G.R. No.
L-22619 December 2, 1924 harmony with the other provision of said Act; that the coal lands
NATIONAL COAL COMPANY, plaintiff-appellee,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
Attorney-General Villa-Real for appellant.
Perfecto J. Salas Rodriguez for appellee.
JOHNSON, J.:
This action was brought in the Court of First Instance of the City of
Manila on the 17th day of July, 1923, for the purpose of recovering
the sum of P12,044.68, alleged to have been paid under protest by
the plaintiff company to the defendant, as specific tax on 24,089.3
tons of coal. Said company is a corporation created by Act No. 2705
of the Philippine Legislature for the purpose of developing the coal
industry in the Philippine Islands and is actually engaged in coal
mining on reserved lands belonging to the Government. It claimed
exemption from taxes under the provision of sections 14 and 15 of
Act No. 2719, and prayed for a judgment ordering the defendant to
refund to the plaintiff said sum of P12,044.68, with legal interest from
the date of the presentation of the complaint, and costs against the
defendant.
The defendant answered denying generally and specifically all the
material allegations of the complaint, except the legal existence and
personality of the plaintiff. As a special defense, the defendant
alleged (a) that the sum of P12,044.68 was paid by the plaintiff
without protests, and (b) that said sum was due and owing from the
plaintiff to the Government of the Philippine Islands under the
provisions of section 1496 of the Administrative Code and prayed
that the complaint be dismissed, with costs against the plaintiff.
Upon the issue thus presented, the case was brought on for trial.
After a consideration of the evidence adduced by both parties, the
Honorable Pedro Conception, judge, held that the words
"lands owned by any person, etc.," in section 15 of Act No. 2719
should be understood to mean "lands held in lease or usufruct," in
possessed by the plaintiff, belonging to the Government, fell within
the provisions of section 15 of Act No. 2719; and that a tax of P0.04
per ton of 1,016 kilos on each ton of coal extracted therefrom, as
provided in said section, was the only tax which should be collected
from the plaintiff; and sentenced the defendant to refund to the
plaintiff the sum of P11,081.11 which is the difference between the
amount collected under section 1496 of the Administrative Code and
the amount which should have been collected under the provisions of
said section 15 of Act No. 2719. From that sentence the defendant
appealed, and now makes the following assignments of error:
I. The court below erred in holding that section 15 of Act No. 2719
does not refer to coal lands owned by persons and corporations.
II. The court below erred in holding that the plaintiff was not subject
to the tax prescribed in section 1496 of the Administrative Code.
The question confronting us in this appeal is whether the plaintiff is
subject to the taxes under section 15 of Act No. 2719, or to the
specific taxes under section 1496 of the Administrative Code.
The plaintiff corporation was created on the 10th day of March, 1917,
by Act No. 2705, for the purpose of developing the coal industry in
the Philippine Island, in harmony with the general plan of the
Government to encourage the development of the natural resources
of the country, and to provided facilities therefor. By said Act, the
company was granted the general powers of a corporation "and such
other powers as may be necessary to enable it to prosecute the
business of developing coal deposits in the Philippine Island and of
mining, extracting, transporting and selling the coal contained in said
deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705)
the Government of the Philippine Islands is made the majority
stockholder, evidently in order to insure proper government
supervision and control, and thus to place the Government in a
position to render all possible encouragement, assistance and help in
the prosecution and furtherance of the company's business.
On May 14, 1917, two months after the passage of Act No. 2705,
creating the National Coal Company, the Philippine Legislature
passed Act No. 2719 "to provide for the leasing and development of
coal lands in the Philippine Islands." On October 18, 1917, upon
petition of the National Coal Company, the Governor-General, by
Proclamation No. 39, withdrew "from settlement, entry, sale or other
disposition, all coal-bearing public lands within the Province of
Zamboanga, Department of Mindanao and Sulu, and the Island of
Polillo, Province of Tayabas." Almost immediately after the issuance
of said proclamation the National Coal Company took possession of
the coal lands within the said reservation, with an area of about 400
hectares, without any further formality, contract or lease. Of the
30,000 shares of stock issued by the company, the Government of
the Philippine Islands is the owner of 29,809 shares, that is, of 99 1/3
per centum of the whole capital stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims
to be the owner of the land from which it has mined the coal in
question and is therefore subject to the provisions of section 15 of
Act No. 2719 and not to the provisions of the section 1496 of the
Administrative Code. That contention of the plaintiff leads us to an
examination of the evidence upon the question of the ownership of
the land from which the coal in question was mined. Was the plaintiff
the owner of the land from which the coal in question was mined? If
the evidence shows the affirmative, then the judgment should be
affirmed. If the evidence shows that the land does not belong to the
plaintiff, then the judgment should be reversed, unless the plaintiff's
rights fall under section 3 of said Act.
The only witness presented by the plaintiff upon the question of the
ownership of the land in question was Mr. Dalmacio Costas, who
stated that he was a member of the board of directors of the plaintiff
corporation; that the plaintiff corporation took possession of the land
in question by virtue of the proclamation of the Governor-General,
known as Proclamation No. 39 of the year 1917; that no document
had been issued in favor of the plaintiff corporation; that said
corporation had received no permission from the Secretary of
Agriculture and Natural Resources; that it took possession of said
lands covering an area of about 400 hectares, from which the coal in
question was mined, solely, by virtue of said proclamation (Exhibit B,
No. 39).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison,
then Governor-General, on the 18th day of October, 1917, and
provided: "Pursuant to the provision of section 71 of Act No. 926, I
hereby withdraw from settlement, entry, sale, or other disposition, all
coal-bearing public lands within the Province of Zamboanga,
Department of Mindanao and Sulu, and the Island of Polillo, Province
of Tayabas." It will be noted that said proclamation only provided that
all coal-bearing public lands within said province and island should
be withdrawn from settlement, entry, sale, or other disposition. There
is nothing in said proclamation which authorizes the plaintiff or any
other person to enter upon said reversations and to mine coal, and
no provision of law has been called to our attention, by virtue of
which the plaintiff was entitled to enter upon any of the lands so
reserved by said proclamation without first obtaining permission
therefor.
The plaintiff is a private corporation. The mere fact that the
Government happens to the majority stockholder does not make it a
public corporation. Act No. 2705, as amended by Act No. 2822,
makes it subject to all of the provisions of the Corporation Law, in so
far as they are not inconsistent with said Act (No. 2705). No
provisions of Act No. 2705 are found to be inconsistent with the
provisions of the Corporation Law. As a private corporation, it has no
greater rights, powers or privileges than any other corporation which
might be organized for the same purpose under the Corporation Law,
and certainly it was not the intention of the Legislature to give it a
preference or right or privilege over other legitimate private
corporations in the mining of coal. While it is true that said
proclamation No. 39 withdrew "from settlement, entry, sale, or other
disposition of coal-bearing public lands within the Province of
Zamboanga . . . and the Island of Polillo," it made no provision for the
occupation and operation by the plaintiff, to the exclusion of other
persons or corporations who might, under proper permission, enter
upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said
proclamation, the Legislature of the Philippine Island in "an Act for
the leasing and development of coal lands in the Philippine Islands"
(Act No. 2719), made liberal provision. Section 1 of said Act
provides: "Coal-bearing lands of the public domain in the Philippine
Island shall not be disposed of in any manner except as provided in
this Act," thereby giving a clear indication that no "coal-bearing lands
of the public domain" had been disposed of by virtue of said
proclamation.
Neither is there any provision in Act No. 2705 creating the National
Coal Company, nor in the amendments thereof found in Act No.
2822, which authorizes the National Coal Company to enter upon
any of the reserved coal lands without first having obtained
permission from the Secretary of Agriculture and Natural
Resources.lawphi1.net
The following propositions are fully sustained by the facts and the
law:
(1) The National Coal Company is an ordinary private corporation
organized under Act No. 2705, and has no greater powers nor
privileges than the ordinary private corporation, except those
mentioned, perhaps, in section 10 of Act No. 2719, and they do not
change the situation here.
(2) It mined on public lands between the month of July, 1920, and the
months of March, 1922, 24,089.3 tons of coal.
(3) Upon demand of the Collector of Internal Revenue it paid a tax of
P0.50 a ton, as taxes under the provisions of article 1946 of the
Administrative Code on the 15th day of December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the
lands upon which said coal was mined.
(5) The proclamation of Francis Burton Harrison, Governor-General,
of the 18th day of October, 1917, by authority of section 1 of Act No.
926, withdrawing from settlement, entry, sale, or other dispositon all
coal-bearing public lands within the Province of Zamboanga and the
Island of Polillo, was not a reservation for the benefit of the National
Coal Company, but for any person or corporation of the Philippine
Islands or of the United States.
(6) That the National Coal Company entered upon said land and
mined said coal, so far as the record shows, without any lease or
other authority from either the Secretary of Agriculture and Natural
Resources or any person having the power to grant a leave or
authority.
From all of the foregoing facts we find that the issue is well defined
between the plaintiff and the defendant. The plaintiff contends that it
was liable only to pay the internal revenue and other fees and taxes
provided for under section 15 of Act No. 2719; while the defendant
contends, under the facts of record, the plaintiff is obliged to pay the
internal revenue duty provided for in section 1496 of the
Administrative Code. That being the issue, an examination of the
provisions of Act No. 2719 becomes necessary.
An examination of said Act (No. 2719) discloses the following facts
important for consideration here:
First. All "coal-bearing lands of the public domain in the Philippine
Islands shall not be disposed of in any manner except as provided in
this Act." Second. Provisions for leasing by the Secretary of
Agriculture and Natural Resources of "unreserved, unappropriated
coal-bearing public lands," and the obligation to the Government
which shall be imposed by said Secretary upon the
lessee.lawphi1.net
Third. The internal revenue duty and tax which must be paid upon
coal-bearing lands owned by any person, firm, association or
corporation.
To repeat, it will be noted, first, that Act No. 2719 provides an internal
revenue duty and tax upon unreserved, unappropriated coal-bearing
public lands which may be leased by the Secretary of Agriculture and
Natural Resources; and, second, that said Act (No. 2719) provides
an internal revenue duty and tax imposed upon any person, firm,
association or corporation, who may be the owner of "coal-bearing
lands." A reading of said Act clearly shows that the tax imposed revenue tax under section 15 of Act No. 2719, nor to any other
thereby is imposed upon two classes of persons only — lessees and provisions of said Act.
owners.
Therefore, the judgment appealed from is hereby revoked, and the
The lower court had some trouble in determining what was the defendant is hereby relieved from all responsibility under the
correct interpretation of section 15 of said Act, by reason of what he complaint. And, without any finding as to costs, it is so ordered.
believed to be some difference in the interpretation of the language
used in Spanish and English. While there is some ground for
confusion in the use of the language in Spanish and English, we are
persuaded, considering all the provisions of said Act, that said
section 15 has reference only to persons, firms, associations or
corporations which had already, prior to the existence of said Act,
become the owners of coal lands. Section 15 cannot certainty refer
to "holders or lessees of coal lands' for the reason that practically all
of the other provisions of said Act has reference to lessees or
holders. If section 15 means that the persons, firms, associations, or
corporation mentioned therein are holders or lessees of coal lands
only, it is difficult to understand why the internal revenue duty and tax
in said section was made different from the obligations mentioned in
section 3 of said Act, imposed upon lessees or holders.

From all of the foregoing, it seems to be made plain that the plaintiff
is neither a lessee nor an owner of coal-bearing lands, and is,
therefore, not subject to any other provisions of Act No. 2719. But, is
the plaintiff subject to the provisions of section 1496 of the
Administrative Code?

Section 1496 of the Administrative Code provides that "on all coal
and coke there shall be collected, per metric ton, fifty centavos." Said
section (1496) is a part of article, 6 which provides for specific taxes.
Said article provides for a specific internal revenue tax upon all
things manufactured or produced in the Philippine Islands for
domestic sale or consumption, and upon things imported from the
United States or foreign countries. It having been demonstrated that
the plaintiff has produced coal in the Philippine Islands and is not a
lessee or owner of the land from which the coal was produced, we
are clearly of the opinion, and so hold, that it is subject to pay the
internal revenue tax under the provisions of section 1496 of the
Administrative Code, and is not subject to the payment of the internal
G.R. No. 169752 September 25, 2007
PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO
ANIMALS, Petitioners, vs.
COMMISSION ON AUDIT, DIR. RODULFO J. ARIESGA (in his
official capacity as Director of the Commission on Audit), MS.
MERLE M. VALENTIN and MS. SUSAN GUARDIAN (in their
official capacities as Team Leader and Team Member,
respectively, of the audit Team of the Commission on Audit),
Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a special civil action for Certiorari and Prohibition
under Rule 65 of the Rules of Court, in relation to Section 2 of Rule
64, filed by the petitioner assailing Office Order No. 2005-0211 dated
September 14, 2005 issued by the respondents which constituted the
audit team, as well as its September 23, 2005 Letter2 informing the
petitioner that respondents’ audit team shall conduct an audit survey
on the petitioner for a detailed audit of its accounts, operations, and
financial transactions. No temporary restraining order was issued.
The petitioner was incorporated as a juridical entity over one hundred
years ago by virtue of Act No. 1285, enacted on January 19, 1905,
by the Philippine Commission. The petitioner, at the time it was
created, was composed of animal aficionados and animal
propagandists. The objects of the petitioner, as stated in Section 2 of
its charter, shall be to enforce laws relating to cruelty inflicted upon
animals or the protection of animals in the Philippine Islands, and
generally, to do and perform all things which may tend in any way to
alleviate the suffering of animals and promote their welfare.3
At the time of the enactment of Act No. 1285, the original Corporation
Law, Act No. 1459, was not yet in existence. Act No. 1285 antedated
both the Corporation Law and the constitution of the Securities and
Exchange Commission. Important to note is that the nature of the
petitioner as a corporate entity is distinguished from the sociedad
anonimas under the Spanish Code of Commerce.
For the purpose of enhancing its powers in promoting animal welfare
and enforcing laws for the protection of animals, the petitioner was
initially imbued under its charter with the power to apprehend
violators of animal welfare laws. In addition, the petitioner was to
share one-half (1/2) of the fines imposed and collected through its
efforts for violations of the laws related thereto. As originally worded,
Sections 4 and 5 of Act No. 1285 provide:
SEC. 4. The said society is authorized to appoint not to exceed five
agents in the City of Manila, and not to exceed two in each of the
provinces of the Philippine Islands who shall have all the power and
authority of a police officer to make arrests for violation of the laws
enacted for the prevention of cruelty to animals and the protection of
animals, and to serve any process in connection with the execution
of such laws; and in addition thereto, all the police force of the
Philippine Islands, wherever organized, shall, as occasion requires,
assist said society, its members or agents, in the enforcement of all
such laws.
SEC. 5. One-half of all the fines imposed and collected through the
efforts of said society, its members or its agents, for violations of the
laws enacted for the prevention of cruelty to animals and for their
protection, shall belong to said society and shall be used to promote
its objects
Subsequently, however, the power to make arrests as well as the
privilege to retain a portion of the fines collected for violation of
animal-related laws were recalled by virtue of Commonwealth Act
(C.A.) No. 148,4 which reads, in its entirety, thus:
Be it enacted by the National Assembly of the Philippines:
Section 1. Section four of Act Numbered Twelve hundred and eighty-
five as amended by Act Numbered Thirty five hundred and forty-
eight, is hereby further amended so as to read as follows:
Sec. 4. The said society is authorized to appoint not to exceed ten
agents in the City of Manila, and not to exceed one in each
municipality of the Philippines who shall have the authority to
denounce to regular peace officers any violation of the laws enacted
for the prevention of cruelty to animals and the protection of animals
and to cooperate with said peace officers in the prosecution of
transgressors of such laws.
Sec. 2. The full amount of the fines collected for violation of the laws
against cruelty to animals and for the protection of animals, shall
accrue to the general fund of the Municipality where the offense was
committed.
Sec. 3. This Act shall take effect upon its approval.
Approved, November 8, 1936. (Emphasis supplied)
Immediately thereafter, then President Manuel L. Quezon issued
Executive Order (E.O.) No. 63 dated November 12, 1936, portions of
which provide:
Whereas, during the first regular session of the National Assembly,
Commonwealth Act Numbered One Hundred Forty Eight was
enacted depriving the agents of the Society for the Prevention of
Cruelty to Animals of their power to arrest persons who have violated
the laws prohibiting cruelty to animals thereby correcting a serious
defect in one of the laws existing in our statute books.
xxxx
Whereas, the cruel treatment of animals is an offense against the
State, penalized under our statutes, which the Government is duty
bound to enforce;
Now, therefore, I, Manuel L. Quezon, President of the Philippines,
pursuant to the authority conferred upon me by the Constitution,
hereby decree, order, and direct the Commissioner of Public Safety,
the Provost Marshal General as head of the Constabulary Division of
the Philippine Army, every Mayor of a chartered city, and every
municipal president to detail and organize special members of the
police force, local, national, and the Constabulary to watch, capture,
and prosecute offenders against the laws enacted to prevent cruelty
to animals. (Emphasis supplied)
On December 1, 2003, an audit team from respondent Commission
on Audit (COA) visited the office of the petitioner to conduct an audit
survey pursuant to COA Office Order No. 2003-051 dated November
18, 20035 addressed to the petitioner. The petitioner demurred on
the ground that it was a private entity not under the jurisdiction of
COA, citing Section 2(1) of Article IX of the Constitution which
specifies the general jurisdiction of the COA, viz:
Section 1. General Jurisdiction. The Commission on Audit shall have
the power, authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and expenditures
or uses of funds and property, owned or held in trust by, or pertaining
to the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned and controlled
corporations with original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and officers that have been
granted fiscal autonomy under the Constitution; (b) autonomous
state colleges and universities; (c) other government-owned or
controlled corporations and their subsidiaries; and (d) such non-
governmental entities receiving subsidy or equity, directly or
indirectly, from or through the government, which are required by law
or the granting institution to submit to such audit as a condition of
subsidy or equity. However, where the internal control system of the
audited agencies is inadequate, the Commission may adopt such
measures, including temporary or special pre-audit, as are necessary
and appropriate to correct the deficiencies. It shall keep the general
accounts of the Government, and for such period as may be
provided by law, preserve the vouchers and other supporting papers
pertaining thereto. (Emphasis supplied)
Petitioner explained thus:
a. Although the petitioner was created by special legislation, this
necessarily came about because in January 1905 there was as yet
neither a Corporation Law or any other general law under which it
may be organized and incorporated, nor a Securities and Exchange
Commission which would have passed upon its organization and
incorporation.
b. That Executive Order No. 63, issued during the Commonwealth
period, effectively deprived the petitioner of its power to make
arrests, and that the petitioner lost its operational funding,
underscore the fact that it exercises no governmental function. In
fine, the government itself, by its overt acts, confirmed petitioner’s
status as a private juridical entity.
The COA General Counsel issued a Memorandum6 dated May 6,
2004, asserting that the petitioner was subject to its audit authority.
In a letter dated May 17, 2004,7 respondent COA informed the
petitioner of the result of the evaluation, furnishing it with a copy of
said Memorandum dated May 6, 2004 of the General Counsel.
Petitioner thereafter filed with the respondent COA a Request for Re-
evaluation dated May 19, 2004,8 insisting that it was a private
domestic corporation.
Acting on the said request, the General Counsel of respondent COA,
in a Memorandum dated July 13, 2004,9 affirmed her earlier opinion
that the petitioner was a government entity that was subject to the
audit jurisdiction of respondent COA. In a letter dated September 14,
2004, the respondent COA informed the petitioner of the result of the
re-evaluation, maintaining its position that the petitioner was subject
to its audit jurisdiction, and requested an initial conference with the
respondents.
In a Memorandum dated September 16, 2004, Director Delfin Aguilar
reported to COA Assistant Commissioner Juanito Espino, Corporate
Government Sector, that the audit survey was not conducted due to
the refusal of the petitioner because the latter maintained that it was
a private corporation.
Petitioner received on September 27, 2005 the subject COA Office
Order 2005-021 dated September 14, 2005 and the COA Letter
dated September 23, 2005.
Hence, herein Petition on the following grounds:
A. RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT RULED THAT PETITIONER IS SUBJECT
TO ITS AUDIT AUTHORITY.
B. PETITIONER IS ENTITLED TO THE RELIEF SOUGHT, THERE
BEING NO APPEAL, NOR ANY PLAIN, SPEEDY AND ADEQUATE
REMEDY IN THE ORDINARY COURSE OF LAW AVAILABLE TO
IT.10
The essential question before this Court is whether the petitioner
qualifies as a government agency that may be subject to audit by
respondent COA.
Petitioner argues: first, even though it was created by special
legislation in 1905 as there was no general law then existing under
which it may be organized or incorporated, it exercises no
governmental functions because these have been revoked by C.A.
No. 148 and E.O. No. 63; second, nowhere in its charter is it
indicated that it is a public corporation, unlike, for instance, C.A. No.
111 which created the Boy Scouts of the Philippines, defined its
powers and purposes, and specifically stated that it was "An Act to
Create a Public Corporation" in which, even as amended by
Presidential Decree No. 460, the law still adverted to the Boy Scouts
of the Philippines as a "public corporation," all of which are not
obtaining in the charter of the petitioner; third, if it were a government
body, there would have been no need for the State to grant it tax
exemptions under Republic Act No. 1178, and the fact that it was so
exempted strengthens its position that it is a private institution; fourth,
the employees of the petitioner are registered and covered by the
Social Security System at the latter’s initiative and not through the
Government Service Insurance System, which should have been the
case had the employees been considered government employees;
fifth, the petitioner does not receive any form of financial assistance
from the government, since C.A. No. 148, amending Section 5 of Act
No. 1285, states that the "full amount of the fines, collected for
violation of the laws against cruelty to animals and for the protection
of animals, shall accrue to the general fund of the Municipality where
the offense was committed"; sixth, C.A. No. 148 effectively deprived
the petitioner of its powers to make arrests and serve processes as
these functions were placed in the hands of the police force; seventh,
no government appointee or representative sits on the board of
trustees of the petitioner; eighth, a reading of the provisions of its
charter (Act No. 1285) fails to show that any act or decision of the
petitioner is subject to the approval of or control by any government
agency, except to the extent that it is governed by the law on private
corporations in general; and finally, ninth, the Committee on Animal
Welfare, under the Animal Welfare Act of 1998, includes members
from both the private and the public sectors.
The respondents contend that since the petitioner is a "body politic"
created by virtue of a special legislation and endowed with a
governmental purpose, then, indubitably, the COA may audit the
financial activities of the latter. Respondents in effect divide their
contentions into six strains: first, the test to determine whether an
entity is a government corporation lies in the manner of its creation,
and, since the petitioner was created by virtue of a special charter, it
is thus a government corporation subject to respondents’ auditing
power; second, the petitioner exercises "sovereign powers," that is, it
is tasked to enforce the laws for the protection and welfare of
animals which "ultimately redound to the public good and welfare,"
and, therefore, it is deemed to be a government "instrumentality" as
defined under the Administrative Code of 1987, the purpose of which
is connected with the administration of government, as purportedly
affirmed by American jurisprudence; third, by virtue of Section 23,11
Title II, Book III of the same Code, the Office of the President
exercises supervision or control over the petitioner; fourth, under the
same Code, the requirement under its special charter for the
petitioner to render a report to the Civil Governor, whose functions
have been inherited by the Office of the President, clearly reflects the
nature of the petitioner as a government instrumentality; fifth, despite
the passage of the Corporation Code, the law creating the petitioner
had not been abolished, nor had it been re-incorporated under any
general corporation law; and finally, sixth, Republic Act No. 8485,
otherwise known as the "Animal Welfare Act of 1998," designates the
petitioner as a member of its Committee on Animal Welfare which is
attached to the Department of Agriculture.
In view of the phrase "One-half of all the fines imposed and collected
through the efforts of said society," the Court, in a Resolution dated
January 30, 2007, required the Office of the Solicitor General (OSG)
and the parties to comment on: a) petitioner's authority to impose
fines and the validity of the provisions of Act No. 1285 and
Commonwealth Act No. 148 considering that there are no standard
measures provided for in the aforecited laws as to the manner of
implementation, the specific violations of the law, the person/s
authorized to impose fine and in what amount; and, b) the effect of
the 1935 and 1987 Constitutions on whether petitioner continues to
exist or should organize as a private corporation under the
Corporation Code, B.P. Blg. 68 as amended.
Petitioner and the OSG filed their respective Comments.
Respondents filed a Manifestation stating that since they were being
represented by the OSG which filed its Comment, they opted to
dispense with the filing of a separate one and adopt for the purpose
that of the OSG.
The petitioner avers that it does not have the authority to impose
fines for violation of animal welfare laws; it only enjoyed the privilege
of sharing in the fines imposed and collected from its efforts in the
enforcement of animal welfare laws; such privilege, however, was
subsequently abolished by C.A. No. 148; that it continues to exist as
a private corporation since it was created by the Philippine
Commission before the effectivity of the Corporation law, Act No.
1459; and the 1935 and 1987 Constitutions.
The OSG submits that Act No. 1285 and its amendatory laws did not
give petitioner the authority to impose fines for violation of laws12
relating to the prevention of cruelty to animals and the protection of
animals; that even prior to the amendment of Act No. 1285, petitioner
was only entitled to share in the fines imposed; C.A. No. 148
abolished that privilege to share in the fines collected; that petitioner
is a public corporation and has continued to exist since Act No. 1285;
petitioner was not repealed by the 1935 and 1987 Constitutions
which contain transitory provisions maintaining all laws issued not
inconsistent therewith until amended, modified or repealed.
The petition is impressed with merit.
The arguments of the parties, interlaced as they are, can be
disposed of in five points.
First, the Court agrees with the petitioner that the "charter test"
cannot be applied.
Essentially, the "charter test" as it stands today provides:
[T]he test to determine whether a corporation is government owned
or controlled, or private in nature is simple. Is it created by its own
charter for the exercise of a public function, or by incorporation under
the general corporation law? Those with special charters are
government corporations subject to its provisions, and its employees
are under the jurisdiction of the Civil Service Commission, and are
compulsory members of the Government Service Insurance System.
xxx (Emphasis supplied)13
The petitioner is correct in stating that the charter test is predicated,
at best, on the legal regime established by the 1935 Constitution,
Section 7, Article XIII, which states:
Sec. 7. The National Assembly shall not, except by general law,
provide for the formation, organization, or regulation of private
corporations, unless such corporations are owned or controlled by
the Government or any subdivision or instrumentality thereof.14
The foregoing proscription has been carried over to the 1973 and the
1987 Constitutions. Section 16 of Article XII of the present
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.
Section 16 is essentially a re-enactment of Section 7 of Article XVI of
the 1935 Constitution and Section 4 of Article XIV of the 1973
Constitution.
During the formulation of the 1935 Constitution, the Committee on
Franchises recommended the foregoing proscription to prevent the
pressure of special interests upon the lawmaking body in the creation
of corporations or in the regulation of the same. To permit the
lawmaking body by special law to provide for the organization,
formation, or regulation of private corporations would be in effect to
offer to it the temptation in many cases to favor certain groups, to the
prejudice of others or to the prejudice of the interests of the
country.15
And since the underpinnings of the charter test had been introduced
by the 1935 Constitution and not earlier, it follows that the test cannot
apply to the petitioner, which was incorporated by virtue of Act No.
1285, enacted on January 19, 1905. Settled is the rule that laws in
general have no retroactive effect, unless the contrary is provided.16
All statutes are to be construed as having only a prospective
operation, unless the purpose and intention of the legislature to give
them a retrospective effect is expressly declared or is necessarily
implied from the language used. In case of doubt, the doubt must be
resolved against the retrospective effect.17
There are a few exceptions. Statutes can be given retroactive effect
in the following cases: (1) when the law itself so expressly provides;
(2) in case of remedial statutes; (3) in case of curative statutes; (4) in
case of laws interpreting others; and (5) in case of laws creating new
rights.18 None of the exceptions is present in the instant case.
The general principle of prospectivity of the law likewise applies to
Act No. 1459, otherwise known as the Corporation Law, which had
been enacted by virtue of the plenary powers of the Philippine
Commission on March 1, 1906, a little over a year after January 19,
1905, the time the petitioner emerged as a juridical entity. Even the
Corporation Law respects the rights and powers of juridical entities
organized beforehand, viz:
SEC. 75. Any corporation or sociedad anonima formed, organized,
and existing under the laws of the Philippine Islands and lawfully
transacting business in the Philippine Islands on the date of the
passage of this Act, shall be subject to the provisions hereof so far
as such provisions may be applicable and shall be entitled at its
option either to continue business as such corporation or to reform
and organize under and by virtue of the provisions of this Act,
transferring all corporate interests to the new corporation which, if a
stock corporation, is authorized to issue its shares of stock at par to
the stockholders or members of the old corporation according to their
interests. (Emphasis supplied).
As pointed out by the OSG, both the 1935 and 1987 Constitutions
contain transitory provisions maintaining all laws issued not
inconsistent therewith until amended, modified or repealed.19
In a legal regime where the charter test doctrine cannot be applied,
the mere fact that a corporation has been created by virtue of a
special law does not necessarily qualify it as a public corporation.
What then is the nature of the petitioner as a corporate entity? What
legal regime governs its rights, powers, and duties?
As stated, at the time the petitioner was formed, the applicable law
was the Philippine Bill of 1902, and, emphatically, as also stated
above, no proscription similar to the charter test can be found
therein.
The textual foundation of the charter test, which placed a limitation
on the power of the legislature, first appeared in the 1935
Constitution. However, the petitioner was incorporated in 1905 by
virtue of Act No. 1258, a law antedating the Corporation Law (Act No.
1459) by a year, and the 1935 Constitution, by thirty years. There
being neither a general law on the formation and organization of
private corporations nor a restriction on the legislature to create
private corporations by direct legislation, the Philippine Commission
at that moment in history was well within its powers in 1905 to
constitute the petitioner as a private juridical entity.1âwphi1
Time and again the Court must caution even the most brilliant
scholars of the law and all constitutional historians on the danger of
imposing legal concepts of a later date on facts of an earlier date.20
The amendments introduced by C.A. No. 148 made it clear that the
petitioner was a private corporation and not an agency of the
government. This was evident in Executive Order No. 63, issued by
then President of the Philippines Manuel L. Quezon, declaring that
the revocation of the powers of the petitioner to appoint agents with
powers of arrest "corrected a serious defect" in one of the laws
existing in the statute books.
As a curative statute, and based on the doctrines so far discussed,
C.A. No. 148 has to be given retroactive effect, thereby freeing all
doubt as to which class of corporations the petitioner belongs, that is,
it is a quasi-public corporation, a kind of private domestic
corporation, which the Court will further elaborate on under the fourth
point.
Second, a reading of petitioner’s charter shows that it is not subject
to control or supervision by any agency of the State, unlike
government-owned and -controlled corporations. No government
representative sits on the board of trustees of the petitioner. Like all
private corporations, the successors of its members are determined
voluntarily and solely by the petitioner in accordance with its by-laws,
and may exercise those powers generally accorded to private
corporations, such as the powers to hold property, to sue and be
sued, to use a common seal, and so forth. It may adopt by-laws for
its internal operations: the petitioner shall be managed or operated
by its officers "in accordance with its by-laws in force." The pertinent
provisions of the charter provide:
Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William
F. Tucker, Mary S. Fergusson, Amasa S. Crossfield, Spencer Cosby,
Sealy B. Rossiter, Richard P. Strong, Jose Robles Lahesa, Josefina
R. de Luzuriaga, and such other persons as may be associated with
them in conformity with this act, and their successors, are hereby
constituted and created a body politic and corporate at law, under the
name and style of "The Philippines Society for the Prevention of
Cruelty to Animals."
As incorporated by this Act, said society shall have the power to add
to its organization such and as many members as it desires, to
provide for and choose such officers as it may deem advisable, and
in such manner as it may wish, and to remove members as it shall
provide.
It shall have the right to sue and be sued, to use a common seal, to
receive legacies and donations, to conduct social enterprises for the
purpose of obtaining funds, to levy dues upon its members and
provide for their collection to hold real and personal estate such as
may be necessary for the accomplishment of the purposes of the
society, and to adopt such by-laws for its government as may not be
inconsistent with law or this charter.
x x x x Sec. 3. The said society shall be operated under the direction
of its officers, in accordance with its by-laws in force, and this
charter. x x x x
Sec. 6. The principal office of the society shall be kept in the city of
Manila, and the society shall have full power to locate and establish
branch offices of the society wherever it may deem advisable in the
Philippine Islands, such branch offices to be under the supervision
and control of the principal office.
Third. The employees of the petitioner are registered and covered by
the Social Security System at the latter’s initiative, and not through
the Government Service Insurance System, which should be the
case if the employees are considered government employees. This
is another indication of petitioner’s nature as a private entity. Section
1 of Republic Act No. 1161, as amended by Republic Act No. 8282,
otherwise known as the Social Security Act of 1997, defines the
employer:
Employer – Any person, natural or juridical, domestic or foreign, who
carries on in the Philippines any trade, business, industry,
undertaking or activity of any kind and uses the services of another
person who is under his orders as regards the employment, except
the Government and any of its political subdivisions, branches or
instrumentalities, including corporations owned or controlled by the
Government: Provided, That a self-employed person shall be both
employee and employer at the same time. (Emphasis supplied)
Fourth. The respondents contend that the petitioner is a "body politic"
because its primary purpose is to secure the protection and welfare
of animals which, in turn, redounds to the public good.
This argument, is, at best, specious. The fact that a certain juridical
entity is impressed with public interest does not, by that circumstance
alone, make the entity a public corporation, inasmuch as a
corporation may be private although its charter contains provisions of
a public character, incorporated solely for the public good. This class
of corporations may be considered quasi-public corporations, which
are private corporations that render public service, supply public
wants,21 or pursue other eleemosynary objectives. While purposely
organized for the gain or benefit of its members, they are required by
law to discharge functions for the public benefit. Examples of these
corporations are utility,22 railroad, warehouse, telegraph, telephone,
water supply corporations and transportation companies.23 It must
be stressed that a quasi-public corporation is a species of private
corporations, but the qualifying factor is the type of service the former
renders to the public: if it performs a public service, then it becomes
a quasi-public corporation.
Authorities are of the view that the purpose alone of the corporation
cannot be taken as a safe guide, for the fact is that almost all
corporations are nowadays created to promote the interest, good, or
convenience of the public. A bank, for example, is a private
corporation; yet, it is created for a public benefit. Private schools and
universities are likewise private corporations; and yet, they are
rendering public service. Private hospitals and wards are charged
with heavy social responsibilities. More so with all common carriers.
On the other hand, there may exist a public corporation even if it is
endowed with gifts or donations from private individuals.
The true criterion, therefore, to determine whether a corporation is
public or private is found in the totality of the relation of the
corporation to the State. If the corporation is created by the State as
the latter’s own agency or instrumentality to help it in carrying out its
governmental functions, then that corporation is considered public;
otherwise, it is private. Applying the above test, provinces, chartered
cities, and barangays can best exemplify public corporations. They
are created by the State as its own device and agency for the
accomplishment of parts of its own public works.25
It is clear that the amendments introduced by C.A. No. 148 revoked
the powers of the petitioner to arrest offenders of animal welfare laws
and the power to serve processes in connection therewith.
Fifth. The respondents argue that since the charter of the petitioner
requires the latter to render periodic reports to the Civil Governor,
whose functions have been inherited by the President, the petitioner
is, therefore, a government instrumentality.
This contention is inconclusive. By virtue of the fiction that all
corporations owe their very existence and powers to the State, the
reportorial requirement is applicable to all corporations of whatever
nature, whether they are public, quasi-public, or private corporations
—as creatures of the State, there is a reserved right in the legislature
to investigate the activities of a corporation to determine whether it
acted within its powers. In other words, the reportorial requirement is
the principal means by which the State may see to it that its creature
acted according to the powers and functions conferred upon it.
These principles were extensively discussed in Bataan Shipyard &
Engineering Co., Inc. v. Presidential Commission on Good
Government.26 Here, the Court, in holding that the subject
corporation could not invoke the right against self-incrimination
whenever the State demanded the production of its corporate books
and papers, extensively discussed the purpose of reportorial
requirements, viz:
x x x The corporation is a creature of the state. It is presumed to be
incorporated for the benefit of the public. It received certain special
privileges and franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are limited by law. It
can make no contract not authorized by its charter. Its rights to act as
a corporation are only preserved to it so long as it obeys the laws of
its creation. There is a reserve[d] right in the legislature to investigate
its contracts and find out whether it has exceeded its powers. It
would be a strange anomaly to hold that a state, having chartered a
corporation to make use of certain franchises, could not, in the
exercise of sovereignty, inquire how these franchises had been
employed, and whether they had been abused, and demand the
production of the corporate books and papers for that purpose. The
defense amounts to this, that an officer of the corporation which is
charged with a criminal violation of the statute may plead the
criminality of such corporation as a refusal to produce its books. To
state this proposition is to answer it. While an individual may lawfully
refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation vested with
special privileges and franchises may refuse to show its hand when
charged with an abuse of such privileges. (Wilson v. United States,
55 Law Ed., 771, 780.)27
WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a
private domestic corporation subject to the jurisdiction of the
Securities and Exchange Commission. The respondents are
ENJOINED from investigating, examining and auditing the
petitioner's fiscal and financial affairs.
G.R. No. 95237-38 September 13, 1991
DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY
WATER DISTRICT, METRO CEBU WATER DISTRICT,
ZAMBOANGA CITY WATER DISTRICT, LEYTE METRO WATER
DISTRICT, BUTUAN CITY WATER DISTRICT, CAMARINES
NORTE WATER DISTRICT, LAGUNA WATER DISTRICT,
DUMAGUETE CITY WATER DISTRICT, LA UNION WATER
DISTRICT, BAYBAY WATER DISTRICT, METRO LINGAYEN
WATER DISTRICT, URDANETA WATER DISTRICT, COTABATO
CITY WATER DISTRICT, MARAWI WATER DISTRICT, TAGUM
WATER DISTRICT, DIGOS WATER DISTRICT, BISLIG WATER
DISTRICT, and MECAUAYAN WATER DISTRICT, petitioners, vs.
CIVIL SERVICE COMMISSION, and COMMISSION ON AUDIT,
respondents.
Rodolfo S. De Jesus for petitioners.
Evalyn H. Itaas-Fetalino, Rogelio C. Limare and Daisy B. Garcia-
Tingzon for CSC.
MEDIALDEA, J.:p
Whether or not the Local Water Districts formed and created
pursuant to the provisions of Presidential Decree No. 198, as
amended, are government-owned or controlled corporations with
original charter falling under the Civil Service Law and/or covered by
the visitorial power of the Commission on Audit is the issue which the
petitioners entreat this Court, en banc, to shed light on.
Petitioners are among the more than five hundred (500) water
districts existing throughout the country formed pursuant to the
provisions of Presidential Decree No. 198, as amended by
Presidential Decrees Nos. 768 and 1479, otherwise known as the
"Provincial Water Utilities Act of 1973."
Presidential Decree No. 198 was issued by the then President
Ferdinand E. Marcos by virtue of his legislative power under
Proclamation No. 1081. It authorized the different local legislative
bodies to form and create their respective water districts through a
resolution they will pass subject to the guidelines, rules and
regulations therein laid down. The decree further created and formed
the "Local Water Utilities Administration" (LWUA), a national agency
attached to the National Economic and Development Authority
(NEDA), and granted with regulatory power necessary to optimize
public service from water utilities operations.
The respondents, on the other hand, are the Civil Service
Commission (CSC) and the Commission on Audit (COA), both
government agencies and represented in this case by the Solicitor
General.
On April 17, 1989, this Court ruled in the case of Tanjay Water
District v. Gabaton, et al. (G.R. No. 63742, 172 SCRA 253):
Significantly, Article IX (B), Section 2(1) of the 1987 Constitution
provides that the Civil Service embraces all branches, subdivisions,
instrumentalities, and agencies of the government, including
government-owned and controlled corporations with original charters.
Inasmuch as PD No. 198, as amended, is the original charter of the
petitioner, Tanjay Water District, and respondent Tarlac Water
District and all water districts in the country, they come under the
coverage of the Civil Service Law, rules and regulations. (Sec. 35,
Art. VIII and Sec. 37, Art. IX of PD No. 807).
As an offshoot of the immediately cited ruling, the CSC. issued
Resolution No. 90-575, the dispositive portion of which reads:
NOW THEREFORE, in view of all the foregoing, the Commission
resolved, as it hereby resolves to rule that Local Water Districts,
being quasi-public corporations created by law to perform public
services and supply public wants, the matter of hiring and firing of its
officers and employees should be governed by the Civil Service Law,
rules and regulations. Henceforth, all appointments of personnel of
the different local water districts in the country shall be submitted to
the Commission for appropriate action. (Rollo. p. 22).
However, on May 16, 1990, in G.R. No. 85760, entitled "Metro Iloilo
Water District v. National Labor Relations Commission, et al.," the
Third Division of this Court ruled in a minute resolution:
xxx xxx xxx
Considering that PD 198 is a general legislation empowering and/or
authorizing government agencies and entities to create water
districts, said PD 198 cannot be considered as the charter itself
creating the Water District. Public respondent NLRC did not commit
any grave abuse of discretion in holding that the operative act, that
created the Metro Iloilo Water District was the resolution of the
Sangguniang Panglunsod of Iloilo City. Hence, the employees of
Water Districts are not covered by Civil Service Laws as the latter do
(sic) not have original charters.
In adherence to the just cited ruling, the CSC suspended the
implementation of Resolution No. 90-575 by issuing Resolution No.
90-770 which reads:
xxx xxx xxx
NOW, THEREFORE, in view of all the foregoing, the Commission
resolved to rule, as it hereby rules, that the implementation of CSC.
Resolution No. 575 dated June 27, 1990 be deferred in the
meantime pending clarification from the Supreme Court are regards
its conflicting decisions in the cases of Tanjay Water District v.
Gabaton and Metro Iloilo Water District v. National Labor Relations
Commission. (p. 26, Rollo)
In the meanwhile, there exists a divergence of opinions between
COA on one hand, and the (LWUA), on the other hand, with respect
to the authority of COA to audit the different water districts.
COA opined that the audit of the water districts is simply an act of
discharging the visitorial power vested in them by law (letter of COA
to LWUA dated August 13, 1985, pp. 29-30, Rollo).
On the other hand, LWUA maintained that only those water districts
with subsidies from the government fall within the COA's jurisdiction
and only to the extent of the amount of such subsidies, pursuant to
the provision of the Government Auditing Code of the Phils.
It is to be observed that just like the question of whether the
employees of the water districts falls under the coverage of the Civil
Service Law, the conflict between the water districts and the COA is
also dependent on the final determination of whether or not water
districts are government-owned or controlled corporations with
original charter. The reason behind this is Sec. 2(1), Article IX-D of
the 1987 constitution which reads:
Sec. 2(1) The Commission on Audit shall have the power, authority,
and duty to examine, audit, and settle all accounts pertaining to the
revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to the Government,
or any of its subdivisions, agencies or instrumentalities, including
government-owned or controlled corporations with original charters,
and on a post audit basis. (emphasis supplied)
Petitioners' main argument is that they are private corporations
without original charter, hence they are outside the jurisdiction of
respondents CSC and COA. Reliance is made on the Metro Iloilo
case which declared petitioners as quasi-public corporations created
by virtue of PD 198, a general legislation which cannot be considered
as the charter itself creating the water districts. Holding on to this
ruling, petitioners contend that they are private corporations which
are only regarded as quasi-public or semi-public because they serve
public interest and convenience and that since PD 198 is a general
legislation, the operative act which created a water district is not the
said decree but the resolution of the sanggunian concerned.
After a fair consideration of the parties' arguments coupled with a
careful study of the applicable laws as well as the constitutional
provisions involved, We rule against the petitioners and reiterate Our
ruling in Tanjay case declaring water districts government-owned or
controlled corporations with original charter.
As early as Baguio Water District v. Trajano, et al., (G.R. No. 65428,
February 20, 1984, 127 SCRA 730), We already ruled that a water
district is a corporation created pursuant to a special law — P.D. No.
198, as amended, and as such its officers and employees are
covered by the Civil Service Law.
In another case (Hagonoy Water District v. NLRC, G.R. No. 81490,
August 31, 1988, 165 SCRA 272), We ruled once again that local
water districts are quasi-public corporations whose employees
belong to the Civil Service. The Court's pronoucement in this case,
as extensively quoted in the Tanjay case, supra, partly reads
"The only question here is whether or not local water districts are
governmkent owned or controlled corporations whose employees are
subject to the provisions of the Civil Service Law. The Labor Arbiter
asserted jurisdiction over the alleged illegal dismissal of private
respondent Villanueva by relying on Section 25 of Presidential
decree No. 198, known as the Provincial Water Utilities Act of 1973"
which went onto effect in 25 May 1973, and which provides as
follows:
Exemption from Civil Service. — The district and its employees,
being engaged in a proprietary function, are hereby exempt from the
provisions of the Civil Service Law. Collective Bargaining shall be
available only to personnel below supervisory levels: Provided,
however, That the total of all salaries, wages emoluments, benefits
or other compensation paid to all employees in any month shall not
exceed fifty percent (50%) of average net monthy revenue. Said net
revenue representing income from water sales and sewerage service
charges, less pro-rata share of debt service and expenses for fuel or
energy for pumping during the preceding fiscal year.
The Labor Arbiter failed to take into accout the provisions of
Presidential Decree No. 1479, which went into effect on 11 June
1978, P.D. No. 1479, wiped away Section 25 of PD 198 quoted
above, and Section 26 of PD 198 was renumbered as Section 25 in
the following manner:
Section 26 of the same decree PD 198 is hereby amended to read
as Section 25 as follows:
Section 25. Authorization. — The district may exercise all the powers
which are expressly granted by this Title or which are necessarily
implied from or incidental to the powers and purposes herein stated.
For the purpose of carrying out the objectives of this Act, a district is
hereby granted the power of eminent domain, the exercise thereof
shall, however, be subject to review by the Administration.
Thus, Section 25 of PD 198 exempting the employees of water
districts from the application of the Civil Service Law was removed
from the statute books:
xxx xxx xxx
We grant the petition for the following reasons:
1. Section 25 of PD No. 198 was repealed by Section 3 of PD No.
1479; Section 26 of PD No. 198 was amended ro read as Sec. 25 by
Sec. 4 of PD No. 1479. The amendatory decree took effect on June
11, 1978.
xxx xxx xxx
3. The BWD is a corporation created pursuant to a special law — PD
No. 198, as amended. As such its officers and employees are part of
the Civil Service (Sec. 1, Art. XII-B, [1973] Constitution; PD No. 868).
Ascertained from a consideration of the whole statute, PD 198 is a
special law applicable only to the different water districts created
pursuant thereto. In all its essential terms, it is obvious that it pertains
to a special purpose which is intended to meet a particular set of
conditions and cirmcumstances. The fact that said decree generally
applies to all water districts throughout the country does not change
the fact that PD 198 is a special law. Accordingly, this Court's
resolution in Metro Iloilo case declaring PD 198 as a general
legislation is hereby abandoned.
By "government-owned or controlled corporation with original
charter," We mean government owned or controlled corporation
created by a special law and not under the Corporation Code of the
Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No. 82819,
February 8, 1989, 170 SCRA 79, 82), We held:
The Court, in National Service Corporation (NASECO) v. National
Labor Relations Commission, G.R. No 69870, promulgated on 29
November 1988, quoting extensively from the deliberations of 1986
Constitutional Commission in respect of the intent and meaning of
the new phrase "with original character," in effect held that
government-owned and controlled corporations with original charter
refer to corporations chartered by special law as distinguished from
corporations organized under our general incorporation statute — the
Corporations Code. In NASECO, the company involved had been
organized under the general incorporation statute and was a
sbusidiary of the National Investment Development Corporation
(NIDC) which in turn was a subsidiary of the Philippine National
Bank, a bank chartered by a special statute. Thus, government-
owned or controlled corporations like NASECO are effectively,
excluded from the scope of the Civil Service. (emphasis supplied
From the foregoing pronouncement, it is clear that what has been
excluded from the coverage of the CSC are those corporations
created pursuant to the Corporation Code. Significantly, petitioners
are not created under the said code, but on the contrary, they were
created pursuant to a special law and are governed primarily by its
provision.
No consideration may thus be given to petitioners' contention that the
operative act which created the water districts are the resolutions of
the respective local sanggunians and that consequently, PD 198, as
amended, cannot be considered as their charter.
It is to be noted that PD 198, as amended is the source of
authorization and power to form and maintain a district. Section 6 of
said decree provides:
Sec. 6. Formation of District. — This Act is the source of
authorization and power to form and maintain a district. Once
formed, a district is subject to the provisions of this Act and not under
the jurisdiction of any political subdivision, . . . .
Moreover, it must be observed that PD 198, contains all the essential
terms necessary to constitute a charter creating a juridical person.
For example, Section 6(a) provides for the name that will be used by
a water district, thus:
Sec. 6. . . . To form a district, the legislative body of any city,
municipality or province shall enact a resolution containing the
following:
a) The name of the local water district, which shall include the name
of the city, municipality, or province, or region thereof, served by said
system, followed by the words "Water District."
It also prescribes for the numbers and qualifications of the members
of the Board of Directors:
Sec. 8. Number and Qualification. — The Board of Directors of a
district shall be composed of five citizens of the Philippines who are
of voting age and residents within the district. One member shall be a
representative of civic-oriented service clubs, one member of
representative of professional associations, one member a
representative of business, commercial or financial organizations,
one member a representative of educational institutions and one
member a representative of women's organization. No public official
shall serve as director. Provided, however, that if the district has
availed of the financial assistance of the Administration, the
Administration may appoint any of its personnel to sit in the board of
directors with all the rights and privileges appertaining to a regular
member for such period as the indebtedness remains unpaid in
which case the board shall be composed of six members; (as
amended by PDs Nos. 768 and 1479).
the manner of their appointment and nominations;
Sec. 9. Appointment. — Board members shall be appointed by the
appointing authority. Said appointments shall be made from a list of
nominees, if any, submitted pursuant to Section 10. If no nominations
are submitted, the appointing authority shall appoint any qualified
person of the category to the vacant position;
Sec. 11. Term of Office. — Of the five initial directors of each newly
formed district, two shall be appointed for a maximum term of two
years, two for a maximum term of four years, and one for a maximum
term of six years. Terms of office of all directors in a given district
shall be such that the term of at least one director, but not more then
two, shall expire on December 31 of each even-numbered year.
Regular terms of office after the initial terms shall be for six years
commencing on January 1 of odd-numbered years. Directors may be
removed for cause only, subject to review and approval of the
Administration; (as amended by PD 768).

