Renato Tayag Vs Benguet Consolidated, Inc. Facts
Renato Tayag Vs Benguet Consolidated, Inc. Facts
Renato Tayag Vs Benguet Consolidated, Inc. Facts
Facts:
In March 1960, Idonah Perkins died in New York. She left behind properties here and
abroad. One property she left behind were two stock certificates covering 33,002 shares of stocks
of the Benguet Consolidated, Inc (BCI). Said stock certificates were in the possession of the
Country Trust Company of New York (CTC-NY). CTC-NY was the domiciliary administrator of the
estate of Perkins (obviously in the USA). Meanwhile, in 1963, Renato Tayag was appointed as the
ancillary administrator (of the properties of Perkins she left behind in the Philippines).
A dispute arose between CTC-NY and Tayag as to who between them is entitled to possess
the stock certificates. A case ensued and eventually, the trial court ordered CTC-NY to turn over
the stock certificates to Tayag. CTC-NY refused. Tayag then filed with the court a petition to have
said stock certificates be declared lost and to compel BCI to issue new stock certificates in
replacement thereof. The trial court granted Tayags petition.
BCI assailed said order as it averred that it cannot possibly issue new stock certificates
because the two stock certificates declared lost are not actually lost; that the trial court as well
Tayag acknowledged that the stock certificates exists and that they are with CTC-NY; that
according to BCIs by laws, it can only issue new stock certificates, in lieu of lost, stolen, or
destroyed certificates of stocks, only after court of law has issued a final and executory order as
to who really owns a certificate of stock.
ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct.
HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine laws. It has
been given rights and privileges under the law. Corollary, it also has obligations under the law
and one of those is to follow valid legal court orders. It is not immune from judicial control
because it is domiciled here in the Philippines. BCI is a Philippine corporation owing full allegiance
and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be
considered in any wise as immune from lawful court orders. Further, to allow BCIs opposition is
to render the court order against CTC-NY a mere scrap of paper. It will leave Tayag without any
remedy simply because CTC-NY, a foreign entity refuses to comply with a valid court order. The
final recourse then is for our local courts to create a legal fiction such that the stock certificates
in issue be declared lost even though in reality they exist in the hands of CTC-NY. This is valid. As
held time and again, fictions which the law may rely upon in the pursuit of legitimate ends have
played an important part in its development.
Further still, the argument invoked by BCI that it can only issue new stock certificates in
accordance with its bylaws is misplaced. It is worth noting that CTC-NY did not appeal the order
of the court it simply refused to turn over the stock certificates hence ownership can be said to
have been settled in favor of estate of Perkins here. Also, assuming that there really is a conflict
between BCIs bylaws and the court order, what should prevail is the lawful court order. It would
be highly irregular if court orders would yield to the bylaws of a corporation. Again, a corporation
is not immune from judicial orders.
Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3,
5 and 6.
Stockholders appealed
They contend that the certificate of liquidation is not a conveyance or transfer but merely
a distribution of the assets of the corporation which has ceased to exist for having been dissolved
ISSUE: W/N certificate merely involves a distribution of the corporation's assets (or should be
considered a transfer or conveyance)
HELD: NO. affirm the resolution appealed from
Corporation - juridical person distinct from the members composing it.
Properties registered in the name of the corporation are owned by it as an entity separate and
distinct from its members.
While shares of stock constitute personal property they do not represent property of the
corporation.
A share of stock only typifies an aliquot part of the corporation's property, or the right to share
in its proceeds to that extent when distributed according to law and equity but its holder is NOT
the owner of any part of the capital of the corporation nor entitled to possession .
The stockholder is not a co-owner or tenant in common of the corporate property
Pioneer
Insurance
&
Surety
Corporation
vs
Court
of
Appeals
Facts: Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim
convinced Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border Machinery
and Heavy Equipment Company (BORMAHECO) to contribute funds and to buy two aircrafts
which would form part a corporation which will be the expansion of Southern Air Lines. Maglana
et al then contributed and delivered money to Lim.
But instead of using the money given to him to pay in full the aircrafts, Lim, without the
knowledge of Maglana et al, made an agreement with Pioneer Insurance for the latter to insure
the two aircrafts which were brought in installment from Japan Domestic Airlines (JDA) using said
aircrafts as security. So when Lim defaulted from paying JDA, the two aircrafts were foreclosed
by Pioneer Insurance.
It was established that no corporation was formally formed between Lim and Maglana et
al.
ISSUE: Whether or not Maglana et al must share in the loss as general partners.
HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do
business through a corporation but failed to incorporate, a de facto partnership would have been
formed, and as such, all must share in the losses and/or gains of the venture in proportion to
their contribution. But in this case, it was shown that Lim did not have the intent to form a
corporation with Maglana et al. This can be inferred from acts of unilaterally taking out a surety
from Pioneer Insurance and not using the funds he got from Maglana et al. The record shows
that Lim was acting on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
Yao and Chua represented themselves as acting in behalf of Ocean Quest Fishing Corporation
(OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing
nets amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own names
because apparently OQFC is a non-existent corporation. Chua admitted liability and asked for
some time to pay. Yao waived his rights. Lim Tong Lim however argued that hes not liable
because he was not aware that Chua and Yao represented themselves as a corporation; that the
two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term common fund under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be
imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found
in his boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua
and Yao decided to form a corporation. Although it was never legally formed for unknown
reasons, this fact alone does not preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation
and those benefited by it, knowing it to be without valid existence, are held liable as general
partners.
Dante Liban, et al. v. Richard Gordon, G.R. No. 175352, January 18, 2011
FACTS
Petitioners Liban, et al., who were officers of the Board of Directors of the Quezon City
Red Cross Chapter, filed with the Supreme Court what they styled as Petition to Declare Richard
J. Gordon as Having Forfeited His Seat in the Senate against respondent Gordon, who was
elected Chairman of the Philippine National Red Cross (PNRC) Board of Governors during his
incumbency as Senator.
Petitioners alleged that by accepting the chairmanship of the PNRC Board of Governors,
respondent Gordon ceased to be a member of the Senate pursuant to Sec. 13, Article VI of the
Constitution, which provides that [n]o Senator . . . may hold any other office or employment in
the Government, or any subdivision, agency, or instrumentality thereof, including government-
owned or controlled corporations or their subsidiaries, during his term without forfeiting his
seat. Petitioners cited the case of Camporedondo vs. NLRC, G.R. No. 129049, decided August 6,
1999, which held that the PNRC is a GOCC, in supporting their argument that respondent Gordon
automatically forfeited his seat in the Senate when he accepted and held the position of
Chairman of the PNRC Board of Governors.
