G.R. No. 149802 January 20, 2006 in Civil Case No.
in Civil Case No. 0002, assail via petition for certiorari orders and
ALFONSO T. YUCHENGCO AND Y REALTY
CORPORATION, Petitioners,
vs.
THE HONORABLE SANDIGANBAYAN, FOURTH DIVISION, REPUBLIC
OF THE PHILIPPINES, PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT, ESTATE OF FERDINAND E. MARCOS, IMELDA R.
MARCOS, PRIME HOLDINGS, INC., ESTATE OF RAMON U.
COJUANGCO, represented by IMELDA O. COJUANGCO, and IMELDA
O. COJUANGCO, Respondents.
x -----------------------------------------x
G.R. No. 150320 January 20, 2006
ALFONSO T. YUCHENCGO AND Y REALTY
CORPORATION, Petitioners,
vs.
THE HONORABLE SANDIGANBAYAN, FOURTH DIVISION, REPUBLIC
OF THE PHILIPPINES, PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT, ESTATE OF FERDINAND E. MARCOS, IMELDA R.
MARCOS, PRIME HOLDINGS, INC., ESTATE OF RAMON U.
COJUANGCO represented by IMELDA O. COJUANGCO, and IMELDA
O. COJUANGCO, Respondents.
x -----------------------------------------x
G.R. No. 150367 January 20, 2006
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
HON. SANDIGANBAYAN (FOURTH DIVISION), ESTATE OF
FERDINAND E. MARCOS (represented by its Administrator, the
Bureau of Internal Revenue), IMELDA R. MARCOS, PRIME
HOLDINGS, INC., ESTATE OF RAMON U. COJUANGCO (represented
by its Administratrix, IMELDA O. COJUANGCO), IMELDA O.
COJUANGCO, ALFONSO T. YUCHENGCO, and Y REALTY
CORPORATION, Respondents.
x -----------------------------------------x
G.R. No. 153207 January 20, 2006
ALFONSO T. YUCHENGCO AND Y REALTY
CORPORATION, Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT, ESTATE OF FERDINAND E. MARCOS, IMELDA
R. MARCOS, PRIME HOLDINGS, INC., ESTATE OF RAMON U.
COJUANGCO represented by IMELDA O COJUANGCO, and IMELDA
O. COJUANGCO, Respondents.
x -----------------------------------------x
G.R. No. 153459 January 20, 2006
REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT, Petitioner,
vs.
ESTATE OF FERDINAND E. MARCOS, IMELDA R. MARCOS, IMELDA
(IMEE) R. MARCOS-MANOTOC, TOMAS MANOTOC, IRENE R.
MARCOS-ARANETA, GREGORIO MA. ARANETA, III, FERDINAND R.
MARCOS, JR., IMELDA COJUANGCO, ESTATE OF RAMON
COJUANGCO (represented by the Administratrix, IMELDA
COJUANGCO), PRIME HOLDINGS, INC., ALFONSO T. YUCHENGCO,
AND Y. REALTY CORPORATION, Respondents.
DECISION
CARPIO MORALES, J.:
These five consolidated petitions pray for the nullification of certain
issuances of the Sandiganbayan in Civil Case No. 0002, "Republic of
the Philippines v. Estate of Ferdinand E. Marcos, et al."
The complaint in Civil Case No. 0002 (or the case) was filed before
the Sandiganbayan on July 16, 1987 by the Republic of the
Philippines (the Republic) through the Presidential Commission on
Good Government (PCGG) against former President and Mrs.
Marcos, their three children, and some other individuals. The
complaint was later amended to implead additional defendants.
The case is for the recovery of alleged ill-gotten wealth of the
Marcoses, among which are shares of stock in the Philippine
Telecommunications Investment Corporation (PTIC): 76,779 shares
in the name of Ramon U. Cojuangco, 21,525 shares in the name of
Imelda O. Cojuangco, and 111,415 shares in the name of Prime
Holdings Incorporated (PHI). PTIC is the biggest stockholder of PLDT,
it owning some 28% of the outstanding shares in PLDT at the time
Civil Case No. 0002 was filed.1
In the course of the proceedings in Civil Case No. 0002, the first
three petitions assailing interlocutory orders of the Sandiganbayan
were filed before this Court.
Thus, the petitions in G.R. Nos. 149802 and 150320, filed by Alfonso
Yuchengco and Y Realty Corporation, complainants-in-intervention
resolutions of the Sandiganbayan denying their motions to suspend
trial pending discovery proceedings and to re-set trial dates (with
alternative prayer for a change in the order of trial), and declaring
them as having waived their right to present evidence.
The petition in G.R. No. 150367, filed by the Republic, assails via
petition for certiorari the Sandiganbayan Orders denying its
Respectful Motion for Additional Time to Complete the Presentation
of Evidence and directing it to submit its offer of evidence within 30
days.
During the pendency of these first three petitions, the
Sandiganbayan continued with the proceedings in Civil Case No.
0002, no restraining order enjoining the same having been issued by
this Court.
The Sandiganbayan, still during the pendency of the first three
petitions, promulgated in Civil Case No. 0002 a Partial Decision on
May 6, 2002 the dispositive portion of which reads:
WHEREFORE, premises considered, the complaint of plaintiff
Republic of the Philippines on the PLDT shares subject of separate
trial is hereby DISMISSED for lack of merit.
The Motion for Summary Judgment [filed by Imelda Cojuangco, et
al] is hereby GRANTED, and the Complaint-in-Intervention [filed by
the Yuchengcos] DISMISSED.
SO ORDERED. (Underscoring supplied)
The last two of the five petitions at bar, both for review on
certiorari, were thereupon filed. The petition in G.R. No.
153207 filed by the complainants-in-intervention Yuchengcos, and
that in G.R. No. 153459 filed by the Republic, both challenge the
Partial Decision.
The incidents that gave rise to the filing of the petitions are stated in
the minority’s dissenting opinion penned by Justice Cancio Garcia
which immediately follows this majority opinion. The dissenting
opinion substantially reiterates the draft that Justice Garcia
prepared which was used by this Court as a working basis for its
deliberations.
In issue in these petitions are:
1. Whether petitioners in G.R. Nos. 149802,
150320 and 150367 were denied due process when the
Sandiganbayan in effect directed them to terminate the
presentation of their respective evidence; and
2. Whether the Partial Decision being assailed via petition for review
in G.R. Nos. 153207 and 153459, conforms to the evidence
presented, the law and/or settled jurisprudence.
There is no disagreement with respect to the disposition-dismissal
by the minority of the first three petitions – the first having become
moot, and the second and third for lack of grave abuse of discretion
on the part of the Sandiganbayan.2 There is also no disagreement
with respect to the disposition-denial by the minority of the fourth
petition (G.R. No. 153207) in the absence of reversible error on the
part of the Sandiganbayan.
It is with respect to the disposition-denial by the minority of the fifth
petition (G.R. No. 153459) insofar as it denied the prayer of the
Republic for a judgment ordering the Estate of Ramon U. Cojuangco
(Cojuangco), Imelda O. Cojuangco, PHI, their assigns, nominees and
agents to reconvey to the Republic 111,415 PTIC shares registered in
the name of PHI that the majority does not agree, in light of the
immediately following discussions.
The Sandiganbayan having held in its 73-page Partial Decision3 that
the Republic has failed to prove that the PLDT shares sought to be
recovered are ill-gotten, thus:
. . . the Republic has failed to provide such "proof of authenticity or
reliability" of the documents offered by it in evidence. Thus almost
all the documents offered by the Republic are photocopies, and no
effort was undertaken . . . to submit the originals of said documents,
or to have them properly identified, or to otherwise justify the
admission of mere photocopies. Not surprisingly, defendants . . .
objected to the admission of the Republic’s documentary exhibits,
citing violation of the Best Evidence Rule (Section 3, Rule 130 of the
Revised Rules of Civil Procedure ["Rules"], the Rules of Presentation
of Documentary Evidence (Section 20, Rule 132 of the Rules). The
Hearsay Evidence Rule, and the rule as to Purpose/s of Documentary
Evidence (Section 34, Rule 132 of the Rules)."4(Underscoring
supplied),
a discussion of the evidence presented in the case is in order.
FACTUAL BACKGROUND OF PHI AND ITS DEALINGS WITH PTIC
PHI was registered on October 5, 1977 with the following five (5)
incorporators: Jose D. Campos, Jr. (son of Jose Yao Campos),
Rolando Gapud (Gapud), Renato Lirio (Lirio), Ernesto Abalos
(Abalos), and Gervacio Gaviola (Gaviola), with 400 shares each,
with a par value of P100 per share. The total amount of capital stock
subscribed was thus P200,000.00, P50,000.00 of which was actually
paid.5 Its place of business was at 66 United Street, Mandaluyong,
Metro Manila.6
The five PHI incorporators, in their capacity as stockholders, elected
themselves as directors on October 10, 1977. On even date, they
elected the following as officers of the corporation:
Rolando C. Gapud - President
Jose D. Campos, Jr. - Vice-President
Gervasio T. Gaviola - Treasurer
Francisco G. De Guzman - Secretary
Rodolfo R. Dimaano - Assistant Secretary
Meanwhile, 54,349 shares in another corporation, PTIC, were
"contributed to and/or abandoned" by one of its stockholders,
General Telephone and Electronics (GTE), an American corporation,
in favor of PTIC.
On December 20, 1977, the PTIC Board of Directors resolved to sell
such 54,349 shares to its stockholders in proportion to their
holdings.7 No stockholder, apart from Cojuangco, PTIC President and
member of its Board of Directors, expressed interest in purchasing
the shares.8 All the 54,349 shares were then transferred to his name.
Cojuangco and Luis Tirso Rivilla (Rivilla), another stockholder of PTIC,
together with PHI President Gapud, forged an agreement dated
January 27, 1978 referring to the "various discussions during which
[Cojuangco and Rivilla] offered to sell and [PHI] agreed to purchase
partially paid subscriptions and common shares of [PTIC]."9 The
agreement which indicated the basic terms and conditions of the
transaction states that the number of PTIC shares which Cojuangco
and Rivilla were prepared to sell to PHI was "111,415 common
shares representing 46.1250% of the subscribed and outstanding
shares of PTIC."
On April 20, 1978, the PTIC Board of Directors granted Cojuangco
and Rivilla authorization to transfer their PTIC shares to PHI.10
Cojuangco thereafter ceded to PHI 77,719 PTIC shares registered in
his name via two separate deeds of assignment both dated May 2,
1978, one for 44,023 shares and the other for 33,696 shares.11 Rivilla
likewise conveyed PTIC 33,696 shares registered in his name to PHI
via a deed of assignment also dated May 2, 1978.12Thus, a total of
111,415 PTIC shares was transferred to PHI on May 2, 1978.
Gapud and Jose D. Campos, Jr. later assigned all their shares in PHI
(400 shares each) to Cojuangco and PTIC Director Oscar Africa
(Africa), respectively, via two separate deeds of assignment dated
February 18, 1981.13
On May 9, 1981, Cojuangco and Africa were elected directors of PHI,
replacing Gapud and Jose D. Campos, Jr., while the other directors –
Lirio, Abalos, and Gaviola – remained as such.14 On even date,
Cojuangco and Africa were elected by the PHI Board of Directors as
President and Vice-President, respectively, while de Guzman and
Gaviola remained as Secretary and Treasurer, respectively.15
Subsequently, by Deed of Assignment16 dated June 1983 (the day is
not indicated), Africa transferred all his 400 PHI shares — 240 to
Antonio Cojuangco and 160 to Trinidad Cojuangco Yulo. On even
date, the remaining incorporators on the board of directors – Lirio,
Abalos, and Gaviola – each executed a deed of assignment
transferring their PHI shares to members of the Cojuangco family.
Thus Lirio transferred 240 shares to Antonio Cojuangco and 160 to
Trinidad C. Yulo;17 Abalos transferred 320 shares to Ramon O.
Cojuangco, Jr. and 80 to Miguel O. Cojuangco;18 and Gaviola
transferred 320 shares to Ma. Victoria O. Cojuangco Yulo and 80 also
to Antonio Cojuangco.19
BENEFICIAL OWNERSHIP OF PHI
Significantly, respondents in G.R. No. 153459, namely: Estate of
Ramon Cojuangco, Imelda O. Cojuangco, PHI, and Imelda R. Marcos
all agree with petitioner Republic that PHI has an undisclosed
beneficial owner, their only disagreement being who this owner is.
The Cojuangcos and PHI in their Comment proffer that the beneficial
owners are the Cojuangcos, arguing as follows:
x x x The unsupported allegation that President Marcos owned the
disputed shares in PLDT, PTIC and PHI may perhaps explain the
circumstances surrounding PHI’s incorporation, why PTIC’s
stockholders were disinterested in purchasing PLDT’s shares in 1977,
why PTIC’s stockholders waived their right of first refusal in 1978,
why there are no proper entries in PHI’s Stock and Transfer Book, or
why the subject shareholdings were not included in Ramon U.
Cojuangco’s Estate inventory. However, the converse syllogism is
not true – the details of PHI’s incorporation, or the fact that PTIC’s
stockholders were disinterested in purchasing PLDT’s shares in 1977,
or that PTIC’s stockholders waived their right of first refusal in 1978,
or that there are no proper entries in PHI’s Stock and Transfer Book,
or that 400 PHI shares were not included in Ramon U. Cojuangco’s
Estate inventory do not necessarily establish that President Marcos
owned the subject shares in PHI, PTIC and PLDT.
These circumstances show that PHI had an undisclosed principal
and beneficial owner. Subsequent events, i.e. the assignment of
shares in 1981 and 1983, reveal and confirm that Mr. Ramon U.
Cojuangco and his family were the principal and beneficial owners
of PHI, and, corollarily, the subject PHI, PTIC and PLDT shares, not
President Marcos.20 (Emphasis, italics and underscoring supplied)
Imelda Marcos, on the other hand, consistent with the theory of
petitioner
G.R. No. 176579 June 28, 2011
WILSON P. GAMBOA, Petitioner,
vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE
UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER
RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR AND
MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL,
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS
CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC.,
CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS
MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT
NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES
EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE
PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-
Intervention.
DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory
relief and declaration of nullity of the sale of shares of stock of
Philippine Telecommunications Investment Corporation (PTIC) by
the government of the Republic of the Philippines to Metro Pacific
Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder
of Philippine Long Distance Telephone Company (PLDT), are as
follows:1
On 28 November 1928, the Philippine Legislature enacted Act No.
3436 which granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone and
Electronics Corporation (GTE), an American company and a major
PLDT stockholder, sold 26 percent of the outstanding common
shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was
incorporated by several persons, including Roland Gapud and Jose
Campos, Jr. Subsequently, PHI became the owner of 111,415 shares
of stock of PTIC by virtue of three Deeds of Assignment executed by
PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986,
the 111,415 shares of stock of PTIC held by PHI were sequestered by
the Presidential Commission on Good Government (PCGG). The
111,415 PTIC shares, which represent about 46.125 percent of the
outstanding capital stock of PTIC, were later declared by this Court
to be owned by the Republic of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based
investment firm, acquired the remaining 54 percent of the
outstanding capital stock of PTIC. On 20 November 2006, the Inter-
Agency Privatization Council (IPC) of the Philippine Government
announced that it would sell the 111,415 PTIC shares, or 46.125
percent of the outstanding capital stock of PTIC, through a public
bidding to be conducted on 4 December 2006. Subsequently, the
public bidding was reset to 8 December 2006, and only two bidders,
Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital,
submitted their bids. Parallax won with a bid of P25.6 billion or
US$510 million.
Thereafter, First Pacific announced that it would exercise its right of
first refusal as a PTIC stockholder and buy the 111,415 PTIC shares
by matching the bid price of Parallax. However, First Pacific failed to
do so by the 1 February 2007 deadline set by IPC and instead,
yielded its right to PTIC itself which was then given by IPC until 2
March 2007 to buy the PTIC shares. On 14 February 2007, First
Pacific, through its subsidiary, MPAH, entered into a Conditional Sale
and Purchase Agreement of the 111,415 PTIC shares, or 46.125
percent of the outstanding capital stock of PTIC, with the Philippine
Government for the price of P25,217,556,000 or US$510,580,189.
The sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine
Government of 46.125 percent of PTIC shares is actually an indirect
sale of 12 million shares or about 6.3 percent of the outstanding
common shares of PLDT. With the sale, First Pacific’s common
shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the common shareholdings of foreigners in
PLDT to about 81.47 percent. This violates Section 11, Article XII of
the 1987 Philippine Constitution which limits foreign ownership of
the capital of a public utility to not more than 40 percent.3
On the other hand, public respondents Finance Secretary Margarito
B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner
Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged
in the business of investment holdings. PTIC held 26,034,263 PLDT
common shares, or 13.847 percent of the total PLDT outstanding
common shares. PHI, on the other hand, was incorporated in 1977,
and became the owner of 111,415 PTIC shares or 46.125 percent of
the outstanding capital stock of PTIC by virtue of three Deeds of
Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In
1986, the 111,415 PTIC shares held by PHI were sequestered by the
PCGG, and subsequently declared by this Court as part of the ill-
gotten wealth of former President Ferdinand Marcos. The
sequestered PTIC shares were reconveyed to the Republic of the
Philippines in accordance with this Court’s decision4 which became
final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares,
which represent 6.4 percent of the outstanding common shares of
stock of PLDT, and designated the Inter-Agency Privatization Council
(IPC), composed of the Department of Finance and the PCGG, as the
disposing entity. An invitation to bid was published in seven
different newspapers from 13 to 24 November 2006. On 20
November 2006, a pre-bid conference was held, and the original
deadline for bidding scheduled on 4 December 2006 was reset to 8
December 2006. The extension was published in nine different
newspapers.
During the 8 December 2006 bidding, Parallax Capital Management
LP emerged as the highest bidder with a bid of P25,217,556,000. The
government notified First Pacific, the majority owner of PTIC shares,
of the bidding results and gave First Pacific until 1 February 2007 to
exercise its right of first refusal in accordance with PTIC’s Articles of
Incorporation. First Pacific announced its intention to match
Parallax’s bid.
On 31 January 2007, the House of Representatives (HR) Committee
on Good Government conducted a public hearing on the particulars
of the then impending sale of the 111,415 PTIC shares. Respondents
Teves and Sevilla were among those who attended the public
hearing. The HR Committee Report No. 2270 concluded that: (a) the
auction of the government’s 111,415 PTIC shares bore due diligence,
transparency and conformity with existing legal procedures; and
(b) First Pacific’s intended acquisition of the government’s 111,415
PTIC shares resulting in First Pacific’s 100% ownership of PTIC will
not violate the 40 percent constitutional limit on foreign
ownership of a public utility since PTIC holds only 13.847 percent
of the total outstanding common shares of PLDT.5 On 28 February
2007, First Pacific completed the acquisition of the 111,415 shares of
stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the
IPC conducted a public bidding for the sale of 111,415 PTIC shares or
46 percent of the outstanding capital stock of PTIC (the remaining 54
percent of PTIC shares was already owned by First Pacific and its
affiliates); (b) Parallax offered the highest bid amounting
to P25,217,556,000; (c) pursuant to the right of first refusal in favor
of PTIC and its shareholders granted in PTIC’s Articles of
Incorporation, MPAH, a First Pacific affiliate, exercised its right of
first refusal by matching the highest bid offered for PTIC shares on
13 February 2007; and (d) on 28 February 2007, the sale was
consummated when MPAH paid IPC P25,217,556,000 and the
government delivered the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations of facts of
petitioner.
On 28 February 2007, petitioner filed the instant petition for
prohibition, injunction, declaratory relief, and declaration of nullity
of sale of the 111,415 PTIC shares. Petitioner claims, among others,
that the sale of the 111,415 PTIC shares would result in an increase
in First Pacific’s common shareholdings in PLDT from 30.7 percent to
37 percent, and this, combined with Japanese NTT DoCoMo’s
common shareholdings in PLDT, would result to a total foreign
common shareholdings in PLDT of 51.56 percent which is over the
40 percent constitutional limit.6 Petitioner asserts:
If and when the sale is completed, First Pacific’s equity in PLDT will
go up from 30.7 percent to 37.0 percent of its common – or voting-
stockholdings, x x x. Hence, the consummation of the sale will put
the two largest foreign investors in PLDT – First Pacific and Japan’s
NTT DoCoMo, which is the world’s largest wireless
telecommunications firm, owning 51.56 percent of PLDT common
equity. x x x With the completion of the sale, data culled from the
official website of the New York Stock Exchange (www.nyse.com)
showed that those foreign entities, which own at least five percent
of common equity, will collectively own 81.47 percent of PLDT’s
common equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K
reports x x x which PLDT submitted to the New York Stock Exchange
for the period 2003-2005, revealed that First Pacific and several
other foreign entities breached the constitutional limit of 40 percent
ownership as early as 2003. x x x"7
Petitioner raises the following issues: (1) whether the consummation
of the then impending sale of 111,415 PTIC shares to First Pacific
violates the constitutional limit on foreign ownership of a public
utility; (2) whether public respondents committed grave abuse of
discretion in allowing the sale of the 111,415 PTIC shares to First
Pacific; and (3) whether the sale of common shares to foreigners in
excess of 40 percent of the entire subscribed common capital stock
violates the constitutional limit on foreign ownership of a public
utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a
Motion for Leave to Intervene and Admit Attached Petition-in-
Intervention. In the Resolution of 28 August 2007, the Court granted
the motion and noted the Petition-in-Intervention.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in
seeking, among others, to enjoin and/or nullify the sale by
respondents of the 111,415 PTIC shares to First Pacific or assignee."
Petitioners-in-intervention claim that, as PLDT subscribers, they
have a "stake in the outcome of the controversy x x x where the
Philippine Government is completing the sale of government owned
assets in [PLDT], unquestionably a public utility, in violation of the
nationality restrictions of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those
raised by petitioner,9 which indisputably demand a thorough
examination of the evidence of the parties, are generally beyond this
Court’s jurisdiction. Adhering to this well-settled principle, the Court
shall confine the resolution of the instant controversy solely on
the threshold and purely legal issue of whether the term "capital" in
Section 11, Article XII of the Constitution refers to the total common
shares only or to the total outstanding capital stock (combined total
of common and non-voting preferred shares) of PLDT, a public
utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among
the remedies petitioner seeks, only the petition for prohibition is
within the original jurisdiction of this court, which however is not
exclusive but is concurrent with the Regional Trial Court and the
Court of Appeals. The actions for declaratory relief, 10 injunction, and
annulment of sale are not embraced within the original jurisdiction
of the Supreme Court. On this ground alone, the petition could have
been dismissed outright.
