University of the Philippines College of Law | Corporation Law | D2021

Topic Classes of Corporations: Public Corporation and Private Corporation; Government-Owned or Controlled Corporation;
Government Instrumentality
Case Name PNCC v. Pabion
Case No. & Date G.R. No. 131715 December 8, 1999
Ponente PANGANIBAN, J.
Petitioners PHILIPPINE NATIONAL CONSTRUCTION CORPORATION
Respondents ERNESTO PABION and LOUELLA RAMIRO

Summary (recit- Private respondents Pabion and Ramiro, claiming to be stockholders of the petitioner Philippine National Construction
friendly) Corporation (PNCC), filed with the SEC a verified petition. They claimed that PNCC has not been holding its stockholders’
meeting for 12 years which meant that the incumbent BOD has held on to their positions in violation of the 1-year term
provision. They prayed that the SEC issue an order to compel the PNCC officers to call and hold a meeting for the purpose
of electing a new BOD; in the alternative, they prayed that they themselves be authorized to do so. The SEC ruled in their
favor.

PNCC questioned the SEC decision, arguing that SEC has no jurisdiction to determine its status; it also asserts that
members of the corporation's board of directors hold office, not by virtue of a shareholders' election but by appointment
of the President of the Philippines. The Court disagreed with PNCC, holding that SEC has jurisdiction to determine its
corporate status.
Doctrine/s  GOCCs may either be (1) with original charter or created by special law; or (2) incorporated under general law
via the Corporation Code.
 SEC has no jurisdiction over corporations of the first type — GOCCs with original charter or created by special
law — primarily because they are governed by their charters. But even this concession is not absolute, since the
Corporation Code may apply suppletory, either by operation of law or through express provisions in the charter.
 On the other hand, GOCCs established or organized under the Corporation Code, SEC can exercise jurisdiction.
These GOCCs are regarded as private corporations despite common misconceptions. 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. More pointedly, Section 143 of the (Old) Corporation Code gives SEC the authority and
power to implement its provisions, specifically for the purpose of regulating the entities created pursuant to
such provisions. These entities include corporations in which the controlling shares are owned by the
government or its agencies.

RELEVANT FACTS
 Private respondents Pabion and Ramiro, claiming to be stockholders of the petitioner Philippine National Construction Corporation
(PNCC), filed with the SEC a verified petition.
 Pabion & Ramiro’s petition:
o They alleged that since for a period of 12 years, there has been no stockholders' meeting of the PNCC to elect the corporation's
BOD, thus enabling the incumbent directors to hold on to their position beyond their 1-year term, in violation of PNCC's BL and
the Corporation Code. 
o They prayed that the SEC issue an order to compel the PNCC officers to call and hold a meeting for the purpose of electing a
new BOD; in the alternative, they prayed that they themselves be authorized to do so.
 PNCC’s answer:
o It  claimed that it is a government-owned corporation whose "organizational and functional management, administration, and
supervision" are governed by Administrative Order (AO) No. 59, issued by then President Corazon Aquino. 
o It claimed that its BOD does not hold office by virtue of a stockholder's election but by appointment of the President of the
Philippines, relying on Article IV, Section 16 [1], of AO No. 59, which reads:
 (1) Governing Boards. — GOCC shall be governed by a Board of Directors or equivalent body composed of an
appropriate number of members to be appointed by the President of the Philippines upon the recommendation of
the Secretary of whose Department the GOCC is attached. The Chairman of the board shall likewise be appointed by
the President upon the recommendation of the Secretary.
o It said that that if petitioners’ prayers were granted, it would amount to a contravention of AO No. 59 and an interference with
the President's power of control and appointment over GOCCs.
o Furthermore, under Executive Order No. 399, series of 1951, a GOCC is not required to hold a general meeting of stockholders
but, instead, the general manager thereof is merely required to submit an annual report to the President of the Philippines.
 Pre-trial conference in the SEC: the parties defined the issues, as follows:
o Whether or not PNCC is a GOCC subject to and governed by LOI 1295 (1983), AO No. 59 (1988) and Executive Order No. 399
(1951), or by its articles-of-incorporation and by-laws only.
o Whether or not PNCC is required to call a regular annual stockholder's meetings.
 Petitioners subsequently prayed for the re-opening of the pre-trial conference on the ground that the "common assumption" on the 75%
ownership by several government financial institutions (GFIs) in the PNCC was proved false by their discovery that the GFI[s] are merely a
 University of the Philippines College of Law | Corporation Law | D2021
minority among the owners of PNCC. They, therefore, moved that a trial be conducted to determine the extent of ownership by the
government in the PNCC.
o The SEC Hearing Officer (SEC HO) then ordered that either or both of the parties secure a ruling/opinion from competent
authority as to whether or not the PNCC is a government corporation or not, as the matter does not fall within the competence
of the Commission to determine.
 Petitioners’ MR was denied so they went to the SEC en banc to question to pray for the nullification of the decision of the SEC Hearing
Officer on the basis of GADALEJ. They prayed that the SEC HO be directed to proceed with the trial on the merits.
o The SEC en banc declared SEC HO to have acted with GAD; he 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 Commission en banc in its
challenged order:
 SEC has original and exclusive jurisdiction to hear and decide intra-corporate controversies. The main issue
in the petition is clearly an intra-corporate dispute as it is a controversy between the petitioners as
stockholders of PNCC and respondent corporation PNCC regarding the holding of regular stockholder's
meeting.
o In the same order, the SEC en banc, instead of remanding the case to the SEC HO to resolve the question of whether PNCC is
government-owned or controlled, itself resolved the issue by holding that:
 PNCC,"being incorporated under the Corporation Code, is, therefore, subject to Section 50 of the Corporation Code
which requires the holding of regular stockholders' meeting for the purpose of selecting PNCC's Board of Directors",
 The determination as to what law governs a corporation is the manner of its creation.
 PNCC is an "acquired asset corporation" which, by express provision of Section 2 of AO No. 59, "is not considered as a
GOCC".
 And taking judicial notice of PNCC's BL thereunder the corporation's directors "shall be elected at the annual meeting
of the stockholders."
 PNCC is therefore, required to conduct a regular stockholder's meeting for the purpose of electing its Board of
Directors, considering that the Corporation Code and its own By-Laws require the holding of such meeting.
 CA: upheld the SEC en banc decision
o PNCC, though majority-owned by government financial institutions (GFIs), retained its character as a private corporation. As
such, PNCC was required under the Corporation Code to hold regular shareholders' meetings to elect its board of directors.
o The finding of the SEC en banc that PNCC is not a GOCC was made in the exercise of its jurisdiction over an intra-corporate
controversy. To disallow the Commission to determine the nature of petitioner PNCC is to deprive it of the power to resolve the
intra-corporate controversy between the parties.

