1
SECOND DIVISION rural bank was made to pay the Central Bank THIRTY-TWO THOUSAND PESOS (P32,000.00) as
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 Carloto-Concha 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
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 THIRTY-TWO 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. 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. 6
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:
 2

1. Whether or not respondent Rural Bank of Labason Inc., being an artificial person should be revolting to our sense of ethics to use it as basis for awarding damages in favor of private
awarded moral damages. respondent Carloto and the Rural Bank of Labason, Inc.

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.
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
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.

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 THIRTY-TWO
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

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?
3
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 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:
4
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:
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.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied
in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.[15]
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
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL
DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.
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.
5
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.
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
6
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 that plaintiff had no permit to offer Physical Therapy courses which they were
offering.
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:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
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 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]
7
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
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.
8
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
FILIPINAS BROADCASTING NETWORK, INC.,
vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OFMEDICINE,
(AMEC-BCCM) and ANGELITA F. AGO,
Facts:
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:
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 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
9
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
 10

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 attorney’s fees is not proper. AMEC failed to justify satisfactorily its claim for
attorney’s fees. AMEC did not adduce evidence to warrant the award of attorney’s fees.
Moreover, both the trial and appellate courts failed to explicitly state in their respective
decisions the rationale for the award of attorney’s fees.

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 attorney’s fees.

[51]

(Emphasis supplied)Petition denied.

 11

SECOND DIVISION
managing partners of CCCC. The promissory note states that the spouses are jointly and
HERMAN C. CRYSTAL, LAMBERTO G.R. No. 172428
severally liable with CCCC. It appears that before the original loan could be granted, BPI-
C. CRYSTAL, ANN GEORGIA C.
Cebu City required CCCC to put up a security.
SOLANTE, and DORIS C.
However, CCCC had no real property to offer as security for the loan; hence, the spouses
- versus - Promulgated: November 28, 2008
executed a real estate mortgage[8] over their own real property on 22 September
BANK OF THE PHILIPPINE ISLANDS, 1977.[9] On 3 October 1977, they executed another real estate mortgage over the same lot in

Respondent. favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC.[10]

x----------------------------------------------------------------------------x
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became

DECISION due. CCCC, as well as the spouses, failed to pay their obligations despite demands. Thus, BPI
TINGA, J.:
resorted to the foreclosure of the chattel mortgage and the real estate mortgage. The

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]
The facts, as culled from the records, follow.
foreclosure sale on the chattel mortgage was initially stalled with the issuance of a
restraining order against BPI.[11] However, following BPIs compliance with the necessary
requisites of extrajudicial foreclosure, the foreclosure sale on the chattel mortgage was
consummated on 28 February 1988, with the proceeds amounting to P240,000.00 applied to
the loan from BPI-Butuan which had then reached P707,393.90.[12] Meanwhile, on 7 July

1981, Insular Bank of Asia and America (IBAA), through its Vice-President for Legal and
On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00
Corporate Affairs, offered to buy the lot subject of the two (2) real estate mortgages and to
loan in behalf of the Cebu Contractors Consortium Co. (CCCC) from the Bank of the Philippine
pay directly the spouses indebtedness in exchange for the release of the mortgages. BPI
Islands-Butuan branch (BPI-Butuan). The loan was secured by a chattel mortgage on heavy
rejected IBAAs offer to pay.[13]
equipment and machinery of CCCC. On the same date, the spouses executed in favor of BPI-

Butuan a Continuing Suretyship[5] where they bound themselves as surety of CCCC in the BPI filed a complaint for sum of money against CCCC and the spouses before
aggregate principal sum of not exceeding P300,000.00.Thereafter, or on 29 March the Regional Trial Court of Butuan City (RTC Butuan), seeking to recover the deficiency of the
1979, Raymundo Crystal executed a promissory note[6] for the amount of P300,000.00, loan of CCCC and the spouses with BPI-Butuan. The trial court ruled in favor of BPI. Pursuant
also in favor of BPI-Butuan. to the decision, BPI instituted extrajudicial foreclosure of the spouses mortgaged property.[14]

Sometime in August 1979, CCCC renewed a previous loan, this time from On 10 April 1985, the spouses filed an action for Injunction With Damages, With A Prayer For
BPI, Cebu City branch (BPI-Cebu City). The renewal was evidenced by a promissory A Restraining Order and/ or Writ of Preliminary Injunction.[15] The spouses claimed that the
note[7] dated 13 August 1979, signed by the spouses in their personal capacities and as foreclosure of the real estate mortgages is illegal because BPI should have
 12

exhausted CCCCs properties first, stressing that they are mere guarantors of the renewed Consequently, in view of BPIs unjust refusal to accept payment of the BPI-Cebu City loan, the

loans. They also prayed that they be awarded moral and exemplary damages, attorneys fees, loan obligation of the spouses was extinguished, petitioners contend.

litigation expenses and cost of suit. Subsequently, the spouses filed an amended
The contention has no merit. Petitioners rely on IBAAs offer to purchase the mortgaged lot
complaint,[16] additionally alleging that CCCC had opened and maintained a foreign currency
from them and to directly pay BPI out of the proceeds thereof to settle the
savings account (FCSA-197) with bpi, Makati branch (BPI-Makati), and that said FCSA was
loan.[20]BPIs refusal to agree to such payment scheme cannot extinguish the spouses loan
used as security for a P450,000.00 loan also extended by BPI-Makati. The P450,000.00 loan
obligation. In the first place, IBAA is not privy to the loan agreement or the promissory note
was allegedly paid, and thereafter the spouses demanded the return of the FCSA passbook.
between the spouses and BPI. Contracts, after all, take effect only between the parties, their
BPI rejected the demand; thus, the spouses were unable to withdraw from the said account
successors in interest, heirs and assigns.[21] Besides, under Art. 1236 of the Civil Code, the
to pay for their other obligations to BPI.
creditor is not bound to accept payment or performance by a third person who has no

