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5.

SECOND DIVISION

G.R.No. 204261, October 05, 2016

EDWARD C. DE CASTRO AND MA. GIRLIE F.


PLATON, Petitioners, v. COURT OF APPEALS, NATIONAL LABOR
RELATIONS COMMISSION, SILVERICON, INC., AND/OR NUVOLAND
PHILS., INC., AND/OR RAUL MARTINEZ, RAMON BIENVENIDA, AND
THE BOARD OF DIRECTORS OF NUVOLAND, Respondents.

DECISION

MENDOZA, J.:

This is a Petition for Certiorari under Rule 65 of the Rules of Court assailing the June 1, 2012 Decision1 and
the September 21, 2012 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 122415, for having
been issued with grave abuse of discretion, when it affirmed the July 29, 2011 Decision3 and the September
22, 2011 Resolution4 of the National Labor Relations Commission (NLRC) in NLRC -NCR Case Nos. 11-
16356-09 and 12-17308-09, consolidated cases for illegal dismissal filed against respondent corporations,
Nuvoland Phils., Inc. (Nuvoland) and Silvericon, Inc. (Silvericon).

The July 29, 2011 NLRC Decision, in turn, reversed the March 15 2011 Decision5 of the Labor
Arbiter (LA), finding that the petitioners were illegally dismissed.
chan roble svirtuallaw lib rary

The Antecedents

Nuvoland, a corporation formed primarily "to own, use, improve, develop, subdivide, sell, exchange, lease
and hold for investment or otherwise, real estate of all kinds, including buildings, houses, apartments and
other structures," was registered with the Securities and Exchange Commission (SEC) on August 9,
2006.6 Respondent Ramon Bienvenida (Bienvenida) was the principal stockholder and member of the Board
of Directors while Raul Martinez (Martinez) was its President.

Silvericon, on the other hand, was registered with the SEC on December 19, 2006. Its Articles: of
Incorporation described it as a "corporation organized 'to own, use, improve, develop, subdivide, sell,
exchange, lease and hold for investment or otherwise, real estate of all kinds, including buildings, houses,
apartments and other structures.'"7

Sometime in 2007, Martinez recruited petitioner Edward de Castro (De Castro), a sales and marketing
professional in the field of real estate, to handle its sales and marketing operations, including the hiring and
supervision of the sales and marketing personnel. To formalize this undertaking, De Castro was made to
sign a Memorandum of Agreement (MOA), denominated as Shareholders Agreement,8wherein Martinez
proposed to create a new corporation, through which the latter's compensation, benefits and commissions,
including those of other sales personnel, would be coursed. It was stipulated in the said MOA that the new
corporation9would have an authorized capital stock of P4,000,000.00, of which P1,000,000.00 was
subscribed and paid equally by the Martinez Group and the De Castro Group.10

As it turned out, the supposedly new corporation contemplated was Silvericon. De Castro was appointed the
President and majority stockholder of Silvericon while Bienvenida and Martinez were named as stockholders
and incorporators thereof, each owning one (1) share of subscribed capital stock.

In the same MOA, Martinez was designated as Chairman of the new corporation to whom De Castro, as
President and Chief Operating Officer, would directly report. De Castro was tasked to manage the day to day
operations of the new corporation based on policies, procedures and strategies set by Martinez. For their
respective roles, Martinez was to receive a monthly allowance of P125,000.00, while De Castro's monthly
salary was P400,000.00, with car plan and project income bonus, among other perks. Both Martinez and De
Castro were stipulated to receive override commissions at 1% each, based on the net contract price of each
condominium unit sold.

During De Castro's tenure as Chief Operating Officer of the newly created Silvericon, he recruited forty (40)
sales and marketing personnel. One of them was petitioner Ma. Girlie F. Platon (Platon) who occupied the
position of Executive Property Consultant. De Castro and his team of sales personnel were responsible for
the sale of 100% of the projects owned and developed by Nuvoland.11

Thereafter, the Sales and Marketing Agreement12(SMA), dated February 26, 2008, was purportedly executed
by Nuvoland and Silvericon, stipulating that all payments made for the condominium projects of Nuvoland
were to be given directly to it. Clients secured by the sales and marketing personnel would issue checks
payable to Nuvoland while the cash payments, as the case may be, were deposited to Nuvoland's
account. Meanwhile, the corresponding sales commission of the sales personnel were issued to them by
Nuvoland, with Martinez signing on behalf of the said company.

In a Letter,13 dated December 12, 2008 and signed by Bienvenida, Nuvoland terminated the SMA on the
ground that Silvericon personnel committed an unauthorized walkout and abandonment of the Nuvo City
Showroom for two (2) days. In the same letter, Nuvoland demanded that Silvericon make a full accounting
of all its uses of the marketing advances from Nuvoland. It, however, assured that all sales commissions
earned by Silvericon personnel would be released as per existing policy.

After the issuance of the said termination letter, De Castro and all the sales and marketing personnel of
Silvericon were barred from entering the office premises. Nuvoland, eventually, was able to secure the
settlement of all sales and marketing personnel's commissions and wages with the exception of those of De
Castro and Platon. The claims of one of Silvericon's senior manager were settled during the pendency of a
complaint with the LA.14

Aggrieved, De Castro and Platon filed a complaint for illegal dismissal before the LA, demanding the
payment of their unpaid wages, commissions and other benefits with prayer for the payment of moral and
exemplary damages and attorney's fees against Silvericon, Nuvoland, Martinez, Bienvenida, and the Board
of Directors of Nuvoland.

Nuvoland and its directors and officers denied a direct contractual relationship with De Castro and Platon,
and contended that if there was any dispute at all, it was merely between the complainants and Silvericon.

For its part, Silvericon admitted that it had employed De Castro as President and COO. It, however, asserted
the application of Presidential Decree (P.D.) No. 902-A to the case, arguing that the claims come within the
purview of corporate affairs and management, thus, falling within the jurisdiction of the regular courts.15

The Ruling of the Labor Arbiter

On March 15, 2011, after the filing of the parties' respective position papers, the LA handed down his
decision in favor of De Castro and Platon. He concluded that Silvericon was a mere labor-only contractor
and, therefore, a mere agent of Nuvoland. Thus: chanRoblesvi rtua lLawl ibra ry

It should be noted that in the Sales and Marketing Agreement between Silvericon and
Nuvoland, the latter committed to advance all the necessary amount of money up to the
extent of P30 million per building to fund the marketing expenses for the project. This alone
disqualifies respondent Silvericon as an independent contractor as it could not undertake
the contracted sales and marketing work under its own account and under its own
responsibility. Not only that, that respondent Nuvoland has to bankroll the marketing
expenses of respondent Silvericon up to the extent of P30 million per building means that
the latter does not have substantial capital to undertake the contract work on its own
account and under its own responsibility. Thus, the argument by the respondents that the
paid-up capital of respondent Silvericon in the amount of P1 million as shown by its Articles
of Incorporation to be substantial capital is simply puerile. If it were true that said amount
of Pi million would be substantial enough for Silvericon to carry out its undertaking under
Sales and Marketing Agreement, then there was no need for respondent Nuvoland to
advance the amount of P30,000,000.00 for the marketing expenses of Silvericon. Moreover,
as argued by complainants, how can P1,000,000.00 be deemed as substantial capitalization
if complainant De Castro's salary per month alone is already about almost half of
Silver/icon's paid-up capitalization. This is not to mention the salaries of the more than
forty sales and marketing staff. This means that after only one (1) month in operation,
Silvericon's capitalization would not have been enough to pay even the salaries of its
employees.

To be added to the foregoing findings is the admitted fact that it was respondent Nuvoland
which paid the sales commissions of the sales personnel of respondent Silvericon. Even the
power to dismiss the complainants and the other sales personnel of Silvericon was
exercised by respondent Nuvoland. If indeed there was an unauthorized walkout and
abandonment by the sales personnel of the Nuvo City showroom for a period of two (2)
days, then what Nuvoland could have done was to notify Silvericon to institute appropriate
disciplinary action against the erring personnel, and not to take the cudgels for Silvericon in
abruptly terminating the entire sales force including the complainants herein.16
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Nuvoland was adjudged as the direct employer of De Castro and Platon and, thus, liable to pay their money
claims as a consequence of their illegal dismissal. According to the LA, the ground relied upon for the
termination of the employment of De Castro and Platon - abandonment of the Nuvo City Showroom - was
not at all proven. Mere suspicion that De Castro instigated the walkout did not discharge the burden of proof
which heavily rested on the employer. Without an unequivocal showing that an employee deliberately and
unjustifiably refused his employment sans any intention to return to work, abandonment as a cause for
dismissal could not stand. Worse, procedural due process could not be said to have been observed through
the expediency of a letter in contravention to Article 277, paragraph 2 of the Labor Code.17 Hence, the LA
disposed: c hanRoble svirtual Lawlib ra ry

WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered
ordering respondent Nuvoland Phils. Inc. and/or Raul Martinez and Ramon Bienvenida to
pay jointly and solidarity the awarded claims in favor of the complainants, as follows: cralawlawlib rary

EDWARD DE CASTRO

Backwages................................ P10,800,000.00
Separation pay.............................. 1,600,000.00
Unpaid Salaries................................ 146,667.00
13th Month Pay............................... 380,000.00
Unpaid Override Commissions ........26,454.839.88

TOTAL........................P39,381,506.88

MA. GIRLIE PLATON

Backwages................................ P405,000.00
Separation pay.............................. 60,000.00
Unpaid Salaries................................ 5,500.00
13th Month Pay.............................. 14,250.00
Unpaid Override Commissions ........530.231.93

TOTAL........................P1,014,981.93
chanrobles law

Not in conformity, Nuvoland, Bienvenida and Martinez interposed an appeal before the NLRC, arguing that
the LA gravely abused his discretion in ruling that: 1) Silvericon was a labor-only contractor; 2) the case did
not involve an intra-corporate dispute; and 3) Martinez and Bienvenida were solidarity liable for illegal
dismissal.

The Ruling of the NLRC


In its July 29, 2011 Decision, the NLRC reversed the LA decision, finding that Silvericon was an independent
contractor, thus, the direct employer of De Castro and Platon. In its view, in the SMA, Silvericon had full
discretion on how to perform and conduct its marketing and sales tasks; and there was no showing that
Nuvoland had exercised control over the method of sales and marketing strategies used by Silvericon. The
NLRC further concluded that Silvericon had substantial capital. It pointed out that in several cases decided
by the Court, even an amount less than One Million Pesos was sufficient to constitute : substantial capital;
and so to require Silvericon to prove that it had investments in the form of tools, equipment, machinery,
and work premises would be going beyond what the law and jurisprudence required. Hence, it could not
consider Silvericon as a dummy corporation of Nuvoland organized to effectively evade the latter's obligation
of providing employment benefits to its sales and marketing agents. This being the case, the NLRC ruled
that no employer-employee relationship existed between Nuvoland, on one hand, and De Castro and Platon,
on the other. There was no evidence showing that Nuvoland hired, paid wages, dismissed or controlled De
Castro and Platon, or anyone of Silvericon's employees. Resultantly, Martinez and Bienvenida could not be
held liable for they merely acted as officers of Nuvoland.

Unfazed, De Castro and Platon assailed the decision of the NLRC via a petition for certiorari under
Rule 65 with the CA.

The Ruling of the CA

In its June 1, 2012 Decision, the CA affirmed the findings of the NLRC, pointing out that what was
terminated was the SMA. As such, the employment of the forty (40) personnel hired by Silvericon, as well as
the petitioners' employment, was not affected. Considering that there was no employer-employee
relationship between the petitioners and Nuvoland, the CA deemed that the latter could not be held liable for
the claim of illegal dismissal. Even assuming that De Castro was illegally dismissed, the CA opined that the
NLRC was correct in refraining from taking cognizance of the complaint because De Castro's employment
with Silvericon put him within the ambit of Section 5.2 of Republic Act (R.A.) No. 8799, otherwise known as
The Securities Regulation Code. As such, his claim should have been brought before the Regional Trial
Court (RTC) instead.

Upon the denial of their motion for reconsideration, the petitioners filed this petition on the following

GROUNDS

THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION WHEN


IT AGREED WITH THE NLRC THAT SILVERICON IS NOT A LABOR-ONLY
CONTRACTOR

II

THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION WHEN


IT AGREED WITH THE NLRC THAT THE INSTANT CASE INVOLVES AN INTRA-
CORPORATE DISPUTE

III

THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION WHEN


IT HELD THAT NO BAD FAITH WAS ESTABLISHED ON THE PART OF RESPONDENTS
RAUL MARTINEZ AND RAMON BIENVENIDA.18
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Essentially, petitioners De Castro and Platon argue that Silvericon, far from being an independent
contractor, was engaged in labor-only contracting as shown by: 1) its lack of a substantial capital necessary
in the conduct of its business; 2) its lack of investment on tools, equipment, machineries, work premises,
and other materials; and 3) its failure to secure a certificate of authority to act as an independent contractor
issued by the Department of Labor and Employment (DOLE); and 4) its services to Nuvoland being exclusive
in nature.

According to De Castro and Platon, the evaluation of the authorized capital stock of Silvericon against the
marketing and sales activities of its sales personnel would readily show that it needed a huge amount of
funds for salaries and operating expenses, not to mention the funds for promotions and advertisements for
the Aspire Condominium Project and Infinity Office and Residential Condominium Prpject. Suffice it to say,
Silvericon's authorized or paid up capital was deficient to cover its operations. This is the reason why
Nuvoland made advancements amounting to P30 Million per building.

The petitioners contend that the CA gravely erred when it relied on the eventual deduction of the said
advances from the earned marketing fee of Silvericon pursuant to the SMA. The advancements, whether or
not at cost on the part of Silvericon, only proved that the latter had no substantial capital necessary for its
business. Although jurisprudence was replete with rulings considering an amount less than the paid-up
capital of Silvericon as substantial, the industry in which the respondent corporations were engaged, that is,
the sale and marketing of enormous condominium projects, should be taken into account. In other words,
the test of a substantial paid-up capital for purposes of identifying an entity; as an independent contractor
should be evaluated in light of the business it is undertaking. In the case of Silvericon, the paid-up capital of
P1 Million Pesos could hardly be considered substantial.

Further, Silvericon had no investment in the form of tools and equipment necessary in the conduct of its
business, the sales and marketing activities of which were conducted in the premises of Nuvoland. The latter
itself designed and constructed the model units used for the sales and marketing of the condominium
projects.

More significantly, the petitioners explained that Nuvoland created Silvericon to serve, not any other
clientele, but its creator. If Nuvoland really wanted to engage a truly independent contractor to undertake
its sales and marketing needs, it should have engaged a more experienced one, not a two-year old untested
company. But then, they are one and the same. The services of Silvericon were exclusively for Nuvoland.
Hence, there was no need for Nuvoland to require Silvericon to secure a certificate of authority from the
DOLE. Undeniably, De Castro was merely engaged to facilitate the recruitment of sales and marketing
personnel, who then performed functions which were directly related to the main business of the principal,
Nuvoland.

Position of the Respondents

In their Comment,19 respondents Nuvoland, Martinez and Bienvenida argued that the subject petition should
be dismissed outright for having been filed under a wrong mode of appeal. In other words, instead of being
captioned as a petition under Rule 45, the petitioners availed of the special civil action under Rule 65,
setting forth grave abuse of discretion on the part of the CA as a main ground. The respondents pointed out
that the petitioners may not utilize a petition for certiorari as a pretext for a belated filing of a petition for
review.

Respondent Silvericon for its part, submitted its Manifestation,20 dated December 12, 2013, praying that it
be excused from filing a comment as it did not see any need to be part of the appeal.

Reply of Petitioners

In their Reply,21 the petitioners asserted that their petition was strongly grounded on grave abuse of
discretion due to the CA's deliberate failure to consider material and undisputed facts showing that
Silvericon was indeed a labor-only contractor. They hinged their choice of remedy on their view that the
NLRC, as affirmed by the CA, acted in total disregard of the evidence decisive of the present controversy. chan roblesv irt uallawl ibra ry

The Court's Ruling


Initially, because of the divergence in the conclusions of the LA and the NLRC, it appears that the issues
surrounding the legal arrangements between and among the parties are complicated. After a perusal of the
records, however, the Court comes to view the case as a simple question of whether Silvericon was engaged
in independent contracting or a labor-only scheme. The answer to this issue would necessarily shape the
conclusions as to respondents' other contentions like jurisdiction. Before delving into these matters, though,
there is a need to first resolve the procedural issues.

Procedural Issues

After a careful review of the records, the Court decides to apply a tempered relaxation of the procedural
rules in accord with substantial justice.

It is elementary that parties seeking the review of NLRC decisions should file a Rule 65 petition
for certiorari in the CA on the ground of grave abuse of discretion amounting to lack or excess of
jurisdiction. Thereafter, the remedy of the aggrieved party from the CA decision is an appeal via a Rule 45
petition for review on certiorari.22 It is equally true, however, that the Court, on several occasions, has
relaxed the procedural application in accordance with the liberal spirit and in the interest of substantial
justice. Where the exigencies of the case are such that the ordinary methods of appeal may not prove
adequate - either in point of promptness or completeness, so that a partial if not a total failure of justice
could result - a writ of certiorari may still be issued.23

In the broader interest of justice, the Court deems it proper to suspend the rules and allow due course to
the petition as one for certiorari under Rule 65. As will be discussed hereafter, the Court has determined
points of contention that were disregarded by the authorities a quo, the outright conclusion of which
stripped off the petitioners of a remedy to demand their claims which were founded on a legal obligation.
The propriety of the mode of appeal used by the petitioners pales in comparison with the alleged grave
errors of judgment committed by the CA. For said reason, matters deserving clear resolution by the Court of
last resort cannot be ignored lest a miscarriage of justice come to pass.

Substantive Issues

As to the substantive issues, the Court is faced with divergent views in the arguments raised. On one hand,
the petitioners strongly urge the Court to consider numerous factors that would justify the piercing of the
corporate veil showing that Silvericon was just a business conduit of Nuvoland. On the other, the
respondents vehemently deny the existence of an employer-employee relationship between Nuvoland and
the petitioners. This absence of a juridical tie, according to Nuvoland, necessarily directs the claims of the
petitioners to Silvericon as their employer, being an independent contractor.

Pertinently, Article 106 of the Labor Code provides: chanRoble svirtual Lawli bra ry

Article 106. Contractor or subcontractor. - Whenever an employer enters into a contract


with another person for the performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be paid in accordance with the
provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent of the work performed under
the contract, in the same manner and extent that he is liable to employees directly
employed by him.

The Secretary of Labor and Employment may, by appropriate regulations, restrict or


prohibit the contracting-out of labor to protect the rights of workers established under this
Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-
only contracting and jobcontracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or circumvention of any
provision of this Code.

There is "labor-only" contracting where the person supplying workers to an employer does
not have substantial capital or investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and placed by such person are
performing activities which are directly related to the principal business of such employer.
In such cases, the person or intermediary shall be considered merely as an agent of
the emplover who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.[Emphasis and underscoring
supplied]
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Corollary thereto, DOLE Department Order No. 18-02, Series of 2002 (D.O. 18-02), implements the above
provision of law: cha nRoblesvi rt ual Lawlib rary

Section 5. Prohibition against labor-only contracting. -Labor-only contracting is hereby


declared prohibited x x x labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform a job,
work or service for a principal, and any of the following elements are present: c ralawlawl ibra ry

i) The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied
or placed by such contractor or subcontractor are performing activities which are directly
related to the main business of the principal; or

ii) The contractor does not exercise the right to control over the performance of the work of
the contractual-employee. cha nro blesvi rtua lla wlibra ry

xxxx

"Substantial capital or investment" refers to capital stocks and subscribed


capitalization in the case of corporations, tools or equipment, implements,
machineries and work premises, actually and directly used by the contractor or
subcontractor in the performance or completion of the job, work or service
contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services
of the contractual parties are performed to determine, not only the end to be achieved, but
also the manner and means to be used in reaching that end. [Emphasis and underscoring
supplied]
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At the outset it should be rioted that a real estate company like Nuvoland may opt to advertise and; sell its
real estate assets on its own, or allow an independent contractor to market these developments in a manner
that does not violate aforesaid regulations. Basically, a legitimate job contractor complies with the
requirements on sufficient capitalization and equipment to undertake the needs of its client. Although this is
not the sole determining factor of legitimate contracting, independent contractors are likewise required to
register with the DOLE. This is required by D.O. 18-02. Thus: chanRoblesvirtual Lawlib ra ry

Section 11. Registration of Contractors or Subcontractors. - Consistent with the authority of


the Secretary of Labor and Employment to restrict or prohibit the contracting out of labor
through appropriate regulations, a registration system to govern contracting arrangements
and to be implemented by the Regional Offices is hereby established.

The registration of contractors and subcontractors shall be necessary for purposes of


establishing an effective labor market information and monitoring.

Failure to register shall give rise to the presumption that the contractor is
engaged in labor-only contracting. [Emphasis and underscorings supplied]
chanrobles law

In the present case, the Court is hounded by nagging doubts in its review of the assailed decision. Several
factors showing that Silvericon was not an independent contractor were, conveniently brushed aside
resulting in an unjust outcome. For clarity, the Court lists down these factors, most of which were left
unexplained by the respondents.

First. As earlier pointed out, D.O. 18-02 expressly provides for a registration requirement. Remarkably, the
respondents do not deny the apparent non-compliance with the rules governing independent contractors.

This failure on the part of Silvericon reinforces the Court's view that it was engaged in labor-only
contracting. Nuvoland did not even bother to make Silvericon comply with this vital requirement had it really
entered into a legitimate contracting arrangement with a truly independent outfit. The efforts which the two
corporations have put into the drafting of the SMA belie mere inadvertence and heedlessness on this matter.

That the NLRC and the CA failed to consider this fact of non-compliance confounds the Court. The tribunals
below should have looked into the cited provision, as non-compliance thereto gives rise to a presumption
completely opposite to their claim. The presumption finds more significance especially when the respondents
have nothing but silence to rebut the same.

All they could say was that what Nuvoland terminated was the SMA, the termination of which produced no
effect whatsoever on the personnel of Silvericon. The sweeping conclusion might have been the simplest and
easiest way to dismiss the case but this certainly failed to rebut the fact that Silvericon was a labor-only
contracting entity. To the Court's mind, this is a clear attribute of grave abuse of discretion on the part of
the CA.

Second. D.O. No. 18-A, series of 2011, defines substantial capital as the paid-up capital stocks/shares of at
least P3,000,000.00 in the case of corporations, partnerships and cooperatives. This amount was set with
speciflty to avoid the subterfuge resorted to by entities with the intention to circumvent the law. As things
now stand, even the subscribed capital of Silvericon was a far cry from the amount set by the rules. It is
important to note that at the time Nuvoland engaged the services of Silvericon, the latter's authorized stock
capital was P4,000,000.00, out of which only P1,000,000.00 was subscribed.

In Vinoya v. National Labor Relations Commission,24 the Court tackled the insufficiency of paid-in
capitalization taking into account the "current economic atmosphere in the country."25 In other words, the
determination of sufficient capital stock for independent contractors must be assessed in a broad and
extensive manner with consideration of the industry involved.

In this case, the sufficiency of a subscribed capital of P1,000,000.00 for independent contracting must be
assessed taking into consideration the extent of the undertaking relative to the nature of the industry in
which Nuvoland was engaged.

Nuvoland was one of the prominent corporations in the real estate industry. It is safe to assume then that
the marketing of its condominium projects would entail a substantially high amount in what was typically a
capital intensive industry. The undertaking covered not just one but two considerably huge condominium
projects located in prime spots in the metropolis.

For the sale and marketing of two condominium buildings, it would require massive funds for promotions,
advertisements, shows, salaries, and operating expenses of its more or less 40 personnel. In light of this
vast business undertaking, it is obvious that the P1 million subscribed capital of Silvericon would hardly
suffice to satisfy this huge engagement. Nuvoland was apparently aware of this that it had to fund the
marketing expenses of the project in an amount not exceeding P30 million per building. This was even
provided in paragraph 6 of the SMA.

This being the case, the paid-in capitalization of Silvericon amounting to P1 million was woefully inadequate
to be considered as substantial capital. Thus, Silvericon could not qualify as an independent contractor.

The CA finding that Silvericon's capital was sufficient for independent contracting due to the agreement that
Nuvoland would advance the amount of P30,000,000.00 for marketing expenses, though deductible from
Silvericon's earned marketing fees at a later time, was a strained reasoning. The Court agrees with the
observation of the LA that this set-up would not have been resorted to if Silvericon's capital was substantial
enough from the start of the business venture. It is logical to presume that an established corporation like
Nuvoland would select an independent contractor, which had the financial resources to adequately
undertake its marketing and advertising requirements, and not an under capitalized company like Silvericon.
It perplexes the Court that the CA disregarded this set-up as it certainly shows that Silvericon, from the
beginning, did not have substantial capital to service the needs of Nuvoland.

Third. Silvericon had no substantial equipment in the form of tools, equipment, machinery, and work
premises. Records reveal that Nuvoland itself designed and constructed the model units used in the sales
and marketing of its condominium units. This indisputably proves that at the time of its engagement,
Silvericon had no such investment necessary for the conduct of its business.

Fourth. Although it is true that the respondents had explicitly assailed the authenticity of the MO A attached
with the petition, their faint denial fails to explain the exclusivity which had characterized the relationship
between Nuvoland and Silvericon. If Silvericon was an independent contractor, it is only but logical that it
should have also offered its services to the public.

The respondents claim that they had presented a contract tending to show that Silvericon had catered its
services to one LNC (SPV-AMC) Corporation in 2007. In their own words, the respondents assert that the
relationship of Nuvoland with Silvericon, particularly as to its contractual rights and obligations, was exactly
the same as the transaction of Silvericon with LNC (SPV-AMC) Corporation. Unfortunately for the
respondents, this allegation alone could not override the other tell-tale indicators of labor-only contracting
present in this case.

Fifth. The respondents do not deny that Nuvoland and Silvericon shared the same officers and employees:
respondents Bienvenida and Martinez were stockholders and incorporators thereof while De Castro was the
President and majority stockholder of Silvericon. At the same time, Bienvenida was a principal stockholder
and member of the Board of Directors of Nuvoland while Martinez was Nuvoland's President. Admittedly, this
fact alone does not give rise to an inference that Nuvoland and Silvericon are one and the same. It
effectively sows doubt, however, when taken together with the other indicators of labor-only contracting, as
previously discussed.

If Nuvoland and Silvericon were indeed separate entities, out of all other Nuvoland officers, why did
Bienvenida, as an incorporator of both corporations, choose to authorize the purported termination of the
SMA without at least calling for an investigation of the incident? As a stockholder of Silvericon, he possessed
an interest in the said corporation. Curiously though, Nuvoland's decision to part with Silvericon as
expressed in Bienvenida's letter was reached without consultation or, at the least, a preliminary notice. Had
there really been a breach of contract, Nuvoland would have demanded an explanation from Silvericon
before barring the personnel's entry in their work premises to think that the latter was engaged in an
important aspect of its business.

Further, with Nuvoland having advanced a huge amount of money for Silvericon, it could have at least
exercised caution before terminating the SMA with a meager request for an accounting of funds. A closer
scrutiny of the events that transpired would show that the termination of the SMA was one and the same
with the termination of all Silvericon personnel. This conclusion proceeded from the irrefutable fact that
Silvericon was actually a creation of Nuvoland. As a labor-only contractor, for all intents and purposes,
Silvericon was a mere mock-up.

In truth, the termination of the SMA was actually a ruse to make it appear that Silvericon was an
independent entity. It was simply a way to terminate the employment of several employees altogether and
escape liability as an employer. True enough, Nuvoland insisted that the petitioners direct their claims to
Silvericon.

The conclusion that Silvericon was a mere labor-only contractor and a business conduit of Nuvoland
warrants the piercing of its corporate veil. At this point, it is apt to restate the Court's ruling in Sarona v.
National Labor Relations Commission:26 cha nro blesvi rtua llawli bra ry
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1)
defeat of public convenience as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation
merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.
chanrobles law

As ruled in Prince Transport, Inc. v. Garcia,27 it is the act of hiding behind the separate and distinct
personalities of juridical entities to perpetuate fraud, commit illegal acts and evade one's obligations, that
the equitable piercing doctrine was formulated to address and prevent: Thus: chanRoblesvirtual Lawlib ra ry

x x x A settled formulation of the doctrine of piercing the corporate veil is that when two
business enterprises are owned, conducted and controlled by the same parties, both law
and equity will, when necessary to protect the rights of third parties, disregard the legal
fiction that these two entities are distinct and treat them as identical or as one and the
same, xxx However, petitioners' attempt to isolate themselves from and hide behind the
supposed separate and distinct personality of Lubas so as to evade their liabilities is
precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent
and remedy.28
chanrobles law

Consequently, the piercing of the corporate veil disregards the seemingly separate and distinct personalities
of Nuvoland and Silvericon with the aim of preventing the anomalous situation abhorred by prevailing labor
laws. That Silvericon was independent from Nuvoland's personality could not be given legal imprimatur as
the same would pave the way for Nuvoland's complete exoneration from liability after a circumvention of the
law. Besides, a contrary proposition would leave the petitioners without any recourse notwithstanding the
unquestioned fact that Nuvoland eventually assented to the settlement of all the sales and marketing
personnel's commissions and wages before the LA, except the petitioners. The respondents in their
comment were strikingly silent on this point.

In the interest of justice and equity, that veil of corporate fiction must be pierced, and Nuvoland and
Silvericon be regarded as one and the same entity to prevent a denial of what the petitioners are entitled to.
In a situation like this, an employer-employee relationship between the principal and the dismissed
employees arises by operation of law. Silvericon being merely an agent, its employees were in fact those of
Nuvoland. Stated differently, Nuvoland was the principal employer of the petitioners.

Sixth. As additional basis of this outcome, the Court highlights the presence of the elements of an
employer-employee relationship between the parties. In determining the presence or absence of an
employer-employee relationship, the Court has consistently looked for the following incidents, to wit; (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d)
the employer's power to control the employee on the means and methods by which the work is
accomplished. The last element, the so-called control test, is the most important element.29 Jurisprudentially
speaking, there is no hard and fast rule designed to establish the aforesaid elements. It depends on the
peculiar facts of each case.30 Here, the Court acknowledges the findings of the LA since the inception of this
legal controversy -

To be added to the foregoing findings is the admitted fact that it was respondent Nuvoland
which paid the sales commissions of the sales personnel of respondent Silvericon. Even the
power to dismiss the complainants and the other sales personnel of Silvericon was
exercised by respondent Nuvoland. If indeed there was an unauthorized walkout and
abandonment by the sales personnel of the Nuvo City showroom for a period of two (2)
days, then what Nuvoland could have done was to notify Silvericon to institute appropriate
disciplinary action against the erring personnel, and not to take the cudgels for Silvericon in
abruptly terminating the entire sales force including the complainants herein.31
chanrobles law

Not to be excluded from this pronouncement is the observation that the subject termination letter itself
mentioned the release of all the commissions earned by Silvericon personnel after the impetuous decision of
Nuvoland to physically bar the personnel from entry to their workplace. If these are not indicators of the
power of engagement, payment of wages and power of dismissal, the Court is at a loss as to what to call
this authority. Astonishingly, Nuvoland did not refute its conformity to the payment of commissions, as if it
was oblivious to an admission that all commissions were taken directly from Nuvoland, and not from
Silvericon. Verily, this reflects Nuvoland's exercise of the power to compensate Silvericon personnel. The
power to terminate employees had also been exercised by Nuvoland when it clearly dispensed with the
cancellation clause in the SMA providing a 30-day period for grievance resolution. Instead, Nuvoland utilized
the alleged abandonment of the showroom as a ground for unilateral termination of the simulated
agreement.

As regards the power of control, the only argument raised by the respondents was the inclusion of a
provision in the SMA which stated that Silvericon, as its agent, "shall be responsible for all advertisements,
promotions, public relations, special events, marketing collaterals, road shows, open houses, etc. as part of
its marketing efforts."32 For Nuvoland, this provision in the SMA showed that Silvericon exercised full and
exclusive control over all levels of work, especially as to the means thereof.33 Regrettably, the existence of
the subject provision would not cause an automatic proposition that Silvericon exercised control over the
work of its personnel. A clear showing of Silvericon's control over its day-to-day operations and ultimate
work performance would have dispelled any doubt, but Nuvoland fell short on this score. Worse, it again
opted for silence when the petitioners alleged that Nuvoland provided the work premises of the sales and
marketing; personnel of Silvericon; that Nuvoland dictated the end result of the undertaking, that is, to sell
at least eighty percent of the condominium project within a period of twenty-four months; that Nuvoland
decided on the models, designs and prices of the units; that Nuvoland was the ultimate recipient of all
amounts collected by the sales and marketing team; and lastly, Nuvoland determined the maximum amount
of marketing expenses for the accomplishment of the goal.

On Jurisdiction

Anent the issue on jurisdiction, Article 217 of the Labor Code, as amended by Section 9 of R.A. No. 6715 is
instructive: cha nRoblesvi rt ualLaw lib rary

ART. 217. Jurisdiction of the Labor Arbiters and the Commission-- (a) Except as otherwise
provided under this Code, the Labor Arbiter shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the submission of the case by the
parties for decision without extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or nonagricultural: chanRob lesvi rtual Lawl ibra ry

1. Unfair labor practice cases;


2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that
workers may file involving wages, rates of pay, hours of work and
other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages
arising from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code,
including questions involving the legality of strikes and lockouts;
and cralawlawlib rary

6. Except claims for Employees Compensation, Social Security,


Medicare and maternity benefits, all other claims arising from
employer-employee relations, including those of persons in
domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) regardless of
whether accompanied with a claim for
reinstatement.[Emphases and underscoring supplied]
chanrobles law

Taking the foregoing into consideration, the Court finds that the LA properly took cognizance of the
existence of an employer-employee relationship between the parties. The NLRC's position that the case
belonged to the RTC as an "intra-corporate dispute" could not be applied to Platon as she was merely a
rank-and-file personnel raising illegal dismissal as her main cause of action.

With respect to De Castro, the Court recalls the pronouncement in Viray v. Court of Appeals,34 which
provided for the policy in determining jurisdiction in similar cases. In order to determine whether a dispute
constitutes an intra-corporate controversy or not, the Court considers two elements instead, namely: (a) the
status or relationship of the parties; and (b) the nature of their controversy. Concurrence of these two
renders a case as an intra-corporate dispute.

Under the nature-of-the-controversy test, the dispute must not only be rooted in the existence of an intra-
corporate relationship, but must also refer to the enforcement of the parties' correlative rights and
obligations under the Corporation Code, as well as the internal and intra-corporate regulatory rules of the
corporation.35 The combined application of the relationship test and the nature-of-the-controversy test has,
consequently, become the norm in determining whether a case is an intra-corporate controversy or purely
civil in character.36 In the absence of any one of these factors, the case cannot be considered an intra-
corporate dispute and the RTC acting as a special commercial court cannot acquire any jurisdiction. The
criteria for distinguishing between corporate officers who may be ousted from office at will, on one hand,
and ordinary corporate employees, who may only be terminated for just cause, on the other hand, do not
depend on the nature of the services performed, but on the manner of creation of the office.

As it had been determined that Silvericon was a mere subterfuge for Nuvoland's sales and marketing
activities, the circumstances surrounding the nature of De Castro's hiring and the very nature of his claims
must be fully considered to determine jurisdiction. It must be remembered that De Castro was hired by
Martinez and Bienvenida to be the President and COO of Silvericon. This appears in the SMA, which the
Court has interpreted as a ruse to conceal Nuvoland's labor-contracting activities. As previously discussed,
the contrived cancellation of the SMA was, in effect, a termination of its personnel assigned to Silvericon.

Equally important for contemplation is the nature of the petitioners' claims and arguments which not only
demonstrates a firm avowal of labor-only contracting on the part of Nuvoland and Silvericon but also shows
that the ultimate issue to be resolved is not rooted in a corporate issue governed by the Corporation Code
and its implementing rules, but a labor problem, the resolution of which is covered by labor laws and DOLE
issuances.

The Court reiterates the odd silence that pervaded Nuvoland despite the allegation that it was able to settle
the payment of all the sales and marketing personnel's commissions and wages with the exception of the
petitioners and one Amy Rose Palileo, whose claims were settled during the pendency of her complaint with
LA Fe Cellan.37 This information raised serious doubts as to Nuvoland's refutation of the jurisdiction of the LA
over the case. The Court, in fact, expected a denial or, at the least, an explanation of this matter on the part
of Nuvoland but all it got was silence. Certainly, this distinctive treatment of the petitioners influences the
Court to take a position against any attempt to sidestep legal obligations under a pretense of a jurisdictional
challenge.

In view of the foregoing, the complete resolution of this case now boils down to the determination of the: 1)
corporate liability of Nuvoland as the principal employer of the petitioners; and 2) individual liabilities of the
respondents, as officers thereof, if any.

Solidary liability is imposed by law on the principal who is deemed as the direct employer of the employees
as provided in Section 19 of D.O. No. 18-02-
Section 19. Solidary liability. - The principal shall be deemed as the direct employer of the
contractual employees and therefore, solidarity liable with the contractor or subcontractor
for whatever monetary claims the contractual employees may have against the former in
the case of violations as provided for in Sections 5 (Labor-Only contracting), 6
(Prohibitions), 8 (Rights of Contractual Employees) and 16 (Delisting) of these Rules. In
addition, the principal shall also be solidarity liable in case the contract between the
principal and contractor or subcontractor is preterminated for reasons not attributable to
the fault of the contractor or subcontractor.
chanrobles law

Based on the said provision, Nuvoland is solidarity liable with Silvericon for the monetary claims of the
petitioners who were clearly their employees. Further, the application of law and jurisprudence on illegal
dismissal becomes relevant. In Skippers United Pacific, Inc. v. Doza38 the Court held that for a worker's
dismissal to be considered valid, it must comply with both procedural and substantive due process, viz.: cha nRoblesvi rt ualLaw lib rary
For a worker's dismissal to be considered valid, it must comply with both procedural and
substantive due process. The legality of the manner of dismissal constitutes
procedural due process, while the legality of the act of dismissal constitutes
substantive due process.39 [Emphasis and underscoring supplied]
chanrobles law

Procedural due process in dismissal cases consists of the twin requirements of notice and hearing. The
employer must furnish the employee with two written notices before the termination of employment can be
effected: (1) the first notice apprises the employee of the particular acts or omissions for which his dismissal
is sought; and (2) the second notice informs the employee of the employer's decision to dismiss him. Before
the issuance of the second notice, the requirement of a hearing must be complied with by giving the worker
an opportunity to be heard. It is not necessary though that an actual hearing be conducted.40 Substantive
due process, on the other hand, requires that the dismissal by the employer be made for a just or
authorized cause under Articles 282 to 284 of the Labor Code.41 cralawred

As correctly observed by the LA, the respondents failed to show any valid or just cause under the Labor
Code on which it may justify the termination of services of the petitioners. There was no iota of evidence to
substantiate their story of staged walkout and abandonment which caused them to terminate the
employment of the petitioners. After the issuance of the termination letter, De Castro and all the sales and
marketing personnel of Nuvoland were barred from entering the premises of their office and payment of
wages, commissions and all other benefits were withheld. The respondents also failed to comply with the
rudimentary requirement of notifying the petitioners why they were being dismissed, as well as giving them
ample opportunity to contest the legality of their dismissal. Failing to show compliance with the
requirements of termination of employment under the Labor Code, the respondents were found liable for
illegal dismissal. A contrary ruling would serve as a wallop on the very principles of labor - justice and equity
for a man to be made to work and thereafter be denied of his due as to the fruits of his labor.

Corporate Directors and Officers,


Not Liable

A corporation, being a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities
of the corporation they represent.42 Pursuant to this principle, a director, officer or employee of a
corporation is generally not held personally liable for obligations incurred by the corporation; it is only in
exceptional circumstances that solidary liability will attach to them.43 Thus, in labor cases, the Court has
held that corporate directors and officers are solidarity liable with the corporation for the employee's
termination only when the same is done with malice or in bad faith.44

"Xxx. Bad faith is never presumed. Bad faith does not simply connote bad judgment or negligence - it
imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a
known duty through some motive or interest or ill will that partakes of the nature of fraud."45

The records are bereft of any evidence at all that respondents Martinez and Bienvenida acted with malice, ill
will or bad faith when the SMA was terminated. Hence, the said individual officers cannot be held solidarity
liable for the money claims due the petitioners.

WHEREFORE, the petition is GRANTED. The June 1, 2012 Decision and the September 21, 2012 Resolution
of the Court of Appeals in CA-G.R. SP No. 122415 are REVERSED and SET ASIDE.

SECOND DIVISION

G.R.No. 204261, October 05, 2016

EDWARD C. DE CASTRO AND MA. GIRLIE F.


PLATON, Petitioners, v. COURT OF APPEALS, NATIONAL LABOR
RELATIONS COMMISSION, SILVERICON, INC., AND/OR NUVOLAND
PHILS., INC., AND/OR RAUL MARTINEZ, RAMON BIENVENIDA, AND
THE BOARD OF DIRECTORS OF NUVOLAND, Respondents.

DECISION

MENDOZA, J.:

This is a Petition for Certiorari under Rule 65 of the Rules of Court assailing the June 1, 2012 Decision1 and
the September 21, 2012 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 122415, for having
been issued with grave abuse of discretion, when it affirmed the July 29, 2011 Decision3 and the September
22, 2011 Resolution4 of the National Labor Relations Commission (NLRC) in NLRC -NCR Case Nos. 11-
16356-09 and 12-17308-09, consolidated cases for illegal dismissal filed against respondent corporations,
Nuvoland Phils., Inc. (Nuvoland) and Silvericon, Inc. (Silvericon).

The July 29, 2011 NLRC Decision, in turn, reversed the March 15 2011 Decision5 of the Labor
Arbiter (LA), finding that the petitioners were illegally dismissed.
chan roble svirtuallaw lib rary

The Antecedents

Nuvoland, a corporation formed primarily "to own, use, improve, develop, subdivide, sell, exchange, lease
and hold for investment or otherwise, real estate of all kinds, including buildings, houses, apartments and
other structures," was registered with the Securities and Exchange Commission (SEC) on August 9,
2006.6 Respondent Ramon Bienvenida (Bienvenida) was the principal stockholder and member of the Board
of Directors while Raul Martinez (Martinez) was its President.

Silvericon, on the other hand, was registered with the SEC on December 19, 2006. Its Articles: of
Incorporation described it as a "corporation organized 'to own, use, improve, develop, subdivide, sell,
exchange, lease and hold for investment or otherwise, real estate of all kinds, including buildings, houses,
apartments and other structures.'"7

Sometime in 2007, Martinez recruited petitioner Edward de Castro (De Castro), a sales and marketing
professional in the field of real estate, to handle its sales and marketing operations, including the hiring and
supervision of the sales and marketing personnel. To formalize this undertaking, De Castro was made to
sign a Memorandum of Agreement (MOA), denominated as Shareholders Agreement,8wherein Martinez
proposed to create a new corporation, through which the latter's compensation, benefits and commissions,
including those of other sales personnel, would be coursed. It was stipulated in the said MOA that the new
corporation9would have an authorized capital stock of P4,000,000.00, of which P1,000,000.00 was
subscribed and paid equally by the Martinez Group and the De Castro Group.10

As it turned out, the supposedly new corporation contemplated was Silvericon. De Castro was appointed the
President and majority stockholder of Silvericon while Bienvenida and Martinez were named as stockholders
and incorporators thereof, each owning one (1) share of subscribed capital stock.

In the same MOA, Martinez was designated as Chairman of the new corporation to whom De Castro, as
President and Chief Operating Officer, would directly report. De Castro was tasked to manage the day to day
operations of the new corporation based on policies, procedures and strategies set by Martinez. For their
respective roles, Martinez was to receive a monthly allowance of P125,000.00, while De Castro's monthly
salary was P400,000.00, with car plan and project income bonus, among other perks. Both Martinez and De
Castro were stipulated to receive override commissions at 1% each, based on the net contract price of each
condominium unit sold.

During De Castro's tenure as Chief Operating Officer of the newly created Silvericon, he recruited forty (40)
sales and marketing personnel. One of them was petitioner Ma. Girlie F. Platon (Platon) who occupied the
position of Executive Property Consultant. De Castro and his team of sales personnel were responsible for
the sale of 100% of the projects owned and developed by Nuvoland.11
Thereafter, the Sales and Marketing Agreement12(SMA), dated February 26, 2008, was purportedly executed
by Nuvoland and Silvericon, stipulating that all payments made for the condominium projects of Nuvoland
were to be given directly to it. Clients secured by the sales and marketing personnel would issue checks
payable to Nuvoland while the cash payments, as the case may be, were deposited to Nuvoland's
account. Meanwhile, the corresponding sales commission of the sales personnel were issued to them by
Nuvoland, with Martinez signing on behalf of the said company.

In a Letter,13 dated December 12, 2008 and signed by Bienvenida, Nuvoland terminated the SMA on the
ground that Silvericon personnel committed an unauthorized walkout and abandonment of the Nuvo City
Showroom for two (2) days. In the same letter, Nuvoland demanded that Silvericon make a full accounting
of all its uses of the marketing advances from Nuvoland. It, however, assured that all sales commissions
earned by Silvericon personnel would be released as per existing policy.

After the issuance of the said termination letter, De Castro and all the sales and marketing personnel of
Silvericon were barred from entering the office premises. Nuvoland, eventually, was able to secure the
settlement of all sales and marketing personnel's commissions and wages with the exception of those of De
Castro and Platon. The claims of one of Silvericon's senior manager were settled during the pendency of a
complaint with the LA.14

Aggrieved, De Castro and Platon filed a complaint for illegal dismissal before the LA, demanding the
payment of their unpaid wages, commissions and other benefits with prayer for the payment of moral and
exemplary damages and attorney's fees against Silvericon, Nuvoland, Martinez, Bienvenida, and the Board
of Directors of Nuvoland.

Nuvoland and its directors and officers denied a direct contractual relationship with De Castro and Platon,
and contended that if there was any dispute at all, it was merely between the complainants and Silvericon.

For its part, Silvericon admitted that it had employed De Castro as President and COO. It, however, asserted
the application of Presidential Decree (P.D.) No. 902-A to the case, arguing that the claims come within the
purview of corporate affairs and management, thus, falling within the jurisdiction of the regular courts.15

The Ruling of the Labor Arbiter

On March 15, 2011, after the filing of the parties' respective position papers, the LA handed down his
decision in favor of De Castro and Platon. He concluded that Silvericon was a mere labor-only contractor
and, therefore, a mere agent of Nuvoland. Thus: chanRoblesvi rtua lLawl ibra ry

It should be noted that in the Sales and Marketing Agreement between Silvericon and
Nuvoland, the latter committed to advance all the necessary amount of money up to the
extent of P30 million per building to fund the marketing expenses for the project. This alone
disqualifies respondent Silvericon as an independent contractor as it could not undertake
the contracted sales and marketing work under its own account and under its own
responsibility. Not only that, that respondent Nuvoland has to bankroll the marketing
expenses of respondent Silvericon up to the extent of P30 million per building means that
the latter does not have substantial capital to undertake the contract work on its own
account and under its own responsibility. Thus, the argument by the respondents that the
paid-up capital of respondent Silvericon in the amount of P1 million as shown by its Articles
of Incorporation to be substantial capital is simply puerile. If it were true that said amount
of Pi million would be substantial enough for Silvericon to carry out its undertaking under
Sales and Marketing Agreement, then there was no need for respondent Nuvoland to
advance the amount of P30,000,000.00 for the marketing expenses of Silvericon. Moreover,
as argued by complainants, how can P1,000,000.00 be deemed as substantial capitalization
if complainant De Castro's salary per month alone is already about almost half of
Silver/icon's paid-up capitalization. This is not to mention the salaries of the more than
forty sales and marketing staff. This means that after only one (1) month in operation,
Silvericon's capitalization would not have been enough to pay even the salaries of its
employees.
To be added to the foregoing findings is the admitted fact that it was respondent Nuvoland
which paid the sales commissions of the sales personnel of respondent Silvericon. Even the
power to dismiss the complainants and the other sales personnel of Silvericon was
exercised by respondent Nuvoland. If indeed there was an unauthorized walkout and
abandonment by the sales personnel of the Nuvo City showroom for a period of two (2)
days, then what Nuvoland could have done was to notify Silvericon to institute appropriate
disciplinary action against the erring personnel, and not to take the cudgels for Silvericon in
abruptly terminating the entire sales force including the complainants herein.16
chanrobles law

Nuvoland was adjudged as the direct employer of De Castro and Platon and, thus, liable to pay their money
claims as a consequence of their illegal dismissal. According to the LA, the ground relied upon for the
termination of the employment of De Castro and Platon - abandonment of the Nuvo City Showroom - was
not at all proven. Mere suspicion that De Castro instigated the walkout did not discharge the burden of proof
which heavily rested on the employer. Without an unequivocal showing that an employee deliberately and
unjustifiably refused his employment sans any intention to return to work, abandonment as a cause for
dismissal could not stand. Worse, procedural due process could not be said to have been observed through
the expediency of a letter in contravention to Article 277, paragraph 2 of the Labor Code.17 Hence, the LA
disposed: c hanRoble svirtual Lawlib ra ry

WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered
ordering respondent Nuvoland Phils. Inc. and/or Raul Martinez and Ramon Bienvenida to
pay jointly and solidarity the awarded claims in favor of the complainants, as follows: cralawlawlib rary

EDWARD DE CASTRO

Backwages................................ P10,800,000.00
Separation pay.............................. 1,600,000.00
Unpaid Salaries................................ 146,667.00
13th Month Pay............................... 380,000.00
Unpaid Override Commissions ........26,454.839.88

TOTAL........................P39,381,506.88

MA. GIRLIE PLATON

Backwages................................ P405,000.00
Separation pay.............................. 60,000.00
Unpaid Salaries................................ 5,500.00
13th Month Pay.............................. 14,250.00
Unpaid Override Commissions ........530.231.93

TOTAL........................P1,014,981.93
chanrobles law

Not in conformity, Nuvoland, Bienvenida and Martinez interposed an appeal before the NLRC, arguing that
the LA gravely abused his discretion in ruling that: 1) Silvericon was a labor-only contractor; 2) the case did
not involve an intra-corporate dispute; and 3) Martinez and Bienvenida were solidarity liable for illegal
dismissal.

The Ruling of the NLRC

In its July 29, 2011 Decision, the NLRC reversed the LA decision, finding that Silvericon was an independent
contractor, thus, the direct employer of De Castro and Platon. In its view, in the SMA, Silvericon had full
discretion on how to perform and conduct its marketing and sales tasks; and there was no showing that
Nuvoland had exercised control over the method of sales and marketing strategies used by Silvericon. The
NLRC further concluded that Silvericon had substantial capital. It pointed out that in several cases decided
by the Court, even an amount less than One Million Pesos was sufficient to constitute : substantial capital;
and so to require Silvericon to prove that it had investments in the form of tools, equipment, machinery,
and work premises would be going beyond what the law and jurisprudence required. Hence, it could not
consider Silvericon as a dummy corporation of Nuvoland organized to effectively evade the latter's obligation
of providing employment benefits to its sales and marketing agents. This being the case, the NLRC ruled
that no employer-employee relationship existed between Nuvoland, on one hand, and De Castro and Platon,
on the other. There was no evidence showing that Nuvoland hired, paid wages, dismissed or controlled De
Castro and Platon, or anyone of Silvericon's employees. Resultantly, Martinez and Bienvenida could not be
held liable for they merely acted as officers of Nuvoland.

Unfazed, De Castro and Platon assailed the decision of the NLRC via a petition for certiorari under
Rule 65 with the CA.

The Ruling of the CA

In its June 1, 2012 Decision, the CA affirmed the findings of the NLRC, pointing out that what was
terminated was the SMA. As such, the employment of the forty (40) personnel hired by Silvericon, as well as
the petitioners' employment, was not affected. Considering that there was no employer-employee
relationship between the petitioners and Nuvoland, the CA deemed that the latter could not be held liable for
the claim of illegal dismissal. Even assuming that De Castro was illegally dismissed, the CA opined that the
NLRC was correct in refraining from taking cognizance of the complaint because De Castro's employment
with Silvericon put him within the ambit of Section 5.2 of Republic Act (R.A.) No. 8799, otherwise known as
The Securities Regulation Code. As such, his claim should have been brought before the Regional Trial
Court (RTC) instead.

Upon the denial of their motion for reconsideration, the petitioners filed this petition on the following

GROUNDS

THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION WHEN


IT AGREED WITH THE NLRC THAT SILVERICON IS NOT A LABOR-ONLY
CONTRACTOR

II

THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION WHEN


IT AGREED WITH THE NLRC THAT THE INSTANT CASE INVOLVES AN INTRA-
CORPORATE DISPUTE

III

THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION WHEN


IT HELD THAT NO BAD FAITH WAS ESTABLISHED ON THE PART OF RESPONDENTS
RAUL MARTINEZ AND RAMON BIENVENIDA.18
chanrobles law

Essentially, petitioners De Castro and Platon argue that Silvericon, far from being an independent
contractor, was engaged in labor-only contracting as shown by: 1) its lack of a substantial capital necessary
in the conduct of its business; 2) its lack of investment on tools, equipment, machineries, work premises,
and other materials; and 3) its failure to secure a certificate of authority to act as an independent contractor
issued by the Department of Labor and Employment (DOLE); and 4) its services to Nuvoland being exclusive
in nature.

According to De Castro and Platon, the evaluation of the authorized capital stock of Silvericon against the
marketing and sales activities of its sales personnel would readily show that it needed a huge amount of
funds for salaries and operating expenses, not to mention the funds for promotions and advertisements for
the Aspire Condominium Project and Infinity Office and Residential Condominium Prpject. Suffice it to say,
Silvericon's authorized or paid up capital was deficient to cover its operations. This is the reason why
Nuvoland made advancements amounting to P30 Million per building.

The petitioners contend that the CA gravely erred when it relied on the eventual deduction of the said
advances from the earned marketing fee of Silvericon pursuant to the SMA. The advancements, whether or
not at cost on the part of Silvericon, only proved that the latter had no substantial capital necessary for its
business. Although jurisprudence was replete with rulings considering an amount less than the paid-up
capital of Silvericon as substantial, the industry in which the respondent corporations were engaged, that is,
the sale and marketing of enormous condominium projects, should be taken into account. In other words,
the test of a substantial paid-up capital for purposes of identifying an entity; as an independent contractor
should be evaluated in light of the business it is undertaking. In the case of Silvericon, the paid-up capital of
P1 Million Pesos could hardly be considered substantial.

Further, Silvericon had no investment in the form of tools and equipment necessary in the conduct of its
business, the sales and marketing activities of which were conducted in the premises of Nuvoland. The latter
itself designed and constructed the model units used for the sales and marketing of the condominium
projects.

More significantly, the petitioners explained that Nuvoland created Silvericon to serve, not any other
clientele, but its creator. If Nuvoland really wanted to engage a truly independent contractor to undertake
its sales and marketing needs, it should have engaged a more experienced one, not a two-year old untested
company. But then, they are one and the same. The services of Silvericon were exclusively for Nuvoland.
Hence, there was no need for Nuvoland to require Silvericon to secure a certificate of authority from the
DOLE. Undeniably, De Castro was merely engaged to facilitate the recruitment of sales and marketing
personnel, who then performed functions which were directly related to the main business of the principal,
Nuvoland.

Position of the Respondents

In their Comment,19 respondents Nuvoland, Martinez and Bienvenida argued that the subject petition should
be dismissed outright for having been filed under a wrong mode of appeal. In other words, instead of being
captioned as a petition under Rule 45, the petitioners availed of the special civil action under Rule 65,
setting forth grave abuse of discretion on the part of the CA as a main ground. The respondents pointed out
that the petitioners may not utilize a petition for certiorari as a pretext for a belated filing of a petition for
review.

Respondent Silvericon for its part, submitted its Manifestation,20 dated December 12, 2013, praying that it
be excused from filing a comment as it did not see any need to be part of the appeal.

Reply of Petitioners

In their Reply,21 the petitioners asserted that their petition was strongly grounded on grave abuse of
discretion due to the CA's deliberate failure to consider material and undisputed facts showing that
Silvericon was indeed a labor-only contractor. They hinged their choice of remedy on their view that the
NLRC, as affirmed by the CA, acted in total disregard of the evidence decisive of the present controversy. chan roblesv irt uallawl ibra ry

The Court's Ruling

Initially, because of the divergence in the conclusions of the LA and the NLRC, it appears that the issues
surrounding the legal arrangements between and among the parties are complicated. After a perusal of the
records, however, the Court comes to view the case as a simple question of whether Silvericon was engaged
in independent contracting or a labor-only scheme. The answer to this issue would necessarily shape the
conclusions as to respondents' other contentions like jurisdiction. Before delving into these matters, though,
there is a need to first resolve the procedural issues.
Procedural Issues

After a careful review of the records, the Court decides to apply a tempered relaxation of the procedural
rules in accord with substantial justice.

It is elementary that parties seeking the review of NLRC decisions should file a Rule 65 petition
for certiorari in the CA on the ground of grave abuse of discretion amounting to lack or excess of
jurisdiction. Thereafter, the remedy of the aggrieved party from the CA decision is an appeal via a Rule 45
petition for review on certiorari.22 It is equally true, however, that the Court, on several occasions, has
relaxed the procedural application in accordance with the liberal spirit and in the interest of substantial
justice. Where the exigencies of the case are such that the ordinary methods of appeal may not prove
adequate - either in point of promptness or completeness, so that a partial if not a total failure of justice
could result - a writ of certiorari may still be issued.23

In the broader interest of justice, the Court deems it proper to suspend the rules and allow due course to
the petition as one for certiorari under Rule 65. As will be discussed hereafter, the Court has determined
points of contention that were disregarded by the authorities a quo, the outright conclusion of which
stripped off the petitioners of a remedy to demand their claims which were founded on a legal obligation.
The propriety of the mode of appeal used by the petitioners pales in comparison with the alleged grave
errors of judgment committed by the CA. For said reason, matters deserving clear resolution by the Court of
last resort cannot be ignored lest a miscarriage of justice come to pass.

Substantive Issues

As to the substantive issues, the Court is faced with divergent views in the arguments raised. On one hand,
the petitioners strongly urge the Court to consider numerous factors that would justify the piercing of the
corporate veil showing that Silvericon was just a business conduit of Nuvoland. On the other, the
respondents vehemently deny the existence of an employer-employee relationship between Nuvoland and
the petitioners. This absence of a juridical tie, according to Nuvoland, necessarily directs the claims of the
petitioners to Silvericon as their employer, being an independent contractor.

Pertinently, Article 106 of the Labor Code provides: chanRoble svirtual Lawli bra ry

Article 106. Contractor or subcontractor. - Whenever an employer enters into a contract


with another person for the performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be paid in accordance with the
provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent of the work performed under
the contract, in the same manner and extent that he is liable to employees directly
employed by him.

The Secretary of Labor and Employment may, by appropriate regulations, restrict or


prohibit the contracting-out of labor to protect the rights of workers established under this
Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-
only contracting and jobcontracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or circumvention of any
provision of this Code.

There is "labor-only" contracting where the person supplying workers to an employer does
not have substantial capital or investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and placed by such person are
performing activities which are directly related to the principal business of such employer.
In such cases, the person or intermediary shall be considered merely as an agent of
the emplover who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.[Emphasis and underscoring
supplied]
chanrobles law

Corollary thereto, DOLE Department Order No. 18-02, Series of 2002 (D.O. 18-02), implements the above
provision of law: cha nRoblesvi rt ual Lawlib rary

Section 5. Prohibition against labor-only contracting. -Labor-only contracting is hereby


declared prohibited x x x labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform a job,
work or service for a principal, and any of the following elements are present: c ralawlawl ibra ry

i) The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied
or placed by such contractor or subcontractor are performing activities which are directly
related to the main business of the principal; or

ii) The contractor does not exercise the right to control over the performance of the work of
the contractual-employee. cha nro blesvi rtua lla wlibra ry

xxxx

"Substantial capital or investment" refers to capital stocks and subscribed


capitalization in the case of corporations, tools or equipment, implements,
machineries and work premises, actually and directly used by the contractor or
subcontractor in the performance or completion of the job, work or service
contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services
of the contractual parties are performed to determine, not only the end to be achieved, but
also the manner and means to be used in reaching that end. [Emphasis and underscoring
supplied]
chanrobles law

At the outset it should be rioted that a real estate company like Nuvoland may opt to advertise and; sell its
real estate assets on its own, or allow an independent contractor to market these developments in a manner
that does not violate aforesaid regulations. Basically, a legitimate job contractor complies with the
requirements on sufficient capitalization and equipment to undertake the needs of its client. Although this is
not the sole determining factor of legitimate contracting, independent contractors are likewise required to
register with the DOLE. This is required by D.O. 18-02. Thus: chanRoblesvirtual Lawlib ra ry

Section 11. Registration of Contractors or Subcontractors. - Consistent with the authority of


the Secretary of Labor and Employment to restrict or prohibit the contracting out of labor
through appropriate regulations, a registration system to govern contracting arrangements
and to be implemented by the Regional Offices is hereby established.

