G.R. No.

176579               June 28, 2011 executed by PTIC stockholders Ramon Cojuangco

and Luis Tirso Rivilla. In 1986, the 111,415 shares of
WILSON P. GAMBOA, Petitioner,  stock of PTIC held by PHI were sequestered by the
vs. Presidential Commission on Good Government
FINANCE SECRETARY MARGARITO B. TEVES, (PCGG). The 111,415 PTIC shares, which represent
FINANCE UNDERSECRETARY JOHN P. SEVILLA, about 46.125 percent of the outstanding capital stock
AND COMMISSIONER RICARDO ABCEDE OF THE of PTIC, were later declared by this Court to be
PRESIDENTIAL COMMISSION ON GOOD owned by the Republic of the Philippines.2
GOVERNMENT (PCGG) IN THEIR CAPACITIES AS
CHAIR AND MEMBERS, RESPECTIVELY, OF THE In 1999, First Pacific, a Bermuda-registered, Hong
PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI Kong-based investment firm, acquired the remaining
SALIM OF FIRST PACIFIC CO., LTD. IN HIS 54 percent of the outstanding capital stock of PTIC.
CAPACITY AS DIRECTOR OF METRO PACIFIC On 20 November 2006, the Inter-Agency Privatization
ASSET HOLDINGS INC., CHAIRMAN MANUEL V. Council (IPC) of the Philippine Government
PANGILINAN OF PHILIPPINE LONG DISTANCE announced that it would sell the 111,415 PTIC shares,
TELEPHONE COMPANY (PLDT) IN HIS CAPACITY or 46.125 percent of the outstanding capital stock of
AS MANAGING DIRECTOR OF FIRST PACIFIC PTIC, through a public bidding to be conducted on 4
CO., LTD., PRESIDENT NAPOLEON L. NAZARENO December 2006. Subsequently, the public bidding
OF PHILIPPINE LONG DISTANCE TELEPHONE was reset to 8 December 2006, and only two bidders,
COMPANY, CHAIR FE BARIN OF THE Parallax Venture Fund XXVII (Parallax) and Pan-Asia
SECURITIES EXCHANGE COMMISSION, and Presidio Capital, submitted their bids. Parallax won
PRESIDENT FRANCIS LIM OF THE PHILIPPINE with a bid of ₱25.6 billion or US$510 million.
STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. Thereafter, First Pacific announced that it would
SANIDAD, Petitioners-in-Intervention. exercise its right of first refusal as a PTIC stockholder
and buy the 111,415 PTIC shares by matching the bid
DECISION price of Parallax. However, First Pacific failed to do so
by the 1 February 2007 deadline set by IPC and
CARPIO, J.: instead, yielded its right to PTIC itself which was then
given by IPC until 2 March 2007 to buy the PTIC
The Case shares. On 14 February 2007, First Pacific, through its
subsidiary, MPAH, entered into a Conditional Sale
and Purchase Agreement of the 111,415 PTIC
This is an original petition for prohibition, injunction,
shares, or 46.125 percent of the outstanding capital
declaratory relief and declaration of nullity of the sale
stock of PTIC, with the Philippine Government for the
of shares of stock of Philippine Telecommunications
price of ₱25,217,556,000 or US$510,580,189. The
Investment Corporation (PTIC) by the government of
sale was completed on 28 February 2007.
the Republic of the Philippines to Metro Pacific Assets
Holdings, Inc. (MPAH), an affiliate of First Pacific
Company Limited (First Pacific). Since PTIC is a stockholder of PLDT, the sale by the
Philippine Government of 46.125 percent of PTIC
shares is actually an indirect sale of 12 million shares
The Antecedents
or about 6.3 percent of the outstanding common
shares of PLDT. With the sale, First Pacific’s
The facts, according to petitioner Wilson P. Gamboa, common shareholdings in PLDT increased from
a stockholder of Philippine Long Distance Telephone 30.7 percent to 37 percent, thereby increasing the
Company (PLDT), are as follows:1 common shareholdings of foreigners in PLDT to
about 81.47 percent. This violates Section 11, Article
On 28 November 1928, the Philippine Legislature XII of the 1987 Philippine Constitution which limits
enacted Act No. 3436 which granted PLDT a foreign ownership of the capital of a public utility to not
franchise and the right to engage in more than 40 percent.3
telecommunications business. In 1969, General
Telephone and Electronics Corporation (GTE), an On the other hand, public respondents Finance
American company and a major PLDT stockholder, Secretary Margarito B. Teves, Undersecretary John
sold 26 percent of the outstanding common shares of P. Sevilla, and PCGG Commissioner Ricardo Abcede
PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) allege the following relevant facts:
was incorporated by several persons, including
Roland Gapud and Jose Campos, Jr. Subsequently,
On 9 November 1967, PTIC was incorporated and
PHI became the owner of 111,415 shares of stock of
had since engaged in the business of investment
PTIC by virtue of three Deeds of Assignment
holdings. PTIC held 26,034,263 PLDT common Respondent Manuel V. Pangilinan admits the
shares, or 13.847 percent of the total PLDT following facts: (a) the IPC conducted a public bidding
outstanding common shares. PHI, on the other hand, for the sale of 111,415 PTIC shares or 46 percent of
was incorporated in 1977, and became the owner of the outstanding capital stock of PTIC (the remaining
111,415 PTIC shares or 46.125 percent of the 54 percent of PTIC shares was already owned by
outstanding capital stock of PTIC by virtue of three First Pacific and its affiliates); (b) Parallax offered the
Deeds of Assignment executed by Ramon Cojuangco highest bid amounting to ₱25,217,556,000; (c)
and Luis Tirso Rivilla. In 1986, the 111,415 PTIC pursuant to the right of first refusal in favor of PTIC
shares held by PHI were sequestered by the PCGG, and its shareholders granted in PTIC’s Articles of
and subsequently declared by this Court as part of the Incorporation, MPAH, a First Pacific affiliate,
ill-gotten wealth of former President Ferdinand exercised its right of first refusal by matching the
Marcos. The sequestered PTIC shares were highest bid offered for PTIC shares on 13 February
reconveyed to the Republic of the Philippines in 2007; and (d) on 28 February 2007, the sale was
accordance with this Court’s decision4 which became consummated when MPAH paid IPC
final and executory on 8 August 2006. ₱25,217,556,000 and the government delivered the
certificates for the 111,415 PTIC shares. Respondent
The Philippine Government decided to sell the Pangilinan denies the other allegations of facts of
111,415 PTIC shares, which represent 6.4 percent of petitioner.
the outstanding common shares of stock of PLDT,
and designated the Inter-Agency Privatization Council On 28 February 2007, petitioner filed the instant
(IPC), composed of the Department of Finance and petition for prohibition, injunction, declaratory relief,
the PCGG, as the disposing entity. An invitation to bid and declaration of nullity of sale of the 111,415 PTIC
was published in seven different newspapers from 13 shares. Petitioner claims, among others, that the sale
to 24 November 2006. On 20 November 2006, a pre- of the 111,415 PTIC shares would result in an
bid conference was held, and the original deadline for increase in First Pacific’s common shareholdings in
bidding scheduled on 4 December 2006 was reset to PLDT from 30.7 percent to 37 percent, and this,
8 December 2006. The extension was published in combined with Japanese NTT DoCoMo’s common
nine different newspapers. shareholdings in PLDT, would result to a total foreign
common shareholdings in PLDT of 51.56 percent
During the 8 December 2006 bidding, Parallax Capital which is over the 40 percent constitutional
Management LP emerged as the highest bidder with a limit.6 Petitioner asserts:
bid of ₱25,217,556,000. The government notified First
Pacific, the majority owner of PTIC shares, of the If and when the sale is completed, First Pacific’s
bidding results and gave First Pacific until 1 February equity in PLDT will go up from 30.7 percent to 37.0
2007 to exercise its right of first refusal in accordance percent of its common – or voting- stockholdings, x x
with PTIC’s Articles of Incorporation. First Pacific x. Hence, the consummation of the sale will put the
announced its intention to match Parallax’s bid. two largest foreign investors in PLDT – First Pacific
and Japan’s NTT DoCoMo, which is the world’s
On 31 January 2007, the House of Representatives largest wireless telecommunications firm, owning
(HR) Committee on Good Government conducted a 51.56 percent of PLDT common equity. x x x With the
public hearing on the particulars of the then completion of the sale, data culled from the official
impending sale of the 111,415 PTIC shares. website of the New York Stock Exchange
Respondents Teves and Sevilla were among those (www.nyse.com) showed that those foreign entities,
who attended the public hearing. The HR Committee which own at least five percent of common equity, will
Report No. 2270 concluded that: (a) the auction of the collectively own 81.47 percent of PLDT’s common
government’s 111,415 PTIC shares bore due equity. x x x
diligence, transparency and conformity with existing
legal procedures; and (b) First Pacific’s intended x x x as the annual disclosure reports, also referred to
acquisition of the government’s 111,415 PTIC as Form 20-K reports x x x which PLDT submitted to
shares resulting in First Pacific’s 100% ownership the New York Stock Exchange for the period 2003-
of PTIC will not violate the 40 percent 2005, revealed that First Pacific and several other
constitutional limit on foreign ownership of a foreign entities breached the constitutional limit of 40
public utility since PTIC holds only 13.847 percent percent ownership as early as 2003. x x x"7
of the total outstanding common shares of
PLDT.5 On 28 February 2007, First Pacific completed Petitioner raises the following issues: (1) whether the
the acquisition of the 111,415 shares of stock of PTIC. consummation of the then impending sale of 111,415
PTIC shares to First Pacific violates the constitutional
limit on foreign ownership of a public utility; (2)
whether public respondents committed grave abuse of While direct resort to this Court may be justified in a
discretion in allowing the sale of the 111,415 PTIC petition for prohibition,11 the Court shall nevertheless
shares to First Pacific; and (3) whether the sale of refrain from discussing the grounds in support of the
common shares to foreigners in excess of 40 percent petition for prohibition since on 28 February 2007, the
of the entire subscribed common capital stock violates questioned sale was consummated when MPAH paid
the constitutional limit on foreign ownership of a public IPC ₱25,217,556,000 and the government delivered
utility.8 the certificates for the 111,415 PTIC shares.

On 13 August 2007, Pablito V. Sanidad and Arno V. However, since the threshold and purely legal issue
Sanidad filed a Motion for Leave to Intervene and on the definition of the term "capital" in Section 11,
Admit Attached Petition-in-Intervention. In the Article XII of the Constitution has far-reaching
Resolution of 28 August 2007, the Court granted the implications to the national economy, the Court treats
motion and noted the Petition-in-Intervention. the petition for declaratory relief as one for
mandamus.12
Petitioners-in-intervention "join petitioner Wilson
Gamboa x x x in seeking, among others, to enjoin In Salvacion v. Central Bank of the Philippines,13 the
and/or nullify the sale by respondents of the 111,415 Court treated the petition for declaratory relief as one
PTIC shares to First Pacific or assignee." Petitioners- for mandamus considering the grave injustice that
in-intervention claim that, as PLDT subscribers, they would result in the interpretation of a banking law. In
have a "stake in the outcome of the controversy x x x that case, which involved the crime of rape committed
where the Philippine Government is completing the by a foreign tourist against a Filipino minor and the
sale of government owned assets in [PLDT], execution of the final judgment in the civil case for
unquestionably a public utility, in violation of the damages on the tourist’s dollar deposit with a local
nationality restrictions of the Philippine Constitution." bank, the Court declared Section 113 of Central Bank
Circular No. 960, exempting foreign currency deposits
The Issue from attachment, garnishment or any other order or
process of any court, inapplicable due to the peculiar
This Court is not a trier of facts. Factual questions circumstances of the case. The Court held that
such as those raised by petitioner,9 which indisputably "injustice would result especially to a citizen aggrieved
demand a thorough examination of the evidence of by a foreign guest like accused x x x" that would
the parties, are generally beyond this Court’s "negate Article 10 of the Civil Code which provides
jurisdiction. Adhering to this well-settled principle, the that ‘in case of doubt in the interpretation or
Court shall confine the resolution of the instant application of laws, it is presumed that the lawmaking
controversy solely on the threshold and purely legal body intended right and justice to prevail.’" The Court
issue of whether the term "capital" in Section 11, therefore required respondents Central Bank of the
Article XII of the Constitution refers to the total Philippines, the local bank, and the accused to comply
common shares only or to the total outstanding capital with the writ of execution issued in the civil case for
stock (combined total of common and non-voting damages and to release the dollar deposit of the
preferred shares) of PLDT, a public utility. accused to satisfy the judgment.

The Ruling of the Court In Alliance of Government Workers v. Minister of

Labor,14 the Court similarly brushed aside the
procedural infirmity of the petition for declaratory relief
The petition is partly meritorious.
and treated the same as one for mandamus.
In Alliance, the issue was whether the government
Petition for declaratory relief treated as petition unlawfully excluded petitioners, who were government
for mandamus employees, from the enjoyment of rights to which they
were entitled under the law. Specifically, the question
At the outset, petitioner is faced with a procedural was: "Are the branches, agencies, subdivisions, and
barrier. Among the remedies petitioner seeks, only the instrumentalities of the Government, including
petition for prohibition is within the original jurisdiction government owned or controlled corporations
of this court, which however is not exclusive but is included among the four ‘employers’ under
concurrent with the Regional Trial Court and the Court Presidential Decree No. 851 which are required to pay
of Appeals. The actions for declaratory their employees x x x a thirteenth (13th) month pay x
relief,10 injunction, and annulment of sale are not x x ?" The Constitutional principle involved therein
embraced within the original jurisdiction of the affected all government employees, clearly justifying a
Supreme Court. On this ground alone, the petition relaxation of the technical rules of procedure, and
could have been dismissed outright. certainly requiring the interpretation of the assailed
presidential decree.
In short, it is well-settled that this Court may treat a benefit of the entire Filipino people, to ensure, in the
petition for declaratory relief as one for mandamus if words of the Constitution, "a self-reliant and
the issue involved has far-reaching implications. As independent national economy effectively
this Court held in Salvacion: controlled by Filipinos."18 Besides, in the light of
vague and confusing positions taken by government
The Court has no original and exclusive jurisdiction agencies on this purely legal issue, present and future
over a petition for declaratory relief. However, foreign investors in this country deserve, as a matter
exceptions to this rule have been of basic fairness, a categorical ruling from this Court
recognized. Thus, where the petition has far- on the extent of their participation in the capital of
reaching implications and raises questions that public utilities and other nationalized businesses.
should be resolved, it may be treated as one for
mandamus.15 (Emphasis supplied) Despite its far-reaching implications to the national
economy, this purely legal issue has remained
In the present case, petitioner seeks primarily the unresolved for over 75 years since the 1935
interpretation of the term "capital" in Section 11, Constitution. There is no reason for this Court to
Article XII of the Constitution. He prays that this Court evade this ever recurring fundamental issue and delay
declare that the term "capital" refers to common again defining the term "capital," which appears not
shares only, and that such shares constitute "the sole only in Section 11, Article XII of the Constitution, but
basis in determining foreign equity in a public utility." also in Section 2, Article XII on co-production and joint
Petitioner further asks this Court to declare any ruling venture agreements for the development of our
inconsistent with such interpretation unconstitutional. natural resources,19 in Section 7, Article XII on
ownership of private lands,20 in Section 10, Article XII
The interpretation of the term "capital" in Section 11, on the reservation of certain investments to Filipino
Article XII of the Constitution has far-reaching citizens,21 in Section 4(2), Article XIV on the ownership
implications to the national economy. In fact, a of educational institutions,22 and in Section 11(2),
resolution of this issue will determine whether Article XVI on the ownership of advertising
Filipinos are masters, or second class citizens, in their companies.23
own country. What is at stake here is whether
Filipinos or foreigners will have effective control of Petitioner has locus standi
the national economy. Indeed, if ever there is a legal
issue that has far-reaching implications to the entire There is no dispute that petitioner is a stockholder of
nation, and to future generations of Filipinos, it is the PLDT. As such, he has the right to question the
threshhold legal issue presented in this case. subject sale, which he claims to violate the nationality
requirement prescribed in Section 11, Article XII of the
The Court first encountered the issue on the definition Constitution. If the sale indeed violates the
of the term "capital" in Section 11, Article XII of the Constitution, then there is a possibility that PLDT’s
Constitution in the case of Fernandez v. franchise could be revoked, a dire consequence
Cojuangco, docketed as G.R. No. 157360.16 That case directly affecting petitioner’s interest as a stockholder.
involved the same public utility (PLDT) and
substantially the same private respondents. Despite More importantly, there is no question that the instant
the importance and novelty of the constitutional issue petition raises matters of transcendental importance
raised therein and despite the fact that the petition to the public. The fundamental and threshold legal
involved a purely legal question, the Court declined to issue in this case, involving the national economy and
resolve the case on the merits, and instead denied the the economic welfare of the Filipino people, far
same for disregarding the hierarchy of courts.17There, outweighs any perceived impediment in the legal
petitioner Fernandez assailed on a pure question of personality of the petitioner to bring this action.
law the Regional Trial Court’s Decision of 21 February
2003 via a petition for review under Rule 45. The In Chavez v. PCGG,24 the Court upheld the right of a
Court’s Resolution, denying the petition, became final citizen to bring a suit on matters of transcendental
on 21 December 2004. importance to the public, thus:

The instant petition therefore presents the Court with In Tañada v. Tuvera, the Court asserted that when
another opportunity to finally settle this purely legal the issue concerns a public right and the object of
issuewhich is of transcendental importance to the mandamus is to obtain the enforcement of a
national economy and a fundamental requirement to a public duty, the people are regarded as the real
faithful adherence to our Constitution. The Court must parties in interest; and because it is sufficient that
forthwith seize such opportunity, not only for the petitioner is a citizen and as such is interested in
benefit of the litigants, but more significantly for the the execution of the laws, he need not show that
he has any legal or special interest in the result of common good so requires. The State shall encourage
the action. In the aforesaid case, the petitioners equity participation in public utilities by the general
sought to enforce their right to be informed on matters public. The participation of foreign investors in the
of public concern, a right then recognized in Section governing body of any public utility enterprise shall be
6, Article IV of the 1973 Constitution, in connection limited to their proportionate share in its capital, and
with the rule that laws in order to be valid and all the executive and managing officers of such
enforceable must be published in the Official Gazette corporation or association must be citizens of the
or otherwise effectively promulgated. In ruling for the Philippines. (Emphasis supplied)
petitioners’ legal standing, the Court declared that the
right they sought to be enforced ‘is a public right The above provision substantially reiterates Section 5,
recognized by no less than the fundamental law of the Article XIV of the 1973 Constitution, thus:
land.’
Section 5. No franchise, certificate, or any other
Legaspi v. Civil Service Commission, while reiterating form of authorization for the operation of a public
Tañada, further declared that ‘when a mandamus utility shall be granted except to citizens of the
proceeding involves the assertion of a public Philippines or to corporations or associations
right, the requirement of personal interest is organized under the laws of the Philippines at
satisfied by the mere fact that petitioner is a least sixty per centum of the capital of which is
citizen and, therefore, part of the general ‘public’ owned by such citizens, nor shall such franchise,
which possesses the right.’ certificate, or authorization be exclusive in character
or for a longer period than fifty years. Neither shall
Further, in Albano v. Reyes, we said that while any such franchise or right be granted except under
expenditure of public funds may not have been the condition that it shall be subject to amendment,
involved under the questioned contract for the alteration, or repeal by the National Assembly when
development, management and operation of the the public interest so requires. The State shall
Manila International Container Terminal, ‘public encourage equity participation in public utilities by the
interest [was] definitely involved considering the general public. The participation of foreign investors in
important role [of the subject contract] . . . in the the governing body of any public utility enterprise shall
economic development of the country and the be limited to their proportionate share in the capital
magnitude of the financial consideration thereof. (Emphasis supplied)
involved.’ We concluded that, as a consequence, the
disclosure provision in the Constitution would The foregoing provision in the 1973 Constitution
constitute sufficient authority for upholding the reproduced Section 8, Article XIV of the 1935
petitioner’s standing. (Emphasis supplied) Constitution, viz:

Clearly, since the instant petition, brought by a citizen, Section 8. No franchise, certificate, or any other
involves matters of transcendental public importance, form of authorization for the operation of a public
the petitioner has the requisite locus standi. utility shall be granted except to citizens of the
Philippines or to corporations or other entities
Definition of the Term "Capital" in organized under the laws of the Philippines sixty
Section 11, Article XII of the 1987 Constitution per centum of the capital of which is owned by
citizens of the Philippines,nor shall such franchise,
Section 11, Article XII (National Economy and certificate, or authorization be exclusive in character
Patrimony) of the 1987 Constitution mandates the or for a longer period than fifty years. No franchise or
Filipinization of public utilities, to wit: right shall be granted to any individual, firm, or
corporation, except under the condition that it shall be
Section 11. No franchise, certificate, or any other subject to amendment, alteration, or repeal by the
form of authorization for the operation of a public Congress when the public interest so requires.
utility shall be granted except to citizens of the (Emphasis supplied)
Philippines or to corporations or associations
organized under the laws of the Philippines, at Father Joaquin G. Bernas, S.J., a leading member of
least sixty per centum of whose capital is owned the 1986 Constitutional Commission, reminds us that
by such citizens; nor shall such franchise, certificate, the Filipinization provision in the 1987 Constitution is
or authorization be exclusive in character or for a one of the products of the spirit of nationalism which
longer period than fifty years. Neither shall any such gripped the 1935 Constitutional Convention.25 The
franchise or right be granted except under the 1987 Constitution "provides for the Filipinization of
condition that it shall be subject to amendment, public utilities by requiring that any form of
alteration, or repeal by the Congress when the authorization for the operation of public utilities should
be granted only to ‘citizens of the Philippines or to percent foreign equity limitation in public utilities
corporations or associations organized under the laws prescribed by the Constitution.
of the Philippines at least sixty per centum of whose
capital is owned by such citizens.’ The provision is Respondents, on the other hand, do not offer any
[an express] recognition of the sensitive and vital definition of the term "capital" in Section 11, Article XII
position of public utilities both in the national of the Constitution. More importantly, private
economy and for national security."26 The evident respondents Nazareno and Pangilinan of PLDT do not
purpose of the citizenship requirement is to prevent dispute that more than 40 percent of the common
aliens from assuming control of public utilities, which shares of PLDT are held by foreigners.
may be inimical to the national interest.27 This specific
provision explicitly reserves to Filipino citizens control In particular, respondent Nazareno’s Memorandum,
of public utilities, pursuant to an overriding economic consisting of 73 pages, harps mainly on the
goal of the 1987 Constitution: to "conserve and procedural infirmities of the petition and the supposed
develop our patrimony"28 and ensure "a self-reliant violation of the due process rights of the "affected
and independent national foreign common shareholders." Respondent
economy effectively controlled by Filipinos."29 Nazareno does not deny petitioner’s allegation of
foreigners’ dominating the common shareholdings of
Any citizen or juridical entity desiring to operate a PLDT. Nazareno stressed mainly that the petition
public utility must therefore meet the minimum "seeks to divest foreign common shareholders
nationality requirement prescribed in Section 11, purportedly exceeding 40% of the total common
Article XII of the Constitution. Hence, for a corporation shareholdings in PLDT of their ownership over
to be granted authority to operate a public utility, at their shares." Thus, "the foreign natural and juridical
least 60 percent of its "capital" must be owned by PLDT shareholders must be impleaded in this suit so
Filipino citizens. that they can be heard."34 Essentially, Nazareno
invokes denial of due process on behalf of the foreign
The crux of the controversy is the definition of the common shareholders.
term "capital." Does the term "capital" in Section 11,
Article XII of the Constitution refer to common shares While Nazareno does not introduce any definition of
or to the total outstanding capital stock (combined the term "capital," he states that "among the factual
total of common and non-voting preferred shares)? assertions that need to be established to counter
petitioner’s allegations is the uniform
Petitioner submits that the 40 percent foreign equity interpretation by government agencies (such as
limitation in domestic public utilities refers only to the SEC), institutions and corporations (such as
common shares because such shares are entitled to the Philippine National Oil Company-Energy
vote and it is through voting that control over a Development Corporation or PNOC-EDC) of
corporation is exercised. Petitioner posits that the including both preferred shares and common
term "capital" in Section 11, Article XII of the shares in "controlling interest" in view of testing
Constitution refers to "the ownership of common compliance with the 40% constitutional limitation
capital stock subscribed and outstanding, which class on foreign ownership in public utilities."35
of shares alone, under the corporate set-up of PLDT,
can vote and elect members of the board of Similarly, respondent Manuel V. Pangilinan does not
directors." It is undisputed that PLDT’s non-voting define the term "capital" in Section 11, Article XII of
preferred shares are held mostly by Filipino the Constitution. Neither does he refute petitioner’s
citizens.30 This arose from Presidential Decree No. claim of foreigners holding more than 40 percent of
217,31 issued on 16 June 1973 by then President PLDT’s common shares. Instead, respondent
Ferdinand Marcos, requiring every applicant of a Pangilinan focuses on the procedural flaws of the
PLDT telephone line to subscribe to non-voting petition and the alleged violation of the due process
preferred shares to pay for the investment cost of rights of foreigners. Respondent Pangilinan
installing the telephone line.32 emphasizes in his Memorandum (1) the absence of
this Court’s jurisdiction over the petition; (2)
Petitioners-in-intervention basically reiterate petitioner’s lack of standing; (3) mootness of the
petitioner’s arguments and adopt petitioner’s definition petition; (4) non-availability of declaratory relief; and
of the term "capital."33 Petitioners-in-intervention (5) the denial of due process rights. Moreover,
allege that "the approximate foreign ownership of respondent Pangilinan alleges that the issue should
common capital stock of PLDT x x x already amounts be whether "owners of shares in PLDT as well as
to at least 63.54% of the total outstanding common owners of shares in companies holding shares in
stock," which means that foreigners exercise PLDT may be required to relinquish their shares in
significant control over PLDT, patently violating the 40 PLDT and in those companies without any law
requiring them to surrender their shares and also nationalized and partially nationalized activities is for
without notice and trial." Filipino nationals to be always in control of the
corporation undertaking said activities. Otherwise, if
Respondent Pangilinan further asserts that "Section the Trial Court’s ruling upholding respondents’
11, [Article XII of the Constitution] imposes no arguments were to be given credence, it would be
nationality requirement on the shareholders of the possible for the ownership structure of a public utility
utility company as a condition for keeping their corporation to be divided into one percent (1%)
shares in the utility company." According to him, common stocks and ninety-nine percent (99%)
"Section 11 does not authorize taking one person’s preferred stocks. Following the Trial Court’s ruling
property (the shareholder’s stock in the utility adopting respondents’ arguments, the common
company) on the basis of another party’s alleged shares can be owned entirely by foreigners thus
failure to satisfy a requirement that is a condition only creating an absurd situation wherein foreigners, who
for that other party’s retention of another piece of are supposed to be minority shareholders, control the
property (the utility company being at least 60% public utility corporation.
Filipino-owned to keep its franchise)."36
xxxx
The OSG, representing public respondents Secretary
Margarito Teves, Undersecretary John P. Sevilla, Thus, the 40% foreign ownership limitation should be
Commissioner Ricardo Abcede, and Chairman Fe interpreted to apply to both the beneficial ownership
Barin, is likewise silent on the definition of the term and the controlling interest.
"capital." In its Memorandum37 dated 24 September
2007, the OSG also limits its discussion on the xxxx
supposed procedural defects of the petition, i.e. lack
of standing, lack of jurisdiction, non-inclusion of Clearly, therefore, the forty percent (40%) foreign
interested parties, and lack of basis for injunction. The equity limitation in public utilities prescribed by the
OSG does not present any definition or interpretation Constitution refers to ownership of shares of stock
of the term "capital" in Section 11, Article XII of the entitled to vote, i.e., common shares. Furthermore,
Constitution. The OSG contends that "the petition ownership of record of shares will not suffice but it
actually partakes of a collateral attack on PLDT’s must be shown that the legal and beneficial ownership
franchise as a public utility," which in effect requires a rests in the hands of Filipino citizens. Consequently,
"full-blown trial where all the parties in interest are in the case of petitioner PLDT, since it is already
given their day in court."38 admitted that the voting interests of foreigners which
would gain entry to petitioner PLDT by the acquisition
Respondent Francisco Ed Lim, impleaded as of SMART shares through the Questioned
President and Chief Executive Officer of the Philippine Transactions is equivalent to 82.99%, and the
Stock Exchange (PSE), does not also define the term nominee arrangements between the foreign principals
"capital" and seeks the dismissal of the petition on the and the Filipino owners is likewise admitted, there is,
following grounds: (1) failure to state a cause of action therefore, a violation of Section 11, Article XII of the
against Lim; (2) the PSE allegedly implemented its Constitution.
rules and required all listed companies, including
PLDT, to make proper and timely disclosures; and (3) Parenthetically, the Opinions dated February 15, 1988
the reliefs prayed for in the petition would adversely and April 14, 1987 cited by the Trial Court to support
impact the stock market. the proposition that the meaning of the word "capital"
as used in Section 11, Article XII of the Constitution
In the earlier case of Fernandez v. Cojuangco, allegedly refers to the sum total of the shares
petitioner Fernandez who claimed to be a stockholder subscribed and paid-in by the shareholder and it
of record of PLDT, contended that the term "capital" in allegedly is immaterial how the stock is classified,
the 1987 Constitution refers to shares entitled to vote whether as common or preferred, cannot stand in the
or the common shares. Fernandez explained thus: face of a clear legislative policy as stated in the FIA
which took effect in 1991 or way after said opinions
The forty percent (40%) foreign equity limitation in were rendered, and as clarified by the above-quoted
public utilities prescribed by the Constitution refers to Amendments. In this regard, suffice it to state that as
ownership of shares of stock entitled to vote, i.e., between the law and an opinion rendered by an
common shares, considering that it is through voting administrative agency, the law indubitably prevails.
that control is being exercised. x x x Moreover, said Opinions are merely advisory and
cannot prevail over the clear intent of the framers of
Obviously, the intent of the framers of the Constitution the Constitution.
in imposing limitations and restrictions on fully
In the same vein, the SEC’s construction of Section x x – has categorically ruled that both common and
11, Article XII of the Constitution is at best merely preferred shares are properly considered in
advisory for it is the courts that finally determine what determining outstanding capital stock and the
a law means.39 nationality composition thereof.40

On the other hand, respondents therein, Antonio O. We agree with petitioner and petitioners-in-
Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, intervention. The term "capital" in Section 11, Article
Helen Y. Dee, Magdangal B. Elma, Mariles Cacho- XII of the Constitution refers only to shares of stock
Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, entitled to vote in the election of directors, and thus in
Napoleon L. Nazareno, Albert F. Del Rosario, and the present case only to common shares,41 and not to
Orlando B. Vea, argued that the term "capital" in the total outstanding capital stock comprising both
Section 11, Article XII of the Constitution includes common and non-voting preferred shares.
preferred shares since the Constitution does not
distinguish among classes of stock, thus: The Corporation Code of the Philippines42 classifies
shares as common or preferred, thus:
16. The Constitution applies its foreign ownership
limitation on the corporation’s "capital," without Sec. 6. Classification of shares. - The shares of stock
distinction as to classes of shares. x x x of stock corporations may be divided into classes or
series of shares, or both, any of which classes or
In this connection, the Corporation Code – which was series of shares may have such rights, privileges or
already in force at the time the present (1987) restrictions as may be stated in the articles of
Constitution was drafted – defined outstanding capital incorporation: Provided, That no share may be
stock as follows: deprived of voting rights except those classified
and issued as "preferred" or "redeemable"
Section 137. Outstanding capital stock defined. – The shares, unless otherwise provided in this Code:
term "outstanding capital stock", as used in this Code, Provided, further, That there shall always be a class
means the total shares of stock issued under binding or series of shares which have complete voting rights.
subscription agreements to subscribers or Any or all of the shares or series of shares may have
stockholders, whether or not fully or partially paid, a par value or have no par value as may be provided
except treasury shares. for in the articles of incorporation: Provided, however,
That banks, trust companies, insurance companies,
Section 137 of the Corporation Code also does not public utilities, and building and loan associations
distinguish between common and preferred shares, shall not be permitted to issue no-par value shares of
nor exclude either class of shares, in determining the stock.
outstanding capital stock (the "capital") of a
corporation. Consequently, petitioner’s suggestion to Preferred shares of stock issued by any corporation
reckon PLDT’s foreign equity only on the basis of may be given preference in the distribution of the
PLDT’s outstanding common shares is without legal assets of the corporation in case of liquidation and in
basis. The language of the Constitution should be the distribution of dividends, or such other
understood in the sense it has in common use. preferences as may be stated in the articles of
incorporation which are not violative of the provisions
xxxx of this Code: Provided, That preferred shares of stock
may be issued only with a stated par value. The
Board of Directors, where authorized in the articles of
17. But even assuming that resort to the proceedings
incorporation, may fix the terms and conditions of
of the Constitutional Commission is necessary, there
preferred shares of stock or any series thereof:
is nothing in the Record of the Constitutional
Provided, That such terms and conditions shall be
Commission (Vol. III) – which petitioner misleadingly
effective upon the filing of a certificate thereof with the
cited in the Petition x x x – which supports petitioner’s
Securities and Exchange Commission.
view that only common shares should form the basis
for computing a public utility’s foreign equity.
Shares of capital stock issued without par value shall
be deemed fully paid and non-assessable and the
xxxx
holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto:
18. In addition, the SEC – the government agency Provided; That shares without par value may not be
primarily responsible for implementing the Corporation issued for a consideration less than the value of five
Code, and which also has the responsibility of (₱5.00) pesos per share: Provided, further, That the
ensuring compliance with the Constitution’s foreign entire consideration received by the corporation for its
equity restrictions as regards nationalized activities x
no-par value shares shall be treated as capital and for income in the same manner as bondholders.45 In
shall not be available for distribution as dividends. fact, under the Corporation Code only preferred or
redeemable shares can be deprived of the right to
A corporation may, furthermore, classify its shares for vote.46 Common shares cannot be deprived of the
the purpose of insuring compliance with constitutional right to vote in any corporate meeting, and any
or legal requirements. provision in the articles of incorporation restricting the
right of common shareholders to vote is invalid.47
Except as otherwise provided in the articles of
incorporation and stated in the certificate of stock, Considering that common shares have voting rights
each share shall be equal in all respects to every which translate to control, as opposed to preferred
other share. shares which usually have no voting rights, the term
"capital" in Section 11, Article XII of the Constitution
Where the articles of incorporation provide for non- refers only to common shares. However, if the
voting shares in the cases allowed by this Code, the preferred shares also have the right to vote in the
holders of such shares shall nevertheless be entitled election of directors, then the term "capital" shall
to vote on the following matters: 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
1. Amendment of the articles of incorporation;
the election of directors. In short, the term "capital"
in Section 11, Article XII of the Constitution refers
2. Adoption and amendment of by-laws; only to shares of stock that can vote in the
election of directors.
3. Sale, lease, exchange, mortgage, pledge or
other disposition of all or substantially all of This interpretation is consistent with the intent of the
the corporate property; framers of the Constitution to place in the hands of
Filipino citizens the control and management of public
4. Incurring, creating or increasing bonded utilities. As revealed in the deliberations of the
indebtedness; Constitutional Commission, "capital" refers to the
voting stock or controlling interest of a corporation,
5. Increase or decrease of capital stock; to wit:

6. Merger or consolidation of the corporation MR. NOLLEDO. In Sections 3, 9 and 15, the
with another corporation or other corporations; Committee stated local or Filipino equity and foreign
equity; namely, 60-40 in Section 3, 60-40 in Section 9
7. Investment of corporate funds in another and 2/3-1/3 in Section 15.
corporation or business in accordance with
this Code; and MR. VILLEGAS. That is right.

8. Dissolution of the corporation. MR. NOLLEDO. In teaching law, we are always faced
with this question: "Where do we base the equity
Except as provided in the immediately preceding requirement, is it on the authorized capital stock, on
paragraph, the vote necessary to approve a particular the subscribed capital stock, or on the paid-up capital
corporate act as provided in this Code shall be stock of a corporation"? Will the Committee please
deemed to refer only to stocks with voting rights. enlighten me on this?

