1

SECOND DIVISION
G.R. No. 108670 September 21, 1994
LBC EXPRESS, INC., petitioner,
vs.
THE COURT OF APPEALS, ADOLFO M. CARLOTO, and RURAL BANK
OF LABASON, INC., respondents.
PUNO, J.:
In this Petition for Review on Certiorari, petitioner LBC questions the
decision 1 of respondent Court of Appeals affirming the judgment of the
Regional Trial Court of Dipolog City, Branch 8, awarding moral and
exemplary damages, reimbursement of P32,000.00, and costs of suit; but
deleting the amount of attorney's fees.
Private respondent Adolfo Carloto, incumbent President-Manager of private
respondent Rural Bank of Labason, alleged that on November 12, 1984, he
was in Cebu City transacting business with the Central Bank Regional
Office. He was instructed to proceed to Manila on or before November 21,
1984 to follow-up the Rural Bank's plan of payment of rediscounting
obligations with Central Bank's main office in Manila. 2 He then purchased
a round trip plane ticket to Manila. He also phoned his sister Elsie CarlotoConcha to send him ONE THOUSAND PESOS (P1,000.00) for his pocket
money in going to Manila and some rediscounting papers thru petitioner's
LBC Office at Dipolog City. 3
On November 16, 1984, Mrs. Concha thru her clerk, Adelina Antigo
consigned thru LBC Dipolog Branch the pertinent documents and the sum
of ONE THOUSAND PESOS (P1,000.00) to respondent Carloto at No. 2
Greyhound Subdivision, Kinasangan, Pardo, Cebu City. This was evidenced
by LBC Air Cargo, Inc., Cashpack Delivery Receipt No. 34805.
On November 17, 1984, the documents arrived without the cashpack.
Respondent Carloto made personal follow-ups on that same day, and also
on November 19 and 20, 1984 at LBC's office in Cebu but petitioner failed
to deliver to him the cashpack.
Consequently, respondent Carloto said he was compelled to go to Dipolog
City on November 24, 1984 to claim the money at LBC's office. His effort

was once more in vain. On November 27, 1984, he went back to Cebu City
at LBC's office. He was, however, advised that the money has been
returned to LBC's office in Dipolog City upon shipper's request. Again, he
demanded for the ONE THOUSAND PESOS (P1,000.00) and refund of
FORTY-NINE PESOS (P49.00) LBC revenue charges. He received the money
only on December 15, 1984 less the revenue charges.
Respondent Carloto claimed that because of the delay in the transmittal of
the cashpack, he failed to submit the rediscounting documents to Central
Bank on time. As a consequence, his rural bank was made to pay the
Central Bank THIRTY-TWO THOUSAND PESOS (P32,000.00) as penalty
interest. 4 He allegedly suffered embarrassment and humiliation.
Petitioner LBC, on the other hand, alleged that the cashpack was forwarded
via PAL to LBC Cebu City branch on November 22, 1984. 5 On the same
day, it was delivered at respondent Carloto's residence at No. 2 Greyhound
Subdivision, Kinasangan, Pardo, Cebu City. However, he was not around to
receive it. The delivery man served instead a claim notice to insure he
would personally receive the money. This was annotated on Cashpack
Delivery Receipt No. 342805. Notwithstanding the said notice, respondent
Carloto did not claim the cashpack at LBC Cebu. On November 23, 1984, it
was returned to the shipper, Elsie Carloto-Concha at Dipolog City.
Claiming that petitioner LBC wantonly and recklessly disregarded its
obligation, respondent Carloto instituted an action for Damages Arising
from Non-performance of Obligation docketed as Civil Case No. 3679
before the Regional Trial Court of Dipolog City on January 4, 1985. On June
25, 1988, an amended complaint was filed where respondent rural bank
joined as one of the plaintiffs and prayed for the reimbursement of THIRTYTWO THOUSAND PESOS (P32,000.00).
After hearing, the trial court rendered its decision, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering the defendant LBC Air Cargo, Inc. to pay unto plaintiff Adolfo M.
Carloto and Rural Bank of Labason, Inc., moral damages in the amount of
P10,000.00; exemplary damages in the amount of P5,000.00; attorney's
fees in the amount of P3,000.00 and litigation expenses of P1,000.00;

2
2. Sentencing defendant LBC Air Cargo, Inc., to reimburse plaintiff Rural
Bank of Labason, Inc. the sum of P32,000.00 which the latter paid as
penalty interest to the Central Bank of the Philippines as penalty interest
for failure to rediscount its due bills on time arising from the defendant's
failure to deliver the cashpack, with legal interest computed from the date
of filing of this case; and
3. Ordering defendant to pay the costs of these proceedings.
SO ORDERED.

On appeal, respondent court modified the judgment by deleting the award

of attorney's fees. Petitioner's Motion for Reconsideration was denied in a
Resolution dated January 11, 1993.
Hence, this petition raising the following questions, to wit:
1. Whether or not respondent Rural Bank of Labason Inc., being an artificial
person should be awarded moral damages.
2. Whether or not the award of THIRTY-TWO THOUSAND PESOS
(P32,000.00) was made with grave abuse of discretion.
3. Whether or not the respondent Court of Appeals gravely abused its
discretion in affirming the trial court's decision ordering petitioner LBC to
pay moral and exemplary damages despite performance of its obligation.
We find merit in the petition.
The respondent court erred in awarding moral damages to the Rural Bank
of Labason, Inc., an artificial person.
Moral damages are granted in recompense for physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury. 7 A corporation, being an
artificial person and having existence only in legal contemplation, has no
feelings, no emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. 8 Mental suffering can be experienced only
by one having a nervous system and it flows from real ills, sorrows, and
griefs of life 9 all of which cannot be suffered by respondent bank as an
artificial person.

We can neither sustain the award of moral damages in favor of the private
respondents. The right to recover moral damages is based on equity. Moral
damages are recoverable only if the case falls under Article 2219 of the
Civil Code in relation to Article 21. 10 Part of conventional wisdom is that he
who comes to court to demand equity, must come with clean hands.
In the case at bench, respondent Carloto is not without fault. He was fully
aware that his rural bank's obligation would mature on November 21, 1984
and his bank has set aside cash for these bills payable. 11 He was all set to
go to Manila to settle this obligation. He has received the documents
necessary for the approval of their rediscounting application with the
Central Bank. He has also received the plane ticket to go to Manila.
Nevertheless, he did not immediately proceed to Manila but instead tarried
for days allegedly claiming his ONE THOUSAND PESOS (P1,000.00) pocket
money. Due to his delayed trip, he failed to submit the rediscounting
papers to the Central Bank on time and his bank was penalized THIRTYTWO THOUSAND PESOS (P32,000.00) for failure to pay its obligation on its
due date. The undue importance given by respondent Carloto to his ONE
THOUSAND PESOS (P1,000.00) pocket money is inexplicable for it was not
indispensable for him to follow up his bank's rediscounting application with
Central Bank. According to said respondent, he needed the money to
"invite people for a snack or dinner." 12 The attitude of said respondent
speaks ill of his ways of business dealings and cannot be countenanced by
this Court. Verily, it will be revolting to our sense of ethics to use it as basis
for awarding damages in favor of private respondent Carloto and the Rural
Bank of Labason, Inc.
We also hold that respondents failed to show that petitioner LBC's late
delivery of the cashpack was motivated by personal malice or bad faith,
whether intentional or thru gross negligence. In fact, it was proved during
the trial that the cashpack was consigned on November 16, 1984, a Friday.
It was sent to Cebu on November 19, 1984, the next business day.
Considering this circumstance, petitioner cannot be charged with gross
neglect of duty. Bad faith under the law can not be presumed; it must be
established by clearer and convincing evidence. 13Again, the unbroken
jurisprudence is that in breach of contract cases where the defendant is
not shown to have acted fraudulently or in bad faith, liability for damages
is limited to the natural and probable consequences of the branch of the
obligation which the parties had foreseen or could reasonable have
foreseen. The damages, however, will not include liability for moral
damages. 14

3
Prescinding from these premises, the award of exemplary damages made
by the respondent court would have no legal leg to support itself. Under
Article 2232 of the Civil Code, in a contractual or quasi-contractual
relationship, exemplary damages may be awarded only if the defendant
had acted in "a wanton, fraudulent, reckless, oppressive, or malevolent
manner." The established facts of not so warrant the characterization of
the action of petitioner LBC.
IN VIEW WHEREOF, the Decision of the respondent court dated September
30, 1992 is REVERSED and SET ASIDE; and the Complaint in Civil Case No.
3679 is ordered DISMISSED. No costs.
SO ORDERED.

4
FIRST DIVISION
[G.R. No. 141994. January 17, 2005]
FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO
MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE
OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4 January 1999 Decision [2] and 26
January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151.
The Court of Appeals affirmed with modification the 14 December 1992
Decision[3] of the Regional Trial Court of Legazpi City, Branch 10, in Civil
Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network,
Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for
libel and ordered them to solidarily pay Ago Medical and Educational
Center-Bicol Christian College of Medicine moral damages, attorneys fees
and costs of suit.
The Antecedents
Expos is a radio documentary [4] program hosted by Carmelo Mel Rima
(Rima) and Hermogenes Jun Alegre (Alegre). [5] Expos is aired every morning
over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.
(FBNI). Expos is heard over Legazpi City, the Albay municipalities and other
Bicol areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre
exposed various alleged complaints from students, teachers and parents
against Ago Medical and Educational Center-Bicol Christian College of
Medicine (AMEC) and its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of
Medicine, filed a complaint for damages [7] against FBNI, Rima and Alegre
on 27 February 1990. Quoted are portions of the allegedly libelous
broadcasts:
JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking
medical course at AMEC-BCCM, advise them to pass all subjects
because if they fail in any subject they will repeat their year level,
taking up all subjects including those they have passed already.
Several students had approached me stating that they had consulted with
the DECS which told them that there is no such regulation. If [there] is no
such regulation why is AMEC doing the same?
Second: Earlier AMEC students in Physical Therapy had complained
that the course is not recognized by DECS. xxx
Third: Students are required to take and pay for the subject even if
the subject does not have an instructor - such greed for money on
the part of AMECs administration. Take the subject Anatomy: students
would pay for the subject upon enrolment because it is offered by the
school. However there would be no instructor for such subject. Students
would be informed that course would be moved to a later date because the
school is still searching for the appropriate instructor.
It is a public knowledge that the Ago Medical and Educational Center has
survived and has been surviving for the past few years since its inception
because of funds support from foreign foundations. If you will take a look at
the AMEC premises youll find out that the names of the buildings there are
foreign soundings. There is a McDonald Hall. Why not Jose Rizal or
Bonifacio Hall? That is a very concrete and undeniable evidence that the
support of foreign foundations for AMEC is substantial, isnt it? With the
report which is the basis of the expose in DZRC today, it would be very
easy for detractors and enemies of the Ago family to stop the flow of
support of foreign foundations who assist the medical school on the basis
of the latters purpose. But if the purpose of the institution (AMEC) is to
deceive students at cross purpose with its reason for being it is possible for
these foreign foundations to lift or suspend their donations temporarily. [8]
On the other hand, the administrators of AMEC-BCCM, AMEC
Science High School and the AMEC-Institute of Mass
Communication in their effort to minimize expenses in terms of
salary are absorbing or continues to accept rejects. For example
how many teachers in AMEC are former teachers of Aquinas University but
were removed because of immorality? Does it mean that the present
administration of AMEC have the total definite moral foundation from
catholic administrator of Aquinas University. I will prove to you my friends,
that AMEC is a dumping ground, garbage, not merely of moral and
physical misfits. Probably they only qualify in terms of intellect. The Dean
of Student Affairs of AMEC is Justita Lola, as the family name implies. She is
too old to work, being an old woman. Is the AMEC administration exploiting
the very [e]nterprising or compromising and undemanding Lola? Could it
be that AMEC is just patiently making use of Dean Justita Lola were if she is

5
very old. As in atmospheric situation zero visibility the plane cannot land,
meaning she is very old, low pay follows. By the way, Dean Justita Lola is
also the chairman of the committee on scholarship in AMEC. She had
retired from Bicol University a long time ago but AMEC has patiently made
use of her.
MEL RIMA:
My friends based on the expose, AMEC is a dumping ground for moral and
physically misfit people. What does this mean? Immoral and physically
misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is
this, that your are no longer fit to teach. You are too old. As an aviation,
your case is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of
the scholarship committee at that. The reason is practical cost saving in
salaries, because an old person is not fastidious, so long as she has money
to buy the ingredient of beetle juice. The elderly can get by thats why she
(Lola) was taken in as Dean.
xxx On our end our task is to attend to the interests of students. It is likely
that the students would be influenced by evil. When they become
members of society outside of campus will be liabilities rather
than assets. What do you expect from a doctor who while studying at
AMEC is so much burdened with unreasonable imposition? What do you
expect from a student who aside from peculiar problems because not all
students are rich in their struggle to improve their social status are even
more burdened with false regulations. xxx[9] (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning
institution. With the supposed exposs, FBNI, Rima and Alegre transmitted
malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago)
reputation. AMEC and Ago included FBNI as defendant for allegedly failing
to exercise due diligence in the selection and supervision of its employees,
particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares,
filed an Answer[10] alleging that the broadcasts against AMEC were fair and
true. FBNI, Rima and Alegre claimed that they were plainly impelled by a
sense of public duty to report the goings-on in AMEC, [which is] an
institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence for
the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares,
filed a Motion to Dismiss[11] on FBNIs behalf. The trial court denied the

motion to dismiss. Consequently, FBNI filed a separate Answer claiming

that it exercised due diligence in the selection and supervision of Rima and
Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster
should (1) file an application; (2) be interviewed; and (3) undergo an
apprenticeship and training program after passing the interview. FBNI
likewise claimed that it always reminds its broadcasters to observe truth,
fairness and objectivity in their broadcasts and to refrain from using
libelous and indecent language. Moreover, FBNI requires all broadcasters
to pass the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation
test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision [12] finding
FBNI and Alegre liable for libel except Rima. The trial court held that the
broadcasts are libelous per se. The trial court rejected the broadcasters
claim that their utterances were the result of straight reporting because it
had no factual basis. The broadcasters did not even verify their reports
before airing them to show good faith. In holding FBNI liable for libel, the
trial court found that FBNI failed to exercise diligence in the selection and
supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rimas
only participation was when he agreed with Alegres expos. The trial court
found Rimas statement within the bounds of freedom of speech,
expression, and of the press. The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the
plaintiff. Considering the degree of damages caused by the
controversial utterances, which are not found by this court to be
really very serious and damaging, and there being no showing
that indeed the enrollment of plaintiff school dropped, defendants
Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting Network (owner of
the radio station DZRC), are hereby jointly and severally ordered to pay
plaintiff Ago Medical and Educational Center-Bicol Christian College of
Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages,
plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of
suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC
and Ago, on the other, appealed the decision to the Court of Appeals. The
Court of Appeals affirmed the trial courts judgment with modification. The
appellate court made Rima solidarily liable with FBNI and Alegre. The
appellate court denied Agos claim for damages and attorneys fees because
the broadcasts were directed against AMEC, and not against her. The
dispositive portion of the Court of Appeals decision reads:

6
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to
the modification that broadcaster Mel Rima is SOLIDARILY
ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.

FBNI raises the following issues for resolution:

SO ORDERED.[14]

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of
Appeals denied in its 26 January 2000 Resolution.

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

Hence, FBNI filed this petition.[15]

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR
PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.

I. WHETHER THE BROADCASTS ARE LIBELOUS;

The Ruling of the Court of Appeals

The Court of Appeals upheld the trial courts ruling that the questioned
broadcasts are libelous per se and that FBNI, Rima and Alegre failed to
overcome the legal presumption of malice. The Court of Appeals found
Rima and Alegres claim that they were actuated by their moral and social
duty to inform the public of the students gripes as insufficient to justify the
utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators,
the Court of Appeals ruled that the broadcasts were made with reckless
disregard as to whether they were true or false. The appellate court
pointed out that FBNI, Rima and Alegre failed to present in court any of the
students who allegedly complained against AMEC. Rima and Alegre merely
gave a single name when asked to identify the students. According to the
Court of Appeals, these circumstances cast doubt on the veracity of the
broadcasters claim that they were impelled by their moral and social duty
to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that
(1) AMEC-BCCM is a dumping ground for morally and physically misfit
teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize
expenses on its employees salaries; and (3) AMEC burdened the students
with unreasonable imposition and false regulations.[16]
The Court of Appeals held that FBNI failed to exercise due diligence in the
selection and supervision of its employees for allowing Rima and Alegre to
make the radio broadcasts without the proper KBP accreditation. The Court
of Appeals denied Agos claim for damages and attorneys fees because the
libelous remarks were directed against AMEC, and not against her. The
Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay
AMEC moral damages, attorneys fees and costs of suit.
Issues

The Courts Ruling

We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory
remarks of Rima and Alegre against AMEC. [17] While AMEC did not point out
clearly the legal basis for its complaint, a reading of the complaint reveals
that AMECs cause of action is based on Articles 30 and 33 of the Civil Code.
Article 30[18] authorizes a separate civil action to recover civil liability
arising from a criminal offense. On the other hand, Article 33 [19] particularly
provides that the injured party may bring a separate civil action for
damages in cases of defamation, fraud, and physical injuries. AMEC also
invokes Article 19[20] of the Civil Code to justify its claim for damages. AMEC
cites Articles 2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily
liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel[23] is a public and malicious imputation of a crime, or of a vice or
defect, real or imaginary, or any act or omission, condition, status, or
circumstance tending to cause the dishonor, discredit, or contempt of a
natural or juridical person, or to blacken the memory of one who is dead. [24]
There is no question that the broadcasts were made public and imputed to
AMEC defects or circumstances tending to cause it dishonor, discredit and
contempt. Rima and Alegres remarks such as greed for money on the part
of AMECs administrators; AMEC is a dumping ground, garbage of xxx moral
and physical misfits; and AMEC students who graduate will be liabilities
rather than assets of the society are libelous per se. Taken as a whole, the
broadcasts suggest that AMEC is a money-making institution where
physically and morally unfit teachers abound.

