Cases on Corpo - 1

8/19/2019 Cases on Corpo - 1

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G.R. No. L-25889 January 17, 1973

HON. GUILLERMO E. TORRES, as Presiding Judge of the Court of First Instance of

Rizal, Branch VIII, THE PROVINCIAL SHERIFF OF THE PROVINCE OF RIZAL,JAIME E. LAICO and LUZ LOS BANOS-LAICO, petitioners-appellants, vs. HON.

COURT OF APPEALS, JOSE CHIVI and ANGELINA CHIVI as representative of thedeceased MARTA B. CHIVI, Respondents-Appellees. Ernesto J. Seva for petitioners-appellants.

Ordonez, Cervo and Sanchez for respondents-appellees.

MAKALINTAL, J.:

Appeal by certiorari to review the decision of the Court of Appeals in CA-G.R. No. 35677-R,dated 31 August 1965. chanroblesvirtualawlibrary chanroblesvirtuallaw library

The facts as found, by the Court of Appeals are as follows:chanroblesvirtuallaw library

On 1 January 1955 the spouses Isidro Sierra and Antonia Magtaas sold a parcel of land to MartaB. Chivi, representing to her that the land was not registered either under the Land RegistrationAct or under the Spanish Mortgage Law and assuring her that although the land was covered bya pre-war free patent application, the application had not been approved and no patent had beenissued. The Sierras made that assurance because Chivi was not willing to buy the land if it wascovered by a patent, since it would then be subject to repurchase. They agreed that the purchase price of P10,800.00 was not to be fully paid until the vendors could have the land registeredunder Act 496.chanroblesvirtualawlibrary chanroblesvirtuallaw library

At the instance of the Sierras, Chivi filed an application for registration of the land in the Courtof First Instance of Rizal. While the application was pending Chivi, on 24 May 1958, sold herrights and interests in the land to the herein petitioners-spouses Jaime Laico and Luz Los Banosfor P25,647.00, with the stipulation that should Chivi fail to secure and transfer title to the Laicosshe would return to them twice the amount of the aforesaid purchase price. To induce the Laicosto buy Chivis rights and interests, the Sierras showed them a petition withdrawing their free patent application. The Laicos thereupon continued with the registration proceeding insubstitution of Chivi, who signed a deed of transfer of her rights.chanroblesvirtualawlibrary chanroblesvirtuallaw library

In December, 1959 the Laicos discovered, and in January, 1960 Chivi learned, that a free patenttitle had been previously issued to Isidro Sierra as early as 26 February 1932. The Laicos went to

see the Sierras, who agree to execute, as they did execute on January 17, 1960, another deed ofsale in favor of the Laicos. The Laicos then withdrew their application for registration and filedinstead a petition for the reconstitution of the title issued to Isidro Sierra.chanroblesvirtualawlibrary chanroblesvirtuallaw library

On 14 June 1960, however, the Sierras filed a complaint against Marta B. Chivi, assisted by herhusband, and the Laicos in the Court of First Instance of Rizal, docketed as Civil Case No. 6184, praying that they (plaintiffs) be allowed to repurchase the land under the provisions of the PublicLand Act. The Chivis and the Laicos filed their answers to the complaint and counter-claimed for


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damages by reason of the alleged bad faith, misrepresentation and fraudulent acts of the Sierras,as herein before recounted. The Laicos filed a cross-claim against the Chivis for collection oftwice the amount of the price paid under their sales contract for the latter's failure to deliver titleto the Laicos, alleging that "the defendants Chivi are/or will be liable on these warranties andcondition should the plaintiffs finally obtain favorable judgment in their favor" (sic).chanroblesvirtualawlibrary chanroblesvirtuallaw library

On 12 March 1964 the Sierras and the Laicos entered into a compromise to amicably settle CivilCase No. 6184 as between themselves, stipulating therein, among other things, that the Laicoswere now the absolute owners of the land and that the Sierras would withdraw their objection tothe reconstitution of the patent title and that said title would be transferred in the name of theLaicos, who would pay P10,000.00 to the Sierras; that the Sierras would ask for the dismissal ofCivil Case No. 6184 insofar as the Laicos were concerned and would convert their action in thecase from one for repurchase to one for collection of the balance of the sales price and ofdamages against the Chivis; that the Laicos would pursue their cross-claim against the Chivisand in the event they obtained a favorable judgment thereon they would pay to the Sierras one-half (1/2) of any amount awarded to them in excess of the purchase price of P25,647.00. chanroblesvirtualawlibrary chanroblesvirtuallaw library

The compromise, which was executed without the knowledge of or notice to the Chivis, wasapproved by the trial court on 12 March 1964. On the same date the court, joint motion of theSierras and the Laicos, dismissed witness prejudice the complaint in Civil Case No. 6184 insofaras the Laicos were concerned as well as the counter-claim of the Laicos against the Sierras. Chiviwas not notified of the dismissal. chanroblesvirtualawlibrary chanroblesvirtuallaw library

The court set the case for pre-trial on 14 July 1964. Despite notice to the Sierras and the Chivis,only cross-claimant Jaime Laico and his counsel appeared, whereupon the court declared theChivis in default and allowed Laico to present evidence on the cross-claim before the deputyclerk of court. Counsel for the Chivis filed an urgent motion for reconsideration, explaining why

he failed to appear at the pre-trial, but the motion was denied. On 5 February 1965 the courtrendered judgment for the Laicos, sentencing the cross-defendants to pay them a total amount ofP15,000.00, plus costs, and on 1 April 1965 issued a writ of execution. Pursuant to the writ thesheriff levied upon the properties of the Chivis and issued a notice that the properties would besold at public auction on 14 April 1965.chanroblesvirtualawlibrary chanroblesvirtuallaw library

In due time the Chivis filed with the Court of Appeal a petition for certiorari and prohibition with preliminary injunction to annul: (1) the order of the trial court authorizing the Laicos to adduceevidence ex parte on their cross-claim against Marta B. Chivi; (2) the decision rendered on saidcross-claim; and (3) the order directing the issuance of a writ of execution, the levy on executionand the notice of execution sale of the properties of Chivi prayed further that the thereinrespondents be prohibited from conducting any further proceedings in said Civil Case No. 6184on the ground that the trial court was without jurisdiction in the premises. chanroblesvirtualawlibrary chanroblesvirtuallaw library

