G.R. No.
203355, August 18, 2015 On March 27, 2010, petitioner Leo Rosales (Rosales) similarly received his separation pay from Noel and signed
LEO R. ROSALES, EDGAR SOLIS JONATHAN G. RANIOLA, LITO FELICIANO, RAYMUNDO DIDAL, JR.,
NESTOR SALIN, ARNULFO S. ABRIL, RUBEN FLORES, DANTE FERMA AND MELCHOR
SELGA, Petitioners, v. NEW A.N.J.H. ENTERPRISES & N.H. OIL MILL CORPORATION, NOEL AWAYAN, MA.
FE AWAYAN, BYRON ILAGAN, HEIDI A. ILAGAN AND AVELINO AWAYAN, Respondents.
DECISION
VELASCO JR., J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the September 5, 2012
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 124395, which, in turn, affirmed the Resolutions of the
National Labor Relations Commission (NLRC) dated December 28, 20112 and February 28, 20123 in NLRC-LAC
Case No. 07-001796-11.
Respondent New ANJH Enterprises (New ANJH) is a sole proprietorship owned by respondent Noel Awayan (Noel).
Petitioners are its former employees who worked as machine operators, drivers, helpers, lead and boiler men.
Allegedly due to dwindling capital, on February 11, 2010, Noel wrote the Director of the Department of Labor and
Employment (DOLE) Region IV-A a letter regarding New ANJH's impending cessation of operations and the sale of
its assets to respondent NH Oil Mill Corporation (NH Oil), as well as the termination of thirty-three (33) employees by
reason thereof.4 On February 13, 2010, Noel met with the 33 affected employees, which included petitioners, to
inform them of his plan.5 On even date, he gave the employees uniformly-worded Notices dated February 12,
20106 informing them of the cessation of operations of New ANJH effective March 15, 2010 and the sale of its assets
to a corporation. Noel also offered the employees, including petitioners, their separation pay.
On March 5, 2010, Noel signed a Deed of Sale selling the equipment, machines, tools and/or other devices being
used by New ANJH Enterprises for the manufacturing and/or extraction of coconut oil for P950,000 to NH Oil, as
represented by respondent Heidi A. Ilagan (Heidi), Noel's sister.7cralawrednad
Parenthetically, the Articles of Incorporation of NH Oil were prepared on January 27, 2010 with Noel appearing to
have more than two-thirds (2/3) of the subscribed capital stock of the corporation. 8 The remaining shares had been
subscribed by Heidi and other members of the Awayan family.9cralawrednad
On March 8, 2010, respondents New ANJH and Noel filed before the NLRC Sub-Regional Arbitration Branch No. IV
(NLRC-SRAB-IV), San Pablo City a "Letter Request for Intervention," which was docketed as SRAB-IV-03-5066-10-
L. The letter request reads:cralawlawlibrary
Please be informed that the business operations of the New ANJH Enterprises, a single Proprietorship engaged in oil
extraction situated in San Pablo City, will be permanently closed effective 15 March 2010 due to lack of capital
caused by enormous uncollected receivables/debts and the necessity for the plant to undergo general repairs and
maintenance.
xxxx
In this connection, we respectfully request that we be allowed to effect the payment of the separation benefits to
our employees before your Office and with your kind intervention to ensure that we are properly guided by the
provisions of law in this undertaking.10 (Emphasis supplied)
On March. 16, 2010, petitioners Lito Feliciano (Feliciano), Edgar Solis (Solis), and Nestor Salin (Salin) received their
respective separation pays, signed the corresponding check vouchers and executed Quitclaims and Release before
Labor Arbiter Melchisedek A. Guan (LA Guan) of NLRC SRAB-IV San Pablo Office.11cralawrednad
1|Assignment #2 February 06, 2018
a Quitclaim and Release.12 On March 29, 2010, the other petitioners, Amulfo Abril (Abril), Raymundo Didal (Didal),
Ruben Flores (Flores), Melchor Selga (Selga), Jonathan Ranola (Ranola), and Dante Ferma (Ferma) also received
their separation benefits and signed their respective Quitclaims and Release and check vouchers.13cralawrednad
Following the payments thus made to petitioners and their execution of Quitclaims and Release, LA Guan issued
four (4) Orders, to wit: three Orders all dated March 22, 2010 for petitioners Feliciano, Solis, and Salin; 14 and one
Order dated April 8, 2010 for petitioners Abril, Flores, Didal, Ferma, Rosales, Selga and Ranola.15 In the said Orders,
LA Guan declared the "labor dispute" between New ANJH and petitioners as "dismissed with prejudice on ground of
settlement."16cralawrednad
Petitioners, however, filed a complaint for illegal dismissal, docketed as NLRC Case No. RAB-IV-04-00649-10-L, with
NLRC Regional Arbitration Branch IV (NLRC-RAB-IV) in Calamba City. They alleged in their complaint that while
New ANJH stopped its operations on March 15, 2010, it resumed its operations as NH Oil using the same
machineries and with the same owners and management. 17 Petitioners thus claimed that the sale of the assets of
New ANJH to NH Oil was a circumvention of their security of tenure.
In a Decision dated April 29, 2011,18 Executive Labor Arbiter Generoso V. Santos (ELA Santos) found that
petitioners had been illegally dismissed and ordered their reinstatement and the payment of One Million Six
Thousand Forty-Five and 87/100 Pesos (P1,006,045.87) corresponding to the petitioners' full backwages less the
amount paid to them as their respective "separation pay." In ruling for the petitioners, ELA Santos ratiocinated that
the buyer "in the 'impending sale' undisclosed in the notices of [petitioners] is divulged by subsequent development
to be practically the same as the seller." Hence, for ELA Santos, it was extremely difficult to conclude that the sale
was genuine and can validly justify the termination of the petitioners.
Respondents filed their Notice of Appeal with Appeal Memorandum19 along with a Verified Motion to Reduce
Bond20 with the NLRC. They also posted 60% of the award ordered by the LA, or Six Hundred Three Thousand Six
Hundred Twenty-Seven and 52/100 Pesos (P603,627.52), as their appeal bond.21cralawrednad
Meanwhile, petitioners also filed a Memorandum of Partial Appeal contending that ELA Santos erred in failing to
award them moral and exemplary damages.22cralawrednad
On September 24, 2011, the NLRC issued a Decision23 denying respondents' Verified Motion to Reduce Bond for
lack of merit and so dismissing their appeal for non-perfection. In the same Decision, the NLRC also granted
petitioners' partial appeal by modifying ELA Santos' Decision to include the award of P20,000.00 to each petitioner
as moral and exemplary damages.24cralawrednad
Respondents filed their Motion for Reconsideration with Motion to Admit Additional Appeal Cash
Bond25cralawredwith corresponding payment of additional cash bond. 26cralawrednad
While the motion was opposed by petitioners,27 the NLRC, in its Resolution dated December 28, 2011,28reversed its
earlier Decision and ordered the dismissal of petitioners' complaint on the ground that it was barred by the Orders
issued by LA Guan under the doctrine of res judicata. Further, the NLRC pointed out that the sale of New ANJH's
assets to NH Oil Mill was in the exercise of sound management prerogative and there was no proof that it was made
to defeat petitioners' security of tenure.
In its Resolution dated February 28, 2012,29 the NLRC denied petitioners' Motion for Reconsideration. Hence,
petitioners filed a petition for certiorari with the CA.
In the assailed Decision,30 the appellate court denied the petition for certiorari, thereby affirming the NLRC's
Resolutions dated December 28, 2011 and February 28, 2012.
In its Decision, the appellate court held that private respondents had substantially complied with the rule requiring the
posting of an appeal bond equivalent to the total award given to the employees. More importantly, so the CA held,
the Orders rendered by LA Guan in NLRC Case No. SRAB IV-03-5066-10-L were considered final and binding upon
the parties and had the force and effect of a judgment rendered by the labor arbiter. Thus, the appellate court
declared that the petitioners' complaint for illegal dismissal was already barred by res judicata.
MJRTB

Aggrieved by the CA's Decision, petitioners are now before this Court on a petition for review on certiorari.
We find the petition to be with merit.
The suspension of the period to perfect the appeal upon the filing of a motion to reduce bond
On the issue of perfecting the appeal, the CA was correct when it pointed out that Rule VI of the New Rules of
Procedure of the NLRC provides that a motion to reduce bond shall be entertained "upon the posting of a bond in a
reasonable amount in relation to the monetary award." As to what the "reasonable amount" is, the NLRC has wide
discretion in determining the reasonableness of the bond for purposes of perfecting an appeal. In Garcia v. KJ
Commercial,31 this Court explained:cralawlawlibrary
The filing of a motion to reduce bond and compliance with the two conditions stop the running of the period to perfect
an appeal. x x x
xxxx
The NLRC has full discretion to grant or deny the motion to reduce bond, and it may rule on the motion
beyond the 10-day period within which to perfect an appeal. Obviously, at the time of the filing of the motion to
reduce bond and posting of a bond in a reasonable amount, there is no assurance whether the appellant's motion is
indeed based on "meritorious ground" and whether the bond he or she posted is of a "reasonable amount." Thus, the
appellant always runs the risk of failing to perfect an appeal.
x x x In order to give full effect to the provisions on motion to reduce bond, the appellant must be allowed to wait
for the ruling of the NLRC on the motion even beyond the 10-day period to perfect an appeal. If the NLRC
grants the motion and rules that there is indeed meritorious ground and that the amount of the bond posted is
reasonable, then the appeal is perfected. If the NLRC denies the motion, the appellant may still file a motion for
reconsideration as provided under Section 15, Rule VII of the Rules. If the NLRC grants the motion for
reconsideration and rules that there is indeed meritorious ground and that the amount of the bond posted is
reasonable, then the appeal is perfected. If the NLRC denies the motion, then the decision of the labor arbiter
becomes final and executory.
xxx
In any case, the rule that the filing of a motion to reduce bond shall not stop the running of the period to perfect an
appeal is not absolute. The Court may relax the rule. In Intertranz Container Lines, Inc. v. Bautista, the Court
held:cralawlawlibrary
"Jurisprudence tells us that in labor cases, an appeal from a decision involving a monetary award may be perfected
only upon the posting of cash or surety bond. The Court, however, has relaxed this requirement under certain
exceptional circumstances in order to resolve controversies on their merits. These circumstances include: (1)
fundamental consideration of substantial justice; (2) prevention of miscarriage of justice or of unjust enrichment; and
(3) special circumstances of the case combined with its legal merits, and the amount and the issue
involved."32 (emphasis and underscoring supplied)
In this case, the NLRC had reconsidered its original position and declared that the 60% bond was reasonable given
the merits of the justification provided by respondents in their Motion to Reduce Bond, as supplemented by their
Motion for Reconsideration with Motion to Admit Additional Appeal Cash Bond. The CA affirmed the merits of the
grounds cited by respondents in their motions and the reasonableness of the bond originally posted by respondents.
This is in accord with the guidelines established in McBurnie v. Ganzon,33 where this Court declared that the posting
of a provisional cash or surety bond equivalent to ten percent (10%) of the monetary award subject of the appeal is
sufficient provided that there is meritorious ground therefor, viz:cralawlawlibrary
[O]n the matter of the filing and acceptance of motions to reduce appeal bond, as provided in Section 6, Rule VI of
the 2011 NLRC Rules of Procedure, the Court hereby RESOLVES that henceforth, the following guidelines shall be
observed:cralawlawlibrary
(a) The filing of a motion to reduce appeal bond shall be entertained by the NLRC subject to the following conditions:
(1) there is meritorious ground; and (2) a bond in a reasonable amount is posted;
(b) For purposes of compliance with condition no. (2), a motion shall be accompanied by the posting of a provisional
2|Assignment #2 February 06, 2018
cash or surety bond equivalent to ten percent (10%) of the monetary award subject of the appeal, exclusive of
damages and attorney's fees;
(c) Compliance with the foregoing conditions shall suffice to suspend the running of the 10-day reglementary period
to perfect an appeal from the labor arbiter's decision to the NLRC;
(d) The NLRC retains its authority and duty to resolve the motion to reduce bond and determine the final amount of
bond that shall be posted by the appellant, still in accordance with the standards of meritorious grounds and
reasonable amount; and
(e) In the event that the NLRC denies the motion to reduce bond, or requires a bond that exceeds the amount
of the provisional bond, the appellant shall be given a fresh period of ten (10) days from notice of the NLRC
order within which to perfect the appeal by posting the required appeal bond.34 emphasis and underscoring
added)
It is noted that the respondents have eventually posted the full amount of the award ordered by the labor arbiter.
Thus, given the absence of grave abuse of discretion on the part of the NLRC and the affirmation of the CA of the
reasonableness of the motions and the amount of bond posted, there is no ground for this Court to reverse the CA's
finding that the appeal had been perfected.
Res Judicata does not bar the filing of the complaints for illegal dismissal
On the matter of the application of the doctrine of res judicata, however, this Court is loath to sustain the finding of
the appellate court and the NLRC. For res judicata to apply, the concurrence of the following requisites must be
verified: (1) the former judgment is final; (2) it is rendered by a court having jurisdiction over the subject matter and
the parties; (3) it is a judgment or an order on the merits; (4) there is-between the first and the second actions-identity
of parties, of subject matter, and of causes of action. 35cralawrednad
The petitioners dispute the existence of all of the foregoing requisites. First, petitioners contend that LA Guan does
not have jurisdiction to issue the Orders in SRAB-IV-03-5066-10-L since, in the first place, Noel's letter request for
guidance in the payment of separation pay is allegedly not a "labor dispute."
Article 219 (previously Article 212) of the Labor Code defines a "labor dispute" as "any controversy or matter
concerning terms and conditions of employment or the association or representation of persons in negotiating,
fixing, maintaining, changing or arranging the terms and conditions of employment, regardless of whether the
disputants stand in the proximate relation of employer and employee." As separation pay concerns a term and
condition of employment, Noel's request to be guided in the payment thereof is clearly a labor dispute under the
Labor Code.
The proper payment of separation pay further falls under the jurisdiction of the labor arbiter pursuant to Art. 224
(previously Art. 217) of the Labor Code, as it is mandated as a necessary condition for the termination of
employees, viz,:cralawlawlibrary
Art. 224. Jurisdiction of the Labor Arbiters and the Commission.
(a) Except as otherwise provided under this Code,the Labor Arbiters shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without
extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural
or non agricultural:ChanRoblesvirtualLawlibrary
1. Unfair labor practice cases;
2. Termination disputes;
xxxx
6. Except claims for employees compensation, social security, medicare and maternity benefits, all other
claims arising from employer-employee relations, including those of persons in domestic or household
MJRTB
 service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement. (Emphasis supplied) xxxx

