Same; Same; Res Judicata; In SME Bank, Inc. v.
De Guzman, 707 SCRA 35 (tance of
G.R. No. 203355. August 18, 2015.*
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, vs. 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.
Remedial Law; Civil Procedure; Appeals; On the issue of perfecting the appeal, the
Court of Appeals (CA) was correct when it pointed out that Rule VI of the New Rules of
Procedure of the National Labor Relations Commission (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.”—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.
Same; Same; Res Judicata; Requisites of Res Judicata.—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.
Labor Law; Labor Disputes; Words and Phrases; 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.”—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.
Same; Separation Pay; Labor Arbiters; Jurisdiction; The proper payment of separation
pay falls under the jurisdiction of the labor arbiter (LA) pursuant to Art. 224 (previously Art.
217) of the Labor Code, as it is mandated as a necessary condition for the termination of
employees.—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.: 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 nonagricultural: 1. Unfair labor practice cases;
2. Termination disputes; x x x x 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 service, involving
an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied
with a claim for reinstatement.
separation pay is an issue distinct from the legality of the dismissal of the employees.—While
there may be substantial identity of the parties, there is no identity of subject matter or cause
of action. In SME Bank, Inc. v. De Guzman, 707 SCRA 35 (2013), this Court held that the
acceptance of separation pay is an issue distinct from the legality of the dismissal of the
employees. We held: The conformity of the employees to the corporation’s act of considering
them as terminated and their subsequent acceptance of separation pay does not remove the
taint of illegal dismissal. Acceptance of separation pay does not bar the employees
from subsequently contesting the legality of their dismissal, nor does it estop them
from challenging the legality of their separation from the service.
Corporations; Piercing the Veil of Corporate Fiction; The application of the doctrine of
piercing the veil of corporate fiction is frowned upon.—The application of the doctrine of
piercing the veil of corporate fiction is frowned upon. However, this Court will not hesitate
to disregard the corporate fiction if it is used to such an extent that injustice, fraud, or crime
is committed against another in disregard of his rights. In this case, petitioners advance the
application of the doctrine because they were terminated from employment on the pretext
that there will be an impending permanent closure of the business as a result of an intended
sale of its assets to an undisclosed corporation, and that there will be a change in the
management.
Same; Same; 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.—Subsequent
events 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 reopened 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.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Florencio C. Lameyra for petitioners.
Maria Christine C. Cabrera-Anonuevo for respondents.
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 C.A.-G.R.
S.P. No. 124395, which, in turn, affirmed the Resolutions of the National Labor
Relations Commission (NLRC) dated December 28, 2011 2 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. 7
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. 9
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: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. (emphasis supplied)
10
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.11
On March 27, 2010, petitioner Leo Rosales (Rosales) similarly received his
separation pay from Noel and signed a Quitclaims and Release.12 On March 29,
2010, the other petitioners, Arnulfo 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.13
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.”16
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 Memorandum 19 along
with a Verified Motion to Reduce Bond 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.21
Meanwhile, petitioners also filed a Memorandum of Partial Appeal contending
that ELA Santos erred in failing to award them moral and exemplary damages. 22
On September 24, 2011, the NLRC issued a Decision 23 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.24
Respondents filed their Motion for Reconsideration with Motion to Admit
Additional Appeal Cash Bond25 with corresponding payment of additional cash
bond.26
While the motion was opposed by petitioners,27 the NLRC, in its Resolution
dated December 28, 2011,28 reversed 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.
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, this Court explained:
31
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:
“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 con-
sideration of substantial justice; (2) preven-
tion of miscarriage of justice or of unjust en-
richment; and (3) special circumstances of the
case combined with its legal merits, and the
amount and the issue involved.” (emphasis
32
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.:
[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:
(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 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. (emphasis and underscoring added)
34
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.35
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.:
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
nonagricultural:
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 service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.
(emphasis supplied)
The invocation of the labor arbiter’s jurisdiction by way of a letter-request
instead of a complaint is of no moment, as it is well-settled that the application of
technical rules of procedure is relaxed in labor cases.
The third requisite, however, is not present. The Orders rendered by LA Guan
cannot be considered as constituting a judgment on the merits. The Orders simply
manifest that petitioners “are amenable to the computations made by the 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.36
Similarly, the fourth requisite is also absent. While there may be substantial
identity of the parties, there is no identity of subject matter or cause of action.
In SME Bank, Inc. v. De Guzman,37 this Court held that the acceptance of
separation pay is an issue distinct from the legality of the dismissal of the
employees. We held:
The conformity of the employees to the corporation’s act of considering them as terminated
and their subsequent acceptance of separation pay does not remove the taint of illegal
dismissal. Acceptance of separation pay does not bar the employees from
subsequently contesting the legality of their dismissal, nor does it estop them from
challenging the legality of their separation from the service. (emphasis supplied)
38
In the absence of the third and fourth requisites, the appellate court should
have proceeded to rule on the validity of petitioners’ termination.
Piercing the veil of corporate
existence is justified in the
present case
The application of the doctrine of piercing the veil of corporate fiction is
frowned upon. However, this Court will not hesitate to disregard the corporate
fiction if it is used to such an extent that injustice, fraud, or crime is committed
against another in disregard of his rights.39
In this case, petitioners advance the application of the doctrine because they
were terminated from employment on the pretext that there will be an impending
permanent closure of the business as a result of an intended sale of its assets to an
undisclosed corporation, and that there will be a change in the management. The
termination notices received by petitioners identically read:
Nais po naming ipaabot sa inyo na ang New ANJH Enterprises ay ihihinto na ang
operasyon dahil sa nagpasya ako bilang may-ari na ipagbili na ang ari-arian nito sa iba kung
kayat magkakaroon ng pagpapalit sa pamumunuan nito.
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 reopened 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:
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.
xxxx
Here, complainants’ employment was terminated for the alleged sale of assets of ANJH
to NH Oil Mill that would allegedly entail [a] change of management. The Deed of Sale dated
March 5, 2010 [that] respondents presented (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
being used by ANJH for manufacturing and/or extraction of coconut oil. This Office cannot
simply accept it as sufficient proof of sale by the seller to a distinct and separate entity.
xxxx
The subscribed capital stock of Noel and Heidi [in NH Oil] are worth Php790,000.00 and
Php190,000.00, respectively, or the total of Php980,000.00. Respondents claim that Noel
was managing ANJH and Heidi was its Secretary. The Deed of Sale is signed by
Noel and Heidi, Noel as [seller], and Heidi as representative of NH Oil Mill.
Respondents did not enumerate what [were] the equipment etc. subject of the “sale,” and how
they were depreciated, and what [were] the equipment/machines owned by Avelino and
rented by NH Oil Mill and for how much? Therefrom, it is extremely difficult to conclude by
quantum of evidence acceptable to [a] reasonable mind, [that] the “sale to a distinct entity”
is genuine. And while the notices of termination state that there would be [a] change in
management, this Office notes that respondents do not deny that Noel and Heidi
continue to 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 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 declares that complainants were illegally dismissed. (emphasis
42

and underscoring supplied)

Clearly, the milieu of the present case compels this Court to remove NH Oil’s
corporate mask as it had become, and was used as, a shield for fraud, illegality and
inequity against the petitioners.
WHEREFORE, the instant petition is GRANTED and the Decision dated
September 5, 2012 of the Court of Appeals in C.A.-G.R. S.P. No. 124395, affirming
the Resolutions of the National Labor Relations Commission (NLRC) dated
December 28, 2011 and February 28, 2012 in NLRC-LAC Case No. 07-001796-11,
is hereby REVERSED and SET ASIDE. The Decision of Executive Labor Arbiter
Generoso Santos in NLRC Case No. RAB-IV-04-00649-10-L to the effect that
petitioners were illegally dismissed is REINSTATED.
SO ORDERED.
Sereno (CJ.), Carpio, Leonardo-De Castro, Brion, Peralta, Bersamin, Del
Castillo, Perez, Mendoza, Perlas-Bernabe, Leonen and Jardeleza, JJ., concur.
Villarama, Jr., J., On Official Leave.
Reyes, J., On Leave.

Petition granted, judgment reversed and set aside.