Upon giving due course to the petition the Court of Appeals issued a writ of preliminaryinjunction, restraining the therein respondents from proceedings with the execution and with thesale at public auction set for 14 April 1965, until further order.chanroblesvirtualawlibrary chanroblesvirtuallaw library


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On 31 August 1965 the Court of Appeals rendered decision declaring null and void all the proceedings on the cross-claim of the spouses Laico against Chivi, as well as the orders,decisions, writs and processes issued in connection therewith, and restraining the thereinrespondent Judge and sheriff of the Court of First Instance of Rizal from further proceeding inCivil Case No. 6184. The Laicos moved for reconsideration. Pending resolution of the motion

for reconsideration, Marta B. Chivi died was substituted by Angelina Chivi. In an order dated 16March 1966, the motion for reconsideration was denied. Hence, the instant appeal by certiorari brought by the Laicos.chanroblesvirtualawlibrary chanroblesvirtuallaw library

The principal issue in this case is: Could the cross-claim in this particular action stand after thecomplaint in the same action was dismissed with prejudice? chanroblesvirtuallaw library

In the resolution of this issue the following considerations are pertinent: chanroblesvirtuallaw library

(1) A cross-claim, as defined in Section 7 of Rule 6 is "any claim by one party against a co-partyarising out of the transaction or occurrence that is the subject matter either of the original action

or of a counterclaim therein."chanroblesvirtuallaw library

(2) The cross-claim of the Laicos against the Chivis was for the recovery of the sum ofP51,294.00, upon the allegations that according to the contract of sale between them, "should thedefendants Chivi fail to transfer the title to the land in question to the VENDEE (defendantLaico) then the former shall return to the latter (the aforesaid sum) which is double the amount ofthe purchase price received by the defendants Chivi;" and that "the defendants Chivi are/or will be liable on these warranties and conditions should the plaintiffs (Sierras) finally obtainfavorable judgment in their favor" (sic). chanroblesvirtualawlibrary chanroblesvirtuallaw library

(3) When Marta B. Chivi sold her "rights and interests" to the land in question to the Laicos on

24 May 1958 the latter knew that Chivi had yet no registered title, and in fact substituted her inthe registration proceeding which she had initiated. chanroblesvirtualawlibrary chanroblesvirtuallaw library

(4) In their counterclaim for damages against the Sierras in Civil Case No. 6184, the Laicosalleged that the "plaintiffs, in fraudulently misrepresenting to the defendants Chivi, as well as tothe defendants Laico, that the land in question is unregistered and is not covered by a patent,thereby inducing the latter to purchase the land in question, which they would not have done hadthey known that the land is covered by a patent, should be adjudged to pay ..." chanroblesvirtuallaw library

(5) The warranty undertaken by Marta B. Chivi, judging by its terms and by the surroundingcircumstances was in respect of the transfer of ownership - not of the registered title - to theLaicos. The action filed by the Sierras was not for recovery of such ownership but for theexercise of their alleged right of repurchase under the Public Land Act on the ground that theland they had sold was covered by a patent title. In other words, the filing of the action did notmilitate against the warranty to transfer title, for the very fact that the plaintiffs wished to enforcetheir alleged right of repurchase was predicated on the assumption that the title, that is,ownership, had been effectively transferred first to Chivi an subsequently by the latter to theLaicos.chanroblesvirtualawlibrary chanroblesvirtuallaw library


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(6) In any event, even viewing the situation in the light most favorable to the Laicos, their cross-claim on Chivi's warranty to deliver title to them was so inextricably linked with and so utterlydependent upon the success of the complaint of the Sierras for the repurchase of the land thatwhen the complaint was dismissed the cross-claim could not possibly survive. For as the cross-claimants themselves alleged, the cross-defendants would be liable on the warranty "should the

plaintiffs finally obtain favorable judgment in their favor" (sic). The warranty became functusoficio after the Sierras, who turned out after all to have a free patent title to the land issued way back in 1932, agreed to transfer and did transfer said title to the Laicos - first by the deed of saleexecuted directly in their favor by the Sierras on January 17, 1960, and again in the amicablesettlement of the case between them. The fact that the Laicos paid P10,000.00 to the Sierras inthat amicable settlement created no liability on the part of the Chivis: first, because the latterneither knew nor consented to such settlement; second, because the Laicos had already acquiredthe land directly, from the Sierras by virtue of the aforesaid sale of January 17, 1960; and third because the said sum of P10,000.00 was not the subject of the cross-claim against them.chanroblesvirtualawlibrary chanroblesvirtuallaw library

Apropos is the following statement of the legal principle:

A cross-bill strictly speaking is one brought by a defendant in an equity suit against ... otherdefendants in the same suit, touching the matters in question in the original bill. It is consideredas an auxiliary suit dependent upon the original bill, and can be sustained only on mattersgrowing out of the original bill. There is a well-defined distinction between a cross-bill merelydefensive in character, and one seeking affirmative relief. The dismissal of the original billcarries with it a purely defensive cross-bill but not one seeking affirmative relief. 1chanroblesvirtuallaw library

The cross-claim in this case was purely defensive in nature. It arose entirely out of the complaintand could prosper only if the plaintiffs succeeded. Hence, under the principle above enunciated,it could not be the subject of independent adjudication once it lost the nexus upon which its life

depended.chanroblesvirtualawlibrary chanroblesvirtuallaw library

Under the circumstances above set forth the dismissal of the cross-claim should have followedthe dismissal of the complaint as a matter of course, without further proceeding; and in settingthe said cross-claim for pre-trial and receiving evidence thereon and then rendering judgmentagainst the cross-defendants the court committed such a grave abuse of discretion amounting tolack of jurisdiction correctible by certiorari.chanroblesvirtualawlibrary chanroblesvirtuallaw library

