1. Lopez Realty, Inc. v. Sps. Reynaldo Tanjangco G.R. No.

154291, 12 November 2014

By virtue of ratification, the acts of the board of directors become the acts of the stockholders
themselves, even if those acts were, at the outset, unauthorized.

Lopez Realty, Inc. (LRI) and Asuncion Lopez-Gonzalez initiated a “Complaint for annulment of
sale, cancellation of title, reconveyance and damages with prayer for the issuance of temporary
restraining order (TRO) and/or writ of preliminary injunction against the spouses Tanjangco,
Arturo and the Registrar of Deeds of Manila.”

Previously, LRI and Dr. Jose Tanjangco (Jose) “were the registered co-owners of three parcels of
land and the building erected thereon known as the ‘Trade Center Building’… Jose’s one-half
share in the subject properties were later transferred and registered in the name of his son
Reynaldo Tanjangco and daughter-in-law, Maria Luisa Arguelles (spouses Tanjangco).”

These were the stockholders of record of LRI at the time material to this case:

1. Asuncion Lopez-Gonzalez (Asuncion, Director & Corporate Secretary) – 7,831 shares;

2. Arturo F. Lopez (Arturo) – 7,830 shares;

3. Teresita Lopez-Marquez (Teresita) – 7,830 shares;

4. Rosendo de Leon (Rosendo, Director) – 5 shares

5. Benjamin Bernardino (Benjamin, Director) – 1 share;

6. Augusto de Leon (Augusto, Director) – 1 share; and

7. Leo Rivera (Leo, Director) – 1 share

During a special stockholders’ meeting held on 27 July 1981, the sale of 1/2 share of LRI in the
Trade Center Building was taken up. While the selling price was at P4 M, the Tanjancos offered
P3.8 M. To this, Asuncion countered with P5 M which was not accepted by the Tanjancos. Thus,
the board agreed to give Asuncion the priority to equal the Tanjanco offer and the same to be
exercised within ten (10) days. Otherwise, the Tanjanco offer will be deemed accepted. Just a day
after, Teresita died (her estate’s executor Juanito L. Santos represented her afterwards).

As Asuncion failed to exercise her option to purchase the subject properties, and while she was
abroad, “the remaining directors: Rosendo, Benjamin and Leo convened in a special meeting”
passing and approving the 17 August 1981 Resolution authorizing Arturo to negotiate and “carry
out the complete termination of the sale terms and conditions as embodied in the Resolution of

is entitled to vote on behalf of Teresita’s estate as the administrator thereof. The Court takes into account that majority of the board of directors except for Asuncion. “Asuncion assails the authority of Juanito to vote because he was not a director and he did not own any share of stock which would qualify him to be one. could be considered as to have .” Regarding Asuncion’s claims that the 30 July 1982 Board Resolution did not ratify the 17 August 1981 Resolution due to Juanito’s disqualification and Leo’s negative vote. “only Juanito. the power to ratify the previous resolutions and actions of the board of directors in this case lies in the stockholders. Until a settlement and division of the estate is effected.” Here. “the ratification was expressed through the July 30. After learning of the sale. 1981”. 1982 minutes of the meeting. it can be deduced that the meeting is a joint stockholders and directors’ meeting. as the administrator of Teresita’s estate even though not a director. on the death of a shareholder. Thus. HELD: The sale was valid. in stock corporations.” This is in violation of Section 53 of the Corporation Code which requires sending of notices for regular or special meetings to every director.” Citing jurisprudence. It would be absurd to require the board of directors to ratify their own acts—acts which the same director s already approved of beforehand. Juanito defends his right to vote as the representative of Teresita’s estate. As a consequence. Upon examination of the July 30.” As there exists no corporate secretary’s certification of the minutes of the meeting. As a result. On the contrary.” In the case of ratification. the stocks of the decedent are held by the administrator or executor. “the actions taken in such a meeting by the directors or trustees may be ratified expressly or impliedly. the sale was perfected with payments subsequently made. not in the board of directors. the executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it.July 27. among others. Subsequently. “a meeting of the board of directors is legally infirm if there is failure to comply with the requirements or formalities of the law or the corporation’s by laws and any action taken on such meeting may be challenged as a consequence. it means that “the principal voluntarily adopts. “shareholders may generally transfer their shares. Asuncion filed this complaint challenging the validity of the 17 August 1982 Resolution on the ground that she was not notified of the meeting. had already approved of the sale to the spouses Tanjangco prior to this meeting. confirms and gives sanction to some unauthorized act of its agent on its behalf. Benjamin and Roseno. Hence.” Notwithstanding. The 17 August 1981 Board Resolution did not give Arturo the authority to act as LRI’s representative in the sale “as the meeting of the board of directors where such was passed was conducted without giving any notice to Asuncion. whose signature appeared on the minutes. Juanito. 1982 Board Resolution.