The trial court dismissed the spouses complaint and ordered them to pay moral and interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. We

exemplary damages and attorneys fees to BPI.[17] It ruled that since the spouses agreed to see no stipulation in the promissory note which states that a third person may fulfill the

bind themselves jointly and severally, they are solidarily liable for the loans; hence, BPI can spouses obligation. Thus, it is clear that the spouses alone bear responsibility for the same.

validly foreclose the two real estate mortgages. Moreover, being guarantors-mortgagors, the
In any event, the promissory note is the controlling repository of the obligation of the
spouses are not entitled to the benefit of exhaustion. Anent the FCSA, the trial court found
spouses. Under the promissory note, the spouses defined the parameters of their obligation
that CCCC originally had FCDU SA No. 197 with BPI, Dewey Boulevard branch, which was
as follows:
transferred to BPI-Makati as FCDU SA 76/0035, at the request of Desamparados Crystal.
On or before June 29, 1980 on demand, for value received, I/we promise
FCDU SA 76/0035 was thus closed, but DesamparadosCrystal failed to surrender the
to pay, jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS, at
passbook because it was lost. The transferred FCSA in BPI-Makati was the one used as its office in the city of Cebu Philippines, the sum of ONE HUNDRED
security for CCCCs P450,000.00 loan from BPI-Makati. CCCC was no longer allowed to TWENTY THOUSAND PESOS (P120,0000.00), Philippine Currency, subject
to periodic installments on the principal as follows: P30,000.00 quarterly
withdraw from FCDU SA No. 197 because it was already closed. amortization starting September 28, 1979. x x x [22]

The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal
A solidary obligation is one in which each of the debtors is liable for the entire obligation, and
was dismissed.[18] The spouses moved for the reconsideration of the decision, but the Court
each of the creditors is entitled to demand the satisfaction of the whole obligation from any
of Appeals also denied their motion for reconsideration.[19] Hence, the present petition.
or all of the debtors. [23] A liability is solidary only when the obligation expressly

Before the Court, petitioners who are the heirs of the spouses argue that the failure of the so states, when the law so provides or when the nature of the obligation so requires.[24] Thus,

spouses to pay the BPI-Cebu City loan of P120,000.00 was due to BPIs illegal refusal to accept when the obligor undertakes to be jointly and severally liable, it means that the obligation is

payment for the loan unless the P300,000.00 loan from BPI-Butuan would also be paid. solidary,[25] such as in this case. By stating I/we promise to pay, jointly and severally, to the

BANK OF THE PHILIPPINE ISLANDS, the spouses agreed to be sought out and be demanded

payment from, by BPI. BPI did demand payment from them, but they failed to comply with
their obligation, prompting BPIs valid resort to the foreclosure of the chattel mortgage and
the real estate mortgages.
More importantly, the promissory note, wherein the spouses undertook to be solidarily liable
for the principal loan, partakes the nature of a suretyship and therefore is an additional
security for the loan. Thus we held in one case that if solidary liability was instituted to
guarantee a principal obligation, the law deems the contract to be one of suretyship. [26] And
while a contract of a surety is in essence secondary only to a valid principal obligation, the
suretys liability to the creditor or promisee of the principal is said to be direct, primary, and
absolute; in other words, the surety is directly and equally bound with the principal. The
surety therefore becomes liable for the debt or duty of another even if he possesses no
direct or personal interest over the obligations nor does he receive any benefit therefrom.[27]
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 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]
We do not agree. Moral damages are meant to compensate the claimant for any physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation and similar injuries unjustly caused.[30] Such
damages, to be recoverable, must be the proximate result of a wrongful act or omission the
factual basis for which is satisfactorily established by the aggrieved party. [31] There being no
wrongful or unjust act on the part of BPI in demanding payment from them and in seeking
the foreclosure of the chattel and real estate mortgages, there is no lawful basis for award of
damages in favor of the spouses.
13
Neither is BPI entitled to moral damages. 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. [32] The
Court of Appeals found BPI as being famous and having gained its familiarity and respect not
only in the Philippines but also in the whole world because of its good 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]
We do not agree with the Court of Appeals. A statement similar to that made by the Court
in Manero can be found in the case of Mambulao Lumber Co. v. PNB, et al.,[36] thus:
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)
Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et
al.,[37] and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol
Christian College of Medicine (AMEC-BCCM),[38] the Court held that the
statements in Manero and Mambulao were mere obiter dicta, implying that the award of
moral damages to corporations is not a hard and fast rule. Indeed, while the Court may allow
the grant of moral damages to corporations, it is not automatically granted; there must still
be proof of the existence of the factual basis of the damage and its causal relation to the
defendants acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the wrongdoer.[39]
 14

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 right to litigate.

Otherwise, moral damages must every time be awarded in favor of the prevailing defendant

against an unsuccessful plaintiff.[40] BPI 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 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 attorneys fees are allowed when exemplary damages are awarded and when

the party to a suit is compelled to incur expenses to protect his interest. [41] The 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

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.

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
15
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.
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
16
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 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 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
17
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. L-20322, 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.]
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
18
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 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
 19

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.