The registration of contractors and subcontractors shall be necessary for purposes of


establishing an effective labor market information and monitoring.

Failure to register shall give rise to the presumption that the contractor is
engaged in labor-only contracting. [Emphasis and underscorings supplied]
chanrobles law

In the present case, the Court is hounded by nagging doubts in its review of the assailed decision. Several
factors showing that Silvericon was not an independent contractor were, conveniently brushed aside
resulting in an unjust outcome. For clarity, the Court lists down these factors, most of which were left
unexplained by the respondents.

First. As earlier pointed out, D.O. 18-02 expressly provides for a registration requirement. Remarkably, the
respondents do not deny the apparent non-compliance with the rules governing independent contractors.
This failure on the part of Silvericon reinforces the Court's view that it was engaged in labor-only
contracting. Nuvoland did not even bother to make Silvericon comply with this vital requirement had it really
entered into a legitimate contracting arrangement with a truly independent outfit. The efforts which the two
corporations have put into the drafting of the SMA belie mere inadvertence and heedlessness on this matter.

That the NLRC and the CA failed to consider this fact of non-compliance confounds the Court. The tribunals
below should have looked into the cited provision, as non-compliance thereto gives rise to a presumption
completely opposite to their claim. The presumption finds more significance especially when the respondents
have nothing but silence to rebut the same.

All they could say was that what Nuvoland terminated was the SMA, the termination of which produced no
effect whatsoever on the personnel of Silvericon. The sweeping conclusion might have been the simplest and
easiest way to dismiss the case but this certainly failed to rebut the fact that Silvericon was a labor-only
contracting entity. To the Court's mind, this is a clear attribute of grave abuse of discretion on the part of
the CA.

Second. D.O. No. 18-A, series of 2011, defines substantial capital as the paid-up capital stocks/shares of at
least P3,000,000.00 in the case of corporations, partnerships and cooperatives. This amount was set with
speciflty to avoid the subterfuge resorted to by entities with the intention to circumvent the law. As things
now stand, even the subscribed capital of Silvericon was a far cry from the amount set by the rules. It is
important to note that at the time Nuvoland engaged the services of Silvericon, the latter's authorized stock
capital was P4,000,000.00, out of which only P1,000,000.00 was subscribed.

In Vinoya v. National Labor Relations Commission,24 the Court tackled the insufficiency of paid-in
capitalization taking into account the "current economic atmosphere in the country."25 In other words, the
determination of sufficient capital stock for independent contractors must be assessed in a broad and
extensive manner with consideration of the industry involved.

In this case, the sufficiency of a subscribed capital of P1,000,000.00 for independent contracting must be
assessed taking into consideration the extent of the undertaking relative to the nature of the industry in
which Nuvoland was engaged.

Nuvoland was one of the prominent corporations in the real estate industry. It is safe to assume then that
the marketing of its condominium projects would entail a substantially high amount in what was typically a
capital intensive industry. The undertaking covered not just one but two considerably huge condominium
projects located in prime spots in the metropolis.

For the sale and marketing of two condominium buildings, it would require massive funds for promotions,
advertisements, shows, salaries, and operating expenses of its more or less 40 personnel. In light of this
vast business undertaking, it is obvious that the P1 million subscribed capital of Silvericon would hardly
suffice to satisfy this huge engagement. Nuvoland was apparently aware of this that it had to fund the
marketing expenses of the project in an amount not exceeding P30 million per building. This was even
provided in paragraph 6 of the SMA.

This being the case, the paid-in capitalization of Silvericon amounting to P1 million was woefully inadequate
to be considered as substantial capital. Thus, Silvericon could not qualify as an independent contractor.

The CA finding that Silvericon's capital was sufficient for independent contracting due to the agreement that
Nuvoland would advance the amount of P30,000,000.00 for marketing expenses, though deductible from
Silvericon's earned marketing fees at a later time, was a strained reasoning. The Court agrees with the
observation of the LA that this set-up would not have been resorted to if Silvericon's capital was substantial
enough from the start of the business venture. It is logical to presume that an established corporation like
Nuvoland would select an independent contractor, which had the financial resources to adequately
undertake its marketing and advertising requirements, and not an under capitalized company like Silvericon.
It perplexes the Court that the CA disregarded this set-up as it certainly shows that Silvericon, from the
beginning, did not have substantial capital to service the needs of Nuvoland.
Third. Silvericon had no substantial equipment in the form of tools, equipment, machinery, and work
premises. Records reveal that Nuvoland itself designed and constructed the model units used in the sales
and marketing of its condominium units. This indisputably proves that at the time of its engagement,
Silvericon had no such investment necessary for the conduct of its business.

Fourth. Although it is true that the respondents had explicitly assailed the authenticity of the MO A attached
with the petition, their faint denial fails to explain the exclusivity which had characterized the relationship
between Nuvoland and Silvericon. If Silvericon was an independent contractor, it is only but logical that it
should have also offered its services to the public.

The respondents claim that they had presented a contract tending to show that Silvericon had catered its
services to one LNC (SPV-AMC) Corporation in 2007. In their own words, the respondents assert that the
relationship of Nuvoland with Silvericon, particularly as to its contractual rights and obligations, was exactly
the same as the transaction of Silvericon with LNC (SPV-AMC) Corporation. Unfortunately for the
respondents, this allegation alone could not override the other tell-tale indicators of labor-only contracting
present in this case.

Fifth. The respondents do not deny that Nuvoland and Silvericon shared the same officers and employees:
respondents Bienvenida and Martinez were stockholders and incorporators thereof while De Castro was the
President and majority stockholder of Silvericon. At the same time, Bienvenida was a principal stockholder
and member of the Board of Directors of Nuvoland while Martinez was Nuvoland's President. Admittedly, this
fact alone does not give rise to an inference that Nuvoland and Silvericon are one and the same. It
effectively sows doubt, however, when taken together with the other indicators of labor-only contracting, as
previously discussed.

If Nuvoland and Silvericon were indeed separate entities, out of all other Nuvoland officers, why did
Bienvenida, as an incorporator of both corporations, choose to authorize the purported termination of the
SMA without at least calling for an investigation of the incident? As a stockholder of Silvericon, he possessed
an interest in the said corporation. Curiously though, Nuvoland's decision to part with Silvericon as
expressed in Bienvenida's letter was reached without consultation or, at the least, a preliminary notice. Had
there really been a breach of contract, Nuvoland would have demanded an explanation from Silvericon
before barring the personnel's entry in their work premises to think that the latter was engaged in an
important aspect of its business.

Further, with Nuvoland having advanced a huge amount of money for Silvericon, it could have at least
exercised caution before terminating the SMA with a meager request for an accounting of funds. A closer
scrutiny of the events that transpired would show that the termination of the SMA was one and the same
with the termination of all Silvericon personnel. This conclusion proceeded from the irrefutable fact that
Silvericon was actually a creation of Nuvoland. As a labor-only contractor, for all intents and purposes,
Silvericon was a mere mock-up.

In truth, the termination of the SMA was actually a ruse to make it appear that Silvericon was an
independent entity. It was simply a way to terminate the employment of several employees altogether and
escape liability as an employer. True enough, Nuvoland insisted that the petitioners direct their claims to
Silvericon.

The conclusion that Silvericon was a mere labor-only contractor and a business conduit of Nuvoland
warrants the piercing of its corporate veil. At this point, it is apt to restate the Court's ruling in Sarona v.
National Labor Relations Commission:26 cha nro blesvi rtua llawli bra ry

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1)
defeat of public convenience as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation
merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.
chanrobles law

As ruled in Prince Transport, Inc. v. Garcia,27 it is the act of hiding behind the separate and distinct
personalities of juridical entities to perpetuate fraud, commit illegal acts and evade one's obligations, that
the equitable piercing doctrine was formulated to address and prevent: Thus: chanRoblesvirtual Lawlib ra ry

x x x A settled formulation of the doctrine of piercing the corporate veil is that when two
business enterprises are owned, conducted and controlled by the same parties, both law
and equity will, when necessary to protect the rights of third parties, disregard the legal
fiction that these two entities are distinct and treat them as identical or as one and the
same, xxx However, petitioners' attempt to isolate themselves from and hide behind the
supposed separate and distinct personality of Lubas so as to evade their liabilities is
precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent
and remedy.28
chanrobles law

Consequently, the piercing of the corporate veil disregards the seemingly separate and distinct personalities
of Nuvoland and Silvericon with the aim of preventing the anomalous situation abhorred by prevailing labor
laws. That Silvericon was independent from Nuvoland's personality could not be given legal imprimatur as
the same would pave the way for Nuvoland's complete exoneration from liability after a circumvention of the
law. Besides, a contrary proposition would leave the petitioners without any recourse notwithstanding the
unquestioned fact that Nuvoland eventually assented to the settlement of all the sales and marketing
personnel's commissions and wages before the LA, except the petitioners. The respondents in their
comment were strikingly silent on this point.

In the interest of justice and equity, that veil of corporate fiction must be pierced, and Nuvoland and
Silvericon be regarded as one and the same entity to prevent a denial of what the petitioners are entitled to.
In a situation like this, an employer-employee relationship between the principal and the dismissed
employees arises by operation of law. Silvericon being merely an agent, its employees were in fact those of
Nuvoland. Stated differently, Nuvoland was the principal employer of the petitioners.

Sixth. As additional basis of this outcome, the Court highlights the presence of the elements of an
employer-employee relationship between the parties. In determining the presence or absence of an
employer-employee relationship, the Court has consistently looked for the following incidents, to wit; (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d)
the employer's power to control the employee on the means and methods by which the work is
accomplished. The last element, the so-called control test, is the most important element.29 Jurisprudentially
speaking, there is no hard and fast rule designed to establish the aforesaid elements. It depends on the
peculiar facts of each case.30 Here, the Court acknowledges the findings of the LA since the inception of this
legal controversy -

To be added to the foregoing findings is the admitted fact that it was respondent Nuvoland
which paid the sales commissions of the sales personnel of respondent Silvericon. Even the
power to dismiss the complainants and the other sales personnel of Silvericon was
exercised by respondent Nuvoland. If indeed there was an unauthorized walkout and
abandonment by the sales personnel of the Nuvo City showroom for a period of two (2)
days, then what Nuvoland could have done was to notify Silvericon to institute appropriate
disciplinary action against the erring personnel, and not to take the cudgels for Silvericon in
abruptly terminating the entire sales force including the complainants herein.31
chanrobles law

Not to be excluded from this pronouncement is the observation that the subject termination letter itself
mentioned the release of all the commissions earned by Silvericon personnel after the impetuous decision of
Nuvoland to physically bar the personnel from entry to their workplace. If these are not indicators of the
power of engagement, payment of wages and power of dismissal, the Court is at a loss as to what to call
this authority. Astonishingly, Nuvoland did not refute its conformity to the payment of commissions, as if it
was oblivious to an admission that all commissions were taken directly from Nuvoland, and not from
Silvericon. Verily, this reflects Nuvoland's exercise of the power to compensate Silvericon personnel. The
power to terminate employees had also been exercised by Nuvoland when it clearly dispensed with the
cancellation clause in the SMA providing a 30-day period for grievance resolution. Instead, Nuvoland utilized
the alleged abandonment of the showroom as a ground for unilateral termination of the simulated
agreement.
As regards the power of control, the only argument raised by the respondents was the inclusion of a
provision in the SMA which stated that Silvericon, as its agent, "shall be responsible for all advertisements,
promotions, public relations, special events, marketing collaterals, road shows, open houses, etc. as part of
its marketing efforts."32 For Nuvoland, this provision in the SMA showed that Silvericon exercised full and
exclusive control over all levels of work, especially as to the means thereof.33 Regrettably, the existence of
the subject provision would not cause an automatic proposition that Silvericon exercised control over the
work of its personnel. A clear showing of Silvericon's control over its day-to-day operations and ultimate
work performance would have dispelled any doubt, but Nuvoland fell short on this score. Worse, it again
opted for silence when the petitioners alleged that Nuvoland provided the work premises of the sales and
marketing; personnel of Silvericon; that Nuvoland dictated the end result of the undertaking, that is, to sell
at least eighty percent of the condominium project within a period of twenty-four months; that Nuvoland
decided on the models, designs and prices of the units; that Nuvoland was the ultimate recipient of all
amounts collected by the sales and marketing team; and lastly, Nuvoland determined the maximum amount
of marketing expenses for the accomplishment of the goal.

On Jurisdiction

Anent the issue on jurisdiction, Article 217 of the Labor Code, as amended by Section 9 of R.A. No. 6715 is
instructive: cha nRoblesvi rt ualLaw lib rary

ART. 217. Jurisdiction of the Labor Arbiters and the Commission-- (a) Except as otherwise
provided under this Code, the Labor Arbiter shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the submission of the case by the
parties for decision without extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or nonagricultural: chanRob lesvi rtual Lawl ibra ry

1. Unfair labor practice cases;


2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that
workers may file involving wages, rates of pay, hours of work and
other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages
arising from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code,
including questions involving the legality of strikes and lockouts;
and cralawlawlib rary

6. Except claims for Employees Compensation, Social Security,


Medicare and maternity benefits, all other claims arising from
employer-employee relations, including those of persons in
domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) regardless of
whether accompanied with a claim for
reinstatement.[Emphases and underscoring supplied]
chanrobles law

Taking the foregoing into consideration, the Court finds that the LA properly took cognizance of the
existence of an employer-employee relationship between the parties. The NLRC's position that the case
belonged to the RTC as an "intra-corporate dispute" could not be applied to Platon as she was merely a
rank-and-file personnel raising illegal dismissal as her main cause of action.

With respect to De Castro, the Court recalls the pronouncement in Viray v. Court of Appeals,34 which
provided for the policy in determining jurisdiction in similar cases. In order to determine whether a dispute
constitutes an intra-corporate controversy or not, the Court considers two elements instead, namely: (a) the
status or relationship of the parties; and (b) the nature of their controversy. Concurrence of these two
renders a case as an intra-corporate dispute.

Under the nature-of-the-controversy test, the dispute must not only be rooted in the existence of an intra-
corporate relationship, but must also refer to the enforcement of the parties' correlative rights and
obligations under the Corporation Code, as well as the internal and intra-corporate regulatory rules of the
corporation.35 The combined application of the relationship test and the nature-of-the-controversy test has,
consequently, become the norm in determining whether a case is an intra-corporate controversy or purely
civil in character.36 In the absence of any one of these factors, the case cannot be considered an intra-
corporate dispute and the RTC acting as a special commercial court cannot acquire any jurisdiction. The
criteria for distinguishing between corporate officers who may be ousted from office at will, on one hand,
and ordinary corporate employees, who may only be terminated for just cause, on the other hand, do not
depend on the nature of the services performed, but on the manner of creation of the office.

As it had been determined that Silvericon was a mere subterfuge for Nuvoland's sales and marketing
activities, the circumstances surrounding the nature of De Castro's hiring and the very nature of his claims
must be fully considered to determine jurisdiction. It must be remembered that De Castro was hired by
Martinez and Bienvenida to be the President and COO of Silvericon. This appears in the SMA, which the
Court has interpreted as a ruse to conceal Nuvoland's labor-contracting activities. As previously discussed,
the contrived cancellation of the SMA was, in effect, a termination of its personnel assigned to Silvericon.

Equally important for contemplation is the nature of the petitioners' claims and arguments which not only
demonstrates a firm avowal of labor-only contracting on the part of Nuvoland and Silvericon but also shows
that the ultimate issue to be resolved is not rooted in a corporate issue governed by the Corporation Code
and its implementing rules, but a labor problem, the resolution of which is covered by labor laws and DOLE
issuances.

The Court reiterates the odd silence that pervaded Nuvoland despite the allegation that it was able to settle
the payment of all the sales and marketing personnel's commissions and wages with the exception of the
petitioners and one Amy Rose Palileo, whose claims were settled during the pendency of her complaint with
LA Fe Cellan.37 This information raised serious doubts as to Nuvoland's refutation of the jurisdiction of the LA
over the case. The Court, in fact, expected a denial or, at the least, an explanation of this matter on the part
of Nuvoland but all it got was silence. Certainly, this distinctive treatment of the petitioners influences the
Court to take a position against any attempt to sidestep legal obligations under a pretense of a jurisdictional
challenge.

In view of the foregoing, the complete resolution of this case now boils down to the determination of the: 1)
corporate liability of Nuvoland as the principal employer of the petitioners; and 2) individual liabilities of the
respondents, as officers thereof, if any.

Solidary liability is imposed by law on the principal who is deemed as the direct employer of the employees
as provided in Section 19 of D.O. No. 18-02-
Section 19. Solidary liability. - The principal shall be deemed as the direct employer of the
contractual employees and therefore, solidarity liable with the contractor or subcontractor
for whatever monetary claims the contractual employees may have against the former in
the case of violations as provided for in Sections 5 (Labor-Only contracting), 6
(Prohibitions), 8 (Rights of Contractual Employees) and 16 (Delisting) of these Rules. In
addition, the principal shall also be solidarity liable in case the contract between the
principal and contractor or subcontractor is preterminated for reasons not attributable to
the fault of the contractor or subcontractor.
chanrobles law

Based on the said provision, Nuvoland is solidarity liable with Silvericon for the monetary claims of the
petitioners who were clearly their employees. Further, the application of law and jurisprudence on illegal
dismissal becomes relevant. In Skippers United Pacific, Inc. v. Doza38 the Court held that for a worker's
dismissal to be considered valid, it must comply with both procedural and substantive due process, viz.: cha nRoblesvi rt ualLaw lib rary

For a worker's dismissal to be considered valid, it must comply with both procedural and
substantive due process. The legality of the manner of dismissal constitutes
procedural due process, while the legality of the act of dismissal constitutes
substantive due process.39 [Emphasis and underscoring supplied]
chanrobles law

Procedural due process in dismissal cases consists of the twin requirements of notice and hearing. The
employer must furnish the employee with two written notices before the termination of employment can be
effected: (1) the first notice apprises the employee of the particular acts or omissions for which his dismissal
is sought; and (2) the second notice informs the employee of the employer's decision to dismiss him. Before
the issuance of the second notice, the requirement of a hearing must be complied with by giving the worker
an opportunity to be heard. It is not necessary though that an actual hearing be conducted.40 Substantive
due process, on the other hand, requires that the dismissal by the employer be made for a just or
authorized cause under Articles 282 to 284 of the Labor Code.41 cralawred

As correctly observed by the LA, the respondents failed to show any valid or just cause under the Labor
Code on which it may justify the termination of services of the petitioners. There was no iota of evidence to
substantiate their story of staged walkout and abandonment which caused them to terminate the
employment of the petitioners. After the issuance of the termination letter, De Castro and all the sales and
marketing personnel of Nuvoland were barred from entering the premises of their office and payment of
wages, commissions and all other benefits were withheld. The respondents also failed to comply with the
rudimentary requirement of notifying the petitioners why they were being dismissed, as well as giving them
ample opportunity to contest the legality of their dismissal. Failing to show compliance with the
requirements of termination of employment under the Labor Code, the respondents were found liable for
illegal dismissal. A contrary ruling would serve as a wallop on the very principles of labor - justice and equity
for a man to be made to work and thereafter be denied of his due as to the fruits of his labor.

Corporate Directors and Officers,


Not Liable

A corporation, being a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities
of the corporation they represent.42 Pursuant to this principle, a director, officer or employee of a
corporation is generally not held personally liable for obligations incurred by the corporation; it is only in
exceptional circumstances that solidary liability will attach to them.43 Thus, in labor cases, the Court has
held that corporate directors and officers are solidarity liable with the corporation for the employee's
termination only when the same is done with malice or in bad faith.44

"Xxx. Bad faith is never presumed. Bad faith does not simply connote bad judgment or negligence - it
imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a
known duty through some motive or interest or ill will that partakes of the nature of fraud."45

The records are bereft of any evidence at all that respondents Martinez and Bienvenida acted with malice, ill
will or bad faith when the SMA was terminated. Hence, the said individual officers cannot be held solidarity
liable for the money claims due the petitioners.

WHEREFORE, the petition is GRANTED. The June 1, 2012 Decision and the September 21, 2012 Resolution
of the Court of Appeals in CA-G.R. SP No. 122415 are REVERSED and SET ASIDE.

6 SECOND DIVISION

G.R. No. 196329, June 01, 2016

PABLO B. ROMAN, JR., AND ATTY. MATIAS V. DEFENSOR, AS


OFFICERS OF THE CAPITOL HILLS GOLF AND COUNTRY CLUB,
INC., Petitioners, v. SECURITIES AND EXCHANGE COMMISSION, ATTY.
FRANKLIN I. CUETO, ATTY. EMMANUEL Y. ARTIZA AND MANUEL C.
BALDEO, AS MEMBERS OF THE MANAGEMENT COMMITTEE; JUSTINA
F. CALLANGAN, AS DIRECTOR OF THE CORPORATION FINANCE
DEPARTMENT; ATTY. NARCISO T. ATIENZA, EUSEBIO A. ABAQUIN,
ATTY. CLODUALDO C. DE JESUS, SR., ATTY. CLODUALDO ANTONIO R.
DE JESUS, JR., ATTY. IRENEO T. AGUIRRE, JR., SUNDAY O. PINEDA,
PORFIRIO M. FLORES, AND ATTY. ZOSIMO PADRO, JR., Respondents.

DECISION

MENDOZA, J.:

This petition1 for review on certiorari under Rule 45 of the Rules of Court seeks to review and reverse the
November 30, 2010 Decision2 and the March 15, 2011 Resolution3 of the Court of Appeals (CA) in CA-G.R.
SP No. 101613, which dismissed the petition for prohibition filed by petitioners Pablo B. Roman, Jr. (Roman)
and Atty. Matias V. Defensor (Defensor), President and Corporate Secretary, respectively, of Capitol Hills
Golf and Country Club, Inc., (Capitol). The said petition before the CA questioned the jurisdiction of
respondent Securities and Exchange Commission (SEC) for acting upon the letter-complaint,4 dated May 8,
2007, filed by the minority shareholders of Capitol and for issuing its December 5, 2007 Order5 creating the
Management Committee (MANCOM) tasked to oversee the affairs of the said company.

Factual Antecedents

On June 6, 2007, private respondents Atty. Narciso T. Atienza, Eusebio A. Abaquin, Atty. Clodualdo C. De
Jesus, Sr., Atty. Clodualdo Antonio R. De Jesus, Jr., Atty. Ireneo T. Aguirre, Jr., Sunday O. Pineda, Porfirio
M. Florez, and Atty. Zosimo Padro, Jr. (private respondents) filed a verified letter-complaint against the
petitioners before the SEC.

In their letter-complaint, private respondents alleged that on April 23, 1996, a Special Board of Directors
Meeting was held and, thereafter, a resolution was passed by the Board of Directors of Capitol (Board)
authorizing Roman, as its President: cha nRoblesv irt ual Lawlib rary

(a) To acquire for and in behalf of the corporation four (4) parcels of land located at
Montalban, Rizal xxx for a consideration of ONE HUNDRED FIFTY PESOS (P150.00) per sq.
m. xxx;

(b) To enter for and in behalf of the corporation [Capitol] into a Joint Venture Agreement
with ALI [Ayala Land Inc.] for the purpose of (1) having ALI develop and market the area
occupied by the first nine (9) holes of the existing golf course of the corporation into
saleable lots in consideration of the payment to the corporation of a forty percent (40%)
share in the proceeds of the sale of such lots (NET OF TAXES AND DISCOUNTS); and (2)
granting to ALI the right to develop the Properties into a first class golf course;

(c) For the purpose of acquiring the Properties, to obtain loans from ALI for the purpose of
acquiring the Montalban properties up to an aggregate amount of One Hundred Fifty Million
(P150,000,000.00) to be secured by (a) real estate mortgage on the properties; and (b)
assignment of the proceeds to be paid in connection with the Joint Venture for the
development of the first nine (9) holes of the existing golf course of the corporation and
under the Deed of Absolute Sale, dated April 10, 1992, between ALI and the Corporation
covering the sale of the former driving range of the corporation to ALI under such terms,
payment scheme and conditions as the President may deem reasonable and necessary
under the circumstances;

(d) To (1) negotiate, agree to terms of, execute, sign and deliver the following agreements:
(a) A letter-agreement with ALI embodying the foregoing terms; (b) A deed of sale for the
purchase of the Properties; (c) Joint Venture Agreement with ALI covering the first nine (9)
holes of the existing golf course of the corporation; (d) Promissory Notes, real estate
mortgages and assignment agreements in favor of ALI; and (e) such other documents and
agreements related to or in connection with the transactions contemplated in this resolution
and (2) to do any and all acts necessary and appropriate to carry this resolution into
effect.6
cralaw red

It was further alleged that Roman also asked the Board to pass a resolution authorizing a third-party, Pacific
Asia Capital Corporation (Pacific Asia), to receive from Ayala Land, Inc. (ALI) the proceeds of the loan, or
any portion thereof, and ALI to cause the release of the proceeds of the aforesaid loan, or any portion
thereof, to Pacific Asia, and that any release by ALI and receipt by Pacific Asia be deemed a valid release
and receipt of such amount;7 that the issued resolutions were erroneously made;8 that in evident bad faith,
Roman, as President of Capitol, never informed the Board that, at the time he made the proposals and
before the resolutions were issued, ALI had already made substantial initial cash advance in favor of Capitol
but directly payable to Pacific Asia;9 that ALI had no legal basis to make cash advances as Roman had no
authority yet to enter into any agreement with ALI; that part of the representations made by Roman was
that ALI would not commence the conversion of the area occupied by the first nine (9) holes of the existing
golf course of Capitol in Old Balara, Quezon City, until such time that one (1) 18 hole golf course of the
promised two (2) championship golf courses in Macabud, Montalban, Rizal, would have been finished and
playable; and that after more than ten (10) long years, no golf course existed or was even under
construction in Macabud, Montalban, Rizal, and yet the Old Balara property had already been converted and
developed into a residential subdivision called the Ayala Hillside Estate.10 ChanRobles Vi rt ualawlib ra ry

To private respondents, all these were irregularities and anomalies amounting to fraud and
misrepresentation that prompted them to ask the SEC to investigate the Board and to order the constitution
of the MANCOM to temporarily oversee the affairs of Capitol.

The said complaint was then docketed as SEC Case No. 169, series of 2007.

In its letter11 to Roman, dated July 3, 2007, the SEC informed him of the verified complaint and gave him 15
days upon receipt to file his answer to the said complaint.

In their Answer,12 the petitioners invoked the SEC's lack of jurisdiction claiming that the complaint of private
respondents involved an intra-corporate controversy. Accordingly, they argued that under the Securities
Regulation Code (SRC), jurisdiction over such intra-corporate controversies should be with the Regional Trial
Court (RTC) acting as special commercial court.

In its December 5, 2007 Order,13 the SEC, after finding merit in the arguments presented in the complaint,
composed the membership of the MANCOM pursuant to its authority under Section 5 of the SRC and
Presidential Decree (P.D.) No. 902-A. Thus: chanRoblesvi rtua lLawl ibra ry

Pursuant to Section 5 of the Securities Regulation Code and Presidential Decree No. 902-A,
as amended, and finding merit in the arguments presented for the creation of a
Management Committee (Mancom) for Capitol Hills Golf and country Club, as prayed for by
the Petitioners in their letter dated May 08, 2007, the following are hereby designated to
compose the Mancom of the aforenamed corporation: chanRoblesvi rt ualLaw lib ra ry

Atty. Franklin I. Cueto - Chairman


Atty. Noel Y. Artiza - Member
Mr. Manuel Baldeo, Jr. - Member cra lawred

to perform the following duties and functions, for a period of one (1) month from the date
of receipt of this Order, and until further Orders from the Commission, to prevent the
paralyzation of the operations of Capitol Hills Golf and Country Club, preserve its assets and
protect the interests of the minority stockholders and other stakeholders: chanRob lesvi rtua lLawl ibrary

(a) Oversee and supervise the activities of the Club upon turn over thereof
to the Committee;

(b) Take custody of all the assets and properties owned or held by the Club
under management;
(c) Oversee the performance of the duties and responsibilities of the
management and board of directors of the Club, in order to preserve its
assets and properties; and

(d) To perform or discharge the powers and functions of the Management


Committee under Sec. 5 of Rule 9 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies under R.A. 8799, insofar as
may be applicable.

The above notwithstanding, the incumbent Board of Directors and Officers shall continue to
discharge their functions relative to the day to day operations of the Club and shall submit
a report to the Management Committee at such time and frequency as it may determine.

SO ORDERED.14 cralawred

The MANCOM, in turn, notified the petitioners of its assumption of duties. It also ordered that relevant
documents of Capitol be made available to it.

Subsequently, the petitioners questioned the December 5, 2007 SEC order before the CA via a petition
for prohibition under Rule 65 of the Rules of Court. It asked the CA to enjoin the SEC from conducting
further proceedings and to dismiss the case and, in addition, prayed for the issuance of a temporary
restraining order and/or writ of preliminary injunction.

The Ruling of the CA

In its November 30, 2010 decision,15 the CA dismissed the petition stating that while the letter-complaint
filed by private respondents raised intra-corporate matters, the case did not necessarily involve a
controversy arising purely out of intra-corporate relations so as to deprive the SEC of its jurisdiction. The CA
pointed out that the said letter-complaint was seeking that the SEC investigate alleged irregularities
committed by the petitioners which, if found true, would constitute serious violations of the SRC and the
pertinent rules and regulations.16 Thus, the CA concluded that private respondents were merely seeking the
administrative intervention of the SEC on a matter within its competence.

The CA agreed with the Office of the Solicitor General (OSG), representing the SEC, that the creation of the
MANCOM was authorized under SEC Memorandum Circular (MC) No. 11, Series of 2003. The said
memorandum stated that the SEC had the power "to do any and all acts to carry out the effective
implementation of the laws it is mandated to enforce, that is, constitute a management committee; appoint
receivers, issue cease and desist orders to prevent fraud or injury to the public; and such other measures to
carry out its role as a regulator."17 ChanRoblesVirtualawl ibra ry

In brief, the CA affirmed the power of the SEC to investigate and constitute the MANCOM because such
actions were pursuant to the administrative, supervisory and oversight powers of the SEC over Capitol.
According to the CA, no grave abuse of discretion could be attributed to the SEC. Hence, the petition was
dismissed.18ChanRob les Vi rtualaw lib rary

The petitioners moved for reconsideration, but their motion was denied by the CA in its March 15, 2011
resolution.

Hence, this petition.

ISSUE/S
(1) WAS TAKING COGNIZANCE OF THE LETTER- COMPLAINT FILED
BY THE PRIVATE RESPONDENTS BEYOND THE JURISDICTION OF
THE SEC?

(2) WAS THE SEC ORDER CREATING THE MANCOM ISSUED IN


EXCESS OF ITS JURISDICTION?

In its Comment,19 the SEC submitted that it correctly took cognizance of the subject letter-complaint and
appointed the MANCOM to temporarily oversee Capitol. It asserted that Section 5 of the SRC authorized the
SEC to assume jurisdiction over the subject matter to determine whether the petitioners, who were officers
of Capitol, violated the SRC and its implementing rules and regulations. Lastly, the SEC justified its act in
creating the MANCOM on the basis of SEC-MC No. 11, Series of 2003, which included the constitution of
such a committee as one of its powers.

Private respondents, in their Comment/Opposition,20 stated that the SEC had retained its administrative,
regulatory and oversight powers over corporations citing Orendain v. BF Homes, Inc.;21 that in the exercise
of such powers, the SEC was justified in entertaining their letter-complaint; and that as correctly
appreciated by the CA, the letter-complaint readily showed that it was an invocation for the SEC to exercise
its mandated power/authority by conducting an investigation on the perceived irregularities and fraudulent
transactions allegedly committed by the petitioners which, if found to be true, would constitute serious
violations of the SRC and its rules and regulations. Private respondents further argued that the creation of
the MANCOM was justified under SEC-MC No. 11, Series of 2003.

The petitioners failed to file a reply despite the Court's several notices. In the Manifestation,22 dated April
20, 2015, their lawyer23 explained that the petitioners had not been responding to calls or other
communication after Capitol was taken over by ALI sometime in the middle of 2011.

The Court's Ruling

The CA ruled in the negative on both scores and this Court agrees for the reasons discussed hereinafter.

On SEC's authority to take cognizance of the letter-complaint

Under the SRC, jurisdiction on matters stated under Section 5 of P.D. No. 902-A, which was originally vested
in the SEC, has already been transferred to the RTC acting as a special commercial court. Despite the said
transfer, however, the SEC still retains sufficient powers to justify its assumption of jurisdiction over matters
concerning its supervisory, administrative and regulatory functions. In SEC v. Subic Bay Golf and Country
Club, Inc. (SBGCCI) and Universal International Group Development Corporation (UIGDC),24 for instance,
the Court affirmed the SEC's assumption of jurisdiction over a complaint, which alleged that SBGCCI and
UIGDC committed misrepresentations in the sale of their shares. The Court held in the said case that
nothing prevented the SEC from assuming jurisdiction to determine if SBGCCI and UIGDC committed
administrative violations and were liable under the SRC despite the complaint having raised intra-corporate
issues. It also ruled that the SEC may investigate activities of corporations to ensure compliance with the
law.

In ruling that way, the Court cited Sections 5 and 53 of the SRC as justifications, to wit: chanRob lesvi rtua lLawl ibra ry

SECTION 5. Powers and Functions of the Commission. — 5.1. The Commission shall act
with transparency and shall have the powers and functions provided by this Code,
Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the
Financing Company Act and other existing laws. Pursuant thereto the Commission shall
have, among others, the following powers and functions: chanRoble svirtual Lawli bra ry
(a) Have jurisdiction and supervision over all corporations,
partnerships or associations who are the grantees of primary
franchises and/or a license or permit issued by the Government;

xxx

(d) Regulate, investigate or supervise the activities of persons to


ensure compliance;

xxx

(n) Exercise such other powers as may be provided by law as well as those
which may be implied from, or which are necessary or incidental to the
carrying out of, the express powers granted the Commission to achieve the
objectives and purposes of these laws.

xxx
SECTION 53. Investigations, Injunctions and Prosecution of Offenses. — 53.1. The
Commission may, in its discretion, make such investigations as it deems
necessary to determine whether any person has violated or is about to violate any
provision of this Code, any rule, regulation or order thereunder, or any rule of an
Exchange, registered securities association, clearing agency, other self-regulatory
organization, and may require or permit any person to file with it a statement in writing,
under oath or otherwise, as the Commission shall determine, as to all facts and
circumstances concerning the matter to be investigated. xxx cralawred

Beyond doubt, therefore, is the authority of the SEC to hear cases regardless of whether an action involves
issues cognizable by the RTC, provided that the SEC could only act upon those which are merely
administrative and regulatory in character. In other words, the SEC was never dispossessed of the power to
assume jurisdiction over complaints, even if these are riddled with intra-corporate allegations, if their
invocation of authority is confined only to the extent of ensuring compliance with the law and the rules, as
well as to impose fines and penalties for violation thereof; and to investigate even motu proprio whether
corporations comply with the Corporation Code, the SRC and the implementing rules and regulations.

Thus, in this case, there is simply no doubt that the SEC acted properly in assuming jurisdiction over the
letter-complaint filed by private respondents. A perusal of their letter-complaint demonstrates that private
respondents sought the SEC's intervention in the interest of the minority stockholders by "conducting
thorough investigation"25 on the actions of the petitioners over "the apparent anomalies and fraud over the
agreement with ALI," the growing labor unrest at [Capitol], the unpaid individual creditors some of whom
have already gone into courts to enforce collection, the continuing financial mismanagement and gross
negligence and incompetence shown by Mr. Pablo B. Roman, Jr., et al. in running the business affairs of
[Capitol] xxx that resulted in losses, wastages and dissipation of funds of the corporation.26 Their prayer for
the SEC to exercise its investigatory powers in the end would adequately justify the assumption of
jurisdiction over the letter-complaint regardless if, indeed, intra-corporate allegations were raised.

As the SEC is not ousted of its regulatory and administrative jurisdiction to determine and act if
administrative violations were committed,27 no grave abuse of discretion can be attributed to it when it
assumed jurisdiction over the letter-complaint. Accordingly, the Court finds no error with what was held by
the CA.

On the Constitution of the MANCOM

The SEC submits that the power to constitute a management committee is based on its supervisory and
regulatory functions. It cites SEC-MC No. 11, Series of 2003 as authority, which provides in part: cha nRoblesvi rt ualLaw lib rary

4. Notwithstanding the foregoing, the Commission, as provided in Section 5 of the SRC and
the effective provisions of PD 902-A, shall have the power to do any and all acts to carry
out the effective implementation of the laws it is mandated to enforce, i.e.: constitute a
Management Committee; appoint receivers, issue Cease and Desist Orders to prevent
fraud or injury to the public; and such other measures to carry out its role as a regulator. cralawred

In effect, the authority of the SEC is viewed as one that is intimately related to its functions as a regulator.

The petitioners reject this and opine that constituting the MANCOM involves an intra-corporate controversy,
which is within the jurisdiction of the RTC. Invoking Section 5.2 of the SRC, they contend that the authority
to create the MANCOM is exclusive to the RTC and no longer with the SEC.

Indeed, Section 5.2. of the SRC has transferred jurisdiction over intra-corporate controversies to the RTC. It
provides:c hanRoble svirtual Lawli bra ry

The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its
authority may designate the Regional Trial Court branches that shall exercise jurisdiction
over these cases. The Commission shall retain jurisdiction over pending cases involving
intra-corporate disputes submitted for final resolution which should be resolved within one
(l) year from the enactment of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/ rehabilitation cases filed as of 30 June 2000 until finally
disposed. c ralawred

Relative thereto, Section 5 of P.D. No. 902-A states: chanRoblesvi rtua lLawl ibra ry

SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving

a) Devices or schemes employed by or any acts, of the board of directors,


business associates, its officers or partnership, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholder, partners, members of associations or
organizations registered with the Commission;

b) Controversies arising out of intra-corporate or partnership relations,


between and among stockholders, members, or associates; between any
or all of them and the corporation, partnership or association of which
they are stockholders, members or associates, respectively; and
between such corporation, partnership or association and the state
insofar as it concerns their individual franchise or right to exist as such
entity; and

c) Controversies in the election or appointments of directors, trustees,


officers or managers of such corporations, partnerships or associations.

Clearly, any dispute concerning intra-corporate issues is now beyond the province of the SEC.

Yet, it must be stressed that under Section 5.1 (n) of the SRC, the SEC is permitted to exercise such other
powers as may be provided for by law as well as those which may be implied from, or which are necessary
or incidental to the carrying out, of the express powers granted the SEC to achieve the objectives and
purposes of these laws.

With such broad authority, it is beyond question that the SEC, as a regulator, has broad discretion to act on
matters that relate to its express power of supervision over all corporations, partnerships or associations
who are the grantees of primary franchises and/or a license or permit issued by the Government. Such grant
of express power of supervision, necessarily includes the power to create a management committee
following the doctrine of necessary implication.

The reason is simple. The creation of a management committee is one that is premised on the immediate
and speedy protection of the interest not only of minority stockholders, but also of the general public from
immediate danger of loss, wastage or destruction of assets or the paralyzation of business of a concerned
corporation or entity.28 No body is more competent to provide such a temporary relief other than the
regulatory body of these companies - the SEC.

Thus, such authority is expressly sanctioned under SEC-MC No. 11, Series of 2003. Suffice it to state that
such circular enjoys the presumption of validity unless this Court declares otherwise.

WHEREFORE, the petition is DENIED.

7. FIRST DIVISION

G.R. No. 201298 February 5, 2014

RAUL C. COSARE, Petitioner,


vs.
BROADCOM ASIA, INC. and DANTE AREVALO,Respondents.

DECISION

REYES, J.:

Before the Court is a petition for review on certiorari1under Rule 45 of the Rules of Court, which
assails the Decision2 dated November 24, 2011 and Resolution3dated March 26, 2012 of the Court of
Appeals (CA) in CA-G.R. SP. No. 117356, wherein the CA ruled that the Regional Trial Court (RTC),
and not the Labor Arbiter (LA), had the jurisdiction over petitioner Raul C. Cosare's (Cosare)
complaint for illegal dismissal against Broadcom Asia, Inc. (Broadcom) and Dante Arevalo (Arevalo),
the President of Broadcom (respondents).

The Antecedents

The case stems from a complaint4 for constructive dismissal, illegal suspension and monetary claims
filed with the National Capital Region Arbitration Branch of the National Labor Relations Commission
(NLRC) by Cosare against the respondents.

Cosare claimed that sometime in April 1993, he was employed as a salesman by Arevalo, who was
then in the business of selling broadcast equipment needed by television networks and production
houses. In December 2000, Arevalo set up the company Broadcom, still to continue the business of
trading communication and broadcast equipment. Cosare was named an incorporator of Broadcom,
having been assigned 100 shares of stock with par value of ₱1.00 per share.5 In October 2001,
Cosare was promoted to the position of Assistant Vice President for Sales (AVP for Sales) and Head
of the Technical Coordination, having a monthly basic net salary and average commissions of
₱18,000.00 and ₱37,000.00, respectively.6

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice President for Sales
and thus, became Cosare’s immediate superior. On March 23, 2009, Cosare sent a confidential
memo7 to Arevalo to inform him of the following anomalies which were allegedly being committed by
Abiog against the company: (a) he failed to report to work on time, and would immediately leave the
office on the pretext of client visits; (b) he advised the clients of Broadcom to purchase camera units
from its competitors, and received commissions therefor; (c) he shared in the "under the-table
dealings" or "confidential commissions" which Broadcom extended to its clients’ personnel and
engineers; and (d) he expressed his complaints and disgust over Broadcom’s uncompetitive salaries
and wages and delay in the payment of other benefits, even in the presence of office staff. Cosare
ended his memo by clarifying that he was not interested in Abiog’s position, but only wanted Arevalo
to know of the irregularities for the corporation’s sake.

Apparently, Arevalo failed to act on Cosare’s accusations. Cosare claimed that he was instead
called for a meeting by Arevalo on March 25, 2009, wherein he was asked to tender his resignation
in exchange for "financial assistance" in the amount of ₱300,000.00.8 Cosare refused to comply with
the directive, as signified in a letter9 dated March 26, 2009 which he sent to Arevalo.

On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcom’s Manager for
Finance and Administration, a memo10 signed by Arevalo, charging him of serious misconduct and
willful breach of trust, and providing in part:

1. A confidential memo was received from the VP for Sales informing me that you had
directed, or at the very least tried to persuade, a customer to purchase a camera from
another supplier. Clearly, this action is a gross and willful violation of the trust and confidence
this company has given to you being its AVP for Sales and is an attempt to deprive the
company of income from which you, along with the other employees of this company, derive
your salaries and other benefits. x x x.

2. A company vehicle assigned to you with plate no. UNV 402 was found abandoned in
another place outside of the office without proper turnover from you to this office which had
assigned said vehicle to you. The vehicle was found to be inoperable and in very bad
condition, which required that the vehicle be towed to a nearby auto repair shop for extensive
repairs.

3. You have repeatedly failed to submit regular sales reports informing the company of your
activities within and outside of company premises despite repeated reminders. However, it
has been observed that you have been both frequently absent and/or tardy without proper
information to this office or your direct supervisor, the VP for Sales Mr. Alex Abiog, of your
whereabouts.

4. You have been remiss in the performance of your duties as a Sales officer as evidenced
by the fact that you have not recorded any sales for the past immediate twelve (12) months.
This was inspite of the fact that my office decided to relieve you of your duties as technical
coordinator between Engineering and Sales since June last year so that you could focus and
concentrate [on] your activities in sales.11
Cosare was given forty-eight (48) hours from the date of the memo within which to present his
explanation on the charges. He was also "suspended from having access to any and all company
files/records and use of company assets effective immediately."12 Thus, Cosare claimed that he was
precluded from reporting for work on March 31, 2009, and was instead instructed to wait at the
office’s receiving section. Upon the specific instructions of Arevalo, he was also prevented by
Villareal from retrieving even his personal belongings from the office.

On April 1, 2009, Cosare was totally barred from entering the company premises, and was told to
merely wait outside the office building for further instructions. When no such instructions were given
by 8:00 p.m., Cosare was impelled to seek the assistance of the officials of Barangay San Antonio,
Pasig City, and had the incident reported in the barangay blotter.13

On April 2, 2009, Cosare attempted to furnish the company with a Memo14 by which he addressed
and denied the accusations cited in Arevalo’s memo dated March 30, 2009. The respondents
refused to receive the memo on the ground of late filing, prompting Cosare to serve a copy thereof
by registered mail. The following day, April 3, 2009, Cosare filed the subject labor complaint,
claiming that he was constructively dismissed from employment by the respondents. He further
argued that he was illegally suspended, as he placed no serious and imminent threat to the life or
property of his employer and co-employees.15

In refuting Cosare’s complaint, the respondents argued that Cosare was neither illegally suspended
nor dismissed from employment. They also contended that Cosare committed the following acts
inimical to the interests of Broadcom: (a) he failed to sell any broadcast equipment since the year
2007; (b) he attempted to sell a Panasonic HMC 150 Camera which was to be sourced from a
competitor; and (c) he made an unauthorized request in Broadcom’s name for its principal,
Panasonic USA, to issue an invitation for Cosare’s friend, one Alex Paredes, to attend the National
Association of Broadcasters’ Conference in Las Vegas, USA.16Furthermore, they contended that
Cosare abandoned his job17 by continually failing to report for work beginning April 1, 2009,
prompting them to issue on April 14, 2009 a memorandum18 accusing Cosare of absence without
leave beginning April 1, 2009.

The Ruling of the LA

On January 6, 2010, LA Napoleon M. Menese (LA Menese) rendered his Decision19 dismissing the
complaint on the ground of Cosare’s failure to establish that he was dismissed, constructively or
otherwise, from his employment. For the LA, what transpired on March 30, 2009 was merely the
respondents’ issuance to Cosare of a show-cause memo, giving him a chance to present his side on
the charges against him. He explained:

It is obvious that [Cosare] DID NOT wait for respondents’ action regarding the charges leveled
against him in the show-cause memo. What he did was to pre-empt that action by filing this
complaint just a day after he submitted his written explanation. Moreover, by specifically seeking
payment of "Separation Pay" instead of reinstatement, [Cosare’s] motive for filing this case becomes
more evident.20

It was also held that Cosare failed to substantiate by documentary evidence his allegations of illegal
suspension and non-payment of allowances and commissions.

Unyielding, Cosare appealed the LA decision to the NLRC.

The Ruling of the NLRC


On August 24, 2010, the NLRC rendered its Decision21reversing the Decision of LA Menese. The
dispositive portion of the NLRC Decision reads:

WHEREFORE, premises considered, the DECISION is REVERSED and the Respondents are found
guilty of Illegal Constructive Dismissal. Respondents BROADCOM ASIA, INC. and Dante Arevalo
are ordered to pay [Cosare’s] backwages, and separation pay, as well as damages, in the total
amount of ₱1,915,458.33, per attached Computation.

SO ORDERED.22

In ruling in favor of Cosare, the NLRC explained that "due weight and credence is accorded to
[Cosare’s] contention that he was constructively dismissed by Respondent Arevalo when he was
asked to resign from his employment."23 The fact that Cosare was suspended from using the assets
of Broadcom was also inconsistent with the respondents’ claim that Cosare opted to abandon his
employment.

Exemplary damages in the amount of ₱100,000.00 was awarded, given the NLRC’s finding that the
termination of Cosare’s employment was effected by the respondents in bad faith and in a wanton,
oppressive and malevolent manner. The claim for unpaid commissions was denied on the ground of
the failure to include it in the prayer of pleadings filed with the LA and in the appeal.

The respondents’ motion for reconsideration was denied.24 Dissatisfied, they filed a petition for
certiorari with the CA founded on the following arguments: (1) the respondents did not have to prove
just cause for terminating the employment of Cosare because the latter’s complaint was based on an
alleged constructive dismissal; (2) Cosare resigned and was thus not dismissed from employment;
(3) the respondents should not be declared liable for the payment of Cosare’s monetary claims; and
(4) Arevalo should not be held solidarily liable for the judgment award.

In a manifestation filed by the respondents during the pendency of the CA appeal, they raised a new
argument, i.e., the case involved an intra-corporate controversy which was within the jurisdiction of
the RTC, instead of the LA.25 They argued that the case involved a complaint against a corporation
filed by a stockholder, who, at the same time, was a corporate officer.

The Ruling of the CA

On November 24, 2011, the CA rendered the assailed Decision26 granting the respondents’ petition.
It agreed with the respondents’ contention that the case involved an intra-corporate controversy
which, pursuant to Presidential Decree No. 902-A, as amended, was within the exclusive jurisdiction
of the RTC. It reasoned:

Record shows that [Cosare] was indeed a stockholder of [Broadcom], and that he was listed as one
of its directors. Moreover, he held the position of [AVP] for Sales which is listed as a corporate office.
Generally, the president, vice-president, secretary or treasurer are commonly regarded as the
principal or executive officers of a corporation, and modern corporation statutes usually designate
them as the officers of the corporation. However, it bears mentioning that under Section 25 of the
Corporation Code, the Board of Directors of [Broadcom] is allowed to appoint such other officers as
it may deem necessary. Indeed, [Broadcom’s] By-Laws provides:

Article IV
Officer
Section 1. Election / Appointment – Immediately after their election, the Board of
Directors shall formally organize by electing the President, the Vice-President, the
Treasurer, and the Secretary at said meeting.

The Board, may, from time to time, appoint such other officers as it may determine to
be necessary or proper. x x x

We hold that [the respondents] were able to present substantial evidence that [Cosare] indeed held
a corporate office, as evidenced by the General Information Sheet which was submitted to the
Securities and Exchange Commission (SEC) on October 22, 2009.27(Citations omitted and emphasis
supplied)

Thus, the CA reversed the NLRC decision and resolution, and then entered a new one dismissing
the labor complaint on the ground of lack of jurisdiction, finding it unnecessary to resolve the main
issues that were raised in the petition. Cosare filed a motion for reconsideration, but this was denied
by the CA via the Resolution28 dated March 26, 2012. Hence, this petition.

The Present Petition

The pivotal issues for the petition’s full resolution are as follows: (1) whether or not the case
instituted by Cosare was an intra-corporate dispute that was within the original jurisdiction of the
RTC, and not of the LAs; and (2) whether or not Cosare was constructively and illegally dismissed
from employment by the respondents.

The Court’s Ruling

The petition is impressed with merit.

Jurisdiction over the controversy

As regards the issue of jurisdiction, the Court has determined that contrary to the ruling of the CA, it
is the LA, and not the regular courts, which has the original jurisdiction over the subject controversy.
An intra-corporate controversy, which falls within the jurisdiction of regular courts, has been
regarded in its broad sense to pertain to disputes that involve any of the following relationships: (1)
between the corporation, partnership or association and the public; (2) between the corporation,
partnership or association and the state in so far as its franchise, permit or license to operate is
concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates, themselves.29 Settled
jurisprudence, however, qualifies that when the dispute involves a charge of illegal dismissal, the
action may fall under the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls termination
disputes and claims for damages arising from employer-employee relations as provided in Article
217 of the Labor Code. Consistent with this jurisprudence, the mere fact that Cosare was a
stockholder and an officer of Broadcom at the time the subject controversy developed failed to
necessarily make the case an intra-corporate dispute.

In Matling Industrial and Commercial Corporation v. Coros,30 the Court distinguished between a
"regular employee" and a "corporate officer" for purposes of establishing the true nature of a dispute
or complaint for illegal dismissal and determining which body has jurisdiction over it. Succinctly, it
was explained that "[t]he determination of whether the dismissed officer was a regular employee or
corporate officer unravels the conundrum" of whether a complaint for illegal dismissal is cognizable
by the LA or by the RTC. "In case of the regular employee, the LA has jurisdiction; otherwise, the
RTC exercises the legal authority to adjudicate.31
Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for
illegal dismissal because Cosare, although an officer of Broadcom for being its AVP for Sales, was
not a "corporate officer" as the term is defined by law. We emphasized in Real v. Sangu Philippines,
Inc.32 the definition of corporate officers for the purpose of identifying an intra-corporate controversy.
Citing Garcia v. Eastern Telecommunications Philippines, Inc.,33 we held:

" ‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the Corporation Code or by the corporation’s by-laws.
There are three specific officers whom a corporation must have under Section 25 of the Corporation
Code. These are the president, secretary and the treasurer. The number of officers is not limited to
these three. A corporation may have such other officers as may be provided for by its by-laws like,
but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate
officers is thus limited by law and by the corporation’s by-laws."34(Emphasis ours)

In Tabang v. NLRC,35 the Court also made the following pronouncement on the nature of corporate
offices:

It has been held that an "office" is created by the charter of the corporation and the officer is elected
by the directors and stockholders. On the other hand, an "employee" usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of
the corporation who also determines the compensation to be paid to such employee.36 (Citations
omitted)

As may be deduced from the foregoing, there are two circumstances which must concur in order for
an individual to be considered a corporate officer, as against an ordinary employee or officer,
namely: (1) the creation of the position is under the corporation’s charter or by-laws; and (2) the
election of the officer is by the directors or stockholders. It is only when the officer claiming to have
been illegally dismissed is classified as such corporate officer that the issue is deemed an intra-
corporate dispute which falls within the jurisdiction of the trial courts.

To support their argument that Cosare was a corporate officer, the respondents referred to Section
1, Article IV of Broadcom’s by-laws, which reads:

ARTICLE IV
OFFICER

Section 1. Election / Appointment – Immediately after their election, the Board of


Directors shall formally organize by electing the President, the Vice-President, the
Treasurer, and the Secretary at said meeting.

The Board may, from time to time, appoint such other officers as it may determine to be necessary
or proper. Any two (2) or more compatible positions may be held concurrently by the same person,
except that no one shall act as President and Treasurer or Secretary at the same time.37 (Emphasis
ours)

This was also the CA’s main basis in ruling that the matter was an intra-corporate dispute that was
within the trial courts’ jurisdiction.

The Court disagrees with the respondents and the CA. As may be gleaned from the aforequoted
provision, the only officers who are specifically listed, and thus with offices that are created under
Broadcom’s by-laws are the following: the President, Vice-President, Treasurer and Secretary.
Although a blanket authority provides for the Board’s appointment of such other officers as it may
deem necessary and proper, the respondents failed to sufficiently establish that the position of AVP
for Sales was created by virtue of an act of Broadcom’s board, and that Cosare was specifically
elected or appointed to such position by the directors. No board resolutions to establish such facts
form part of the case records. Further, it was held in Marc II Marketing, Inc. v. Joson38that an
enabling clause in a corporation’s by-laws empowering its board of directors to create additional
officers, even with the subsequent passage of a board resolution to that effect, cannot make such
position a corporate office. The board of directors has no power to create other corporate offices
without first amending the corporate by-laws so as to include therein the newly created corporate
office.39 "To allow the creation of a corporate officer position by a simple inclusion in the corporate
by-laws of an enabling clause empowering the board of directors to do so can result in the
circumvention of that constitutionally well-protected right [of every employee to security of tenure]."40

The CA’s heavy reliance on the contents of the General Information Sheets41, which were submitted
by the respondents during the appeal proceedings and which plainly provided that Cosare was an
"officer" of Broadcom, was clearly misplaced. The said documents could neither govern nor establish
the nature of the office held by Cosare and his appointment thereto. Furthermore, although Cosare
could indeed be classified as an officer as provided in the General Information Sheets, his position
could only be deemed a regular office, and not a corporate office as it is defined under the
Corporation Code. Incidentally, the Court noticed that although the Corporate Secretary of
Broadcom, Atty. Efren L. Cordero, declared under oath the truth of the matters set forth in the
General Information Sheets, the respondents failed to explain why the General Information Sheet
officially filed with the Securities and Exchange Commission in 2011 and submitted to the CA by the
respondents still indicated Cosare as an AVP for Sales, when among their defenses in the charge of
illegal dismissal, they asserted that Cosare had severed his relationship with the corporation since
the year 2009.

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the case’s filing did
not necessarily make the action an intra- corporate controversy. "Not all conflicts between the
stockholders and the corporation are classified as intra-corporate. There are other facts to consider
in determining whether the dispute involves corporate matters as to consider them as intra-corporate
controversies."42 Time and again, the Court has ruled that in determining the existence of an intra-
corporate dispute, the status or relationship of the parties and the nature of the question that is the
subject of the controversy must be taken into account.43Considering that the pending dispute
particularly relates to Cosare’s rights and obligations as a regular officer of Broadcom, instead of as
a stockholder of the corporation, the controversy cannot be deemed intra-corporate. This is
consistent with the "controversy test" explained by the Court in Reyes v. Hon. RTC, Br. 142,44 to wit:

Under the nature of the controversy test, the incidents of that relationship must also be considered
for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy
must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to
the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents
are merely incidental to the controversy or if there will still be conflict even if the relationship does not
exist, then no intra-corporate controversy exists.45 (Citation omitted)

It bears mentioning that even the CA’s finding46 that Cosare was a director of Broadcom when the
dispute commenced was unsupported by the case records, as even the General Information Sheet
of 2009 referred to in the CA decision to support such finding failed to provide such detail.

All told, it is then evident that the CA erred in reversing the NLRC’s ruling that favored Cosare solely
on the ground that the dispute was an intra-corporate controversy within the jurisdiction of the
regular courts.
The charge of constructive dismissal

Towards a full resolution of the instant case, the Court finds it appropriate to rule on the correctness
of the NLRC’s ruling finding Cosare to have been illegally dismissed from employment.

In filing his labor complaint, Cosare maintained that he was constructively dismissed, citing among
other circumstances the charges that were hurled and the suspension that was imposed against him
via Arevalo’s memo dated March 30, 2009. Even prior to such charge, he claimed to have been
subjected to mental torture, having been locked out of his files and records and disallowed use of his
office computer and access to personal belongings.47 While Cosare attempted to furnish the
respondents with his reply to the charges, the latter refused to accept the same on the ground that it
was filed beyond the 48-hour period which they provided in the memo.

Cosare further referred to the circumstances that allegedly transpired subsequent to the service of
the memo, particularly the continued refusal of the respondents to allow Cosare’s entry into the
company’s premises. These incidents were cited in the CA decision as follows:

On March 31, 2009, [Cosare] reported back to work again. He asked Villareal if he could retrieve his
personal belongings, but the latter said that x x x Arevalo directed her to deny his request, so
[Cosare] again waited at the receiving section of the office. On April 1, 2009, [Cosare] was not
allowed to enter the office premises. He was asked to just wait outside of the Tektite (PSE) Towers,
where [Broadcom] had its offices, for further instructions on how and when he could get his personal
belongings. [Cosare] waited until 8 p.m. for instructions but none were given. Thus, [Cosare] sought
the assistance of the officials of Barangay San Antonio, Pasig who advised him to file a labor or
replevin case to recover his personal belongings. x x x.48 (Citation omitted)

It is also worth mentioning that a few days before the issuance of the memo dated March 30, 2009,
Cosare was allegedly summoned to Arevalo’s office and was asked to tender his immediate
resignation from the company, in exchange for a financial assistance of ₱300,000.00.49 The directive
was said to be founded on Arevalo’s choice to retain Abiog’s employment with the company.50 The
respondents failed to refute these claims.