While direct resort to this Court may be justified in a petition for
prohibition,11 the Court shall nevertheless refrain from discussing
the grounds in support of the petition for prohibition since on 28
February 2007, the questioned sale was consummated when MPAH
paid IPC P25,217,556,000 and the government delivered the
certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition
of the term "capital" in Section 11, Article XII of the Constitution has
far-reaching implications to the national economy, the Court treats
the petition for declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated
the petition for declaratory relief as one for mandamus considering
the grave injustice that would result in the interpretation of a
banking law. In that case, which involved the crime of rape
committed by a foreign tourist against a Filipino minor and the
execution of the final judgment in the civil case for damages on the
tourist’s dollar deposit with a local bank, the Court declared Section
113 of Central Bank Circular No. 960, exempting foreign currency
deposits from attachment, garnishment or any other order or
process of any court, inapplicable due to the peculiar circumstances
of the case. The Court held that "injustice would result especially to
a citizen aggrieved by a foreign guest like accused x x x" that would
"negate Article 10 of the Civil Code which provides that ‘in case of
doubt in the interpretation or application of laws, it is presumed
that the lawmaking body intended right and justice to prevail.’" The
Court therefore required respondents Central Bank of the
Philippines, the local bank, and the accused to comply with the writ
of execution issued in the civil case for damages and to release the
dollar deposit of the accused to satisfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court
similarly brushed aside the procedural infirmity of the petition for
declaratory relief and treated the same as one for mandamus.
In Alliance, the issue was whether the government unlawfully
excluded petitioners, who were government employees, from the
enjoyment of rights to which they were entitled under the law.
Specifically, the question was: "Are the branches, agencies,
subdivisions, and instrumentalities of the Government, including
government owned or controlled corporations included among the
four ‘employers’ under Presidential Decree No. 851 which are
required to pay their employees x x x a thirteenth (13th) month pay
x x x ?" The Constitutional principle involved therein affected all
government employees, clearly justifying a relaxation of the
technical rules of procedure, and certainly requiring the
interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for
declaratory relief as one for mandamus if the issue involved has far-
reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition
for declaratory relief. However, exceptions to this rule have been
recognized. Thus, where the petition has far-reaching implications
and raises questions that should be resolved, it may be treated as
one for mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of
the term "capital" in Section 11, Article XII of the Constitution. He
prays that this Court declare that the term "capital" refers to
common shares only, and that such shares constitute "the sole basis
in determining foreign equity in a public utility." Petitioner further
asks this Court to declare any ruling inconsistent with such
interpretation unconstitutional.
The interpretation of the term "capital" in Section 11, Article XII of
the Constitution has far-reaching implications to the national
economy. In fact, a resolution of this issue will determine whether
Filipinos are masters, or second class citizens, in their own country.
What is at stake here is whether Filipinos or foreigners will
have effective control of the national economy. Indeed, if ever there
is a legal issue that has far-reaching implications to the entire nation,
and to future generations of Filipinos, it is the threshhold legal issue
presented in this case.
The Court first encountered the issue on the definition of the term
"capital" in Section 11, Article XII of the Constitution in the case
of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case
involved the same public utility (PLDT) and substantially the same
private respondents. Despite the importance and novelty of the
constitutional issue raised therein and despite the fact that the
petition involved a purely legal question, the Court declined to
resolve the case on the merits, and instead denied the same for
disregarding the hierarchy of courts.17There, petitioner Fernandez
assailed on a pure question of law the Regional Trial Court’s Decision
of 21 February 2003 via a petition for review under Rule 45. The
Court’s Resolution, denying the petition, became final on 21
December 2004.
The instant petition therefore presents the Court with another
opportunity to finally settle this purely legal issue which is of
transcendental importance to the national economy and a
fundamental requirement to a faithful adherence to our
Constitution. The Court must forthwith seize such opportunity, not
only for the benefit of the litigants, but more significantly for the
benefit of the entire Filipino people, to ensure, in the words of the
Constitution, "a self-reliant and independent national
economy effectively controlled by Filipinos."18 Besides, in the light
of vague and confusing positions taken by government agencies on
this purely legal issue, present and future foreign investors in this
country deserve, as a matter of basic fairness, a categorical ruling
from this Court on the extent of their participation in the capital of
public utilities and other nationalized businesses.
Despite its far-reaching implications to the national economy, this
purely legal issue has remained unresolved for over 75 years since
the 1935 Constitution. There is no reason for this Court to evade this
ever recurring fundamental issue and delay again defining the term
"capital," which appears not only in Section 11, Article XII of the
Constitution, but also in Section 2, Article XII on co-production and
joint venture agreements for the development of our natural
resources,19 in Section 7, Article XII on ownership of private
lands,20 in Section 10, Article XII on the reservation of certain
investments to Filipino citizens,21 in Section 4(2), Article XIV on the
ownership of educational institutions,22 and in Section 11(2), Article
XVI on the ownership of advertising companies.23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such,
he has the right to question the subject sale, which he claims to
violate the nationality requirement prescribed in Section 11, Article
XII of the Constitution. If the sale indeed violates the Constitution,
then there is a possibility that PLDT’s franchise could be revoked, a
dire consequence directly affecting petitioner’s interest as a
stockholder.
More importantly, there is no question that the instant petition
raises matters of transcendental importance to the public. The
fundamental and threshold legal issue in this case, involving the
national economy and the economic welfare of the Filipino people,
far outweighs any perceived impediment in the legal personality of
the petitioner to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a
suit on matters of transcendental importance to the public, thus:
In Tañada v. Tuvera, the Court asserted that when the issue
concerns a public right and the object of mandamus is to obtain
the enforcement of a public duty, the people are regarded as the
real parties in interest; and because it is sufficient that petitioner is
a citizen and as such is interested in the execution of the laws, he
need not show that he has any legal or special interest in the result
of the action. In the aforesaid case, the petitioners sought to
enforce their right to be informed on matters of public concern, a
right then recognized in Section 6, Article IV of the 1973
Constitution, in connection with the rule that laws in order to be
valid and enforceable must be published in the Official Gazette or
otherwise effectively promulgated. In ruling for the petitioners’ legal
standing, the Court declared that the right they sought to be
enforced ‘is a public right recognized by no less than the
fundamental law of the land.’
Legaspi v. Civil Service Commission, while reiterating Tañada, further
declared that ‘when a mandamus proceeding involves the assertion
of a public right, the requirement of personal interest is satisfied
by the mere fact that petitioner is a citizen and, therefore, part of
the general ‘public’ which possesses the right.’
Further, in Albano v. Reyes, we said that while expenditure of public
funds may not have been involved under the questioned contract
for the development, management and operation of the Manila
International Container Terminal, ‘public interest [was] definitely
involved considering the important role [of the subject contract] . .
. in the economic development of the country and the magnitude
of the financial consideration involved.’ We concluded that, as a
consequence, the disclosure provision in the Constitution would
constitute sufficient authority for upholding the petitioner’s
standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves
matters of transcendental public importance, the petitioner has the
requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987
Constitution mandates the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, 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, at least
sixty per centum of whose capital is owned by such citizens; nor
shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines.
(Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of
the 1973 Constitution, thus:
Section 5. No franchise, certificate, 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 at least
sixty per centum of the capital of which is owned by such citizens,
nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the National
Assembly when the public interest so requires. The State shall
encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body
of any public utility enterprise shall be limited to their proportionate
share in the capital thereof. (Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced Section
8, Article XIV of the 1935 Constitution, viz:
Section 8. No franchise, certificate, 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 other
entities organized under the laws of the Philippines sixty per
centum of the capital of which is owned by citizens of the
Philippines, nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. No
franchise or right shall be granted to any individual, firm, or
corporation, except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the public
interest so requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986
Constitutional Commission, reminds us that the Filipinization
provision in the 1987 Constitution is one of the products of the spirit
of nationalism which gripped the 1935 Constitutional
Convention.25 The 1987 Constitution "provides for the Filipinization
of public utilities by requiring that any form of authorization for the
operation of public utilities should be granted only to ‘citizens of the
Philippines or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of whose capital is
owned by such citizens.’ The provision is [an express] recognition of
the sensitive and vital position of public utilities both in the
national economy and for national security."26 The evident purpose
of the citizenship requirement is to prevent aliens from assuming
control of public utilities, which may be inimical to the national
interest.27 This specific provision explicitly reserves to Filipino
citizens control of public utilities, pursuant to an overriding
economic goal of the 1987 Constitution: to "conserve and develop
our patrimony"28 and ensure "a self-reliant and independent
national economy effectively controlled by Filipinos."29
Any citizen or juridical entity desiring to operate a public utility must
therefore meet the minimum nationality requirement prescribed in
Section 11, Article XII of the Constitution. Hence, for a corporation
to be granted authority to operate a public utility, at least 60
percent of its "capital" must be owned by Filipino citizens.
The crux of the controversy is the definition of the term "capital."
Does the term "capital" in Section 11, Article XII of the Constitution
refer to common shares or to the total outstanding capital stock
(combined total of common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in
domestic public utilities refers only to common shares because such
shares are entitled to vote and it is through voting that control over
a corporation is exercised. Petitioner posits that the term "capital" in
Section 11, Article XII of the Constitution refers to "the ownership of
common capital stock subscribed and outstanding, which class of
shares alone, under the corporate set-up of PLDT, can vote and elect
members of the board of directors." It is undisputed that PLDT’s
non-voting preferred shares are held mostly by Filipino
citizens.30 This arose from Presidential Decree No. 217,31 issued on
16 June 1973 by then President Ferdinand Marcos, requiring every
applicant of a PLDT telephone line to subscribe to non-voting
preferred shares to pay for the investment cost of installing the
telephone line.32
Petitioners-in-intervention basically reiterate petitioner’s arguments
and adopt petitioner’s definition of the term "capital." 33 Petitioners-
in-intervention allege that "the approximate foreign ownership of
common capital stock of PLDT x x x already amounts to at least
63.54% of the total outstanding common stock," which means that
foreigners exercise significant control over PLDT, patently violating
the 40 percent foreign equity limitation in public utilities prescribed
by the Constitution.
Respondents, on the other hand, do not offer any definition of the
term "capital" in Section 11, Article XII of the Constitution. More
importantly, private respondents Nazareno and Pangilinan of PLDT
do not dispute that more than 40 percent of the common shares of
PLDT are held by foreigners.
In particular, respondent Nazareno’s Memorandum, consisting of 73
pages, harps mainly on the procedural infirmities of the petition and
the supposed violation of the due process rights of the "affected
foreign common shareholders." Respondent Nazareno does not
deny petitioner’s allegation of foreigners’ dominating the common
shareholdings of PLDT. Nazareno stressed mainly that the petition
"seeks to divest foreign common shareholders purportedly
exceeding 40% of the total common shareholdings in PLDT of their
ownership over their shares." Thus, "the foreign natural and
juridical PLDT shareholders must be impleaded in this suit so that
they can be heard."34 Essentially, Nazareno invokes denial of due
process on behalf of the foreign common shareholders.
While Nazareno does not introduce any definition of the term
"capital," he states that "among the factual assertions that need to
be established to counter petitioner’s allegations is the uniform
interpretation by government agencies (such as the SEC),
institutions and corporations (such as the Philippine National Oil
Company-Energy Development Corporation or PNOC-EDC) of
including both preferred shares and common shares in "controlling
interest" in view of testing compliance with the 40% constitutional
limitation on foreign ownership in public utilities."35
Similarly, respondent Manuel V. Pangilinan does not define the term
"capital" in Section 11, Article XII of the Constitution. Neither does
he refute petitioner’s claim of foreigners holding more than 40
percent of PLDT’s common shares. Instead, respondent Pangilinan
focuses on the procedural flaws of the petition and the alleged
violation of the due process rights of foreigners. Respondent
Pangilinan emphasizes in his Memorandum (1) the absence of this
Court’s jurisdiction over the petition; (2) petitioner’s lack of
standing; (3) mootness of the petition; (4) non-availability of
declaratory relief; and (5) the denial of due process rights.
Moreover, respondent Pangilinan alleges that the issue should be
whether "owners of shares in PLDT as well as owners of shares in
companies holding shares in PLDT may be required to relinquish
their shares in PLDT and in those companies without any law
requiring them to surrender their shares and also without notice and
trial."
Respondent Pangilinan further asserts that "Section 11, [Article XII
of the Constitution] imposes no nationality requirement on the
shareholders of the utility company as a condition for keeping their
shares in the utility company." According to him, "Section 11 does
not authorize taking one person’s property (the shareholder’s stock
in the utility company) on the basis of another party’s alleged failure
to satisfy a requirement that is a condition only for that other party’s
retention of another piece of property (the utility company being at
least 60% Filipino-owned to keep its franchise)."36
The OSG, representing public respondents Secretary Margarito
Teves, Undersecretary John P. Sevilla, Commissioner Ricardo
Abcede, and Chairman Fe Barin, is likewise silent on the definition of
the term "capital." In its Memorandum37 dated 24 September 2007,
the OSG also limits its discussion on the supposed procedural
defects of the petition, i.e. lack of standing, lack of jurisdiction, non-
inclusion of interested parties, and lack of basis for injunction. The
OSG does not present any definition or interpretation of the term
"capital" in Section 11, Article XII of the Constitution. The OSG
contends that "the petition actually partakes of a collateral attack on
PLDT’s franchise as a public utility," which in effect requires a "full-
blown trial where all the parties in interest are given their day in
court."38
Respondent Francisco Ed Lim, impleaded as President and Chief
Executive Officer of the Philippine Stock Exchange (PSE), does not
also define the term "capital" and seeks the dismissal of the petition
on the following grounds: (1) failure to state a cause of action
against Lim; (2) the PSE allegedly implemented its rules and required
all listed companies, including PLDT, to make proper and timely
disclosures; and (3) the reliefs prayed for in the petition would
adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez
who claimed to be a stockholder of record of PLDT, contended that
the term "capital" in the 1987 Constitution refers to shares entitled
to vote or the common shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities
prescribed by the Constitution refers to ownership of shares of stock
entitled to vote, i.e., common shares, considering that it is through
voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing
limitations and restrictions on fully nationalized and partially
nationalized activities is for Filipino nationals to be always in control
of the corporation undertaking said activities. Otherwise, if the Trial
Court’s ruling upholding respondents’ arguments were to be given
credence, it would be possible for the ownership structure of a
public utility corporation to be divided into one percent (1%)
common stocks and ninety-nine percent (99%) preferred stocks.
Following the Trial Court’s ruling adopting respondents’ arguments,
the common shares can be owned entirely by foreigners thus
creating an absurd situation wherein foreigners, who are supposed
to be minority shareholders, control the public utility corporation.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted to
apply to both the beneficial ownership and the controlling interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limitation
in public utilities prescribed by the Constitution refers to ownership
of shares of stock entitled to vote, i.e., common shares.
Furthermore, ownership of record of shares will not suffice but it
must be shown that the legal and beneficial ownership rests in the
hands of Filipino citizens. Consequently, in the case of petitioner
PLDT, since it is already admitted that the voting interests of
foreigners which would gain entry to petitioner PLDT by the
acquisition of SMART shares through the Questioned Transactions is
equivalent to 82.99%, and the nominee arrangements between the
foreign principals and the Filipino owners is likewise admitted, there
is, therefore, a violation of Section 11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14,
1987 cited by the Trial Court to support the proposition that the
meaning of the word "capital" as used in Section 11, Article XII of the
Constitution allegedly refers to the sum total of the shares
subscribed and paid-in by the shareholder and it allegedly is
immaterial how the stock is classified, whether as common or
preferred, cannot stand in the face of a clear legislative policy as
stated in the FIA which took effect in 1991 or way after said opinions
were rendered, and as clarified by the above-quoted Amendments.
In this regard, suffice it to state that as between the law and an
opinion rendered by an administrative agency, the law indubitably
prevails. Moreover, said Opinions are merely advisory and cannot
prevail over the clear intent of the framers of the Constitution.
In the same vein, the SEC’s construction of Section 11, Article XII of
the Constitution is at best merely advisory for it is the courts that
finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco,
Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B.
Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C.
Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando
B. Vea, argued that the term "capital" in Section 11, Article XII of the
Constitution includes preferred shares since the Constitution does
not distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the
corporation’s "capital," without distinction as to classes of shares. x
xx
In this connection, the Corporation Code – which was already in
force at the time the present (1987) Constitution was drafted –
defined outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. – The term
"outstanding capital stock", as used in this Code, means the total
shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid,
except treasury shares.
Section 137 of the Corporation Code also does not distinguish
between common and preferred shares, nor exclude either class of
shares, in determining the outstanding capital stock (the "capital")
of a corporation. Consequently, petitioner’s suggestion to reckon
PLDT’s foreign equity only on the basis of PLDT’s outstanding
common shares is without legal basis. The language of the
Constitution should be understood in the sense it has in common
use.
xxxx
17. But even assuming that resort to the proceedings of the
Constitutional Commission is necessary, there is nothing in the
Record of the Constitutional Commission (Vol. III) – which petitioner
misleadingly cited in the Petition x x x – which supports petitioner’s
view that only common shares should form the basis for computing
a public utility’s foreign equity.
xxxx
18. In addition, the SEC – the government agency primarily
responsible for implementing the Corporation Code, and which also
has the responsibility of ensuring compliance with the Constitution’s
foreign equity restrictions as regards nationalized activities x x x –
has categorically ruled that both common and preferred shares are
properly considered in determining outstanding capital stock and
the nationality composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term
"capital" in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus
in the present case only to common shares,41 and not to the total
outstanding capital stock comprising both common and non-voting
preferred shares.
The Corporation Code of the Philippines42 classifies shares as
common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock
corporations may be divided into classes or series of shares, or both,
any of which classes or series of shares may have such rights,
privileges or restrictions as may be stated in the articles of
incorporation: Provided, That no share may be deprived of voting
rights except those classified and issued as "preferred" or
"redeemable" shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class or series of
shares which have complete voting rights. Any or all of the shares or
series of shares may have a par value or have no par value as may be
provided for in the articles of incorporation: Provided, however,
That banks, trust companies, insurance companies, public utilities,
and building and loan associations shall not be permitted to issue
no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given
preference in the distribution of the assets of the corporation in
case of liquidation and in the distribution of dividends, or such other
preferences as may be stated in the articles of incorporation which
are not violative of the provisions of this Code: Provided, That
preferred shares of stock may be issued only with a stated par value.
The Board of Directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred shares
of stock or any series thereof: Provided, That such terms and
conditions shall be effective upon the filing of a certificate thereof
with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed
fully paid and non-assessable and the holder of such shares shall not
be liable to the corporation or to its creditors in respect thereto:
Provided; That shares without par value may not be issued for a
consideration less than the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration received by the
corporation for its no-par value shares shall be treated as capital and
shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose
of insuring compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and
stated in the certificate of stock, each share shall be equal in all
respects to every other share.
Where the articles of incorporation provide for non-voting shares in
the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all
or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or business
in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the
vote necessary to approve a particular corporate act as provided in
this Code shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to
participate in the control or management of the corporation.43 This
is exercised through his vote in the election of directors because it is
the board of directors that controls or manages the corporation. 44 In
the absence of provisions in the articles of incorporation denying
voting rights to preferred shares, preferred shares have the same
voting rights as common shares. However, preferred shareholders
are often excluded from any control, that is, deprived of the right to
vote in the election of directors and on other matters, on the theory
that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders.45 In
fact, under the Corporation Code only preferred or redeemable
shares can be deprived of the right to vote.46 Common shares
cannot be deprived of the right to vote in any corporate meeting,
and any provision in the articles of incorporation restricting the right
of common shareholders to vote is invalid.47
Considering that common shares have voting rights which translate
to control, as opposed to preferred shares which usually have no
voting rights, the term "capital" in Section 11, Article XII of the
Constitution refers only to common shares. However, if the
preferred shares also have the right to vote in the election of
directors, 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. In short, the term "capital" in Section 11, Article XII of
the Constitution refers only to shares of stock that can vote in the
election of directors.
This interpretation is consistent with the intent of the framers of the
Constitution to place in the hands of Filipino citizens the control and
management of public utilities. As revealed in the deliberations of
the Constitutional Commission, "capital" refers to the voting stock
or controlling interest of a corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or
Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40
in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this
question: "Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation"? Will the Committee please
enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members
of the team from the UP Law Center who provided us a draft. The
phrase that is contained here which we adopted from the UP draft
is "60 percent of voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock,
because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests in
another corporation which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted
by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the
deletion of the phrase "voting stock or controlling interest."
MR. AZCUNA. Hence, without the Davide amendment, the
committee report would read: "corporations or associations at least
sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with
60 percent of the capital to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if
they are the minority. Let us say 40 percent of the capital is owned
by them, but it is the voting capital, whereas, the Filipinos own the
nonvoting shares. So we can have a situation where the
corporation is controlled by foreigners despite being the minority
because they have the voting capital. That is the anomaly that
would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as
stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have
stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling
interest."
