section 1 to 5 cases.docx

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G.R. No. 90580 April 8, 1991

RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN SAW, petitioners,vs.HON. COURT O A!!EALS, HON. BERNARDO !. !ARDO, !r"#i$i%& '($&" o) Br*%+ -, /R"&io%*l Tri*l Co(r o)*%il*2, REEAN ANAGEENT AND DEVELO!ENT COR!ORATION, E3UITABLE BAN4ING COR!ORATION,REEAN INCOR!ORATED, SAW CHIAO LIAN, THE REGISTER O DEEDS O CALOOCAN CITY, *%$ DE!UTYSHERI ROSALIO G. SIGUA, respondents.

Benito O. Ching, Jr. for petitioners.William R. Vetor for Equitable Banking Corp.Pineda, ! " Janolo for #reeman, $n%. and &a' Chiao.

CRU, J.:

A collection suit with preliminary attachment was filed by Equitable Banking Corporation against Freeman, nc. and !awChiao "ian, its #resident and $eneral %anager. &he petitioners moved to intervene, alleging that '() the loan transactionsbetween !aw Chiao "ian and Equitable Banking Corp. were not approved by the stockholders representing at least *+ ofcorporate capital- '*) !aw Chiao "ian had no authority to contract such loans- and ') there was collusion between theofficials of Freeman, nc. and Equitable Banking Corp. in securing the loans. &he motion to intervene was denied, and thepetitioners appealed to the Court of Appeals.

%eanwhile, Equitable and !aw Chiao "ian entered into a compromise agreement which they submitted to and wasapproved by the lower court. But because it was not complied with, Equitable secured a writ of eecution, and two lotsowned by Freeman, nc. were levied upon and sold at public auction to Freeman %anagement and /evelopment Corp.

&he Court of Appeals( sustained the denial of the petitioners0 motion for intervention, holding that 1the compromiseagreement between Freeman, nc., through its #resident, and Equitable Banking Corp. will not necessarily pre2udicepetitioners whose rights to corporate assets are at most inchoate, prior to the dissolution of Freeman, nc. . . . Andintervention under !ec. *, 3ule (* of the 3evised 3ules of Court is proper only when one0s right is actual, material, direct

and immediate and not simply contingent or epectant.1

t also ruled against the petitioners0 argument that because they had already filed a notice of appeal, the trial 2udge hadlost 2urisdiction over the case and could no longer issue the writ of eecution.

&he petitioners are now before this Court, contending that4

(. &he 5onorable Court of Appeals erred in holding that the petitioners cannot intervene in Civil Case 6o. 778999:9 because their rights as stockholders of Freeman are merely inchoate and not actual, material, direct andimmediate prior to the dissolution of the corporation-

*. &he 5onorable Court of Appeals erred in holding that the appeal of the petitioners in said Civil Case 6o. 778999:9 was confined only to the order denying their motion to intervene and did not divest the trial court of its

2urisdiction over the whole case.

&he petitioners base their right to intervene for the protection of their interests as stockholders on E(erett (. )sia BankingCorp.* where it was held4

&he well8known rule that shareholders cannot ordinarily sue in equity to redress wrongs done to the corporation,but that the action must be brought by the Board of /irectors, . . . has its eceptions. 'f the corporation ;were<under the complete control of the principal defendants, . . . it is obvious that a demand upon the Board of/irectors to institute action and prosecute the same effectively would have been useless, and the law does notrequire litigants to perform useless acts.

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Equitable demurs, contending that the collection suit against Freeman, nc, and !aw Chiao "ian is essentially in personam and, as an action against defendants in their personal capacities, will not pre2udice the petitioners asstockholders of the corporation. &he Everett case is not applicable because it involved an action filed by the minoritystockholders where the board of directors refused to bring an action in behalf of the corporation. n the case at bar, it wasFreeman, nc. that was being sued by the creditor bank.

Equitable also argues that the sub2ect matter of the intervention falls properly within the original and eclusive 2urisdictionof the !ecurities and Echange Commission under #./. 6o. =:*8A. n fact, at the time the motion for intervention wasfiled, there was pending between Freeman, nc. and the petitioners !EC Case 6o. :>?? entitled 1/issolution,

Accounting, Cancellation of Certificate of 3egistration with 3estraining @rder or #reliminary n2unction and Appointment of3eceiver.1 t also avers in its Comment that the intervention of the petitioners could have only caused delay and pre2udiceto the principal parties.

@n the second assignment of error, Equitable maintains that the petitioners0 appeal could only apply to the denial of theirmotion for intervention and not to the main case because their personality as party litigants had not been recognied bythe trial court.

After eamining the issues and arguments of the parties, the Court finds that the respondent court committed noreversible error in sustaining the denial by the trial court of the petitioners0 motion for intervention.

n the case of *agsa!sa!+abrador (. Court of )ppeals, we ruled as follows4

iewed in the light of !ection *, 3ule (* of the 3evised 3ules of Court, this Court affirms the respondent court0sholding that petitioners herein have no legal interest in the sub2ect matter in litigation so as to entitle them tointervene in the proceedings below. n the case of Batama Farmers0 Cooperative %arketing Association, nc. v.3osal, we held4 1As clearly stated in !ection * of 3ule (* of the 3ules of Court, to be permitted to intervene in apending action, the party must have a legal interest in the matter in litigation, or in the success of either of theparties or an interest against both, or he must be so situated as to be adversely affected by a distribution or otherdisposition of the property in the custody of the court or an officer thereof.1

&o allow intervention, ;a< it must be shown that the movant has legal interest in the matter in litigation, or otherwisequalified- and ;b< consideration must be given as to whether the ad2udication of the rights of the original partiesmay be delayed or pre2udiced, or whether the intervenor0s rights may be protected in a separate proceeding ornot. Both requirements must concur as the first is not more important than the second.

&he interest which entitles a person to intervene in a suit between other parties must be in the matter in litigationand of such direct and immediate character that the intervenor will either gain or lose by the direct legal operationand effect of the 2udgment. @therwise, if persons not parties of the action could be allowed to intervene,proceedings will become unnecessarily complicated, epensive and interminable. And this is not the policy of thelaw.

&he words 1an interest in the sub2ect1 mean a direct interest in the cause of action as pleaded, and which wouldput the intervenor in a legal position to litigate a fact alleged in the complaint, without the establishment of whichplaintiff could not recover.

5ere, the interest, if it eists at all, of petitioners8movants is indirect, contingent, remote, con2ectural,consequential and collateral. At the very least, their interest is purely inchoate, or in sheer epectancy of a right inthe management of the corporation and to share in the profits thereof and in the properties and assets thereof ondissolution, after payment of the corporate debts and obligations.

hile a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does notvest the owner thereof with any legal right or title to any of the property, his interest in the corporate property beingequitable or beneficial in nature. !hareholders are in no legal sense the owners of corporate property, which isowned by the corporation as a distinct legal person.

@n the second assignment of error, the respondent court correctly noted that the notice of appeal was filed by thepetitioners on @ctober *9, (=77, upon the denial of their motion to intervene, and the writ of eecution was issued by thelower court on Danuary :, (=7=. &he petitioners0 appeal could not have concerned the 1whole1 case 'referring to thedecision) because the petitioners 1did not appeal the decision as indeed they cannot because they are not parties to the






case despite their being stockholders of respondent Freeman, nc.1 &hey could only appeal the denial of their motion forintervention as they were never recognied by the trial court as party litigants in the main case.

ntervention is 1an act or proceeding by which a third person is permitted to become a party to an action or proceedingbetween other persons, and which results merely in the addition of a new party or parties to an original action, for thepurpose of hearing and determining at the same time all conflicting claims which may be made to the sub2ect matter inlitigation.9

t is not an independent proceeding, but an ancillary and supplemental one which, in the nature of things, unless

otherwise provided for by the statute or 3ules of Court, must be in subordination to the main proceeding.>

t may be laiddown as a general rule that an intervenor is limited to the field of litigation open to the original parties.

n the case at bar, there is no more principal action to be resolved as a writ of eecution had already been issued by thelower court and the claim of Equitable had already been satisfied. &he decision of the lower court had already becomefinal and in fact had already been enforced. &here is therefore no more principal proceeding in which the petitioners mayintervene.

As we held in the case of Baranga! *ati%ti% (. Elbinias4?

An intervention has been regarded, as merely 1collateral or accessory or ancillary to the principal action and notan independent proceedings- and interlocutory proceeding dependent on and subsidiary to, the case between theoriginal parties.1 'Fransisco, 3ules of Court, ol. (, p. ?*(). ith the final dismissal of the original action, the

complaint in intervention can no longer be acted upon. n the case of Clarea v. 3esales, * !C3A 9>>, 9>?89>7, itwas stated that4

&hat right of the intervenor should merely be in aid of the right of the original party, like the plaintiffs in thiscase. As this right of the plaintiffs had ceased to eist, there is nothing to aid or fight for. !o the right ofintervention has ceased to eist.

Consequently, it will be illogical and of no useful purpose to grant or even consider further herein petitioner0sprayer for the issuance of a writ of mandamus to compel the lower court to allow and admit the petitioner0scomplaint in intervention. &he dismissal of the epropriation case has no less the inherent effect of alsodismissing the motion for intervention which is but the unavoidable consequence.

&he Court observes that even with the denial of the petitioners0 motion to intervene, nothing is really lost tothem.-'phi-&he denial did not necessarily pre2udice them as their rights are being litigated in the case now before the!ecurities and Echange Commission and may be fully asserted and protected in that separate proceeding.

5E3EF@3E, the petition is /E6E/, with costs against the petitioners. t is so ordered.

/ar(asa, 0an%a!%o, 0ri1o+)quino and *edialdea, JJ., %on%ur.

G.R. No. L679899 '(l 15, 1985

ROEL CORRO, petitioner,

vs.

HON. ESTEBAN LISING !r"#i$i%& '($&", R"&io%*l Tri*l Co(r, 3("o% Ci, Br*%+ :CV HON. REIGIO ARI

R"&io%*l Tri*l Co(r, 3("o% Ci, Br*%+ 98; CITY ISCAL<S OICE, 3("o% Ci; LT. COL. BERLIN A.

CASTILLO *%$ 1ST LT. GODOREDO . IGNACIO, respondents,

Re!naldo . Bagatsing for petitioner.

RELOVA, J.:













@n !eptember *=, (=7, respondent 3egional &rial Court 2udge Esteban "ising of ueon City, upon application filed by

"t. Col. Berlin Castillo of the #hilippine Constabulary Criminal nvestigation !ervice, issued !earch arrant 6o. 8::::*

authoriing the search and seiure ofG

(. #rinted copies of #hilippine &imes-

*. %anuscripts+drafts of articles for publication in the #hilippine &imes-

. 6ewspaper dummies of the #hilippine &imes-

9. !ubversive documents, articles, printed matters, handbills, leaflets, banners-

>. &ypewriters, duplicating machines, mimeographing and tape recording machines, video machines and

tapes

which have been used and are being used as instrument and means of committing the crime of inciting to sedition defined

and penalied under Article (9* of the 3evised #enal Code, as amended by #/ (7> ... 'p. *9, 3ollo)

@n 6ovember , (=79, petitioner filed an urgent motion to recall warrant and to return documents+personal properties

alleging among others that4

*. ... the properties seied are typewriters, duplicating machines, mimeographing and tape recording

machines, video machines and tapes which are not in any way, inanimate or mute things as they are,

connected with the offense of inciting to sedition.

. %ore so, documents or papers seied purporting to do the body of the crime has been rendered moot

and academic due to the findings of the Agrava Board that a military conspiracy was responsible for the

slaying of the late !enator Benigno Aquino, Dr. on August *(, (=7 at the %anila nternational Airport. &he

Agrava Board which has the eclusive 2urisdiction to determine the facts and circumstances behind the

killing had virtually affirmed by evidence testamentary and documentary the fact that soldiers killed

Benigno Aquino, Dr.

9. %ore so, the grave offense of libel, 3&C, .C. Branch HC has dismissed said case against the

accused on all documents pertinent and more so as we repeat, rendered moot and academic by the

recent Agrava 3eport. 'p. *?, 3ollo)

@n Danuary *7, (=7>, respondent Dudge "ising denied the motion in a resolution, pertinent portions of which state4

... &he said articles presently form part of the evidence of the prosecution and they are not under the

control of the prosecuting arm of the government. Inder these circumstances, the proper forum from

which the petition to withdraw the articles should be addressed, is the @ffice of the City Fiscal, ueon

City and not with this Branch of the Court. t is to be further noted that it is not even with this Branch of the

Court that the offense of inciting to sedition is pending. 'p *=, Rollo)

5ence, this petition for certiorari and mandamus, with application for preliminary in2unction and restraining order to en2oin

respondent 3egional &rial Court, 6ational Capital 3egion, Branch =7 from proceeding with the trial of Criminal Case 6o.

!88*=*9, praying 'a) that !earch arrant 6o. 8::::* issued by respondent Dudge Esteban %. "ising be declared

null and void ab initio and that a mandatory in2unction be issued directing respondents City Fiscal0s @ffice of ueon City

and "t. Col. Berlin Castillo and (st "t. $odofredo gnacio 2ointly and severally to return immediately the

documents+properties illegally seied from herein petitioner and that final in2unction be issued en2oining respondents City

Fiscal0s @ffice of ueon City, "t. Col. Castillo and (st "t. gnacio from utiliing said documents+properties as evidence in

Criminal Case 6o. *=*9- and 'b) that respondent #C8C! officers "t. Col. Berlin A. Castillo and lst "t. $odofredo gnacio



be directed to reopen the padlocked office premises of the #hilippine &imes at (: %eanine Floor, $ochengco Building,

&.%., Jalaw, Ermita, %anila.

n @ur 3esolution of February (=, (=7>, respondents were required to file their comment. &he plea for temporary

restraining order was granted and respondents City Fiscal0s @ffice of ueon City, "t. Col. Berlin Castillo and (st "t.

$odofredo gnacio were en2oined from introducing as evidence for the state the documents+properties seied under

!earch arrant 6o. 8::::* in Criminal Cage 6o. 8*=*9 '!edition case against petitioner), pending before the

3egional &rial Court of ueon City, Branch =7, effective immediately and continuing until further orders from the Court.

3espondents would have this Court dismiss the petition on the ground that '() the present action is premature because

petitioner should have filed a motion for reconsideration of respondent Dudge "ising0s order of Danuary *7, (=7>- '*)

probable cause eists 2ustifying the issuance of a search warrant- ') the articles seied were adequately described in the

search warrant- '9) a search was conducted in an orderly manner- '>) the padlocking of the searched premises was with

the consent of petitioner0s wife- ') the findings of the Agrava Board is irrelevant to the issue of the validity of the search

warrant- '?) press freedom is not an issue- and, '7) the petition is barred by laches.

&here is merit in the petition.

3espondents contend that petitioner should have filed a motion for reconsideration of the order in question before coming

to Is. &his is not always so. hen the questions raised before the !upreme Court are the same as those which were

squarely raised in and passed upon by the lower court, the filing of the motion for reconsideration in said court beforecertiorari can be instituted in the !upreme Court is no longer a pre8requisite. As held in Bache K Co. '#hil.), nc. vs. 3ui,

? !C3A 7*, 't)he rule requiring the filing of a motion for reconsideration before an application for a writ of certiorari can

be entertained was never intended to be applied without considering the circumstances. &he rule does not apply where,

the deprivation of petitioners0 fundamental right to due process taints the proceeding against them in the court below not

only with irregularity but also with nullity.1 "ikewise, in #a2o, et al. vs. Ago, et al., (:7 #hil. =:> and in $onales vs. Court

of Appeals, !C3A 9>, this Court ruled that 1it is only when questions are raised for the first time before the high court in

a certiorari case that the writ shall not issue, unless the lower court had first been given an opportunity to pass upon the

same.1 Further, in the case of *atute (s. Court of )ppeals, * !C3A ?7, e held that 1while as a matter of policy a

motion for reconsideration in the lower court has often been considered a condition sine qua non for the granting of a writ

of certiorari, this rule does not apply where the proceeding in which the error occurred is a patent nullity or where 0the

deprivation of petitioner0s fundamental right to due process ... taints the proceeding against him in the court below not onlywith irregularity but with nullity '"uon !urety Co. v. %arbella et al., "8(:7, !ept. :, (=:), or when special

circumstances warrant immediate and more direct action. ...1 &he records of this petition clearly disclose that the issues

herein raised have already been presented to and passed upon by the court a quo.

!ection , Article of the (=? Constitution provides4

!EC. . ...no search warrant or warrant of arrest issue ecept upon probable cause to be determined by

the 2udge, or such other responsible officer as may be authoried by law, after eamination under oath or

affirmation of the complainant and the witnesses he may produce, and particularly describing the place to

be searched and the persons or things to be seied.

and, !ection , 3ule (* of the 6ew 3ules of Court, states that4

!EC. . Requisites for issuing sear%h 'arrant. G A search warrant shall not issue but upon probable

cause in connection with one specific offense to be determined by the 2udge or 2ustice of the peace after

eamination under oath or affirmation of the complainant and the witnesses he may produce, and

particularly describing the place to be searched and the persons or things to be seied.

#robable cause may be defined as 1such reasons, supported by facts and circumstances, as will warrant a cautious man

in the belief that his actions, and the means taken in prosecuting it, are legally 2ust and proper 'Burton vs. !t. #aul, % K %.

3y. Co., %inn. (7=, cited in I.!. vs. Addison, *7 #hil. >).1 &hus, an application for search warrant must state with

particularly the alleged subversive materials published or intended to be published by the publisher and editor of the



#hilippine &imes, 3ommel Corro. As e have stated in Burgos, &r. (s. Chief of &taff of the )rmed #or%es of the

Philippines, ( !C3A 7::, 1mere generaliation will not suffice.1 A search warrant should particularly describe the place

to be searched and the things to be seied. 1&he evident purpose and intent of this requirement is to limit the things to be

seied to those, and only those, particularly described in the search warrant8 to leave the officers of the law with no

discretion regarding what articles they should seie, to the end that unreasonable searches and seiures may not be

committed, G that abuses may not be committed Bache K Co. #hil. nc. vs, 3ui, supra).1 &he affidavit of Col. Castillo

states that in several issues of the #hilippine &imes4

... we found that the said publication in fact foments distrust and hatred against the government of the#hilippines and its duly constituted authorities, defined and penalied by Article (9* of the 3evised #enal

Code as amended by #residential /ecree 6o. (7>- 'p. **, 3ollo)

and, the affidavit of "t. gnacio reads, among othersG

... the said periodical published by 3ommel Corro, contains articles tending to incite distrust and hatred

for the $overnment of the #hilippines or any of its duly constituted authorities. 'p. *, 3ollo)

&he above statements are mere conclusions of law and will not satisfy the requirements of probable cause. &hey can not

serve as basis for the issuance of search warrant, absent of the eistence of probable cause. n fact, as a consequence of

the search warrant issued, the items confiscated from the premises of the office of the #hilippine &imes at (: %eanine

Floor, $ochengco Bldg., &.%. Jalaw, Ermita, %anila were the following4

(. @ne bundle of assorted negative-

*. @ne bundle of assorted lay out-

. &hree folders of assorted articles+writings used by #hilippine &imes news and other paraphernalias-

9. Four tape G alleged speech of %ayor Climaco, two alleged speeches of Aquino and a speech of one

various artist-

>. @ne bundle /ummies-

. &en bundles of assorted copies of #hilippine &imes issued on different dates '6os. , ?, 7, =, (:, ((, (*

(, (9 K (>)4

?. @ne &ypewriter 3emington Brand "ong Carriage with 6o. D8*9?=?-

7. @ne&ypewriterAdler8short with 6o. =:::((-

=. &hree ') bundles of #hilippine &imes latest issue for Baguio City 'p. *, 3ollo)

n &tonehill (s. 2iokno, *: !C3A 7, this Court held that search warrants authoriing the seiure of books of accountsand records 1showing all the business transactions1 of certain persons, regardless of whether the transactions were legal

or illegal, contravene the eplicit comment of the Bill of 3ights that the things to be seied should be particularly described

and defeat its ma2or ob2ective of eliminating general warrants. n the case at bar, the search warrant issued by respondent

2udge allowed seiure of printed copies of the #hilippine &imes, manuscripts+drafts of articles for publication, newspaper

dummies, subversive documents, articles, etc., and even typewriters, duplicating machines, mimeographing and tape

recording machines. &hus, the language used is so all embracing as to include all conceivable records and equipment of

petitioner regardless of whether they are legal or illegal. &he search warrant under consideration was in the nature of a

general warrant which is constitutionally ob2ectionable.



3espondents do not deny the fact that the business office of the 1#hilippine &imes1 of which petitioner was the publisher8

editor was padlocked and sealed. &he consequence is, the printing and publication of said newspaper were discontinued.

n Burgos, !r. vs. Chief of !taff of the Armed Forces of the #hilippines, supra, e held that 1;sluch closure is in the nature

of previous restraint or censorship abhorrent to the freedom of the press guaranteed under the fundamental law, and

constitutes a virtual denial of petitioners0 freedom to epress themselves in print. &his state of being is patently

anathematic to a democratic framework where a free, alert and even militant press is essential for the political

enlightenment and growth of the citienry.1

Finally, respondents argue that while the search warrant was issued on !eptember *=, (=7 and was eecuted on thevery same day, it was only on 6ovember , (=79, or one '() year, one '() month and si ') days when petitioner filed his

motion for the recall of the warrant and the return of the documents+personal properties. 5aving failed to act seasonably,

respondents claim that petitioner is guilty of laches.