Given the circumstances, the Court agrees with Cosare’s claim of constructive and illegal dismissal.
"[C]onstructive dismissal occurs when there is cessation of work because continued employment is
rendered impossible, unreasonable, or unlikely as when there is a demotion in rank or diminution in
pay or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to
the employee leaving the latter with no other option but to quit."51 In Dimagan v. Dacworks United,
Incorporated,52 it was explained:

The test of constructive dismissal is whether a reasonable person in the employee’s position would
have felt compelled to give up his position under the circumstances. It is an act amounting to
dismissal but is made to appear as if it were not. Constructive dismissal is therefore a dismissal in
disguise. The law recognizes and resolves this situation in favor of employees in order to protect
their rights and interests from the coercive acts of the employer.53 (Citation omitted)

It is clear from the cited circumstances that the respondents already rejected Cosare’s continued
involvement with the company. Even their refusal to accept the explanation which Cosare tried to
tender on April 2, 2009 further evidenced the resolve to deny Cosare of the opportunity to be heard
prior to any decision on the termination of his employment. The respondents allegedly refused
acceptance of the explanation as it was filed beyond the mere 48-hour period which they granted to
Cosare under the memo dated March 30, 2009. However, even this limitation was a flaw in the
memo or notice to explain which only further signified the respondents’ discrimination, disdain and
insensibility towards Cosare, apparently resorted to by the respondents in order to deny their
employee of the opportunity to fully explain his defenses and ultimately, retain his employment. The
Court emphasized in King of Kings Transport, Inc. v. Mamac54 the standards to be observed by
employers in complying with the service of notices prior to termination:

[T]he first written notice to be served on the employees should contain the specific causes or
grounds for termination against them, and a directive that the employees are given the opportunity to
submit their written explanation within a reasonable period. "Reasonable opportunity" under the
Omnibus Rules means every kind of assistance that management must accord to the employees to
enable them to prepare adequately for their defense. This should be construed as a period of at
least five (5) calendar days from receipt of the notice to give the employees an opportunity to study
the accusation against them, consult a union official or lawyer, gather data and evidence, and decide
on the defenses they will raise against the complaint. Moreover, in order to enable the employees to
intelligently prepare their explanation and defenses, the notice should contain a detailed narration of
the facts and circumstances that will serve as basis for the charge against the employees. A general
description of the charge will not suffice. Lastly, the notice should specifically mention which
company rules, if any, are violated and/or which among the grounds under Art. 282 is being charged
against the employees.55 (Citation omitted, underscoring ours, and emphasis supplied)

In sum, the respondents were already resolute on a severance of their working relationship with
Cosare, notwithstanding the facts which could have been established by his explanations and the
respondents’ full investigation on the matter. In addition to this, the fact that no further investigation
and final disposition appeared to have been made by the respondents on Cosare’s case only
negated the claim that they actually intended to first look into the matter before making a final
determination as to the guilt or innocence of their employee. This also manifested from the fact that
even before Cosare was required to present his side on the charges of serious misconduct and
willful breach of trust, he was summoned to Arevalo’s office and was asked to tender his immediate
resignation in exchange for financial assistance.

The clear intent of the respondents to find fault in Cosare was also manifested by their persistent
accusation that Cosare abandoned his post, allegedly signified by his failure to report to work or file
a leave of absence beginning April 1, 2009. This was even the subject of a memo56 issued by
Arevalo to Cosare on April 14, 2009, asking him to explain his absence within 48 hours from the date
of the memo. As the records clearly indicated, however, Arevalo placed Cosare under suspension
beginning March 30, 2009. The suspension covered access to any and all company files/records
and the use of the assets of the company, with warning that his failure to comply with the memo
would be dealt with drastic management action. The charge of abandonment was inconsistent with
this imposed suspension. "Abandonment is the deliberate and unjustified refusal of an employee to
resume his employment. To constitute abandonment of work, two elements must concur: ‘(1) the
employee must have failed to report for work or must have been absent without valid or justifiable
reason; and (2) there must have been a clear intention on the part of the employee to sever the
employer- employee relationship manifested by some overt act.’"57 Cosare’s failure to report to work
beginning April 1, 2009 was neither voluntary nor indicative of an intention to sever his employment
with Broadcom. It was illogical to be requiring him to report for work, and imputing fault when he
failed to do so after he was specifically denied access to all of the company’s assets. As correctly
observed by the NLRC:

[T]he Respondent[s] had charged [Cosare] of abandoning his employment beginning on April 1,
2009. However[,] the show-cause letter dated March 3[0], 2009 (Annex "F", ibid) suspended
[Cosare] from using not only the equipment but the "assets" of Respondent [Broadcom]. This insults
rational thinking because the Respondents tried to mislead us and make [it appear] that [Cosare]
failed to report for work when they had in fact had [sic] placed him on suspension. x x x.58
Following a finding of constructive dismissal, the Court finds no cogent reason to modify the NLRC's
monetary awards in Cosare's favor. In Robinsons Galleria/Robinsons Supermarket Corporation v.
Ranchez,59 the Court reiterated that an illegally or constructively dismissed employee is entitled to:
(1) either reinstatement, if viable, or separation pay, if reinstatement is no longer viable; and (2)
backwages.60The award of exemplary damages was also justified given the NLRC's finding that the
respondents acted in bad faith and in a wanton, oppressive and malevolent manner when they
dismissed Cosare. It is also by reason of such bad faith that Arevalo was correctly declared solidarily
liable for the monetary awards.

WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011 and Resolution
dated March 26, 2012 of the Court of Appeals in CA-G.R. SP. No. 117356 are SET ASIDE. The
Decision dated August 24, 2010 of the National Labor Relations Commission in favor of petitioner
Raul C. Cosare is AFFIRMED.

SO ORDERED.

8. FIRST DIVISION

G.R. No. 184622 July 3, 2013

PHILIPPINE OVERSEAS TELECOMMUNICATIONS CORPORATION (POTC) AND PHILIPPINE


COMMUNICATIONS SATELLITE CORPORATION (PHILCOMSAT), Petitioners,
vs.
VICTOR AFRICA, ERLINDA I. BILDNER, SYLVIA K. ILUSORIO, HONORIO POBLADOR III,
VICTORIA C. DELOS REYES, JOHN BENEDICT SIOSON, AND JOHN/JANE
DOES. Respondents.

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

G.R. Nos. 184712-14

PHILIPPINE OVERSEAS TELECOMMUNICATIONS CORPORATION (POTC) AND PHILIPPINE


COMMUNICATIONS SATELLITE CORPORATION (PHILCOMSAT), Petitioners,
vs.
HON. JENNY LIN ALDECOA-DELORINO, PAIRING JUDGE OF THE REGIONAL TRIAL COURT
OF MAKATI CITY-BRANCH 138, VICTOR AFRICA, purportedly representing PHILCOMSAT,
AND JOHN/JANE DOES. Respondents.

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

G.R. No. 186066

PHILCOMSAT HOLDINGS CORPORATION, represented by CONCEPCION


POBLADOR, Petitioner,
vs.
PHILIPPINE COMMUNlCATIONS SATELLITE CORPORATION (PHILCOMSAT), represented by
VICTOR AFRICA, Respondent.

x-----------------------x
G.R. No. 186590

PHILCOMSAT HOLDINGS CORPORATION, represented by ERLINDA I. BILDNER, Petitioner,


vs.
PHILCOMSAT HOLDINGS CORPORATION, represented by ENRIQUE L. LOCSIN, Respondent.

DECISION

BERSAMIN, J.:

An intra-corporate dispute involving a corporation under sequestration of the Presidential


Commission on Good Government (PCGG) falls under the jurisdiction of the Regional Trial Court
(RTC), not the Sandiganbayan.

The Cases

These consolidated appeals via petitions for review on certiorari include the following:

(a) G.R. No.184622 - the appeal from the dismissal by the Sandiganbayan of the petitioners’
complaint for injunction docketed as Civil Case No. 0198 on the ground that the
Sandiganbayan had no jurisdiction over the issue due to its being an intra-corporate dispute;

(b) G.R. No.184712-14 and G.R. No. 186066 - the appeals of the Locsin Group (in
representation of Philippine Overseas Telecommunications Corporation (POTC), Philippine
Communications Satellite Corporation (PHILCOMSAT), and Philcomsat Holdings
Corporation (PHC) from the consolidated decision the Court of Appeals (CA) promulgated on
September 30, 2008 in C.A.-G.R. SP No. 101225, C.A.-G.R. SP No. 98097 and C.A.-G.R.
SP No. 98399; and

(c) G.R. No. 186590 - the appeal of the Ilusorio Group seeking the reversal of the decision
promulgated by the CA on July 16, 2008 in C.A.-G.R. SP No. 102437.

Common Antecedents

POTC is a domestic corporation organized for the purpose of, among others, constructing, installing,
maintaining, and operating communications satellite systems, satellite terminal stations and
associated equipments and facilities in the Philippines.1

PHILCOMSAT is also a domestic corporation. Its purposes include providing telecommunications


services through space relay and repeater stations throughout the Philippines.

PHC is likewise a domestic corporation, previously known as Liberty Mines, Inc., and is engaged in
the discovery, exploitation, development and exploration of oil. In 1997, Liberty Mines, Inc. changed
its name to PHC, declassified its shares, and amended its primary purpose to become a holding
company.2

The ownership structure of these corporations implies that whoever had control of POTC necessarily
held 100% control of PHILCOMSAT, and in turn whoever controlled PHILCOMSAT wielded 81%
majority control of PHC. Records reveal that POTC has been owned by seven families through their
individual members or their corporations, namely: (a) the Ilusorio Family; (b) the Nieto Family; (c) the
Poblador Family; (d) the Africa Family; (e) the Benedicto Family; (f) the Ponce Enrile Family; and (g)
the Elizalde Family.3

Atty. Potenciano Ilusorio, the patriarch of the Ilusorio Family, owned shares of stock in POTC. A
block consisting of 5,400 POTC shares of stock has become the bone of contention in a prolonged
controversy among the parties. Atty. Ilusorio claimed that he had incurred the ire of Imelda Marcos
during the regime of President Marcos, leading to the Marcos spouses’ grabbing from him the POTC
shares of stock through threats and intimidation and without any valuable consideration, and placing
such shares under the names of their alter egos, namely: 3,644 shares in the name of Independent
Realty Corporation (IRC); 1,755 shares in the name of MidPasig Land Development (Mid-Pasig);
and one share in the name of Ferdinand Marcos, Jr.4

On February 25, 1986, the EDSA People Power Revolution deposed President Marcos from power
and forced him and his family to flee the country. On February 28, 1986, newly-installed President
Corazon C. Aquino issued Executive Order No. 1 to create the PCGG whose task was to assist the
President in the recovery of all ill-gotten wealth amassed by President Marcos, his immediate family,
relatives, subordinates and close associates, whether located in the Philippines or abroad, through
the takeover or sequestration of all business enterprises and entities owned or controlled by them
during President Marcos’ administration, directly or through nominees, by taking undue advantage of
their public office and/or using their powers, authority, influence, connections or relationships.5

Subsequently, Jose Y. Campos, a self-confessed crony of President Marcos, voluntarily surrendered


to the PCGG the properties, assets, and corporations he had held in trust for the deposed President.
Among the corporations surrendered were IRC (which, in the books of POTC, held 3,644 POTC
shares) and Mid-Pasig (which, in the books of POTC, owned 1,755 POTC shares). Also turned over
was one POTC share in the name of Ferdinand Marcos, Jr.6

With Campos’ surrender of IRC and Mid-Pasig to the PCGG, the ownership structure of POTC
became as follows:

Owner % of Shareholdings

Ilusorio, Africa, Poblador,

Benedicto and Ponce Enrile 46.39%

Families
PCGG (IRC and Mid-Pasig) 39.92%

Nieto Family 13.12%

Elizalde Family 0.57%

Total 100.00%

With 39.92% of the POTC shareholdings under its control, the PCGG obtained three out of the
seven seats in the POTC Board of Directors. At the time, Manuel Nieto, Jr. was the President of both
POTC and PHILCOMSAT. However, Nieto, Jr. had a falling out with other stockholders. To keep
control of the POTC and PHILCOMSAT, Nieto, Jr. aligned with the PCGG nominees to enable him
to wrest four out of seven seats in the POTC Board of Directors and five out of the nine seats in the
PHILCOMSAT Board of Directors. Thus, Nieto, Jr. remained as the President of POTC and
PHILCOMSAT.7

On July 22, 1987, the Government, represented by the PCGG, filed in the Sandiganbayan a
Complaint for reconveyance, reversion, accounting, restitution and damages against Jose L. Africa,
Manuel H. Nieto, Jr., President Marcos, Imelda R. Marcos, Ferdinand R. Marcos, Jr., Roberto S.
Benedicto, Juan Ponce Enrile and Atty. Potenciano Ilusorio.8 The Complaint, docketed as SB Civil
Case No. 009, alleged that the defendants "acted in collaboration with each other as dummies,
nominees and/or agents of defendants Ferdinand E. Marcos, Imelda R. Marcos and Ferdinand R.
Marcos, Jr. in several corporations, such as the Mid-Pasig Land Development Corporation and the
Independent Realty Corporation which, through manipulations by said defendants, appropriated a
substantial portion of the shareholdings in Philippine Overseas Telecommunications Corporation and
Philippine Communications Satellite Corporation held by the late Honorio Poblador, Jr., Jose Valdez
and Francisco Reyes, thereby further advancing defendants’ scheme to monopolize the
telecommunications industry;" that through their illegal acts, they acquired ill-gotten wealth; that their
acts constituted "breach of public trust and the law, abuse of rights and power, and unjust
enrichment;" and that their illgotten wealth, real and personal, "are deemed to have been acquired
(by them) for the benefit of the plaintiff (Republic) and are, therefore, impressed with constructive
trust in favor of (the latter) and the Filipino people."9

The Complaint prayed that all the funds, properties and assets illegally acquired by the defendants,
or their equivalent value, be reconveyed or reverted to the Government; and that the defendants be
ordered to render an accounting and to pay damages.10

In his Amended Answer with Cross-Claim (against the Marcoses) and Third-Party Complaint against
Mid-Pasig and IRC, Atty. Ilusorio denied having acquired ill-gotten wealth and having unjustly
enriched himself by conspiring with any of the defendants in committing a breach of public trust or
abuse of right or of power, stating that "he has never held any public office nor has he been a
government employee;" and that he was never a dummy or agent of the Marcoses. He interposed
the affirmative defense that he owned 5,400 POTC shares of stock, having acquired them through
his honest toil, but the Marcoses had taken the shares from him through threats and intimidation and
without valuable consideration and then placed the shares in the names of their alter egos; and that
he thus became "the hapless victim of injustice," with the right to recover the shares and their
corresponding dividends.11

On June 28, 1996, after a decade of litigation, the Republic, IRC and Mid-Pasig, and the PCGG
(acting through PCGG Commissioner Hermilo Rosal) entered into a compromise agreement with
Atty. Ilusorio, whereby Atty. Ilusorio recognized the ownership of the Republic over 4,727 of the
POTC shares of stock in the names of IRC and Mid-Pasig, and, in turn, the Republic acknowledged
his ownership of 673 of the POTC shares of stock and undertook to dismiss Civil Case No. 009 as
against him.

The compromise agreement relevantly stated:

WHEREAS, this Compromise Agreement covers the full, comprehensive and final settlement of the
claims of the GOVERNMENT against ILUSORIO in Civil Case No. SB-009, pending before the Third
Division of the Sandiganbayan; the Cross-Claim involving several properties located in Parañaque,
Metro Manila; and the Third-Party Complaint filed by ILUSORIO, in the same case, involving the
Five Thousand Four Hundred (5,400) shares of stocks registered in the names of Mid-Pasig Land
Development Corporation (MLDC) and Independent Realty Corporation (IRC), respectively, in the
Philippine Overseas Telecommunications Corporation (POTC);
xxxx

President Ramos approved the compromise agreement, and directed its submission to the
Sandiganbayan for approval through his marginal note dated October 5, 1996.12

It was not until June 8, 1998, or nearly two years from its execution, however, that the
Sandiganbayan approved the compromise agreement, the resolution for which reads:

WHEREFORE, and as prayed for in the Motion dated June 3, 1998, which is hereby granted.

1. The foregoing Compromise Agreement dated June 28, 1996 executed by and between the
plaintiff and defendant Potenciano T. Ilusorio is hereby approved, the same not being
contrary to law, good morals and public policy. The parties thereto are hereby enjoined to
strictly abide by and comply with the terms and conditions of the said Compromise
Agreement.

2. The complaint as against defendant Potenciano T. Ilusorio only in the above-entitled case
No. 0009 is hereby dismissed.

3. The Motions for Injunction and Contempt, respectively, filed by defendant Potenciano T.
Ilusorio against the Government/PCGG, its officers and agents, in Civil Case No. 0009 are
hereby withdrawn;

4. The Third-Party Complaint and the Cross-Claim of defendant Potenciano T. Ilusorio are
hereby dismissed; and

5. The Board of Directors, President and Corporate Secretary of the Philippine Overseas
Telecommunications Corporation are hereby ordered to issue the corresponding stock
certificates to, and in the names of Potenciano T. Ilusorio, Mid-Pasig Land Development
Corporation, and Independent Realty Corporation, respectively.13

The result was the redistribution of the POTC shareholdings as follows:


1âw phi1

Owner % of Shareholdings

Ilusorio, Africa, Poblador,


Benedicto and Ponce Enrile 51.37%
Families

PCGG (IRC and Mid-Pasig) 34.94%

Nieto Family 13.12%

Elizalde Family 0.57%

Total 100.00%

The Ilusorio Family’s shareholding became 18.12%, while that of the PCGG (through IRC and Mid-
Pasig) was reduced to 34.94%. With its reduced shareholdings, the PCGG’s number of seats in the
POTC Board settled at only two. The Ilusorio Family continued its alliance with the Africa, Poblador,
Benedicto and Ponce Enrile Families. In effect, the compromise agreement tilted the control in
POTC, PHILCOMSAT and PHC, such that the alliance between the Nieto Family and the PCGG,
theretofore dominant, became the minority.14

After assuming the Presidency in mid-1998, President Estrada nominated through the PCGG
Ronaldo Salonga and Benito Araneta, the latter a nephew of Nieto, Jr., to the POTC Board of
Directors to represent the IRC and Mid-Pasig shareholdings.15

As to the PHILCOMSAT Board of Directors, however, President Estrada through the PCGG
nominated four nominees, namely: Salonga, Araneta, Carmelo Africa and Edgardo Villanueva. The
nomination of the four ignored the reduction of the IRC and Mid-Pasig shareholdings in POTC that
should have correspondingly reduced the board seats in PHILCOMSAT that the PCGG was entitled
to from four to only three.16

On August 16, 1998, Mid-Pasig, represented by Salonga, filed in the Sandiganbayan in Civil Case
No. 009 a Motion to Vacate the order dated June 8, 1998 approving the compromise agreement. On
October 2, 1998, IRC, also represented by Salonga, filed a similar motion. Both motions insisted that
the compromise agreement did not bind Mid-Pasig and IRC for not being parties thereto, although
they held substantial interests in the POTC shareholdings subject of the compromise agreement;
and that the compromise agreement was void because its terms were contrary to law, good morals
and public policy for being grossly and manifestly disadvantageous to the Government.17

Aside from supporting the position taken by Mid-Pasig and IRC, PCGG added that the compromise
agreement was fatally defective for lack of any PCGG resolution authorizing Commissioner Rosal to
enter into the compromise agreement in behalf of the Government.18

On his part, Atty. Ilusorio vigorously opposed the motions.19

On August 28, 1998, PHILCOMSAT stockholders held an informal gathering at the Manila Golf Club
for the apparent purpose of introducing the new PCGG nominees to the stockholders. During the
proceedings, however, Atty. Luis Lokin, Jr. announced that the gathering was being considered as a
Special PHILCOMSAT Stockholders’ Meeting. Those in attendance then proceeded to elect as
Directors and Officers of PHILCOMSAT Nieto, Jr., Lourdes Africa, Honorio Poblador III, Salvador
Hizon, Salonga, Araneta, Carmelo Africa, and Edgardo Villanueva (Nieto Group-PCGG).20

As a consequence, other PHILCOMSAT stockholders (namely, Ilusorio, Katrina Ponce Enrile,


Fidelity Farms, Inc., Great Asia Enterprises and JAKA Investments Corporation) instituted a
Complaint with application for the issuance of temporary restraining order (TRO) and writ of
preliminary injunction (WPI) in the Securities and Exchange Commission (SEC) assailing the
election of the Directors and Officers on several grounds, such as the lack of sufficient notice of the
meeting, the lack of quorum, and the lack of qualifying shares of those who were elected. They
maintained that by reason of POTC’s 100% beneficial ownership of PHILCOMSAT, there should
have been a notice to POTC, which, upon a proper board meeting, should have appointed proxies to
attend the PHILCOMSAT Stockholders’ Meeting. The case was docketed as SEC Case No. 09-98-
6086.21

The SEC issued a TRO, and, later on, a WPI enjoining the Nieto Group-PCGG from acting as
Directors and Officers of PHILCOMSAT and from representing themselves as such.22

Salonga, Araneta, Africa and Villanueva commenced in the CA a special civil action for certiorari to
nullify the WPI issued by the SEC (C.A.-G.R. SP NO. 49205). On October 15, 1998, however, the
CA dismissed the petition for certiorari because of the petitioners’ failure to furnish a copy of the
petition to the SEC. The dismissal became final and executory.23

Still, Salonga, Araneta, Africa and Villanueva brought in the CA another petition assailing the WPI
issued by the SEC (C.A.-G.R. SP No. 49328). The CA also dismissed their petition on October 26,
1999.24

For their part, Nieto, Jr. and Lourdes Africa likewise went to the CA to assail the WPI issued by the
SEC (C.A.-G.R. SP No. 49770), but on April 19, 2001, the CA dismissed the petition. Nieto, Jr.
initially intended to appeal the dismissal, but the Court denied his motion for extension of time to file
petition for review on certiorari.25

Following the enactment of Republic Act No. 8799 (Securities Regulation Code),26 SEC Case No.
09-98-6086 was transferred to the RTC in Makati City, which re-docketed it as Civil Case No. 01-840
and raffled it to Branch 138.27

Meanwhile, on January 18, 1999, POTC held a Special Stockholders’ Meeting, at which the following
were elected as Directors of POTC, namely: Roberto S. Benedicto, Atty. Victor Africa, Sylvia Ilusorio,
Honorio Poblador III, Cristina Agcaoili, Katrina Ponce Enrile, and Nieto, Jr. The elected Directors,
except Nieto, Jr., eventually formed the Africa-Ilusorio Group. Thereafter, the Board of Directors held
an organizational meeting during which they elected the following as the Officers of POTC, namely:
Roberto S. Benedicto (Chairman); Atty. Victor Africa (Vice-Chairman); Sylvia Ilusorio (President);
Katrina Ponce Enrile (Vice President); Rafael Poblador (Treasurer); Kitchie Benedicto (Assistant
Treasurer); and Atty. Victoria de los Reyes (Corporate Secretary).28

On December 20, 1999, the Sandiganbayan promulgated a resolution in SB Civil Case No. 009
denying IRC and Mid-Pasig’s motions to vacate the order approving the compromise agreement, viz:

WHEREFORE, premises considered, third-party defendant Mid-Pasig’s Motion to Vacate Resolution


Approving Compromise Agreement dated August 16, 1998 and third party defendant Independent
Realty Corporation's Manifestation and Motion dated October 2, 1998 and the redundant and
inappropriate concurrence of the PCGG and the OSG are hereby denied for lack of merit.

The Court also declares all POTC shares in the name of Mid-Pasig and IRC as null and void.
Accordingly, out of the 5,400 POTC shares, six hundred seventy three (673) is hereby directed to be
issued in the name of Potenciano Ilusorio and four thousand seven hundred twenty seven (4,727) in
the name of the Republic of the Philippines. The Board of Directors, President and Corporate
Secretary of the POTC are hereby ordered to comply with this requirement within ten (10) days from
receipt of this Resolution.29

In compliance with the resolution, POTC Corporate Secretary Victoria de los Reyes effected the
cancellation of the shares registered in the names of IRC and Mid-Pasig and issued Certificate of
Stocks No. 131 covering the 4,727 POTC shares in the name of the Republic. Thereafter, Certificate
of Stocks No. 131 was transmitted to then Chief Presidential Legal Counsel and PCGG Chairman
Magdangal Elma, who acknowledged receipt. Through its resolution dated January 12, 2000, the
Sandiganbayan noted the POTC Corporate Secretary’s compliance.30

As earlier mentioned, the implementation of the Sandiganbayan’s resolution dated December 20,
1999 resulted in the re-distribution of the shareholdings in POTC in the manner earlier shown.

On March 16, 2000, the PCGG filed in this Court its petition assailing the resolution of the
Sandiganbayan dated December 20, 1999 (G.R. No. 141796 entitled Republic of the Philippines,
represented by the Presidential Commission on Good Government v. Sandiganbayan and
Potenciano T. Ilusorio, substituted by Ma. Erlinda Ilusorio Bildner).

IRC and Mid-Pasig also filed in this Court their own petition to assail the resolution dated December
20, 1999 (G.R. No. 141804 entitled Independent Realty Corporation and Mid-Pasig Land
Development Corporation v. Sandiganbayan and Potenciano T. Ilusorio, substituted by Ma. Erlinda
Ilusorio Bildner).

On March 29, 2000, this Court issued a TRO to enjoin the Sandiganbayan from executing its
assailed resolution.31

On September 6, 2000, President Estrada nominated another set to the PHILCOMSAT Board of
Directors, namely: Carmelo Africa, Federico Agcaoili, Pacifico Marcelo and Edgardo Villanueva.
Thereby, Africa and Villanueva were retained as PHILCOMSAT Directors, while Agcaoili and
Marcelo replaced Araneta and Salonga.32

Subsequently, POTC, through the Africa-Bildner Group, decided to hold a Special Stockholders’
Meeting on September 22, 2000. POTC Corporate Secretary de los Reyes issued a Notice of
Meeting. Attempting to stop the Stockholders’ Meeting, Nieto, Jr., Araneta and Salonga filed in this
Court in G.R. No. 141796 and G.R. No.141804 a Motion for Leave to Intervene with urgent
manifestation for contempt of court, praying, among others, that POTC Corporate Secretary de los
Reyes be cited in contempt and/or disbarred for issuing the Notice of Meeting.33

The Special Stockholders’ Meeting on September 22, 2000 was attended by stockholders
representing 81.32% of the outstanding capital stock of POTC (including PCGG). During the
meeting, a new set of POTC Board of Directors were elected, namely: Nieto, Jr., Katrina Ponce
Enrile, Victor V. Africa, Sylvia K. Ilusorio, Honorio A. Poblador III, Carmelo Africa and PCGG
Commissioner Jorge Sarmiento (the latter two being nominated by PCGG).34

POTC then convened a Special Stockholders’ Meeting of PHILCOMSAT, at which the following were
elected as Directors: Nieto, Jr., Francisca Benedicto, Katrina Ponce Enrile, Sylvia Ilusorio, Honorio
Poblador III, and government representatives Africa, Marcelo, Villanueva and Agcaoili (the latter four
being nominated by PCGG).35

In line with existing corporate policy requiring the elected Directors to accept their election before
assuming their positions, all the elected Directors (including Nieto, Jr.) were requested to sign
acceptance letters to be submitted to POTC Corporate Secretary de los Reyes. A few days later,
however, Nieto, Jr. refused to accept and instead opted to assail the validity of the September 22,
2000 POTC Special Stockholders’ Meeting.36

By virtue of the September 22, 2000 elections, the Africa-Bildner Group, together with the PCGG
nominees, took control of the management and operations of POTC and PHILCOMSAT.37

In March 2002, President Gloria Macapagal-Arroyo named Enrique L. Locsin and Manuel D. Andal
as new PCGG nominees to sit in the POTC and PHILCOMSAT Boards of Directors. Julio Jalandoni
was named as the third new PCGG nominee to the PHILCOMSAT Board of Directors.38

On April 29, 2002, POTC, through the Africa-Ilusorio Group, decided to hold a stockholders’
meeting. Notices for the meeting were dispatched to all stockholders of record, including the
Republic. However, the meeting was adjourned for failure to obtain a quorum because of the
absence of several stockholders, including the proxy for the Republic.39
On December 3, 2003, Atty. Jose Ma. Ozamiz, a stockholder of PHC, sent a letter-complaint
informing the SEC that PHC had not conducted its annual stockholders’ meetings since 2001. His
letter-complaint was docketed as SEC Case No. 12-03-03.40

On December 29, 2003, the SEC issued the following Order in SEC Case No. 12-03-03, to wit:

PREMISES CONSIDERED, the Commission in the exercise of its regulatory authority over
corporations and associations registered with it hereby issues the following directives:

1. The board of directors, responsible officers of Philcomsat Holdings, Inc (PHI) (sic)
shall organize a COMELEC composed of three members within ten (10) days from
date of actual receipt of this Order. One member to be nominated by the group of
Atty. Jose Ma. Ozamiz, the second member to be nominated by the group of either
Mr. Manuel H. Nieto or Mr. Carmelo P. Africa, Jr. and the third member a neutral
party, to be jointly nominated by both groups. Failure on the part of the contending
parties to designate their common nominee, the SEC shall be constrained to
designate the neutral party.

x x x x.41

By letter dated January 8, 2004, Philip Brodett and Locsin communicated to the SEC
that:

1. PHC and its directors and officers are not averse to the holding of meetings of its
stockholders annually. PHC's inability to hold its annual stockholders’ meeting in the
past years can be attributed to the following: previous attempts of the group of
Mesdames Cristina Ilusorio and Sylvia Ilusorio and Mr. Carmelo Africa (for brevity the
"Ilusorio Group") to control PHC without legal basis; delay in the completion of PHC's
audited financial statements for the years 2001, 2002 and 2003 was caused by the
Ilusorio Group and the pending dispute as to who between the Ilusorio Group, on one
hand, and the group of Ambassador Manuel Nieto, Jr. Philippine Government, on the
other, properly constitutes the governing board of directors and officers of the parent
companies of PHC's, namely the Philcomsat and POTC;

Considering the aforesaid pending dispute as to who really controls the mother
companies of PHC, it would be advisable and practicable that the annual meetings of
the stockholders and the election of the directors and officers of Philcomsat and
POTC should precede those of PHC. In view thereof, and for practical reasons and
good order's sake, it was suggested that perhaps the Commission should direct the
holding of the annual stockholders' meetings and election of directors and officers of
both Philcomsat and POTC at a date or dates prior to those of PHC.

xxxx

4. x x x. Considering the foregoing, it is believed and humbly submitted that the


'COMELEC' directed to be organized under the Order is unnecessary considering
that its would-be functions (we note that the Order did not state what are the
functions of said COMELEC) can and will be performed by the Nomination
Committee and the special committee of inspectors.

Considering the foregoing, it is respectfully requested and prayed that the said Order dated 5
January 2004 of the Commission be reconsidered and set aside. To enable PHC to hold an orderly
and controversy-free meeting of its stockholders and election of directors this year, it is likewise
requested that the Commission first direct and cause PHC's parent companies, namely Philcomsat
and POTC, to hold their respective stockholders' meeting and election and directors and officers
prior to those of PHC.42

On May 6, 2004, the SEC ruled as follows:

Based on the foregoing premises, the Commission, in the exercise of its regulatory authority as well
as supervision corporations and pursuant to its power under Section 5 (k) of the Securities
Regulation Code (SRC) which states: "Compel the officers of any registered corporation or
association to call meetings of stockholders or members thereof under its supervision," hereby
orders the following:

1. The board of directors, responsible officers of Philcomsat Holdings, Corporation ("PHC")


shall immediately convene the COMELEC to consider the proposed election and annual
meeting of subject corporation.

2. The board of directors and other responsible PHC officers are also enjoined to prepare
proper notices of the intended annual meeting and all the necessary documents required by
Section 20 of the SRC rules within the stated period provided thereunder in time for the
scheduled annual meeting set by the Commission.

3. For the purpose of the meeting, Attys. Myla Gloria C. Amboy and Nicanor Patricio are
hereby designated as the SEC representatives to observe the PHC meeting.

4. The PHC and all its responsible directors or officers are hereby directed to hold a meeting
for the purpose of conducting the election of the board of directors of the PHC on 28 May
2004 at 10:00 a.m. To be held at the principal office of the corporation.

5. Failure on the part of the authorized person to set/call the meeting within five (5) days from
date hereof, Atty. Ozamiz shall be authorized to call the meeting and to provide other
stockholders with notice required under the Corporation Code, the Securities Regulation
Code and By-laws of the corporation. In such event, Atty. Ozamiz shall preside in said
meeting until at least a majority of the PHC stockholders present shall have chosen one of
their members as the presiding officer in the meeting.

6. The board of directors and authorized officers of PHC are hereby directed for the last time
to submit the calendar of activities for the forthcoming meeting within five (5) days from date
of this Order. The petitioning stockholder, Atty. Ozamiz, is likewise directed to submit his
proposed calendar of activities which shall be used in case of failure on the part of PHC to
submit the aforesaid calendar.43

On June 7, 2004, the SEC received PCGG’s comment through Commissioner Victoria A. Avena, to
wit:

1. For the sake of accuracy, we respectfully draw attention to the fact that Messrs. Enrique L.
Locsin and Manuel Andal are nominee-directors representing the Republic of the Philippines,
through the PCGG, in the board of directors of the Philippine Overseas Telecommunications
Corporation ("POTC") and the board of directors of Philippine Communications Satellite
Corporation ("Philcomsat"), but not of Philcomsat Holdings Corporation ("PHC"). The third
government nominee-director in Philcomsat is Mr. Julio Jalandoni. In February of 2004, Mr.
Guy de Leon was nominated by President Gloria Macapagal-Arroyo as a third director for
POTC in the event elections.

2. Based on the records of PCGG, it is true and correct that POTC has not held an
uncontested annual meeting since its last uncontested stockholders' meeting in the year
1999.

3. Based on records of PCGG, it is true and correct that Philcomsat has not had an
uncontested annual meeting since its special stockholders' meeting in the year 2000.

4. The Republic owns forty percent (40%) of the outstanding capital stock of POTC;
Philcomsat is a wholly-owned subsidiary of POTC; and Philcomsat owns approximately
eighty-five percent (85%) of the outstanding capital stock of PHC.

5. Because of the non-holding of elections for the board of directors of POTC, Philcomsat
and PHC, the incumbent respective boards thereof have been holding office as "hold-over"
directors, and opposing stockholders have contested their legitimacy.

6. The incumbent board of directors having actual corporate control of POTC and Philcomsat
have invited government nominee-directors Messrs. Locsin and Andal, and Mr. Julio
Jalandoni in respect of Philcomsat, to respectively occupy seats in said boards rendered
vacant by resignations.

7. However, Messrs. Locsin, Andal and Jalandoni have not physically and actually assumed
said positions, because of their request for assumption thereof on the basis of election for
the board of directors through stockholders' meetings for the purpose.

8. In view of the ownership structure of POTC, Philcomsat and PHC and the rump boards
that have resulted over the years, the more judicious mode towards a truly fair election of
directors based on an accurate identification of stockholder representation in PHC (including
in respect of government shares) would be to determine issues of representation in
Philcomsat and POTC.

9. Accordingly, annual stockholders' meetings and election of directors of the board must first
be held for POTC, and then for Philcomsat, then for PHC.44

On July 8, 2004, the SEC directed thuswise:

On the bases of the mandatory provision of Sec. 50 of the Corporation Code on calling of annual
meeting and the PCGG's comment/manifestation which should be given weight, the following are
hereby directed to:

1. POTC and Philcomsat, their respective board of directors or their duly authorized
representatives are hereby directed to constitute, within ten (10) days from the date of actual
receipt hereof, their COMELEC to be composed of the PCGG nominee/director to act as the
neutral party, a representative from the Africa Group and one representative from Nieto
Group to perform any and all acts necessary for the determination of the legitimate
stockholders of the corporation qualified to vote or be represented in the corporate meetings
and ensure a clean, orderly, and credible election of POTC and Philcomsat.
2. POTC is likewise directed to conduct its annual stockholders' meeting not later than 5
August 2004 while Philcomsat shall hold its annual stockholders' meeting on or before 12
August 2004. Thereafter, PHC shall call its annual stockholders' meeting not later than
August 31, 2004.

3. PHC, on the other hand, its board of directors or duly authorized representative are
ordered to submit a revised calendar of activities for the forthcoming 31 August 2004 annual
stockholders' meeting within five (5) days from actual receipt of this Order. The said date for
the Annual Stockholders' Meeting shall not be postponed unless with prior Order of the
Commission. A nomination's (sic) Committee (NOMELEC) shall be constituted pursuant to
the corporation's Manual on Corporate Governance submitted to this Commission. This
Committee shall be composed of three (3) voting members and one (1) non-voting member
in the person of the HR Director/Manager pursuant to x x x section 2.2.2.1 of the said
Manual. One representative each from the Africa Group and the Nieto Group and a
nominee/representative of the PCGG (to act as an independent member) shall comprise
three (3) voting members. The committee shall perform the functions outlined in Sections
2.2.2.1.1, 2.2.2.1.2, 2.2.2.1.3 and 2.2.2.1.4 of the Manual in connection with the forthcoming
election. Failure to submit the names of the representative of each group within ten (10) days
from receipt of this Order shall authorize the Commission to appoint persons to represent
each group. Failure or refusal on the part of the corporation to hold the stockholders' meeting
on the scheduled date shall authorize the petitioning shareholder to call and preside in the
said meeting pursuant to Section 50 of the Corporation Code. All previous orders
inconsistent herewith are hereby revoked. 1âwphi 1

4. Let the Corporate Finance Department (CFD) of this Commission be furnished with a copy
of this Order for its appropriate action on the matter.

5. To ensure protection of the interest of all outstanding capital stocks, including minority
shareholders, Attys. Nicanor P. Patricio Jr. and Myla Gloria A. Amboy are hereby designated
as SEC representatives to attend and supervise the said Annual Stockholders' Meeting.45

On July 26, 2004, the SEC clarified its immediately preceding order, as follows:

Pending consideration by the Commission is the letter dated 22 July 2004 of Mr. Enrique Locsin,
Nominees/Director of the Presidential Commission on Good Government To POTC and Philcomsat,
seeking to enjoin the holding of any and all meetings of POTC, Philcomsat and/or PHC, contrary to
the 8 July 2004 SEC Order and requesting the correction of the date of the Order cited in the 22 July
2004 Stay Order.

In order to clarify the Order issued by the Commission on July 8, 2004 and 22 July 2004, the
following explications are hereby made:

First. The SEC Order of 8 July 2004 which states in part:

POTC is likewise directed to conduct its annual stockholders' meeting not later than 5 August 2004
while Philcomsat shall hold its annual stockholders' meeting on or before 12 August 2004.
Thereafter, PHC shall call its annual stockholders' meeting not later than August 31, 2004, should be
interpreted to mean that the stockholders' meeting of POTC, Philcomsat and PHC should be held
successively, in the order mentioned, that is, POTC first, then Philcomsat, and lastly, PHC. This was
the intention of the Commission in issuing the said Order (July 8, 2004).
To further clarify and ensure that the meetings shall be conducted on specific dates, the Order of
July 8, 2004 is hereby modified and the dates of the meetings are hereby scheduled as follows:

1. For POTC ― July 28, 2004

2. For Philcomsat ― August 12, 2004

3. For PHC ― August 31, 2004

Second. One of the relevant orders was inadvertently referred to in the Stay Order of 22 July 2004
as "June 8, 2004," which should have been actually written as "July 8, 2004." Hence, the same
should be properly corrected.

Accordingly, POTC, Philcomsat and Philcomsat Holdings Corporation (PHC) are hereby reminded to
strictly adhere to the schedule dates of meetings of the said corporations set forth in this Order.
POTC, Philcomsat and PHC are further reminded to also comply with the manner of the conduct of
their respective meetings as provided in the Order of the Commission dated July 8, 2004.

As requested, let the 22 July 2004 Stay Order, particularly paragraphs 1, 2, and 3 thereof, be
corrected to reflect the correct date of the Order cited therein as "July 8, 2004" not "June 8, 2004."46

On July 28, 2004, the Africa-Bildner Group held successive stockholders’ meetings for POTC and
PHILCOMSAT. Elected as Directors during the POTC stockholders’ meeting were Katrina Ponce
Enrile, Victor Africa, Erlinda Bildner and Honorio Poblador III, all from the Africa-Bilder Group.
Although absent from the meeting, Nieto, Jr., Locsin and Andal of the Nieto–PCGG Group were also
elected as Directors. Resultantly, the groups were represented on a 4:3 ratio. Victor Africa was
designated as the POTC proxy to the PHILCOMSAT stockholders’ meeting.

Locsin and Andal were also elected as PHILCOMSAT Directors. However, Nieto, Jr., Locsin and
Andal did not accept their election as POTC and PHILCOMSAT Directors.47

On August 5, 2004, the Nieto-PCGG Group conducted the annual stockholders’ meeting for POTC
at the Manila Golf Club. Elected were Nieto, Jr. as President and Guy de Leon, a government
nominee to POTC, as Chairman. At the same meeting, the Nieto-PCGG Group, through its elected
Board of Directors, issued a proxy in favor of Nieto, Jr. and/or Locsin authorizing them to represent
POTC and vote the POTC shares in the PHILCOMSAT stockholders’ meeting scheduled on August
9, 2004.48

On August 9, 2004, the Nieto-PCGG Group held the stockholders’ meeting for PHILCOMSAT at the
Manila Golf Club. Immediately after the stockholders’ meeting, an organizational meeting was held,
and Nieto, Jr. and Locsin were respectively elected as Chairman and President of PHILCOMSAT. At
the same meeting, PHILCOMSAT (Nieto-PCGG Group) issued a proxy in favor of Nieto, Jr. and/or
Locsin authorizing them to represent PHILCOMSAT and vote the PHILCOMSAT shares in the
stockholders’ meeting of PHC scheduled on August 31, 2004.49

On August 11, 2004, POTC (Africa-Bildner Group), Victor Africa, Honorio Poblador III and Katrina
Ponce Enrile filed a Complaint for injunction with prayer for TRO and WPI in the RTC in Makati City
(Branch 133) against Nieto, Jr., Luis Lokin, Jr., and Alma Kristina O. Alobba seeking to enjoin the
latter from acting as Directors and Officers of POTC (Civil Case No. 04-935).
On August 27, 2004, the RTC (Branch 133) dismissed Civil Case No. 04-935 for lack of jurisdiction
over the subject matter, explaining its action thusly:

xxxx

After a perusal of the complaint and of the memoranda filed, with particular attention on the
authorities cited, the Court is of the opinion that it has no jurisdiction over the case but the
Sandiganbayan.50

xxxx

Thereafter, the Africa-Bildner Group filed a motion for reconsideration.

Earlier, on August 18, 2004, PHC (Nieto-PCGG Group) submitted to the SEC a final list of
candidates for Independent Directors of PHC for the 2004-2005 term, to wit:

Please be informed that in connection with the annual stockholders' meeting of PHILCOMSAT
HOLDINGS CORPORATION (PHC) to be held on August 31, 2004, and in compliance with the
Order dated 8 July 2004 of the Securities and Exchange Commission in SEC Case No. 12-03-03
entitled "In the matter of Philcomsat Holdings Corporation, For: Calling of Meeting," the Board of
Directors of PHC, at its meeting today constituted the Nomination Committee with the following
persons as its members:

Voting Members:

1. Luis K. Lokin, Jr. (representative of the Nieto Group)

2. Enrique L. Locsin (representative of the PCGG)

3. Vacant (to be designated by the Securities and Exchange Commission in default of the
designation of representative by the Africa group)

Non-voting member:

1. Philip G. Brodett

The said Nomination Committee which shall act upon the affirmative vote of at least two (2) of its
voting members, shall have the following powers, duties and functions:

(1) To pre-screen and shortlist all candidates nominated to become members of the board of
directors in accordance with the qualifications and disqualifications and the procedures
prescribed in the Corporation's Manual on Corporate Governance and the Securities
Regulation Code (SRC) and its Implementing Rules and Regulations (SRC Rules);

(2) To submit to the Securities and Exchange Commission and the Philippine Stock
Exchange the Final List of candidates for Independent Directors as required under the SEC
Rules;

(3) To act as the committee of inspectors with powers to pass upon the validity of proxies, to
canvass and tally the votes for the election of directors and to certify the winning directors
based on the votes garnered;
(4) To do such acts or things as may from time to time be directed or delegated by the
Board.51

On August 20, 2004, the SEC issued an order, pertinently stating:

On separate dates, the group of Atty. Victor Africa ("Africa Group’) and the group of Ambassador
Nieto ("Nieto group") conducted their respective annual stockholders’ meetings. The Africa group
held successive meetings for POTC and Philcomsat on July 28, 2004, while the Nieto group held
similar meetings for POTC and Philcomsat on August 5 and August 9, respectively. On all these
meetings, where the SEC representative was present (except the Philcomsat meeting of the Africa
group), the Commission noted the following observations:

xxxx

In light of the foregoing, the Commission hereby upholds the validity of the stockholders' meetings
conducted by the Nieto Group in view of the clear compliance by the said group with the condition
set forth by the Commission in its Orders of July 8 and 26, 2004.

Meanwhile, the PHC meeting shall proceed as scheduled on August 31, 2004. The Officers and
Directors of PHC are hereby reminded to strictly conform to the conditions stated in the July 8 and
26 Orders.

The President and the Corporate Secretary of PHC and its Stock and Transfer Agent are hereby
ordered to submit to the Commission the certified list of stockholders and the stock and transfer
book of PHC on or before August 25, 2004.

Due to the failure of the Africa group to nominate their representative to the PHC NOMELEC, Atty.
Victoria De Los Reyes is hereby designated as the representative of the Africa group in the
forthcoming August 31, 2004 PHC meeting.

The Corporation Finance Department is hereby directed to monitor PHC's compliance with the laws,
rules and regulations relative to the calling of the stockholders' meeting and to make the necessary
action to ensure such compliance.

The Orders of 8 July 2004 and 26 July 2004 insofar as not inconsistent with this Order shall remain
in full force and effect.52

On August 23, 2004, the Africa Group commenced Civil Case No. 01-555 in the RTC in Makati City
(Branch 61), praying for the issuance of a TRO or WPI to "enjoin Philcomsat Holdings Corporation
from recognizing defendants Nieto, Jr. and Lokin as the representatives of PHILCOMSAT," and to
prevent Nieto, Jr. and Lokin from acting as Directors and Officers for and on behalf of POTC and
PHILCOMSAT.

On August 30, 2004, the RTC denied the motion for the issuance of TRO and WPI.53

On August 26, 2004, the Nomination Committee (NOMELEC) of PHC (Nieto Group) met to conduct
the validation of the proxies and the evaluation and prequalification of the nominees for election as
Independent Directors. After a majority vote of its voting members, the NOMELEC recognized and
validated the proxy submitted by Locsin.
On August 27, 2004, the Nieto Group submitted to the SEC the final list of candidates for
Independent Directors of PHC for the term 2004-2005. The list contained the names of Benito
Araneta and Roberto Abad, both nominated by Brodett. The list was submitted by NOMELEC
members Lokin, Jr., Locsin and Brodett.

On the same date, POTC and PHILCOMSAT (Africa Group), through Atty. Victor Africa, filed in the
CA a petition for certiorari and prohibition (with prayer for TRO and WPI) seeking to annul and set
aside the orders issued on July 8, 2004, July 26, 2004 and August 20, 2004 issued in SEC Case No.
12-03-03 (C.A.-G.R. SP No. 85959).54

On August 31, 2004, the CA promulgated in C.A.-G.R. SP No. 85959 a resolution granting a TRO,
pertinently stating:

In the meantime, since the petition questions the jurisdiction of public respondents in issuing the
assailed Orders dated July 8, 2004, July 26, 2004 and August 20, 2004, and the implementation of
the same will render moot and academic any and all orders, resolutions and decisions of this Court,
this Court hereby TEMPORARILY RESTRAINS respondents, their officers, agents and other
persons acting for and in their behalf, from enforcing, implementing and executing the aforesaid
assailed Orders within a period of sixty (60) days or until sooner revoked.55

The CA later granted the application for WPI, and enjoined the respondents therein, their agents,
officers, representatives and other persons acting for and in their behalf from executing, enforcing
and implementing the assailed SEC orders issued on July 8, 2004, July 26, 2004 and August 20,
2004 pending final resolution of the petition, or unless the WPI was sooner lifted.56

Also on August 31, 2004, the PHC (Nieto Group) conducted its annual stockholders’ meeting. The
Officers elected were Locsin as Director and Acting Chairman; Oliverio Laperal as Director and Vice
Chairman; Nieto, Jr. as Director, President and Chief Executive Officer; Brodett as Director and Vice
President; Manuel D. Andal as Director, Treasurer and Chief Financial Officer; Roberto San Jose as
Director and Corporate Secretary; Julio Jalandoni, Lokin, Jr., Prudencio Somera, Roberto Abad, and
Benito Araneta as Directors.57

On September 10, 2004, PHILCOMSAT (Africa Group), represented by Victor Africa, filed in the
RTC in Makati City (Branch 138) a complaint against PHC, Lokin, Jr., Locsin and Brodett (Civil Case
No. 04-1049) seeking the following reliefs, to wit:

1. The proceedings of the Nomination Committee be invalidated for having been in violation
of the Manual of Corporate Governance of defendant PHC;

2. The act of the Nomination Committee in validating the proxy issued in favor of Manuel
Nieto and/or defendant Enrique Locsin and in invalidating the proxy issued in favor of Victor
Africa be annulled;

3. The elections held and the proclamation of winners during the Annual Stockholders'
Meeting of defendant PHC held on 31 August 2004 be annulled;

4. Defendant PHC be directed to recognize Atty. Victor Africa as the proxy of plaintiff and
that he be allowed to vote the shares standing in the name of plaintiff at subsequent
elections for the members of the board of directors of defendant PHC.58
On October 21, 2004, PHILCOMSAT (Nieto Group) and Lokin, Jr. filed their Answer with
Grounds for Dismissal and Compulsory Counterclaims, averring therein, among others, as
follows:

37. The instant complaint must be DISMISSED for lack of capacity and/or authority of the
alleged representative, Victor V. Africa, to file the same and sue the defendants on behalf of
Philcomsat.

38. While the Complaint names Philcomsat as the plaintiff, allegedly represented by Victor
Africa, at no time did [P]hilcomsat, through its duly constituted Board of Directors, authorize
him to file the same.

39. Victor Africa bases his authority upon the Secretary Certificate, alleging that the
Philcomsat Board of Directors, during its meeting held on 28 July 2004, authorized him to file
legal actions on behalf of the corporation.

40. It is respectfully averred, however, that Philcomsat, through its duly constituted Board of
Directors DID NOT HOLD any meeting on 28 July 2004, and DID NOT AUTHORIZE Africa to
file any action or to do any act or deed on its behalf. The Secretary's Certificate he
represented is not signed by Atty. Luis K. Lokin, Jr., the duly-elected Corporate Secretary of
Philcomsat.

xxxx

50. There was no Philcomsat Board meeting held or authorized to be held on 28 July 2004.
Neither was there any authority vested upon Victor Africa to file this nuisance suit, which is
only aimed at needlessly harassing defendants and the other lawful stockholders of
Philcomsat and PHC and the public at large.

51. For lack of any factual and legal basis of the alleged authority of the person instituting
and verifying the instant complaint, it must be declared as a NUISANCE SUIT and
immediately DISMISSED by the Honorable Court, pursuant to Section 1 (b) of the Interim
Rules.

52. Furthermore, not only does Africa lack any authority to file the instant action, the
complaint itself is devoid of any meritorious legal basis.

53. The relevant facts are as follows: In 2003, a stockholder of PHC filed a letter-complaint
(later docketed as SEC Case No. 12-03-03) with the SEC, alleging the non-holding of the
annual stockholders' meeting since 2002. Hearings were conducted wherein the officers and
directors of POTC and Philcomsat were required to be present and to file their comments.
Victor Africa actively participated in the proceedings before the SEC, in his alleged capacity
as officer of POTC, Philcomsat and PHC.

54. In view of the government interest in POTC which is the sole beneficial owner of
Philcomsat, which in turn, is the 80% stockholder of PHC, and the fact that POTC and
Philcomsat are under sequestration, the PCGG was likewise directed to file their comments
on the matters raised by the parties. PCGG, through then Commissioner Victoria Avena,
asserted that the government holds 40% interest in POTC. x x x.
55. Thereafter, the SEC issued the aforestated Order on 08 July 2004, directing the officers
of POTC and Philcomsat to conduct their respective stockholders' meetings. Before the
rendition of the 08 July 2004 Order, the Africa group did not conduct any stockholders'
meeting of POTC or Philcomsat, but they would later claim that they had agreed, as early as
02 July 2004, to hold the meetings on 08 July 2004. Given the timing of the meeting,
however, which was held after the 08 July 2004 SEC Order, no credence could be given to
such self-serving claim. The timing and dates are more than mere convenient coincidences.

56. After POTC and Philcomsat duly held their respective stockholders' meetings on 05
August 2004 and 09 August 2004, the SEC upheld the validity of their meetings in its Order
dated 20 August 2004.

57. Thereafter, Africa initiated a series of actions in different tribunals in an attempt to


basically prevent the POTC and Philcomsat Directors and Officers from acting in their
capacity as such.59

On November 18, 2004, PCGG expressly adopted the Answer of PHILCOMSAT (Nieto Group) as its
own Answer in Civil Case No. 04-1049.60

On December 7, 2004, the RTC denied the Africa Group’s Motion for Reconsideration assailing the
order issued on August 27, 2004 in Civil Case No. 04-935.

Whereupon, POTC (Africa Group) went to the CA on certiorari to annul and set aside the orders
issued on August 27, 2004 and December 7, 2004 in Civil Case No. 04-935 by the RTC (Branch
133). The suit, docketed as C.A.-G.R. SP NO. 88664, was dismissed by the CA on July 5, 2005, the
decision pertinently stating:

x x x We thus have to address one crucial issue: Was the lower court correct in ruling that the
Sandiganbayan had jurisdiction over the instant case?

It was.

It must be stressed that the petitioners' complaint essentially questions the legality by which the
private respondents are exercising control over the assets and operations of a sequestered
corporation. They posit that the private respondents are usurpers and have no right to sit in the
board of directors or act as corporate officers of the POTC. Evidently, these issues are "arising from,
incidental to, or related to" the sequestration case against POTC which, under the law, should be
addressed by the Sandiganbayan.

xxxx

All told, the lower court did not commit grave abuse of discretion amounting to lack of or in excess of
jurisdiction in dismissing the instant complaint for lack of jurisdiction, the same being vested in the
Sandiganbayan.61

On June 15, 2005, this Court rendered its decision in G.R. No. 141796 and G.R. No. 141804 by
affirming the validity of the compromise agreement dated June 28, 1996 between the PCGG and
Atty. Ilusorio, holding:
With the imprimatur of no less than the former President Fidel V. Ramos and the approval of the
Sandiganbayan, the Compromise Agreement must be accorded utmost respect. Such amicable
settlement is not only allowed but even encouraged. x x x.

Having been sealed with court approval, the Compromise Agreement has the force of res judicata
between the parties and should be complied with in accordance with its terms. Pursuant thereto,
Victoria C. de los Reyes, Corporate Secretary of the POTC, transmitted to Mr. Magdangal B. Elma,
then Chief Presidential Legal Counsel and Chairman of PCGG, Stock Certificate No. 131 dated
January 10, 2000, issued in the name of the Republic of the Philippines, for 4,727 POTC shares.
Thus, the Compromise Agreement was partly implemented.62

On July 5, 2005, the Africa Group, citing the decision in G.R. No.141796 and G.R. No. 141804, filed
a Manifestation with Ex-Parte Motion to Resolve in Civil Case No. 04-1049.63

Also on July 5, 2005, the CA promulgated its decision in C.A.-G.R. SP No. 88664, dismissing the
petition for certiorari (brought to assail the dismissal by the RTC (Branch 133) of the complaint in
Civil Case No. 04-935).64

On August 18, 2005, PHILCOMSAT (Nieto Group), through Locsin, submitted a Counter-
Manifestation, contending that the decision in G.R. No. 141796 and G.R. No. 141804 did not operate
to automatically nullify the proceedings during the stockholders’ meeting of PHC on August 31,
2004.65

On August 19, 2005, the RTC (Branch 138), apprised of the pendency of motions for reconsideration
in G.R. No. 141796 and G.R. No. 141804, held in abeyance its action upon the parties’ respective
manifestations until after the resolution of the pending motions for reconsideration.66

On September 7, 2005, the Court denied the motions for reconsideration in G.R. No. 141796 and
G.R. No. 141804, stating:

Obviously, petitioners’ motions for reconsideration are devoid of merit. The matters they raise are
mere reiterations of the previous arguments in their petitions already considered and exhaustively
passed upon in our July 27, 2005 (sic) Decision. Indeed, we find no cogent reason to deviate from
our Decision.

As regards the second incident, respondent Bildner seeks a clarification on the effect of the TRO,
issued by this Court on March 29, 2000, restraining the implementation of the challenged
Sandiganbayan Resolution dated December 20, 1999 in Civil Case No. 0009.

It may be recalled that in our June 15, 2005 Decision, we dismissed these consolidated petitions
assailing the Sandiganbayan Resolution of December 20, 1999. This Resolution (1) denied
petitioners' separate motions to vacate the Sandiganbayan Order dated June 8, 1998 approving the
Compromise Agreement; (2) declared the 5,400 POTC shares registered in the names of petitioners
IRC and MLDC null and void as they categorically admitted that such shares are ill-gotten wealth of
deposed President Marcos and his Family, and that the same were surrendered to the Government
which now owns the same; and (3) ordered the Corporate Secretary of POTC, within 10 days from
receipt of the Resolution, to issue 4,727 POTC shares in the name of the Republic, and 673 POTC
shares in the name of Potenciano Ilusorio, pursuant to the approved Compromise Agreement. In
compliance with the Sandiganbayan Resolution, Atty. Victoria C. de los Reyes, Corporate Secretary
of the POTC, on January 10, 2000, transmitted to Mr. Justice Magdangal B. Elma, then Chief
Presidential Legal Counsel and Chairman of Philippine Commission on Good Government (PCGG),
Stock Certificate No. 131 (of even date) issued in the name of the Republic of the Philippines, for
4,727 POTC shares. Thus, the Compromise Agreement was partly implemented.

In her present motion for clarification, respondent Bildner alleges inter alia that, on March 29, 2000
or more than two (2) months after the Compromise Agreement had been implemented on January
10, 2000, this Court issued a TRO restraining its implementation.

There is no need for us to make a clarification being sought by respondent Bildner in her motion.
Suffice it to say that when the TRO was issued on March 29, 2000, the Sandiganbayan Resolution
of December 20, 1999 directing the issuance of POTC shares in the names of the Republic and
Potenciano Ilusorio in accordance with the Compromise Agreement had been partially implemented
on January 10, 2000 or more than two (2) months earlier by POTC Corporate Secretary Victoria C.
de los Reyes. She already transmitted to then PCGG Chairman Magdangal B. Elma Stock
Certificate No. 131 issued in the name of the Republic of the Philippines, for 4,727 POTC shares.
This was never mentioned by petitioners in their petitions. In fact, even before the petitions in these
cases were filed, the implementation of the Compromise Judgment had been partially effected. We
were thus misled in issuing the TRO. In any case, the TRO has become moot and academic, the
same having no more legal force as the act sought to be restrained had been partially implemented
and considering our Decision in this case.

WHEREFORE, petitioners’ instant motions for reconsideration are DENIED with FINALITY. On
respondent Bildner's motion for clarification, the same is considered moot and academic.67

In the meantime, the RTC (Branch 138) required the parties to submit their respective memoranda in
Civil Case No. 04-1049. Both parties complied.68

On September 14, 2005, the Africa Group brought a special civil action for certiorari and prohibition
in this Court assailing the decision promulgated on July 5, 2005 in C.A.-G.R. SP No. 88664 (G.R.
No. 171799).69

On September 22, 2005, POTC and PHILCOMSAT (Africa-Ilusorio Group) elected a new set of
Directors and Officers. Ma. Erlinda I. Bildner was elected as the Chairman of the Boards of Directors
of both POTC and PHILCOMSAT.70

On September 26, 2005, POTC and PHILCOMSAT (Nieto Group) initiated a Complaint for injunction
and damages with prayer for TRO and WPI in the Sandiganbayan (SB Civil Case No. 0198).71

The Sandiganbayan issued a TRO in SB Civil Case No. 0198, enjoining the Africa-Ilusorio Group
from acting as Officers and Directors of POTC and PHILCOMSAT.72

On June 5, 2006, the Court dismissed G.R. No. 171799, viz:

Considering the allegations, issues and arguments adduced in the petition for certiorari and
prohibition with prayer for writ of preliminary injunction and/or temporary restraining order dated 14
September 2005, the Court Resolves to DISMISS the petition for failure to sufficiently show that the
questioned judgment of the Court of Appeals is tainted with grave abuse of discretion.73

On October 14, 2006, the RTC (Branch 138) rendered its decision in Civil Case No. 04-1049, thus:

In the case at bar, the Nieto Group did not specifically deny plaintiff's allegation that their votes
during the 2004 annual stockholders' meeting for POTC and Philcomsat mainly relied on the IRC
and Mid-Pasig shares. Upon the promulgation of the above-cited Supreme Court Decision dated 15
June 2005, even as early as 1986, both IRC and Mid-Pasig corporations have no more right or
interest over the subject POTC shares which was already surrendered by Jose Y. Campos to the
Government. Mid-Pasig and IRC themselves were sequestered, and then voluntarily surrendered as
part of the res covered by the Campos Compromise Agreement. Insofar as Mid-Pasig and IRC are
concerned, they have already relinquished all rights or interest over all POTC shares registered in
their names in favor of the Republic represented by PCGG, even as early as 1986. Hence, the
Supreme Court Decision, in effect, invalidates the elections held by the Nieto Group in the annual
stockholders' meeting of POTC and Philcomsat on 5 August 2004 and 9 August 2004, for not having
the majority control of the said corporation. In turn, the defendant Nieto Group could not have,
therefore, issued a valid proxy nor could they have appointed defendant Locsin as Philcomsat’s
representative to the PHC annual stockholders’ meeting.