as was done in this case. He was replaced by Jose Ramirez (Ramirez). 2000. Consequently. 1998. 2001. 2009. the directors continued to serve in the VVCC Board in a hold-over capacity. “In sum. who was elected by the remaining members of the VVCC Board on March 6. It is of no moment whether Arturo was authorized to merely negotiate or to enter into a contract of sale on behalf of LRI as all his actions in connection to the sale were expressly ratified by the stockholders holding 67% of the outstanding capital stock. 1999. the results are the same against the overwhelming shares who voted in favor of ratification. Africa claimed that a year after Makalintal’s election as member of the VVCC Board in 1996. 1996. the requisite quorum for the holding of the stockholders’ meeting could not be obtained. still constituting a quorum. can elect another director to fill in a vacancy caused by the resignation of a hold-over director. Valle Verde Country Club. according to Africa. Africa. even if those acts were. (VVCC). and 2001. Makalintal resigned as member of the VVCC Board. Later. Inc. No. “the Court held that by virtue of ratification. a member of VVCC. Inc. unauthorized. during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club. 1982 Board Resolution. at the outset. FACTS: On February 27. the VVCC Board of Directors were elected including Eduardo Makalintal (Makalintal) among others. the acts of the board of directors become the acts of the stockholders themselves. questioned the election of Ramirez as members of the VVCC Board with the Regional Trial Court (RTC). the same was cured through its ratification in the July 30. September 4. his [Makalintal’s] term – as well as those of the other members of the VVCC Board – should be considered to have already expired. whatever defect there was on the sale to the spouses Tanjangco pursuant to the August 17. 1981 Board Resolution.ratified the sale to the spouses Tanjangco. .” As Leo owns only 1 share. v. respectively.” Citing jurisprudence. and not by the remaining members of the VVCC Board.” 2.151969. Respondent Africa (Africa). however. the resulting vacancy should have been filled by the stockholders in a regular or special meeting called for that purpose. ISSUE: Whether the remaining directors of the corporation’s Board. In the years 1997. RULING: NO. Thus.R. The RTC sustained Africa’s complaint. G.

No. when remaining members of the VVCC Board elected Ramirez to replace Makalintal. is both illogical and unreasonable. The Club requested for the cancellation of the assessment. .” The Club owns and operates a club house. nor is it a new term. not the remaining members of its board of directors. however. and maintain x x x all sorts of games not prohibited under general laws and general ordinances. which has expired. which was a necessary incident to the operation of the club. The club is operated mainly with funds derived from membership fees and dues. when an incumbent member of the board of directors continues to serve in a holdover capacity. the vacancy due to the expiration of Makalintal’s term had been created long before his resignation. the holdover period. His resignation as a holdover director did not change the nature of the vacancy. CLUB FILIPINO.000. The request having been denied. The holdover period – that time from the lapse of one year from a member’s election to the Board and until his successor’s election and qualification – is not part of the director’s original term of office. Pursuant to law. the authority to fill in the vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders. de Cebu is a civic corporation with an original authorized capital stock ofP22. ISSUE: Whether or not Club Filipino is a stock corporation. there was no more unexpired term to speak of. and develop and cultivate sports of every kind and any denomination for recreation and healthy training of its members and shareholders. L-12719 May 31. Inc.00. among others. DE CEBUG. their term expires one year after election to the office. a golf course. as Makalintal’s one-year term had already expired. to it “provide .00. which was subsequently increased to P200. the Club filed the instant petition for review. arising from the increased value due to the revaluation of its real properties. and a bar-restaurant for its members and their guests.operate. 1962 FACTS: Club Filipino. INC. but no actual cash dividends were distributed to the stockholders. it implies that the office has a fixed term. not by the expiration of his term in 1997. the Club declared stock dividends. To assume – as VVCC does – that the vacancy is caused by Makalintal’s resignation in 1998. 4. As a result of a capital surplus.000. [Here].R. and the incumbent is holding the succeeding term.When Section 23 of the Corporation Code declares that “the board of directors…shall hold office for one (1) year until their successors are elected and qualified. constitutes part of his tenure. COLLECTOR OF INTERNAL REVENUE vs . A BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant. a bowling alley.” we construe the provision to mean that the term of the members of the board of directors shall be only for one year. Corollary. The Collector of Internal Revenue assessed against and demanded from the Club the unpaid percentage tax on the gross receipts plus surcharges.

