract containing a foreign
arbitration clause and, as in this case, in fact submits
itself to arbitration, it becomes bound by the contract, by
the arbitration and by the result of arbitration, conceding
thereby the capacity of the other party to enter into the
contract, participate in the arbitration and cause the
implementation of the result. Although not on all fours
with the instant case, also worthy to consider is the
wisdom of then Associate Justice Flerida Ruth P. Romero
in her Dissenting Opinion in Asset Privatization Trust v.
Court of Appeals,37 to wit:
xxx Arbitration, as an alternative mode of settlement, is
gaining adherents in legal and judicial circles here and
abroad. If its tested mechanism can simply be ignored by
an aggrieved party, one who, it must be stressed,
voluntarily and actively participated in the arbitration
proceedings from the very beginning, it will destroy the
very essence of mutuality inherent in consensual
contracts.38
Clearly, on the matter of capacity to sue, a foreign arbitral
award should be respected not because it is favored over
domestic laws and procedures, but because Republic Act
No. 9285 has certainly erased any conflict of law
question.
Finally, even assuming, only for the sake of argument,
that the court a quo correctly observed that the Model
Law, not the New York Convention, governs the subject
arbitral award,39 petitioner may still seek recognition and
enforcement of the award in Philippine court, since
the Model Law prescribes substantially identical exclusive
grounds for refusing recognition or enforcement.40
Premises considered, petitioner TPI, although not
licensed to do business in the Philippines, may seek
recognition and enforcement of the foreign arbitral award
in accordance with the provisions of the Alternative
Dispute Resolution Act of 2004.
II
The remaining arguments of respondent Kingford are
likewise unmeritorious.
First. There is no need to consider respondent’s
contention that petitioner TPI improperly raised a
question of fact when it posited that its act of entering into
a MOA should not be considered "doing business" in the
Philippines for the purpose of determining capacity to
sue. We reiterate that the foreign corporation’s capacity
to sue in the Philippines is not material insofar as the
recognition and enforcement of a foreign arbitral award is
concerned.
Second. Respondent cannot fault petitioner for not filing a
motion for reconsideration of the assailed Resolution
dated 21 November 2008 dismissing the case. We have,
time and again, ruled that the prior filing of a motion for
reconsideration is not required in certiorari under Rule
45.41
Third. While we agree that petitioner failed to observe the
principle of hierarchy of courts, which, under ordinary
circumstances, warrants the outright dismissal of the
case,42 we opt to relax the rules following the
pronouncement in Chua v. Ang,43 to wit:
[I]t must be remembered that [the principle of hierarchy of
courts] generally applies to cases involving conflicting
factual allegations. Cases which depend on disputed
facts for decision cannot be brought immediately before
us as we are not triers of facts.44 A strict application of this
rule may be excused when the reason behind the rule is
not present in a case, as in the present case, where the
issues are not factual but purely legal. In these types of
1âwphi1
questions, this Court has the ultimate say so that we
merely abbreviate the review process if we, because of
the unique circumstances of a case, choose to hear and
decide the legal issues outright.45
Moreover, the novelty and the paramount importance of
the issue herein raised should be seriously
considered.46 Surely, there is a need to take cognizance of
the case not only to guide the bench and the bar, but if
only to strengthen arbitration as a means of dispute
resolution, and uphold the policy of the State embodied in
the Alternative Dispute Resolution Act of 2004, to wit:
Sec. 2. Declaration of Policy. - It is hereby declared the
policy of the State to actively promote party autonomy in
the resolution of disputes or the freedom of the party to
make their own arrangements to resolve their disputes.
Towards this end, the State shall encourage and actively
promote the use of Alternative Dispute Resolution (ADR)
as an important means to achieve speedy and impartial
justice and declog court dockets. xxx
Fourth. As regards the issue on the validity and
enforceability of the foreign arbitral award, we leave its
determination to the court a quo where its recognition and
enforcement is being sought.
Fifth. Respondent claims that petitioner failed to furnish
the court of origin a copy of the motion for time to file
petition for review on certiorari before the petition was
filed with this Court.47 We, however, find petitioner’s reply
in order. Thus:
26. Admittedly, reference to "Branch 67" in petitioner
TPI’s "Motion for Time to File a Petition for Review on
Certiorari under Rule 45" is a typographical error. As
correctly pointed out by respondent Kingford, the order
sought to be assailed originated from Regional Trial
Court, Makati City, Branch 61.
27. xxx Upon confirmation with the Regional Trial Court,
Makati City, Branch 61, a copy of petitioner TPI’s motion
was received by the Metropolitan Trial Court, Makati City,
Branch 67. On 8 January 2009, the motion was
forwarded to the Regional Trial Court, Makati City,
Branch 61.48
All considered, petitioner TPI, although a foreign
corporation not licensed to do business in the Philippines,
is not, for that reason alone, precluded from filing
the Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award before a
Philippine court.

WHEREFORE, the Resolution dated 21 November 2008
of the Regional Trial Court, Branch 61, Makati City in
Special Proceedings No. M-6533 is
hereby REVERSED and SET ASIDE. The case
is REMANDED to Branch 61 for further proceedings.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice









