WHEREFORE, judgment is hereby rendered invalidating the proxy issued in favor Manuel Nieto
and/or defendant Locsin for purposes of the Annual Stockholders' Meeting for the year 2004 and
declaring the proxy issued in favor of Victor V. Africa for the said purpose, valid. Corollarily, the
elections held and the proclamation of winners during the annual stockholders' meeting of defendant
PHC held on 31 August 2004 is hereby annulled.74

On October 23, 2006, the RTC (Branch 138) dismissed Civil Case No. 01-840 for lack of jurisdiction.
Subsequently, the RTC (Branch 138) denied the petitioners’ Motion for Reconsideration, and treated
it instead as a notice of appeal.75

On March 1, 2007, PHC (Nieto Group) and Brodett appealed the decision dated October 14, 2006
rendered in Civil Case No. 04-1049 to the CA via a petition for review (CA-G.R. SP NO. 98097). On
March 27, 2007, the Africa-Ilusorio Groups submitted their comment (with opposition to the
application for TRO and WPI).76

On March 21, 2007, POTC and PHILCOMSAT (Nieto Group) brought to the CA a petition for
certiorari (with prayer for TRO and WPI), similarly assailing the decision rendered on October 14,
2006 in Civil Case No. 04-1049 (C.A.-G.R. SP No. 98399).77

On March 27, 2007, PHILCOMSAT (Africa Group) sought the execution of the decision rendered on
October 14, 2006 in Civil Case No. 04-1049 by the RTC (Branch 138). Although on April 4, 2007,
PHC (Nieto Group), Locsin and Brodett opposed the motion for execution, the RTC (Branch 138)
granted the motion on April 12, 2007, to wit:

WHEREFORE, premises considered, the Court hereby grants the plaintiff's Motion. Let a writ of
execution be issued directing the implementation of the following orders:

1) the individuals elected by defendant Locsin in the 2004 PHC ASM, and so proclaimed to
be PHC’s board of directors, namely: Enrique Locsin, Julio Jalandoni, Manuel Andal, Luis
Lokin, Jr., Prudencio Somera, Jr., Manuel H. Nieto, Jr., Roberto V. San Jose, Philip Brodett,
Oliverio Laperal, Benito Araneta and Roberto Abad and all their representatives or agents
are enjoined from continuing to act as PHC board of directors;

2) the proxy of plaintiff issued to Victor V. Africa is declared valid and thus, the individuals
elected by plaintiff's proxy in the 2004 PHC ASM namely: Victor V. Africa, Erlinda I. Bildner,
Katrina Ponce Enrile, Honorio Poblador III, Federico Agcaoili, Sylvia K. Ilusorio and Jose Ma.
Ozamiz are declared as the valid board of directors of PHC; and
3) the defendants are directed to render an accounting of funds of PHC since 2004 up to the
present within 15 days from the finality of this Order.78

On April 18, 2007, PHC (Nieto Group) and Brodett filed their Reply with Reiteration of the Urgent
Application for Temporary Restraining Order and Preliminary Injunction in C.A.-G.R. SP NO. 98097.
On April 20, 2007, they filed a Supplemental Petition with Urgent Application for Temporary
Restraining Order and Preliminary Injunction, alleging that, upon motion of respondent (Africa
Group), the RTC had issued an order dated April 12, 2007 directing the issuance of a writ of
execution to implement the decision dated October 14, 2006.79

On April 18, 2007, the RTC (Branch 138) issued a writ of execution of the decision dated October
14, 2006.80

On April 24, 2007, the PHC (Africa Group) held an organizational meeting of its Board of Directors
pursuant to the decision dated October 14, 2006 as well as the order dated April 12, 2007 and the
writ of execution dated April 20, 2007, all issued in Civil Case No. 04-1049. At that organizational
meeting, Victor V. Africa, Federico R. Agcaoili, Erlinda I. Bildner, Katrina C. Ponce Enrile, Sylvia K.
Ilusorio, Honorio Poblador III, Jose Ozamiz, Prudencio Somera, Pablo Lobregat and Oliverio Laperal
were elected as Directors. On the same occasion, the following were elected as Officers of PHC,
namely: Honorio Poblador III as Chairman; Oliverio Laperal as Vice-Chairman; Erlinda I. Bildner as
President; Lorna P. Kapunan as Vice President; Pablo Lobregat as Vice-President; Katrina Ponce
Enrile as Treasurer; Rafael Poblador as Assistant Treasurer; John Benedict Sioson as Corporate
Secretary; and Dennis R. Manzanal as Assistant Corporate Secretary.81

On April 30, 2007, PHILCOMSAT (Africa Group) filed an Urgent Motion to Lift the TRO in C.A.-G.R.
SP No. 98399.82

On May 2, 2007, PHC (Nieto Group) presented a Manifestation in C.A.-G.R. SP NO. 98097, alleging
that they were informed that POTC and PHILCOMSAT had filed a petition dated March 14, 2007 in
this Court which involved substantially the same issues raised in C.A.-G.R. SP No. 98097.83

On May 10, 2007, the CA directed POTC and PHILCOMSAT (Nieto Group) to comment on the
Urgent Motion to Lift the TRO filed in C.A.-G.R. SP NO. 98399.84

On May 17, 2007, the CA issued a resolution in C.A.-G.R. SP No. 98097, to wit:

WHEREFORE, petitioners’ application for a temporary restraining order/writ of preliminary injunction


to enjoin the execution of the Decision dated October 14, 2006 of the court a quo in Civil Case No.
04-1049 is merely NOTED as the same has been rendered moot and academic.

The issues having been joined with the filing of the comment and reply, the petition for review is
considered submitted for decision.85

On June 8, 2007, the CA dismissed the petition in C.A.-G.R. CV NO. 88360 for being an improper
mode of appeal.86

On June 12, 2007, POTC and PHILCOMSAT (Nieto Group) filed their Reply with Urgent Motion to
Resolve the Application for Preliminary Injunction in CA-G.R. SP No. 98399. The CA granted the
Urgent Motion to Resolve on June 25, 2007, and issued the WPI on the same date.87
On August 17, 2007, POTC and PHILCOMSAT (Africa-Ilusorio Group) brought a petition for
certiorari to annul and set aside the CA’s resolution dated June 25, 2007 in C.A.-G.R. SP No.
98399.88

Earlier, on August 15, 2007, the Sandiganbayan issued its resolution dismissing the Complaint of
POTC and PHILCOMSAT (Nieto Group) in SB Civil Case No. 0198, to wit:

WHEREFORE, in view of the foregoing, the Court hereby resolves as follows:

1) The Urgent Motion to Dismiss dated September 29, 2005 of the defendant is hereby
GRANTED. Accordingly, the plaintiffs' Complaint dated September 20, 2005 is hereby
ordered DISMISSED.

2) The following motions and pleadings are considered MOOT AND ACADEMIC in view of
the dismissal of the case.

a. Motion to Consider and Declare Defendants in Default dated October 21, 2005 of
the plaintiffs;

b. Motion for Consolidation with SB Civil Case No. 0009 dated September 24, 2006
of the plaintiffs;

c. Petition to Show Cause dated April 25, 2007 filed by the plaintiffs; and

d. Motion for Leave to Intervene and to Admit Complaint-In-Intervention dated May


16, 2007 filed by the PCGG.

3) The Court hereby REPRIMANDS Enrique L. Locsin and Atty. Sikini C. Labastilla for
omitting material facts in their Complaint and Urgent Motion for Special Raffle and WARNS
that a repetition of the same or similar acts in the future shall be dealt with more severely.89

POTC and PHILCOMSAT (Nieto Group) moved for reconsideration on September 5, 2007, and later
supplemented the motion.90

On November 5, 2007, Atty. Sikini C. Labastilla filed in the CA a petition to cite Erlinda I. Bildner and
her lawyer Atty. Dennis R. Manzanal for indirect contempt of court (C.A.-G.R. SP No. 101225), and
prayed that the petition be consolidated with C.A.-G.R. SP No. 98399. The consolidation was
allowed on December 12, 2007.91

On November 13, 2007, President Arroyo named new nominees to the POTC Board of Directors,
namely: Daniel C. Gutierrez, Allan S. Montaño, and Retired Justice Santiago J. Ranada; and to the
PHILCOMSAT Board of Directors, namely: Ramon P. Jacinto, Abraham R. Abesamis, and Rodolfo
G. Serrano, Jr.92

On November 19, 2007, POTC held its Annual Stockholders’ Meeting and Organizational Meeting of
the Board of Directors. Elected were Daniel C. Gutierrez as Director and Chairman; Erlinda I. Bildner
as Director and Vice Chairman; Katrina Ponce Enrile as Director and President/CEO;

Marietta K. Ilusorio as Director and Treasurer; Francisca Benedicto Paulino, Pablo L. Lobregat, Allan
Montaño, Honario A. Poblador III and Justice Ranada as Directors; Rafael A. Poblador as Assistant
Treasurer; and Victoria C. de los Reyes as Corporate Secretary.93
On the same date, PHILCOMSAT held its Annual Stockholders’ Meeting and Organizational Meeting
of the Board of Directors. Elected were: Abraham R. Abesamis as Director and Chairman; Pablo L.
Lobregat as Director and Vice-Chairman; Ramon Jacinto as Director and Chairman of the Executive
Committee; Erlinda I. Bildner as Director and President/CEO; Marietta K. Ilusorio as Director and
Vice President; Katrina Ponce Enrile as Director and Treasurer; Lorna P. Kapunan, Honorio A.
Poblador III and Rodolfo G. Serrano, Jr. as Directors; Rafael A. Poblador as Assistant Treasurer;
and John Benedict L. Sioson as Corporate Secretary.94

Thereafter, Concepcion A. Poblador of the Nieto Group filed a Complaint for injunction and
declaration of nullity (with prayer for TRO and WPI) with the Sandiganbayan, seeking to enjoin the
PCGG from recognizing the stockholders’ meeting held on November 19, 2007 (Civil Case No. 07-
0001).

Meanwhile, PHC (Africa Group), through Erlinda I. Bildner, filed a Complaint for injunction against
the Bank of the Philippine Islands (BPI) with the RTC (Branch 62) in Makati City, seeking to enjoin
BPI from allowing further disbursements of PHC funds to unauthorized persons comprising those
who were no longer members of the PHC Board of Directors due to the nullification of their election.

On the basis of the Complaint, the RTC (Branch 62) issued an order on December 13, 2007, as
follows:

FOREGOING CONSIDERED, pending final adjudication on the principal action raised herein and
subject to the posting of the indemnity bond in the sum of Three Million Pesos (Php 3,000,000.00)
issued in favor of the defendant Bank of the Philippine Islands and defendant intervener PHC
represented by Enrique M. Locsin, let a writ of preliminary injunction issue, enjoining the said
defendant bank, its employees, officers, and representatives from allowing the defendant intervener,
Locsin Group, their officers, employees, agents, and/or representatives to inquire, withdraw, and/or
in any manner transact relative to any and all Philcomsat Holdings Corporation accounts maintained
with Bank of the Philippine Islands until further orders from this Court.

Finally, the defendant bank is hereby ordered to submit to this Court the latest (as of receipt of this
Order) bank statements and/or certificates of all PHC accounts deposited with its bank within ten
(10) days from notice thereof.95

On December 14, 2007, POTC and PHILCOMSAT (Africa Group) filed in C.A.-G.R. SP NO. 98399 a
Manifestation and Urgent Motion to Withdraw Petition, praying that the petition be considered
withdrawn, and that the WPI issued on June 25, 2007 be immediately lifted. In support of the motion,
POTC and PHILCOMSAT (Africa Group) averred:

(1) On 21 March 2007, Mr. Enrique Locsin (Locsin) purportedly representing POTC and
PHILCOMSAT filed the instant petition, assailing the decision issued by the Regional Trial
Court (RTC) of Makati Branch 138 in Civil Case No. 04-1049 x x x.

xxxx

(3) What Mr. Locsin has deliberately failed and/or refused to divulge to this Honorable Court
upon filing the instant petition are the following facts: (1) Mr. Locsin and his group are exactly
the same set of individuals who comprise the respondents in Civil Case No. 04-1049, the
decision which is now herein assailed; and that (2) Mr. Locsin and his group, purportedly,
representing earlier or two weeks prior to the filing of the instant petition, already filed an
appeal also with this Honorable Court, albeit pending in a different division, docketed as CA-
G.R. SP No. 98097, raising exactly the same issues and seeking identical reliefs as they are
now pending in the case at bar.

xxxx

(5) The difficulty in resolving the present controversy lodged before this Honorable Court
stems from the fact that even the legitimate POTC and PHILCOMSAT representatives
become apparently undeterminable.

xxxx

(9) Nonetheless, the conflicting claims over POTC and PHILCOMSAT have finally come to
resolution with the recent developments.

(10) On 13 November 2007, the government appointed its new nominees to POTC and
PHILCOMSAT. For POTC, the government, through Undersecretary Enrique D. Perez with
the directive of President Gloria Macapagal Arroyo, appointed Atty. Daniel C. Gutierrez, Atty.
Allan S. Montaño and Justice Santiago J. Ranada (Ret.) to the POTC board and represent
the government's 34.9% shareholdings in the board of directors of POTC. In the same
manner and for an akin purpose, the government appointed Mr. Ramon P. Jacinto, Mr.
Rodolfo G. Serrano, Jr. and Radm. Abraham R. Abesamis (Ret.) to represent the
government's 34.9% shareholdings on the board of directors of PHILCOMSAT. Although this
Honorable Court may take judicial notice of these appointments, to evidence such new
appointments, copies of the proxy issued by the Republic of the Philippines to
Undersecretary Perez and the "I desire" letter of the Office of the President for the
government's nominees to PHILCOMSAT, both dated 13 November 2007, and the list of
nominees of Undersecretary Perez for POTC and his letter to PCGG Chairman Camilo
Sabio, both dated 19 November 2007, are attached and made integral parts hereof as
Annexes "B", "B", "C" and "D", respectively.

(11) Needless to state, with the designation and their selection of the new government
nominees to POTC and PHILCOMSAT, the old nominees, namely: Mr. Locsin, Mr. Manuel
Andal, Mr. Julio Jalandoni and Mr. Guy de Leon are automatically replaced. This is an
undeniable fact and had always been the procedure in the appointment and replacement of
government nominees to the board of companies where the government has a substantial
interest.

(12) Following the said appointment of new nominees, necessarily, annual stockholders
meetings of both POTC and PHILCOMSAT were conducted and held on 19 November 2007
in order to elect the new directors of the respective boards of the two companies. During the
said meetings, where over 90% of the shareholders were present and/or duly represented,
the stockholders elected the new board of directors of POTC and PHILCOMSAT. These
elections are evidenced by the Secretary's Certificates duly executed by the Corporate
Secretaries of POTC and PHILCOMSAT, copies of which are attached and made integral
parts hereof as Annexes "E" and "F", respectively.

(13) Thus, the new government nominees, together with the private shareholders of POTC
and Philcomsat are joined together in a unified board of directors for the two companies. In
fact, after the new sets of directors had been elected, both companies conducted their
respective organizational and board meetings.
(14) At the board meetings of POTC and Philcomsat held on 4 December 2007, POTC and
PHILCOMSAT have decided, as the new, unassailably legitimate and only board of directors
of POTC and PHILCOMSAT, to authorize the withdrawal of the instant petition filed in the
name of POTC and PHILCOMSAT. The boards likewise in their resolutions, disallowed other
persons to represent their companies. Copies of these resolutions issued by POTC and
PHILCOMSAT are attached and made integral parts hereof as Annexes "G" and "H",
respectively.

(15) Thus, based on the foregoing, POTC and PHILCOMSAT, who are supposedly the
petitioners in this case, move for the immediate withdrawal of the petition dated 14 March
2007 and the immediate lifting of the Writ of Preliminary Injunction dated 25 June 2007.96

The Urgent Motion to Withdraw Petition was opposed in a Comment and Opposition filed on
February 13, 2008 that averred as follows:

xxxx

4. Through the malicious motion to withdraw, there is a veiled attempt, to have this
Honorable Court uphold and recognize the validity of the supposed meetings held by rump
boards on November 19, 2007.This is a matter that is properly cognizable only by the
Sandiganbayan.

5. In fact, there is already a pending complaint before the Sandiganbayan that assails the
supposed November 19, 2007 meetings stated in the motion to withdraw.

6. The Sandiganbayan, acting through the Fifth Division, granted the issuance of a
Temporary Restraining Order on December 21, 2007, to prevent and prohibit any recognition
of these November 19, 2007 meetings. x x x.

12. Petitioners, however, are compelled to address the misleading allegations and
conclusions in the motion to withdraw. It is respectfully manifested that these alleged
November 19, 2007 meetings were not called by the legitimate boards of petitioners POTC
and Philcomsat. Only the legitimate boards, here represented by Mr. Locsin, can properly act
upon any change in the government nominees, and it is only the legitimate boards that can
install them. As manifested by petitioners to this Honorable Court, since there are no more
legal challenges to the respective Boards of Directors of petitioners originally led by Ronaldo
Salonga and Manuel Nieto, Jr., since 1998, only the successors of these boards, here
represented by Mr. Locsin, can properly represent petitioners POTC and PHILCOMSAT.

12.1. The issue was settled with the dismissal of the appeal in CA G.R. CV No.
88360, which stemmed from the original petition filed in 1998 by Potenciano Ilusorio,
Katrina Ponce-Enrile, and their family owned corporations, to question the election of
the Nieto-Salonga board. The appeal was dismissed by the Honorable Court of
Appeals in its Resolution dated June 8, 2007, a copy of which is hereto attached as
Annex B.

13. It is significant that the manifestation and motion to withdraw made admissions that
recognize the validity of the boards represented by Mr. Locsin. While petitioners do not admit
to the genuineness or due execution of the Secretary's Certificates which were not signed by
the duly-elected Corporate Secretary x x x, it must be noted that the authority of Mr. Locsin
to file the instant petition was recognized and admitted therein. It was only claimed that such
authority "was lost" when he was allegedly replaced, which replacement, as discussed
above, is still disputed. Thus, even the rump boards admit that the filing of this petition by Mr.
Locsin was duly authorized by POTC and PHILCOMSAT.97

xxxx

On December 21, 2007, the Sandiganbayan (Fifth Division) issued an order in Civil Case No. 07-
0001, to wit:

xxxx

Wherefore, finding the complaint to be sufficient in form and substance and considering the
necessity to maintain the status quo lest grave and irreparable injury would result to plaintiff pending
the hearing of the main incident (Injunction and Declaration of Nullity), let a TEMPORARY
RESTRAINING ORDER issue ordering the defendants, their agents, executives and other persons
acting upon their instructions, from recognizing or acting pursuant to the 19 November 2007
stockholders meetings of POTC and PHILCOMSAT. The restraining order is good for twenty (20)
days from notice to defendants or any of their representatives.98

xxxx

On May 7, 2008, the PCGG passed Resolution No. 2008-009, viz:

NOW, THEREFORE, be it RESOLVED, as it is hereby RESOLVED, that:

1. The PCGG recognize the validity of the 19 November 2007 POTC/Philcomsat


stockholders' meeting and confirm as valid the election of the following government
nominees: Atty. Daniel C. Gutierrez, Justice Santiago J. Ranada and Atty. Allan S. Montano
to the Board of Directors of POTC and Radm. Abraham R. Abesamis, Mr. Ramon P. Jacinto
and Mr. Rodolfo G. Serrano, Jr. to the Board of Directors of Philcomsat;

2. The PCGG recognize the validity of the 11 December 2007 and 18 January 2008 special
stockholders' meetings of Philcomsat subsidiaries, PHC and TCI, at which the new
government nominees were also elected as members of their respective Board of Directors
subject to the "I Desire" letter of the President requiring the nomination and installation of Mr.
Enrique Locsin in PHC vice Mr. Rodolfo Serrano;

3. The PCGG direct the old government nominees and their appointed Corporate Secretaries
under pain of contempt to submit to the Commission within ten (10) days from their receipt of
the Resolution:

a. A complete set of Minutes of the Meetings of the Boards of Directors, Executive


Committee, Legal Committee, Audit Committee and all other committees with a
Certification under oath of the completeness thereof from 1998 up to the present;

b. A complete and updated list of stockholders of the corporations with their last
known addresses and number of shares duly certified by the Corporate Secretary
and/or Stock Transfer Agent;

c. Copies of all audited and interim financial statements of these corporations; and

d. The stock transfer book and stock certificate booklet of PHC and TCI.
4. The PCGG request the Securities and Exchange Commission ("SEC") and the Philippine
Stock Exchange ("PSE") to regulate and monitor POTC, Philcomsat, PHC and TCI, to
cooperate with the new government nominees and assist them in complying with the
reportorial requirements of these corporations, including, but not limited to, compelling the
old government nominees and their appointed officers to submit copies of the documents
referred to above;

RESOLVED, FURTHER, that the Commission Secretary be directed to furnish copies of this
Resolution to the old government nominees/directors of POTC, Philcomsat, PHC and TCI namely
Enrique Locsin, Manuel Andal, Julio Jalandoni, Guy De Leon, Benito Araneta and Ronaldo Salonga,
to the new government nominees Daniel Gutierrez, Santiago Ranada, Allan Montano, Abraham
Abesamis, Ramon Jacinto, Rodolfo Serrano, Jr. Enrique Locsin and to the SEC, PSE and BSP for
their guidance, observation and compliance.99

On July 16, 2008, the CA rendered its assailed decision in C.A.-G.R. SP No. 102437, annulling and
setting aside the order dated December 13, 2007 and the WPI issued on December 17, 2007 by the
RTC (Branch 62).100

On February 13, 2009, the CA denied the motion for reconsideration.101

On September 30, 2008, the CA promulgated its assailed consolidated decision in C.A.-G.R. SP No.
98097, C.A.-G.R. SP No. 98399 and C.A.-G.R. SP No. 101225, dismissing the petitions.102 The CA
held that the RTC acted within its jurisdiction in resolving the intra-corporate dispute; that the
conduct of pre-trial was not required in corporate election cases; that the RTC had the authority to
decide Civil Case No. 04-1049; that the decision of the RTC was valid and correct; and that the
petition for contempt filed against Atty. Sikini C. Labastilla was without basis. The CA lifted and
dissolved the WPI issued on June 25, 2007.103

On December 23, 2008, the CA denied the motion for reconsideration.104

Issues

G.R. No. 184622

WHETHER THE SANDIGANBAYAN’S REFUSAL TO TAKE COGNIZANCE OF THE


CONTROVERSY ON THE GROUND THAT THE SAME IS AN INTRA-CORPORATE
CONTROVERSY IS IMPROPER AND AGAINST JURISPRUDENCE.105

G.R. No. 184712-14

WHETHER THE SANDIGANBAYAN HAS ORIGINAL AND EXCLUSIVE


JURISDICTION OVER SEQUESTERED CORPORATIONS, SEQUESTRATION-
RELATED CASES, AND ANY AND OVER ALL INCIDENTS ARISING FROM,
INCIDENTAL TO, OR RELATED TO SUCH CASES.106

WHETHER THE SEQUESTRATION OVER POTC AND PHILCOMSAT REMAINS


DESPITE THE APPROVAL OF THE PCGG-ILUSORIO COMPROMISE
AGREEMENT IN G.R. NOS. 141796 AND 141804.107

WHETHER THE MAKATI RTC MAY RENDER JUDGMENT ON THE COMPLAINT


PURSUANT TO THE INTERIM RULES WHEN THE SAID COURT HAS NOT BEEN
DESIGNATED AS A SPECIAL COMMERCIAL COURT BY THE SUPREME
COURT.108

WHETHER THE ORDER TO CONDUCT PRE-TRIAL AND THE SUBMISSION OF


THE PRE-TRIAL BRIEFS IS MANDATORYUNDER ALL CASES FILED UNDER
THE INTERIM RULES.109

G.R. No. 186590

WHETHER THE COURT OF APPEALS ERRED WHEN IT NULLIFIED THE WRIT


OF PRELIMINARY INJUNCTION ISSUED BY THE TRIAL COURT.110

G.R. No. 186066

WHETHER OR NOT THE CA ERRED IN RULING THAT THE REGIONAL TRIAL


COURT OF MAKATI HAD JURISDICTION OVER CIVIL CASE NO. 04-1049;

WHETHER OR NOT THE CA ERRED IN RULING THAT THE DECISION IN G.R.


NOS. 141796 AND 141804 FINALLY SETTLED THE ISSUES IN CIVIL CASE NO.
04-1049 AND CONSEQUENTLY ANNULLED THE POTC PROXY IN FAVOR OF
MESSRS. NIETO AND LOCSIN;

WHETHER OR NOT THE CA ERRED IN RULING THAT BRANCH 138 COULD


STILL ACT ON AND DECIDE CIVIL CASE NO. 04-1049 DESPITE THIS
HONORABLE COURT’S REVOCATION OF ITS DESIGNATION AS SPECIAL
COMMERCIAL COURT OF RTC MAKATI CITY;

WHETHER OR NOT THE CA ERRED IN RULING THAT PRE-TRIAL AND TRIAL


CAN BE DISPENSED WITH IN CIVIL CASE NO. 01-1049;

WHETHER OR NOT THE CA ERRED IN AFFIRMING THE DECISION OF THE


TRIAL COURT WHICH WAS CONTRARY TO THE FACTS AND EXISTING
JURISPRUDENCE.111

The Court reduces the issues for resolution to two main ones, namely:

(a) Did RTC (Branch 138) have jurisdiction over the intra-corporate controversy (election
contest)?

(b)Who among the contending parties or groups held the controlling interest in POTC and,
consequently, in PHILCOMSAT and PHC?

In G.R. No. 184712-14, the petitioners postulate that the Sandiganbayan had original and exclusive
jurisdiction over sequestered corporations, sequestration-related cases, and any and over all
incidents arising from, or incidental or related to such cases;112 that it was error on the part of the CA
to conclude that the Sandiganbayan was automatically ousted of jurisdiction over the sequestered
assets once the complaint alleged an intra-corporate dispute due to the sequestered assets being in
custodia legis of the Sandiganbayan;113 that the sequestration of POTC and PHILCOMSAT remained
despite the approval of the compromise agreement in G.R. No. 141796 and G.R. No. 141804; that
because the proceedings involving the shares of the Nieto, Africa and Ponce Enrile Families were
still pending and had not yet been finally resolved,114 the RTC could not render a valid judgment on
the dispute because it had not been designated as a Commercial Court;115 and that the conduct of a
pre-trial and the submission of a pre-trial brief were mandatory under all cases filed under the Interim
Rules.116

In its Comment, PHILCOMSAT counters that the rulings in Olaguer and Del Moral were not
applicable because such cases arose from different factual settings;117 that the RTC had ample
authority to rule upon the intra-corporate dispute;118 and that the conduct of pre-trial was not
mandatory in corporate election cases.119

In G.R. No. 184622, the petitioners claim that the Sandiganbayan committed an error in refusing to
take cognizance of the injunction suit they had filed on the ground that it was an intra-corporate
dispute; that the Sandiganbayan thereby went against the spirit and intent of the Court’s rulings
stressing the importance of protecting sequestered assets and recovering ill-gotten wealth;120 and
that the Court’s pronouncement in G.R. No. 171799 affirming the status of POTC shares as
sequestered shares was more than enough reason for the Sandiganbayan to take cognizance of the
injunction suit.121

In its Comment,122 respondent Ilusorio-Africa Group counter that the injunction suit was not within the
jurisdiction of the Sandiganbayan; and that Locsin had no authority to institute the injunction suit due
to his election being a patent nullity considering that the proxies issued by IRC and Mid-Pasig could
not be given effect after the Court had affirmed the ruling of the Sandiganbayan on IRC and Mid-
Pasig’s shareholdings in POTC.123

In G.R. No. 186590, PHILCOMSAT posits that the trial court properly issued the injunction against
PHC after receiving evidence of massive looting of corporate funds that led to PHC’s external auditor
being suspended as found by Senate Committees and the SEC.124

In its Comment, PHC states that PHILCOMSAT failed to establish its right in esse or the existence of
a right to be protected so as to warrant the issuance of the injunctive writ in its favor.125

In G.R. No. 186066, PHC argues that the CA erred in ruling that the RTC (Branch 138) was clothed
with authority to decide Civil Case No. 04-1049 because POTC and PHILCOMSAT were under
sequestration of the PCGG; that, accordingly, all issues and controversies arising or related or
incidental to the sequestration fell under the sole and exclusive original jurisdiction of the
Sandiganbayan;126 that the CA erred in appreciating the nature of Civil Case No. 04-1049; that the
controversy, albeit involving an intra-corporate dispute, was still cognizable by the Sandiganbayan
because POTC and PHILCOMSAT shares were under sequestration;127 that the ruling in G.R. Nos.
141796 and 141804 does not constitute res judicata; that even assuming that the RTC (Branch 138)
had jurisdiction, its authority was revoked prior to the issuance of its assailed judgment;128 and that
PHC was denied due process due to the RTC’s open violation of the Interim Rules.129

In its Comment, PHILCOMSAT counters that the insistence of PHC that the sequestration of
PHILCOMSAT automatically took away the jurisdiction of the RTC and conferred it to the
Sandiganbayan was misplaced;130 that the rulings in Olaguer and Del Moral are not on all fours with
this case;131 that the issue of the shares being ill-gotten was already settled in G.R. Nos. 141796 and
141804;132 that the RTC (Branch 138) had ample authority to decide the intra-corporate controversy
because the case, being already submitted for decision, remained cognizable by the same
branch;133 and that the conduct of the pre-trial was not required in election cases.134

Ruling of the Court


We DENY the petitions in G.R. No. 184622, G.R. Nos.184712-14, and G.R. No.186066; but GRANT
the petition in G.R. No. 186590.

1.

RTC (Branch 138) had jurisdiction


over the election contest between the
Ilusorio-Africa Groups and Nieto-Locsin Groups

Both Civil Case No. 04-1049 of the RTC (Branch 138) in Makati City and SB Civil Case No. 0198 of
the Sandiganbayan involved intra-corporate controversies among the stockholders and officers of
the corporations. It is settled that there is an intra-corporate controversy when the dispute involves
any of the following relationships, to wit: (a) between the corporation, partnership or association and
the public; (b) between the corporation, partnership or association and the State in so far as its
franchise, permit or license to operate is concerned; (c) between the corporation, partnership or
association and its stockholders, partners, members or officers; and (d) among the stockholders,
partners or associates themselves.135

Consequently, we agree with the CA’s consolidated decision promulgated on September 30, 2008
that the RTC (Branch 138), not the Sandiganbayan, had jurisdiction because Civil Case No. 04-1049
did not involve a sequestration-related incident but an intra-corporate controversy.

Originally, Section 5 of Presidential Decree (P.D.) No. 902-A vested the original and exclusive
jurisdiction over cases involving the following in the SEC, to wit:

xxxx

(a) Devices or schemes employed by, or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the stockholder, partners, members of
associations or organization registered with the Commission;

(b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and the State insofar
as it concerns their individual franchise or right as such entity;

(c) Controversies in the election or appointment of directors, trustees, officers or managers of


such corporations, partnership or associations;

(d) Petitions of corporations, partnerships or associations to be declared in the state of


suspension of payment in cases where the corporation, partnership or association
possesses sufficient property to cover all its debts but foresees the impossibility of meeting
them when they respective fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities but is under the management of a
Rehabilitation Receiver or Management Committee created pursuant to this Decree.136

Upon the enactment of Republic Act No. 8799 (The Securities Regulation Code), effective on August
8, 2000, the jurisdiction of the SEC over intra-corporate controversies and the other cases
enumerated in Section 5 of P.D. No. 902-A was transferred to the Regional Trial Court pursuant to
Section 5.2 of the law, which provides:

5.2. The Commission’s jurisdiction over all cases enumerated in Section 5 of Presidential Decree
No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial
Court; Provided, That the Supreme Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of this Code. The Commission shall
retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000
until finally disposed.

To implement Republic Act No. 8799, the Court promulgated its resolution of November 21, 2000 in
A.M. No. 00-11-03-SC designating certain branches of the RTC to try and decide the cases
enumerated in Section 5 of P.D. No. 902-A. Among the RTCs designated as special commercial
courts was the RTC (Branch 138) in Makati City, the trial court for Civil Case No. 04-1049.

On March 13, 2001, the Court adopted and approved the Interim Rules of Procedure for Intra-
Corporate Controversies under Republic Act No. 8799 in A.M. No. 01-2-04-SC, effective on April 1,
2001, whose Section 1 and Section 2, Rule 6 state:

Section 1. Cases covered. – The provisions of this rule shall apply to election contests in stock and
non-stock corporations.

Section 2. Definition. – An election contest refers to any controversy or dispute involving title or claim
to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and
validity of elections, and the qualifications of candidates, including the proclamation of winners, to
the office of director, trustee or other officer directly elected by the stockholders in a close
corporation or by members of a non-stock corporation where the articles of incorporation or by-laws
so provide. (bold underscoring supplied)

Conformably with Republic Act No. 8799, and with the ensuing resolutions of the Court on the
implementation of the transfer of jurisdiction to the Regional Trial Court, the RTC (Branch 138) in
Makati had the authority to hear and decide the election contest between the parties herein. There
should be no disagreement that jurisdiction over the subject matter of an action, being conferred by
law, could neither be altered nor conveniently set aside by the courts and the parties.137

To buttress its position, however, the Nieto-Locsin Group relied on Section 2 of Executive Order No.
14,138 which expressly mandated that the PCGG "shall file all such cases, whether civil or criminal,
with the Sandiganbayan, which shall have exclusive and original jurisdiction thereof."

The reliance was unwarranted.

Section 2 of Executive Order No. 14 had no application herein simply because the subject matter
involved was an intra-corporate controversy, not any incidents arising from, incidental to, or related
to any case involving assets whose nature as ill-gotten wealth was yet to be determined. In San
Miguel Corporation v. Kahn,139 the Court held that:

The subject matter of his complaint in the SEC does not therefore fall within the ambit of this Court’s
Resolution of August 10, 1988 on the cases just mentioned, to the effect that, citing PCGG v. Pena,
et al., all cases of the Commission regarding ‘the funds, moneys, assets, and properties illegally
acquired or misappropriated by former President Ferdinand Marcos, Mrs. Imelda Romualdez
Marcos, their close relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees,
whether civil or criminal, are lodged within the exclusive and original jurisdiction of the
Sandiganbayan,’ and all incidents arising from, incidental to, or related to, such cases necessarily
fall likewise under the Sandiganbayan's exclusive and original jurisdiction, subject to review on
certiorari exclusively by the Supreme Court." His complaint does not involve any property illegally
acquired or misappropriated by Marcos, et al., or "any incidents arising from, incidental to, or related
to" any case involving such property, but assets indisputably belonging to San Miguel Corporation
which were, in his (de los Angeles') view, being illicitly committed by a majority of its board of
directors to answer for loans assumed by a sister corporation, Neptunia Co., Ltd.

De los Angeles’ complaint, in fine, is confined to the issue of the validity of the assumption by the
corporation of the indebtedness of Neptunia Co., Ltd., allegedly for the benefit of certain of its
officers and stockholders, an issue evidently distinct from, and not even remotely requiring inquiry
into the matter of whether or not the 33,133,266 SMC shares sequestered by the PCGG belong to
Marcos and his cronies or dummies (on which, issue, as already pointed out, de los Angeles, in
common with the PCGG, had in fact espoused the affirmative). De los Angeles’ dispute, as
stockholder and director of SMC, with other SMC directors, an intra-corporate one, to be sure, is of
no concern to the Sandiganbayan, having no relevance whatever to the ownership of the
sequestered stock. The contention, therefore, that in view of this Court's ruling as regards the
sequestered SMC stock above adverted to, the SEC has no jurisdiction over the de los Angeles
complaint, cannot be sustained and must be rejected. The dispute concerns acts of the board of
directors claimed to amount to fraud and misrepresentation which may be detrimental to the interest
of the stockholders, or is one arising out of intra-corporate relations between and among
stockholders, or between any or all of them and the corporation of which they are stockholders.140

Moreover, the jurisdiction of the Sandiganbayan has been held not to extend even to a case
involving a sequestered company notwithstanding that the majority of the members of the board of
directors were PCGG nominees. The Court marked this distinction clearly in Holiday Inn (Phils.), Inc.
v. Sandiganbayan,141 holding thusly:

The subject-matter of petitioner’s proposed complaint-inintervention involves basically, an


interpretation of contract, i.e., whether or not the right of first refusal could and/or should have been
observed, based on the Addendum/Agreement of July 14, 1988, which extended the terms and
conditions of the original agreement of January 1, 1976. The question of whether or not the
sequestered property was lawfully acquired by Roberto S. Benedicto has no bearing on the legality
of the termination of the management contract by NRHDC’s Board of Directors. The two are
independent and unrelated issues and resolution of either may proceed independently of each other.
Upholding the legality of Benedicto’s acquisition of the sequestered property is not a guarantee that
HIP's management contract would be upheld, for only the Board of Directors of NRHDC is qualified
to make such a determination.

Likewise, the Sandiganbayan correctly denied jurisdiction over the proposed complaint-in-
intervention. The original and exclusive jurisdiction given to the Sandiganbayan over PCGG cases
pertains to (a) cases filed by the PCGG, pursuant to the exercise of its powers under Executive
Order Nos. 1, 2 and 14. as amended by the Office of the President, and Article XVIII, Section 26 of
the Constitution, i.e., where the principal cause of action is the recovery of ill-gotten wealth, as well
as all incidents arising from, incidental to, or related to such cases and (b) cases filed by those who
wish to question or challenge the commission’s acts or orders in such cases.

Evidently, petitioner’s proposed complaint-in-intervention is an ordinary civil case that does not
pertain to the Sandiganbayan. As the Solicitor General stated, the complaint is not directed against
PCGG as an entity, but against a private corporation, in which case it is not per se, a PCGG case.
In the cases now before the Court, what are sought to be determined are the propriety of the election
of a party as a Director, and his authority to act in that capacity. Such issues should be exclusively
determined only by the RTC pursuant to the pertinent law on jurisdiction because they did not
concern the recovery of ill-gotten wealth.

2.

Lack of pre-trial was not fatal


in intra-corporate election contests

Under Section 4 of Rule 6 (Election Contests) of the Interim Rules of Procedure for Intra-Corporate
Controversies, which took effect on April 1, 2001 (A.M. No. 01-2-04-SC), issued pursuant to
Republic Act No. 8799, the trial court, within two days from the filing of the complaint, may outrightly
dismiss the complaint upon a consideration of the allegations thereof if the complaint is not sufficient
in form and substance, or, if the complaint is sufficient, may order the issuance of summons which
shall be served, together with a copy of the complaint, on the defendant within two days from its
issuance. Should it find the need to hold a hearing to clarify specific factual matters, the trial court
shall set the case for hearing, and the hearing shall be completed not later than 15 days from the
date of the first hearing. The trial court is mandated to render a decision within 15 days from receipt
of the last pleading, or from the date of the last hearing, as the case may be.

The CA correctly pointed out that Rule 6 nowhere required that the RTC acting as a special
commercial court should first conduct a pre-trial conference before it could render its judgment in a
corporate election contest. Hence, the RTC (Branch 138) in Makati properly heard the case of
annulment of the election with dispatch in accordance with the guidelines set in the resolution in
A.M. No. 01-2-04-SC. With the requirements of due process having been served, no defect infirmed
the RTC’s ruling to set aside the election, and to oust those illegally elected.

3.

RTC (Branch 138) retained its jurisdiction


over the case that was ripe for adjudication

While it is true that this Court meanwhile revoked on June 27, 2006 the designation of the RTC
(Branch 138) to act as a special commercial court, through the resolution in A.M. No. 03-3-03-SC,
the RTC (Branch 138) did not thereafter become bereft of the jurisdiction to decide the controversy
because of the exception expressly stated in the resolution in A.M. No. 03-3-03-SC itself, to wit:

xxxx

Upon the effectivity of this designation, all commercial cases pending before Branches 138 and 61
shall be transferred to RTC, Branch 149, Makati City, except those which are already submitted for
decision, which cases shall be decided by the acting presiding judges thereat. x x x.

Contrary to the assertion of the Nieto-PCGG group, the foregoing provision did not require the
issuance of any special order stating that the case was already submitted for decision. It was
sufficient, given the summary nature of intra-corporate controversies, especially election contests,
that the trial court was done collating all the evidence from the pleadings (i.e., pleadings, affidavits,
documentary and other evidence attached thereto, and the answers of the witnesses to the
clarificatory questions of the court given during the hearings), if deemed sufficient, or from the
clarificatory hearings, if conducted. The purpose of the exception is to obviate the repetition of the
gathering of evidence. It is clear from Section 9 of Rule 6 that after the collation of evidence, the only
thing that remains is for the RTC to render its decision without issuing a special order declaring the
case submitted for decision, viz:

Section 9. Decision. – The Court shall render a decision within fifteen (15) days from receipt of the
last pleading, or from the date of the last hearing, as the case may be. The decision shall be based
on the pleadings, affidavits, documentary and other evidence attached thereto and the answers of
the witnesses to the clarificatory questions of the court given during the hearings.

4.

Ruling in G.R. No. 141796 and


G.R. No. 141804 was properly applied
to Civil Case No. 04-1049

It was not the principle of res judicata, as claimed by the Nieto-PCGG Group, that justified the
application to Civil Case No. 04-1049 of the Court’s ruling in G.R. No. 141796 and G.R. No. 141804
invalidating the PHC elections conducted by the Nieto-PCGG Group, but rather the doctrine of stare
decisis et non quieta movere, which means "to adhere to precedents, and not to unsettle things
which are established."142

Under the doctrine of stare decisis, when the Court has once laid down a principle of law as
applicable to a certain state of facts, the courts will adhere to that principle, and apply it to all future
cases in which the facts are substantially similar, regardless of whether the parties and property
involved are the same.143 The doctrine of stare decisis is based upon the legal principle or rule
involved, not upon the judgment that results therefrom. It is in this particular sense that stare decisis
differs from res judicata, because res judicata is based upon the judgment.144

The doctrine of stare decisis is grounded on the necessity for securing certainty and stability in
judicial decisions, thus:

Time and again, the Court has held that it is a very desirable and necessary judicial practice that
when a court has laid down a principle of law as applicable to a certain state of facts, it will adhere to
that principle and apply it to all future cases in which the facts are substantially the same. Stare
decisis et non quieta movere. Stand by the decisions and disturb not what is settled. Stare decisis
simply means that for the sake of certainty, a conclusion reached in one case should be applied to
those that follow if the facts are substantially the same, even though the parties may be different. It
proceeds from the first principle of justice that, absent any powerful countervailing considerations,
like cases ought to be decided alike. Thus, where the same questions relating to the same event
have been put forward by the parties similarly situated as in a previous case litigated and decided by
a competent court, the rule of stare decisis is a bar to any attempt to relitigate the same issue.145

The question of who held the majority shareholdings in POTC and PHILCOMSAT was definitively
laid to rest in G.R. No. 141796 and G.R. No. 141804, whereby the Court upheld the validity of the
compromise agreement the Government had concluded with Atty. Ilusorio. Said the Court:–

With the imprimatur of no less than the former President Fidel V. Ramos and the approval of the
Sandiganbayan, the Compromise Agreement must be accorded utmost respect. Such amicable
settlement is not only allowed but even encouraged. Thus, in Republic vs. Sandiganbayan, we held:

‘It is advocated by the PCGG that respondent Benedicto retaining a portion of the assets is
anathema to, and incongruous with, the zero-retention policy of the government in the pursuit for the
recovery of all ill-gotten wealth pursuant to Section 2(a) of Executive Order No. 1. While full recovery
is ideal, the PCGG is not precluded from entering into a Compromise Agreement which entails
reciprocal concessions if only to expedite recovery so that the remaining ‘funds, assets and other
properties may be used to hasten national economic recovery’ (3rd WHEREAS clause, Executive
Order No. 14-A). To be sure, the so-called zero retention mentioned in Section 2(a) of Executive
Order No. 1 had been modified to read:

‘WHEREAS, the Presidential Commission on Good Government was created on February 28, 1986
by Executive Order No. 1 to assist the President in the recovery of ill-gotten wealth accumulated by
former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close
associates’;

which undoubtedly suggests a departure from the former goal of total restitution.

xxxx

The authority of the PCGG to enter into Compromise Agreements in civil cases and to grant
immunity, under certain circumstances, in criminal cases is now settled and established. In Republic
of the Philippines and Jose O. Campos, Jr. vs. Sandiganbayan, et al. (173 SCRA 72 [1989]), this
Court categorically stated that amicable settlements and compromises are not only allowed but
actually encouraged in civil cases. A specific grant of immunity from criminal prosecutions was also
sustained. In Benedicto vs. Board of Administrators of Television Stations RPN, BBC, and IBC (207
SCRA 659 [1992]), the Court ruled that the authority of the PCGG to validly enter into Compromise
Agreement for thepurpose of avoiding litigation or putting an end to one already commenced was
indisputable. x x x (italics supplied)

Having been sealed with court approval, the Compromise Agreement has the force of res judicata
between the parties and should be complied with in accordance with its terms. Pursuant thereto,
Victoria C. de los Reyes, Corporate Secretary of the POTC, transmitted to Mr. Magdangal B. Elma,
then Chief Presidential Legal Counsel and Chairman of PCGG, Stock Certificate No. 131 dated
January 10, 2000, issued in the name of the Republic of the Philippines, for 4,727 POTC shares.
Thus, the Compromise Agreement was partly implemented.146

As a result of the Government having expressly recognized that 673 POTC shares belonged to Atty.
Ilusorio, Atty. Ilusorio and his group gained the majority control of POTC.

Applying the ruling in G.R. No. 141796 and G.R. No. 141804 to Civil Case No. 04-1049, the RTC
(Branch 138) correctly concluded that the Nieto-PCGG Group, because it did not have the majority
control of POTC, could not have validly convened and held the stockholders’ meeting and election of
POTC officers on August 5, 2004 during which Nieto, Jr. and PCGG representative Guy De Leon
were respectively elected as President and Chairman; and that there could not be a valid authority
for Nieto, Jr. and/or Locsin to vote the proxies of the group in the PHILCOMSAT meeting.

For the same reason, the POTC proxies used by Nieto, Jr. and Locsin to elect themselves
respectively as Chairman and President of PHILCOMSAT; and the PHILCOMSAT proxies used by
Nieto, Jr. and Locsin in the August 31, 2004 PHC elections to elect themselves respectively as
President and Acting Chairman of PHC, were all invalid for not having the support of the majority
shareholders of said corporations.

While it is true that judicial decisions should be given a prospective effect, such prospectivity did not
apply to the June 15, 2005 ruling in G.R. No. 141796 and G.R. No. 141804 because the ruling did
not enunciate a new legal doctrine or change the interpretation of the law as to prejudice the parties
and undo their situations established under an old doctrine or prior interpretation. Indeed, the ruling
only affirmed the compromise agreement consummated on June 28, 1996 and approved by the
Sandiganbayan on June 8, 1998, and accordingly implemented through the cancellation of the
shares in the names of IRC and MLDC and their registration in the names of Atty. Ilusorio to the
extent of 673 shares, and of the Republic to the extent of 4,727 shares. In a manner of speaking, the
decision of the Court in G.R. No. 141796 and G.R. No. 141804 promulgated on June 15, 2005
declared the compromise agreement valid, and such validation properly retroacted to the date of the
judicial approval of the compromise agreement on June 8, 1998.

Consequently, although the assailed elections were conducted by the Nieto-PCGG group on August
31, 2004 but the ruling in G.R. No. 141796 and G.R. No. 141804 was promulgated only on June 15,
2005, the ruling was the legal standard by which the issues raised in Civil Case No. 04-1049 should
be resolved.

5.

Proper mode of appeal in intra-corporate cases


is by petition for review under Rule 43

In Dee Ping Wee v. Lee Hiong Wee,147 the Court has expounded that the appropriate mode of
appeal for an aggrieved party in an intra-corporate dispute is a petition for review under Rule 43 of
the Rules of Court, to wit:

Verily, the first part of Section 4, Rule 1 of the Interim Rules is categorical. Save for the exceptions
clearly stated therein, the provision enunciates that a decision and order issued under the Interim
Rules shall be enforceable immediately after the rendition thereof. In order to assail the decision or
order, however, the second part of the provision speaks of an appeal or petition that needs to be
filed by the party concerned. In this appeal or petition, a restraining order must be sought from the
appellate court to enjoin the enforcement or implementation of the decision or order. Unless a
restraining order is so issued, the decision or order rendered under the Interim Rules shall remain to
be immediately executory.

On September 14, 2004, the Court issued a Resolution in A.M. No. 04-9-07-SC to rectify the
situation wherein "lawyers and litigants are in a quandary on how to prevent under appropriate
circumstances the execution of decisions and orders in cases involving corporate rehabilitation and
intra-corporate controversies." To address the "need to clarify the proper mode of appeal in [cases
involving corporate rehabilitation and intra-corporate controversies] in order to prevent cluttering the
dockets of the courts with appeals and/or petitions for certiorari," the Court thereby resolved that:

1. All decisions and final orders in cases falling under the Interim Rules of Corporate
Rehabilitation and the Interim Rules of Procedure Governing Intra-Corporate Controversies
under Republic Act No. 8799 shall be appealable to the Court of Appeals through a petition
for review under Rule 43 of the Rules of Court.

2. The petition for review shall be taken within fifteen (15) days from notice of the decision or
final order of the Regional Trial Court. Upon proper motion and the payment of the full
amount of the legal fee prescribed in Rule 141 as amended before the expiration of the
reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days
within which to file the petition for review. No further extension shall be granted except for the
most compelling reasons and in no case to exceed fifteen (15) days. (Emphases ours.)

xxxx
The issue that needs to be resolved at this point is whether or not petitioners pursued the correct
remedy in questioning the RTC Decisions in Civil Case Nos. Q-04-091, Q-04-092 and Q-04-093.
Corollary to this is whether or not the petitions for certiorari filed by petitioners could have been
treated as petitions for review under Rule 43 of the Rules of Court, in accordance with the provisions
of the Resolution in A.M. No. 04-9-07-SC, such that petitioners can be considered to have availed
themselves of the proper remedy in assailing the rulings of the RTC.

We answer in the negative.

The term "petition" in the third and fourth paragraphs of A.M. No. 04-9-07-SC, cannot be construed
as to include a petition for certiorari under Rule 65 of the Rules of Court. The rationale for this lies in
the essential difference between a petition for review under Rule 43 and a petition for certiorari
under Rule 65 of the Rules of Court.

xxxx

The RTC Decisions in Civil Case Nos. Q-04-091, Q-04-092 and Q-04-093 are final orders that
disposed of the whole subject matter or terminated the particular proceedings or action, leaving
nothing to be done but to enforce by execution what has been determined. As the RTC was
unquestionably acting within its jurisdiction, all errors that it might have committed in the exercise of
such jurisdiction are errors of judgment, which are reviewable by a timely appeal.

xxxx

The Court of Appeals (12th Division) was, therefore, correct in dismissing the petition for certiorari in
CA-G.R. SP No. 85878, which assailed the RTC Decision in Civil Case No. Q-04-091. x x x148

The rule providing that a petition for review under Rule 43 of the Rules of Court is the proper mode
of appeal in intra-corporate controversies, as embodied in A. M. No. 04-9-07-SC, has been in effect
since October 15, 2004. Hence, the filing by POTC and PHC (Nieto Group) of the petition for
certiorari on March 21, 2007 (C.A.-G.R. SP No. 98399) was inexcusably improper and ineffectual.
By virtue of its being an extraordinary remedy, certiorari could neither replace nor substitute an
adequate remedy in the ordinary course of law, like appeal in due course.149 Indeed, the appeal
under Rule 43 of the Rules of Court would have been adequate to review and correct even the grave
abuse of discretion imputed to the RTC.150

As a consequence of the impropriety and ineffectuality of the remedy chosen by POTC and PHC
(Nieto Group), the TRO and the WPI initially issued by the CA in C.A.-G.R. SP No. 98399 did not
prevent the immediately executory character of the decision in Civil Case No. 04-1049.

6.

Petition for contempt against Bildner had no basis

The filing by Bildner and her counsel Atty. Manzanal of the complaint for perjury against Locsin and
his counsel Atty. Labastilla in the Office of the City Prosecutor of Manila did not amount to unlawful
interference with the processes of the CA. There is no denying that Bildner was within her right as a
party in interest in the proceedings then pending in the CA to bring the perjury charge against Locsin
and his counsel for their failure to aver in the certification against forum shopping attached to the
petition for certiorari in C.A.-G.R. SP No. 98399 of the pendency of another petition in C.A.-G.R. SP
No. 98087 despite their knowledge thereof. Her complaint for perjury could really be dealt with by the
Office of the City Prosecutor of Manila independently from any action the CA would take on the issue
of forum shopping. As such, the filing of the complaint did not interfere with the CA’s authority over
the petition in C.A.-G.R. SP No. 98399.

In this regard, we deem to be appropriate to reiterate what the Court said on the nature of contempt
of court in Lorenzo Shipping Corporation v. Distribution Management Association of the
Philippines,151 viz:

Misbehavior means something more than adverse comment or disrespect. There is no question that
in contempt the intent goes to the gravamen of the offense. Thus, the good faith, or lack of it, of the
alleged contemnor should be considered. Where the act complained of is ambiguous or does not
clearly show on its face that it is contempt, and is one which, if the party is acting in good faith, is
within his rights, the presence or absence of a contumacious intent is, in some instances, held to be
determinative of its character. A person should not be condemned for contempt where he contends
for what he believes to be right and in good faith institutes proceedings for the purpose, however
erroneous may be his conclusion as to his rights. To constitute contempt, the act must be done
willfully and for an illegitimate or improper purpose.

Nonetheless, the Court states that the power to punish for contempt is inherent in all courts, and is
essential to the preservation of order in judicial proceedings and to the enforcement of judgments,
orders, and mandates of the court, and ultimately, to the due administration of justice. But such
power should be exercised on the preservative, not on the vindictive, principle. Only in cases of clear
and contumacious refusal to obey should the power be exercised. Such power, being drastic and
extraordinary in its nature, should not be resorted to unless necessary in the interest of justice.152

7.

Bildner Group entitled to injunctive relief

Concerning the propriety of the issuance of the WPI to enjoin BPI from letting the Locsin Group
withdraw funds or transact with BPI on PHC’s deposits, the Court finds that the Bildner Group as the
applicant had a right in esse to be protected by the injunctive relief. A right that is in esse is a clear
and unmistakable right to be protected, and is one founded on or granted by law or is enforceable as
a matter of law.153 The Bildner Group, because of the indubitability of its standing as a party in
interest, showed a clear and unmistakable right to be protected.

In granting the Bildner Group’s application for the WPI, the RTC (Branch 62) emphasized the
peculiarities of the case. Apparently, the Bildner Group relied on the fact that their election to the
PHC Board of Directors was implemented and executed even prior to the WPI issued by the CA to
stop the RTC (Branch 138) from implementing its decision in Civil Case No. 04-1049. The right that
the Bildner Group relied on in seeking the execution of the decision was enforceable as a matter of
law, for it emanated from the validly issued decision that was immediately executory under the
pertinent rule. On the other hand, the TRO and WPI the CA issued in C.A.-G. R. SP No. 98399 could
not and did not have any restraining effect on the immediately executory nature of the decision
rendered in Civil Case No. 04-1049, because the matter had been brought to the CA through the
wrong remedy.

Considering that the Bildner Group’s clear right to an injunctive relief was established, coupled with
the affirmance of the consolidated decision of the CA upholding the validity of the July 28, 2004
election of the Bildner Group as Directors and Officers of PHC, the decision promulgated in C.A.-
G.R. SP No. 102437 to the effect that Bildner’s standing as a party-ininterest was unclear, and that
she failed to show a clear and unmistakable right to be protected by the writ of injunction, lost its
ground.

Accordingly, the reversal of the decision promulgated in C.A.-G.R. SP No. 102437, and the
reinstatement of the WPI issued against BPI by the RTC (Branch 62) in Civil Case No. 07-840 are in
order.

8.

Supreme Court, not being a trier of facts,


will not reexamine the evidence

The insistence by POTC and PHC (Nieto Group) that the RTC’s decision in Civil Case No. 04-1049
was contrary to the facts and the evidence lacks merit.

The Court is not a trier of facts, and thus should not reexamine the evidence in order to determine
whether the facts were as POTC and PHC (Nieto Group) now insist they were. The Court must
respect the findings of the CA sustaining the factual findings of the RTC in Civil Case No. 04-1049.
As a rule, the findings of fact by the CA are not reviewed on appeal, but are binding and
conclusive.154 The reason for this has been well stated in J.R. Blanco v. Quasha:155

To begin with, this Court is not a trier of facts. It is not its function to examine and determine the
weight of the evidence supporting the assailed decision. In Philippine Airlines, Inc. vs. Court of
Appeals (275 SCRA 621 [1997]), the Court held that factual findings of the Court of Appeals which
are supported by substantial evidence are binding, final and conclusive upon the Supreme Court. So
also, well-established is the rule that "factual findings of the Court of Appeals are conclusive on the
parties and carry even more weight when the said court affirms the factual findings of the trial court."
Moreover, well entrenched is the prevailing jurisprudence that only errors of law and not of facts are
reviewable by this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of
Court, which applies with greater force to the Petition under consideration because the factual
findings by the Court of Appeals are in full agreement with what the trial court found. 1âwphi1

We affirm, therefore, the appealed consolidated decision promulgated in C.A.-G.R. SP No. 101225,
C.A.-G.R. SP No. 98097 and C.A.-G.R. SP No. 98399, and dismiss the petitions of the Locsin/Nieto-
PCGG Group filed in G.R. No. 184712-14 and G.R. No. 186066.

WHEREFORE, the Court DENIES the petitions for review on certiorari in G.R. No. 184622, G.R. No.
184712-14, and G.R. No. 186066; AFFIRMS the resolution promulgated on August 15, 2007 by the
Sandiganbayan in Civil Case No. 0198 and the consolidated decision promulgated on September
30, 2008 in C.A.-G.R. SP No. 101225, C.A.-G.R. SP No. 98097 and C.A.-G.R. SP No. 98399;
GRANTS the petition for review on certiorari in G.R. No. 186590, and, accordingly, ANNULS and
SETS ASIDE the decision promulgated on July 16, 2008 in C.A.-G.R. SP No. 102437; AFFIRMS the
order issued on December 13, 2007 by the Regional Trial Court, Branch 62, in Makati City; and
REINSTATES the writ of injunction issued on December 17, 2007 against Bank of Philippine Islands.

The Court DIRECTS the Locsin/Nieto-PCGG Group to render an accounting of all the funds and
other assets received from the PHILIPPINE OVERSEAS TELECOMMUNICATIONS
CORPORATION, PHILIPPINE HOLDINGS CORPORATION and PHILIPPINE COMMUNICATIONS
SATELLITE CORPORATION since September 1, 2004, and to return such funds to the respective
corporations within thirty days from the finality of this decision.

Costs of suit to be paid by the Group of Enrique L. Locsin and Manuel H. Nieto, Jr.
SO ORDERED.

9. EN BANC

[G.R. Nos. L-32322-23. January 27, 1982.]

THE PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. EDUARDO FERNANDEZ Y JOCSON @


"EDDIE FERNANDEZ", ANTONIO ANTIDO Y BALATUCAN @ "TONY BAGYO", ROBERTO LABRA Y
SANTOS @ "BERTING LABRA" and BENJAMIN BARCELONA Y JUNGCO, Defendants-Appellants.

The Solicitor General for Appellee.

Dakila T. Castro, Fernando V. Domingo and Pythagoras Oliver for appellant E. Fernandez.

Raymundo N. Beltran and Jose S. Rodriguez for appellant Labra.

Martin D. Pantaleon for appellant Barcelona.

Marcelino Bautista, Jr. for appellant Antido.