Formerly, in its Decision dated July 15, 2009, the Court, voting 7-5,[1] held that the office
of the PNRC Chairman is NOT a government office or an office in a GOCC for purposes of the
prohibition in Sec. 13, Article VI of the 1987 Constitution. The PNRC Chairman is elected by the
PNRC Board of Governors; he is not appointed by the President or by any subordinate
government official. Moreover, the PNRC is NOT a GOCC because it is a privately-owned,
privately-funded, and privately-run charitable organization and because it is controlled by a
Board of Governors four-fifths of which are private sector individuals. Therefore, respondent
Gordon did not forfeit his legislative seat when he was elected as PNRC Chairman during his
incumbency as Senator.
The Court however held further that the PNRC Charter, R.A. 95, as amended by PD 1264
and 1643, is void insofar as it creates the PNRC as a private corporation since Section 7, Article
XIV of the 1935 Constitution states that [t]he Congress shall not, except by general law, provide
for the formation, organization, or regulation of private corporations, unless such corporations
are owned or controlled by the Government or any subdivision or instrumentality thereof. The
Court thus directed the PNRC to incorporate under the Corporation Code and register with the
Securities and Exchange Commission if it wants to be a private corporation. The fallo of the
Decision read:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red
Cross is not a government office or an office in a government-owned or controlled corporation
for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also declare
that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National
Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are
VOID because they create the PNRC as a private corporation or grant it corporate powers.
Respondent Gordon filed a Motion for Clarification and/or for Reconsideration of
the Decision. The PNRC likewise moved to intervene and filed its own Motion for Partial
Reconsideration. They basically questioned the second part of the Decision with regard to the
pronouncement on the nature of the PNRC and the constitutionality of some provisions of the
PNRC Charter.
ISSUE
Was it correct for the Court to have passed upon and decided on the issue of the
constitutionality of the PNRC charter? Corollarily: What is the nature of the PNRC?
RULING
[The Court GRANTED reconsideration and MODIFIED the dispositive portion of the
Decision by deleting the second sentence thereof.]
NO, it was not correct for the Court to have decided on the constitutional issue because
it was not the very lis mota of the case. The PNRC is sui generis in nature; it is neither strictly a
GOCC nor a private corporation.
The issue of constitutionality of R.A. No. 95 was not raised by the parties, and was not
among the issues defined in the body of the Decision; thus, it was not the very lis mota of the
case. We have reiterated the rule as to when the Court will consider the issue of constitutionality
in Alvarez v. PICOP Resources, Inc., thus:
This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is
a well-established rule that a court should not pass upon a constitutional question and decide a
law to be unconstitutional or invalid, unless such question is raised by the parties and that when
it is raised, if the record also presents some other ground upon which the court may [rest] its
judgment, that course will be adopted and the constitutional question will be left for
consideration until such question will be unavoidable.
[T]his Court should not have declared void certain sections of . . . the PNRC
Charter. Instead, the Court should have exercised judicial restraint on this matter, especially
since there was some other ground upon which the Court could have based its
judgment. Furthermore, the PNRC, the entity most adversely affected by this declaration of
unconstitutionality, which was not even originally a party to this case, was being compelled, as a
consequence of the Decision, to suddenly reorganize and incorporate under the Corporation
Code, after more than sixty (60) years of existence in this country.
Since its enactment, the PNRC Charter was amended several times, particularly on June
11, 1953, August 16, 1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855,
R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643, respectively. The passage of several laws
relating to the PNRCs corporate existence notwithstanding the effectivity of the constitutional
proscription on the creation of private corporations by law is a recognition that the PNRC is not
strictly in the nature of a private corporation contemplated by the aforesaid constitutional ban.
A closer look at the nature of the PNRC would show that there is none like it[,] not just in
terms of structure, but also in terms of history, public service and official status accorded to it by
the State and the international community. There is merit in PNRCs contention that its structure
is sui generis. It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has
remained valid and effective from the time of its enactment in March 22, 1947 under the 1935
Constitution and during the effectivity of the 1973 Constitution and the 1987 Constitution. The
PNRC Charter and its amendatory laws have not been questioned or challenged on constitutional
grounds, not even in this case before the Court now.
[T]his Court [must] recognize the countrys adherence to the Geneva Convention and
respect the unique status of the PNRC in consonance with its treaty obligations. The Geneva
Convention has the force and effect of law. Under the Constitution, the Philippines adopts the
generally accepted principles of international law as part of the law of the land. This
constitutional provision must be reconciled and harmonized with Article XII, Section 16 of the
Constitution, instead of using the latter to negate the former. By requiring the PNRC to organize
under the Corporation Code just like any other private corporation, the Decision of July 15, 2009
lost sight of the PNRCs special status under international humanitarian law and as an auxiliary of
the State, designated to assist it in discharging its obligations under the Geneva Conventions.
The PNRC, as a National Society of the International Red Cross and Red Crescent
Movement, can neither be classified as an instrumentality of the State, so as not to lose its
character of neutrality as well as its independence, nor strictly as a private corporation since it
is regulated by international humanitarian law and is treated as an auxiliary of the State.
Although [the PNRC] is neither a subdivision, agency, or instrumentality of the
government, nor a GOCC or a subsidiary thereof . . . so much so that respondent, under the
Decision, was correctly allowed to hold his position as Chairman thereof concurrently while he
served as a Senator, such a conclusion does not ipso facto imply that the PNRC is a private
corporation within the contemplation of the provision of the Constitution, that must be
organized under the Corporation Code. [T]he sui generis character of PNRC requires us to
approach controversies involving the PNRC on a case-to-case basis.
In sum, the PNRC enjoys a special status as an important ally and auxiliary of the
government in the humanitarian field in accordance with its commitments under international
law. This Court cannot all of a sudden refuse to recognize its existence, especially since the issue
of the constitutionality of the PNRC Charter was never raised by the parties. It bears emphasizing
that the PNRC has responded to almost all national disasters since 1947, and is widely known to
provide a substantial portion of the countrys blood requirements. Its humanitarian work is
unparalleled. The Court should not shake its existence to the core in an untimely and drastic
manner that would not only have negative consequences to those who depend on it in times of
disaster and armed hostilities but also have adverse effects on the image of the Philippines in the
international community. The sections of the PNRC Charter that were declared void must
therefore stay.