ISSUE AND RATIO DECIDENDI

Issue Ratio
W/N SEC can determine The Petition has no merit. Simply stated, PNCC claims that SEC has no jurisdiction over it and that members of the
the corporate status of corporation's board of directors hold office, not by virtue of a shareholders' election but by appointment of the
PNCC President of the Philippines. We hold that SEC has authority over PNCC and that the latter's directors owe their
offices to their shareholders and not to presidential fiat.

 Underlying this confusing controversy is the GOCCs are beyond the jurisdiction of SEC. From this broad and
sweeping assumption, petitioner asserts that SEC is without competence to determine whether PNCC is a
GOCC. It insists that such a determination falls solely upon the President of Philippines and is therefore
beyond SEC's jurisdiction. The Court disagrees.
 The SEC has jurisdiction over private corporations, even if the majority or controlling shares are owned by
the government. Hence, it can competently order the holding of a shareholders' meeting for the purpose of
electing the corporate board of directors.
o While the SEC may not have authority over government corporations with original charters or
those created by special law, it does have jurisdiction over "acquired asset corporations" as
defined in AO 59.
o Specifically, the PNCC may be ordered by SEC to hold a shareholders' meeting to elect its board of
directors in accordance with its AOI and BL well as with the Corporation Code. The chairman and
the members of the PNCC Board of Directors hold office by virtue of their election by the
shareholders, not by their appointment thereto by the President of the Republic.
 It is certainly absurd to say that SEC is without jurisdiction to determine if PNCC is a GOCC simply because
the latter claims to be one. The President does not "determine" whether a corporation is a GOCC or not. It
is the law that does. PNCC's status as a GOCC can be ruled upon by SEC — as well as by other competent
authorities for that matter — based on law, specifically the Revised Administrative Code of 1987  which
provides inter alia as follows:
Sec. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole,
or a particular statute, shall require a different meaning:
x x x           x x x          x x x
(13) Government-owned or controlled corporation — refers to any agency organized as a stock
 University of the Philippines College of Law | Corporation Law | D2021
or non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) per cent of its capital stock: Provided, That government owned or controlled
corporations may be further categorized by the Department of Budget, the Civil Service
Commission, and the Commission on Audit for purposes of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such corporations. (emphasis
ours)

