G.R. No.

207246, November 22, 2016 WHEREFORE, we DENY the motions for

reconsideration WITH FINALITY. No further pleadings
JOSE M. ROY III, Petitioner, v. CHAIRPERSON TERESITA
shall be entertained.
HERBOSA,THE SECURITIES AND EXCHANGE
COMMISSION, AND PHILILIPPINE LONG DISTANCE
SO ORDERED.5
TELEPHONE COMPANY, Respondents.
The Gamboa Decision attained finality on October 18,
WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN 2012, and Entry of Judgment was thereafter issued on
WARREN P. GABINETE, ANTONIO V. PESINA, JR., December 11, 2012.6
MODESTO MARTIN Y. MAMON III, AND GERARDO C.
EREBAREN, Petitioners-in-Intervention, On November 6, 2012, the SEC posted a Notice in its
website inviting the public to attend a public dialogue and
PHILIPPINE STOCK EXCHANGE, INC., Respondent-in- to submit comments on the draft memorandum circular
Intervention, (attached thereto) on the guidelines to be followed in
determining compliance with the Filipino ownership
SHAREHOLDERS' ASSOCIATION OF THE PHILIPPINES, requirement in public utilities under Section 11, Article XII
INC., Respondent-in-Intervention. of the Constitution pursuant to the Court's directive in
the Gamboa Decision.7
DECISION
CAGUIOA, J.: On November 9, 2012, the SEC held the scheduled dialogue
and more than 100 representatives from various
The petitions1 before the Court are special civil actions
organizations, government agencies, the academe and the
for certiorari under Rule 65 of the Rules of Court seeking
private sector attended.8
to annul Memorandum Circular No. 8, Series of 2013
("SEC-MC No. 8") issued by the Securities and Exchange
On January 8, 2013, the SEC received a copy of the Entry of
Commission ("SEC") for allegedly being in violation of the
Judgment9 from the Court certifying that on October 18,
Court's Decision2 ("GamboaDecision") and
2012, the Gamboa Decision had become final and
Resolution3 ("Gamboa Resolution") in Gamboa v. Finance
executory.10
Secretary Teves, G.R. No. 176579, respectively promulgated
on June 28, 2011, and October 9, 2012, which
On March 25, 2013, the SEC posted another Notice in its
jurisprudentially established the proper interpretation of
website soliciting from the public comments and
Section 11, Article XII of the
suggestions on the draft guidelines.11
Constitution.chanroblesvirtuallawlibrary
The Antecedents On April 22, 2013, petitioner Atty. Jose M. Roy III ("Roy")
submitted his written comments on the draft guidelines. 12
On June 28, 2011, the Court issued the Gamboa Decision,
On May 20, 2013, the SEC, through respondent
the dispositive portion of which
Chairperson Teresita J. Herbosa, issued SEC-MC No. 8
reads:chanRoblesvirtualLawlibrary
entitled "Guidelines on Compliance with the Filipino-Foreign
WHEREFORE, we PARTLY GRANT the petition and rule Ownership Requirements Prescribed in the Constitution
that the term "capital" in Section 11, Article XII of the 1987 and/or Existing Laws by Corporations Engaged in
Constitution refers only to shares of stock entitled to vote Nationalized and Partly Nationalized Activities." It was
in the election of directors, and thus in the present case published in the Philippine Daily Inquirer and the Business
only to common shares, and not to the total outstanding Mirror on May 22, 2013.13Section 2 of SEC-MC No. 8
capital stock (common and non-voting preferred shares). provides:chanRoblesvirtualLawlibrary
Respondent Chairperson of the Securities and Exchange
Section 2. All covered corporations shall, at all times,
Commission is DIRECTED to apply this definition of the
observe the constitutional or statutory ownership
term "capital" in determining the extent of allowable
requirement. For purposes of determining compliance
foreign ownership in respondent Philippine Long Distance
therewith, the required percentage of Filipino ownership
Telephone Company, and if there is a violation of Section
shall be applied to BOTH (a) the total number of
11, Article XII of the Constitution, to impose the
outstanding shares of stock entitled to vote in the election
appropriate sanctions under the law.
of directors; AND (b) the total number of outstanding
shares of stock, whether or not entitled to vote in the
SO ORDERED.4
election of directors.
Several motions for reconsideration were filed assailing
the Gamboa Decision. They were denied in Corporations covered by special laws which provide
the Gamboa Resolution issued by the Court on October 9, specific citizenship requirements shall comply with the
2012, viz:chanRoblesvirtualLawlibrary provisions of said law.14

1
On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, adopted the position that intervenors Gamboa, et al. have
filed the Petition,15 assailing the validity of SEC-MC No. 8 no standing and are not the proper party to question the
for not conforming to the letter and spirit of constitutionality of SEC-MC No. 8; they are in no position
the Gamboa Decision and Resolution and for having been to assail SEC-MC No. 8 considering that they did not
issued by the SEC with grave abuse of discretion. participate in the public consultations or give comments
Petitioner Roy seeks to apply the 60-40 Filipino ownership thereon; and their Petition-in-Intervention is a disguised
requirement separately to each class of shares of a public motion for reconsideration of the Gamboa Decision and
utility corporation, whether common, preferred nonvoting, Resolution.
preferred voting or any other class of shares. Petitioner
Roy also questions the ruling of the SEC that respondent On May 7, 2014, Petitioner Roy and intervenors
Philippine Long Distance Telephone Company ("PLDT") is Gamboa, et al.22 filed their Joint Consolidated Reply with
compliant with the constitutional rule on foreign Motion for Issuance of Temporary Restraining Order.23
ownership. He prays that the Court declare SEC-MC No. 8
unconstitutional and direct the SEC to issue new guidelines On May 22, 2014, PLDT filed its Rejoinder [To Petitioner
regarding the determination of compliance with Section and Petitioners-in-Intervention's Joint Consolidated Reply
11, Article XII of the Constitution in accordance dated 7 May 2014] and Opposition [To Petitioner and
with Gamboa. Petitioners-in-Intervention's Motion for Issuance of a
Temporary Restraining Order dated 7 May 2014].24
Wilson C. Gamboa, Jr.,16 Daniel V. Cartagena, John Warren
P. Gabinete, Antonio V. Pesina, Jr., Modesto Martin Y. On June 18, 2014, the Philippine Stock Exchange, Inc.
Mamon III, and Gerardo C. Erebaren ("intervenors ("PSE") filed its Motion to Intervene with Leave of
Gamboa, et al.") filed a Motion for Leave to File Petition-in- Court25 and its Comment-in Intervention.26 The PSE
Intervention17 on July 30, 2013, which the Court granted. alleged that it has standing to intervene as the primary
The Petition-in-Intervention18filed by intervenors regulator of the stock exchange and will sustain direct
Gamboa, et al. mirrored the issues, arguments and prayer injury should the petitions be granted. The PSE argued that
of petitioner Roy. in the Gamboa ruling, "capital" refers only to shares
entitled to vote in the election of directors, and excludes
On September 5, 2013, respondent PLDT filed its Comment those not so entitled; and the dispositive portion of the
(on the Petition dated 10 June 2013).19 PLDT posited that decision is the controlling factor that determines and
the Petition should be dismissed because it violates the settles the questions presented in the case. The PSE
doctrine of hierarchy of courts as there are no compelling further argued that adopting a new interpretation of
reasons to invoke the Court's original jurisdiction; it is Section 11, Article XII of the Constitution violates the
prematurely filed because petitioner Roy failed to exhaust policy of conclusiveness of judgment, stare decisis, and the
administrative remedies before the SEC; the principal State's obligation to maintain a stable and predictable legal
actions/remedies of mandamus and declaratory relief are framework for foreign investors under international
not within the exclusive and/or original jurisdiction of the treaties; and adopting a new definition of "capital" will
Court; the petition for certiorari is an inappropriate prove disastrous for the Philippine stock market. The
remedy since the SEC issued SEC-MC No. 8 in the exercise Court granted the Motion to Intervene filed by PSE.27
of its quasi-legislative power; it deprives the necessary and
indispensable parties of their constitutional right to due PLDT filed its Consolidated Memorandum28 on February
process; and the SEC merely implemented the dispositive 10, 2015.
portion of the Gamboa Decision.
On June 1, 2016, Shareholders' Association of the
On September 20, 2013, respondents Chairperson Teresita Philippines, Inc.29 ("SHAREPHIL") filed an Omnibus Motion
Herbosa and SEC filed their Consolidated Comment.20 They [1] For Leave to Intervene; and [2] To Admit Attached
sought the dismissal of the petitions on the following Comment-in-Intervention.30 The Court granted the
grounds: (1) the petitioners do not possess locus standi to Omnibus Motion of SHAREPHIL.31
assail the constitutionality of SEC-MC No. 8; (2) a petition
for certiorari under Rule 65 is not the appropriate and On June 30, 2016, petitioner Roy filed his Opposition and
proper remedy to assail the validity and constitutionality Reply to Interventions of Philippine Stock Exchange and
of the SEC-MC No. 8; (3) the direct resort to the Court Sharephil.32 Intervenors Gamboa, et al. then filed on
violates the doctrine of hierarchy of courts; (4) the SEC did September 14, 2016, their Reply (to Interventions by
not abuse its discretion; (5) on PLDT's compliance with the Philippine Stock Exchange and Sharephil).33
capital requirement as stated in the Gamboaruling, the
The Issues
petitioners' challenge is premature considering that the
SEC has not yet issued a definitive ruling thereon.
The twin issues of the Petition and the Petition-in-
On October 22, 2013, PLDT filed its Comment (on the Intervention are: (1) whether the SEC gravely abused its
Petition-in-Intervention dated 16 July 2013).21PLDT discretion in issuing SEC-MC No. 8 in light of
2
the Gamboa Decision and Gamboa Resolution, and (2) distinguished from a hypothetical or abstract difference or
whether the SEC gravely abused its discretion in ruling dispute since the courts will decline to pass upon
that PLDT is compliant with the constitutional limitation constitutional issues through advisory opinions, bereft as
on foreign ownership.chanroblesvirtuallawlibrary they are of authority to resolve hypothetical or moot
questions. Related to the requirement of an actual case or
The Court's Ruling
controversy is the requirement of "ripeness", and a
question is ripe for adjudication when the act being
At the outset, the Court disposes of the second issue for challenged has a direct adverse effect on the individual
being without merit. In its Consolidated Comment dated challenging it.
September 13, 2013,34 the SEC already clarified that it "has
not yet issued a definitive ruling anent PLDT's compliance Petitioners have failed to show that there IS an actual case
with the limitation on foreign ownership imposed under or controversy which is ripe for adjudication.
the Constitution and relevant laws [and i]n fact, a careful
perusal of x x x SEC-MC No. 8 readily reveals that all The Petition and the Petition-in-Intervention identically
existing covered corporations which are non-compliant allege:chanRoblesvirtualLawlibrary
with Section 2 thereof were given a period of one (1) year
3. The standing interpretation of the SEC found in MC8
from the effectivity of the same within which to comply
practically encourages circumvention of the 60-40
with said ownership requirement. x x x."35 Thus, in the
ownership rule by impliedly allowing the creation of
absence of a definitive ruling by the SEC on PLDT's
several classes of voting shares with different degrees of
compliance with the capital requirement pursuant to
beneficial ownership over the same, but at the same time,
the Gamboa Decision and Resolution, any question relative
not imposing a 40% limit on foreign ownership of the
to the inexistent ruling is premature.
higher yielding stocks.38
Also, considering that the Court is not a trier of facts and is
4. For instance, a situation may arise where a corporation
in no position to make a factual determination of PLDT's
may issue several classes of shares of stock, one of which
compliance with the constitutional provision under
are common shares with rights to elect directors, another
review, the Court can only resolve the first issue, which is a
are preferred shares with rights to elect directors but with
pure question of law. However, before the Court tackles
much lesser entitlement to dividends, and still another
the first issue, it has to rule on certain procedural
class of preferred shares with no rights to elect the
challenges that have been
directors and even less dividends. In this situation, the
raised.chanroblesvirtuallawlibrary
corporation may issue common shares to foreigners
The Procedural Issues amounting to forty percent (40%) of the outstanding
capital stock and issue preferred shares entitled to vote
the directors of the corporation to Filipinos consisting of
The Court may exercise its power of judicial review and
60%39 percent (sic) of the outstanding capital stock
take cognizance of a case when the following specific
entitled to vote. Although it may appear that the 60-40 rule
requisites are met: (1) there is an actual case or
has been complied with, the beneficial ownership of the
controversy calling for the exercise of judicial power; (2)
corporation remains with the foreign stockholder since the
the petitioner has standing to question the validity of the
Filipino owners of the preferred shares have only a
subject act or issuance, i.e., he has a personal and
miniscule share in the dividends and profit of the
substantial interest in the case that he has sustained, or
corporation. Plainly, this situation runs contrary to the
will sustain, direct injury as a result of the enforcement of
Constitution and the ruling of this x x x Court.40
the act or issuance; (3) the question of constitutionality is
raised at the earliest opportunity; and (4) the Petitioners' hypothetical illustration as to how SEC-MC No.
constitutional question is the very lis mota of the case.36 8 "practically encourages circumvention of the 60-40
ownership rule" is evidently speculative and fraught with
The first two requisites of judicial review are not met. conjectures and assumptions. There is clearly wanting
specific facts against which the veracity of the conclusions
Petitioners' failure to sufficiently allege, much less purportedly following from the speculations and
establish, the existence of the first two requisites for the assumptions can be validated. The lack of a specific factual
exercise of judicial review warrants the perfunctory milieu from which the petitions originated renders any
dismissal of the petitions. pronouncement from the Court as a purely advisory
opinion and not a decision binding on identified and
a. No actual controversy. definite parties and on a known set of facts.

Regarding the first requisite, the Court in Belgica v. Firstly, unlike in Gamboa, the identity of the public utility
Ochoa37 stressed anew that an actual case or controversy is corporation, the capital of which is at issue, is unknown. Its
one which involves a conflict of legal rights, an assertion of outstanding capital stock and the actual composition
opposite legal claims, susceptible of judicial resolution as thereof in terms of numbers, classes, preferences and
3
features are all theoretical. The description "preferred The personal and substantial interest that enables a party
shares with rights to elect directors but with much lesser to have legal standing is one that is both material, an
entitlement to dividends, and still another class of interest in issue and to be affected by the government
preferred shares with no rights to elect the directors and action, as distinguished from mere interest in the issue
even less dividends" is ambiguous. What are the specific involved, or a mere incidental interest, and real, which
dividend policies or entitlements of the purported means a present substantial interest, as distinguished from
preferred shares? How are the preferred shares' dividend a mere expectancy or a future, contingent, subordinate, or
policies different from those of the common shares? Why consequential interest.41cralawred
and how did the fictional public utility corporation issue
those preferred shares intended to be owned by Filipinos? As to injury, the party must show that (1) he will
What are the actual features of the foreign-owned common personally suffer some actual or threatened injury because
shares which make them superior over those owned by of the allegedly illegal conduct of the government; (2) the
Filipinos? How did it come to be that Filipino holders of injury is fairly traceable to the challenged action; and (3)
preferred shares ended up with "only a miniscule share in the injury is likely to be redressed by a favorable
the dividends and profit of the [hypothetical] action.42 If the asserted injury is more imagined than real,
corporation"? Any answer to any of these questions will, at or is merely superficial and insubstantial, an excursion into
best, be contingent, conjectural, indefinite or anticipatory. constitutional adjudication by the courts is not
warranted.43
Secondly, preferred shares usually have preference over
the common shares in the payment of dividends. If most of Petitioners have no legal standing to question the
the "preferred shares with rights to elect directors but constitutionality of SEC-MC No. 8.
with much lesser entitlement to dividends" and the other
"class of preferred shares with no rights to elect the To establish his standing, petitioner Roy merely claimed
directors and even less dividends" are owned by Filipinos, that he has standing to question SEC-MC No. 8 "as a
they stand to receive their dividend entitlement ahead of concerned citizen, an officer of the Court and as a
the foreigners, who are common shareholders. For the taxpayer" as well as "the senior law partner of his own law
common shareholders to have "bigger dividends" as firm[, which] x x x is a subscriber of PLDT."44 On the other
compared to the dividends paid to the preferred hand, intervenors Gamboa, et al.allege, as basis of
shareholders, which are supposedly predominantly owned their locus standi, their "[b]eing lawyers and officers of the
by Filipinos, there must still be unrestricted retained Court" and "citizens x x x and taxpayers." 45
earnings of the fictional corporation left after payment of
the dividends declared in favor of the preferred The Court has previously emphasized that the locus
shareholders. The fictional illustration does not even standi requisite is not met by the expedient invocation of
intimate how this situation can be possible. No one's citizenship or membership in the bar who has an
permutation of unrestricted retained earnings of the interest in ensuring that laws and orders of the Philippine
hypothetical corporation is shown that makes the present government are legally and validly issued as these
conclusion of the petitioners achievable. Also, no concrete supposed interests are too general, which are shared by
meaning to the petitioners' claim of the Filipinos' other groups and by the whole citizenry.46 Per their
"miniscule share in the dividends and profit of the allegations, the personal interest invoked by petitioners as
[fictional] corporation" is demonstrated. citizens and members of the bar in the validity or invalidity
of SEC-MC No. 8 is at best equivocal, and totally
Thirdly, petitioners fail to allege or show how their insufficient.
hypothetical illustration will directly and adversely affect
them. That is impossible since their relationship to the Petitioners' status as taxpayers is also of no moment. As
fictional corporation is a matter of guesswork. often reiterated by the Court, a taxpayer's suit is allowed
only when the petitioner has demonstrated the direct
From the foregoing, it is evident that the Court can only correlation of the act complained of and the disbursement
surmise or speculate on the situation or controversy that of public funds in contravention of law or the Constitution,
the petitioners contemplate to present for judicial or has shown that the case involves the exercise of the
determination. Petitioners are likewise conspicuously spending or taxing power of Congress.47 SEC-MC No. 8
silent on the direct adverse impact to them of the does not involve an additional expenditure of public funds
implementation of SEC-MC No. 8. Thus, the petitions must and the taxing or spending power of Congress.
fail because the Court is barred from rendering a decision
based on assumptions, speculations, conjectures and The allegation that petitioner Roy's law firm is a
hypothetical or fictional illustrations, more so in the "subscriber of PLDT" is ambiguous. It is unclear whether
present case which is not even ripe for decision. his law firm is a "subscriber" of PLDT's shares of stock or
of its various telecommunication services. Petitioner Roy
b. No locus standi. has not identified the specific direct and substantial injury
he or his law firm stands to suffer as "subscriber of PLDT"
4
as a result of the issuance of SEC-MC No. 8 and its x x x Where the issuance of an extraordinary writ is also
enforcement. within the competence of the Court of Appeals or a
Regional Trial Court, it is in either of these courts that the
As correctly observed by respondent PLDT, "(w]hether or specific action for the writ's procurement must be
not the constitutionality of SEC-MC No. 8 is upheld, the presented. This is and should continue to be the policy in
rights and privileges of all PLDT subscribers, as with all the this regard, a policy that courts and lawyers must strictly
rest of subscribers of other corporations, are necessarily observe. x x x53
and equally preserved and protected. Nothing is added [to]
Petitioners' invocation of "transcendental importance" is
or removed from a PLDT subscriber in terms of the extent
hollow and does not merit the relaxation of the rule on
of his or her participation, relative to what he or she had
hierarchy of courts. There being no special, important or
originally enjoyed from the beginning. In the most
compelling reason that justified the direct filing of the
practical sense, a PLDT subscriber loses or gains nothing in
petitions in the Court in violation of the policy on
the event that SEC-MC No. 8 is either sustained or struck
hierarchy of courts, their outright dismissal on this ground
down by [the Court]."48
is further warranted.54
More importantly, the issue regarding PLDT's compliance
The petitioners failed to implead indispensable parties.
with Section 11, Article XII of the Constitution has been
earlier ruled as premature and beyond the Court's
The cogent submissions of the PSE in its Comment-in-
jurisdiction. Thus, petitioner Roy's allegation that his law
Intervention dated June 16, 201455 and SHAREPHIL in its
firm is a "subscriber of PLDT" is insufficient to clothe him
Omnibus Motion [1] For Leave to Intervene; and [2] To
with locus standi.
Admit Attached Comment-in-Intervention dated May 30,
201656 demonstrate how petitioners should have
Petitioners' cursory incantation of "transcendental
impleaded not only PLDT but all other corporations in
importance x x x of the rules on foreign ownership of
nationalized and partlynationalized industries because the
corporations or entities vested with public interest" 49 does
propriety of the SEC's enforcement of the Court's
not automatically justify the brushing aside of the strict
interpretation of "capital" through SEC-MC No. 8 affects
observance of the requisites for the Court's exercise of
them as well.
judicial review. An indiscriminate disregard of the
requisites every time "transcendental or paramount
Under Section 3, Rule 7 of the Rules of Court, an
importance or significance" is invoked would result in an
indispensable party is a party-in-interest without whom
unacceptable corruption of the settled doctrine of locus
there can be no final determination of an action.
standi, as every worthy cause is an interest shared by the
Indispensable parties are those with such a material and
general public.50
direct interest in the controversy that a final decree would
necessarily affect their rights, so that the court cannot
In the present case, the general and equivocal allegations
proceed without their presence.57 The interests of such
of petitioners on their legal standing do not justify the
indispensable parties in the subject matter of the suit and
relaxation of the locus standi rule. While the Court has
the relief are so bound with those of the other parties that
taken an increasingly liberal approach to the rule of locus
their legal presence as parties to the proceeding is an
standi, evolving from the stringent requirements of
absolute necessity and a complete and efficient
personal injury to the broader transcendental importance
determination of the equities and rights of the parties is
doctrine, such liberality is not to be abused.51
not possible if they are not joined.58
The Rule on the Hierarchy of Courts has been violated.
Other than PLDT, the petitions failed to join or implead
other public utility corporations subject to the same
The Court in Bañez, Jr. v. Concepcion52 stressed
restriction imposed by Section 11, Article XII of the
that:chanRoblesvirtualLawlibrary
Constitution. These corporations are in danger of losing
The Court must enjoin the observance of the policy on the their franchise and property if they are found not
hierarchy of courts, and now affirms that the policy is not compliant with the restrictive interpretation of the
to be ignored without serious consequences. The strictness constitutional provision under review which is being
of the policy is designed to shied the Court from having to espoused by petitioners. They should be afforded due
deal with causes that are also well within the competence notice and opportunity to be heard, lest they be deprived
of the lower courts, and thus leave time to the Court to of their property without due process.
deal with the more fundamental and more essential tasks
that the Constitution has assigned to it. The Court may act Not only are public utility corporations other than PLDT
on petitions for the extraordinary writs of certiorari, directly and materially affected by the outcome of the
prohibition and mandamus only when absolutely petitions, their shareholders also stand to suffer in case
necessary or when serious and important reasons exist to they will be forced to divest their shareholdings to ensure
justifY an exception to the policy. x x x compliance with the said restrictive interpretation of the
5
term "capital". As explained by SHAREPIDL, in five In turn, the Gamboa Resolution
corporations alone, more than Php158 Billion worth of stated:chanRoblesvirtualLawlibrary
shares must be divested by foreign shareholders and
In any event, the SEC has expressly manifested62 that it will
absorbed by Filipino investors if petitioners' position is
abide by the Court's decision and defer to the Court's
upheld.59
definition of the term "capital" in Section II, Article XII of
the Constitution. Further, the SEC entered its special
Petitioners' disregard of the rights of these other
appearance in this case and argued during the Oral
corporations and numerous shareholders constitutes
Arguments, indicating its submission to the Court's
another fatal procedural flaw, justifYing the dismissal of
jurisdiction. It is clear, therefore, that there exists no legal
their petitions. Without giving all of them their day in
impediment against the proper and immediate
court, they will definitely be deprived of their property
implementation of the Court's directive to the SEC.
without due process of law.
x x x x
During the deliberations, Justice Velasco stressed on the
foregoing procedural objections to the granting of the
x x x The dispositive portion of the Court's ruling is
petitions; and Justice Bersamin added that the special civil
addressed not to PLDT but solely to the SEC, which is
action for certiorari and prohibition is not the proper
the administrative agency tasked to enforce the 60-40
remedy to assail SEC-MC No. 8 because it was not issued
ownership requirement in favor of Filipino citizens in
under the adjudicatory or quasi-judicial functions of the
Section 11, Article XII of the Constitution.63
SEC.chanroblesvirtuallawlibrary
To recall, the sole issue in the Gamboa case was: "whether
The Substantive Issue
the term 'capital' in Section 11, Article XII of the
Constitution refers to the total common shares only or to
The only substantive issue that the petitions assert is the total outstanding capital stock (combined total of
whether the SEC's issuance of SEC-MC No. 8 is tainted with common and non-voting preferred shares) of PLDT, a
grave abuse of discretion. public utility."64

The Court holds that, even if the resolution of the The Court directly answered the Issue
procedural issues were conceded in favor of petitioners, and consistently defined the term "capital" as
the petitions, being anchored on Rule 65, must nonetheless follows:chanRoblesvirtualLawlibrary
fail because the SEC did notcommit grave abuse of
x x x The term "capital" in Section 11, Article XII of the
discretion amounting to lack or excess of jurisdiction when
Constitution refers only to shares of stock entitled to vote
it issued SEC-MC No. 8. To the contrary, the Court finds
in the election of directors, and thus in the present case
SEC-MC No. 8 to have been issued in fealty to
only to common shares, and not to the total outstanding
the Gamboa Decision and Resolution.
capital stock comprising both common and non voting
preferred shares.
The ratio in the Gamboa Decision
and Gamboa Resolution.
x x x x
To determine what the Court directed the SEC to do - and
Considering that common shares have voting rights which
therefore resolve whether what the SEC did amounted to
translate to control, as opposed to preferred shares which
grave abuse of discretion - the Court resorts to the decretal
usually have no voting rights, the term "capital" in Section
portion of the GamboaDecision, as this is the portion of the
11, Article XII of the Constitution refers only to common
decision that a party relies upon to determine his or her
shares. However, if the preferred shares also have the right
rights and duties,60viz:chanRoblesvirtualLawlibrary
to vote in the election of directors, then the term "capital"
WHEREFORE, we PARTLY GRANT the petition and rule shall include such preferred shares because the right to
that the term "capital" in Section II, Article XII of the I987 participate in the control or management of the
Constitution refers only to shares of stock entitled to vote corporation is exercised through the right to vote in the
in the election of directors, and thus in the present case election of directors. In short, the term "capital" in
only to common shares, and not to the total outstanding Section 11, Article XII of the Constitution refers only to
capital stock (common and non-voting preferred shares). shares of stock that can vote in the election of
Respondent Chairperson of the Securities and Exchange directors.65
Commission is DIRECTED to apply this definition of the
The decretal portion of the Gamboa Decision follows the
term "capital" in determining the extent of allowable
definition of the term "capital" in the body of the decision,
foreign ownership in respondent Philippine Long Distance
to wit: "x x x we x x x rule that the term 'capital' in Section
Telephone Company, and if there is a violation of Section
11, Article XII of the 1987 Constitution refers only to
II, Article XII of the Constitution, to impose the appropriate
shares of stock entitled to vote in the election of directors,
sanctions under the law.61
and thus in the present case only to common shares, and
6
not to the total outstanding capital stock (common and
non-voting preferred shares)."66 The Court observed further in the Gamboa Decision that
reinforcing this interpretation of the term "capital", as
The Court adopted the foregoing definition of the term referring to interests or shares entitled to vote, is the
"capital" in Section 11, Article XII of the 1987 Constitution definition of a Philippine national in the Foreign
in furtherance of "the intent and letter of the Constitution Investments Act of 1991 ("FIA"), which is explained in the
that the 'State shall develop a self-reliant and independent Implementing Rules and Regulations of the FIA ("FIA-
national economy effectively controlled by Filipinos' IRR"). The FIA-IRR provides:chanRoblesvirtualLawlibrary
[because a] broad definition unjustifiably disregards who
Compliance with the required Filipino ownership of a
owns the all-important voting stock, which necessarily
corporation shall be determined on the basis of
equates to control of the public utility."67 The Court,
outstanding capital stock whether fully paid or not, but
recognizing that the provision is an express recognition of
only such stocks which are generally entitled to vote are
the sensitive and vital position of public utilities both in
considered.
the national economy and for national security, also
pronounced that the evident purpose of the citizenship
For stocks to be deemed owned and held by Philippine
requirement is to prevent aliens from assuming control of
citizens or Philippine nationals, mere legal title is not
public utilities, which may be inimical to the national
enough to meet the required Filipino equity. Full beneficial
interest.68 Further, the Court noted that the foregoing
ownership of the stocks, coupled with appropriate voting
interpretation is consistent with the intent of the framers
rights is essential. Thus, stocks, the voting rights of which
of the Constitution to place in the hands of Filipino citizens
have been assigned or transferred to aliens cannot be
the control and management of public utilities; and, as
considered held by Philippine citizens or Philippine
revealed in the deliberations of the Constitutional
nationals.70
Commission, "capital" refers to the voting stock
or controlling interest of a corporation.69 Echoing the FIA-IRR, the Court stated in
the Gamboa Decision that:chanRoblesvirtualLawlibrary
In this regard, it would be apropos to state that since
Mere legal title is insufficient to meet the 60 percent
Filipinos own at least 60% of the outstanding shares of
Filipinoowned "capital" required in the Constitution. Full
stock entitled to vote directors, which is what the
beneficial ownership of 60 percent of the outstanding
Constitution precisely requires, then the Filipino
capital stock, coupled with 60 percent of the voting rights,
stockholders control the corporation, i.e., they dictate
is required. The legal and beneficial ownership of 60
corporate actions and decisions, and they have all the
percent of the outstanding capital stock must rest in the
rights of ownership including, but not limited to, offering
hands of Filipino nationals in accordance with the
certain preferred shares that may have greater economic
constitutional mandate. Otherwise, the corporation is
interest to foreign investors - as the need for capital for
"considered as non-Philippine national[s]."
corporate pursuits (such as expansion), may be good for
the corporation that they own. Surely, these "true owners"
x x x x
will not allow any dilution of their ownership and control
if such move will not be beneficial to them.
The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of
As owners of the corporation, the economic benefits will
Filipinos in accordance with the constitutional mandate.
necessarily accrue to them. There is thus no logical reason
Full beneficial ownership of 60 percent of the outstanding
why Filipino shareholders will allow foreigners to have
capital stock, coupled with 60 percent of the voting rights,
greater economic benefits than them. It is illogical to
is constitutionally required for the State's grant of
speculate that they will create shares which have features
authority to operate a public utility. x x x71
that will give greater economic interests or benefits than
they are holding and not benefit from such offering, or that Was the definition of the term "capital" in Section 11,
they will allow foreigners to profit more than them from Article XII of the 1987 Constitution declared for the first
their own corporation - unless they are dummies. But, time by the Court in the Gamboa Decision modified in
Commonwealth Act No. 108, the Anti-Dummy Law, is NOT the Gamboa Resolution?
in issue in these petitions. Notably, even if the shares of a
particular public utility were owned 100% Filipino, that The Court is convinced that it was not.
does not discount the possibility of a dummy situation The Gamboa Resolution consists of 51 pages (excluding the
from arising. Hence, even if the 60-40 ownership in favor dissenting opinions of Associate Justices Velasco and
of Filipinos rule is applied separately to each class of Abad). For the most part of the Gamboa Resolution, the
shares of a public utility corporation, as the petitioners Court, after reviewing SEC and DOJ72 Opinions as well as
insist, the rule can easily be side-stepped by a dummy the provisions of the FIA and its predecessor
relationship. In other words, even applying the 60-40 statutes,73 reiterated that both the Voting Control Test and
Filipino foreign ownership rule to each class of shares will the Beneficial Ownership Test must be applied to
not assure the lofty purpose enunciated by petitioners. determine whether a corporation is a "Philippine
7
national"74 and that a "Philippine national," as defined in of directors; AND (b) the total number of outstanding
the FIA and all its predecessor statutes, is "a Filipino shares of stock, whether or not entitled to vote in the
citizen, or a domestic corporation "at least sixty election of directors.78
percent (60%) of the capital stock outstanding and
Section 2 of SEC-MC No. 8 clearly incorporates the Voting
entitled to vote," is owned by Filipino citizens. A domestic
Control Test or the controlling interest requirement. In
corporation is a "Philippine national" only if at least 60%
fact, Section 2 goes beyond requiring a 60-40 ratio in
of its voting stock is owned by Filipino citizens."75 The
favor of Filipino nationals in the voting stocks; it
Court also reiterated that, from the deliberations of the
moreover requires the 60-40 percentage ownership in
Constitutional Commission, it is evident that the term
the total number of outstanding shares of stock,
"capital" refers to controlling interest of a
whether voting or not. The SEC formulated SEC-MC No. 8
corporation,76 and the framers of the Constitution
to adhere to the Court's unambiguous pronouncement that
intended public utilities to be majority Filipino-owned and
"[f]ull beneficial ownership of 60 percent of the
controlled.
outstanding capital stock, coupled with 60 percent of the
voting rights is required."79 Clearly, SEC-MC No. 8 cannot
The "Final Word" of the Gamboa Resolution put to rest the
be said to have been issued with grave abuse of discretion.
Court's interpretation of the term "capital", and this is
quoted verbatim, to wit:chanRoblesvirtualLawlibrary
A simple illustration involving Company X with three kinds
XII. of shares of stock, easily shows how compliance with the
Final Word requirements of SEC-MC No. 8 will necessarily result to full
and faithful compliance with the Gamboa Decision as well
as the Gamboa Resolution.
The Constitution expressly declares as State policy the
development of an economy "effectively controlled" by
The following is the composition of the outstanding capital
Filipinos. Consistent with such State policy, the
stock of Company X:chanRoblesvirtualLawlibrary
Constitution explicitly reserves the ownership and
operation of public utilities to Philippine nationals, who 100 common shares
are defined in the Foreign Investments Act of 1991 as 100 Class A preferred shares (with right to elect directors)
Filipino citizens, or corporations or associations at least 60 100 Class B preferred shares (without right to elect
percent of whose capital with voting rights belongs to directors)
Filipinos. The FIA's implementing rules explain that "[f]or
stocks to be deemed owned and held by Philippine citizens SEC-MC No. 8 GAMBOA DECISION
or Philippine nationals, mere legal title is not enough to
meet the required Filipino equity. Full beneficial
ownership of stocks, coupled with appropriate voting (1) 60% (required "shares of stock entitled to
rights is essential." In effect, the FIA clarifies, reiterates percentage of Filipino) vote in the election of
and confirms the interpretation that the term "capital" in applied to the total number directors"80 (60% of the
Section 11, Article XII of the 1987 Constitution refers of outstanding shares of voting rights)
to shares with voting rights, as well as with full stock entitled to vote in the
beneficial ownership. This is precisely because the right election of directors
to vote in the election of directors, coupled with full
beneficial ownership of stocks, translates to effective
control of a corporation.77 If at least a total of 120 of common shares and Class A
preferred shares (in any combination) are owned and
Everything told, the Court, in both the Gamboa Decision controlled by Filipinos, Company X is compliant with the
and Gamboa Resolution, finally settled with the PIA's 60% of the voting rights in favor of Filipinos requirement
definition of "Philippine national" as expounded in the FIA- of both SEC-MC No. 8 and the Gamboa Decision.
IRR in construing the term "capital" in Section 11, Article
XII of the 1987 Constitution. SEC-MC No. 8 GAMBOA DECISION/RESOLUTION
The assailed SEC-MC No. 8.
(2) 60% (required "Full beneficial ownership of 60
The relevant provision in the assailed SEC-MC No. 8 IS percentage of percent of the outstanding capital
Section 2, which provides:chanRoblesvirtualLawlibrary Filipino) applied to stock, coupled with 60 percent of
BOTH (a) the total the voting rights"81 or "Full
Section 2. All covered corporations shall, at all times, number of beneficial ownership of the stocks,
observe the constitutional or statutory ownership outstanding shares coupled with appropriate voting
requirement. For purposes of determining compliance of stock, entitled to rights x x x shares with voting
therewith, the required percentage of Filipino ownership vote in the election rights, as well as with full beneficial
shall be applied to BOTH (a) the total number of of directors; AND
outstanding shares of stock entitled to vote in the election
8
 ownership as that may exist either through voting power
(b) the total number ownership"82
and/or through investment returns. By using and/or in
of outstanding
defining beneficial ownership, the IRR, in effect,
shares of stock,
recognizes a possible situation where voting power is not
whether or not
commensurate to investment power.
entitled to vote in
the election of The definition of "beneficial owner" or "beneficial
directors. ownership" in the Implementing Rules and Regulations of
the Securities Regulation Code ("SRC-IRR") is consistent
with the concept of"full beneficial ownership" in the FIA-
If at least a total of 180 shares of all the outstanding capital IRR.
stock of Company X are owned and controlled by Filipinos,
provided that among those 180 shares a total of 120 of the As defined in the SRC-IRR, "[b]eneficial
common shares and Class A preferred shares (in any owner or beneficial ownership means any person who,
combination) are owned and controlled by Filipinos, then directly or indirectly, through any contract, arrangement,
Company X is compliant with both requirements of voting understanding, relationship or otherwise, has or shares
rights and beneficial ownership under SEC-MC No. 8 and voting power (which includes the power to vote or direct
the Gamboa Decision and Resolution. the voting of such security) and/or investment returns or
power (which includes the power to dispose of, or direct
From the foregoing illustration, SEC-MC No. 8 simply the disposition of such security) x x x."84
implemented, and is fully in accordance with,
the Gamboa Decision and Resolution. While it is correct to state that beneficial ownership is that
which may exist either through voting power and/or
While SEC-MC No. 8 does not expressly mention the investment returns, it does not follow, as espoused by the
Beneficial Ownership Test or full beneficial ownership of minority opinion, that the SRC-IRR, in effect, recognizes a
stocks requirement in the FIA, this will not, as it does not, possible situation where voting power is not
render it invalid meaning, it does not follow that the SEC commensurate to investment power. That is a wrong
will not apply this test in determining whether the shares syllogism. The fallacy arises from a misunderstanding on
claimed to be owned by Philippine nationals are what the definition is for. The "beneficial ownership"
Filipino, i.e., are held by them by mere title or in full referred to in the definition, while it may ultimately and
beneficial ownership. To be sure, the SEC takes its guiding indirectly refer to the overall ownership of the
lights also from the FIA and its implementing rules, the corporation, more pertinently refers to the ownership of
Securities Regulation Code (Republic Act No. 8799; "SRC") the share subject of the question: is it Filipino-owned or
and its implementing rules.83 not?

The full beneficial ownership test. As noted earlier, the FIA-IRR

states:chanRoblesvirtualLawlibrary
The minority justifies the application of the 60-40 Filipino- Compliance with the required Filipino ownership of a
foreign ownership rule separately to each class of shares of corporation shall be determined on the basis of
a public utility corporation in this outstanding capital stock whether fully paid or not, but
fashion:chanRoblesvirtualLawlibrary only such stocks which are generally entitled to vote are
x x x The words "own and control," used to qualify the considered.
minimum Filipino participation in Section 11, Article XII of
the Constitution, reflects the importance of Filipinos For stocks to be deemed owned and held by Philippine
having both the ability to influence the corporation citizens or Philippine nationals, mere legal title is not
through voting rights and economic benefits. In other enough to meet the required Filipino equity. Full beneficial
words, full ownership up to 60% of a public ownership of the stocks, coupled with appropriate voting
utility encompasses both controland economic rights, rights is essential. Thus, stocks, the voting rights of which
both of which must stay in Filipino hands. Filipinos, who have been assigned or transferred to aliens cannot be
own 60% of the controlling interest, must also own 60% considered held by Philippine citizens or Philippine
of the economic interest in a public utility. nationals.85
The emphasized portions in the foregoing provision is the
x x x In mixed class or dual structured corporations, equivalent of the so-called "beneficial ownership test".
however, there is variance in the proportion of That is all.
stockholders' controlling interest visa-vis their economic
ownership rights. This resulting variation is recognized by The term "full beneficial ownership" found in the FIA-IRR
the Implementing Rules and Regulations (IRR) of the is to be understood in the context of the entire paragraph
Securities Regulation Code, which defined beneficial defining the term "Philippine national". Mere legal title is
9
not enough to meet the required Filipino equity, which Stated inversely, if the Filipino has the "specific stock's"
means that it is not sufficient that a share is registered in voting power (he can vote the stock or direct another to
the name of a Filipino citizen or national, i.e., he should vote for him), or the Filipino has the investment power
also have full beneficial ownership of the share. If the over the "specific stock" (he can dispose of the stock or
voting right of a share held in the name of a Filipino citizen direct another to dispose it for him), or he has both (he can
or national is assigned or transferred to an alien, that vote and dispose of the "specific stock" or direct another to
share is not to be counted in the determination of the vote or dispose it for him), then such Filipino is the
required Filipino equity. In the same vein, if the dividends "beneficial owner" of that "specific stock" and that "specific
and other fruits and accessions of the share do not accrue stock" is considered (or counted) as part of the 60%
to a Filipino citizen or national, then that share is also to be Filipino ownership of the corporation. In the end, all those
excluded or not counted. "specific stocks" that are determined to be Filipino (per
definition of "beneficial owner" or "beneficial ownership")
In this regard, it is worth reiterating the Court's will be added together and their sum must be equivalent to
pronouncement in the Gamboa Decision, which is at least 60% of the total outstanding shares of stock
consistent with the FIA- entitled to vote in the election of directors and at least
IRR, viz:chanRoblesvirtualLawlibrary 60% of the total number of outstanding shares of stock,
whether or not entitled to vote in the election of directors.
Mere legal title is insufficient to meet the 60 percent
Filipinoowned "capital" required in the Constitution. Full
To reiterate, the "beneficial owner or beneficial
beneficial ownership of 60 percent of the outstanding
ownership" definition in the SRC-IRR is understood only in
capital stock, coupled with 60 percent of the voting
determining the respective nationalities of the
rights, is required. x x x
outstanding capital stock of a public utility corporation in
order to determine its compliance with the percentage of
x x x x
Filipino ownership required by the Constitution.
The legal and beneficial ownership of 60 percent of the
The restrictive re-interpretation of "capital" as insisted
outstanding capital stock must rest in the hands of
by the petitioners is unwarranted.
Filipinos in accordance with the constitutional
mandate. Full beneficial ownership of 60 percent of the
Petitioners' insistence that the 60% Filipino equity
outstanding capital stock, coupled with 60 percent of
requirement must be applied to each class of shares is
the voting rights, is constitutionally required (or the
simply beyond the literal text and contemplation of Section
State's grant of authority to operate a public utility. x x
11, Article XII of the 1987
x.86
Constitution, viz:chanRoblesvirtualLawlibrary
And the "Final Word" of the Gamboa Resolution is in full
Sec. 11. No franchise, certificate, or any other form of
accord with the foregoing pronouncement of the Court, to
authorization for the operation of a public utility shall be
wit:chanRoblesvirtualLawlibrary
granted except to citizens of the Philippines or to
XII. corporations or associations organized under the laws of
Final Word the Philippines at least sixty per centum or whose capital
is owned by such citizens, nor shall such franchise,
certificate or authorization be exclusive in character or for
x x x The FIA's implementing rules explain that "[f]or
a longer period than fifty years. Neither shall any such
stocks to be deemed owned and held by Philippine citizens
franchise or right be granted except under the condition
or Philippine nationals, mere legal title is not enough to
that it shall be subject to amendment, alteration, or repeal
meet the required Filipino equity. Full beneficial
by the Congress when the common good so requires. The
ownership of the stocks, coupled with appropriate
State shall encourage equity participation in public utilities
voting rights is essential."87
by the general public. The participation of foreign
Given that beneficial ownership of the outstanding capital investors in the governing body of any public utility
stock of the public utility corporation has to be determined enterprise shall be limited to their proportionate share in
for purposes of compliance with the 60% Filipino its capital, and all the executive and managing officers of
ownership requirement, the definition in the SRC-IRR can such corporation or association must be citizens of the
now be applied to resolve only the question of who is the Philippines.
beneficial owner or who has beneficial ownership of each
As worded, effective control by Filipino citizens of a public
"specific stock" of the said corporation. Thus, if a "specific
utility is already assured in the provision. With respect to a
stock" is owned by a Filipino in the books of the
stock corporation engaged in the business of a public
corporation, but the stock's voting power or disposing
utility, the constitutional provision mandates three
power belongs to a foreigner, then that "specific stock" will
safeguards: (1) 60% of its capital must be owned by
not be deemed as "beneficially owned" by a Filipino.
Filipino citizens; (2) participation of foreign investors in its
board of directors is limited to their proportionate share in
10
its capital; and (3) all its executive and managing officers redemption feature at a future date, the substance is that
must be citizens of the Philippines. they are a contractual obligation to deliver cash and,
therefore, should be recognized as a liability. [IAS
In the exhaustive review made by the Court in 32.18(a)] In contrast, preference shares that do not have a
the Gamboa Resolution of the deliberations of the fixed maturity, and where the issuer does not have a
Constitutional Commission, the opinions of the framers of contractual obligation to make any payment are equity. In
the 1987 Constitution, the opinions of the SEC and the DOJ this example even though both instruments are legally
as well as the provisions of the FIA, its implementing rules termed preference shares they have different contractual
and its predecessor statutes, the intention to apply the terms and one is a financial liability while the other is
voting control test and the beneficial ownership test equity.
was not mentioned in reference to "each class of shares."
Even the Gamboa Decision was silent on this point. Illustration - issuance of fixed monetary amount of
equity instruments
To be sure, the application of the 60-40 Filipino-foreign
ownership requirement separately to each class of shares, A contractual right or obligation to receive or deliver a
whether common, preferred non-voting, preferred voting number of its own shares or other equity instruments that
or any other class of shares fails to understand and varies so that the fair value of the entity's own equity
appreciate the nature and features of stocks as financial instruments to be received or delivered equals the fixed
instruments.88 monetary amount of the contractual right or obligation is a
financial liability. [IAS 32.20]
There are basically only two types of shares or stocks, i.e.,
common stock and preferred stock. However, the classes Illustration - one party bas a choice over bow an
and variety of shares that a corporation may issue are instrument is settled
dictated by the confluence of the corporation's financial
position and needs, business opportunities, short-term and When a derivative financial instrument gives one party a
long term targets, risks involved, to name a few; and they choice over how it is settled (for instance, the issuer or the
can be classified and re-classified from time to time. With holder can choose settlement net in cash or by exchanging
respect to preferred shares, there are cumulative shares for cash), it is a financial asset or a financial liability
preferred shares, non-cumulative preferred shares, unless all of the settlement alternatives would result in it
convertible preferred shares, participating preferred being an equity instrument. [IAS 32.26]92
shares.
The fact that from an accounting standpoint, the substance
or essence of the financial instrument is the key
Because of the different features of preferred shares, it is
determinant whether it should be categorized as a
required that the presentation and disclosure of these
financial liability or an equity instrument, there is no
financial instruments in financial statements should be in
compelling reason why the same treatment may not be
accordance with the substance of the contractual
recognized from a legal perspective. Thus, to require
arrangement and the definitions of a financial liability, a
Filipino shareholders to acquire preferred shares that are
financial asset and an equity instrument.89
substantially debts, in order to meet the "restrictive"
Filipino ownership requirement that petitioners espouse,
Under IAS90 32.16, a financial instrument is an equity
may not bode well for the Philippine corporation and its
instrument only if (a) the instrument includes no
Filipino shareholders.
contractual obligation to deliver cash or another financial
asset to another entity, and (b) if the instrument will or
Parenthetically, given the innumerable permutations that
may be settled in the issuer's own equity instruments, it is
the types and classes of stocks may take, requiring the SEC
either: (i) a non derivative that includes no contractual
and other government agencies to keep track of the ever-
obligation for the issuer to deliver a variable number of its
changing capital classes of corporations will be
own equity instruments; or (ii) a derivative that will be
impracticable, if not downright impossible. And the law
settled only by the issuer exchanging a fixed amount of
does not require the impossible. (Lex non cogit ad
cash or another financial asset for a fixed number of its
impossibilia.)93
own equity instruments.91
That stock corporations are allowed to create shares of
The following are illustrations of how preferred shares
different classes with varying features is a flexibility that is
should be presented and
granted, among others, for the corporation to attract and
disclosed:chanRoblesvirtualLawlibrary
generate capital (funds) from both local and foreign capital
Illustration - preference shares markets. This access to capital - which a stock corporation
may need for expansion, debt relief/repayment, working
If an entity issues preference (preferred) shares that pay a capital requirement and other corporate pursuits - will be
fixed rate of dividend and that have a mandatory greatly eroded with further unwarranted limitations that
11
are not articulated in the Constitution. The intricacies and incorporation, may fix the terms and conditions of
delicate balance between debt instruments (liabilities) and preferred shares of stock or any series thereof: Provided,
equity (capital) that stock corporations need to calibrate to That such terms and conditions shall be effective upon the
fund their business requirements and achieve their filing of a certificate thereof with the Securities and
financial targets are better left to the judgment of their Exchange Commission.
boards and officers, whose bounden duty is to steer their
companies to financial stability and profitability and who x x x x
are ultimately answerable to their shareholders.
A corporation may, furthermore, classify its shares for the
Going back to the illustration above, the restrictive purpose of insuring compliance with constitutional or legal
meaning of the term "capital" espoused by petitioners will requirements.
definitely be complied with if 60% of each of the three
classes of shares of Company X, consisting of 100 common Except as otherwise provided in the articles of
shares, 100 Class A preferred shares (with right to elect incorporation and stated in the certificate of stock, each
directors) and 100 Class B preferred shares (without right share shall be equal in all respects to every other share.
to elect directors), is owned by Filipinos. However, what if
the 60% Filipino ownership in each class of preferred Where the articles of incorporation provide for non voting
shares, i.e., 60 Class A preferred shares and 60 Class B shares in the cases allowed by this Code, the holders of
preferred shares, is not fully subscribed or achieved such shares shall nevertheless be entitled to vote on the
because there are not enough Filipino takers? Company X following matters:cralawlawlibrary
will be deprived of capital that would otherwise be
accessible to it were it not for this unwarranted 1. Amendment of the articles of
"restrictive" meaning of "capital". incorporation;ChanRoblesVirtualawlibrary