[Thus, R.A. No. 95 remains valid and constitutional in its entirety. The Court MODIFIED
the dispositive portion of the Decision by deleting the second sentence, to now read as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red
Cross is not a government office or an office in a government-owned or controlled corporation
for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution.]
In case of State vs. Burnam (71 Wash., 199), the court hold that the manager of a dairy
corporation was criminally liable for the violation of a statute by the corporation though he was
not present when the offense was committed.
In the present case the information alleges that the defendant was the manager of a
corporation which was engaged in business as a merchant, and as such manager, he made a false
return, for purposes of taxation, of the total amount of sales made by said corporation during
the year 1924. As the filing of such false return constitutes a violation of law, the defendant, as
the author of the illegal act, must necessarily answer for its consequences, provided that the
allegations are proven.
The ruling of the court below sustaining the demurrer to the complaint is therefore
reversed, and the case will be returned to said court for further proceedings not inconsistent
with our view as hereinbefore stated.
An officer of a corporation can be held criminally liable for acts or omissions done in
behalf of the corporation only where the law directly requires the corporation to do an act in a
given manner. In he absence of a law making a corporate officer liable for a criminal
offense committed by the corporation, the existence of the criminal liability of he former may
not be said to be beyond doubt. Hence in the absence of an express provision of law making Sia
liable for the offense done by MMCP of which he is President, as in fact there is no such provision
under the Revised Penal Code, Sia cannot be said to be liable for estafa.
RCBC appealed the resolution to the Department of Justice (DOJ) via petition for review
On July 13, 1999: reversed the assailed resolution of the City Prosecutor
Execution of said receipts is enough to indict the Ching as the official responsible for
violation of P.D. No. 115
April 22, 2004: CA dismissed the petition for lack of merit and on procedural grounds
Ching filed a petition for certiorari, prohibition and mandamus with the CA
ISSUE: W/N Ching should be held criminally liable.
HELD: YES. DENIED for lack of merit
There is no dispute that it was the Ching executed the 13 trust receipts. L aw points to him as
the official responsible for the offense. Since a corporation CANNOT be proceeded against
criminally because it CANNOT commit crime in which personal violence or malicious intent is
required, criminal action is limited to the corporate agents guilty of an act amounting to a crime
and never against the corporation itself. Execution by Ching of receipts is enough to indict him as
the official responsible for violation of PD 115
RCBC is estopped to still contend that PD 115 covers only goods which are ultimately
destined for sale and not goods, like those imported by PBM, for use in manufacture.
Moreover, PD 115 explicitly allows the prosecution of corporate officers without
prejudice to the civil liabilities arising from the criminal offense thus, the civil liability imposed
on respondent in RCBC vs. Court of Appeals case is clearly separate and distinct from his criminal
liability under PD 115
Chings being a Senior Vice-President of the Philippine Blooming Mills does not exculpate
him from any liability
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under
paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may
be committed by a corporation or other juridical entity or by natural persons. However, the
penalty for the crime is imprisonment for the periods provided in said Article 315.
Law specifically makes the officers, employees or other officers or persons responsible
for the offense, without prejudice to the civil liabilities of such corporation and/or board of
directors, officers, or other officials or employees responsible for the offense
Rationale: officers or employees are vested with the authority and responsibility to devise
means necessary to ensure compliance with the law and, if they fail to do so, are held criminally
accountable; thus, they have a responsible share in the violations of the law
If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and penalized
for the crime, precisely because of the nature of the crime and the penalty therefor. A
corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime
punishable by imprisonment. However, a corporation may be charged and prosecuted for a
crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment
as penalty, a corporation may be prosecuted and, if found guilty, may be fined
When a criminal statute designates an act of a corporation or a crime and prescribes
punishment therefor, it creates a criminal offense which, otherwise, would not exist and such
can be committed only by the corporation. But when a penal statute does not expressly apply to
corporations, it does not create an offense for which a corporation may be punished. On the
other hand, if the State, by statute, defines a crime that may be committed by a corporation but
prescribes the penalty therefor to be suffered by the officers, directors, or employees of such
corporation or other persons responsible for the offense, only such individuals will suffer such
penalty. Corporate officers or employees, through whose act, default or omission the corporation
commits a crime, are themselves individually guilty of the crime. The principle applies whether
or not the crime requires the consciousness of wrongdoing. It applies to those corporate agents
who themselves commit the crime and to those, who, by virtue of their managerial positions or
other similar relation to the corporation, could be deemed responsible for its commission, if by
virtue of their relationship to the corporation, they had the power to prevent the act. Benefit is
not an operative fact.
passbook, Teller No. 6 informed him that somebody got the passbook. Calapre went back to
L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of
P200,000. Macaraya and Calapre went to Solidbank and presented to Teller No. 6 the deposit slip
and check. The teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD
OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller
No. 6 told Macaraya that someone got the passbook but she could not remember to whom she
gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6
answered that someone shorter than Calapre got the passbook. Calapre was then standing
beside Macaraya.
The following day L.C. Diaz learned of the unauthorized withdrawal the day before (14
August
1991)
of
P300,000
from
its
savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized
signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied
signing the withdrawal slip. A certain Noel Tamayo received the P300,000.
L.C. Diaz demanded from Solidbank the return of its money. Solidbank refused. L.C. Diaz
filed a Complaint for Recovery of a Sum of Money against Solidbank. The trial court absolved
Solidbank. L.C. Diaz appealed to the CA. CA reversed the ecision of the trial court. CA denied the
motion for reconsideration of Solidbank. But it modified its decision by deleting the award of
exemplary damages and attorneys fees. Hence this petition.
ISSUE:
WON petitioner Solidbank is liable.
RULING:
Yes. Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil
Code on simple loan. Article 1980 of the Civil Code expressly provides that x x x savings x x x
deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan. There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on demand. The savings deposit agreement
between the bank and the depositor is the contract that determines the rights and obligations of
the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. The
bank is under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship.
This fiduciary relationship means that the banks obligation to observe high standards of
integrity and performance is deemed written into every deposit agreement between a bank and
its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence
higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree
of diligence required of an obligor is that prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the
statutory diligence required from banks that banks must observe high standards of integrity
and performance in servicing their depositors.
However, the fiduciary nature of a bank-depositor relationship does not convert the
contract between the bank and its depositors from a simple loan to a trust agreement, whether
express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and
not a breach of trust. The law simply imposes on the bank a higher standard of integrity and
performance in complying with its obligations under the contract of simple loan, beyond those
required of non-bank debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement
because banks do not accept deposits to enrich depositors but to earn money for themselves.