SYNOPSIS

Due to a telephone call, Renato Pangilinan and Hilarion Sigua were invited by the police to their precinct at
Mayon St. for verification of the licenses of the guns they were carrying while in the location shooting of the
motion picture "Ako ang Sasagupa" at Biak-na-Bato St., Quezon City. Pangilinan’s driver went along. To
straighten things out, Rosanna Ortiz, leading lady in said motion picture requested his co-star Eddie
Fernandez, Berting Labra, their director, to assist Pangilinan and Sigua. They rode in a jeep driven by
Antonio Antido. After a few minutes, the guns of Pangilinan and Sigua were verified and cleared. On the way
back to the location shooting, Rosanna Ortiz rode in the car of Pangilinan occupying the right back seat
beside Pangilinan on the left. Apolonio Lopez took the driver’s seat beside Sigua. Rosanna Ortiz was alarmed
when she overheard Fernandez ordered Antido to "Kunin mo ang mahaba." After cruising along Mayon St.
the car turned right on A. Bonifacio St. instead of proceeding towards Biak-na-Bato. Eddie Fernandez and his
companions followed suit. Around 7:00 o’clock in the evening, Pangilinan’s car came to a full stop due to a
heavy traffic jam near the Manila-Quezon City boundary within the vicinity of a gas station on A. Bonifacio
St. At this juncture, Fernandez and his companions with drawn guns, alighted from their vehicle and
surrounded the car. Fernandez with a pistolized carbine drew near from the right side; Labra and Antido
went to the left side while Barcelona positioned himself behind the back of the car. One and one-half meters
from the right side of the opened glass window of the car, Fernandez pointed his gun and warned the
occupants thereof "Walang kikilos, ang kikilos tatamaan." Despite the pleas of Rosanna Ortiz, and Sigua not
to harm them, the Fernandez group in their strategic positions opened fire simultaneously at the car
shattering the glass of the losed left window and broke the rear window. Hit on the left chest, Pangilinan
slumped on the lap of Rosanna Ortiz. Lopez absorbed a gunshot in the upper left chest also, while Sigua was
wounded on his right hand between the thumb and the forefinger. Lopez raced the car, upon order of
Rosanna to the Chinese General Hospital where Pangilinan was pronounced dead on arrival. Lopez survived
from his wounds while that of Sigua’s required a minimum medical attention. Fernandez was wounded on
the left chest and lower part of his body and was operated on that same evening at the Quezon City Medical
Center. Charged with murder in Crim. Case No. CCC-VII-363-Q.C. and Frustrated Murder in Crim. Case No.
CCC-VII-367-Q.C. accused after a joint trial, were found guilty thereof and each of them was sentenced to
suffer the penalty of death in the first case and an indeterminate penalty of from 8 yrs. and 1 day of prision
mayor as minimum, to 17 yrs. and 4 months of reclusion temporal as maximum, in the second. Hence, this
appeal.

The Supreme Court held by 6 votes Fernandez and Antido guilty of homicide and frustrated homicide by
reason of incomplete self-defense, while 6 other members of the Court voted for higher penalties; ruled if in
an appealed criminal case, the court is equally divided as to the guilt of the appellant or the necessary votes
for conviction (8) cannot be bad, the "judgment of conviction of the lower court should be reversed and the
defendant acquitted" pursuant to Section 3, Rule 125 of the Rules of Court and that by parity of reasoning,
the lower penalty should be imposed; acquitted Roberto Labra and Benjamin Barcelona in view of their
credible defense alibi; ordered the immediate release of Eduardo Fernandez and Antonio Antido by the
Director of Prisons should it appear that after crediting their period of preventive imprisonment, they have
already served the penalties imposed upon each of them for homicide and frustrated homicide, unless their
continued confinement is legally warranted for any other cause.

Judgment as modified, affirmed.

SYLLABUS

1. CRIMINAL LAW; AGGRAVATING CIRCUMSTANCES; TREACHERY AND SUPERIOR STRENGTH, ABSENCE


THEREOF. — Even a cursory perusal of the same version, however, readily reveals that the "evident
premeditation, treachery and taking advantage of superior strength" expressly alleged as qualifying
circumstances to raise the offenses charged against the accused to murder and frustrated murder were not
present in the shooting that resulted in the death of Pangilinan and the serious and very light injuries
suffered by Lopez and Sigua, respectively. As a matter of fact, the Solicitor General himself concedes in his
brief that "Whether or not treachery and superior strength may be considered as aggravating (sic)
circumstances in the above mentioned cases should be resolved in the negative.

2. ID.; QUALIFYING CIRCUMSTANCE; EVIDENT PREMEDITATION; TO BE APPRECIATED MUST BE PROVED


BEYOND REASONABLE DOUBT LIKE THE CRIME ITSELF. — Trite to say, in a prosecution for murder, the
qualifying circumstance must be proved beyond reasonable doubt, like the killing itself, and in the instant
cases, We find it difficult to conclude with moral certainty that the testimonies on record show evident
premeditation on the part of the accused, even if We looked exclusively at the evidence or the prosecution,
disregarding entirely that of the defense. In this connection, We have already said We cannot perceive in the
record any evidence that could have suddenly motivated Fernandez to incubate in his mind any idea of doing
away with Pangilinan. And what, to Our mind, negates completely the probability of such a dastardly intent
is that according to the prosecution’s own evidence, Fernandez did his bit in helping in the clearing of
Pangilinan and Sigua’s possession of their guns, even going to the extent of boasting about his connections
with the then Mayor of Quezon City, the late Hon. Norberto Amoranto, and of spending P1,001.00 just to
clear up matters with the policemen at the precinct. It is to Us beyond belief that a person harboring an
intent to kill would take the trouble of seeing to it that his intended victims were armed or rearmed,
Pangilinan with a powerful Browning 9 mm. auto pistol (p. 86, Record), and Signa, with a .32 caliber nickel
revolver.

3. REMEDIAL LAW; EVIDENCE; APPELLANTS GUILTY ONLY OF HOMICIDE AND FRUSTRATED HOMICIDE ON
THE BASIS OF PROOFS ADDUCED; CASE AT BAR. — We hold, therefore, that if the death of Pangilinan and
the wounding of Lopez and Sigua, may ultimately be attributed to appellants as unjustified and unprovoked.
The crucial question We shall deal with anon — the same was not the result of evident premeditation, much
less of treachery and use of superior strength as alleged in the information against herein accused. As a
matter of fact, in arriving at this conclusion, We do not even have to adopt any degree of liberal attitude,
dictated by the constitutional presumption of innocence, in favor of the appellants herein. We only have to
take a hard look at the evidence of the prosecution, as We are commanded by the law, and not depend on
any possible weakness in the evidence of the accused in the criminal cases. It is quite plain to Us that, at
the most, taking into account, particularly, the shortness of the time that intervened between the events
emphasized by the People on the one hand, and the actual shooting incident, on the other, which could not
have been more than half an hour, the probability that the four accused to have talked and deliberated on
killing anybody is most remote, what We can hold herein accused guilty of cannot be more than homicide
and frustrated homicide.

4. ID,; ID.; ALIBI; RENDERED CREDIBLE WHERE DEFINITE PRESENCE NOT ESTABLISHED BEYOND DOUBT.
— Alibi as a general rule is the weakest of defenses in a criminal case. But this is so only when the identity
and presence of the accused are definitely established by credible witnesses. In the cases of Labra and
Barcelona, We have taken pains to examine carefully not only their respective alibi — and found them
credible — but more, the purportedly inculpatory evidence against them by the prosecution. As far as
Barcelona is concerned, only Sigua and Lopez claimed they saw him, but as We have already discussed,
those witnesses can hardly be deemed as having given definite and clear evidence of the presence of
Barcelona at the scene of the offenses in question. It is not easy to believe that in the midst of the shooting,
they could have seen him, behind their car, dark as the night was, as it was already seven o’clock. Withal,
said witness could hardly be considered as unbiased Barcelona’s alibi is supported strongly by no less than
officers of the law themselves, not one, but four of them. And the same may be said of the attempts of
Sigua and Lopez to inculpate Labra. He fired no gun, according to the NBI chemistry report. Rosanna said he
left ahead of them from the police precinct and was not with Fernandez; she did not notice him at the gun-
shooting incident at A. Bonifacio. We are satisfied that his alibi supported by Director Molina and Chito Baron
outweigh the evidentiary value of Sigua’s and Lopez testimonies. There being no showing anywhere in the
record of any amorous relationship between Fernandes and Rosanna, and it being but natural that
Fernandez, who had already been made to wait for her for half a day to make their scene in the filming of
"Ako ang Sasagupa", should be very much concerned why Rosanna would take French leave, something that
to Our mind, could hardly induce any desire to take another man’s life. We are more inclined to believe that
it was Pangilinan who considered Fernandez a nuisance and in a moment of bravado, he did direct Sigua to
give Fernandez the works. This is not to say, We are not convinced that Fernandez and Antido were armed.
What We are more persuaded to believe, however, is that the one who started the gunshooting was Sigua.

5. CRIMINAL LAW; UNLAWFUL AGGRESSION; MEANS EMPLOYED TO REPEL IT REASONABLE. — With this
circumstance in mind added to Sigua’s admission that he always kept his gun ready by his side, it is but
rational to assume that he had warned his companions accordingly. So, when, as they must have
anticipated, Fernandez overtook them and approached their car, they were not unprepared. We are
convinced that Fernandez and Antido, both of them brandishing their respective firearms, approached
Pangilinan’s car, Fernandez at the right and Antido at the left thereof. We believe the prosecution’s evidence
that at that moment as he came near Rosanna’s side Fernandez did say, "Walang kikilos sa inyo, ang kikilos
tatamaan." We also believe, on the other hand, that aside from the foregoing warning, Fernandez also
berated Rosanna for taking French leave and not going back to their work. Thus, We conclude that such
aces of Fernandez and Antido constituted sufficient provocation for Pangilinan and his companions to react,
and, accordingly, We give credence to the testimony of Fernandez that Pangilinan did say, "Talagang asar
ang tarantadong ito. Sigue, Totoy, tirahin mo na." And ready as he was, Sigua fired at Fernandez from his
32 caliber gun. It is plain to Us that having acted, albeit instantaneously, to help his master Fernandez,
Antido is guilty of homicide and frustrated homicide. But We appreciate in his favor the mitigating
circumstance of having acted in incomplete defense of Fernandez He only reacted to the assault upon
Fernandez by Sigua, sensing evidently that Pangilinan and Lopez might join Sigua. Of course, as already
stated, there was sufficient provocation on the part of Fernandez and Antido. But there was unlawful
aggression on the part of Sigua. And by and large, taking all circumstances into account, We cannot hold
that the means used by Antido to repel the aggression were entirely unwarranted.

ABAD SANTOS, J., dissenting: chan rob1e s virtual 1aw l ibra ry

1. CRIMINAL LAW; MURDER AND FRUSTRATED MURDER; COMMISSION DULY PROVED BEYOND
REASONABLE DOUBT — The crimes committed were murder and frustrated murder qualified by evident
premeditation. Present the aggravating circumstance of band and the mitigating circumstance of voluntary
surrender the penalty for the first is reclusion perpetua and for the second an indeterminate sentence of 6
years and 1 day of prision mayor to 12 years and 1 day of reclusion temporal.

DECISION

BARREDO, J.:
Appeal taken by the accused — Eduardo Fernandez y Jocson alias "Eddie Fernandez", Antonio Antido y
Balatucan alias "Tony Bagyo", Roberto Labra y Santos alias "Berting Labra" and Benjamin Barcelona y
Jungco — from the judgment of conviction for murder and frustrated murder rendered against them by the
Circuit Criminal Court, Seventh Judicial District, Pasig, Metro Manila, in its Criminal Cases Nos. CCC-VII-363-
Q.C. and CCC-VII-367-Q.C.

In Criminal Case No. CCC-VII-363-Q.C., the above-named accused were charged with MURDER in an
information reading as follows: jgc:chan roble s.com.p h

"That on or about September 17, 1969 in Quezon City, Philippines, the above-named accused, conspiring
together, confederating with and mutually helping one another, with intent to kill and without any justifiable
motive, with evident premeditation and with treachery, and by taking advantage of their superior strength,
did, then and there, willfully, unlawfully, and feloniously attack, assault and employ personal violence upon
the person of one RENATO PANGILINAN y PANGILINAN, by then and there firing at and shooting said
RENATO PANGILINAN y PANGILINAN with different kinds of firearms which the accused had with them at the
time, hitting the said victim on the chest, inflicting upon him serious and mortal injury which was the direct
and immediate cause of his death, to the damage and prejudice of the heirs of the said RENATO
PANGILINAN y PANGILINAN in such amount as they may be entitled to under the provisions of our existing
laws.

"Contrary to law." cralaw virtua1aw l ibra ry

In Criminal Case No. CCC-VII-367-Q.C., the same accused were likewise indicted for FRUSTRATED MURDER
in a separate information with the following allegations: jgc: ch anroble s.com.p h

"That on or about September 17, 1969 in Quezon City, Philippines, the above-named accused, conspiring
together, confederating with and mutually helping one another, with intent to kill and without any justifiable
motive, with evident premeditation and with treachery, and by taking advantage of their superior strength,
did, then and there willfully, unlawfully and feloniously attack, assault and employ personal violence upon
one APOLINARIO LOPEZ y LACSAMANA, by then and there firing at and shooting the latter with different
kinds of firearms which the accused had with them at the time, hitting said APOLINARIO LOPEZ y
LACSAMANA on the chest, causing him to sustain serious and mortal injuries, the above-named accused
thereby performing all the acts of execution which would produce the crime of MURDER as a consequence,
but which nevertheless was not produced by reason of causes independent of their will, that is, the timely
intervention of medical science, to the damage and prejudice of the said APOLINARIO LOPEZ y LACSAMANA
in such amount as he may be entitled to under the provisions of our existing laws.

"Contrary to law." cralaw virtua1aw l ibra ry

Arraigned on said informations, all the accused entered separate pleas of "not guilty" to both charges. As
the two cases arose from a single occasion and under the same circumstances, a joint trial thereof was
conducted by the trial court, at the conclusion of which it rendered the above-mentioned judgments of
conviction with the following dispositive portion: jgc:c han robles. com.ph

"WHEREFORE, in Criminal Case No. CCC-VII-367-Q.C., the Court finds the accused, namely: Eduardo
Fernandez, Antonio Antido, Benjamin Barcelona and Roberto Labra, all GUILTY, beyond reasonable doubt of
the crime of Frustrated Murder, under Article 248 of the Revised Penal Code, in relation to Article 50 thereto,
as charged in the information, and hereby sentences each one of them to suffer an indeterminate penalty of,
from EIGHT (8) YEARS AND ONE (1) DAY, of prision mayor, as minimum, to SEVENTEEN (17) YEARS AND
FOUR (4) MONTHS, of reclusion temporal as maximum; to pay the victim Apolinario Lopez, the amount of
Ten Thousand Pesos (P10,000.00) as moral damages, and another Ten Thousand Pesos (P10,000.00) as
exemplary damages, and to pay their proportionate share of the costs.

"In Criminal Case NO. CCC-VII-363-Q.C., the Court finds the accused, namely: Eduardo Fernandez, Antonio
Antido, Benjamin Barcelona and Roberto Labra, all GUILTY, beyond reasonable doubt of the crime of Murder,
under Article 248 of the Revised Penal Code, as charged in the information, and hereby sentences each one
of them to suffer the penalty of DEATH; to indemnify the heirs of the deceased Renato Pangilinan, the
amount of Twelve Thousand Pesos (P12,000.00), to pay Twenty Thousand Pesos (P20,000.00) as moral
damages and another Twenty Thousand Pesos (P20,000.00) as exemplary damages; and to pay their
proportionate share of the costs.."

—I—

The prosecution’s theory of what allegedly happened in this case, as purportedly portrayed in the direct
testimonies of its main witnesses Rosanna Ortiz, Hilario Sigua, Fernando Despo and Apolinario Lopez, is
substantially thus:
chanrob1e s virtual 1aw l ibra ry

On September 17, 1969, there was a location shooting of the motion picture "Ako Ang Sasagupa" in the
house of one Mr. Nasal at Biak-na-bato Street, Quezon City. Among those cast in the said story were
accused Eduardo Fernandez who was playing the leading man’s role, Rosanna Ortiz (Violeta Orbeta in real
life) starring as the leading lady, and accused Roberto Labra who was cast in a secondary role.

Between 4:00 and 5:00 o’clock that afternoon, while the said location shooting was in progress, Renato
Pangilinan (the deceased) together with his driver Apolinario Lopez and another companion, Hilario Sigua,
arrived at the place purportedly to see Rosanna. Only Pangilinan and Sigua went inside the Nasal residence;
Lopez stayed behind near Pangilinan’s car. Upon being told of their arrival, Rosanna came out and
introduced them to Eduardo Fernandez and Roberto Labra, among others. After the introductions, Rosanna
resumed her shooting scenes inside the house, leaving Pangilinan and Sigua with Fernandez and Labra and
some other members of the filming crew who were doing their chores about the place. As Fernandez and
Labra were then drinking White Horse Whiskey they invited Pangilinan and Sigua to join them, which the
latter two did.

While they were thus drinking and conversing, Fernandez, who by then appeared to be feeling the effects of
the drinks, voiced his resentment about Rosanna’s having caused delay in their location shooting that day,
saying that she arrived only at about 2:00 o’clock despite she knew that the same was scheduled in the
morning. After such outburst, however, the conversation continued normally. Fernandez and Pangilinan even
talked about producing films together, as they continued drinking.

Meanwhile, a telephone call was received at Precinct 1 of the Quezon City Police Department at Mayon
Street relaying the information that a group of men carrying firearms was in the Nasal residence at Biak-na-
bato and, shortly thereafter, two policemen in plain clothes arrived thereat. They introduced themselves and
announced to those present in the house their purpose in coming, i.e., vis-a-vis the call they received at the
precinct, whereupon Eduardo Fernandez stood from his seat, raised his shirt saying: "Ako pare, walang dala,
sila meron", (I, friend, have nothing with me, they have) pointing at Pangilinan and Sigua. Pangilinan and
Sigua readily admitted to the peace officers that they indeed were carrying firearms, albeit they reasoned
out that the same were duly licensed. Just the same, the duo were invited by the policemen to go with them
to their precinct at Mayon Street for the verification of their licenses. And so, Pangilinan and Sigua, as well
as the former’s driver, Lopez, went along with the peace officers to the police precinct.

Thereat, while the desk officer was verifying the authenticity of the licenses of the guns presented by Sigua
and Pangilinan, the group of Fernandez, Labra, Rosanna, Sylvio Ramiro, their film director, and their
driver, Accused Antido, arrived in a jeep. Rosanna Ortiz had requested Fernandez and his companions to
accompany her to the police precinct in order to help Pangilinan and Sigua in clearing the problem of their
guns. And after a few minutes of conversation in the conference room of the precinct among Pangilinan,
Fernandez and the policemen, the questioned guns were duly verified and cleared. Pangilinan and Sigua
tarried a while inside the conference room of the precinct waiting for the final release of their guns, while
Fernandez and his group, including Rosanna Ortiz, boarded the same jeep they rode in going there,
evidently to go back to their location shooting.

At this juncture, Rosanna heard Fernandez ordering the jeep driver "Kunin mo ang mahaba" as he
(Fernandez) got off the jeep and walked back to the precinct. Rosanna followed Fernandez. However, when
Rosanna saw that Pangilinan and his group were already coming out of the precinct, she did not go back to
the jeep but instead went to ride in Pangilinan’s car, after the latter consented to take her back to the
location shooting. She occupied the back seat on the right side of the car. Pangilinan also occupied the back
seat on the left side, beside Rosanna. Lopez occupied the driver’s seat, while Sigua took the front seat on
the right side, beside the driver and in front of Rosanna.

From the police precinct at Mayon Street, the car left with Pangilinan, Rosanna, Sigua and Lopez on board,
followed by Eddie Fernandez and his companions riding in their jeep a while after. The car cruised along
Mayon Street, but instead of proceeding towards Biak-na-bato or the scene of the location shooting, the car
turned right on A. Bonifacio Street, apparently heading for Manila. Fernandez and his companions followed
suit. But the car came to a full stop when it reached the vicinity of a gas station on A. Bonifacio Street near
the Manila-Quezon City boundary because there was a heavy traffic jam, and at this juncture, Eddie
Fernandez and his group alighted from the jeep and surrounded the car of Pangilinan. Eddie Fernandez,
armed with a pistolized carbine, approached the car from the right side. Berting Labra and Antonio Antido,
also with drawn guns, went to the left side, while Benjamin Barcelona, who had been in the precinct during
the verification of the permits for the guns of Pangilinan and Sigua, also with a drawn firearm, positioned
himself behind the back of the car. From a distance of about one and a half (1-1/2) meters from the right
side of the car, Eddie Fernandez pointed his pistolized carbine at the occupants thereof and warned them:
"Walang kikilos sa inyo, ang kikilos tatamaan." As the glass of the window on the right side of the car was
then open, Rosanna saw and heard Fernandez, and she pleaded to him, "Eddie, huwag, Eddie" (Eddie, don’t,
Eddie). Likewise, Hilario Sigua quipped: "Huwag, pare, hindi kami lalaban" (Don’t, friend, we will not fight.)
In spite of such pleas from Rosanna and Sigua, however, Eddie Fernandez, Antonio Antido, Roberto Labra
and Benjamin Barcelona fired at the occupants of the car almost simultaneously from the right and left sides
of the car and from behind, where they had respectively positioned themselves. The glass of the left side
window of the car which was then closed was completely shattered, while the glass on the rear was also
broken. According to witness, PC Major Crispin Garcia, there was a bullet hole at the center of the rear or
back glass of the car. Renato Pangilinan was hit with a bullet in the left chest. Apolinario Lopez received a
gunshot wound in his upper left chest too, while Hilario Sigua was wounded on his right hand between the
thumb and the forefinger. As a result of the wound he received, Renato Pangilinan slumped on Rosanna’s
lap, and the latter, upon realizing that Pangilinan was hit and was bleeding, immediately ordered Lopez, the
driver of the car, to move the car out of the place and proceed to the Chinese General Hospital. Pangilinan’s
wound proved to be fatal; in fact, he was pronounced dead on arrival at the hospital. Lopez survived after
the gunshot wound in his chest was operated on, although he was confined therein for several days and had
to return thereto from time to time thereafter for further medical treatment. Sigua’s minor wound in his
right hand required but little medical attention.

Importantly, the prosecution’s own evidence (the testimonies of the police investigators) also proves that
immediately after the shooting just narrated, AccusedFernandez was brought to the National Orthopedic
Hospital, later transferred to the V. Luna General Hospital, where he was treated and operated on for two
gunshot wounds and still later moved to the Quezon Medical Center where he was operated on again and a
metallic substance admitted to be part of a bullet of a .32 caliber gun was found and extracted from his
body by no less than Captain (Dr.) Arnold Gruspe, who had previously treated and operated on him at V.
Luna General Hospital. Surprisingly, there is hardly any mention of this important evidence in the decision of
the trial court.

Now, before Us, the common gripe of herein accused in their separate briefs is that the trial court erred in
rejecting entirely the evidence in support of their individual defenses, and, instead convicted them of Murder
and Frustrated Murder by relying solely upon the testimonies of the eye-witnesses for the prosecution
despite, they claim, that the same whether taken separately or together, suffer from fatal defects. In effect
they all conclude that assessing all the evidence presented at the trial, wholly and impartially, their
supposed guilt had not been proven beyond reasonable doubt.

— II —

Indeed, it can be said that at first blush the above narration of the People’s version of what happened on the
occasion under inquiry would, in fairness to the efforts of the prosecutors, likely persuade one to accept the
theory alleged in the information aforequoted that all the accused did, in conspiracy with each other, fire
with their respectively held guns at the deceased Renato Pangilinan and his companions, Rosanna Ortiz
(Violeta Orbeta), Apolinario Lopez and Hilario Sigua, and also, that inasmuch as said accused, four in
number, were all armed on said occasion they may be deemed to have acted as a band.

On the other hand, even a cursory perusal of the same version, however, readily reveals that the "evident
premeditation, treachery and - taking advantage of superior strength" expressly alleged as qualifying
circumstances to raise the offenses charged against the accused to murder and frustrated murder were not
present in the shooting that resulted in the death of Pangilinan and the serious and very light injuries
suffered by Lopez and Sigua, respectively. As a matter of fact, the Solicitor General himself concedes in his
brief that "whether or not treachery and superior strength may be considered as aggravating (sic)
circumstances in the above-entitled cases should be resolved in the negative" (p. 48, Appellee’s Brief; Italics
supplied). Without in anyway agreeing fully with the inculpatory parts thereof pinning down herein accused,
but just to point out even at this outset, that to speak of murder and frustrated murder in these cases
should immediately be ruled to be juridically inaccurate, We quote from the People’s brief: jgc: chan roble s.com.p h

"The claim of appellants that treachery cannot be decided in the absence of means, methods and forms
which tend directly and specially to insure the execution of the offense seems tenable. While it is true that
the strategy of appellant Fernandez in reporting Pangilinan and his group to the Police was designed to
divest the victims of their possession of firearms in order to render them defenseless against the
contemplated attack, their purpose had not been realized as the victims were released by the police without
their arms confiscated. Therefore, the scheme preparatory to the execution of the intended killing to insure
appellants against risks apparently only exposed their intentions and warned the victims thereof.

"In fact, the disclosure of appellants’ criminal intent to the victims even became evident when Rosanna Ortiz
who rode with the deceased Pangilinan overheard appellant Fernandez ordering, "Kunin mo ang mahaba"
(t.s.n., p. 20, May 12, 1970, Orbeta) which was meant for a long firearm. More than this, Sigua, another
victim, naturally would have placed himself on guard for the worst when he noticed Fernandez tucking his
gun on his waist while the latter and three other companions were on board the jeep that followed
Pangilinan’s car (t.s.n., p. 19, May 12, 1970, Sigua). And yet, after appellants had surrounded their victims
inside the car, the element of surprise was certainly not taken advantage of, since Rosanna and Sigua still
had time to remonstrate with Fernandez (t.s.n., pp. 36-39, May 12, 1970, Orbeta).

"On the basis of the above-mentioned facts and contrary to the observations of the trial court, the execution
of the crimes was, therefore, carried out with risk from any possible defense which the Pangilinan group
might have offered. It is significant to note that in spite of the tactical advantage afforded to appellants in
cordoning their adversaries, these victims were not entirely helpless as they were indeed armed with two (2)
pistols and a revolver (t.s.n., pp. 108-110, April 24, 1970, Sunico; pp. 46-49, May 13, 1970, Viñas).

"There is no question that appellants deliberately endeavored to adopt means or forms in order to insure the
execution of the crimes without risk to themselves arising from the defense which the offended party might
make but obviously, the method resorted to did not provide appellants complete safety against any
defensive or retaliatory act from their victims, which means that no opportunity is given the latter to do so.
The requirements, therefore, of the existence of treachery as contemplated by Article 14, paragraph 16 of
the Revised Penal Code was not met in these cases.

"Thus, the attack may be sudden, but if there is no showing that the victims were not completely denied an
opportunity to prepare and repel or avoid that attack . . . (People v. Pengzon, 44 Phil. 224; People v.
Sagayno, L-15961-62, October 31, 1963; People v. Glore, 87 Phil. 739, Italics supplied) it would be
erroneous to make a finding that the offense was committed in a treacherous manner.

"With respect to the aggravating circumstance of abuse of superior strength, the fact that the victims were
also armed as borne by evidence to this effect is self-explanatory to negate the findings of the lower court
that this circumstance was present. In this regard, the contention of four (4) appellants that the facts were
insufficient to consider abuse of superior strength as an aggravating circumstance in the instant case, is,
perhaps well taken as the consideration of this circumstance must depend upon the relative strength of the
one attacking and the one attacked (People v. Bustos 51 Phil. 385)." (Italics underlined) (Pp. 45-48,
People’s Brief).

—A—
But the prosecution nevertheless insists that evident premeditation has been proven. It argues that: jgc:chanrob les.com. ph

"In the case of People v. Belen, L-13895, September 30, 1963, the Supreme Court held that the existence of
conspiracy presupposes evident premeditation and in the case of People v. Cadag, L-13830, May 31, 1961,
the same Court ruled that for conspiracy to exist, it does not require an agreement for an appreciable period
prior to the occurrence.

"The above-mentioned cases are relevant to overcome appellants’ view that where it appears that they had
only about half an hour for meditation and reflection, the same is insufficient in the juridical sense to
establish evident premeditation as contemplated by law. While it is conceded that the jurisprudence on
appellant’s claim conforms with the requirement that there must be a period sufficient to afford and allow
the conscience of the wrongdoers to overcome the resolutions of their will, this defense cannot apply in the
instant cases. As borne out by the evidence, the premeditation of appellants to carry out the desired
consequences of their collective acts appears to have begun from the time the deceased Renato Pangilinan
and his group arrived at 5:00 P.M. on September 17, 1969, at Biak-na-Bato where the location shooting of
the picture "Ako Ang Sasagupa" was being filmed (p. 5, Appellant Fernandez’s brief). The crimes in question
actually took place at 7 o’clock in the evening of the same date or two hours, thereafter (t.s.n., p. 40, May
13, 1970, Viñas).

"The claim of appellant Fernandez that `until the moment that Fernandez arrived at the Police Precinct, he
has no ill feeling as yet towards Pangilinan’ (p. 20, Appellant Fernandez’s brief) is inconsistent with the
records for his decision to get rid of Pangilinan apparently came about when the latter and his companions
arrived at 5:00 P.M. to visit Rosanna Ortiz. Such intention is evident from the fact that he was not only
angry with Rosanna at the moment but also had caused Pangilinan and his companions to be disarmed by
the police in order to insure the realization of the desired liquidation without the least resistance from the
victims. The argument of Fernandez that the trial court found him to have decided to eliminate his rival
came only when Rosanna rode with Pangilinan in his car is untenable. What the court simply meant here
was that because Rosanna Ortiz went with Pangilinan sitting herself at the back seat of the car beside
Pangilinan, the decision to liquidate victims even became firmer. Indeed, the situation of Fernandez’s being
left behind, aggravated his embarrassment. On the basis of the above circumstances, it is obvious that the
decision of Fernandez to eliminate his rival was actually effected at 5 o’clock that afternoon, when
Pangilinan’s group arrived.

"Thus, between the time the intended killing was hatched, and the time it was actually carried out at about
7:00 P.M. (t.s.n., p. 40, May 13, 1970, Viñas) is some two (2) hours in duration. All appellants, therefore,
had been afforded more time, sufficient enough to reflect on the evil character of their acts, before the same
were executed. The contention of the accused that there was an absence of evident premeditation, since
they had only about half an hour or less for meditation and reflection to overcome the resolution of their
wills is completely devoid of basis in fact.

"The decisions of this Court on this issue support the existence of evident premeditation. And so, it has been
held that premeditation is present where there was a lapse of two hours from the inception to execution
(People v. Hanasan, L-25989, September 30, 1969; People v. Pajenado, L-27680, February 29, 1970)." (Pp.
42-45, People’s Brief.).

We do not agree. Trite to say, in a prosecution for murder, the qualifying circumstance must be proved
beyond reasonable doubt, like the killing itself, and in the instant cases, We find it difficult to conclude with
moral certainty that the testimonies on record show evident premeditation on the part of the accused, even
if We looked exclusively at the evidence of the prosecution, disregarding entirely that of the defense.

Reading between the lines, the basic assumption of the People, albeit it has not spelled it out expressly in its
brief, is that some kind of intimate amorous relationship was already existing that fatal afternoon between
Rosanna and accused Fernandez, or, at least, that the said accused must have been nursing some deep
affection for her, so intense as to make him furiously jealous of anyone who would also fall for her, hence,
instantly, upon coming to know Pangilinan and sensing somehow that Rosanna seemed to show unusual
fondness not to say preference for the new arrival, then and there, there arose immediately within him a
determination to eliminate the latter by killing him that very day. It is to be emphasized, though, that all
these are just conjectures to give some flesh to the theory of evident premeditation of the prosecution.
What, on the other hand, to Us appears to be more proximate to the truth that stands out from the record is
that there is not a bit of evidence therein indicating anything of such feeling between Rosanna and
Fernandez. To be sure, what Fernandez was shown to have felt for Rosanna then was obvious anger, not
because of any reason having to do with love, but because she arrived almost half a day late for the
shooting schedule of the film they were co-starring with each other in. And he made no secret of the reason
for his anger in his talk with Pangilinan, even as he cooled down later and turned their conversation to the
filming business, to the extent of their talking about the possibility of co-producing a film together. These
facts are proven beyond doubt by the People’s own evidence.

—B—

It is also theorized by the prosecution that it was at the instance of Fernandez that, while he and Pangilinan
were talking and drinking together, two Quezon City policemen arrived at the Nasal residence with the
objectives, first, of checking on whether or not the "location shooting" had the corresponding permit, and
second, to follow up an alleged telephone report received at the Precinct No. 1 that there were persons in
that house with unlicensed or illegal firearms. And just because Fernandez, according to Sigua, had
instructed a certain Roger to call up Police Precinct No. 1, and upon arrival at the Nasal residence of two
Quezon City policemen, Fernandez promptly remarked that, "Ako, pare wala, sila (referring to Pangilinan
and Sigua) meron," it is claimed that Fernandez wanted Pangilinan and his companion, whom he saw had
guns, disarmed thereby facilitating his (Fernandez’) then instantaneously conceived plan to kill Pangilinan.

In this connection, We have already said We cannot perceive in the record any evidence that could have
suddenly motivated Fernandez to incubate in his mind any idea of doing away with Pangilinan. And what, to
Our mind, negates completely, the probability of such a dastardly intent is that according to the
prosecution’s own evidence, Fernandez did his bit, in helping in the clearing of Pangilinan and Sigua’s
possession of their guns, even going to the extent of boasting about his connections with the then Mayor of
Quezon City, the late Hon. Norberto Amoranto, and of spending P1,000.00 just to clear up matters with the
policemen at the precinct. It is to Us beyond belief that a person harboring an intent to kill would take the
trouble of seeing to it that his intended victims were armed or rearmed, Pangilinan with a powerful Browning
9 mm. auto pistol (p. 86, Record), and Sigua, with a .32 caliber nickel revolver.

Withal, it is also to be wondered that whereas, according to the trial court, Sigua claimed he heard
Fernandez "called and ordered one Roger to ‘Roger, tumawag ka sa Presinto Uno, sabihin mong may mga
dalang baril ang mga taong ito’," (p. 38-A, Decision, annexed to Brief for Fernandez) it does not appear that
Sigua did anything at all in the face of such obviously alarming directive of Fernandez. Normally, he should
have immediately told Pangilinan about it and they could have explained to Fernandez that they had the
appropriate licenses and permits therefor. Such omission, We are inclined to believe, makes the supposed
giving of any such order by Fernandez rather doubtful.

—C—

Otherwise stated, We entertain serious doubt that there is any fact duly demonstrated in the record
indicating why Fernandez could have entertained then any premeditated desire to kill Pangilinan. The
contention of the Solicitor General that the act of Rosanna, upon coming out from the precinct, of going
instead with Pangilinan in his car, after she was already in the jeep with Fernandez and their other
companions, must have so embarrassed Fernandez as to induce him to conspire then and there with his co-
appellants to liquidate Pangilinan and his companions, is to Us a rather strained theory, hardly probable in
the ordinary course of human experience. We cannot accept the same as proof beyond reasonable doubt of
something indicative of evident premeditation, considering the other details extant in the record. If at all,
what seems more reasonable to believe is that, under the circumstances, what must have seized Fernandez
was a suspicion, which turned out to be correct, that Rosanna would not go back to the location shooting,
causing him to be more angry at her for bungling and muddling their film work, thereby disrupting in
consequence his own schedule of other commitments. To Our minds, even his being that angry with
Rosanna could not have provoked him to kill anyone, much less Pangilinan.

—D—
We hold, therefore, that if the death of Pangilinan and the wounding of Lopez and Sigua, may ultimately be
attributed to appellants, as unjustified and unprovoked — the crucial question We shall deal with anon — the
same was not the result of evident premeditation, much less of treachery and use of superior strength as
alleged in the information against herein accused. As a matter of fact, in arriving at this conclusion, We do
not even have to adopt any degree of liberal attitude, dictated by the constitutional presumption of
innocence, in favor of the appellants herein. We only have to take a hard look at the evidence of the
prosecution, as We are commanded by the law, and not depend on any possible weakness in the evidence of
the accused in criminal cases. It is quite plain to Us that, at the most, taking into account, particularly, the
shortness of the time that intervened between the events emphasized by the People, on the one hand, and
the actual shooting incident, on the other, which could not have been more than half an hour, the probability
that the four accused to have talked and deliberated on killing anybody is most remote, what We can hold
herein accused guilty of cannot be more than homicide and frustrated homicide.

— III —

Corollarily, the decisive issue that comes up, at this juncture is whether or not, viewing the matter before Us
as a whole in the light of the evidence of both the prosecution and the defense, such homicide and
frustrated homicide have been proven beyond reasonable doubt to be unprovoked and unjustified. As
importantly, We have to determine whether all the four accused now before Us or only some of them should
be held responsible or liable in the premises.

—A—

To begin with, it may not be amiss to bring out, at this point, the fact that reading the trial court’s decision,
extending to 84 pages and rather detailed, the same appears to Us not to be entirely free from the possible
influence of some unfavorable impressions His Honor had been apparently entertaining inwardly even before
the trial began against actors and actresses in our movieland. Quite candidly, he could not hide such feeling
in his decision. Without any evidence at all presented to such effect, this is how he pictured them: jgc:chan roble s.com.p h

"It is a sad commentary but nonetheless a glaring truth that we have been witnesses to many incidents of
the past where movie folks are in constant banner headline for their mischiefs in public, as well as private
life. They seem to have that unsatiable quest of getting entangled in deadly brawls, acting as though they
are those notorious bandits or rapacious pillagers ordinarily depicted on the screen. They lived as captives of
their misguided illusions, exhibiting the stance of being the untouchables, unconquerables, equal to none
and unafraid to no one.

"With respect to women actresses and starlets by their loose morals, conduct and behavior, they have
gained that common reputation as ruthless wreckers of decent homes and families, contributing to the
already troubled society, in destroying the basic foundation of our democratic institution, the home. They
defy even the basic element of decency inherent to Filipino womanhood, by parading themselves openly in
public with nose high up and disgustedly with false pride for the whole world to know, in the company of
men with burden of responsibilities" (Pp. 113-114, Vol. 1, Record).

We are not saying that His Honor actually prejudged the case against accused movie actors Fernandez and
Labra, only because they are movie stars, but, certainly, it is difficult to assess how much actually was the
degree of undue influence the bad image he had spontaneously portrayed of movie actors and actresses
might have swayed him to unwittingly yield to an irresistible impulse to make movie figures learn a lesson or
two from him in these cases. We are apprehensive that to some extent his judicial eyes might have
somehow been blurred by such prejudice, hence his manifest deviation from the straight norm of judicious
decision-making.

—B—

Furthermore, We note too that knowing, as he ought to have known, that technically, certain facts quite
unsavory about the appellants, are in law immaterial and could not affect the decision, still His Honor made
it of record that:
jgc:chan roble s.com.p h

"In a report submitted by the Manila Police Department which is already a part of the records of this case,
Fernandez has been previously indicted of the following criminal offenses: Murder, in Criminal Case No.
4972 before the Pasay City Court of First Instance; Slight Physical Injuries, in Criminal Cases Nos. 12094 &
12095 of the Municipal Court of Parañaque, Rizal; and Grave Threats, in Criminal Case No. 12093 before the
Municipal Court of Parañaque, Rizal. Accused Antonio Antido in the same report, was previously convicted
for Concealment of Deadly Weapon and indicted for Attempted Murder, Grave Threats and Illegal Possession
of Firearm and Ammunitions, on complaint of one Nilo Calpe of the Tamaraw Studio, Inc" (Page 115, Vol. 1,
Record.).

The Solicitor General himself points out that such considerations ought to have been disregarded: jg c:chan rob les.com. ph

"In the case of appellant Fernandez, the report submitted by the Manila Police Department that he has the
following criminal records:chan rob1e s virtual 1aw libra ry

‘a) Murder, in Criminal Case No. 4972 before the Pasay City Court of First Instance; b) Slight Physical
Injuries, in Criminal Case Nos. 12094 & 12095 of the Municipal Court of Parañaque, Rizal; and c) Grave
Threats, in Criminal Case No. 12093 before the Municipal Court of Parañaque, Rizal.’

cannot be considered for the purpose of aggravating his criminal liability as a recidivist. The certificate of the
Chief of Police of the City of Manila showing that appellant Fernandez has been indicted of an offense is not
the best proof (People v. Ong Chiu, 28 Phil. 242) and it cannot be assumed that such indictment ripened to
final conviction, more so, when appellant as in this case objected for the consideration of the same (Third
assignment of error, Fernandez).

"It likewise appears in said report submitted by the Manila Police Department to the trial court and which
now forms part of the records of the case that appellant Antido was previously convicted for concealment of
Deadly Weapon and indicted for Attempted Murder, Grave Threats and Illegal Possession of Firearms and
Ammunitions. While the conviction of herein appellant for concealment of Deadly Weapon was already final
during the trial of the above-entitled cases, yet recidivism as an aggravating circumstance cannot be
considered against this appellant, since the former conviction is not embraced in the same tide of the Penal
Code as the offense he has been prosecuted herein. This being the case, the report bearing on the criminal
records of appellant Antido did not, therefore, aggravate his criminal liability in the cases at bar" (Pp. 53-54,
People’s Brief.).

—C—

Bearing in mind such out-of-place expressed perspectives of the trial judge, We do not wonder why there is
a notable dearth of appropriate attention given in the decision under review to the very important and vital
unrebutted evidence that aside from Pangilinan, Lopez and Sigua, Accused Fernandez himself suffered
gunshot wounds on the occasion in question. Fernandez testified that as he approached the car of Pangilinan
unarmed and was merely asking Rosanna why they were going towards the direction opposite the site of the
"location shooting" they had not yet finished — a most normal thing for anyone in his place would have done
as co-star in the picture then being prepared by both of them — Pangilinan got angry and told Sigua:
"Talagang asar ang taong ito, tirahan mo na Totoy (Sigua)", whereupon Sigua took his nickel plated .32
caliber revolver from his side and fired at Fernandez about four times; that Fernandez was actually hit and
fell in a canal where he lost consciousness which he regained only at the National Orthopedic Hospital from
where he was transferred later to the V. Luna General Hospital where he was treated for his two (2) gunshot
wounds, one of them through and through at the left chest and the other in the abdomen wherein part of a
bullet was observed to be lodged, until it was removed at the Quezon City Medical Center thru an operation
undertaken by no less than Captain Arnold Gruspe, the very surgeon of the V. Luna General Hospital who
had earlier attended to him thereat on the same night of September 17, 1969 (Exhibit 6, Fernandez; t.s.n.,
pp. 18-24, May 28, 1970.).

Most importantly, it is beyond Our comprehension why the trial judge paid no heed at all to the testimonies
of Major Constantino Leyva of the Philippine Constabulary and Domingo G. del Rosario, Assistant Chief of
the Ballistic Division of the NBI leading almost to a point of certainty that the deformed slug extracted from
the body of accused Fernandez by Capt. Gruspe, surgeon of V. Luna Hospital was fired from the .32 Caliber
gun of prosecution witness Sigua.
Strangely, all that the trial judge remarked about those wounds of Fernandez was: jgc:chanrobles. c om.ph

"The defense has attached much significance to the findings of the National Bureau of Investigation that the
lead bullet taken from the body of Eddie Fernandez has markings indicating that it came from Exhibit M-3,
the firearm issued in the name of Hilario Sigua in order to bolster the claim that Eddie Fernandez did not fire
a gun and that it was the group of Pangilinan who were the aggressors. It will be noted however, that this is
contrary to the findings of the ballistician of the Philippine Constabulary to the effect that no definite
conclusion can be made as to whether or not the specimen, a .32 caliber deformed lead was fired from the
exhibit firearm due to insufficient individual characteristics. Of significant value and very relevant to the
point at issue is the admission of defense witness, Dr. Arnold Gruspe, the principal attending physician of
Eduardo Fernandez, that the lead bullet taken from the body of Eddie Fernandez was examined by members
of the family of Fernandez, and that he entrusted the same to Jose Samson, the owner-administrator of the
Quezon City Medical Center, and that the latter was the one who submitted the lead bullet to the authorities
for examination. From this circumstance, the danger and possibility of it being substituted or tampered with
is not at all remote or improbable, but on the contrary, it is very probable. Corollary to this is the finding
that Lopez, Sigua and Pangilinan were all found to be negative of powder burns, whereas, Fernandez, Antido
and Barcelona were found positive for powder burns, corroborating prosecution’s theory that they fired their
guns against Pangilinan’s group. Though Labra was found negative of powder burns, it does not necessarily
follow that he did not fire a gun for considering the make of gunpowders nowadays, powder nitrates could
be easily removed through the use of chemicals" (Pp. 108-109, Vol. I, Record.).

This, when even the witness who deserved an encomium from the judge, albeit he did not see the actual
shooting incident but allegedly only the incidents thereafter, the thirteen year-old Fernando Despo, testified
that he saw Fernandez was being helped or aided by allegedly, his co-accused Labra, to a jeep behind
another car that was following Pangilinan’s Mercury Cougar and that Fernandez "fell at the back of the jeep"
(pp. 129-130, t.s.n., May 12, 1970.).

It is quite lamentable from the juridical point of view that, under the circumstances just discussed, the trial
court gave very little thought to the testimony of Fernandez in his defense. To be sure, Fernandez did not
exactly try to prove self-defense, because he denied being armed, thus claiming to be the victim of an
offense rather than the aggressor. But even if he were armed and had in fact fired a gun, what is undeniable
is that he was himself injured. Such a vital circumstance should have deserved due attention from His Honor
as a vital factor in assessing his guilt or innocence. In a shooting incident where both opposing parties are
injured, it is incumbent upon the trial judge to weigh the conflicting versions of the protagonists in order to
pinpoint as far as it is humanly ascertainable who in fact started the shooting, what provoked the same and
why, and whether or not the means employed in repelling the aggression by either of them was justified.
This is specially true in the instant cases where His Honor saw fit to impose upon the accused Fernandez and
Labra, against whom he visibly had bad impressions as movie stars, the extreme penalty of capital
punishment.

To reiterate, in the final analysis, the ultimate and pivotal issues We have to resolve here and should have
been thoroughly assayed by the trial court are: (1) whether or not the accused Fernandez and Antido, who
admitted presence at the scene of the offense charged acted in self-defense, and, (2) as to those who
denied their presence thereat, namely, Labra and Barcelona, whether or not their pretended alibi could be
given sufficient credit to entitle them to acquittal.

— IV —

Conceded as it must be, the evidence thereof being unassailable, that in the evening in question, Renato
Pangilinan died in his car, of gunshot wounds without his being able to use the powerful Browning 9 mm.
auto-pistol he had with him then, the central point to determine is who shot him and how. In this respect,
and at the risk of repeating an earlier reference to them, four witnesses testified for the prosecution,
namely, (1) Rosanna Ortiz (Violeta Orbeta — referred to herein only as Rosanna), (2) a 13-year old boy
named Fernando Despo, (3) Hilario Sigua, the companion of Pangilinan and (4) Apolinario Lopez, the driver
of Pangilinan who at the time of the incident was the one actually driving the fatal car.

Rosanna, Sigua and Lopez declared uniformly that as Pangilinan’s car was stopped by a traffic jam near the
corner of A. Bonifacio and Blumentritt Streets, almost at the boundary line of Manila and Quezon City but
still within the territorial jurisdiction of the latter, they were surrounded by armed men, one of them
definitely the accused Fernandez, and that after a brief warning from said accused, who allegedly was
aiming a pistolized carbine at all four of them who were in the car, "Walang kikilos sa inyo, ang kikilos
tatamaan," and Rosanna and Sigua had pleaded to him not to harm them, hell broke loose, there was a
flurry of gunshots, at the wake of which Pangilinan slumped wounded on the lap of Rosanna, Lopez was also
hit in his upper left chest while Sigua was slightly wounded between the thumb and forefinger of his right
hand. Rosanna was unhurt.

Despo did not see the actual shooting. He heard gunshots while he was at the Shell gas station on the
opposite side of A. Bonifacio street. To quote from the pertinent portions of his testimony:
jgc:chanrobles. com.ph

"Q While you were there at that particular hour (that) date (at seven o’clock in the evening), can you tell the
Court if there was anything unusual that happened?

"A There were gunshots.

"Q Where?

"A At the other side of the road at A. Bonifacio Street.

"Q And what did you do after you heard those gunshots?

"A I climbed the top of a truck." (Pp. 122-123, t.s.n., May 12, 1970.).

x x x

"Q You climbed on the truck, because you were afraid?

"A Yes, sir.

"Q And what did you do?

"A On top of that truck I looked around because I thought there was a shooting.

"Q Shooting film?

"A Yes, sir." (P. 145, Id.).

x x x

"Q What did you see?

"A I saw Eddie Fernandez and Berting Labra.

"Q Where did you see Eddie Fernandez and Berting Labra?

"A I saw them in a black car.

"Q Inside or outside the car.

"A Outside the black car.

"Q And this car was running or in a stop position?

"A It was in a stop position.


"Q Do you know why the car was in a stop position?

"A Because there was a traffic jam.

"Q Where, in what portion of the car did you see Eddie Fernandez?

"A I saw him at the right side of the car.

"Q This Eddie Fernandez, can you point to him now?

"A Yes, sir. (witness pointing to the man with green shirt who upon being asked, answered by the name of
Eddie Fernandez, the accused).

"Q How about Berting Labra you mentioned, where was he?

"A He was at the left side of the car.

"Q What were they doing when you saw them?

"A I saw them at the left and right side of the car hiding thru a passenger’s jeep and then they went away.

"Q That was immediately after you heard the gunshots?

"A Yes, sir.

"Q Do you know if any of them was holding anything?

"A I saw Eddie Fernandez only holding something this length of one foot.

"Q What was Eddie Fernandez?

"A It was a gun, a long gun. (witness demonstrating a length of about one foot).

"Q How about Berting Labra, was he holding something when you saw him?

"A I did not notice.

"Q Were there any person aside from Eddie Fernandez and Berting Labra that you saw around that black
car?

"A They were the only ones I noticed.

"Q Why do you know this Eddie Fernandez and Berting Labra?

"A Once in a while they lodged in the cockpit at La Loma.

"Q The two of them?

"A Yes, sir.

"Q How about in the movies, have you seen the two in the movies?

"A Yes, sir.

"Q That place where you saw these two around that black car, was it lighted or dark?

"A It was lighted.


"Q Why was it lighted?

"A Because it was earlier.

"Q Was there a light on the electric post around?

"A Yes, sir.

"Q This jeep that you saw where Eddie Fernandez and Berting Labra rode did you see the driver?

"A Yes, sir.

"Q Would you look around and see if he is in Court?

"A He is here.

"Q Will you point to him?

"A He is there. (witness pointing to a person who upon being asked, answered by the name of Antonio
Antido).

"Q Aside from this driver Antido, was there any other person inside the jeep where Berting Labra and Eddie
Fernandez rode?

"A I only saw those three, Eddie Fernandez, Berting Labra and that one with curly hair.

"Q After the incident were you able to see this person you pointed again?

"A I saw him when Eddie Fernandez rode on a jeep which backed up and then fired another shot and then
they made short cut in Calavite Street. I recognized the driver, the one with a curly hair and black.

"Q You said he fired another shot, who was that person who fired another shot?

"A Eddie Fernandez.

"Q Towards what direction did you see Eddie Fernandez fired the shot?

"A He was firing it towards the black car.

"Q After that what else did you see?

"A The black car proceeded towards the Chinese.

"Q How do you know that?

"A Yes sir, they proceeded towards the Chinese.

"Q After the incident were you investigated by any of the police agencies?

"A After that the following day, two policemen arrived and it so happened that I have a police friend to
whom I narrated the incident and the policeman by the name of Cruz. My friend policeman narrated it to
Dalanon.

"Q And you were taken by Detective Dalanon to the police headquarter?

"A Yes, sir.

"Q You gave your statement there?


"A Yes, sir." (P. 123-128, Id.).

x x x

"Q When you saw Eddie Fernandez for the first time he was being aided by somebody, is it not?

"A I saw them boarded the jeep together and Berting Labra supported Eddie Fernandez, and Eddie fell at the
back of the jeep.

"Q Inside or outside the jeep?

"A Outside the jeep.

"Q So Eddie Fernandez, in spite of his being supported by his companion then fell on the ground outside the
jeep?

"A It was on the jeep when he fell.

"Q And because Eddie Fernandez was very weak then that is why he was being supported by his companion,
that is correct, is it not?

"A Yes, sir.

"Q How far were you from Eddie Fernandez at the first time you saw him?

"A I was very near, at a distance from this place up to that wood. (witness estimating about 9 meters).

"Q About what time was that in the evening?

"A It was quite early seven o’clock.

"Q According to you, you saw him holding something?

"A Yes, sir.

"Q And at that distance you thought it was a gun, is it not?

"A I saw him holding something like this long. (witness demonstrating about 1 1/2 feet long).

"Q That is all you can say — that he was holding something that is long, is it not?

"A Yes, sir.

"Q That was after the shooting that you heard?

"A I heard it only.

"Q This place where you saw Eddie Fernandez was on the street - side of the street from the gasoline station
where you were, is it not?

"A Yes, sir.

"Q That must have been more than nine meters because the street there definitely is more than nine
meters, is it not?

"A No sir, it is very near to me.


"Q After you heard the shots you must have sought cover, is it not?

"A No, I climbed up the truck.

"ATTY. CASTRO

We have no more questions, your Honor.

ATTY. BAUTISTA

Cross for Antido. With the permission of the Honorable Court.

"COURT

Proceed.

"CROSS EXAMINATION BY ATTY. BAUTISTA

"Q How long after the shooting after you saw the incident that you said you talked to the policeman whom
you said your friend?

"A It was a long time.

"Q Could it be two days after the incident?

"A Yes, sir.

"Q Who is this policeman, what is his name?

"A He has a car inside the cockpit.

"Q Aside from this policeman was there any person to whom you narrated this incident?

"A None, sir.

"Q Did you not tell this incident to your parents?

"A I told it to the brother of my father.

"Q How long after did you tell this incident to the brother of your father?

"A After two days.

"Q Who was the first one to whom you narrated this incident to the brother of your father or the policeman?

"A At first to the policeman and second to the brother of my father.

"Q Do you remember having been investigated in connection with the incident that you saw?

"A Yes, sir.

"Q When was that?

"A That was Wednesday, September 17.

"Q And was this investigation in writing?


"A It was typewritten by Dalanon.

"Q If shown to you this investigation in writing will you be able to recognize the same?

"A Yes. sir.

"ATTY. BAUTISTA

May we request the Fiscal to produce the statement given by this witness.

"COURT

Granted.

"FISCAL MELENDRES

I am handing to counsel Atty. Bautista statement of the witness Fernando Despo.

"ATTY. BAUTISTA

"Q I am showing to you this statement and for purposes of identification I would like to request that the
same be marked as Exhibit 1 for Antido. Please tell us if this is the same Exhibit 1 the statement that you
gave on September 20?

"A Yes, sir.

"Q All the questions appearing here were asked of you, is it not?

"A Yes, sir.

"Q And that all the answers here were given by you, is that correct?

"A Yes, sir.

"Q You stated in your direct examination that you were able to know the driver of the red jeep and you
pointed to the person of Antonio Antido, is that correct?

"A He is Antonio Antido, the one with a curly hair. (witness pointing to the accused Antonio Antido).

"Q I am referring you now to question No. 10, of this particular statement marked Exhibit 1. The question
here and I quote: "Kung makikita mo uli iyong nagmamaneho ng pulang jeep na sinakyan ni Eddie
Fernandez pagkatapos ng barilan makikilala mo pa ba siya?" That is the question and the answer is: "Hindi
ko na po makikilala." Did you give this answer to that question?

"A During the trial when we used to go in and out I was able to recognize him and pointed to Detective
Dalanon.

"Q Why is it that you said you will not be able to recognize him anymore?

"A After that when I entered the door I immediately recognized him. I was able to recall him, sir.

"Q Is it not a fact that somebody told you that he was the driver of the jeep?

"A No sir, I was the only one who pointed to him." (Page 130-137, Id.).

x x x
"Q What was the attire of Berting Labra?

"A I did not notice, I only noticed his face.

"Q Do you know whether he was wearing a hat or not?

"A I saw his face only.

"Q Did you notice if he was wearing a Barong Tagalog or a polo shirt?

"FISCAL MELENDRES

Already answered.

"COURT

Sustained.

"ATTY. DIMAANO

I am testing the credibility of the witness.

"COURT

Witness may answer.

"WITNESS

"A I was just looking at his face.

"Q What about Eddie Fernandez, what was he wearing?

"A I was looking at his face only.

"Q You did not notice whether Eddie Fernandez was wearing a polo shirt or a Barong Tagalog?

"A Only faces." (Pp. 145-147, Id.).

As can be readily observed, the foregoing testimony bears features that are rather unusual and
unbelievable, such as (1) his being afraid, (it was only after the fiscal that he talked of movie shooting) still,
he climbed at the top of a truck to see what was going on, a mere 13-year old boy, as he was; (2) his vague
description of where Fernandez and Labra were when he first saw them and what they were respectively
doing then; (3) his correction of his earlier written statement given to the police about the identification of
accused Antido; (4) his belated (at first he said the next day, only to admit later it was after two days)
relating of what he saw to his policeman friend and the brother of his father (They were the first to whom he
revealed the incident; not to his playmates and other persons in the cockpit, much less to the other
members of his family); (5) his inability to remember how Fernandez and Labra were attired; etc.

But let Us leave such weaknesses of evidentiary value of his testimony for a while. At this juncture, the
important points to bear in mind are (1) that he did not see Fernandez firing the "long gun" the witness said
Fernandez held, except when he (Fernandez) and his companions were moving away from the scene; (2) he
did not notice that Labra was holding any weapon or gun; (3) that he did not notice any other person with
Fernandez, Labra and Antido, thus omitting Barcelona; and very relevantly (4) that he saw Fernandez being
aided by somebody to his jeep. To quote him again: jgc:chanroble s.com. ph

"Q When you saw Eddie Fernandez for the first time he was being aided by somebody, is it not?

"A I saw them boarded the jeep together and Berting Labra supported Eddie Fernandez, and Eddie fell at the
back of the jeep.

"Q Inside or outside the jeep?

"A Outside the jeep.

"Q So Eddie Fernandez, in spite of his being supported by his companion then fell on the ground outside the
jeep?

"A It was on the jeep when he fell.

"Q And because Eddie Fernandez was very weak then that is why he was being supported by his companion,
that is correct, is it not?

"A Yes, sir." (p. 130, t.s.n., May 12, 1970.).

thereby introducing the first indication of the important element, We shall discuss later, that Fernandez
came out of the incident also wounded.

Rosanna’s evidence corroborated Despo’s in the sense that Barcelona was not noticed around the place of
the incident. And she added a pivotal point insofar as Labra is concerned. She did not notice him there, even
as she claimed she saw Antido, less known to her, who according to Sigua and Lopez was allegedly beside
Antido; she declared that Labra left the police precinct at Mayon ahead of them together with Director
Molina and Antido, thereby supporting the contention of the defense that Labra could not have been with
Fernandez 1 at that fatal shooting incident.

Thus, only the testimonies of two witnesses, Sigua and Lopez, are left to serve as possible basis for the
conviction of Labra and Barcelona. Let it be recalled that although Lopez claimed he had no gun of his own,
the evidence shows that in the glove compartment within his reach was no less than a .45 caliber pistol,
allegedly belonging also to Pangilinan (This gun was never produced in evidence; it was never shown to the
police for examination). Sigua, on the other hand, who claimed to be a mere friend companion of Pangilinan
admitted that whenever they rode in the car, he always had his .32 mm. gun by his side, not in holster, not
in his pocket but evidently ready for use. Thus, it might be said, he was a sort of bodyguard of Pangilinan.
Indubitably, therefore, We cannot but take their declarations with grains of salt. They had to have somebody
answer for the death of their "master", and, of course, under the circumstances, who could come in handy
but Fernandez and Labra, Antido and Barcelona whom they had met earlier in the house of Nasal and were
with them at the police precinct when their guns were being verified. In other words, it was easy for them to
surmise that those three were with Fernandez in whatever he did. More, they must have thought somehow,
that because precisely Labra was one of the co-actors of Fernandez in the film then being done and Antido
was his driver to connect them with the doings or misdoings of Fernandez would easily be swallowed by the
undiscerning.

In these premises, We find no difficulty in holding that Labra and Barcelona cannot be held responsible for
the crimes charged herein. The least that can be said regarding the evidence against them is that the same
does not prove their guilt beyond reasonable doubt as required by the rules, the Constitution and the
jurisprudence interpretative thereof. After examining the eyewitness’ declarations against said two accused,
We cannot say with moral certainty that they were even at the scene of the crimes charged.

—A—

Let Us take the case of Barcelona. As already stated, Despo did not notice his presence. Neither did
Rosanna. Only Sigua and Lopez who must have been impatiently concerned with the traffic jam that caused
their car to stop and, therefore, must have had their sight towards the front, declared they saw him firing
his gun from, of all places, behind the car. How they could have turned around while the shooting was going
on to see Barcelona in the seven o’clock darkness of the evening taxes Our credulity to its breaking point.
Sigua, particularly, told the court that as soon as the shooting started, he just slid down in his seat to avoid
being hit. How could he have seen anyone behind the car?
It is of signal relevance to note that Sigua gave two written statements relative to the incident under
inquiry, the first on the night of September 17, 1969 and the second on November 21, 1979, with the
peculiarity that the latter was prepared in the presence, if not with the assistance, of Atty. Norberto
Quisumbing, the first private prosecutor in these cases. In none of said statements, did Sigua even mention
Barcelona or any fourth person with Fernandez (Exhibits 6 and 4-7, Barcelona). Neither was there any
mention of any such fourth person, much less Barcelona, in the written statement of Lopez given that
evening of September 17, 1969.