the manner of filling up vacancies: Sec. 12. Vacancies. — In the

Sec.10. Nominations. — On or before October 1 of each even
event of a vacancy in the board of directors occurring more than six
numbered year, the secretary of the district shall contact each known
months before expiration of any director's term, the remaining
organization, association, or institution being represented by the
directors shall within 30 days, serve notice to or request the
director whose term will expire on December 31 and solicit
secretary of the district for nominations and within 30 days, thereafter
nominations from these organizations to fill the position for the
a list of nominees shall be submitted to the appointing authority for
ensuing term. One nomination may be submitted in writing by each
his appointment of a replacement director from the list of nominees.
such organization to the Secretary of the district on or before
In the absence of such nominations, the appointing authority shall
November 1 of such year: This list of nominees shall be transmitted
make such appointment. If within 30 days after submission to him of
by the Secretary of the district to the office of the appointing authority
a list of nominees the appointing authority fails to make an
on or before November 15 of such year and he shall make his
appointment, the vacancy shall be filled from such list by a majority
appointment from the list submitted on or before December 15. In the
vote of the remaining members of the Board of Directors constituting
event the appointing authority fails to make his appointments on or
a quorum. Vacancies occurring within the last six months of an
before December 15, selection shall be made from said list of
unexpired term shall also be filled by the Board in the above manner.
nominees by majority vote of the seated directors of the district
The director thus appointed shall serve the unexpired term only; (as
constituting a quorum. Initial nominations for all five seats of the
amended by PD 768).
board shall be solicited by the legislative body or bodies at the time
of adoption of the resolution forming the district. Thirty days
thereafter, a list of nominees shall be submitted to the provincial and the compensation and personal liability of the members of the
governor in the event the resolution forming the district is by a Board of Directors:
provincial board, or the mayor of the city or municipality in the event
the resolution forming the adoption of the district is by the city or Sec. 13. Compensation. — Each director shall receive a per diem, to
municipal board of councilors, who shall select the initial directors be determined by the board, for each meeting of the board actually
therefrom within 15 days after receipt of such nominations; attended by him, but no director shag receive per diems in any given
month in excess of the equivalent of the total per diems of four
their terms of office: meetings in any given month. No director shall receive other
compensation for services to the district.
Any per diem in excess of P50.00 shall be subject to approval of the
Administration (as amended by PD 768).
Sec. 14. Personal Liability. — No director may be held to be
personally liable for any action of the district.
Noteworthy, the above quoted provisions of PD 198, as amended,
are similar to those which are actually contained in other corporate
charters. The conclusion is inescapable that the said decree is in
truth and in fact the charter of the different water districts for it clearly
defines the latter's primary purpose and its basic organizational set-
up. In other words, PD 198, as amended, is the very law which gives
a water district juridical personality. While it is true that a resolution of
a local sanggunian is still necessary for the final creation of a district,
this Court is of the opinion that said resolution cannot be considered
as its charter, the same being intended only to implement the
provisions of said decree. In passing a resolution forming a water
district, the local sanggunian is entrusted with no authority or
discretion to grant a charter for the creation of a private corporation.
It is merely given the authority for the formation of a water district, on
a local option basis, to be exercised under and in pursuance of PD
198.
More than the aforequoted provisions, what is of important interest in
the case at bar is Section 3, par. (b) of the same decree which reads:
Sec. 3(b). Appointing authority. — The person empowered to appoint
the members of the Board of Directors of a local water district,
depending upon the geographic coverage and population make-up of
the particular district. In the event that more than seventy-five
percent of the total active water service connections of a local water
districts are within the boundary of any city or municipality, the
appointing authority shall be the mayor of that city or municipality, as
the case may be; otherwise, the appointing authority shall be the
governor of the province within which the district is located: Provided,
That if the existing waterworks system in the city or municipality
established as a water district under this Decree is operated and
managed by the province, initial appointment shall be extended by
the governor of the province. Subsequent appointments shall be as
specified herein.
If portions of more than one province are included within the
boundary of the district, and the appointing authority is to be the
governors then the power to appoint shall rotate between the
governors involved with the initial appointments made by the
governor in whose province the greatest number of service
connections exists (as amended by PD 768).
The above-quoted section definitely sets to naught petitioners'
contention that they are private corporations. It is clear therefrom that
the power to appoint the members who will comprise the Board of
Directors belongs to the local executives of the local subdivision units
where such districts are located. In contrast, the members of the
Board of Directors or trustees of a private corporation are elected
from among the members and stockholders thereof. It would not be
amiss to emphasize at this point that a private corporation is created
for the private purpose, benefit, aim and end of its members or
stockholders. Necessarily, said members or stockholders should be
given a free hand to choose those who will compose the governing
body of their corporation. But this is not the case here and this clearly
indicates that petitioners are definitely not private corporations.
The foregoing disquisition notwithstanding, We are, however, not
unaware of the serious repercussion this may bring to the thousands
of water districts' employees throughout the country who stand to be
affected because they do not have the necessary civil service
eligibilities. As these employees are equally protected by the
constitutional guarantee to security of tenure, We find it necessary to
rule for the protection of such right which cannot be impaired by a
subsequent ruling of this Court. Thus, those employees who have
already acquired their permanent employment status at the time of
the promulgation of this decision cannot be removed by the mere
reason that they lack the necessary civil service eligibilities.
ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are
declared "government-owned or controlled corporations with original
charter" which fall under the jurisdiction of the public respondents
CSC and COA.
G.R. No. L-6776 May 21, 1955
THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee, vs.
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.
Office of the Solicitor General Querube C. Makalintal and Solicitor
Felix V. Makasiar for appellee.
REYES, J.B.L., J.:
The Register of Deeds for the province of Rizal refused to accept for
record a deed of donation executed in due form on January 22,
1953, by Jesus Dy, a Filipino citizen, conveying a parcel of
residential land, in Caloocan, Rizal, known as lot No. 2, block 48-D,
PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered
religious organization "Ung Siu Si Temple", operating through three
trustees all of Chinese nationality. The donation was duly accepted
by Yu Juan, of Chinese nationality, founder and deaconess of the
Temple, acting in representation and in behalf of the latter and its
trustees.
The refusal of the Registrar was elevated en Consultato the IVth
Branch of the Court of First Instance of Manila. On March 14, 1953,
the Court upheld the action of the Rizal Register of Deeds, saying:
The question raised by the Register of Deeds in the above
transcribed consulta is whether a deed of donation of a parcel of land
executed in favor of a religious organization whose founder, trustees
and administrator are Chinese citizens should be registered or not.
It appearing from the record of the Consulta that UNG SIU SI
TEMPLE is a religious organization whose deaconess, founder,
trustees and administrator are all Chinese citizens, this Court is of
the opinion and so hold that in view of the provisions of the sections
1 and 5 of Article XIII of the Constitution of the
Philippines limiting the acquisition of land in the Philippines to its
citizens, or to corporations or associations at least sixty per centum
of the capital stock of which is owned by such citizens adopted after
the enactment of said Act No. 271, and the decision of the Supreme
Court in the case of Krivenko vs. the Register of Deeds of Manila, the
deed of donation in question should not be admitted for admitted for
registration. (Printed Rec. App. pp 17-18).
Not satisfied with the ruling of the Court of First Instance, counsel for
the donee Uy Siu Si Temple has appealed to this Court, claiming: (1)
that the acquisition of the land in question, for religious purposes, is
authorized and permitted by Act No. 271 of the old Philippine
Commission, providing as follows:
SECTION 1. It shall be lawful for all religious associations, of
whatever sort or denomination, whether incorporated in the
Philippine Islands or in the name of other country, or not incorporated
at all, to hold land in the Philippine Islands upon which to build
churches, parsonages, or educational or charitable institutions.
SEC. 2. Such religious institutions, if not incorporated, shall hold the
land in the name of three Trustees for the use of such
associations; . . .. (Printed Rec. App. p. 5.)
and (2) that the refusal of the Register of Deeds violates the freedom
of religion clause of our Constitution [Art. III, Sec. 1(7)].
We are of the opinion that the Court below has correctly held that in
view of the absolute terms of section 5, Title XIII, of the Constitution,
the provisions of Act No. 271 of the old Philippine Commission must
be deemed repealed since the Constitution was enacted, in so far as
incompatible therewith. In providing that, —
Save in cases of hereditary succession, no private agricultural land
shall be transferred or assigned except to individuals, corporations or
associations qualified to acquire or hold lands of the public domain in
the Philippines, the Constitution makes no exception in favor of
religious associations. Neither is there any such saving found in
sections 1 and 2 of Article XIII, restricting the acquisition of public
agricultural lands and other natural resources to "corporations or
associations at least sixty per centum of the capital of which is
owned by such citizens" (of the Philippines).
The fact that the appellant religious organization has no capital stock
does not suffice to escape the Constitutional inhibition, since it is
admitted that its members are of foreign nationality. The purpose of
the sixty per centum requirement is obviously to ensure that
corporations or associations allowed to acquire agricultural land or to
exploit natural resources shall be controlled by Filipinos; and the
spirit of the Constitution demands that in the absence of capital
stock, the controlling membership should be composed of Filipino
citizens.
To permit religious associations controlled by non-Filipinos to acquire
agricultural lands would be to drive the opening wedge to revive alien
religious land holdings in this country. We can not ignore the
historical fact that complaints against land holdings of that kind were
among the factors that sparked the revolution of 1896.
As to the complaint that the disqualification under article XIII is
violative of the freedom of religion guaranteed by Article III of the
Constitution, we are by no means convinced (nor has it been shown)
that land tenure is indispensable to the free exercise and enjoyment
of religious profession or worship; or that one may not worship the
Deity according to the dictates of his own conscience unless upon
land held in fee simple.
The resolution appealed from is affirmed, with costs against
appellant.
G.R. No. L-6055 June 12, 1953
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs.
WILLIAM H. QUASHA, defendant-appellant.
Jose P. Laurel for appellant and William H. Quasha in his own
behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor
General Francisco Carreon for appellee.
REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in
the Court of First Instance of Manila with the crime of falsification of a
public and commercial document in that, having been entrusted with
the preparation and registration of the article of incorporation of the
Pacific Airways Corporation, a domestic corporation organized for
the purpose of engaging in business as a common carrier, he caused
it to appear in said article of incorporation that one Arsenio Baylon, a
Filipino citizen, had subscribed to and was the owner of 60.005 per
cent of the subscribed capital stock of the corporation when in reality,
as the accused well knew, such was not the case, the truth being
that the owner of the portion of the capital stock subscribed to by
Baylon and the money paid thereon were American citizen whose
name did not appear in the article of incorporation, and that the
purpose for making this false statement was to circumvent the
constitutional mandate that no corporation shall be authorize to
operate as a public utility in the Philippines unless 60 per cent of its
capital stock is owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and
a fine, the accused has appealed to this Court.
The essential facts are not in dispute. On November 4,1946, the
Pacific Airways Corporation registered its articles of incorporation
with the Securities and Exchanged Commission. The article were
prepared and the registration was effected by the accused, who was
in fact the organizer of the corporation. The article stated that the
primary purpose of the corporation was to carry on the business of a
common carrier by air, land or water; that its capital stock was
P1,000,000, represented by 9,000 preferred and 100,000 common
shares, each preferred share being of the par value of p100 and
entitled to 1/3 vote and each common share, of the par value of P1
and entitled to one vote; that the amount capital stock actually
subscribed was P200,000, and the names of the subscribers were
Arsenio Baylon, Eruin E. Shannahan, Albert W. Onstott, James
O'Bannon, Denzel J. Cavin, and William H. Quasha, the first being a
Filipino and the other five all Americans; that Baylon's subscription
was for 1,145 preferred shares, of the total value of P114,500, and
for 6,500 common shares, of the total par value of P6,500, while the
aggregate subscriptions of the American subscribers were for 200
preferred shares, of the total par value of P20,000, and 59,000
common shares, of the total par value of P59,000; and that Baylon
and the American subscribers had already paid 25 per cent of their
respective subscriptions. Ostensibly the owner of, or subscriber to,
60.005 per cent of the subscribed capital stock of the corporation,
Baylon nevertheless did not have the controlling vote because of the
difference in voting power between the preferred shares and the
common shares. Still, with the capital structure as it was, the article
of incorporation were accepted for registration and a certificate of
incorporation was issued by the Securities and Exchange
Commission.
There is no question that Baylon actually subscribed to 60.005 per
cent of the subscribed capital stock of the corporation. But it is
admitted that the money paid on his subscription did not belong to
him but to the Americans subscribers to the corporate stock. In
explanation, the accused testified, without contradiction, that in the
process of organization Baylon was made a trustee for the American
incorporators, and that the reason for making Baylon such trustee
was as follows:
Q. According to this article of incorporation Arsenio Baylon
subscribed to 1,135 preferred shares with a total value of P1,135. Do
you know how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose
names are listed on page 7 of this certified copy came to my house,
Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and
Anastasakas one evening. There was considerable difficulty to get
them all together at one time because they were pilots. They had
difficulty in deciding what their respective share holdings would be.
Onstott had invested a certain amount of money in airplane surplus
property and they had obtained a considerable amount of money on
those planes and as I recall they were desirous of getting a
corporation formed right away. And they wanted to have their
respective shares holdings resolved at a latter date. They stated that
they could get together that they feel that they had no time to settle
their respective share holdings. We discussed the matter and finally
it was decided that the best way to handle the things was not to put
the shares in the name of anyone of the interested parties and to
have someone act as trustee for their respective shares holdings. So
we looked around for a trustee. And he said "There are a lot of
people whom I trust." He said, "Is there someone around whom we
could get right away?" I said, "There is Arsenio. He was my boy
during the liberation and he cared for me when i was sick and i said i
consider him my friend." I said. They all knew Arsenio. He is a very
kind man and that was what was done. That is how it came about.
Defendant is accused under article 172 paragraph 1, in connection
with article 171, paragraph 4, of the Revised Penal Code, which
read: ART. 171. Falsification by public officer, employee, or notary or
ecclesiastic minister. — The penalty of prision mayor and a fine not
to exceed 5,000 pesos shall be imposed upon any public officer,
employee, or notary who, taking advantage of his official position,
shall falsify a document by committing any of the following acts:
xxx xxx xxx
4. Making untruthful statements in a narration of facts.
ART. 172. Falsification by private individuals and use of falsified
documents. — The penalty of prision correccional in its medium and
maximum period and a fine of not more than 5,000 pesos shall be
imposed upon:
xxx xxx xxx
1. Any private individual who shall commit any of the falsifications
enumerated in the next preceding article in any public or official
document or letter of exchange or any other kind of commercial
document.
Commenting on the above provision, Justice Albert, in his well-
known work on the Revised Penal Code ( new edition, pp. 407-408),
observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the
perversion of truth in the narration of facts must be made with the
wrongful intent of injuring a third person; and on the authority of U.S.
vs. Lopez (15 Phil., 515), the same author further maintains that
even if such wrongful intent is proven, still the untruthful statement
will not constitute the crime of falsification if there is no legal
obligation on the part of the narrator to disclose the truth. Wrongful
intent to injure a third person and obligation on the part of the
narrator to disclose the truth are thus essential to a conviction for a
crime of falsification under the above article of the Revised Penal
Code.
Now, as we see it, the falsification imputed in the accused in the
present case consists in not disclosing in the articles of incorporation
that Baylon was a mere trustee ( or dummy as the prosecution
chooses to call him) of his American co-incorporators, thus giving the
impression that Baylon was the owner of the shares subscribed to by
him which, as above stated, amount to 60.005 per cent of the sub-
scribed capital stock. This, in the opinion of the trial court, is a
malicious perversion of the truth made with the wrongful intent
circumventing section 8, Article XIV of the Constitution, which
provides that " no franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporation or other entities
organized under the law of the Philippines, sixty per centum of the
capital of which is owned by citizens of the Philippines . . . ."
Plausible though it may appear at first glance, this opinion loses
validity once it is noted that it is predicated on the erroneous
assumption that the constitutional provision just quoted was meant to
prohibit the mere formation of a public utility corporation without 60
per cent of its capital being owned by the Filipinos, a mistaken belief
which has induced the lower court to that the accused was under
obligation to disclose the whole truth about the nationality of the
subscribed capital stock of the corporation by revealing that Baylon
was a mere trustee or dummy of his American co-incorporators, and
that in not making such disclosure defendant's intention was to
circumvent the Constitution to the detriment of the public interests.
Contrary to the lower court's assumption, the Constitution does not
prohibit the mere formation of a public utility corporation without the
required formation of Filipino capital. What it does prohibit is the
granting of a franchise or other form of authorization for the operation
of a public utility to a corporation already in existence but without the
requisite proportion of Filipino capital. This is obvious from the
context, for the constitutional provision in question qualifies the terms
" franchise", "certificate", or "any other form of authorization" with the
phrase "for the operation of a public utility," thereby making it clear
that the franchise meant is not the "primary franchise" that invest a
body of men with corporate existence but the "secondary franchise"
or the privilege to operate as a public utility after the corporation has
already come into being.
If the Constitution does not prohibit the mere formation of a public
utility corporation with the alien capital, then how can the accused be
charged with having wrongfully intended to circumvent that
fundamental law by not revealing in the articles of incorporation that
Baylon was a mere trustee of his American co-incorporation and that
for that reason the subscribed capital stock of the corporation was
wholly American? For the mere formation of the corporation such
revelation was not essential, and the Corporation Law does not
require it. Defendant was, therefore, under no obligation to make it.
In the absence of such obligation and of the allege wrongful intent,
defendant cannot be legally convicted of the crime with which he is
charged.
It is urged, however, that the formation of the corporation with 60 per
cent of its subscribed capital stock appearing in the name of Baylon
was an indispensable preparatory step to the subversion of the
constitutional prohibition and the laws implementing the policy act has ceased to be an offense within the meaning of the law, so
expressed therein. This view is not correct. For a corporation to be that defendant can no longer be held criminally liable therefor.
entitled to operate a public utility it is not necessary that it be
organized with 60 per cent of its capital owned by Filipinos from the In view of the foregoing, the judgment appealed from is reversed and
start. A corporation formed with capital that is entirely alien may the defendant William H. Quasha acquitted, with costs de oficio.
subsequently change the nationality of its capital through transfer of
shares to Filipino citizens. conversely, a corporation originally formed
with Filipino capital may subsequently change the national status of
said capital through transfer of shares to foreigners. What need is
there then for a corporation that intends to operate a public utility to
have, at the time of its formation, 60 per cent of its capital owned by
Filipinos alone? That condition may anytime be attained thru the
necessary transfer of stocks. The moment for determining whether a
corporation is entitled to operate as a public utility is when it applies
for a franchise, certificate, or any other form of authorization for that
purpose. And that can be done after the corporation has already
come into being and not while it is still being formed. And at that
moment, the corporation must show that it has complied not only with
the requirement of the Constitution as to the nationality of its capital,
but also with the requirements of the Civil Aviation Law if it is a
common carrier by air, the Revised Administrative Code if it is a
common carrier by water, and the Public Service Law if it is a
common carrier by land or other kind of public service. ---Equally
untenable is the suggestion that defendant should at least be held
guilty of an "impossible crime" under article 59 of the Revised Penal
Code. It not being possible to suppose that defendant had intended
to commit a crime for the simple reason that the alleged
constitutional prohibition which he is charged for having tried to
circumvent does not exist, conviction under that article is out of the
question. --The foregoing consideration can not but lead to the
conclusion that the defendant can not be held guilty of the crime
charged. The majority of the court, however, are also of the opinion
that, even supposing that the act imputed to the defendant
constituted falsification at the time it was perpetrated, still with the
approval of the Party Amendment to the Constitution in March, 1947,
which placed Americans on the same footing as Filipino citizens with
respect to the right to operate public utilities in the Philippines, thus
doing away with the prohibition in section 8, Article XIV of the
Constitution in so far as American citizens are concerned, the said
G.R. No. L-2294 May 25, 1951
FILIPINAS COMPAÑIA DE SEGUROS, petitioner, vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner. Ewald Huenefeld for respondent.
PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern
Huenefeld, & Co., Inc., after payment of corresponding premium,
obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No.
29333 in the sum of P1000,000, covering merchandise contained in
a building located at No. 711 Roman Street, Binondo Manila. On
February 27, 1942, or during the Japanese military occupation, the
building and insured merchandise were burned. In due time the
respondent submitted to the petitioner its claim under the policy. The
salvage goods were sold at public auction and, after deducting their
value, the total loss suffered by the respondent was fixed at P92,650.
The petitioner refused to pay the claim on the ground that the policy
in favor of the respondent had ceased to be in force on the date the
United States declared war against Germany, the respondent
Corporation (though organized under and by virtue of the laws of the
Philippines) being controlled by the German subjects and the
petitioner being a company under American jurisdiction when said
policy was issued on October 1, 1941. The petitioner, however, in
pursuance of the order of the Director of Bureau of Financing,
Philippine Executive Commission, dated April 9, 1943, paid to the
respondent the sum of P92,650 on April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First
Instance of Manila for the purpose of recovering from the respondent
the sum of P92,650 above mentioned. The theory of the petitioner is
that the insured merchandise were burned up after the policy issued
in 1941 in favor of the respondent corporation has ceased to be
effective because of the outbreak of the war between the United
States and Germany on December 10, 1941, and that the payment
made by the petitioner to the respondent corporation during the
Japanese military occupation was under pressure. After trial, the
Court of First Instance of Manila dismissed the action without
pronouncement as to costs. Upon appeal to the Court of Appeals,
the judgment of the Court of First Instance of Manila was affirmed,
with costs. The case is now before us on appeal by certiorari from
the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that
the respondent corporation became an enemy when the United
States declared war against Germany, relying on English and
American cases which held that a corporation is a citizen of the
country or state by and under the laws of which it was created or
organized. It rejected the theory that nationality of private corporation
is determine by the character or citizenship of its controlling
stockholders.
There is no question that majority of the stockholders of the
respondent corporation were German subjects. This being so, we
have to rule that said respondent became an enemy corporation
upon the outbreak of the war between the United States and
Germany. The English and American cases relied upon by the Court
of Appeals have lost their force in view of the latest decision of the
Supreme Court of the United States in Clark vs. Uebersee Finanz
Korporation, decided on December 8, 1947, 92 Law. Ed. Advance
Opinions, No. 4, pp. 148-153, in which the controls test has been
adopted. In "Enemy Corporation" by Martin Domke, a paper
presented to the Second International Conference of the Legal
Profession held at the Hague (Netherlands) in August. 1948 the
following enlightening passages appear:
Since World War I, the determination of enemy nationality of
corporations has been discussion in many countries, belligerent and
neutral. A corporation was subject to enemy legislation when it was
controlled by enemies, namely managed under the influence of
individuals or corporations, themselves considered as enemies. It
was the English courts which first the Daimler case applied this new
concept of "piercing the corporate veil," which was adopted by the
peace of Treaties of 1919 and the Mixed Arbitral established after the
First World War.
The United States of America did not adopt the control test during
the First World War. Courts refused to recognized the concept
whereby American-registered corporations could be considered as
enemies and thus subject to domestic legislation and administrative
measures regarding enemy property.
World War II revived the problem again. It was known that German
and other enemy interests were cloaked by domestic corporation
structure. It was not only by legal ownership of shares that a material
influence could be exercised on the management of the corporation
but also by long term loans and other factual situations. For that
reason, legislation on enemy property enacted in various countries
during World War II adopted by statutory provisions to the control
test and determined, to various degrees, the incidents of control.
Court decisions were rendered on the basis of such newly enacted
statutory provisions in determining enemy character of domestic
corporation.
The United States did not, in the amendments of the Trading with the
Enemy Act during the last war, include as did other legislations the
applications of the control test and again, as in World War I, courts
refused to apply this concept whereby the enemy character of an
American or neutral-registered corporation is determined by the
enemy nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing
regulations, and other administrative practice in the treatment of
foreign-owned property in the United States allowed to large degree
the determination of enemy interest in domestic corporations and
thus the application of the control test. Court decisions sanctioned
such administrative practice enacted under the First War Powers Act
of 1941, and more recently, on December 8, 1947, the Supreme
Court of the United States definitely approved of the control theory.
In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a
Swiss corporation allegedly controlled by German interest, the Court:
"The property of all foreign interest was placed within the reach of
the vesting power (of the Alien Property Custodian) not to
appropriate friendly or neutral assets but to reach enemy interest
which masqueraded under those innocent fronts. . . . The power of
seizure and vesting was extended to all property of any foreign
country or national so that no innocent appearing device could
become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the
authorities cited in support of the appealed decision. However, we
may add that, in Haw Pia vs. China Banking Corporation,* 45 Off
Gaz., (Supp. 9) 299, we already held that China Banking Corporation
came within the meaning of the word "enemy" as used in the Trading
with the Enemy Acts of civilized countries not only because it was
incorporated under the laws of an enemy country but because it was
controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in
section 8, provides that "anyone except a public enemy may be
insured." It stands to reason that an insurance policy ceases to be
allowable as soon as an insured becomes a public enemy.
Effect of war, generally. — All intercourse between citizens of
belligerent powers which is inconsistent with a state of war is
prohibited by the law of nations. Such prohibition includes all
negotiations, commerce, or trading with the enemy; all acts which will
increase, or tend to increase, its income or resources; all acts of
voluntary submission to it; or receiving its protection; also all acts
concerning the transmission of money or goods; and all contracts
relating thereto are thereby nullified. It further prohibits insurance
upon trade with or by the enemy, upon the life or lives of aliens
engaged in service with the enemy; this for the reason that the
subjects of one country cannot be permitted to lend their assistance
to protect by insurance the commerce or property of belligerent, alien
subjects, or to do anything detrimental too their country's interest.
The purpose of war is to cripple the power and exhaust the
resources of the enemy, and it is inconsistent that one country
should destroy its enemy's property and repay in insurance the value
of what has been so destroyed, or that it should in such manner
increase the resources of the enemy, or render it aid, and the
commencement of war determines, for like reasons, all trading
intercourse with the enemy, which prior thereto may have been
lawful. All individuals therefore, who compose the belligerent powers,
exist, as to each other, in a state of utter exclusion, and are public
enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only
from year, or for some other specified term it is plain that when the
parties become alien enemies, the contractual tie is broken and the
contractual rights of the parties, so far as not vested. lost. (Vance,
the Law on Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December
10, 1941, the insurance policy issued in its favor on October 1, 1941,
by the petitioner (a Philippine corporation) had ceased to be valid
and enforcible, and since the insured goods were burned after
December 10, 1941, and during the war, the respondent was not
entitled to any indemnity under said policy from the petitioner.
However, elementary rules of justice (in the absence of specific
provision in the Insurance Law) require that the premium paid by the
respondent for the period covered by its policy from December 11,
1941, should be returned by the petitioner.
Christern, Huenefeld & Co., Inc. The payment of said claim,
however, should be made by means of crossed check." (Emphasis
supplied.)
It results that the petitioner is entitled to recover what paid to the
respondent under the circumstances on this case. However, the
petitioner will be entitled to recover only the equivalent, in actual
Philippines currency of P92,650 paid on April 19, 1943, in
accordance with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the
respondent corporation is ordered to pay to the petitioner the sum of
P77,208.33, Philippine currency, less the amount of the premium, in
Philippine currency, that should be returned by the petitioner for the
unexpired term of the policy in question, beginning December 11,
1941. Without costs. So ordered.