Solidbanks
Breach
of
its
Contractual
Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in the
performance of every kind of obligation is demandable. For breach of the savings deposit
agreement due to negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had
to go to Allied Bank for another transaction. The passbook was still in the hands of the employees
of Solidbank for the processing of the deposit when Calapre left Solidbank. When the passbook
is in the possession of Solidbanks tellers during withdrawals, the law imposes on Solidbank and
its tellers an even higher degree of diligence in safeguarding the passbook.
Solidbanks tellers must exercise a high degree of diligence in insuring that they return
the passbook only to the depositor or his authorized representative. For failing to return the
passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6
presumptively failed to observe such high degree of diligence in safeguarding the passbook, and
in insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption
that the defendant was at fault or negligent. The burden is on the defendant to prove that he
was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving
that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank
breached its contractual obligation to return the passbook only to the authorized representative
of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent
in not returning the passbook to Calapre. The burden was on Solidbank to prove that there was
no negligence on its part or its employees. But Solidbank failed to discharge its burden. Solidbank
did not present to the trial court Teller No. 6, the teller with whom Calapre left the passbook and
who was supposed to return the passbook to him. Solidbank also failed to adduce in evidence its
standard procedure in verifying the identity of the person retrieving the passbook, if there is such
a procedure, and that Teller No. 6 implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat
superior or command responsibility. The defense of exercising the required diligence in the
selection and supervision of employees is not a complete defense in culpa contractual, unlike in
culpa aquiliana. The bank must not only exercise high standards of integrity and performance,
it must also insure that its employees do likewise because this is the only way to insure that the
bank will comply with its fiduciary duty
Proximate Cause of the Unauthorized Withdrawal
Proximate cause is that cause which, in natural and continuous sequence, unbroken by
any efficient intervening cause, produces the injury and without which the result would not have
occurred. Proximate cause is determined by the facts of each case upon mixed considerations of
logic, common sense, policy and precedent.
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank
was in possession of the passbook while it was processing the deposit. After completion of the
transaction, Solidbank had the contractual obligation to return the passbook only to Calapre, the
authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because
it gave the passbook to another person.
Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would
not have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbanks
negligence in not returning the passbook to Calapre.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but the
negligent act of one is appreciably later than that of the other, or where it is impossible to
determine whose fault or negligence caused the loss, the one who had the last clear opportunity
to avoid the loss but failed to do so, is chargeable with the loss. The antecedent negligence of the
plaintiff does not preclude him from recovering damages caused by the supervening negligence
of the defendant, who had the last fair chance to prevent the impending harm by the exercise of
due diligence.
We do not apply the doctrine of last clear chance to the present case. This is a case of
culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear
chance to avoid the loss, would exonerate the defendant from liability. Such contributory
negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages
by the plaintiff but does not exculpate the defendant from his breach of contract
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to
the circumstances. This means that if the defendant exercised the proper diligence in the
selection and supervision of its employee, or if the plaintiff was guilty of contributory negligence,
then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of
contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall
into the hands of an impostor. Thus, the liability of Solidbank should be reduced.
In PBC v. CA where the Court held the depositor guilty of contributory negligence, we
allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same
ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by
the appellate court. Solidbank must pay the other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION
Wilson Gamboa vs Secretary Margarito Teves
February 15, 2014
Facts:
In 1928, the Philippine Long Distance Telephone Company (PLDT) was granted a franchise
to engage in the business of telecommunications. Telecommunications is a nationalized area of
activity where a corporation engaged therein must have 60% of its capital be owned by Filipinos
as provided for by Section 11, Article XII (National Economy and Patrimony) of the 1987
Constitution, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens; xxx
In 1999, First Pacific, a foreign corporation, acquired 37% of PLDT common shares. Wilson
Gamboa opposed said acquisition because at that time, 44.47% of PLDT common shares already
belong to various other foreign corporations. Hence, if First Pacifics share is added, foreign
shares will amount to 81.47% or more than the 40% threshold prescribed by the Constitution.
Margarito Teves, as Secretary of Finance, and the other respondents argued that this is
okay because in totality, most of the capital stocks of PLDT is Filipino owned. It was explained
that all PLDT subscribers, pursuant to a law passed by Marcos, are considered shareholders (they
hold serial preferred shares). Broken down, preferred shares consist of 77.85% while common
shares consist of 22.15%.
Gamboa argued that the term capital should only pertain to the common shares
because that is the share which is entitled to vote and thus have effective control over the
corporation.
ISSUE: What does the term capital pertain to? Does the term capital in Section 11, Article XII
of the Constitution refer to common shares or to the total outstanding capital stock (combined
total of common and non-voting preferred shares)?
HELD: Gamboa is correct. Capital only pertains to common shares. It will be absurd for capital to
pertain as inclusive of non-voting shares. This is because a corporation consisting of 1,000,000
capital stocks, 100 of which are common shares which are foreign owned and the rest (999,900
shares) are preferred shares which are non-voting shares and are Filipino owned, would seem
compliant to the constitutional requirement here 99.999% is Filipino owned. But if scrutinized,
the controlling stock the voting stock or that miniscule .001% is foreign owned. That is absurd.
In this case, it is true that at least 77.85% of the capital is owned by Filipinos (the PLDT
subscribers). But these subscribers, who hold non-voting preferred shares, have no control over
the corporation. Hence, capital should only pertain to common shares.
Thus, to be compliant with the constitution, 60% of the common shares of PLDT should
be Filipino owned. That is not so in this case as it appears that 81.47% of the common shares are
already foreign owned (split between First Pacific (37%) and a Japanese corporation).
When may preferred shares be considered part of the capital share?
If the preferred shares are allowed to vote like common shares.
Detailed Digest of Gamboa vs. Finance Secretary, G.R. No. 176579, June 28, 2011
FACTS
This is a petition to nullify the sale of shares of stock of Philippine Telecommunications
Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting
through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based
investment management and holding company and a shareholder of the Philippine Long Distance
Telephone Company (PLDT).
The petitioner questioned the sale on the ground that it also involved an indirect sale of
12 million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by
PTIC to First Pacific. With the this sale, First Pacifics common shareholdings in PLDT increased
from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of
foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article
XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public
utility to not more than 40%.
ISSUE
Does the term capital in Section 11, Article XII of the Constitution refer to the total
common shares only, or to the total outstanding capital stock (combined total of common and
non-voting preferred shares) of PLDT, a public utility?
RULING
[The Court partly granted the petition and held that the term capital in Section 11,
Article XII of the Constitution refers only to shares of stock entitled to vote in the election of
directors of a public utility, or in the instant case, to the total common shares of PLDT.]