7
However, FBNI contends that the broadcasts are not malicious. FBNI claims
that Rima and Alegre were plainly impelled by their civic duty to air the
students gripes. FBNI alleges that there is no evidence that ill will or spite
motivated Rima and Alegre in making the broadcasts. FBNI further points
out that Rima and Alegre exerted efforts to obtain AMECs side and gave
Ago the opportunity to defend AMEC and its administrators. FBNI concludes
that since there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious. [25] Rima and Alegre
failed to show adequately their good intention and justifiable motive in
airing the supposed gripes of the students. As hosts of a documentary or
public affairs program, Rima and Alegre should have presented the public
issues free from inaccurate and misleading information.[26] Hearing the
students alleged complaints a month before the expos, [27] they had
sufficient time to verify their sources and information. However, Rima and
Alegre hardly made a thorough investigation of the students alleged
gripes. Neither did they inquire about nor confirm the purported
irregularities in AMEC from the Department of Education, Culture and
Sports. Alegre testified that he merely went to AMEC to verify his report
from an alleged AMEC official who refused to disclose any information.
Alegre simply relied on the words of the students because they were many
and not because there is proof that what they are saying is true. [28] This
plainly shows Rima and Alegres reckless disregard of whether their report
was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight
reporting. Significantly, some courts in the United States apply the
privilege of neutral reportage in libel cases involving matters of public
interest or public figures. Under this privilege, a republisher
who accurately and disinterestedly reports certain defamatory statements
made against public figures is shielded from liability, regardless of the
republishers subjective awareness of the truth or falsity of the accusation.
[29]
Rima and Alegre cannot invoke the privilege of neutral reportage
because unfounded comments abound in the broadcasts. Moreover, there
is no existing controversy involving AMEC when the broadcasts were made.
The privilege of neutral reportage applies where the defamed person is a
public figure who is involved in an existing controversy, and a party to that
controversy makes the defamatory statement. [30]
However, FBNI argues vigorously that malice in law does not apply to this
case. Citing Borjal v. Court of Appeals,[31] FBNI contends that the
broadcasts
fall
within
the
coverage
of
qualifiedly
privileged
communications for being commentaries on matters of public interest.
Such being the case, AMEC should prove malice in fact or actual malice.
Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on
the doctrine of fair comment, thus:

[F]air commentaries on matters of public interest are privileged and

constitute a valid defense in an action for libel or slander. The doctrine of
fair comment means that while in general every discreditable imputation
publicly made is deemed false, because every man is presumed innocent
until his guilt is judicially proved, and every false imputation is deemed
malicious, nevertheless, when the discreditable imputation is directed
against a public person in his public capacity, it is not necessarily
actionable. In order that such discreditable imputation to a public
official may be actionable, it must either be a false allegation of
fact or a comment based on a false supposition. If the comment is
an expression of opinion, based on established facts, then it is
immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.[32] (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating
students is genuinely imbued with public interest. The welfare of the youth
in general and AMECs students in particular is a matter which the public
has the right to know. Thus, similar to the newspaper articles in Borjal, the
subject broadcasts dealt with matters of public interest. However, unlike
inBorjal, the questioned broadcasts are not based on established facts.
The record supports the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent
reports of students and parents against plaintiff, yet, defendants have not
presented in court, nor even gave name of a single student who made the
complaint to them, much less present written complaint or petition to that
effect. To accept this defense of defendants is too dangerous because it
could easily give license to the media to malign people and establishments
based on flimsy excuses that there were reports to them although they
could not satisfactorily establish it. Such laxity would encourage careless
and irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters,
contrary to the mandates of their duties, did not verify and analyze the
truth of the reports before they aired it, in order to prove that they are in
good faith.
Alegre contended that plaintiff school had no permit and is not accredited
to offer Physical Therapy courses. Yet, plaintiff produced a certificate
coming from DECS that as of Sept. 22, 1987 or more than 2 years before
the controversial broadcast, accreditation to offer Physical Therapy course
had already been given the plaintiff, which certificate is signed by no less
than the Secretary of Education and Culture herself, Lourdes R.
Quisumbing (Exh. C-rebuttal). Defendants could have easily known this
were they careful enough to verify. And yet, defendants were very
categorical and sounded too positive when they made the erroneous report

8
that plaintiff had no permit to offer Physical Therapy courses which they
were offering.
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
The allegation that plaintiff was getting tremendous aids from foreign
foundations like Mcdonald Foundation prove not to be true also. The truth
is there is no Mcdonald Foundation existing. Although a big building of
plaintiff school was given the name Mcdonald building, that was only in
order to honor the first missionary in Bicol of plaintiffs religion, as
explained by Dr. Lita Ago. Contrary to the claim of defendants over the air,
not a single centavo appears to be received by plaintiff school from the
aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by
Dra. Ago, that when medical students fail in one subject, they are made to
repeat all the other subject[s], even those they have already passed, nor
their claim that the school charges laboratory fees even if there are no
laboratories in the school. No evidence was presented to prove the bases
for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and
immoral teachers, defendant[s] singled out Dean Justita Lola who is said to
be so old, with zero visibility already. Dean Lola testified in court last Jan.
21, 1991, and was found to be 75 years old. xxx Even older people prove
to be effective teachers like Supreme Court Justices who are still very much
in demand as law professors in their late years. Counsel for defendants is
past 75 but is found by this court to be still very sharp and effective. So is
plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor
mentally infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than
assets of our society is a mere conclusion. Being from the place himself,
this court is aware that majority of the medical graduates of plaintiffs pass
the board examination easily and become prosperous and responsible
professionals.[33]
Had the comments been an expression of opinion based on established
facts, it is immaterial that the opinion happens to be mistaken, as long as it
might reasonably be inferred from the facts.[34] However, the comments of
Rima and Alegre were not backed up by facts. Therefore, the broadcasts
are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code [35] of the Kapisanan ng mga
Brodkaster sa Pilipinas, Ink. (Radio Code). Item I(B) of the Radio Code
provides:

4. Public affairs program shall present public issues free

from personal bias, prejudice and inaccurate and misleading
information. x x x Furthermore, the station shall strive to present
balanced discussion of issues. x x x.
7. The station shall be responsible at all times in the supervision of public
affairs, public issues and commentary programs so that they conform to
the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and
announcer to protect public interest, general welfare and good order in the
presentation of public affairs and public issues. [36](Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code,
which lays down the code of ethical conduct governing practitioners in the
radio broadcast industry. The Radio Code is a voluntary code of conduct
imposed by the radio broadcast industry on its own members. The Radio
Code is a public warranty by the radio broadcast industry that radio
broadcast practitioners are subject to a code by which their conduct are
measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast
practitioners live up to the code of conduct of their profession, just like
other professionals. A professional code of conduct provides the standards
for determining whether a person has acted justly, honestly and with good
faith in the exercise of his rights and performance of his duties as required
by Article 19[37] of the Civil Code. A professional code of conduct also
provides the standards for determining whether a person who willfully
causes loss or injury to another has acted in a manner contrary to morals
or good customs under Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a
corporation.[39]
A juridical person is generally not entitled to moral damages because,
unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral
shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et
al.[41] to justify the award of moral damages. However, the Courts
statement inMambulao that a corporation may have a good reputation

9
which, if besmirched, may also be a ground for the award of moral
damages is an obiter dictum.[42]Nevertheless, AMECs claim for moral
damages falls under item 7 of Article 2219 [43] of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of
libel, slander or any other form of defamation. Article 2219(7) does not
qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any
other form of defamation and claim for moral damages.[44]
Moreover, where the broadcast is libelous per se, the law implies damages.
[45]
In such a case, evidence of an honest mistake or the want of character
or reputation of the party libeled goes only in mitigation of damages.
[46]
Neither in such a case is the plaintiff required to introduce evidence of
actual damages as a condition precedent to the recovery of some
damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is
entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable.
The record shows that even though the broadcasts were libelous per se,
AMEC has not suffered any substantial or material damage to its
reputation. Therefore, we reduce the award of moral damages
from P300,000 to P150,000.

III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is
no basis for the award of attorneys fees. FBNI adds that the instant case
does not fall under the enumeration in Article 2208 [48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify
satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to
warrant the award of attorneys fees. Moreover, both the trial and appellate
courts failed to explicitly state in their respective decisions the rationale for
the award of attorneys fees.[49] In Inter-Asia Investment Industries,
Inc. v. Court of Appeals,[50] we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages
is the exception rather than the rule, and counsels fees are not to be
awarded every time a party wins a suit. The power of the court to
award attorneys fees under Article 2208 of the Civil Code demands
factual, legal and equitable justification, without which the award
is a conclusion without a premise, its basis being improperly left
to speculation and conjecture. In all events, the court must explicitly
state in the text of the decision, and not only in the decretal portion

thereof, the legal reason for the award of attorneys fees.[51](Emphasis

supplied)
While it mentioned about the award of attorneys fees by stating that it lies
within the discretion of the court and depends upon the circumstances of
each case, the Court of Appeals failed to point out any circumstance to
justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the
payment of damages and attorneys fees because it exercised due diligence
in the selection and supervision of its employees, particularly Rima and
Alegre. FBNI maintains that its broadcasters, including Rima and Alegre,
undergo a very regimented process before they are allowed to go on air.
Those who apply for broadcaster are subjected to interviews, examinations
and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to
his competence as a broadcaster. FBNI points out that the minor
deficiencies in the KBP accreditation of Rima and Alegre do not in any way
prove that FBNI did not exercise the diligence of a good father of a family
in selecting and supervising them. Rimas accreditation lapsed due to his
non-payment of the KBP annual fees while Alegres accreditation card was
delayed allegedly for reasons attributable to the KBP Manila Office. FBNI
claims that membership in the KBP is merely voluntary and not required by
any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and
severally liable for the tort which they commit.[52] Joint tort feasors are all
the persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or who
approve of it after it is done, if done for their benefit. [53] Thus, AMEC
correctly anchored its cause of action against FBNI on Articles 2176 and
2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is
solidarily liable to pay for damages arising from the libelous broadcasts. As
stated by the Court of Appeals, recovery for defamatory statements
published by radio or television may be had from the owner of the
station, a licensee, the operator of the station, or a person who
procures, or participates in, the making of the defamatory statements.
[54]
An employer and employee are solidarily liable for a defamatory
statement by the employee within the course and scope of his or her

10
employment, at least when the employer authorizes or ratifies the
defamation.[55] In this case, Rima and Alegre were clearly performing their
official duties as hosts of FBNIs radio program Expos when they aired the
broadcasts. FBNI neither alleged nor proved that Rima and Alegre went
beyond the scope of their work at that time. There was likewise no showing
that FBNI did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due
diligence in the selection and supervision of its employees, particularly
Rima and Alegre. FBNI merely showed that it exercised diligence in
the selection of its broadcasters without introducing any evidence to
prove that it observed the same diligence in the supervision of Rima and
Alegre. FBNI did not show how it exercised diligence in supervising its
broadcasters. FBNIs alleged constant reminder to its broadcasters to
observe truth, fairness and objectivity and to refrain from using libelous
and indecent language is not enough to prove due diligence in the
supervision of its broadcasters. Adequate training of the broadcasters on
the industrys code of conduct, sufficient information on libel laws, and
continuous evaluation of the broadcasters performance are but a few of
the many ways of showing diligence in the supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima
and Alegre as broadcasters, bearing in mind their qualifications. However,
no clear and convincing evidence shows that Rima and Alegre underwent
FBNIs regimented process of application. Furthermore, FBNI admits that
Rima and Alegre had deficiencies in their KBP accreditation, [56] which is one
of FBNIs requirements before it hires a broadcaster. Significantly,
membership in the KBP, while voluntary, indicates the broadcasters strong
commitment to observe the broadcast industrys rules and regulations.
Clearly, these circumstances show FBNIs lack of diligence in
selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable
to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4
January 1999 and Resolution of 26 January 2000 of the Court of Appeals in
CA-G.R. CV No. 40151 with the MODIFICATION that the a

Expos is a radio documentary program hosted by Carmelo Mel Rima (Rima)

and Hermogenes Jun Alegre (Alegre). Expos is aired every morning over
DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI).
Expos is heard over Legazpi City, the Albay municipalities and other Bicol
areas. In the morning of 14 and 15 December 1989, Rima and Alegre
exposed various alleged complaints from students, teachers and parents
against Ago Medical and Educational Center-Bicol Christian College of
Medicine (AMEC) and its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of
Medicine, filed a complaint for damages against FBNI, Rima and Alegre on
27 February 1990.The complaint further alleged that AMEC is a reputable
learning institution. With the supposed expose, FBNI, Rima and Alegre
transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC
and Ago) reputation. AMEC and Ago included FBNI as defendant for
allegedly failing to exercise due diligence in the selection and supervision
of its employees, particularly Rima and Alegre. On 14 December 1992, the
trial court rendered a Decision finding FBNI and Alegre liable for libel
except Rima. In holding FBNI liable for libel, the trial court found that FBNI
failed to exercise diligence in the selection and supervision of its
employees. The Court of Appeals affirmed the trial courts judgment with
modification. The appellate court made Rima solidarily liable with FBNI and
Alegre.

Issues:
1.Whether or not the broadcasts are libelous.
2.Whether or not AMEC is entitled to moral damages.
3.Whether or not the award of attorneys fees is proper.
Ruling:

FILIPINAS BROADCASTING NETWORK, INC.,

vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN
COLLEGE OFMEDICINE, (AMEC-BCCM) and ANGELITA F. AGO,
Facts:

1.A libel is a public and malicious imputation of a crime, or of a vice or

defect, real or imaginary, or any act or omission, condition, status, or
circumstance tending to cause the dishonor, discredit, or contempt of a
natural or juridical person, or to blacken the memory of one who is dead.
Every defamatory imputation is presumed malicious. Rima and Alegre
failed to show adequately their good intention and justifiable motive in
airing the supposed gripes of the students. As hosts of a documentary or
public affairs program, Rima and Alegre should have presented the public

11
issues free from inaccurate and misleading information. Hearing the
students alleged complaints a month before the expos, they had sufficient
time to verify their sources and information. However, Rima and Alegre
hardly made a thorough investigation of the students alleged gripes.
Neither did they inquire about nor confirm the purported irregularities in
AMEC from the Department of Education, Culture and Sports. Alegre
testified that he merely went to AMEC to verify his report from an alleged
AMEC official who refused to disclose any information. Alegre simply relied
on the words of the students because they were many and not because
there is proof that what they are saying is true. This plainly shows Rima
and Alegres reckless disregard of whether their report was true or not. Had
the comments been an expression of opinion based on established facts, it
is immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts. However, the comments of Rima and
Alegre were not backed up by facts. Therefore, the broadcasts are not
privileged and remain libelous per se.
The broadcasts also violate the Radio Code of the Kapisanan ng mga
Brodkaster sa Pilipinas, Ink.
(Radio Code). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES1. x x x4. Public
affairs program shall present public issues free from personal bias,
prejudice and inaccurate and misleading information. x x x Furthermore,
the station shall strive to present balanced discussion of issues. x x x.x x
x7. The station shall be responsible at all times in the supervision of public
affairs, public issues and commentary programs so that they conform to
the provisions and standards of this code.8. It shall be the responsibility of
the newscaster, commentator, host and announcer to protect public
interest, general welfare and good order in the presentation of public
affairs and public issues.
[36]
The broadcasts fail to meet the standards prescribed in the Radio Code,
which lays down the code of ethical conduct governing practitioners in the
radio broadcast industry. The Radio Code is a voluntary code of conduct
imposed by the radio broadcast industry on its own members. The Radio
Code is a public warranty by the radio broadcast industry that radio
broadcast practitioners are subject to a code by which their conduct are
measured for lapses, liability and sanctions. The public has a right to
expect and demand that radio broadcast practitioners live up to the code

of conduct of their profession, just like other professionals. A professional

code of conduct provides the standards for determining whether a person
has acted justly, honestly and with good faith in the exercise of his rights
and performance of his duties as required by Article 19 of the Civil Code. A
professional code of conduct also provides the standards for determining
whether a person who willfully causes loss or injury to another has acted in
a manner contrary to morals or good customs under Article 21 of the Civil
Code.2.FBNI contends that AMEC is not entitled to moral damages because
it is a corporation. A juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental
anguish or moral shock. The Court of Appeals cites
Mambulao Lumber Co. v. PNB, et al to justify the award of moral damages.
However, the Courts statement in Mambulao that a corporation may have
a good reputation which, if besmirched, may also be a ground for the
award of moral damages is an obiter dictum. Nevertheless, AMECs claim
for moral damages falls under item 7 of Article2219 of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of
libel, slander or any other form of defamation. Article 2219(7) does not
qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any
other form of defamation and claim for moral damages. Moreover, where
the broadcast is libelous per se, the law implies damages. In such a case,
evidence of an honest mistake or the want of character or reputation of the
party libeled goes only in mitigation of damages.
[46]
Neither in such a case is the plaintiff required to introduce evidence of
actual damages as a condition precedent to the recovery of some
damages. In this case, the broadcasts are libelous per se. Thus, AMEC is
entitled to moral damages. However, we find the award of P300,000 moral
damages unreasonable. The record shows that even though the broadcasts
were libelous per se, AMEC has not suffered any substantial or material
damage to its reputation. Therefore, we reduce the award of moral
damages from P300,000 to P150,000.3. The award of attorneys fees is not
proper. AMEC failed to justify satisfactorily its claim for attorneys fees.
AMEC did not adduce evidence to warrant the award of attorneys fees.
Moreover, both the trial and appellate courts failed to explicitly state in
their respective decisions the rationale for the award of attorneys fees.

12
In Inter-Asia Investment Industries, Inc. v. Court of Appeals, we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages
is the exception rather than the rule, and counsels fees are not to be
awarded every time a party wins a suit. The power of the court to award
attorneys fees under Article 2208of the Civil Code demands factual, legal
and equitable justification, without which the award is a conclusion without
a premise, its basis being improperly left to speculation and conjecture. In
all events, the court must explicitly state in the text of the decision, and
not only in the decretal portion thereof, the legal reason for the award of
attorneys fees.
[51]
(Emphasis supplied)Petition denied.

13
SECOND DIVISION
HERMAN C. CRYSTAL, LAMBERTO G.R. No. 172428

Sometime in August 1979, CCCC renewed a previous loan, this time from
BPI, Cebu City branch (BPI-Cebu City). The renewal was evidenced by a

C. CRYSTAL, ANN GEORGIA C.

promissory note[7] dated 13 August 1979, signed by the spouses in their

SOLANTE, and DORIS C.

personal capacities and as managing partners of CCCC. The promissory

- versus 28, 2008

Promulgated: November

note states that the spouses are jointly and severally liable with CCCC. It
appears

BANK OF THE PHILIPPINE ISLANDS,

that

before

the

original

loan

could be

granted, BPI-

Cebu City required CCCC to put up a security.

Respondent.

However, CCCC had no real property to offer as security for the loan;

x----------------------------------------------------------------------------x

hence, the spouses executed a real estate mortgage [8] over their own real

DECISION

property on 22 September 1977.[9] On 3 October 1977, they executed

TINGA, J.:

another real estate mortgage over the same lot in favor of BPI-Cebu City,

Before us is a Petition for Review [1] of the Decision[2] and Resolution[3] of the
Court of Appeals dated 24 October 2005 and 31 March 2006, respectively,
in CA G.R. CV No. 72886, which affirmed the 8 June 2001 decision of the
Regional Trial Court, Branch 5, of Cebu City.

[4]

to secure an additional loan of P20,000.00 of CCCC.[10]

CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when
they became due. CCCC, as well as the spouses, failed to pay their
obligations despite demands. Thus, BPI resorted to the foreclosure of
the chattel mortgage and the real estate mortgage. The foreclosure sale on

The facts, as culled from the records, follow.

the chattel mortgage was initially stalled with the issuance of a restraining
On 28 March 1978, spouses Raymundo and Desamparados Crystal

order

obtained a P300,000.00 loan in behalf of the Cebu Contractors Consortium

necessary requisites of extrajudicial foreclosure, the foreclosure sale on the

Co. (CCCC) from the Bank of the Philippine Islands-Butuan branch (BPI-

chattel mortgage was consummated on 28 February 1988, with the

Butuan). The loan was secured by a chattel mortgage on heavy equipment

proceeds amounting to P240,000.00 applied to the loan from BPI-Butuan

and machinery of CCCC. On the same date, the spouses executed in favor

which had then reached P707,393.90.[12] Meanwhile, on 7 July 1981, Insular

of BPI-Butuan a Continuing Suretyship

Bank of Asia and America (IBAA), through its Vice-President for Legal and

surety

of

CCCC

in

the

where they bound themselves as

aggregate

exceeding P300,000.00.Thereafter,

or

Crystal executed a promissory note

also in favor of BPI-Butuan.

[5]

[6]

on 29

principal
March

sum

of

against

BPI.[11] However,

following BPIs compliance

with

the

not

Corporate Affairs, offered to buy the lot subject of the two (2) real estate

1979, Raymundo

mortgages and to pay directly the spouses indebtedness in exchange for

for the amount of P300,000.00,

the release of the mortgages. BPI rejected IBAAs offer to pay.[13]

14
BPI filed a complaint for sum of money against CCCC and the spouses

Boulevard branch, which was transferred to BPI-Makati as FCDU SA

before

to

76/0035, at the request of Desamparados Crystal. FCDU SA 76/0035 was

recover the deficiency of the loan of CCCC and the spouses with BPI-

thus closed, but DesamparadosCrystal failed to surrender the passbook

Butuan. The trial court ruled in favor of BPI. Pursuant to the decision, BPI

because it was lost. The transferred FCSA in BPI-Makati was the one used

instituted extrajudicial foreclosure of the spouses mortgaged property. [14]

as security for CCCCs P450,000.00 loan from BPI-Makati. CCCC was no

the Regional Trial Court of Butuan City (RTC Butuan),

seeking

On 10 April 1985, the spouses filed an action for Injunction With Damages,
With A Prayer For A Restraining Order and/ or Writ of Preliminary

longer allowed to withdraw from FCDU SA No. 197 because it was already
closed.