The Court of Appeals, in deciding the case, stated that the main
issue hinges on the question of whether the policy in question
became null and void upon the declaration of war between the
United States and Germany on December 10, 1941, and its
judgment in favor of the respondent corporation was predicated on
its conclusion that the policy did not cease to be in force. The Court
of Appeals necessarily assumed that, even if the payment by the
petitioner to the respondent was involuntary, its action is not tenable
in view of the ruling on the validity of the policy. As a matter of fact,
the Court of Appeals held that "any intimidation resorted to by the
appellee was not unjust but the exercise of its lawful right to claim for
and received the payment of the insurance policy," and that the
ruling of the Bureau of Financing to the effect that "the appellee was
entitled to payment from the appellant was, well founded." Factually,
there can be no doubt that the Director of the Bureau of Financing, in
ordering the petitioner to pay the claim of the respondent, merely
obeyed the instruction of the Japanese Military Administration, as
may be seen from the following: "In view of the findings and
conclusion of this office contained in its decision on Administrative
Case dated February 9, 1943 copy of which was sent to your office
and the concurrence therein of the Financial Department of the
Japanese Military Administration, and following the instruction of said
authority, you are hereby ordered to pay the claim of Messrs.
G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO
MINING AND DEVELOPMENT, INC., and MCARTHUR MINING,
INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45
filed by Narra Nickel and Mining Development Corp. (Narra), Tesoro
Mining and Development, Inc. (Tesoro), and McArthur Mining Inc.
(McArthur), which seeks to reverse the October 1, 2010
Decision1 and the February 15, 2011 Resolution of the Court of
Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated
Mines Corp. (Redmont), a domestic corporation organized and
existing under Philippine laws, took interest in mining and exploring
certain areas of the province of Palawan. After inquiring with the
Department of Environment and Natural Resources (DENR), it
learned that the areas where it wanted to undertake exploration and
mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro
and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie
Mining, Inc. (SMMI), filed an application for an MPSA and
Exploration Permit (EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department of Environment and
Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an
area of over 1,782 hectares in Barangay Sumbiling, Municipality of
Bataraza, Province of Palawan and EPA-IVB-44 which includes an
area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan.
The MPSA and EP were then transferred to Madridejos Mining
Corporation (MMC) and, on November 6, 2006, assigned to
petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining & Development
Corporation (PLMDC) which previously filed an application for an
MPSA with the MGB, Region IV-B, DENR on January 6, 1992.
Through the said application, the DENR issued MPSA-IV-1-12
covering an area of 3.277 hectares in barangays Calategas and San
Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC
conveyed, transferred and/or assigned its rights and interests over
the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region
IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over
3,402 hectares in Barangays Malinao and Princesa Urduja,
Municipality of Narra, Province of Palawan. SMMI subsequently
conveyed, transferred and assigned its rights and interest over the
said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators
(POA) of the DENR three (3) separate petitions for the denial of
petitioners’ applications for MPSA designated as AMA-IVB-153,
AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital
stock of McArthur, Tesoro and Narra are owned and controlled by
MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a considerable stockholder of
petitioners, it was the driving force behind petitioners’ filing of the
MPSAs over the areas covered by applications since it knows that it
can only participate in mining activities through corporations which
are deemed Filipino citizens. Redmont argued that given that
petitioners’ capital stocks were mostly owned by MBMI, they were
likewise disqualified from engaging in mining activities through
MPSAs, which are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons
under Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine
Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act,
the following terms, whether in singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with
capacity to contract, or a corporation, partnership, association, or
cooperative organized or authorized for the purpose of engaging in
mining, with technical and financial capability to undertake mineral
resources development and duly registered in accordance with law at
least sixty per cent (60%) of the capital of which is owned by citizens
of the Philippines: Provided, That a legally organized foreign-owned
corporation shall be deemed a qualified person for purposes of
granting an exploration permit, financial or technical assistance
agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is
immaterial because they also applied for Financial or Technical
Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for
McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra,
which are granted to foreign-owned corporations. Nevertheless, they
claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60%
of their capital is owned by citizens of the Philippines. They asserted
that though MBMI owns 40% of the shares of PLMC (which owns
5,997 shares of Narra),3 40% of the shares of MMC (which owns
5,997 shares of McArthur)4 and 40% of the shares of SLMC (which,
in turn, owns 5,997 shares of Tesoro),5 the shares of MBMI will not
make it the owner of at least 60% of the capital stock of each of
petitioners. They added that the best tool used in determining the
nationality of a corporation is the "control test," embodied in Sec. 3 of
RA 7042 or the Foreign Investments Act of 1991. They also claimed
that the POA of DENR did not have jurisdiction over the issues in
Redmont’s petition since they are not enumerated in Sec. 77 of RA
7942. Finally, they stressed that Redmont has no personality to sue
them because it has no pending claim or application over the areas
applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying
petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants
to engage in mining activities. On the other hand, [Redmont] having
filed its own applications for an EPA over the areas earlier covered
by the MPSA application of respondents may be considered if and
when they are qualified under the law. The violation of the
requirements for the issuance and/or grant of permits over mining
areas is clearly established thus, there is reason to believe that the
cancellation and/or revocation of permits already issued under the
premises is in order and open the areas covered to other qualified
applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents,
McArthur Mining Inc., Tesoro Mining and Development, Inc., and
Narra Nickel Mining and Development Corp. as, DISQUALIFIED for
being considered as Foreign Corporations. Their Mineral Production
Sharing Agreement (MPSA) are hereby x x x DECLARED NULL
AND VOID.6
The POA considered petitioners as foreign corporations being
"effectively controlled" by MBMI, a 100% Canadian company and
declared their MPSAs null and void. In the same Resolution, it gave
due course to Redmont’s EPAs. Thereafter, on February 7, 2008, the
POA issued an Order7 denying the Motion for Reconsideration filed
by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and
Tesoro filed a joint Notice of Appeal8 and Memorandum of
Appeal9 with the Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal10 and Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they
are qualified persons under the law. Also, through a letter, they
informed the MAB that they had their individual MPSA applications
converted to FTAAs. McArthur’s FTAA was denominated as AFTA-
IVB-0912 on May 2007, while Tesoro’s MPSA application was
converted to AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA
was converted to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the
MAB, Redmont filed a Complaint15 with the Securities and Exchange
Commission (SEC), seeking the revocation of the certificates for
registration of petitioners on the ground that they are foreign-owned
or controlled corporations engaged in mining in violation of Philippine
laws. Thereafter, Redmont filed on September 1, 2008 a
Manifestation and Motion to Suspend Proceeding before the MAB
praying for the suspension of the proceedings on the appeals filed by
McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the
Regional Trial Court of Quezon City, Branch 92 (RTC) a
Complaint16 for injunction with application for issuance of a temporary
restraining order (TRO) and/or writ of preliminary injunction,
docketed as Civil Case No. 08-63379. Redmont prayed for the
deferral of the MAB proceedings pending the resolution of the
Complaint before the SEC.
But before the RTC can resolve Redmont’s Complaint and
applications for injunctive reliefs, the MAB issued an Order on
September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication
Board hereby REVERSES and SETS ASIDE the Resolution dated
14 December 2007 of the Panel of Arbitrators of Region IV-B
(MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02 and 2007-
03, and its Order dated 07 February 2008 denying the Motions for
Reconsideration of the Appellants. The Petition filed by Redmont
Consolidated Mines Corporation on 02 January 2007 is hereby
ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an
Order18 granting Redmont’s application for a TRO and setting the
case for hearing the prayer for the issuance of a writ of preliminary
injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for
Reconsideration19 of the September 10, 2008 Order of the MAB.
Subsequently, it filed a Supplemental Motion for
Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmont’s Motion for Reconsideration
and Supplemental Motion for Reconsideration, Redmont filed before
the RTC a Supplemental Complaint21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order22 granting the
issuance of a writ of preliminary injunction enjoining the MAB from
finally disposing of the appeals of petitioners and from resolving
Redmont’s Motion for Reconsideration and Supplement Motion for
Reconsideration of the MAB’s September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying
Redmont’s Motion for Reconsideration and Supplemental Motion for
Reconsideration and resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA,
assailing the Orders issued by the MAB. On October 1, 2010, the CA
rendered a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed
Orders, dated September 10, 2008 and July 1, 2009 of the Mining
Adjudication Board are reversed and set aside. The findings of the
Panel of Arbitrators of the Department of Environment and Natural
Resources that respondents McArthur, Tesoro and Narra are foreign
corporations is upheld and, therefore, the rejection of their
applications for Mineral Product Sharing Agreement should be
recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro
and Narra for Financial or Technical Assistance Agreement (FTAA)
or conversion of their MPSA applications to FTAA, the matter for its
rejection or approval is left for determination by the Secretary of the
DENR and the President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion
for Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was
doubt as to the nationality of petitioners when it realized that
petitioners had a common major investor, MBMI, a corporation
composed of 100% Canadians. Pursuant to the first sentence of
paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series
of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the
exploitation of natural resources, the CA used the "grandfather rule"
to determine the nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as
of Philippine nationality, but if the percentage of Filipino ownership in
the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least 60% of the capital stock
or capital, respectively, of which belong to Filipino citizens, all of the
shares shall be recorded as owned by Filipinos. But if less than 60%,
or say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000
shares shall be recorded as belonging to aliens.24 (emphasis
supplied)
In determining the nationality of petitioners, the CA looked into their
corporate structures and their corresponding common shareholders.
Using the grandfather rule, the CA discovered that MBMI in effect
owned majority of the common stocks of the petitioners as well as at
least 60% equity interest of other majority shareholders of petitioners
through joint venture agreements. The CA found that through a "web
of corporate layering, it is clear that one common controlling investor
in all mining corporations involved x x x is MBMI."25 Thus, it
concluded that petitioners McArthur, Tesoro and Narra are also in
partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA
applications of petitioners into FTAA applications suspicious in
nature and, as a consequence, it recommended the rejection of
petitioners’ MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas,
the CA pointed out that the POA has jurisdiction over them and that it
also has the power to determine the of nationality of petitioners as a
prerequisite of the Constitution prior the conferring of rights to "co-
production, joint venture or production-sharing agreements" of the
state to mining rights. However, it also stated that the POA’s
jurisdiction is limited only to the resolution of the dispute and not on
the approval or rejection of the MPSAs. It stipulated that only the
Secretary of the DENR is vested with the power to approve or reject
applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14,
2007 Resolution which considered petitioners McArthur, Tesoro and
Narra as foreign corporations. Nevertheless, the CA determined that
the POA’s declaration that the MPSAs of McArthur, Tesoro and
Narra are void is highly improper.
While the petition was pending with the CA, Redmont filed with the
Office of the President (OP) a petition dated May 7, 2010 seeking the
cancellation of petitioners’ FTAAs. The OP rendered a Decision26 on
April 6, 2011, wherein it canceled and revoked petitioners’ FTAAs for
violating and circumventing the "Constitution x x x[,] the Small Scale
Mining Law and Environmental Compliance Certificate as well as
Sections 3 and 8 of the Foreign Investment Act and E.O. 584."27 The
OP, in affirming the cancellation of the issued FTAAs, agreed with
Redmont stating that petitioners committed violations against the
abovementioned laws and failed to submit evidence to negate them.
The Decision further quoted the December 14, 2007 Order of the
POA focusing on the alleged misrepresentation and claims made by
petitioners of being domestic or Filipino corporations and the
admitted continued mining operation of PMDC using their locally
secured Small Scale Mining Permit inside the area earlier applied for
an MPSA application which was eventually transferred to Narra. It
also agreed with the POA’s estimation that the filing of the FTAA
applications by petitioners is a clear admission that they are "not
capable of conducting a large scale mining operation and that they
need the financial and technical assistance of a foreign entity in their
operation, that is why they sought the participation of MBMI
Resources, Inc."28 The Decision further quoted:
The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining. The
filing of the FTAA application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that indeed the
respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in their head office in
Canada suggest that they are conducting operation only through
their local counterparts.29
The Motion for Reconsideration of the Decision was further denied
by the OP in a Resolution30 dated July 6, 2011. Petitioners then filed
a Petition for Review on Certiorari of the OP’s Decision and
Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the
CA Decision dated February 29, 2012, the CA affirmed the Decision
and Resolution of the OP. Thereafter, petitioners appealed the same
CA decision to this Court which is now pending with a different
division.
Thus, the instant petition for review against the October 1, 2010
Decision of the CA. Petitioners put forth the following errors of the
CA:
I.
The Court of Appeals erred when it did not dismiss the case
for mootness despite the fact that the subject matter of the
controversy, the MPSA Applications, have already been
converted into FTAA applications and that the same have
already been granted.
II.
The Court of Appeals erred when it did not dismiss the case
for lack of jurisdiction considering that the Panel of
Arbitrators has no jurisdiction to determine the nationality of
Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case
on account of Redmont’s willful forum shopping.
IV.
The Court of Appeals’ ruling that Narra, Tesoro and
McArthur are foreign corporations based on the "Grandfather
Rule" is contrary to law, particularly the express mandate of
the Foreign Investments Act of 1991, as amended, and the
FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to
the res inter alios acta rule.
VI.
The Court of Appeals erred when it concluded that the
conversion of the MPSA Applications into FTAA Applications
were of "suspicious nature" as the same is based on mere
conjectures and surmises without any shred of evidence to
show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant
case as moot is without merit.
Basically, a case is said to be moot and/or academic when it "ceases
to present a justiciable controversy by virtue of supervening events,
so that a declaration thereon would be of no practical use or
value."32 Thus, the courts "generally decline jurisdiction over the case
or dismiss it on the ground of mootness."33
The "mootness" principle, however, does accept certain exceptions
and the mere raising of an issue of "mootness" will not deter the
courts from trying a case when there is a valid reason to do so. In
David v. Macapagal-Arroyo (David), the Court provided four
instances where courts can decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount
public interest is involved;
3.) When constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the
public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant case.
We of this Court note that a grave violation of the Constitution,
specifically Section 2 of Article XII, is being committed by a foreign
corporation right under our country’s nose through a myriad of
corporate layering under different, allegedly, Filipino corporations.
The intricate corporate layering utilized by the Canadian company,
MBMI, is of exceptional character and involves paramount public
interest since it undeniably affects the exploitation of our Country’s
natural resources. The corresponding actions of petitioners during
the lifetime and existence of the instant case raise questions as what
principle is to be applied to cases with similar issues. No definite
ruling on such principle has been pronounced by the Court; hence,
the disposition of the issues or errors in the instant case will serve as
a guide "to the bench, the bar and the public."35 Finally, the instant
case is capable of repetition yet evading review, since the Canadian
company, MBMI, can keep on utilizing dummy Filipino corporations
through various schemes of corporate layering and conversion of
applications to skirt the constitutional prohibition against foreign
mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error
presented by petitioners since both involve the conversion of MPSA
applications to FTAA applications. Petitioners propound that the CA
erred in ruling against them since the questioned MPSA applications
were already converted into FTAA applications; thus, the issue on
the prohibition relating to MPSA applications of foreign mining
corporations is academic. Also, petitioners would want us to correct
the CA’s finding which deemed the aforementioned conversions of
applications as suspicious in nature, since it is based on mere
conjectures and surmises and not supported with evidence.
We disagree.
The CA’s analysis of the actions of petitioners after the case was
filed against them by respondent is on point. The changing of
applications by petitioners from one type to another just because a
case was filed against them, in truth, would raise not a few sceptics’
eyebrows. What is the reason for such conversion? Did the said
conversion not stem from the case challenging their citizenship and
to have the case dismissed against them for being "moot"? It is quite
obvious that it is petitioners’ strategy to have the case dismissed
against them for being "moot."
Consider the history of this case and how petitioners responded to
every action done by the court or appropriate government agency: on
January 2, 2007, Redmont filed three separate petitions for denial of
the MPSA applications of petitioners before the POA. On June 15,
2007, petitioners filed a conversion of their MPSA applications to
FTAAs. The POA, in its December 14, 2007 Resolution, observed
this suspect change of applications while the case was pending
before it and held:
The filing of the Financial or Technical Assistance Agreement
application is a clear admission that the respondents are not capable
of conducting a large scale mining operation and that they need the
financial and technical assistance of a foreign entity in their operation
that is why they sought the participation of MBMI Resources, Inc.
The participation of MBMI in the corporation only proves the fact that
it is the Canadian company that will provide the finances and the
resources to operate the mining areas for the greater benefit and
interest of the same and not the Filipino stockholders who only have
a less substantial financial stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining. The
filing of the FTAA application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that indeed the
respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in their head office in
Canada suggest that they are conducting operation only through
their local counterparts.36
On October 1, 2010, the CA rendered a Decision which partially
granted the petition, reversing and setting aside the September 10,
2008 and July 1, 2009 Orders of the MAB. In the said Decision, the
CA upheld the findings of the POA of the DENR that the herein
petitioners are in fact foreign corporations thus a recommendation of
the rejection of their MPSA applications were recommended to the
Secretary of the DENR. With respect to the FTAA applications or
conversion of the MPSA applications to FTAAs, the CA deferred the
matter for the determination of the Secretary of the DENR and the
President of the Republic of the Philippines.37
In their Motion for Reconsideration dated October 26, 2010,
petitioners prayed for the dismissal of the petition asserting that on
April 5, 2010, then President Gloria Macapagal-Arroyo signed and
issued in their favor FTAA No. 05-2010-IVB, which rendered the
petition moot and academic. However, the CA, in a Resolution dated
February 15, 2011 denied their motion for being a mere "rehash of
their claims and defenses."38 Standing firm on its Decision, the CA
affirmed the ruling that petitioners are, in fact, foreign corporations.
On April 5, 2011, petitioners elevated the case to us via a Petition for
Review on Certiorari under Rule 45, questioning the Decision of the
CA. Interestingly, the OP rendered a Decision dated April 6, 2011, a
day after this petition for review was filed, cancelling and revoking
the FTAAs, quoting the Order of the POA and stating that petitioners
are foreign corporations since they needed the financial strength of
MBMI, Inc. in order to conduct large scale mining operations. The OP
Decision also based the cancellation on the misrepresentation of
facts and the violation of the "Small Scale Mining Law and
Environmental Compliance Certificate as well as Sections 3 and 8 of
the Foreign Investment Act and E.O. 584."39 On July 6, 2011, the OP
issued a Resolution, denying the Motion for Reconsideration filed by
the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011,
made known to the Court the fact of the OP’s Decision and
Resolution. In their Reply, petitioners chose to ignore the OP
Decision and continued to reuse their old arguments claiming that
they were granted FTAAs and, thus, the case was moot. Petitioners
filed a Manifestation and Submission dated October 19,
2012,40 wherein they asserted that the present petition is moot since,
in a remarkable turn of events, MBMI was able to sell/assign all its
shares/interest in the "holding companies" to DMCI Mining
Corporation (DMCI), a Filipino corporation and, in effect, making their
respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this
case dismissed for being "moot." Their final act, wherein MBMI was
able to allegedly sell/assign all its shares and interest in the petitioner
"holding companies" to DMCI, only proves that they were in fact not
Filipino corporations from the start. The recent divesting of interest
by MBMI will not change the stand of this Court with respect to the
nationality of petitioners prior the suspicious change in their
corporate structures. The new documents filed by petitioners are
factual evidence that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP
declared that petitioner corporations have violated several mining
laws and made misrepresentations and falsehood in their
applications for FTAA which lead to the revocation of the said
FTAAs, demonstrating that petitioners are not beyond going against
or around the law using shifty actions and strategies. Thus, in this
instance, we can say that their claim of mootness is moot in itself
because their defense of conversion of MPSAs to FTAAs has been
discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners’
nationality, whether Filipino or foreign. In their previous petitions,
they had been adamant in insisting that they were Filipino
corporations, until they submitted their Manifestation and Submission
dated October 19, 2012 where they stated the alleged change of
corporate ownership to reflect their Filipino ownership. Thus, there is
a need to determine the nationality of petitioner corporations.
Basically, there are two acknowledged tests in determining the
nationality of a corporation: the control test and the grandfather rule.
Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the
1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the controlling interests in
enterprises engaged in the exploitation of natural resources owned
by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as
of Philippine nationality, but if the percentage of Filipino ownership in
the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least 60% of the capital stock
or capital, respectively, of which belong to Filipino citizens, all of the
shares shall be recorded as owned by Filipinos. But if less than 60%,
or say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000
shares shall be counted as owned by Filipinos and the other 50,000
shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares
belonging to corporations or partnerships at least 60% of the capital
of which is owned by Filipino citizens shall be considered as of
Philippine nationality," pertains to the control test or the liberal rule.
On the other hand, the second part of the DOJ Opinion which
provides, "if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as
Philippine nationality," pertains to the stricter, more stringent
grandfather rule.
Prior to this recent change of events, petitioners were constant in
advocating the application of the "control test" under RA 7042, as
amended by RA 8179, otherwise known as the Foreign Investments
Act (FIA), rather than using the stricter grandfather rule. The
pertinent provision under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the
Philippines; or a domestic partnership or association wholly owned
by the citizens of the Philippines; a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That were a corporation and
its non-Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens of the
Philippines and at least sixty percent (60%) of the members of the
Board of Directors, in order that the corporation shall be considered a
Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in
the instant case since the definition of a "Philippine National" under
Sec. 3 of the FIA does not provide for it. They further claim that the
grandfather rule "has been abandoned and is no longer the
applicable rule."41 They also opined that the last portion of Sec. 3 of
the FIA admits the application of a "corporate layering" scheme of
corporations. Petitioners claim that the clear and unambiguous
wordings of the statute preclude the court from construing it and
prevent the court’s use of discretion in applying the law. They said
that the plain, literal meaning of the statute meant the application of
the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA;
but if it is used to circumvent the Constitution and pertinent laws,
then it becomes illegal. Further, the pronouncement of petitioners
that the grandfather rule has already been abandoned must be
discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal,
petroleum and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural
lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall
be under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production,
joint venture or production-sharing agreements with Filipino citizens,
or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may be
provided by law.
xxxx
The President may enter into agreements with Foreign-owned
corporations involving either technical or financial assistance for
large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils according to the general terms and
conditions provided by law, based on real contributions to the
economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of
local scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State
entering into different types of agreements for the exploration,
development, and utilization of natural resources with entities who
are deemed Filipino due to 60 percent ownership of capital is
pertinent to this case, since the issues are centered on the utilization
of our country’s natural resources or specifically, mining. Thus, there
is a need to ascertain the nationality of petitioners since, as the
Constitution so provides, such agreements are only allowed
corporations or associations "at least 60 percent of such capital is
owned by such citizens." The deliberations in the Records of the
1986 Constitutional Commission shed light on how a citizenship of a
corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of
an independent national economy is freedom from undue foreign
control? What is the meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which
sacrifices national sovereignty and the welfare of the Filipino in the
economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word
"undue"? Why not simply freedom from foreign control? I think that is
the meaning of independence, because as phrased, it still allows for
foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if,
for example, we retain the 60/40 possibility in the cultivation of
natural resources, 40 percent involves some control; not total control,
but some control.
MR. BENNAGEN: In any case, I think in due time we will propose
some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the
phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local
or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-
40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the
question: ‘Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation’? Will the Committee please
enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the
members of the team from the UP Law Center who provided us with
a draft. The phrase that is contained here which we adopted from the
UP draft is ‘60 percent of the voting stock.’
MR. NOLLEDO: That must be based on the subscribed capital stock,
because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests in
another corporation which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution
to apply the grandfather rule in cases where corporate layering is
present.
Elementary in statutory construction is when there is conflict between
the Constitution and a statute, the Constitution will prevail. In this
instance, specifically pertaining to the provisions under Art. XII of the
Constitution on National Economy and Patrimony, Sec. 3 of the FIA
will have no place of application. As decreed by the honorable
framers of our Constitution, the grandfather rule prevails and must be
applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005
provides:
The above-quoted SEC Rules provide for the manner of calculating
the Filipino interest in a corporation for purposes, among others, of
determining compliance with nationality requirements (the ‘Investee
Corporation’). Such manner of computation is necessary since the
shares in the Investee Corporation may be owned both by individual
stockholders (‘Investing Individuals’) and by corporations and
partnerships (‘Investing Corporation’). The said rules thus provide for
the determination of nationality depending on the ownership of the
Investee Corporation and, in certain instances, the Investing
Corporation.
Under the above-quoted SEC Rules, there are two cases in
determining the nationality of the Investee Corporation. The first case
is the ‘liberal rule’, later coined by the SEC as the Control Test in its
30 May 1990 Opinion, and pertains to the portion in said Paragraph 7
of the 1967 SEC Rules which states, ‘(s)hares belonging to
corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine
nationality.’ Under the liberal Control Test, there is no need to further
trace the ownership of the 60% (or more) Filipino stockholdings of
the Investing Corporation since a corporation which is at least 60%
Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper
and pertains to the portion in said Paragraph 7 of the 1967 SEC
Rules which states, "but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of
Philippine nationality." Under the Strict Rule or Grandfather Rule
Proper, the combined totals in the Investing Corporation and the
Investee Corporation must be traced (i.e., "grandfathered") to
determine the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first be
traced to the level of the Investing Corporation and added to the
shares directly owned in the Investee Corporation x x x.
xxxx
In other words, based on the said SEC Rule and DOJ Opinion, the
Grandfather Rule or the second part of the SEC Rule applies only
when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in
cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%]
invests in other joint venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated differently, where the
60-40 Filipino- foreign equity ownership is not in doubt, the
Grandfather Rule will not apply. (emphasis supplied)
After a scrutiny of the evidence extant on record, the Court finds that
this case calls for the application of the grandfather rule since, as
ruled by the POA and affirmed by the OP, doubt prevails and persists
in the corporate ownership of petitioners. Also, as found by the CA,
doubt is present in the 60-40 Filipino equity ownership of petitioners
Narra, McArthur and Tesoro, since their common investor, the 100%
Canadian corporation––MBMI, funded them. However, petitioners
also claim that there is "doubt" only when the stockholdings of
Filipinos are less than 60%.43
The assertion of petitioners that "doubt" only exists when the
stockholdings are less than 60% fails to convince this Court. DOJ
Opinion No. 20, which petitioners quoted in their petition, only made
an example of an instance where "doubt" as to the ownership of the
corporation exists. It would be ludicrous to limit the application of the
said word only to the instances where the stockholdings of non-
Filipino stockholders are more than 40% of the total stockholdings in
a corporation. The corporations interested in circumventing our laws
would clearly strive to have "60% Filipino Ownership" at face value. It
would be senseless for these applying corporations to state in their
respective articles of incorporation that they have less than 60%
Filipino stockholders since the applications will be denied instantly.
Thus, various corporate schemes and layerings are utilized to
circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a
scheme employed by stockholders to circumvent the law, creating a
cloud of doubt in the Court’s mind. To determine, therefore, the
actual participation, direct or indirect, of MBMI, the grandfather rule
must be used.
McArthur Mining, Inc.
To establish the actual ownership, interest or participation of MBMI in
each of petitioners’ corporate structure, they have to be
"grandfathered."
 As previously discussed, McArthur acquired its MPSA applicationOlympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0
from MMC, which acquired its application from SMMI. McArthur has
a capital stock of ten million pesos (PhP 10,000,000) divided into
Development
10,000 common shares at one thousand pesos (PhP 1,000) per
44
share, subscribed to by the following:

Name Nationality Number of Amount Amount Paid Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00
Shares Subscribed Resources,

Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Corporation
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
MBMI Resources, Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60
Inc. Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Manuel A. Agcaoili Filipino 1 PhP 1,000.00 Emmanuel G.