Here, complainants' employment was terminated for the alleged sale of assets of ANJH to NH Oil Mill that would
The invocation of the labor arbiter's jurisdiction by way of a letter request instead of a complaint is of no moment, as
allegedly entail [a] change of management. The Deed of Sale dated March 5, 2010 [that] respondents presented
it is well-settled that the application of technical rules of procedure is relaxed in labor cases.
(Annex "20", respondents position paper) to prove the "sale," states that [for] the consideration of Nine Hundred Fifty
Thousand Pesos (Php950,000.00), Noel sold to NH Oil Mill the equipment, machines, tool and/or other devises
The third requisite, however, is not present. The Orders rendered by LA Guan cannot be considered as constituting a
being used by ANJH for manufacturing and/or extraction of coconut oil. This Office cannot simply accept it as
judgment on the merits. The Orders simply manifest that petitioners "are amenable to the computations made by the
sufficient proof of sale by the seller to a distinct and separate entity.
company respecting their separation pay." Nothing more. They do not clearly state the petitioners' right or New
ANJH's corresponding duty as a result of the termination.36cralawrednad
xxxx
Similarly, the fourth requisite is- also absent. While there may be substantial identity of the parties, there is no identity
The subscribed capital stock of Noel and Heidi [in NH Oil] are worth Php790,000.00 and Php190,000.00,
of subject matter or cause of action. In SME Bank, Inc. v. De Guzman,37 this Court held that the acceptance of
respectively, or the total of Php980,000.00. Respondents claim that Noel was managing ANJH and Heidi was its
separation pay is an issue distinct from the legality of the dismissal of the employees. We held:cralawlawlibrary
Secretary. The Deed of Sale is signed by Noel and Heidi, Noel as [sellerl, and Heidi as representative of NH
The conformity of the employees to the corporation's act of considering them as terminated and their subsequent
Oil Mill.Respondents did not enumerate what [were] the equipment etc. subject of the "sale," and how they were
acceptance of separation pay does not remove the taint of illegal dismissal. Acceptance of separation pay does
depreciated, and what [were] the equipment/machines owned by Avelino and rented by NH Oil Mill and for how
not bar the employees from subsequently contesting the legality of their dismissal, nor does it estop them
much? Therefrom, it is extremely difficult to conclude by quantum of evidence acceptable to [a] reasonable mind,
from challenging the legality of their separation from the service.38 (Emphasis supplied)
[that] the "sale to a distinct entity" is genuine. And while the notices of termination state that there would be [a]
In the absence of the third and fourth requisites, the appellate court should have proceeded to rule on the validity of
change in management, this Office notes that respondents do not deny that Noel and Heidi continue to
petitioners' termination.
manage NH Oil Mill. Therefore, as far as complainants' employment is concerned, this Office pierces the veil of
corporate fiction of NH Oil Mill and finds that the purported sale thereto of the assets of ANJH is insufficient to validly
Piercing the veil of corporate existence is justified in the present case.
terminate such employment. This Office cannot rule otherwise without running afoul to the mandate of the
Constitution securing to the workingman his employment, and guaranteeing to him full protection. So this Office
The application of the doctrine of piercing the veil of corporate fiction is frowned upon. However, this Court will not
declares that complainants were illegally dismissed.42 (emphasis and underscoring supplied)
hesitate to disregard the corporate fiction if it is used to such an extent that injustice, fraud, or crime is committed
Clearly, the milieu of the present case compels this Court to remove NH Oil's corporate mask as it had become, and
against another in disregard of his rights.39cralawrednad
was used as, a shield for fraud, illegality and inequity against the petitioners.
In this case, petitioners advance the application of the doctrine because they were terminated from employment on
WHEREFORE, the instant petition is GRANTED and the Decision dated September 5, 2012 of the Court of Appeals
the pretext that there will be an impending permanent closure of the business as a result of an intended sale of its
in CA-G.R. SP No. 124395, affirming the Resolutions of the National Labor Relations Commission (NLRC) dated
assets to an undisclosed corporation, and that there will be a change in the management. The termination notices
December 28, 2011 and February 28, 2012 in NLRC-LAC Case No. 07-001796-11, is hereby REVERSED and SET
received by petitioners identically read:cralawlawlibrary
ASIDE. The Decision of Executive Labor Arbiter Generoso Santos in NLRC Case No. RAB-IV-04-00649-10-L to the
Nais po naming ipaabot sa inyo na ang New ANJH Enterprises ay ihihinto na ang operasyon dahil sa nagpasya ako
effect that petitioners were illegally dismissed is REINSTATED.
bilang may-ari na ipagbili na ang ari-arian nito sa iba kung kayat magkakaroon ng pagpapalit sa pamumunuan nito.
SO ORDERED.
Kaugnay po nito at ayon sa itinatadhana ng batas ay nais kong ipaabot sa inyo na 30 araw matapos ninyong
matanggap ang pasabing ito o simula sa Marso 15, 2010 ay ititigil na ang operasyon ng New ANJH Enterprises at sa
nasabi ring petsa ay matatapos na rin ang pagtratrabaho o "employment" ninyo sa New ANJH Enterprises.40
Subsequent events, however, revealed that the buyer of the assets of their employer was a corporation owned by
the same employer and members of his family. Furthermore, the business re-opened in less than a month under the
same management.

Admittedly, mere ownership by a single stockholder of all or nearly all of the capital stock of the corporation does not
by itself justify piercing the corporate veil. Nonetheless, in this case, other circumstances show that the buyer of the
assets of petitioners' employer is none other than his alter ego. 41 We quote with approval the observations of ELA
Santos:cralawlawlibrary
Respondents did not allege that they informed complainants neither did they state in the notices of termination that
the buyer in the "impending sale" is NH Oil Mill. Pondering on these observations, this Office finds it too difficult to
surmise that respondents' omission was not deliberate, and so this Office holds that Noel was not in good faith in
dealing with complainants. The information disclosed by the Certificate of Registration and Articles of Incorporation of
NH Oil Mill explains respondents' motive. Its stockholders are members of [Noel's] family known to
complainants, and Noel is the controlling stockholder and director. The immediate resumption of operation
after cessation of operation on March 15, 2010 further explains it. While complainants failed to prove that the
stockholders in NH Oil Mill were those who managed ANJH, respondents did not dispute that there was no
change in the management people, premises, tools, devices, equipment, and machinery under NH Oil Mill.
The buyer in the "impending sale" undisclosed in the notices to complainants is divulged by subsequent
development to be practically the same as the seller. These things are inconsistent with good faith.

3|Assignment #2 February 06, 2018 MJRTB

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.
4|Assignment #2 February 06, 2018
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
MJRTB
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 Complaint 15 with the Securities and
Exchange Commission (SEC), seeking the revocation of the certificates for registration of petitioners on the ground that they
are foreign-owned or controlled corporations engaged in mining in violation of Philippine laws. Thereafter, Redmont filed on
September 1, 2008 a Manifestation and Motion to Suspend Proceeding before the MAB praying for the suspension of the
proceedings on the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City, Branch 92 (RTC) a
Complaint16 for injunction with application for issuance of a temporary restraining order (TRO) and/or writ of preliminary
injunction, docketed as Civil Case No. 08-63379. Redmont prayed for the deferral of the MAB proceedings pending the
resolution of the Complaint before the SEC.
But before the RTC can resolve 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
5|Assignment #2 February 06, 2018
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
MJRTB
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.
6|Assignment #2 February 06, 2018
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
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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
7|Assignment #2 February 06, 2018
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:
MJRTB
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.
8|Assignment #2 February 06, 2018
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.
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Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
added to the shares directly owned in the Investee Corporation x x x.
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

xxxx Total 10,000 PhP PhP 2,708,174.60

10,000,000.00 (emphasis
supplied)
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule
Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition as
applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation
McArthur. In fact, it would seem that MBMI is also a major investor and "controls"45 MBMI and also, similar nominal
with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture
shareholders were present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason)
corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign
and Kenneth Cawkell (Cawkell):
equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied)

Madridejos Mining Corporation

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, Name Nationality Number of Amount Amount Paid
since their common investor, the 100% Canadian corporation––MBMI, funded them. However, petitioners also claim that Shares Subscribed
there is "doubt" only when the stockholdings of Filipinos are less than 60%.43
Olympic Mines Filipino 6,663 PhP 6,663,000.00 PhP 0
&
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this Court. Development
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 Corp.
corporations interested in circumventing our laws would clearly strive to have "60% Filipino Ownership" at face value. It
MBMI Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00
would be senseless for these applying corporations to state in their respective articles of incorporation that they have less
Resources,
than 60% Filipino stockholders since the applications will be denied instantly. Thus, various corporate schemes and
Inc.
layerings are utilized to circumvent the application of the Constitution.
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law, Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct or indirect, of MBMI, the Esguerra
grandfather rule must be used.
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

McArthur Mining, Inc. Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando

To establish the actual ownership, interest or participation of MBMI in each of petitioners’ corporate structure, they have to Michael T. American 1 PhP 1,000.00 PhP 1,000.00
be "grandfathered." Mason
Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00
Cawkell
As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its application from SMMI.
McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided into 10,000 common shares at one thousand Total 10,000 PhP PhP 2,809,900.00
pesos (PhP 1,000) per share, subscribed to by the following:44 10,000,000.00 (emphasis
supplied)
Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect to the number of
Name Nationality Number of Amount Amount Paid
shares they subscribed to in the corporation, which is quite absurd since Olympic is the major stockholder in MMC. MBMI’s
Shares Subscribed
2006 Annual Report sheds light on why Olympic failed to pay any amount with respect to the number of shares it subscribed
Madridejos Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00 to. It states that Olympic entered into joint venture agreements with several Philippine companies, wherein it holds directly
Mining and indirectly a 60% effective equity interest in the Olympic Properties.46 Quoting the said Annual report:
Corporation
MBMI Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60 On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") entered into a series of
Resources, Inc. agreements including a Property Purchase and Development Agreement (the Transaction Documents) with respect to three
nickel laterite properties in Palawan, Philippines (the "Olympic Properties"). The Transaction Documents effectively establish
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 a joint venture between the Company and Olympic for purposes of developing the Olympic Properties. The Company holds
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00 directly and indirectly an initial 60% interest in the joint venture. Under certain circumstances and upon achieving certain
Esguerra milestones, the Company may earn up to a 100% interest, subject to a 2.5% net revenue royalty.47 (emphasis supplied)

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

9|Assignment #2 February 06, 2018 MJRTB

Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized by MBMI Corp.
to gain control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur, making the
latter a foreign corporation. MBMI Canadian 3,331 PhP PhP 2,794,000.00
Resources, 3,331,000.00
Tesoro Mining and Development, Inc. Inc.

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP 10,000,000) divided
into ten thousand (10,000) common shares at PhP 1,000 per share, as demonstrated below: Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]] Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Name Nationality Number of Amount Amount Paid Hernando

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

Shares Subscribed
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Sara Marie Filipino 5,997 PhP PhP 825,000.00
Mining, Inc. 5,997,000.00 Total 10,000 PhP PhP 2,809,900.00
10,000,000.00 (emphasis
MBMI Canadian 3,998 PhP PhP 1,878,174.60 supplied)
Resources, Inc. 3,998,000.00
After subsequently studying SMMI’s corporate structure, it is not farfetched for us to spot the glaring similarity between SMMI
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 and MMC’s corporate structure. Again, the presence of identical stockholders, namely: Olympic, MBMI, Amanti Limson
(Limson), Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the headings "Nationality," "Number of
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00 Shares," "Amount Subscribed," and "Amount Paid" are exactly the same except for the amount paid by MBMI which now
Esguerra reflects the amount of two million seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly, the total value of the
amount paid is two million eight hundred nine thousand nine hundred pesos (PhP 2,809,900).
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Agcaoili
Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s participation in SMMI’s corporate structure, it
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00 is clear that MBMI is in control of Tesoro and owns 60% or more equity interest in Tesoro. This makes petitioner Tesoro a
non-Filipino corporation and, thus, disqualifies it to participate in the exploitation, utilization and development of our natural
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 resources.

Total 10,000 PhP PhP 2,708,174.60

10,000,000.00 (emphasis
supplied)
Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate structure of
petitioner McArthur, down to the last centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili,
Mason and Cawkell. The figures under "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are
exactly the same. Delving deeper, we scrutinize SMMI’s corporate structure:
Narra Nickel Mining and Development Corporation
Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC’s MPSA application, whose corporate
structure’s arrangement is similar to that of the first two petitioners discussed. The capital stock of Narra is ten million pesos
(PhP 10,000,000), which is divided into ten thousand common shares (10,000) at one thousand pesos (PhP 1,000) per
share, shown as follows:

Sara Marie Mining, Inc. [[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]] Name Nationality Number of Amount Amount Paid

Name Nationality Number Amount Amount Paid Shares Subscribed

of
Patricia Louise Filipino 5,997 PhP PhP 1,677,000.00
Subscribed Mining & 5,997,000.00
Shares

Olympic Mines & Filipino 6,663 PhP PhP 0 Development

Development 6,663,000.00
Corp.

10 | A s s i g n m e n t # 2 February 06, 2018 MJRTB

MBMI Canadian 3,998 PhP PhP 1,116,000.00 Yet again, the usual players in petitioners’ corporate structures are present. Similarly, the amount of money paid by the 2nd
Resources, Inc. 3,996,000.00 tier majority stock holder, in this case, Palawan Alpha South Resources and Development Corp. (PASRDC), is zero.

Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00 Studying MBMI’s Summary of Significant Accounting Policies dated October 31, 2005 explains the reason behind the
Mendoza, Jr. intricate corporate layering that MBMI immersed itself in:
Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernandez 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:
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Agcaoili
(a) Olympic Group
Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Bocalan
The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as follows:
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Olympic- Philippines (the "Olympic Group")
Robert L. American 1 PhP 1,000.00 PhP 1,000.00
McCurdy
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP PhP 2,800,000.00 Tesoro Mining & Development, Inc. (Tesoro) 60.0%
10,000,000.00 (emphasis
supplied)
Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective equity interest in the
Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this corporate Olympic Property of 60.0%. Pursuant to a shareholders’ agreement, the Company exercises joint control over the companies
structure. in the Olympic Group.

Patricia Louise Mining & Development Corporation (b) Alpha Group

Using the grandfather method, we further look and examine PLMDC’s corporate structure: The Philippine companies holding the Alpha Property, and the ownership interests therein, are as follows:

Name Nationality Number of Amount Amount Paid Alpha- Philippines (the "Alpha Group")
Shares Subscribed
Palawan Alpha South Filipino 6,596 PhP PhP 0 Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Resources Development 6,596,000.00
Corporation
Narra Nickel Mining & Development Corporation (Narra) 60.4%
MBMI Resources, Canadian 3,396 PhP PhP
Inc. 3,396,000.00 2,796,000.00
Under a joint venture agreement the Company holds directly and indirectly an effective equity interest in the Alpha Property
Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00 of 60.4%. Pursuant to a shareholders’ agreement, the Company exercises joint control over the companies in the Alpha
Group.48 (emphasis supplied)
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00 Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not Filipino
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 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,
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00 MBMI’s Summary of Significant Accounting Policies statement– –regarding the "joint venture" agreements that it entered into
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00 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
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00 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
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
and must be considered foreign since 60% or more of their capital stocks or equity interests are owned by MBMI.
Total 10,000 PhP PhP
10,000,000.00 2,708,174.60
(emphasis Application of the res inter alios acta rule
supplied)

11 | A s s i g n m e n t # 2 February 06, 2018 MJRTB

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
12 | A s s i g n m e n t # 2 February 06, 2018
"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
MJRTB
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.-
13 | A s s i g n m e n t # 2 February 06, 2018
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.—
MJRTB
 x x x Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have SO ORDERED.
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 separate petitions for the
denial of said applications, then a controversy has developed between the parties and it is POA’s jurisdiction to resolve said
disputes.

Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the DENR Regional Office or any
concerned DENRE or CENRO are MPSA applications. Thus POA has jurisdiction.

Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction. Euro-med
Laboratories v. Province of Batangas55 elucidates:

The doctrine of primary jurisdiction holds that if a case is such that its determination requires the expertise, specialized
training and knowledge of an administrative body, relief must first be obtained in an administrative proceeding before resort
to the courts is had even if the matter may well be within their proper jurisdiction.

Whatever may be the decision of the POA will eventually reach the court system via a resort to the CA and to this Court as a
last recourse.

Selling of MBMI’s shares to DMCI

As stated before, petitioners’ Manifestation and Submission dated October 19, 2012 would want us to declare the instant
petition moot and academic due to the transfer and conveyance of all the shareholdings and interests of MBMI to DMCI, a
corporation duly organized and existing under Philippine laws and is at least 60% Philippine-owned.56 Petitioners reasoned
that they now cannot be considered as foreign-owned; the transfer of their shares supposedly cured the "defect" of their
previous nationality. They claimed that their current FTAA contract with the State should stand since "even wholly-owned
foreign corporations can enter into an FTAA with the State."57Petitioners stress that there should no longer be any issue left
as regards their qualification to enter into FTAA contracts since they are qualified to engage in mining activities in the
Philippines. Thus, whether the "grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be
doubted since it would pass both tests.

