Category: LATEST SUPREME COURT CASES


CASE 2011-0140:  SPOUSES WILFREDO PALADA AND  BRIGIDA PALADA VS. SOLIDBANK CORPORATION AND SHERIFF MAYO DELA CRUZ (G.R. NO. 172227, 29 JUNE 2011,  DEL CASTILLO, J.) SUBJECTS: VALIDITY OF REAL ESTATE MORTGAGE; NOTARIZED DOCUMENT. (BRIEF TITLE: SPOUSE PALADA VS. SOLIDBANK).

 

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SUBJECTS/DOCTRINES:

 

Likewise flawed is petitioners’ reasoning that TCT Nos. T-225131 and T-225132 could not have been included in the list of properties mortgaged as these were still mortgaged with the PNB at that time.  Under our laws, a mortgagor is allowed to take a second or subsequent mortgage on a property already mortgaged, subject to the prior rights of the previous mortgages.[1][40]

 

XXXXXXXXXXXXXXXXXXXXXX

 

As to the RTC’s finding that “the x x x bank acted in bad faith when it made it appear that the mortgage was executed by the [petitioners] on June 16, 1997, when the document was acknowledged before Atty. German, x x x when in truth and in fact, the [petitioners] executed said mortgage sometime in March, 1997 x x x,” we find the same without basis.  A careful perusal of the real estate mortgage contract would show that the bank did not make it appear that the real estate mortgage was executed on June 16, 1997, the same day that it was notarized, as the date of execution of the real estate mortgage contract was left blank.[2][41]  And the mere fact that the date of execution was left blank does not prove bad faith.  Besides, any irregularity in the notarization or even the lack of notarization does not affect the validity of the document.  Absent any clear and convincing proof to the contrary, a notarized document enjoys the presumption of regularity and is conclusive as to the truthfulness of its contents.[3][42]

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Republic of thePhilippines

Supreme Court

Manila

 

FIRST DIVISION

 

SPOUSES WILFREDO PALADA

and BRIGIDA PALADA,*

  G.R. No.  172227
                    Petitioners,    
    Present:
     

 

  CORONA, C. J., Chairperson,
                      – versus-   LEONARDO-DE CASTRO,
    BERSAMIN,
    DELCASTILLO, and
    VILLARAMA, JR., JJ.
SOLIDBANK CORPORATION and    
SHERIFF MAYO DELA CRUZ,         

                    Respondents.

  Promulgated:

June 29, 2011

x – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - x

 

D E C I S I O N

 

DEL CASTILLO, J.:

 

 

Allegations of bad faith and fraud must be proved by clear and convincing evidence.[4][1]

           

This Petition for Review on Certiorari[5][2] under Rule 45 of the Rules of Court assails the January 11, 2006 Decision[6][3] of the Court of Appeals (CA) in CA-G.R. CV No. 84236 which dismissed the complaint filed by the petitioners against the respondents and declared as valid the real estate mortgage and certificate of sale.  Also assailed is the April 12, 2006 Resolution[7][4] which denied the motion for reconsideration thereto.

 

Factual Antecedents

 

In February or March 1997, petitioners, spouses Wilfredo and Brigida Palada, applied for a P3 million loan broken down as follows: P1 million as additional working capital under the bills discounting line; P500,000.00 under the bills purchase line; and P1.5 million under the time loan from respondent Solidbank Corporation (bank).[8][5]

 

On March 17, 1997, petitioners received from the bank the amount of P1 million as additional working capital evidenced by a promissory note[9][6] and secured by a real estate mortgage[10][7] in favor of the bank covering several real properties situated in Santiago City.[11][8] 

 

Due to the failure of petitioners to pay the obligation, the bank foreclosed the mortgage and sold the properties at public auction.[12][9]

 

On August 19, 1999, petitioners filed a Complaint[13][10] for nullity of real estate mortgage and sheriff’s certificate of sale[14][11] with prayer for damages, docketed as Civil Case No. 35-2779, against the bank and respondent Sheriff Mayo dela Cruz (sheriff) before the Regional Trial Court (RTC) of Santiago City, Branch 35.[15][12]  Petitioners alleged that the bank, without their knowledge and consent, included their properties covered by Transfer Certificate of Title (TCT) Nos. T-225131 and T-225132,[16][13] among the list of properties mortgaged; that it was only when they received the notice of sale from the sheriff in August 1998 that they found out about the inclusion of the said properties; that despite their objection, the sheriff proceeded with the auction sale; and that the auction sale was done in Santiago City in violation of the stipulation on venue in the real estate mortgage.[17][14] 

 

The bank, in its Answer,[18][15] denied the material allegations of the Complaint and averred that since petitioners were collaterally deficient, they offered TCT Nos. T-237695, T-237696, T-225131 and T-225132 as additional collateral;[19][16]  that although the said properties were at that time mortgaged to the Philippine National Bank (PNB), the bank accepted the offer and caused the annotation of the mortgage in the original copies with the Register of Deeds with the knowledge and consent of petitioners;[20][17] and that when petitioners’ obligation to PNB was extinguished, they delivered the titles of the four properties to the bank.[21][18]

 

Ruling of the Regional Trial Court

 

On October 21, 2004, the RTC rendered a Decision[22][19] declaring the real estate mortgage void for lack of sufficient consideration.  According to the RTC, the real estate mortgage lacks consideration because the loan contract was not perfected due to the failure of the bank to deliver the full P3 million to petitioners.[23][20]  The RTC also found the bank guilty of fraud and bad faith, thereby ordering it to pay petitioners moral and exemplary damages, and attorney’s fees.  The RTC ruled:

 

Furthermore, it appears that the defendant unilaterally changed the term and condition of their loan contract by releasing only P1M of the P3M approved loan.  The defendant, in so doing, violated their principal contract of loan in bad faith, and should be held liable therefor.

 

Likewise, the defendant bank acted in bad faith when it made it appear that the mortgage was executed by the plaintiffs on June 16, 1997, when the document was acknowledged before Atty. German Balot, more so, when it made it appear that the mortgage was registered with the Register of Deeds allegedly on the same date, when in truth and in fact, the plaintiffs executed said mortgage sometime [in] March, 1997, obviously much earlier than June 16, 1997; for, if indeed the mortgage was executed on said date, June 16, 1997, it should have been written on the mortgage contract itself.  On the contrary, the date and place of execution [were left blank].  Amazingly, defendant claims that it was the plaintiffs who [had the] mortgage notarized by Atty. Balot; such claim however is contrary or against its own interest, because, the defendant should be the most interested party in the genuineness and due execution of material important papers and documents such as the mortgage executed in its favor to ensure the protection of its interest embodied in said documents, and the act of leaving the notarization of such a very important document as a mortgage executed in its favor is contrary to human nature and experience, more so against its interest;  hence,  the claim is untrue.

 

Moreover, the defendant also appears to have been motivated by bad faith amounting to fraud when it was able to register the mortgage with the Register of Deeds at the time when the collateral certificates of titles were still in the custody and possession of another mortgagee bank (PNB) due also to an existing/subsisting mortgage covering the same. Definitely, the defendant resorted to some machinations or fraudulent means in registering the contract of mortgage with the Register of Deeds.  This should not be countenanced.

 

Thus, on account of defendant’s bad faith, plaintiffs suffered mental anguish, serious anxiety, besmirched reputation, wounded feelings, moral shock and social humiliation, which entitle them to the award of moral damages, more so, that it was shown that defendants’ bad faith was the proximate cause of these damages plaintiffs suffered.

 

x x x x

 

WHEREFORE, with all the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against the defendant as follows:

 

1.     DECLARING as null and void the undated real estate mortgage between the plaintiffs and the defendant, appearing as Doc. No. 553; Page No. 29; Book No. 28; Series of 1997; (Exhibits “B” for the plaintiffs, Exhibit “1” for the defendant);

 

2.              Likewise DECLARING as null and void the Sheriff’s Foreclosure and the Certificate of Sale, dated October 7, 1998 (Exhibit “F” to “F-3”);

 

3.              ORDERING the defendant to pay the plaintiffs the following damages:

 

a)              Php 1,000,000.00, moral damages;

b)             Php 500,000.00, exemplary damages;  and

c)              Php 50,000.00, Attorney’s fee;  and

 

4.              ORDERING the defendant to pay the cost of litigation, including plaintiffs’ counsel’s court appearance at Php1,500.00 each.

 

                SO ORDERED.[24][21]

Ruling of the Court of Appeals

 

 

On appeal, the CA reversed the ruling of the RTC.  The CA said that based on the promissory note and the real estate mortgage contract, the properties covered by TCT Nos. T-225131 and T-225132 were mortgaged to secure the loan in the amount of P1 million, and not the P3 million loan applied by petitioners.[25][22]  As to the venue of the auction sale, the CA declared that since the properties subject of the case are in Santiago City, the holding of the auction sale in Santiago City was proper[26][23] pursuant to Sections 1[27][24] and 2[28][25] of Act No. 3135.[29][26]  The CA likewise found no fraud or bad faith on the part of the bank to warrant the award of damages by the RTC, thus: 

 

The List of Properties Mortgaged printed at the dorsal side of the real estate mortgage contract particularly includes the subject parcels of land covered by TCT No. T-225132 and TCT No. T-225131.  Below the enumeration, the signatures of [petitioners] clearly appear.  The document was notarized before Notary Public German M. Balot.  We therefore find no cogent reason why the validity of the real estate mortgage covering the two subject properties should not be sustained.

 

Settled is the rule in our jurisdiction that a notarized document has in its favor the presumption of regularity, and to overcome the same, there must be evidence that is clear, convincing and more than merely preponderant; otherwise the document should be upheld. Clearly, the positive presumption of the due execution of the subject real estate mortgage outweighs [petitioners’] bare and unsubstantiated denial that the parcels of land covered by TCT Nos. T-225132 and T-225131 were among those intended to secure the loan of One Million Pesos.  Their imputation of fraud among the officials of [the bank] is weak and unpersuasive. x x x

 

x x x x

 

We also note why despite the alleged non-approval of [petitioners’] application for additional loan, the owner’s copy of TCT Nos. T-225131 and T-225132 remained in the possession of [the bank].  [Petitioners’] claim that they were still hoping to obtain an additional loan in the future appears to this court as a weak explanation. The continued possession by the bank of the certificates of title merely supports the bank’s position that the parcels of land covered by these titles were actually mortgaged to secure the payment of the One Million Peso loan.

 

x x x x

 

WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court, Branch 35 of Santiago City in Civil Case No. 35-2779 is hereby ANNULLED and SET ASIDE and a new one entered:

 

(1)         DISMISSING the complaint filed by the plaintiffs-appellees against the defendants-appellants;  and

 

(2)         Declaring VALID the questioned real estate mortgage and certificate of sale.