 G.R. No. 191525. December 13, 2017.*
INTERNATIONAL ACADEMY OF MANAGEMENT AND ECONOMICS
(I/AME), petitioner, vs. LITTON AND COMPANY, INC., respondent.
Mercantile Law; Corporations; Separate Legal Personality; In general, corporations,
whether stock or nonstock, are treated as separate and distinct legal entities from the natural
persons composing them.—In general, corporations, whether stock or nonstock, are treated
as separate and distinct legal entities from the natural persons composing them. The
privilege of being considered a distinct and separate entity is confined to legitimate uses, and
is subject to equitable limitations to prevent its being exercised for fraudulent, unfair or
illegal purposes. However, once equitable limitations are breached using the coverture of the
corporate veil, courts may step in to pierce the same.
Same; Same; Same; Piercing the Veil of Corporate Fiction; The piercing of the corporate
veil is premised on the fact that the corporation concerned must have been properly served
with summons or properly subjected to the jurisdiction of the court a quo.—The piercing of
the corporate veil is premised on the fact that the corporation concerned must have been
properly served with summons or properly subjected to the jurisdiction of the court a quo.
Corollary thereto, it cannot be subjected to a writ of execution meant for another in violation
of its right to due process. There exists, however, an exception to this rule: if it is shown “by
clear and convincing proof that the separate and distinct personality of the corporation was
purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud
or like wrongdoings.” The resistance of the Court to offend the right to due process of a
corporation that is a nonparty in a main case, may disintegrate not only when its director,
officer, shareholder, trustee or member is a party to the main case, but when it finds facts
which show that piercing of the corporate veil is merited.
Same; Same; Same; Same; The Supreme Court (SC) did not put in issue whether the
corporation is a nonstock, nonprofit, nongovernmental corporation in considering the
application of the doctrine of piercing of corporate veil.—In determining the propriety of
applicability of piercing the veil of corporate fiction, this Court, in a number of cases, did not
put in issue whether a corporation is a stock or nonstock corporation. In Sulo ng Bayan, Inc.
v. Gregorio Araneta, Inc., 72 SCRA 347 (1976), we considered but ultimately refused to pierce
the corporate veil of a nonstock, nonprofit corporation which sought to institute an action for
reconveyance of real property on behalf of its members. This Court held that the nonstock
corporation had no personality to institute a class suit on behalf of its members, considering
that the non-stock corporation was not an assignee or transferee of the real property in
question, and did not have an identity that was one and the same as its members. In another
case, this Court did not put in issue whether the corporation is a non-stock, nonprofit,
nongovernmental corporation in considering the application of the doctrine of piercing of
corporate veil. In Republic of the Philippines v. Institute for Social Concern, 449 SCRA 512
(2005), while we did not allow the piercing of the corporate veil, this Court affirmed the
finding of the CA that the Chairman of the Institute for Social Concern cannot be held jointly
and severally liable with the aforesaid nongovernmental organization (NGO) at the time the
Memorandum of Agreement was entered into with the Philippine Government. We found no
fraud in that case committed by the Chairman that would have justified the piercing of the
corporate veil of the NGO.
Same; Same; Equitable Owner; Words and Phrases; An equitable owner is an
individual who is a non-shareholder defendant, who exercises sufficient control or
considerable authority over the corporation to the point of completely disregarding the
corporate form and acting as though its assets are his or her alone to manage and distribute.—
The concept of equitable ownership, for stock or nonstock corporations, in piercing of the
corporate veil scenarios, may also be considered. An equitable owner is an individual who is
a non-shareholder defendant, who exercises sufficient control or considerable authority over
the corporation to the point of completely disregarding the corporate form and acting as
though its assets are his or her alone to manage and distribute.
Same; Same; Separate Legal Personality; Piercing the Veil of Corporate Fiction; The
Supreme Court (SC) has considered a deceased natural person as one and the same with his
corporation to protect the succession rights of his legal heirs to his estate.—The piercing of the
corporate veil may apply to corporations as well as natural persons involved with
corporations. This Court has held that the “corporate mask may be lifted and the corporate
veil may be pierced when a corporation is just but the alter ego of a person or of another
corporation.” We have considered a deceased natural person as one and the same with his
corporation to protect the succession rights of his legal heirs to his estate. In Cease v. Court
of Appeals, 93 SCRA 483 (1979), the predecessor-in-interest organized a close corporation
which acquired properties during its existence. When he died intestate, trouble ensued
amongst his children on whether or not to consider his company one and the same with his
person. The Court agreed with the trial court when it pierced the corporate veil of the
decedent’s corporation. It found that said corporation was his business conduit and alter ego.
Thus, the acquired properties were actually properties of the decedent and as such, should
be divided among the decedent’s legitimate children in the partition of his estate.
Same; Same; Same; Same; Outsider Reverse Piercing; Insider Reverse Piercing; Words
and Phrases; Outsider reverse piercing occurs when a party with a claim against an
individual or corporation attempts to be repaid with assets of a corporation owned or
substantially controlled by the defendant. In contrast, in insider reverse piercing, the
controlling members will attempt to ignore the corporate fiction in order to take advantage of
a benefit available to the corporation, such as an interest in a lawsuit or protection of personal
assets.—As held in the U.S. Case, C.F. Trust, Inc., v. First Flight Limited Partnership, “in a
traditional veil-piercing action, a court disregards the existence of the corporate entity so a
claimant can reach the assets of a corporate insider. In a reverse piercing action, however,
the plaintiff seeks to reach the assets of a corporation to satisfy claims against a corporate
insider.” “Reverse piercing flows in the opposite direction (of traditional corporate veil-
piercing) and makes the corporation liable for the debt of the shareholders.” It has two (2)
types: outsider reverse piercing and insider reverse piercing. Outsider reverse piercing occurs
when a party with a claim against an individual or corporation attempts to be repaid with
assets of a corporation owned or substantially controlled by the defendant. In contrast, in
insider reverse piercing, the controlling members will attempt to ignore the corporate fiction
in order to take advantage of a benefit available to the corporation, such as an interest in a
lawsuit or protection of personal assets.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Eddie Tamondong for petitioner.
Gerardo A. Villaluz for respondent.
SERENO, CJ.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Court of Appeals’ (CA’s) Decision1 and Resolution2 in C.A.-G.R.
S.P. No. 107727.
The CA affirmed the Judgment3 and Order4 of the Regional Trial Court (RTC)
of Manila in Special Civil Action No. 06-115547 reinstating the Order5 of the
Metropolitan Trial Court (MeTC) of Manila in favor of Litton and Company, Inc.
(Litton).
The Facts
The facts, as culled from the records, are as follows:
 Atty. Emmanuel T. Santos (Santos), a lessee to two (2) buildings owned by
Litton, owed the latter rental arrears as well as his share of the payment of realty
taxes.6
Consequently, Litton filed a complaint for unlawful detainer against Santos
before the MeTC of Manila. The MeTC ruled in Litton’s favor and ordered Santos
to vacate A.I.D. Building and Litton Apartments and to pay various sums of money
representing unpaid arrears, realty taxes, penalty, and attorney’s fees. 7
It appears however that the judgment was not executed. Litton subsequently
filed an action for revival of judgment, which was granted by the RTC.8 Santos then
appealed the RTC’s decision to the CA, which nevertheless affirmed the RTC.9 The
said CA’s decision became final and executory on 22 March 1994. 10
On 11 November 1996, the sheriff of the MeTC of Manila levied on a piece of
real property covered by Transfer Certificate of Title (TCT) No. 187565 and
registered in the name of International Academy of Management and Economics
Incorporated (I/AME), in order to execute the judgment against Santos.11 The
annotations on TCT No. 187565 indicated that such was “only up to the extent of
the share of Emmanuel T. Santos.”12
I/AME filed with MeTC a “Motion to Lift or Remove Annotations Inscribed in
TCT No. 187565 of the Register of Deeds of Makati City.”13 I/AME claimed that it
has a separate and distinct personality from Santos; hence, its properties should
not be made to answer for the latter’s liabilities. The motion was denied in an
Order dated 29 October 2004.
Upon motion for reconsideration of I/AME, the MeTC reversed its earlier ruling
and ordered the cancellation of the annotations of levy as well as the writ of
execution. Litton then elevated the case to the RTC, which in turn reversed the
Order granting I/AME’s motion for reconsideration and reinstated the original
Order dated 29 October 2004.
I/AME then filed a petition with the CA to contest the judgment of the RTC,
which was eventually denied by the appellate court.
The CA’s Ruling
The CA upheld the Judgment and Order of the RTC and held that no grave
abuse of discretion was committed when the trial court pierced the corporate veil
of I/AME.14
It took note of how Santos had utilized I/AME to insulate the Makati real
property covered by TCT No. 187565 from the execution of the judgment rendered
against him, for the following reasons:
First, the Deed of Absolute Sale dated 31 August 1979 indicated that Santos,
being the President, was representing I/AME as the vendee. 15 However, records
show that it was only in 1985 that I/AME was organized as a juridical
entity.16 Obviously, Santos could not have been President of a non-existent
corporation at that time.17
Second, the CA noted that the subject real property was transferred to I/AME
during the pendency of the appeal for the revival of the judgment in the ejectment
case in the CA.18
Finally, the CA observed that the Register of Deeds of Makati City issued TCT
No. 187565 only on 17 November 1993, fourteen (14) years after the execution of
the Deed of Absolute Sale and more than eight (8) years after I/AME was
incorporated.19
Thus, the CA concluded that Santos merely used I/AME as a shield to protect
his property from the coverage of the writ of execution; therefore, piercing the veil
of corporate fiction is proper.20
The Issues
The issues boil down to the alleged denial of due process when the court pierced
the corporate veil of I/AME and its property was made to answer for the liability
of Santos.
Our Ruling
We deny the petition.
There was no viola-
tion of due process
against I/AME
Petitioner avers that its right to due process was violated when it was dragged
into the case and its real property made an object of a writ of execution in a
judgment against Santos. It argues that since it was not impleaded in the main
case, the court a quo never acquired jurisdiction over it. Indeed, compliance with
the recognized modes of acquisition of jurisdiction cannot be dispensed with even
in piercing the veil of corporation.21
In a petition for review on certiorari under Rule 45, only questions of law shall
be entertained. This Court considers the determination of the existence of any of
the circumstances that would warrant the piercing of the veil of corporate fiction
as a question of fact which ordinarily cannot be the subject of a petition for review
on certiorari under Rule 45. We will only take cognizance of factual issues if the
findings of the lower court are not supported by the evidence on record or are based
on a misapprehension of facts.22 Once the CA affirms the factual findings of the
trial court, such findings are deemed final and conclusive and thus, may not be
reviewed on appeal, unless the judgment of the CA depends on a misapprehension
of facts, which if properly considered, would justify a different conclusion.23 Such
exception however, is not applicable in this case.
The 29 October 2004 MeTC’s judgment, the RTC’s judgment, and the CA’s
decision are one in accord on the matters presented before this Court.
In general, corporations, whether stock or nonstock, are treated as separate
and distinct legal entities from the natural persons composing them. The privilege
of being considered a distinct and separate entity is confined to legitimate uses,
and is subject to equitable limitations to prevent its being exercised for fraudulent,
unfair or illegal purposes.24 However, once equitable limitations are breached using
the coverture of the corporate veil, courts may step in to pierce the same.
As we held in Lanuza, Jr. v. BF Corporation:25
Piercing the corporate veil is warranted when “[the separate personality of a
corporation] is used as a means to perpetrate fraud or an illegal act, or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues.” It is also warranted in alter ego cases “where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where
 the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another
corporation.”
When [the] corporate veil is pierced, the corporation and persons who are
normally treated as distinct from the corporation are treated as one person, such
that when the corporation is adjudged liable, these persons, too, become liable as if
they were the corporation.
The piercing of the corporate veil is premised on the fact that the corporation
concerned must have been properly served with summons or properly subjected to
the jurisdiction of the court a quo. Corollary thereto, it cannot be subjected to a
writ of execution meant for another in violation of its right to due process. 26
There exists, however, an exception to this rule: if it is shown “by clear and
convincing proof that the separate and distinct personality of the corporation was
purposefully employed to evade a legitimate and binding commitment and
perpetuate a fraud or like wrongdoings.”27
The resistance of the Court to offend the right to due process of a corporation
that is a nonparty in a main case, may disintegrate not only when its director,
officer, shareholder, trustee or member is a party to the main case, but when it
finds facts which show that piercing of the corporate veil is merited. 28
Thus, as the Court has already ruled, a party whose corporation is vulnerable
to piercing of its corporate veil cannot argue violation of due process. 29
In this case, the Court confirms the lower courts’ findings that Santos had an
existing obligation based on a court judgment that he owed monthly rentals and
unpaid realty taxes under a lease contract he entered into as lessee with the
Littons as lessor. He was not able to comply with this particular obligation, and in
fact, refused to comply therewith.
This Court agrees with the CA that Santos used I/AME as a means to defeat
judicial processes and to evade his obligation to Litton. 30 Thus, even while I/AME
was not impleaded in the main case and yet was so named in a writ of execution
to satisfy a court judgment against Santos, it is vulnerable to the piercing of its
corporate veil. We will further expound on this matter.
Piercing the Corporate
Veil may Apply to Non-
stock Corporations
Petitioner I/AME argues that the doctrine of piercing the corporate veil applies
only to stock corporations, and not to nonstock, nonprofit corporations such as
I/AME since there are no stockholders to hold liable in such a situation but instead
only members. Hence, they do not have investments or shares of stock or assets to
answer for possible liabilities. Thus, no one in a nonstock corporation can be held
liable in case the corporate veil is disregarded or pierced. 31
The CA disagreed. It ruled that since the law does not make a distinction
between a stock and nonstock corporation, neither should there be a distinction in
case the doctrine of piercing the veil of corporate fiction has to be applied. While
I/AME is an educational institution, the CA further ruled, it still is a registered
corporation conducting its affairs as such.32
This Court agrees with the CA.
In determining the propriety of applicability of piercing the veil of corporate
fiction, this Court, in a number of cases, did not put in issue whether a corporation
is a stock or nonstock corporation. In Sulo ng Bayan, Inc. v. Gregorio Araneta,
Inc.,33 we considered but ultimately refused to pierce the corporate veil of a
nonstock, nonprofit corporation which sought to institute an action for
reconveyance of real property on
behalf of its members. This Court held that the nonstock corporation had no
personality to institute a class suit on behalf of its members, considering that the
nonstock corporation was not an assignee or transferee of the real property in
question, and did not have an identity that was one and the same as its members.
In another case, this Court did not put in issue whether the corporation is a
nonstock, nonprofit, nongovernmental corporation in considering the application
of the doctrine of piercing of corporate veil. In Republic of the Philippines v.
Institute for Social Concern,34 while we did not allow the piercing of the corporate
veil, this Court affirmed the finding of the CA that the Chairman of the Institute
for Social Concern cannot be held jointly and severally liable with the aforesaid
non-governmental organization (NGO) at the time the Memorandum of Agreement
was entered into with the Philippine Government. We found no fraud in that case
committed by the Chairman that would have justified the piercing of the corporate
veil of the NGO.35
In the United States, from which we have adopted our law on corporations,
nonprofit corporations are not immune from the doctrine of piercing the corporate
veil. Their courts view piercing of the corporation as an equitable remedy, which
justifies said courts to scrutinize any organization however organized and in
whatever manner it operates. Moreover, control of ownership does not hinge on
stock ownership.
As held in Barineau v. Barineau:36
[t]he mere fact that the corporation involved is a nonprofit corporation does not by
itself preclude a court from applying the equitable remedy of piercing the corporate
veil. The equitable character of the remedy permits a court to look to the substance
of the organization, and its decision is not controlled by the statutory framework
under which the corporation was formed and operated. While it may appear to be
impossible for a person to exercise ownership control over a nonstock, not-for-profit
corporation, a person can be held personally liable under the alter ego theory if the
evidence shows that the person controlling the corporation did in fact exercise
control, even though there was no stock ownership.
In another U.S. case, Public Interest Bounty Hunters v. Board of Governors of
Federal Reserve System,37 the U.S. Court allowed the piercing of the corporate veil
of the Foundation headed by the plaintiff, in order to avoid inequitable results.
Plaintiff was found to be the sole trustee, the sole member of the board, and the
sole financial contributor to the Foundation. In the end, the Court found that the
plaintiff used the Foundation to avoid paying attorney’s fees.
The concept of equitable ownership, for stock or nonstock corporations, in
piercing of the corporate veil scenarios, may also be considered. An equitable owner
is an individual who is a non-shareholder defendant, who exercises sufficient
control or considerable authority over the corporation to the point of completely
disregarding the corporate form and acting as though its assets are his or her alone
to manage and distribute.38
 Given the foregoing, this Court sees no reason why a nonstock corporation such
as I/AME, may not be scrutinized for purposes of piercing the corporate veil or
fiction.
Piercing the Corpo-
rate Veil may Apply
to Natural Persons
The petitioner also insists that the piercing of the corporate veil cannot be
applied to a natural person — in this case, Santos — simply because as a human
being, he has no corporate veil shrouding or covering his person.39
a) When the Corporation is t represented himself as President of I/AME in the Deed of Absolute Sale when he
he Alter Ego of a Natural
Person
As cited in Sulo ng Bayan, Inc. v. Araneta, Inc.,40 “[t]he doctrine of alter ego is
based upon the misuse of a corporation by an individual for wrongful or
inequitable purposes, and in such case the court merely disregards the corporate
entity and holds the individual responsible for acts knowingly and intentionally
done in the name of the corporation.” This, Santos has done in this case. Santos
formed I/AME, using the nonstock corporation, to evade paying his judgment
creditor, Litton.
The piercing of the corporate veil may apply to corporations as well as natural
persons involved with corporations. This Court has held that the “corporate mask
may be lifted and the corporate veil may be pierced when a corporation is just but
the alter ego of a person or of another corporation.”41
We have considered a deceased natural person as one and the same with his
corporation to protect the succession rights of his legal heirs to his estate. In Cease
v. Court of Appeals,42 the predecessor-in-interest organized a close corporation
which acquired properties during its existence. When he died intestate, trouble
ensued amongst his children on whether or not to consider his company one and
the same with his person. The Court agreed with the trial court when it pierced
the corporate veil of the decedent’s corporation. It found that said corporation was
his business conduit and alter ego. Thus, the acquired properties were actually
properties of the decedent and as such, should be divided among the decedent’s
legitimate children in the partition of his estate.43
In another instance, this Court allowed the piercing of the corporate veil
against another natural person, in Arcilla v. Court of Appeals.44 The case stemmed
from a complaint for sum of money against Arcilla for his failure to pay his loan
from the private respondent. Arcilla, in his defense, alleged that the loan was in
the name of his family corporation, CSAR Marine Resources, Inc. He further
argued that the CA erred in holding CSAR Marine Resources liable to the private
respondent since the latter was not impleaded as a party in the case. This Court
allowed the piercing of the corporate veil and held that Arcilla used “his capacity
as President, x x x [as] a sanctuary for a defense x x x to avoid complying with the
liability adjudged against him x x x.’’45 We held that his liability remained attached
even if he was impleaded as a party, and not the corporation, to the collection case
and even if he ceased to be corporate president.46 Indeed, even if Arcilla had ceased
to be corporate president, he remained personally liable for the judgment debt to
pay his personal loan, for we treated him and the corporation as one and the same.
CSAR Marine was deemed his alter ego.
We find similarities with Arcilla and the instant case. Like Arcilla, Santos: (1)
was adjudged liable to pay on a judgment against him; (2) he became President of
a corporation; (3) he formed a corporation to conceal assets which were supposed
to pay for the judgment against his favor; (4) the corporation which has Santos as
its President, is being asked by the court to pay on the judgment; and (5) he may
not use as a defense that he is no longer President of I/AME (although a visit to
the website of the school shows he is the current President).47
This Court agrees with the CA that I/AME is the alter ego of Santos, and
Santos — the natural person — is the alter ego of I/AME. Santos falsely
bought the Makati real property, at a time when I/AME had not yet existed.
Uncontroverted facts in this case also reveal the findings of MeTC showing Santos
and I/AME as being one and the same person:
(1) Santos is the conceptualizer and implementor of I/AME;
(2) Santos’ contribution is P1,200,000.00 (One Million Two Hundred Thousand
Pesos) out of the P1,500,000.00 (One Million Five Hundred Thousand Pesos), making
him the majority contributor of I/AME; and
(3) The building being occupied by I/AME is named after Santos using his known
nickname (to date it is called, the “Noli Santos International Tower”).
48
This Court deems I/AME and Santos as alter egos of each other based on the
former’s own admission in its pleadings before the trial court. In its Answer (to
Amended Petition) with the RTC entitled Litton and Company, Inc. v. Hon.
Hernandez-Calledo, Civil Case No. 06-115547, I/AME admitted the allegations
found in paragraphs 2, 4 and 5 of the amended petition of Litton, particularly
paragraph number 4 which states:
4. Respondent, International Academy of Management and Economics
Inc. (hereinafter referred to as Respondent I/AME), is a corporation organized and
existing under Philippine laws with address at 1061 Metropolitan Avenue, San
Antonio Village, Makati City, where it may be served with summons and other
judicial processes. It is the corporate entity used by Respondent Santos as
his alter ego for the purpose of shielding his assets from the reach of his
creditors, one of which is herein Petitioner. (Emphases ours)
49
Hence, I/AME is the alter ego of the natural person, Santos, which the latter
used to evade the execution on the Makati property, thus frustrating the
satisfaction of the judgment won by Litton.
b) Reverse Piercing of
the Corporate Veil
This Court in Arcilla pierced the corporate veil of CSAR Marine Resources to
satisfy a money judgment against its erstwhile President, Arcilla.
We borrow from American parlance what is called reverse piercing or reverse
corporate piercing or piercing the corporate veil “in reverse.”
As held in the U.S. case, C.F. Trust, Inc., v. First Flight Limited
Partnership,50 “in a traditional veil-piercing action, a court disregards the existence
of the corporate entity so a claimant can reach the assets of a corporate insider. In is given the option to immediately choose which property or part thereof may be
a reverse piercing action, however, the plaintiff seeks to reach the assets of a levied upon to satisfy the judgment. If the judgment obligor does not exercise the
corporation to satisfy claims against a corporate insider.” option, personal properties, if any, shall be first levied and then on real properties
“Reverse piercing flows in the opposite direction (of traditional corporate veil- if the personal properties are deemed insufficient to answer for the judgment.58
piercing) and makes the corporation liable for the debt of the shareholders.”51
It has two (2) types: outsider reverse piercing and insider reverse piercing. In the instant case, it may be possible for this Court to recommend that Litton
Outsider reverse piercing occurs when a party with a claim against an individual run after the other properties of Santos that could satisfy the money judgment —
or corporation attempts to be repaid with assets of a corporation owned or first personal, then other real properties other than that of the school. However, if
substantially controlled by the defendant.52 In contrast, in insider reverse piercing, we allow this, we frustrate the decades — old yet valid MeTC’s judgment which
the controlling members will attempt to ignore the corporate fiction in order to levied on the real property now titled under the name of the school. Moreover, this
take advantage of a benefit available to the corporation, such as an interest in a Court will unwittingly condone the action of Santos in hiding all these years behind
lawsuit or protection of personal assets.53 the corporate form to evade paying his obligation under the judgment in the court a
Outsider reverse veil-piercing is applicable in the instant case. Litton, as quo. This we cannot countenance without being a party to the injustice.
judgment creditor, seeks the Court’s intervention to pierce the corporate veil of Thus, the reverse piercing of the corporate veil of I/AME to enforce the levy on
I/AME in order to make its Makati real property answer for a judgment against execution of the Makati real property where the school now stands is applied.
Santos, who formerly owned and still substantially controls I/AME. WHEREFORE, in view of the foregoing, the instant petition is DENIED. The
In the U.S. case Acree v. McMahan,54 the American court held that “[o]utsider CA’s Decision in C.A.-G.R. S.P. No. 107727 dated 30 October 2009 and its
reverse veil-piercing extends the traditional veil-piercing doctrine to permit a Resolution on 12 March 2010 are hereby AFFIRMED. The MeTC’s Order dated
third-party creditor to pierce the veil to satisfy the debts of an individual out of the 29 October 2004 is hereby REINSTATED.
corporation’s assets.” Accordingly, the MeTC of Manila, Branch 2, is hereby DIRECTED to execute
The Court has pierced the corporate veil in a reverse manner in the instances with dispatch the MeTC’s Order dated 29 October 2004 against Santos.
when the scheme was to avoid corporate assets to be included in the estate of a SO ORDERED.
decedent as in the Cease case and when the corporation was used to escape a Leonardo-De Castro, Del Castillo, Jardeleza and Tijam, JJ., concur.
judgment to pay a debt as in the Arcilla case.
In a 1962 Philippine case, this Court also employed what we now call reverse Petition denied, judgment and resolution affirmed.
piercing of the corporate veil. In Palacio v. Fely Transportation Co.,55 we found that
the president and general manager of the private respondent company formed the
corporation to evade his subsidiary civil liability resulting from the conviction of
his driver who ran over the child of the petitioner, causing injuries and medical
expenses. The Court agreed with the plaintiffs that the president and general
manager, and Fely Transportation, may be regarded as one and the same person.
Thus, even if the president and general manager was not a party to the case, we
reversed the lower court and declared both him and the private respondent
company, jointly and severally liable to the plaintiffs. Thus, this Court allowed the
outsider-plaintiffs to pierce the corporate veil of Fely Transportation to run after
its corporate assets and pay the subsidiary civil liability of the company’s president
and general manager.
This notwithstanding, the equitable remedy of reverse corporate piercing or
reverse piercing was not meant to encourage a creditor’s failure to undertake such
remedies that could have otherwise been available, to the detriment of other
creditors.56
Reverse corporate piercing is an equitable remedy which if utilized cavalierly,
may lead to disastrous consequences for both stock and nonstock corporations. We
are aware that ordinary judgment collection procedures or other legal remedies
are preferred over that which would risk damage to third parties (for instance,
innocent stockholders or voluntary creditors) with unprotected interests in the
assets of the beleaguered corporation.57
Thus, this Court would recommend the application of the current 1997 Rules
on Civil Procedure on Enforcement of Judgments. Under the current Rules of
Court on Civil Procedure, when it comes to satisfaction by levy, a judgment obligor
G.R. No. 126200 August 16, 2001
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL
SALES CORPORATION, respondents.
KAPUNAN, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court, seeking a review of the Decision of the Court of Appeals dated October 6,
1995 and the Resolution of the same court dated August 29, 1996.
The facts are as follows:
Marinduque Mining-Industrial Corporation (Marinduque Mining), a corporation
engaged in the manufacture of pure and refined nickel, nickel and cobalt in mixed
sulfides; copper ore/concentrates, cement and pyrite conc., obtained from the
Philippine National Bank (PNB) various loan accommodations. To secure the
loans, Marinduque Mining executed on October 9, 1978 a Deed of Real Estate
Mortgage and Chattel Mortgage in favor of PNB. The mortgage covered all of
Marinduque Mining's real properties, located at Surigao del Norte, Sipalay,
Negros Occidental, and at Antipolo, Rizal, including the improvements thereon. As
of November 20, 1980, the loans extended by PNB amounted to P4 Billion,
exclusive of interest and charges.1
On July 13, 1981, Marinduque Mining executed in favor of PNB and the
Development Bank of the Philippines (DBP) a second Mortgage Trust Agreement.
In said agreement, Marinduque Mining mortgaged to PNB and DBP all its real
properties located at Surigao del Norte, Sipalay, Negros Occidental, and Antipolo,
Rizal, including the improvements thereon. The mortgage also covered all of
Marinduque Mining's chattels, as well as assets of whatever kind, nature and
description which Marinduque Mining may subsequently acquire in substitution
or replenishment or in addition to the properties covered by the previous Deed of
Real and Chattel Mortgage dated October 7, 1978. Apparently, Marinduque
Mining had also obtained loans totaling P2 Billion from DBP, exclusive of interest
and charges.2
On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an
Amendment to Mortgage Trust Agreement by virtue of which Marinduque Mining
mortgaged in favor of PNB and DBP all other real and personal properties and
other real rights subsequently acquired by Marinduque Mining.3
For failure of Marinduque Mining to settle its loan obligations, PNB and DBP
instituted sometime on July and August 1984 extrajudicial foreclosure proceedings
over the mortgaged properties.
The events following the foreclosure are narrated by DBP in its petition, as follows:
In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP
emerged and were declared the highest bidders over the foreclosed real properties,
buildings, mining claims, leasehold rights together with the improvements thereon
as well as machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel
Refinery Plant at Surigao del Norte for a bid price of P14,238,048,150.00 [and]
[o]ver the foreclosed chattels of MMIC located at Nonoc Refinery Plant at Surigao
del Norte, PNB and DBP as highest bidders, bidded for P170,577,610.00 (Exhs. "5"
to "5-A", "6", "7" to "7-AA-" PNB/DBP). For the foreclosed real properties together
with all the buildings, major machineries & equipment and other improvements of
MMIC located at Antipolo, Rizal, likewise held on August 31, 1984, were sold to
PNB and DBP as highest bidders in the sum of P1,107,167,950.00 (Exhs. "10" to
"10-X"-PNB/ DBP).
At the auction sale conducted on September 7, 1984[,] over the foreclosed real
properties, buildings, & machineries/equipment of MMIC located at Sipalay,
Negros Occidental were sold to PNB and DBP, as highest bidders, in the amount
of P2,383,534,000.00 and P543,040.000.00 respectively (Exhs. "8" to "8-BB", "9" to
"90-GGGGGG"-PNB/DBP).
Finally, at the public auction sale conducted on September 18, 1984 on the
foreclosed personal properties of MMIC, the same were sold to PNB and DBP as
the highest bidder in the sum of P678,772,000.00 (Exhs. "11" and "12-QQQQQ"-
PNB).
PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984,
purposely, in order to ensure the continued operation of the Nickel refinery plant
and to prevent the deterioration of the assets foreclosed, assigned and transferred
to Nonoc Mining and Industrial Corporation all their rights, interest and
participation over the foreclosed properties of MMIC located at Nonoc Island,
Surigao del Norte for an initial consideration of P14,361,000,000.00 (Exh. "13"-
PNB).
Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned
and transferred in favor of Maricalum Mining Corp. all its rights, interest and
participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental
for an initial consideration of P325,800,000.00 (Exh. "14"-PNB/DBP).
On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as
amended, again assigned, transferred and conveyed to the National Government
thru [sic] the Asset Privatization Trust (APT) all its existing rights and interest
over the assets of MMIC, earlier assigned to Nonoc Mining and Industrial
Corporation, Maricalum Mining Corporation and Island Cement Corporation
(Exh. "15" & "15-A" PNB/DBP).4
In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining
purchased and caused to be delivered construction materials and other
merchandise from Remington Industrial Sales Corporation (Remington) worth
P921,755.95. The purchases remained unpaid as of August 1, 1984 when
Remington filed a complaint for a sum of money and damages against Marinduque
Mining for the value of the unpaid construction materials and other merchandise
purchased by Marinduque Mining, as well as interest, attorney's fees and the costs
of suit.
On September 7, 1984, Remington's original complaint was amended to include
PNB and DBP as co-defendants in view of the foreclosure by the latter of the real
and chattel mortgages on the real and personal properties, chattels, mining claims,
machinery, equipment and other assets of Marinduque Mining.5
On September 13, 1984, Remington filed a second amended complaint to include
as additional defendant, the Nonoc Mining and Industrial Corporation (Nonoc
Mining). Nonoc Mining is the assignee of all real and personal properties, chattels,
machinery, equipment and all other assets of Marinduque Mining at its Nonoc
Nickel Factory in Surigao del Norte.6
On March 26, 1986, Remington filed a third amended complaint including the
Maricalum Mining Corporation (Maricalum Mining) and Island Cement
Corporation (Island Cement) as co-defendants. Remington asserted that
Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and Island
Cement must be treated in law as one and the same entity by disregarding the veil
of corporate fiction since:
1. Co-defendants NMIC, Maricalum and Island Cement which are newly created
entities are practically owned wholly by defendants PNB and DBP, and managed
by their officers, aside from the fact that the aforesaid co-defendants NMIC,
Maricalum and Island Cement were organized in such a hurry and in such
suspicious circumstances by co-defendants PNB and DBP after the supposed
extrajudicial foreclosure of MMIC's assets as to make their supposed projects
assets, machineries and equipment which were originally owned by co-defendant
MMIC beyond the reach of creditors of the latter.
2. The personnel, key officers and rank-and-file workers and employees of co-
defendants NMIC, Maricalum and Island Cement creations of co-defendants PNB
and DBP were the personnel of co-defendant MMIC such that . . . practically there
has only been a change of name for all legal purpose and intents
3. The places of business not to mention the mining claims and project premises of
co-defendants NMIC, Maricalum and Island Cement likewise used to be the places
of business, mining claims and project premises of co-defendant MMIC as to make
the aforesaid co-defendants NMIC, Maricalum and Island Cement mere adjuncts
and subsidiaries of co-defendants PNB and DBP, and subject to their control and
management.
On top of everything, co-defendants PNB, DBP NMIC, Maricalum and Island
Cement being all corporations created by the government in the pursuit of business
ventures should not be allowed to ignore, x x x or obliterate with impunity nay
illegally, the financial obligations of x x x MMIC whose operations co-defendants
PNB and DBP had highly financed before the alleged extrajudicial foreclosure of
defendant MMIC's assets, machineries and equipment to the extent that major
policies of co-defendant MMIC were being decided upon by co-defendants PNB and
DBP as major financiers who were represented in its board of directors forming
part of the majority thereof which through the alleged extrajudicial foreclosure
culminated in a complete take-over by co-defendants PNB and DBP bringing about
the organization of their co-defendants NMIC, Maricalum and Island Cement to
which were transferred all the assets, machineries and pieces of equipment of co-
defendant MMIC used in its nickel mining project in Surigao del Norte, copper
mining operation in Sipalay, Negros Occidental and cement factory in Antipolo,
Rizal to the prejudice of creditors of co-defendant MMIC such as plaintiff
Remington Industrial Sales Corporation whose stockholders, officers and rank-
and-file workers in the legitimate pursuit of its business activities, invested
considerable time, sweat and private money to supply, among others, co-defendant
MMIC with some of its vital needs for its operation, which co-defendant MMIC
during the time of the transactions material to this case became x x x co-defendants
PNB and DBP's instrumentality, business conduit, alter ego, agency (sic),
subsidiary or auxiliary corporation, by virtue of which it becomes doubly necessary
to disregard the corporation fiction that co-defendants PNB, DBP, MMIC, NMIC,
Maricalum and Island Cement, six (6) distinct and separate entities, when in fact
and in law, they should be treated as one and the same at least as far as plaintiff's
transactions with co-defendant MMIC are concerned, so as not to defeat public
convenience, justify wrong, subvert justice, protect fraud or confuse legitimate
issues involving creditors such as plaintiff, a fact which all defendants were as (sic)
still are aware of during all the time material to the transactions subject of this
case.7
On April 3, 1989, Remington filed a motion for leave to file a fourth amended
complaint impleading the Asset Privatization Trust (APT) as co-defendant. Said
fourth amended complaint was admitted by the lower court in its Order dated April
29, 1989.
On April 10, 1990, the Regional Trial Court (RTC) rendered a decision in favor of
Remington, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the
defendants Marinduque Mining & Industrial Corporation, Philippine National
Bank, Development Bank of the Philippines, Nonoc Mining and Industrial
Corporation, Maricalum Mining Corporation, Island Cement Corporation and
Asset Privatization Trust to pay, jointly and severally, the sum of P920,755.95,
representing the principal obligation, including the stipulated interest as of June
22, 1984, plus ten percent (10%) surcharge per annum by way of penalty, until the
amount is fully paid; the sum equivalent to 10% of the amount due as and for
attorney's fees; and to pay the costs.8
Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement and
APT, the Court of Appeals, in its Decision dated October 6, 1995, affirmed the
decision of the RTC. Petitioner filed a Motion for Reconsideration, which was
denied in the Resolution dated August 29, 1996.
Hence, this petition, DBP maintaining that Remington has no cause of action
against it or PNB, nor against their transferees, Nonoc Mining, Island Cement,
Maricalum Mining, and the APT.
On the other hand, private respondent Remington submits that the transfer of the
properties was made in fraud of creditors. The presence of fraud, according to
Remington, warrants the piercing of the corporate veil such that Marinduque
Mining and its transferees could be considered as one and the same corporation.
The transferees, therefore, are also liable for the value of Marinduque Mining's
purchases.
In Yutivo Sons Hardware vs. Court of Tax Appeals,9 cited by the Court of Appeals
in its decision,10 this Court declared:
It is an elementary and fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. However, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an association of persons or in case of
two corporations, merge them into one". (Koppel [Phils.], Inc., vs. Yatco, 71 Phil.
496, citing 1 Fletcher Encyclopedia of Corporation, Permanent Ed., pp. 135-136;
U.S. vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.).
x x x.
In accordance with the foregoing rule, this Court has disregarded the separate
personality of the corporation where the corporate entity was used to escape
liability to third parties.11 In this case, however, we do not find any fraud on the
part of Marinduque Mining and its transferees to warrant the piercing of the
corporate veil.
It bears stressing that PNB and DBP are mandated to foreclose on the mortgage
when the past due account had incurred arrearages of more than 20% of the total
outstanding obligation. Section 1 of Presidential Decree No. 385 (The Law on
Mandatory Foreclosure) provides:
It shall be mandatory for government financial institutions, after the lapse of sixty
(60) days from the issuance of this decree, to foreclose the collateral and/or
securities for any loan, credit accommodation, and/or guarantees granted by them
whenever the arrearages on such account, including accrued interest and other
charges, amount to at least twenty percent (20%) of the total outstanding
obligations, including interest and other charges, as appearing in the books of
account and/or related records of the financial institution concerned. This shall be
without prejudice to the exercise by the government financial institution of such
rights and/or remedies available to them under their respective contracts with
their debtors, including the right to foreclose on loans, credits, accommodations
and/or guarantees on which the arrearages are less than twenty (20%) percent.
Thus, PNB and DBP did not only have a right, but the duty under said law, to
foreclose upon the subject properties. The banks had no choice but to obey the
statutory command.
The import of this mandate was lost on the Court of Appeals, which reasoned that
under Article 19 of the Civil Code, "Every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith." The appellate court, however, did not point to any
fact evidencing bad faith on the part of the Marinduque Mining and its transferees.
Indeed, it skirted the issue entirely by holding that the question of actual
fraudulent intent on the part of the interlocking directors of DBP and Marinduque
Mining was irrelevant because:
As aptly stated by the appellee in its brief, "x x x where the corporations have
directors and officers in common, there may be circumstances under which their
interest as officers in one company may disqualify them in equity from
representing both corporations in transactions between the two. Thus, where one
corporation was 'insolvent and indebted to another, it has been held that the
directors of the creditor corporation were disqualified, by reason of self-interest,
from acting as directors of the debtor corporation in the authorization of a
mortgage or deed of trust to the former to secure such indebtedness x x x" (page
105 of the Appellee's Brief). In the same manner that "x x x when the corporation
is insolvent, its directors who are its creditors can not secure to themselves any
advantage or preference over other creditors. They can not thus take advantage of
their fiduciary relation and deal directly with themselves, to the injury of others
in equal right. If they do, equity will set aside the transaction at the suit of
creditors of the corporation or their representatives, without reference to the
question of any actual fraudulent intent on the part of the directors, for the right
of the creditors does not depend upon fraud in fact, but upon the violation of the
fiduciary relation to the directors." x x x (page 106 of the Appellee's Brief)
We also concede that "x x x directors of insolvent corporation, who are creditors of
the company, can not secure to themselves any preference or advantage over other
creditors in the payment of their claims. It is not good morals or good law. The
governing body of officers thereof are charged with the duty of conducting its
affairs strictly in the interest of its existing creditors, and it would be a breach of
such trust for them to undertake to give any one of its members any advantage
over any other creditors in securing the payment of his debts in preference to all
others. When validity of these mortgages, to secure debts upon which the directors
were indorsers, was questioned by other creditors of the corporation, they should
have been classed as instruments rendered void by the legal principle which
prevents directors of an insolvent corporation from giving themselves a preference
over outside creditors. x x x" (page 106-107 of the Appellee's Brief.)12
The Court of Appeals made reference to two principles in corporation law. The first
pertains to transactions between corporations with interlocking directors resulting
in the prejudice to one of the corporations. This rule does not apply in this case,
however, since the corporation allegedly prejudiced (Remington) is a third party,
not one of the corporations with interlocking directors (Marinduque Mining and
DBP).
The second principle invoked by respondent court involves "directors x x x who are
creditors" which is also inapplicable herein. Here, the creditor of Marinduque
Mining is DBP, not the directors of Marinduque Mining.
Neither do we discern any bad faith on the part of DBP by its creation of Nonoc
Mining, Maricalum and Island Cement. As Remington itself concedes, DBP is not
authorized by its charter to engage in the mining business.13 The creation of the
three corporations was necessary to manage and operate the assets acquired in the
foreclosure sale lest they deteriorate from non-use and lose their value. In the
absence of any entity willing to purchase these assets from the bank, what else
would it do with these properties in the meantime? Sound business practice
required that they be utilized for the purposes for which they were intended.
Remington also asserted in its third amended complaint that the use of Nonoc
Mining, Maricalum and Island Cement of the premises of Marinduque Mining and
the hiring of the latter's officers and personnel also constitute badges of bad faith.
Assuming that the premises of Marinduque Mining were not among those acquired
by DBP in the foreclosure sale, convenience and practicality dictated that the
corporations so created occupy the premises where these assets were found instead
of relocating them. No doubt, many of these assets are heavy equipment and it
may have been impossible to move them. The same reasons of convenience and
practicality, not to mention efficiency, justified the hiring by Nonoc Mining,
Maricalum and Island Cement of Marinduque Mining's personnel to manage and
operate the properties and to maintain the continuity of the mining operations.
To reiterate, the doctrine of piercing the veil of corporate fiction applies only when
such corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime.14 To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. It
cannot be presumed.15 In this case, the Court finds that Remington failed to
discharge its burden of proving bad faith on the part of Marinduque Mining and
its transferees in the mortgage and foreclosure of the subject properties to justify
the piercing of the corporate veil.
The Court of Appeals also held that there exists in Remington's favor a "lien" on
the unpaid purchases of Marinduque Mining, and as transferee of these purchases,
DBP should be held liable for the value thereof.
In the absence of liquidation proceedings, however, the claim of Remington cannot
be enforced against DBP. Article 2241 of the Civil Code provides:
ARTICLE 2241. With reference to specific movable property of the debtor, the
following claims or liens shall be preferred:
xxx xxx xxx
(3) Claims for the unpaid price of movables sold, on said movables, so long as they
are in the possession of the debtor, up to the value of the same; and if the movable
has been resold by the debtor and the price is still unpaid, the lien may be enforced
on the price; this right is not lost by the immobilization of the thing by destination,
provided it has not lost its form, substance and identity, neither is the right lost
by the sale of the thing together with other property for a lump sum, when the
price thereof can be determined proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged are in the hands
of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged
or mortgaged, up to the value thereof;
xxx xxx xxx
In Barretto vs. Villanueva,16 the Court had occasion to construe Article 2242,
governing claims or liens over specific immovable property. The facts that gave
rise to the case were summarized by this Court in its resolution as follows:
x x x Rosario Cruzado sold all her right, title, and interest and that of her children
in the house and lot herein involved to Pura L. Villanueva for P19,000.00. The
purchaser paid P1,500 in advance, and executed a promissory note for the balance
of P17,500.00. However, the buyer could only pay P5,500 on account of the note,
for which reason the vendor obtained judgment for the unpaid balance. In the
meantime, the buyer Villanueva was able to secure a clean certificate of title (No.
32626), and mortgaged the property to appellant Magdalena C. Barretto, married
to Jose C. Baretto, to secure a loan of P30,000.03, said mortgage having been duly
recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter
foreclosed the mortgage in her favor, obtained judgment, and upon its becoming
final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a
motion for recognition for her "vendor's lien" in the amount of P12,000.00, plus
legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After
hearing, the court below ordered the "lien" annotated on the back of Certificate of
Title No. 32526, with the proviso that in case of sale under the foreclosure decree
the vendor's lien and the mortgage credit of appellant Barretto should be paid pro
rata from the proceeds. Our original decision affirmed this order of the Court of
First Instance of Manila.
In its decision upholding the order of the lower court, the Court ratiocinated thus:
Article 2242 of the new Civil Code enumerates the claims, mortgages and liens
that constitute an encumbrance on specific immovable property, and among them
are:
"(2) For the unpaid price of real property sold, upon the immovable sold"; and
"(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with
respect to the same specific real property or real rights, they shall be satisfied pro-
rata, after the payment of the taxes and assessments upon the immovable property
or real rights."
Application of the above-quoted provisions to the case at bar would mean that the
herein appellee Rosario Cruzado as an unpaid vendor of the property in question
has the right to share pro-rata with the appellants the proceeds of the foreclosure
sale.
xxx xxx xxx
As to the point made that the articles of the Civil Code on concurrence and
preference of credits are applicable only to the insolvent debtor, suffice it to say
that nothing in the law shows any such limitation. If we are to interpret this
portion of the Code as intended only for insolvency cases, then other creditor-
debtor relationships where there are concurrence of credits would be left without
any rules to govern them, and it would render purposeless the special laws on
insolvency.17
Upon motion by appellants, however, the Court reconsidered its decision. Justice
J.B.L. Reyes, speaking for the Court, explained the reasons for the reversal:
A. The previous decision failed to take fully into account the radical changes
introduced by the Civil Code of the Philippines into the system of priorities among
creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to
specific real property under Article 1923 were to be resolved according to an order
of priorities established by Article 1927, whereby one class of creditors could
exclude the creditors of lower order until the claims of the former were fully
satisfied out of the proceeds of the sale of the real property subject of the
preference, and could even exhaust proceeds if necessary.
Under the system of the Civil Code of the Philippines, however, only taxes enjoy a
similar absolute preference. All the remaining thirteen classes of preferred
creditors under Article 2242 enjoy no priority among themselves, but must be
paid pro rata, i.e., in proportion to the amount of the respective credits. Thus,
Article 2249 provides:
Although Barretto involved specific immovable property, the ruling therein should
apply equally in this case where specific movable property is involved. As the
extrajudicial foreclosure instituted by PNB and DBP is not the liquidation
proceeding contemplated by the Civil Code, Remington cannot claim its pro rata
share from DBP.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals
dated October 6, 1995 and its Resolution promulgated on August 29, 1996 is
REVERSED and SET ASIDE. The original complaint filed in the Regional Trial
Court in CV Case No. 84-25858 is hereby DISMISSED.