The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said fact should be
disregarded. The manifestation can no longer be considered by us since it is being tackled in G.R. No. 202877 pending
before this Court.1âwphi1 Thus, the question of whether petitioners, allegedly a Philippine-owned corporation due to the sale
of MBMI's shareholdings to DMCI, are allowed to enter into FTAAs with the State is a non-issue in this case.

In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation,
within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization
of the natural resources of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and
circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the "grandfather rule."

WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals Decision dated October
1, 2010 and Resolution dated February 15, 2011 are hereby AFFIRMED.

14 | A s s i g n m e n t # 2 February 06, 2018 MJRTB

G.R. No. 175278, September 23, 2015
GSIS FAMILY BANK - THRIFT BANK [FORMERLY COMSAVINGS BANK, INC.], Petitioner, v. BPI FAMILY
BANK, Respondent.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari filed by GSIS Family Bank — Thrift Bank1 assailing the Court of Appeals
Decision2 dated March 29, 2006 (Decision) and Resolution3 dated October 23, 2006 which denied petitioner's petition for
review of the Securities and Exchange Commission Decision dated February 22, 2005 (SEC En Banc Decision). The
SEC En Banc Decision4 prohibited petitioner from using the word "Family" as part of its corporate name and ordered
petitioner to delete the word from its name.5
Facts
Petitioner was originally organized as Royal Savings Bank and started operations in 1971. Beginning 1983 and 1984,
petitioner encountered liquidity problems. On July 9, 1984, it was placed under receivership and later temporarily closed by
the Central Bank of the Philippines. Two (2) months after its closure, petitioner reopened and was renamed Comsavings
Bank, Inc. under the management of the Commercial Bank of Manila.6
In 1987, the Government Service Insurance System (GSIS) acquired petitioner from the Commercial Bank of Manila.
Petitioner's management and control was thus transferred to GSIS.7 To improve its marketability to the public, especially to
the members of the GSIS, petitioner sought Securities and Exchange Commission (SEC) approval to change its corporate
name to "GSIS Family Bank, a Thrift Bank."8 Petitioner likewise applied with the Department of Trade and Industry (DTI) and
Bangko Sentral ng Pilpinas (BSP) for authority to use "GSIS Family Bank, a Thrift Bank" as its business name. The DTI and
the BSP approved the applications.9 Thus, petitioner operates under the corporate name "GSIS Family Bank - a Thrift Bank,"
pursuant to the DTI Certificate of Registration No. 741375 and the Monetary Board Circular approval. 10
Respondent BPI Family Bank was a product of the merger between the Family Bank and Trust Company (FBTC) and the
Bank of the Philippine Islands (BPI).11 On June 27, 1969, the Gotianum family registered with the SEC the corporate name
"Family First Savings Bank," which was amended to "Family Savings Bank," and then later to "Family Bank and Trust
Company."12 Since its incorporation, the bank has been commonly known as "Family Bank." In 1985, Family Bank merged
with BPI, and the latter acquired all the rights, privileges, properties, and interests of Family Bank, including the right to use
names, such as "Family First Savings Bank," "Family Bank," and "Family Bank and Trust Company." BPI Family Savings
Bank was registered with the SEC as a wholly-owned subsidiary of BPI. BPI Family Savings Bank then registered with the
Bureau of Domestic Trade the trade or business name "BPI Family Bank," and acquired a reputation and goodwill under the
name.13chanroblesvirtuallawlibrary
Proceedings before the SEC
Eventually, it reached respondent's attention that petitioner is using or attempting to use the name "Family Bank." Thus, on
March 8, 2002, respondent petitioned the SEC Company Registration and Monitoring Department (SEC CRMD) to disallow
or prevent the registration of the name "GSIS Family Bank" or any other corporate name with the words "Family Bank" in it.
Respondent claimed exclusive ownership to the name "Family Bank," having acquired the name since its purchase and
merger with Family Bank and Tmst Company way back 1985.14 Respondent also alleged that through the years, it has been
known as "BPI Family Bank" or simply "Family Bank" both locally and internationally. As such, it has acquired a reputation
and goodwill under the name, not only with clients here and abroad, but also with correspondent and competitor banks, and
the public in general.15
Respondent prayed the SEC CRMD to disallow or prevent the registration of the name "GSIS Family Bank" or any other
corporate name with the words "Family Bank" should the same be presented for registration. Respondent likewise prayed
the SEC CRMD to issue an order directing petitioner or any other corporation to change its corporate name if the names
have already been registered with the SEC.16
15 | A s s i g n m e n t # 2 February 06, 2018
The SEC CRMD was thus confronted with the issue of whether the names BPI Family Bank and GSIS Family Bank are
confusingly similar as to require the amendment of the name of the latter corporation.
The SEC CRMD declared that upon the merger of FBTC with the BPI in 1985, the latter acquired the right to the use of the
name of the absorbed corporation. Thus, BPI Family Bank has a prior right to the use of the name Family Bank in the
banking industry, arising from its long and extensive nationwide use, coupled with its registration with the Intellectual
Property Office (IPO) of the name "Family Bank" as its trade name. Applying the rule of "priority in registration" based on the
legal maxim first in time, first in right, the SEC CRMD concluded that BPI has the preferential right to the use of the name
"Family Bank." More, GSIS and Comsavings Bank were then fully aware of the existence and use of the name "Family Bank"
by FBTC prior to the latter's merger with BPI.17
The SEC CRMD also held that there exists a confusing similarity between the corporate names BPI Family Bank and GSIS
Family Bank. It explained that although not identical, the corporate names are indisputably similar, as to cause confusion in
the public mind, even with the exercise of reasonable care and observation, especially so since both corporations are
engaged in the banking business.18
In a decision19 dated May 19, 2003, the SEC CRMD said, cralawlawlibrary
PREMISES CONSIDERED respondent GSIS FAMILY BANK is hereby directed to refrain from using the word "Family" as
part of its name and make good its commitment to change its name by deleting or dropping the subject word from its
corporate name within [thirty (30) days] from the date of actual receipt hereof.20chanrobleslaw
Petitioner appealed21 the decision to the SEC En Banc, which denied the appeal, and upheld the SEC CRMD in the SEC En
Banc Decision.22 Petitioner elevated the SEC En Banc Decision to the Court of Appeals, raising the following
issues:chanRoblesvirtualLawlibrary
1. Whether the use by GSIS Family Bank of the words "Family Bank" is deceptively and confusingly similar to the
name BPI Family Bank;
2. Whether the use by Comsavings Bank of "GSIS Family Bank" as its business constitutes unfair competition;
3. Whether BPI Family Bank is guilty of forum shopping;
4. Whether the approval of the DTI and the BSP of petitioner's application to use the name GSIS Family Bank
constitutes its authority to the lawful and valid use of such trade name or trade mark;
5. Whether the application of respondent BPI Family Bank for the exclusive use of the name "Family Bank," a
generic name, though not yet approved by IPO of the Bureau of Patents, has barred the GSIS Family Bank from
using such trade mark or name.23
Court of Appeals Ruling
The Court of Appeals ruled that the approvals by the BSP and by the DTI of petitioner's application to use the name "GSIS
Family Bank" do not constitute authority for its lawful and valid use. It said that the SEC has absolute jurisdiction, supervision
and control over all corporations.24 The Court of Appeals held that respondent was entitled to the exclusive use of the
corporate name because of its prior adoption of the name "Family Bank" since 1969.25 There is confusing similarity in the
corporate names because "[c]onfusion as to the possible association with GSIS might arise if we were to allow Comsavings
Bank to add its parent company's acronym, 'GSIS' to 'Family Bank.' This is true especially considering both companies
belong to the banking industry. Proof of actual confusion need not be shown. It suffices that confusion is probably or likely to
occur."26 The Court of Appeals also ruled out forum shopping because not all the requirements of litis pendentia are
present.27
The dispositive portion of the decision read,cralawlawlibrary
WHEREFORE, the instant petition for review is hereby DISMISSED for lack of merit.28chanrobleslaw
After its Motion for Reconsideration was denied,29 petitioner brought the decision to this Court via a Petition for Review
on Certiorari.30
Issues in the Petition
MJRTB