Indisputably, one of the rights of a stockholder is the MR. VILLEGAS. We have just had a long discussion
right to participate in the control or management of the with the members of the team from the UP Law
corporation.43 This is exercised through his vote in the Center who provided us a draft. The phrase that is
election of directors because it is the board of contained here which we adopted from the UP
directors that controls or manages the corporation.44 In draft is "60 percent of voting stock."
the absence of provisions in the articles of
incorporation denying voting rights to preferred MR. NOLLEDO. That must be based on the
shares, preferred shares have the same voting rights subscribed capital stock, because unless declared
as common shares. However, preferred shareholders delinquent, unpaid capital stock shall be entitled to
are often excluded from any control, that is, deprived vote.
of the right to vote in the election of directors and on
other matters, on the theory that the preferred MR. VILLEGAS. That is right.
shareholders are merely investors in the corporation
MR. NOLLEDO. Thank you. MR. BENGZON. In the case of stock corporations,
it is assumed.49 (Emphasis supplied)
With respect to an investment by one corporation in
another corporation, say, a corporation with 60-40 Thus, 60 percent of the "capital" assumes, or should
percent equity invests in another corporation which is result in, "controlling interest" in the corporation.
permitted by the Corporation Code, does the Reinforcing this interpretation of the term "capital," as
Committee adopt the grandfather rule? referring to controlling interest or shares entitled to
vote, is the definition of a "Philippine national" in the
MR. VILLEGAS. Yes, that is the understanding of the Foreign Investments Act of 1991,50 to wit:
Committee.
SEC. 3. Definitions. - As used in this Act:
MR. NOLLEDO. Therefore, we need additional
Filipino capital? a. The term "Philippine national" shall mean a citizen
of the Philippines; or a domestic partnership or
MR. VILLEGAS. Yes.48 association wholly owned by citizens of the
Philippines; or a corporation organized under the
xxxx laws of the Philippines of which at least sixty
percent (60%) of the capital stock
outstanding and entitled to vote is owned and
MR. AZCUNA. May I be clarified as to that portion that
held by citizens of the Philippines; or a corporation
was accepted by the Committee.
organized abroad and registered as doing business in
the Philippines under the Corporation Code of which
MR. VILLEGAS. The portion accepted by the one hundred percent (100%) of the capital stock
Committee is the deletion of the phrase "voting stock outstanding and entitled to vote is wholly owned by
or controlling interest." Filipinos or a trustee of funds for pension or other
employee retirement or separation benefits, where the
MR. AZCUNA. Hence, without the Davide trustee is a Philippine national and at least sixty
amendment, the committee report would read: percent (60%) of the fund will accrue to the benefit of
"corporations or associations at least sixty percent of Philippine nationals: Provided, That where a
whose CAPITAL is owned by such citizens." corporation and its non-Filipino stockholders own
stocks in a Securities and Exchange Commission
MR. VILLEGAS. Yes. (SEC) registered enterprise, at least sixty percent
(60%) of the capital stock outstanding and entitled to
MR. AZCUNA. So if the Davide amendment is lost, vote of each of both corporations must be owned and
we are stuck with 60 percent of the capital to be held by citizens of the Philippines and at least sixty
owned by citizens. percent (60%) of the members of the Board of
Directors of each of both corporations must be
MR. VILLEGAS. That is right. citizens of the Philippines, in order that the
corporation, shall be considered a "Philippine
MR. AZCUNA. But the control can be with the national." (Emphasis supplied)
foreigners even if they are the minority. Let us say
40 percent of the capital is owned by them, but it In explaining the definition of a "Philippine national,"
is the voting capital, whereas, the Filipinos own the Implementing Rules and Regulations of the
the nonvoting shares. So we can have a situation Foreign Investments Act of 1991 provide:
where the corporation is controlled by foreigners
despite being the minority because they have the b. "Philippine national" shall mean a citizen of the
voting capital. That is the anomaly that would Philippines or a domestic partnership or association
result here. wholly owned by the citizens of the Philippines; or a
corporation organized under the laws of the
MR. BENGZON. No, the reason we eliminated the Philippines of which at least sixty percent [60%] of
word "stock" as stated in the 1973 and 1935 the capital stock outstanding and entitled to vote
Constitutions is that according to Commissioner is owned and held by citizens of the Philippines;
Rodrigo, there are associations that do not have or a trustee of funds for pension or other employee
stocks. That is why we say "CAPITAL." retirement or separation benefits, where the trustee is
a Philippine national and at least sixty percent [60%]
MR. AZCUNA. We should not eliminate the phrase of the fund will accrue to the benefit of the Philippine
"controlling interest." nationals; Provided, that where a corporation its non-
Filipino stockholders own stocks in a Securities and
Exchange Commission [SEC] registered enterprise, at 2009 or R.A. No. 10055; and (7) Ship Mortgage
least sixty percent [60%] of the capital stock Decree or P.D. No. 1521. Hence, the term "capital" in
outstanding and entitled to vote of both corporations Section 11, Article XII of the Constitution is also
must be owned and held by citizens of the Philippines used in the same context in numerous
and at least sixty percent [60%] of the members of the laws reserving certain areas of investments to Filipino
Board of Directors of each of both corporation must citizens.
be citizens of the Philippines, in order that the
corporation shall be considered a Philippine national. To construe broadly the term "capital" as the total
The control test shall be applied for this purpose. outstanding capital stock, including both common
and non-votingpreferred shares, grossly contravenes
Compliance with the required Filipino ownership the intent and letter of the Constitution that the "State
of a corporation shall be determined on the basis shall develop a self-reliant and independent national
of outstanding capital stock whether fully paid or economy effectively controlled by Filipinos." A
not, but only such stocks which are generally broad definition unjustifiably disregards who owns the
entitled to vote are considered. all-important voting stock, which necessarily equates
to control of the public utility.
For stocks to be deemed owned and held by
Philippine citizens or Philippine nationals, mere We shall illustrate the glaring anomaly in giving a
legal title is not enough to meet the required broad definition to the term "capital." Let us assume
Filipino equity. Full beneficial ownership of the that a corporation has 100 common shares owned by
stocks, coupled with appropriate voting rights is foreigners and 1,000,000 non-voting preferred shares
essential. Thus, stocks, the voting rights of which owned by Filipinos, with both classes of share having
have been assigned or transferred to aliens a par value of one peso (₱1.00) per share. Under the
cannot be considered held by Philippine citizens broad definition of the term "capital," such corporation
or Philippine nationals. would be considered compliant with the 40 percent
constitutional limit on foreign equity of public utilities
Individuals or juridical entities not meeting the since the overwhelming majority, or more than 99.999
aforementioned qualifications are considered as percent, of the total outstanding capital stock is
non-Philippine nationals. (Emphasis supplied) Filipino owned. This is obviously absurd.

Mere legal title is insufficient to meet the 60 percent In the example given, only the foreigners holding the
Filipino-owned "capital" required in the Constitution. common shares have voting rights in the election of
Full beneficial ownership of 60 percent of the directors, even if they hold only 100 shares. The
outstanding capital stock, coupled with 60 percent of foreigners, with a minuscule equity of less than 0.001
the voting rights, is required. The legal and beneficial percent, exercise control over the public utility. On the
ownership of 60 percent of the outstanding capital other hand, the Filipinos, holding more than 99.999
stock must rest in the hands of Filipino nationals in percent of the equity, cannot vote in the election of
accordance with the constitutional mandate. directors and hence, have no control over the public
Otherwise, the corporation is "considered as non- utility. This starkly circumvents the intent of the
Philippine national[s]." framers of the Constitution, as well as the clear
language of the Constitution, to place the control of
Under Section 10, Article XII of the Constitution, public utilities in the hands of Filipinos. It also renders
Congress may "reserve to citizens of the Philippines illusory the State policy of an independent national
or to corporations or associations at least sixty per economy effectively controlled by Filipinos.
centum of whose capital is owned by such citizens, or
such higher percentage as Congress may prescribe, The example given is not theoretical but can be found
certain areas of investments." Thus, in numerous laws in the real world, and in fact exists in the present
Congress has reserved certain areas of investments case.
to Filipino citizens or to corporations at least sixty
percent of the "capital" of which is owned by Filipino Holders of PLDT preferred shares are explicitly
citizens. Some of these laws are: (1) Regulation of denied of the right to vote in the election of directors.
Award of Government Contracts or R.A. No. 5183; (2) PLDT’s Articles of Incorporation expressly state that
Philippine Inventors Incentives Act or R.A. No. 3850; "the holders of Serial Preferred Stock shall not be
(3) Magna Carta for Micro, Small and Medium entitled to vote at any meeting of the stockholders
Enterprises or R.A. No. 6977; (4) Philippine Overseas for the election of directors or for any other
Shipping Development Act or R.A. No. 7471; (5) purpose or otherwise participate in any action taken
Domestic Shipping Development Act of 2004 or R.A. by the corporation or its stockholders, or to receive
No. 9295; (6) Philippine Technology Transfer Act of notice of any meeting of stockholders."51
On the other hand, holders of common shares are the preferred shares are owned by Filipinos while
granted the exclusive right to vote in the election of foreigners own only a minuscule 0.56% of the
directors. PLDT’s Articles of Incorporation52 state that preferred shares.61 Worse, preferred shares constitute
"each holder of Common Capital Stock shall have one 77.85% of the authorized capital stock of PLDT while
vote in respect of each share of such stock held by common shares constitute only 22.15%.62 This
him on all matters voted upon by the stockholders, undeniably shows that beneficial interest in PLDT is
and the holders of Common Capital Stock shall not with the non-voting preferred shares but with the
have the exclusive right to vote for the election of common shares, blatantly violating the constitutional
directors and for all other purposes."53 requirement of 60 percent Filipino control and Filipino
beneficial ownership in a public utility.
In short, only holders of common shares can vote in
the election of directors, meaning only common The legal and beneficial ownership of 60 percent of
shareholders exercise control over PLDT. Conversely, the outstanding capital stock must rest in the hands of
holders of preferred shares, who have no voting rights Filipinos in accordance with the constitutional
in the election of directors, do not have any control mandate. Full beneficial ownership of 60 percent of
over PLDT. In fact, under PLDT’s Articles of the outstanding capital stock, coupled with 60 percent
Incorporation, holders of common shares have voting of the voting rights, is constitutionally required for the
rights for all purposes, while holders of preferred State’s grant of authority to operate a public utility.
shares have no voting right for any purpose The undisputed fact that the PLDT preferred shares,
whatsoever. 99.44% owned by Filipinos, are non-voting and earn
only 1/70 of the dividends that PLDT common shares
It must be stressed, and respondents do not earn, grossly violates the constitutional requirement of
dispute, that foreigners hold a majority of the 60 percent Filipino control and Filipino beneficial
common shares of PLDT. In fact, based on PLDT’s ownership of a public utility.
2010 General Information Sheet (GIS),54 which is a
document required to be submitted annually to the In short, Filipinos hold less than 60 percent of the
Securities and Exchange Commission,55 foreigners voting stock, and earn less than 60 percent of the
hold 120,046,690 common shares of PLDT whereas dividends, of PLDT. This directly contravenes the
Filipinos hold only 66,750,622 common shares.56 In express command in Section 11, Article XII of the
other words, foreigners hold 64.27% of the total Constitution that "[n]o franchise, certificate, or any
number of PLDT’s common shares, while Filipinos other form of authorization for the operation of a
hold only 35.73%. Since holding a majority of the public utility shall be granted except to x x x
common shares equates to control, it is clear that corporations x x x organized under the laws of the
foreigners exercise control over PLDT. Such amount Philippines, at least sixty per centum of whose
of control unmistakably exceeds the allowable 40 capital is owned by such citizens x x x."
percent limit on foreign ownership of public utilities
expressly mandated in Section 11, Article XII of the To repeat, (1) foreigners own 64.27% of the common
Constitution. shares of PLDT, which class of shares exercises
the sole right to vote in the election of directors, and
Moreover, the Dividend Declarations of PLDT for thus exercise control over PLDT; (2) Filipinos own
2009,57 as submitted to the SEC, shows that per share only 35.73% of PLDT’s common shares, constituting a
the SIP58preferred shares earn a pittance in dividends minority of the voting stock, and thus do not exercise
compared to the common shares. PLDT declared control over PLDT; (3) preferred shares, 99.44%
dividends for the common shares at ₱70.00 per owned by Filipinos, have no voting rights; (4)
share, while the declared dividends for the preferred preferred shares earn only 1/70 of the dividends that
shares amounted to a measly ₱1.00 per share.59 So common shares earn;63 (5) preferred shares have
the preferred shares not only cannot vote in the twice the par value of common shares; and (6)
election of directors, they also have very little and preferred shares constitute 77.85% of the authorized
obviously negligible dividend earning capacity capital stock of PLDT and common shares only
compared to common shares. 22.15%. This kind of ownership and control of a public
utility is a mockery of the Constitution.
As shown in PLDT’s 2010 GIS,60 as submitted to the
SEC, the par value of PLDT common shares is ₱5.00 Incidentally, the fact that PLDT common shares with a
per share, whereas the par value of preferred shares par value of ₱5.00 have a current stock market value
is ₱10.00 per share. In other words, preferred shares of ₱2,328.00 per share,64 while PLDT preferred shares
have twice the par value of common shares but with a par value of ₱10.00 per share have a current
cannot elect directors and have only 1/70 of the stock market value ranging from only ₱10.92 to
dividends of common shares. Moreover, 99.44% of ₱11.06 per share,65 is a glaring confirmation by the
market that control and beneficial ownership of PLDT the needed implementing statute. (Emphasis
rest with the common shares, not with the preferred supplied)
shares.
In Manila Prince Hotel, even the Dissenting Opinion of
Indisputably, construing the term "capital" in Section then Associate Justice Reynato S. Puno, later Chief
11, Article XII of the Constitution to include both voting Justice, agreed that constitutional provisions are
and non-voting shares will result in the abject presumed to be self-executing. Justice Puno stated:
surrender of our telecommunications industry to
foreigners, amounting to a clear abdication of the Courts as a rule consider the provisions of the
State’s constitutional duty to limit control of public Constitution as self-executing, rather than as requiring
utilities to Filipino citizens. Such an interpretation future legislation for their enforcement. The reason is
certainly runs counter to the constitutional provision not difficult to discern. For if they are not treated as
reserving certain areas of investment to Filipino self-executing, the mandate of the fundamental
citizens, such as the exploitation of natural resources law ratified by the sovereign people can be easily
as well as the ownership of land, educational ignored and nullified by Congress. Suffused with
institutions and advertising businesses. The Court wisdom of the ages is the unyielding rule that
should never open to foreign control what the legislative actions may give breath to
Constitution has expressly reserved to Filipinos for constitutional rights but congressional inaction
that would be a betrayal of the Constitution and of the should not suffocate them.
national interest. The Court must perform its solemn
duty to defend and uphold the intent and letter of the Thus, we have treated as self-executing the
Constitution to ensure, in the words of the provisions in the Bill of Rights on arrests, searches
Constitution, "a self-reliant and independent national and seizures, the rights of a person under custodial
economy effectively controlled by Filipinos." investigation, the rights of an accused, and the
privilege against self-incrimination. It is recognized
Section 11, Article XII of the Constitution, like other that legislation is unnecessary to enable courts to
provisions of the Constitution expressly reserving to effectuate constitutional provisions guaranteeing the
Filipinos specific areas of investment, such as the fundamental rights of life, liberty and the protection of
development of natural resources and ownership of property. The same treatment is accorded to
land, educational institutions and advertising constitutional provisions forbidding the taking or
business, is self-executing. There is no need for damaging of property for public use without just
legislation to implement these self-executing compensation. (Emphasis supplied)
provisions of the Constitution. The rationale why these
constitutional provisions are self-executing was Thus, in numerous cases,67 this Court, even in the
explained in Manila Prince Hotel v. GSIS,66 thus: absence of implementing legislation, applied directly
the provisions of the 1935, 1973 and 1987
x x x Hence, unless it is expressly provided that a Constitutions limiting land ownership to Filipinos.
legislative act is necessary to enforce a constitutional In Soriano v. Ong Hoo,68this Court ruled:
mandate, the presumption now is that all provisions of
the constitution are self-executing. If the constitutional x x x As the Constitution is silent as to the effects or
provisions are treated as requiring legislation instead consequences of a sale by a citizen of his land to an
of self-executing, the legislature would have the alien, and as both the citizen and the alien have
power to ignore and practically nullify the mandate of violated the law, none of them should have a recourse
the fundamental law. This can be cataclysmic. That is against the other, and it should only be the State that
why the prevailing view is, as it has always been, that should be allowed to intervene and determine what is
— to be done with the property subject of the violation.
We have said that what the State should do or could
. . . in case of doubt, the Constitution should be do in such matters is a matter of public policy, entirely
considered self-executing rather than non-self- beyond the scope of judicial authority. (Dinglasan, et
executing. . . . Unless the contrary is clearly al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June
intended, the provisions of the Constitution 27, 1956.) While the legislature has not definitely
should be considered self-executing, as a decided what policy should be followed in cases
contrary rule would give the legislature discretion of violations against the constitutional
to determine when, or whether, they shall be prohibition, courts of justice cannot go beyond by
effective. These provisions would be subordinated to declaring the disposition to be null and void as
the will of the lawmaking body, which could make violative of the Constitution. x x x (Emphasis
them entirely meaningless by simply refusing to pass supplied)
To treat Section 11, Article XII of the Constitution as "investigate x x x the activities of persons to
not self-executing would mean that since the 1935 ensure compliance" with the laws and regulations
Constitution, or over the last 75 years, not one of the that SEC administers or enforces. The GIS that all
constitutional provisions expressly reserving specific corporations are required to submit to SEC annually
areas of investments to corporations, at least 60 should put the SEC on guard against violations of the
percent of the "capital" of which is owned by Filipinos, nationality requirement prescribed in the Constitution
was enforceable. In short, the framers of the 1935, and existing laws. This Court can compel the SEC, in
1973 and 1987 Constitutions miserably failed to a petition for declaratory relief that is treated as a
effectively reserve to Filipinos specific areas of petition for mandamus as in the present case, to hear
investment, like the operation by corporations of and decide a possible violation of Section 11, Article
public utilities, the exploitation by corporations of XII of the Constitution in view of the ownership
mineral resources, the ownership by corporations of structure of PLDT’s voting shares, as admitted by
real estate, and the ownership of educational respondents and as stated in PLDT’s 2010 GIS that
institutions. All the legislatures that convened since PLDT submitted to SEC.
1935 also miserably failed to enact legislations to
implement these vital constitutional provisions that WHEREFORE, we PARTLY GRANT the petition and
determine who will effectively control the national rule that the term "capital" in Section 11, Article XII of
economy, Filipinos or foreigners. This Court cannot the 1987 Constitution refers only to shares of stock
allow such an absurd interpretation of the entitled to vote in the election of directors, and thus in
Constitution. the present case only to common shares, and not to
the total outstanding capital stock (common and non-
This Court has held that the SEC "has both regulatory voting preferred shares). Respondent Chairperson of
and adjudicative functions."69 Under its regulatory the Securities and Exchange Commission
functions, the SEC can be compelled by mandamus is DIRECTED to apply this definition of the term
to perform its statutory duty when it unlawfully "capital" in determining the extent of allowable foreign
neglects to perform the same. Under its adjudicative ownership in respondent Philippine Long Distance
or quasi-judicial functions, the SEC can be also be Telephone Company, and if there is a violation of
compelled by mandamus to hear and decide a Section 11, Article XII of the Constitution, to impose
possible violation of any law it administers or enforces the appropriate sanctions under the law.
when it is mandated by law to investigate such
violation.
1awphi1

Under Section 17(4)70 of the Corporation Code, the

SEC has the regulatory function to reject or
disapprove the Articles of Incorporation of any
corporation where "the required percentage of
ownership of the capital stock to be owned by
citizens of the Philippines has not been complied
with as required by existing laws or the
Constitution." Thus, the SEC is the government
agency tasked with the statutory duty to enforce the
nationality requirement prescribed in Section 11,
Article XII of the Constitution on the ownership of
public utilities. This Court, in a petition for declaratory
relief that is treated as a petition for mandamus as in
the present case, can direct the SEC to perform its
statutory duty under the law, a duty that the SEC has
apparently unlawfully neglected to do based on the
2010 GIS that respondent PLDT submitted to the
SEC.