Injunction.[15] The spouses claimed that the foreclosure of the real estate

The spouses appealed the decision of the trial court to the Court of

mortgages is illegal because BPI should have exhausted CCCCs properties

Appeals, but their appeal was dismissed.[18] The spouses moved for the

first, stressing that they are mere guarantors of the renewed loans. They

reconsideration of the decision, but the Court of Appeals also denied their

also prayed that they be awarded moral and exemplary damages,

motion for reconsideration.[19] Hence, the present petition.

attorneys fees, litigation expenses and cost of suit. Subsequently, the

spouses filed an amended complaint,[16] additionally alleging that CCCC
had opened and maintained a foreign currency savings account (FCSA-197)
with bpi, Makati branch (BPI-Makati), and that said FCSA was used as
security

for a P450,000.00

loan

also

extended

by

BPI-

Makati. The P450,000.00 loan was allegedly paid, and thereafter the
spouses demanded the return of the FCSA passbook. BPI rejected the

Before the Court, petitioners who are the heirs of the spouses argue that
the failure of the spouses to pay the BPI-Cebu City loan of P120,000.00 was
due

to BPIs illegal

refusal

to

accept

payment for

the

loan

unless

the P300,000.00 loan from BPI-Butuan would also be paid. Consequently, in

view of BPIs unjust refusal to accept payment of the BPI-Cebu City loan, the
loan obligation of the spouses was extinguished, petitioners contend.

demand; thus, the spouses were unable to withdraw from the said account

The contention has no merit. Petitioners rely on IBAAs offer to purchase the

to pay for their other obligations to BPI.

mortgaged lot from them and to directly pay BPI out of the proceeds

The trial court dismissed the spouses complaint and ordered them to pay
moral and exemplary damages and attorneys fees to BPI. [17] It ruled that
since the spouses agreed to bind themselves jointly and severally, they are
solidarily liable for the loans; hence, BPI can validly foreclose the two real
estate mortgages. Moreover, being guarantors-mortgagors, the spouses
are not entitled to the benefit of exhaustion. Anent the FCSA, the trial court
found that CCCC originally had FCDU SA No. 197 with BPI, Dewey

thereof to settle the loan.[20]BPIs refusal to agree to such payment scheme

cannot extinguish the spouses loan obligation. In the first place, IBAA is not
privy to the loan agreement or the promissory note between the spouses
and BPI. Contracts, after all, take effect only between the parties, their
successors in interest, heirs and assigns. [21] Besides, under Art. 1236 of the
Civil Code, the creditor is not bound to accept payment or performance by
a third person who has no interest in the fulfillment of the obligation,

15
unless there is a stipulation to the contrary. We see no stipulation in the

of a suretyship and therefore is an additional security for the loan. Thus we

promissory note which states that a third person may fulfill the spouses

held in one case that if solidary liability was instituted to guarantee a

obligation. Thus, it is clear that the spouses alone bear responsibility for

principal obligation, the law deems the contract to be one of suretyship.

the same.

[26]

In any event, the promissory note is the controlling repository of

the obligation

of

the

spouses.

Under

the

promissory

note,

the

spouses defined the parameters of their obligation as follows:

Petitioners contend that the Court of Appeals erred in not granting their
counterclaims, considering that they suffered moral damages in view of
the unjust refusal of BPI to accept the payment scheme proposed by IBAA

satisfaction of the whole obligation from any or all of the debtors. [23] A
only

when

the

obligation

surety is directly and equally bound with the principal. The surety therefore

benefit therefrom.[27]

entire obligation, and each of the creditors is entitled to demand the

solidary

principal is said to be direct, primary, and absolute; in other words, the

direct or personal interest over the obligations nor does he receive any

A solidary obligation is one in which each of the debtors is liable for the

is

principal obligation, the suretys liability to the creditor or promisee of the

becomes liable for the debt or duty of another even if he possesses no

On or before June 29, 1980 on demand, for value received,

I/we promise to pay, jointly and severally, to the BANK OF
THE PHILIPPINE ISLANDS, at its office in the city of Cebu
Philippines, the sum of ONE HUNDRED TWENTY THOUSAND
PESOS (P120,0000.00), Philippine Currency, subject to
periodic installments on the principal as follows: P30,000.00
quarterly amortization starting September 28, 1979.
x x x [22]

liability

And while a contract of a surety is in essence secondary only to a valid

expressly

and the allegedly unjust and illegal foreclosure of the real estate
mortgages on their property.[28] Conversely, they argue that the Court of
Appeals erred in awarding moral damages to BPI, which is a corporation, as
well as exemplary damages, attorneys fees and expenses of litigation. [29]

so states, when the law so provides or when the nature of the obligation so

We do not agree. Moral damages are meant to compensate the claimant

requires.[24] Thus, when the obligor undertakes to be jointly and severally

for any physical suffering, mental anguish, fright, serious anxiety,

liable, it means that the obligation is solidary,

such as in this case. By

besmirched reputation, wounded feelings, moral shock, social humiliation

stating I/we promise to pay, jointly and severally, to the BANK OF THE

and similar injuries unjustly caused. [30] Such damages, to be recoverable,

PHILIPPINE ISLANDS, the spouses agreed to be sought out and be

must be the proximate result of a wrongful act or omission the factual

demanded payment from, by BPI. BPI did demand payment from them, but

basis for which is satisfactorily established by the aggrieved party. [31] There

they failed to comply with their obligation, prompting BPIs valid resort to

being no wrongful or unjust act on the part of BPI in demanding payment

the foreclosure of the chattel mortgage and the real estate mortgages.

from them and in seeking the foreclosure of the chattel and real estate

[25]

More importantly, the promissory note, wherein the spouses undertook to

be

solidarily

liable

for

the

principal

loan,

partakes

the

nature

mortgages, there is no lawful basis for award of damages in favor of

the spouses.

16
Neither is BPI entitled to moral damages. A juridical person is generally not

the grant of moral damages to corporations, it is not automatically

entitled to moral damages because, unlike a natural person, it cannot

granted; there must still be proof of the existence of the factual basis of

experience physical suffering or such sentiments as wounded feelings,

the damage and its causal relation to the defendants acts. This is so

serious anxiety, mental anguish or moral shock. [32] The Court of Appeals

because moral damages, though incapable of pecuniary estimation, are in

found BPI as being famous and having gained its familiarity and respect

the category of an award designed to compensate the claimant for actual

not only in the Philippines but also in the whole world because of its good

injury suffered and not to impose a penalty on the wrongdoer.[39]

will and good reputation must protect and defend the same against any
unwarranted suit such as the case at bench. [33] In holding that BPI is
entitled to moral damages, the Court of Appeals relied on the case
of People v. Manero,[34] wherein the Court ruled that [i]t is only when a
juridical person has a good reputation that is debased, resulting in social
humiliation, that moral damages may be awarded.[35]

The spouses complaint against BPI proved to be unfounded, but it does not
automatically entitle BPI to moral damages. Although the institution of a
clearly unfounded civil suit can at times be a legal justification for an
award of attorney's fees, such filing, however, has almost invariably been
held not to be a ground for an award of moral damages. The rationale for
the rule is that the law could not have meant to impose a penalty on the

We do not agree with the Court of Appeals. A statement similar to that

right to litigate. Otherwise, moral damages must every time be awarded in

made by the Court in Manero can be found in the case of Mambulao

favor of the prevailing defendant against an unsuccessful plaintiff. [40] BPI

Lumber Co. v. PNB, et al.,[36] thus:

may have been inconvenienced by the suit, but we do not see how it could
have possibly suffered besmirched reputation on account of the single suit

x x x Obviously, an artificial person like herein appellant

corporation cannot experience physical sufferings, mental
anguish, fright, serious anxiety, wounded feelings, moral
shock or social humiliation which are basis of moral
damages. A
corporation
may
have
good
reputation which, if besmirched may also be a ground
for the award of moral damages. x x x (Emphasis
supplied)

alone. Hence, the award of moral damages should be deleted.

The awards of exemplary damages and attorneys fees, however, are
proper. Exemplary damages, on the other hand, are imposed by way of
example or correction for the public good, when the party to a contract
acts in a wanton, fraudulent, oppressive or malevolent manner, while

Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of

attorneys fees are allowed when exemplary damages are awarded and

Appeals, et al.,[37] and Filipinas Broadcasting Network, Inc. v. Ago Medical

when the party to a suit is compelled to incur expenses to protect his

and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM),

interest.[41] The

[38]

the

Court held

mere obiter

that

the

dicta, implying

statements in Manero and Mambulao were

that

the

award

of

moral

damages

to

corporations is not a hard and fast rule. Indeed, while the Court may allow

spouses

instituted

their

complaint

against

BPI

notwithstanding the fact that they were the ones who failed to pay their
obligations. Consequently, BPI was forced to litigate and defend its

17
interest. For these reasons, BPI is entitled to the awards of exemplary
damages and attorneys fees.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the
Court of Appeals dated 24 October 2005 and 31 March 2006, respectively,
are hereby AFFIRMED, with the MODIFICATION that the award of moral
damages to Bank of the Philippine Islands is DELETED.
Costs against the petitioners.
SO ORDERED.

18
HIRD DIVISION
G.R. No. L-34548 November 29, 1988
RIZAL COMMERCIAL BANKING CORPORATION, petitioner,
vs.
THE HONORABLE PACIFICO P. DE CASTRO and PHILIPPINE VIRGINIA
TOBACCO ADMINISTRATION,respondents
CORTES, J.:
The crux of the instant controversy dwells on the liability of a bank for
releasing its depositor's funds upon orders of the court, pursuant to a writ
of garnishment. If in compliance with the court order, the bank delivered
the garnished amount to the sheriff, who in turn delivered it to the
judgment creditor, but subsequently, the order of the court directing
payment was set aside by the same judge, should the bank be held
solidarily liable with the judgment creditor to its depositor for
reimbursement of the garnished funds? The Court does not think so.
In Civil Case No. Q-12785 of the Court of First Instance of Rizal, Quezon
City Branch IX entitled "Badoc Planters, Inc. versus Philippine Virginia
Tobacco Administration, et al.," which was an action for recovery of unpaid
tobacco deliveries, an Order (Partial Judgment) was issued on January 15,
1970 by the Hon. Lourdes P. San Diego, then Presiding Judge, ordering the
defendants therein to pay jointly and severally, the plaintiff Badoc Planters,
Inc. (hereinafter referred to as "BADOC") within 48 hours the aggregate
amount of P206,916.76, with legal interests thereon.
On January 26,1970, BADOC filed an Urgent Ex-Parte Motion for a Writ of
Execution of the said Partial Judgment which was granted on the same day
by the herein respondent judge who acted in place of the Hon. Judge San
Diego who had just been elevated as a Justice of the Court of Appeals.
Accordingly, the Branch Clerk of Court on the very same day, issued a Writ
of Execution addressed to Special Sheriff Faustino Rigor, who then issued a
Notice of Garnishment addressed to the General Manager and/or Cashier of
Rizal Commercial Banking Corporation (hereinafter referred to as RCBC),
the petitioner in this case, requesting a reply within five (5) days to said
garnishment as to any property which the Philippine Virginia Tobacco
Administration (hereinafter referred to as "PVTA") might have in the
possession or control of petitioner or of any debts owing by the petitioner

to said defendant. Upon receipt of such Notice, RCBC notified PVTA thereof
to enable the PVTA to take the necessary steps for the protection of its own
interest [Record on Appeal, p. 36]
Upon an Urgent Ex-Parte Motion dated January 27, 1970 filed by BADOC,
the respondent Judge issued an Order granting the Ex-Parte Motion and
directing the herein petitioner "to deliver in check the amount garnished to
Sheriff Faustino Rigor and Sheriff Rigor in turn is ordered to cash the check
and deliver the amount to the plaintiff's representative and/or counsel on
record." [Record on Appeal, p. 20; Rollo, p. 5.] In compliance with said
Order, petitioner delivered to Sheriff Rigor a certified check in the sum of P
206,916.76.
Respondent PVTA filed a Motion for Reconsideration dated February
26,1970 which was granted in an Order dated April 6,1970, setting aside
the Orders of Execution and of Payment and the Writ of Execution and
ordering petitioner and BADOC "to restore, jointly and severally, the
account of PVTA with the said bank in the same condition and state it was
before the issuance of the aforesaid Orders by reimbursing the PVTA of the
amount of P 206, 916.76 with interests at the legal rate from January 27,
1970 until fully paid to the account of the PVTA This is without prejudice to
the right of plaintiff to move for the execution of the partial judgment
pending appeal in case the motion for reconsideration is denied and appeal
is taken from the said partial judgment." [Record on Appeal, p. 58]
The Motion for Reconsideration of the said Order of April 6, 1970 filed by
herein petitioner was denied in the Order of respondent judge dated June
10, 1970 and on June 19, 1970, which was within the period for perfecting
an appeal, the herein petitioner filed a Notice of Appeal to the Court of
Appeals from the said Orders.
This case was then certified by the Court of Appeals to this Honorable
Court, involving as it does purely questions of law.
The petitioner raises two principal queries in the instant case: 1) Whether
or not PVTA funds are public funds not subject to garnishment; and 2)
Whether or not the respondent Judge correctly ordered the herein
petitioner to reimburse the amount paid to the Special Sheriff by virtue of
the execution issued pursuant to the Order/Partial Judgment dated January
15, 1970.

19
The record reveals that on February 2, 1970, private respondent PVTA filed
a Motion for Reconsideration of the Order/ Partial Judgment of January 15,
1970. This was granted and the aforementioned Partial Judgment was set
aside. The case was set for hearings on November 4, 9 and 11, 1970 [Rollo,
pp. 205-207.] However, in view of the failure of plaintiff BADOC to appear
on the said dates, the lower court ordered the dismissal of the case against
PVTA for failure to prosecute [Rollo, p. 208.]
It must be noted that the Order of respondent Judge dated April 6, 1970
directing the plaintiff to reimburse PVTA t e amount of P206,916.76 with
interests became final as to said plaintiff who failed to even file a motion
for reconsideration, much less to appeal from the said Order.
Consequently, the order to restore the account of PVTA with RCBC in the
same condition and state it was before the issuance of the questioned
orders must be upheld as to the plaintiff, BADOC.
However, the questioned Order of April 6, 1970 must be set aside insofar
as it ordered the petitioner RCBC, jointly and severally with BADOC, to
reimburse PVTA.
The petitioner merely obeyed a mandatory directive from the respondent
Judge dated January 27, 1970, ordering petitioner 94 "to deliver in check
the amount garnished to Sheriff Faustino Rigor and Sheriff Rigor is in turn
ordered to cash the check and deliver the amount to the plaintiffs
representative and/or counsel on record." [Record on Appeal, p. 20.]
PVTA however claims that the manner in which the bank complied with the
Sheriffs Notice of Garnishment indicated breach of trust and dereliction of
duty on the part of the bank as custodian of government funds. It
insistently urges that the premature delivery of the garnished amount by
RCBC to the special sheriff even in the absence of a demand to deliver
made by the latter, before the expiration of the five-day period given to
reply to the Notice of Garnishment, without any reply having been given
thereto nor any prior authorization from its depositor, PVTA and even if the
court's order of January 27, 1970 did not require the bank to immediately
deliver the garnished amount constitutes such lack of prudence as to make
it answerable jointly and severally with the plaintiff for the wrongful release
of the money from the deposit of the PVTA. The respondent Judge in his
controverted Order sustained such contention and blamed RCBC for the
supposed "hasty release of the amount from the deposit of the PVTA
without giving PVTA a chance to take proper steps by informing it of the

action being taken against its deposit, thereby observing with prudence
the five-day period given to it by the sheriff." [Rollo, p. 81.]
Such allegations must be rejected for lack of merit. In the first place, it
should be pointed out that RCBC did not deliver the amount on the
strength solely of a Notice of Garnishment; rather, the release of the funds
was made pursuant to the aforesaid Order of January 27, 1970. While the
Notice of Garnishment dated January 26, 1970 contained no demand of
payment as it was a mere request for petitioner to withold any funds of the
PVTA then in its possession, the Order of January 27, 1970 categorically
required the delivery in check of the amount garnished to the special
sheriff, Faustino Rigor.
In the second place, the bank had already filed a reply to the Notice of
Garnishment stating that it had in its custody funds belonging to the PVTA,
which, in fact was the basis of the plaintiff in filing a motion to secure
delivery of the garnished amount to the sheriff. [See Rollo, p. 93.]
Lastly, the bank, upon the receipt of the Notice of Garnishment, duly
informed PVTA thereof to enable the latter to take the necessary steps for
the protection of its own interest [Record on Appeal, p. 36]
It is important to stress, at this juncture, that there was nothing irregular in
the delivery of the funds of PVTA by check to the sheriff, whose custody is
equivalent to the custody of the court, he being a court officer. The order of
the court dated January 27, 1970 was composed of two parts, requiring: 1)
RCBC to deliver in check the amount garnished to the designated sheriff
and 2) the sheriff in turn to cash the check and deliver the amount to the
plaintiffs representative and/or counsel on record. It must be noted that in
delivering the garnished amount in check to the sheriff, the RCBC did not
thereby make any payment, for the law mandates that delivery of a check
does not produce the effect of payment until it has been cashed. [Article
1249, Civil Code.]
Moreover, by virtue of the order of garnishment, the same was placed
in custodia legis and therefore, from that time on, RCBC was holding the
funds subject to the orders of the court a quo. That the sheriff, upon
delivery of the check to him by RCBC encashed it and turned over the
proceeds thereof to the plaintiff was no longer the concern of RCBC as the
responsibility over the garnished funds passed to the court. Thus, no
breach of trust or dereliction of duty can be attributed to RCBC in

20
delivering its depositor's funds pursuant to a court order which was merely
in the exercise of its power of control over such funds.
... The garnishment of property to satisfy a writ of
execution operates as an attachment and fastens upon the
property a lien by which the property is brought under the
jurisdiction of the court issuing the writ. It is brought
into custodia legis, under the sole control of such court [De
Leon v. Salvador, G.R. Nos. L-30871 and L-31603,
December 28,1970, 36 SCRA 567, 574.]
The respondent judge however, censured the petitioner for having released
the funds "simply on the strength of the Order of the court which. far from
ordering an immediate release of the amount involved, merely serves as a
standing authority to make the release at the proper time as prescribed by
the rules." [Rollo, p. 81.]
This argument deserves no serious consideration. As stated earlier, the
order directing the bank to deliver the amount to the sheriff was distinct
and separate from the order directing the sheriff to encash the said check.
The bank had no choice but to comply with the order demanding delivery
of the garnished amount in check. The very tenor of the order called for
immediate compliance therewith. On the other hand, the bank cannot be
held liable for the subsequent encashment of the check as this was upon
order of the court in the exercise of its power of control over the funds
placed in custodia legis by virtue of the garnishment.
In a recent decision [Engineering Construction Inc., v. National Power
Corporation, G.R. No. L-34589, June 29, 1988] penned by the now Chief
Justice Marcelo Fernan, this Court absolved a garnishee from any liability
for prompt compliance with its order for the delivery of the garnished
funds. The rationale behind such ruling deserves emphasis in the present
case:
But while partial restitution is warranted in favor of NPC,
we find that the Appellate Court erred in not absolving
MERALCO, the garnishee, from its obligations to NPC with
respect to the payment of ECI of P 1,114,543.23, thus in
effect subjecting MERALCO to double liability. MERALCO
should not have been faulted for its prompt obedience to a
writ of garnishment. Unless there are compelling reasons
such as: a defect on the face of the writ or actual

knowledge on the part of the garnishee of lack of

entitlement on the part of the garnisher, it is not
incumbent upon the garnishee to inquire or to judge for
itself whether or not the order for the advance execution of
a judgment is valid.
Section 8, Rule 57 of the Rules of Court provides:
Effect of attachment of debts and credits.All persons having in
their possession or under their control any credits or other similar
personal property belonging to the party against whom attachment
is issued, or owing any debts to the same, all the time of service
upon them of a copy of the order of attachment and notice as
provided in the last preceding section, shall be liable to the
applicant for the amount of such credits, debts or other property,
until the attachment be discharged, or any judgment recovered by
him be satisfied, unless such property be delivered or transferred,
or such debts be paid, to the clerk, sheriff or other proper officer of
the court issuing the attachment.
Garnishment is considered as a specie of attachment for reaching credits
belonging to the judgment debtor and owing to him from a stranger to the
litigation. Under the above-cited rule, the garnishee [the third person] is
obliged to deliver the credits, etc. to the proper officer issuing the writ and
"the law exempts from liability the person having in his possession or
under his control any credits or other personal property belonging to the
defendant, ..., if such property be delivered or transferred, ..., to the clerk,
sheriff, or other officer of the court in which the action is pending. [3
Moran, Comments on the Rules of Court 34 (1970 ed.)]
Applying the foregoing to the case at bar, MERALCO, as garnishee, after
having been judicially compelled to pay the amount of the judgment
represented by funds in its possession belonging to the judgment debtor or
NPC, should be released from all responsibilities over such amount after
delivery thereof to the sheriff. The reason for the rule is self-evident. To
expose garnishees to risks for obeying court orders and processes would
only undermine the administration of justice. [Emphasis supplied.]
The aforequoted ruling thus bolsters RCBC's stand that its immediate
compliance with the lower court's order should not have been met with the
harsh penalty of joint and several liability. Nor can its liability to reimburse
PVTA of the amount delivered in check be premised upon the subsequent

