EN BANC

WILSON P. GAMBOA, G.R. No. 176579

Petitioner,
Present:
- versus -

CORONA, C.J.,

FINANCE SECRETARY CARPIO,

MARGARITO B. TEVES,
FINANCE UNDERSECRETARY VELASCO, JR.,
JOHN P. SEVILLA, AND
COMMISSIONER RICARDO LEONARDO-DE CASTRO,
ABCEDE OF THE PRESIDENTIAL
COMMISSION ON GOOD BRION,
GOVERNMENT (PCGG) IN
THEIR CAPACITIES AS CHAIR PERALTA,
AND MEMBERS,
BERSAMIN,
RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL, DEL CASTILLO,
CHAIRMAN ANTHONI SALIM OF ABAD,
FIRST PACIFIC CO., LTD. IN HIS
CAPACITY AS DIRECTOR OF VILLARAMA, JR.,
METRO PACIFIC ASSET
HOLDINGS INC., CHAIRMAN PEREZ,
MANUEL V. PANGILINAN OF
PHILIPPINE LONG DISTANCE MENDOZA, and
TELEPHONE COMPANY (PLDT)
IN HIS CAPACITY AS SERENO, JJ.
MANAGING DIRECTOR OF
FIRST PACIFIC CO., LTD.,
PRESIDENT NAPOLEON L.
NAZARENO OF PHILIPPINE
LONG DISTANCE TELEPHONE
COMPANY, CHAIR FE BARIN OF
THE SECURITIES EXCHANGE
 COMMISSION, and PRESIDENT
FRANCIS LIM OF THE
PHILIPPINE STOCK EXCHANGE,

Respondents.

PABLITO V. SANIDAD and Promulgated:

ARNO V. SANIDAD,

Petitioners-in-Intervention. June 28, 2011

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

DECISION
CARPIO, J.:

The Case

This is an original petition for prohibition, injunction, declaratory relief and

declaration of nullity of the sale of shares of stock of Philippine Telecommunications
Investment Corporation (PTIC) by the government of the Republic of the Philippines
to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific).

The Antecedents

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine

Long Distance Telephone Company (PLDT), are as follows:1

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which
granted PLDT a franchise and the right to engage in telecommunications business. In
1969, General Telephone and Electronics Corporation (GTE), an American company
and a major PLDT stockholder, sold 26 percent of the outstanding common shares of
PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several
persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the
owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment
executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the
111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential
Commission on Good Government (PCGG). The 111,415 PTIC shares, which
represent about 46.125 percent of the outstanding capital stock of PTIC, were later
declared by this Court to be owned by the Republic of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm,
acquired the remaining 54 percent of the outstanding capital stock of PTIC. On 20
November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine
Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent
of the outstanding capital stock of PTIC, through a public bidding to be conducted on
4 December 2006. Subsequently, the public bidding was reset to 8 December 2006,
and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio
Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510
million.

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

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of

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

On the other hand, public respondents Finance Secretary Margarito B. Teves,

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

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

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as

the highest bidder with a bid of P25,217,556,000. The government notified First
Pacific, the majority owner of PTIC shares, of the bidding results and gave First
Pacific until 1 February 2007 to exercise its right of first refusal in accordance with
PTICs Articles of Incorporation. First Pacific announced its intention to match
Parallaxs bid.

On 31 January 2007, the House of Representatives (HR) Committee on Good

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

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

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

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

x x x as the annual disclosure reports, also referred to as Form 20-

K reports x x x which PLDT submitted to the New York Stock
Exchange for the period 2003-2005, revealed that First Pacific and
 several other foreign entities breached the constitutional limit of
40 percent ownership as early as 2003. x x x7

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

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

Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among

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

The Issue

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

The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

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

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

However, since the threshold and purely legal issue on the definition of the term
capital in Section 11, Article XII of the Constitution has far-reaching implications to
the national economy, the Court treats the petition for declaratory relief as one for
mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for
declaratory relief as one for mandamus considering the grave injustice that would
result in the interpretation of a banking law. In that case, which involved the crime of
rape committed by a foreign tourist against a Filipino minor and the execution of the
final judgment in the civil case for damages on the tourists dollar deposit with a local
bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting
foreign currency deposits from attachment, garnishment or any other order or process
of any court, inapplicable due to the peculiar circumstances of the case. The Court
held that injustice would result especially to a citizen aggrieved by a foreign guest like
accused x x x that would negate Article 10 of the Civil Code which provides that in
case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail. The Court therefore required
respondents Central Bank of the Philippines, the local bank, and the accused to
comply with the writ of execution issued in the civil case for damages and to release
the dollar deposit of the accused to satisfy the judgment.

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly

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

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

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

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

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

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

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

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

Petitioner has locus standi

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

More importantly, there is no question that the instant petition raises matters of
transcendental importance to the public. The fundamental and threshold legal issue in
this case, involving the national economy and the economic welfare of the Filipino
people, far outweighs any perceived impediment in the legal personality of the
petitioner to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters
of transcendental importance to the public, thus:

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

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

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

Clearly, since the instant petition, brought by a citizen, involves matters of

transcendental public importance, the petitioner has the requisite locus standi.

Definition of the Term Capital in

Section 11, Article XII of the 1987 Constitution

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution
mandates the Filipinization of public utilities, to wit:
 Section 11. No franchise, certificate, or any other form of authorization for
the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such
citizens; nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject
to amendment, alteration, or repeal by the Congress when the common good so
requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines. (Emphasis supplied)

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

Section 5. No franchise, certificate, or any other form of authorization for

the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of
the Philippines at least sixty per centum of the capital of which is owned by
such citizens, nor shall such franchise, certificate, or authorization be exclusive
in character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject
to amendment, alteration, or repeal by the National Assembly when the public
interest so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their
proportionate share in the capital thereof. (Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV
of the 1935 Constitution, viz:

Section 8. No franchise, certificate, or any other form of authorization for

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

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional

Commission, reminds us that the Filipinization provision in the 1987 Constitution is
one of the products of the spirit of nationalism which gripped the 1935 Constitutional
Convention.25 The 1987 Constitution provides for the Filipinization of public utilities
by requiring that any form of authorization for the operation of public utilities should
be granted only to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens. The provision is [an express] recognition of the sensitive
and vital position of public utilities both in the national economy and for national
security.26 The evident purpose of the citizenship requirement is to prevent aliens
from assuming control of public utilities, which may be inimical to the national
interest.27 This specific provision explicitly reserves to Filipino citizens control of
public utilities, pursuant to an overriding economic goal of the 1987 Constitution: to
conserve and develop our patrimony28 and ensure a self-reliant and independent
national economy effectively controlled by Filipinos.29
Any citizen or juridical entity desiring to operate a public utility must therefore meet
the minimum nationality requirement prescribed in Section 11, Article XII of the
Constitution. Hence, for a corporation to be granted authority to operate a public
utility, at least 60 percent of its capital must be owned by Filipino citizens.