Petitioner raised the following issues in its petition:chanRoblesvirtualLawlibrary
I. The Court of Appeals gravely erred in affirming the SEC Resolution finding the word "Family" not generic despite
its unregistered status with the IPO of the Bureau of Patents and the use by GSIS-Family Bank in its corporate
name of the words "[F]amily [B]ank" as deceptive and [confusingly similar] to the name BPI Family Bank;31
II. The Court of Appeals gravely erred when it ruled that the respondent is not guilty of forum shopping despite the
filing of three (3) similar complaints before the DTI and BSP and with
the SEC without the requisite certification of non-forum shopping attached thereto;32
III. The Court of Appeals gravely erred when it completely disregarded the opinion of the Banko Sentral ng Pilipinas
that the use by the herein petitioner of the trade name GSIS Family Bank - Thrift Bank is not similar or does not
deceive or likely cause any deception to the public.33
Court's Ruling
We uphold the decision of the Court of Appeals.
Section 18 of the Corporation Code provides,
Section 18. Corporate name. - No corporate name may be allowed by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate
name is approved, the Commission shall issue an amended certificate of incorporation under the amended
name.chanrobleslaw
In Philips Export B.V. v. Court of Appeals,34 this Court ruled that to fall within the prohibition of the law on the right to the
exclusive use of a corporate name, two requisites must be proven, namely:chanRoblesvirtualLawlibrary
(1) that the complainant corporation acquired a prior right over the use of such corporate name; and
(2) the proposed name is either
(a) identical or
(b) deceptive or confusingly similar to that of any existing corporation or to any other name already protected
by law; or
(c) patently deceptive, confusing or contrary to existing law.35
These two requisites are present in this case. On the first requisite of a prior right, Industrial Refractories Corporation of the
Philippines v. Court of Appeals (IRCP case)36 is instructive. In that case, Refractories Corporation of the Philippines (RCP)
filed before the SEC a petition to compel Industrial Refractories Corporation of the Philippines (IRCP) to change its corporate
name on the ground that its corporate name is confusingly similar with that of RCP's such that the public may be confused
into believing that they are one and the same corporation. The SEC and the Court of Appeals found for petitioner, and
ordered IRCP to delete or drop from its corporate name the word "Refractories." Upon appeal of IRCP, this Court upheld the
decision of the CA.
Applying the priority of adoption rule to determine prior right, this Court said that RCP has acquired the right to use the word
"Refractories" as part of its corporate name, being its prior registrant. In arriving at this conclusion, the Court considered that
RCP was incorporated on October 13, 1976 and since then continuously used the corporate name "Refractories Corp. of the
Philippines." Meanwhile, IRCP only started using its corporate name "Industrial Refractories Corp. of the Philippines" when it
amended its Articles of Incorporation on August 23, 1985.37
In this case, respondent was incorporated in 1969 as Family Savings Bank and in 1985 as BPI Family Bank. Petitioner, on
the other hand, was incorporated as GSIS Family - Thrift Bank only in 2002,38 or at least seventeen (17) years after
respondent started using its name. Following the precedent in the IRCP case, we rule that respondent has the prior right
over use of the corporate name.
16 | A s s i g n m e n t # 2 February 06, 2018
The second requisite in the Philips Export case likewise obtains on two points: the proposed name is (a) identical or (b)
deceptive or confusingly similar to that of any existing corporation or to any other name already protected by law.
On the first point (a), the words "Family Bank" present in both petitioner and respondent's corporate name satisfy the
requirement that there be identical names in the existing corporate name and the proposed one. Respondent cannot justify
its claim under Section 3 of the Revised Guidelines in the Approval of Corporate and Partnership Names,39 to
wit:cralawlawlibrary
3. The name shall not be identical, misleading or confusingly similar to one already registered by another corporation or
partnership with the Commission or a sole proprietorship registered with the Department of Trade and Industry.
If the proposed name is similar to the name of a registered firm, the proposed name must contain at least one distinctive
word different from the name of the company already registered.chanrobleslaw
Section 3 states that if there be identical, misleading or confusingly similar name to one already registered by another
corporation or partnership with the SEC, the proposed name must contain at least one distinctive word different from the
name of the company already registered. To show contrast with respondent's corporate name, petitioner used the words
"GSIS" and "thrift." But these are not sufficiently distinct words that differentiate petitioner's corporate name from
respondent's. While "GSIS" is merely an acronym of the proper name by which petitioner is identified, the word "thrift" is
simply a classification of the type of bank that petitioner is. Even if the classification of the bank as "thrift" is appended to
petitioner's proposed corporate name, it will not make the said corporate name distinct from respondent's because the latter
is likewise engaged in the banking business.
This Court used the same analysis in Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K. sa Bans ang Pilipinas,
Inc. v. Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan40 In that case, Iglesia ng Dios Kay Cristo Jesus filed
a case before the SEC to compel Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus to change its corporate name, and to
prevent it from using the same or similar name on the ground that the same causes confusion among their members as well
as the public. Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus claimed that it complied with SEC Memorandum Circular
No. 14-2000 by adding not only two, but eight words to their registered name, to wit: "Ang Mga Kaanib" and "Sa Bansang
Pilipinas, Inc.," which effectively distinguished it from Iglesia ng Dios Kay Cristo Jesus.This Court rejected the argument,
thus:cralawlawlibrary
The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in petitioner's name are, as correctly observed by
the SEC, merely descriptive of and also referring to the members, or kaanib, of respondent who are likewise residing in the
Philippines. These words can hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in
distinguishing petitioner from respondent. This is especially so, since both petitioner and respondent corporations are using
the same acronym - H.S.K.; not to mention the fact that both are espousing religious beliefs and operating in the same place.
xxx41chanrobleslaw
On the second point (b), there is a deceptive and confusing similarity between petitioner's proposed name and respondent's
corporate name, as found by the SEC.42 In determining the existence of confusing similarity in corporate names, the test is
whether the similarity is such as to mislead a person using ordinary care and discrimination. 43 And even without such proof
of actual confusion between the two corporate names, it suffices that confusion is probable or likely to occur.44
Petitioner's corporate name is "GSIS Family Bank—A Thrift Bank" and respondent's corporate name is "BPI Family Bank."
The only words that distinguish the two are "BPI," "GSIS," and "Thrift." The first two words are merely the acronyms of the
proper names by which the two corporations identify themselves; and the third word simply describes the classification of the
bank. The overriding consideration in determining whether a person, using ordinary care and discrimination, might be misled
is the circumstance that both petitioner and respondent are engaged in the same business of banking. "The likelihood of
confusion is accentuated in cases where the goods or business of one corporation are the same or substantially the same to
that of another corporation."45
Respondent alleged that upon seeing a Comsavings Bank branch with the signage "GSIS Family Bank" displayed at its
premises, some of the respondent's officers and their clients began asking questions. These include whether GSIS has
acquired Family Bank; whether there is a joint arrangement between GSIS and Family Bank; whether there is a joint
arrangement between BPI and GSIS regarding Family Bank; whether Comsavings Bank has acquired Family Bank; and
whether there is there an arrangement among Comsavings Bank, GSIS, BPI, and Family Bank regarding BPI Family Bank
and GSIS Family Bank.46 The SEC made a finding that "[i]t is not a remote possibility that the public may entertain the idea
that a relationship or arrangement indeed exists between BPI and GSIS due to the use of the term 'Family Bank' in their
MJRTB
corporate names."47
Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded respect and even finality by this Court, if
supported by substantial evidence, in recognition of their expertise on the specific matters under their consideration, more so
if the same has been upheld by the appellate court, as in this case.48
Petitioner cannot argue that the word "family" is a generic or descriptive name, which cannot be appropriated exclusively by
respondent. "Family," as used in respondent's corporate name, is not generic. Generic marks are commonly used as the
name or description of a kind of goods, such as "Lite" for beer or "Chocolate Fudge" for chocolate soda drink. Descriptive
marks, on the other hand, convey the characteristics, function, qualities or ingredients of a product to one who has never
seen it or does not know it exists, such as "Arthriticare" for arthritis medication.49
Under the facts of this case, the word "family" cannot be separated from the word "bank."50 In asserting their claims before
the SEC up to the Court of Appeals, both petitioner and respondent refer to the phrase "Family Bank" in their submissions.
This coined phrase, neither being generic nor descriptive, is merely suggestive and may properly be regarded as arbitrary.
Arbitrary marks are "words or phrases used as a mark that appear to be random in the context of its use. They are generally
considered to be easily remembered because of their arbitrariness. They are original and unexpected in relation to the
products they endorse, thus, becoming themselves distinctive."51 Suggestive marks, on the other hand, "are marks which
merely suggest some quality or ingredient of goods, xxx The strength of the suggestive marks lies on how the public
perceives the word in relation to the product or service."52
In Ang v. Teodoro,53 this Court ruled that the words "Ang Tibay" is not al descriptive term within the meaning of the
Trademark Law but rather a fanciful or coined phrase.54 In so ruling, this Court considered the etymology and meaning of the
Tagalog words, "Ang Tibay" to determine whether they relate to the quality or description of the merchandise to which
respondent therein applied them as trademark, thus:cralawlawlibrary
We find it necessary to go into the etymology and meaning of the Tagalog words "Ang Tibay" to determine whether they are
a descriptive term, i.e., whether they relate to the quality or description of the merchandise to which respondent has applied
them as a trade-mark. The word "ang" is a definite article meaning "the" in English. It is also used as an adverb, a
contraction of the word "anong" (what or how). For instance, instead of saying, "Anong ganda!" ("How beautiful!"), we
ordinarily say, "Ang ganda!" Tibay is a root word from which are derived the verb magpatibay (to strengthen); the
nouns pagkamatibay (strength, durability), katibayan (proof, support, strength), katibaytibayan (superior strength); and the
adjectives matibay (strong, durable, lasting), napakatibay (very strong), kasintibay or magkasintibay (as strong as, or of
equal strength). The phrase "Ang Tibay" is an exclamation denoting admiration of strength or durability. For instance, one
who tries hard but fails to break an object exclaims, "Ang tibay!" ("How strong!") It may also be used in a sentence thus, "Ang
tibay ng sapatos mo!" ("How durable your shoes are!") The phrase "ana tibay" is never used adjectively to define or describe
an object. One does not say, "ang tibay sapatos" or "sapatos ang tibay" to mean "durable shoes," but "matibay na sapatos"
or "sapatos na matibay."
From all of this we deduce that "Ang Tibay" is not a descriptive term within the meaning of the Trade-Mark Law but rather a
fanciful or coined phrase which may properly and legally be appropriated as a trade-mark or trade-name,
xxx55 (Underscoring supplied).chanrobleslaw
The word "family" is defined as "a group consisting of parents and children living together in a household" or "a group of
people related to one another by blood or marriage."56Bank, on the other hand, is defined as "a financial establishment that
invests money deposited by customers, pays it out when requested, makes loans at interest, and exchanges currency."57 By
definition, there can be no expected relation between the word "family" and the banking business of respondent. Rather, the
words suggest that respondent's bank is where family savings should be deposited. More, as in the Ang case, the phrase
"family bank" cannot be used to define an object.
Petitioner's argument that the opinion of the BSP and the certificate of registration granted to it by the DTI constitute
authority for it to use "GSIS Family Bank" as corporate name is also untenable.
The enforcement of the protection accorded by Section 18 of the Corporation Code to corporate names is lodged exclusively
in the SEC. The jurisdiction of the SEC is not merely confined to the adjudicative functions provided in Section 5 of the SEC
Reorganization Act,58 as amended.59 By express mandate, the SEC has absolute jurisdiction, supervision and control over
all corporations.60 It is the SEC's duty to prevent confusion in the use of corporate names not only for the protection of the
corporations involved, but more so for the protection of the public. It has authority to de-register at all times, and under all
circumstances corporate names which in its estimation are likely to generate confusion. 61
17 | A s s i g n m e n t # 2 February 06, 2018
The SEC62 correctly applied Section 18 of the Corporation Code, and Section 15 of SEC Memorandum Circular No. 14-
2000, pertinent portions of which provide:cralawlawlibrary
In implementing Section 18 of the Corporation Code of the Philippines (BP 69), the following revised guidelines in the
approval of corporate and partnership names are hereby adopted for the information and guidance of all
concerned:chanRoblesvirtualLawlibrary
xxx
15. Registrant corporations or partnership shall submit a letter undertaking to change their corporate or partnership name in
case another person or firm has acquired a prior right to the use of the said firm name or the same is deceptively or
confusingly similar to one already registered unless this undertaking is already included as one of the provisions of the
articles of incorporation or partnership of the registrant.
chanrobleslaw
The SEC, after finding merit in respondent's claims, can compel petitioner to abide by its commitment "to change its
corporate name in the event that another person, firm or entity has acquired a prior right to use of said name or one similar to
it."63
Clearly, the only determination relevant to this case is that one made by the SEC in the exercise of its express mandate
under the law. The BSP opinion invoked by petitioner even acknowledges that "the issue on whether a proposed name is
identical or deceptively similar to that of any of existing corporation is matter within the official jurisdiction and competence of
the SEC."64
Judicial notice65 may also be taken of the action of the IPO in approving respondent's registration of the trademark "BPI
Family Bank" and its logo on October 17, 2008. The certificate of registration of a mark shall be prima facie evidence of the
validity of the registration, the registrant's ownership of the mark, and of the registrant's exclusive right to use the same in
connection with the goods or services and those that are related thereto specified in the certificate. 66
Finally, we uphold the Court of Appeals' finding that the issue of forum shopping was belatedly raised by petitioner and, thus,
cannot anymore be considered at the appellate stage of the proceedings. Petitioner raised the issue of forum shopping for
the first time only on appeal.67 Petitioner argued that the complaints filed by respondent did not contain certifications against
non-forum shopping, in violation of Section 5, Rule 7 of the Rules of Court.68
In S.C. Megaworld Construction and Development Corporation vs. Parada,69 this Court said that objections relating to non-
compliance with the verification and certification of non-forum shopping should be raised in the proceedings below, and not
for the first time on appeal. In that case, S.C. Megaworld argued that the complaint for collection of sum of money should
have been dismissed outright by the trial court on account of an invalid non-forum shopping certification. It alleged that the
Special Power of Attorney granted to Parada did not specifically include an authority for the latter to sign the verification and
certification of non-forum shopping, thus rendering the complaint defective for violation of Sections 4 and 5 of Rule 7 of the
Rules of Court. On motion for reconsideration of the decision of the Court of Appeals, petitioner raised for the first time, the
issue of forum shopping. The Court ruled against S.C. Megaworld, thus:cralawlawlibrary
It is well-settled that no question will be entertained on appeal unless it has been raised in the proceedings below. Points of
law, theories, issues and arguments not brought to the attention of the lower court, administrative agency or quasi-judicial
body, need not be considered by a reviewing court, as they cannot be raised for the first time at that late stage. Basic
considerations of fairness and due process impel this rule. Any issue raised for the first time on appeal is barred by
estoppel.70chanrobleslaw
In this case, the fact that respondent filed a case before the DTI was made known to petitioner71 long before the SEC
rendered its decision. Yet, despite its knowledge, petitioner failed to question the alleged forum shopping before the SEC.
The exceptions to the general rule that forum shopping should be raised in the earliest opportunity, as explained in the cited
case of Young v. Keng Seng,72 do not obtain in this case.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals dated March 29, 2006 is hereby AFFIRMED.
SO ORDERED.
MJRTB
G.R. No. 172843, September 24, 2014
ALFREDO L. VILLAMOR, JR., Petitioner, v. JOHN S. UMALE, IN SUBSTITUTION OF HERNANDO F.
BALMORES, Respondent.
G.R. NO. 172881
RODIVAL E. REYES, HANS M. PALMA AND DOROTEO M. PANGILINAN, Petitioners, v. HERNANDO F.
BALMORES, Respondent.
DECISION
LEONEN, J.:
Before us is a petition for review on certiorari 1 under Rule 45 of the Rules of Court, assailing the decision2 of the
Court of Appeals dated March 2, 2006 and its resolution3 dated May 29, 2006, denying petitioners' motions for
reconsideration. The Court of Appeals placed Pasig Printing Corporation (PPC) under receivership and appointed an
interim management committee for the corporation.4cralawlawlibrary
MC Home Depot occupied a prime property (Rockland area) in Pasig. The property was part of the area owned by
Mid-Pasig Development Corporation (Mid-Pasig).5cralawlawlibrary
On March 1, 2004, PPC obtained an option to lease portions of Mid-Pasig's property, including the Rockland
area.6cralawlawlibrary
On November 11, 2004, PPC's board of directors issued a resolution7 waiving all its rights, interests, and
participation in the option to lease contract in favor o£ the law firm of Atty. Alfredo Villamor, Jr. (Villamor), petitioner in
G.R. No. 172843. PPC received no consideration for this waiver in favor of Villamor's law firm. 8cralawlawlibrary
On November 22, 2004, PPC, represented by Villamor, entered into a memorandum of agreement (MOA) with MC
Home Depot.9 Under the MO A, MC Home Depot would continue to occupy the area as PPC's sublessee for four (4)
years, renewable for another four (4) years, at a monthly rental of P4,500,000.00 plus goodwill of
P18,000,000.00.10cralawlawlibrary
In compliance with the terms of the MOA, MC Home Depot issued 20 post-dated checks representing rental
payments for one year and the goodwill money. The checks were given to Villamor who did not turn these or the
equivalent amount over to PPC, upon encashment.11cralawlawlibrary
Hernando Balmores, respondent in G.R. No. 172843 and G.R. No. 172881 and a stockholder and director of
PPC,12 wrote a letter addressed to PPJC's directors, petitioners in G.R. No. 172881, on April 4, 2005.13He informed
them that Villamor should be made to deliver to PPC and account for MC Home Depot's checks or their equivalent
value.14cralawlawlibrary
Due to the alleged inaction of the directors, respondent Balmores filed with the Regional Trial Court an intra-
corporate controversy complaint under Rule 1, Section 1(a)(1) of the Interim Rules for Intra-Corporate
Controversies15 (Interim Rules) against petitioners for their alleged devices or schemes amounting to fraud or
misrepresentation "detrimental to the interest of the Corporation and its stockholders." 16cralawlawlibrary
Respondent Balmores alleged in his complaint that because of petitioners' actions, PPC's assets were ". . . not only
in imminent danger, but have actually been dissipated, lost, wasted and destroyed."17cralawlawlibrary
Respondent Balmores prayed that a receiver be appointed from his list of nominees. 18 He also prayed for petitioners'
prohibition from "selling, encumbering, transferring or disposing in any manner any of [PPC's] properties, including
the MC Home [Depot] checks and/or their proceeds."19 He prayed for the accounting and remittance to PPC of the
18 | A s s i g n m e n t # 2 February 06, 2018
MC Home Depot checks or their proceeds and for the annulment of the board's resolution "vaiving PPC's rights in
favor of Villamor's law firm.20cralawlawlibrary
Ruling of the
Regional Trial Court
In its resolution21 dated June 15, 2005, the Regional Trial Court denied respondent Balmores' prayer for the
appointment of a receiver or the creation of a management committee. The dispositive portion
reads:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered the appointment of a Receiver and the creation of a Management
Committee applied for by plaintiff Hernando F. Balmores are, as they are hereby, DENIED.22 (Emphasis in the
original)
According to the trial court, PPC's entitlement to the checks was doubtful. The resolution issued by PPC's board of
directors; waiving its rights to the option to lease contract in favor of Villamor's law firm, must be accorded prima
facie validity.23cralawlawlibrary
The trial court also noted that there was a pending case filed by one Leonardo Umale against Villamor, involving the
same checks. Umale was also claiming ownership of the checks. 24 This, according to the trial court, weakened
respondent Balmores' claim that the checks were properties of PPC. 25cralawlawlibrary
The trial court also found that there was "no clear and positive showing of dissipation, loss, wastage, or destruction
of [PPC's] assets . . . [that was] prejudicial to the interest of the minority stockholders, parties-litigants or the general
public."26 The board's failure to recover the disputed amounts was not an indication of mismanagement resulting in
the dissipation of assets.27cralawlawlibrary
The trial court noted that PPC was earning substantial rental income from its other sub-lessees.28cralawlawlibrary
The trial court added that the failure to implead PPC was. fatal. PPC should have been impleaded as an
indispensable party, without which, there would be no final determination of the action.29cralawlawlibrary
Ruling of the
Court of Appeals
Respondent Balmores filed with the Court of Appeals a petition for certiorari under Rule 65 of the Rules of
Court.30 He assailed the decision of the trial court, which denied his "application for the appointment of a [r]eceiver
and the creation of a [management [c]ommittee."31cralawlawlibrary
In the decision promulgated on March 2, 2006, the Court of Appeals gave due course to respondent Balmores'
petition. It reversed the trial court's decision, and issued a new order placing PPC under receivership and creating an
interim management committee.32 The dispositive portion reads:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the instant petition is hereby GRANTED and GIVEN DUE COURSE and the
June 15, 2005 Order/Resolution of the commercial court, the Regional Trial Court of Pasig City, Branch 167, in
S.E.C. Case No. 05-62, is hereby REVERSED and SET ASIDE and a NEW ORDER is ISSUED that, during the
pendency of the derivative suit, until judgment on the merits is rendered by the commercial court, in order to prevent
dissipation, loss, wastage or destruction of the assets, in order to prevent paralization of business operations which
may be prejudicial to the interest of stockholders, parties-litigants or the general public, and in order to prevent
violations of the corporation laws: (1) Pasig Printing Corporation (PPC) is hereby placed under receivership pursuant
to the Rules Governing Intra-Corporate Controversies under R.A. No. 8799; (2) an Interim Management Committee
is hereby created for Pasig Printing Corporation (PPC) composed of Andres Narvasa, Jr., Atty. Francis Gustilo and
Ms Rosemarie Salvio-Leonida; (3) the interim management committee is hereby directed to forthwith, during the
pendency of the derivative suit until judgment on the merits is rendered by the commercial court, to: (a) take over the
business of Pasig Printing Corporation (PPC), (b) take custody and control of all assets and properties owned and
possessed by Pasig Printing Corporation (PPC), (c) take the place of the management and the board of directors of
MJRTB
Pasig Printing Corporation (PPC), (d) preserve Pasig Printing Corporation's assets and properties, (e) stop and
prevent any disposal, in any manner, of any of the properties of Pasig Printing Corporation (PPC) including the MC
Home Depot checks and/or their proceeds; and (3) [sic] restore the status quo ante prevailing by directing
respondents their associates and agents to account and return to the Interim Management Committee for Pasig
Printing Corporation (PPC) all the money proceeds of the 20 MC Home Depot checks taken by them and to account
and surrender to the Interim Management Committee all subsequent MC Home Depot checks or
proceeds.33 (Citation omitted)
The Court of Appeals characterized the assailed order/resolution of the trial court as an interlocutory order that is not
appealable.34 In reversing tie trial court order/resolution, the Court of Appeals considered the danger of dissipation,
wastage, and loss of PPC's assets if the review of the trial court's judgment would be delayed. 35cralawlawlibrary
The Court of Appeals ruled that the case filed by respondent Balmores with the trial court "[was] a derivative suit
because there were allegations of fraud or ultra vires acts ... by [PPC's directors]." 36cralawlawlibrary
According to the Court of Appeals, the trial court abandoned its duty to the stockholders in a derivative suit when it
refused to appoint a receiver or create a management committee, all during the pendency of the proceedings. The
assailed order of the trial court removed from the stockholders their right, in an intra-corporate controversy, to be
allowed the remedy of appointment of a receiver during the pendency of a derivative suit, leaving the corporation
under the control of an outsider and its assets prone to dissipation. 37 The Court of Appeals also ruled that this
amounts to "despotic, capricious, or whimsical exercise of judicial power" 38 on the part of the trial court.
In justifying its decision to place PPC under receivership and to create a management committee, the Court of
Appeals stated that the board's waiver of PPC's rights in favor of Villamor's law firm without any consideration and its
inaction on Villamor's failure to turn over the proceeds of rental payments to PPC warrant the creation of a
management committee.39 The circumstances resulted in the imminent danger of loss, waste, or dissipation of PPC's
assets.40cralawlawlibrary
Petitioners filed separate motions for reconsideration. Both motions were denied by the Court of Appeals on May 29,
2006. The dispositive portion of the Court of Appeals' resolution reads:chanRoblesvirtualLawlibrary
WHEREFORE, for lack of merit, respondents' March 10/2006 and March 20, 2006 Motions for Reconsideration are
hereby DENIED.41chanrobleslaw
Petitioners filed separate petitions for review under Rule 45, raising the following threshold
issues:chanRoblesvirtualLawlibrary
I. Whether the Court of Appeals correctly characterized respondent Balmores' action as a derivative suit
II. Whether the Court of Appeals properly placed PPC under receivership and created a receiver or
management committee
PPC's directors argued that the Court of Appeals erred in characterizing respondent Balmores' suit as a derivative
suit because of his failure to implead PPC as party in the case. Hence, the appellate court did not acquire jurisdiction
over the corporation, and the appointment of a receiver or management committee is not valid.42cralawlawlibrary
The directors further argued that the requirements for the appointment of a receiver or management committee
under Rule 943 of the Interim Rules were not satisfied. The directors pointed out that respondent Balmores failed to
prove that the assets of the corporation were in imminent danger of being dissipated. 44cralawlawlibrary
According to the directors, assuming that a receiver or management committee may be appointed in the case, it is
the Regional Trial Court only arid not the. Court of Appeals that must appoint them. 45cralawlawlibrary
Meanwhile, Villamor argued that PPC's entitlement to the checks or their proceeds was still in dispute. In a separate
19 | A s s i g n m e n t # 2 February 06, 2018
civil case against Villamor, a certain Leonardo Umale was claiming ownership of the checks. 46cralawlawlibrary
Villamor also argued that the Court of Appeals' order to place PPC under receivership and to appoint a management
committee does not endanger PPC's assets because the MC Home Depot checks were not the only assets of
PPC.47 Therefore, it would not affect the operation of PPC or result in its paralysation. 48cralawlawlibrary
In his comment, respondent Balmores argued that Villamor's and the directors' petitions raise questions of facts,
which cannot be allowed in a petition for review under Rule 45.49cralawlawlibrary
On the appointment of a receiver or management committee, respondent Balmores stated that the ". . . very practice
of waiving assets and income for no consideration can in fact lead, not only to the paralyzation of business, but to the
complete loss or cessation of business of PPC[.] It is precisely because of this fraudulent practice that a
receiver/management committee must be appointed to protect the assets of PPC from further fraudulent acts,
devices and schemes."50cralawlawlibrary
The petitions have merit.
I
Petition for review on
certiorari under Rule 45
was proper
First, we rule on the issue of whether petitioners properly filed a petition for review on certiorari under Rule 45.
Respondent Balmores argued that the petition raises questions of fact.
Under Rule 45, only questions of law may be raised.51 There is a question of law "when there is doubt or controversy
as to what the law is on a certain [set] of facts."52 The test is "whether the appellate court can determine the issue-
raised without reviewing or evaluating the evidence."53 Meanwhile, there is a question of fact when there is "doubt...
as to the truth or falsehood of facts."54 The question must involve the examination of probative value of the evidence
presented.
In this case, petitioners raise issues on the correctness of the Court of Appeals' conclusions.
Specifically, petitioners ask (1) whether respondent Balmores' failure to implead PPC in his action with the trial court
was fatal; (2) whether the Court of Appeals correctly characterized respondent Balmores' action as a derivative suit;
(3) whether the Court of Appeals' appointment of a management committee was proper; and (4) whether the Court of
Appeals may exercise the power to appoint a management committee.
These are questions of law that may be determined without looking into the evidence presented. The question of
whether the conclusion drawn by the Court of Appeals from a set of facts is correct is a question of law, cognizable
by this court.55cralawlawlibrary
Petitioners, therefore, properly filed, a petition for review under Rule 45.
II
Respondent Balmores' action in
the trial court is not a derivative suit
A derivative suit is an action filed by stockholders to enforce a corporate action. 56 It is an exception to the general
rule that the corporation's power to sue57 is exercised only by the board of directors or trustees.58cralawlawlibrary
Individual stockholders may be allowed to sue on behalf of the corporation whenever the directors or officers of the
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corporation refuse to sue to vindicate the rights of the corporation or are the ones to be sued and are in control of the
corporation.59 It is allowed when the "directors [or officers] are guilty of breach of . . . trust, [and] not of mere error of
judgment."60 In derivative suits, the real party in interest is the corporation, and the suing stockholder is a mere
nominal party.61 Thus, this court noted:chanRoblesvirtualLawlibrary
The Court has recognized that a stockholder's right to institute a derivative suit is not based on any express provision
of the Corporation Code, or even the Securities Regulation Code, but is impliedly recognized when the said laws
make corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation
of their fiduciary duties. In effect, the suit is an action for specific performance of an obligation, owed by the
corporation to the stockholders, to assist its rights of action when the corporation has been put in default by the
wrongful refusal of the directors or management to adopt suitable measures for its protection. 62chanrobleslaw
Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim Rules) provides the
five (5) requisites63 for filing derivative suits:chanRoblesvirtualLawlibrary
SECTION 1. Derivative action. - A stockholder or member may bring an action in the name of a corporation or
association, as the case may be, provided, that:chanRoblesvirtualLawlibrary
(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the
time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all
remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in the first paragraph of
Rule 8, Section 1 of the Interim Rules: The action brought by the stockholder or member must be "in the name of
[the] corporation or association. ..." This requirement has already been settled in jurisprudence.
Thus, in Western Institute of Technology, Inc., et al v. Solas, et al,64 this court said that "[a]mong the basic
requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on
behalf of the corporation and all other shareholders similarly situated who wish to join [him]." 65 This principle on
derivative suits has been repeated in, among other cases, Tarn Wing Tak v. Hon. Makasiar and De Guia66 and
in Chua v. Court of Appeals,67 which was cited in Hi-Yield Realty, Incorporated v. Court of Appeals.68cralawlawlibrary
Moreover, it is important that the corporation be made a party to the case.69cralawlawlibrary
This court explained in Asset Privatization Trust v. Court of Appeals70 why it is a condition sine qua nonthat the
corporation be impleaded as party in derivative suits. Thus:chanRoblesvirtualLawlibrary
Not only is the corporation an indispensible party, but it is also the present rule that it must be served with process.
The reason given is that the judgment must be made binding upon the corporation in order that the corporation may
get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of
action. In other words the corporation must be joined as party because it is its cause of action that is being litigated
and because judgment must be a res judicata against it.71chanrobleslaw
In the same case, this court enumerated the reasons for disallowing a direct individual suit.
The reasons given for not allowing direct individual suit are:chanRoblesvirtualLawlibrary
(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the
20 | A s s i g n m e n t # 2 February 06, 2018
corporate property; that both of. these are in the corporation itself for the benefit of the stockholders." In other
words, to allow shareholders to sue separately would conflict with the separate corporate entity principle;
(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case
of Evangelista v. Santos, that 'the stockholders may not directly claim those damages for themselves for that
would result in the appropriation by, and the distribution among them of part of the corporate assets before the
dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally
done in view of Section 16 of the Corporation Law. . .";
(3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of partial recovery by an individual on the damages
recoverable by the corporation for the same act.72
While it is true that the basis for allowing stockholders to file derivative suits on behalf of corporations is based on
equity, the above legal requisites for its filing must necessarily be complied with for its institution. 73cralawlawlibrary
Respondent Balmores' action in the trial court failed to satisfy all the requisites of a derivative suit.
Respondent Balmores failed to exhaust all available remedies to obtain the reliefs he prayed for. Though he tried to
communicate with PPC's directors about the checks in Villamor's possession before he filed an action with the trial
court, respondent Balmores was not able to show that this comprised -all the remedies available under the articles of
incorporation, bylaws, laws, or rules governing PPC.
An allegation that appraisal rights were not available for the acts complained of is another requisite for filing
derivative suits under Rule 8, Section 1(3) of the Interim Rules.
Section 81 of the Corporation Code provides the instances of appraisal right:chanRoblesvirtualLawlibrary
SEC. 81. Instances of appraisal right.— Any stockholder of a corporation shah1 have the right to dissent and
demand payment of the fair value of his shares in the following instances:
1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of
any stockholders or class of shares, or of authorizing preferences in any respect superior to those of
outstanding shares of any class, or of extending or shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of
the corporate property and assets as provided in this Code; and
3. In case of merger or consolidation.
Section 82 of the Corporation Code provides that the stockholder may exercise the right if he or she voted against
the proposed corporate action and if he made a written demand for payment on the corporation within thirty (30)
days after the date of voting.
Respondent Balmores complained about the alleged inaction of PPC's directors in his letter informing them that
Villamor should be made to deliver to PPC and account for MC Home Depot's checks or their equivalent value. He
alleged that these are devices or schemes amounting to fraud or misrepresentation detrimental to the corporation's
and the stockholders' interests. He also alleged that the directors' inaction placed PPC's assets in imminent and/or
actual dissipation, loss, wastage, and destruction.
Granting that (a) respondent Balmores' attempt to communicate with the other PPC directors already comprised all
the available remedies that he could have exhausted and (b) the corporation was under full- control of petitioners
that exhaustion of remedies became impossible or futile, 74 respondent Balmores failed to allege that appraisal rights
were not available for the acts complained of here.
Neither did respondent Balmores implead PPC as party in the case nor did he allege that he was filing on behalf of
the corporation.
The non-derivative character of respondent Balmores' action may also be gleaned from his allegations in the trial
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court complaint. In the complaint, he described the nature of his action as an action under Rule 1, Section l(a)(l) of
the Interim Rules, and not an action under Rule 1, Section l(a)(4) of the Interim Rules, which refers to derivative
suits. Thus, respondent Balmores said:chanRoblesvirtualLawlibrary
1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim Rules of Procedure for Intra-corporate
Controversies, involving devices or schemes employed by, or acts of, the defendants as board of directors,
business associates and officers of Pasig Printing Corporation (PPC), amounting to fraud or misrepresentation,
which are detrimental to the interest of the plaintiff as stockholder of PPC. 75 (Emphasis supplied)
Rule 1, Section 1 (a)(1) of the Interim Rules refers to acts of the board, associates, and officers, amounting to fraud
or misrepresentation, which may be detrimental to the interest of the stockholders. This is different from a derivative
suit.
While devices and schemes of the board of directors, business associates,-or officers amounting to fraud under Rule
1, Section l(a)(l) of the Interim Rules are causes of a derivative suit, it is not always the case that derivative suits are
limited to such causes or that they are necessarily derivative suits. Hence, they are separately enumerated in Rule 1,
Section 1 (a) of the Interim Rules:chanRoblesvirtualLawlibrary
SECTION 1. (a) Cases covered. - These Rules shall govern the procedure to be observed in civil cases involving the
following:chanRoblesvirtualLawlibrary
(1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or
partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the
public and/or of the stockholders, partners, or members of any corporation, partnership, or
association;
(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among
stockholders, members, or associates; and between, any or all of them and the corporation, partnership, or
association of which they are stockholders, members, or associates, respectively;
(3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations,
partnerships, or associations;
(4) Derivative suits; and
(5) Inspection of corporate books. (Emphasis supplied)
Stockholder/s' suits based on fraudulent or wrongful acts of directors, associates, or officers may also be individual
suits or class suits.
Individual suits are filed when the cause of action belongs to the individual stockholder personally, and not to the
stockholders as a group or to the corporation, e.g., denial of right to inspection and denial of dividends to a
stockholder.76 If the cause of action belongs to a group of stockholders, such as when the rights violated belong to
preferred stockholders, a class or representative suit may be filed to protect the stockholders in the
group.77cralawlawlibrary
In this case, respondent Balmores filed an individual suit. His intent was very clear from his manner of describing the
nature of his action:chanRoblesvirtualLawlibrary
1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim Rules of Procedure for Intra-corporate
Controversies, involving devices or schemes employed by, or acts of, the defendants as board of directors, business
associates and officers of Pasig Printing Corporation (PPC), amounting to fraud or misrepresentation, which are
detrimental to the interest of the plaintiff as stockholder of PPC.78 (Emphasis supplied)
His intent was also explicit from his prayer:chanRoblesvirtualLawlibrary
WHEREFORE, plaintiff respectfully prays that the Honorable Court -
2. After notice and due proceedings -
21 | A s s i g n m e n t # 2 February 06, 2018
Declare that the acts of defendant Directors in allowing defendant VILLAMOR to retain custody of the MC Home
checks and encash them upon maturity, as well as their refusal or failure to take any action against defendant
VILLAMOR to make him account and deliver the MC Home checks and/or their proceeds to Pasig Printing
Corporation are devices, schemes or acts amounting to fraud that are detrimental to plaintiff's interest as a
stockholder of PPC;79 (Emphasis supplied)
Respondent Balmores did not bring the action for the benefit of the corporation. Instead, he was alleging that the
acts of PPC's directors, specifically the waiver of rights in favor of Villamor's law firm and their failure to take back the
MC Home Depot checks from Villamor, were detrimental to his individual interest as a stockholder. In filing an
action, therefore, his intention was to vindicate his individual interest and not PPC's or a group of
stockholders'.
The essence of a derivative suit is that it must be filed on behalf of the corporation. This is because the cause of
action belongs, primarily, to the corporation. The stockholder who sues on behalf of a corporation is merely a
nominal party.
Respondent Balmores' intent to file an individual suit removes it from the coverage of derivative suits.
III
Respondent Balmores has no
cause of action that would entitle
him to the reliefs sought
Corporations have a personality that is separate and distinct from their stockholders and directors. A wrong to the
corporation does not necessarily create an individual cause of action. "A cause of action is the act or omission by
which a party violates the right of another."80 A cause of action must pertain to complainant if he or she is to be
entitled to the reliefs sought.
Thus, in Cua v. Tan,81 this court emphasized:chanRoblesvirtualLawlibrary
. . . where the acts complained of constitute a wrong to the corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or member. Although in most every case of wrong to the
corporation, each stockholder is necessarily affected because the value of his interest therein would be impaired, this
fact of itself is not sufficient to give him an individual cause of action since the corporation is a person distinct and
separate from him, and can and should itself sue the wrongdoer. Otherwise, not only would the theory of separate
entity be violated, but there would be multiplicity of suits as well as a violation of the priority rights of creditors.
Furthermore, there is the difficulty of determining the amount of damages that should be paid to each individual
stockholder.82chanrobleslaw
In this case, respondent Balmores did not allege any cause of action that is personal to him. His allegations are
limited to the facts that PPC's directors waived their rights to rental income in favor of Villamor's law firm without
consideration and that they failed to take action when Villamor refused to turn over the amounts to PPC. These are
wrongs that pertain to PPC. Therefore, the cause of action belongs to PPC — not to respondent Balmores or any
stockholders as individuals.
For this reason, respondent Balmores is not entitled to the reliefs sought in the complaint. Only the corporation, or
arguably the stockholders as a group, is entitled to these reliefs, which should have been sought in a proper
derivative suit filed on behalf of the corporation.
PPC will not be bound by a decision granting the application for the appointment of a receiver or management
committee. Since it was not impleaded in the complaint, the courts did not acquire jurisdiction over it. On this matter,
it is an indispensable party, without which, no final determination can be had.
Hence, it is not only respondent Balmores' failure to implead PPC that is fatal to his action, as petitioners point out. It
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is the fact that he alleged no cause of action that pertains personally to him that disqualifies him from the reliefs he
sought in his complaint.
On this basis alone, the Court of Appeals erred in giving due course to respondent Balmores' petition for certiorari ,
reversing the trial court's decision, and issuing a new order placing PPC under receivership and creating an interim
management committee.
IV
The Court of Appeals has no power to appoint a receiver or management committee. The Regional Trial Court has
original and exclusive jurisdiction89 to hear and decide intra-corporate controversies,90including incidents of such
controversies.91 These incidents include applications for the appointment of receivers or management committees.
"The receiver and members of the management committee . . . are considered officers of the court and shall be
under its control and supervision."92 They are required to report to the court on the status of the corporation within
sixty (60) days from their appointment and every three (3) months after.93cralawlawlibrary