PhP 1,000.00 Filipino 1 PhP 1,000.00 PhP 1,000.00

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhPT.
Michael 1,000.00 American 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
(emphasis supplied)Canadian
Kenneth Cawkell 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00
Interestingly, looking at the corporate structure of MMC, we take note
that it has a similar structure and composition as McArthur. In fact, it
(emphasis supplied)
would seem that MBMI is also a major investor and
"controls"45 MBMI and also, similar nominal shareholders were
present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar Noticeably, Olympic Mines & Development Corporation (Olympic) did
(Salazar), Michael T. Mason (Mason) and Kenneth Cawkell not pay any amount with respect to the number of shares they
(Cawkell): subscribed to in the corporation, which is quite absurd since Olympic
is the major stockholder in MMC. MBMI’s 2006 Annual Report sheds
Madridejos Mining Corporation light on why Olympic failed to pay any amount with respect to the
number of shares it subscribed to. It states that Olympic entered into
joint venture agreements with several Philippine companies, wherein
Name Nationality Number of Amount Amount Paid
it holds directly and indirectly a 60% effective equity interest in the
Shares Subscribed Olympic Properties.46 Quoting the said Annual report:
On September 9, 2004, the Company and Olympic Mines &
MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,8
Development Corporation ("Olympic") entered into a series of
agreements including a Property Purchase and Development
Agreement (the Transaction Documents) with respect to three nickel Resources, Inc.
laterite properties in Palawan, Philippines (the "Olympic Properties").
The Transaction Documents effectively establish a joint venture Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1
between the Company and Olympic for purposes of developing the
Fernando B. Filipino 1 PhP 1,000.00 PhP 1
Olympic Properties. The Company holds directly and indirectly an
initial 60% interest in the joint venture. Under certain circumstances
and upon achieving certain milestones, the Company may earn up to Esguerra
a 100% interest, subject to a 2.5% net revenue royalty.47 (emphasis
supplied) Manuel A. Filipino 1 PhP 1,000.00 PhP 1

Thus, as demonstrated in this first corporation, McArthur, when it is Agcaoili

"grandfathered," company layering was utilized by MBMI to gain
Michael T. Mason American 1 PhP 1,000.00 PhP 1
control over McArthur. It is apparent that MBMI has more than 60%
or more equity interest in McArthur, making the latter a foreign
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1
corporation.
Total 10,000 PhP 10,000,000.00 PhP 2,7
Tesoro Mining and Development, Inc.
(emphas
Tesoro, which acquired its MPSA application from SMMI, has a
capital stock of ten million pesos (PhP 10,000,000) divided into ten
thousand (10,000) common shares at PhP 1,000 per share, as Except for the name "Sara Marie Mining, Inc.," the table above
demonstrated below: shows exactly the same figures as the corporate structure of
petitioner McArthur, down to the last centavo. All the other
[[reference shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili,
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/ Mason and Cawkell. The figures under "Nationality," "Number of
2014/april2014/195580.pdf]] Shares," "Amount Subscribed," and "Amount Paid" are exactly the
same. Delving deeper, we scrutinize SMMI’s corporate structure:

Name Nationality Number of Amount Sara Marie Mining, Inc.

Shares Subscribed [[reference

= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/
Sara Marie Filipino 5,997 PhP 5,997,000.00 2014/april2014/195580.pdf]]

Mining, Inc.
Name Nationality Number of Amount Amou
 Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under
the headings "Nationality," "Number of Shares," "Amount
Shares Subscribed," and "Amount Paid" are exactly the same except for the
Subscribed amount paid by MBMI which now reflects the amount of two million
seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly,
Olympic Mines & Filipino 6,663 PhP 6,663,000.00 the total value of the amount paid is two million eight hundred nine
thousand nine hundred pesos (PhP 2,809,900).
Development
Accordingly, after "grandfathering" petitioner Tesoro and factoring in
Corp. Olympic’s participation in SMMI’s corporate structure, it is clear that
MBMI is in control of Tesoro and owns 60% or more equity interest in
MBMI Resources, Canadian 3,331 PhP 3,331,000.00 Tesoro. This makes petitioner Tesoro a non-Filipino corporation and,
thus, disqualifies it to participate in the exploitation, utilization and
Inc. development of our natural resources.

Amanti Limson Filipino 1 PhP 1,000.00 Narra Nickel Mining and Development Corporation
Fernando B. Filipino 1 PhP 1,000.00
Moving on to the last petitioner, Narra, which is the transferee and
assignee of PLMDC’s MPSA application, whose corporate structure’s
Esguerra arrangement is similar to that of the first two petitioners discussed.
The capital stock of Narra is ten million pesos (PhP 10,000,000),
Lauro Salazar Filipino 1 PhP 1,000.00 which is divided into ten thousand common shares (10,000) at one
thousand pesos (PhP 1,000) per share, shown as follows:
Emmanuel G. Filipino 1 PhP 1,000.00
[[reference
Hernando
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/
2014/april2014/195580.pdf]]
Michael T. Mason American 1 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 Name Nationality Number of Amount Amou
Total 10,000 PhP 10,000,000.00
Shares Subscribed

Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,6

After subsequently studying SMMI’s corporate structure, it is not Mining &

farfetched for us to spot the glaring similarity between SMMI and
MMC’s corporate structure. Again, the presence of identical
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
 Patricia Louise Mining & Development Corporation
Development
Using the grandfather method, we further look and examine
PLMDC’s corporate structure:
Corp.

MBMI Canadian 3,998 PhP 3,996,000.00 Name Nationality Number of Amount Amount Paid
Shares Subscribed
Resources, Inc. Palawan Alpha South Resources Filipino 6,596 PhP PhP 0
Development Corporation 6,596,000.00
Higinio C. Filipino 1 PhP 1,000.00
MBMI Resources, Canadian 3,396 PhP PhP
Mendoza, Jr. 3,396,000.00 2,796,000.00

Henry E. Filipino 1 PhP 1,000.00

Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernandez Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Filipino 1 PhP Henry
1,000.00
E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Agcaoili
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Ma. Elena A. Filipino 1 PhP 1,000.00
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Bocalan Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Bayani H. Agabin Filipino 1 PhP Kenneth
1,000.00 Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Robert L. American 1 PhP 1,000.00 Total 10,000 PhP PhP

