You are on page 1of 47

HI-YIELD REALTY, G.R. No. 168863 suit was filed against Leonora, Ma.

Theresa, Glenn and Stephanie, all surnamed
INCORPORATED,
Torres, the Register of Deeds of Marikina and Quezon City, and petitioner Hi-Yield
Petitioner, Present: Realty, Inc. (Hi-Yield). It was docketed as Civil Case No. 03-892 with Branch 148 of
the Regional Trial Court (RTC) of Makati City.

QUISUMBING, J., Chairperson, On September 15, 2003, petitioner moved to dismiss the petition on grounds of
- versus - improper venue and payment of insufficient docket fees. The RTC denied said motion
YNARES-SANTIAGO,* in an Order[4] dated January 22, 2004. The trial court held that the case was, in nature,
a real action in the form of a derivative suit cognizable by a special commercial court
CHICO-NAZARIO,**
pursuant to Administrative Matter No. 00-11-03-SC.[5] Petitioner sought
LEONARDO-DE CASTRO,*** and reconsideration, but its motion was denied in an Order[6] dated April 27, 2004.
HON. COURT OF APPEALS, HON. CESAR O.
UNTALAN, in his capacity as PRESIDING JUDGE BRION, JJ.
Thereafter, petitioner filed a petition for certiorari and prohibition before the Court of
OF RTC-MAKATI, BRANCH 142, HONORIO Appeals. In a Decision dated March 10, 2005, the appellate court agreed with the RTC
TORRES & SONS, INC., and ROBERTO H.
that the case was a derivative suit. It further ruled that the prayer for annulment of
TORRES,
mortgage and foreclosure proceedings was merely incidental to the main action. The
Respondents. Promulgated: dispositive portion of said decision reads:

June 23, 2009 WHEREFORE, premises considered, this Petition is
hereby DISMISSED. However, public respondent is
hereby DIRECTED to instruct his Clerk of Court to compute
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
the proper docket fees and thereafter, to order the private
respondent to pay the same IMMEDIATELY.
DECISION
SO ORDERED.[7]
QUISUMBING, J.:

Petitioners motion for reconsideration[8] was denied in a Resolution dated May 26,
This is a special civil action for certiorari seeking to nullify and set aside the
2005.
Decision[1] dated March 10, 2005 and Resolution[2] dated May 26, 2005 of the Court of
Appeals in CA-G.R. SP. No. 83919. The appellate court had dismissed the petition for
Hence, this petition which raises the following issues:
certiorari and prohibition filed by petitioner and denied its reconsideration.
I.
The antecedent facts of the case are undisputed. WHETHER THE HONORABLE COURT OF APPEALS GRAVELY
ABUSED ITS DISCRETION IN NOT DISMISSING THE CASE
On July 31, 2003, Roberto H. Torres (Roberto), for and on behalf of Honorio Torres & AGAINST HI-YIELD FOR IMPROPER VENUE DESPITE
Sons, Inc. (HTSI), filed a Petition for Annulment of Real Estate Mortgage and FINDINGS BY THE TRIAL COURT THAT THE ACTION IS A
Foreclosure Sale[3] over two parcels of land located in Marikina and Quezon City. The REAL ACTION.

II. After careful consideration, we are in agreement that the petition must be dismissed.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN
NOT DISMISSING THE COMPLAINT AS AGAINST HI-YIELD A petition for certiorari is proper if a tribunal, board or officer exercising judicial or
EVEN IF THE JOINDER OF PARTIES IN THE COMPLAINT quasi-judicial functions acted without or in excess of jurisdiction or with grave abuse
VIOLATED THE RULES ON VENUE. of discretion amounting to lack or excess of jurisdiction and there is no appeal, or any
plain, speedy and adequate remedy in the ordinary course of law.[10]
III.

WHETHER THE HONORABLE COURT OF APPEALS ERRED IN Petitioner sought a review of the trial courts Orders dated January 22,
HOLDING THAT THE ANNULMENT OF REAL ESTATE 2004 and April 27, 2004 via a petition for certiorari before the Court of Appeals. In
MORTGAGE AND FORECLOSURE SALE IN THE COMPLAINT rendering the assailed decision and resolution, the Court of Appeals was acting under its
IS MERELY INCIDENTAL [TO] THE DERIVATIVE SUIT. [9] concurrent jurisdiction to entertain petitions for certiorari under paragraph 2,[11] Section
4 of Rule 65 of the Rules of Court. Thus, if erroneous, the decision and resolution of the
appellate court should properly be assailed by means of a petition for review on
The pivotal issues for resolution are as follows: (1) whether venue was properly laid;
certiorari under Rule 45 of the Rules of Court. The distinction is clear: a petition for
(2) whether there was proper joinder of parties; and (3) whether the action to annul
certiorari seeks to correct errors of jurisdiction while a petition for review on certiorari
the real estate mortgage and foreclosure sale is a mere incident of the derivative suit.
seeks to correct errors of judgment committed by the court a quo.[12] Indeed, this Court
has often reminded members of the bench and bar that a special civil action for certiorari
Petitioner imputes grave abuse of discretion on the Court of Appeals for not
under Rule 65 lies only when there is no appeal nor plain, speedy and adequate remedy
dismissing the case against it even as the trial court found the same to be a real
in the ordinary course of law.[13] In the case at hand, petitioner impetuously filed a
action. It explains that the rule on venue under the Rules of Court prevails over the
petition for certiorari before us when a petition for review was available as a speedy and
rule prescribing the venue for intra-corporate controversies; hence, HTSI erred when
adequate remedy. Notably, petitioner filed the present petition 58[14] days after it
it filed its suit only in Makati when the lands subjects of the case are
received a copy of the assailed resolution dated May 26, 2005. To our mind, this belated
in Marikina and Quezon City. Further, petitioner argues that the appellate court erred
action evidences petitioners effort to substitute for a lost appeal this petition for
in ruling that the action is mainly a derivative suit and the annulment of real estate
certiorari.
mortgage and foreclosure sale is merely incidental thereto. It points out that the
caption of the case, substance of the allegations, and relief prayed for revealed that the
For the extraordinary remedy of certiorari to lie by reason of grave abuse of
main thrust of the action is to recover the lands. Lastly, petitioner asserts that it
discretion, the abuse of discretion must be so patent and gross as to amount to an
should be dropped as a party to the case for it has been wrongly impleaded as a non-
evasion of positive duty, or a virtual refusal to perform the duty enjoined or to act in
stockholder defendant in the intra-corporate dispute.
contemplation of law, or where the power is exercised in an arbitrary and despotic
manner by reason of passion and personal hostility. [15] We find no grave abuse of
On the other hand, respondents maintain that the action is primarily a derivative suit
discretion on the part of the appellate court in this case.
to redress the alleged unauthorized acts of its corporate officers and major
stockholders in connection with the lands. They postulate that the nullification of the
Simply, the resolution of the issues posed by petitioner rests on a determination of the
mortgage and foreclosure sale would just be a logical consequence of a decision
nature of the petition filed by respondents in the RTC. Both the RTC and Court of
adverse to said officers and stockholders.
Appeals ruled that the action is in the form of a derivative suit although captioned as a
petition for annulment of real estate mortgage and foreclosure sale.