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution
mandates the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or association must be
citizens of the Philippines. (Emphasis supplied)
The term capital in Section 11, Article XII of the Constitution refers only to shares of
stock entitled to vote in the election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock comprising both common and non-voting
preferred shares [of PLDT].
xxx
xxx
xxx
Indisputably, one of the rights of a stockholder is the right to participate in the control or
management of the corporation. This is exercised through his vote in the election of directors
because it is the board of directors that controls or manages the corporation. In the absence of
provisions in the articles of incorporation denying voting rights to preferred shares, preferred
shares have the same voting rights as common shares. However, preferred shareholders are
often excluded from any control, that is, deprived of the right to vote in the election of directors
and on other matters, on the theory that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders. xxx.
Considering that common shares have voting rights which translate to control, as opposed
to preferred shares which usually have no voting rights, the term capital in Section 11, Article
XII of the Constitution refers only to common shares. However, if the preferred shares also have
the right to vote in the election of directors, then the term capital shall include such preferred
shares because the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term capital in
Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the
election of directors.
xxx
xxx
xxx
Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in
the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent
of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with
the constitutional mandate. Otherwise, the corporation is considered as non-Philippine
national[s].
xxx
xxx
xxx
To construe broadly the term capital as the total outstanding capital stock, including
both common and non-voting preferred shares, grossly contravenes the intent and letter of the
Constitution that the State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos. A broad definition unjustifiably disregards who
owns the all-important voting stock, which necessarily equates to control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the term capital.
Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000
non-voting preferred shares owned by Filipinos, with both classes of share having a par value of
one peso (P1.00) per share. Under the broad definition of the term capital, such corporation
would be considered compliant with the 40 percent constitutional limit on foreign equity of
public utilities since the overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights
in the election of directors, even if they hold only 100 shares. The foreigners, with a minuscule
equity of less than 0.001 percent, exercise control over the public utility. On the other hand, the
Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors
and hence, have no control over the public utility. This starkly circumvents the intent of the
framers of the Constitution, as well as the clear language of the Constitution, to place the control
of public utilities in the hands of Filipinos. It also renders illusory the State policy of an
independent national economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real world, and in fact exists
in the present case.
xxx
xxx
xxx
[O]nly holders of common shares can vote in the election of directors [of PLDT], meaning
only common shareholders exercise control over PLDT. Conversely, holders of preferred shares,
who have no voting rights in the election of directors, do not have any control over PLDT. In fact,
under PLDTs Articles of Incorporation, holders of common shares have voting rights for all
purposes, while holders of preferred shares have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold a majority of
the common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet
(GIS), which is a document required to be submitted annually to the Securities and Exchange
Commission, foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only
66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of
PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the common
shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of
control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public
utilities expressly mandated in Section 11, Article XII of the Constitution.
As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT common
shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other
words, preferred shares have twice the par value of common shares but cannot elect directors
and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred
shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred
shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while
common shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is
not with the non-voting preferred shares but with the common shares, blatantly violating the
constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a
public utility.
The legal and beneficial ownership of 60 percent of the outstanding capital stock must
rest in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting
rights, is constitutionally required for the States grant of authority to operate a public utility. The
undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and
earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60
percent of the dividends, of PLDT. This directly contravenes the express command in Section 11,
Article XII of the Constitution that [n]o franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to x x x corporations x x x organized
under the laws of the Philippines, at least sixty per centum of whose capital is owned by such
citizens x x x.
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares
exercises the sole right to vote in the election of directors, and thus exercise control over PLDT;
(2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting
stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by
Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common
shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred
shares constitute 77.85% of the authorized capital stock of PLDT and common shares only
22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current
stock market value of P2,328.00 per share, while PLDT preferred shares with a par value
of P10.00 per share have a current stock market value ranging from only P10.92 to P11.06 per
share, is a glaring confirmation by the market that control and beneficial ownership of PLDT rest
with the common shares, not with the preferred shares.
xxx
xxx
xxx
WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section
11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson
of the Securities and Exchange Commission is DIRECTED to apply this definition of the term
capital in determining the extent of allowable foreign ownership in respondent Philippine Long
Distance Telephone Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law.
or associations qualified to hold lands of the public domain in the Philippines. The Constitution
does not make any exception in favor of religious associations.
The fact that appellant has no capital stock does not exempt it from the Constitutional
inhibition, since its member are of foreign nationality. The purpose of the 60% requirement is to
ensure that corporations or associations allowed to acquire agricultural lands or to exploit
natural resources shall be controlled by Filipinos; and the spirit of the Constitution demands that
in the absence of capital stock, controlling membership should be composed of Filipino citizens.
As to the complaint that the disqualification under Art. 13 of the Constitution violated the
freedom of religion ,the Court was not convinced that land tenure is indispensable to the free
exercise and enjoyment of religious profession or worship.
REGISTER OF DEEDS vs. UNG SIU SI TEMPLEG.R. No. L-6776May 21, 1955
FACTS: Jesus Dy, a Filipino citizen, donated a parcel of residential land in Caloocan in favor of the
unregistered religious organization "Ung Siu Si Temple", operating through three trustees all of
Chinese nationality. The donation was duly accepted by Yu Juan, of Chinese nationality, founder
and deaconess of the Temple, acting in representation and in behalf of the latter and its trustees.
The Register of Deeds refused to record such donation.
ISSUE: Whether or not the act of the Register of Deeds in refusing to register the donation of a
parcel of land executed in favor of a religious organization whose founder, trustees and
administrator are Chinese citizens is proper.
HELD: The act of the Register of Deeds is proper .The Constitution makes no exception in favor
of religious associations. Neither is there any such saving found in sections 1and 2 of Article XIII,
restricting the acquisition of public agricultural lands and other natural resources to
"corporations or associations at least sixty per centum of the capital of which is owned by such
citizens"(of the Philippines).The fact that the appellant religious organization has no capital stock
does not suffice to escape the Constitutional inhibition, since it is admitted that its members are
of foreign nationality. The purpose of the sixty per centum requirement is obviously to ensure
that corporations or associations allowed to acquire agricultural land or to exploit natural
resources shall be controlled by Filipinos; and the spirit of the Constitution demands that in the
absence of capital stock, the controlling membership should be composed of Filipino citizens.