21
declaration of nullity of the order of delivery. As correctly pointed out by
the petitioner:
That the respondent Judge, after his Order was enforced, saw fit to
recall said Order and decree its nullity, should not prejudice one
who dutifully abided by it, the presumption being that judicial
orders are valid and issued in the regular performance of the duties
of the Court" [Section 5(m) Rule 131, Revised Rules of Court]. This
should operate with greater force in relation to the herein
petitioner which, not being a party in the case, was just called
upon to perform an act in accordance with a judicial flat. A contrary
view will invite disrespect for the majesty of the law and induce
reluctance in complying with judicial orders out of fear that said
orders might be subsequently invalidated and thereby expose one
to suffer some penalty or prejudice for obeying the same. And this
is what will happen were the controversial orders to be sustained.
We need not underscore the danger of this as a precedent.
[ Brief for the Petitioner, Rollo, p. 212; Emphasis supplied.]
From the foregoing, it may be concluded that the charge of breach of trust
and/or dereliction of duty as well as lack of prudence in effecting the
immediate payment of the garnished amount is totally unfounded. Upon
receipt of the Notice of Garnishment, RCBC duly informed PVTA thereof to
enable the latter to take the necessary steps for its protection. However,
right on the very next day after its receipt of such notice, RCBC was
already served with the Order requiring delivery of the garnished amount.
Confronted as it was with a mandatory directive, disobedience to which
exposed it to a contempt order, it had no choice but to comply.
The respondent Judge nevertheless held that the liability of RCBC for the
reimbursement of the garnished amount is predicated on the ruling of the
Supreme Court in the case of Commissioner of Public Highways v. Hon. San
Diego [G.R. No. L-30098, February 18, 1970, 31 SCRA 616] which he found
practically on all fours with the case at bar.
The Court disagrees.
The said case which reiterated the rule in Republic v. Palacio [G.R. No. L20322, May 29, 1968, 23 SCRA 899] that government funds and properties

may not be seized under writs of execution or garnishment to satisfy such

judgment is definitely distinguishable from the case at bar.
In the Commissioner of Public Highways case [supra], the bank which
precipitately allowed the garnishment and delivery of the funds failed to
inform its depositor thereof, charged as it was with knowledge of the nullity
of the writ of execution and notice of garnishment against government
funds. In the aforementioned case, the funds involved belonged to the
Bureau of Public Highways, which being an arm of the executive branch of
the government, has no personality of its own separate from the National
Government. The funds involved weregovernment funds covered by the
rule on exemption from execution.
This brings us to the first issue raised by the petitioner: Are the PVTA funds
public funds exempt from garnishment? The Court holds that they are not.
Republic Act No. 2265 created the PVTA as an ordinary corporation with all
the attributes of a corporate entity subject to the provisions of the
Corporation Law. Hence, it possesses the power "to sue and be sued" and
"to acquire and hold such assets and incur such liabilities resulting directly
from operations authorized by the provisions of this Act or as essential to
the proper conduct of such operations." [Section 3, Republic Act No. 2265.]
Among the specific powers vested in the PVTA are: 1) to buy Virginia
tobacco grown in the Philippines for resale to local bona fide tobacco
manufacturers and leaf tobacco dealers [Section 4(b), R.A. No. 2265]; 2) to
contracts of any kind as may be necessary or incidental to the attainment
of its purpose with any person, firm or corporation, with the Government of
the Philippines or with any foreign government, subject to existing laws
[Section 4(h), R.A. No. 22651; and 3) generally, to exercise all the powers
of a corporation under the Corporation Law, insofar as they are not
inconsistent with the provisions of this Act [Section 4(k), R.A. No. 2265.]
From the foregoing, it is clear that PVTA has been endowed with a
personality distinct and separate from the government which owns and
controls it. Accordingly, this Court has heretofore declared that the funds of
the PVTA can be garnished since "funds of public corporation which can
sue and be sued were not exempt from garnishment" [Philippine National
Bank v. Pabalan, G.R. No. L-33112, June 15, 1978, 83 SCRA 595, 598.]

22
In National Shipyards and Steel Corp. v. CIR [G.R. No. L-17874, August 31,
1964, 8 SCRA 781], this Court held that the allegation to the effect that the
funds of the NASSCO are public funds of the government and that as such,
the same may not be garnished, attached or levied upon is untenable for,
as a government-owned or controlled corporation, it has a personality of its
own, distinct and separate from that of the government. This court has
likewise ruled that other govemment-owned and controlled corporations
like National Coal Company, the National Waterworks and Sewerage
Authority (NAWASA), the National Coconut Corporation (NACOCO) the
National Rice and Corn Corporation (NARIC) and the Price Stabilization
Council (PRISCO) which possess attributes similar to those of the PVTA are
clothed with personalities of their own, separate and distinct from that of
the government [National Coal Company v. Collector of Internal Revenue,
46 Phil. 583 (1924); Bacani and Matoto v. National Coconut Corporation et
al., 100 Phil. 471 (1956); Reotan v. National Rice & Corn Corporation, G.R.
No. L-16223, February 27, 1962, 4 SCRA 418.] The rationale in vesting it
with a separate personality is not difficult to find. It is well-settled that
when the government enters into commercial business, it abandons its
sovereign capacity and is to be treated like any other corporation [Manila
Hotel Employees' Association v. Manila Hotel Co. and CIR, 73 Phil. 734
(1941).]
Accordingly, as emphatically expressed by this Court in a 1978 decision,
"garnishment was the appropriate remedy for the prevailing party which
could proceed against the funds of a corporate entity even if owned or
controlled by the government" inasmuch as "by engaging in a particular
business thru the instrumentality of a corporation, the government divests
itself pro hac vice of its sovereign character, so as to render the
corporation subject to the rules of law governing private corporations"
[Philippine National Bank v. CIR, G.R No. L-32667, January 31, 1978, 81
SCRA 314, 319.]
Furthermore, in the case of PVTA, the law has expressly allowed it funds to
answer for various obligations, including the one sought to be enforced by
plaintiff BADOC in this case (i.e. for unpaid deliveries of tobacco). Republic
Act No. 4155, which discounted the erstwhile support given by the Central
Bank to PVTA, established in lieu thereof a "Tobacco Fund" to be collected
from the proceeds of fifty per centum of the tariff or taxes of imported leaf
tobacco and also fifty per centum of the specific taxes on locally
manufactured Virginia type cigarettes.

Section 5 of Republic Act No. 4155 provides that this fund shall be
expended for the support or payment of:
1. Indebtedness of the Philippine Virginia Tobacco Administration
and the former Agricultural Credit and Cooperative Financing
Administration to FACOMAS and farmers and planters regarding
Virginia tobacco transactions in previous years;
2. Indebtedness of the Philippine Virginia Tobacco Administration
and the former Agricultural Credit and Cooperative Financing
Administration to the Central Bank in gradual amounts regarding
Virginia tobacco transactions in previous years;
3. Continuation of the Philippine Virginia Tobacco Administration
support and subsidy operationsincluding the purchase of locally
grown and produced Virginia leaf tobacco, at the present support
and subsidy prices, its procurement, redrying, handling,
warehousing and disposal thereof, and the redrying plants trading
within the purview of their contracts;
4. Operational, office and field expenses, and the establishment of
the Tobacco Research and Grading Institute. [Emphasis supplied.]
Inasmuch as the Tobacco Fund, a special fund, was by law, earmarked
specifically to answer obligations incurred by PVTA in connection with its
proprietary and commercial operations authorized under the law, it follows
that said funds may be proceeded against by ordinary judicial processes
such as execution and garnishment. If such funds cannot be executed upon
or garnished pursuant to a judgment sustaining the liability of the PVTA to
answer for its obligations, then the purpose of the law in creating the PVTA
would be defeated. For it was declared to be a national policy, with respect
to the local Virginia tobacco industry, to encourage the production of local
Virginia tobacco of the qualities needed and in quantities marketable in
both domestic and foreign markets, to establish this industry on an
efficient and economic basis, and to create a climate conducive to local
cigarette manufacture of the qualities desired by the consuming public,
blending imported and native Virginia leaf tobacco to improve the quality
of locally manufactured cigarettes [Section 1, Republic Act No. 4155.]
The Commissioner of Public Highways case is thus distinguishable from the
case at bar. In said case, the Philippine National Bank (PNB) as custodian of

23
funds belonging to the Bureau of Public Highways, an agency of the
government, was chargeable with knowledge of the exemption of such
government funds from execution and garnishment pursuant to the
elementary precept that public funds cannot be disbursed without the
appropriation required by law. On the other hand, the same cannot hold
true for RCBC as the funds entrusted to its custody, which belong to a
public corporation, are in the nature of private funds insofar as their
susceptibility to garnishment is concerned. Hence, RCBC cannot be
charged with lack of prudence for immediately complying with the order to
deliver the garnished amount. Since the funds in its custody are precisely
meant for the payment of lawfully-incurred obligations, RCBC cannot
rightfully resist a court order to enforce payment of such obligations. That
such court order subsequently turned out to have been erroneously issued
should not operate to the detriment of one who complied with its clear
order.
Finally, it is contended that RCBC was bound to inquire into the legality and
propriety of the Writ of Execution and Notice of Garnishment issued against
the funds of the PVTA deposited with said bank. But the bank was in no
position to question the legality of the garnishment since it was not even a
party to the case. As correctly pointed out by the petitioner, it had neither
the personality nor the interest to assail or controvert the orders of
respondent Judge. It had no choice but to obey the same inasmuch as it
had no standing at all to impugn the validity of the partial judgment
rendered in favor of the plaintiff or of the processes issued in execution of
such judgment.
RCBC cannot therefore be compelled to make restitution solidarily with the
plaintiff BADOC. Plaintiff BADOC alone was responsible for the issuance of
the Writ of Execution and Order of Payment and so, the plaintiff alone
should bear the consequences of a subsequent annulment of such court
orders; hence, only the plaintiff can be ordered to restore the account of
the PVTA.
WHEREFORE, the petition is hereby granted and the petitioner is
ABSOLVED from any liability to respondent PVTA for reimbursement of the
funds garnished. The questioned Order of the respondent Judge ordering
the petitioner, jointly and severally with BADOC, to restore the account of
PVTA are modified accordingly.
SO ORDERED.

24
THIRD DIVISION
G.R. No. 195580

April 21, 2014

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING

AND DEVELOPMENT, INC., and MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION

(PLMDC) which previously filed an application for an MPSA with the MGB,
Region IV-B, DENR on January 6, 1992. Through the said application, the
DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in
barangays Calategas and San Isidro, Municipality of Narra, Palawan.
Subsequently, PLMDC conveyed, transferred and/or assigned its rights and
interests over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-B,
labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in
Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of
Palawan. SMMI subsequently conveyed, transferred and assigned its rights
and interest over the said MPSA application to Tesoro.

VELASCO, JR., J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 filed
by Narra Nickel and Mining Development Corp. (Narra), Tesoro Mining and
Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which
seeks to reverse the October 1, 2010 Decision1 and the February 15, 2011
Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines
Corp. (Redmont), a domestic corporation organized and existing under
Philippine laws, took interest in mining and exploring certain areas of the
province of Palawan. After inquiring with the Department of Environment
and Natural Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by
Mineral Production Sharing Agreement (MPSA) applications of petitioners
Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining,
Inc. (SMMI), filed an application for an MPSA and Exploration Permit (EP)
with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the
Department of Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of
over 1,782 hectares in Barangay Sumbiling, Municipality of Bataraza,
Province of Palawan and EPA-IVB-44 which includes an area of 3,720
hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP
were then transferred to Madridejos Mining Corporation (MMC) and, on
November 6, 2006, assigned to petitioner McArthur. 2
Petitioner Narra acquired its MPSA from Alpha Resources and Development
Corporation and Patricia Louise Mining & Development Corporation

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of

the DENR three (3) separate petitions for the denial of petitioners
applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA
IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of
McArthur, Tesoro and Narra are owned and controlled by MBMI Resources,
Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since
MBMI is a considerable stockholder of petitioners, it was the driving force
behind petitioners filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining activities
through corporations which are deemed Filipino citizens. Redmont argued
that given that petitioners capital stocks were mostly owned by MBMI,
they were likewise disqualified from engaging in mining activities through
MPSAs, which are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons
under Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine Mining
Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the
following terms, whether in singular or plural, shall mean:
(aq) "Qualified person" means any citizen of the Philippines with capacity
to contract, or a corporation, partnership, association, or cooperative
organized or authorized for the purpose of engaging in mining, with
technical and financial capability to undertake mineral resources
development and duly registered in accordance with law at least sixty per
cent (60%) of the capital of which is owned by citizens of the Philippines:
Provided, That a legally organized foreign-owned corporation shall be
deemed a qualified person for purposes of granting an exploration permit,
financial or technical assistance agreement or mineral processing permit.

25
Additionally, they stated that their nationality as applicants is immaterial
because they also applied for Financial or Technical Assistance Agreements
(FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro
and AFTA-IVB-07 for Narra, which are granted to foreign-owned
corporations. Nevertheless, they claimed that the issue on nationality
should not be raised since McArthur, Tesoro and Narra are in fact Philippine
Nationals as 60% of their capital is owned by citizens of the Philippines.
They asserted that though MBMI owns 40% of the shares of PLMC (which
owns 5,997 shares of Narra),3 40% of the shares of MMC (which owns 5,997
shares of McArthur)4and 40% of the shares of SLMC (which, in turn, owns
5,997 shares of Tesoro),5 the shares of MBMI will not make it the owner of
at least 60% of the capital stock of each of petitioners. They added that
the best tool used in determining the nationality of a corporation is the
"control test," embodied in Sec. 3 of RA 7042 or the Foreign Investments
Act of 1991. They also claimed that the POA of DENR did not have
jurisdiction over the issues in Redmonts petition since they are not
enumerated in Sec. 77 of RA 7942. Finally, they stressed that Redmont has
no personality to sue them because it has no pending claim or application
over the areas applied for by petitioners.

Adjudication Board (MAB) while Narra separately filed its Notice of

Appeal10 and Memorandum of Appeal.11

On December 14, 2007, the POA issued a Resolution disqualifying

petitioners from gaining MPSAs. It held:

Subsequently, on September 8, 2008, Redmont filed before the Regional

Trial Court of Quezon City, Branch 92 (RTC) a Complaint16 for injunction with
application for issuance of a temporary restraining order (TRO) and/or writ
of preliminary injunction, docketed as Civil Case No. 08-63379. Redmont
prayed for the deferral of the MAB proceedings pending the resolution of
the Complaint before the SEC.

[I]t is clearly established that respondents are not qualified applicants to

engage in mining activities. On the other hand, [Redmont] having filed its
own applications for an EPA over the areas earlier covered by the MPSA
application of respondents may be considered if and when they are
qualified under the law. The violation of the requirements for the issuance
and/or grant of permits over mining areas is clearly established thus, there
is reason to believe that the cancellation and/or revocation of permits
already issued under the premises is in order and open the areas covered
to other qualified applicants.
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur
Mining Inc., Tesoro Mining and Development, Inc., and Narra Nickel Mining
and Development Corp. as, DISQUALIFIED for being considered as Foreign
Corporations. Their Mineral Production Sharing Agreement (MPSA) are
hereby x x x DECLARED NULL AND VOID.6
The POA considered petitioners as foreign corporations being "effectively
controlled" by MBMI, a 100% Canadian company and declared their MPSAs
null and void. In the same Resolution, it gave due course to Redmonts
EPAs. Thereafter, on February 7, 2008, the POA issued an Order 7 denying
the Motion for Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro
filed a joint Notice of Appeal8 and Memorandum of Appeal9 with the Mines

In their respective memorandum, petitioners emphasized that they are

qualified persons under the law. Also, through a letter, they informed the
MAB that they had their individual MPSA applications converted to FTAAs.
McArthurs FTAA was denominated as AFTA-IVB-09 12 on May 2007, while
Tesoros MPSA application was converted to AFTA-IVB-0813 on May 28,
2007, and Narras FTAA was converted to AFTA-IVB-07 14 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB,
Redmont filed a Complaint15 with the Securities and Exchange Commission
(SEC), seeking the revocation of the certificates for registration of
petitioners on the ground that they are foreign-owned or controlled
corporations engaged in mining in violation of Philippine laws. Thereafter,
Redmont filed on September 1, 2008 a Manifestation and Motion to
Suspend Proceeding before the MAB praying for the suspension of the
proceedings on the appeals filed by McArthur, Tesoro and Narra.

But before the RTC can resolve Redmonts Complaint and applications for
injunctive reliefs, the MAB issued an Order on September 10, 2008, finding
the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby
REVERSES and SETS ASIDE the Resolution dated 14 December 2007 of the
Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case Nos.
2001-01, 2007-02 and 2007-03, and its Order dated 07 February 2008
denying the Motions for Reconsideration of the Appellants. The Petition
filed by Redmont Consolidated Mines Corporation on 02 January 2007 is
hereby ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an Order 18 granting
Redmonts application for a TRO and setting the case for hearing the
prayer for the issuance of a writ of preliminary injunction on September 19,
2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for
Reconsideration19 of the September 10, 2008 Order of the MAB.