Concerning the argument that the respondents here were guilty of laches because they filed their petition for certiorari after the lapse of over 9 months from the time judgment of the Court ofFirst Instance was rendered, respondent Court of Appeals ruled - in our opinion correctly - asfollows:

xxx xxx xxxchanroblesvirtuallaw library

To the contention that the petitioners' action is barred laches, we are bound to disagree. The judgment by default was rendered on February 5, 1965. It is not known when the petitionersreceived copy of this judgment, but the fact is that on April 13, or after the lapse of only 2months and 7 days from rendition of the judgment, the petition for certiorari was filed with this


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Court. Principally, the petition assails the decision and the writ of execution thereof which wasissued on April 1. Assuming that the decision complained of was actually received by the petitioners on the date it was rendered, the intervening period to the filing of the petition is only2 months and 7 days, which is shorter than the shortest period of 2 months and 26 days cited inthe respondents' ex-parte motion for reconsideration in support of their theory of laches. And a

mere 12 days intervened between the issuance of the writ of execution and the filing of the petition for certiorari.chanroblesvirtualawlibrary chanroblesvirtuallaw library

xxx xxx xxx

Parenthetically, this Court would like to state that Judge Guillermo Torres should not have beenmade to appear as active party-petitioner in this case, his participation having become functusoficio after the rendered judgment, and therefore his role being purely nominal in this petition.chanroblesvirtualawlibrary chanroblesvirtuallaw library

In view of the foregoing considerations, the judgment of the Court of Appeals is affirmed,without pronouncement as to costs.

Concepcion, C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

Endnotes :


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[G.R. NO. 147402 - January 14, 2004]

ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte

Metropolitan Water District (LMWD), Tacloban City, Petitioner, v. COMMISSION ON

AUDIT, Chairman CELSO D. GANGAN, Commissioners RAUL C. FLORES and

EMMANUEL M. DALMAN, and Regional Director of COA Region VIII, Respondents.

D E C I S I O N

CARPIO, J.:

The Case

This is a Petition for Certiorar i1 to annul the Commission on Audits ("COA") Resolution dated 3January 2000 and the Decision dated 30 January 2001 denying the Motion for Reconsideration.The COA denied petitioner Ranulfo C. Felicianos request for COA to cease all audit services,and to stop charging auditing fees, to Leyte Metropolitan Water District ("LMWD"). The COAalso denied petitioners request for COA to refund all auditing fees previously paid by LMWD.

Antecedent Facts

A Special Audit Team from COA Regional Office No. VIII audited the accounts of LMWD.Subsequently, LMWD received a letter from COA dated 19 July 1999 requesting payment of

auditing fees. As General Manager of LMWD, petitioner sent a reply dated 12 October 1999informing COAs Regional Director that the water district could not pay the auditing fees.Petitioner cited as basis for his action Sections 6 and 20 of Presidential Decree 198 ("PD 198") 2, as well as Section 18 of Republic Act No. 6758 ("RA 6758"). The Regional Director referred petitioners reply to the COA Chairman on 18 October 1999.

On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund ofall auditing fees LMWD previously paid to COA.

On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3January 2000 denying his requests. Petitioner filed a motion for reconsideration on 31 March

2000, which COA denied on 30 January 2001.On 13 March 2001, petitioner filed this instant petition. Attached to the petition were resolutionsof the Visayas Association of Water Districts (VAWD) and the Philippine Association of WaterDistricts (PAWD) supporting the petition.

The Ruling of the Commission on Audit

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The COA ruled that this Court has already settled COAs audit jurisdiction over local waterdistricts in Davao City Water Distr ict v. Civil Service Commission and Commission on Audit ,3 as follows:

The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to naught

petitioners contention that they are private corporations. It is clear therefrom that the power toappoint the members who will comprise the members of the Board of Directors belong to thelocal executives of the local subdivision unit where such districts are located. In contrast, themembers of the Board of Directors or the trustees of a private corporation are elected fromamong members or stockholders thereof. It would not be amiss at this point to emphasize that a private corporation is created for the private purpose, benefit, aim and end of its members orstockholders. Necessarily, said members or stockholders should be given a free hand to choosewho will compose the governing body of their corporation. But this is not the case here and thisclearly indicates that petitioners are not private corporations.

The COA also denied petitioners request for COA to stop charging auditing fees as well as

petitioners request for COA to refund all auditing fees already paid.The Issues

Petitioner contends that COA committed grave abuse of discretion amounting to lack or excessof jurisdiction by auditing LMWD and requiring it to pay auditing fees. Petitioner raises thefollowing issues for resolution:

1. Whether a Local Water District ("LWD") created under PD 198, as amended, is a government-owned or controlled corporation subject to the audit jurisdiction of COA; chanroblesvirtuallawlibrary

2. Whether Section 20 of PD 198, as amended, prohibits COAs certified public accountants fromauditing local water districts; andcralawlibrary

3. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned andcontrolled corporations auditing fees.

The Ruling of the Court

The petition lacks merit.

The Constitution and existing laws4 mandate COA to audit all government agencies, including

government-owned and controlled corporations ("GOCCs") with original charters. An LWD is aGOCC with an original charter. Section 2(1), Article IX-D of the Constitution provides forCOAs audit jurisdiction, as follows:

SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to examine,audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or usesof funds and property, owned or held in trust by, or pertaining to, the Government, or any of itssubdivisions, agencies, or instrumentalities, including government-owned and controlled

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corporations with original charters, and on a post-audit basis: (a) constitutional bodies,commissions and offices that have been granted fiscal autonomy under this Constitution; (b)autonomous state colleges and universities; (c) other government-owned or controlledcorporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy orequity, directly or indirectly, from or through the government, which are required by law or the

granting institution to submit to such audit as a condition of subsidy or equity. However, wherethe internal control system of the audited agencies is inadequate, the Commission may adoptsuch measures, including temporary or special pre-audit, as are necessary and appropriate tocorrect the deficiencies. It shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertainingthereto. ( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ ¿

The COAs audit jurisdiction extends not only to government "agencies or instrumentalities," butalso to "government-owned and controlled corporations with original charters" as well as "othergovernment-owned or controlled corporations" without original charters.