G.R. No. 144805 June 8, 2006
EDUARDO V. LINTONJUA, JR. and ANTONIO K.
LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-
RESOURCES CORPORATION), ETEROUTREMER, S.A. and
FAR EAST BANK & TRUST COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the
Decision1 of the Court of Appeals (CA) in CA-G.R. CV
No. 51022, which affirmed the Decision of the Regional
Trial Court (RTC), Pasig City, Branch 165, in Civil Case
No. 54887, as well as the Resolution2 of the CA denying
the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly
organized and registered under Philippine laws. Since
1950, it had been engaged in the manufacture of roofing
materials and pipe products. Its manufacturing operations
were conducted on eight parcels of land with a total area
of 47,233 square meters. The properties, located in
Mandaluyong City, Metro Manila, were covered by
Transfer Certificates of Title Nos. 451117, 451118,
451119, 451120, 451121, 451122, 451124 and 451125
under the name of Far East Bank & Trust Company, as
trustee. Ninety (90%) percent of the shares of stocks of
EC were owned by Eteroutremer S.A. Corporation
(ESAC), a corporation organized and registered under
the laws of Belgium.3 Jack Glanville, an Australian citizen,
was the General Manager and President of EC, while
Claude Frederick Delsaux was the Regional Director for
Asia of ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned
about the political situation in the Philippines and wanted
to stop its operations in the country. The Committee for
Asia of ESAC instructed Michael Adams, a member of
EC’s Board of Directors, to dispose of the eight parcels of
land. Adams engaged the services of realtor/broker Lauro
G. Marquez so that the properties could be offered for
sale to prospective buyers. Glanville later showed the
properties to Marquez.
Marquez thereafter offered the parcels of land and the
improvements thereon to Eduardo B. Litonjua, Jr. of the
Litonjua & Company, Inc. In a Letter dated September
12, 1986, Marquez declared that he was authorized to
sell the properties for P27,000,000.00 and that the terms
of the sale were subject to negotiation.4
Eduardo Litonjua, Jr. responded to the offer. Marquez
showed the property to Eduardo Litonjua, Jr., and his
brother Antonio K. Litonjua. The Litonjua siblings offered
to buy the property for P20,000,000.00 cash. Marquez
apprised Glanville of the Litonjua siblings’ offer and
relayed the same to Delsaux in Belgium, but the latter did
not respond. On October 28, 1986, Glanville telexed
Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It
was only on February 12, 1987 that Delsaux sent a telex
to Glanville stating that, based on the "Belgian/Swiss
decision," the final offer was "US$1,000,000.00
and P2,500,000.00 to cover all existing obligations prior
to final liquidation."5
Marquez furnished Eduardo Litonjua, Jr. with a copy of
the telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with
Glanville, and in a Letter dated February 26, 1987,
confirmed that the Litonjua siblings had accepted the
counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90
days after execution and preparation of all documents of
sale, together with the necessary governmental
clearances.6
The Litonjua brothers deposited the amount of
US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow
Agreement to expedite the sale.7
Sometime later, Marquez and the Litonjua brothers
inquired from Glanville when the sale would be
implemented. In a telex dated April 22, 1987, Glanville
informed Delsaux that he had met with the buyer, which
had given him the impression that "he is prepared to
press for a satisfactory conclusion to the sale."8 He also
emphasized to Delsaux that the buyers were concerned
because they would incur expenses in bank commitment
fees as a consequence of prolonged period of inaction.9
Meanwhile, with the assumption of Corazon C. Aquino as
President of the Republic of the Philippines, the political
situation in the Philippines had improved. Marquez
received a telephone call from Glanville, advising that the
sale would no longer proceed. Glanville followed it up
with a Letter dated May 7, 1987, confirming that he had
been instructed by his principal to inform Marquez that
"the decision has been taken at a Board Meeting not to
sell the properties on which Eternit Corporation is
situated."10
Delsaux himself later sent a letter dated May 22, 1987,
confirming that the ESAC Regional Office had decided
not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has
decided not to proceed with the sale of the land
which was proposed to you.
The Committee for Asia of our Group met recently
(meeting every six months) and examined the
position as far as the Philippines are (sic)
concerned. Considering [the] new political
situation since the departure of MR. MARCOS
and a certain stabilization in the Philippines, the
Committee has decided not to stop our operations
in Manila. In fact, production has started again last
 week, and (sic) to recognize the participation in
the Corporation.
We regret that we could not make a deal with you
this time, but in case the policy would change at a
later state, we would consult you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)11
When apprised of this development, the Litonjuas,
through counsel, wrote EC, demanding payment for
damages they had suffered on account of the aborted
sale. EC, however, rejected their demand.
The Litonjuas then filed a complaint for specific
performance and damages against EC (now the Eterton
Multi-Resources Corporation) and the Far East Bank &
Trust Company, and ESAC in the RTC of Pasig City. An
amended complaint was filed, in which defendant EC was
substituted by Eterton Multi-Resources Corporation;
Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and
Deogracias G. Eufemio were impleaded as additional
defendants on account of their purchase of ESAC shares
of stocks and were the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged
that since Eteroutremer was not doing business in the
Philippines, it cannot be subject to the jurisdiction of
Philippine courts; the Board and stockholders of EC
never approved any resolution to sell subject properties
nor authorized Marquez to sell the same; and the telex
dated October 28, 1986 of Jack Glanville was his own
personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in
favor of defendants and dismissed the amended
complaint.12 The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation
now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is dismissed on the ground that there
is no valid and binding sale between the plaintiffs and
said defendants.
The complaint as against Far East Bank and Trust
Company is likewise dismissed for lack of cause of
action.
The counterclaim of Eternit Corporation now Eterton
Multi-Resources Corporation and Eteroutremer, S.A. is
also dismissed for lack of merit.13
The trial court declared that since the authority of the
agents/realtors was not in writing, the sale is void and not
merely unenforceable, and as such, could not have been
ratified by the principal. In any event, such ratification
cannot be given any retroactive effect. Plaintiffs could not
assume that defendants had agreed to sell the property
without a clear authorization from the corporation
concerned, that is, through resolutions of the Board of
Directors and stockholders. The trial court also pointed
out that the supposed sale involves substantially all the
assets of defendant EC which would result in the
eventual total cessation of its operation.14
The Litonjuas appealed the decision to the CA, alleging
that "(1) the lower court erred in concluding that the real
estate broker in the instant case needed a written
authority from appellee corporation and/or that said
broker had no such written authority; and (2) the lower
court committed grave error of law in holding that
appellee corporation is not legally bound for specific
performance and/or damages in the absence of an
enabling resolution of the board of directors."15 They
averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it
was not necessary for him to be empowered as such by
any written authority. They further claimed that an agency
by estoppel was created when the corporation clothed
Marquez with apparent authority to negotiate for the sale
of the properties. However, since it was a bilateral
contract to buy and sell, it was equivalent to a perfected
contract of sale, which the corporation was obliged to
consummate.
In reply, EC alleged that Marquez had no written authority
from the Board of Directors to bind it; neither were
Glanville and Delsaux authorized by its board of directors
to offer the property for sale. Since the sale involved
substantially all of the corporation’s assets, it would
necessarily need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming
the decision of the RTC. 16 The Litonjuas filed a motion for
reconsideration, which was also denied by the appellate
court.
The CA ruled that Marquez, who was a real estate
broker, was a special agent within the purview of Article
1874 of the New Civil Code. Under Section 23 of the
Corporation Code, he needed a special authority from
EC’s board of directors to bind such corporation to the
sale of its properties. Delsaux, who was merely the
representative of ESAC (the majority stockholder of EC)
had no authority to bind the latter. The CA pointed out
that Delsaux was not even a member of the board of
directors of EC. Moreover, the Litonjuas failed to prove
that an agency by estoppel had been created between
the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING
THAT THERE WAS NO PERFECTED
CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE
ERROR OF LAW IN HOLDING THAT MARQUEZ
NEEDED A WRITTEN AUTHORITY FROM
RESPONDENT ETERNIT BEFORE THE SALE
CAN BE PERFECTED.
III
 THE COURT OF APPEALS ERRED IN NOT
HOLDING THAT GLANVILLE AND DELSAUX
HAVE THE NECESSARY AUTHORITY TO SELL
THE SUBJECT PROPERTIES, OR AT THE
VERY LEAST, WERE KNOWINGLY PERMITTED
BY RESPONDENT ETERNIT TO DO ACTS
WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO
THE PUBLIC AS POSSESSING POWER TO
SELL THE SAID PROPERTIES.17
Petitioners maintain that, based on the facts of the case,
there was a perfected contract of sale of the parcels of
land and the improvements thereon for
"US$1,000,000.00 plus P2,500,000.00 to cover
obligations prior to final liquidation." Petitioners insist that
they had accepted the counter-offer of respondent EC
and that before the counter-offer was withdrawn by
respondents, the acceptance was made known to them
through real estate broker Marquez.
Petitioners assert that there was no need for a written
authority from the Board of Directors of EC for Marquez
to validly act as broker/middleman/intermediary. As
broker, Marquez was not an ordinary agent because his
authority was of a special and limited character in most
respects. His only job as a broker was to look for a buyer
and to bring together the parties to the transaction. He
was not authorized to sell the properties or to make a
binding contract to respondent EC; hence, petitioners
argue, Article 1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and
decisive was that Marquez was able to communicate
both the offer and counter-offer and their acceptance of
respondent EC’s counter-offer, resulting in a perfected
contract of sale.
Petitioners posit that the testimonial and documentary
evidence on record amply shows that Glanville, who was
the President and General Manager of respondent EC,
and Delsaux, who was the Managing Director for ESAC
Asia, had the necessary authority to sell the subject
property or, at least, had been allowed by respondent EC
to hold themselves out in the public as having the power
to sell the subject properties. Petitioners identified such
evidence, thus:
1. The testimony of Marquez that he was chosen by
Glanville as the then President and General Manager of
Eternit, to sell the properties of said corporation to any
interested party, which authority, as hereinabove
discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the
subject properties spanned SEVERAL MONTHS, from
1986 to 1987;
3. The COUNTER-OFFER made by Eternit through
GLANVILLE to sell its properties to the Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternit’s
offer to sell the properties as evidenced by the Petitioners’
ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of
[US]$1,000,000.00 with the Security Bank and that an
ESCROW agreement was drafted over the subject
properties;
 6. Glanville’s telex to Delsaux inquiring
"WHEN WE (Respondents) WILL IMPLEMENT ACTION
TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the
Respondents, which evidenced the fact that Petitioners’
offer was allegedly REJECTED by both Glanville and
Delsaux.18
Petitioners insist that it is incongruous for Glanville and
Delsaux to make a counter-offer to petitioners’ offer and
thereafter reject such offer unless they were authorized to
do so by respondent EC. Petitioners insist that Delsaux
confirmed his authority to sell the properties in his letter
to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has
decided not to proceed with the sale of the land
which was proposed to you.
The Committee for Asia of our Group met recently
(meeting every six months) and examined the
position as far as the Philippines are (sic)
concerned. Considering the new political situation
since the departure of MR. MARCOS and a
certain stabilization in the Philippines, the
Committee has decided not to stop our operations
in Manila[.] [I]n fact production started again last
week, and (sic) to reorganize the participation in
the Corporation.
We regret that we could not make a deal with you
this time, but in case the policy would change at a
later stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX19
Petitioners further emphasize that they acted in good
faith when Glanville and Delsaux were knowingly
permitted by respondent EC to sell the properties within
the scope of an apparent authority. Petitioners insist that
respondents held themselves to the public as possessing
power to sell the subject properties.
By way of comment, respondents aver that the issues
raised by the petitioners are factual, hence, are
proscribed by Rule 45 of the Rules of Court. On the
merits of the petition, respondents EC (now EMC) and
ESAC reiterate their submissions in the CA. They
maintain that Glanville, Delsaux and Marquez had no
authority from the stockholders of respondent EC and its
Board of Directors to offer the properties for sale to the
petitioners, or to any other person or entity for that
matter. They assert that the decision and resolution of the
CA are in accord with law and the evidence on record,
and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that
respondent EC, through Glanville and Delsaux,
conformed to the written authority of Marquez to sell the
properties. The authority of Glanville and Delsaux to bind
respondent EC is evidenced by the fact that Glanville and
Delsaux negotiated for the sale of 90% of stocks of
respondent EC to Ruperto Tan on June 1, 1997. Given
the significance of their positions and their duties in
respondent EC at the time of the transaction, and the fact
that respondent ESAC owns 90% of the shares of stock
of respondent EC, a formal resolution of the Board of
Directors would be a mere ceremonial formality. What is
important, petitioners maintain, is that Marquez was able
to communicate the offer of respondent EC and the
petitioners’ acceptance thereof. There was no time that
they acted without the knowledge of respondents. In fact,
respondent EC never repudiated the acts of Glanville,
Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of
respondents that the issues raised by petitioner in this
case are factual. Whether or not Marquez, Glanville, and
Delsaux were authorized by respondent EC to act as its
agents relative to the sale of the properties of respondent
EC, and if so, the boundaries of their authority as agents,
is a question of fact. In the absence of express written
terms creating the relationship of an agency, the
existence of an agency is a fact question.20 Whether an
agency by estoppel was created or whether a person
acted within the bounds of his apparent authority, and
whether the principal is estopped to deny the apparent
authority of its agent are, likewise, questions of fact to be
resolved on the basis of the evidence on record.21 The
findings of the trial court on such issues, as affirmed by
the CA, are conclusive on the Court, absent evidence
that the trial and appellate courts ignored, misconstrued,
or misapplied facts and circumstances of substance
which, if considered, would warrant a modification or
reversal of the outcome of the case.22
It must be stressed that issues of facts may not be raised
in the Court under Rule 45 of the Rules of Court because
the Court is not a trier of facts. It is not to re-examine and
assess the evidence on record, whether testimonial and
documentary. There are, however, recognized exceptions
where the Court may delve into and resolve factual
issues, namely:
(1) When the conclusion is a finding grounded entirely on
speculations, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion;
(4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary
to the admissions of both appellant and appellee; (7)
when the findings of the Court of Appeals are contrary to
those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which
they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a
different conclusion; and (10) when the findings of fact of
the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on
record.23
We have reviewed the records thoroughly and find that
the petitioners failed to establish that the instant case
falls under any of the foregoing exceptions. Indeed, the
assailed decision of the Court of Appeals is supported by
the evidence on record and the law.
It was the duty of the petitioners to prove that respondent
EC had decided to sell its properties and that it had
empowered Adams, Glanville and Delsaux or Marquez to
offer the properties for sale to prospective buyers and to
accept any counter-offer. Petitioners likewise failed to
prove that their counter-offer had been accepted by
respondent EC, through Glanville and Delsaux. It must be
stressed that when specific performance is sought of a
contract made with an agent, the agency must be
established by clear, certain and specific proof.24
Section 23 of Batas Pambansa Bilang 68, otherwise
known as the Corporation Code of the Philippines,
provides:
EE
SEC. 23. The Board of Directors or Trustees. – Unless
otherwise provided in this Code, the corporate powers of
all corporations formed under this Code shall be
exercised, all business conducted and all property of
such corporations controlled and held by the board of
directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for
one (1) year and until their successors are elected and
qualified.
Indeed, a corporation is a juridical person separate and
distinct from its members or stockholders and is not
affected by the personal rights,
obligations and transactions of the latter.25 It may act only
through its board of directors or, when authorized either
by its by-laws or by its board resolution, through its
officers or agents in the normal course of business. The
general principles of agency govern the relation between
the corporation and its officers or agents, subject to the
articles of incorporation, by-laws, or relevant provisions of
law.26
Under Section 36 of the Corporation Code, a corporation
may sell or convey its real properties, subject to the
limitations prescribed by law and the Constitution, as
follows:
SEC. 36. Corporate powers and capacity. – Every
corporation incorporated under this Code has the power
and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such
real and personal property, including securities and
bonds of other corporations, as the transaction of a lawful
business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed
by the law and the Constitution.
The property of a corporation, however, is not the
property of the stockholders or members, and as such,
may not be sold without express authority from the board
of directors.27 Physical acts, like the offering of the
properties of the corporation for sale, or the acceptance
of a counter-offer of prospective buyers of such
properties and the execution of the deed of sale covering
such property, can be performed by the corporation only
by officers or agents duly authorized for the purpose by
corporate by-laws or by specific acts of the board of
directors.28 Absent such valid delegation/authorization,
the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the
course of, or connected with, the performance of
authorized duties of such director, are not binding on the
corporation.29
While a corporation may appoint agents to negotiate for
the sale of its real properties, the final say will have to be
with the board of directors through its officers and agents
as authorized by a board resolution or by its by-laws.30 An
unauthorized act of an officer of the corporation is not
binding on it unless the latter ratifies the same expressly
or impliedly by its board of directors. Any sale of real
property of a corporation by a person purporting to be an
agent thereof but without written authority from the
corporation is null and void. The declarations of the agent
alone are generally insufficient to establish the fact or
extent of his/her authority.31
By the contract of agency, a person binds himself to
render some service or to do something in representation
on behalf of another, with the consent or authority of the
latter.32 Consent of both principal and agent is necessary
to create an agency. The principal must intend that the
agent shall act for him; the agent must intend to accept
the authority and act on it, and the intention of the parties
must find expression either in words or conduct between
them.33
An agency may be expressed or implied from the act of
the principal, from his silence or lack of action, or his
failure to repudiate the agency knowing that another
person is acting on his behalf without authority.
Acceptance by the agent may be expressed, or implied
from his acts which carry out the agency, or from his
silence or inaction according to the
circumstances.34 Agency may be oral unless the law
requires a specific form.35 However, to create or convey
real rights over immovable property, a special power of
attorney is necessary.36 Thus, when a sale of a piece of
land or any portion thereof is through an agent, the
authority of the latter shall be in writing, otherwise, the
sale shall be void.37
In this case, the petitioners as plaintiffs below, failed to
adduce in evidence any resolution of the Board of
Directors of respondent EC empowering Marquez,
Glanville or Delsaux as its agents, to sell, let alone offer
for sale, for and in its behalf, the eight parcels of land
owned by respondent EC including the improvements
thereon. The bare fact that Delsaux may have been
authorized to sell to Ruperto Tan the shares of stock of
respondent ESAC, on June 1, 1997, cannot be used as
basis for petitioners’ claim that he had likewise been
authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams
and Glanville acted on the authority of Delsaux, who, in
turn, acted on the authority of respondent ESAC, through
its Committee for Asia,38the Board of Directors of
respondent ESAC,39 and the Belgian/Swiss component of
the management of respondent ESAC.40 As such, Adams
and Glanville engaged the services of Marquez to offer to
sell the properties to prospective buyers. Thus, on
September 12, 1986, Marquez wrote the petitioner that
he was authorized to offer for sale the property
for P27,000,000.00 and the other terms of the sale
subject to negotiations. When petitioners offered to
purchase the property for P20,000,000.00, through
Marquez, the latter relayed petitioners’ offer to Glanville;
Glanville had to send a telex to Delsaux to inquire the
position of respondent ESAC to petitioners’ offer.
However, as admitted by petitioners in their
Memorandum, Delsaux was unable to reply immediately
to the telex of Glanville because Delsaux had to wait for
confirmation from respondent ESAC.41 When Delsaux
finally responded to Glanville on February 12, 1987, he
made it clear that, based on the "Belgian/Swiss decision"
the final offer of respondent ESAC was US$1,000,000.00
plus P2,500,000.00 to cover all existing obligations prior
to final liquidation.42 The offer of Delsaux emanated only
from the "Belgian/Swiss decision," and not the entire
management or Board of Directors of respondent ESAC.
While it is true that petitioners accepted the counter-offer
of respondent ESAC, respondent EC was not a party to
the transaction between them; hence, EC was not bound
by such acceptance.
While Glanville was the President and General Manager
of respondent EC, and Adams and Delsaux were
members of its Board of Directors, the three acted for and
in behalf of respondent ESAC, and not as duly authorized
agents of respondent EC; a board resolution evincing the
grant of such authority is needed to bind EC to any
agreement regarding the sale of the subject properties.
Such board resolution is not a mere formality but is a
condition sine qua non to bind respondent EC.
Admittedly, respondent ESAC owned 90% of the shares
of stocks of respondent EC; however, the mere fact that a
corporation owns a majority of the shares of stocks of
another, or even all of such shares of stocks, taken
alone, will not justify their being treated as one
corporation.43
It bears stressing that in an agent-principal relationship,
the personality of the principal is extended through the
facility of the agent. In so doing, the agent, by legal
fiction, becomes the principal, authorized to perform all
acts which the latter would have him do. Such a
relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by
law or by any court.44
The petitioners cannot feign ignorance of the absence of
any regular and valid authority of respondent EC
empowering Adams, Glanville or Delsaux to offer the
properties for sale and to sell the said properties to the
petitioners. A person dealing with a known agent is not
authorized, under any circumstances, blindly to trust the
agents; statements as to the extent of his powers; such
person must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent
acts within the scope of his authority.45 The settled rule is
that, persons dealing with an assumed agent are bound
at their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature
and extent of authority, and in case either is controverted,
the burden of proof is upon them to prove it.46 In this
case, the petitioners failed to discharge their burden;
hence, petitioners are not entitled to damages from
respondent EC.
It appears that Marquez acted not only as real estate
broker for the petitioners but also as their agent. As
gleaned from the letter of Marquez to Glanville, on
February 26, 1987, he confirmed, for and in behalf of the
petitioners, that the latter had accepted such offer to sell
the land and the improvements thereon. However, we
agree with the ruling of the appellate court that Marquez
had no authority to bind respondent EC to sell the subject
properties. A real estate broker is one who negotiates the
sale of real properties. His business, generally speaking,
is only to find a purchaser who is willing to buy the land
upon terms fixed by the owner. He has no authority to
bind the principal by signing a contract of sale. Indeed, an
authority to find a purchaser of real property does not
include an authority to sell.47
Equally barren of merit is petitioners’ contention that
respondent EC is estopped to deny the existence of a
principal-agency relationship between it and Glanville or
Delsaux. For an agency by estoppel to exist, the following
must be established: (1) the principal manifested a
representation of the agent’s authority or knowlingly
allowed the agent to assume such authority; (2) the third
person, in good faith, relied upon such representation; (3)
relying upon such representation, such third person has
changed his position to his detriment.48 An agency by
estoppel, which is similar to the doctrine of apparent
authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the
representations predated the action taken in
reliance.49 Such proof is lacking in this case. In their
communications to the petitioners, Glanville and Delsaux
positively and unequivocally declared that they were
acting for and in behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified
the transactions between the petitioners and respondent
ESAC, through Glanville, Delsaux and Marquez. The
transactions and the various communications inter se
were never submitted to the Board of Directors of
respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is
DENIED for lack of merit. Costs against the petitioners.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 131715 December 8, 1999
PHILIPPINE NATIONAL CONSTRUCTION
CORPORATION, petitioner,
vs.
ERNESTO PABION and LOUELLA RAMIRO, respondents.
PANGANIBAN, J.:
The Securities and Exchange Commission (SEC) has jurisdiction
over corporations organized pursuant to the Corporation Code,
even if the majority or controlling shares are owned by the
government. Hence, it can competently order the holding of a
shareholders' meeting for the purpose of electing the corporate
board of directors. While the SEC may not have authority over
government corporations with original charters or those created
by special law, it does have jurisdiction over "acquired asset
corporations" as defined in AO 59. Specifically, the Philippine
National Construction Company (PNCC) may be ordered by SEC
to hold a shareholders' meeting to elect its board of directors in
accordance with its Articles of Incorporation and By-Laws as well
as with the Corporation Code. The chairman and the members of
the PNCC Board of Directors hold office by virtue of their election
by the shareholders, not by their appointment thereto by the
President of the Republic.
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court assailing the Decision of the Court of
Appeals 1 (CA) promulgated on October 23, 1997, as well as its
subsequent Resolution 2 dated December 2, 1997, denying
petitioner's Motion for Reconsideration.
The CA effectively affirmed 3 the October 2, 1996 Order issued by
the Securities and Exchange Commission, 4 which disposed as
follows:
WHEREFORE, premises, considered, this Petition
is hereby GRANTED. The President or the
Chairman of the PNCC is hereby ordered to call a
special stockholder's meeting within thirty (30)
days from receipt of this order for the purpose of
electing the members of the Board to hold office
up to March, 1997 or until the next stockholders'
meeting will be held. Accordingly, the Corporate
Secretary of PNCC is hereby directed to issue
required notices to the stockholders. 5
In a subsequent Resolution dated April 11, 1997, 6 SEC denied
reconsideration, clarification and annulment of said Order.
The Facts
The Court of Appeals adequately narrates the facts in this wise:
On September 16, 1994, private
respondents Ernesto Pabion and Louella Ramiro,
claiming to be stockholders of the PNCC, filed
with the SEC a verified petition, therein alleging
that since 1982 or for a period of twelve (12) Chairman of the board shall