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
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 Decision 1 and
the February 15, 2011 Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a
domestic corporation organized and existing under Philippine laws, took interest in mining
and exploring certain areas of the province of Palawan. After inquiring with the Department
of Environment and Natural Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed
an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences
Bureau (MGB), Region IV-B, Office of the Department of Environment and Natural Resources
(DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares
in Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which
includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and
EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6,
2006, assigned to petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and
Patricia Louise Mining & Development Corporation (PLMDC) which previously filed an
application for an MPSA with the MGB, Region IV-B, DENR on January 6, 1992. Through the
said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in
barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC
20
conveyed, transferred and/or assigned its rights and interests over the MPSA application in
favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-
AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa
Urduja, Municipality of Narra, Province of Palawan. SMMI subsequently conveyed,
transferred and assigned its rights and interest over the said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three
(3) separate petitions for the denial of petitioners’ applications for MPSA designated as AMA-
IVB-153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro
and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners,
it was the driving force behind petitioners’ filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont argued that given that petitioners’
capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in
mining activities through MPSAs, which are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of
Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms,
whether in singular or plural, shall mean:
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a
corporation, partnership, association, or cooperative organized or authorized for the purpose
of engaging in mining, with technical and financial capability to undertake mineral resources
development and duly registered in accordance with law at least sixty per cent (60%) of the
capital of which is owned by citizens of the Philippines: Provided, That a legally organized
foreign-owned corporation shall be deemed a qualified person for purposes of granting an
exploration permit, financial or technical assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is immaterial because they also
applied for Financial or Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-
09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which are granted to
foreign-owned corporations. Nevertheless, they claimed that the issue on nationality should
not be raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of
their capital is owned by citizens of the Philippines. They asserted that though MBMI owns
40% of the shares of PLMC (which owns 5,997 shares of Narra),3 40% of the shares of MMC
(which owns 5,997 shares of McArthur)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 Redmont’s petition since they are not enumerated in Sec. 77 of
RA 7942. Finally, they stressed that Redmont has no personality to sue them because it has
no pending claim or application over the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining
MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to engage in mining
activities. On the other hand, [Redmont] having filed its own applications for an EPA over the
areas earlier covered by the MPSA application of respondents may be considered if and
when they are qualified under the law. The violation of the requirements for the issuance
and/or grant of permits over mining areas is clearly established thus, there is reason to
believe that the cancellation and/or revocation of permits already issued under the premises
is in order and open the areas covered to other qualified applicants.
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro
Mining and Development, Inc., and Narra Nickel Mining and Development Corp. as,
DISQUALIFIED for being considered as Foreign Corporations. Their Mineral Production
Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND VOID.6
The POA considered petitioners as foreign corporations being "effectively controlled" by
MBMI, a 100% Canadian company and declared their MPSAs null and void. In the same
Resolution, it gave due course to Redmont’s EPAs. Thereafter, on February 7, 2008, the POA
issued an Order7 denying the Motion for Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice
of Appeal8 and Memorandum of Appeal9 with the Mines Adjudication Board (MAB) while
Narra separately filed its Notice of Appeal10 and Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they are qualified persons
under the law. Also, through a letter, they informed the MAB that they had their individual
MPSA applications converted to FTAAs. McArthur’s FTAA was denominated as AFTA-IVB-
0912 on May 2007, while Tesoro’s MPSA application was converted to AFTA-IVB-0813 on May
28, 2007, and Narra’s FTAA was converted to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a
Complaint15 with the Securities and Exchange Commission (SEC), seeking the revocation of
the certificates for registration of petitioners on the ground that they are foreign-owned or
controlled corporations engaged in mining in violation of Philippine laws. Thereafter,
Redmont filed on September 1, 2008 a Manifestation and Motion to Suspend Proceeding
21
before the MAB praying for the suspension of the proceedings on the appeals filed by
McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of
Quezon City, Branch 92 (RTC) a Complaint16 for injunction with application for issuance of a
temporary restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil
Case No. 08-63379. Redmont prayed for the deferral of the MAB proceedings pending the
resolution of the Complaint before the SEC.
But before the RTC can resolve Redmont’s Complaint and applications for injunctive reliefs,
the MAB issued an Order on September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and
SETS ASIDE the Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-B
(MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07
February 2008 denying the Motions for Reconsideration of the Appellants. The Petition filed
by Redmont Consolidated Mines Corporation on 02 January 2007 is hereby ordered
DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmont’s application
for a TRO and setting the case for hearing the prayer for the issuance of a writ of preliminary
injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration19 of the
September 10, 2008 Order of the MAB. Subsequently, it filed a Supplemental Motion for
Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmont’s Motion for Reconsideration and Supplemental
Motion for Reconsideration, Redmont filed before the RTC a Supplemental Complaint 21 in
Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of preliminary
injunction enjoining the MAB from finally disposing of the appeals of petitioners and from
resolving Redmont’s Motion for Reconsideration and Supplement Motion for
Reconsideration of the MAB’s September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying Redmont’s Motion for
Reconsideration and Supplemental Motion for Reconsideration and resolving the appeals
filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by
the MAB. On October 1, 2010, the CA rendered a Decision, the dispositive of which reads:

WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10,
2008 and July 1, 2009 of the Mining Adjudication Board are reversed and set aside. The
findings of the Panel of Arbitrators of the Department of Environment and Natural Resources
that respondents McArthur, Tesoro and Narra are foreign corporations is upheld and,
therefore, the rejection of their applications for Mineral Product Sharing Agreement should
be recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or
Technical Assistance Agreement (FTAA) or conversion of their MPSA applications to FTAA,
the matter for its rejection or approval is left for determination by the Secretary of the DENR
and the President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed
by petitioners.
After a careful review of the records, the CA found that there was doubt as to the nationality
of petitioners when it realized that petitioners had a common major investor, MBMI, a
corporation composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of
Department of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules
which implemented the requirement of the Constitution and other laws pertaining to the
exploitation of natural resources, the CA used the "grandfather rule" to determine the
nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership
at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens,
all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of
the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be recorded as belonging to aliens.24 (emphasis supplied)
In determining the nationality of petitioners, the CA looked into their corporate structures
and their corresponding common shareholders. Using the grandfather rule, the CA
discovered that MBMI in effect owned majority of the common stocks of the petitioners as
well as at least 60% equity interest of other majority shareholders of petitioners through
joint venture agreements. The CA found that through a "web of corporate layering, it is clear
that one common controlling investor in all mining corporations involved x x x is
MBMI."25 Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in
partnership with, or privies-in-interest of, MBMI.
22
Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into
FTAA applications suspicious in nature and, as a consequence, it recommended the rejection
of petitioners’ MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas, the CA pointed out
that the POA has jurisdiction over them and that it also has the power to determine the of
nationality of petitioners as a prerequisite of the Constitution prior the conferring of rights to
"co-production, joint venture or production-sharing agreements" of the state to mining
rights. However, it also stated that the POA’s jurisdiction is limited only to the resolution of
the dispute and not on the approval or rejection of the MPSAs. It stipulated that only the
Secretary of the DENR is vested with the power to approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which
considered petitioners McArthur, Tesoro and Narra as foreign corporations. Nevertheless,
the CA determined that the POA’s declaration that the MPSAs of McArthur, Tesoro and Narra
are void is highly improper.
While the petition was pending with the CA, Redmont filed with the Office of the President
(OP) a petition dated May 7, 2010 seeking the cancellation of petitioners’ FTAAs. The OP
rendered a Decision26 on April 6, 2011, wherein it canceled and revoked petitioners’ FTAAs
for violating and circumventing the "Constitution x x x[,] the Small Scale Mining Law and
Environmental Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment
Act and E.O. 584."27 The OP, in affirming the cancellation of the issued FTAAs, agreed with
Redmont stating that petitioners committed violations against the abovementioned laws and
failed to submit evidence to negate them. The Decision further quoted the December 14,
2007 Order of the POA focusing on the alleged misrepresentation and claims made by
petitioners of being domestic or Filipino corporations and the admitted continued mining
operation of PMDC using their locally secured Small Scale Mining Permit inside the area
earlier applied for an MPSA application which was eventually transferred to Narra. It also
agreed with the POA’s estimation that the filing of the FTAA applications by petitioners is a
clear admission that they are "not capable of conducting a large scale mining operation and
that they need the financial and technical assistance of a foreign entity in their operation,
that is why they sought the participation of MBMI Resources, Inc."28 The Decision further
quoted:
The filing of the FTAA application on June 15, 2007, during the pendency of the case only
demonstrate the violations and lack of qualification of the respondent corporations to
engage in mining. The filing of the FTAA application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that indeed the respondent is not Filipino
but rather of foreign nationality who is disqualified under the laws. Corporate documents of
MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that
they are conducting operation only through their local counterparts.29
The Motion for Reconsideration of the Decision was further denied by the OP in a
Resolution30 dated July 6, 2011. Petitioners then filed a Petition for Review on Certiorari of

the OP’s Decision and Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the CA
Decision dated February 29, 2012, the CA affirmed the Decision and Resolution of the OP.
Thereafter, petitioners appealed the same CA decision to this Court which is now pending
with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision of the CA.
Petitioners put forth the following errors of the CA:
I.
The Court of Appeals erred when it did not dismiss the case for mootness despite the fact
that the subject matter of the controversy, the MPSA Applications, have already been
converted into FTAA applications and that the same have already been granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction
considering that the Panel of Arbitrators has no jurisdiction to determine the nationality of
Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on account of Redmont’s willful
forum shopping.
IV.
The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations based
on the "Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign
Investments Act of 1991, as amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule.
VI.
The Court of Appeals erred when it concluded that the conversion of the MPSA Applications
into FTAA Applications were of "suspicious nature" as the same is based on mere conjectures
and surmises without any shred of evidence to show the same.31
We find the petition to be without merit.
23
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case as moot is
without merit.
Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable
controversy by virtue of supervening events, so that a declaration thereon would be of no
practical use or value."32 Thus, the courts "generally decline jurisdiction over the case or
dismiss it on the ground of mootness."33
The "mootness" principle, however, does accept certain exceptions and the mere raising of
an issue of "mootness" will not deter the courts from trying a case when there is a valid
reason to do so. In David v. Macapagal-Arroyo (David), the Court provided four instances
where courts can decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public interest is
involved;
3.) When constitutional issue raised requires formulation of controlling principles
to guide the bench, the bar, and the public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant case. We of this Court note that
a grave violation of the Constitution, specifically Section 2 of Article XII, is being committed
by a foreign corporation right under our country’s nose through a myriad of corporate
layering under different, allegedly, Filipino corporations. The intricate corporate layering
utilized by the Canadian company, MBMI, is of exceptional character and involves paramount
public interest since it undeniably affects the exploitation of our Country’s natural resources.
The corresponding actions of petitioners during the lifetime and existence of the instant case
raise questions as what principle is to be applied to cases with similar issues. No definite
ruling on such principle has been pronounced by the Court; hence, the disposition of the
issues or errors in the instant case will serve as a guide "to the bench, the bar and the
public."35 Finally, the instant case is capable of repetition yet evading review, since the
Canadian company, MBMI, can keep on utilizing dummy Filipino corporations through
various schemes of corporate layering and conversion of applications to skirt the
constitutional prohibition against foreign mining in Philippine soil.
Conversion of MPSA applications to FTAA applications