Whether LWDs are Private or Government-Ownedand Controlled Corporations with Original Charters

Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed by a long line of cases culminating in Davao City Water Distr ict v. Civil ServiceCommission

5 and just recently reiterated in De Jesus v. Commission on Audi t .6 Petitionermaintains that LWDs are not government-owned and controlled corporations with originalcharters. Petitioner even argues that LWDs are private corporations. Petitioner asks the Court toconsider certain interpretations of the applicable laws, which would give a "new perspective tothe issue of the true character of water districts."7 Ï‚rÎ½ll

Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration("LWUA") and not the LWDs. Petitioner claims that LWDs are created "pursuant to" and notcreated directly by PD 198. Thus, petitioner concludes that PD 198 is not an "original charter"that would place LWDs within the audit jurisdiction of COA as defined in Section 2(1), ArticleIX-D of the Constitution. Petitioner elaborates that PD 198 does not create LWDs since it doesnot expressly direct the creation of such entities, but only provides for their formation on anoptional or voluntary basis.8 Petitioner adds that the operative act that creates an LWD is theapproval of the Sanggunian Resolution as specified in PD 198.

Petitioners contention deserves scant consideration.

We begin by explaining the general framework under the fundamental law. The Constitutionrecognizes two classes of corporations. The first refers to private corporations created under ageneral law. The second refers to government-owned or controlled corporations created byspecial charters. Section 16, Article XII of the Constitution provides: Ï‚Î·Î±Ã±rÎ¿blÎµÅ¡ Î½Î¹râ€ Ï…Î±l lÎ±Ï‰ lÎ¹brÎ±rÃ¿

Sec. 16. The Congress shall not, except by general law, provide for the formation, organization,or regulation of private corporations. Government-owned or controlled corporations may be

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created or established by special charters in the interest of the common good and subject to thetest of economic viability.

The Constitution emphatically prohibits the creation of private corporations except by a generallaw applicable to all citizens.9 The purpose of this constitutional provision is to ban private

corporations created by special charters, which historically gave certain individuals, families orgroups special privileges denied to other citizens.10 Ï‚rÎ½ l l

In short, Congress cannot enact a law creating a private corporation with a special charter. Suchlegislation would be unconstitutional. Private corporations may exist only under a general law. Ifthe corporation is private, it must necessarily exist under a general law. Stated differently, onlycorporations created under a general law can qualify as private corporations. Under existinglaws, that general law is the Corporation Code,11 except that the Cooperative Code governs theincorporation of cooperatives.12 Ï‚rÎ½ll

The Constitution authorizes Congress to create government-owned or controlled corporations

through special charters. Since private corporations cannot have special charters, it follows thatCongress can create corporations with special charters only if such corporations are government-owned or controlled.

Obviously, LWDs are not private corporations because they are not created under theCorporation Code. LWDs are not registered with the Securities and Exchange Commission.Section 14 of the Corporation Code states that "[A]ll corporations organized under this codeshall file with the Securities and Exchange Commission articles of incorporation x x x." LWDshave no articles of incorporation, no incorporators and no stockholders or members. There are nostockholders or members to elect the board directors of LWDs as in the case of all corporationsregistered with the Securities and Exchange Commission. The local mayor or the provincial

governor appoints the directors of LWDs for a fixed term of office. This Court has ruled thatLWDs are not created under the Corporation Code, thus:

From the foregoing pronouncement, it is clear that what has been excluded from the coverage ofthe CSC are those corporations created pursuant to the Corporation Code. Significantly,petitioners are not created under the said code, but on the contrary, they were created

pursuant to a special law and are governed primarily by its provision .13 ( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ¿

LWDs exist by virtue of PD 198, which constitutes their special charter. Since under theConstitution only government-owned or controlled corporations may have special charters,LWDs can validly exist only if they are government-owned or controlled. To claim that LWDsare private corporations with a special charter is to admit that their existence is constitutionallyinfirm.

Unlike private corporations, which derive their legal existence and power from the CorporationCode, LWDs derive their legal existence and power from PD 198. Sections 6 and 25 of PD 19814 provide:

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Section 6. Formation of District. This Act is the source of authorization and power to formand maintain a district. For purposes of this Act, a district shall be considered as a quasi-

public corporation performing public service and supplying public wants. As such, a

district shall exercise the powers, rights and privileges given to private corporations under

existing laws, in addition to the powers granted in, and subject to such restrictions

imposed, under this Act.(a) The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served by said system, followed by the words "Water District".

(b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the city or municipality. A district may include one ormore municipalities, cities or provinces, or portions thereof.

(c) A statement completely transferring any and all waterworks and/or sewerage facilitiesmanaged, operated by or under the control of such city, municipality or province to such district

upon the filing of resolution forming the district.(d) A statement identifying the purpose for which the district is formed, which shall includethose purposes outlined in Section 5 above.

(e) The names of the initial directors of the district with the date of expiration of term of officefor each.

(f) A statement that the district may only be dissolved on the grounds and under the conditionsset forth in Section 44 of this Title.

(g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 ofthis Title.

Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the district beyond that specifically provided for in this Act.

If two or more cities, municipalities or provinces, or any combination thereof, desire to form asingle district, a similar resolution shall be adopted in each city, municipality and province.

x x x

Sec. 25. Authorization. The district may exercise all the powers which are expressly grantedby this Title or which are necessarily implied from or incidental to the powers andpurposes herein stated. For the purpose of carrying out the objectives of this Act, a district ishereby granted the power of eminent domain, the exercise thereof shall, however, be subject toreview by the Administration. ( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ¿

Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers onLWDs corporate powers. Section 6 of PD 198 provides that LWDs "shall exercise the powers,


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rights and privileges given to private corporations under existing laws." Without PD 198, LWDswould have no corporate powers. Thus, PD 198 constitutes the special enabling charter ofLWDs. The ineluctable conclusion is that LWDs are government-owned and controlledcorporations with a special charter.