26
Subsequently, it filed a Supplemental Motion for Reconsideration 20 on
September 29, 2008.
Before the MAB could resolve Redmonts Motion for Reconsideration and
Supplemental Motion for Reconsideration, Redmont filed before the RTC a
Supplemental Complaint21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order 22 granting the issuance of a
writ of preliminary injunction enjoining the MAB from finally disposing of
the appeals of petitioners and from resolving Redmonts Motion for
Reconsideration and Supplement Motion for Reconsideration of the MABs
September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying
Redmonts Motion for Reconsideration and Supplemental Motion for
Reconsideration and resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the
Orders issued by the MAB. On October 1, 2010, the CA rendered a
Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders,
dated September 10, 2008 and July 1, 2009 of the Mining Adjudication
Board are reversed and set aside. The findings of the Panel of Arbitrators of
the Department of Environment and Natural Resources that respondents
McArthur, Tesoro and Narra are foreign corporations is upheld and,
therefore, the rejection of their applications for Mineral Product Sharing
Agreement should be recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra
for Financial or Technical Assistance Agreement (FTAA) or conversion of
their MPSA applications to FTAA, the matter for its rejection or approval is
left for determination by the Secretary of the DENR and the President of
the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for
Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was doubt as
to the nationality of petitioners when it realized that petitioners had a
common major investor, MBMI, a corporation composed of 100%
Canadians. Pursuant to the first sentence of paragraph 7 of Department of
Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules

which implemented the requirement of the Constitution and other laws

pertaining to the exploitation of natural resources, the CA used the
"grandfather rule" to determine the nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital,
respectively, of which belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%, or say, 50% of the
capital stock or capital of the corporation or partnership, respectively,
belongs to Filipino citizens, only 50,000 shares shall be recorded as
belonging to aliens.24 (emphasis supplied)
In determining the nationality of petitioners, the CA looked into their
corporate structures and their corresponding common shareholders. Using
the grandfather rule, the CA discovered that MBMI in effect owned majority
of the common stocks of the petitioners as well as at least 60% equity
interest of other majority shareholders of petitioners through joint venture
agreements. The CA found that through a "web of corporate layering, it is
clear that one common controlling investor in all mining corporations
involved x x x is MBMI."25 Thus, it concluded that petitioners McArthur,
Tesoro and Narra are also in partnership with, or privies-in-interest of,
MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of
petitioners into FTAA applications suspicious in nature and, as a
consequence, it recommended the rejection of petitioners MPSA
applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas, the
CA pointed out that the POA has jurisdiction over them and that it also has
the power to determine the of nationality of petitioners as a prerequisite of
the Constitution prior the conferring of rights to "co-production, joint
venture or production-sharing agreements" of the state to mining rights.
However, it also stated that the POAs jurisdiction is limited only to the
resolution of the dispute and not on the approval or rejection of the MPSAs.
It stipulated that only the Secretary of the DENR is vested with the power
to approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007
Resolution which considered petitioners McArthur, Tesoro and Narra as
foreign corporations. Nevertheless, the CA determined that the POAs

27
declaration that the MPSAs of McArthur, Tesoro and Narra are void is highly
improper.
While the petition was pending with the CA, Redmont filed with the Office
of the President (OP) a petition dated May 7, 2010 seeking the cancellation
of petitioners FTAAs. The OP rendered a Decision 26 on April 6, 2011,
wherein it canceled and revoked petitioners FTAAs for violating and
circumventing the "Constitution x x x[,] the Small Scale Mining Law and
Environmental Compliance Certificate as well as Sections 3 and 8 of the
Foreign Investment Act and E.O. 584."27 The OP, in affirming the
cancellation of the issued FTAAs, agreed with Redmont stating that
petitioners committed violations against the abovementioned laws and
failed to submit evidence to negate them. The Decision further quoted the
December 14, 2007 Order of the POA focusing on the alleged
misrepresentation and claims made by petitioners of being domestic or
Filipino corporations and the admitted continued mining operation of PMDC
using their locally secured Small Scale Mining Permit inside the area earlier
applied for an MPSA application which was eventually transferred to Narra.
It also agreed with the POAs estimation that the filing of the FTAA
applications by petitioners is a clear admission that they are "not capable
of conducting a large scale mining operation and that they need the
financial and technical assistance of a foreign entity in their operation, that
is why they sought the participation of MBMI Resources, Inc."28 The
Decision further quoted:
The filing of the FTAA application on June 15, 2007, during the pendency of
the case only demonstrate the violations and lack of qualification of the
respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the earlier
MPSA is an admission that indeed the respondent is not Filipino but rather
of foreign nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders in their head
office in Canada suggest that they are conducting operation only through
their local counterparts.29
The Motion for Reconsideration of the Decision was further denied by the
OP in a Resolution30 dated July 6, 2011. Petitioners then filed a Petition for
Review on Certiorari of the OPs Decision and Resolution with the CA,
docketed as CA-G.R. SP No. 120409. In the CA Decision dated February 29,
2012, the CA affirmed the Decision and Resolution of the OP. Thereafter,
petitioners appealed the same CA decision to this Court which is now
pending with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision
of the CA. Petitioners put forth the following errors of the CA:
I.

The Court of Appeals erred when it did not dismiss the case for mootness
despite the fact that the subject matter of the controversy, the MPSA
Applications, have already been converted into FTAA applications and that
the same have already been granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack of
jurisdiction considering that the Panel of Arbitrators has no jurisdiction to
determine the nationality of Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on account of
Redmonts willful forum shopping.
IV.
The Court of Appeals ruling that Narra, Tesoro and McArthur are foreign
corporations based on the "Grandfather Rule" is contrary to law,
particularly the express mandate of the Foreign Investments Act of 1991,
as amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter
alios acta rule.
VI.
The Court of Appeals erred when it concluded that the conversion of the
MPSA Applications into FTAA Applications were of "suspicious nature" as
the same is based on mere conjectures and surmises without any shred of
evidence to show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case
as moot is without merit.
Basically, a case is said to be moot and/or academic when it "ceases to
present a justiciable controversy by virtue of supervening events, so that a

28
declaration thereon would be of no practical use or value." 32 Thus, the
courts "generally decline jurisdiction over the case or dismiss it on the
ground of mootness."33
The "mootness" principle, however, does accept certain exceptions and the
mere raising of an issue of "mootness" will not deter the courts from trying
a case when there is a valid reason to do so. In David v. Macapagal-Arroyo
(David), the Court provided four instances where courts can decide an
otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public
interest is involved;
3.) When constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the public;
and
4.) The case is capable of repetition yet evading review. 34
All of the exceptions stated above are present in the instant case. We of
this Court note that a grave violation of the Constitution, specifically
Section 2 of Article XII, is being committed by a foreign corporation right
under our countrys nose through a myriad of corporate layering under
different, allegedly, Filipino corporations. The intricate corporate layering
utilized by the Canadian company, MBMI, is of exceptional character and
involves paramount public interest since it undeniably affects the
exploitation of our Countrys natural resources. The corresponding actions
of petitioners during the lifetime and existence of the instant case raise
questions as what principle is to be applied to cases with similar issues. No
definite ruling on such principle has been pronounced by the Court; hence,
the disposition of the issues or errors in the instant case will serve as a
guide "to the bench, the bar and the public." 35 Finally, the instant case is
capable of repetition yet evading review, since the Canadian company,
MBMI, can keep on utilizing dummy Filipino corporations through various
schemes of corporate layering and conversion of applications to skirt the
constitutional prohibition against foreign mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error presented
by petitioners since both involve the conversion of MPSA applications to
FTAA applications. Petitioners propound that the CA erred in ruling against
them since the questioned MPSA applications were already converted into
FTAA applications; thus, the issue on the prohibition relating to MPSA

applications of foreign mining corporations is academic. Also, petitioners

would want us to correct the CAs finding which deemed the
aforementioned conversions of applications as suspicious in nature, since it
is based on mere conjectures and surmises and not supported with
evidence.
We disagree.
The CAs analysis of the actions of petitioners after the case was filed
against them by respondent is on point. The changing of applications by
petitioners from one type to another just because a case was filed against
them, in truth, would raise not a few sceptics eyebrows. What is the
reason for such conversion? Did the said conversion not stem from the
case challenging their citizenship and to have the case dismissed against
them for being "moot"? It is quite obvious that it is petitioners strategy to
have the case dismissed against them for being "moot."
Consider the history of this case and how petitioners responded to every
action done by the court or appropriate government agency: on January 2,
2007, Redmont filed three separate petitions for denial of the MPSA
applications of petitioners before the POA. On June 15, 2007, petitioners
filed a conversion of their MPSA applications to FTAAs. The POA, in its
December 14, 2007 Resolution, observed this suspect change of
applications while the case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is
a clear admission that the respondents are not capable of conducting a
large scale mining operation and that they need the financial and technical
assistance of a foreign entity in their operation that is why they sought the
participation of MBMI Resources, Inc. The participation of MBMI in the
corporation only proves the fact that it is the Canadian company that will
provide the finances and the resources to operate the mining areas for the
greater benefit and interest of the same and not the Filipino stockholders
who only have a less substantial financial stake in the corporation.
x x x The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining. The filing
of the FTAA application conversion which is allowed foreign corporation of
the earlier MPSA is an admission that indeed the respondent is not Filipino
but rather of foreign nationality who is disqualified under the laws.
Corporate documents of MBMI Resources, Inc. furnished its stockholders in
their head office in Canada suggest that they are conducting operation
only through their local counterparts.36

29
On October 1, 2010, the CA rendered a Decision which partially granted
the petition, reversing and setting aside the September 10, 2008 and July
1, 2009 Orders of the MAB. In the said Decision, the CA upheld the findings
of the POA of the DENR that the herein petitioners are in fact foreign
corporations thus a recommendation of the rejection of their MPSA
applications were recommended to the Secretary of the DENR. With
respect to the FTAA applications or conversion of the MPSA applications to
FTAAs, the CA deferred the matter for the determination of the Secretary of
the DENR and the President of the Republic of the Philippines. 37
In their Motion for Reconsideration dated October 26, 2010, petitioners
prayed for the dismissal of the petition asserting that on April 5, 2010, then
President Gloria Macapagal-Arroyo signed and issued in their favor FTAA
No. 05-2010-IVB, which rendered the petition moot and academic.
However, the CA, in a Resolution dated February 15, 2011 denied their
motion for being a mere "rehash of their claims and defenses."38 Standing
firm on its Decision, the CA affirmed the ruling that petitioners are, in fact,
foreign corporations. On April 5, 2011, petitioners elevated the case to us
via a Petition for Review on Certiorari under Rule 45, questioning the
Decision of the CA. Interestingly, the OP rendered a Decision dated April 6,
2011, a day after this petition for review was filed, cancelling and revoking
the FTAAs, quoting the Order of the POA and stating that petitioners are
foreign corporations since they needed the financial strength of MBMI, Inc.
in order to conduct large scale mining operations. The OP Decision also
based the cancellation on the misrepresentation of facts and the violation
of the "Small Scale Mining Law and Environmental Compliance Certificate
as well as Sections 3 and 8 of the Foreign Investment Act and E.O.
584."39 On July 6, 2011, the OP issued a Resolution, denying the Motion for
Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made
known to the Court the fact of the OPs Decision and Resolution. In their
Reply, petitioners chose to ignore the OP Decision and continued to reuse
their old arguments claiming that they were granted FTAAs and, thus, the
case was moot. Petitioners filed a Manifestation and Submission dated
October 19, 2012,40 wherein they asserted that the present petition is moot
since, in a remarkable turn of events, MBMI was able to sell/assign all its
shares/interest in the "holding companies" to DMCI Mining Corporation
(DMCI), a Filipino corporation and, in effect, making their respective
corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case
dismissed for being "moot." Their final act, wherein MBMI was able to
allegedly sell/assign all its shares and interest in the petitioner "holding
companies" to DMCI, only proves that they were in fact not Filipino
corporations from the start. The recent divesting of interest by MBMI will
not change the stand of this Court with respect to the nationality of

petitioners prior the suspicious change in their corporate structures. The

new documents filed by petitioners are factual evidence that this Court has
no power to verify.
The only thing clear and proved in this Court is the fact that the OP
declared that petitioner corporations have violated several mining laws
and made misrepresentations and falsehood in their applications for FTAA
which lead to the revocation of the said FTAAs, demonstrating that
petitioners are not beyond going against or around the law using shifty
actions and strategies. Thus, in this instance, we can say that their claim of
mootness is moot in itself because their defense of conversion of MPSAs to
FTAAs has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners
nationality, whether Filipino or foreign. In their previous petitions, they had
been adamant in insisting that they were Filipino corporations, until they
submitted their Manifestation and Submission dated October 19, 2012
where they stated the alleged change of corporate ownership to reflect
their Filipino ownership. Thus, there is a need to determine the nationality
of petitioner corporations.
Basically, there are two acknowledged tests in determining the nationality
of a corporation: the control test and the grandfather rule. Paragraph 7 of
DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other laws pertaining
to the controlling interests in enterprises engaged in the exploitation of
natural resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital,
respectively, of which belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%, or say, 50% of the
capital stock or capital of the corporation or partnership, respectively,
belongs to Filipino citizens, only 50,000 shares shall be counted as owned
by Filipinos and the other 50,000 shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares
belonging to corporations or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be considered as of Philippine

30
nationality," pertains to the control test or the liberal rule. On the other
hand, the second part of the DOJ Opinion which provides, "if the
percentage of the Filipino ownership in the corporation or partnership is
less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality," pertains to the
stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in
advocating the application of the "control test" under RA 7042, as
amended by RA 8179, otherwise known as the Foreign Investments Act
(FIA), rather than using the stricter grandfather rule. The pertinent
provision under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the Philippines; or a
domestic partnership or association wholly owned by the citizens of the
Philippines; a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for
pension or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty percent (60%) of the fund
will accrue to the benefit of Philippine nationals: Provided, That were a
corporation and its non-Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise, at least sixty percent
(60%) of the capital stock outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of the Philippines and at
least sixty percent (60%) of the members of the Board of Directors, in
order that the corporation shall be considered a Philippine national.
(emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the
instant case since the definition of a "Philippine National" under Sec. 3 of
the FIA does not provide for it. They further claim that the grandfather rule
"has been abandoned and is no longer the applicable rule."41 They also
opined that the last portion of Sec. 3 of the FIA admits the application of a
"corporate layering" scheme of corporations. Petitioners claim that the
clear and unambiguous wordings of the statute preclude the court from
construing it and prevent the courts use of discretion in applying the law.
They said that the plain, literal meaning of the statute meant the
application of the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it
is used to circumvent the Constitution and pertinent laws, then it becomes
illegal. Further, the pronouncement of petitioners that the grandfather rule
has already been abandoned must be discredited for lack of basis.

Art. XII, Sec. 2 of the Constitution provides:

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum
and other mineral oils, all forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural resources are owned by
the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities,
or it may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law.
The President may enter into agreements with Foreign-owned corporations
involving either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by law, based on
real contributions to the economic growth and general welfare of the
country. In such agreements, the State shall promote the development and
use of local scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into
different types of agreements for the exploration, development, and
utilization of natural resources with entities who are deemed Filipino due to
60 percent ownership of capital is pertinent to this case, since the issues
are centered on the utilization of our countrys natural resources or
specifically, mining. Thus, there is a need to ascertain the nationality of
petitioners since, as the Constitution so provides, such agreements are
only allowed corporations or associations "at least 60 percent of such
capital is owned by such citizens." The deliberations in the Records of the
1986 Constitutional Commission shed light on how a citizenship of a
corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairmans interpretation of an
independent national economy is freedom from undue foreign control?
What is the meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices
national sovereignty and the welfare of the Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word
"undue"? Why not simply freedom from foreign control? I think that is the

31
meaning of independence, because as phrased, it still allows for foreign
control.

which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?

MR. VILLEGAS: It will now depend on the interpretation because if, for
example, we retain the 60/40 possibility in the cultivation of natural
resources, 40 percent involves some control; not total control, but some
control.

MR. VILLEGAS: Yes, that is the understanding of the Committee.

MR. BENNAGEN: In any case, I think in due time we will propose some
amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or
Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in
Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the question:
Where do we base the equity requirement, is it on the authorized capital
stock, on the subscribed capital stock, or on the paid-up capital stock of a
corporation? Will the Committee please enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the members of the
team from the UP Law Center who provided us with a draft. The phrase
that is contained here which we adopted from the UP draft is 60 percent of
the voting stock.
MR. NOLLEDO: That must be based on the subscribed capital stock,
because unless declared delinquent, unpaid capital stock shall be entitled
to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another corporation,
say, a corporation with 60-40 percent equity invests in another corporation

MR. NOLLEDO: Therefore, we need additional Filipino capital?

MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to
apply the grandfather rule in cases where corporate layering is present.
Elementary in statutory construction is when there is conflict between the
Constitution and a statute, the Constitution will prevail. In this instance,
specifically pertaining to the provisions under Art. XII of the Constitution on
National Economy and Patrimony, Sec. 3 of the FIA will have no place of
application. As decreed by the honorable framers of our Constitution, the
grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the
Filipino interest in a corporation for purposes, among others, of
determining compliance with nationality requirements (the Investee
Corporation). Such manner of computation is necessary since the shares
in the Investee Corporation may be owned both by individual stockholders
(Investing Individuals) and by corporations and partnerships (Investing
Corporation). The said rules thus provide for the determination of
nationality depending on the ownership of the Investee Corporation and, in
certain instances, the Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the
nationality of the Investee Corporation. The first case is the liberal rule,
later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, (s)hares belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality. Under the liberal Control Test, there is no need to
further trace the ownership of the 60% (or more) Filipino stockholdings of
the Investing Corporation since a corporation which is at least 60% Filipinoowned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, "but if the percentage of Filipino ownership in the corporation or

32
partnership is less than 60%, only the number of shares corresponding to
such percentage shall be counted as of Philippine nationality." Under the
Strict Rule or Grandfather Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be traced (i.e.,
"grandfathered") to determine the total percentage of Filipino ownership.

McArthur Mining, Inc.

To establish the actual ownership, interest or participation of MBMI in each
of petitioners corporate structure, they have to be "grandfathered."

Moreover, the ultimate Filipino ownership of the shares must first be traced
to the level of the Investing Corporation and added to the shares directly
owned in the Investee Corporation x x x.

As previously discussed, McArthur acquired its MPSA application from MMC,

which acquired its application from SMMI. McArthur has a capital stock of
ten million pesos (PhP 10,000,000) divided into 10,000 common shares at
one thousand pesos (PhP 1,000) per share, subscribed to by the
following:44

In other words, based on the said SEC Rule and DOJ Opinion, the
Grandfather Rule or the second part of the SEC Rule applies only when the
60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the
joint venture corporation with Filipino and foreign stockholders with less
than 60% Filipino stockholdings [or 59%] invests in other joint venture
corporation which is either 60-40% Filipino-alien or the 59% less Filipino).
Stated differently, where the 60-40 Filipino- foreign equity ownership is not
in doubt, the Grandfather Rule will not apply. (emphasis supplied)

Interestingly, looking at the corporate structure of MMC, we take note that

it has a similar structure and composition as McArthur. In fact, it would
seem that MBMI is also a major investor and "controls"45 MBMI and also,
similar nominal shareholders were present, i.e. Fernando B. Esguerra
(Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and
Kenneth Cawkell (Cawkell):

After a scrutiny of the evidence extant on record, the Court finds that this
case calls for the application of the grandfather rule since, as ruled by the
POA and affirmed by the OP, doubt prevails and persists in the corporate
ownership of petitioners. Also, as found by the CA, doubt is present in the
60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro,
since their common investor, the 100% Canadian corporationMBMI,
funded them. However, petitioners also claim that there is "doubt" only
when the stockholdings of Filipinos are less than 60%. 43
The assertion of petitioners that "doubt" only exists when the
stockholdings are less than 60% fails to convince this Court. DOJ Opinion
No. 20, which petitioners quoted in their petition, only made an example of
an instance where "doubt" as to the ownership of the corporation exists. It
would be ludicrous to limit the application of the said word only to the
instances where the stockholdings of non-Filipino stockholders are more
than 40% of the total stockholdings in a corporation. The corporations
interested in circumventing our laws would clearly strive to have "60%
Filipino Ownership" at face value. It would be senseless for these applying
corporations to state in their respective articles of incorporation that they
have less than 60% Filipino stockholders since the applications will be
denied instantly. Thus, various corporate schemes and layerings are
utilized to circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme
employed by stockholders to circumvent the law, creating a cloud of doubt
in the Courts mind. To determine, therefore, the actual participation, direct
or indirect, of MBMI, the grandfather rule must be used.