 

                SO ORDERED.[30][27]

 

 

On February 1, 2006, petitioners moved for reconsideration but the CA denied the same in its Resolution dated April 12, 2006.[31][28]

 

Issues

 

Hence, the present recourse, where petitioners allege that:

 

(A)

THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN ANNULLING OR REVERSING THE FINDINGS OF BRANCH 35, REGIONAL TRIAL COURT OF SANTIAGO CITY THEREBY IN EFFECT DISMISSING THE COMPLAINT FILED BY THE PETITIONERS AGAINST RESPONDENTS SOLIDBANK CORPORATION AND SHERIFF MAYO DELA CRUZ.

 

(B)

THE COURT OF APPEALS ERRED IN DECLARING VALID THE REAL ESTATE MORTGAGE EXECUTED BETWEEN THE PETITIONERS AND RESPONDENT SOLIDBANK CORPORATION AND IN SUSTAINING THE VALIDITY OF THE CERTIFICATE OFSALEISSUED BY RESPONDENT SHERIFF MAYO DELA CRUZ.

 

(C)

THE   COURT   OF   APPEALS   ERRED   IN    MISAPPRECIATING    THE

FINDINGS OF FACTS OF BRANCH 35, REGIONALTRIALCOURTOFSANTIAGOCITY.[32][29]

 

 

            Simply  put,  the  core  issue  in  this  case is  the  validity of  the  real  estate

mortgage and the auction sale.

 

Petitioners’ Arguments

 

Petitioners echo the ruling of the RTC that the real estate mortgage and certificate of sale are void because the bank failed to deliver the full amount of the loan.  They likewise impute bad faith and fraud on the part of the bank in including TCT Nos. T-225131 and T-225132 in the list of properties mortgaged.  They insist that they did not sign the dorsal portion of the real estate mortgage contract, which contains the list of properties mortgaged, because at that time the dorsal portion was still blank;[33][30] and that TCT Nos. T-225131 and T-225132 were not intended to be included in the list of mortgaged properties because these titles were still mortgaged with the PNB at the time the real estate mortgage subject of this case was executed.[34][31]  Moreover, they claim that they delivered the titles of these properties to the bank as additional collateral for their additional loans, and not for the P1 million loan.[35][32] 

 

Respondent bank’s Arguments

 

            The bank denies petitioners’ allegations of fraud and bad faith and argues that the real estate mortgage which was properly notarized enjoys the presumption of regularity.[36][33] It maintains that TCT Nos. T-225131 and T-225132 were mortgaged as additional collateral for the P1 million loan.[37][34]

 

Our Ruling

 

The petition is bereft of merit.

 

The loan contract was perfected.

 

Under Article 1934[38][35] of the Civil Code, a loan contract is perfected only upon the delivery of the object of the contract. 

 

In this case, although petitioners applied for a P3 million loan, only the amount of P1 million was approved by the bank because petitioners became collaterally deficient when they failed to purchase TCT No. T-227331 which had an appraised value of P1,944,000.00.[39][36]  Hence, on March 17, 1997, only the amount of P1 million was released by the bank to petitioners.[40][37]

 

Upon receipt of the approved loan on March 17, 1997, petitioners executed a promissory note for the amount of P1 million.[41][38]  As security for the P1 million loan, petitioners on the same day executed in favor of the bank a real estate mortgage over the properties covered by TCT Nos. T-237695, T-237696, T-237698, T-143683, T-143729, T-225131 and T-225132.  Clearly, contrary to the findings of the RTC, the loan contract was perfected on March 17, 1997 when petitioners received the P1 million loan, which was the object of both the promissory note and the real estate mortgage executed by petitioners in favor of the bank.

 

Claims   of   fraud   and   bad  faith   are

 

unsubstantiated.

 

 

Petitioners claim that there was fraud and bad faith on the part of the bank in the execution and notarization of the real estate mortgage contract. 

 

We do not agree.

 

There is nothing on the face of the real estate mortgage contract to arouse any suspicion of insertion or forgery.  Below the list of properties mortgaged are the signatures of petitioners.[42][39]  Except for the bare denials of petitioner, no other evidence was presented to show that the signatures appearing on the dorsal portion of the real estate mortgage contract are forgeries. 

 

Likewise flawed is petitioners’ reasoning that TCT Nos. T-225131 and T-225132 could not have been included in the list of properties mortgaged as these were still mortgaged with the PNB at that time.  Under our laws, a mortgagor is allowed to take a second or subsequent mortgage on a property already mortgaged, subject to the prior rights of the previous mortgages.[43][40]

 

As to the RTC’s finding that “the x x x bank acted in bad faith when it made it appear that the mortgage was executed by the [petitioners] on June 16, 1997, when the document was acknowledged before Atty. German, x x x when in truth and in fact, the [petitioners] executed said mortgage sometime in March, 1997 x x x,” we find the same without basis.  A careful perusal of the real estate mortgage contract would show that the bank did not make it appear that the real estate mortgage was executed on June 16, 1997, the same day that it was notarized, as the date of execution of the real estate mortgage contract was left blank.[44][41]  And the mere fact that the date of execution was left blank does not prove bad faith.  Besides, any irregularity in the notarization or even the lack of notarization does not affect the validity of the document.  Absent any clear and convincing proof to the contrary, a notarized document enjoys the presumption of regularity and is conclusive as to the truthfulness of its contents.[45][42]

 

All told, we find no error on the part of the CA in sustaining the validity of the real estate mortgage as well as the certificate of sale.

 

WHEREFORE, the petition is hereby DENIED.  The assailed January 11, 2006 Decision of the Court of Appeals and its April 12, 2006 Resolution in CA-G.R. CV No. 84236 are hereby AFFIRMED.

           

            SO ORDERED.

 

                                               

MARIANO C. DEL CASTILLO

Associate Justice

 

 

WE CONCUR:

 

 

 

RENATO C. CORONA

Chief Justice

Chairperson

 

 

 

 

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

LUCAS P. BERSAMIN

Associate Justice

 

 

                            

 

MARTIN S. VILLARAMA, JR.

Associate Justice

 

C E R T I F I C A T I O N

 

            Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

RENATO C. CORONA

Chief Justice

 


 


[1][40] Cinco v. Court of Appeals, G.R. No. 151903,October 9, 2009, 603 SCRA 108,118.

[2][41] Records, p. 8.

[3][42] Ocampo v. Land Bank of the Philippines, G.R. No. 164968, July 3, 2009, 591 SCRA 562, 571-572.

*       In view of the demise of petitioner Brigada Palada, the title of the instant case should have been “Wilfredo Palada and Heirs of Brigada Palada” (See Transcript of Stenographic Notes [TSN] dated September 9, 2003, pp. 2-3).

[4][1]   Cathay Pacific Airways, Ltd. v. Sps. Vazquez, 447 Phil. 306, 321 (2003).

[5][2]   Rollo, pp. 9-21. 

[6][3]      Id. at 23-33; penned by Associate Justice Rodrigo V. Cosico and concurred in by Associate Justices Regalado E. Maambong and Lucenito N. Tagle.

[7][4]   CA rollo, pp. 84-85.

[8][5]   Rollo, p. 40.

[9][6]   Records, p. 7. Although the promissory note is dated June 16, 1997, both parties admit that the promissory note was executed on March 17, 1997 (Complaint, id. at 2 and Answer, id. at 23).

[10][7]Id. at 8.

[11][8] Rollo, pp. 23-24; TSN datedJuly 17, 2000, pp. 6-9, Direct Examination of Wilfredo Palada.

[12][9]Id. at 24.

[13][10]         Records, pp. 1-6.

[14][11]        Id. at 11-14.

[15][12]         Rollo, p. 34.

[16][13]         Indicated as T-225152 and T-221512 in the Complaint; see records, p. 2.

[17][14]        Id. at 3-4.

[18][15]        Id. at 23-26.

[19][16]        Id. at 24.

[20][17]        Id.

[21][18]        Id.

[22][19]         Rollo, pp. 34-46; penned by Judge Efren M. Cacatian.

[23][20]        Id. at 43.

[24][21]        Id. at 44-46.

[25][22]        Id. at 29-30.

[26][23]        Id. at 31.

[27][24]         SECTION 1.           When a sale is made under a special power inserted in or attached to any real-estate mortgage hereafter made as security for the payment of money or the fulfillment of any other obligation, the provisions of the following sections shall govern as to the manner in which the sale and redemption shall be effected, whether or not provision for the same is made in the power.  

[28][25]         SECTION 2.           Said sale cannot be made legally outside of the province in which the property sold is situated; and in case the place within said province in which the sale is to be made is the subject of stipulation, such sale shall be made in said place or in the municipal building of the municipality in which the property or part thereof is situated.

[29][26]         An Act To Regulate TheSale Of Property Under Special powers Inserted In Or Annexed To Real-Estate Mortgages.

[30][27]         Rollo, pp. 30-32.

[31][28]        Id. at 10-11.

[32][29]        Id. at 14-15.

[33][30]        Id. at 110.

[34][31]        Id.

[35][32]        Id. at 114.

[36][33]        Id. at unpaged-129 and 131-132.

[37][34]        Id. at 127.

[38][35]         Art. 1934.  An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.

[39][36]         TSN dated July 17, 2000, pp. 21-22, Direct Examination of Wilfredo Palada; TSN dated July 31, 2000, pp. 7 and 25-26, Cross-examination and Re-direct examination of Wilfredo Palada; TSN dated August 25, 2003, p. 22, Direct Examination of Julieta Ayala.

[40][37]         TSN datedJuly 17, 2000, p. 5; Direct Examination of Wilfredo Palada.

[41][38]        Id. at 5-7.

[42][39]         Rollo, p. 30.

[43][40]         Cinco v. Court of Appeals, G.R. No. 151903,October 9, 2009, 603 SCRA 108,118.

[44][41]         Records, p. 8.

[45][42]         Ocampo v. Land Bank of the Philippines, G.R. No. 164968, July 3, 2009, 591 SCRA 562, 571-572.

CASE 2011-0139: WILSON P. GAMBOA VS. FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES EXCHANGE COMMISSION, AND PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE; PABLITO V. SANIDAD AND ARNO V. SANIDAD, PETITIONERS-IN-INTERVENTION (G.R. NO. 176579, 28 JUNE 2011, CARPIO, J). SUBJECT: WHETHER THE TERM “CAPITAL” IN SECTION 11, ARTICLE XII OF THE CONSTITUTION REFERS TO THE TOTAL COMMON SHARES ONLY OR TO THE TOTAL OUTSTANDING CAPITAL STOCK. (BRIEF TITLE: GAMBOA VS. FINANCE SECRETARY)

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SUBJECTS/DOCTRINES:

We agree with petitioner and petitioners-in-intervention. The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares,41 and not to the total outstanding capital stock comprising both common and non-voting preferred shares.