MR. BENGZON. In the case of stock corporations, it is
assumed.49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in,
"controlling interest" in the corporation. Reinforcing this
interpretation of the term "capital," as referring to controlling
interest or shares entitled to vote, is the definition of a "Philippine
national" in the Foreign Investments Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the
Philippines; or a domestic partnership or association wholly owned
by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a corporation organized abroad and
registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the
capital stock outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to
the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered enterprise, at
least sixty percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be owned and
held by citizens of the Philippines and at least sixty percent (60%) of
the members of the Board of Directors of each of both corporations
must be citizens of the Philippines, in order that the corporation,
shall be considered a "Philippine national." (Emphasis supplied)
In explaining the definition of a "Philippine national," the
Implementing Rules and Regulations of the Foreign Investments Act
of 1991 provide:
b. "Philippine national" shall mean a citizen of the Philippines or a
domestic partnership or association wholly owned by the citizens of
the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent [60%] of the capital stock
outstanding and entitled to vote is owned and held by citizens of
the Philippines; or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent [60%] of the fund will accrue to
the benefit of the Philippine nationals; Provided, that where a
corporation its non-Filipino stockholders own stocks in a Securities
and Exchange Commission [SEC] registered enterprise, at least sixty
percent [60%] of the capital stock outstanding and entitled to vote
of both corporations must be owned and held by citizens of the
Philippines and at least sixty percent [60%] of the members of the
Board of Directors of each of both corporation must be citizens of
the Philippines, in order that the corporation shall be considered a
Philippine national. The control test shall be applied for this
purpose.
Compliance with the required Filipino ownership of a corporation
shall be determined on the basis of outstanding capital stock
whether fully paid or not, but only such stocks which are generally
entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential. Thus, stocks,
the voting rights of which have been assigned or transferred to
aliens cannot be considered held by Philippine citizens or
Philippine nationals.
Individuals or juridical entities not meeting the aforementioned
qualifications are considered as non-Philippine
nationals. (Emphasis supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned
"capital" required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of
the voting rights, is required. The legal and beneficial ownership of
60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate.
Otherwise, the corporation is "considered as non-Philippine
national[s]."
Under Section 10, Article XII of the Constitution, Congress may
"reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by
such citizens, or such higher percentage as Congress may prescribe,
certain areas of investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens or to
corporations at least sixty percent of the "capital" of which is owned
by Filipino citizens. Some of these laws are: (1) Regulation of Award
of Government Contracts or R.A. No. 5183; (2) Philippine Inventors
Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small
and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas
Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping
Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology
Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage
Decree or P.D. No. 1521. Hence, the term "capital" in Section 11,
Article XII of the Constitution is also used in the same context in
numerous laws reserving certain areas of investments to Filipino
citizens.
To construe broadly the term "capital" as the total outstanding
capital stock, including both common and non-voting preferred
shares, grossly contravenes the intent and letter of the Constitution
that the "State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos." A broad definition
unjustifiably disregards who owns the all-important voting stock,
which necessarily equates to control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to
the term "capital." Let us assume that a corporation has 100
common shares owned by foreigners and 1,000,000 non-voting
preferred shares owned by Filipinos, with both classes of share
having a par value of one peso (P1.00) per share. Under the broad
definition of the term "capital," such corporation would be
considered compliant with the 40 percent constitutional limit on
foreign equity of public utilities since the overwhelming majority, or
more than 99.999 percent, of the total outstanding capital stock is
Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common
shares have voting rights in the election of directors, even if they
hold only 100 shares. The foreigners, with a minuscule equity of less
than 0.001 percent, exercise control over the public utility. On the
other hand, the Filipinos, holding more than 99.999 percent of the
equity, cannot vote in the election of directors and hence, have no
control over the public utility. This starkly circumvents the intent of
the framers of the Constitution, as well as the clear language of the
Constitution, to place the control of public utilities in the hands of
Filipinos. It also renders illusory the State policy of an independent
national economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real
world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to
vote in the election of directors. PLDT’s Articles of Incorporation
expressly state that "the holders of Serial Preferred Stock shall not
be entitled to vote at any meeting of the stockholders for the
election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its
stockholders, or to receive notice of any meeting of stockholders."51
On the other hand, holders of common shares are granted the
exclusive right to vote in the election of directors. PLDT’s Articles of
Incorporation52 state that "each holder of Common Capital Stock
shall have one vote in respect of each share of such stock held by
him on all matters voted upon by the stockholders, and the holders
of Common Capital Stock shall have the exclusive right to vote for
the election of directors and for all other purposes."53
In short, only holders of common shares can vote in the election of
directors, meaning only common shareholders exercise control over
PLDT. Conversely, holders of preferred shares, who have no voting
rights in the election of directors, do not have any control over PLDT.
In fact, under PLDT’s Articles of Incorporation, holders of common
shares have voting rights for all purposes, while holders of preferred
shares have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners
hold a majority of the common shares of PLDT. In fact, based on
PLDT’s 2010 General Information Sheet (GIS),54 which is a document
required to be submitted annually to the Securities and Exchange
Commission,55 foreigners hold 120,046,690 common shares of PLDT
whereas Filipinos hold only 66,750,622 common shares.56 In other
words, foreigners hold 64.27% of the total number of PLDT’s
common shares, while Filipinos hold only 35.73%. Since holding a
majority of the common shares equates to control, it is clear that
foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign
ownership of public utilities expressly mandated in Section 11,
Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009,57 as
submitted to the SEC, shows that per share the SIP58preferred
shares earn a pittance in dividends compared to the common
shares. PLDT declared dividends for the common shares at P70.00
per share, while the declared dividends for the preferred shares
amounted to a measly P1.00 per share.59 So the preferred shares not
only cannot vote in the election of directors, they also have very
little and obviously negligible dividend earning capacity compared to
common shares.
As shown in PLDT’s 2010 GIS,60 as submitted to the SEC, the par
value of PLDT common shares is P5.00 per share, whereas the par
value of preferred shares is P10.00 per share. In other words,
preferred shares have twice the par value of common shares but
cannot elect directors and have only 1/70 of the dividends of
common shares. Moreover, 99.44% of the preferred shares are
owned by Filipinos while foreigners own only a minuscule 0.56% of
the preferred shares.61 Worse, preferred shares constitute 77.85%
of the authorized capital stock of PLDT while common shares
constitute only 22.15%.62 This undeniably shows that beneficial
interest in PLDT is not with the non-voting preferred shares but with
the common shares, blatantly violating the constitutional
requirement of 60 percent Filipino control and Filipino beneficial
ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipinos in accordance with
the constitutional mandate. Full beneficial ownership of 60 percent
of the outstanding capital stock, coupled with 60 percent of the
voting rights, is constitutionally required for the State’s grant of
authority to operate a public utility. The undisputed fact that the
PLDT preferred shares, 99.44% owned by Filipinos, are non-voting
and earn only 1/70 of the dividends that PLDT common shares earn,
grossly violates the constitutional requirement of 60 percent Filipino
control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and
earn less than 60 percent of the dividends, of PLDT. This directly
contravenes the express command in Section 11, Article XII of the
Constitution that "[n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted
except to x x x corporations x x x organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by
such citizens x x x."
To repeat, (1) foreigners own 64.27% of the common shares of PLDT,
which class of shares exercises the sole right to vote in the election
of directors, and thus exercise control over PLDT; (2) Filipinos own
only 35.73% of PLDT’s common shares, constituting a minority of the
voting stock, and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights;
(4) preferred shares earn only 1/70 of the dividends that common
shares earn;63 (5) preferred shares have twice the par value of
common shares; and (6) preferred shares constitute 77.85% of the
authorized capital stock of PLDT and common shares only 22.15%.
This kind of ownership and control of a public utility is a mockery of
the Constitution.
Incidentally, the fact that PLDT common shares with a par value
of P5.00 have a current stock market value of P2,328.00 per
share,64 while PLDT preferred shares with a par value of P10.00 per
share have a current stock market value ranging from only P10.92
to P11.06 per share,65 is a glaring confirmation by the market that
control and beneficial ownership of PLDT rest with the common
shares, not with the preferred shares.
Indisputably, construing the term "capital" in Section 11, Article XII
of the Constitution to include both voting and non-voting shares will
result in the abject surrender of our telecommunications industry to
foreigners, amounting to a clear abdication of the State’s
constitutional duty to limit control of public utilities to Filipino
citizens. Such an interpretation certainly runs counter to the
constitutional provision reserving certain areas of investment to
Filipino citizens, such as the exploitation of natural resources as well
as the ownership of land, educational institutions and advertising
businesses. The Court should never open to foreign control what the
Constitution has expressly reserved to Filipinos for that would be a
betrayal of the Constitution and of the national interest. The Court
must perform its solemn duty to defend and uphold the intent and
letter of the Constitution to ensure, in the words of the Constitution,
"a self-reliant and independent national economy effectively
controlled by Filipinos."
Section 11, Article XII of the Constitution, like other provisions of the
Constitution expressly reserving to Filipinos specific areas of
investment, such as the development of natural resources and
ownership of land, educational institutions and advertising business,
is self-executing. There is no need for legislation to implement these
self-executing provisions of the Constitution. The rationale why
these constitutional provisions are self-executing was explained
in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is
necessary to enforce a constitutional mandate, the presumption
now is that all provisions of the constitution are self-executing. If the
constitutional provisions are treated as requiring legislation instead
of self-executing, the legislature would have the power to ignore
and practically nullify the mandate of the fundamental law. This can
be cataclysmic. That is why the prevailing view is, as it has always
been, that —
. . . in case of doubt, the Constitution should be considered self-
executing rather than non-self-executing. . . . Unless the contrary is
clearly intended, the provisions of the Constitution should be
considered self-executing, as a contrary rule would give the
legislature discretion to determine when, or whether, they shall be
effective. These provisions would be subordinated to the will of the
lawmaking body, which could make them entirely meaningless by
simply refusing to pass the needed implementing statute. (Emphasis
supplied)
In Manila Prince Hotel, even the Dissenting Opinion of then
Associate Justice Reynato S. Puno, later Chief Justice, agreed that
constitutional provisions are presumed to be self-executing. Justice
Puno stated:
Courts as a rule consider the provisions of the Constitution as self-
executing, rather than as requiring future legislation for their
enforcement. The reason is not difficult to discern. For if they are
not treated as self-executing, the mandate of the fundamental law
ratified by the sovereign people can be easily ignored and nullified
by Congress. Suffused with wisdom of the ages is the unyielding
rule that legislative actions may give breath to constitutional rights
but congressional inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of
Rights on arrests, searches and seizures, the rights of a person under
custodial investigation, the rights of an accused, and the privilege
against self-incrimination. It is recognized that legislation is
unnecessary to enable courts to effectuate constitutional provisions
guaranteeing the fundamental rights of life, liberty and the
protection of property. The same treatment is accorded to
constitutional provisions forbidding the taking or damaging of
property for public use without just compensation. (Emphasis
supplied)
Thus, in numerous cases,67 this Court, even in the absence of
implementing legislation, applied directly the provisions of the 1935,
1973 and 1987 Constitutions limiting land ownership to Filipinos.
In Soriano v. Ong Hoo,68this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of
a sale by a citizen of his land to an alien, and as both the citizen and
the alien have violated the law, none of them should have a
recourse against the other, and it should only be the State that
should be allowed to intervene and determine what is to be done
with the property subject of the violation. We have said that what
the State should do or could do in such matters is a matter of public
policy, entirely beyond the scope of judicial authority. (Dinglasan, et
al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While
the legislature has not definitely decided what policy should be
followed in cases of violations against the constitutional
prohibition, courts of justice cannot go beyond by declaring the
disposition to be null and void as violative of the Constitution. x x x
(Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-
executing would mean that since the 1935 Constitution, or over the
last 75 years, not one of the constitutional provisions expressly
reserving specific areas of investments to corporations, at least 60
percent of the "capital" of which is owned by Filipinos, was
enforceable. In short, the framers of the 1935, 1973 and 1987
Constitutions miserably failed to effectively reserve to Filipinos
specific areas of investment, like the operation by corporations of
public utilities, the exploitation by corporations of mineral
resources, the ownership by corporations of real estate, and the
ownership of educational institutions. All the legislatures that
convened since 1935 also miserably failed to enact legislations to
implement these vital constitutional provisions that determine who
will effectively control the national economy, Filipinos or foreigners.
This Court cannot allow such an absurd interpretation of the
Constitution.
This Court has held that the SEC "has both regulatory and
adjudicative functions."69 Under its regulatory functions, the SEC can
be compelled by mandamus to perform its statutory duty when it
unlawfully neglects to perform the same. Under its adjudicative or
quasi-judicial functions, the SEC can be also be compelled by
mandamus to hear and decide a possible violation of any law it
administers or enforces when it is mandated by law to investigate
such violation.1awphi1
Under Section 17(4)70 of the Corporation Code, the SEC has the
regulatory function to reject or disapprove the Articles of
Incorporation of any corporation where "the required percentage of
ownership of the capital stock to be owned by citizens of the
Philippines has not been complied with as required by existing
laws or the Constitution." Thus, the SEC is the government agency
tasked with the statutory duty to enforce the nationality
requirement prescribed in Section 11, Article XII of the Constitution
on the ownership of public utilities. This Court, in a petition for
declaratory relief that is treated as a petition for mandamus as in
the present case, can direct the SEC to perform its statutory duty
under the law, a duty that the SEC has apparently unlawfully
neglected to do based on the 2010 GIS that respondent PLDT
submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is
vested with the "power and function" to "suspend or revoke, after
proper notice and hearing, the franchise or certificate of
registration of corporations, partnerships or associations, upon any
of the grounds provided by law." The SEC is mandated under
Section 5(d) of the same Code with the "power and function" to
"investigate x x x the activities of persons to ensure compliance"
with the laws and regulations that SEC administers or enforces. The
GIS that all corporations are required to submit to SEC annually
should put the SEC on guard against violations of the nationality
requirement prescribed in the Constitution and existing laws. This
Court can compel the SEC, in a petition for declaratory relief that is
treated as a petition for mandamus as in the present case, to hear
and decide a possible violation of Section 11, Article XII of the
Constitution in view of the ownership structure of PLDT’s voting
shares, as admitted by respondents and as stated in PLDT’s 2010 GIS
that PLDT submitted to SEC.
WHEREFORE, we PARTLY GRANT the petition and rule that the term
"capital" in Section 11, Article XII of the 1987 Constitution refers
only to shares of stock entitled to vote in the election of directors,
and thus in the present case only to common shares, and not to the
total outstanding capital stock (common and non-voting preferred
shares). Respondent Chairperson of the Securities and Exchange
Commission is DIRECTED to apply this definition of the term
"capital" in determining the extent of allowable foreign ownership in
respondent Philippine Long Distance Telephone Company, and if
there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.
SO ORDERED.
G.R. No. 176579 October 9, 2012
HEIRS OF WILSON P. GAMBOA,* Petitioners,
vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE
UNDERSECRETARYJOHN P. SEVILLA, AND COMMISSIONER
RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND
MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL,
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS
CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC.,
CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS
MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT
NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES AND
EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE
PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-
Intervention.
RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of the 28 June 2011
Decision filed by (1) the Philippine Stock Exchange's (PSE)
President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L.
Nazareno (Nazareno ),3 and ( 4) the Securities and Exchange
Commission (SEC)4 (collectively, movants ).
The Office of the Solicitor General (OSG) initially filed a motion for
reconsideration on behalfofthe SEC,5 assailing the 28 June 2011
Decision. However, it subsequently filed a Consolidated Comment
on behalf of the State,6declaring expressly that it agrees with the
Court's definition of the term "capital" in Section 11, Article XII of
the Constitution. During the Oral Arguments on 26 June 2012, the
OSG reiterated its position consistent with the Court's 28 June 2011
Decision.
We deny the motions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.
As we emphatically stated in the 28 June 2011 Decision, the
interpretation of the term "capital" in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy.
In fact, a resolution of this issue will determine whether Filipinos are
masters, or second-class citizens, in their own country. What is at
stake here is whether Filipinos or foreigners will have effective
control of the Philippine national economy. Indeed, if ever there is a
legal issue that has far-reaching implications to the entire nation,
and to future generations of Filipinos, it is the threshold legal issue
presented in this case.
Contrary to Pangilinan’s narrow view, the serious economic
consequences resulting in the interpretation of the term "capital" in
Section 11, Article XII of the Constitution undoubtedly demand an
immediate adjudication of this issue. Simply put, the far-reaching
implications of this issue justify the treatment of the petition as
one for mandamus.7
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed
it wise and expedient to resolve the case although the petition for
declaratory relief could be outrightly dismissed for being
procedurally defective. There, appellant admittedly had already
committed a breach of the Public Service Act in relation to the Anti-
Dummy Law since it had been employing non- American aliens long
before the decision in a prior similar case. However, the main issue
in Luzon Stevedoring was of transcendental importance, involving
the exercise or enjoyment of rights, franchises, privileges, properties
and businesses which only Filipinos and qualified corporations could
exercise or enjoy under the Constitution and the statutes.
Moreover, the same issue could be raised by appellant in an
appropriate action. Thus, in Luzon Stevedoring the Court deemed it
necessary to finally dispose of the case for the guidance of all
concerned, despite the apparent procedural flaw in the petition.
The circumstances surrounding the present case, such as the
supposed procedural defect of the petition and the pivotal legal
issue involved, resemble those in Luzon Stevedoring. Consequently,
in the interest of substantial justice and faithful adherence to the
Constitution, we opted to resolve this case for the guidance of the
public and all concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article XII of
the Constitution has long been settled and defined to refer to the
total outstanding shares of stock, whether voting or non-voting. In
fact, movants claim that the SEC, which is the administrative agency
tasked to enforce the 60-40 ownership requirement in favor of
Filipino citizens in the Constitution and various statutes, has
consistently adopted this particular definition in its numerous
opinions. Movants point out that with the 28 June 2011 Decision,
the Court in effect introduced a "new" definition or "midstream
redefinition"9 of the term "capital" in Section 11, Article XII of the
Constitution.
This is egregious error.
For more than 75 years since the 1935 Constitution, the Court
has not interpreted or defined the term "capital" found in various
economic provisions of the 1935, 1973 and 1987 Constitutions.
There has never been a judicial precedent interpreting the term
"capital" in the 1935, 1973 and 1987 Constitutions, until now.
Hence, it is patently wrong and utterly baseless to claim that the
Court in defining the term "capital" in its 28 June 2011 Decision
modified, reversed, or set aside the purported long-standing
definition of the term "capital," which supposedly refers to the total
outstanding shares of stock, whether voting or non-voting. To
repeat, until the present case there has never been a Court ruling
categorically defining the term "capital" found in the various
economic provisions of the 1935, 1973 and 1987 Philippine
Constitutions.
The opinions of the SEC, as well as of the Department of Justice
(DOJ), on the definition of the term "capital" as referring to both
voting and non-voting shares (combined total of common and
preferred shares) are, in the first place, conflicting and inconsistent.
There is no basis whatsoever to the claim that the SEC and the DOJ
have consistently and uniformly adopted a definition of the term
"capital" contrary to the definition that this Court adopted in its 28
June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope
of the term "capital" in Section 9, Article XIV of the 1973
Constitution was raised, that is, whether the term "capital" includes
"both preferred and common stocks." The issue was raised in
relation to a stock-swap transaction between a Filipino and a
Japanese corporation, both stockholders of a domestic corporation
that owned lands in the Philippines. Then Minister of Justice Estelito
P. Mendoza ruled that the resulting ownership structure of the
corporation would be unconstitutional because 60% of the voting
stock would be owned by Japanese while Filipinos would own only
40% of the voting stock, although when the non-voting stock is
added, Filipinos would own 60% of the combined voting and non-
voting stock. This ownership structure is remarkably similar to the
current ownership structure of PLDT. Minister Mendoza ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of the entire
subscribed capital stock (common and preferred) while the Japanese
investors control sixty percent (60%) of the common (voting) shares.
It is your position that x x x since Section 9, Article XIV of the
Constitution uses the word "capital," which is construed "to
include both preferred and common shares" and "that where the
law does not distinguish, the courts shall not distinguish."
xxxx
In light of the foregoing jurisprudence, it is my opinion that the
stock-swap transaction in question may not be constitutionally
upheld. While it may be ordinary corporate practice to classify
corporate shares into common voting shares and preferred non-
voting shares, any arrangement which attempts to defeat the
constitutional purpose should be eschewed. Thus, the resultant
equity arrangement which would place ownership of 60%11 of the
common (voting) shares in the Japanese group, while retaining
60% of the total percentage of common and preferred shares in
Filipino hands would amount to circumvention of the principle of
control by Philippine stockholders that is implicit in the 60%
Philippine nationality requirement in the Constitution. (Emphasis
supplied)
In short, Minister Mendoza categorically rejected the theory that
the term "capital" in Section 9, Article XIV of the 1973 Constitution
includes "both preferred and common stocks" treated as the same
class of shares regardless of differences in voting rights and
privileges. Minister Mendoza stressed that the 60-40 ownership
requirement in favor of Filipino citizens in the Constitution is not
complied with unless the corporation "satisfies the criterion of
beneficial ownership" and that in applying the same "the primordial
consideration is situs of control."
On the other hand, in Opinion No. 23-10 dated 18 August 2010,
addressed to Castillo Laman Tan Pantaleon & San Jose, then SEC
General Counsel Vernette G. Umali-Paco applied the Voting Control
Test, that is, using only the voting stock to determine whether a
corporation is a Philippine national. The Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is
deemed as a Philippine national because: (1) sixty percent (60%) of
its outstanding capital stock entitled to vote is owned by a
Philippine national, the Trustee; and (2) at least sixty percent (60%)
of the ERF will accrue to the benefit of Philippine nationals. Still
pursuant to the Control Test, MLRC’s investment in 60% of BFDC’s
outstanding capital stock entitled to vote shall be deemed as of
Philippine nationality, thereby qualifying BFDC to own private land.
Further, under, and for purposes of, the FIA, MLRC and BFDC are
both Philippine nationals, considering that: (1) sixty percent (60%) of
their respective outstanding capital stock entitled to vote is owned
by a Philippine national (i.e., by the Trustee, in the case of MLRC;
and by MLRC, in the case of BFDC); and (2) at least 60% of their
respective board of directors are Filipino citizens. (Boldfacing and
italicization supplied)
Clearly, these DOJ and SEC opinions are compatible with the Court’s
interpretation of the 60-40 ownership requirement in favor of
Filipino citizens mandated by the Constitution for certain economic
activities. At the same time, these opinions highlight the conflicting,
contradictory, and inconsistent positions taken by the DOJ and the
SEC on the definition of the term "capital" found in the economic
provisions of the Constitution.