Under Section 5(m) of the Securities Regulation

Code,71 the SEC is vested with the "power and
function" to "suspend or revoke, after proper notice
and hearing, the franchise or certificate of
registration of corporations, partnerships or
associations, upon any of the grounds provided
by law." The SEC is mandated under Section 5(d) of
the same Code with the "power and function" to
G.R. No. L-16236             June 30, 1965 Baltazar and Rose were among the incorporators,
having subscribed to 600 and 400 shares of the
IRINEO S. BALTAZAR, plaintiff-appellee,  capital stock, or a total par value of P60,000.00 and
vs. P40.000.00, respectively. It is alleged that it has
LINGAYEN GULF ELECTRIC POWER, CO., INC., always been the practice and procedure of the
DOMINADOR C. UNGSON, BRIGIDO G. ESTRADA, Corporation to issue certificates of stock to its
MANUEL L. FERNANDEZ, BENEDICTO C. YUSON individual subscribers for unpaid shares of stock. Of
and BERNARDO ACENA, defendants-appellants. the 600 shares of capital stock subscribed by
Baltazar, he had fully paid 535 shares of stock, and
----------------------------- the Corporation issued to him several fully paid up
and non-assessable certificates of stock,
corresponding to the 535 shares. After having made
G.R. No. L-16237             June 30, 1965
transfers to third persons and acquired new ones,
Baltazar had to his credit, on the filing of the complaint
MARVIN O. ROSE, plaintiff-appellee,  341 shares fully paid and non-assessable. He had
vs. also 65 shares with par value of P6,500.00, for which
LINGAYEN GULF ELECTRIC CO., INC., no certificate was issued to him. Of the 400 shares of
DOMINADOR, C. UNGSON, BRIGIDO G. stock subscribed by Rose, he had 375 shares of fully
ESTRADA, MANTEL L. FERNANDEZ, BENEDICTO paid stock, duly covered by certificates of stock issued
C. YUSON and BERNARDO C. ACENA, defendants- to him.
appellants.
The respondents Ungson, Estrada, Fernandez and
----------------------------- Yuson were small stockholders of the Corporation, all
holding a total number of fully paid-up shares of stock,
G.R. No. L-16238             June 30, 1965. of not more than 100 shares, with a par value of
P10,000.00 and the defendant Acena, was likewise
IRINEO S. BALTAZAR and MARVIN O. an incorporator and stockholder, holding 600 shares
ROSE, plaintiffs-appellees,  of stock, for which certificate of stock were issued to
vs. him and as such, was the largest individual
BERNARDO ACENA, defendant-appellant. stockholder thereof. Defendants Ungson, Estrada,
Fernandez and Yuzon, constituted the majority of the
Primicias and Del Castillo for plaintiffs-appellees. holdover seven-member Board of Directors of the
Manuel L. Fernandez and Brigido G. Estrada for and Corporation, in 1955, two (2) of said defendants
in their own behalf as defendants-appellants. having been elected as members of the Board in the
annual stockholders' meeting held in May 1954,
PAREDES, J.: largely on the vote of their co-defendant Acena, while
the other two (2) were elected mainly on the vote of
In Civil Case G.R. No. L-16236 (CFI No. 13211), the plaintiffs and their group of stockholders. Let the
Irineo S. Baltazar, filed the complaint against first group be called the Ungson groupand the
Lingayen Gulf Electric Power Co., Inc., Dominador C. second, the Baltazar group.
Ungson, Brigido G. Estrada, Manuel L. Fernandez,
Benedicto C. Yuson and Bernardo Acena. The date of the annual stockholders' meeting of the
Corporation had been fixed, under its by-laws, on the
In Civil Case G.R. No. L-16237 (CFI No. 13212), first Tuesday of February of every year, but for one
Marvin O. Rose filed the complaint against the same reason or another, the meeting was to be held on May
defendants. 1, 1955, principally for the purpose of electing new
officers and Board of Directors for the calendar year
1955. In connection with said meeting since January
In Civil Case G.R. No. L-16238 (CFI No. 13340), 1, 1955, there was a realignment effected, and the
Baltazar and Rose filed their complaint against fight for control of the management and property of
Bernardo Acena alone. the corporation was close and keen. The total number
of fully paid-up shares held by stockholders of one
The Lingayen Gulf Electric Power Co., Inc., group, was almost equal the number of fully paid-up
hereinafter referred to as Corporation, was doing shares held by the other group.
business in the Philippines, with principal offices at
Lingayen, Pangasinan, and with an authorized capital The Ungson group (specially defendant Acena), which
stock of P300.000.00 divided into 3,000 shares of had been in complete control of the management and
voting stock at P100.00 par value, per share. Plaintiffs
property of the Corporation since January 1, 1955, in to vote in the said annual stockholders' meeting
order to continue retaining such control, over the scheduled for May 1, 1955.
objection oil three majority members of the Board, in
the regular meeting of the Board of Directors, held on In their complaint, Baltazar and Rose prayed that a
January 30, 1955, passed three (3) resolutions (Exhs. writ of preliminary injunction be issued against the
A, B, C). defendants, enjoining them to desist and refrain from
carrying out the objects and purposes of the three
Resolution No. 2 (Exh. A), declared all resolutions aforestated, and commanding them to
watered stocks issued to Acena, Baltazar, allow plaintiffs and companions to vote in the
Rose and Jubenville, "of no value and stockholders' meeting, on May 1, 1955, their fully paid
consequently cancelled from the books of the up shares of stocks, as evidenced by stock
Corporation. certificates issued to them and outstanding on the
stock book of the defendant Corporation, on or before
Resolution No. 3 (Exh. B) resolved that "... all January 30, 1955, to declare said three resolutions
unpaid subscriptions should bear interest illegal and invalid, and to pay plaintiffs the sum of
annually from the year of subscription on the P10,000.00 each, as damages. On April 29, 1955, the
basis of quarterly payment, and any or all trial court, after due hearing, issued Preliminary
payments already made on said unpaid Injunction, as prayed for.
subscriptions should be credited to pay
interest first, then the capital debt after all The defendants, in their answers, allege that during
interest is fully paid. the years that plaintiffs and their allies were in control
of the Corporation, no serious effort was attempted to
All shares of stock issued to and in favor of retrieve it from its financial collapse, caused by
any stockholder or stockholders of the accumulated indebtedness and by poor and inefficient
Lingayen Gulf Electric Power Co., Inc., on management, resulting in losses of big sums of
account of payments on unpaid subscriptions money from vicious manipulation of funds, nepotism,
without the interest thereon — accrued and unconscionable grant of big salaries and allowances,
collectible having been fully paid from the date illegal payments, unaccounted funds of Caltex
of subscription as required by the Corporation business and sales department store, etc.; that during
Law, shall be declared of no value and the time the management was in the hands of
cancelled from its books, and if the payments plaintiffs (Rose, as manager); attempts were made to
already made exceeded the interest accrued release themselves from liability of their unpaid
and collectible by virtue of the provision of law subscriptions; that the three resolutions were merely
and the previous resolution of its board of functional instruments to bolster the faith in the assets
directors, the excess should be applied to the of the defendant Corporation and did not deprive the
payment of the unpaid subscription. For this plaintiffs of their property without due process of law;
purpose, the accountant of the corporation is that the issuance of a writ of injunction for the purpose
directed to make and report the proper of arresting the holding of the election of the Board,
computation of the interest. was beyond the jurisdiction of the court. They set up
counterclaims. They prayed that the resolutions be
Resolution No. 4 (Exh. C) resolved that "any declared legal and valid, thus invalidating the
and all shares of stock of the Lingayen Gulf "watered stocks" of plaintiffs, if not paid, and
Electric Power Co., Inc., issued as fully paid- disqualifying the delinquent subscribers, among whom
up to stockholders whose subscription to a were the plaintiffs, from voting totally or partially, their
number of shares have been declared subscriptions; to order plaintiffs to pay the defendant
delinquent with the accrued interest on the Corporation first, the interest due and payable
unpaid thereof per Resolution No. 42, S. quarterly at 6% per annum from January 11, 1946 to
1954, of the Board of Directors which has December 31, 1954, on their liability under their
been duly published in the "Manila Chronicle," delinquent subscriptions, out of the installment made
are hereby incapacitated to utilize or avail of therein; to pay defendant entity damages under the
the voting power until such delinquency with counterclaims and expenses for the enforcement of
the accrued interest is fully paid up as the collection; and that after complete payment of the
indicated in Resolution No. 3, S. 1955. interests and the balance of their unpaid
subscriptions, the defendant Corporation should issue
the shares of stock to plaintiffs for their full
On the authority of these resolutions, the Ungson
subscription. Plaintiffs filed their answer to
group was threatening and procuring to expel and
defendants' counterclaims, with counterclaims against
oust the plaintiffs and their companion stockholders,
defendants. On August 8, 1955, the lower court
for the ultimate purpose of depriving them of their right
issued an order dismissing plaintiffs' counterclaims
against Acena, Ungson and Fernandez "without On February 20, 1959, the lower court rendered a
prejudice to filing the proper separate actions therefor decision, approving the agreement and requiring the
by the parties." Consequently, and as heretofore parties to comply with the same, and dissolved the
mentioned, Baltazar and Rose filed Case No. 13340 writ of preliminary injunction, with costs. The pertinent
(supra). portions of the decision are:

The following tentative amicable settlement, dated In view of the agreement of the parties
September 13, 1958, formulated and entered into transcribed above, this Court is called upon to
by some of the parties and their respective attorneys, decide whether or not any of the agreements
before presiding Judge Jesus P. Morfe, in the three of the parties as above transcribed is contrary
cases, was submitted: to law or public policy. First, as regards pars.
1 and 2, of said agreement, the legal capacity
1. As to the so-called water stocks P30,000.00 of the parties to sue and be sued carries with
each of the holders of said stock, namely, it the power to enter into an amicable
Irineo Baltazar, Marvin Rose, and Bernardo settlement of pending litigations and to
Acena, will return to the corporation P3,500 expressly or impliedly make admissions of
each of said stocks, thereby retaining P6,500 facts; and they could, therefore, agree and
worth of stocks to be considered as valid for recognize as fully paid for and valid the shares
each under this compromise; of stocks mentioned in said paragraphs of
their agreement, which agreement must be
2. With respect to Dr. Bernardo Acena, of the held valid and binding among the parties, and
certificates of stock allegedly representing, his even as against their persons who have no
profit, he will return to the corporation P3,500 proof that said agreement was entered into in
of said share of stock and retain P7,500 worth fraud of creditors.
thereof ;
The next question for decision is whether or
3. With respect to the interest on unpaid not a corporation may validly condone interest
balance of subscription it is agreed that the on unpaid subscriptions to its capital stock.
subscribers with unpaid subscription be given The fact that our Corporation Law authorizes
the opportunity to pay in two installments, the provisions in the by-laws of a corporation
first installment to cover one-half of the unpaid different from that set out in Sec. 37 of said
balance to be paid in three months, and the law, shows that the provision of said law is to
second installment will be for the remaining interest of unpaid stock subscriptions is
unpaid half payable in another three months, merely directory, so that a corporation may fix
from the time of the approval of this a different interest rate, or condone the
agreements, with the understanding that those payment of interest altogether if such
who comply with this arrangement will not pay condonation would, as in the instant cases,
interest on the balance of their subscription, serve as inducement for early payment of
for the date of incorporation up to the grant of stock subscriptions. The condonation and
franchise on February 24, 1948, which shall reduction of interest agreed upon in par. 3 of
be deemed as condoned, and from 1948 they the aforequoted agreement is, therefore, valid
will pay only as interest 3% compounded in the absence of proof that said agreement
annually, it being understood that failure of was entered into in fraud of creditors.
any subscriber to pay any of the installment
here provided will subject the stockholders In connection with par. 5 of the aforequoted
concerned to the provision of the corporation agreement, in relation to par. 3 thereof, this,
law of the payment of 6% interest Court is of the opinion, and so holds, that the
compounded quarterly. periods of time allowed for making payments
under par. 3 of said agreement, must be
4. All claims and counterclaims other than counted from date of receipt of a copy of this
those covered by the preceding paragraph of decision by counsel of the parties, this
stipulation will be deemed dismissed without decision constituting the final approval of said
prejudice, in all these three cases; agreement, and as to stockholders who are
not parties to these cases, from date of notice
of the said time extension. The extension of
5. All the resolutions of the Board and the
time to pay, as granted in par. 3 of the
stockholders involved in these instant cases
repealing previous declaration of delinquency
will be deemed modified in accordance with
of the corresponding shares of stock, and all
this agreement.
subscribed shares of stock, except those
 ordered to be returned as provided in pars. 1 stockholders, for to hold otherwise would be to
and 2 of said agreement, will therefore be defeat the primary purpose of early collection
entitled to vote until once again declared of said obligations. Considering the same
delinquent after the expiration of the periods paramount intention of said resolution, and of
of time set out in par. 3 of said agreement. the aforesaid compromise agreement, it
likewise follows that the extension of time to
Defendants on March 14, 1959 filed a motion for pay and the reduction of interest embodied in
reconsideration, alleging that the decision was partly the said agreement must apply to all
against the spirit and intention of the parties to the stockholders similarly situated.
agreement and portions of the decision, carried
"prejudicial eventualities," and asking that the same Regarding the right to vote, this Court likewise
be amended in the sense that "the payment of agrees with the defends its that the facts
obligations of delinquent incorporators has been considered during the negotiations for
reduced by the agreement as stated in paragraphs 3 settlement effected by the parties in the
and 5" of said agreement; that delinquent stocks Chambers of the presiding judge do not
cannot be voted until fully paid in accordance with the warrant repeal of the declaration of
agreement and that if the plaintiffs in the above delinquency and complete restoration of
entitled cases could not pay in full their obligations voting rights until full payment of the unpaid
within the periods stated in the agreement, the stock subscriptions and interest within the
resolutions of delinquency would automatically stand. time and to the extent mentioned in par. 3 of
the aforesaid compromise agreement. To rule
On March 18, 1959, plaintiffs, in cases Nos. 13211 otherwise would be to encourage non-
and 13212, filed a petition for immediate payment of the balance of stock subscriptions
execution and for preliminary injunction and thus defeat the paramount intention of the
and/or mandamus, praying that a writ be issued, compromise agreement. Stated differently,
ordering the defendants, as controlling majority of this Court now holds that the extension of time
hold-over board of directors, to hold immediately the to pay, as granted in par. 3 of the aforesaid
long delayed stockholders' meeting, and to allow the compromise agreement, has the effect of
plaintiffs and all the stockholders, with still unpaid lifting the previous declaration of delinquency
subscriptions, to vote all their stocks and effective as of full payment of the balance of
subscriptions at said stockholders' meeting, as said stock subscriptions and interest within the
directed in the decision. periods of time mentioned in par. 3 of said
compromise agreement.
On March 25, 1959, the Court issued an amending
decision, pertinent portions of which are hereunder In view of the uncertainty brought about by the
reproduced —  motion for reconsideration and the motion for
execution aforementioned, it would be unjust
... . After hearing the parties in extensive oral to count the periods of time mentioned in the
argument, this Court agrees with the aforesaid compromise agreement from the
defendants that par. 5 of the compromise date of receipt of the original decision of this
agreement of the parties, dated September Court in these cases. The extension of time to
13, 1958, contemplates a modification and not pay should, therefore, be counted from receipt
a repeal of the resolutions of the Board of by counsel for the parties of a copy of this
Directors and of the Stockholders referred to amending decision, and from receipt by the
in said agreement. The question is, therefore, other stockholders of notice of said extension
to what extent has said resolutions been of time; and the injunction in the instant case
modified? Considering that the primary should be deemed in force for the duration of
intention of each of said resolutions was to said extension of time to pay.
effect an early collection of unpaid balance of
stock subscriptions and interest thereon, and WHEREFORE, the decision of this Court
the moving consideration for a compromise rendered in these cases on February 20, 1959
settlement of the instant cases is likewise the is hereby modified in the manner set out
early collection of the obligations of above, maintaining said decision in all other
stockholders of the defendant corporation, the respects.
extension of time to pay, as granted in par. 3
of said agreement, was clearly intended to On April 4, 1959 , plaintiffs filed a motion for
cover not only the accrued interest but also reconsideration and/or new trial, praying that the
the unpaid stock subscription of the amending decision dated March 25, 1959, be
reconsidered and/or further clarified. On July 16, stock, and he pays only partially, for which he
1959, the trial court reversed its amending decision in is issued certificates of stock, is he entitled to
an order, the relevant parts thereof follow: vote the latter, notwithstanding the fact that he
has not paid the balance of his subscription,
WHEREFORE, by way of amendment to both which has been called for payment or
the original and amending decisions of this declared delinquent?
Court in the instant case, this Court hereby
expressly rules that all shares of the capital 2. If a stockholder subscribes to a certain
stock of the defendant corporation covered by number of shares of stock and makes partial
fully paid capital stock shares certificates are payment only and declared delinquent as to
entitled to vote in all meetings of the the rest, with interest, should previous
stockholders of this corporation, and payments on account of the capital, be first
Resolutions Nos. 2, 3 and 4 (Exhs. C, C-1 applied to interest, thus diminishing the voting
and C-2) of defendant's corporation's Board of power of the shares of stock already paid? In
Directors are hereby nullified insofar as they other words, if the entire subscribed shares of
are inconsistent the this ruling. stock are not paid, will the paid shares of
stock be deprived of the right to vote, until the
The extensions of time to pay, referred to in entire subscribed shares of stock are fully
par. 3 of the settlement agreement of the paid, including interest?
parties, will start to run from the date of receipt
by counsel for the parties of a copy of this 3. Has estoppel or waiver, by virtue of the
Order, and from receipt by the other settlement agreement, set in?
stockholders of notice of said extension of
time. Defendants-appellants claim that resolution No. 4
(Exh. C-2), withdrawing or nullifying the voting power
The injunction granted in the instant case is of all the aforesaid shares of stock is valid,
hereby dissolved, and the injunction bond filed notwithstanding the existence of partial payments,
by the plaintiffs is hereby cancelled and evidenced by certificates duly issued therefor. They
released. invoke the ruling laid down by the Court in the Fua
Cun v. Summers case (44 Phil, 705, March 27, 1923)
Defendants on August 14, 1959 perfected their appeal pertinent portion of which states:
against the above ruling, on purely questions of law.
Plaintiffs-appellees did not file any brief, manifesting In the absence of special agreement to the
that they were relying on their arguments contained in contrary, a subscriber for a certain number of
their motion for reconsideration, dated April 4, 1959 shares of stock does not, upon payment of
filed with the trial court. (pp. 213 to 218, rec. on one-half of the subscription price, become
appeal) and on the reasons set forth in the trial court's entitled to the issuance of certificates for one-
order, dated July 16, 1959, third decision (pp. 219 to half of the number of shares subscribed for;
230 R.A.). the subscriber's right consists only in
equity entitling him to a certificate for the total
Pending decision, the parties were required to show number of shares subscribed for by him upon
cause why the cases should not be dismissed for payment of the remaining portion of the
having become moot or academic, in view of the fact subscription price.
that the appellees, taking advantage of the decision of
the trial court, "had paid all other delinquencies and The cited case connotes the principle that a partial
interest thereon," but the appellants manifested that payment of a subscription does not entitle the
these cases should be decided on the issues raised, stockholder to a certificate for the total number of
to determine, once and for all, the voting rights of the shares subscribed by him; his right consists only in
other delinquent subscribers, in the election of the equity to a certificate of the total number of shares
company's Board of Directors which had been subscribed for, upon payment of the remaining portion
suspended since May 1, 1955, because of the of the subscription price. In other words, it is
litigation. contended, as in the present case, that if Baltazar
subscribed to 600 shares of stock in a single
The questions posted in the appeal, in view of the subscription, and he merely paid for 300 shares, for
above facts would, therefore, be: which he was given fully paid certificates for 300
shares, he cannot vote said 300 shares, in any
1. If a stockholder, in a stock corporation, meeting of the Corporation, until he shall have paid
subscribes to a certain number of shares of the remaining 300 shares of stock. The saving clause
in the quoted pronouncement, "in the absence of could have simply provided that no certificate of par
special agreement to the contrary," reveals that the value and no par value stock shall be issued to a
doctrine is not mandatory, but merely directory, which subscriber, as fully paid up, until the full subscription
is not violative of law, the rigor of the pronouncement has been paid by him to the corporation, if full
may be relaxed. The plaintiffs-appellees seem to payment of subscription were intended is the criterion
sustain an adverse concept, postulating that once a in the issuance of certificates, for both thepar value
stockholder has subscribed to a certain number of and no par value stocks. Stated in another way, the
shares, although he has made partial payments only, present law requires as a condition before a share
but is issued a certificate for the paid-up shares of holder can vote his shares, that his full subscription
stock, he is entitled to vote the whole number of be paid in the case of no par value stock; and in case
shares subscribed by him, paid or not, until the said of stock corporation with par value, the stockholder
unpaid shares shall have been called for payment or can vote the shares fully paid by him only, irrespective
declared delinquent. of the unpaid delinquent shares. As well-observed by
the trial court, a corporation may now, in the absence
The cases at bar do not come under the aegis of the of provisions in their by-laws to the contrary, apply
principle enunciated in the Fua Cun v. Summers case, payment made by , subscribers-stockholders, either
because it was the practice and procedure, since the as: "(a) full payment for the corresponding number of
inception of the corporation, to issue certificates of shares of stock, the par value of each of which is
stock to its individual subscribers for unpaid shares of covered by such payment; or (b) as payment pro-rata
stock and gave voting power to shares of stock fully to each and all the entire number of shares
paid. And even though no agreement existed, the subscribed for" (amended decision). In the cases at
ruling in said case, does not now reflect the correct bar, the defendant-corporation had chosen to apply
view on the matter, for better than an agreement or payments by its stockholders to definite shares of the
practice, there is the law, which renders the said case capital stock of the corporation and had fully paid
of Fua Cun-Summers, obsolescent. capital stock shares certificates for said payments; its
call for payment of unpaid subscription and its
Section 37 of the Corporation Law, as amended by declaration of delinquency for non-payment of said
Act No. 3518, approved on March 1, 1929, six (6) call affecting only the remaining number of shares of
years after the promulgation of the Fua-Summers its capital stock for which no fully paid capital stock
case (decided in 1923), provides: shares certificates have been issued, "and only these
have been legally shorn of their voting rights by said
declaration of delinquency" (amended decision).
SEC. 37. ... . No certificate of stock shall be
issued to a subscriber as fully paid up until
the full par value thereof, or the full The third paragraph of the settlement agreement
subscription in the case of no par stock, has relates to interest on the unpaid balance of
been paid by him to the corporation. subscription to the capital stock. The second
Subscribed shares not fully paid up may be paragraph of resolution No. 3 (Exh. C-1), unilaterally
voted provided no subscription is unpaid and declared as of no value and cancelled all capital stock
delinquent. shares certificates issued as fully paid up, upon
payments made by stockholders, when interests on
unpaid subscription from date of subscription were not
The law just quoted was originally section 36 of the
previously and/or then and there paid. Defendants-
Corporation Law of 1906, which reads as follows:
appellants, invoking Art. 1253 NCC (Art. 1173 of the
Old Civil Code) which provides that "if the debt
SEC. 36. ... . No certificate of stock shall be produces interest, payment of the principal shall not
issued to a subscriber as fully paid up until be deemed to have been made until the interests
the full par value thereof has been paid by have been covered," and relying on an opinion of the
him to the corporation. Subscribed shares not Securities and Exchange Commission, claim that said
fully paid up may be voted provided no unilateral nullification and/or cancellation of previously
subscription is unpaid and delinquent. issued capital stock shares certificates was valid. This
provision of law only applies in the absence of verbal
As may readily be seen, said Section 37 makes or written agreement, to the contrary (8 Manresa, p.
payment of the "par value" as prerequisite for the 317); it is likewise merely directory, and not
issuance of certificates of par value stocks, and mandatory. (Art. 1252 NCC). In the present case, the
makes payment of the "full subscription" as defendant-corporation had applied the payments
prerequisite for the issuance of certificates of no par made by the stockholders to the full par value of the
value stocks. No such distinction was contained in shares of stock subscribed by them, instead of the
section 36 of our Corporation Law of 1906, accepted interest, as shown by the capital stock
corresponding to section 37 now. The present law shares certificate issued for the payments made, and
the stockholders had accepted such certificates
issued for such payments. This being the case, the [G.R. No. L-57586. October 8, 1986.]
said application of payments must be deemed to have
been agreed upon by the Corporation and the AQUILINO RIVERA, ISAMU AKASAKO and
stockholders, and the same cannot now be changed FUJIYAMA HOTEL & RESTAURANT,
without the consent of the stockholders concerned.
INC., Petitioners, v. THE HON. ALFREDO C.
The Corporation Law and the by-laws of the
FLORENDO, as Judge of the Court of First
defendant Corporation do not contain any provision,
prohibiting the application of stockholders' payments Instance of Manila (Branch XXXVI),
to the full par value of a corporation's capital stock, LOURDES JUREIDINI and MILAGROS
ahead of the payment of accrued interest for unpaid TSUCHIYA, Respondents.
subscriptions. It would, therefore, result that a
corporation may, upon request of an interested Bobby P. Yuseco, for Petitioners.
stockholder, as his option, apply payment by them to
the full par value of shares of capital leaving its Arthur Canlas for Private Respondents.
collection later of the accrued interest on unpaid
subscriptions, and that once such option has been
exercised and the corresponding stock certificates SYLLABUS
have been issued, the corporation cannot, by a
unilateral act, legally nullify and cancel the capital
stock certificates so issued. 1. COMMERCIAL LAW; CORPORATIONS;
INTRA-CORPORATE CONTROVERSY; DEFINED.
It is finally argued by defendants-appellants that the — An intra-corporate controversy has been
plaintiffs-appellees waived, under the agreement defined as "one which arises between a
heretofore quoted, the right to enforce the voting stockholder and the corporation. There is no
power they were claiming to exercise, and upon the distinction, qualification, nor any exemption
principle of estoppel, they are now prohibited from whatsoever." (Philex Mining Corporation v.
insisting on the existence of such power, ending with Reyes, 118 SCRA 605, November 19, 1982).
the exhortation, that "they should lie upon the bed This Court has also ruled that cases of private
they helped built, for a lasting peace in the interest of
respondents who are not shareholders of the
the corporation." It should, however, be stated as
corporation, cannot be a "controversy arising
heretofore exposed, that certain clauses of the
out of intracorporate or partnership relations
agreement are contrary to law and public policy and
would cause injury to plaintiffs-appellees and other between and among stockholders, members or
stockholders similarly situated. Estoppel cannot be associates; between any or all of them and the
predicated on acts which are prohibited by law or are corporation, partnership or association, of
against public policy (Benguet Cons. Mining Co. v. which they are stockholders, members or
Pineda, 52 Off. Gaz. 1961, L-7231, March 28, 1956; associates, respectively." (Sunset View
Eugenio v. Perdido L-7083, May 19, 1955; III Rep. of Condominium v. Campos, Jr., 104 SCRA 303,
the Philippines Digest, p. 269-270). April 27, 1981).