€
years, there has been no stockholders' meeting of likewise be appointed by the
the PNCC to elect the corporation's board of President upon the
directors, thus enabling the incumbent directors to recommendation of the Secretary.
hold on to their position beyond their 1-year term,
in violation of PNCC's By-Laws and the In the same answer, PNCC expressed the fear
Corporation Code. Pabion and Ramiro, therefore, that if granted, the prayer in the verified petition
prayed the SEC to issue an order "ordering the would amount to a contravention of AO No. 59
officers of PNCC or, in the alternative, authorizing and an interference with the President's power of
petitioners, to call and hold a meeting of the control and appointment over government-owned
stockholders . . . for the purpose of electing new and/or controlled corporations (GOCCs). PNCC
directors . . . ." Docketed as SEC Case No. 09-94- added that under Executive Order No. 399, series
4876, the verified petition was assigned to SEC of 1951, a GOCC is not required to hold a general
Hearing Officer Manuel Perea. meeting of stockholders but, instead, the general
manager thereof is merely required to submit an
In due time, PNCC filed its answer. annual report to the President of the Philippines.
Therein, PNCC claimed that it is a government-
owned corporation whose "organizational and In the ensuing pre-trial conference conducted by
functional management, administration, and Hearing Officer Perea, the parties defined the
supervision" are governed by Administrative Order issues, as follows:
(AO) No. 59, issued by then President Corazon
Aquino on February 16, 1988. PNCC asserts that (a) Whether or not
its board of directors does not hold office by virtue PNCC is a GOCC
of a stockholder's election but by appointment of subject to and
the President of the Philippines, relying on Article governed by LOI
IV, Section 16 [1], of AO No. 59, which reads: 1295 (1983), AO
No. 59 (1988) and
(1) Governing Boards. — GOCC Executive Order
(government-owned and/or No. 399 (1951), or
controlled corporation) shall be by its articles-of-
governed by a Board of Directors incorporation and
or equivalent body composed of by-laws only.
an appropriate number of
members to be appointed by the (b) Whether or not
President of the Philippines upon PNCC is required
the recommendation of the to call a regular
Secretary of whose Department annual
the GOCC is attached. The
 stockholder's
meetings.
on the basis of which the parties agreed to submit
the case for resolution after they shall have filed
their respective memoranda, which they did.
It appears, however, that in a motion dated
September 4, 1995, Pabion and Ramiro prayed
for the re-opening of the pre-trial conference on
the ground that the "common assumption" on the
75% ownership by several government financial
institutions (GFIs) in the PNCC was proved false
by their discovery that the GFI[s] are merely a
minority among the owners of PNCC. They,
therefore, moved that a trial be conducted to
determine the extent of ownership by the
government in the PNCC.
Acting on the aforementioned motion, SEC
Hearing Officer Perea issued, on January 30,
1996, the following order:
In view of the necessity of a prior
determination of whether or not
respondent Philippine National
Construction Corporation (PNCC)
is a government owned or
controlled corporation before
resolving the instant incident,
either or both of the parties are
hereby directed to secure a
ruling/opinion from competent
authority as to whether or not the
PNCC is a government
corporation or not, as the matter
does not fall within the
competence of the Commission to
determine.
Unless said ruling/opinion is
obtained by either or both parties,
further proceedings should be held
in abeyance.
SO ORDERED.
Their motion for reconsideration of the
aforequoted order having been denied by the
same Hearing Officer in his subsequent order of
April 10, 1996, Pabion and Ramiro then went to
the Commission en banc via a petition
for certiorari. Thus came about SEC-EB
No. 495 wherein therein
petitioners Pabion and Ramiro sought the
nullification of Hearing Officer Perea's twin orders
of January 30, 1996 and April 10, 1996 for having
been allegedly issued with grave abuse of
discretion amounting to lack or in excess of
jurisdiction. In the same recourse, the two likewise
asked the SEC en banc to direct Perea to proceed
with the trial on the merits of SEC Case No. 09-
94-4876.
In its first assailed order of October 2, 1996, the
SEC en banc declared Hearing Officer Perea to
have acted with grave abuse of discretion in
issuing his two (2) questioned orders. The
Commission ruled that Perea should have
conducted a trial on the merits to resolve the
factual issue of whether PNCC is majority or only
minority-owned by the government. Explains the
Commission en banc in its challenged order:
 Sec. 5 [b] of P.D. # 902-A confers to what law governs a corporation is the manner
on SEC original and exclusive of its creation, adding that PNCC is an "acquired
jurisdiction to hear and decide asset corporation" which, by express provision of
intra-corporate controversies. The Section 2 of AO No. 59, "is not considered as a
main issue in the petition is clearly GOCC". And taking judicial notice of PNCC's by-
an intra-corporate dispute as it is a laws thereunder the corporation's directors "shall
controversy between the be elected at the annual meeting of the
petitioners as stockholders of stockholders", the Commission en
PNCC and respondent corporation banc concluded that PNCC "is therefore, required
PNCC regarding the holding of to conduct a regular stockholder's meeting for the
regular stockholder's meeting. purpose of electing its Board of Directors,
This matter, therefore, falls within considering that the Corporation Code and its own
the scope of the jurisdiction of the By-Laws require the holding of such meeting.
SEC. In resolving the main issue
of whether PNCC should hold xxx xxx xxx
regular stockholder's meetings,
the hearing officer has jurisdiction A timely motion for reconsideration was filed by
to resolve the incidental issue of the PNCC but the same was denied by the
whether PNCC is a GOCC or not. Commission en banc in its assailed Resolution of
Having validly acquired original April 11, 1997. 7 (citations omitted but bold types
and exclusive jurisdiction over the and italics found in original)
instant petition, the public
respondent is mandated to hear Ruling of the Court of Appeals
and decide all the issues involved
in the dispute.
Upholding SEC, the Court of Appeals declared that PNCC,
though majority-owned by government financial institutions
In the same order, the Commission en banc,
(GFIs), retained its character as a private corporation. As such,
instead of remanding the case to the Hearing
PNCC was required under the Corporation Code to hold regular
Officer to resolve the question of whether PNCC
shareholders' meetings to elect its board of directors. The CA
is government-owned or controlled, itself resolved
ruled:
the issue by holding that PNCC, "being
incorporated under the Corporation Code, is,
therefore, subject to Section 50 of the Corporation The petition lacks merit.
Code which requires the holding of regular
stockholders' meeting for the purpose of selecting Although the case reached the SEC en
PNCC's Board of Directors", citing, as basis banc through a petition for certiorari, the said body
therefor the ruling in PNOC-EDC vs. NLRC, 20 is not helpless to resolve the controversy on its
SCRA 487, to the effect that the determination as substantive merits. There are indications that
PNCC is not a GOCC which the SEC en
banc cannot ignore. A trial for the purpose of
determining the status of PNCC is unnecessary
since the issue can be resolved on the basis of
records. A remand will only delay the resolution of
the case and frustrate the ends of justice.
It may be so, as pointed out by petitioner PNCC,
that the rule which allows the SEC en banc to
correct instances of grave abuse of discretion is
patterned after Rule 65 of the 1997 Rules of Civil
Procedure, and therefore, it is only proper that the
SEC en bancadhere to the pronouncements of the
Supreme Court on the proper treatment of
petitions for review on certiorari under Rule 65. It
is equally true, however, that the rule enunciated
in several cases to the effect that the inquiry in a
petition for certiorari is limited only to searching for
traces of grave abuse [of] discretion is not cast in
stone. For sure, the Supreme Court no less has
resolved factual issues in certiorari cases on the
basis of the records before it. If the Supreme
Court can relax the restriction on the disposition
of certiorari cases, We see no reason why a mere
quasi-administrative body unsaddled by the
stringent rules of procedure, like the SEC en
banc, cannot follow the High Court's example,
more so when, as rationalized by the same Court
in Gokongwei, Jr. vs. Securities and Exchange
Commission, et. al., 89 SCRA 336, 360, the
underlying justification for the relaxation of the rule
applies to the instant case as well. Says the High
Court in that case:
It is an accepted rule of procedure
that the Supreme court should
always strive to settle the entire
controversy in single proceeding,
leaving no root or branch to bear
the seeds of future litigation. Thus,
in Francisco v. City of Davao (12
SCRA 682), this Court resolved to
decide the case on the merits
instead of remanding it to the trial
court for further proceedings since
the ends of justice would not be
subserved by the remand of the
case. In Republic v. Security
Credit and Acceptance
Corporation, et. al. (19 SCRA 58),
this Court, finding that the main
issue is one of law, resolved to
decide the case on the merits
"because public interest demands
an early disposition of the case",
and in Republic v. Central Surety
and Insurance Company, (25
SCRA 641), this Court denied
remand of the third-party
complaint to the trial court for
further proceedings, citing
precedents where this Court, in
similar situations, resolved to
decide the cases on the merits,
instead of remanding them to the
trial court where (a) the ends of
justice would not be subserved by
the remand of the case; or (b)
where public interest demand an
early disposition of the case; or (c)
where the trial court ha[s] already
received all the evidence
presented by both parties and the
Supreme Court is now in a
position, based upon said
 evidence, to decide the case on
the merits. . . .
Moreover, it cannot be denied that the parties
herein are embroiled in an intra-corporate
controversy and the question on the identity of
PNCC is only an incident of that
controversy. Pabion and Ramiro are among the
stockholders of PNCC, a circumstance which
classifies the dispute as an intra-corporate
controversy. The authority of the Commission to
determine whether or not PNCC can be
compelled to hold a stockholders' meeting is
unquestioned as even PNCC itself concedes that
the "issues of the propriety of calling a
stockholders" meeting is within the competence of
the SEC". The source of authority of the SEC over
the present case can be found in Section 5(b) of
Presidential Decree (PD) No. 902-A, as amended,
which empowers the SEC to hear and resolve
cases involving "controversies arising out of intra-
corporate or partnership relations, between and
among are stockholders, members, or associates;
between any or all of them and the corporation,
partnership or association of which they are
corporate controversies emanates from law and
PNCC cannot divest the Commission of that
jurisdiction. As the body charged with exclusive
authority over intra-corporate controversies, aside
from being possessed under Section 3 of PD No.
902-A, as amended, with absolute jurisdiction
over all corporations which are grantees of
primary franchise from the government, the
SEC en banc can be trusted with the competence
to distinguish a private corporation from a GOCC.
The second assigned error must likewise fall.
Administrative Order No. 59 does not consider the
so-called acquired asset corporations, although
majority owned by the government, as GOCCs.
The salient provisions of AO No. 59 read, as
follows:
Sec. 2. Definition of Terms. — As used in this
Administrative Order, the following terms shall
mean:
(a) Government-

⇐
owned and/or
stockholders, members or associates,
controlled
respectively; and between such corporation,
corporation,
partnership or association and the State insofar as
hereinafter referred
it concerns their individual franchise or right to
to as GOCC or
exist as such entity.
government
corporation, is a
The finding of the SEC en banc that PNCC is not corporation which
a GOCC was made in the exercise of its is created by
jurisdiction over an intra-corporate controversy. To special law or
disallow the Commission to determine the nature organized under
of petitioner PNCC is to deprive it of the power to the Corporation
resolve the intra-corporate controversy between
the parties. The jurisdiction of the SEC over intra- €
Code in which the
government,
directly or sequestration
indirectly, has
= Ior (2)
proceeding;
ownership of the which is a
majority of the subsidiary of a