"If there are two or more credits with respect to the same specific real property or SO ORDERED.
real rights, they shall be satisfied pro rata, after the payment of the taxes and
assessments upon the immovable property or real rights."

But in order to make this prorating fully effective, the preferred creditors
enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits
outstanding) must necessarily be convened, and the import of their claims
ascertained. It is thus apparent that the full application of Articles 2249 and 2242
demands that there must be first some proceeding where the claims of all the
preferred creditors may be bindingly adjudicated, such as insolvency, the
settlement of decedent's estate under Rule 87 of the Rules of Court, or other
liquidation proceedings of similar import.

This explains the rule of Article 2243 of the new Civil Code that —

"The claims or credits enumerated in the two preceding articles shall be considered
as mortgages or pledges of real or personal property, or liens within the purview
of legal provisions governing insolvency x x x (Italics supplied).

And the rule is further clarified in the Report of the Code Commission, as follows

"The question as to whether the Civil Code and the Insolvency Law can be
harmonized is settled by this Article (2243). The preferences named in Articles
2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the
Insolvency Law." (Italics supplied)

Thus, it becomes evident that one preferred creditor's third-party claim to the
proceeds of a foreclosure sale (as in the case now before us) is not the proceeding
contemplated by law for the enforcement of preferences under Article 2242, unless
the claimant were enforcing a credit for taxes that enjoy absolute priority. If none
of the claims is for taxes, a dispute between two creditors will not enable the Court
to ascertain the pro rata dividend corresponding to each, because the rights of the
other creditors likewise enjoying preference under Article 2242 can not be
ascertained. Wherefore, the order of the Court of First Instance of Manila now
appealed from, decreeing that the proceeds of the foreclosure sale be apportioned
only between appellant and appellee, is incorrect, and must be reversed.
[Emphasis supplied]