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

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

Petitioners-in-intervention basically reiterate petitioners arguments and adopt

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

Respondents, on the other hand, do not offer any definition of the term capital in
Section 11, Article XII of the Constitution. More importantly, private
respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40
percent of the common shares of PLDT are held by foreigners.
In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps
mainly on the procedural infirmities of the petition and the supposed violation of the
due process rights of the affected foreign common shareholders.
Respondent Nazareno does not deny petitioners allegation of foreigners dominating
the common shareholdings of PLDT. Nazareno stressed mainly that the petition seeks
to divest foreign common shareholders purportedly exceeding 40% of the total
common shareholdings in PLDT of their ownership over their shares. Thus, the
foreign natural and juridical PLDT shareholders must be impleaded in this suit so that
they can be heard.34 Essentially, Nazareno invokes denial of due process on behalf of
the foreign common shareholders.

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

Similarly, respondent Manuel V. Pangilinan does not define the term capital in
Section 11, Article XII of the Constitution. Neither does he refute petitioners claim of
foreigners holding more than 40 percent of PLDTs common shares. Instead,
respondent Pangilinan focuses on the procedural flaws of the petition and the alleged
violation of the due process rights of foreigners. Respondent Pangilinan emphasizes in
his Memorandum (1) the absence of this Courts jurisdiction over the petition; (2)
petitioners lack of standing; (3) mootness of the petition; (4) non-availability of
declaratory relief; and (5) the denial of due process rights. Moreover,
respondent Pangilinanalleges that the issue should be whether owners of shares in
PLDT as well as owners of shares in companies holding shares in PLDT may be
required to relinquish their shares in PLDT and in those companies without any law
requiring them to surrender their shares and also without notice and trial.
Respondent Pangilinan further asserts that Section 11, [Article XII of the
Constitution] imposes no nationality requirement on the shareholders of the
utility company as a condition for keeping their shares in the utility
company. According to him, Section 11 does not authorize taking one persons
property (the shareholders stock in the utility company) on the basis of another partys
alleged failure to satisfy a requirement that is a condition only for that other partys
retention of another piece of property (the utility company being at least 60%
Filipino-owned to keep its franchise).36

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary

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

Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of

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

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be

a stockholder of record of PLDT, contended that the term capital in the 1987
Constitution refers to shares entitled to vote or the common shares. Fernandez
explained thus:

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

Obviously, the intent of the framers of the Constitution in imposing limitations

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

xxxx

Thus, the 40% foreign ownership limitation should be interpreted to apply to

both the beneficial ownership and the controlling interest.

xxxx

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

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

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

On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan,

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

16. The Constitution applies its foreign ownership limitation on the corporations
capital, without distinction as to classes of shares. x x x

In this connection, the Corporation Code which was already in force at the time
the present (1987) Constitution was drafted defined outstanding capital stock as
follows:
 Section 137. Outstanding capital stock defined. The term outstanding capital
stock, as used in this Code, means the total shares of stock issued under binding
subscription agreements to subscribers or stockholders, whether or not fully or
partially paid, except treasury shares.

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

xxxx

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

xxxx

18. In addition, the SEC the government agency primarily responsible for
implementing the Corporation Code, and which also has the responsibility of
ensuring compliance with the Constitutions foreign equity restrictions as
regards nationalized activities x x x has categorically ruled that both common
and preferred shares are properly considered in determining outstanding capital
stock and the nationality composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term capital in Section
11, Article XII of the Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares,41 and not to
the total outstanding capital stock comprising both common and non-voting preferred
shares.

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

thus:

Sec. 6. Classification of shares. - The shares of stock of stock corporations may

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

Preferred shares of stock issued by any corporation may be given preference in

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

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

Except as otherwise provided in the articles of incorporation and stated in the

certificate of stock, each share shall be equal in all respects to every other
share.

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

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or

substantially all of the corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or

other corporations;

7. Investment of corporate funds in another corporation or business in

accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary

to approve a particular corporate act as provided in this Code shall be deemed
to refer only to stocks with voting rights.

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

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

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

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or

Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in Section
9 and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

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

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

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

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a

corporation with 60-40 percent equity invests in another corporation which is
permitted by the Corporation Code, does the Committee adopt the grandfather
rule?

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

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

MR. VILLEGAS. Yes.48

xxxx

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

the Committee.

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

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

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60

percent of the capital to be owned by citizens.

MR. VILLEGAS. That is right.

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

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

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

MR. BENGZON. In the case of stock corporations, it is

assumed.49 (Emphasis supplied)

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

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

a. The term Philippine national shall mean a citizen of the Philippines; or a

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

In explaining the definition of a Philippine national, the Implementing Rules and

Regulations of the Foreign Investments Act of 1991 provide:

b. Philippine national shall mean a citizen of the Philippines or a domestic

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

Compliance with the required Filipino ownership of a corporation shall be

determined on the basis of outstanding capital stock whether fully paid or
not, but only such stocks which are generally entitled to vote are
considered.

For stocks to be deemed owned and held by Philippine citizens or

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

Individuals or juridical entities not meeting the aforementioned

qualifications are considered as non-Philippine nationals. (Emphasis
supplied)

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

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

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

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

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

The example given is not theoretical but can be found in the real world, and in fact
exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the
election of directors. PLDTs Articles of Incorporation expressly state that the holders
of Serial Preferred Stock shall not be entitled to vote at any meeting of the
stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive
notice of any meeting of stockholders.51

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

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

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

Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC,
shows that per share the SIP58preferred shares earn a pittance in dividends compared
to the common shares. PLDT declared dividends for the common shares at P70.00 per
share, while the declared dividends for the preferred shares amounted to a
measly P1.00 per share.59 So the preferred shares not only cannot vote in the election
of directors, they also have very little and obviously negligible dividend earning
capacity compared to common shares.

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

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

In short, Filipinos hold less than 60 percent of the voting stock, and earn less
than 60 percent of the dividends, of PLDT. This directly contravenes the express
command in Section 11, Article XII of the Constitution that [n]o franchise, certificate,
or any other form of authorization for the operation of a public utility shall be granted
except to x x x corporations x x x organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens x x x.
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of
shares exercises the soleright to vote in the election of directors, and thus exercise
control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares,
constituting a minority of the voting stock, and thus do not exercise control over
PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4)
preferred shares earn only 1/70 of the dividends that common shares earn; 63 (5)
preferred shares have twice the par value of common shares; and (6) preferred shares
constitute 77.85% of the authorized capital stock of PLDT and common shares only
22.15%. This kind of ownership and control of a public utility is a mockery of the
Constitution.