The opinions issued by SEC legal officers do not have the force and
effect of SEC rules and regulations because only the SEC en banc can
adopt rules and regulations. As expressly provided in Section 4.6 of
the Securities Regulation Code,12 the SEC cannot delegate to any of
its individual Commissioner or staff the power to adopt any rule or
regulation. Further, under Section 5.1 of the same Code, it is the
SEC as a collegial body, and not any of its legal officers, that is
empowered to issue opinions and approve rules and
regulations. Thus:
4.6. The Commission may, for purposes of efficiency, delegate any of
its functions to any department or office of the Commission, an
individual Commissioner or staff member of the
Commission except its review or appellate authority and its power
to adopt, alter and supplement any rule or regulation.
The Commission may review upon its own initiative or upon the
petition of any interested party any action of any department or
office, individual Commissioner, or staff member of the Commission.
SEC. 5. Powers and Functions of the Commission.- 5.1. The
Commission shall act with transparency and shall have the powers
and functions provided by this Code, Presidential Decree No. 902-A,
the Corporation Code, the Investment Houses Law, the Financing
Company Act and other existing laws. Pursuant thereto the
Commission shall have, among others, the following powers and
functions:
xxxx
(g) Prepare, approve, amend or repeal rules, regulations and
orders, and issue opinions and provide guidance on and supervise
compliance with such rules, regulations and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers of the
SEC in issuing opinions that have the effect of SEC rules or
regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the Code,
only the SEC en banc can "issue opinions" that have the force and
effect of rules or regulations. Section 4.6 of the Code bars the SEC en
banc from delegating to any individual Commissioner or staff the
power to adopt rules or regulations. In short, any opinion of
individual Commissioners or SEC legal officers does not constitute a
rule or regulation of the SEC.
The SEC admits during the Oral Arguments that only the SEC en
banc, and not any of its individual commissioners or legal staff, is
empowered to issue opinions which have the same binding effect as
SEC rules and regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the Commission En Banc that can issue an
SEC Opinion, correct?
COMMISSIONER GAITE:13
That’s correct, Your Honor.
JUSTICE CARPIO:
Can the Commission En Banc delegate this function to an SEC
officer?
COMMISSIONER GAITE:
Yes, Your Honor, we have delegated it to the General Counsel.
JUSTICE CARPIO:
It can be delegated. What cannot be delegated by the Commission
En Banc to a commissioner or an individual employee of the
Commission?
COMMISSIONER GAITE:
Novel opinions that [have] to be decided by the En Banc...
JUSTICE CARPIO:
What cannot be delegated, among others, is the power to adopt or
amend rules and regulations, correct?
COMMISSIONER GAITE:
That’s correct, Your Honor.
JUSTICE CARPIO:
So, you combine the two (2), the SEC officer, if delegated that
power, can issue an opinion but that opinion does not constitute a
rule or regulation, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, all of these opinions that you mentioned they are not rules and
regulations, correct?
COMMISSIONER GAITE:
They are not rules and regulations.
JUSTICE CARPIO:
If they are not rules and regulations, they apply only to that
particular situation and will not constitute a precedent, correct?
COMMISSIONER GAITE:
Yes, Your Honor.14 (Emphasis supplied)
Significantly, the SEC en banc, which is the collegial body statutorily
empowered to issue rules and opinions on behalf of the SEC, has
adopted even the Grandfather Rule in determining compliance with
the 60-40 ownership requirement in favor of Filipino citizens
mandated by the Constitution for certain economic activities. This
prevailing SEC ruling, which the SEC correctly adopted to thwart any
circumvention of the required Filipino "ownership and control," is
laid down in the 25 March 2010 SEC en banc ruling in Redmont
Consolidated Mines, Corp. v. McArthur Mining, Inc., et al.,15 to wit:
The avowed purpose of the Constitution is to place in the hands of
Filipinos the exploitation of our natural resources. Necessarily,
therefore, the Rule interpreting the constitutional provision should
not diminish that right through the legal fiction of corporate
ownership and control. But the constitutional provision, as
interpreted and practiced via the 1967 SEC Rules, has favored
foreigners contrary to the command of the Constitution. Hence, the
Grandfather Rule must be applied to accurately determine the
actual participation, both direct and indirect, of foreigners in a
corporation engaged in a nationalized activity or business.
Compliance with the constitutional limitation(s) on engaging in
nationalized activities must be determined by ascertaining if 60% of
the investing corporation’s outstanding capital stock is owned by
"Filipino citizens", or as interpreted, by natural or individual Filipino
citizens. If such investing corporation is in turn owned to some
extent by another investing corporation, the same process must be
observed. One must not stop until the citizenships of the individual
or natural stockholders of layer after layer of investing corporations
have been established, the very essence of the Grandfather Rule.
Lastly, it was the intent of the framers of the 1987 Constitution to
adopt the Grandfather Rule. In one of the discussions on what is
now Article XII of the present Constitution, the framers made the
following exchange:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or
Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40
in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with the
question: ‘Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation’? Will the Committee please
enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members
of the team from the UP Law Center who provided us a draft. The
phrase that is contained here which we adopted from the UP draft is
‘60 percent of voting stock.’
MR. NOLLEDO. That must be based on the subscribed capital stock,
because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you. With respect to an investment by one
corporation in another corporation, say, a corporation with 60-40
percent equity invests in another corporation which is permitted by
the Corporation Code, does the Committee adopt the grandfather
rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied;
italicization in the original)
This SEC en banc ruling conforms to our 28 June 2011 Decision that
the 60-40 ownership requirement in favor of Filipino citizens in the
Constitution to engage in certain economic activities applies not
only to voting control of the corporation, but also to the beneficial
ownership of the corporation. Thus, in our 28 June 2011 Decision
we stated:
Mere legal title is insufficient to meet the 60 percent Filipinoowned
"capital" required in the Constitution. Full beneficial ownership of
60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is required. The legal and beneficial
ownership of 60 percent of the outstanding capital stock must rest
in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered
as non-Philippine national[s]." (Emphasis supplied)
Both the Voting Control Test and the Beneficial Ownership Test must
be applied to determine whether a corporation is a "Philippine
national."
The interpretation by legal officers of the SEC of the term "capital,"
embodied in various opinions which respondents relied upon, is
merely preliminary and an opinion only of such officers. To repeat,
any such opinion does not constitute an SEC rule or regulation. In
fact, many of these opinions contain a disclaimer which expressly
states: "x x x the foregoing opinion is based solely on facts disclosed
in your query and relevant only to the particular issue raised therein
and shall not be used in the nature of a standing rule binding upon
the Commission in other cases whether of similar or dissimilar
circumstances."16 Thus, the opinions clearly make a caveat that they
do not constitute binding precedents on any one, not even on the
SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the DOJ,
interpreting the law are neither conclusive nor controlling and thus,
do not bind the Court. It is hornbook doctrine that any
interpretation of the law that administrative or quasi-judicial
agencies make is only preliminary, never conclusive on the Court.
The power to make a final interpretation of the law, in this case the
term "capital" in Section 11, Article XII of the 1987 Constitution, lies
with this Court, not with any other government entity.
In his motion for reconsideration, the PSE President cites the cases
of National Telecommunications Commission v. Court of
Appeals17 and Philippine Long Distance Telephone Company v.
National Telecommunications Commission18 in arguing that the
Court has already defined the term "capital" in Section 11, Article XII
of the 1987 Constitution.19
The PSE President is grossly mistaken. In both cases of National
Telecommunications v. Court of Appeals20 and Philippine Long
Distance Telephone Company v. National Telecommunications
Commission,21 the Court did not define the term "capital" as found
in Section 11, Article XII of the 1987 Constitution. In fact, these two
cases never mentioned, discussed or cited Section 11, Article XII of
the Constitution or any of its economic provisions, and thus cannot
serve as precedent in the interpretation of Section 11, Article XII of
the Constitution. These two cases dealt solely with the
determination of the correct regulatory fees under Section 40(e) and
(f) of the Public Service Act, to wit:
(e) For annual reimbursement of the expenses incurred by the
Commission in the supervision of other public services and/or in the
regulation or fixing of their rates, twenty centavos for each one
hundred pesos or fraction thereof, of the capital stock subscribed or
paid, or if no shares have been issued, of the capital invested, or of
the property and equipment whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos for
each one hundred pesos or fraction thereof, of the increased capital.
(Emphasis supplied)
The Court’s interpretation in these two cases of the terms "capital
stock subscribed or paid," "capital stock" and "capital" does not
pertain to, and cannot control, the definition of the term "capital" as
used in Section 11, Article XII of the Constitution, or any of the
economic provisions of the Constitution where the term "capital" is
found. The definition of the term "capital" found in the Constitution
must not be taken out of context. A careful reading of these two
cases reveals that the terms "capital stock subscribed or paid,"
"capital stock" and "capital" were defined solely to determine the
basis for computing the supervision and regulation fees under
Section 40(e) and (f) of the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the
supreme law of the land, embodies the ideals that the Constitution
intends to achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty
God, in order to build a just and humane society, and establish a
Government that shall embody our ideals and aspirations, promote
the common good, conserve and develop our patrimony, and
secure to ourselves and our posterity, the blessings of independence
and democracy under the rule of law and a regime of truth, justice,
freedom, love, equality, and peace, do ordain and promulgate this
Constitution. (Emphasis supplied)
Consistent with these ideals, Section 19, Article II of the 1987
Constitution declares as State policy the development of a national
economy "effectively controlled" by Filipinos:
Section 19. The State shall develop a self-reliant and independent
national economy effectively controlled by Filipinos.
Fortifying the State policy of a Filipino-controlled economy, the
Constitution decrees:
Section 10. The Congress shall, upon recommendation of the
economic and planning agency, when the national interest dictates,
reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by
such citizens, or such higher percentage as Congress may prescribe,
certain areas of investments. The Congress shall enact measures
that will encourage the formation and operation of enterprises
whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the
national economy and patrimony, the State shall give preference to
qualified Filipinos.
The State shall regulate and exercise authority over foreign
investments within its national jurisdiction and in accordance with
its national goals and priorities.23
Under Section 10, Article XII of the 1987 Constitution, Congress may
"reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by
such citizens, or such higher percentage as Congress may prescribe,
certain areas of investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens or to
corporations at least sixty percent of the "capital" of which is owned
by Filipino citizens. Some of these laws are: (1) Regulation of Award
of Government Contracts or R.A. No. 5183; (2) Philippine Inventors
Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small
and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas
Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping
Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology
Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage
Decree or P.D. No. 1521.
With respect to public utilities, the 1987 Constitution specifically
ordains:
Section 11. No franchise, certificate, 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, at least
sixty per centum of whose capital is owned by such citizens; nor
shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines.
(Emphasis supplied)
This provision, which mandates the Filipinization of public utilities,
requires that any form of authorization for the operation of public
utilities shall be granted only to "citizens of the Philippines or to
corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by
such citizens." "The provision is [an express] recognition of the
sensitive and vital position of public utilities both in the national
economy and for national security."24
The 1987 Constitution reserves the ownership and operation of
public utilities exclusively to (1) Filipino citizens, or (2) corporations
or associations at least 60 percent of whose "capital" is owned by
Filipino citizens. Hence, in the case of individuals, only Filipino
citizens can validly own and operate a public utility. In the case of
corporations or associations, at least 60 percent of their "capital"
must be owned by Filipino citizens. In other words, under Section
11, Article XII of the 1987 Constitution, to own and operate a
public utility a corporation’s capital must at least be 60 percent
owned by Philippine nationals.
IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11, Article XII of the
1987 Constitution, Congress enacted Republic Act No. 7042 or
the Foreign Investments Act of 1991 (FIA), as amended, which
defined a "Philippine national" as follows:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the
Philippines; or a domestic partnership or association wholly owned
by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a corporation organized abroad and
registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the
capital stock outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to
the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered enterprise, at
least sixty percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be owned and
held by citizens of the Philippines and at least sixty percent (60%) of
the members of the Board of Directors of each of both corporations
must be citizens of the Philippines, in order that the corporation,
shall be considered a "Philippine national." (Boldfacing, italicization
and underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine
national" as a Philippine citizen, or a domestic corporation at least
"60% of the capital stock outstanding and entitled to vote" is
owned by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the
meaning of such term as provided in its predecessor statute,
Executive Order No. 226 or the Omnibus Investments Code of
1987,25 which was issued by then President Corazon C. Aquino.
Article 15 of this Code states:
Article 15. "Philippine national" shall mean a citizen of the
Philippines or a diplomatic partnership or association wholly-owned
by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty per cent (60%) of the
capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty per cent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent (60%) of the capital
stock outstanding and entitled to vote of both corporations must be
owned and held by the citizens of the Philippines and at least sixty
per cent (60%) of the members of the Board of Directors of both
corporations must be citizens of the Philippines in order that the
corporation shall be considered a Philippine national. (Boldfacing,
italicization and underscoring supplied)
Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no
corporation x x x which is not a ‘Philippine national’ x x x shall do
business
x x x in the Philippines x x x without first securing from the Board of
Investments a written certificate to the effect that such business or
economic activity x x x would not conflict with the Constitution or
laws of the Philippines."27 Thus, a "non-Philippine national" cannot
own and operate a reserved economic activity like a public utility.
This means, of course, that only a "Philippine national" can own and
operate a public utility.
In turn, the definition of a "Philippine national" under Article 15 of
the Omnibus Investments Code of 1987 was a reiteration of the
meaning of such term as provided in Article 14 of the Omnibus
Investments Code of 1981,28 to wit:
Article 14. "Philippine national" shall mean a citizen of the
Philippines; or a domestic partnership or association wholly owned
by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty per cent (60%) of the
capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty per cent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent (60%) of the capital
stock outstanding and entitled to vote of both corporations must be
owned and held by the citizens of the Philippines and at least sixty
per cent (60%) of the members of the Board of Directors of both
corporations must be citizens of the Philippines in order that the
corporation shall be considered a Philippine national. (Boldfacing,
italicization and underscoring supplied)
Under Article 69(3) of the Omnibus Investments Code of 1981, "no
corporation x x x which is not a ‘Philippine national’ x x x shall do
business x x x in the Philippines x x x without first securing a written
certificate from the Board of Investments to the effect that such
business or economic activity x x x would not conflict with the
Constitution or laws of the Philippines."29 Thus, a "non-Philippine
national" cannot own and operate a reserved economic activity like
a public utility. Again, this means that only a "Philippine national"
can own and operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No.
518630 or the Investment Incentives Act, which took effect on 16
September 1967, contained a similar definition of a "Philippine
national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines; or a
partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty per cent of the capital stock
outstanding and entitled to vote is owned and held by citizens of
the Philippines; or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine
National and at least sixty per cent of the fund will accrue to the
benefit of Philippine Nationals: Provided, That where a corporation
and its non-Filipino stockholders own stock in a registered
enterprise, at least sixty per cent of the capital stock outstanding
and entitled to vote of both corporations must be owned and held
by the citizens of the Philippines and at least sixty per cent of the
members of the Board of Directors of both corporations must be
citizens of the Philippines in order that the corporation shall be
considered a Philippine National. (Boldfacing, italicization and
underscoring supplied)
Under Section 3 of Republic Act No. 5455 or the Foreign Business
Regulations Act, which took effect on 30 September 1968, if the
investment in a domestic enterprise by non-Philippine nationals
exceeds 30% of its outstanding capital stock, such enterprise must
obtain prior approval from the Board of Investments before
accepting such investment. Such approval shall not be granted if the
investment "would conflict with existing constitutional provisions
and laws regulating the degree of required ownership by Philippine
nationals in the enterprise."31 A "non-Philippine national" cannot
own and operate a reserved economic activity like a public utility.
Again, this means that only a "Philippine national" can own and
operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a
"Philippine national" as a Filipino citizen, or a domestic corporation
"at least sixty percent (60%) of the capital stock outstanding and
entitled to vote" is owned by Filipino citizens. A domestic
corporation is a "Philippine national" only if at least 60% of its voting
stock is owned by Filipino citizens. This definition of a "Philippine
national" is crucial in the present case because the FIA reiterates and
clarifies Section 11, Article XII of the 1987 Constitution, which limits
the ownership and operation of public utilities to Filipino citizens or
to corporations or associations at least 60% Filipino-owned.
The FIA is the basic law governing foreign investments in the
Philippines, irrespective of the nature of business and area of
investment. The FIA spells out the procedures by which non-
Philippine nationals can invest in the Philippines. Among the key
features of this law is the concept of a negative list or the Foreign
Investments Negative List.32 Section 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine
Nationals [Foreign Investment Negative List]. - The Foreign
Investment Negative List shall have two 2 component lists: A and B:
a. List A shall enumerate the areas of activities reserved to
Philippine nationals by mandate of the Constitution and specific
laws.
b. List B shall contain the areas of activities and enterprises
regulated pursuant to law:
1. which are defense-related activities, requiring prior clearance and
authorization from the Department of National Defense [DND] to
engage in such activity, such as the manufacture, repair, storage
and/or distribution of firearms, ammunition, lethal weapons,
military ordinance, explosives, pyrotechnics and similar materials;
unless such manufacturing or repair activity is specifically
authorized, with a substantial export component, to a non-
Philippine national by the Secretary of National Defense; or
2. which have implications on public health and morals, such as the
manufacture and distribution of dangerous drugs; all forms of
gambling; nightclubs, bars, beer houses, dance halls, sauna and
steam bathhouses and massage clinics. (Boldfacing, underscoring
and italicization supplied)
Section 8 of the FIA enumerates the investment areas "reserved to
Philippine nationals." Foreign Investment Negative List A consists of
"areas of activities reserved to Philippine nationals by mandate of
the Constitution and specific laws," where foreign equity
participation in any enterprise shall be limited to the maximum
percentage expressly prescribed by the Constitution and other
specific laws. In short, to own and operate a public utility in the
Philippines one must be a "Philippine national" as defined in the
FIA. The FIA is abundant notice to foreign investors to what extent
they can invest in public utilities in the Philippines.
To repeat, among the areas of investment covered by the Foreign
Investment Negative List A is the ownership and operation of public
utilities, which the Constitution expressly reserves to Filipino citizens
and to corporations at least 60% owned by Filipino citizens. In other
words, Negative List A of the FIA reserves the ownership and
operation of public utilities only to "Philippine nationals," defined
in Section 3(a) of the FIA as "(1) a citizen of the Philippines; x x x or
(3) a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of
the Philippines; or (4) a corporation organized abroad and
registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the
capital stock outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to
the benefit of Philippine nationals."
Clearly, from the effectivity of the Investment Incentives Act of 1967
to the adoption of the Omnibus Investments Code of 1981, to the
enactment of the Omnibus Investments Code of 1987, and to the
passage of the present Foreign Investments Act of 1991, or for more
than four decades, the statutory definition of the term "Philippine
national" has been uniform and consistent: it means a Filipino
citizen, or a domestic corporation at least 60% of the voting
stock is owned by Filipinos. Likewise, these same statutes have
uniformly and consistently required that only "Philippine
nationals" could own and operate public utilities in the
Philippines. The following exchange during the Oral Arguments is
revealing:
JUSTICE CARPIO:
Counsel, I have some questions. You are aware of the Foreign
Investments Act of 1991, x x x? And the FIA of 1991 took effect in
1991, correct? That’s over twenty (20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign Investments Act of 1991 states that
[]only Philippine nationals can own and operate public utilities[],
correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign Investments Act of 1991 defines a "Philippine
national" either as a citizen of the Philippines, or if it is a corporation
at least sixty percent (60%) of the voting stock is owned by citizens
of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that under the predecessor law of the
Foreign Investments Act of 1991, the Omnibus Investments Act of
1987, the same provisions apply: x x x only Philippine nationals can
own and operate a public utility and the Philippine national, if it is a
corporation, x x x sixty percent (60%) of the capital stock of that
corporation must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the Omnibus Investments Act of 1987, under the
Omnibus Investments Act of 1981, the same rules apply: x x x only a
Philippine national can own and operate a public utility and a
Philippine national, if it is a corporation, sixty percent (60%) of its x x
x voting stock, must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under [the]1967 Investments Incentives Act
and the Foreign Company Act of 1968, the same rules applied,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4) decades, x x x, the law has been very
consistent – only a Philippine national can own and operate a
public utility, and a Philippine national, if it is a corporation, x x x at
least sixty percent (60%) of the voting stock must be owned by
citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.33 (Emphasis supplied)
Government agencies like the SEC cannot simply ignore Sections 3(a)
and 8 of the FIA which categorically prescribe that certain economic
activities, like the ownership and operation of public utilities, are
reserved to corporations "at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is owned and held by citizens
of the Philippines." Foreign Investment Negative List A refers to
"activities reserved to Philippine nationals by mandate of the
Constitution and specific laws." The FIA is the basic statute
regulating foreign investments in the Philippines. Government
agencies tasked with regulating or monitoring foreign investments,
as well as counsels of foreign investors, should start with the FIA in
determining to what extent a particular foreign investment is
allowed in the Philippines. Foreign investors and their counsels who
ignore the FIA do so at their own peril. Foreign investors and their
counsels who rely on opinions of SEC legal officers that obviously
contradict the FIA do so also at their own peril.
Occasional opinions of SEC legal officers that obviously contradict
the FIA should immediately raise a red flag. There are already
numerous opinions of SEC legal officers that cite the definition of a
"Philippine national" in Section 3(a) of the FIA in determining
whether a particular corporation is qualified to own and operate a
nationalized or partially nationalized business in the Philippines. This
shows that SEC legal officers are not only aware of, but also rely on
and invoke, the provisions of the FIA in ascertaining the eligibility of
a corporation to engage in partially nationalized industries. The
following are some of such opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;
2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong
of the Philippine Overseas Employment Administration;
3. Opinion of 23 November 1993, addressed to Messrs. Dominador
Almeda and Renato S. Calma;
4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan
Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta
Buenaventura Sayoc & De Los Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David;
and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi
and Rudyard S. Arbolado.
The SEC legal officers’ occasional but blatant disregard of the
definition of the term "Philippine national" in the FIA signifies their
lack of integrity and competence in resolving issues on the 60-40
ownership requirement in favor of Filipino citizens in Section 11,
Article XII of the Constitution.