The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr.,
etc., et al.,18 and in two cases both entitled Development Bank of the Philippines
vs. NLRC.19
G.R. No. 51765 March 3, 1997
REPUBLIC PLANTERS BANK, petitioner,
vs.
HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court of First
Instance of Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO
REALTY & DEVELOPMENT CORPORATION and ADALIA F.
ROBES, respondents.
HERMOSISIMA, JR., J.:
This is a petition for certiorari seeking the annulment of the Decision1 of the then
Court of First Instance of Rizal2 for having been rendered in grave abuse of
discretion. Private respondents Robes-Francisco Realty and Development
Corporation (hereafter, "the Corporation") and Adalia F. Robes filed in the court a
quo, an action for specific performance to compel petitioner to redeem 800
preferred shares of stock with a face value of P8,000.00 and to pay 1% quarterly
interest thereon as quarterly dividend owing them under the terms and conditions
of the certificates of stock.
The court a quo rendered judgment in favor of private respondents; hence, this
instant petition.
Herein parties debate only legal issues, no issues of fact having been raised by
them in the court a quo. For ready reference, however, the following narration of
pertinent transactions and events is in order:
On September 18, 1961, private respondent Corporation secured a loan from
petitioner in the amount of P120,000.00. As part of the proceeds of the loan,
preferred shares of stocks were issued to private respondent Corporation, through
its officers then, private respondent Adalia F. Robes and one Carlos F. Robes. In
other words, instead of giving the legal tender totaling to the full amount of the
loan, which is P120,000.00, petitioner lent such amount partially in the form of
money and partially in the form of stock certificates numbered 3204 and 3205, each
for 400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a
total of P8,000.00. Said stock certificates were in the name of private respondent
Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his
shares in favor of Adalia F. Robes.
Said certificates of stock bear the following terms and conditions:
The Preferred Stock shall have the following rights, preferences, qualifications and
limitations, to wit:
1. Of the right to receive a quarterly dividend of One Per Centum (1%), cumulative
and participating.
xxx xxx xxx
2. That such preferred shares may be redeemed, by the system of drawing lots, at
any time after two (2) years from the date of issue at the option of the Corporation.
...
On January 31, 1979, private respondents proceeded against petitioner and filed
a Complaint anchored on private respondents' alleged rights to collect dividends
under the preferred shares in question and to have petitioner redeem the same
under the terms and conditions of the stock certificates. Private respondents
attached to their complaint, a letter-demand dated January 5, 1979 which,
significantly, was not formally offered in evidence.
Petitioner filed a Motion to Dismiss3 private respondents' Complaint on the
following grounds: (1) that the trial court had no jurisdiction over the subject-
matter of the action; (2) that the action was unenforceable under substantive law;
and (3) that the action was barred by the statute of limitations and/or laches.
Petitioner's Motion to Dismiss was denied by the trial court in an Order dated
March 16, 1979.4 Petitioner then filed its Answer on May 2, 1979. 5 Thereafter,
the trial court gave the parties ten (10) days from July 30, 1979 to submit their
respective memoranda after the submission of which the case would be deemed
submitted for resolution.6
On September 7, 1979, the trial court rendered the herein assailed decision in favor
of private respondents. In ordering petitioner to pay private respondents the face
value of the stock certificates as redemption price, plus 1% quarterly interest
thereon until full payment, the trial court ruled:
There being no issue of fact raised by either of the parties who filed their respective
memoranda delineating their respective contentions, a judgment on the pleadings,
conformably with an earlier order of the Court, appears to be in order.
From a further perusal of the pleadings, it appears that the provision of the stock
certificates in question to the effect that the plaintiffs shall have the right to
receive a quarterly dividend of One Per Centum (1%), cumulative and
participating, clearly and unequivocably [sic] indicates that the same are "interest
bearing stocks" which are stocks issued by a corporation under an agreement to
pay a certain rate of interest thereon (5 Thompson, Sec. 3439). As such, plaintiffs
become entitled to the payment thereof as a matter of right without necessity of a
prior declaration of dividend.
On the question of the redemption by the defendant of said preferred shares of
stock, the very wordings of the terms and conditions in said stock certificates
clearly allows the same.
To allow the herein defendant not to redeem said preferred shares of stock and/or
pay the interest due thereon despite the clear import of said provisions by the mere
invocation of alleged Central Bank Circulars prohibiting the same is tantamount
to an impairment of the obligation of contracts enshrined in no less than the
fundamental law itself.
Moreover, the herein defendant is considered in estoppel from taking shelter
behind a General Banking Act provision to the effect that it cannot buy its own
shares of stocks considering that the very terms and conditions in said stock
certificates allowing their redemption are its own handiwork.
As to the claim by the defendant that plaintiffs' cause of action is barred by
prescription, suffice it to state that the running of the prescriptive period was
considered interrupted by the written extrajudicial demands made by the plaintiffs
from the defendant.7
Aggrieved by the decision of the trial court, petitioner elevated the case before us
essentially on pure questions of law. Petitioner's statement of the issues that it
submits for us to adjudicate upon, is as follows:
A. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ORDERING
PETITIONER TO PAY RESPONDENT ADALIA F. ROBES THE AMOUNT OF
P8213.69 AS INTERESTS FROM 1961 TO 1979 ON HER PREFERRED SHARES.
B. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ORDERING
PETITIONER TO REDEEM RESPONDENT ADALIA F. ROBES' PREFERRED
SHARES FOR P8,000.00.
C. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DISREGARDING
THE ORDER OF THE CENTRAL BANK TO PETITIONER TO DESIST FROM
REDEEMING ITS PREFERRED SHARES AND FROM PAYING DIVIDENDS
THEREON . . . .
D. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE COMPLAINT
DOES NOT STATE A CAUSE OF ACTION.
E. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE CLAIM OF
RESPONDENT ADALIA F. ROBES IS BARRED BY PRESCRIPTION OR
LACHES. 8
The petition is meritorious.
Before passing upon the merits of this petition, it may be pertinent to provide an
overview on the nature of preferred shares and the redemption thereof, considering
that these issues lie at the heart of the dispute.
A preferred share of stock, on one hand, is one which entitles the holder thereof to
certain preferences over the holders of common stock. The preferences are designed
to induce persons to subscribe for shares of a corporation.9 Preferred shares take
a multiplicity of forms. The most common forms may be classified into two: (1)
preferred shares as to assets; and (2) preferred shares as to dividends. The former
is a share which gives the holder thereof preference in the distribution of the assets
of the corporation in case of liquidation; 10 the latter is a share the holder of which
is entitled to receive dividends on said share to the extent agreed upon before any
dividends at all are paid to the holders of common stock. 11 There is no guaranty,
however, that the share will receive any dividends. Under the old Corporation Law
in force at the time the contract between the petitioner and the private respondents
was entered into, it was provided that "no corporation shall make or declare any
dividend except from the surplus profits arising from its business, or distribute its
capital stock or property other than actual profits among its members or
stockholders until after the payment of its debts and the termination of its
existence by limitation or lawful dissolution." 12 Similarly, the present
Corporation Code 13 provides that the board of directors of a stock corporation may
declare dividends only out of unrestricted retained earnings. 14 The Code, in
Section 43, adopting the change made in accounting terminology, substituted the
phrase "unrestricted retained earnings," which may be a more precise term, in
place of "surplus profits arising from its business" in the former law. Thus, the
declaration of dividends is dependent upon the availability of surplus profit or
unrestricted retained earnings, as the case may be. Preferences granted to
preferred stockholders, moreover, do not give them a lien upon the property of the
corporation nor make them creditors of the corporation, the right of the former
being always subordinate to the latter. Dividends are thus payable only when there
are profits earned by the corporation and as a general rule, even if there are
existing profits, the board of directors has the discretion to determine whether or
not dividends are to be declared. 15 Shareholders, both common and preferred, are
considered risk takers who invest capital in the business and who can look only to
what is left after corporate debts and liabilities are fully paid. 16
Redeemable shares, on the other hand, are shares usually preferred, which by
their terms are redeemable at a fixed date, or at the option of either issuing
corporation, or the stockholder, or both at a certain redemption price.17 A
redemption by the corporation of its stock is, in a sense, a repurchase of it for
cancellation. 18 The present Code allows redemption of shares even if there are no
unrestricted retained earnings on the books of the corporation. This is a new
provision which in effect qualifies the general rule that the corporation cannot
purchase its own shares except out of current retained earnings. 19 However,
while redeemable shares may be redeemed regardless of the existence of
unrestricted retained earnings, this is subject to the condition that the corporation
has, after such redemption, assets in its books to cover debts and liabilities
inclusive of capital stock. Redemption, therefore, may not be made where the
corporation is insolvent or if such redemption will cause insolvency or inability of
the corporation to meet its debts as they mature. 20
We come now to the merits of the case. The petitioner argues that it cannot be
compelled to redeem the preferred shares issued to the private respondent. We
agree. Respondent judge, in ruling that petitioner must redeem the shares in
question, stated that:
On the question of the redemption by the defendant of said preferred shares of
stock, the very wordings of the terms and conditions in said stock certificates
clearly allows the same. 21
What respondent judge failed to recognize was that while the stock certificate does
allow redemption, the option to do so was clearly vested in the petitioner bank. The
redemption therefore is clearly the type known as "optional". Thus, except as
otherwise provided in the stock certificate, the redemption rests entirely with the
corporation and the stockholder is without right to either compel or refuse the
redemption of its stock. 22 Furthermore, the terms and conditions set forth therein
use the word "may". It is a settled doctrine in statutory construction that the word
"may" denotes discretion, and cannot be construed as having a mandatory effect.
We fail to see how respondent judge can ignore what, in his words, are the "very
wordings of the terms and conditions in said stock certificates" and construe what
is clearly a mere option to be his legal basis for compelling the petitioner to redeem
the shares in question.
The redemption of said shares cannot be allowed. As pointed out by the petitioner, eighteen years. The same clearly indicates that the right of the private respondents
the Central Bank made a finding that said petitioner has been suffering from to any relief under the law has already prescribed. Moreover, the claim of the
chronic reserve deficiency, 23 and that such finding resulted in a directive, issued private respondents is also barred by laches. Laches has been defined as the failure
on January 31, 1973 by then Gov. G.S. Licaros of the Central Bank, to the or neglect, for an unreasonable length of time, to do that which by exercising due
President and Acting Chairman of the Board of the petitioner bank prohibiting the diligence could or should have been done earlier; it is negligence or omission to
latter from redeeming any preferred share, on the ground that said redemption assert a right within a reasonable time, warranting a presumption that the party
would reduce the assets of the Bank to the prejudice of its depositors and entitled to assert it either has abandoned it or declined to assert it. 28
creditors. 24 Redemption of preferred shares was prohibited for a just and valid
reason. The directive issued by the Central Bank Governor was obviously meant Considering that the terms and conditions set forth in the stock certificate clearly
to preserve the status quo, and to prevent the financial ruin of a banking indicate that redemption of the preferred shares may be made at any time after
institution that would have resulted in adverse repercussions, not only to its the lapse of two years from the date of issue, private respondents should have
depositors and creditors, but also to the banking industry as a whole. The directive, taken it upon themselves, after the lapse of the said period, to inquire from the
in limiting the exercise of a right granted by law to a corporate entity, may thus petitioner the reason why the said shares have not been redeemed. As it is, not
be considered as an exercise of police power. The respondent judge insists that the only two years had lapsed, as agreed upon, but an additional sixteen years passed
directive constitutes an impairment of the obligation of contracts. It has, however, before the private respondents saw it fit to demand their right. The petitioner, at
been settled that the Constitutional guaranty of non-impairment of obligations of the time it issued said preferred shares to the private respondents in 1961, could
contract is limited by the exercise of the police power of the state, the reason being not have known that it would be suffering from chronic reserve deficiency twelve
that public welfare is superior to private rights. 25 years later. Had the private respondents been vigilant in asserting their rights,
the redemption could have been effected at a time when the petitioner bank was
The respondent judge also stated that since the stock certificate granted the not suffering from any financial crisis.
private respondents the right to receive a quarterly dividend of One Per
Centum (1%) cumulative and participating, it "clearly and unequivocably (sic) WHEREFORE, the instant petition, being impressed with merit, is hereby
indicates that the same are "interest bearing stocks" or stocks issued by a GRANTED. The challenged decision of respondent judge is set aside and the
corporation under an agreement to pay a certain rate of interest thereon. As such, complaint against the petitioner is dismissed.
plaintiffs (private respondents herein) become entitled to the payment thereof as
Costs against the private respondents.
a matter of right without necessity of a prior declaration of dividend." 26 There is
no legal basis for this observation. Both Sec. 16 of the Corporation Law and Sec. SO ORDERED.
43 of the present Corporation Code prohibit the issuance of any stock dividend
without the approval of stockholders, representing not less than two-thirds (2/3) of
the outstanding capital stock at a regular or special meeting duly called for the
purpose. These provisions underscore the fact that payment of dividends to a
stockholder is not a matter of right but a matter of consensus. Furthermore,
"interest bearing stocks", on which the corporation agrees absolutely to pay
interest before dividends are paid to common stockholders, is legal only when
construed as requiring payment of interest as dividends from net earnings or
surplus only. 27 Clearly, the respondent judge, in compelling the petitioner to
redeem the shares in question and to pay the corresponding dividends, committed
grave abuse of discretion amounting to lack or excess of jurisdiction in ignoring
both the terms and conditions specified in the stock certificate, as well as the clear
mandate of the law.

Anent the issue of prescription, this Court so holds that the claim of private
respondent is already barred by prescription as well as laches. Art. 1144 of the
New Civil Code provides that a right of action that is founded upon a written
contract prescribes in ten (10) years. The letter-demand made by the private
respondents to the petitioner was made only on January 5, 1979, or almost
eighteen years after receipt of the written contract in the form of the stock
certificate. As noted earlier, this letter-demand, significantly, was not formally
offered in evidence, nor were any other evidence of demand presented. Therefore,
we conclude that the only time the private respondents saw it fit to assert their
rights, if any, to the preferred shares of stock, was after the lapse of almost
G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO
MINING AND DEVELOPMENT, INC., and MCARTHUR MINING,
INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by
Narra Nickel and Mining Development Corp. (Narra), Tesoro Mining and
Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which seeks to
reverse the October 1, 2010 Decision1 and the February 15, 2011 Resolution of the
Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines Corp.
(Redmont), a domestic corporation organized and existing under Philippine laws,
took interest in mining and exploring certain areas of the province of Palawan.
After inquiring with the Department of Environment and Natural Resources
(DENR), it learned that the areas where it wanted to undertake exploration and
mining activities where already covered by Mineral Production Sharing
Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc.
(SMMI), filed an application for an MPSA and Exploration Permit (EP) with the
Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of
Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over
1,782 hectares in Barangay Sumbiling, Municipality of Bataraza, Province of
Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in Barangay
Malatagao, Bataraza, Palawan. The MPSA and EP were then transferred to
Madridejos Mining Corporation (MMC) and, on November 6, 2006, assigned to
petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and Development
Corporation and Patricia Louise Mining & Development Corporation (PLMDC)
which previously filed an application for an MPSA with the MGB, Region IV-B,
DENR on January 6, 1992. Through the said application, the DENR issued MPSA-
IV-1-12 covering an area of 3.277 hectares in barangays Calategas and San Isidro,
Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred
and/or assigned its rights and interests over the MPSA application in favor of
Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled
as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays
Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan. SMMI
subsequently conveyed, transferred and assigned its rights and interest over the
said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the
DENR three (3) separate petitions for the denial of petitioners’ applications for
MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of
McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc.
(MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was the driving force behind petitioners’
filing of the MPSAs over the areas covered by applications since it knows that it
can only participate in mining activities through corporations which are deemed
Filipino citizens. Redmont argued that given that petitioners’ capital stocks were
mostly owned by MBMI, they were likewise disqualified from engaging in mining
activities through MPSAs, which are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons under
Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995
which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following
terms, whether in singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to
contract, or a corporation, partnership, association, or cooperative organized or
authorized for the purpose of engaging in mining, with technical and financial
capability to undertake mineral resources development and duly registered in
accordance with law at least sixty per cent (60%) of the capital of which is owned
by citizens of the Philippines: Provided, That a legally organized foreign-owned
corporation shall be deemed a qualified person for purposes of granting an
exploration permit, financial or technical assistance agreement or mineral
processing permit.
Additionally, they stated that their nationality as applicants is immaterial because
they also applied for Financial or Technical Assistance Agreements (FTAA)
denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-
IVB-07 for Narra, which are granted to foreign-owned corporations. Nevertheless,
they claimed that the issue on nationality should not be raised since McArthur,
Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned
by citizens of the Philippines. They asserted that though MBMI owns 40% of the
shares of PLMC (which owns 5,997 shares of Narra),3 40% of the shares of MMC
(which owns 5,997 shares of McArthur)4 and 40% of the shares of SLMC (which,
in turn, owns 5,997 shares of Tesoro),5 the shares of MBMI will not make it the
owner of at least 60% of the capital stock of each of petitioners. They added that
the best tool used in determining the nationality of a corporation is the "control
test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of 1991. They
also claimed that the POA of DENR did not have jurisdiction over the issues in
Redmont’s petition since they are not enumerated in Sec. 77 of RA 7942. Finally,
they stressed that Redmont has no personality to sue them because it has no
pending claim or application over the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from
gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to engage
in mining activities. On the other hand, [Redmont] having filed its own
applications for an EPA over the areas earlier covered by the MPSA application of
respondents may be considered if and when they are qualified under the law. The
violation of the requirements for the issuance and/or grant of permits over mining
areas is clearly established thus, there is reason to believe that the cancellation
and/or revocation of permits already issued under the premises is in order and
open the areas covered to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining
Inc., Tesoro Mining and Development, Inc., and Narra Nickel Mining and
Development Corp. as, DISQUALIFIED for being considered as Foreign
Corporations. Their Mineral Production Sharing Agreement (MPSA) are hereby x
x x DECLARED NULL AND VOID.6
The POA considered petitioners as foreign corporations being "effectively
controlled" by MBMI, a 100% Canadian company and declared their MPSAs null
and void. In the same Resolution, it gave due course to Redmont’s EPAs.
Thereafter, on February 7, 2008, the POA issued an Order7 denying the Motion
for Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a
joint Notice of Appeal8 and Memorandum of Appeal9 with the Mines Adjudication
Board (MAB) while Narra separately filed its Notice of Appeal10 and
Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they are qualified
persons under the law. Also, through a letter, they informed the MAB that they
had their individual MPSA applications converted to FTAAs. McArthur’s FTAA
was denominated as AFTA-IVB-0912 on May 2007, while Tesoro’s MPSA
application was converted to AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA
was converted to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont
filed a Complaint15 with the Securities and Exchange Commission (SEC), seeking
the revocation of the certificates for registration of petitioners on the ground that
they are foreign-owned or controlled corporations engaged in mining in violation
of Philippine laws. Thereafter, Redmont filed on September 1, 2008 a
Manifestation and Motion to Suspend Proceeding before the MAB praying for the
suspension of the proceedings on the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial
Court of Quezon City, Branch 92 (RTC) a Complaint16 for injunction with
application for issuance of a temporary restraining order (TRO) and/or writ of
preliminary injunction, docketed as Civil Case No. 08-63379. Redmont prayed for
the deferral of the MAB proceedings pending the resolution of the Complaint
before the SEC.
But before the RTC can resolve Redmont’s Complaint and applications for
injunctive reliefs, the MAB issued an Order on September 10, 2008, finding the
appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby
REVERSES and SETS ASIDE the Resolution dated 14 December 2007 of the Panel
of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case Nos. 2001-01,
2007-02 and 2007-03, and its Order dated 07 February 2008 denying the Motions
for Reconsideration of the Appellants. The Petition filed by Redmont Consolidated
Mines Corporation on 02 January 2007 is hereby ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmont’s
application for a TRO and setting the case for hearing the prayer for the issuance
of a writ of preliminary injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for
Reconsideration19 of the September 10, 2008 Order of the MAB. Subsequently, it
filed a Supplemental Motion for Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmont’s Motion for Reconsideration and
Supplemental Motion for Reconsideration, Redmont filed before the RTC a
Supplemental Complaint21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of
preliminary injunction enjoining the MAB from finally disposing of the appeals of
petitioners and from resolving Redmont’s Motion for Reconsideration and
Supplement Motion for Reconsideration of the MAB’s September 10, 2008
Resolution.
On July 1, 2009, however, the MAB issued a second Order denying Redmont’s
Motion for Reconsideration and Supplemental Motion for Reconsideration and
resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the Orders
issued by the MAB. On October 1, 2010, the CA rendered a Decision, the dispositive
of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders,
dated September 10, 2008 and July 1, 2009 of the Mining Adjudication Board are
reversed and set aside. The findings of the Panel of Arbitrators of the Department
of Environment and Natural Resources that respondents McArthur, Tesoro and
Narra are foreign corporations is upheld and, therefore, the rejection of their
applications for Mineral Product Sharing Agreement should be recommended to
the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for
Financial or Technical Assistance Agreement (FTAA) or conversion of their MPSA
applications to FTAA, the matter for its rejection or approval is left for
determination by the Secretary of the DENR and the President of the Republic of
the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for
Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was doubt as to the
nationality of petitioners when it realized that petitioners had a common major
investor, MBMI, a corporation composed of 100% Canadians. Pursuant to the first
sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series
of 2005, adopting the 1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the exploitation of natural resources, the
CA used the "grandfather rule" to determine the nationality of petitioners. It
provided:
Shares belonging to corporations or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be considered as of Philippine nationality,
but if the percentage of Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall be
counted as of Philippine nationality. Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least 60% of the capital stock or capital,
respectively, of which belong to Filipino citizens, all of the shares shall be recorded
as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or
capital of the corporation or partnership, respectively, belongs to Filipino citizens,
only 50,000 shares shall be recorded as belonging to aliens.24 (emphasis supplied)
In determining the nationality of petitioners, the CA looked into their corporate
structures and their corresponding common shareholders. Using the grandfather
rule, the CA discovered that MBMI in effect owned majority of the common stocks
of the petitioners as well as at least 60% equity interest of other majority
shareholders of petitioners through joint venture agreements. The CA found that
through a "web of corporate layering, it is clear that one common controlling
investor in all mining corporations involved x x x is MBMI."25 Thus, it concluded
that petitioners McArthur, Tesoro and Narra are also in partnership with, or
privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of
petitioners into FTAA applications suspicious in nature and, as a consequence, it
recommended the rejection of petitioners’ MPSA applications by the Secretary of
the DENR.
With regard to the settlement of disputes over rights to mining areas, the CA
pointed out that the POA has jurisdiction over them and that it also has the power
to determine the of nationality of petitioners as a prerequisite of the Constitution
prior the conferring of rights to "co-production, joint venture or production-sharing
agreements" of the state to mining rights. However, it also stated that the POA’s
jurisdiction is limited only to the resolution of the dispute and not on the approval
or rejection of the MPSAs. It stipulated that only the Secretary of the DENR is
vested with the power to approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution
which considered petitioners McArthur, Tesoro and Narra as foreign corporations.
Nevertheless, the CA determined that the POA’s declaration that the MPSAs of
McArthur, Tesoro and Narra are void is highly improper.
While the petition was pending with the CA, Redmont filed with the Office of the
President (OP) a petition dated May 7, 2010 seeking the cancellation of petitioners’
FTAAs. The OP rendered a Decision26 on April 6, 2011, wherein it canceled and
revoked petitioners’ FTAAs for violating and circumventing the "Constitution x x
x[,] the Small Scale Mining Law and Environmental Compliance Certificate as
well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584."27 The OP,
in affirming the cancellation of the issued FTAAs, agreed with Redmont stating
that petitioners committed violations against the abovementioned laws and failed
to submit evidence to negate them. The Decision further quoted the December 14,
2007 Order of the POA focusing on the alleged misrepresentation and claims made
by petitioners of being domestic or Filipino corporations and the admitted
continued mining operation of PMDC using their locally secured Small Scale
Mining Permit inside the area earlier applied for an MPSA application which was
eventually transferred to Narra. It also agreed with the POA’s estimation that the
filing of the FTAA applications by petitioners is a clear admission that they are
"not capable of conducting a large scale mining operation and that they need the
financial and technical assistance of a foreign entity in their operation, that is why
they sought the participation of MBMI Resources, Inc."28 The Decision further
quoted:
The filing of the FTAA application on June 15, 2007, during the pendency of the
case only demonstrate the violations and lack of qualification of the respondent
corporations to engage in mining. The filing of the FTAA application conversion
which is allowed foreign corporation of the earlier MPSA is an admission that
indeed the respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI Resources, Inc.
furnished its stockholders in their head office in Canada suggest that they are
conducting operation only through their local counterparts.29
The Motion for Reconsideration of the Decision was further denied by the OP in a
Resolution30 dated July 6, 2011. Petitioners then filed a Petition for Review on
Certiorari of the OP’s Decision and Resolution with the CA, docketed as CA-G.R.
SP No. 120409. In the CA Decision dated February 29, 2012, the CA affirmed the
Decision and Resolution of the OP. Thereafter, petitioners appealed the same CA
decision to this Court which is now pending with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision of the
CA. Petitioners put forth the following errors of the CA:
I.
The Court of Appeals erred when it did not dismiss the case for mootness despite
the fact that the subject matter of the controversy, the MPSA Applications, have
already been converted into FTAA applications and that the same have already
been granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction
considering that the Panel of Arbitrators has no jurisdiction to determine the
nationality of Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on account of
Redmont’s willful forum shopping.
IV.
The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign
corporations based on the "Grandfather Rule" is contrary to law, particularly the
express mandate of the Foreign Investments Act of 1991, as amended, and the FIA
Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter alios
acta rule.
VI.
The Court of Appeals erred when it concluded that the conversion of the MPSA
Applications into FTAA Applications were of "suspicious nature" as the same is
based on mere conjectures and surmises without any shred of evidence to show the
same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case as
moot is without merit.
Basically, a case is said to be moot and/or academic when it "ceases to present a
justiciable controversy by virtue of supervening events, so that a declaration
thereon would be of no practical use or value."32 Thus, the courts "generally
decline jurisdiction over the case or dismiss it on the ground of mootness."33
The "mootness" principle, however, does accept certain exceptions and the mere
raising of an issue of "mootness" will not deter the courts from trying a case when
there is a valid reason to do so. In David v. Macapagal-Arroyo (David), the Court
provided four instances where courts can decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public interest is
involved;
3.) When constitutional issue raised requires formulation of controlling principles
to guide the bench, the bar, and the public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant case. We of this Court
note that a grave violation of the Constitution, specifically Section 2 of Article XII,
is being committed by a foreign corporation right under our country’s nose through
a myriad of corporate layering under different, allegedly, Filipino corporations.
The intricate corporate layering utilized by the Canadian company, MBMI, is of
exceptional character and involves paramount public interest since it undeniably
affects the exploitation of our Country’s natural resources. The corresponding
actions of petitioners during the lifetime and existence of the instant case raise
questions as what principle is to be applied to cases with similar issues. No definite
ruling on such principle has been pronounced by the Court; hence, the disposition
of the issues or errors in the instant case will serve as a guide "to the bench, the
bar and the public."35 Finally, the instant case is capable of repetition yet evading
review, since the Canadian company, MBMI, can keep on utilizing dummy Filipino
corporations through various schemes of corporate layering and conversion of
applications to skirt the constitutional prohibition against foreign mining in
Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error presented by
petitioners since both involve the conversion of MPSA applications to FTAA
applications. Petitioners propound that the CA erred in ruling against them since
the questioned MPSA applications were already converted into FTAA applications;
thus, the issue on the prohibition relating to MPSA applications of foreign mining
corporations is academic. Also, petitioners would want us to correct the CA’s
finding which deemed the aforementioned conversions of applications as
suspicious in nature, since it is based on mere conjectures and surmises and not
supported with evidence.
We disagree.
The CA’s analysis of the actions of petitioners after the case was filed against them
by respondent is on point. The changing of applications by petitioners from one
type to another just because a case was filed against them, in truth, would raise
not a few sceptics’ eyebrows. What is the reason for such conversion? Did the said
conversion not stem from the case challenging their citizenship and to have the
case dismissed against them for being "moot"? It is quite obvious that it is
petitioners’ strategy to have the case dismissed against them for being "moot."
Consider the history of this case and how petitioners responded to every action
done by the court or appropriate government agency: on January 2, 2007, Redmont
filed three separate petitions for denial of the MPSA applications of petitioners
before the POA. On June 15, 2007, petitioners filed a conversion of their MPSA
applications to FTAAs. The POA, in its December 14, 2007 Resolution, observed
this suspect change of applications while the case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is a clear
admission that the respondents are not capable of conducting a large scale mining
operation and that they need the financial and technical assistance of a foreign
entity in their operation that is why they sought the participation of MBMI
Resources, Inc. The participation of MBMI in the corporation only proves the fact
that it is the Canadian company that will provide the finances and the resources
to operate the mining areas for the greater benefit and interest of the same and
not the Filipino stockholders who only have a less substantial financial stake in
the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the pendency of
the case only demonstrate the violations and lack of qualification of the respondent
corporations to engage in mining. The filing of the FTAA application conversion
which is allowed foreign corporation of the earlier MPSA is an admission that
indeed the respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI Resources, Inc.
furnished its stockholders in their head office in Canada suggest that they are
conducting operation only through their local counterparts.36
On October 1, 2010, the CA rendered a Decision which partially granted the
petition, reversing and setting aside the September 10, 2008 and July 1, 2009
Orders of the MAB. In the said Decision, the CA upheld the findings of the POA of
the DENR that the herein petitioners are in fact foreign corporations thus a
recommendation of the rejection of their MPSA applications were recommended to
the Secretary of the DENR. With respect to the FTAA applications or conversion
of the MPSA applications to FTAAs, the CA deferred the matter for the
determination of the Secretary of the DENR and the President of the Republic of
the Philippines.37
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for
the dismissal of the petition asserting that on April 5, 2010, then President Gloria
Macapagal-Arroyo signed and issued in their favor FTAA No. 05-2010-IVB, which
rendered the petition moot and academic. However, the CA, in a Resolution dated
February 15, 2011 denied their motion for being a mere "rehash of their claims and
defenses."38 Standing firm on its Decision, the CA affirmed the ruling that
petitioners are, in fact, foreign corporations. On April 5, 2011, petitioners elevated
the case to us via a Petition for Review on Certiorari under Rule 45, questioning
the Decision of the CA. Interestingly, the OP rendered a Decision dated April 6,
2011, a day after this petition for review was filed, cancelling and revoking the
FTAAs, quoting the Order of the POA and stating that petitioners are foreign
corporations since they needed the financial strength of MBMI, Inc. in order to
conduct large scale mining operations. The OP Decision also based the cancellation
on the misrepresentation of facts and the violation of the "Small Scale Mining Law
and Environmental Compliance Certificate as well as Sections 3 and 8 of the
Foreign Investment Act and E.O. 584."39 On July 6, 2011, the OP issued a
Resolution, denying the Motion for Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made known to the
Court the fact of the OP’s Decision and Resolution. In their Reply, petitioners chose
to ignore the OP Decision and continued to reuse their old arguments claiming
that they were granted FTAAs and, thus, the case was moot. Petitioners filed a
Manifestation and Submission dated October 19, 2012,40 wherein they asserted
that the present petition is moot since, in a remarkable turn of events, MBMI was
able to sell/assign all its shares/interest in the "holding companies" to DMCI
Mining Corporation (DMCI), a Filipino corporation and, in effect, making their
respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case
dismissed for being "moot." Their final act, wherein MBMI was able to allegedly
sell/assign all its shares and interest in the petitioner "holding companies" to
DMCI, only proves that they were in fact not Filipino corporations from the start.
The recent divesting of interest by MBMI will not change the stand of this Court
with respect to the nationality of petitioners prior the suspicious change in their
corporate structures. The new documents filed by petitioners are factual evidence
that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that
petitioner corporations have violated several mining laws and made
misrepresentations and falsehood in their applications for FTAA which lead to the
revocation of the said FTAAs, demonstrating that petitioners are not beyond going
against or around the law using shifty actions and strategies. Thus, in this
instance, we can say that their claim of mootness is moot in itself because their
defense of conversion of MPSAs to FTAAs has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners’ nationality,
whether Filipino or foreign. In their previous petitions, they had been adamant in
insisting that they were Filipino corporations, until they submitted their
Manifestation and Submission dated October 19, 2012 where they stated the
alleged change of corporate ownership to reflect their Filipino ownership. Thus,
there is a need to determine the nationality of petitioner corporations.
Basically, there are two acknowledged tests in determining the nationality of a
corporation: the control test and the grandfather rule. Paragraph 7 of DOJ Opinion
No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the controlling
interests in enterprises engaged in the exploitation of natural resources owned by
Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be considered as of Philippine nationality,
but if the percentage of Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall be
counted as of Philippine nationality. Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least 60% of the capital stock or capital,
respectively, of which belong to Filipino citizens, all of the shares shall be recorded
as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or
capital of the corporation or partnership, respectively, belongs to Filipino citizens,
only 50,000 shares shall be counted as owned by Filipinos and the other 50,000
shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to
corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality," pertains to the
control test or the liberal rule. On the other hand, the second part of the DOJ
Opinion which provides, "if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as Philippine nationality,"
pertains to the stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in advocating the
application of the "control test" under RA 7042, as amended by RA 8179, otherwise
known as the Foreign Investments Act (FIA), rather than using the stricter
grandfather rule. The pertinent provision under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the Philippines; or a
domestic partnership or association wholly owned by the citizens of the
Philippines; a corporation organized under the laws of the Philippines of which at
least sixty percent (60%) of the capital stock outstanding and entitled to vote is
wholly owned by Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and
at least sixty percent (60%) of the fund will accrue to the benefit of Philippine
nationals: Provided, That were a corporation and its non-Filipino stockholders own
stocks in a Securities and Exchange Commission (SEC) registered enterprise, at
least sixty percent (60%) of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens of the Philippines
and at least sixty percent (60%) of the members of the Board of Directors, in order
that the corporation shall be considered a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant
case since the definition of a "Philippine National" under Sec. 3 of the FIA does not
provide for it. They further claim that the grandfather rule "has been abandoned
and is no longer the applicable rule."41 They also opined that the last portion of
Sec. 3 of the FIA admits the application of a "corporate layering" scheme of
corporations. Petitioners claim that the clear and unambiguous wordings of the
statute preclude the court from construing it and prevent the court’s use of
discretion in applying the law. They said that the plain, literal meaning of the
statute meant the application of the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is
used to circumvent the Constitution and pertinent laws, then it becomes illegal.
Further, the pronouncement of petitioners that the grandfather rule has already
been abandoned must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife,
flora and fauna, and other natural resources are owned by the State. With the
exception of agricultural lands, all other natural resources shall not be alienated.
The exploration, development, and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake
such activities, or it may enter into co-production, joint venture or production-
sharing agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. Such agreements may
be for a period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may be provided by law.
xxxx
The President may enter into agreements with Foreign-owned corporations
involving either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local scientific
and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into different
types of agreements for the exploration, development, and utilization of natural
resources with entities who are deemed Filipino due to 60 percent ownership of
capital is pertinent to this case, since the issues are centered on the utilization of
our country’s natural resources or specifically, mining. Thus, there is a need to
ascertain the nationality of petitioners since, as the Constitution so provides, such
agreements are only allowed corporations or associations "at least 60 percent of
such capital is owned by such citizens." The deliberations in the Records of the
1986 Constitutional Commission shed light on how a citizenship of a corporation
will be determined:
Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of an
independent national economy is freedom from undue foreign control? What is the
meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national
sovereignty and the welfare of the Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word "undue"?
Why not simply freedom from foreign control? I think that is the meaning of
independence, because as phrased, it still allows for foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if, for example,
we retain the 60/40 possibility in the cultivation of natural resources, 40 percent
involves some control; not total control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose some
amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino
equity and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-
1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the question: ‘Where
do we base the equity requirement, is it on the authorized capital stock, on the
subscribed capital stock, or on the paid-up capital stock of a corporation’? Will the
Committee please enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the members of the team
from the UP Law Center who provided us with a draft. The phrase that is
contained here which we adopted from the UP draft is ‘60 percent of the voting
stock.’
MR. NOLLEDO: That must be based on the subscribed capital stock, because
unless declared delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another corporation, say, a
corporation with 60-40 percent equity invests in another corporation which is
permitted by the Corporation Code, does the Committee adopt the grandfather
rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to apply
the grandfather rule in cases where corporate layering is present.
Elementary in statutory construction is when there is conflict between the
Constitution and a statute, the Constitution will prevail. In this instance,
specifically pertaining to the provisions under Art. XII of the Constitution on
National Economy and Patrimony, Sec. 3 of the FIA will have no place of
application. As decreed by the honorable framers of our Constitution, the
grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino
interest in a corporation for purposes, among others, of determining compliance
with nationality requirements (the ‘Investee Corporation’). Such manner of
computation is necessary since the shares in the Investee Corporation may be
owned both by individual stockholders (‘Investing Individuals’) and by
corporations and partnerships (‘Investing Corporation’). The said rules thus
provide for the determination of nationality depending on the ownership of the
Investee Corporation and, in certain instances, the Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the
nationality of the Investee Corporation. The first case is the ‘liberal rule’, later
coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains to
the portion in said Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares
belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality.’ Under
the liberal Control Test, there is no need to further trace the ownership of the 60%
(or more) Filipino stockholdings of the Investing Corporation since a corporation
which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to
the portion in said Paragraph 7 of the 1967 SEC Rules which states, "but if the
percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be counted
as of Philippine nationality." Under the Strict Rule or Grandfather Rule Proper,
the combined totals in the Investing Corporation and the Investee Corporation
must be traced (i.e., "grandfathered") to determine the total percentage of Filipino
ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the
level of the Investing Corporation and added to the shares directly owned in the
Investee Corporation x x x.
xxxx
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather
Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-
foreign equity ownership is in doubt (i.e., in cases where the joint venture
corporation with Filipino and foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture corporation which is either
60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40
Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not
apply. (emphasis supplied)
After a scrutiny of the evidence extant on record, the Court finds that this case
calls for the application of the grandfather rule since, as ruled by the POA and
affirmed by the OP, doubt prevails and persists in the corporate ownership of
petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity
ownership of petitioners Narra, McArthur and Tesoro, since their common
investor, the 100% Canadian corporation––MBMI, funded them. However,
petitioners also claim that there is "doubt" only when the stockholdings of Filipinos
are less than 60%.43
The assertion of petitioners that "doubt" only exists when the stockholdings are
less than 60% fails to convince this Court. DOJ Opinion No. 20, which petitioners
quoted in their petition, only made an example of an instance where "doubt" as to
the ownership of the corporation exists. It would be ludicrous to limit the
application of the said word only to the instances where the stockholdings of non-
Filipino stockholders are more than 40% of the total stockholdings in a corporation.
The corporations interested in circumventing our laws would clearly strive to have
"60% Filipino Ownership" at face value. It would be senseless for these applying
corporations to state in their respective articles of incorporation that they have
less than 60% Filipino stockholders since the applications will be denied instantly.
Thus, various corporate schemes and layerings are utilized to circumvent the
application of the Constitution.
 Obviously, the instant case presents a situation which exhibits a scheme employed
Development
by stockholders to circumvent the law, creating a cloud of doubt in the Court’s
mind. To determine, therefore, the actual participation, direct or indirect,Corp.
of
MBMI, the grandfather rule must be used.

