B2022 REPORTS ANNOTATED December 8, 1999

PNCC v Pabion PNCC v Pabion

I. Recit-ready summary PNCC or, in the alternative, authorizing petitioners, to call and hold a meeting of the
stockholders x x x for the purpose of electing new directors. The verified petition
Ernesto Pabion and Lavella Ramiro claiming to be stock holders of was assigned to SEC Hearing Officer Manuel Perea.
Philippine National Construction Corporation (PNCC) filed with the Securities
and Exchange Commission (SEC) a verified petition alleging that since 1982 (for PNCC filed its answer. It claimed that it is a government-owned corporation
12 years) there has been no stock holders meeting to elect Board of Directors whose organizational and functional management, administration, and supervision
(BOD). This enables the incumbent directors to hold their position beyond 1 year, are governed by Administrative Order (AO) No. 59, issued President Corazon
which is violative of PNCC’s by-laws as well as of the corporation code. Aquino. PNCC asserts that its board of directors does not hold office by virtue of a
stockholders election but by appointment of the President of the Philippines, relying
The respondents prayed to SEC to order PNCC to call and hold a meeting on Article IV, Section 16 [1], of AO No. 59, which reads:
for election of new BODs and officers. PNCC, through its answer, contends that it
is a Government owned and Controlled Corporation (GOCC) based on A.O 59 as (1) Governing Boards. - GOCC (government-owned and/or controlled
issued by then President, Cory Aquino. That the BODs do not hold office by corporation) shall be governed by a Board of Directors or equivalent body
virtue of election but through appointment by the president of the Philippines as composed of an appropriate number of members to be appointed by the
provided in Art.IV Sec. 16(1); that if prayer will be granted, it will be in President of the Philippines upon the recommendation of the Secretary of
contravention of A.O 59 and will interfere the power of the President to control whose Department the GOCC is attached. The Chairman of the board shall
and appoint officers and BODs of GOCC; that due to the preceding reasons, they likewise be appointed by the President upon the recommendation of the
are not required to hold a general meeting but the general manager shall submit an Secretary
annual report to the President of the Philippines.
PNCC expressed the fear that if granted, the prayer in the verified petition
SEC ruled in favor of Pabion, ordering that a stock holder’s meeting shall would amount to a contravention of AO No. 59 and an interference with the
be held. SEC EN BANC- the commission ruled that PNCC, having incorporated Presidents power of control and appointment over government-owned and/or
under the corporation code is subject to hold a stock holder’s meeting for selecting controlled corporations (GOCCs). PNCC added that under Executive Order No.
BOD. CA- affirmed and ruled that though majority of PNCC is owned by the 399, series of 1951, a GOCC is not required to hold a general meeting of
government financial institution, it retained its charter as a private corporation. stockholders but, instead, the general manager thereof is merely required to submit
an annual report to the President of the Philippines.
ISSUE: WON PNCC is not a GOCC, hence should hold a stock holder’s
meeting. YES, the President of the Philippines does not determine whether a In the ensuing pre-trial conference conducted by Hearing Officer Perea, the
corporation is GOCC or not, it is the law, the Administrative Code. As regard SEC parties defined the issues, as follows: (a) Whether or not PNCC is a GOCC subject
ruling on the merits, general rule is not cast in stone, it can be resolved based on to and governed by LOI 1295 (1983), AO No. 59 (1988) and Executive Order No.
the records. The records show that PNCC is organized under the corporation code. 399 (1951), or by its articles-of-incorporation and by-laws only. (b) Whether or not
Hence, SEC has has the original and exclusive jurisdiction over the subject matter. PNCC is required to call a regular annual stockholders meetings on the basis of
Moreover, Corporations organized under the corporation code are under the which the parties agreed to submit the case for resolution after they shall have filed
jurisdiction of SEC. their respective memoranda, which they did.

II. Facts of the case It appears, however, that Pabion and Ramiro prayed for the re-opening of the
pre-trial conference on the ground that the common assumption on the 75%
On September 16, 1994, private respondents Ernesto Pabion and Louella ownership by several government financial institutions (GFIs) in the PNCC was
Ramiro, claiming to be stockholders of the PNCC, filed with the SEC a verified proved false by their discovery that the GFI[s] are merely a minority among the
petition, therein alleging that since 1982 or for a period of twelve (12) years, there owners of PNCC. They, therefore, moved that a trial be conducted to determine the
has been no stockholders meeting of the PNCC to elect the corporations board of extent of ownership by the government in the PNCC.
directors, thus enabling the incumbent directors to hold on to their position beyond
their 1-year term, in violation of PNCCs By-Laws and the Corporation Code. Pabion SEC Hearing Officer Perea issued the following order:
and Ramiro, therefore, prayed the SEC to issue an order ordering the officers of