10,000,000.00 2,708,174.60
(emphasis
McCurdy
supplied)
Kenneth Cawkell Canadian 1 PhP 1,000.00
Yet again, the usual players in petitioners’ corporate structures are
Total 10,000 PhP 10,000,000.00 present. Similarly, the amount of money paid by the 2nd tier majority
stock holder, in this case, Palawan Alpha South Resources and
Development Corp. (PASRDC), is zero.
Again, MBMI, along with other nominal stockholders, i.e., Mason,
Agcaoili and Esguerra, is present in this corporate structure.
Studying MBMI’s Summary of Significant Accounting Policies dated
October 31, 2005 explains the reason behind the intricate corporate
layering that MBMI immersed itself in:
JOINT VENTURES The Company’s ownership interests in various
mining ventures engaged in the acquisition, exploration and
development of mineral properties in the Philippines is described as
follows:
(a) Olympic Group
The Philippine companies holding the Olympic Property, and the
ownership and interests therein, are as follows:
Olympic- Philippines (the "Olympic Group")
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Pursuant to the Olympic joint venture agreement the Company holds
directly and indirectly an effective equity interest in the Olympic
Property of 60.0%. Pursuant to a shareholders’ agreement, the
Company exercises joint control over the companies in the Olympic
Group.
(b) Alpha Group
The Philippine companies holding the Alpha Property, and the
ownership interests therein, are as follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Under a joint venture agreement the Company holds directly and
indirectly an effective equity interest in the Alpha Property of 60.4%.
Pursuant to a shareholders’ agreement, the Company exercises joint
control over the companies in the Alpha Group.48 (emphasis
supplied)
Concluding from the above-stated facts, it is quite safe to say that
petitioners McArthur, Tesoro and Narra are not Filipino since MBMI,
a 100% Canadian corporation, owns 60% or more of their equity
interests. Such conclusion is derived from grandfathering petitioners’
corporate owners, namely: MMI, SMMI and PLMDC. Going further
and adding to the picture, MBMI’s Summary of Significant
Accounting Policies statement– –regarding the "joint venture"
agreements that it entered into with the "Olympic" and "Alpha"
groups––involves SMMI, Tesoro, PLMDC and Narra. Noticeably, the
ownership of the "layered" corporations boils down to MBMI, Olympic
or corporations under the "Alpha" group wherein MBMI has joint
venture agreements with, practically exercising majority control over
the corporations mentioned. In effect, whether looking at the capital
structure or the underlying relationships between and among the
corporations, petitioners are NOT Filipino nationals and must be
considered foreign since 60% or more of their capital stocks or equity
interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CA’s use of the exception of the res inter
alios acta or the "admission by co-partner or agent" rule and
"admission by privies" under the Rules of Court in the instant case,
by pointing out that statements made by MBMI should not be
admitted in this case since it is not a party to the case and that it is
not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of
a partner or agent of the party within the scope of his authority and
during the existence of the partnership or agency, may be given in
evidence against such party after the partnership or agency is shown
by evidence other than such act or declaration itself. The same rule
applies to the act or declaration of a joint owner, joint debtor, or other
person jointly interested with the party.
Sec. 31. Admission by privies.- Where one derives title to property
from another, the act, declaration, or omission of the latter, while
holding the title, in relation to the property, is evidence against the
former.
Petitioners claim that before the above-mentioned Rule can be
applied to a case, "the partnership relation must be shown, and that
proof of the fact must be made by evidence other than the admission
itself."49 Thus, petitioners assert that the CA erred in finding that a
partnership relationship exists between them and MBMI because, in
fact, no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of
the Rules by stating that "by entering into a joint venture, MBMI have
a joint interest" with Narra, Tesoro and McArthur. They challenged
the conclusion of the CA which pertains to the close characteristics
of
"partnerships" and "joint venture agreements." Further, they asserted
that before this particular partnership can be formed, it should have
been formally reduced into writing since the capital involved is more
than three thousand pesos (PhP 3,000). Being that there is no
evidence of written agreement to form a partnership between
petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind
themselves to contribute money, property, or industry to a common
fund with the intention of dividing the profits among themselves.50 On
the other hand, joint ventures have been deemed to be "akin" to
partnerships since it is difficult to distinguish between joint ventures
and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their
association are so similar and closely akin to a partnership that it is
ordinarily held that their rights, duties, and liabilities are to be tested
by rules which are closely analogous to and substantially the same, if
not exactly the same, as those which govern partnership. In fact, it
has been said that the trend in the law has been to blur the
distinctions between a partnership and a joint venture, very little law
being found applicable to one that does not apply to the other.51
Though some claim that partnerships and joint ventures are totally
different animals, there are very few rules that differentiate one from
the other; thus, joint ventures are deemed "akin" or similar to a
partnership. In fact, in joint venture agreements, rules and legal
incidents governing partnerships are applied.52
Accordingly, culled from the incidents and records of this case, it can
be assumed that the relationships entered between and among
petitioners and MBMI are no simple "joint venture agreements." As a
rule, corporations are prohibited from entering into partnership
agreements; consequently, corporations enter into joint venture
agreements with other corporations or partnerships for certain
transactions in order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and
among petitioners and MBMI was executed to circumvent the legal
prohibition against corporations entering into partnerships, then the
relationship created should be deemed as "partnerships," and the
laws on partnership should be applied. Thus, a joint venture
agreement between and among corporations may be seen as similar
to partnerships since the elements of partnership are present.
Considering that the relationships found between petitioners and
MBMI are considered to be partnerships, then the CA is justified in
applying Sec. 29, Rule 130 of the Rules by stating that "by entering
into a joint venture, MBMI have a joint interest" with Narra, Tesoro
and McArthur.
Panel of Arbitrators’ jurisdiction
We affirm the ruling of the CA in declaring that the POA has
jurisdiction over the instant case. The POA has jurisdiction to settle
disputes over rights to mining areas which definitely involve the
petitions filed by Redmont against petitioners Narra, McArthur and
Tesoro. Redmont, by filing its petition against petitioners, is asserting
the right of Filipinos over mining areas in the Philippines against
alleged foreign-owned mining corporations. Such claim constitutes a
"dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the parties
for the decision, the panel shall have exclusive and original
jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v.
Macroasia Corp.:53
The phrase "disputes involving rights to mining areas" refers to any
adverse claim, protest, or opposition to an application for mineral
agreement. The POA therefore has the jurisdiction to resolve any
adverse claim, protest, or opposition to a pending application for a
mineral agreement filed with the concerned Regional Office of the
MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-40,
which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the authorized officer(s) of
the concerned office(s) shall issue a certification(s) that the
publication/posting/radio announcement have been complied with.
Any adverse claim, protest, opposition shall be filed directly, within
thirty (30) calendar days from the last date of
publication/posting/radio announcement, with the concerned
Regional Office or through any concerned PENRO or CENRO for
filing in the concerned Regional Office for purposes of its resolution
by the Panel of Arbitrators pursuant to the provisions of this Act and
these implementing rules and regulations. Upon final resolution of
any adverse claim, protest or opposition, the Panel of Arbitrators
shall likewise issue a certification to that effect within five (5) working
days from the date of finality of resolution thereof. Where there is no
adverse claim, protest or opposition, the Panel of Arbitrators shall
likewise issue a Certification to that effect within five working days
therefrom.
xxxx
No Mineral Agreement shall be approved unless the requirements
under this Section are fully complied with and any adverse
claim/protest/opposition is finally resolved by the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification
issued by the Panel of Arbitrators as provided in Section 38 hereof,
the concerned Regional Director shall initially evaluate the Mineral
Agreement applications in areas outside Mineral reservations.
He/She shall thereafter endorse his/her findings to the Bureau for
further evaluation by the Director within fifteen (15) working days
from receipt of forwarded documents. Thereafter, the Director shall
endorse the same to the secretary for consideration/approval within
fifteen working days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral
Reservations, within fifteen (15) working days from receipt of the
Certification issued by the Panel of Arbitrators as provided for in
Section 38 hereof, the same shall be evaluated and endorsed by the
Director to the Secretary for consideration/approval within fifteen
days from receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the
"disputes involving rights to mining areas" under Sec. 77(a)
specifically refer only to those disputes relative to the applications for
a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or
oppositions to a mining right application is further elucidated by Secs.
219 and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said sections may
also be filed directly with the Panel of Arbitrators within the
concerned periods for filing such claim, protest or opposition as
specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director shall also
cause the posting of the application on the bulletin boards of the
Bureau, concerned Regional office(s) and in the concerned
province(s) and municipality(ies), copy furnished the barangays
where the proposed contract area is located once a week for two (2)
consecutive weeks in a language generally understood in the locality.
After forty-five (45) days from the last date of publication/posting has
been made and no adverse claim, protest or opposition was filed
within the said forty-five (45) days, the concerned offices shall issue
a certification that publication/posting has been made and that no
adverse claim, protest or opposition of whatever nature has been
filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the
last date of publication/posting, with the Regional Offices concerned,
or through the Department’s Community Environment and Natural
Resources Officers (CENRO) or Provincial Environment and Natural
Resources Officers (PENRO), to be filed at the Regional Office for
resolution of the Panel of Arbitrators. However previously published
valid and subsisting mining claims are exempted from posted/posting
required under this Section.
No mineral agreement shall be approved unless the requirements
under this section are fully complied with and any opposition/adverse
claim is dealt with in writing by the Director and resolved by the
Panel of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the
"disputes involving rights to mining areas" under Sec. 77(a)
specifically refer only to those disputes relative to the applications for
a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or
oppositions to a mining right application is further elucidated by Secs.
219 and 43 of DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said sections may
also be filed directly with the Panel of Arbitrators within the
concerned periods for filing such claim, protest or opposition as
specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.-
xxxx
The Regional Director or concerned Regional Director shall also
cause the posting of the application on the bulletin boards of the
Bureau, concerned Regional office(s) and in the concerned
province(s) and municipality(ies), copy furnished the barangays
where the proposed contract area is located once a week for two (2)
consecutive weeks in a language generally understood in the locality.
After forty-five (45) days from the last date of publication/posting has
been made and no adverse claim, protest or opposition was filed
within the said forty-five (45) days, the concerned offices shall issue
a certification that publication/posting has been made and that no
adverse claim, protest or opposition of whatever nature has been
filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the
last date of publication/posting, with the Regional offices concerned,
or through the Department’s Community Environment and Natural
Resources Officers (CENRO) or Provincial Environment and Natural
Resources Officers (PENRO), to be filed at the Regional Office for
resolution of the Panel of Arbitrators. However, previously published
valid and subsisting mining claims are exempted from posted/posting
required under this Section.
No mineral agreement shall be approved unless the requirements
under this section are fully complied with and any opposition/adverse
claim is dealt with in writing by the Director and resolved by the
Panel of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to
resolve any adverse claim, opposition, or protest relative to mining
rights under Sec. 77(a) of RA 7942 is confined only to adverse
claims, conflicts and oppositions relating to applications for the grant
of mineral rights.
POA’s jurisdiction is confined only to resolutions of such adverse
claims, conflicts and oppositions and it has no authority to approve or
reject said applications. Such power is vested in the DENR Secretary
upon recommendation of the MGB Director. Clearly, POA’s
jurisdiction over "disputes involving rights to mining areas" has
nothing to do with the cancellation of existing mineral agreements.
(emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably
has jurisdiction to resolve disputes over MPSA applications subject
of Redmont’s petitions. However, said jurisdiction does not include
either the approval or rejection of the MPSA applications, which is
vested only upon the Secretary of the DENR. Thus, the finding of the
POA, with respect to the rejection of petitioners’ MPSA applications
being that they are foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it
is the regular courts, not the POA, that has jurisdiction over the
MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute
in force at the time of the commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall
exercise exclusive original jurisdiction:
1. In all civil actions in which the subject of the litigation is incapable
of pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec.
77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x Within thirty (30) days, after the submission of the case
by the parties for the decision, the panel shall have exclusive
and original jurisdiction to hear and decide the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any
and all disputes involving rights to mining areas. One such dispute is
an MPSA application to which an adverse claim, protest or
opposition is filed by another interested applicant.1âwphi1 In the
case at bar, the dispute arose or originated from MPSA applications
where petitioners are asserting their rights to mining areas subject of
their respective MPSA applications. Since respondent filed 3 Thus, whether the "grandfather rule" or the "control test" is used, the
separate petitions for the denial of said applications, then a nationalities of petitioners cannot be doubted since it would pass
controversy has developed between the parties and it is POA’s both tests.
jurisdiction to resolve said disputes.
The sale of the MBMI shareholdings to DMCI does not have any
Moreover, the jurisdiction of the RTC involves civil actions while what bearing in the instant case and said fact should be disregarded. The
petitioners filed with the DENR Regional Office or any concerned manifestation can no longer be considered by us since it is being
DENRE or CENRO are MPSA applications. Thus POA has tackled in G.R. No. 202877 pending before this Court.1âwphi1 Thus,
jurisdiction. the question of whether petitioners, allegedly a Philippine-owned
corporation due to the sale of MBMI's shareholdings to DMCI, are
Furthermore, the POA has jurisdiction over the MPSA applications allowed to enter into FTAAs with the State is a non-issue in this case.
under the doctrine of primary jurisdiction. Euro-med Laboratories v.
Province of Batangas55 elucidates: In ending, the "control test" is still the prevailing mode of determining
whether or not a corporation is a Filipino corporation, within the ambit
The doctrine of primary jurisdiction holds that if a case is such that its of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the
determination requires the expertise, specialized training and exploration, development and utilization of the natural resources of
knowledge of an administrative body, relief must first be obtained in the Philippines. When in the mind of the Court there is doubt, based
an administrative proceeding before resort to the courts is had even on the attendant facts and circumstances of the case, in the 60-40
if the matter may well be within their proper jurisdiction. Filipino-equity ownership in the corporation, then it may apply the
"grandfather rule."
Whatever may be the decision of the POA will eventually reach the
court system via a resort to the CA and to this Court as a last WHEREFORE, premises considered, the instant petition is DENIED.
recourse. The assailed Court of Appeals Decision dated October 1, 2010 and
Resolution dated February 15, 2011 are hereby AFFIRMED.
Selling of MBMI’s shares to DMCI
SO ORDERED.
As stated before, petitioners’ Manifestation and Submission dated
October 19, 2012 would want us to declare the instant petition moot
and academic due to the transfer and conveyance of all the
shareholdings and interests of MBMI to DMCI, a corporation duly
organized and existing under Philippine laws and is at least 60%
Philippine-owned.56 Petitioners reasoned that they now cannot be
considered as foreign-owned; the transfer of their shares supposedly
cured the "defect" of their previous nationality. They claimed that
their current FTAA contract with the State should stand since "even
wholly-owned foreign corporations can enter into an FTAA with the
State."57 Petitioners stress that there should no longer be any issue
left as regards their qualification to enter into FTAA contracts since
they are qualified to engage in mining activities in the Philippines.
G.R. No. L-8451 December 20, 1957
THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF
DAVAO, INC., petitioner,
vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER
OF DEEDS OF DAVAO CITY, respondents.
Teodoro Padilla, for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor
General Jose G. Bautista and Troadio T. Quianzon, Jr., for
respondents.
FELIX, J.:
This is a petition for mandamus filed by the Roman Catholic
Apostolic Administrator of Davao seeking the reversal of a resolution
by the Land Registration Commissioner in L.R.C. Consulta No. 14.
The facts of the case are as follows:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of
the City of Davao, executed a deed of sale of a parcel of land located
in the same city covered by Transfer Certificate No. 2263, in favor of
the Roman Catholic Apostolic Administrator of Davao Inc., s
corporation sole organized and existing in accordance with Philippine
Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual
incumbent. When the deed of sale was presented to Register of
Deeds of Davao for registration, the latter.
having in mind a previous resolution of the Fourth Branch of
the Court of First Instance of Manila wherein the Carmelite
Nuns of Davao were made to prepare an affidavit to the
effect that 60 per cent of the members of their corporation
were Filipino citizens when they sought to register in favor of
their congregation of deed of donation of a parcel of land—
required said corporation sole to submit a similar affidavit declaring
that 60 per cent of the members thereof were Filipino citizens.
The vendee in the letter dated June 28, 1954, expressed willingness
to submit an affidavit, both not in the same tenor as that made the
Progress of the Carmelite Nuns because the two cases were not
similar, for whereas the congregation of the Carmelite Nuns had five
incorporators, the corporation sole has only one; that according to
their articles of incorporation, the organization of the Carmelite Nuns
became the owner of properties donated to it, whereas the case at
bar, the totality of the Catholic population of Davao would become
the owner of the property bought to be registered.
As the Register of Deeds entertained some doubts as to the
registerability if the document, the matter was referred to the Land
Registration Commissioner en consulta for resolution in accordance
with section 4 of Republic Act No. 1151. Proper hearing on the
matter was conducted by the Commissioner and after the petitioner
corporation had filed its memorandum, a resolution was rendered on
September 21, 1954, holding that in view of the provisions of Section
1 and 5 of Article XIII of the Philippine Constitution, the vendee was
not qualified to acquire private lands in the Philippines in the absence
of proof that at least 60 per centum of the capital, property, or assets
of the Roman Catholic Apostolic Administrator of Davao, Inc., was
actually owned or controlled by Filipino citizens, there being no
question that the present incumbent of the corporation sole was a
Canadian citizen. It was also the opinion of the Land Registration
Commissioner that section 159 of the corporation Law relied upon by
the vendee was rendered operative by the aforementioned
provisions of the Constitution with respect to real estate, unless the
precise condition set therein — that at least 60 per cent of its capital
is owned by Filipino citizens — be present, and, therefore, ordered
the Registered Deeds of Davao to deny registration of the deed of
sale in the absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action
for mandamus was instituted with this Court by said corporation sole,
alleging that under the Corporation Law as well as the settled
jurisprudence on the matter, the deed of sale executed by Mateo L.
Rodis in favor of petitioner is actually a deed of sale in favor of the
Catholic Church which is qualified to acquire private agricultural
lands for the establishment and maintenance of places of worship,
and prayed that judgment be rendered reserving and setting aside
the resolution of the Land Registration Commissioner in question. In
its resolution of November 15, 1954, this Court gave due course to
this petition providing that the procedure prescribed for appeals from
the Public Service Commission of the Securities and Exchange
Commissions (Rule 43), be followed.
Section 5 of Article XIII of the Philippine Constitution reads as
follows:
SEC. 5. Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire
or hold lands of the public domain in the Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public
domain, water, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to cititzens of the
Philippines, or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens, SUBJECT
TO ANY EXISTING RIGHT, grant, lease, or concession AT THE
TIME OF THE INAUGURATION OF THE GOVERNMENT
ESTABLISHED UNDER CONSTITUTION. Natural resources, with
the exception of public agricultural land, shall not be alienated, and
no license, concession, or leases for the exploitation, development,
or utilization of any of the natural resources shall be granted for a
period exceeding twenty-five years, renewable for another twenty-
five years, except as to water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water
power, in which cases other than the development and limit of the
grant.
In virtue of the foregoing mandates of the Constitution, who are
considered "qualified" to acquire and hold agricultural lands in the
Philippines? What is the effect of these constitutional prohibition of
the right of a religious corporation recognized by our Corporation
Law and registered as a corporation sole, to possess, acquire and
register real estates in its name when the Head, Manager,
Administrator or actual incumbent is an alien?
Petitioner consistently maintained that a corporation sole,
irrespective of the citizenship of its incumbent, is not prohibited or
disqualified to acquire and hold real properties. The Corporation Law
and the Canon Law are explicit in their provisions that a corporation
sole or "ordinary" is not the owner of the of the properties that he
may acquire but merely the administrator thereof. The Canon Law
also specified that church temporalities are owned by the Catholic
Church as a "moral person" or by the diocess as minor "moral
persons" with the ordinary or bishop as administrator.
And elaborating on the composition of the Catholic Church in the
Philippines, petitioner explained that as a religious society or
organization, it is made up of 2 elements or divisions — the clergy or
religious members and the faithful or lay members. The 1948 figures
of the Bureau of Census showed that there were 277,551 Catholics
in Davao and aliens residing therein numbered 3,465. Ever granting
that all these foreigners are Catholics, petitioner contends that
Filipino citizens form more than 80 per cent of the entire Catholics
population of that area. As to its clergy and religious composition,
counsel for petitioner presented the Catholic Directory of the
Philippines for 1954 (Annex A) which revealed that as of that year,
Filipino clergy and women novices comprise already 60.5 per cent of
the group. It was, therefore, allowed that the constitutional
requirement was fully met and satisfied.
Respondents, on the other hand, averred that although it might be
true that petitioner is not the owner of the land purchased, yet he has
control over the same, with full power to administer, take possession
of, alienate, transfer, encumber, sell or dispose of any or all lands
and their improvements registered in the name of the corporation
sole and can collect, receive, demand or sue for all money or values
of any kind that may be kind that may become due or owing to said
corporation, and vested with authority to enter into agreements with
any persons, concerns or entities in connection with said real
properties, or in other words, actually exercising all rights of
ownership over the properties. It was their stand that the theory that
properties registered in the name of the corporation sole are held in
true for the benefit of the Catholic population of a place, as of Davao
in the case at bar should be sustained because a conglomeration of
persons cannot just be pointed out as the cestui que trust or recipient
of the benefits from the property allegedly administered in their
behalf. Neither can it be said that the mass of people referred to as
such beneficiary exercise ant right of ownership over the same. This
set-up, respondents argued, falls short of a trust. The respondents
instead tried to prove that in reality, the beneficiary of ecclesiastical
properties are not members or faithful of the church but someone
else, by quoting a portion a portion of the ought of fidelity subscribed
by a bishop upon his elevation to the episcopacy wherein he
promises to render to the Pontificial Father or his successors an
account of his pastoral office and of all things appertaining to
the state of this church.
Respondents likewise advanced the opinion that in construing the
constitutional provision calling for 60 per cent of Filipino citizenship,
the criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can
say the following: A corporation sole is a special form of corporation
usually associated with the clergy. Conceived and introduced into the
common law by sheer necessity, this legal creation which was
referred to as "that unhappy freak of English law" was designed to
facilitate the exercise of the functions of ownership carried on by the
clerics for and on behalf of the church which was regarded as the
property owner (See I Couvier's Law Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors
(who will always be one at a time), in some particular station, who
are incorporated by law in order to give them some legal capacities
and advantages, particularly that of perpetuity, which in their natural
persons they could not have had. In this sense, the king is a sole
corporation; so is a bishop, or dens, distinct from their several
chapters (Reid vs. Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are
illuminating and sustain the stand of petitioner. Section 154 thereof
provides:
SEC. 154. — For the administration of the temporalities of
any religious denomination, society or church and the
management of the estates and the properties thereof, it
shall be lawful for the bishop, chief priest, or presiding either
of any such religious denomination, society or church to
become a corporation sole, unless inconsistent wit the rules,
regulations or discipline of his religious denomination,
society or church or forbidden by competent authority
thereof.
See also the pertinent provisions of the succeeding sections of the
same Corporation Law copied hereunder:
SEC. 155. In order to become a corporation sole the bishop,
chief priest, or presiding elder of any religious denomination,
society or church must file with the Securities and Exchange
Commissioner articles of incorporation setting forth the
following facts:
xxx xxx xxx.
(3) That as such bishop, chief priest, or presiding elder he
is charged with the administration of the temporalities and
the management of the estates and properties of his
religious denomination, society, or church within its territorial
jurisdiction, describing it;
xxx xxx xxx.
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities and
Exchange Commissioner of the said articles of incorporation,
which verified by affidavit or affirmation as aforesaid and
 accompanied by the copy of the commission, certificate of
election, or letters of appointment of the bishop, chief priest,
or presiding elder, duly certified as prescribed in the section
immediately preceding such the bishop, chief priest, or
presiding elder, as the case may be, shall become a
corporation sole and all temporalities, estates, and properties
the religious denomination, society, or church therefore
administered or managed by him as such bishop, chief
priest, or presiding elder, shall be held in trust by him as a
corporation sole, for the use, purpose, behalf, and sole
benefit of his religious denomination, society, or church,
including hospitals, schools, colleges, orphan, asylums,
parsonages, and cemeteries thereof. For the filing of such
articles of incorporation, the Securities and Exchange
Commissioner shall collect twenty-five pesos. (As amended
by Commonwealth Act. No. 287); and.
SEC. 163. The right to administer all temporalities and all
property held or owned by a religious order or society, or by
the diocese, synod, or district organization of any religious
denomination or church shall, on its incorporation, pass to
the corporation and shall be held in trust for the use, purpose
behalf, and benefit of the religious society, or order so
incorporated or of the church of which the diocese, or district
organization is an organized and constituent part.
The Cannon Law contains similar provisions regarding the duties of
the corporation sole or ordinary as administrator of the church
properties, as follows:
Al Ordinario local pertenence vigilar diligentemente sobre
la administracion de todos los bienes eclesiasticos que se
hallan en su territorio y no estuvieren sustraidos de su
jurisdiccion, salvs las prescriciones legitimas que le
concedan mas aamplios derechos.
Teniendo en cuenta los derechos y las legitimas costumbres
y circunstancias, procuraran los Ordinarios regular todo lo
concerniente a la administracion de los bienes
eclesciasticos, dando las oportunas instucciones
particularles dentro del narco del derecho comun. (Title
XXVIII, Codigo de Derecho Canonico, Lib. III, Canon 1519).1
That leaves no room for doubt that the bishops or archbishops, as
the case may be, as corporation's sole are merely administrators of
the church properties that come to their possession, in which they
hold in trust for the church. It can also be said that while it is true that
church properties could be administered by a natural persons,
problems regarding succession to said properties can not be avoided
to rise upon his death. Through this legal fiction, however, church
properties acquired by the incumbent of a corporation sole pass, by
operation of law, upon his death not his personal heirs but to his
successor in office. It could be seen, therefore, that a corporation
sole is created not only to administer the temporalities of the church
or religious society where he belongs but also to hold and transmit
the same to his successor in said office. If the ownership or title to
the properties do not pass to the administrators, who are the owners
of church properties?.
Bouscaren and Elis, S.J., authorities on cannon law, on their treatise
comment:
In matters regarding property belonging to the Universal
Church and to the Apostolic See, the Supreme Pontiff
exercises his office of supreme administrator through the
Roman Curia; in matters regarding other church property,
through the administrators of the individual moral persons in
the Church according to that norms, laid down in the Code of
Cannon Law. This does not mean, however, that the Roman
Pontiff is the owner of all the church property; but merely that
he is the supreme guardian (Bouscaren and Ellis, Cannon
Law, A Text and Commentary, p. 764).
and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia
Canonica, ruled in the case of Trinidad vs. Roman Catholic
Archbishop of Manila, 63 Phil. 881, that:
 The second question to be decided is in whom the
ownership of the properties constituting the endowment of
the ecclesiastical or collative chaplaincies is vested.
Canonists entertain different opinions as to the persons in
whom the ownership of the ecclesiastical properties is
vested, with respect to which we shall, for our purpose,
confine ourselves to stating with Donoso that, while many
doctors cited by Fagnano believe that it resides in the
Roman Pontiff as Head of the Universal Church, it is more
probable that ownership, strictly speaking, does not reside in
the latter, and, consequently, ecclesiastical properties are
owned by the churches, institutions and canonically
established private corporations to which said properties
have been donated.
Considering that nowhere can We find any provision conferring
ownership of church properties on the Pope although he appears to
be the supreme administrator or guardian of his flock, nor on the
corporation sole or heads of dioceses as they are admittedly
mere administrators of said properties, ownership of these
temporalities logically fall and develop upon the church, diocese or
congregation acquiring the same. Although this question of
ownership of ecclesiastical properties has off and on been mentioned
in several decisions of the Court yet in no instance was the subject of
citizenship of this religious society been passed upon.
We are not unaware of the opinion expressed by the late Justice
Perfecto in his dissent in the case of Agustines vs. Court of First
Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman
Catholic Archbishop of Manila is only a branch of a universal church
by the Pope, with permanent residence in Rome, Italy". There is no
question that the Roman Catholic Church existing in the Philippines
is a tributary and part of the international religious organization, for
the word "Roman" clearly expresses its unity with and recognizes the
authority of the Pope in Rome. However, lest We become hasty in
drawing conclusions, We have to analyze and take note of the nature
of the government established in the Vatican City, of which it was
said:
GOVERNMENT. In the Roman Catholic Church supreme
authority and jurisdiction over clergy and laity alike as held
by the pope who (since the Middle Ages) is elected by the
cardinals assembled in conclave, and holds office until his
death or legitimate abdication. . . While the pope is obviously
independent of the laws made, and the officials appointed,
by himself or his predecessors, he usually exercises his
administrative authority according to the code of canon law
and through the congregations, tribunals and offices of the
Curia Romana. In their respective territories (called generally
dioceses) and over their respective subjects, the patriarchs,
metropolitans or archbishops and bishops exercise a
jurisdiction which is called ordinary (as attached by law to an
office given to a person. . . (Collier's Encyclopedia, Vol. 17,
p. 93).
While it is true and We have to concede that in the profession of their
faith, the Roman Pontiff is the supreme head; that in the religious
matters, in the exercise of their belief, the Catholic congregation of
the faithful throughout the world seeks the guidance and direction of
their Spiritual Father in the Vatican, yet it cannot be said that there is
a merger of personalities resultant therein. Neither can it be said that
the political and civil rights of the faithful, inherent or acquired under
the laws of their country, are affected by that relationship with the
Pope. The fact that the Roman Catholic Church in almost every
country springs from that society that saw its beginning in Europe
and the fact that the clergy of this faith derive their authorities and
receive orders from the Holy See do not give or bestow the
citizenship of the Pope upon these branches. Citizenship is a political
right which cannot be acquired by a sort of "radiation". We have to
realize that although there is a fraternity among all the catholic
countries and the dioceses therein all over the globe, the universality
that the word "catholic" implies, merely characterize their faith, a
uniformity in the practice and the interpretation of their dogma and in
the exercise of their belief, but certainly they are separate and
independent from one another in jurisdiction, governed by different
laws under which they are incorporated, and entirely independent on
the others in the management and ownership of their temporalities.
To allow theory that the Roman Catholic Churches all over the world
follow the citizenship of their Supreme Head, the Pontifical Father,
would lead to the absurdity of finding the citizens of a country who
embrace the Catholic faith and become members of that religious
society, likewise citizens of the Vatican or of Italy. And this is more so
if We consider that the Pope himself may be an Italian or national of
any other country of the world. The same thing be said with regard to
the nationality or citizenship of the corporation sole created under the
laws of the Philippines, which is not altered by the change of
citizenship of the incumbent bishops or head of said corporation sole.
We must therefore, declare that although a branch of the Universal
Roman Catholic Apostolic Church, every Roman Catholic Church in
different countries, if it exercises its mission and is lawfully
incorporated in accordance with the laws of the country where it is
located, is considered an entity or person with all the rights and
privileges granted to such artificial being under the laws of that
country, separate and distinct from the personality of the Roman
Pontiff or the Holy See, without prejudice to its religious relations with
the latter which are governed by the Canon Law or their rules and
regulations.
We certainly are conscious of the fact that whatever conclusion We
may draw on this matter will have a far reaching influence, nor can
We overlook the pages of history that arouse indignation and
criticisms against church landholdings. This nurtured feeling that
snowbailed into a strong nationalistic sentiment manifested itself
when the provisions on natural to be embodied in the Philippine
Constitution were framed, but all that has been said on this regard
referred more particularly to landholdings of religious corporations
known as "Friar Estates" which have already bee acquired by our
government, and not to properties held by corporations sole which,
We repeat, are properties held in trust for the benefit of the faithful
residing within its territorial jurisdiction. Though that same feeling
probably precipitated and influenced to a large extent the doctrine
laid down in the celebrated Krivenco decision, We have to take this
matter in the light of legal provisions and jurisprudence actually
obtaining, irrespective of sentiments.
The question now left for our determination is whether the Universal
Roman Catholic Apostolic Church in the Philippines, or better still,
the corporation sole named the Roman Catholic Apostolic
Administrator of Davao, Inc., is qualified to acquire private
agricultural lands in the Philippines pursuant to the provisions of
Article XIII of the Constitution.
We see from sections 1 and 5 of said Article quoted before, that only
persons or corporations qualified to acquire hold lands of the public
domain in the Philippines may acquire or be assigned and hold
private agricultural lands. Consequently, the decisive factor in the
present controversy hinges on the proposition or whether or not the
petitioner in this case can acquire agricultural lands of the public
domain.
From the data secured from the Securities and Exchange
Commission, We find that the Roman Catholic Bishop of Zamboanga
was incorporated (as a corporation sole) in September, 1912,
principally to administer its temporalities and manage its properties.
Probably due to the ravages of the last war, its articles of
incorporation were reconstructed in the Securities and Exchange
Commission on April 8, 1948. At first, this corporation sole
administered all the temporalities of the church existing or located in
the island of Mindanao. Later on, however, new dioceses were
formed and new corporations sole were created to correspond with
the territorial jurisdiction of the new dioceses, one of them being
petitioner herein, the Roman Catholic Apostolic Administrator of
Davao, Inc., which was registered with the Securities and Exchange
Commission on September 12, 1950, and succeeded in the
administrative for all the "temporalities" of the Roman Catholic
Church existing in Davao.
According to our Corporation Law, Public Act No. 1549, approved
April 1, 1906, a corporation sole.
is organized and composed of a single individual, the head
of any religious society or church, for the
ADMINISTRATION of the temporalities of such society or
church. By "temporalities" is meant estate and properties not
used exclusively for religious worship. The successor in
office of such religious head or chief priest incorporated as a
corporation sole shall become the corporation sole on
 ascension to office, and shall be permitted to transact properties? As provided by law, lands held in trust for specific
business as such on filing with the Securities and Exchange purposes me be subject of registration (section 69, Act 496), and the
Commission a copy of his commission, certificate of election capacity of a corporation sole, like petitioner herein, to register lands
or letter of appointment duly certified by any notary public or belonging to it is acknowledged, and title thereto may be issued in its
clerk of court of record (Guevara's The Philippine name (Bishop of Nueva Segovia vs. Insular Government, 26 Phil.
Corporation Law, p. 223). 300-1913). Indeed it is absurd that while the corporations sole that
might be in need of acquiring lands for the erection of temples where
The Corporation Law also contains the following provisions: the faithful can pray, or schools and cemeteries which they are
expressly authorized by law to acquire in connection with the
propagation of the Roman Catholic Apostolic faith or in furtherance of
SECTION 159. Any corporation sole may purchase and hold
their freedom of religion they could not register said properties in
real estate and personal; property for its church, charitable,
their name. As professor Javier J. Nepomuceno very well says "Man
benevolent, or educational purposes, and may receive
in his search for the immortal and imponderable, has, even before
bequests or gifts of such purposes. Such corporation may
the dawn of recorded history, erected temples to the Unknown God,
mortgage or sell real property held by it upon obtaining an
and there is no doubt that he will continue to do so for all time to
order for that purpose from the Court of First Instance of the
come, as long as he continues 'imploring the aid of Divine
province in which the property is situated; but before making
Providence'" (Nepomuceno's Corporation Sole, VI Ateneo Law
the order proof must be made to the satisfaction of the Court
Journal, No. 1, p. 41, September, 1956). Under the circumstances of
that notice of the application for leave to mortgage or sell has
this case, We might safely state that even before the establishment
been given by publication or otherwise in such manner and
of the Philippine Commonwealth and of the Republic of the
for such time as said Court or the Judge thereof may have
Philippines every corporation sole then organized and registered had
directed, and that it is to the interest of the corporation that
by express provision of law the necessary power and qualification to
leave to mortgage or sell must be made by petition, duly
purchase in its name private lands located in the territory in which it
verified by the bishop, chief priest, or presiding elder acting
exercised its functions or ministry and for which it was created,
as corporation sole, and may be opposed by any member of
independently of the nationality of its incumbent unique and single
the religious denomination, society or church represented by
member and head, the bishop of the dioceses. It can be also
the corporation sole: Provided, however, That in cases
maintained without fear of being gainsaid that the Roman Catholic
where the rules, regulations, and discipline of the religious
Apostolic Church in the Philippines has no nationality and that the
denomination, society or church concerned represented by
framers of the Constitution, as will be hereunder explained, did not
such corporation sole regulate the methods of acquiring,
have in mind the religious corporations sole when they provided that
holding, selling and mortgaging real estate and personal
60 per centum of the capital thereof be owned by Filipino citizens.
property, such rules, regulations, and discipline shall control
and the intervention of the Courts shall not be necessary.
There could be no controversy as to the fact that a duly registered
corporation sole is an artificial being having the right of succession
It can, therefore, be noticed that the power of a corporation sole to
and the power, attributes, and properties expressly authorized by law
purchase real property, like the power exercised in the case at bar, it
or incident to its existence (section 1, Corporation Law). In outlining
is not restricted although the power to sell or mortgage sometimes is,
the general powers of a corporation. Public Act. No. 1459 provides
depending upon the rules, regulations, and discipline of the church
among others:
concerned represented by said corporation sole. If corporations sole
can purchase and sell real estate for its church, charitable,
benevolent, or educational purposes, can they register said real SEC. 13. Every corporation has the power:
 (5) To purchase, hold, convey, sell, lease, lot, mortgage,
encumber, and otherwise deal with such real and personal
property as the purpose for which the corporation was
formed may permit, and the transaction of the lawful
business of the corporation may reasonably and necessarily
require, unless otherwise prescribed in this Act: . . .
In implementation of the same and specially made applicable to a
form of corporation recognized by the same law, Section 159
aforequoted expressly allowed the corporation sole to purchase and
hold real as well as personal properties necessary for the promotion
of the objects for which said corporation sole is created. Respondent
Land Registration Commissioner, however, maintained that since the
Philippine Constitution is a later enactment than public Act No. 1459,
the provisions of Section 159 in amplification of Section 13 thereof,
as regard real properties, should be considered repealed by the
former.
There is a reason to believe that when the specific provision of the
Constitution invoked by respondent Commissioner was under
consideration, the framers of the same did not have in mind or
overlooked this particular form of corporation. It is undeniable that
the naturalization and conservation of our national resources was
one of the dominating objectives of the Convention and in drafting
the present Article XII of the Constitution, the delegates were goaded
by the desire (1) to insure their conservation for Filipino posterity; (2)
to serve as an instrument of national defense, helping prevent the
extension into the country of foreign control through peaceful
economic penetration; and (3) to prevent making the Philippines a
source of international conflicts with the consequent danger to its
internal security and independence (See The Framing of the
Philippine Constitution by Professor Jose M. Aruego, a Delegate to
the Constitutional Convention, Vol. II. P. 592-604). In the same book
Delegate Aruego, explaining the reason behind the first
consideration, wrote:
At the time of the framing of Philippine Constitution, Filipino
capital had been to be rather shy. Filipinos hesitated s a
general rule to invest a considerable sum of their capital for
the development, exploitation and utilization of the natural
resources of the country. They had not as yet been so used
to corporate as the peoples of the west. This general apathy,
the delegates knew, would mean the retardation of the
development of the natural resources, unless foreign capital
would be encouraged to come and help in that
development. They knew that the naturalization of the
natural resources would certainly not encourage
the INVESTMENT OF FOREIGN CAPITAL into them. But
there was a general feeling in the Convention that it was
better to have such a development retarded or even
postpone together until such time when the Filipinos would
be ready and willing to undertake it rather than permit the
natural resources to be placed under the ownership or
control of foreigners in order that they might be immediately
be developed, with the Filipinos of the future serving not as
owners but utmost as tenants or workers under foreign
masters. By all means, the delegates believed, the natural
resources should be conserved for Filipino posterity.
It could be distilled from the foregoing that the farmers of the
Constitution intended said provisions as barrier for foreigners or
corporations financed by such foreigners to acquire, exploit and
develop our natural resources, saving these undeveloped wealth for
our people to clear and enrich when they are already prepared and
capable of doing so. But that is not the case of corporations sole in
the Philippines, for, We repeat, they are mere administrators of the
"temporalities" or properties titled in their name and for the benefit of
the members of their respective religion composed of an
overwhelming majority of Filipinos. No mention nor allusion
whatsoever is made in the Constitution as to the prohibition against
or the liability of the Roman Catholic Church in the Philippines to
acquire and hold agricultural lands. Although there were some
discussions on landholdings, they were mostly confined in the
inclusion of the provision allowing the Government to break big
landed estates to put an end to absentee landlordism.
But let us suppose, for the sake of argument, that the above referred
to inhibitory clause of Section 1 of Article XIII of the constitution does
have bearing on the petitioner's case; even so the clause requiring
that at least 60 per centum of the capital of the corporation be owned
by Filipinos is subordinated to the petitioner's aforesaid right already
existing at the time of the inauguration of the Commonwealth and the
Republic of the Philippines. In the language of Mr. Justice Jose P.
Laurel (a delegate to the Constitutional Convention), in his
concurring opinion of the case of Gold Creek mining Corporation,
petitioner vs. Eulogio Rodriguez, Secretary of Agriculture and
Commerce, and Quirico Abadilla, Director of the Bureau of Mines,
respondent, 66 Phil. 259:
The saving clause in the section involved of the Constitution
was originally embodied in the report submitted by the
Committee on Naturalization and Preservation of Land and
Other Natural Resources to the Constitutional Convention on
September 17, 1954. It was later inserted in the first draft of
the Constitution as section 13 of Article XIII thereof, and
finally incorporated as we find it now. Slight have been the
changes undergone by the proviso from the time when it
comes out of the committee until it was finally adopted.
When first submitted and as inserted to the first draft of the
Constitution it reads: 'subject to any right, grant, lease, or
concession existing in respect thereto on the date of the
adoption of the Constitution'. As finally adopted, the proviso
reads: 'subject to any existing right, grant, lease, or
concession at the time of the inauguration of the
Government established under this Constitution'. This
recognition is not mere graciousness but springs form the
just character of the government established. The framers of
the Constitution were not obscured by the rhetoric of
democracy or swayed to hostility by an intense spirit of
nationalism. They well knew that conservation of our natural
resources did not mean destruction or annihilation of
acquired property rights. Withal, they erected a government
neither episodic nor stationary but well-nigh conservative in
the protection of property rights. This notwithstanding
nationalistic and socialistic traits discoverable upon even a
sudden dip into a variety of the provisions embodied in the
instrument.
The writer of this decision wishes to state at this juncture that during
the deliberation of this case he submitted to the consideration of the
Court the question that may be termed the "vested right saving
clause" contained in Section 1, Article XII of the Constitution, but
some of the members of this Court either did not agree with the
theory of the writer, or were not ready to take a definite stand on the
particular point I am now to discuss deferring our ruling on such
debatable question for a better occasion, inasmuch as the
determination thereof is not absolutely necessary for the solution of
the problem involved in this case. In his desire to face the issues
squarely, the writer will endeavor, at least as a disgression, to
explain and develop his theory, not as a lucubration of the Court, but
of his own, for he deems it better and convenient to go over the cycle
of reasons that are linked to one another and that step by step lead
Us to conclude as We do in the dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution
provides, among other things, that "all agricultural lands of the public
domain and their disposition shall be limited to citizens of the
Philippines or to corporations at least 60 per centum of the capital of
which is owned by such citizens, SUBJECT TO ANY EXISTING
RIGHT AT THE TIME OF THE INAUGURATION OF THE
GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of
Gold Creek Mining Corporation vs. Rodriguez et al., 66 Phil. 259,
"this recognition (in the clause already quoted), is not mere
graciousness but springs from the just character of the government
established. The farmers of the Constitution were not obscured by
the rhetoric of democracy or swayed to hostility by an intense spirit of
nationalism. They well knew that conservation of our natural
resources did not mean destruction or annihilation of ACQUIRED
PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of
acquisition of public or private lands by a corporation which does not
fulfill this 60 per cent requisite, refers to purchases of the Constitution
and not to later transactions. This argument would imply that even
assuming that petitioner had at the time of the enactment of the
Constitution the right to purchase real property or right could not be
exercised after the effectivity of our Constitution, because said power
or right of corporations sole, like the herein petitioner, conferred in
virtue of the aforequoted provisions of the Corporation Law, could no
longer be exercised in view of the requisite therein prescribed that at
least 60 per centum of the capital of the corporation had to be
Filipino. It has been shown before that: (1) the corporation sole,
unlike the ordinary corporations which are formed by no less than 5
incorporators, is composed of only one persons, usually the head or
bishop of the diocese, a unit which is not subject to expansion for the
purpose of determining any percentage whatsoever; (2) the
corporation sole is only the administrator and not the owner of the
temporalities located in the territory comprised by said corporation
sole; (3) such temporalities are administered for and on behalf of the
faithful residing in the diocese or territory of the corporation sole; and
(4) the latter, as such, has no nationality and the citizenship of the
incumbent Ordinary has nothing to do with the operation,
management or administration of the corporation sole, nor effects the
citizenship of the faithful connected with their respective dioceses or
corporation sole.
In view of these peculiarities of the corporation sole, it would seem
obvious that when the specific provision of the Constitution invoked
by respondent Commissioner (section 1, Art. XIII), was under
consideration, the framers of the same did not have in mind or
overlooked this particular form of corporation. If this were so, as the
facts and circumstances already indicated tend to prove it to be so,
then the inescapable conclusion would be that this requirement of at
least 60 per cent of Filipino capital was never intended to apply to
corporations sole, and the existence or not a vested right becomes
unquestionably immaterial.
But let us assumed that the questioned proviso is material. yet We
might say that a reading of said Section 1 will show that it does not
refer to any actual acquisition of land up to the right, qualification or
power to acquire and hold private real property. The population of the
Philippines, Catholic to a high percentage, is ever increasing. In the
practice of religion of their faithful the corporation sole may be in
need of more temples where to pray, more schools where the
children of the congregation could be taught in the principles of their
religion, more hospitals where their sick could be treated, more
hallow or consecrated grounds or cemeteries where Catholics could
be buried, many more than those actually existing at the time of the
enactment of our Constitution. This being the case, could it be
logically maintained that because the corporation sole which, by
express provision of law, has the power to hold and acquire real
estate and personal property of its churches, charitable benevolent,
or educational purposes (section 159, Corporation Law) it has to stop
its growth and restrain its necessities just because the corporation
sole is a non-stock corporation composed of only one person who in
his unity does not admit of any percentage, especially when that
person is not the owner but merely an administrator of the
temporalities of the corporation sole? The writer leaves the answer to
whoever may read and consider this portion of the decision.
Anyway, as stated before, this question is not a decisive factor in
disposing the case, for even if We were to disregard such saving
clause of the Constitution, which reads: subject to any existing right,
grant, etc., at the same time of the inauguration of the Government
established under this Constitution, yet We would have, under the
evidence on record, sufficient grounds to uphold petitioner's
contention on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si
Temple, 2 G.R. No. L-6776, promulgated May 21, 1955, wherein this
question was considered from a different angle, this Court through
Mr. Justice J.B.L. Reyes, said:
The fact that the appellant religious organization has no
capital stock does not suffice to escape the Constitutional
inhibition, since it is admitted that its members are of foreign
nationality. The purpose of the sixty per centum requirement
is obviously to ensure that corporation or associations
allowed to acquire agricultural land or to exploit natural
resources shall be controlled by Filipinos; and the spirit of
the Constitution demands that in the absence of capital
stock, the controlling membership should be composed of
Filipino citizens.
In that case respondent-appellant Ung Siu Si Temple was not a
corporation sole but a corporation aggregate, i.e., an unregistered
organization operating through 3 trustees, all of Chinese nationality,
and that is why this Court laid down the doctrine just quoted. With
regard to petitioner, which likewise is a non-stock corporation, the
case is different, because it is a registered corporation sole, evidently
of no nationality and registered mainly to administer the temporalities
and manage the properties belonging to the faithful of said church
residing in Davao. But even if we were to go over the record to
inquire into the composing membership to determine whether the
citizenship requirement is satisfied or not, we would find undeniable
proof that the members of the Roman Catholic Apostolic faith within
the territory of Davao are predominantly Filipino citizens. As
indicated before, petitioner has presented evidence to establish that
the clergy and lay members of this religion fully covers the
percentage of Filipino citizens required by the Constitution. These
facts are not controverted by respondents and our conclusion in this
point is sensibly obvious.
Dissenting Opinion—Discussed. — After having developed our
theory in the case and arrived at the findings and conclusions
already expressed in this decision. We now deem it proper to
analyze and delve into the basic foundation on which the dissenting
opinion stands up. Being aware of the transcendental and far-
reaching effects that Our ruling on the matter might have, this case
was thoroughly considered from all points of view, the Court sparing
no effort to solve the delicate problems involved herein.
At the deliberations had to attain this end, two ways were open to a
prompt dispatch of the case: (1) the reversal of the doctrine We laid
down in the celebrated Krivenko case by excluding urban lots and
properties from the group of the term "private agricultural lands" use
in this section 5, Article XIII of the Constitution; and (2) by driving Our
reasons to a point that might indirectly cause the appointment of
Filipino bishops or Ordinary to head the corporations sole created to
administer the temporalities of the Roman Catholic Church in the
Philippines. With regard to the first way, a great majority of the
members of this Court were not yet prepared nor agreeable to follow
that course, for reasons that are obvious. As to the second way, it
seems to be misleading because the nationality of the head of a
diocese constituted as a corporation sole has no material bearing on
the functions of the latter, which are limited to the administration of
the temporalities of the Roman Catholic Apostolic Church in the
Philippines.
Upon going over the grounds on which the dissenting opinion is
based, it may be noticed that its author lingered on the outskirts of
the issues, thus throwing the main points in controversy out of focus.
Of course We fully agree, as stated by Professor Aruego, that the
framers of our Constitution had at heart to insure the conservation of
the natural resources of Our motherland of Filipino posterity; to serve
them as an instrument of national defense, helping prevent the
extension into the country of foreign control through peaceful
economic penetration; and to prevent making the Philippines a
source of international conflicts with the consequent danger to its
internal security and independence. But all these precautions
adopted by the Delegates to Our Constitutional Assembly could have
not been intended for or directed against cases like the one at bar.
The emphasis and wonderings on the statement that once the
capacity of a corporation sole to acquire private agricultural lands is
admitted there will be no limit to the areas that it may hold and that
this will pave the way for the "revival or revitalization of religious
landholdings that proved so troublesome in our past", cannot even
furnish the "penumbra" of a threat to the future of the Filipino people.
In the first place, the right of Filipino citizens, including those of
foreign extraction, and Philippine corporations, to acquire private
lands is not subject to any restriction or limit as to quantity or area,
and We certainly do not see any wrong in that. The right of Filipino
citizens and corporations to acquire public agricultural lands is
already limited by law. In the second place, corporations sole cannot
be considered as aliens because they have no nationality at all.
Corporations sole are, under the law, mere administrators of the
temporalities of the Roman Catholic Church in the Philippines. In the
third place, every corporation, be it aggregate or sole, is only entitled
to purchase, convey, sell, lease, let, mortgage, encumber and
otherwise deal with real properties when it is pursuant to or in
consonance with the purposes for which the corporation was formed,
and when the transactions of the lawful business of the corporation
reasonably and necessarily require such dealing — section 13-(5) of
the Corporation Law, Public Act No. 1459 — and considering these
provisions in conjunction with Section 159 of the same law which
provides that a corporation sole may only "purchase and hold real
estate and personal properties for its church, charitable, benevolent
or educational purposes", the above mentioned fear of revitalization
of religious landholdings in the Philippines is absolutely dispelled.
The fact that the law thus expressly authorizes the corporations sole
to receive bequests or gifts of real properties (which were the main
source that the friars had to acquire their big haciendas during the
Spanish regime), is a clear indication that the requisite that bequests
or gifts of real estate be for charitable, benevolent, or educational
purposes, was, in the opinion of the legislators, considered sufficient
and adequate protection against the revitalization of religious
landholdings.
Finally, and as previously stated, We have reason to believe that
when the Delegates to the Constitutional Convention drafted and
approved Article XIII of the Constitution they do not have in mind the
corporation sole. We come to this finding because the Constitutional
Assembly, composed as it was by a great number of eminent
lawyers and jurists, was like any other legislative body empowered to
enact either the Constitution of the country or any public statute,
presumed to know the conditions existing as to particular subject
matter when it enacted a statute (Board of Commerce of Orange
Country vs. Bain, 92 S.E. 176; N. C. 377).
Immemorial customs are presumed to have been always in
the mind of the Legislature in enacting legislation. (In re
Kruger's Estate, 121 A. 109; 277 P. 326).
The Legislative is presumed to have a knowledge of the
state of the law on the subjects upon which it legislates.
(Clover Valley Land and Stock Co. vs. Lamb et al., 187, p.
723,726.)
The Court in construing a statute, will assume that the
legislature acted with full knowledge of the prior legislation
on the subject and its construction by the courts. (Johns vs.
Town of Sheridan, 89 N. E. 899, 44 Ind. App. 620.).
The Legislature is presumed to have been familiar with the
subject with which it was dealing . . . . (Landers vs.
Commonwealth, 101 S. E. 778, 781.).
The Legislature is presumed to know principles of statutory
construction. (People vs. Lowell, 230 N. W. 202, 250 Mich.
349, followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich.
436.).
It is not to be presumed that a provision was inserted in a
constitution or statute without reason, or that a result was
intended inconsistent with the judgment of men of common
sense guided by reason" (Mitchell vs. Lawden, 123 N.E. 566,
288 Ill. 326.) See City of Decatur vs. German, 142 N. E. 252,
310 Ill. 591, and may other authorities that can be cited in
support hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of
a single individual, the head of any religious society or
church operating within the zone, area or jurisdiction covered
by said corporation sole (Article 155, Public Act No. 1459);
2. That a corporation sole is a non-stock corporation;
3. That the Ordinary ( the corporation sole proper) does not
own the temporalities which he merely administers;
 4. That under the law the nationality of said Ordinary or of
any administrator has absolutely no bearing on the
nationality of the person desiring to acquire real property in
the Philippines by purchase or other lawful means other than
by hereditary succession, who according to the Constitution
must be a Filipino (sections 1 and 5, Article XIII).
5. That section 159 of the Corporation
Law expressly authorized the corporation sole to purchase
and hold real estate for its church, charitable, benevolent or
educational purposes, and to receive bequests or gifts for
such purposes;
6. That in approving our Magna Carta the Delegates to the
Constitutional Convention, almost all of whom were Roman
Catholics, could not have intended to curtail the propagation
of the Roman Catholic faith or the expansion of the activities
of their church, knowing pretty well that with the growth of
our population more places of worship, more schools where
our youth could be taught and trained; more hallow grounds
where to bury our dead would be needed in the course of
time.
Long before the enactment of our Constitution the law authorized the
corporations sole even to receive bequests or gifts of real estates
and this Court could not, without any clear and specific provision of
the Constitution, declare that any real property donated, let as say
this year, could no longer be registered in the name of the
corporation sole to which it was conveyed. That would be an
absurdity that should not receive our sanction on the pretext that
corporations sole which have no nationality and are non-stock
corporations composed of only one person in the capacity of
administrator, have to establish first that at least sixty per centum of
their capital belong to Filipino citizens. The new Civil Code even
provides:
ART. 10. — In case of doubt in the interpretation or
application of laws, it is presumed that the lawmaking body
intended right and justice to prevail.
Moreover, under the laws of the Philippines, the administrator of the
properties of a Filipino can acquire, in the name of the latter, private
lands without any limitation whatsoever, and that is so because the
properties thus acquired are not for and would not belong to the
administrator but to the Filipino whom he represents. But the
dissenting Justice inquires: If the Ordinary is only the administrator,
for whom does he administer? And who can alter or overrule his
acts? We will forthwith proceed to answer these questions. The
corporations sole by reason of their peculiar constitution and form of
operation have no designed owner of its temporalities, although by
the terms of the law it can be safely implied that the Ordinary holds
them in trust for the benefit of the Roman Catholic faithful to their
respective locality or diocese. Borrowing the very words of the law,
We may say that the temporalities of every corporation sole are
held in trust for the use, purpose, behalf and benefit of the religious
society, or order so incorporated or of the church to which the
diocese, synod, or district organization is an organized and
constituent part (section 163 of the Corporation Law).
In connection with the powers of the Ordinary over the temporalities
of the corporation sole, let us see now what is the meaning and
scope of the word "control". According to the Merriam-Webster's New
International Dictionary, 2nd ed., p. 580, on of the acceptations of the
word "control" is:
4. To exercise restraining or directing influence over; to
dominate; regulate; hence, to hold from action; to curb;
subject; also, Obs. — to overpower.
SYN: restrain, rule, govern, guide, direct; check, subdue.
It is true that under section 159 of the Corporation Law, the
intervention of the courts is not necessary, to mortgage or sell real
property held by the corporation sole where the rules, regulations
and discipline of the religious denomination, society or church
concerned presented by such corporation sole regulates the
methods of acquiring, holding, selling and mortgaging real estate,
and that the Roman Catholic faithful residing in the jurisdiction of the
corporation sole has no say either in the manner of acquiring or of
selling real property. It may be also admitted that the faithful of the
diocese cannot govern or overrule the acts of the Ordinary, but all
this does not mean that the latter can administer the temporalities of
the corporation sole without check or restraint. We must not forget
that when a corporation sole is incorporated under Philippine laws,
the head and only member thereof subjects himself to the jurisdiction
of the Philippine courts of justice and these tribunals can thus
entertain grievances arising out of or with respect to the temporalities
of the church which came into the possession of the corporation sole
as administrator. It may be alleged that the courts cannot intervene
as to the matters of doctrine or teachings of the Roman Catholic
Church. That is correct, but the courts may step in, at the instance of
the faithful for whom the temporalities are being held in trust, to
check undue exercise by the corporation sole of its power as
administrator to insure that they are used for the purpose or
purposes for which the corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an
action brought by persons claiming to be members of a
church, who allege a wrongful and fraudulent diversion of the
church property to uses foreign to the purposes of the
church, since no ecclesiastical question is involved and
equity will protect from wrongful diversion of the
property (Hendryx vs. Peoples United Church, 42 Wash.
336, 4 L.R.A. — n.s. — 1154).
The courts of the State have no general jurisdiction and
control over the officers of such corporations in respect to
the performance of their official duties; but as in respect to
the property which they hold for the corporation, they stand
in position of TRUSTEES and the courts may exercise the
same supervision as in other cases of trust (Ramsey vs.
Hicks, 174 Ind. 428, 91 N.E. 344, 92 N.E. 164, 30 L.R.A. —
n.s. — 665; Hendryx vs. Peoples United Church, supra.).
Courts of the state do not interfere with the administration of
church rules or discipline unless civil rights become involved
and which must be protected (Morris St., Baptist Church vs.
Dart, 67 S.C. 338, 45 S.E. 753, and others). (All cited in Vol.
II, Cooley's Constitutional Limitations, p. 960-964.).
If the Constitutional Assembly was aware of all the facts above
enumerated and of the provisions of law relative to existing
conditions as to management and operation of corporations sole in
the Philippines, and if, on the other hand, almost all of the Delegates
thereto embraced the Roman Catholic faith, can it be imagined even
for an instant that when Article XIII of the Constitution was approved
the framers thereof intended to prevent or curtail from then on the
acquisition sole, either by purchase or donation, of real properties
that they might need for the propagation of the faith and for there
religious and Christian activities such as the moral education of the
youth, the care, attention and treatment of the sick and the burial of
the dead of the Roman Catholic faithful residing in the jurisdiction of
the respective corporations sole? The mere indulgence in said
thought would impress upon Us a feeling of apprehension and
absurdity. And that is precisely the leit motiv that permeates the
whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted
with in this appeal, hinges around the necessity of a proper and
adequate interpretation of sections 1 and 5 of Article XIII of the
Constitution. Let Us then be guided by the principles of statutory
construction laid down by the authorities on the matter:
The most important single factor in determining the intention
of the people from whom the constitution emanated is the
language in which it is expressed. The words employed are
to be taken in their natural sense, except that legal or
technical terms are to be given their technical meaning. The
imperfections of language as a vehicle for conveying
meanings result in ambiguities that must be resolved by
result to extraneous aids for discovering the intent of the
framers. Among the more important of these are a
consideration of the history of the times when the provision
was adopted and of the purposes aimed at in its adoption.
The debates of constitutional convention, contemporaneous
construction, and practical construction by the legislative and
executive departments, especially if long continued, may be
resorted to resolve, but not to create,
ambiguities. . . . Consideration of the consequences flowing
from alternative constructions of doubtful provisions
constitutes an important interpretative device. . . . The
purposes of many of the broadly phrased constitutional
limitations were the promotion of policies that do not lend
themselves to definite and specific formulation. The courts
have had to define those policies and have often drawn on
natural law and natural rights theories in doing so. The
interpretation of constitutions tends to respond to changing
conceptions of political and social values. The extent to
which these extraneous aids affect the judicial construction
of constitutions cannot be formulated in precise rules, but
their influence cannot be ignored in describing the essentials
of the process (Rottschaeffer on Constitutional Law, 1939
ed., p. 18-19).
There are times that when even the literal expression of
legislation may be inconsistent with the general objectives of
policy behind it, and on the basis of equity or spirit of the
statute the courts rationalize a restricted meaning of the
latter. A restricted interpretation is usually applied where the
effect of literal interpretation will make for injustice and
absurdity or, in the words of one court, the language must be
so unreasonable 'as to shock general common sense'. (Vol.
3, Sutherland on Statutory Construction, 3rd ed., 150.).
A constitution is not intended to be a limitation on the
development of a country nor an obstruction to its progress
and foreign relations (Moscow Fire Ins. Co. of Moscow,
Russia vs. Bank of New York and Trust Co., 294 N. Y.
S.648; 56 N.E. 2d. 745, 293 N.Y. 749).
Although the meaning or principles of a constitution remain
fixed and unchanged from the time of its adoption, a
constitution must be construed as if intended to stand for a
great length of time, and it is progressive and not static.
Accordingly, it should not receive too narrow or literal an
interpretation but rather the meaning given it should be
applied in such manner as to meet new or changed
conditions as they arise (U.S. vs. Lassic, 313 U.S. 299, 85 L.
Ed., 1368).
Effect should be given to the purpose indicated by a fair
interpretation of the language used and that construction
which effectuates, rather than that which destroys a plain
intent or purpose of a constitutional provision, is not only
favored but will be adopted (State ex rel. Randolph Country
vs. Walden, 206 S.W. 2d 979).
It is quite generally held that in arriving at the intent and
purpose the construction should be broad or liberal or
equitable, as the better method of ascertaining that intent,
rather than technical (Great Southern Life Ins. Co. vs. City of
Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the
Constitution had not in mind the corporations sole, nor intended to
apply them the provisions of section 1 and 5 of said Article XIII when
they passed and approved the same. And if it were so as We think it
is, herein petitioner, the Roman Catholic Apostolic Administrator of
Davao, Inc., could not be deprived of the right to acquire by purchase
or donation real properties for charitable, benevolent and educational
purposes, nor of the right to register the same in its name with the
Register of Deeds of Davao, an indispensable requisite prescribed
by the Land Registration Act for lands covered by the Torrens
system.
We leave as the last theme for discussion the much debated
question above referred to as "the vested right saving clause"
contained in section 1, Article XIII of the Constitution. The dissenting
Justice hurls upon the personal opinion expressed on the matter by
the writer of the decision the most pointed darts of his severe
criticism. We think, however, that this strong dissent should have
been spared, because as clearly indicated before, some members of
this Court either did not agree with the theory of the writer or were
not ready to take a definite stand on that particular point, so that
there being no majority opinion thereon there was no need of any
dissension therefrom. But as the criticism has been made the writer
deems it necessary to say a few words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a
capacity to acquire (property) in futuro, is not in itself a vested or
existing property right that the Constitution protects from impairment.
For a property right to be vested (or acquired) there must be a
transition from the potential or contingent to the actual, and the
proprietary interest must have attached to a thing; it must have
become 'fixed and established'" (Balboa vs. Farrales, 51 Phil. 498).
But the case at bar has to be considered as an exception to the rule
because among the rights granted by section 159 of the Corporation
Law was the right to receive bequests or gifts of real properties for
charitable, benevolent and educational purposes. And this right to
receive such bequests or gifts (which implies donations in futuro), is
not a mere potentiality that could be impaired without any specific
provision in the Constitution to that effect, especially when the
impairment would disturbingly affect the propagation of the religious
faith of the immense majority of the Filipino people and the
curtailment of the activities of their Church. That is why the writer
gave us a basis of his contention what Professor Aruego said in his
book "The Framing of the Philippine Constitution" and the
enlightening opinion of Mr. Justice Jose P. Laurel, another Delegate
to the Constitutional Convention, in his concurring opinion in the case
of Goldcreek Mining Co. vs. Eulogio Rodriguez et al., 66 Phil. 259.
Anyway the majority of the Court did not deem necessary to pass
upon said "vested right saving clause" for the final determination of
this case.
JUDGMENT
Wherefore, the resolution of the respondent Land Registration
Commission of September 21, 1954, holding that in view of the
provisions of sections 1 and 5 of Article XIII of the Philippine
Constitution the vendee (petitioner) is not qualified to acquire lands in
the Philippines in the absence of proof that at least 60 per centum of
the capital, properties or assets of the Roman Catholic Apostolic
Administrator of Davao, Inc. is actually owned or controlled by
Filipino citizens, and denying the registration of the deed of sale in
the absence of proof of compliance with such requisite, is hereby
reversed. Consequently, the respondent Register of Deeds of the
City of Davao is ordered to register the deed of sale executed by
Mateo L. Rodis in favor of the Roman Catholic Apostolic
Administrator of Davao, Inc., which is the subject of the present
litigation. No pronouncement is made as to costs. It is so ordered.
Bautista Angelo and Endencia, JJ., concur.
Paras, C.J., and Bengzon, J., concur in the result.
LABRADOR, J., concurring:
The case at bar squarely present this important legal question: Has
the bishop or ordinary of the Roman Catholic Church who is not a
Filipino citizen, as corporation sole, the right to register land,
belonging to the Church over which he presides, in view of the
Krivenko decision? Mr. Justice Felix sustains the affirmative view
while Mr. Justice J. B. L. Reyes, the negative. As the undersigned
understands it, the reason given for this last view is that the
constitutional provision prohibiting land ownership by foreigners also
extends to control because this lies within the scope and purpose of
the prohibition.
To our way of thinking, the question at issue depends for its
resolution upon another, namely, who is the owner of the land or
property of the Church sought to be registered? Under the Canon
Law the parish and the diocese have the right to acquire and own
property.
 SEC. 1. La Iglesia catolica y la Sede Apostolica, libre e
independientemente de la potestad civil, tiene derecho
innato de adquirir, retener y administrar bienes temporales
para el logro de sus propios fines.
SEC. 2. Tambien las iglesias particulares y demas personas
morales erigidas por la autoridad eclesiastica en persona
juridica, tienen derecho, a tenor de los sagrados canones,
de adquirir, retener y administrar bienes temporales. (Canon
1495) (Codigo de Derecho Canonico por Miguelez-Alonzo-
Cabreros, 4a ed., p. 562.).
The Canon Law further states that Church property belongs to the
non-collegiate moral person called the parish, or to the diocese.
In canon law the ownership of ecclesiastical goods belongs
to each separate juridical person in the Church (C. 1499).
The property of St. John's Church does not belong to the
Pope, the bishop, the pastor, or even to the people of the
parish. It belongs to the non-collegiate moral person called
the parish, which has been lawfully erected. It is not like a
stock company. The civil law does not recognize this
canonical principle; it insists on an act of civil incorporation or
some other legal device. (Ready Answers in Canon Law by
Rev. P.J. Lydon, DD., 3rd ed., 1948, p. 576.).
Parish. 3. A portion or subdivision of a diocese committed to
the spiritual jurisdiction or care of a priest or minister, called
rector or pastor. In the Protestant Episcopal Church, it is a
territorial division usually following civil bounds, as those of a
town. In the Roman Catholic Church, it is usually territorial,
but whenever, as in some parts of the United States there
are different rites and languages, the boundaries and
jurisdiction are determined by right or language; as, a
Ruthenian or Polish parish. "5. The inhabitants or members
of a parish, collectively.
Diocese. 3. Eccl. The circuit or extent of a bishop's
jurisdiction; the district in which a bishop has authority.
(Webster's New International Dictionary).
We are aware of the fact that some writers believe that ownership of
ecclesiastical properties resides in the Roman Catholic Pontiff as
Head of the Universal Church, but the better opinion seems to be
that they do belong to the parishes and diocese as above indicated.
Canonists entertain different opinions as to the person in
whom the ownership of the ecclesiastical properties is
vested, with respect to which we shall, for our purpose,
confine ourselves to stating with Donoso that, while many
doctors cited by Fagnano believe that it resides in the
Roman Pontiff as Head of the Universal Church, it is more
probable that ownership, strictly speaking, does not reside in
the latter and, consequently, ecclesiastical properties are
owned by the churches, institutions and canonically
established private corporations to which said properties
have been donated. (3 Campos y Pulido, Legislacion y
Jurisprudencia Canonica, P. 420, cited in Trinidad vs.
Roman Catholic Archbishop of Manila, 63 Phil., 881, 888-
889.).
The property in question, therefore, appears to belong to the parish
or the diocese of Davao. But the Roman Catholics of Davao are not
organized as a juridical person, either under the Canon law or under
the Civil Law. Neither is there any provision in either for their
organization as a juridical person. Registration of the property in the
name of the Roman Catholics of Davao is, therefore, impossible.
As under the Civil Law, however, the organization of parishes and
dioceses as juridical persons is not expressly provided for, the
corporation law has set up the fiction known as the "corporation
sole."
 It tolerates the corporation sole wherever and as long as the
state law does not permit the legal incorporation of the parish
or diocese. The bishop officially is the legal owner. (Ready
Answers in Canon Law, supra, p. 577.) .
and authorizes it to purchase and hold real estate for the Church.
SEC. 159. Any corporation sole may purchase and hold real
estate and personal property for its church, charitable,
benevolent, or educational purposes, and may receive
bequests or gifts for such purposes. Such corporation may
mortgage or sell real property held by it upon obtaining an
order for that purpose from the Court of First Instance of the
province in which the property is situated; but before making
the order proof must be made to the satisfaction of the court
that notice of the application for leave to mortgage or sell has
been given by publication or otherwise in such manner and
for such time as said court or the judge thereof may have
directed, and that it is to the interest of the corporation that
leave to mortgage or sell should be granted. The application
for leave to mortgage or sell must be made by petition, duly
verified by the bishop, chief priest, or presiding elder, acting
as corporation sole, and may be opposed by any member of
the religious denomination, society, or church represented by
the corporation sole: Provided, however, That in cases when
the rules, regulations and discipline of the religious
denomination, society or church concerned represented by
such corporation sole regulate the methods of acquiring,
holding, selling, and mortgaging real estate and personal
property, such rules, regulations, and discipline shall control
and the intervention of the courts shall not be necessary.
(The Corporation Law.)
And in accordance with the above section, temporalities of the
Church or of parish or a diocese are allowed to be registered in the
name of the corporation sole for purposes of administration and in
trust for the real owners.
The mere fact that the Corporation Law authorizes the corporation
sole to acquire and hold real estate or other property does not make
the latter the real owner thereof, as his tenure of Church property is
merely for the purposes of administration. As stated above, the
bishop is only the legal (technical) owner or trustee, the parish or
diocese being the beneficial owner, or cestui que trust.
Having arrived at the conclusion that the property in question
belongs actually either to the parish or to the dioceses of Davao, the
next question that possess for solution is, In case of said property,
whose nationality must be considered for the purpose of determining
the applicability of the constitutional provision limiting ownership of
land to Filipinos, that of the bishop or chief priest who registers as
corporation sole, or that of the constituents of the parish or diocese
who are the beneficial owners of the land? We believe that of a latter
must be considered, and not that of the priest clothed with the
corporate fiction and denominated as the corporation sole. The
corporation sole is a mere contrivance to enable a church to acquire,
own and manage properties belonging to the church. It is only a
means to an end. The constitutional provision could not have been
meant to apply to the means through which and by which property
may be owned or acquired, but to the ultimate owner of the property.
Hence, the citizenship of the priest forming the corporation sole
should be no impediment if the parish or diocese which owns the
property is qualified to own and possess the property.
We can take judicial notice of the fact that a great majority of the
constituents of the parish or diocese of Davao are Roman Catholics.
The affidavit demanded is therefore, a mere formality.
The dissenting opinion sustains the proposition that control, not
actual ownership, is the factor that determines whether the
constitutional prohibition against alien ownership of lands should or
should not apply. We may assume the correctness of the proposition
that the Holy See exercises control cannot be real and actual but
merely theoretical. In any case, the constitutional prohibition is
limited by its terms to ownership and ownership alone. And should
the corporation sole abuse its powers and authority in relation to the
administration or disposal of the property contrary to the wishes of
the constituents of the parish or the diocese, the act may always be
questioned as ultra vires.
We agree, therefore, with the reversal of the order.
associations at least sixty per centum of the capital of which
is owned by such citizens, subject to any existing right, grant,
lease, or concession at the time of the inauguration of the
Government established under this Constitution. Natural
resources, with the exception of public agricultural land, shall
not be alienated, and no license, concession, or lease for the
exploitation, development, or utilization of any of the natural
resources shall be granted for a period exceeding twenty-five
years, renewable for another twenty-five years, except as to
water rights for irrigation, water supply fisheries, or industrial
uses other than the development of water power, in which
cases beneficial use may be the measure and the limit of the
grant. (Article XII, Constitution of the Phil.).