Madridejos Mining Corporation

Noticeably, Olympic Mines & Development Corporation (Olympic) did not
pay any amount with respect to the number of shares they subscribed to in
the corporation, which is quite absurd since Olympic is the major
stockholder in MMC. MBMIs 2006 Annual Report sheds light on why
Olympic failed to pay any amount with respect to the number of shares it
subscribed to. It states that Olympic entered into joint venture agreements
with several Philippine companies, wherein it holds directly and indirectly a
60% effective equity interest in the Olympic Properties. 46 Quoting the said
Annual report:
On September 9, 2004, the Company and Olympic Mines & Development
Corporation ("Olympic") entered into a series of agreements including a
Property Purchase and Development Agreement (the Transaction
Documents) with respect to three nickel laterite properties in Palawan,
Philippines (the "Olympic Properties"). The Transaction Documents
effectively establish a joint venture between the Company and Olympic for
purposes of developing the Olympic Properties. The Company holds
directly and indirectly an initial 60% interest in the joint venture. Under
certain circumstances and upon achieving certain milestones, the
Company may earn up to a 100% interest, subject to a 2.5% net revenue
royalty.47 (emphasis supplied)
Thus, as demonstrated in this first corporation, McArthur, when it is
"grandfathered," company layering was utilized by MBMI to gain control
over McArthur. It is apparent that MBMI has more than 60% or more equity
interest in McArthur, making the latter a foreign corporation.

33
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a capital stock
of ten million pesos (PhP 10,000,000) divided into ten thousand (10,000)
common shares at PhP 1,000 per share, as demonstrated below:
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]
Except for the name "Sara Marie Mining, Inc.," the table above shows
exactly the same figures as the corporate structure of petitioner McArthur,
down to the last centavo. All the other shareholders are the same: MBMI,
Salazar, Esguerra, Agcaoili, Mason and Cawkell. The figures under
"Nationality," "Number of Shares," "Amount Subscribed," and "Amount
Paid" are exactly the same. Delving deeper, we scrutinize SMMIs corporate
structure:
Sara Marie Mining, Inc.
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]
After subsequently studying SMMIs corporate structure, it is not farfetched
for us to spot the glaring similarity between SMMI and MMCs corporate
structure. Again, the presence of identical stockholders, namely: Olympic,
MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando, Mason and
Cawkell. The figures under the headings "Nationality," "Number of Shares,"
"Amount Subscribed," and "Amount Paid" are exactly the same except for
the amount paid by MBMI which now reflects the amount of two million
seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly, the
total value of the amount paid is two million eight hundred nine thousand
nine hundred pesos (PhP 2,809,900).
Accordingly, after "grandfathering" petitioner Tesoro and factoring in
Olympics participation in SMMIs corporate structure, it is clear that MBMI
is in control of Tesoro and owns 60% or more equity interest in Tesoro. This
makes petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it
to participate in the exploitation, utilization and development of our natural
resources.
Narra Nickel Mining and Development Corporation
Moving on to the last petitioner, Narra, which is the transferee and
assignee of PLMDCs MPSA application, whose corporate structures
arrangement is similar to that of the first two petitioners discussed. The

capital stock of Narra is ten million pesos (PhP 10,000,000), which is

divided into ten thousand common shares (10,000) at one thousand pesos
(PhP 1,000) per share, shown as follows:
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]
Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili
and Esguerra, is present in this corporate structure.
Patricia Louise Mining & Development Corporation
Using the grandfather method, we further look and examine PLMDCs
corporate structure:
Yet again, the usual players in petitioners corporate structures are present.
Similarly, the amount of money paid by the 2nd tier majority stock holder,
in this case, Palawan Alpha South Resources and Development Corp.
(PASRDC), is zero.
Studying MBMIs Summary of Significant Accounting Policies dated October
31, 2005 explains the reason behind the intricate corporate layering that
MBMI immersed itself in:
JOINT VENTURES The Companys ownership interests in various mining
ventures engaged in the acquisition, exploration and development of
mineral properties in the Philippines is described as follows:
(a) Olympic Group
The Philippine companies holding the Olympic Property, and the ownership
and interests therein, are as follows:
Olympic- Philippines (the "Olympic Group")
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Pursuant to the Olympic joint venture agreement the Company holds
directly and indirectly an effective equity interest in the Olympic Property
of 60.0%. Pursuant to a shareholders agreement, the Company exercises
joint control over the companies in the Olympic Group.

34
(b) Alpha Group
The Philippine companies holding the Alpha Property, and the ownership
interests therein, are as follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Under a joint venture agreement the Company holds directly and indirectly
an effective equity interest in the Alpha Property of 60.4%. Pursuant to a
shareholders agreement, the Company exercises joint control over the
companies in the Alpha Group.48 (emphasis supplied)

against such party after the partnership or agency is shown by evidence

other than such act or declaration itself. The same rule applies to the act or
declaration of a joint owner, joint debtor, or other person jointly interested
with the party.
Sec. 31. Admission by privies.- Where one derives title to property from
another, the act, declaration, or omission of the latter, while holding the
title, in relation to the property, is evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a
case, "the partnership relation must be shown, and that proof of the fact
must be made by evidence other than the admission itself."49 Thus,
petitioners assert that the CA erred in finding that a partnership
relationship exists between them and MBMI because, in fact, no such
partnership exists.
Partnerships vs. joint venture agreements

Concluding from the above-stated facts, it is quite safe to say that

petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100%
Canadian corporation, owns 60% or more of their equity interests. Such
conclusion is derived from grandfathering petitioners corporate owners,
namely: MMI, SMMI and PLMDC. Going further and adding to the picture,
MBMIs Summary of Significant Accounting Policies statement regarding
the "joint venture" agreements that it entered into with the "Olympic" and
"Alpha" groupsinvolves SMMI, Tesoro, PLMDC and Narra. Noticeably, the
ownership of the "layered" corporations boils down to MBMI, Olympic or
corporations under the "Alpha" group wherein MBMI has joint venture
agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure
or the underlying relationships between and among the corporations,
petitioners are NOT Filipino nationals and must be considered foreign since
60% or more of their capital stocks or equity interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CAs use of the exception of the res inter alios acta
or the "admission by co-partner or agent" rule and "admission by privies"
under the Rules of Court in the instant case, by pointing out that
statements made by MBMI should not be admitted in this case since it is
not a party to the case and that it is not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of a
partner or agent of the party within the scope of his authority and during
the existence of the partnership or agency, may be given in evidence

Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the
Rules by stating that "by entering into a joint venture, MBMI have a joint
interest" with Narra, Tesoro and McArthur. They challenged the conclusion
of the CA which pertains to the close characteristics of
"partnerships" and "joint venture agreements." Further, they asserted that
before this particular partnership can be formed, it should have been
formally reduced into writing since the capital involved is more than three
thousand pesos (PhP 3,000). Being that there is no evidence of written
agreement to form a partnership between petitioners and MBMI, no
partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to
contribute money, property, or industry to a common fund with the
intention of dividing the profits among themselves.50 On the other hand,
joint ventures have been deemed to be "akin" to partnerships since it is
difficult to distinguish between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their
association are so similar and closely akin to a partnership that it is
ordinarily held that their rights, duties, and liabilities are to be tested by
rules which are closely analogous to and substantially the same, if not
exactly the same, as those which govern partnership. In fact, it has been
said that the trend in the law has been to blur the distinctions between a
partnership and a joint venture, very little law being found applicable to
one that does not apply to the other.51

35
Though some claim that partnerships and joint ventures are totally
different animals, there are very few rules that differentiate one from the
other; thus, joint ventures are deemed "akin" or similar to a partnership. In
fact, in joint venture agreements, rules and legal incidents governing
partnerships are applied.52
Accordingly, culled from the incidents and records of this case, it can be
assumed that the relationships entered between and among petitioners
and MBMI are no simple "joint venture agreements." As a rule, corporations
are prohibited from entering into partnership agreements; consequently,
corporations enter into joint venture agreements with other corporations or
partnerships for certain transactions in order to form "pseudo
partnerships."
Obviously, as the intricate web of "ventures" entered into by and among
petitioners and MBMI was executed to circumvent the legal prohibition
against corporations entering into partnerships, then the relationship
created should be deemed as "partnerships," and the laws on partnership
should be applied. Thus, a joint venture agreement between and among
corporations may be seen as similar to partnerships since the elements of
partnership are present.
Considering that the relationships found between petitioners and MBMI are
considered to be partnerships, then the CA is justified in applying Sec. 29,
Rule 130 of the Rules by stating that "by entering into a joint venture,
MBMI have a joint interest" with Narra, Tesoro and McArthur.
Panel of Arbitrators jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction
over the instant case. The POA has jurisdiction to settle disputes over
rights to mining areas which definitely involve the petitions filed by
Redmont against petitioners Narra, McArthur and Tesoro. Redmont, by filing
its petition against petitioners, is asserting the right of Filipinos over mining
areas in the Philippines against alleged foreign-owned mining corporations.
Such claim constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the parties for
the decision, the panel shall have exclusive and original jurisdiction to hear
and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits

We held in Celestial Nickel Mining Exploration Corporation v. Macroasia

Corp.:53
The phrase "disputes involving rights to mining areas" refers to any
adverse claim, protest, or opposition to an application for mineral
agreement. The POA therefore has the jurisdiction to resolve any adverse
claim, protest, or opposition to a pending application for a mineral
agreement filed with the concerned Regional Office of the MGB. This is
clear from Secs. 38 and 41 of the DENR AO 96-40, which provide:
Sec. 38.
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the authorized officer(s) of the
concerned office(s) shall issue a certification(s) that the
publication/posting/radio announcement have been complied with. Any
adverse claim, protest, opposition shall be filed directly, within thirty (30)
calendar days from the last date of publication/posting/radio
announcement, with the concerned Regional Office or through any
concerned PENRO or CENRO for filing in the concerned Regional Office for
purposes of its resolution by the Panel of Arbitrators pursuant to the
provisions of this Act and these implementing rules and regulations. Upon
final resolution of any adverse claim, protest or opposition, the Panel of
Arbitrators shall likewise issue a certification to that effect within five (5)
working days from the date of finality of resolution thereof. Where there is
no adverse claim, protest or opposition, the Panel of Arbitrators shall
likewise issue a Certification to that effect within five working days
therefrom.
No Mineral Agreement shall be approved unless the requirements under
this Section are fully complied with and any adverse
claim/protest/opposition is finally resolved by the Panel of Arbitrators.
Sec. 41.
Within fifteen (15) working days form the receipt of the Certification issued
by the Panel of Arbitrators as provided in Section 38 hereof, the concerned
Regional Director shall initially evaluate the Mineral Agreement
applications in areas outside Mineral reservations. He/She shall thereafter
endorse his/her findings to the Bureau for further evaluation by the
Director within fifteen (15) working days from receipt of forwarded
documents. Thereafter, the Director shall endorse the same to the
secretary for consideration/approval within fifteen working days from
receipt of such endorsement.

36
In case of Mineral Agreement applications in areas with Mineral
Reservations, within fifteen (15) working days from receipt of the
Certification issued by the Panel of Arbitrators as provided for in Section 38
hereof, the same shall be evaluated and endorsed by the Director to the
Secretary for consideration/approval within fifteen days from receipt of
such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the "disputes
involving rights to mining areas" under Sec. 77(a) specifically refer only to
those disputes relative to the applications for a mineral agreement or
conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a
mining right application is further elucidated by Secs. 219 and 43 of DENR
AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding
the provisions of Sections 28, 43 and 57 above, any adverse claim, protest
or opposition specified in said sections may also be filed directly with the
Panel of Arbitrators within the concerned periods for filing such claim,
protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.The Regional Director or concerned Regional Director shall also cause the
posting of the application on the bulletin boards of the Bureau, concerned
Regional office(s) and in the concerned province(s) and municipality(ies),
copy furnished the barangays where the proposed contract area is located
once a week for two (2) consecutive weeks in a language generally
understood in the locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim, protest or
opposition was filed within the said forty-five (45) days, the concerned
offices shall issue a certification that publication/posting has been made
and that no adverse claim, protest or opposition of whatever nature has
been filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the last
date of publication/posting, with the Regional Offices concerned, or
through the Departments Community Environment and Natural Resources
Officers (CENRO) or Provincial Environment and Natural Resources Officers
(PENRO), to be filed at the Regional Office for resolution of the Panel of
Arbitrators. However previously published valid and subsisting mining
claims are exempted from posted/posting required under this Section.

No mineral agreement shall be approved unless the requirements under

this section are fully complied with and any opposition/adverse claim is
dealt with in writing by the Director and resolved by the Panel of
Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the "disputes
involving rights to mining areas" under Sec. 77(a) specifically refer only to
those disputes relative to the applications for a mineral agreement or
conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a
mining right application is further elucidated by Secs. 219 and 43 of
DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding
the provisions of Sections 28, 43 and 57 above, any adverse claim, protest
or opposition specified in said sections may also be filed directly with the
Panel of Arbitrators within the concerned periods for filing such claim,
protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.The Regional Director or concerned Regional Director shall also cause the
posting of the application on the bulletin boards of the Bureau, concerned
Regional office(s) and in the concerned province(s) and municipality(ies),
copy furnished the barangays where the proposed contract area is located
once a week for two (2) consecutive weeks in a language generally
understood in the locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim, protest or
opposition was filed within the said forty-five (45) days, the concerned
offices shall issue a certification that publication/posting has been made
and that no adverse claim, protest or opposition of whatever nature has
been filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the last
date of publication/posting, with the Regional offices concerned, or through
the Departments Community Environment and Natural Resources Officers
(CENRO) or Provincial Environment and Natural Resources Officers
(PENRO), to be filed at the Regional Office for resolution of the Panel of
Arbitrators. However, previously published valid and subsisting mining
claims are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under
this section are fully complied with and any opposition/adverse claim is
dealt with in writing by the Director and resolved by the Panel of
Arbitrators. (Emphasis supplied.)

37
These provisions lead us to conclude that the power of the POA to resolve
any adverse claim, opposition, or protest relative to mining rights under
Sec. 77(a) of RA 7942 is confined only to adverse claims, conflicts and
oppositions relating to applications for the grant of mineral rights.

x x x Within thirty (30) days, after the submission of the case by

the parties for the decision, the panel shall have exclusive and
original jurisdiction to hear and decide the following:
(c) Disputes involving rights to mining areas

POAs jurisdiction is confined only to resolutions of such adverse claims,

conflicts and oppositions and it has no authority to approve or reject said
applications. Such power is vested in the DENR Secretary upon
recommendation of the MGB Director. Clearly, POAs jurisdiction over
"disputes involving rights to mining areas" has nothing to do with the
cancellation of existing mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably has
jurisdiction to resolve disputes over MPSA applications subject of
Redmonts petitions. However, said jurisdiction does not include either the
approval or rejection of the MPSA applications, which is vested only upon
the Secretary of the DENR. Thus, the finding of the POA, with respect to the
rejection of petitioners MPSA applications being that they are foreign
corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the
regular courts, not the POA, that has jurisdiction over the MPSA
applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute in
force at the time of the commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization

(d) Disputes involving mineral agreements or permits

It is clear that POA has exclusive and original jurisdiction over any and all
disputes involving rights to mining areas. One such dispute is an MPSA
application to which an adverse claim, protest or opposition is filed by
another interested applicant.1wphi1 In the case at bar, the dispute arose
or originated from MPSA applications where petitioners are asserting their
rights to mining areas subject of their respective MPSA applications. Since
respondent filed 3 separate petitions for the denial of said applications,
then a controversy has developed between the parties and it is POAs
jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while what
petitioners filed with the DENR Regional Office or any concerned DENRE or
CENRO are MPSA applications. Thus POA has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications under the
doctrine of primary jurisdiction. Euro-med Laboratories v. Province of
Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that its
determination requires the expertise, specialized training and knowledge of
an administrative body, relief must first be obtained in an administrative
proceeding before resort to the courts is had even if the matter may well
be within their proper jurisdiction.

Act of 1980" reads:

Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall exercise
exclusive original jurisdiction:

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

1. In all civil actions in which the subject of the litigation is incapable of

pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of
RA 7942:
Section 77. Panel of Arbitrators.

As stated before, petitioners Manifestation and Submission dated October

19, 2012 would want us to declare the instant petition moot and academic
due to the transfer and conveyance of all the shareholdings and interests
of MBMI to DMCI, a corporation duly organized and existing under
Philippine laws and is at least 60% Philippine-owned. 56 Petitioners reasoned
that they now cannot be considered as foreign-owned; the transfer of their
shares supposedly cured the "defect" of their previous nationality. They
claimed that their current FTAA contract with the State should stand since

38
"even wholly-owned foreign corporations can enter into an FTAA with the
State."57Petitioners stress that there should no longer be any issue left as
regards their qualification to enter into FTAA contracts since they are
qualified to engage in mining activities in the Philippines. Thus, whether
the "grandfather rule" or the "control test" is used, the nationalities of
petitioners cannot be doubted since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any bearing in
the instant case and said fact should be disregarded. The manifestation
can no longer be considered by us since it is being tackled in G.R. No.
202877 pending before this Court.1wphi1 Thus, the question of whether
petitioners, allegedly a Philippine-owned corporation due to the sale of
MBMI's shareholdings to DMCI, are allowed to enter into FTAAs with the
State is a non-issue in this case.
In ending, the "control test" is still the prevailing mode of determining
whether or not a corporation is a Filipino corporation, within the ambit of
Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the
exploration, development and utilization of the natural resources of the
Philippines. When in the mind of the Court there is doubt, based on the
attendant facts and circumstances of the case, in the 60-40 Filipino-equity
ownership in the corporation, then it may apply the "grandfather rule."
WHEREFORE, premises considered, the instant petition is DENIED. The
assailed Court of Appeals Decision dated October 1, 2010 and Resolution
dated February 15, 2011 are hereby AFFIRMED.
SO ORDERED.
FACTS:
Sometime in December 2006, respondent Redmont Consolidated Mines
Corp. (Redmont), a domestic corporation organized and existing under
Philippine laws, took interest in mining and exploring certain areas of the
province of Palawan. After inquiring with the Department of Environment
and Natural Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by
Mineral Production Sharing Agreement (MPSA) applications of petitioners
Narra, Tesoro and McArthur. Petitioner McArthur Narra and Tesoro, filed an
application for an MPSA and Exploration Permit (EP) which was
subsequently issued. On January 2, 2007, Redmont filed before the Panel of
Arbitrators (POA) of the DENR three (3) separate petitions for the denial of
petitioners applications for MPSA. Redmont alleged that at least 60% of
the capital stock of McArthur, Tesoro and Narra are owned and controlled
by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont

reasoned that since MBMI is a considerable stockholder of petitioners, it

was the driving force behind petitioners filing of the MPSAs over the areas
covered by applications since it knows that it can only participate in mining
activities through corporations which are deemed Filipino citizens. Redmont
argued that given that petitioners capital stocks were mostly owned by
MBMI, they were likewise disqualified from engaging in mining activities
through MPSAs, which are reserved only for Filipino citizens.
Petitioners averred that they were qualified persons under Section 3(aq) of
Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995. They
stated that their nationality as applicants is immaterial because they also
applied for Financial or Technical Assistance Agreements (FTAA)
denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and
AFTA-IVB-07 for Narra, which are granted to foreign-owned corporations.
Nevertheless, they claimed that the issue on nationality should not be
raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as
60% of their capital is owned by citizens of the Philippines. On December
14, 2007, the POA issued a Resolution disqualifying petitioners from
gaining MPSAs. The POA considered petitioners as foreign corporations
being "effectively controlled" by MBMI, a 100% Canadian company and
declared their MPSAs null and void. Pending the resolution of the appeal
filed by petitioners with the MAB, Redmont filed a Complaint with the
Securities and Exchange Commission (SEC), seeking the revocation of the
certificates for registration of petitioners on the ground that they are
foreign-owned or controlled corporations engaged in mining in violation of
Philippine laws. CA found that there was doubt as to the nationality of
petitioners when it realized that petitioners had a common major investor,
MBMI, a corporation composed of 100% Canadians. Pursuant to the first
sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020,
Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the
exploitation of natural resources, the CA used the "grandfather rule" to
determine the nationality of petitioners.
In determining the nationality of petitioners, the CA looked into their
corporate structures and their corresponding common shareholders.
Using the grandfather rule, the CA discovered that MBMI in effect owned
majority of the common stocks of the petitioners as well as at least 60%
equity interest of other majority shareholders of petitioners through joint
venture agreements. The CA found that through a "web of corporate
layering, it is clear that one common controlling investor in all mining
corporations involved x x x is MBMI."