WHEREFORE, the order of the trial court of July 16, 2. ID.; ID.; ID.; WITHIN THE JURISDICTION
1959, (1) Expressly ruling "that all shares of the OF THE SECURITIES AND EXCHANGE
capital stocks of the defendant corporation covered by COMMISSION. — It has already been settled
fully paid capital stock shares of certificates that an intracorporate controversy would call
are entitled to vote in all meetings of the stockholders for the jurisdiction of the Securities and
of this corporation and resolutions Nos. 2, 3 and 4 Exchange Commission. (Philippine School of
(Exhs. C, C-1 and C-2) of defendant corporation's Business Administration v. Lanao, 127 SCRA
Board of Directors are hereby nullified insofar as they 781, February 24, 1984)
are inconsistent with this ruling"; and (2) Dissolving
the injunction granted in the cases and releasing the 3. ID.; ID.; PETITION BY NON-MEMBERS OF
injunction bond filed by the plaintiffs-appellees, is CORPORATION WITHIN THE JURISDICTION OF
correct and the same should be, as it is hereby
REGULAR COURTS. — As the bone of
affirmed. Costs taxed against the defendants-
contention in this case, is the refusal of
appellants.
petitioner Rivera to indorse the shares of stock
in question and the refusal of the Corporation
to register private respondents’ shares in its
books, there is merit in the findings of the
lower court that the present controversy is not and equity, have jurisdiction to issue a
an intracorporate controversy; private mandatory writ, it has always been held that
respondents are not yet stockholders; they are its issuance would be justified only in clear
only seeking to be registered as stockholders cases; that it is generally improper to issue it
because of an alleged sale of shares of stock to before final hearing because it tends to do
them. Therefore, as the petition is filed by more than maintain the status quo; that it
outsiders not yet members of the corporation, should be issued only where there is a willful
jurisdiction properly belongs to the regular and unlawful invasion of plaintiff’s right and
courts. that the latter’s case is one free from doubt
and dispute. (National Marketing v. Cloribel 22
4. ID.; ID.; SHARES OF STOCK; HOW SCRA 1038, March 13, 1968).
TRANSFERRED. — As confirmed by this Court,
"shares of stock may be transferred by delivery 7. ID.; ID.; ID.; WILL NOT ISSUE WHEN A
to the transferee of the certificate properly PARTY’S RIGHTS ARE NOT CLEAR. —
indorsed.’Title may be vested in the transferee Respondent court in the instant case violated
by delivery of the certificate with a written the fundamental rule of injunctions that a
assignment or indorsement thereof’ (18 C.J.S. mandatory injunction will not issue in favor of
928). There should be compliance with the a party whose rights are not clear and free of
mode of transfer prescribed by law (18 C.J.S. doubt or as yet undetermined. (Namarco v.
930)’" (Nava v. Peers Marketing Corp., 74 Cloribel, 22 SCRA 1038-1039, March 13,
SCRA 65, 69, Nov. 25, 1976). 1968). It will be recalled that the disputed
shares of stock were purchased not from the
5. ID,; ID.; ID.; CANNOT BE THE SUBJECT OF registered owner but from a Japanese national
MANDAMUS ON THE STRENGTH OF MERE who allegedly was the real owner thereof. It
INDORSEMENT. — It is evident that mandamus was also alleged that the registered owner was
will not lie in the instant case where the shares only a dummy of Akasako. It is also true that
of stock in question are not even indorsed by the trial court has already made findings to
the registered owner Rivera who is specifically that effect at the hearing for the issuance of
resisting the registration thereof in the books the Order of June 5, 1981. Nonetheless, these
of the corporation. Under the above ruling, are contentious issues that should properly be
even the shares of stock which were purchased ventilated at the trial on the merits.
by private respondents from the other
incorporators cannot also be the subject of 8. ID.; ID.; PRELIMINARY INJUNCTION; THE
mandamus on the strength of mere COURT SHOULD NOT, BY MEANS THEREOF,
indorsement of the supposed owners of said TRANSFER PROPERTY WHERE THE LEGAL
shares in the absence of express instructions TITLE IS IN DISPUTE; PRIMARY PURPOSE OF
from them. The rights of the parties will have INJUNCTION. — Another fundamental rule
to be threshed out in an ordinary action. which appears to have been violated in the
case at bar is that no advantage may be given
6. REMEDIAL LAW; PROVISIONAL REMEDIES; to one to the prejudice of the other, a court
MANDATORY INJUNCTION; WHEN GRANTED; should not by means of a preliminary
REGARDED AS OF A MORE SERIOUS NATURE injunction transfer the property in litigation
THAN PROHIBITIVE INJUNCTION. — A from the possession of one party to another
mandatory injunction is granted only on a where the legal title is in dispute and the party
showing (a) that the invasion of the right is having possession asserts ownership thereto.
material and substantial; (b) the right of (Rodulfo v. Alonso, 76 Phil. 225, February 28,
complainant is clear and unmistakable; and (c) 1946). Similarly, the primary purpose of an
there is an urgent and permanent necessity for injunction is to preserve the status quo, that is
the writ to prevent serious damage (Pelejo v. the last actual peaceable uncontested status
Court of Appeals, 117 SCRA 668, Oct. 18, which preceded the controversy. 
1982). A mandatory injunction which
commands the performance of some specific 9. ID.; EFFECT WHEN THE ORDER OF TRIAL
act is regarded as of a more serious nature COURT IS A JUDGMENT ON THE MERITS. — As
than a mere prohibitive injunction, the latter correctly stated in petitioners’ motion for
being intended generally to maintain the status reconsideration, the Order of the trial court is
quo only. While our courts, being both of law in effect a judgment on the merits, declaring
expressly or impliedly that petitioners are Phil. 778 [1919]; Gamboa v. Teodoro, Et Al.,
stockholders of the Corporation at the hearing 91 Phil. 274 [1952]; Sulit v. Tiangco, 115
of only the incident for the issuance of a Writ SCRA 207 [1982]; Lipata v. Tutaan, 124 SCRA
Preliminary Injunction. On the other hand if the 880 [1983]. "Only in cases of clear and
Order amounts to a judgment on the merits, contumacious refusal to obey should the power
the lower court should first rule on what be exercised. A bona fide misunderstanding of
private respondents seek; the registration of the terms of the order or of the procedural
their shareholdings in the books of the rules should not immediately cause the
corporation and the issuance of new stock institution of contempt proceedings." "Such
certificates. It is only thereafter that the power ‘being drastic and extraordinary in its
subsequent act of management may be nature . . . should not be resorted to . . .
ordered and the period of finality of such a unless necessary in the interest of justice.’" 
judgment should be in accordance with the
Rules of Court, giving the respondents the
right to an appeal or review and not be DECISION
immediately executory as the Writ of
Preliminary Mandatory Injunction would infer.
PARAS, J.:
10. LEGAL AND JUDICIAL ETHICS; CONTEMPT
OF COURT; DEFINED; INDIRECT CONTEMPT;
ACTS CONSTITUTING THE SAME. — It has
This is a petition for certiorari and prohibition
been held that contempt of court is a defiance
with preliminary injunction seeking the
of the authority, justice or dignity of the court,
annulment of the following Orders of the then
such conduct as tends to bring the authority
Court of First Instance of Manila, Branch
and administration of the law into disrespect or
XXXVI: (a) Order dated June 5, 1981 directing
to interfere with or prejudice parties litigant or
the issuance of a writ of preliminary mandatory
their witnesses during litigation. It is defined as
injunction requiring petitioners Fujiyama Hotel
a disobedience to the court by setting up an
& Restaurant, Inc., Isamu Akasako and
opposition to its authority, justice and dignity.
Aquilino Rivera to allow respondents Lourdes
It signifies not only a willful disregard or
Jureidini and Milagros Tsuchiya to manage the
disobedience of the court’s orders but such
corporate property upon filing of a bond in the
conduct as tends to bring the authority of the
amount of P30,000.00 (Rollo, pp. 43-57) and
court and the administration of law into
(b) Order dated July 24, 1981 denying
disrepute or in some manner to impede the
petitioners’ motion for reconsideration and
due administration of justice (Halili v. Court of
motion to dismiss for lack of jurisdiction but
Industrial Relations, 136 SCRA 135, April 30,
increasing the bond to P120,000.00 (Rollo, p.
1985). There is no question that disobedience
81).
or resistance to a lawful writ, process, order,
judgment or command of a court, or injunction
Petitioner corporation was organized and
granted by a court or judge, more particularly
registered under Philippine laws with a capital
in this case, the Supreme Court, constitutes
stock of P1,000,000.00 divided into 10,000
Indirect Contempt punishable under Rule 71 of
shares of P100.00 par value each by the herein
the Rules of Court. (Rule 71, Section 3 (b) and
petitioner Rivera and four (4) other
Section 6)
incorporators. Sometime thereafter petitioner
Rivera increased his subscription from the
11. ID.; POWER TO PUNISH FOR CONTEMPT
original 1,250 to a total of 4899 shares (Rollo,
OF COURT; SHOULD BE EXERCISED ON THE
p. 4).
PRESERVATIVE, NOT ON THE VINDICTIVE
PRINCIPLE. — However, it is also well settled
Subsequently, Isamu Akasako, a Japanese
that "the power to punish for contempt of court
national and co-petitioner who is allegedly the
should be exercised on the preservative and
real owner of the shares of stock in the name
not on the vindictive principle. Only
of petitioner Aquilino Rivera, sold 2550 shares
occasionally should the court invoke its
of the same to private respondent Milagros
inherent power in order to retain that respect
Tsuchiya for a consideration of P440,000.00
without which the administration of justice
with the assurance that Milagros Tsuchiya will
must falter or fail." (Villavicencio v. Lukban, 39
be made the President and Lourdes Jureidini a
director after the purchase. Aquilino Rivera the filing of a bond in the amount of
who was in Japan also assured private P30,000.00. Then through another counsel
respondents by overseas call that he will sign Atty. Eriberto D. Ignacio in collaboration with
the stock certificates because Isamu Akasako their counsel of record, Atty. Marcelino A.
is the real owner. However, after the sale was Bueno, petitioners (respondents therein) filed a
consummated and the consideration was paid motion to dismiss the petition on the ground
with a receipt of payment therefor shown, that respondent Judge has no jurisdiction to
Aquilino Rivera refused to make the entertain the case, while through Atty. Bueno,
indorsement unless he is also paid. (Rollo, pp. they filed a motion for reconsideration of the
51-52). Order granting the issuance of a writ of
mandatory preliminary injunction. Private
It also appears that the other incorporators respondents filed their opposition to both
sold their shares to both respondent Jureidini motions and on July 24, 1981, respondent
and Tsuchiya such that both respondents Judge issued an Order denying both the motion
became the owners of a total of 3300 shares or for reconsideration and the motion to dismiss
the majority out of 5,649 outstanding the petition but increased the amount of the
subscribed shares of the corporation (Rollo, pp. bond from P30,000.00 to P120,000.00 to
4-5), and that there was no dispute as to the sufficiently protect the interests of herein
legality of the transfer of the stock certificate petitioners. (Rollo, p. 81).
Exhibits "B-1" to "B-4" to Jureidini, all of which
bear the signatures of the president and the Hence, this petition.
secretary as required by the Corporation Law
with the proper indorsements of the respective After filing the petition, Atty. Eriberto D.
owners appearing thereon. Exhibits "B-1" to Ignacio withdrew as counsel for petitioners on
"B-4" are specifically indorsed to her while August 6, 1981. Such withdrawal was
Exhibits "B-2" and "B-3" are indorsed in blank. confirmed by petitioner Isamu Akasako (Rollo,
Aquilino Rivera admitted the genuineness of all p. 83). On August 10, 1981 the appearance of
the signatures of the officers of the corporation Isaca & Espiritu Law Offices as counsel in
and of all the indorsee therein. (Order dated substitution of former counsel Attys. Marcelino
June 5, 1981, Civil Case No. 13273, Rollo, pp. A. Bueno and Eriberto D. Ignacio was received
51-53). chanrobles lawlibrary : rednad by this Court. (Rollo, p. 84); all of which were
noted in the resolution of the First Division of
Nonetheless, private respondents attempted this Court dated August 17, 1981. (Rollo, p.
several times to register their stock certificates 160).
with the corporation but the latter refused to
register the same. (Ibid., Rollo, pp. 54-55). The new counsel filed a Manifestation and
Thus, private respondents filed a special civil Motion praying that the therein attached
action for mandamus and damages with Supplement and certified copies of the
preliminary mandatory injunction and/or questioned orders and writs be admitted and
receivership naming herein petitioners as considered as part of petitioners’ original
respondents, docketed as Special Civil Action petition for Certiorari and Prohibition with
No. 13273, "Lourdes Jureidini, Et. Al. v. Preliminary injunction. (Rollo, pp. 85-131). On
Fujiyama Hotel, Et. Al." of the Court of First August 14, 1981 petitioners filed an Urgent
Instance of Manila, Branch XXXVI presided by Motion for Restraining Order and Other
respondent Judge. Petitioners’ counsel Atty. Provisional Injunctive Reliefs (Rollo, pp. 154-
Marcelino A. Bueno, upon receipt of the 159). In the same resolution of August 17,
summons and a copy of the aforesaid petition, 1981, after deliberating on the petition and
filed an answer thereto with denials, special supplemental to the petition, the Court
and affirmative defenses and counterclaim. Resolved: (a) to require the respondents to
Thereafter, a hearing was held on the comment thereon (not to file a motion to
application for preliminary mandatory dismiss within ten (10) days from notice and
injunction and/or receivership, after which (b) upon petitioners’ filing of an injunction
respondent Judge issued an order for a writ of bond in the amount of P30,000.00 to issue a
preliminary mandatory injunction authorizing Writ of Preliminary Injunction enjoining
respondent Jureidini and Tsuchiya to manage respondents from enforcing the writ of
the corporation’s hotel and restaurant, upon preliminary mandatory injunction dated June
23, 1981 issued in Civil Case No. 132673. attached Reply (Rollo, pp. 225-241). On
(Rollo, p. 160). Said bond was filed on August November 25, 1981, petitioners filed their
20, 1981 (Rollo, p. 161) and accordingly, a Reply to respondents’ Comment on petitioners’
writ of preliminary injunction was issued by manifestation and urgent motion to declare
this Court on August 21, 1981 (Rollo, pp. 172- them in contempt. (Rollo, pp. 246-257).
173).
On December 7, 1981 Atty. Bobby P. Yuseco
Subsequently, petitioners filed a manifestation entered his appearance as collaborating
and urgent motion on August 28, 1981 praying counsel for petitioners (Rollo, p. 258) and filed
that private respondent Lourdes Jureidini and an urgent petition for early resolution of
her counsel Atty. Arthur Canlas be declared in petitioners’ motion to hold private respondents
contempt of court for the former’s alleged in contempt and for issuance of Order
defiant refusal: (a) to acknowledge receipt of clarifying Writ of Injunction dated August 21,
the Writ of Preliminary Injunction of August 21, 1981. (Rollo, pp. 259-261).
1981 and (b) to comply with the said writ
issued by this Court. (Rollo, pp. 174-180). In the resolution of January 18, 1982, this case
and all pending incidents were set for hearing
Comment thereon was filed by private on February 3, 1982. (Rollo, p. 268).
respondents through counsel (Rollo, pp. 185-
199) in compliance with the resolution of the On February 1, 1982, Lesaca and Espiritu Law
First Division dated August 17, 1981 (Rollo, p. Offices filed a Manifestation and Motion for
160), praying for the immediate lifting of the Leave to withdraw as counsel for petitioners.
preliminary injunction. Said comment of (Rollo, pp. 274-275).
private respondents was noted in the
resolution of October 5, 1981 (Rollo, p. 200) When this case was called for hearing on
which also required respondents to comment February 3, 1982, counsel for both parties
on the supplement to the petition.chanrobles law library : red appeared and argued their causes and both
were required by the Court within an
On October 2, 1981, comment on the unextendible period of ten (10) days to file
manifestation and urgent motion to declare their respective memoranda in support of their
Jureidini and her counsel in contempt of court positions on all pending incidents of the case at
was filed by counsel for private respondent bar while the hearing on the contempt
(Rollo, pp. 201-214) in compliance with the proceedings was reset for February 10, 1982
resolution of September 14, 1981 (Rollo, p. where the personal appearance of private
181). respondent Lourdes Jureidini through her
counsel was required. (Rollo, p. 279).
In the resolution of October 26, 1981 (Rollo, p.
215) the Court Resolved to require petitioners On February 9, 1982, counsel for private
to file a reply to aforesaid comment. (Rollo, p. respondent Jureidini filed an Urgent Motion and
215). Manifestation that he was informed by his
client that she is physically exhausted and is
Meanwhile, supplemental comment on the beset with hypertension and praying that she
supplement to the petition was filed by private be excused from appearing at the hearing set
respondents on October 14, 1981 (Rollo, pp. for February 10, 1982, that the hearing be
216-222) reiterating their stand that it is the cancelled and the contempt incident be
ordinary court and not the Securities and considered submitted for decision on the basis
Exchange Commission (SEC) that has of pleadings previously filed. (Rollo, pp. 280-
jurisdiction to entertain the case as the 282).
controversies did not arise from the intra-
corporate relationship among the parties. On the same date, February 9, 1982, counsel
for petitioners filed his Memorandum in support
On October 21, 1981, petitioner filed: (a) of his oral argument at the hearing of February
motion for leave to file reply to comment of 3, 1982, (Rollo, pp. 283-287) while a
respondents on the petition and supplemental supplement thereto was filed on February 12,
petition required in the resolution of August 1982. (Rollo, pp. 291-294).
17, 1981 (Rollo, pp. 223-224) and (b) the
At the hearing of February 10, 1982, private 6, 1982 an Urgent Petition for Permission to
respondent Lourdes Jureidini and her counsel Implement Injunction Writ issued on August
failed to appear. Accordingly the Court 21, 1981 (Rollo, pp. 323-325) which was
Resolved: (a) to IMPOSE on said counsel Atty. granted in the resolution of May 26, 1982
Canlas a fine of P200.00 or to suffer (Rollo, p. 313). In the same resolution the
imprisonment if said fine is not paid; (b) to Court ordered Lourdes Jureidini and Milagros
RESET the hearing on the contempt incidents Tsuchiya to strictly and immediately comply
on March 3, 1982 and (c) to REQUIRE the with the Court’s aforesaid writ of preliminary
presence of Atty. Canlas and respondent injunction; indicated that it would resolve the
Lourdes Jureidini and of complainants Attys. pending incident for contempt against private
Bibiano P. Lasaca, Rodolfo A. Espiritu and respondent Lourdes Jureidini when the Court
Renato T. Paqui. (Resolution of February 10, decides the case on the merits; and gave the
1982, Rollo, p. 290).chanrobles lawlibrary : rednad parties thirty (30) days from notice within
which to submit simultaneously their
On February 15, 1982, private respondents file respective memoranda on the merits of the
their memorandum in compliance with the case.
resolution of this Court of February 3, 1982
while petitioners on February 25, 1982 filed On May 31, 1982, counsel for private
their reply thereto. respondent Atty. Canlas filed in compliance
with the resolution of March 10, 1982, his
At the hearing of March 3, 1982, both counsel explanation and manifestation why he should
as well as private respondent Lourdes Jureidini, not be disciplinarily dealt with and held in
Attys. Bibiano P. Lesaca, Rodolfo A. Espiritu contempt of Court (Rollo, pp. 316-318). In the
and Renato R. Paguio appeared. Atty. Canlas, resolution of June 2, 1982, the Court Resolved
Lourdes Jureidini, Atty. Lesaca and a to set aside and lift the Order of Atty. Canlas’
representative of the petitioners were arrest and commitment it had issued on March
interpellated by the Court. Thereafter, the 31, 1982 but found the explanation and
incident was declared submitted for resolution. manifestation of Atty. Canlas dated May 29,
(Resolution of March 3, 1982, Rollo, p. 316). 1982 unsatisfactory. In view thereof, he was
reprimanded for negligence and undue delay in
On March 5, 1982, counsel for private complying with the Court’s resolution. (Rollo,
respondents filed his compliance with the p. 319).
resolution of February 10, 1982 enclosing a
check payable to this Court in the amount of On June 18, 1982, counsel for petitioners
P200.00 in payment of the fine imposed with allegedly for purposes of clarification as to the
motion for reconsideration explaining why he laws involved in the matter of contempt of
should not be declared in contempt and Lourdes Jureidini, filed a pleading entitled "Re
praying that the aforesaid resolution of Incident of Contempt against Lourdes
February 10, 1982 be set aside, (Rollo, pp. Jureidini." (Rollo, pp. 320-326) which was
312-314). However, in the resolution of March noted by the Court in the resolution of July 7,
10, 1982, (Rollo, p. 317) the Court acting on 1982. (Rollo, p. 328).
the compliance of Atty. Arthur Canlas with
motion for reconsideration, denied the motion Counsel for private respondents manifested
and required the Chief of the Docket Division (Rollo, p. 329), on July 12, 1982 that they are
to return to Atty. Canlas the check in the adopting the memorandum submitted in the
amount of P200.00 it being an out of town preliminary injunction incident as their
check, and Atty. Canlas to pay the fine in cash, memorandum in the main case. Said
and to show cause why he should not be manifestation was noted in the resolution of
disciplinary dealt with or held in contempt for July 26, 1982. (Rollo, p. 331). Counsel for
wilful delay in paying the fine by mail through petitioners manifested (Rollo, p. 333) that they
an out of town check contrary to his are adopting their memorandum in support of
manifestation at the hearing that he had argument last February 3, 1982 as their
promptly paid the fine, both within forty eight combined memoranda on the merits of the
hours from notice. case. Said manifestation was noted in the
resolution of September 15, 1982. (Rollo, p.
Meanwhile, counsel for petitioners filed on April 334). In the resolution of November 29, 1982,
this case was transferred to the Second
Division. (Rollo, p. 336).
chanrobles lawlibrary : rednad