McArthur Mining, Inc. MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00

To establish the actual ownership, interest or participation of MBMI in eachInc.

of
petitioners’ corporate structure, they have to be "grandfathered."
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
As previously discussed, McArthur acquired its MPSA application from MMC,
which acquired its application from SMMI. McArthur has a capital stock of ten
Fernando B.
million pesos (PhP 10,000,000) divided into 10,000 common shares at one thousand Filipino 1 PhP 1,000.00 PhP 1,000.00
pesos (PhP 1,000) per share, subscribed to by the following:44
Esguerra
ame Nationality Number of Shares Amount Subscribed Amount Paid
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
adridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
orporation Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando
BMI Resources, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60

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

auro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

rnando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

anuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
(emphasis supplied)
ichael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any
amount with respect to the number of shares they subscribed to in the corporation,
enneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 which is quite absurd since Olympic is the major stockholder in MMC. MBMI’s
2006 Annual Report sheds light on why Olympic failed to pay any amount with
Total 10,000 PhP 10,000,000.00 PhP respect to the number of shares it subscribed to. It states that Olympic entered
2,708,174.60
(emphasis supplied) into joint venture agreements with several Philippine companies, wherein it holds
directly and indirectly a 60% effective equity interest in the Olympic
Interestingly, looking at the corporate structure of MMC, we take note that it has Properties.46 Quoting the said Annual report:
a similar structure and composition as McArthur. In fact, it would seem that
On September 9, 2004, the Company and Olympic Mines & Development
MBMI is also a major investor and "controls"45 MBMI and also, similar nominal
Corporation ("Olympic") entered into a series of agreements including a Property
shareholders were present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar
Purchase and Development Agreement (the Transaction Documents) with respect
(Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):
to three nickel laterite properties in Palawan, Philippines (the "Olympic
Madridejos Mining Corporation Properties"). The Transaction Documents effectively establish a joint venture
between the Company and Olympic for purposes of developing the Olympic
ame Nationality Number of Shares Amount Subscribed Amount Paid Properties. The Company holds directly and indirectly an initial 60% interest in
the joint venture. Under certain circumstances and upon achieving certain
milestones, the Company may earn up to a 100% interest, subject to a 2.5% net
ympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0 revenue royalty.47 (emphasis supplied)
Thus, as demonstrated in this first corporation, McArthur, when it is Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the
"grandfathered," company layering was utilized by MBMI to gain control over same figures as the corporate structure of petitioner McArthur, down to the last
McArthur. It is apparent that MBMI has more than 60% or more equity interest centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra,
in McArthur, making the latter a foreign corporation. Agcaoili, Mason and Cawkell. The figures under "Nationality," "Number of
Shares," "Amount Subscribed," and "Amount Paid" are exactly the same. Delving
Tesoro Mining and Development, Inc. deeper, we scrutinize SMMI’s corporate structure:
Tesoro, which acquired its MPSA application from SMMI, has a capital stock of Sara Marie Mining, Inc.
ten million pesos (PhP 10,000,000) divided into ten thousand (10,000) common
shares at PhP 1,000 per share, as demonstrated below: [[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april20
[[reference 14/195580.pdf]]
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april20
14/195580.pdf]]
Name Nationality Number of Amount Amount

Name Nationality Number of Amount Amount Paid Shares Subscribed

Shares Subscribed
Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Development

Mining, Inc. Corp.

MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,79

Resources, Inc. Inc.

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,00

Esguerra Esguerra

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

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,00

Agcaoili
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,00

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

Hernando

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Michael T. Mason American 1 PhP 1,000.00 PhP 1,00

Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,00

(emphasis supplied)
Total 10,000 PhP 10,000,000.00 PhP 2,80
 (emphasisMendoza,
supplied)Jr.

After subsequently studying SMMI’s corporate structure, it is not farfetched for us

Henry E. Filipino 1 PhP 1,000.00 PhP 1,00
to spot the glaring similarity between SMMI and MMC’s corporate structure.
Again, the presence of identical stockholders, namely: Olympic, MBMI, Amanti Fernandez
Limson (Limson), Esguerra, Salazar, Hernando, Mason and Cawkell. The figures
under the headings "Nationality," "Number of Shares," "Amount Subscribed," and
"Amount Paid" are exactly the same except for the amount paid by MBMI which Manuel A. Filipino 1 PhP 1,000.00 PhP 1,00
now reflects the amount of two million seven hundred ninety four thousand pesos
(PhP 2,794,000). Oddly, the total value of the amount paid is two million eight Agcaoili
hundred nine thousand nine hundred pesos (PhP 2,809,900).

Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,00
participation in SMMI’s corporate structure, it is clear that MBMI is in control of
Bocalan
Tesoro and owns 60% or more equity interest in Tesoro. This makes petitioner
Tesoro a non-Filipino corporation and, thus, disqualifies it to participate in the
exploitation, utilization and development of our natural resources. Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,00
Narra Nickel Mining and Development Corporation
Robert L. American 1 PhP 1,000.00 PhP 1,00
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 McCurdy
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: Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,00
[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april20 Total 10,000 PhP 10,000,000.00 PhP
14/195580.pdf]] (emphas

Name Nationality Number of Amount Amount Again,

Paid MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and
Esguerra, is present in this corporate structure.
Shares Subscribed
Patricia Louise Mining & Development Corporation
Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00
Using the grandfather method, we further look and examine PLMDC’s corporate
structure:
Mining &

Development Name Nationality Number of Amount Amount Paid

Shares Subscribed
Corp.
Palawan Alpha South Resources Filipino 6,596 PhP PhP 0
MBMI Canadian 3,998 PhP 3,996,000.00 Development Corporation
PhP 1,116,000.00 6,596,000.00

Resources, Inc. MBMI Resources, Canadian 3,396 PhP PhP

3,396,000.00 2,796,000.00
Inc.
Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00
 ginio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00(b) Alpha Group
The Philippine companies holding the Alpha Property, and the ownership interests
rnando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00therein, are as follows:

Alpha- Philippines (the "Alpha Group")

enry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
auro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00Narra Nickel Mining & Development Corporation (Narra) 60.4%

anuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00Under a joint venture agreement the Company holds directly and indirectly an
effective equity interest in the Alpha Property of 60.4%. Pursuant to a
shareholders’ agreement, the Company exercises joint control over the companies
ayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00in the Alpha Group.48 (emphasis supplied)