G.R. NO: 131715 PONENTE: Panganiban, J

ARTICLE; TOPIC OF CASE: DIGEST MAKER: Alec
 B2022 REPORTS ANNOTATED December 8, 1999
PNCC v Pabion PNCC v Pabion

In view of the necessity of a prior determination of whether or not respondent

Philippine National Construction Corporation (PNCC) is a government owned A motion for reconsideration was filed by the PNCC but was denied by the
or controlled corporation before resolving the instant incident, either or both Commission en banc in its assailed Resolution.
of the parties are hereby directed to secure a ruling/opinion from competent
authority as to whether or not the PNCC is a government corporation or not, as Upholding SEC, the Court of Appeals declared that PNCC, though majority-
the matter does not fall within the competence of the Commission to owned by government financial institutions (GFIs), retained its character as a private
determine. corporation. As such, PNCC was required under the Corporation Code to hold
regular shareholders meetings to elect its board of directors.
Unless said ruling/opinion is obtained by either or both parties, further
proceedings should be held in abeyance. SO ORDERED Disagreeing with the appellate court, petitioner filed the present petition.

Pabion and Ramiro then went to the Commission en banc via a petition for III. Issue/s
certiorari. Pabion and Ramiro sought the nullification of Hearing Officer Pereas
twin orders for having been allegedly issued with grave abuse of discretion 1. WON SEC can determine whether PNCC is a GOCC –YES
amounting to lack or in excess of jurisdiction. 2. WON SEC has jurisdiction over GOCCs —YES
3. WON the SEC has jurisdiction to order PNCC to hold a stockholders
The SEC en banc declared Hearing Officer Perea to have acted with grave meeting—YES
abuse of discretion in issuing his two (2) questioned orders. The Commission ruled 4. What is the status of PNCC? –Acquired Asset Corporation
that Perea should have conducted a trial on the merits to resolve the factual issue of
whether PNCC is majority or only minority-owned by the government. Explains the Court rules: The Petition has no merit. Simply stated, PNCC claims that SEC has no
Commission en banc in its challenged order: jurisdiction over it and that members of the corporation’s board of directors hold
office, not by virtue of a shareholder’s election but by appointment of the President
The main issue in the petition is clearly an intra-corporate dispute as it is a of the Philippines. The Court holds that SEC has authority over PNCC and that the
controversy between the petitioners as stockholders of PNCC and respondent latter's directors owe their offices to their shareholders and not to presidential fiat.
corporation PNCC regarding the holding of regular stockholders meeting. This
matter, therefore, falls within the scope of the jurisdiction of the SEC. In IV. Ratio/Legal Basis
resolving the main issue of whether PNCC should hold regular stockholders
meetings, the hearing officer has jurisdiction to resolve the incidental issue of 1st issue:
whether PNCC is a GOCC or not. Having validly acquired original and
exclusive jurisdiction over the instant petition, the public respondent is
SC held that It is certainly absurd to say that SEC is without jurisdiction to
mandated to hear and decide all the issues involved in the dispute.
determine if PNCC is a GOCC simply because the latter claims to be one. The
In the same order, the Commission en banc, instead of remanding the case to
President does not determine whether a corporation is a GOCC or not. It is the law
the Hearing Officer to resolve the question of whether PNCC is government-owned
that does. PNCCs status as a GOCC can be ruled upon by SEC -- as well as by other
or controlled, itself resolved the issue by holding that PNCC, being incorporated
competent authorities for that matter -- based on law, specifically the Revised
under the Corporation Code, is, therefore, subject to Section 50 of the Corporation
Administrative Code of 1987:
Code which requires the holding of regular stockholders meeting for the purpose of
selecting PNCCs Board of Directors, citing, as basis the ruling in PNOC-EDC vs.
Sec. 2. General Terms Defined. --- Unless the specific words of the text, or the
NLRC, to the effect that the determination as to what law governs a corporation is
context as a whole, or a particular statute, shall require a different meaning:
the manner of its creation, adding that PNCC is an acquired asset corporation which,
by express provision of Section 2 of AO No. 59, is not considered as a GOCC. And
(13) Government-owned or controlled corporation -- refers to any agency
taking judicial notice of PNCCs by-laws thereunder the corporations directors shall
organized as a stock or non-stock corporation, vested with functions relating
be elected at the annual meeting of the stockholders, the Commission en banc
to public needs whether governmental or proprietary in nature, and owned by
concluded that PNCC is, therefore, required to conduct a regular stockholders
the Government directly or through its instrumentalities either wholly, or,
meeting for the purpose of electing its Board of Directors, considering that the
where applicable as in the case of stock corporations, to the extent of at least
Corporation Code and its own By-Laws require the holding of such meeting.