€
capital or has
voting
control; Provided, E
government
corporation
organized
That an acquired exclusively to own
=
asset corporation and manage, or
as defined in the
next paragraph
€
lease, or operate
specific physical
shall not be assets acquired by
E
considered as
GOCC or
E
a government
financial institution
government in satisfaction of
corporation. debts incurred
=
therewith, and
e
(b) Acquired asset
corporation is a
which in any case
by law or by
corporation (1) enunciated policy
which is under is required to be
=
private ownership, =
disposed of to
the voting or private ownership
outstanding shares
of which (i) were I
within a specified
period of time.
conveyed to the
government In order to be considered as an acquired asset
agency,
= corporation, the aforequoted provision requires,
instrumentality or among other things, that the corporation's
corporation in conveyance of its outstanding shares to the
I
satisfaction of government must be aimed at the satisfaction of
debts whether by its debts. While, on one breath, petitioner admits
=
foreclosure or that the GFIs gained majority ownership of PNCC
otherwise, or (ii) by converting their loans into equity, on another
were duly acquired breath, petitioner denies that the debt-to-equity
=
by the government conversion resulted in the satisfaction of the
through final outstanding debts of PNCC because it did not pay
=
judgment in a the loans. If the loans remained unpaid as
maintained by PNCC, what then was the effect on
its debt when the GFIs converted their loans into
equity? It would be the height of irresponsibility for
PNCC to surrender majority ownership of its
voting or outstanding shares without getting
something in return. When PNCC ceded the
majority ownership to the GFIs, there could be no
other motivation behind the action than PNCC's
desire to satisfy its obligation to the creditors.
PNCC's effort to ward off the
exclusionary proviso of AO No. 59 only produces
incongruity in its position.
The Case of Quimpo vs. Tanodbayan, 146 SCRA
137, cannot assist the petitioner's cause. There,
the Supreme Court's inquiry centered on whether
or not Petrophil Corporation is a GOCC because
an affirmative answer will affirm the Tanodbayan's
jurisdiction over the Petrophil employees pursuant
to the provisions of the Anti-Graft and Corrupt
Practices Act. In declaring that Petrophil is a
GOCC, the Supreme Court deemed it crucial to its
conclusion that Petrophil was purchased by the
government through the Philippine National Oil
Corporation, itself a GOCC. The situation of
Petrophil bears no parallelism with that of PNCC
because the latter was not purchased by the
GFIs. The GFIs became majority owners of PNCC
because they converted their loans into equity.
The manner of partial acquisition of PNCC by the
GFIs fits the condition set forth in Section 2,
paragraph (b), subparagraph, (1) (i) of AO no.
59, supra.
PNCC's position that it cannot be considered as
an acquired asset corporation in the absence of
law or "enunciated policy" mandating its
privatization within a definite period can only be a
product of strained interpretation of AO No. 59.
The Administrative Order shows that there are
only two (2) classes of acquired asset
corporations. Although the description of each
class is compressed in a single paragraph, the
disjunctive word "or" separates the first class from
the second class which connotes a variance in
their characteristics. The word "or" is a disjunctive
term signifying disassociation and independence
of one thing from each of the other things
enumerated. It should, as a rule, be construed in
the sense in which it ordinarily implies, as a
disjunctive word. Each class has its own set of
conditions. The conversion by the GFIs of their
loans into equity in PNOC is sufficient to transform
it as an acquired asset corporation. The
requirement for a pretender for the status of an
acquired asset corporation to be subject to a law
or policy that commands its privatization applies to
another class of acquired asset corporations
which does not include
PNCC. 8 (citations omitted, emphasis in the
original)
The Issue
Disagreeing with the appellate court, petitioner lodged this
recourse before us 9 and presents these issues:
1. WHETHER OR NOT PNCC IS A GOCC;
2. WHETHER OR NOT THE SEC HAS
JURISDICTION TO ORDER PNCC TO HOLD A
STOCKHOLDERS' MEETING FOR THE
PURPOSE OF ELECTING THE MEMBERS OF
ITS BOARD OF DIRECTORS;
 3. WHETHER OR NOT PNCC IS REQUIRED
UNDER THE LAW TO HOLD A
STOCKHOLDERS' MEETING FOR THIS
PURPOSE; AND
4. WHETHER OR NOT THE SEC,
IN CERTIORARI PROCEEDINGS, CAN RULE
ON THE MERITS OF A CASE EVEN BEFORE
THE HEARING OFFICER HAS RECEIVED
EVIDENCE. 10
We shall take up the above issues in the following sequence: 1)
Whether SEC can determine the corporate status of PNCC, 2)
whether SEC has jurisdiction over GOCCs, and 3) whether PNCC
is an acquired asset corporation.
O
The Court's Ruling
The Petition has no merit. Simply stated, PNCC claims that SEC
has no jurisdiction over it and that members of the corporation's
board of directors hold office, not by virtue of a shareholders'
election but by appointment of the President of the Philippines.
We hold that SEC has authority over PNCC and that the latter's
directors owe their offices to their shareholders and not to
presidential fiat. To justify these plain conclusions, we need to
wade through rather complicated legal processes and reasoning
in resolving seriatim the legal issues raised by petitioners.
First Issue:
May SEC Determine
Whether PNCC Is a GOCC?
Underlying this confusing controversy is the misconception that
government owned and/or controlled corporations (GOCCs) are
beyond the jurisdiction of SEC. From this broad and sweeping
assumption, petitioner asserts that SEC is without competence to
determine whether PNCC is a GOCC. 11 It insists that such a
determination falls solely upon the President of Philippines and is
therefore beyond SEC's jurisdiction.
We disagree. It is certainly absurd to say that SEC is without
jurisdiction to determine if PNCC is a GOCC simply because the
latter claims to be one. The President does not "determine"
whether a corporation is a GOCC or not. It is the law that does.
PNCC's status as a GOCC can be ruled upon by SEC — as well
as by other competent authorities for that matter — based on law,
specifically the Revised Administrative Code of 1987 12 which
provides inter alia as follows:
Sec. 2. General Terms Defined. — Unless the
specific words of the text, or the context as a
whole, or a particular statute, shall require a
different meaning:
xxx xxx xxx
* (13) Government-owned or controlled
corporation — refers to any agency organized as
a stock or non-stock corporation, vested with
functions relating to public needs whether
governmental or proprietary in nature, and owned
by the Government directly or through its
instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) per cent of its
capital stock: Provided, That government owned
or controlled corporations may be further
categorized by the Department of Budget, the
Civil Service Commission, and the Commission
on Audit for purposes of the exercise and
discharge of their respective powers, functions
and responsibilities with respect to such
corporations. (emphasis ours)
Thus, we agree with the CA that "the SEC en banc cab be trusted
with the competence to distinguish a private corporation from a
GOCC." 13 Whether such determination is correct would be an
altogether different matter.
SEC Ruled on the Merits
Petitioner argues that certiorari, which was used by private
respondents to challenge the ruling of the hearing officer before
the SEC en banc, is generally limited to determining whether or
not there has been grave abuse of discretion committed by the
officer below. It further claims that the SEC rule 14used by
respondents was patterned after Rule 65 of the 1997 Rules of
Court. 15 Hence, the same principles governing the latter should
apply to the former. It thus submits that SEC erred when it ruled
not only on the issue of jurisdiction but also on the merits of the
case. It contends that SEC en bancshould have limited itself to
the issue of grave abuse and thereafter remanded the case below
for further proceedings.
Again, we disagree. What petitioner invokes is a general rule that
admits of exceptions. 16 As the CA aptly pointed out, this general
rule "is not cast in stone." 17 Indeed, one chiseled exception arises
when the court or administrative agency is in a position to resolve
the dispute on the merits based on the records before it. 18 That is,
a reviewing court or agency may decide the lis mota of a case on
its merits if there are enough undisputed facts to warrant such
resolution.
Here we stress that SEC's ruling was factually based on the
judicial admission of petitioner that there was a debt-to-equity
conversion of PNCC's obligations to several government financial
institutions (GFIs) pursuant to LOI 1295. 19 PNCC admits that at
least 76.48 percent of its equity is owned by GFI's. 20 Thus, in
view of such admission extant on the records, SEC en banc was
in a position to validly dispose of the controversy directly, without
need of remanding the matter to the hearing officer. It aptly based
its actions on the fact that PNCC was organized pursuant to the
general corporation law and is thus subject to SEC regulation.
We agree with SEC because a remand would have merely
delayed unnecessarily the resolution of the question. As we have
said before and say so again:
A litigation is not a game of technicalities in which
one, more deeply schooled and skilled in the
subtle art of movement and position, entraps and
destroys the other. It is, rather, a contest in which
each contending party fully and fairly lays before
the court the facts in issue and then, brushing
aside as wholly trivial and indecisive all
imperfections of form and technicalities of
procedure, ask that justice be done upon the
merits. Lawsuits, unlike duels, are not to be won
by a rapier's thrust. Technicality, when it deserts
its proper office as an aid to justice and becomes
its great hindrance and chief enemy, deserves
scant consideration from courts. There should be
no vested rights in technicalities. 21
Indeed, justice unnecessarily delayed is justice necessarily
denied.
Second Issue:
Does SEC Have Jurisdiction over GOCCs?
As adverted to above, petitioner proceeds from the erroneous
proposition that SEC's "jurisdiction does not extend to . . . [a]
government-owned and controlled corporation or GOCC . .
." 22 This is an inaccurate generalization. GOCCs may either be
(1) with original charter or created by special law; or (2)
incorporated under general law, 23 via either the Old Corporation
Code 24 or the New Corporation Code. 25
We concede that SEC has no jurisdiction over corporations of the
first type — GOCCs with original charter or created by special law
— primarily because they are governed by their charters. 26 But
even this concession is not absolute, since the Corporation Code
may apply suppletorily, either by operation of law 27 or through
express provisions in the charter. 28
On the other hand, we have no doubt that over GOCCs
established or organized under the Corporation Code, SEC can
exercise jurisdiction. These GOCCs are regarded as private
corporations despite common misconceptions. 29 That the
government may own the controlling shares in the corporation
does not diminish the fact that the latter owes its existence to the
Corporation Code. More pointedly, Section 143 of the Corporation
Code 30 gives SEC the authority and power to implement its
provisions, specifically for the purpose of regulating the entities
created pursuant to such provisions. These entities include
corporations in which the controlling shares are owned by the
government or its agencies.
Glaringly erroneous, therefore, is petitioner's reliance on Quimpo
v. Tanodbayan 31 and its theory that it is immaterial "whether a
corporation is acquired by purchase or through the conversion of
the loans of the GFIs into equity in a corporation [because] such
corporation loses its status as a private corporation and attains a
new status as a GOCC." 32 First, based on the discussion above,
PNCC does not "lose" its status as a private corporation, even if
we were to assume that it is a GOCC. Second, neither would
such loss of status prevent it from being further classified into an
acquired asset corporation, as will be discussed below.
The Controversy Is Within
SEC Jurisdiction
SEC's assumption of jurisdiction over this case is proper, as the
controversy involves the election of PNCC's directors. Petitioner
does not really contradict the nature of the question presented
and agrees that there is an intra-corporate question involved.
However, it emphasizes that the "main" question to be resolved is
the status of PNCC as a GOCC 33 which, it submits, is outside
SEC's competence to rule on. 34 As already explained, there is no
reason why SEC cannot make such determination which, though
not final and may be cannot subject to review, is nonetheless
made pursuant to its exercise of its original and exclusive
jurisdiction over cases involving controversies in the election of
directors. 35
SEC May Compel
Stockholders' Meeting
Prescinding from the above premises, it necessarily follows that
SEC can compel PNCC to hold a stockholders' meeting for the
purpose of electing members of the latter's board of
directors. 36 This is clearly provided for by Section 50 of the
Corporation Code, which we quote:
Sec. 50. Regular and special meetings of
stockholders or members. — . . . Whenever, for
any cause, there is no person authorized to call a
meeting, the Securities and Exchange
Commission, upon petition of a stockholder or
member, and on the showing of good cause
therefor, may issue an order to the petitioning
stockholder or member directing him to call a
meeting of the corporation by giving proper notice
required by this Code or by the by-laws. The
petitioning stockholder or member shall preside
thereat until at least a majority of the stockholders
or members present have chosen one of their
member[s] as presiding officer. (emphasis ours)
As respondents point out, the SEC's action is also justified by its
regulatory and administrative powers 37 to implement the
Corporation Code, specifically to compel the PNCC to hold a
stockholders' meeting for election purposes. Apropos here is the
SEC's ruling as follows:
The Commission takes judicial notice of the
PNCC by-laws as follows:
Art. V, Sec. 5
(1) The Board of Directors shall be
composed of eleven (11) directors.
(2) The directors shall be elected
at the annual meeting of the
stockholders, each director to hold
office for a term on one (1) year
and until his successor is duly
elected and qualified.
Art. IV Sec. 4
(1) The annual meeting of the
stockholders shall be held at 3:00
P.M. on the fourth (4th) Tuesday
of March every year.
Respondent PNCC is therefore required to
conduct a regular stockholders' meeting for the
purpose of electing its Board of Directors,
considering that the Corporation Code and its own
By-Laws require the holding of such meeting. The
failure of PNCC to call and hold annual
stockholders' meetings since 1983 or for thirteen
(13) years constitutes a gross, continuing violation
of its by-laws and the Corporation Code. For the
refusal of PNCC's Board of Directors to call said
meeting, petitioners, as stockholders of PNCC,
can rightfully petition the SEC to order the same.
Third Issue:
What is the Status of PNCC?
Petitioner differs from the foregoing conclusion and avers that
there is no necessity to hold a stockholders' meeting to elect
members of the board of directors, because the President of the
Philippines is empowered to appoint them, by virtue of Article IV,
Section 16 (1) of Administrative Order No. 59 38 (December 5,
1988):
xxx xxx xxx
(1) Governing Boards. — A GOCC
shall be governed by a Board of
Directors or equivalent body
composed of an appropriate
number of members to be
appointed by the President of the
Philippines upon the
recommendation of the Secretary
to whose Department the GOCC is
attached. The Chairman of the
Board shall likewise be appointed
by the President upon the
recommendation of the Secretary.
Respondents counter that the above-quoted provision is
inapplicable, since PNCC is not a GOCC. Instead, it is an
acquired asset corporation, based on the definition given in
Section 2 (a) of the same law, AO 59:
xxx xxx xxx
 (a) Government-owned and/or
controlled corporation, hereinafter
referred to as GOCC or
government corporation, is a
corporation which is created by
special law or organized under the
Corporation Code in which the
Government, directly or indirectly,
has ownership of the majority of
the capital or has voting
control; Provided that an acquired
asset corporation as defined in the
next paragraph shall not be
considered as GOCC or
government corporation.
*(b) Acquired asset corporation is a
corporation (1) which is under
private ownership, the voting or
outstanding shares of which (i)
were conveyed to the government
or to a government agency,
instrumentality or corporation in
satisfaction of debts whether by
foreclosure or otherwise, or (ii)
were duly acquired by the
government through final judgment
in a sequestration proceeding; or
(2) which is a subsidiary of a
government corporation organized
exclusively to own and manage, or
lease, or operate specific physical
assets acquired by a government
financial institution in satisfaction
of debts incurred therewith, and
which in any case by law or by
enunciated policy is required to be
disposed of to private ownership
within a specified period of time.
(emphasis supplied)
Thus, at this point these questions arise: (a) Is PNCC an acquired
asset corporation? (b) Is Section 2 of AO 59 inconsistent with
Section 2 (13) of EO 292? (c) Is Section 16 of AO 59 applicable
to PNCC?
PNCC Is an Acquired
Asset Corporation
We agree with the respondents that PNCC falls under the
exception carved out from Section 2 (a and b) above which
removes an acquired asset corporation from the category of a
GOCC. 39 In the context of the entire administrative order and in
relation to presidential issuances, 40 these provisions clearly
indicate that PNCC is indeed an acquired asset corporation. This
is because PNCC is a corporation that is, to quote said AO,
"under private ownership, the voting or outstanding shares of
which (i) were conveyed to the government" financial institutions
"in satisfaction of debts . . .."
Petitioner posits the interpretation that an acquired asset
corporation is one that is set to be privatized pursuant to a law or
an enunciated policy. 41 On this particular point, we agree. It
should be noted that under Section 2 (b) of AO 59, there are two
kinds of acquired assets corporations: one, a corporation which is
"under private ownership, the voting or outstanding shares of
which" were either conveyed to the government or to a
government agency, instrumentality or corporation in satisfaction
of debts whether by foreclosure or otherwise, or were duly
acquired by the government in a sequestration proceeding;
and two, a corporation which is a subsidiary of a government
entity organized exclusively to own and manage, or lease or
operate specific physical assets acquired by a government
financial institution in satisfaction of debts incurred therewith.
Both kinds of acquired asset corporations are by law or by
enunciated policy required to be privatized within a specified
period. Such interpretation of AO 59 is supported by Section 18
thereof which provides:
Sec. 18. Dissolution of Acquired Asset
Corporations. — All executive agencies, offices
and instrumentalities shall take steps to
dissolve any acquired asset corporation which has
not been disposed of to the private sector within
five (5) years from the date of the decision to
dissolve the corporation. . . . 42 (emphasis
supplied)
Reading these sections together, it becomes evident that an
acquired asset corporation is singled out for eventual disposition
to the private sector or, failing in that, for dissolution. 43
True, respondents failed to show that PNCC was headed either
for privatization or for dissolution. However, Article I, Section 1 of
Proclamation No. 50, 44 provides the enunciated policy required
under AO 59 in this wise:
Sec. 1. Statement of Policy. — It shall be the
policy of the State to promote privatization through
an orderly, coordinated and efficient program for
the prompt disposition of the large number of non-
performing assets of the government financial
institutions, and certain government-owned or
controlled corporations which have been found
unnecessary or inappropriate for the government
sector to maintain.
Pursuant to this policy, AO 64, 45 which was issued by
then President Corazon Aquino, transferred to the
national government certain assets held by the Philippine
Export and Foreign Loan Guarantee (Philguarantee) and
the National Development Company (NDC). Certain
shares in PNCC were included. This fact was confirmed
by President Fidel V. Ramos who issued AO 397 46 on
May 13, 1998. The said administrative order states that
"PNCC is one of the corporations slated to be
privatized." 47
When confronted with the same question, the Department of
Justice (DOJ) in DOJ Opinion No. 37, Series of 1995, stated that
PNCC was an acquired asset corporation, as follows:
At the outset, we note from the attached papers
that in its letter dated May 20, 1991 to the PNCC,
the Office of the President already declared that
PNCC is an "acquired asset corporation as
defined in Administrative Order No. 59".
(emphasis supplied)
DOJ Opinion No. 22, Series of 1998, had a similar tenor:
The question whether PNCC is a government-
owned or controlled corporation (GOCC) and,
therefore, a government entity ha[s] been
previously passed upon by the Office of the
President. In a letter dated May 20, 1991, Deputy
Executive Secretary Sonny Coloma informed the
then PNCC President that PNCC is "an acquired
asset corporations defined under Section 2 of
Administrative Order No. 59". The conclusion,
although not explicitly stated in said letter, is that
PNCC is not a GOCC." (emphasis supplied)
While not controlling, official opinions of the justice secretary are
persuasive. We uphold such opinions in the present milieu.
There Is No Inconsistency
 With the Administrative Code
Its earlier posturing notwithstanding, petitioner simultaneously
asserts that AO 59 is insufficient in its definition of "GOCC," which
is allegedly inconsistent with that found in Executive Order (EO)
292, 48otherwise known as the Revised Administrative Code
(RAC). The inconsistency, according to petitioner, lies in the fact
that AO 59 distinguishes between a GOCC and an acquired asset
corporation, while EO 292 does not. Petitioner maintains that
"[s]ince A.O. No. 59 is a mere administrative issuance of the
President, it is clear that its definition of a GOCC cannot prevail
over that given by E.O. No. 292, which is a law." 49
We do not find any inconsistency. The definition given in AO 59
explicitly applies only to that particular administrative order. We
quote the section in full:
Sec. 2. Definition of Terms. — As used in this
Administrative Order, the following terms shall
mean:
(a) Government-owned and/or
controlled corporation, hereinafter
referred to as GOCC or
government corporation, is a
corporation which is created by
special law or organized under the
Corporation Code in which the
Government, directly or indirectly,
has ownership of the majority of
the capital or has voting
control; Provided that an acquired
asset corporation as defined in the
next paragraph shall not be
considered as GOCC or
government corporation.
(b) Acquired asset corporation is a
corporation (1) which is under
private ownership, the voting or
outstanding shares of which (i)
were conveyed to the government
or to a government agency,
instrumentality or corporation in
satisfaction of debts whether by
foreclosure or otherwise, or (ii)
were duly acquired by the
government through final judgment
in a sequestration proceeding; or
(2) which is a subsidiary of a
government corporation organized
exclusively to own and manage, or
lease, or operate specific physical
assets acquired by a government
financial institution in satisfaction
of debts incurred therewith, and
which in any case by law or by
enunciated policy is required to be
disposed of to private ownership
within a specified period of time."
(boldface and emphasis supplied)
AO 59 does not purport to have established a new kind of
corporation that supersedes EO 292. Neither does the former
seek to revise the definition of "GOCC" given in the latter. What
AO 59 in fact does is to distinguish GOCCs in general from those
that are sought to be privatized. In fact, the definition given in EO
292 itself states that the GOCCs may be further
categorized. 50 This caveat suggests that the definition is broad
enough to admit distinctions as to the kinds of GOCCs defined
under AO 59.
Thus, contrary to respondent's assertion that PNCC is not a
GOCC, 51 we hold that it may be deemed so under EO 292.
However, for purposes of AO 59, particularly in the application of
Section 16 thereof, PNCC is an acquired asset corporation. In
this light, the alleged inconsistency is more apparent than real. It
should be emphasized that an acquired asset corporation is a
GOCC set to be privatized pursuant to the government's
policy 52 as enunciated in Proclamation 50, 53 which defines
"assets" to include GOCCs thus:
Sec. 2. Definition of Terms. — As used in this
Proclamation and unless the context otherwise
requires, the term:
(1) Assets shall include . . . (iv) the government
institutions themselves, whether as parent or
subsidiary corporations.
(2) Government institutions shall refer to
government-owned or controlled corporations,
financial or otherwise, whether organized by
special charter as in the case of a parent
cooperation, or under general law as in the case
of a subsidiary corporation." (emphasis ours)
Under Section 5 54 of same Proclamation thereof, the Committee
on Privatization is empowered to identify and transfer these
assets for disposition to the private sector.
The allusions to an implied repeal by EO 292 of Section 2 (a and
b) of AO 59 deserves scant consideration. Suffice it to say that,
as respondents pointed out, it would be absurd for an earlier law
to impliedly repeal a subsequent one. 55 In any case, implied
repeal is generally not favored. 56Equally important, there is really
no inconsistency.
Sec. 26 of AO 59 Is
Inapplicable to PNCC
Assuming arguendo that PNCC is a GOCC and not an acquired
asset corporation under AO 59, Section 16 thereof is
inapplicable. First, the GOCC referred to in Section 16 (1) of AO
59 is that which is attached to a department of the executive
branch vis-à-vis the inter-departmental supervision announced in
the said Administrative Order. Here, the President shall appoint
members of the board "upon the recommendation of the
Secretary to whose Department the GOCC is attached." Second,
the GOCC referred to in Section 16 is one with an original
charter, and not one created under general corporation law. This
evident from a reading of Section 16 (2) of AO 59:
(2) Powers and Functions of the Board. — Insofar
as it is not inconsistent with the charter of a given
GOCC, the Board of Directors or equivalent body
shall have the following powers and functions:
xxx xxx xxx (emphasis supplied)
In sum, it is clear that PNCC is an acquired asset corporation
under AO 59. Thus, Section 16 (1) of AO 59 is inapplicable. The
alleged derogation of the President's power over GOCCs is
without basis. We note, at this point, petitioner's admission that
members of the PNCC board of directors are nominated by the
GFIs in proportion to their equity ownership therein. 57 Petitioner's
vacillation in seeking to apply Section 16 (1) of AO 59 while at
same time asserting the invalidity of Section 2 (a and b) thereof
betrays the stark weakness of its position.
One final point. Petitioner is represented in this litigation by
private counsel, not by the government corporate counsel or by
the solicitor general. In fact, the OSG's Memorandum submitted
in representation of SEC debunks the Petition and sides with
respondents. Petitioner should not find it strange then that it is
rightly adjudged as a private corporation subject to regulation by
the SEC, since by its very act of retaining private counsel and by
the government's act of opposing its claims, it is indeed a SEC-
regulated entity.
 Epilogue

Lest the focus of our disposition of this case be lost in the maze
of arguments strewn before us, we stress that PNCC is a
corporation created in accordance with the general corporation
statute. Hence, it is essentially a private corporation,
notwithstanding the government's interest therein through the
debt-to-equity conversion imposed by PD 1295. Being a private
corporation, PNCC is subject to SEC regulation and jurisdiction.

Petitioner contends that Proclamation 50 58 and AO 59 59 limit the
exercise of that jurisdiction. But, after wading into the complex
issues submitted by the parties, we have shown that such laws
and issuances are not applicable to this particular case. We must
emphasize also, and this should be clear to all concerned, that
our ruling here does not in any way affect the factual issue of
whether the government owns a majority of the shares in PNCC.
This matter, as; can be gleaned from the factual narration of the

CA, was not settled below. However, from our painstaking
explanation above, it should be obvious that this issue of fact is
irrelevant to the disposition of the legal issues herein raised. To
repeat, whether PNCC is majority-owned by the government or
not is unimportant since our decision is essentially based on the
verity that PNCC is a private corporation created pursuant to the
general corporation law.

WHEREFORE, the Petition is hereby DENIED. The assailed
Decision and the Resolution of the Court of Appeals are
AFFIRMED. Costs against petitioner.

SO ORDERED.


Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.