The fact that all shares have the right to vote in 8 specific 2. Adoption and amendment of by-
corporate actions as provided in Section 6 of the laws;ChanRoblesVirtualawlibrary
Corporation Code does not per se justify the favorable
adoption of the restrictive re-interpretation of "capital" as 3. Sale, lease, exchange, mortgage, pledge or other
the petitioners espouse. As observed in disposition of all or substantially all of the corporate
the Gamboa Decision, viz:chanRoblesvirtualLawlibrary property;ChanRoblesVirtualawlibrary
The Corporation Code of the Philippines classifies shares
4. Incurring, creating or increasing bonded
as common or preferred,
indebtedness;ChanRoblesVirtualawlibrary
thus:chanRoblesvirtualLawlibrary
Sec. 6. Classification of shares. The shares of stock of stock 5. Increase or decrease of capital
corporations may be divided into classes or series of stock;ChanRoblesVirtualawlibrary
shares, or both, any of which classes or series of shares
may have such rights, privileges or restrictions as may be 6. Merger or consolidation of the corporation with another
stated in the articles of incorporation: Provided, That no corporation or other
share may be deprived of voting rights except those corporations;ChanRoblesVirtualawlibrary
classified and issued as "preferred" or "redeemable"
shares, unless otherwise provided in this Code: 7. Investment of corporate funds in another corporation or
Provided, further, That there shall always be a class or business in accordance with this Code; and
series of shares which have complete voting rights. Any or
all of the shares or series of shares may have a par value or 8. Dissolution of the corporation.
have no par value as may be provided for in the articles of
incorporation: Provided, however, That banks, trust Except as provided in the immediately preceding
companies, insurance companies, public utilities, and paragraph, the vote necessary to approve a particular
building and loan associations shall not be permitted to corporate act as provided in this Code shall be deemed to
issue no-par value shares of stock. refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right
Preferred shares of stock issued by any corporation may
to participate in the control or management of the
be given preference in the distribution of the assets of the
corporation. This is exercised through his vote in the
corporation in case of liquidation and in the distribution of
election of directors because it is the board of directors
dividends, or such other preferences as may be stated in
that controls or manages the corporation. In the absence of
the articles of incorporation which are not violative of the
provisions in the articles of incorporation denying voting
provisions of this Code: Provided, That preferred shares of
rights to preferred shares, preferred shares have the same
stock may be issued only with a stated par value. The
voting rights as common shares. However, preferred
Board of Directors, where authorized in the articles of
12
shareholders are often excluded from any control, that is, Section 6 will be to the best interest of the company. Then,
deprived of the right to vote in the election of directors when the all-Filipino management team recommends this
and on other matters, on the theory that the preferred to the board, a majority of the board has to approve the
shareholders are merely investors in the corporation for recommendation and, as required by the Constitution,
income in the same manner as bondholders. In fact, under foreign participation in the board cannot exceed 40% of
the Corporation Code only preferred or redeemable shares the total number of board seats. Since the Filipino
can be deprived of the right to vote. Common shares directors comprise the majority, they, if united, do not
cannot be deprived of the right to vote in any corporate even need the vote of the foreign directors to approve the
meeting, and any provision in the articles of incorporation intended corporate act. After approval by the board, all the
restricting the right of common shareholders to vote is shareholders (with and without voting rights) will vote on
invalid. the corporate action. The required vote in the
shareholders' meeting is 2/3 of the outstanding capital
Considering that common shares have voting rights which stock.95 Given the super majority vote requirement, foreign
translate to control, as opposed to preferred shares which shareholders cannot dictate upon their Filipino
usually have no voting rights, the term "capital" in Section counterpart. However, foreigners (if owning at least a third
11, Article XII of the Constitution refers only to common of the outstanding capital stock) must agree with Filipino
shares. However, if the preferred shares also have the right shareholders for the corporate action to be approved. The
to vote in the election of directors, then the term "capital" 2/3 voting requirement applies to all corporations, given
shall include such preferred shares because the right to the significance of the 8 corporate actions contemplated in
participate in the control or management of the Section 6 of the Corporation Code.
corporation is exercised through the right to vote in the
election of directors. In short, the term "capital" in In short, if the Filipino officers, directors and shareholders
Section 11, Article XII of the Constitution refers only to will not approve of the corporate act, the foreigners are
shares of stock that can vote in the election of helpless.
directors.
Allowing stockholders holding preferred shares without
This interpretation is consistent with the intent of the voting rights to vote in the 8 corporate matters
framers of the Constitution to place in the hands of Filipino enumerated in Section 6 is an acknowledgment of their
citizens the control and management of public utilities. As right of ownership. If the owners of preferred shares
revealed in the deliberations of the Constitutional without right to vote/elect directors are not allowed to
Commission, "capital" refers to the voting stock vote in any of those 8 corporate actions, then they will not
or controlling interest of a corporation x x x.94 be entitled to the appraisal right provided under Section
8196 of the Corporation Code in the event that they dissent
The Gamboa Decision held that preferred shares are to be
in the corporate act. As required in Section 82, the
factored in only if they are entitled to vote in the election
appraisal right can only be exercised by any stockholder
of directors. If preferred shares have no voting rights, then
who voted against the proposed action. Thus, without
they cannot elect members of the board of directors, which
recognizing the right of every stockholder to vote in the 8
wields control of the corporation. As to the right of non
instances enumerated in Section 6, the stockholder cannot
voting preferred shares to vote in the 8 instances
exercise his appraisal right in case he votes against the
enumerated in Section 6 of the Corporation Code,
corporate action. In simple terms, the right to vote in the 8
the Gamboa Decision considered them but, in the end, did
instances enumerated in Section 6 is more in furtherance
not find them significant in resolving the issue of the
of the stockholder's right of ownership rather than as a
proper interpretation of the word "capital" in Section 11,
mode of control.
Article XII of the Constitution.
As to financial interest, giving short-lived preferred or
Therefore, to now insist in the present case that preferred
superior terms to certain classes or series of shares may be
shares be regarded differently from their unambiguous
a welcome option to expand capital, without the Filipino
treatment in the Gamboa Decision is enough proof that
shareholders putting up additional substantial capital
the Gamboa Decision, which had attained finality more
and/or losing ownership and control of the company. For
than 4 years ago, is being drastically changed or expanded.
shareholders who are not keen on the creation of those
shares, they may opt to avail themselves of their appraisal
In this regard, it should be noted that the 8 corporate
right. As acknowledged in the Gamboa Decision, preferred
matters enumerated in Section 6 of the Corporation Code
shareholders are merely investors in the company for
require, at the outset, a favorable recommendation by the
income in the same manner as bondholders. Without a
management to the board. As mandated by Section 11,
lucrative package, including an attractive return of
Article XII of the Constitution, all the executive and
investment, preferred shares will not be subscribed and
managing officers of a public utility company must be
the much-needed additional capital will be elusive. A too
Filipinos. Thus, the all-Filipino management team must
restrictive definition of "capital", one which was never
first be convinced that any of the 8 corporate actions in
contemplated in the GamboaDecision, will surely have a
13
dampening effect on the business milieu by eroding the a. Foreign shareholders of Globe Telecom
flexibility inherent in the issuance of preferred shares with will have to divest Thirty Eight Billion Two
varying terms and conditions. Consequently, the rights and Hundred Fifty Million Pesos
prerogatives of the owners of the corporation will be (PhP38,250,000,000.00) worth of shares.
unwarrantedly stymied.
b. Foreign shareholders of Ayala Land will have to
divest Seventeen Billion Five Hundred Fifty
Moreover, the restrictive interpretation of the term
Million Pesos (PhP17,550,000,000.00) worth of
"capital" would have a tremendous impact on the country
shares.
as a whole and to all Filipinos.
c. Foreign shareholders of ICTSI will have to divest
The PSE's Comment-in-Intervention dated June 16, Six Billion Four Hundred Ninety Million Pesos
201497 warns that:chanRoblesvirtualLawlibrary (PhP6,490,000,000.00) worth of shares.
80. [R]edefining "capital" as used in Section 11, Article XII d. Foreign shareholders of MWC will have to divest
of the 1987 Constitution and adopting the supposed Seven Billion Seven Hundred Fourteen Million
"Effective Control Test" will lead to disastrous Pesos (PhP7,714,000,000.00) worth of shares.
consequences to the Philippine stock market.
4.53. Clearly, the local stock market which has an average
value turn-over of Seven Billion Pesos cannot adequately
81. Current data of the PSE show that, if the "Effective
absorb the influx of shares caused by the forced
Control Test" were applied, the total value of shares that
divestment. As a result, foreign stockholders will have to
would be deemed in excess of the foreign-ownership limits
sell these shares at bargain prices just to comply with
based on stock prices as of 30 April 2014 is One Hundred
the Obiter.
Fifty Nine Billion Six Hundred Thirty Eight Million
Eight Hundred Forty Five Thousand Two Hundred Six
4.54. These shares being part of the Philippine index, their
Pesos and Eighty Nine Cents (Php159,638,845,206.89).
forced divestment vis-a-vis the inability of the local stock
market to absorb these shares will necessarily bring
82. The aforementioned value of investments would have
immense downward pressure on the index. A domino-
to be discharged by foreign holders, and consequently
effect implosion of the Philippine stock market and the
must be absorbed by Filipino investors. Needless to state,
Philippine economy, in general is not remote. x x x.101
the lack of investments may lead to shutdown of the
affected enterprises and to immeasurable consequences to Petitioners have failed to counter or refute these
the Philippine economy.98 submissions of the PSE and SHAREPHIL. These unrefuted
observations indicate to the Court that a restrictive
In its Omnibus Motion [1] For Leave to Intervene; and [2]
interpretation - or rather, re-interpretation, of "capital", as
To Admit Attached Comment-in-Intervention dated May
already defined with finality in the Gamboa Decision and
30, 2016,99 SHAREPHIL further warns that "[t]he
Resolution - directly affects the well-being of the country
restrictive re-interpretation of the term "capital" will
and cannot be labelled as "irrelevant and impertinent
result in massive forced divestment of foreign
concerns x x x add[ing] burden [to] the Court."102 These
stockholdings in Philippine corporations."100SHAREPHIL
observations by the PSE103 and SHAREPHIL,104 unless
explains:chanRoblesvirtualLawlibrary
refuted, must be considered by the Court to be valid and
4.51. On 16 October 2012, Deutsche Bank released a sound.
Market Research Study, which analyzed the implications of
the ruling in Gamboa. The Market Research Study stated The Court in Abacus Securities Corp. v. Ampil105 observed
that:chanRoblesvirtualLawlibrary that: "[s]tock market transactions affect the general public
and the national economy. The rise and fall of stock market
"If this thinking is applied and becomes established
indices reflect to a considerable degree the state of the
precedent, it would significantly expand on the rules for
economy. Trends in stock prices tend to herald changes in
determining nationality in partially nationalized
business conditions. Consequently, securities transactions
industries. If that were to happen, not only will PLDT's
are impressed with public interest x x x."106 The
move to issue the 150m voting prefs be inadequate to
importance of the stock market in the economy cannot
address the issue, a large number of listed companies with
simply be glossed over.
similar capital structures could also be affected."
4.52. In five (5) companies alone, One Hundred Fifty Eight In view of the foregoing, the pronouncement of the Court
Billion Pesos (PhP158,000,000,000.00) worth of shares in the Gamboa Resolution - the constitutional requirement
will have to be sold by foreign shareholders in a forced to apply uniformly and across the board to all classes of
divestment, if the obiter in Gamboa were to be shares, regardless of nomenclature and category,
implemented. Foreign shareholders of PLDT will have to comprising the capital of a corporation107 - is clearly
divest One Hundred Three Billion Eight Hundred Sixty an obiter dictum that cannot override the Court's
Million Pesos (PhP103,860,000,000.00) worth of shares. unequivocal definition of the term "capital" in both
14
the Gamboa Decision and Resolution. capricious, whimsical, arbitrary or despotic manner in the
exercise of its jurisdiction as to be equivalent to lack of
Nowhere in the discussion of the definition of the term jurisdiction or that the SEC's abuse of discretion is so
"capital" in Section 11, Article XII of the 1987 Constitution patent and gross as to amount to an evasion of a positive
in the Gamboa Decision did the Court mention the 60% duty or to a virtual refusal to perform a duty enjoined by
Filipino equity requirement to be applied to each class of law, or to act at all in contemplation of law and
shares. The definition of "Philippine national" in the FIA the Gamboa Decision and Resolution. Petitioners
and expounded in its IRR, which the Court adopted in its miserably failed in this respect.
interpretation of the term "capital", does not support such
application. In fact, even the Final Word of The clear and unequivocal definition of "capital"
the Gamboa Resolution does not even intimate or suggest in Gamboa has attained finality.
the need for a clarification or re-interpretation.
It is an elementary principle in procedure that the
To revisit or even clarify the unequivocal definition of the resolution of the court in a given issue as embodied in the
term "capital" as referring "only to shares of stock entitled dispositive portion or fallo of a decision controls the
to vote in the election of directors" and apply the 60% settlement of rights of the parties and the questions,
Filipino ownership requirement to each class of share is notwithstanding statement in the body of the decision
effectively and unwarrantedly amending or changing which may be somewhat confusing, inasmuch as the
the Gamboa Decision and Resolution. dispositive part of a final decision is definite, clear and
The Gamboa Decision and Resolution Doctrine did NOT unequivocal and can be wholly given effect without need of
make any definitive ruling that the 60% Filipino interpretation or construction.109
ownership requirement was intended to apply to each
class of share. As explained above, the fallo or decretal/dispositive
portions of both the Gamboa Decision and Resolution are
In Malayang Manggagawa ng Stayfast Phils., Inc. v. definite, clear and unequivocaL While there is a passage in
NLRC,108 the Court stated:chanRoblesvirtualLawlibrary the body of the Gamboa Resolution that might have
appeared contrary to the fallo of the Gamboa Decision -
Where a petition for certiorari under Rule 65 of the Rules
capitalized upon by petitioners to espouse a restrictive re-
of Court alleges grave abuse of discretion, the petitioner
interpretation of "capital" - the definiteness and clarity of
should establish that the respondent court or tribunal
the fallo of the GamboaDecision must control over
acted in a capricious, whimsical, arbitrary or despotic
the obiter dictum in the Gamboa Resolution regarding the
manner in the exercise of its jurisdiction as to be
application of the 60-40 Filipino-foreign ownership
equivalent to lack of jurisdiction. This is so because
requirement to "each class of shares, regardless of
"grave abuse of discretion" is well-defined and not an
differences in voting rights, privileges and restrictions."
amorphous concept that may easily be manipulated to suit
one's purpose. In this connection, Yu v. Judge Reyes-Carpio,
The final judgment as rendered is the judgment of the
is instructive:chanRoblesvirtualLawlibrary
court irrespective of all seemingly contrary statements in
The term "grave abuse of discretion" has a specific the decision because at the root of the doctrine that the
meaning. An act of a court or tribunal can only be premises must yield to the conclusion is, side by side with
considered as with grave abuse of discretion when such the need of writing finis to litigations, the recognition of
act is done in a "capricious or whimsical exercise of the truth that "the trained intuition of the judge
judgment as is equivalent to lack of jurisdiction." The continually leads him to right results for which he is
abuse of discretion must be so patent and gross as to puzzled to give unimpeachable legal reasons." 110
amount to an "evasion of a positive duty or to a virtual
refusal to perform a duty enjoined by law, or to act at all in Petitioners cannot, after Gamboa has attained finality, seek
contemplation of law, as where the power is exercised in a belated correction or reconsideration of the Court's
an arbitrary and despotic manner by reason of passion and unequivocal definition of the term "capital". At the core of
hostility." Furthermore, the use of a petition the doctrine of finality of judgments is that public policy
for certiorari is restricted only to "truly extraordinary and sound practice demand that, at the risk of occasional
cases wherein the act of the lower court or quasi-judicial errors, judgments of courts should become final at some
body is wholly void." From the foregoing definition, it is definite date fixed by law and the very objects for which
clear that the special civil action of certiorari under Rule courts were instituted was to put an end to
65 can only strike an act down for having been done with controversies.111 Indeed, the definition of the term
grave abuse of discretion if the petitioner could "capital" in the fallo of the Gamboa Decision has acquired
manifestly show that such act was patent and gross. x x finality.
x.
Because the SEC acted pursuant to the Court's
The onus rests on petitioners to clearly and sufficiently
pronouncements in both the Gamboa Decision
establish that the SEC, in issuing SEC-MC No. 8, acted in a
and Gamboa Resolution, then it could not have gravely
15
abused its discretion. That portion found in the body of Filipino management team. This is what is envisioned by
the Gamboa Resolution which the petitioners rely upon is the Constitution to assure effective control by Filipinos. If
nothing more than an obiter dictum and the SEC could not the safeguards, which are already stringent, fail, i.e., a
be expected to apply it as it was not - is not - a binding public utility corporation whose voting stocks are
pronouncement of the Court.112 beneficially owned by Filipinos, the majority of its
directors are Filipinos, and all its managing officers are
Furthermore, as opined by Justice Bersamin during the Filipinos, is proalien (or worse, dummies), then that is not
deliberations, the doctrine of immutability of judgment the fault or failure of the Constitution. It is the breakdown
precludes the Court from re examining the definition of of nationalism in each of the Filipino shareholders, Filipino
"capital" under Section 11, Article XII of the Constitution. directors and Filipino officers of that corporation. No
Under the doctrine of finality and immutability of Constitution, no decision of the Court, no legislation, no
judgment, a decision that has acquired finality becomes matter how ultranationalistic they are, can guarantee
immutable and unalterable, and may no longer be nationalism.
modified in any respect, even if the modification is meant
to correct erroneous conclusions of fact and law, and even
if the modification is made by the court that rendered it or
by the Highest Court of the land. Any act that violates the
principle must be immediately stricken down.113 The
petitions have not succeeded in pointing to any exceptions
to the doctrine of finality of judgments, under which the
present case falls, to wit: (1) the correction of clerical
errors; (2) the so-called nunc pro tunc entries which cause
no prejudice to any party; (3) void judgments; and (4)
whenever circumstances transpire after the finality of the
decision rendering its execution unjust and inequitable. 114

With the foregoing disquisition, the Court rules that SEC-

MC No. 8 is not contrary to the Court's definition and
interpretation of the term "capital". Accordingly, the
petitions must be denied for failing to show grave abuse of
discretion in the issuance of SEC-MC No. 8.

The petitions are second motions for Reconsideration,

which are proscribed.

As Justice Bersamin further noted during the deliberations,

the petitions are in reality second motions for
reconsideration prohibited by the Internal Rules of the
Supreme Court.115 The parties, particularly intervenors
Gamboa, et al., could have filed a motion for clarification
in Gamboa in order to fill in the perceived shortcoming
occasioned by the non-inclusion in the dispositive portion
of the GamboaResolution of what was discussed in the
body.116 The statement in the fallo of
the Gamboa Resolution to the effect that "[n]o further
pleadings shall be entertained" could not be a hindrance to
a motion for clarification that sought an unadulterated
inquiry arising upon an ambiguity in the decision. 117

Closing

Ultimately, the key to nationalism is in the individual.

Particularly for a public utility corporation or association,
whether stock or non-stock, it starts with the Filipino
shareholder or member who, together with other Filipino
shareholders or members wielding 60% voting power,
elects the Filipino director who, in turn, together with
other Filipino directors comprising a majority of the board
of directors or trustees, appoints and employs the all-
16
 for the manufacture of LPG cylinders were shipped,
delivered, and installed in the Carmona plant. PGSMC paid
WHEREFORE, premises considered, the Court DENIES the KOGIES USD 1,224,000.
Petition and Petition-in-Intervention.
However, gleaned from the Certificate4 executed by the
parties on January 22, 1998, after the installation of the
SO ORDERED.ChanRoblesVirtualawlibrary
plant, the initial operation could not be conducted as
PGSMC encountered financial difficulties affecting the
supply of materials, thus forcing the parties to agree that
G.R. No. 143581 January 7, 2008
KOGIES would be deemed to have completely complied
KOREA TECHNOLOGIES CO., LTD., petitioner, with the terms and conditions of the March 5, 1997
vs. contract.
HON. ALBERTO A. LERMA, in his capacity as Presiding
For the remaining balance of USD306,000 for the
Judge of Branch 256 of Regional Trial Court of
installation and initial operation of the plant, PGSMC
Muntinlupa City, and PACIFIC GENERAL STEEL
issued two postdated checks: (1) BPI Check No. 0316412
MANUFACTURING CORPORATION, respondents.
dated January 30, 1998 for PhP 4,500,000; and (2) BPI
DECISION Check No. 0316413 dated March 30, 1998 for PhP
4,500,000.5
VELASCO, JR., J.:
When KOGIES deposited the checks, these were
In our jurisdiction, the policy is to favor alternative
dishonored for the reason "PAYMENT STOPPED." Thus, on
methods of resolving disputes, particularly in civil and
May 8, 1998, KOGIES sent a demand letter6 to PGSMC
commercial disputes. Arbitration along with mediation,
threatening criminal action for violation of Batas
conciliation, and negotiation, being inexpensive, speedy
Pambansa Blg.22 in case of nonpayment. On the same date,
and less hostile methods have long been favored by this
the wife of PGSMC’s President faxed a letter dated May 7,
Court. The petition before us puts at issue an arbitration
1998 to KOGIES’ President who was then staying at a
clause in a contract mutually agreed upon by the parties
Makati City hotel. She complained that not only did
stipulating that they would submit themselves to
KOGIES deliver a different brand of hydraulic press from
arbitration in a foreign country. Regrettably, instead of
that agreed upon but it had not delivered several
hastening the resolution of their dispute, the parties
equipment parts already paid for.
wittingly or unwittingly prolonged the controversy.
On May 14, 1998, PGSMC replied that the two checks it
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a
issued KOGIES were fully funded but the payments were
Korean corporation which is engaged in the supply and
stopped for reasons previously made known to KOGIES.7
installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific On June 1, 1998, PGSMC informed KOGIES that PGSMC was
General Steel Manufacturing Corp. (PGSMC) is a domestic canceling their Contract dated March 5, 1997 on the
corporation. ground that KOGIES had altered the quantity and lowered
the quality of the machineries and equipment it delivered
On March 5, 1997, PGSMC and KOGIES executed a
to PGSMC, and that PGSMC would dismantle and transfer
Contract1 whereby KOGIES would set up an LPG Cylinder
the machineries, equipment, and facilities installed in the
Manufacturing Plant in Carmona, Cavite. The contract was
Carmona plant. Five days later, PGSMC filed before the
executed in the Philippines. On April 7, 1997, the parties
Office of the Public Prosecutor an Affidavit-Complaint
executed, in Korea, an Amendment for Contract No. KLP-
for Estafa docketed as I.S. No. 98-03813 against Mr. Dae
970301 dated March 5, 19972 amending the terms of
Hyun Kang, President of KOGIES.
payment. The contract and its amendment stipulated that
KOGIES will ship the machinery and facilities necessary for On June 15, 1998, KOGIES wrote PGSMC informing the
manufacturing LPG cylinders for which PGSMC would pay latter that PGSMC could not unilaterally rescind their
USD 1,224,000. KOGIES would install and initiate the contract nor dismantle and transfer the machineries and
operation of the plant for which PGSMC bound itself to pay equipment on mere imagined violations by KOGIES. It also
USD 306,000 upon the plant’s production of the 11-kg. LPG insisted that their disputes should be settled by arbitration
cylinder samples. Thus, the total contract price amounted as agreed upon in Article 15, the arbitration clause of their
to USD 1,530,000. contract.
On October 14, 1997, PGSMC entered into a Contract of On June 23, 1998, PGSMC again wrote KOGIES reiterating
Lease3 with Worth Properties, Inc. (Worth) for use of the contents of its June 1, 1998 letter threatening that the
Worth’s 5,079-square meter property with a 4,032-square machineries, equipment, and facilities installed in the plant
meter warehouse building to house the LPG manufacturing would be dismantled and transferred on July 4, 1998.
plant. The monthly rental was PhP 322,560 commencing Thus, on July 1, 1998, KOGIES instituted an Application for
on January 1, 1998 with a 10% annual increment clause. Arbitration before the Korean Commercial Arbitration
Subsequently, the machineries, equipment, and facilities
17
Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the that no cogent reason exists for this Court to grant
Contract as amended. the writ of preliminary injunction to restrain and
refrain defendant from dismantling the
On July 3, 1998, KOGIES filed a Complaint for Specific
machineries and facilities at the lot and building of
Performance, docketed as Civil Case No. 98-1178 against
Worth Properties, Incorporated at Carmona,
PGSMC before the Muntinlupa City Regional Trial Court
Cavite and transfer the same to another site: and
(RTC). The RTC granted a temporary restraining order
therefore denies plaintiff’s application for a writ of
(TRO) on July 4, 1998, which was subsequently extended
preliminary injunction.
until July 22, 1998. In its complaint, KOGIES alleged that
PGSMC had initially admitted that the checks that were On July 29, 1998, KOGIES filed its Reply to Answer and
stopped were not funded but later on claimed that it Answer to Counterclaim.11 KOGIES denied it had altered
stopped payment of the checks for the reason that "their the quantity and lowered the quality of the machinery,
value was not received" as the former allegedly breached equipment, and facilities it delivered to the plant. It
their contract by "altering the quantity and lowering the claimed that it had performed all the undertakings under
quality of the machinery and equipment" installed in the the contract and had already produced certified samples of
plant and failed to make the plant operational although it LPG cylinders. It averred that whatever was unfinished
earlier certified to the contrary as shown in a January 22, was PGSMC’s fault since it failed to procure raw materials
1998 Certificate. Likewise, KOGIES averred that PGSMC due to lack of funds. KOGIES, relying on Chung Fu
violated Art. 15 of their Contract, as amended, by Industries (Phils.), Inc. v. Court of Appeals,12 insisted that
unilaterally rescinding the contract without resorting to the arbitration clause was without question valid.
arbitration. KOGIES also asked that PGSMC be restrained
After KOGIES filed a Supplemental Memorandum with
from dismantling and transferring the machinery and
Motion to Dismiss13 answering PGSMC’s memorandum of
equipment installed in the plant which the latter
July 22, 1998 and seeking dismissal of PGSMC’s
threatened to do on July 4, 1998.
counterclaims, KOGIES, on August 4, 1998, filed its Motion
On July 9, 1998, PGSMC filed an opposition to the TRO for Reconsideration14 of the July 23, 1998 Order denying
arguing that KOGIES was not entitled to the TRO since Art. its application for an injunctive writ claiming that the
15, the arbitration clause, was null and void for being contract was not merely for machinery and facilities worth
against public policy as it ousts the local courts of USD 1,224,000 but was for the sale of an "LPG
jurisdiction over the instant controversy. manufacturing plant" consisting of "supply of all the
machinery and facilities" and "transfer of technology" for a
On July 17, 1998, PGSMC filed its Answer with Compulsory
total contract price of USD 1,530,000 such that the
Counterclaim9 asserting that it had the full right to
dismantling and transfer of the machinery and facilities
dismantle and transfer the machineries and equipment
would result in the dismantling and transfer of the very
because it had paid for them in full as stipulated in the
plant itself to the great prejudice of KOGIES as the still
contract; that KOGIES was not entitled to the PhP
unpaid owner/seller of the plant. Moreover, KOGIES points
9,000,000 covered by the checks for failing to completely
out that the arbitration clause under Art. 15 of the Contract
install and make the plant operational; and that KOGIES
as amended was a valid arbitration stipulation under Art.
was liable for damages amounting to PhP 4,500,000 for
2044 of the Civil Code and as held by this Court in Chung
altering the quantity and lowering the quality of the
Fu Industries (Phils.), Inc.15
machineries and equipment. Moreover, PGSMC averred
that it has already paid PhP 2,257,920 in rent (covering In the meantime, PGSMC filed a Motion for Inspection of
January to July 1998) to Worth and it was not willing to Things16 to determine whether there was indeed alteration
further shoulder the cost of renting the premises of the of the quantity and lowering of quality of the machineries
plant considering that the LPG cylinder manufacturing and equipment, and whether these were properly
plant never became operational. installed. KOGIES opposed the motion positing that the
queries and issues raised in the motion for inspection fell
After the parties submitted their Memoranda, on July 23,
under the coverage of the arbitration clause in their
1998, the RTC issued an Order denying the application for
contract.
a writ of preliminary injunction, reasoning that PGSMC had
paid KOGIES USD 1,224,000, the value of the machineries On September 21, 1998, the trial court issued an Order (1)
and equipment as shown in the contract such that KOGIES granting PGSMC’s motion for inspection; (2) denying
no longer had proprietary rights over them. And finally, KOGIES’ motion for reconsideration of the July 23, 1998
the RTC held that Art. 15 of the Contract as amended was RTC Order; and (3) denying KOGIES’ motion to dismiss
invalid as it tended to oust the trial court or any other PGSMC’s compulsory counterclaims as these
court jurisdiction over any dispute that may arise between counterclaims fell within the requisites of compulsory
the parties. KOGIES’ prayer for an injunctive writ was counterclaims.
denied.10 The dispositive portion of the Order stated:
On October 2, 1998, KOGIES filed an Urgent Motion for
WHEREFORE, in view of the foregoing Reconsideration17 of the September 21, 1998 RTC Order
consideration, this Court believes and so holds
18
granting inspection of the plant and denying dismissal of compulsory ones and payment of docket fees was not
PGSMC’s compulsory counterclaims. required since the Answer with counterclaim was not an
initiatory pleading. For the same reason, the CA said a
Ten days after, on October 12, 1998, without waiting for
certificate of non-forum shopping was also not required.
the resolution of its October 2, 1998 urgent motion for
reconsideration, KOGIES filed before the Court of Appeals Furthermore, the CA held that the petition for certiorari
(CA) a petition for certiorari18 docketed as CA-G.R. SP No. had been filed prematurely since KOGIES did not wait for
49249, seeking annulment of the July 23, 1998 and the resolution of its urgent motion for reconsideration of
September 21, 1998 RTC Orders and praying for the the September 21, 1998 RTC Order which was the plain,
issuance of writs of prohibition, mandamus, and speedy, and adequate remedy available. According to the
preliminary injunction to enjoin the RTC and PGSMC from CA, the RTC must be given the opportunity to correct any
inspecting, dismantling, and transferring the machineries alleged error it has committed, and that since the assailed
and equipment in the Carmona plant, and to direct the RTC orders were interlocutory, these cannot be the subject of a
to enforce the specific agreement on arbitration to resolve petition for certiorari.
the dispute.
Hence, we have this Petition for Review on Certiorari
In the meantime, on October 19, 1998, the RTC denied under Rule 45.
KOGIES’ urgent motion for reconsideration and directed
The Issues
the Branch Sheriff to proceed with the inspection of the
machineries and equipment in the plant on October 28, Petitioner posits that the appellate court committed the
1998.19 following errors:
Thereafter, KOGIES filed a Supplement to the Petition20 in a. PRONOUNCING THE QUESTION OF
CA-G.R. SP No. 49249 informing the CA about the October OWNERSHIP OVER THE MACHINERY AND
19, 1998 RTC Order. It also reiterated its prayer for the FACILITIES AS "A QUESTION OF FACT" "BEYOND
issuance of the writs of prohibition, mandamus and THE AMBIT OF A PETITION FOR CERTIORARI"
preliminary injunction which was not acted upon by the INTENDED ONLY FOR CORRECTION OF ERRORS
CA. KOGIES asserted that the Branch Sheriff did not have OF JURISDICTION OR GRAVE ABUSE OF
the technical expertise to ascertain whether or not the DISCRETION AMOUNTING TO LACK OF (SIC)
machineries and equipment conformed to the EXCESS OF JURISDICTION, AND CONCLUDING
specifications in the contract and were properly installed. THAT THE TRIAL COURT’S FINDING ON THE
SAME QUESTION WAS IMPROPERLY RAISED IN
On November 11, 1998, the Branch Sheriff filed his
THE PETITION BELOW;
Sheriff’s Report21 finding that the enumerated machineries
and equipment were not fully and properly installed. b. DECLARING AS NULL AND VOID THE
ARBITRATION CLAUSE IN ARTICLE 15 OF THE
The Court of Appeals affirmed the trial court and
CONTRACT BETWEEN THE PARTIES FOR BEING
declared
"CONTRARY TO PUBLIC POLICY" AND FOR
the arbitration clause against public policy
OUSTING THE COURTS OF JURISDICTION;
On May 30, 2000, the CA rendered the assailed
c. DECREEING PRIVATE RESPONDENT’S
Decision22 affirming the RTC Orders and dismissing the
COUNTERCLAIMS TO BE ALL COMPULSORY NOT
petition for certiorari filed by KOGIES. The CA found that
NECESSITATING PAYMENT OF DOCKET FEES
the RTC did not gravely abuse its discretion in issuing the
AND CERTIFICATION OF NON-FORUM SHOPPING;
assailed July 23, 1998 and September 21, 1998 Orders.
Moreover, the CA reasoned that KOGIES’ contention that d. RULING THAT THE PETITION WAS FILED
the total contract price for USD 1,530,000 was for the PREMATURELY WITHOUT WAITING FOR THE
whole plant and had not been fully paid was contrary to RESOLUTION OF THE MOTION FOR
the finding of the RTC that PGSMC fully paid the price of RECONSIDERATION OF THE ORDER DATED
USD 1,224,000, which was for all the machineries and SEPTEMBER 21, 1998 OR WITHOUT GIVING THE
equipment. According to the CA, this determination by the TRIAL COURT AN OPPORTUNITY TO CORRECT
RTC was a factual finding beyond the ambit of a petition ITSELF;
for certiorari.
e. PROCLAIMING THE TWO ORDERS DATED JULY
On the issue of the validity of the arbitration clause, the CA 23 AND SEPTEMBER 21, 1998 NOT TO BE
agreed with the lower court that an arbitration clause PROPER SUBJECTS OF CERTIORARI AND
which provided for a final determination of the legal rights PROHIBITION FOR BEING "INTERLOCUTORY IN
of the parties to the contract by arbitration was against NATURE;"
public policy.
f. NOT GRANTING THE RELIEFS AND REMEDIES
On the issue of nonpayment of docket fees and non- PRAYED FOR IN HE (SIC) PETITION AND,
attachment of a certificate of non-forum shopping by INSTEAD, DISMISSING THE SAME FOR
PGSMC, the CA held that the counterclaims of PGSMC were ALLEGEDLY "WITHOUT MERIT."23
19
The Court’s Ruling The proper remedy in such cases is an ordinary
appeal from an adverse judgment on the merits,
The petition is partly meritorious.
incorporating in said appeal the grounds for
Before we delve into the substantive issues, we shall first assailing the interlocutory orders. Allowing
tackle the procedural issues. appeals from interlocutory orders would result in
the ‘sorry spectacle’ of a case being subject of a
The rules on the payment of docket fees for
counterproductive ping-pong to and from the
counterclaims
appellate court as often as a trial court is
and cross claims were amended effective August 16,
perceived to have made an error in any of its
2004
interlocutory rulings. However, where the assailed
KOGIES strongly argues that when PGSMC filed the interlocutory order was issued with grave abuse
counterclaims, it should have paid docket fees and filed a of discretion or patently erroneous and the
certificate of non-forum shopping, and that its failure to do remedy of appeal would not afford adequate and
so was a fatal defect. expeditious relief, the Court allows certiorari as a
mode of redress.28
We disagree with KOGIES.
Also, appeals from interlocutory orders would open the
As aptly ruled by the CA, the counterclaims of PGSMC were
floodgates to endless occasions for dilatory motions. Thus,
incorporated in its Answer with Compulsory Counterclaim
where the interlocutory order was issued without or in
dated July 17, 1998 in accordance with Section 8 of Rule
excess of jurisdiction or with grave abuse of discretion, the
11, 1997 Revised Rules of Civil Procedure, the rule that
remedy is certiorari.29
was effective at the time the Answer with Counterclaim
was filed. Sec. 8 on existing counterclaim or cross-claim The alleged grave abuse of discretion of the respondent
states, "A compulsory counterclaim or a cross-claim that a court equivalent to lack of jurisdiction in the issuance of
defending party has at the time he files his answer shall be the two assailed orders coupled with the fact that there is
contained therein." no plain, speedy, and adequate remedy in the ordinary
course of law amply provides the basis for allowing the
On July 17, 1998, at the time PGSMC filed its Answer
resort to a petition for certiorari under Rule 65.
incorporating its counterclaims against KOGIES, it was not
liable to pay filing fees for said counterclaims being Prematurity of the petition before the CA
compulsory in nature. We stress, however, that effective
Neither do we think that KOGIES was guilty of forum
August 16, 2004 under Sec. 7, Rule 141, as amended by
shopping in filing the petition for certiorari. Note that
A.M. No. 04-2-04-SC, docket fees are now required to be
KOGIES’ motion for reconsideration of the July 23, 1998
paid in compulsory counterclaim or cross-claims.
RTC Order which denied the issuance of the injunctive writ
As to the failure to submit a certificate of forum shopping, had already been denied. Thus, KOGIES’ only remedy was
PGSMC’s Answer is not an initiatory pleading which to assail the RTC’s interlocutory order via a petition for
requires a certification against forum shopping under Sec. certiorari under Rule 65.
524 of Rule 7, 1997 Revised Rules of Civil Procedure. It is a
While the October 2, 1998 motion for reconsideration of
responsive pleading, hence, the courts a quo did not
KOGIES of the September 21, 1998 RTC Order relating to
commit reversible error in denying KOGIES’ motion to
the inspection of things, and the allowance of the
dismiss PGSMC’s compulsory counterclaims.
compulsory counterclaims has not yet been resolved, the
Interlocutory orders proper subject of certiorari circumstances in this case would allow an exception to the
rule that before certiorari may be availed of, the petitioner
Citing Gamboa v. Cruz,25 the CA also pronounced that
must have filed a motion for reconsideration and said
"certiorari and Prohibition are neither the remedies to
motion should have been first resolved by the court a quo.
question the propriety of an interlocutory order of the trial
The reason behind the rule is "to enable the lower court, in
court."26 The CA erred on its reliance
the first instance, to pass upon and correct its mistakes
on Gamboa. Gamboa involved the denial of a motion to
without the intervention of the higher court."30
acquit in a criminal case which was not assailable in an
action for certiorari since the denial of a motion to quash The September 21, 1998 RTC Order directing the branch
required the accused to plead and to continue with the sheriff to inspect the plant, equipment, and facilities when
trial, and whatever objections the accused had in his he is not competent and knowledgeable on said matters is
motion to quash can then be used as part of his defense evidently flawed and devoid of any legal support.
and subsequently can be raised as errors on his appeal if Moreover, there is an urgent necessity to resolve the issue
the judgment of the trial court is adverse to him. The on the dismantling of the facilities and any further delay
general rule is that interlocutory orders cannot be would prejudice the interests of KOGIES. Indeed, there is
challenged by an appeal.27 Thus, in Yamaoka v. Pescarich real and imminent threat of irreparable destruction or
Manufacturing Corporation, we held: substantial damage to KOGIES’ equipment and
machineries. We find the resort to certiorari based on the
gravely abusive orders of the trial court sans the ruling on
20
the October 2, 1998 motion for reconsideration to be policy. This Court has sanctioned the validity of arbitration
proper. clauses in a catena of cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this Court had
The Core Issue: Article 15 of the Contract
occasion to rule that an arbitration clause to resolve
We now go to the core issue of the validity of Art. 15 of the differences and breaches of mutually agreed contractual
Contract, the arbitration clause. It provides: terms is valid. In BF Corporation v. Court of Appeals, we
held that "[i]n this jurisdiction, arbitration has been held
Article 15. Arbitration.—All disputes,
valid and constitutional. Even before the approval on June
controversies, or differences which may arise
19, 1953 of Republic Act No. 876, this Court has
between the parties, out of or in relation to or in
countenanced the settlement of disputes through
connection with this Contract or for the breach
arbitration. Republic Act No. 876 was adopted to
thereof, shall finally be settled by arbitration in
supplement the New Civil Code’s provisions on
Seoul, Korea in accordance with the Commercial
arbitration."39 And in LM Power Engineering Corporation v.
Arbitration Rules of the Korean Commercial
Capitol Industrial Construction Groups, Inc., we declared
Arbitration Board. The award rendered by the
that:
arbitration(s) shall be final and binding upon
both parties concerned. (Emphasis supplied.) Being an inexpensive, speedy and amicable
method of settling disputes, arbitration––along
Petitioner claims the RTC and the CA erred in ruling that
with mediation, conciliation and negotiation––is
the arbitration clause is null and void.
encouraged by the Supreme Court. Aside from
Petitioner is correct. unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of
Established in this jurisdiction is the rule that the law of
the commercial kind. It is thus regarded as the
the place where the contract is made governs. Lex loci
"wave of the future" in international civil and
contractus. The contract in this case was perfected here in
commercial disputes. Brushing aside a contractual
the Philippines. Therefore, our laws ought to govern.
agreement calling for arbitration between the
Nonetheless, Art. 2044 of the Civil Code sanctions the
parties would be a step backward.
validity of mutually agreed arbitral clause or the finality
and binding effect of an arbitral award. Art. 2044 provides, Consistent with the above-mentioned policy of
"Any stipulation that the arbitrators’ award or encouraging alternative dispute resolution
decision shall be final, is valid, without prejudice to methods, courts should liberally construe
Articles 2038, 2039 and 2040." (Emphasis supplied.) arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the
Arts. 2038,31 2039,32 and 204033 abovecited refer to
asserted dispute, an order to arbitrate should be
instances where a compromise or an arbitral award, as
granted. Any doubt should be resolved in favor of
applied to Art. 2044 pursuant to Art. 2043,34 may be
arbitration.40
voided, rescinded, or annulled, but these would not
denigrate the finality of the arbitral award. Having said that the instant arbitration clause is not
against public policy, we come to the question on what
The arbitration clause was mutually and voluntarily
governs an arbitration clause specifying that in case of any
agreed upon by the parties. It has not been shown to be
dispute arising from the contract, an arbitral panel will be
contrary to any law, or against morals, good customs,
constituted in a foreign country and the arbitration rules of
public order, or public policy. There has been no showing
the foreign country would govern and its award shall be
that the parties have not dealt with each other on equal
final and binding.
footing. We find no reason why the arbitration clause
should not be respected and complied with by both RA 9285 incorporated the UNCITRAL Model law
parties. In Gonzales v. Climax Mining Ltd.,35 we held that to which we are a signatory
submission to arbitration is a contract and that a clause in
For domestic arbitration proceedings, we have particular
a contract providing that all matters in dispute between
agencies to arbitrate disputes arising from contractual
the parties shall be referred to arbitration is a
relations. In case a foreign arbitral body is chosen by the
contract.36 Again in Del Monte Corporation-USA v. Court of
parties, the arbitration rules of our domestic arbitration
Appeals, we likewise ruled that "[t]he provision to submit
bodies would not be applied. As signatory to the
to arbitration any dispute arising therefrom and the
Arbitration Rules of the UNCITRAL Model Law on
relationship of the parties is part of that contract and is
International Commercial Arbitration41 of the United
itself a contract."37
Nations Commission on International Trade Law
Arbitration clause not contrary to public policy (UNCITRAL) in the New York Convention on June 21, 1985,
the Philippines committed itself to be bound by the Model
The arbitration clause which stipulates that the arbitration
Law. We have even incorporated the Model Law in
must be done in Seoul, Korea in accordance with the
Republic Act No. (RA) 9285, otherwise known as the
Commercial Arbitration Rules of the KCAB, and that the
Alternative Dispute Resolution Act of 2004 entitled An Act
arbitral award is final and binding, is not contrary to public
21
to Institutionalize the Use of an Alternative Dispute parties thereafter, refer the parties to arbitration
Resolution System in the Philippines and to Establish the unless it finds that the arbitration agreement is
Office for Alternative Dispute Resolution, and for Other null and void, inoperative or incapable of being
Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of performed.
Chapter 4 of the Model Law are the pertinent provisions:
(2) Foreign arbitral awards must be confirmed by the
CHAPTER 4 - INTERNATIONAL COMMERCIAL RTC
ARBITRATION
Foreign arbitral awards while mutually stipulated by the
SEC. 19. Adoption of the Model Law on parties in the arbitration clause to be final and binding are
International Commercial Arbitration.–– not immediately enforceable or cannot be implemented
International commercial arbitration shall be immediately. Sec. 3543 of the UNCITRAL Model Law
governed by the Model Law on International stipulates the requirement for the arbitral award to be
Commercial Arbitration (the "Model Law") recognized by a competent court for enforcement, which
adopted by the United Nations Commission on court under Sec. 36 of the UNCITRAL Model Law may
International Trade Law on June 21, 1985 (United refuse recognition or enforcement on the grounds
Nations Document A/40/17) and recommended provided for. RA 9285 incorporated these provisos to Secs.
for enactment by the General Assembly in 42, 43, and 44 relative to Secs. 47 and 48, thus:
Resolution No. 40/72 approved on December 11,
SEC. 42. Application of the New York Convention.––
1985, copy of which is hereto attached as
The New York Convention shall govern the
Appendix "A".
recognition and enforcement of arbitral awards
SEC. 20. Interpretation of Model Law.––In covered by said Convention.
interpreting the Model Law, regard shall be had to
The recognition and enforcement of such arbitral
its international origin and to the need for
awards shall be filed with the Regional Trial
uniformity in its interpretation and resort may be
Court in accordance with the rules of procedure
made to the travaux preparatoriesand the report
to be promulgated by the Supreme Court. Said
of the Secretary General of the United Nations
procedural rules shall provide that the party
Commission on International Trade Law dated
relying on the award or applying for its
March 25, 1985 entitled, "International
enforcement shall file with the court the original
Commercial Arbitration: Analytical Commentary
or authenticated copy of the award and the
on Draft Trade identified by reference number
arbitration agreement. If the award or agreement
A/CN. 9/264."
is not made in any of the official languages, the
While RA 9285 was passed only in 2004, it nonetheless party shall supply a duly certified translation
applies in the instant case since it is a procedural law thereof into any of such languages.
which has a retroactive effect. Likewise, KOGIES filed its
The applicant shall establish that the country in
application for arbitration before the KCAB on July 1, 1998
which foreign arbitration award was made in
and it is still pending because no arbitral award has yet
party to the New York Convention.
been rendered. Thus, RA 9285 is applicable to the instant
case. Well-settled is the rule that procedural laws are xxxx
construed to be applicable to actions pending and
SEC. 43. Recognition and Enforcement of Foreign
undetermined at the time of their passage, and are deemed
Arbitral Awards Not Covered by the New York
retroactive in that sense and to that extent. As a general
Convention.––The recognition and enforcement of
rule, the retroactive application of procedural laws does
foreign arbitral awards not covered by the New
not violate any personal rights because no vested right has
York Convention shall be done in accordance with
yet attached nor arisen from them.42
procedural rules to be promulgated by the
Among the pertinent features of RA 9285 applying and Supreme Court. The Court may, on grounds of
incorporating the UNCITRAL Model Law are the following: comity and reciprocity, recognize and enforce a
non-convention award as a convention award.
(1) The RTC must refer to arbitration in proper cases
SEC. 44. Foreign Arbitral Award Not Foreign
Under Sec. 24, the RTC does not have jurisdiction over
Judgment.––A foreign arbitral award when
disputes that are properly the subject of arbitration
confirmed by a court of a foreign country, shall be
pursuant to an arbitration clause, and mandates the
recognized and enforced as a foreign arbitral
referral to arbitration in such cases, thus:
award and not as a judgment of a foreign court.
SEC. 24. Referral to Arbitration.––A court before
A foreign arbitral award, when confirmed by the
which an action is brought in a matter which is the
Regional Trial Court, shall be enforced in the same
subject matter of an arbitration agreement shall, if
manner as final and executory decisions of courts
at least one party so requests not later than the
of law of the Philippines
pre-trial conference, or upon the request of both
22
 xxxx relying on the award or applying for its
enforcement shall file with the court the original
SEC. 47. Venue and Jurisdiction.––Proceedings for
or authenticated copy of the award and the
recognition and enforcement of an arbitration
arbitration agreement. If the award or agreement
agreement or for vacations, setting aside,
is not made in any of the official languages, the
correction or modification of an arbitral award,
party shall supply a duly certified translation
and any application with a court for arbitration
thereof into any of such languages.
assistance and supervision shall be deemed as
special proceedings and shall be filed with the The applicant shall establish that the country in
Regional Trial Court (i) where arbitration which foreign arbitration award was made is
proceedings are conducted; (ii) where the asset to party to the New York Convention.
be attached or levied upon, or the act to be
If the application for rejection or suspension of
enjoined is located; (iii) where any of the parties
enforcement of an award has been made, the
to the dispute resides or has his place of business;
Regional Trial Court may, if it considers it proper,
or (iv) in the National Judicial Capital Region, at
vacate its decision and may also, on the
the option of the applicant.
application of the party claiming recognition or
SEC. 48. Notice of Proceeding to Parties.––In a enforcement of the award, order the party to
special proceeding for recognition and provide appropriate security.
enforcement of an arbitral award, the Court shall
xxxx
send notice to the parties at their address of
record in the arbitration, or if any part cannot be SEC. 45. Rejection of a Foreign Arbitral Award.––A
served notice at such address, at such party’s last party to a foreign arbitration proceeding may
known address. The notice shall be sent al least oppose an application for recognition and
fifteen (15) days before the date set for the initial enforcement of the arbitral award in accordance
hearing of the application. with the procedures and rules to be promulgated
by the Supreme Court only on those grounds
It is now clear that foreign arbitral awards when
enumerated under Article V of the New York
confirmed by the RTC are deemed not as a judgment of a
Convention. Any other ground raised shall be
foreign court but as a foreign arbitral award, and when
disregarded by the Regional Trial Court.
confirmed, are enforced as final and executory decisions of
our courts of law. Thus, while the RTC does not have jurisdiction over
disputes governed by arbitration mutually agreed upon by
Thus, it can be gleaned that the concept of a final and
the parties, still the foreign arbitral award is subject to
binding arbitral award is similar to judgments or awards
judicial review by the RTC which can set aside, reject, or
given by some of our quasi-judicial bodies, like the
vacate it. In this sense, what this Court held in Chung Fu
National Labor Relations Commission and Mines
Industries (Phils.), Inc. relied upon by KOGIES is applicable
Adjudication Board, whose final judgments are stipulated
insofar as the foreign arbitral awards, while final and
to be final and binding, but not immediately executory in
binding, do not oust courts of jurisdiction since these
the sense that they may still be judicially reviewed, upon
arbitral awards are not absolute and without exceptions as
the instance of any party. Therefore, the final foreign
they are still judicially reviewable. Chapter 7 of RA 9285
arbitral awards are similarly situated in that they need
has made it clear that all arbitral awards, whether
first to be confirmed by the RTC.
domestic or foreign, are subject to judicial review on
(3) The RTC has jurisdiction to review foreign arbitral specific grounds provided for.
awards
(4) Grounds for judicial review different in domestic
Sec. 42 in relation to Sec. 45 of RA 9285 designated and and foreign arbitral awards
vested the RTC with specific authority and jurisdiction to
The differences between a final arbitral award from an
set aside, reject, or vacate a foreign arbitral award on
international or foreign arbitral tribunal and an award
grounds provided under Art. 34(2) of the UNCITRAL
given by a local arbitral tribunal are the specific grounds
Model Law. Secs. 42 and 45 provide:
or conditions that vest jurisdiction over our courts to
SEC. 42. Application of the New York Convention.–– review the awards.
The New York Convention shall govern the
For foreign or international arbitral awards which must
recognition and enforcement of arbitral awards
first be confirmed by the RTC, the grounds for setting
covered by said Convention.
aside, rejecting or vacating the award by the RTC are
The recognition and enforcement of such arbitral provided under Art. 34(2) of the UNCITRAL Model Law.
awards shall be filed with the Regional Trial
For final domestic arbitral awards, which also need
Court in accordance with the rules of procedure
confirmation by the RTC pursuant to Sec. 23 of RA
to be promulgated by the Supreme Court. Said
87644 and shall be recognized as final and executory
procedural rules shall provide that the party
23
decisions of the RTC,45 they may only be assailed before What this Court held in University of the Philippines v. De
the RTC and vacated on the grounds provided under Sec. Los Angeles47 and reiterated in succeeding cases,48 that the
25 of RA 876.46 act of treating a contract as rescinded on account of
infractions by the other contracting party is valid albeit
(5) RTC decision of assailed foreign arbitral award
provisional as it can be judicially assailed, is not applicable
appealable
to the instant case on account of a valid stipulation on
Sec. 46 of RA 9285 provides for an appeal before the CA as arbitration. Where an arbitration clause in a contract is
the remedy of an aggrieved party in cases where the RTC availing, neither of the parties can unilaterally treat the
sets aside, rejects, vacates, modifies, or corrects an arbitral contract as rescinded since whatever infractions or
award, thus: breaches by a party or differences arising from the
contract must be brought first and resolved by arbitration,
SEC. 46. Appeal from Court Decision or Arbitral
and not through an extrajudicial rescission or judicial
Awards.—A decision of the Regional Trial Court
action.
confirming, vacating, setting aside, modifying or
correcting an arbitral award may be appealed to The issues arising from the contract between PGSMC and
the Court of Appeals in accordance with the rules KOGIES on whether the equipment and machineries
and procedure to be promulgated by the Supreme delivered and installed were properly installed and
Court. operational in the plant in Carmona, Cavite; the ownership
of equipment and payment of the contract price; and
The losing party who appeals from the judgment
whether there was substantial compliance by KOGIES in
of the court confirming an arbitral award shall be
the production of the samples, given the alleged fact that
required by the appellate court to post a
PGSMC could not supply the raw materials required to
counterbond executed in favor of the prevailing
produce the sample LPG cylinders, are matters proper for
party equal to the amount of the award in
arbitration. Indeed, we note that on July 1, 1998, KOGIES
accordance with the rules to be promulgated by
instituted an Application for Arbitration before the KCAB
the Supreme Court.
in Seoul, Korea pursuant to Art. 15 of the Contract as
Thereafter, the CA decision may further be appealed or amended. Thus, it is incumbent upon PGSMC to abide by its
reviewed before this Court through a petition for review commitment to arbitrate.
under Rule 45 of the Rules of Court.
Corollarily, the trial court gravely abused its discretion in
PGSMC has remedies to protect its interests granting PGSMC’s Motion for Inspection of Things on
September 21, 1998, as the subject matter of the motion is
Thus, based on the foregoing features of RA 9285, PGSMC
under the primary jurisdiction of the mutually agreed
must submit to the foreign arbitration as it bound itself
arbitral body, the KCAB in Korea.
through the subject contract. While it may have misgivings
on the foreign arbitration done in Korea by the KCAB, it In addition, whatever findings and conclusions made by
has available remedies under RA 9285. Its interests are the RTC Branch Sheriff from the inspection made on
duly protected by the law which requires that the arbitral October 28, 1998, as ordered by the trial court on October
award that may be rendered by KCAB must be confirmed 19, 1998, is of no worth as said Sheriff is not technically
here by the RTC before it can be enforced. competent to ascertain the actual status of the equipment
and machineries as installed in the plant.
With our disquisition above, petitioner is correct in its
contention that an arbitration clause, stipulating that the For these reasons, the September 21, 1998 and October 19,
arbitral award is final and binding, does not oust our 1998 RTC Orders pertaining to the grant of the inspection
courts of jurisdiction as the international arbitral award, of the equipment and machineries have to be recalled and
the award of which is not absolute and without exceptions, nullified.
is still judicially reviewable under certain conditions
Issue on ownership of plant proper for arbitration
provided for by the UNCITRAL Model Law on ICA as
applied and incorporated in RA 9285. Petitioner assails the CA ruling that the issue petitioner
raised on whether the total contract price of USD
Finally, it must be noted that there is nothing in the subject
1,530,000 was for the whole plant and its installation is
Contract which provides that the parties may dispense
beyond the ambit of a Petition for Certiorari.
with the arbitration clause.
Petitioner’s position is untenable.
Unilateral rescission improper and illegal
It is settled that questions of fact cannot be raised in an
Having ruled that the arbitration clause of the subject
original action for certiorari.49 Whether or not there was
contract is valid and binding on the parties, and not
full payment for the machineries and equipment and
contrary to public policy; consequently, being bound to the
installation is indeed a factual issue prohibited by Rule 65.
contract of arbitration, a party may not unilaterally rescind
or terminate the contract for whatever cause without first However, what appears to constitute a grave abuse of
resorting to arbitration. discretion is the order of the RTC in resolving the issue on
24
the ownership of the plant when it is the arbitral body means to the Court or arbitral tribunal as the case
(KCAB) and not the RTC which has jurisdiction and may be and the party against whom the relief is
authority over the said issue. The RTC’s determination of sought, describing in appropriate detail the
such factual issue constitutes grave abuse of discretion and precise relief, the party against whom the relief is
must be reversed and set aside. requested, the grounds for the relief, and the
evidence supporting the request.
RTC has interim jurisdiction to protect the rights of the
parties (e) The order shall be binding upon the
parties.
Anent the July 23, 1998 Order denying the issuance of the
injunctive writ paving the way for PGSMC to dismantle and (f) Either party may apply with the Court for
transfer the equipment and machineries, we find it to be in assistance in implementing or enforcing an
order considering the factual milieu of the instant case. interim measure ordered by an arbitral tribunal.
Firstly, while the issue of the proper installation of the (g) A party who does not comply with the order
equipment and machineries might well be under the shall be liable for all damages resulting from
primary jurisdiction of the arbitral body to decide, yet the noncompliance, including all expenses, and
RTC under Sec. 28 of RA 9285 has jurisdiction to hear and reasonable attorney's fees, paid in obtaining the
grant interim measures to protect vested rights of the order’s judicial enforcement. (Emphasis ours.)
parties. Sec. 28 pertinently provides:
Art. 17(2) of the UNCITRAL Model Law on ICA defines an
SEC. 28. Grant of interim Measure of Protection.— "interim measure" of protection as:
(a) It is not incompatible with an arbitration
Article 17. Power of arbitral tribunal to order
agreement for a party to request, before
interim measures
constitution of the tribunal, from a Court to
grant such measure. After constitution of the xxx xxx xxx
arbitral tribunal and during arbitral proceedings,
(2) An interim measure is any temporary
a request for an interim measure of protection, or
measure, whether in the form of an award or in
modification thereof, may be made with the
another form, by which, at any time prior to the
arbitral or to the extent that the arbitral
issuance of the award by which the dispute is
tribunal has no power to act or is unable to act
finally decided, the arbitral tribunal orders a party
effectivity, the request may be made with the
to:
Court. The arbitral tribunal is deemed constituted
when the sole arbitrator or the third arbitrator, (a) Maintain or restore the status quo pending
who has been nominated, has accepted the determination of the dispute;
nomination and written communication of said
(b) Take action that would prevent, or refrain
nomination and acceptance has been received by
from taking action that is likely to cause, current
the party making the request.
or imminent harm or prejudice to the arbitral
(b) The following rules on interim or provisional process itself;
relief shall be observed:
(c) Provide a means of preserving assets out of
Any party may request that provisional relief be which a subsequent award may be satisfied; or
granted against the adverse party.
(d) Preserve evidence that may be relevant and
Such relief may be granted: material to the resolution of the dispute.
(i) to prevent irreparable loss or Art. 17 J of UNCITRAL Model Law on ICA also grants courts
injury; power and jurisdiction to issue interim measures:
(ii) to provide security for the Article 17 J. Court-ordered interim measures
performance of any obligation;
A court shall have the same power of issuing an
(iii) to produce or preserve any evidence; interim measure in relation to arbitration
or proceedings, irrespective of whether their place is
in the territory of this State, as it has in relation to
(iv) to compel any other appropriate act
proceedings in courts. The court shall exercise
or omission.
such power in accordance with its own
(c) The order granting provisional relief may be procedures in consideration of the specific
conditioned upon the provision of security or any features of international arbitration.
act or omission specified in the order.
In the recent 2006 case of Transfield Philippines, Inc. v.
(d) Interim or provisional relief is requested by Luzon Hydro Corporation, we were explicit that even "the
written application transmitted by reasonable pendency of an arbitral proceeding does not foreclose
25
resort to the courts for provisional reliefs." We explicated PGSMC to preserve the subject equipment and
this way: machineries
As a fundamental point, the pendency of arbitral Finally, while PGSMC may have been granted the right to
proceedings does not foreclose resort to the dismantle and transfer the subject equipment and
courts for provisional reliefs. The Rules of the ICC, machineries, it does not have the right to convey or
which governs the parties’ arbitral dispute, allows dispose of the same considering the pending arbitral
the application of a party to a judicial authority for proceedings to settle the differences of the parties. PGSMC
interim or conservatory measures. Likewise, therefore must preserve and maintain the subject
Section 14 of Republic Act (R.A.) No. 876 (The equipment and machineries with the diligence of a good
Arbitration Law) recognizes the rights of any father of a family51 until final resolution of the arbitral
party to petition the court to take measures to proceedings and enforcement of the award, if any.
safeguard and/or conserve any matter which is
WHEREFORE, this petition is PARTLY GRANTED, in that:
the subject of the dispute in arbitration. In
addition, R.A. 9285, otherwise known as the (1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
"Alternative Dispute Resolution Act of 2004," is REVERSED and SET ASIDE;
allows the filing of provisional or interim
(2) The September 21, 1998 and October 19, 1998 RTC
measures with the regular courts whenever the
Orders in Civil Case No. 98-117 are REVERSED and SET
arbitral tribunal has no power to act or to act
ASIDE;
effectively.50
(3) The parties are hereby ORDERED to submit
It is thus beyond cavil that the RTC has authority and
themselves to the arbitration of their dispute and
jurisdiction to grant interim measures of protection.
differences arising from the subject Contract before the
Secondly, considering that the equipment and machineries KCAB; and
are in the possession of PGSMC, it has the right to protect
(4) PGSMC is hereby ALLOWED to dismantle and transfer
and preserve the equipment and machineries in the best
the equipment and machineries, if it had not done so,
way it can. Considering that the LPG plant was non-
and ORDERED to preserve and maintain them until the
operational, PGSMC has the right to dismantle and transfer
finality of whatever arbitral award is given in the
the equipment and machineries either for their protection
arbitration proceedings.
and preservation or for the better way to make good use of
them which is ineluctably within the management No pronouncement as to costs.
discretion of PGSMC.
SO ORDERED.
Thirdly, and of greater import is the reason that
maintaining the equipment and machineries in Worth’s
property is not to the best interest of PGSMC due to the
prohibitive rent while the LPG plant as set-up is not
operational. PGSMC was losing PhP322,560 as monthly
rentals or PhP3.87M for 1998 alone without considering
the 10% annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on
motions or petitions relating to the preservation or
transfer of the equipment and machineries as an interim
measure, yet on hindsight, the July 23, 1998 Order of the
RTC allowing the transfer of the equipment and
machineries given the non-recognition by the lower courts
of the arbitral clause, has accorded an interim measure of
protection to PGSMC which would otherwise been
irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already
been paid a substantial amount based on the contract.
Moreover, KOGIES is amply protected by the arbitral
action it has instituted before the KCAB, the award of
which can be enforced in our jurisdiction through the RTC.
Besides, by our decision, PGSMC is compelled to submit to
arbitration pursuant to the valid arbitration clause of its
contract with KOGIES.