Concluding from the above-stated facts, it is quite safe to say that petitioners
ichael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is derived
enneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and
PLMDC. Going further and adding to the picture, MBMI’s Summary of Significant
Total 10,000 PhP PhP Accounting Policies statement– –regarding the "joint venture" agreements that it
10,000,000.00 2,708,174.60 entered into with the "Olympic" and "Alpha" groups––involves SMMI, Tesoro,
(emphasis PLMDC and Narra. Noticeably, the ownership of the "layered" corporations boils
supplied) down to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI
has joint venture agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure or the
Yet again, the usual players in petitioners’ corporate structures are present.
underlying relationships between and among the corporations, petitioners are
Similarly, the amount of money paid by the 2nd tier majority stock holder, in this
NOT Filipino nationals and must be considered foreign since 60% or more of their
case, Palawan Alpha South Resources and Development Corp. (PASRDC), is zero.
capital stocks or equity interests are owned by MBMI.
Studying MBMI’s Summary of Significant Accounting Policies dated October 31,
Application of the res inter alios acta rule
2005 explains the reason behind the intricate corporate layering that MBMI
immersed itself in: 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
JOINT VENTURES The Company’s ownership interests in various mining
of Court in the instant case, by pointing out that statements made by MBMI should
ventures engaged in the acquisition, exploration and development of mineral
not be admitted in this case since it is not a party to the case and that it is not a
properties in the Philippines is described as follows:
"partner" of petitioners.
(a) Olympic Group
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
The Philippine companies holding the Olympic Property, and the ownership and
Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or
interests therein, are as follows:
agent of the party within the scope of his authority and during the existence of the
Olympic- Philippines (the "Olympic Group") 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
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3% itself. The same rule applies to the act or declaration of a joint owner, joint debtor,
or other person jointly interested with the party.
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Sec. 31. Admission by privies.- Where one derives title to property from another,
Pursuant to the Olympic joint venture agreement the Company holds directly and the act, declaration, or omission of the latter, while holding the title, in relation to
indirectly an effective equity interest in the Olympic Property of 60.0%. Pursuant the property, is evidence against the former.
to a shareholders’ agreement, the Company exercises joint control over the
companies in the Olympic Group.
Petitioners claim that before the above-mentioned Rule can be applied to a case,
"the partnership relation must be shown, and that proof of the fact must be made
by evidence other than the admission itself."49 Thus, petitioners assert that the
CA erred in finding that a partnership relationship exists between them and
MBMI because, in fact, no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by
stating that "by entering into a joint venture, MBMI have a joint interest" with
Narra, Tesoro and McArthur. They challenged the conclusion of the CA which
pertains to the close characteristics of
"partnerships" and "joint venture agreements." Further, they asserted that before
this particular partnership can be formed, it should have been formally reduced
into writing since the capital involved is more than three thousand pesos (PhP
3,000). Being that there is no evidence of written agreement to form a partnership
between petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to contribute
money, property, or industry to a common fund with the intention of dividing the
profits among themselves.50 On the other hand, joint ventures have been deemed
to be "akin" to partnerships since it is difficult to distinguish between joint
ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their association
are so similar and closely akin to a partnership that it is ordinarily held that their
rights, duties, and liabilities are to be tested by rules which are closely analogous
to and substantially the same, if not exactly the same, as those which govern
partnership. In fact, it has been said that the trend in the law has been to blur the
distinctions between a partnership and a joint venture, very little law being found
applicable to one that does not apply to the other.51
Though some claim that partnerships and joint ventures are totally different
animals, there are very few rules that differentiate one from the other; thus, joint
ventures are deemed "akin" or similar to a partnership. In fact, in joint venture
agreements, rules and legal incidents governing partnerships are applied.52
Accordingly, culled from the incidents and records of this case, it can be assumed
that the relationships entered between and among petitioners and MBMI are no
simple "joint venture agreements." As a rule, corporations are prohibited from
entering into partnership agreements; consequently, corporations enter into joint
venture agreements with other corporations or partnerships for certain
transactions in order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and among petitioners
and MBMI was executed to circumvent the legal prohibition against corporations
entering into partnerships, then the relationship created should be deemed as
"partnerships," and the laws on partnership should be applied. Thus, a joint
venture agreement between and among corporations may be seen as similar to
partnerships since the elements of partnership are present.
Considering that the relationships found between petitioners and MBMI are
considered to be partnerships, then the CA is justified in applying Sec. 29, Rule
130 of the Rules by stating that "by entering into a joint venture, MBMI have a
joint interest" with Narra, Tesoro and McArthur.
Panel of Arbitrators’ jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction over the
instant case. The POA has jurisdiction to settle disputes over rights to mining
areas which definitely involve the petitions filed by Redmont against petitioners
Narra, McArthur and Tesoro. Redmont, by filing its petition against petitioners, is
asserting the right of Filipinos over mining areas in the Philippines against alleged
foreign-owned mining corporations. Such claim constitutes a "dispute" found in
Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the parties for the
decision, the panel shall have exclusive and original jurisdiction to hear and decide
the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.:53
The phrase "disputes involving rights to mining areas" refers to any adverse claim,
protest, or opposition to an application for mineral agreement. The POA therefore
has the jurisdiction to resolve any adverse claim, protest, or opposition to a pending
application for a mineral agreement filed with the concerned Regional Office of the
MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of publication/posting/radio
announcements, the authorized officer(s) of the concerned office(s) shall issue a
certification(s) that the publication/posting/radio announcement have been
complied with. Any adverse claim, protest, opposition shall be filed directly, within
thirty (30) calendar days from the last date of publication/posting/radio
announcement, with the concerned Regional Office or through any concerned
PENRO or CENRO for filing in the concerned Regional Office for purposes of its
resolution by the Panel of Arbitrators pursuant to the provisions of this Act and
these implementing rules and regulations. Upon final resolution of any adverse
claim, protest or opposition, the Panel of Arbitrators shall likewise issue a
certification to that effect within five (5) working days from the date of finality of
resolution thereof. Where there is no adverse claim, protest or opposition, the
Panel of Arbitrators shall likewise issue a Certification to that effect within five
working days therefrom.
xxxx
No Mineral Agreement shall be approved unless the requirements under this
Section are fully complied with and any adverse claim/protest/opposition is finally
resolved by the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification issued by the
Panel of Arbitrators as provided in Section 38 hereof, the concerned Regional
Director shall initially evaluate the Mineral Agreement applications in areas
outside Mineral reservations. He/She shall thereafter endorse his/her findings to
the Bureau for further evaluation by the Director within fifteen (15) working days
from receipt of forwarded documents. Thereafter, the Director shall endorse the
same to the secretary for consideration/approval within fifteen working days from
receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral Reservations,
within fifteen (15) working days from receipt of the Certification issued by the
Panel of Arbitrators as provided for in Section 38 hereof, the same shall be
evaluated and endorsed by the Director to the Secretary for consideration/approval
within fifteen days from receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the "disputes involving
rights to mining areas" under Sec. 77(a) specifically refer only to those disputes
relative to the applications for a mineral agreement or conferment of mining
rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining
right application is further elucidated by Secs. 219 and 43 of DENR AO 95-936,
which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the
provisions of Sections 28, 43 and 57 above, any adverse claim, protest or opposition
specified in said sections may also be filed directly with the Panel of Arbitrators
within the concerned periods for filing such claim, protest or opposition as specified
in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director shall also cause the posting
of the application on the bulletin boards of the Bureau, concerned Regional office(s)
and in the concerned province(s) and municipality(ies), copy furnished the
barangays where the proposed contract area is located once a week for two (2)
consecutive weeks in a language generally understood in the locality. After forty-
five (45) days from the last date of publication/posting has been made and no
adverse claim, protest or opposition was filed within the said forty-five (45) days,
the concerned offices shall issue a certification that publication/posting has been
made and that no adverse claim, protest or opposition of whatever nature has been
filed. On the other hand, if there be any adverse claim, protest or opposition, the
same shall be filed within forty-five (45) days from the last date of
publication/posting, with the Regional Offices concerned, or through the
Department’s Community Environment and Natural Resources Officers (CENRO)
or Provincial Environment and Natural Resources Officers (PENRO), to be filed at
the Regional Office for resolution of the Panel of Arbitrators. However previously
published valid and subsisting mining claims are exempted from posted/posting
required under this Section.
No mineral agreement shall be approved unless the requirements under this
section are fully complied with and any opposition/adverse claim is dealt with in
writing by the Director and resolved by the Panel of Arbitrators. (Emphasis
supplied.)
It has been made clear from the aforecited provisions that the "disputes involving
rights to mining areas" under Sec. 77(a) specifically refer only to those disputes
relative to the applications for a mineral agreement or conferment of mining
rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining
right application is further elucidated by Secs. 219 and 43 of DENRO AO 95-936,
which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the
provisions of Sections 28, 43 and 57 above, any adverse claim, protest or opposition
specified in said sections may also be filed directly with the Panel of Arbitrators
within the concerned periods for filing such claim, protest or opposition as specified
in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.-
xxxx
The Regional Director or concerned Regional Director shall also cause the posting
of the application on the bulletin boards of the Bureau, concerned Regional office(s)
and in the concerned province(s) and municipality(ies), copy furnished the
barangays where the proposed contract area is located once a week for two (2)
consecutive weeks in a language generally understood in the locality. After forty-
five (45) days from the last date of publication/posting has been made and no
adverse claim, protest or opposition was filed within the said forty-five (45) days,
the concerned offices shall issue a certification that publication/posting has been
made and that no adverse claim, protest or opposition of whatever nature has been
filed. On the other hand, if there be any adverse claim, protest or opposition, the
same shall be filed within forty-five (45) days from the last date of
publication/posting, with the Regional offices concerned, or through the
Department’s Community Environment and Natural Resources Officers (CENRO)
or Provincial Environment and Natural Resources Officers (PENRO), to be filed at
the Regional Office for resolution of the Panel of Arbitrators. However, previously
published valid and subsisting mining claims are exempted from posted/posting
required under this Section.
No mineral agreement shall be approved unless the requirements under this
section are fully complied with and any opposition/adverse claim is dealt with in
writing by the Director and resolved by the Panel of Arbitrators. (Emphasis
supplied.)
These provisions lead us to conclude that the power of the POA to resolve any
adverse claim, opposition, or protest relative to mining rights under Sec. 77(a) of
RA 7942 is confined only to adverse claims, conflicts and oppositions relating to
applications for the grant of mineral rights.
POA’s jurisdiction is confined only to resolutions of such adverse claims, conflicts
and oppositions and it has no authority to approve or reject said applications. Such
power is vested in the DENR Secretary upon recommendation of the MGB
Director. Clearly, POA’s jurisdiction over "disputes involving rights to mining
areas" has nothing to do with the cancellation of existing mineral agreements.
(emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably has
jurisdiction to resolve disputes over MPSA applications subject of Redmont’s
petitions. However, said jurisdiction does not include either the approval or
rejection of the MPSA applications, which is vested only upon the Secretary of the
DENR. Thus, the finding of the POA, with respect to the rejection of petitioners’
MPSA applications being that they are foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular
courts, not the POA, that has jurisdiction over the MPSA applications of
petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute in force at
the time of the commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive
original jurisdiction:
1. In all civil actions in which the subject of the litigation is incapable of pecuniary
estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x Within thirty (30) days, after the submission of the case by the parties for the
decision, the panel shall have exclusive and original jurisdiction to hear and decide
the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all
disputes involving rights to mining areas. One such dispute is an MPSA
application to which an adverse claim, protest or opposition is filed by another
interested applicant.1âwphi1 In the case at bar, the dispute arose or originated
from MPSA applications where petitioners are asserting their rights to mining
areas subject of their respective MPSA applications. Since respondent filed 3
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."57 Petitioners stress that there should no longer be any
issue left as regards their qualification to enter into FTAA contracts since they are
qualified to engage in mining activities in the Philippines. 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.

SO ORDERED.
G.R. No. 101897. March 5, 1993. appropriable by petitioner to the exclusion of other institutions like private
respondents herein. The doctrine of secondary meaning originated in the field of
LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF trademark law. Its application has, however, been extended to corporate names
APPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN, LYCEUM OF sine the right to use a corporate name to the exclusion of others is based upon the
CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, same principle which underlies the right to use a particular trademark or
INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM tradename. In Philippine Nut Industry, Inc. v. Standard Brands, Inc., the doctrine
OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. of secondary meaning was elaborated in the following terms: " . . . a word or phrase
and WESTERN PANGASINAN LYCEUM, INC., respondents. originally incapable of exclusive appropriation with reference to an article on the
market, because geographically or otherwise descriptive, might nevertheless have
Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for
been used so long and so exclusively by one producer with reference to his article
petitioner.
that, in that trade and to that branch of the purchasing public, the word or phrase
Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for has come to mean that the article was his product." The question which arises,
respondents. therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name
has been for such length of time and with such exclusivity as to have become
Froilan Siobal for Western Pangasinan Lyceum. associated or identified with the petitioner institution in the mind of the general
public (or at least that portion of the general public which has to do with schools).
SYLLABUS The Court of Appeals recognized this issue and answered it in the negative: "Under
the doctrine of secondary meaning, a word or phrase originally incapable of
1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF
exclusive appropriation with reference to an article in the market, because
PROPOSED NAME WHICH IS IDENTICAL OR CONFUSINGLY SIMILAR TO
geographical or otherwise descriptive might nevertheless have been used so long
THAT OF ANY EXISTING CORPORATION, PROHIBITED; CONFUSION AND
and so exclusively by one producer with reference to this article that, in that trade
DECEPTION EFFECTIVELY PRECLUDED BY THE APPENDING OF
and to that group of the purchasing public, the word or phrase has come to mean
GEOGRAPHIC NAMES TO THE WORD "LYCEUM". — The Articles of
that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This
Incorporation of a corporation must, among other things, set out the name of the
circumstance has been referred to as the distinctiveness into which the name or
corporation. Section 18 of the Corporation Code establishes a restrictive rule
phrase has evolved through the substantial and exclusive use of the same for a
insofar as corporate names are concerned: "Section 18. Corporate name. — No
considerable period of time. . . . No evidence was ever presented in the hearing
corporate name may be allowed by the Securities an Exchange Commission if the
before the Commission which sufficiently proved that the word 'Lyceum' has
proposed name is identical or deceptively or confusingly similar to that of any
indeed acquired secondary meaning in favor of the appellant. If there was any of
existing corporation or to any other name already protected by law or is patently
this kind, the same tend to prove only that the appellant had been using the
deceptive, confusing or contrary to existing laws. When a change in the corporate
disputed word for a long period of time. . . . In other words, while the appellant
name is approved, the Commission shall issue an amended certificate of
may have proved that it had been using the word 'Lyceum' for a long period of time,
incorporation under the amended name." The policy underlying the prohibition in
this fact alone did not amount to mean that the said word had acquired secondary
Section 18 against the registration of a corporate name which is "identical or
meaning in its favor because the appellant failed to prove that it had been using
deceptively or confusingly similar" to that of any existing corporation or which is
the same word all by itself to the exclusion of others. More so, there was no
"patently deceptive" or "patently confusing" or "contrary to existing laws," is the
evidence presented to prove that confusion will surely arise if the same word were
avoidance of fraud upon the public which would have occasion to deal with the
to be used by other educational institutions. Consequently, the allegations of the
entity concerned, the evasion of legal obligations and duties, and the reduction of
appellant in its first two assigned errors must necessarily fail." We agree with the
difficulties of administration and supervision over corporations. We do not consider
Court of Appeals. The number alone of the private respondents in the case at bar
that the corporate names of private respondent institutions are "identical with, or
suggests strongly that petitioner's use of the word "Lyceum" has not been attended
deceptively or confusingly similar" to that of the petitioner institution. True
with the exclusivity essential for applicability of the doctrine of secondary
enough, the corporate names of private respondent entities all carry the word
meaning. Petitioner's use of the word "Lyceum" was not exclusive but was in truth
"Lyceum" but confusion and deception are effectively precluded by the appending
shared with the Western Pangasinan Lyceum and a little later with other private
of geographic names to the word "Lyceum." Thus, we do not believe that the
respondent institutions which registered with the SEC using "Lyceum" as part of
"Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the
their corporation names. There may well be other schools using Lyceum or Liceo
Philippines, or that the "Lyceum of Camalaniugan" would be confused with the
in their names, but not registered with the SEC because they have not adopted the
Lyceum of the Philippines.
corporate form of organization.
2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD
3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE
"LYCEUM," NOT ATTENDED WITH EXCLUSIVITY. — It is claimed, however,
WHETHER THEY ARE CONFUSINGLY OR DECEPTIVELY SIMILAR TO
by petitioner that the word "Lyceum" has acquired a secondary meaning in relation
ANOTHER CORPORATE ENTITY'S NAME. — petitioner institution is not
to petitioner with the result that word, although originally a generic, has become
entitled to a legally enforceable exclusive right to use the word "Lyceum" in its
corporate name and that other institutions may use "Lyceum" as part of their 3. The Lyceum of Araullo
corporate names. To determine whether a given corporate name is "identical" or
"confusingly or deceptively similar" with another entity's corporate name, it is not The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay
enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must and the Lyceum of Marbel, for failure to serve summons upon these two (2) entities.
evaluate corporate names in their entirety and when the name of petitioner is The case against the Liceum of Araullo was dismissed when that school motu
juxtaposed with the names of private respondents, they are not reasonably proprio change its corporate name to "Pamantasan ng Araullo."
regarded as "identical" or "confusingly or deceptively similar" with each other.
The background of the case at bar needs some recounting. Petitioner had sometime
DECISION before commenced in the SEC a proceeding (SEC-Case No. 1241) against the
Lyceum of Baguio, Inc. to require it to change its corporate name and to adopt
FELICIANO, J p: another name not "similar [to] or identical" with that of petitioner. In an Order
dated 20 April 1977, Associate Commissioner Julio Sulit held that the corporate
Petitioner is an educational institution duly registered with the Securities and name of petitioner and that of the Lyceum of Baguio, Inc. were substantially
Exchange Commission ("SEC"). When it first registered with the SEC on 21 identical because of the presence of a "dominant" word, i.e., "Lyceum," the name of
September 1950, it used the corporate name Lyceum of the Philippines, Inc. and the geographical location of the campus being the only word which distinguished
has used that name ever since. one from the other corporate name. The SEC also noted that petitioner had
registered as a corporation ahead of the Lyceum of Baguio, Inc. in point of time, 1
On 24 February 1984, petitioner instituted proceedings before the SEC to compel
and ordered the latter to change its name to another name "not similar or identical
the private respondents, which are also educational institutions, to delete the word
[with]" the names of previously registered entities.
"Lyceum" from their corporate names and permanently to enjoin them from using
"Lyceum" as part of their respective names. The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme
Court in a case docketed as G.R. No. L-46595. In a Minute Resolution dated 14
Some of the private respondents actively participated in the proceedings before the
September 1977, the Court denied the Petition for Review for lack of merit. Entry
SEC. These are the following, the dates of their original SEC registration being set
of judgment in that case was made on 21 October 1977. 2
out below opposite their respective names:
Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote
Western Pangasinan Lyceum — 27 October 1950
all the educational institutions it could find using the word "Lyceum" as part of
Lyceum of Cabagan — 31 October 1962 their corporate name, and advised them to discontinue such use of "Lyceum."
When, with the passage of time, it became clear that this recourse had failed,
Lyceum of Lallo, Inc. — 26 March 1972 petitioner instituted before the SEC SEC-Case No. 2579 to enforce what petitioner
claims as its proprietary right to the word "Lyceum." The SEC hearing officer
Lyceum of Aparri — 28 March 1972 rendered a decision sustaining petitioner's claim to an exclusive right to use the
word "Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of
Lyceum of Tuao, Inc. — 28 March 1972
Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was
Lyceum of Camalaniugan — 28 March 1972 capable of appropriation and that petitioner had acquired an enforceable exclusive
right to the use of that word.
The following private respondents were declared in default for failure to file an
answer despite service of summons: On appeal, however, by private respondents to the SEC En Banc, the decision of
the hearing officer was reversed and set aside. The SEC En Banc did not consider
Buhi Lyceum; the word "Lyceum" to have become so identified with petitioner as to render use
thereof by other institutions as productive of confusion about the identity of the
Central Lyceum of Catanduanes; schools concerned in the mind of the general public. Unlike its hearing officer, the
Lyceum of Eastern Mindanao, Inc.; and SEC En Banc held that the attaching of geographical names to the word "Lyceum"
served sufficiently to distinguish the schools from one another, especially in view
Lyceum of Southern Philippines of the fact that the campuses of petitioner and those of the private respondents
were physically quite remote from each other. 3
Petitioner's original complaint before the SEC had included three (3) other entities:
Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28
1. The Lyceum of Malacanay; June 1991, however, the Court of Appeals affirmed the questioned Orders of the
SEC En Banc. 4 Petitioner filed a motion for reconsideration, without success.
2. The Lyceum of Marbel; and
Before this Court, petitioner asserts that the Court of Appeals committed the
following errors:
1. The Court of Appeals erred in holding that the Resolution of the Supreme Court
in G.R. No. L-46595 did not constitute stare decisis as to apply to this case and in
not holding that said Resolution bound subsequent determinations on the right to
exclusive use of the word Lyceum.
2. The Court of Appeals erred in holding that respondent Western Pangasinan
Lyceum, Inc. was incorporated earlier than petitioner.
3. The Court of Appeals erred in holding that the word Lyceum has not acquired a
secondary meaning in favor of petitioner.
4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be
appropriated by the petitioner to the exclusion of others. 5
We will consider all the foregoing ascribed errors, though not necessarily seriatim.
We begin by noting that the Resolution of the Court in G.R. No. L-46595 does not,
of course, constitute res adjudicata in respect of the case at bar, since there is no
identity of parties. Neither is stare decisis pertinent, if only because the SEC En
Banc itself has re-examined Associate Commissioner Sulit's ruling in the Lyceum
of Baguio case. The Minute Resolution of the Court in G.R. No. L-46595 was not a
reasoned adoption of the Sulit ruling.
The Articles of Incorporation of a corporation must, among other things, set out
the name of the corporation. 6 Section 18 of the Corporation Code establishes a
restrictive rule insofar as corporate names are concerned:
"SECTION 18. Corporate name. — No corporate name may be allowed by the
Securities an 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."
(Emphasis supplied)
The policy underlying the prohibition in Section 18 against the registration of a
corporate name which is "identical or deceptively or confusingly similar" to that of
any existing corporation or which is "patently deceptive" or "patently confusing" or
"contrary to existing laws," is the avoidance of fraud upon the public which would
have occasion to deal with the entity concerned, the evasion of legal obligations
and duties, and the reduction of difficulties of administration and supervision over
corporations. 7
We do not consider that the corporate names of private respondent institutions are
"identical with, or deceptively or confusingly similar" to that of the petitioner
institution. True enough, the corporate names of private respondent entities all
carry the word "Lyceum" but confusion and deception are effectively precluded by
the appending of geographic names to the word "Lyceum." Thus, we do not believe
that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum
of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with
the Lyceum of the Philippines.
Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which
in turn referred to a locality on the river Ilissius in ancient Athens "comprising an
enclosure dedicated to Apollo and adorned with fountains and buildings erected by
Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the
philosopher Aristotle and his followers for teaching." 8 In time, the word "Lyceum"
became associated with schools and other institutions providing public lectures
and concerts and public discussions. Thus today, the word "Lyceum" generally
refers to a school or an institution of learning. While the Latin word "lyceum" has
been incorporated into the English language, the word is also found in Spanish
(liceo) and in French (lycee). As the Court of Appeals noted in its Decision, Roman
Catholic schools frequently use the term; e.g., "Liceo de Manila," "Liceo de Baleno"
(in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact
as generic in character as the word "university." In the name of the petitioner,
"Lyceum" appears to be a substitute for "university;" in other places, however,
"Lyceum," or "Liceo" or "Lycee" frequently denotes a secondary school or a college.
It may be (though this is a question of fact which we need not resolve) that the use
of the word "Lyceum" may not yet be as widespread as the use of "university," but
it is clear that a not inconsiderable number of educational institutions have
adopted "Lyceum" or "Liceo" as part of their corporate names. Since "Lyceum" or
"Liceo" denotes a school or institution of learning, it is not unnatural to use this
word to designate an entity which is organized and operating as an educational
institution.
It is claimed, however, by petitioner that the word "Lyceum" has acquired a
secondary meaning in relation to petitioner with the result that that word,
although originally a generic, has become appropriable by petitioner to the
exclusion of other institutions like private respondents herein.
The doctrine of secondary meaning originated in the field of trademark law. Its
application has, however, been extended to corporate names sine the right to use
a corporate name to the exclusion of others is based upon the same principle which
underlies the right to use a particular trademark or tradename. 10 In Philippine
Nut Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary meaning
was elaborated in the following terms:
" . . . a word or phrase originally incapable of exclusive appropriation with reference
to an article on the market, because geographically or otherwise descriptive, might
nevertheless have been used so long and so exclusively by one producer with
reference to his article that, in that trade and to that branch of the purchasing
public, the word or phrase has come to mean that the article was his product." 12
The question which arises, therefore, is whether or not the use by petitioner of
"Lyceum" in its corporate name has been for such length of time and with such
exclusivity as to have become associated or identified with the petitioner
institution in the mind of the general public (or at least that portion of the general
public which has to do with schools). The Court of Appeals recognized this issue
and answered it in the negative:
"Under the doctrine of secondary meaning, a word or phrase originally incapable
of exclusive appropriation with reference to an article in the market, because
geographical or otherwise descriptive might nevertheless have been used so long
and so exclusively by one producer with reference to this article that, in that trade
and to that group of the purchasing public, the word or phrase has come to mean
that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This
circumstance has been referred to as the distinctiveness into which the name or
phrase has evolved through the substantial and exclusive use of the same for a
considerable period of time. Consequently, the same doctrine or principle cannot
be made to apply where the evidence did not prove that the business (of the
plaintiff) has continued for so long a time that it has become of consequence and
acquired a good will of considerable value such that its articles and produce have
acquired a well-known reputation, and confusion will result by the use of the
disputed name (by the defendant) (Ang Si Heng vs. Wellington Department Store,
Inc., 92 Phil. 448).
With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the
aforementioned requisites. No evidence was ever presented in the hearing before
the Commission which sufficiently proved that the word 'Lyceum' has indeed
acquired secondary meaning in favor of the appellant. If there was any of this kind,
the same tend to prove only that the appellant had been using the disputed word
for a long period of time. Nevertheless, its (appellant) exclusive use of the word
(Lyceum) was never established or proven as in fact the evidence tend to convey
that the cross-claimant was already using the word 'Lyceum' seventeen (17) years
prior to the date the appellant started using the same word in its corporate name.
Furthermore, educational institutions of the Roman Catholic Church had been
using the same or similar word like 'Liceo de Manila,' 'Liceo de Baleno' (in Baleno,
Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started using
the word 'Lyceum'. The appellant also failed to prove that the word 'Lyceum' has
become so identified with its educational institution that confusion will surely
arise in the minds of the public if the same word were to be used by other
educational institutions.
In other words, while the appellant may have proved that it had been using the
word 'Lyceum' for a long period of time, this fact alone did not amount to mean
that the said word had acquired secondary meaning in its favor because the
appellant failed to prove that it had been using the same word all by itself to the
exclusion of others. More so, there was no evidence presented to prove that
confusion will surely arise if the same word were to be used by other educational
institutions. Consequently, the allegations of the appellant in its first two assigned
errors must necessarily fail." 13 (Underscoring partly in the original and partly
supplied)
the provisions of R.A. No. 62, which records had been destroyed during World War
II, Western Pangasinan Lyceum should be deemed to have lost all rights it may
have acquired by virtue of its past registration. It might be noted that the Western
Pangasinan Lyceum, Inc. registered with the SEC soon after petitioner had filed
its own registration on 21 September 1950. Whether or not Western Pangasinan
Lyceum, Inc. must be deemed to have lost its rights under its original 1933
registration, appears to us to be quite secondary in importance; we refer to this
earlier registration simply to underscore the fact that petitioner's use of the word
"Lyceum" was neither the first use of that term in the Philippines nor an exclusive
use thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in
truth shared with the Western Pangasinan Lyceum and a little later with other
private respondent institutions which registered with the SEC using "Lyceum" as
part of their corporation names. There may well be other schools using Lyceum or
Liceo in their names, but not registered with the SEC because they have not
adopted the corporate form of organization.
We conclude and so hold that petitioner institution is not entitled to a legally
enforceable exclusive right to use the word "Lyceum" in its corporate name and
that other institutions may use "Lyceum" as part of their corporate names. To
determine whether a given corporate name is "identical" or "confusingly or
deceptively similar" with another entity's corporate name, it is not enough to
ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate
corporate names in their entirety and when the name of petitioner is juxtaposed
with the names of private respondents, they are not reasonably regarded as
"identical" or "confusingly or deceptively similar" with each other.
WHEREFORE, the petitioner having failed to show any reversible error on the
part of the public respondent Court of Appeals, the Petition for Review is DENIED
for lack of merit, and the Decision of the Court of Appeals dated 28 June 1991 is
hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.