Appointment of a management
committee was not proper
Assuming that respondent Balmores has an individual cause of action, the Court of Appeals still erred in placing PPC
under receivership and in creating and appointing a management committee.
A corporation may be placed under receivership, or management committees may be created to preserve properties
involved in a suit and to protect the rights of the parties under the control and supervision of the court. 83 Management
committees and receivers are appointed when the corporation is in imminent danger of "(1) [dissipation, loss,
wastage or destruction of assets or other properties; and (2) [p]aralysation of its business operations that may be
prejudicial to' the interest of the minority stockholders, parties-litigants, or the general public."84cralawlawlibrary
When respondent Balmores filed his petition for certiorari with the Court of Appeals, there was still a pending action
in the trial court. No less than the Court of Appeals stated that it allowed respondent Balmores' petition under Rule
65 because the order or resolution in question was an interlocutory one. This means that jurisdiction over the main
case was still lodged with the trial court.
The court making the appointment controls and supervises the appointed receiver or management committee. Thus,
the Court of Appeals' appointment of a management committee would result in an absurd scenario wherein while the
main case is still pending before the trial court, the receiver or management committee reports' to the Court of
Appeals.
WHEREFORE, the petitions are GRANTED. The decision of the Court of Appeals dated March 2, 2006 and its
resolution dated May 29, 2006 are SET ASIDE.