XXXXXXXXXXXXXXXXXXXXXXXXXXXX

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term “capital” in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term “capital” shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control and management of public utilities.

 XXXXXXXXXXXXXXXXXXXXXXXXXXXXX

WHEREFORE, we PARTLY GRANT the petition and rule that the term “capital” in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term “capital” in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.

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EN BANC

 

WILSON P. GAMBOA,

Petitioner,

  G.R. No. 176579
    Present:
- versus -

 

FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL,

CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE,

Respondents.

   

CORONA, C.J.,

CARPIO,

VELASCO, JR.,

LEONARDO-DE CASTRO,

BRION,

PERALTA,

BERSAMIN,

DEL CASTILLO,

ABAD,

VILLARAMA, JR.,

PEREZ,

MENDOZA, and

SERENO, JJ.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PABLITO V. SANIDAD and

ARNO V. SANIDAD,

Petitioners-in-Intervention.

  Promulgated:

 

June 28, 2011

x- – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – -x

 

 

D E C I S I O N

 

 

CARPIO, J.:

 

 

The Case

 

This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of thePhilippinesto Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific).

 

The Antecedents

 

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), are as follows:1

 

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic of the Philippines.2

 

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.

 

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or US$510,580,189. The sale was completed on 28 February 2007.

 

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40 percent.3

 

On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the following relevant facts:

 

On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the other hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC shares were reconveyed to the Republic of the Philippinesin accordance with this Court’s decision4 which became final and executory on 8 August 2006.

The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the Department of Finance and the PCGG, as the disposing entity. An invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The extension was published in nine different newspapers.

 

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding results and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTIC’s Articles of Incorporation. First Pacific announced its intention to match Parallax’s bid.

 

On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing on the particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among those who attended the public hearing. The HR Committee Report No. 2270 concluded that: (a) the auction of the government’s 111,415 PTIC shares bore due diligence, transparency and conformity with existing legal procedures; and (b) First Pacific’s intended acquisition of the government’s 111,415 PTIC shares resulting in First Pacific’s 100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of a public utility since PTIC holds only 13.847 percent of the total outstanding common shares of PLDT.5 On 28 February 2007, First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.

 

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amounting to P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTIC’s Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other allegations of facts of petitioner.

 

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result in an increase in First Pacific’s common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese NTT DoCoMo’s common shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional limit.6Petitioner asserts:

 

If and when the sale is completed, First Pacific’s equity in PLDT will go up from 30.7 percent to 37.0 percent of its common – or voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largest foreign investors in PLDT – First Pacific and Japan’s NTT DoCoMo, which is the world’s largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the completion of the sale, data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDT’s common equity. x x x

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities breached the constitutional limit of 40 percent ownership as early as 2003. x x x”7

 

Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public respondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to foreigners in excess of 40 percent of the entire subscribed common capital stock violates the constitutional limit on foreign ownership of a public utility.8

 

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the Petition-in-Intervention.

 

Petitioners-in-intervention “join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or assignee.” Petitioners-in-intervention claim that, as PLDT subscribers, they have a “stake in the outcome of the controversy x x x where the Philippine Government is completing the sale of government owned assets in [PLDT], unquestionably a public utility, in violation of the nationality restrictions of the Philippine Constitution.”

 

 

The Issue

 

 

This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which indisputably demand a thorough examination of the evidence of the parties, are generally beyond this Court’s jurisdiction. Adhering to this well-settled principle, the Court shall confine the resolution of the instant controversy solely on the threshold and purely legal issue of whether the term “capital” in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility.

 

The Ruling of the Court

 

The petition is partly meritorious.

 

Petition for declaratory relief treated as petition for mandamus

 

At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent with the Regional Trial Court and the Court of Appeals. The actions for declaratory relief,10 injunction, and annulment of sale are not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the petition could have been dismissed outright.

 

While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall nevertheless refrain from discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.

 

However, since the threshold and purely legal issue on the definition of the term “capital” in Section 11, Article XII of the Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory relief as one for mandamus.12

 

In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for mandamus considering the grave injustice that would result in the interpretation of a banking law. In that case, which involved the crime of rape committed by a foreign tourist against a Filipino minor and the execution of the final judgment in the civil case for damages on the tourist’s dollar deposit with a local bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment, garnishment or any other order or process of any court, inapplicable due to the peculiar circumstances of the case. The Court held that “injustice would result especially to a citizen aggrieved by a foreign guest like accused x x x” that would “negate Article 10 of the Civil Code which provides that ‘in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail.’” The Court therefore required respondents Central Bank of thePhilippines, the local bank, and the accused to comply with the writ of execution issued in the civil case for damages and to release the dollar deposit of the accused to satisfy the judgment.

 

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity of the petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether the government unlawfully excluded petitioners, who were government employees, from the enjoyment of rights to which they were entitled under the law. Specifically, the question was: “Are the branches, agencies, subdivisions, and instrumentalities of the Government, including government owned or controlled corporations included among the four ‘employers’ under Presidential Decree No. 851 which are required to pay their employees x x x a thirteenth (13th) month pay x x x ?” The Constitutional principle involved therein affected all government employees, clearly justifying a relaxation of the technical rules of procedure, and certainly requiring the interpretation of the assailed presidential decree.

 

In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has far-reaching implications. As this Court held in Salvacion:

 

The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to this rule have been recognized. Thus, where the petition has far-reaching implications and raises questions that should be resolved, it may be treated as one for mandamus.15 (Emphasis supplied)

 

 

In the present case, petitioner seeks primarily the interpretation of the term “capital” in Section 11, Article XII of the Constitution. He prays that this Court declare that the term “capital” refers to common shares only, and that such shares constitute “the sole basis in determining foreign equity in a public utility.” Petitioner further asks this Court to declare any ruling inconsistent with such interpretation unconstitutional.

 

The interpretation of the term “capital” in Section 11, Article XII of the Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of the national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshhold legal issue presented in this case.

 

The Court first encountered the issue on the definition of the term “capital” in Section 11, Article XII of the Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same public utility (PLDT) and substantially the same private respondents. Despite the importance and novelty of the constitutional issue raised therein and despite the fact that the petition involved a purely legal question, the Court declined to resolve the case on the merits, and instead denied the same for disregarding the hierarchy of courts.17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial Court’s Decision of 21 February 2003 via a petition for review under Rule 45. The Court’s Resolution, denying the petition, became final on 21 December 2004.

The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which is of transcendental importance to the national economy and a fundamental requirement to a faithful adherence to our Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the litigants, but more significantly for the benefit of the entire Filipino people, to ensure, in the words of the Constitution, “a self-reliant and independent national economy effectively controlled by Filipinos.”18 Besides, in the light of vague and confusing positions taken by government agencies on this purely legal issue, present and future foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of their participation in the capital of public utilities and other nationalized businesses.

 

Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over 75 years since the 1935 Constitution. There is no reason for this Court to evade this ever recurring fundamental issue and delay again defining the term “capital,” which appears not only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII on co-production and joint venture agreements for the development of our natural resources,19 in Section 7, Article XII on ownership of private lands,20 in Section 10, Article XII on the reservation of certain investments to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of educational institutions,22 and in Section 11(2), Article XVI on the ownership of advertising companies.23

 

 

Petitioner has locus standi

 

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale, which he claims to violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the sale indeed violates the Constitution, then there is a possibility that PLDT’s franchise could be revoked, a dire consequence directly affecting petitioner’s interest as a stockholder.

 

More importantly, there is no question that the instant petition raises matters of transcendental importance to the public. The fundamental and threshold legal issue in this case, involving the national economy and the economic welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to bring this action.

 

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance to the public, thus:

 

In Tañada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties in interest; and because it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need not show that he has any legal or special interest in the result of the action. In the aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a right then recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners’ legal standing, the Court declared that the right they sought to be enforced ‘is a public right recognized by no less than the fundamental law of the land.’

Legaspi v. Civil Service Commission, while reiterating Tañada, further declared that ‘when a mandamus proceeding involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general ‘public’ which possesses the right.’

Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the questioned contract for the development, management and operation of the Manila International Container Terminal, ‘public interest [was] definitely involved considering the important role [of the subject contract] . . . in the economic development of the country and the magnitude of the financial consideration involved.’ We concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for upholding the petitioner’s standing. (Emphasis supplied)

 

Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the petitioner has the requisite locus standi.

 

Definition of the Term “Capital” in

Section 11, Article XII of the 1987 Constitution

 

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities, to wit:

 

 

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of thePhilippines. (Emphasis supplied)

 

 

The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:

 

Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis supplied)

 

 

 

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:

 

Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. No franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the public interest so requires. (Emphasis supplied)

 

 

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which gripped the 1935 Constitutional Convention.25 The 1987 Constitution “provides for the Filipinization of public utilities by requiring that any form of authorization for the operation of public utilities should be granted only to ‘citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens.’ The provision is [an express] recognition of the sensitive and vital position of public utilities both in the national economy and for national security.”26 The evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national interest.27 This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding economic goal of the 1987 Constitution: to “conserve and develop our patrimony”28 and ensure “a self-reliant and independent national economy effectively controlled by Filipinos.”29

 

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public utility, at least 60 percent of its “capital” must be owned by Filipino citizens.

 

The crux of the controversy is the definition of the term “capital.” Does the term “capital” in Section 11, Article XII of the Constitution refer to common shares or to the total outstanding capital stock (combined total of common and non-voting preferred shares)?

 

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares because such shares are entitled to vote and it is through voting that control over a corporation is exercised. Petitioner posits that the term “capital” in Section 11, Article XII of the Constitution refers to “the ownership of common capital stock subscribed and outstanding, which class of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of directors.” It is undisputed that PLDT’s non-voting preferred shares are held mostly by Filipino citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting preferred shares to pay for the investment cost of installing the telephone line.32

 

Petitioners-in-intervention basically reiterate petitioner’s arguments and adopt petitioner’s definition of the term “capital.”33 Petitioners-in-intervention allege that “the approximate foreign ownership of common capital stock of PLDT x x x already amounts to at least 63.54% of the total outstanding common stock,” which means that foreigners exercise significant control over PLDT, patently violating the 40 percent foreign equity limitation in public utilities prescribed by the Constitution.

 

Respondents, on the other hand, do not offer any definition of the term “capital” in Section 11, Article XII of the Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40 percent of the common shares of PLDT are held by foreigners.

 

In particular, respondent Nazareno’s Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of the petition and the supposed violation of the due process rights of the “affected foreign common shareholders.” Respondent Nazareno does not deny petitioner’s allegation of foreigners’ dominating the common shareholdings of PLDT. Nazareno stressed mainly that the petition “seeks to divest foreign common shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their ownership over their shares.” Thus, “the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they can be heard.”34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders.

 

While Nazareno does not introduce any definition of the term “capital,” he states that “among the factual assertions that need to be established to counter petitioner’s allegations is the uniform interpretation by government agencies (such as the SEC), institutions and corporations (such as the Philippine National Oil Company-Energy Development Corporation or PNOC-EDC) of including both preferred shares and common shares in “controlling interest” in view of testing compliance with the 40% constitutional limitation on foreign ownership in public utilities.35

 

Similarly, respondent Manuel V. Pangilinan does not define the term “capital” in Section 11, Article XII of the Constitution. Neither does he refute petitioner’s claim of foreigners holding more than 40 percent of PLDT’s common shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the alleged violation of the due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this Court’s jurisdiction over the petition; (2) petitioner’s lack of standing; (3) mootness of the petition; (4) non-availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan alleges that the issue should be whether “owners of shares in PLDT as well as owners of shares in companies holding shares in PLDT may be required to relinquish their shares in PLDT and in those companies without any law requiring them to surrender their shares and also without notice and trial.”

 

Respondent Pangilinan further asserts that “Section 11, [Article XII of the Constitution] imposes no nationality requirement on the shareholders of the utility company as a condition for keeping their shares in the utility company.” According to him, “Section 11 does not authorize taking one person’s property (the shareholder’s stock in the utility company) on the basis of another party’s alleged failure to satisfy a requirement that is a condition only for that other party’s retention of another piece of property (the utility company being at least 60% Filipino-owned to keep its franchise).”36

 

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term “capital.” In its Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed procedural defects of the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The OSG does not present any definition or interpretation of the term “capital” in Section 11, Article XII of the Constitution. The OSG contends that “the petition actually partakes of a collateral attack on PLDT’s franchise as a public utility,” which in effect requires a “full-blown trial where all the parties in interest are given their day in court.”38

 

Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange (PSE), does not also define the term “capital” and seeks the dismissal of the petition on the following grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly implemented its rules and required all listed companies, including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the petition would adversely impact the stock market.

 

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of PLDT, contended that the term “capital” in the 1987 Constitution refers to shares entitled to vote or the common shares. Fernandez explained thus:

 

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares, considering that it is through voting that control is being exercised. x x x

 

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and partially nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said activities. Otherwise, if the Trial Court’s ruling upholding respondents’ arguments were to be given credence, it would be possible for the ownership structure of a public utility corporation to be divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Court’s ruling adopting respondents’ arguments, the common shares can be owned entirely by foreigners thus creating an absurd situation wherein foreigners, who are supposed to be minority shareholders, control the public utility corporation.

 

x x x x

 

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the controlling interest.

 

x x x x

 

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the proposition that the meaning of the word “capital” as used in Section 11, Article XII of the Constitution allegedly refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how the stock is classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as stated in the FIA which took effect in 1991 or way after said opinions were rendered, and as clarified by the above-quoted Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by an administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over the clear intent of the framers of the Constitution.

 

In the same vein, the SEC’s construction of Section 11, Article XII of the Constitution is at best merely advisory for it is the courts that finally determine what a law means.39

 

 

On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term “capital” in Section 11, Article XII of the Constitution includes preferred shares since the Constitution does not distinguish among classes of stock, thus:

 

16.  The Constitution applies its foreign ownership limitation on the corporation’s “capital,” without distinction as to classes of shares. x x x

 

In this connection, the Corporation Code – which was already in force at the time the present (1987) Constitution was drafted – defined outstanding capital stock as follows:

 

Section 137. Outstanding capital stock defined. – The term “outstanding capital stock”, as used in this Code, means the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares.

 

Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude either class of shares, in determining the outstanding capital stock (the “capital”) of a corporation. Consequently, petitioner’s suggestion to reckon PLDT’s foreign equity only on the basis of PLDT’s outstanding common shares is without legal basis. The language of the Constitution should be understood in the sense it has in common use.

x x x x

 

17.  But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is nothing in the Record of the Constitutional Commission (Vol. III) – which petitioner misleadingly cited in the Petition x x x – which supports petitioner’s view that only common shares should form the basis for computing a public utility’s foreign equity.

x x x x

 

18.  In addition, the SEC – the government agency primarily responsible for implementing the Corporation Code, and which also has the responsibility of ensuring compliance with the Constitution’s foreign equity restrictions as regards nationalized activities x x x – has categorically ruled that both common and preferred shares are properly considered in determining outstanding capital stock and the nationality composition thereof.40

 

 

We agree with petitioner and petitioners-in-intervention. The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares,41 and not to the total outstanding capital stock comprising both common and non-voting preferred shares.

The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:

 

Sec. 6. Classification of shares. – The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those classified and issued as “preferred” or “redeemable” shares, unless otherwise provided in this Code: Provided, further, That there shall always be a class or series of shares which have complete voting rights. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be permitted to issue no-par value shares of stock.

Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the articles of incorporation which are not violative of the provisions of this Code: Provided, That preferred shares of stock may be issued only with a stated par value. The Board of Directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without par value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3.Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.

 

 

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation.43 This is exercised through his vote in the election of directors because it is the board of directors that controls or manages the corporation.44 In the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders.45 In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to vote.46 Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid.47

 

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term “capital” in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term “capital” shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.

 

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control and management of public utilities. As revealed in the deliberations of the Constitutional Commission, “capital” refers to the voting stock or controlling interest of a corporation, to wit:

 

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.

 

MR. VILLEGAS. That is right.

 

MR. NOLLEDO. In teaching law, we are always faced with this question: “Where do we base the equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation”? Will the Committee please enlighten me on this?

 

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP LawCenterwho provided us a draft. The phrase that is contained here which we adopted from the UP draft is “60 percent of voting stock.”

 

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be entitled to vote.

 

MR. VILLEGAS. That is right.

 

MR. NOLLEDO. Thank you.

 

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule?

 

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

 

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

 

MR. VILLEGAS. Yes.48

 

x x x x

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

 

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase “voting stock or controlling interest.”

 

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: “corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens.”

 

MR. VILLEGAS. Yes.

 

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.

 

MR. VILLEGAS. That is right.

 

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So we can have a situation where the corporation is controlled by foreigners despite being the minority because they have the voting capital. That is the anomaly that would result here.

 

MR. BENGZON. No, the reason we eliminated the word “stock” as stated in the 1973 and 1935 Constitutions is that according to Commissioner Rodrigo, there are associations that do not have stocks. That is why we say “CAPITAL.”

 

MR. AZCUNA. We should not eliminate the phrase “controlling interest.”

 

MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)

 

 

Thus, 60 percent of the “capital” assumes, or should result in, “controlling interest” in the corporation. Reinforcing this interpretation of the term “capital,” as referring to controlling interest or shares entitled to vote, is the definition of a “Philippine national” in the Foreign Investments Act of 1991,50 to wit:

 

SEC. 3. Definitions. – As used in this Act:

 

a.  The term “Philippine national” shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the Philippines, in order that the corporation, shall be considered a “Philippine national.” (Emphasis supplied)

 

In explaining the definition of a “Philippine national,” the Implementing Rules and Regulations of the Foreign Investments Act of 1991 provide:

 

b. “Philippine national” shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the members of the Board of Directors of each of both corporation must be citizens of the Philippines, in order that the corporation shall be considered a Philippine national. The control test shall be applied for this purpose.

 

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote are considered.

 

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.

 

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine nationals. (Emphasis supplied)

 

 

 

 

 

 

Mere legal title is insufficient to meet the 60 percent Filipino-owned “capital” required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is “considered as non-Philippine national[s].”

 

Under Section 10, Article XII of the Constitution, Congress may “reserve to citizens of the Philippinesor to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments.” Thus, in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the “capital” of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term “capital” in Section 11, Article XII of the Constitution is also used in the same context in numerous laws reserving certain areas of investments to Filipino citizens.

 

To construe broadly the term “capital” as the total outstanding capital stock, including both common and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the “State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.” A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility.

 

We shall illustrate the glaring anomaly in giving a broad definition to the term “capital.” Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under the broad definition of the term “capital,” such corporation would be considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.

 

In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of an independent national economy effectively controlled by Filipinos.

 

The example given is not theoretical but can be found in the real world, and in fact exists in the present case.

 

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT’s Articles of Incorporation expressly state that “the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders.”51

 

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDT’s Articles of Incorporation52 state that “each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote for the election of directors and for all other purposes.53

 

In short, only holders of common shares can vote in the election of directors, meaning only common shareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any control over PLDT. In fact, under PLDT’s Articles of Incorporation, holders of common shares have voting rights for all purposes, while holders of preferred shares have no voting right for any purpose whatsoever.

 

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on PLDT’s 2010 General Information Sheet (GIS),54 which is a document required to be submitted annually to the Securities and Exchange Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total number of PLDT’s common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution.

 

Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the SIP58 preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for the common shares at P70.00 per share, while the declared dividends for the preferred shares amounted to a measly P1.00 per share.59 So the preferred shares not only cannot vote in the election of directors, they also have very little and obviously negligible dividend earning capacity compared to common shares.

 

As shown in PLDT’s 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.

 

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the State’s grant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that “[n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x.

 

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDT’s common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn;63 (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.

 

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00 per share,64 while PLDT preferred shares with a par value of P10.00 per share have a current stock market value ranging from only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that control and beneficial ownership of PLDT rest with the common shares, not with the preferred shares.

 

Indisputably, construing the term “capital” in Section 11, Article XII of the Constitution to include both voting and non-voting shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to a clear abdication of the State’s constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretation certainly runs counter to the constitutional provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources as well as the ownership of land, educational institutions and advertising businesses. The Court should never open to foreign control what the Constitution has expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest. The Court must perform its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words of the Constitution, “a self-reliant and independent national economy effectively controlled by Filipinos.”

 

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to Filipinos specific areas of investment, such as the development of natural resources and ownership of land, educational institutions and advertising business, is self-executing. There is no need for legislation to implement these self-executing provisions of the Constitution. The rationale why these constitutional provisions are self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:

x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate, the presumption now is that all provisions of the constitution are self-executing. If the constitutional provisions are treated as requiring legislation instead of self-executing, the legislature would have the power to ignore and practically nullify the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always been, that —

 

. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . . . Unless the contrary is clearly intended, the provisions of the Constitution should be considered self-executing, as a contrary rule would give the legislature discretion to determine when, or whether, they shall be effective. These provisions would be subordinated to the will of the lawmaking body, which could make them entirely meaningless by simply refusing to pass the needed implementing statute. (Emphasis supplied)

 

 

 

 

 

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice, agreed that constitutional provisions are presumed to be self-executing. Justice Puno stated:

 

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future legislation for their enforcement. The reason is not difficult to discern. For if they are not treated as self-executing, the mandate of the fundamental law ratified by the sovereign people can be easily ignored and nullified by Congress. Suffused with wisdom of the ages is the unyielding rule that legislative actions may give breath to constitutional rights but congressional inaction should not suffocate them.

 

 

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the rights of a person under custodial investigation, the rights of an accused, and the privilege against self-incrimination. It is recognized that legislation is unnecessary to enable courts to effectuate constitutional provisions guaranteeing the fundamental rights of life, liberty and the protection of property. The same treatment is accorded to constitutional provisions forbidding the taking or damaging of property for public use without just compensation. (Emphasis supplied)

 

 

Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68 this Court ruled:

 

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and as both the citizen and the alien have violated the law, none of them should have a recourse against the other, and it should only be the State that should be allowed to intervene and determine what is to be done with the property subject of the violation. We have said that what the State should do or could do in such matters is a matter of public policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policy should be followed in cases of violations against the constitutional prohibition, courts of justice cannot go beyond by declaring the disposition to be null and void as violative of the Constitution. x x x (Emphasis supplied)

 

 

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution, or over the last 75 years, not one of the constitutional provisions expressly reserving specific areas of investments to corporations, at least 60 percent of the “capital” of which is owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment, like the operation by corporations of public utilities, the exploitation by corporations of mineral resources, the ownership by corporations of real estate, and the ownership of educational institutions. All the legislatures that convened since 1935 also miserably failed to enact legislations to implement these vital constitutional provisions that determine who will effectively control the national economy, Filipinos or foreigners. This Court cannot allow such an absurd interpretation of the Constitution.

 

This Court has held that the SEC “has both regulatory and adjudicative functions.”69 Under its regulatory functions, the SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and decide a possible violation of any law it administers or enforces when it is mandated by law to investigate such violation.

 

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of Incorporation of any corporation where “the required percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution.” Thus, the SEC is the government agency tasked with the statutory duty to enforce the nationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities. This Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, can direct the SEC to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted to the SEC.

Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the “power and function” to “suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law.” The SEC is mandated under Section 5(d) of the same Code with the “power and function” to “investigate x x x the activities of persons to ensure compliance” with the laws and regulations that SEC administers or enforces. The GIS that all corporations are required to submit to SEC annually should put the SEC on guard against violations of the nationality requirement prescribed in the Constitution and existing laws. This Court can compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, to hear and decide a possible violation of Section 11, Article XII of the Constitution in view of the ownership structure of PLDT’s voting shares, as admitted by respondents and as stated in PLDT’s 2010 GIS that PLDT submitted to SEC.

 

WHEREFORE, we PARTLY GRANT the petition and rule that the term “capital” in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term “capital” in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.

 

SO ORDERED.

 

 

 

ANTONIO T. CARPIO

Associate Justice

 

 

WE CONCUR:

 

 

 

 

 

RENATO C. CORONA

Chief Justice

 

 

 

 

 

 

 

 

PRESBITERO J. VELASCO, JR.

Associate Justice

 

 

 

TERESITA J. LEONARDO-

DE CASTRO

Associate Justice

 

ARTURO D. BRION

Associate Justice

 

 

 

DIOSDADO M. PERALTA

Associate Justice

 

LUCAS P. BERSAMIN

Associate Justice

 

 

MARIANO C. DEL CASTILLO

Associate Justice

 

 

 

 

ROBERTO A. ABAD

Associate Justice

 

 

 

 

MARTIN S. VILLARAMA, JR.

Associate Justice

 

 

JOSE PORTUGAL PEREZ

Associate Justice

 

 

JOSE C. MENDOZA

Associate Justice

   

 

   

 

   

MARIA LOURDES P. A. SERENO

Associate Justice

 

 

 

CERTIFICATION

 

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

 

 

 

RENATO C. CORONA

Chief Justice

 

 

 

 

1 Rollo (Vol. I) , pp. 15-103, (Vol. II), pp. 762-768.

2 See Cojuangco v. Sandiganbayan, G.R. No. 183278, 24 April 2009, 586 SCRA 790.

3 Section 11, Article XII of the 1987 Constitution provides:

 

ARTICLE XII
NATIONAL ECONOMY AND PATRIMONY

x x x x

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of thePhilippines.

4 Yuchengco v. Sandiganbayan, G.R. No. 149802, 20 January 2006, 479 SCRA 1.

5 Rollo, (Vol. II), p. 806.

6 Rollo (Vol. I), p. 23.

7Id. at 23-24, 26.

8Id. at 41.

9Id.

10 Governed by Rule 63 of the Rules of Court. Section 1, Rule 63 of the Rules of Court states:

 

RULE 63

Declaratory Relief and Similar Remedies

 

Section 1. Who may file petition. — Any person interested under a deed, will, contract or other written instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or any other governmental regulation may, before breach or violation thereof bring an action in the appropriate Regional Trial Court to determine any question of construction or validity arising, and for a declaration of his rights or duties, thereunder. (Bar Matter No. 803, 17 February 1998)

11 Section 2, Rule 65 of the Rules of Court provides:

 

SEC. 2. Petition for prohibition. – When the proceedings of any tribunal, corporation, board, officer, or person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent to desist from further proceedings in the action or matter specified therein, or otherwise granting such incidental relief as law and justice may require.

 

x x x x

12 Section 3, Rule 65 of the Rules of Court states:

 

SEC. 3. Petition for mandamus. – When any tribunal, corporation, board, officer or person unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from an office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right or office to which such other is entitled, and there is no other plain, speedy and adequate remedy in the ordinary course of law, the person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent, immediately or at some other time to be specified by the court, to do the act required to be done to protect the rights of the petitioner and to pay the damages sustained by the petitioner by reason of the wrongful acts of the respondent.

 

x x x x

13 343 Phil. 539 (1997).

14 209 Phil. 1 (1983), citing Nacionalista Party v. Angelo Bautista, 85 Phil. 101, and Aquino v. Commission on Elections, 62 SCRA 275.

15 Supra note 13.

16 Adverted to in respondent Nazareno’s Memorandum dated 27 September 2007. Rollo, p. 929. Nazareno stated: “In fact, in Fernandez v. Cojuangco, which raised markedly similar issues, the Honorable Court refused to entertain the Petition directly filed with it and dismissed the same for violating the principle of hierarchy of courts.”

17 In a Resolution dated 9 June 2003.

18 Section 19, Article II, Constitution.

19Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.

 

The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish- workers in rivers, lakes, bays, and lagoons.

The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources.

The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.

20 Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.

21Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.

 

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.

 

The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its national goals and priorities.

22Section 4(2), Article XIV of the 1987 Constitution provides: “Educational institutions, other than those established by religious groups and mission boards, shall be owned solely by citizens of the Philippines or corporations or associations at least sixty per centum of the capital of which is owned by such citizens. The Congress may, however, require increased Filipino equity participation in all educational institutions.

 

The control and administration of educational institutions shall be vested in citizens of thePhilippines.

 

x x x x”

23Section 11(2), Article XVI of the 1987 Constitution provides: “The advertising industry is impressed with public interest, and shall be regulated by law for the protection of consumers and the promotion of the general welfare.

 

Only Filipino citizens or corporations or associations at least seventy per centum of the capital of which is owned by such citizens shall be allowed to engage in the advertising industry.

 

The participation of foreign investors in the governing body of entities in such industry shall be limited to their proportionate share in the capital thereof, and all the executive and managing officers of such entities must be citizens of thePhilippines.

24 G.R. No. 130716, 9 December 1998, 299 SCRA 744 cited in Chavez v. Public Estates Authority, 433 Phil. 506 (2002). See also David v. Macapagal-Arroyo, G.R. No. 171396, 3 May 2006, 489 SCRA 160; Santiago v. Commission on Elections, G.R. No. 127325, 19 March 1997, 270 SCRA 106; Kilosbayan, Inc. v. Guingona, Jr., G.R. No. 113375, 5 May 1994, 232 SCRA 110 (1994).

25 Bernas, The Constitution of the Republic of the Philippines, p. 452, citing Smith, Bell and Co. v. Natividad, 40 Phil. 136, 148 (1919); Luzon Stevedoring Corporation v. Anti-Dummy Board, 46 SCRA 474, 490 (1972).

26Id.

27 DeLeon, Hector, Philippine Constitutional Law (Principles and Cases), Volume 2, 1999 Ed., p. 848.

28 Preamble, 1987 Constitution; DeLeon, Hector, Philippine Constitutional Law (Principles and Cases), Volume 2, 1999 Ed., p. 788.

29 Section 19, Article II, Constitution.

30 http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_%28as%20of%207.2.10%29_final.pdf

31 ESTABLISHING BASIC POLICIES FOR THE TELEPHONE INDUSTRY, AMENDING FOR THE PURPOSE THE PERTINENT PROVISIONS OF COMMONWEALTH ACT NO. 146, AS AMENDED, OTHERWISE KNOWN AS THE PUBLIC SERVICE ACT, AS AMENDED, AND ALL INCONSISTENT LEGISLATIVE AND MUNICIPAL FRANCHISE OF THE PHILIPPINE LONG DISTANCE TELEPHONE COMPANY UNDER ACT NO. 3436, AS AMENDED, AND ALL INCONSISTENT LEGISLATIVE AND MUNICIPAL FRANCHISES INCLUDING OTHER EXISTING LAWS.

32 Upon approval by the National Telecommunications Commission, this mandatory requirement to subscribe to non-voting preferred shares was made optional starting 22 April 2003. See PLDT 20- F 2005 filing with the United States Securities and Exchange Commission at http://www.wikinvest.com/stock/Philippine_Long_Distance_Telephone Company_(PHI)/Filing/20-F/2—5/F2923101. See also Philippine Consumers Foundation, Inc. v. NTC and PLDT, G.R. No. L-63318, 18 April 1984, on the origin and rationale of the SIP.

33 Rollo (Vol. I), pp. 414-451.

34 Rollo (Vol. II), p. 991.

35Id. at 951.

36 Id. at 838.

37Id. at 898-923.