Roman Catholic Apostolic Administrator Of Davao V. LRC (1957)
FACTS:
October 4, 1954: Mateo L. Rodis, a Filipino citizen and resident of the City of Davao,
executed a deed of sale of a parcel of land in favor of the Roman Catholic Apostolic Administrator
of Davao Inc.(Roman), a corporation sole organized and existing in accordance with Philippine
Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent.
The Register of Deeds of Davao for registration, having in mind a previous resolution of
the CFI in Carmelite Nuns of Davao were made to prepare an affidavit to the effect that 60% of
the members of their corp. were Filipino citizens when they sought to register in favor of their
congregation of deed of donation of a parcel of land, required it to submit a similar affidavit
declaring the same.
June 28, 1954: Roman in the letter expressed willingness to submit an affidavit but not in
the same tenor as the Carmelite Nuns because it had five incorporators while as a corporation
sole it has only one and it was ownership through donation and this was purchased
As the Register of the Land Registration Commissioner (LRC) : Deeds has some doubts as
to the registerability, the matter was referred to the Land Registration Commissioner en
consulta for resolution (section 4 of Republic Act No. 1151)
LRC:
In view of the provisions of Section 1 and 5 of Article XIII of the Philippine Constitution,
the vendee was not qualified to acquire private lands in the Philippines in the absence of proof
that at least 60 per centum of the capital, property, or assets of the Roman Catholic Apostolic
Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no
question that the present incumbent of the corporation sole was a Canadian citizen ordered the
Registered Deeds of Davao to deny registration of the deed of sale in the absence of proof of
compliance with such condition action for mandamus was instituted by Roman alleging the land
is held in true for the benefit of the Catholic population of a place
ISSUE: W/N Roman is qualified to acquire private agricultural lands in the Philippines pursuant to
the provisions of Article XIII of the Constitution
HELD: YES. Register of Deeds of the City of Davao is ordered to register the deed of sale
A corporation sole consists of one person only, and his successors (who will always be one
at a time), in some particular station, who are incorporated by law in order to give them some
legal capacities and advantages, particularly that of perpetuity, which in their natural persons
they could not have had.
In this sense, the king is a sole corporation; so is a bishop, or dens, distinct from their
several chapters.
Corporation sole.
1. composed of only one persons, usually the head or bishop of the diocese, a unit
which is not subject to expansion for the purpose of determining any percentage
whatsoever.
2. Only the administrator and not the owner of the temporalities located in the
territory comprised by said corporation sole and such temporalities are
administered for and on behalf of the faithful residing in the diocese or territory
of the corporation sole
3. Has no nationality and the citizenship of the incumbent and ordinary has nothing
to do with the operation, management or administration of the corporation sole,
nor effects the citizenship of the faithful connected with their respective dioceses
or corporation sole.
Constitution demands that in the absence of capital stock, the controlling membership
should be composed of Filipino citizens. (Register of Deeds of Rizal vs. Ung Sui Si Temple)
Undeniable proof that the members of the Roman Catholic Apostolic faith within the
territory of Davao are predominantly Filipino citizens
Presented evidence to establish that the clergy and lay members of this religion fully
covers the percentage of Filipino citizens required by the Constitution
Fact that the law thus expressly authorizes the corporations sole to receive bequests or
gifts of real properties (which were the main source that the friars had to acquire their big
haciendas during the Spanish regime), is a clear indication that the requisite that bequests or gifts
of real estate be for charitable, benevolent, or educational purposes, was, in the opinion of the
legislators, considered sufficient and adequate protection against the revitalization of religious
landholdings.
As in respect to the property which they hold for the corporation, they stand in position
of TRUSTEES and the courts may exercise the same supervision as in other cases of trust
People V. Quasha (1953)
FACTS:
William H. Quasha, a member of the Philippine bar, committed a crime of falsification of
a public and commercial document for causing it to appear that Arsenio Baylon, a Filipino citizen,
had subscribed to and was the owner of 60.005 % of the subscribed capital stock of Pacific
Airways Corp. (Pacific) when in reality the money paid belongs to an American citizen whose
name did not appear in the article of incorporation, to circumvent the constitutional mandate
that no corp. shall be authorize to operate as a public utility in the Philippines unless 60% of its
capital stock is owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine
Quasha appealed to this Court
Primary purpose: to carry on the business of a common carrier by air, land or water
Baylon did not have the controlling vote because of the difference in voting power
between the preferred shares and the common shares
2.Id.; Id.; Id.; Duty of Revealing the Ownership of the Capital of a Corporation.If the
Constitution does not prohibit the mere formation of a public utility corporation with
alien capital, then how could the accused be charged with having wrongfully intended to
circumvent that fundamental law by not disclosing in the articles of incorporation that
one of the incorporators, a Filipino, was a mere trustee of his American co-incorporators
and that for that reason the subscribed capital stock of the corporation was wholly
American? For the mere formation of the corporation such disclosure was not essential,
and the Corporation Law does not require it. The accused was, therefore, under no
obligation to make it. In the absence of such obligation and of the alleged wrongful intent
on the part of the accused, he cannot legally be convicted of the crime of falsification for
having allegedly perverted the truth in a narration of facts.
3.Falsification; False Narration for not revealing a Certain Fact, not Punishable if There is
no Legal Obligation to Disclose the Truth.It is essential to the commission of this crime
that the perversion of truth in a narration of facts must be made with the wrongful intent
of injuring a third person and even if such wrongful intent is proven, still the untruthful
statement will not constitute criminal falsification if there is no legal obligation on the
part of the narrator to disclose the truth. (U. S. vs. Reyes, 1 Phil., 341; U. S. vs. Lopez, 15
Phil., 515.) Wrongful intent to injure a third person and obligation on the part of the
narrator to disclose the truth are thus essential to , conviction for the crime of falsification
under articles 171 (4) and 172 (1) of the Revised Penal Code. [People vs. Quasha, 93 Phil.,
333(1953)]
Francisco Tatad, John Osmea and Rodolfo Biazon v. Jesus Garcia, Jr. (DOTC
FACTS:
DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare
in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and
Makati
RA No. 6957 entitled An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes or
BOT Law provided for two schemes for the financing, construction and operation of
government projects through private initiative and investment: Build-Operate-Transfer
(BOT) or Build-Transfer (BT)
Prequalification Bids and Awards Committee (PBAC) and the Technical Committee were
created by the DOTC in relation to EDSA Light Rail Transit III project
Only the EDSA LRT Consortium (later called EDSA LRT Corporation, Ltd.) met the
requirements of PBAC
DOTC requested presidential approval of the contract but then Exe. Sec. Drilon conveyed
that the Pres. could not sign the same. So DOTC and private respondents re-negotiated the
agreement.