 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 191109 July 18, 2012
REPUBLIC OF THE PHILIPPINES, represented by the
PHILIPPINE RECLAMATION AUTHORITY (PRA), Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, on pure questions of
law, assailing the January 8, 2010 Order1 of the Regional
Trial Court, Branch 195, Parafiaque City (RTC), which
ruled that petitioner Philippine Reclamation Authority
(PRA) is a government-owned and controlled corporation
(GOCC), a taxable entity, and, therefore, . not exempt
from payment of real property taxes. The pertinent
portion of the said order reads:
In view of the finding of this court that petitioner is not
exempt from payment of real property taxes, respondent
Parañaque City Treasurer Liberato M. Carabeo did not
act xxx without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack or in excess of
jurisdiction in issuing the warrants of levy on the subject
properties.
WHEREFORE, the instant petition is dismissed. The
Motion for Leave to File and Admit Attached
Supplemental Petition is denied and the supplemental
petition attached thereto is not admitted.
The Public Estates Authority (PEA) is a government
corporation created by virtue of Presidential Decree
(P.D.) No. 1084 (Creating the Public Estates Authority,
Defining its Powers and Functions, Providing Funds
Therefor and For Other Purposes) which took effect on
February 4,
1977 to provide a coordinated, economical and efficient
reclamation of lands, and the administration and
operation of lands belonging to, managed and/or
operated by, the government with the object of
maximizing their utilization and hastening their
development consistent with public interest.
On February 14, 1979, by virtue of Executive Order
(E.O.) No. 525 issued by then President Ferdinand
Marcos, PEA was designated as the agency primarily
responsible for integrating, directing and coordinating all
reclamation projects for and on behalf of the National
Government.
On October 26, 2004, then President Gloria Macapagal-
Arroyo issued E.O. No. 380 transforming PEA into PRA,
which shall perform all the powers and functions of the
PEA relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions
of the foreshore and offshore areas of Manila Bay,
including those located in Parañaque City, and was
issued Original Certificates of Title (OCT Nos. 180, 202,
206, 207, 289, 557, and 559) and Transfer Certificates of
Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and
9686) over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer
Liberato M. Carabeo (Carabeo) issued Warrants of Levy
on PRA’s reclaimed properties (Central Business Park
and Barangay San Dionisio) located in Parañaque City
based on the assessment for delinquent real property
taxes made by then Parañaque City Assessor Soledad
Medina Cue for tax years 2001 and 2002.
On March 26, 2003, PRA filed a petition for prohibition
with prayer for temporary restraining order (TRO) and/or
writ of preliminary injunction against Carabeo before the
RTC.
On April 3, 2003, after due hearing, the RTC issued an
order denying PRA’s petition for the issuance of a
temporary restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting
the latter not to proceed with the public auction of the
subject reclaimed properties on April 7, 2003. In
response, Carabeo sent a letter stating that the public
auction could not be deferred because the RTC had
already denied PRA’s TRO application.
On April 25, 2003, the RTC denied PRA’s prayer for the
issuance of a writ of preliminary injunction for being moot
and academic considering that the auction sale of the
subject properties on April 7, 2003 had already been
consummated.
On August 3, 2009, after an exchange of several
pleadings and the failure of both parties to arrive at a
compromise agreement, PRA filed a Motion for Leave to
File and Admit Attached Supplemental Petition which
sought to declare as null and void the assessment for
real property taxes, the levy based on the said
assessment, the public auction sale conducted on April 7,
2003, and the Certificates of Sale issued pursuant to the
auction sale.
On January 8, 2010, the RTC rendered its decision
dismissing PRA’s petition. In ruling that PRA was not
exempt from payment of real property taxes, the RTC
reasoned out that it was a GOCC under Section 3 of P.D.
No. 1084. It was organized as a stock corporation
because it had an authorized capital stock divided into no
par value shares. In fact, PRA admitted its corporate
personality and that said properties were registered in its
name as shown by the certificates of title. Therefore, as a
GOCC, local tax exemption is withdrawn by virtue of
Section 193 of Republic Act (R.A.) No. 7160 Local
Government Code (LGC) which was the prevailing law in
2001 and 2002 with respect to real property taxation. The
RTC also ruled that the tax exemption claimed by PRA
under E.O. No. 654 had already been expressly repealed
by R.A. No. 7160 and that PRA failed to comply with the
procedural requirements in Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari
assailing the January 8, 2010 RTC Order based on the
following GROUNDS
I stockholders. Therefore, it may not be classified as a
THE TRIAL COURT GRAVELY ERRED IN
FINDING THAT PETITIONER IS LIABLE TO PAY
REAL PROPERTY TAX ON THE SUBJECT
RECLAIMED LANDS CONSIDERING
THAT PETITIONER IS AN INCORPORATED
INSTRUMENTALITY OF THE NATIONAL
GOVERNMENT AND IS, THEREFORE, EXEMPT
FROM PAYMENT OF REAL PROPERTY TAX
UNDER SECTIONS 234(A) AND 133(O) OF
REPUBLIC ACT 7160 OR THE LOCAL
GOVERNMENT CODE VIS-À-VIS MANILA
INTERNATIONAL AIRPORT AUTHORITY V.
COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN
FAILING TO CONSIDER THAT RECLAIMED
LANDS ARE PART OF THE PUBLIC DOMAIN
AND, HENCE, EXEMPT FROM REAL
PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of
the Introductory Provisions of the Administrative Code.
Neither is it a GOCC under Section 16, Article XII of the
1987 Constitution because it is not required to meet the
test of economic viability. Instead, PRA is a government
instrumentality vested with corporate powers and
performing an essential public service pursuant to
Section 2(10) of the Introductory Provisions of the
Administrative Code. Although it has a capital stock
divided into shares, it is not authorized to distribute
dividends and allotment of surplus and profits to its
stock corporation because it lacks the second requisite of
a stock corporation which is the distribution of dividends
and allotment of surplus and profits to the stockholders.
It insists that it may not be classified as a non-stock
corporation because it has no members and it is not
organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like
trade, industry, agriculture and like chambers as provided
in Section 88 of the Corporation Code.
Moreover, PRA points out that it was not created to
compete in the market place as there was no competing
reclamation company operated by the private sector.
Also, while PRA is vested with corporate powers under
P.D. No. 1084, such circumstance does not make it a
corporation but merely an incorporated instrumentality
and that the mere fact that an incorporated
instrumentality of the National Government holds title to
real property does not make said instrumentality a
GOCC. Section 48, Chapter 12, Book I of the
Administrative Code of 1987 recognizes a scenario
where a piece of land owned by the Republic is titled in
the name of a department, agency or instrumentality.
Thus, PRA insists that, as an incorporated instrumentality
of the National Government, it is exempt from payment of
real property tax except when the beneficial use of the
real property is granted to a taxable person. PRA claims
that based on Section 133(o) of the LGC, local
governments cannot tax the national government which
delegate to local governments the power to tax.
granted to or presently enjoyed by all persons, whether
natural or juridical, including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the
payment of real property tax.

It explains that reclaimed lands are part of the public

domain, owned by the State, thus, exempt from the
payment of real estate taxes. Reclaimed lands retain their
oTHE COURT’S RULING

The Court finds merit in the petition.

inherent potential as areas for public use or public
service. While the subject reclaimed lands are still in its Section 2(13) of the Introductory Provisions of the
hands, these lands remain public lands and form part of Administrative Code of 1987 defines a GOCC as follows:
the public domain. Hence, the assessment of real
property taxes made on said lands, as well as the levy
*(13) Government-owned or controlled corporation refers
SEC. 2. General Terms Defined. – x x x x
thereon, and the public sale thereof on April 7, 2003,
including the issuance of the certificates of sale in favor
of the respondent Parañaque City, are invalid and of no
-
to any agency organized as a stock or non-stock
force and effect. corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and
On the other hand, the City of Parañaque (respondent) owned by the Government directly or through its
argues that PRA since its creation consistently instrumentalities either wholly, or, where applicable as in
represented itself to be a GOCC. PRA’s very own charter the case of stock corporations, to the extent of at least
(P.D. No. 1084) declared it to be a GOCC and that it has fifty-one
entered into several thousands of contracts where it
represented itself to be a GOCC. In fact, PRA admitted in (51) percent of its capital stock: x x x.
its original and amended petitions and pre-trial brief filed
with the RTC of Parañaque City that it was a GOCC. On the other hand, Section 2(10) of the Introductory
Provisions of the Administrative Code defines a
Respondent further argues that PRA is a stock government "instrumentality" as follows:
corporation with an authorized capital stock divided into 3
million no par value shares, out of which 2 million shares SEC. 2. General Terms Defined. –– x x x x
have been subscribed and fully paid up. Section 193 of
the LGC of 1991 has withdrawn tax exemption privileges
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. x x x
From the above definitions, it is clear that a GOCC must
be "organized as a stock or non-stock corporation" while
an instrumentality is vested by law with corporate powers.
Likewise, when the law makes a government
instrumentality operationally autonomous, the
instrumentality remains part of the National Government
machinery although not integrated with the department
framework.
When the law vests in a government instrumentality
corporate powers, the instrumentality does not
necessarily become a corporation. Unless the
government instrumentality is organized as a stock or
non-stock corporation, it remains a government
instrumentality exercising not only governmental but also
corporate powers.
Many government instrumentalities are vested with
corporate powers but they do not become stock or non-
stock corporations, which is a necessary condition before
an agency or instrumentality is deemed a GOCC.
Examples are the Mactan International Airport Authority,
the Philippine Ports Authority, the University of the
Philippines, and Bangko Sentral ng Pilipinas. All these
government instrumentalities exercise corporate powers
but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These
government instrumentalities are sometimes loosely
called government corporate entities. They are not,
however, GOCCs in the strict sense as understood under
the Administrative Code, which is the governing law
defining the legal relationship and status of government
entities.2
Correlatively, Section 3 of the Corporation Code defines
-
a stock corporation as one whose "capital stock is divided
into shares and x x x authorized to distribute to the
holders of such shares dividends x x x." Section 87
thereof defines a -non-stock corporation as "one where no
part of its income is distributable as dividends to its
members, trustees or officers." Further, Section 88
provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil
service, or similar purposes, like trade, industry,
agriculture and like chambers."
Two requisites must concur before one may be classified
as a stock corporation, namely: (1) that it has capital
stock divided into shares; and (2) that it is authorized to
distribute dividends and allotments of surplus and profits
to its stockholders. If only one requisite is present, it
cannot be properly classified as a stock corporation. As
for non-stock corporations, they must have members and
must not distribute any part of their income to said
members.3
In the case at bench, PRA is not a GOCC because it is
neither a stock nor a non-stock corporation. It cannot be
considered as a stock corporation because although it
has a capital stock divided into no par value shares as
provided in Section 74 of P.D. No. 1084, it is not
authorized to distribute dividends, surplus allotments or
profits to stockholders. There is no provision whatsoever
in P.D. No. 1084 or in any of the subsequent executive
issuances pertaining to PRA, particularly, E.O. No.
525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA
to distribute dividends, surplus allotments or profits to its
stockholders.
PRA cannot be considered a non-stock corporation either
because it does not have members. A non-stock
corporation must have members.8 Moreover, it was not
organized for any of the purposes mentioned in Section
88 of the Corporation Code. Specifically, it was created to
manage all government reclamation projects.
Furthermore, there is another reason why the PRA
cannot be classified as a GOCC. Section 16, Article XII of
the 1987 Constitution provides as follows:
{
Section 16. The Congress shall not, except by general
law, provide for the formation, organization, or regulation
of private corporations. Government-owned or controlled
corporations may be created or established by special
charters in the interest of the common good and subject
to the test of economic viability.
The fundamental provision above authorizes Congress to
create GOCCs through special charters on two
conditions: 1) the GOCC must be established for the
common good; and 2) the GOCC must meet the test of
economic viability. In this case, PRA may have passed
the first condition of common good but failed the second
one - economic viability. Undoubtedly, the purpose
behind the creation of PRA was not for economic or
commercial activities. Neither was it created to compete
in the market place considering that there were no other
competing reclamation companies being operated by the
private sector. As mentioned earlier, PRA was created
essentially to perform a public service considering that it
was primarily responsible for a coordinated, economical
and efficient reclamation, administration and operation of
lands belonging to the government with the object of
maximizing their utilization and hastening their
development consistent with the public interest. Sections
2 and 4 of P.D. No. 1084 reads, as follows:
Section 2. Declaration of policy. It is the declared policy
of the State to provide for a coordinated, economical and
efficient reclamation of lands, and the administration and
operation of lands belonging to, managed and/or
operated by the government, with the object of
maximizing their utilization and hastening their
development consistent with the public interest.
Section 4. Purposes. The Authority is hereby created for
the following purposes:
(a) To reclaim land, including foreshore and submerged
areas, by dredging, filling or other means, or to acquire
reclaimed land;
 (b) To develop, improve, acquire, administer, deal in,
subdivide, dispose, lease and sell any and all kinds of
lands, buildings, estates and other forms of real property,
owned, managed, controlled and/or operated by the
government.
(c) To provide for, operate or administer such services as
may be necessary for the efficient, economical and
beneficial utilization of the above properties.
The twin requirement of common good and economic
viability was lengthily discussed in the case of Manila
International Airport Authority v. Court of Appeals,9 the
pertinent portion of which reads:
Third, the government-owned or controlled corporations
created through special charters are those that meet the
two conditions prescribed in Section 16, Article XII of the
Constitution.
The first condition is that the government-owned or
controlled corporation must be established for the
common good. The second condition is that the
government-owned or controlled corporation must meet
the test of economic viability. Section 16, Article XII of the
1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law,
provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled
corporations may be created or established by special
charters in the interest of the common good and subject
to the test of economic viability.
The Constitution expressly authorizes the legislature to
create "government-owned or controlled corporations"
through special charters only if these entities are required
to meet the twin conditions of common good and
economic viability. In other words, Congress has no
power to create government-owned or controlled
corporations with special charters unless they are made
to comply with the two conditions of common good and
economic viability. The test of economic viability applies
only to government-owned or controlled corporations that
perform economic or commercial activities and need to
compete in the market place. Being essentially economic
vehicles of the State for the common good — meaning
for economic development purposes — these
government-owned or controlled corporations with
special charters are usually organized as stock
corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with
corporate powers and performing governmental or public
functions need not meet the test of economic viability.
These instrumentalities perform essential public services
for the common good, services that every modern State
must provide its citizens. These instrumentalities need
not be economically viable since the government may
even subsidize their entire operations. These
instrumentalities are not the "government-owned or
controlled corporations" referred to in Section 16, Article
XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the
legislature creates government instrumentalities vested
with corporate powers but performing essential
governmental or public functions. Congress has plenary
authority to create government instrumentalities vested
with corporate powers provided these instrumentalities
perform essential government functions or public
services. However, when the legislature creates through
special charters corporations that perform economic or
commercial activities, such entities — known as
"government-owned or controlled corporations" — must
meet the test of economic viability because they compete
in the market place.
This is the situation of the Land Bank of the Philippines
and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which
derive their incometo meet operating expenses solely
from commercial transactions in competition with the
private sector. The intent of the Constitution is to prevent
the creation of government-owned or controlled
corporations that cannot survive on their own in the
market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of
economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this
concern is really that when the government creates a
corporation, there is a sense in which this corporation
becomes exempt from the test of economic performance.
We know what happened in the past. If a government
corporation loses, then it makes its claim upon the
taxpayers' money through new equity infusions from the
government and what is always invoked is the common
good. That is the reason why this year, out of a budget of
P115 billion for the entire government, about P28 billion
of this will go into equity infusions to support a few
government financial institutions. And this is all taxpayers'
money which could have been relocated to agrarian
reform, to social services like health and education, to
augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC
VIABILITY" together with the "common good," this
becomes a restraint on future enthusiasts for state
capitalism to excuse themselves from the responsibility of
meeting the market test so that they become viable. And
so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the
standard of "ECONOMIC VIABILITY OR THE
ECONOMIC TEST," together with the common good. 1âwphi1
Father Joaquin G. Bernas, a leading member of the
Constitutional Commission, explains in his textbook The
1987 Constitution of the Republic of the Philippines: A
Commentary:
The second sentence was added by the 1986
Constitutional Commission. The significant addition,
however, is the phrase "in the interest of the common
good and subject to the test of economic viability." The
addition includes the ideas that they must show capacity
to function efficiently in business and that they should not
go into activities which the private sector can do better.
Moreover, economic viability is more than financial
viability but also includes capability to make profit and
generate benefits not quantifiable in financial terms.
Clearly, the test of economic viability does not apply to
government entities vested with corporate powers and
performing essential public services. The State is
obligated to render essential public services regardless of
the economic viability of providing such service. The non-
economic viability of rendering such essential public
service does not excuse the State from withholding such
essential services from the public.
However, government-owned or controlled corporations
with special charters, organized essentially for economic
or commercial objectives, must meet the test of economic
viability. These are the government-owned or controlled
corporations that are usually organized under their
special charters as stock corporations, like the Land Bank
of the Philippines and the Development Bank of the
Philippines. These are the government-owned or
controlled corporations, along with government-owned or
controlled corporations organized under the Corporation
Code, that fall under the definition of "government-owned
or controlled corporations" in Section 2(10) of the
Administrative Code. [Emphases supplied]
This Court is convinced that PRA is not a GOCC either
under Section 2(3) of the Introductory Provisions of the
Administrative Code or under Section 16, Article XII of
the 1987 Constitution. The facts, the evidence on record
and jurisprudence on the issue support the position that
PRA was not organized either as a stock or a non-stock
corporation. Neither was it created by Congress to
operate commercially and compete in the private market.
Instead, PRA is a government instrumentality vested with
corporate powers and performing an essential public
service pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. Being an
incorporated government instrumentality, it is exempt
from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing
the subject reclaimed lands managed by PRA. On the
other hand, Section 234(a) of the LGC, in relation to its
Section 133(o), exempts PRA from paying realty taxes
and protects it from the taxing powers of local
government units.
Sections 234(a) and 133(o) of the LGC provide, as
follows:
SEC. 234. Exemptions from Real Property Tax – The
following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by
the Republic of the Philippines (the Republic) is exempt
from real property tax unless the beneficial use thereof
has been granted to a taxable person. In this case, there
is no proof that PRA granted the beneficial use of the
subject reclaimed lands to a taxable entity. There is no
showing on record either that PRA leased the subject
reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section
133(o) of the same Code, which prohibits local
governments from imposing "taxes, fees or charges of
any kind on the National Government, its agencies and
instrumentalities x x x." The Administrative Code allows
real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national
government. Such real properties remain owned by the
Republic and continue to be exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real
property to an agency or instrumentality of the national
government. This happens when the title of the real
property is transferred to an agency or instrumentality
even as the Republic remains the owner of the real
property. Such arrangement does not result in the loss of
the tax exemption, unless "the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable
person."10
The rationale behind Section 133(o) has also been
explained in the case of the Manila International Airport
Authority,11 to wit:
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local
governments may only exercise such power "subject to
such guidelines and limitations as the Congress may
provide."
When local governments invoke the power to tax on
national government instrumentalities, such power is
construed strictly against local governments. The rule is
that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether
a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local
governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed
against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national
government instrumentality from local taxation, such
exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in
Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of
exemptions running to the benefit of the government itself
or its agencies. In such case the practical effect of an
exemption is merely to reduce the amount of money that
has to be handled by government in the course of its
operations. For these reasons, provisions granting
exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local
governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds
from one government pocket to another.
There is also no reason for local governments to tax
national government instrumentalities for rendering
essential public services to inhabitants of local
governments. The only exception is when the legislature
clearly intended to tax government instrumentalities for
the delivery of essential public services for sound and
compelling policy considerations. There must be express
language in the law empowering local governments to tax
national government instrumentalities. Any doubt whether
such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states
that "unless otherwise provided" in the Code, local
governments cannot tax national government
instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to
retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal
government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L
Ed. 579)
This doctrine emanates from the "supremacy" of the
National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of
the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state
or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140,
emphasis supplied)
Otherwise, mere creatures of the State can defeat
National policies thru extermination of what local
authorities may perceive to be undesirable activities or
enterprise using the power to tax as "a tool for
regulation." (U.S. v. Sanchez, 340 US 42)
The power to tax which was called by Justice Marshall as
the "power to destroy" (McCulloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation
of the very entity which has the inherent power to wield it.
[Emphases supplied]
The Court agrees with PRA that the subject reclaimed
lands are still part of the public domain, owned by the
State and, therefore, exempt from payment of real estate
taxes.
Section 2, Article XII of the 1987 Constitution reads in
part, as follows:
Section 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 60 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 provided by
law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of
waterpower, beneficial use may be the measure and limit
of the grant.
Similarly, Article 420 of the Civil Code enumerates
properties belonging to the State:
Art. 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for
public use, and are intended for some public service or for
the development of the national wealth. [Emphases
supplied]
Here, the subject lands are reclaimed lands, specifically
portions of the foreshore and offshore areas of Manila
Bay. As such, these lands remain public lands and form
part of the public domain. In the case of Chavez v. Public
Estates Authority and AMARI Coastal Development
Corporation,12 the Court held that foreshore and
submerged areas irrefutably belonged to the public
domain and were inalienable unless reclaimed, classified
as alienable lands open to disposition and further
declared no longer needed for public service. The fact
that alienable lands of the public domain were transferred
to the PEA (now PRA) and issued land patents or
certificates of title in PEA’s name did not automatically
make such lands private. This Court also held therein that
reclaimed lands retained their inherent potential as areas
for public use or public service.
As the central implementing agency tasked to undertake
reclamation projects nationwide, with authority to sell
reclaimed lands, PEA took the place of DENR as the
government agency charged with leasing or selling
reclaimed lands of the public domain. The reclaimed
lands being leased or sold by PEA are not private lands,
in the same manner that DENR, when it disposes of other
alienable lands, does not dispose of private lands but
alienable lands of the public domain. Only when qualified
private parties acquire these lands will the lands become
private lands. In the hands of the government agency
tasked and authorized to dispose of alienable of
disposable lands of the public domain, these lands are
still public, not private lands.
Furthermore, PEA's charter expressly states that PEA
"shall hold lands of the public domain" as well as "any
and all kinds of lands." PEA can hold both lands of the
public domain and private lands. Thus, the mere fact that
alienable lands of the public domain like the Freedom
Islands are transferred to PEA and issued land patents or
certificates of title in PEA's name does not automatically
make such lands private.13
Likewise, it is worthy to mention Section 14, Chapter 4,
Title I, Book III of the Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and
Private Dominion of the Government.-
(1)The President shall have the power to reserve for
settlement or public use, and for specific public purposes,
any of the lands of the public domain, the use of which is
not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose
indicated until otherwise provided by law or proclamation.
Reclaimed lands such as the subject lands in issue are
reserved lands for public use. They are properties of
public dominion. The ownership of such lands remains
with the State unless they are withdrawn by law or
presidential proclamation from public use.
Under Section 2, Article XII of the 1987 Constitution, the
foreshore and submerged areas of Manila Bay are part of
the "lands of the public domain, waters x x x and other
natural resources" and consequently "owned by the
State." As such, foreshore and submerged areas "shall
not be alienated," unless they are classified as
"agricultural lands" of the public domain. The mere
reclamation of these areas by PEA does not convert
these inalienable natural resources of the State into
alienable or disposable lands of the public domain. There
must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable or
disposable and open to disposition or concession.
Moreover, these reclaimed lands cannot be classified as
alienable or disposable if the law has reserved them for
some public or quasi-public use.
As the Court has repeatedly ruled, properties of public
dominion are not subject to execution or foreclosure
sale.14 Thus, the assessment, levy and foreclosure made
on the subject reclaimed lands by respondent, as well as
the issuances of certificates of title in favor of respondent,
are without basis.
WHEREFORE, the petition is GRANTED. The January 8,
2010 Order of the Regional Trial Court, Branch 195,
Parañaque City, is REVERSED and SET ASIDE. All
reclaimed properties owned by the Philippine
Reclamation Authority are hereby declared EXEMPT
from real estate taxes. All real estate tax assessments,
including the final notices of real estate tax delinquencies,
issued by the City of Parañaque on the subject reclaimed
properties; the assailed auction sale, dated April 7, 2003;
and the Certificates of Sale subsequently issued by the
Parañaque City Treasurer in favor of the City of
Parañaque, are all declared VOID.