EVEN GRANTING FOR THE SAKE OF

In their petition and supplemental petition, ARGUMENT THAT THE RESPONDENT COURT
petitioners raised the following issues: chanrob1es virtual 1aw library HAD JURISDICTION OVER THE SUBJECT
MATTER OF THE CASE; NONETHELESS IT WAS
I. IN GRAVE ABUSE OF ITS DISCRETION TO
UNILATERALLY GRANT TO A "PARTY-IN-
LITIGATION," THE PRIVATE RESPONDENTS
THE RESPONDENT COURT OF FIRST INSTANCE HEREIN, THE MANAGEMENT OF THE
HAS NO JURISDICTION OVER THE PETITION CORPORATE BUSINESS. (Petition and
FOR MANDAMUS AND RECEIVERSHIP "AS Supplemental Petition; Rollo, pp. 2-18; 88-
WELL AS IN PLACING THE CORPORATE 131).
ASSETS UNDER PROVISIONAL RECEIVERSHIP
IN THE GUISE OF A WRIT OF PRELIMINARY I.
MANDATORY INJUNCTION." cralaw virtua1aw library

II. The crucial issue in this case is whether it is

the regular court or the Securities and
Exchange Commission that has jurisdiction
EVEN FALSELY ASSUMING THAT THE over the present controversy.
RESPONDENT COURT HAD JURISDICTION, THE
PRIVATE RESPONDENTS’ PRINCIPAL ACTION Presidential Decree No. 902-A provides: jgc:chanrobles.com.ph

OF MANDAMUS IS AN IMPROPER COURSE OF

ACTION. "Sec. 5. In addition to the regulatory and
adjudicative functions of the Securities and
III. Exchange Commission over corporations,
partnerships and other forms of associations
registered with it as expressly granted under
ASSUMING ARGUENDO THAT WHAT THE existing laws and decrees, it shall have original
RESPONDENT COURT FOUND IS TRUE, and exclusive jurisdiction to hear and decide
NAMELY THAT PRIVATE RESPONDENTS "ARE cases involving: chanrob1es virtual 1aw library

OUTSIDERS" AND "NOT YET STOCKHOLDERS,"

THUS, HAVING NO PERSONALLY AT ALL, THEN (a) . . .
PROVISIONAL RECEIVERSHIP, ALBEIT
CLOTHED AS A "WRIT OF PRELIMINARY (b) Controversies arising out of intra-corporate
MANDATORY INJUNCTION" WAS ILLEGALLY or partnership relations and among
ISSUED DE HORS ITS JURISDICTION. stockholders, members, or associates;
between any or all of them and the
IV. corporation, partnership or association of which
they are stockholders, members, or associates,
respectively and between such corporations,
ASSUMING ARGUENDO THAT THE partnership or association and the State insofar
RESPONDENT COURT HAD JURISDICTION as it concerns their individual franchise or right
OVER BOTH THE PETITION FOR MANDAMUS AS to exist as such entity." cralaw virtua1aw library

WELL AS THE PROVISIONAL RECEIVERSHIP

STILL THE RESPONDENT COURT ACTED IN It has already been settled that an
EXCESS OF ITS JURISDICTION OR IN GRAVE intracorporate controversy would call for the
ABUSE OF ITS DISCRETION TO GRANT jurisdiction of the Securities and Exchange
RECEIVERSHIP OVER THE MANAGEMENT OF Commission. (Philippine School of Business
THE CORPORATE BUSINESS AND ASSETS Administration v. Lanao, 127 SCRA 781,
WHICH NEVER WAS NOR IS A SUBJECT February 24, 1984). On the other hand, an
MATTER OF LITIGATION. intra-corporate controversy has been defined
as "one which arises between a stockholder
V. and the corporate. There is no distinction,
qualification, nor any exemption whatsoever."
(Philex Mining Corporation v. Reyes, 118 SCRA respondents’ shares in its books, there is merit
605, November 19, 1982). This Court has also in the findings of the lower court that the
ruled that cases of private respondents who present controversy is not an intracorporate
are not shareholders of the corporation, cannot controversy; private respondents are not yet
be a "controversy arising out of intracorporate stockholders; they are only seeking to be
or partnership relations between and among registered as stockholders because of an
stockholders, members or associates; between alleged sale of shares of stock to them.
any or all of them and the corporation, Therefore, as the petition is filed by outsiders
partnership or association, of which they are not yet members of the corporation,
stockholders, members or associates, jurisdiction properly belongs to the regular
respectively." (Sunset View Condominium courts.
Corporation v. Campos, Jr., 104 SCRA 303,
April 27, 1981). II.

Under Batas Pambansa Blg. 68 otherwise

known as "The Corporation Code of the On the other hand, there is merit in petitioners’
Philippines," shares of stock are transferred as contention that private respondents’ principal
follow: chanrobles virtual lawlibrary
action of mandamus is an improper course of
action.
"SEC. 63. Certificate of stock and transfer of
shares. — The capital stock of stock It is evident that mandamus will not lie in the
corporations shall be divided into shares for instant case where the shares of stock in
which certificates signed by the president or question are not even indorsed by the
vice-president, countersigned by the secretary registered owner Rivera who is specifically
or assistant secretary, and sealed with the seal resisting the registration thereof in the books
of the corporation shall be issued in accordance of the corporation. Under the above ruling,
with the by-laws. Shares of stock so issued are even the shares of stock which were purchased
personal property and may be transferred by by private respondents from the other
delivery of the certificate or certificates incorporators cannot also be the subject of
indorsed by the owner or his attorney-in-fact mandamus on the strength of mere
or other person legally authorized to make the indorsement of the supposed owners of said
transfer. No transfer, however, shall be valid, shares in the absence of express instructions
except as between the parties, until the from them. The rights of the parties will have
transfer is recorded in the book of the to be threshed out in an ordinary action.
corporation showing the names of the parties
to the transaction, the date of the transfer, the III-V.
number of the certificate or certificates and the
number of shares transferred. Petitioners insist that what was issued was a
provisional receivership, while private
x       x       x"  respondents maintain that the trial court issued
a Writ of Preliminary Mandatory Injunction. Be
As confirmed by this Court, "shares of stock that as it may, it appears obvious that from the
may be transferred by delivery to the above-mentioned rulings of this Court,
transferee of the certificate properly indorsed. petitioners’ contention that respondent Judge
`Title may be vested in the transferee by in the issuance thereof committed acts of
delivery of the certificate with a written grave abuse of discretion, is well taken.
assignment or indorsement thereof’ (18 C.J.S.
928). There should be compliance with the In the Order dated June 5, 1981, in Civil Case
mode of transfer prescribed by law (18 C.J.S No. 132673, the basis of aforesaid Writ was as
930)’" (Nava v. Peers Marketing Corp. 74 SCRA follows: jgc:chanrobles.com.ph

65, 69, Nov. 25, 1976).

"Finally, the Court, after assessing the
As the bone of contention in this case, is the evidence, finds that the issuance of a
refusal of petitioner Rivera to indorse the preliminary mandatory injunction is proper.
shares of stock in question and the refusal of Respondents Isamu Akasako and Aquilino
the Corporation to register private Rivera, thru their simulated relationship, have
succeeded for two years since 1979 to deprive issued only where there is a willful and
the petitioners to participate in the profit and unlawful invasion of plaintiff’s right and that
management of the corporation of which they the latter’s case is one free from doubt and
are the majority stockholders considering that dispute. (National Marketing v. Cloribel, 22
the stocks certificates appearing in the name of SCRA 1038, March 13, 1968).
Aquilino Rivera (Exh. "8") is 55% to 75% of
the total stocks of the corporation by Isamu Respondent court in the instant case violated
Akasako would only prolong the injustice the fundamental rule of injunctions that a
committed against the petitioners and the mandatory injunction will not issue in favor of
damages they would suffer would be a party whose rights are not clear and free of
irreparable. The Court is aware that doubt or as yet undetermined. (Namarco v.
preliminary mandatory injunction is the Cloribel, 22 SCRA 1038-1039, March 13,
exception rather than the rule, but according to 1968). It will be recalled that the disputed
the Code Commission, in its report on page 98, shares of stock were purchased not from the
‘the writ of preliminary mandatory injunction is registered owner but from a Japanese national
called for by the fact that there are at present who allegedly was the real owner thereof. It
prolonged litigation between owner and was also alleged that the registered owner was
usurper and the former is deprived of his only a dummy of Akasako. It is also true that
possession even when he has an immediate the trial court has already made findings to
right thereto.’ In the instant case, the right of that effect at the hearing for the issuance of
the petitioners is clear and unmistakable on the Order of June 5, 1981. Nonetheless, these
the law and the facts and there exists an are contentious issues that should properly be
urgent and paramount necessity for the issuing ventilated at the trial on the merits. As
of the writ in order to prevent extreme or correctly stated in petitioners’ motion for
rather serious damage which ensues from reconsideration, the Order of the trial court is
withholding it. (43 C.J.S. 413). in effect a judgment on the merits, declaring
expressly or impliedly that petitioners are
"WHEREFORE, in view of the foregoing stockholders of the Corporation at the hearing
circumstances, let a writ of preliminary of only the incident for the issuance of a Writ
mandatory injunction issue requiring of Preliminary Injunction. On the other hand if
respondents to allow petitioners to manage the the Order amounts to a judgment on the
corporate property known as the Fujiyama merits, the lower court should first rule on
Hotel & Restaurant, Inc. upon petitioners’ filing what private respondents seek, the registration
of a bond in the amount of P30,000.00." cralaw virtua1aw library of their shareholdings in the books of the
corporation and the issuance of new stock
A mandatory injunction is granted only on a certificates. It is only thereafter that the
showing (a) that the invasion of the right is subsequent act of management may be
material and substantial; (b) the right of ordered and the period of finality of such a
complainant is clear and unmistakable; and (c) judgment should be in accordance with the
there is an urgent and permanent necessity for Rules of Court, giving the respondents the
the writ to prevent serious damage. (Pelejo v. right to an appeal or review and not be
Court of Appeals, 117 SCRA 668, Oct. 18, immediately executory as the Writ of
1982).chanrobles virtual lawlibrary Preliminary Mandatory Injunction would infer.
(Rollo, p. 65).
A mandatory injunction which commands the
performance of some specific act is regarded Another fundamental rule which appears to
as of a more serious nature than a mere have been violated in the case at bar is that no
prohibitive injunction, the latter being intended advantage may be given to one to the
generally to maintain the status quo only. prejudice of the other, a court should not by
While our courts, being both of law and equity, means of a preliminary injunction transfer the
have jurisdiction to issue a mandatory writ, it property in litigation from the possession of
has always been held that its issuance would one party to another where the legal title is in
be justified only in clear cases; that it is dispute and the party having possession
generally improper to issue it before final asserts ownership thereto. (Rodulfo v. Alonso,
hearing because it tends to do more than 76 Phil. 225), February 28, 1946), Similarly,
maintain the status quo; that it should be the primary purpose of an injunction is to
preserve the status quo, that is the last actual least in practice, for lawyers to accompany
peaceable uncontested status which preceded officers of the Court in serving or otherwise
the controversy. In the instant case, petitioner executing processes of said court as to create a
Rivera is the registered majority and seeming suspicion to the public that lawyers
controlling stockholder of the corporation are not involved only professionally in the case
before the ensuing events transpired. By the they handle but signify their personal interests
issuance of the Writ in question he appears to as well." (Rollo, pp. 208-209).
have been deprived of his rights as stockholder
thereof apart from his status as Chairman of When this contempt incident was heard on
the Board and President of the corporation, March 3, 1982, Atty. Arthur A. Canlas, counsel
with Akasako as the Manager of the two for private respondent Lourdes Jureidini,
restaurants in this case; the same being the Jureidini herself, Atty. Bibiano P. Lesaca a
last uncontested status which preceded the representative of the petitioners were
controversy. (Rollo, p. 127).chanrobles.com : virtual law library interpellated by the Court. Thereafter, the
incident was declared submitted for resolution.
On the contempt incident involving private (Resolution of March 3, 1982; Rollo, p. 316).
respondent Lourdes Jureidini, a Manifestation
and Urgent Motion was filed by petitioners to Thereafter, counsel for petitioner filed a
declare her in contempt of Court for allegedly pleading "The Incident of Contempt of Lourdes
refusing to acknowledge receipt of the Writ at Jureidini" in the form of a summation of the
Preliminary Injunction issued by this Court and incident and reiteration of petitioners’ charges
for allegedly refusing to comply therewith. of contempt.
Attributed to her were the following
statements: "I will not obey that . . . Yes, I am Counsel for petitioner invokes the provisions
higher than the Supreme Court . . . I will obey of: Section 3, Rule 71 on Indirect Contempt
only what my lawyer tells me." cralaw virtua1aw library and par. (b) thereof, on Disobedience of or
Resistance to a Lawful Writ, Process, Order,
In her explanation however, filed through her Judgment or Command of a Court; or
counsel, she denied having uttered the Injunction granted by a Court or Judge . . .;
statements alluded to her, the truth of the (2) Section 6, Rule 71 regarding punishment or
matter being that she was alone in the penalty thereof and (3) Section 5, Rule 135,
restaurant when this Court’s process server, par. (c) to compel obedience to its judgments,
accompanied by petitioners’ lawyers, orders and processes, and to the lawful orders
approached her and demanded that she vacate of a judge out of Court, in a case pending
the premises and surrender the management therein.
of the Restaurant. Fazed by the unusual
display of lawyers she requested that she be On the incident itself, petitioners’ counsel
given time to confer with her counsel. Said stressed that present when the writ was served
request allegedly precipitated the remark from were attorneys for petitioners Bibiano P.
petitioners’ counsel that neither respondent Lesaca, and Renato P. Paguio in the company
herself, nor her counsel, can be higher than of petitioners Isamu Akasako, Akasako’s
the Supreme Court and that any conference assistants Furnio, Fujihara and Isamu
seeking to clarify the effect of the Writ of Tajewakai and this Court’s process server,
Preliminary Injunction would be futile. (Rollo, before whose presence the alleged
pp. 174-175). contemptuous acts were committed.