We shall discuss the first error in conjunction with the sixth error presented by petitioners
since both involve the conversion of MPSA applications to FTAA applications. Petitioners
propound that the CA erred in ruling against them since the questioned MPSA applications
were already converted into FTAA applications; thus, the issue on the prohibition relating to
MPSA applications of foreign mining corporations is academic. Also, petitioners would want
us to correct the CA’s finding which deemed the aforementioned conversions of applications
as suspicious in nature, since it is based on mere conjectures and surmises and not supported
with evidence.
We disagree.
The CA’s analysis of the actions of petitioners after the case was filed against them by
respondent is on point. The changing of applications by petitioners from one type to another
just because a case was filed against them, in truth, would raise not a few sceptics’
eyebrows. What is the reason for such conversion? Did the said conversion not stem from
the case challenging their citizenship and to have the case dismissed against them for being
"moot"? It is quite obvious that it is petitioners’ strategy to have the case dismissed against
them for being "moot."
Consider the history of this case and how petitioners responded to every action done by the
court or appropriate government agency: on January 2, 2007, Redmont filed three separate
petitions for denial of the MPSA applications of petitioners before the POA. On June 15,
2007, petitioners filed a conversion of their MPSA applications to FTAAs. The POA, in its
December 14, 2007 Resolution, observed this suspect change of applications while the case
was pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is a clear admission
that the respondents are not capable of conducting a large scale mining operation and that
they need the financial and technical assistance of a foreign entity in their operation that is
why they sought the participation of MBMI Resources, Inc. The participation of MBMI in the
corporation only proves the fact that it is the Canadian company that will provide the
finances and the resources to operate the mining areas for the greater benefit and interest of
the same and not the Filipino stockholders who only have a less substantial financial stake in
the corporation.
x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case
only demonstrate the violations and lack of qualification of the respondent corporations to
engage in mining. The filing of the FTAA application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that indeed the respondent is not Filipino
but rather of foreign nationality who is disqualified under the laws. Corporate documents of
MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that
they are conducting operation only through their local counterparts.36
On October 1, 2010, the CA rendered a Decision which partially granted the petition,
reversing and setting aside the September 10, 2008 and July 1, 2009 Orders of the MAB. In
24
the said Decision, the CA upheld the findings of the POA of the DENR that the herein
petitioners are in fact foreign corporations thus a recommendation of the rejection of their
MPSA applications were recommended to the Secretary of the DENR. With respect to the
FTAA applications or conversion of the MPSA applications to FTAAs, the CA deferred the
matter for the determination of the Secretary of the DENR and the President of the Republic
of the Philippines.37
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the
dismissal of the petition asserting that on April 5, 2010, then President Gloria Macapagal-
Arroyo signed and issued in their favor FTAA No. 05-2010-IVB, which rendered the petition
moot and academic. However, the CA, in a Resolution dated February 15, 2011 denied their
motion for being a mere "rehash of their claims and defenses."38 Standing firm on its
Decision, the CA affirmed the ruling that petitioners are, in fact, foreign corporations. On
April 5, 2011, petitioners elevated the case to us via a Petition for Review on Certiorari under
Rule 45, questioning the Decision of the CA. Interestingly, the OP rendered a Decision dated
April 6, 2011, a day after this petition for review was filed, cancelling and revoking the FTAAs,
quoting the Order of the POA and stating that petitioners are foreign corporations since they
needed the financial strength of MBMI, Inc. in order to conduct large scale mining
operations. The OP Decision also based the cancellation on the misrepresentation of facts
and the violation of the "Small Scale Mining Law and Environmental Compliance Certificate
as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584."39 On July 6, 2011, the
OP issued a Resolution, denying the Motion for Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the
fact of the OP’s Decision and Resolution. In their Reply, petitioners chose to ignore the OP
Decision and continued to reuse their old arguments claiming that they were granted FTAAs
and, thus, the case was moot. Petitioners filed a Manifestation and Submission dated
October 19, 2012,40 wherein they asserted that the present petition is moot since, in a
remarkable turn of events, MBMI was able to sell/assign all its shares/interest in the "holding
companies" to DMCI Mining Corporation (DMCI), a Filipino corporation and, in effect, making
their respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case dismissed for
being "moot." Their final act, wherein MBMI was able to allegedly sell/assign all its shares
and interest in the petitioner "holding companies" to DMCI, only proves that they were in
fact not Filipino corporations from the start. The recent divesting of interest by MBMI will
not change the stand of this Court with respect to the nationality of petitioners prior the
suspicious change in their corporate structures. The new documents filed by petitioners are
factual evidence that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that petitioner
corporations have violated several mining laws and made misrepresentations and falsehood
in their applications for FTAA which lead to the revocation of the said FTAAs, demonstrating
that petitioners are not beyond going against or around the law using shifty actions and
strategies. Thus, in this instance, we can say that their claim of mootness is moot in itself

because their defense of conversion of MPSAs to FTAAs has been discredited by the OP
Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners’ nationality, whether
Filipino or foreign. In their previous petitions, they had been adamant in insisting that they
were Filipino corporations, until they submitted their Manifestation and Submission dated
October 19, 2012 where they stated the alleged change of corporate ownership to reflect
their Filipino ownership. Thus, there is a need to determine the nationality of petitioner
corporations.
Basically, there are two acknowledged tests in determining the nationality of a corporation:
the control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of
2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution
and other laws pertaining to the controlling interests in enterprises engaged in the
exploitation of natural resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership
at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens,
all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of
the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall
be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations
or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality," pertains to the control test or the liberal rule. On the
other hand, the second part of the DOJ Opinion which provides, "if the percentage of the
Filipino ownership in the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as Philippine nationality," pertains
to the stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in advocating the application
of the "control test" under RA 7042, as amended by RA 8179, otherwise known as the
Foreign Investments Act (FIA), rather than using the stricter grandfather rule. The pertinent
provision under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
25
a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic
partnership or association wholly owned by the citizens of the Philippines; a corporation
organized under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of
funds for pension or other employee retirement or separation benefits, where the trustee is
a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That were a corporation and its non-Filipino stockholders own
stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of the Philippines and at least sixty percent
(60%) of the members of the Board of Directors, in order that the corporation shall be
considered a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since
the definition of a "Philippine National" under Sec. 3 of the FIA does not provide for it. They
further claim that the grandfather rule "has been abandoned and is no longer the applicable
rule."41 They also opined that the last portion of Sec. 3 of the FIA admits the application of a
"corporate layering" scheme of corporations. Petitioners claim that the clear and
unambiguous wordings of the statute preclude the court from construing it and prevent the
court’s use of discretion in applying the law. They said that the plain, literal meaning of the
statute meant the application of the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to
circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the
pronouncement of petitioners that the grandfather rule has already been abandoned must
be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State. With the exception of agricultural lands, all
other natural resources shall not be alienated. The exploration, development, and utilization
of natural resources shall be under the full control and supervision of the State. The State
may directly undertake such activities, or it may enter into co-production, joint venture or
production-sharing agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than twenty-five years, and
under such terms and conditions as may be provided by law.
The President may enter into agreements with Foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of