The PSE President argues that the term "Philippine national" defined
in the FIA should be limited and interpreted to refer to corporations
seeking to avail of tax and fiscal incentives under investment
incentives laws and cannot be equated with the term "capital" in
Section 11, Article XII of the 1987 Constitution. Pangilinan similarly
contends that the FIA and its predecessor statutes do not apply to
"companies which have not registered and obtained special
incentives under the schemes established by those laws."
Both are desperately grasping at straws. The FIA does not grant tax
or fiscal incentives to any enterprise. Tax and fiscal incentives to
investments are granted separately under the Omnibus Investments
Code of 1987, not under the FIA. In fact, the FIA expressly repealed
Articles 44 to 56 of Book II of the Omnibus Investments Code of
1987, which articles previously regulated foreign investments in
nationalized or partially nationalized industries.
The FIA is the applicable law regulating foreign investments in
nationalized or partially nationalized industries. There is nothing in
the FIA, or even in the Omnibus Investments Code of 1987 or its
predecessor statutes, that states, expressly or impliedly, that the FIA
or its predecessor statutes do not apply to enterprises not availing of
tax and fiscal incentives under the Code. The FIA and its predecessor
statutes apply to investments in all domestic enterprises, whether or
not such enterprises enjoy tax and fiscal incentives under the
Omnibus Investments Code of 1987 or its predecessor statutes. The
reason is quite obvious – mere non-availment of tax and fiscal
incentives by a non-Philippine national cannot exempt it from
Section 11, Article XII of the Constitution regulating foreign
investments in public utilities. In fact, the Board of
Investments’ Primer on Investment Policies in the
Philippines,34 which is given out to foreign investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES
Investors who do not seek incentives and/or whose chosen activities
do not qualify for incentives, (i.e., the activity is not listed in the IPP,
and they are not exporting at least 70% of their production) may go
ahead and make the investments without seeking incentives. They
only have to be guided by the Foreign Investments Negative List
(FINL).
The FINL clearly defines investment areas requiring at least 60%
Filipino ownership. All other areas outside of this list are fully open
to foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino
ownership required by the Constitution to engage in certain
economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the
corporation. To repeat, we held:
Mere legal title is insufficient to meet the 60 percent Filipino-owned
"capital" required in the Constitution. Full beneficial ownership of
60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is required. The legal and beneficial
ownership of 60 percent of the outstanding capital stock must rest
in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered
as non-Philippine national[s]." (Emphasis supplied)
This is consistent with Section 3 of the FIA which provides that
where 100% of the capital stock is held by "a trustee of funds for
pension or other employee retirement or separation benefits," the
trustee is a Philippine national if "at least sixty percent (60%) of the
fund will accrue to the benefit of Philippine nationals." Likewise,
Section 1(b) of the Implementing Rules of the FIA provides that "for
stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights, is essential."
Since the constitutional requirement of at least 60 percent Filipino
ownership applies not only to voting control of the corporation but
also to the beneficial ownership of the corporation, it is therefore
imperative that such requirement apply uniformly and across the
board to all classes of shares, regardless of nomenclature and
category, comprising the capital of a corporation. Under the
Corporation Code, capital stock35 consists of all classes of shares
issued to stockholders, that is, common shares as well as preferred
shares, which may have different rights, privileges or restrictions as
stated in the articles of incorporation.36
The Corporation Code allows denial of the right to vote to preferred
and redeemable shares, but disallows denial of the right to vote in
specific corporate matters. Thus, common shares have the right to
vote in the election of directors, while preferred shares may be
denied such right. Nonetheless, preferred shares, even if denied the
right to vote in the election of directors, are entitled to vote on the
following corporate matters: (1) amendment of articles of
incorporation; (2) increase and decrease of capital stock; (3)
incurring, creating or increasing bonded indebtedness; (4) sale,
lease, mortgage or other disposition of substantially all corporate
assets; (5) investment of funds in another business or corporation or
for a purpose other than the primary purpose for which the
corporation was organized; (6) adoption, amendment and repeal of
by-laws; (7) merger and consolidation; and (8) dissolution of
corporation.37
Since a specific class of shares may have rights and privileges or
restrictions different from the rest of the shares in a corporation,
the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution must apply not only to
shares with voting rights but also to shares without voting rights.
Preferred shares, denied the right to vote in the election of
directors, are anyway still entitled to vote on the eight specific
corporate matters mentioned above. Thus, if a corporation,
engaged in a partially nationalized industry, issues a mixture of
common and preferred non-voting shares, at least 60 percent of
the common shares and at least 60 percent of the preferred non-
voting shares must be owned by Filipinos. Of course, if a
corporation issues only a single class of shares, at least 60 percent of
such shares must necessarily be owned by Filipinos. In short, the 60-
40 ownership requirement in favor of Filipino citizens must apply
separately to each class of shares, whether common, preferred
non-voting, preferred voting or any other class of shares. This
uniform application of the 60-40 ownership requirement in favor of
Filipino citizens clearly breathes life to the constitutional command
that the ownership and operation of public utilities shall be reserved
exclusively to corporations at least 60 percent of whose capital is
Filipino-owned. Applying uniformly the 60-40 ownership
requirement in favor of Filipino citizens to each class of shares,
regardless of differences in voting rights, privileges and restrictions,
guarantees effective Filipino control of public utilities, as mandated
by the Constitution.
Moreover, such uniform application to each class of shares insures
that the "controlling interest" in public utilities always lies in the
hands of Filipino citizens. This addresses and extinguishes
Pangilinan’s worry that foreigners, owning most of the non-voting
shares, will exercise greater control over fundamental corporate
matters requiring two-thirds or majority vote of all shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion38 a portion of
the deliberations of the Constitutional Commission to support his
claim that the term "capital" refers to the total outstanding shares
of stock, whether voting or non-voting, the following excerpts of the
deliberations reveal otherwise. It is clear from the following
exchange that the term "capital" refers to controlling interest of a
corporation, thus:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or
Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40
in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this
question: "Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation"? Will the Committee please
enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members
of the team from the UP Law Center who provided us a draft. The
phrase that is contained here which we adopted from the UP draft
is "60 percent of voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock,
because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests in
another corporation which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.39
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted
by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the
deletion of the phrase "voting stock or controlling interest."
MR. AZCUNA. Hence, without the Davide amendment, the
committee report would read: "corporations or associations at least
sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with
60 percent of the capital to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if
they are the minority. Let us say 40 percent of the capital is owned
by them, but it is the voting capital, whereas, the Filipinos own the
nonvoting shares. So we can have a situation where the
corporation is controlled by foreigners despite being the minority
because they have the voting capital. That is the anomaly that
would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as
stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have
stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling
interest."
MR. BENGZON. In the case of stock corporations, it is
assumed.40 (Boldfacing and underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in, a
"controlling interest" in the corporation.
The use of the term "capital" was intended to replace the word
"stock" because associations without stocks can operate public
utilities as long as they meet the 60-40 ownership requirement in
favor of Filipino citizens prescribed in Section 11, Article XII of the
Constitution. However, this did not change the intent of the framers
of the Constitution to reserve exclusively to Philippine nationals the
"controlling interest" in public utilities.
During the drafting of the 1935 Constitution, economic
protectionism was "the battle-cry of the nationalists in the
Convention."41 The same battle-cry resulted in the nationalization of
the public utilities.42 This is also the same intent of the framers of
the 1987 Constitution who adopted the exact formulation embodied
in the 1935 and 1973 Constitutions on foreign equity limitations in
partially nationalized industries.
The OSG, in its own behalf and as counsel for the State, 43 agrees
fully with the Court’s interpretation of the term "capital." In its
Consolidated Comment, the OSG explains that the deletion of the
phrase "controlling interest" and replacement of the word "stock"
with the term "capital" were intended specifically to extend the
scope of the entities qualified to operate public utilities to include
associations without stocks. The framers’ omission of the phrase
"controlling interest" did not mean the inclusion of all shares of
stock, whether voting or non-voting. The OSG reiterated essentially
the Court’s declaration that the Constitution reserved exclusively to
Philippine nationals the ownership and operation of public utilities
consistent with the State’s policy to "develop a self-reliant and
independent national economy effectively controlled by Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly the
term "capital" as the total outstanding capital stock, treated as
a single class regardless of the actual classification of shares, grossly
contravenes the intent and letter of the Constitution that the "State
shall develop a self-reliant and independent national
economy effectively controlled by Filipinos." We illustrated the
glaring anomaly which would result in defining the term "capital" as
the total outstanding capital stock of a corporation, treated as
a single class of shares regardless of the actual classification of
shares, to wit:
Let us assume that a corporation has 100 common shares owned by
foreigners and 1,000,000 non-voting preferred shares owned by
Filipinos, with both classes of share having a par value of one peso
(P 1.00) per share. Under the broad definition of the term "capital,"
such corporation would be considered compliant with the 40
percent constitutional limit on foreign equity of public utilities since
the overwhelming majority, or more than 99.999 percent, of the
total outstanding capital stock is Filipino owned. This is obviously
absurd.
In the example given, only the foreigners holding the common
shares have voting rights in the election of directors, even if they
hold only 100 shares. The foreigners, with a minuscule equity of less
than 0.001 percent, exercise control over the public utility. On the
other hand, the Filipinos, holding more than 99.999 percent of the
equity, cannot vote in the election of directors and hence, have no
control over the public utility. This starkly circumvents the intent of
the framers of the Constitution, as well as the clear language of the
Constitution, to place the control of public utilities in the hands of
Filipinos. x x x
Further, even if foreigners who own more than forty percent of the
voting shares elect an all-Filipino board of directors, this situation
does not guarantee Filipino control and does not in any way cure the
violation of the Constitution. The independence of the Filipino board
members so elected by such foreign shareholders is highly doubtful.
As the OSG pointed out, quoting Justice George Sutherland’s words
in Humphrey’s Executor v. US,44 "x x x it is quite evident that one
who holds his office only during the pleasure of another cannot be
depended upon to maintain an attitude of independence against the
latter’s will." Allowing foreign shareholders to elect a controlling
majority of the board, even if all the directors are Filipinos, grossly
circumvents the letter and intent of the Constitution and defeats the
very purpose of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the Constitution
The last sentence of Section 11, Article XII of the 1987 Constitution
reads:
The participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate share
in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines.
During the Oral Arguments, the OSG emphasized that there was
never a question on the intent of the framers of the Constitution to
limit foreign ownership, and assure majority Filipino ownership and
control of public utilities. The OSG argued, "while the delegates
disagreed as to the percentage threshold to adopt, x x x the records
show they clearly understood that Filipino control of the public
utility corporation can only be and is obtained only through the
election of a majority of the members of the board."
Indeed, the only point of contention during the deliberations of the
Constitutional Commission on 23 August 1986 was the extent of
majority Filipino control of public utilities. This is evident from the
following exchange:
THE PRESIDENT. Commissioner Jamir is recognized.
MR. JAMIR. Madam President, my proposed amendment on lines 20
and 21 is to delete the phrase "two thirds of whose voting stock or
controlling interest," and instead substitute the words "SIXTY
PERCENT OF WHOSE CAPITAL" so that the sentence will read: "No
franchise, certificate, 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 at least SIXTY PERCENT OF WHOSE CAPITAL is
owned by such citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
MR. JAMIR. Yes, in this Article on National Economy and Patrimony,
there were two previous sections in which we fixed the Filipino
equity to 60 percent as against 40 percent for foreigners. It is only in
this Section 15 with respect to public utilities that the committee
proposal was increased to two-thirds. I think it would be better to
harmonize this provision by providing that even in the case of public
utilities, the minimum equity for Filipino citizens should be 60
percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is recognized.
MR. ROMULO. My reason for supporting the amendment is based
on the discussions I have had with representatives of the Filipino
majority owners of the international record carriers, and the
subsequent memoranda they submitted to me. x x x
Their second point is that under the Corporation Code, the
management and control of a corporation is vested in the board of
directors, not in the officers but in the board of directors. The
officers are only agents of the board. And they believe that with 60
percent of the equity, the Filipino majority stockholders undeniably
control the board. Only on important corporate acts can the 40-
percent foreign equity exercise a veto, x x x.
x x x x45
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also
read from a memorandum by the spokesman of the Philippine
Chamber of Communications on why they would like to maintain the
present equity, I am referring to the 66 2/3. They would prefer to
have a 75-25 ratio but would settle for 66 2/3. x x x
xxxx
THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid
support the proposal of two-thirds rather than the 60 percent?
MS. ROSARIO BRAID. I have added a clause that will put
management in the hands of Filipino citizens.
x x x x46
While they had differing views on the percentage of Filipino
ownership of capital, it is clear that the framers of the Constitution
intended public utilities to be majority Filipino-owned and
controlled. To ensure that Filipinos control public utilities, the
framers of the Constitution approved, as additional safeguard, the
inclusion of the last sentence of Section 11, Article XII of the
Constitution commanding that "[t]he participation of foreign
investors in the governing body of any public utility enterprise shall
be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association
must be citizens of the Philippines." In other words, the last
sentence of Section 11, Article XII of the Constitution mandates that
(1) the participation of foreign investors in the governing body of the
corporation or association shall be limited to their proportionate
share in the capital of such entity; and (2) all officers of the
corporation or association must be Filipino citizens.
Commissioner Rosario Braid proposed the inclusion of the phrase
requiring the managing officers of the corporation or association to
be Filipino citizens specifically to prevent management contracts,
which were designed primarily to circumvent the Filipinization of
public utilities, and to assure Filipino control of public utilities, thus:
MS. ROSARIO BRAID. x x x They also like to suggest that we amend
this provision by adding a phrase which states: "THE MANAGEMENT
BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL
CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have
with me their position paper.
THE PRESIDENT. The Commissioner may proceed.
MS. ROSARIO BRAID. The three major international record carriers in
the Philippines, which Commissioner Romulo mentioned – Philippine
Global Communications, Eastern Telecommunications, Globe
Mackay Cable – are 40-percent owned by foreign multinational
companies and 60-percent owned by their respective Filipino
partners. All three, however, also have management contracts with
these foreign companies – Philcom with RCA, ETPI with Cable and
Wireless PLC, and GMCR with ITT. Up to the present time, the
general managers of these carriers are foreigners. While the
foreigners in these common carriers are only minority owners, the
foreign multinationals are the ones managing and controlling their
operations by virtue of their management contracts and by virtue of
their strength in the governing bodies of these carriers.47
xxxx
MR. OPLE. I think a number of us have agreed to ask Commissioner
Rosario Braid to propose an amendment with respect to the
operating management of public utilities, and in this amendment,
we are associated with Fr. Bernas, Commissioners Nieva and
Rodrigo. Commissioner Rosario Braid will state this amendment
now.
Thank you.
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. This is still on Section 15.
MS. ROSARIO BRAID. Yes.
MR. VILLEGAS. Yes, Madam President.
xxxx
MS. ROSARIO BRAID. Madam President, I propose a new section to
read: ‘THE MANAGEMENT BODY OF EVERY CORPORATION OR
ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF
THE PHILIPPINES."
This will prevent management contracts and assure control by
Filipino citizens. Will the committee assure us that this amendment
will insure that past activities such as management contracts will no
longer be possible under this amendment?
xxxx
FR. BERNAS. Madam President.
THE PRESIDENT. Commissioner Bernas is recognized.
FR. BERNAS. Will the committee accept a reformulation of the first
part?
MR. BENGZON. Let us hear it.
FR. BERNAS. The reformulation will be essentially the formula of the
1973 Constitution which reads: "THE PARTICIPATION OF FOREIGN
INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY
ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN
THE CAPITAL THEREOF AND..."
MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF
SUCH CORPORATIONS AND ASSOCIATIONS MUST BE CITIZENS OF
THE PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the whole thing
again?
FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE
GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE
LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL
THEREOF..." I do not have the rest of the copy.
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING
OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST BE
CITIZENS OF THE PHILIPPINES." Is that correct?
MR. VILLEGAS. Yes.
MR. BENGZON. Madam President, I think that was said in a more
elegant language. We accept the amendment. Is that all right with
Commissioner Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body refers to the board of
directors and trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body refers to the board of
directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam President.
VOTING
xxxx
The results show 29 votes in favor and none against; so the
proposed amendment is approved.
xxxx
THE PRESIDENT. All right. Can we proceed now to vote on Section
15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the committee please read
Section 15?
MR. VILLEGAS. The entire Section 15, as amended, reads: "No
franchise, certificate, 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 at least 60 PERCENT OF WHOSE CAPITAL is
owned by such citizens." May I request Commissioner Bengzon to
please continue reading.
MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE
GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE
LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL
THEREOF AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF
SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE
PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR
AUTHORIZATION BE EXCLUSIVE IN CHARACTER OR FOR A PERIOD
LONGER THAN TWENTY-FIVE YEARS RENEWABLE FOR NOT MORE
THAN TWENTY-FIVE YEARS. Neither shall any such franchise or right
be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by Congress when the common
good so requires. The State shall encourage equity participation in
public utilities by the general public."
VOTING
xxxx
The results show 29 votes in favor and 4 against; Section 15, as
amended, is approved.48 (Emphasis supplied)
The last sentence of Section 11, Article XII of the 1987 Constitution,
particularly the provision on the limited participation of foreign
investors in the governing body of public utilities, is a reiteration of
the last sentence of Section 5, Article XIV of the 1973
Constitution,49 signifying its importance in reserving ownership and
control of public utilities to Filipino citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not claim the contrary, that
(1) foreigners own 64.27% of the common shares of PLDT, which
class of shares exercises the sole right to vote in the election of
directors, and thus foreigners control PLDT; (2) Filipinos own only
35.73% of PLDT’s common shares, constituting a minority of the
voting stock, and thus Filipinos do not control PLDT; (3) preferred
shares, 99.44% owned by Filipinos, have no voting rights; (4)
preferred shares earn only 1/70 of the dividends that common
shares earn;50 (5) preferred shares have twice the par value of
common shares; and (6) preferred shares constitute 77.85% of the
authorized capital stock of PLDT and common shares only 22.15%.
Despite the foregoing facts, the Court did not decide, and in fact
refrained from ruling on the question of whether PLDT violated the
60-40 ownership requirement in favor of Filipino citizens in Section
11, Article XII of the 1987 Constitution. Such question indisputably
calls for a presentation and determination of evidence through a
hearing, which is generally outside the province of the Court’s
jurisdiction, but well within the SEC’s statutory powers. Thus, for
obvious reasons, the Court limited its decision on the purely legal
and threshold issue on the definition of the term "capital" in Section
11, Article XII of the Constitution and directed the SEC to apply such
definition in determining the exact percentage of foreign ownership
in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory relief that
ownership of common or voting shares is the sole basis in
determining foreign equity in a public utility and that any other
government rulings, opinions, and regulations inconsistent with this
declaratory relief be declared unconstitutional and a violation of the
intent and spirit of the 1987 Constitution;
6. For the Honorable Court to declare null and void all sales of
common stocks to foreigners in excess of 40 percent of the total
subscribed common shareholdings; and
7. For the Honorable Court to direct the Securities and Exchange
Commission and Philippine Stock Exchange to require PLDT to make
a public disclosure of all of its foreign shareholdings and their
actual and real beneficial owners.
Other relief(s) just and equitable are likewise prayed for. (Emphasis
supplied)
As can be gleaned from his prayer, Gamboa clearly asks this Court to
compel the SEC to perform its statutory duty to investigate whether
"the required percentage of ownership of the capital stock to be
owned by citizens of the Philippines has been complied with [by
PLDT] as required by x x x the Constitution."51 Such plea clearly
negates SEC’s argument that it was not impleaded.
Granting that only the SEC Chairman was impleaded in this case, the
Court has ample powers to order the SEC’s compliance with its
directive contained in the 28 June 2011 Decision in view of the far-
reaching implications of this case. In Domingo v. Scheer,52 the Court
dispensed with the amendment of the pleadings to implead the
Bureau of Customs considering (1) the unique backdrop of the case;
(2) the utmost need to avoid further delays; and (3) the issue of
public interest involved. The Court held:
The Court may be curing the defect in this case by adding the BOC as
party-petitioner. The petition should not be dismissed because the
second action would only be a repetition of the first. In Salvador, et
al., v. Court of Appeals, et al., we held that this Court has full
powers, apart from that power and authority which is inherent, to
amend the processes, pleadings, proceedings and decisions by
substituting as party-plaintiff the real party-in-interest. The Court
has the power to avoid delay in the disposition of this case, to
order its amendment as to implead the BOC as party-respondent.
Indeed, it may no longer be necessary to do so taking into account
the unique backdrop in this case, involving as it does an issue of
public interest. After all, the Office of the Solicitor General has
represented the petitioner in the instant proceedings, as well as in
the appellate court, and maintained the validity of the deportation
order and of the BOC’s Omnibus Resolution. It cannot, thus, be
claimed by the State that the BOC was not afforded its day in court,
simply because only the petitioner, the Chairperson of the BOC, was
the respondent in the CA, and the petitioner in the instant recourse.
In Alonso v. Villamor, we had the occasion to state:
There is nothing sacred about processes or pleadings, their forms
or contents. Their sole purpose is to facilitate the application of
justice to the rival claims of contending parties. They were created,
not to hinder and delay, but to facilitate and promote, the
administration of justice. They do not constitute the thing itself,
which courts are always striving to secure to litigants. They are
designed as the means best adapted to obtain that thing. In other
words, they are a means to an end. When they lose the character of
the one and become the other, the administration of justice is at
fault and courts are correspondingly remiss in the performance of
their obvious duty.53 (Emphasis supplied)
In any event, the SEC has expressly manifested54 that it will abide
by the Court’s decision and defer to the Court’s definition of the
term "capital" in Section 11, Article XII of the Constitution. Further,
the SEC entered its special appearance in this case and argued
during the Oral Arguments, indicating its submission to the Court’s
jurisdiction. It is clear, therefore, that there exists no legal
impediment against the proper and immediate implementation of
the Court’s directive to the SEC.