"aches is the failure or neglect, for an unreasonable and uneplained length of time, to do that which by eercising due

diligence, could or should have been done earlier. &he negligence or omission to assert a right within a reasonable time,

warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it '&i2am vs.

!ibonghanoy, "8*(9>:, April (>, (=7, * !C3A >).

n his petition, Corro alleged that on @ctober (, (=7, less than forty8two '9*) hours after the military operatives shut down

his newspaper on !eptember *=, (=7, he was invited by the /irector8$eneral #C+6#, and subsequently detained.

&hereafter, he was charged with the crime of inciting to sedition before the City Fiscal0s @ffice in ueon City, and on@ctober ?, (=7, a preventive detention action was served upon him. Consequently, he had to file a petition for habeas

corpus. t was only on 6ovember 7, (=79 when this Court issued its 3esolution in $.3. 6o. 7=?, entitled4 n the %atter

of the #etition for 3abeas Corpus of Rommel Corro )ngle Corro (s. *inister Juan Pon%e Enrile, et al ., releasing 3ommel

Corro on recogniance of his lawyers, Attys. 5umberto B. Basco, 3eynaldo Bagatsing and Edilberto Balce, n the same

month, 6ovember (=79, petitioner filed his motion to recall warrant and to return the seied documents. hen respondent

2udge denied the motion, he came to Is.

Considering the above circumstances, the claim that petitioner had abandoned his right to the possession of the seied

properties is incorrect.

5E3EF@3E, !earch arrant 6o. 8::::* issued by the respondent 2udge on !eptember *=, (=7 is declared null andvoid and, accordingly, !E& A!/E.

&he prayer for a writ of mandatory in2unction for the return of the seied articles is $3A6&E/ and all properties seied

thereunder are hereby ordered 3E"EA!E/ to petitioner. Further, respondents "t. Col. Berlin A. Castillo and lst "t.

$odofredo %. gnacio are ordered to 3E8@#E6 the padlocked office premises of the #hilippine &imes at (: %eanine

Floor, $ochengco Bldg., &.%. Jalaw, Ermita, %anila.

!@ @3/E3E/.

4eehankee, *akasiar, Con%ep%ion, Jr., *elen%io+3errera, Plana, Es%olin, 0utierre5, Jr., 2e la #uente, Cue(as and

)lampa!, JJ., %on%ur.

#ernando, C.J., %on%ur in the result.

)quino, J., took no part.

G.R. No. L6=>155 * 18, 19>8



!HILI!!INE NATIONAL BAN4, petitioner,vs.THE COURT O A!!EALS, RITA GUECO TA!NIO, CECILIO GUECO *%$ THE !HILI!!INE AERICAN GENERALINSURANCE CO!ANY, INC., respondents.*edina, o%sin, Coru1a, " &umbillo for petitioner.*anuel im " )sso%iates for pri(ate respondents.

ANTONIO, J.:Certiorari to review the decision of the Court of Appeals which affirmed the 2udgment of the Court of First nstance of%anila in Civil Case 6o. 9(7>, ordering petitioner, as third8party defendant, to pay respondent 3ita $ueco &apnio, asthird8party plaintiff, the sum of #*,?=.?(, plus (*L interest per annum from !eptember (=, (=>? until the same is fullypaid, #*::.:: attorney0s fees and costs, the same amounts which 3ita $ueco &apnio was ordered to pay the #hilippine

American $eneral nsurance Co., nc., to be paid directly to the #hilippine American $eneral nsurance Co., nc. in fullsatisfaction of the 2udgment rendered against 3ita $ueco &apnio in favor of the former- plus #>::.:: attorney0s fees for3ita $ueco &apnio and costs. &he basic action is the complaint f iled by #hilamgen '#hilippine American $eneralnsurance Co., nc.) as surety against 3ita $ueco &apnio and Cecilio $ueco, for the recovery of the sum of #*,?=.?(paid by #hilamgen to the #hilippine 6ational Bank on behalf of respondents &apnio and $ueco, pursuant to an indemnityagreement. #etitioner Bank was made third8party defendant by &apnio and $ueco on the theory that their failure to paythe debt was due to the fault or negligence of petitioner.&he facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First nstance of %anila,are quoted hereunder4#laintiff eecuted its Bond, Eh. A, with defendant 3ita $ueco &apnio as principal, in favor of the #hilippine 6ational BankBranch at !an Fernando, #ampanga, to guarantee the payment of defendant 3ita $ueco &apnio0s account with said

Bank. n turn, to guarantee the payment of whatever amount the bonding company would pay to the #hilippine 6ationalBank, both defendants eecuted the indemnity agreement, Eh. B. Inder the terms and conditions of this indemnityagreement, whatever amount the plaintiff would pay would earn interest at the rate of (*L per annum, plus attorney0s feesin the amount of (> L of the whole amount due in case of court litigation.&he original amount of the bond was for #9,:::.::- but the amount was later reduced to #*,:::.::.t is not disputed that defendant 3ita $ueco &apnio was indebted to the bank in the sum of #*,:::.::, plus accumulatedinterests unpaid, which she failed to pay despite demands. &he Bank wrote a letter of demand to plaintiff, as per Eh. C-whereupon, plaintiff paid the bank on !eptember (7, (=>?, the full amount due and owing in the sum of #*,?=.=(, forand on account of defendant 3ita $ueco0s obligation 'Ehs. / and /8().#laintiff, in turn, made several demands, both verbal and written, upon defendants 'Ehs. E and F), but to no avail./efendant 3ita $ueco &apnio admitted all the foregoing facts. !he claims, however, when demand was made upon her byplaintiff for her to pay her debt to the Bank, that she told the #laintiff that she did not consider herself to be indebted to theBank at all because she had an agreement with one Dacobo86aon whereby she had leased to the latter her unused

eport sugar quota for the (=>8(=>? agricultural year, consisting of (,::: piculs at the rate of #*.7: per picul, or for atotal of #*,7::.::, which was already in ecess of her obligation guaranteed by plaintiff0s bond, Eh. A. &his leaseagreement, according to her, was with the knowledge of the bank. But the Bank has placed obstacles to theconsummation of the lease, and the delay caused by said obstacles forced 06aon to rescind the lease contract. &hus,3ita $ueco &apnio filed her third8party complaint against the Bank to recover from the latter any and all sums of moneywhich may be ad2udged against her and in favor of the plaitiff plus moral damages, attorney0s fees and costs.nsofar as the contentions of the parties herein are concerned, we quote with approval the following findings of the lowercourt based on the evidence presented at the trial of the case4t has been established during the trial that %rs. &apnio had an eport sugar quota of (,::: piculs for the agricultural year(=>8(=>? which she did not need. !he agreed to allow %r. Dacobo C. &uaon to use said quota for the consideration of#*,>::.:: 'Eh. 1918$ueco). &his agreement was called a contract of lease of sugar allotment.

At the time of the agreement, %rs. &apnio was indebted to the #hilippine 6ational Bank at !an Fernando, #ampanga. 5erindebtedness was known as a crop loan and was secured by a mortgage on her standing crop including her sugar quotaallocation for the agricultural year corresponding to said standing crop. &his arrangement was necessary in order thatwhen %rs. &apnio harvests, the #.6.B., having a lien on the crop, may effectively enforce collection against her. 5er sugarcannot be eported without sugar quota allotment !ometimes, however, a planter harvest less sugar than her quota, soher ecess quota is utilied by another who pays her for its use. &his is the arrangement entered into between %rs. &apnioand %r. &uaon regarding the former0s ecess quota for (=>8(=>? 'Eh. 1918$ueco).!ince the quota was mortgaged to the #.6.B., the contract of lease had to be approved by said Bank, &he same wassubmitted to the branch manager at !an Fernando, #ampanga. &he latter required the parties to raise the consideration of#*.7: per picul or a total of #*,7::.:: 'Eh. 1*8$ueco1) informing them that 1the minimum lease rental acceptable to theBank, is #*.7: per picul.1 n a letter addressed to the branch manager on August (:, (=>, %r. &uaon informed themanager that he was agreeable to raising the consideration to #*.7: per picul. 5e further informed the manager that hewas ready to pay said amount as the funds were in his folder which was kept in the bank.Eplaining the meaning of &uaon0s statement as to the funds, it was stated by him that he had an approved loan from thebank but he had not yet utilied it as he was intending to use it to pay for the quota. 5ence, when he said the amount



needed to pay %rs. &apnio was in his folder which was in the bank, he meant and the manager understood and knew hehad an approved loan available to be used in payment of the quota. n said Eh. 18$ueco1, &uaon also informed themanager that he would want for a notice from the manager as to the time when the bank needed the money so that&uaon could sign the corresponding promissory note.Further Consideration of the evidence discloses that when the branch manager of the #hilippine 6ational Bank at !anFernando recommended the approval of the contract of lease at the price of #*.7: per picul 'Eh. ( (8Bank), whoserecommendation was concurred in by the ice8president of said Bank, D. . Buenaventura, the board of directors requiredthat the amount be raised to (.:: per picul. &his act of the board of directors was communicated to &uaon, who in turnasked for a reconsideration thereof. @n 6ovember (=, (=>, the branch manager submitted &uaon0s request forreconsideration to the board of directors with another recommendation for the approval of the lease at #*.7: per picul, butthe board returned the recommendation unacted upon, considering that the current price prevailing at the time was #.::per picul 'Eh. =8Bank).&he parties were notified of the refusal on the part of the board of directors of the Bank to grant the motion forreconsideration. &he matter stood as it was until February **, (=>?, when &uaon wrote a letter 'Eh. (:8Bank informingthe Bank that he was no longer interested to continue the deal, referring to the lease of sugar quota allotment in favor ofdefendant 3ita $ueco &apnio. &he result is that the latter lost the sum of #*,7::.:: which she should have received from&uaon and which she could have paid the Bank to cancel off her indebtedness,&he court below held, and in this holding we concur that failure of the negotiation for the lease of the sugar quotaallocation of 3ita $ueco &apnio to &uaon was due to the fault of the directors of the #hilippine 6ational Bank, &he refusalon the part of the bank to approve the lease at the rate of #*.7: per picul which, as stated above, would have enabled3ita $ueco &apnio to realie the amount of #*,7::.:: which was more than sufficient to pay off her indebtedness to theBank, and its insistence on the rental price of #.:: per picul thus unnecessarily increasing the value by only a differenceof #*::.::. inevitably brought about the rescission of the lease contract to the damage and pre2udice of 3ita $ueco

&apnio in the aforesaid sum of #*,7::.::. &he unreasonableness of the position adopted by the board of directors of the#hilippine 6ational Bank in refusing to approve the lease at the rate of #*.7: per picul and insisting on the rate of #.::per picul, if only to increase the retail value by only #*::.:: is shown by the fact that all the accounts of 3ita $ueco&apnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interestson her properties, and surety bonds, aside from the fact that from Eh. 78Bank, it appears that she was offering to eecutea real estate mortgage in favor of the Bank to replace the surety bond &his statement is further bolstered by the fact that3ita $ueco &apnio apparently had the means to pay her obligation fact that she has been granted several value of almost#7:,:::.:: for the agricultural years from (=>* to >. 1

ts motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the presentpetition.&he petitioner contends that the Court of Appeals erred4'() n finding that the rescission of the lease contract of the (,::: piculs of sugar quota allocation of respondent 3ita$ueco &apnio by Dacobo C. &uaon was due to the un2ustified refusal of petitioner to approve said lease contract, and its

unreasonable insistence on the rental price of #.:: instead of #*.7: per picul- and'*) n not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner,the latter0s Board of /irectors correctly fied the rental of price per picul of (,::: piculs of sugar quota leased byrespondent 3ita $ueco &apnio to Dacobo C. &uaon at #.:: per picul.#etitioner argued that as an assignee of the sugar quota of &apnio, it has the right, both under its own Charter and underthe Corporation "aw, to safeguard and protect its rights and interests under the deed of assignment, which include theright to approve or disapprove the said lease of sugar quota and in the eercise of that authority, itsBoard of /irectors necessarily had authority to determine and fi the rental price per picul of the sugar quota sub2ect of thelease between private respondents and Dacobo C. &uaon. t argued further that both under its Charter and theCorporation "aw, petitioner, acting thru its Board of /irectors, has the perfect right to adopt a policy with respect to fiingof rental prices of eport sugar quota allocations, and in fiing the rentals at #.:: per picul, it did not act arbitrarily sincethe said Board was guided by statistics of sugar price and prices of sugar quotas prevailing at the time. !ince the fiing ofthe rental of the sugar quota is a function lodged with petitioner0s Board of /irectors and is a matter of policy, therespondent Court of Appeals could not substitute its own 2udgment for that of said Board of /irectors, which acted in goodfaith, making as its basis therefore the prevailing market price as shown by statistics which were then in their possession.Finally, petitioner emphasied that under the appealed 2udgment, it shall suffer a great in2ustice because as a creditor, itshall be deprived of a 2ust claim against its debtor 'respondent 3ita $ueco &apnio) as it would be required to return torespondent #hilamgen the sum of #*,?=.?(, plus interest, which amount had been previously paid to petitioner by saidinsurance company in behalf of the principal debtor, herein respondent 3ita $ueco &apnio, and without recourse againstrespondent 3ita $ueco &apnio.e must advert to the rule that this Court0s appellate 2urisdiction in proceedings of this nature is limited to reviewing onlyerrors of law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of theevidence. =

&he contract of lease of sugar quota allotment at #*.>: per picul between 3ita $ueco &apnio and Dacobo C. &uaon waseecuted on April (?, (=>. &his contract was submitted to the Branch %anager of the #hilippine 6ational Bank at !anFernando, #ampanga. &his arrangement was necessary because &apnio0s indebtedness to petitioner was secured by a



mortgage on her standing crop including her sugar quota allocation for the agricultural year corresponding to saidstanding crop. &he latter required the parties to raise the consideration to #*.7: per picul, the minimum lease rentalacceptable to the Bank, or a total of #*,7::.::. &uaon informed the Branch %anager, thru a letter dated August (:,(=>, that he was agreeable to raising the consideration to #*.7: per picul. 5e further informed the manager that he wasready to pay the said sum of #*,7::.:: as the funds were in his folder which was kept in the said Bank. &his referred tothe approved loan of &uaon from the Bank which he intended to use in paying for the use of the sugar quota. &he Branch%anager submitted the contract of lease of sugar quota allocation to the 5ead @ffice on !eptember ?, (=>, with arecommendation for approval, which recommendation was concurred in by the ice8#resident of the Bank, %r. D. .Buenaventura. &his notwithstanding, the Board of /irectors of petitioner required that the consideration be raised to #.::per picul.&uaon, after being informed of the action of the Board of /irectors, asked for a reconsideration thereof. @n 6ovember(=, (=>, the Branch %anager submitted the request for reconsideration and again recommended the approval of thelease at #*.7: per picul, but the Board returned the recommendation unacted, stating that the current price prevailing atthat time was #.:: per picul.@n February **, (=>?, &uaon wrote a letter, informing the Bank that he was no longer interested in continuing the leaseof sugar quota allotment. &he crop year (=>8(=>? ended and %rs. &apnio failed to utilie her sugar quota, resulting in herloss in the sum of #*,7::.:: which she should have received had the lease in favor of &uaon been implemented.t has been clearly shown that when the Branch %anager of petitioner required the parties to raise the consideration of thelease from #*.>: to #*.7: per picul, or a total of #*,7::8::, they readily agreed. 5ence, in his letter to the Branch%anager of the Bank on August (:, (=>, &uaon informed him that the minimum lease rental of #*.7: per picul wasacceptable to him and that he even offered to use the loan secured by him from petitioner to pay in full the sum of#*,7::.:: which was the total consideration of the lease. &his arrangement was not only satisfactory to the Branch%anager but it was also approves by ice8#resident D. . Buenaventura of the #6B. Inder that arrangement, 3ita $ueco

&apnio could have realied the amount of #*,7::.::, which was more than enough to pay the balance of herindebtedness to the Bank which was secured by the bond of #hilamgen.&here is no question that &apnio0s failure to utilie her sugar quota for the crop year (=>8(=>? was due to the disapprovalof the lease by the Board of /irectors of petitioner. &he issue, therefore, is whether or not petitioner is liable for thedamage caused.

As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since thesame must be utilied during the milling season, because any allotment which is not filled during such milling season maybe reallocated by the !ugar uota Administration to other holders of allotments. &here was no proof that there was anyother person at that time willing to lease the sugar quota allotment of private respondents for a price higher than #*.7: perpicul. 1&he fact that there were isolated transactions wherein the consideration for the lease was #.:: a picul1, accordingto the trial court, 1does not necessarily mean that there are always ready takers of said price. 1 &he unreasonableness ofthe position adopted by the petitioner0s Board of /irectors is shown by the fact that the difference between the amount of#*.7: per picul offered by &uaon and the #.:: per picul demanded by the Board amounted only to a total sum of

#*::.::. Considering that all the accounts of 3ita $ueco &apnio with the Bank were secured by chattel mortgage onstanding crops, assignment of leasehold rights and interests on her properties, and surety bonds and that she hadapparently 1the means to pay her obligation to the Bank, as shown by the fact that she has been granted several sugarcrop loans of the total value of almost #7:,:::.:: for the agricultural years from (=>* to (=>1, there was no reasonablebasis for the Board of /irectors of petitioner to have re2ected the lease agreement because of a measly sum of #*::.::.hile petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota wasmortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest ofprivate respondents, that degree of care, precaution and vigilance which the circumstances 2ustly demand in approving ordisapproving the lease of said sugar quota. &he law makes it imperative that every person 1must in the eercise of hisrights and in the performance of his duties, act with 2ustice, give everyone his due, and observe honesty and goodfaith, - &his petitioner failed to do. Certainly, it knew that the agricultural year was about to epire, that by its disapproval ofthe lease private respondents would be unable to utilie the sugar quota in question. n failing to observe the reasonabledegree of care and vigilance which the surrounding circumstances reasonably impose, petitioner is consequently liable forthe damages caused on private respondents. Inder Article *( of the 6ew Civil Code, 1any person who wilfully causes lossor in2ury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter forthe damage.1 &he afore8cited provisions on human relations were intended to epand the concept of torts in this

2urisdiction by granting adequate legal remedy for the untold number of moral wrongs which is impossible for humanforesight to specifically provide in the statutes. 5

A corporation is civilly liable in the same manner as natural persons for torts, because 1generally speaking, the rulesgoverning the liability of a principal or master for a tort committed by an agent or servant are the same whether theprincipal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person.

All of the authorities agree that a principal or master is liable for every tort which he epressly directs or authories, andthis is 2ust as true of a corporation as of a natural person, A corporation is liable, therefore, whenever a tortious act iscommitted by an officer or agent under epress direction or authority from the stockholders or members acting as a body,or, generally, from the directors as the governing body.1 7

5E3EF@3E, in view of the foregoing, the decision of the Court of Appeals is hereby AFF3%E/.



#ernando, )quino, Con%ep%ion, Jr., and &antos, JJ., %on%ur.

G.R. No. 10=9>0 * 1, 199

LUAN SIA, petitioner,vs.

COURT O A!!EALS *%$ SECURITY BAN4 *%$ TRUST CO!ANY, respondents.

)sun%ion a' Offi%es for petitioner.

Cauton, Banares, Carpio " )sso%iates for pri(ate respondent.

DAVIDE, 'R., J.:

&he /ecision of public respondent Court of Appeals in CA8$.3. C 6o. *??, promulgated on *( August

(==(, 1reversing and setting aside the /ecision, dated (= February (==:, = of Branch 9? of the 3egional &rial Court '3&C)

of %anila in Civil Case 6o. 7?89*:(, entitled 1"IMA6 !A (s. !ECI3&N BA6J and &3I!& C@.,1 is challenged in this

petition for review on %ertiorari under 3ule 9> of the 3ules Court.

Civil Case 6o. 7?89*:( is an action for damages arising out of the destruction or loss of the stamp collection of the

plaintiff 'petitioner herein) contained in !afety /eposit Bo 6o. >9 which had been rented from the defendant pursuant to

a contract denominated as a "ease Agreement. Dudgment therein was rendered in favor of the dispositive portion of

which reads4

5E3EF@3E, premises considered, 2udgment is hereby rendered in favor of the plaintiff and against the

defendant, !ecurity Bank K &rust Company, ordering the defendant bank to pay the plaintiff the sum of G

a) &wenty &housand #esos '#*:,:::.::), #hilippine Currency, as actual damages-

b) @ne 5undred &housand #esos '#(::,:::.::), #hilippine Currency, as moral damages- and

c) Five &housand #esos '#>,:::.::), #hilippine Currency, as attorney0s fees and legal epenses.

&he counterclaim set up by the defendant are hereby dismissed for lack of merit.

6o costs.

!@ @3/E3E/. -

&he antecedent facts of the present controversy are summaried by the public respondent in its challenged decision as

follows4

&he plaintiff rented on %arch **, (=7> the !afety /eposit Bo 6o. >9 of the defendant bank at its

Binondo Branch located at the Fookien &imes Building, !oler !t., Binondo, %anila wherein he placed his

collection of stamps. &he said safety deposit bo leased by the plaintiff was at the bottom or at the lowest

level of the safety deposit boes of the defendant bank at its aforesaid Binondo Branch.



/uring the floods that took place in (=7> and (=7, floodwater entered into the defendant bank0s

premises, seeped into the safety deposit bo leased by the plaintiff and caused, according to the plaintiff,

damage to his stamps collection. &he defendant bank re2ected the plaintiff0s claim for compensation for

his damaged stamps collection, so, the plaintiff instituted an action for damages against the defendant

bank.

&he defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the

13ules and 3egulations $overning the "ease of !afe /eposit Boes1 'Ehs. 1A8(1, 1(8A1), particularly

paragraphs = and (, which reads 'si% )4

1=. &he liability of the Bank by reason of the lease, is limited to the eercise of the diligence to prevent the

opening of the safe by any person other than the 3enter, his authoried agent or legal representative-

1(. &he Bank is not a depository of the contents of the safe and it has neither the possession nor the

control of the same. &he Bank has no interest whatsoever in said contents, ecept as herein provided,

and it assumes absolutely no liability in connection therewith.1

&he defendant bank also contended that its contract with the plaintiff over safety deposit bo 6o. >9 was

one of lease and not of deposit and, therefore, governed by the lease agreement 'Ehs. 1A1, 1"1) which

should be the applicable law- that the destruction of the plaintiff0s stamps collection was due to a calamity

beyond obligation on its part to notify the plaintiff about the floodwaters that inundated its premises at

Binondo branch which allegedly seeped into the safety deposit bo leased to the plaintiff.

&he trial court then directed that an ocular inspection on 'si% ) the contents of the safety deposit bo be

conducted, which was done on /ecember 7, (=77 by its clerk of court in the presence of the parties and

their counsels. A report thereon was then submitted on /ecember (*, (=77 '3ecords, p. =78A) and

confirmed in open court by both parties thru counsel during the hearing on the same date ' $bid., p. (:*)

stating4

1&hat the !afety Bo /eposit 6o. >9 was opened by both plaintiff "uan !ia and the Acting Branch %anager Dimmy B. Nnion in the presence of the undersigned, plaintiff0s

and defendant0s counsel. !aid !afety Bo when opened contains two albums of different

sies and thickness, length and width and a tin bo with printed word 0&ai #ing !hiang

3oast #ork in pieces with Chinese designs and character.1

Condition of the above8stated tems G

1Both albums are wet, moldy and badly damaged.

(. &he first album measures (: (+7 inches in length, 7 inches in width and +9 in thick. &he leaves of the

album are attached to every page and cannot be lifted without destroying it, hence the stamps contained

therein are no longer visible.

*. &he second album measure (* (+* inches in length, = +9 in width ( inch thick. !ome of its pages can

still be lifted. &he stamps therein can still be distinguished but beyond restoration. @thers have lost its

original form.

. &he tin bo is rusty inside. t contains an album with several pieces of papers stuck up to the cover of

the bo. &he condition of the album is the second abovementioned album.1 5



&he !ECI3&N BA6J A6/ &3I!& C@%#A6N, hereinafter referred to as !B&C, appealed the trial court0s decision to the

public respondent Court of Appeals. &he appeal was docketed as CA8$.3. C 6o. *??.

n urging the public respondent to reverse the decision of the trial court, !B&C contended that the latter erred in 'a)

holding that the lease agreement is a contract of adhesion- 'b) finding that the defendant had failed to eercise the

required diligence epected of a bank in maintaining the safety deposit bo- 'c) awarding to the plaintiff actual damages in

the amount of #*:,:::.::, moral damages in the amount of #(::,:::.:: and attorney0s fees and legal epenses in the

amount of #>,:::.::- and 'd) dismissing the counterclaim.

@n *( August (==(, the respondent promulgated its decision the dispositive portion of which reads4

5E3EF@3E, the decision appealed from is hereby 3EE3!E/ and instead the appellee0s complaint is

hereby /!%!!E/. &he appellant bank0s counterclaim is likewise /!%!!E/. 6o costs. 7

n reversing the trial court0s decision and absolving !B&C from liability, the public respondent found and ruled that4

a) the fine print in the 1"ease Agreement 1 'Ehibits 1A1 and 1(1 ) constitutes the terms and conditions of the contract of

lease which the appellee 'now petitioner) had voluntarily and knowingly eecuted with !B&C-

b) the contract entered into by the parties regarding !afe /eposit Bo 6o. >9 was not a contract of deposit wherein the

bank became a depositary of the sub2ect stamp collection- hence, as contended by !B&C, the provisions of Book , &itle

H of the Civil Code on deposits do not apply-

c) &he following provisions of the questioned lease agreement of the safety deposit bo limiting !B&C0s liability4

=. &he liability of the bank by reason of the lease, is limited to the eercise of the diligence to prevent the

opening of the !afe by any person other than the 3enter, his authoried agent or legal representative.

(. &he bank is not a depository of the contents of the !afe and it has neither the possession nor the

control of the same. &he Bank has no interest whatsoever in said contents, ecept as herein provided,and it assumes absolutely no liability in connection therewith.

are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy- and

d) there is no concrete evidence to show that !B&C failed to eercise the required diligence in maintaining the safety

deposit bo- what was proven was that the floods of (=7> and (=7, which were beyond the control of !B&C, caused the

damage to the stamp collection- said floods were fortuitous events which !B&C should not be held liable for since it was

not shown to have participated in the aggravation of the damage to the stamp collection- on the contrary, it offered its

services to secure the assistance of an epert in order to save most of the stamps, but the appellee refused- appellee

must then bear the lose under the principle of 1res perit domino.1

Insuccessful in his bid to have the above decision reconsidered by the public respondent, > petitioner filed the instant

petition wherein he contends that4

& A! A $3AE E33@3 @3 A6 ABI!E @F /!C3E&@6 @6 &5E #A3& @F &5E 3E!#@6/E6&

C@I3& 5E6 & 3I"E/ &5A& 3E!#@6/E6& !B&C // 6@& FA" &@ EHE3C!E &5E 3EI3E/

/"$E6CE 6 %A6&A66$ &5E !AFE&N /E#@!& B@H @F &5E #E&&@6E3 C@6!/E36$

&5A& !IB!&A6&A" E/E6CE EH!& 'si% ) #3@6$ &5E C@6&3A3N.



&5E 3E!#@6/E6& C@I3& !E3@I!"N E33E/ 6 EHCI"#A&6$ #3A&E 3E!#@6/E6& F3@%

A6N "AB"&N 5A&!@EE3 BN 3EA!@6 @F &5E #3@!@6! @F #A3A$3A#5! = A6/ ( @F

&5E A$3EE%E6& 'EH5!. 1A1 A6/ 1A8(1).

&5E 3E!#@6/E6& C@I3& !E3@I!"N E33E/ 6 6@& I#5@"/6$ &5E AA3/! @F &5E &3A"C@I3& F@3 AC&IA" A6/ %@3A" /A%A$E!, 6C"I/6$ A&&@36EN0! FEE! A6/ "E$A"

EH#E6!E!, 6 FA@3 @F &5E #E&&@6E3. 8

e subsequently gave due course the petition and required both parties to submit their respective memoranda, which

they complied with. 9

#etitioner insists that the trial court correctly ruled that !B&C had failed 1to eercise the required diligence epected of a

bank maintaining such safety deposit bo . . . in the light of the environmental circumstance of said safety deposit bo

after the floods of (=7> and (=7.1 5e argues that such a conclusion is supported by the evidence on record, to wit4 !B&C

was fully cogniant of the eact location of the safety deposit bo in question- it knew that the premises were inundated by

floodwaters in (=7> and (=7 and considering that the bank is guarded twenty8four '*9) hours a day , it is safe to

conclude that it was also aware of the inundation of the premises where the safety deposit bo was located- despite such

knowledge, however, it never bothered to inform the petitioner of the flooding or take any appropriate measures to insure

the safety and good maintenance of the safety deposit bo in question.

!B&C does not squarely dispute these facts- rather, it relies on the rule that findings of facts of the Court of Appeals, when

supported by substantial eidence, are not reviewable on appeal by %ertiorari . 10

&he foregoing rule is, of course, sub2ect to certain eceptions such as when there eists a disparity between the factual

findings and conclusions of the Court of Appeals and the trial court. 11 !uch a disparity obtains in the present case.

As e see it, !B&C0s theory, which was upheld by the public respondent, is that the 1"ease Agreement 1 covering !afe

/eposit Bo 6o. >9 'Ehibit 1A and 1(1) is 2ust that G a contract of lease G and not a contract of deposit, and thatparagraphs = and ( thereof, which epressly limit the bank0s liability as follows4

=. &he liability of the bank by reason of the lease, is limited to the eercise of the diligence to prevent the

opening of the !afe by any person other than the 3enter, his autlioried agent or legal representative-

(. &he bank is not a depository of the contents of the !afe and it has neither the possession nor the

control of the same. &he Bank has no interest whatsoever said contents, ecept as herein provided, and it

assumes absolutely no liability in connection therewith. 1=

are valid and binding upon the parties. n the challenged decision, the public respondent further avers that even without

such a limitation of liability, !B&C should still be absolved from any responsibility for the damage sustained by the

petitioner as it appears that such damage was occasioned by a fortuitous event and that the respondent bank was free

from any participation in the aggravation of the in2ury.

e cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed with merit.

n the recent case C) )gro+$ndustrial 2e(elopment Corp. (s. Court of )ppeals, 1 this Court eplicitly re2ected the

contention that a contract for the use of a safety deposit bo is a contract of lease governed by &itle , Book of the

Civil Code. 6or did e fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code



provision on deposit- 1- it is, as e declared, a special kind of deposit. &he prevailing rule in American 2urisprudence G

that the relation between a bank renting out safe deposit boes and its customer with respect to the contents of the bo is

that of a bailor and bailee, the bailment for hire and mutual benefit 15 G has been adopted in this 2urisdiction, thus4

n the contet of our laws which authorie banking institutions to rent out safety deposit boes, it is clear

that in this 2urisdiction, the prevailing rule in the Inited !tates has been adopted. !ection ?* of the

$eneral Banking Act ;3.A. ?, as amended< pertinently provides4

1!ec. ?*. n addition to the operations specifically authoried elsewhere in this Act, banking institutionsother than building and loan associations may perform the following services4

'a) 3eceive in custody funds, documents, and valuable ob2ects, and rent safety deposit

boes for the safequarding of such effects.

&he banks shall perform the services permitted under subsections 'a), 'b) and 'c) of this section

asdepositories or as agents. . . .1'emphasis supplied)

6ote that the primary function is still found within the parameters of a contract of deposit , i.e., the

receiving in custody of funds, documents and other valuable ob2ects for safekeeping. &he renting out of

the safety deposit boes is not independent from, but related to or in con2unction with, this principal

function. A contract of deposit may be entered into orally or in writing 'Art. (==, Civil Code< and, pursuant

to Article (: of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and

conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,

public order or public policy. &he depositary0s responsibility for the safekeeping of the ob2ects deposited in

the case at bar is governed by &itle , Book of the Civil Code. Accordingly, the depositary would be

liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the

tenor of the agreement ;Art. ((?:, id.<. n the absence of any stipulation prescribing the degree of

diligence required, that of a good father of a family is to be observed ;Art. ((?, id.<. 5ence, any

stipulation eempting the depositary from any liability arising from the loss of the thing deposited on

account of fraud, negligence or delay would be void for being contrary to law and public policy. n theinstant case, petitioner maintains that conditions ( and l9 of the questioned contract of lease of the

safety deposit bo, which read4

1(. &he bank is a depositary of the contents of the safe and it has neither the possession nor control of

the same.

1(9. &he bank has no interest whatsoever in said contents, ecept as herein epressly provided, and it

assumes absolutely no liability in connection therewith.1

are void as they are contrary to law and public policy. e find @urselves in agreement with this

proposition for indeed, said provisions are inconsistent with the respondent Bank0s responsibility as a

depositary under !ection ?* 'a) of the $eneral Banking Act. Both eempt the latter from any liability

ecept as contemplated in condition 7 thereof which limits its duty to eercise reasonable diligence only

with respect to who shall be admitted to any rented safe, to wit4

17. &he Bank shall use due diligence that no unauthoried person shall be admitted to

any rented safe and beyond this, the Bank will not be responsible for the contents of any

safe rented from it.1

Furthermore condition ( stands on a wrong premise and is contrary to the actual practice of the Bank. t

is not correct to assert that the Bank has neither the possession nor control of the contents of the bo

since in fact, the safety deposit bo itself is located in its premises and is under its absolute control-



moreover, the respondent Bank keeps the guard key to the said bo. As stated earlier, renters cannot

open their respective boes unless the Bank cooperates by presenting and using this guard key. Clearly

then, to the etent above stated, the foregoing conditions in the contract in question are void and

ineffective. t has been said4

1ith respect to property deposited in a safe8deposit bo by a customer of a safe8deposit

company, the parties, since the relation is a contractual one, may by special contract

define their respective duties or provide for increasing or limiting the liability of the deposit

company, provided such contract is not in violation of law or public policy. t must clearlyappear that there actually was such a special contract, however, in order to vary the

ordinary obligations implied by law from the relationship of the parties- liability of the

deposit company will not be enlarged or restricted by words of doubtful meaning. &he

company, in renting safe8deposit boes, cannot eempt itself from liability for loss of the

contents by its own fraud or negligence or that, of its agents or servants, and if a

provision of the contract may be construed as an attempt to do so, it will be held

ineffective for the purpose. Although it has been held that the lessor of a safe8deposit bo

cannot limit its liability for loss of the contents thereof through its own negligence, the

view has been taken that such a lessor may limit its liability to some etent by agreement

or stipulation .1;(: A% DI3 *d., 9<. 'citations omitted) (

t must be noted that conditions 6o. ( and 6o. (9 in the Contract of "ease of !afety /eposit Bo in C) )gro+$ndustrial2e(elopment Corp. are strikingly similar to condition 6o. ( in the instant case. @n the other hand, both condition 6o. 7

in C) )gro+$ndustrial 2e(elopment Corp. and condition 6o. = in the present case limit the scope of the eercise of due

diligence by the banks involved to merely seeing to it that only the renter, his authoried agent or his legal representative

should open or have access to the safety deposit bo. n short, in all other situations, it would seem that !B&C is not

bound to eercise diligence of any kind at all. Assayed in the light of @ur aforementioned pronouncements in C) )gro+

lndustrial 2e(elopment Corp., it is not at all difficult to conclude that both conditions 6o. = and 6o. ( of the 1"ease

Agreement1 covering the safety deposit bo in question 'Ehibits 1A1 and 1(1) must be stricken down for being contrary to

law and public policy as they are meant to eempt !B&C from any liability for damage, loss or destruction of the contents

of the safety deposit bo which may arise from its own or its agents0 fraud, negligence or delay. Accordingly, !B&C cannot

take refuge under the said conditions.

#ublic respondent further postulates that !B&C cannot be held responsible for the destruction or loss of the stamp

collection because the flooding was a fortuitous event and there was no showing of !B&C0s participation in the

aggravation of the loss or in2ury. t states4

Article ((?9 of the Civil Code provides4

1Ecept in cases epressly specified by the law, or when it is otherwise declared by

stipulation, or when the nature of the obligation requires the assumption of risk, no

person shall be responsible for those events which could not be foreseen, or which,

though foreseen, were inevitable.0

n its dissertation of the phrase 6%aso fortuito6 the En%i%lopedia Jurisdi%ada Espa1ola 1> says4 1n a legalsense and, consequently, also in relation to contracts, a 6%aso fortuito6 prevents 'si% ) 18 the following

essential characteristics4 '() the cause of the unforeseen ands unepected occurrence, or of the failure of

the debtor to comply with his obligation, must be independent of the human will- '*) it must be impossible

to foresee the event which constitutes the 6%aso fortuito,6 or if it can be foreseen, it must be impossible to

avoid- ') the occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a

normal manner- and '9) the obligor must be free from any participation in the aggravation of the in2ury

resulting to the creditor.1 'cited in !ervando (s. #hil., !team 6avigation Co., supra). 19

5ere, the unforeseen or unepected inundating floods were independent of the will of the appellant bank

and the latter was not shown to have participated in aggravating damage 'si% ) to the stamps collection of



the appellee. n fact, the appellant bank offered its services to secure the assistance of an epert to save

most of the then good stamps but the appelle refused and let 'si% ) these recoverable stamps inside the

safety deposit bo until they were ruined. =0

Both the law and authority cited are clear enough and require no further elucidation. Infortunately, however, the public

respondent failed to consider that in the instant case, as correctly held by the trial court, !B&C was guilty of negligence.

&he facts constituting negligence are enumerated in the petition and have been summaried in this ponen%ia. !B&C0s

negligence aggra(ated the in2ury or damage to the stamp collection. !B&C was aware of the floods of (=7> and (=7- it

also knew that the floodwaters inundated the room where !afe /eposit Bo 6o. >9 was located. n view thereof, it shouldhave lost no time in notifying the petitioner in order that the bo could have been opened to retrieve the stamps, thus

saving the same from further deterioration and loss. n this respect, it failed to eercise the reasonable care and prudence

epected of a good father of a family, thereby becoming a party to the aggravation of the in2ury or loss. Accordingly, the

aforementioned fourth characteristic of a fortuitous event is absent Article ((?: of the Civil Code, which reads4

&hose who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who

in any manner contravene the tenor thereof, are liable for damages,

thus comes to the succor of the petitioner. &he destruction or loss of the stamp collection which was, in the language of

the trial court, the 1product of *? years of patience and diligence1 =1 caused the petitioner pecuniary loss- hence, he must

be compensated therefor.

e cannot, however, place @ur imprimatur on the trial court0s award of moral damages. !ince the relationship between

the petitioner and !B&C is based on a contract, either of them may be held liable for moral damages for breach thereof

only if said party had acted fraudulently or in bad faith. == &here is here no proof of fraud or bad faith on the part of !B&C.

5E3EF@3E, the instant petition is hereby $3A6&E/. &he challenged /ecision and 3esolution of the public

respondent Court of Appeals of *( August (==( and *( 6ovember (==(, respectively, in CA8$.3. C 6o. *??, are

hereby !E& A!/E and the /ecision of (= February (==: of Branch 9? of the 3egional &rial Court of %anila in Civil Case

6o. 7?89*:( is hereby 3E6!&A&E/ in full, ecept as to the award of moral damages which is hereby set aside.

Costs against the private respondent.

!@ @3/E3E/.

#eli%iano, Bidin, Romero and *elo, JJ., %on%ur.

?G.R. No#. 1171=-6=5. No@""r ==, =000

BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT O A!!EALS *%$ GENERAL CREDITCOR!ORATION, respondents.

D E C I S I O N

YNARES6SANTIAGO, J .

Assailed in this petition for review is the consolidated decision of the Court of Appeals dated Duly ?, (==9, which

reversed the separate decisions of the 3egional &rial Court of #asig City and the 3egional &rial Court of ueon City in

two cases between petitioner 3eynoso and respondent $eneral Credit Corporation '$CC).



!ometime in the early (=:s, the Commercial Credit Corporation 'hereinafter, CCC), a financing and investment firm

decided to organie franchise companies in different parts of the country, wherein it shall hold thirty percent ':L)

equity. Employees of the CCC were designated as resident managers of the franchise companies. #etitioner Bibiano @

3eynoso, was designated as the resident manager of the franchise company in ueon City, known as the Commercia

Credit Corporation of ueon City 'hereinafter, CCC8C).

CCC8C entered into an eclusive management contract with CCC whereby the latter was granted the management

and full control of the business activities of the former. Inder the contract, CCC8C shall sell, discount and+or assign its

receivables to CCC. !ubsequently, however, this discounting arrangement was discontinued pursuant to the so8called/@!3 3ule, prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons with

related interests therein.

@n account of the new restrictions imposed by the Central Bank policy by virtue of the /@!3 3ule, CCC decided to

form CCC Equity Corporation, 'hereinafter, CCC8Equity), a wholly8owned subsidiary, to which CCC transferred its thirty

':L) percent equity in CCC8C, together with two seats in the latters Board of /irectors.

Inder the new set8up, several officials of Commercial Credit Corporation, including petitioner 3eynoso, became

employees of CCC8Equity. hile petitioner continued to be the 3esident %anager of CCC8C, he drew his salaries and

allowances from CCC8Equity. Furthermore, although an employee of CCC8Equity, petitioner, as well as all employees of

CCC8C, became qualified members of the Commercial Credit Corporation Employees #ension #lan.

As 3esident %anager of CCC8C, petitioner oversaw the operations of CCC8C and supervised its employees. &he

business activities of CCC8C pertain to the acceptance of funds from depositors who are issued interest8bearing

promissory notes. &he amounts deposited are then loaned out to various borrowers. #etitioner, in order to boost the

business activities of CCC8C, deposited his personal funds in the company. n return, CCC8C issued to him its interest8

bearing promissory notes.

@n August (>, (=7:, a complaint for sum of money with preliminary attachment,;(< docketed as Civil Case 6o. 8

:>7, was instituted in the then Court of First nstance of 3ial by CCC8C against petitioner, who had in the meantime

been dismissed from his employment by CCC8Equity. &he complaint was subsequently amended in order to include

5idelita 6uval, petitioners wife, as a party defendant. ;*< &he complaint alleged that petitioner embeled the funds of CCC8

C amounting to #(,::,>=.((. @ut of this amount, at least #:,:::.:: was used for the purchase of a house and lotlocated at 6o. (* %acopa !treet, alle erde , #asig City. &he property was mortgaged to CCC, and was later

foreclosed.

n his amended Answer, petitioner denied having unlawfully used funds of CCC8C and asserted that the sum of

#(,::,>=.(( represented his money placements in CCC8C, as shown by twenty8three '*) checks which he issued to

the said company.;<

&he case was subsequently transferred to the 3egional &rial Court of ueon City, Branch 7, pursuant to the

Dudiciary 3eorganiation Act of (=7:.

@n Danuary (9, (=7>, the trial court rendered its decision, the decretal portion of which states4

#remises considered, the Court finds the complaint without merit. Accordingly, said complaint is hereby /!%!!E/.

By reason of said complaint, defendant Bibiano 3eynoso suffered degradation, humiliation and mental anguish.

@n the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered4

a) to pay defendant the sum of #(7>,:::.:: plus (9L interest per annum from @ctober *, (=7: until fully paid-

http://sc.judiciary.gov.ph/jurisprudence/2000/nov2000/116124_25.htm#_edn1









b) to pay defendant #,=,9?:.7* plus interest thereon at the rate of (9L per annum from Dune *9, (=7(, the date of

filing of Amended Answer, until fully paid- from this amount may be deducted the remaining obligation of defendant under

the promissory note of @ctober *9, (=??, in the sum of #=,?7.:: plus penalty at the rate of (L per month from

/ecember *9, (=?? until fully paid-

c) to pay defendants #*::,:::.:: as moral damages-

d) to pay defendants #(::,:::.:: as eemplary damages-

e) to pay defendants #*>,:::.:: as and for attorney0s fees- plus costs of the suit.

!@ @3/E3E/.

Both parties appealed to the then ntermediate Appellate Court. &he appeal of Commercial Credit Corporation of

ueon City was dismissed for failure to pay docket fees. #etitioner, on the other hand, withdrew his appeal.

5ence, the decision became final and, accordingly, a rit of Eecution was issued on Duly *9, (=7=. ;9< 5owever, the

2udgment remained unsatisfied,;>< prompting petitioner to file a %otion for Alias rit of Eecution, Eamination of Dudgment

/ebtor, and to Bring Financial 3ecords for Eamination to Court. CCC8C filed an @pposition to petitioners motion;< alleging that the possession of its premises and records had been taken over by CCC.

%eanwhile, in (=7, CCC became known as the $eneral Credit Corporation.

@n 6ovember **, (==(, the 3egional &rial Court of ueon City issued an @rder directing $eneral Credi

Corporation to file its comment on petitioners motion for alias writ of eecution. ;?< $eneral Credit Corporation filed a

!pecial Appearance and @pposition on /ecember *, (==(, ;7< alleging that it was not a party to the case, and therefore

petitioner should direct his claim against CCC8C and not $eneral Credit Corporation. #etitioner filed his reply ,;=< stating

that the CCC8C is an ad2unct instrumentality, conduit and agency of CCC.Furthermore, petitioner invoked the decision of

the !ecurities and Echange Commission in !EC Case 6o. *>7(, entitled, )(elina 0. Ramoso, et al., Petitioner (ersus

0eneral Credit Corp., et al., Respondents, where it was declared that $eneral Credit Corporation, CCC8Equity and othe

franchised companies including CCC8C were declared as one corporation.

@n /ecember =, (==(, the 3egional &rial Court of ueon City ordered the issuance of an alias writ of eecution.;(:< @n /ecember *:, (==(, $eneral Credit Corporation filed an @mnibus %otion, ;((< alleging that !EC Case 6o. *>7( was

still pending appeal, and maintaining that the levy on properties of the $eneral Credit Corporation by the deputy sheriff of

the court was erroneous.

n his @pposition to the @mnibus %otion, petitioner insisted that $eneral Credit Corporation is 2ust the new name of

Commercial Credit Corporation- hence, $eneral Credit Corporation and Commercial Credit Corporation should be treated

as one and the same entity.

@n February (, (==*, the 3egional &rial Court of ueon City denied the @mnibus %otion. ;(*< @n %arch >, (==*, i

issued an @rder directing the issuance of an alias writ of eecution.;(<

#reviously, on February *(, (==*, $eneral Credit Corporation instituted a complaint before the 3egional &rial Court

of #asig against Bibiano 3eynoso and Edgardo C. &anangco, in his capacity as /eputy !heriff of ueon City,;(9< docketed as Civil Case 6o. (???, praying that the levy on its parcel of land located in #asig, %etro %anila and

covered by &ransfer Certificate of &itle 6o. *==9: be declared null and void, and that defendant sheriff be en2oined from

consolidating ownership over the land and from further levying on other properties of $eneral Credit Corporation to

answer for any liability under the decision in Civil Case 6o. 8:>7.































&he 3egional &rial Court of #asig, Branch (?, did not issue a temporary restraining order. &hus, $eneral Credit

Corporation instituted two '*) petitions for certiorari with the Court of Appeals, docketed as CA8$.3. !# 6o. *?>(7 ;(>< and

CA8$.3. !# 6o. *?7. &hese cases were later consolidated.

@n Duly ?, (==9, the Court of Appeals rendered a decision in the two consolidated cases, the dispositive portion of

which reads4

5E3EF@3E, in !# 6o. *?>(7 we declare the issue of the respondent court0s refusal to issue a restraining order as

having been rendered moot by our 3esolution of ? April (==* which, by way of in2unctive relief, provided that 1therespondents and their representatives are hereby en2oined from conducting an auction sale 'on eecution) of petitioner0s

properties as well as initiating similar acts of levying 'upon) and selling on eecution other properties of said

petitioner1. &he in2unction thus granted, as modified by the words in parenthesis, shall remain in force until Civil Case 6o.

(??? shall have been finally terminated.

n !# 6o. *?7, we grant the petition for certiorari and accordingly 6I""FN and !E& A!/E, for having been issued in

ecess of 2urisdiction, the @rder of ( February (==* in Civil Case 6o. 8:>7 as well as any other order or process

through which the petitioner is made liable under the 2udgment in said Civil Case 6o. 8:>7.

6o damages and no costs.

!@ @3/E3E/.;(<

5ence, this petition for review anchored on the following arguments4

(. &5E 5@6@3AB"E C@I3& @F A##EA"! E33E/ 6 CA8$.3. !# 6@. *?7 5E6 & 6I""FE/ A6/ !E& A!/E

&5E ( FEB3IA3N (==* @3/E3 A6/ @&5E3 @3/E3! @3 #3@CE!! @F B3A6C5 7 @F &5E 3E$@6A" &3A"

C@I3& @F IEM@6 C&N &53@I$5 5C5 $E6E3A" C3E/& C@3#@3A&@6 ! %A/E "AB"E I6/E3 &5E

DI/$%E6& &5A& A! 3E6/E3E/ 6 C" CA!E 6@. 8:>7.

*. &5E 5@6@3AB"E C@I3& @F A##EA"! E33E/ 6 CA8$.3. !# 6@. *?>(7 5E6 & E6D@6E/ &5E AIC&@6

!A"E @6 EHECI&@6 @F &5E #3@#E3&E! @F $E6E3A" C3E/& C@3#@3A&@6 A! E"" A! 6&A&6$

!%"A3 AC&! @F "EN6$ I#@6 A6/ !E""6$ @6 EHECI&@6 @F @&5E3 #3@#E3&E! @F $E6E3A" C3E/&C@3#@3A&@6.

. &5E 5@6@3AB"E C@I3& @F A##EA"! E33E/ 6 5@"/6$ &5A& $E6E3A" C3E/& C@3#@3A&@6 ! A

!&3A6$E3 &@ C" CA!E 6@. 8:>7, 6!&EA/ @F, /EC"A36$ &5A& C@%%E3CA" C3E/& C@3#@3A&@6

@F IEM@6 C&N ! &5E A"&E3 E$@, 6!&3I%E6&A"&N, C@6/I& @3 A/DI6C& @F C@%%E3CA" C3E/&

C@3#@3A&@6 A6/ &! !ICCE!!@3 $E6E3A" C3E/& C@3#@3A&@6.

At the outset, it must be stressed that there is no longer any controversy over petitioners claims against his former

employer, CCC8C, inasmuch as the decision in Civil Case 6o. 8:>7 of the 3egional &rial Court of ueon City has

long become final and eecutory. &he only issue, therefore, to be resolved in the instant petition is whether or not the

2udgment in favor of petitioner may be eecuted against respondent $eneral Credit Corporation. &he latter contends that i

is a corporation separate and distinct from CCC8C and, therefore, its properties may not be levied upon to satisfy the

monetary 2udgment in favor of petitioner. n short, respondent raises corporate fiction as its defense. 5ence, we are

necessarily called upon to apply the doctrine of piercing the veil of corporate entity in order to determine if $eneral Credit

Corporation, formerly CCC, may be held liable for the obligations of CCC8C.

&he petition is impressed with merit.

A corporation is an artificial being created by operation of law, having the right of succession and the powers

attributes, and properties epressly authoried by law or incident to its eistence. ;(?< t is an artificial being invested by law

with a personality separate and distinct from those of the persons composing it as well as from that of any other legal











entity to which it may be related. ;(7< t was evolved to make possible the aggregation and assembling of huge amounts of

capital upon which big business depends. t also has the advantage of non8dependence on the lives of those who

compose it even as it en2oys certain rights and conducts activities of natural persons.

#recisely because the corporation is such a prevalent and dominating factor in the business life of the country, the

law has to look carefully into the eercise of powers by these artificial persons it has created.

Any piercing of the corporate veil has to be done with caution. 5owever, the Court will not hesitate to use its

supervisory and ad2udicative powers where the corporate fiction is used as an unfair device to achieve an inequitableresult, defraud creditors, evade contracts and obligations, or to shield it from the effects of a court decision. &he corporate

fiction has to be disregarded when necessary in the interest of 2ustice.

n #irst Philippine $nternational Bank (. Court of )ppeals, et al., ;(=< we held4

hen the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an eisting

obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of

knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who

compose it will be lifted to allow for its consideration merely as an aggregation of individuals.

Also in the above8cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases

where it was used, among others, to avoid a 2udgment credit- ;*:< to avoid inclusion of corporate assets as part of the estate

of a decedent-;*(< to avoid liability arising from debt- ;**< when made use of as a shield to perpetrate fraud and+or confuse

legitimate issues-;*< or to promote unfair ob2ectives or otherwise to shield them.;*9<

n the appealed 2udgment, the Court of Appeals sustained respondents arguments of separateness and its character

as a different corporation which is a non8party or stranger to this case.

&he defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so

controlled by the mother corporation to the etent that it becomes an instrument or agent of its parent. But even when

there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when

such fiction is used to defeat public convenience, 2ustify wrong, protect fraud or defend crime.;*><

e stated in 4omas ao Constru%tion (. /ational abor Relations Commission, ;*< that the legal fiction of a

corporation being a 2udicial entity with a distinct and separate personality was envisaged for convenience and to serve

2ustice. &herefore, it should not be used as a subterfuge to commit in2ustice and circumvent the law.

#recisely for the above reasons, we grant the instant petition.

t is obvious that the use by CCC8C of the same name of Commercial Credit Corporation was intended to publicly

identify it as a component of the CCC group of companies engaged in one and the same business, i.e., investment and

financing. Aside from CCC8ueon City, other franchise companies were organied such as CCC86orth %anila and CCC8

Cagayan alley. &he organiation of subsidiary corporations as what was done here is usually resorted to for the

aggrupation of capital, the ability to cover more territory and population, the decentraliation of activities best

decentralied, and the securing of other legitimate advantages. But when the mother corporation and its subsidiary cease

to act in good faith and honest business 2udgment, when the corporate device is used by the parent to avoid its liability for

legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote in2ustice, the

law steps in to remedy the problem. hen that happens, the corporate character is not necessarily abrogated.

continues for legitimate ob2ectives.5owever, it is pierced in order to remedy in2ustice, such as that inflicted in this case.

Factually and legally, the CCC had dominant control of the business operations of CCC8C. &he eclusive

management contract insured that CCC8C would be managed and controlled by CCC and would not deviate from the

commands of the mother corporation. n addition to the eclusive management contract, CCC appointed its own

employee, petitioner, as the resident manager of CCC8C.
























#etitioners designation as resident manager implies that he was placed in CCC8C by a superior authority. n fact

even after his assignment to the subsidiary corporation, petitioner continued to receive his salaries, allowances, and

benefits from CCC, which later became respondent $eneral Credit Corporation. 6ot only that. #etitioner and the other

permanent employees of CCC8C were qualified members and participants of the Employees #ension #lan of CCC.

&here are other indications in the record which attest to the applicability of the identity rule in this case, namely4 the

unity of interests, management, and control- the transfer of funds to suit their individual corporate conveniences- and the

dominance of policy and practice by the mother corporation insure that CCC8C was an instrumentality or agency of

CCC.

As petitioner stresses, both CCC and CCC8C were engaged in the same principal line of business involving a

single transaction process. Inder their discounting arrangements, CCC financed the operations of CCC8C. &he

subsidiary sold, discounted, or assigned its accounts receivables to CCC.

&he testimony of Doselito /. "iwanag, accountant and auditor of CCC since (=?(, shows the pervasive and intensive

auditing function of CCC over CCC8C. ;*?< &he two corporations also shared the same office space. CCC8C had no

office of its own.

&he complaint in Civil Case 6o. 8:>7, instituted by CCC8C, was even verified by the director8representative of

CCC. &he lawyers who filed the complaint and amended complaint were all in8house lawyers of CCC.

&he challenged decision of the Court of Appeals states that CCC, now $eneral Credit Corporation, is not a formal

party in the case. &he reason for this is that the complaint was filed by CCC8C against petitioner. &he choice of parties

was with CCC8C. &he 2udgment award in this case arose from the counterclaim which petitioner set up against CCC8

C.

&he circumstances which led to the filing of the aforesaid complaint are quite revealing. As narrated above, the

discounting agreements through which CCC controlled the finances of its subordinates became unlawful when Central

Bank adopted the /@!3 prohibitions. Inder this rule the directors, officers, and stockholders are prohibited from

borrowing from their company. nstead of adhering to the letter and spirit of the regulations by avoiding /@!3 loans

altogether, CCC used the corporate device to continue the prohibited practice. CCC organied still another corporation,

the CCC8Equity Corporation. 5owever, as a wholly owned subsidiary, CCC8Equity was in fact only another name foCCC. Jey officials of CCC, including the resident managers of subsidiary corporations, were appointed to positions in

CCC8Equity.

n order to circumvent the Central Banks disapproval of CCC8Cs mode of reducing its /@!3 lender accounts and

its directive to follow Central Bank requirements, resident managers, including petitioner, were told to observe a pseudo8

compliance with the phasing out orders. For his unwillingness to satisfactorily conform to these directives and his

reluctance to resort to illegal practices, petitioner earned the ire of his employers. Eventually, his services were

terminated, and criminal and civil cases were filed against him.

#etitioner issued twenty8three checks as money placements with CCC8C because of difficulties faced by the firm in

implementing the required phase8out program. Funds from his current account in the Far East Bank and &rust Company

were transferred to CCC8C. &hese monies were alleged in the criminal complaints against him as having been

stolen.Complaints for qualified theft and estafa were brought by CCC8C against petitioner. &hese criminal cases were

later dismissed. !imilarly, the civil complaint which was filed with the Court of First nstance of #asig and later transferred

to the 3egional &rial Court of ueon City was dismissed, but his counterclaims were granted.

Faced with the financial obligations which CCC8C had to satisfy, the mother firm closed CCC8C, in obvious fraud

of its creditors. CCC8C, instead of opposing its closure, cooperated in its own demise. Conveniently, CCC8C stated in

its opposition to the motion for alias writ of eecution that all its properties and assets had been transferred and taken over

by CCC.





Inder the foregoing circumstances, the contention of respondent $eneral Credit Corporation, the new name of CCC

that the corporate fiction should be appreciated in its favor is without merit.

#araphrasing the ruling in Claparols (. Court of $ndustrial Relations,;*7< reiterated in Con%ept Builders $n%. (. /ationa

abor Relations,;*=< it is very obvious that respondent seeks the protective shield of a corporate fiction whose veil the

present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation

of its employees.

f the corporate fiction is sustained, it becomes a handy deception to avoid a 2udgment debt and work anin2ustice. &he decision raised to us for review is an invitation to multiplicity of litigation. As we stated in $slami% 2ire%torate

(s. Court of )ppeals,;:< the ends of 2ustice are not served if further litigation is encouraged when the issue is determinable

based on the records.

A court 2udgment becomes useless and ineffective if the employer, in this case CCC as a mother corporation, is

placed beyond the legal reach of the 2udgment creditor who, after protracted litigation, has been found entitled to positive

relief. Courts have been organied to put an end to controversy. &his purpose should not be negated by an inapplicable

and wrong use of the fiction of the corporate veil.

WHEREORE, the decision of the Court of Appeals is hereby 3EE3!E/ and A!/E. &he in2unction against the

holding of an auction sale for the eecution of the decision in Civil Case 6o. 8:>7 of properties of $eneral Credit

Corporation, and the levying upon and selling on eecution of other properties of $eneral Credit Corporation, is "F&E/.

SO ORDERED.

2a(ide, Jr., C.J., 7Chairman8, Puno, 9apunan, and Pardo, JJ., concur.

G.R. No. 1>>-9, *r+ 19, =01-

ERIC GODREY STANLEY LIVESEY, Petitioner , ( . BINSWANGER !HILI!!INES, INC. AND 4EITHELLIOT, Respondents.

D E C I S I O N

BRION, J.

e resolve this petition for review on %ertiorari ( assailing the decision* dated August (7, *:: and the resolution dated%arch *=, *::? of the Court of Appeals 'CA) in CAO$.3. !# 6o. =99(.

T" A%"+"$"%#

n /ecember *::(, petitioner Eric $odfrey !tanley "ivesey filed a complaint for illegal dismissal with moneyclaims9 against CBB #hilippines !trategic #roperty !ervices, nc. 'CBB) and #aul /wyer. CBB was a domestic corporationengaged in real estate brokerage and /wyer was its #resident.

"ivesey alleged that on April (*, *::(, CBB hired him as /irector and 5ead of Business !pace /evelopment, with amonthly salary of I!P>,:::.::- shareholdings in CBBQs offshore parent company- and other benefits. n August *::(, hewas appointed as %anaging /irector and his salary was increased to I!P(,:::.:: a month. Allegedly, despite theseveral deals for CBB he drew up, CBB failed to pay him a significant portion of his salary. For this reason, he wascompelled to resign on /ecember (7, *::(. 5e claimed CBB owed him I!P*,:::.:: in unpaid salaries.

CBB denied liability. t alleged that it engaged "ivesey as a corporate officer in April *::(4 he was elected iceO#resident'with a salary of #?>,:::.::+month), and thereafter, he became #resident 'at #(,*::,:::.::+year). t claimed that "ivesey











was later designated as %anaging /irector when it became an etension office of its principal in 5ongkong.>

@n /ecember (?, *::(, "ivesey demanded that CBB pay him I!P*>,:::.:: in unpaid salaries and, at the same time,tendered his resignation. CBB posited that the labor arbiter '"A) had no 2urisdiction as the complaint involved an intraOcorporate dispute.

n his decision dated !eptember *:, *::*, "A Daime %. 3eyno found that "ivesey had been illegally dismissed. "A3eyno ordered CBB to reinstate "ivesey to his former position as %anaging /irector and to pay him I!P*,:::.:: inaccrued salaries 'from Duly to /ecember *::(), and I!P>,:::.:: a month in back salaries from Danuary *::* untilreinstatement- and (:L of the total award as attorneyQs fees.

&hereafter, the parties entered into a compromise agreement? which "A 3eyno approved in an order dated 6ovember ,*::*.7 Inder the agreement, "ivesey was to receive I!P(,:::.:: in full satisfaction of "A 3eynoQs decision, brokendown into I!P(,:::.:: to be paid by CBB to "ivesey or his authoried representative upon the signing of theagreement- I!P=,:::.:: on or before Dune :, *::- and I!P=,:::.:: on or before !eptember :, *::. Further, theagreement provided that unless and until the agreement is fully satisfied, CBB shall not4 '() sell, alienate, or otherwisedispose of all or substantially all of its assets or business- '*) suspend, discontinue, or cease its entire, or a substantialportion of its business operations- ') substantially change the nature of its business- and '9) declare bankruptcy orinsolvency.

CBB paid "ivesey the initial amount of I!P(,:::.::, but not the net two installments as the company ceasedoperations. n reaction, "ivesey moved for the issuance of a writ of eecution. "A Eduardo $. %agno granted the writ,= butit was not enforced. "ivesey then filed a motion for the issuance of an alias writ of eecution,(: alleging that in the process

of serving respondents the writ, he learned Rthat respondents, in a clear and willful attempt to avoid their liabilities tocomplainant have organied another corporation, ;Binswanger< #hilippines, nc.S(( 5e claimed that there wasevidence showing that CBB and Binswanger #hilippines, nc. 'Bins'anger ) are one and the same corporation, pointingout that CBB stands for C"#"ro% Bl("%*("r Bi%#*%&"r.(* nvoking the doctrine of pier%ing the (eil of %orporatefi%tion, "ivesey prayed that an alias writ of eecution be issued against respondents Binswanger and Jeith Elliot, CBBQsformer #resident, and now BinswangerQs #resident and Chief Eecutive @fficer 'CE@).

T" Cop(l#or Arir*io% R(li%&#

n an order ( dated %arch **, *::9, "A Catalino 3. "aderas denied "iveseyQs motion for an alias writ of eecution, holdingthat the doctrine of piercing the corporate veil was inapplicable in the case. 5e eplained that the stockholders of the twocorporations were not the same. Further, "A "aderas stressed that "A 3eynoQs decision had already become final andcould no longer be altered or modified to include additional respondents.

"ivesey filed an appeal which the 6ational "abor 3elations Commission '/RC ) granted in its decision(9 dated !eptember?, *::>. t reversed "A "aderasQ %arch **, *::9 order and declared the respondents 2ointly and severally liable with CBBfor "A 3eynoQs decision(> of !eptember *:, *::* in favor of "ivesey. &he respondents moved for reconsideration, filed byan Atty. $enaro !. Dacosalem,( not by their counsel of record at the time, Corporate Counsels #hilippines, "aw @ffices.&he 6"3C denied the motion in its resolution of Danuary , *::.(? &he respondents then sought relief from the CAthrough a petition for %ertiorari under 3ule > of the 3ules of Court.

&he respondents charged the 6"3C with grave abuse of discretion for holding them liable to "ivesey and in eercising 2urisdiction over an intraOcorporate dispute. &hey maintained that Binswanger is a separate and distinct corporation fromCBB and that Elliot signed the compromise agreement in CBBQs behalf, not in his personal capacity. t was error for the6"3C, they argued, when it applied the doctrine of piercing the veil of corporate fiction to the case, despite the absence ofclear evidence in that respect.

For his part, "ivesey contended that the petition should be dismissed outright for being filed out of time. 5e claimed thatthe respondentsQ counsel of record received a copy of the 6"3C resolution denying their motion for reconsideration asearly as Danuary (=, *::, yet the petition was filed only on %ay (>, *::. 5e insisted that in any event, there was ampleevidence supporting the application of the doctrine of piercing the veil of corporate fiction to the case.

T" CA D"+i#io%

&he CA granted the petition,(7 reversed the 6"3C decision(= of !eptember ?, *::> and reinstated "A "aderasQ order *: of%arch **, *::9. &he CA found untenable "iveseyQs contention that the petition for %ertiorari was filed out of time, stressingthat while there was no valid substitution or withdrawal of the respondentsQ former counsel, the 6"3C impliedly recognied

Atty. Dacosalem as their new counsel when it resolved the motion for reconsideration which he filed.



@n the merits of the case, the CA disagreed with the 6"3C finding that the respondents are 2ointly and severally liablewith CBB in the case. t emphasied that the mere fact that Binswanger and CBB have the same #resident is not in itselfsufficient to pierce the veil of corporate fiction of the two entities, and that although Elliot was formerly CBBQs #resident,this circumstance alone does not make him answerable for CBBQs liabilities, there being no proof that he was motivated bymalice or bad faith when he signed the compromise agreement in CBBQs behalf- neither was there proof that Binswangerwas formed, or that it was operated, for the purpose of shielding fraudulent or illegal activities of its officers or stockholdersor that the corporate veil was used to conceal fraud, illegality or inequity at the epense of third persons like "ivesey.

"ivesey moved for reconsideration, but the CA denied the motion in its resolution dated %arch *=, *::?. *( 5ence, thepresent petition.

T" !"iio%

"ivesey prays for a reversal of the CA rulings on the basis of the following arguments4chan3oblesvirtual"awlibrary

(. &he CA erred in not denying the respondentsQ petition for %ertiorari dated %ay (*, *:: for being filed out of time.

"ivesey assails the CAQs reliance on the CourtQs pronouncement in Rin%onada 4elephone Co., $n%. (. 3on. Buen(ia:e** to 2ustify its ruling that the receipt on %arch (?, *:: by Atty. Dacosalem of the 6"3CQs denial of the respondentsQ motion forreconsideration was the reckoning date for the filing of the petition for %ertiorari, not the receipt of a copy of the sameresolution on Danuary (=, *:: by the respondentsQ counsel of record, the Corporate Counsels #hilippines, "aw @ffices.&he cited CourtQs pronouncement reads4chan3oblesvirtual"awlibrary

n view of respondent 2udgeQs recognition of Atty. !antos as new counsel for petitioner without even a valid substitution orwithdrawal of petitionerQs former counsel, said new counsel logically awaited for service to him of any action taken on hismotion for reconsideration. 3espondent 2udgeQs sudden change of posture in insisting that Atty. %aggay is the counsel ofrecord is, therefore, a whimsical and capricious eercise of discretion that prevented petitioner and Atty. !antos fromtaking a timely appeal;.<*

ith the above citation, "ivesey points out, the CA opined that a copy of the 6"3C resolution denying the respondentsQmotion for reconsideration should have been served on Atty. Dacosalem and no longer on the counsel of record, so thatthe #iF /702$* p"rio$ for the filing of the petition should be reckoned from %arch (?, *:: when Atty. Dacosalemsecured a copy of the resolution from the 6"3C 'the petition was filed by a Deffrey Dacosalem on %ay (>, *::).*9 "iveseysubmits that the CAQs reliance on Rin%onada was misplaced. 5e argues that notwithstanding the signing by Atty.Dacosalem of the motion for reconsideration, it was only proper that the 6"3C served a copy of the resolution on theCorporate Counsels #hilippines, "aw @ffices as it was still the respondentsQ counsel at the time.*> 5e adds that Atty.

Dacosalem never participated in the 6"3C proceedings because he did not enter his appearance as the respondentsQcounsel before the labor agency- further, he did not even indicate his office address on the motion for reconsideration hesigned.

*. &he CA erred in not applying the doctrine of piercing the veil of corporate fiction to the case.

"ivesey bewails the CAQs refusal to pierce BinswangerQs corporate veil in his bid to make the company and Elliot liable,together with CBB, for the 2udgment award to him. 5e insists that CBB and Binswanger are one and the same corporationas shown by the Roverwhelming evidenceS he presented to the "A, the 6"3C and the CA, asfollows4chan3oblesvirtual"awlibrary

a. CBB stands for RChesterton Blumenauer Binswanger.S*

b. After eecuting the compromise agreement with him, through Elliot, CBB ceased operations following a transactionwhere a substantial amount of CBB shares changed hands. Almost simultaneously with CBBQs closing 'in Duly *::),Binswanger was established with its headquarters set up beside CBBQs office at Init >:(, >+F #eninsula Court Building in%akati City.*?

c. Jey CBB officers and employees moved to Binswanger led by Elliot, former CBB #resident who became BinswangerQs#resident and CE@- Ferdie Catral, former CBB /irector and 5ead of @perations- Evangeline Agcaoili and Danet #ei.

d. !ummons served on Binswanger in an earlier labor case was received by Binswanger using CBBQs receiving stamp.*7

e. A "eslie Noung received on August *, *:: an online query on whether CBB was the same as BlumaneuverBinswanger 'BB). !igning as eb Editor, Binswanger+CBB, Noung replied (ia eOmail4*=



e are known as either CBB 'Chesterton Blumenauer Binswanger) or as Chesterton #etty "td. in the #hilippines. Contactinfo for our office in %anila is as follows4%anila #hilippinesCBB #hilippinesInit >:=, >th Floor #eninsula Court, #aseo de 3oas corner %akati Avenue(** %akati City#hilippinesContact4 Jeith Elliotf. n a letter dated August *(, *::,: Elliot noted a Binswanger bid solicitation for a pro2ect with the #hilippine 6ationalBank '#6B) which was actually a CBB pro2ect as shown by a CBB draft proposal to #6B dated Danuary *9, *::.(

g. &he affidavit* dated @ctober (, *:: of 5ael de $uman, another former CBB employee who also filed an illegaldismissal case against the company, attested to the eistence of "iveseyQs documentary evidence in his own case andwho deposed that at one time, Elliot told her of CBBQs plan to close the corporation and to organie another for thepurpose of evading CBBQs liabilities.

h. &he findings of facts of "A eneranda C. $uerrero who ruled in /e $umanQs favor that bolstered his own evidence inthe present case.

. &he CA erred in not holding Elliot liable for the 2udgment award.

"ivesey questions the CAQs reliance on aperal 2e(elopment Corporation (. Court of )ppeals,9 &unio, et al. (. /RC, etal.,> and Pala!, $n%., et al. (. Cla(e, et%., et al., in support of its ruling that Elliot is not liable to him for the "AQs award. 5eargues that in these cases, the Court upheld the separate personalities of the corporations and their officers+employeesbecause there was no evidence that the individuals sought to be held liable were in bad faith or that there were badges offraud in their actions against the aggrieved party or parties in said cases. 5e reiterates his submission to the CA that thecircumstances of the present case are different from those of the cited cases. 5e posits that the closure of CBB and itsimmediate replacement by Binswanger could not have been possible without ElliotQs guiding hand, such that when CBBceased operations, Elliot 'CBBQs #resident and CE@) moved to Binswanger in the same position. %ore importantly,"ivesey points out, as signatory for CBB in the compromise agreement between him '"ivesey) and CBB, Elliot knew that ithad not been and would never be fully satisfied.

"ivesey thus laments ElliotQs devious scheme of leaving him an unsatisfied award, stressing that Elliot was the chieforchestrator of CBB and BinswangerQs fraudulent act of evading the full satisfaction of the compromise agreement. n this

light, he submits that the CourtQs ruling in ).C. Ransom abor nion;CC (. /RC ,?

which deals with the issue of whois liable for the workerQs backwages when a corporation ceases operations, should apply to his situation.

T" R"#po%$"%# !o#iio%

&hrough their comment7 and memorandum,= the respondents pray that the petition be denied for the followingreasons4chan3oblesvirtual"awlibrary

(. &he 6"3C had no 2urisdiction over the dispute between "ivesey and CBB+/wyer as it involved an intraOcorporatecontroversy- under 3epublic Act 6o. 7?==, the 3egional &rial Court eercises 2urisdiction over the case.

As shown by the records, "ivesey was appointed as CBBQs %anaging /irector during the relevant period and was also ashareholder, making him a corporate officer.

*. &here was no employerOemployee relationship between "ivesey and Binswanger. Inder Article *(? of the "abor Code,the labor arbiters and the 6"3C have 2urisdiction only over disputes where there is an employerOemployee relationshipbetween the parties.

. &he 6"3C erred in applying the doctrine of piercing the veil of corporate fiction to the case based only on mereassumptions. #oint by point, they take eception to "iveseyQs submissions as follows4chan3oblesvirtual"awlibrary

a. &he eOmail statement in reply to an online query of Noung 'CBBQs eb Editor) that CBB is known as ChestertonBlumenauer Binswanger or Chesterton #etty. "td. to establish a connection between CBB and Binswanger isinconclusive as there was no mention in the statement of Binswanger #hilippines, nc.



b. &he affidavit of /e $uman, former CBB Associate /irector, who also resigned from the company like "ivesey,has no probative value as it was selfOserving and contained only misrepresentation of facts, con2ectures andsurmises.

c. hen Binswanger was organied and incorporated, CBB had already been abandoned by its Board of /irectorsand no longer subsidied by CBBO5ongkong- it had no business operations to work with.

d. &he mere transfer of Elliot and Catral from CBB to Binswanger is not a ground to pierce the corporate veil in thepresent case absent a clear evidence supporting the application of the doctrine. &he 6"3C applied the doctrine

on the basis only of "A $uerreroQs decision in the /e $uman case.

e. &he respondentsQ petition for %ertiorari was filed on time. Atty. Dacosalem, who was presumed to have beenengaged as the respondentsQ counsel, was deemed to have received a copy of the 6"3C resolution 'denying themotion for reconsideration) on %arch (?, *:: when he requested and secured a copy from the 6"3C. &hepetition was filed on %ay (>, *:: or fiftyOnine '>=) days from %arch (?, *::. Atty. Dacosalem may have failedto indicate his address on the motion for reconsideration he filed but that is not a reason for him to be deprived ofthe notices and processes of the case.

T" Co(r# R(li%&

4he pro%edural question

&he respondentsQ petition for %ertiorari before the CA was filed out of time. &he sity ':)Oday filing period under 3ule >of the 3ules of Court should have been counted from Danuary (=, *::, the date of receipt of a copy of the 6"3Cresolution denying the respondentsQ motion for reconsideration by the Corporate Counsels #hilippines, "aw @ffices whichwas the respondentsQ counsel of record at the time. &he respondents cannot insist that Atty. DacosalemQs receipt of a copyof the resolution on %arch (?, *:: as the reckoning date for the filing of the petition as we shall discuss below.

&he CA chided the 6"3C for serving a copy of the resolution on the Corporate Counsels #hilippines, "aw @ffices, insteadof on Atty. Dacosalem as it believed that the labor tribunal impliedly recognied Atty. Dacosalem as the respondentsQcounsel when it acted on the motion for reconsideration that he signed. As we see it, the fault was not on the 6"3C buton Atty. Dacosalem himself as he left no forwarding address with the 6"3C, a serious lapse that even he admitted.9: &hisis a matter that cannot 2ust be taken for granted as it betrays a careless legal representation that can cause adverseconsequences to the other party.

&o our mind, Atty. DacosalemQs nonOobservance of a simple, but basic requirement in the practice of law lends credence to"iveseyQs claim that the lawyer did not formally enter his appearance before the 6"3C as the respondentsQ new counsel- ifit had been otherwise, he would have supplied his office address to the 6"3C. Also, had he eercised due diligence in theperformance of his duty as counsel, he could have inquired earlier with the 6"3C and should not have waited as late as%arch (?, *:: about the outcome of the respondentsQ motion for reconsideration which was filed as early as @ctober *7,*::>.

&o reiterate, the filing of the respondentsQ petition for %ertiorari should have been reckoned from Danuary (=, *:: when acopy of the sub2ect 6"3C resolution was received by the Corporate Counsels #hilippines, "aw @ffices, which, as of thatdate, had not been discharged or had withdrawn and therefore remained to be the respondentsQ counsel of record.Clearly, the petition for %ertiorari was filed out of time. !ection 'a), 3ule of the 6"3C 3evised 3ules of #rocedureprovides that R;f<or purposes of appeal, the period shall be counted from receipt of such decisions, resolutions, or ordersby the counsel or representative of record.S

e now come to the issue of whether the 6"3C had 2urisdiction over the controversy between "ivesey and CBB+/wyeron the ground that it involved an intraOcorporate dispute.

Based on the facts of the case, we find this issue to have been rendered academic by the compromise agreementbetween "ivesey and CBB and approved by "A 3eyno.9( &hat CBB reneged in the fulfillment of its obligation under theagreement is no reason to revive the issue and further frustrate the full settlement of the obligation as agreed upon.

4he substanti(e aspe%t of the %ase

Even if we rule that the respondentsQ appeal before the CA had been filed on time, we believe and so hold that theappellate court committed a reversible error of 2udgment in its challenged decision.



&he 6"3C committed no grave abuse of discretion in reversing "A "aderasQ ruling as there is substantial evidence in therecords that "ivesey was prevented from fully receiving his monetary entitlements under the compromise agreementbetween him and CBB, with Elliot signing for CBB as its #resident and CE@. &ubstantial e(iden%e is more than a scintilla-it means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. 9*

!hortly after Elliot forged the compromise agreement with "ivesey, CBB ceased operations, a corporate event that wasnot disputed by the respondents. &hen Binswanger suddenly appeared. t was established almost simultaneously withCBBQs closure, with no less than Elliot as its #resident and CE@. &hrough the confluence of events surrounding CBBQsclosure and BinswangerQs sudden emergence, a reasonable mind would arrive at the conclusion that Binswanger isCBBQs alter ego or that CBB and Binswanger are one and the same corporation. &here are also indications of badges offraud in BinswangerQs incorporation. t was a business strategy to evade CBBQs financial liabilities, including itsoutstanding obligation to "ivesey.

&he respondents impugned the probative value of "iveseyQs documentary evidence and insist that the 6"3C erred inapplying the doctrine of piercing the veil of corporate fiction in the case to avoid liability. &hey consider the 6"3Cconclusions as mere assumptions.

W" $i#*&r"".

t has long been settled that the law vests a corporation with a personality distinct and separate from its stockholders ormembers. n the same vein, a corporation, by legal fiction and convenience, is an entity shielded by a protective mantleand imbued by law with a character alien to the persons comprising it.9 6onetheless, the shield is not at all times

impenetrable and cannot be etended to a point beyond its reason and policy. Circumstances might deny a claim forcorporate personality, under the R$o+ri%" o) pi"r+i%& " @"il o) +orpor*" )i+io%.S

#iercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporatepersonality of a corporation is abused or used for wrongful purposes.99 Inder the doctrine, the corporate eistence maybe disregarded where the entity is formed or used for nonOlegitimate purposes, such as to evade a 2ust and dueobligation, or to 2ustify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable considerations, otherun2ustifiable aims or intentions,9> in which case, the fiction will be disregarded and the individuals composing it and the twocorporations will be treated as identical.9

I% " pr"#"% +*#", " #"" *% i%$(i*l" li% """% CBB# +lo#(r" *%$ Bi%#*%&"r# i%+orpor*io%. CBB+"*#"$ o "Fi# o%l i% %*"; i r"""r&"$ i% " p"r#o% o) Bi%#*%&"r )or *% (r&"% p(rpo#" J o *@oi$p*"% CBB o) " l*# o i%#*ll"%# o) i# o%"*r oli&*io% o Li@"#", *# "ll *# i# o"r )i%*%+i*l

li*ilii"#. r""$ o) CBB# li*ilii"#, "#p"+i*ll * oi%& o Li@"#", Bi%#*%&"r +*% +o%i%(", *# i $i$+o%i%(", CBB# r"*l "#*" ro"r*&" (#i%"##.

"iveseyQs evidence, whose eistence the respondents never denied, converged to show this continuity of businessoperations from CBB to Binswanger. t was not 2ust coincidence that Binswanger is engaged in the same line of businessCBB embarked on4 '() it even holds office in the very same building and on the very same floor where CBB once stood-'*) CBBQs key officers, Elliot, no less, and Catral moved over to Binswanger, performing the tasks they were doing at CBB-') notwithstanding CBBQs closure, BinswangerQs eb Editor 'Noung), in an eOmail correspondence, supplied theinformation that Binswanger is Rnow knownS as either CBB 'Chesterton Blumenauer Binswanger or as Chesterton #etty,"td., in the #hilippines- '9) the use of Binswanger of CBBQs paraphernalia 'receiving stamp) in connection with a laborcase where Binswanger was summoned by the authorities, although Elliot claimed that he bought the item with his ownmoney- and '>) BinswangerQs takeover of CBBQs pro2ect with the #6B.

hile the ostensible reason for BinswangerQs establishment is to continue CBBQs business operations in the #hilippines,which by itself is not illegal, the close proimity between CBBQs disestablishment and BinswangerQs coming into eistencepoints to an unstated but urgent consideration which, as we earlier noted, was to evade CBBQs unfulfilled financialobligation to "ivesey under the compromise agreement.9?

&his underhanded ob2ective, it must be stressed, can only be attributed to Elliot as it was apparent that BinswangerQsstockholders had nothing to do with BinswangerQs operations as noted by the 6"3C and which the respondents did notdeny.97 Elliot was well aware of the compromise agreement between "ivesey and CBB, as he Ragreed and acceptedS theterms of the agreement9= for CBB. 5e was also well aware that the last two installments of CBBQs obligation to "iveseywere due on Dune :, *:: and !eptember :, *::. &hese installments were not met and the reason is that after thealleged sale of the ma2ority of CBBQs shares of stock, it closed down.

ith CBBQs closure, "ivesey asked why people would buy into a corporation and simply close it down immediately



thereafterT>: &he answer G to pave the way for CBBQs reappearance as Binswanger. ElliotQs Rguiding hand,S as "iveseyputs it, is very much evident in CBBQs demise and BinswangerQs creation. Elliot knew that CBB had not fully complied withits financial obligation under the compromise agreement. 5e made sure that it would not be fulfilled when he allowedCBBQs closure, despite the condition in the agreement that Runless and until the Compromise Amount has been fullysettled and paid by the Company in favor of %r. "ivesey, the Company shall not suspend, discontinue, or cease itsentire or a substantial portion of its business operations;.<S>(

hat happened to CBB, we believe, supports "iveseyQs assertion that /e $uman, CBBQs former Associate /irector,informed him that at one time Elliot told her of CBBQs plan to close the corporation and organie another for the purpose ofevading CBBQs liabilities to "ivesey and its other financial liabilities.>* &his wrongful intent we cannot and must notcondone, for it will give a premium to an iniquitous business strategy where a corporation is formed or used for a nonOlegitimate purpose, such as to evade a 2ust and due obligation.> e, therefore, find Elliot as liable as Binswanger forCBBQs unfulfilled obligation to "ivesey.

WHEREORE, premises considered, we hereby GRANT the petition. &he decision dated August (7, *:: and the3esolution dated %arch *=, *::? of the Court of Appeals are SET ASIDE. Binswanger #hilippines, nc. and Jeith Elliot'its #resident and CE@) are declared 2ointly and severally liable for the second and third installments of CBBQs liability toEric $odfrey !tanley "ivesey under the compromise agreement dated @ctober (9, *::*. "et the case record beremanded to the 6ational "abor 3elations Commission for eecution of this /ecision.

Costs against the respondents.

SO ORDERED.

Carpio, 7Chairperson8, 2el Castillo, Pere5 , and Re!es,< JJ., concur.

G.R. No. 195580 April =1, =01-

NARRA NIC4EL INING AND DEVELO!ENT COR!., TESORO INING AND DEVELO!ENT, INC., *%$CARTHUR INING, INC., #etitioners,vs.REDONT CONSOLIDATED INES COR!., 3espondent.

/ E C ! @ 6

VELASCO, 'R., J.:

Before this Court is a #etition for 3eview on Certiorari under 3ule 9> filed by 6arra 6ickel and %ining /evelopment Corp.'6arra), &esoro %ining and /evelopment, nc. '&esoro), and %cArthur %ining nc. '%cArthur), which seeks to reverse the@ctober (, *:(: /ecision( and the February (>, *:(( 3esolution of the Court of Appeals 'CA).

&he Facts

!ometime in /ecember *::, respondent 3edmont Consolidated %ines Corp. '3edmont), a domestic corporationorganied and eisting under #hilippine laws, took interest in mining and eploring certain areas of the province of#alawan. After inquiring with the /epartment of Environment and 6atural 3esources '/E63), it learned that the areaswhere it wanted to undertake eploration and mining activities where already covered by %ineral #roduction !haring

Agreement '%#!A) applications of petitioners 6arra, &esoro and %cArthur.

#etitioner %cArthur, through its predecessor8in8interest !ara %arie %ining, nc. '!%%), filed an application for an %#!Aand Eploration #ermit 'E#) with the %ines and $eo8!ciences Bureau '%$B), 3egion 8B, @ffice of the /epartment ofEnvironment and 6atural 3esources '/E63).

!ubsequently, !%% was issued %#!A8A%A8B8(> covering an area of over (,?7* hectares in Barangay !umbiling,%unicipality of Bataraa, #rovince of #alawan and E#A8B899 which includes an area of ,?*: hectares in Barangay%alatagao, Bataraa, #alawan. &he %#!A and E# were then transferred to %adride2os %ining Corporation '%%C) and,on 6ovember , *::, assigned to petitioner %cArthur.*

http://www.lawphil.net/judjuris/juri2014/apr2014/gr_195580_2014.html#fnt1






#etitioner 6arra acquired its %#!A from Alpha 3esources and /evelopment Corporation and #atricia "ouise %ining K/evelopment Corporation '#"%/C) which previously filed an application for an %#!A with the %$B, 3egion 8B, /E63on Danuary , (==*. &hrough the said application, the /E63 issued %#!A88(8(* covering an area of .*?? hectares inbarangays Calategas and !an sidro, %unicipality of 6arra, #alawan. !ubsequently, #"%/C conveyed, transferred and+orassigned its rights and interests over the %#!A application in favor of 6arra.

Another %#!A application of !%% was filed with the /E63 3egion 8B, labeled as %#!A8A%A8B8(>9 'formerly E#A8B89?) over ,9:* hectares in Barangays %alinao and #rincesa Irdu2a, %unicipality of 6arra, #rovince of #alawan.!%% subsequently conveyed, transferred and assigned its rights and interest over the said %#!A application to &esoro.

@n Danuary *, *::?, 3edmont filed before the #anel of Arbitrators '#@A) of the /E63 three ') separate petitions for thedenial of petitionersQ applications for %#!A designated as A%A8B8(>, A%A8B8(>9 and %#!A 8(8(*.

n the petitions, 3edmont alleged that at least :L of the capital stock of %cArthur, &esoro and 6arra are owned andcontrolled by %B% 3esources, nc. '%B%), a (::L Canadian corporation. 3edmont reasoned that since %B% is aconsiderable stockholder of petitioners, it was the driving force behind petitionersQ filing of the %#!As over the areascovered by applications since it knows that it can only participate in mining activities through corporations which aredeemed Filipino citiens. 3edmont argued that given that petitionersQ capital stocks were mostly owned by %B%, theywere likewise disqualified from engaging in mining activities through %#!As, which are reserved only for Filipino citiens.

n their Answers, petitioners averred that they were qualified persons under !ection 'aq) of 3epublic Act 6o. '3A) ?=9*or the #hilippine %ining Act of (==> which provided4

!ec. /efinition of &erms. As used in and for purposes of this Act, the following terms, whether in singular or plural, shallmean4

'aq) 1ualified person1 means any citien of the #hilippines with capacity to contract, or a corporation, partnership,association, or cooperative organied or authoried for the purpose of engaging in mining, with technical and financialcapability to undertake mineral resources development and duly registered in accordance with law at least sity per cent':L) of the capital of which is owned by citiens of the #hilippines4 #rovided, &hat a legally organied foreign8ownedcorporation shall be deemed a qualified person for purposes of granting an eploration permit, financial or technicalassistance agreement or mineral processing permit.

Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial or&echnical Assistance Agreements 'F&AA) denominated as AF&A8B8:= for %cArthur, AF&A8B8:7 for &esoro and AF&A8B8:? for 6arra, which are granted to foreign8owned corporations. 6evertheless, they claimed that the issue onnationality should not be raised since %cArthur, &esoro and 6arra are in fact #hilippine 6ationals as :L of their capital isowned by citiens of the #hilippines. &hey asserted that though %B% owns 9:L of the shares of #"%C 'which owns>,==? shares of 6arra), 9:L of the shares of %%C 'which owns >,==? shares of %cArthur)9and 9:L of the shares of!"%C 'which, in turn, owns >,==? shares of &esoro), > the shares of %B% will not make it the owner of at least :L of thecapital stock of each of petitioners. &hey added that the best tool used in determining the nationality of a corporation is the1control test,1 embodied in !ec. of 3A ?:9* or the Foreign nvestments Act of (==(. &hey also claimed that the #@A of/E63 did not have 2urisdiction over the issues in 3edmontQs petition since they are not enumerated in !ec. ?? of 3A?=9*. Finally, they stressed that 3edmont has no personality to sue them because it has no pending claim or applicationover the areas applied for by petitioners.

@n /ecember (9, *::?, the #@A issued a 3esolution disqualifying petitioners from gaining %#!As. t held4

;<t is clearly established that respondents are not qualified applicants to engage in mining activities. @n the other hand,;3edmont< having filed its own applications for an E#A over the areas earlier covered by the %#!A application ofrespondents may be considered if and when they are qualified under the law. &he violation of the requirements for theissuance and+or grant of permits over mining areas is clearly established thus, there is reason to believe that thecancellation and+or revocation of permits already issued under the premises is in order and open the areas covered toother qualified applicants.










5E3EF@3E, the #anel of Arbitrators finds the 3espondents, %cArthur %ining nc., &esoro %ining and /evelopment,nc., and 6arra 6ickel %ining and /evelopment Corp. as, /!IA"FE/ for being considered as Foreign Corporations.&heir %ineral #roduction !haring Agreement '%#!A) are hereby /EC"A3E/ 6I"" A6/ @/.

&he #@A considered petitioners as foreign corporations being 1effectively controlled1 by %B%, a (::L Canadiancompany and declared their %#!As null and void. n the same 3esolution, it gave due course to 3edmontQs E#As.&hereafter, on February ?, *::7, the #@A issued an @rder ? denying the %otion for 3econsideration filed by petitioners.

Aggrieved by the 3esolution and @rder of the #@A, %cArthur and &esoro filed a 2oint 6otice of Appeal7 and %emorandum

of Appeal=

with the %ines Ad2udication Board '%AB) while 6arra separately filed its 6otice of Appeal(:

and %emorandumof Appeal.((

n their respective memorandum, petitioners emphasied that they are qualified persons under the law. Also, through aletter, they informed the %AB that they had their individual %#!A applications converted to F&AAs. %cArthurQs F&AA wasdenominated as AF&A8B8:=(* on %ay *::?, while &esoroQs %#!A application was converted to AF&A8B8:7 ( on %ay*7, *::?, and 6arraQs F&AA was converted to AF&A8B8:?(9 on %arch :, *::.

#ending the resolution of the appeal filed by petitioners with the %AB, 3edmont filed a Complaint(> with the !ecurities andEchange Commission '!EC), seeking the revocation of the certificates for registration of petitioners on the ground thatthey are foreign8owned or controlled corporations engaged in mining in violation of #hilippine laws. &hereafter, 3edmontfiled on !eptember (, *::7 a %anifestation and %otion to !uspend #roceeding before the %AB praying for thesuspension of the proceedings on the appeals filed by %cArthur, &esoro and 6arra.

!ubsequently, on !eptember 7, *::7, 3edmont filed before the 3egional &rial Court of ueon City, Branch =* '3&C) aComplaint( for in2unction with application for issuance of a temporary restraining order '&3@) and+or writ of preliminaryin2unction, docketed as Civil Case 6o. :78?=. 3edmont prayed for the deferral of the %AB proceedings pending theresolution of the Complaint before the !EC.

But before the 3&C can resolve 3edmontQs Complaint and applications for in2unctive reliefs, the %AB issued an @rder on!eptember (:, *::7, finding the appeal meritorious. t held4

5E3EF@3E, in view of the foregoing, the %ines Ad2udication Board hereby 3EE3!E! and !E&! A!/E the3esolution dated (9 /ecember *::? of the #anel of Arbitrators of 3egion 8B '%%A3@#A) in #@A8/E63 Case 6os.*::(8:(, *::?8:* and *::?8:, and its @rder dated :? February *::7 denying the %otions for 3econsideration of the

Appellants. &he #etition filed by 3edmont Consolidated %ines Corporation on :* Danuary *::? is hereby ordered/!%!!E/.(?

Belatedly, on !eptember (, *::7, the 3&C issued an @rder (7 granting 3edmontQs application for a &3@ and setting thecase for hearing the prayer for the issuance of a writ of preliminary in2unction on !eptember (=, *::7.

%eanwhile, on !eptember **, *::7, 3edmont filed a %otion for 3econsideration(= of the !eptember (:, *::7 @rder of the%AB. !ubsequently, it filed a !upplemental %otion for 3econsideration*: on !eptember *=, *::7.

Before the %AB could resolve 3edmontQs %otion for 3econsideration and !upplemental %otion for 3econsideration,3edmont filed before the 3&C a !upplemental Complaint*( in Civil Case 6o. :78?=.

@n @ctober , *::7, the 3&C issued an @rder ** granting the issuance of a writ of preliminary in2unction en2oining the %AB

from finally disposing of the appeals of petitioners and from resolving 3edmontQs %otion for 3econsideration and!upplement %otion for 3econsideration of the %ABQs !eptember (:, *::7 3esolution.

@n Duly (, *::=, however, the %AB issued a second @rder denying 3edmontQs %otion for 3econsideration and!upplemental %otion for 3econsideration and resolving the appeals filed by petitioners.

5ence, the petition for review filed by 3edmont before the CA, assailing the @rders issued by the %AB. @n @ctober (,*:(:, the CA rendered a /ecision, the dispositive of which reads4

5E3EF@3E, the #etition is #A3&A""N $3A6&E/. &he assailed @rders, dated !eptember (:, *::7 and Duly (, *::=of the %ining Ad2udication Board are reversed and set aside. &he findings of the #anel of Arbitrators of the /epartment ofEnvironment and 6atural 3esources that respondents %cArthur, &esoro and 6arra are foreign corporations is upheld and,










































therefore, the re2ection of their applications for %ineral #roduct !haring Agreement should be recommended to the!ecretary of the /E63.

ith respect to the applications of respondents %cArthur, &esoro and 6arra for Financial or &echnical Assistance Agreement 'F&AA) or conversion of their %#!A applications to F&AA, the matter for its re2ection or approval is left fordetermination by the !ecretary of the /E63 and the #resident of the 3epublic of the #hilippines.

!@ @3/E3E/.*

n a 3esolution dated February (>, *:((, the CA denied the %otion for 3econsideration filed by petitioners.

After a careful review of the records, the CA found that there was doubt as to the nationality of petitioners when it realiedthat petitioners had a common ma2or investor, %B%, a corporation composed of (::L Canadians. #ursuant to the firstsentence of paragraph ? of /epartment of Dustice '/@D) @pinion 6o. :*:, !eries of *::>, adopting the (=? !EC 3uleswhich implemented the requirement of the Constitution and other laws pertaining to the eploitation of natural resources,the CA used the 1grandfather rule1 to determine the nationality of petitioners. t provided4

!hares belonging to corporations or partnerships at least :L of the capital of which is owned by Filipino citiens shall beconsidered as of #hilippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is lessthan :L, only the number of shares corresponding to such percentage shall be counted as of #hilippine nationality.&hus, if (::,::: shares are registered in the name of a corporation or partnership at least :L of the capital stock orcapital, respectively, of which belong to Filipino citiens, all of the shares shall be recorded as owned by Filipinos. But if

less than :L, or say, >:L of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipinocitiens, only >:,::: shares shall be recorded as belonging to aliens.*9 'emphasis supplied)

n determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding commonshareholders. Ising the grandfather rule, the CA discovered that %B% in effect owned ma2ority of the common stocks ofthe petitioners as well as at least :L equity interest of other ma2ority shareholders of petitioners through 2oint ventureagreements. &he CA found that through a 1web of corporate layering, it is clear that one common controlling investor in allmining corporations involved is %B%.1*> &hus, it concluded that petitioners %cArthur, &esoro and 6arra are also inpartnership with, or privies8in8interest of, %B%.

Furthermore, the CA viewed the conversion of the %#!A applications of petitioners into F&AA applications suspicious innature and, as a consequence, it recommended the re2ection of petitionersQ %#!A applications by the !ecretary of the/E63.

ith regard to the settlement of disputes over rights to mining areas, the CA pointed out that the #@A has 2urisdiction overthem and that it also has the power to determine the of nationality of petitioners as a prerequisite of the Constitution priorthe conferring of rights to 1co8production, 2oint venture or production8sharing agreements1 of the state to mining rights.5owever, it also stated that the #@AQs 2urisdiction is limited only to the resolution of the dispute and not on the approval orre2ection of the %#!As. t stipulated that only the !ecretary of the /E63 is vested with the power to approve or re2ectapplications for %#!A.

Finally, the CA upheld the findings of the #@A in its /ecember (9, *::? 3esolution which considered petitioners %cArthur&esoro and 6arra as foreign corporations. 6evertheless, the CA determined that the #@AQs declaration that the %#!As of%cArthur, &esoro and 6arra are void is highly improper.

hile the petition was pending with the CA, 3edmont filed with the @ffice of the #resident '@#) a petition dated %ay ?,*:(: seeking the cancellation of petitionersQ F&AAs. &he @# rendered a /ecision* on April , *:((, wherein it canceledand revoked petitionersQ F&AAs for violating and circumventing the 1Constitution ;,< the !mall !cale %ining "aw andEnvironmental Compliance Certificate as well as !ections and 7 of the Foreign nvestment Act and E.@. >79.1*? &he @#,in affirming the cancellation of the issued F&AAs, agreed with 3edmont stating that petitioners committed violationsagainst the abovementioned laws and failed to submit evidence to negate them. &he /ecision further quoted the/ecember (9, *::? @rder of the #@A focusing on the alleged misrepresentation and claims made by petitioners of beingdomestic or Filipino corporations and the admitted continued mining operation of #%/C using their locally secured !mall!cale %ining #ermit inside the area earlier applied for an %#!A application which was eventually transferred to 6arra. talso agreed with the #@AQs estimation that the filing of the F&AA applications by petitioners is a clear admission that theyare 1not capable of conducting a large scale mining operation and that they need the financial and technical assistance ofa foreign entity in their operation, that is why they sought the participation of %B% 3esources, nc.1*7 &he /ecision furtherquoted4

















&he filing of the F&AA application on Dune (>, *::?, during the pendency of the case only demonstrate the violations andlack of qualification of the respondent corporations to engage in mining. &he filing of the F&AA application conversionwhich is allowed foreign corporation of the earlier %#!A is an admission that indeed the respondent is not Filipino butrather of foreign nationality who is disqualified under the laws. Corporate documents of %B% 3esources, nc. furnishedits stockholders in their head office in Canada suggest that they are conducting operation only through their localcounterparts.*=

&he %otion for 3econsideration of the /ecision was further denied by the @# in a 3esolution: dated Duly , *:((.#etitioners then filed a #etition for 3eview on Certiorari of the @#Qs /ecision and 3esolution with the CA, docketed as CA8

$.3. !# 6o. (*:9:=. n the CA /ecision dated February *=, *:(*, the CA affirmed the /ecision and 3esolution of the @#&hereafter, petitioners appealed the same CA decision to this Court which is now pending with a different division.

&hus, the instant petition for review against the @ctober (, *:(: /ecision of the CA. #etitioners put forth the followingerrors of the CA4

.

&he Court of Appeals erred when it did not dismiss the case for mootness despite the fact that the sub2ect matterof the controversy, the %#!A Applications, have already been converted into F&AA applications and that the samehave already been granted.

.

&he Court of Appeals erred when it did not dismiss the case for lack of 2urisdiction considering that the #anel of Arbitrators has no 2urisdiction to determine the nationality of 6arra, &esoro and %cArthur.

.

&he Court of Appeals erred when it did not dismiss the case on account of 3edmontQs willful forum shopping.

.

&he Court of AppealsQ ruling that 6arra, &esoro and %cArthur are foreign corporations based on the 1$randfather3ule1 is contrary to law, particularly the epress mandate of the Foreign nvestments Act of (==(, as amended,

and the FA 3ules.

.

&he Court of Appeals erred when it applied the eceptions to the res inter alios acta rule.

.

&he Court of Appeals erred when it concluded that the conversion of the %#!A Applications into F&AA Applications were of 1suspicious nature1 as the same is based on mere con2ectures and surmises without anyshred of evidence to show the same.(

e find the petition to be without merit.

&his case not moot and academic

&he claim of petitioners that the CA erred in not rendering the instant case as moot is without merit.

Basically, a case is said to be moot and+or academic when it 1ceases to present a 2usticiable controversy by virtue ofsupervening events, so that a declaration thereon would be of no practical use or value.1* &hus, the courts 1generallydecline 2urisdiction over the case or dismiss it on the ground of mootness.1














&he 1mootness1 principle, however, does accept certain eceptions and the mere raising of an issue of 1mootness1 will notdeter the courts from trying a case when there is a valid reason to do so. n /avid v. %acapagal8Arroyo '/avid), the Courtprovided four instances where courts can decide an otherwise moot case, thus4

(.) &here is a grave violation of the Constitution-

*.) &he eceptional character of the situation and paramount public interest is involved-

.) hen constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and

the public- and

9.) &he case is capable of repetition yet evading review.9

All of the eceptions stated above are present in the instant case. e of this Court note that a grave violation of theConstitution, specifically !ection * of Article H, is being committed by a foreign corporation right under our countryQs nosethrough a myriad of corporate layering under different, allegedly, Filipino corporations. &he intricate corporate layeringutilied by the Canadian company, %B%, is of eceptional character and involves paramount public interest since itundeniably affects the eploitation of our CountryQs natural resources. &he corresponding actions of petitioners during thelifetime and eistence of the instant case raise questions as what principle is to be applied to cases with similar issues. 6odefinite ruling on such principle has been pronounced by the Court- hence, the disposition of the issues or errors in theinstant case will serve as a guide 1to the bench, the bar and the public.1> Finally, the instant case is capable of repetitionyet evading review, since the Canadian company, %B%, can keep on utiliing dummy Filipino corporations through

various schemes of corporate layering and conversion of applications to skirt the constitutional prohibition against foreignmining in #hilippine soil.

Conversion of %#!A applications to F&AA applications

e shall discuss the first error in con2unction with the sith error presented by petitioners since both involve theconversion of %#!A applications to F&AA applications. #etitioners propound that the CA erred in ruling against them sincethe questioned %#!A applications were already converted into F&AA applications- thus, the issue on the prohibitionrelating to %#!A applications of foreign mining corporations is academic. Also, petitioners would want us to correct theCAQs finding which deemed the aforementioned conversions of applications as suspicious in nature, since it is based onmere con2ectures and surmises and not supported with evidence.

e disagree.

&he CAQs analysis of the actions of petitioners after the case was filed against them by respondent is on point. &hechanging of applications by petitioners from one type to another 2ust because a case was f iled against them, in truth,would raise not a few scepticsQ eyebrows. hat is the reason for such conversionT /id the said conversion not stem fromthe case challenging their citienship and to have the case dismissed against them for being 1moot1T t is quite obviousthat it is petitionersQ strategy to have the case dismissed against them for being 1moot.1

Consider the history of this case and how petitioners responded to every action done by the court or appropriategovernment agency4 on Danuary *, *::?, 3edmont filed three separate petitions for denial of the %#!A applications ofpetitioners before the #@A. @n Dune (>, *::?, petitioners filed a conversion of their %#!A applications to F&AAs. &he#@A, in its /ecember (9, *::? 3esolution, observed this suspect change of applications while the case was pendingbefore it and held4

&he filing of the Financial or &echnical Assistance Agreement application is a clear admission that the respondents are notcapable of conducting a large scale mining operation and that they need the financial and technical assistance of a foreignentity in their operation that is why they sought the participation of %B% 3esources, nc. &he participation of %B% in thecorporation only proves the fact that it is the Canadian company that will provide the finances and the resources tooperate the mining areas for the greater benefit and interest of the same and not the Filipino stockholders who only havea less substantial financial stake in the corporation.

&he filing of the F&AA application on Dune (>, *::?, during the pendency of the case only demonstrate the violationsand lack of qualification of the respondent corporations to engage in mining. &he filing of the F&AA application conversion







which is allowed foreign corporation of the earlier %#!A is an admission that indeed the respondent is not Filipino butrather of foreign nationality who is disqualified under the laws. Corporate documents of %B% 3esources, nc. furnishedits stockholders in their head office in Canada suggest that they are conducting operation only through their localcounterparts.

@n @ctober (, *:(:, the CA rendered a /ecision which partially granted the petition, reversing and setting aside the!eptember (:, *::7 and Duly (, *::= @rders of the %AB. n the said /ecision, the CA upheld the findings of the #@A ofthe /E63 that the herein petitioners are in fact foreign corporations thus a recommendation of the re2ection of their %#!Aapplications were recommended to the !ecretary of the /E63. ith respect to the F&AA applications or conversion of the

%#!A applications to F&AAs, the CA deferred the matter for the determination of the !ecretary of the /E63 and the#resident of the 3epublic of the #hilippines.?

n their %otion for 3econsideration dated @ctober *, *:(:, petitioners prayed for the dismissal of the petition assertingthat on April >, *:(:, then #resident $loria %acapagal8Arroyo signed and issued in their favor F&AA 6o. :>8*:(:8B,which rendered the petition moot and academic. 5owever, the CA, in a 3esolution dated February (>, *:(( denied theirmotion for being a mere 1rehash of their claims and defenses.17 !tanding firm on its /ecision, the CA affirmed the rulingthat petitioners are, in fact, foreign corporations. @n April >, *:((, petitioners elevated the case to us via a #etition for3eview on Certiorari under 3ule 9>, questioning the /ecision of the CA. nterestingly, the @# rendered a /ecision dated

April , *:((, a day after this petition for review was filed, cancelling and revoking the F&AAs, quoting the @rder of the#@A and stating that petitioners are foreign corporations since they needed the f inancial strength of %B%, nc. in order toconduct large scale mining operations. &he @# /ecision also based the cancellation on the misrepresentation of facts andthe violation of the 1!mall !cale %ining "aw and Environmental Compliance Certificate as well as !ections and 7 of theForeign nvestment Act and E.@. >79.1= @n Duly , *:((, the @# issued a 3esolution, denying the %otion for3econsideration filed by the petitioners.

3espondent 3edmont, in its Comment dated @ctober (:, *:((, made known to the Court the fact of the @#Qs /ecisionand 3esolution. n their 3eply, petitioners chose to ignore the @# /ecision and continued to reuse their old argumentsclaiming that they were granted F&AAs and, thus, the case was moot. #etitioners filed a %anifestation and !ubmissiondated @ctober (=, *:(*,9: wherein they asserted that the present petition is moot since, in a remarkable turn of events,%B% was able to sell+assign all its shares+interest in the 1holding companies1 to /%C %ining Corporation '/%C), aFilipino corporation and, in effect, making their respective corporations fully8Filipino owned.

Again, it is quite evident that petitioners have been trying to have this case dismissed for being 1moot.1 &heir final act,wherein %B% was able to allegedly sell+assign all its shares and interest in the petitioner 1holding companies1 to /%C,only proves that they were in fact not Filipino corporations from the start. &he recent divesting of interest by %B% will not

change the stand of this Court with respect to the nationality of petitioners prior the suspicious change in their corporatestructures. &he new documents filed by petitioners are factual evidence that this Court has no power to verify.

&he only thing clear and proved in this Court is the fact that the @# declared that petitioner corporations have violatedseveral mining laws and made misrepresentations and falsehood in their applications for F&AA which lead to therevocation of the said F&AAs, demonstrating that petitioners are not beyond going against or around the law using shiftyactions and strategies. &hus, in this instance, we can say that their claim of mootness is moot in itself because theirdefense of conversion of %#!As to F&AAs has been discredited by the @# /ecision.

$randfather test

&he main issue in this case is centered on the issue of petitionersQ nationality, whether Filipino or foreign. n their previouspetitions, they had been adamant in insisting that they were Filipino corporations, until they submitted their %anifestation

and !ubmission dated @ctober (=, *:(* where they stated the alleged change of corporate ownership to reflect theirFilipino ownership. &hus, there is a need to determine the nationality of petitioner corporations.

Basically, there are two acknowledged tests in determining the nationality of a corporation4 the control test and thegrandfather rule. #aragraph ? of /@D @pinion 6o. :*:, !eries of *::>, adopting the (=? !EC 3ules which implementedthe requirement of the Constitution and other laws pertaining to the controlling interests in enterprises engaged in theeploitation of natural resources owned by Filipino citiens, provides4

!hares belonging to corporations or partnerships at least :L of the capital of which is owned by Filipino citiens shall beconsidered as of #hilippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is lessthan :L, only the number of shares corresponding to such percentage shall be counted as of #hilippine nationality.&hus, if (::,::: shares are registered in the name of a corporation or partnership at least :L of the capital stock or
















capital, respectively, of which belong to Filipino citiens, all of the shares shall be recorded as owned by Filipinos. But ifless than :L, or say, >:L of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipinocitiens, only >:,::: shares shall be counted as owned by Filipinos and the other >:,::: shall be recorded as belongingto aliens.

&he first part of paragraph ?, /@D @pinion 6o. :*:, stating 1shares belonging to corporations or partnerships at least :Lof the capital of which is owned by Filipino citiens shall be considered as of #hilippine nationality,1 pertains to the controltest or the liberal rule. @n the other hand, the second part of the /@D @pinion which provides, 1if the percentage of theFilipino ownership in the corporation or partnership is less than :L, only the number of shares corresponding to such

percentage shall be counted as #hilippine nationality,1 pertains to the stricter, more stringent grandfather rule.

#rior to this recent change of events, petitioners were constant in advocating the application of the 1control test1 under 3A?:9*, as amended by 3A 7(?=, otherwise known as the Foreign nvestments Act 'FA), rather than using the strictergrandfather rule. &he pertinent provision under !ec. of the FA provides4

!EC&@6 . /efinitions. 8 As used in this Act4

a.) &he term #hilippine national shall mean a citien of the #hilippines- or a domestic partnership or association whollyowned by the citiens of the #hilippines- a corporation organied under the laws of the #hilippines of which at least sitypercent ':L) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds forpension or other employee retirement or separation benefits, where the trustee is a #hilippine national and at least sitypercent ':L) of the fund will accrue to the benefit of #hilippine nationals4 #rovided, &hat were a corporation and its non8

Filipino stockholders own stocks in a !ecurities and Echange Commission '!EC) registered enterprise, at least sitypercent ':L) of the capital stock outstanding and entitled to vote of each of both corporations must be owned and heldby citiens of the #hilippines and at least sity percent ':L) of the members of the Board of /irectors, in order that thecorporation shall be considered a #hilippine national. 'emphasis supplied)

&he grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a 1#hilippine6ational1 under !ec. of the FA does not provide for it. &hey further claim that the grandfather rule 1has been abandonedand is no longer the applicable rule.19( &hey also opined that the last portion of !ec. of the FA admits the application ofa 1corporate layering1 scheme of corporations. #etitioners claim that the clear and unambiguous wordings of the statutepreclude the court from construing it and prevent the courtQs use of discretion in applying the law. &hey said that the plain,literal meaning of the statute meant the application of the control test is obligatory.

e disagree. 1Corporate layering1 is admittedly allowed by the FA- but if it is used to circumvent the Constitution and

pertinent laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has alreadybeen abandoned must be discredited for lack of basis.

Art. H, !ec. * of the Constitution provides4

!ec. *. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potentialenergy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the !tate. ith theeception of agricultural lands, all other natural resources shall not be alienated. &he eploration, development, andutiliation of natural resources shall be under the full control and supervision of the !tate. &he !tate may directlyundertake such activities, or it may enter into co8production, 2oint venture or production8sharing agreements with Filipinocitiens, or corporations or associations at least sity per centum of whose capital is owned by such citiens. !uchagreements may be for a period not eceeding twenty8five years, renewable for not more than twenty8five years, andunder such terms and conditions as may be provided by law.

&he #resident may enter into agreements with Foreign8owned corporations involving either technical or financialassistance for large8scale eploration, development, and utiliation of minerals, petroleum, and other mineral oilsaccording to the general terms and conditions provided by law, based on real contributions to the economic growth andgeneral welfare of the country. n such agreements, the !tate shall promote the development and use of local scientificand technical resources. 'emphasis supplied)

&he emphasied portion of !ec. * which focuses on the !tate entering into different types of agreements for theeploration, development, and utiliation of natural resources with entities who are deemed Filipino due to : percentownership of capital is pertinent to this case, since the issues are centered on the utiliation of our countryQs natural





resources or specifically, mining. &hus, there is a need to ascertain the nationality of petitioners since, as the Constitutionso provides, such agreements are only allowed corporations or associations 1at least : percent of such capital is ownedby such citiens.1 &he deliberations in the 3ecords of the (=7 Constitutional Commission shed light on how a citienshipof a corporation will be determined4

%r. BE66A$E64 /id hear right that the ChairmanQs interpretation of an independent national economy is freedom fromundue foreign controlT hat is the meaning of undue foreign controlT

%3. ""E$A!4 Indue foreign control is foreign control which sacrifices national sovereignty and the welfare of the

Filipino in the economic sphere.

%3. BE66A$E64 hy does it have to be qualified still with the word 1undue1T hy not simply freedom from foreigncontrolT think that is the meaning of independence, because as phrased, it still allows for foreign control.

%3. ""E$A!4 t will now depend on the interpretation because if, for eample, we retain the :+9: possibility in thecultivation of natural resources, 9: percent involves some control- not total control, but some control.

%3. BE66A$E64 n any case, think in due time we will propose some amendments.

%3. ""E$A!4 Nes. But we will be open to improvement of the phraseology.

%r. BE66A$E64 Nes.

&hank you, %r. ice8#resident.

%3. 6@""E/@4 n !ections , = and (>, the Committee stated local or Filipino equity and foreign equity- namely, :89: in!ection , :89: in !ection =, and *+8(+ in !ection (>.

%3. ""E$A!4 &hat is right.

%3. 6@""E/@4 n teaching law, we are always faced with the question4 Uhere do we base the equity requirement, is iton the authoried capital stock, on the subscribed capital stock, or on the paid8up capital stock of a corporationQT ill theCommittee please enlighten me on thisT

%3. ""E$A!4 e have 2ust had a long discussion with the members of the team from the I# "aw Center who providedus with a draft. &he phrase that is contained here which we adopted from the I# draft is U: percent of the voting stock.Q

%3. 6@""E/@4 &hat must be based on the subscribed capital stock, because unless declared delinquent, unpaid capitalstock shall be entitled to vote.

%3. ""E$A!4 &hat is right.

%3. 6@""E/@4 &hank you.

ith respect to an investment by one corporation in another corporation, say, a corporation with :89: percent equityinvests in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfatherruleT

%3. ""E$A!4 Nes, that is the understanding of the Committee.

%3. 6@""E/@4 &herefore, we need additional Filipino capitalT

%3. ""E$A!4 Nes.9* 'emphasis supplied)

t is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases wherecorporate layering is present.






Elementary in statutory construction is when there is conflict between the Constitution and a statute, the Constitution willprevail. n this instance, specifically pertaining to the provisions under Art. H of the Constitution on 6ational Economy and#atrimony, !ec. of the FA will have no place of application. As decreed by the honorable framers of our Constitution, thegrandfather rule prevails and must be applied.

"ikewise, paragraph ?, /@D @pinion 6o. :*:, !eries of *::> provides4

&he above8quoted !EC 3ules provide for the manner of calculating the Filipino interest in a corporation for purposes,among others, of determining compliance with nationality requirements 'the Unvestee CorporationQ). !uch manner of

computation is necessary since the shares in the nvestee Corporation may be owned both by individual stockholders'Unvesting ndividualsQ) and by corporations and partnerships 'Unvesting CorporationQ). &he said rules thus provide for thedetermination of nationality depending on the ownership of the nvestee Corporation and, in certain instances, thenvesting Corporation.

Inder the above8quoted !EC 3ules, there are two cases in determining the nationality of the nvestee Corporation. &hefirst case is the Uliberal ruleQ, later coined by the !EC as the Control &est in its : %ay (==: @pinion, and pertains to theportion in said #aragraph ? of the (=? !EC 3ules which states, U's)hares belonging to corporations or partnerships atleast :L of the capital of which is owned by Filipino citiens shall be considered as of #hilippine nationality.Q Inder theliberal Control &est, there is no need to further trace the ownership of the :L 'or more) Filipino stockholdings of thenvesting Corporation since a corporation which is at least :L Filipino8owned is considered as Filipino.

&he second case is the !trict 3ule or the $randfather 3ule #roper and pertains to the portion in said #aragraph ? of the

(=? !EC 3ules which states, 1but if the percentage of Filipino ownership in the corporation or partnership is less than:L, only the number of shares corresponding to such percentage shall be counted as of #hilippine nationality.1 Inderthe !trict 3ule or $randfather 3ule #roper, the combined totals in the nvesting Corporation and the nvestee Corporationmust be traced 'i.e., 1grandfathered1) to determine the total percentage of Filipino ownership.

%oreover, the ultimate Filipino ownership of the shares must first be traced to the level of the nvesting Corporation andadded to the shares directly owned in the nvestee Corporation .

n other words, based on the said !EC 3ule and /@D @pinion, the $randfather 3ule or the second part of the !EC 3uleapplies only when the :89: Filipino8foreign equity ownership is in doubt 'i.e., in cases where the 2oint venture corporationwith Filipino and foreign stockholders with less than :L Filipino stockholdings ;or >=L< invests in other 2oint venturecorporation which is either :89:L Filipino8alien or the >=L less Filipino). !tated differently, where the :89: Filipino8foreign equity ownership is not in doubt, the $randfather 3ule will not apply. 'emphasis supplied)

After a scrutiny of the evidence etant on record, the Court finds that this case calls for the application of the grandfatherrule since, as ruled by the #@A and affirmed by the @#, doubt prevails and persists in the corporate ownership ofpetitioners. Also, as found by the CA, doubt is present in the :89: Filipino equity ownership of petitioners 6arra, %cArthurand &esoro, since their common investor, the (::L Canadian corporationOO%B%, funded them. 5owever, petitionersalso claim that there is 1doubt1 only when the stockholdings of Filipinos are less than :L.9

&he assertion of petitioners that 1doubt1 only eists when the stockholdings are less than :L fails to convince this Court./@D @pinion 6o. *:, which petitioners quoted in their petition, only made an eample of an instance where 1doubt1 as tothe ownership of the corporation eists. t would be ludicrous to limit the application of the said word only to the instanceswhere the stockholdings of non8Filipino stockholders are more than 9:L of the total stockholdings in a corporation. &hecorporations interested in circumventing our laws would clearly strive to have 1:L Filipino @wnership1 at face value. twould be senseless for these applying corporations to state in their respective articles of incorporation that they have lessthan :L Filipino stockholders since the applications will be denied instantly. &hus, various corporate schemes andlayerings are utilied to circumvent the application of the Constitution.

@bviously, the instant case presents a situation which ehibits a scheme employed by stockholders to circumvent the law,creating a cloud of doubt in the CourtQs mind. &o determine, therefore, the actual participation, direct or indirect, of %B%,the grandfather rule must be used.

%cArthur %ining, nc.





&o establish the actual ownership, interest or participation of %B% in each of petitionersQ corporate structure, they have tobe 1grandfathered.1

As previously discussed, %cArthur acquired its %#!A application from %%C, which acquired its application from !%%.%cArthur has a capital stock of ten million pesos '#h# (:,:::,:::) divided into (:,::: common shares at one thousandpesos '#h# (,:::) per share, subscribed to by the following499

N*" N*io%*li N("r o) S*r"#

Ao(%S(#+ri"$

Ao(% !*i$

%adride2os %iningCorporation

Filipino >,==? #h# >,==?,:::.:: #h# 7*>,:::.::

BI R"#o(r+"#,I%+.

Canadian ,==7 #h# ,==7,:::.: #h# (,7?7,(?9.:

"auro ". !alaar Filipino ( #h# (,:::.:: #h# (,:::.::

Fernando B.Esguerra

Filipino ( #h# (,:::.:: #h# (,:::.::

%anuel A. Agcaoili Filipino ( #h# (,:::.:: #h# (,:::.::

%ichael &. %ason American ( #h# (,:::.:: #h# (,:::.::

Jenneth Cawkell Canadian ( #h# (,:::.:: #h# (,:::.::

&otal (:,::: #h# (:,:::,:::.:: #h# *,?:7,(?9.:'emphasis supplied)

nterestingly, looking at the corporate structure of %%C, we take note that it has a similar structure and composition as%cArthur. n fact, it would seem that %B% is also a ma2or investor and 1controls19> %B% and also, similar nominalshareholders were present, i.e. Fernando B. Esguerra 'Esguerra), "auro ". !alaar '!alaar), %ichael &. %ason '%ason)and Jenneth Cawkell 'Cawkell)4

%adride2os %ining Corporation

N*" N*io%*li N("r o) S*r"#

Ao(%S(#+ri"$

Ao(% !*i$

Olpi+ i%"# K

D"@"lop"%

Corp.

Filipino , #h# ,,:::.::

!! 0

BIR"#o(r+"#,

I%+.

Canadian ,( #h# ,(,:::.:: #h# *,7:,=::.::

Amanti "imson Filipino ( #h# (,:::.:: #h# (,:::.::

"r%*%$o B.

E#&("rr*

Filipino ( #h# (,:::.:: #h# (,:::.::

L*(ro S*l**r Filipino ( #h# (,:::.:: #h# (,:::.::

Emmanuel $. Filipino ( #h# (,:::.:: #h# (,:::.::







5ernando

i+*"l T. *#o% American ( #h# (,:::.:: #h# (,:::.::

4"%%" C*"ll Canadian ( #h# (,:::.:: #h# (,:::.::

&otal (:,::: #h# (:,:::,:::.:: #h# *,7:=,=::.::

'emphasis supplied)

6oticeably, @lympic %ines K /evelopment Corporation '@lympic) did not pay any amount with respect to the number ofshares they subscribed to in the corporation, which is quite absurd since @lympic is the ma2or stockholder in %%C.%B%Qs *:: Annual 3eport sheds light on why @lympic failed to pay any amount with respect to the number of shares itsubscribed to. t states that @lympic entered into 2oint venture agreements with several #hilippine companies, wherein itholds directly and indirectly a :L effective equity interest in the @lympic #roperties.9 uoting the said Annual report4

@n !eptember =, *::9, the Company and @lympic %ines K /evelopment Corporation '1@lympic1) entered into a series ofagreements including a #roperty #urchase and /evelopment Agreement 'the &ransaction /ocuments) with respect tothree nickel laterite properties in #alawan, #hilippines 'the 1@lympic #roperties1). &he &ransaction /ocuments effectively

establish a 2oint venture between the Company and @lympic for purposes of developing the @lympic #roperties. &heCompany holds directly and indirectly an initial :L interest in the 2oint venture. Inder certain circumstances and uponachieving certain milestones, the Company may earn up to a (::L interest, sub2ect to a *.>L net revenueroyalty.9? 'emphasis supplied)

&hus, as demonstrated in this first corporation, %cArthur, when it is 1grandfathered,1 company layering was utilied by%B% to gain control over %cArthur. t is apparent that %B% has more than :L or more equity interest in %cArthur,making the latter a foreign corporation.

&esoro %ining and /evelopment, nc.

&esoro, which acquired its %#!A application from !%%, has a capital stock of ten million pesos '#h# (:,:::,:::) dividedinto ten thousand '(:,:::) common shares at #h# (,::: per share, as demonstrated below4

;;reference V http4++sc.2udiciary.gov.ph+pdf+web+viewer.htmlTfileV+2urisprudence+*:(9+april*:(9+(=>>7:.pdf <<

N*" N*io%*li N("r o)

S*r"#

Ao(%

S(#+ri"$

Ao(% !*i$

!ara %arie

%ining, nc.

Filipino >,==? #h# >,==?,:::.:: #h# 7*>,:::.::

BI

R"#o(r+"#, I%+.

Canadian ,==7 #h# ,==7,:::.:: #h# (,7?7,(?9.:


Fernando B. Filipino ( #h# (,:::.:: #h# (,:::.::




http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf






Esguerra

%anuel A.

Agcaoili

Filipino ( #h# (,:::.:: #h# (,:::.::



&otal (:,::: #h# (:,:::,:::.:: #h# *,?:7,(?9.:

'emphasis supplied)

Ecept for the name 1!ara %arie %ining, nc.,1 the table above shows eactly the same figures as the corporate structureof petitioner %cArthur, down to the last centavo. All the other shareholders are the same4 %B%, !alaar, Esguerra,

Agcaoili, %ason and Cawkell. &he figures under 16ationality,1 16umber of !hares,1 1Amount !ubscribed,1 and 1Amount

#aid1 are eactly the same. /elving deeper, we scrutinie !%%Qs corporate structure4

!ara %arie %ining, nc.



S*r"#

Ao(%

S(#+ri"$

Ao(% !*i$

Olpi+ i%"# K

D"@"lop"%

Corp.

Filipino , #h# ,,:::.:: #h# :

BI R"#o(r+"#,

I%+.

Canadian ,( #h# ,(,:::.:: #h# *,?=9,:::.::

Amanti "imson Filipino ( #h# (,:::.:: #h# (,:::.::

Fernando B.

Esguerra

Filipino ( #h# (,:::.:: #h# (,:::.::

"auro !alaar Filipino ( #h# (,:::.:: #h# (,:::.::

Emmanuel $. Filipino ( #h# (,:::.:: #h# (,:::.::





5ernando



&otal (:,::: #h# (:,:::,:::.:: #h# *,7:=,=::.::

'emphasis supplied)

After subsequently studying !%%Qs corporate structure, it is not farfetched for us to spot the glaring similarity between!%% and %%CQs corporate structure. Again, the presence of identical stockholders, namely4 @lympic, %B%, Amanti"imson '"imson), Esguerra, !alaar, 5ernando, %ason and Cawkell. &he figures under the headings 16ationality,116umber of !hares,1 1Amount !ubscribed,1 and 1Amount #aid1 are eactly the same ecept for the amount paid by %B%which now reflects the amount of two million seven hundred ninety four thousand pesos '#h# *,?=9,:::). @ddly, the totalvalue of the amount paid is two million eight hundred nine thousand nine hundred pesos '#h# *,7:=,=::).