26
G.R. No. L-66006 February 28, 1985 The Solicitor General opines that the employment contract
should be applied. For that reason, he refused to uphold
BAGONG FILIPINAS OVERSEAS CORPORATION and
the decision of the NLRC.
GOLDEN STAR SHIPPING, LTD., petitioners,
vs. WHEREFORE, the judgment of the National Labor
NATIONAL LABOR RELATIONS COMMISSION, Relations Commission is reversed and set aside. The
PHILIPPINE OVERSEAS EMPLOYMENT decision of the National Seamen Board dated February 26,
ADMINISTRATION, DIRECTOR PATRICIA SANTO 1981 is affirmed. No costs.
TOMAS and PROSERFINA PANCHO respondents.
SO ORDERED.
Elizer A. Odulios for petitioners.
Pedro L. Linsangan for respondent P. Pancho.

AQUINO, J.:
The issue in this case is whether the shipboard
employment contract or Hongkong law should govern the
amount of death compensation due to the wife of
Guillermo Pancho who was employed by Golden Star
Shipping, Ltd., a Hongkong based firm.
The shipboard employment contract dated June 1, 1978
was executed in this country between Pancho and Bagong
Filipinas Overseas Corporation, the local agent of Golden
Star Shipping. It was approved by the defunct National
Seamen Board. Pancho was hired as an oiler in the M/V
Olivine for 12 months with a gross monthly wage of US
$195.
In October, 1978, he had a cerebral stroke. He was rushed
to the hospital while the vessel was docked at Gothenberg,
Sweden. He was repatriated to the Philippines and
confined at the San Juan de Dios Hospital. He died on
December 13, 1979.
The National Seamen Board awarded his widow,
Proserfina, P20,000 as disability compensation benefits
pursuant to the above-mentioned employment contract
plus P2,000 as attorney's fees. Proserfina appealed to the
National Labor Relations Commission which awarded her
$621 times 36 months or its equivalent in Philippine
currency plus 10% of the benefits as attorney's fees.
Golden Star Shipping assailed that decision by certiorari.
We hold that the shipboard employment contract is
controlling in this case. The contract provides that the
beneficiaries of the seaman are entitled to P20,000 "over
and above the benefits" for which the Philippine
Government is liable under Philippine law.
Hongkong law on workmen's compensation is not the
applicable law. The case of Norse Management Co. vs.
National Seamen Board, G. R. No. 54204, September 30,
1982, 117 SCRA 486 cannot be a precedent because it was
expressly stipulated in the employment contract in that
case that the workmen's compensation payable to the
employee should be in accordance with Philippine Law or
the Workmen's Insurance Law of the country where the
vessel is registered "whichever is greater".

27
28
.R. No. 61594 September 28, 1990 On 2 August 1980, roughly one (1) year and four (4)
months prior to the expiration of the contracts of
PAKISTAN INTERNATIONAL AIRLINES
employment, PIA through Mr. Oscar Benares, counsel for
CORPORATION, petitioner,
and official of the local branch of PIA, sent separate letters
vs
both dated 1 August 1980 to private respondents Farrales
HON. BLAS F. OPLE, in his capacity as Minister of
and Mamasig advising both that their services as flight
Labor; HON. VICENTE LEOGARDO, JR., in his capacity as
stewardesses would be terminated "effective 1 September
Deputy Minister; ETHELYNNE B. FARRALES and MARIA
1980, conformably to clause 6 (b) of the employment
MOONYEEN MAMASIG, respondents.
agreement [they had) executed with [PIA]."2
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for
On 9 September 1980, private respondents Farrales and
petitioner.
Mamasig jointly instituted a complaint, docketed as NCR-
Ledesma, Saludo & Associates for private respondents. STF-95151-80, for illegal dismissal and non-payment of
company benefits and bonuses, against PIA with the then
Ministry of Labor and Employment ("MOLE"). After several
FELICIANO, J.: unfruitful attempts at conciliation, the MOLE hearing
officer Atty. Jose M. Pascual ordered the parties to submit
On 2 December 1978, petitioner Pakistan International
their position papers and evidence supporting their
Airlines Corporation ("PIA"), a foreign corporation
respective positions. The PIA submitted its position
licensed to do business in the Philippines, executed in
paper, 3 but no evidence, and there claimed that both
Manila two (2) separate contracts of employment, one
private respondents were habitual absentees; that both
with private respondent Ethelynne B. Farrales and the
were in the habit of bringing in from abroad sizeable
other with private respondent Ma. M.C. Mamasig. 1The
quantities of "personal effects"; and that PIA personnel at
contracts, which became effective on 9 January 1979,
the Manila International Airport had been discreetly
provided in pertinent portion as follows:
warned by customs officials to advise private respondents
5. DURATION OF EMPLOYMENT AND to discontinue that practice. PIA further claimed that the
PENALTY services of both private respondents were terminated
pursuant to the provisions of the employment contract.
This agreement is for a period of three (3)
years, but can be extended by the mutual In his Order dated 22 January 1981, Regional Director
consent of the parties. Francisco L. Estrella ordered the reinstatement of private
respondents with full backwages or, in the alternative, the
xxx xxx xxx payment to them of the amounts equivalent to their
6. TERMINATION salaries for the remainder of the fixed three-year period of
their employment contracts; the payment to private
xxx xxx xxx respondent Mamasig of an amount equivalent to the value
Notwithstanding anything to contrary as of a round trip ticket Manila-USA Manila; and payment of a
herein provided, PIA reserves the right to bonus to each of the private respondents equivalent to
terminate this agreement at any time by their one-month salary. 4 The Order stated that private
giving the EMPLOYEE notice in writing in respondents had attained the status of regular employees
advance one month before the intended after they had rendered more than a year of continued
termination or in lieu thereof, by paying service; that the stipulation limiting the period of the
the EMPLOYEE wages equivalent to one employment contract to three (3) years was null and void
month's salary. as violative of the provisions of the Labor Code and its
implementing rules and regulations on regular and casual
xxx xxx xxx employment; and that the dismissal, having been carried
10. APPLICABLE LAW: out without the requisite clearance from the MOLE, was
illegal and entitled private respondents to reinstatement
This agreement shall be construed and with full backwages.
governed under and by the laws of
Pakistan, and only the Courts of Karachi, On appeal, in an Order dated 12 August 1982, Hon. Vicente
Pakistan shall have the jurisdiction to Leogardo, Jr., Deputy Minister, MOLE, adopted the findings
consider any matter arising out of or of fact and conclusions of the Regional Director and
under this agreement. affirmed the latter's award save for the portion thereof
giving PIA the option, in lieu of reinstatement, "to pay each
Respondents then commenced training in Pakistan. After of the complainants [private respondents] their salaries
their training period, they began discharging their job corresponding to the unexpired portion of the contract[s]
functions as flight attendants, with base station in Manila [of employment] . . .". 5
and flying assignments to different parts of the Middle East
and Europe. In the instant Petition for Certiorari, petitioner PIA assails
the award of the Regional Director and the Order of the
29
Deputy Minister as having been rendered without Policy Instruction No. 14 issued by the Secretary
jurisdiction; for having been rendered without support in of Labor, dated 23 April 1976, was similarly very
the evidence of record since, allegedly, no hearing was explicit about the jurisdiction of the Regional
conducted by the hearing officer, Atty. Jose M. Pascual; and Director over termination of employment cases:
for having been issued in disregard and in violation of
Under PD 850, termination cases — with
petitioner's rights under the employment contracts with
or without CBA — are now placed under
private respondents.
the original jurisdiction of the Regional
1. Petitioner's first contention is that the Regional Director, Director. Preventive suspension cases,
MOLE, had no jurisdiction over the subject matter of the now made cognizable for the first time,
complaint initiated by private respondents for illegal are also placed under the Regional
dismissal, jurisdiction over the same being lodged in the Director. Before PD 850, termination
Arbitration Branch of the National Labor Relations cases where there was a CBA were under
Commission ("NLRC") It appears to us beyond dispute, the jurisdiction of the grievance
however, that both at the time the complaint was initiated machinery and voluntary arbitration,
in September 1980 and at the time the Orders assailed while termination cases where there was
were rendered on January 1981 (by Regional Director no CBA were under the jurisdiction of the
Francisco L. Estrella) and August 1982 (by Deputy Conciliation Section.
Minister Vicente Leogardo, Jr.), the Regional Director had
In more details, the major innovations
jurisdiction over termination cases.
introduced by PD 850 and its
Art. 278 of the Labor Code, as it then existed, forbade the implementing rules and regulations with
termination of the services of employees with at least one respect to termination and preventive
(1) year of service without prior clearance from the suspension cases are:
Department of Labor and Employment:
1. The Regional Director is now required
Art. 278. Miscellaneous Provisions — . . . to rule on every application for clearance,
whether there is opposition or not, within
(b) With or without a collective
ten days from receipt thereof.
agreement, no employer may shut down
his establishment or dismiss or terminate xxx xxx xxx
the employment of employees with at
(Emphasis supplied)
least one year of service during the last
two (2) years, whether such service is 2. The second contention of petitioner PIA is that, even if
continuous or broken, without prior the Regional Director had jurisdiction, still his order was
written authority issued in accordance null and void because it had been issued in violation of
with such rules and regulations as the petitioner's right to procedural due process .6 This claim,
Secretary may promulgate . . . (emphasis however, cannot be given serious consideration. Petitioner
supplied) was ordered by the Regional Director to submit not only
its position paper but also such evidence in its favor as it
Rule XIV, Book No. 5 of the Rules and Regulations
might have. Petitioner opted to rely solely upon its
Implementing the Labor Code, made clear that in
position paper; we must assume it had no evidence to
case of a termination without the necessary
sustain its assertions. Thus, even if no formal or oral
clearance, the Regional Director was authorized to
hearing was conducted, petitioner had ample opportunity
order the reinstatement of the employee
to explain its side. Moreover, petitioner PIA was able to
concerned and the payment of backwages;
appeal his case to the Ministry of Labor and Employment. 7
necessarily, therefore, the Regional Director must
have been given jurisdiction over such There is another reason why petitioner's claim of denial of
termination cases: due process must be rejected. At the time the complaint
was filed by private respondents on 21 September 1980
Sec. 2. Shutdown or dismissal without
and at the time the Regional Director issued his questioned
clearance. — Any shutdown or dismissal
order on 22 January 1981, applicable regulation, as noted
without prior clearance shall be
above, specified that a "dismissal without prior clearance
conclusively presumed to be termination
shall be conclusively presumed to be termination of
of employment without a just cause. The
employment without a cause", and the Regional Director
Regional Director shall, in such case order
was required in such case to" order the immediate
the immediate reinstatement of the
reinstatement of the employee and the payment of his
employee and the payment of his wages
wages from the time of the shutdown or dismiss until . . .
from the time of the shutdown or
reinstatement." In other words, under the then applicable
dismissal until the time of reinstatement.
rule, the Regional Director did not even have to require
(emphasis supplied)
submission of position papers by the parties in view of the
30
conclusive (juris et de jure) character of the presumption except for a just cause or when
created by such applicable law and regulation. In Cebu authorized by this Title An employee who
Institute of Technology v. Minister of Labor and is unjustly dismissed from work shall be
Employment, 8 the Court pointed out that "under Rule 14, entitled to reinstatement without loss of
Section 2, of the Implementing Rules and Regulations, the seniority rights and to his backwages
termination of [an employee] which was without previous computed from the time his
clearance from the Ministry of Labor is conclusively compensation was withheld from him up
presumed to be without [just] cause . . . [a presumption to the time his reinstatement.
which] cannot be overturned by any contrary proof
Art. 281. Regular and Casual Employment.
however strong."
The provisions of written agreement to
3. In its third contention, petitioner PIA invokes the contrary notwithstanding and
paragraphs 5 and 6 of its contract of employment with regardless of the oral agreements of the
private respondents Farrales and Mamasig, arguing that its parties, an employment shall be deemed
relationship with them was governed by the provisions of to be regular where the employee has
its contract rather than by the general provisions of the been engaged to perform activities which
Labor Code. 9 are usually necessary or desirable in the
usual business or trade of the employer,
Paragraph 5 of that contract set a term of three (3) years
except where the employment has been
for that relationship, extendible by agreement between the
fixed for a specific project or undertaking
parties; while paragraph 6 provided that, notwithstanding
the completion or termination of which
any other provision in the Contract, PIA had the right to
has been determined at the time of the
terminate the employment agreement at any time by
engagement of the employee or where the
giving one-month's notice to the employee or, in lieu of
work or services to be performed is
such notice, one-months salary.
seasonal in nature and the employment is
A contract freely entered into should, of course, be for the duration of the season.
respected, as PIA argues, since a contract is the law
An employment shall be deemed to be
between the parties. 10 The principle of party autonomy in
casual if it is not covered by the preceding
contracts is not, however, an absolute principle. The rule in
paragraph: provided, that, any employee
Article 1306, of our Civil Code is that the contracting
who has rendered at least one year of
parties may establish such stipulations as they may deem
service, whether such service is continuous
convenient, "provided they are not contrary to law, morals,
or broken, shall be considered as regular
good customs, public order or public policy." Thus,
employee with respect to the activity in
counter-balancing the principle of autonomy of contracting
which he is employed and his
parties is the equally general rule that provisions of
employment shall continue while such
applicable law, especially provisions relating to matters
actually exists. (Emphasis supplied)
affected with public policy, are deemed written into the
contract. 11 Put a little differently, the governing principle In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et
is that parties may not contract away applicable provisions al., 12 the Court had occasion to examine in detail the
of law especially peremptory provisions dealing with question of whether employment for a fixed term has been
matters heavily impressed with public interest. The law outlawed under the above quoted provisions of the Labor
relating to labor and employment is clearly such an area Code. After an extensive examination of the history and
and parties are not at liberty to insulate themselves and development of Articles 280 and 281, the Court reached
their relationships from the impact of labor laws and the conclusion that a contract providing for employment
regulations by simply contracting with each other. It is with a fixed period was not necessarily unlawful:
thus necessary to appraise the contractual provisions
There can of course be no quarrel with
invoked by petitioner PIA in terms of their consistency
the proposition that where from the
with applicable Philippine law and regulations.
circumstances it is apparent that periods
As noted earlier, both the Labor Arbiter and the Deputy have been imposed to preclude acquisition
Minister, MOLE, in effect held that paragraph 5 of that of tenurial security by the employee, they
employment contract was inconsistent with Articles 280 should be struck down or disregarded as
and 281 of the Labor Code as they existed at the time the contrary to public policy, morals, etc. But
contract of employment was entered into, and hence where no such intent to circumvent the
refused to give effect to said paragraph 5. These Articles law is shown, or stated otherwise, where
read as follows: the reason for the law does not exist e.g.
where it is indeed the employee himself
Art. 280. Security of Tenure. — In cases of
who insists upon a period or where the
regular employment, the employer shall
nature of the engagement is such that,
not terminate the services of an employee
without being seasonal or for a specific
31
project, a definite date of termination is other on more or less equal terms with no
a sine qua non would an agreement fixing moral dominance whatever being
a period be essentially evil or illicit, exercised by the former over the
therefore anathema Would such an latter. Unless thus limited in its purview,
agreement come within the scope of the law would be made to apply to
Article 280 which admittedly was enacted purposes other than those explicitly stated
"to prevent the circumvention of the right by its framers; it thus becomes pointless
of the employee to be secured in . . . (his) and arbitrary, unjust in its effects and apt
employment?" to lead to absurd and unintended
consequences. (emphasis supplied)
As it is evident from even only the three
examples already given that Article 280 of It is apparent from Brent School that the critical
the Labor Code, under a narrow and literal consideration is the presence or absence of a
interpretation, not only fails to exhaust the substantial indication that the period specified in
gamut of employment contracts to which an employment agreement was designed to
the lack of a fixed period would be an circumvent the security of tenure of regular
anomaly, but would also appear to restrict, employees which is provided for in Articles 280
without reasonable distinctions, the right and 281 of the Labor Code. This indication must
of an employee to freely stipulate with his ordinarily rest upon some aspect of the agreement
employer the duration of his engagement, other than the mere specification of a fixed term of
it logically follows that such a literal the ernployment agreement, or upon
interpretation should be eschewed or evidence aliunde of the intent to evade.
avoided. The law must be given
Examining the provisions of paragraphs 5 and 6 of the
reasonable interpretation, to preclude
employment agreement between petitioner PIA and
absurdity in its application. Outlawing the
private respondents, we consider that those provisions
whole concept of term employment and
must be read together and when so read, the fixed period
subverting to boot the principle of
of three (3) years specified in paragraph 5 will be seen to
freedom of contract to remedy the evil of
have been effectively neutralized by the provisions of
employers" using it as a means to prevent
paragraph 6 of that agreement. Paragraph 6 in effect took
their employees from obtaining security
back from the employee the fixed three (3)-year period
of tenure is like cutting off the nose to
ostensibly granted by paragraph 5 by rendering such
spite the face or, more relevantly, curing a
period in effect a facultative one at the option of the
headache by lopping off the head.
employer PIA. For petitioner PIA claims to be authorized
xxx xxx xxx to shorten that term, at any time and for any cause
satisfactory to itself, to a one-month period, or even less by
Accordingly, and since the entire purpose
simply paying the employee a month's salary. Because the
behind the development of legislation
net effect of paragraphs 5 and 6 of the agreement here
culminating in the present Article 280 of
involved is to render the employment of private
the Labor Code clearly appears to have
respondents Farrales and Mamasig basically employment
been, as already observed, to prevent
at the pleasure of petitioner PIA, the Court considers that
circumvention of the employee's right to
paragraphs 5 and 6 were intended to prevent any security
be secure in his tenure, the clause in said
of tenure from accruing in favor of private
article indiscriminately and completely
respondents even during the limited period of three (3)
ruling out all written or oral agreements
years,13 and thus to escape completely the thrust of
conflicting with the concept of regular
Articles 280 and 281 of the Labor Code.
employment as defined therein should be
construed to refer to the substantive evil Petitioner PIA cannot take refuge in paragraph 10 of its
that the Code itself has singled out: employment agreement which specifies, firstly, the law of
agreements entered into precisely to Pakistan as the applicable law of the agreement and,
circumvent security of tenure. It should secondly, lays the venue for settlement of any dispute
have no application to instances where a arising out of or in connection with the agreement
fixed period of employment was agreed "only [in] courts of Karachi Pakistan". The first clause of
upon knowingly and voluntarily by the paragraph 10 cannot be invoked to prevent the application
parties, without any force, duress or of Philippine labor laws and regulations to the subject
improper pressure being brought to bear matter of this case, i.e., the employer-employee
upon the employee and absent any other relationship between petitioner PIA and private
circumstances vitiating his consent, or respondents. We have already pointed out that the
where it satisfactorily appears that the relationship is much affected with public interest and that
employer and employee dealt with each the otherwise applicable Philippine laws and regulations
32
cannot be rendered illusory by the parties agreeing upon SO ORDERED.
some other law to govern their relationship. Neither may
petitioner invoke the second clause of paragraph 10,
specifying the Karachi courts as the sole venue for the
settlement of dispute; between the contracting parties.
Even a cursory scrutiny of the relevant circumstances of
this case will show the multiple and substantive contacts
between Philippine law and Philippine courts, on the one
hand, and the relationship between the parties, upon the
other: the contract was not only executed in the
Philippines, it was also performed here, at least partially;
private respondents are Philippine citizens and
respondents, while petitioner, although a foreign
corporation, is licensed to do business (and actually doing
business) and hence resident in the Philippines; lastly,
private respondents were based in the Philippines in
between their assigned flights to the Middle East and
Europe. All the above contacts point to the Philippine
courts and administrative agencies as a proper forum for
the resolution of contractual disputes between the parties.
Under these circumstances, paragraph 10 of the
employment agreement cannot be given effect so as to oust
Philippine agencies and courts of the jurisdiction vested
upon them by Philippine law. Finally, and in any event, the
petitioner PIA did not undertake to plead and prove the
contents of Pakistan law on the matter; it must therefore
be presumed that the applicable provisions of the law of
Pakistan are the same as the applicable provisions of
Philippine law.14
We conclude that private respondents Farrales and
Mamasig were illegally dismissed and that public
respondent Deputy Minister, MOLE, had not committed
any grave abuse of discretion nor any act without or in
excess of jurisdiction in ordering their reinstatement with
backwages. Private respondents are entitled to three (3)
years backwages without qualification or deduction.
Should their reinstatement to their former or other
substantially equivalent positions not be feasible in view of
the length of time which has gone by since their services
were unlawfully terminated, petitioner should be required
to pay separation pay to private respondents amounting to
one (1) month's salary for every year of service rendered
by them, including the three (3) years service putatively
rendered.
ACCORDINGLY, the Petition for certiorari is hereby
DISMISSED for lack of merit, and the Order dated 12
August 1982 of public respondent is hereby AFFIRMED,
except that (1) private respondents are entitled to three
(3) years backwages, without deduction or qualification;
and (2) should reinstatement of private respondents to
their former positions or to substantially equivalent
positions not be feasible, then petitioner shall, in lieu
thereof, pay to private respondents separation pay
amounting to one (1)-month's salary for every year of
service actually rendered by them and for the three (3)
years putative service by private respondents. The
Temporary Restraining Order issued on 13 September
1982 is hereby LIFTED. Costs against petitioner.
33
34
G.R. No. 124110 April 20, 2001 Subsequently, three other passengers with Caucasian
features were graciously allowed to baord, after the
UNITED AIRLINES, INC., Petitioner
Fontanillas were told that the flight had been overbooked.7
vs.
COURT OF APPEALS, ANICETO FONTANILLA, in his The plane then took off with the Fontanillas’ baggage in
personal capacity and in behalf of his minor son MYCHAL tow, leaving them behind.8
ANDREW FONTANILLA, Respondents.
The Fontanillas then complained to Linda, who in turn
KAPUNAN, J.: gave them an ugly stare and rudely uttered, "it’s not my
fault. It’s the fault of the company. Just sit down and
On March 1, 1989, private respondent Aniceto Fontanilla
wait."9 When Mr. Fontanilla reminded Linda of the
purchased from petitioner United Airlines, through the
inconvenience being caused to them, she bluntly retorted,
Philippine Travel Bureau in Manila three (3) "Visit the
"Who do you think you are? You lousy Flips are good for
U.S.A." tickets for himself, his wife and his minor son
nothing beggars. You always ask for American aid." After
Mychal for the following routes:
which she remarked "Don’t worry about your baggage.
a. San Francisco to Washinton (15 April 1989); Anyway there is nothing in there. What are you doing here
anyway? I will report you to immigration. You Filipinos
b. Washington to Chicago (25 April 1989);
should go home."10 Such rude statements were made in
c. Chicago to Los Angeles (29 April 1989); front of other people in the airport causing the Fontanillas
to suffer shame, humiliation and embarrassment. The
d. Los Angeles to San Francisco (01 may 1989 for
chastening situation even caused the younger Fontanilla to
petitioner’s wife and 05 May 1989 for petitioner
break into tears.11
and his son). 1
After some time, Linda, without any explanation, offered
All flights had been confirmed previously by
the Fontanillas $50.00 each. She simply said "Take it or
United Airlines. 2
leave it." This, the Fontanillas declined.12
The Fontanillas proceeded to the United States as planned,
The Fontanillas then proceeded to the United Airlines
where they used the first coupon from San Francisco to
customer service counter to plead their case. The male
Washington. On April 24, 1989, Aniceto Fontanilla bought
employee at the counter reacted by shouting that he was
two (2) additional coupons each for himself, his wife and
ready for it and left without saying anything.13
his son from petitioner at its office in Washington Dulles
Airport. After paying the penalty for rewriting their tickets, The Fontanillas were not booked on the next flight, which
the Fontanillas were issued tickets with corresponding departed for San Francisco at 11:00 a.m. It was only at
boarding passes with the words "CHECK-IN REQUIRED," 12:00 noon that they were able to leave Los Angeles on
for United Airlines Flight No. 1108, set to leave from Los United Airlines Flight No. 803.
Angeles to San Francisco at 10:30 a.m. on May 5, 1989.3
Petitioner United Airlines has a different version of what
The cause of the non-boarding of the Fontanillas on United occurred at the Los Angeles Airport on May 5, 1989.
Airlines Flight No. 1108 makes up the bone of contention
According to United Airlines, the Fontanillas did not
of this controversy.1âwphi1.nêt
initially go to the check-in counter to get their seat
Private respondents’ version is as follows: assignments for UA Flight 1108. They instead proceeded to
join the queue boarding the aircraft without first securing
Aniceto Fontanilla and his son Mychal claim that on May 5,
their seat assignments as required in their ticket and
1989, upon their arrival at the los Angeles Airport for their
boarding passes. Having no seat assignments, the
flight, they proceeded to united Airlines counter where
stewardess at the door of the plane instructed them to go
they were attended by an employee wearing a nameplate
to the check-in counter. When the Fontanillas proceeded to
bearing the name "LINDA." Linda examined their tickets,
the check-in counter, Linda Allen, the United Airlines
punched something into her computer and then told them
Customer Representative at the counter informed them
that boarding would be in fifteen minutes.4
that the flight was overbooked. She booked them on the
When the flight was called, the Fontanillas proceeded to next available flight and offered them denied boarding
the plane. To their surprise, the stewardess at the gate did compensation. Allen vehemently denies uttering the
not allow them to board the plane, as they had no assigned derogatory and racist words attributed to her by the
seat numbers. They were then directed to go back to the Fontanillas.14
"check-in" counter where Linda subsequently informed
The incident prompted the Fontanillas to file Civil Case No.
them that the flight had been overbooked and asked them
89-4268 for damages before the Regional Trial Court of
to wait.5
Makati. After trial on the merits, the trial court rendered a
The Fontanillas tried to explain to Linda the special decision, the dispositive portion of which reads as follows:
circumstances of their visit. However, Linda told them in
WHEREFORE, judgment is rendered
arrogant manner, "So what, I can not do anything about it."6
dismissing the complaint. The
35
 counterclaim is likewise dismissed as it IV
appears that plaintiffs were not actuated
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
by legal malice when they filed the instant
RULING THAT PRIVATE RESPONDENT IS ENTITLED TO
complaint.15
EXEMPLARY DAMAGES OF P200,000.
On appeal, the Court of Appeals ruled in favor of the
V
Fontanillas. The appellate court found that there was an
admission on the part of United Airlines that the RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
Fontanillas did in fact observe the check-in requirement. It RULING THAT PRIVATE RESPONDENT IS ENTITLED TO
ruled further that even assuming there was a failure to ATTORNEY’S FEES OF P50,000.17
observe the check-in requirement, United Airlines failed to
comply with the procedure laid down in cases where a
passenger is denied boarding. The appellate court likewise On the first issue raised by the petitioner, the respondent
gave credence to the claim of Aniceto Fontanilla that the Court of Appeals ruled that when Rule 9, Section 1 of the
employees of United Airlines were discourteous and Rules of Court,18 there was an implied admission in
arbitrary and, worse, discriminatory. In light of such petitioner’s answer in the allegations in the complaint that
treatment, the Fontanillas were entitled to moral damages. private respondent and his son observed the "check-in
The dispositive portion of the decision of the respondent requirement at the Los Angeles Airport." Thus:
Court of Appeals dated 29 September 1995, states as
A perusal of the above pleadings filed
follows:
before the trial court disclosed that there
WHEREFORE, in view of the foregoing, exist a blatant admission on the part of
judgment appealed herefrom is hereby the defendant-appellee that the plaintiffs-
REVERSED and SET ASIDE, and a new appellants indeed observed the "check-in"
judgment is entered ordering defendant- requirement at the Los Angeles Airport
appellee to pay plaintiff-appellant the on May 5, 1989. In view of defendant-
following: appellee’s admission of plaintiffs-
appellants’ material averment in the
complaint. We find no reason why the
a. P200,000.00 as moral damages; trial court should rule against such
admission.19
b. P200,000.00 as exemplary damages;
c. P50,000.00 as attorney’s fees;
We disagree with the above conclusion reached by
No pronouncement as to costs.
respondent Court of Appeals. Paragraph 7 of private
SO ORDERED.16 respondents’ complaint states:
Petitioner United Airlines now comes to this Court raising 7. On May 5, 1989 at 9:45 a.m., plaintiff
the following assignments of errors; and his son checked in at defendant’s
designated counter at the airport in Los
Angeles for their scheduled flight to San
I Francisco on defendant’s Flight No.
1108.20
RESPONDENT COURT OF APPEALS GRVAELY ERRED IN
RULING THAT THE TRIAL COURT WAS WRONG IN Responding to the above allegations, petitioner averred in
FAILING TO CONSIDER THE ALLEGED ADMISSION THAT paragraph 4 of its answer, thus:
PRIVATE RESPONDENT OBSERVED THE CHECK-IN
4. Admits the allegation set forth in
REQUIREMENT.
paragraph 7 of the complaint except to
II deny that plaintiff and his son checked in
at 9:45 a.m., for lack of knowledge or
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
information at this point in time as to the
RULING THAT PRIVATE RESPONDENT’S FAILURE TO
truth thereof.21
CHECK-IN WILL NOT DEFEAT HIS CLAIMS BECAUSE THE
DENIED BOARDING RULES WERE NOT COMPLIED WITH. The rule authorizing an answer that the defendant has no
knowledge or information sufficient to form a belief as to
the truth of an averment giving such answer is asserted is
III so plainly and necessarily within the defendant’s
knowledge that his averment of ignorance must be
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
palpably untrue.22 Whether or not private respondents
RULING THAT PRIVATE RESPONDENT IS ENTITLED TO
checked in at petitioner’s designated counter at the airport
MORAL DAMAGES OF P200,000.
36
at 9:45 a.m. on May 5, 1989 must necessarily be within something into the computer is specious and not
petitioner’s knowledge. supported by the evidence on record. In support of their
allegations, private respondents submitted a copy of the
While there was no specific denial as to the fact of
boarding pass. Explicitly printed on the boarding pass are
compliance with the "check-in" requirement by private
the words "Check-In Required." Curiously, the said pass did
respondents, petitioner presented evidence to support its
not indicate any seat number. If indeed the Fontanillas
contention that there indeed was no compliance.
checked in at the designated time as they claimed, why
Private respondents then are said to have waived the rule then were they not assigned seat numbers? Absent any
on admission. It not only presented evidence to support its showing that Linda was so motivated, we do not buy into
contention that there was compliance with the check-in private respondents’ claim that Linda intentionally
requirement, it even allowed petitioner to present rebutal deceived him, and made him the laughing stock among the
evidence. In the case of Yu Chuck vs. "Kong Li Po," we ruled passengers.28Hence, as correctly observed by the trial
that: court:
The object of the rule is to relieve a party of the trouble Plaintiffs fail to realize that their failure to
and expense in proving in the first instance an alleged fact, check in, as expressly required in their
the existence or non-existence of which is necessarily boarding passes, is they very reason why
within the knowledge of the adverse party, and of the they were not given their respective seat
necessity (to his opponent’s case) of establishing which numbers, which resulted in their being
such adverse party is notified by his opponent’s pleadings. denied boarding.29
The plaintiff may, of course, waive the rule and that is what Neither do we agree with the conclusion reached by the
must be considered to have done (sic) by introducing appellate court that private respondents’ failure to comply
evidence as to the execution of the document and failing to with the check-in requirement will not defeat his claim as
object to the defendant’s evidence in refutation; all this the denied boarding rules were not complied with.
evidence is now competent and the case must be decided Notably, the appellate court relied on the Code of Federal
thereupon.23 Regulation Part on Oversales which states:
The determination of the other issues raised is dependent 250.6 Exceptions to eligibility for denied boarding
on whether or not there was a breach of contract in bad compensation.
faith on the part of the petitioner in not allowing the
A passenger denied board involuntarily
Fontanillas to board United Airlines Flight 1108.
from an oversold flight shall not be
It must be remembered that the general rule in civil cases eligible for denied board compensation if:
is that the party having the burden of proof of an essential
a. The passenger does not comply with the carrier’s
fact must produce a preponderance of evidence
contract of carriage or tariff provisions regarding
thereon.24 Although the evidence adduced by the plaintiff
ticketing, reconfirmation, check-in, and acceptability
is stronger than that presented by the defendant, a
for transformation.
judgment cannot be entered in favor of the former, if his
evidence is not sufficient to sustain his cause of action. The
plaintiff must rely on the strength of his own evidence and
The appellate court, however, erred in applying the laws of
not upon the weakness of the defendant’s.25 Proceeding
the United States as, in the case at bar, Philippine law is the
from this, and considering the contradictory findings of
applicable law. Although, the contract of carriage was to be
facts by the Regional Trial Court and the Court of Appeals,
performed in the United States, the tickets were purchased
the question before this Court is whether or not private
through petitioner’s agent in Manila. It is true that the
respondents were able to prove with adequate evidence
tickets were "rewritten" in Washington, D.C. however, such
his allegations of breach of contract in bad faith.
fact did not change the nature of the original contract of
We rule in the negative. carriage entered into by the parties in Manila.
Time and again, the Court has pronounced that appellate In the case of Zalanea vs. Court of Appeals,30 this Court
courts should not, unless for strong and cogent reasons, applied the doctrine of lex loci contractus. According to the
reverse the findings of facts of trial courts. This is so doctrine, as a general rule, the law of the place where a
because trial judges are in better position to examine real contract is made or entered into governs with respect to
evidence and at a vantage point to observe the actuation its nature and validity, obligation and interpretation. This
and the demeanor of the witnesses.26 While not the sole has been said to be the rule even though the place where
indicator of the credibility of a witness, it is of such weight the contract was made is different from the place where it
that it has been said to be the touchstone of credibility.27 is to be performed, and particularly so, if the place of the
making and the place of performance are the same. Hence,
Aniceto Fontanilla’s assertion that upon arrival at the
the court should apply the law of the place where the
airport at 9:45 a.m., he immediately proceeded to the
airline ticket was issued, when the passengers are
check-in counter, and that Linda Allen punched in
37
residents and nationals of the forum and the ticket is confirmed seat on the last minute, said passenger is
issued in such State by the defendant airline. entitled to moral damages. (Emphasis supplied).
The law of the forum on the subject matter is Economic However, the Court’s ruling in said case should be read in
Regulations No. 7 as amended by Boarding Priority and consonance with existing laws, particularly, Economic
Denied Board Compensation of the Civil Aeronautics Board Regulations No. 7, as amended, of the Civil Aeronautics
which provides that the check-in requirement be complied Board:
with before a passenger may claim against a carrier for
Sec. 3. Scope. – This regulation shall apply to every
being denied boarding:
Philippine and foreign air carrier with respect to its
Sec. 5. Amount of Denied Boarding Compensation Subject operation of flights or portions of flights originating from
to the exceptions provided hereinafter under Section 6, or terminating at, or serving a point within the territory of
carriers shall pay to passengers holding confirmed the Republic of the Philippines insofar as it denies
reserved space and who have presented themselves at the boarding to a passenger on a flight, or portion of a flight
proper place and time and fully complied with the carrier’s inside or outside the Philippines, for which he holds
check-in and reconfirmation procedures and who are confirmed reserved space. Furthermore, this Regulation is
acceptable for carriage under the Carrier’s tariff but who designed to cover only honest mistakes on the part of the
have been denied boarding for lack of space, a carriers and excludes deliberate and willful acts of non-
compensation at the rate of: xxx accommodation. Provided, however, that overbooking not
exceeding 10% of the seating capacity of the aircraft shall
Private respondents’ narration that they were subjected to
not be considered as a deliberate and willful act of non-
harsh and derogatory remarks seems incredulous.
accommodation.
However, this Court will not attempt to surmise what
really happened, suffice to say, private respondent was not What this Court considers as bad faith is the willful and
able to prove his cause of action, for as the trial court deliberate overbooking on the part of the airline carrier.
correctly observed: The above-mentioned law clearly states that when the
overbooking does not exceed ten percent (10%), it is not
xxx plaintiffs claim to have been discriminated against and
considered as deliberate and therefore does not amount to
insulted in the presence of several people. Unfortunately,
bad faith. While there may have been overbooking in this
plaintiffs limited their evidence to the testimony of Aniceto
case, private respondents were not able to prove that the
Fontanilla, without any corroboration by the people who
overbooking on United Airlines Flight 1108 exceeded ten
saw or heard the discriminatory remarks and insults;
percent.
while such limited testimony could possibly be true, it
does not enable the Court to reach the conclusion that As earlier stated, the Court is of the opinion that the
plaintiffs have, by a preponderance of evidence, proven private respondents were not able to prove that they were
that they are entitled to P1,650,000.00 damages from subjected to coarse and harsh treatment by the ground
defendant.31 crew of united Airlines. Neither were they able to show
that there was bad faith on part of the carrier airline.
As to the award of moral and exemplary damages, we find
Hence, the award of moral and exemplary damages by the
error in the award of such by the Court of Appeals. For the
Court of Appeals is improper. Corollarily, the award of
plaintiff to be entitled to an award of moral damages
attorney’s fees is, likewise, denied for lack of any legal and
arising from a breach of contract of carriage, the carrier
factual basis.
must have acted with fraud or bad faith. The appellate
court predicated its award on our pronouncement in the WHEREFORE, the petition is GRANTED. The decision of
case of Zalanea vs. Court of Appeals, supra, where we the Court of Appeals in CA-G.R. CV No. 37044 is
stated: hereby REVERSED and SET ASIDE. The decision of the
Regional Trial Court of Makati City in Civil Case No. 89-
Existing jurisprudence explicitly states that overbooking
4268 dated April 8, 1991 is hereby REINSTATED.
amounts to bad faith, entitling passengers concerned to an
award of moral damages. In Alitalia Airways vs. Court of SO ORDERED.
Appeals, where passengers with confirmed booking were
refused carriage on the last minute, this Court held that
when an airline issues a ticket to a passenger confirmed on
a particular flight, on a certain date, a contract of carriage
arises, and the passenger has every right to except that he
would fly on that flight and on that date. If he does not,
then the carrier opens itself to a suit for breach of contract
of carriage. Where an airline had deliberately overbooked,
it took the risk of having to deprive some passengers of
their seats in case all of them would show up for check in.
For the indignity and inconvenience of being refused a

38
246 Va. 67, 431 S.E.2d 289
Buchanan was injured on June 9, 1989, when a truck
forced his car off U.S. Route 220 in West Virginia. There
Supreme Court of Virginia.
was no contact between the vehicles. Although the truck
David B. BUCHANAN driver stopped at the scene, he did not identify himself.
The truck driver indicated to Buchanan that he would call
v.
the police and an ambulance, but he did not return to the
John DOE. scene of the collision. Hence, Buchanan is unaware of the
truck driver's identity.
Record No. 921159.
Pursuant to the provisions of his insurance policy and
June 11, 1993.
Code § 38.2-2206, Buchanan filed this action in the court
below against the truck driver as "John Doe," seeking
Insured brought John Doe action to recover from insurer damages for his injuries and other losses. Following a
under uninsured motorist provision. The Circuit Court of stipulation by the parties and Buchanan's answer to State
the City of Clifton Forge, Duncan M. Byrd, Jr., J., granted Farm's request for admissions that reflected the facts
insurer summary judgment under the law of West Virginia. recited above, State Farm filed a motion for summary
Insured appealed. The Supreme Court, Whiting, J., held that judgment. In support of that motion, it relied upon a
law of Virginia, rather than law of West Virginia, applied, provision in the West Virginia UM statute that required
and under Virginia law, proof of contact with uninsured proof of physical contact with the John Doe vehicle in a
motorist's vehicle was not required to recover uninsured John Doe tort action and contended that this requirement
motorist benefits. was a part of the substantive tort law of West Virginia.
Reversed and remanded. [Footnote 1]
Lacy, J., filed a concurring opinion.
Compton, J., with whom Stephenson, J., joined, filed a
dissenting opinion.
[Footnote 1]We quote and paraphrase the following
Carrico, C.J., concurred in the result.
pertinent provisions of the West Virginia UM statute.
WHITING, Justice.
This is an uninsured motorist case involving a conflict of
Nor shall any [automobile liability insurance] policy or
laws issue, and we must decide whether our law or West
contract be so issued or delivered [in this state] unless it
Virginia law controls.
shall contain an endorsement of provisions undertaking
State Farm Mutual Automobile Insurance Company (State
to pay the insured all sums which he shall be legally
Farm) issued an automobile liability policy in Virginia to
entitled to recover as damages from the owner or
David B. Buchanan, a resident of Clifton Forge. The policy
operator of an uninsured motor vehicle.
contained the following uninsured motorist (UM)
provision mandated by former Code § 38.1-381, the
predecessor of Code § 38.2-2206 (the Virginia UM
West Virginia Code § 33-6-31(b) (1992) (emphasis
statute):
added).
The company will pay in accordance with Section 38.1-381
of the Code of Virginia and all Acts amendatory thereof or
If the owner or operator of any motor vehicle which
supplementary thereto, all sums which the insured ... shall
causes bodily injury ... to the insured be unknown, ... in
be legally entitled to recover as damages from the owner
order for the insured to recover under the uninsured
or operator of an uninsured motor vehicle because of
motorist endorsement or provision, [the insured] shall:
bodily injury sustained by the insured or property damage,
caused by accident and arising out of the ownership,
maintenance or use of such uninsured motor vehicle.
(i) [report the occurrence to designated officials within a
limited time after its discovery, unless it shall already
The Virginia UM statute also provides that if the identity have been investigated by the police];
of the uninsured operator is unknown, he may be sued as
"John Doe" and service of process may be made upon the
insurance company "as though [it] were a party (ii) [notify the insurance company within a limited time
defendant." Code § 38.2-2206(E). Physical contact with after the accident and permit it to inspect the insured's
the John Doe vehicle is not required to maintain this vehicle]; and
action under Buchanan's policy or Code § 38.2- 2206. John
Doe v. Brown, 203Va. 508, 516, 125 S.E.2d 159, 165
(1962) (construing the predecessor UM statute, Code §
38.1-381(e)).
39
(iii) Upon trial establish that the motor vehicle, which (3d ed. 1977) (emphasis added) (footnotes omitted).
caused the bodily
Thus, we apply the law of the Commonwealth to determine
injury ... whose operator is unknown, was a "hit and run"
whether the West Virginia proof-of-contact requirement is
motor vehicle, [that had physical contact with the insured's
a matter of tort or contract. And, we have defined a tort in
vehicle, and have process served upon the insurance
the following language:
company issuing the UM policy].

The word "tort" has a settled meaning in Virginia. "A tort

West Virginia Code § 33-6-31(e) (1992) (emphasis is any civil wrong or injury; a wrongful act (not involving
added). a breach of contract) for which an action will lie." Jewett v.
Ware, 107 Va. 802, 806, 60 S.E. 131, 132 (1908) (internal
quotation marks [and citation] omitted).
Accordingly, State Farm contended, and the trial court "Tort" is also defined as the violation of some duty owing
agreed, that Buchanan could not recover from John Doe to the plaintiff imposed by general law or otherwise.
without proof of physical contact between his vehicle and Generally, the "duty must arise by operation of law and not
John Doe's vehicle. Therefore, the court sustained State by mere agreement of the parties." Black's Law Dictionary
Farm's motion for summary judgment and entered a "Final 1335 (5th ed. 1979). Stated differently, a "tort" is a "legal
Order of Dismissal." Buchanan appeals. wrong committed upon the person or property
independent of contract." Id.
The parties agree that under our conflict of law rules: (1) Glisson v. Loxley, 235 Va. 62, 67, 366 S.E.2d 68, 71 (1988).
the law of the place of the wrong determines the
substantive issues of tort liability, Jones v. R.S. Jones & On the other hand, a contract is defined as "[a]n agreement
Assocs., 246 Va. 3, 5, 431 S.E.2d 33, 34 (this day between two or more persons which creates an obligation
decided); McMillan v. McMillan, 219 Va. 1127, 1128, 253 to do or not to do a particular thing." Black's Law
S.E.2d 662, 663 (1979), and (2) generally, the law of the Dictionary 322 (6th ed. 1990). Although not expressed in a
place where an insurance contract is written and delivered written contract, a statutory requirement affecting the
controls issues as to its coverage. Lackey v. Virginia Sur. performance of the contract becomes a part of its terms
Co., 209 Va. 713, 715, 167 S.E.2d 131, 133 (1969). The just as if it had been incorporated therein. Harbour Gate
disagreement is whether the West Virginia proof-of- Owners' Ass'n v. Berg,232 Va. 98, 105- 106, 348 S.E.2d 252,
contact requirement is a matter of tort controlled by West 257 (1986). However, as noted, the proof-of-contact
Virginialaw, or one of contract controlled by Virginia law. requirement is contained in the West Virginia UM statute,
but not in the Virginia UM statute under which Buchanan's
The forum state applies its own law to ascertain whether UM policy was issued.
the issue is one of tort or contract. See Forsyth v. Cessna
Aircraft Co., 520 F.2d 608, 611 (9th Cir.1975) (law of With these distinctions in mind, and applying Virginia law,
forum applied to decide if case is one of contract or we consider West Virginia's proof-of-contact provision.
tort); Willard v. Aetna Cas. & Sur. Co., 213 Va. 481, 482- 83, Substantive tort law in West Virginia, as in Virginia,
193 S.E.2d 776, 778 (1973) (law of forum state where UM requires that the plaintiff prove he was injured by the
policy issued that permitted direct action against UM negligence of the defendant. But there is nothing in the tort
insurer held substantive, not procedural). And, in doing so, law of either state which requires that injury be
the forum state applies a principle described as accompanied by physical contact in order to impose
liability on the defendant. Under West Virginia law,
an old technique which has recently acquired the new however, in order to recover from an insurance company
name of "depecage". This refers to the process whereby under an uninsured motorist policy, the injured party must
different issues in a single case arising out of a single set of prove in the John Doe tort action that the injury was
facts may be decided according to the laws of different accompanied by physical contact. But, for several reasons,
states. This has always been the process when procedural we conclude that this requirement is a matter of statutory
matters were held to be governed by forum law and law dealing with insurance contracts.
substantive questions by some other law, even when
matters characterized as procedural had substantial In the first place, this provision imposes no duty upon John
outcome-determinative effect. It has always been Doe, nor is it intended to benefit any tort-feasor who runs
understood also that different substantive issues could another vehicle off the road. Indeed, had the identity of the
properly be decided under the laws of different states, when truck driver been ascertained, and had he been uninsured,
the choice-influencing considerations differ as they apply to proof of contact would not have been required under the
the different issues. The new development in this area is the West Virginia UM statute. Therefore, we think that the
currently increased discussion and analysis of the old proof-of-contact requirement is a contractual provision
technique. imposed by statute and adopted as a method of protecting
Robert A. Leflar, American Conflicts Law § 109, at 221-22 UM insurers against their insureds' fraudulent UM claims.
40
 West Virginia proof-of-contact requirement is inapplicable
In Virginia, the General Assembly has employed a different in this action.
method of protecting UM insurers in John Doe cases by
For these reasons, we conclude that the trial court erred in
conditioning recovery against such insurers upon a
sustaining State Farm's motion for summary judgment.
prompt report of the accident to the UM insurer or to law
Therefore, we will reverse the "Final Order of Dismissal,"
enforcement officials. Code § 38.2-2206(D). And we have
and remand the case for further proceedings consistent
held that this protective condition imposes a contractual
with this opinion.
duty upon the plaintiff having no relation to his John Doe
Reversed and remanded.
tort action. John Doe v. Brown, 203 Va. 508, 515, 125 S.E.2d
159, 164-65 (1962); Hodgson v. John Doe, 203 Va. 938, 941,
128 S.E.2d 444, 446 (1962).
LACY, J., concurring.

Secondly, both UM statutes expressly condition recovery CARRICO, C.J., concurs in the result.
in John Doe cases upon compliance with their respective
protective provisions. Code § 38.2-2206 provides that COMPTON, J., with whom STEPHENSON, J., joins,
"[r]ecovery under the [UM] endorsement or provisions dissenting.
shall be subject to the conditions set forth in this section."
West Virginia Code § 33-6-31(e) (1992) provides that "in LACY, Justice, concurring:
order for the insured to recover under the [UM]
endorsement or provision, [the insured] shall [comply While conflict of laws principles may be articulated clearly
with a number of conditions including that of proof-of- and without ambiguity, this case demonstrates that the
contact]." We do not think what would otherwise be a application of those principles is neither simple nor direct.
contractual condition in the proof-of-contact requirement There is no disagreement that Virginia law is applied to
of the West Virginia UM statute is converted into an determine whether the issue is one of tort or of contract,
element of John Doe's breach of duty merely by providing and which substantive law applies in either instance. The
that the contractual condition be fulfilled in the John Doe majority and the dissent cite case law to support their
tort action. [footnote omitted] respective views, reaching mutually exclusive outcomes
that each maintains is the only outcome possible. This
Finally, if we construed the proof-of-contact requirement result underscores the difficulty of resolving conflict of
as State Farm suggests, the scope of a Virginia insured's laws issues and I cannot agree that based on a reading of
UM coverage would depend upon the UM statutory the prior authority either result is so clearly apparent.
provisions of each state in which a Virginia insured
traveled, contrary to our understanding of the purpose of The dissent finds that we are required to consider this
UM insurance. solely as a tort action under Doe v. Brown, 203 Va. 508, 125
S.E.2d 159 (1962), disregarding the Court's recognition
in Doe that certain statutory and policy conditions,
The [UM] endorsement is the contract which the insurance
including notice and proof of physical contact
company makes with the insured to protect him against
requirements, were requisites of coverage and that
the uninsured motorist. It is protection for which the
coverage issues were matters of contract. Id. at 515, 125
insured has paid an additional premium and it follows the
S.E.2d at 164-65. The majority, on the other hand, does not
insured to the place of the accident outside of Virginia, just
address the precedential value of the Doe decision when
as the usual indemnity and collision provisions of an
the Court makes its threshold determination whether the
automobile insurance policy follow the car and protect the
issue at hand is one of tort or contract.
operator wherever the accident may occur.

Citing Perkins v. Doe, 177 W.Va. 84, 350 S.E.2d 711 (1986),
The liability under the statutory endorsement exists even
the dissent asserts that West Virginia clearly considers the
though the accident happened in a State which has no
physical contact requirement to be an element of its
uninsured motorist law like that of Virginia. Such liability,
substantive tort law in cases of this type. However, in
however, would be rendered unenforceable and worthless
1988, the West Virginia Supreme Court found, in a choice
if the basic action against John Doe may be brought only
of law situation analogous to the case before us, that the
where the accident happened and the State where it
provision was contractual by nature. Lee v. Saliga, 179
happened has no provision for such an
W.Va. 762, 373 S.E.2d 345, 348-49 (1988).
action. Hodgson, 203 Va. at 942-43, 128 S.E.2d at 447.

Since Buchanan's UM policy was issued and delivered to In Lee a Pennsylvania resident, injured in an automobile
him in Virginia where he resided, it is governed by Virginia accident in West Virginia, brought a tort action against
law. Lackey, 209 Va. at 715, 167 S.E.2d at 133. Hence, the John Doe and others. Under West Virginia's question
certification procedure, the Supreme Court considered
41
whether the enforceability of the physical contact driving. Applying the rule also places Virginia insureds at
provision of West Virginia law should be "determined by risk from negligent uninsured motorists whenever they
the law of West Virginia, the situs of the accident, or of leave the Commonwealth and subjects them to the
Pennsylvania, the situs of the insurance policy and the requisites for recovery under the uninsured motorist
residence of the insured." Id. 373 S.E.2d at 347. provisions of each state in which they travel. Thus, they
Recognizing that "uninsured motorist cases may raise lose the full contractual benefits of their Virginia insurance
questions of both tort and contract law," id. 373 S.E.2d at policies, despite Virginia's articulated policy of protecting
349, the West Virginia Court concluded that the contact Virginia insureds against unknown, uninsured motorists
requirement was governed by the law of the place of the whose negligence causes them injury.
insurance contract, a state which, like Virginia, did not
require proof of physical contact to recover in a John Doe
I note that, in light of those recognized policy interests, this
action. Id. 373 S.E.2d at 350. The Court acknowledged the
Court repeatedly has found that the uninsured motorist
apparent inconsistency between Perkins and Lee, but noted
provisions must be construed broadly to provide the
that the only question certified to it in Perkins, was
remedy they were intended to provide.See, e.g., Nationwide
whether Virginia or West Virginia tort law applied. It
Mut. Ins. Co. v. Sours, 205 Va. 602, 606, 139 S.E.2d 51, 54-55
stated that, in Perkins, it did not, as in Lee, decide whether
(1964); State Farm Mut. Auto. Ins. Co. v. Brower, 204 Va.
tort or contract law applied. Id. 373 S.E.2d at 349.
887, 892, 134 S.E.2d 277, 281 (1964). Further, if the
Accordingly, that Court said that Perkins did not control
accident had occurred in Virginia, there would be no
the issues presented in Lee. Id.
question of Buchanan's right to proceed to establish John
Review of Doe, Perkins, and Lee, along with the other cases
Doe's liability for his injuries. Indeed, if Buchanan had filed
cited by the majority and the dissent, does not, in my
suit in West Virginia, based on the facts before us here, the
opinion, lead to the inevitable result asserted by either. I
courts of that state would not have applied the physical
do, however, believe that an important policy
contact rule to bar his action. To preclude his suit here
consideration forms a more persuasive and conclusive
based on an unfortunate combination of lex loci and lex
basis for reaching the majority result.
fori, in light of the policies involved, is dictated neither by
choice of law rules nor the principles of comity.
Even if, arguendo, this case involved only tort issues and
West Virginia's substantive tort law (including the physical
Accordingly, I concur in the result reached by the majority
contact requirement) was applicable, Virginia conflict of
and would reverse the decision of the lower court.
law principles do not require that we necessarily apply the
West Virginia provisions. "Comity does not require
application of another state's substantive law if it is
COMPTON, Justice, with whom STEPHENSON, Justice,
contrary to the public policy of the forum state." Willard v.
joins, dissenting.
Aetna Cas. & Sur. Co., 213 Va. 481, 483, 193 S.E.2d 776, 778
(1973).
In June 1989, David B. Buchanan, a resident of the
Commonwealth of Virginia, was injured while driving a
In my opinion, applying West Virginia law to bar a Virginia motor vehicle in the State of West Virginia. Another motor
resident from establishing the negligence of a John Doe vehicle, operated by an unknown driver, allegedly ran
motorist and recovering under the uninsured motorist Buchanan's vehicle off the road. There was no physical
provisions of an automobile liability policy solely because contact between Buchanan's vehicle and the vehicle
there was no physical contact between the vehicles is operated by the unknown driver.
contrary to a significant public policy of this
Commonwealth, as reflected in a broad range of Virginia's
In April 1991, Buchanan filed the present action in the
motor vehicle statutes, rules and regulations. Those
court below naming "John Doe" as defendant. The plaintiff
statutes include the General Assembly's enactment of the
alleged that Doe was negligent in several particulars and
uninsured motorist insurance coverage provisions of the
that plaintiff was injured as the "direct and proximate
Code. Code § 38.2-2206. These provisions mandate policy
result of the defendant's negligence." The plaintiff sought
coverage to protect non-negligent motorists injured by the
an award of damages against Doe in the amount of
acts of negligent, but uninsured, motorists. The General
$100,000.
Assembly specifically has extended this protection to
Virginia insureds who are injured by negligent unknown
In accordance with the Virginia uninsured motorist
motorists.
statute, the plaintiff served process upon the insurer that
had issued a policy of bodily injury liability insurance with
To restrict the Virginia insured's recovery against an uninsured motorist endorsement covering the
unknown motorists by imposing the physical contact rule plaintiff's vehicle. Code § 38.2-2206(E). The insurer filed a
punishes those drivers who attempt to avoid such contact, responsive pleading in its own name generally denying the
defeating the broader public policy to encourage safe allegations of the motion for judgment.
42
 insurer providing uninsured motorist coverage arises only
Subsequently, in responses to requests for admissions, the after the legal liability of the uninsured "John Doe" has
plaintiff admitted that at the time of the alleged accident been established by a tort judgment. State Farm Mut. Auto.
"no physical contact occurred between the motor vehicle Ins. Co. v. Kelly, 238 Va. 192, 195, 380 S.E.2d 654, 656
driven by the plaintiff and the motor vehicle driven by the (1989); Willard v. Aetna Casualty & Sur. Co., 213 Va. 481,
unknown operator." The insurer, in the name of John Doe 482, 193 S.E.2d 776, 778 (1973).
as authorized by Code § 38.2-2206(E), then filed a motion
for summary judgment. Upon consideration of the
The next inquiry becomes whether Virginia or West
pleadings, the insurance policy, the responses to requests
Virginia law is to be applied in this tort action. "In
for admissions, and the argument of counsel, the trial court
resolving conflicts of laws, the settled rule in Virginia is
sustained the motion for summary judgment and
that the substantive rights of the parties in a multistate
dismissed the action.
tort action are governed by the law of the place of the
wrong." McMillan v. McMillan, 219 Va. 1127, 1128, 253
This appeal presents an uncomplicated issue. Upon a
S.E.2d 662, 663 (1979). Accord Jones v. R.S. Jones &
proper application of settled law, the judgment of the trial
Assocs., 246 Va. 3, 431 S.E.2d 33 (1993), decided today.
court should be affirmed.