39
Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in
partnership with, or privies-in-interest of, MBMI.

ISSUE: Whether or not the Court of Appeals ruling that Narra, Tesoro and
McArthur are foreign corporations based on the "Grandfather Rule" is
contrary to law, particularly the express mandate of the Foreign
Investments Act of 1991, as amended, and the FIA Rules.
HELD:
No. There are two acknowledged tests in determining the nationality of a
corporation: the control test and the grandfather rule. Paragraph 7 of DOJ
Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other laws pertaining
to the controlling interests in enterprises engaged in the exploitation of
natural resources owned by Filipino citizens, provides: Shares belonging to
corporations or partnerships at least 60% of the capital of which is owned
by Filipino citizens shall be considered as of Philippine nationality
(CONTROL TEST), but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine
nationality (GRANDFATHER RULE). Thus, if 100,000 shares are registered
in the name of a corporation or partnership at least 60% of the capital
stock or capital, respectively, of which belong to Filipino citizens, all of the
shares shall be recorded as owned by Filipinos. But if less than 60%, or say,
50% of the capital stock or capital of the corporation or partnership,
respectively, belongs to Filipino citizens, only 50,000 shares shall be
counted as owned by Filipinos and the other 50,000 shall be recorded as
belonging to aliens. The grandfather rule, petitioners reasoned, has no leg
to stand on in the instant case since the definition of a "Philippine National"
under Sec. 3 of the FIA does not provide for it. They further claim that the
grandfather rule "has been abandoned and is no longer the applicable
rule." They also opined that the last portion of Sec. 3 of the FIA admits the
application of a "corporate layering" scheme of corporations. Petitioners
claim that the clear and unambiguous wordings of the statute preclude the
court from construing it and prevent the courts use of discretion in
applying the law. They said that the plain, literal meaning of the statute
meant the application of the control test is obligatory. SC disagreed.
"Corporate layering" is admittedly allowed by the FIA; but if it is used to
circumvent the Constitution and pertinent laws, then it becomes illegal.
Further, the pronouncement of petitioners that the grandfather rule has

already been abandoned must be discredited for lack of basis. Petitioners

McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is
derived from grandfatheringpetitioners corporate owners, namely: MMI,
SMMI and PLMDC.
The "control test" is still the prevailing mode of determining whether or
not a corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II
of the 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines.
When in the mind of the Court there is doubt, based on the attendant facts
and circumstances of the case, in the 60-40 Filipino-equity ownership in
the corporation, then it may apply the "grandfather rule."
Application of the Grandfather Rule. Based on the said SEC Rule and DOJ
Opinion, the Grandfather Rule or the second part of the SEC Rule applies
only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in
cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%] invests in
other joint venture corporation which is either 60-40% Filipino-alien or the
59% less Filipino). Stated differently, where the 60-40 Filipino- foreign
equity ownership is not in doubt, the Grandfather Rule will not apply.

40
FIRST DIVISION
[G.R. No. 137592. December 12, 2001]
ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K.
SA BANSANG PILIPINAS, INC. petitioner, vs. IGLESIA NG
DIOS
KAY
CRISTO
JESUS,
HALIGI
AT
SUHAY
NG
KATOTOHANAN, respondent.
DECISION

On March 2, 1994, respondent corporation filed before the SEC a

petition, docketed as SEC Case No. 03-94-4704, praying that petitioner be
compelled to change its corporate name and be barred from using the
same or similar name on the ground that the same causes confusion
among their members as well as the public.
Petitioner filed a motion to dismiss on the ground of lack of cause of
action. The motion to dismiss was denied. Thereafter, for failure to file an
answer, petitioner was declared in default and respondent was allowed to
present its evidence ex parte.

YNARES-SANTIAGO, J.:
This is a petition for review assailing the Decision dated October 7,
1997[1] and the Resolution dated February 16, 1999 [2] of the Court of
Appeals in CA-G.R. SP No. 40933, which affirmed the Decision of the
Securities and Exchange and Commission (SEC) in SEC-AC No. 539. [3]
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng
Katotohanan (Church of God in Christ Jesus, the Pillar and Ground of Truth),
[4]
is a non-stock religious society or corporation registered in
1936. Sometime in 1976, one Eliseo Soriano and several other members of
respondent corporation disassociated themselves from the latter and
succeeded in registering on March 30, 1977 a new non-stock religious
society or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at
Saligan ng Katotohanan.
On July 16, 1979, respondent corporation filed with the SEC a petition
to compel the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan to change its corporate name, which petition was docketed as
SEC Case No. 1774. On May 4, 1988, the SEC rendered judgment in favor
of respondent, ordering the Iglesia ng Dios Kay Kristo Hesus, Haligi at
Saligan ng Katotohanan to change its corporate name to another name
that is not similar or identical to any name already used by a corporation,
partnership or association registered with the Commission. [5] No appeal
was taken from said decision.
It appears that during the pendency of SEC Case No. 1774, Soriano, et
al., caused the registration on April 25, 1980 of petitioner
corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K., sa
Bansang Pilipinas. The acronym H.S.K. stands for Haligi at Saligan ng
Katotohanan.[6]

On November 20, 1995, the SEC rendered a decision ordering

petitioner to change its corporate name. The dispositive portion thereof
reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the
petitioner (respondent herein).
Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo Jesus (sic), H.S.K. sa
Bansang Pilipinas (petitioner herein) is hereby MANDATED to change its
corporate name to another not deceptively similar or identical to the
same already used by the Petitioner, any corporation, association,
and/or partnership presently registered with the Commission.
Let a copy of this Decision be furnished the Records Division and
the Corporate and Legal Department [CLD] of this Commission for
their records, reference and/or for whatever requisite action, if any, to be
undertaken at their end.
SO ORDERED.[7]
Petitioner appealed to the SEC En Banc, where its appeal was
docketed as SEC-AC No. 539. In a decision dated March 4, 1996, the
SEC En Banc affirmed the above decision, upon a finding that petitioner's
corporate name was identical or confusingly or deceptively similar to that
of respondents corporate name.[8]
Petitioner filed a petition for review with the Court of Appeals. On
October 7, 1997, the Court of Appeals rendered the assailed decision
affirming the decision of the SEC En Banc. Petitioners motion for
reconsideration was denied by the Court of Appeals on February 16, 1992.

41
Hence, the instant
assignment of errors:

petition

for

review,

raising

the

following

I
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT
PETITIONER HAS NOT BEEN DEPRIVED OF ITS RIGHT TO PROCEDURAL
DUE PROCESS, THE HONORABLE COURT OF APPEALS DISREGARDED
THE JURISPRUDENCE APPLICABLE TO THE CASE AT BAR AND INSTEAD
RELIED ON TOTALLY INAPPLICABLE JURISPRUDENCE.
II
THE HONORABLE COURT OF APPEALS ERRED IN ITS INTEPRETATION OF
THE CIVIL CODE PROVISIONS ON EXTINCTIVE PRESCRIPTION, THEREBY
RESULTING IN ITS FAILURE TO FIND THAT THE RESPONDENT'S RIGHT
OF ACTION TO INSTITUTE THE SEC CASE HAS SINCE PRESCRIBED
PRIOR TO ITS INSTITUTION.
III
THE HONORABLE COURT OF APPEALS FAILED TO CONSIDER AND
PROPERLY APPLY THE EXCEPTIONS ESTABLISHED BY JURISPRUDENCE
IN THE APPLICATION OF SECTION 18 OF THE CORPORATION CODE TO
THE INSTANT CASE.
IV
THE HONORABLE COURT OF APPEALS FAILED TO PROPERLY
APPRECIATE THE SCOPE OF THE CONSTITUTIONAL GUARANTEE ON
RELIGIOUS FREEDOM, THEREBY FAILING TO APPLY THE SAME TO
PROTECT PETITIONERS RIGHTS.[9]
Invoking the case of Legarda v. Court of Appeals,[10] petitioner insists
that the decision of the Court of Appeals and the SEC should be set aside
because the negligence of its former counsel of record, Atty. Joaquin
Garaygay, in failing to file an answer after its motion to dismiss was denied
by the SEC, deprived them of their day in court.
The contention is without merit. As a general rule, the negligence of
counsel binds the client. This is based on the rule that any act performed

by a lawyer within the scope of his general or implied authority is regarded

as an act of his client. [11] An exception to the foregoing is where the
reckless or gross negligence of the counsel deprives the client of due
process of law.[12] Said exception, however, does not obtain in the present
case.
In Legarda v. Court of Appeals, the effort of the counsel in defending
his clients cause consisted in filing a motion for extension of time to file
answer before the trial court. When his client was declared in default, the
counsel did nothing and allowed the judgment by default to become final
and executory. Upon the insistence of his client, the counsel filed a petition
to annul the judgment with the Court of Appeals, which denied the petition,
and again the counsel allowed the denial to become final and
executory. This Court found the counsel grossly negligent and consequently
declared as null and void the decision adverse to his client.
The factual antecedents of the case at bar are different. Atty.
Garaygay filed before the SEC a motion to dismiss on the ground of lack of
cause of action. When his client was declared in default for failure to file an
answer, Atty. Garaygay moved for reconsideration and lifting of the order
of default.[13] After judgment by default was rendered against petitioner
corporation, Atty. Garaygay filed a motion for extension of time to
appeal/motion for reconsideration, and thereafter a motion to set aside the
decision.[14]
Evidently,
Atty.
Garaygay
was
only
guilty
of
simple
negligence. Although he failed to file an answer that led to the rendition of
a judgment by default against petitioner, his efforts were palpably real,
albeit bereft of zeal.[15]
Likewise, the issue of prescription, which petitioner raised for the first
time on appeal to the Court of Appeals, is untenable. Its failure to raise
prescription before the SEC can only be construed as a waiver of that
defense.[16] At any rate, the SEC has the authority to de-register at all times
and under all circumstances corporate names which in its estimation are
likely to spawn confusion. It is the duty of the SEC to prevent confusion in
the use of corporate names not only for the protection of the corporations
involved but more so for the protection of the public.[17]
Section 18 of the Corporation Code provides:

42
Corporate Name. --- No corporate name may be allowed by the Securities
and Exchange Commission if the proposed name is identical or deceptively
or confusingly similar to that of any existing corporation or to any other
name already protected by law or is patently deceptive, confusing or is
contrary to existing laws. When a change in the corporate name is
approved, the Commission shall issue an amended certificate of
incorporation under the amended name.

Then, too, the records reveal that in holding out their corporate name
to the public, petitioner highlights the dominant words IGLESIA NG DIOS
KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN, which is
strikingly similar to respondent's corporate name, thus making it even
more evident that the additional words Ang Mga Kaanib and Sa Bansang
Pilipinas, Inc., are merely descriptive of and pertaining to the members of
respondent corporation.[21]

Corollary thereto, the pertinent portion of the SEC Guidelines on

Corporate Names states:

Significantly, the only difference between the corporate names of

petitioner and respondent are the words SALIGAN and SUHAY. These words
are synonymous --- both mean ground, foundation or support. Hence, this
case is on all fours with Universal Mills Corporation v. Universal Textile
Mills, Inc.,[22] where the Court ruled that the corporate names Universal
Mills Corporation and Universal Textile Mills, Inc., are undisputably so
similar that even under the test of reasonable care and observation
confusion may arise.

(d) If the proposed name contains a word similar to a word already used as
part of the firm name or style of a registered company, the proposed name
must contain two other words different from the name of the company
already registered;
Parties organizing a corporation must choose a name at their peril;
and the use of a name similar to one adopted by another corporation,
whether a business or a nonprofit organization, if misleading or likely to
injure in the exercise of its corporate functions, regardless of intent, may
be prevented by the corporation having a prior right, by a suit for
injunction against the new corporation to prevent the use of the name. [18]
Petitioner claims that it complied with the aforecited SEC guideline by
adding not only two but eight words to their registered name, to wit: Ang
Mga Kaanib" and "Sa Bansang Pilipinas, Inc., which, petitioner argues,
effectively distinguished it from respondent corporation.
The additional words Ang Mga Kaanib and Sa Bansang Pilipinas, Inc. in
petitioners name are, as correctly observed by the SEC, merely descriptive
of and also referring to the members, or kaanib, of respondent who are
likewise residing in the Philippines. These words can hardly serve as an
effective differentiating medium necessary to avoid confusion or difficulty
in distinguishing petitioner from respondent. This is especially so, since
both petitioner and respondent corporations are using the same acronym
--- H.S.K.;[19] not to mention the fact that both are espousing religious
beliefs and operating in the same place. Parenthetically, it is well to
mention that the acronym H.S.K. used by petitioner stands for Haligi at
Saligan ng Katotohanan.[20]

Furthermore, the wholesale appropriation by petitioner of

respondent's corporate name cannot find justification under the generic
word rule. We agree with the Court of Appeals conclusion that a contrary
ruling would encourage other corporations to adopt verbatim and register
an existing and protected corporate name, to the detriment of the public.
The fact that there are other non-stock religious societies or
corporations using the names Church of the Living God, Inc., Church of God
Jesus Christ the Son of God the Head, Church of God in Christ & By the Holy
Spirit, and other similar names, is of no consequence. It does not authorize
the use by petitioner of the essential and distinguishing feature of
respondent's registered and protected corporate name.[23]
We need not belabor the fourth issue raised by petitioner. Certainly,
ordering petitioner to change its corporate name is not a violation of its
constitutionally guaranteed right to religious freedom. In so doing, the SEC
merely compelled petitioner to abide by one of the SEC guidelines in the
approval of partnership and corporate names, namely its undertaking to
manifest its willingness to change its corporate name in the event another
person, firm, or entity has acquired a prior right to the use of the said firm
name or one deceptively or confusingly similar to it.
WHEREFORE, in view of all the foregoing, the instant petition for
review is DENIED. The appealed decision of the Court of Appeals is
AFFIRMED in toto.

43
SO ORDERED.

Ang Mga Kaanib vs. Iglesia (December 12, 2001)

FACTS:
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng
Katotohanan (Church of God in Christ Jesus, the Pillar and Ground of Truth),
is a non-stock religious society or corporation registered in 1936.
Sometime in 1976, one Eliseo Soriano and several other members of
respondent corporation disassociated themselves from the latter and
succeeded in registering on March 30, 1977 a new non-stock religious
society or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at
Saligan ng Katotohanan. Respondent corporation filed with the SEC a
petition to compel the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan to change its corporate name to another name that is not
similar or identical to any name already used by a corporation, partnership
or association registered with the Commission. Petitioner is compelled to
change its corporate name and be barred from using the same or similar
name on the ground that the same causes confusion among their members
as well as the public. SEC rendered a decision ordering petitioner to
change its corporate name. The Court of Appeals rendered the assailed
decision affirming the decision of the SEC En Banc.
ISSUE: Whether the court of appeals failed to properly appreciate the
scope of the constitutional guarantee on religious freedom

RULING:
The additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in
petitioner's name are, as correctly observed by the SEC, merely descriptive
of and also referring to the members, or kaanib, of respondent who are
likewise residing in the Philippines. These words can hardly serve as an
effective differentiating medium necessary to avoid confusion or difficulty
in distinguishing petitioner from respondent. This is especially so, since
both petitioner and respondent corporations are using the same acronym
H.S.K.; not to mention the fact that both are espousing religious beliefs
and operating in the same place. The fact that there are other non-stock
religious societies or corporations using the names Church of the Living

God, Inc., Church of God Jesus Christ the Son of God the Head, Church of
God in Christ & By the Holy Spirit, and other similar names, is of no
consequence. It does not authorize the use by petitioner of the essential
and distinguishing feature of respondent's registered and protected
corporate name. Ordering petitioner to change its corporate name is not a
violation of its constitutionally guaranteed right to religious freedom. In so
doing, the SEC merely compelled petitioner to abide by one of the SEC
guidelines in the approval of partnership and corporate names, namely its
undertaking to manifest its willingness to change its corporate name in the
event another person, firm, or entity has acquired a prior right to the use of
the said firm name or one deceptively or confusingly similar to it. The
instant petition for review is DENIED. The appealed decision of the Court of
Appeals is AFFIRMED in toto.

44
Facts:
The Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (IDCJHSK; Church of God in Christ Jesus, the Pillar and Ground of Truth), is a nonstock religious society or corporation registered in1936. Sometime in 1976,
one Eliseo Soriano and several other members of said corporation
disassociated themselves from the latter and succeeded in registering on
30 March 1977 a new non-stock religious society or corporation, named
Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan (IDKJHSK). On16 July 1979, IDCJ-HSK filed with the SEC a petition to compel
IDKJ-HSK to change its corporate name(SEC Case 1774). On 4 May 1988,
the SEC rendered judgment in favor of IDCJ-HSK, ordering IDKJ-HSK to
change its corporate name to another name that is not similar or identical
to any name already used by a corporation, partnership or association
registered with the Commission. No appeal was taken from said decision.
During the pendency of SEC Case 1774, Soriano, et al., caused the
registration on 25 April 1980 of Ang MgaKaanib sa Iglesia ng Dios Kay
Kristo Hesus, H.S.K, sa Bansang Pilipinas (AK[IDKH-HSK]BP). The acronym
"H.S.K." stands for Haligi at Saligan ng Katotohanan. On 2 March 1994,
IDCJ-HSK filed before the SEC a petition (SEC Case 03-94-4704), praying
that AK[IDKH-HSK]BP be compelled to change its corporate name and be
barred from using the same or similar name on the ground that the same
causes confusion among their members as well as the public. KIDKH-HSKBP filed a motion to dismiss on the ground of lack of cause of action. The
motion to dismiss was denied. Thereafter, for failure to file an answer,
AK[IDKH-HSK]BP was declared in default and IDCJ-HSK was allowed to
present its evidence ex parte. On20 November 1995, the SEC rendered a
decision ordering AK[IDKH-HSK]BP to change its corporate name. AK[IDKHHSK]BP appealed to the SEC En Banc (SEC-AC 539). In a decision dated 4
March 1996, the SEC En Banc affirmed the above decision, upon a finding
that AK[IDKH-HSK]BP's corporate name was identical or confusingly or
deceptively similar to that of IDCJ-HSK's corporate name. AK[IDKH-HSK]BP
filed a petition for review with the Court of Appeals. On 7 October 1997,
the Court of Appeals rendered the decision affirming the decision of the
SEC En Banc. AK[IDKH-HSK]BP's motion for reconsideration was denied by
the Court of Appeals on 16 February 1992. AK[IDKH-HSK]BP filed the
petition for review.
Issue [1]: Whether the corporate names of AK[IDKH-HSK]BP and IDCHHSK are confusingly similar.
Held [1]:

The SEC has the authority to de-register at all times and under all
circumstances corporate names which in its estimation are likely to spawn
confusion. It is the duty of the SEC to prevent confusion in the use of
corporate names not only for the protection of the corporations involved
but more so for the protection of the public. Section 18 of the Corporation
Code provides that "No corporate name may be allowed by the Securities
and Exchange Commission if the proposed name is identical or deceptively
or confusingly similar to that of any existing corporation or to any other
name already protected by law or is patently deceptive, confusing or is
contrary to existing laws. When a change in the corporate name is
approved, the Commission shall issue an amended certificate of
incorporation under the amended name." Corollary thereto, the pertinent
portion of the SEC Guidelines on Corporate Names states that "(d) If the
proposed name contains a word similar to a word already used as part of
the firm name or style of a registered company, the proposed name must
contain two other words different from the name of the company already
registered; Parties organizing a corporation must choose a name at their
peril; and the use of a name similar to one adopted by another corporation,
whether a business or a nonprofit organization, if misleading or likely to
injure in the exercise of its corporate functions, regardless of intent, may
be prevented by the corporation having a prior right, by a suitfor injunction
against the new corporation to prevent the use of the name. Herein, the
additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in
AK[IDKH-HSK]BP's name are merely descriptive of andalso referring to the
members, or kaanib, of IDCH-HSK who are likewise residing in the
Philippines. These words can hardly serve as an effective differentiating
medium necessary to avoid confusion or difficulty indistinguishing
AK[IDKH-HSK]BP from IDCH-HSK. This is especially so, since both AK[IDKHHSK]BP and IDCH-HSK are using the same acronym H.S.K.; not to mention
the fact that both are espousing religious beliefs and operating in the same
place. Parenthetically, it is well to mention that the acronym H.S.K.used by
AK[IDKH-HSK]BP stands for "Haligi at Saligan ng Katotohanan." Then, too,
the records reveal that in holding out their corporate name to the public,
AK[IDKH-HSK]BP highlights the dominant words "IGLESIA NG DIOS KAY
KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN," which is strikingly
similar to IDCH-HSK's corporate name, thus making it even more evident
that the additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas,
Inc.", are merely descriptive of and pertaining to the members of IDCHHSK. Significantly, the only difference between the corporate names of
AK[IDKH-HSK]BP and IDCH-HSK are the words SALIGAN and SUHAY. These
words are synonymous both mean ground, foundation or support. Hence,
this case is on all fours with Universal Mills Corporation v. Universal

45
TextileMills, Inc., 22 where the Court ruled that the corporate names
Universal Mills Corporation and Universal Textile Mills, Inc., are
undisputably so similar that even under the test of "reasonable care and
observation "confusion may arise.
Issue [2]: Whether the generic word rule would apply to support AK[IDKHHSK]BPs cause.
Held [2]:
The wholesale appropriation by AK[IDKH-HSK]BP of IDCH-HSK's corporate
name cannot find justification under the generic word rule. A contrary
ruling would encourage other corporations to adopt verbatim and register
an existing and protected corporate name, to the detriment of the public.
The fact that there are other non-stock religious societies or corporations
using the names Church of the Living God, Inc., Church of God Jesus Christ
the Son of God the Head, Church of God in Christ & By the Holy Spirit, and
other similar names, is of no consequence. It does not authorize the use by
AK[IDKH-HSK]BP of the essential and distinguishing feature of IDCH-HSK's
registered and protected corporate name.