the country. In such agreements, the State shall promote the development and use of local
scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into different types of
agreements for the exploration, development, and utilization of natural resources with
entities who are deemed Filipino due to 60 percent ownership of capital is pertinent to this
case, since the issues are centered on the utilization of our country’s natural resources or
specifically, mining. Thus, there is a need to ascertain the nationality of petitioners since, as
the Constitution so provides, such agreements are only allowed corporations or associations
"at least 60 percent of such capital is owned by such citizens." The deliberations in the
Records of the 1986 Constitutional Commission shed light on how a citizenship of a
corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of an independent
national economy is freedom from undue foreign control? What is the meaning of undue
foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty
and the welfare of the Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not
simply freedom from foreign control? I think that is the meaning of independence, because
as phrased, it still allows for foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain
the 60/40 possibility in the cultivation of natural resources, 40 percent involves some
control; not total control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
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,
26
or on the paid-up capital stock of a corporation’? Will the Committee please enlighten me on
this?
MR. VILLEGAS: We have just had a long discussion with the members of the team from the
UP Law Center who provided us with a draft. The phrase that is contained here which we
adopted from the UP draft is ‘60 percent of the voting stock.’
MR. NOLLEDO: That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation
with 60-40 percent equity invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to apply the
grandfather rule in cases where corporate layering is present.
Elementary in statutory construction is when there is conflict between the Constitution and a
statute, the Constitution will prevail. In this instance, specifically pertaining to the provisions
under Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of the FIA will
have no place of application. As decreed by the honorable framers of our Constitution, the
grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a
corporation for purposes, among others, of determining compliance with nationality
requirements (the ‘Investee Corporation’). Such manner of computation is necessary since
the shares in the Investee Corporation may be owned both by individual stockholders
(‘Investing Individuals’) and by corporations and partnerships (‘Investing Corporation’). The
said rules thus provide for the determination of nationality depending on the ownership of
the Investee Corporation and, in certain instances, the Investing Corporation.

Under the above-quoted SEC Rules, there are two cases in determining the nationality of the
Investee Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control
Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967
SEC Rules which states, ‘(s)hares belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be considered as of Philippine
nationality.’ Under the liberal Control Test, there is no need to further trace the ownership of
the 60% (or more) Filipino stockholdings of the Investing Corporation since a corporation
which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion
in said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality." Under the
Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and
the Investee Corporation must be traced (i.e., "grandfathered") to determine the total
percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of
the Investing Corporation and added to the shares directly owned in the Investee
Corporation x x x.
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the
second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is
in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture
corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently,
where the 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will
not apply. (emphasis supplied)
After a scrutiny of the evidence extant on record, the Court finds that this case calls for the
application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt
prevails and persists in the corporate ownership of petitioners. Also, as found by the CA,
doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and
Tesoro, since their common investor, the 100% Canadian corporation––MBMI, funded them.
However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos
are less than 60%.43
The assertion of petitioners that "doubt" only exists when the stockholdings are less than
60% fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their
petition, only made an example of an instance where "doubt" as to the ownership of the
corporation exists. It would be ludicrous to limit the application of the said word only to the
instances where the stockholdings of non-Filipino stockholders are more than 40% of the
total stockholdings in a corporation. The corporations interested in circumventing our laws
would clearly strive to have "60% Filipino Ownership" at face value. It would be senseless for
these applying corporations to state in their respective articles of incorporation that they
27
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 Court’s mind. To
determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather
rule must be used.
McArthur Mining, Inc.
To establish the actual ownership, interest or participation of MBMI in each of petitioners’
corporate structure, they have to be "grandfathered."
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
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):
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. MBMI’s 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.
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/april2014/19558
0.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 SMMI’s corporate structure:
Sara Marie Mining, Inc.
[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/19558
0.pdf]]
After subsequently studying SMMI’s corporate structure, it is not farfetched for us to spot
the glaring similarity between SMMI and MMC’s corporate structure. Again, the presence of
identical stockholders, namely: Olympic, MBMI, Amanti Limson (Limson), Esguerra, Salazar,
Hernando, Mason and Cawkell. The figures under the headings "Nationality," "Number of
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 Olympic’s participation
in SMMI’s 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
28
Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC’s
MPSA application, whose corporate structure’s arrangement is similar to that of the first two
petitioners discussed. The capital stock of Narra is ten million pesos (PhP 10,000,000), which
is divided into ten thousand common shares (10,000) at one thousand pesos (PhP 1,000) per
share, shown as follows:
[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/19558
0.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 PLMDC’s 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 MBMI’s 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 Company’s ownership interests in various mining ventures engaged in
the acquisition, exploration and development of mineral properties in the Philippines is
described as follows:
(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.

(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)
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,
MBMI’s Summary of Significant Accounting Policies statement– –regarding the "joint
venture" agreements that it entered into with the "Olympic" and "Alpha" groups––involves
SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered" corporations
boils down to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has
joint venture 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 CA’s use of the exception of the res inter alios acta or the "admission
by co-partner or agent" rule and "admission by privies" under the Rules of Court in the
instant case, by pointing out that statements made by MBMI should not be admitted in this
case since it is not a party to the case and that it is not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the
party within the scope of his authority and during the existence of the partnership or agency,
may be given in evidence against such party after the partnership or agency is shown by
29
evidence other than such act or declaration itself. The same rule applies to the act or
declaration of a joint owner, joint debtor, or other person jointly interested with the party.
Sec. 31. Admission by privies.- Where one derives title to property from another, the act,
declaration, or omission of the latter, while holding the title, in relation to the property, is
evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the
partnership relation must be shown, and that proof of the fact must be made by evidence
other than the admission itself."49 Thus, petitioners assert that the CA erred in finding that a
partnership relationship exists between them and MBMI because, in fact, no such
partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that
"by entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and
McArthur. They challenged the conclusion of the CA which pertains to the close
characteristics of
"partnerships" and "joint venture agreements." Further, they asserted that before this
particular partnership can be formed, it should have been formally reduced into writing since
the capital involved is more than three thousand pesos (PhP 3,000). Being that there is no
evidence of written agreement to form a partnership between petitioners and MBMI, no
partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to contribute money,
property, or industry to a common fund with the intention of dividing the profits among
themselves.50 On the other hand, joint ventures have been deemed to be "akin" to
partnerships since it is difficult to distinguish between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their association are so
similar and closely akin to a partnership that it is ordinarily held that their rights, duties, and
liabilities are to be tested by rules which are closely analogous to and substantially the same,
if not exactly the same, as those which govern partnership. In fact, it has been said that the
trend in the law has been to blur the distinctions between a partnership and a joint venture,
very little law being found applicable to one that does not apply to the other.51
Though some claim that partnerships and joint ventures are totally different animals, there
are very few rules that differentiate one from the other; thus, joint ventures are deemed
"akin" or similar to a partnership. In fact, in joint venture agreements, rules and legal
incidents governing partnerships are applied.52

Accordingly, culled from the incidents and records of this case, it can be assumed that the
relationships entered between and among petitioners and MBMI are no simple "joint
venture agreements." As a rule, corporations are prohibited from entering into partnership
agreements; consequently, corporations enter into joint venture agreements with other
corporations or partnerships for certain transactions in order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and among petitioners and
MBMI was executed to circumvent the legal prohibition against corporations entering into
partnerships, then the relationship created should be deemed as "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.
30
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.
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 Department’s
Community Environment and Natural Resources Officers (CENRO) or Provincial Environment
and Natural Resources Officers (PENRO), to be filed at the Regional Office for resolution of
the Panel of Arbitrators. However previously published valid and subsisting mining claims are
exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully
complied with and any opposition/adverse claim is dealt with in writing by the Director and
resolved by the Panel of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the "disputes involving rights to
mining areas" under Sec. 77(a) specifically refer only to those disputes relative to the
applications for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right
application is further elucidated by Secs. 219 and 43 of DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of
Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said
sections may also be filed directly with the Panel of Arbitrators within the concerned periods
for filing such claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.-
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
31
whatever nature has been filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the last date of
publication/posting, with the Regional offices concerned, or through the Department’s
Community Environment and Natural Resources Officers (CENRO) or Provincial Environment
and Natural Resources Officers (PENRO), to be filed at the Regional Office for resolution of
the Panel of Arbitrators. However, previously published valid and subsisting mining claims
are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully
complied with and any opposition/adverse claim is dealt with in writing by the Director and
resolved by the Panel of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to resolve any adverse claim,
opposition, or protest relative to mining rights under Sec. 77(a) of RA 7942 is confined only to
adverse claims, conflicts and oppositions relating to applications for the grant of mineral
rights.
POA’s jurisdiction is confined only to resolutions of such adverse claims, conflicts and
oppositions and it has no authority to approve or reject said applications. Such power is
vested in the DENR Secretary upon recommendation of the MGB Director. Clearly, POA’s
jurisdiction over "disputes involving rights to mining areas" has nothing to do with the
cancellation of existing mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve
disputes over MPSA applications subject of Redmont’s petitions. However, said jurisdiction
does not include either the approval or rejection of the MPSA applications, which is vested
only upon the Secretary of the DENR. Thus, the finding of the POA, with respect to the
rejection of petitioners’ MPSA applications being that they are foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not
the POA, that has jurisdiction over the MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute in force at the time of
the commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive original
jurisdiction:

1. In all civil actions in which the subject of the litigation is incapable of pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x Within thirty (30) days, after the submission of the case by the parties for the
decision, the panel shall have exclusive and original jurisdiction to hear and decide
the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all disputes involving
rights to mining areas. One such dispute is an MPSA application to which an adverse claim,
protest or opposition is filed by another interested applicant.1âwphi1 In the case at bar, the
dispute arose or originated from MPSA applications where petitioners are asserting their
rights to mining areas subject of their respective MPSA applications. Since respondent filed 3
separate petitions for the denial of said applications, then a controversy has developed
between the parties and it is POA’s jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with
the DENR Regional Office or any concerned DENRE or CENRO are MPSA applications. Thus
POA has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of
primary jurisdiction. Euro-med Laboratories v. Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that its determination requires
the expertise, specialized training and knowledge of an administrative body, relief must first
be obtained in an administrative proceeding before resort to the courts is had even if the
matter may well be within their proper jurisdiction.
Whatever may be the decision of the POA will eventually reach the court system via a resort
to the CA and to this Court as a last recourse.
Selling of MBMI’s shares to DMCI
As stated before, petitioners’ Manifestation and Submission dated October 19, 2012 would
want us to declare the instant petition moot and academic due to the transfer and
conveyance of all the shareholdings and interests of MBMI to DMCI, a corporation duly
organized and existing under Philippine laws and is at least 60% Philippine-
32
owned.56 Petitioners reasoned that they now cannot be considered as foreign-owned; the
transfer of their shares supposedly cured the "defect" of their previous nationality. They
claimed that their current FTAA contract with the State should stand since "even wholly-
owned foreign corporations can enter into an FTAA with the State."57Petitioners stress that
there should no longer be any issue left as regards their qualification to enter into FTAA
contracts since they are qualified to engage in mining activities in the Philippines. Thus,
whether the "grandfather rule" or the "control test" is used, the nationalities of petitioners
cannot be doubted since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case
and said fact should be disregarded. The manifestation can no longer be considered by us
since it is being tackled in G.R. No. 202877 pending before this Court.1âwphi1 Thus, the
question of whether petitioners, allegedly a Philippine-owned corporation due to the sale of
MBMI's shareholdings to DMCI, are allowed to enter into FTAAs with the State is a non-issue
in this case.
In ending, the "control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration, development and utilization of the
natural resources of the Philippines. When in the mind of the Court there is doubt, based on
the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in
the corporation, then it may apply the "grandfather rule."
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of
Appeals Decision dated October 1, 2010 and Resolution dated February 15, 2011 are hereby
AFFIRMED.
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."
Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in partnership with,
or privies-in-interest of, MBMI.
33
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 court’s use of discretion
in applying the law. They said that the plain, literal meaning of the statute meant the
application of the control test is obligatory. 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
 34

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.

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
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 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.
On November 20, 1995, the SEC rendered a decision ordering petitioner to change its
corporate name. The dispositive portion thereof reads:
35
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.
Hence, the instant petition for review, raising the following assignment of errors:
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:
36
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.
Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names
states:
(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]
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]
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
 37

Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that corporate name. The Court of Appeals rendered the assailed decision affirming the decision
even under the test of reasonable care and observation confusion may arise. of the SEC En Banc.
Furthermore, the wholesale appropriation by petitioner of respondent's corporate
ISSUE: Whether the court of appeals failed to properly appreciate the scope of the
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 constitutional guarantee on religious freedom
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 RULING:
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 The additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in petitioner's name
does not authorize the use by petitioner of the essential and distinguishing feature of are, as correctly observed by the SEC, merely descriptive of and also referring to the
respondent's registered and protected corporate name.[23]
members, or kaanib, of respondent who are likewise residing in the Philippines. These words
We need not belabor the fourth issue raised by petitioner. Certainly, ordering can hardly serve as an effective differentiating medium necessary to avoid confusion or
petitioner to change its corporate name is not a violation of its constitutionally guaranteed difficulty in distinguishing petitioner from respondent. This is especially so, since both
right to religious freedom. In so doing, the SEC merely compelled petitioner to abide by one petitioner and respondent corporations are using the same acronym — H.S.K.; not to
of the SEC guidelines in the approval of partnership and corporate names, namely its
mention the fact that both are espousing religious beliefs and operating in the same place.
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 The fact that there are other non-stock religious societies or corporations using the names
deceptively or confusingly similar to it. 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
WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The
authorize the use by petitioner of the essential and distinguishing feature of respondent's
appealed decision of the Court of Appeals is AFFIRMED in toto.
registered and protected corporate name. Ordering petitioner to change its corporate name
SO ORDERED. 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
Ang Mga Kaanib vs. Iglesia (December 12, 2001) 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
FACTS: instant petition for review is DENIED. The appealed decision of the Court of Appeals is
AFFIRMED in toto.
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

Facts:
The Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (IDCJ-HSK; Church of God
in Christ Jesus, the Pillar and Ground of Truth), is a non-stock 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 (IDKJ-HSK). 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-HSK-BP 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[IDKH-HSK]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 IDCH-HSK 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
38
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[IDKH-HSK]BP and IDCH-HSK are
using the same acronym ² 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 IDCH-HSK.
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 ² both mean ground,
foundation or support. Hence, this case is on all fours with Universal Mills Corporation v.
Universal 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[IDKH-HSK]BP¶s 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
 39

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.
 40

THIRD DIVISION 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.
HYATT ELEVATORS AND G.R. No. 161026
ESCALATORS CORPORATION,
On the other hand, private respondent [herein petitioner] Hyatt Elevators and
Petitioner, Present:
Escalators Company (HYATT for brevity) is a domestic corporation similarly engaged
- versus -
in the business of selling, installing and maintaining/servicing elevators, escalators
GOLDSTAR ELEVATORS, Promulgated:
and parking equipment, with address at the 6th Floor, Dao I Condominium, Salcedo
PHILS., INC.,*
St., Legaspi Village, Makati, as stated in its Articles of Incorporation.
Respondent. October 24, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
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
DECISION 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
PANGANIBAN, J.: 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,
Well established in our jurisprudence is the rule that the residence of a corporation is the the various meetings it had with LGISC and LGIC, through the latters
representatives, were conducted in utmost bad faith and with malevolent
place where its principal office is located, as stated in its Articles of Incorporation. 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
The Case 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.
Before us is a Petition for Review[1] on Certiorari, under Rule 45 of the Rules of Court,
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
assailing the June 26, 2003 Decision[2] and the November 27, 2003 Resolution[3] of the Court
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
of Appeals (CA) in CA-GR SP No. 74319. The decretal portion of the Decision reads as follows: January 7, 2000.
WHEREFORE, in view of the foregoing, the assailed Orders dated May 27,
On March 6, 2000, LGISC and LGIC filed an Answer with Compulsory
2002 and October 1, 2002 of the RTC, Branch 213, Mandaluyong City in Counterclaim ex abundante cautela. Thereafter, they filed a Motion for
Civil Case No. 99-600, are hereby SET ASIDE. The said case is hereby Reconsideration and to Expunge Complaint which was denied.
ordered DISMISSED on the ground of improper venue.[4]
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
The assailed Resolution denied petitioners Motion for Reconsideration. 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
The Facts
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
The relevant facts of the case are summarized by the CA in this wise:
 41

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.
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

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 that the venue was clearly improper, because none of the litigants resided in Mandaluyong
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 City, where the case was filed.
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 According to the appellate court, since Makati was the principal place of business of both
motion to dismiss, ratiocinating as follows:

Upon perusal of the factual and legal arguments raised by the respondent and petitioner, as stated in the latters Articles of Incorporation, that place was
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 controlling for purposes of determining the proper venue. The fact that petitioner had
issues of improper venue, failure to state cause of action as
well as this courts lack of jurisdiction. Under the circumstances
abandoned its principal office in Makati years prior to the filing of the original case did not
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 affect the venue where personal actions could be commenced and tried.
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 Hence, this Petition.[6]
settlement of the claim subject of the action it appearing
preliminarily as sufficiently alleged in the plaintiffs pleading The Issue
that said Goldstar Elevator Philippines Inc., is being managed
and operated by the same Korean officers of defendants LG-
In its Memorandum, petitioner submits this sole issue for our consideration:
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
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]
This Courts Ruling
The Petition has no merit.
Sole Issue:
Venue
The resolution of this case rests upon a proper understanding of Section 2 of Rule 4 of the
1997 Revised Rules of Court:
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 non-resident 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]
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 Court has also definitively ruled that for purposes of venue, the term residence is
synonymous with domicile.[14] Correspondingly, the Civil Code provides:
42
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]
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).
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.
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.
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 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.
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:
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]
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]
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision
Resolution AFFIRMED. Costs against petitioner.
SO ORDERED.
43
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
and
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
HYATT’s 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
 44

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 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 latter’s 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 plaintiff’s 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.