Applicants for the appointment of a receiver or management committee need to establish the confluence of these SO ORDERED.
two requisites. This is because appointed receivers and management committees will immediately take over the
management of the corporation and will have the management powers specified in law.85 This may have a negative
effect on the operations and affairs of the corporation with third parties, 86 as persons who are more familiar with its
operations are necessarily dislodged from their positions in favor of appointees who are strangers to the
corporation's operations and affairs.

Thus, in Sy Chim v. Sy Sly Ho & Sons, Inc.,87 this court said:chanRoblesvirtualLawlibrary

. . . the creation and appointment of a management committee and a receiver is an extraordinary and drastic remedy
to be exercised with care and caution; and only when the requirements under the Interim Rules are shown. It is a
drastic course for the benefit of the minority stockholders, the parties-litigants or the general public are allowed only
under pressing circumstances and, when there is inadequacy, ineffectual or exhaustion of legal or other remedies . .
. The power of the court to continue a business of a corporation . . . must be exercised with the greatest care and
caution. There should be a full consideration of all the attendant facts, including the interest of all the parties
concerned.88chanrobleslaw

PPC waived its rights, without any consideration in favor of Villamor. The checks were already in Villamor's
possession. Some of the checks may have already been encashed. This court takes judicial notice that the goodwill
money of PI 8,000,000.00 and the rental payments of P4,500,000.00 every month are not meager amounts only to
be waived without any consideration. It is, therefore, enough to constitute loss or dissipation of assets under the
Interim Rules.

Respondent Balmores, however, failed to show that there was an imminent danger of paralysis of PPC's business
operations. Apparently, PPC was- earning substantial amounts from its other sub-lessees. Respondent Balmores did
not prove otherwise. He, therefore, failed to show at least one of the requisites for appointment of a receiver or
management committee.

The Court of Appeals had no

jurisdiction to appoint the receiver
or management committee
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JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, JESUS B. MARAMARA, JOSE T. FRONDOSO,
IGNACIO T. MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR CAP A CITY AS INDIVIDUAL
DIRECTORS OF MAKATI SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD OF DIRECTORS OF
MAKATI SPORTS CLUB, Petitioners,
vs.
JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G. LIBREA, SAMUEL L. ESGUERRA, ROLANDO P.
DELA CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA. CRISTINA SIM, ROGER T. AGUILING, JOSE B.
QUIMSON, CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L. GOZON, CLAUDIO B. ALTURA, ROGELIO
G. VILLAROSA, MANUEL R. SANTIAGO, BENJAMIN A. CARANDANG, REGINA DE LEON-HERLIHY, CARLOS
Y. RAMOS, JR., ALEJANDRO Z. BARIN, EFRENILO M. CAYANGA AND JOHN DOES, Respondents.
x-----------------------x
G.R. Nos. 163368-69
JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y. PARDO, Petitioners,
vs.
JOSE A BERNAS, CECILE H. CHENG AND IGNACIO A. MACROHON, Respondents.
DECISION
PEREZ, J.:
Before us are two consolidated Petitions for Review on Certiorari1 assailing the 28 April 2003 Decision and the 27
April 2004 Resolution of the Court of Appeals in CA-G.R. SP No. 62683,2 which declared the 17 December 1997
Special Stockholders' Meeting of the Makati Sports Club invalid for having been improperly called but affirmed the
actions taken during the Annual Stockholders' Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000. The
dispositive portion of the assailed decision reads:
WHEREFORE, foregoing considered, the instant petition for review is hereby GRANTED. The appealed Decision
dated December 12, 2000 of the SEC en bane is SET ASIDE and the Decision dated April 20, 1998 of the Hearing
Officer is REINSTATED and AMENDED as follows:
1. The supposed Special Stockholders' Meeting of December 17, 1997 was prematurely or invalidly called
by the [Cinco Group]. It therefore failed to produce any legal effects and did not effectively remove [the
Bernas Group] as directors of the Makati Sports Club, Inc.;
2. The expulsion of petitioner Jose A. Bernas as well as the public auction of his share[s] is hereby
declared void and without legal effect;
3. The ratification of the removal of [the Bernas Group] as directors, the expulsion of petitioner Bernas and
the sale of his share by the defendants and by the stockholders held in their Regular Stockholders'
Meeting held in April of 1998, 1999 and 2000, is void and produces no effects as they were not the proper
party to cause the ratification;
4. All other actions of the [Cinco Group] and stockholders taken during the Regular Stockholders' Meetings
held in April 1998, 1999 and 2000, including the election of the [Cinco Group] as directors after the
expiration of the term of office of petitioners as directors, are hereby declared valid;
23 | A s s i g n m e n t # 2 February 06, 2018
5. No awards for damages and attorney's fees.3
The Facts
Makati Sports Club (MSC) is a domestic corporation duly organized and existing under Philippine laws for the
primary purpose of establishing, maintaining, and providing social, cultural, recreational and athletic . activities
among its members.
Petitioners in G.R. Nos. 163356-57, Jose A. Bernas (Bernas), Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose
T. Frondoso, Ignacio T. Macrohon and Paulino T. Lim (Bernas Group) were among the Members of the Board of
Directors and Officers of the corporation whose terms were to expire either in 1998 or 1999.
Petitioners in G.R. Nos. 163368-69 Jovencio Cinco, Ricardo Librea · and Alex Y. Pardo (Cinco Group) are the
members and stockholders of the corporation who were elected Members of the Board of Directors and Officers of
the club during the 17 December 1997 Special Stockholders Meeting.
The antecedent events of the meeting and its results, follow:
Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee (MSCOC),
composed of the past presidents of the club, demanded from the Bernas Group, who were then incumbent officers of
the corporation, to resign from their respective positions to pave the way for the election of new set of
officers.4Resonating this clamor were the stockholders of the corporation representing at least 100 shares who
sought the assistance of the MSCOC to call for a special stockholders meeting for the purpose of removing the
sitting officers and electing new ones.5 Pursuant to such request, the MSCOC called a Special Stockholders' Meeting
and sent out notices6 to all stockholders and members stating therein the time, place and purpose of the meeting.
For failure of the Bernas Group to secure an injunction before the Securities Commission (SEC), the meeting
proceeded wherein Jose A. Bernas, Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio T.
Macrohon, Jr. and Paulino T. Lim were removed from office and, in their place and stead, Jovencio F. Cinco, Ricardo
G. Librea, Alex Y. Pardo, Roger T. Aguiling, Rogelio G. · Villarosa, Armando David, Norberto Maronilla, Regina de
Leon-Herlihy and Claudio B. Altura, were elected.7
Aggrieved by the turn of events, the Bernas Group initiated an action before the Securities Investigation and Clearing
Department (SICD) of the SEC docketed as SEC Case No. 5840 seeking for the nullification of the 17 December
1997 Special Stockholders Meeting on the ground that it was improperly called. Citing Section 28 of the Corporation
Code, the Bernas Group argued that the authority to call a meeting lies with the Corporate . Secretary and not with
the MSCOC which functions merely as an oversight body and is not vested with the power to call corporate
meetings. For being called by the persons not authorized to do so, the Bernas Group urged the SEC. to declare the
17 December 1997 Special Stockholders' Meeting, including the removal of the sitting officers and the election of
new ones, be nullified.
For their part, the Cinco Group insisted that the 17 December 1997 Special Stockholders' Meeting is sanctioned by
the Corporation Code and the MSC by-laws. In justifying the call effected by the MSCOC, they reasoned that Section
258 of the MSC by-laws merely authorized the Corporate Secretary to issue notices of meetings and nowhere does it
state that such authority solely belongs to him. It was further asseverated by the Cinco Group that it would be
useless to course the request to call a meeting thru the Corporate Secretary because he repeatedly refused to call a
special stockholders' meeting despite demands and even "filed a suit to restrain the holding of a special meeting. 9
Meanwhile, the newly elected directors initiated an investigation on the alleged anomalies in administering the
corporate affairs and after finding Bernas guilty of irregularities,10 the Board resolved to expel him from the club by
selling his shares at public auction.11 After the notice12 requirement was complied with, Bernas' shares was
accordingly sold for ₱902,000.00 to the highest bidder:
MJRTB
Prior to the resolution of SEC Case No. 5840, an Annual Stockholders' Meeting was held on 20 April 1998 pursuant
to Section 8 of the MSC bylaws.13 During the said meeting, which was attended by 1,017 stockholders representing
2/3 of the outstanding shares, the majority resolved to approve, confirm and ratify, among others, the calling and ·
holding of 17 December 1997 Special Stockholders' Meeting, the acts and resolutions adopted therein including the
removal of Bernas Group from the Board and the election of their replacements.14
Due to the filing of several petitions for and against the removal of the Bernas Group from the Board pending before
the SEC resulting in the piling up of legal controversies involving MSC, the SEC En Banc, in its Decision 15 dated 30
March 1999, resolved to supervise the holding of the 1999 Annual Stockholders' Meeting. During the said meeting,
the stockholders once again approved, ratified and confirmed the holding of the 17 December 1997 Special
Stockholders' Meeting.
The conduct of the 17 December 1997 Special Stockholders' Meeting was likewise ratified by the stockholders
during the 2000 Annual Stockholders' Meeting which was held on 17 April 2000. 16
On 9 May 2000, the SICD rendered a Decision17 in SEC Case No. 12-. 97-5840 finding, among others, that the 17
December 1997 Special Stockholders' Meeting and the Annual Stockholders' Meeting conducted on 20 April 1998
and 19 April 1999 are invalid. The SICD likewise nullified the expulsion of Bernas from the corporation and the sale
of his share at the public auction. The dispositive portion of the said decision reads:
WHEREFORE, in view of the foregoing considerations this Office, through the undersigned Hearing Officer, hereby
declares as follows:
(1) The supposed Special Stockholders' Meeting of December 17, 1997 was prematurely or invalidly called
by the [the Cinco Group]. It therefore failed to produce any legal effects and did not effectively remove [the
Bernas Group] as directors of the Makati Sports Club, Inc.
(2) The April 20, 1998 meeting was not attended by a sufficient number of valid proxies. No quorum could
have been present at the said meeting. No corporate business could have been validly completed and/or
transacted during the said meeting. Further, it was not called by the validly elected Corporate Secretary
Victor Africa nor presided over by the validly elected president Jose A. Bernas. Even if the April 20, 1998
meeting was valid, it could not ratify the December 17, 1997 meeting because being a void meeting, the
December 1 7, 1997 meeting may not be ratified.
(3) The April 1998 meeting was null and void and therefore produced no legal effect.
(4) The April 1999 meeting has not been raised as a defense in the Answer nor assailed in a supplemental
complaint. However, it has been raised by [the Cinco Group] in a manifestation dated April 21, 1999 and in
their position paper dated April 8, 2000. Its legal effects must be the subject of this Decision in order to put
an end to the controversy at hand. In the first place, by [the Cinco Group's] own admission, the alleged
attendance at the April 1999 meeting amounted to less than 2/3 of the stockholders entitled to vote, the
minimum number required to effect a removal. No removal or ratification of a removal may be effected by
less than 2/3 vote of the stockholders. Further, it cannot ratify the December 1997 meeting for failure to
adhere to the requirement of the By-laws on notice as explained in paragraph (2) above, even if it was
accompanied by valid proxies, which it was not.
(5) The [the Cinco Group], their agents, representatives and all persons acting for and conspiring on their
behalf, are hereby permanently enjoined from carrying into effect the resolutions and actions adopted
during the 17 December 1997 and April 20, 1998 meetings and of the Board of Directors and/or other
stockholders' meetings resulting therefrom, and from performing acts of control and management of the
club.
24 | A s s i g n m e n t # 2 February 06, 2018
(6) The expulsion of complainant Jose A. Bernas as well as the public auction of his share is hereby
declared void and without legal effect, as prayed for. While it is true that [the Cinco Group] were no.t
restrained from acting as directors during the pendency of this case, their tenure as directors prior to this
Decision is in the nature of de facto directors of a de facto Board. Only the ordinary acts of administration
which [the Cinco Group] carried out de facto in good faith are valid. Other acts, such as political acts and
the expulsion or other disciplinary acts imposed on the [the Bernas Group] may not be appropriately taken
by de facto officers because the legality of their tenure as directors is not complete and subject to the
outcome of this case. (7) No awards for damages and attorney's fees. 18
On appeal, the SEC En Banc, in its 12 December 2000 Decision19 reversed the findings of the SICD and validated
the holding of the 17 December 1997 Special Stockholders' Meeting as well as the Annual Stockholders' Meeting
held on 20 April 1998 and 19 April 1999.
On 28 April 2003, the Court of Appeals rendered a Decision20 declaring the 17 December 1997 Special Stockholders'
Meeting invalid for being improperly called but affirmed the actions taken during the Annual Stockholders' Meeting
held on 20 April 1998, 19 April 1999 and 17 April 2000.
In a Resolution21 dated 27 April 2004, the appellate court refused to reconsider its earlier decision.
Aggrieved by the disquisition of the Court of Appeals, both parties elevated the case before this Court by filing their
respective Petitions for Review on Certiorari. While the Bernas Group agrees with the disquisition of the appellate
court that the Special Stockholders' Meeting is invalid for being called by the persons not authorized to do so, they
urge the Court to likewise invalidate the holding of the subsequent Annual Stockholders' Meetings invoking the
application of the holdover principle. The Cinco Group, for its part, insists that the holding. of 17 December 1997
Special Stockholders' Meeting is valid and binding underscoring the overwhelming ratification made by the
stockholders during the subsequent annual stockholders' meetings and the previous refusal of the Corporate
Secretary to call a special stockholders' meeting despite demand. For the resolution of the Court are the following
issues:
The Issues
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE 17 DECEMBER
1997 SPECIAL STOCKHOLDERS' MEETING IS INVALID; AND
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO NULLIFY THE HOLDING
OF THE ANNUAL STOCKHOLDERS' MEETING ON 20 APRIL 1998, 19 APRIL 1999 AND 17 APRIL 2000.
The Court's Ruling
The Corporation Code laid down the rules on the removal of the Directors of the corporation by providing, inter alia,
the persons authorized to call the meeting and the number of votes required for the purpose of removal, thus:
Sec. 28. Removal of directors or trustees. -Any director or trustee of a corporation may be removed from office by a
vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the
corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote:
Provided, That such removal shall take place either at a regular meeting of the corporation or at a special meeting
MJRTB
called for the purpose, and in either case, after previous notice to stockholders or members of the corporation of the the board should exercise not only care and diligence, but utmost good faith in the management of the corporate
intention to propose such removal at the meeting. A special meeting of the stockholders or members of a corporation affairs.23
for the purpose of removal of directors or trustees, or any of them, must be called by the secretary on order of the
president or on the written demand of the stockholders representing or holding at least a majority of the outstanding
The underlying policy of the Corporation Code is that the business and affairs of a corporation must be governed by
capital stock, or, if it be a non-stock corporation, on the written demand of a majority of the members entitled to vote.
a board of directors whose members have stood for election, and who have actually been elected by the
Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice,
stockholders, on an annual basis. Only in that way can the continued accountability to shareholders, and the
or if there is no secretary, the call for the meeting may be addressed directly to the stockholders or members by any
legitimacy of their decisions that bind the corporation's stockholders, be assured. The shareholder vote is critical to
stockholder or member of the corporation signing the demand. Notice of the time and place of such meeting, as well
the theory that legitimizes the exercise of power by the directors or officers over the properties that they do not
as of the intention to propose such removal, must be given by publication or by written notice prescribed in this
own.24
Code. Removal may be with or without cause: Provided, That removal without cause may not be used to deprive
minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this
Code. (Emphasis supplied) Even the Corporation Code is categorical in stating that a corporation exercises its powers through its board of
directors and/or its duly authorized officers and agents, except in instances where the Corporation Code requires
stockholders' approval for certain specific acts:
Corollarily, the pertinent provisions of MSC by-laws which govern the manner of calling and sending of notices of the
annual stockholders' meeting and the special stockholders' meeting provide:
SEC. 23. The Board of Directors or Trustees. - Unless otherwise provided in this Code, the corporate powers of all
the corporations formed under this Code shall be exercised, all business conducted and all property of such
SEC. 8. Annual Meetings. The annual meeting of stockholders shall be held at the Clubhouse on the third Monday of
corporations controlled and held by the board of directors and trustees x x x.
April of every year unless such day be a holiday in which case the annual meeting shall be held on the next
succeeding business day. At such meeting, the President shall render a report to the stockholders of the clubs.
A corporation's board of directors is understood to be that body which (1) exercises all powers provided for under the
Corporation Code; (2) conducts all business of the corporation; and (3) controls and holds all the property of the
xxxx
corporation. Its members have been characterized as trustees or directors clothed with fiduciary character. 25