The phrase "government-owned and controlled corporations with original charters" meansGOCCs created under special laws and not under the general incorporation law. There is nodifference between the term "original charters" and "special charters." The Court clarified this inNational Service Corporation v. NLRC

15 by citing the deliberations in the ConstitutionalCommission, as follows:

THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.

Commissioner Romulo is recognized.

MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to

now read as follows: "including government-owned or controlled corporations WITHORIGINAL CHARTERS." The purpose of this amendment is to indicate that governmentcorporations such as the GSIS and SSS, which have original charters, fall within the ambit of thecivil service. However, corporations which are subsidiaries of these chartered agencies such asthe Philippine Airlines, Manila Hotel and Hyatt are excluded from the coverage of the civilservice.

THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say? chanroblesvirtualawlibrary

MR. FOZ. Just one question, Mr. Presiding Officer. By the term "original charters," what

exactly do we mean?chanroblesvirtualawlibrary

MR. ROMULO. We mean that they were created by law, by an act of Congress, or by speciallaw.

MR. FOZ. And not under the general corporation law.

MR. ROMULO. That is correct. Mr. Presiding Officer.

MR. FOZ. With that understanding and clarification, the Committee accepts the amendment.

MR. NATIVIDAD. Mr. Presiding Officer, so those created by the general corporation law are

out.MR. ROMULO. That is correct. ( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ¿

Again, in Davao City Water D istri ct v. Civil Service Commission ,16 the Court reiterated themeaning of the phrase "government-owned and controlled corporations with original charters" inthis wise:



12/24

By "government-owned or controlled corporation with original charter," We mean

government owned or controlled corporation created by a special law and not under the

Corporation Code of the Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No. 82819,February 8, 1989, 170 SCRA 79, 82), We held:

"The Court, in National Service Corporation (NASECO) v. National Labor RelationsCommission, G.R. No. 69870, promulgated on 29 November 1988, quoting extensively fromthe deliberations of the 1986 Constitutional Commission in respect of the intent and

meaning of the new phrase with original charter, in effect held that government-owned and

controlled corporations with original charter refer to corporations chartered by special law

as distinguished from corporations organized under our general incorporation statute the

Corporation Code. In NASECO, the company involved had been organized under the generalincorporation statute and was a subsidiary of the National Investment Development Corporation(NIDC) which in turn was a subsidiary of the Philippine National Bank, a bank chartered by aspecial statute. Thus, government-owned or controlled corporations like NASECO areeffectively, excluded from the scope of the Civil Service." ( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ¿

Petitioners contention that the Sangguniang Bayan resolution creates the LWDs assumes that theSangguniang Bayan has the power to create corporations. This is a patently baseless assumption.The Local Government Code17 does not vest in the Sangguniang Bayan the power to createcorporations.18 What the Local Government Code empowers the Sangguniang Bayan to do is to provide for the establishment of a waterworks system "subject to existing laws." Thus, Section447(5) (vii) of the Local Government Code provides:

SECTION 447. Powers, Duties, Functions and Compensation. (a) The sangguniang bayan, as thelegislative body of the municipality, shall enact ordinances, approve resolutions and appropriatefunds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this

Code and in the proper exercise of the corporate powers of the municipality as provided forunder Section 22 of this Code, and shall:

x x x

(vii) Subject to existing laws, provide for the establishment, operation, maintenance, and repairof an efficient waterworks system to supply water for the inhabitants; regulate the construction,maintenance, repair and use of hydrants, pumps, cisterns and reservoirs; protect the purity andquantity of the water supply of the municipality and, for this purpose, extend the coverage ofappropriate ordinances over all territory within the drainage area of said water supply and withinone hundred (100) meters of the reservoir, conduit, canal, aqueduct, pumping station, orwatershed used in connection with the water service; and regulate the consumption, use orwastage of water;

x x x. ( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ¿

The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of PD 198. The Sangguniang Bayan has no power to create a corporate entity that willoperate its waterworks system. However, the Sangguniang Bayan may avail of existing enabling



13/24

laws, like PD 198, to form and incorporate a water district. Besides, even assuming for the sakeof argument that the Sangguniang Bayan has the power to create corporations, the LWDs wouldremain government-owned or controlled corporations subject to COAs audit jurisdiction. Theresolution of the Sangguniang Bayan would constitute an LWDs special charter, making theLWD a government-owned and controlled corporation with an original charter. In any event, the

Court has already ruled in Baguio Water Distri ct v. Trajano 19

that the Sangguniang Bayanresolution is not the special charter of LWDs, thus:

While it is true that a resolution of a local sanggunian is still necessary for the final creation of adistrict, this Court is of the opinion that said resolution cannot be considered as its charter, thesame being intended only to implement the provisions of said decree.

Petitioner further contends that a law must create directly and explicitly a GOCC in order that itmay have an original charter. In short, petitioner argues that one special law cannot serve asenabling law for several GOCCs but only for one GOCC. Section 16, Article XII of theConstitution mandates that "Congress shall not, except by general law,"20 provide for the

creation of private corporations. Thus, the Constitution prohibits one special law to create one private corporation, requiring instead a "general law" to create private corporations. In contrast,the same Section 16 states that "Government-owned or controlled corporations may be createdor established by special charters." Thus, the Constitution permits Congress to create a GOCCwith a special charter. There is, however, no prohibition on Congress to create several GOCCs ofthe same class under one special enabling charter.

The rationale behind the prohibition on private corporations having special charters does notapply to GOCCs. There is no danger of creating special privileges to certain individuals, familiesor groups if there is one special law creating each GOCC. Certainly, such danger will not existwhether one special law creates one GOCC, or one special enabling law creates several GOCCs.

Thus, Congress may create GOCCs either by special charters specific to each GOCC, or by onespecial enabling charter applicable to a class of GOCCs, like PD 198 which applies only toLWDs.