000 PRINTWELL sued BMPI for collection of the unpaid balance and later on impleaded BMPI’s original stockholders and incorporators to recover on theirunpaid subscriptions. (a magazine published and distributed by BMPI) PRINTWELL extended 30-day credit accommodation in favor of BMPI and in aperiod of 9 mos. Facts: BMPI (Business Media Philippines Inc.000 shares worth P750. Inc.000shares with P10 par value Only 75.000 shares worth P350. BMPI commissioned PRINTWELL to print Philippines. Halley contends that: 1. BOD and SH had resolved to dissolve BMPIRTC and CA Defendant merely used the corporate fiction as a cloak/cover to create an injustice (against PRINTWELL) Rejected allegations of full payment in view of irregularity in the issuance of ORs (Payment made on a later date was covered by an OR with a lower serial number than payment made on an earlier date. BMPI placed several orders amounting to 316. Inc. It appears that BMPI has an authorized capital stock of 3M divided into 300. BMPI had a separate and distinct personality 3.000 was paid hence a balance of 291. It is a non-stock corporation 5. only 25.000 were originally subscribed of whichP187. Halley subscribed to 35.000 but only paid P87.HELD: NO. In the course of its business. However. Printwell.000. including Donnina Halley. Donnina Halley vs.) is a corporation under the control of itsstockholders. They all had already paid their subscriptions in full 2. Issue: WON a stockholder who was in active management of the business of the corporation and still has unpaid subscriptions should be made liable for the debts of the corporation by piercing the veil of corporate fiction Held: YES! Such stockholder should be made liable up to the extent of her unpaid subscription .500.500 were paid up capital.

corporation is a simple debtor. No. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock but also other property and assets generally regarded in equity as a trust fund for the payment of corporate 6. Ong Yong V. became heavily indebted to the Philippine National Bank (PNB) for P190M . Subscriptions to the capital of a corporation constitutes a trust fund for the payment of the creditors (by mere analogy) In reality. The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt.R. BMPI was under the control of its stockholders who know fully well that the corporation was not in a position to pay its account (thinly capitalized). or fraudulently. 144476 April 8. The stockholders cannot now claim the doctrine of corporate fiction otherwise (to deny creditors to collect from SH) it would create an injustice because creditors would be at a loss (limbo) against whom it would assert the right to collect. And. in whole or in part. On piercing the veil: Although the corporation has a personality separate and distinct from its SH. such personality is merely a legal fiction (for the convenience and to promote the ends of justice) which may be disregarded by the courts if it is used as a cloak or cover for fraud. without valuable consideration. the corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares. the First Landlink Asia Development Corporation (FLADC). 2003 FACTS: 1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage. or an alter ego for the sole benefit of the SH. when its owner. justification of a wrong. owned by the Tius. that the stockholders personally benefited from the operations of thecorporation even though they never paid their subscriptions in full. The trust fund doctrine is not limited to reaching the SH’s unpaid subscriptions. Moreover. Tiu G.Ratio: It was found that at the time the obligation was incurred. As to the Trust Fund Doctrine: The RTC and CA correctly applied the Trust Fund Doctrine Under which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts. to the prejudice of the creditors.