SEC. 10. Special Meetings. Special meetings of stockholders shall be held at the Clubhouse when called by the
President or by the Board of Directors or upon written request of the stockholders representing not less than one
hundred (100) shares. Only matters specified in the notice and call will be taken up at special meetings.
xxxx
SEC. 25. Secretary. The Secretary shall keep the stock and transfer book and the corporate seal, which he shall
stamp on all documents requiring such seal, fill and sign together with the President, all the certificates of stocks
issued, give or caused to be given all notices required by law of these By-laws as well as notices of all meeting of the
Board and of the stockholders; shall certify as to quorum at meetings; shall approve and sign all correspondence
pertaining to the Office of the Secretary; shall keep the minutes of all meetings of the stockholders, the Board of
Directors and of all committees in a book or books kept for that purpose; and shall be acting President in the
absence of the President and Vice-:President. The Secretary must be a citizen and a resident of the Philippines. The
Secretary shall keep a record of all the addresses and telephone numbers of all stockholders.22
Textually, only the President and the Board of Directors are authorized by the by-laws to call a special meeting. In
cases where the person authorized to call a meeting refuses, fails or neglects to call a meeting, then the
stockholders representing at least 100 shares, upon written request, may file a petition to call a special stockholder's
meeting.
It is ineluctably clear that the fiduciary relation is between the stockholders and the board of directors and who are
vested with the power to manage the affairs of the corporation. The ordinary trust relationship of · directors of a
corporation and stockholders is not a matter of statutory or technical law. 26 It springs from the fact that directors have
the control and guidance of corporate affairs and property and hence of the property interests of the
stockholders.27 Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately
the only beneficiaries thereof.28 Should the board fail to perform its fiduciary duty to safeguard the interest of the
stockholders or commit acts prejudicial to their interest, the law and the by-laws provide mechanisms to remove and
replace the erring director.29
Relative to the powers of the Board of Directors, nowhere in the Corporation Code or in the MSC by-laws can it be
gathered that the Oversight Committee is authorized to step in wherever there is breach of fiduciary duty and call a
special meeting for the purpose of removing the existing officers and electing their replacements even if such call
was made upon the request of shareholders. Needless to say, the MSCOC is neither · empowered by law nor the
MSC by-laws to call a meeting and the subsequent ratification made by the stockholders did not cure the substantive
infirmity, the defect having set in at the time the void act was done. The defect goes into the very authority of the
persons who made the call for the meeting. It is apt to recall that illegal acts of a corporation which contemplate the
doing of an act which is contrary to law, morals or public order, or contravenes some rules of public policy or public
duty, are, like similar transactions between individuals, void.30 They cannot serve as basis for a court action, nor
acquire validity by performance, ratification or estoppel. 31 The same principle can apply in the present case. The void
election of 17 December 1997 cannot be ratified by the subsequent Annual Stockholders' Meeting.

In the instant case, there is no dispute that the 17 December 1997 Special Stockholders' Meeting was called neither
A distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra
by the President nor by the Board of Directors but by the MSCOC. While the MSCOC, as its name suggests, is
vires. The former contemplates the doing of an act which are contrary to law, morals or public policy or public duty,
created for the purpose of overseeing the affairs of the corporation, nowhere in the by-laws does it state that it is
and are, like similar transactions between individuals, void: They cannot serve as basis of a court action nor acquire
authorized to exercise corporate powers, such as the power to call a special meeting, solely vested by law and the
validity by performance, ratification or estoppel. Mere ultra vires acts, on the other hand, or those which are not
MSC by-laws on the President or the Board of Directors.
illegal or void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and
may become binding and enforceable when ratified by the stockholders. 32 The 1 7 December 1997 Meeting belongs
The board of directors is the directing and controlling body of the corporation. It is a creation of the stockholders and to the category of the latter, that is, it is void ab initio and cannot be validated.
derives its power to control and direct the affairs of the corporation from them. The board of directors, in drawing to
itself the power of the corporation, occupies a position of trusteeship in relation to the stockholders, in the sense that

25 | A s s i g n m e n t # 2 February 06, 2018 MJRTB

Consequently, such Special Stockholders' Meeting called by the Oversight Committee cannot have any legal effect.
The removal of the Bernas Group, as well as the election of the Cinco Group, effected by the assembly in that
improperly called meeting is void, and since the Cinco Group has no legal right to sit in the board, their subsequent
acts of expelling Bernas from the club and the selling of his shares. at the public auction, are likewise invalid.
The Cinco Group cannot invoke the application of de facto officership doctrine to justify the actions taken after the
invalid election since the operation of the principle is limited to third persons who were originally not part of the
corporation but became such by reason of voting of government-sequestered shares.33 In Cojuangco v. Roxas,34 the
Court deemed the directors who were elected through the voting of government of sequestered shares who
assumed office in good faith as de facto officers, viz:
In the light of the foregoing discussion, the Court finds and so holds that the PCGG has no right to vote the
sequestered shares of petitioners including the sequestered corporate shares. Only their owners, duly authorized
representatives or proxies may vote the said shares. Consequently, the election of private respondents Adolfo
Azcuna, Edison Coseteng and Patricio Pineda as members of the board of directors of SMC for 1990-1991 should
be set aside. However, petitioners cannot be declared as duly elected members of the board of directors thereby. An
election for the purpose should be held where the questioned shares may be voted by their owners and/or their
proxies. Such election may be held at the next shareholders' meeting in April 1991 or at such date as may be set
under the by-laws of SMC.
Private respondents in both cases are hereby declared to be de facto officers who in good faith assumed their duties
and responsibilities as duly elected members of the board of directors of the SMC. They are thereby legally entitled
to emoluments of the office including salary, fees and other compensation attached to the office until they vacate the
same. (Emphasis supplied)
Apparently, the assumption of office of the Cinco Group did not bear parallelism with the factual milieu in Cojuangco
and as such they cannot be considered as de facto officers and thus, they are without colorable authority to
authorize the removal of Bernas and the sale of his shares at the public auction. They cannot bind the corporation to
third persons who acquired the shares of Bernas and such third persons cannot be deemed as buyer in good faith. 35
The case would have been different if the petitioning stockholders went directly to the SEC and sought its assistance
to call a special stockholders' meeting citing the previous refusal of the Corporate Secretary to call a meeting. Where
there is an officer authorized to call a meeting and that officer refuses, fails, or neglects to call a meeting, the SEC
can assume jurisdiction and issue an order to the petitioning stockholder to call a meeting pursuant to its regulatory
and administrative powers to implement the Corporation Code.36 This is clearly provided for by Section 50 of the
Corporation Code which we quote:
Sec. 50. Regular and special meetings of stockholders or members. - x x x
xxxx
Whenever, for any cause, there is no person authorized to call a meeting, the Securities and Exchange Commission,
upon petition of a stockholder or member, and on a showing of good cause therefore, may issue an order to the
petitioning stockholder or member directing him to call a meeting of the corporation by giving proper notice required
by this Code or by the by-laws. The petitioning stockholder or member shall preside thereat until at least majority of
the stockholders or members present have chosen one of their member[s] as presiding officer.
As early as Ponce v. Encarnacion, etc. and Gapol,37 the Court of First Instance (now the SEC)38 is empowered to call
a meeting upon petition of the stockholder or member and upon showing of good cause, thus:
26 | A s s i g n m e n t # 2 February 06, 2018
On the showing of good cause therefore, the court may authorize a stockholder to call a meeting and to preside
thereat until the majority stockholders representing a majority of the stock present and permitted to be voted shall
have chosen one among them to preside it. And this showing of good cause therefor exists when the court is
apprised of the fact that the by-laws of the corporation require the calling of a general meeting of the stockholders to
elect the board of directors but the call for such meeting has not been done. 39
The same jurisprudential rule resonates in Philippine National Construction Corporation v. Pabion, 40 where the Court
validated the order of the SEC to compel the corporation to conduct a stockholders' meeting in the exercise of its
regulatory and administrative powers to implement the Corporation Code:
SEC's assumption of jurisdiction over this case is proper, as the controversy involves the election of PNCC's
directors. Petitioner does not really contradict the nature of the question presented and agrees that there is an intra-
corporate question involved.
xxxx
Prescinding from the above premises, it necessarily follows that SEC can compel PNCC to hold a stockholders'
meeting for the purpose of electing members of the latter's board of directors.
xxxx
As respondents point out, the SEC's action is also justified by its regulatory and administrative powers to implement
the Corporation Code, specifically to compel the PNCC to hold a stockholders' meeting for election purposes. 41
Given the broad administrative and regulatory powers of the SEC outlined under Section 50 of the Corporation Code
and Section 6 of Presidential Decree (PD) No. 902-A, the Cinco Group cannot claim that if was left without recourse
after the Corporate Secretary previously refused to heed its demand to call a special stockholders' meeting. If it be
true that the Corporate Secretary refused to call a meeting despite fervent demand from the MSCOC, the remedy of
the stockholders would have been to file a petition to the SEC to direct him to call a meeting by giving proper notice
required under the Code. To rule otherwise would open the floodgates to abuse where any stockholder, who
consider himself aggrieved by certain corporate actions, could call a special stockholders' meeting for the purpose of
removing the sitting officers in direct violation of the rules pertaining to the call of meeting laid down in the by-laws.
Every corporation has the inherent power to adopt by-laws for its internal government, and to regulate the conduct
and prescribe the rights and duties of its members towards itself and among themselves in reference to the
management of its affairs.42 The by-laws of a corporation are its own private laws which substantially have the same
effect as the laws of the corporation. They are in effect written into the charter. In this sense they become part of the
fundamental law of the corporation with which the corporation and its directors and officers must comply.43 The
general rule is that a corporation, through its board of directors, should act in the manner and within the formalities, if
any, prescribed in its charter or by the general law. Thus, directors must act as a body in a meeting called pursuant
to the law or the corporation's by-laws, otherwise, any action taken therein may be questioned by the objecting
director or shareholder.44
Certainly, the rules set in the by-laws are mandatory for every member of the corporation to respect.1âwphi1 They
are the fundamental law of the corporation with which the corporation and its officers and members must comply. It is
on this score that we cannot upon the other hand sustain the Bernas Group's stance that the subsequent annual
stockholders' meetings were invalid.
First, the 20 April 1998 Annual Stockholders Meeting was valid because it was sanctioned by Section 845 of the MSC
bylaws. Unlike in Special Stockholders Meeting46 wherein the bylaws mandated that such meeting shall be called by
specific persons only, no such specific requirement can be obtained under Section 8.
MJRTB
Second, the 19 April 1999 Annual Stockholders Meeting is likewise valid because in addition to the fact that it was Bernas' shares at the public auction effected by the body during the said meetings. The expulsion of the Bernas
conducted in accordance to Section 8 of the MSC bylaws, such meeting was supervised by the SEC in the exercise Group and the subsequent auction of Bernas' shares are void from the very beginning and therefore the ratifications
of its regulatory and administrative powers to implement the Corporation Code.47 effected during the subsequent meetings cannot be sustained. A void act cannot be the subject of ratification. 56

Needless to say, the conduct of SEC supervised Annual Stockholders Meeting gave rise to the presumption that the WHEREFORE, premises considered, the petitions of Jose A. Bernas, Cecile. H. Cheng, Victor Africa, Jesus B.
corporate officers who won the election were duly elected to their positions and therefore can be rightfully considered Maramara, Jose T. Frondoso, Ignacio A. Macrohon and Paulino T. Lim in G.R. Nos. 163356-57 and of Jovencio
as de jure officers. As de jure officials, they can lawfully exercise functions and legally perform such acts that are Cinco, Ricardo Librea and Alex Y. Pardo in G.R. Nos. 163368-69 are hereby DEN~ED. The assailed Decision dated
within the scope of the business of the corporation except ratification of actions that are deemed void from the 28 April 2003 and Resolution dated 27 April 2004 of the Court of Appeals are hereby AFFIRMED.
beginning.
SO ORDERED.
Considering that a new set of officers were already duly elected in 1998 and 1999 Annual Stockholders Meetings,
the Bernas Group cannot be permitted to use the holdover principle as a shield to perpetuate in office. Members of
the group had no right to continue as directors of the corporation unless reelected by the stockholders in a meeting
called for that purpose every year.48 They had no right to hold-over brought about by the failure to perform the duty
incumbent upon them.49 If they were sure to be reelected, why did they fail, neglect, or refuse to call the meeting to
elect the members of the board?50

Moreover, it is fundamental rule that factual findings of quasi-judicial agencies like the SEC, if supported by
substantial evidence, are generally accorded not only great respect but even finality, and are binding upon this Court
unless it was shown that the quasi-judicial agencies had arbitrarily disregarded evidence before it had
misapprehended evidence to such an extent as to compel a contrary conclusion if such evidence had been properly
appreciated.51 It is not the function of this Court to analyze or weigh all over again the evidence and credibility of
witnesses presented before the lower court, tribunal, or office, as we are not trier of facts. 52 Our jurisdiction is limited
to reviewing and revising errors of law imputed to the lower court, the latter's finding of facts being conclusive and not
reviewable by this Court.53 However, when it can be shown that administrative bodies grossly misappreciated
evidence of such nature as to compel a contrary conclusion, the Court will not hesitate to reverse its factual
findings.54 In the case at bar, the incongruent findings of the SEC on the one hand, and the Court of Appeals on the
other, constrained the Court to review the records to ascertain which body correctly appreciated the facts vis-a-vis
the standing statutory and jurisprudential principles.