38 Rollo (Vol. II), p. 913.

39 Rollo (G.R. No. 157360), pp. 55-62.

40 Rollo (G.R. No. 157360), pp. 1577-1583.

41 In PLDT’s case, the preferred stock is non-voting, except as specifically provided by law.

(http://www.pldt.com.ph/investor/Documents/a2d211230ec3436eab66b41d3d107cfc4Q2004FSwi thopinion.pdf)

42 Batas Pambansa Blg. 68.

43 As stated in the Corporation Code.

44 See http://www.congress.gov.ph/download/researches/rrb_0303_5.pdf

45 See http://www.congress.gov.ph/download/researches/rrb_0303_5.pdf

46 Section 6, BP Blg. 68 or The Corporation Code.

47 Agpalo, Ruben E., Comments on the Corporation Code of the Philippines, 2001 Second Edition, p. 36.

48 Record of the Constitutional Commission, Vol. III, pp. 255-256.

49Id. at 360.

50 Republic Act No. 7042 entitled “AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES AND FOR OTHER PURPOSES.”

51 Rollo (G.R. No. 157360), Vol. I, p. 348.

It must be noted that under PLDT’s Articles of Incorporation, the PLDT Board of Directors is expressly authorized to determine, among others, with respect to each series of Serial Preferred Stock:

x x x x

 

(b) the dividend rate, if any, on the shares of such series (which, if and to the extent the Board of Directors, in its sole discretion, shall deem appropriate under the circumstances, shall be fixed considering the rate of return on similar securities at the time of issuance of such shares), the terms and conditions upon which and the periods with respect to which dividends shall be payable, whether and upon what conditions such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate;

 

       c.            whether or not the shares of such series shall be redeemable, the limitations with respect to such redemption, the time or times when and the manner in which such shares shall be redeemable (including the manner of selecting shares of such series for redemption if less than all shares are to be redeemed) and the price or prices at which such shares shall be redeemable, which may not be less than (i) the par value thereof plus (ii) accrued and unpaid dividends thereon, nor more than (i) 110% of the par value thereof plus (ii) accrued and unpaid dividends thereon;

                                                      d.            whether or not the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall be cumulative or non-cumulative, the extent to which and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof;

 

(e) the rights to which the holders of shares of such series shall be entitled upon the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, which rights may vary depending on whether such liquidation, dissolution, distribution or winding up is voluntary or involuntary, and if voluntary, may vary at different dates, provided, however, that the amount which the holders of shares of such series shall be entitled to receive in the event of any voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation

 

Further, “the holders of Serial Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefore, preferential cash dividends at the rate, under the terms and conditions, for the periods and on the dates fixed by the resolution or resolutions of the Board of Directors, x x x and no more, before any dividends on the Common Capital Stock (other than dividends payable in Common Capital Stock) shall be paid or set apart for payment with respect to the same dividend period. All shares of Preferred Stock of all series shall be of equal rank, preference and priority as to dividends irrespective of whether or not the rates of dividends to which the same shall be entitled shall be the same and, when the stated dividends are not paid in full, the shares of all series of Serial Preferred Stock shall share ratably in the payment of dividends including accumulations, if any, in accordance with the sums which would be payable on such shares if all dividends were declared and paid in full, provided, however, that any two or more series of Serial Preferred Stock may differ from each other as to the existence and extent of the right to cumulative dividends as aforesaid.”

52 Rollo (G.R. No. 157360), Vol. I, p. 339-355. Adopted on 21 November 1995 and approved on 18 February 1997.

53 The other rights, limitations and preferences of common capital stock are as follows:

 

1. After the requirements with respect to preferential dividends on the Serial Preferred Stock shall have been met and after the corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as purchase, retirement or sinking funds, then and not otherwise the holders of the Common Capital Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor.

 

2. After distribution in full of the preferential amounts to be distributed to the holders of Serial Preferred Stock in the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, the holders of the Common Capital Stock shall be entitled to receive all the remaining assets of the corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of the Common Capital Stock held by them, respectively.

 

x x x x

 

4. The ownership of shares of Common Capital Stock shall not entitle the owner thereof to any right (other than such right, if any, as the Board of Directors in its discretion may from time to time grant) to subscribe for or to purchase or to have offered to him for subscription or purchase any shares of any class of preferred stock of the corporation.

54 http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_%28as%20of%207.2.10%29_final.pdf

55 http://www.sec.gov.ph/index.htm?GIS_Download

56 http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_%28as%20of%207.2.10%29_final.pdf

57 http://www.pldt.com.ph/investor/Documents/2009%20Dividend%20Declarations_Update%2012082009.pdf.See also http://www.pldt.com.ph/investor/Documents/disclosures_03-01- 2011.pdf

58 Subscription Investment Plan. See PD No. 217.

59 This is the result of the preferred shares being denominated 10% preferred, which means each preferred share will earn an annual dividend equal to 10% of its par value of P10, which amounts to P1. Once this dividend is paid to holders of preferred shares, the rest of the retained earnings can be paid as dividends to the holders of common shares. See http://www.pldt.com.ph/investor/Documents/2009%20Dividend%20Declarations_Update %2012082009.pdf

 

In 2011, PLDT declared dividends for the common shares at P78.00 per share. (http://www.pldt.com.ph/investor/Documents/disclosures_03-01-2011.pdf)

60 http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_(as%20of%207.2.10)_final.pdf

61 Id. Based on PLDT’s 2010 GIS, the paid-up capital of PLDT (as of Record Date – 12 April 2010) consists of the following:

 

Filipino (preferred): 403,410,355

Foreigners (preferred): 2,287,207

Total: 405,697,562

62Based on par value, as stated in PLDT’s 2010 GIS sbumitted to the SEC. See http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_%28as%20of

 %207.2.10%29_final.pdf (accessed 23 May 2011).

 

Authorized capital stock of PLDT is broken down as follows:

Common shares: 234,000,000

Preferred shares: 822,500,000

Total: 1,056,000,000

63 For the year 2009.

64 http://www.pse.com.ph/ (accessed 31 May 2011)

65 http://www.pse.com.ph/html/Quotations/2011/stockQuotes_05272011.pdf (accessed 27 May 2011)

 

66335 Phil. 82 (1997).

 

67Krivenko v. Register of Deeds, 79 Phil. 461 (1947); Rellosa v. Gaw Chee Hun, 93 Phil. 827 (1953); Vasquez v. Li Seng Giap, 96 Phil. 447 (1955); Soriano v. Ong Hoo, 103 Phil. 829 (1958); Philippine Banking Corporation v. Lui She, 128 Phil. 53 (1967); Frenzel v. Catito, 453 Phil. 885 (2003).

 

68Id.

69 Securities and Exchange Commission v. Court of Appeals, et al., 316 Phil. 903 (1995). The Court ruled in this case:

The Securities and Exchange Commission (“SEC”) has both regulatory and adjudicative functions.

 

Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend or revoke (after due notice and hearing), certificates of registration of corporations, partnerships and associations (excluding cooperatives, homeowners’ associations, and labor unions); compel legal and regulatory compliances; conduct inspections; and impose fines or other penalties for violations of the Revised Securities Act, as well as implementing rules and directives of the SEC, such as may be warranted.

 

Relative to its adjudicative authority, the SEC has original and exclusive jurisdiction to hear and decide controversies and cases involving -

 

a. Intra-corporate and partnership relations between or among the corporation, officers and stockholders and partners, including their elections or appointments;

b. State and corporate affairs in relation to the legal existence of corporations, partnerships and associations or to their franchise; and

c. Investors and corporate affairs particularly in respect of devices and schemes, such as fraudulent practices, employed by directors, officers, business associates, and/or other stockholders, partners, or members of registered firms; x x x

x x x x (Emphasis supplied)

70SEC. 17. Grounds when articles of incorporation or amendment may be rejected or disapproved. – The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the requirements of this Code: Provided, That the Commission shall give the incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or amendment. The following are grounds for such rejection or disapproval:

 

x x x

 

(4) That the required percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution. (Emphasis supplied)

71 Republic Act No. 8799. Section 5 of R.A. No. 8799 provides:

 

Section 5. Powers and Functions of the Commission.– 5.1. The Commission shall act with transparency and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and functions:

(a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or a permit issued by the Government;

x x x

(c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications;

x x x

(f) Impose sanctions for the violation of laws and the rules, regulations and orders, issued pursuant thereto;

x x x

(i) Issue cease and desist orders to prevent fraud or injury to the investing public;

x x x

(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnership or associations, upon any of the grounds provided by law; and

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

 

 

 

CASE 2011-0138: MAXIMINA A. BULAWAN VS. EMERSON B. AQUENDE (G.R. NO. 182819, 22 JUNE 2011, CARPIO,  J.) SUBJECT: ANNULMENT OF JUDGMENT; ANNULMENT OF TITLE, RECONVEYANCE AND DAMAGES. (BRIEF TITLE: BULAWAN VS. AQUENDE)

=================================

SUBJECTS/DOCTRINES:

 In a petition for annulment of judgment, the judgment may be annulled on the grounds of extrinsic fraud and lack of jurisdiction.26 Fraud is extrinsic where it prevents a party from having a trial or from presenting his entire case to the court, or where it operates upon matters pertaining not to the judgment itself but to the manner in which it is procured.27 The overriding consideration when extrinsic fraud is alleged is that the fraudulent scheme of the prevailing litigant prevented a party from having his day in court.28 On the other hand, lack of jurisdiction refers to either lack of jurisdiction over the person of the defending party or over the subject matter of the claim, and in either case the judgment or final order and resolution are void.29 Where the questioned judgment is annulled, either on the ground of extrinsic fraud or lack of jurisdiction, the same shall be set aside and considered void.30

XXXXXXXXXXXXXXXXXXX

Moreover, annulment of judgment is a remedy in law independent of the case where the judgment sought to be annulled was rendered.31 Consequently, an action for annulment of judgment may be availed of even if the judgment to be annulled had already been fully executed or implemented.32

XXXXXXXXXXXXXXXXXXX

Moreover, a person who was not impleaded in the complaint cannot be bound by the decision rendered therein, for no man shall be affected by a proceeding in which he is a stranger.42 In National Housing Authority v. Evangelista,43 we said:

 

In this case, it is undisputed that respondent was never made a party to Civil Case No. Q-91-10071. It is basic that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court. Yet, the assailed paragraph 3 of the trial court’s decision decreed that “(A)ny transfers, assignment, sale or mortgage of whatever nature of the parcel of land subject of this case made by defendant Luisito Sarte or his/her agents or assigns before or during the pendency of the instant case are hereby declared null and void, together with any transfer certificates of title issued in connection with the aforesaid transactions by the Register of Deeds of Quezon City who is likewise ordered to cancel or cause the cancellation of such TCTs.” Respondent is adversely affected by such judgment, as he was the subsequent purchaser of the subject property from Sarte, and title was already transferred to him. It will be the height of inequity to allow respondent’s title to be nullified without being given the opportunity to present any evidence in support of his ostensible ownership of the property. Much more, it is tantamount to a violation of the constitutional guarantee that no person shall be deprived of property without due process of law. Clearly, the trial court’s judgment is void insofar as paragraph 3 of its dispositive portion is concerned.44 (Emphasis supplied)

 

=================================

 

 

SECOND DIVISION

 

MAXIMINA A. BULAWAN,Petitioner,- versus -

EMERSON B. AQUENDE,

Respondent.

G.R. No. 182819Present:CARPIO, J., Chairperson,

LEONARDO-DE CASTRO,*

PERALTA,

ABAD, and

MENDOZA, JJ.

Promulgated:

June 22, 2011

x – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - x

 

D E C I S I O N

 

 

CARPIO, J.:

The Case

 

This is a petition for review1 of the 26 November 2007 Decision2 and 7 May 2008 Resolution3 of the Court of Appeals in CA-G.R. SP No. 91763. In its 26 November 2007 Decision, the Court of Appeals granted respondent Emerson B. Aquende’s (Aquende) petition for annulment of judgment and declared the 26 November 1996 Decision4 of the Regional Trial Court, Legazpi City, Branch 6 (trial court) void. In its 7 May 2008 Resolution, the Court of Appeals denied petitioner Maximina A. Bulawan’s5 (Bulawan) motion for reconsideration.

The Facts

 

On 1 March 1995, Bulawan filed a complaint for annulment of title, reconveyance and damages against Lourdes Yap (Yap) and the Register of Deeds before the trial court docketed as Civil Case No. 9040.6 Bulawan claimed that she is the owner of Lot No. 1634-B of Psd-153847 covered by Transfer Certificate of Title (TCT) No. 13733 having bought the property from its owners, brothers Santos and Francisco Yaptengco (Yaptengco brothers), who claimed to have inherited the property from Yap Chin Cun.7 Bulawan alleged that Yap claimed ownership of the same property and caused the issuance of TCT No. 40292 inYap’s name.

In her Answer,8 Yap clarified that she asserts ownership of Lot No. 1634-A of Psd-187165, which she claimed is the controlling subdivision survey for Lot No. 1634. Yap also mentioned that, in Civil Case No. 5064, the trial court already declared that Psd-153847 was simulated by the Yaptengco brothers and that their claim on Lot No. 1634-B was void.9 The trial court likewise adjudged Yap Chin Cun as the rightful owner of Lot No. 1634-B.Yap also stated that Lot No. 1634-B was sold by Yap Chin Cun to the Aquende family.

On 26 November 1996, the trial court ruled in favor of Bulawan. The trial court’s 26 November 1996 Decision reads:

WHEREFORE, premises considered, decision is hereby rendered in favor of the plaintiff (Bulawan) and against the defendant (Yap) declaring the plaintiff as the lawful owner and possesor of the property in question, particularly designated as Lot 1634-B of Plan Psd-153847. The defendant Lourdes Yap is hereby ordered to respect the plaintiff’s ownership and possession of said lot and to desist from disturbing the plaintiff in her ownership and possession of said lot.

Subdivision Plan Psd-187165 for Lot 1634 Albay Cadastre as well as TCT No. 40292 in the name of plaintiff10 over Lot 1634-A of Plan Psd-187165 are hereby declared null and void and the Register of Deeds of Legazpi City is hereby ordered to cancel as well as any other certificate of title issued pursuant to said Plan Psd-187165.

Defendant Lourdes Yap is hereby ordered to pay plaintiff P10,000.00 as reasonable attorney’s fees, P5,000.00 as litigation and incidental expenses and the costs.

SO ORDERED.11

Yapappealed. On 20 July 2001, the Court of Appeals dismissedYap’s appeal.

On 7 February 2002, the trial court’s 26 November 2006 Decision became final and executory per entry of judgment dated 20 July 2001. On 19 July 2002, the trial court issued a writ of execution.12

In a letter dated 24 July 2002,13 the Register of Deeds informed Aquende of the trial court’s writ of execution and required Aquende to produce TCT No. 40067 so that a memorandum of the lien may be annotated on the title. On 25 July 2002, Aquende wrote a letter to the Register of Deeds questioning the trial court’s writ of execution against his property.14 Aquende alleged that he was unaware of any litigation involving his property having received no summons or notice thereof, nor was he aware of any adverse claim as no notice of lis pendens was inscribed on the title.

On 2 August 2002, Aquende filed a Third Party Claim15 against the writ of execution because it affected his property and, not being a party in Civil Case No. 9040, he argued that he is not bound by the trial court’s 26 November 1996 Decision. In a letter dated 5 August 2002,16 the Clerk of Court said that a Third Party Claim was not the proper remedy because the sheriff did not levy upon or seize Aquende’s property. Moreover, the property was not in the sheriff’s possession and it was not about to be sold by virtue of the writ of execution.

Aquende then filed a Notice of Appearance with Third Party Motion17 and prayed for the partial annulment of the trial court’s 26 November 1996 Decision, specifically the portion which ordered the cancellation of Psd-187165 as well as any other certificate of title issued pursuant to Psd-187165. Aquende also filed a Supplemental Motion18 where he reiterated that he was not a party in Civil Case No. 9040 and that since the action was in personam or quasi in rem, only the parties in the case are bound by the decision.

In its 19 February 2003 Order,19 the trial court denied Aquende’s motions. According to the trial court, it had lost jurisdiction to modify its 26 November 1996 Decision when the Court of Appeals affirmed said decision.

Thereafter, Aquende filed a petition for annulment of judgment before the Court of Appeals on the grounds of extrinsic fraud and lack of jurisdiction.20 Aquende alleged that he was deprived of his property without due process of law. Aquende argued that there was extrinsic fraud when Bulawan conveniently failed to implead him despite her knowledge of the existing title in his name and, thus, prevented him from participating in the proceedings and protecting his title. Aquende also alleged that Bulawan was in collusion with Judge Vladimir B. Brusola who, despite knowledge of the earlier decision in Civil Case No. 5064 on the ownership of Lot No. 1634-B and Aquende’s interest over the property, ruled in favor of Bulawan. Aquende added that he is an indispensable party and the trial court did not acquire jurisdiction over his person because he was not impleaded as a party in the case. Aquende also pointed out that the trial court went beyond the jurisdiction conferred by the allegations on the complaint because Bulawan did not pray for the cancellation of Psd-187165 and TCT No. 40067. Aquende likewise argued that a certificate of title should not be subject to collateral attack and it cannot be altered, modified or canceled except in direct proceedings in accordance with law.

The Court of Appeals ruled in favor of Aquende. The 26 November 2007 Decision of the Court of Appeals reads:

WHEREFORE, the petition is GRANTED. The Decision dated November 26, 1996 in Civil Case No. 9040 is hereby declared NULL and VOID. Transfer Certificate of Title No. 40067 registered in the name of petitioner Emerson B. Aquende and (LRC) Psd-187165 are hereby ordered REINSTATED. Entry Nos. 3823 – A, B and C annotated by the Register of Deeds of Legazpi City on TCT No. 40067 are hereby ordered DELETED.

The parties are hereby DIRECTED to respect and abide by the Decision dated October 31, 1990 in Civil Case No. 5064 quieting title over Lot No. 1634-B (LRC) Psd-187165, now registered in the name of Emerson Aquende under TCT No. 40067.

SO ORDERED.21

 

On 8 January 2008, Bulawan filed a motion for reconsideration.22 In its 7 May 2008 Resolution, the Court of Appeals denied Bulawan’s motion.

Hence, this petition.

 

The Ruling of the Court of Appeals

 

The Court of Appeals ruled that it may still entertain the petition despite the fact that another division of the Court of Appeals already affirmed the trial court’s 26 November 1996 Decision. The other division of the Court of Appeals was not given the opportunity to rule on the issue of Aquende being an indispensable party because that issue was not raised during the proceedings before the trial court and on appeal.

The Court of Appeals declared that Aquende was an indispensable party who was adversely affected by the trial court’s 26 November 1996 Decision. The Court of Appeals said that the trial court should have impleaded Aquende under Section 11, Rule 323 of the Rules of Court. Since jurisdiction was not properly acquired over Aquende, the Court of Appeals declared the trial court’s 26 November 1996 Decision void. According to the Court of Appeals, Aquende had no other recourse but to seek the nullification of the trial court’s 26 November 1996 Decision that unduly deprived him of his property.

The Court of Appeals added that the trial court’s 26 November 1996 Decision was void because the trial court failed to note that the Extrajudicial Settlement of Estate and Partition, from where the Yaptengco brothers derived their ownership over Lot No. 1634-B of Psd-153847 allegedly as heirs of Yap Chin Cun and now being claimed by Bulawan, had already been declared void in Civil Case No. 5064.24 The Court of Appeals also said that a reading of Bulawan’s complaint showed that the trial court had no jurisdiction to order the nullification of Psd-187165 and TCT No. 40067 because this was not one of the reliefs that Bulawan prayed for.

The Issues

 

Bulawan raises the following issues:

I.

The Former Third Division of the Court of Appeals decided contrary to existing laws and jurisprudence when it declared the Decision, dated 26 November 1996, in Civil Case No. 9040 null and void considering that a petition for annulment [of judgment] under Rule 47 of the Rules of Court is an equitable remedy which is available only under extraordinary circumstances.

II.

The Former Third Division of the Court of Appeals decided contrary to law when it considered Respondent Emerson B. Aquende as an indispensable party in Civil Case No. 9040.

III.

The Former Third Division of the Court of Appeals sanctioned a departure from the accepted and usual course of judicial proceedings when it overturned a final and executory decision of another Division thereof.25

 

 

 

The Ruling of the Court

 

The petition has no merit.

Petition for Annulment of Judgment

is the Proper Remedy

 

Bulawan argues that the Court of Appeals erred in granting Aquende’s petition for annulment of judgment in the absence of extrinsic fraud and the existence of jurisdiction on the part of the trial court. Bulawan adds that the Court of Appeals erred because it annulled a decision which had already been considered and affirmed by another division of the Court of Appeals. According to Bulawan, the trial court’s 26 November 1996 Decision is already final and had been fully executed.

In a petition for annulment of judgment, the judgment may be annulled on the grounds of extrinsic fraud and lack of jurisdiction.26 Fraud is extrinsic where it prevents a party from having a trial or from presenting his entire case to the court, or where it operates upon matters pertaining not to the judgment itself but to the manner in which it is procured.27 The overriding consideration when extrinsic fraud is alleged is that the fraudulent scheme of the prevailing litigant prevented a party from having his day in court.28 On the other hand, lack of jurisdiction refers to either lack of jurisdiction over the person of the defending party or over the subject matter of the claim, and in either case the judgment or final order and resolution are void.29 Where the questioned judgment is annulled, either on the ground of extrinsic fraud or lack of jurisdiction, the same shall be set aside and considered void.30

In his petition for annulment of judgment, Aquende alleged that there was extrinsic fraud because he was prevented from protecting his title when Bulawan and the trial court failed to implead him as a party. Bulawan also maintained that the trial court did not acquire jurisdiction over his person and, therefore, its 26 November 1996 Decision is not binding on him. In its 26 November 2007 Decision, the Court of Appeals found merit in Aquende’s petition and declared that the trial court did not acquire jurisdiction over Aquende, who was adversely affected by its 26 November 1996 Decision. We find no error in the findings of the Court of Appeals.

Moreover, annulment of judgment is a remedy in law independent of the case where the judgment sought to be annulled was rendered.31 Consequently, an action for annulment of judgment may be availed of even if the judgment to be annulled had already been fully executed or implemented.32

Therefore, the Court of Appeals did not err when it took cognizance of Aquende’s petition for annulment of judgment and overturned the trial court’s 26 November 1996 Decision even if another division of the Court of Appeals had already affirmed it and it had already been executed.

The Court also notes that when the Court of Appeals affirmed the trial court’s 26 November 1996 Decision, it had not been given the occasion to rule on the issue of Aquende being an indispensable party and, if in the affirmative, whether the trial court properly acquired jurisdiction over his person. This question had not been raised before the trial court and earlier proceedings before the Court of Appeals.

Aquende is a Proper Party to Sue

for the Annulment of the Judgment

Bulawan argues that Aquende was not an indispensable party in Civil Case No. 9040 because the lot Aquende claims ownership of is different from the subject matter of the case. Bulawan clarifies that she claims ownership of Lot No. 1634-B of Psd-153847, while Aquende claims ownership of Lot No. 1634-B of Psd-187165. Bulawan argues that even if Aquende will be affected by the trial court’s 26 November 1996 Decision, this will not make him an indispensable party.

Contrary to Bulawan’s argument, it appears that Aquende’s Lot No. 1634-B of Psd-187165 and Bulawan’s Lot No. 1634-B of Psd-153847 actually refer to the same Lot No. 1634-B originally owned by Yap Chin Cun. Both Aquende and Bulawan trace their ownership of the property to Yap Chin Cun. Aquende maintains that he purchased the property from Yap Chin Cun, while Bulawan claims to have purchased the property from the Yaptengco brothers, who alleged that they inherited the property from Yap Chin Cun. However, as the Court of Appeals declared, the title of the Yaptengco brothers over Lot No. 1634-B of Psd-153847 had already been cancelled and they were forever enjoined not to disturb the right of ownership and possession of Yap Chin Cun.

Section 7, Rule 3 of the Rules of Court defines indispensable parties as parties in interest without whom no final determination can be had of an action. An indispensable party is one whose interest will be affected by the court’s action in the litigation.33 As such, they must be joined either as plaintiffs or as defendants. In Arcelona v. Court of Appeals,34 we said:

The general rule with reference to the making of parties in a civil action requires, of course, the joinder of all necessary parties where possible, and the joinder of all indispensable parties under any and all conditions, their presence being a sine qua non for the exercise of judicial power. It is precisely “when an indispensable party is not before the court (that) the action should be dismissed.” The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even as to those present.35

During the proceedings before the trial court, the answers of Yap36 and the Register of Deeds37 should have prompted the trial court to inquire further whether there were other indispensable parties who were not impleaded. The trial court should have taken the initiative to implead Aquende as defendant or to order Bulawan to do so as mandated under Section 11, Rule 3 of the Rules of Court.38 The burden to implead or to order the impleading of indispensable parties is placed on Bulawan and on the trial court, respectively.39

However, even if Aquende were not an indispensable party, he could still file a petition for annulment of judgment. We have consistently held that a person need not be a party to the judgment sought to be annulled.40 What is essential is that he can prove his allegation that the judgment was obtained by the use of fraud and collusion and that he would be adversely affected thereby.41

We agree with the Court of Appeals that Bulawan obtained a favorable judgment from the trial court by the use of fraud. Bulawan prevented Aquende from presenting his case before the trial court and from protecting his title over his property. We also agree with the Court of Appeals that the 26 November 1996 Decision adversely affected Aquende as he was deprived of his property without due process.

Moreover, a person who was not impleaded in the complaint cannot be bound by the decision rendered therein, for no man shall be affected by a proceeding in which he is a stranger.42 In National Housing Authority v. Evangelista,43 we said:

In this case, it is undisputed that respondent was never made a party to Civil Case No. Q-91-10071. It is basic that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court. Yet, the assailed paragraph 3 of the trial court’s decision decreed that “(A)ny transfers, assignment, sale or mortgage of whatever nature of the parcel of land subject of this case made by defendant Luisito Sarte or his/her agents or assigns before or during the pendency of the instant case are hereby declared null and void, together with any transfer certificates of title issued in connection with the aforesaid transactions by the Register of Deeds of Quezon City who is likewise ordered to cancel or cause the cancellation of such TCTs.” Respondent is adversely affected by such judgment, as he was the subsequent purchaser of the subject property from Sarte, and title was already transferred to him. It will be the height of inequity to allow respondent’s title to be nullified without being given the opportunity to present any evidence in support of his ostensible ownership of the property. Much more, it is tantamount to a violation of the constitutional guarantee that no person shall be deprived of property without due process of law. Clearly, the trial court’s judgment is void insofar as paragraph 3 of its dispositive portion is concerned.44 (Emphasis supplied)

Likewise, Aquende was never made a party in Civil Case No. 9040. Yet, the trial court ordered the cancellation of Psd-187165 and any other certificate of title issued pursuant to Psd-187165, including Aquende’s TCT No. 40067. Aquende was adversely affected by such judgment as his title was cancelled without giving him the opportunity to present his evidence to prove his ownership of the property.

WHEREFORE, we DENY the petition. We AFFIRM the 26 November 2007 Decision and 7 May 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 91763.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

 

 

 

 

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

 

 

 

DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE C. MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

 

 

* Designated additional member per Special Order No. 1006 dated 10 June 2011.

1 Under Rule 45 of the Rules of Court.

2 Rollo, pp. 57-81. Penned by Associate Justice Magdangal M. DeLeon, with Associate Justices Conrado M. Vasquez, Jr. and Mariano C. Del Castillo (now a member of this Court) concurring.

3Id. at 83-85.

4 CA rollo, pp. 65-76. Penned by Judge Vladimir B. Brusola.

5 Substituted by her legal heirs, namely: Helena A. Bulawan, Araceli B. Vargas, Henry A. Bulawan, Mario A. Bulawan and Cesar A. Bulawan. Bulawan died on 23 April 2009.

6 CA rollo, pp. 165-168.

7 Alias Antonio Luna.

8 CA rollo, pp. 184-185.

9Id. at 158-160. The dispositive portion of the trial court’s 31 October 1990 Decision reads:

WHEREFORE, as prayed for, the plaintiff (Yap Chin Cun) is hereby declared the owner of Lot No. 1634-B of the cadastral survey of Legazpi described in the technical description marked as Exhibit N and his title thereto is quieted and the defendants (Yaptengco brothers) are hereby forever enjoined not to disturb the right of ownership and possession of the plaintiff. That the document denominated as Extrajudicial Settlement of Estate and Partition executed by and among the Yaptengcos is hereby declared null and void, as Yap Chin Cun is presently much alive, hence, there is no reason for its execution. That TCT No. 13733 issued to Santos Yaptengco and Francisco Yaptengco for Lot No. 1634-B is ordered cancelled. That all the defendants be ordered to pay to plaintiff P5,000 for attorney’s fees and P1,000 for miscellaneous expenses. The Register of Deeds is hereby directed to register and implement this decision. Let a copy of this decision be furnished the Register of Deeds of Legazpi.

10 Rollo, p. 247. In its 13 December 1996 Order, the trial court corrected the typographical error. It should have been “defendantLourdesYap” instead of plaintiff.

11Id. at 57-58.

12Id. at 262-263.

13 CA rollo, p. 78.

14Id. at 188-189.

15Id. at 190-191.

16Id. at 192-193.

17Id. at 194-222.

18Id. at 249-259.

19Id. at 260.

20Id. at 2-64.

21 Rollo, pp. 80-81.

22 CA rollo, pp. 427-438.

23 Sec. 11. Misjoinder and non-joinder of parties. – Neither misjoinder nor non-joinder of parties is ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action and on such terms as are just. Any claim against a misjoined party may be severed and proceeded separately.

24 The Yaptengco brothers appealed the trial court’s 31 October 1990 Decision to the Court of Appeals. However, in its 6 December 1991 Resolution, the Court of Appeals considered the appeal abandoned and dismissed the same. There was entry of judgment on 1 January 1992. The trial court issued a writ of execution on 6 July 1992.

25 Rollo, p. 16.

26 Rules of Court, Rule 47, Sec. 2.

27 Alaban v. Court of Appeals, 507 Phil. 682 (2005).

28 Carillo v. Court of Appeals, G.R. No. 121165, 26 September 2006, 503 SCRA 66; Alaban v. Court of Appeals, supra.

29 National Housing Authority v. Evangelista, 497 Phil. 762 (2005); Capacete v. Baroro, 453 Phil. 392 (2003).

30 Rules of Court, Rule 47, Sec. 7.

31 Islamic Da’wah Council of the Philippines v. Court of Appeals, 258 Phil. 802 (1989), Alaban v. Court of Appeals, supra note 27; Carillo v. Court of Appeals, supra note 28.

32 Islamic Da’Wah Council of the Philippines, supra.

33 Servicewide Specialists, Incorporated v. Court of Appeals, G.R. No. 103301, 8 December 1995, 251 SCRA 70.

34 345 Phil. 250 (1997).

35Id. at 267-268.

36 Rollo, pp. 198-199.

37Id. at 201-202.

38 Sec. 11. Misjoinder and non-joinder of parties. – Neither misjoinder nor non-joinder of parties is ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action and on such terms as are just. Any claim against a misjoined party may be severed and proceeded separately.

39 Arcelona v. Court of Appeals, supra.

40 Islamic Da’Wah Council of the Philippines, supra note 31; Alaban v. Court of Appeals, supra note 27.

41Id.

42 National Housing Authority v. Evangelista, supra note 29; Heirs of Pael v. Court of Appeals, 382 Phil. 222 (2000); Arcelona v. Court of Appeals, supra note 34.

43 Supra note 29.

44Id. at 770-771.

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