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

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

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

x x x Hence, unless it is expressly provided that a legislative act is necessary to

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

. . . in case of doubt, the Constitution should be considered self-executing rather

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

In Manila Prince Hotel, even the Dissenting Opinion of then Associate

Justice Reynato S. Puno, later Chief Justice, agreed that constitutional provisions are
presumed to be self-executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-executing,

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

Thus, we have treated as self-executing the provisions in the Bill of Rights on

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

Thus, in numerous cases,67 this Court, even in the absence of implementing

legislation, applied directly the provisions of the 1935, 1973 and 1987 Constitutions
limiting land ownership to Filipinos. In Soriano v. OngHoo,68 this Court ruled:

x x x As the Constitution is silent as to the effects or consequences of a sale by

a citizen of his land to an alien, and as both the citizen and the alien have
violated the law, none of them should have a recourse against the other, and it
should only be the State that should be allowed to intervene and determine
what is to be done with the property subject of the violation. We have said that
what the State should do or could do in such matters is a matter of public
policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee
Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has
not definitely decided what policy should be followed in cases of violations
against the constitutional prohibition, courts of justice cannot go beyond
by declaring the disposition to be null and void as violative of the
Constitution. x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-executing would mean
that since the 1935 Constitution, or over the last 75 years, not one of the constitutional
provisions expressly reserving specific areas of investments to corporations, at least
60 percent of the capital of which is owned by Filipinos, was enforceable. In short, the
framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively
reserve to Filipinos specific areas of investment, like the operation by corporations of
public utilities, the exploitation by corporations of mineral resources, the ownership
by corporations of real estate, and the ownership of educational institutions. All the
legislatures that convened since 1935 also miserably failed to enact legislations to
implement these vital constitutional provisions that determine who will effectively
control the national economy, Filipinos or foreigners. This Court cannot allow such an
absurd interpretation of the Constitution.

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

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

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

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

SO ORDERED.
 [G.R. No. 108734. May 29, 1996]

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR

RELATIONS COMMISSION, (First Division); and Norberto Marabe,
Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio
Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut,
Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera,
Paquito Salut, Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares,
Ferdinand Torres, Felipe Basilan, and Ruben
Robalos, respondents.

DECISION
HERMOSISIMA, JR., J.:

The corporate mask may be lifted and the corporate veil may be pierced
when a corporation is just but the alter ego of a person or of another corporation.
Where badges of fraud exist; where public convenience is defeated; where a
wrong is sought to be justified thereby, the corporate fiction or the notion of legal
entity should come to naught. The law in these instances will regard the
corporation as a mere association of persons and, in case of two corporations,
merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporations
subsidiary liability for damages, the corporation may not be heard to say that it
has a personality separate and distinct from the other corporation. The piercing
of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether the
National Labor Relations Commission committed grave abuse of discretion
when it issued a break-open order to the sheriff to be enforced against personal
property found in the premises of petitioners sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal
office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the
construction business. Private respondents were employed by said company
as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual written
notices of termination of employment by petitioner, effective on November 30,
1981. It was stated in the individual notices that their contracts of employment
had expired and the project in which they were hired had been completed.
 Public respondent found it to be, the fact, however, that at the time of the
termination of private respondents employment, the project in which they were
hired had not yet been finished and completed. Petitioner had to engage the
services of sub-contractors whose workers performed the functions of private
respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair
labor practice and non-payment of their legal holiday pay, overtime pay and
thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment1 ordering
petitioner to reinstate private respondents and to pay them back wages
equivalent to one year or three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC)
dismissed the motion for reconsideration filed by petitioner on the ground that
the said decision had already become final and executory.2
On October 16, 1986, the NLRC Research and Information Department
made the finding that private respondents backwages amounted to
P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing
the sheriff to execute the Decision, dated December 19, 1984. The writ was
partially satisfied through garnishment of sums from petitioners debtor, the
Metropolitan Waterworks and Sewerage Authority, in the amount of
P81,385.34. Said amount was turned over to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor
Arbiter directing the sheriff to collect from herein petitioner the sum of
P117,414.76, representing the balance of the judgment award, and to reinstate
private respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve
the alias writ of execution on petitioner through the security guard on duty but
the service was refused on the ground that petitioner no longer occupied the
premises.
On September 26, 1986, upon motion of private respondents, the Labor
Arbiter issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as
stated in his progress report, dated November 2, 1989:
1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro
Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not
by respondent;

2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he
had levied upon.4

The said special sheriff recommended that a break-open order be issued to

enable him to enter petitioners premises so that he could proceed with the
public auction sale of the aforesaid personal properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim
with the Labor Arbiter alleging that the properties sought to be levied upon by
the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-
President.
On November 23, 1989, private respondents filed a Motion for Issuance of
a Break-Open Order, alleging that HPPI and petitioner corporation were owned
by the same incorporator! stockholders. They also alleged that petitioner
temporarily suspended its business operations in order to evade its legal
obligations to them and that private respondents were willing to post an
indemnity bond to answer for any damages which petitioner and HPPI may
suffer because of the issuance of the break-open order.
In support of their claim against HPPI, private respondents presented duly
certified copies of the General Informations Sheet, dated May 15, 1987,
submitted by petitioner to the Securities and Exchange Commission (SEC) and
the General Information Sheet, dated May 15, 1987, submitted by HPPI to the
Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner1 revealed the
following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa 0. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road

Valenzuela, Metro Manila.5

On the other hand, the General Information Sheet of HPPI revealed the
following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

Antonio W. Lim P400,000.00

Elisa C. Lim 57,700.00

AWL Trading 455,000.00

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Elisa C. Lim Member

Dennis S. Cuyegkeng Member

Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road, Valenzuela, Metro Manila.6