to invest in FLADC. Anna L. "for practical considerations.8M (for 49. Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M (for 300K shares) and P49." that is.800 shares) Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for their subscription to 1M shares) February 23. 1996: Tius rescinded the Pre-Subscription Agreement February 27.800 shares in addition to their already existing subscription of 450. Juanita Tan Ong. their inability to work together.To save the 2 lots where the mall was being built from foreclosure.000. Ong and Julia Ong Alonzo (the Ongs). it was best to separate the two groups by rescinding the Pre-Subscription Agreement. the Tius invited Ong Yong. Ong. returning the original investment of the Ongs and awarding practically everything else to the Tius.200 shares Tius: nominate the Vice-President and the Treasurer plus 5 directors Ongs nominate the President. the Secretary and 6 directors (including the chairman) to the board of directors of FLADC and right to manage and operate the mall. William T. Ong. Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in FLADC Ongs: subscribe to 1. Wilson T. . 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking confirmation of their rescission of the Pre-Subscription Agreement SEC: confirmed recission of Tius Ongs filed reconsideration that their P70M was not a premium on capital stock but an advance loan SEC en banc: affirmed it was a premium on capital stock CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to rescission) but.000 shares Tius: subscribe to an additional 549.

Tiu and Cely Y. BALINGHASAY G. At the time of its incorporation. 7. The Ongs' shortcomings were far from serious and certainly less than substantial.ISSUE: W/N Specific performance and NOT recission is the remedy HELD: YES. 1992. The SEC approved the foregoing amendment on September 22. 150976 October 18.24 (2) purchase of redeemable shares by the corporation. did not justify the rescission of the contract providing appropriate offices for David S. CASTILLO vs. fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds. MCPI is a domestic corporation. respectively.R. It would be totally against all rules of justice.25 and (3) dissolution and eventual liquidation of the corporation. 1992 Article VII was again amended. an innocent third party. Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title. Ongs granted. they were in fact remediable and correctable under the law. During the course of the . regardless of the existence of unrestricted retained earnings. 1459. notwithstanding the fact that the parties refer to it as a purchase or some other contract allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital stock. 2009 the shareholders of MCPI held their annual stockholders’ meeting and election for directors. They want this Court to make a corporate decision for FLADC. No. It was organized sometime in September 1977. On September 9. with the former holding Class "B" shares and the latter owning Class "A" shares. the old Corporation Law was still in force and effect. had no bearing on their obligations under the Pre-Subscription Agreement since the obligation pertained to FLADC itself failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also pertained to the corporation and not to the Ongs the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was to raise the P190 million law requires that the breach of contract should be so "substantial or fundamental" as to defeat the primary objective of the parties in making the agreement since the cash and other contributions now sought to be returned already belong to FLADC. It states that concept when otherwise provided by law. said remedy may no longer be availed of under the law. Tiu as Vice-President and Treasurer. On February 9. only holders of Class "A" shares have the right to vote and the right to be elected as directors or as corporate officers. Act no. 2004 FACTS: Petitioners and the respondents are stockholders of MCPI.