Withal, Barcelona’s alibi cannot be stronger. That he was at the Mayon police precinct at the time the
shooting incident in question took place was assured to the court by four members of the police department
who were then there. Sgt. Gonzalo Mariano testified that Patrolman Angel Domingo called him by phone to
inform him there was a shooting incident at A. Bonifacio and, therefore, he had to send more men thereto.
He saw that Barcelona was then at the precinct. He also testified that he dispatched Patrolman Magtanggol
Pascual, Edilberto Jimenez and Romeo Alonte to the place indicated by Pat. Domingo. Barcelona was left in
the precinct. Patrolman Pascual and Patrolman Jimenez corroborated Sgt. Mariano’s testimony in open court
which included the information that Barcelona helped in handling of the gun to one of them. They even
signed a joint affidavit with Alonte, to the same effect (See Exhibit 8). All these policemen told the trial court
that Barcelona was in the precinct long before the shooting incident and was still there when they returned
thereto. To disregard such evidence as against the shaky testimonies of Sigua and Lopez would be irrational
and contrary to common sense.

Of course, there is in the record the chemistry report that a single speck of nitrate was found at the region
of the distal phalange, index finger of Barcelona’s right hand and it appears that the shattered part of the
back glass of Pangilinan’s car had a hole having the appearance of a bullet hole, which facts could in a way
support the People’s pose that Barcelona did fire his gun from behind Pangilinan’s car. But the single speck
of nitrate referred to is to Us inconclusive as, in fact, no attempt was made to make the expert, Mercedes
Bautista of the NBI, give her opinion that such was evidence that the subject had fired a gun. Besides, that
apparent bullet hole may be explained by Despo’s declaration that Fernandez fired a parting shot at the back
of the car.

—B—

Turning now to Labra, the first and most important point in his favor is that his hands were found negative
of any traces that he had fired any gun (Exhibit D, Exhibit 3, Labra). He denied being with Fernandez at the
shooting incident. Rosanna practically exculpated him not only by saying that she did not notice him at the
gun shooting place but by affirming further that he left the precinct ahead of everyone together with
Director Molina (pp. 94-95, t.s.n., May 12, 1970). His alibi that he returned to the Nasal house and later to
the house of Major Alvarez and was there in very drunken condition was corroborated by Director Molina and
another person, Chito Baron. Despo’s identification of Labra appears to Us very doubtful, as he was unable
to say what he was wearing at the time, whether polo shirt, a barong or what. Moreover, as We shall discuss
again later, it would be dangerous to convict anyone, with Despo’s evidence, cluttered as it was with
peculiarities that engender disbelief.

—C—

Alibi as a general rule is the weakest of defenses in a criminal case. But this is so only when the identity and
presence of the accused are definitely established by credible witnesses. In the cases of Labra and
Barcelona, We have taken pains to examine carefully not only their respective alibi — and found them
credible — but more, the purportedly inculpatory evidence against them by the prosecution. As far as
Barcelona is concerned, only Sigua and Lopez claimed they saw him, but as We have already discussed,
those witnesses can hardly be deemed as having given definite and clear evidence of the presence of
Barcelona at the scene of the offenses in question. It is not easy to believe that in the midst of the shooting,
they could have seen him, behind their car, dark as the night was, as it was already seven o’clock. Withal,
said witness could hardly be considered as unbiased. Barcelona’s alibi is supported strongly by no less than
officers of the law themselves, not one, but four of them. And the same may be said of the attempts of
Sigua and Lopez to inculpate Labra. He fired no gun, according to the NBI chemistry report. Rosanna said he
left ahead of them from the police precinct and was not with Fernandez; she did not notice him at the
gunshooting incident at A. Bonifacio. We are satisfied that his alibi supported by Director Molina and Chito
Baron outweigh the evidentiary value of Sigua’s and Lopez’ testimonies.

Accordingly, Our collective minds cannot rest easy in the moral conviction that Barcelona and Labra were at
the scene of the offense herein charged and that they took part in the killing of Pangilinan and the wounding
of Lopez and Sigua. Barcelona and Labra are entitled to acquittal. After all, if in truth, which the evidence
before Us does not show, they had anything to do with the crimes in question, their incarceration for about a
decade now could almost, if not completely serve as punishment enough, even under the Revised Penal
Code, since, as earlier observed, the most they could be guilty of is homicide and frustrated homicide.

—V—

The cases of accused Fernandez and Antido have to be viewed differently. Their presence at the scene of the
subject offenses is admitted by them and the only matter We have to inquire into as far as they are
concerned is the degree of their participation therein, first, whether it is culpable or not and, in the
affirmative, what is the nature of their respective liabilities.

To be sure, the thrust of the defense of Fernandez is that he was not the offender but, on the contrary, the
victim of aggression on the part of Pangilinan as instigator and Sigua as the actual aggressor with his .32
caliber colt revolver (Exh. M-3).

It may be recalled that according to the prosecution, Fernandez approached the stopped car of Pangilinan
from its right side, Labra and Antido from its left and Barcelona from behind and that after Fernandez had
warned the four passengers, "Walang kikilos sa inyo, ang kikilos tatamaan", with his pistolized carbine
aimed at all of them, and Rosanna had pleaded "Huwag, Eddie, huwag", while Sigua had remarked, "Hindi
kami lalaban", shots were simultaneously fired by all four accused. The aftermath was that Pangilinan fell
wounded on the lap of Rosanna, Lopez got hit on the right chest and Sigua was slightly hurt in the forefinger
of his right hand. How Rosanna who was nearest to Fernandez, for she was sitting on the right side of the
car the rear window of which was open, came out unscathed is not shown in the record.

According to the prosecution, Fernandez must have been infuriated by Rosanna’s going with Pangilinan in
the latter’s car instead of going back to work at the location in Nasal’s house that he decided to kill
Pangilinan, obviously the cause of Rosanna’s leaving, and within the scarcely five minutes that it took them
to turn around and pursue Pangilinan’s car, he was able to convince his friends Labra and Barcelona and his
driver Antido to conspire with him, each with his definitely assigned part, hence the charges of murder and
frustrated murder in band or with abuse of superior strength against them.

That such version of the prosecution cannot be wholly true is immediately demonstrated in Our earlier
discussion that treachery and evident premeditation cannot be appreciated in these cases in the light of the
circumstances extant in the record. Also, the accusation that the four accused herein acted as a band or
with abuse of superior strength cannot hold water, for the simple reason that as We have found above, the
presence, much less the participation of Barcelona and Labra have not been proven beyond reasonable
doubt, and anyway, all three of the alleged victims were themselves armed. Consequently, if at all
Fernandez and Antido may be held guilty, the offenses committed by them would at most be only homicide
and frustrated homicide, with the mitigating circumstance of voluntary surrender, a circumstance conceded
in the People’s brief (p. 56).

—A—

In determining the degree of liability of Fernandez, two very significant circumstances, which to Us have
been satisfactorily proven by credible evidence, must above all be considered, namely: cha nrob 1es vi rtua l 1aw lib rary

1. That Fernandez himself was wounded during the shooting incident in his left chest and lower part of his
body. The testimony of Despo, the boy witness of the prosecution, more than suggested the veracity of this
fact, when he declared that he saw that Fernandez was being aided on the way to his jeep and that he "fell"
inside it, albeit the defense claim he fell on the roadside. Fernandez was medically treated that same night,
first at the National Orthopedic Hospital, later at the V. Luna General Hospital, and when he was ultimately
operated on at the Quezon City Medical Center by the same military surgeon who attended to him at V.
Luna, Captain Arnold Gruspe, a deformed slug was found lodged in his body.
2. That deformed slug was identified by Major Constantino Leyva, Chief Ballistics Branch of the Philippine
Constabulary as a .32 caliber bullet, which when examined scientifically and compared with test bullets fired
from the .32 caliber gun Sigua had that evening of the event in question showed significant similarities,
albeit not necessarily conclusive to prove the connection between said two objects (Exh. 12, Fernandez, pp.
3-51, t.s.n., May 29, 1970). When further tested by Assistant Chief Domingo R. del Rosario of the NBI
Ballistics Division, said expert definitely concluded that the deformed bullet (Exhibit 5) was "fired through
the barrel of the above-mentioned firearm", referring to Exhibit M-3, the same gun of Sigua (p. 28, t.s.n.,
June 16, 1970; Exhibit 13-Fernandez).

By mere implication and without directly and expressly arguing to such effect, in its brief, the People
suggests that all the above evidence are incredible and could have been, to put it bluntly, fabricated. We
must emphatically reject such a wild and baseless theory, if only because, by its very nature, the supposed
confabulation involves several persons, of apparently good professional, official and social standing. It is
ludicruous to conceive that they could have, for no reason indicated anywhere in the prosecution’s evidence,
debased themselves in giving their testimonies.

True, the prosecution tried to explain, when confronted with evidence that indeed Sigua’s gun had traces of
having been fired, that it was one Reynaldo Pangilinan, an uncle of the deceased, who fired the same in view
of his disgust over the death of his nephew and the failure of Sigua to defend him. One has to be very naive
to accept such a transparent explanation. Sigua’s testimony as to how his gun landed in the hands of
Reynaldo Pangilinan, that night was not flawless. He claimed at one instance (in his written statement to the
police that same night — Exhibit 4), he could not remember to whom he handed it. At the trial he said he
gave it to a security guard at the Chinese General Hospital but when Reynaldo Pangilinan and his
companions arrived, he gave it to one of said companions, he could not remember who. But even in his
second statement given before Atty. Quisumbing on November 21, 1969, he also did not mention the
security guard nor the name of Reynaldo Pangilinan (Exhibit 4-A). In any event, the fact remains that the
gun of Sigua was found to have been fired, and We are hard put to believe, it being rather unnatural, as We
see it, that Reynaldo Pangilinan was the one who fired the same at nobody five times in the garage of their
house just out of disgust that it was not used, as far as he knew, to defend his nephew, Renato. It is more
likely that, such explanation was given to vainly hide the fact proven by the experts that Sigua had indeed
fired said gun during the shooting incident and the slug found in the body of Fernandez came from his .32
caliber gun he always had, by his own admission, by his side in the car whenever he rode with Renato
Pangilinan.

—B—

In the face of these circumstances, Our task is to determine which version approximates the truth, that of
the prosecution to the effect that Fernandez and his companions were the first to fire upon the passengers
of the car, or, that of Fernandez, who claimed that when he remonstrated Rosanna for not returning to their
place of work, Pangilinan ordered Sigua "Totoy, tirahin mo na" after saying "Talagang asar itong
tarantadong ito" (referring to Fernandez)?

There being no showing anywhere in the record of any amorous relationship between Fernandez and
Rosanna, and it being but natural that Fernandez, who had already been made to wait for her for half a day
to make their scene in the filming of "Ako ang Sasagupa", should be very much concerned why Rosanna
would take French leave, something that to Our mind, could hardly induce any desire to take another man’s
life, We are more inclined to believe that it was Pangilinan who considered Fernandez a nuisance and in a
moment of bravado, he did direct Sigua to give Fernandez the works. This is not to say, We are not
convinced that Fernandez and Antido were armed. What We are more persuaded to believe, however, is that
the one who started the gunshooting was Sigua.

— VI —

As We try to visualize what really happened that fatal evening from the thrust of the respective evidence of
the prosecution and the defense, the picture that emerges is one that practically reconciles the most
important portions of the opposing theories of the parties.
Let it be recalled that even before Pangilinan’s car reached the traffic jam at A. Bonifacio and Blumentritt,
omen of something untoward that Fernandez entertained within him already became obvious to Sigua who
declared that as they changed their course to go towards Manila instead of Biak-na-Bato or Nasal’s
residence, he already noticed that Fernandez followed them. He testified that in fact he saw Fernandez in
the act of holding a gun then.

With this circumstance in mind added to Sigua’s admission that he always kept his gun ready by his side, it
is but rational to assume that he had warned his companions accordingly. So, when, as they must have
anticipated, Fernandez overtook them and approached their car, they were not unprepared. We are
convinced that Fernandez and Antido, both of them brandishing their respective firearms, approached
Pangilinan’s car, Fernandez at the right and Antido at the left thereof. We believe the prosecution’s evidence
that at that moment as he came near Rosanna’s side Fernandez did say, "Walang kikilos sa inyo, ang kikilos
tatamaan." We also believe, on the other hand, that aside from the foregoing warning, Fernandez also
berated Rosanna for taking French leave and not going back to their work. Thus, We conclude that such acts
of Fernandez and Antido constituted sufficient provocation for Pangilinan and his companions to react, and,
accordingly, We give credence to the testimony of Fernandez that Pangilinan did say, "Talagang asar ang
tarantadong ito. Sigue, Totoy, tirahin mo na." And ready as he was, Sigua fired at Fernandez from

his .32, caliber gun. Fernandez was hit and must have instantly tried to retaliate, but there is no clear
evidence in what direction he succeeded in firing, no traces of the bullets of the nature of those that could
have come from the kind of firearm he used having been presented at the trial. For sure, it was not
Fernandez who hit Pangilinan. It was Antido who must have fired through the glass rear window of the car in
an obvious effort to avoid Pangilinan from joining Sigua’s assault upon Fernandez. It was also Antido that
must have hit Lopez, who must have naturally tried himself to get reach of the .45 caliber pistol in the glove
compartment of the car. How Sigua was hurt, he himself did not explain.

In these circumstances, it is plain to Us that having acted, albeit instantaneously, to help his master
Fernandez, Antido is guilty of homicide and frustrated homicide. But We appreciate in his favor the
mitigating circumstance of having acted in incomplete defense of Fernandez. He only reacted to the assault
upon Fernandez by Sigua, sensing evidently that Pangilinan and Lopez might join Sigua. Of course, as
already stated, there was sufficient provocation on the part of Fernandez and Antido. But there was unlawful
aggression on the part of Sigua. And by and large, taking all circumstances into account, We cannot hold
that the means used by Antido to repel the aggression were entirely unwarranted.

Inasmuch as the provocation came principally from Fernandez and it is satisfactorily proven that he also
fired his gun, he must also be liable for the death and injuries that resulted from his acts, even if it does not
appear that he himself hit Pangilinan and Lopez. As in the case of Antido, he tried to repel an aggression
with means which cannot be said to be unreasonably uncalled for in the premises.

JUDGMENT

The foregoing opinion is shared by Chief Justice Fernando, Justices Concepcion, Fernandez, Guerrero and De
Castro.

While Justices Makasiar, Plana and Escolin also agree as to the acquittal of appellants Labra and Barcelona,
they find and hold that the offenses of homicide and frustrated homicide committed by appellant Fernandez
and Antido were not acts of incomplete self-defense, and that they were mitigated only by their voluntary
surrender, hence they each deserve "accordingly" the indeterminate penalties of anywhere within prision
mayor from six (6) years and one (1) day to twelve (12) years) as minimum to anywhere within reclusion
temporal in its minimum period (from twelve (12) years and one (1) day to fourteen (14) years and eight
(8) months) as maximum, for the homicide and another indeterminate penalty each of one degree lower for
the frustrated homicide.

Justice Ericta concluded that all the appellants are guilty of homicide with the mitigating circumstance of
voluntary surrender offset by the aggravating circumstance of in band, for which the penalty should be
indeterminate and anywhere within prision mayor, as minimum, to reclusion temporal in its minimum period
fourteen (14) years, eight (8) months and one (1) day to seventeen (17) years and four (4) months, as
maximum.
Justices Teehankee and Abad Santos voted to affirm the conviction of all the appellants for murder and
frustrated murder, with the mitigating circumstance of voluntary surrender offset by the aggravating
circumstance of band, for which the penalties should be reclusion perpetua each for the murder and six (6)
years and one (1) day of prision mayor to twelve (12) years and one (1) day of reclusion temporal each, for
the frustrated murder.

Justices Aquino and Melencio-Herrera did not take part.

With the foregoing varying conclusions, the result is that nine (9) members of the Court are for the acquittal
of the appellants Labra and Barcelona, hence they are both hereby acquitted and their immediate release is
ordered.

However, as regards appellants Fernandez and Antido, there are six (6) votes sustaining the finding of
incomplete self-defense (of the Chief Justice, Justices Concepcion Jr., Fernandez, Guerrero, De Castro and
this writer) and for the imposition upon each of them of the indeterminate penalties only of six (6) months
of arresto mayor, as minimum, to six (6) years of prision correccional as maximum, for the murder, plus the
straight penalty four (4) months of arresto mayor, for each of them, for frustrated murder.

As already discussed above, six (6) other members of the Court, (Justices Teehankee, Makasiar, Abad
Santos, Ericta, Plana and Escolin) voted for higher penalties.

In other words, there are six (6) Justices who voted for the penalty imposed by this ponente appropriate for
homicide with the mitigating circumstances of incomplete self-defense and voluntary surrender and equally
six (6) votes for varying higher penalties.chan rob les vi rtualawl ib rary c hanro bles. com:chan rob les.com. ph

Pursuant to Section 3 of Rule 125, when in an appeal in a criminal case the Court is equally divided as to the
guilt of the appellant or the necessary votes for a judgment of conviction (eight) can not be had, the
"judgment of conviction of the lower court shall be reversed and the defendant acquitted." By parity of
reasoning, the Court, by the vote of twelve (12) members of the Court, namely, the Chief Justice, and
Justices Teehankee, Makasiar, Aquino, Fernandez, Guerrero, De Castro, Herrera, Ericta, Plana, Escolin and
this writer, and with Justice Abad Santos reserving his vote and Justice Concepcion Jr. being on leave, at the
time of voting on this particular point of construction, rules that the lower penalty stated above should be
imposed, as the same are hereby imposed upon each of the appellants Fernandez and Antido. Importantly,
it need be stated here that all four appellants herein have been in detention for more than twelve years.

The appellants Fernandez and Antido are hereby further sentenced to pay jointly and severally the heirs of
Renato Pangilinan the sum of TWELVE THOUSAND (P12,000.00) PESOS and Apolinario Lopez the sum of
FIVE THOUSAND (P5,000.00) PESOS, as civil indemnity, without subsidiary imprisonment.

Should it appear that their period of preventive imprisonment, to full credit for which they are fully entitled,
the accused Fernandez and Antido have both already served the two penalties hereinabove imposed upon
each of them for homicide as well as that for frustrated homicide, the Director of Prisons is hereby ordered
to immediately release them together with the acquitted accused Labra and Barcelona, unless their
continued confinement is legally warranted for any other cause.

Fernando, C.J., Concepcion, Jr., Fernandez, Guerrero and De Castro, JJ., concur.

Aquino and Melencio-Herrera, JJ., took no part.

10. EN BANC
G.R. No. L-60502 July 16, 1991

PEDRO LOPEZ DEE, petitioner,


vs.
SECURITIES AND EXCHANGE COMMISSION, HEARING OFFICER EMMANUEL SISON, NAGA
TELEPHONE CO., INC., COMMUNICATION SERVICES, INC., LUCIANO MAGGAY, AUGUSTO
FEDERIS, NILDA RAMOS, FELIPA JAVALERA, DESIDERIO SAAVEDRA, respondents.

G.R. No. L-63922 July 16, 1991

JUSTINO DE JESUS, SR., PEDRO LOPEZ DEE, JULIO LOPEZ DEE, and VICENTE TORDILLA,
JR., petitioners,
vs.
INTERMEDIATE APPELLATE COURT, LUCIANO MAGGAY, NILDA I. RAMOS, DESIDERIO
SAAVEDRA, AUGUSTO FEDERIS, ERNESTO MIGUEL, COMMUNICATION SERVICES, INC.,
and NAGA TELEPHONE COMPANY, INC., respondents.

PARAS, J.:

These are petitions for certiorari with preliminary injunction and/or restraining order which seek to
annul and set aside in: (1) G.R. No. 60502, the order* of the hearing officer dated May 4, 1982,
setting the date for the election of the directors to be held by the stockholders on May 22, 1982, in
SEC Case No. 1748 entitled "Pedro Lopez Dee v. Naga Telephone Co., Inc. et al."; and (2) G.R. No.
63922, the decision** of the Intermediate Appellate Court dated April 14, 1983 which annulled the
judgment of the trial court on the contempt charge against the private respondents in G.R. No. SP-
14846-R, entitled "Luciano Maggay, et al. v. Hon. Delfin Vir Sunga, et al."

As gathered from the records, the facts of these cases are as follows:

Naga Telephone Company, Inc. was organized in 1954, the authorized capital was P100,000.00. In
1974 Naga Telephone Co., Inc. (Natelco for short) decided to increase its authorized capital to
P3,000,000.00. As required by the Public Service Act, Natelco filed an application for the approval of
the increased authorized capital with the then Board of Communications under BOC Case No. 74-
84. On January 8, 1975, a decision was rendered in said case, approving the said application
subject to certain conditions, among which was:

3. That the issuance of the shares of stocks will be for a period of one year from the date
hereof, "after which no further issues will be made without previous authority from this
Board."

Pursuant to the approval given by the then Board of Communications, Natelco filed its Amended
Articles of Incorporation with the Securities and Exchange Commission (SEC for short). When the
amended articles were filed with the SEC, the original authorized capital of P100,000.00 was already
paid. Of the increased capital of P2,900,000.00 the subscribers subscribed to P580,000.00 of which
P145,000 was fully paid.
The capital stock of Natelco was divided into 213,000 common shares and 87,000 preferred shares,
both at a par value of P10.00 per shares.

On April 12, 1977, Natelco entered into a contract with Communication Services, Inc. (CSI for short)
for the "manufacture, supply, delivery and installation" of telephone equipment. In accordance with
this contract, Natelco issued 24,000 shares of common stocks to CSI on the same date as part of
the downpayment. On May 5, 1979, another 12,000 shares of common stocks were issued to CSI. In
both instances, no prior authorization from the Board of Communications, now the National
Telecommunications Commission, was secured pursuant to the conditions imposed by the decision
in BOC Case NO. 74-84 aforecited (Rollo, Vol. III, Memorandum for private respondent Natelco, pp.
814-816).

On May 19, 1979, the stockholders of the Natelco held their annual stockholders' meeting to elect
their seven directors to their Board of Directors, for the year 1979-1980. In this election Pedro Lopez
Dee (Dee for short) was unseated as Chairman of the Board and President of the Corporation, but
was elected as one of the directors, together with his wife, Amelia Lopez Dee (Rollo, Vol. III,
Memorandum for private respondents, p. 985; p. 2).

In the election CSI was able to gain control of Natelco when the latter's legal counsel, Atty. Luciano
Maggay (Maggay for short) won a seat in the Board with the help of CSI. In the reorganization Atty.
Maggay became president (Ibid., Memorandum for Private Respondent Natelco, p. 811).

The following were elected in the May 19, 1979 election: Atty. Luciano Maggay, Mr. Augusto
Federis, Mrs. Nilda Ramos, Ms. Felipa Javalera, Mr. Justino de Jesus, Sr., Mr. Pedro Lopez Dee
and Mrs Amelia C. Lopez Dee. The last three named directors never attended the meetings of the
Maggay Board. The members of the Maggay Board who attended its meetings were Maggay.
Federis, Ramos and Javalera. The last two were and are CSI representatives (Ibid., p. 812).

Petitioner Dee having been unseated in the election, filed a petition in the SEC docketed as SEC
Case No. 1748, questioning the validity of the elections of May 19, 1979 upon the main ground that
there was no valid list of stockholders through which the right to vote could be determined (Rollo,
Vol. I, pp. 254-262-A). As prayed for in the petition (Ibid., p. 262), a restraining order was issued by
the SEC placing petitioner and the other officers of the 1978-1979 Natelco Board in hold-over
capacity (Rollo, Vol. II, Reply, p. 667).

The SEC restraining order was elevated to the Supreme Court in G.R. No. 50885 where the
enforcement of the SEC restraining order was restrained. Private respondents therefore, replaced
the hold-over officers (Rollo, Vol. 11, p. 897).

During the tenure of the Maggay Board, from June 22, 1979 to March 10, 1980, it did not reform the
contract of April 12, 1977, and entered into another contract with CSI for the supply and installation
of additional equipment but also issued to CSI 113,800 shares of common stock (Ibid., p. 812).

The shares of common stock issued to CSI are as follows:

NO. OF SHARES DATE ISSUED

24,000 shares April 12, 1977

12,000 shares May 5, 1979


28,000 shares October 2, 1979

28,500 shares November 5, 1979

20,000 shares November 14, 1979

20,000 shares January 7, 1980

16,500 shares January 26, 1980

149,000 shares (Ibid., pp. 816-817).

Subsequently, the Supreme Court dismissed the petition in G.R. No. 50885 upon the ground that the
same was premature and the Commission should be allowed to conduct its hearing on the
controversy. The dismissal of the petition resulted in the unseating of the Maggay group from the
board of directors of Natelco in a "hold-over" capacity (Rollo, Vol. II, p. 533).

In the course of the proceedings in SEC Case No. 1748, respondent hearing officer issued an order
on June 23, 1981, declaring: (1) that CSI is a stockholder of Natelco and, therefore, entitled to vote;
(2) that unexplained 16,858 shares of Natelco appear to have been issued in excess to CSI which
should not be allowed to vote; (3) that 82 shareholders with their corresponding number of shares
shall be allowed to vote; and (4) consequently, ordering the holding of special stockholder' meeting
to elect the new members of the Board of Directors for Natelco based on the findings made in the
order as to who are entitled to vote (Rollo, Vol. 1, pp. 288-299).

From the foregoing order dated June 23, 1981, petitioner Dee filed a petition for certiorari/appeal
with the SEC en banc. The petition/appeal was docketed as SEC-AC NO. 036. Thereafter, the
Commission en banc rendered a decision on April 5, 1982, the dispositive part of which leads:

Now therefore, the Commission en banc resolves to sustain the order of the Hearing Officer;
to dismiss the petition/appeal for lack of merit; and order new elections as the Hearing
Officer shall set after consultations with Natelco officers. For the protection of minority
stockholders and in the interest of fair play and justice, the Hearing Officer shall order the
formation of a special committee of three, one from the respondents (other than Natelco),
one from petitioner, and the Hearing Officer as Chairman to supervise the election.

It remains to state that the Commission en banccannot pass upon motions belatedly filed by
petitioner and respondent Natelco to introduce newly discovered evidence — any such
evidence may be introduced at hearings on the merits of SEC Case No. 1748.

SO ORDERED. (Rollo, Vol. I, p. 24).

On April 21, 1982, petitioner filed a motion for reconsideration (Rollo, Vol. I, pp. 25-30). Likewise,
private respondent Natelco filed its motion for reconsideration dated April 21, 1982 (Ibid., pp. 32-51).

Pending resolution of the motions for reconsideration, on May 4, 1982, respondent healing officer
without waiting for the decision of the commission en banc to become final and executory rendered
an order stating that the election for directors would be held on May 22, 1982 (Ibid., pp. 300-301).

On May 20, 1982, the SEC en banc denied the motions for reconsideration (Rollo, Vol. II, pp. 763-
765).
Meanwhile on May 20, 1982 (G.R. No. 63922), petitioner Antonio Villasenor (as plaintiff) filed Civil
Case No. 1507 with the Court of First Instance of Camarines Sur, Naga City, against private
respondents and co-petitioners, de Jesus, Tordilla and the Dee's all defendants therein, which was
raffled to Branch I, presided over by Judge Delfin Vir Sunga (Rollo, G.R. No. 63922; pp. 25-30).
Villasenor claimed that he was an assignee of an option to repurchase 36,000 shares of common
stocks of Natelco under a Deed of Assignment executed in his favor (Rollo, p. 31). The defendants
therein (now private respondents), principally the Maggay group, allegedly refused to allow the
repurchase of said stocks when petitioner Villasenor offered to defendant CSI the repurchase of said
stocks by tendering payment of its price (Rollo, p. 26 and p. 78). The complaint therefore, prayed for
the allowance to repurchase the aforesaid stocks and that the holding of the May 22, 1982 election
of directors and officers of Natelco be enjoined (Rollo, pp. 28-29).

A restraining order dated May 21, 1982 was issued by the lower court commanding desistance from
the scheduled election until further orders (Rollo, p. 32).

Nevertheless, on May 22, 1982, as scheduled, the controlling majority of the stockholders of the
Natelco defied the restraining order, and proceeded with the elections, under the supervision of the
SEC representatives (Rollo, Vol. III, p. 985); p. 10; G.R. No. 60502).

On May 25, 1982, the SEC recognized the fact that elections were duly held, and proclaimed that
the following are the "duly elected directors" of the Natelco for the term 1982-1983:

1. Felipa T. Javalera

2. Nilda I. Ramos

3. Luciano Maggay

4. Augusto Federis

5. Daniel J. Ilano

6. Nelin J. Ilano Sr.

7. Ernesto A. Miguel

And, the following are the recognized officers to wit:

1. President Luciano Maggay

2. Vice-President Nilda I. Ramos

3. Secretary Desiderio Saavedra

4. Treasurer Felipa Javalera

5. Auditor Daniel Ilano

(Rollo, Vol. 1, pp. 302-303)


Despite service of the order of May 25, 1982, the Lopez Dee group headed by Messrs. Justino De
Jesus and Julio Lopez Dee kept insisting no elections were held and refused to vacate their
positions (Rollo, Vol. III, p. 985; p. 11).

On May 28, 1982, the SEC issued another order directing the hold-over directors and officers to turn
over their respective posts to the newly elected directors and officers and directing the Sheriff of
Naga City, with the assistance of PC and INP of Naga City, and other law enforcement agencies of
the City or of the Province of Camarines Sur, to enforce the aforesaid order (Rollo, Vol. 11, pp. 577-
578).

On May 29, 1982, the Sheriff of Naga City, assisted by law enforcement agencies, installed the
newly elected directors and officers of the Natelco, and the hold-over officers peacefully vacated
their respective offices and turned-over their functions to the new officers (Rollo, Vol. III, p. 985; pp.
12-13).

On June 2, 1982, a charge for contempt was filed by petitioner Villasenor alleging that private
respondents have been claiming in press conferences and over the radio airlanes that they actually
held and conducted elections on May 22, 1982 in the City of Naga and that they have a new set of
officers, and that such acts of herein private respondents constitute contempt of court (G.R.
63922; Rollo, pp. 35-37).

On September 7, 1982, the lower court rendered judgment on the contempt charge, the dispositive
portion of which reads:

WHEREFORE, judgment is hereby rendered:

1. Declaring respondents, CSI Nilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto
Federis and Ernesto Miguel, guilty of contempt of court, and accordingly punished with
imprisonment of six (6) months and to pay fine of P1,000.00 each; and

2. Ordering respondents, CSI Nilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto
Federis and Ernesto Miguel, and those now occupying the positions of directors and officers
of NATELCO to vacate their respective positions therein, and ordering them to reinstate the
hold-over directors and officers of NATELCO, such as Pedro Lopez Dee as President,
Justino de Jesus, Sr., as Vice President, Julio Lopez Dee as Treasurer and Vicente Tordilla,
Jr. as Secretary, and others referred to as hold-over directors and officers of NATELCO in
the order dated May 28, 1982 of SEC Hearing Officer Emmanuel Sison, in SEC Case No.
1748 (Exh. 6), by way of RESTITUTION, and consequently, ordering said respondents to
turn over all records, property and assets of NATELCO to said hold-over directors and
officers. (Ibid., Rollo, p. 49).

The trial judge issued an order dated September 10, 1982 directing the respondents in the contempt
charge to "comply strictly, under pain of being subjected to imprisonment until they do so" (Ibid., p.
50). The order also commanded the Deputy Provincial Sheriff, with the aid of the PC Provincial
Commander of Camarines Sur and the INP Station Commander of Naga City to "physically remove
or oust from the offices or positions of directors and officers of NATELCO, the aforesaid respondents
(herein private respondents) . . . and to reinstate and maintain, the hold-over directors and officers of
NATELCO referred to in the order dated May 28, 1982 of SEC Hearing Officer Emmanuel Sison."
(Ibid.).

Private respondents filed on September 17, 1982, a petition for certiorari and prohibition with
preliminary injunction or restraining order against the CFI Judge of Camarines Sur, Naga City and
herein petitioners, with the then Intermediate Appellate Court which issued a resolution ordering
herein petitioners to comment on the petition, which was complied with, and at the same time
temporarily refrained from implementing and/or enforcing the questioned judgment and order of the
lower court (Rollo, p. 77), Decision of CA, p. 2).

On April 14, 1983, the then Intermediate Appellate Court, rendered a decision, the dispositive portion
of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Annuling the judgment dated September 7, 1982 rendered by respondent judge on the
contempt charge, and his order dated September 10, 1982, implementing said judgment;

2. Ordering the "hold-over" directors and officers of NATELCO to vacate their respective
offices;

3. Directing respondents to restore or re-establish petitioners (private respondents in this


case) who were ejected on May 22, 1982 to their respective offices in the NATELCO, . . .;

4. Prohibiting whoever may be the successor of respondent Judge from interfering with the
proceedings of the Securities and Exchange Commission in SE-CAC No. 036;

xxx xxx xxx

(Rollo, p. 88).

The order of re-implementation was issued, and, finally, the Maggay group has been restored as the
officers of the Natelco (Rollo, G.R. No. 60502, p. 985; p. 37).

Hence, these petitions involve the same parties and practically the same issues. Consequently, in
1âw phi 1

the resolution of the Court En Banc dated August 23, 1983, G.R. No. 63922 was consolidated with
G.R. No. 60502.

In G.R. No. 60502 — In a resolution issued by the Court En Banc dated March 22, 1983, the Court
gave due course to the petition and required the parties to submit their respective memoranda
(Rollo, Resolution, p. 638-A; Vol. II).

In G.R. No. 60502

The main issues in this case are:

(1) Whether or not the Securities and Exchange Commission has the power and jurisdiction to
declare null and void shares of stock issued by NATELCO to CSI for violation of Sec. 20 (h) of the
Public Service Act;

(2) Whether or not the issuance of 113,800 shares of Natelco to CSI made during the pendency of
SEC Case No. 1748 in the Securities and Exchange Commission was valid;

(3) Whether or not Natelco stockholders have a right of preemption to the 113,800 shares in
question; and
(4) Whether or not the private respondents were duly elected to the Board of Directors of Natelco at
an election held on May 22, 1982.

In G.R. No. 63922

The crucial issue to be resolved is whether or not the trial judge has jurisdiction to restrain the
holding of an election of officers and directors of a corporation. The petitions are devoid of merit.

In G.R. No. 60502

It is the contention of petitioner that the Securities and Exchange Commission En Banc committed
grave abuse of discretion when, in its decision dated April 5, 1982, in SEC-AC No. 036, it refused to
declare void the shares of stock issued by Natelco to CSI allegedly in violation of Sec. 20 (h) of the
Public Service Act. This section requires prior administrative approval of any transfer or sale of
shares of stock of any public service which vest in the transferee more than forty percentum of the
subscribed capital of the said public service.

Section 5 of P.D. No. 902-A, as amended, enumerates the jurisdiction of the Securities and
Exchange Commission:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over Corporations, partnerships and other forms of associations,
registered with it as expressly granted under the existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts, of the board of directors, business


associates, its officers or partners, amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the stockholders, partners, members of
associations or organizations registered with the Commission.

(b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and the state insofar
as it concerns their individual franchise or right to exist as such entity;

c) Controversies in the election or appointments of directors, trustees, officers or managers


of such corporations, partnerships or associations.

d) Petitions of corporations, partnerships or associations to be declared in the state of


suspension of payments in cases where the corporation, partnership or association
possesses sufficient property to cover all its debts but foresees the impossibility of meeting
them when they respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee created pursuant to this Decree, (As
added by PD 1758)

In other words, in order that the SEC can take cognizance of a case, the controversy must pertain to
any of the following relationships: (a) between corporation, partnership or association and the public;
(b) between the corporation, partnership, or association and its stockholders, partners, members or
officers; (c) between the corporation, partnership or association and the state insofar as its franchise,
permit or license to operate is concerned; and (d) among the stockholders, partners, or associates
themselves (Union Glass & Container Corp. vs. SEC, 126 SCRA 31 [1983]).

The jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of
corporations, partnerships and associations and those dealing with internal affairs of such entities;
P.D. 902-A does not confer jurisdiction to SEC over all matters affecting corporations (Pereyra vs.
IAC, 181 SCRA 244 [1990]; Sales vs. SEC, 169 SCRA 121 [1989]).

The jurisdiction of the SEC in SEC Case No. 1748 is limited to deciding the controversy in the
election of the directors and officers of Natelco. Thus, the SEC was correct when it refused to rule on
whether the issuance of the shares of Natelco stocks to CSI violated Sec. 20 (h) of the Public
Service Act.

The SEC ruling as to the issue involving the Public Service Act, Section 20 (h), asserts that the
Commission En Banc is not empowered to grant much less cancel franchise for telephone and
communications, and therefore has no authority to rule that the issuance and sale of shares would in
effect constitute a violation of Natelco's secondary franchise. It would be in excess of jurisdiction on
our part to decide that a violation of our public service laws has been committed. The matter is better
brought to the attention of the appropriate body for determination. Neither can the
SEC provisionallydecide the issue because it is only vested with the power to grant or revoke the
primary corporate franchise. The SEC is empowered by P.D. 902-A to decide intra-corporate
controversies and that is precisely the only issue in this case.

II

The issuance of 113,800 shares of Natelco stock to CSI made during the pendency of SEC Case
No. 1748 in the Securities and Exchange Commission was valid. The findings of the SEC En
Banc as to the issuance of the 113,800 shares of stock was stated as follows:

But the issuance of 113,800 shares were (sic) pursuant to a Board Resolution and
stockholders' approval prior to May 19, 1979 when CSI was not yet in control of the Board or
of the voting shares. There is distinction between an order to issue shares on or before May
19, 1979 and actual issuance of the shares after May 19, 1979. The actual issuance, it is
true, came during the period when CSI was in control of voting shares and the Board (if they
were in fact in control but only pursuant to the original Board and stockholders' orders, not on
the initiative to the new Board, elected May 19, 1979, which petitioners are questioning. The
Commission en banc finds it difficult to see how the one who gave the orders can turn
around and impugn the implementation of the orders lie had previously given. The
reformation of the contract is understandable for Natelco lacked the corporate funds to
purchase the CSI equipment.

xxx xxx xxx

Appellant had raise the issue whether the issuance of 113,800 shares of stock during the
incumbency of the Maggay Board which was allegedly CSI controlled, and while the case
was sub judice, amounted to unfair and undue advantage. This does not merit consideration
in the absence of additional evidence to support the proposition.

In effect, therefore, the stockholders of Natelco approved the issuance of stock to CSI
III

While the group of Luciano Maggay was in control of Natelco by virtue of the restraining order issued
in G.R. No. 50885, the Maggay Board issued 113,800 shares of stock to CSI Petitioner said that the
Maggay Board, in issuing said shares without notifying Natelco stockholders, violated their right of
pre-emption to the unissued shares.

This Court in Benito vs. SEC, et al., has ruled that:

Petitioner bewails the fact that in view of the lack of notice to him of such subsequent
issuance, he was not able to exercise his right of pre-emption over the unissued shares.
However, the general rule is that pre-emptive right is recognized only with respect to new
issues of shares, and not with respect to additional issues of originally authorized shares.
This is on the theory that when a corporation at its inception offers its first shares, it is
presumed to have offered all of those which it is authorized to issue. An original subscriber is
deemed to have taken his shares knowing that they form a definite proportionate part of the
whole number of authorized shares. When the shares left unsubscribed are later re-offered,
he cannot therefore (sic) claim a dilution of interest (Benito vs. SEC, et al., 123 SCRA 722).

The questioned issuance of the 113,800 stocks is not invalid even assuming that it was made
without notice to the stockholders as claimed by the petitioner. The power to issue shares of stocks
in a corporation is lodged in the board of directors and no stockholders meeting is required to
consider it because additional issuance of shares of stocks does not need approval of the
stockholders. Consequently, no pre-emptive right of Natelco stockholders was violated by the
issuance of the 113,800 shares to CSI.

IV

Petitioner insists that no meeting and election were held in Naga City on May 22, 1982 as directed
by respondent Hearing Officer. This fact is shown by the Sheriffs return of a restraining order issued
by the Court of First Instance of Camarines Sur in Case No. 1505 entitled "Antonio Villasenor v.
Communications Service Inc, et al." (Rollo, Vol. 1, p. 309).

There is evidence of the fact that the Natelco special stockholders' meeting and election of members
of the Board of Directors of the corporation were held at its office in Naga City on May 22, 1982 as
shown when the Hearing Officer issued an order on May 25, 1982, declaring the stockholders
named therein as corporate officers duly elected for the term 1982-1983.

More than that, private respondents were in fact charged with contempt of court and found guilty for
holding the election on May 22, 1982, in defiance of the restraining order issued by Judge Sunga
(Rollo, Vol. II, p. 750).

It is, therefore, very clear from the records that an election was held on May 22, 1982 at the Natelco
Offices in Naga City and its officers were duly elected, thereby rendering the issue of election moot
and academic, not to mention the fact that the election of the Board of Directors/Officers has been
held annually, while this case was dragging for almost a decade.

The contempt charge against herein private respondents was predicated on their failure to comply
with the restraining order issued by the lower court on May 21, 1982, enjoining them from holding
the election of officers and directors of Natelco scheduled on May 22, 1982. The SEC en banc, in its
decision of April 5, 1982, directed the holding of a new election which, through a conference
attended by the hold-over directors of Natelco accompanied by their lawyers and presided by a SEC
hearing officer, was scheduled on May 22, 1982 (Rollo, p. 59). Contrary to the claim of petitioners
that the case is within the jurisdiction of the lower court as it does not involve an intra-corporate
matter but merely a claim of a private party of the right to repurchase common shares of stock of
Natelco and that the restraining order was not meant to stop the election duly called for by the SEC,
it is undisputed that the main objective of the lower court's order of May 21, 1982 was precisely to
restrain or stop the holding of said election of officers and directors of Natelco, a matter purely within
the exclusive jurisdiction of the SEC (P.D. No. 902-A, Section 5). The said restraining order reads in
part:

. . . A temporary restraining order is hereby issued, directing defendants (herein


respondents), their agents, attorneys as well as any and all persons, whether public
officers or private individuals to desistfrom conducting and holding, in any manner
whatsoever, an election of the directors and officers of the Naga Telephone Co. (Natelco). . .
. (Rollo, P. 32).

Indubitably, the aforesaid restraining order, aimed not only to prevent the stockholders of Natelco
from conducting the election of its directors and officers, but it also amounted to an injunctive relief
against the SEC, since it is clear that even "public officers" (such as the Hearing Officer of the SEC)
are commanded to desist from conducting or holding the election "under pain of punishment of
contempt of court" (Ibid.) The fact that the SEC or any of its officers has not been cited for contempt,
along with the stockholders of Natelco, who chose to heed the lawful order of the SEC to go on with
the election as scheduled by the latter, is of no moment, since it was precisely the acts of herein
private respondents done pursuant to an order lawfully issued by an administrative body that have
been considered as contemptuous by the lower court prompting the latter to cite and punish them for
contempt (Rollo, p. 48).

Noteworthy is the pertinent portion of the judgment of the lower court which states:

Certainly, this Court will not tolerate, or much less countenance, a mere Hearing Officer of
the Securities and Exchange Commission, to render a restraining order issued by it (said
Court) within its jurisdiction, nugatory and ineffectual and abet disobedience and even
defiance by individuals and entities of the same. . . . (Rollo, p. 48).

Finally, in the case of Philippine Pacific Fishing Co., Inc. vs. Luna, 12 SCRA 604, 613 [1983], this
Tribunal stated clearly the following rule:

Nowhere does the law (P.D. No. 902-A) empower any Court of First Instance to interfere with
the orders of the Commission (SEC). Not even on grounds of due process or jurisdiction.
The Commission is, conceding arguendo a possible claim of respondents, at the very least, a
co-equal body with the Courts of First Instance. Even as such co-equal, one would have no
power to control the other. But the truth of the matter is that only the Supreme Court can
enjoin and correct any actuation of the Commission.

Accordingly, it is clear that since the trial judge in the lower court (CFI of Camarines Sur) did not
have jurisdiction in issuing the questioned restraining order, disobedience thereto did not constitute
contempt, as it is necessary that the order be a valid and legal one. It is an established rule that the
court has no authority to punish for disobedience of an order issued without authority (Chanco v.
Madrilejos, 9 Phil. 356; Angel Jose Realty Corp. v. Galao, et al., 76 Phil. 201).

Finally, it is well-settled that the power to punish for contempt of court should be exercised on the
preservative and not on the vindictive principle. Only occasionally should the court invoke its
inherent power in order to retain that respect without which the administration of justice must falter or
fail (Rivera v. Florendo, 144 SCRA 643, 662-663 [1986]; Lipata v. Tutaan, 124 SCRA 880 [1983]).

PREMISES CONSIDERED, both petitioners are hereby DISMISSED for lack of merit.

SO ORDERED.

11. [G.R. No. 112872. April 19, 2001]

THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the


Administratrix, SYLVIA S. TY, petitioner, vs. COURT OF APPEALS,
HON. ILDEFONSO E. GASCON, and ALEJANDRO B.
TY, respondents.

[G.R. No. 114672. April 19, 2001]

SYLVIA S. TY, in her capacity as Administratrix of the Intestate Estate of


Alexander T. Ty, petitioner, vs. COURT OF APPEALS and
ALEJANDRO B. TY, respondents.

DECISION
MELO, J.:

Before the Court are two separate petitions for Certiorari, G.R. 112872 under Rule
65 alleging grave abuse of discretion amounting to lack or excess of jurisdiction, and
G.R. No. 114672 under Rule 45 on purely questions of law. As these two cases involve
the same parties and basically the same issues, including the main question of
jurisdiction, the Court resolves to consolidate them.
On February 27, 2001, the Court issued its resolution in A.M. 00-9-03 directing the
re-distribution of old cases such as ones on hand.Thus, the present ponencia.
The antecedent facts are as follows:
Petitioner Sylvia S. Ty was married to Alexander T. Ty. Son of private respondent
Alejandro B. Ty, on January 11, 1981. Alexander died of leukemia on May 19, 1988
and was survived by his wife, petitioner Sylvia, and only child, Krizia Katrina. In the
settlement of his estate, petitioner was appointed administratrix of her late husbands
intestate estate.
On November 4, 1992, petitioner filed a motion for leave to sell or mortgage estate
property in order to generate funds for the payment of deficiency estate taxes in the sum
of P4,714,560.00 Included in the inventory of property were the following:
1) 142,285 shares of stock in ABT Enterprises valued at P14,228,500.00;
2) 5,000 shares of stock in Intercontinental Paper Industries valued at P500,000.00;
3) 15,873 shares of stock in Philippine Crystal Manufacturing, Inc. valued at P1,587,300.00;
4) 800 shares of stock in Polymart Paper Industries, Inc. valued at P80,000.00;
5) 1,880 shares of stock in A.T. Car Care Center, Inc. valued at P188,000.00;
6) 360 shares of stock in Union Emporium, Inc. valued at P36,000.00;
7) 380 shares of stock in Lexty, Inc. valued at P38,000.00; and
8) a parcel of land in Biak-na-Bato, Matalahib, Sta. Mesa, with an area of 823 square meters and
covered by Transfer Certificate of Title Number 214087.

Private respondent Alejandro Ty then filed two complaints for the recovery of the
above-mentioned property, which was docketed as Civil Case Q-91-10833 in Branch
105 Regional Trial Court of Quezon City (now herein G.R. No. 112872), praying for
the declaration for nullity of the deed of absolute sale of the shares of stock executed
by private respondent in favor of the deceased Alexander, and Civil Case Q-92-14352
in Branch 90 Regional Trial Court of Quezon City (now G.R. No. 114672), praying for
the recovery of the pieces of property that were placed in the name of deceased
Alexander by private respondent, the same property being sought to be sold out,
mortgaged, or disposed of by petitioner. Private respondent claimed in both cases that
even if said property were placed in the name of deceased Alexander, they were
acquired through private respondents money, without any cause or consideration from
deceased Alexander.
Motions to dismiss were filed by petitioner. Both motions alleged lack of
jurisdiction for the trial court, claiming that the cases involved intra-corporate disputes
cognizable by the Securities and Exchange Commission (SEC). Other grounds raised
in G.R. NO. 114672 were:
1) An express trust between private respondent Alejandro and his deceased son Alexander;
2) Bar by the statute of limitations;
3) Private respondents violation of Supreme Court Circular 28-91 for failure to include a
certification of non-forum shopping in his complaints; and
4) Bar by laches.

The motions to dismiss were denied. Petitioner then filed petitions for certiorari in
the Court of Appeals, which were also dismissed for lack of merit. Thus, the present
petitions now before the Court.
Petitioner raises the issue of jurisdiction of the trial court. She alleges that an intra-
corporate dispute is involved. Hence, under Section 5(b) of Presidential Decree 902-A,
the SEC has jurisdiction over the case. The Court cannot agree with petitioner.
Jurisdiction over the subject matter is conferred by law (Union Bank of the
Philippines vs. Court of Appeals, 290 SCRA 198 [1998]). The nature of an action, as
well as which court or body has jurisdiction over it, is determined based on the
allegations contained in the complaint of the plaintiff (Serdoncillo vs. Benolirao, 297
SCRA 448 [1998]; Tamano vs. Ortiz, 291 SCRA 584 [1998]), irrespective of whether
or not plaintiff is entitled to recover upon all or some of the claims asserted therein
(Citibank , N.A. vs. Court of Appeals, 299 SCRA 390 [1998]). Jurisdiction cannot
depend on the defenses set forth in the answer, in a motion to dismiss, or in a motion
for reconsideration by the defendant (Dio vs. Concepcion, 296 SCRA 579 [1998]).
Petitioner argues that the present case involves a suit between two stockholders of
the same corporation which thus places it beyond the jurisdictional periphery of regular
trial courts and more within the exclusive competence of the SEC by reason of Section
5(b) of Presidential Decree 902-A, since repealed. However, it does not necessarily
follow that when both parties of a dispute are stockholders of a corporation, the dispute
is automatically considered intra-corporate in nature and jurisdiction consequently falls
within the SEC. Presidential Decree 902-A did not confer upon the SEC absolute
jurisdiction and control over all matters affecting corporations, regardless of the nature
of the transaction which gave rise to such disputes (Jose Peneyra, et.al. vs. Intermediate
Appellate Court, et. al., 181 SCRA 245 [1990] citing DMRC Enterprises vs. Este del
Sol Mountain Reserve, Inc., 132 SCRA 293 [1984]). The better policy in determining
which body has jurisdiction over this case would be to consider, not merely the status
of the parties involved, but likewise the nature of the question that is the subject of the
controversy (Viray vs. Court of Appeals, 191 SCRA 309 [1990]). When the nature of
the controversy involves matters that are purely civil in character, it is beyond the ambit
of the limited jurisdiction of the SEC (Saura vs. Saura, Jr., 313 SCRA 465 [1999]).
In the cases at bar, the relationship of private respondent when he sold his shares of
stock to his son was one of vendor and vendee, nothing else.The question raised in the
complaints is whether or not there was indeed a sale in the absence of cause or
consideration. The proper forum for such a dispute is a regular trial court. The Court
agrees with the ruling of the Court of appeals that no special corporate skill is necessary
in resolving the issue of the validity of the transfer of shares from one stockholder to
another of the same corporation. Both actions, although involving different property,
sought to declare the nullity of the transfers of said property to the decedent on the
ground that they were not supported by any cause or consideration, and thus, are
considered void ab initio for being absolutely simulated or fictitious. The determination
whether a contract is simulated or not is an issue that could be resolved by applying
pertinent provisions of the Civil Code particularly those relative to obligations and
contracts. Disputes concerning the application of the Civil Code are properly
cognizable by courts of general jurisdiction. No special skill is necessary that would
require the technical expertise of the SEC.
It should also be noted that under the newly enacted Securities Regulation Code
(Republic Act No. 8799), this issue is now moot and academic because whether or not
the issue is intra-corporate, it is the regional trial court and no longer the SEC that takes
cognizance of the controversy. Under Section 5.2 of Republic Act No. 8799, original
and exclusive jurisdiction to hear and decide cases involving intra-corporate
controversies have been transferred to courts of general jurisdiction or the appropriate
regional trial court.
Other issues raised by the petitioner in G.R. No. 114672 are equally not impressed
with merit.
Petitioner contends that private respondent is attempting to enforce an
unenforceable express trust over the disputed real property. Petitioner is in error when
she contends that an express trust was created by private respondent when he transferred
the property to his son. Judge Abraham P. Vera, in his order dated March 31, 1993 in
Civil Case No. Q-92-14352, declared:

[e]xpress trust are those that are created by the direct and positive acts of the parties, by
some writing or deed or will or by words evidencing an intention to create a trust. On the
other hand, implied trusts are those which, without being expressed, are deducible from the
nature of the transaction by operation of law as matters of equity, independently of the
particular intention of the parties. Thus, if the intention to establish a trust is clear, the trust
is express; if the intent to establish a trust is to be taken from circumstances or other matters
indicative of such intent, then the trust is implied (Cuaycong vs. Cuaycong, 21 SCRA 1191
[1967].

In the cases at hand, private respondent contends that the pieces of property were
transferred in the name of the deceased Alexander for the purpose of taking care of the
property for him and his siblings. Such transfer having been effected without cause of
consideration, a resulting trust was created.
A resulting trust arises in favor of one who pays the purchase money of an estate
and places the title in the name of another, because of the presumption that he who pays
for a thing intends a beneficial interest therein for himself. The trust is said to result in
law from the acts of the parties.Such a trust is implied in fact (Tolentino, Civil Code of
the Philippines, Vol. 4, p. 678).
If a trust was then created, it was an implied, not an express trust, which may be
proven by oral evidence (Article 1457, Civil code), and it matters not whether property
is real or personal (Paras, Civil Code of the Philippines, Annotated, Vol. 4, p. 814).
Petitioners assertion that private respondents action is barred by the statute of
limitations is erroneous. The statue of limitations cannot apply in this case. Resulting
trusts generally do not prescribe (Caladiao vs. Vda. De Blas, 10 SCRA 691 [1964]),
except when the trustee repudiates the trust. Further, an action to reconvey will not
prescribe so long as the property stands in the name of the trustee (Manalang, et. al. vs.
Canlas, et. al., 94 Phil. 776 [1954]). To allow prescription would be to permit a trustee
to acquire title against his principal and the true owner.
Petitioner is also mistaken in her contention that private respondent violated
Supreme Court Circular 28-91, dated September 17, 1991 and which took effect on
January 1, 1992. Although Section 5, Rule 7 of the 1997 Rules on Civil procedure
makes the requirement of filing a verification and certificate of non-forum-shopping
applicable to all courts, this cannot be applied in the case at bar. At the time the original
complaint was first filed on December 10 (for G.R. 112872) and 28 (for G.R. 114672),
1992, such certification requirement only pertained to cases in the Court of Appeals and
the Supreme Court. The Revised Circular 28-91, which covered the certification
requirement against non-forum shopping in all courts, only took effect April 1,
1994. Further, the subject heading of the original circular alone informs us of its topic:
that of additional requisites for petitions filed with the Supreme Court and the Court of
Appeals to prevent forum shopping or multiple filing of petitions and
complaints. Section 1 of the Circular makes it mandatory to include the docket number
of the case in the lower court or quasi-judicial agency whose order or judgment is sought
to be reviewed. Such a requirement clearly indicates that the Circular only applies to
actions filed with the Court of Appeals and the Supreme Court.
Contrary to what petitioner contends, there could be no laches in this case. Private
respondent filed his complaint in G.R. No. 112872 on December 10, 1992 (later
amended on December 23, 1992) and in G.R. No. 114672 on December 28, 1992, only
over a month after petitioner filed in the probate proceedings a petition to mortgage or
sell the property in dispute. Private respondents actions were in fact very timely. As
stated in the complaints, private respondent instituted the above actions as the property
were in danger of being sold to a third party. If there were no pending cases to stop their
sale, he would no longer be able to recover the same from an innocent purchaser for
value.
Withal, the Court need not go into any further discussion on whether the trial court
erred in issuing a writ of preliminary injunction.
WHEREFORE, the petition for certiorari in G.R. No. 112872 is DISMISSED,
having failed to show that grave abuse of discretion was committed in declaring that
the regional trial court had jurisdiction over the case. The petition for review on
certiorari in G.R. 114672 is DENIED, having found no reversible error was committed.
SO ORDERED.

12.
SECURITIES AND EXCHANGE G.R. No. 164197
COMMISSION,
Petitioner, Present:
VELASCO, JR., J., Chairperson,
- versus - PERALTA,
ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.
PROSPERITY.COM, INC.,
Respondent. Promulgated:
January 25, 2012
x --------------------------------------------------------------------------------------- x

DECISION

ABAD, J.:

This case involves the application of the Howey test in order to determine if
a particular transaction is an investment contract.
The Facts and the Case

Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without
providing internet service. To make a profit, PCI devised a scheme in which, for the
price of US$234.00 (subsequently increased to US$294), a buyer could acquire from
it an internet website of a 15-Mega Byte (MB) capacity. At the same time, by
referring to PCI his own down-line buyers, a first-time buyer could earn
commissions, interest in real estate in the Philippines and in the United States, and
insurance coverage worth P50,000.00.

To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other
buyers as his own down-lines. These second tier of buyers could in turn build up
their own down-lines. For each pair of down-lines, the buyer-sponsor received a
US$92.00 commission. But referrals in a day by the buyer-sponsor should not
exceed 16 since the commissions due from excess referrals inure to PCI, not to the
buyer-sponsor.

Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI),
which company stopped operations after the Securities and Exchange Commission
(SEC) issued a cease and desist order (CDO) against it. As it later on turned out, the
same persons who ran the affairs of GVI directed PCIs actual operations.

In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI,
alleging that the latter had taken over GVIs operations. After hearing,[1] the SEC,
through its Compliance and Enforcement unit, issued a CDO against PCI. The SEC
ruled that PCIs scheme constitutes an Investment contract and, following the
Securities Regulations Code,[2] it should have first registered such contract or
securities with the SEC.
Instead of asking the SEC to lift its CDO in accordance with Section 64.3 of Republic
Act (R.A.) 8799, PCI filed with the Court of Appeals (CA) a petition
for certiorari against the SEC with an application for a temporary restraining order
(TRO) and preliminary injunction in CA-G.R. SP 62890. Because the CA did not act
promptly on this application for TRO, on January 31, 2001 PCI returned to the SEC
and filed with it before the lapse of the five-day period a request to lift the CDO. On
the following day, February 1, 2001, PCI moved to withdraw its petition before the
CA to avoid possible forum shopping violation.

During the pendency of PCIs action before the SEC, however, the CA issued a TRO,
enjoining the enforcement of the CDO.[3] In response, the SEC filed with the CA a
motion to dismiss the petition on ground of forum shopping. In a Resolution,[4]the
CA initially dismissed the petition, finding PCI guilty of forum shopping. But on PCIs
motion, the CA reversed itself and reinstated the petition.[5]

In a joint resolution,[6] CA-G.R. SP 62890 was consolidated with CA-G.R. SP 64487


that raised the same issues. On July 31, 2003 the CA rendered a decision, granting
PCIs petition and setting aside the SEC-issued CDO.[7] The CA ruled that, following
the Howey test, PCIs scheme did not constitute an investment contract that needs
registration pursuant to R.A. 8799, hence, this petition.

The Issue Presented

The sole issue presented before the Court is whether or not PCIs scheme
constitutes an investment contract that requires registration under R.A. 8799.

The Ruling of the Court

The Securities Regulation Code treats investment contracts as securities that have
to be registered with the SEC before they can be distributed and sold. An
investment contract is a contract, transaction, or scheme where a person invests
his money in a common enterprise and is led to expect profits primarily from the
efforts of others.[8]

Apart from the definition, which the Implementing Rules and Regulations provide,
Philippine jurisprudence has so far not done more to add to the same. Of course,
the United States Supreme Court, grappling with the problem, has on several
occasions discussed the nature of investment contracts. That courts rulings, while
not binding in the Philippines, enjoy some degree of persuasiveness insofar as they
are logical and consistent with the countrys best interests.[9]

The United States Supreme Court held in Securities and Exchange Commission v.
W.J. Howey Co.[10] that, for an investment contract to exist, the following elements,
referred to as the Howey test must concur: (1) a contract, transaction, or scheme;
(2) an investment of money; (3) investment is made in a common enterprise; (4)
expectation of profits; and (5) profits arising primarily from the efforts of
others. [11] Thus, to sustain the SEC position in this case, PCIs scheme or contract
with its buyers must have all these elements.