On February 1, 1990, HPPI filed an Opposition to private respondents

motion for issuance of a break-open order, contending that HPPI is a
corporation which is separate and distinct from petitioner. HPPI also alleged
that the two corporations are engaged in two different kinds of businesses, i.e.,
HPPI is a manufacturing firm while petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private
respondents motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the
NLRC set aside the order of the Labor Arbiter, issued a break-open order and
directed private respondents to file a bond. Thereafter, it directed the sheriff to
proceed with the auction sale of the properties already levied upon. It dismissed
the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the
NLRC in a Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when
it ordered the execution of its decision despite a third-party claim on the levied
property. Petitioner further contends, that the doctrine of piercing the corporate
veil should not have been applied, in this case, in the absence of any showing
that it created HPPI in order to evade its liability to private respondents. It also
contends that HPPI is engaged in the manufacture and sale of steel, concrete
and iron pipes, a business which is distinct and separate from petitioners
construction business. Hence, it is of no consequence that petitioner and HPPI
shared the same premises, the same President and the same set of officers
and subscribers.7
We find petitioners contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other corporations to which
it may be connected.8 But, this separate and distinct personality of a corporation
is merely a fiction created by law for convenience and to promote justice. 9 So,
when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device
to defeat the labor laws,10 this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced.11 This is true likewise when
the corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.12
The conditions under which the juridical entity may be disregarded vary
according to the peculiar facts and circumstances of each case. No hard and
fast rule can be accurately laid down, but certainly, there are some probative
factors of identity that will justify the application of the doctrine of piercing the
corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.13

 The SEC en banc explained the instrumentality rule which the courts have
applied in disregarding the separate juridical personality of corporations as
follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of
the instrumentality may be disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such domination of finances, policies and
practices that the controlled corporation has, so to speak, no separate mind, will or existence
of its own, and is but a conduit for its principal. It must be kept in mind that the control must
be shown to have been exercised at the time the acts complained of took place. Moreover, the
control and breach of duty must proximately cause the injury or unjust loss for which the
complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of
its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act
in contravention of plaintiffs legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.

The absence of any one of these elements prevents piercing the corporate veil. in applying the
instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendants relationship to that operation. 14

Thus, the question of whether a corporation is a mere alter ego, a mere

sheet or paper corporation, a sham or a subterfuge is purely one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its
business operations on April 29, 1986, it filed an Information Sheet with the
Securities and Exchange Commission on May 15, 1987, stating that its office
address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand,
HPPI, the third-party claimant, submitted on the same day, a similar information
sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro
Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of
both corporations. It would also not be amiss to note that both corporations had
the same president, the same board of directors, the same corporate officers, and substantially
the same subscribers.

From the foregoing, it appears that, among other things, the respondent (herein petitioner)
and the third-party claimant shared the same address and/or premises. Under this
circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not of
respondents.16

Clearly, petitioner ceased its business operations in order to evade the

payment to private respondents of backwages and to bar their reinstatement to
their former positions. HPPI is obviously a business conduit of petitioner
corporation and its emergence was skillfully orchestrated to avoid the financial
liability that already attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial
Relations17 where we had the occasion to rule:

Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased
operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the
next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were
not disputed by petitioner. it is very clear that the latter corporation was a continuation and
successor of the first entity x x x. Both predecessors and successor were owned and controlled
by petitioner Eduardo Claparols and there was no break in the succession and continuity of
the same business. This avoiding-the-liability scheme is very patent, considering that 90% of
the subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was
owned by respondent x x x Claparols himself, and all the assets of the dissolved Claparols Steel
and Nail Plant were turned over to the emerging Claparols Steel Corporation.

It is very obvious that the second corporation seeks the protective shield of
a corporate fiction whose veil in the present case could, and should, be pierced
as it was deliberately and maliciously designed to evade its financial obligation
to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon
the property subject of the execution, private respondents had no other
recourse but to apply for a break-open order after the third-party claim of HPPI
was dismissed for lack of merit by the NLRC. This is in consonance with Section
3, Rule VII of the NLRC Manual of Execution of Judgment which provides that:

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of execution is located or kept,
the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-
open order.
 Furthermore, our perusal of the records shows that the twin requirements of
due notice and hearing were complied with. Petitioner and the third-party
claimant were given the opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it
affirmed the break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of
quasi-judicial agencies supported by substantial evidence are binding on this
Court and are entitled to great respect, in the absence of showing of grave
abuse of a discretion.18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of
the NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.
 March 24, 2014

G.R. No. 199687

PACIFIC REHOUSE CORPORATION, Petitioners,

vs.
COURT OF APPEALS and EXPORT AND INDUSTRY BANK, INC., Respondents.

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

G.R. No. 201537

PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE CORPORATION, MIZPAH

HOLDINGS, INC., FORUM HOLDINGS CORPORATION and EAST ASIA OIL COMPANY,
INC., Petitioners,
vs.
EXPORT AND INDUSTRY BANK, INC., Respondent.

DECISION

REYES, J.:

On the scales of justice precariously lie the right of a prevailing party to his victor's cup, no more, no
less; and the right of a separate entity from being dragged by the ball and chain of the vanquished
party.

The facts of this case as garnered from the Decision1 dated April 26, 2012 of the Court of Appeals
(CA) in CA-G.R. SP No. 120979 are as follows:

We trace the roots of this case to a complaint instituted with the Makati City Regional Trial Court
(RTC), Branch 66, against EIB Securities Inc. (E-Securities) for unauthorized sale of 32,180,000
DMCI shares of private respondents Pacific Rehouse Corporation, Pacific Concorde Corporation,
Mizpah Holdings, Inc., Forum Holdings Corporation, and East Asia Oil Company, Inc. In its October
18, 2005 Resolution, the RTC rendered judgment on the pleadings. The fallo reads:

WHEREFORE, premises considered, judgment is hereby rendered directing the defendant [E-
Securities] to return the plaintiffs’ [private respondents herein] 32,180,000 DMCI shares, as of
judicial demand.

On the other hand, plaintiffs are directed to reimburse the defendant the amount of
[P]10,942,200.00, representing the buy back price of the 60,790,000 KPP shares of stocks at [P]0.18
per share.

SO ORDERED. x x x

The Resolution was ultimately affirmed by the Supreme Court and attained finality.

When the Writ of Execution was returned unsatisfied, private respondents moved for the issuance of
an alias writ of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation as
E- Securities is "a wholly-owned controlled and dominated subsidiary of Export and Industry Bank,
Inc., and is[,] thus[,] a mere alter ego and business conduit of the latter. E-Securities opposed the
motion[,] arguing that it has a corporate personality that is separate and distinct from private
respondent. On July 27, 2011, private respondents filed their (1) Reply attaching for the first time a
sworn statement executed by Atty. Ramon F. Aviado, Jr., the former corporate secretary of petitioner
and E-Securities, to support their alter ego theory; and (2) Ex-Parte Manifestation alleging service of
copies of the Writ of Execution and Motion for Alias Writ of Execution on petitioner.