Because the place of the wrong in this case was West

The case can be summarized very simply. This is a tort
Virginia, the final task must be to determine the West
action seeking a money judgment based on negligence.
Virginia substantive law governing John Doe tort actions.
Because the tort was committed outside Virginia, courts of
West Virginia's statutory scheme creating a system for
the Commonwealth apply the traditional conflict of laws
recovering damages caused by an uninsured motorist is
rule that the substantive tort law of the place of the wrong
similar to Virginia's system. See W.Va.Code § 33-6-31
governs the Virginia action. The substantive West Virginia
(1992). As in Virginia, an insured under a West Virginia
tort law required a plaintiff to prove physical contact
uninsured motorist endorsement who has been injured by
between a John Doe vehicle and the vehicle or person of
an unknown motorist must first bring a John Doe action to
the plaintiff. Because the alleged tort involved no physical
establish Doe's legal liability to the insured. Under the
contact and because the applicable West Virginia
West Virginia statute, the uninsured motorist coverage
substantive tort law precluded recovery against a John Doe
applies only to sums that the insured "shall be legally
defendant absent a showing of physical contact, the trial
entitled to recover as damages from the owner or operator
court correctly ruled that no material fact was genuinely in
of an uninsured motor vehicle." W.Va.Code § 33-6-31(b).
dispute, Rule 3:18, and that defendant was entitled to
Paralleling the decisions of this Court, the Supreme Court
summary judgment.
of Appeals of West Virginia has held that the John Doe
action initiated by a plaintiff under an uninsured motorist
Until today, Virginia law supporting the foregoing analysis endorsement is an action in tort. Perkins v. Doe, 177 W.Va.
has been clearly established. Unquestionably, this is a tort 84, 350 S.E.2d 711, 713 (1986).
action, not a contract action. Pertinent to this case, 31
years ago this Court stated: "This is not an action arising ex
There is one significant difference, however, between West
contractu to recover against the insurance company on its
Virginia's uninsured motorist statute and Virginia's. West
[uninsured motorist] endorsement. The insurance
Virginia's statute specifies that John Doe is liable only if
company is not a named party defendant and judgment
there has been physical contact between the John Doe
cannot be entered against it in this action. This is an
vehicle and the insured or with the vehicle the insured was
action ex delicto, since the cause of action arises out of a
occupying at the time of the accident. W.Va.Code § 33-6-
tort, and the only issues presented are the establishment
31(e)(iii). And the West Virginia Court has characterized
of legal liability on the unknown uninsured motorist, John
this statutory requirement of contact as a rule of
Doe, and the fixing of damages, if any." Doe v. Brown, 203
substantive tort law governing West Virginia
Va. 508, 515, 125 S.E.2d 159, 164 (1962). See Code § 38.2-
accidents. Perkins, 350 S.E.2d at 714 n. 3.
2206(H) ("nor may anything be required of the insured
[plaintiff making a claim under the uninsured motorist
endorsement] except the establishment of legal The concurring opinion misconstrues Lee v. Saliga, 179
liability"). Accord Truman v. Spivey, 225 Va. 274, 278, 302 W.Va. 762, 373 S.E.2d 345 (1988), by asserting the case
S.E.2d 517, 519 (1983). involves "a choice of law situation analogous to the case
before us." The case is not at all analogous.
And, the plaintiff's right "to bring this action to establish <>
legal liability on the uninsured motorist and to recover In Lee, a Pennsylvania resident who was insured under a
damages is not given by the endorsement but by the Pennsylvania insurance policy was injured in a no-contact
[uninsured motorist] statute." Doe, 203 Va. at 516, 125 accident in West Virginia allegedly caused by John Doe.
S.E.2d at 165. Indeed, the contractual obligation of an Pennsylvania, unlike Virginia or West Virginia, is a "direct
43
action" state and allows a direct action against the insurer
by one claiming uninsured motorist benefits. Id. 373 S.E.2d
at 348. The insurance contract contained a physical
contact requirement that was invalid under Pennsylvania
law but valid under West Virginia law.

The West Virginia court construed the issue in the case as

a contractual question relating to policy coverage, and not
a tort question dealing with Doe's legal liability. Thus, the
West Virginia court analyzed the case under contract
principles, applying the law of the state where the contract
was issued. The West Virginia court expressly
distinguished Perkins on the basis that Lee involved a
contract question while Perkins had involved a tort
issue. Id. 373 S.E.2d at 349.

While distinguishing Perkins, the West Virginia court

in Lee nevertheless reaffirmed that a " 'John Doe' suit ... is
deemed to sound in tort," as previously explained
in Perkins. Lee, 373 S.E.2d at 348. The West Virginia court
in Lee also reasserted that the insured in a "John Doe" suit
must be "legally entitled to recover" from the uninsured
motorist before the insurer will be required to pay. Id. As
previously discussed, an insured is not "legally entitled to
recover" from the John Doe defendant under West
Virginia's substantive tort law unless the insured can
prove physical contact.

Because the present case is a tort action governed by the

substantive law of West Virginia, and because there was no
physical contact between the vehicles involved in this
accident, I believe the trial court correctly decided that the
defendant was entitled to summary judgment. Thus, I
would affirm.

The decision to reverse the judgment below stems from

the plurality's unfortunate refusal to accept the clear,
settled law in this Commonwealth that this is a tort action,
not a contract action.

44
THIRD DIVISION Because of the long hours and the strenuous nature of her
work, Osdana suffered from numbness and pain in her
G.R. No. 129584. December 3, 1998
arms. The pain was such that she had to be confined at the
TRIPLE EIGHT INTEGRATED SERVICES, Ladies Villa, a housing facility of GCC, from June 18 to
INC., Petitioner, vs. NATIONAL LABOR RELATIONS August 22, 1993, during which period, she was not paid
COMMISSION, HON. LABOR ARBITER POTENCIANO S. her salaries.
CANIZARES, JR. and ERLINDA R. OSDANA, Respondents.
After said confinement, Osdana was allowed to resume
DECISION work, this time as Food Server and Cook at the Hota Bani
Tameem Hospital, where she worked seven days a week
ROMERO, J.:
from August 22 to October 5, 1993. Again, she was not
In this petition for certiorari now before us, petitioner compensated.
Triple Eight Integrated Services Inc. seeks to annul the
Then, from October 6 to October 23, 1993, Osdana was
decision1 of public respondent National Labor Relations
again confined at the Ladies Villa for no apparent reason.
Commission (First Division, Quezon City) dated March 11,
During this period, she was still not paid her salary.
1997 affirming the August 20, 1996 decision2 of Labor
Arbiter Potenciano Canizares. Petitioner was ordered to On October 24, 1993, she was re-assigned to the Oleysha
pay private respondent Erlinda Osdana her salaries for the University to wash dishes and do other menial tasks. As
unexpired portion of her employment contract, unpaid with her previous assignment at the said University,
salaries, salary differential, moral and exemplary damages, Osdana worked long hours and under harsh conditions.
as well as attorneys fees. On April 28, 1997, the NLRC Because of this, she was diagnosed as having Bilateral
denied petitioners motion for Carpal Tunnel Syndrome, a condition precipitated by
reconsideration.3cräläwvirtualibräry activities requiring repeated flexion, pronation, and
supination of the wrist and characterized by excruciating
The antecedent facts follow.
pain and numbness in the arms.5cräläwvirtualibräry
Sometime in August 1992, private respondent Osdana was
As the pain became unbearable, Osdana had to be
recruited by petitioner for employment with the latters
hospitalized. She underwent two surgical operations, one
principal, Gulf Catering Company (GCC), a firm based in the
in January 1994, another on April 23, 1994. Between these
Kingdom of Saudi Arabia. Under the original employment
operations, she was not given any work assignments even
contract, Osdana was engaged to work as Food Server for a
if she was willing and able to do light work in accordance
period of thirty-six (36) months with a salary of five
with her doctors advice. Again, Osdana was not paid any
hundred fifty Saudi rials (SR550).
compensation for the period between February to April 22,
Osdana claims she was required by petitioner to pay a 1994.
total of eleven thousand nine hundred fifty pesos
After her second operation, Osdana was discharged from
(P11,950.00) in placement fees and other charges, for
the hospital on April 25, 1994. The medical report stated
which no receipt was issued. She was likewise asked to
that she had very good improvement of the symptoms and
undergo a medical examination conducted by the
she was discharged on the second day of the
Philippine Medical Tests System, a duly accredited clinic
operation.6cräläwvirtualibräry
for overseas workers, which found her to be Fit of
Employment. Four days later, however, she was dismissed from work,
allegedly on the ground of illness. She was not given any
Subsequently, petitioner asked Osdana to sign another
separation pay nor was she paid her salaries for the
Contractor-Employee Agreement4 which provided that she
periods when she was not allowed to work.
would be employed as a waitress for twelve (12) months
with a salary of two hundred eighty US dollars ($280). It Upon her return to the Philippines, Osdana sought the help
was this employment agreement which was approved by of petitioner, but to no avail. She was thus constrained to
the Philippine Overseas Employment Administration file a complaint before the POEA against petitioner,
(POEA). praying for unpaid and underpaid salaries, salaries for the
unexpired portion of the employment contract, moral and
On September 16, 1992, Osdana left for Riyadh, Saudi
exemplary damages and attorneys fees, as well as the
Arabia, and commenced working for GCC. She was
revocation, cancellation, suspension and/or imposition of
assigned to the College of Public Administration of the
administrative sanctions against petitioner.
Oleysha University and, contrary to the terms and
conditions of the employment contract, was made to wash Pursuant to Republic Act No. 8042, otherwise known as
dishes, cooking pots, and utensils, perform janitorial work the Migrant Workers and Overseas Filipinos Act of 1995,
and other tasks which were unrelated to her job the case was transferred to the arbitration branch of the
designation as waitress. Making matters worse was the NLRC and assigned to Labor Arbiter Canizares.
fact that she was made to work a gruelling twelve-hour
shift, from six oclock in the morning to six oclock in the
evening, without overtime pay.
45
In a decision dated August 20, 1996, the labor arbiter ruled in the interpretation of agreements should be resolved in
in favor of Osdana. The dispositive portion of the decision favor of the former.
follows:
Petitioner, for its part, was given the same opportunity to
Wherefore, the respondent is hereby ordered to pay the file its own position paper but instead, it opted to file a
complainant US$2,499.00 as salaries for the unexpired two-page Answer With Special And Affirmative Defenses,
portion of the contract, and US$1,076.00 as unpaid salary denying generally the allegations of the
and salary differential, or its equivalent in Philippine Peso. complaint.9cräläwvirtualibräry
The respondent is likewise ordered to pay the As observed by the labor arbiter, The record shows the
complainant P50,000 moral damages, and P20,000 complainant filed complaint (sic), position paper, and
exemplary damages. supporting documents, and prosecuted her case diligently;
while the respondent merely tried to settle the case
The respondent is further ordered to pay the complainant
amicably, failing even to file its position paper.10 The
10% of the monetary award as attorneys fee.
present case being one for illegal dismissal, it was
Other claims are hereby dismissed for lack of sufficient incumbent upon petitioner employer to show by
evidence. substantial evidence that the termination was validly
made. In termination cases, the burden of proof rests on
SO ORDERED.
the employer to show that the dismissal is for a just
Aggrieved by the labor arbiters decision, petitioner cause.11 Having failed to file its position paper and to
appealed to the NLRC, which affirmed the decision in support its denials and affirmative defenses in its answer,
question on March 11, 1997. Petitioners motion for petitioner cannot now fault the labor arbiter and the NLRC
reconsideration was likewise denied by the NLRC in its for relying on the facts as laid down by Osdana in her
order dated April 28, 1997. position paper and supported by other documents. The
essence of due process is that a party be afforded
Hence, this petition for certiorari.
reasonable opportunity to be heard and to submit any
Petitioner alleges grave abuse of discretion on the part of evidence he may have in support of his defense,12 and this
the public respondents for the following reasons: (a) ruling is exactly what petitioner was accorded, although it chose
in favor of Osdana even if there was no factual or legal not to fully avail thereof.
basis for the award and, (b) holding petitioner solely liable
This Court, therefore, upholds the finding of herein public
for her claims despite the fact that its liability is joint and
respondents that the facts and the evidence on record
several with its principal, GCC.
adduced by Osdana and taken in relation to the answer of
At the outset, petitioner argues that public respondent petitioner show that indeed there was breach of the
Labor Arbiter gravely abused his discretion when he employment contract and illegal dismissal committed by
rendered the questioned decision dated August 20, 1996 petitioners principal.
without stating the facts and the law where he derived his
Petitioner claims that public respondents committed grave
conclusions.7 In support of this argument, petitioner cites
abuse of discretion when they ruled that Osdana had been
the first paragraph of Article VIII, Section 14 of the
illegally dismissed by GCC. It maintains that the award for
Constitution: No decision shall be rendered by any court
salaries for the unexpired portion of the contract was
without expressing therein clearly and distinctly the facts
improper because Osdana was validly dismissed on the
and the law on which it is based.
ground of illness.
On this point, it is enough to note that the decisions of both
The argument must fail.
the labor arbiter and the NLRC were based mainly on the
facts and allegations in Osdanas position paper and In its Answer, Memorandum of Appeal,13 Petition
supporting documents. We find these sufficient to for Certiorari,14and Consolidated Reply,15 petitioner
constitute substantial evidence to support the questioned consistently asserted that Osdana was validly repatriated
decisions. Generally, findings of facts of quasi-judicial for medical reasons, but it failed to substantiate its claim
agencies like the NLRC are accorded great respect and, at that such repatriation was justified and done in
times, even finality if supported by substantial evidence. accordance with law.
Substantial evidence is such amount of relevant evidence
Article 284 of the Labor Code is clear on the matter of
which a reasonable mind might accept as adequate to
termination by reason of disease or illness, viz:
justify a conclusion.8cräläwvirtualibräry
Art. 284. Disease as a ground for termination An employer
Moreover, well-settled is the rule that if doubts exist
may terminate the services of an employee who has been
between the evidence presented by the employer and the
found to be suffering from any disease and whose
employee, the scales of justice must be tilted in favor of the
continued employment is prohibited by law or prejudicial
latter. Thus, in controversies between a worker and her
to his health as well as the health of his co-employees: x x
employer, doubts reasonably arising from the evidence or
x.

46
Specifically, Section 8, Rule 1, Book VI of the Omnibus authority in Saudi Arabia, thereby heading off any
Rules Implementing the Labor Code provides: complaint for illegal dismissal.
Sec. 8. Disease as a ground for dismissal Where the The requirement for a medical certificate under Article
employee suffers from a disease and his continued 284 of the Labor Code cannot be dispensed with;
employment is prohibited by law or prejudicial to his otherwise, it would sanction the unilateral and arbitrary
health or to the health of his co-employees, the employer determination by the employer of the gravity or extent of
shall not terminate his employment unless there is a the employees illness and thus defeat the public policy on
certification by competent public authority that the the protection of labor. As the Court observed in Prieto v.
disease is of such nature or at such a stage that it cannot be NLRC,19 The Court is not unaware of the many abuses
cured within a period of six (6) months with proper suffered by our overseas workers in the foreign land
medical treatment. If the disease or ailment can be cured where they have ventured, usually with heavy hearts, in
within the period, the employer shall not terminate the pursuit of a more fulfilling future. Breach of contract,
employee but shall ask the employee to take a leave. The maltreatment, rape, insufficient nourishment, sub-human
employer shall reinstate such employee to his former lodgings, insults and other forms of debasement, are only a
position immediately upon the restoration of his normal few of the inhumane acts to which they are subjected by
health. (Underscoring supplied) their foreign employers, who probably feel they can do as
they please in their country. While these workers may
Viewed in the light of the foregoing provisions, the manner
indeed have relatively little defense against exploitation
by which Osdana was terminated was clearly in violation
while they are abroad, that disadvantage must not
of the Labor Code and its implementing rules and
continue to burden them when they return to their own
regulations.
territory to voice their muted complaint. There is no
In the first place, Osdanas continued employment despite reason why, in their own land, the protection of our own
her illness was not prohibited by law nor was it prejudicial laws cannot be extended to them in full measure for the
to her health, as well as that of her co-employees. In fact, redress of their grievances.
the medical report issued after her second operation
Petitioner likewise attempts to sidestep the medical
stated that she had very good improvement of the
certificate requirement by contending that since Osdana
symptoms. Besides, Carpal Tunnel Syndrome is not a
was working in Saudi Arabia, her employment was subject
contagious disease.
to the laws of the host country. Apparently, petitioner
Petitioner attributes good faith on the part of its principal, hopes to make it appear that the labor laws of Saudi Arabia
claiming that It was the concern for the welfare and do not require any certification by a competent public
physical well being (sic) of private respondent that drove health authority in the dismissal of employees due to
her employer to take the painful decision of terminating illness.
her from the service and having her repatriated to the
Again, petitioners argument is without merit.
Philippines at its expense. The employer did not want to
risk the aggravation of the illness of private respondent First, established is the rule that lex loci contractus (the law
which could have been the logical consequence were of the place where the contract is made) governs in this
private respondent allowed to continue with her jurisdiction. There is no question that the contract of
job.16cräläwvirtualibräry employment in this case was perfected here in the
Philippines. Therefore, the Labor Code, its implementing
The Court notes, however, that aside from these bare
rules and regulations, and other laws affecting labor apply
allegations, petitioner has not presented any medical
in this case. Furthermore, settled is the rule that the courts
certificate or similar document from a competent public
of the forum will not enforce any foreign claim obnoxious
health authority in support of its claims.
to the forums public policy.20 Here in the Philippines,
On the medical certificate requirement, petitioner employment agreements are more than contractual in
erroneously argues that private respondent was employed nature. The Constitution itself, in Article XIII Section 3,
in Saudi Arabia and not here in the Philippines. Hence, guarantees the special protection of workers, to wit:
there was a physical impossibility to secure from a
The State shall afford full protection to labor, local and
Philippine public health authority the alluded medical
overseas, organized and unorganized, and promote full
certificate that public respondents illness will not be cured
employment and equality of employment opportunities for
within a period of six months.17cräläwvirtualibräry
all.
Petitioner entirely misses the point, as counsel for private
It shall guarantee the rights of all workers to self-
respondent states in the Comment.18 The rule simply
organization, collective bargaining and negotiations, and
prescribes a certification by a competent public health
peaceful concerted activities, including the right to strike
authority and not a Philippine public health authority.
in accordance with law. They shall be entitled to security
If, indeed, Osdana was physically unfit to continue her of tenure, humane conditions of work, and a living wage.
employment, her employer could have easily obtained a They shall also participate in policy and decision-making
certification to that effect from a competent public health
47
processes affecting their rights and benefits as may be reduced. Worth reiterating is the rule that moral damages
provided by law. are recoverable where the dismissal of the employee was
attended by bad faith or fraud or constituted an act
xxx.
oppressive to labor, or was done in a manner contrary to
This public policy should be borne in mind in this case morals, good customs, or public policy.21 Likewise,
because to allow foreign employers to determine for and exemplary damages may be awarded if the dismissal was
by themselves whether an overseas contract worker may effected in a wanton, oppressive or malevolent
be dismissed on the ground of illness would encourage manner.22cräläwvirtualibräry
illegal or arbitrary pre-termination of employment
According to the facts of the case as stated by public
contracts.
respondent, Osdana was made to perform such menial
As regards the monetary award of salaries for the chores, as dishwashing and janitorial work, among others,
unexpired portion of the employment contract, unpaid contrary to her job designation as waitress. She was also
salaries and salary differential granted by public made to work long hours without overtime pay. Because of
respondents to Osdana, petitioner assails the same for such arduous working conditions, she developed Carpal
being contrary to law, evidence and existing jurisprudence, Tunnel Syndrome. Her illness was such that she had to
all of which therefore constitutes grave abuse of undergo surgery twice. Since her employer determined for
discretion. itself that she was no longer fit to continue working, they
sent her home posthaste without as much as separation
Although this contention is without merit, the award for
pay or compensation for the months when she was unable
salaries for the unexpired portion of the contract must,
to work because of her illness. Since the employer is
however, be reduced. Paragraph 5, Section 10 of R.A. No.
deemed to have acted in bad faith, the award for attorneys
8042, applies in this case, thus:
fees is likewise upheld.
In case of termination of overseas employment without
Finally, petitioner alleges grave abuse of discretion on the
just, valid or authorized cause as defined by law or
part of public respondents for holding it solely liable for
contract, the worker shall be entitled to the full
the claims of Osdana despite the fact that its liability with
reimbursement of his placement fee with interest at
the principal is joint and several.
twelve percent (12%) per annum, plus his salaries for the
unexpired portion of his employment contract or for three Petitioner misunderstands the decision in question. It should be
(3) months for every year of the unexpired term, noted that contrary to petitioners interpretation, the decision of
whichever is less. the labor arbiter which was affirmed by the NLRC did not really
absolve the foreign principal.
In the case at bar, while it would appear that the
Petitioner was the only one held liable for Osdanas monetary
employment contract approved by the POEA was only for a claims because it was the only respondent named in the
period of twelve months, Osdanas actual stint with the complaint and it does not appear that petitioner took steps to
foreign principal lasted for one year and seven-and-a-half have its principal included as co-respondent. Thus, the POEA, and
months. It may be inferred, therefore, that the employer later the labor arbiter, did not acquire jurisdiction over the
renewed her employment contract for another year. Thus, foreign principal.
the award for the unexpired portion of the contract should This is not to say, however, that GCC may not be held liable at all.
have been US$1,260 (US$280 x 4 months) or its equivalent Petitioner can still claim reimbursement or contribution from it
in Philippine pesos, not US$2,499 as adjudged by the labor for the amounts awarded to the illegally-dismissed employee.
arbiter and affirmed by the NLRC.
WHEREFORE, in view of the foregoing, the instant petition is
As for the award for unpaid salaries and differential DISMISSED. Accordingly, the decisions of the labor arbiter dated
amounting to US$1,076 representing seven months unpaid August 20, 1996, and of the NLRC dated March 11, 1997, are
salaries and one month underpaid salary, the same is AFFIRMED with the MODIFICATION that the award to private
proper because, as correctly pointed out by Osdana, the no respondent Osdana should be one thousand two hundred sixty
US dollars (US$1,260), or its equivalent in Philippine pesos, as
work, no pay rule relied upon by petitioner does not apply
salaries for the unexpired portion of the employment contract,
in this case. In the first place, the fact that she had not and one thousand seventy six US dollars (US$1,076), or its
worked from June 18 to August 22, 1993 and then from equivalent in Philippine pesos, representing unpaid salaries for
January 24 to April 29, 1994, was due to her illness which seven (7) months and underpaid salary for one (1) month, plus
was clearly work-related. Second, from August 23 to interest.
October 5, 1993, Osdana actually worked as food server
Petitioner is likewise ordered to pay private
and cook for seven days a week at the Hota Bani Tameem respondent P30,000.00 in moral damages, P10,000.00 in
Hospital, but was not paid any salary for the said period. exemplary damages and 10% attorneys fees.
Finally, from October 6 to October 23, 1993, she was
confined to quarters and was not given any work for no This decision is without prejudice to any remedy or claim for
reason at all. reimbursement or contribution petitioner may institute against
its foreign principal, Gulf Catering Company. No pronouncement
Now, with respect to the award of moral and exemplary as to costs.SO ORDERED.
damages, the same is likewise proper but should be
48
G.R. No. 101538 June 23, 1992 The private respondent contended that the
Philippines was not its domicile nor was this its
principal place of business. Neither was the
AUGUSTO BENEDICTO SANTOS III, represented by his petitioner's ticket issued in this country nor was his
father and legal guardian, Augusto Benedicto Santos, destination Manila but San Francisco in the United
petitioner, States.
vs.
NORTHWEST ORIENT AIRLINES and COURT OF On February 1, 1988, the lower court granted the
APPEALS, respondents. motion and dismissed the case. 2 The petitioner
appealed to the Court of Appeals, which affirmed the
decision of the lower court. 3 On June 26, 1991, the
CRUZ, J.: petitioner filed a motion for reconsideration, but the
same was denied. 4 The petitioner then came to this
This case involves the Proper interpretation of Article
Court, raising substantially the same issues it
28(1) of the Warsaw Convention, reading as follows:
submitted in the Court of Appeals.
Art. 28. (1) An action for damage must be brought
The assignment of errors may be grouped into two
at the option of the plaintiff, in the territory of one of
major issues, viz:
the High Contracting Parties, either before the court of
the domicile of the carrier or of his principal place of (1) the constitutionality of Article 28(1) of the
business, or where he has a place of business through Warsaw Convention; and
which the contract has been made, or before the court
(2) the jurisdiction of Philippine courts over the
at the place of destination.
case.
The petitioner is a minor and a resident of the
The petitioner also invokes Article 24 of the Civil Code
Philippines. Private respondent Northwest Orient
on the protection of minors.
Airlines (NOA) is a foreign corporation with principal
office in Minnesota, U.S.A. and licensed to do business I
and maintain a branch office in the Philippines.
THE ISSUE OF CONSTITUTIONALITY
On October 21, 1986, the petitioner purchased from
A. The petitioner claims that the lower court
NOA a round-trip ticket in San Francisco. U.S.A., for his
erred in not ruling that Article 28(1) of the Warsaw
flight from San Francisco to Manila via Tokyo and
Convention violates the constitutional guarantees of
back. The scheduled departure date from Tokyo was
due process and equal protection.
December 20, 1986. No date was specified for his
return to San Francisco. 1
On December 19, 1986, the petitioner checked in at The Republic of the Philippines is a party to the
the NOA counter in the San Francisco airport for his Convention for the Unification of Certain Rules
scheduled departure to Manila. Despite a previous Relating to International Transportation by Air,
confirmation and re-confirmation, he was informed otherwise known as the Warsaw Convention. It took
that he had no reservation for his flight from Tokyo to effect on February 13, 1933. The Convention was
Manila. He therefore had to be wait-listed. concurred in by the Senate, through its Resolution No.
19, on May 16, 1950. The Philippine instrument of
On March 12, 1987, the petitioner sued NOA for
accession was signed by President Elpidio Quirino on
damages in the Regional Trial Court of Makati. On
October 13, 1950, and was deposited with the Polish
April 13, 1987, NOA moved to dismiss the complaint
government on November 9, 1950. The Convention
on the ground of lack of jurisdiction. Citing the above-
became applicable to the Philippines on February 9,
quoted article, it contended that the complaint could
1951. On September 23, 1955, President Ramon
be instituted only in the territory of one of the High
Magsaysay issued Proclamation No. 201, declaring our
Contracting Parties, before:
formal adherence thereto. "to the end that the same
1. the court of the domicile of the carrier; and every article and clause thereof may be observed
and fulfilled in good faith by the Republic of the
2. the court of its principal place of business;
Philippines and the citizens thereof." 5
3. the court where it has a place of business
through which the contract had been made;
The Convention is thus a treaty commitment
4. the court of the place of destination.
voluntarily assumed by the Philippine government
and, as such, has the force and effect of law in this
country.
49
 airline companies under "the conditions prevailing
then and which have long ceased to exist." He argues
The petitioner contends that Article 28(1) cannot be
that in view of the significant developments in the
applied in the present case because it is
airline industry through the years, the treaty has
unconstitutional. He argues that there is no substantial
become irrelevant. Hence, to the extent that it has lost
distinction between a person who purchases a ticket
its basis for approval, it has become unconstitutional.
in Manila and a person who purchases his ticket in San
Francisco. The classification of the places in which
actions for damages may be brought is arbitrary and
The petitioner is invoking the doctrine of rebus sic
irrational and thus violates the due process and equal
stantibus. According to Jessup, "this doctrine
protection clauses.
constitutes an attempt to formulate a legal principle
which would justify non-performance of a treaty
obligation if the conditions with relation to which the
It is well-settled that courts will assume jurisdiction
parties contracted have changed so materially and so
over a constitutional question only if it is shown that
unexpectedly as to create a situation in which the
the essential requisites of a judicial inquiry into such a
exaction of performance would be unreasonable." 7
question are first satisfied. Thus, there must be an
The key element of this doctrine is the vital change in
actual case or controversy involving a conflict of legal
the condition of the contracting parties that they could
rights susceptible of judicial determination; the
not have foreseen at the time the treaty was
constitutional question must have been opportunely
concluded.
raised by the proper party; and the resolution of the
question is unavoidably necessary to the decision of
the case itself. 6
The Court notes in this connection the following
observation made in Day v. Trans World Airlines, Inc.:
8
Courts generally avoid having to decide a
constitutional question. This attitude is based on the
doctrine of separation of powers, which enjoins upon
The Warsaw drafters wished to create a system of
the departments of the government a becoming
liability rules that would cover all the hazards of air
respect for each other's acts.
travel . . . The Warsaw delegates knew that, in the
years to come, civil aviation would change in ways that
they could not foresee. They wished to design a system
The treaty which is the subject matter of this petition
of air law that would be both durable and flexible
was a joint legislative-executive act. The presumption
enough to keep pace with these changes . . . The ever-
is that it was first carefully studied and determined to
changing needs of the system of civil aviation can be
be constitutional before it was adopted and given the
served within the framework they created.
force of law in this country.

It is true that at the time the Warsaw Convention was

The petitioner's allegations are not convincing enough
drafted, the airline industry was still in its infancy.
to overcome this presumption. Apparently, the
However, that circumstance alone is not sufficient
Convention considered the four places designated in
justification for the rejection of the treaty at this time.
Article 28 the most convenient forums for the
The changes recited by the petitioner were,
litigation of any claim that may arise between the
realistically, not entirely unforeseen although they
airline and its passenger, as distinguished from all
were expected in a general sense only. In fact, the
other places. At any rate, we agree with the
Convention itself, anticipating such developments,
respondent court that this case can be decided on
contains the following significant provision:
other grounds without the necessity of resolving the
constitutional issue.
Article 41. Any High Contracting Party shall be
entitled not earlier than two years after the coming
B. The petitioner claims that the lower court
into force of this convention to call for the assembling
erred in not ruling that Art. 28(1) of the Warsaw
of a new international conference in order to consider
Convention is inapplicable because of a fundamental
any improvements which may be made in this
change in the circumstances that served as its basis.
convention. To this end, it will communicate with the
Government of the French Republic which will take the
necessary measures to make preparations for such
The petitioner goes at great lengths to show that the
conference.
provisions in the Convention were intended to protect
50
 grievances regardless of the nature or value of his
claim. If the petitioner is barred from filing his
But the more important consideration is that the
complaint before our courts, it is because they are not
treaty has not been rejected by the Philippine
vested with the appropriate jurisdiction under the
government. The doctrine of rebus sic stantibus does
Warsaw Convention, which is part of the law of our
not operate automatically to render the treaty
land.
inoperative. There is a necessity for a formal act of
rejection, usually made by the head of State, with a
statement of the reasons why compliance with the
II
treaty is no longer required.

THE ISSUE OF JURISDICTION.

In lieu thereof, the treaty may be denounced even
without an expressed justification for this action. Such
denunciation is authorized under its Article 39, viz:
A. The petitioner claims that the lower court
erred in not ruling that Article 28(1) of the Warsaw
Convention is a rule merely of venue and was waived
Article 39. (1) Any one of the High
by defendant when it did not move to dismiss on the
Contracting Parties may denounce this convention by
ground of improper venue.
a notification addressed to the Government of the
Republic of Poland, which shall at once inform the
Government of each of the High Contracting Parties.
By its own terms, the Convention applies to all
international transportation of persons performed by
aircraft for hire.
(2) Denunciation shall take effect six months after
the notification of denunciation, and shall operate only
as regards the party which shall have proceeded to
International transportation is defined in paragraph
denunciation.
(2) of Article 1 as follows:

Obviously. rejection of the treaty, whether on the

(2) For the purposes of this convention, the
ground of rebus sic stantibus or pursuant to Article 39,
expression "international transportation" shall mean
is not a function of the courts but of the other branches
any transportation in which, according to the contract
of government. This is a political act. The conclusion
made by the parties, the place of departure and the
and renunciation of treaties is the prerogative of the
place of destination, whether or not there be a break
political departments and may not be usurped by the
in the transportation or a transshipment, are situated
judiciary. The courts are concerned only with the
[either] within the territories of two High Contracting
interpretation and application of laws and treaties in
Parties . . .
force and not with their wisdom or efficacy.

Whether the transportation is "international" is

C. The petitioner claims that the lower court
determined by the contract of the parties, which in the
erred in ruling that the plaintiff must sue in the United
case of passengers is the ticket. When the contract of
States, because this would deny him the right to access
carriage provides for the transportation of the
to our courts.
passenger between certain designated terminals
"within the territories of two High Contracting
Parties," the provisions of the Convention
The petitioner alleges that the expenses and
automatically apply and exclusively govern the rights
difficulties he will incur in filing a suit in the United
and liabilities of the airline and its passenger.
States would constitute a constructive denial of his
right to access to our courts for the protection of his
rights. He would consequently be deprived of this vital
Since the flight involved in the case at bar is
guaranty as embodied in the Bill of Rights.
international, the same being from the United States to
the Philippines and back to the United States, it is
subject to the provisions of the Warsaw Convention,
Obviously, the constitutional guaranty of access to
including Article 28(1), which enumerates the four
courts refers only to courts with appropriate
places where an action for damages may be brought.
jurisdiction as defined by law. It does not mean that a
person can go to any court for redress of his
51
Whether Article 28(1) refers to jurisdiction or only to In other words, where the matter is governed by the
venue is a question over which authorities are sharply Warsaw Convention, jurisdiction takes on a dual
divided. While the petitioner cites several cases concept. Jurisdiction in the international sense must
holding that Article 28(1) refers to venue rather than be established in accordance with Article 28(1) of the
jurisdiction, 9 there are later cases cited by the private Warsaw Convention, following which the jurisdiction
respondent supporting the conclusion that the of a particular court must be established pursuant to
provision is jurisdictional. 10 the applicable domestic law. Only after the question of
which court has jurisdiction is determined will the
issue of venue be taken up. This second question shall
Venue and jurisdiction are entirely distinct matters. be governed by the law of the court to which the case is
Jurisdiction may not be conferred by consent or submitted.
waiver upon d court which otherwise would have no
jurisdiction over the subject-matter of an action; but
the venue of an action as fixed by statute may be The petitioner submits that since Article 32 states that
changed by the consent of the parties and an objection the parties are precluded "before the damages
that the plaintiff brought his suit in the wrong county occurred" from amending the rules of Article 28(1) as
may be waived by the failure of the defendant to make to the place where the action may be brought, it would
a timely objection. In either case, the court may render follow that the Warsaw Convention was not intended
a valid judgment. Rules as to jurisdiction can never be to preclude them from doing so "after the damages
left to the consent or agreement of the parties, occurred."
whether or not a prohibition exists against their
alteration. 11
Article 32 provides:

A number of reasons tends to support the

characterization of Article 28(1) as a jurisdiction and Art. 32. Any clause contained in the contract and all
not a venue provision. First, the wording of Article 32, special agreements entered into before the damage
which indicates the places where the action for occurred by which the parties purport to infringe the
damages "must" be brought, underscores the rules laid down by this convention, whether by
mandatory nature of Article 28(1). Second, this deciding the law to be applied, or by altering the rules
characterization is consistent with one of the as to jurisdiction, shall be null and void. Nevertheless
objectives of the Convention, which is to "regulate in a for the transportation of goods, arbitration clauses
uniform manner the conditions of international shall be allowed, subject to this convention, if the
transportation by air." Third, the Convention does not arbitration is to take place within one of the
contain any provision prescribing rules of jurisdiction jurisdictions referred to in the first paragraph of
other than Article 28(1), which means that the phrase Article 28.
"rules as to jurisdiction" used in Article 32 must refer
only to Article 28(1). In fact, the last sentence of
Article 32 specifically deals with the exclusive His point is that since the requirements of Article
enumeration in Article 28(1) as "jurisdictions," which, 28(1) can be waived "after the damages (shall have)
as such, cannot be left to the will of the parties occurred," the article should be regarded as
regardless of the time when the damage occurred. possessing the character of a "venue" and not of a
"jurisdiction" provision. Hence, in moving to dismiss
on the ground of lack of jurisdiction, the private
This issue was analyzed in the leading case of Smith v. respondent has waived improper venue as a ground to
Canadian Pacific Airways, Ltd., 12 where it was held: dismiss.

. . . Of more, but still incomplete, assistance is the The foregoing examination of Article 28(1) in relation
wording of Article 28(2), especially when considered to Article 32 does not support this conclusion. In any
in the light of Article 32. Article 28(2) provides that event, we agree that even granting arguendo that
"questions of procedure shall be governed by the law Article 28(1) is a venue and not a jurisdictional
of the court to which the case is submitted" (Emphasis provision, dismissal of the case was still in order. The
supplied). Section (2) thus may be read to leave for respondent court was correct in affirming the ruling of
domestic decision questions regarding the suitability the trial court on this matter, thus:
and location of a particular Warsaw Convention case.

52
Santos' claim that NOA waived venue as a ground of its killing Mrs. Silverberg. Her administratrix filed an
motion to dismiss is not correct. True it is that NOA action for damages against Air Canada in the U.S.
averred in its MOTION TO DISMISS that the ground District Court of California. The defendant moved to
thereof is "the Court has no subject matter jurisdiction dismiss for lack of jurisdiction but the motion was
to entertain the Complaint" which SANTOS considers denied thus:
as equivalent to "lack of jurisdiction over the subject
matter . . ." However, the gist of NOA's argument in its
motion is that the Philippines is not the proper place . . . It is evident that the contract entered into between
where SANTOS could file the action — meaning that Air Canada and Mrs. Silverberg as evidenced by the
the venue of the action is improperly laid. Even ticket booklets and the Flight Coupon No. 1, was a
assuming then that the specified ground of the motion contract for Air Canada to carry Mrs. Silverberg to Los
is erroneous, the fact is the proper ground of the Angeles on a certain flight, a certain time and a certain
motion — improper venue — has been discussed class, but that the time for her to return remained
therein. completely in her power. Coupon No. 2 was only a
continuing offer by Air Canada to give her a ticket to
return to Montreal between certain dates. . . .
Waiver cannot be lightly inferred. In case of doubt, it
must be resolved in favor of non-waiver if there are
special circumstances justifying this conclusion, as in The only conclusion that can be reached then, is that
the petition at bar. As we observed in Javier vs. "the place of destination" as used in the Warsaw
Intermediate Court of Appeals: 13 Convention is considered by both the Canadian C.T.C.
and the United States C.A.B. to describe at least two
"places of destination," viz., the "place of destination"
Legally, of course, the lack of proper venue was of a particular flight either an "outward destination"
deemed waived by the petitioners when they failed to from the "point of origin" or from the "outward point
invoke it in their original motion to dismiss. Even so, of destination" to any place in Canada.
the motivation of the private respondent should have
been taken into account by both the trial judge and the
respondent court in arriving at their decisions. Thus the place of destination under Art. 28 and Art. 1
of the Warsaw Convention of the flight on which Mrs.
Silverberg was killed, was Los Angeles according to the
The petitioner also invokes KLM Royal Dutch Airlines ticket, which was the contract between the parties and
v. RTC, 14 a decision of our Court of Appeals, where it the suit is properly filed in this Court which has
was held that Article 28(1) is a venue provision. jurisdiction.
However, the private respondent avers that this was in
effect reversed by the case of Aranas v. United Airlines,
15 where the same court held that Article 28(1) is a The Petitioner avers that the present case falls
jurisdictional provision. Neither of these cases is squarely under the above ruling because the date and
binding on this Court, of course, nor was either of them time of his return flight to San Francisco were, as in
appealed to us. Nevertheless, we here express our own the Aanestad case, also left open. Consequently, Manila
preference for the later case of Aranas insofar as its and not San Francisco should be considered the
pronouncements on jurisdiction conform to the petitioner's destination.
judgment we now make in this petition.

The private respondent for its part invokes the ruling

B. The petitioner claims that the lower court in Butz v. British Airways, 17 where the United States
erred in not ruling that under Article 28(1) of the District Court (Eastern District of Pennsylvania) said:
Warsaw Convention, this case was properly filed in the
Philippines, because Manila was the destination of the
plaintiff. . . . Although the authorities which addressed this
precise issue are not extensive, both the cases and the
commentators are almost unanimous in concluding
The Petitioner contends that the facts of this case are that the "place of destination" referred to in the
analogous to those in Aanestad v. Air Canada. 16 In Warsaw Convention "in a trip consisting of several
that case, Mrs. Silverberg purchased a round-trip parts . . . is the ultimate destination that is accorded
ticket from Montreal to Los Angeles and back to treaty jurisdiction." . . .
Montreal. The date and time of departure were
specified but not of the return flight. The plane
crashed while on route from Montreal to Los Angeles,
53
But apart from that distinguishing feature, I cannot Convention, this case was properly filed in the
agree with the Court's analysis in Aanestad; whether Philippines because the defendant has its domicile in
the return portion of the ticket is characterized as an the Philippines.
option or a contract, the carrier was legally bound to
transport the passenger back to the place of origin
within the prescribed time and. the passenger for her The petitioner argues that the Warsaw Convention
part agreed to pay the fare and, in fact, did pay the was originally written in French and that in
fare. Thus there was mutuality of obligation and a interpreting its provisions, American courts have
binding contract of carriage, The fact that the taken the broad view that the French legal meaning
passenger could forego her rights under the contract must govern. 18 In French, he says, the "domicile" of
does not make it any less a binding contract. Certainly, the carrier means every place where it has a branch
if the parties did not contemplate the return leg of the office.
journey, the passenger would not have paid for it and
the carrier would not have issued a round trip ticket.
The private respondent notes, however, that in
Compagnie Nationale Air France vs. Giliberto, 19 it was
We agree with the latter case. The place of destination, held:
within the meaning of the Warsaw Convention, is
determined by the terms of the contract of carriage or,
specifically in this case, the ticket between the The plaintiffs' first contention is that Air France is
passenger and the carrier. Examination of the domiciled in the United States. They say that the
petitioner's ticket shows that his ultimate destination domicile of a corporation includes any country where
is San Francisco. Although the date of the return flight the airline carries on its business on "a regular and
was left open, the contract of carriage between the substantial basis," and that the United States qualifies
parties indicates that NOA was bound to transport the under such definition. The meaning of domicile
petitioner to San Francisco from Manila. Manila should cannot, however, be so extended. The domicile of a
therefore be considered merely an agreed stopping corporation is customarily regarded as the place
place and not the destination. where it is incorporated, and the courts have given the
meaning to the term as it is used in article 28(1) of the
Convention. (See Smith v. Canadian Pacific Airways,
The petitioner submits that the Butz case could not Ltd. (2d Cir. 1971), 452 F2d 798, 802; Nudo v. Societe
have overruled the Aanestad case because these Anonyme Belge d' Exploitation de la Navigation
decisions are from different jurisdictions. But that is Aerienne Sabena Belgian World Airlines (E.D. pa.
neither here nor there. In fact, neither of these cases is 1962). 207 F. Supp, 191; Karfunkel v. Compagnie
controlling on this Court. If we have preferred the Butz Nationale Air France (S.D.N.Y. 1977), 427 F. Suppl. 971,
case, it is because, exercising our own freedom of 974). Moreover, the structure of article 28(1), viewed
choice, we have decided that it represents the better, as a whole, is also incompatible with the plaintiffs'
and correct, interpretation of Article 28(1). claim. The article, in stating that places of business are
among the bases of the jurisdiction, sets out two places
where an action for damages may be brought; the
Article 1(2) also draws a distinction between a country where the carrier's principal place of business
"destination" and an "agreed stopping place." It is the is located, and the country in which it has a place of
"destination" and not an "agreed stopping place" that business through which the particular contract in
controls for purposes of ascertaining jurisdiction question was made, that is, where the ticket was
under the Convention. bought, Adopting the plaintiffs' theory would at a
minimum blur these carefully drawn distinctions by
creating a third intermediate category. It would
The contract is a single undivided operation, obviously introduce uncertainty into litigation under
beginning with the place of departure and ending with the article because of the necessity of having to
the ultimate destination. The use of the singular in this determine, and without standards or criteria, whether
expression indicates the understanding of the parties the amount of business done by a carrier in a
to the Convention that every contract of carriage has particular country was "regular" and "substantial."
one place of departure and one place of destination. The plaintiff's request to adopt this basis of
An intermediate place where the carriage may be jurisdiction is in effect a request to create a new
broken is not regarded as a "place of destination." jurisdictional standard for the Convention.

C. The petitioner claims that the lower court Furthermore, it was argued in another case 20 that:
erred in not ruling that under Art. 28(1) of the Warsaw
54
. . . In arriving at an interpretation of a treaty whose Such allegation, he submits, removes the present case
sole official language is French, are we bound to apply from the coverage of the Warsaw Convention. He
French law? . . . We think this question and the argues that in at least two American cases, 21 it was
underlying choice of law issue warrant some held that Article 28(1) of the Warsaw Convention does
discussion not apply if the action is based on tort.
. . . We do not think this statement can be regarded as a
conclusion that internal French law is to be "applied"
This position is negated by Husserl v. Swiss Air
in the choice of law sense, to determine the meaning
Transport Company, 22 where the article in question
and scope of the Convention's terms. Of course, French
was interpreted thus:
legal usage must be considered in arriving at an
accurate English translation of the French. But when
an accurate English translation is made and agreed
. . . Assuming for the present that plaintiff's claim is
upon, as here, the inquiry into meaning does not then
"covered" by Article 17, Article 24 clearly excludes any
revert to a quest for a past or present French law to be
relief not provided for in the Convention as modified
"applied" for revelation of the proper scope of the
by the Montreal Agreement. It does not, however, limit
terms. It does not follow from the fact that the treaty is
the kind of cause of action on which the relief may be
written in French that in interpreting it, we are forever
founded; rather it provides that any action based on
chained to French law, either as it existed when the
the injuries specified in Article 17 "however founded,"
treaty was written or in its present state of
i.e., regardless of the type of action on which relief is
development. There is no suggestion in the treaty that
founded, can only be brought subject to the conditions
French law was intended to govern the meaning of
and limitations established by the Warsaw System.
Warsaw's terms, nor have we found any indication to
Presumably, the reason for the use of the phrase
this effect in its legislative history or from our study of
"however founded," in two-fold: to accommodate all of
its application and interpretation by other courts.
the multifarious bases on which a claim might be
Indeed, analysis of the cases indicates that the courts,
founded in different countries, whether under code
in interpreting and applying the Warsaw Convention,
law or common law, whether under contract or tort,
have, not considered themselves bound to apply
etc.; and to include all bases on which a claim seeking
French law simply because the Convention is written
relief for an injury might be founded in any one
in French. . . .
country. In other words, if the injury occurs as
described in Article 17, any relief available is subject
to the conditions and limitations established by the
We agree with these rulings.
Warsaw System, regardless of the particular cause of
action which forms the basis on which a plaintiff could
seek
Notably, the domicile of the carrier is only one of the
places where the complaint is allowed to be filed relief . . .
under Article 28(1). By specifying the three other
places, to wit, the principal place of business of the
carrier, its place of business where the contract was The private respondent correctly contends that the
made, and the place of destination, the article clearly allegation of willful misconduct resulting in a tort is
meant that these three other places were not insufficient to exclude the case from the
comprehended in the term "domicile." comprehension of the Warsaw Convention. The
petitioner has apparently misconstrued the import of
Article 25(l) of the Convention, which reads as follows:
D. The petitioner claims that the lower court
erred in not ruling that Art. 28(1) of the Warsaw
Convention does not apply to actions based on tort. Art. 25 (1). The carrier shall not be entitled to
avail himself of the provisions of this Convention
which exclude or limit his liability. if the damage is
The petitioner alleges that the gravamen of the caused by his willful misconduct or by such default on
complaint is that private respondent acted arbitrarily his part as, in accordance with the law of the court to
and in bad faith, discriminated against the petitioner, which the case is submitted, is considered to be
and committed a willful misconduct because it equivalent to willful misconduct.
canceled his confirmed reservation and gave his
reserved seat to someone who had no better right to it.
In short. the private respondent committed a tort.

55
It is understood under this article that the court called Case" even though such a suit could be brought in the
upon to determine the applicability of the limitation absence of the Convention.
provision must first be vested with the appropriate
jurisdiction. Article 28(1) is the provision in the
Convention which defines that jurisdiction. Article 22 The proposal was incorporated in the Guatemala
23 merely fixes the monetary ceiling for the liability of Protocol amending the Warsaw Convention, which was
the carrier in cases covered by the Convention. If the adopted at Guatemala City on March 8,
carrier is indeed guilty of willful misconduct, it can
1971. 24 But it is still ineffective because it has not yet
avail itself of the limitations set forth in this article.
been ratified by the required minimum number of
But this can be done only if the action has first been
contracting parties. Pending such ratification, the
commenced properly under the rules on jurisdiction
petitioner will still have to file his complaint only in
set forth in Article 28(1).
any of the four places designated by Article 28(1) of
the Warsaw Convention.
III
The proposed amendment bolsters the ruling of this
Court that a citizen does not necessarily have the right
THE ISSUE OF PROTECTION TO MINORS
to sue in his own courts simply because the defendant
airline has a place of business in his country.
The petitioner calls our attention to Article 24 of the
Civil Code, which states:
The Court can only sympathize with the petitioner,
who must prosecute his claims in the United States
rather than in his own country at least inconvenience.
Art. 24. In all contractual property or other relations,
But we are unable to grant him the relief he seeks
when one of the parties is at a disadvantage on account
because we are limited by the provisions of the
of his moral dependence, ignorance, indigence, mental
Warsaw Convention which continues to bind us. It may
weakness, tender age or other handicap, the courts
not be amiss to observe at this point that the mere fact
must be vigilant for his protection.
that he will have to litigate in the American courts
does not necessarily mean he will litigate in vain. The
judicial system of that country in known for its sense
Application of this article to the present case is
of fairness and, generally, its strict adherence to the
misplaced. The above provision assumes that the court
rule of law.
is vested with jurisdiction to rule in favor of the
disadvantaged minor, As already explained, such WHEREFORE, the petition is DENIED, with costs
jurisdiction is absent in the case at bar. against the petitioner. It is so ordered.
Narvasa, C.J., Gutierrez, Jr., Paras, Feliciano, Padilla,
Bidin, Griño-Aquino, Medialdea, Regalado, Davide, Jr.,
CONCLUSION
Romero, Nocon and Bellosillo, JJ., concur.

A number of countries have signified their concern

over the problem of citizens being denied access to
their own courts because of the restrictive provision of
Article 28(1) of the Warsaw Convention. Among these
is the United States, which has proposed an
amendment that would enable the passenger to sue in
his own domicile if the carrier does business in that
jurisdiction. The reason for this proposal is explained
thus:

In the event a US citizen temporarily residing abroad

purchases a Rome to New York to Rome ticket on a
foreign air carrier which is generally subject to the
jurisdiction of the US, Article 28 would prevent that
person from suing the carrier in the US in a "Warsaw

56
G.R. No. 76714 June 2, 1994 On January 9, 1982, Dr. Cunanan and his entire family
perished when they were trapped by fire that gutted their
SALUD TEODORO VDA. DE PEREZ, petitioner,
home. Thereafter, Dr. Rafael G. Cunanan, Jr. as trustee and
vs.
substitute executor of the two wills, filed separate
HON. ZOTICO A. TOLETE in his capacity as Presiding
proceedings for the probate thereof with the Surrogate
Judge, Branch 18, RTC, Bulacan, respondent.
Court of the County of Onondaga, New York. On April 7,
Natividad T. Perez for petitioner. these two wills were admitted to probate and letters
testamentary were issued in his favor.
Benedicto T. Librojo for private respondents.
On February 21, 1983, Salud Teodoro Perez, the mother of
Dr. Evelyn P. Cunanan, and petitioner herein, filed with the
QUIASON, J.: Regional P. Cunanan, and petitioner herein, filed with the
Regional Trial Court, Malolos, Bulacan a petition for the
This is a petition for certiorari under Rule 65 of the
reprobate of the two bills ancillary to the probate
Revised Rules of Court to set aside the Order dated
proceedings in New York. She also asked that she be
November 19, 1986 of the Regional Trial Court, Branch 18,
appointed the special administratrix of the estate of the
Bulacan presided by respondent Judge Zotico A. Tolete, in
deceased couple consisting primarily of a farm land in San
Special Proceedings No. 1793-M.
Miguel, Bulacan.
We grant the petition.
On March 9, the Regional Trial Court, Branch 16, Malolos,
II Bulacan, presided by Judge Gualberto J. de la Llana, issued
an order, directing the issuance of letters of special
Dr. Jose F. Cunanan and his wife, Dr. Evelyn Perez- administration in favor of petitioner upon her filing of a
Cunanan, who became American citizens, established a P10,000.00 bond. The following day, petitioner posted the
successful medical practice in New York, U.S.A. The bond and took her oath as special administration.
Cunanans lived at No. 2896 Citation Drive, Pompey,
Syracuse, New York, with their children, Jocelyn, 18; As her first act of administration, petitioner filed a motion,
Jacqueline, 16; and Josephine, 14. praying that the Philippine Life Insurance Company be
directed to deliver the proceeds in the amount of
On August 23, 1979, Dr. Cunanan executed a last will and P50,000.00 of the life insurance policy taken by Dr. Jose F.
testament, bequeathing to his wife "all the remainder" of Cunanan with Dr. Evelyn Perez-Cunanan and their
his real and personal property at the time of his death daughter Jocelyn as beneficiaries. The trial court granted
"wheresoever situated" (Rollo, p. 35). In the event he the motion.
would survive his wife, he bequeathed all his property to
his children and grandchildren with Dr. Rafael G. Cunanan, Counsel for the Philippine American Life Insurance
Jr. as trustee. He appointed his wife as executrix of his last Company then filed a manifestation, stating that said
will and testament and Dr. Rafael G. Cunanan, Jr. as company then filed a manifestation, stating that said
substitute executor. Article VIII of his will states: company had delivered to petitioner the amount of
P49,765.85, representing the proceeds of the life insurance
If my wife, EVELYN PEREZ-CUNANAN, policy of Dr. Jose F. Cunanan.
and I shall die under such circumstances
that there is not sufficient evidence to In a motion dated May 19, 1983, petitioner asked that Dr.
determine the order of our deaths, then it Rafael Cunanan, Sr. be ordered to deliver to her a
shall be presumed that I predeceased her, Philippine Trust Company passbook with P25,594.00 in
and my estate shall be administered and savings deposit, and the Family Savings Bank time deposit
distributed, in all respects, in accordance certificates in the total amount of P12,412.52.
with such presumption (Rollo, p. 41).
On May 31, Atty. Federico Alday filed a notice of
Four days later, on August 27, Dr. Evelyn P. Cunanan appearance as counsel for the heirs of Dr. Jose F. Cunanan,
executed her own last will and testament containing the namely, Dr. Rafael Cunanan, Sr., Priscilla Cunanan Bautista,
same provisions as that of the will of her husband. Article Lydia Cunanan Ignacio, Felipe F. Cunanan and Loreto
VIII of her will states: Cunanan Concepcion (Cunanan heirs). He also manifested
that before receiving petitioner's motion of May 19, 1983,
If my husband, JOSE F. CUNANAN, and I his clients were unaware of the filing of the testate estate
shall die under such circumstances that case and therefore, "in the interest of simple fair play,"
there is not sufficient evidence to they should be notified of the proceedings (Records, p.
determine the order of our deaths, then it 110). He prayed for deferment of the hearing on the
shall be presumed that he predeceased motions of May 19, 1983.
me, and my estate shall be administered
and distributed in all respects, in Petitioner then filed a counter manifestation dated June
accordance with such presumption. 13, 1983, asserting: (1) that the "Cunanan collaterals are
(Rollo, p. 31). neither heirs nor creditors of the late Dr. Jose F. Cunanan"
57
and therefore, they had "no legal or proprietary interests allowance of wills proved outside of the Philippines and
to protect" and "no right to intervene"; (2) that the wills of that nowhere in Section 2 of Rule 77 is there a mention of
Dr. Jose F. Cunanan and Dr. Evelyn Perez-Cunanan, being notice being given to the executor who, by the same
American citizens, were executed in accordance with the provision, should himself file the necessary ancillary
solemnities and formalities of New York laws, and proceedings in this country; (4) that even if the Bulacan
produced "effects in this jurisdiction in accordance with estate came from the "capital" of Dr. Jose F. Cunanan, he
Art. 16 in relation to Art. 816 of the Civil Code"; (3) that had willed all his worldly goods to his wife and nothing to
under Article VIII of the two wills, it was presumed that his brothers and sisters; and (5) that Dr. Rafael G.
the husband predeceased the wife; and (4) that "the Cunanan, Jr. had unlawfully disbursed $215,000.00 to the
Cunanan collaterals are neither distributees, legatees or Cunanan heirs, misappropriated $15,000.00 for himself
beneficiaries, much less, heirs as heirship is only by and irregularly assigned assets of the estates to his
institution" under a will or by operation of the law of New American lawyer (Records, pp. 151-160).
York (Records, pp. 112-113).
In their reply, the Cunanan heirs stressed that on
On June 23, the probate court granted petitioner's motion November 24, 1982, petitioner and the Cunanan heirs had
of May 19, 1983. However, on July 21, the Cunanan heirs entered into an agreement in the United States "to settle
filed a motion to nullify the proceedings and to set aside and divide equally the estates," and that under Section 2 of
the appointment of, or to disqualify, petitioner as special Rule 77 the "court shall fix a time and place for the hearing
administratrix of the estates of Dr. Jose F. Cunanan and Dr. and cause notice thereof to be given as in case of an
Evelyn Perez-Cunanan. The motion stated: (1) that being original will presented for allowance" (Records, pp. 184-
the "brothers and sisters and the legal and surviving heirs" 185).
of Dr. Jose F. Cunanan, they had been "deliberately
Petitioner asked that Dr. Rafael G. Cunanan, Jr. be cited for
excluded" in the petition for the probate of the separate
contempt of court for failure to comply with the Order of
wills of the Cunanan spouses thereby misleading the
June 23, 1983 and for appropriating money of the estate
Bulacan court to believe that petitioner was the sole heir of
for his own benefit. She also alleged that she had impugned
the spouses; that such "misrepresentation" deprived them
the agreement of November 24, 1982 before the Surrogate
of their right to "due process in violation of Section 4, Rule
Court of Onondaga, New York which rendered a decision
76 of the Revised Rules of Court; (2) that Dr. Rafael G.
on April 13, 1983, finding that "all assets are payable to Dr.
Cunanan, Jr., the executor of the estate of the Cunanan
Evelyn P. Cunanan’s executor to be then distributed
spouses, was likewise not notified of the hearings in the
pursuant to EPTL4-1.1 subd [a] par [4]" (Rollo, p. 52).
Bulacan court; (3) that the "misrepresentation and
concealment committed by" petitioner rendered her unfit On their part, the Cunanan heirs replied that petitioner
to be a special administratrix; (4) that Dr. Rafael G. was estopped from claiming that they were heirs by the
Cunanan, Jr. had, by virtue of a verified power of attorney, agreement to divide equally the estates. They asserted that
authorized his father, by virtue of Section 2 of Rule 77 of the Rules of Court, the
Dr. Rafael Cunanan, Sr., to be his attorney-in-fact; and (5) provisions of Sections 3, 4 and 5 of Rule 76 on the
that Dr. Rafael Cunanan, Sr. is qualified to be a regular requirement of notice to all heirs, executors, devisees and
administrator "as practically all of the subject estate in the legatees must be complied with. They reiterated their
Philippines belongs to their brother, Dr. Jose F. Cunanan" prayer: (1) that the proceedings in the case be nullified;
(Records, pp. 118-122). Hence, they prayed: (1) that the (2) that petitioner be disqualified as special
proceedings in the case be declared null and void; (2) that administratrix; (3) that she be ordered to submit an
the appointment of petitioner as special administratrix be inventory of all goods, chattels and monies which she had
set aside; and (3) that Dr. Rafael Cunanan, Sr. be appointed received and to surrender the same to the court; and (4)
the regular administrator of the estate of the deceased that Dr. Rafael Cunanan, Sr. be appointed the regular
spouses. administrator.
Thereafter, the Cunanan heirs filed a motion requiring Petitioner filed a rejoinder, stating that in violation of the
petitioner to submit an inventory or accounting of all April 13, 1983 decision of the American court Dr. Rafael G.
monies received by her in trust for the estate. Cunanan, Jr. made "unauthorized disbursements from the
estates as early as July 7, 1982" (Records, p. 231).
In her opposition, petitioner asserted: (1) that she was the
Thereafter, petitioner moved for the suspension of the
"sole and only heir" of her daughter, Dr. Evelyn Perez-
proceedings as she had "to attend to the settlement
Cunanan to the exclusion of the "Cunanan collaterals";
proceedings" of the estate of the Cunanan spouses in New
hence they were complete strangers to the proceedings
York (Records, p. 242). The Cunanans heirs opposed this
and were not entitled to notice; (2) that she could not have
motion and filed a manifestation, stating that petitioner
"concealed" the name and address of Dr. Rafael G.
had received $215,000.00 "from the Surrogate’s Court as
Cunanan, Jr. because his name was prominently mentioned
part of legacy" based on the aforesaid agreement of
not only in the two wills but also in the decrees of the
November 24, 1982 (Records, p. 248).
American surrogate court; (3) that the rule applicable to
the case is Rule 77, not Rule 76, because it involved the
58
On February 21, 1984, Judge de la Llana issued an order, petitioner was ailing in Fort Lee, New Jersey, U.S.A. and
disallowing the reprobate of the two wills, recalling the therefore incapacitated to act as special administratrix, she
appointment of petitioner as special administratrix, (the counsel) should be named substitute special
requiring the submission of petitioner of an inventory of administratrix. She also filed a motion for the
the property received by her as special administratrix and reconsideration of the Order of February 21, 1984,
declaring all pending incidents moot and academic. Judge denying probate to the wills of the Cunanan spouses,
de la Llana reasoned out that petitioner failed to prove the alleging that respondent Judge "failed to appreciate the
law of New York on procedure and allowance of wills and significant probative value of the exhibits . . . which all
the court had no way of telling whether the wills were refer to the offer and admission to probate of the last wills
executed in accordance with the law of New York. In the of the Cunanan spouses including all procedures
absence of such evidence, the presumption is that the law undertaken and decrees issued in connection with the said
of succession of the foreign country is the same as the law probate" (Records, pp. 313-323).
of the Philippines. However, he noted, that there were only
Thereafter, the Cunanans heirs filed a motion for
two witnesses to the wills of the Cunanan spouses and the
reconsideration of the Order of August 19, 1985, alleging
Philippine law requires three witnesses and that the wills
lack of notice to their counsel.
were not signed on each and every page, a requirement of
the Philippine law. On March 31, 1986, respondent Judge to which the case
was reassigned denied the motion for reconsideration
On August 27, 1985, petitioner filed a motion for
holding that the documents submitted by petitioner
reconsideration of the Order dated February 21, 1984,
proved "that the wills of the testator domiciled abroad
where she had sufficiently proven the applicable laws of
were properly executed, genuine and sufficient to possess
New York governing the execution of last wills and
real and personal property; that letters testamentary were
testaments.
issued; and that proceedings were held on a foreign
On the same day, Judge de la Llana issued another order, tribunal and proofs taken by a competent judge who
denying the motion of petitioner for the suspension of the inquired into all the facts and circumstances and being
proceedings but gave her 15 days upon arrival in the satisfied with his findings issued a decree admitting to
country within which to act on the other order issued that probate the wills in question." However, respondent Judge
same day. Contending that the second portion of the said that the documents did not establish the law of New
second order left its finality to the discretion of counsel for York on the procedure and allowance of wills (Records, p.
petitioner, the Cunanans filed a motion for the 381).
reconsideration of the objectionable portion of the said
On April 9, 1986, petitioner filed a motion to allow her to
order so that it would conform with the pertinent
present further evidence on the foreign law. After the
provisions of the Judiciary Reorganization Act of 1980 and
hearing of the motion on April 25, 1986, respondent Judge
the Interim Rules of Court.
issued an order wherein he conceded that insufficiency of
On April 30, 1985, the respondent Judge of Branch 18 of evidence to prove the foreign law was not a fatal defect
the Regional Trial Court, Malolos, to which the reprobate and was curable by adducing additional evidence. He
case was reassigned, issued an order stating that "(W)hen granted petitioner 45 days to submit the evidence to that
the last will and testament . . . was denied probate," the effect.
case was terminated and therefore all orders theretofore
However, without waiting for petitioner to adduce the
issued should be given finality. The same Order amended
additional evidence, respondent Judge ruled in his order
the February 21, 1984 Order by requiring petitioner to
dated June 20, 1986 that he found "no compelling reason
turn over to the estate the inventoried property. It
to disturb its ruling of March 31, 1986" but allowed
considered the proceedings for all intents and purposes,
petitioner to "file anew the appropriate probate
closed (Records,
proceedings for each of the testator" (Records, p. 391).
p. 302).
The Order dated June 20, 1986 prompted petitioner to file
On August 12, petitioner filed a motion to resume
a second motion for reconsideration stating that she was
proceedings on account of the final settlement and
"ready to submit further evidence on the law obtaining in
termination of the probate cases in New York. Three days
the State of New York" and praying that she be granted
later, petitioner filed a motion praying for the
"the opportunity to present evidence on what the law of
reconsideration of the Order of April 30, 1985 on the
the State of New York has on the probate and allowance of
strength of the February 21, 1984 Order granting her a
wills" (Records, p. 393).
period of 15 days upon arrival in the country within which
to act on the denial of probate of the wills of the Cunanan On July 18, respondent Judge denied the motion holding
spouses. On August 19, respondent Judge granted the that to allow the probate of two wills in a single
motion and reconsidered the Order of April 30, 1985. proceeding "would be a departure from the typical and
established mode of probate where one petition takes care
On August 29, counsel for petitioner, who happens to be
of one will." He pointed out that even in New York "where
her daughter, Natividad, filed a motion praying that since
the wills in question were first submitted for probate, they
59
were dealt with in separate proceedings" (Records, p. (d) the respective wills of Evelyn and Jose (Exhs. "F-3", "F-
395). 6" and Exh. "G-3" — "G-6");
On August 13, 1986, petitioner filed a motion for the (e) certificates of Judge Reagan and the Chief Clerk
reconsideration of the Order of July 18, 1986, citing certifying to the genuineness and authenticity of the
Section 3, Rule 2 of the Rules of Court, which provides that exemplified copies of the two wills (Exhs. "F-7" and "F-7");
no party may institute more than one suit for a single
(f) two certificates of authentication from the Consulate
cause of action. She pointed out that separate proceedings
General of the Philippines in New York (Exh. "H" and "F").
for the wills of the spouses which contain basically the
same provisions as they even named each other as a (g) certifications from the Secretary of State that Judge
beneficiary in their respective wills, would go against "the Reagan is duly authorized to grant exemplified copies of
grain of inexpensive, just and speedy determination of the the decree of probate, letters testamentary and all
proceedings" (Records, pp. 405-407). proceedings had and proofs duly taken
(Exhs. "H-1" and "I-1");
On September 11, 1986, petitioner filed a supplement to
the motion for reconsideration, citing Benigno v. De La (h) certificates of Judge Reagan and the Chief Clerk that
Peña, 57 Phil. 305 (1932) (Records, letters testamentary were issued to Rafael G. Cunanan
p. 411), but respondent Judge found that this pleading had (Exhs. "H-2" and "I-2");
been filed out of time and that the adverse party had not
(i) certification to the effect that it was during the term of
been furnished with a copy thereof. In her compliance,
Judge Reagan that a decree admitting the wills to probate
petitioner stated that she had furnished a copy of the
had been issued and appointing Rafael G. Cunanan as
motion to the counsel of the Cunanan heirs and reiterated
alternate executor (Exhs. "H-3" and
her motion for a "final ruling on her supplemental motion"
"I-10");
(Records, p. 421).
(j) the decrees on probate of the two wills specifying that
On November 19, respondent Judge issued an order,
proceedings were held and proofs duly taken (Exhs. "H-4"
denying the motion for reconsideration filed by petitioner
and "I-5");
on the grounds that "the probate of separate wills of two
or more different persons even if they are husband and (k) decrees on probate of the two wills stating that they
wife cannot be undertaken in a single petition" (Records, were properly executed, genuine and valid and that the
pp. 376-378). said instruments were admitted to probate and
established as wills valid to pass real and personal
Hence, petitioner instituted the instant petition, arguing
property (Exhs. "H-5" and "I-5"); and
that the evidence offered at the hearing of April 11, 1983
sufficiently proved the laws of the State of New York on the (l) certificates of Judge Reagan and the Chief Clerk on the
allowance of wills, and that the separate wills of the genuineness and authenticity of each other’s signatures in
Cunanan spouses need not be probated in separate the exemplified copies of the decrees of probate, letters
proceedings. testamentary and proceedings held in their court (Exhs.
"H-6" and "I-6") (Rollo, pp. 13-16).
II
Petitioner adds that the wills had been admitted to probate
Petitioner contends that the following pieces of evidence
in the Surrogate Court’s Decision of April 13, 1983 and that
she had submitted before respondent Judge are sufficient
the proceedings were terminated on November 29, 1984.
to warrant the allowance of the wills:
The respective wills of the Cunanan spouses, who were
(a) two certificates of authentication of the respective wills
American citizens, will only be effective in this country
of Evelyn and Jose by the Consulate General of the
upon compliance with the following provision of the Civil
Philippines (Exhs. "F" and "G");
Code of the Philippines:
(b) two certifications from the Secretary of State of New
Art. 816. The will of an alien who is
York and Custodian of the Great Seal on the facts that
abroad produces effect in the Philippines
Judge Bernard L. Reagan is the Surrogate of the Country of
if made with the formalities prescribed by
Onondaga which is a court of record, that his signature and
the law of the place in which he resides,
seal of office are genuine, and that the Surrogate is duly
or according to the formalities observed
authorized to grant copy of the respective wills of Evelyn
in his country, or in conformity with those
and Jose
which this Code prescribes.
(Exhs. "F-1" and "G-1");
Thus, proof that both wills conform with the formalities
(c) two certificates of Judge Reagan and Chief Clerk Donald
prescribed by New York laws or by Philippine laws is
E. Moore stating that they have in their records and files
imperative.
the said wills which were recorded on April 7, 1982 (Exhs.
"F-2" and "G-2"); The evidence necessary for the reprobate or allowance of
wills which have been probated outside of the Philippines
60
are as follows: (1) the due execution of the will in Dr. Evelyn Perez Cunanan and because she does not
accordance with the foreign laws; (2) the testator has his consider herself an heir of Dr. Jose F. Cunanan, she
domicile in the foreign country and not in the Philippines; noticeably failed to notify his heirs of the filing of the
(3) the will has been admitted to probate in such country; proceedings. Thus, even in the instant petition, she only
(4) the fact that the foreign tribunal is a probate court, and impleaded respondent Judge, forgetting that a judge whose
(5) the laws of a foreign country on procedure and order is being assailed is merely a nominal or formal party
allowance of wills (III Moran Commentaries on the Rules (Calderon v. Solicitor General, 215 SCRA 876 [1992]).
of Court, 1970 ed., pp. 419-429; Suntay v. Suntay, 95 Phil.
The rule that the court having jurisdiction over the
500 [1954]; Fluemer v. Hix, 54 Phil. 610 [1930]). Except
reprobate of a will shall "cause notice thereof to be given
for the first and last requirements, the petitioner
as in case of an original will presented for allowance"
submitted all the needed evidence.
(Revised Rules of Court, Rule 27, Section 2) means that
The necessity of presenting evidence on the foreign laws with regard to notices, the will probated abroad should be
upon which the probate in the foreign country is based is treated as if it were an "original will" or a will that is
impelled by the fact that our courts cannot take judicial presented for probate for the first time. Accordingly,
notice of them (Philippine Commercial and Industrial Bank compliance with Sections 3 and 4 of Rule 76, which require
v. Escolin, 56 SCRA 266 [1974]). publication and notice by mail or personally to the "known
heirs, legatees, and devisees of the testator resident in the
Petitioner must have perceived this omission as in fact she
Philippines" and to the executor, if he is not the petitioner,
moved for more time to submit the pertinent procedural
are required.
and substantive New York laws but which request
respondent Judge just glossed over. While the probate of a The brothers and sisters of Dr. Jose F. Cunanan, contrary to
will is a special proceeding wherein courts should relax the petitioner's claim, are entitled to notices of the time and
rules on evidence, the goal is to receive the best evidence place for proving the wills. Under Section 4 of Rule 76 of
of which the matter is susceptible before a purported will the Revised Rules of Court, the "court shall also cause
is probated or denied probate (Vda. de Ramos v. Court of copies of the notice of the time and place fixed for proving
Appeals, 81 SCRA 393 [1978]). the will to be addressed to the designated or other known
heirs, legatees, and devisees of the testator, . . . "
There is merit in petitioner’s insistence that the separate
wills of the Cunanan spouses should be probated jointly. WHEREFORE, the questioned Order is SET ASIDE.
Respondent Judge’s view that the Rules on allowance of Respondent Judge shall allow petitioner reasonable time
wills is couched in singular terms and therefore should be within which to submit evidence needed for the joint
interpreted to mean that there should be separate probate probate of the wills of the Cunanan spouses and see to it
proceedings for the wills of the Cunanan spouses is too that the brothers and sisters of Dr. Jose F. Cunanan are
literal and simplistic an approach. Such view overlooks the given all notices and copies of all pleadings pertinent to the
provisions of Section 2, Rule 1 of the Revised Rules of probate proceedings.
Court, which advise that the rules shall be "liberally
SO ORDERED.
construed in order to promote their object and to assist
the parties in obtaining just, speedy, and inexpensive
determination of every action and proceeding."
A literal application of the Rules should be avoided if they
would only result in the delay in the administration of
justice (Acain v. Intermediate Appellate Court, 155 SCRA
100 [1987]; Roberts v. Leonidas, 129 SCRA 33 [1984]).
What the law expressly prohibits is the making of joint
wills either for the testator’s reciprocal benefit or for the
benefit of a third person (Civil Code of the Philippines,
Article 818). In the case at bench, the Cunanan spouses
executed separate wills. Since the two wills contain
essentially the same provisions and pertain to property
which in all probability are conjugal in nature, practical
considerations dictate their joint probate. As this Court has
held a number of times, it will always strive to settle the
entire controversy in a single proceeding leaving no root
or branch to bear the seeds of future litigation (Motoomull
v. Dela Paz, 187 SCRA 743 [1990]).
This petition cannot be completely resolved without
touching on a very glaring fact — petitioner has always
considered herself the sole heir of
61
62
G.R. No. L-22595 November 1, 1927 court in not having deferred the approval of the scheme of
partition until the receipt of certain testimony requested
Testate Estate of Joseph G. Brimo, JUAN MICIANO,
regarding the Turkish laws on the matter.
administrator, petitioner-appellee,
vs. The refusal to give the oppositor another opportunity to
ANDRE BRIMO, opponent-appellant. prove such laws does not constitute an error. It is
discretionary with the trial court, and, taking into
Ross, Lawrence and Selph for appellant.
consideration that the oppositor was granted ample
Camus and Delgado for appellee.
opportunity to introduce competent evidence, we find no
abuse of discretion on the part of the court in this
particular. There is, therefore, no evidence in the record
that the national law of the testator Joseph G. Brimo was
ROMUALDEZ, J.:
violated in the testamentary dispositions in question
The partition of the estate left by the deceased Joseph G. which, not being contrary to our laws in force, must be
Brimo is in question in this case. complied with and executed. lawphil.net
The judicial administrator of this estate filed a scheme of Therefore, the approval of the scheme of partition in this
partition. Andre Brimo, one of the brothers of the respect was not erroneous.
deceased, opposed it. The court, however, approved it.
In regard to the first assignment of error which deals with
The errors which the oppositor-appellant assigns are: the exclusion of the herein appellant as a legatee, inasmuch
as he is one of the persons designated as such in will, it
(1) The approval of said scheme of partition; (2) denial of
must be taken into consideration that such exclusion is
his participation in the inheritance; (3) the denial of the
based on the last part of the second clause of the will,
motion for reconsideration of the order approving the
which says:
partition; (4) the approval of the purchase made by the
Pietro Lana of the deceased's business and the deed of Second. I like desire to state that although by law, I
transfer of said business; and (5) the declaration that the am a Turkish citizen, this citizenship having been
Turkish laws are impertinent to this cause, and the failure conferred upon me by conquest and not by free
not to postpone the approval of the scheme of partition choice, nor by nationality and, on the other hand,
and the delivery of the deceased's business to Pietro Lanza having resided for a considerable length of time in
until the receipt of the depositions requested in reference the Philippine Islands where I succeeded in
to the Turkish laws. acquiring all of the property that I now possess, it
is my wish that the distribution of my property
The appellant's opposition is based on the fact that the
and everything in connection with this, my will, be
partition in question puts into effect the provisions of
made and disposed of in accordance with the laws
Joseph G. Brimo's will which are not in accordance with
in force in the Philippine islands, requesting all of
the laws of his Turkish nationality, for which reason they
my relatives to respect this wish, otherwise, I
are void as being in violation or article 10 of the Civil Code
annul and cancel beforehand whatever disposition
which, among other things, provides the following:
found in this will favorable to the person or
Nevertheless, legal and testamentary successions, persons who fail to comply with this request.
in respect to the order of succession as well as to
The institution of legatees in this will is conditional, and
the amount of the successional rights and the
the condition is that the instituted legatees must respect
intrinsic validity of their provisions, shall be
the testator's will to distribute his property, not in
regulated by the national law of the person whose
accordance with the laws of his nationality, but in
succession is in question, whatever may be the
accordance with the laws of the Philippines.
nature of the property or the country in which it
may be situated. If this condition as it is expressed were legal and valid, any
legatee who fails to comply with it, as the herein oppositor
But the fact is that the oppositor did not prove that said
who, by his attitude in these proceedings has not respected
testimentary dispositions are not in accordance with the
the will of the testator, as expressed, is prevented from
Turkish laws, inasmuch as he did not present any evidence
receiving his legacy.
showing what the Turkish laws are on the matter, and in
the absence of evidence on such laws, they are presumed The fact is, however, that the said condition is void, being
to be the same as those of the Philippines. (Lim and Lim vs. contrary to law, for article 792 of the civil Code provides
Collector of Customs, 36 Phil., 472.) the following:
It has not been proved in these proceedings what the Impossible conditions and those contrary to law
Turkish laws are. He, himself, acknowledges it when he or good morals shall be considered as not imposed
desires to be given an opportunity to present evidence on and shall not prejudice the heir or legatee in any
this point; so much so that he assigns as an error of the manner whatsoever, even should the testator
otherwise provide.
63
And said condition is contrary to law because it expressly
ignores the testator's national law when, according to
article 10 of the civil Code above quoted, such national law
of the testator is the one to govern his testamentary
dispositions.
Said condition then, in the light of the legal provisions
above cited, is considered unwritten, and the institution of
legatees in said will is unconditional and consequently
valid and effective even as to the herein oppositor.
It results from all this that the second clause of the will
regarding the law which shall govern it, and to the
condition imposed upon the legatees, is null and void,
being contrary to law.
All of the remaining clauses of said will with all their
dispositions and requests are perfectly valid and effective
it not appearing that said clauses are contrary to the
testator's national law.
Therefore, the orders appealed from are modified and it is
directed that the distribution of this estate be made in such
a manner as to include the herein appellant Andre Brimo
as one of the legatees, and the scheme of partition
submitted by the judicial administrator is approved in all
other respects, without any pronouncement as to costs.
So ordered.

64
G.R. No. 92013 July 25, 1990 I
SALVADOR H. LAUREL, petitioner, The subject property in this case is one of the four (4)
vs. properties in Japan acquired by the Philippine government
RAMON GARCIA, as head of the Asset Privatization under the Reparations Agreement entered into with Japan
Trust, RAUL MANGLAPUS, as Secretary of Foreign on May 9, 1956, the other lots being:
Affairs, and CATALINO MACARAIG, as Executive
(1) The Nampeidai Property at 11-24 Nampeidai-machi,
Secretary, respondents.
Shibuya-ku, Tokyo which has an area of approximately
G.R. No. 92047 July 25, 1990 2,489.96 square meters, and is at present the site of the
Philippine Embassy Chancery;
DIONISIO S. OJEDA, petitioner,
vs. (2) The Kobe Commercial Property at 63 Naniwa-cho,
EXECUTIVE SECRETARY MACARAIG, JR., ASSETS Kobe, with an area of around 764.72 square meters and
PRIVATIZATION TRUST CHAIRMAN RAMON T. GARCIA, categorized as a commercial lot now being used as a
AMBASSADOR RAMON DEL ROSARIO, et al., as warehouse and parking lot for the consulate staff; and
members of the PRINCIPAL AND BIDDING
(3) The Kobe Residential Property at 1-980-2 Obanoyama-
COMMITTEES ON THE UTILIZATION/DISPOSITION
cho, Shinohara, Nada-ku, Kobe, a residential lot which is
PETITION OF PHILIPPINE GOVERNMENT PROPERTIES
now vacant.
IN JAPAN, respondents.
The properties and the capital goods and services
Arturo M. Tolentino for petitioner in 92013.
procured from the Japanese government for national
development projects are part of the indemnification to
the Filipino people for their losses in life and property and
GUTIERREZ, JR., J.:
their suffering during World War II.
These are two petitions for prohibition seeking to enjoin
The Reparations Agreement provides that reparations
respondents, their representatives and agents from
valued at $550 million would be payable in twenty (20)
proceeding with the bidding for the sale of the 3,179
years in accordance with annual schedules of
square meters of land at 306 Roppongi, 5-Chome Minato-
procurements to be fixed by the Philippine and Japanese
ku Tokyo, Japan scheduled on February 21, 1990. We
governments (Article 2, Reparations Agreement). Rep. Act
granted the prayer for a temporary restraining order
No. 1789, the Reparations Law, prescribes the national
effective February 20, 1990. One of the petitioners (in G.R.
policy on procurement and utilization of reparations and
No. 92047) likewise prayes for a writ of mandamus to
development loans. The procurements are divided into
compel the respondents to fully disclose to the public the
those for use by the government sector and those
basis of their decision to push through with the sale of the
for private parties in projects as the then National
Roppongi property inspire of strong public opposition and
Economic Council shall determine. Those intended for the
to explain the proceedings which effectively prevent the
private sector shall be made available by sale to Filipino
participation of Filipino citizens and entities in the bidding
citizens or to one hundred (100%) percent Filipino-owned
process.
entities in national development projects.
The oral arguments in G.R. No. 92013, Laurel v. Garcia, et
The Roppongi property was acquired from the Japanese
al. were heard by the Court on March 13, 1990. After G.R.
government under the Second Year Schedule and listed
No. 92047, Ojeda v. Secretary Macaraig, et al. was filed, the
under the heading "Government Sector", through
respondents were required to file a comment by the
Reparations Contract No. 300 dated June 27, 1958. The
Court's resolution dated February 22, 1990. The two
Roppongi property consists of the land and building "for
petitions were consolidated on March 27, 1990 when the
the Chancery of the Philippine Embassy" (Annex M-D to
memoranda of the parties in the Laurel case were
Memorandum for Petitioner, p. 503). As intended, it
deliberated upon.
became the site of the Philippine Embassy until the latter
The Court could not act on these cases immediately was transferred to Nampeidai on July 22, 1976 when the
because the respondents filed a motion for an extension of Roppongi building needed major repairs. Due to the failure
thirty (30) days to file comment in G.R. No. 92047, of our government to provide necessary funds, the
followed by a second motion for an extension of another Roppongi property has remained undeveloped since that
thirty (30) days which we granted on May 8, 1990, a third time.
motion for extension of time granted on May 24, 1990 and
A proposal was presented to President Corazon C. Aquino
a fourth motion for extension of time which we granted on
by former Philippine Ambassador to Japan, Carlos J.
June 5, 1990 but calling the attention of the respondents to
Valdez, to make the property the subject of a lease
the length of time the petitions have been pending. After
agreement with a Japanese firm - Kajima Corporation —
the comment was filed, the petitioner in G.R. No. 92047
which shall construct two (2) buildings in Roppongi and
asked for thirty (30) days to file a reply. We noted his
one (1) building in Nampeidai and renovate the present
motion and resolved to decide the two (2) cases.
Philippine Chancery in Nampeidai. The consideration of
65
the construction would be the lease to the foreign for sale to non-Filipino citizens and entities. He also
corporation of one (1) of the buildings to be constructed in questions the bidding procedures of the Committee on the
Roppongi and the two (2) buildings in Nampeidai. The Utilization or Disposition of Philippine Government
other building in Roppongi shall then be used as the Properties in Japan for being discriminatory against
Philippine Embassy Chancery. At the end of the lease Filipino citizens and Filipino-owned entities by denying
period, all the three leased buildings shall be occupied and them the right to be informed about the bidding
used by the Philippine government. No change of requirements.
ownership or title shall occur. (See Annex "B" to Reply to
II
Comment) The Philippine government retains the title all
throughout the lease period and thereafter. However, the In G.R. No. 92013, petitioner Laurel asserts that the
government has not acted favorably on this proposal Roppongi property and the related lots were acquired as
which is pending approval and ratification between the part of the reparations from the Japanese government for
parties. Instead, on August 11, 1986, President Aquino diplomatic and consular use by the Philippine government.
created a committee to study the disposition/utilization of Vice-President Laurel states that the Roppongi property is
Philippine government properties in Tokyo and Kobe, classified as one of public dominion, and not of private
Japan through Administrative Order No. 3, followed by ownership under Article 420 of the Civil Code (See infra).
Administrative Orders Numbered 3-A, B, C and D.
The petitioner submits that the Roppongi property comes
On July 25, 1987, the President issued Executive Order No. under "property intended for public service" in paragraph
296 entitling non-Filipino citizens or entities to avail of 2 of the above provision. He states that being one of public
separations' capital goods and services in the event of sale, dominion, no ownership by any one can attach to it, not
lease or disposition. The four properties in Japan including even by the State. The Roppongi and related properties
the Roppongi were specifically mentioned in the first were acquired for "sites for chancery, diplomatic, and
"Whereas" clause. consular quarters, buildings and other improvements"
(Second Year Reparations Schedule). The petitioner states
Amidst opposition by various sectors, the Executive
that they continue to be intended for a necessary service.
branch of the government has been pushing, with great
They are held by the State in anticipation of an opportune
vigor, its decision to sell the reparations properties
use. (Citing 3 Manresa 65-66). Hence, it cannot be
starting with the Roppongi lot. The property has twice
appropriated, is outside the commerce of man, or to put it
been set for bidding at a minimum floor price of $225
in more simple terms, it cannot be alienated nor be the
million. The first bidding was a failure since only one
subject matter of contracts (Citing Municipality of Cavite v.
bidder qualified. The second one, after postponements, has
Rojas, 30 Phil. 20 [1915]). Noting the non-use of the
not yet materialized. The last scheduled bidding on
Roppongi property at the moment, the petitioner avers
February 21, 1990 was restrained by his Court. Later, the
that the same remains property of public dominion so long
rules on bidding were changed such that the $225 million
as the government has not used it for other purposes nor
floor price became merely a suggested floor price.
adopted any measure constituting a removal of its original
The Court finds that each of the herein petitions raises purpose or use.
distinct issues. The petitioner in G.R. No. 92013 objects to
The respondents, for their part, refute the petitioner's
the alienation of the Roppongi property to anyone while
contention by saying that the subject property is not
the petitioner in G.R. No. 92047 adds as a principal
governed by our Civil Code but by the laws of Japan where
objection the alleged unjustified bias of the Philippine
the property is located. They rely upon the rule of lex
government in favor of selling the property to non-Filipino
situs which is used in determining the applicable law
citizens and entities. These petitions have been
regarding the acquisition, transfer and devolution of the
consolidated and are resolved at the same time for the
title to a property. They also invoke Opinion No. 21, Series
objective is the same - to stop the sale of the Roppongi
of 1988, dated January 27, 1988 of the Secretary of Justice
property.
which used the lex situs in explaining the inapplicability of
The petitioner in G.R. No. 92013 raises the following Philippine law regarding a property situated in Japan.
issues:
The respondents add that even assuming for the sake of
(1) Can the Roppongi property and others of its kind be argument that the Civil Code is applicable, the Roppongi
alienated by the Philippine Government?; and property has ceased to become property of public
dominion. It has become patrimonial property because it
(2) Does the Chief Executive, her officers and agents, have
has not been used for public service or for diplomatic
the authority and jurisdiction, to sell the Roppongi
purposes for over thirteen (13) years now (Citing Article
property?
422, Civil Code) and because the intention by the Executive
Petitioner Dionisio Ojeda in G.R. No. 92047, apart from Department and the Congress to convert it to private
questioning the authority of the government to alienate use has been manifested by overt acts, such as, among
the Roppongi property assails the constitutionality of others: (1) the transfer of the Philippine Embassy to
Executive Order No. 296 in making the property available Nampeidai (2) the issuance of administrative orders for
66
the possibility of alienating the four government Filipino citizens or entities owned by them did not have
properties in Japan; (3) the issuance of Executive Order the chance to comply with Purchase Offer Requirements
No. 296; (4) the enactment by the Congress of Rep. Act No. on the Roppongi. Worse, the Roppongi shall be sold for a
6657 [the Comprehensive Agrarian Reform Law] on June minimum price of $225 million from which price capital
10, 1988 which contains a provision stating that funds may gains tax under Japanese law of about 50 to 70% of the
be taken from the sale of Philippine properties in foreign floor price would still be deducted.
countries; (5) the holding of the public bidding of the
IV
Roppongi property but which failed; (6) the deferment by
the Senate in Resolution No. 55 of the bidding to a future The petitioners and respondents in both cases do not
date; thus an acknowledgment by the Senate of the dispute the fact that the Roppongi site and the three
government's intention to remove the Roppongi property related properties were through reparations agreements,
from the public service purpose; and (7) the resolution of that these were assigned to the government sector and
this Court dismissing the petition in Ojeda v. Bidding that the Roppongi property itself was specifically
Committee, et al., G.R. No. 87478 which sought to enjoin the designated under the Reparations Agreement to house the
second bidding of the Roppongi property scheduled on Philippine Embassy.
March 30, 1989.
The nature of the Roppongi lot as property for public
III service is expressly spelled out. It is dictated by the terms
of the Reparations Agreement and the corresponding
In G.R. No. 94047, petitioner Ojeda once more asks this
contract of procurement which bind both the Philippine
Court to rule on the constitutionality of Executive Order
government and the Japanese government.
No. 296. He had earlier filed a petition in G.R. No. 87478
which the Court dismissed on August 1, 1989. He now There can be no doubt that it is of public dominion unless
avers that the executive order contravenes the it is convincingly shown that the property has become
constitutional mandate to conserve and develop the patrimonial. This, the respondents have failed to do.
national patrimony stated in the Preamble of the 1987
As property of public dominion, the Roppongi lot is outside
Constitution. It also allegedly violates:
the commerce of man. It cannot be alienated. Its ownership
(1) The reservation of the ownership and acquisition of is a special collective ownership for general use and
alienable lands of the public domain to Filipino citizens. enjoyment, an application to the satisfaction of collective
(Sections 2 and 3, Article XII, Constitution; Sections 22 and needs, and resides in the social group. The purpose is not
23 of Commonwealth Act 141).i•t•c-aüsl to serve the State as a juridical person, but the citizens; it is
intended for the common and public welfare and cannot be
(2) The preference for Filipino citizens in the grant of
the object of appropration. (Taken from 3 Manresa, 66-69;
rights, privileges and concessions covering the national
cited in Tolentino, Commentaries on the Civil Code of the
economy and patrimony (Section 10, Article VI,
Philippines, 1963 Edition, Vol. II, p. 26).
Constitution);
The applicable provisions of the Civil Code are:
(3) The protection given to Filipino enterprises against
unfair competition and trade practices; ART. 419. Property is either of public
dominion or of private ownership.
(4) The guarantee of the right of the people to information
on all matters of public concern (Section 7, Article III, ART. 420. The following things are
Constitution); property of public dominion
(5) The prohibition against the sale to non-Filipino citizens (1) Those intended for public use, such as
or entities not wholly owned by Filipino citizens of capital roads, canals, rivers, torrents, ports and
goods received by the Philippines under the Reparations bridges constructed by the State, banks
Act (Sections 2 and 12 of Rep. Act No. 1789); and shores roadsteads, and others of similar
character;
(6) The declaration of the state policy of full public
disclosure of all transactions involving public interest (2) Those which belong to the State,
(Section 28, Article III, Constitution). without being for public use, and are
intended for some public service or for
Petitioner Ojeda warns that the use of public funds in the
the development of the national wealth.
execution of an unconstitutional executive order is a
misapplication of public funds He states that since the ART. 421. All other property of the State,
details of the bidding for the Roppongi property which is not of the character stated in the
were never publicly disclosed until February 15, 1990 (or a preceding article, is patrimonial property.
few days before the scheduled bidding), the bidding
The Roppongi property is correctly classified under
guidelines are available only in Tokyo, and the
paragraph 2 of Article 420 of the Civil Code as property
accomplishment of requirements and the selection of
qualified bidders should be done in Tokyo, interested
67
belonging to the State and intended for some public citizens or to entities owned by non-
service. Filipino citizens.
Has the intention of the government regarding the use of Executive Order No. 296 is based on the wrong premise or
the property been changed because the lot has been Idle assumption that the Roppongi and the three other
for some years? Has it become patrimonial? properties were earlier converted into alienable real
properties. As earlier stated, Rep. Act No. 1789
The fact that the Roppongi site has not been used for a long
differentiates the procurements for the government sector
time for actual Embassy service does not automatically
and the private sector (Sections 2 and 12, Rep. Act No.
convert it to patrimonial property. Any such conversion
1789). Only the private sector properties can be sold to
happens only if the property is withdrawn from public use
end-users who must be Filipinos or entities owned by
(Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481
Filipinos. It is this nationality provision which was
[1975]). A property continues to be part of the public
amended by Executive Order No. 296.
domain, not available for private appropriation or
ownership until there is a formal declaration on the part of Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which
the government to withdraw it from being such (Ignacio v. provides as one of the sources of funds for its
Director of Lands, 108 Phil. 335 [1960]). implementation, the proceeds of the disposition of the
properties of the Government in foreign countries, did not
The respondents enumerate various pronouncements by
withdraw the Roppongi property from being classified as
concerned public officials insinuating a change of
one of public dominion when it mentions Philippine
intention. We emphasize, however, that an abandonment
properties abroad. Section 63 (c) refers to properties
of the intention to use the Roppongi property for public
which are alienable and not to those reserved for public
service and to make it patrimonial property under Article
use or service. Rep Act No. 6657, therefore, does not
422 of the Civil Code must be definiteAbandonment cannot
authorize the Executive Department to sell the Roppongi
be inferred from the non-use alone specially if the non-use
property. It merely enumerates possible sources of future
was attributable not to the government's own deliberate
funding to augment (as and when needed) the Agrarian
and indubitable will but to a lack of financial support to
Reform Fund created under Executive Order No. 299.
repair and improve the property (See Heirs of Felino
Obviously any property outside of the commerce of man
Santiago v. Lazaro, 166 SCRA 368 [1988]). Abandonment
cannot be tapped as a source of funds.
must be a certain and positive act based on correct legal
premises. The respondents try to get around the public dominion
character of the Roppongi property by insisting that
A mere transfer of the Philippine Embassy to Nampeidai in
Japanese law and not our Civil Code should apply.
1976 is not relinquishment of the Roppongi property's
original purpose. Even the failure by the government to It is exceedingly strange why our top government officials,
repair the building in Roppongi is not abandonment since of all people, should be the ones to insist that in the sale of
as earlier stated, there simply was a shortage of extremely valuable government property, Japanese law
government funds. The recent Administrative Orders and not Philippine law should prevail. The Japanese law -
authorizing a study of the status and conditions of its coverage and effects, when enacted, and exceptions to
government properties in Japan were merely directives for its provision — is not presented to the Court It is simply
investigation but did not in any way signify a clear asserted that the lex loci rei sitae or Japanese law should
intention to dispose of the properties. apply without stating what that law provides. It is a ed on
faith that Japanese law would allow the sale.
Executive Order No. 296, though its title declares an
"authority to sell", does not have a provision in its text We see no reason why a conflict of law rule should apply
expressly authorizing the sale of the four properties when no conflict of law situation exists. A conflict of law
procured from Japan for the government sector. The situation arises only when: (1) There is a dispute over
executive order does not declare that the properties lost the title or ownership of an immovable, such that the
their public character. It merely intends to make the capacity to take and transfer immovables, the formalities
properties available to foreigners and not to Filipinos of conveyance, the essential validity and effect of the
alone in case of a sale, lease or other disposition. It merely transfer, or the interpretation and effect of a conveyance,
eliminates the restriction under Rep. Act No. 1789 that are to be determined (See Salonga, Private International
reparations goods may be sold only to Filipino citizens and Law, 1981 ed., pp. 377-383); and (2) A foreign law on land
one hundred (100%) percent Filipino-owned entities. The ownership and its conveyance is asserted to conflict with a
text of Executive Order No. 296 provides: domestic law on the same matters. Hence, the need to
determine which law should apply.
Section 1. The provisions of Republic Act
No. 1789, as amended, and of other laws In the instant case, none of the above elements exists.
to the contrary notwithstanding, the
The issues are not concerned with validity of ownership or
above-mentioned properties can be made
title. There is no question that the property belongs to the
available for sale, lease or any other
Philippines. The issue is the authority of the respondent
manner of disposition to non-Filipino
68
officials to validly dispose of property belonging to the The requirement has been retained in Section 48, Book I of
State. And the validity of the procedures adopted to effect the Administrative Code of 1987 (Executive Order No.
its sale. This is governed by Philippine Law. The rule of lex 292).
situs does not apply.
SEC. 48. Official Authorized to Convey Real
The assertion that the opinion of the Secretary of Justice Property. — Whenever real property of
sheds light on the relevance of the lex situs rule is the Government is authorized by law to be
misplaced. The opinion does not tackle the alienability of conveyed, the deed of conveyance shall be
the real properties procured through reparations nor the executed in behalf of the government by
existence in what body of the authority to sell them. In the following:
discussing who are capable of acquiring the lots, the
(1) For property belonging to and titled in
Secretary merely explains that it is the foreign law which
the name of the Republic of the
should determine who can acquire the properties so that
Philippines, by the President, unless the
the constitutional limitation on acquisition of lands of the
authority therefor is expressly vested by
public domain to Filipino citizens and entities wholly
law in another officer.
owned by Filipinos is inapplicable. We see no point in
belaboring whether or not this opinion is correct. Why (2) For property belonging to the
should we discuss who can acquire the Roppongi lot when Republic of the Philippines but titled in
there is no showing that it can be sold? the name of any political subdivision or of
any corporate agency or instrumentality,
The subsequent approval on October 4, 1988 by President
by the executive head of the agency or
Aquino of the recommendation by the investigating
instrumentality. (Emphasis supplied)
committee to sell the Roppongi property was premature
or, at the very least, conditioned on a valid change in the It is not for the President to convey valuable real property
public character of the Roppongi property. Moreover, the of the government on his or her own sole will. Any such
approval does not have the force and effect of law since the conveyance must be authorized and approved by a law
President already lost her legislative powers. The Congress enacted by the Congress. It requires executive and
had already convened for more than a year. legislative concurrence.
Assuming for the sake of argument, however, that the Resolution No. 55 of the Senate dated June 8, 1989, asking
Roppongi property is no longer of public dominion, there for the deferment of the sale of the Roppongi property
is another obstacle to its sale by the respondents. does not withdraw the property from public domain much
less authorize its sale. It is a mere resolution; it is not a
There is no law authorizing its conveyance.
formal declaration abandoning the public character of the
Section 79 (f) of the Revised Administrative Code of 1917 Roppongi property. In fact, the Senate Committee on
provides Foreign Relations is conducting hearings on Senate
Resolution No. 734 which raises serious policy
Section 79 (f ) Conveyances and contracts
considerations and calls for a fact-finding investigation of
to which the Government is a party. — In
the circumstances behind the decision to sell the
cases in which the Government of the
Philippine government properties in Japan.
Republic of the Philippines is a party to
any deed or other instrument conveying The resolution of this Court in Ojeda v. Bidding Committee,
the title to real estate or to any other et al., supra, did not pass upon the constitutionality of
property the value of which is in excess of Executive Order No. 296. Contrary to respondents'
one hundred thousand pesos, the assertion, we did not uphold the authority of the President
respective Department Secretary shall to sell the Roppongi property. The Court stated that the
prepare the necessary papers which, constitutionality of the executive order was not the real
together with the proper issue and that resolving the constitutional question was
recommendations, shall be submitted to "neither necessary nor finally determinative of the case."
the Congress of the Philippines for The Court noted that "[W]hat petitioner ultimately
approval by the same. Such deed, questions is the use of the proceeds of the disposition of
instrument, or contract shall be executed the Roppongi property." In emphasizing that "the decision
and signed by the President of the of the Executive to dispose of the Roppongi property to
Philippines on behalf of the Government finance the CARP ... cannot be questioned" in view of
of the Philippines unless the Government Section 63 (c) of Rep. Act No. 6657, the Court did not
of the Philippines unless the authority acknowledge the fact that the property became alienable
therefor be expressly vested by law in nor did it indicate that the President was authorized to
another officer. (Emphasis supplied) dispose of the Roppongi property. The resolution should
be read to mean that in case the Roppongi property is re-
classified to be patrimonial and alienable by authority of

69
law, the proceeds of a sale may be used for national devastation the whole Filipino people
economic development projects including the CARP. endured in World War II.
Moreover, the sale in 1989 did not materialize. The It is for what it stands for, and for what it
petitions before us question the proposed 1990 sale of the could never bring back to life, that its
Roppongi property. We are resolving the issues raised in significance today remains undimmed,
these petitions, not the issues raised in 1989. inspire of the lapse of 45 years since the
war ended, inspire of the passage of 32
Having declared a need for a law or formal declaration to
years since the property passed on to the
withdraw the Roppongi property from public domain to
Philippine government.
make it alienable and a need for legislative authority to
allow the sale of the property, we see no compelling reason Roppongi is a reminder that cannot —
to tackle the constitutional issues raised by petitioner should not — be dissipated ... (Rollo-
Ojeda. 92047, p. 9)
The Court does not ordinarily pass upon constitutional It is indeed true that the Roppongi property is valuable not
questions unless these questions are properly raised in so much because of the inflated prices fetched by real
appropriate cases and their resolution is necessary for the property in Tokyo but more so because of its symbolic
determination of the case (People v. Vera, 65 Phil. 56 value to all Filipinos — veterans and civilians alike.
[1937]). The Court will not pass upon a constitutional Whether or not the Roppongi and related properties will
question although properly presented by the record if the eventually be sold is a policy determination where both
case can be disposed of on some other ground such as the the President and Congress must concur. Considering the
application of a statute or general law (Siler v. Louisville properties' importance and value, the laws on conversion
and Nashville R. Co., 213 U.S. 175, [1909], Railroad and disposition of property of public dominion must be
Commission v. Pullman Co., 312 U.S. 496 [1941]). faithfully followed.
The petitioner in G.R. No. 92013 states why the Roppongi WHEREFORE, IN VIEW OF THE FOREGOING, the petitions
property should not be sold: are GRANTED. A writ of prohibition is issued enjoining the
respondents from proceeding with the sale of the
The Roppongi property is not just like any
Roppongi property in Tokyo, Japan. The February 20, 1990
piece of property. It was given to the
Temporary Restraining Order is made PERMANENT.
Filipino people in reparation for the lives
and blood of Filipinos who died and SO ORDERED.
suffered during the Japanese military
Melencio-Herrera, Paras, Bidin, Griño-Aquino and Regalado,
occupation, for the suffering of widows
JJ., concur.
and orphans who lost their loved ones
and kindred, for the homes and other
properties lost by countless Filipinos
during the war. The Tokyo properties are
a monument to the bravery and sacrifice
of the Filipino people in the face of an
invader; like the monuments of Rizal,
Quezon, and other Filipino heroes, we do
not expect economic or financial benefits
from them. But who would think of selling
these monuments? Filipino honor and
national dignity dictate that we keep our
properties in Japan as memorials to the
countless Filipinos who died and suffered.
Even if we should become paupers we
should not think of selling them. For it
would be as if we sold the lives and blood
and tears of our countrymen. (Rollo- G.R.
No. 92013, p.147)
The petitioner in G.R. No. 92047 also states:
Roppongi is no ordinary property. It is
one ceded by the Japanese government in
atonement for its past belligerence for the
valiant sacrifice of life and limb and for
deaths, physical dislocation and economic
70
G.R. No. 101949 December 1, 1994 PRC and Tropicana (Civil Case No.
90-183).
THE HOLY SEE, petitioner,
vs. The complaint alleged that: (1) on April 17, 1988, Msgr.
THE HON. ERIBERTO U. ROSARIO, JR., as Presiding Cirilos, Jr., on behalf of petitioner and the PRC, agreed to
Judge of the Regional Trial Court of Makati, Branch 61 sell to Ramon Licup Lots 5-A, 5-B and 5-D at the price of
and STARBRIGHT SALES ENTERPRISES, P1,240.00 per square meters; (2) the agreement to sell
INC., respondents. was made on the condition that earnest money of
P100,000.00 be paid by Licup to the sellers, and that the
Padilla Law Office for petitioner.
sellers clear the said lots of squatters who were then
Siguion Reyna, Montecillo & Ongsiako for private occupying the same; (3) Licup paid the earnest money to
respondent. Msgr. Cirilos; (4) in the same month, Licup assigned his
rights over the property to private respondent and
informed the sellers of the said assignment; (5) thereafter,
QUIASON, J.: private respondent demanded from Msgr. Cirilos that the
sellers fulfill their undertaking and clear the property of
This is a petition for certiorari under Rule 65 of the
squatters; however, Msgr. Cirilos informed private
Revised Rules of Court to reverse and set aside the Orders
respondent of the squatters' refusal to vacate the lots,
dated June 20, 1991 and September 19, 1991 of the
proposing instead either that private respondent
Regional Trial Court, Branch 61, Makati, Metro Manila in
undertake the eviction or that the earnest money be
Civil Case No. 90-183.
returned to the latter; (6) private respondent
The Order dated June 20, 1991 denied the motion of counterproposed that if it would undertake the eviction of
petitioner to dismiss the complaint in Civil Case No. 90- the squatters, the purchase price of the lots should be
183, while the Order dated September 19, 1991 denied the reduced from P1,240.00 to P1,150.00 per square meter;
motion for reconsideration of the June 20,1991 Order. (7) Msgr. Cirilos returned the earnest money of
P100,000.00 and wrote private respondent giving it seven
Petitioner is the Holy See who exercises sovereignty over days from receipt of the letter to pay the original purchase
the Vatican City in Rome, Italy, and is represented in the price in cash; (8) private respondent sent the earnest
Philippines by the Papal Nuncio. money back to the sellers, but later discovered that on
Private respondent, Starbright Sales Enterprises, Inc., is a March 30, 1989, petitioner and the PRC, without notice to
domestic corporation engaged in the real estate business. private respondent, sold the lots to Tropicana, as
evidenced by two separate Deeds of Sale, one over Lot 5-A,
This petition arose from a controversy over a parcel of and another over Lots 5-B and 5-D; and that the sellers'
land consisting of 6,000 square meters (Lot 5-A, Transfer transfer certificate of title over the lots were cancelled,
Certificate of Title No. 390440) located in the Municipality transferred and registered in the name of Tropicana; (9)
of Parañaque, Metro Manila and registered in the name of Tropicana induced petitioner and the PRC to sell the lots to
petitioner. it and thus enriched itself at the expense of private
Said Lot 5-A is contiguous to Lots 5-B and 5-D which are respondent; (10) private respondent demanded the
covered by Transfer Certificates of Title Nos. 271108 and rescission of the sale to Tropicana and the reconveyance of
265388 respectively and registered in the name of the the lots, to no avail; and (11) private respondent is willing
Philippine Realty Corporation (PRC). and able to comply with the terms of the contract to sell
and has actually made plans to develop the lots into a
The three lots were sold to Ramon Licup, through Msgr. townhouse project, but in view of the sellers' breach, it lost
Domingo A. Cirilos, Jr., acting as agent to the sellers. Later, profits of not less than P30,000.000.00.
Licup assigned his rights to the sale to private respondent.
Private respondent thus prayed for: (1) the annulment of
In view of the refusal of the squatters to vacate the lots the Deeds of Sale between petitioner and the PRC on the
sold to private respondent, a dispute arose as to who of the one hand, and Tropicana on the other; (2) the
parties has the responsibility of evicting and clearing the reconveyance of the lots in question; (3) specific
land of squatters. Complicating the relations of the parties performance of the agreement to sell between it and the
was the sale by petitioner of Lot 5-A to Tropicana owners of the lots; and (4) damages.
Properties and Development Corporation (Tropicana).
On June 8, 1990, petitioner and Msgr. Cirilos separately
I moved to dismiss the complaint — petitioner for lack of
On January 23, 1990, private respondent filed a complaint jurisdiction based on sovereign immunity from suit, and
with the Regional Trial Court, Branch 61, Makati, Metro Msgr. Cirilos for being an improper party. An opposition to
Manila for annulment of the sale of the three parcels of the motion was filed by private respondent.
land, and specific performance and damages against On June 20, 1991, the trial court issued an order denying,
petitioner, represented by the Papal Nuncio, and three among others, petitioner's motion to dismiss after finding
other defendants: namely, Msgr. Domingo A. Cirilos, Jr., the that petitioner "shed off [its] sovereign immunity by
71
entering into the business contract in question" (Rollo, pp. in a foreign court, it requests the Foreign Office of the state
20-21). where it is sued to convey to the court that said defendant
is entitled to immunity.
On July 12, 1991, petitioner moved for reconsideration of
the order. On August 30, 1991, petitioner filed a "Motion In the United States, the procedure followed is the process
for a Hearing for the Sole Purpose of Establishing Factual of "suggestion," where the foreign state or the
Allegation for claim of Immunity as a Jurisdictional international organization sued in an American court
Defense." So as to facilitate the determination of its requests the Secretary of State to make a determination as
defense of sovereign immunity, petitioner prayed that a to whether it is entitled to immunity. If the Secretary of
hearing be conducted to allow it to establish certain facts State finds that the defendant is immune from suit, he, in
upon which the said defense is based. Private respondent turn, asks the Attorney General to submit to the court a
opposed this motion as well as the motion for "suggestion" that the defendant is entitled to immunity. In
reconsideration. England, a similar procedure is followed, only the Foreign
Office issues a certification to that effect instead of
On October 1, 1991, the trial court issued an order
submitting a "suggestion" (O'Connell, I International Law
deferring the resolution on the motion for reconsideration
130 [1965]; Note: Immunity from Suit of Foreign
until after trial on the merits and directing petitioner to file
Sovereign Instrumentalities and Obligations, 50 Yale Law
its answer (Rollo, p. 22).
Journal 1088 [1941]).
Petitioner forthwith elevated the matter to us. In its
In the Philippines, the practice is for the foreign
petition, petitioner invokes the privilege of sovereign
government or the international organization to first
immunity only on its own behalf and on behalf of its
secure an executive endorsement of its claim of sovereign
official representative, the Papal Nuncio.
or diplomatic immunity. But how the Philippine Foreign
On December 9, 1991, a Motion for Intervention was filed Office conveys its endorsement to the courts varies.
before us by the Department of Foreign Affairs, claiming In International Catholic Migration Commission v. Calleja,
that it has a legal interest in the outcome of the case as 190 SCRA 130 (1990), the Secretary of Foreign Affairs just
regards the diplomatic immunity of petitioner, and that it sent a letter directly to the Secretary of Labor and
"adopts by reference, the allegations contained in the Employment, informing the latter that the respondent-
petition of the Holy See insofar as they refer to arguments employer could not be sued because it enjoyed diplomatic
relative to its claim of sovereign immunity from suit" immunity. In World Health Organization v. Aquino, 48 SCRA
(Rollo, p. 87). 242 (1972), the Secretary of Foreign Affairs sent the trial
court a telegram to that effect. In Baer v. Tizon, 57 SCRA 1
Private respondent opposed the intervention of the
(1974), the U.S. Embassy asked the Secretary of Foreign
Department of Foreign Affairs. In compliance with the
Affairs to request the Solicitor General to make, in behalf of
resolution of this Court, both parties and the Department
the Commander of the United States Naval Base at
of Foreign Affairs submitted their respective memoranda.
Olongapo City, Zambales, a "suggestion" to respondent
II Judge. The Solicitor General embodied the "suggestion" in
a Manifestation and Memorandum as amicus curiae.
A preliminary matter to be threshed out is the procedural
issue of whether the petition for certiorari under Rule 65 In the case at bench, the Department of Foreign Affairs,
of the Revised Rules of Court can be availed of to question through the Office of Legal Affairs moved with this Court to
the order denying petitioner's motion to dismiss. The be allowed to intervene on the side of petitioner. The Court
general rule is that an order denying a motion to dismiss is allowed the said Department to file its memorandum in
not reviewable by the appellate courts, the remedy of the support of petitioner's claim of sovereign immunity.
movant being to file his answer and to proceed with the
In some cases, the defense of sovereign immunity was
hearing before the trial court. But the general rule admits
submitted directly to the local courts by the respondents
of exceptions, and one of these is when it is very clear in
through their private counsels (Raquiza v. Bradford, 75
the records that the trial court has no alternative but to
Phil. 50 [1945]; Miquiabas v. Philippine-Ryukyus
dismiss the complaint (Philippine National Bank v.
Command, 80 Phil. 262 [1948]; United States of America v.
Florendo, 206 SCRA 582 [1992]; Zagada v. Civil Service
Guinto, 182 SCRA 644 [1990] and companion cases). In
Commission, 216 SCRA 114 [1992]. In such a case, it would
cases where the foreign states bypass the Foreign Office,
be a sheer waste of time and energy to require the parties
the courts can inquire into the facts and make their own
to undergo the rigors of a trial.
determination as to the nature of the acts and transactions
The other procedural question raised by private involved.
respondent is the personality or legal interest of the
III
Department of Foreign Affairs to intervene in the case in
behalf of the Holy See (Rollo, pp. 186-190). The burden of the petition is that respondent trial court
has no jurisdiction over petitioner, being a foreign state
In Public International Law, when a state or international
enjoying sovereign immunity. On the other hand, private
agency wishes to plead sovereign or diplomatic immunity
respondent insists that the doctrine of non-suability is not
72
anymore absolute and that petitioner has divested itself of in International Law, 46 The American Journal of
such a cloak when, of its own free will, it entered into a International Law 308 [1952]).
commercial transaction for the sale of a parcel of land
Inasmuch as the Pope prefers to conduct foreign relations
located in the Philippines.
and enter into transactions as the Holy See and not in the
A. The Holy See name of the Vatican City, one can conclude that in the
Pope's own view, it is the Holy See that is the international
Before we determine the issue of petitioner's non-
person.
suability, a brief look into its status as a sovereign state is
in order. The Republic of the Philippines has accorded the Holy See
the status of a foreign sovereign. The Holy See, through its
Before the annexation of the Papal States by Italy in 1870,
Ambassador, the Papal Nuncio, has had diplomatic
the Pope was the monarch and he, as the Holy See, was
representations with the Philippine government since
considered a subject of International Law. With the loss of
1957 (Rollo, p. 87). This appears to be the universal
the Papal States and the limitation of the territory under
practice in international relations.
the Holy See to an area of 108.7 acres, the position of the
Holy See in International Law became controversial B. Sovereign Immunity
(Salonga and Yap, Public International Law 36-37 [1992]).
As expressed in Section 2 of Article II of the 1987
In 1929, Italy and the Holy See entered into the Lateran Constitution, we have adopted the generally accepted
Treaty, where Italy recognized the exclusive dominion and principles of International Law. Even without this
sovereign jurisdiction of the Holy See over the Vatican City. affirmation, such principles of International Law are
It also recognized the right of the Holy See to receive deemed incorporated as part of the law of the land as a
foreign diplomats, to send its own diplomats to foreign condition and consequence of our admission in the society
countries, and to enter into treaties according to of nations (United States of America v. Guinto, 182 SCRA
International Law (Garcia, Questions and Problems In 644 [1990]).
International Law, Public and Private 81 [1948]).
There are two conflicting concepts of sovereign immunity,
The Lateran Treaty established the statehood of the each widely held and firmly established. According to the
Vatican City "for the purpose of assuring to the Holy See classical or absolute theory, a sovereign cannot, without its
absolute and visible independence and of guaranteeing to consent, be made a respondent in the courts of another
it indisputable sovereignty also in the field of international sovereign. According to the newer or restrictive theory,
relations" (O'Connell, I International Law 311 [1965]). the immunity of the sovereign is recognized only with
regard to public acts or acts jure imperii of a state, but not
In view of the wordings of the Lateran Treaty, it is difficult
with regard to private acts or acts jure gestionis
to determine whether the statehood is vested in the Holy
(United States of America v. Ruiz, 136 SCRA 487 [1987];
See or in the Vatican City. Some writers even suggested
Coquia and Defensor-Santiago, Public International Law
that the treaty created two international persons — the
194 [1984]).
Holy See and Vatican City (Salonga and Yap, supra, 37).
Some states passed legislation to serve as guidelines for
The Vatican City fits into none of the established categories
the executive or judicial determination when an act may be
of states, and the attribution to it of "sovereignty" must be
considered as jure gestionis. The United States passed the
made in a sense different from that in which it is applied to
Foreign Sovereign Immunities Act of 1976, which defines a
other states (Fenwick, International Law 124-125 [1948];
commercial activity as "either a regular course of
Cruz, International Law 37 [1991]). In a community of
commercial conduct or a particular commercial
national states, the Vatican City represents an entity
transaction or act." Furthermore, the law declared that the
organized not for political but for ecclesiastical purposes
"commercial character of the activity shall be determined
and international objects. Despite its size and object, the
by reference to the nature of the course of conduct or
Vatican City has an independent government of its own,
particular transaction or act, rather than by reference to its
with the Pope, who is also head of the Roman Catholic
purpose." The Canadian Parliament enacted in 1982 an Act
Church, as the Holy See or Head of State, in conformity
to Provide For State Immunity in Canadian Courts. The Act
with its traditions, and the demands of its mission in the
defines a "commercial activity" as any particular
world. Indeed, the world-wide interests and activities of
transaction, act or conduct or any regular course of
the Vatican City are such as to make it in a sense an
conduct that by reason of its nature, is of a "commercial
"international state" (Fenwick, supra., 125; Kelsen,
character."
Principles of International Law 160 [1956]).
The restrictive theory, which is intended to be a solution to
One authority wrote that the recognition of the Vatican
the host of problems involving the issue of sovereign
City as a state has significant implication — that it is
immunity, has created problems of its own. Legal treatises
possible for any entity pursuing objects essentially
and the decisions in countries which follow the restrictive
different from those pursued by states to be invested with
theory have difficulty in characterizing whether a contract
international personality (Kunz, The Status of the Holy See

73
of a sovereign state with a private party is an act jure involves its sovereign or governmental
gestionis or an act jure imperii. capacity that no such waiver may be
implied.
The restrictive theory came about because of the entry of
sovereign states into purely commercial activities In the case at bench, if petitioner has bought and sold lands
remotely connected with the discharge of governmental in the ordinary course of a real estate business, surely the
functions. This is particularly true with respect to the said transaction can be categorized as an act jure gestionis.
Communist states which took control of nationalized However, petitioner has denied that the acquisition and
business activities and international trading. subsequent disposal of Lot 5-A were made for profit but
claimed that it acquired said property for the site of its
This Court has considered the following transactions by a
mission or the Apostolic Nunciature in the Philippines.
foreign state with private parties as acts jure imperii: (1)
Private respondent failed to dispute said claim.
the lease by a foreign government of apartment buildings
for use of its military officers (Syquia v. Lopez, 84 Phil. 312 Lot 5-A was acquired by petitioner as a donation from the
[1949]; (2) the conduct of public bidding for the repair of a Archdiocese of Manila. The donation was made not for
wharf at a United States Naval Station (United States of commercial purpose, but for the use of petitioner to
America v. Ruiz, supra.); and (3) the change of employment construct thereon the official place of residence of the
status of base employees (Sanders v. Veridiano, 162 SCRA Papal Nuncio. The right of a foreign sovereign to acquire
88 [1988]). property, real or personal, in a receiving state, necessary
for the creation and maintenance of its diplomatic mission,
On the other hand, this Court has considered the following
is recognized in the 1961 Vienna Convention on
transactions by a foreign state with private parties as
Diplomatic Relations (Arts. 20-22). This treaty was
acts jure gestionis: (1) the hiring of a cook in the recreation
concurred in by the Philippine Senate and entered into
center, consisting of three restaurants, a cafeteria, a
force in the Philippines on November 15, 1965.
bakery, a store, and a coffee and pastry shop at the John
Hay Air Station in Baguio City, to cater to American In Article 31(a) of the Convention, a diplomatic envoy is
servicemen and the general public (United States of granted immunity from the civil and administrative
America v. Rodrigo, 182 SCRA 644 [1990]); and (2) the jurisdiction of the receiving state over any real action
bidding for the operation of barber shops in Clark Air Base relating to private immovable property situated in the
in Angeles City (United States of America v. Guinto, 182 territory of the receiving state which the envoy holds on
SCRA 644 [1990]). The operation of the restaurants and behalf of the sending state for the purposes of the mission.
other facilities open to the general public is undoubtedly If this immunity is provided for a diplomatic envoy, with
for profit as a commercial and not a governmental activity. all the more reason should immunity be recognized as
By entering into the employment contract with the cook in regards the sovereign itself, which in this case is the Holy
the discharge of its proprietary function, the United States See.
government impliedly divested itself of its sovereign
The decision to transfer the property and the subsequent
immunity from suit.
disposal thereof are likewise clothed with a governmental
In the absence of legislation defining what activities and character. Petitioner did not sell Lot
transactions shall be considered "commercial" and as 5-A for profit or gain. It merely wanted to dispose off the
constituting acts jure gestionis, we have to come out with same because the squatters living thereon made it almost
our own guidelines, tentative they may be. impossible for petitioner to use it for the purpose of the
donation. The fact that squatters have occupied and are
Certainly, the mere entering into a contract by a foreign
still occupying the lot, and that they stubbornly refuse to
state with a private party cannot be the ultimate test. Such
leave the premises, has been admitted by private
an act can only be the start of the inquiry. The logical
respondent in its complaint (Rollo, pp. 26, 27).
question is whether the foreign state is engaged in the
activity in the regular course of business. If the foreign The issue of petitioner's non-suability can be determined
state is not engaged regularly in a business or trade, the by the trial court without going to trial in the light of the
particular act or transaction must then be tested by its pleadings, particularly the admission of private
nature. If the act is in pursuit of a sovereign activity, or an respondent. Besides, the privilege of sovereign immunity
incident thereof, then it is an act jure imperii, especially in this case was sufficiently established by the
when it is not undertaken for gain or profit. Memorandum and Certification of the Department of
Foreign Affairs. As the department tasked with the conduct
As held in United States of America v. Guinto, (supra):
of the Philippines' foreign relations (Administrative Code
There is no question that the United of 1987, Book IV, Title I, Sec. 3), the Department of Foreign
States of America, like any other state, Affairs has formally intervened in this case and officially
will be deemed to have impliedly waived certified that the Embassy of the Holy See is a duly
its non-suability if it has entered into a accredited diplomatic mission to the Republic of the
contract in its proprietary or private Philippines exempt from local jurisdiction and entitled to
capacity. It is only when the contract all the rights, privileges and immunities of a diplomatic
74
mission or embassy in this country (Rollo, pp. 156-157).
The determination of the executive arm of government
that a state or instrumentality is entitled to sovereign or
diplomatic immunity is a political question that is
conclusive upon the courts (International Catholic
Migration Commission v. Calleja, 190 SCRA 130 [1990]).
Where the plea of immunity is recognized and affirmed by
the executive branch, it is the duty of the courts to accept
this claim so as not to embarrass the executive arm of the
government in conducting the country's foreign relations
(World Health Organization v. Aquino, 48 SCRA 242
[1972]). As in International Catholic Migration
Commission and in World Health Organization, we abide by
the certification of the Department of Foreign Affairs.
Ordinarily, the procedure would be to remand the case and
order the trial court to conduct a hearing to establish the
facts alleged by petitioner in its motion. In view of said
certification, such procedure would however be pointless
and unduly circuitous (Ortigas & Co. Ltd. Partnership v.
Judge Tirso Velasco, G.R. No. 109645, July 25, 1994).
IV
Private respondent is not left without any legal remedy for
the redress of its grievances. Under both Public
International Law and Transnational Law, a person who
feels aggrieved by the acts of a foreign sovereign can ask
his own government to espouse his cause through
diplomatic channels.
Private respondent can ask the Philippine government,
through the Foreign Office, to espouse its claims against
the Holy See. Its first task is to persuade the Philippine
government to take up with the Holy See the validity of its
claims. Of course, the Foreign Office shall first make a
determination of the impact of its espousal on the relations
between the Philippine government and the Holy See
(Young, Remedies of Private Claimants Against Foreign
States, Selected Readings on Protection by Law of Private
Foreign Investments 905, 919 [1964]). Once the Philippine
government decides to espouse the claim, the latter ceases
to be a private cause.
According to the Permanent Court of International Justice,
the forerunner of the International Court of Justice:
By taking up the case of one of its subjects
and by reporting to diplomatic action or
international judicial proceedings on his
behalf, a State is in reality asserting its
own rights — its right to ensure, in the
person of its subjects, respect for the
rules of international law (The
Mavrommatis Palestine Concessions, 1
Hudson, World Court Reports 293, 302
[1924]).
WHEREFORE, the petition for certiorari is GRANTED and
the complaint in Civil Case No. 90-183 against petitioner is
DISMISSED.
SO ORDERED.
75
76
G.R. No. L-23145 November 29, 1968 arose between the domiciary administrator in New York
and the ancillary administrator in the Philippines as to
TESTATE ESTATE OF IDONAH SLADE PERKINS,
which of them was entitled to the possession of the stock
deceased. RENATO D. TAYAG, ancillary administrator-
certificates in question. On January 27, 1964, the Court of
appellee,
First Instance of Manila ordered the domiciliary
vs.
administrator, County Trust Company, to "produce and
BENGUET CONSOLIDATED, INC., oppositor-appellant.
deposit" them with the ancillary administrator or with the
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee. Clerk of Court. The domiciliary administrator did not
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor- comply with the order, and on February 11, 1964, the
appellant. ancillary administrator petitioned the court to "issue an
order declaring the certificate or certificates of stocks
FERNANDO, J.:
covering the 33,002 shares issued in the name of Idonah
Confronted by an obstinate and adamant refusal of the Slade Perkins by Benguet Consolidated, Inc., be declared
domiciliary administrator, the County Trust Company of [or] considered as lost."3
New York, United States of America, of the estate of the
It is to be noted further that appellant Benguet
deceased Idonah Slade Perkins, who died in New York City
Consolidated, Inc. admits that "it is immaterial" as far as it
on March 27, 1960, to surrender to the ancillary
is concerned as to "who is entitled to the possession of the
administrator in the Philippines the stock certificates
stock certificates in question; appellant opposed the
owned by her in a Philippine corporation, Benguet
petition of the ancillary administrator because the said
Consolidated, Inc., to satisfy the legitimate claims of local
stock certificates are in existence, they are today in the
creditors, the lower court, then presided by the Honorable
possession of the domiciliary administrator, the County
Arsenio Santos, now retired, issued on May 18, 1964, an
Trust Company, in New York, U.S.A...."4
order of this tenor: "After considering the motion of the
ancillary administrator, dated February 11, 1964, as well It is its view, therefore, that under the circumstances, the
as the opposition filed by the Benguet Consolidated, Inc., stock certificates cannot be declared or considered as lost.
the Court hereby (1) considers as lost for all purposes in Moreover, it would allege that there was a failure to
connection with the administration and liquidation of the observe certain requirements of its by-laws before new
Philippine estate of Idonah Slade Perkins the stock stock certificates could be issued. Hence, its appeal.
certificates covering the 33,002 shares of stock standing in
As was made clear at the outset of this opinion, the appeal
her name in the books of the Benguet Consolidated, Inc.,
lacks merit. The challenged order constitutes an emphatic
(2) orders said certificates cancelled, and (3) directs said
affirmation of judicial authority sought to be emasculated
corporation to issue new certificates in lieu thereof, the
by the wilful conduct of the domiciliary administrator in
same to be delivered by said corporation to either the
refusing to accord obedience to a court decree. How, then,
incumbent ancillary administrator or to the Probate
can this order be stigmatized as illegal?
Division of this Court."1
As is true of many problems confronting the judiciary, such
From such an order, an appeal was taken to this Court not
a response was called for by the realities of the situation.
by the domiciliary administrator, the County Trust
What cannot be ignored is that conduct bordering on
Company of New York, but by the Philippine corporation,
wilful defiance, if it had not actually reached it, cannot
the Benguet Consolidated, Inc. The appeal cannot possibly
without undue loss of judicial prestige, be condoned or
prosper. The challenged order represents a response and
tolerated. For the law is not so lacking in flexibility and
expresses a policy, to paraphrase Frankfurter, arising out
resourcefulness as to preclude such a solution, the more so
of a specific problem, addressed to the attainment of
as deeper reflection would make clear its being buttressed
specific ends by the use of specific remedies, with full and
by indisputable principles and supported by the strongest
ample support from legal doctrines of weight and
policy considerations.
significance.
It can truly be said then that the result arrived at upheld
The facts will explain why. As set forth in the brief of
and vindicated the honor of the judiciary no less than that
appellant Benguet Consolidated, Inc., Idonah Slade Perkins,
of the country. Through this challenged order, there is thus
who died on March 27, 1960 in New York City, left among
dispelled the atmosphere of contingent frustration brought
others, two stock certificates covering 33,002 shares of
about by the persistence of the domiciliary administrator
appellant, the certificates being in the possession of the
to hold on to the stock certificates after it had, as admitted,
County Trust Company of New York, which as noted, is the
voluntarily submitted itself to the jurisdiction of the lower
domiciliary administrator of the estate of the
court by entering its appearance through counsel on June
deceased.2 Then came this portion of the appellant's brief:
27, 1963, and filing a petition for relief from a previous
"On August 12, 1960, Prospero Sanidad instituted ancillary
order of March 15, 1963.
administration proceedings in the Court of First Instance
of Manila; Lazaro A. Marquez was appointed ancillary Thus did the lower court, in the order now on appeal,
administrator, and on January 22, 1963, he was impart vitality and effectiveness to what was decreed. For
substituted by the appellee Renato D. Tayag. A dispute without it, what it had been decided would be set at naught
77
and nullified. Unless such a blatant disregard by the challenged order, how does appellant, Benguet
domiciliary administrator, with residence abroad, of what Consolidated, Inc. propose to carry the extremely heavy
was previously ordained by a court order could be thus burden of persuasion of precisely demonstrating the
remedied, it would have entailed, insofar as this matter contrary? It would assign as the basic error allegedly
was concerned, not a partial but a well-nigh complete committed by the lower court its "considering as lost the
paralysis of judicial authority. stock certificates covering 33,002 shares of Benguet
belonging to the deceased Idonah Slade Perkins, ..." 9 More
1. Appellant Benguet Consolidated, Inc. did not dispute the
specifically, appellant would stress that the "lower court
power of the appellee ancillary administrator to gain
could not "consider as lost" the stock certificates in
control and possession of all assets of the decedent within
question when, as a matter of fact, his Honor the trial Judge
the jurisdiction of the Philippines. Nor could it. Such a
knew, and does know, and it is admitted by the appellee,
power is inherent in his duty to settle her estate and
that the said stock certificates are in existence and are
satisfy the claims of local creditors.5 As Justice Tuason
today in the possession of the domiciliary administrator in
speaking for this Court made clear, it is a "general rule
New York."10
universally recognized" that administration, whether
principal or ancillary, certainly "extends to the assets of a There may be an element of fiction in the above view of the
decedent found within the state or country where it was lower court. That certainly does not suffice to call for the
granted," the corollary being "that an administrator reversal of the appealed order. Since there is a refusal,
appointed in one state or country has no power over persistently adhered to by the domiciliary administrator in
property in another state or country."6 New York, to deliver the shares of stocks of appellant
corporation owned by the decedent to the ancillary
It is to be noted that the scope of the power of the ancillary
administrator in the Philippines, there was nothing
administrator was, in an earlier case, set forth by Justice
unreasonable or arbitrary in considering them as lost and
Malcolm. Thus: "It is often necessary to have more than
requiring the appellant to issue new certificates in lieu
one administration of an estate. When a person dies
thereof. Thereby, the task incumbent under the law on the
intestate owning property in the country of his domicile as
ancillary administrator could be discharged and his
well as in a foreign country, administration is had in both
responsibility fulfilled.
countries. That which is granted in the jurisdiction of
decedent's last domicile is termed the principal Any other view would result in the compliance to a valid
administration, while any other administration is termed judicial order being made to depend on the uncontrolled
the ancillary administration. The reason for the latter is discretion of the party or entity, in this case domiciled
because a grant of administration does not ex proprio abroad, which thus far has shown the utmost persistence
vigore have any effect beyond the limits of the country in in refusing to yield obedience. Certainly, appellant would
which it is granted. Hence, an administrator appointed in a not be heard to contend in all seriousness that a judicial
foreign state has no authority in the [Philippines]. The decree could be treated as a mere scrap of paper, the court
ancillary administration is proper, whenever a person dies, issuing it being powerless to remedy its flagrant disregard.
leaving in a country other than that of his last domicile,
It may be admitted of course that such alleged loss as
property to be administered in the nature of assets of the
found by the lower court did not correspond exactly with
deceased liable for his individual debts or to be distributed
the facts. To be more blunt, the quality of truth may be
among his heirs."7
lacking in such a conclusion arrived at. It is to be
It would follow then that the authority of the probate court remembered however, again to borrow from Frankfurter,
to require that ancillary administrator's right to "the stock "that fictions which the law may rely upon in the pursuit of
certificates covering the 33,002 shares ... standing in her legitimate ends have played an important part in its
name in the books of [appellant] Benguet Consolidated, development."11
Inc...." be respected is equally beyond question. For
Speaking of the common law in its earlier period, Cardozo
appellant is a Philippine corporation owing full allegiance
could state fictions "were devices to advance the ends of
and subject to the unrestricted jurisdiction of local courts.
justice, [even if] clumsy and at times offensive." 12 Some of
Its shares of stock cannot therefore be considered in any
them have persisted even to the present, that eminent
wise as immune from lawful court orders.
jurist, noting "the quasi contract, the adopted child, the
Our holding in Wells Fargo Bank and Union v. Collector of constructive trust, all of flourishing vitality, to attest the
Internal Revenue8 finds application. "In the instant case, empire of "as if" today."13 He likewise noted "a class of
the actual situs of the shares of stock is in the Philippines, fictions of another order, the fiction which is a working
the corporation being domiciled [here]." To the force of the tool of thought, but which at times hides itself from view
above undeniable proposition, not even appellant is till reflection and analysis have brought it to the light."14
insensible. It does not dispute it. Nor could it successfully
What cannot be disputed, therefore, is the at times
do so even if it were so minded.
indispensable role that fictions as such played in the law.
2. In the face of such incontrovertible doctrines that argue There should be then on the part of the appellant a further
in a rather conclusive fashion for the legality of the refinement in the catholicity of its condemnation of such
78
judicial technique. If ever an occasion did call for the much to Chief Justice Marshall, who in the Dartmouth
employment of a legal fiction to put an end to the College decision defined a corporation precisely as "an
anomalous situation of a valid judicial order being artificial being, invisible, intangible, and existing only in
disregarded with apparent impunity, this is it. What is thus contemplation of law."18
most obvious is that this particular alleged error does not
The well-known authority Fletcher could summarize the
carry persuasion.
matter thus: "A corporation is not in fact and in reality a
3. Appellant Benguet Consolidated, Inc. would seek to person, but the law treats it as though it were a person by
bolster the above contention by its invoking one of the process of fiction, or by regarding it as an artificial person
provisions of its by-laws which would set forth the distinct and separate from its individual stockholders.... It
procedure to be followed in case of a lost, stolen or owes its existence to law. It is an artificial person created
destroyed stock certificate; it would stress that in the by law for certain specific purposes, the extent of whose
event of a contest or the pendency of an action regarding existence, powers and liberties is fixed by its
ownership of such certificate or certificates of stock charter."19Dean Pound's terse summary, a juristic person,
allegedly lost, stolen or destroyed, the issuance of a new resulting from an association of human beings granted
certificate or certificates would await the "final decision by legal personality by the state, puts the matter neatly.20
[a] court regarding the ownership [thereof]."15
There is thus a rejection of Gierke's genossenchaft theory,
Such reliance is misplaced. In the first place, there is no the basic theme of which to quote from Friedmann, "is the
such occasion to apply such by-law. It is admitted that the reality of the group as a social and legal entity,
foreign domiciliary administrator did not appeal from the independent of state recognition and concession." 21 A
order now in question. Moreover, there is likewise the corporation as known to Philippine jurisprudence is a
express admission of appellant that as far as it is creature without any existence until it has received the
concerned, "it is immaterial ... who is entitled to the imprimatur of the state according to law. It is logically
possession of the stock certificates ..." Even if such were inconceivable therefore that it will have rights and
not the case, it would be a legal absurdity to impart to such privileges of a higher priority than that of its creator. More
a provision conclusiveness and finality. Assuming that a than that, it cannot legitimately refuse to yield obedience
contrariety exists between the above by-law and the to acts of its state organs, certainly not excluding the
command of a court decree, the latter is to be followed. judiciary, whenever called upon to do so.
It is understandable, as Cardozo pointed out, that the As a matter of fact, a corporation once it comes into being,
Constitution overrides a statute, to which, however, the following American law still of persuasive authority in our
judiciary must yield deference, when appropriately jurisdiction, comes more often within the ken of the
invoked and deemed applicable. It would be most highly judiciary than the other two coordinate branches. It
unorthodox, however, if a corporate by-law would be institutes the appropriate court action to enforce its right.
accorded such a high estate in the jural order that a court Correlatively, it is not immune from judicial control in
must not only take note of it but yield to its alleged those instances, where a duty under the law as ascertained
controlling force. in an appropriate legal proceeding is cast upon it.
The fear of appellant of a contingent liability with which it To assert that it can choose which court order to follow
could be saddled unless the appealed order be set aside for and which to disregard is to confer upon it not autonomy
its inconsistency with one of its by-laws does not impress which may be conceded but license which cannot be
us. Its obedience to a lawful court order certainly tolerated. It is to argue that it may, when so minded,
constitutes a valid defense, assuming that such overrule the state, the source of its very existence; it is to
apprehension of a possible court action against it could contend that what any of its governmental organs may
possibly materialize. Thus far, nothing in the lawfully require could be ignored at will. So extravagant a
circumstances as they have developed gives substance to claim cannot possibly merit approval.
such a fear. Gossamer possibilities of a future prejudice to
5. One last point. In Viloria v. Administrator of Veterans
appellant do not suffice to nullify the lawful exercise of
Affairs,22 it was shown that in a guardianship proceedings
judicial authority.
then pending in a lower court, the United States Veterans
4. What is more the view adopted by appellant Benguet Administration filed a motion for the refund of a certain
Consolidated, Inc. is fraught with implications at war with sum of money paid to the minor under guardianship,
the basic postulates of corporate theory. alleging that the lower court had previously granted its
petition to consider the deceased father as not entitled to
We start with the undeniable premise that, "a corporation
guerilla benefits according to a determination arrived at by
is an artificial being created by operation of law...."16 It
its main office in the United States. The motion was denied.
owes its life to the state, its birth being purely dependent
In seeking a reconsideration of such order, the
on its will. As Berle so aptly stated: "Classically, a
Administrator relied on an American federal statute
corporation was conceived as an artificial person, owing
making his decisions "final and conclusive on all questions
its existence through creation by a sovereign power."17 As
of law or fact" precluding any other American official to
a matter of fact, the statutory language employed owes
79
examine the matter anew, "except a judge or judges of the Makalintal, Zaldivar and Capistrano, JJ., concur.
United States court."23 Reconsideration was denied, and Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro,
the Administrator appealed. JJ., concur in the result.
In an opinion by Justice J.B.L. Reyes, we sustained the
lower court. Thus: "We are of the opinion that the appeal
should be rejected. The provisions of the U.S. Code,
invoked by the appellant, make the decisions of the U.S.
Veterans' Administrator final and conclusive when made
on claims property submitted to him for resolution; but
they are not applicable to the present case, where the
Administrator is not acting as a judge but as a litigant.
There is a great difference between actions against the
Administrator (which must be filed strictly in accordance
with the conditions that are imposed by the Veterans' Act,
including the exclusive review by United States courts),
and those actions where the Veterans' Administrator seeks
a remedy from our courts and submits to their jurisdiction
by filing actions therein. Our attention has not been called
to any law or treaty that would make the findings of the
Veterans' Administrator, in actions where he is a party,
conclusive on our courts. That, in effect, would deprive our
tribunals of judicial discretion and render them mere
subordinate instrumentalities of the Veterans'
Administrator."
It is bad enough as the Viloria decision made patent for our
judiciary to accept as final and conclusive, determinations
made by foreign governmental agencies. It is infinitely
worse if through the absence of any coercive power by our
courts over juridical persons within our jurisdiction, the
force and effectivity of their orders could be made to
depend on the whim or caprice of alien entities. It is
difficult to imagine of a situation more offensive to the
dignity of the bench or the honor of the country.
Yet that would be the effect, even if unintended, of the
proposition to which appellant Benguet Consolidated
seems to be firmly committed as shown by its failure to
accept the validity of the order complained of; it seeks its
reversal. Certainly we must at all pains see to it that it does
not succeed. The deplorable consequences attendant on
appellant prevailing attest to the necessity of negative
response from us. That is what appellant will get.
That is all then that this case presents. It is obvious why
the appeal cannot succeed. It is always easy to conjure
extreme and even oppressive possibilities. That is not
decisive. It does not settle the issue. What carries weight
and conviction is the result arrived at, the just solution
obtained, grounded in the soundest of legal doctrines and
distinguished by its correspondence with what a sense of
realism requires. For through the appealed order, the
imperative requirement of justice according to law is
satisfied and national dignity and honor maintained.
WHEREFORE, the appealed order of the Honorable
Arsenio Santos, the Judge of the Court of First Instance,
dated May 18, 1964, is affirmed. With costs against
oppositor-appelant Benguet Consolidated, Inc.

80
G.R. No. L-27952 February 15, 1982 Cuenta de Ahorros en el
Philippine Trust
TESTATE ESTATE OF JOSE EUGENIO RAMIREZ, MARIA
LUISA PALACIOS, Administratrix, petitioner-appellee, Co..................................................................................
vs. ............ 2,350.73
MARCELLE D. VDA. DE RAMIREZ, ET AL., oppositors,
TOTAL......................................
JORGE and ROBERTO RAMIREZ, legatees, oppositors-
........................ P512,976.97
appellants.
MENOS:
Deuda al Banco de las
ABAD SANTOS, J.:
Islas Filipinas, garan-
The main issue in this appeal is the manner of partitioning
tizada con prenda de las acciones de La
the testate estate of Jose Eugenio Ramirez among the
Carlota ......... P 5,000,00
principal beneficiaries, namely: his widow Marcelle
Demoron de Ramirez; his two grandnephews Roberto and VALOR
Jorge Ramirez; and his companion Wanda de Wrobleski. LIQUIDO..................................
......... P507,976.97
The task is not trouble-free because the widow Marcelle is
a French who lives in Paris, while the companion Wanda is The testamentary dispositions are as follows:
an Austrian who lives in Spain. Moreover, the testator
A.—En nuda propiedad, a D. Roberto y D.
provided for substitutions.
Jorge Ramirez, ambas menores de edad,
Jose Eugenio Ramirez, a Filipino national, died in Spain on residentes en Manila, I.F., calle 'Alright,
December 11, 1964, with only his widow as compulsory No. 1818, Malate, hijos de su sobrino D.
heir. His will was admitted to probate by the Court of First Jose Ma. Ramirez, con sustitucion vulgar a
Instance of Manila, Branch X, on July 27, 1965. Maria Luisa favor de sus respectivos descendientes, y,
Palacios was appointed administratrix of the estate. In due en su defecto, con sustitucion vulgar
time she submitted an inventory of the estate as follows: reciprocal entre ambos.
INVENTARIO El precedente legado en nuda propiedad
de la participacion indivisa de la finca
Una sexta parte (1/6)
Santa Cruz Building, lo ordena el testador
proindiviso de un te
a favor de los legatarios nombrados, en
rreno, con sus mejoras y edificaciones, atencion a que dicha propiedad fue
situadoen creacion del querido padre del otorgante
y por ser aquellos continuadores del
la Escolta,
apellido Ramirez,
Manila.............................................................
P500,000.00 B.—Y en usufructo a saber: —
Una sexta parte (1/6) a. En cuanto a una tercera parte, a favor
proindiviso de dos de la esposa del testador, Da. Marcelle
Ramirez, domiciliada en IE PECO, calle del
parcelas de terreno situadas en Antipolo,
General Gallieni No. 33, Seine Francia, con
Rizal................... 658.34
sustitucion vulgar u fideicomisaria a favor
Cuatrocientos noventa y de Da. Wanda de Wrobleski, de Palma de
uno (491) acciones Mallorca, Son Rapina Avenida de los
Reyes 13,
de la 'Central Azucarera de la Carlota a
P17.00 b.—Y en cuanto a las dos terceras partes
restantes, a favor de la nombrada Da.
por accion
Wanda de Nrobleski con sustitucion
................................................................................8,3
vulgar v fideicomisaria a saber:—
47.00
En cuanto a la mitad de dichas dos
Diez mil ochocientos
terceras partes, a favor de D. Juan Pablo
seize (10,806) acciones
Jankowski, de Son Rapina Palma de
de la 'Central Luzon Milling Co.', disuelta y Mallorca; y encuanto a la mitad restante, a
en favor de su sobrino, D. Horace V. Ramirez,
San Luis Building, Florida St. Ermita,
liquidacion a P0.15 por accion
Manila, I.F.
..............................................1,620.90

81
 A pesar de las sustituciones additional share in the estate. To give Marcelle more than
fideiconiisarias precedentemente her legitime will run counter to the testator's intention for
ordinadas, las usufiructuarias nombradas as stated above his dispositions even impaired her legitime
conjuntamente con los nudo propietarios, and tended to favor Wanda.
podran en cualquier memento vender a
2. The substitutions.
tercero los bienes objeto delegado, sin
intervencion alguna de los titulares It may be useful to recall that "Substitution is the appoint-
fideicomisaarios. judgment of another heir so that he may enter into the
inheritance in default of the heir originally instituted."
On June 23, 1966, the administratrix submitted a project of
(Art. 857, Civil Code. And that there are several kinds of
partition as follows: the property of the deceased is to be
substitutions, namely: simple or common, brief or
divided into two parts. One part shall go to the widow 'en
compendious, reciprocal, and fideicommissary (Art. 858,
pleno dominio" in satisfaction of her legitime; the other
Civil Code.) According to Tolentino, "Although the Code
part or "free portion" shall go to Jorge and Roberto
enumerates four classes, there are really only two
Ramirez "en nuda propriedad." Furthermore, one third
principal classes of substitutions: the simple and
(1/3) of the free portion is charged with the widow's
the fideicommissary. The others are merely variations of
usufruct and the remaining two-thirds (2/3) with a
these two." (111 Civil Code, p. 185 [1973].)
usufruct in favor of Wanda.
The simple or vulgar is that provided in Art. 859 of the
Jorge and Roberto opposed the project of partition on the
Civil Code which reads:
grounds: (a) that the provisions for vulgar substitution in
favor of Wanda de Wrobleski with respect to the widow's ART. 859. The testator may designate one
usufruct and in favor of Juan Pablo Jankowski and Horacio or more persons to substitute the heir or
V. Ramirez, with respect to Wanda's usufruct are invalid heirs instituted in case such heir or heirs
because the first heirs Marcelle and Wanda) survived the should die before him, or should not wish,
testator; (b) that the provisions for fideicommissary or should be incapacitated to accept the
substitutions are also invalid because the first heirs are not inheritance.
related to the second heirs or substitutes within the first
A simple substitution, without a
degree, as provided in Article 863 of the Civil Code; (c) that
statement of the cases to which it refers,
the grant of a usufruct over real property in the
shall comprise the three mentioned in the
Philippines in favor of Wanda Wrobleski, who is an alien,
preceding paragraph, unless the testator
violates Section 5, Article III of the Philippine Constitution;
has otherwise provided.
and that (d) the proposed partition of the testator's
interest in the Santa Cruz (Escolta) Building between the The fideicommissary substitution is described in the Civil
widow Marcelle and the appellants, violates the testator's Code as follows:
express win to give this property to them Nonetheless, the
ART. 863. A fideicommissary substitution
lower court approved the project of partition in its order
by virtue of which the fiduciary or first
dated May 3, 1967. It is this order which Jorge and Roberto
heir instituted is entrusted with the
have appealed to this Court.
obligation to preserve and to transmit to
1. The widow's legitime. a second heir the whole or part of
inheritance, shall be valid and shall take
The appellant's do not question the legality of giving
effect, provided such substitution does
Marcelle one-half of the estate in full ownership. They
not go beyond one degree from the heir
admit that the testator's dispositions impaired his widow's
originally instituted, and provided further
legitime. Indeed, under Art. 900 of the Civil Code "If the
that the fiduciary or first heir and the
only survivor is the widow or widower, she or he shall be
second heir are living at time of the death
entitled to one-half of the hereditary estate." And since
of the testator.
Marcelle alone survived the deceased, she is entitled to
one-half of his estate over which he could impose no It will be noted that the testator provided for a vulgar
burden, encumbrance, condition or substitution of any substitution in respect of the legacies of Roberto and Jorge
kind whatsoever. (Art. 904, par. 2, Civil Code.) Ramirez, the appellants, thus: con sustitucion vulgar a
favor de sus respectivos descendientes, y, en su defecto,
It is the one-third usufruct over the free portion which the
con substitution vulgar reciprocal entre ambos.
appellants question and justifiably so. It appears that the
court a quo approved the usufruct in favor of Marcelle The appellants do not question the legality of the
because the testament provides for a usufruct in her favor substitution so provided. The appellants question the
of one-third of the estate. The court a quo erred for sustitucion vulgar y fideicomisaria a favor de Da. Wanda de
Marcelle who is entitled to one-half of the estate "en pleno Wrobleski" in connection with the one-third usufruct over
dominio" as her legitime and which is more than what she the estate given to the widow Marcelle However, this
is given under the will is not entitled to have any
82
question has become moot because as We have ruled agreement of the usufructuaries and the naked owners."
above, the widow is not entitled to any usufruct. (Brief, p. 26.)
The appellants also question the sustitucion vulgar y 3. The usufruct of Wanda.
fideicomisaria in connection with Wanda's usufruct over
The appellants claim that the usufruct over real properties
two thirds of the estate in favor of Juan Pablo Jankowski
of the estate in favor of Wanda is void because it violates
and Horace v. Ramirez.
the constitutional prohibition against the acquisition of
They allege that the substitution in its vulgar aspect as lands by aliens.
void because Wanda survived the testator or stated
The 1935 Constitution which is controlling provides as
differently because she did not predecease the testator.
follows:
But dying before the testator is not the only case for vulgar
substitution for it also includes refusal or incapacity to SEC. 5. Save in cases of hereditary
accept the inheritance as provided in Art. 859 of the Civil succession, no private agricultural land
Code, supra. Hence, the vulgar substitution is valid. shall be transferred or assigned except to
individuals, corporations, or associations
As regards the substitution in its fideicommissary aspect,
qualified to acquire or hold lands of the
the appellants are correct in their claim that it is void for
public domain in the Philippines. (Art.
the following reasons:
XIII.)
(a) The substitutes (Juan Pablo Jankowski and Horace V.
The court a quo upheld the validity of the usufruct given to
Ramirez) are not related to Wanda, the heir originally
Wanda on the ground that the Constitution covers not only
instituted. Art. 863 of the Civil Code validates a
succession by operation of law but also testamentary
fideicommissary substitution "provided such substitution
succession. We are of the opinion that the Constitutional
does not go beyond one degree from the heir originally
provision which enables aliens to acquire private lands
instituted."
does not extend to testamentary succession for otherwise
What is meant by "one degree" from the first heir is the prohibition will be for naught and meaningless. Any
explained by Tolentino as follows: alien would be able to circumvent the prohibition by
paying money to a Philippine landowner in exchange for a
Scaevola Maura, and Traviesas construe
devise of a piece of land.
"degree" as designation, substitution, or
transmission. The Supreme Court of Spain This opinion notwithstanding, We uphold the usufruct in
has decidedly adopted this construction. favor of Wanda because a usufruct, albeit a real right, does
From this point of view, there can be only not vest title to the land in the usufructuary and it is the
one tranmission or substitution, and the vesting of title to land in favor of aliens which is proscribed
substitute need not be related to the first by the Constitution.
heir. Manresa, Morell and Sanchez
IN VIEW OF THE FOREGOING, the estate of Jose Eugenio
Roman, however, construe the word
Ramirez is hereby ordered distributed as follows:
"degree" as generation, and the present
Code has obviously followed this One-half (1/2) thereof to his widow as her legitime;
interpretation. by providing that the
One-half (1/2) thereof which is the free portion to Roberto
substitution shall not go beyond one
and Jorge Ramirez in naked ownership and the usufruct to
degree "from the heir originally
Wanda de Wrobleski with a simple substitution in favor of
instituted." The Code thus clearly
Juan Pablo Jankowski and Horace V. Ramirez.
indicates that the second heir must be
related to and be one generation from the The distribution herein ordered supersedes that of the
first heir. court a quo. No special pronouncement as to costs.
From this, it follows that the SO ORDERED.
fideicommissary can only be either a child
or a parent of the first heir. These are the
only relatives who are one generation or
degree from the fiduciary (Op. cit., pp.
193-194.)
(b) There is no absolute duty imposed on Wanda to
transmit the usufruct to the substitutes as required by
Arts. 865 and 867 of the Civil Code. In fact, the appellee
admits "that the testator contradicts the establishment of a
fideicommissary substitution when he permits the
properties subject of the usufruct to be sold upon mutual

83
G.R. No. 164584 June 22, 2009 null and void.12 The decision was, however, set aside by
the CA in CA-G.R. SP No. 34054.13 The CA also ordered the
PHILIP MATTHEWS, Petitioner,
RTC to allow the petitioner to file his Answer, and to
vs.
conduct further proceedings.
BENJAMIN A. TAYLOR and JOSELYN C.
TAYLOR, Respondents. In his Answer,14 petitioner claimed good faith in
transacting with Joselyn. Since Joselyn appeared to be the
DECISION
owner of the Boracay property, he found it unnecessary to
NACHURA, J.: obtain the consent of Benjamin. Moreover, as appearing in
the Agreement, Benjamin signed as a witness to the
Assailed in this petition for review on certiorari are the
contract, indicating his knowledge of the transaction and,
Court of Appeals (CA) December 19, 2003 Decision1 and
impliedly, his conformity to the agreement entered into by
July 14, 2004 Resolution2 in CA-G.R. CV No. 59573. The
his wife. Benjamin was, therefore, estopped from
assailed decision affirmed and upheld the June 30, 1997
questioning the validity of the Agreement.
Decision3 of the Regional Trial Court (RTC), Branch 8,
Kalibo, Aklan in Civil Case No. 4632 for Declaration of There being no amicable settlement during the pre-trial,
Nullity of Agreement of Lease with Damages. trial on the merits ensued.
On June 30, 1988, respondent Benjamin A. Taylor On June 30, 1997, the RTC disposed of the case in this
(Benjamin), a British subject, married Joselyn C. Taylor manner:
(Joselyn), a 17-year old Filipina.4 On June 9, 1989, while
WHEREFORE, premises considered, judgment is hereby
their marriage was subsisting, Joselyn bought from Diosa
rendered in favor of the plaintiff and against the
M. Martin a 1,294 square-meter lot (Boracay property)
defendants as follows:
situated at Manoc-Manoc, Boracay Island, Malay, Aklan, for
and in consideration of ₱129,000.00.5 The sale was 1. The Agreement of Lease dated July 20, 1992
allegedly financed by Benjamin.6 Joselyn and Benjamin, consisting of eight (8) pages (Exhibits "T", "T-1",
also using the latter’s funds, constructed improvements "T-2", "T-3", "T-4", "T-5", "T-6" and "T-7") entered
thereon and eventually converted the property to a into by and between Joselyn C. Taylor and Philip
vacation and tourist resort known as the Admiral Ben Bow Matthews before Notary Public Lenito T. Serrano
Inn.7 All required permits and licenses for the operation of under Doc. No. 390, Page 79, Book I, Series of
the resort were obtained in the name of Ginna Celestino, 1992 is hereby declared NULL and VOID;
Joselyn’s sister.8
2. Defendants are hereby ordered, jointly and
However, Benjamin and Joselyn had a falling out, and severally, to pay plaintiff the sum of SIXTEEN
Joselyn ran away with Kim Philippsen. On June 8, 1992, THOUSAND (₱16,000.00) PESOS as damages
Joselyn executed a Special Power of Attorney (SPA) in representing unrealized income for the residential
favor of Benjamin, authorizing the latter to maintain, sell, building and cottages computed monthly from July
lease, and sub-lease and otherwise enter into contract with 1992 up to the time the property in question is
third parties with respect to their Boracay property.9 restored to plaintiff; and
On July 20, 1992, Joselyn as lessor and petitioner Philip 3. Defendants are hereby ordered, jointly and
Matthews as lessee, entered into an Agreement of severally, to pay plaintiff the sum of TWENTY
Lease10(Agreement) involving the Boracay property for a THOUSAND (₱20,000.00) PESOS, Philippine
period of 25 years, with an annual rental of ₱12,000.00. Currency, for attorney’s fees and other incidental
The agreement was signed by the parties and executed expenses.
before a Notary Public. Petitioner thereafter took
SO ORDERED.15
possession of the property and renamed the resort as
Music Garden Resort.1avvphi1 The RTC considered the Boracay property as community
property of Benjamin and Joselyn; thus, the consent of the
Claiming that the Agreement was null and void since it was
spouses was necessary to validate any contract involving
entered into by Joselyn without his (Benjamin’s) consent,
the property. Benjamin’s right over the Boracay property
Benjamin instituted an action for Declaration of Nullity of
was bolstered by the court’s findings that the property was
Agreement of Lease with Damages11 against Joselyn and
purchased and improved through funds provided by
the petitioner. Benjamin claimed that his funds were used
Benjamin. Although the Agreement was evidenced by a
in the acquisition and improvement of the Boracay
public document, the trial court refused to consider the
property, and coupled with the fact that he was Joselyn’s
alleged participation of Benjamin in the questioned
husband, any transaction involving said property required
transaction primarily because his signature appeared only
his consent.
on the last page of the document and not on every page
No Answer was filed, hence, the RTC declared Joselyn and thereof.
the petitioner in defeault. On March 14, 1994, the RTC
On appeal to the CA, petitioner still failed to obtain a
rendered judgment by default declaring the Agreement
favorable decision. In its December 19, 2003
84
Decision,16 the CA affirmed the conclusions made by the In fine, we are called upon to determine the validity of an
RTC. The appellate court was of the view that if, indeed, Agreement of Lease of a parcel of land entered into by a
Benjamin was a willing participant in the questioned Filipino wife without the consent of her British husband. In
transaction, the parties to the Agreement should have used addressing the matter before us, we are confronted not
the phrase "with my consent" instead of "signed in the only with civil law or conflicts of law issues, but more
presence of." The CA noted that Joselyn already prepared importantly, with a constitutional question.
an SPA in favor of Benjamin involving the Boracay
It is undisputed that Joselyn acquired the Boracay
property; it was therefore unnecessary for Joselyn to
property in 1989. Said acquisition was evidenced by a
participate in the execution of the Agreement. Taken
Deed of Sale with Joselyn as the vendee. The property was
together, these circumstances yielded the inevitable
also declared for taxation purposes under her name. When
conclusion that the contract was null and void having been
Joselyn leased the property to petitioner, Benjamin sought
entered into by Joselyn without the consent of Benjamin.
the nullification of the contract on two grounds: first, that
Aggrieved, petitioner now comes before this Court in this he was the actual owner of the property since he provided
petition for review on certiorari based on the following the funds used in purchasing the same; and second, that
grounds: Joselyn could not enter into a valid contract involving the
subject property without his consent.
4.1. THE MARITAL CONSENT OF RESPONDENT
BENJAMIN TAYLOR IS NOT REQUIRED IN THE The trial and appellate courts both focused on the property
AGREEMENT OF LEASE DATED 20 JULY 1992. relations of petitioner and respondent in light of the Civil
GRANTING ARGUENDO THAT HIS CONSENT IS Code and Family Code provisions. They, however, failed to
REQUIRED, BENJAMIN TAYLOR IS DEEMED TO observe the applicable constitutional principles, which, in
HAVE GIVEN HIS CONSENT WHEN HE AFFIXED fact, are the more decisive.
HIS SIGNATURE IN THE AGREEMENT OF LEASE
Section 7, Article XII of the 1987 Constitution states:18
AS WITNESS IN THE LIGHT OF THE RULING OF
THE SUPREME COURT IN THE CASE OF SPOUSES Section 7. Save in cases of hereditary succession, no
PELAYO VS. MELKI PEREZ, G.R. NO. 141323, JUNE private lands shall be transferred or conveyed except to
8, 2005. individuals, corporations, or associations qualified to
acquire or hold lands of the public domain.1avvphi1
4.2. THE PARCEL OF LAND SUBJECT OF THE
AGREEMENT OF LEASE IS THE EXCLUSIVE Aliens, whether individuals or corporations, have been
PROPERTY OF JOCELYN C. TAYLOR, A FILIPINO disqualified from acquiring lands of the public domain.
CITIZEN, IN THE LIGHT OF CHEESMAN VS. IAC, Hence, by virtue of the aforecited constitutional provision,
G.R. NO. 74833, JANUARY 21, 1991. they are also disqualified from acquiring private
lands.19The primary purpose of this constitutional
4.3. THE COURTS A QUO ERRONEOUSLY APPLIED
provision is the conservation of the national
ARTICLE 96 OF THE FAMILY CODE OF THE
patrimony.20 Our fundamental law cannot be any clearer.
PHILIPPINES WHICH IS A PROVISION REFERRING
The right to acquire lands of the public domain is reserved
TO THE ABSOLUTE COMMUNITY OF PROPERTY.
only to Filipino citizens or corporations at least sixty
THE PROPERTY REGIME GOVERNING THE
percent of the capital of which is owned by Filipinos.21
PROPERTY RELATIONS OF BENJAMIN TAYLOR
AND JOSELYN TAYLOR IS THE CONJUGAL In Krivenko v. Register of Deeds,22 cited in Muller v.
PARTNERSHIP OF GAINS BECAUSE THEY WERE Muller,23 we had the occasion to explain the constitutional
MARRIED ON 30 JUNE 1988 WHICH IS PRIOR TO prohibition:
THE EFFECTIVITY OF THE FAMILY CODE.
Under Section 1 of Article XIII of the Constitution, "natural
ARTICLE 96 OF THE FAMILY CODE OF THE
resources, with the exception of public agricultural land,
PHILIPPINES FINDS NO APPLICATION IN THIS
shall not be alienated," and with respect to public
CASE.
agricultural lands, their alienation is limited to Filipino
4.4. THE HONORABLE COURT OF APPEALS citizens. But this constitutional purpose conserving
IGNORED THE PRESUMPTION OF REGULARITY IN agricultural resources in the hands of Filipino citizens may
THE EXECUTION OF NOTARIAL DOCUMENTS. easily be defeated by the Filipino citizens themselves who
may alienate their agricultural lands in favor of aliens. It is
4.5. THE HONORABLE COURT OF APPEALS
partly to prevent this result that Section 5 is included in
FAILED TO PASS UPON THE COUNTERCLAIM OF
Article XIII, and it reads as follows:
PETITIONER DESPITE THE FACT THAT IT WAS
NOT CONTESTED AND DESPITE THE "Section 5. Save in cases of hereditary succession, no
PRESENTATION OF EVIDENCE ESTABLISHING private agricultural land will be transferred or assigned
SAID CLAIM.17 except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain in
The petition is impressed with merit.
the Philippines."

85
This constitutional provision closes the only remaining said property. In deciding the case in favor of the
avenue through which agricultural resources may leak into petitioner, the Court held that respondent was aware that
alien’s hands. It would certainly be futile to prohibit the as an alien, he was prohibited from owning a parcel of land
alienation of public agricultural lands to aliens if, after all, situated in the Philippines. He had, in fact, declared that
they may be freely so alienated upon their becoming when the spouses acquired the Antipolo property, he had
private agricultural lands in the hands of Filipino citizens. it titled in the name of the petitioner because of said
xxx prohibition. Hence, we denied his attempt at subsequently
asserting a right to the said property in the form of a claim
xxxx
for reimbursement. Neither did the Court declare that an
If the term "private agricultural lands" is to be construed implied trust was created by operation of law in view of
as not including residential lots or lands not strictly petitioner’s marriage to respondent. We said that to rule
agricultural, the result would be that "aliens may freely otherwise would permit circumvention of the
acquire and possess not only residential lots and houses constitutional prohibition.
for themselves but entire subdivisions, and whole towns
In Frenzel v. Catito,32 petitioner, an Australian citizen, was
and cities," and that "they may validly buy and hold in their
married to Teresita Santos; while respondent, a Filipina,
names lands of any area for building homes, factories,
was married to Klaus Muller. Petitioner and respondent
industrial plants, fisheries, hatcheries, schools, health and
met and later cohabited in a common-law relationship,
vacation resorts, markets, golf courses, playgrounds,
during which petitioner acquired real properties; and
airfields, and a host of other uses and purposes that are
since he was disqualified from owning lands in the
not, in appellant’s words, strictly agricultural." (Solicitor
Philippines, respondent’s name appeared as the vendee in
General’s Brief, p. 6) That this is obnoxious to the
the deeds of sale. When their relationship turned sour,
conservative spirit of the Constitution is beyond
petitioner filed an action for the recovery of the real
question.24
properties registered in the name of respondent, claiming
The rule is clear and inflexible: aliens are absolutely not that he was the real owner. Again, as in the other cases, the
allowed to acquire public or private lands in the Court refused to declare petitioner as the owner mainly
Philippines, save only in constitutionally recognized because of the constitutional prohibition. The Court added
exceptions.25 There is no rule more settled than this that being a party to an illegal contract, he could not come
constitutional prohibition, as more and more aliens to court and ask to have his illegal objective carried out.
attempt to circumvent the provision by trying to own One who loses his money or property by knowingly
lands through another. In a long line of cases, we have engaging in an illegal contract may not maintain an action
settled issues that directly or indirectly involve the above for his losses.
constitutional provision. We had cases where aliens
Finally, in Cheesman v. Intermediate Appellate
wanted that a particular property be declared as part of
Court,33 petitioner (an American citizen) and Criselda
their father’s estate;26 that they be reimbursed the funds
Cheesman acquired a parcel of land that was later
used in purchasing a property titled in the name of
registered in the latter’s name. Criselda subsequently sold
another;27 that an implied trust be declared in their
the land to a third person without the knowledge of the
(aliens’) favor;28 and that a contract of sale be nullified for
petitioner. The petitioner then sought the nullification of
their lack of consent.29
the sale as he did not give his consent thereto. The Court
In Ting Ho, Jr. v. Teng Gui,30 Felix Ting Ho, a Chinese held that assuming that it was his (petitioner’s) intention
citizen, acquired a parcel of land, together with the that the lot in question be purchased by him and his wife,
improvements thereon. Upon his death, his heirs (the he acquired no right whatever over the property by virtue
petitioners therein) claimed the properties as part of the of that purchase; and in attempting to acquire a right or
estate of their deceased father, and sought the partition of interest in land, vicariously and clandestinely, he
said properties among themselves. We, however, excluded knowingly violated the Constitution; thus, the sale as to
the land and improvements thereon from the estate of him was null and void.
Felix Ting Ho, precisely because he never became the
In light of the foregoing jurisprudence, we find and so hold
owner thereof in light of the above-mentioned
that Benjamin has no right to nullify the Agreement of
constitutional prohibition.
Lease between Joselyn and petitioner. Benjamin, being an
In Muller v. Muller,31 petitioner Elena Buenaventura Muller alien, is absolutely prohibited from acquiring private and
and respondent Helmut Muller were married in Germany. public lands in the Philippines. Considering that Joselyn
During the subsistence of their marriage, respondent appeared to be the designated "vendee" in the Deed of Sale
purchased a parcel of land in Antipolo City and of said property, she acquired sole ownership thereto. This
constructed a house thereon. The Antipolo property was is true even if we sustain Benjamin’s claim that he
registered in the name of the petitioner. They eventually provided the funds for such acquisition. By entering into
separated, prompting the respondent to file a petition for such contract knowing that it was illegal, no implied trust
separation of property. Specifically, respondent prayed for was created in his favor; no reimbursement for his
reimbursement of the funds he paid for the acquisition of expenses can be allowed; and no declaration can be made
86
that the subject property was part of the
conjugal/community property of the spouses. In any event,
he had and has no capacity or personality to question the
subsequent lease of the Boracay property by his wife on
the theory that in so doing, he was merely exercising the
prerogative of a husband in respect of conjugal property.
To sustain such a theory would countenance indirect
controversion of the constitutional prohibition. If the
property were to be declared conjugal, this would accord
the alien husband a substantial interest and right over the
land, as he would then have a decisive vote as to its
transfer or disposition. This is a right that the Constitution
does not permit him to have.34
In fine, the Agreement of Lease entered into between
Joselyn and petitioner cannot be nullified on the grounds
advanced by Benjamin. Thus, we uphold its validity.
With the foregoing disquisition, we find it unnecessary to
address the other issues raised by the petitioner.
WHEREFORE, premises considered, the December 19,
2003 Decision and July 14, 2004 Resolution of the Court of
Appeals in CA-G.R. CV No. 59573, are REVERSED and SET
ASIDE and a new one is entered DISMISSING the complaint
against petitioner Philip Matthews.
SO ORDERED.

87
88
G.R. No. 74833 January 21, 1991 1. Both parties recognize the existence of the Deed
of Sale over the residential house located at No. 7
THOMAS C. CHEESMAN, petitioner,
Granada St., Gordon Heights, Olongapo City, which
vs.
was acquired from Armando Altares on June 4,
INTERMEDIATE APPELLATE COURT and ESTELITA
1974 and sold by defendant Criselda Cheesman to
PADILLA, respondents.
Estelita Padilla on July 12, 1981; and
Estanislao L. Cesa, Jr. for petitioner.
2. That the transaction regarding the transfer of
Benjamin I. Fernandez for private respondent.
their property took place during the existence of
their marriage as the couple were married on
December 4, 1970 and the questioned property
was acquired sometime on June 4,1974.
NARVASA, J.:
The action resulted in a judgment dated June 24,
This appeal concerns the attempt by an American citizen
1982,10 declaring void ab initio the sale executed by
(petitioner Thomas Cheesman) to annul — for lack of
Criselda Cheesman in favor of Estelita M. Padilla, and
consent on his part — the sale by his Filipino wife
ordering the delivery of the property to Thomas Cheesman
(Criselda) of a residential lot and building to Estelita
as administrator of the conjugal partnership property, and
Padilla, also a Filipino.
the payment to him of P5,000.00 as attorney's fees and
Thomas Cheesman and Criselda P. Cheesman were expenses of litigation.11
married on December 4, 1970 but have been separated
The judgment was however set aside as regards Estelita
since February 15,1981.1
Padilla on a petition for relief filed by the latter, grounded
On June 4, 1974, a "Deed of Sale and Transfer of on "fraud, mistake and/or excusable negligence" which
Possessory Rights" was executed by Armando Altares had seriously impaired her right to present her case
conveying a parcel of unregistered land and the house adequately.12 "After the petition for relief from judgment
thereon (at No. 7 Neptune Street, Gordon Heights, was given due course," according to petitioner, "a new
Olongapo City) in favor of "Criselda P. Cheesman, of legal judge presided over the case."13
age, Filipino citizen, married to Thomas Cheesman, and
Estelita Padilla filed a supplemental pleading on December
residing at Lot No. 1, Blk. 8, Filtration Road, Sta. Rita,
20, 1982 as her own answer to the complaint, and a
Olongapo City . . ."2 Thomas Cheesman, although aware of
motion for summary judgment on May 17, 1983. Although
the deed, did not object to the transfer being made only to
there was initial opposition by Thomas Cheesman to the
his wife.3
motion, the parties ultimately agreed on the rendition by
Thereafter—and again with the knowledge of Thomas the court of a summary judgment after entering into a
Cheesman and also without any protest by him—tax stipulation of facts, at the hearing of the motion on June 21,
declarations for the property purchased were issued in the 1983, the stipulation being of the following tenor:14
name only of Criselda Cheesman and Criselda assumed
(1) that the property in question was bought
exclusive management and administration of said
during the existence of the marriage between the
property, leasing it to tenants.4
plaintiff and the defendant Criselda P. Cheesman;
On July 1, 1981, Criselda Cheesman sold the property to
(2) that the property bought during the marriage
Estelita M. Padilla, without the knowledge or consent of
was registered in the name of Criselda Cheesman
Thomas Cheesman.5 The deed described Criselda as being"
and that the Deed of Sale and Transfer of
. . . of legal age, married to an American citizen,. . ."6
Possessory Rights executed by the former owner-
Thirty days later, or on July 31, 1981, Thomas Cheesman vendor Armando Altares in favor of Criselda
brought suit in the Court of First Instance at Olongapo City Cheesman made no mention of the plaintiff;
against his wife, Criselda, and Estelita Padilla, praying for
(3) that the property, subject of the proceedings,
the annulment of the sale on the ground that the
was sold by defendant Criselda Cheesman in favor
transaction had been executed without his knowledge and
of the other defendant Estelita M. Padilla, without
consent.7 An answer was filed in the names of both
the written consent of the plaintiff.
defendants, alleging that (1) the property sold was
paraphernal, having been purchased by Criselda with Obviously upon the theory that no genuine issue existed
funds exclusively belonging to her ("her own separate any longer and there was hence no need of a trial, the
money"); (2) Thomas Cheesman, being an American, was parties having in fact submitted, as also stipulated, their
disqualified to have any interest or right of ownership in respective memoranda each praying for a favorable
the land; and (3) Estelita Padilla was a buyer in good faith. 8 verdict, the Trial Court15 rendered a "Summary Judgment"
dated August 3, 1982 declaring "the sale executed by . . .
During the pre-trial conference, the parties agreed upon
Criselda Cheesman in favor of . . . Estelita Padilla to be
certain facts which were subsequently set out in a pre-trial
valid," dismissing Thomas Cheesman's complaint and
Order dated October 22, 1981,9 as follows:
ordering him "to immediately turn over the possession of
89
the house and lot subject of . . . (the) case to . . . Estelita Estelita Padilla by Criselda Cheesman also
Padilla . . ."16 described her as "married to an American
citizen," and both said descriptions had
The Trial Court found that —
thus "placed Estelita on knowledge of the
1) the evidence on record satisfactorily overcame conjugal nature of the property;" and
the disputable presumption in Article 160 of the
b) that furthermore, Estelita had admitted
Civil Code—that all property of the marriage
to stating in the deed by which she
belongs to the conjugal partnership "unless it be
acquired the property a price much lower
proved that it pertains exclusively to the husband
than that actually paid "in order to avoid
or to the wife"—and that the immovable in
payment of more obligation to the
question was in truth Criselda's paraphernal
government;"19
property;
3) to decline to declare that the evidence did not warrant
2) that moreover, said legal presumption in Article
the grant of Estelita Padilla's petition for relief on the
160 could not apply "inasmuch as the husband-
ground of "fraud, mistake and/or excusable negligence;"20
plaintiff is an American citizen and therefore
disqualified under the Constitution to acquire and 4) to hold that Thomas Cheesman had waived his objection
own real properties; and to Estelita's petition for relief by failing to appeal from the
order granting the same;
3) that the exercise by Criselda of exclusive acts of
dominion with the knowledge of her husband 5) to accord to Estelita Padilla a relief other than that she
"had led . . . Estelita Padilla to believe that the had specifically prayed for in her petition for relief, ie., "the
properties were the exclusive properties of restoration of the purchase price which Estelita allegedly
Criselda Cheesman and on the faith of such a belief paid to Criselda;"21 and
she bought the properties from her and for value,"
6) to fail to declare that Thomas Cheesman's citizenship is
and therefore, Thomas Cheesman was, under
not a bar to his action to recover the lot and house for the
Article 1473 of the Civil Code, estopped to impugn
conjugal partnership.22
the transfer to Estelita Padilla.
Such conclusions as that (1) fraud, mistake or excusable
Thomas Cheesman appealed to the Intermediate Appellate
negligence existed in the premises justifying relief to
Court. There he assailed the Trial Court acts (1) of granting
Estelita Padilla under Rule 38 of the Rules of Court, or (2)
Estelita Padilla's petition for relief, and its resolution of
that Criselda Cheesman had used money she had brought
matters not subject of said petition; (2) of declaring valid
into her marriage to Thomas Cheesman to purchase the lot
the sale to Estelita Padilla despite the lack of consent
and house in question, or (3) that Estelita Padilla believed
thereto by him, and the presumption of the conjugal
in good faith that Criselda Cheesman was the exclusive
character of the property in question pursuant to Article
owner of the property that she (Estelita) intended to and
160 of the Civil Code; (3) of disregarding the judgment of
did in fact buy—derived from the evidence adduced by the
June 24, 1982 which, not having been set aside as against
parties, the facts set out in the pleadings or otherwise
Criselda Cheesman, continued to be binding on her; and
appearing on record—are conclusions or findings of fact.
(4) of making findings of fact not supported by evidence.
As distinguished from a question of law—which exists
All of these contentions were found to be without merit by
"when the doubt or difference arises as to what the law is
the Appellate Tribunal which, on January 7, 1986,
on a certain state of facts" — "there is a question of fact
promulgated a decision (erroneously denominated,
when the doubt or difference arises as to the truth or the
"Report")17affirming the "Summary Judgment complained
falsehood of alleged facts;"23 or when the "query
of," "having found no reversible error" therein.
necessarily invites calibration of the whole evidence
Once more, Thomas Cheesman availed of the remedy of considering mainly the credibility of witnesses, existence
appeal, this time to this Court. Here, he argues that it was and relevancy of specific surrounding circumstances, their
reversible error for the Intermediate Appellate Court — relation; to each other and to the whole and the
probabilities of the situation."24
1) to find that the presumption that the property in
question is conjugal in accordance with Article 160 had Now, it is axiomatic that only questions of law, distinctly
been satisfactorily overcome by Estelita Padilla;18 set forth, may be raised in a petition for the review
oncertiorari of a decision of the Court of Appeals presented
2) to rule that Estelita Padilla was a purchaser of said
to this Court.25 As everyone knows or ought to know, the
property in good faith, it appearing:
appellate jurisdiction of this Court is limited to reviewing
a) that the deed by which the property errors of law, accepting as conclusive the factual findings
was conveyed to Criselda Cheesman of the lower court upon its own assessment of the
described her as "married to Thomas C. evidence.26 The creation of the Court of Appeals was
Cheesman," as well as the deed by which precisely intended to take away from the Supreme Court
the property was later conveyed to the work of examining the evidence, and confine its task to
90
the determination of questions which do not call for the Thomas Cheesman was, of course, charged with
reading and study of transcripts containing the testimony knowledge of this prohibition. Thus, assuming that it was
of witnesses.27 The rule of conclusiveness of the factual his intention that the lot in question be purchased by him
findings or conclusions of the Court of Appeals is, to be and his wife, he acquired no right whatever over the
sure, subject to certain exceptions,28 none of which property by virtue of that purchase; and in attempting to
however obtains in the case at bar. acquire a right or interest in land, vicariously and
clandestinely, he knowingly violated the Constitution; the
It is noteworthy that both the Trial Court and the
sale as to him was null and void.31 In any event, he had and
Intermediate Appellate Court reached the same
has no capacity or personality to question the subsequent
conclusions on the three (3) factual matters above set
sale of the same property by his wife on the theory that in
forth, after assessment of the evidence and determination
so doing he is merely exercising the prerogative of a
of the probative value thereof. Both Courts found that the
husband in respect of conjugal property. To sustain such a
facts on record adequately proved fraud, mistake or
theory would permit indirect controversion of the
excusable negligence by which Estelita Padilla's rights had
constitutional prohibition. If the property were to be
been substantially impaired; that the funds used by
declared conjugal, this would accord to the alien husband a
Criselda Cheesman was money she had earned and saved
not insubstantial interest and right over land, as he would
prior to her marriage to Thomas Cheesman, and that
then have a decisive vote as to its transfer or disposition.
Estelita Padilla did believe in good faith that Criselda
This is a right that the Constitution does not permit him to
Cheesman was the sole owner of the property in question.
have.
Consequently, these determinations of fact will not be here
disturbed, this Court having been cited to no reason for As already observed, the finding that his wife had used her
doing so. own money to purchase the property cannot, and will not,
at this stage of the proceedings be reviewed and
These considerations dispose of the first three (3) points
overturned. But even if it were a fact that said wife had
that petitioner Cheesman seeks to make in his
used conjugal funds to make the acquisition, the
appeal.1âwphi1They also make unnecessary an extended
considerations just set out militate, on high constitutional
discussion of the other issues raised by him. As to them, it
grounds, against his recovering and holding the property
should suffice to restate certain fundamental propositions.
so acquired or any part thereof. And whether in such an
An order of a Court of First Instance (now Regional Trial event, he may recover from his wife any share of the
Court) granting a petition for relief under Rule 38 is money used for the purchase or charge her with
interlocutory and is not appealable. Hence, the failure of unauthorized disposition or expenditure of conjugal funds
the party who opposed the petition to appeal from said is not now inquired into; that would be, in the premises, a
order, or his participation in the proceedings subsequently purely academic exercise. An equally decisive
had, cannot be construed as a waiver of his objection to the consideration is that Estelita Padilla is a purchaser in good
petition for relief so as to preclude his raising the same faith, both the Trial Court and the Appellate Court having
question on appeal from the judgment on the merits of the found that Cheesman's own conduct had led her to believe
main case. Such a party need not repeat his objections to the property to be exclusive property of the latter's wife,
the petition for relief, or perform any act thereafter (e.g., freely disposable by her without his consent or
take formal exception) in order to preserve his right to intervention. An innocent buyer for value, she is entitled to
question the same eventually, on appeal, it being sufficient the protection of the law in her purchase, particularly as
for this purpose that he has made of record "the action against Cheesman, who would assert rights to the property
which he desires the court to take or his objection to the denied him by both letter and spirit of the Constitution
action of the court and his grounds therefor."29 itself.
Again, the prayer in a petition for relief from judgment WHEREFORE, the appealed decision is AFFIRMED, with
under Rule 38 is not necessarily the same prayer in the costs against petitioner.
petitioner's complaint, answer or other basic pleading.
SO ORDERED.
This should be obvious. Equally obvious is that once a
petition for relief is granted and the judgment subject
thereof set aside, and further proceedings are thereafter
had, the Court in its judgment on the merits may properly
grant the relief sought in the petitioner's basic pleadings,
although different from that stated in his petition for relief.
Finally, the fundamental law prohibits the sale to aliens of
residential land. Section 14, Article XIV of the 1973
Constitution ordains that, "Save in cases of hereditary
succession, no private land shall be transferred or conveyed
except to individuals, corporations, or associations qualified
to acquire or hold lands of the public domain."30Petitioner
91
92
G.R. No. L-29663 August 20, 1990 10) the trial court set the case for pre-trial and trial for
April 2, 1968 (Rollo, p. 12; Record on Appeal, pp. 10-11).
GREGORIO LLANTINO and BELINDA LLANTINO
assisted by husband Napoleon Barba, plaintiffs- At the pre-trial, both parties agreed upon the identity of
appellants, the land as described in the complaint. It was mutually
vs. admitted that the defendants original name was Co Liong
CO LIONG CHONG alias JUAN MOLINA, defendant- Chong who was then a Chinese national in 1954, when he
appellee. approached the plaintiffs and offered to lease the land in
question. It was also admitted by the counsel for the
Delfin de Vera for plaintiffs-appellants.
defendant that prior to the filing of the case, the plaintiffs
Antonio G. Sosito for defendant-appellee. have in fact invited the defendant to a conference about
the matter (Rollo, p. 12; Record on Appeal; p. 14).
Chong's counsel produced the carbon original of the
PARAS, J.:
contract of lease entered into between Chong and the
This is an appeal perfected before the effectivity of Llantinos and the existence of the contract of lease as a
Republic Act 5440, from the decision * of the Court of First public instrument was admitted (Rollo, p. 12; Record on
Instance of Catanduanes in Civil Case No. 611, to quiet title Appeal, pp. 14-15).
with damages, entitled Gregorio Llantino, et al. vs. Cong
It was also admitted that Chong had in fact constructed a
Liong Chong alias Juan Molina, dismissing the complaint
building of strong materials on the land worth P40,000.00
and declaring that the contract of lease entered into
(Rollo, p. 12; Record on Appeal, p. 15); that Chong has
between the plaintiffs and the defendant valid and in
become a naturalized Filipino citizen in 1961 and that his
accordance with law.
name is no longer Co Liong Chong but Juan Molina (Rollo,
The facts of the case as summarized by the trial court are p. 12; Record on Appeal, p. 15).
as follows:
On May 17, 1968, the trial court rendered a Decision the
Plaintiffs (petitioners herein) aver that they are the dispositive portion of which reads:
owners of a commercial-residential land situated in the
WHEREFORE, in view of the foregoing considerations, the
municipality of Virac, Catanduanes, described in paragraph
Court finds the contract of lease entered into between the
2 of the complaint, which sometime in 1954 they leased to
plaintiffs and the defendant on October 5, 1954, valid and
the defendant (private respondent) who was then a
in accordance with law and the complaint is dismissed
Chinese national and went by the name of Co Liong Chong
with costs against the plaintiffs.
for a period of thirteen (13) years for the sum of P6,150.00
for the whole period. The defendant was placed in The Court, however, feels that there is no sufficient ground
possession of the property but knowing that the period of to award moral damages or attorney's fees as claimed by
the least would end with the year 1967, petitioners the defendant because the Court is fairly convinced that
requested private respondent for a conference but the the institution of the suit sprung from an honest conviction
latter did not honor the request and instead he informed on the part of the plaintiffs that on account of the period
the petitioners that he had already constructed a fixed in the contract of lease and the fact that the
commercial building on the land worth P50,000.00; that defendant was a Chinese national at the time of its
the lease contract was for a period of sixty (60) years, celebration constituted valid grounds for annulment.
counted from 1954; and that he is already a Filipino
SO ORDERED. (Rollo, p. 12; Record on
citizen. The claim of Chong came as a surprise to the
Appeal, p. 24).
Llantinos because they did not remember having agreed to
a sixty-year lease agreement as that would virtually make From this judgment, plaintiffs appealed directly to this
Chong the owner of the realty which, as a Chinese national, Court on a pure question of law (Rollo, p. 12; Record on
he had no right to own and neither could he have acquired Appeal, pp. 24-25).
such ownership after naturalization subsequent to 1954.
The plaintiffs-appellants filed their brief on May 26, 1969
On December 16, 1967, in order to avoid a court litigation
(Rollo, p. 48). The defendant-appellee filed his
the Llantinos once more invited Chong to a conference
corresponding brief on July 22, 1969 (Rollo, p. 59).
about the matter but again Chong ignored the invitation.
(Rollo, p. 48; Appellant's Brief, p. 12) The appellants raised the following assignment of errors:
Hence, on January 10, 1968, the Llantinos filed their I
complaint to quiet title with damages before the Court of
THE LOWER COURT ERRED IN DECLARING THE
First Instance of Catanduanes (Rollo, p. 12; Record on
CONTRACT ENTERED INTO BY AND BETWEEN THE
Appeal, pp. 1-4).
APPELLANTS AND THE DEFENDANTS ON OCTOBER 5,
After Chong has filed an answer to the complaint and the 1954 VALID.
Llantinos their reply, (Rollo, p. 12; Record on Appeal, pp. 9-
II
93
THE LOWER COURT ERRED IN REFUSING TO DECLARE excluded by the Constitution from use of lands for
THAT CONTRACT NOT A LEASE. residential purposes. Since their residence in the
Philippines is temporary, they may be granted temporary
Stripping the case of irrelevant allegations, the pivotal
rights such as a lease contract which is not forbidden by
issue in this case is whether or not the contract of lease
the Constitution. Should they desire to remain here forever
entered into by and between the petitioners including
and share our fortune and misfortune, Filipino citizenship
Virgilio Llantino now deceased and private respondent on
is not impossible to acquire (Philippine Banking
October 5, 1954 for a period of sixty (60) years is valid.
Corporation vs. Lui She, 21 SCRA 52 [1967], citing
Petitioners contend that when the contract which is sought Krivenko vs. Register of Deeds, 79 Phil. 461 [1947]).
to be declared void was entered into by and between the
The only instance where a contract of lease may be
parties, private respondent was still a Chinese national
considered invalid is, if there are circumstances attendant
(Rollo, p. 48; Appellants' Brief, p. 2). However, petitioners
to its execution, which are used as a scheme to circumvent
also stated that they do not dispute the right of private
the constitutional prohibition.
respondent to hold the landholding in dispute under a
contract of lease but they cannot fathom how Congress If an alien is given not only a lease of, but also an option to
could have thought of a lease contract which shall be for an buy, a piece of land, by virtue of which the Filipino owner
indefinite period and yet say that the period to be valid cannot sell or otherwise dispose of his property, this to last
should not exceed 99 years (Rollo, p. 48; Appellant's Brief, for 50 years, then it becomes clear that the arrangement is
p. 4; Article 1643 of the New Civil Code of the Philippines). a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land (jus
On the other hand, private respondent argued that even
possidendi, jus utendi, jus fruendi, and jus abutendi) —
though he was still an alien when he entered into the
rights, the sum of which make up ownership. It is just as if
contract of lease (on October 5, 1954), he was not
today the possession is transferred, tomorrow the use, the
prohibited by law to do so. In fact, prior to his becoming a
next day the disposition, and so on, until ultimately all the
naturalized Filipino citizen in 1961, the appellants did not
rights of which ownership is made up are consolidated in
question his right to enter into that contract so that the
an alien (Philippine Banking Corporation vs. Lui She, 21
parties are in pari delicto. He constructed a building on the
SCRA 52 [1967]).
property worth P40,000.00 and prays that he be awarded
P30,000.00 for moral damages and P2,000.00 for Coming back to the case at bar, even assuming, arguendo,
Attorney's fees. (Rollo, p. 48; Appellant's Brief, p. 2). that the subject contract is prohibited, the same can no
longer be questioned presently upon the acquisition by the
The position of private respondent is well taken.
private respondent of Filipino citizenship. It was held that
The lower court correctly ruled that the defendant- sale of a residential land to an alien which is now in the
appellee Chong had at the time of the execution of the hands of a naturalized Filipino citizen is valid (De Castro
contract, the right to hold by lease the property involved in vs. Tan, 129 SCRA 85 [1984]).
the case although at the time of the execution of the
A contract is the law between the contracting parties, and
contract, he was still a Chinese national (Rollo, p. 59;
when there is nothing in it which is contrary to law,
Appellee's Brief, pp. 10-11).
morals, good customs, public policy or public order, the
In the present case, it has been established that there is validity of the contract must be sustained (Marimperio
only one contract and there is no option to buy the leased Compania Naviera, S.A. vs. Court of Appeals, 156 SCRA 358
property in favor of Chong. There is nothing in the record, [1987]).
either in the lease contract or in the complaint itself, to
The issue of the nature of the contract in the case at bar
indicate any scheme to circumvent the constitutional
was never raised in the basic pleadings or in the pre-trial
prohibition. On the contrary, the Llantinos themselves
(Rollo, p. 59-1; Appellee's Brief, p. 22).
admit openly that right from the start and before entering
into the contract, Chong had merely asked them for a lease It is too late to raise an issue on appeal in the Supreme
of the premises to which they agreed. Admittedly under Court when it has not been raised in the lower court
the terms of the contract there is nothing to prevent the (Espadera vs. Court of Appeals, 165 SCRA 364 [1988]).
Llantinos from disposing of their title to the land to any
Moreover, contracts which are not ambiguous are to be
qualified party but subject to the rights of the lessee
interpreted according to their literal meaning and should
Chong. Neither is there under the terms of the said
not be interpreted beyond their obvious intendment
contract to indicate that the ownership of the Llantinos of
(Plastic Town Center Corporation vs. NLRC, 172 SCRA 580
the leased premises has been virtually transferred to the
[1989]; Herrera vs. Petrophil Corp., 146 SCRA 385 [1986]).
lessee (Rollo, p. 59; Appellee's Brief, p. 14).
PREMISES CONSIDERED, the decision appealed from is
Under the circumstances, a lease to an alien for a
hereby AFFIRMED with costs against the plaintiffs-
reasonable period is valid. So is an option giving an alien
appellants.
the right to buy real property on condition that he is
granted Philippine citizenship. Aliens are not completely SO ORDERED.
94
FIRST DIVISION personal properties purchased thereby, belong exclusively
to the petitioner. However, the part of that inheritance
[G.R. NO. 149615 : August 29, 2006]
used by the petitioner for acquiring the house and lot in
IN RE: PETITION FOR SEPARATION OF PROPERTY this country cannot be recovered by the petitioner, its
ELENA BUENAVENTURA MULLER, Petitioner, v. HELMUT acquisition being a violation of Section 7, Article XII of the
MULLER, Respondent. Constitution which provides that "save in cases of
hereditary succession, no private lands shall be
DECISION
transferred or conveyed except to individuals,
YNARES-SANTIAGO, J.: corporations or associations qualified to acquire or hold
lands of the public domain." The law will leave the parties
This Petition for Review on Certiorari 1 assails the
in the situation where they are in without prejudice to a
February 26, 2001 Decision 2 of the Court of Appeals in CA-
voluntary partition by the parties of the said real property.
G.R. CV No. 59321 affirming with modification the August
xxx
12, 1996 Decision 3 of the Regional Trial Court of Quezon
City, Branch 86 in Civil Case No. Q-94-21862, which xxx
terminated the regime of absolute community of property
As regards the property covered by Transfer Certificate of
between petitioner and respondent, as well as the
Title No. 219438 of the Registry of Deeds of Marikina,
Resolution 4 dated August 13, 2001 denying the motion for
Metro Manila, situated in Antipolo, Rizal and the
reconsideration.
improvements thereon, the Court shall not make any
The facts are as follows: pronouncement on constitutional grounds.7
Petitioner Elena Buenaventura Muller and respondent Respondent appealed to the Court of Appeals which
Helmut Muller were married in Hamburg, Germany on rendered the assailed decision modifying the trial court's
September 22, 1989. The couple resided in Germany at a Decision. It held that respondent merely prayed for
house owned by respondent's parents but decided to move reimbursement for the purchase of the Antipolo property,
and reside permanently in the Philippines in 1992. By this and not acquisition or transfer of ownership to him. It also
time, respondent had inherited the house in Germany from considered petitioner's ownership over the property in
his parents which he sold and used the proceeds for the trust for the respondent. As regards the house, the Court of
purchase of a parcel of land in Antipolo, Rizal at the cost of Appeals ruled that there is nothing in the Constitution
P528,000.00 and the construction of a house amounting to which prohibits respondent from acquiring the same. The
P2,300,000.00. The Antipolo property was registered in dispositive portion of the assailed decision reads:
the name of petitioner under Transfer Certificate of Title
WHEREFORE, in view of the foregoing, the Decision of the
No. 219438 5 of the Register of Deeds of Marikina, Metro
lower court dated August 12, 1996 is hereby MODIFIED.
Manila.
Respondent Elena Buenaventura Muller is hereby ordered
Due to incompatibilities and respondent's alleged to REIMBURSE the petitioner the amount of P528,000.00
womanizing, drinking, and maltreatment, the spouses for the acquisition of the land and the amount of
eventually separated. On September 26, 1994, respondent P2,300,000.00 for the construction of the house situated in
filed a petition 6 for separation of properties before the Atnipolo, Rizal, deducting therefrom the amount
Regional Trial Court of Quezon City. respondent spent for the preservation, maintenance and
development of the aforesaid real property including the
On August 12, 1996, the trial court rendered a decision
depreciation cost of the house or in the alternative to SELL
which terminated the regime of absolute community of
the house and lot in the event respondent does not have
property between the petitioner and respondent. It also
the means to reimburse the petitioner out of her own
decreed the separation of properties between them and
money and from the proceeds thereof, reimburse the
ordered the equal partition of personal properties located
petitioner of the cost of the land and the house deducting
within the country, excluding those acquired by gratuitous
the expenses for its maintenance and preservation spent
title during the marriage. With regard to the Antipolo
by the respondent. Should there be profit, the same shall
property, the court held that it was acquired using
be divided in proportion to the equity each has over the
paraphernal funds of the respondent. However, it ruled
property. The case is REMANDED to the lower court for
that respondent cannot recover his funds because the
reception of evidence as to the amount claimed by the
property was purchased in violation of Section 7, Article
respondents for the preservation and maintenance of the
XII of the Constitution. Thus'
property.
However, pursuant to Article 92 of the Family Code,
SO ORDERED.8
properties acquired by gratuitous title by either spouse
during the marriage shall be excluded from the community Hence, the instant Petition for Review raising the following
property. The real property, therefore, inherited by issues:
petitioner in Germany is excluded from the absolute
I
community of property of the herein spouses. Necessarily,
the proceeds of the sale of said real property as well as the
95
THE HONORABLE COURT OF APPEALS GRAVELY ERRED partly to prevent this result that section 5 is included in
IN HOLDING THAT THE RESPONDENT HEREIN IS Article XIII, and it reads as follows:
ENTITLED TO REIMBURSEMENT OF THE AMOUNT USED
"Sec. 5. Save in cases of hereditary succession, no private
TO PURCHASE THE LAND AS WELL AS THE COSTS FOR
agricultural land will be transferred or assigned except to
THE CONSTRUCTION OF THE HOUSE, FOR IN SO RULING,
individuals, corporations, or associations qualified to
IT INDIRECTLY ALLOWED AN ACT DONE WHICH
acquire or hold lands of the public domain in the
OTHERWISE COULD NOT BE DIRECTLY x x x DONE,
Philippines."
WITHOUT DOING VIOLENCE TO THE CONSTITUTIONAL
PROSCRIPTION THAT AN ALIEN IS PROHIBITED FROM This constitutional provision closes the only remaining
ACQUIRING OWNERSHIP OF REAL PROPERTIES LOCATED avenue through which agricultural resources may leak into
IN THE PHILIPPINES. aliens' hands. It would certainly be futile to prohibit the
alienation of public agricultural lands to aliens if, after all,
II
they may be freely so alienated upon their becoming
THE COURT OF APPEALS GRAVELY ERRED IN private agricultural lands in the hands of Filipino citizens.
SUSTAINING RESPONDENT'S CAUSE OF ACTION WHICH IS xxx
ACTUALLY A DESPERATE ATTEMPT TO OBTAIN
xxx
OWNERSHIP OVER THE LOT IN QUESTION, CLOTHED
UNDER THE GUISE OF CLAIMING REIMBURSEMENT. If the term "private agricultural lands" is to be construed
as not including residential lots or lands not strictly
Petitioner contends that respondent, being an alien, is
agricultural, the result would be that "aliens may freely
disqualified to own private lands in the Philippines; that
acquire and possess not only residential lots and houses
respondent was aware of the constitutional prohibition
for themselves but entire subdivisions, and whole towns
but circumvented the same; and that respondent's purpose
and cities," and that "they may validly buy and hold in their
for filing an action for separation of property is to obtain
names lands of any area for building homes, factories,
exclusive possession, control and disposition of the
industrial plants, fisheries, hatcheries, schools, health and
Antipolo property.
vacation resorts, markets, golf courses, playgrounds,
Respondent claims that he is not praying for transfer of airfields, and a host of other uses and purposes that are
ownership of the Antipolo property but merely not, in appellant's words, strictly agricultural." (Solicitor
reimbursement; that the funds paid by him for the said General's Brief, p. 6.) That this is obnoxious to the
property were in consideration of his marriage to conservative spirit of the Constitution is beyond question.
petitioner; that the funds were given to petitioner in trust;
Respondent was aware of the constitutional prohibition
and that equity demands that respondent should be
and expressly admitted his knowledge thereof to this
reimbursed of his personal funds.
Court.11 He declared that he had the Antipolo property
The issue for resolution is whether respondent is entitled titled in the name of petitioner because of the said
to reimbursement of the funds used for the acquisition of prohibition.12 His attempt at subsequently asserting or
the Antipolo property. claiming a right on the said property cannot be sustained.
The petition has merit. The Court of Appeals erred in holding that an implied trust
was created and resulted by operation of law in view of
Section 7, Article XII of the 1987 Constitution states:
petitioner's marriage to respondent. Save for the exception
Save in cases of hereditary succession, no private lands provided in cases of hereditary succession, respondent's
shall be transferred or conveyed except to individuals, disqualification from owning lands in the Philippines is
corporations, or associations qualified to acquire or hold absolute. Not even an ownership in trust is allowed.
lands of the public domain. Besides, where the purchase is made in violation of an
existing statute and in evasion of its express provision, no
Aliens, whether individuals or corporations, are
trust can result in favor of the party who is guilty of the
disqualified from acquiring lands of the public domain.
fraud.13 To hold otherwise would allow circumvention of
Hence, they are also disqualified from acquiring private
the constitutional prohibition.
lands.9 The primary purpose of the constitutional
provision is the conservation of the national patrimony. In Invoking the principle that a court is not only a court of
the case of Krivenko v. Register of Deeds, 10 the Court held: law but also a court of equity, is likewise misplaced. It has
been held that equity as a rule will follow the law and will
Under section 1 of Article XIII of the Constitution, "natural
not permit that to be done indirectly which, because of
resources, with the exception of public agricultural land,
public policy, cannot be done directly.14 He who seeks
shall not be alienated," and with respect to public
equity must do equity, and he who comes into equity must
agricultural lands, their alienation is limited to Filipino
come with clean hands. The latter is a frequently stated
citizens. But this constitutional purpose conserving
maxim which is also expressed in the principle that he who
agricultural resources in the hands of Filipino citizens may
has done inequity shall not have equity. It signifies that a
easily be defeated by the Filipino citizens themselves who
litigant may be denied relief by a court of equity on the
may alienate their agricultural lands in favor of aliens. It is
96
ground that his conduct has been inequitable, unfair and respondent Helmut Muller the amount of P528,000 for the
dishonest, or fraudulent, or deceitful as to the controversy acquisition of the land and the amount of P2,300,000 for
in issue.15 the construction of the house in Antipolo City, and the
Resolution dated August 13, 2001 denying reconsideration
Thus, in the instant case, respondent cannot seek
thereof, are REVERSED and SET ASIDE. The August 12,
reimbursement on the ground of equity where it is clear
1996 Decision of the Regional Trial Court of Quezon City,
that he willingly and knowingly bought the property
Branch 86 in Civil Case No. Q-94-21862 terminating the
despite the constitutional prohibition.
regime of absolute community between the petitioner and
Further, the distinction made between transfer of respondent, decreeing a separation of property between
ownership as opposed to recovery of funds is a futile them and ordering the partition of the personal properties
exercise on respondent's part. To allow reimbursement located in the Philippines equally, is REINSTATED.
would in effect permit respondent to enjoy the fruits of a
SO ORDERED.
property which he is not allowed to own. Thus, it is
likewise proscribed by law. As expressly held in Cheesman Endnotes:
v. Intermediate Appellate Court: 16
Finally, the fundamental law prohibits the sale to aliens of
residential land. Section 14, Article XIV of the 1973
Constitution ordains that, "Save in cases of hereditary
succession, no private land shall be transferred or
conveyed except to individuals, corporations, or
associations qualified to acquire or hold lands of the public
domain." Petitioner Thomas Cheesman was, of course,
charged with knowledge of this prohibition. Thus,
assuming that it was his intention that the lot in question
be purchased by him and his wife, he acquired no right
whatever over the property by virtue of that purchase; and
in attempting to acquire a right or interest in land,
vicariously and clandestinely, he knowingly violated the
Constitution; the sale as to him was null and void. In any
event, he had and has no capacity or personality to
question the subsequent sale of the same property by his
wife on the theory that in so doing he is merely exercising
the prerogative of a husband in respect of conjugal
property. To sustain such a theory would permit indirect
controversion of the constitutional prohibition. If the
property were to be declared conjugal, this would accord
to the alien husband a not insubstantial interest and right
over land, as he would then have a decisive vote as to its
transfer or disposition. This is a right that the Constitution
does not permit him to have.
As already observed, the finding that his wife had used her
own money to purchase the property cannot, and will not,
at this stage of the proceedings be reviewed and
overturned. But even if it were a fact that said wife had
used conjugal funds to make the acquisition, the
considerations just set out to militate, on high
constitutional grounds, against his recovering and holding
the property so acquired, or any part thereof. And whether
in such an event, he may recover from his wife any share of
the money used for the purchase or charge her with
unauthorized disposition or expenditure of conjugal funds
is not now inquired into; that would be, in the premises, a
purely academic exercise. (Emphasis added)
WHEREFORE, in view of the foregoing, the instant petition
is GRANTED. The Decision dated February 26, 2001 of the
Court of Appeals in CA-G.R. CV No. 59321 ordering
petitioner Elena Buenaventura Muller to reimburse
97
98
G.R. No. 159310 February 24, 2009 He also built and repaired speedboats as a hobby. In 1989,
Jambrich purchased an engine and some accessories for
CAMILO F. BORROMEO, Petitioner,
his boat from petitioner, for which he became indebted to
vs.
the latter for about ₱150,000.00. To pay for his debt, he
ANTONIETTA O. DESCALLAR, Respondent.
sold his rights and interests in the Agro-Macro properties
DECISION to petitioner for ₱250,000, as evidenced by a "Deed of
Absolute Sale/Assignment."6 On July 26, 1991, when
PUNO, C.J.:
petitioner sought to register the deed of assignment, he
What are the rights of an alien (and his successor-in- discovered that titles to the three lots have been
interest) who acquired real properties in the country as transferred in the name of respondent, and that the subject
against his former Filipina girlfriend in whose sole name property has already been mortgaged.
the properties were registered under the Torrens system?
On August 2, 1991, petitioner filed a complaint against
The facts are as follows: respondent for recovery of real property before the
Regional Trial Court of Mandaue City. Petitioner alleged
Wilhelm Jambrich, an Austrian, arrived in the Philippines
that the Contracts to Sell dated November 18, 1985 and
in 1983 after he was assigned by his employer, Simmering-
March 10, 1986 and the Deed of Absolute Sale dated
Graz Panker A.G., an Austrian company, to work at a
November 16, 1987 over the properties which identified
project in Mindoro. In 1984, he transferred to Cebu and
both Jambrich and respondent as buyers do not reflect the
worked at the Naga II Project of the National Power
true agreement of the parties since respondent did not pay
Corporation. There, he met respondent Antonietta Opalla-
a single centavo of the purchase price and was not in fact a
Descallar, a separated mother of two boys who was
buyer; that it was Jambrich alone who paid for the
working as a waitress at St. Moritz Hotel. Jambrich
properties using his exclusive funds; that Jambrich was the
befriended respondent and asked her to tutor him in
real and absolute owner of the properties; and, that
English. In dire need of additional income to support her
petitioner acquired absolute ownership by virtue of the
children, respondent agreed. The tutorials were held in
Deed of Absolute Sale/Assignment dated July 11, 1991
Antonietta’s residence at a squatters’ area in Gorordo
which Jambrich executed in his favor.
Avenue.
In her Answer, respondent belied the allegation that she
Jambrich and respondent fell in love and decided to live
did not pay a single centavo of the purchase price. On the
together in a rented house in Hernan Cortes, Mandaue City.
contrary, she claimed that she "solely and exclusively used
Later, they transferred to their own house and lots at Agro-
her own personal funds to defray and pay for the purchase
Macro Subdivision, Cabancalan, Mandaue City. In the
price of the subject lots in question," and that Jambrich,
Contracts to Sell dated November 18, 19851 and March 10,
being an alien, was prohibited to acquire or own real
19862 covering the properties, Jambrich and respondent
property in the Philippines.
were referred to as the buyers. A Deed of Absolute Sale
dated November 16, 19873 was likewise issued in their At the trial, respondent presented evidence showing her
favor. However, when the Deed of Absolute Sale was alleged financial capacity to buy the disputed property
presented for registration before the Register of Deeds, with money from a supposed copra business. Petitioner, in
registration was refused on the ground that Jambrich was turn, presented Jambrich as his witness and documentary
an alien and could not acquire alienable lands of the public evidence showing the substantial salaries which Jambrich
domain. Consequently, Jambrich’s name was erased from received while still employed by the Austrian company,
the document. But it could be noted that his signature Simmering-Graz Panker A.G.
remained on the left hand margin of page 1, beside
In its decision, the court a quo found—
respondent’s signature as buyer on page 3, and at the
bottom of page 4 which is the last page. Transfer Evidence on hand clearly show that at the time of the
Certificate of Title (TCT) Nos. 24790, 24791 and 24792 purchase and acquisition of [the] properties under
over the properties were issued in respondent’s name litigation that Wilhelm Jambrich was still working and
alone. earning much. This fact of Jambrich earning much is not
only supported by documentary evidence but also by the
Jambrich also formally adopted respondent’s two sons in
admission made by the defendant Antoniet[t]a Opalla. So
Sp. Proc. No. 39-MAN,4 and per Decision of the Regional
that, Jambrich’s financial capacity to acquire and purchase
Trial Court of Mandaue City dated May 5, 1988.5
the properties . . . is not disputed.7
However, the idyll lasted only until April 1991. By then,
xxx
respondent found a new boyfriend while Jambrich began
to live with another woman in Danao City. Jambrich On the other hand, evidence . . . clearly show that before
supported respondent’s sons for only two months after the defendant met Jambrich sometime in the latter part of
break up. 1984, she was only working as a waitress at the St. Moritz
Hotel with an income of ₱1,000.00 a month and was . . .
Jambrich met petitioner Camilo F. Borromeo sometime in
renting and living only in . . . [a] room at . . . [a] squatter
1986. Petitioner was engaged in the real estate business.
99
area at Gorordo Ave., Cebu City; that Jambrich took pity of 1) Declaring plaintiff as the owner in fee simple
her and the situation of her children that he offered her a over the residential house of strong materials and
better life which she readily accepted. In fact, this three parcels of land designated as Lot Nos. 1, 3
miserable financial situation of hers and her two children . and 5 which are covered by TCT Nos. 24790,
. . are all stated and reflected in the Child Study Report 24791 and 24792 issued by the Register of Deeds
dated April 20, 1983 (Exhs. "G" and "G-1") which facts she of Mandaue City;
supplied to the Social Worker who prepared the same
2) Declaring as null and void TCT Nos. 24790,
when she was personally interviewed by her in connection
24791 and 24792 issued in the name of defendant
with the adoption of her two children by Wilhelm
Antoniet[t]a Descallar by the Register of Deeds of
Jambrich. So that, if such facts were not true because these
Mandaue City;
are now denied by her . . . and if it was also true that during
this time she was already earning as much as ₱8,000.00 to 3) Ordering the Register of Deeds of Mandaue City
₱9,000.00 as profit per month from her copra business, it to cancel TCT Nos. 24790, 24791 and 24792 in the
would be highly unbelievable and impossible for her to be name of defendant Antoniet[t]a Descallar and to
living only in such a miserable condition since it is the issue new ones in the name of plaintiff Camilo F.
observation of this Court that she is not only an Borromeo;
extravagant but also an expensive person and not thrifty as
4) Declaring the contracts now marked as Exhibits
she wanted to impress this Court in order to have a big
"I," "K" and "L" as avoided insofar as they appear
saving as clearly shown by her actuation when she was
to convey rights and interests over the properties
already cohabiting and living with Jambrich that according
in question to the defendant Antoniet[t]a
to her . . . the allowance given . . . by him in the amount of
Descallar;
$500.00 a month is not enough to maintain the education
and maintenance of her children.8 5) Ordering the defendant to pay plaintiff
attorney’s fees in the amount of ₱25,000.00 and
This being the case, it is highly improbable and impossible
litigation expenses in the amount of ₱10,000.00;
that she could acquire the properties under litigation or
and,
could contribute any amount for their acquisition which
according to her is worth more than ₱700,000.00 when 6) To pay the costs.11
while she was working as [a] waitress at St. Moritz Hotel
Respondent appealed to the Court of Appeals. In a Decision
earning ₱1,000.00 a month as salary and tips of more or
dated April 10, 2002,12 the appellate court reversed the
less ₱2,000.00 she could not even provide [for] the daily
decision of the trial court. In ruling for the respondent, the
needs of her family so much so that it is safe to conclude
Court of Appeals held:
that she was really in financial distress when she met and
accepted the offer of Jambrich to come and live with him We disagree with the lower court’s conclusion. The
because that was a big financial opportunity for her and circumstances involved in the case cited by the lower court
her children who were already abandoned by her and similar cases decided on by the Supreme Court which
husband.9 upheld the validity of the title of the subsequent Filipino
purchasers are absent in the case at bar. It should be noted
xxx
that in said cases, the title to the subject property has been
The only probable and possible reason why her name issued in the name of the alien transferee (Godinez et al.,
appeared and was included in [the contracts to sell dated vs. Fong Pak Luen et al., 120 SCRA 223 citing Krivenko vs.
November 18, 1985 and March 10, 1986 and finally, the Register of Deeds of Manila, 79 Phils. 461; United Church
deed of absolute sale dated November 16, 1987] as buyer Board for World Ministries vs. Sebastian, 159 SCRA 446,
is because as observed by the Court, she being a scheming citing the case of Sarsosa Vda. De Barsobia vs. Cuenco, 113
and exploitive woman, she has taken advantage of the SCRA 547; Tejido vs. Zamacoma, 138 SCRA 78). In the case
goodness of Jambrich who at that time was still bewitched at bar, the title of the subject property is not in the name of
by her beauty, sweetness, and good attitude shown by her Jambrich but in the name of defendant-appellant. Thus,
to him since he could still very well provide for everything Jambrich could not have transferred a property he has no
she needs, he being earning (sic) much yet at that time. In title thereto.13
fact, as observed by this Court, the acquisition of these
Petitioner’s motion for reconsideration was denied.
properties under litigation was at the time when their
relationship was still going smoothly and Hence, this petition for review.
harmoniously.10 [Emphasis supplied.]
Petitioner assigns the following errors:
The dispositive portion of the Decision states:
I. THE HONORABLE COURT OF APPEALS SERIOUSLY
WHEREFORE, . . . Decision is hereby rendered in favor of ERRED IN DISREGARDING RESPONDENT’S JUDICIAL
the plaintiff and against the defendant Antoniet[t]a Opalla ADMISSION AND OTHER OVERWHELMING EVIDENCE
by: ESTABLISHING JAMBRICH’S PARTICIPATION, INTEREST

100
AND OWNERSHIP OF THE PROPERTIES IN QUESTION AS abandoned by their father. Their session was agreed to be
FOUND BY THE HONORABLE TRIAL COURT. scheduled every afternoon at the residence of Antonietta
in the squatters area in Gorordo Avenue, Cebu City. The
II. THE HONORABLE COURT OF APPEALS SERIOUSLY
Austrian was observing the situation of the family
ERRED IN HOLDING THAT JAMBRICH HAS NO TITLE TO
particularly the children who were malnourished. After a
THE PROPERTIES IN QUESTION AND MAY NOT
few months sessions, Mr. Jambrich offered to transfer the
THEREFORE TRANSFER AND ASSIGN ANY RIGHTS AND
family into a decent place. He told Antonietta that the place
INTERESTS IN FAVOR OF PETITIONER.
is not good for the children. Antonietta who was miserable
III. THE HONORABLE COURT OF APPEALS SERIOUSLY and financially distressed at that time accepted the offer
ERRED IN REVERSING THE WELL-REASONED DECISION for the sake of the children.18
OF THE TRIAL COURT AND IN IMPOSING DOUBLE COSTS
Further, the following additional pieces of evidence point
AGAINST HEREIN PETITIONER (THEN, PLAINTIFF-
to Jambrich as the source of fund used to purchase the
APPELLEE).14
three parcels of land, and to construct the house thereon:
First, who purchased the subject properties?
(1) Respondent Descallar herself affirmed under
The evidence clearly shows, as pointed out by the trial oath, during her re-direct examination and during
court, who between respondent and Jambrich possesses the proceedings for the adoption of her minor
the financial capacity to acquire the properties in dispute. children, that Jambrich was the owner of the
At the time of the acquisition of the properties in 1985 to properties in question, but that his name was
1986, Jambrich was gainfully employed at Simmering-Graz deleted in the Deed of Absolute Sale because of
Panker A.G., an Austrian company. He was earning an legal constraints. Nonetheless, his signature
estimated monthly salary of ₱50,000.00. Then, Jambrich remained in the deed of sale, where he signed as
was assigned to Syria for almost one year where his buyer.
monthly salary was approximately ₱90,000.00.
(2) The money used to pay the subject parcels of
On the other hand, respondent was employed as a waitress land in installments was in postdated checks
from 1984 to 1985 with a monthly salary of not more than issued by Jambrich. Respondent has never opened
₱1,000.00. In 1986, when the parcels of land were any account with any bank. Receipts of the
acquired, she was unemployed, as admitted by her during installment payments were also in the name of
the pre-trial conference. Her allegations of income from a Jambrich and respondent.
copra business were unsubstantiated. The supposed copra
(3) In 1986-1987, respondent lived in Syria with
business was actually the business of her mother and their
Jambrich and her two children for ten months,
family, with ten siblings. She has no license to sell copra,
where she was completely under the support of
and had not filed any income tax return. All the motorized
Jambrich.
bancas of her mother were lost to fire, and the last one left
standing was already scrap. Further, the Child Study (4) Jambrich executed a Last Will and Testament,
Report15 submitted by the Department of Social Welfare where he, as owner, bequeathed the subject
and Development (DSWD) in the adoption proceedings of properties to respondent.
respondent’s two sons by Jambrich disclosed that:
Thus, Jambrich has all authority to transfer all his rights,
Antonietta tried all types of job to support the children interests and participation over the subject properties to
until she was accepted as a waitress at St. Moritz petitioner by virtue of the Deed of Assignment he executed
Restaurant in 1984. At first she had no problem with on July 11, 1991.
money because most of the customers of St. Moritz are
Well-settled is the rule that this Court is not a trier of facts.
(sic) foreigners and they gave good tips but towards the
The findings of fact of the trial court are accorded great
end of 1984 there were no more foreigners coming
weight and respect, if not finality by this Court, subject to a
because of the situation in the Philippines at that time. Her
number of exceptions. In the instant case, we find no
financial problem started then. She was even renting a
reason to disturb the factual findings of the trial court.
small room in a squatters area in Gorordo Ave., Cebu City.
Even the appellate court did not controvert the factual
It was during her time of great financial distress that she
findings of the trial court. They differed only in their
met Wilhelm Jambrich who later offered her a decent place
conclusions of law.
for herself and her children.16
Further, the fact that the disputed properties were
The DSWD Home Study Report17 further disclosed that:
acquired during the couple’s cohabitation also does not
[Jambrich] was then at the Restaurant of St. Moritz when help respondent. The rule that co-ownership applies to a
he saw Antonietta Descallar, one of the waitresses of the man and a woman living exclusively with each other as
said Restaurants. He made friends with the girl and asked husband and wife without the benefit of marriage, but are
her to tutor him in [the] English language. Antonietta otherwise capacitated to marry each other, does not
accepted the offer because she was in need of additional apply.19 In the instant case, respondent was still legally
income to support [her] 2 young children who were married to another when she and Jambrich lived together.
101
In such an adulterous relationship, no co-ownership exists title of the transferee is rendered valid. Applying United
between the parties. It is necessary for each of the partners Church Board for World Ministries, the trial court ruled in
to prove his or her actual contribution to the acquisition of favor of petitioner, viz.:
property in order to be able to lay claim to any portion of
[W]hile the acquisition and the purchase of (sic) Wilhelm
it. Presumptions of co-ownership and equal contribution
Jambrich of the properties under litigation [were] void ab
do not apply.20
initio since [they were] contrary to the Constitution of the
Second, we dispose of the issue of registration of the Philippines, he being a foreigner, yet, the acquisition of
properties in the name of respondent alone. Having found these properties by plaintiff who is a Filipino citizen from
that the true buyer of the disputed house and lots was the him, has cured the flaw in the original transaction and the
Austrian Wilhelm Jambrich, what now is the effect of title of the transferee is valid.
registration of the properties in the name of respondent?
The trial court upheld the sale by Jambrich in favor of
It is settled that registration is not a mode of acquiring petitioner and ordered the cancellation of the TCTs in the
ownership.21 It is only a means of confirming the fact of its name of respondent. It declared petitioner as owner in fee
existence with notice to the world at large.22 Certificates of simple of the residential house of strong materials and
title are not a source of right. The mere possession of a title three parcels of land designated as Lot Nos. 1, 3 and 5, and
does not make one the true owner of the property. Thus, ordered the Register of Deeds of Mandaue City to issue
the mere fact that respondent has the titles of the disputed new certificates of title in his name. The trial court likewise
properties in her name does not necessarily, conclusively ordered respondent to pay petitioner ₱25,000 as
and absolutely make her the owner. The rule on attorney’s fees and ₱10,000 as litigation expenses, as well
indefeasibility of title likewise does not apply to as the costs of suit.
respondent. A certificate of title implies that the title is
We affirm the Regional Trial Court.
quiet,23 and that it is perfect, absolute and
indefeasible.24 However, there are well-defined exceptions The rationale behind the Court’s ruling in United Church
to this rule, as when the transferee is not a holder in good Board for World Ministries, as reiterated in subsequent
faith and did not acquire the subject properties for a cases,32 is this – since the ban on aliens is intended to
valuable consideration.25 This is the situation in the instant preserve the nation’s land for future generations of
case. Respondent did not contribute a single centavo in the Filipinos, that aim is achieved by making lawful the
acquisition of the properties. She had no income of her acquisition of real estate by aliens who became Filipino
own at that time, nor did she have any savings. She and her citizens by naturalization or those transfers made by aliens
two sons were then fully supported by Jambrich. to Filipino citizens. As the property in dispute is already in
the hands of a qualified person, a Filipino citizen, there
Respondent argued that aliens are prohibited from
would be no more public policy to be protected. The
acquiring private land. This is embodied in Section 7,
objective of the constitutional provision to keep our lands
Article XII of the 1987 Constitution,26 which is basically a
in Filipino hands has been achieved.
reproduction of Section 5, Article XIII of the 1935
Constitution,27 and Section 14, Article XIV of the 1973 IN VIEW WHEREOF, the petition is GRANTED. The
Constitution.28 The capacity to acquire private land is Decision of the Court of Appeals in C.A. G.R. CV No. 42929
dependent on the capacity "to acquire or hold lands of the dated April 10, 2002 and its Resolution dated July 8, 2003
public domain." Private land may be transferred only to are REVERSED and SET ASIDE. The Decision of the
individuals or entities "qualified to acquire or hold lands of Regional Trial Court of Mandaue City in Civil Case No.
the public domain." Only Filipino citizens or corporations MAN-1148 is REINSTATED.
at least 60% of the capital of which is owned by Filipinos
SO ORDERED.
are qualified to acquire or hold lands of the public domain.
Thus, as the rule now stands, the fundamental law
explicitly prohibits non-Filipinos from acquiring or holding
title to private lands, except only by way of legal
succession or if the acquisition was made by a former
natural-born citizen.29
Therefore, in the instant case, the transfer of land from
Agro-Macro Development Corporation to Jambrich, who is
an Austrian, would have been declared invalid if
challenged, had not Jambrich conveyed the properties to
petitioner who is a Filipino citizen. In United Church Board
for World Ministries v. Sebastian,30 the Court reiterated the
consistent ruling in a number of cases31 that if land is
invalidly transferred to an alien who subsequently
becomes a Filipino citizen or transfers it to a Filipino, the
flaw in the original transaction is considered cured and the
102
G.R. No. 195580 April 21, 2014 Province of Palawan. SMMI subsequently conveyed,
transferred and assigned its rights and interest over the
NARRA NICKEL MINING AND DEVELOPMENT CORP.,
said MPSA application to Tesoro.
TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC., Petitioners, On January 2, 2007, Redmont filed before the Panel of
vs. Arbitrators (POA) of the DENR three (3) separate petitions
REDMONT CONSOLIDATED MINES CORP., Respondent. for the denial of petitioners’ applications for MPSA
designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-
DECISION
1-12.
VELASCO, JR., J.:
In the petitions, Redmont alleged that at least 60% of the
Before this Court is a Petition for Review on Certiorari capital stock of McArthur, Tesoro and Narra are owned
under Rule 45 filed by Narra Nickel and Mining and controlled by MBMI Resources, Inc. (MBMI), a 100%
Development Corp. (Narra), Tesoro Mining and Canadian corporation. Redmont reasoned that since MBMI
Development, Inc. (Tesoro), and McArthur Mining Inc. is a considerable stockholder of petitioners, it was the
(McArthur), which seeks to reverse the October 1, 2010 driving force behind petitioners’ filing of the MPSAs over
Decision1 and the February 15, 2011 Resolution of the the areas covered by applications since it knows that it can
Court of Appeals (CA). only participate in mining activities through corporations
which are deemed Filipino citizens. Redmont argued that
The Facts
given that petitioners’ capital stocks were mostly owned
Sometime in December 2006, respondent Redmont by MBMI, they were likewise disqualified from engaging in
Consolidated Mines Corp. (Redmont), a domestic mining activities through MPSAs, which are reserved only
corporation organized and existing under Philippine laws, for Filipino citizens.
took interest in mining and exploring certain areas of the
In their Answers, petitioners averred that they were
province of Palawan. After inquiring with the Department
qualified persons under Section 3(aq) of Republic Act No.
of Environment and Natural Resources (DENR), it learned
(RA) 7942 or the Philippine Mining Act of 1995 which
that the areas where it wanted to undertake exploration
provided:
and mining activities where already covered by Mineral
Production Sharing Agreement (MPSA) applications of Sec. 3 Definition of Terms. As used in and for purposes of
petitioners Narra, Tesoro and McArthur. this Act, the following terms, whether in singular or plural,
shall mean:
Petitioner McArthur, through its predecessor-in-interest
Sara Marie Mining, Inc. (SMMI), filed an application for an xxxx
MPSA and Exploration Permit (EP) with the Mines and
(aq) "Qualified person" means any citizen of the
Geo-Sciences Bureau (MGB), Region IV-B, Office of the
Philippines with capacity to contract, or a corporation,
Department of Environment and Natural Resources
partnership, association, or cooperative organized or
(DENR).
authorized for the purpose of engaging in mining, with
Subsequently, SMMI was issued MPSA-AMA-IVB-153 technical and financial capability to undertake mineral
covering an area of over 1,782 hectares in Barangay resources development and duly registered in accordance
Sumbiling, Municipality of Bataraza, Province of Palawan with law at least sixty per cent (60%) of the capital of
and EPA-IVB-44 which includes an area of 3,720 hectares which is owned by citizens of the Philippines: Provided,
in Barangay Malatagao, Bataraza, Palawan. The MPSA and That a legally organized foreign-owned corporation shall
EP were then transferred to Madridejos Mining be deemed a qualified person for purposes of granting an
Corporation (MMC) and, on November 6, 2006, assigned to exploration permit, financial or technical assistance
petitioner McArthur.2 agreement or mineral processing permit.
Petitioner Narra acquired its MPSA from Alpha Resources Additionally, they stated that their nationality as
and Development Corporation and Patricia Louise Mining applicants is immaterial because they also applied for
& Development Corporation (PLMDC) which previously Financial or Technical Assistance Agreements (FTAA)
filed an application for an MPSA with the MGB, Region IV- denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08
B, DENR on January 6, 1992. Through the said application, for Tesoro and AFTA-IVB-07 for Narra, which are granted
the DENR issued MPSA-IV-1-12 covering an area of 3.277 to foreign-owned corporations. Nevertheless, they claimed
hectares in barangays Calategas and San Isidro, that the issue on nationality should not be raised since
Municipality of Narra, Palawan. Subsequently, PLMDC McArthur, Tesoro and Narra are in fact Philippine
conveyed, transferred and/or assigned its rights and Nationals as 60% of their capital is owned by citizens of
interests over the MPSA application in favor of Narra. the Philippines. They asserted that though MBMI owns
40% of the shares of PLMC (which owns 5,997 shares of
Another MPSA application of SMMI was filed with the
Narra),3 40% of the shares of MMC (which owns 5,997
DENR Region IV-B, labeled as MPSA-AMA-IVB-154
shares of McArthur)4 and 40% of the shares of SLMC
(formerly EPA-IVB-47) over 3,402 hectares in Barangays
(which, in turn, owns 5,997 shares of Tesoro),5 the shares
Malinao and Princesa Urduja, Municipality of Narra,
103
of MBMI will not make it the owner of at least 60% of the revocation of the certificates for registration of petitioners
capital stock of each of petitioners. They added that the on the ground that they are foreign-owned or controlled
best tool used in determining the nationality of a corporations engaged in mining in violation of Philippine
corporation is the "control test," embodied in Sec. 3 of RA laws. Thereafter, Redmont filed on September 1, 2008 a
7042 or the Foreign Investments Act of 1991. They also Manifestation and Motion to Suspend Proceeding before
claimed that the POA of DENR did not have jurisdiction the MAB praying for the suspension of the proceedings on
over the issues in Redmont’s petition since they are not the appeals filed by McArthur, Tesoro and Narra.
enumerated in Sec. 77 of RA 7942. Finally, they stressed
Subsequently, on September 8, 2008, Redmont filed before
that Redmont has no personality to sue them because it
the Regional Trial Court of Quezon City, Branch 92 (RTC) a
has no pending claim or application over the areas applied
Complaint16 for injunction with application for issuance of
for by petitioners.
a temporary restraining order (TRO) and/or writ of
On December 14, 2007, the POA issued a Resolution preliminary injunction, docketed as Civil Case No. 08-
disqualifying petitioners from gaining MPSAs. It held: 63379. Redmont prayed for the deferral of the MAB
proceedings pending the resolution of the Complaint
[I]t is clearly established that respondents are not
before the SEC.
qualified applicants to engage in mining activities. On the
other hand, [Redmont] having filed its own applications But before the RTC can resolve Redmont’s Complaint and
for an EPA over the areas earlier covered by the MPSA applications for injunctive reliefs, the MAB issued an Order
application of respondents may be considered if and when on September 10, 2008, finding the appeal meritorious. It
they are qualified under the law. The violation of the held:
requirements for the issuance and/or grant of permits
WHEREFORE, in view of the foregoing, the Mines
over mining areas is clearly established thus, there is
Adjudication Board hereby REVERSES and SETS ASIDE the
reason to believe that the cancellation and/or revocation
Resolution dated 14 December 2007 of the Panel of
of permits already issued under the premises is in order
Arbitrators of Region IV-B (MIMAROPA) in POA-DENR
and open the areas covered to other qualified applicants.
Case Nos. 2001-01, 2007-02 and 2007-03, and its Order
xxxx dated 07 February 2008 denying the Motions for
Reconsideration of the Appellants. The Petition filed by
WHEREFORE, the Panel of Arbitrators finds the
Redmont Consolidated Mines Corporation on 02 January
Respondents, McArthur Mining Inc., Tesoro Mining and
2007 is hereby ordered DISMISSED.17
Development, Inc., and Narra Nickel Mining and
Development Corp. as, DISQUALIFIED for being considered Belatedly, on September 16, 2008, the RTC issued an
as Foreign Corporations. Their Mineral Production Sharing Order18 granting Redmont’s application for a TRO and
Agreement (MPSA) are hereby x x x DECLARED NULL AND setting the case for hearing the prayer for the issuance of a
VOID.6 writ of preliminary injunction on September 19, 2008.
The POA considered petitioners as foreign corporations Meanwhile, on September 22, 2008, Redmont filed a
being "effectively controlled" by MBMI, a 100% Canadian Motion for Reconsideration19 of the September 10, 2008
company and declared their MPSAs null and void. In the Order of the MAB. Subsequently, it filed a Supplemental
same Resolution, it gave due course to Redmont’s EPAs. Motion for Reconsideration20 on September 29, 2008.
Thereafter, on February 7, 2008, the POA issued an
Before the MAB could resolve Redmont’s Motion for
Order7 denying the Motion for Reconsideration filed by
Reconsideration and Supplemental Motion for
petitioners.
Reconsideration, Redmont filed before the RTC a
Aggrieved by the Resolution and Order of the POA, Supplemental Complaint21 in Civil Case No. 08-63379.
McArthur and Tesoro filed a joint Notice of Appeal 8 and
On October 6, 2008, the RTC issued an Order22 granting the
Memorandum of Appeal9 with the Mines Adjudication
issuance of a writ of preliminary injunction enjoining the
Board (MAB) while Narra separately filed its Notice of
MAB from finally disposing of the appeals of petitioners
Appeal10 and Memorandum of Appeal.11
and from resolving Redmont’s Motion for Reconsideration
In their respective memorandum, petitioners emphasized and Supplement Motion for Reconsideration of the MAB’s
that they are qualified persons under the law. Also, September 10, 2008 Resolution.
through a letter, they informed the MAB that they had their
On July 1, 2009, however, the MAB issued a second Order
individual MPSA applications converted to FTAAs.
denying Redmont’s Motion for Reconsideration and
McArthur’s FTAA was denominated as AFTA-IVB-0912 on
Supplemental Motion for Reconsideration and resolving
May 2007, while Tesoro’s MPSA application was converted
the appeals filed by petitioners.
to AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA was
converted to AFTA-IVB-0714 on March 30, 2006. Hence, the petition for review filed by Redmont before the
CA, assailing the Orders issued by the MAB. On October 1,
Pending the resolution of the appeal filed by petitioners
2010, the CA rendered a Decision, the dispositive of which
with the MAB, Redmont filed a Complaint15 with the
reads:
Securities and Exchange Commission (SEC), seeking the
104
WHEREFORE, the Petition is PARTIALLY GRANTED. The Furthermore, the CA viewed the conversion of the MPSA
assailed Orders, dated September 10, 2008 and July 1, applications of petitioners into FTAA applications
2009 of the Mining Adjudication Board are reversed and suspicious in nature and, as a consequence, it
set aside. The findings of the Panel of Arbitrators of the recommended the rejection of petitioners’ MPSA
Department of Environment and Natural Resources that applications by the Secretary of the DENR.
respondents McArthur, Tesoro and Narra are foreign
With regard to the settlement of disputes over rights to
corporations is upheld and, therefore, the rejection of their
mining areas, the CA pointed out that the POA has
applications for Mineral Product Sharing Agreement
jurisdiction over them and that it also has the power to
should be recommended to the Secretary of the DENR.
determine the of nationality of petitioners as a
With respect to the applications of respondents McArthur, prerequisite of the Constitution prior the conferring of
Tesoro and Narra for Financial or Technical Assistance rights to "co-production, joint venture or production-
Agreement (FTAA) or conversion of their MPSA sharing agreements" of the state to mining rights.
applications to FTAA, the matter for its rejection or However, it also stated that the POA’s jurisdiction is
approval is left for determination by the Secretary of the limited only to the resolution of the dispute and not on the
DENR and the President of the Republic of the Philippines. approval or rejection of the MPSAs. It stipulated that only
the Secretary of the DENR is vested with the power to
SO ORDERED.23
approve or reject applications for MPSA.
In a Resolution dated February 15, 2011, the CA denied the
Finally, the CA upheld the findings of the POA in its
Motion for Reconsideration filed by petitioners.
December 14, 2007 Resolution which considered
After a careful review of the records, the CA found that petitioners McArthur, Tesoro and Narra as foreign
there was doubt as to the nationality of petitioners when it corporations. Nevertheless, the CA determined that the
realized that petitioners had a common major investor, POA’s declaration that the MPSAs of McArthur, Tesoro and
MBMI, a corporation composed of 100% Canadians. Narra are void is highly improper.
Pursuant to the first sentence of paragraph 7 of
While the petition was pending with the CA, Redmont filed
Department of Justice (DOJ) Opinion No. 020, Series of
with the Office of the President (OP) a petition dated May
2005, adopting the 1967 SEC Rules which implemented
7, 2010 seeking the cancellation of petitioners’ FTAAs. The
the requirement of the Constitution and other laws
OP rendered a Decision26 on April 6, 2011, wherein it
pertaining to the exploitation of natural resources, the CA
canceled and revoked petitioners’ FTAAs for violating and
used the "grandfather rule" to determine the nationality of
circumventing the "Constitution x x x[,] the Small Scale
petitioners. It provided:
Mining Law and Environmental Compliance Certificate as
Shares belonging to corporations or partnerships at least well as Sections 3 and 8 of the Foreign Investment Act and
60% of the capital of which is owned by Filipino citizens E.O. 584."27 The OP, in affirming the cancellation of the
shall be considered as of Philippine nationality, but if the issued FTAAs, agreed with Redmont stating that
percentage of Filipino ownership in the corporation or petitioners committed violations against the
partnership is less than 60%, only the number of shares abovementioned laws and failed to submit evidence to
corresponding to such percentage shall be counted as of negate them. The Decision further quoted the December
Philippine nationality. Thus, if 100,000 shares are 14, 2007 Order of the POA focusing on the alleged
registered in the name of a corporation or partnership at misrepresentation and claims made by petitioners of being
least 60% of the capital stock or capital, respectively, of domestic or Filipino corporations and the admitted
which belong to Filipino citizens, all of the shares shall be continued mining operation of PMDC using their locally
recorded as owned by Filipinos. But if less than 60%, or secured Small Scale Mining Permit inside the area earlier
say, 50% of the capital stock or capital of the corporation applied for an MPSA application which was eventually
or partnership, respectively, belongs to Filipino citizens, transferred to Narra. It also agreed with the POA’s
only 50,000 shares shall be recorded as belonging to estimation that the filing of the FTAA applications by
aliens.24(emphasis supplied) petitioners is a clear admission that they are "not capable
of conducting a large scale mining operation and that they
In determining the nationality of petitioners, the CA looked
need the financial and technical assistance of a foreign
into their corporate structures and their corresponding
entity in their operation, that is why they sought the
common shareholders. Using the grandfather rule, the CA
participation of MBMI Resources, Inc."28 The Decision
discovered that MBMI in effect owned majority of the
further quoted:
common stocks of the petitioners as well as at least 60%
equity interest of other majority shareholders of The filing of the FTAA application on June 15, 2007, during
petitioners through joint venture agreements. The CA the pendency of the case only demonstrate the violations
found that through a "web of corporate layering, it is clear and lack of qualification of the respondent corporations to
that one common controlling investor in all mining engage in mining. The filing of the FTAA application
corporations involved x x x is MBMI."25 Thus, it concluded conversion which is allowed foreign corporation of the
that petitioners McArthur, Tesoro and Narra are also in earlier MPSA is an admission that indeed the respondent is
partnership with, or privies-in-interest of, MBMI. not Filipino but rather of foreign nationality who is
105
disqualified under the laws. Corporate documents of MBMI This case not moot and academic
Resources, Inc. furnished its stockholders in their head
The claim of petitioners that the CA erred in not rendering
office in Canada suggest that they are conducting
the instant case as moot is without merit.
operation only through their local counterparts.29
Basically, a case is said to be moot and/or academic when
The Motion for Reconsideration of the Decision was
it "ceases to present a justiciable controversy by virtue of
further denied by the OP in a Resolution30 dated July 6,
supervening events, so that a declaration thereon would be
2011. Petitioners then filed a Petition for Review on
of no practical use or value."32 Thus, the courts "generally
Certiorari of the OP’s Decision and Resolution with the CA,
decline jurisdiction over the case or dismiss it on the
docketed as CA-G.R. SP No. 120409. In the CA Decision
ground of mootness."33
dated February 29, 2012, the CA affirmed the Decision and
Resolution of the OP. Thereafter, petitioners appealed the The "mootness" principle, however, does accept certain
same CA decision to this Court which is now pending with exceptions and the mere raising of an issue of "mootness"
a different division. will not deter the courts from trying a case when there is a
valid reason to do so. In David v. Macapagal-Arroyo
Thus, the instant petition for review against the October 1,
(David), the Court provided four instances where courts
2010 Decision of the CA. Petitioners put forth the following
can decide an otherwise moot case, thus:
errors of the CA:
1.) There is a grave violation of the Constitution;
I.
2.) The exceptional character of the situation and
The Court of Appeals erred when it did not
paramount public interest is involved;
dismiss the case for mootness despite the fact that
the subject matter of the controversy, the MPSA 3.) When constitutional issue raised requires
Applications, have already been converted into formulation of controlling principles to guide the
FTAA applications and that the same have already bench, the bar, and the public; and
been granted.
4.) The case is capable of repetition yet evading
II. review.34
The Court of Appeals erred when it did not All of the exceptions stated above are present in the
dismiss the case for lack of jurisdiction instant case. We of this Court note that a grave violation of
considering that the Panel of Arbitrators has no the Constitution, specifically Section 2 of Article XII, is
jurisdiction to determine the nationality of Narra, being committed by a foreign corporation right under our
Tesoro and McArthur. country’s nose through a myriad of corporate layering
under different, allegedly, Filipino corporations. The
III.
intricate corporate layering utilized by the Canadian
The Court of Appeals erred when it did not company, MBMI, is of exceptional character and involves
dismiss the case on account of Redmont’s willful paramount public interest since it undeniably affects the
forum shopping. exploitation of our Country’s natural resources. The
corresponding actions of petitioners during the lifetime
IV.
and existence of the instant case raise questions as what
The Court of Appeals’ ruling that Narra, Tesoro principle is to be applied to cases with similar issues. No
and McArthur are foreign corporations based on definite ruling on such principle has been pronounced by
the "Grandfather Rule" is contrary to law, the Court; hence, the disposition of the issues or errors in
particularly the express mandate of the Foreign the instant case will serve as a guide "to the bench, the bar
Investments Act of 1991, as amended, and the FIA and the public."35 Finally, the instant case is capable of
Rules. repetition yet evading review, since the Canadian
company, MBMI, can keep on utilizing dummy Filipino
V.
corporations through various schemes of corporate
The Court of Appeals erred when it applied the layering and conversion of applications to skirt the
exceptions to the res inter alios acta rule. constitutional prohibition against foreign mining in
Philippine soil.
VI.
Conversion of MPSA applications to FTAA applications
The Court of Appeals erred when it concluded that
the conversion of the MPSA Applications into We shall discuss the first error in conjunction with the
FTAA Applications were of "suspicious nature" as sixth error presented by petitioners since both involve the
the same is based on mere conjectures and conversion of MPSA applications to FTAA applications.
surmises without any shred of evidence to show Petitioners propound that the CA erred in ruling against
the same.31 them since the questioned MPSA applications were already
converted into FTAA applications; thus, the issue on the
We find the petition to be without merit.
prohibition relating to MPSA applications of foreign
106
mining corporations is academic. Also, petitioners would POA of the DENR that the herein petitioners are in fact
want us to correct the CA’s finding which deemed the foreign corporations thus a recommendation of the
aforementioned conversions of applications as suspicious rejection of their MPSA applications were recommended to
in nature, since it is based on mere conjectures and the Secretary of the DENR. With respect to the FTAA
surmises and not supported with evidence. applications or conversion of the MPSA applications to
FTAAs, the CA deferred the matter for the determination of
We disagree.
the Secretary of the DENR and the President of the
The CA’s analysis of the actions of petitioners after the case Republic of the Philippines.37
was filed against them by respondent is on point. The
In their Motion for Reconsideration dated October 26,
changing of applications by petitioners from one type to
2010, petitioners prayed for the dismissal of the petition
another just because a case was filed against them, in
asserting that on April 5, 2010, then President Gloria
truth, would raise not a few sceptics’ eyebrows. What is
Macapagal-Arroyo signed and issued in their favor FTAA
the reason for such conversion? Did the said conversion
No. 05-2010-IVB, which rendered the petition moot and
not stem from the case challenging their citizenship and to
academic. However, the CA, in a Resolution dated February
have the case dismissed against them for being "moot"? It
15, 2011 denied their motion for being a mere "rehash of
is quite obvious that it is petitioners’ strategy to have the
their claims and defenses."38 Standing firm on its Decision,
case dismissed against them for being "moot."
the CA affirmed the ruling that petitioners are, in fact,
Consider the history of this case and how petitioners foreign corporations. On April 5, 2011, petitioners elevated
responded to every action done by the court or the case to us via a Petition for Review on Certiorari under
appropriate government agency: on January 2, 2007, Rule 45, questioning the Decision of the CA. Interestingly,
Redmont filed three separate petitions for denial of the the OP rendered a Decision dated April 6, 2011, a day after
MPSA applications of petitioners before the POA. On June this petition for review was filed, cancelling and revoking
15, 2007, petitioners filed a conversion of their MPSA the FTAAs, quoting the Order of the POA and stating that
applications to FTAAs. The POA, in its December 14, 2007 petitioners are foreign corporations since they needed the
Resolution, observed this suspect change of applications financial strength of MBMI, Inc. in order to conduct large
while the case was pending before it and held: scale mining operations. The OP Decision also based the
cancellation on the misrepresentation of facts and the
The filing of the Financial or Technical Assistance
violation of the "Small Scale Mining Law and
Agreement application is a clear admission that the
Environmental Compliance Certificate as well as Sections 3
respondents are not capable of conducting a large scale
and 8 of the Foreign Investment Act and E.O. 584."39 On
mining operation and that they need the financial and
July 6, 2011, the OP issued a Resolution, denying the
technical assistance of a foreign entity in their operation
Motion for Reconsideration filed by the petitioners.
that is why they sought the participation of MBMI
Resources, Inc. The participation of MBMI in the Respondent Redmont, in its Comment dated October 10,
corporation only proves the fact that it is the Canadian 2011, made known to the Court the fact of the OP’s
company that will provide the finances and the resources Decision and Resolution. In their Reply, petitioners chose
to operate the mining areas for the greater benefit and to ignore the OP Decision and continued to reuse their old
interest of the same and not the Filipino stockholders who arguments claiming that they were granted FTAAs and,
only have a less substantial financial stake in the thus, the case was moot. Petitioners filed a Manifestation
corporation. and Submission dated October 19, 2012,40 wherein they
asserted that the present petition is moot since, in a
xxxx
remarkable turn of events, MBMI was able to sell/assign
x x x The filing of the FTAA application on June 15, 2007, all its shares/interest in the "holding companies" to DMCI
during the pendency of the case only demonstrate the Mining Corporation (DMCI), a Filipino corporation and, in
violations and lack of qualification of the respondent effect, making their respective corporations fully-Filipino
corporations to engage in mining. The filing of the FTAA owned.
application conversion which is allowed foreign
Again, it is quite evident that petitioners have been trying
corporation of the earlier MPSA is an admission that
to have this case dismissed for being "moot." Their final
indeed the respondent is not Filipino but rather of foreign
act, wherein MBMI was able to allegedly sell/assign all its
nationality who is disqualified under the laws. Corporate
shares and interest in the petitioner "holding companies"
documents of MBMI Resources, Inc. furnished its
to DMCI, only proves that they were in fact not Filipino
stockholders in their head office in Canada suggest that
corporations from the start. The recent divesting of
they are conducting operation only through their local
interest by MBMI will not change the stand of this Court
counterparts.36
with respect to the nationality of petitioners prior the
On October 1, 2010, the CA rendered a Decision which suspicious change in their corporate structures. The new
partially granted the petition, reversing and setting aside documents filed by petitioners are factual evidence that
the September 10, 2008 and July 1, 2009 Orders of the this Court has no power to verify.
MAB. In the said Decision, the CA upheld the findings of the
107
The only thing clear and proved in this Court is the fact Prior to this recent change of events, petitioners were
that the OP declared that petitioner corporations have constant in advocating the application of the "control test"
violated several mining laws and made misrepresentations under RA 7042, as amended by RA 8179, otherwise known
and falsehood in their applications for FTAA which lead to as the Foreign Investments Act (FIA), rather than using the
the revocation of the said FTAAs, demonstrating that stricter grandfather rule. The pertinent provision under
petitioners are not beyond going against or around the law Sec. 3 of the FIA provides:
using shifty actions and strategies. Thus, in this instance,
SECTION 3. Definitions. - As used in this Act:
we can say that their claim of mootness is moot in itself
because their defense of conversion of MPSAs to FTAAs a.) The term Philippine national shall mean a citizen of the
has been discredited by the OP Decision. Philippines; or a domestic partnership or association
wholly owned by the citizens of the Philippines; a
Grandfather test
corporation organized under the laws of the Philippines of
The main issue in this case is centered on the issue of which at least sixty percent (60%) of the capital stock
petitioners’ nationality, whether Filipino or foreign. In outstanding and entitled to vote is wholly owned by
their previous petitions, they had been adamant in Filipinos or a trustee of funds for pension or other
insisting that they were Filipino corporations, until they employee retirement or separation benefits, where the
submitted their Manifestation and Submission dated trustee is a Philippine national and at least sixty percent
October 19, 2012 where they stated the alleged change of (60%) of the fund will accrue to the benefit of Philippine
corporate ownership to reflect their Filipino ownership. nationals: Provided, That were a corporation and its non-
Thus, there is a need to determine the nationality of Filipino stockholders own stocks in a Securities and
petitioner corporations. Exchange Commission (SEC) registered enterprise, at least
sixty percent (60%) of the capital stock outstanding and
Basically, there are two acknowledged tests in determining
entitled to vote of each of both corporations must be
the nationality of a corporation: the control test and the
owned and held by citizens of the Philippines and at least
grandfather rule. Paragraph 7 of DOJ Opinion No. 020,
sixty percent (60%) of the members of the Board of
Series of 2005, adopting the 1967 SEC Rules which
Directors, in order that the corporation shall be considered
implemented the requirement of the Constitution and
a Philippine national. (emphasis supplied)
other laws pertaining to the controlling interests in
enterprises engaged in the exploitation of natural The grandfather rule, petitioners reasoned, has no leg to
resources owned by Filipino citizens, provides: stand on in the instant case since the definition of a
"Philippine National" under Sec. 3 of the FIA does not
Shares belonging to corporations or partnerships at least
provide for it. They further claim that the grandfather rule
60% of the capital of which is owned by Filipino citizens
"has been abandoned and is no longer the applicable
shall be considered as of Philippine nationality, but if the
rule."41 They also opined that the last portion of Sec. 3 of
percentage of Filipino ownership in the corporation or
the FIA admits the application of a "corporate layering"
partnership is less than 60%, only the number of shares
scheme of corporations. Petitioners claim that the clear
corresponding to such percentage shall be counted as of
and unambiguous wordings of the statute preclude the
Philippine nationality. Thus, if 100,000 shares are
court from construing it and prevent the court’s use of
registered in the name of a corporation or partnership at
discretion in applying the law. They said that the plain,
least 60% of the capital stock or capital, respectively, of
literal meaning of the statute meant the application of the
which belong to Filipino citizens, all of the shares shall be
control test is obligatory.
recorded as owned by Filipinos. But if less than 60%, or
say, 50% of the capital stock or capital of the corporation We disagree. "Corporate layering" is admittedly allowed by
or partnership, respectively, belongs to Filipino citizens, the FIA; but if it is used to circumvent the Constitution and
only 50,000 shares shall be counted as owned by Filipinos pertinent laws, then it becomes illegal. Further, the
and the other 50,000 shall be recorded as belonging to pronouncement of petitioners that the grandfather rule
aliens. has already been abandoned must be discredited for lack
of basis.
The first part of paragraph 7, DOJ Opinion No. 020, stating
"shares belonging to corporations or partnerships at least Art. XII, Sec. 2 of the Constitution provides:
60% of the capital of which is owned by Filipino citizens
Sec. 2. All lands of the public domain, waters, minerals,
shall be considered as of Philippine nationality," pertains
coal, petroleum and other mineral oils, all forces of
to the control test or the liberal rule. On the other hand,
potential energy, fisheries, forests or timber, wildlife, flora
the second part of the DOJ Opinion which provides, "if the
and fauna, and other natural resources are owned by the
percentage of the Filipino ownership in the corporation or
State. With the exception of agricultural lands, all other
partnership is less than 60%, only the number of shares
natural resources shall not be alienated. The exploration,
corresponding to such percentage shall be counted as
development, and utilization of natural resources shall be
Philippine nationality," pertains to the stricter, more
under the full control and supervision of the State. The
stringent grandfather rule.
State may directly undertake such activities, or it may
enter into co-production, joint venture or production-
108
sharing agreements with Filipino citizens, or corporations MR. NOLLEDO: In Sections 3, 9 and 15, the Committee
or associations at least sixty per centum of whose capital is stated local or Filipino equity and foreign equity; namely,
owned by such citizens. Such agreements may be for a 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in
period not exceeding twenty-five years, renewable for not Section 15.
more than twenty-five years, and under such terms and
MR. VILLEGAS: That is right.
conditions as may be provided by law.
MR. NOLLEDO: In teaching law, we are always faced with
xxxx
the question: ‘Where do we base the equity requirement, is
The President may enter into agreements with Foreign- it on the authorized capital stock, on the subscribed capital
owned corporations involving either technical or financial stock, or on the paid-up capital stock of a corporation’?
assistance for large-scale exploration, development, and Will the Committee please enlighten me on this?
utilization of minerals, petroleum, and other mineral oils
MR. VILLEGAS: We have just had a long discussion with the
according to the general terms and conditions provided by
members of the team from the UP Law Center who
law, based on real contributions to the economic growth
provided us with a draft. The phrase that is contained here
and general welfare of the country. In such agreements,
which we adopted from the UP draft is ‘60 percent of the
the State shall promote the development and use of local
voting stock.’
scientific and technical resources. (emphasis supplied)
MR. NOLLEDO: That must be based on the subscribed
The emphasized portion of Sec. 2 which focuses on the
capital stock, because unless declared delinquent, unpaid
State entering into different types of agreements for the
capital stock shall be entitled to vote.
exploration, development, and utilization of natural
resources with entities who are deemed Filipino due to 60 MR. VILLEGAS: That is right.
percent ownership of capital is pertinent to this case, since
MR. NOLLEDO: Thank you.
the issues are centered on the utilization of our country’s
natural resources or specifically, mining. Thus, there is a With respect to an investment by one corporation in
need to ascertain the nationality of petitioners since, as the another corporation, say, a corporation with 60-40 percent
Constitution so provides, such agreements are only equity invests in another corporation which is permitted
allowed corporations or associations "at least 60 percent by the Corporation Code, does the Committee adopt the
of such capital is owned by such citizens." The grandfather rule?
deliberations in the Records of the 1986 Constitutional
MR. VILLEGAS: Yes, that is the understanding of the
Commission shed light on how a citizenship of a
Committee.
corporation will be determined:
MR. NOLLEDO: Therefore, we need additional Filipino
Mr. BENNAGEN: Did I hear right that the Chairman’s
capital?
interpretation of an independent national economy is
freedom from undue foreign control? What is the meaning MR. VILLEGAS: Yes.42 (emphasis supplied)
of undue foreign control?
It is apparent that it is the intention of the framers of the
MR. VILLEGAS: Undue foreign control is foreign control Constitution to apply the grandfather rule in cases where
which sacrifices national sovereignty and the welfare of corporate layering is present.
the Filipino in the economic sphere.
Elementary in statutory construction is when there is
MR. BENNAGEN: Why does it have to be qualified still with conflict between the Constitution and a statute, the
the word "undue"? Why not simply freedom from foreign Constitution will prevail. In this instance, specifically
control? I think that is the meaning of independence, pertaining to the provisions under Art. XII of the
because as phrased, it still allows for foreign control. Constitution on National Economy and Patrimony, Sec. 3 of
the FIA will have no place of application. As decreed by the
MR. VILLEGAS: It will now depend on the interpretation
honorable framers of our Constitution, the grandfather
because if, for example, we retain the 60/40 possibility in
rule prevails and must be applied.
the cultivation of natural resources, 40 percent involves
some control; not total control, but some control. Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005
provides:
MR. BENNAGEN: In any case, I think in due time we will
propose some amendments. The above-quoted SEC Rules provide for the manner of
calculating the Filipino interest in a corporation for
MR. VILLEGAS: Yes. But we will be open to improvement of
purposes, among others, of determining compliance with
the phraseology.
nationality requirements (the ‘Investee Corporation’).
Mr. BENNAGEN: Yes. Such manner of computation is necessary since the shares
in the Investee Corporation may be owned both by
Thank you, Mr. Vice-President.
individual stockholders (‘Investing Individuals’) and by
xxxx corporations and partnerships (‘Investing Corporation’).

109
The said rules thus provide for the determination of After a scrutiny of the evidence extant on record, the Court
nationality depending on the ownership of the Investee finds that this case calls for the application of the
Corporation and, in certain instances, the Investing grandfather rule since, as ruled by the POA and affirmed
Corporation. by the OP, doubt prevails and persists in the corporate
ownership of petitioners. Also, as found by the CA, doubt is
Under the above-quoted SEC Rules, there are two cases in
present in the 60-40 Filipino equity ownership of
determining the nationality of the Investee Corporation.
petitioners Narra, McArthur and Tesoro, since their
The first case is the ‘liberal rule’, later coined by the SEC as
common investor, the 100% Canadian corporation––
the Control Test in its 30 May 1990 Opinion, and pertains
MBMI, funded them. However, petitioners also claim that
to the portion in said Paragraph 7 of the 1967 SEC Rules
there is "doubt" only when the stockholdings of Filipinos
which states, ‘(s)hares belonging to corporations or
are less than 60%.43
partnerships at least 60% of the capital of which is owned
by Filipino citizens shall be considered as of Philippine The assertion of petitioners that "doubt" only exists when
nationality.’ Under the liberal Control Test, there is no the stockholdings are less than 60% fails to convince this
need to further trace the ownership of the 60% (or more) Court. DOJ Opinion No. 20, which petitioners quoted in
Filipino stockholdings of the Investing Corporation since a their petition, only made an example of an instance where
corporation which is at least 60% Filipino-owned is "doubt" as to the ownership of the corporation exists. It
considered as Filipino. would be ludicrous to limit the application of the said
word only to the instances where the stockholdings of
The second case is the Strict Rule or the Grandfather Rule
non-Filipino stockholders are more than 40% of the total
Proper and pertains to the portion in said Paragraph 7 of
stockholdings in a corporation. The corporations
the 1967 SEC Rules which states, "but if the percentage of
interested in circumventing our laws would clearly strive
Filipino ownership in the corporation or partnership is
to have "60% Filipino Ownership" at face value. It would
less than 60%, only the number of shares corresponding to
be senseless for these applying corporations to state in
such percentage shall be counted as of Philippine
their respective articles of incorporation that they have
nationality." Under the Strict Rule or Grandfather Rule
less than 60% Filipino stockholders since the applications
Proper, the combined totals in the Investing Corporation
will be denied instantly. Thus, various corporate schemes
and the Investee Corporation must be traced (i.e.,
and layerings are utilized to circumvent the application of
"grandfathered") to determine the total percentage of
the Constitution.
Filipino ownership.
Obviously, the instant case presents a situation which
Moreover, the ultimate Filipino ownership of the shares
exhibits a scheme employed by stockholders to circumvent
must first be traced to the level of the Investing
the law, creating a cloud of doubt in the Court’s mind. To
Corporation and added to the shares directly owned in the
determine, therefore, the actual participation, direct or
Investee Corporation x x x.
indirect, of MBMI, the grandfather rule must be used.
xxxx
McArthur Mining, Inc.
In other words, based on the said SEC Rule and DOJ
To establish the actual ownership, interest or participation
Opinion, the Grandfather Rule or the second part of the
of MBMI in each of petitioners’ corporate structure, they
SEC Rule applies only when the 60-40 Filipino-foreign
have to be "grandfathered."
equity ownership is in doubt (i.e., in cases where the joint
venture corporation with Filipino and foreign stockholders As previously discussed, McArthur acquired its MPSA
with less than 60% Filipino stockholdings [or 59%] invests application from MMC, which acquired its application from
in other joint venture corporation which is either 60-40% SMMI. McArthur has a capital stock of ten million pesos
Filipino-alien or the 59% less Filipino). Stated differently, (PhP 10,000,000) divided into 10,000 common shares at
where the 60-40 Filipino- foreign equity ownership is not one thousand pesos (PhP 1,000) per share, subscribed to
in doubt, the Grandfather Rule will not apply. (emphasis by the following
supplied)
:44

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Corporation

MBMI Resources, Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60

Inc.

110
 Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00

Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60

(emphasis supplied)

Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition as
McArthur. In fact, it would seem that MBMI is also a major investor and "controls" 45 MBMI and also, similar nominal
shareholders were present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and
Kenneth Cawkell (Cawkell):
Madridejos Mining Corporation

Name Nationality Number of Shares Amount Subscribed Amount Paid

Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Development
Corp.

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00

Inc.

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied)

Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect to the number of
shares they subscribed to in the corporation, which is quite absurd since Olympic is the major stockholder in MMC. MBMI’s
2006 Annual Report sheds light on why Olympic failed to pay any amount with respect to the number of shares it subscribed
to. It states that Olympic entered into joint venture agreements with several Philippine companies, wherein it holds directly
and indirectly a 60% effective equity interest in the Olympic Properties. 46 Quoting the said Annual report:
On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") entered into a series of
agreements including a Property Purchase and Development Agreement (the Transaction Documents) with respect to three
nickel laterite properties in Palawan, Philippines (the "Olympic Properties"). The Transaction Documents effectively establish
111
a joint venture between the Company and Olympic for purposes of developing the Olympic Properties. The Company holds
directly and indirectly an initial 60% interest in the joint venture. Under certain circumstances and upon achieving certain
milestones, the Company may earn up to a 100% interest, subject to a 2.5% net revenue royalty. 47 (emphasis supplied)
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized by MBMI
to gain control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur, making the
latter a foreign corporation.
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP 10,000,000) divided into
ten thousand (10,000) common shares at PhP 1,000 per share, as demonstrated below:
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Mining, Inc.

MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60

Resources, Inc.

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60

(emphasis supplied)

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate structure of
petitioner McArthur, down to the last centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili,
Mason and Cawkell. The figures under "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly
the same. Delving deeper, we scrutinize SMMI’s corporate structure:
Sara Marie Mining, Inc.
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

112
Development
Corp.

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,794,000.00

Inc.

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied)

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

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00

Mining &
Development

113
Corp.

MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00

Resources, Inc.

Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00

Mendoza, Jr.

Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernandez

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Bocalan

Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00

Robert L. American 1 PhP 1,000.00 PhP 1,000.00

McCurdy

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,800,000.00

(emphasis supplied)

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this corporate structure.
Patricia Louise Mining & Development Corporation
Using the grandfather method, we further look and examine PLMDC’s corporate structure:

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Palawan Alpha South Resources Filipino 6,596 PhP 6,596,000.00 PhP 0

Development Corporation

MBMI Resources, Canadian 3,396 PhP 3,396,000.00 PhP

2,796,000.00
Inc.

Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00

Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

114
 Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00

Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP PhP

10,000,000.00 2,708,174.60
(emphasis
supplied)

Yet again, the usual players in petitioners’ corporate Concluding from the above-stated facts, it is quite safe to
structures are present. Similarly, the amount of money say that petitioners McArthur, Tesoro and Narra are not
paid by the 2nd tier majority stock holder, in this case, Filipino since MBMI, a 100% Canadian corporation, owns
Palawan Alpha South Resources and Development Corp. 60% or more of their equity interests. Such conclusion is
(PASRDC), is zero. derived from grandfathering petitioners’ corporate
owners, namely: MMI, SMMI and PLMDC. Going further
Studying MBMI’s Summary of Significant Accounting
and adding to the picture, MBMI’s Summary of Significant
Policies dated October 31, 2005 explains the reason
Accounting Policies statement– –regarding the "joint
behind the intricate corporate layering that MBMI
venture" agreements that it entered into with the
immersed itself in:
"Olympic" and "Alpha" groups––involves SMMI, Tesoro,
JOINT VENTURES The Company’s ownership interests in PLMDC and Narra. Noticeably, the ownership of the
various mining ventures engaged in the acquisition, "layered" corporations boils down to MBMI, Olympic or
exploration and development of mineral properties in the corporations under the "Alpha" group wherein MBMI has
Philippines is described as follows: joint venture agreements with, practically exercising
majority control over the corporations mentioned. In
(a) Olympic Group
effect, whether looking at the capital structure or the
The Philippine companies holding the Olympic Property, underlying relationships between and among the
and the ownership and interests therein, are as follows: corporations, petitioners are NOT Filipino nationals and
must be considered foreign since 60% or more of their
Olympic- Philippines (the "Olympic Group")
capital stocks or equity interests are owned by MBMI.
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Application of the res inter alios acta rule
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Petitioners question the CA’s use of the exception of the
Pursuant to the Olympic joint venture agreement the res inter alios acta or the "admission by co-partner or
Company holds directly and indirectly an effective equity agent" rule and "admission by privies" under the Rules of
interest in the Olympic Property of 60.0%. Pursuant to a Court in the instant case, by pointing out that statements
shareholders’ agreement, the Company exercises joint made by MBMI should not be admitted in this case since it
control over the companies in the Olympic Group. is not a party to the case and that it is not a "partner" of
petitioners.
(b) Alpha Group
Secs. 29 and 31, Rule 130 of the Revised Rules of Court
The Philippine companies holding the Alpha Property, and provide:
the ownership interests therein, are as follows:
Sec. 29. Admission by co-partner or agent.- The act or
Alpha- Philippines (the "Alpha Group") declaration of a partner or agent of the party within the
Patricia Louise Mining Development Inc. ("Patricia") scope of his authority and during the existence of the
34.0% partnership or agency, may be given in evidence against
such party after the partnership or agency is shown by
Narra Nickel Mining & Development Corporation (Narra) evidence other than such act or declaration itself. The
60.4% same rule applies to the act or declaration of a joint owner,
Under a joint venture agreement the Company holds joint debtor, or other person jointly interested with the
directly and indirectly an effective equity interest in the party.
Alpha Property of 60.4%. Pursuant to a shareholders’ Sec. 31. Admission by privies.- Where one derives title to
agreement, the Company exercises joint control over the property from another, the act, declaration, or omission of
companies in the Alpha Group.48 (emphasis supplied)

115
the latter, while holding the title, in relation to the certain transactions in order to form "pseudo
property, is evidence against the former. partnerships."
Petitioners claim that before the above-mentioned Rule Obviously, as the intricate web of "ventures" entered into
can be applied to a case, "the partnership relation must be by and among petitioners and MBMI was executed to
shown, and that proof of the fact must be made by circumvent the legal prohibition against corporations
evidence other than the admission itself."49 Thus, entering into partnerships, then the relationship created
petitioners assert that the CA erred in finding that a should be deemed as "partnerships," and the laws on
partnership relationship exists between them and MBMI partnership should be applied. Thus, a joint venture
because, in fact, no such partnership exists. agreement between and among corporations may be seen
as similar to partnerships since the elements of
Partnerships vs. joint venture agreements
partnership are present.
Petitioners claim that the CA erred in applying Sec. 29,
Considering that the relationships found between
Rule 130 of the Rules by stating that "by entering into a
petitioners and MBMI are considered to be partnerships,
joint venture, MBMI have a joint interest" with Narra,
then the CA is justified in applying Sec. 29, Rule 130 of the
Tesoro and McArthur. They challenged the conclusion of
Rules by stating that "by entering into a joint venture,
the CA which pertains to the close characteristics of
MBMI have a joint interest" with Narra, Tesoro and
"partnerships" and "joint venture agreements." Further, McArthur.
they asserted that before this particular partnership can be
Panel of Arbitrators’ jurisdiction
formed, it should have been formally reduced into writing
since the capital involved is more than three thousand We affirm the ruling of the CA in declaring that the POA
pesos (PhP 3,000). Being that there is no evidence of has jurisdiction over the instant case. The POA has
written agreement to form a partnership between jurisdiction to settle disputes over rights to mining areas
petitioners and MBMI, no partnership was created. which definitely involve the petitions filed by Redmont
against petitioners Narra, McArthur and Tesoro. Redmont,
We disagree.
by filing its petition against petitioners, is asserting the
A partnership is defined as two or more persons who bind right of Filipinos over mining areas in the Philippines
themselves to contribute money, property, or industry to a against alleged foreign-owned mining corporations. Such
common fund with the intention of dividing the profits claim constitutes a "dispute" found in Sec. 77 of RA 7942:
among themselves.50 On the other hand, joint ventures
Within thirty (30) days, after the submission of the case by
have been deemed to be "akin" to partnerships since it is
the parties for the decision, the panel shall have exclusive
difficult to distinguish between joint ventures and
and original jurisdiction to hear and decide the following:
partnerships. Thus:
(a) Disputes involving rights to mining areas
[T]he relations of the parties to a joint venture and the
nature of their association are so similar and closely akin (b) Disputes involving mineral agreements or
to a partnership that it is ordinarily held that their rights, permits
duties, and liabilities are to be tested by rules which are
We held in Celestial Nickel Mining Exploration Corporation
closely analogous to and substantially the same, if not
v. Macroasia Corp.:53
exactly the same, as those which govern partnership. In
fact, it has been said that the trend in the law has been to The phrase "disputes involving rights to mining areas"
blur the distinctions between a partnership and a joint refers to any adverse claim, protest, or opposition to an
venture, very little law being found applicable to one that application for mineral agreement. The POA therefore has
does not apply to the other.51 the jurisdiction to resolve any adverse claim, protest, or
opposition to a pending application for a mineral
Though some claim that partnerships and joint ventures
agreement filed with the concerned Regional Office of the
are totally different animals, there are very few rules that
MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-
differentiate one from the other; thus, joint ventures are
40, which provide:
deemed "akin" or similar to a partnership. In fact, in joint
venture agreements, rules and legal incidents governing Sec. 38.
partnerships are applied.52
xxxx
Accordingly, culled from the incidents and records of this
Within thirty (30) calendar days from the last date of
case, it can be assumed that the relationships entered
publication/posting/radio announcements, the authorized
between and among petitioners and MBMI are no simple
officer(s) of the concerned office(s) shall issue a
"joint venture agreements." As a rule, corporations are
certification(s) that the publication/posting/radio
prohibited from entering into partnership agreements;
announcement have been complied with. Any adverse
consequently, corporations enter into joint venture
claim, protest, opposition shall be filed directly, within
agreements with other corporations or partnerships for
thirty (30) calendar days from the last date of

116
publication/posting/radio announcement, with the xxxx
concerned Regional Office or through any concerned
The Regional Director or concerned Regional Director shall
PENRO or CENRO for filing in the concerned Regional
also cause the posting of the application on the bulletin
Office for purposes of its resolution by the Panel of
boards of the Bureau, concerned Regional office(s) and in
Arbitrators pursuant to the provisions of this Act and these
the concerned province(s) and municipality(ies), copy
implementing rules and regulations. Upon final resolution
furnished the barangays where the proposed contract area
of any adverse claim, protest or opposition, the Panel of
is located once a week for two (2) consecutive weeks in a
Arbitrators shall likewise issue a certification to that effect
language generally understood in the locality. After forty-
within five (5) working days from the date of finality of
five (45) days from the last date of publication/posting has
resolution thereof. Where there is no adverse claim,
been made and no adverse claim, protest or opposition
protest or opposition, the Panel of Arbitrators shall
was filed within the said forty-five (45) days, the
likewise issue a Certification to that effect within five
concerned offices shall issue a certification that
working days therefrom.
publication/posting has been made and that no adverse
xxxx claim, protest or opposition of whatever nature has been
filed. On the other hand, if there be any adverse claim,
No Mineral Agreement shall be approved unless the
protest or opposition, the same shall be filed within forty-
requirements under this Section are fully complied with
five (45) days from the last date of publication/posting,
and any adverse claim/protest/opposition is finally
with the Regional Offices concerned, or through the
resolved by the Panel of Arbitrators.
Department’s Community Environment and Natural
Sec. 41. Resources Officers (CENRO) or Provincial Environment
and Natural Resources Officers (PENRO), to be filed at the
xxxx
Regional Office for resolution of the Panel of Arbitrators.
Within fifteen (15) working days form the receipt of the However previously published valid and subsisting mining
Certification issued by the Panel of Arbitrators as provided claims are exempted from posted/posting required under
in Section 38 hereof, the concerned Regional Director shall this Section.
initially evaluate the Mineral Agreement applications in
No mineral agreement shall be approved unless the
areas outside Mineral reservations. He/She shall
requirements under this section are fully complied with
thereafter endorse his/her findings to the Bureau for
and any opposition/adverse claim is dealt with in writing
further evaluation by the Director within fifteen (15)
by the Director and resolved by the Panel of Arbitrators.
working days from receipt of forwarded documents.
(Emphasis supplied.)
Thereafter, the Director shall endorse the same to the
secretary for consideration/approval within fifteen It has been made clear from the aforecited provisions that
working days from receipt of such endorsement. the "disputes involving rights to mining areas" under Sec.
77(a) specifically refer only to those disputes relative to
In case of Mineral Agreement applications in areas with
the applications for a mineral agreement or conferment of
Mineral Reservations, within fifteen (15) working days
mining rights.
from receipt of the Certification issued by the Panel of
Arbitrators as provided for in Section 38 hereof, the same The jurisdiction of the POA over adverse claims, protest, or
shall be evaluated and endorsed by the Director to the oppositions to a mining right application is further
Secretary for consideration/approval within fifteen days elucidated by Secs. 219 and 43 of DENRO AO 95-936,
from receipt of such endorsement. (emphasis supplied) which reads:
It has been made clear from the aforecited provisions that Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
the "disputes involving rights to mining areas" under Sec. Notwithstanding the provisions of Sections 28, 43 and 57
77(a) specifically refer only to those disputes relative to above, any adverse claim, protest or opposition specified
the applications for a mineral agreement or conferment of in said sections may also be filed directly with the Panel of
mining rights. Arbitrators within the concerned periods for filing such
claim, protest or opposition as specified in said Sections.
The jurisdiction of the POA over adverse claims, protest, or
oppositions to a mining right application is further Sec. 43. Publication/Posting of Mineral Agreement
elucidated by Secs. 219 and 43 of DENR AO 95-936, which Application.-
read:
xxxx
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
The Regional Director or concerned Regional Director shall
Notwithstanding the provisions of Sections 28, 43 and 57
also cause the posting of the application on the bulletin
above, any adverse claim, protest or opposition specified
boards of the Bureau, concerned Regional office(s) and in
in said sections may also be filed directly with the Panel of
the concerned province(s) and municipality(ies), copy
Arbitrators within the concerned periods for filing such
furnished the barangays where the proposed contract area
claim, protest or opposition as specified in said Sections.
is located once a week for two (2) consecutive weeks in a
Sec. 43. Publication/Posting of Mineral Agreement.- language generally understood in the locality. After forty-
117
five (45) days from the last date of publication/posting has Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts
been made and no adverse claim, protest or opposition shall exercise exclusive original jurisdiction:
was filed within the said forty-five (45) days, the
1. In all civil actions in which the subject of the litigation is
concerned offices shall issue a certification that
incapable of pecuniary estimation.
publication/posting has been made and that no adverse
claim, protest or opposition of whatever nature has been On the other hand, the jurisdiction of POA is unequivocal
filed. On the other hand, if there be any adverse claim, from Sec. 77 of RA 7942:
protest or opposition, the same shall be filed within forty-
Section 77. Panel of Arbitrators.—
five (45) days from the last date of publication/posting,
with the Regional offices concerned, or through the x x x Within thirty (30) days, after the submission
Department’s Community Environment and Natural of the case by the parties for the decision, the
Resources Officers (CENRO) or Provincial Environment panel shall have exclusive and original jurisdiction
and Natural Resources Officers (PENRO), to be filed at the to hear and decide the following:
Regional Office for resolution of the Panel of Arbitrators.
(c) Disputes involving rights to mining areas
However, previously published valid and subsisting mining
claims are exempted from posted/posting required under (d) Disputes involving mineral agreements or
this Section. permits
No mineral agreement shall be approved unless the It is clear that POA has exclusive and original jurisdiction
requirements under this section are fully complied with over any and all disputes involving rights to mining areas.
and any opposition/adverse claim is dealt with in writing One such dispute is an MPSA application to which an
by the Director and resolved by the Panel of Arbitrators. adverse claim, protest or opposition is filed by another
(Emphasis supplied.) interested applicant.1âwphi1 In the case at bar, the dispute
arose or originated from MPSA applications where
These provisions lead us to conclude that the power of the
petitioners are asserting their rights to mining areas
POA to resolve any adverse claim, opposition, or protest
subject of their respective MPSA applications. Since
relative to mining rights under Sec. 77(a) of RA 7942 is
respondent filed 3 separate petitions for the denial of said
confined only to adverse claims, conflicts and oppositions
applications, then a controversy has developed between
relating to applications for the grant of mineral rights.
the parties and it is POA’s jurisdiction to resolve said
POA’s jurisdiction is confined only to resolutions of such disputes.
adverse claims, conflicts and oppositions and it has no
Moreover, the jurisdiction of the RTC involves civil actions
authority to approve or reject said applications. Such
while what petitioners filed with the DENR Regional Office
power is vested in the DENR Secretary upon
or any concerned DENRE or CENRO are MPSA applications.
recommendation of the MGB Director. Clearly, POA’s
Thus POA has jurisdiction.
jurisdiction over "disputes involving rights to mining
areas" has nothing to do with the cancellation of existing Furthermore, the POA has jurisdiction over the MPSA
mineral agreements. (emphasis ours) applications under the doctrine of primary jurisdiction.
Euro-med Laboratories v. Province of
Accordingly, as we enunciated in Celestial, the POA
Batangas55 elucidates:
unquestionably has jurisdiction to resolve disputes over
MPSA applications subject of Redmont’s petitions. The doctrine of primary jurisdiction holds that if a case is
However, said jurisdiction does not include either the such that its determination requires the expertise,
approval or rejection of the MPSA applications, which is specialized training and knowledge of an administrative
vested only upon the Secretary of the DENR. Thus, the body, relief must first be obtained in an administrative
finding of the POA, with respect to the rejection of proceeding before resort to the courts is had even if the
petitioners’ MPSA applications being that they are foreign matter may well be within their proper jurisdiction.
corporation, is valid.
Whatever may be the decision of the POA will eventually
Justice Marvic Mario Victor F. Leonen, in his Dissent, reach the court system via a resort to the CA and to this
asserts that it is the regular courts, not the POA, that has Court as a last recourse.
jurisdiction over the MPSA applications of petitioners.
Selling of MBMI’s shares to DMCI
This postulation is incorrect.
As stated before, petitioners’ Manifestation and
It is basic that the jurisdiction of the court is determined Submission dated October 19, 2012 would want us to
by the statute in force at the time of the commencement of declare the instant petition moot and academic due to the
the action.54 transfer and conveyance of all the shareholdings and
interests of MBMI to DMCI, a corporation duly organized
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary
and existing under Philippine laws and is at least 60%
Reorganization
Philippine-owned.56 Petitioners reasoned that they now
Act of 1980" reads: cannot be considered as foreign-owned; the transfer of
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their shares supposedly cured the "defect" of their shareholdings to DMCI, are allowed to enter into FTAAs
previous nationality. They claimed that their current FTAA with the State is a non-issue in this case.
contract with the State should stand since "even wholly-
In ending, the "control test" is still the prevailing mode of
owned foreign corporations can enter into an FTAA with
determining whether or not a corporation is a Filipino
the State."57Petitioners stress that there should no longer
corporation, within the ambit of Sec. 2, Art. II of the 1987
be any issue left as regards their qualification to enter into
Constitution, entitled to undertake the exploration,
FTAA contracts since they are qualified to engage in
development and utilization of the natural resources of the
mining activities in the Philippines. Thus, whether the
Philippines. When in the mind of the Court there is doubt,
"grandfather rule" or the "control test" is used, the
based on the attendant facts and circumstances of the case,
nationalities of petitioners cannot be doubted since it
in the 60-40 Filipino-equity ownership in the corporation,
would pass both tests.
then it may apply the "grandfather rule."
The sale of the MBMI shareholdings to DMCI does not have
WHEREFORE, premises considered, the instant petition is
any bearing in the instant case and said fact should be
DENIED. The assailed Court of Appeals Decision dated
disregarded. The manifestation can no longer be
October 1, 2010 and Resolution dated February 15, 2011
considered by us since it is being tackled in G.R. No.
are hereby AFFIRMED.
202877 pending before this Court.1âwphi1 Thus, the
question of whether petitioners, allegedly a Philippine- SO ORDERED.
owned corporation due to the sale of MBMI's

119