SEC Ruled on the Merits

 Petitioner argues that certiorari, which was used by private respondents to challenge the ruling of the
hearing officer before the SEC en banc, is generally limited to determining whether or not there has been
GADALEJ. It further claims that the SEC rule used by respondents was patterned after Rule 65 of the 1997
Rules of Court. Hence, the same principles governing the latter should apply to the former. It thus submits
that SEC erred when it ruled not only on the issue of jurisdiction but also on the merits of the case. It
contends that SEC en banc should have limited itself to the issue of grave abuse and thereafter remanded
the case below for further proceedings. Again, we disagree.
 What petitioner invokes is a general rule that admits of exceptions.  This general rule "is not cast in stone." 
Indeed, one chiseled exception arises when the court or administrative agency is in a position to resolve the
dispute on the merits based on the records before it. That is, a reviewing court or agency may decide the  lis
mota of a case on its merits if there are enough undisputed facts to warrant such resolution.
 Here we stress that SEC's ruling was factually based on the judicial admission of petitioner that there was a
debt-to-equity conversion of PNCC's obligations to several government financial institutions (GFIs) pursuant
to LOI 1295. PNCC admits that at least 76.48 percent of its equity is owned by GFI's. Thus, in view of such
admission extant on the records, SEC en banc was in a position to validly dispose of the controversy
directly, without need of remanding the matter to the hearing officer
 We agree with SEC because a remand would have merely delayed unnecessarily the resolution of the
question.

W/N SEC has  GOCCs may either be (1) with original charter or created by special law; or (2) incorporated under general
jurisdiction over GOCCs law via the Corporation Code.
 SEC has no jurisdiction over corporations of the first type — GOCCs with original charter or created by
special law — primarily because they are governed by their charters. But even this concession is not
absolute, since the Corporation Code may apply suppletory, either by operation of law or through express
provisions in the charter.
 On the other hand, GOCCs established or organized under the Corporation Code, SEC can exercise
jurisdiction. These GOCCs are regarded as private corporations despite common misconceptions. 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. More pointedly, Section 143 of the (Old) Corporation Code
gives SEC the authority and power to implement its provisions, specifically for the purpose of regulating the
entities created pursuant to such provisions. These entities include corporations in which the controlling
shares are owned by the government or its agencies.
 Glaringly erroneous, therefore, is petitioner's reliance on Quimpo v. Tanodbayan and its theory that it is
immaterial "whether a corporation is acquired by purchase or through the conversion of the loans of the
GFIs into equity in a corporation [because] such corporation loses its status as a private corporation and
attains a new status as a GOCC."
o First, based on the discussion above, PNCC does not "lose" its status as a private corporation,
even if we were to assume that it is a GOCC.
o Second, neither would such loss of status prevent it from being further classified into an acquired
asset corporation, as will be discussed below.

SEC may compel Stockholders' Meeting

 Prescinding from the above premises, it necessarily follows that SEC can compel PNCC to hold a
stockholders' meeting for the purpose of electing members of the latter's board of directors. This is clearly
provided for by Section 50 of the (Old) Corporation Code:
o Sec. 50. Regular and special meetings of stockholders or members. — . . . Whenever, for any
cause, there is no person authorized to call a meeting, the 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 petitioning stockholder or member directing him to call a meeting of the
corporation by giving proper notice required by this Code or by the by-laws. The petitioning
stockholder or member shall preside thereat until at least a majority of the stockholders or
members present have chosen one of their member[s] as presiding officer.
 As respondents point out, the SEC's action is also justified by its regulatory and administrative powers to
 University of the Philippines College of Law | Corporation Law | D2021
implement the Corporation Code, specifically to compel the PNCC to hold a stockholders' meeting for
election purposes. Apropos here is the SEC's ruling when it took judicial notice of the PNCC by-laws.
o Based on the BL, respondent PNCC is required to conduct a regular stockholders' meeting for the
purpose of electing its BOD, considering that the Corporation Code and its own BL require the
holding of such meeting annually. The failure of PNCC to call and hold annual stockholders'
meetings for 13 years (12 years in facts section) constitutes a gross, continuing violation of its by-
laws and the Corporation Code. For the refusal of PNCC's Board of Directors to call said meeting,
petitioners, as stockholders of PNCC, can rightfully petition the SEC to order the same.

W/N PNCC is an  Petitioner differs from the foregoing conclusion and avers that there is no necessity to hold a stockholders'
acquired asset meeting to elect members of the board of directors, because the President of the Philippines is empowered
corporation. to appoint them, by virtue of Article IV, Section 16 (1) of AO No. 59 38 (see provision in Facts section).
o Respondents counter that the above-quoted provision is inapplicable, since PNCC is not a GOCC.
Instead, it is an acquired asset corporation, based on the definition given in Section 2 (a) of the
same law, AO 59:
 (a) Government-owned and/or controlled corporation, hereinafter referred to as
GOCC or government corporation, is a corporation which is created by special law or
organized under the Corporation Code in which the Government, directly or indirectly,
has ownership of the majority of the capital or has voting control; Provided that an
acquired asset corporation as defined in the next paragraph shall not be considered as
GOCC or government corporation.
 (b) Acquired asset corporation is a corporation
 (1) which is under private ownership, the voting or outstanding shares of
which
o (i) were conveyed to the government or to a government agency,
instrumentality or corporation in satisfaction of debts whether by
foreclosure or otherwise, or
o (ii) were duly acquired by the government through final judgment in
a sequestration proceeding; or
 (2) which is a subsidiary of a government corporation organized exclusively to
own and manage, or lease, or operate specific physical assets acquired by a
government financial institution in satisfaction of debts incurred therewith,
and which in any case by law or by enunciated policy is required to be
disposed of to private ownership within a specified period of time.