It was likewise explained that respondent Counsel for petitioners also reminded the Court
Jureidini did not sign and acknowledge receipt that the first summons of the Court were
of the Writ because it was not addressed to her answered only by counsel for private
but to the lower court and to her counsel. respondent Jureidini while the latter feigned
sickness without a medical certificate. The
Respondent’s counsel says that the incident hearing for the contempt charge was reset but
was concocted and devised by the petitioners neither counsel for private respondent nor the
and their counsel to serve no salutary purpose latter appeared for which non-appearance Atty.
but to scare and harass respondent Jureidini. Canlas was fined P200.00 for contempt when
He also stated that "it is equally improper, at finally both counsel and client appeared on the
third day, the hearing was set. [1952]; Sulit v. Tiangco, 115 SCRA 207
[1982]; Lipata v. Tutaan, 124 SCRA 880
At that hearing, counsel for petitioners [1983]. "Only in cases of clear and
narrated that Attys. Lesaca and Paguio and two contumacious refusal to obey should the power
Japanese nationals testified in unison that be exercised. A bona fide misunderstanding of
Lourdes Jureidini not only disregarded the writ the terms of the order or of the procedural
but distinctly uttered the complained of rules should not immediately cause the
statements. institution of contempt proceedings." "Such
power ‘being drastic and extra-ordinary in its
Petitioners’ counsel laid emphasis on the fact nature . . . should not be resorted to . . .
that Lourdes Jureidini is a graduate of nursing, unless necessary in the interest of justice.’"
who speaks in straight polished English, (Gamboa v. Teodoro, Et Al., supra).
capable of understanding the Writ of
Mandatory Injunction of the Respondent Court In the case at bar, although private respondent
served on petitioners by herself and a Deputy Jureidini did not immediately comply with the
Sheriff of Manila, but incredibly unable to Writ of Injunction issued by this Court, it
understand the Writ issued by the Supreme appears reasonable on her part to request that
Court. She was assessed as "overbearing to she be allowed to confer with her lawyer first
the point of insolence" and capable of uttering before she makes any move of her own. It is
"I am higher than the Supreme Court." cralaw virtua1aw library likewise reasonable for counsel for private
respondent to request that he be given time to
There is no question that disobedience or file a motion for clarification with the Supreme
resistance to a lawful writ, process, order, Court.
judgment or command of a court, or injunction
granted by a court or judge, more particularly It will also be noted that the testimonies
in this case, the Supreme Court, constitutes produced at the hearing to establish the fact
Indirect Contempt punishable under Rule 71 of that she had uttered the alleged contemptuous
the Rules of Court. (Rule 71, Section 3(b) and statements alluded to her were those of Attys.
Section 6). Lesaca and Paguio and two Japanese nationals,
a one-sided version for the petitioners.
It has been held that contempt of court is a
defiance of the authority, justice or dignity of It appears to Us that the version of counsel for
the court, such conduct as tends to bring the private respondent is more in accord with
authority and administration of the law into human experience: Jureidini who was alone in
disrespect or to interfere with or prejudice the Restaurant was fazed by the unusual
parties litigant or their witnesses during display of might and by the presence of
litigation. It is defined as a disobedience to the lawyers demanding that she vacate premises
court by setting up an opposition to its and surrender the management of the
authority, justice and dignity. It signifies not Restaurant (Rollo, p. 204), this is more
only a willful disregard or disobedience of the believable than the version of counsel for
court’s orders but such conduct as tends to petitioners who summed her up as a person
bring the authority of the court and the "overbearing to the point of insolence" and
administration of law into disrepute or in some capable of uttering" I am higher than the
manner to impede the due administration of Supreme Court." It would therefore be more
justice (Halili v. Court of Industrial Relations, reasonable to believe that what she uttered in
136 SCRA 135, April 30, 1985). chanrobles virtual lawlibrary that situation where she felt threatened, was
more in self-defense and not an open defiance
However, it is also well settled that" the power of the Supreme Court.
to punish for contempt of court should be
exercised on the preservative and not on the Jureidini cannot also be faulted for finding it
vindictive principle. Only occasionally should difficult to understand the writ issued against
the court invoke its inherent power in order to her by the Supreme Court as she believed that
retain that respect without which the not only have she and her correspondent the
administration of justice must falter or fail." legal right to manage the restaurant but the
(Villavicencio v. Lukban, 39 Phil. 778 [1919]; equitable right as well, having been placed in
Gamboa v. Teodoro, Et Al., 91 Phil. 274 possession of the corporate property only after
posting a bond of P120,000.00. (Rollo, pp. This is a Petition for Review 1 assailing the
197-198). decision and resolution of the Court of Appeals
dated 31 May 2006 and 8 August 2006,
In connection with this incident, Jureidini respectively, in CA-G.R. SP No. 91416.2
through her counsel filed her comment on
October 2, 1981 (Rollo, p. 201) contrary to the On 30 May 2003, four criminal complaints were
allegation of petitioners’ counsel that it was filed by Sy Chim and Felicidad Chan Sy
only Atty. Canlas who filed his comment. (Spouses Sy) against Sy Tiong Shiou, Juanita
Tan Sy, Jolie Ross Tan, Romer Tan, Charlie Tan
WHEREFORE, the assailed orders of respondent and Jessie James Tan (Sy Tiong Shiou, et al.)
Judge are SET ASIDE; the complaint (special before the City Prosecutor's Office of Manila.
civil action for mandamus with damages, etc.) The cases were later consolidated. Two of the
should ordinarily be dismissed without complaints, I.S. Nos. 03E-15285 and 03E-
prejudice to the filing of the proper action; but 15286,3 were for alleged violation of Section 74
as all parties are already duly represented, We in relation to Section 144 of the Corporation
hereby consider the case as an ordinary civil Code. In these complaints, the Spouses Sy
action for specific performance, and the case is averred that they are stockholders and
therefore remanded to the lower court for trial directors of Sy Siy Ho & Sons, Inc. (the
on the merits; the charge of contempt against corporation) who asked Sy Tiong Shiou, et al.,
respondent Jureidini is DISMISSED but the officers of the corporation, to allow them to
order of Our Court restraining respondent from inspect the books and records of the business
taking over the management of the restaurant on three occasions to no avail. In a letter4dated
remains until after this case is decided. 21 May 2003, Sy Tiong Shiou, et al. denied the
request, citing civil and intra-corporate cases
SO ORDERED. pending in court.5

Feria (Chairman), Fernan, Alampay and In the two other complaints, I.S. No. 03E-
Gutierrez, Jr., JJ., concur. 15287 and 03E-15288,6 Sy Tiong Shiou was
charged with falsification under Article 172, in
relation to Article 171 of the Revised Penal
Code (RPC), and perjury under Article 183 of
the RPC. According to the Spouses Sy, Sy
SY TIONG SHIOU, JUANITA TAN SY, JOLIE Tiong Shiou executed under oath the 2003
ROSS TAN, ROMER TAN, CHARLIE TAN, General Information Sheet (GIS) wherein he
and JESSIE JAMES TAN, Petitioners, v. SY falsely stated that the shareholdings of the
CHIM and FELICIDAD CHAN Spouses Sy had decreased despite the fact that
SY, Respondents. they had not executed any conveyance of their
shares.7
[G.R. NO. 179438 : March 30, 2009]
Sy Tiong Shiou, et al. argued before the
prosecutor that the issues involved in the civil
SY CHIM and FELICIDAD CHAN
case for accounting and damages pending
SY, Petitioners, v. SY TIONG SHIOU and
before the RTC of Manila were intimately
JUANITA TAN, Respondents.
related to the two criminal complaints filed by
the Spouses Sy against them, and thus
DECISION
constituted a prejudicial question that should
require the suspension of the criminal
TINGA, J.: complaints. They also argued that the Spouses
Sy's request for inspection was premature as
These consolidated petitions involving the the latter's concern may be properly addressed
same parties. although related, dwell on once an answer is filed in the civil case. Sy
different issues. Tiong Shiou, on the other hand, denied the
accusations against him, alleging that before
G.R. No. 174168. the 2003 GIS was submitted to the Securities
and Exchange Commission (SEC), the same
was shown to respondents, who at that time
were the President/Chairman of the Board and perjury charges. Sy Tiong Shiou, et al. sought
Assistant Treasurer of the corporation, and reconsideration of the Court of Appeals
that they did not object to the entries in the decision but their motion was denied.13
GIS. Sy Tiong Shiou also argued that the
issues raised in the pending civil case for On 2 April 2008, the Court ordered the
accounting presented a prejudicial question consolidation of G.R. No. 179438 with G.R. No.
that necessitated the suspension of criminal 174168.14
proceedings.
Sy Tiong Shiou, et al. argue that findings of the
On 29 December 2003, the investigating DOJ in affirming, modifying or reversing the
prosecutor issued a resolution recommending recommendations of the public prosecutor
the suspension of the criminal complaints for cannot be the subject of certiorari or review of
violation of the Corporation Code and the the Court of Appeals because the DOJ is not a
dismissal of the criminal complaints for quasi-judicial body within the purview of
falsification and perjury against Sy Tiong Section 1, Rule 65 of the Rules of Court.
Shiou.8 The reviewing prosecutor approved the Petitioners rely on the separate opinion of
resolution. The Spouses Sy moved for the former Chief Justice Andres R. Narvasa in
reconsideration of the resolution, but their Roberts, Jr. v. Court of Appeals,15 wherein he
motion was denied on 14 June 2004.9 The wrote that this Court should not be called upon
Spouses Sy thereupon filed a Petition for to determine the existence of probable cause,
Review with the Department of Justice (DOJ), as there is no provision of law authorizing an
which the latter denied in a resolution issued aggrieved party to petition for such a
on 02 September 2004.10 Their subsequent determination.16 In any event, they argue,
motion for reconsideration was likewise denied assuming without admitting that the findings of
in the resolution of 20 July 2005.11 the DOJ may be subject to judicial review
under Section 1, Rule 65 of the Rules of Court,
The Spouses Sy elevated the DOJ's resolutions the DOJ has not committed any grave abuse of
to the Court of Appeals through a petition discretion in affirming the findings of the City
for certiorari, imputing grave abuse of Prosecutor of Manila. They claim that the
discretion on the part of the DOJ. The appellate Spouses Sy's request for inspection was not
court granted the petition12 and directed the made in good faith and that their motives were
City Prosecutor's Office to file the appropriate tainted with the intention to harass and to
informations against Sy Tiong Shiou, et al. for intimidate Sy Tiong Shiou, et al. from pursuing
violation of Section 74, in relation to Section the criminal and civil cases pending before the
144 of the Corporation Code and of Articles prosecutor's office and the Regional Trial Court
172 and 183 of the RPC. The appellate court (RTC) of Manila, Branch 46. Thus, to accede to
ruled that the civil case for accounting and the Spouses Sy's request would pose serious
damages cannot be deemed prejudicial to the threats to the existence of the
maintenance or prosecution of a criminal action corporation.17 Sy Tiong Shiou, et al. aver that
for violation of Section 74 in relation to Section the RTC had already denied the motion for
144 of the Corporation Code since a finding in production and inspection and instead ordered
the civil case that respondents mishandled or petitioners to make the corporate records
misappropriated the funds would not be available to the appointed independent auditor.
determinative of their guilt or innocence in the Hence, the DOJ did not commit any grave
criminal complaint. In the same manner, the abuse of discretion in affirming the
criminal complaints for falsification and/or recommendation of the City Prosecutor of
perjury should not have been dismissed on the Manila.18 They further argue that adherence to
ground of prejudicial question because the the Court of Appeals' ruling that the accounting
accounting case is unrelated and not case is unrelated to, and not necessarily
necessarily determinative of the success or determinative of the success of, the criminal
failure of the falsification or perjury charges. complaint for falsification and/or perjury would
Furthermore, the Court of Appeals held that unnecessarily indict petitioner Sy Tiong Shiou
there was probable cause that Sy Tiong Shiou for the said offenses he may not have
had committed falsification and that the City of committed but only because of an outcome
Manila where the 2003 GIS was executed is unfavorable to him in the civil action. 19
the proper venue for the institution of the
Indeed, a preliminary proceeding is not a The civil action for accounting and damages,
quasi-judicial function and that the DOJ is not Civil Case No. 03-106456 pending before the
a quasi-judicial agency exercising a quasi- RTC Manila, Branch 46, seeks the issuance of
judicial function when it reviews the findings of an order compelling the Spouses Sy to render
a public prosecutor regarding the presence of a full, complete and true accounting of all the
probable cause.20 Moreover, it is settled that amounts, proceeds and fund paid to, received
the preliminary investigation proper, i.e., the and earned by the corporation since 1993 and
determination of whether there is reasonable to restitute it such amounts, proceeds and
ground to believe that the accused is guilty of funds which the Spouses Sy have
the offense charged and should be subjected to misappropriated. The criminal cases, on the
the expense, rigors and embarrassment of other hand, charge that the Spouses Sy were
trial, is the function of the prosecution. 21 This illegally prevented from getting inside company
Court has adopted a policy of non-interference premises and from inspecting company
in the conduct of preliminary investigations and records, and that Sy Tiong Shiou falsified the
leaves to the investigating prosecutor sufficient entries in the GIS, specifically the Spouses Sy's
latitude of discretion in the determination of shares in the corporation. Surely, the civil case
what constitutes sufficient evidence as will presents no prejudicial question to the criminal
establish probable cause for the filing of cases since a finding that the Spouses Sy
information against the supposed offender.22 mishandled the funds will have no effect on the
determination of guilt in the complaint for
As in every rule, however, there are settled violation of Section 74 in relation to Section
exceptions. Hence, the principle of non- 144 of the Corporation Code; the civil case
interference does not apply when there is concerns the validity of Sy Tiong Shiou's
grave abuse of discretion which would refusal to allow inspection of the records, while
authorize the aggrieved person to file a petition in the falsification and perjury cases, what is
for certiorari and prohibition under Rule 65, material is the veracity of the entries made by
1997 Rules of Civil Procedure.23 Sy Tiong Shiou in the sworn GIS.

As correctly found by the Court of Appeals, the Anent the issue of probable cause, the Court
DOJ gravely abused its discretion when it also finds that there is enough probable cause
suspended the hearing of the charges for to warrant the institution of the criminal cases.
violation of the Corporation Code on the
ground of prejudicial question and when it The term probable cause does not mean 'actual
dismissed the criminal complaints. and positive cause' nor does it import absolute
certainty. It is merely based on opinion and
A prejudicial question comes into play reasonable belief. Thus a finding of probable
generally in a situation where a civil action and cause does not require an inquiry into whether
a criminal action are both pending and there there is sufficient evidence to procure a
exists in the former an issue which must be conviction. It is enough that it is believed that
preemptively resolved before the criminal the act or omission complained of constitutes
action may proceed since howsoever the issue the offense charged. Precisely, there is a trial
raised in the civil action is resolved would be for the reception of evidence of the prosecution
determinative juris et de jure of the guilt or in support of the charge.25
innocence of the accused in the criminal case.
The reason behind the principle of prejudicial In order that probable cause to file a criminal
question is to avoid two conflicting decisions. It case may be arrived at, or in order to
has two essential elements: (a) the civil action engender the well-founded belief that a crime
involves an issue similar or intimately related has been committed, the elements of the crime
to the issue raised in the criminal action; and charged should be present. This is based on
(b) the resolution of such issue determines the principle that every crime is defined by its
whether or not the criminal action may elements, without which there should be at the
proceed.24 most no criminal offense.26

The civil action and the criminal cases do not Section 74 of the Corporation Code reads in
involve any prejudicial question. part:
 xxx Provided, further, That nothing in this section
shall be construed to repeal the other causes
The records of all business transactions of the for dissolution of a corporation provided in this
corporation and the minutes of any meeting Code.
shall be open to inspection by any director,
trustee, stockholder or member of the In the recent case of Ang-Abaya, et al. v. Ang,
corporation at reasonable hours on business et al.,27 the Court had the occasion to
days and he may demand, in writing, for a enumerate the requisites before the penal
copy of excerpts from said records or minutes, provision under Section 144 of the Corporation
at his expense. Code may be applied in a case of violation of a
stockholder or member's right to inspect the
Any officer or agent of the corporation who corporate books/records as provided for under
shall refuse to allow any director, trustee, Section 74 of the Corporation Code. The
stockholder or member of the corporation to elements of the offense, as laid down in the
examine and copy excerpts from its records or case, are:
minutes, in accordance with the provisions of
this Code, shall be liable to such director, First. A director, trustee, stockholder or
trustee, stockholder or member for damages, member has made a prior demand in writing
and in addition, shall be guilty of an offense for a copy of excerpts from the corporation's
which shall be punishable under Section 144 of records or minutes;
this Code: Provided, That if such refusal is
made pursuant to a resolution or order of the Second. Any officer or agent of the concerned
Board of Directors or Trustees, the liability corporation shall refuse to allow the said
under this section for such action shall be director, trustee, stockholder or member of the
imposed upon the directors or trustees who corporation to examine and copy said
voted for such refusal: and Provided, further, excerpts;
That it shall be a defense to any action under
this section that the person demanding to Third. If such refusal is made pursuant to a
examine and copy excerpts from the resolution or order of the board of directors or
corporation's records and minutes has trustees, the liability under this section for
improperly used any information secured such action shall be imposed upon the
through any prior examination of the records directors or trustees who voted for such
or minutes of such corporation or of any other refusal; and,
corporation, or was not acting in good faith or
for a legitimate purpose in making his demand. Fourth. Where the officer or agent of the
corporation sets up the defense that the
Meanwhile, Section 144 of the same Code person demanding to examine and copy
provides: excerpts from the corporation's records and
minutes has improperly used any information
Sec. 144. Violations of the Code. Violations of secured through any prior examination of the
any of the provisions of this Code or its records or minutes of such corporation or of
amendments not otherwise specifically any other corporation, or was not acting in
penalized therein shall be punished by a fine of good faith or for a legitimate purpose in
not less than one thousand (P1,000.00) pesos making his demand, the contrary must be
but not more than ten thousand (P10,000.00) shown or proved.28
pesos or by imprisonment for not less than
thirty (30) days but not more than five (5) Thus, in a criminal complaint for violation of
years, or both, in the discretion of the court. If Section 74 of the Corporation Code, the
the violation is committed by a corporation, the defense of improper use or motive is in the
same may, after notice and hearing, be nature of a justifying circumstance that would
dissolved in appropriate proceedings before the exonerate those who raise and are able to
Securities and Exchange Commission: prove the same. Accordingly, where the
Provided, That such dissolution shall not corporation denies inspection on the ground of
preclude the institution of appropriate action improper motive or purpose, the burden of
against the director, trustee or officer of the proof is taken from the shareholder and placed
corporation responsible for said violation:
on the corporation.29 However, where no such for violation of Section 74 in relation to Section
improper motive or purpose is alleged, and 144 of the Corporation Code.
even though so alleged, it is not proved by the
corporation, then there is no valid reason to Now on the existence of probable cause for the
deny the requested inspection. falsification and/or perjury charges.