SO ORDERED.


JOSE CATRLA MENDOZA

Associate justice







































G.R. No. 155650 July 20, 2006 any other mode unless specifically approved by the
President of the Philippines.5
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs. On 21 March 1997, the Office of the Government
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR
Corporate Counsel (OGCC) issued Opinion No. 061. The
OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG
PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY OGCC opined that the Local Government Code of 1991
TREASURER OF PARAÑAQUE, respondents. withdrew the exemption from real estate tax granted to
MIAA under Section 21 of the MIAA Charter. Thus, MIAA
DECISION negotiated with respondent City of Parañaque to pay the
real estate tax imposed by the City. MIAA then paid some
CARPIO, J.: of the real estate tax already due.

The Antecedents On 28 June 2001, MIAA received Final Notices of Real

Estate Tax Delinquency from the City of Parañaque for
Petitioner Manila International Airport Authority (MIAA) the taxable years 1992 to 2001. MIAA's real estate tax
operates the Ninoy Aquino International Airport (NAIA) delinquency is broken down as follows:
Complex in Parañaque City under Executive Order No.
903, otherwise known as the Revised Charter of the TAX TAXABLE
Manila International Airport Authority ("MIAA Charter"). TAX DUE PENALTY
DECLARATION YEAR
Executive Order No. 903 was issued on 21 July 1983 by E-016-01370 1992-2001 19,558,160.00 11,201,083.20
then President Ferdinand E. Marcos. Subsequently,
E-016-01374 1992-2001 111,689,424.90 68,149,479.59
Executive Order Nos. 9091 and 2982 amended the MIAA
Charter. E-016-01375 1992-2001 20,276,058.00 12,371,832.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00
As operator of the international airport, MIAA administers E-016-01377 1992-2001 18,134,614.65 11,065,188.59
the land, improvements and equipment within the NAIA
E-016-01378 1992-2001 111,107,950.40 67,794,681.59
Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,3 including the E-016-01379 1992-2001 4,322,340.00 2,637,360.00
runways and buildings ("Airport Lands and Buildings") E-016-01380 1992-2001 7,776,436.00 4,744,944.00
then under the Bureau of Air Transportation.4 The MIAA *E-016-013-85 1998-2001 6,444,810.00 2,900,164.50
Charter further provides that no portion of the land
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00
transferred to MIAA shall be disposed of through sale or
*E-016-01396 1998-2001 75,240.00 33,858.00
 GRAND TOTAL
P392,435,861.95 P232,070,863.47
1992-1997 RPT was paid on Dec. 24, 1997 as per
O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City
Treasurer, issued notices of levy and warrants of levy on
the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the Airport
Lands and Buildings should MIAA fail to pay the real
estate tax delinquency. MIAA thus sought a clarification
of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147
clarifying OGCC Opinion No. 061. The OGCC pointed out
that Section 206 of the Local Government Code requires
persons exempt from real estate tax to show proof of
exemption. The OGCC opined that Section 21 of the
MIAA Charter is the proof that MIAA is exempt from real
estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals
an original petition for prohibition and injunction, with
prayer for preliminary injunction or temporary restraining
order. The petition sought to restrain the City of
Parañaque from imposing real estate tax on, levying
against, and auctioning for public sale the Airport Lands
and Buildings. The petition was docketed as CA-G.R. SP
No. 66878.
On 5 October
2001, the Court of Appeals dismissed the
P624,506,725.42
petition because MIAA filed it beyond the 60-day
reglementary period. The Court of Appeals also denied
on 27 September 2002 MIAA's motion for reconsideration
and supplemental motion for reconsideration. Hence,
MIAA filed on 5 December 2002 the present petition for
review.7
Meanwhile, in January 2003, the City of Parañaque
posted notices of auction sale at the Barangay Halls of
Barangays Vitalez, Sto. Niño, and Tambo, Parañaque
City; in the public market of Barangay La Huerta; and in
the main lobby of the Parañaque City Hall. The City of
Parañaque published the notices in the 3 and 10 January
2003 issues of the Philippine Daily Inquirer, a newspaper
of general circulation in the Philippines. The notices
announced the public auction sale of the Airport Lands
and Buildings to the highest bidder on 7 February 2003,
10:00 a.m., at the Legislative Session Hall Building of
Parañaque City.
A day before the public auction, or on 6 February 2003,
at 5:10 p.m., MIAA filed before this Court an Urgent Ex-
Parte and Reiteratory Motion for the Issuance of a
Temporary Restraining Order. The motion sought to
restrain respondents — the City of Parañaque, City
Mayor of Parañaque, Sangguniang Panglungsod ng
Parañaque, City Treasurer of Parañaque, and the City
Assessor of Parañaque ("respondents") — from
auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary
restraining order (TRO) effective immediately. The Court
ordered respondents to cease and desist from selling at
public auction the Airport Lands and Buildings.
Respondents received the TRO on the same day that the
Court issued it. However, respondents received the TRO
only at 1:25 p.m. or three hours after the conclusion of
the public auction.
On 10 February 2003, this Court issued a Resolution
confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral
arguments. In compliance with the directive issued during
the hearing, MIAA, respondent City of Parañaque, and
the Solicitor General subsequently submitted their
respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to
the Airport Lands and Buildings in the name of MIAA.
However, MIAA points out that it cannot claim ownership
over these properties since the real owner of the Airport
Lands and Buildings is the Republic of the Philippines.
The MIAA Charter mandates MIAA to devote the Airport
Lands and Buildings for the benefit of the general public.
Since the Airport Lands and Buildings are devoted to
public use and public service, the ownership of these
properties remains with the State. The Airport Lands and
Buildings are thus inalienable and are not subject to real
estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter
specifically exempts MIAA from the payment of real
estate tax. MIAA insists that it is also exempt from real
estate tax under Section 234 of the Local Government
Code because the Airport Lands and Buildings are
owned by the Republic. To justify the exemption, MIAA
invokes the principle that the government cannot tax
itself. MIAA points out that the reason for tax exemption
of public property is that its taxation would not inure to
any public advantage, since in such a case the tax debtor
is also the tax creditor.
Respondents invoke Section 193 of the Local
Government Code, which expressly withdrew the tax
exemption privileges of "government-owned and-
controlled corporations" upon the effectivity of the
Local Government Code. Respondents also argue that a
basic rule of statutory construction is that the express
mention of one person, thing, or act excludes all others.
An international airport is not among the exceptions
mentioned in Section 193 of the Local Government Code.
Thus, respondents assert that MIAA cannot claim that the
Airport Lands and Buildings are exempt from real estate
tax.
Respondents also cite the ruling of this Court in Mactan
International Airport v. Marcos8 where we held that the
Local Government Code has withdrawn the exemption
from real estate tax granted to international airports.
Respondents further argue that since MIAA has already
paid some of the real estate tax assessments, it is now
estopped from claiming that the Airport Lands and
Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the
Airport Lands and Buildings of MIAA are exempt from
real estate tax under existing laws. If so exempt, then the
real estate tax assessments issued by the City of
Parañaque, and all proceedings taken pursuant to such
assessments, are void. In such event, the other issues
raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are
exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled
corporation but an instrumentality of the National
Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned
by the Republic of the Philippines and thus exempt from
real estate tax.
1. MIAA is Not a Government-Owned or Controlled
Corporation
Respondents argue that MIAA, being a government-
owned or controlled corporation, is not exempt from real
estate tax. Respondents claim that the deletion of the
phrase "any government-owned or controlled so exempt
by its charter" in Section 234(e) of the Local Government
Code withdrew the real estate tax exemption of
government-owned or controlled corporations. The
deleted phrase appeared in Section 40(a) of the 1974
Real Property Tax Code enumerating the entities exempt
from real estate tax.
There is no dispute that a government-owned or
controlled corporation is not exempt from real estate tax.
However, MIAA is not a government-owned or controlled
corporation. Section 2(13) of the Introductory Provisions
of the Administrative Code of 1987 defines a
government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers
to any agency organized as a stock or non-stock
corporation, vested with functions relating to public
needs whether governmental or proprietary in nature, and
owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: x x x. (Emphasis
supplied)
A government-owned or controlled corporation must be
"organized as a stock or non-stock corporation."
MIAA is not organized as a stock or non-stock
corporation. MIAA is not a stock corporation because it
has no capital stock divided into shares. MIAA has no
stockholders or voting shares. Section 10 of the MIAA
Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be
contributed by the National Government shall be
increased from Two and One-half Billion
(P2,500,000,000.00) Pesos to Ten Billion
(P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities,
runways and equipment and such other properties,
movable and immovable[,] which may be contributed by
 the National Government or transferred by it from any of
its agencies, the valuation of which shall be determined
jointly with the Department of Budget and Management
and the Commission on Audit on the date of such
contribution or transfer after making due allowances for
depreciation and other deductions taking into account the
loans and other liabilities of the Authority at the time of the
takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31,
1986 representing about seventy percentum (70%) of the
unremitted share of the National Government from 1983
to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E. O. No. 903 as amended,
shall be converted into the equity of the National
Government in the Authority. Thereafter, the Government
contribution to the capital of the Authority shall be
provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital
stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock
corporation as one whose "capital stock is divided into
shares and x x x authorized to distribute to the
holders of such shares dividends x x x." MIAA has
capital but it is not divided into shares of stock. MIAA has
no stockholders or voting shares. Hence, MIAA is not a
stock corporation.
MIAA is also not a non-stock corporation because it has
no members. Section 87 of the Corporation Code defines
a non-stock corporation as "one where no part of its
income is distributable as dividends to its members,
trustees or officers." A non-stock corporation must have
members. Even if we assume that the Government is
considered as the sole member of MIAA, this will not
make MIAA a non-stock corporation. Non-stock
corporations cannot distribute any part of their income to
their members. Section 11 of the MIAA Charter mandates
MIAA to remit 20% of its annual gross operating income
to the National Treasury.11 This prevents MIAA from
qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-
stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers." MIAA
is not organized for any of these purposes. MIAA, a
public utility, is organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock
corporation, MIAA does not qualify as a government-
owned or controlled corporation. What then is the legal
status of MIAA within the National Government?
MIAA is a government instrumentality vested with
corporate powers to perform efficiently its governmental
functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested
with corporate powers. Section 2(10) of the Introductory
Provisions of the Administrative Code defines a
government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
 (10) Instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis
supplied)
When the law vests in a government instrumentality
corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains
a government instrumentality exercising not only
governmental but also corporate powers. Thus, MIAA
exercises the governmental powers of eminent
domain,12 police authority13 and the levying of fees and
charges.14 At the same time, MIAA exercises "all the
powers of a corporation under the Corporation Law,
insofar as these powers are not inconsistent with the
provisions of this Executive Order."15
Likewise, when the law makes a government
instrumentality operationally autonomous, the
instrumentality remains part of the National Government
machinery although not integrated with the department
framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous
body"16 will make its operation more "financially viable."17
Many government instrumentalities are vested with
corporate powers but they do not become stock or non-
stock corporations, which is a necessary condition before
an agency or instrumentality is deemed a government-
owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine
Ports Authority, the University of the Philippines
and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are
not organized as stock or non-stock corporations as
required by Section 2(13) of the Introductory Provisions
of the Administrative Code. These government
instrumentalities are sometimes loosely called
government corporate entities. However, they are not
government-owned or controlled corporations in the strict
sense as understood under the Administrative Code,
which is the governing law defining the legal relationship
and status of government entities.
A government instrumentality like MIAA falls under
Section 133(o) of the Local Government Code, which
states:
SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities and
local government units.(Emphasis and underscoring
supplied)
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local
governments may only exercise such power "subject to
such guidelines and limitations as the Congress may
provide."18
When local governments invoke the power to tax on
national government instrumentalities, such power is
construed strictly against local governments. The rule is
that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether
a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local
governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed
against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national
government instrumentality from local taxation, such
exemption is construed liberally in favor of the national
government instrumentality. As this Court declared
in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of
exemptions running to the benefit of the government itself
or its agencies. In such case the practical effect of an
exemption is merely to reduce the amount of money that
has to be handled by government in the course of its
operations. For these reasons, provisions granting
exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local
governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds
from one government pocket to another.
There is also no reason for local governments to tax
national government instrumentalities for rendering
essential public services to inhabitants of local
governments. The only exception is when the
legislature clearly intended to tax government
instrumentalities for the delivery of essential public
services for sound and compelling policy
considerations. There must be express language in the
law empowering local governments to tax national
government instrumentalities. Any doubt whether such
power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states
that "unless otherwise provided" in the Code, local
governments cannot tax national government
instrumentalities. As this Court held in Basco v.
Philippine Amusements and Gaming Corporation:
The states have no power by taxation or
otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws
enacted by Congress to carry into execution the
powers vested in the federal government. (MC
Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the
National Government over local governments.
"Justice Holmes, speaking for the Supreme Court,
made reference to the entire absence of power on
the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the
 United States (Johnson v. Maryland, 254 US 51)
and it can be agreed that no state or political
subdivision can regulate a federal instrumentality
in such a way as to prevent it from consummating
its federal responsibilities, or even to seriously
burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p.
140, emphasis supplied)
Otherwise, mere creatures of the State can defeat
National policies thru extermination of what local
authorities may perceive to be undesirable activities or
enterprise using the power to tax as "a tool for regulation"
(U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as
the "power to destroy" (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation
of the very entity which has the inherent power to wield
it. 20
2. Airport Lands and Buildings of MIAA are Owned by the
Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property
of public dominion and therefore owned by the State
or the Republic of the Philippines. The Civil Code
provides:
ARTICLE 419. Property is either of public dominion or of
private ownership.
ARTICLE 420. The following things are property of
public dominion:
(1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others of
similar character;
(2) Those which belong to the State, without being for
public use, and are intended for some public service or for
the development of the national wealth. (Emphasis
supplied)
ARTICLE 421. All other property of the State, which is not
of the character stated in the preceding article, is
patrimonial property.
ARTICLE 422. Property of public dominion, when no
longer intended for public use or for public service, shall
form part of the patrimonial property of the State.
No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like "roads,
canals, rivers, torrents, ports and bridges
constructed by the State," are owned by the State. The
term "ports" includes seaports and airports. The
MIAA Airport Lands and Buildings constitute a "port"
constructed by the State. Under Article 420 of the Civil
Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the
State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public
use because they are used by the public for
international and domestic travel and transportation.
The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of
the Airport Lands and Buildings as properties for public
use. The operation by the government of a tollway does
not change the character of the road as one for public
use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the
government, or only those among the public who actually
use the road through the toll fees they pay upon using the
road. The tollway system is even a more efficient and
equitable manner of taxing the public for the maintenance
of public roads.
The charging of fees to the public does not determine the
character of the property whether it is of public dominion
or not. Article 420 of the Civil Code defines property of
public dominion as one "intended for public use." Even if
the government collects toll fees, the road is still
"intended for public use" if anyone can use the road
under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of
vehicles that can use the road, the speed restrictions and
other conditions for the use of the road do not affect the
public character of the road.
The terminal fees MIAA charges to passengers, as well
as the landing fees MIAA charges to airlines, constitute
the bulk of the income that maintains the operations of
MIAA. The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees
are often termed user's tax. This means taxing those
among the public who actually use a public facility
instead of taxing all the public including those who never
use the particular public facility. A user's tax is more
equitable — a principle of taxation mandated in the 1987
Constitution.21
The Airport Lands and Buildings of MIAA, which its
Charter calls the "principal airport of the Philippines for
both international and domestic air traffic,"22 are
properties of public dominion because they are intended
for public use. As properties of public dominion, they
indisputably belong to the State or the Republic of
the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of
Man
The Airport Lands and Buildings of MIAA are devoted to
public use and thus are properties of public dominion. As
properties of public dominion, the Airport Lands and
Buildings are outside the commerce of man. The
Court has ruled repeatedly that properties of public
dominion are outside the commerce of man. As early as
1915, this Court already ruled in Municipality of Cavite
v. Rojas that properties devoted to public use are outside
the commerce of man, thus:
According to article 344 of the Civil Code: "Property for
public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains,
and public waters, the promenades, and public works of
general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public
use, the municipal council of Cavite could not in 1907
withdraw or exclude from public use a portion thereof in
order to lease it for the sole benefit of the defendant
Hilaria Rojas. In leasing a portion of said plaza or public
place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its
 powers by executing a contract over a thing of which it
could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything
which is not outside the commerce of man may be the
object of a contract, and plazas and streets are outside
of this commerce, as was decided by the supreme court
of Spain in its decision of February 12, 1895, which says:
"Communal things that cannot be sold because they
are by their very nature outside of commerce are
those for public use, such as the plazas, streets,
common lands, rivers, fountains, etc." (Emphasis
supplied) 23
Again in Espiritu v. Municipal Council, the Court
declared that properties of public dominion are outside
the commerce of man:
xxx Town plazas are properties of public dominion, to
be devoted to public use and to be made available to the
public in general. They are outside the commerce of
man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or
during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as
was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use
must also cease, and the town officials should see to it
that the town plazas should ever be kept open to the
public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion,
being outside the commerce of man, cannot be the
subject of an auction sale.25
Properties of public dominion, being for public use, are
not subject to levy, encumbrance or disposition through
public or private sale. Any encumbrance, levy on
execution or auction sale of any property of public
dominion is void for being contrary to public policy.
Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of Parañaque
can foreclose and compel the auction sale of the 600-
hectare runway of the MIAA for non-payment of real
estate tax.
Before MIAA can encumber26 the Airport Lands and
Buildings, the President must first withdraw from public
use the Airport Lands and Buildings. Sections 83 and 88
of the Public Land Law or Commonwealth Act No. 141,
which "remains to this day the existing general law
governing the classification and disposition of lands of the
public domain other than timber and mineral
lands,"27provide:
SECTION 83. Upon the recommendation of the Secretary
of Agriculture and Natural Resources, the President may
designate by proclamation any tract or tracts of land of the
public domain as reservations for the use of the Republic
of the Philippines or of any of its branches, or of the
inhabitants thereof, in accordance with regulations
prescribed for this purposes, or for quasi-public uses or
purposes when the public interest requires it, including
reservations for highways, rights of way for railroads,
hydraulic power sites, irrigation systems, communal
pastures or lequas communales, public parks, public
quarries, public fishponds, working men's village and
other improvements for the public benefit.
 SECTION 88. The tract or tracts of land reserved
under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to
occupation, entry, sale, lease, or other disposition
until again declared alienable under the provisions of
this Act or by proclamation of the President.
(Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation
withdrawing the Airport Lands and Buildings from public
use, these properties remain properties of public
dominion and are inalienable. Since the Airport Lands
and Buildings are inalienable in their present status as
properties of public dominion, they are not subject to levy
on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their
ownership remains with the State or the Republic of the
Philippines.
The authority of the President to reserve lands of the
public domain for public use, and to withdraw such public
use, is reiterated in Section 14, Chapter 4, Title I, Book III
of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and
Private Domain of the Government. — (1) The President
shall have the power to reserve for settlement or
public use, and for specific public purposes, any of
the lands of the public domain, the use of which is
not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public
purpose indicated until otherwise provided by law or
proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport
Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of
public dominion, owned by the Republic and outside the
commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and
Buildings in trust for the Republic. Section 48, Chapter
12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real
properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. —
Whenever real property of the Government is authorized
by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the
Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another
officer.
(2) For property belonging to the Republic of the
Philippines but titled in the name of any political
subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport
Lands and Buildings is clearer because even its
executive head cannot sign the deed of conveyance on
behalf of the Republic. Only the President of the Republic
can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a
Reorganization
The MIAA Charter, which is a law, transferred to MIAA
the title to the Airport Lands and Buildings from the
Bureau of Air Transportation of the Department of
Transportation and Communications. The MIAA Charter
provides:
SECTION 3. Creation of the Manila International Airport
Authority. — x x x x
The land where the Airport is presently located as
well as the surrounding land area of approximately
six hundred hectares, are hereby transferred,
conveyed and assigned to the ownership and
administration of the Authority, subject to existing
rights, if any. The Bureau of Lands and other appropriate
government agencies shall undertake an actual survey of
the area transferred within one year from the
promulgation of this Executive Order and the
corresponding title to be issued in the name of the
Authority. Any portion thereof shall not be disposed
through sale or through any other mode unless
specifically approved by the President of the
Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible
Assets. — All existing public airport facilities, runways,
lands, buildings and other property, movable or
immovable, belonging to the Airport, and all assets,
powers, rights, interests and privileges belonging to the
Bureau of Air Transportation relating to airport works or
air operations, including all equipment which are
necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority.
(Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport
as a Division in the Bureau of Air Transportation and
Transitory Provisions. — The Manila International Airport
including the Manila Domestic Airport as a division under
the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and
Buildings to MIAA without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock
corporation.
The whereas clauses of the MIAA Charter explain the
rationale for the transfer of the Airport Lands and
Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the
principal airport of the Philippines for both international
and domestic air traffic, is required to provide standards of
airport accommodation and service comparable with the
best airports in the world;
WHEREAS, domestic and other terminals, general
aviation and other facilities, have to be upgraded to meet
the current and future air traffic and other demands of
aviation in Metro Manila;
WHEREAS, a management and organization study has
indicated that the objectives of providing high
standards of accommodation and service within the
context of a financially viable operation, will best be
achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as
amended by Presidential Decree No. 1772, the President
 of the Philippines is given continuing authority to Airport Lands and Buildings. This only confirms that the
reorganize the National Government, which authority Airport Lands and Buildings belong to the Republic.
includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis
e. Real Property Owned by the Republic is Not Taxable
supplied)
Section 234(a) of the Local Government Code exempts
The transfer of the Airport Lands and Buildings from the
from real estate tax any "[r]eal property owned by the
Bureau of Air Transportation to MIAA was not meant to
Republic of the Philippines." Section 234(a) provides:
transfer beneficial ownership of these assets from the
Republic to MIAA. The purpose was merely SEC. 234. Exemptions from Real Property Tax. — The
to reorganize a division in the Bureau of Air following are exempted from payment of the real
Transportation into a separate and autonomous property tax:
body. The Republic remains the beneficial owner of the
Airport Lands and Buildings. MIAA itself is owned solely (a) Real property owned by the Republic of the
by the Republic. No party claims any ownership rights Philippines or any of its political subdivisions except
over MIAA's assets adverse to the Republic. when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
The MIAA Charter expressly provides that the Airport
Lands and Buildings "shall not be disposed through x x x. (Emphasis supplied)
sale or through any other mode unless specifically
This exemption should be read in relation with Section
approved by the President of the Philippines." This
133(o) of the same Code, which prohibits local
only means that the Republic retained the beneficial
governments from imposing "[t]axes, fees or charges of
ownership of the Airport Lands and Buildings because
any kind on the National Government, its agencies
under Article 428 of the Civil Code, only the "owner has
and instrumentalities x x x." The real properties owned
the right to x x x dispose of a thing." Since MIAA cannot
by the Republic are titled either in the name of the
dispose of the Airport Lands and Buildings, MIAA does
Republic itself or in the name of agencies or
not own the Airport Lands and Buildings.
instrumentalities of the National Government. The
Administrative Code allows real property owned by the
At any time, the President can transfer back to the
Republic to be titled in the name of agencies or
Republic title to the Airport Lands and Buildings without
instrumentalities of the national government. Such real
the Republic paying MIAA any consideration. Under
properties remain owned by the Republic and continue to
Section 3 of the MIAA Charter, the President is the only
be exempt from real estate tax.
one who can authorize the sale or disposition of the
The Republic may grant the beneficial use of its real
property to an agency or instrumentality of the national
government. This happens when title of the real property
is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local Government
Code states that real property owned by the Republic
loses its tax exemption only if the "beneficial use thereof
has been granted, for consideration or otherwise, to
a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section
133(o) of the Local Government Code. Thus, even if we
assume that the Republic has granted to MIAA the
beneficial use of the Airport Lands and Buildings, such
fact does not make these real properties subject to real
estate tax.
However, portions of the Airport Lands and Buildings that
MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by
hangars that MIAA leases to private corporations is
subject to real estate tax. In such a case, MIAA has
granted the beneficial use of such land area for a
consideration to a taxable person and therefore such
land area is subject to real estate tax. In Lung Center of
the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased
to private entities as well as those parts of the hospital
leased to private individuals are not exempt from such
taxes. On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used
for its patients, whether paying or non-paying, are exempt
from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from
real estate tax because Section 193 of the Local
Government Code of 1991 withdrew the tax exemption of
"all persons, whether natural or juridical" upon the
effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption
Privileges – Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations,
except local water districts, cooperatives duly registered
under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions are hereby withdrawn upon
effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical
person. The minority argues that since the Local
Government Code withdrew the tax exemption of all
juridical persons, then MIAA is not exempt from real
estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local
Government Code that the withdrawn exemptions
from realty tax cover not just GOCCs, but all persons.
To repeat, the provisions lay down the explicit proposition
that the withdrawal of realty tax exemption applies to all
persons. The reference to or the inclusion of GOCCs is
only clarificatory or illustrative of the explicit provision.
 The term "All persons" encompasses the two classes
of persons recognized under our laws, natural and
juridical persons. Obviously, MIAA is not a natural
person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in
the original)
The minority posits that the "determinative test" whether
MIAA is exempt from local taxation is its status —
whether MIAA is a juridical person or not. The minority
also insists that "Sections 193 and 234 may be examined
in isolation from Section 133(o) to ascertain MIAA's claim
of exemption."
The argument of the minority is fatally flawed. Section
193 of the Local Government Code expressly withdrew
the tax exemption of all juridical persons "[u]nless
otherwise provided in this Code." Now, Section 133(o)
of the Local Government Code expressly provides
otherwise, specifically prohibiting local governments
from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code,
local governments cannot impose any kind of tax on
national government instrumentalities like the MIAA.
Local governments are devoid of power to tax the
national government, its agencies and instrumentalities.
The taxing powers of local governments do not extend to
the national government, its agencies and
instrumentalities, "[u]nless otherwise provided in this
Code" as stated in the saving clause of Section 133. The
saving clause refers to Section 234(a) on the exception to
the exemption from real estate tax of real property owned
by the Republic.
The minority, however, theorizes that unless exempted in
Section 193 itself, all juridical persons are subject to tax
by local governments. The minority insists that the
juridical persons exempt from local taxation are limited to
the three classes of entities specifically enumerated as
exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a)
local water districts; (b) cooperatives duly registered
under Republic Act No. 6938; and (c) non-stock and non-
profit hospitals and educational institutions. It would be
belaboring the obvious why the MIAA does not fall within
any of the exempt entities under Section 193. (Emphasis
supplied)
The minority's theory directly contradicts and completely
negates Section 133(o) of the Local Government Code.
This theory will result in gross absurdities. It will make the
national government, which itself is a juridical person,
subject to tax by local governments since the national
government is not included in the enumeration of exempt
entities in Section 193. Under this theory, local
governments can impose any kind of local tax, and not
only real estate tax, on the national government.
Under the minority's theory, many national government
instrumentalities with juridical personalities will also be
subject to any kind of local tax, and not only real estate
tax. Some of the national government instrumentalities
vested by law with juridical personalities are: Bangko
Sentral ng Pilipinas,30Philippine Rice Research
Institute,31 Laguna Lake
Development Authority,32 Fisheries Development
Authority,33 Bases Conversion Development
Authority,34 Philippine Ports Authority,35 Cagayan de Oro
Port Authority,36 San Fernando Port Authority,37 Cebu Port
Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local
Government Code which expressly prohibits local
governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not
distinguish between national government
instrumentalities with or without juridical personalities.
Where the law does not distinguish, courts should not
distinguish. Thus, Section 133(o) applies to all national
government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is
exempt from local taxation is not whether MIAA is a
juridical person, but whether it is a national government
instrumentality under Section 133(o) of the Local
Government Code. Section 133(o) is the specific
provision of law prohibiting local governments from
imposing any kind of tax on the national government, its
agencies and instrumentalities.
Section 133 of the Local Government Code starts with
the saving clause "[u]nless otherwise provided in this
Code." This means that unless the Local Government
Code grants an express authorization, local governments
have no power to tax the national government, its
agencies and instrumentalities. Clearly, the rule is local
governments have no power to tax the national
government, its agencies and instrumentalities. As an
exception to this rule, local governments may tax the
national government, its agencies and instrumentalities
only if the Local Government Code expressly so
provides.
The saving clause in Section 133 refers to the exception
to the exemption in Section 234(a) of the Code, which
makes the national government subject to real estate tax
when it gives the beneficial use of its real properties to a
taxable entity. Section 234(a) of the Local Government
Code provides:
SEC. 234. Exemptions from Real Property Tax – The
following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the
Republic is exempt from real estate tax. The exception to
this exemption is when the government gives the
beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the
only instance when the national government, its agencies
and instrumentalities are subject to any kind of tax by
local governments. The exception to the exemption
applies only to real estate tax and not to any other tax.
The justification for the exception to the exemption is that
the real property, although owned by the Republic, is not
devoted to public use or public service but devoted to the
private gain of a taxable person.
The minority also argues that since Section 133 precedes
Section 193 and 234 of the Local Government Code, the
later provisions prevail over Section 133. Thus, the
minority asserts:
x x x Moreover, sequentially Section 133 antecedes
Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions
should prevail. Therefore, MIAA, as a juridical person, is
subject to real property taxes, the general exemptions
attaching to instrumentalities under Section 133(o) of the
Local Government Code being qualified by Sections 193
and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable
conflict between Section 133 on one hand, and Sections
193 and 234 on the other. No one has urged that there is
such a conflict, much less has any one presenteda
persuasive argument that there is such a conflict. The
minority's assumption of an irreconcilable conflict in the
statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections
133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when
Section 193 states "[u]nless otherwise provided in this
Code." By its own words, Section 193 admits the
superiority of other provisions of the Local Government
Code that limit the exercise of the taxing power in Section
193. When a provision of law grants a power but
withholds such power on certain matters, there is no
conflict between the grant of power and the withholding of
power. The grantee of the power simply cannot exercise