Petitioner also contends that LWDs are private corporations because Section 6 of PD 19821 declares that LWDs "shall be considered quasi-public" in nature. Petitioners rationale is that only private corporations may be deemed "quasi-public" and not public corporations. Put differently, petitioner rationalizes that a public corporation cannot be deemed "quasi-public" because suchcorporation is already public. Petitioner concludes that the term "quasi-public" can only apply to private corporations. Petitioners argument is inconsequential.

Petitioner forgets that the constitutional criterion on the exercise of COAs audit jurisdictiondepends on the governments ownership or control of a corporation. The nature of thecorporation, whether it is private, quasi-public, or public is immaterial.

The Constitution vests in the COA audit jurisdiction over "government-owned and controlledcorporations with original charters," as well as "government-owned or controlled corporations"without original charters. GOCCs with original charters are subject to COA pre-audit, whileGOCCs without original charters are subject to COA post-audit. GOCCs without original

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charters refer to corporations created under the Corporation Code but are owned or controlled bythe government. The nature or purpose of the corporation is not material in determining COAsaudit jurisdiction. Neither is the manner of creation of a corporation, whether under a general orspecial law.

The determining factor of COAs audit jurisdiction is government ownership or control of thecorporation. In Phi li ppine Veterans Bank Employees Union-NUBE v. Phil ippine VeteransBank ,22 the Court even ruled that the criterion of ownership and control is more important thanthe issue of original charter, thus:

This point is important because the Constitution provides in its Article IX-B, Section 2(1) that"the Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of theGovernment, including government-owned or controlled corporations with original charters." Asthe Bank is not owned or controlled by the Government although it does have an original

charter in the form of R.A. No. 3518,23 it clearly does not fall under the Civil Service and

should be regarded as an ordinary commercial corporation. Section 28 of the said law so

provides. The consequence is that the relations of the Bank with its employees should begoverned by the labor laws, under which in fact they have already been paid some of theirclaims. ( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ ¿

Certainly, the government owns and controls LWDs. The government organizes LWDs inaccordance with a specific law, PD 198. There is no private party involved as co-owner in thecreation of an LWD. Just prior to the creation of LWDs, the national or local government ownsand controls all their assets. The government controls LWDs because under PD 198 themunicipal or city mayor, or the provincial governor, appoints all the board directors of an LWDfor a fixed term of six years.24 The board directors of LWDs are not co-owners of the LWDs.LWDs have no private stockholders or members. The board directors and other personnel of

LWDs are government employees subject to civil service laws

25

and anti-graft laws.

26

Ï‚rÎ½ll

While Section 8 of PD 198 states that "[N]o public official shall serve as director" of an LWD, itonly means that the appointees to the board of directors of LWDs shall come from the privatesector. Once such private sector representatives assume office as directors, they become publicofficials governed by the civil service law and anti-graft laws. Otherwise, Section 8 of PD 198would contravene Section 2(1), Article IX-B of the Constitution declaring that the civil serviceincludes "government-owned or controlled corporations with original charters." chanroblesvirtuallawlibrary

If LWDs are neither GOCCs with original charters nor GOCCs without original charters, thenthey would fall under the term "agencies or instrumentalities" of the government and thus stillsubject to COAs audit jurisdiction. However, the stark and undeniable fact is that the governmentowns LWDs. Section 4527 of PD 198 recognizes government ownership of LWDs when Section45 states that the board of directors may dissolve an LWD only on the condition that "anotherpublic entity has acquired the assets of the district and has assumed all obligations and liabilitiesattached thereto." The implication is clear that an LWD is a public and not a private entity.

Petitioner does not allege that some entity other than the government owns or controls LWDs.Instead, petitioner advances the theory that the "Water Districts owner is the District itself."28

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Assuming for the sake of argument that an LWD is "self-owned,"29 as petitioner describes anLWD, the government in any event controls all LWDs. First, government officials appoint allLWD directors to a fixed term of office. Second, any per diem of LWD directors in excess ofP50 is subject to the approval of the Local Water Utilities Administration, and directors canreceive no other compensation for their services to the LWD.30 Third, the Local Water Utilities

Administration can require LWDs to merge or consolidate their facilities or operations.

31

Thiselement of government control subjects LWDs to COAs audit jurisdiction.

Petitioner argues that upon the enactment of PD 198, LWDs became private entities through thetransfer of ownership of water facilities from local government units to their respective waterdistricts as mandated by PD 198. Petitioner is grasping at straws. Privatization involves thetransfer of government assets to a private entity. Petitioner concedes that the owner of the assetstransferred under Section 6 (c) of PD 198 is no other than the LWD itself .32 The transfer of assetsmandated by PD 198 is a transfer of the water systems facilities "managed, operated by or underthe control of such city, municipality or province to such (water) district."33 In short, the transferis from one government entity to another government entity. PD 198 is bereft of any indication

that the transfer is to privatize the operation and control of water systems.Finally, petitioner claims that even on the assumption that the government owns and controlsLWDs, Section 20 of PD 198 prevents COA from auditing LWDs.34 Section 20 of PD 198 provides:

Sec. 20. System of Business Administration. The Board shall, as soon as practicable, prescribeand define by resolution a system of business administration and accounting for the district,which shall be patterned upon and conform to the standards established by the Administration.Auditing shall be performed by a certified public accountant not in the government service .The Administration may, however, conduct annual audits of the fiscal operations of the district to

be performed by an auditor retained by the Administration. Expenses incurred in connectiontherewith shall be borne equally by the water district concerned and the Administration.35 ( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ¿

Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor forthat matter, from auditing LWDs. Petitioner asserts that this is the import of the second sentenceof Section 20 of PD 198 when it states that "[A]uditing shall be performed by a certified publicaccountant not in the government service."36 Ï‚rÎ½ll

PD 198 cannot prevail over the Constitution. No amount of clever legislation can excludeGOCCs like LWDs from COAs audit jurisdiction. Section 3, Article IX-C of the Constitutionoutlaws any scheme or devise to escape COAs audit jurisdiction, thus:

Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in anyguise whatever, or any investment of public funds, from the jurisdiction of the Commission onAudit. ( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ¿

The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely toannul provisions of Presidential Decrees, like that of Section 20 of PD 198, that exempt GOCCs

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from COA audit. The following exchange in the deliberations of the Constitutional Commissionelucidates this intent of the framers:

MR. OPLE: I propose to add a new section on line 9, page 2 of the amended committee reportwhich reads: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE

GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANYINVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSIONON AUDIT.

May I explain my reasons on record.

We know that a number of entities of the government took advantage of the absence of a

legislature in the past to obtain presidential decrees exempting themselves from the

jurisdiction of the Commission on Audit, one notable example of which is the Philippine National Oil Company which is really an empty shell. It is a holding corporation by itself, andstrictly on its own account. Its funds were not very impressive in quantity but underneath that

shell there were billions of pesos in a multiplicity of companies. The PNOC the empty shellunder a presidential decree was covered by the jurisdiction of the Commission on Audit, but the billions of pesos invested in different corporations underneath it were exempted from thecoverage of the Commission on Audit.

Another example is the United Coconut Planters Bank. The Commission on Audit hasdetermined that the coconut levy is a form of taxation; and that, therefore, these funds attributedto the shares of 1,400,000 coconut farmers are, in effect, public funds. And that was, I think, the basis of the PCGG in undertaking that last major sequestration of up to 94 percent of all theshares in the United Coconut Planters Bank. The charter of the UCPB, through a presidentialdecree, exempted it from the jurisdiction of the Commission on Audit, it being a private

organization.So these are the fetuses of future abuse that we are slaying right here with this additional section.

May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTINGANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISEWHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTIONOF THE COMMISSION ON AUDIT.

THE PRESIDENT: May we know the position of the Committee on the proposed amendmentof Commissioner Ople? chanroblesvirtualawlibrary

MR. JAMIR: If the honorable Commissioner will change the number of the section to 4, wewill accept the amendment.

MR. OPLE: Gladly, Madam President. Thank you.

MR. DE CASTRO: Madam President, point of inquiry on the new amendment.


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THE PRESIDENT: Commissioner de Castro is recognized.

MR. DE CASTRO: Thank you : May I just ask a few questions of Commissioner Ople.

Is that not included in Section 2 (1) where it states: "(c) government-owned or controlled

corporations and their subsidiaries"? So that if these government-owned and controlledcorporations and their subsidiaries are subjected to the audit of the COA, any law exemptingcertain government corporations or subsidiaries will be already unconstitutional.

So I believe, Madam President, that the proposed amendment is unnecessary.

MR. MONSOD: Madam President, since this has been accepted, we would like to reply to the point raised by Commissioner de Castro.

THE PRESIDENT: Commissioner Monsod will please proceed.

MR. MONSOD: I think the Commissioner is trying to avoid the situation that happened in the past, because the same provision was in the 1973 Constitution and yet somehow a law or adecree was passed where certain institutions were exempted from audit. We are just reaffirming,emphasizing, the role of the Commission on Audit so that this problem will never arise in thefuture.37

There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting COA auditors from auditing LWDs and Sections 2(1) and 3, Article IX-D of theConstitution vesting in COA the power to audit all GOCCs. We rule that the second sentence ofSection 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3, Article IX-D of theConstitution.

On the Legality of COAs

Practice of Charging Auditing Fees

Petitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in Section 18 of RA 6758,38 which states:

Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. Inorder to preserve the independence and integrity of the Commission on Audit (COA), its officialsand employees are prohibited from receiving salaries, honoraria, bonuses, allowances or otheremoluments from any government entity, local government unit, government-owned or

controlled corporations, and government financial institutions, except those compensation paiddirectly by COA out of its appropriations and contributions.

Government entities, including government-owned or controlled corporations including financialinstitutions and local government units are hereby prohibited from assessing or billing othergovernment entities, including government-owned or controlled corporations including financialinstitutions or local government units for services rendered by its officials and employees as part



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of their regular functions for purposes of paying additional compensation to said officials andemployees. ( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ¿

Claiming that Section 18 is "absolute and leaves no doubt,"39 petitioner asks COA to discontinueits practice of charging auditing fees to LWDs since such practice allegedly violates the law.

Petitioners claim has no basis.

Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation fromany government entity except "compensation paid directly by COA out of its appropriationsand contributions." Thus, RA 6758 itself recognizes an exception to the statutory ban on COA personnel receiving compensation from GOCCs. In Tejada v. Domingo ,40 the Court declared:

There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthenfurther the policy x x x to preserve the independence and integrity of the COA, by explicitlyPROHIBITING: (1) COA officials and employees from receiving salaries, honoraria, bonuses,

allowances or other emoluments from any government entity, local government unit, GOCCsand government financial institutions, except such compensation paid directly by the COAout of its appropriations and contributions, and (2) government entities, including GOCCs,government financial institutions and local government units from assessing or billing othergovernment entities, GOCCs, government financial institutions or local government units forservices rendered by the latters officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees.

x x x

The first aspect of the strategy is directed to the COA itself, while the second aspect is addressed

directly against the GOCCs and government financial institutions. Under the first, COApersonnel assigned to auditing units of GOCCs or government financial institutions canreceive only such salaries, allowances or fringe benefits paid directly by the COA out of its

appropriations and contributions. The contributions referred to are the cost of audit

services earlier mentioned which cannot include the extra emoluments or benefits now

claimed by petitioners. The COA is further barred from assessing or billing GOCCs andgovernment financial institutions for services rendered by its personnel as part of their regularaudit functions for purposes of paying additional compensation to such personnel. x x x.( Emphasis supplied )Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±rÃ¿

In Tejada, the Court explained the meaning of the word "contributions" in Section 18 of RA6758, which allows COA to charge GOCCs the cost of its audit services:

x x x the contributions from the GOCCs are limited to the cost of audit services which are basedon the actual cost of the audit function in the corporation concerned plus a reasonable rate to

cover overhead expenses. The actual audit cost shall include personnel services, maintenance andother operating expenses, depreciation on capital and equipment and out-of-pocket expenses. In

respect to the allowances and fringe benefits granted by the GOCCs to the COA personnel



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assigned to the formers auditing units, the same shall be directly defrayed by COA from its ownappropriations x x x.41

COA may charge GOCCs "actual audit cost" but GOCCs must pay the same directly to COA andnot to COA auditors. Petitioner has not alleged that COA charges LWDs auditing fees in excess

of COAs "actual audit cost." Neither has petitioner alleged that the auditing fees are paid byLWDs directly to individual COA auditors. Thus, petitioners contention must fail.

WHEREFORE, the Resolution of the Commission on Audit dated 3 January 2000 and theDecision dated 30 January 2001 denying petitioners Motion for Reconsideration areAFFIRMED. The second sentence of Section 20 of Presidential Decree No. 198 is declaredVOID for being inconsistent with Sections 2 (1) and 3, Article IX-D of the Constitution. Nocosts.

SO ORDERED.

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[G.R. NO. 175048 : February 10, 2009]

EXCELLENT QUALITY APPAREL, INC., Petitioner , v. WIN MULTI RICH BUILDERS,INC., represented by its President, WILSON G. CHUA, Respondent .

D E C I S I O N

TINGA, J.:

Before us is a Rule 45 petition1 seeking the reversal of the Decision2 and Resolution3 of theCourt of Appeals in CA-G.R. SP No. 84640. The Court of Appeals had annulled two orders4 ofthe Regional Trial Court (RTC), Branch 32, of Manila in Civil Case No. 04-108940. This caseinvolves a claim for a sum of money which arose from a construction dispute.

On 26 March 1996, petitioner Excellent Quality Apparel, Inc. (petitioner) then represented byMax L.F. Ying, Vice-President for Productions, and Alfiero R. Orden, Treasurer, entered into a

contract

5

with Multi-Rich Builders (Multi-Rich) represented by Wilson G. Chua (Chua), itsPresident and General Manager, for the construction of a garment factory within the CavitePhilippine Economic Zone Authority (CPEZ).6 The duration of the project was for a maximum period of five (5) months or 150 consecutive calendar days. Included in the contract is anarbitration clause which is as follows:

Article XIX : ARBITRATION CLAUSE

Should there be any dispute, controversy or difference between the parties arising out of thisContract that may not be resolved by them to their mutual satisfaction, the matter shall besubmitted to an Arbitration Committee of three (3) members; one (1) chosen by the OWNER;

one (1) chosen by the CONTRACTOR; and the Chairman thereof to be chosen by two (2)members. The decision of the Arbitration Committee shall be final and binding on both the parties hereto. The Arbitration shall be governed by the Arbitration Law (R.A. [No.] 876). Thecost of arbitration shall be borned [sic] jointly by both CONTRACTOR and OWNER on 50-50 basis.7

The construction of the factory building was completed on 27 November 1996.

Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the Securities andExchange Commission (SEC) on 20 February 19978 with Chua as its President and GeneralManager. On 26 January 2004, Win filed a complaint for a sum of money9 against petitioner and

Mr. Ying amounting to P8,634,448.20. It also prayed for the issuance of a writ of attachmentclaiming that Mr. Ying was about to abscond and that petitioner was about to close. Winobtained a surety bond10 issued by Visayan Surety & Insurance Corporation. On 10 February2004, the RTC issued the Writ of Attachment11 against the properties of petitioner.

On 16 February 2004, Sheriff Salvador D. Dacumos of the RTC of Manila, Branch 32, went tothe office of petitioner in CPEZ to serve the Writ of Attachment, Summons12 and the Complaint.Petitioner issued Equitable PCIBank (PEZA Branch) Check No. 160149, dated 16 February

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2004, in the amount of P8,634,448.20, to prevent the Sheriff from taking possession of its properties.13 The check was made payable to the Office of the Clerk of Court of the RTC ofManila as a guarantee for whatever liability there may be against petitioner.

Petitioner filed an Omnibus Motion14 claiming that it was neither about to close. It also denied

owing anything to Win, as it had already paid all its obligations to it. Lastly, it questioned the jurisdiction of the trial court from taking cognizance of the case. Petitioner pointed to the presence of the Arbitration Clause and it asserted that the case should be referred to theConstruction Industry Arbitration Commission (CIAC) pursuant to Executive Order (E.O.) No.1008.

In the hearing held on 10 February 2004, the counsel of Win moved that its name in the case bechanged from "Win Multi-Rich Builders, Inc." to "Multi-Rich Builders, Inc." It was only thenthat petitioner apparently became aware of the variance in the name of the plaintiff. In theReply15 filed by petitioner, it moved to dismiss the case since Win was not the contractor andneither a party to the contract, thus it cannot institute the case. Petitioner obtained a Certificate of

Non-Registration of Corporation/Partnership

16

from the SEC which certified that the latter didnot have any records of a "Multi-Rich Builders, Inc." Moreover, Win in its Rejoinder 17 did not

oppose the allegations in the Reply. Win admitted that it was only incorporated on 20 February1997 while the construction contract was executed on 26 March 1996. Likewise, it admitted thatat the time of execution of the contract, Multi-Rich was a registered sole proprietorship and wasissued a business permit18 by the Office of the Mayor of Manila.

In an Order 19 dated 12 April 2004, the RTC denied the motion and stated that the issues can beanswered in a full-blown trial. Upon its denial, petitioner filed its Answer and prayed for thedismissal of the case.20 Win filed a Motion21 to deposit the garnished amount to the court to

protect its legal rights. In a Manifestation,

22

petitioner vehemently opposed the deposit of thegarnished amount. The RTC issued an Order 23 dated 20 April 2004, which granted the motion todeposit the garnished amount. On the same date, Win filed a motion 24 to release the garnishedamount to it. Petitioner filed its opposition25 to the motion claiming that the release of the moneydoes not have legal and factual basis.

On 18 June 2004, petitioner filed a Petition for Review on Certiorari 26 under Rule 65 before theCourt of Appeals, which questioned the jurisdiction of the RTC and challenged the orders issued by the lower court with a prayer for the issuance of a temporary retraining order and a writ of preliminary injunction. Subsequently, petitioner filed a Supplemental Manifestation

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