On July 29, 2011, the RTC concluded that E-Securities is a mere business conduit or alter ego of
petitioner, the dominant parent corporation, which justifies piercing of the veil of corporate fiction.
The trial court brushed aside E-Securities’ claim of denial of due process on petitioner as "xxx case
records show that notices regarding these proceedings had been tendered to the latter, which
refused to even receive them. Clearly, [petitioner] had been sufficiently put on notice and afforded
the chance to give its side[,] yet[,] it chose not to." Thus, the RTC disposed as follows:

WHEREFORE, xxx,

Let an Alias Writ of Execution be issued relative to the above-entitled case and pursuant to the
RESOLUTION dated October 18, 2005 and to this Order directing defendant EIB Securities, Inc.,
and/or Export and Industry Bank, Inc., to fully comply therewith.

The Branch Sheriff of this Court is directed to cause the immediate implementation of the given alias
writ in accordance with the Order of Execution to be issued anew by the Branch Clerk of Court.

SO ORDERED. x x x

With this development, petitioner filed an Omnibus Motion (Ex Abundanti Cautela) questioning
the alias writ because it was not impleaded as a party to the case. The RTC denied the motion in its
Order dated August 26, 2011 and directed the garnishment of P1,465,799,000.00, the total amount
of the 32,180,000 DMCI shares at P45.55 per share, against petitioner and/or E-Securities.2 x x x.
(Citations omitted)

The Regional Trial Court (RTC) ratiocinated that being one and the same entity in the eyes of the
law, the service of summons upon EIB Securities, Inc. (E-Securities) has bestowed jurisdiction over
both the parent and wholly-owned subsidiary.3 The RTC cited the cases of Sps. Violago v. BA
Finance Corp. et al.4 and Arcilla v. Court of Appeals5where the doctrine of piercing the veil of
corporate fiction was applied notwithstanding that the affected corporation was not brought to the
court as a party. Thus, the RTC held in its Order6 dated August 26, 2011:

WHEREFORE, premises considered, the Motion for Reconsideration with Motion to Inhibit filed by
defendant EIB Securities, Inc. is denied for lack of merit. The Omnibus Motion Ex Abundanti
C[au]tela is likewise denied for lack of merit.

Pursuant to Rule 39, Section 10 (a) of the Rules of Court, the Branch Clerk of Court or the Branch
Sheriff of this Court is hereby directed to acquire 32,180,000 DMCI shares of stock from the
Philippine Stock Exchange at the cost of EIB Securities, Inc. and Export and Industry Bank[,] Inc.
and to deliver the same to the plaintiffs pursuant to this Court’s Resolution dated October 18, 2005.

To implement this Order, let GARNISHMENT issue against ALL THOSE HOLDING MONEYS,
PROPERTIES OF ANY AND ALL KINDS, REAL OR PERSONAL BELONGING TO OR OWNED BY
DEFENDANT EIB SECURITIES, INC. AND/OR EXPORT AND INDUSTRY BANK[,] INC., [sic] in
such amount as may be sufficient to acquire 32,180,000 DMCI shares of stock to the Philippine
Stock Exchange, based on the closing price of Php45.55 per share of DMCI shares as of August 1,
2011, the date of the issuance of the Alias Writ of Execution, or the total amount of
PhP1,465,799,000.00.

SO ORDERED.7

CA-G.R. SP No. 120979

Export and Industry Bank, Inc. (Export Bank) filed before the CA a petition for certiorari with prayer
for the issuance of a temporary restraining order (TRO)8 seeking the nullification of the RTC Order
dated August 26, 2011 for having been made with grave abuse of discretion amounting to lack or
excess of jurisdiction. In its petition, Export Bank made reference to several rulings9 of the Court
upholding the separate and distinct personality of a corporation.

In a Resolution10 dated September 2, 2011, the CA issued a 60-day TRO enjoining the execution of
the Orders of the RTC dated July 29, 2011 and August 26, 2011, which granted the issuance of an
alias writ of execution and ordered the garnishment of the properties of E-Securities and/or Export
Bank. The CA also set a hearing to determine the necessity of issuing a writ of injunction, viz:

Considering the amount ordered to be garnished from petitioner Export and Industry Bank, Inc. and
the fiduciary duty of the banking institution to the public, there is grave and irreparable injury that
may be caused to [Export Bank] if the assailed Orders are immediately implemented. We thus
resolve to GRANT the Temporary Restraining Order effective for a period of sixty (60) days from
notice, restraining/enjoining the Sheriff of the Regional Trial Court of Makati City or his deputies,
agents, representatives or any person acting in their behalf from executing the July 29, 2011 and
August 26, 2011 Orders. [Export Bank] is DIRECTED to POST a bond in the sum of fifty million
pesos (P50,000,000.00) within ten (10) days from notice, to answer for any damage which private
respondents may suffer by reason of this Temporary Restraining Order; otherwise, the same shall
automatically become ineffective.

Let the HEARING be set on September 27, 2011 at 2:00 in the afternoon at the Paras Hall, Main
Building, Court of Appeals, to determine the necessity of issuing a writ of preliminary injunction. The
Division Clerk of Court is DIRECTED to notify the parties and their counsel with dispatch.

xxxx

SO ORDERED.11

Pacific Rehouse Corporation (Pacific Rehouse), Pacific Concorde Corporation, Mizpah Holdings,
Inc., Forum Holdings Corporation and East Asia Oil Company, Inc. (petitioners) filed their
Comment12 to Export Bank’s petition and proffered that the cases mentioned by Export Bank are
inapplicable owing to their clearly different factual antecedents. The petitioners alleged that unlike
the other cases, there are circumstances peculiar only to E-Securities and Export Bank such as:
499,995 out of 500,000 outstanding shares of stocks of E-Securities are owned by Export
Bank;13 Export Bank had actual knowledge of the subject matter of litigation as the lawyers who
represented E-Securities are also lawyers of Export Bank.14 As an alter ego, there is no need for a
finding of fraud or illegality before the doctrine of piercing the veil of corporate fiction can be
applied.15

After oral arguments before the CA, the parties were directed to file their respective memoranda.16
On October 25, 2011, the CA issued a Resolution,17 granting Export Bank’s application for the
issuance of a writ of preliminary injunction, viz:

WHEREFORE, finding [Export Bank’s] application for the ancillary injunctive relief to be meritorious,
and it further appearing that there is urgency and necessity in restraining the same, a Writ of
Preliminary Injunction is hereby GRANTED and ISSUED against the Sheriff of the Regional Trial
Court of Makati City, Branch 66, or his deputies, agents, representatives or any person acting in their
behalf from executing the July 29, 2011 and August 26, 2011 Orders. Public respondents are
ordered to CEASE and DESIST from enforcing and implementing the subject orders until further
notice from this Court.18

The petitioners filed a Manifestation19 and Supplemental Manifestation20 challenging the above-
quoted CA resolution for lack of concurrence of Associate Justice Socorro B. Inting (Justice Inting),
who was then on official leave.

On December 22, 2011, the CA, through a Special Division of Five, issued another
Resolution,21 which reiterated the Resolution dated October 25, 2011 granting the issuance of a writ
of preliminary injunction.

On January 2, 2012, one of the petitioners herein, Pacific Rehouse filed before the Court a petition
for certiorari22under Rule 65, docketed as G.R. No. 199687, demonstrating its objection to the
Resolutions dated October 25, 2011 and December 22, 2011 of the CA.

On April 26, 2012, the CA rendered the assailed Decision23 on the merits of the case, granting Export
Bank’s petition. The CA disposed of the case in this wise:

We GRANT the petition. The Orders dated July 29, 2011 and August 26, 2011 of the Makati City
Regional Trial Court, Branch 66, insofar as [Export Bank] is concerned, are NULLIFIED. The Writ of
Preliminary Injunction (WPI) is rendered PERMANENT.

SO ORDERED.24

The CA explained that the alter ego theory cannot be sustained because ownership of a subsidiary
by the parent company is not enough justification to pierce the veil of corporate fiction. There must
be proof, apart from mere ownership, that Export Bank exploited or misused the corporate fiction of
E-Securities. The existence of interlocking incorporators, directors and officers between the two
corporations is not a conclusive indication that they are one and the same.25 The records also do not
show that Export Bank has complete control over the business policies, affairs and/or transactions of
E-Securities. It was solely E-Securities that contracted the obligation in furtherance of its legitimate
corporate purpose; thus, any fall out must be confined within its limited liability.26

The petitioners, without filing a motion for reconsideration, filed a Petition for Review27 under Rule 45
docketed as G.R. No. 201537,28 impugning the Decision dated April 26, 2012 of the CA.

Considering that G.R. Nos. 199687 and 201537 originated from the same set of facts, involved the
same parties and raised intertwined issues, the cases were then consolidated per Resolution dated
September 26, 2012, for a thorough discussion of the merits of the case.

Issues

In précis, the issues for resolution of this Court are the following:
In G.R. No. 199687,

WHETHER THE CA COMMITTED GRAVE ABUSE OF DISCRETION IN GRANTING EXPORT

BANK’S APPLICATION FOR THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION.

In G.R. No. 201537,

I.

WHETHER THE CA COMMITTED A REVERSIBLE ERROR IN RULING THAT EXPORT BANK

MAY NOT BE HELD LIABLE FOR A FINAL AND EXECUTORY JUDGMENT AGAINST E-
SECURITIES IN AN ALIAS WRIT OF EXECUTION BY PIERCING ITS VEIL OF CORPORATE
FICTION; and

II.

WHETHER THE CA COMMITTED A REVERSIBLE ERROR IN RULING THAT THE ALTER EGO
DOCTRINE IS NOT APPLICABLE.

Ruling of the Court

G.R. No. 199687

The Resolution dated October 25, 2011 was initially challenged by the petitioners in its
Manifestation29 and Supplemental Manifestation30 due to the lack of concurrence of Justice Inting,
which according to the petitioners rendered the aforesaid resolution null and void.

To the petitioners’ mind, Section 5, Rule VI of the Internal Rules of the CA (IRCA)31 requires the
submission of the resolution granting an application for TRO or preliminary injunction to the absent
Justice/s when they report back to work for ratification, modification or recall, such that when the
absent Justice/s do not agree with the issuance of the TRO or preliminary injunction, the resolution
is recalled and without force and effect.32 Since the resolution which granted the application for
preliminary injunction appears short of the required number of consensus, owing to the absence of
Justice Inting’s signature, the petitioners contest the validity of said resolution.

The petitioners also impugn the CA Resolution dated December 22, 2011 rendered by the Special
Division of Five. The petitioners maintain that pursuant to Batas Pambansa Bilang 12933 and the
IRCA,34 such division is created only when the three members of a division cannot reach a
unanimous vote in deciding a case on the merits.35Furthermore, for petitioner Pacific Rehouse, this
Resolution is likewise infirm because the purpose of the formation of the Special Division of Five is
to decide the case on the merits and not to grant Export Bank’s application for a writ of preliminary
injunction.36

We hold that the opposition to the CA resolutions is already nugatory because the CA has already
rendered its Decision on April 16, 2012, which disposed of the substantial merits of the case.
Consequently, the petitioners’ concern that the Special Division of Five should have been created to
resolve cases on the merits has already been addressed by the rendition of the CA Decision dated
April 16, 2012.

"It is well-settled that courts will not determine questions that have become moot and academic
because there is no longer any justiciable controversy to speak of. The judgment will not serve any
useful purpose or have any practical legal effect because, in the nature of things, it cannot be
enforced."37 In such cases, there is no actual substantial relief to which the petitioners would be
entitled to and which would be negated by the dismissal of the petition.38Thus, it would be futile and
pointless to address the issue in G.R. No. 199687 as this has become moot and academic.

G.R. No. 201537

The petitioners bewail that the certified true copy of the CA Decision dated April 26, 2012 along with
its Certification at the bottom portion were not signed by the Chairperson39 of the Special Division of
Five; thus, it is not binding upon the parties.40 The petitioners quoted this Court’s pronouncement
in Limkaichong v. Commission on Elections,41that a decision must not only be signed by the Justices
who took part in the deliberation, but must also be promulgated to be considered a Decision.42

A cursory glance on a copy of the signature page43 of the decision attached to the records would
show that, indeed, the same was not signed by CA Associate Justice Magdangal M. De Leon.
However, it must be noted that the CA, on May 7, 2012, issued a Resolution44 explaining that due to
inadvertence, copies of the decision not bearing the signature of the Chairperson were sent to the
parties on the same day of promulgation. The CA directed the Division Clerk of Court to furnish the
parties with copies of the signature page with the Chairperson’s signature. Consequently, as the
mistake was immediately clarified and remedied by the CA, the lack of the Chairperson’s signature
on the copies sent to the parties has already become a non-issue.

It must be emphasized that the instant cases sprang from Pacific Rehouse Corporation v. EIB
Securities, Inc.45which was decided by this Court last October 13, 2010. Significantly, Export Bank
was not impleaded in said case but was unexpectedly included during the execution stage, in
addition to E-Securities, against whom the writ of execution may be enforced in the Order46 dated
July 29, 2011 of the RTC. In including Export Bank, the RTC considered E-Securities as a mere
business conduit of Export Bank.47 Thus, one of the arguments interposed by the latter in its
Opposition48 that it was never impleaded as a defendant was simply set aside.

This action by the RTC begs the question: may the RTC enforce the alias writ of execution against
Export Bank?

The question posed before us is not novel.