the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on
the Taxing Powers of Local Government Units." Section
133 limits the grant to local governments of the power to
tax, and not merely the exercise of a delegated power to
tax. Section 133 states that the taxing powers of local
governments "shall not extend to the levy" of any kind of
tax on the national government, its agencies and
instrumentalities. There is no clearer limitation on the
taxing power than this.
Since Section 133 prescribes the "common limitations"
on the taxing powers of local governments, Section 133
logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning
and purpose, the "common limitations" on the taxing
power prevail over the grant or exercise of the taxing
power. If the taxing power of local governments in
Section 193 prevails over the limitations on such taxing
power in Section 133, then local governments can
impose any kind of tax on the national government, its
agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national
government, its agencies and instrumentalities, except as
otherwise provided in the Local Government Code
pursuant to the saving clause in Section 133 stating
"[u]nless otherwise provided in this Code." This exception
— which is an exception to the exemption of the Republic
from real estate tax imposed by local governments —
refers to Section 234(a) of the Code. The exception to the
exemption in Section 234(a) subjects real property owned
by the Republic, whether titled in the name of the national
government, its agencies or instrumentalities, to real
estate tax if the beneficial use of such property is given to
a taxable entity.
The minority also claims that the definition in the
Administrative Code of the phrase "government-owned or
controlled corporation" is not controlling. The minority
points out that Section 2 of the Introductory Provisions of
the Administrative Code admits that its definitions are not
controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific
words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the
Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section
2 of the Administrative Code recognizes that a statute
may require a different meaning than that defined in the
Administrative Code. However, this does not
automatically mean that the definition in the
Administrative Code does not apply to the Local
Government Code. Section 2 of the Administrative Code
clearly states that "unless the specific words x x x of a
particular statute shall require a different meaning," the
definition in Section 2 of the Administrative Code shall
apply. Thus, unless there is specific language in the
Local Government Code defining the phrase
"government-owned or controlled corporation" differently
from the definition in the Administrative Code, the
definition in the Administrative Code prevails.
The minority does not point to any provision in the Local
Government Code defining the phrase "government-
owned or controlled corporation" differently from the
definition in the Administrative Code. Indeed, there is
none. The Local Government Code is silent on the
definition of the phrase "government-owned or controlled
corporation." The Administrative Code, however,
expressly defines the phrase "government-owned or
controlled corporation." The inescapable conclusion is
that the Administrative Code definition of the phrase
"government-owned or controlled corporation" applies to
the Local Government Code.
The third whereas clause of the Administrative Code
states that the Code "incorporates in a unified document
the major structural, functional and procedural principles
and rules of governance." Thus, the Administrative Code
is the governing law defining the status and relationship
of government departments, bureaus, offices, agencies
and instrumentalities. Unless a statute expressly provides
for a different status and relationship for a specific
government unit or entity, the provisions of the
Administrative Code prevail.
The minority also contends that the phrase "government-
owned or controlled corporation" should apply only to
corporations organized under the Corporation Code, the
general incorporation law, and not to corporations
created by special charters. The minority sees no reason
why government corporations with special charters
should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or
controlled corporations" under the Administrative Code
refer to those corporations owned by the government or
its instrumentalities which are created not by legislative
enactment, but formed and organized under the
Corporation Code through registration with the Securities
and Exchange Commission. In short, these are GOCCs
without original charters.
xxxx
It might as well be worth pointing out that there is no point
in requiring a capital structure for GOCCs whose full
ownership is limited by its charter to the State or Republic.
Such GOCCs are not empowered to declare dividends or
alienate their capital shares.
The contention of the minority is seriously flawed. It is not
in accord with the Constitution and existing legislations. It
will also result in gross absurdities.
First, the Administrative Code definition of the phrase
"government-owned or controlled corporation" does not
distinguish between one incorporated under the
Corporation Code or under a special charter. Where the
law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters
several government-owned corporations organized as
stock corporations. Prime examples are the Land Bank of
the Philippines and the Development Bank of the
Philippines. The special charter40 of the Land Bank of the
Philippines provides:
SECTION 81. Capital. — The authorized capital stock of
the Bank shall be nine billion pesos, divided into seven
hundred and eighty million common shares with a par
value of ten pesos each, which shall be fully subscribed
by the Government, and one hundred and twenty million
preferred shares with a par value of ten pesos each,
which shall be issued in accordance with the provisions of
Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)
Likewise, the special charter41 of the Development Bank
of the Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The
capital stock of the Bank shall be Five Billion Pesos to be
divided into Fifty Million common shares with par value of
P100 per share. These shares are available for
subscription by the National Government. Upon the
effectivity of this Charter, the National Government shall
subscribe to Twenty-Five Million common shares of stock
worth Two Billion Five Hundred Million which shall be
deemed paid for by the Government with the net asset
values of the Bank remaining after the transfer of assets
 and liabilities as provided in Section 30 hereof. (Emphasis
supplied)
Other government-owned corporations organized as
stock corporations under their special charters are the
Philippine Crop Insurance Corporation,42 Philippine
International Trading Corporation,43 and the Philippine
National Bank44 before it was reorganized as a stock
corporation under the Corporation Code. All these
government-owned corporations organized under special
charters as stock corporations are subject to real estate
tax on real properties owned by them. To rule that they
are not government-owned or controlled corporations
because they are not registered with the Securities and
Exchange Commission would remove them from the
reach of Section 234 of the Local Government Code, thus
exempting them from real estate tax.
Third, the government-owned or controlled corporations
created through special charters are those that meet the
two conditions prescribed in Section 16, Article XII of the
Constitution. The first condition is that the government-
owned or controlled corporation must be established for
the common good. The second condition is that the
government-owned or controlled corporation must meet
the test of economic viability. Section 16, Article XII of the
1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law,
provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled
corporations may be created or established by special
charters in the interest of the common good and subject
to the test of economic viability. (Emphasis and
underscoring supplied)
The Constitution expressly authorizes the legislature to
create "government-owned or controlled corporations"
through special charters only if these entities are required
to meet the twin conditions of common good and
economic viability. In other words, Congress has no
power to create government-owned or controlled
corporations with special charters unless they are made
to comply with the two conditions of common good and
economic viability. The test of economic viability applies
only to government-owned or controlled corporations that
perform economic or commercial activities and need to
compete in the market place. Being essentially economic
vehicles of the State for the common good — meaning
for economic development purposes — these
government-owned or controlled corporations with
special charters are usually organized as stock
corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with
corporate powers and performing governmental or public
functions need not meet the test of economic viability.
These instrumentalities perform essential public services
for the common good, services that every modern State
must provide its citizens. These instrumentalities need
not be economically viable since the government may
even subsidize their entire operations. These
instrumentalities are not the "government-owned or
controlled corporations" referred to in Section 16, Article
XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the
legislature creates government instrumentalities vested
with corporate powers but performing essential
governmental or public functions. Congress has plenary
authority to create government instrumentalities vested
with corporate powers provided these instrumentalities
perform essential government functions or public
services. However, when the legislature creates through
special charters corporations that perform economic or
commercial activities, such entities — known as
"government-owned or controlled corporations" — must
meet the test of economic viability because they compete
in the market place.
This is the situation of the Land Bank of the Philippines
and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which
derive their income to meet operating expenses solely
from commercial transactions in competition with the
private sector. The intent of the Constitution is to prevent
Father Joaquin G. Bernas, a leading member of the
the creation of government-owned or controlled
Constitutional Commission, explains in his textbook The
corporations that cannot survive on their own in the
1987 Constitution of the Republic of the Philippines: A
market place and thus merely drain the public coffers.
Commentary:
Commissioner Blas F. Ople, proponent of the test of
economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern
is really that when the government creates a corporation,
there is a sense in which this corporation becomes
exempt from the test of economic performance. We know
what happened in the past. If a government corporation
loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and
what is always invoked is the common good. That is the
reason why this year, out of a budget of P115 billion for
the entire government, about P28 billion of this will go into
equity infusions to support a few government financial
institutions. And this is all taxpayers' money which could
have been relocated to agrarian reform, to social services
like health and education, to augment the salaries of
grossly underpaid public employees. And yet this is all
going down the drain.
Therefore, when we insert the phrase "ECONOMIC
VIABILITY" together with the "common good," this
becomes a restraint on future enthusiasts for state
capitalism to excuse themselves from the responsibility of
meeting the market test so that they become viable. And
so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the
standard of "ECONOMIC VIABILITY OR THE
ECONOMIC TEST," together with the common good.45
The second sentence was added by the 1986
Constitutional Commission. The significant addition,
however, is the phrase "in the interest of the common
good and subject to the test of economic viability." The
addition includes the ideas that they must show capacity
to function efficiently in business and that they should not
go into activities which the private sector can do better.
Moreover, economic viability is more than financial
viability but also includes capability to make profit and
 generate benefits not quantifiable in financial
terms.46 (Emphasis supplied)
Clearly, the test of economic viability does not apply to
government entities vested with corporate powers and
performing essential public services. The State is
obligated to render essential public services regardless of
the economic viability of providing such service. The non-
economic viability of rendering such essential public
service does not excuse the State from withholding such
essential services from the public.
However, government-owned or controlled corporations
with special charters, organized essentially for economic
or commercial objectives, must meet the test of economic
viability. These are the government-owned or controlled
corporations that are usually organized under their
special charters as stock corporations, like the Land Bank
of the Philippines and the Development Bank of the
Philippines. These are the government-owned or
controlled corporations, along with government-owned or
controlled corporations organized under the Corporation
Code, that fall under the definition of "government-owned
or controlled corporations" in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic viability
because the legislature did not create MIAA to compete
in the market place. MIAA does not compete in the
market place because there is no competing international
airport operated by the private sector. MIAA performs an
essential public service as the primary domestic and
international airport of the Philippines. The operation of
an international airport requires the presence of
personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to
document the arrival and departure of passengers,
screening out those without visas or travel documents, or
those with hold departure orders;
2. The Bureau of Customs, to collect import duties or
enforce the ban on prohibited importations;
3. The quarantine office of the Department of Health, to
enforce health measures against the spread of infectious
diseases into the country;
4. The Department of Agriculture, to enforce measures
against the spread of plant and animal diseases into the
country;
5. The Aviation Security Command of the Philippine
National Police, to prevent the entry of terrorists and the
escape of criminals, as well as to secure the airport
premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of
Transportation and Communications, to authorize aircraft
to enter or leave Philippine airspace, as well as to land
on, or take off from, the airport; and
7. The MIAA, to provide the proper premises — such as
runway and buildings — for the government personnel,
passengers, and airlines, and to manage the airport
operations.
All these agencies of government perform government
functions essential to the operation of an international
airport.
MIAA performs an essential public service that every
modern State must provide its citizens. MIAA derives its
revenues principally from the mandatory fees and
charges MIAA imposes on passengers and airlines. The
terminal fees that MIAA charges every passenger are
regulatory or administrative fees47 and not income from
commercial transactions.
MIAA falls under the definition of a government
instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis
supplied)
The fact alone that MIAA is endowed with corporate
powers does not make MIAA a government-owned or
controlled corporation. Without a change in its capital
structure, MIAA remains a government instrumentality
under Section 2(10) of the Introductory Provisions of the
Administrative Code. More importantly, as long as MIAA
renders essential public services, it need not comply with
the test of economic viability. Thus, MIAA is outside the
scope of the phrase "government-owned or controlled
corporations" under Section 16, Article XII of the 1987
Constitution.
The minority belittles the use in the Local Government
Code of the phrase "government-owned or controlled
corporation" as merely "clarificatory or illustrative." This is
fatal. The 1987 Constitution prescribes explicit conditions
for the creation of "government-owned or controlled
corporations." The Administrative Code defines what
constitutes a "government-owned or controlled
corporation." To belittle this phrase as "clarificatory or
illustrative" is grave error.
To summarize, MIAA is not a government-owned or
controlled corporation under Section 2(13) of the
Introductory Provisions of the Administrative Code
because it is not organized as a stock or non-stock
corporation. Neither is MIAA a government-owned or
controlled corporation under Section 16, Article XII of the
1987 Constitution because MIAA is not required to meet
the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and
performing essential public services pursuant to Section
2(10) of the Introductory Provisions of the Administrative
Code. As a government instrumentality, MIAA is not
subject to any kind of tax by local governments under
Section 133(o) of the Local Government Code. The
exception to the exemption in Section 234(a) does not
apply to MIAA because MIAA is not a taxable entity under
the Local Government Code. Such exception applies only
if the beneficial use of real property owned by the
Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are
properties devoted to public use and thus are properties
of public dominion. Properties of public dominion are
owned by the State or the Republic. Article 420 of the
Civil Code provides:
Art. 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for
public use, and are intended for some public service or for
the development of the national wealth. (Emphasis
supplied)
The term "ports x x x constructed by the State" includes
airports and seaports. The Airport Lands and Buildings of
MIAA are intended for public use, and at the very least
intended for public service. Whether intended for public
use or public service, the Airport Lands and Buildings are
properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by
the Republic and thus exempt from real estate tax under
Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory
Provisions of the Administrative Code, which governs the
legal relation and status of government units, agencies
and offices within the entire government machinery,
MIAA is a government instrumentality and not a
government-owned or controlled corporation. Under
Section 133(o) of the Local Government Code, MIAA as
a government instrumentality is not a taxable person
because it is not subject to "[t]axes, fees or charges of
any kind" by local governments. The only exception is
when MIAA leases its real property to a "taxable person"
as provided in Section 234(a) of the Local Government
Code, in which case the specific real property leased
becomes subject to real estate tax. Thus, only portions of
the Airport Lands and Buildings leased to taxable
persons like private parties are subject to real estate tax
by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and
Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the
State or the Republic of the Philippines. Article 420
specifically mentions "ports x x x constructed by the
State," which includes public airports and seaports, as
properties of public dominion and owned by the Republic.
As properties of public dominion owned by the Republic,
there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under
Section 234(a) of the Local Government Code. This
Court has also repeatedly ruled that properties of public
dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET
ASIDE the assailed Resolutions of the Court of Appeals
of 5 October 2001 and 27 September 2002 in CA-G.R.
SP No. 66878. We DECLARE the Airport Lands and
Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by
the City of Parañaque. We declare VOID all the real
estate tax assessments, including the final notices of real
estate tax delinquencies, issued by the City of Parañaque
on the Airport Lands and Buildings of the Manila
International Airport Authority, except for the portions that
the Manila International Airport Authority has leased to
private parties. We also declare VOID the assailed
auction sale, and all its effects, of the Airport Lands and
Buildings of the Manila International Airport Authority.

No costs.

SO ORDERED.

Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago,

Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio
Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario,
Garcia, Velasco, Jr., J.J., concur.