paragraph 6 of the Corporation Code. herein petitioners filed a Complaint for Injunction. such as those enumerated in Section 6. as Class "B" shareholders. The only possible conclusion is that Class "B" shares fall under neither category and thus. Note that there is nothing in the Articles of Incorporation nor an iota of evidence on record to show that Class "B" shares were categorized as either "preferred" or "redeemable" shares. as amended. declared over the objections of herein petitioners. respondent Rustico Jimenez. 68. It is thus the law between the parties and should be strictly enforced as to them. The petitioners protested. 1459 B.P. and notwithstanding MCPI5s history.proceedings. on March 22. the trial court ruled that corporations had the power to classify their shares of stocks. Under Section 6 of B. as amended. under the law. RULING: The law referred to in the amendment to Article VII refers to the Corporation Code and no other law. conformably with Section 6 of the Corporation Code of the Philippines. Blg. The law repealing Act no. There is no merit in respondents’ position that Section 6 of the Corporation Code cannot apply to ." Section 6 of the Corporation Code being deemed written into Article VII of the Articles of Incorporation of MCPI. of their right to vote and to be voted upon. Branch 258. Accounting and damages before the RTC of Paranaque City. such as voting and non-voting" shares. the exception being in instances provided by law. are allowed to exercise voting rights. Hence this petition. the requirements and restrictions on voting rights were explicitly provided for. retained the same grant of right of classification of stock shares to corporations. such that "no share mav be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares. Nonetheless. MCPI had seen holders of Class "B" shares voted for and serve as members of the corporate board and some Class "B" share owners were in fact nominated for election as board members.P. It pointed out that Article VII of both the original and amended Articles of Incorporation clearly provided that only Class "A" shareholders could vote and be voted for to the exclusion of Class "B" shareholders. the right of a corporation to classify its shares of stock was sanctioned by Section 5 of Act no. At the time of the incorporation of MCPI in 1977. In the past. is a contract between MCPI and its shareholders. unless otherwise provided in this Code and that there shall always be a class or series of shares which have complete voting rights. in violation of the Corporation Code Batas Pambansa Blg. In finding for the respondents. after their protest was given short shrift. 68. 2001. 68. The RC found merit in the respondents’ theory that the Articles of Incorporation. claiming that Article VII was null and void for depriving them. that no Class "B" shareholder was qualified to run or be voted upon as a director. citing Article VII. ISSUE: Whether or not holders of Class "B" shares of the MCPI may be deprived of the right to vote and be voted for as directors in MCPI. 1459. the holders of said Class "B" shares may not be deprived of their voting rights. it necessarily follows that unless Class "B" shares of MCPI stocks are clearly categorized to be "preferred" or "redeemable" shares. which defines the rights and limitations of all its shareholders. Blg. Jimenez went on to announce that the candidates holding Class "A" shares were the winners of all seats in the corporate board. but with a significant change.

Article XII of the Constitution refer to the total common shares only. 2011 FACTS: This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines. Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities. (MPAH).R. No.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. WILSON P. The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or about 6. according to the petitioner.MCPI without running afoul of the non-impairment clause of the Bill of Rights. to Metro Pacific Assets Holdings. or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT. First Pacific’s common shareholdings in PLDT increased from 30. This. Inc. or in the instant case. ISSUE: Does the term “capital” in Section 11.] Section 11. Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors of a public utility.7 percent to 37 percent. Section 148 of the Corporation Code expressly provides that it shall apply to corporations in existence at the time of the effectivity of the Code. June 28. a Hong Kong-based investment management and holding company and a shareholder of the Philippine Long Distance Telephone Company (PLDT). Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%. 176579. thereby increasing the total common shareholdings of foreigners in PLDT to about 81. a public utility? RULING: [The Court partly granted the petition and held that the term “capital” in Section 11. an affiliate of First Pacific Company Limited (First Pacific). GAMBOA vs. violates Section 11. acting through the Inter-Agency Privatization Council (IPC). FINANCE SECRETARY TEVES G. to wit: . With the this sale.47%. 8. to the total common shares of PLDT.

preferred shareholders are often excluded from any control.. nor shall such franchise. the term “capital” in Section 11. as opposed to preferred shares which usually have no voting rights. No franchise. Teves etal. In the absence of provisions in the articles of incorporation denying voting rights to preferred shares. GR No. Gamboa v. then the term “capital” shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. or repeal by the Congress when the common good so requires. 9. Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors. Thus. Considering that common shares have voting rights which translate to control. (Emphasis supplied) The term “capital” in Section 11. 176579. preferred shares have the same voting rights as common shares. certificate. 2012 Facts: The issue started when petitioner Gamboa questioned the indirect sale of shares involving almost 12 million shares of the Philippine Long Distance Telephone Company (PLDT) owned by PTIC to First Pacific. if the preferred shares also have the right to vote in the election of directors. that is. Article XII of the Constitution refers only to common shares. or authorization be exclusive in character or for a longer period than fifty years. at least sixty per centum of whose capital is owned by such citizens. certificate. on the theory that the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders. deprived of the right to vote in the election of directors and on other matters. thereby increasing the total common shareholdings of foreigners in PLDT . Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment. alteration. one of the rights of a stockholder is the right to participate in the control or management of the corporation. Indisputably. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital.Section 11. and all the executive and managing officers of such corporation or association must be citizens of the Philippines. This is exercised through his vote in the election of directors because it is the board of directors that controls or manages the corporation. However. the term “capital” in Section 11. and thus in the present case only to common shares. However. or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines. In short. and not to the total outstanding capital stock comprising both common and non-voting preferred shares [of PLDT]. The State shall encourage equity participation in public utilities by the general public. October 9. Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.7 percent to 37 percent. First Pacific’s common shareholdings in PLDT increased from 30.