PLDT is an indispensable party only insofar as the other issues,
particularly the factual questions, are concerned. In other words,
PLDT must be impleaded in order to fully resolve the issues on (1)
whether the sale of 111,415 PTIC shares to First Pacific violates the
constitutional limit on foreign ownership of PLDT; (2) whether the
sale of common shares to foreigners exceeded the 40 percent limit
on foreign equity in PLDT; and (3) whether the total percentage of
the PLDT common shares with voting rights complies with the 60-40
ownership requirement in favor of Filipino citizens under the
Constitution for the ownership and operation of PLDT. These issues
indisputably call for an examination of the parties’ respective
evidence, and thus are clearly within the jurisdiction of the SEC. In
short, PLDT must be impleaded, and must necessarily be heard, in
the proceedings before the SEC where the factual issues will be
thoroughly threshed out and resolved.
Notably, the foregoing issues were left untouched by the Court.
The Court did not rule on the factual issues raised by Gamboa,
except the single and purely legal issue on the definition of the term
"capital" in Section 11, Article XII of the Constitution. The Court
confined the resolution of the instant case to this threshold legal
issue in deference to the fact-finding power of the SEC.
Needless to state, the Court can validly, properly, and fully dispose
of the fundamental legal issue in this case even without the
participation of PLDT since defining the term "capital" in Section 11,
Article XII of the Constitution does not, in any way, depend on
whether PLDT was impleaded. Simply put, PLDT is not indispensable
for a complete resolution of the purely legal question in this
case.55 In fact, the Court, by treating the petition as one for
mandamus,56 merely directed the SEC to apply the Court’s definition
of the term "capital" in Section 11, Article XII of the Constitution in
determining whether PLDT committed any violation of the said
constitutional provision. The dispositive portion of the Court’s
ruling is addressed not to PLDT but solely to the SEC, which is the
administrative agency tasked to enforce the 60-40 ownership
requirement in favor of Filipino citizens in Section 11, Article XII of
the Constitution.
Since the Court limited its resolution on the purely legal issue on the
definition of the term "capital" in Section 11, Article XII of the 1987
Constitution, and directed the SEC to investigate any violation by
PLDT of the 60-40 ownership requirement in favor of Filipino citizens
under the Constitution,57 there is no deprivation of PLDT’s property
or denial of PLDT’s right to due process, contrary to Pangilinan and
Nazareno’s misimpression. Due process will be afforded to PLDT
when it presents proof to the SEC that it complies, as it claims here,
with Section 11, Article XII of the Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to
our economy, as it may result in a sudden flight of existing foreign
investors to "friendlier" countries and simultaneously deterring new
foreign investors to our country. In particular, the PSE claims that
the 28 June 2011 Decision may result in the following: (1) loss of
more than P 630 billion in foreign investments in PSE-listed shares;
(2) massive decrease in foreign trading transactions; (3) lower PSE
Composite Index; and (4) local investors not investing in PSE-listed
shares.58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral
Arguments, shared movants’ apprehension. Without providing
specific details, he pointed out the depressing state of the Philippine
economy compared to our neighboring countries which boast of
growing economies. Further, Dr. Villegas explained that the solution
to our economic woes is for the government to "take-over" strategic
industries, such as the public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you have additional
information on whether this high FDI59 countries in East Asia have
allowed foreigners x x x control [of] their public utilities, so that we
can compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these neighbors of
ours find an industry strategic, their solution is not to "Filipinize" or
"Vietnamize" or "Singaporize." Their solution is to make sure that
those industries are in the hands of state enterprises. So, in these
countries, nationalization means the government takes over. And
because their governments are competent and honest enough to
the public, that is the solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is the solution, then
foreign investments in our public utilities serve no purpose.
Obviously, there can never be foreign investments in public utilities
if, as Dr. Villegas claims, the "solution is to make sure that those
industries are in the hands of state enterprises." Dr. Villegas’s
argument that foreign investments in telecommunication companies
like PLDT are badly needed to save our ailing economy contradicts
his own theory that the solution is for government to take over
these companies. Dr. Villegas is barking up the wrong tree since
State ownership of public utilities and foreign investments in such
industries are diametrically opposed concepts, which cannot
possibly be reconciled.
In any event, the experience of our neighboring countries cannot be
used as argument to decide the present case differently for two
reasons. First, the governments of our neighboring countries have,
as claimed by Dr. Villegas, taken over ownership and control of their
strategic public utilities like the telecommunications industry.
Second, our Constitution has specific provisions limiting foreign
ownership in public utilities which the Court is sworn to uphold
regardless of the experience of our neighboring countries.
In our jurisdiction, the Constitution expressly reserves the ownership
and operation of public utilities to Filipino citizens, or corporations
or associations at least 60 percent of whose capital belongs to
Filipinos. Following Dr. Villegas’s claim, the Philippines appears to be
more liberal in allowing foreign investors to own 40 percent of
public utilities, unlike in other Asian countries whose governments
own and operate such industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to clarify
the reckoning period of the application and imposition of
appropriate sanctions against PLDT if found violating Section 11,
Article XII of the Constitution.1avvphi1
As discussed, the Court has directed the SEC to investigate and
determine whether PLDT violated Section 11, Article XII of the
Constitution. Thus, there is no dispute that it is only after the SEC
has determined PLDT’s violation, if any exists at the time of the
commencement of the administrative case or investigation, that the
SEC may impose the statutory sanctions against PLDT. In other
words, once the 28 June 2011 Decision becomes final, the SEC shall
impose the appropriate sanctions only if it finds after due hearing
that, at the start of the administrative case or investigation, there is
an existing violation of Section 11, Article XII of the Constitution.
Under prevailing jurisprudence, public utilities that fail to comply
with the nationality requirement under Section 11, Article XII and
the FIA can cure their deficiencies prior to the start of the
administrative case or investigation.61
XII.
Final Word
The Constitution expressly declares as State policy the development
of an economy "effectively controlled" by Filipinos. Consistent with
such State policy, the Constitution explicitly reserves the ownership
and operation of public utilities to Philippine nationals, who are
defined in the Foreign Investments Act of 1991 as Filipino citizens, or
corporations or associations at least 60 percent of whose
capital with voting rights belongs to Filipinos. The FIA’s
implementing rules explain that "[f]or stocks to be deemed owned
and held by Philippine citizens or Philippine nationals, mere legal
title is not enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with appropriate
voting rights is essential." In effect, the FIA clarifies, reiterates and
confirms the interpretation that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers to shares with voting
rights, as well as with full beneficial ownership. This is precisely
because the right to vote in the election of directors, coupled with
full beneficial ownership of stocks, translates to effective control of
a corporation.
Any other construction of the term "capital" in Section 11, Article XII
of the Constitution contravenes the letter and intent of the
Constitution. Any other meaning of the term "capital" openly invites
alien domination of economic activities reserved exclusively to
Philippine nationals. Therefore, respondents’ interpretation will
ultimately result in handing over effective control of our national
economy to foreigners in patent violation of the Constitution,
making Filipinos second-class citizens in their own country.
Filipinos have only to remind themselves of how this country was
exploited under the Parity Amendment, which gave Americans the
same rights as Filipinos in the exploitation of natural resources, and
in the ownership and control of public utilities, in the Philippines. To
do this the 1935 Constitution, which contained the same 60 percent
Filipino ownership and control requirement as the present 1987
Constitution, had to be amended to give Americans parity rights
with Filipinos. There was bitter opposition to the Parity
Amendment62 and many Filipinos eagerly awaited its expiration. In
late 1968, PLDT was one of the American-controlled public utilities
that became Filipino-controlled when the controlling American
stockholders divested in anticipation of the expiration of the Parity
Amendment on 3 July 1974.63 No economic suicide happened when
control of public utilities and mining corporations passed to
Filipinos’ hands upon expiration of the Parity Amendment.
Movants’ interpretation of the term "capital" would bring us back to
the same evils spawned by the Parity Amendment, effectively giving
foreigners parity rights with Filipinos, but this time even without
any amendment to the present Constitution. Worse, movants’
interpretation opens up our national economy to effective
control not only by Americans but also by all foreigners, be they
Indonesians, Malaysians or Chinese, even in the absence of
reciprocal treaty arrangements. At least the Parity Amendment, as
implemented by the Laurel-Langley Agreement, gave the capital-
starved Filipinos theoretical parity – the same rights as Americans to
exploit natural resources, and to own and control public utilities, in
the United States of America. Here, movants’ interpretation would
effectively mean a unilateral opening up of our national economy to
all foreigners, without any reciprocal arrangements. That would
mean that Indonesians, Malaysians and Chinese nationals could
effectively control our mining companies and public utilities while
Filipinos, even if they have the capital, could not control similar
corporations in these countries.
The 1935, 1973 and 1987 Constitutions have the same 60 percent
Filipino ownership and control requirement for public utilities like
PLOT. Any deviation from this requirement necessitates an
amendment to the Constitution as exemplified by the Parity
Amendment. This Court has no power to amend the Constitution for
its power and duty is only to faithfully apply and interpret the
Constitution.
WHEREFORE, we DENY the motions for reconsideration WITH
FINALITY. No further pleadings shall be entertained.
SO ORDERED.
G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO
MINING AND DEVELOPMENT, INC., and MCARTHUR MINING,
INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45
filed by Narra Nickel and Mining Development Corp. (Narra), Tesoro
Mining and Development, Inc. (Tesoro), and McArthur Mining Inc.
(McArthur), which seeks to reverse the October 1, 2010
Decision1 and the February 15, 2011 Resolution of the Court of
Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated
Mines Corp. (Redmont), a domestic corporation organized and
existing under Philippine laws, took interest in mining and exploring
certain areas of the province of Palawan. After inquiring with the
Department of Environment and Natural Resources (DENR), it
learned that the areas where it wanted to undertake exploration
and mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro
and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie
Mining, Inc. (SMMI), filed an application for an MPSA and
Exploration Permit (EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department of Environment and
Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an
area of over 1,782 hectares in Barangay Sumbiling, Municipality of
Bataraza, Province of Palawan and EPA-IVB-44 which includes an
area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan.
The MPSA and EP were then transferred to Madridejos Mining
Corporation (MMC) and, on November 6, 2006, assigned to
petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining &
Development Corporation (PLMDC) which previously filed an
application for an MPSA with the MGB, Region IV-B, DENR on
January 6, 1992. Through the said application, the DENR issued
MPSA-IV-1-12 covering an area of 3.277 hectares in barangays
Calategas and San Isidro, Municipality of Narra, Palawan.
Subsequently, PLMDC conveyed, transferred and/or assigned its
rights and interests over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region
IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over
3,402 hectares in Barangays Malinao and Princesa Urduja,
Municipality of Narra, Province of Palawan. SMMI subsequently
conveyed, transferred and assigned its rights and interest over the
said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators
(POA) of the DENR three (3) separate petitions for the denial of
petitioners’ applications for MPSA designated as AMA-IVB-153,
AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital
stock of McArthur, Tesoro and Narra are owned and controlled by
MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a considerable stockholder of
petitioners, it was the driving force behind petitioners’ filing of the
MPSAs over the areas covered by applications since it knows that it
can only participate in mining activities through corporations which
are deemed Filipino citizens. Redmont argued that given that
petitioners’ capital stocks were mostly owned by MBMI, they were
likewise disqualified from engaging in mining activities through
MPSAs, which are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified
persons under Section 3(aq) of Republic Act No. (RA) 7942 or the
Philippine Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act,
the following terms, whether in singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with
capacity to contract, or a corporation, partnership, association, or
cooperative organized or authorized for the purpose of engaging in
mining, with technical and financial capability to undertake mineral
resources development and duly registered in accordance with law
at least sixty per cent (60%) of the capital of which is owned by
citizens of the Philippines: Provided, That a legally organized foreign-
owned corporation shall be deemed a qualified person for purposes
of granting an exploration permit, financial or technical assistance
agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is
immaterial because they also applied for Financial or Technical
Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for
McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which
are granted to foreign-owned corporations. Nevertheless, they
claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60%
of their capital is owned by citizens of the Philippines. They asserted
that though MBMI owns 40% of the shares of PLMC (which owns
5,997 shares of Narra),3 40% of the shares of MMC (which owns
5,997 shares of McArthur)4 and 40% of the shares of SLMC (which, in
turn, owns 5,997 shares of Tesoro),5 the shares of MBMI will not
make it the owner of at least 60% of the capital stock of each of
petitioners. They added that the best tool used in determining the
nationality of a corporation is the "control test," embodied in Sec. 3
of RA 7042 or the Foreign Investments Act of 1991. They also
claimed that the POA of DENR did not have jurisdiction over the
issues in Redmont’s petition since they are not enumerated in Sec.
77 of RA 7942. Finally, they stressed that Redmont has no
personality to sue them because it has no pending claim or
application over the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying
petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified
applicants to engage in mining activities. On the other hand,
[Redmont] having filed its own applications for an EPA over the
areas earlier covered by the MPSA application of respondents may
be considered if and when they are qualified under the law. The
violation of the requirements for the issuance and/or grant of
permits over mining areas is clearly established thus, there is reason
to believe that the cancellation and/or revocation of permits already
issued under the premises is in order and open the areas covered to
other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents,
McArthur Mining Inc., Tesoro Mining and Development, Inc., and
Narra Nickel Mining and Development Corp. as, DISQUALIFIED for
being considered as Foreign Corporations. Their Mineral Production
Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND
VOID.6
The POA considered petitioners as foreign corporations being
"effectively controlled" by MBMI, a 100% Canadian company and
declared their MPSAs null and void. In the same Resolution, it gave
due course to Redmont’s EPAs. Thereafter, on February 7, 2008, the
POA issued an Order7 denying the Motion for Reconsideration filed
by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and
Tesoro filed a joint Notice of Appeal8 and Memorandum of
Appeal9 with the Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal10and Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they
are qualified persons under the law. Also, through a letter, they
informed the MAB that they had their individual MPSA applications
converted to FTAAs. McArthur’s FTAA was denominated as AFTA-
IVB-0912 on May 2007, while Tesoro’s MPSA application was
converted to AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA was
converted to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the
MAB, Redmont filed a Complaint15 with the Securities and Exchange
Commission (SEC), seeking the revocation of the certificates for
registration of petitioners on the ground that they are foreign-
owned or controlled corporations engaged in mining in violation of
Philippine laws. Thereafter, Redmont filed on September 1, 2008 a
Manifestation and Motion to Suspend Proceeding before the MAB
praying for the suspension of the proceedings on the appeals filed
by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the
Regional Trial Court of Quezon City, Branch 92 (RTC) a
Complaint16 for injunction with application for issuance of a
temporary restraining order (TRO) and/or writ of preliminary
injunction, docketed as Civil Case No. 08-63379. Redmont prayed for
the deferral of the MAB proceedings pending the resolution of the
Complaint before the SEC.
But before the RTC can resolve Redmont’s Complaint and
applications for injunctive reliefs, the MAB issued an Order on
September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board
hereby REVERSES and SETS ASIDE the Resolution dated 14
December 2007 of the Panel of Arbitrators of Region IV-B
(MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02 and 2007-
03, and its Order dated 07 February 2008 denying the Motions for
Reconsideration of the Appellants. The Petition filed by Redmont
Consolidated Mines Corporation on 02 January 2007 is hereby
ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an
Order18 granting Redmont’s application for a TRO and setting the
case for hearing the prayer for the issuance of a writ of preliminary
injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for
Reconsideration19 of the September 10, 2008 Order of the MAB.
Subsequently, it filed a Supplemental Motion for
Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmont’s Motion for
Reconsideration and Supplemental Motion for Reconsideration,
Redmont filed before the RTC a Supplemental Complaint21 in Civil
Case No. 08-63379.
On October 6, 2008, the RTC issued an Order22 granting the issuance
of a writ of preliminary injunction enjoining the MAB from finally
disposing of the appeals of petitioners and from resolving
Redmont’s Motion for Reconsideration and Supplement Motion for
Reconsideration of the MAB’s September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying
Redmont’s Motion for Reconsideration and Supplemental Motion
for Reconsideration and resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA,
assailing the Orders issued by the MAB. On October 1, 2010, the CA
rendered a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed
Orders, dated September 10, 2008 and July 1, 2009 of the Mining
Adjudication Board are reversed and set aside. The findings of the
Panel of Arbitrators of the Department of Environment and Natural
Resources that respondents McArthur, Tesoro and Narra are foreign
corporations is upheld and, therefore, the rejection of their
applications for Mineral Product Sharing Agreement should be
recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro
and Narra for Financial or Technical Assistance Agreement (FTAA) or
conversion of their MPSA applications to FTAA, the matter for its
rejection or approval is left for determination by the Secretary of the
DENR and the President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion
for Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was
doubt as to the nationality of petitioners when it realized that
petitioners had a common major investor, MBMI, a corporation
composed of 100% Canadians. Pursuant to the first sentence of
paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series
of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the
exploitation of natural resources, the CA used the "grandfather rule"
to determine the nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as
of Philippine nationality, but if the percentage of Filipino ownership
in the corporation or partnership is less than 60%, only the number
of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least 60% of the capital
stock or capital, respectively, of which belong to Filipino citizens, all
of the shares shall be recorded as owned by Filipinos. But if less than
60%, or say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000
shares shall be recorded as belonging to aliens.24(emphasis supplied)
In determining the nationality of petitioners, the CA looked into
their corporate structures and their corresponding common
shareholders. Using the grandfather rule, the CA discovered that
MBMI in effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of other majority
shareholders of petitioners through joint venture agreements. The
CA found that through a "web of corporate layering, it is clear that
one common controlling investor in all mining corporations involved
x x x is MBMI."25 Thus, it concluded that petitioners McArthur,
Tesoro and Narra are also in partnership with, or privies-in-interest
of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA
applications of petitioners into FTAA applications suspicious in
nature and, as a consequence, it recommended the rejection of
petitioners’ MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining
areas, the CA pointed out that the POA has jurisdiction over them
and that it also has the power to determine the of nationality of
petitioners as a prerequisite of the Constitution prior the conferring
of rights to "co-production, joint venture or production-sharing
agreements" of the state to mining rights. However, it also stated
that the POA’s jurisdiction is limited only to the resolution of the
dispute and not on the approval or rejection of the MPSAs. It
stipulated that only the Secretary of the DENR is vested with the
power to approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14,
2007 Resolution which considered petitioners McArthur, Tesoro and
Narra as foreign corporations. Nevertheless, the CA determined that
the POA’s declaration that the MPSAs of McArthur, Tesoro and
Narra are void is highly improper.
While the petition was pending with the CA, Redmont filed with the
Office of the President (OP) a petition dated May 7, 2010 seeking
the cancellation of petitioners’ FTAAs. The OP rendered a
Decision26 on April 6, 2011, wherein it canceled and revoked
petitioners’ FTAAs for violating and circumventing the "Constitution
x x x[,] the Small Scale Mining Law and Environmental Compliance
Certificate as well as Sections 3 and 8 of the Foreign Investment Act
and E.O. 584."27 The OP, in affirming the cancellation of the issued
FTAAs, agreed with Redmont stating that petitioners committed
violations against the abovementioned laws and failed to submit
evidence to negate them. The Decision further quoted the
December 14, 2007 Order of the POA focusing on the alleged
misrepresentation and claims made by petitioners of being domestic
or Filipino corporations and the admitted continued mining
operation of PMDC using their locally secured Small Scale Mining
Permit inside the area earlier applied for an MPSA application which
was eventually transferred to Narra. It also agreed with the POA’s
estimation that the filing of the FTAA applications by petitioners is a
clear admission that they are "not capable of conducting a large
scale mining operation and that they need the financial and
technical assistance of a foreign entity in their operation, that is why
they sought the participation of MBMI Resources, Inc."28 The
Decision further quoted:
The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining.
The filing of the FTAA application conversion which is allowed
foreign corporation of the earlier MPSA is an admission that indeed
the respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in their head office in
Canada suggest that they are conducting operation only through
their local counterparts.29
The Motion for Reconsideration of the Decision was further denied
by the OP in a Resolution30 dated July 6, 2011. Petitioners then filed
a Petition for Review on Certiorari of the OP’s Decision and
Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the
CA Decision dated February 29, 2012, the CA affirmed the Decision
and Resolution of the OP. Thereafter, petitioners appealed the same
CA decision to this Court which is now pending with a different
division.
Thus, the instant petition for review against the October 1, 2010
Decision of the CA. Petitioners put forth the following errors of the
CA:
I.
The Court of Appeals erred when it did not dismiss the case for
mootness despite the fact that the subject matter of the
controversy, the MPSA Applications, have already been converted
into FTAA applications and that the same have already been
granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack
of jurisdiction considering that the Panel of Arbitrators has no
jurisdiction to determine the nationality of Narra, Tesoro and
McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on
account of Redmont’s willful forum shopping.
IV.
The Court of Appeals’ ruling that Narra, Tesoro and McArthur are
foreign corporations based on the "Grandfather Rule" is contrary to
law, particularly the express mandate of the Foreign Investments Act
of 1991, as amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res
inter alios acta rule.
VI.
The Court of Appeals erred when it concluded that the conversion of
the MPSA Applications into FTAA Applications were of "suspicious
nature" as the same is based on mere conjectures and surmises
without any shred of evidence to show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the
instant case as moot is without merit.
Basically, a case is said to be moot and/or academic when it "ceases
to present a justiciable controversy by virtue of supervening events,
so that a declaration thereon would be of no practical use or
value."32 Thus, the courts "generally decline jurisdiction over the
case or dismiss it on the ground of mootness."33
The "mootness" principle, however, does accept certain exceptions
and the mere raising of an issue of "mootness" will not deter the
courts from trying a case when there is a valid reason to do so. In
David v. Macapagal-Arroyo (David), the Court provided four
instances where courts can decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public
interest is involved;
3.) When constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the public;
and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant case.
We of this Court note that a grave violation of the Constitution,
specifically Section 2 of Article XII, is being committed by a foreign
corporation right under our country’s nose through a myriad of
corporate layering under different, allegedly, Filipino corporations.
The intricate corporate layering utilized by the Canadian company,
MBMI, is of exceptional character and involves paramount public
interest since it undeniably affects the exploitation of our Country’s
natural resources. The corresponding actions of petitioners during
the lifetime and existence of the instant case raise questions as what
principle is to be applied to cases with similar issues. No definite
ruling on such principle has been pronounced by the Court; hence,
the disposition of the issues or errors in the instant case will serve as
a guide "to the bench, the bar and the public."35 Finally, the instant
case is capable of repetition yet evading review, since the Canadian
company, MBMI, can keep on utilizing dummy Filipino corporations
through various schemes of corporate layering and conversion of
applications to skirt the constitutional prohibition against foreign
mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error
presented by petitioners since both involve the conversion of MPSA
applications to FTAA applications. Petitioners propound that the CA
erred in ruling against them since the questioned MPSA applications
were already converted into FTAA applications; thus, the issue on
the prohibition relating to MPSA applications of foreign mining
corporations is academic. Also, petitioners would want us to correct
the CA’s finding which deemed the aforementioned conversions of
applications as suspicious in nature, since it is based on mere
conjectures and surmises and not supported with evidence.
We disagree.
The CA’s analysis of the actions of petitioners after the case was
filed against them by respondent is on point. The changing of
applications by petitioners from one type to another just because a
case was filed against them, in truth, would raise not a few sceptics’
eyebrows. What is the reason for such conversion? Did the said
conversion not stem from the case challenging their citizenship and
to have the case dismissed against them for being "moot"? It is quite
obvious that it is petitioners’ strategy to have the case dismissed
against them for being "moot."
Consider the history of this case and how petitioners responded to
every action done by the court or appropriate government agency:
on January 2, 2007, Redmont filed three separate petitions for
denial of the MPSA applications of petitioners before the POA. On
June 15, 2007, petitioners filed a conversion of their MPSA
applications to FTAAs. The POA, in its December 14, 2007
Resolution, observed this suspect change of applications while the
case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement
application is a clear admission that the respondents are not capable
of conducting a large scale mining operation and that they need the
financial and technical assistance of a foreign entity in their
operation that is why they sought the participation of MBMI
Resources, Inc. The participation of MBMI in the corporation only
proves the fact that it is the Canadian company that will provide the
finances and the resources to operate the mining areas for the
greater benefit and interest of the same and not the Filipino
stockholders who only have a less substantial financial stake in the
corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining.
The filing of the FTAA application conversion which is allowed
foreign corporation of the earlier MPSA is an admission that indeed
the respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in their head office in
Canada suggest that they are conducting operation only through
their local counterparts.36
On October 1, 2010, the CA rendered a Decision which partially
granted the petition, reversing and setting aside the September 10,
2008 and July 1, 2009 Orders of the MAB. In the said Decision, the
CA upheld the findings of the POA of the DENR that the herein
petitioners are in fact foreign corporations thus a recommendation
of the rejection of their MPSA applications were recommended to
the Secretary of the DENR. With respect to the FTAA applications or
conversion of the MPSA applications to FTAAs, the CA deferred the
matter for the determination of the Secretary of the DENR and the
President of the Republic of the Philippines.37
In their Motion for Reconsideration dated October 26, 2010,
petitioners prayed for the dismissal of the petition asserting that on
April 5, 2010, then President Gloria Macapagal-Arroyo signed and
issued in their favor FTAA No. 05-2010-IVB, which rendered the
petition moot and academic. However, the CA, in a Resolution dated
February 15, 2011 denied their motion for being a mere "rehash of
their claims and defenses."38 Standing firm on its Decision, the CA
affirmed the ruling that petitioners are, in fact, foreign corporations.
On April 5, 2011, petitioners elevated the case to us via a Petition for
Review on Certiorari under Rule 45, questioning the Decision of the
CA. Interestingly, the OP rendered a Decision dated April 6, 2011, a
day after this petition for review was filed, cancelling and revoking
the FTAAs, quoting the Order of the POA and stating that petitioners
are foreign corporations since they needed the financial strength of
MBMI, Inc. in order to conduct large scale mining operations. The OP
Decision also based the cancellation on the misrepresentation of
facts and the violation of the "Small Scale Mining Law and
Environmental Compliance Certificate as well as Sections 3 and 8 of
the Foreign Investment Act and E.O. 584."39 On July 6, 2011, the OP
issued a Resolution, denying the Motion for Reconsideration filed by
the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011,
made known to the Court the fact of the OP’s Decision and
Resolution. In their Reply, petitioners chose to ignore the OP
Decision and continued to reuse their old arguments claiming that
they were granted FTAAs and, thus, the case was moot. Petitioners
filed a Manifestation and Submission dated October 19,
2012,40 wherein they asserted that the present petition is moot
since, in a remarkable turn of events, MBMI was able to sell/assign
all its shares/interest in the "holding companies" to DMCI Mining
Corporation (DMCI), a Filipino corporation and, in effect, making
their respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have
this case dismissed for being "moot." Their final act, wherein MBMI
was able to allegedly sell/assign all its shares and interest in the
petitioner "holding companies" to DMCI, only proves that they were
in fact not Filipino corporations from the start. The recent divesting
of interest by MBMI will not change the stand of this Court with
respect to the nationality of petitioners prior the suspicious change
in their corporate structures. The new documents filed by
petitioners are factual evidence that this Court has no power to
verify.
The only thing clear and proved in this Court is the fact that the OP
declared that petitioner corporations have violated several mining
laws and made misrepresentations and falsehood in their
applications for FTAA which lead to the revocation of the said FTAAs,
demonstrating that petitioners are not beyond going against or
around the law using shifty actions and strategies. Thus, in this
instance, we can say that their claim of mootness is moot in itself
because their defense of conversion of MPSAs to FTAAs has been
discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners’
nationality, whether Filipino or foreign. In their previous petitions,
they had been adamant in insisting that they were Filipino
corporations, until they submitted their Manifestation and
Submission dated October 19, 2012 where they stated the alleged
change of corporate ownership to reflect their Filipino ownership.
Thus, there is a need to determine the nationality of petitioner
corporations.
Basically, there are two acknowledged tests in determining the
nationality of a corporation: the control test and the grandfather
rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting
the 1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the controlling interests in
enterprises engaged in the exploitation of natural resources owned
by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as
of Philippine nationality, but if the percentage of Filipino ownership
in the corporation or partnership is less than 60%, only the number
of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least 60% of the capital
stock or capital, respectively, of which belong to Filipino citizens, all
of the shares shall be recorded as owned by Filipinos. But if less than
60%, or say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000
shares shall be counted as owned by Filipinos and the other 50,000
shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares
belonging to corporations or partnerships at least 60% of the capital
of which is owned by Filipino citizens shall be considered as of
Philippine nationality," pertains to the control test or the liberal rule.
On the other hand, the second part of the DOJ Opinion which
provides, "if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as
Philippine nationality," pertains to the stricter, more stringent
grandfather rule.
Prior to this recent change of events, petitioners were constant in
advocating the application of the "control test" under RA 7042, as
amended by RA 8179, otherwise known as the Foreign Investments
Act (FIA), rather than using the stricter grandfather rule. The
pertinent provision under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the
Philippines; or a domestic partnership or association wholly owned
by the citizens of the Philippines; a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to
the benefit of Philippine nationals: Provided, That were a
corporation and its non-Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered enterprise, at
least sixty percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be owned and
held by citizens of the Philippines and at least sixty percent (60%) of
the members of the Board of Directors, in order that the corporation
shall be considered a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in
the instant case since the definition of a "Philippine National" under
Sec. 3 of the FIA does not provide for it. They further claim that the
grandfather rule "has been abandoned and is no longer the
applicable rule."41 They also opined that the last portion of Sec. 3 of
the FIA admits the application of a "corporate layering" scheme of
corporations. Petitioners claim that the clear and unambiguous
wordings of the statute preclude the court from construing it and
prevent the court’s use of discretion in applying the law. They said
that the plain, literal meaning of the statute meant the application
of the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA;
but if it is used to circumvent the Constitution and pertinent laws,
then it becomes illegal. Further, the pronouncement of petitioners
that the grandfather rule has already been abandoned must be
discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal,
petroleum and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated.
The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State
may directly undertake such activities, or it may enter into co-
production, joint venture or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per
centum of whose capital is owned by such citizens. Such agreements
may be for a period not exceeding twenty-five years, renewable for
not more than twenty-five years, and under such terms and
conditions as may be provided by law.
xxxx
The President may enter into agreements with Foreign-owned
corporations involving either technical or financial assistance for
large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils according to the general terms
and conditions provided by law, based on real contributions to the
economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of
local scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State
entering into different types of agreements for the exploration,
development, and utilization of natural resources with entities who
are deemed Filipino due to 60 percent ownership of capital is
pertinent to this case, since the issues are centered on the utilization
of our country’s natural resources or specifically, mining. Thus, there
is a need to ascertain the nationality of petitioners since, as the
Constitution so provides, such agreements are only allowed
corporations or associations "at least 60 percent of such capital is
owned by such citizens." The deliberations in the Records of the
1986 Constitutional Commission shed light on how a citizenship of a
corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation
of an independent national economy is freedom from undue foreign
control? What is the meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which
sacrifices national sovereignty and the welfare of the Filipino in the
economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word
"undue"? Why not simply freedom from foreign control? I think that
is the meaning of independence, because as phrased, it still allows
for foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if,
for example, we retain the 60/40 possibility in the cultivation of
natural resources, 40 percent involves some control; not total
control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose
some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the
phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local
or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-
40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the
question: ‘Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation’? Will the Committee please
enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the members
of the team from the UP Law Center who provided us with a draft.
The phrase that is contained here which we adopted from the UP
draft is ‘60 percent of the voting stock.’
MR. NOLLEDO: That must be based on the subscribed capital stock,
because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests in
another corporation which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the
Constitution to apply the grandfather rule in cases where corporate
layering is present.
Elementary in statutory construction is when there is conflict
between the Constitution and a statute, the Constitution will prevail.
In this instance, specifically pertaining to the provisions under Art.
XII of the Constitution on National Economy and Patrimony, Sec. 3 of
the FIA will have no place of application. As decreed by the
honorable framers of our Constitution, the grandfather rule prevails
and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating
the Filipino interest in a corporation for purposes, among others, of
determining compliance with nationality requirements (the
‘Investee Corporation’). Such manner of computation is necessary
since the shares in the Investee Corporation may be owned both by
individual stockholders (‘Investing Individuals’) and by corporations
and partnerships (‘Investing Corporation’). The said rules thus
provide for the determination of nationality depending on the
ownership of the Investee Corporation and, in certain instances, the
Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in
determining the nationality of the Investee Corporation. The first
case is the ‘liberal rule’, later coined by the SEC as the Control Test in
its 30 May 1990 Opinion, and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging
to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine
nationality.’ Under the liberal Control Test, there is no need to
 further trace the ownership of the 60% (or more) Filipino Total 10,000 PhP 10,000,000.00 PhP
stockholdings of the Investing Corporation since a corporation which (emphasis s
is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper Interestingly, looking at the corporate structure of MMC, we take
and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules note that it has a similar structure and composition as McArthur. In
which states, "but if the percentage of Filipino ownership in the fact, it would seem that MBMI is also a major investor and
corporation or partnership is less than 60%, only the number of "controls"45 MBMI and also, similar nominal shareholders were
shares corresponding to such percentage shall be counted as of present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar
Philippine nationality." Under the Strict Rule or Grandfather Rule (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):
Proper, the combined totals in the Investing Corporation and the Madridejos Mining Corporation
Investee Corporation must be traced (i.e., "grandfathered")
Name to Nationality Number of Shares Amount Subscribed Amount Pa
determine the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares Olympic Mines
must first& Filipino 6,663 PhP 6,663,000.00 PhP 0
be traced to the level of the Investing Corporation and Development
added to the
shares directly owned in the Investee Corporation x xCorp.x.
xxxx MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,803,9
In other words, based on the said SEC Rule and DOJ Inc.Opinion, the
Grandfather Rule or the second part of the SEC Rule applies only
when the 60-40 Filipino-foreign equity ownership is Amanti
in doubtLimson
(i.e., in Filipino 1 PhP 1,000.00 PhP 1,000.0
cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings Fernando[or B.59%] Filipino 1 PhP 1,000.00 PhP 1,000.0
invests in other joint venture corporation which isEsguerraeither 60-40%
Filipino-alien or the 59% less Filipino). Stated differently, where the
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.0
60-40 Filipino- foreign equity ownership is not in doubt, the
Grandfather Rule will not apply. (emphasis supplied) Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.0
After a scrutiny of the evidence extant on record, Hernando
the Court finds
that this case calls for the application of the grandfather rule since,
as ruled by the POA and affirmed by the OP, doubt Michael T. Mason
prevails and American 1 PhP 1,000.00 PhP 1,000.0
persists in the corporate ownership of petitioners. Also, as found by
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.0
the CA, doubt is present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur and Tesoro, since their common Total 10,000 PhP 10,000,000.00 PhP 2,809,9
investor, the 100% Canadian corporation––MBMI, funded them. (emphasis s
However, petitioners also claim that there is "doubt" only when the
Noticeably, Olympic Mines & Development Corporation (Olympic)
stockholdings of Filipinos are less than 60%.43
did not pay any amount with respect to the number of shares they
The assertion of petitioners that "doubt" only exists when the
subscribed to in the corporation, which is quite absurd since Olympic
stockholdings are less than 60% fails to convince this Court. DOJ
is the major stockholder in MMC. MBMI’s 2006 Annual Report sheds
Opinion No. 20, which petitioners quoted in their petition, only
light on why Olympic failed to pay any amount with respect to the
made an example of an instance where "doubt" as to the ownership
number of shares it subscribed to. It states that Olympic entered
of the corporation exists. It would be ludicrous to limit the
into joint venture agreements with several Philippine companies,
application of the said word only to the instances where the
wherein it holds directly and indirectly a 60% effective equity
stockholdings of non-Filipino stockholders are more than 40% of the
interest in the Olympic Properties.46 Quoting the said Annual report:
total stockholdings in a corporation. The corporations interested in
On September 9, 2004, the Company and Olympic Mines &
circumventing our laws would clearly strive to have "60% Filipino
Development Corporation ("Olympic") entered into a series of
Ownership" at face value. It would be senseless for these applying
agreements including a Property Purchase and Development
corporations to state in their respective articles of incorporation
Agreement (the Transaction Documents) with respect to three nickel
that they have less than 60% Filipino stockholders since the
laterite properties in Palawan, Philippines (the "Olympic
applications will be denied instantly. Thus, various corporate
Properties"). The Transaction Documents effectively establish a joint
schemes and layerings are utilized to circumvent the application of
venture between the Company and Olympic for purposes of
the Constitution.
developing the Olympic Properties. The Company holds directly and
Obviously, the instant case presents a situation which exhibits a
indirectly an initial 60% interest in the joint venture. Under certain
scheme employed by stockholders to circumvent the law, creating a
circumstances and upon achieving certain milestones, the Company
cloud of doubt in the Court’s mind. To determine, therefore, the
may earn up to a 100% interest, subject to a 2.5% net revenue
actual participation, direct or indirect, of MBMI, the grandfather rule
royalty.47 (emphasis supplied)
must be used.
Thus, as demonstrated in this first corporation, McArthur, when it is
McArthur Mining, Inc.
"grandfathered," company layering was utilized by MBMI to gain
To establish the actual ownership, interest or participation of MBMI
control over McArthur. It is apparent that MBMI has more than 60%
in each of petitioners’ corporate structure, they have to be
or more equity interest in McArthur, making the latter a foreign
"grandfathered."
corporation.
As previously discussed, McArthur acquired its MPSA application
Tesoro Mining and Development, Inc.
from MMC, which acquired its application from SMMI. McArthur has
Tesoro, which acquired its MPSA application from SMMI, has a
a capital stock of ten million pesos (PhP 10,000,000) divided into
capital stock of ten million pesos (PhP 10,000,000) divided into ten
10,000 common shares at one thousand pesos (PhP 1,000) per
thousand (10,000) common shares at PhP 1,000 per share, as
share, subscribed to by the following:44
demonstrated below:
Nationality Number of Shares Amount Subscribed Amount Paid
[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudenc
Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
e/2014/april2014/195580.pdf]]
Name Nationality Number of Amount
es, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60 Shares Subscribed
Filipino 1 PhP 1,000.00 PhP 1,000.00
Sara Marie Filipino 5,997 PhP 5,997,000
uerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Mining, Inc.

oili Filipino 1 PhP 1,000.00 PhP 1,000.00

MBMI Canadian 3,998 PhP 3,998,000
on American 1 PhP 1,000.00 Resources, Inc.
PhP 1,000.00

l Canadian 1 PhP 1,000.00 Lauro L. Salazar

PhP 1,000.00 Filipino 1 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 Name PhP 1,000.00 Nationality Number of Amount
Esguerra Shares Subscribed

Manuel A. Filipino 1 PhP 1,000.00 Patricia Louise

PhP 1,000.00 Filipino 5,997 PhP 5,997,000
Agcaoili Mining &
Development
Michael T. Mason American 1 PhP 1,000.00 Corp. PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 MBMI PhP 1,000.00 Canadian 3,998 PhP 3,996,000
Resources, Inc.
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
Higinio C. (emphasis supplied)
Filipino 1 PhP 1,000.00
Mendoza, Jr.
Except for the name "Sara Marie Mining, Inc.," the table above
shows exactly the same figures as the corporate structure of
Henry E. Filipino 1 PhP 1,000.00
petitioner McArthur, down to the last centavo. All the other
Fernandez
shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili,
Mason and Cawkell. The figures under "Nationality," "Number of
Manuel A. Filipino 1 PhP 1,000.00
Shares," "Amount Subscribed," and "Amount Paid" are exactly the
Agcaoili
same. Delving deeper, we scrutinize SMMI’s corporate structure:
Sara Marie Mining, Inc.
Ma. Elena A. Filipino 1 PhP 1,000.00
[[reference
Bocalan
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudenc
e/2014/april2014/195580.pdf]]
Bayani H. Agabin Filipino 1 PhP 1,000.00
Name Nationality Number of Amount Amount Paid
Shares Subscribed Robert L. American 1 PhP 1,000.00
McCurdy
Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0
Development Kenneth Cawkell Canadian 1 PhP 1,000.00
Corp.
Total 10,000 PhP 10,000,00
MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,794,000.00
Inc.
Again, MBMI, along with other nominal stockholders, i.e., Mason,
Agcaoili and Esguerra, is present in this corporate structure.
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
Patricia Louise Mining & Development Corporation
Using the grandfather method, we further look and examine
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
PLMDC’s corporate structure:
Esguerra
Name Nationality Number of Amount Am
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 Shares Subscribed

Palawan Alpha South Resources Development Filipino 6,596 PhP 6,596,000.00 Ph

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
Corporation
Hernando
MBMI Resources, Canadian 3,396 PhP 3,396,000.00 Ph
Michael T. Mason American 1 Inc. PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 Higinio C. Mendoza, Jr.

PhP 1,000.00 Filipino
PhP 1,000.00 1 PhP 1,000.00 Ph

Fernando B. Esguerra Filipino 1 PhP 1,000.00 Ph

Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00
Henry E. Fernandez (emphasis supplied)
Filipino 1 PhP 1,000.00 Ph
After subsequently studying SMMI’s corporate structure,
Lauro L.itSalazar
is not Filipino 1 PhP 1,000.00 Ph
farfetched for us to spot the glaring similarity between SMMI and
MMC’s corporate structure. Again, the presence of identical
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 Ph
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
Esguerra, Salazar, Hernando, Mason and Cawkell. The Bayani H. Agabin
figures under Filipino 1 PhP 1,000.00 Ph
the headings "Nationality," "Number of Shares," "Amount
Michael T. Mason American 1 PhP 1,000.00 Ph
Subscribed," and "Amount Paid" are exactly the same except for the
amount paid by MBMI which now reflects the amount of two Cawkell
Kenneth million Canadian 1 PhP 1,000.00 Ph
seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly,
the total value of the amount paid is two million eight hundred nine Total 10,000 PhP 10,000,000.00 Ph
thousand nine hundred pesos (PhP 2,809,900). (em
Accordingly, after "grandfathering" petitioner Tesoro and factoring su
in Olympic’s participation in SMMI’s corporate structure, it is clear Yet again, the usual players in petitioners’ corporate structures are
that MBMI is in control of Tesoro and owns 60% or more equity present. Similarly, the amount of money paid by the 2nd tier
interest in Tesoro. This makes petitioner Tesoro a non-Filipino majority stock holder, in this case, Palawan Alpha South Resources
corporation and, thus, disqualifies it to participate in the and Development Corp. (PASRDC), is zero.
exploitation, utilization and development of our natural resources. Studying MBMI’s Summary of Significant Accounting Policies dated
Narra Nickel Mining and Development Corporation October 31, 2005 explains the reason behind the intricate corporate
Moving on to the last petitioner, Narra, which is the transferee and layering that MBMI immersed itself in:
assignee of PLMDC’s MPSA application, whose corporate structure’s JOINT VENTURES The Company’s ownership interests in various
arrangement is similar to that of the first two petitioners discussed. mining ventures engaged in the acquisition, exploration and
The capital stock of Narra is ten million pesos (PhP 10,000,000), development of mineral properties in the Philippines is described as
which is divided into ten thousand common shares (10,000) at one follows:
thousand pesos (PhP 1,000) per share, shown as follows: (a) Olympic Group
[[reference The Philippine companies holding the Olympic Property, and the
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudenc ownership and interests therein, are as follows:
e/2014/april2014/195580.pdf]] Olympic- Philippines (the "Olympic Group")
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Pursuant to the Olympic joint venture agreement the Company
holds directly and indirectly an effective equity interest in the
Olympic Property of 60.0%. Pursuant to a shareholders’ agreement,
the Company exercises joint control over the companies in the
Olympic Group.
(b) Alpha Group
The Philippine companies holding the Alpha Property, and the
ownership interests therein, are as follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Under a joint venture agreement the Company holds directly and
indirectly an effective equity interest in the Alpha Property of 60.4%.
Pursuant to a shareholders’ agreement, the Company exercises joint
control over the companies in the Alpha Group.48 (emphasis
supplied)
Concluding from the above-stated facts, it is quite safe to say that
petitioners McArthur, Tesoro and Narra are not Filipino since MBMI,
a 100% Canadian corporation, owns 60% or more of their equity
interests. Such conclusion is derived from grandfathering
petitioners’ corporate owners, namely: MMI, SMMI and PLMDC.