Montemayor and Reyes, A., JJ., concur. SEC. 5. Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire
REYES, J.B.L., dissenting:
or hold lands of the public domain in the Philippines. (Art. XII,
Constitution of the Phil.).
I regret not being able to assent to the opinion of Mr. Justice Felix.
The decision of the Supreme Court in this case will be of far reaching
In requiring corporations or associations to have sixty per cent (60%)
results, for once the capacity of corporations sole to acquire public
of their capital owned by Filipino citizens, the constitution manifestly
and private agricultural lands is admitted, there will be no limit to the
disregarded the corporate fiction, i.e., the juridical personality of such
areas they may hold until the Legislature implements section 3 of
corporations or associations. It went behind the corporate entity and
Article XIII of the Constitution, empowering it to set a limit to the size
looked at the natural persons that composed it, and demanded that a
of private agricultural land that may be held; and even then it can
clear majority in interest (60%) should be Filipino. To me this was
only be done without prejudice to rights acquired prior to the
done to ensure that the control of its properties (not merely the
enactment of such law. In other words, even if a limitative law is
beneficial ownership thereof) remained in Filipino hands. (Aruego,
adopted, it will not affect the landholdings acquired before the law
Framing of the Constitution, Vol. 2. pp. 604, 606.) .
become effective, no matter how vast the estate should be.