The Court already ruled in Kukan International Corporation v. Reyes49 that compliance with the
recognized modes of acquisition of jurisdiction cannot be dispensed with even in piercing the veil of
corporate fiction, to wit:

The principle of piercing the veil of corporate fiction, and the resulting treatment of two related
corporations as one and the same juridical person with respect to a given transaction, is basically
applied only to determine established liability; it is not available to confer on the court a jurisdiction it
has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a
corporation not impleaded in a suit cannot be subject to the court’s process of piercing the
veil of its corporate fiction. In that situation, the court has not acquired jurisdiction over the
corporation and, hence, any proceedings taken against that corporation and its property would
infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial Law,
stated as much:

"23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x
This is so because the doctrine of piercing the veil of corporate fiction comes to play only
during the trial of the case after the court has already acquired jurisdiction over the
corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is
imperative that the court must first have jurisdiction over the corporation. x x x"50 (Citations omitted)

From the preceding, it is therefore correct to say that the court must first and foremost acquire
jurisdiction over the parties; and only then would the parties be allowed to present evidence for
and/or against piercing the veil of corporate fiction. If the court has no jurisdiction over the
corporation, it follows that the court has no business in piercing its veil of corporate fiction because
such action offends the corporation’s right to due process.

"Jurisdiction over the defendant is acquired either upon a valid service of summons or the
defendant’s voluntary appearance in court. When the defendant does not voluntarily submit to the
court’s jurisdiction or when there is no valid service of summons, ‘any judgment of the court which
has no jurisdiction over the person of the defendant is null and void.’"51 "The defendant must be
properly apprised of a pending action against him and assured of the opportunity to present his
defenses to the suit. Proper service of summons is used to protect one’s right to due process."52

As Export Bank was neither served with summons, nor has it voluntarily appeared before the court,
the judgment sought to be enforced against E-Securities cannot be made against its parent
company, Export Bank. Export Bank has consistently disputed the RTC jurisdiction, commencing
from its filing of an Omnibus Motion53 by way of special appearance during the execution stage until
the filing of its Comment54 before the Court wherein it was pleaded that "RTC [of] Makati[, Branch] 66
never acquired jurisdiction over Export [B]ank. Export [B]ank was not pleaded as a party in this case.
It was never served with summons by nor did it voluntarily appear before RTC [of] Makati[, Branch]
66 so as to be subjected to the latter’s jurisdiction."55

In dispensing with the requirement of service of summons or voluntary appearance of Export Bank,
the RTC applied the cases of Violago and Arcilla. The RTC concluded that in these cases, the Court
decided that the doctrine of piercing the veil of corporate personality can be applied even when one
of the affected parties has not been brought to the Court as a party.56

A closer perusal on the rulings of this Court in Violago and Arcilla, however, reveals that the RTC
misinterpreted the doctrines on these cases. We agree with the CA that these cases are not
congruent to the case at bar. In Violago, Spouses Pedro and Florencia Violago (Spouses Violago)
filed a third party complaint against their cousin Avelino Violago (Avelino), who is also the president
of Violago Motor Sales Corporation (VMSC), for selling them a vehicle which was already sold to
someone else. VMSC was not impleaded as a third party defendant. Avelino contended that he was
not a party to the transaction personally, but VMSC. The Court ruled that "[t]he fact that VMSC was
not included as defendant in [Spouses Violago’s] third party complaint does not preclude recovery by
Spouses Violago from Avelino; neither would such non-inclusion constitute a bar to the application of
the piercing-of-the-corporate-veil doctrine."57 It should be pointed out that although VMSC was not
made a third party defendant, the person who was found liable in Violago, Avelino, was properly
made a third party defendant in the first instance. The present case could not be any more poles
apart from Violago, because Export Bank, the parent company which was sought to be accountable
for the judgment against E-Securities, is not a party to the main case.

In Arcilla, meanwhile, Calvin Arcilla (Arcilla) obtained a loan in the name of Csar Marine Resources,
Inc. (CMRI) from Emilio Rodulfo. A complaint was then filed against Arcilla for non-payment of the
loan. CMRI was not impleaded as a defendant. The trial court eventually ordered Arcilla to pay the
judgment creditor for such loan. Arcilla argued that he is not personally liable for the adjudged award
because the same constitutes a corporate liability which cannot even bind the corporation as the
latter is not a party to the collection suit. The Court made the succeeding observations:

[B]y no stretch of even the most fertile imagination may one be able to conclude that the challenged
Amended Decision directed Csar Marine Resources, Inc. to pay the amounts adjudged. By its clear
and unequivocal language, it is the petitioner who was declared liable therefor and consequently
made to pay. x x x, even if We are to assume arguendo that the obligation was incurred in the name
of the corporation, the petitioner would still be personally liable therefor because for all legal intents
and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing
more than his business conduit and alter ego. The fiction of a separate juridical personality conferred
upon such corporation by law should be disregarded. x x x.58 (Citation omitted)

It is important to bear in mind that although CMRI was not a party to the suit, it was Arcilla, the
defendant himself who was found ultimately liable for the judgment award. CMRI and its properties
were left untouched from the main case, not only because of the application of the alter ego doctrine,
but also because it was never made a party to that case.

The disparity between the instant case and those of Violago and Arcilla is that in said cases,
although the corporations were not impleaded as defendant, the persons made liable in the end
were already parties thereto since the inception of the main case. Consequently, it cannot be said
that the Court had, in the absence of fraud and/or bad faith, applied the doctrine of piercing the veil
of corporate fiction to make a non-party liable. In short, liabilities attached only to those who are
parties. None of the non-party corporations (VMSC and CMRI) were made liable for the judgment
award against Avelino and Arcilla.

The Alter Ego Doctrine is not applicable

"The question of whether one corporation is merely an alter ego of another is purely one of fact. So
is the question of whether a corporation is a paper company, a sham or subterfuge or whether
petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of
respondent’s corporate entity."59

As a rule, the parties may raise only questions of law under Rule 45, because the Supreme Court is
not a trier of facts. Generally, we are not duty-bound to analyze again and weigh the evidence
introduced in and considered by the tribunals below.60 However, justice for all is of primordial
importance that the Court will not think twice of reviewing the facts, more so because the RTC and
the CA arrived in contradicting conclusions.

"It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to
promote justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation."61

"Where one corporation is so organized and controlled and its affairs are conducted so that it is, in
fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
"instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal. It must be kept in mind that the control must be shown to have been
exercised at the time the acts complained of took place. Moreover, the control and breach of duty
must proximately cause the injury or unjust loss for which the complaint is made."62

The Court has laid down a three-pronged control test to establish when the alter ego doctrine should
be operative:

(1) Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of
its own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act
in contravention of plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must [have] proximately caused the injury or
unjust loss complained of.63

The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying the
‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how
the corporation operated and the individual defendant’s relationship to that operation.64 Hence, all
three elements should concur for the alter ego doctrine to be applicable.