The agreement provided inter alia that upon full or partial completion and viability
thereof, private respondent shall deliver the use and possession of the completed portion to
DOTC which shall operate the same.
RA No. 7718 amended RA No. 6957; it expressly provides for BLT scheme and allows direct
negotiation of BLT contracts
ISSUE: WON EDSA LRT Corp., Ltd., a foreign corporation can own EDSA LRT III, a public utility
HELD: Yes.
What private respondent owns are the rail tracks, rolling stocks like the coaches, rail
stations, terminals and the power plant, not a public utility. While a franchise is needed to
operate these facilities to serve the public, they do not by themselves constitute a public utility.
What constitutes a public utility is not their ownership but their use to serve the public.
Sec. 11, Art. XII of the Const.: No franchise, certificate or any other form of authorization
for the operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least sixty per centum
of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization
be exclusive character or for a longer period than fifty years.
There is a distinction between the operation of a public utility and the ownership of the
facilities and equipment used to serve the public.
Ownership - a relation in law by virtue of which a thing pertaining to one person is
completely subjected to his will in everything not prohibited by law or the concurrence with the
rights of another.
Operation of a rail system as a public utility includes the transportation of passengers
from one point to another point, their loading and unloading at designated places and the
movement of the trains at pre-scheduled times.
Right to operate a public utility may exist independently and separately from the
ownership of the facilities thereof. One can own said facilities without operating them as a public
utility, or conversely, one may operate a public utility without owning the facilities used to serve
the public.
EDSA LRT Corp. Ltd. merely the owner of the facilities necessary to operate the EDSA
LRT III.
On completion date of the LRT project, EDSA LRT Corp. Ltd. will immediately deliver
possession of the LRT system by way of lease for 25 years, during which period DOTC shall
operate the same as a common carrier and private respondent shall provide technical
maintenance and repair services to DOTC; technical maintenance consists of providing 1) repair
and maintenance facilities for the depot and rail lines, services for routine clearing and security;
and 2) producing and distributing maintenance manuals and drawings for the entire system.
EDSA LRT Corp. Ltd. shall also train DOTC personnel for familiarization with the operation,
use, maintenance and repair of the rolling stock, power plant, substations, electrical, signaling,
communications and all other equipment as supplied in the agreement.
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities
of a common carrier.
BOT scheme - contractor undertakes the construction and financing in infrastructure
facility, and operates and maintains the same; contractor operates the facility for a fixed period
during which it may recover its expenses and investment in the project plus a reasonable rate of
return thereon; after the expiration of the agreed term, the contractor transfers the ownership
and operation of the project to the government.
BT scheme - contractor undertakes the construction and financing of the facility, but after
completion, the ownership and operation thereof are turned over to the government. The
government, in turn, shall pay the contractor its total investment on the project in addition to a
reasonable rate of return. If payment is to be effected through amortization payments by the
government infrastructure agency or local government unit concerned, this shall be made in
accordance with a scheme proposed in the bid and incorporated in the contract.
BLT scheme which is challenged by petitioners is but a variation of the BT scheme.
Lease contract where one of the parties binds himself to give to another the enjoyment
or use of a thing for a certain price and for a period which may be definite or indefinite but not
longer than 99 years; no transfer of ownership at the end of the lease period.
Lease-purchase agreement - parties stipulate that title to the leased premises shall be
transferred to the lessee at the end of the lease period upon the payment of an agreed sum.
The claim that the BLT scheme and direct negotiation of contracts are not contemplated
by the BOT Law has now been rendered moot and academic by RA No. 7718.
Section 3 thereof authorizes all government infrastructure agencies, government-owned
and controlled corporations and local government units to enter into contract with any duly
prequalified proponent for the financing, construction, operation and maintenance of any
financially viable infrastructure or development facility through a BOT, BT, BLT, BOO (Build-ownand-operate), CAO (Contract-add-operate), DOT (Develop-operate-and-transfer), ROT
(Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate).
MARISSA R. UNCHUAN, Petitioner,vs .ANTONIO J.P. LOZADA, ANITA LOZADA and THE REGISTER
OF DEEDS OF CEBU CITY, Respondents.
FACTS: Petitioner questions the validity of the sale between the sisters Lozada and their nephew,
Antonio. Marissa finds it anomalous that Dr. Lozada, an American citizen, had paid the lots for
Antonio. Thus, she accused the latter of being a mere dummy of the former.
However, even as Dr. Lozada advanced the money for the payment of Antonios share, at
no point were the lots registered in Dr. Lozadas name. Nor was it contemplated that the lots be
under his control for they are actually to be included as capital of Damasa Corporation. According
to their agreement, Antonio and Dr. Lozada are to hold 60% and 40% of the shares in said
corporation, respectively.
ISSUE: Is Damasa considered a Filipino corporation and thus may acquire disposable lands in the
Philippines?
HELD: Under Republic Act No. 7042, particularly Section 3, a corporation organized under the
laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines, is considered a Philippine National. As such,
the corporation may acquire disposable lands in the Philippines. Damasa is Filipino corporation
because it is organized under Philippine laws with 60% capital stock owned and held by a Filipino
citizen.
PETROLEUM, and SAN JOSE OIL, violates the Constitution of the Philippines, the Corporation Law
and the Petroleum Act of 1949.
Issue:
Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, and SAN
JOSE OIL COMPANY, INC., is violative of the Constitution, the Laurel-Langley Agreement, the
Petroleum Act of 1949
Held:
Yes. In the 1946 Ordinance Appended to the Constitution, this right was extended to
citizens of the United States; states that to all forms of business enterprises owned or controlled,
directly or indirectly, by citizens of the United States in the same manner as to, and under the
same conditions imposed upon, citizens of the Philippines or corporations or associations owned
or controlled by citizens of the Philippines, would have the privilege of disposition, exploitation,
development, and utilization of all Philippine natural resources. However, respondent is owned,
controlled, directly and indirectly by Panamanian Corporation.
The Laurel-Langley Agreement also states that with respect to natural resources in the
public domain in the Philippines, only through the medium of a corporation organized under the
laws of the Philippines and at least 60% of the capital stock of which is owned or controlled by
citizens of the United States.
Although it was claimed that the corporation has stockholders residing in United States,
there was no indication if they are all citizens of America, how much percentage do they occupy
as stockholders, and if they have the same rules that apply to the conditions mentioned. In the
circumstances, the court ruled that the respondent SAN JOSE PETROLEUM, as presently
constituted, is not a business enterprise that is authorized to exercise the parity privileges under
the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN
JOSE OIL is, consequently, illegal.