In the instant case, however, the Court finds The Spouses Sy charge Sy Tiong Shiou with
that the denial of inspection was predicated on the offense of falsification of public documents
the pending civil case against the Spouses Sy. under Article 171, paragraph 4; and/or perjury
This is evident from the 21 May 2003 letter of under Article 183 of the Revised Penal Code
Sy Tiong Shiou, et al.'s counsel30 to the (RPC). The elements of falsification of public
Spouses Sy,31 which reads: documents through an untruthful narration of
facts are: (a) the offender makes in a
Gentlemen: document untruthful statements in a narration
of facts; (b) the offender has a legal obligation
We write in behalf of our clients, SY SIY HO, to disclose the truth of the facts narrated; 34 (c)
INC. ( Guan Yiac Hardware); SY TIONG SHIOU, the facts narrated by the offender are
JUANITA TAN SY; JOLIE ROSS TAN; CHARLIE absolutely false; and (d) the perversion of
TAN; ROMER TAN; and JESSE JAMES TAN, truth in the narration of facts was made with
relative to your letter dated 16 May 2003. the wrongful intent to injure a third
Please be informed that a case for Accounting person.35 On the other hand, the elements of
and Damages had already been filed against perjury are: (a) that the accused made a
your clients, Sy Chim and Felicidad Chan Sy statement under oath or executed an affidavit
before the Regional Trial Court of Manila, upon a material matter; (b) that the statement
Branch 46, denominated as Civil Case No. 03- or affidavit was made before a competent
106456. officer, authorized to receive and administer
oath; (c) that in that statement or affidavit,
We fully understand your desire for our clients the accused made a willful and deliberate
to respond to your demands, however, under assertion of a falsehood; and, (d) that the
the prevailing circumstance this would not be sworn statement or affidavit containing the
advisable. The concerns that you raised in your falsity is required by law or made for a legal
letter can later on be addressed after your purpose.
clients shall have filed their responsive
pleading in the abovesaid case. A General Information Sheet (GIS) is required
to be filed within thirty (30) days following the
We trust that this response will at the moment date of the annual or a special meeting, and
be enough.32 must be certified and sworn to by the
corporate secretary, or by the president, or
Even in their Joint Counter-Affidavit dated 23 any duly authorized officer of the
September 2003,33 Sy Tiong Shiou, et al. did corporation.36 From the records, the 2003 GIS
not make any allegation that "the person submitted to the SEC on 8 April 2003 was
demanding to examine and copy excerpts from executed under oath by Sy Tiong Shiou in
the corporation's records and minutes has Manila, in his capacity as Vice President and
improperly used any information secured General Manager.37 By executing the document
through any prior examination of the records under oath, he, in effect, attested to the
or minutes of such corporation or of any other veracity38 of its contents. The Spouses Sy claim
corporation, or was not acting in good faith or that the entries in the GIS pertaining to them
for a legitimate purpose in making his do not reflect the true number of shares that
demand." Instead, they merely reiterated the they own in the company. They attached to
pendency of the civil case. There being no their complaint the 2002 GIS of the company,
allegation of improper motive, and it being also executed by Sy Tiong Shiou, and
undisputed that Sy Tiong Shiou, et al. denied compared the entries therein vis-a-vis the ones
Sy Chim and Felicidad Chan Sy's request for in the 2003 GIS. The Spouses Sy noted the
inspection, the Court rules and so holds that marked decrease in their shareholdings,
the DOJ erred in dismissing the criminal charge averring that at no time after the execution of
the 2002 GIS, up to the time of the filing of
their criminal complaints did they execute or from 1 November 2001 to 31 January 2003,
authorize the execution of any document or thus the total bank remittances for the past
deed transferring, conveying or disposing their years were less than reflected in the corporate
shares or any portion thereof; and thus there financial statements, accounting books and
is absolutely no basis for the figures reflected records. Finally, Juanita Tan sought to be free
in the 2003 GIS.39 The Spouses Sy claim that from any responsibility
the false statements were made by Sy Tiong
Shiou with the wrongful intent of injuring over all corporate funds. The Board granted
them. All the elements of both offenses are Juanita Tan's request and authorized the
sufficiently averred in the complaint-affidavits. employment of an external auditor to render a
complete
The Court agrees with the Court of Appeals'
holding, citing the case of Fabia v. Court of audit of all the corporate accounting books and
Appeals, that the doctrine of primary records.47Consequently, the Board hired the
jurisdiction no longer precludes the accounting firm Banaria, Banaria & Company.
simultaneous filing of the criminal case with In its Report48 dated 5 April 2003, the
the corporate/civil case.40 Moreover, the Court accounting firm attributed to the Spouses
finds that the City of Manila is the proper Sy P67,117,230.30 as unaccounted receipts
venue for the perjury charges, the GIS having and disbursements from 1994 to 2002.49
been subscribed and sworn to in the said place.
Under Section 10(a), Rule 110 of the Revised A demand letter50 was subsequently served on
Rules of Court, the criminal action shall be the Spouses Sy on 15 April 2003. On the same
instituted and tried in the court of the date, the children of the Spouses Sy allegedly
municipality or territory where the offense was stole from the corporation cash, postdated
committed or where any of its essential checks and other important documents. After
ingredients occurred.41 In Villanueva v. the incident, the Spouses Sy allegedly
Secretary of Justice,42 the Court held that the transferred residence and ceased reporting to
felony is consummated when the false the corporation. Thereupon, the corporation
statement is made.43Thus in this case, it was filed a criminal complaint for robbery against
alleged that the perjury was committed when the Spouses Sy before the City Prosecutor's
Sy Tiong Shiou subscribed and sworn to the Office of Manila.51 A search warrant was
GIS in the City of Manila, thus, following subsequently issued by the Regional Trial
Section 10(a), Rule 110 of the Revised Rules of Court.52
Court, the City of Manila is the proper venue
for the offense. On 26 April 2003, Sy Tiong Shiou, corporate
Vice President and General Manager, called a
G. R. No. 179438. special meeting to be held on 6 May 2003 to fill
up the positions vacated by the Spouses Sy. Sy
This petition assails the decision44 and Tiong Shiou was subsequently elected as the
resolution45 of the Court of Appeals dated 26 new president and his wife, Juanita Tan, the
May 2004 and 29 August 2007, respectively, in new Vice President.53 Despite these
CA-G.R. SP No. 81897. developments, Sy Chim still caused the
issuance of a Notice of Stockholders meeting
On 3 February 2003, Juanita Tan, corporate dated 11 June 2003 in his capacity as the
treasurer of Sy Siy Ho & Sons, Inc. (the alleged corporate president.54
corporation), a family corporation doing
business under the name and style Guan Yiac Meanwhile, on 1 July 2003, the corporation,
Hardware, submitted a letter46to the through Romer S. Tan, filed its Amended
corporation's Board of Directors (Board) stating Complaint for Accounting and
that the control, supervision and administration Damages55 against the Spouses Sy before the
of all corporate funds were exercised by Sy RTC Manila, praying for a complete and true
Chim and Felicidad Chan Sy (Spouses Sy), accounting of all the amounts paid to, received
corporate president and assistant treasurer, and earned by the company since 1993 and for
respectively. In the same letter, Juanita Tan the restitution of the said amount.56The
disclosed that Felicidad Chan Sy did not make complaint also prayed for a temporary
cash deposits to any of the corporation's banks
restraining order (TRO) and or preliminary were allowed, the admission of the third-party
injunction to restrain Sy Chim from calling a complaint against Sy Tiong Shiou and Juanita
stockholders' meeting on the ground of lack of Tan still would have no basis from the facts or
authority. the law and jurisprudence.62The Court of
Appeals also ruled that the respondent judge
By way of Answer,57 the Spouses Sy averred committed a manifest error amounting to lack
that Sy Chim was a mere figurehead and of jurisdiction in admitting the third-party
Felicidad Chan Sy merely performed clerical complaint and in summarily declaring Sy Tiong
functions, as it was Sy Tiong Shiou and his Shiou and Juanita Tan in default for failure to
spouse, Juanita Tan, who have been authorized file their answer within the purported
by the corporation's by-laws to supervise, reglementary period. The Court of Appeals set
control and administer corporate funds, and as aside the trial court's 8 October 2003 Order
such were the ones responsible for the admitting the third-party complaint, as well as
unaccounted funds. They assailed the meetings the 19 December 2003 Order, declaring Sy
called by Sy Tiong Shiou on the grounds that Tiong Shiou and Juanita Tan in default for
the same were held without notice to them and failure to file their answer. The trial court was
without their participation, in violation of the further ordered to dismiss the third-party
by-laws. The Spouses Sy also pursued their complaint without prejudice to any action that
counter-claim for moral and exemplary the corporation may separately file against Sy
damages and attorney's fees. Tiong Shiou and Juanita Tan.63

On 9 September 2003, the Spouses Sy filed The Spouses Sy filed a motion for
their Motion for Leave to File Third-Party reconsideration, but their motion was denied
Complaint,58 praying that their attached Third on 29 August 2007.64
Party Complaint59 be allowed and admitted
against Sy Tiong Shiou and his spouse. In the Sy Chim and Felicidad Chan Sy argue before
said third-party complaint, the Spouses Sy this Court that a third-party complaint is not
accused Sy Tiong Shiou and Juanita Tan as excluded or prohibited by the Interim Rules,
directly liable for the corporation's claim for and that the Court of Appeals erred in ruling
misappropriating corporate funds. that their third - party complaint is not
actionable because their action is not in
On 8 October 2003, the trial court granted the respect of the corporation's claims. They add
motion for leave to file the third-party that the disallowance of the third-party
complaint, and forthwith directed the issuance complaint will result in multiplicity of suits.
of summons against Sy Tiong Shiou and
Juanita Tan.60 On 16 January 2004, their The third-party complaint should be allowed.
counsel allegedly discovered that Sy Tiong
Shiou and Juanita Tan were not furnished with The conflicting provisions of the Interim Rules
the copies of several pleadings, as well as a of Procedure for Inter-Corporate Controversies
court order, which resulted in their having read:
been declared in default for failure to file their
answer to the third-party complaint; thus, they Rule 1, Sec. 8. Prohibited pleadings. The
opted not to file a motion for reconsideration following pleadings are prohibited:
anymore and instead filed a petition
for certiorari before the Court of Appeals. (1) Motion to dismiss;

In its Decision dated 26 May 2004, the Court of (2) Motion for a bill of particulars;
Appeals granted the petition of Sy Tiong Shiou
and Juanita Tan.61 The appellate court declared (3) Motion for new trial, or for reconsideration
that a third-party complaint is not allowed of judgment or order, or for re-opening of trial;
under the Interim Rules of Procedure
Governing Intra-Corporate Controversies Under
(4) Motion for extension of time to file
R.A. No. 8799 (Interim Rules), it not being
pleadings, affidavits or any other paper, except
included in the exclusive enumeration of
those filed due to clearly compelling reasons.
allowed pleadings under Section 2, Rule 2
thereof. Moreover, even if such a pleading
Such motion must be verified and under oath; objective of securing a just, summary, speedy
andcralawlibrary and inexpensive determination of every action
or proceeding.69
(5) Motion for postponement and other
motions of similar intent, except those filed Now, a third-party complaint is a claim that a
due to clearly compelling reasons. Such motion defending party may, with leave of court, file
must be verified and under oath. against a person not a party to the action,
called the third-party defendant, for
Rule 2, Sec.2. Pleadings allowed. The only contribution, indemnity, subrogation or any
pleadings allowed to be filed under these Rules other relief, in respect of his opponent's claim.
are the complaint, answer, compulsory It is actually a complaint independent of, and
counterclaims or cross-claims pleaded in the separate and distinct from the plaintiff's
answer, and the answer to the counterclaims complaint. In fact, were it not for Rule 6,
or cross-claims.65 Section 11 of the Rules of Court, such third-
party complaint would have to be filed
There is a conflict, for while a third-party independently and separately from the original
complaint is not included in the allowed complaint by the defendant against the third-
pleadings, neither is it among the prohibited party defendant. Jurisprudence is consistent in
ones. Nevertheless, this conflict may be declaring that the purpose of a third-party
resolved by following the well-entrenched rule complaint is to avoid circuitry of action and
in statutory construction, that every part of the unnecessary proliferation of law suits and of
statute must be interpreted with reference to disposing expeditiously in one litigation all the
the context, i.e., that every part of the statute matters arising from one particular set of
must be considered together with the other facts.70
parts, and kept subservient to the general
intent of the whole enactment.66 Statutes, It thus appears that the summary nature of the
including rules, should be construed in the light proceedings governed by the Interim Rules,
of the object to be achieved and the evil or and the allowance of the filing of third-party
mischief to be suppressed and they should be complaints is premised on one objective the
given such construction as will advance the expeditious disposition of cases. Moreover,
object, suppress the mischief and secure the following the rule of liberal interpretation found
benefits intended. A statute should therefore in the Interim Rules, and taking into
be read with reference to its leading idea, and consideration the suppletory application of the
its general purpose and intention should be Rules of Court under
gathered from the whole act, and this
predominant purpose will prevail over the Rule 1, Sec. 271 of the Interim Rules, the Court
literal import of particular terms or clauses, if finds that a third-party complaint is not, and
plainly apparent, operating as a limitation upon should not be prohibited in controversies
some and as a reason for expanding the governed by the Interim Rules. The logic and
signification of others, so that the justness of this conclusion are rendered
interpretation may accord with the spirit of the beyond question when it is considered that Sy
entire act, and so that the policy and object of Tiong Shiou and Juanita Tan are not complete
the statute as a whole may be made effectual strangers to the litigation as in fact they are
and operative to the widest possible the moving spirit behind the filing of the
extent.67 Otherwise stated, the spirit, rather principal complaint for accounting and
than the letter of a law determines its damages against the Spouses Sy. ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

construction; hence, a statute, as in the rules

in this case, must be read according to its spirit The Court also rules that the third-party
and intent.68 complaint of the Spouses Sy should be
admitted.
This spirit and intent can be gleaned from Sec.
3, Rule 1 of the Interim Rules, which reads: A prerequisite to the exercise of such right is
that some substantive basis for a third-party
Sec. 3. Construction. These Rules shall be claim be found to exist, whether the basis be
liberally construed in order to promote their one of indemnity, subrogation, contribution or
other substantive right. The bringing of a third- declared as directly and solely liable in respect
party defendant is proper if he would be liable of the corporation's claim for accounting and
to the plaintiff or to the defendant or both for damages, and that in the event that they, the
all or part of the plaintiff's claim against the Spouses Sy, are adjudged liable to the
original defendant, although the third-party corporation, Sy Tiong Shiou and Juanita Tan be
defendant's liability arises out of another ordered to pay all amounts necessary to
transaction. The defendant may implead discharge their liability to the corporation by
another as third-party defendant: (a) on an way of indemnity or reimbursement.
allegation of liability of the latter to the
defendant for contribution, indemnity, The allegations in the third-party complaint
subrogation or any other relief; (b) on the impute direct liability on the part of Sy Tiong
ground of direct Shiou and Juanita Tan to the corporation for
the very same claims which the corporation
liability of the third-party defendant to the interposed against the Spouses Sy. It is clear
plaintiff; or (c) the liability of the third-party therefore that the Spouses Sy's third-party
defendant to both the plaintiff and the complaint is in respect of the plaintiff
defendant.72 corporation's claims,75 and thus the allowance
of the third-party complaint is warranted.
In determining the sufficiency of the third-
party complaint, the allegations in the original WHEREFORE, these cases are resolved as
complaint and the third-party complaint must follows:
be examined. A third-party complaint must
allege facts which prima facie show that the G.R. No. 174168
defendant is entitled to contribution,
indemnity, subrogation or other relief from the The Petition for Review is DENIED. The
third-party defendant.73 Decision and Resolution of the Court of Appeals
dated 31 May 2006 and 8 August 2006,
The complaint alleges that the Spouses Sy, as respectively, in CA-G.R. SP No. 91416 are
officers of the corporation, have acted illegally AFFIRMED.
in raiding its corporate funds, hence they are
duty bound to render a full, complete and true Costs against the petitioners.
accounting of all the amounts, proceeds and
funds paid to, received and earned by the G.R. No. 179438
corporation since 1993 and to restitute to the
corporation all such amounts, proceeds, and The petition is GRANTED. The decision and
funds which they took and misappropriated for resolution of the Court of Appeals dated 26
their own use and benefit, to the damage and May 2004 and 29 August 2007, respectively, in
prejudice of the plaintiff and its CA-G.R. SP No. 81897 are SET ASIDE and the
stockholders.74 On the other hand, in the third- Orders of the Regional Trial Court of Manila
party complaint, the Spouses Sy claim that it is Branch 46 dated 8 October 2003 and 19
Sy Tiong Shiou and Juanita Tan who had full December 2003 are REINSTATED.
and complete control of the day-to day
operations and complete control and custody of
the funds of the corporation, and hence they
are the ones liable for any shortfall or
unaccounted

difference of the corporation's cash account.

Thus, Sy Tiong Shiou and Juanita Tan should
render a full, complete and true accounting of
all the amounts, proceeds, funds paid to,
received and earned by the corporation since
1993, including the amount attributed to the
Spouses Sy in the complaint for accounting
and damages. In their prayer, the Spouses Sy
moved that Sy Tiong Shiou and Juanita Tan be