PNCC vs. Pabion

A corporation organized under the Corporation Code remains a private corporation subject to SEC jurisdiction even if the government owns majority of its shares, and an "acquired asset corporation" — whose shares were conveyed to government financial institutions in satisfaction of debts — is excluded from the definition of GOCC under AO 59, such that its board of directors is elected by stockholders, not appointed by the President.

PNCC is a corporation organized pursuant to the general Corporation Code, not created by special law or original charter. Several government financial institutions (GFIs) acquired at least 76.48 percent of PNCC's equity through a debt-to-equity conversion effected pursuant to Letter of Instruction No. 1295. Private respondents Ernesto Pabion and Louella Ramiro claimed to be stockholders of PNCC. Administrative Order No. 59, issued by President Corazon Aquino on February 16, 1988, governs the organization and management of GOCCs and distinguishes between GOCCs and "acquired asset corporations," the latter excluded from the GOCC category. The dispute centers on whether PNCC's board of directors is elected by stockholders under the Corporation Code and PNCC's by-laws, or appointed by the President under Section 16 of AO 59.

On September 16, 1994, Ernesto Pabion and Louella Ramiro, claiming to be stockholders of the Philippine National Construction Corporation (PNCC), filed a verified petition with the Securities and Exchange Commission (SEC), alleging that since 1982 — for a period of twelve years — no stockholders' meeting had been held to elect PNCC's board of directors, thereby enabling incumbent directors to hold on to their positions beyond their one-year term in violation of PNCC's by-laws and the Corporation Code. They prayed that the SEC issue an order directing PNCC's officers, or in the alternative authorizing the petitioners, to call and hold a stockholders' meeting for the purpose of electing new directors. The petition was docketed as SEC Case No. 09-94-4876 and assigned to SEC Hearing Officer Manuel Perea.

In its answer, PNCC claimed that it was a government-owned corporation whose organizational and functional management were governed by Administrative Order No. 59, issued by President Corazon Aquino on February 16, 1988. PNCC asserted that its board of directors did not hold office by virtue of a stockholders' election but by appointment of the President of the Philippines, relying on Article IV, Section 16(1) of AO No. 59, which provides that a GOCC shall be governed by a board of directors whose members and chairman are appointed by the President upon the recommendation of the Secretary to whose department the GOCC is attached. PNCC expressed the fear that granting the prayer would contravene AO No. 59 and interfere with the President's power of control and appointment over GOCCs, and added that under Executive Order No. 399, series of 1951, a GOCC is not required to hold a general meeting of stockholders but merely to submit an annual report to the President.

During the pre-trial conference, the parties defined the issues as whether PNCC is a GOCC subject to LOI 1295, AO No. 59, and EO No. 399, or governed solely by its articles of incorporation and by-laws, and whether PNCC is required to call regular annual stockholders' meetings. The parties agreed to submit the case for resolution after filing their respective memoranda. However, in a motion dated September 4, 1995, Pabion and Ramiro sought to reopen the pre-trial, claiming that the "common assumption" of 75% government ownership through GFIs was proved false by their discovery that the GFIs were merely a minority among PNCC's owners, and moved that a trial be conducted to determine the extent of government ownership.

Acting on this motion, Hearing Officer Perea issued an order on January 30, 1996, directing the parties to secure a ruling or opinion from competent authority as to whether PNCC is a government corporation, holding that the matter did not fall within the competence of the Commission to determine, and that further proceedings should be held in abeyance unless such ruling was obtained. Perea denied the motion for reconsideration on April 10, 1996. Pabion and Ramiro then elevated the matter to the SEC en banc via a petition for certiorari (SEC-EB No. 495), seeking to nullify Perea's twin orders for grave abuse of discretion and asking the SEC en banc to direct Perea to proceed with trial on the merits.

The SEC en banc, in its order of October 2, 1996, declared that Hearing Officer Perea had acted with grave abuse of discretion, ruling that the controversy was an intra-corporate dispute within the SEC's original and exclusive jurisdiction under Section 5(b) of PD 902-A, and that the hearing officer had jurisdiction to resolve the incidental issue of whether PNCC is a GOCC. Rather than remanding, the SEC en banc itself resolved the issue, holding that PNCC, being incorporated under the Corporation Code, is subject to Section 50 thereof requiring regular stockholders' meetings, and that PNCC is an "acquired asset corporation" which by express provision of Section 2 of AO No. 59 is not considered a GOCC. Taking judicial notice of PNCC's by-laws — under which directors are elected at the annual stockholders' meeting — the SEC ordered the President or Chairman of PNCC to call a special stockholders' meeting within thirty days for the purpose of electing board members to hold office up to March 1997. The SEC denied reconsideration on April 11, 1997.

PNCC appealed to the Court of Appeals, which affirmed the SEC's ruling on October 23, 1997, declaring that PNCC, though majority-owned by GFIs, retained its character as a private corporation required under the Corporation Code to hold regular stockholders' meetings. The CA held that the SEC en banc properly resolved the controversy on the merits based on the records, including PNCC's admission of the debt-to-equity conversion, and that a remand would only delay resolution and frustrate the ends of justice. The CA further held that PNCC is an acquired asset corporation under AO No. 59, excluded from the GOCC category, and that Section 16 of AO No. 59 was inapplicable. The CA denied PNCC's motion for reconsideration on December 2, 1997. PNCC then filed the present petition before the Supreme Court.

• SEC Lacks Jurisdiction to Determine GOCC Status: Petitioner asserted that the SEC is without competence to determine whether PNCC is a GOCC, insisting that such determination falls solely upon the President of the Philippines and is therefore beyond SEC's jurisdiction.
• SEC Cannot Rule on the Merits in Certiorari: Petitioner argued that certiorari proceedings before the SEC en banc, patterned after Rule 65 of the 1997 Rules of Court, are generally limited to determining whether grave abuse of discretion was committed by the hearing officer below, and that the SEC en banc should have limited itself to that issue and remanded the case for further proceedings rather than ruling on the merits.
• PNCC Is a GOCC Subject to Presidential Appointment: Petitioner maintained that PNCC is a GOCC governed by AO No. 59, LOI 1295, and EO No. 399, and that its board members hold office by appointment of the President under Section 16(1) of AO No. 59, not by stockholders' election.
• AO 59 Inconsistent with EO 292: Petitioner contended that the definition of GOCC in AO 59 is inconsistent with that in the Revised Administrative Code (EO 292), and that since AO 59 is a mere administrative issuance, its definition cannot prevail over the statutory definition in EO 292.
• Debt-to-Equity Conversion Did Not Satisfy Debts: Petitioner denied that the debt-to-equity conversion resulted in satisfaction of PNCC's outstanding debts, arguing that the loans remained unpaid, and therefore PNCC does not qualify as an acquired asset corporation under AO No. 59.
• No Law or Policy Mandating Privatization: Petitioner posited that an acquired asset corporation must be subject to a law or enunciated policy mandating its privatization within a definite period, and that no such law or policy applies to PNCC.

• PNCC Is an Acquired Asset Corporation, Not a GOCC: Respondents countered that PNCC is not a GOCC but an acquired asset corporation under Section 2(b) of AO No. 59, because its shares were conveyed to GFIs in satisfaction of debts through debt-to-equity conversion, expressly excluding it from the GOCC category.
• SEC Has Jurisdiction Over the Intra-Corporate Controversy: Respondents argued that the dispute is an intra-corporate controversy within the SEC's original and exclusive jurisdiction under Section 5(b) of PD 902-A, and that PNCC itself conceded the SEC's competence over the propriety of calling a stockholders' meeting.
• Corporation Code and By-Laws Require Stockholders' Meeting: Respondents maintained that PNCC, being incorporated under the Corporation Code, is subject to Section 50 thereof requiring regular stockholders' meetings, and that PNCC's own by-laws require annual election of directors by stockholders.
• AO 59 Is Not Inconsistent with EO 292: Respondents pointed out that it would be absurd for an earlier law (EO 292) to impliedly repeal a subsequent one (AO 59), and that the definition in EO 292 itself contemplates further categorization of GOCCs.

• SEC Authority to Determine Corporate Status: Whether the SEC has the competence to determine whether PNCC is a GOCC.
• SEC Jurisdiction Over GOCCs: Whether the SEC has jurisdiction over GOCCs, specifically over PNCC.
• SEC Ruling on the Merits in Certiorari: Whether the SEC en banc, in certiorari proceedings, may rule on the merits of a case even before the hearing officer has received evidence.
• Status of PNCC as Acquired Asset Corporation: Whether PNCC is an acquired asset corporation under AO No. 59, and whether Section 16 of AO No. 59 is applicable to PNCC.
• Consistency of AO 59 with EO 292: Whether Section 2 of AO 59 is inconsistent with Section 2(13) of EO 292.

• SEC Authority to Determine Corporate Status: Yes. The SEC, as the body charged with exclusive authority over intra-corporate controversies and over corporations organized under the Corporation Code, has competence to distinguish a private corporation from a GOCC based on law, including the Revised Administrative Code of 1987.
• SEC Jurisdiction Over GOCCs: Yes, in part. The SEC has no jurisdiction over GOCCs with original charters or created by special law, but it does have jurisdiction over GOCCs organized under the Corporation Code, which are regarded as private corporations. PNCC, being organized under the Corporation Code, is subject to SEC regulation.
• SEC Ruling on the Merits in Certiorari: Yes. The general rule limiting certiorari to grave abuse of discretion admits of exceptions, including when the reviewing body is in a position to resolve the dispute on the merits based on undisputed facts in the records. PNCC's admission of the debt-to-equity conversion provided sufficient basis for the SEC en banc to rule directly.
• Status of PNCC as Acquired Asset Corporation: Yes. PNCC is an acquired asset corporation under Section 2(b) of AO No. 59, as its shares were conveyed to GFIs in satisfaction of debts through debt-to-equity conversion. Section 16(1) of AO No. 59, providing for presidential appointment of board members, is inapplicable to PNCC.
• Consistency of AO 59 with EO 292: No inconsistency exists. The definition in AO 59 applies only to that administrative order and does not purport to supersede EO 292; rather, it distinguishes GOCCs in general from those slated for privatization, which EO 292 itself contemplates through further categorization.

• SEC Authority to Determine Corporate Status: The misconception that GOCCs are beyond SEC jurisdiction led petitioner to assert that only the President can determine whether a corporation is a GOCC. This is erroneous: the President does not "determine" corporate status — the law does. The Revised Administrative Code of 1987 (EO 292), Section 2(13), defines GOCCs, and the SEC, as the body charged with exclusive authority over intra-corporate controversies under Section 5(b) of PD 902-A and with absolute jurisdiction over corporations under Section 3 of the same decree, can be trusted with the competence to distinguish a private corporation from a GOCC. To disallow the SEC from determining PNCC's nature would deprive it of the power to resolve the intra-corporate controversy before it.

• SEC Jurisdiction Over GOCCs: GOCCs may be of two types: those with original charters or created by special law, and those incorporated under the general Corporation Code. The SEC has no jurisdiction over the first type, primarily because they are governed by their charters, though the Corporation Code may apply suppletorily. Over the second type — GOCCs organized under the Corporation Code — the SEC can exercise jurisdiction, as these are regarded as private corporations despite government ownership of controlling shares. Section 143 of the Corporation Code gives the SEC the authority to implement the Code's provisions, including regulation of entities created thereunder. PNCC's reliance on Quimpo vs. Tanodbayan was misplaced, as that case involved Petrophil Corporation, which was purchased by the government through the Philippine National Oil Corporation — a different manner of acquisition from PNCC's debt-to-equity conversion. The controversy — involving the election of PNCC's directors — is an intra-corporate dispute squarely within SEC jurisdiction, and the SEC can compel the holding of a stockholders' meeting under Section 50 of the Corporation Code and Section 6(f) of PD 902-A. PNCC's own by-laws require annual election of directors by stockholders, and the failure to hold such meetings since 1983 constitutes a gross, continuing violation of its by-laws and the Corporation Code.

• SEC Ruling on the Merits in Certiorari: The general rule that certiorari is limited to grave abuse of discretion admits of exceptions, including when the court or administrative agency is in a position to resolve the dispute on the merits based on the records before it. Here, the SEC's ruling was factually based on PNCC's judicial admission of the debt-to-equity conversion of its obligations to GFIs pursuant to LOI 1295, and PNCC's admission that at least 76.48 percent of its equity is owned by GFIs. With such admissions extant on the records, the SEC en banc was in a position to validly dispose of the controversy directly without remanding, as a remand would have merely delayed unnecessarily the resolution of the question. Justice unnecessarily delayed is justice necessarily denied.

• Status of PNCC as Acquired Asset Corporation: PNCC falls under the exception in Section 2(a) of AO 59, which removes an acquired asset corporation from the GOCC category. Section 2(b) defines two kinds of acquired asset corporations: (1) a corporation under private ownership whose voting or outstanding shares were conveyed to the government or a government agency, instrumentality, or corporation in satisfaction of debts, or acquired through sequestration; and (2) a subsidiary of a government corporation organized to own and manage assets acquired by a GFI in satisfaction of debts. Both kinds are by law or enunciated policy required to be privatized within a specified period. PNCC fits the first kind, as its shares were conveyed to GFIs in satisfaction of debts through debt-to-equity conversion. The requirement for privatization is satisfied by Proclamation No. 50, which declares the State's policy to promote privatization, and by AO No. 64 and AO No. 397, which identify PNCC as a corporation slated for privatization. DOJ Opinions No. 37 (1995) and No. 22 (1998) likewise declared PNCC an acquired asset corporation. Section 16(1) of AO 59 is inapplicable because it refers to GOCCs attached to a department of the executive branch and those with original charters, not corporations created under general corporation law. PNCC's own admission that its board members are nominated by GFIs in proportion to their equity ownership further undermines its claim of presidential appointment.

• Consistency of AO 59 with EO 292: No inconsistency exists between AO 59 and EO 292. The definition in AO 59 explicitly applies only to that administrative order, as indicated by the phrase "As used in this Administrative Order." AO 59 does not purport to establish a new kind of corporation superseding EO 292, but distinguishes GOCCs in general from those slated for privatization. The definition in EO 292 itself states that GOCCs "may be further categorized," suggesting the definition is broad enough to admit distinctions. PNCC may be deemed a GOCC under EO 292, but for purposes of AO 59 — particularly Section 16 — it is an acquired asset corporation. An acquired asset corporation is a GOCC set to be privatized pursuant to government policy as enunciated in Proclamation No. 50. The allegation of implied repeal by EO 292 of AO 59 deserves scant consideration, as it would be absurd for an earlier law to impliedly repeal a subsequent one, and implied repeal is generally not favored.

• SEC Jurisdiction Over Corporations Organized Under the Corporation Code — A corporation organized under the general Corporation Code is regarded as a private corporation subject to SEC regulation, even if the government owns the controlling shares. The SEC has no jurisdiction over GOCCs with original charters or created by special law, but it does have jurisdiction over GOCCs established or organized under the Corporation Code. Section 143 of the Corporation Code gives the SEC the authority and power to implement the Code's provisions, including regulation of entities in which controlling shares are owned by the government or its agencies. In this case, PNCC, though majority-owned by GFIs through debt-to-equity conversion, remained a private corporation subject to SEC jurisdiction because it was organized under the Corporation Code.

• Acquired Asset Corporation Doctrine — Under Section 2 of AO No. 59, an "acquired asset corporation" is excluded from the definition of GOCC. There are two kinds: (1) a corporation under private ownership whose voting or outstanding shares were conveyed to the government or a government agency, instrumentality, or corporation in satisfaction of debts (whether by foreclosure or otherwise), or acquired through sequestration; and (2) a subsidiary of a government corporation organized exclusively to own and manage, lease, or operate specific physical assets acquired by a GFI in satisfaction of debts. Both kinds must by law or enunciated policy be required to be disposed of to private ownership within a specified period. Section 18 of AO 59 requires dissolution of any acquired asset corporation not disposed of within five years. In this case, PNCC qualified as the first kind because its shares were conveyed to GFIs in satisfaction of debts through debt-to-equity conversion, and Proclamation No. 50, AO No. 64, and AO No. 397 provided the enunciated policy for privatization.

• Exception to the Certiorari Rule — The general rule that certiorari proceedings are limited to determining grave abuse of discretion admits of exceptions, including when the reviewing court or agency is in a position to resolve the dispute on the merits based on undisputed facts in the records before it. A reviewing body may decide the lis mota of a case on its merits if there are enough undisputed facts to warrant such resolution, particularly when a remand would only delay resolution and frustrate the ends of justice. In this case, the SEC en banc properly ruled on the merits based on PNCC's admission of the debt-to-equity conversion and GFI ownership of at least 76.48 percent of its equity.

• Manner of Creation Determines Governing Law — The determination as to what law governs a corporation depends on the manner of its creation. A corporation created under the general corporation law is governed by the Corporation Code, while one created by special law is governed by its charter. This principle, drawn from PNOC-EDC vs. NLRC, supports the conclusion that PNCC, incorporated under the Corporation Code, is subject to the Corporation Code's requirements, including the holding of regular stockholders' meetings.

• "That the government may own the controlling shares in the corporation does not diminish the fact that the latter owes its existence to the Corporation Code." — This passage articulates the ratio decidendi that a corporation's governing law is determined by the manner of its creation, not by the identity of its shareholders, and that government ownership of controlling shares does not transform a Corporation Code entity into a charter-created GOCC.

• "A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position, entraps and destroys the other." — This frequently quoted formulation, drawn from Alonso vs. Villamor, was invoked to justify the SEC en banc's resolution of the controversy on the merits rather than remanding for further proceedings, emphasizing that technicalities should not hinder substantive justice.

• "PNCC is a corporation created in accordance with the general corporation statute. Hence, it is essentially a private corporation, notwithstanding the government's interest therein through the debt-to-equity conversion imposed by PD 1295." — This passage from the epilogue crystallizes the Court's ultimate conclusion: PNCC's status as a private corporation derives from its creation under the general corporation law, and the government's equity interest does not alter that character for purposes of SEC jurisdiction and the requirement to hold stockholders' meetings.

• "The President does not 'determine' whether a corporation is a GOCC or not. It is the law that does." — This statement refutes the proposition that corporate status is a matter of executive determination, establishing instead that GOCC status is a question of law to be resolved by competent authorities, including the SEC, based on statutory definitions.

• PNOC-EDC vs. NLRC, 20 SCRA 487 — Cited by the SEC en banc for the principle that the determination of what law governs a corporation depends on the manner of its creation. The Court adopted this principle in concluding that PNCC, incorporated under the Corporation Code, is governed by the Corporation Code.

• Quimpo vs. Tanodbayan, 146 SCRA 137 — Distinguished. In Quimpo, the Court held that Petrophil Corporation was a GOCC because it was purchased by the government through the Philippine National Oil Corporation. The Court found no parallelism with PNCC, whose shares were acquired by GFIs through debt-to-equity conversion rather than by government purchase.

• Gokongwei, Jr. vs. Securities and Exchange Commission, et al., 89 SCRA 336 — Cited by the Court of Appeals for the proposition that the Supreme Court should strive to settle the entire controversy in a single proceeding, leaving no root or branch to bear the seeds of future litigation, supporting the SEC en banc's decision to resolve the case on the merits.

• Alonso vs. Villamor, 16 Phil. 315 (1910) — Quoted for the principle that litigation is not a game of technicalities and that courts should decide cases on the merits, brushing aside imperfections of form and procedural technicalities.

• Republic vs. Central Surety and Insurance Company, 25 SCRA 641 — Cited as precedent for resolving cases on the merits instead of remanding where the ends of justice would not be subserved by remand or where public interest demands early disposition.

• Section 50, Corporation Code (BP Blg. 68) — Requires regular and special meetings of stockholders or members, and authorizes the SEC, upon petition of a stockholder and on showing of good cause, to issue an order directing the calling of a meeting when no person is authorized to call one. Applied to compel PNCC to hold a stockholders' meeting for electing its board of directors, as PNCC was organized under the Corporation Code.

• Section 143, Corporation Code (BP Blg. 68) — Grants the SEC the power and authority to implement the provisions of the Code and to promulgate rules and regulations, particularly in the prevention of fraud and abuses by controlling stockholders, directors, or officers. Relied upon to establish SEC's regulatory authority over corporations created under the Corporation Code, including those in which the government owns controlling shares.

• Section 5(b), PD 902-A — Confers on the SEC original and exclusive jurisdiction to hear and decide controversies arising out of intra-corporate or partnership relations, including those between stockholders and the corporation. Applied to establish SEC jurisdiction over the dispute between Pabion and Ramiro (as stockholders) and PNCC regarding the holding of stockholders' meetings.

• Section 6(f), PD 902-A — Empowers the SEC to compel officers of any corporation registered by it to call meetings of stockholders or members under its supervision. Relied upon as statutory authority for the SEC's order directing PNCC to hold a stockholders' meeting.

• Section 2(a) and (b), Administrative Order No. 59 — Defines GOCCs and acquired asset corporations, providing that an acquired asset corporation shall not be considered a GOCC. Applied to classify PNCC as an acquired asset corporation, excluding it from the GOCC category and from the presidential-appointment mechanism for board members.

• Section 16(1), Administrative Order No. 59 — Provides that a GOCC shall be governed by a board of directors appointed by the President upon the recommendation of the Secretary to whose department the GOCC is attached. Held inapplicable to PNCC because PNCC is an acquired asset corporation, not a GOCC, and because Section 16 refers to GOCCs attached to a department and those with original charters.

• Section 2(13), Executive Order No. 292 (Revised Administrative Code of 1987) — Defines GOCCs as agencies organized as stock or non-stock corporations, vested with functions relating to public needs, and owned by the government directly or through its instrumentalities, wholly or at least 51 percent of capital stock. Noted as the general statutory definition, which is broad enough to admit further categorization, including the distinction drawn by AO 59.

• Section 1, Proclamation No. 50 — Declares the State's policy to promote privatization through an orderly program for the disposition of non-performing assets of GFIs and certain GOCCs. Relied upon as the "enunciated policy" required under AO 59 for classifying PNCC as an acquired asset corporation slated for privatization.

Melo, Vitug, Purisima, and Gonzaga-Reyes, JJ., concurred.