We agree with the Court of Appeals. The number alone of the private respondents
in the case at bar suggests strongly that petitioner's use of the word "Lyceum" has
not been attended with the exclusivity essential for applicability of the doctrine of
secondary meaning. It may be noted also that at least one of the private
respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum"
seventeen (17) years before the petitioner registered its own corporate name with
the SEC and began using the word "Lyceum." It follows that if any institution had
acquired an exclusive right to the word "Lyceum," that institution would have been
the Western Pangasinan Lyceum, Inc. rather than the petitioner institution.

In this connection, petitioner argues that because the Western Pangasinan

Lyceum, Inc. failed to reconstruct its records before the SEC in accordance with
G.R. No. 205548, February 07, 2018
DE LA SALLE MONTESSORI INTERNATIONAL OF MALOLOS,
INC., Petitioner, v. DE LA SALLE BROTHERS, INC., DE LA SALLE
UNIVERSITY, INC., LA SALLE ACADEMY, INC., DE LA SALLE-
SANTIAGO ZOBEL SCHOOL, INC. (FORMERLY NAMED DE LA SALLE-
SOUTH INC.), DE LA SALLE CANLUBANG, INC. (FORMERLY NAMED
DE LA SALLE UNIVERSITY-CANLUBANG, INC.), Respondents.
DECISION
JARDELEZA, J.:
Petitioner De La Salle Montessori International of Malolos, Inc. filed this petition
for review on certiorari1 under Rule 45 of the Rules of Court to challenge the
Decision2 of the Court of Appeals (CA) dated September 27, 2012 in CA-G.R. SP
No. 116439 and its Resolution3 dated January 21, 2013 which denied petitioner's
motion for reconsideration. The CA affirmed the Decision4 of the Securities and
Exchange Commission (SEC) En Banc dated September 30, 2010, which in turn
affirmed the Order5 of the SEC Office of the General Counsel (OGC) dated May
12, 2010 directing petitioner to change or modify its corporate name.
Petitioner reserved with the SEC its corporate name De La Salle Montessori
International Malolos, Inc. from June 4 to August 3, 2007,6 after which the SEC
indorsed petitioner's articles of incorporation and by-laws to the Department of
Education (DepEd) for comments and recommendation.7 The DepEd returned the
indorsement without objections.8 Consequently, the SEC issued a certificate of
incorporation to petitioner.9
Afterwards, DepEd Region III, City of San Fernando, Pampanga granted
petitioner government recognition for its pre-elementary and elementary courses
on June 30, 2008,10 and for its secondary courses on February 15, 2010.11
On January 29, 2010, respondents De La Salle Brothers, Inc., De La Salle
University, Inc., La Salle Academy, Inc., De La Salle-Santiago Zobel School, Inc.
(formerly De La Salle-South, Inc.), and De La Salle Canlubang, Inc. (formerly De
La Salle University-Canlubang, Inc.) filed a petition with the SEC seeking to
compel petitioner to change its corporate name. Respondents claim that
petitioner's corporate name is misleading or confusingly similar to that which
respondents have acquired a prior right to use, and that respondents' consent to
use such name was not obtained. According to respondents, petitioner's use of the
dominant phrases "La Salle" and "De La Salle" gives an erroneous impression that
De La Salle Montessori International of Malolos, Inc. is part of the "La Salle"
group, which violates Section 18 of the Corporation Code of the Philippines.
Moreover, being the prior registrant, respondents have acquired the use of said
phrases as part of their corporate names and have freedom from infringement of
the same.12
On May 12, 2010, the SEC OGC issued an Order13 directing petitioner to change
or modify its corporate name. It held, among others, that respondents have
acquired the right to the exclusive use of the name "La Salle" with freedom from
infringement by priority of adoption, as they have all been incorporated using the
name ahead of petitioner. Furthermore, the name "La Salle" is not generic in that
it does not particularly refer to the basic or inherent nature of the services provided
by respondents. Neither is it descriptive in the sense that it does not forthwith and
clearly convey an immediate idea of what respondents' services are. In fact, it
merely gives a hint, and requires imagination, thought and perception to reach a
conclusion as to the nature of such services. Hence, the SEC OGC concluded that
respondents' use of the phrase "De La Salle" or "La Salle" is arbitrary, fanciful,
whimsical and distinctive, and thus legally protectable. As regards petitioner's
argument that its use of the name does not result to confusion, the SEC OGC held
otherwise, noting that confusion is probably or likely to occur considering not only
the similarity in the parties' names but also the business or industry they are
engaged in, which is providing courses of study in pre-elementary, elementary and
secondary education.14 The SEC OGC disagreed with petitioner's argument that
the case of Lyceum of the Philippines, Inc. v. Court of Appeals15 (Lyceum of the
Philippines) applies since the word "lyceum" is clearly descriptive of the very being
and defining purpose of an educational corporation, unlike the term "De La Salle"
or "La Salle."16 Hence, the Court held in that case that the Lyceum of the
Philippines, Inc. cannot claim exclusive use of the name "lyceum."
Petitioner filed an appeal before the SEC En Banc, which rendered a Decision17 on
September 30, 2010 affirming the Order of the SEC OGC. It held, among others,
that the Lyceum of the Philippines case does not apply since the word "lyceum" is
a generic word that pertains to a category of educational institutions and is widely
used around the world. Further, the Lyceum of the Philippines failed to prove that
"lyceum" acquired secondary meaning capable of exclusive appropriation.
Petitioner also failed to establish that the term "De La Salle" is generic for the
principle enunciated in Lyceum of the Philippines to apply.18
Petitioner consequently filed a petition for review with the CA. On September 27,
2012, the CA rendered its Decision19 affirming the Order of the SEC OGC and the
Decision of the SEC En Banc in toto.
Hence, this petition, which raises the lone issue of "[w]hether or not the [CA] acted
with grave abuse of discretion amounting to lack or in excess of jurisdiction when
it erred in not applying the doctrine laid down in the case of [Lyceum of the
Philippines], that LYCEUM is not attended with exclusivity."20
The Court cannot at the outset fail to note the erroneous wording of the issue.
Petitioner alleged grave abuse of discretion while also attributing error of
judgment on the part of the CA in not applying a certain doctrine. Certainly, these
grounds do not coincide in the same remedy. A petition for review
on certiorari under Rule 45 of the Rules of Court is a separate remedy from a
petition for certiorari under Rule 65. A petition for review on certiorari under Rule
45 brings up for review errors of judgment, while a petition for certiorari under
Rule 65 covers errors of jurisdiction or grave abuse of discretion amounting to
excess or lack of jurisdiction. Grave abuse of discretion is not an allowable ground
under Rule 45.21 Nonetheless, as the petition argues on the basis of errors of
judgment allegedly committed by the CA, the Court will excuse the error in
terminology.

The main thrust of the petition is that the CA erred in not applying the ruling in
the Lyceum of the Philippines case which petitioner argues have "the same facts
and events"22 as in this case.
We DENY the petition and uphold the Decision of the CA.
As early as Western Equipment and Supply Co. v. Reyes,23 the Court declared
that a corporation's right to use its corporate and trade name is a property right,
a right in rem, which it may assert and protect against the world in the same
manner as it may protect its tangible property, real or personal, against trespass
or conversion.24 It is regarded, to a certain extent, as a property right and one
which cannot be impaired or defeated by subsequent appropriation by another
corporation in the same field.25 Furthermore, in Philips Export B.V. v. Court of
Appeals,26 we held:
A name is peculiarly important as necessary to the very existence of a corporation
x x x. Its name is one of its attributes, an element of its existence, and essential to
its identity x x x. The general rule as to corporations is that each corporation must
have a name by which it is to sue and be sued and do all legal acts. The name of a
corporation in this respect designates the corporation in the same manner as the
name of an individual designates the person x x x; and the right to use its corporate
name is as much a part of the corporate franchise as any other privilege granted x
x x.
A corporation acquires its name by choice and need not select a name identical
with or similar to one already appropriated by a senior corporation while an
individual's name is thrust upon him x x x. A corporation can no more use a
corporate name in violation of the rights of others than an individual can use his
nan1e legally acquired so as to mislead the public and injure another x x x.27
Recognizing the intrinsic importance of corporate names, our Corporation Code
established a restrictive rule insofar as corporate names are concerned.28 Thus,
Section 18 thereof provides:
Sec. 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.
The policy underlying the prohibition in Section 18 against the registration of a
corporate name which is "identical or deceptively or confusingly similar" to that of
any existing corporation or which is "patently deceptive" or "patently confusing" or
"contrary to existing laws," is the avoidance of fraud upon the public which would
have occasion to deal with the entity concerned, the evasion of legal obligations
and duties, and the reduction of difficulties of administration and supervision over
corporations.29
Indeed, parties organizing a corporation must choose a name at their peril; and
the use of a name similar to one adopted by another corporation, whether a
business or a non-profit organization, if misleading or likely to injure in the
exercise of its corporate functions, regardless of intent, may be prevented by the
corporation having a prior right, by a suit for injunction against the new
corporation to prevent the use of the name.30
In Philips Export B.V. v. Court of Appeals,31 the Court held that to fall within the
prohibition of Section 18, two requisites must be proven, to wit: (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) deceptively 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.32
With respect to the first requisite, the Court has held that the right to the exclusive
use of a corporate name with freedom from infringement by similarity is
determined by priority of adoption.33
In this case, respondents' corporate names were registered on the following dates:
(1) De La Salle Brothers, Inc. on October 9, 1961 under SEC Registration No.
19569; (2) De La Salle University, Inc. on December 19, 1975 under SEC
Registration No. 65138; (3) La Salle Academy, Inc. on January 26, 1960 under SEC
Registration No. 16293; (4) De La SalleSantiago Zobel School, Inc. on October 7,
1976 under SEC Registration No. 69997; and (5) De La Salle Canlubang, Inc. on
August 5, 1998 under SEC Registration No. Al998-01021.34
On the other hand, petitioner was issued a Certificate of Registration only on July
5, 2007 under Company Registration No. CN200710647.35 It being clear that
respondents are the prior registrants, they certainly have acquired the right to use
the words "De La Salle" or "La Salle" as part of their corporate names.
The second requisite is also satisfied since there is a confusing similarity between
petitioner's and respondents' corporate names. While these corporate names are
not identical, it is evident that the phrase "De La Salle" is the dominant phrase
used.
Petitioner asserts that it has the right to use the phrase "De La Salle" in its
corporate name as respondents did not obtain the right to its exclusive use, nor did
the words acquire secondary meaning. It endeavoured to demonstrate that no
confusion will arise from its use of the said phrase by stating that its complete
name, "De La Salle Montessori International of Malolos, Inc.," contains four other
distinctive words that are not found in respondents' corporate names. Moreover, it
obtained the words "De La Salle" from the French word meaning "classroom,"
while respondents obtained it from the French priest named Saint Jean Baptiste
de La Salle. Petitioner also compared its logo to that of respondent De La Salle
University and argued that they are different. Further, petitioner argued that it
does not charge as much fees as respondents, that its clients knew that it is not
part of respondents' schools, and that it never misrepresented nor claimed to be an
affiliate of respondents. Additionally, it has gained goodwill and a name worthy of
trust in its own right.36
We are not persuaded.
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. In so doing, the Court must look to the record as well as the names
themselves.37
Petitioner's assertion that the words "Montessori International of Malolos, Inc."
are four distinctive words that are not found in respondents' corporate names so
that their corporate name is not identical, confusingly similar, patently deceptive
or contrary to existing laws,38 does not avail. As correctly held by the SEC OGC,
all these words, when used with the name "De La Salle," can reasonably mislead
a person using ordinary care and discretion into thinking that petitioner is an
affiliate or a branch of, or is likewise founded by, any or all of the respondents,
thereby causing confusion.39
Petitioner's argument that it obtained the words "De La Salle" from the French
word meaning "classroom," while respondents obtained it from the French priest
named Saint Jean Baptiste de La Salle,40 similarly does not hold water. We quote
with approval the ruling of the SEC En Banc on this matter. Thus:
Generic terms are those which constitute "the common descriptive name of an
article or substance," or comprise the "genus of which the particular product is a
species," or are "commonly used as the name or description of a kind of goods," or
"characters," or "refer to the basic nature of the wares or services provided rather
than to the more idiosyncratic characteristics of a particular product," and are not
legally protectable. It has been held that if a mark is so commonplace that it cannot
be readily distinguished from others, then it is apparent that it cannot identify a
particular business; and he who first adopted it cannot be injured by any
subsequent appropriation or imitation by others, and the public will not be
deceived.
Contrary to [petitioner's] claim, the word salle only means "room" in French. The
word la, on the other hand, is a definite article ("the") used to modify salle. Thus,
since salle is nothing more than a room, [respondents'] use of the term is actually
suggestive.
A suggestive mark is therefore a word, picture, or other symbol that suggests, but
does not directly describe something about the goods or services in connection with
which it is used as a mark and gives a hint as to the quality or nature of the
product. Suggestive trademarks therefore can be distinctive and are registrable.
The appropriation of the term "la salle" to associate the words with the lofty ideals
of education and learning is in fact suggestive because roughly translated, the
words only mean "the room." Thus, the room could be anything - a room in a house,
a room in a building, or a room in an office.
xxx
In fact, the appropriation by [respondents] is fanciful, whimsical and arbitrary
because there is no inherent connection between the words la salle and education,
and it is through [respondents'] painstaking efforts that the term has become
associated with one of the top educational institutions in the country. Even
assuming arguendo that la salle means "classroom" in French, imagination is
required in order to associate the term with an educational institution and its
particular brand of service.41
We affirm that the phrase "De La Salle" is not merely a generic term. Respondents'
use of the phrase being suggestive and may properly be regarded as fanciful,
arbitrary and whimsical, it is entitled to legal protection.42 Petitioner's use of the
phrase "De La Salle" in its corporate name is patently similar to that of
respondents that even with reasonable care and observation, confusion might
arise. The Court notes not only the similarity in the parties' names, but also the
business they are engaged in. They are all private educational institutions offering
pre-elementary, elementary and secondary courses.43 As aptly observed by the
SEC En Banc, petitioner's name gives the impression that it is a branch or affiliate
of respondents.44 It is settled that proof of actual confusion need not be shown. It
suffices that confusion is probable or likely to occur.45
Finally, the Court's ruling in Lyceum of the Philippines46 does not apply.
In that case, the Lyceum of the Philippines, Inc., an educational institution
registered with the SEC, commenced proceedings before the SEC to compel therein
private respondents who were all educational institutions, to delete the word
"Lyceum" from their corporate names and permanently enjoin them from using the
word as part of their respective names.
The Court there held that the word "Lyceum" today generally refers to a school or
institution of learning. It is as generic in character as the word "university." Since
"Lyceum" denotes a school or institution of learning, it is not unnatural to use this
word to designate an entity which is organized and operating as an educational
institution. Moreover, the Lyceum of the Philippines, Inc.'s use of the word
"Lyceum" for a long period of time did not amount to mean that the word had
acquired secondary meaning in its favor because it failed to prove that it had been
using the word all by itself to the exclusion of others. More so, there was no
evidence presented to prove that the word has been so identified with the Lyceum
of the Philippines, Inc. as an educational institution that confusion will surely
arise if the same word were to be used by other educational institutions.47
Here, the phrase "De La Salle" is not generic in relation to respondents. It is not
descriptive of respondent's business as institutes of learning, unlike the meaning
ascribed to "Lyceum." Moreover, respondent De La Salle Brothers, Inc. was
registered in 1961 and the De La Salle group had been using the name decades
before petitioner's corporate registration. In contrast, there was no evidence of the
Lyceum of the Philippines, Inc.'s exclusive use of the word "Lyceum," as in fact
another educational institution had used the word 17 years before the former
registered its corporate name with the SEC. Also, at least nine other educational
institutions included the word in their corporate names. There is thus no similarity
between the Lyceum of the Philippines case and this case that would call for a
similar ruling.
The enforcement of the protection accorded by Section 18 of the Corporation Code
to corporate names is lodged exclusively in the SEC. By express mandate, the SEC
has absolute jurisdiction, supervision and control over all corporations. 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.48

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.49

Time and again, we have held that 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.50

WHEREFORE, the Petition is DENIED. The assailed Decision of the CA dated

September 27, 2012 is AFFIRMED.