46
THIRD DIVISION
The Case
Before us is a Petition for Review[1] on Certiorari, under Rule 45 of the Rules

HYATT ELEVATORS AND G.R. No. 161026

of Court, assailing the June 26, 2003 Decision[2] and the November 27,

ESCALATORS CORPORATION,

2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 74319. The

Petitioner, Present:

decretal portion of the Decision reads as follows:

- versus GOLDSTAR ELEVATORS,

Promulgated:

PHILS., INC.,*
Respondent.

WHEREFORE, in view of the foregoing, the assailed Orders

dated May 27, 2002 and October 1, 2002 of the RTC,
Branch 213, Mandaluyong City in Civil Case No. 99-600, are
hereby SET
ASIDE.
The
said
case
is
hereby
ordered DISMISSED on the ground of improper venue.[4]

October 24, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The relevant facts of the case are summarized by the CA in this wise:
Petitioner [herein Respondent] Goldstar Elevator Philippines, Inc.
(GOLDSTAR for brevity) is a domestic corporation primarily
engaged in the business of marketing, distributing, selling,
importing, installing, and maintaining elevators and escalators,
with address at 6th Floor, Jacinta II Building, 64 EDSA, Guadalupe,
Makati City.

Well established in our jurisprudence is the rule that the residence of a

corporation is the place where its principal office is located, as stated in its
Articles of Incorporation.

On the other hand, private respondent [herein petitioner] Hyatt

Elevators and Escalators Company (HYATT for brevity) is a
domestic corporation similarly engaged in the business of selling,
installing and maintaining/servicing elevators, escalators and
parking equipment, with address at the 6 th Floor, Dao I

47
Condominium, Salcedo St., Legaspi Village, Makati, as stated in its
Articles of Incorporation.

On February 23, 1999, HYATT filed a Complaint for unfair trade

practices and damages under Articles 19, 20 and 21 of the Civil
Code of the Philippines against LG Industrial Systems Co. Ltd.
(LGISC) and LG International Corporation (LGIC), alleging among
others, that: in 1988, it was appointed by LGIC and LGISC as the
exclusive distributor of LG elevators and escalators in the
Philippines under a Distributorship Agreement; x x x LGISC, in the
latter part of 1996, made a proposal to change the exclusive
distributorship agency to that of a joint venture partnership; while
it looked forward to a healthy and fruitful negotiation for a joint
venture, however, the various meetings it had with LGISC and
LGIC, through the latters representatives, were conducted in
utmost bad faith and with malevolent intentions; in the middle of
the negotiations, in order to put pressures upon it, LGISC and LGIC
terminated the Exclusive Distributorship Agreement; x x x [A]s a
consequence,
[HYATT] suffered P120,000,000.00
as
actual
damages,
representing
loss
of
earnings
and
business
opportunities, P20,000,000.00 as damages for its reputation and
goodwill, P1,000,000.00 as and by way of exemplary damages,
and P500,000.00 as and by way of attorneys fees.

On March 17, 1999, LGISC and LGIC filed a Motion to Dismiss

raising the following grounds: (1) lack of jurisdiction over the
persons of defendants, summons not having been served on its
resident agent; (2) improper venue; and (3) failure to state a cause
of action. The [trial] court denied the said motion in an Order dated
January 7, 2000.

On March 6, 2000, LGISC and LGIC filed an Answer with

Compulsory Counterclaim ex abundante cautela. Thereafter, they
filed a Motion for Reconsideration and to Expunge Complaint which
was denied.

On December 4, 2000, HYATT filed a motion for leave of court to

amend the complaint, alleging that subsequent to the filing of the
complaint, it learned that LGISC transferred all its organization,
assets and goodwill, as a consequence of a joint venture
agreement with Otis Elevator Company of the USA, to LG Otis
Elevator Company (LG OTIS, for brevity). Thus, LGISC was to be
substituted or changed to LG OTIS, its successor-in-interest.
Likewise, the motion averred that x x x GOLDSTAR was being
utilized by LG OTIS and LGIC in perpetrating their unlawful and
unjustified acts against HYATT. Consequently, in order to afford
complete relief, GOLDSTAR was to be additionally impleaded as a
party-defendant. Hence, in the Amended Complaint, HYATT
impleaded x x x GOLDSTAR as a party-defendant, and all
references to LGISC were correspondingly replaced with LG OTIS.

On December 18, 2000, LG OTIS (LGISC) and LGIC filed their

opposition to HYATTs motion to amend the complaint. It argued
that: (1) the inclusion of GOLDSTAR as party-defendant would lead
to a change in the theory of the case since the latter took no part
in the negotiations which led to the alleged unfair trade practices
subject of the case; and (b) HYATTs move to amend the complaint
at that time was dilatory, considering that HYATT was aware of the
existence of GOLDSTAR for almost two years before it sought its
inclusion as party-defendant.

On January 8, 2001, the [trial] court admitted the Amended

Complaint. LG OTIS (LGISC) and LGIC filed a motion for
reconsideration thereto but was similarly rebuffed on October 4,
2001.

48

On April 12, 2002, x x x GOLDSTAR filed a Motion to Dismiss the

amended complaint, raising the following grounds: (1) the venue
was improperly laid, as neither HYATT nor defendants reside in
Mandaluyong City, where the original case was filed; and (2) failure
to state a cause of action against [respondent], since the amended
complaint fails to allege with certainty what specific ultimate acts x
x x Goldstar performed in violation of x x x Hyatts rights. In the
Order dated May 27, 2002, which is the main subject of the present
petition, the [trial] court denied the motion to dismiss, ratiocinating
as follows:

Upon perusal of the factual and legal arguments

raised by the movants-defendants, the court finds
that these are substantially the same issues posed
by the then defendant LG Industrial System Co.
particularly the matter dealing [with] the issues of
improper venue, failure to state cause of action as
well as this courts lack of jurisdiction. Under the
circumstances obtaining, the court resolves to rule
that the complaint sufficiently states a cause of
action and that the venue is properly laid. It is
significant to note that in the amended complaint,
the same allegations are adopted as in the original
complaint with respect to the Goldstar Philippines
to enable this court to adjudicate a complete
determination or settlement of the claim subject of
the action it appearing preliminarily as sufficiently
alleged in the plaintiffs pleading that said Goldstar
Elevator Philippines Inc., is being managed and
operated by the same Korean officers of
defendants LG-OTIS Elevator Company and LG
International Corporation.

On June 11, 2002, [Respondent] GOLDSTAR filed a motion for

reconsideration thereto. On June 18, 2002, without waiving the
grounds it raised in its motion to dismiss, [it] also filed an Answer
Ad Cautelam. On October 1, 2002, [its] motion for reconsideration
was denied.

From the aforesaid Order denying x x x Goldstars motion for

reconsideration, it filed the x x x petition for certiorari [before the
CA] alleging grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of the [trial] court in issuing the assailed
Orders dated May 27, 2002 and October 1, 2002.[5]

Ruling of the Court of Appeals

The CA ruled that the trial court had committed palpable error amounting
to grave abuse of discretion when the latter denied respondents Motion to
Dismiss. The appellate court held that the venue was clearly improper,
because none of the litigants resided in Mandaluyong City, where the case
was filed.

According to the appellate court, since Makati was the principal place of
business of both respondent and petitioner, as stated in the latters Articles
of Incorporation, that place was controlling for purposes of determining the
proper venue. The fact that petitioner had abandoned its principal office in

49

Makati years prior to the filing of the original case did not affect the venue

The resolution of this case rests upon a proper understanding of Section 2

of Rule 4 of the 1997 Revised Rules of Court:

where personal actions could be commenced and tried.

Hence, this Petition.[6]

The Issue
In its Memorandum, petitioner submits this sole issue for our consideration:

Sec. 2. Venue of personal actions. All other actions may be

commenced and tried where the plaintiff or any of the
principal plaintiff resides, or where the defendant or any of
the principal defendant resides, or in the case of a nonresident defendant where he may be found, at the election
of the plaintiff.
Since both parties to this case are corporations, there is a need to
clarify the meaning of residence. The law recognizes two types of
persons: (1) natural and (2) juridical. Corporations come under the
latter in accordance with Article 44(3) of the Civil Code. [8]

Whether or not the Court of Appeals, in reversing the ruling

of the Regional Trial Court, erred as a matter of law and
jurisprudence, as well as committed grave abuse of
discretion, in holding that in the light of the peculiar facts
of this case, venue was improper[.][7]

Residence is the permanent home -- the place to which, whenever absent

for business or pleasure, one intends to return.[9] Residence is vital when
dealing with venue.[10] A corporation, however, has no residence in the
same sense in which this term is applied to a natural person. This is
precisely the reason why the Court in Young Auto Supply Company v. Court
of Appeals[11] ruled that for practical purposes, a corporation is in a
metaphysical sense a resident of the place where its principal office is
located as stated in the articles of incorporation.[12] Even before this ruling,
it has already been established that the residence of a corporation is the
place where its principal office is established. [13]

This Courts Ruling

This Court has also definitively ruled that for purposes of venue, the term
residence is synonymous with domicile.[14] Correspondingly, the Civil Code
provides:
Art. 51. When the law creating or recognizing them, or any
other provision does not fix the domicile of juridical
persons, the same shall be understood to be the place
where their legal representation is established or where
they exercise their principal functions.[15]

The Petition has no merit.

Sole Issue:
Venue

50
It now becomes apparent that the residence or domicile of a
juridical person is fixed by the law creating or recognizing it. Under
Section 14(3) of the Corporation Code, the place where the
principal office of the corporation is to be located is one of the
required contents of the articles of incorporation, which shall be
filed with the Securities and Exchange Commission (SEC).

present principal office. The appellate court was clear enough in its
ruling that the Complaint was dismissed because the venue had
been improperly laid, not because of the failure of petitioner to
amend the latters Articles of Incorporation.

In the present case, there is no question as to the residence of

respondent. What needs to be examined is that of petitioner.
Admittedly,[16] the latters principal place of business is Makati, as
indicated in its Articles of Incorporation. Since the principal place of
business of a corporation determines its residence or domicile,
then the place indicated in petitioners articles of incorporation
becomes controlling in determining the venue for this case.

Indeed, it is a legal truism that the rules on the venue of personal

actions are fixed for the convenience of the plaintiffs and their
witnesses. Equally settled, however, is the principle that choosing
the venue of an action is not left to a plaintiffs caprice; the matter
is regulated by the Rules of Court.[21] Allowing petitioners
arguments may lead precisely to what this Court was trying to
avoid in Young Auto Supply Company v. CA:[22] the creation of
confusion and untold inconveniences to party litigants. Thus
enunciated the CA:

Petitioner argues that the Rules of Court do not provide that when
the plaintiff is a corporation, the complaint should be filed in the
location of its principal office as indicated in its articles of
incorporation.[17] Jurisprudence has, however, settled that the place
where the principal office of a corporation is located, as stated in
the articles, indeed establishes its residence. [18] This ruling is
important in determining the venue of an action by or against a
corporation,[19] as in the present case.

x x x. To insist that the proper venue is the actual principal

office and not that stated in its Articles of Incorporation
would indeed create confusion and work untold
inconvenience. Enterprising litigants may, out of some
ulterior motives, easily circumvent the rules on venue by
the simple expedient of closing old offices and opening
new ones in another place that they may find well to suit
their needs.[23]

Without merit is the argument of petitioner that the locality stated

in its Articles of Incorporation does not conclusively indicate that
its principal office is still in the same place. We agree with the
appellate court in its observation that the requirement to state in
the articles the place where the principal office of the corporation
is to be located is not a meaningless requirement. That proviso
would be rendered nugatory if corporations were to be allowed to
simply disregard what is expressly stated in their Articles of
Incorporation.[20]
Inconclusive are the bare allegations of petitioner that it had closed
its Makati office and relocated to Mandaluyong City, and that
respondent
was
well
aware
of
those
circumstances.
Assuming arguendo that they transacted business with each other
in the Mandaluyong office of petitioner, the fact remains that, in
law, the latters residence was still the place indicated in its Articles
of Incorporation. Further unacceptable is its faulty reasoning that
the ground for the CAs dismissal of its Complaint was its failure to
amend its Articles of Incorporation so as to reflect its actual and

We find it necessary to remind party litigants, especially corporations, as

follows:
The rules on venue, like the other procedural rules, are
designed to insure a just and orderly administration of
justice or the impartial and evenhanded determination of
every action and proceeding. Obviously, this objective will
not be attained if the plaintiff is given unrestricted freedom
to choose the court where he may file his complaint or
petition.
The choice of venue should not be left to the plaintiffs
whim or caprice. He may be impelled by some ulterior
motivation in choosing to file a case in a particular court
even if not allowed by the rules on venue.[24]

51
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and
Resolution AFFIRMED. Costs against petitioner.

SO ORDERED.

SUMMARY:
A case for unfair trade practices was filed by HYATT against GOLDSTAR.
Both were corporations dealing with elevators. The case was filed in
Mandaluyong despite both have their principal office located in Makati.
GOLDSTAR filed a motion to dismiss on the ground of improper venue. The
court held that it is clear in the Civil Code and the Corporation Code that in
matters of venue, residence shall be considered synonymous as domicile
which shall be understood to be the place where their legal representation
is established or where they exercise their principal functions. This matter
was also settled by jurisprudence.
DOCTRINE: It is a well established rule that the residence of a corporation
is the place where its principal office is located, as stated in its Articles of
Incorporation.
FACTS:
1. Both parties are engaged in the same business of selling installing and
maintaining/servicing elevators and escalators. On February 23, 1999,
HYATT filed a complaint for unfair trade practices and damages under
Articles 19, 20 and 21 of the Civil Code of the Philippines against LG
industrial Systems Co. Ltd (LGISC) and LG International Corporation (LGIC),
alleging that in 1988, HYATT was appointed by LGISC and LGIC as the
exclusive distributor of LG elevators in the Philippines under a
Distributorship Agreement. In the latter part of 1996, LGISC made a
proposal to change the Distributorship Agreement to that of the joint
venture, however HYATT allege that the representatives of LGISC and LGIC
conducted the meeting in bad faith in order to put pressures upon them
and eventually terminated the Exclusive Distributorship Agreement. 2.
LGISC and LGIC filed a Motion to Dismiss on the following grounds: (1) lack

of jurisdiction over the persons of defendants, summons not having been

served on its resident agent; (2) improper venue; and (3) failure to state a
cause of action. 3. HYATT then filed a motion for leave of court to amend
the complaint when it learned that LGISC was to be substituted to LG Otis
because of the latter succeeding the former. THe motion also averred that
Goldstar was being utilized by LG OTIS and LGIC in perpetrating their
unlawful and unjustified acts against HYATT. Goldstar was additionally
impleaded as a party-defendant. 4. Goldstar filed a Motion to Dismiss the
amended complaint, raising the following grounds: (1) the venue was
improperly laid, as neither HYATT nor defendants reside in Mandaluyong
City, where the original case was filed, and (2) failure to state a cause of
action agains (respondent), since the amended complaint fails to allege
with certainty what specific ultimate acts GOLDSTAR performed in violation
of HYATTs rights. 5. Trial court dismiss the motion. Goldstar filed a MR
but the same was dismissed. CA reversed RTC and declared that the venue
was clearly improper, because none of the litigants resided in
Mandaluyong City, where the case was filed. ISSUE: 1. WoN the venue
(Mandaluyong) was improper YES. RULING: Petition DENIED. RATIO: 1.
Sec 2 Rule 4 of the 1997 Revised Rules of Court states tgat Venue of
personal actions all other actions may be commenced and tried where
the plaintiff resides, or where the defendant or any of the principal
defendant resides, or in the case of a non-resident defendant where he
may be found, at the election of the plaintiff. 2. But since both parties
to this case are corporations, there is a need to clarify the meaning of
residence. The law recognize two types of persons: (1) Natural and
(2) juridical. Corporations fall under juridical. A corporation, however, has
no residence[footnoteRef:2] in the same sense in which this term is applied
to a natural person. [2: Residence is the permanent home---the place to
which, whenever absent for business or pleasure, one intends to return] 3.
In the case Young Auto Supply Company v Court of Appelas, the court ruled
that for practical purposes, a corporation is in a metaphysical sense a
resident of the place where its principal office is located as stated in the
articles of incorporation. But even before this ruling, it has been
already established that the residence of a corporation is the place where
its principal office is established. 4. The court held that in the purpose of
venue, residence is the same with domicile.
Correspondingly the Civil Code provides: Art 51. When the law creating
or recognizing them, or any other provision does not fix the domicile of
juridical persons, the same shall be understood to be the place where their
legal representation is established or where they exercise their principal
functions. AND Under Section 14(3) of the Corporation Code, the place
where the principal office of the corporation is to be located is one of the

52
required contents of the articles of incorporation, which shall be filed with
the Securities and Exchange Commission (SEC). 5. In the present case,
there is no question as to the residence of respondent. What needs to be
examined is that of petitioner. Admittedly, the latters principal
place of business is Makati, as indicated in its Articles of Incorporation.
Since the principal place of business of a corporation determines its
residence or domicile, then the place indicated in petitioner s articles
of incorporation becomes controlling in determining the venue for this
case. 6. HYATT argues that the Rules of Court did not provide that when the
plaintiff is a corporation, the complaint should be filed in the location of its
principal office as indicated in its articles of incorporation. This is however

settled by jurisprudence. 7. The choice of venue should not be left to the

plaintiffs whim or caprice. He may be impelled by some ulterior
motivation in choosing to file a case in a particular court even if not
allowed by the rules on venue.