Accordingly, after 1grandfathering1 petitioner &esoro and factoring in @lympicQs participation in !%%Qs corporate structure,

it is clear that %B% is in control of &esoro and owns :L or more equity interest in &esoro. &his makes petitioner &esoro anon8Filipino corporation and, thus, disqualifies it to participate in the eploitation, utiliation and development of ournatural resources.

6arra 6ickel %ining and /evelopment Corporation

%oving on to the last petitioner, 6arra, which is the transferee and assignee of #"%/CQs %#!A application, whosecorporate structureQs arrangement is similar to that of the first two petitioners discussed. &he capital stock of 6arra is tenmillion pesos '#h# (:,:::,:::), which is divided into ten thousand common shares '(:,:::) at one thousand pesos '#h#(,:::) per share, shown as follows4



S*r"#

Ao(%

S(#+ri"$

Ao(% !*i$

#atricia "ouise

%ining K

/evelopment

Corp.

Filipino >,==? #h# >,==?,:::.:: #h# (,??,:::.::

BI

R"#o(r+"#, I%+.

Canadian ,==7 #h# ,==,:::.:: #h# (,((,:::.::

5iginio C. Filipino ( #h# (,:::.:: #h# (,:::.::





%endoa, Dr.

5enry E.

Fernande

Filipino ( #h# (,:::.:: #h# (,:::.::

%anuel A.

Agcaoili

Filipino ( #h# (,:::.:: #h# (,:::.::

%a. Elena A.

Bocalan

Filipino ( #h# (,:::.:: #h# (,:::.::

Bayani 5. Agabin Filipino ( #h# (,:::.:: #h# (,:::.::

3obert ".

%cCurdy

American ( #h# (,:::.:: #h# (,:::.::


&otal (:,::: #h# (:,:::,:::.:: #h# *,7::,:::.::'emphasis supplied)

Again, %B%, along with other nominal stockholders, i.e., %ason, Agcaoili and Esguerra, is present in this corporatestructure.

#atricia "ouise %ining K /evelopment Corporation

Ising the grandfather method, we further look and eamine #"%/CQs corporate structure4

N*" N*io%*li

N("r o) S*r"#

Ao(%S(#+ri"$

Ao(% !*i$

#alawan Alpha !outh 3esources/evelopment Corporation

Filipino ,>= #h#,>=,:::.::

#h# :

BI R"#o(r+"#,

I%+.

Canadian ,= #h#,=,:::.::

#h#*,?=,:::.::

5iginio C. %endoa, Dr. Filipino ( #h# (,:::.:: #h# (,:::.::

Fernando B. Esguerra Filipino ( #h# (,:::.:: #h# (,:::.::

5enry E. Fernande Filipino ( #h# (,:::.:: #h# (,:::.::


%anuel A. Agcaoili Filipino ( #h# (,:::.:: #h# (,:::.::



Bayani 5. Agabin Filipino ( #h# (,:::.:: #h# (,:::.::



&otal (:,::: #h#(:,:::,:::.::

#h#*,?:7,(?9.:

'emphasissupplied)

Net again, the usual players in petitionersQ corporate structures are present. !imilarly, the amount of money paid by the*nd tier ma2ority stock holder, in this case, #alawan Alpha !outh 3esources and /evelopment Corp. '#A!3/C), is ero.

!tudying %B%Qs !ummary of !ignificant Accounting #olicies dated @ctober (, *::> eplains the reason behind theintricate corporate layering that %B% immersed itself in4

D@6& E6&I3E! &he CompanyQs ownership interests in various mining ventures engaged in the acquisition, eplorationand development of mineral properties in the #hilippines is described as follows4

'a) @lympic $roup

&he #hilippine companies holding the @lympic #roperty, and the ownership and interests therein, are as follows4

@lympic8 #hilippines 'the 1@lympic $roup1)

!ara %arie %ining #roperties "td. '1!ara %arie1) .L

&esoro %ining K /evelopment, nc. '&esoro) :.:L

#ursuant to the @lympic 2oint venture agreement the Company holds directly and indirectly an effective equity interest inthe @lympic #roperty of :.:L. #ursuant to a shareholdersQ agreement, the Company eercises 2oint control over thecompanies in the @lympic $roup.

'b) Alpha $roup

&he #hilippine companies holding the Alpha #roperty, and the ownership interests therein, are as follows4

Alpha8 #hilippines 'the 1Alpha $roup1)

#atricia "ouise %ining /evelopment nc. '1#atricia1) 9.:L

6arra 6ickel %ining K /evelopment Corporation '6arra) :.9L

Inder a 2oint venture agreement the Company holds directly and indirectly an effective equity interest in the Alpha#roperty of :.9L. #ursuant to a shareholdersQ agreement, the Company eercises 2oint control over the companies in the

Alpha $roup.97 'emphasis supplied)

Concluding from the above8stated facts, it is quite safe to say that petitioners %cArthur, &esoro and 6arra are not Filipinosince %B%, a (::L Canadian corporation, owns :L or more of their equity interests. !uch conclusion is derived fromgrandfathering petitionersQ corporate owners, namely4 %%, !%% and #"%/C. $oing further and adding to the picture,%B%Qs !ummary of !ignificant Accounting #olicies statementO Oregarding the 12oint venture1 agreements that it enteredinto with the 1@lympic1 and 1Alpha1 groupsOOinvolves !%%, &esoro, #"%/C and 6arra. 6oticeably, the ownership of the1layered1 corporations boils down to %B%, @lympic or corporations under the 1Alpha1 group wherein %B% has 2ointventure agreements with, practically eercising ma2ority control over the corporations mentioned. n effect, whetherlooking at the capital structure or the underlying relationships between and among the corporations, petitioners are 6@&Filipino nationals and must be considered foreign since :L or more of their capital stocks or equity interests are ownedby %B%.






Application of the res inter alios acta rule

#etitioners question the CAQs use of the eception of the res inter alios acta or the 1admission by co8partner or agent1 ruleand 1admission by privies1 under the 3ules of Court in the instant case, by pointing out that statements made by %B%should not be admitted in this case since it is not a party to the case and that it is not a 1partner1 of petitioners.

!ecs. *= and (, 3ule (: of the 3evised 3ules of Court provide4

!ec. *=. Admission by co8partner or agent.8 &he act or declaration of a partner or agent of the party within the scope of his

authority and during the eistence of the partnership or agency, may be given in evidence against such party after thepartnership or agency is shown by evidence other than such act or declaration itself. &he same rule applies to the act ordeclaration of a 2oint owner, 2oint debtor, or other person 2ointly interested with the party.

!ec. (. Admission by privies.8 here one derives title to property from another, the act, declaration, or omission of thelatter, while holding the title, in relation to the property, is evidence against the former.

#etitioners claim that before the above8mentioned 3ule can be applied to a case, 1the partnership relation must be shown,and that proof of the fact must be made by evidence other than the admission itself.19= &hus, petitioners assert that the CAerred in finding that a partnership relationship eists between them and %B% because, in fact, no such partnershipeists.

#artnerships vs. 2oint venture agreements

#etitioners claim that the CA erred in applying !ec. *=, 3ule (: of the 3ules by stating that 1by entering into a 2ointventure, %B% have a 2oint interest1 with 6arra, &esoro and %cArthur. &hey challenged the conclusion of the CA whichpertains to the close characteristics of

1partnerships1 and 12oint venture agreements.1 Further, they asserted that before this particular partnership can be formed,it should have been formally reduced into writing since the capital involved is more than three thousand pesos '#h#,:::). Being that there is no evidence of written agreement to form a partnership between petitioners and %B%, nopartnership was created.

e disagree.

A partnership is defined as two or more persons who bind themselves to contribute money, property, or industry to acommon fund with the intention of dividing the profits among themselves.>: @n the other hand, 2oint ventures have beendeemed to be 1akin1 to partnerships since it is difficult to distinguish between 2oint ventures and partnerships. &hus4

;&<he relations of the parties to a 2oint venture and the nature of their association are so similar and closely akin to apartnership that it is ordinarily held that their rights, duties, and liabilities are to be tested by rules which are closelyanalogous to and substantially the same, if not eactly the same, as those which govern partnership. n fact, it has beensaid that the trend in the law has been to blur the distinctions between a partnership and a 2oint venture, very little lawbeing found applicable to one that does not apply to the other .>(

&hough some claim that partnerships and 2oint ventures are totally different animals, there are very few rules thatdifferentiate one from the other- thus, 2oint ventures are deemed 1akin1 or similar to a partnership. n fact, in 2oint ventureagreements, rules and legal incidents governing partnerships are applied.>*

Accordingly, culled from the incidents and records of this case, it can be assumed that the relationships entered betweenand among petitioners and %B% are no simple 12oint venture agreements.1 As a rule, corporations are prohibited fromentering into partnership agreements- consequently, corporations enter into 2oint venture agreements with othercorporations or partnerships for certain transactions in order to form 1pseudo partnerships.1

@bviously, as the intricate web of 1ventures1 entered into by and among petitioners and %B% was eecuted to circumventthe legal prohibition against corporations entering into partnerships, then the relationship created should be deemed as1partnerships,1 and the laws on partnership should be applied. &hus, a 2oint venture agreement between and amongcorporations may be seen as similar to partnerships since the elements of partnership are present.












Considering that the relationships found between petitioners and %B% are considered to be partnerships, then the CA is 2ustified in applying !ec. *=, 3ule (: of the 3ules by stating that 1by entering into a 2oint venture, %B% have a 2ointinterest1 with 6arra, &esoro and %cArthur.

#anel of ArbitratorsQ 2urisdiction

e affirm the ruling of the CA in declaring that the #@A has 2urisdiction over the instant case. &he #@A has 2urisdiction tosettle disputes over rights to mining areas which definitely involve the petitions filed by 3edmont against petitioners 6arra,%cArthur and &esoro. 3edmont, by filing its petition against petitioners, is asserting the right of Filipinos over mining areas

in the #hilippines against alleged foreign8owned mining corporations. !uch claim constitutes a 1dispute1 found in !ec. ??of 3A ?=9*4

ithin thirty ':) days, after the submission of the case by the parties for the decision, the panel shall have eclusive andoriginal 2urisdiction to hear and decide the following4

'a) /isputes involving rights to mining areas

'b) /isputes involving mineral agreements or permits

e held in Celestial 6ickel %ining Eploration Corporation v. %acroasia Corp.4>

&he phrase 1disputes involving rights to mining areas1 refers to any adverse claim, protest, or opposition to an applicationfor mineral agreement. &he #@A therefore has the 2urisdiction to resolve any adverse claim, protest, or opposition to apending application for a mineral agreement filed with the concerned 3egional @ffice of the %$B. &his is clear from !ecs.7 and 9( of the /E63 A@ =89:, which provide4

!ec. 7.

ithin thirty ':) calendar days from the last date of publication+posting+radio announcements, the authoried officer's) ofthe concerned office's) shall issue a certification's) that the publication+posting+radio announcement have been compliedwith. Any adverse claim, protest, opposition shall be filed directly, within thirty ':) calendar days from the last date ofpublication+posting+radio announcement, with the concerned 3egional @ffice or through any concerned #E63@ or

CE63@ for filing in the concerned 3egional @ffice for purposes of its resolution by the #anel of Arbitrators pursuant to theprovisions of this Act and these implementing rules and regulations. Ipon final resolution of any adverse claim, protest oropposition, the #anel of Arbitrators shall likewise issue a certification to that effect within five '>) working days from thedate of finality of resolution thereof. here there is no adverse claim, protest or opposition, the #anel of Arbitrators shalllikewise issue a Certification to that effect within five working days therefrom.

6o %ineral Agreement shall be approved unless the requirements under this !ection are fully complied with and anyadverse claim+protest+opposition is finally resolved by the #anel of Arbitrators.

!ec. 9(.

ithin fifteen '(>) working days form the receipt of the Certification issued by the #anel of Arbitrators as provided in!ection 7 hereof, the concerned 3egional /irector shall initially evaluate the %ineral Agreement applications in areasoutside %ineral reservations. 5e+!he shall thereafter endorse his+her findings to the Bureau for further evaluation by the/irector within fifteen '(>) working days from receipt of forwarded documents. &hereafter, the /irector shall endorse thesame to the secretary for consideration+approval within fifteen working days from receipt of such endorsement.

n case of %ineral Agreement applications in areas with %ineral 3eservations, within fifteen '(>) working days from receiptof the Certification issued by the #anel of Arbitrators as provided for in !ection 7 hereof, the same shall be evaluatedand endorsed by the /irector to the !ecretary for consideration+approval within fifteen days from receipt of suchendorsement. 'emphasis supplied)





t has been made clear from the aforecited provisions that the 1disputes involving rights to mining areas1 under !ec. ??'a)specifically refer only to those disputes relative to the applications for a mineral agreement or conferment of mining rights.

&he 2urisdiction of the #@A over adverse claims, protest, or oppositions to a mining right application is further elucidatedby !ecs. *(= and 9 of /E63 A@ =>8=, which read4

!ec. *(=. Filing of Adverse [email protected] 6otwithstanding the provisions of !ections *7, 9 and >?above, any adverse claim, protest or opposition specified in said sections may also be filed directly with the #anel of

Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in said !ections.

!ec. 9. #ublication+#osting of %ineral Agreement.8

&he 3egional /irector or concerned 3egional /irector shall also cause the posting of the application on the bulletinboards of the Bureau, concerned 3egional office's) and in the concerned province's) and municipality'ies), copy furnishedthe barangays where the proposed contract area is located once a week for two '*) consecutive weeks in a languagegenerally understood in the locality. After forty8five '9>) days from the last date of publication+posting has been made andno adverse claim, protest or opposition was filed within the said forty8five '9>) days, the concerned offices shall issue acertification that publication+posting has been made and that no adverse claim, protest or opposition of whatever naturehas been filed. @n the other hand, if there be any adverse claim, protest or opposition, the same shall be filed within forty8five '9>) days from the last date of publication+posting, with the 3egional @ffices concerned, or through the /epartmentQs

Community Environment and 6atural 3esources @fficers 'CE63@) or #rovincial Environment and 6atural 3esources@fficers '#E63@), to be filed at the 3egional @ffice for resolution of the #anel of Arbitrators. 5owever previouslypublished valid and subsisting mining claims are eempted from posted+posting required under this !ection.

6o mineral agreement shall be approved unless the requirements under this section are fully complied with and anyopposition+adverse claim is dealt with in writing by the /irector and resolved by the #anel of Arbitrators. 'Emphasissupplied.)

t has been made clear from the aforecited provisions that the 1disputes involving rights to mining areas1 under !ec. ??'a)specifically refer only to those disputes relative to the applications for a mineral agreement or conferment of mining rights.

&he 2urisdiction of the #@A over adverse claims, protest, or oppositions to a mining right application is further elucidated

by !ecs. *(= and 9 of /E63@ A@ =>8=, which reads4

!ec. *(=. Filing of Adverse [email protected] 6otwithstanding the provisions of !ections *7, 9 and >?above, any adverse claim, protest or opposition specified in said sections may also be filed directly with the #anel of

Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in said !ections.

!ec. 9. #ublication+#osting of %ineral Agreement Application.8

&he 3egional /irector or concerned 3egional /irector shall also cause the posting of the application on the bulletinboards of the Bureau, concerned 3egional office's) and in the concerned province's) and municipality'ies), copy furnishedthe barangays where the proposed contract area is located once a week for two '*) consecutive weeks in a language

generally understood in the locality. After forty8five '9>) days from the last date of publication+posting has been made andno adverse claim, protest or opposition was filed within the said forty8five '9>) days, the concerned offices shall issue acertification that publication+posting has been made and that no adverse claim, protest or opposition of whatever naturehas been filed. @n the other hand, if there be any adverse claim, protest or opposition, the same shall be filed within forty8five '9>) days from the last date of publication+posting, with the 3egional offices concerned, or through the /epartmentQsCommunity Environment and 6atural 3esources @fficers 'CE63@) or #rovincial Environment and 6atural 3esources@fficers '#E63@), to be filed at the 3egional @ffice for resolution of the #anel of Arbitrators. 5owever, previouslypublished valid and subsisting mining claims are eempted from posted+posting required under this !ection.

6o mineral agreement shall be approved unless the requirements under this section are fully complied with and anyopposition+adverse claim is dealt with in writing by the /irector and resolved by the #anel of Arbitrators. 'Emphasissupplied.)



&hese provisions lead us to conclude that the power of the #@A to resolve any adverse claim, opposition, or protestrelative to mining rights under !ec. ??'a) of 3A ?=9* is confined only to adverse claims, conflicts and oppositions relatingto applications for the grant of mineral rights.

#@AQs 2urisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions and it has no authorityto approve or re2ect said applications. !uch power is vested in the /E63 !ecretary upon recommendation of the %$B/irector. Clearly, #@AQs 2urisdiction over 1disputes involving rights to mining areas1 has nothing to do with the cancellationof eisting mineral agreements. 'emphasis ours)

Accordingly, as we enunciated in Celestial, the #@A unquestionably has 2urisdiction to resolve disputes over %#!Aapplications sub2ect of 3edmontQs petitions. 5owever, said 2urisdiction does not include either the approval or re2ection ofthe %#!A applications, which is vested only upon the !ecretary of the /E63. &hus, the finding of the #@A, with respectto the re2ection of petitionersQ %#!A applications being that they are foreign corporation, is valid.

Dustice %arvic %ario ictor F. "eonen, in his /issent, asserts that it is the regular courts, not the #@A, that has 2urisdictionover the %#!A applications of petitioners.

&his postulation is incorrect.

t is basic that the 2urisdiction of the court is determined by the statute in force at the time of the commencement of theaction.>9

!ec. (=, Batas #ambansa Blg. (*= or 1&he Dudiciary 3eorganiation

Act of (=7:1 reads4

!ec. (=. Durisdiction in Civil Cases.G3egional &rial Courts shall eercise eclusive original 2urisdiction4

(. n all civil actions in which the sub2ect of the litigation is incapable of pecuniary estimation.

@n the other hand, the 2urisdiction of #@A is unequivocal from !ec. ?? of 3A ?=9*4

!ection ??. #anel of Arbitrators.G

ithin thirty ':) days, after the submission of the case by the parties for the decision, the panel shall haveeclusive and original 2urisdiction to hear and decide the following4

'c) /isputes involving rights to mining areas

'd) /isputes involving mineral agreements or permits

t is clear that #@A has eclusive and original 2urisdiction over any and all disputes involving rights to mining areas. @nesuch dispute is an %#!A application to which an adverse claim, protest or opposition is filed by another interestedapplicant.-'phi- n the case at bar, the dispute arose or originated from %#!A applications where petitioners areasserting their rights to mining areas sub2ect of their respective %#!A applications. !ince respondent filed separatepetitions for the denial of said applications, then a controversy has developed between the parties and it is #@AQs

2urisdiction to resolve said disputes.

%oreover, the 2urisdiction of the 3&C involves civil actions while what petitioners filed with the /E63 3egional @ffice orany concerned /E63E or CE63@ are %#!A applications. &hus #@A has 2urisdiction.

Furthermore, the #@A has 2urisdiction over the %#!A applications under the doctrine of primary 2urisdiction. Euro8med"aboratories v. #rovince of Batangas>> elucidates4

&he doctrine of primary 2urisdiction holds that if a case is such that its determination requires the epertise, specialiedtraining and knowledge of an administrative body, relief must first be obtained in an administrative proceeding beforeresort to the courts is had even if the matter may well be within their proper 2urisdiction.








hatever may be the decision of the #@A will eventually reach the court system via a resort to the CA and to this Court asa last recourse.

!elling of %B%Qs shares to /%C

As stated before, petitionersQ %anifestation and !ubmission dated @ctober (=, *:(* would want us to declare the instantpetition moot and academic due to the transfer and conveyance of all the shareholdings and interests of %B% to /%C, acorporation duly organied and eisting under #hilippine laws and is at least :L #hilippine8owned.> #etitionersreasoned that they now cannot be considered as foreign8owned- the transfer of their shares supposedly cured the 1defect1

of their previous nationality. &hey claimed that their current F&AA contract with the !tate should stand since 1even wholly8owned foreign corporations can enter into an F&AA with the !tate.1>?#etitioners stress that there should no longer be anyissue left as regards their qualification to enter into F&AA contracts since they are qualified to engage in mining activities inthe #hilippines. &hus, whether the 1grandfather rule1 or the 1control test1 is used, the nationalities of petitioners cannot bedoubted since it would pass both tests.

&he sale of the %B% shareholdings to /%C does not have any bearing in the instant case and said fact should bedisregarded. &he manifestation can no longer be considered by us since it is being tackled in $.3. 6o. *:*7?? pendingbefore this Court.-'phi- &hus, the question of whether petitioners, allegedly a #hilippine8owned corporation due to thesale of %B%0s shareholdings to /%C, are allowed to enter into F&AAs with the !tate is a non8issue in this case.

n ending, the 1control test1 is still the prevailing mode of determining whether or not a corporation is a Filipino corporation,within the ambit of !ec. *, Art. of the (=7? Constitution, entitled to undertake the eploration, development and

utiliation of the natural resources of the #hilippines. hen in the mind of the Court there is doubt, based on the attendantfacts and circumstances of the case, in the :89: Filipino8equity ownership in the corporation, then it may apply the1grandfather rule.1

5E3EF@3E, premises considered, the instant petition is /E6E/. &he assailed Court of Appeals /ecision dated@ctober (, *:(: and 3esolution dated February (>, *:(( are hereby AFF3%E/.

!@ @3/E3E/.





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