10) which implies that the right to vote in the election of directors. In the 2011 decision. Asserting the ideals that our Constitution’s Preamble want to achieve.997 shares of Tesoro). Issue: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in its 2011 decision? Held/Reason: The Court said that the Constitution is clear in expressing its State policy of developing an economy ‘effectively controlled’ by Filipinos. in 2011. hence. The petitioner contends that it violates the Constitutional provision on filipinazation of public utility. the Court finds no wrong in the construction of the term ‘capital’ which refers to the ‘shares with voting rights. sec. Article XII of the 1987 Philippine Constitution. owns 40% of the shares of PLMC (which owns 5.to about 81. Tesoro. which limits foreign ownership of the capital of a public utility to not more than 40%. in turn. the court ruled the case in favor of the petitioner. and MacArthur. stated in Section 11. Apr 21 2014 Facts: Redmont is a domestic corporation interested in the mining and exploration of some areas in Palawan. the Court’s interpretation of the term ‘capital’ was not erroneous.997 shares of Narra).47%. In their answer. it filed a petition before the Panel of Arbitrators of DENR seeking to deny their permits on the ground that these corporations are in reality foreign-owned. the motion for reconsideration is denied. the State should fortify a Filipino-controlled economy. resolving the motion for reconsideration for the 2011 decision filed by the respondents. Therefore. hence this new case. 12. Aside from the MPSA. Then. coupled with benefits. as well as with full beneficial ownership’ (Art. a 100% Canadian corporation. 10. that is – to conserve and develop our patrimony . they countered that (1) the liberal Control Test must be used in determining the nationality of a corporation as based on Sec 3 of the Foreign Investment Act – . Thus. is tantamount to an effective control. owns 5. MBMI. 40% of the shares of MMC (which owns 5. Narra Nickel Mining vs Redmont GR 185590. Upon learning that those areas were covered by MPSA applications of other three (allegedly Filipino) corporations – Narra.997 shares of McArthur) and 40% of the shares of SLMC (which. the three corporations also applied for FTAA with the Office of the President.

Corporate layering is admittedly allowed by the FIA. the Constitution will prevail. it turns out that the Canadian corporation owns more than 60% of the equity interests of Narra. Tesoro and MacArthur. Sec. First. under the SEC Rule1 and DOJ Opinion2 . 3 of the FIA will have no place of application. specifically pertaining to the provisions under Art. development and utilization of the Philippine’s natural resources. . the latter are disqualified to participate in the exploration. then it becomes illegal.which as they claimed admits of corporate layering schemes. In this instance. It is the intention of the framers of the Constitution to apply the Grandfather Rule in cases where corporate layering is present. Hence. Under the Grandfather Rule. XII of the Constitution on National Economy and Patrimony. but if it is used to circumvent the Constitution and other pertinent laws. it is not enough that the corporation does have the required 60% Filipino stockholdings at face value. To determine the percentage of the ultimate Filipino ownership. Second. Doubt is present in the Filipino equity ownership of Narra. Issue: W/N the Grandfather Rule must be applied in this case Yes. Applying this rule. funded them. the Grandfather Rule must be applied when the 60-40 Filipino-foreign equity ownership is in doubt. the 100% Canadian- owned corporation – MBMI. when there is conflict between the Constitution and a statute. Tesoro. and that (2) the nationality question is no longer material because of their subsequent application for FTAA. as a rule in statutory construction. and MacArthur since their common investor. it must first be traced to the level of the investing corporation and added to the shares directly owned in the investee corporation.