The nationalization of the natural resources of the country

The Constitutional restrictions to the acquisition of agricultural land
are well known:
SECTION 1. All agricultural, timber, and mineral lands of the
public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, and other natural
resources of the Philippines belong to the State, and their
disposition, exploitation, development, or utilization shall be
limited to citizens of the Philippines, or to corporations or
was intended (1) to insure their conservation for Filipino
posterity; (2) to serve as an instrument of national defense,
helping prevent the extension into the country of foreign
control through peaceful economic penetration; and (3) to
prevent making the Philippines a source of international
conflicts with the consequent danger to its internal security
and independence. . . .
 The convention permitted aliens to acquire an interest in the
natural resources of the country and in private agricultural
lands as component elements of corporations or
associations. The maximum limit of interest that they could
hold in a corporation or association would be only forty per
centum of the capital. Accordingly the control of the
corporation or association would remain in Filipino hands.
In its report the committee on nationalization and
preservation of lands and other natural resources
recommended that the maximum limit of interest that aliens
could hold in a corporation or association should be only
twenty-five per centum of the capital. The purpose of the
committee was to enable Filipino-controlled corporations or
associations, if necessary, to interest aliens to join their
technical or managerial staff by giving them a part interest in
the same. The sub-committee of seven embodied this
recommendation in the first draft of the Constitution; but in
the revised article on General Provisions, it raised the
amount to forty per centum. (emphasis supplied.)
It was in recognition of this basic rule that we held in Register of
Deeds vs. Ung Siu Si Temple, 51 Off. Gaz. p. 2866, that if the
association had no capital, its controlling membership must be
composed of Filipinos. Because ownership divorced from control is
not true ownership.
From these premises it can be deduced that the preliminary question
to be decide by the court is the following: what and who exercises
the power of control in the corporation sole known as "The Roman
Catholic Apostolic Administrator of Davao, Inc."?.
Under section 155 of the Corporation Law, the bishop, or other
religious head, as corporation sole, is "charged with
the administration of the temporalities of his church." It becomes then
pertinent to inquire: if he is only an administrator, for whom does he
administer? And who can alter or overrule his acts?
If his acts as administrator can not be overridden, or altered, except
by himself, then obviously the control of the corporation and its
temporalities is in the bishop himself, and he must be a Filipino
citizen. If, on the other hand, the final say as to management,
exploitation, encumbrance or disposition of the temporalities resides
in another individual or body of individuals, then the control resides
there. To possess constitutional capacity to acquire agricultural land
or other natural resources, that body making the final decision for the
corporation must have at least 60 per cent Filipino membership.
By this test, the body of members professing the Catholic faith in the
diocese of Davao does not constitute the controlling membership.
For under the rules of the Roman Catholic Church the faithful can not
control the acts of the Ordinary; they cannot override his decision,
just as they do not elect or remove him. Only his hierarchical
superiors can do that; the control is from above, not from below.
Hence, the fact that 90 per cent (or even 100 per cent) of the faithful
in the diocese should be composed of Filipino citizens is totally
devoid of significance from the standpoint of the constitutional
restrictions in question (see Codex, Canons 1518 and 1530,
paragraph 1, No. 3).
Moreover, I do not think that the body of Catholic faithful in the
Davao diocese can be taken, for the purpose here under
consideration, as the Church represented by the Ordinary of Davao.
That body does not constitute an entity or unit separate and apart
from the rest of the faithful throughout the world that compose the
Roman Catholic Church that has always claimed ecumenical
(universal) character. There is nom Catholic Church of Davao district
and independent of the Catholic Church of Manila, Lipa or Rome. All
those professing Catholic faith are members of only one single
church or religious group. Thus the Iglesia Filipina Independiente is
not part of the Catholic Church, precisely because of its
independence.
If, the, the Catholic Church of Davao is part and parcel of the
universal Catholic Church, it can not be considered separate and
apart from it in this case. And if considered with it, obviously the
condition of 60 per cent Filipino membership is not satisfied when all
the Catholic faithful in the world are taken into account.
The unity and singleness of the various diocese of the church
appears expressly recognized in section 163 of the Corporation Law,
which provides that the corporation (sole) shall hold the
temporalities, not for the diocese; but for the benefit "of the church of
which the diocese — is an organized or constituent part."
SEC. 163. The right to administer all temporalities and all
property held or owned by a religious order or society, or by
the diocese synod, or district organization of any religious
denomination or church shall, on its incorporation, pass to
the corporation and shall be held in trust for the use purpose,
behalf, and benefit of the religious society or order so
incorporated or of the church of which the diocese, synod, or
district organization is an organized and constituent part.
So that, even from the standpoint of beneficial ownership, the
dioceses of Davao can not be viewed as a group legally isolated
from the Catholic Church as a whole.
Nor does court control over the acts of the corporation sole constitute
a guarantee of Filipino control that would satisfy the purposes of the
constitution, for the reason that under section 159 (last proviso) of
the Corporation law, the court intervention is dispensed with where
the rules and discipline of the church already regulate the acquisition
and disposition of real estate and personal property.
Provided however, that in cases where the rules, regulations
and discipline of the religious denomination, society, or
church concerned represented by such corporation sole
regulate the methods of acquiring, holding, selling, and
mortgaging real estate and personal property, such rules,
regulations, and discipline shall control and the intervention
of the courts shall not be necessary. (emphasis supplied.)
It is argued that a distinction must be drawn between the lands to be
devoted to purely religious purposes and the lands held in ordinary
ownership. But where in the Constitution is such a distinction drawn?
Under it, capacity to acquire agricultural land for the erection of a
church is capacity to acquire agricultural lands for any lawful
purpose, whether it be for convents or schools or seminaries or
haciendas for their support or land to be held solely for enjoyment of
the revenue. Once the capacity to acquire is granted, the way is
paved for the revitalization of religious landholdings that proved so
troublesome in our past. I cannot conceive that the Constitution
intended to revive them.
It is also argued that, before the Constitution was adopted, the
corporations sole had, by express statute, the right to acquire
agricultural land; and that the Constitution was not intended to
destroy such "acquired property rights." If followed, the argument
destroys the constitutional restrictions. All aliens had a capacity to
acquire agricultural land before the Constitution came into effect,
because no prohibition existed previously. Must their right to acquire
and hold agricultural land be conceded in spite of the Constitution?.
That the law should have expressly conferred capacity to acquire
land upon corporations sole was not due any special predilection for
them; it was exclusively due to the principle that corporation, as
artificial entities, have no inherent rights, but only those granted by
the sovereign. Unless conferred, the corporate right would not exist.
Furthermore, a capacity to acquire in futuro, is not in itself a vested
existing property right that the Constitution protects from impairment.
For a property right to be vested (or acquired) there must be a
transition from the potential, or contingent, to the actual, and the
proprietary interest must have attached to a thing, it must have
become "fixed or established "(Balboa vs. Farrales, 51 Phil. 498). If
mere potentialities cannot be impaired, then the law would become
unchangeable, for every variation in it will reduce some one's legal
ability to do or not to do. Already in Benguet Consolidated vs.
Pineda, 3 52 Off. Gaz. 1961, we have ruled that no one has a vested
right in statutory privileges or exemptions. And in the concurring
opinion in Gold Creek Mining Corp. vs. Rodriguez, 66 Phil. 259 (cited
by Justice Felix), Mr. Justice Laurel squarely declared that
"contingency or expectation is neither property right." (cas. cit., p.
269.) Finally, the point is also made that the Ordinary, as religious
corporation sole, has no citizenship, and is not an alien. The answer
is that under the Constitution of the Republic, it is not enough that the
acquirer of agricultural land be not an alien; he must be a Filipino or
controlled by Filipinos.
Wherefore, I am constrained to conclude:
(1) That the capacity of religious corporations sole to acquire
agricultural land depends upon 60 per cent Filipino membership of
the group or body exercising control of the corporation;lawphi1.net
(2) That if control of any such corporation should be vested in a
single person, then such person must be a Filipino
citizen;1awphi1.net
(3) That in the absence of evidence on these points, the order
appealed from, denying registration of the conveyance, should be
affirmed.
Concepcion, J., concur.
G.R. No. L-55289 June 29, 1982
REPUBLIC OF THE PHILIPPINES, represented by the Director of
Lands, petitioner-appellant,
vs.
JUDGE CANDIDO P. VILLANUEVA, of the Court of First Instance
of Bulacan, Malolos Branch VII, and IGLESIA NI CRISTO, as a
corporation sole, represented by ERAÑO G. MANALO, as
Executive Minister, respondents-appellees.
AQUINO, J.:
Like L-49623, Manila Electric Company vs. Judge Castro-Bartolome,
this case involves the prohibition in section 11, Article XIV of the
Constitution that "no private corporation or association may hold
alienable lands of the public domain except by lease not to exceed
one thousand hectares in area".
Lots Nos. 568 and 569, located at Barrio Dampol, Plaridel, Bulacan,
with an area of 313 square meters and an assessed value of P1,350
were acquired by the Iglesia Ni Cristo on January 9, 1953 from
Andres Perez in exchange for a lot with an area of 247 square
meters owned by the said church (Exh. D).
The said lots were already possessed by Perez in 1933. They are
not included in any military reservation. They are inside an area
which was certified as alienable or disposable by the Bureau of
Forestry in 1927. The lots are planted to santol and mango trees and
banana plants. A chapel exists on the said land. The land had been
declared for realty tax purposes. Realty taxes had been paid therefor
(Exh. N).
On September 13, 1977, the Iglesia Ni Cristo, a corporation sole,
duly existing under Philippine laws, filed with the Court of First
Instance of Bulacan an application for the registration of the two lots.
It alleged that it and its predecessors-in-interest had possessed the
land for more than thirty years. It invoked section 48(b) of the Public
Land Law, which provides:
Chapter VIII.—Judicial confirmation of imperfect or
incomplete titles.
xxx xxx xxx
SEC. 48. The following-described citizens of the
Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest
therein, but whose titles have not been perfected or
completed, may apply to the Court of First Instance
of the province where the land is located for
confirmation of their claims and the issuance of a
certificate of title therefore, under the Land Register
Act, to wit:
xxx xxx xxx
(b) Those who by themselves or through their
predecessors-in-interest have been in open,
continuous, exclusive, and notorious possession and
occupation of agricultural lands of the public domain,
under a bona fide claim of acquisition of ownership,
for at least thirty years immediately preceding the
filing of the application for confirmation of title except
when prevented by war or force majeure. These
shall be conclusively presumed to have performed
all the conditions essential to a Government grant
and shall be entitled to a certificate of title under the
provisions of this chapter." (As amended by Republic
Act No. 1942, approved on June 22, 1957.)
The Republic of the Philippines, through the Direct/r of Lands,
opposed the application on the grounds that applicant, as a private
corporation, is disqualified to hold alienable lands of the public
domain, that the land applied for is public land not susceptible of
private appropriation and that the applicant and its predecessors-in-
interest have not been in the open, continuous, exclusive and
notorious possession of the land since June 12, 1945.
After hearing, the trial court ordered the registration of the two lots,
as described in Plan Ap-04-001344 (Exh. E), in the name of the
Iglesia Ni Cristo, a corporation sole, represented by Executive
Minister Eraño G. Manalo, with office at the corner of Central and
Don Mariano Marcos Avenues, Quezon City, From that decision, the
Republic of the Philippines appealed to this Court under Republic Act
No. 5440. The appeal should be sustained.
As correctly contended by the Solicitor General, the Iglesia Ni Cristo,
as a corporation sole or a juridical person, is disqualified to acquire
or hold alienable lands of the public domain, like the two lots in
question, because of the constitutional prohibition already mentioned
and because the said church is not entitled to avail itself of the
benefits of section 48(b) which applies only to Filipino citizens or
natural persons. A corporation sole (an "unhappy freak of English
law") has no nationality (Roman Catholic Apostolic Adm. of Davao,
Inc. vs. Land Registration Commission, 102 Phil. 596. See Register
of Deeds vs. Ung Siu Si Temple, 97 Phil. 58 and sec. 49 of the
Public Land Law).
The contention in the comments of the Iglesia Ni Cristo (its lawyer
did not file any brief) that the two lots are private lands, following the
rule laid down in Susi vs. Razon and Director of Lands, 48 Phil. 424,
is not correct. What was considered private land in the Susi case
was a parcel of land possessed by a Filipino citizen since time
immemorial, as in Cariño vs. Insular Government, 212 U.S. 449, 53
L. ed. 594, 41 Phil. 935 and 7 Phil. 132. The lots sought to be
registered in this case do not fall within that category. They are still
public lands. A land registration proceeding under section 48(b)
"presupposes that the land is public" (Mindanao vs. Director of
Lands, L-19535, July 10, 1967, 20 SCRA 641, 644).
As held in Oh Cho vs. Director of Lands, 75 Phil. 890, "all lands that
were not acquired from the Government, either by purchase or by
grant, belong to the public domain. An exception to the rule would be
any land that should have been in the possession of an occupant
and of his predecessors-in-interest since time immemorial, for such
possession would justify the presumption that the land had never
been part of the public domain or that it had been a private property
even before the Spanish conquest. "
In Uy Un vs. Perez, 71 Phil. 508, it was noted that the right of an
occupant of public agricultural land to obtain a confirmation of his title
under section 48(b) of the Public Land Law is a "derecho dominical
incoativo"and that before the issuance of the certificate of title the
occupant is not in the juridical sense the true owner of the land since
it still pertains to the State.
The lower court's judgment is reversed and set aside. The
application for registration of the Iglesia Ni Cristo is dismissed with
costs against said applicant.
SO ORDERED.
Barredo, Makasiar, Guerrero, Melencio-Herrera, Escolin, Vasquez,
Relova and Gutierrez, Jr., JJ., concur.
Concepcion, Jr., J., is on leave.
Plana, J., took no part.
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 stock 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.
G.R. No. 91889 August 27, 1993
MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY
AND NEPOMUCENO REDOVAN, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, EDGARDO D.
PABALAN, MANUEL A. TORRES, JR., MARIA THERESA V.
VELOSO AND CASTRENSE C. VELOSO, respondents.
Virgilio E. Dulay for petitioners.
Torres, Tobias, Azura & Jocson for private respondents.
NOCON, J.:
This is a petition for review on certiorari to annul and set aside the
decision of the Court of Appeals affirming the decision of the
1 2
Regional Trial Court of Pasay, Branch 114 Civil Cases Nos.
8198-P, and 2880-P, the dispositive portion of which reads, as
follows:
Wherefore, in view of all the foregoing
considerations, in this Court hereby renders
judgment, as follows:
In Civil Case No. 2880-P, the petition filed by
Manuel R. Dulay Enterprises, Inc. and Virgilio E.
Dulay for annulment or declaration of nullity of the
decision of the Metropolitan Trial Court, Branch
46, Pasay City, in its Civil Case No. 38-81 entitled
"Edgardo D. Pabalan, et al., vs. Spouses
Florentino Manalastas, et al.," is dismissed for
lack of merits;
In Civil Case No. 8278-P, the complaint filed by
Manuel R. Dulay Enterprises, Inc. for cancellation
of title of Manuel A. Torres, Jr. (TCT No. 24799 of
the Register of Deeds of Pasay City) and
reconveyance, is dismissed for lack or merit, and,
In Civil Case No. 8198-P, defendants Manuel R.
Dulay Enterprises, Inc. and Virgilio E. Dulay are
ordered to surrender and deliver possession of
the parcel of land, together with all the
improvements thereon, described in Transfer
Certificate of Title No. 24799 of the Register of
Deeds of Pasay City, in favor of therein plaintiffs
Manuel A. Torres, Jr. as owner and Edgardo D.
Pabalan as real estate administrator of said
Manuel A. Torres, Jr.; to account for and return to
said plaintiffs the rentals from dwelling unit No. 8-
A of the apartment building (Dulay Apartment)
from June 1980 up to the present, to indemnify
plaintiffs, jointly and severally, expenses of
litigation in the amount of P4,000.00 and
attorney's fees in the sum of P6,000.00, for all the
three (3) cases. Co-defendant Nepomuceno
Redovan is ordered to pay the current and
subsequent rentals on the premises leased by him
to plaintiffs.
The counterclaim of defendants Virgilio E. Dulay
and Manuel R. Dulay Enterprises, Inc. and N.
Redovan, dismissed for lack of merit. With costs
against the three (3) aforenamed defendants. 3
The facts as found by the trial court are as follows:
Petitioner Manuel R. Dulay Enterprises, Inc, a domestic
corporation with the following as members of its Board of
Directors: Manuel R. Dulay with 19,960 shares and designated as
president, treasurer and general manager, Atty. Virgilio E. Dulay
with 10 shares and designated as vice-president; Linda E. Dulay
with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty.
Plaridel C. Jose with 10 shares and designated as secretary,
owned a property covered by TCT No. 17880 and known as
4
Dulay Apartment consisting of sixteen (16) apartment units on a
six hundred eighty-nine (689) square meters lot, more or less,
located at Seventh Street (now Buendia Extension) and F.B.
Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay,
obtained various loans for the construction of its hotel project,
Dulay Continental Hotel (now Frederick Hotel). It even had to
borrow money from petitioner Virgilio Dulay to be able to continue
the hotel project. As a result of said loan, petitioner Virgilio Dulay
occupied one of the unit apartments of the subject property since
property since 1973 while at the same time managing the Dulay
Apartment at his shareholdings in the corporation was
subsequently increased by his father. 5
On December 23, 1976, Manuel Dulay by virtue of Board
Resolution
No 18 of petitioner corporation sold the subject property to
6
private respondents spouses Maria Theresa and Castrense
Veloso in the amount of P300,000.00 as evidenced by the Deed
of Absolute Sale. Thereafter, TCT No. 17880 was cancelled and
7
TCT No. 23225 was issued to private respondent Maria Theresa
Veloso. Subsequently, Manuel Dulay and private respondents
8
spouses Veloso executed a Memorandum to the Deed of
Absolute Sale of December 23, 1976 dated December 9, 1977
9
giving Manuel Dulay within (2) years or until December 9, 1979 to
repurchase the subject property for P200,000.00 which was,
however, not annotated either in TCT No. 17880 or TCT No.
23225.
On December 24, 1976, private respondent Maria Veloso, without
the knowledge of Manuel Dulay, mortgaged the subject property
to private respondent Manuel A. Torres for a loan of P250,000.00
which was duly annotated as Entry No. 68139 in TCT No.
23225. 10
Upon the failure of private respondent Maria Veloso to pay private
respondent Torres, the subject property was sold on April 5, 1978
to private respondent Torres as the highest bidder in an
extrajudicial foreclosure sale as evidenced by the Certificate of
Sheriff's Sale issued on April 20, 1978.
11
On July 20, 1978, private respondent Maria Veloso executed a
Deed of Absolute Assignment of the Right to Redeem in favor of
12
Manuel Dulay assigning her right to repurchase the subject
property from private respondent Torres as a result of the extra
sale held on April 25, 1978.
As neither private respondent Maria Veloso nor her assignee
Manuel Dulay was able to redeem the subject property within the
one year statutory period for redemption, private respondent
Torres filed an Affidavit of Consolidation of Ownership with the
13
Registry of Deeds of Pasay City and TCT No. 24799 was 14
subsequently issued to private respondent Manuel Torres on April
23, 1979.
On October 1, 1979, private respondent Torres filed a petition for
the issuance of a writ of possession against private respondents
spouses Veloso and Manuel Dulay in LRC Case No. 1742-P.
However, when petitioner Virgilio Dulay was never authorized by
the petitioner corporation to sell or mortgage the subject property,
the trial court ordered private respondent Torres to implead
petitioner corporation as an indispensable party but the latter
moved for the dismissal of his petition which was granted in an
Order dated April 8, 1980.
On June 20, 1980, private respondent Torres and Edgardo
Pabalan, real estate administrator of Torres, filed an action
against petitioner corporation, Virgilio Dulay and Nepomuceno
Redovan, a tenant of Dulay Apartment Unit No. 8-A for the
recovery of possession, sum of money and damages with
preliminary injunction in Civil Case, No. 8198-P with the then
Court of First Instance of Rizal.
On July 21, 1980, petitioner corporation filed an action against
private respondents spouses Veloso and Torres for the
cancellation of the Certificate of Sheriff's Sale and TCT No. 24799
in Civil Case No. 8278-P with the then Court of First Instance of
Rizal.
On January 29, 1981, private respondents Pabalan and Torres
filed an action against spouses Florentino and Elvira Manalastas,
a tenant of Dulay Apartment Unit No. 7-B, with petitioner
corporation as intervenor for ejectment in Civil Case No. 38-81
with the Metropolitan Trial Court of Pasay City which rendered a
decision on April 25, 1985, dispositive portion of which reads, as
follows:
Wherefore, judgment is hereby rendered in favor
of the plaintiff (herein private respondents) and
against the defendants:
1. Ordering the defendants and all persons
claiming possession under them to vacate the
premises.
2. Ordering the defendants to pay the rents in the
sum of P500.000 a month from May, 1979 until
they shall have vacated the premises with interest
at the legal rate;
3. Ordering the defendants to pay attorney's fees
in the sum of P2,000.00 and P1,000.00 as other
expenses of litigation and for them to pay the
costs of the suit.
15
Thereafter or on May 17, 1985, petitioner corporation and Virgilio
Dulay filed an action against the presiding judge of the
Metropolitan Trial Court of Pasay City, private respondents
Pabalan and Torres for the annulment of said decision with the
Regional Trial Court of Pasay in Civil Case No. 2880-P.
Thereafter, the three (3) cases were jointly tried and the trial court
rendered a decision in favor of private respondents.
Not satisfied with said decision, petitioners appealed to the Court
of Appeals which rendered a decision on October 23, 1989, the
dispositive portion of which reads, as follows:
PREMISES CONSIDERED, the decision being
appealed should be as it is hereby AFFIRMED in
full.
16
On November 8, 1989, petitioners filed a Motion for
Reconsideration which was denied on January 26, 1990.
Hence, this petition.
During the pendency of this petition, private respondent Torres
died on April 3, 1991 as shown in his death certificate and
17
named Torres-Pabalan Realty & Development Corporation as his
heir in his holographic will dated October 31, 1986.
18
Petitioners contend that the respondent court had acted with
grave abuse of discretion when it applied the doctrine of piercing
the veil of corporate entity in the instant case considering that the
sale of the subject property between private respondents spouses
Veloso and Manuel Dulay has no binding effect on petitioner
corporation as Board Resolution No. 18 which authorized the sale
of the subject property was resolved without the approval of all
the members of the board of directors and said Board Resolution
was prepared by a person not designated by the corporation to
be its secretary.
We do not agree.
Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or
improperly held. Unless the by-laws provide
otherwise, any action by the directors of a close
corporation without a meeting shall nevertheless
be deemed valid if:
1. Before or after such action is taken, written
consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied
knowledge of the action and make no prompt
objection thereto in writing; or
3. The directors are accustomed to take informal
action with the express or implied acquiese of all
the stockholders, or
4. All the directors have express or implied
knowledge of the action in question and none of
them makes prompt objection thereto in writing.
If a directors' meeting is held without call or
notice, an action taken therein within the
corporate powers is deemed ratified by a director
who failed to attend, unless he promptly files his
written objection with the secretary of the
corporation after having knowledge thereof.
In the instant case, petitioner corporation is classified as a close
corporation and consequently a board resolution authorizing the
sale or mortgage of the subject property is not necessary to bind
the corporation for the action of its president. At any rate,
corporate action taken at a board meeting without proper call or
notice in a close corporation is deemed ratified by the absent
director unless the latter promptly files his written objection with
the secretary of the corporation after having knowledge of the
meeting which, in his case, petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which
has a personality distinct and separate from its individual
stockholders or members, the veil of corporate fiction may be
19
pierced when it is used to defeat public convenience justify
wrong, protect fraud or defend crime. The privilege of being
20
treated as an entity distinct and separate from its stockholder or
members is therefore confined to its legitimate uses and is
subject to certain limitations to prevent the commission of fraud or
other illegal or unfair act. When the corporation is used merely as
an alter ego or business conduit of a person, the law will regard
the corporation as the act of that person. The Supreme Court
21
had repeatedly disregarded the separate personality of the
corporation where the corporate entity was used to annul a valid
contract executed by one of its members.
Petitioners' claim that the sale of the subject property by its
president, Manuel Dulay, to private respondents spouses Veloso
is null and void as the alleged Board Resolution No. 18 was
passed without the knowledge and consent of the other members
of the board of directors cannot be sustained. As correctly pointed
out by the respondent Court of Appeals:
Appellant Virgilio E. Dulay's protestations of
complete innocence to the effect that he never
participated nor was even aware of any meeting
or resolution authorizing the mortgage or sale of
the subject premises (see par. 8, affidavit of
Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh.
"21") is difficult to believe. On the contrary, he is
very much privy to the transactions involved. To
begin with, he is a incorporator and one of the
board of directors designated at the time of the
organization of Manuel R. Dulay Enterprise, Inc.
 In ordinary parlance, the said entity is loosely
referred to as a "family corporation". The
nomenclature, if imprecise, however, fairly reflects
the cohesiveness of a group and the parochial
instincts of the individual members of such an
aggrupation of which Manuel R. Dulay
Enterprises, Inc. is typical: four-fifths of its
incorporators being close relatives namely, three
(3) children and their father whose name identifies
their corporation (Articles of Incorporation of
Manuel R. Dulay Enterprises, Inc. Exh. "31-A"). 22
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975
executed an affidavit that he was a signatory witness to the
23
execution of the post-dated Deed of Absolute Sale of the subject
property in favor of private respondent Torres indicates that he
was aware of the transaction executed between his father and
private respondents and had, therefore, adequate knowledge
about the sale of the subject property to private respondents.
Consequently, petitioner corporation is liable for the act of Manuel
Dulay and the sale of the subject property to private respondents
by Manuel Dulay is valid and binding. As stated by the trial court:
. . . the sale between Manuel R. Dulay
Enterprises, Inc. and the spouses Maria Theresa
V. Veloso and Castrense C. Veloso, was a
corporate act of the former and not a personal
transaction of Manuel R. Dulay. This is so
because Manuel R. Dulay was not only president
and treasurer but also the general manager of the
corporation. The corporation was a closed family
corporation and the only non-relative in the board
of directors was Atty. Plaridel C. Jose who
appeared on paper as the secretary. There is no
denying the fact, however, that Maria Socorro R.
Dulay at times acted as secretary. . . ., the Court
can not lose sight of the fact that the Manuel R.
Dulay Enterprises, Inc. is a closed family
corporation where the incorporators and directors
belong to one single family. It cannot be
concealed that Manuel R. Dulay as president,
treasurer and general manager almost had
absolute control over the business and affairs of
the corporation. 24
Moreover, the appellate courts will not disturb the findings of the
trial judge unless he has plainly overlooked certain facts of
substance and value that, if considered, might affect the result of
the case, which is not present in the instant case.
25
Petitioners' contention that private respondent Torres never
acquired ownership over the subject property since the latter was
never in actual possession of the subject property nor was the
property ever delivered to him is also without merit.
Paragraph 1, Article 1498 of the New Civil Code provides:
When the sale is made through a public
instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the
object of the contract, if from the deed the
contrary do not appear or cannot clearly be
inferred.
Under the aforementioned article, the mere execution of the deed
of sale in a public document is equivalent to the delivery of the
property. Likewise, this Court had held that:
It is settled that the buyer in a foreclosure sale
becomes the absolute owner of the property
purchased if it is not redeemed during the period
of one year after the registration of the sale. As
such, he is entitled to the possession of the said
property and can demand it at any time following
 the consolidation of ownership in his name and
the issuance to him of a new transfer certificate of
title. The buyer can in fact demand possession of
the land even during the redemption period except
that he has to post a bond in accordance with
Section 7 of Act No. 3133 as amended. No such
bond is required after the redemption period if the
property is not redeemed. Possession of the land
then becomes an absolute right of the purchaser
as confirmed owner. 26
Therefore, prior physical delivery or possession is not legally
required since the execution of the Deed of Sale in deemed
equivalent to delivery.
Finally, we hold that the respondent appellate court did not err in
denying petitioner's motion for reconsideration despite the fact
that private respondents failed to submit their comment to said
motion as required by the respondent appellate court from
resolving petitioners' motion for reconsideration without the
comment of the private respondent which was required merely to
aid the court in the disposition of the motion. The courts are as
much interested as the parties in the early disposition of cases
before them. To require otherwise would unnecessarily clog the
courts' dockets.
WHEREFORE, the petition is DENIED and the decision appealed
from is hereby AFFIRMED.
SO ORDERED.
G.R. No. L-4900 August 31, 1953
FINANCING CORPORATION OF THE PHILIPPINES and J.
AMADO ARANETA, petitioners,
vs.
HON. JOSE TEODORO, Judge of the Court of First Instance
of Negros Occidental, Branch II, and ENCARNACION
LIZARES VDA. DE PANLILIO, respondents.
Vicente Hilado for petitioners.
Antonio Barredo for respondents.
MONTEMAYOR, J.:
In civil case No. 1924 of the Court of First Instance of Negros
Occidental, Asuncion Lopez Vda. de Lizares, Encarnacion
Lizares Vda. de Panlilio and Efigenia Vda. de Paredes, in their
own behalf and in behalf of the other minority stockholders of the
Financing Corporation of the Philippines, filed a complaint against
the said corporation and J. Amado Araneta, its president and
general manager, claiming among other things alleged gross
mismanagement and fraudulent conduct of the corporate affairs
of the defendant corporation by J. Amado Araneta, and asking
that the corporation be dissolved; that J. Amado Araneta be
declared personally accountable for the amounts of the
unauthorized and fraudulent disbursements and disposition of
assets made by him, and that he be required to account for said
assets, and that pending trial and disposition of the case on its
merits a receiver be appointed to take possession of the books,
records and assets of the defendant corporation preparatory to its
dissolution and liquidation and distribution of the assets. Over the
strong objection of the defendants, the trial court presided by
respondent Judge Jose Teodoro, granted the petition for the
appointment of a receiver and designated Mr. Alfredo Yulo as
such receiver with a bond of P50,000. Failing to secure a
reconsideration of the order appointing a receiver, the defendants
in said case, Financing Corporation of the Philippines and J.
Amado Araneta, as petitioners, have filed the present petition for
certiorari with preliminary injunction to revoke and set aside the
order. Acting upon that part of the petition asking for a writ of
preliminary injunction, a majority of the court granted the same
upon the filing of a bond by the petitioners in the sum of P50,000.
The main contention of the petitioners in opposing the
appointment of a receiver in this case is that said appointment is
merely an auxiliary remedy; that the principal remedy sought by
the respondents in the action in Negros Occidental was the
dissolution of the Financing Corporation of the Philippines; that
according to the law a suit for the dissolution of a corporation can
be brought and maintained only by the State through its legal
counsel, and that respondents, much less the minority
stockholders of said corporation, have no right or personality to
maintain the action for dissolution, and that inasmuch as said
action cannot be maintained legally by the respondents, then the
auxiliary remedy for the appointment of a receiver has no basis.
True it is that the general rule is that the minority stockholders of
a corporation cannot sue and demand its dissolution. However,
there are cases that hold that even minority stockholders may ask
for dissolution, this, under the theory that such minority members,
if unable to obtain redress and protection of their rights within the
corporation, must not and should not be left without redress and
remedy. This was what probably prompted this Court to state in
the case of Hall, et al. vs. Judge Piccio,* G.R. No. L-2598 (47 Off.
Gaz. No. 12 Supp., p. 200) that even the existence of a de
jure corporation may be terminated in a private suit for its
dissolution by the stockholders without the intervention of the
State. It was therein further held that although there might be
some room for argument on the right of minority stockholders to
ask for dissolution,-that question does not affect the court's
jurisdiction over the case, and that the remedy by the party
dissatisfied was to appeal from the decision of the trial court. We
repeat that although as a rule, minority stockholders of a
corporation may not ask for its dissolution in a private suit, and
that such action should be brought by the Government through its
legal officer in a quo warranto case, at their instance and request,
there might be exceptional cases wherein the intervention of the
State, for one reason or another, cannot be obtained, as when
the State is not interested because the complaint is strictly a
matter between the stockholders and does not involve, in the
opinion of the legal officer of the Government, any of the acts or
omissions warranting quo warranto proceedings, in which
minority stockholders are entitled to have such dissolution. When
such action or private suit is brought by them, the trial court had
jurisdiction and may or may not grant the prayer, depending upon
the facts and circumstances attending it. The trial court's decision
is of course subject to review by the appellate tribunal. Having
such jurisdiction, the appointment of a receiver pendente lite is
left to the sound discretion of the trial court. As was said in the
case of Angeles vs. Santos (64 Phil., 697), the action having
been properly brought and the trial court having entertained the
same, it was within the power of said court upon proper showing
to appoint a receiver pendente lite for the corporation; that
although the appointment of a receiver upon application of the
minority stockholders is a power to be exercised with great
caution, nevertheless, it should be exercised necessary in order
not to entirely ignore and disregard the rights of said minority
stockholders, especially when said minority stockholders are
unable to obtain redress and protection of their rights within the
corporation itself.
In that civil case No. 1924 of Negros Occidental court, allegations
of mismanagement and misconduct by its President and Manager
were made, specially in connection with the petition for the
appointment of a receiver. in order to have an idea of the
seriousness of said allegations, we reproduce a pertinent portion
of the order of respondent Judge Teodoro dated June 23, 1951,
subject of these certiorari proceedings:
Considering plaintiffs' complaint and verified motion for
appointment of a receiver together, as they have been
treated jointly in the opposition of the defendants, the
grounds of the prayer for receivership may be briefly
stated to be: (1) imminent danger of insolvency; (2) fraud
and mismanagement, such as, particularly, (a) wrongful
and unauthorized diversion from corporate purposes and
use for personal benefit of defendant Araneta, for the
benefit of the corporations under his control and of which
he is majority stockholder and/or for the benefit of his
relatives, personal friends and the political organization to
which he is affiliated of approximately over one and a half
million pesos of the funds of the defendant corporation in
the form of uncollected allowances and loans, either
without or with uncollected interest, and either unsecured
or insufficiently secured, and sometimes with a securities
appearing in favor of defendant Araneta as if the funds
advanced or loaned were his own; (b) unauthorized and
profitless pledging of securities owned by defendant
corporation to secure obligations amounting to
P588,645.34 of another corporation controlled by
defendant Araneta; (c) unauthorized and profitless using
of the name of the defendant corporation in the shipping
of sugar belonging to other corporations controlled by
defendant Araneta to the benefit of said corporations in
the amount of at least P104,343.36; (d) refusal by
defendant Araneta to endorse to the defendant
corporation shares of stock and other securities belonging
to it but which are still in his name; (e) negligent failure to
endorse other shares of stock belonging to defendant
corporation but still in the names of the respective
vendors; and (f) illegal and unauthorized transfer and
deposit in the United States of America of 6,426,281
shares of the Atok-Big Wedge Mining Company; (3)
violations of the corporation law and the by-laws of the
corporation such as (a) refusal to allow minority
stockholders to examine the books and records of the
corporation; (b) failure to call and hold stockholders' and
directors' meetings; (c) virtual disregard and ignoring of
the board of directors by defendant Araneta who has
been and is conducting the affairs of the corporation
under his absolute control and for his personal benefit
and for the benefit of the corporations controlled by him,
to the prejudice and in disregard of the rights of the
plaintiffs and other minority stockholders; and (d)
irregularity in the keeping and (e) errors and omissions in
the books and failure of the same to reflect the real and
actual transactions of the defendant corporations; (4)
failure to achieve the fundamental purpose of the
corporation; (5) if administration, possession and control
of the affairs, books, etc. of defendant corporation are left
in the hands of the defendant Araneta and the present
corporate officials, under his power and influence, the
remaining assets of the corporation are in danger of being
further dissipated, wasted or lost and of becoming
ultimately unavailable for distribution among its
stockholders; and (6) the best means to protect and
preserve the assets of defendant corporation is the
appointment of a receiver.
In conclusion, we hold that the trial court through respondent
Judge Teodoro had jurisdiction and properly entertained the
original case; that he also had jurisdiction to appoint a
receiver pendente lite, and considering the allegations made in
connection with the petition for the appointment of a receiver, he
neither exceeded his jurisdiction nor abused his discretion in
appointing a receiver. The petition for certiorari is hereby denied,
with costs. The writ of preliminary injunction heretofore issued is
hereby ordered dissolved.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Reyes, Jugo,
Bautista Angelo, and Labrador, JJ., concur.
 [G.R. No. 43350. December 23, 1937.]
CAGAYAN FISHING DEVELOPMENT CO.,
Inc., Plaintiff-Appellant, v. TEODORO
SANDIKO, Defendant-Appellee.
Arsenio P. Dizon for Appellant.
Sumulong, Lavides & Sumulong for Appellee.
SYLLABUS
1. CORPORATIONS; TRANSFER MADE TO A NON-
EXISTENT CORPORATION; JURIDICAL CAPACITY TO
ENTER INTO A CONTRACT. — The transfer made by T
to the C. F. D. Co., Inc., was, effected on May 31,
1930 and the actual incorporation of said company
was effected later on (October 22, 1930. In other
words, the transfer was made almost five months
before the incorporation of the company.
Unquestionably, a duly organized corporation has the
power to purchase and hold such real property as the
purposes for which such corporation was formed may
permit and for this purpose may enter into such
contracts as may be necessary. But before a
corporation may be said to be lawfully organized,
many things have to be done. Among other things, the
law requires the filing of articles of incorporation.
Although there is a presumption that all the
requirements of law have been complied with in the
case before us it can not be denied that the plaintiff
was not yet incorporated when it entered into take
contract of sale The contract itself referred to the
plaintiff as "una sociodad en vias de incorporacion." It
was not even a de facto corporation at the time. Not
being in legal existence then, it did not possess
juridical capacity to enter into the contract.
2. ID.; ID.; ID. — Corporation are creatures of the
law, and can only, come into existence in the manner
prescribed by law. General laws authorizing the
formation of corporations are general offers to any
persons who may bring themselves within their
provisions; and if conditions precedent are prescribed
in the statute, or certain acts are required to be done,
they are terms of the offer, and must be complied
wish substantially before legal corporate existence can
be acquired. That a corporation should have a full and
complete organization and existence as an entity
before it can enter Into any kind of a contract or
transact any business, would seem to be self-evident.
3. ID.; ID.; ID. — A corporation, until organized, has
no life and, therefore, no faculties. It is, as it were, a
child in venture sa mere. This is not saying, that under
no circumstances may the acts of promoters of a
corporation he ratified by the corporation if and when
subsequently organized. There are, of course,
exceptions, but under the peculiar facts and
circumstances of the present case the doctrine of
ratification should not be extended because to do so
would result in injustice or fraud to the candid and
unwary.
DECISION
LAUREL, J.:
This is an appeal from a judgment of the Court of First
Instance of Manila absolving the defendant from the
plaintiff’s complaint.
Manuel Tabora is the registered owner of four parcels
of land situated in the barrio of Linao, town of Aparri,
Province of Cagayan, as evidenced by transfer
certificate of title No. 217 of the land records of
Cagayan, a copy of which is in evidence as Exhibit 1.
To guarantee the payment of a loan in the sum of
P8,000, Manuel Tabora, on August 14, 1929, executed
in favor of the Philippine National Bank a first
mortgage on the four parcels of land above-
mentioned. A second mortgage in favor of the same
bank was in April of 1930 executed by Tabora over the
same lands to guarantee the payment of another loan
amounting to P7,000. A third mortgage on the same
lands was executed on April 16, 1930 in favor of
Severina Buzon to whom Tabora was indebted in the
sum of P2,900. These mortgages were registered and
annotations thereof appear at the back of transfer
certificate of title No. 217.
On May 31, 1930, Tabora executed a public document
entitled "Escritura de Traspaso de Propiedad
Inmueble" (Exhibit A) by virtue of which the four
parcels of land owned by him were sold to the plaintiff
company, said to be under process of incorporation, in
consideration of one peso (P1) subject to the
mortgages in favor of the Philippine National Bank and
Severina Buzon and, to the condition that the
certificate of title to said lands shall not be transferred
to the name of the plaintiff company until the latter
has fully and completely paid Tabora’s indebtedness to
the Philippine National Bank.
The plaintiff company filed its articles of incorporation
with the Bureau of Commerce and Industry on October
22, 1930 (Exhibit 2). A year later, on October 28,
1931, the board of directors of the said company
adopted a resolution (Exhibit G) authorizing its
president, Jose Ventura, to sell the four parcels of land
in question to Teodoro Sandiko for P42,000. Exhibits
B, C and D were thereafter made and executed.
Exhibit B is a deed of sale executed before a notary
public by the terms of which the plaintiff sold, ceded
and transferred to the defendant all its rights, titles
and interest in and to the four parcels of land
described in transfer certificate of title No. 217 for
P25,300; and the defendant in turn obligated himself
to shoulder the three mortgages hereinbefore referred
to. Exhibit C is a promissory note for P25,300 drawn
by the defendant in favor of the plaintiff, payable after
one year from the date thereof. Exhibit D is a deed of
mortgage executed before a notary public in
accordance with which the four parcels of land were
given as security for the payment of the promissory
note, Exhibit C. All these three instruments were dated
February 15, 1932.
The defendant having failed to pay the sum stated in
the promissory note, plaintiff, on January 25, 1934,
brought this action in the Court of First Instance of
Manila praying that judgment be rendered against the
defendant for the sum of P25,300, with interest at the
legal rate from the date of the filing of the complaint,
and the costs of the suit. After trial, the court below,
on December 18, 1934, rendered judgment absolving
the defendant, with costs against the plaintiff. Plaintiff
presented a motion for new trial on January 14, 1935,
which motion was denied by the trial court on January
19 of the same year. After due exception and notice,
plaintiff has appealed to this court and makes an
assignment of various errors.
In dismissing the complaint against the defendant, the
court below reached the conclusion that Exhibit B is
invalid because of vice in consent and repugnancy to
law. While we do not agree with this conclusion, we
have however voted to affirm the judgment appealed
from for reasons which we shall presently state.
The transfer made by Tabora to the Cagayan Fishing
Development Co., Inc., plaintiff herein, was effected
on May 31, 1930 (Exhibit A) and the actual
incorporation of said company was effected later on
October 22, 1930 (Exhibit 2). In other words, the
transfer was made almost five months before the
incorporation of the company. Unquestionably, a duly
organized corporation has the power to purchase and
hold such real property as the purposes for which such
corporation was formed may permit and for this
purpose may enter into such contracts as may be
necessary (sec. 13, pars. 5 and 9, and sec. 14, Act No.
1459). But before a corporation may be said to be
lawfully organized, many things have to be done.
Among other things, the law requires the filing of
articles of incorporation (secs. 6 et seq., Act No.
1459). Although there is a presumption that all the
requirements of law have been complied with (sec.
334, par. 31, Code of Civil Procedure), in the case
before us it can not be denied that the plaintiff was not
yet incorporated when it entered into the contract of
sale, Exhibit A. The contract itself referred to the
plaintiff as "una sociedad en vias de incorporacion." It
was not even a de facto corporation at the time. Not
being in legal existence then, it did not possess
juridical capacity to enter into the contract.
"Corporations are creatures of the law, and can only
come into existence in the manner prescribed by law.
As has already been stated, general laws authorizing
the formation of corporations are general offers to any
persons who may bring themselves within their
provisions; and if conditions precedent are prescribed
in the statute, or certain acts are required to be done,
they are terms of the offer, and must be complied with
substantially before legal corporate existence can be
acquired." (14 C. J., sec. 111, p. 118.)
"That a corporation should have a full and complete
organization and existence as an entity before it can
enter into any kind of a contract or transact any
business, would seem to be self evident. . . . A
corporation, until organized, has no being, franchises
or faculties. Nor do those engaged in bringing it into
being have any power to bind it by contract, unless so
authorized by the charter. Until organized as
authorized by the charter there is not a corporation,
nor does it possess franchises or faculties for it or
others to exercise, until it acquires a complete
existence." (Gent v. Manufacturers and Merchants’
Mutual Insurance Company, 107 Ill., 652, 658.)
Boiled down to its naked reality, the contract here
(Exhibit A) was entered into not only between Manuel
Tabora and a non-existent corporation but between
Manuel Tabora as owner of four parcels of land on the
one hand and the same Manuel Tabora, his wife and
others, as mere promoters of a corporation on the
other hand. For reasons that are self-evident, these
promoters could not have acted as agents for a
projected corporation since that which had no legal
existence could have no agent. A corporation, until
organized, has no life and therefore no faculties. It is,
as it were, a child in ventre sa mere. This is not saying
that under no circumstances may the acts of
promoters of a corporation be ratified by the
corporation if and when subsequently organized. There
are, of course, exceptions (Fletcher Cyc. of Corps.,
permanent edition, 1931, vol. I, secs. 207 et seq.) ,
but under the peculiar facts and circumstances of the
present case we decline to extend the doctrine of
ratification which would result in the commission of
injustice or fraud to the candid and unwary.
(Massachusetts rule, Abbott v. Hapgood, 150 Mass.,
248; 22 N. E., 907, 908; 5 L. R. A., 586; 15 Am. St.
Rep., 193; citing English cases; Koppel v.
Massachusetts Brick Co., 192 Mass., 223; 78 N. E.,
128; Holyoke Envelope Co. v. U. S. Envelope Co., 182
Mass., 171; 65 N. E., 54.) It should be observed that
Manuel Tabora was the registered owner of the four
parcels of land, which he succeeded in mortgaging to
the Philippine National Bank so that he might have the
necessary funds with which to convert and develop
them into fishery. He appeared to have met with
financial reverses. He formed a corporation composed
of himself, his wife, and a few others. From the
articles of incorporation, Exhibit 2, it appears that out
of the P48,700, amount of capital stock subscribed,
P45,000 was subscribed by Manuel Tabora himself and
P500 by his wife, Rufina Q. de Tabora; and out of the
P43,300, amount paid on subscriptions, P42,100 is
made to appear as paid by Tabora and P200 by his
wife. Both Tabora and his wife were directors and the
latter was treasurer as well. In fact, to this day, the
lands remain inscribed in Tabora’s name. The
defendant always regarded Tabora as the owner of the
lands. He dealt with Tabora directly. Jose Ventura,
president of the plaintiff corporation, intervened only
to sign the contract, Exhibit B, in behalf of the plaintiff.
Even the Philippine National Bank, mortgagee of the
four parcels of land, always treated Tabora as the
owner of the same. (See Exhibits E and F.) Two civil
suits (Nos. 1931 and 38641) were brought against
Tabora in the Court of First Instance of Manila and in
both cases a writ of attachment against the four
parcels of land was issued. The Philippine National
Bank threatened to foreclose its mortgages. Tabora
approached the defendant Sandiko and succeeded in
making him sign Exhibits B, C, and D and in making
him, among other things, assume the payment of
Tabora’s indebtedness to the Philippine National Bank.
The promissory note, Exhibit C, was made payable to
the plaintiff company so that it may not be attached
by Tabora’s creditors, two of whom had obtained writs
of attachment against the four parcels of land.
If the plaintiff corporation could not and did not
acquire the four parcels of land here involved, it
follows that it did not possess any resultant right to
dispose of them by sale to the defendant, Teodoro
Sandiko.
Some of the members of this court are also of the
opinion that the transfer from Manuel Tabora to the
Cagayan Fishing Development Company, Inc., which
transfer is evidenced by Exhibit A, was subject to a G.R. No. L-20993 September 28, 1968
condition precedent (condicion suspensiva), namely,
the payment of a mortgage debt of the said Tabora to RIZAL LIGHT & ICE CO., INC., petitioner,
the Philippine National Bank, and that this condition vs.
not having been complied with by the Cagayan Fishing THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC
SERVICE COMMISSION, respondents.
Development Company, Inc., the transfer was
ineffective. (Art. 1114, Civil Code; Wise & Co. v. Kelly
----------------------------
and Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.)
However, having arrived at the conclusion that the
G.R. No. L-21221 September 28, 1968
transfer by Manuel Tabora to the Cagayan Fishing
Development Company, Inc. was null because at the
RIZAL LIGHT & ICE CO., INC., petitioner,
time it was effected the corporation was non-existent, vs.
we deem it unnecessary to discuss this point. THE PUBLIC SERVICE COMMISSION and MORONG
ELECTRIC CO., INC., respondents.
The decision of the lower court is accordingly affirmed,
with costs against the appellant. So ordered. Amado A. Amador, Jr. for petitioner.
Atilano C. Bautista and Pompeyo F. Olivas for respondents.
Villa-Real, Abad Santos, Imperial, Diaz and
Concepcion, JJ., concur.

ZALDIVAR, J.:

These two cases, being interrelated, are decided together.

Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co.,
Inc. to review and set aside the orders of respondent Public
Service Commission, 1 dated August 20, 1962, and February 15,
1963, in PSC Case No. 39716, cancelling and revoking the
certificate of public convenience and necessity and forfeiting the
franchise of said petitioner. In the same petition, the petitioner
prayed for the issuance of a writ of preliminary injunction ex
parte suspending the effectivity of said orders and/or enjoining
respondents Commission and/or Municipality of Morong, Rizal,
from enforcing in any way the cancellation and revocation of
petitioner's franchise and certificate of public convenience during
the pendency of this appeal. By resolution of March 12, 1963, this
Court denied the petition for injunction, for lack of merit.
Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice
Co., Inc. to review and set aside the decision of the Commission
dated March 13, 1963 in PSC Case No. 62-5143 granting a
certificate of public convenience and necessity to respondent
Morong Electric Co., Inc. 2 to operate an electric light, heat and
power service in the municipality of Morong, Rizal. In the petition
Rizal Light & Ice Co., Inc. also prayed for the issuance of a writ of
preliminary injunction ex parte suspending the effectivity of said
decision. Per resolution of this Court, dated May 6, 1963, said
petition for injunction was denied.
The facts, as they appear in the records of both cases, are as
follows:
Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation
with business address at Morong, Rizal. On August 15, 1949, it
was granted by the Commission a certificate of public
convenience and necessity for the installation, operation and
maintenance of an electric light, heat and power service in the
municipality of Morong, Rizal.
In an order dated December 19, 1956, the Commission required
the petitioner to appear before it on February 18, 1957 to show
cause why it should not be penalized for violation of the
conditions of its certificate of public convenience and the
regulations of the Commission, and for failure to comply with the
directives to raise its service voltage and maintain them within the
limits prescribed in the Revised Order No. 1 of the Commission,
and to acquire and install a kilowattmeter to indcate the load in
kilowatts at any particular time of the generating unit. 3
For failure of the petitioner to appear at the hearing on February
18, 1957, the Commission ordered the cancellation and
revocation of petitioner's certificate of public convenience and
necessity and the forfeiture of its franchise. Petitioner moved for
reconsideration of said order on the ground that its manager,
Juan D. Francisco, was not aware of said hearing. Respondent
municipality opposed the motion alleging that petitioner has not
rendered efficient and satisfactory service and has not complied
with the requirements of the Commission for the improvement of
its service. The motion was set for hearing and Mr. Pedro S.
Talavera, Chief, Industrial Division of the Commission, was
authorized to conduct the hearing for the reception of the
evidence of the parties. 4
Finding that the failure of the petitioner to appear at the hearing
set for February 18, 1957 — the sole basis of the revocation of
petitioner's certificate — was really due to the illness of its
manager, Juan D. Francisco, the Commission set aside its order
of revocation. Respondent municipality moved for reconsideration
of this order of reinstatement of the certificate, but the motion was
denied.
In a petition dated June 25, 1958, filed in the same case,
respondent municipality formally asked the Commission to revoke
petitioner's certificate of public convenience and to forfeit its
franchise on the ground, among other things, that it failed to
comply with the conditions of said certificate and franchise. Said
petition was set for hearing jointly with the order to show cause.
The hearings had been postponed several times.
Meanwhile, inspections had been made of petitioner's electric
plant and installations by the engineers of the Commission, as
follows: April 15, 1958 by Engineer Antonio M. Alli; September
18, 1959, July 12-13, 1960, and June 21-24, 1961, by Engineer
Meliton S. Martinez. The inspection on June 21-24, 1961 was
made upon the request of the petitioner who manifested during
the hearing on December 15, 1960 that improvements have been
made on its service since the inspection on July 12-13, 1960, and
that, on the basis of the inspection report to be submitted, it would
agree to the submission of the case for decision without further
hearing.
When the case was called for hearing on July 5, 1961, petitioner
failed to appear. Respondent municipality was then allowed to
present its documentary evidence, and thereafter the case was
submitted for decision.
On July 7, 1961, petitioner filed a motion to reopen the case upon
the ground that it had not been furnished with a copy of the report
of the June 21-24, 1961 inspection for it to reply as previously
agreed. In an order dated August 25, 1961, petitioner was
granted a period of ten (10) days within which to submit its written
reply to said inspection report, on condition that should it fail to do
so within the said period the case would be considered submitted
for decision. Petitioner failed to file the reply. In consonance with
the order of August 25, 1961, therefore, the Commission
proceeded to decide the case. On July 29, 1962 petitioner's
electric plant was burned.
In its decision, dated August 20, 1962, the Commission, on the
basis of the inspection reports of its aforenamed engineers, found
that the petitioner had failed to comply with the directives
contained in its letters dated May 21, 1954 and September 4,
1954, and had violated the conditions of its certificate of public
convenience as well as the rules and regulations of the
Commission. The Commission concluded that the petitioner
"cannot render the efficient, adequate and satisfactory electric
service required by its certificate and that it is against public
interest to allow it to continue its operation." Accordingly, it
ordered the cancellation and revocation of petitioner's certificate
of public convenience and the forfeiture of its franchise.
On September 18, 1962, petitioner moved for reconsideration of
the decision, alleging that before its electric plant was burned on
July 29, 1962, its service was greatly improved and that it had still
existing investment which the Commission should protect. But
eight days before said motion for reconsideration was filed, or on
September 10, 1962, Morong Electric, having been granted a
municipal franchise on May 6, 1962 by respondent municipality to
install, operate and maintain an electric heat, light and power
service in said municipality — approved by the Provincial Board
of Rizal on August 31, 1962 — filed with the Commission an
application for a certificate of public convenience and necessity
for said service. Said application was entitled "Morong Electric
Co., Inc., Applicant", and docketed as Case No. 62-5143.
Petitioner opposed in writing the application of Morong Electric,
alleging among other things, that it is a holder of a certificate of
public convenience to operate an electric light, heat and power
service in the same municipality of Morong, Rizal, and that the
approval of said application would not promote public
convenience, but would only cause ruinous and wasteful
competition. Although the opposition is dated October 6, 1962, it
was actually received by the Commission on November 8, 1962,
or twenty four days after the order of general default was issued
in open court when the application was first called for hearing on
October 15, 1962. On November 12, 1962, however, the
petitioner filed a motion to lift said order of default. But before said
motion could be resolved, petitioner filed another motion, dated
January 4, 1963, this time asking for the dismissal of the
application upon the ground that applicant Morong Electric had no
legal personality when it filed its application on September 10,
1962, because its certificate of incorporation was issued by the
Securities and Exchange Commission only on October 17, 1962.
This motion to dismiss was denied by the Commission in a formal
order issued on January 17, 1963 on the premise that applicant
Morong Electric was a de facto corporation. Consequently, the
case was heard on the merits and both parties presented their
respective evidence. On the basis of the evidence adduced, the
Commission, in its decision dated March 13, 1963, found that
there was an absence of electric service in the municipality of
Morong and that applicant Morong Electric, a Filipino-owned
corporation duly organized and existing under the laws of the
Philippines, has the financial capacity to maintain said service.
These circumstances, considered together with the denial of the
motion for reconsideration filed by petitioner in Case No. 39715
on February, 15, 1963, such that as far as the Commission was
concerned the certificate of the petitioner was already declared
revoked and cancelled, the Commission approved the application
of Morong Electric and ordered the issuance in its favor of the
corresponding certificate of public convenience and necessity. 1awphîl.nèt
On March 8, 1963, petitioner filed with this Court a petition to
review the decision in Case No. 39715 (now G. R. No. L-20993).
Then on April 26, 1963, petitioner also filed a petition to review
the decision in Case No. 62-5143 (now G. R. No. L-21221).
In questioning the decision of the Commission in Case No.
39715, petitioner contends: (1) that the Commission acted without
or in excess of its jurisdiction when it delegated the hearing of the
case and the reception of evidence to Mr. Pedro S. Talavera who
is not allowed by law to hear the same; (2) that the cancellation of
petitioner's certificate of public convenience was unwarranted
because no sufficient evidence was adduced against the
petitioner and that petitioner was not able to present evidence in
its defense; (3) that the Commission failed to give protection to
petitioner's investment; and (4) that the Commission erred in
imposing the extreme penalty of revocation of the certificate.
In questioning the decision in Case No. 62-5143, petitioner
contends: (1) that the Commission erred in denying petitioner's
motion to dismiss and proceeding with the hearing of the
application of the Morong Electric; (2) that the Commission erred
in granting Morong Electric a certificate of public convenience and
necessity since it is not financially capable to render the service;
(3) that the Commission erred when it made findings of facts that
are not supported by the evidence adduced by the parties at the
trial; and (4) that the Commission erred when it did not give to
petitioner protection to its investment — a reiteration of the third
assignment of error in the other case. 1awphîl.nèt
We shall now discuss the appeals in these two cases separately.
G.R. No. L-20993
1. Under the first assignment of error, petitioner contends that
while Mr. Pedro S. Talavera, who conducted the hearings of the
case below, is a division chief, he is not a lawyer. As such, under
Section 32 of Commonwealth Act No. 146, as amended, the
Commission should not have delegated to him the authority to
conduct the hearings for the reception of evidence of the parties.
We find that, really, Mr. Talavera is not a lawyer. 5 Under the
second paragraph of Section 32 of Commonwealth Act No. 146,
as amended, 6 the Commission can only authorize a division chief
to hear and investigate a case filed before it if he is a lawyer.
However, the petitioner is raising this question for the first time in
this appeal. The record discloses that petitioner never made any
objection to the authority of Mr. Talavera to hear the case and to
receive the evidence of the parties. On the contrary, we find that
petitioner had appeared and submitted evidence at the hearings
conducted by Mr. Talavera, particularly the hearings relative to
the motion for reconsideration of the order of February 18, 1957
cancelling and revoking its certificate. We also find that, through
counsel, petitioner had entered into agreements with Mr.
Talavera, as hearing officer, and the counsel for respondent
municipality, regarding procedure in order to abbreviate the
proceedings. 7 It is only after the decision in the case turned out to
be adverse to it that petitioner questioned the proceedings held
before Mr. Talavera.
This Court in several cases has ruled that objection to the
delegation of authority to hear a case filed before the Commission
and to receive the evidence in connection therewith is a
procedural, not a jurisdictional point, and is waived by failure to
interpose timely the objection and the case had been decided by
the Commission. 8 Since petitioner has never raised any objection
to the authority of Mr. Talavera before the Commission, it should
be deemed to have waived such procedural defect, and
consonant with the precedents on the matter, petitioner's claim
that the Commission acted without or in excess of jurisdiction in
so authorizing Mr. Talavera should be dismissed. 9
2. Anent the second assigned error, the gist of petitioner's
contention is that the evidence — consisting of inspection reports
— upon which the Commission based its decision is insufficient
and untrustworthy in that (1) the authors of said reports had not
been put to test by way of cross-examination; (2) the reports
constitute only one side of the picture as petitioner was not able
to present evidence in its defense; (3) judicial notice was not
taken of the testimony of Mr. Harry B. Bernardino, former mayor
of respondent municipality, in PSC Case No. 625143 (the other
case, G. R. No. L-21221) to the effect that the petitioner had
improved its service before its electric power plant was burned on
July 29, 1962 — which testimony contradicts the inspection
reports; and (4) the Commission acted both as prosecutor and
judge — passing judgment over the very same evidence
presented by it as prosecutor — a situation "not conducive to the
arrival at just and equitable decisions."
Settled is the rule that in reviewing the decision of the Public
Service Commission this Court is not required to examine the
proof de novo and determine for itself whether or not the
preponderance of evidence really justifies the decision. The only
function of this Court is to determine whether or not there is
evidence before the Commission upon which its decision might
reasonably be based. This Court will not substitute its discretion
for that of the Commission on questions of fact and will not
interfere in the latter's decision unless it clearly appears that there
is no evidence to support it. 10 Inasmuch as the only function of
this Court in reviewing the decision of the Commission is to
determine whether there is sufficient evidence before the
Commission upon which its decision can reasonably be based, as
it is not required to examine the proof de novo, the evidence that
should be made the basis of this Court's determination should be
only those presented in this case before the Commission. What
then was the evidence presented before the Commission and
made the basis of its decision subject of the present appeal? As
stated earlier, the Commission based its decision on the
inspection reports submitted by its engineers who conducted the
inspection of petitioner's electric service upon orders of the
Commission. 11 Said inspection reports specify in detail the
deficiencies incurred, and violations committed, by the petitioner
resulting in the inadequacy of its service. We consider that said
reports are sufficient to serve reasonably as bases of the decision
in question. It should be emphasized, in this connection that said
reports, are not mere documentary proofs presented for the
consideration of the Commission, but are the results of the
Commission's own observations and investigations which it can
rightfully take into consideration, 12 particularly in this case where
the petitioner had not presented any evidence in its defense, and
speaking of petitioner's failure to present evidence, as well as its
failure to cross-examine the authors of the inspection reports,
petitioner should not complain because it had waived not only its
right to cross-examine but also its right to present evidence.
Quoted hereunder are the pertinent portions of the transcripts of
the proceedings where the petitioner, through counsel,
manifested in clear language said waiver and its decision to abide
by the last inspection report of Engineer Martinez:
Proceedings of December 15, 1960
COMMISSION:
It appears at the last hearing of this case on September 23, 1960,
that an engineer of this Commission has been ordered to make
an inspection of all electric services in the province of Rizal and
on that date the engineer of this Commission is still undertaking
that inspection and it appears that the said engineer had actually
made that inspection on July 12 and 13, 1960. The engineer has
submitted his report on November 18, 1960 which is attached to
the records of this case.
ATTY. LUQUE (Councel for Petitioner):
... (W)e respectfully state that while the report is, as I see it
attached to the records, clear and very thorough, it was made
sometime July of this year and I understand from the respondent
that there is some improvement since this report was made ... we
respectfully request that an up-to-date inspection be made ... . An
inspector of this Commission can be sent to the plant and
considering that the engineer of this Commission, Engineer
Meliton Martinez, is very acquainted to the points involved we
pray that his report will be used by us for the reason that he is a
technical man and he knows well as he has done a good job and
I think our proposition would expedite the matter. We sincerely
believe that the inspection report will be the best evidence to
decide this matter.
xxx xxx xxx
ATTY. LUQUE:
... This is a very important matter and to show the good faith of
respondent in this case we will not even cross-examine the
engineer when he makes a new report. We will agree to the
findings and, your honor please, considering as we have
manifested before that Engineer Martinez is an experienced
engineer of this Commission and the points reported by Engineer
Martinez on the situation of the plant now will prevent the
necessity of having a hearing, of us bringing new evidence and
complainant bringing new evidence. ... .
xxx xxx xxx
COMMISSION (to Atty. Luque):
Q Does the Commission understand from the
counsel for applicant that if the motion is granted he will
submit this order to show cause for decision without any
further hearing and the decision will be based on the
report of the engineer of this Commission?
A We respectfully reply in this manner that we be
allowed or be given an opportunity just to read the report
and 99%, we will agree that the report will be the basis of
that decision. We just want to find out the contents of the
report, however, we request that we be furnished with a
copy of the report before the hearing so that we will just
make a manifestation that we will agree.
COMMISSION (to Atty. Luque):
Q In order to prevent the delay of the disposition of
this case the Commission will allow counsel for the
applicant to submit his written reply to the report that the
engineer of this Commission. Will he submit this case
without further hearing upon the receipt of that written
reply?
A Yes, your honor.
Proceedings of August 25, 1961
ATTY. LUQUE (Counsel for petitioner):
In order to avoid any delay in the consideration of this case we
are respectfully move (sic) that instead of our witnesses testifying
under oath that we will submit a written reply under oath together
with the memorandum within fifteen (15) days and we will furnish
a copy and upon our submission of said written reply under oath
and memorandum we consider this case submitted. This
suggestion is to abbreviate the necessity of presenting witnesses
here which may prolong the resolution of this case.
ATTY. OLIVAS (Counsel for respondent municipality):
I object on the ground that there is no resolution by this
Commission on the action to reopen the case and second this
case has been closed.
ATTY. LUQUE:
With regard to the testimony on the ground for opposition we
respectfully submit to this Commission our motion to submit a
written reply together with a memorandum. Also as stated to
expedite the case and to avoid further hearing we will just submit
our written reply. According to our records we are furnished with a
copy of the report of July 17, 1961. We submit your honor.
xxx xxx xxx
COMMISSION:
To give applicant a chance to have a day in court the
Commission grants the request of applicant that it be given 10
days within which to submit a written reply on the report of the
engineer of the Commission who inspected the electric service, in
the municipality of Morong, Rizal, and after the submission of the
said written reply within 10 days from today this case will be
considered submitted for decision.
The above-quoted manifestation of counsel for the petitioner,
specifically the statement referring to the inspection report of
Engineer Martinez as the "best evidence to decide this matter,"
can serve as an argument against petitioner's claim that the
Commision should have taken into consideration the testimony of
Mr. Bernardino. But the primary reasons why the Commission
could not have taken judicial cognizance of said testimony are:
first, it is not a proper subject of judicial notice, as it is not a
"known" fact — that is, well established and authoritatively
settled, without qualification and contention; 13 second, it was
given in a subsequent and distinct case after the petitioner's
motion for reconsideration was heard by the Commission en
banc and submitted for decision, 14 and third, it was not brought to
the attention of the Commission in this case through an
appropriate pleading. 15
Regarding the contention of petitioner that the Commission had
acted both as prosecutor and judge, it should be considered that
there are two matters that had to be decided in this case, namely,
the order to show cause dated December 19, 1956, and the
petition or complaint by respondent municipality dated June 25,
1958. Both matters were heard jointly, and the record shows that
respondent municipality had been allowed to present its evidence
to substantiate its complaint. It can not be said, therefore, that in
this case the Commission had acted as prosecutor and judge. But
even assuming, for the sake of argument, that there was a
commingling of the prosecuting and investigating functions, this
exercise of dual function is authorized by Section 17(a) of
Commonwealth Act No. 146, as amended, under which the
Commission has power "to investigate, upon its own initiative or
upon complaint in writing, any matter concerning any public
service as regards matters under its jurisdiction; to, require any
public service to furnish safe, adequate, and proper service as
the public interest may require and warrant; to enforce
compliance with any standard, rule, regulation, order or other
requirement of this Act or of the Commission ... ." Thus, in the
case of Collector of Internal Revenue vs. Estate of F. P. Buan, L-
11438, July 31, 1958, this Court held that the power of the
Commission to cancel and revoke a certificate of public
convenience and necessity may be exercised by it even without a
formal charge filed by any interested party, with the only limitation
that the holder of the certificate should be given his day in court.
It may not be amiss to add that when prosecuting and
investigating duties are delegated by statute to an administrative
body, as in the case of the Public Service Commission, said body
may take steps it believes appropriate for the proper exercise of
said duties, particularly in the manner of informing itself whether
there is probable violation of the law and/or its rules and
regulations. It may initiate an investigation, file a complaint, and
then try the charge as preferred. So long as the respondent is
given a day in court, there can be no denial of due process, and
objections to said procedure cannot be sustained.
3. In its third assignment of error, petitioner invokes the
"protection-of-investment rule" enunciated by this Court
in Batangas Transportation Co. vs. Orlanes 16 in this wise:
The Government having taken over the control and
supervision of all public utilities, so long as an operator
under a prior license complies with the terms and
conditions of his license and reasonable rules and
regulations for its operation and meets the reasonable
demands of the public, it is the duty of the Commission to
protect rather than to destroy his investment by the
granting of the second license to another person for the
same thing over the same route of travel. The granting of
such a license does not serve its convenience or promote
the interests of the public.
The above-quoted rule, however, is not absolute, for nobody has
exclusive right to secure a franchise or a certificate of public
convenience. 17 Where, as in the present case, it has been shown
by ample evidence that the petitioner, despite ample time and
opportunity given to it by the Commission, had failed to render
adequate, sufficient and satisfactory service and had violated the
important conditions of its certificate as well as the directives and
the rules and regulations of the Commission, the rule cannot
apply. To apply that rule unqualifiedly is to encourage violation or
disregard of the terms and conditions of the certificate and the
Commission's directives and regulations, and would close the
door to other applicants who could establish, operate and provide
adequate, efficient and satisfactory service for the benefit and
convenience of the inhabitants. It should be emphasized that the
paramount consideration should always be the public interest and
public convenience. The duty of the Commission to protect
investment of a public utility operator refers only to operators of
good standing — those who comply with the laws, rules and
regulations — and not to operators who are unconcerned with the
public interest and whose investments have failed or deteriorated
because of their own fault. 18
4. The last assignment of error assails the propriety of the penalty
imposed by the Commission on the petitioner — that is, the
revocation of the certificate and the forfeiture of the franchise.
Petitioner contends that the imposition of a fine would have been
sufficient, as had been done by the Commission in cases of a
similar nature.
It should be observed that Section 16(n) of Commonwealth Act
No. 146, as amended, confers upon the Commission ample
power and discretion to order the cancellation and revocation of
any certificate of public convenience issued to an operator who
has violated, or has willfully and contumaciously refused to
comply with, any order, rule or regulation of the Commission or
any provision of law. What matters is that there is evidence to
support the action of the Commission. In the instant case, as
shown by the evidence, the contumacious refusal of the petitioner
since 1954 to comply with the directives, rules and regulations of
the Commission, its violation of the conditions of its certificate and
its incapability to comply with its commitment as shown by its
inadequate service, were the circumstances that warranted the
action of the Commission in not merely imposing a fine but in
revoking altogether petitioner's certificate. To allow petitioner to
continue its operation would be to sacrifice public interest and
convenience in favor of private interest.
A grant of a certificate of public convenience confers no
property rights but is a mere license or privilege, and such
privilege is forfeited when the grantee fails to comply with
his commitments behind which lies the paramount interest
of the public, for public necessity cannot be made to wait,
nor sacrificed for private convenience. (Collector of
Internal Revenue v. Estate of F. P. Buan, et al., L-11438
and Santiago Sambrano, et al. v. PSC, et al., L-11439 &
L-11542-46, July 31, 1958)
(T)he Public Service Commission, ... has the power to
specify and define the terms and conditions upon which
the public utility shall be operated, and to make
 reasonable rules and regulations for its operation and the
compensation which the utility shall receive for its
services to the public, and for any failure to comply with
such rules and regulations or the violation of any of the
terms and conditions for which the license was granted,
the Commission has ample power to enforce the
provisions of the license or even to revoke it, for any
failure or neglect to comply with any of its terms and
provisions. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455,
460; emphasis supplied)
Presumably, the petitioner has in mind Section 21 of
Commonwealth Act No. 146, as amended, which provides that a
public utility operator violating or failing to comply with the terms
and conditions of any certificate, or any orders, decisions or
regulations of the Commission, shall be subject to a fine and that
the Commission is authorized and empowered to impose such
fine, after due notice and hearing. It should be noted, however,
that the last sentence of said section states that the remedy
provided therein "shall not be a bar to, or affect any other remedy
provided in this Act but shall be cumulative and additional to such
remedy or remedies." In other words, the imposition of a fine may
only be one of the remedies which the Commission may resort to,
in its discretion. But that remedy is not exclusive of, or has
preference over, the other remedies. And this Court will not
substitute its discretion for that of the Commission, as long as
there is evidence to support the exercise of that discretion by the
Commission.
G. R. No. L-21221
Coming now to the other case, let it be stated at the outset that
before any certificate may be granted, authorizing the operation
of a public service, three requisites must be complied with,
namely: (1) the applicant must be a citizen of the Philippines or of
the United States, or a corporation or co-partnership, association
or joint-stock company constituted and organized under the laws
of the Philippines, sixty per centum at least of the stock or paid-up
capital of which belongs entirely to citizens of the Philippines or of
the United States; 19 (2) the applicant must be financially capable
of undertaking the proposed service and meeting the
responsibilities incident to its operation; 20 and (3) the applicant
must prove that the operation of the public service proposed and
the authorization to do business will promote the public interest in
a proper and suitable manner. 21
As stated earlier, in the decision appealed from, the Commission
found that Morong Electric is a corporation duly organized and
existing under the laws of the Philippines, the stockholders of
which are Filipino citizens, that it is financially capable of
operating an electric light, heat and power service, and that at the
time the decision was rendered there was absence of electric
service in Morong, Rizal. While the petitioner does not dispute the
need of an electric service in Morong, Rizal, 22 it claims, in effect,
that Morong Electric should not have been granted the certificate
of public convenience and necessity because (1) it did not have a
corporate personality at the time it was granted a franchise and
when it applied for said certificate; (2) it is not financially capable
of undertaking an electric service, and (3) petitioner was
rendering efficient service before its electric plant was burned,
and therefore, being a prior operator its investment should be
protected and no new party should be granted a franchise and
certificate of public convenience and necessity to operate an
electric service in the same locality.
1. The bulk of petitioner's arguments assailing the personality of
Morong Electric dwells on the proposition that since a franchise is
a contract, 23 at least two competent parties are necessary to the
execution thereof, and parties are not competent except when
they are in being. Hence, it is contended that until a corporation
has come into being, in this jurisdiction, by the issuance of a
certificate of incorporation by the Securities and Exchange
Commission (SEC) it cannot enter into any contract as a
corporation. The certificate of incorporation of the Morong Electric
was issued by the SEC on October 17, 1962, so only from that
date, not before, did it acquire juridical personality and legal
existence. Petitioner concludes that the franchise granted to Fletcher says:
Morong Electric on May 6, 1962 when it was not yet in esse is
null and void and cannot be the subject of the Commission's While a franchise cannot take effect until the grantee
consideration. On the other hand, Morong Electric argues, and to corporation is organized, the franchise may, nevertheless,
which argument the Commission agrees, that it was a de be applied for before the company is fully organized.
facto corporation at the time the franchise was granted and, as
such, it was not incapacitated to enter into any contract or to A grant of a street franchise is valid although the
apply for and accept a franchise. Not having been incapacitated, corporation is not created until afterwards. (Fletcher,
Morong Electric maintains that the franchise granted to it is valid Cyclopedia Corp. Permanent Edition, Rev. Vol. 6-A, Sec.
and the approval or disapproval thereof can be properly 2881)
determined by the Commission.
And Thompson gives the reason for the rule:
Petitioner's contention that Morong Electric did not yet have a
legal personality on May 6, 1962 when a municipal franchise was
(I)n the matter of the secondary franchise the authorities
granted to it is correct. The juridical personality and legal
are numerous in support of the proposition that an
existence of Morong Electric began only on October 17, 1962
ordinance granting a privilege to a corporation is not void
when its certificate of incorporation was issued by the
because the beneficiary of the ordinance is not fully
SEC. 24 Before that date, or pending the issuance of said
organized at the time of the introduction of the ordinance.
certificate of incorporation, the incorporators cannot be
It is enough that organization is complete prior to the
considered as de facto corporation. 25 But the fact that Morong
passage and acceptance of the ordinance. The reason is
Electric had no corporate existence on the day the franchise was
that a privilege of this character is a mere license to the
granted in its name does not render the franchise invalid,
corporation until it accepts the grant and complies with its
because later Morong Electric obtained its certificate of
terms and conditions. (Thompson on Corporations, Vol. 4,
incorporation and then accepted the franchise in accordance with
3rd Ed., Sec. 2929) 26
the terms and conditions thereof. This view is sustained by
eminent American authorities. Thus, McQuiuin says:
The incorporation of Morong Electric on October 17, 1962 and its
acceptance of the franchise as shown by its action in prosecuting
The fact that a company is not completely incorporated at
the application filed with the Commission for the approval of said
the time the grant is made to it by a municipality to use
franchise, not only perfected a contract between the respondent
the streets does not, in most jurisdictions, affect the
municipality and Morong Electric but also cured the deficiency
validity of the grant. But such grant cannot take effect until
pointed out by the petitioner in the application of Morong EIectric.
the corporation is organized. And in Illinois it has been
Thus, the Commission did not err in denying petitioner's motion to
decided that the ordinance granting the franchise may be
dismiss said application and in proceeding to hear the same. The
presented before the corporation grantee is fully
efficacy of the franchise, however, arose only upon its approval
organized, where the organization is completed before
by the Commission on March 13, 1963. The reason is that —
the passage and acceptance. (McQuillin, Municipal
Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)
 Under Act No. 667, as amended by Act No. 1022, a
municipal council has the power to grant electric
franchises, subject to the approval of the provincial board
and the President. However, under Section 16(b) of
Commonwealth Act No. 146, as amended, the Public
Service Commission is empowered "to approve, subject
to constitutional limitations any franchise or privilege
granted under the provisions of Act No. 667, as amended
by Act No. 1022, by any political subdivision of the
Philippines when, in the judgment of the Commission,
such franchise or privilege will properly conserve the
public interests and the Commission shall in so approving
impose such conditions as to construction, equipment,
maintenance, service, or operation as the public interests
and convenience may reasonably require, and to issue
certificates of public convenience and necessity when
such is required or provided by any law or franchise."
Thus, the efficacy of a municipal electric franchise arises,
therefore, only after the approval of the Public Service
Commission. (Almendras vs. Ramos, 90 Phil. 231) .
The conclusion herein reached regarding the validity of the
franchise granted to Morong Electric is not incompatible with the
holding of this Court in Cagayan Fishing Development Co., Inc.
vs. Teodoro Sandiko 27 upon which the petitioner leans heavily in
support of its position. In said case this Court held that a
corporation should have a full and complete organization and
existence as an entity before it can enter into any kind of a
contract or transact any business. It should be pointed out,
however, that this Court did not say in that case that the rule is
absolute or that under no circumstances may the acts of
promoters of a corporation be ratified or accepted by the
corporation if and when subsequently organized. Of course, there
are exceptions. It will be noted that American courts generally
hold that a contract made by the promoters of a corporation on its
behalf may be adopted, accepted or ratified by the corporation
when organized. 28
2. The validity of the franchise and the corporate personality of
Morong Electric to accept the same having been shown, the next
question to be resolved is whether said company has the financial
qualification to operate an electric light, heat and power service.
Petitioner challenges the financial capability of Morong Electric,
by pointing out the inconsistencies in the testimony of Mr. Jose P.
Ingal, president of said company, regarding its assets and the
amount of its initial investment for the electric plant. In this
connection it should be stated that on the basis of the evidence
presented on the matter, the Commission has found the Morong
Electric to be "financially qualified to install, maintain and operate
the proposed electric light, heat and power service." This is
essentially a factual determination which, in a number of cases,
this Court has said it will not disturb unless patently unsupported
by evidence. An examination of the record of this case readily
shows that the testimony of Mr. Ingal and the documents he
presented to establish the financial capability of Morong Electric
provide reasonable grounds for the above finding of the
Commission.
It is now a very well-settled rule in this jurisdiction that the
findings and conclusions of fact made by the Public
Service Commission, after weighing the evidence
adduced by the parties in a public service case, will not be
disturbed by the Supreme Court unless those findings
and conclusions appear not to be reasonably supported
by evidence. (La Mallorca and Pampanga Bus Co. vs.
Mercado, L-19120, November 29, 1965)
For purposes of appeal, what is decisive is that said
testimonial evidence provides reasonable support for the
Public Service Commission's findings of financial capacity
on the part of applicants, rendering such findings beyond
our power to disturb. (Del Pilar Transit vs. Silva, L-21547,
July 15, 1966)
It may be worthwhile to mention in this connection that per
inspection report dated January 20, 1964 29 of Mr. Meliton
Martinez of the Commission, who inspected the electric service of
Morong on January 15-16, 1964, Morong Electric "is serving
electric service to the entire area covered by its approved plan
and has constructed its line in accordance with the plans and
specifications approved by the Commission." By reason thereof, it
was recommended that the requests of Morong Electric (1) for the
withdrawal of its deposit in the amount of P1,000.00 with the
Treasurer of the Philippines, and (2) for the approval of
Resolution No. 160 of the Municipal Council of Morong, Rizal,
exempting the operator from making the additional P9,000.00
deposit mentioned in its petition, dated September 16, 1963, be
granted. This report removes any doubt as to the financial
capability of Morong Electric to operate and maintain an electric
light, heat and power service.
3. With the financial qualification of Morong Electric beyond
doubt, the remaining question to be resolved is whether, or not,
the findings of fact of the Commission regarding petitioner's
service are supported by evidence. It is the contention of the
petitioner that the Commission made some findings of fact
prejudicial to its position but which do not find support from the
evidence presented in this case. Specifically, petitioner refers to
the statements or findings that its service had "turned from bad to
worse," that it miserably failed to comply with the oft-repeated
promises to bring about the needed improvement, that its
equipment is unserviceable, and that it has no longer any plant
site and, therefore, has discredited itself. Petitioner further states
that such statements are not only devoid of evidentiary support
but contrary to the testimony of its witness, Mr. Harry Bernardino,
who testified that petitioner was rendering efficient and
satisfactory service before its electric plant was burned on July
29, 1962.
On the face of the decision appealed from, it is obvious that the
Commission in describing the kind of service petitioner was
rendering before its certificate was ordered revoked and
cancelled, took judicial notice of the records of the previous case
(PSC Case No. 39715) where the quality of petitioner's service
had been squarely put in issue. It will be noted that the findings of
the Commission were made notwithstanding the fact that the
aforementioned testimony of Mr. Bernardino had been
emphasized and pointed out in petitioner's Memorandum to the
Commission. 30 The implication is simple: that as between the
testimony of Mr. Bernardino and the inspection reports of the
engineers of the Commission, which served as the basis of the
revocation order, the Commission gave credence to the latter.
Naturally, whatever conclusion or finding of fact that the
Commission arrived at regarding the quality of petitioner's service
are not borne out by the evidence presented in this case but by
evidence in the previous case. 31 In this connection, we repeat, the
conclusion, arrived at by the Commission after weighing the
conflicting evidence in the two related cases, is a conclusion of
fact which this Court will not disturb.
And it has been held time and again that where the
Commission has reached a conclusion of fact after
weighing the conflicting evidence, that conclusion must be
respected, and the Supreme Court will not interfere
unless it clearly appears that there is no evidence to
support the decision of the Commission. (La Mallorca and
Pampanga Bus Co., Inc. vs. Mercado, L-19120,
November 29, 1965 citing Pangasinan Trans. Co., Inc. vs.
Dela Cruz, 96 Phil. 278)
For that matter, petitioner's pretension that it has a prior right to
the operation of an electric service in Morong, Rizal, is not
tenable; and its plea for protection of its investment, as in the
previous case, cannot be entertained.
WHEREFORE, the two decisions of the Public Service
Commission, appealed from, should be, as they are hereby
affirmed, with costs in the two cases against petitioner Rizal Light
& Ice Co., Inc. It is so ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez,
Castro, Angeles and Fernando, JJ., concur.
G.R. No. L-48627
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners
vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V.
ARELLANO, respondents.
CRUZ, J.:
We gave limited due course to this petition on the question of the
solidary liability of the petitioners with their co-defendants in the
lower court because of the challenge to the following paragraph
1 project study and the pre-organizational services in the
in the dispositive portion of the decision of the respondent court: *
1. Defendants are hereby ordered to jointly and severally
pay the plaintiff the amount of P50,000.00 for the
preparation of the project study and his technical services
that led to the organization of the defendant corporation,
plus P10,000.00 attorney's fees; 2
The petitioners claim that this order has no support in fact and
law because they had no contract whatsoever with the private
respondent regarding the above-mentioned services. Their
position is that as mere subsequent investors in the corporation
that was later created, they should not be held solidarily liable
with the Filipinas Orient Airways, a separate juridical entity, and
with Barretto and Garcia, their co-defendants in the lower
court, who were the ones who requested the said services from
**
the private respondent. 3
We are not concerned here with the petitioners' co-defendants,
who have not appealed the decision of the respondent court and
may, for this reason, be presumed to have accepted the same.
For purposes of resolving this case before us, it is not necessary
to determine whether it is the promoters of the proposed
corporation, or the corporation itself after its organization, that
shall be responsible for the expenses incurred in connection with
such organization.
The only question we have to decide now is whether or not the
petitioners themselves are also and personally liable for such
expenses and, if so, to what extent.
The reasons for the said order are given by the respondent court
in its decision in this wise:
As to the 4th assigned error we hold that as to the
remuneration due the plaintiff for the preparation of the
amount of P50,000.00, not only the defendant corporation
but the other defendants including defendants Caram
should be jointly and severally liable for this amount. As
we above related it was upon the request of defendants
Barretto and Garcia that plaintiff handled the preparation
of the project study which project study was presented to
defendant Caram so the latter was convinced to invest in
the proposed airlines. The project study was revised for
purposes of presentation to financiers and the banks. It
was on the basis of this study that defendant corporation
was actually organized and rendered operational.
Defendants Garcia and Caram, and Barretto became
members of the Board and/or officers of defendant
corporation. Thus, not only the defendant corporation but
all the other defendants who were involved in the
preparatory stages of the incorporation, who caused the
preparation and/or benefited from the project study and
the technical services of plaintiff must be liable. 4
It would appear from the above justification that the petitioners
were not really involved in the initial steps that finally led to the
incorporation of the Filipinas Orient Airways. Elsewhere in the
decision, Barretto was described as "the moving spirit." The
finding of the respondent court is that the project study was
undertaken by the private respondent at the request of Barretto
and Garcia who, upon its completion, presented it to the
petitioners to induce them to invest in the proposed airline. The
study could have been presented to other prospective investors.
At any rate, the airline was eventually organized on the basis of
the project study with the petitioners as major stockholders and,
together with Barretto and Garcia, as principal officers.
The following portion of the decision in question is also worth
considering:
... Since defendant Barretto was the moving spirit in the
pre-organization work of defendant corporation based on
his experience and expertise, hence he was logically
compensated in the amount of P200,000.00 shares of
stock not as industrial partner but more for his technical
services that brought to fruition the defendant corporation.
By the same token, We find no reason why the plaintiff
should not be similarly compensated not only for having
actively participated in the preparation of the project study
for several months and its subsequent revision but also in
his having been involved in the pre-organization of the
defendant corporation, in the preparation of the franchise,
in inviting the interest of the financiers and in the training
and screening of personnel. We agree that for these
special services of the plaintiff the amount of P50,000.00
as compensation is reasonable. 5
The above finding bolsters the conclusion that the petitioners
were not involved in the initial stages of the organization of the
airline, which were being directed by Barretto as the main
promoter. It was he who was putting all the pieces together, so to
speak. The petitioners were merely among the financiers whose
interest was to be invited and who were in fact persuaded, on the
strength of the project study, to invest in the proposed airline.
Significantly, there was no showing that the Filipinas Orient
Airways was a fictitious corporation and did not have a separate
juridical personality, to justify making the petitioners, as principal
stockholders thereof, responsible for its obligations. As a bona
fide corporation, the Filipinas Orient Airways should alone be
liable for its corporate acts as duly authorized by its officers and
directors.
In the light of these circumstances, we hold that the petitioners
cannot be held personally liable for the compensation claimed by
the private respondent for the services performed by him in the
organization of the corporation. To repeat, the petitioners did not
contract such services. It was only the results of such services
that Barretto and Garcia presented to them and which persuaded
them to invest in the proposed airline. The most that can be said
is that they benefited from such services, but that surely is no
justification to hold them personally liable therefor. Otherwise, all
the other stockholders of the corporation, including those who
came in later, and regardless of the amount of their share
holdings, would be equally and personally liable also with the
petitioners for the claims of the private respondent.
The petition is rather hazy and seems to be flawed by an
ambiguous ambivalence. Our impression is that it is opposed to
the imposition of solidary responsibility upon the Carams but
seems to be willing, in a vague, unexpressed offer of
compromise, to accept joint liability. While it is true that it does
here and there disclaim total liability, the thrust of the petition
seems to be against the imposition of solidary liability only rather
than against any liability at all, which is what it should have
categorically argued.
Categorically, the Court holds that the petitioners are not liable at
all, jointly or jointly and severally, under the first paragraph of the
dispositive portion of the challenged decision. So holding, we find
it unnecessary to examine at this time the rules on solidary
obligations, which the parties-needlessly, as it turns out have
belabored unto death.
WHEREFORE, the petition is granted. The petitioners are
declared not liable under the challenged decision, which is hereby
modified accordingly. It is so ordered.

Yap (Chairman), Narvasa, Melencio-Herrera, Feliciano and

Sarmiento, JJ., concur.
Gancayco, J., took no part.