The parity rights agreement is not applicable to SJP. The parity rights are only granted to
American business enterprises or enterprises directly or indirectly controlled by US citizens. SJP
is a Panamanian corporate citizen. The other owners of SJO are Venezuelan corporations, not
Americans. SJP was not able to show contrary evidence. Further, the Supreme Court emphasized
that the stocks of these corporations are being traded in stocks exchanges abroad which renders
their foreign ownership subject to change from time to time. This fact renders a practical
impossibility to meet the requirements under the parity rights. Hence, the tie up between SJP
and SJO is illegal, SJP not being a domestic corporation or an American business enterprise
contemplated under the Laurel-Langley Agreement.
Pedro Palting vs San Jose Petroleum, Inc.
Facts:
In 1956, San Jose Petroleum, Inc. (SJP), a mining corporation organized under the laws of
Panama, was allowed by the Securities and Exchange Commission (SEC) to sell its shares of stocks
in the Philippines. Apparently, the proceeds of such sale shall be invested in San Jose Oil
Company, Inc. (SJO), a domestic mining corporation. Pedro Palting opposed the authorization
granted to SJP because said tie up between SJP and SJO is violative of the constitution; that SJO
is 90% owned by SJP; that the other 10% is owned by another foreign corporation; that a mining
corporation cannot be interested in another mining corporation. SJP on the other hand invoked
that under the parity rights agreement (Laurel-Langley Agreement), SJP, a foreign corporation, is
allowed to invest in a domestic corporation.
ISSUE: Whether or not SJP is correct.
HELD: No. The parity rights agreement is not applicable to SJP. The parity rights are only granted
to American business enterprises or enterprises directly or indirectly controlled by US citizens.
SJP is a Panamanian corporate citizen. The other owners of SJO are Venezuelan corporations, not
Americans. SJP was not able to show contrary evidence. Further, the Supreme Court emphasized
that the stocks of these corporations are being traded in stocks exchanges abroad which renders
their foreign ownership subject to change from time to time. This fact renders a practical
impossibility to meet the requirements under the parity rights. Hence, the tie up between SJP
and SJO is illegal, SJP not being a domestic corporation or an American business enterprise
contemplated under the Laurel-Langley Agreement.
Aside from the MPSA, the three corporations also applied for FTAA with the Office of the
President. In their answer, they countered that (1) the liberal Control Test must be used in
determining the nationality of a corporation as based on Sec 3 of the Foreign Investment Act
which as they claimed admits of corporate layering schemes, and that (2) the nationality
question is no longer material because of their subsequent application for FTAA.
Issue 1: W/N the Grandfather Rule must be applied in this case
Ruling: Yes. It is the intention of the framers of the Constitution to apply the Grandfather Rule
in cases where corporate layering is present.
First, as a rule in statutory construction, 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. Corporate layering is admittedly allowed by the FIA, but if
it is used to circumvent the Constitution and other pertinent laws, then it becomes illegal.
Second, under the SEC Rule1 and DOJ Opinion2 , the Grandfather Rule must be applied
when the 60-40 Filipino-foreign equity ownership is in doubt. Doubt is present in the Filipino
equity ownership of Narra, Tesoro, and MacArthur since their common investor, the 100%
Canadian-owned corporation MBMI, funded them.
Under the Grandfather Rule, it is not enough that the corporation does have the required
60% Filipino stockholdings at face value. To determine the percentage of the ultimate Filipino
ownership, it must first be traced to the level of the investing corporation and added to the shares
directly owned in the investee corporation. Applying this rule, it turns out that the Canadian
corporation owns more than 60% of the equity interests of Narra, Tesoro and MacArthur. Hence,
the latter are disqualified to participate in the exploration, development and utilization of the
Philippines natural resources.
1
DOJ
Opinion
No.
2 SEC Opinion May 13, 1990
020
Series
of
2005
(paragraph
7)
Issue 2: W/N the case has become moot as a result of the MPSA conversion to FTAA
Ruling: No. There are certain exceptions to mootness principle 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.
The SC noted that a grave violation of the Constitution is being committed by a foreign
corporation 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 Countrys 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. 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. ##
Narra Nickel Mining vs Redmont
G.R. No. 195580, January 28, 2015
Facts:
Narra and its co-petitioner corporations Tesoro and MacArthur, filed a motion before
the SC to reconsider its April 21, 2014 Decision which upheld the denial of their MPSA
applications. The SC affirmed the CA ruling that there is a doubt to their nationality, and that in
applying the Grandfather Rule, the finding is that MBMI, a 100% Canadian-owned corporation,
effectively owns 60% of the common stocks of petitioners by owning equity interests of the
petitioners other majority corporate shareholders. Narra, Tesoro and MacArthur argued that
the application of the Grandfather Rule to determine their nationality is erroneous and allegedly
without basis in the Constitution, the FIA, the Philippine Mining Act, and the Rules issued by the
SEC. These laws and rules supposedly espouse the application of the Control Test in verifying the
Philippine nationality of corporate entities for purposes of determining compliance with Sec. 2,
Art. XII of the Constitution that only corporations or associations at least 60% of whose capital is
owned by such Filipino citizens may enjoy certain rights and privileges, like the exploration and
development of natural resources.
Issue: W/N the application by the SC of the grandfather resulted to the abandonment of the
control test
Held:
No. The control test can be applied jointly with the Grandfather Rule to determine the
observance of foreign ownership restriction in nationalized economic activities. The Control Test
and the Grandfather Rule are not incompatible ownership-determinant methods that can only
be applied alternative to each other. Rather, these methods can, if appropriate, be used
cumulatively in the determination of the ownership and control of corporations engaged in fully
or partly nationalized activities, as the mining operation involved in this case or the operation of
public utilities.
The Grandfather Rule, standing alone, should not be used to determine the Filipino
ownership and control in a corporation, as it could result in an otherwise foreign corporation
rendered qualified to perform nationalized or partly nationalized activities. Hence, it is only when
the Control Test is first complied with that the Grandfather Rule may be applied. Put in another
manner, if the subject corporations Filipino equity falls below the threshold 60%, the corporation
is immediately considered foreign-owned, in which case, the need to resort to the Grandfather
Rule disappears.
In this case, using the control test, Narra, Tesoro and MacArthur appear to have satisfied
the 60-40 equity requirement. But the nationality of these corporations and the foreign-owned
common investor that funds them was in doubt, hence, the need to apply the Grandfather
Rule. ##