PNCC is an acquired asset corporation

 PNCC falls under the exception carved out from Section 2 (a and b) above which removes an acquired asset
corporation from the category of a GOCC. This is because PNCC is a corporation that is, to quote said AO,
"under private ownership, the voting or outstanding shares of which (i) were conveyed to the government"
financial institutions "in satisfaction of debts."
 Petitioner posits the interpretation that an acquired asset corporation is one that is set to be privatized
pursuant to a law or an enunciated policy. On this particular point, we agree. It should be noted that under
Section 2 (b) of AO 59, there are two kinds of acquired assets corporations. Both kinds of acquired asset
corporations are by law or by enunciated policy required to be privatized within a specified period. Such
interpretation of AO 59 is supported by Section 18 thereof which provides:
o Sec. 18. Dissolution of Acquired Asset Corporations. — All executive agencies, offices and
instrumentalities shall take steps to dissolve any acquired asset corporation which has not been
disposed of to the private sector within five (5) years from the date of the decision to dissolve the
corporation. . . .
 Reading these sections together, it becomes evident that an acquired asset corporation is singled out for
eventual disposition to the private sector or, failing in that, for dissolution.
 True, respondents failed to show that PNCC was headed either for privatization or for dissolution. However,
Article I, Section 1 of Proclamation No. 50, 44 provides the enunciated policy required under AO 59 in this
wise:
o Sec. 1. Statement of Policy. — It shall be the policy of the State to promote privatization through
an orderly, coordinated and efficient program for the prompt disposition of the large number of
non-performing assets of the government financial institutions, and certain government-owned
or controlled corporations which have been found unnecessary or inappropriate for the
government sector to maintain.
o Pursuant to this policy, AO 64, which was issued by then President Corazon Aquino, transferred to
the national government certain assets held by the Philippine Export and Foreign Loan Guarantee
(Philguarantee) and the National Development Company (NDC). Certain shares in PNCC were
included. This fact was confirmed by President Fidel V. Ramos through an administrative order
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which states that "PNCC is one of the corporations slated to be privatized."
 When confronted with the same question, the Department of Justice (DOJ) through two Opinions stated
that PNCC was an acquired asset corporation. While not controlling, official opinions of the justice secretary
are persuasive. We uphold such opinions in the present milieu.

There is no inconsistency with the Administrative Code.

 Its earlier posturing notwithstanding, petitioner simultaneously asserts that AO 59 is insufficient in its
definition of "GOCC," which is allegedly inconsistent with that found the Revised Administrative Code
(RAC). The inconsistency, according to petitioner, lies in the fact that AO 59 distinguishes between a GOCC
and an acquired asset corporation, while EO 292 does not. Petitioner maintains that "[s]ince A.O. No. 59 is a
mere administrative issuance of the President, it is clear that its definition of a GOCC cannot prevail over
that given by E.O. No. 292, which is a law." We do not find any inconsistency. The definition given in AO 59
explicitly applies only to that particular administrative order.
 AO 59 does not purport to have established a new kind of corporation that supersedes EO 292. Neither
does the former seek to revise the definition of "GOCC" given in the latter. What AO 59 in fact does is to
distinguish GOCCs in general from those that are sought to be privatized. In fact, the definition given in EO
292 itself states that the GOCCs may be further categorized. This caveat suggests that the definition is
broad enough to admit distinctions as to the kinds of GOCCs defined under AO 59.
 Thus, contrary to respondent's assertion that PNCC is not a GOCC, we hold that it may be deemed so under
EO 292. However, for purposes of AO 59, particularly in the application of Section 16 thereof, PNCC is an
acquired asset corporation. In this light, the alleged inconsistency is more apparent than real.

One final point. Petitioner is represented in this litigation by private counsel, not by the government corporate
counsel or by the solicitor general. In fact, the OSG's Memorandum submitted in representation of SEC debunks the
Petition and sides with respondents. Petitioner should not find it strange then that it is rightly adjudged as a private
corporation subject to regulation by the SEC, since by its very act of retaining private counsel and by the
government's act of opposing its claims, it is indeed a SEC-regulated entity.

RULING

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and the Resolution of the Court of Appeals are AFFIRMED. Costs against
petitioner.

NOTES