After finding that the ruling of the appellate court was in accordance with the existing laws and jurisprudence as
exhaustively discussed above, we hereby quote with approval its disquisition: (1) The supposed Special
Stockholders' Meeting of 1 7 December 1997 was prematurely or invalidly called by the [Cinco Group]. It therefore
failed to produce any legal effects and did not effectively remove [the Bernas Group] as directors of the Makati
Sports Club, Inc.;

(2) The expulsion of [Bernas] as well as the public auction of his shares is hereby declared void and
without legal effect;

(3) The ratification of the removal of [the Bernas Group] as directors, the expulsion of Bernas and the sale
of his share by the [Cinco Group] and by the stockholders held in their Regular Stockholders' Meeting held
in April of 1998, 1999 and 2000, is void and produces no effects as they were not the proper party to
cause the ratification;

(4) All other actions of the [Cinco Group] and stockholders taken during the Regular Stockholders'
Meetings held in April 1998, 1999 and 2000, including the election of the [Cinco Group] as directors after
the expiration of the term of office of [Bernas Group] as directors, are hereby declared valid. 55

In fine, we hold that 17 December 1997 Special Stockholders' Meeting is null and void and produces no effect; the
resolution expelling the Bernas Group from the corporation and authorizing the sale of Bernas' shares at the public
auction is likewise null and void. The subsequent Annual Stockholders' Meeting held on 20 April 1998, 19 April 1999
and 17 April 2000 are valid and binding except the ratification of the removal of the Bernas Group and the sale of

27 | A s s i g n m e n t # 2 February 06, 2018 MJRTB

G.R. No. 211535, July 22, 2015
BANK OF COMMERCE, Petitioner, v. MARILYN P. NITE, Respondent.
DECISION
CARPIO, ACTING C.J.:
The Case
Before the Court is a petition for review on certiorari assailing the 22 November 2013 Decision1 and 28 February
2014 Resolution2 of the Court of Appeals in CA-G.R. CV No. 81500. The Court of Appealsaffirmed in toto the Order
dated 4 April 20033 and the Omnibus Order dated 5 January 20044 of the Regional Trial Court of Makati, Branch 150
(trial court) in Criminal Case Nos. 94-5267 and 94-5268.
The Antecedent Facts
Respondent Marilyn Nite (Nite) was charged, together with Nunelon Bradley (Bradley) and Victoria Magalona-
Escalambre (Escalambre), with violation of Section 19 of Batas Pambansa Bilang 1785 (BP Blg. 178) in an
Information that reads:chanRoblesvirtualLawlibrary
That on or about April 25, 1994, in the Municipality of Makati, Metro Manila, and within the jurisdiction of this
Honorable Court, the above-named accused, doing business under the name and style of Bancapital Development
Corporation (Bancap) did then and there, willfully and feloniously engage in the business of selling securities,
particularly treasury bills (T-bills) with Bank of Commerce (Bancom) in the amount of Php250 Million without having
been registered as a broker, dealer or salesman with the Securities and Exchange Commission, in violation of said
law.
CONTRARY TO LAW.6
The case was docketed as Criminal Case No. 94-5267.
Nite was also charged, together with Bradley, Escalambre, and Eugene Yang (Yang), with Estafa in an Information
that reads:chanRoblesvirtualLawlibrary
That on or about April 25, 1994, in Makati, Metro Manila, and within the jurisdiction of this Honorable Court, the
above-named accused, confederating together and mutually helping each other, by means of deceit, with
unfaithfulness or abuse of confidence on the part of accused Eugene Yang and taking advantage of his position as
senior manager of the Bank of Commerce (Bancom), did then and there willfully, unlawfully and feloniously defraud
Bancom as follows: That Bancapital Development Corporation (Bancap) thru accused Nite, Bradley and Escalambre
by means of fraudulent misrepresentations; offered and confirmed for sale Php250 Million worth of Treasury bills at a
discounted price of Php243,215,972.52 to Bancom which was actually purchased and fully paid by Bancom, when in
truth and in fact Bancap which was not authorized to trade security did not actually have such Treasury bills worth
Php250 Million as only Php88 Million worth of Treasury bills was delivered to Bancom upon receipt by Bancap of the
full payment thereof; that accused Eugene Yang, senior manager of Bancom, willfully, unlawfully and feloniously
caused the preparation, issuance and signing of the manager's check in payment of the treasury bills in question on
the basis of the trading order he himself approved and Bancap's confirmation of sale signed by accused Nite and
Escalambre, and, once in possession of the full payment thereof, the above-named accused misappropriated,
misapplied and converted the same to their own personal use and benefit and despite repeated demands failed to
deliver the remaining Treasury bills worth Phpl62 Million, to the damage and prejudice of Bancom, its creditors and
stockholders, in the amount of Phpl62 Million Pesos.
CONTRARY TO LAW.7
The case was docketed as Criminal Case No. 94-5268. The two cases were tried jointly.
Since Bradley was still at large during the trial, and the proceedings against Escalambre and Yang were suspended
pending their petition for certiorari and mandamus before the Court of Appeals in connection with the denial of their
28 | A s s i g n m e n t # 2 February 06, 2018
demurrer to evidence, a separate trial was conducted against Nite after she was arrested in the United States of
America for overstaying and brought back to the Philippines.
In Criminal Case No. 94-5267, the thrust of the prosecution's argument was that Nite, as President of Bancapital
Development Corporation (Bancap), violated Section 19 of BP Blg. 178 when Bancap sold P250 million worth of
treasury bills to Bank of Commerce (Bancom) without being registered as broker, dealer, or salesman of securities.
In Criminal Case No. 94-5268, the prosecution alleged that Nite defrauded Bancom by falsely pretending to possess
and own P250 million worth of treasury bills that Bancap supposedly sold to Bancom when none of the treasury bills
described in the Confirmation of Sale and Letter of Undertaking issued by Bancap were ever delivered to Bancom.
The prosecution alleged that Bancom paid Bancap the amount of P243,215,972.52 as payment for the treasury bills
but Bancap only delivered substitute bills in the amount of P88 million.
The Ruling of the Trial Court
8
In a Decision dated 6 December 2002, the trial court ruled as follows:chanRoblesvirtualLawlibrary
WHEREFORE, the foregoing considered, accused MARILYN NITE is hereby ACQUITTED of the charge of violating
Sec. 19 of Batas Pambansa Bilang 178 under Criminal Case No. 94-5267 and likewise acquitted of the charge of
Estafa under Criminal Case No. 94-5268.
She, however, is hereby ordered to pay BANK OF COMMERCE the amount of Phpl62 million, representing the civil
obligation of BANCAPITAL.
Let, therefore, the cash bond of accused Nite be released to her by the Office of the Clerk of Court, RTC, Makati
City, upon surrender of the original official receipt.
SO ORDERED.9
The trial court ruled that in Criminal Case No. 94-5267, the prosecution was not able to establish that Bancap acted
as a primary dealer that needed to be accredited. According to the trial court, Bancap acted as a secondary dealer
and did not buy the treasury bills directly from the Central Bank. In Criminal Case No. 94-5268, the trial court ruled
that the element of deceit was non-existent and that at the time of the transaction, Bancom was aware that Bancap
was not in physical possession of the treasury bills subject of the sale.
However, the trial court ruled that Nite, being a responsible officer of Bancap, was civilly liable to Bancom in the
amount of P162 million which represented the treasury bills that Bancap undertook to deliver to Bancom since only
P88 million worth of substitute treasury bills had been delivered to and accepted by Bancom.
Nite filed a partial motion for reconsideration.
In the assailed 4 April 2003 Order, the trial court granted the partial motion for reconsideration. In resolving the
motion, the trial court ruled that Bancap's charter allowed it to engage in the buying and selling of government
securities as part of its secondary purpose. The trial court added that even if the buying and selling of securities were
outside the scope of Bancap's primary purpose, the acts could only be considered as ultra vires and not illegal. The
trial court could not disregard the rule on separate corporate identity absent any evidence that Bancap was used as
a tool to commit fraud, injustice, or crime against Bancom. The dispositive portion of the Order
reads:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the Motion for Partial Reconsideration is hereby GRANTED.
The DECISION dated December 6, 2002 insofar as the civil aspect of the case is concerned, rinding accused Nite
civilly liable to BANCOM in the amount of Phpl62 million, representing the treasury bills BANCAP failed to deliver to
BANCOM is hereby set aside. Accordingly, the dispositive portion of the said decision shall now read as
follows:chanRoblesvirtualLawlibrary
"WHEREFORE, the foregoing considered, accused MARILYN NITE is hereby acquitted of the charge of violating
Sec. 19 of Batas Pambansa Bilang 178 under Criminal Case No. 94-5267 and likewise acquitted of the charge of
Estafa under Criminal Case No. 94-5268.
Let, therefore, the cash bond of accused Nite be released to her by the Office of the Clerk of Court, RTC, Makati
City, upon surrender of the original official receipt.
MJRTB
SO ORDERED."
SO ORDERED.10
It was the prosecution's turn to file a motion for reconsideration, alleging that the trial court erred in absolving Nite of
her civil liability to Bancom. The prosecution alleged that the trial court erred in not piercing the corporate veil of
Bancap when it was adequately shown that Nite used the company to perpetuate fraud and to evade an existing
obligation.
In its Omnibus Order dated 5 January 2004, the trial court denied the motion for lack of merit.
Bancom sought relief from the Court of Appeals in CA-G.R. CV No. 81500.
The Ruling of the Court of Appeals
In its 22 November 2013 Decision, the Court of Appeals affirmed the trial court's Order dated 4 April 2003 and
Omnibus Order dated 5 January 2004.
The Court of Appeals ruled that Bancom wanted to impose the civil liability of Bancap on Nite when the claim for the
contractual obligation should have been against Bancap itself. The Court of Appeals agreed with the trial court that
Bancap was only a secondary dealer and as such, there was no need for it to secure the license required for primary
dealers under BP Blg. 178. The Court of Appeals further ruled that the transaction between Bancom and Bancap
was not patently unlawful. The Court of Appeals ruled that Bancom was aware of the risks it was taking when it
entered into a contract with Bancap and agreed for the delivery of the treasury bills at a future particular time.
The Court of Appeals ruled that it could not automatically make Bancap's contractual obligation as the contractual
obligation of Nite. Further, the doctrine of piercing the veil of corporate fiction imposed the burden of the corporation's
obligations on its erring officers and shareholders. In this case, none of Bancap's other officers, and not even the
corporation itself, were impleaded, and thus, the Court of Appeals could not make a complete determination of the
corporation's liability. According to the Court of Appeals, the remedy of Bancom was to file a civil action impleading
all the parties to the contract.
The dispositive portion of the Decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the assailed Order of the Regional Trial Court of Makati City, Branch 150 dated
4 April 2003, and its subsequent Omnibus Order dated 5 January 2004 are hereby AFFIRMED IN TOTO.
SO ORDERED.11
Bancom filed a motion for reconsideration. In its Resolution promulgated on 28 February 2014, the Court
of Appeals denied the motion for lack of merit.
Hence, Bancom filed a petition for review before this Court.
The Issues
Bancom raises the following issues before this Court:chanRoblesvirtualLawlibrary
I. The Court of Appeals gravely erred in ruling that the civil liability was only attributable to Bancap and not to
respondent Nite despite the latter's active participation in the commission of patently unlawful acts
against petitioner Bancom.
II. The Court of Appeals erred in not piercing the corporate veil of Bancap even though the same was being used to
perpetuate fraud.chanroblesvirtuallawlibrary
The Ruling of this Court
We deny the petition.
Nite was acquitted by the trial court of violation of Section 19 of BP Blg. 178 and estafa. Hence, the only issue here
is Nite's civil liability after her acquittal.
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Bancom asserts that the Court of Appeals erred in ruling that the civil liability it is claiming pertains to Bancap's and
not to Nite's. Bancom cites Section 31 of the Corporation Code which provides:chanRoblesvirtualLawlibrary
Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or
assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or
trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
xxxx
Bancom insists that while the question raised is one of fact, the factual findings of the lower court, sustained by the
Court of Appeals, are based on a misapprehension of facts. Bancom alleges that since Nite actively participated in
the commission of a patently unlawful act, she is personally liable to Bancom for the amount of treasury bills
undelivered by Bancap.
We do not agree.
The general rule is that a corporation is invested by law with a personality separate and distinct from that of the
persons composing it, or from any other legal entity that it may be related to.12 The obligations of a corporation,
acting through its directors, officers, and employees, are its own sole liabilities. 13Therefore, the corporation's
directors, officers, or employees are generally not personally liable for the obligations of the
corporation.14chanrobleslaw
Bancom alleges that this case falls under the exception to the general rule and that Nite should be held personally
liable for Bancap's obligation. Bancom alleges that Nite signed the Confirmation of Sale knowing that Bancap did not
have the treasury bills, and thus, the sale was illegal.
Bancom's arguments have no merit.
To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) complainant
must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that
the officer was guilty of gross negligence or bad faith; and (2) complainant must clearly and convincingly prove such
unlawful acts, negligence or bad faith.15 To hold a director personally liable for debts of the corporation, and thus
pierce the veil of corporate fiction, the bad faith or wrongdoing of the director must be established clearly and
convincingly.16chanrobleslaw
It is settled that the transaction between Bancom and Bancap is an ordinary sale. We give weight to the finding of
both the trial court and the Court of Appeals that Bancap's liability arose from its contractual obligation to Bancom.
The trial court and the Court of Appeals found that Bancom and Bancap had been dealing with each other as seller
and buyer of treasury bills from December 1991 until the transaction subject of this case on 25 April 1994, which was
no different from their previous transactions. Nite, as Bancap's President, cannot be held personally liable for
Bancap's obligation unless it can be shown that she acted fraudulently. However, the issue of fraud had been
resolved with finality when the trial court acquitted Nite of estafa on the ground that the element of deceit is non-
existent in the case. The acquittal had long become final and the finding is conclusive on this Court. The prosecution
failed to show that Nite acted in bad faith. It is no longer open for review. Nite's act of signing the Confirmation of
Sale, by itself, does not make the corporate liability her personal liability.
In addition, we consider the testimony of Lagrimas Nuqui, the Legal Officer in Charge of the Government Securities
Department of the Bangko Sentral ng Pilipinas from 1994 to 1998, who explained that primary issues of treasury bills
are supposed to be issued only to accredited dealers but these accredited banks can sell to anyone who need not be
accredited, and such buyers, who may be corporations or individuals, are classified as the secondary market. The
trial court and the Court of Appeals found that Bancap sold the treasury bills as a secondary dealer.17 As such,
Bancap's act of selling securities to Bancom is at most ultra vires and not patently unlawful.
Based on the foregoing, we cannot hold Nite personally liable for Bancap's corporate liability.
WHEREFORE, we DENY the petition. SO ORDERED.
MJRTB