SO ORDERED.
G.R. No. 224307, August 06, 2018
THE MISSIONARY SISTERS OF OUR LADY OF FATIMA (PEACH
SISTERS OF LAGUNA), REPRESENTED BY REV. MOTHER MA.
CONCEPCION R. REALON, ET AL., Petitioners, v. AMANDO V. ALZONA,
ET AL., Respondents.
DECISION
REYES, JR., J.:
Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules
of Court seeking to annul and set aside the Decision2 dated January 7, 2016 of the
Court of Appeals (CA) in CA-G.R. CV No. 101944, and its Resolution3 dated April
19, 2016, denying the motion for reconsideration thereof. The assailed decision
partly granted the respondents' appeal and set aside the Decision4 dated August
14, 2013 of the Regional Trial Court (RTC) of Calamba City, Branch 92 in Civil
Case No. 3250-02-C.
The Antecedent Facts
The Missionary Sisters of Our Lady of Fatima (petitioner), otherwise known as the
Peach Sisters of Laguna, is a religious and charitable group established under the
patronage of the Roman Catholic Bishop of San Pablo on May 30, 1989. Its primary
mission is to take care of the abandoned and neglected elderly persons. The
petitioner came into being as a corporation by virtue of a Certificate issued by the
Securities and Exchange Commission (SEC) on August 31, 2001.5 Mother Ma.
Concepcion R. Realon (Mother Concepcion) is the petitioner's Superior General.
The respondents, on the other hand, are the legal heirs of the late Purificacion Y.
Alzona (Purificacion).
The facts giving rise to the instant controversy follow:
Purificacion, a spinster, is the registered owner of parcels of land covered by
Transfer Certificate of Title (TCT) Nos. T-57820* and T-162375; and a co-owner of
another property covered by TCT No. T-162380, all of which are located in
Calamba City, Laguna.6
In 1996, Purificacion, impelled by her unmaterialized desire to be nun, decided to
devote the rest of her life in helping others. In the same year, she then became a
benefactor of the petitioner by giving support to the community and its works.7
In 1997, during a doctor's appointment, Purificacion then accompanied by Mother
Concepcion, discovered that she has been suffering from lung cancer. Considering
the restrictions in her movement, Purificacion requested Mother Concepcion to
take care of her in her house, to which the latter agreed.8
In October 1999, Purificacion called Mother Concepcion and handed her a
handwritten letter dated October 1999. Therein, Purificacion stated that she is
donating her house and lot at F. Mercado Street and Riceland at Banlic, both at
Calamba, Laguna, to the petitioner through Mother Concepcion. On the same
occasion, Purificacion introduced Mother Concepcion to her nephew, Francisco Del
Mundo (Francisco), and niece, Ma. Lourdes Alzona Aguto-Africa (Lourdes).
Purificacion, instructed Francisco to give a share of the harvest to Mother
Concepcion, and informed Lourdes that she had given her house to Mother
Concepcion.9
Sometime in August 2001, at the request of Purificacion, Mother Concepcion went
to see Atty. Nonato Arcillas (Atty. Arcillas) in Los Baños, Laguna. During their
meeting, Atty. Arcillas asked Mother Concepcion whether their group is registered
with the SEC, to which the latter replied in the negative. Acting on the advice
given by Atty. Arcillas, Mother Concepcion went to SEC and filed the
corresponding registration application on August 28, 2001.10
On August 29, 2001, Purificacion executed a Deed of Donation Inter Vivos (Deed)
in favor of the petitioner, conveying her properties covered by TCT Nos. T-67820
and T-162375, and her undivided share in the property covered by TCT No. T-
162380. The Deed was notarized by Atty. Arcillas and witnessed by Purificacion's
nephews Francisco and Diosdado Alzona, and grandnephew, Atty. Fernando M.
Alonzo. The donation was accepted on even date by Mother Concepcion for and in
behalf of the petitioner.11
Thereafter, Mother Concepcion filed an application before the Bureau of Internal
Revenue (BIR) that the petitioner be exempted from donor's tax as a religious
organization. The application was granted by the BIR through a letter dated
January 14, 2002 of Acting Assistant Commissioner, Legal Service, Milagros
Regalado.12
Subsequently, the Deed, together with the owner's duplicate copies of TCT Nos. T-
57820, T-162375, and T-162380, and the exemption letter from the BIR was
presented for registration. The Register of Deeds, however, denied the registration
on account of the Affidavit of Adverse Claim dated September 26, 2001 filed by the
brother of Purificacion, respondent Amando Y. Alzona (Amando).13
On October 30, 2001, Purificacion died without any issue, and survived only by her
brother of full blood, Amando, who nonetheless died during the pendency of this
case and is now represented and substituted by his legal heirs, joined as herein
respondents.14
On April 9, 2002, Amando filed a Complaint before the RTC, seeking to annul the
Deed executed between Purificacion and the petitioner, on the ground that at the
time the donation was made, the latter was not registered with the SEC and
therefore has no juridical personality and cannot legally accept the donation.15
After trial, on August 14, 2013, the RTC rendered its Decision16 finding no merit
in the complaint, thus ruling:
WHEREFORE, the instant case is hereby DISMISSED with costs against the
[respondents]. The Compulsory counterclaim of the [petitioner] is likewise
dismissed for lack of evidence.
SO ORDERED.17
In the instant petition, the petitioner submits the following arguments in support
of its position:

In its decision, the RTC held that all the essential elements of a donation are The Donation Inter Vivos is valid and binding against the parties therein
present. The RTC set aside the allegation by the respondents relating to the [Purificacion] and the [petitioner] and their respective successors in interest:
incapacity of the parties to enter into a donation.18
1.) The [petitioner] has the requisite legal personality to accept donations as
In the case of Purificacion, the RTC held that apart from the self-serving
a religious institution under the Roman Catholic Bishop of San Pablo
allegations by the respondents, the records are bereft of evidence to prove that she
authorized to receive donations;
did not possess the proper mental faculty in making the donation; as such the
presumption that every person is of sound mind stands.19
2.) The [petitioner] has the requisite legal capacity to accept the donation as
On the capacity of the donee, the RTC held that at the time of the execution of the it may be considered a de facto corporation.
Deed, the petitioner was a de facto corporation and as such has the personality to
be a beneficiary and has the power to acquire and possess property. Further then,
the petitioner's incapacity cannot be questioned or assailed in the instant case as 3.) Regardless of the absence of the Certificate of Registration of [petitioner]
it constitutes a collateral attack which is prohibited by the Corporation Code of the at the time of the execution of the Deed of Donation, the same is still valid
Philippines.20 In this regard, the RTC found that the recognition by the petitioner and binding having been accepted by a representative of the [petitioner]
of Mother Concepcion's authority is sufficient to vest the latter of the capacity to while the latter was still waiting for the issuance of the Certificate of
accept the donation.21 Registration and which acceptance of the donation was duly ratified by
the corporation.
Acting on the appeal filed by the respondents, the CA rendered the herein assailed
Decision22 on January 7, 2016, the dispositive portion of which reads:
4.) The intestate estate of Purificacion is estopped from questioning the legal
WHEREFORE, the appeal is PARTLY GRANTED. The assailed August 14, 2013 personality of [the petitioner].
Decision of the RTC, Branch 92, Calamba City in Civil Case No. 3250-02 is SET
ASIDE by declaring as VOID the deed of Donation dated August 14, 2013. [The
respondents'] prayer for the award of moral and exemplary damages as well as
attorney's fees is nevertheless DENIED. The Respondents lack the requisite legal capacity to question the legality of the
deed of donation.29
SO ORDERED.23

In sum, the issue to be resolved by this Court in the instant case is whether or not
In so ruling, the CA, citing the case of Seventh Day Adventist Conference Church the Deed executed by Purificacion in favor of the petitioner is valid and binding.
of Southern Phils., Inc. v. Northeastern Mindanao Mission of Seventh Day In relation to this, the Court is called upon to determine the legal capacity of the
Adventist, Inc.,24 held that the petitioner cannot be considered as a de petitioner, as donee, to accept the donation, and the authority Mother Concepcion
facto corporation considering that at the time of the donation, there was no bona to act on behalf of the petitioner in accepting the donation.
fide attempt on its part to incorporate.25 As an unregistered corporation, the CA
concluded that the petitioner cannot exercise the powers, rights, and privileges Ruling of the Court
expressly granted by the Corporation Code. Ultimately, bereft of juridical
personality, the CA ruled that the petitioner cannot enter into a contract of
Donation with Purificacion.26
The petition is meritorious.
Finally, the CA denied the respondents' claim for actual damages and attorney's
fees for failure to substantiate the same.27 The petitioner argues that it has the requisite legal personality to accept the
donation as a religious institution organized under the Roman Catholic Bishop of
The petitioner sought a reconsideration of the Decision dated January 7, 2016, but San Pablo, a corporation sole.30
the CA denied it in its Resolution28 dated April 19, 2016.
Regardless, the petitioner contends that it is a de facto corporation and therefore The Court finds that for the purpose of accepting the donation, the petitioner is
possessed of the requisite personality to enter into a contract of donation. deemed vested with personality to accept, and Mother Concepcion is clothed with
authority to act on the latter's behalf.
Assuming further that it cannot be considered as a de facto corporation, the
petitioner submits that the acceptance by Mother Concepcion while the religious At the outset, it must be stated that as correctly pointed out by the CA, the RTC
organization is still in the process of incorporation is valid as it then takes the form erred in holding that the petitioner is a de facto corporation.
of a pre-incorporation contract governed by the rules on agency. The petitioner
argues that their subsequent incorporation and acceptance perfected the subject Jurisprudence settled that "[t]he filing of articles of incorporation and the issuance
contract of donation.31 of the certificate of incorporation are essential for the existence of a de
facto corporation."38 In fine, it is the act of registration with SEC through the
Ultimately, the petitioner argues that the intestate estate of Purificacion is issuance of a certificate of incorporation that marks the beginning of an entity's
estopped from questioning its legal personality considering the record is replete of corporate existence.39
evidence to prove that Purificacion at the time of the donation is fully aware of its
status and yet was still resolved into giving her property.32 Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001.
However, the SEC issued the corresponding Certificate of Incorporation only on
In response, the respondents submit that juridical personality to enter into a August 31, 2001, two (2) days after Purificacion executed a Deed of Donation on
contract of donation is vested only upon the issuance of a Certificate of August 29, 2001. Clearly, at the time the donation was made, the Petitioner cannot
Incorporation from SEC.33 Further, the respondents posit that the petitioner be considered a corporation de facto. 40
cannot even be considered as a de facto corporation considering that for more than
20 years, there was never any attempt on its part to incorporate, which decision Rather, a review of the attendant circumstances reveals that it calls for the
came only after Atty. Arcillas, suggestion.34 application of the doctrine of corporation by estoppel as provided for under Section
21 of the Corporation Code, viz.:
In order that a donation of an immovable property be valid, the following elements
must be present: (a) the essential reduction of the patrimony of the donor; (b) the Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation
increase in the patrimony of the donee; (c) the intent to do an act of liberality knowing it to be without authority to do so shall be liable as general partners for
or animus donandi; (d) the donation must be contained in a public document; and all debts, liabilities and damages incurred or arising as a result thereof: Provided,
e) that the acceptance thereof be made in the same deed or in a separate public however, That when any such ostensible corporation is sued on any transaction
instrument; if acceptance is made in a separate instrument, the donor must be entered by it as a corporation or on any tort committed by it as such, it shall not
notified thereof in an authentic form, to be noted in both instruments.35 be allowed to use as a defense its lack of corporate personality.

There is no question that the true intent of Purificacion, the donor and the owner One who assumes an obligation to an ostensible corporation as such, cannot resist
of the properties in question, was to give, out of liberality the subject house and performance thereof on the ground that there was in fact no
lot, which she owned, to the petitioner. This act, was then contained in a public corporation. (Emphasis Ours)
document, the deed having been acknowledged before Atty. Arcillas, a Notary
Public.36 The acceptance of the donation is made on the same date that the
donation was made and contained in the same instrument as manifested by
The doctrine of corporation by estoppel is founded on principles of equity and is
Mother Concepcion's signature.37 In fine, the remaining issue to be resolved is the
designed to prevent injustice and unfairness. It applies when a non-existent
capacity of the petitioner as donee to accept the donation, and the authority of
corporation enters into contracts or dealings with third persons.41 In which case,
Mother Concepcion to act on its behalf for this purpose.
the person who has contracted or otherwise dealt with the non-existent corporation
is estopped to deny the latter's legal existence in any action leading out of or
Under Article 737 of the Civil Code, "[t]he donor's capacity shall be determined as
involving such contract or dealing. While the doctrine is generally applied to
of the time of the making of the donation." By analogy, the legal capacity or the
protect the sanctity of dealings with the public,42 nothing prevents its application
personality of the donee, or the authority of the latter's representative, in certain
in the reverse, in fact the very wording of the law which sets forth the doctrine of
cases, is determined at the time of acceptance of the donation.
corporation by estoppel permits such interpretation. Such that a person who has
assumed an obligation in favor of a non-existent corporation, having transacted
Article 738, in relation to Article 745, of the Civil Code provides that all those who
with the latter as if it was duly incorporated, is prevented from denying the
are not specifically disqualified by law may accept donations either personally or
existence of the latter to avoid the enforcement of the contract.
through an authorized representative with a special power of attorney for the
purpose or with a general and sufficient power.
Jurisprudence dictates that the doctrine of corporation by estoppel applies for as
long as there is no fraud and when the existence of the association is attacked for
causes attendant at the time the contract or dealing sought to be enforced was
entered into, and not thereafter.43
In this controversy, Purificacion dealt with the petitioner as if it were a
corporation. This is evident from the fact that Purificacion executed two (2)
documents conveying her properties in favor of the petitioner – first, on October
11, 1999 via handwritten letter, and second, on August 29, 2001 through a Deed;
the latter having been executed the day after the petitioner filed its application for
registration with the SEC.44
The doctrine of corporation by estoppel rests on the idea that if the Court were to
disregard the existence of an entity which entered into a transaction with a third
party, unjust enrichment would result as some form of benefit have already
accrued on the part of one of the parties. Thus, in that instance, the Court affords
upon the unorganized entity corporate fiction and juridical personality for the sole
purpose of upholding the contract or transaction.
In this case, while the underlying contract which is sought to be enforced is that of
a donation, and thus rooted on liberality, it cannot be said that Purificacion, as the
donor failed to acquire any benefit therefrom so as to prevent the application of the
doctrine of corporation by estoppel.45 To recall, the subject properties were given
by Purificacion, as a token of appreciation for the services rendered to her during
her illness.46 In fine, the subject deed partakes of the nature of a remuneratory or
compensatory donation, having been made "for the purpose of rewarding the donee
for past services, which services do not amount to a demandable debt."47
As elucidated by the Court in Pirovano, et al. v. De La Rama Steamship Co.:48
In donations made to a person for services rendered to the donor, the donor's will
is moved by acts which directly benefit him. The motivating cause is gratitude,
acknowledgment of a favor, a desire to compensate. A donation made to one who
saved the donor's life, or a lawyer who renounced his fees for services rendered to
the donor, would fall under this class of donations.49
Therefore, under the premises, past services constitutes consideration, which in
tum can be regarded as "benefit" on the part of the donor, consequently, there
exists no obstacle to the application of the doctrine of corporation by estoppel;
although strictly speaking, the petitioner did not perform these services on the
expectation of something in return.
Precisely, the existence of the petitioner as a corporate entity is upheld in this case
for the purpose of validating the Deed to ensure that the primary objective for
which the donation was intended is achieved, that is, to convey the property for
the purpose of aiding the petitioner in the pursuit of its charitable objectives.
Further, apart from the foregoing, the subsequent act by Purificacion of re-
conveying the property in favor of the petitioner is a ratification by conduct of the
otherwise defective donation.50
Express or implied ratification is recognized by law as a means to validate a
defective contract.51 Ratification cleanses or purges the contract from its defects
from constitution or establishment, retroactive to the day of its creation. By
ratification, the infirmity of the act is obliterated thereby making it perfectly valid
and enforceable.52
The principle and essence of implied ratification require that the principal has full
knowledge at the time of ratification of all the material facts and circumstances
relating to the act sought to be ratified or validated.53 Also, it is important that
the act constituting the ratification is unequivocal in that it is performed without
the slightest hint of objection or protest from the donor or the donee, thus
producing the inevitable conclusion that the donation and its acceptance were in
fact confirmed and ratified by the donor and the donee.54
In this controversy, while the initial conveyance is defective, the genuine intent of
Purificacion to donate the subject properties in favor of the petitioner is
indubitable. Also, while the petitioner is yet to be incorporated, it cannot be said
that the initial conveyance was tainted with fraud or misrepresentation.
Contrarily, Purificacion acted with full knowledge of circumstances of the
Petitioner. This is evident from Purificacion's act of referring Mother Concepcion
to Atty. Arcillas, who, in turn, advised the petitioner to apply for registration.
Further, with the execution of two (2) documents of conveyance in favor of the
petitioner, it is clear that what Purificacion intended was for the sisters comprising
the petitioner to have ownership of her properties to aid them in the pursuit of
their charitable activities, as a token of appreciation for the services they rendered
to her during her illness.55 To put it differently, the reference to the petitioner was
merely a descriptive term used to refer to the sisters comprising the congregation
collectively. Accordingly, the acceptance of Mother Concepcion for the sisters
comprising the congregation is sufficient to perfect the donation and transfer title
to the property to the petitioner. Ultimately, the subsequent incorporation of the
petitioner and its affirmation of Mother Concepcion's authority to accept on its
behalf cured whatever defect that may have attended the acceptance of the
donation.
The Deed sought to be enforced having been validly entered into by Purificacion,
the respondents' predecessor-in-interest, binds the respondents who succeed the
latter as heirs.56 Simply, as they claim interest in their capacity as Purificacion's
heirs, the respondents are considered as "privies" to the subject Deed; or are "those
between whom an action is binding although they are not literally parties to the
said action."57 As discussed in Constantino, et al. v. Heirs of Pedro Constantino,
Jr.:58
[p]rivity in estate denotes the privity between assignor and assignee, donor and
donee, grantor and grantee, joint tenant for life and remainderman or reversioner
and their respective assignees, vendor by deed of warranty and a remote vendee
or assignee. A privy in estate is one, it has been said, who derives his title to the
property in question by purchase; one who takes by conveyance. In fine,
respondents, as successors-in-interest, derive their right from and are in the same
position as their predecessor in whose shoes they now stand.59 (Citation omitted)
Anent the authority of Mother Concepcion to act as representative for and in behalf
of the petitioner, the Court similarly upholds the same. Foremost, the authority of
Mother Concepcion was never questioned by the petitioner. In fact, the latter
affirms and supports the authority of Mother Concepcion to accept the donation on
their behalf; as she is, after all the congregation's Superior
General.60 Furthermore, the petitioner's avowal of Mother Concepcion's authority
after their SEC registration is a ratification of the latter's authority to accept the
subject donation as the petitioner's representative.61

In closing, it must be emphasized that the Court is both of law and of justice. Thus,
the Court's mission and purpose is to apply the law with justice.62

Donation is an expression of our social conscience, an act rooted purely on the

goodness of one's heart and intent to contribute.

Purificacion, the donor is worthy of praise for her works of charity. Likewise, the
petitioner is worthy of admiration for with or without the promise of reward or
consideration, the Court is certain that it is impelled by sincere desire to help the
petitioner in overcoming her illness.

It is unfortunate that the will of a person moved by the desire to reciprocate the
goodness shown to her during the lowest and culminating points of her life is
questioned and herein sought to be nullified on strict legality, when the intent of
the donor to give is beyond question.

The promotion of charitable works is a laudable objective. While not mentioned in

the Constitution, the Court recognizes benevolent giving as an important social
fabric that eliminates inequality. As such, charitable giving must be encouraged
through support from society and the Court.

WHEREFORE, in consideration of the foregoing disquisitions, the instant petition

for review on certiorari is GRANTED. Accordingly, the Decision dated January 7,
2016 and Resolution dated April 19, 2016 of the Court of Appeals in CA-G.R. CV
No. 101944, are hereby REVERSED and SET ASIDE.

SO ORDERED.