G.R. NO: 131715 PONENTE: Panganiban, J

ARTICLE; TOPIC OF CASE: DIGEST MAKER: Alec
 B2022 REPORTS ANNOTATED December 8, 1999
PNCC v Pabion PNCC v Pabion

fifty-one (51) per cent of its capital stock: Provided, That government owned SEC’s action is also justified by its regulatory and administrative powers[37]
or controlled corporations may be further categorized by the Department of to implement the Corporation Code, specifically to compel the PNCC to hold a
Budget, the Civil Service Commission, and the Commission on Audit for stockholders meeting for election purposes. Thus, PNCC is therefore required to
purposes of the exercise and discharge of their respective powers, functions conduct a regular stockholders meeting for the purpose of electing its Board of
and responsibilities with respect to such corporations Directors, considering that the Corporation Code and its own By-Laws require the
holding of such meeting. The failure of PNCC to call and hold annual stockholders
2nd issue: meetings since 1983 or for thirteen (13) years constitutes a gross, continuing
violation of its by-laws and the Corporation Code. For the refusal of PNCCs Board
SC explained that GOCCs may either be (1) with original charter or created by of Directors to call said meeting, petitioners, as stockholders of PNCC, can
special law; or (2) incorporated under general law, via either the Old Corporation rightfully petition the SEC to order the same.
Code or the New Corporation Code. SC concedes that SEC has no jurisdiction over
corporations of the first type -- GOCCs with original charter or created by special 4th Issue:
law -- primarily because they are governed by their charters. But even this
concession is not absolute, since the Corporation Code may apply suppletorily, PNCC is an acquired asset corporation. This is because PNCC is a corporation
either by operation of law or through express provisions in the charter. that is, under private ownership, the voting or outstanding shares of which (i) were
conveyed to the government financial institutions in satisfaction of debts.
SEC has jurisdiction over GOCCs established or organized under the
Corporation Code. These GOCCs are regarded as private corporations despite Under Section 2 (b) of AO 59, there are two kinds of acquired asset
common misconceptions. That the government may own the controlling shares in corporations: one, a corporation which is under private ownership, the voting or
the corporation does not diminish the fact that the latter owes its existence to the outstanding shares of which were either conveyed to the government or to a
Corporation Code. Moreover, Section 143 of the Corporation Code gives SEC the government agency, instrumentality or corporation in satisfaction of debts whether
authority and power to implement its provisions, specifically for the purpose of by foreclosure or otherwise, or were duly acquired by the government in a
regulating the entities created pursuant to such provisions. These entities include sequestration proceeding; and two, a corporation which is a subsidiary of a
corporations in which the controlling shares are owned by the government or its government entity organized exclusively to own and manage or lease or operate
agencies. specific physical assets acquired by a government financial institution in satisfaction
of debts incurred therewith. Both kinds of acquired asset corporations are by law or
by enunciated policy required to be privatized within a specified period.

The question whether PNCC is a government-owned or controlled corporation

3rd Issue: (GOCC) and, therefore, a government entity ha[s] been previously passed upon by
the Office of the President. In a letter dated May 20, 1991, Deputy Executive
SC held that it necessarily follows that SEC can compel PNCC to hold a Secretary Sonny Coloma informed the then PNCC President that PNCC is an
stockholders meeting for the purpose of electing members of the latter's board of acquired asset corporation as defined under Section 2 of Administrative Order No.
directors as stated in Section 50 of the Corporation Code: 59. The conclusion, although not explicitly stated in said letter, is that PNCC is not a
GOCC
Sec. 50. Regular and special meetings of stockholders or members. -- x x x
Whenever, for any cause, there is no person authorized to call a meeting, the V. Disposition
Securities and Exchange Commission, upon petition of a stockholder or
member, and on the showing of good cause therefor, may issue an order to the WHEREFORE, the Petition is hereby DENIED. The assailed Decision and the
petitioning stockholder or member directing him to call a meeting of the Resolution of the Court of Appeals are AFFIRMED. Costs against petitioner.
corporation by giving proper notice required by this Code or by the by-laws. SO ORDERED.
The petitioning stockholder or member shall preside thereat until at least a
majority of the stockholders or members present have chosen one of their VI. Notes
member[s] as presiding officer.

G.R. NO: 131715 PONENTE: Panganiban, J

ARTICLE; TOPIC OF CASE: DIGEST MAKER: Alec
 B2022 REPORTS ANNOTATED December 8, 1999
PNCC v Pabion PNCC v Pabion

G.R. NO: 131715 PONENTE: Panganiban, J

ARTICLE; TOPIC OF CASE: DIGEST MAKER: Alec