An example that comes to mind would be the long-term commercial papers that
large companies, like San Miguel Corporation (SMC), offer to the public for raising
funds that it needs for expansion. When an investor buys these papers or securities,
he invests his money, together with others, in SMC with an expectation of profits
arising from the efforts of those who manage and operate that company. SMC has
to register these commercial papers with the SEC before offering them to investors.
Here, PCIs clients do not make such investments.They buy a product of some value
to them: an Internet website of a 15-MB capacity. The client can use this website
to enable people to have internet access to what he has to offer to them, say, some
skin cream. The buyers of the website do not invest money in PCI that it could use
for running some business that would generate profits for the investors. The price
of US$234.00 is what the buyer pays for the use of the website, a tangible asset
that PCI creates, using its computer facilities and technical skills.
Actually, PCI appears to be engaged in network marketing, a scheme adopted by
companies for getting people to buy their products outside the usual retail system
where products are bought from the stores shelf. Under this scheme, adopted by
most health product distributors, the buyer can become a down-line seller. The
latter earns commissions from purchases made by new buyers whom he refers to
the person who sold the product to him. The network goes down the line where
the orders to buy come.

The commissions, interest in real estate, and insurance coverage


worth P50,000.00 are incentives to down-line sellers to bring in other
customers. These can hardly be regarded as profits from investment of money
under the Howey test.
The CA is right in ruling that the last requisite in the Howey test is lacking in the
marketing scheme that PCI has adopted. Evidently, it is PCI that expects profit from
the network marketing of its products. PCI is correct in saying that the US$234 it
gets from its clients is merely a consideration for the sale of the websites that it
provides.

WHEREFORE, the Court DENIES the petition and AFFIRMS the decision
dated July 31, 2003 and the resolution dated June 18, 2004 of the Court of Appeals
in CA-G.R. SP 62890.

SO ORDERED.

13. [G.R. No. 138949. June 6, 2001]

UNION BANK OF THE PHILIPPINES, petitioner, vs. SECURITIES and


EXCHANGE COMMISSION, respondent.
DECISION
PANGANIBAN, J.:

The mere fact that petitioner, in regard to its banking functions, is already subject
to the supervision of the Bangko Sentral ng Pilipinas does not exempt the former from
reasonable disclosure regulations issued by the Securities and Exchange Commission
(SEC). These regulations -- imposed on petitioner as a banking institution listed in the
stock market -- are meant to assure full, fair and accurate information for the protection
of investors. Imposing such regulations is a function within the jurisdiction of the SEC.

The Case

Before us is a Petition for Review on Certiorari[1]under Rule 45 of the Rules of


Court, challenging the November 16, 1998 Decision[2] of the Court of Appeals (CA) in
CA-GR SP No. 48002. The dispositive portion of the assailed Decision reads as follows:

GIVEN THE FOREGOING, the assailed Orders dated November 5, 1997 and April 14, 1998 are
hereby AFFIRMED, with the MODIFICATION that petitioner is assessed a single fine of FIFTY
THOUSAND (P50,000.00) PESOS plus FIVE HUNDRED (P500.00) PESOS beginning July 21,
1997, for each day of continuing violation.[3]

Likewise assailed is the May 31, 1999 CA Resolution,[4] which denied petitioners
Motion for Reconsideration.

The Facts

The court a quo summarized the antecedents of the case as follows:

Records show that on April 4, 1997, petitioner, through its General Counsel and Corporate
Secretary, sought the opinion of Chairman Perfecto Yasay, Jr. of respondent Commission as to
the applicability and coverage of the Full Material Disclosure Rule on banks, contending that
said rules, in effect, amend Section 5 (a) (3) of the Revised Securities Act which exempts
securities issued or guaranteed by banking institutions from the registration requirement
provided by Section 4 of the same Act. (Annex C, p. 20, Rollo).

In reply thereto, Chairman Yasay, in a letter dated April 8, 1997, informed petitioner that while
the requirements of registration do not apply to securities of banks which are exempt under
Section 5(a) (3) of the Revised Securities Act, however, banks with a class of securities listed for
trading on the Philippine Stock Exchange, Inc. are covered by certain Revised Securities Act
Rules governing the filing of various reports with respondent Commission, i.e., (1) Rule 11(a)-1
requiring the filing of Annual, Quarterly, Current, Predecessor and Successor Reports; (2) Rule
34-(a)-1 requiring submission of Proxy Statements; and (3) Rule 34-(c)-1 requiring submission
of Information Statements, among others. (Annex D, P, U, Rollo).

Not satisfied, petitioner, per letter dated April 30, 1997, informed Chairman Yasay that they will
refer the matter to the Philippine Stock Exchange for clarification. (Annex E, p. 22, Rollo)

On May 9, 1997, respondent Commission, through its Money Market Operations Department
Director, wrote petitioner, reiterating its previous position that petitioner is not exempt from the
filing of certain reports. The letter further stated that the Revised Securities Act Rule 11(a)
requires the submission of reports necessary for full, fair and accurate disclosure to the investing
public, and notthe registration of its shares. (Annex F, p. 23, Rollo).

On July 17, 1997, respondent Commission wrote petitioner, enjoining the latter to show cause
why it should not be penalized for its failure to submit a Proxy/Information Statement in
connection with its annual meeting held on May 23, 1997, in violation of respondent
Commissions Full Material Disclosure Rule. (Annex 6, p. 24, Rollo).

Failing to respond to the aforesaid communication, petitioner was given a 2nd Show Cause with
Assessment by respondent Commission on July 21, 1997. Petitioner was then assessed a fine
of P50,000.00 plus P500.00 for every day that the report [was] not filed, or a total of P91, 000.00
as of July 21, 1997. Petitioner was likewise advised by respondent Commission to submit the
required reports and settle the assessment, or submit the case to a formal hearing. (Annex H, p.
25, Rollo).

On August 18, 1997, petitioner wrote respondent Commission disputing the assessment. (Annex
I, pp. 26-27, Rollo).

Thus, on November 5, 1997, respondent issued the assailed Order, the dispositive portion of
which provides:

In view of the foregoing, the appeal filed by the Union Bank of the Philippines is hereby
denied.The penalty imposed in the amount of P91,000.00 as of July 21, 1997, for failure to file
SEC Form 11-A excludes the fine accruing after the cut-off date until the final submission of the
report. Further, the amount of P50,000.00 shall be collected for the violation of RSA Rule 34(a)-
1 or Rule 34 (c)(1). (p. 17, Rollo).

Petitioner sought a reconsideration thereof which was denied by respondent Commission per
assailed Order dated April 14, 1998, the dispositive portion of which reads:

There being no new matters raised in the motion for reconsideration to overcome the denial of
the Appeal by the Commission En Banc in its Order of November 5, 1997, and considering that
the reasons advanced are [a] mere rehash of its defenses duly addressed in the Appeal, the
Motion for Reconsideration is hereby, DENIED. (p. 19, Rollo).[5]

Petitioner then elevated its case to the Court of Appeals which, as already stated,
affirmed the questioned Orders.
The CA Ruling

In its well-written 10-page Decision, the Court of Appeals cited the expertise of
Respondent SEC on matters within the ambit of the latters mandate, as follows:

To begin with, it is already well-settled that the construction given to a statute by an


administrative agency charged with the interpretation and application of that statute is entitled to
great respect and should be accorded great weight by the courts, unless such construction is
clearly shown to be in sharp conflict with the governing statute or the Constitution and other
laws. (Nestle Philippines, Inc. v. Court of Appeals, 203 SCRA 504 [1991], at page 510) The
rationale for this rule relates not only to the emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to accumulation of experience and growth of specialized
capabilities by the administrative agency charged with implementing a particular statute. (Nestle
Philippines, Inc. v. Court of Appeals, ibid., at pp. 510-511)

In this regard, the Supreme Court, in Philippine Stock Exchange v. Securities and Exchange
Commission, et. al., G.R. No. 125469, October 27, 1998, already upheld the power of respondent
Securities and Exchange Commission to promulgate rules and regulations, as it may consider
appropriate, for the enforcement of the Revised Securities Act and other pertinent laws. Thus,
pursuant to their regulatory authority, respondent Securities and Exchange Commission adopted
the policy of full material disclosure where all companies, listed or applying for listing, are
required to divulge truthfully and accurately, all material information about themselves and the
securities they sell, for the protection of the investing public, and under pain of administrative,
criminal and civil sanctions. While the employment of the full material disclosure policy is
sanctioned and recognized by the laws, nonetheless, the Revised Securities Act sets substantial
and procedural standards which a proposed issuer of securities must satisfy.

Moreover and perhaps most importantly, the construction given by respondent Commission on
the scope of application of the Full Material Disclosure policy permits greater opportunity for
respondent Commission to implement [its] statutory mandate of protecting the investing public
by requiring public issuers of securities to inform the public of the true financial conditions and
prospects of the corporation.[6]

The court a quo stressed that Rules 11(a)-1, 34(a)-1, and 34(c)-1 were issued by
respondent to implement the Revised Securities Act (RSA). They do not require the
registration of petitioners securities; thus, it cannot be said that the SEC amended
Section 5(a)(3) of the said Act.
Hence, this Petition.[7]

Issues
Petitioner submits for our resolution the following issues:

A. Whether or not petitioner is required to comply with the respondent SECs full disclosure
rules.

B. Whether or not the SECs full disclosure rules [are] contrary to and effectively [amend] section
5(a)(3) of the Revised Securities Act.

C. Whether or not Respondent Court of Appeals gravely erred in holding that petitioner violated
three (3) Rules, namely: Rule 11(A)-1, Rule 34(A)-1 and Rule 34(C)-1 of the full disclosure rule.

D. Whether or not Respondent Court of Appeals erred in affirming with modification the
imposition of excessive fines in violation of the Philippine Constitution.[8]

In the main, the Court will determine (1) the applicability of RSA Implementing
Rules 11(a)-1, 34(a)-1 and 34(c)-1 to petitioner; and (2) the propriety of the fine
imposed upon the latter.

The Courts Ruling

The Petition is not meritorious.

First Issue:

Applicability of the Assailed RSA Implementing Rules

Because its securities are exempt from the registration requirements under Section
5(a)(3) of the Revised Securities Act, petitioner argues that it is not covered by RSA
Implementing Rule 11(a)-1, which requires the filing of annual, quarterly, current
predecessor and successor reports; Rule 34(a)-1, which mandates the filing of proxy
statements and forms of proxy; and Rule 34(c)-1, which obligates the submission of
information statements.
We do not agree. Section 5(a)(3) of the said Act reads:

Sec 5. Exempt Securities. (a) Except as expressly provided, the requirement of registration under
subsection (a) of Section four of this Act shall not apply to any of the following classes of
securities:

xxxxxxxxx
(3) Any security issued or guaranteed by any banking institution authorized to do business in the
Philippines, the business of which is substantially confined to banking, or a financial institution
licensed to engage in quasi-banking, and is supervised by the Central Bank.

This provision exempts from registration the securities issued by banking or


financial institutions mentioned in the law. Nowhere does it state or even imply that
petitioner, as a listed corporation, is exempt from complying with the reports required
by the assailed RSA Implementing Rules. Worth repeating is the CAs disquisition on
the matter, which we quote:

However, the exemption from the registration requirement enjoyed by petitioner does not
necessarily connote that [it is] exempted from the other reportorial requirements. Having
confined the exemption enjoyed by petitioner merely to the initial requirement of registration of
securities for public offering, and not [to] the subsequent filing of various periodic reports,
respondent Commission, as the regulatory agency, is able to exercise its power of supervision
and control over corporations and over the securities market as a whole. Otherwise, the
objectives of the `Full Material Disclosure policy would be defeated since petitioner corporation
and its dealings would be totally beyond the reach of respondent Commission and the investing
public.[9]

It must be emphasized that petitioner is a commercial banking corporation[10] listed


in the stock exchange. Thus, it must adhere not only to banking and other allied special
laws, but also to the rules promulgated by Respondent SEC, the government entity
tasked not only with the enforcement of the Revised Securities Act,[11] but also with the
supervision of all corporations, partnerships or associations which are grantees of
government-issued primary franchises and/or licenses or permits to operate in the
Philippines.[12]
RSA Rules 11(a)-1, 34(a)-1 and 34(c)-1 require the submission of certain reports to
ensure full, fair and accurate disclosure of information for the protection of the investing
public. These Rules were issued by respondent pursuant to the authority conferred upon
it by Section 3 of the RSA.[13]
The said Rules do not amend Section 5(a)(3) of the Revised Securities Act, because
they do notrevoke or amend the exemption from registration of the securities
enumerated thereunder. They are reasonable regulations imposed upon petitioner as a
banking corporation trading its securities in the stock market.
That petitioner is under the supervision of the Bangko Sentral ng Pilipinas (BSP)
and the Philippine Stock Exchange (PSE) does not exempt it from complying with the
continuing disclosure requirements embodied in the assailed Rules.Petitioner, as a
bank, is primarily subject to the control of the BSP; and as a corporation trading its
securities in the stock market, it is under the supervision of the SEC. It must be pointed
out that even the PSE is under the control and supervision of respondent.[14] There is no
over-supervision here. Each regulating authority operates within the sphere of its
powers. That stringent requirements are imposed is understandable, considering the
paramount importance given to the interests of the investing public.
Otherwise stated, the mere fact that in regard to its banking functions, petitioner is
already subject to the supervision of the BSP does not exempt the former from
reasonable disclosure regulations issued by the SEC. These regulations are meant to
assure full, fair and accurate disclosure of information for the protection of investors in
the stock market. Imposing such regulations is a function within the jurisdiction of the
SEC. Since petitioner opted to trade its shares in the exchange, then it must abide by
the reasonable rules imposed by the SEC.

Second Issue:

Propriety of Fine Imposed

Contending that both respondent and the CA erred in imposing an excessive fine
upon it, petitioner complains that it was not given an opportunity to be heard regarding
the matter.
It bears stressing that the fine imposed upon petitioner is sanctioned by Section
46(b) of the RSA, which reads as follows:

Sec. 46. Administrative sanctions. If, after proper notice and hearing, the Commission finds that
there is a violation of this Act, its rules, or its orders or that any registrant has, in a registration
statement and its supporting papers and other reports required by law or rules to be filed with the
Commission, made any untrue statement of a material fact, or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not misleading, or
refused to permit any lawful examination into its affairs, it shall, in its discretion, impose any or
all of the following sanctions:

xxxxxxxxx

(b) A fine of no less than two hundred (P200.00) pesos nor more than fifty thousand
(P50,000.00) pesos plus not more than five hundred (P500.00) pesos for each day of continuing
violation.

Petitioner complied with RSA Rule 11(a)-1 on April 30, 1998. To date, it still has
not complied with either RSA Rule 34(a)-1 or Rule 34(c)-1. That there was a failure to
submit the required reports on time is evident in the present case. Thus, respondent was
justified in imposing a fine upon it.
We reject the contention of petitioner that it was not heard on the matter of the fine
imposed. The latter was assessed after the former had failed to respond to the SECs first
show-cause letter dated June 17, 1997.[15] In its August 18, 1997 letter,[16]petitioner
sought before the SEC en banc the nullification of the fine. The matter was raised to the
appellate court, which then considered it.Clearly then, petitioner satisfied the essence
of due process notice and opportunity to be heard.[17]That it received adverse rulings
from both respondent and the CA does not mean that its right to be heard was discarded.
WHEREFORE, the Petition is hereby DENIED,and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against petitioner.
SO ORDERED.

14. EN BANC

G.R. No. L-14441 December 17, 1966

PEDRO R. PALTING, petitioner,


vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.

BARRERA, J.:

This is a petition for review of the order of August 29, 1958, later supplemented and amplified by
another dated September 9, 1958, of the Securities and Exchange Commission denying the
opposition to, and instead, granting the registration, and licensing the sale in the Philippines, of
5,000,000 shares of the capital stock of the respondent-appellee San Jose Petroleum, Inc. (hereafter
referred to as SAN JOSE PETROLEUM), a corporation organized and existing in the Republic of
Panama.

On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities and Exchange
Commission a sworn registration statement, for the registration and licensing for sale in the
Philippines Voting Trust Certificates representing 2,000,000 shares of its capital stock of a par value
of $0.35 a share, at P1.00 per share. It was alleged that the entire proceeds of the sale of said
securities will be devoted or used exclusively to finance the operations of San Jose Oil Company,
Inc. (a domestic mining corporation hereafter to be referred to as SAN JOSE OIL) which has 14
petroleum exploration concessions covering an area of a little less than 1,000,000 hectares, located
in the provinces of Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and Agusan.
It was the express condition of the sale that every purchaser of the securities shall not receive a
stock certificate, but a registered or bearer-voting-trust certificate from the voting trustees named
therein James L. Buckley and Austin G.E. Taylor, the first residing in Connecticut, U.S.A., and the
second in New York City. While this application for registration was pending consideration by the
Securities and Exchange Commission, SAN JOSE PETROLEUM filed an amended Statement on
June 20, 1958, for registration of the sale in the Philippines of its shares of capital stock, which was
increased from 2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to P0.70 per share.
At this time the par value of the shares has also been reduced from $.35 to $.01 per share.1
Pedro R. Palting and others, allegedly prospective investors in the shares of SAN JOSE
PETROLEUM, filed with the Securities and Exchange Commission an opposition to registration and
licensing of the securities on the grounds that (1) the tie-up between the issuer, SAN JOSE
PETROLEUM, a Panamanian corporation and SAN JOSE OIL, a domestic corporation, violates the
Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949; (2) the issuer
has not been licensed to transact business in the Philippines; (3) the sale of the shares of the issuer
is fraudulent, and works or tends to work a fraud upon Philippine purchasers; and (4) the issuer as
an enterprise, as well as its business, is based upon unsound business principles. Answering the
foregoing opposition of Palting, et al., the registrant SAN JOSE PETROLEUM claimed that it was a
"business enterprise" enjoying parity rights under the Ordinance appended to the Constitution, which
parity right, with respect to mineral resources in the Philippines, may be exercised, pursuant to the
Laurel-Langley Agreement, only through the medium of a corporation organized under the laws of
the Philippines. Thus, registrant which is allegedly qualified to exercise rights under the Parity
Amendment, had to do so through the medium of a domestic corporation, which is the SAN JOSE
OIL. It refused the contention that the Corporation Law was being violated, by alleging that Section
13 thereof applies only to foreign corporations doing business in the Philippines, and registrant was
not doing business here. The mere fact that it was a holding company of SAN JOSE OIL and that
registrant undertook the financing of and giving technical assistance to said corporation did not
constitute transaction of business in the Philippines. Registrant also denied that the offering for sale
in the Philippines of its shares of capital stock was fraudulent or would work or tend to work fraud on
the investors. On August 29, 1958, and on September 9, 1958 the Securities and Exchange
Commissioner issued the orders object of the present appeal.

The issues raised by the parties in this appeal are as follows:

1. Whether or not petitioner Pedro R. Palting, as a "prospective investor" in respondent's


securities, has personality to file the present petition for review of the order of the Securities
and Exchange Commission;

2. Whether or not the issue raised herein is already moot and academic;

3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign
corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining corporation, is
violative of the Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949, and
the Corporation Law; and

4. Whether or not the sale of respondent's securities is fraudulent, or would work or tend to
work fraud to purchasers of such securities in the Philippines.

1. In answer to the notice and order of the Securities and Exchange Commissioner, published in 2
newspapers of general circulation in the Philippines, for "any person who is opposed" to the petition
for registration and licensing of respondent's securities, to file his opposition in 7 days, herein
petitioner so filed an opposition. And, the Commissioner, having denied his opposition and instead,
directed the registration of the securities to be offered for sale, oppositor Palting instituted the
present proceeding for review of said order.

Respondent raises the question of the personality of petitioner to bring this appeal, contending that
as a mere "prospective investor", he is not an "Aggrieved" or "interested" person who may properly
maintain the suit. Citing a 1931 ruling of Utah State Supreme Court2 it is claimed that the phrase
"party aggrieved" used in the Securities Act3 and the Rules of Court4 as having the right to appeal
should refer only to issuers, dealers and salesmen of securities.
It is true that in the cited case, it was ruled that the phrase "person aggrieved" is that party
"aggrieved by the judgment or decree where it operates on his rights of property or bears directly
upon his interest", that the word "aggrieved" refers to "a substantial grievance, a denial of some
personal property right or the imposition upon a party of a burden or obligation." But a careful
reading of the case would show that the appeal therein was dismissed because the court held that
an order of registration was not final and therefore not appealable. The foregoing pronouncement
relied upon by herein respondent was made in construing the provision regarding an order of
revocation which the court held was the one appealable. And since the law provides that in revoking
the registration of any security, only the issuer and every registered dealer of the security are
notified, excluding any person or group of persons having no such interest in the securities, said
court concluded that the phrase "interested person" refers only to issuers, dealers or salesmen of
securities.

We cannot consider the foregoing ruling by the Utah State Court as controlling on the issue in this
case. Our Securities Act in Section 7(c) thereof, requires the publication and notice of the
registration statement. Pursuant thereto, the Securities and Exchange Commissioner caused the
publication of an order in part reading as follows:

. . . Any person who is opposed with this petition must file his written opposition with this
Commission within said period (2 weeks). . . .

In other words, as construed by the administrative office entrusted with the enforcement of the
Securities Act, any person (who may not be "aggrieved" or "interested" within the legal acceptation
of the word) is allowed or permitted to file an opposition to the registration of securities for sale in the
Philippines. And this is in consonance with the generally accepted principle that Blue Sky Laws are
enacted to protect investors and prospective purchasers and to prevent fraud and preclude the sale
of securities which are in fact worthless or worth substantially less than the asking price. It is for this
purpose that herein petitioner duly filed his opposition giving grounds therefor. Respondent SAN
JOSE PETROLEUM was required to reply to the opposition. Subsequently both the petition and the
opposition were set for hearing during which the petitioner was allowed to actively participate and did
so by cross-examining the respondent's witnesses and filing his memorandum in support of his
opposition. He therefore to all intents and purposes became a party to the proceedings. And under
the New Rules of Court,5 such a party can appeal from a final order, ruling or decision of the
Securities and Exchange Commission. This new Rule eliminating the word "aggrieved" appearing in
the old Rule, being procedural in nature,6 and in view of the express provision of Rule 144 that the
new rules made effective on January 1, 1964 shall govern not only cases brought after they took
effect but all further proceedings in cases then pending, except to the extent that in the opinion of the
Court their application would not be feasible or would work injustice, in which event the former
procedure shall apply, we hold that the present appeal is properly within the appellate jurisdiction of
this Court.

The order allowing the registration and sale of respondent's securities is clearly a final order that is
appealable. The mere fact that such authority may be later suspended or revoked, depending on
future developments, does not give it the character of an interlocutory or provisional ruling. And the
fact that seven days after the publication of the order, the securities are deemed registered (Sec. 7,
Com. Act 83, as amended), points to the finality of the order. Rights and obligations necessarily arise
therefrom if not reviewed on appeal.

Our position on this procedural matter — that the order is appealable and the appeal taken here is
proper — is strengthened by the intervention of the Solicitor General, under Section 23 of Rule 3 of
the Rules of Court, as the constitutional issues herein presented affect the validity of Section 13 of
the Corporation Law, which, according to the respondent, conflicts with the Parity Ordinance and the
Laurel-Langley Agreement recognizing, it is claimed, its right to exploit our petroleum resources
notwithstanding said provisions of the Corporation Law.

2. Respondent likewise contends that since the order of Registration/Licensing dated September 9,
1958 took effect 30 days from September 3, 1958, and since no stay order has been issued by the
Supreme Court, respondent's shares became registered and licensed under the law as of October 3,
1958. Consequently, it is asserted, the present appeal has become academic. Frankly we are
unable to follow respondent's argumentation. First it claims that the order of August 29 and that of
September 9, 1958 are not final orders and therefor are not appealable. Then when these orders,
according to its theory became final and were implemented, it argues that the orders can no longer
be appealed as the question of registration and licensing became moot and academic.

But the fact is that because of the authority to sell, the securities are, in all probabilities, still being
traded in the open market. Consequently the issue is much alive as to whether respondent's
securities should continue to be the subject of sale. The purpose of the inquiry on this matter is not
fully served just because the securities had passed out of the hands of the issuer and its dealers.
Obviously, so long as the securities are outstanding and are placed in the channels of trade and
commerce, members of the investing public are entitled to have the question of the worth or legality
of the securities resolved one way or another.

But more fundamental than this consideration, we agree with the late Senator Claro M. Recto, who
appeared as amicus curiae in this case, that while apparently the immediate issue in this appeal is
the right of respondent SAN JOSE PETROLEUM to dispose of and sell its securities to the Filipino
public, the real and ultimate controversy here would actually call for the construction of the
constitutional provisions governing the disposition, utilization, exploitation and development of our
natural resources. And certainly this is neither moot nor academic.

3. We now come to the meat of the controversy — the "tie-up" between SAN JOSE OIL on the one
hand, and the respondent SAN JOSE PETROLEUM and its associates, on the other. The
relationship of these corporations involved or affected in this case is admitted and established
through the papers and documents which are parts of the records: SAN JOSE OIL, is a domestic
mining corporation, 90% of the outstanding capital stock of which is owned by respondent SAN
JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority interest of which is owned by
OIL INVESTMENTS, Inc., another foreign (Panamanian) company. This latter corporation in turn is
wholly (100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM
COMPANY, C.A., both organized and existing under the laws of Venezuela. As of September 30,
1956, there were 9,976 stockholders of PANCOASTAL PETROLEUM found in 49 American states
and U.S. territories, holding 3,476,988 shares of stock; whereas, as of November 30, 1956,
PANTEPEC OIL COMPANY was said to have 3,077,916 shares held by 12,373 stockholders
scattered in 49 American state. In the two lists of stockholders, there is no indication of the
citizenship of these stockholders,7 or of the total number of authorized stocks of each corporation, for
the purpose of determining the corresponding percentage of these listed stockholders in relation to
the respective capital stock of said corporation.

Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the relationship
between herein respondent SAN JOSE PETROLEUM and its subsidiary, SAN JOSE OIL, violates
the Petroleum Law of 1949, the Philippine Constitution, and Section 13 of the Corporation Law,
which inhibits a mining corporation from acquiring an interest in another mining corporation. It is
respondent's theory, on the other hand, that far from violating the Constitution; such relationship
between the two corporations is in accordance with the Laurel-Langley Agreement which
implemented the Ordinance Appended to the Constitution, and that Section 13 of the Corporation
Law is not applicable because respondent is not licensed to do business, as it is not doing business,
in the Philippines.

Article XIII, Section 1 of the Philippine Constitution provides:

SEC. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals,
coal, petroleum, and other mineral oils, all forces of potential energy, and other natural
resources of the Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to citizens of the Philippines, or to corporations or
associations at least sixty per centum of the capital of which is owned by such citizens,
subject to any existing right, grant, lease or concession at the time of the inauguration of this
Government established under this Constitution. . . . (Emphasis supplied)

In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit our natural
resources) was extended to citizens of the United States, thus:

Notwithstanding the provisions of section one, Article Thirteen, and section eight, Article
Fourteen, of the foregoing Constitution, during the effectivity of the Executive Agreement
entered into by the President of the Philippines with the President of the United States on the
fourth of July, nineteen hundred and forty-six, pursuant to the provisions of Commonwealth
Act Numbered Seven hundred and thirty-three, but in no case to extend beyond the third of
July, nineteen hundred and seventy-four, the disposition, exploitation, development, and
utilization of all agricultural, timber, and mineral lands of the public domain, waters, minerals,
coal, petroleum, and other mineral oils, all forces of potential energy, and other natural
resources of the Philippines, and the operation of public utilities shall, if open to any person,
be open to citizens of the United States, and to all forms of business enterprises owned or
controlled, directly or indirectly, by citizens of the United States in the same manner as to,
and under the same conditions imposed upon, citizens of the Philippines or corporations or
associations owned or controlled by citizens of the Philippines (Emphasis supplied.)

In the 1954 Revised Trade Agreement concluded between the United States and the Philippines,
also known as the Laurel-Langley Agreement, embodied in Republic Act 1355, the following
provisions appear:

ARTICLE VI

1. The disposition, exploitation, development and utilization of all agricultural, timber, and
mineral lands of the public domain, waters, minerals, coal, petroleum and other mineral oils,
all forces and sources of potential energy, and other natural resources of either Party, and
the operation of public utilities, shall, if open to any person, be open to citizens of the other
Party and to all forms of business enterprise owned or controlled, directly or indirectly, by
citizens of such other Party in the same manner as to and under the same conditions
imposed upon citizens or corporations or associations owned or controlled by citizens of the
Party granting the right.

2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of citizens of the
United States, with respect to natural resources in the public domain in the Philippines, only
through the medium of a corporation organized under the laws of the Philippines and at least
60% of the capital stock of which is owned or controlled by citizens of the United States. . . .

3. The United States of America reserves the rights of the several States of the United States
to limit the extent to which citizens or corporations or associations owned or controlled by
citizens of the Philippines may engage in the activities specified in this Article. The Republic
of the Philippines reserves the power to deny any of the rights specified in this Article to
citizens of the United States who are citizens of States, or to corporations or associations at
least 60% of whose capital stock or capital is owned or controlled by citizens of States, which
deny like rights to citizens of the Philippines, or to corporations or associations which are
owned or controlled by citizens of the Philippines. . . . (Emphasis supplied.)

Re-stated, the privilege to utilize, exploit, and develop the natural resources of this country was
granted, by Article XIII of the Constitution, to Filipino citizens or to corporations or associations 60%
of the capital of which is owned by such citizens. With the Parity Amendment to the Constitution, the
same right was extended to citizens of the United States and business enterprises owned or
controlled directly or indirectly, by citizens of the United States.

There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned
provisions of the Constitution. The right was granted to 2 types of persons: natural persons (Filipino
or American citizens) and juridical persons (corporations 60% of which capital is owned by Filipinos
and business enterprises owned or controlled directly or indirectly, by citizens of the United States).
In American law, "citizen" has been defined as "one who, under the constitution and laws of the
United States, has a right to vote for representatives in congress and other public officers, and who
is qualified to fill offices in the gift of the people. (1 Bouvier's Law Dictionary, p. 490.) A citizen is —

One of the sovereign people. A constituent member of the sovereignty, synonymous with the
people." (Scott v. Sandford, 19 Ho. [U.S.] 404, 15 L. Ed. 691.)

A member of the civil state entitled to all its privileges. (Cooley, Const. Lim. 77. See U.S. v.
Cruikshank 92 U.S. 542, 23 L. Ed. 588; Minor v. Happersett 21 Wall. [U.S.] 162, 22 L. Ed.
627.)

These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business
enterprise entitled to parity rights in the Philippines? The answer must be in the negative, for the
following reasons:

Firstly — It is not owned or controlled directly by citizens of the United States, because it is owned
and controlled by a corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation.

Secondly — Neither can it be said that it is indirectly owned and controlled by American citizens
through the OIL INVESTMENTS, for this latter corporation is in turn owned and controlled, not by
citizens of the United States, but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL
COMPANY and PANCOASTAL PETROLEUM.

Thirdly — Although it is claimed that these two last corporations are owned and controlled
respectively by 12,373 and 9,979 stockholders residing in the different American states, there is no
showing in the certification furnished by respondent that the stockholders of PANCOASTAL or those
of them holding the controlling stock, are citizens of the United States.

Fourthly — Granting that these individual stockholders are American citizens, it is yet necessary to
establish that the different states of which they are citizens, allow Filipino citizens or corporations or
associations owned or controlled by Filipino citizens, to engage in the exploitation, etc. of the natural
resources of these states (see paragraph 3, Article VI of the Laurel-Langley Agreement, supra).
Respondent has presented no proof to this effect.
Fifthly — But even if the requirements mentioned in the two immediately preceding paragraphs are
satisfied, nevertheless to hold that the set-up disclosed in this case, with a long chain of intervening
foreign corporations, comes within the purview of the Parity Amendment regarding business
enterprises indirectly owned or controlled by citizens of the United States, is to unduly stretch and
strain the language and intent of the law. For, to what extent must the word "indirectly" be carried?
Must we trace the ownership or control of these various corporations ad infinitum for the purpose of
determining whether the American ownership-control-requirement is satisfied? Add to this the
admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL which are allegedly
owned or controlled directly by citizens of the United States, are traded in the stock exchange in
New York, and you have a situation where it becomes a practical impossibility to determine at any
given time, the citizenship of the controlling stock required by the law. In the circumstances, we have
to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is not a business
enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-
Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.

What, then, would be the Status of SAN JOSE OIL, about 90% of whose stock is owned by SAN
JOSE PETROLEUM? This is a query which we need not resolve in this case as SAN JOSE OIL is
not a party and it is not necessary to do so to dispose of the present controversy. But it is a matter
that probably the Solicitor General would want to look into.

There is another issue which has been discussed extensively by the parties. This is whether or not
an American mining corporation may lawfully "be in anywise interested in any other corporation
(domestic or foreign) organized for the purpose of engaging in agriculture or in mining," in the
Philippines or whether an American citizen owning stock in more than one corporation organized for
the purpose of engaging in agriculture or in mining, may own more than 15% of the capital stock
then outstanding and entitled to vote, of each of such corporations, in view of the express prohibition
contained in Section 13 of the Philippine Corporation Law. The petitioner in this case contends that
the provisions of the Corporation Law must be applied to American citizens and business enterprise
otherwise entitled to exercise the parity privileges, because both the Laurel-Langley Agreement (Art.
VI, par. 1) and the Petroleum Act of 1948 (Art. 31), specifically provide that the enjoyment by them of
the same rights and obligations granted under the provisions of both laws shall be "in the same
manner as to, and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the Philippines." The petitioner further
contends that, as the enjoyment of the privilege of exploiting mineral resources in the Philippines by
Filipino citizens or corporations owned or controlled by citizens of the Philippines (which corporation
must necessarily be organized under the Corporation Law), is made subject to the limitations
provided in Section 13 of the Corporation Law, so necessarily the exercise of the parity rights by
citizens of the United States or business enterprise owned or controlled, directly or indirectly, by
citizens of the United States, must equally be subject to the same limitations contained in the
aforesaid Section 13 of the Corporation Law.

In view of the conclusions we have already arrived at, we deem it not indispensable for us to pass
upon this legal question, especially taking into account the statement of the respondent (SAN JOSE
PETROLEUM) that it is essentially a holding company, and as found by the Securities and
Exchange Commissioner, its principal activity is limited to the financing and giving technical
assistance to SAN JOSE OIL.

4. Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed registration for sale
in the Philippines, was incorporated under the laws of Panama in April, 1956 with an authorized
capital stock of $500,000.00, American currency, divided into 50,000,000 shares at par value of
$0.01 per share. By virtue of a 3-party Agreement of June 14, 1956, respondent was supposed to
have received from OIL INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE OIL (at
par value of $0.01 per share), plus a note for $250,000.00 due in 6 months, for which respondent
issued in favor of OIL INVESTMENTS 16,000,000 shares of its capital stock, at $0.01 per share or
with a value of $160,000.00, plus a note for $230,297.97 maturing in 2 years at 6% per annum
interest,9 and the assumption of payment of the unpaid price of 7,500,000 (of the 8,000,000 shares
of SAN JOSE OIL).

On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from $500,000.00
to $17,500,000.00 by increasing the par value of the same 50,000,000 shares, from $0.01 to $0.35.
Without any additional consideration, the 16,000,000 shares of $0.01 previously issued to OIL
INVESTMENTS with a total value of $160,000.00 were changed with 16,000,000 shares of the
recapitalized stock at $0.35 per share, or valued at $5,600,000.00. And, to make it appear that cash
was received for these re-issued 16,000,000 shares, the board of directors of respondent
corporation placed a valuation of $5,900,000.00 on the 8,000,000 shares of SAN JOSE OIL (still
having par value of $0.10 per share) which were received from OIL INVESTMENTS as part-
consideration for the 16,000,000 shares at $0.01 per share.

In the Balance Sheet of respondent, dated July 12, 1956, from the $5,900,000.00, supposedly the
value of the 8,000,000 shares of SAN JOSE OIL, the sum of $5,100,000.00 was deducted,
corresponding to the alleged difference between the "value" of the said shares and the subscription
price thereof which is $800,000.00 (at $0.10 per share). From this $800,000.00, the subscription
price of the SAN JOSE OIL shares, the amount of $319,702.03 was deducted, as allegedly unpaid
subscription price, thereby giving a difference of $480,297.97, which was placed as the amount
allegedly paid in on the subscription price of the 8,000,000 SAN JOSE OIL shares. Then, by adding
thereto the note receivable from OIL INVESTMENTS, for $250,000.00 (part-consideration for the
16,000,000 SAN JOSE PETROLEUM shares), and the sum of $6,516.21, as deferred expenses,
SAN JOSE PETROLEUM appeared to have assets in the sum of $736,814.18.

These figures are highly questionable. Take the item $5,900,000.00 the valuation placed on the
8,000,000 shares of SAN JOSE OIL. There appears no basis for such valuation other than belief by
the board of directors of respondent that "should San Jose Oil Company be granted the bulk of the
concessions applied for upon reasonable terms, that it would have a reasonable value of
approximately $10,000,000." 10 Then, of this amount, the subscription price of $800,000.00 was
deducted and called it "difference between the (above) valuation and the subscription price for the
8,000,000 shares." Of this $800,000.00 subscription price, they deducted the sum of $480,297.97
and the difference was placed as the unpaid portion of the subscription price. In other words, it was
made to appear that they paid in $480,297.97 for the 8,000,000 shares of SAN JOSE OIL. This
amount ($480,297.97) was supposedly that $250,000.00 paid by OIL INVESMENTS for 7,500,000
shares of SAN JOSE OIL, embodied in the June 14 Agreement, and a sum of $230,297.97 the
amount expended or advanced by OIL INVESTMENTS to SAN JOSE OIL. And yet, there is still an
item among respondent's liabilities, for $230,297.97 appearing as note payable to Oil Investments,
maturing in two (2) years at six percent (6%) per annum. 11 As far as it appears from the records, for
the 16,000,000 shares at $0.35 per share issued to OIL INVESTMENTS, respondent SAN JOSE
PETROLEUM received from OIL INVESTMENTS only the note for $250,000.00 plus the 8,000,000
shares of SAN JOSE OIL, with par value of $0.10 per share or a total of $1,050,000.00 — the only
assets of the corporation. In other words, respondent actually lost $4,550,000.00, which was
received by OIL INVESTMENTS.

But this is not all. Some of the provisions of the Articles of Incorporation of respondent SAN JOSE
PETROLEUM are noteworthy; viz:

(1) the directors of the Company need not be shareholders;


(2) that in the meetings of the board of directors, any director may be represented and may
vote through a proxy who also need not be a director or stockholder; and

(3) that no contract or transaction between the corporation and any other association or
partnership will be affected, except in case of fraud, by the fact that any of the directors or
officers of the corporation is interested in, or is a director or officer of, such other association
or partnership, and that no such contract or transaction of the corporation with any other
person or persons, firm, association or partnership shall be affected by the fact that any
director or officer of the corporation is a party to or has an interest in, such contract or
transaction, or has in anyway connected with such other person or persons, firm, association
or partnership; and finally, that all and any of the persons who may become director or officer
of the corporation shall be relieved from all responsibility for which they may otherwise be
liable by reason of any contract entered into with the corporation, whether it be for his benefit
or for the benefit of any other person, firm, association or partnership in which he may be
interested.

These provisions are in direct opposition to our corporation law and corporate practices in this
country. These provisions alone would outlaw any corporation locally organized or doing business in
this jurisdiction. Consider the unique and unusual provision that no contract or transaction between
the company and any other association or corporation shall be affected except in case of fraud, by
the fact that any of the directors or officers of the company may be interested in or are directors or
officers of such other association or corporation; and that none of such contracts or transactions of
this company with any person or persons, firms, associations or corporations shall be affected by the
fact that any director or officer of this company is a party to or has an interest in such contract or
transaction or has any connection with such person or persons, firms associations or corporations;
and that any and all persons who may become directors or officers of this company are hereby
relieved of all responsibility which they would otherwise incur by reason of any contract entered into
which this company either for their own benefit, or for the benefit of any person, firm, association or
corporation in which they may be interested.

The impact of these provisions upon the traditional judiciary relationship between the directors and
the stockholders of a corporation is too obvious to escape notice by those who are called upon to
protect the interest of investors. The directors and officers of the company can do anything, short of
actual fraud, with the affairs of the corporation even to benefit themselves directly or other persons
or entities in which they are interested, and with immunity because of the advance condonation or
relief from responsibility by reason of such acts. This and the other provision which authorizes the
election of non-stockholders as directors, completely disassociate the stockholders from the
government and management of the business in which they have invested.

To cap it all on April 17, 1957, admittedly to assure continuity of the management and stability of
SAN JOSE PETROLEUM, OIL INVESTMENTS, as holder of the only subscribed stock of the former
corporation and acting "on behalf of all future holders of voting trust certificates," entered into a
voting trust agreement12 with James L. Buckley and Austin E. Taylor, whereby said Trustees were
given authority to vote the shares represented by the outstanding trust certificates (including those
that may henceforth be issued) in the following manner:

(a) At all elections of directors, the Trustees will designate a suitable proxy or proxies to vote
for the election of directors designated by the Trustees in their own discretion, having in mind
the best interests of the holders of the voting trust certificates, it being understood that any
and all of the Trustees shall be eligible for election as directors;
(b) On any proposition for removal of a director, the Trustees shall designate a suitable proxy
or proxies to vote for or against such proposition as the Trustees in their own discretion may
determine, having in mind the best interest of the holders of the voting trust certificates;

(c) With respect to all other matters arising at any meeting of stockholders, the Trustees will
instruct such proxy or proxies attending such meetings to vote the shares of stock held by
the Trustees in accordance with the written instructions of each holder of voting trust
certificates. (Emphasis supplied.)

It was also therein provided that the said Agreement shall be binding upon the parties thereto, their
successors, and upon all holders of voting trust certificates.

And these are the voting trust certificates that are offered to investors as authorized by Security and
Exchange Commissioner. It can not be doubted that the sale of respondent's securities would, to say
the least, work or tend to work fraud to Philippine investors.

FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal,
is denied and the orders of the Securities and Exchange Commissioner, allowing the registration of
Respondent's securities and licensing their sale in the Philippines are hereby set aside. The case is
remanded to the Securities and Exchange Commission for appropriate action in consonance with
this decision. With costs. Let a copy of this decision be furnished the Solicitor General for whatever
action he may deem advisable to take in the premises. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez,
JJ., concur.

Castro, J., took no part.

15. EN BANC
G.R. No. 165272
SERGIO R. OSMEA III, JUAN M.
FLAVIER, RODOLFO G. BIAZON, ALFREDO
S. LIM, JAMBY A.S. MADRIGAL, LUIS F. Present:
SISON, AND PATRICIA C. SISON,
PUNO, C.J.,
Petitioners, QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL- GUTIERREZ,
- versus - CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
AZCUNA,
SOCIAL SECURITY SYSTEM OF THE TINGA,
PHILIPPINES, SOCIAL SECURITY CHICO-NAZARIO,
COMMISSION, CORAZON S. DELA PAZ, GARCIA,
VELASCO,
THELMO Y. CUNANAN, PATRICIA A. STO.
NACHURA, and
TOMAS, FE TIBAYAN-PANLILEO, DONALD
DEE, SERGIO R. ORTIZ-LUIS, JR., EFREN P. REYES, JJ.
ARANZAMENDEZ, MARIANITA O.
MENDOZA, and RAMON J. JABAR, in their
capacities as Members of the Social
Security Commission,AND BDO CAPITAL & Promulgated:
INVESTMENT CORPORATION,
Respondents.
September 13, 2007
x-------------------------------------------------------------------------------------x

DECISION

GARCIA, J.:
Senator Sergio R. Osmea III[1] and four (4) other members[2] of the Philippine
Senate, joined by Social Security System (SSS) members Luis F. Sison and Patricia C.
Sison, specifically seek in this original petition for certiorari and prohibition the
nullification of the following issuances of respondent Social Security Commission
(SSC):

1) RESOLUTION No. 428[3] dated July 14, 2004; and


2) RESOLUTION No. 485[4] datedAugust 11, 2004.

The first assailed resolution approved the proposed sale of the entire equity
stake of the SSS in what was then the Equitable PCI Bank, Inc. (EPCIB or EPCI),
consisting of 187,847,891 common shares, through the Swiss Challengebidding
procedure, and authorized SSS President Corazon S. Dela Paz (Dela Paz) to
constitute a bidding committee that would formulate the terms of reference of
the Swiss Challenge bidding mode. The second resolution approved the Timetable
and Instructions to Bidders.

Petitioners[5] also ask that a prohibitive writ issue to permanently enjoin


public respondents from implementing Res. Nos. 428 and 485 or otherwise
proceeding with the sale of subject shares through the Swiss Challenge method.

By Resolution[6] dated October 5, 2004, the Court en banc required the


parties to observe the status quo ante the passage of the assailed resolutions. In
the same resolution, the Court noted the motion of respondent BDO Capital and
Investment Corporation (BDO Capital) to admit its Opposition to the Petition.

The relevant factual antecedents:

Sometime in 2003, SSS, a government financial institution (GFI) created


pursuant to Republic Act (RA) No. 1161[7] and placed under the direction and
control of SSC, took steps to liquefy its long-term investments and diversify them
into higher-yielding and less volatile investment products. Among its assets
determined as needing to be liquefied were its shareholdings in EPCIB. The
principal reason behind the intended disposition, as explained
by respondent Dela Paz during the February 4, 2004 hearing conducted by the
Senate Committee on Banks, Financial Institutions and Currencies, is that the
shares in question have substantially declined in value and the SSS could no longer
afford to continue holding on to them at the present level of EPCIBs income.

Some excerpts of what respondent Dela Paz said in that hearing:

The market value of Equitable-PCI Bank had actually hovered at P34.00 since July
2003. At some point after the price went down to P16 or P17 after the September 11 , it
went up to P42.00 but later on went down to P34.00. xxx. We looked at the prices in about
March of 2001 and noted that the trade prices then ranged from P50 to P57.
xxx xxx xxx
I have to concede that [EPCIB] has started to recover, .
Perhaps the fact that there had been this improved situation in the bank that
attracted Banco de Oro . xxx. I wouldnt know whether the prices would eventually go up
to 60 of (sic) 120. But on the basis of my being the vice-chair on the bank, I believe that
this is the subject of a lot of conjecture. It can also go down . So, in the present situation
where the holdings of SSS in [EPCIB] consists of about 10 percent of the total reserve
fund, we cannot afford to continue holding it at the present level of income .xxx. And
therefore, on that basis, an exposure to certain form of assets whose price can go down
to 16 to 17 which is a little over 20 percent of what we have in our books, is not a very
prudent way or conservative way of handling those funds.We need not continue
experiencing opportunity losses but have an amount that will give us a fair return to that
kind of value (Words in bracket added.)

Albeit there were other interested parties, only Banco de Oro Universal Bank (BDO)
and its investment subsidiary, respondent BDO Capital,[8] appeared in earnest to
acquire the shares in question. Following talks between them, BDO and SSS signed,
on December 30, 2003, a Letter- Agreement,[9] for the sale and purchase of some
187.8 million EPCIB common shares (the Shares, hereinafter), at P43.50 per share,
which represents a premium of 30% of the then market value of the EPCIB shares.
At about this time, the Shares were trading at an average of P34.50 @ share.

In the same Letter-Agreement,[10] the parties agreed to negotiate in good faith a


mutually acceptable Share Sale and Purchase Agreement and execute the same not
later than thirty (30) business days from [December 30, 2003].

On April 19, 2004, the Commission on Audit (COA),[11] in response to


respondent Dela Pazs letter-query on the applicability of the public bidding
requirement under COA Circular No. 89-296[12] on the divestment by the SSS of its
entire EPICB equity holdings, stated that the circular covers all assets of
government agencies except those merchandize or inventory held for sale in the
regular course of business. And while it expressed the opinion[13] that the sale of
the subject Shares are subject to guidelines in the Circular, the COA qualified its
determination with a statement that such negotiated sale would partake of a stock
exchange transaction and, therefore, would be adhering to the general policy of
public auction. Wrote the COA:

Nevertheless, since activities in the stock exchange which offer to the general
public stocks listed therein, the proposed sale, although denominated as negotiated sale
substantially complies with the general policy of public auction as a mode of
divestment.This is so for shares of stocks are actually being auctioned to the general
public every time that the stock exchanges are openly operating.

Following several drafting sessions, SSS and BDO Capital, the designated
buyers of the Banco de Oro Group, agreed on a final draft version of the Share
Purchase Agreement[14] (SPA). In it, the parties mutually agreed to the purchase by
the BDO Capital and the sale by SSS of all the latters EPCIB shares at the closing
date at the specified price of P43.50 per share or a total of P8,171,383,258.50.
The proposed SPA, together with the Letter-Agreement, was then submitted
to the Department of Justice (DOJ) which, in an Opinion[15] dated April 29, 2004,
concurred with the COAs opinion adverted to and stated that it did not find
anything objectionable with the terms of both documents.

On July 14, 2004, SSC passed Res. No. 428[16]approving, as earlier stated, the
sale of the EPCIB shares through the Swiss Challenge method. A month later, the
equally assailed Res. No. 485[17]was also passed.

On August 23, 24, and 25, 2004, SSS advertised an Invitation to Bid[18] for the
block purchase of the Shares. The Invitation to Bid expressly provided that
the result of the bidding is subject to the right of BDO Capital to match the highest
bid. October 20, 2004 was the date set for determining the winning bid.

The records do not show whether or not any interested group/s submitted
bids. The bottom line, however, is that even before the bid envelopes, if any, could
be opened, the herein petitioners commenced the instant special civil action
for certiorari, setting their sights primarily on the legality of the Swiss
Challenge angle and a provision in the Instruction to Bidders under which the SSS
undertakes to offer the Shares to BDO should no bidder or prospective bidder
qualifies. And as earlier mentioned, the Court, via a status quo order,[19] effectively
suspended the proceedings on the proposed sale.

Under the Swiss Challenge format, one of the bidders is given the option or
preferential right to match the winning bid.

Petitioners assert, in gist, that a public bidding with a Swiss


Challenge component is contrary to COA Circular No. 89-296 and public policy
which requires adherence to competitive public bidding in a government-contract
award to assure the best price possible for government assets. Accordingly, the
petitioners urge that the planned disposition of the Shares through a Swiss
Challenge method be scrapped. As argued, the Swiss Challenge feature tends to
discourage would-be-bidders from undertaking the expense and effort of bidding
if the chance of winning is diminished by the preferential right to matchclause.
Pushing the point, petitioners aver that the Shares are in the nature of long-term
or non-current assets not regularly traded or held for sale in the regular course of
business. As such, their disposition must be governed by the aforementioned COA
circular which, subject to several exceptions, prescribes public auction as a primary
mode of disposal of GFIs assets. And obviously finding the proposed purchase price
to be inadequate, the petitioners expressed the belief that if properly bidded out in
accordance with [the] COA Circular , the Shares could be sold at a price of at least
Sixty Pesos (P60.00) per share. Other supporting arguments for
allowing certiorari are set forth in some detail in the basic petition.

Against the petitioners stance, public respondents inter alia submit that the
sale of subject Shares is exempt from the tedious public bidding requirement of
COA. Obviously stressing the practical side of the matter, public respondents assert
that if they are to hew to the bidding requirement in the disposition of SSSs
Philippine Stock Exchange (PSE)-listed stocks, it would place the System at a
disadvantage vis--visother stock market players who certainly enjoy greater
flexibility in reacting to the vagaries of the market and could sell their holdings at a
moments notice when the price is right. Public respondents hasten to add,
however, that the bidding-exempt status of the Shares did not prevent the SSS from
prudently proceeding with the bidding as contemplated in the assailed resolutions
as a measure to validate the adequacy of the unit price BDO Capital offered
therefor and to possibly obtain a higher price than its definitive offer of P43.50 per
share.[20]Public respondents also advanced the legal argument, also shared by their
co-respondent BDO Capital, in its Comment,[21] that the proposed sale is not
covered by COA Circular No. 89-296 since the Shares partake of the nature of
merchandise or inventory held for sale in the regular course of SSSs business.
Pending consideration of the petition, supervening events and corporate
movements transpired that radically altered the factual complexion of the
case. Some of these undisputed events are detailed in the petitioners
separate Manifestation & Motion to Take Judicial Notice[22] and their respective
annexes. To cite the relevant ones:
1. In January 2006, BDO made public its intent to merge with EPCIB. Under what BDO termed as Merger
of Equals, EPCIB shareholders would get 1.6 BDO shares for every EPCIB share.[23]

2. In early January 2006, the GSIS publicly announced receiving from an undisclosed entity an offer to buy
its stake in EPCIB 12% of the banks outstanding capital stock at P92.00 per share.[24]

3. On August 31, 2006, SM InvestmentsCorporation, an affiliate of BDO and BDO Capital, in consortium
with Shoemart, Inc. et al., (collectively, the SM Group) commenced, through the facilities of the PSE and
pursuant to R.A. No. 8799[25], a mandatory tender offer (Tender Offer) covering the purchase of the entire
outstanding capital stock of EPCIB at P92.00 per share.Pursuant to the terms of the Tender Offer, which
was to start on August 31, 2006 and end on September 28, 2006 the Tender Offer Period all shares validly
tendered under it by EPCIB shareholders of record shall be deemed accepted for payment on closing date
subject to certain conditions.[26] Among those who accepted the Tender Offer of the SM Group was EBC
Investments, Inc., a subsidiary of EPCIB.

4. A day or two later, BDO filed a Tender Offer Report with the Securities and Exchange
Commission (SEC) and the PSE.[27]

Owing to the foregoing developments, the Court, on October 3, 2006, issued a


Resolution requiring the parties to CONFIRM news reports that price of subject
shares has been agreed upon at P92; and if so, to MANIFEST whether this case has
become moot.

First to comply with the above were public respondents SSS et al., by filing
their Compliance and Manifestation,[28] therein essentially stating that the case is
now moot in view of the SM-BDO Groups Tender Offer at P92.00 @ unit share, for
the subject EPCIB common shares, inclusive of the SSS shares subject of the
petition. They also stated the observation that the petitioners Manifestation and
Motion to Take Judicial Notice,[29] never questioned the Tender Offer, thus
confirming the dispensability of a competitive public bidding in the disposition of
subject Shares.
For perspective, a tender offer is a publicly announced intention by a person acting
alone or in concert with other persons to acquire equity securities of a public
company, i.e., one listed on an exchange, among others.[30] The term is also defined
as an offer by the acquiring person to stockholders of a public company for them to
tender their shares therein on the terms specified in the offer[31] Tender offer is in
place to protect the interests of minority stockholders of a target company against
any scheme that dilutes the share value of their investments. It affords such
minority shareholders the opportunity to withdraw or exit from the company under
reasonable terms, a chance to sell their shares at the same price as those of the
majority stockholders.[32]

Next to comply with the same Resolution of the Court was respondent BDO
Capital via its Compliance,[33] thereunder practically reiterating public respondents
position on the question of mootness and the need, under the premises, to go into
public bidding. It added the arguments that the BDO-SM Groups Tender Offer,
involving as it did a general offer to buy all EPCIB common shares at the stated price
and terms, were inconsistent with the idea of public bidding; and that the Tender
Offer rules actually provide for an opportunity for competing groups to top the
Tender Offer price.

On the other hand, petitioners, in their Manifestation,[34] concede the huge gap
between the unit price stated in the Tender Offer and the floor price of P43.50 per
share stated in the Invitation to Bid. It is their posture, however, that unless SSS
withdraws the sale of the subject shares by way of the Swiss Challenge, the offer
price of P92 per share cannot render the case moot and academic.

Meanwhile, the positive response to the Tender Offer enabled the SM-BDO Group
to acquire controlling interests over EPCIB and paved the way for a BDO-EPCIB
merger. The merger was formalized by subsequent submission of the necessary
merger documents[35] to the SEC.
On May 25, 2007, the SEC issued a Certificate of Filing of the Article and Plan of
Merger[36]approving the merger between BDO and EPCIB, relevant portions of
which are reproduced hereunder:

THIS IS TO CERTIFY that the Plan and Articles of Merger


executed on December 28, 2006 by and between:

BANCO DE ORO UNIVERSAL BANK,


Now BANCO DE ORO-EPCI, INC.
(Surviving Corporation)
and

EQUITABLE PCI BANK, INC.


(Absorbed Corporation)

approved by a majority of the Board of Directors on November 06, 2006


and by a vote of the stockholders owning or representing at least two-
thirds of the outstanding capital stock of constituent corporations on
December 27, 2006, signed by the Presidents, certified by their
respective Corporate Secretaries, whereby the entire assets of [EPCI] Inc.
will be transferred to and absorbed by [BDO] UNIVERSAL
BANK now BANCO DE ORO-EPCI, INC. was approved by this Office on
this date but which approval shall be effective on May 31, 2007 pursuant
to the provisions of (Word in bracket added; emphasis in the original)

In line with Section 80 of the Corporation Code and as explicitly set forth in Article
1.3 of the Plan of Merger adverted to, among the effects of the BDO-EPCIB merger
are the following:
a. BDO and EPCI shall become a single corporation, with BDO as
the surviving corporation. [EPCIB] shall cease to exist;

xxx xxx xxx

c. All the rights, privileges, immunities, franchises and powers of EPCI


shall be deemed transferred to and possessed by the merged Bank; and

d. All the properties of EPCI, real or personal, tangible or intangible shall


be deemed transferred to the Merged Bank withoutfurther act or deed.

Per Article 2 of the Plan of Merger on the exchange of shares mechanism, all the
issued and outstanding common stock of [EPCIB] (EPCI shares) shall be converted
into fully-paid and non assessable common stock of BDO (BDO common shares) at
the ratio of 1.80 BDO Common sharesfor each issued [EPCIB] share (the Exchange
Ratio). And under the exchange procedure, BDO shall issue BDO Common Shares
to EPCI stockholders corresponding to each EPCI Share held by them in accordance
with the aforesaid Exchange Ratio.

It appears that BDO, or BDO-EPCI, Inc. to be precise, has since issued BDO common
shares to respondent SSS corresponding to the number of its former EPCIB
shareholdings under the ratio and exchange procedure prescribed in the Plan of
Merger. In net effect, SSS, once the owner of a block of EPCIB shares, is now a large
stockholder of BDO-EPCI, Inc.
On the postulate that the instant petition has now become moot and
academic, BDO Capital supplemented its earlier Compliance and
Manifestation[37] with a formal Motion to Dismiss.[38]

By Resolution dated July 10, 2007, the Court required petitioners and
respondent SSS to comment on BDO Capitals motion to dismiss within ten (10) days
from notice.

To date, petitioners have not submitted their compliance. On the other hand,
SSS, by way of comment, reiterated its position articulated in
respondents Compliance and Motion[39] that the SM-BDO Group Tender Offer at
the price therein stated had rendered this case moot and academic. And
respondent SSS confirmed the following: a) its status as BDO-EPCIB stockholder; b)
the Tender Offer made by the SM Group to EPCIB stockholders, including SSS, for
their shares at P92.00 per share; and c) SSS acceptance of the Tender Offer thus
made.

A case or issue is considered moot and academic when it ceases to present a


justiciable controversy by virtue of supervening events,[40]so that an adjudication
of the case or a declaration on the issue would be of no practical value or use.[41] In
such instance, there is no actual substantial relief which a petitioner would be
entitled to, and which would be negated by the dismissal of the petition.[42] Courts
generally decline jurisdiction over such case or dismiss it on the ground
of mootness -- save when, among others, a compelling constitutional issue raised
requires the formulation of controlling principles to guide the bench, the bar and
the public; or when the case is capable of repetition yet evading judicial review.[43]

The case, with the view we take of it, has indeed become moot and academic
for interrelated reasons.
We start off with the core subject of this case.As may be noted, the Letter-
Agreement,[44] the SPA,[45] the SSC resolutions assailed in this recourse, and
the Invitation to Bid sent out to implement said resolutions, all have a common
subject: the Shares the 187.84 Million EPCIB common shares. It cannot be
overemphasized, however, that the Shares, as a necessary consequence of the
BDO-EPCIB merger[46] which saw EPCIB being absorbed by the surviving BDO, have
been transferred to BDO and convertedinto BDO common shares under the
exchange ratio set forth in the BDO-EPCIB Plan of Merger. As thus converted, the
subject Shares are no longer equity security issuances of the now defunct EPCIB,
but those of BDO-EPCI, which, needless to stress, is a totally separate and distinct
entity from what used to be EPCIB. In net effect, therefore, the 187.84 Million
EPCIB common shares are now lost or inexistent. And in this regard, the Court takes
judicial notice of the disappearance of EPCIB stocks from the local bourse listing.
Instead, BDO-EPCI Stocks are presently listed and being traded in the PSE.

Under the law on obligations and contracts, the obligation to give a


determinate thing is extinguished if the object is lost without the fault of the
debtor.[47] And per Art. 1192 (2) of the Civil Code, a thing is considered lost when it
perishes or disappears in such a way that it cannot be recovered.[48] In a very real
sense, the interplay of the ensuing factors: a) the BDO-EPCIB merger; and b) the
cancellation of subject Shares and their replacement by totally new common
shares of BDO, has rendered the erstwhile 187.84 million EPCIB shares of SSS
unrecoverable in the contemplation of the adverted Civil Code provision.