Going further and adding to the picture, MBMI’s Summary of
Significant Accounting Policies statement– –regarding the "joint
venture" agreements that it entered into with the "Olympic" and
"Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered" corporations boils down
to MBMI, Olympic or corporations under the "Alpha" group wherein
MBMI has joint venture agreements with, practically exercising
majority control over the corporations mentioned. In effect,
whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are
NOT Filipino nationals and must be considered foreign since 60% or
more of their capital stocks or equity interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CA’s use of the exception of the res inter
alios acta or the "admission by co-partner or agent" rule and
"admission by privies" under the Rules of Court in the instant case,
by pointing out that statements made by MBMI should not be
admitted in this case since it is not a party to the case and that it is
not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of
a partner or agent of the party within the scope of his authority and
during the existence of the partnership or agency, may be given in
evidence against such party after the partnership or agency is shown
by evidence other than such act or declaration itself. The same rule
applies to the act or declaration of a joint owner, joint debtor, or
other person jointly interested with the party.
Sec. 31. Admission by privies.- Where one derives title to property
from another, the act, declaration, or omission of the latter, while
holding the title, in relation to the property, is evidence against the
former.
Petitioners claim that before the above-mentioned Rule can be
applied to a case, "the partnership relation must be shown, and that
proof of the fact must be made by evidence other than the
admission itself."49 Thus, petitioners assert that the CA erred in
finding that a partnership relationship exists between them and
MBMI because, in fact, no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of
the Rules by stating that "by entering into a joint venture, MBMI
have a joint interest" with Narra, Tesoro and McArthur. They
challenged the conclusion of the CA which pertains to the close
characteristics of
"partnerships" and "joint venture agreements." Further, they
asserted that before this particular partnership can be formed, it
should have been formally reduced into writing since the capital
involved is more than three thousand pesos (PhP 3,000). Being that
there is no evidence of written agreement to form a partnership
between petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind
themselves to contribute money, property, or industry to a common
fund with the intention of dividing the profits among
themselves.50 On the other hand, joint ventures have been deemed
to be "akin" to partnerships since it is difficult to distinguish
between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of
their association are so similar and closely akin to a partnership that
it is ordinarily held that their rights, duties, and liabilities are to be
tested by rules which are closely analogous to and substantially the
same, if not exactly the same, as those which govern partnership. In
fact, it has been said that the trend in the law has been to blur the
distinctions between a partnership and a joint venture, very little
law being found applicable to one that does not apply to the other.51
Though some claim that partnerships and joint ventures are totally
different animals, there are very few rules that differentiate one
from the other; thus, joint ventures are deemed "akin" or similar to
a partnership. In fact, in joint venture agreements, rules and legal
incidents governing partnerships are applied.52
Accordingly, culled from the incidents and records of this case, it can
be assumed that the relationships entered between and among
petitioners and MBMI are no simple "joint venture agreements." As
a rule, corporations are prohibited from entering into partnership
agreements; consequently, corporations enter into joint venture
agreements with other corporations or partnerships for certain
transactions in order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and
among petitioners and MBMI was executed to circumvent the legal
prohibition against corporations entering into partnerships, then the
relationship created should be deemed as "partnerships," and the
laws on partnership should be applied. Thus, a joint venture
agreement between and among corporations may be seen as similar
to partnerships since the elements of partnership are present.
Considering that the relationships found between petitioners and
MBMI are considered to be partnerships, then the CA is justified in
applying Sec. 29, Rule 130 of the Rules by stating that "by entering
into a joint venture, MBMI have a joint interest" with Narra, Tesoro
and McArthur.
Panel of Arbitrators’ jurisdiction
We affirm the ruling of the CA in declaring that the POA has
jurisdiction over the instant case. The POA has jurisdiction to settle
disputes over rights to mining areas which definitely involve the
petitions filed by Redmont against petitioners Narra, McArthur and
Tesoro. Redmont, by filing its petition against petitioners, is
asserting the right of Filipinos over mining areas in the Philippines
against alleged foreign-owned mining corporations. Such claim
constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the
parties for the decision, the panel shall have exclusive and original
jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v.
Macroasia Corp.:53
The phrase "disputes involving rights to mining areas" refers to any
adverse claim, protest, or opposition to an application for mineral
agreement. The POA therefore has the jurisdiction to resolve any
adverse claim, protest, or opposition to a pending application for a
mineral agreement filed with the concerned Regional Office of the
MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-40, which
provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the authorized officer(s)
of the concerned office(s) shall issue a certification(s) that the
publication/posting/radio announcement have been complied with.
Any adverse claim, protest, opposition shall be filed directly, within
thirty (30) calendar days from the last date of
publication/posting/radio announcement, with the concerned
Regional Office or through any concerned PENRO or CENRO for filing
in the concerned Regional Office for purposes of its resolution by the
Panel of Arbitrators pursuant to the provisions of this Act and these
implementing rules and regulations. Upon final resolution of any
adverse claim, protest or opposition, the Panel of Arbitrators shall
likewise issue a certification to that effect within five (5) working
days from the date of finality of resolution thereof. Where there is
no adverse claim, protest or opposition, the Panel of Arbitrators
shall likewise issue a Certification to that effect within five working
days therefrom.
xxxx
No Mineral Agreement shall be approved unless the requirements
under this Section are fully complied with and any adverse
claim/protest/opposition is finally resolved by the Panel of
Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification
issued by the Panel of Arbitrators as provided in Section 38 hereof,
the concerned Regional Director shall initially evaluate the Mineral
Agreement applications in areas outside Mineral reservations.
He/She shall thereafter endorse his/her findings to the Bureau for
further evaluation by the Director within fifteen (15) working days
from receipt of forwarded documents. Thereafter, the Director shall
endorse the same to the secretary for consideration/approval within
fifteen working days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral
Reservations, within fifteen (15) working days from receipt of the
Certification issued by the Panel of Arbitrators as provided for in
Section 38 hereof, the same shall be evaluated and endorsed by the
Director to the Secretary for consideration/approval within fifteen
days from receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the
"disputes involving rights to mining areas" under Sec. 77(a)
specifically refer only to those disputes relative to the applications
for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or
oppositions to a mining right application is further elucidated by
Secs. 219 and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said sections may
also be filed directly with the Panel of Arbitrators within the
concerned periods for filing such claim, protest or opposition as
specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director shall also
cause the posting of the application on the bulletin boards of the
Bureau, concerned Regional office(s) and in the concerned
province(s) and municipality(ies), copy furnished the barangays
where the proposed contract area is located once a week for two (2)
consecutive weeks in a language generally understood in the
locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim, protest or
opposition was filed within the said forty-five (45) days, the
concerned offices shall issue a certification that publication/posting
has been made and that no adverse claim, protest or opposition of
whatever nature has been filed. On the other hand, if there be any
adverse claim, protest or opposition, the same shall be filed within
forty-five (45) days from the last date of publication/posting, with
the Regional Offices concerned, or through the Department’s
Community Environment and Natural Resources Officers (CENRO) or
Provincial Environment and Natural Resources Officers (PENRO), to
be filed at the Regional Office for resolution of the Panel of
Arbitrators. However previously published valid and subsisting
mining claims are exempted from posted/posting required under
this Section.
No mineral agreement shall be approved unless the requirements
under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director and
resolved by the Panel of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the
"disputes involving rights to mining areas" under Sec. 77(a)
specifically refer only to those disputes relative to the applications
for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or
oppositions to a mining right application is further elucidated by
Secs. 219 and 43 of DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said sections may
also be filed directly with the Panel of Arbitrators within the
concerned periods for filing such claim, protest or opposition as
specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.-
xxxx
The Regional Director or concerned Regional Director shall also
cause the posting of the application on the bulletin boards of the
Bureau, concerned Regional office(s) and in the concerned
province(s) and municipality(ies), copy furnished the barangays
where the proposed contract area is located once a week for two (2)
consecutive weeks in a language generally understood in the
locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim, protest or
opposition was filed within the said forty-five (45) days, the
concerned offices shall issue a certification that publication/posting
has been made and that no adverse claim, protest or opposition of
whatever nature has been filed. On the other hand, if there be any
adverse claim, protest or opposition, the same shall be filed within
forty-five (45) days from the last date of publication/posting, with
the Regional offices concerned, or through the Department’s
Community Environment and Natural Resources Officers (CENRO) or
Provincial Environment and Natural Resources Officers (PENRO), to
be filed at the Regional Office for resolution of the Panel of
Arbitrators. However, previously published valid and subsisting
mining claims are exempted from posted/posting required under
this Section.
No mineral agreement shall be approved unless the requirements
under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director and
resolved by the Panel of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to
resolve any adverse claim, opposition, or protest relative to mining
rights under Sec. 77(a) of RA 7942 is confined only to adverse claims,
conflicts and oppositions relating to applications for the grant of
mineral rights.
POA’s jurisdiction is confined only to resolutions of such adverse
claims, conflicts and oppositions and it has no authority to approve
or reject said applications. Such power is vested in the DENR
Secretary upon recommendation of the MGB Director. Clearly,
POA’s jurisdiction over "disputes involving rights to mining areas"
has nothing to do with the cancellation of existing mineral
agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably
has jurisdiction to resolve disputes over MPSA applications subject
of Redmont’s petitions. However, said jurisdiction does not include
either the approval or rejection of the MPSA applications, which is
vested only upon the Secretary of the DENR. Thus, the finding of the
POA, with respect to the rejection of petitioners’ MPSA applications
being that they are foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is
the regular courts, not the POA, that has jurisdiction over the MPSA
applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the
statute in force at the time of the commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall
exercise exclusive original jurisdiction:
1. In all civil actions in which the subject of the litigation is incapable
of pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec.
77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x Within thirty (30) days, after the submission of the case by the
parties for the decision, the panel shall have exclusive and original
jurisdiction to hear and decide the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any
and all disputes involving rights to mining areas. One such dispute is
an MPSA application to which an adverse claim, protest or
opposition is filed by another interested applicant.1âwphi1 In the
case at bar, the dispute arose or originated from MPSA applications
where petitioners are asserting their rights to mining areas subject
of their respective MPSA applications. Since respondent filed 3
separate petitions for the denial of said applications, then a
controversy has developed between the parties and it is POA’s
jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while
what petitioners filed with the DENR Regional Office or any
concerned DENRE or CENRO are MPSA applications. Thus POA has
jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications
under the doctrine of primary jurisdiction. Euro-med Laboratories v.
Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that
its determination requires the expertise, specialized training and
knowledge of an administrative body, relief must first be obtained in
an administrative proceeding before resort to the courts is had even
if the matter may well be within their proper jurisdiction.
Whatever may be the decision of the POA will eventually reach the
court system via a resort to the CA and to this Court as a last
recourse.
Selling of MBMI’s shares to DMCI
As stated before, petitioners’ Manifestation and Submission dated
October 19, 2012 would want us to declare the instant petition
moot and academic due to the transfer and conveyance of all the
shareholdings and interests of MBMI to DMCI, a corporation duly
organized and existing under Philippine laws and is at least 60%
Philippine-owned.56 Petitioners reasoned that they now cannot be
considered as foreign-owned; the transfer of their shares
supposedly cured the "defect" of their previous nationality. They
claimed that their current FTAA contract with the State should stand
since "even wholly-owned foreign corporations can enter into an
FTAA with the State."57Petitioners stress that there should no longer
be any issue left as regards their qualification to enter into FTAA
contracts since they are qualified to engage in mining activities in
the Philippines. Thus, whether the "grandfather rule" or the "control
test" is used, the nationalities of petitioners cannot be doubted
since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any
bearing in the instant case and said fact should be disregarded. The
manifestation can no longer be considered by us since it is being
tackled in G.R. No. 202877 pending before this Court.1âwphi1 Thus,
the question of whether petitioners, allegedly a Philippine-owned
corporation due to the sale of MBMI's shareholdings to DMCI, are
allowed to enter into FTAAs with the State is a non-issue in this case.
In ending, the "control test" is still the prevailing mode of
determining whether or not a corporation is a Filipino corporation,
within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to
undertake the exploration, development and utilization of the
natural resources of the Philippines. When in the mind of the Court
there is doubt, based on the attendant facts and circumstances of
the case, in the 60-40 Filipino-equity ownership in the corporation,
then it may apply the "grandfather rule."
WHEREFORE, premises considered, the instant petition is DENIED.
The assailed Court of Appeals Decision dated October 1, 2010 and
Resolution dated February 15, 2011 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 150350 August 22, 2006
KOJI YASUMA, Petitioner,
vs.
HEIRS OF CECILIO S. DE VILLA and EAST CORDILLERA MINING
CORPORATION, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 of the Court
of Appeals (CA) dated October 18, 2001 in CA-G.R. CV No. 61755.
The antecedent facts follow.
On September 15, 1988, October 21, 1988 and December 5, 1988,
Cecilio S. de Villa obtained loans from petitioner Koji Yasuma in the
amounts of P1,100,000, P100,000 and P100,000, respectively, for
the total amount of P1.3 million. These loans were evidenced by
three promissory notes signed by de Villa as borrower. The last
promissory note in the amount of P1,300,000 cancelled the first two
notes.
The loans were initially secured by three separate real estate
mortgages on a parcel of land with Transfer Certificate of Title No.
176575 in the name of respondent East Cordillera Mining
Corporation. The deeds of mortgage were executed on the dates the
loans were obtained, signed by de Villa as president of respondent
corporation. The third real estate mortgage later cancelled the first
two.3
For failure of de Villa to pay, petitioner filed a collection suit in the
Regional Trial Court of Makati City, Branch 148 (RTC-Br. 148) against
de Villa and respondent corporation.4 The RTC-Br. 148 declared de
Villa and respondent corporation in default and resolved the case in
favor of petitioner. On appeal, however, the judgment of RTC-Br.
148 was annulled on the ground of improper service of
summons.5 Thus, the case was remanded for retrial.
During the pendency of the case in the RTC-Br. 148, de Villa died.
Petitioner consequently amended the complaint and impleaded the
heirs of de Villa as defendants.6
After the case was re-heard, the RTC of Makati City, Branch 139
(RTC-Br. 139) rendered judgment on November 13, 1998 in favor of
petitioner and against respondent corporation. It ordered
respondent corporation to pay petitioner P1.3 million plus legal
interest, attorney’s fees, liquidated damages and costs of suit. The
complaint was dismissed against respondent heirs.7
On appeal, the CA reversed and set aside the decision of RTC-Br.
139. It held that the loan was personal to de Villa and that the
mortgage was null and void for lack of authority from the
corporation.
Petitioner is now before this Court with the following assignment of
errors:
1. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT DECLARED THAT THE
CORPORATION DID NOT RATIFY THE ACT OF ITS PRESIDENT IN
OBTAINING LOANS FROM PETITIONER DESPITE ITS ADMISSION THAT
IT RECEIVED THE MONEY OF THE PETITIONER.
2. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT TOTALLY DISREGARDED THE
ADMITTED FACTS AND ISSUES AGREED UPON BY THE PARTIES AND
APPROVED BY THE TRIAL COURT DURING THE PRE-TRIAL.
3. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE THE REAL ESTATE
MORTGAGE AND THE AWARD OF ATTORNEY’S FEES, 10%
LIQUIDATED DAMAGES AND THE COSTS OF SUIT.
4. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND
REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE THE AWARD OF
INTEREST BY WAY OF DAMAGES IN FAVOR OF PETITIONER. 8
The issues to be resolved are the following:
1) whether the loans were personal liabilities of de Villa or debts of
respondent corporation and
2) whether the mortgage on respondent corporation’s property was
null and void for having been executed without its authority.
We begin with a brief study of some well-settled legal doctrines
relevant to the disposition of this case.
Personal or Corporate Liability?
A corporation is a juridical person, separate and distinct from its
stockholders. Being a juridical entity, a corporation may act through
its board of directors, as provided in Section 23 of the Corporation
Code of the Philippines:9
Sec. 23. The Board of Directors or Trustees. – Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees …
xxx xxx xxx
The corporation can also act through its corporate officers who may
be authorized either expressly by the by-laws or board resolutions or
impliedly such as by general practice or policy or as are implied from
express powers.10 The general principles of agency govern the
relation between the corporation and its officers or agents.11 When
authorized, their acts can bind the corporation. Conversely, when
unauthorized, their acts cannot bind it.
However, the corporation may ratify the unauthorized act of its
corporate officer.12 Ratification means that the principal voluntarily
adopts, confirms and gives sanction to some unauthorized act of its
agent on its behalf. It is this voluntary choice, knowingly made,
which amounts to a ratification of what was theretofore
unauthorized and becomes the authorized act of the party so
making the ratification.13 The substance of the doctrine is
confirmation after conduct, amounting to a substitute for a prior
authority.14 Ratification can be made either expressly or impliedly.
Implied ratification may take various forms — like silence or
acquiescence, acts showing approval or adoption of the act, or
acceptance and retention of benefits flowing therefrom.15
The power to borrow money is one of those cases where corporate
officers as agents of the corporation need a special power of
attorney.16 In the case at bar, no special power of attorney
conferring authority on de Villa was ever presented. The promissory
notes evidencing the loans were signed by de Villa (who was the
president of respondent corporation) as borrower without indicating
in what capacity he was signing them. In fact, there was no mention
at all of respondent corporation. On their face, they appeared to be Petitioner insists that the mortgage executed by de Villa, as
personal loans of de Villa. president of the corporation, was ratified by the latter since the
Petitioner, however, contends that respondent corporation’s mortgage was an accessory contract of the loan.25 We disagree.
admission that it received the total amount of P1.3 million was A special power of attorney is necessary to create or convey real
effectively a ratification of the act of its former president. 17 It rights over immovable property.26 Furthermore, the special power
appears that, in the pre-trial order dated March 4, 1997 issued by of attorney must appear in a public document.27 In the absence of a
RTC-Br. 139, respondent corporation indeed admitted the following: special power of attorney in favor of de Villa as president of the
xxx xxx xxx corporation, no valid mortgage could have been executed by
3. Defendants ADMIT that the total amount of P1.3 Million subject him.28 Since the mortgage was void, it could not be ratified.
matter of the Promissory Notes was RECEIVED by the Defendant- Petitioner cannot blame anyone but himself. He did not check if the
Corporation;18 (emphasis supplied) person he was dealing with had the authority to mortgage the
xxx xxx xxx property being offered as collateral.
In its answer, respondent corporation stated: Given that the loan and mortgage were not binding on respondent
7. The sum of money which [petitioner] sought to recover form corporation, the latter cannot be held liable for interest, attorney’s
herein [respondents] is not really a loan but his investment to the fees and liquidated damages arising from the loan.
mining project of [respondent] corporation which unfortunately did Personal Liability of De Villa
not succeed due to the delays caused by typhoons and bad rainy The liability arising from the loan was the sole indebtedness of de
season in the Benguet mountains causing landslides in the mining Villa (or of his estate after his death). Petitioner vigorously sought to
and milling site during the latter part of 1988, and the killer make respondent corporation liable but exerted no effort at all to
earthquake of 1990 which destroyed the mining area. As investment argue for the liability of respondent heirs. The trial court correctly
to a losing business venture, he is not entitled to claim payment dismissed the case against the latter. Petitioner’s remedy now is to
neither could he treat it as a loan.19 file a money claim in the settlement proceedings of de Villa’s estate,
The CA held that this admission was not tantamount to ratification if not too late, as indicated in
because what respondent corporation admitted was that the money Rule 8629 of the Rules of Court.
was in fact received as an investment. It concluded that: WHEREFORE, the petition is hereby DENIED. The October 18, 2001
… even if the [respondent corporation] received the money, it decision of the Court of Appeals in CA-G.R. CV No. 61755
cannot be held responsible for not knowing the preceding is AFFIRMED.
transaction between the [p]resident and the [petitioner] as in fact Costs against petitioner.
there was a misrepresentation made to the [respondent SO ORDERED.
corporation], to the effect that the money was an investment and
not a loan. The alleged investment is actually a personal loan of
Cecilio de Villa.20
Petitioner’s contention has no merit. There was no showing that
respondent corporation ever authorized de Villa to obtain the loans
on its behalf. The notes did not show that de Villa acted on behalf of
the corporation. Actually, the corporation would not have figured in
the transaction at all had it not been for its admission that it
received the amount of P1.3 million. As could be gleaned from the
promissory notes, it was a stranger to the transaction.
Thus, we conclude that petitioner himself did not consider the
corporation to be his debtor for if he really knew that de Villa was
obtaining the loan on behalf of the corporation, then why did he
allow the notes to reflect only the personal liability of de
Villa?21 Even the demand letters of petitioner were personally
addressed to de Villa and not to respondent
corporation.22 Undoubtedly, petitioner dealt with de Villa purely in
his personal capacity.
Respondent corporation could not have ratified the act of de Villa
because there was no proof that it knew that he took out a loan on
its behalf. As stated earlier, ratification is a voluntary choice that is
knowingly made. The corporation could not have ratified an act it
had no knowledge of:
xxx xxx xxx
Ordinarily, the principal must have full knowledge at the time of
ratification of all the material facts and circumstances relating to the
unauthorized act of the person who assumed to act as agent. Thus,
if material facts were suppressed or unknown, there can be no valid
ratification …. 23
The fact that the corporation admitted receiving the proceeds of the
loan did not amount to ratification of the loan. It accepted the
amount from de Villa, its president at that time, in good faith. Good
faith is always presumed.24Petitioner did not show that the
corporation acted in bad faith.
It follows that respondent corporation was not liable for the
subsequent loss of the money which it accepted as an investment. It
could not be faulted for not knowing that it was the proceeds of a
loan obtained by de Villa. It was under no obligation to check the
source of the investments which went into its coffers. As long as the
investment was used for legitimate corporate purposes, the investor
bore the risk of loss.
Therefore, on the first issue, the loan was personal to de Villa. There
was no basis to hold the corporation liable since there was no
authority, express, implied or apparent, given to de Villa to borrow
money from petitioner. Neither was there any subsequent
ratification of his act.
Was the Mortgage Valid or Void?