In its decision, the RTC maintained that the subsequently enumerated factors betray the true nature
of E-Securities as a mere alter ego of Export Bank:

1. Defendant EIB Securities, a subsidiary corporation 100% totally owned by Export and
Industry Bank, Inc., was only re-activated by the latter in 2002-2003 and the continuance of
its operations was geared for no other reason tha[n] to serve as the securities brokerage
arm of said parent corporation bank;

2. It was the parent corporation bank that provided and infused the fresh working cash
capital needed by defendant EIB Securities which prior thereto was non-operating and
severely cash-strapped. [This was so attested by the then Corporate Secretary of both
corporations, Atty. Ramon Aviado, Jr., in his submitted Sworn Statement which is deemed
allowable "evidence on motion", under Sec. 7, Rule 133, Rules on Evidence; Bravo vs.
Borja, 134 SCRA 438];

3. For effective control purposes, defendant EIB Securities and its operating office and staff
are all housed in Exportbank Plaza located at Chino Roces cor. Sen. Gil Puyat Avenue,
Makati City which is the same building w[h]ere the bank parent corporation has its
headquarters;

4. As shown in the General Information Sheets annually filed with the S.E.C. from 2002 to
2011, both defendant EIB Securities and the bank parent corporation share common key
Directors and corporate officers. Three of the 5-man Board of Directors of defendant EIB
Securities are Directors of the bank parent corporation, namely: Jaime C. Gonzales, Pauline
C. Tan and Dionisio E. Carpio, Jr. In addition, Mr. Gonzales is Chairman of the Board of both
corporations, whereas Pauline C. Tan is concurrently President/General Manager of EIB
Securities, and Dionisio Carpio Jr., is not only director of the bank, but also Director
Treasurer of defendant EIB Securities;
 5. As admitted by the bank parent corporation in its consolidated audited financial
statements[,] EIB Securities is a CONTROLLED SUBSIDIARY, and for which reason its
financial condition and results of operations are included and integrated as part of the
group’s consolidated financial statements, examined and audited by the same auditing
firm;

6. The lawyers handling the suits and legal matters of defendant EIB Securities are the same
lawyers in the Legal Department of the bank parent corporation. The Court notes that in
1âwphi1

[the] above-entitled suit, the lawyers who at the start represented said defendant EIB
Securities and filed all the pleadings and filings in its behalf are also the lawyers in the Legal
Services Division of the bank parent corporation. They are Attys. Emmanuel A. Silva,
Leonardo C. Bool, Riva Khristine E. Maala and Ma. Esmeralda R. Cunanan, all of whom
worked at the Legal Services Division of Export Industry Bank located at 36/F, Exportbank
Plaza, Don Chino Roces Avenue, cor. Sen. Gil Puyat Avenue, Makati City.

7. Finally[,] and this is very significant, the control and sway that the bank parent corporation
held over defendant EIB Securities was prevailing in June 2004 when the very act
complained of in plaintiff’s Complaint took place, namely the unauthorized disposal of the
32,180,000 DMCI shares of stock. Being then under the direction and control of the bank
parent corporation, the unauthorized disposal of those shares by defendant EIB Securities is
attributable to, and the responsibility of the former.65

All the foregoing circumstances, with the exception of the admitted stock ownership, were however
not properly pleaded and proved in accordance with the Rules of Court.66 These were merely raised
by the petitioners for the first time in their Motion for Issuance of an Alias Writ of Execution67 and
Reply,68 which the Court cannot consider. "Whether the separate personality of the corporation
should be pierced hinges on obtaining facts appropriately pleaded or proved."69

Albeit the RTC bore emphasis on the alleged control exercised by Export Bank upon its subsidiary
E-Securities, "[c]ontrol, by itself, does not mean that the controlled corporation is a mere
instrumentality or a business conduit of the mother company. Even control over the financial and
operational concerns of a subsidiary company does not by itself call for disregarding its corporate
fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent or illegal
purpose behind the control in order to justify piercing the veil of corporate fiction. Such fraudulent
intent is lacking in this case."70

Moreover, there was nothing on record demonstrative of Export Bank’s wrongful intent in setting up
a subsidiary, E-Securities. If used to perform legitimate functions, a subsidiary’s separate existence
shall be respected, and the liability of the parent corporation as well as the subsidiary will be
confined to those arising in their respective business.71 To justify treating the sole stockholder or
holding company as responsible, it is not enough that the subsidiary is so organized and controlled
as to make it "merely an instrumentality, conduit or adjunct" of its stockholders. It must further
appear that to recognize their separate entities would aid in the consummation of a wrong.72

As established in the main case73 and reiterated by the CA, the subject 32,180,000 DMCI shares
which E-Securities is obliged to return to the petitioners were originally bought at an average price of
P0.38 per share and were sold for an average price of P0.24 per share. The proceeds were then
used to buy back 61,100,000 KPP shares earlier sold by E-Securities. Quite unexpectedly however,
the total amount of these DMCI shares ballooned to P1,465,799,000.00.74 It must be taken into
account that this unexpected turnabout did not inure to the benefit of E-Securities, much less Export
Bank.
Furthermore, ownership by Export Bank of a great majority or all of stocks of E-Securities and the
existence of interlocking directorates may serve as badges of control, but ownership of another
corporation, per se, without proof of actuality of the other conditions are insufficient to establish an
alter ego relationship or connection between the two corporations, which will justify the setting aside
of the cover of corporate fiction. The Court has declared that "mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personality." The Court has likewise
ruled that the "existence of interlocking directors, corporate officers and shareholders is not enough
justification to pierce the veil of corporate fiction in the absence of fraud or other public policy
considerations."75

While the courts have been granted the colossal authority to wield the sword which pierces through
the veil of corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold
the doctrine of separate entity, when rightly so; as it has for so long encouraged businessmen to
enter into economic endeavors fraught with risks and where only a few dared to venture.

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A
court should be mindful of the milieu where it is to be applied. It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another,
in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an erroneous
application.76

In closing, we understand that the petitioners are disgruntled at the turnout of this case-that they
cannot enforce the award due them on its entirety; however, the Court cannot supplant a remedy
which is not sanctioned by our laws and prescribed rules.

WHEREFORE, the petition in G.R. No. 199687 is hereby DISMISSED for having been rendered
moot and academic. The petition in G.R. No. 201537, meanwhile, is hereby DENIED for lack of
merit. Consequently, the Decision dated April 26, 2012 of the Court of Appeals in CA-G.R. SP No.
120979 is AFFIRMED.

SO ORDERED.