With the above consideration, respondent SSS or SSC cannot, under any
circumstance, cause the implementation of the assailed resolutions, let alone
proceed with the planned disposition of the Shares, be it via the traditional
competitive bidding or the challenged public bidding with a Swiss
Challenge feature.

At any rate, the moot-and-academic angle would still hold sway even if it
were to be assumed hypothetically that the subject Shares are still existing. This is
so, for the superveningBDO-EPCIB merger has so effected changes in the
circumstances of SSS and BDO/BDO Capital as to render the fulfillment of any of
the obligations that each may have agreed to undertake under either the Letter-
Agreement, the SPA or the SwissChallenge package legally impossible. When the
service has become so difficult as to be manifestly beyond the contemplation of
the parties,[49] total or partial release from a prestation and from the counter-
prestation is allowed.
Under the theory of rebus sic stantibus,[50] the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to exist, the contract
also ceases to exist.[51] Upon the facts obtaining in this case, it is abundantly clear
that the conditions in which SSS and BDO Capital and/or BDO executed the Letter-
Agreement upon which the pricing component at P43.50 per share of the Invitation
to Bid was predicated, have ceased to exist. Accordingly, the implementation of the
Letter- Agreement or of the challenged Res. Nos. 428 and 485 cannot plausibly push
through, even if the central figures in this case are so minded.

Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as the


[52]
issuer of what were once the subject Shares. Consequently, should SSS opt to
exit from BDO and BDO Capital, or BDO Capital, in turn, opt to pursue SSSs
shareholdings in EPCIB, as thus converted into BDO shares, the sale-purchase ought
to be via an Issuer Tender Offer -- a phrase which means a publicly announced
intention by an issuer to acquire any of its own class of equity securities or by an
affiliate of such issuer to acquire such securities.[53] In that eventuality, BDO or BDO
Capital cannot possibly exercise the right to match under the Swiss
Challenge procedure, a tender offer being wholly inconsistent with public bidding.
The offeror or buyer in an issue tender offer transaction proposes to buy or acquire,
at the stated price and given terms, its own shares of stocks held by its own
stockholder who in turn simply have to accept the tender to effect the sale. No
bidding is involved in the process.

While the Court ends up dismissing this petition because the facts and legal
situation call for this kind of disposition, petitioners have to be commended for
their efforts in initiating this proceeding. For, in the final analysis, it was their
petition which initially blocked implementation of the assailed SSC resolutions, and,
in the process, enabled the SSS and necessarily their members to realize very much
more for their investments.

WHEREFORE, the instant petition is DISMISSED.

No costs.

SO ORDERED.

16. EN BANC

G.R. No. 213181 August 19, 2014

FRANCIS H. JARDELEZA Petitioner,


vs.
CHIEF JUSTICE MARIA LOURDES P. A. SERENO, THE JUDICIAL AND BAR COUNCIL AND
EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR., Respondents.

DECISION

MENDOZA, J.:

Once again, the Couii is faced with a controversy involving the acts of an independent body, which is
considered as a constitutional innovation the Judicial and Bar Council (JBC). It is not the first time
that the Court is called upon to settle legal questions surrounding the JBC's exercise of its
constitutional mandate. In De Castro v. JBC,1 the Court laid to rest issues such as the duty of the
JBC to recommend prospective nominees for the position of Chief Justice vis-à-vis the appointing
power of the President, the period within which the same may be exercised, and the ban on midnight
appointments as set forth in the Constitution. In Chavez v. JBC,2 the Court provided an extensive
discourse on constitutional intent as to the JBC’s composition and membership.

This time, however, the selection and nomination process actually undertaken by the JBC is being
challenged for being constitutionally infirm. The heart of the debate lies not only on the very
soundness and validity of the application of JBC rules but also the extent of its discretionary power.
More significantly, this case of first impression impugns the end-result of its acts - the shortlistfrom
which the President appoints a deserving addition to the Highest Tribunal of the land.

To add yet another feature of noveltyto this case, a member of the Court, no less than the Chief
Justice herself, was being impleaded as party respondent.
The Facts

The present case finds its genesis from the compulsory retirement of Associate Justice Roberto
Abad (Associate Justice Abad) last May 22, 2014. Before his retirement, on March 6, 2014, in
accordance with its rules,3 the JBC announced the opening for application or recommendation for the
said vacated position.

On March 14, 2014, the JBC received a letter from Dean Danilo Concepcion of the University of the
Philippines nominating petitioner Francis H. Jardeleza (Jardeleza), incumbent Solicitor General of
the Republic, for the said position. Upon acceptance of the nomination, Jardeleza was included in
the names of candidates, as well as in the schedule of public interviews. On May 29, 2014,
Jardeleza was interviewed by the JBC.

It appears from the averments in the petition that on June 16 and 17, 2014, Jardeleza received
telephone callsfrom former Court of Appeals Associate Justice and incumbent JBC member, Aurora
Santiago Lagman (Justice Lagman), who informed him that during the meetings held on June 5 and
16, 2014, Chief Justice and JBC ex-officioChairperson, Maria Lourdes P.A. Sereno (Chief Justice
Sereno),manifested that she would be invoking Section 2, Rule 10 of JBC-0094 against him.
Jardeleza was then directed to "make himself available" before the JBC on June 30, 2014, during
which he would be informed of the objections to his integrity.

Consequently, Jardeleza filed a letter-petition (letter-petition)5 praying that the Court, in the exercise
of itsconstitutional power of supervision over the JBC, issue an order: 1) directing the JBC to give
him at least five (5) working days written notice of any hearing of the JBC to which he would be
summoned; and the said notice to contain the sworn specifications of the charges against him by his
oppositors, the sworn statements of supporting witnesses, if any, and copies of documents in
support of the charges; and notice and sworn statements shall be made part of the public record of
the JBC; 2) allowing him to cross-examine his oppositors and supporting witnesses, if any, and the
cross-examination to be conducted in public, under the same conditions that attend the
publicinterviews held for all applicants; 3) directing the JBC to reset the hearing scheduled on June
30, 2014 to another date; and 4) directing the JBC to disallow Chief Justice Sereno from
participating in the voting on June 30,2014 or at any adjournment thereof where such vote would be
taken for the nominees for the position vacated by Associate Justice Abad.

During the June 30, 2014 meeting of the JBC, sansJardeleza, incumbent Associate Justice Antonio
T. Carpio (Associate Justice Carpio) appeared as a resource person to shed light on a classified
legal memorandum (legal memorandum) that would clarify the objection to Jardeleza’s integrity as
posed by Chief Justice Sereno. According to the JBC, Chief Justice Sereno questioned Jardeleza’s
ability to discharge the duties of his office as shown in a confidential legal memorandum over his
handling of an international arbitration case for the government.

Later, Jardeleza was directed to one of the Court’s ante-rooms where Department of Justice
Secretary Leila M. De Lima (Secretary De Lima) informed him that Associate Justice Carpio
appeared before the JBC and disclosed confidential information which, to Chief Justice Sereno,
characterized his integrity as dubious. After the briefing, Jardeleza was summoned by the JBC at
around 2:00o’clock in the afternoon.

Jardeleza alleged that he was asked by Chief Justice Sereno if he wanted to defend himself against
the integrity issues raised against him. He answered that he would defend himself provided that due
process would be observed. Jardeleza specifically demanded that Chief Justice Sereno execute a
sworn statement specifying her objectionsand that he be afforded the right to cross-examine her in a
public hearing. He requested that the same directive should also be imposed on Associate Justice
Carpio. As claimed by the JBC, Representative Niel G. Tupas Jr. also manifested that he wanted to
hear for himself Jardeleza’s explanation on the matter. Jardeleza, however, refused as he would not
be lulled intowaiving his rights. Jardeleza then put into record a written statement6 expressing his
views on the situation and requested the JBC to defer its meeting considering that the Court en banc
would meet the next day to act on his pending letter-petition. At this juncture, Jardeleza was
excused.

Later in the afternoon of the sameday, and apparently denying Jardeleza’s request for deferment of
the proceedings, the JBC continued its deliberations and proceeded to vote for the nominees to be
included in the shortlist. Thereafter, the JBC releasedthe subject shortlist of four (4) nominees which
included: Apolinario D. Bruselas, Jr. with six (6) votes, Jose C. Reyes, Jr. with six (6) votes, Maria
Gracia M. Pulido Tan with five (5) votes, and Reynaldo B. Daway with four (4) votes.7

As mentioned in the petition, a newspaper article was later published in the online portal of the
Philippine Daily Inquirer, stating that the Court’s Spokesman, Atty. Theodore Te, revealed that there
were actually five (5) nominees who made it to the JBC shortlist, but one (1) nominee could not be
included because of the invocation of Rule 10, Section 2 of the JBC rules.

In its July 8, 2014 Resolution, the Court noted Jardeleza’s letterpetition in view of the transmittal of
the JBC list of nominees to the Office of the President, "without prejudice to any remedy available in
law and the rules that petitioner may still wish to pursue."8 The said resolution was accompanied by
an extensive Dissenting Opinion penned by Associate Justice Arturo D. Brion,9expressing his
respectful disagreement as to the position taken by the majority.

The Petition

Perceptibly based on the aforementioned resolution’s declaration as to his availment of a remedy in


law, Jardeleza filed the present petition for certiorari and mandamus under Rule 65 of the Rules of
Court with prayer for the issuance of a Temporary Restraining Order (TRO), seeking to compel the
JBC to include him in the list ofnominees for Supreme Court Associate Justice viceAssociate Justice
Abad, on the grounds that the JBC and Chief Justice Sereno acted in grave abuse of discretion
amounting to lack or excess of jurisdiction in excluding him, despite having garnered a sufficient
number of votes to qualify for the position.

Notably, Jardeleza’s petition decries that despite the obvious urgency of his earlier letter-petition and
its concomitant filing on June 25, 2014, the same was raffled only on July 1, 2014 or a day after the
controversial JBC meeting. By the time that his letter-petition was scheduled for deliberation by the
Court en bancon July 8, 2014, the disputedshortlist had already been transmitted to the Office of the
President. He attributedthis belated action on his letter-petition to Chief Justice Sereno, whose
action on such matters, especially those impressed withurgency, was discretionary.

An in-depth perusal of Jardeleza’s petition would reveal that his resort to judicial intervention hinges
on the alleged illegality of his exclusion from the shortlist due to: 1) the deprivation of his
constitutional right to due process; and 2) the JBC’s erroneous application, if not direct violation, of
its own rules. Suffice it to say, Jardelezadirectly ascribes the supposed violation of his constitutional
rights tothe acts of Chief Justice Sereno in raising objections against his integrity and the manner by
which the JBC addressed this challenge to his application, resulting in his arbitrary exclusion from
the list of nominees.

Jardeleza’s Position
For a better understanding of the above postulates proffered in the petition, the Court hereunder
succinctlysummarizes Jardeleza’s arguments, as follows:

A. Chief Justice Sereno and the JBC violated Jardeleza’s right to due process in the events leading
up to and during the vote on the shortlist last June 30, 2014. When accusations against his integrity
were made twice, ex parte, by Chief Justice Sereno, without informing him of the nature and cause
thereof and without affording him an opportunity to be heard, Jardeleza was deprived of his right to
due process. In turn, the JBC violated his right to due process when he was simply ordered to make
himself available on the June 30, 2014 meeting and was told that the objections to his integrity would
be made known to him on the same day. Apart from mere verbal notice (by way of a telephone call)
of the invocation of Section 2, Rule 10 of JBC-009 against his application and not on the accusations
against him per se, he was deprived of an opportunity to mount a proper defense against it. Not only
did the JBC fail to ventilate questions on his integrity during his public interview, he was also
divested of his rights as an applicant under Sections 3 and 4, Rule 4, JBC-009, to wit:

Section 3. Testimony of parties. – The Council may receive written opposition to an applicant on the
ground of his moral fitness and, at its discretion, the Council may receive the testimony of the
oppositor at a hearing conducted for the purpose, with due notice to the applicant who shall be
allowed to cross-examine the oppositor and to offer countervailing evidence.

Section 4. Anonymous Complaints. – Anonymous complaints against an applicant shall not be given
due course, unless there appears on its face a probable cause sufficient to engender belief that the
allegations may be true. In the latter case, the Council may direct a discreet investigation or require
the applicant to comment thereon in writing or during the interview.

His lack of knowledge as to the identity of his accusers (except for yet again, the verbalinformation
conveyed to him that Associate Justice Carpio testified against him) and as to the nature of the very
accusations against him caused him to suffer from the arbitrary action by the JBC and Chief Justice
Sereno. The latter gravely abused her discretion when she acted as prosecutor, witness and
judge,thereby violating the very essence of fair play and the Constitution itself. In his words: "the sui
generis nature of JBC proceedings does not authorize the Chief Justice to assume these roles, nor
does it dispense with the need to honor petitioner’s right to due process."10

B. The JBC committed grave abuse of discretion in excluding Jardeleza from the shortlist of
nominees, in violation of its own rules. The "unanimity requirement" provided under Section 2,
Rule10 of JBC-009 does not find application when a member of the JBC raises an objection to an
applicant’s integrity. Here, the lone objector constituted a part of the membership of the body set to
vote. The lone objector could be completely capable oftaking hostage the entire voting process by
the mere expediency of raising an objection. Chief Justice Sereno’s interpretation of the rule would
allow a situation where all thata member has to do to veto other votes, including majority votes,
would be to object to the qualification of a candidate, without need for factual basis.

C. Having secured the sufficient number of votes, it was ministerial on the part of the JBC to include
Jardeleza in the subject shortlist.Section 1, Rule 10 of JBC-009 provides that a nomination for
appointment to a judicial position requires the affirmative vote of at least a majority of all members of
the JBC. The JBC cannot disregard its own rules. Considering that Jardeleza was able to secure
four (4) out of six (6) votes, the only conclusion is that a majority of the members of the JBC found
him to be qualified for the position of Associate Justice.

D. The unlawful exclusion ofthe petitioner from the subject shortlist impairs the President’s
constitutional power to appoint.Jardeleza’s exclusion from the shortlist has unlawfully narrowed the
President’s choices. Simply put, the President would be constrained to choose from among four (4)
nominees, when five (5) applicants rightfully qualified for the position. This limits the President to
appoint a member of the Court from a list generated through a process tainted with patent
constitutional violations and disregard for rules of justice and fair play. Until these constitutional
infirmities are remedied, the petitioner has the right to prevent the appointment of an Associate
Justice viceAssociate Justice Abad.

Comment of the JBC

On August 11, 2014, the JBC filed its comment contending that Jardeleza’s petition lacked
proceduraland substantive bases that would warrant favorable action by the Court. For the JBC,
certiorariis only available against a tribunal, a board or an officer exercising judicial or quasijudicial
functions.11 The JBC, in its exercise of its mandate to recommend appointees to the Judiciary, does
not exercise any of these functions. In a pending case,12 Jardeleza himself, as one of the lawyers for
the government, argued in this wise: Certioraricannot issue against the JBC in the implementation of
its policies.

In the same vein, the remedy of mandamusis incorrect. Mandamus does not lie to compel a
discretionary act. For it to prosper, a petition for mandamus must, among other things, show that the
petitioner has a clear legal right to the act demanded. In Jardeleza’s case, there is no legal right to
be included in the list of nominees for judicial vacancies. Possession of the constitutional and
statutory qualifications for appointment to the Judiciary may not be used to legally demand that one’s
name be included in the list of candidates for a judicial vacancy. One’s inclusion in the shortlist is
strictly within the discretion of the JBC.

Anent the substantive issues, the JBC mainly denied that Jardeleza was deprived of due process.
The JBC reiterated that Justice Lagman, on behalf of the JBC en banc, called Jardeleza and
informed him that Chief Justice Sereno would be invoking Section 2, Rule 10 of JBC-009 due to a
question on his integrity based on the way he handled a very important case for the government.
Jardeleza and Justice Lagman spoke briefly about the case and his general explanation on how he
handled the same. Secretary De Lima likewise informed him about the content of the impending
objection against his application. On these occasions, Jardeleza agreed to explain himself. Come
the June 30, 2014 meeting, however, Jardeleza refused to shed light on the allegations against
him,as he chose to deliver a statement, which, in essence, requested that his accuser and her
witnesses file sworn statements so that he would know of the allegations against him, that he be
allowed to cross-examine the witnesses;and that the procedure be done on record and in public.

In other words, Jardeleza was given ample opportunity to be heard and to enlighten each member of
the JBC on the issues raised against him prior to the voting process. His request for a sworn
statement and opportunity to cross-examine is not supported by a demandable right. The JBC is not
a fact-finding body. Neitheris it a court nor a quasi-judicial agency. The members are notconcerned
with the determination of his guilt or innocence of the accusations against him. Besides, Sections 3
and 4, Rule 10,JBC-009 are merely directory as shown by the use of the word "may." Even the
conduct of a hearing to determine the veracity of an opposition is discretionary on the JBC.
Ordinarily, if there are other ways of ascertaining the truth or falsity of an allegation or opposition, the
JBC would not call a hearing in order to avoid undue delay of the selection process. Each member of
the JBC relies on his or her own appreciation of the circumstances and qualifications of applicants.

The JBC then proceeded to defend adherence to its standing rules. As a general rule, an applicant is
included in the shortlist when he or she obtains an affirmative vote of at least a majority of all the
members of the JBC. When Section 2, Rule 10 of JBC-009,however, is invoked because an
applicant’s integrity is challenged, a unanimous vote is required. Thus, when Chief Justice Sereno
invoked the saidprovision, Jardeleza needed the affirmative vote of all the JBC members tobe
included in the shortlist. In the process, Chief Justice Sereno’s vote against Jardeleza was not
counted. Even then, he needed the votes of the five(5) remaining members. He only got four (4)
affirmative votes. As a result,he was not included in the shortlist. Applicant Reynaldo B. Daway, who
gotfour (4) affirmative votes, was included in the shortlist because his integrity was not challenged.
As to him, the "majority rule" was considered applicable.

Lastly, the JBC rued that Jardeleza sued the respondents in his capacity as Solicitor General.
Despiteclaiming a prefatory appearance in propria persona, all pleadings filed with the Court were
signed in his official capacity. In effect, he sued the respondents to pursue a purely private interest
while retaining the office of the Solicitor General. By suing the very parties he was tasked by law to
defend, Jardeleza knowingly placed himself in a situation where his personal interests collided
against his public duties, in clear violation of the Code of Professional Responsibility and Code of
Professional Ethics. Moreover, the respondents are all public officials being sued in their official
capacity. By retaining his title as Solicitor General, and suing in the said capacity, Jardeleza filed a
suit against his own clients, being the legal defender of the government and its officers. This runs
contrary to the fiduciary relationship sharedby a lawyer and his client.

In opposition to Jardeleza’s prayer for the issuance of a TRO, the JBC called to mind the
constitutional period within which a vacancy in the Court must be filled. As things now stand, the
President has until August 20, 2014 to exercise his appointment power which cannot be restrained
by a TRO or an injunctive suit.

Comment of the Executive Secretary

In his Comment, Executive Secretary Paquito N. Ochoa Jr. (Executive Secretary)raised the possible
unconstitutionality of Section 2, Rule 10 of JBC-009, particularly the imposition ofa higher voting
threshold in cases where the integrity of an applicant is challenged. It is his position that the subject
JBC rule impairs the body’s collegial character, which essentially operates on the basis of majority
rule. The application of Section 2, Rule 10 of JBC-009 gives rise to a situation where all that a
member needs to do, in order to disqualify an applicant who may well have already obtained a
majority vote, is to object to his integrity. In effect, a member who invokes the said provision is given
a veto powerthat undermines the equal and full participation of the other members in the nomination
process. A lone objector may then override the will ofthe majority, rendering illusory, the collegial
nature of the JBC and the very purpose for which it was created— to shield the appointment process
from political maneuvering. Further, Section 2, Rule 10 of JBC-009 may beviolative of due process
for it does not allow an applicant any meaningful opportunity to refute the challenges to his integrity.
While other provisions of the JBC rules provide mechanisms enabling an applicant to comment on
an opposition filed against him, the subject rule does not afford the same opportunity. In this case,
Jardeleza’s allegations as to the events which transpired on June 30, 2014 obviously show that he
was neither informed ofthe accusations against him nor given the chance to muster a defense
thereto.

The Executive Secretary then offered a supposition: granting that the subject provision is held to be
constitutional, the "unanimity rule" would only be operative when the objector is not a member of the
JBC. It is only in this scenario where the voting ofthe body would not be rendered inconsequential. In
the event that a JBC member raised the objection, what should have been applied is the general rule
of a majority vote, where any JBC member retains their respective reservations to an application
with a negative vote. Corollary thereto, the unconstitutionality of the said rule would necessitate the
inclusion of Jardeleza in the shortlist submitted to the President.

Other pleadings
On August 12, 2014, Jardeleza was given the chance to refute the allegations of the JBC in its
Comment. He submitted his Reply thereto on August 15, 2014. A few hours thereafter, orbarely ten
minutes prior to the closing of business, the Court received the Supplemental Comment-Reply of the
JBC, this time with the attached minutes of the proceedings that led to the filing of the petition,and a
detailed "Statementof the Chief Justice on the Integrity Objection."13 Obviously, Jardeleza’s Reply
consisted only of his arguments against the JBC’s original Comment, as it was filed prior to the filing
of the Supplemental Comment-Reply.

At the late stage of the case, two motions to admit comments-inintervention/oppositions-in-


intervention were filed. One was by Atty. Purificacion S. Bartolome-Bernabe, purportedly the
President of the Integrated Bar of the Philippines-Bulacan Chapter. This pleading echoed the
position of the JBC.14

The other one was filed by Atty. Reynaldo A. Cortes, purportedly a former President of the IBP
Baguio-Benguet Chapter and former Governor of the IBP-Northern Luzon. It was coupled with a
complaint for disbarment against Jardeleza primarily for violations of the Code of Professional
Responsibility for representing conflicting interests.15

Both motions for intervention weredenied considering that time was of the essence and their motions
were merely reiterative of the positions of the JBC and were perceived to be dilatory. The complaint
for disbarment, however, was re-docketed as a separate administrative case.

The Issues

Amidst a myriad of issues submitted by the parties, most of which are interrelated such that the
resolution of one issue would necessarily affect the conclusion as to the others, the Court opts to
narrow down the questions to the very source of the discord - the correct application of Section 2,
Rule 10 JBC-009 and its effects, if any, on the substantive rights of applicants.

The Court is not unmindful of the fact that a facial scrutiny of the petition does not directly raise the
unconstitutionality of the subject JBC rule. Instead, it bewails the unconstitutional effects of its
application. It is only from the comment of the Executive Secretary where the possible
unconstitutionality of the rulewas brought to the fore. Despite this milieu, a practical approach
dictatesthat the Court must confront the source of the bleeding from which the gaping wound
presented to the Court suffers.

The issues for resolution are:

I.

WHETHER OR NOT THE COURT CAN ASSUME JURISDICTION AND GIVE


DUECOURSE TO THE SUBJECT PETITION FOR CERTIORARI AND MANDAMUS
(WITH APPLICATION FOR A TEMPORARY RESTRAINING ORDER).

II

WHETHER OR NOT THE ISSUES RAISED AGAINST JARDELEZA BEFIT


"QUESTIONS OR CHALLENGES ON INTEGRITY" AS CONTEMPLATED UNDER
SECTION 2, RULE 10 OF JBC-009.

II.
WHETHER OR NOT THE RIGHT TO DUE PROCESS IS AVAILABLE IN THE
COURSE OF JBC PROCEEDINGS IN CASES WHERE AN OBJECTION OR
OPPOSITION TO AN APPLICATION IS RAISED.

III.

WHETHER OR NOT PETITIONER JARDELEZA MAY BE INCLUDED IN THE


SHORTLIST OF NOMINEES SUBMITTED TO THE PRESIDENT.

The Court’s Ruling

I – Procedural Issue: The Court has constitutional bases to assume jurisdiction over the case

A - The Court’s Power of Supervision over the JBC

Section 8, Article VIII of the 1987 Constitution provides for the creation of the JBC. The Court was
given supervisory authority over it. Section 8 reads:

Section 8.

A Judicial and Bar Council is hereby created under the supervision of the Supreme Courtcomposed
of the Chief Justice as ex officio Chairman, the Secretary of Justice, and a representative of the
Congress as ex officio Members, a representative of the Integrated Bar, a professor of law, a retired
Member of the Supreme Court, and a representative of the private sector. [Emphasis supplied]

As a meaningful guidepost, jurisprudence provides the definition and scope of supervision. It is the
power of oversight, or the authority to see that subordinate officers perform their duties.It ensures
that the laws and the rules governing the conduct of a government entity are observed and complied
with. Supervising officials see to it that rules are followed, but they themselves do not lay down such
rules, nor do they have the discretion to modify or replace them. If the rules are not observed, they
may order the work done or redone, but only to conform to such rules. They may not prescribe their
own manner of execution of the act. They have no discretion on this matter except to see to it that
the rules are followed.16

Based on this, the supervisory authority of the Court over the JBC covers the overseeing of
compliance with its rules. In this case, Jardeleza’s principal allegations in his petition merit the
exercise of this supervisory authority.

B- Availability of the Remedy of Mandamus

The Court agrees with the JBC that a writ of mandamus is not available. "Mandamuslies to compel
the performance, when refused, of a ministerial duty, but not to compel the performance of a
discretionary duty. Mandamuswill not issue to control or review the exercise of discretion of a public
officer where the law imposes upon said public officer the right and duty to exercise his judgment in
reference to any matter in which he is required to act. It is his judgment that is to be exercised and
not that of the court.17 There is no question that the JBC’s duty to nominate is discretionary and it
may not becompelled to do something.

C- Availability of the Remedy of Certiorari


Respondent JBC opposed the petition for certiorarion the ground that it does not exercise judicial or
quasi-judicial functions. Under Section 1 of Rule 65, a writ of certiorariis directed against a tribunal
exercising judicial or quasi-judicial function. "Judicial functions are exercised by a body or officer
clothed with authority to determine what the law is and what the legal rights of the parties are with
respect to the matter in controversy. Quasijudicial function is a term that applies to the action or
discretion of public administrative officers or bodies given the authority to investigate facts or
ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for their
official action using discretion of a judicial nature."18 It asserts that in the performance of its function
of recommending appointees for the judiciary, the JBC does not exercise judicial or quasijudicial
functions. Hence, the resort tosuch remedy to question its actions is improper.

In this case, Jardeleza cries that although he earned a qualifying number of votes in the JBC, it was
negated by the invocation of the "unanimity rule" on integrity in violation of his right to due process
guaranteed not only by the Constitution but by the Council’s own rules. For said reason, the Court is
of the position that it can exercise the expanded judicial power of review vestedupon it by the 1987
Constitution. Thus:

Article VIII.

Section 1. The judicial power is vested in one Supreme Court and in such lower courts as may be
established by law.

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

It has been judicially settled that a petition for certiorari is a proper remedy to question the act of any
branch or instrumentality of the government on the ground of grave abuse of discretion amounting to
lack or excess of jurisdiction by any branch orinstrumentality of the government, even if the latter
does not exercise judicial, quasi-judicial or ministerial functions.19

In a case like this, where constitutional bearings are too blatant to ignore, the Court does not find
passivity as an alternative. The impassemust be overcome.

II – Substantial Issues

Examining the Unanimity Rule of the JBC in cases where an applicant’s integrity is challenged

The purpose of the JBC’s existence is indubitably rooted in the categorical constitutional declaration
that"[a] member of the judiciary must be a person of proven competence, integrity, probity, and
independence." To ensure the fulfillment of these standards in every member of the Judiciary, the
JBC has been tasked toscreen aspiring judges and justices, among others, making certain that the
nominees submitted to the President are all qualified and suitably best for appointment. In this way,
the appointing process itself is shieldedfrom the possibility of extending judicial appointment to the
undeserving and mediocre and, more importantly, to the ineligible or disqualified.

In the performance of this sacred duty, the JBC itself admits, as stated in the "whereas clauses" of
JBC-009, that qualifications such as "competence, integrity, probity and independence are not easily
determinable as they are developed and nurtured through the years." Additionally, "it is not possible
or advisable to lay down iron-clad rules to determine the fitness of those who aspire to become a
Justice, Judge, Ombudsman or Deputy Ombudsman." Given this realistic situation, there is a need
"to promote stability and uniformity in JBC’s guiding precepts and principles." A set of uniform criteria
had to be established in the ascertainment of "whether one meets the minimum constitutional
qualifications and possesses qualities of mind and heart expected of him" and his office. Likewise for
the sake oftransparency of its proceedings, the JBC had put these criteria in writing, now in the form
of JBC-009. True enough, guidelines have been set inthe determination of competence,"20"probity
and independence,"21 "soundness of physical and mental condition,22 and "integrity."23

As disclosed by the guidelines and lists of recognized evidence of qualification laid down in JBC-
009, "integrity" is closely related to, or if not, approximately equated to an applicant’s good reputation
for honesty, incorruptibility, irreproachableconduct, and fidelity to sound moral and ethical standards.
That is why proof of an applicant’s reputation may be shown in certifications or testimonials from
reputable government officials and non-governmental organizations and clearances from the courts,
National Bureau of Investigation, and the police, among others. In fact, the JBC may even conduct a
discreet background check and receive feedback from the public on the integrity, reputation and
character of the applicant, the merits of which shall be verifiedand checked. As a qualification, the
term is taken to refer to a virtue, such that, "integrity is the quality of person’s character."24

The foregoing premise then begets the question: Does Rule 2, Section 10 of JBC-009, in imposing
the "unanimity rule," contemplate a doubt on the moral character of an applicant? Section 2, Rule 10
of JBC-009 provides:

SEC. 2. Votes required when integrity of a qualified applicant is challenged. - In every case where
the integrity of an applicant who is not otherwise disqualified for nomination is raised or challenged,
the affirmative vote of all the Members of the Council must be obtained for the favorable
consideration of his nomination.

A simple reading of the above provision undoubtedly elicits the rule that a higher voting requirement
is absolute in cases where the integrity of an applicant is questioned. Simply put, when an integrity
question arises, the voting requirement for his or her inclusion as a nominee to a judicial post
becomes "unanimous" instead of the "majority vote" required in the preceding section.25Considering
that JBC-009 employs the term "integrity" as an essential qualification for appointment, and its
doubtful existence in a person merits a higher hurdle to surpass, that is, the unanimous vote of all
the members of the JBC, the Court is of the safe conclusion that "integrity" as used in the rules must
be interpreted uniformly. Hence, Section 2, Rule 10 of JBC-009 envisions only a situation where an
applicant’s moral fitness is challenged. It follows then that the "unanimity rule" only comes into
operation when the moral character of a person is put in issue. It finds no application where the
question is essentially unrelated to an applicant’s moral uprightness.

Examining the "questions of integrity" made against Jardeleza

The Court will now examine the propriety of applying Section 2, Rule 10 of JBC-009 to Jardeleza’s
case.

The minutes of the JBC meetings, attached to the Supplemental Comment-Reply, reveal that during
the June 30, 2014 meeting, not only the question on his actuations in the handling of a case was
called for explanation by the Chief Justice, but two other grounds as well tending to show his lack of
integrity: a supposed extra-marital affair in the past and alleged acts of insider trading.26

Against this factual backdrop, the Court notes that the initial or original invocation of Section 2, Rule
10 of JBC-009 was grounded on Jardeleza’s "inability to discharge the duties of his office" as shown
in a legal memorandum related to Jardeleza’s manner of representing the government in a legal
dispute. The records bear that the "unanimity rule" was initially invoked by Chief Justice Sereno
during the JBC meeting held on June 5, 2014, where she expressed her position that Jardeleza did
not possess the integrity required tobe a member of the Court.27 In the same meeting, the Chief
Justice shared withthe other JBC members the details of Jardeleza’s chosen manner of framing the
government’s position in a case and how this could have been detrimental to the national interest.

In the JBC’s original comment, the details of the Chief Justice’s claim against Jardeleza’s integrity
were couched in general terms. The particulars thereof were only supplied to the Court in the JBC’s
Supplemental Comment-Reply. Apparently, the JBC acceded to Jardeleza’s demand to make the
accusations against him public. At the outset, the JBC declined to raise the fine points of the integrity
question in its original Comment due to its significant bearing on the country’s foreign relations and
national security. At any rate, the Court restrains itself from delving into the details thereof in this
disposition. The confidential nature of the document cited therein, which requires the observance of
utmost prudence, preclude a discussion that may possibly affect the country’s position in a pending
dispute.

Be that as it may, the Court has to resolve the standing questions: Does the original invocation of
Section 2, Rule 10 of JBC-009 involve a question on Jardeleza’s integrity? Doeshis adoption of a
specific legal strategy in the handling of a case bring forth a relevant and logical challenge against
his moral character? Does the "unanimity rule" apply in cases where the main point of contention is
the professional judgment sans charges or implications of immoral or corrupt behavior?

The Court answers these questions in the negative.

While Chief Justice Sereno claims that the invocation of Section 2, Rule 10 of JBC-009 was not
borne out ofa mere variance of legal opinion but by an "act of disloyalty" committed by Jardeleza in
the handling of a case, the fact remains that the basis for her invocation of the rule was the
"disagreement" in legal strategy as expressed by a group of international lawyers. The approach
taken by Jardeleza in that case was opposed to that preferred by the legal team. For said reason,
criticism was hurled against his "integrity." The invocation of the "unanimity rule" on integrity traces
its roots to the exercise ofhis discretion as a lawyer and nothing else. No connection was established
linking his choice of a legal strategy to a treacherous intent to trounce upon the country’s interests or
to betray the Constitution.

Verily, disagreement in legal opinion is but a normal, if not an essential form of, interaction among
members of the legal community. A lawyer has complete discretion on whatlegal strategy to employ
in a case entrusted to him28 provided that he lives up tohis duty to serve his client with competence
and diligence, and that he exert his best efforts to protect the interests of his client within the bounds
of the law. Consonantly, a lawyer is not an insurer of victory for clients he represents. An infallible
grasp of legal principles and technique by a lawyer is a utopian ideal. Stripped of a clear showing of
gross neglect, iniquity, or immoral purpose, a strategy of a legal mind remains a legal tactic
acceptable to some and deplorable to others. It has no direct bearing on his moral choices.

As shown in the minutes, the other JBC members expressed their reservations on whether the
ground invoked by Chief Justice Sereno could be classified as a "question of integrity" under Section
2, Rule 10 of JBC-009.29 These reservations were evidently sourced from the factthat there was no
clear indication that the tactic was a "brainchild" of Jardeleza, as it might have been a collective idea
by the legal team which initially sought a different manner of presenting the country’s arguments,
and there was no showing either of a corrupt purpose on his part.30 Even Chief Justice Sereno was
not certain that Jardeleza’s acts were urged by politicking or lured by extraneous
promises.31 Besides, the President, who has the final say on the conduct of the country’s advocacy in
the case, has given no signs that Jardeleza’s action constituted disloyalty or a betrayal of the
country’s trust and interest. While this point does notentail that only the President may challenge
Jardeleza’s doubtful integrity, itis commonsensical to assume that he is in the best position to
suspect a treacherous agenda. The records are bereft of any information that indicatesthis
suspicion. In fact, the Comment of the Executive Secretary expressly prayed for Jardeleza’s
inclusion in the disputed shortlist.

The Court notes the zeal shown by the Chief Justice regarding international cases, given her
participation in the PIATCO case and the Belgian Dredging case. Her efforts inthe determination of
Jardeleza’s professional background, while commendable, have not produced a patent
demonstration of a connection betweenthe act complained of and his integrity as a person.
Nonetheless, the Court cannot consider her invocation of Section 2, Rule 10 of JBC-009 as
conformably within the contemplation of the rule. To fall under Section 2, Rule 10 of JBC-009, there
must be a showing that the act complained of is, at the least, linked to the moral character of the
person and not to his judgment as a professional. What this disposition perceives, therefore, is the
inapplicability of Section 2, Rule 10 of JBC-009 to the original ground of its invocation.

As previously mentioned, Chief Justice Sereno raised the issues of Jardeleza’s alleged extra-marital
affair and acts of insider-trading for the first time onlyduring the June 30, 2014 meeting of the JBC.
As can be gleaned from the minutes of the June 30, 2014 meeting, the inclusion of these issues had
its origin from newspaper reports that the Chief Justice might raise issues of "immorality" against
Jardeleza.32 The Chief Justice then deduced that the "immorality" issue referred to by the media
might have been the incidents that could have transpired when Jardeleza was still the General
Counsel of San Miguel Corporation. She stated that inasmuch as the JBC had the duty to "take
every possible step to verify the qualification of the applicants," it might as well be clarified.33

Do these issues fall within the purview of "questions on integrity" under Section 2, Rule 10 of JBC-
009? The Court nods in assent. These are valid issues.

This acquiescence is consistent with the Court’s discussion supra. Unlike the first ground which
centered onJardeleza’s stance on the tactical approach in pursuing the case for the government, the
claims of an illicit relationship and acts of insider trading bear a candid relation to his moral
character. Jurisprudence34 is replete with cases where a lawyer’s deliberate participation in extra-
marital affairs was considered as a disgraceful stain on one’s ethical and moral principles. The
bottom line is that a lawyer who engages in extra-marital affairs is deemed to have failed to adhere
to the exacting standards of morality and decency which every member of the Judiciary is expected
to observe. In fact, even relationships which have never gone physical or intimate could still be
subject to charges of immorality, when a lawyer, who is married, admits to having a relationship
which was more than professional, more than acquaintanceship, more than friendly.35 As the Court
has held: Immorality has not been confined to sexual matters, but includes conduct inconsistentwith
rectitude, or indicative of corruption, indecency, depravity and dissoluteness; or is willful, flagrant, or
shameless conduct showing moral indifference to opinions of respectable members of the
communityand an inconsiderate attitude toward good order and public welfare.36 Moral character is
not a subjective term but one that corresponds to objective reality.37 To have a good moral character,
a person must have the personal characteristic ofbeing good. It is not enough that he or she has a
good reputation, that is, the opinion generally entertained about a person or the estimate in which he
or she is held by the public in the place where she is known.38 Hence, lawyers are at all times subject
to the watchful public eye and community approbation.39

The element of "willingness" to linger in indelicate relationships imputes a weakness in one’s values,
self-control and on the whole, sense of honor, not only because it is a bold disregard of the sanctity
of marriage and of the law, but because it erodes the public’s confidence in the Judiciary. This is no
longer a matter of an honest lapse in judgment but a dissolute exhibition of disrespect toward
sacredvows taken before God and the law.
On the other hand, insider trading is an offense that assaults the integrity of our vital securities
market.40Manipulative devices and deceptive practices, including insider trading, throw a monkey
wrench right into the heart of the securities industry. Whensomeone trades inthe market with unfair
advantage in the form of highly valuable secret inside information, all other participants are
defrauded. All of the mechanisms become worthless. Given enough of stock marketscandals
coupled with the related loss of faith in the market, such abuses could presage a severe drain of
capital. And investors would eventuallyfeel more secure with their money invested elsewhere.41 In its
barest essence, insider trading involves the trading of securities based on knowledge of material
information not disclosed to the public at the time. Clearly, an allegation of insider trading involves
the propensity of a person toengage in fraudulent activities that may speak of his moral character.

These two issues can be properly categorized as "questions on integrity" under Section 2, Rule 10 of
JBC-009. They fall within the ambit of "questions on integrity." Hence, the "unanimity rule" may come
into operation as the subject provision is worded.

The Availability of Due Process in the

Proceedings of the JBC

In advocacy of his position, Jardeleza argues that: 1] he should have been informed of the
accusations against him in writing; 2] he was not furnished the basis of the accusations, that is, "a
very confidential legal memorandum that clarifies the integrityobjection"; 3] instead of heeding his
request for an opportunity to defend himself, the JBC considered his refusal to explain, during the
June 30, 2014 meeting, as a waiver of his right to answer the unspecified allegations; 4] the voting of
the JBC was railroaded; and 5] the alleged "discretionary" nature of Sections 3 and 4 of JBC-009 is
negated by the subsequent effectivity of JBC-010, Section 1(2) of which provides for a 10-day period
from the publication of the list of candidates within which any complaint or opposition against a
candidate may be filed with the JBC Secretary; 6] Section 2 of JBC-010 requires complaints and
oppositions to be in writing and under oath, copies of which shall be furnished the candidate in order
for him to file his comment within five (5) days from receipt thereof; and 7] Sections 3 to 6 of JBC-
010 prescribe a logical, reasonable and sequential series of steps in securing a candidate’s right to
due process.

The JBC counters these by insisting that it is not obliged to afford Jardeleza the right to a hearing in
the fulfillment of its duty to recommend. The JBC, as a body, is not required by law to hold hearings
on the qualifications of the nominees. The process by which an objection is made based on Section
2, Rule 10 of JBC-009 is not judicial, quasi-judicial, or fact-finding, for it does not aim to determine
guilt or innocence akin to a criminal or administrative offense but toascertain the fitness of an
applicant vis-à-vis the requirements for the position. Being sui generis, the proceedings of the JBC
do not confer the rights insisted upon by Jardeleza. He may not exact the application of rules of
procedure which are, at the most, discretionary or optional. Finally, Jardeleza refused to shed light
on the objections against him. During the June 30, 2014 meeting, he did not address the issues, but
instead chose totread on his view that the Chief Justice had unjustifiably become his accuser,
prosecutor and judge.

The crux of the issue is on the availability of the right to due process in JBC proceedings. After a
tedious review of the parties’ respective arguments, the Court concludes that the right to due
process is available and thereby demandable asa matter of right.

The Court does not brush aside the unique and special nature of JBC proceedings. Indeed, they are
distinct from criminal proceedings where the finding of guilt or innocence of the accused is sine qua
non. The JBC’s constitutional duty to recommend qualified nominees to the President cannot be
compared to the duty of the courts of law to determine the commission of an offense and ascribe the
same to an accused, consistent with established rules on evidence. Even the quantum ofevidence
required in criminal cases is far from the discretion accorded to the JBC.

The Court, however, could not accept, lock, stock and barrel, the argument that an applicant’s
access tothe rights afforded under the due process clause is discretionary on the part of the JBC.
While the facets of criminal42 and administrative43 due process are not strictly applicable to JBC
proceedings, their peculiarity is insufficient to justify the conclusion that due process is not
demandable.

In JBC proceedings, an aspiring judge or justice justifies his qualifications for the office when he
presents proof of his scholastic records, work experience and laudable citations. His goal is to
establish that he is qualified for the office applied for. The JBC then takes every possible step to
verify an applicant's trackrecord for the purpose ofdetermining whether or not he is qualified for
nomination. It ascertains the factors which entitle an applicant to become a part of the roster from
which the President appoints.

The fact that a proceeding is sui generisand is impressed with discretion, however, does not
automatically denigrate an applicant’s entitlement to due process. It is well-established in
jurisprudence that disciplinary proceedings against lawyers are sui generisin that they are neither
purely civil nor purely criminal; they involve investigations by the Court into the conduct of one of its
officers, not the trial of an action or a suit.44 Hence, in the exercise of its disciplinary powers, the
Court merely calls upon a member of the Bar to accountfor his actuations as an officer of the Court
with the end in view of preserving the purity of the legal profession and the proper and honest
administration of justice by purging the profession of members who, by their misconduct, have
proved themselves no longer worthy to be entrusted with the duties and responsibilities pertaining to
the office of an attorney. In such posture, there can be no occasion to speak of a complainant or a
prosecutor.45 On the whole, disciplinary proceedings are actually aimed to verifyand finally determine,
if a lawyer charged is still qualifiedto benefit from the rights and privileges that membership in the
legal profession evoke.

Notwithstanding being "a class of itsown," the right to be heard and to explain one’s self is availing.
The Court subscribes to the view that in cases where an objection to an applicant’s qualifications is
raised, the observance of due process neither negates nor renders illusory the fulfillment of the duty
of JBC torecommend. This holding is not an encroachment on its discretion in the nomination
process. Actually, its adherence to the precepts of due process supports and enriches the exercise
of its discretion. When an applicant, who vehemently denies the truth of the objections, is afforded
the chance to protest, the JBC is presented with a clearer understanding of the situation it faces,
thereby guarding the body from making an unsound and capriciousassessment of information
brought before it. The JBC is not expected to strictly apply the rules of evidence in its assessment of
an objection against an applicant. Just the same, to hear the side of the person challenged complies
with the dictates of fairness for the only test that an exercise of discretion must surmount is that of
soundness.

A more pragmatic take on the matter of due process in JBC proceedings also compels the Court to
examine its current rules. The pleadings of the parties mentioned two: 1] JBC-009 and 2] JBC-010.
The former provides the following provisions pertinent to this case:

SECTION 1. Evidence of integrity. - The Council shall take every possible step to verify the
applicant's record of and reputation for honesty, integrity, incorruptibility, irreproachable conduct, and
fidelity to sound moral and ethical standards. For this purpose, the applicant shall submit to the
Council certifications or testimonials thereof from reputable government officials and non-
governmental organizations, and clearances from the courts, National Bureau of Investigation,
police, and from such other agencies as the Council may require.

SECTION 2. Background check. - The Council mayorder a discreet background check on the
integrity, reputation and character of the applicant, and receive feedback thereon from the public,
which it shall check or verify to validate the merits thereof.

SECTION 3. Testimony of parties.- The Council may receive written opposition to an applicant on
groundof his moral fitness and, at its discretion, the Council mayreceive the testimony of the
oppositor at a hearing conducted for the purpose, with due notice to the applicant who shall be
allowed to cross-examine the oppositor and to offer countervailing evidence.

SECTION 4. Anonymous complaints. - Anonymous complaints against an applicant shall not


begiven due course, unless there appears on its face a probable cause sufficient to engender belief
that the allegations may be true. In the latter case, the Council may either direct a discreet
investigation or require the applicant to comment thereon in writing or during the interview.
[Emphases Supplied]

While the "unanimity rule" invoked against him is found in JBC-009, Jardeleza urges the Court to
hold that the subsequent rule, JBC-010,46 squarely applies to his case. Entitled asa "Rule to Further
Promote Public Awareness of and Accessibility to the Proceedings of the Judicial and Bar Council,"
JBC-010 recognizes the needfor transparency and public awareness of JBC proceedings. In
pursuance thereof, JBC-010 was crafted in this wise:

SECTION 1. The Judicial and Bar Council shall deliberate to determine who of the candidates meet
prima facie the qualifications for the positionunder consideration. For this purpose, it shall prepare a
long list of candidates who prima facieappear to have all the qualifications.

The Secretary of the Council shall then cause to be published in two (2) newspapers of general
circulation a notice of the long list of candidates in alphabetical order.

The notice shall inform the public that any complaint or opposition against a candidate may be filed
with the Secretary within ten (10) days thereof.

SECTION 2.The complaint or opposition shall be in writing, under oath and in ten (10) legible copies,
together with its supporting annexes. It shall strictly relate to the qualifications of the candidate or
lack thereof, as provided for in the Constitution, statutes, and the Rules of the Judicial and Bar
Council, as well as resolutions or regulations promulgated by it.

The Secretary of the Council shallfurnish the candidate a copy of the complaint or opposition against
him. The candidate shall have five (5) days from receipt thereof within which to file his comment to
the complaint or opposition, if he so desires.

SECTION 3.The Judicial and Bar Council shall fix a date when it shall meet in executive session to
consider the qualification of the long list of candidates and the complaint or opposition against them,
if any. The Council may, on its own, conduct a discreet investigation of the background of the
candidates.

On the basis of its evaluationof the qualification of the candidates, the Council shall prepare the
shorter list of candidates whom it desires to interview for its further consideration.
SECTION 4.The Secretary of the Council shall again cause to be published the dates of the
interview of candidates in the shorter list in two (2) newspapers of general circulation. It shall
likewise be posted in the websites of the Supreme Court and the Judicial and Bar Council.

The candidates, as well as their oppositors, shall be separately notified of the dateand place of the
interview.

SECTION 5.The interviews shall be conducted in public. During the interview, only the members
ofthe Council can ask questions to the candidate. Among other things, the candidate can be made to
explain the complaint or opposition against him.

SECTION 6. After the interviews, the Judicial and Bar Council shall again meet in executive session
for the final deliberation on the short list of candidates which shall be sent to the Office of the
President as a basis for the exercise of the Presidential power of appointment. [Emphases supplied]

Anent the interpretation of these existing rules, the JBC contends that Sections 3 and 4, Rule 10 of
JBC-009 are merely directory in nature as can be gleaned from the use of the word "may." Thus, the
conduct of a hearing under Rule 4 of JBC-009 is permissive and/or discretionary on the part of the
JBC. Even the conduct of a hearing to determine the veracity of an opposition is discretionary for
there are ways, besides a hearing, to ascertain the truth or falsity of allegations. Succinctly, this
argument suggests that the JBC has the discretion to hold or not to hold a hearing when an
objection to an applicant’s integrity is raised and that it may resort to other means to accomplish its
objective. Nevertheless, JBC adds, "what is mandatory, however, is that if the JBC, in its discretion,
receives a testimony of an oppositor in a hearing, due notice shall be given to the applicant and that
shall be allowed to cross-examine the oppositor."47 Again, the Court neither intends to strip the JBC
of its discretion to recommend nominees nor proposes thatthe JBC conduct a full-blown trial when
objections to an application are submitted. Still, it is unsound to say that, all together, the observance
of due process is a part of JBC’s discretion when an opposition to an application is made of record.
While it may so rely on "other means" such as character clearances, testimonials, and discreet
investigation to aid it in forming a judgment of an applicant’s qualifications, the Court cannot accept a
situation where JBC is given a full rein on the application of a fundamental right whenever a person’s
integrity is put to question. In such cases, an attack on the person of the applicant necessitates his
right to explain himself.

The JBC’s own rules convince the Court to arrive at this conclusion. The subsequent issuance of
JBC-010 unmistakably projects the JBC’s deference to the grave import of the right of the applicant
to be informed and corollary thereto, the right to be heard. The provisions of JBC-010, per se,
provide that: any complaint or opposition against a candidate may be filed with the Secretary within
ten (10) days thereof; the complaint or opposition shall be in writing, under oath and in ten (10)
legible copies; the Secretary of the Council shall furnish the candidate a copy of the complaint or
opposition against him; the candidate shall have five (5) days from receipt thereof within which to file
his comment to the complaint or opposition, if he so desires; and the candidate can be made to
explain the complaint or opposition against him.

The Court may not close its eyes to the existence of JBC-010 which, under the rules of statutory
construction,bears great weight in that: 1] it covers "any" complaint or opposition; 2] it employs the
mandatory term, "shall"; and 3] most importantly, it speaks of the very essence of due process.
While JBC-010 does not articulate a procedure that entails a trialtype hearing, it affords an applicant,
who faces "any complaint or opposition," the right to answer the accusations against him. This
constitutes the minimum requirements of due process.

Application to Jardeleza’s Case


Nearing the ultimate conclusion of this case, the Court is behooved to rule on whether Jardeleza
was deprived of his right to due process in the events leading up to, and during, the vote on the
shortlist last June 30, 2014.

The JBC gives great weight and substance to the fact that it gave Jardeleza the opportunity to
answer the allegations against him. It underscores the fact that Jardeleza was asked to attend the
June 30, 2014 meeting so that he could shed light on the issues thrown at him. During the said
meeting, Chief Justice Sereno informed him that in connection with his candidacy for the position of
Associate Justice of the Supreme Court, the Council would like to propound questions on the
following issues raised against him: 1] his actuations in handling an international arbitration case not
compatible with public interest;48 2] reports on his extra-marital affair in SMC; and 3] alleged insider
trading which led to the "show cause" order from the Philippine Stock Exchange.49

As Jardeleza himself admitted, he declined to answer or to explain his side, as he would not want to
be "lulled into waiving his rights." Instead, he manifested that his statement be put on record and
informed the Council of the then pendency of his letter-petition with the Court en banc. When Chief
Justice Sereno informed Jardeleza that the Council would want to hear from him on the three (3)
issues against him,Jardeleza reasoned out that this was precisely the issue. He found it irregular
that he was not being given the opportunity to be heard per the JBC rules.He asserted that a
candidate must be given the opportunity to respond to the charges against him. He urged the Chief
Justice to step down from her pedestal and translate the objections in writing. Towards the end of
the meeting, the Chief Justice said that both Jardeleza’s written and oral statements would be made
part of the record. After Jardeleza was excused from the conference, Justice Lagman suggested that
the voting be deferred, but the Chief Justice ruled that the Council had already completed the
process required for the voting to proceed.

After careful calibration of the case, the Court has reached the determination that the application of
the "unanimity rule" on integrity resulted in Jardeleza’s deprivation of his right to due process.

As threshed out beforehand, due process, as a constitutional precept, does not always and in all
situations require a trial-type proceeding. Due process is satisfied when a person is notified of the
charge against him and given an opportunity to explain or defend himself.50 Even as Jardeleza was
verbally informed of the invocation of Section 2, Rule 10 of JBC-009 against him and was later
asked to explain himself during the meeting, these circumstances still cannot expunge an immense
perplexity that lingers in the mind of the Court. What is to become of the procedure laid down in
JBC-010 if the same would be treated with indifference and disregard? To repeat, as its wording
provides, any complaint or opposition against a candidate may be filed with the Secretary withinten
(10) days from the publication of the notice and a list of candidates. Surely, this notice is all the more
conspicuous to JBC members. Granting ex argumenti, that the 10-day period51 is only applicable to
the public, excluding the JBC members themselves, this does not discount the fact that the
invocation of the first ground in the June 5, 2014 meeting would have raised procedural issues. To
be fair, several members of the Council expressed their concern and desire to hear out Jardeleza
but the application of JBC-010 did not form part of the agenda then. It was only during the next
meeting on June 16, 2014, that the Council agreed to invite Jardeleza, by telephone, to a meeting
that would be held on the same day when a resource person would shed light on the matter.

Assuming again that the classified nature of the ground impelled the Council to resort to oral notice
instead of furnishing Jardeleza a written opposition, why did the JBC not take into account its
authority to summon Jardeleza in confidence at an earlier time? Is not the Council empowered to
"take every possible step to verify the qualification of the applicants?" It would not be amiss to state,
at this point, that the confidential legal memorandum used in the invocation ofthe "unanimity rule"
was actually addressed to Jardeleza, in his capacity as Solicitor General. Safe to assume is his
knowledge of the privileged nature thereof and the consequences of its indiscriminate release to the
public. Had he been privately informed of the allegations against him based on the document and
had he been ordered to respond thereto in the same manner, Jardeleza’s right to be informed and to
explain himself would have been satisfied.

What precisely set off the protest of lack of due process was the circumstance of requiring Jardeleza
to appear before the Council and to instantaneously provide those who are willing to listen an
intelligent defense. Was he given the opportunity to do so? The answer is yes, in the context of his
physical presence during the meeting. Was he given a reasonable chance to muster a defense? No,
because he was merely asked to appear in a meeting where he would be, right then and there,
subjected to an inquiry. It would all be too well to remember that the allegations of his extra-marital
affair and acts of insider trading sprung up only during the June 30, 2014 meeting. While the said
issues became the object of the JBC discussion on June 16, 2014, Jardeleza was not given the idea
that he should prepare to affirm or deny his past behavior. These circumstances preclude the very
idea of due process in which the right to explain oneself is given, not to ensnare by surprise, but
toprovide the person a reasonable opportunity and sufficient time to intelligently muster his
response. Otherwise, the occasion becomes anidle and futile exercise.

Needless to state, Jardeleza’s grievance is not an imagined slight but a real rebuff of his right to be
informed of the charges against him and his right to answer the same with vigorouscontention and
active participation in the proceedings which would ultimately decide his aspiration to become a
magistrate of this Court.

Consequences

To write finisto this controversy and in view of the realistic and practical fruition of the Court’s
findings, the Court now declares its position on whether or not Jardeleza may be included in the
shortlist, just in time when the period to appoint a member of the Court is about to end.

The conclusion of the Court is hinged on the following pivotal points:

1. There was a misapplication of the "unanimity rule" under Section 2, Rule 10 of JBC-009 as
to Jardeleza’s legal strategy in handling a case for the government.

2. While Jardeleza’s alleged extra-marital affair and acts of insider trading fall within the
contemplation of a "question on integrity" and would have warranted the application of the
"unanimity rule," he was notafforded due process in its application.

3. The JBC, as the sole body empowered to evaluate applications for judicial posts,
exercises full discretion on its power to recommend nomineesto the President. The sui
generischaracter of JBC proceedings, however, is not a blanket authority to disregard the
due process under JBC-010.

4. Jardeleza was deprived of his right to due process when, contrary to the JBC rules, he
was neither formally informed of the questions on his integrity nor was provided a reasonable
opportunity to prepare his defense.

With the foregoing, the Court is compelled to rule that Jardeleza should have been included in the
shortlist submitted to the President for the vacated position of Associate Justice Abad. This
consequence arose not from the unconstitutionality of Section 2, Rule 10 of JBC-009, per se, but
from the violation by the JBC of its own rules of procedure and the basic tenets of due process. By
no means does the Court intend to strike down the "unanimity rule" as it reflects the JBC’s policy
and, therefore, wisdom in its selection of nominees. Even so, the Court refuses to turn a blind eye on
the palpable defects in its implementation and the ensuing treatment that Jardeleza received before
the Council. True, Jardeleza has no vested right to a nomination, but this does not prescind from the
fact that the JBC failed to observe the minimum requirements of due process.

In criminal and administrative cases, the violation of a party’s right to due process raises a serious
jurisdictional issue which cannot be glossed over or disregarded at will. Where the denial of the
fundamental right of due process is apparent, a decision rendered in disregard of that right is void for
lack of jurisdiction.52 This rule may well be applied to the current situation for an opposing view
submits to an undue relaxation of the Bill of Rights. To this, the Court shall not concede. Asthe
branch of government tasked to guarantee that the protection of due process is available to an
individual in proper cases, the Court finds the subject shortlist as tainted with a vice that it is
assigned to guard against. Indeed, the invocation of Section 2, Rule 10 of JBC-009 must be deemed
to have never come into operation in light of its erroneous application on the original ground against
Jardeleza’s integrity. At the risk of being repetitive, the Court upholds the JBC’s discretion in the
selection of nominees, but its application of the "unanimity rule" must be applied in conjunction with
Section 2, Rule 10 of JBC-010 being invoked by Jardeleza. Having been able to secure four (4) out
of six (6) votes, the only conclusion left to propound is that a majority of the members of the JBC,
nonetheless, found Jardeleza to be qualified for the position of Associate Justice and this grants him
a rightful spot in the shortlist submitted to the President. Need to Revisit JBC’s

Internal Rules

In the Court’s study of the petition,the comments and the applicable rules of the JBC, the Court is of
the view that the rules leave much to be desired and should be reviewed and revised. It appears that
the provision on the "unanimity rule" is vagueand unfair and, therefore, can be misused or abused
resulting in the deprivation of an applicant’s right to due process.

Primarily, the invocation of the "unanimity rule" on integrity is effectively a veto power over the
collective will of a majority. This should be clarified. Any assertion by a member aftervoting seems to
be unfair because it effectively gives him or her a veto power over the collective votes of the other
members in view of the unanimous requirement. While an oppositor-member can recuse himself
orherself, still the probability of annulling the majority vote ofthe Council is quite high.

Second, integrity as a ground has not been defined. While the initial impression is that it refers to the
moral fiber of a candidate, it can be, as it has been, used to mean other things. Infact, the minutes of
the JBC meetings n this case reflect the lack of consensus among the members as to its precise
definition. Not having been defined or described, it is vague, nebulous and confusing. It must be
distinctly specified and delineated.

Third, it should explicitly provide who can invoke it as a ground against a candidate. Should it be
invoked only by an outsider as construed by the respondent Executive Secretary or also by a
member?

Fourth, while the JBC vetting proceedings is "sui generis" and need not be formal or trial type, they
must meet the minimum requirements of due process. As always, an applicant should be given a
reasonable opportunity and time to be heard on the charges against him or her, if there are any.

At any rate, it is up to the JBC to fine-tune the rules considering the peculiar nature of its function. It
need not be stressed that the rules to be adopted should be fair, reasonable, unambiguous and
consistent with the minimum requirements of due process.
One final note.

The Court disclaims that Jardeleza's inclusion in the shortlist is an endorsement of his appointment
as a member of the Court. In deference to the Constitution and his wisdom in the exercise of his
1âwphi1

appointing power, the President remains the ultimate judge of a candidate's worthiness.

WHEREFORE, the petition is GRANTED. Accordingly, it is hereby declared that Solicitor General
Francis I-I. Jardeleza is deemed INCLUDED in the shortlist submitted to the President for
consideration as an Associate Justice of the Supreme Court vice Associate Justice Roberto A. Abad.

The Court further DIRECTS that the Judicial and Bar Council REVIEW, and ADOPT, rules relevant
to the observance of due process in its proceedings, particularly JBC-009 and JBC-010, subject to
the approval of the Court.

This Decision is immediately EXECUTORY. Immediately notify the Office of the President of this
Decision.

SO ORDERED.

JOSE CATRAL MENDOZA


Associate Justice

WE CONCUR: