LEGAL NOTE 0080: COMMENTARY ON THE GAMBOA VS. FINANCE SECRETARY CASE REGARDING THE DEFINITION OF CAPITAL IN THE CONTEXT OF THE LIMITATION AGAINST FOREIGN OWNERSHIP TO 40%.

Passion For Reason

Filipino First: The latest twist

By: Raul C. Pangalangan
Philippine Daily Inquirer

11:52 pm | Thursday, June 30th, 2011

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THE FOREIGN investor is concerned not so much about economic protectionism but about government changing the rules mid-stream. This I learned at a forum on Tuesday this week, sponsored by the Action for Economic Reform, a group of economists and lawyers, who sat down with the foreign chambers of commerce to discuss the laws regulating foreign investments in the country.

Investors play the market. Investors know that they have to take risks. Investors also have choices, whether to invest in thePhilippines, orThailand, or increasingly,IndonesiaandVietnam(to mentionSoutheast Asiaalone). What drives them up the wall is our penchant for trifling with investment-backed expectations and treating rules like they were mere short-term, ad hoc arrangements that can casually override agreements sealed in solemn contracts.

The next day, I opened the newspapers to read about a Supreme Court decision that was released, as it were, just when the AER roundtable was being held. In Gamboa v. Finance Secretary, the Court, through the sharp pen of Justice Antonio Carpio, reinterpreted the protectionist rule that certain areas of the economy are reserved solely for Filipino nationals, including “corporations at least 60 percent of whose capital is owned by [Filipino] citizens.” The term “capital” should henceforth mean only “shares of stock that can vote in the election of directors.” Whereas before, all shares of stock constituting the capital of a corporation were counted, under this new ruling, only the voting shares will be counted, and non-voting “preferred” shares will be excluded.

This aims to advance the framer’s original intent, namely, to create “a self-reliant and independent national economy effectively controlled by Filipinos.” Since only the voting shares can exercise control over a corporation, only such shares should count.

I had initially thought that this decision would in fact sit well with foreign investors. After all, reading about it fresh from a forum with these investors, I thought that, although this was yet another of those dreaded surprises, it would in fact open the field to foreign investors for as long as they limited themselves to non-voting stocks.

But apparently its immediate application would actually prejudice foreign players who have already invested in voting stocks on the basis of the old, settled formula. Already the local markets have reacted adversely, and it has begun to show in the numbers coming from the stock exchange. Former Philippine Stock Exchange president Francis Lim yesterday lamented the decision, saying: “The decision does not bode well for our stock market. More than that, it puts another stumbling block to the administration’s program to attract more foreign direct investments and will further push out thePhilippinesfrom the radar screen of the foreign investment community.”

Apparently, in thePhilippines, non-voting stocks are typically held by Filipinos, while foreign investors prefer voting stocks that enable them to elect seats in the board of directors. Thus the SC decision offers the hypothetical that a corporation with 100 common shares owned by foreigners and 1 million non-voting preferred shares owned by Filipinos will be considered a Filipino corporation, even if only the foreigners have voting rights to elect the directors.

We must look at this recent decision at several levels. At the purely legal level, the text of the Constitution does not make the distinction between voting and non-voting shares but refers merely to “capital.” Assuming that there is room for interpretation here, we then turn to the drafting history of the Constitution. Reading the Carpio majority and the dissenting opinions, there seems to be enough ammunition either way. Indeed the original draft prepared by the UPLawCenteractually contained the words “voting stock or controlling interest,” which was eventually rejected in favor of the more neutral term “capital.”

Next, if one were to read the law according to its purpose, the SC majority is correct in saying that the 60-40 rule must be read consistently with the protectionist purposes of the 1987 Constitution. But even that heuristic approach will not result in the SC’s favored interpretation. Just look at the Corporation Code. It grants voting rights even to so-called non-voting shares on what the dissenting opinion of Justice Presbitero Velasco calls “certain key fundamental corporate matters.” If the purpose of the 60-40 rule is to place management and control in the hands of Filipinos, then all those investors entitled to vote in one way or another should be counted.

Finally, in the long-term, the SC’s nationalist ruling opens the door to a rather bizarre possibility. A foreign investor can own as many non-voting shares as possible because the new formula is totally oblivious to the ownership of shares for as long as they have no voice in management, while retaining the option to maximize his 40 percent stake in voting shares to ensure a voice in the governing board. In other words, the foreign investor gets to eat his cake while talking in the board meeting too.

Having risked my neck in street battles against the Metrocom during martial law, I have seen how the term “nationalism” has evolved over the decades. I think it’s time to chuck the old-fashioned notion that Filipino citizenship is the controlling test for love of country. Creating new jobs for the Filipino workingman should be the new nationalism, and whoever will help us do that while respecting our rights and our narrow patch of the earth should be enlisted, whatever flag they carry.

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MY COMMENT:

Section 24 of the Corporation provides that “at all elections of directors . . . there must be present, either in person or, by representative authorized to act by written proxy, the owners of the majority of the outstanding capital stock. . .”

Therefore the voting shares must at least be 51% of outstanding capital. Foreign shares therefore is still limited to 49% of the outstanding capital stock? Whereas before it used to be only 40%?

LEGAL NOTE 0079:  WHAT IS UNLAWFUL DETAINER? WHAT IS FORCIBLE ENTRY? WHAT IS THE DIFFERENCE BETWEEN UNLAWFUL DETAINER AND FORCIBLE ENTRY?

SOURCE: SPOUSES MANUEL AND FLORENTINA DEL ROSARIO VS. GERRY ROXAS FOUNDATION, INC. (G.R. NO. 170575, 08 JUNE 2011, DEL CASTILLO, J.) SUBJECTS: UNLAWFUL DETAINER, FORCIBLE ENTRY, JUDICIAL ADMISSION. (BRIEF TITLE: SPOUSES DEL ROSARIO VS. GERRY ROXAS FOUNDATION).

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WHAT IS UNLAWFUL DETAINER? WHAT IS FORCIBLE ENTRY? WHAT IS THE DIFFERENCE BETWEEN UNLAWFUL DETAINER AND FORCIBLE ENTRY? HOW WAS THIS DISTINCTION APPLIED TO THE ABOVE CASE?

FORCIBLE ENTRY AND UNLAWFUL DETAINER ARE TWO DISTINCT CAUSES OF ACTION DEFINED IN SECTION 1, RULE 70 OF THE RULES OF COURT.

IN FORCIBLE ENTRY, ONE IS DEPRIVED OF PHYSICAL POSSESSION OF ANY LAND OR BUILDING BY MEANS OF FORCE, INTIMIDATION, THREAT, STRATEGY, OR STEALTH.

IN UNLAWFUL DETAINER, ONE UNLAWFULLY WITHHOLDS POSSESSION THEREOF AFTER THE EXPIRATION OR TERMINATION OF HIS RIGHT TO HOLD POSSESSION UNDER ANY CONTRACT, EXPRESS OR IMPLIED.

In Spouses Huguete v. Spouses Embudo,^[1][20] citing Cañiza v. Court of Appeals,^[2][21] this Court held that “what determines the nature of an action as well as which court has jurisdiction over it are the allegations of the complaint and the character of the relief sought.”

            This Court, in Sumulong v. Court of Appeals,^[3][22] differentiated the distinct causes of action in forcible entry vis-à-vis unlawful detainer, to wit:

Forcible entry and unlawful detainer are two distinct causes of action defined in Section 1, Rule 70 of the Rules of Court. In forcible entry, one is deprived of physical possession of any land or building by means of force, intimidation, threat, strategy, or stealth. In unlawful detainer, one unlawfully withholds possession thereof after the expiration or termination of his right to hold possession under any contract, express or implied. In forcible entry, the possession is illegal from the beginning and the only issue is who has the prior possession de facto. In unlawful detainer, possession was originally lawful but became unlawful by the expiration or termination of the right to possess and the issue of rightful possession is the one decisive, for in such action, the defendant is the party in actual possession and the plaintiff’s cause of action is the termination of the defendant’s right to continue in possession.^[4][23]

“The words ‘by force, intimidation, threat, strategy or stealth’ shall include every situation or condition under which one person can wrongfully enter upon real property and exclude another, who has had prior possession, therefrom.”^[5][24]  “The foundation of the action is really the forcible exclusion of the original possessor by a person who has entered without right.”^[6][25] 

“The act of going on the property and excluding the lawful possessor therefrom necessarily implies the exertion of force over the property, and this is all that is necessary.”^[7][26]  The employment of force, in this case, can be deduced from petitioners’ allegation that respondent took full control and possession of the subject property without their consent and authority. 

“‘Stealth,’ on the other hand, is defined as any secret, sly, or clandestine act to avoid discovery and to gain entrance into or remain within residence of another without permission,”^[8][27] while strategy connotes the employment of machinations or artifices to gain possession of the subject property.^[9][28]  The CA found that based on the petitioners’ allegations in their complaint, “respondent’s entry on the land of the petitioners was by stealth x x x.”^[10][29]  However, stealth as defined requires a clandestine character which is not availing in the instant case as the entry of the respondent  into the property appears to be with the knowledge of the petitioners as shown by petitioners’ allegation in their complaint that “[c]onsidering the personalities behind the defendant foundation and considering further that it is plaintiff’s nephew, then the vice-mayor, and now the Mayor of the City of Roxas Antonio A. del Rosario, although without any legal or contractual right, who transacted with the foundation, plaintiffs did not interfere with the activities of the foundation using their property.”^[11][30]  To this Court’s mind, this allegation if true, also illustrates strategy. 

Taken in its entirety, the allegations in the Complaint establish a cause of action for forcible entry, and not for unlawful detainer.

“In forcible entry, one is deprived of physical possession of any land or building by means of force, intimidation, threat, strategy, or stealth.”^[12][31]  “[W]here the defendant’s possession of the property is illegal ab initio,” the summary action for forcible entry (detentacion) is the remedy to recover possession.^[13][32] 

In their Complaint, petitioners maintained that the respondent took possession and control of the subject property without any contractual or legal basis.^[14][33] Assuming that these allegations are true, it hence follows that respondent’s possession was illegal from the very beginning.  Therefore, the foundation of petitioners’ complaint is one for forcible entry – that is “the forcible exclusion of the original possessor by a person who has entered without right.”^[15][34]  Thus, and as correctly found by the CA, there can be no tolerance as petitioners alleged that respondent’s possession was illegal at the inception.^[16][35] 

Corollarily,   since  the  deprivation  of  physical  possession,  as  alleged  in  petitioners’ Complaint and as earlier discussed, was attended by strategy and force, this Court finds that the proper remedy for the petitioners was to file a Complaint for Forcible Entry and not the instant suit for unlawful detainer. 

Petitioners should have filed a Complaint for Forcible Entry within the reglementary one-year period from the time of dispossession.

Petitioners likewise alleged in their Complaint that respondent took possession and occupancy of subject property in 1991.  Considering that the action for forcible entry must be filed within one year from the time of dispossession,^[17][36] the action for forcible entry has already prescribed when petitioners filed their Complaint in 2003.  As a consequence, the Complaint failed to state a valid cause of action against the respondent. 

In fine, the MTCC properly dismissed the Complaint, and the RTC and the CA correctly affirmed said order of dismissal.

     WHEREFORE, the petition is DENIED.  The Decision dated April 26, 2005 and the Resolution dated November 15, 2005 of the Court of Appeals in CA-G.R. SP No. 87784 are AFFIRMED. 

LEGAL NOTE 0078: WHAT IS REASONABLE DOUBT?

SOURCE: PEOPLE OF THE PHILIPPINES VS. GARRY DE LA CRUZ Y DE LA CRUZ (G.R. NO. 185717, 08 JUNE 2011) SUBJECTS: RA 9165;  BUY BUST OPERATION IN DRUG CASE; CHAIN OF COMMAND. (BRIEF TITLE: PEOPLE VS. DE LA CRUZ).

WHAT IS REASONABLE DOUBT?

 BY REASONABLE DOUBT IS NOT MEANT THAT WHICH OF POSSIBILITY MAY ARISE BUT IT IS THAT DOUBT ENGENDERED BY AN INVESTIGATION OF THE WHOLE PROOF AND AN INABILITY, AFTER SUCH AN INVESTIGATION, TO LET THE MIND REST EASY UPON THE CERTAINTY OF GUILT.

In sum, considering the multifarious irregularities and non-compliance with the chain of custody, We cannot but acquit accused-appellant on the ground of reasonable doubt.  The law demands that only proof of guilt beyond reasonable doubt can justify a verdict of guilt.^[1][41]  In all criminal prosecutions, without regard to the nature of the defense which the accused may raise, the burden of proof remains at all times upon the prosecution to establish the guilt of the accused beyond reasonable doubt.^[2][42]  As the Court often reiterated, it would be better to set free ten men who might probably be guilty of the crime charged than to convict one innocent man for a crime he did not commit.^[3][43]

In fine, We repeat what the Court fittingly held in People v. Ong, a case similarly involving a buy-bust operation, thus:

The Constitution mandates that an accused shall be presumed innocent until the contrary is proven beyond reasonable doubt.  While appellant’s defense engenders suspicion that he probably perpetrated the crime charged, it is not sufficient for a conviction that the evidence establishes a strong suspicion or probability of guilt.   It is the burden of the prosecution to overcome the presumption of innocence by presenting the quantum of evidence required.

In the case at bar, the basis of acquittal is reasonable doubt, the evidence for the prosecution not being sufficient to sustain and prove the guilt of appellants with moral certainty.  By reasonable doubt is not meant that which of possibility may arise but it is that doubt engendered by an investigation of the whole proof and an inability, after such an investigation, to let the mind rest easy upon the certainty of guilt.  An acquittal based on reasonable doubt will prosper even though the appellants’ innocence may be doubted, for a criminal conviction rests on the strength of the evidence of the prosecution and not on the weakness of the evidence of the defense.  Suffice it to say, a slightest doubt should be resolved in favor of the accused.^[4][44]