A derivative action is a suit by a shareholder to enforce a corporate cause of action.[16]Under power to bind petitioner corporation from incurring loan
obligations and later allow company properties to be foreclosed as
the Corporation Code, where a corporation is an injured party, its power to sue is lodged
hereinafter set forth;[21]
with its board of directors or trustees. But an individual stockholder may be permitted to
institute a derivative suit on behalf of the corporation in order to protect or vindicate
corporate rights whenever the officials of the corporation refuse to sue, or are the ones to be Further, while it is true that the complaining stockholder must satisfactorily show
sued, or hold control of the corporation. In such actions, the corporation is the real party-in- that he has exhausted all means to redress his grievances within the corporation; such
interest while the suing stockholder, on behalf of the corporation, is only a nominal party.[17] remedy is no longer necessary where the corporation itself is under the complete
control of the person against whom the suit is being filed. The reason is obvious: a
In the case of Filipinas Port Services, Inc. v. Go,[18] we enumerated the foregoing requisites demand upon the board to institute an action and prosecute the same effectively
before a stockholder can file a derivative suit: would have been useless and an exercise in futility.[22]

a) the party bringing suit should be a shareholder as of the
time of the act or transaction complained of, the number of his Here, Roberto alleged in his petition that earnest efforts were made to reach a
shares not being material; compromise among family members/stockholders before he filed the case. He also
maintained that Leonora Torres held 55% of the outstanding shares while Ma.
b) he has tried to exhaust intra-corporate remedies, i.e., has Theresa, Glenn and Stephanie excluded him from the affairs of the corporation. Even
made a demand on the board of directors for the appropriate relief more glaring was the fact that from June 10, 1992, when the first mortgage deed was
but the latter has failed or refused to heed his plea; and
executed until July 23, 2002, when the properties mortgaged were foreclosed, the
c) the cause of action actually devolves on the corporation, Board of Directors of HTSI did nothing to rectify the alleged unauthorized
the wrongdoing or harm having been, or being caused to the transactions of Leonora. Clearly, Roberto could not expect relief from the board.
corporation and not to the particular stockholder bringing the
suit.[19]
Derivative suits are governed by a special set of rules under A.M. No. 01-2-04-
SC[23]otherwise known as the Interim Rules of Procedure Governing Intra-Corporate
Even then, not every suit filed on behalf of the corporation is a derivative suit. For a Controversies under Republic Act No. 8799.[24] Section 1,[25] Rule 1 thereof expressly
derivative suit to prosper, the minority stockholder suing for and on behalf of the lists derivative suits among the cases covered by it.
corporation must allege in his complaint that he is suing on a derivative cause of
action on behalf of the corporation and all other stockholders similarly situated who
As regards the venue of derivative suits, Section 5, Rule 1 of A.M. No. 01-2-04-SC
may wish to join him in the suit.[20] The Court finds that Roberto had satisfied this
states:
requirement in paragraph five (5) of his petition which reads:
SEC. 5. Venue. - All actions covered by these Rules shall be
5. Individual petitioner, being a minority stockholder, is
commenced and tried in the Regional Trial Court which has
instituting the instant proceeding by way of a derivative suit to
jurisdiction over the principal office of the corporation, partnership,
redress wrongs done to petitioner corporation and vindicate
or association concerned. Where the principal office of the
corporate rights due to the mismanagement and abuses committed
corporation, partnership or association is registered in the Securities
against it by its officers and controlling stockholders, especially by
and Exchange Commission as Metro Manila, the action must be
respondent Leonora H. Torres (Leonora, for brevity) who, without
filed in the city or municipality where the head office is located.
authority from the Board of Directors, arrogated upon herself the

Thus, the Court of Appeals did not commit grave abuse of discretion when it found
that respondents correctly filed the derivative suit before the Makati RTC where
HTSI had its principal office.

There being no showing of any grave abuse of discretion on the part of the Court of
Appeals the other alleged errors will no longer be passed upon as mere errors of
judgment are not proper subjects of a petition for certiorari.

WHEREFORE, the instant petition is hereby DISMISSED. The Decision
dated March 10, 2005 and the Resolution dated May 26, 2005 of the Court of Appeals
in CA-G.R. SP. No. 83919 are AFFIRMED.

Jesus and his wife Corazon (who was herself a director) had MAGLUTAC. Clemente Ramos. to executive committee until April 1984. Maglutac (private respondent herein) who has been for years Maglutac. Corazon Maglutac. 1989. by means of secret arrangements with foreign suppliers. value of COMMART's present assets including goodwill. with a pledge of mutual cooperation for a certain period so as said complainant be paid the equivalent of one-fourth of the actual market to enable Mariano to get his own corporation off the ground. Mariano allegedly discovered SECURITIES & EXCHANGE COMMISSION and ALICE that for several years..petitioners. Consequently. J. to engage in the brokerage business for the sum of US$2. ordering that portion of its business. in the alternative. at the very least. Maglutac. Sometime in June 1984. taking into consideration also the total sums misappropriated by respondents Jesus T. (Command for short) is a corporation organized by two Cipriano to account for and to turn over or deliver to the Corporation the brothers. with legal importation of fertilizers and other products/commodities. dollars by foreign suppliers of fertilizers and other commodities imported by COMMART (PHILS.. Barinaga & Bautista Law Offices for private respondent. so to speak.S.) INC. p. Rollo. (a) Ordering respondents Jesus T. CORAZON. Benitez. surnamed MAGLUTAC. 85318 June 3. . JESUS. among others. respondents. Inc. some foreign suppliers. As part of the deal. on August 22. Maglutac's shares of stock to respondent Jesus T.R. and other local importers. seek the reversal of the en evidenced by. Shortly after the sale of his equity in Commart to Jesus. among the restoration to the former of all his executive positions with all the rights others. No. been siphoning and diverting to their private bank accounts in the United States and in Hongkong gargantuan amounts sliced off from commissions due Commart from Monsod. 2673) be remanded to corporation. or its equivalent in Philippine currency. as members of the Board of Directors. 1991 As broker and indentor. while Mariano T. with Mariano being persuaded to sell to Jesus his shareholdings in Commart amounting to (c) Declaring rescinded or annulled the disposition of complainant Mariano 25% of the outstanding capital stock. that having been rendered in grave abuse of discretion amounting to lack of or in excess of judgment be rendered as follows –– jurisdiction and in contravention of existing laws and jurisprudence. Alberto Maglutac and Bernardo Maglutac (Jesus as Chairman) and the rest as members of the Board of Directors of Commart). Mariano and Alice Maglutac alleged. correspondences and other documents discovered just recently. for (Petition. interest thereon from the respective dates of misappropriation or. Maglutac. Inc. did not dispose of her shareholdings. that "Jesus T. PARAS. Victor Cipriano. Corazon Maglutac. Tamargo & Associates for petitioners. Carolina de los Reyes. its stockholders and its creditors. ALBERTO. between Commart (represented by Jesus) and Mariano.539.97. been diverting into his private bank accounts and converting to his own personal 1988 denying the petition for certiorari (SEC-EB No. and chairman of the executive committee. vs." the Securities Investigation and Clearing Department for further proceeding. to the prejudice of the corporation. a "Cooperative Agreement" T. the two brothers agreed to go their separate ways. Maglutac (Mariano for short) served as executive vice-president and vice-chairman of the (b) Ordering all the respondents. in the instant petition for review on certiorari. has banc Order of the respondent Securities & Exchange Commission dated September 12. take such remedial steps as would protect the corporation from further depredation of its funds and property. or. from date of filing of this suit.G. and thus to COMMART. Jesus and Mariano Maglutac. and continued as such even after the sale of Mariano's equity. Commission (SEC for short) against Jesus T.). in which. Corazon Maglutac. chairman of the sums as may be proved to have likewise been misappropriated by them. Alice M. among others. 2. spouses Mariano and Alice Maglutac filed a complaint (SEC Case No. 20) Thus.: In their Complaint. board. a and privileges thereunto appertaining. and Victor Cipriano which rightfully belonged a stockholder and director of Commart. and Victor Commart (Phils. embodied in and Petitioners. Maglutac (Jesus for short) ran the company as president. p. AND BERNARD all Planters Products. Maglutac. together with such other and further Jesus T. Annex B. Commart ceded to Mariano or to an "acceptable entity" he may create. Commart's principal income came from commissions paid to it in U. complainants prayed. Maglutac and ordering was signed. 2673) with the Securities & Exchange Panganiban.918. 115-117) filed by the petitioners benefit and advantage substantial portions of the commission income of the herein and ordering that the original complaint (SEC Case No. Mariano's wife.

diverting into his private bank accounts and to his own personal benefit and likewise. (pp. 1984. 127-128. the Hearing Panel issued on November 12. by means of secret Commart is the corporation in whose behalf and for whose benefit this derivative suit arrangements with foreign suppliers embodied in. that the suing shareholder has the 1985. While principle in legal procedure that what determined the subject matter or the said incidents were pending. 1984 or thereabouts. 3. complainants filed an Amended Complaint hereby nature of the action are the facts a complaint as constituting the cause of Commart was impleaded as party complainant and praying that Commart be placed action. (pp. a stockholder of Commart. control over the suit against the real defendants. They contend –– (a) that the Respondents maintain that the present action is basically one for Hearing Panel acted with grave abuse of discretion in not dismissing the case for annulment/rescission of sale with alternative prayer for reinstatement of . 1985. an Order modifying its previous order "by dismissing this case insofar as Mariano right of control. Maglutac against all respondents. dismiss on the ground that respondent Commission does not have jurisdiction over the nature of the suit. Maglutac and Alice M. This was opposed by complainants on the ground. complainants alleged that the instant action should be (a) On October 17. prohibition and mandamus with prayer for preliminary injunction. that states no cause of action against them. has been standing of Commart while her husband complainant Mariano T. Viewed therefrom. 49. 46. 1984. p. In response to the aforementioned Complaint. its stockholders and its creditors and Motions to dismiss said Amended Complaint were also filed by present petitioners enumerated immediately thereafter the alleged specific acts of and were also duly opposed by complainants Mariano and his wife. 1985 Commart filed a Manifestation/Notice of Dismissal. Maglutac. that the action does not in any way make mention of an actionable wrong against respondents Albert and Bernard Maglutac. Respondents' contention that the Commission has no jurisdiction over the subject matter or the nature of the action is devoid of merit. that complainant the ground that Mariano Maglutac has no capacity to sue and the complaint Alice Maglutac is not merely a nominal party but a real party in interest. mismanagement. 42-44) 1985 reconsidered and set aside. Annex E." (Annex F to Petition. Maglutac was. that complainant Alice M. On June 18. Maglutac is concerned" but affirming the said order "in all other respects. Rollo) On May 10. Albert and Bernard Maglutac moved to dismiss on characterized as a minority stockholders' derivative suit. that in a derivative suit the corporation is not allowed to be an active participant and has no Acting on the Motion for Reconsideration. and evidenced by. Maglutac being a non-stockholder is not qualified to institute a litigation expenses. Jesus and Corazon Maglutac also filed a similar motion to have the Order of May 27. that the prayer for rescission or annulment of contract is merely the logical consequence of (b) On October 20. Rollo) derivative suit. 24-25. the amended complaint would under receivership and the properties of Jesus & Corazon Maglutac and Victor show that the action is one for "mismanagement". pp. It is alleged in the Amended Complaint that complainant alleged. that the action is not a derivative suit considering that twenty (20%) per cent of the total amounts awarded and recovered." (Petition. inter alia. A perusal of the complaint. 2673 went to the SEC en banc on a petition for certiorari. pp. as well as. Jesus & Corazon Maglutac likewise moved to the exercise of jurisdiction by this Commission. among other doctrines. plus the nature of the action is one for annulment and the fact that complainant such further sums as may be proved to have been incurred as and by way of Mariano T. respondent Jesus T. until June 25. advantage substantial portions of the commission income of the corporation. Maglutac is a minority stockholder in good correspondences and other documents discovered just recently. to the prejudice of the corporation. manifesting that "it withdraws and dismisses the action taken in its behalf by complainants Mariano T. the Hearing Panel issued an Order denying all the motions to dismiss as well as the so called manifestation/notice of dismissal on the finding inter Not satisfied with such modification present petitioners as respondents in SEC Case alia that –– No. These motions were duly opposed by Mariano and Alice Maglutac. that ". . Maglutac's rights as a stockholder have been injured through the machinations and maneuvering of respondent Jesus Maglutac. the Commission has jurisdiction. Rollo) On May 27. is brought. T. The Clemente Ramos and Carolina de los Reyes. for the complainants Cipriano be attached. two Motions to Dismiss were filed. Mariano T. It is a cardinal These motions were opposed by complainants Alice and Mariano Maglutac. Rollo. . 1985. (d) Ordering respondents to pay complainants attorney's fees equivalent to employment status. 1985 Commart filed a motion for reconsideration and on August 29. records reveal that: By way of opposition.

Did the Securities and Exchange Commission err and/or commit "grave abuse of discretion" in denying the petition for certiorari and remanding the On September 12. 450. [a] & [b]. 14 Otto [104 U. the said condition precedent may be dispensed relief prayed for in the complaint is the recovery of a sum of money in favor of the with where it is clear that it is unavailable or futile. as well as Victor Cipriano. Comment) Hence. Oakland. Rollo. the prayer in the Amended Complaint is for judgment Complainant must however prove at the time of reception of evidence that ordering respondents Jesus and Corazon Maglutac. right of minority stockholders to seek redress for the corporation. Annex A to abuse of discretion" in its handling of the "conflict of interest issue?" (Petition. p. 1973 ed. Del Saz Orozco. Asia Banking Corp. 12. p. the action may be brought by one or more of the stockholders without such demand A derivative suit has been the principal defense of the minority shareholder against (Everett v. 97). Thus. "to she was also a stockholder at the time the acts complained of occurred. and "ordering all the respondent. To consider the S. 1967). No. The Law of Private Corporations Notice of Dismissal filed by Commart as quashing the complaint filed by Alice in the Philippines. p." (pars. It ruled (a) that exhaustion of intra-corporate remedy before filing suit "may be dispensed with where it is clear that it is unavailable 2. March 30. through fraud.]. the Commission en banc issued an Order denying the aforesaid case for further proceedings despite the so-called "notice of dismissal" filed by petition and remanding the case to the Securities Investigation and Clearing Commart? Department for further proceedings. to wit: complaint did not show clearly that Alice Maglutac was a stockholder at the time the questioned transaction occurred. . 81) Cuaderno. where the management. or other cause..failure of Alice Maglutac to exhaust intra-corporate remedies. 512. Memorandum by public respondent) legal interest. The requirement that said facts be Maglutac in favor of the corporation would be to defeat the very nature and function pleaded is merely procedural although the necessity of the existence of these of a derivative suit and render the right to institute the action illusory. p. L-22399.. Thus it was held that: corporation.. 5972. at the instance of majority A stockholder can file a derivative suit provided there is an allegation in the stockholders and directors who themselves are the persons alleged to have committed complaint that she is such at the time the acts complained of occurred. particularly paragraphs 2 to 9 under First Cause of Action. account for and to turn over or deliver to the Corporation" the aforesaid sum. 19 SCRA 671. cited in Alvendia. 1. as members of the Board of Directors to take such remedial steps as would protect the corporation from further depredation of the funds and property. This being the case. (Id. 1988. Annex 2. this petition. Did the Securities and Exchange Commission err and/or commit "grave or futile" as was the case here. to grant to Commart the right of withdrawing or dismissing the suit. the SEC correctly held that the case was a minority stockholder's Where the board of directors in a corporation is under the complete derivative suit and correctly sustained the hearing panel's denial — insofar as Alice control of the principal defendants in the case and it is obvious that Maglutac was concerned — of the motions to dismiss it. 49 Phil.5 million 2nd ed. 3) The complaint in SEC Case No.) Mere allegation therefore that complainant is still a alleged to have been diverted from its coffers to the private bank accounts of its top stockholder of Commart is sufficient to vest jurisdiction to this Commission. for a judgment in favor of the not stand in the way of equitable relief (Vol.. the principal remedy before filing this case. Asia Banking Corp.. with 10-11.. Maglutac and his wife. p. (pp. Order of Sept. the complaint is definitely a derivative suit. 512. 2673. readily shows that it avers the diversion of corporate income into the private Although complainant Alice Maglutac failed to exhaust an intra-corporate bank accounts of petitioner Jesus T. managers and directors. 19 Phil. Likewise. I. Petition) citing Everett v. 2. declines to take the proper and necessary steps to assert the corporation's rights. 361). abuses by the majority. would be to emasculate the the time the suit is brought (Hawes v. Republic Bank v. and at breaches of trust against the interest of the corporation. And equity considerations warrant the liberal interpretation of the rules of procedure to the end that technicalities should In any case. 6. et al. Indeed. 13 Fletcher 345. facts in order to give rise to the right of action is substantive (Pascual v. Commission" but complainant must prove at the time of reception of evidence that she was also a stockholder at the time the acts complained of occurred. a demand upon the board of directors to institute an action and prosecute the same effectively would be useless. 1988. (p. 49 Phil. and Republic Bank v. Civil Procedure. and (b) that grave The petitioners invoke two grounds for reversal of the Order under review thereby abuse was likewise committed in not dismissing the case on the ground that the raising these two issues. Consequently. and (b) that the mere allegation in the complaint that complainant is still a stockholder of Commart "is sufficient to vest jurisdiction to this We find the petition devoid of merit. neglect of duty. 157.1âwphi1 It is a remedy designed by equity for those situations Cuaderno. the suit is for the benefit of Commart itself.C. complainants will necessarily mean recovery by the corporation of the US$2.S. Francisco.456. First Ed.

which in this case is M. WHEREFORE. for were we to be governed by such rule. Camus. for lack of merit. Inc. 83-84. Rollo) In other words." According to petitioners. defeat complainant's claims: Jurisdiction of the court cannot be made to depend upon the pleas or defenses pleaded by the defendant in his motion to dismiss or answer. Camus. since the same can still be looked into during the hearing of a derivative suit on the merits. no real prejudice has been inflicted upon petitioners' right to be heard on this matter raised by them. the question of jurisdiction would depend almost entirely upon the defendant (Cardenas v. this being the case it is easier to believe that this so called derivative suit was filed because it is to the best interest of the company where she has a bigger and substantial interest.) But it left the door open to a further consideration of the issue by stating that complainant's ownership of majority stocks of a rival corporation could not at this stage of the proceedings. petitioners allege that private respondent Alice Maglutac "is a majority stockholder of M. Respondents' assertion in their motion to dismiss of complainant's ownership of the majority stocks of a rival corporation. There was. 5 SCRA 639). In disposing of this contention respondent SEC ruled that jurisdiction cannot be made to depend upon the pleas and defenses set up by a defendant in a motion to dismiss or answer. otherwise jurisdiction should become dependent almost entirely upon the defendant (citing Cardenas v.M. International Sales. could not at this stage of the proceedings. (pp. this Petition is DISMISSED . infra. therefore. a business rival/competitor of Commart and holds only less than one percent (1%) of the entire shareholdings of Commart.On the "conflict of interest" issue. International Sales. defeat complainant's claim. neither error nor grave abuse of discretion in the decision of the Securities & Exchange Commission not to dismiss the case but to remand it instead to the Hearing Panel for further proceedings.M.

not the corporation. DITAS A. WHEREFORE. AUGUSTO R. contracts or documents on her behalf or on behalf of others x x x. Batario. 1994 that. praying for the issuance of letters of guardianship over YU. On 16 August 1994.515 shares from the registration requirements of the Revised Securities Act. the High "At a special meeting on 07 October 1994. 116926). JOVEN and LERIOS filed a Motion to Dismiss on the following grounds: that March 25. Due to the issuance of DECISION the unsubscribed shares to the petitioner GILDA C. February 19. G.515 shares.: 62. On 18 October 1994. Jr. and that the issuance of the shares in LIMs favor was bona Petitioners seek the reversal. the Hon. LIM. The preliminary injunction previously issued is hereby LIFTED.500. with LIM ending up controlling PANGANIBAN. Demetrio M. LIM (LIM). limited however. the 15. The action was docketed as SEC Case No. or signing. fide and valid pursuant to law and LIMPANs By-Laws.[1] under Rule 45 of the Rules of Court. YU The undisputed facts are summarized by the Court of Appeals as follows: appealed LIMs appointment to the Supreme Court (Patricia C. BUNDANG. asserting as affirmative defenses that the complaint failed to state a cause of action against them. docketed as Special proceeding No. VELEZ and JAIME MANZANO).. that YU had no legal capacity to sue. On 27 February 1994. et al. [5] pointed out that LIM had previously filed a petition for guardianship before the Regional Trial Court of Manila. her attorneys.551.R. as he is hereby authorized.[G. 94-71010. and that no earnest efforts were exerted towards a reads as follows: compromise. JOVEN. 1999 Resolution[4] denying reconsideration.00 to be paid in equivalent value in shares of stock of the July 1994 both issued in SP Proceeding No. the pertinent portion of which is quoted hereunder: RESOLVED that the corporation make a partial payment [for] the legal services of (b) to ISSUE the TEMPORARY RESTRAINING ORDER prayed for. A suit to enforce preemptive rights in a corporation is not a derivative suit. (D)uring the effectivity of the temporary restraining order. 2001] RESOLVED FURTHER. It likewise issued a Investment Corporation (LIMPAN) approved a resolution of the following tenor: temporary restraining order. LIM was appointed [as] YUs general guardian. the request was granted in a Resolution dated 14 November 1994. JOVEN and DITAS A. No. respondent.. and the former took her oath as such on the same day. in her capacity as a minority stockholder of the Corporate and Legal Affairs Department of the SEC asking for the exemption of LIMPAN INVESTMENT CORPORATION. In July 1996. which affirmed the Securities and Exchange Commission (SEC). the Corporate Secretary Jaime G. all of LIMPANs authorized capital stock became fully subscribed. Manzano filed a request before vs. LIM. and there are all too encompassing and should be limited in scope and subject to the conditions being no available funds to pay the same. No. shareholder. petitioner Patricia C. set forth in the resolution of September 28. or involving the corporation to the Writ of Preliminary Injunction dated 22 August 1994 and the order dated 14 in the amount of P1. The decretal portion of the YU had no legal capacity to sue. and MANZANO filed an Answer. Judge Demetrio M. that the Corporate Secretary be authorized. a sister of the a temporary restraining order enjoining a person from representing the corporation petitioner. GILDA C. 07-95-5114. the petitioners merit. the relevant portion of which enjoined YU from entering into. LERIOS. PATRICIA LIM-YU. the private respondent PATRICIA LIM YU (YU). the Board of Directors of Limpan Court issued a Resolution giving due course to YUs petition. Statement of the Case BUNDANG. On 14 July 1994. . WILHELMINA V. WILHELMINA V. VELEZ. In turn. Hon. Batario. 46292 and of its LIM. LERIOS. of the July 31. LIM. Jr. Lim in the handling of various cases on behalf of. against JOVEN and LERIOS. Lim. Lim-Yu. et al.. to secure and comply with necessary requirements of the law for the issuance of said shares. petitioners. Thus. 94-71010 which in the opinion of the Court corporation totaling 15. judgment is hereby rendered DISMISSING the Petition for lack of In support of their ground that YU ha[d] no legal capacity to sue. 138343. the same being found to be reasonable. issued an Order. v. that the complaint failed to state a cause of action appealed Decision.R. the herein petitioners 1998 Decision[2] of the Court of Appeals[3] (CA) in CA-GR SP No. the Presiding The Facts Judge of Branch 48. representatives.5% of the shares. YU and LIM being siblings. TERESITA C. because it is instituted on behalf and for the benefit of the LIMPAN who approved the aforesaid resolution (GILDA C. filed a complaint against the members of the Board of Directors of will not bar such action. Gilda C. J.

which was denied in an Supreme Court to enforce/clarify its own resolutions/orders under the Rules of Court. In view of the conflicting interpretation of the order issued by the Supreme Court in In their Memorandum. 94. (SEC) when it upheld the SECs position that clarification of this Honorable Courts On 04 February 1994. continue the case until its final determination. The desired clarification is perceived to settle the issue of plaintiffs capacity The Honorable Court of Appeals erred in sustaining the respondents legal capacity to to file the instant action.). the Hearing Officer. under the aforesaid order. prohibit herein Respondent Patricia Lim-Yu from acting or entering into contracts on 71010. YU naturally espoused the opposite view. The appellate court stated that the TRO did not dated 14 July 1994 both issued by respondent Judge In SP Proceeding No. pending clarification thereof. Thus. Jr. and/or any person or persons. your agents. The Honorable Court of Appeals erred in disregarding the sole power/authority of the Yu filed a Motion for Reconsideration dated 08 April 1996. The root of the present controversy -- the Complaint she filed before the SEC -. this recourse. and ordering the Securities Investigation & Clearing Department (SICD) to hear the other grounds of the Motion to Dismiss and to . injustice. which reads as follows: Before this Commission is the motion to dismiss filed by respondents Gilda C. on the ground that it was filed beyond the ten-day period allowed for seeking reconsideration. A motion for reconsideration filed by enter into or sign contracts or documents solely for and on behalf of Patricia C. issued an Order dated 05 January 1996. Manuel Perea. petition for certiorari. the SEC En Banc issued the first assailed order granting the TRO was not needed in SEC Case No. representatives. You (Respondent Hon. her brothers and sisters and any family owned or controlled corporation in particular. Ruling of the Court of Appeals NOW THEREFORE. Proc. (underscoring supplied) her own behalf or from protecting her rights. x x x. Lim and Purificacion C.[7] motion to dismiss. question of the timeliness of respondents Petition for Certiorari before the SEC. YU [was] incapacitated from a shareholder. Lim.agents and any other persons assisting petitioner Patricia C. Lim will be able to act. are hereby RESTRAINED and ENJOINED from enforcing and that. et Issues al. Yu filed a Motion for Leave to Admit Second III Motion for Reconsideration dated 02 July 1996 which the Hearing Officer also denied. the instant petition for review was instituted before this Lim.. the CA ruled that adherence to strict technical rules should be relaxed to prevent palpable Acting on the petitioners Motion to Dismiss. The Honorable Court of Appeals in effect allowed the Securities and Exchange From the denial of her second motion for reconsideration. acting upon your orders or in Ruling that the Supreme Courts TRO was clear. on the filing a derivative suit. her capacity to file the suit must be sustained. Batario. Judge Demetrio M. Lim. there was no need for the hearing officer to defer carrying out the Writ of Preliminary Injunction dated 22 August 1994 and the Order ruling on the Motion to Dismiss. Order dated 25 April 1996.relates to a denial of her preemptive right as The petitioners argued that. said actions. 07-95-5114. 94-70010 regarding the legal capacity of the plaintiff [--] x x x who is allegedly under guardianship [-.to file the instant action] either or both parties are I directed to file a motion for clarification of the orders invoked by respondent Gilda C. et al. Isabelo P. L[im] having been denied. Atty. Finally. contracts or documents should not in any way bind or affect the Court. Yu filed a petition for Commission (SEC) to maintain two conflicting positions on similar matters before it certiorari before the SEC En Banc seeking to set aside the Order of 05 January 1994. the Limpan Investment Corporation. Meanwhile. the CA agreed with the SEC your place or stead.[6] interests of her parents. Lim. sue the petitioners by relying solely on the first half of this Honorable Courts TRO and without considering the second half of said TRO. No. holding in abeyance the resolution of the Hence. resolution of the pending incident shall be held in abeyance until the parties shall have secured the desired interpretation/opinion of the Supreme Court on II the matter. as well as the opposition thereto.[8] petitioners raise the following issues: Sp.

the TRO allows Respondent Patricia Lim-Yu to act for herself and to who is entitled to the avails of any judgment rendered in a suit. respondent can sell her shares to the affect the interests of her parents. representatives. Lim. Section 2 of Rule 3 of the Rules of Court[12] defines a real party in interest as one Simply put. In this light. not that of petitioners or the Corporation. or the Limpan her own behalf in order to enforce her preemptive rights. Investment Corporation. the Limpan would be quite far-fetched to say that these acts are prohibited by the TRO. SEC. The reason is that she would be acting in representation of the corporation. even if Investment Corporation. the TRO issued by this Court had two components: (1) it allowed [P]etitioner Gilda C. the real party in interest is the corporation itself. In other words. Lim. not the shareholder(s) who actually instituted it. her brothers corporation or make a will and designate her parents.[10] In a derivative action. the main issue is whether respondent had the legal capacity to file committed against it. The act of filing the suit did not in any way bind the corporation. The Petition has no merit. all that is prohibited is barred her from filing that suit. a suit for the alleged violation of her preemptive rights to purchase additional July 1994 both issued in SP Proceeding No. The result of Patricia C. the TRO did not prohibit respondent from filing. which has been defined as an action brought by minority shareholders in the name of the corporation to redress wrongs Simply put. taken as a whole. her attorneys. respondent was. any action that will bind them. then respondent may not have the capacity to sue. however. but. The others are merely incidental to this main point. was prohibited from doing anything that would bind the corporation or follows: any of the above-named persons. they will definitely affect the corporation and her parents. it did not restrain respondent from acting and are all too encompassing and should be limited in scope and subject to the conditions enforcing her own rights. said actions. Isabelo P. they claim that the TRO. she was suing on her own behalf. out of a desire to protect and preserve her only the first part of the Supreme Court TRO and completely ignored the second preemptive rights. it is clear that respondent was suing on representation of or for the benefit of her parents. Temporary Restraining Order. for which the directors refuse to sue. contracts or documents should not in any way bind or such act affected it. . 1994 that. Petitioners describe it as a derivative suit. In other words. that the suit of respondent cannot be characterized as derivative. or Limpan. The pertinent portion of the TRO issued by this Court reads as exception. Lim from further voting or exercising any and all rights arising respondent to enter into agreements on her own behalf. It merely barred her from acting in representation of the set forth in the Resolution of September 28. Nothing.Similarly. brothers or sisters. She was therefore not acting for the benefit of the corporation. as an We do not agree. The Honorable Court of Appeals failed to consider that herein respondent had been There appears to be a confusion on the nature of the suit initiated before the repeatedly and notoriously guilty of laches. However. an act which the TRO enjoins her from doing. In the present case. Lim will Petitioners fail to appreciate the distinction between the act itself and its net be able to act.IV. Supposedly. Lim. she cannot transact in benefited or injured by it. 94-71010 which in the opinion of the Court stock subscriptions. It is a remedy designed by her Complaint before the SEC. Hence. on and in her own to the Writ of Preliminary Injunction dated 22 August 1994 and the Order dated 14 behalf. petitioner Patricia C. In short. proscribed respondents derivative suit. The Courts Ruling If the suit filed by respondent was indeed derivative in character. Quite the Petitioners point out that both the SEC and the Court of Appeals considered contrary. as beneficiaries. brothers or sisters. Lim and Purificacion C. We hold.515 shares of stock of the corporation. for example. which sought to enjoin herein To repeat. (b) to ISSUE the TEMPORARY RESTRAINING ORDER prayed for. It and sisters and any family owned or controlled corporation in particular. however. not the TRO. Contrary to what petitioners suggest. as a rule. equity and has been the principal defense of the minority shareholders against abuses by the majority. enter into or sign contracts or documents solely for and on behalf of result. she can act only on and in her own behalf. [9] respondents acts could not bind or affect the interests of her parents. limited however. would affect her family and the corporation. the TRO did not prevent her from pursuing that part. [11] She was merely praying that she be allowed to subscribe to the additional issuances of stocks in proportion to her shareholdings to enable her to preserve her percentage of ownership in the corporation. the latter part barred respondent from entering into agreements that action. because she was complaining only of the violation of her First Issue: Legal Capacity to Sue preemptive right under Section 39 of the Corporation Code. and (2) it clarified that from the issuance to her of 15. agents and any other persons assisting petitioner Patricia C. (D)uring the effectivity of the corporation. or who stands to be enter into any contract on her own behalf.Unquestionably. allowed to act.

the hearing officer was duty-bound to do so. They point out that she filed a Motion for Reconsideration of the SEC hearing officers Order almost four months late. Second. Order. In such instances. They cite Philippine Commercial International Bank v. shall not be bound strictly by the doctrine of laches. to shirk from the responsibility of applying and interpreting it. as granted by the Constitution.[15] Hence. even assuming that there was a need to interpret the TRO. First. They may be the subject of the Courts review in accordance with the applicable provisions of the Rules of Court. If parties disagree with the SEC. only for application. Petitioners do not claim that the factual milieu of the former is similar to that of the latter. [21] To rule that respondent can no control and to clarify its own orders. 135. the mandate to apply and interpret pertinent laws and rulings is necessarily included in the adjudicative functions [16] of the SEC or of any other quasi-judicial body for that matter. there was no reason for the SEC hearing WHEREFORE. longer question the hearing officer would deprive her of the opportunity to sue in order to enforce her preemptive rights. the TRO was TRO. In any event. It has been held that it is the better rule that courts.[17] Verily. or any regular court or judge. docketed as SEC En Banc Case No. as stated earlier. Aquaventures Corporation. they can file the proper suit in a regular court in accordance with law. an act that is not proscribed by this Courts The argument must be rejected outright. very clear.[20] officer was bound to interpret the Supreme Courts order instead of burdening [it] with the responsibility of clarifying what already appears to be a clear order. 455. They further allege that it took her another two and a half months to file a Petitioners also assail the ruling of the Court of Appeals that the SEC hearing Motion for Leave to Admit Second Motion for Reconsideration. the Petition is hereby DENIED and the assailed officer to rely on the rules of statutory construction or for this Court to clarify its Decision AFFIRMED. they are neither binding nor conclusive on appeal. In any event. the power of this Court to clarify its own orders does not divest the SEC of its function to apply those orders to cases before it. the seeming obscurity or ambiguity of a TRO is not an excuse for a quasi-judicial body. Moreover. Indeed. .[18] Alleged Conflicting Positions of the SEC Petitioners further contend that the CA effectively allowed the SEC to maintain contradictory positions on similar matters. in which the SEC referred a TRO to this Court for clarification. The alleged contradictory SEC ruling in the said case is irrelevant and unnecessary to the resolution of the present one. Citing We reject this argument. [19] This argument is untenable. the actions of the SEC in the above-mentioned case have not been put at issue by the proper parties in these proceedings. it was axiomatic that there was no need for interpretation.[14] petitioners contend that the ruling disregarded the Supreme Courts power to when a manifest wrong or injustice would result. Section 5 (5) of Article VIII[13] of the Constitution and Section 5 of Rule under the principle of equity.Incidental Issues Laches Power to Clarify Own Resolutions Petitioners further contend that the CA failed to appreciate that respondent had been repeatedly and notoriously guilty of laches.

Pimentel filed with the Commission an sentenced of the section above quoted. are demanded from the latter the production. The second power representative. creating the Securities and record of all business transactions. for examination. may conduct such Nieves G. of the books and records of transferred to the securities and Exchange Commission and the Budget Commissioner accounts specified in the subpoena issued on December 20. Under section of Commonwealth Act The present proceeding was thereupon filed with the Court of First Instance of No. again refused to comply with the requirement. Inc. . which requires corporations to "keep and carefully preserve a Commonwealth Act Numbered Eighty-three. that court rendered a connection with the registration of corporations and all other forms of association. 287 which provides as follows: Assistant Solicitor General Francisco Carreon and Solicitor Meliton G. directing the trial examination. as well as upon section 2 of said opposition to the order of December 13. delos Reyes filed with the Securities and Exchange investigation as it may consider necessary: Provided. de los personnel of the Bureau of Commerce relating to the registration of the corporations Reyes with the Securities and Exchange Commissions tend to show that the and associations have been transferred to the Securities and exchange Commission. through its duly authorized representatives. refers only to matters relating to the registration of control and possession of Marcos Pimentel. a subpoena duces tecum commanding Marcos Pimentel to deliver to Respondent-appellant contends that the power conferred upon the Securities and the office of the Commission on December 21. 1948. and such the Commission directed compliance with any lawful.: Commission shall be changed with the enforcement of all laws affecting corporations and associations. that the power to investigate a violation of section 51 of the Corporation law is vested in or exercise by another bureau or office. 1948. Soliman for appellee. president conferred shall in no manner affect the power now exercised by government and treasurer respectively of the International Colleges. and Lopez for appellant. In the exercise of the inclined to believe that the complaint involved a violation of Section 51 of the power of investigation. requirement of its chief personnel of the aforesaid Bureau as is now discharging the function and performing examiner designated to conduct the trial examination. specified in the subpoena and under the corporations and associations. 287. 1948. Villaflores. the books and Exchange Commission by Commonwealth Act No. and to this end. The latter refused and failed to comply corporations and all others forms of associations. duties and functions now vested in. the books is plainly unqualified and district from the powers transferred from the Bureau of and records of accounts specified in the subpoena issued on December 20. and reliance is placed upon the first and. L-4228 January 23. in which files of the Bureau of Commerce relating to corporations and associations. files and There is no question that the charges filed by Nieves G.G. he and Julia B. Manila by the Securities and Exchange Commission which prayed the court to declare duties and function therefore performed and exercise by the Bureau of Commerce in Marcos Pimentel in contempt of the Commission. and ordering said respondent to produce before the Commission or its officer over certain classes of corporations shall remain unsatisfied. plus the associations. with the exception that the power now exercised by other bureaus of costs. on December 23. Commission predicates its power to order the trial examination in question upon MARCOS PIMENTEL. Inc." it ordered on December 13. respondent-appellant. From commerce to the Securities and Exchange Commission. 1948. As the Commission was bureaus or offices over certain classes of corporations. Inc. the the duties of the Bureau of Commerce in connection of with the registration of representative of the Commission went to the office of Marcos Pimentel and corporation and association. records. the Commission.. but Marcos Pimentel shall make immediate provision for such transfer. On January 18. applicable.000. The fact that only the records. 1948. petitioner-appellee. and opposition was overruled by the Commission in its order of January 11. Argonza and Placida G. 287 to enforce all laws affecting records of the International Colleges. Argonza and Placida G. in the morning. Appellants contention is clearly without merit. and it is not here pretended this decision respondent Marcos Pimentel has appealed. section 1 of the Commonwealth Act No. The Securities and Exchange PARAS. the provisions of section thirty-one of Corporation Law. 287 which provides that "All books. Pimentel.R. by. with subsidiary imprisonment in case of insolvency. together with the corresponding appropriations. and Julia B. 1949. 1952 International Colleges. Accordingly. No. the Securities and Exchange Commission is (1) entrusted with the powers. Inc. at any time and place to be designated by the Commission. issued on December 20. C. including the penalties therein provided. of which the respondent is the president. The Securities and Exchange vs. committed a violation of Section 51 of the Corporation Law which requires corporations to keep SECURITIES AND EXCHANGE COMMISSION. After hearing..J. or performed and exercised Avena. That the power herein Commission certain charges against Marcos Pimentel. 1948. The powers. shall be examination of the books and records of accounts of the International Colleges. 1948. a trial Exchange Commission. 1949. and preserve a record of all business transactions. documents. the Bureau of Commerce in connection with the registration of corporations and all other forms of association are transferred to the Securities and Exchange Commission. decision finding respondent Marcos Pimentel guilty of contempt and imposing upon and (2) charged with the enforcement of all laws effection corporation and him a fine of P50. This Commonwealth Act No.

inconvenience or confusion. There is no reason for supposing. it is not even suggested that the function being exercised by the commission in this case pertains to another bureaus or office. that to interpret Commonwealth Act no." At any rate. under section 51 of the Corporation Law. Respondent-appellant contends that. .does not proved that the new power vested in the Commission to enforce all laws affecting corporations has reference merely to registration. de los Reyes (who are not stockholders) to examine the records of the International Colleges. the appealed decision is affirmed with costs. We can not agree. since no claim is made that the Bureau of Commerce is presently charged with said duty. have been easily forcetailed by Commonwealth Act No. So ordered. Possible clashes or overlapping of functions and powers. said power is not exclusive and not impair the function of the Securities and Exchange Commission under Commonwealth Act No. Wherefore. and it is to be presumed that the Commission will perform its duty ligitimately. and not merely as regards matters of registration. 287 in relation to the enforcement of all laws effecting corporations and associations. since the examination would be carried out by the Securities and Exchange Commission under the authority confered by law. While the President possesses the visitorial power over any corporation (secs. corporation Law). and that there are diverse laws pertaining to corporations which are enforce actually by other bureau and instrumentalities of the Government. only stockholders on officer of the corporation is the right to inspect or examine its books. which may lead to absurdity. as respondent-appellant does. Argonza and Placida G. would lead to absurb results. Inc. 54-55. and that to permit the examination in question would be an indirect way of permitting Nieves G. 287 as conferring upon the Securities and Exchange Commission the duty of enforcing all laws effecting corporations generally. 287 by providing that the authority newly confered upon the Securities and Exchange commission "shall in no manner affect now the power now exercised by government bureaus of offices over certain classes of corporations. Respondent-appellant also agues that only the President of the Philippine can order the investigation of the corporation on which violates section 51 of the Corporation Law.

stockholder of petitioners. Inc. respondent Redmont Consolidated Mines Corp. financial or Corporation (MMC) and. (MBMI). Petitioner Narra acquired its MPSA from Alpha Resources and Development Additionally. Through the said application. Redmont argued that given that petitioners’ capital stocks were mostly The Facts owned by MBMI. Palawan.782 undertake mineral resources development and duly registered in accordance with law hectares in Barangay Sumbiling.R. Philippines: Provided.G.402 hectares in Barangays NARRA NICKEL MINING AND DEVELOPMENT CORP. participate in mining activities through corporations which are deemed Filipino citizens. Subsequently. Redmont alleged that at least 60% of the capital stock of McArthur. Province of Palawan. Respondent.. Tesoro and Narra are owned and controlled by MBMI Resources. shall mean: Petitioner McArthur. Province of Palawan and at least sixty per cent (60%) of the capital of which is owned by citizens of the EPA-IVB-44 which includes an area of 3. JR.720 hectares in Barangay Malatagao. (McArthur). VELASCO. REDMONT CONSOLIDATED MINES CORP. On January 2. Redmont filed before the Panel of Arbitrators (POA) of the DENR DECISION three (3) separate petitions for the denial of petitioners’ applications for MPSA designated as AMA-IVB-153. they were likewise disqualified from engaging in mining activities through MPSAs. a Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra 100% Canadian corporation. PLMDC conveyed. AFTA-IVB-08 for Tesoro and AFTA- DENR on January 6. 1992. Petitioners. the following applications of petitioners Narra.: In the petitions. Redmont reasoned that since MBMI is a considerable Nickel and Mining Development Corp. Municipality of Narra. After 3(aq) of Republic Act No. labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3.277 hectares in barangays Calategas and San Isidro. they stated that their nationality as applicants is immaterial because Corporation and Patricia Louise Mining & Development Corporation (PLMDC) they also applied for Financial or Technical Assistance Agreements (FTAA) which previously filed an application for an MPSA with the MGB. or a corporation. They asserted that though MBMI owns 40% of the shares of PLMC . INC. As used in and for purposes of this Act. SMMI AND DEVELOPMENT. Region IV-B. 2014 Another MPSA application of SMMI was filed with the DENR Region IV-B. TESORO MINING Malinao and Princesa Urduja. Tesoro and McArthur. 2011 Resolution of the Court of Appeals (CA). Region IV-B. (RA) 7942 or the Philippine Mining Act of 1995 which inquiring with the Department of Environment and Natural Resources (DENR). Tesoro Mining and Development. partnership. 3 Definition of Terms. 2010 Decision1 and the February 15. Sometime in December 2006. Municipality of Bataraza.. subsequently conveyed. and McArthur Mining Inc. on November 6. (Narra). Office of the Department of Environment and Natural Resources (DENR). No. terms.. Nevertheless. J. petitioners averred that they were qualified persons under Section took interest in mining and exploring certain areas of the province of Palawan. which are granted to foreign-owned corporations. (aq) "Qualified person" means any citizen of the Philippines with capacity to contract. of the Philippines. denominated as AFTA-IVB-09 for McArthur. which seeks to reverse the October MPSAs over the areas covered by applications since it knows that it can only 1. it was the driving force behind petitioners’ filing of the (Tesoro). assigned to petitioner McArthur. MPSA application to Tesoro.. 195580 April 21. In their Answers. Palawan. Tesoro Municipality of Narra. AMA-IVB-154 and MPSA IV-1-12. the DENR issued MPSA-IV- IVB-07 for Narra. they claimed that the issue on nationality should not be raised since McArthur. it provided: learned that the areas where it wanted to undertake exploration and mining activities where already covered by Mineral Production Sharing Agreement (MPSA) Sec. That a legally organized foreign-owned corporation shall be Bataraza. 1-12 covering an area of 3. through its predecessor-in-interest Sara Marie Mining. with technical and financial capability to Subsequently. xxxx (SMMI). which are reserved only for Filipino citizens. association.. 2006. 2007. Inc. 2 technical assistance agreement or mineral processing permit. Inc. a domestic corporation organized and existing under Philippine laws. filed an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB). (Redmont). transferred and assigned its rights and interest over the said vs. SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1. and MCARTHUR MINING. transferred and/or and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens assigned its rights and interests over the MPSA application in favor of Narra. whether in singular or plural. The MPSA and EP were then transferred to Madridejos Mining deemed a qualified person for purposes of granting an exploration permit. or cooperative organized or authorized for the purpose of engaging in mining. INC.

on September 22. 77 of RA 7942. the POA issued a Resolution disqualifying petitioners from gaining MPSAs. considered if and when they are qualified under the law. In the same Resolution. Subsequently. there is reason to believe that the cancellation and/or revocation of reliefs. Redmont filed before the RTC a (MAB) while Narra separately filed its Notice of Appeal10 and Memorandum of Supplemental Complaint21 in Civil Case No. 08-63379. Redmont prayed for the deferral of an EPA over the areas earlier covered by the MPSA application of respondents may be the MAB proceedings pending the resolution of the Complaint before the SEC. the MAB issued an Order on September 10. 08-63379. Branch 92 (RTC) a Complaint16 for injunction with application for [I]t is clearly established that respondents are not qualified applicants to engage in issuance of a temporary restraining order (TRO) and/or writ of preliminary mining activities. while Tesoro’s MPSA application was shares of McArthur)4 and 40% of the shares of SLMC (which. through a letter. Thereafter. the capital stock of each of petitioners. and Narra’s FTAA was converted to shares of Tesoro). it gave due course to Redmont’s EPAs. petitioners emphasized that they are qualified preliminary injunction enjoining the MAB from finally disposing of the appeals of persons under the law. 2008. McArthur and Tesoro filed a joint Before the MAB could resolve Redmont’s Motion for Reconsideration and Notice of Appeal8 and Memorandum of Appeal9 with the Mines Adjudication Board Supplemental Motion for Reconsideration. and its Order dated 07 February 2008 denying the Motions for Inc. Also. 2008 Order of the MAB. WHEREFORE. 17 Their Mineral Production Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND VOID.(which owns 5. they stressed that Redmont has no foreign-owned or controlled corporations engaged in mining in violation of Philippine personality to sue them because it has no pending claim or application over the areas laws. DISQUALIFIED for being considered as Foreign Corporations. 2008. McArthur’s FTAA was Supplement Motion for Reconsideration of the MAB’s September 10. the RTC issued an Order 22 granting the issuance of a writ of In their respective memorandum. Redmont filed RA 7042 or the Foreign Investments Act of 1991. The Petition filed by Redmont Consolidated Mines Development Corp. Meanwhile. 2008. on February 7. Corporation on 02 January 2007 is hereby ordered DISMISSED. the Mines Adjudication Board hereby xxxx 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.5 the shares of MBMI will not make it the owner of at least 60% of AFTA-IVB-0714 on March 30. 2001-01. on September 8." embodied in Sec. 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 The POA considered petitioners as foreign corporations being "effectively controlled" writ of preliminary injunction on September 19. Appeal. It held: other qualified applicants. 2007. Tesoro Mining and Development. it filed a Supplemental petitioners. Aggrieved by the Resolution and Order of the POA. 2008.6 Belatedly.. and Narra Nickel Mining and Reconsideration of the Appellants. Thereafter. the POA issued an Order7 denying the Motion for Reconsideration filed by the September 10. 2008. as. docketed as Civil Case No. On the other hand. Motion for Reconsideration20 on September 29. Redmont filed a Motion for Reconsideration 19 of 2008. 3 of Pending the resolution of the appeal filed by petitioners with the MAB. They added that the best tool used in determining the nationality of a corporation is the "control test. The violation of the requirements for the issuance and/or grant of permits over mining areas is clearly But before the RTC can resolve Redmont’s Complaint and applications for injunctive established thus. on September 16.997 denominated as AFTA-IVB-0912 on May 2007. McArthur Mining and 2007-03. Redmont filed on September 1. On December 14.11 On October 6.3 40% of the shares of MMC (which owns 5. 2008. Inc. they informed the MAB that they had petitioners and from resolving Redmont’s Motion for Reconsideration and their individual MPSA applications converted to FTAAs.997 converted to AFTA-IVB-0813 on May 28. 2008 Resolution. owns 5.. Suspend Proceeding before the MAB praying for the suspension of the proceedings on the appeals filed by McArthur. [Redmont] having filed its own applications for injunction. It held: Subsequently. a 100% Canadian company and declared their MPSAs null and void. 2007-02 WHEREFORE. Tesoro and Narra. Finally. seeking the DENR did not have jurisdiction over the issues in Redmont’s petition since they are revocation of the certificates for registration of petitioners on the ground that they are not enumerated in Sec. 2008 a Manifestation and Motion to applied for by petitioners. in view of the foregoing. .997 shares of Narra). finding the appeal permits already issued under the premises is in order and open the areas covered to meritorious. 2007. in turn. 2006. They also claimed that the POA of a Complaint15 with the Securities and Exchange Commission (SEC). by MBMI. 2008. Redmont filed before the Regional Trial Court of Quezon City. the Panel of Arbitrators finds the Respondents.

in affirming CA used the "grandfather rule" to determine the nationality of petitioners. of agreed with the POA’s estimation that the filing of the FTAA applications by which belong to Filipino citizens. MBMI. or privies-in-interest of. Tesoro and Narra the rejection of petitioners’ MPSA applications by the Secretary of the DENR. however. It also corporation or partnership at least 60% of the capital stock or capital. Inc. are foreign corporations is upheld and. Tesoro and Narra as foreign corporations. adopting the 1967 SEC Rules which implemented the requirement of the the Small Scale Mining Law and Environmental Compliance Certificate as well as Constitution and other laws pertaining to the exploitation of natural resources. it recommended Environment and Natural Resources that respondents McArthur. joint venture or production-sharing Financial or Technical Assistance Agreement (FTAA) or conversion of their MPSA agreements" of the state to mining rights. the CA upheld the findings of the POA in its December 14. 020. Pursuant to the first FTAAs. 2011.000 shares are registered in the name of a applied for an MPSA application which was eventually transferred to Narra. the Sections 3 and 8 of the Foreign Investment Act and E. Tesoro and Narra are also in partnership with. 2007 Resolution which considered petitioners McArthur. 2008 and July 1. appeals filed by petitioners. or say. The assailed Orders. The CA found that through a "web of issued by the MAB. but if the focusing on the alleged misrepresentation and claims made by petitioners of being percentage of Filipino ownership in the corporation or partnership is less than 60%. But if less than 60%. the rejection of their applications for Mineral Product Sharing Agreement should be recommended to the Secretary of the With regard to the settlement of disputes over rights to mining areas. rejection of the MPSAs. the dispositive of corporate layering. SO ORDERED. Using the grandfather rule. 2007 Order of the POA is owned by Filipino citizens shall be considered as of Philippine nationality. it concluded that petitioners McArthur. the CA pointed DENR. 2011. the CA found that there was doubt as to the While the petition was pending with the CA. MBMI. 50% of the capital stock or capital of the mining operation and that they need the financial and technical assistance of a foreign corporation or partnership. McArthur."28 The Decision further quoted: . Tesoro and Narra are void is highly improper. 2010.000 entity in their operation. the CA denied the Motion for Nevertheless. WHEREFORE.On July 1. The Decision further quoted the December 14. Thus.23 Finally. therefore. respectively. that is why they sought the participation of MBMI shares shall be recorded as belonging to aliens. 2009. the CA looked into their corporate for Reconsideration and Supplemental Motion for Reconsideration and resolving the structures and their corresponding common shareholders. a corporation composed of 100% Canadians. It provided: the cancellation of the issued FTAAs. only 50. agreed with Redmont stating that petitioners committed violations against the abovementioned laws and failed to submit evidence Shares belonging to corporations or partnerships at least 60% of the capital of which to negate them. In a Resolution dated February 15. 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 With respect to the applications of respondents McArthur. the CA viewed the conversion of the MPSA applications of petitioners and set aside. it is clear that one common controlling investor in all mining which reads: corporations involved x x x is MBMI. the CA determined that the POA’s declaration that the MPSAs of Reconsideration filed by petitioners. It stipulated that only the Secretary of the DENR is vested with the power to approve or reject applications for MPSA. if 100. belongs to Filipino citizens. 24(emphasis supplied) Resources. The OP rendered a Decision26 on April 6. the MAB issued a second Order denying Redmont’s Motion In determining the nationality of petitioners. it also stated that the POA’s applications to FTAA." 27 The OP. as a consequence. the matter for its rejection or approval is left for determination jurisdiction is limited only to the resolution of the dispute and not on the approval or by the Secretary of the DENR and the President of the Republic of the Philippines. The findings of the Panel of Arbitrators of the Department of into FTAA applications suspicious in nature and. the petition for review filed by Redmont before the CA."25 Thus.O. domestic or Filipino corporations and the admitted continued mining operation of only the number of shares corresponding to such percentage shall be counted as of PMDC using their locally secured Small Scale Mining Permit inside the area earlier Philippine nationality. dated September 10. all of the shares shall be recorded as owned by petitioners is a clear admission that they are "not capable of conducting a large scale Filipinos. Redmont filed with the Office of the nationality of petitioners when it realized that petitioners had a common major President (OP) a petition dated May 7.] 2005. wherein it canceled and sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. the CA rendered a Decision. Tesoro and Narra for the conferring of rights to "co-production. 2009 of the Mining Adjudication Board are reversed Furthermore. 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 Hence. 2010 seeking the cancellation of petitioners’ investor. After a careful review of the records. 584. respectively. On October 1. assailing the Orders petitioners through joint venture agreements. However. Series of revoked petitioners’ FTAAs for violating and circumventing the "Constitution x x x[. the Petition is PARTIALLY GRANTED.

1. We of this Court the express mandate of the Foreign Investments Act of 1991.R. and IV. docketed as CA-G. Basically. 4. 2010 Decision of the CA. particularly All of the exceptions stated above are present in the instant case."33 the same have already been granted. a case is said to be moot and/or academic when it "ceases to present a The Court of Appeals erred when it did not dismiss the case for mootness justiciable controversy by virtue of supervening events. the MPSA would be of no practical use or value. The "mootness" principle. and note that a grave violation of the Constitution. only demonstrate the violations and lack of qualification of the respondent corporations to engage in mining. the bar. furnished its VI. Macapagal-Arroyo (David). specifically Section 2 of Article XII. stockholders in their head office in Canada suggest that they are conducting operation only through their local counterparts. is the FIA Rules. allegedly. so that a declaration thereon despite the fact that the subject matter of the controversy. This case not moot and academic Thus. have already been converted into FTAA applications and that over the case or dismiss it on the ground of mootness. Corporate documents of MBMI Resources.) The exceptional character of the situation and paramount public interest is involved.29 The Court of Appeals erred when it concluded that the conversion of the MPSA Applications into FTAA Applications were of "suspicious nature" as The Motion for Reconsideration of the Decision was further denied by the OP in a the same is based on mere conjectures and surmises without any shred of Resolution30 dated July 6. 2007. this Court which is now pending with a different division. thus: 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. In the CA Decision dated February 29.34 The Court of Appeals’ ruling that Narra.) The case is capable of repetition yet evading review. 2012."32 Thus. Petitioners put forth the following errors of the CA: The claim of petitioners that the CA erred in not rendering the instant case as moot is without merit. is of . The filing of the FTAA application conversion The Court of Appeals erred when it applied the exceptions to the res inter which is allowed foreign corporation of the earlier MPSA is an admission that indeed alios acta rule. during the pendency of the case V.) When constitutional issue raised requires formulation of controlling principles to guide the bench. Inc. the CA affirmed the Decision and Resolution of the OP. 2011. The Court of Appeals erred when it did not dismiss the case on account of Redmont’s willful forum shopping. however. 2. being committed by a foreign corporation right under our country’s nose through a myriad of corporate layering under different. 120409. 3. Thereafter. the courts "generally decline jurisdiction Applications. petitioners appealed the same CA decision to We find the petition to be without merit.) There is a grave violation of the Constitution.The filing of the FTAA application on June 15. The intricate corporate layering utilized by the Canadian company. and the public. Tesoro and McArthur are foreign corporations based on the "Grandfather Rule" is contrary to law. SP No. the respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. as amended. the Court provided four instances where courts can decide an otherwise moot case. does accept certain exceptions and the mere II. raising of an issue of "mootness" will not deter the courts from trying a case when there is a valid reason to do so. MBMI. Filipino corporations. In David v. III.31 Certiorari of the OP’s Decision and Resolution with the CA. Petitioners then filed a Petition for Review on evidence to show the same. I. Tesoro and McArthur. the instant petition for review against the October 1.

In their Reply. 2011. 2011 denied their motion for being a mere "rehash of their claims and not stem from the case challenging their citizenship and to have the case dismissed defenses.O. petitioners elevated the case to us the case dismissed against them for being "moot. Inc. can keep on utilizing dummy Filipino corporations corporations to engage in mining. On April 5. 2010. Petitioners filed a Manifestation and Submission dated October 19. 2011. 2012. Inc. 05-2010-IVB. the bar and the x x x The filing of the FTAA application on June 15. Petitioners propound that the CA erred in ruling against them since the reversing and setting aside the September 10. in its December 14. MBMI."38 Standing firm on its Decision. The corresponding actions stockholders who only have a less substantial financial stake in the corporation. Redmont filed the POA and stating that petitioners are foreign corporations since they needed the three separate petitions for denial of the MPSA applications of petitioners before the financial strength of MBMI. Court the fact of the OP’s Decision and Resolution. Inc. since the case only demonstrate the violations and lack of qualification of the respondent Canadian company. 37 We disagree. petitioners chose to The participation of MBMI in the corporation only proves the fact that it is the ignore the OP Decision and continued to reuse their old arguments claiming that they Canadian company that will provide the finances and the resources to operate the were granted FTAAs and. 2007. the OP issued a Resolution. 2010. the instant case is capable of repetition yet evading review. 2007. the CA rendered a Decision which partially granted the petition. petitioners filed a conversion of their MPSA applications to The OP Decision also based the cancellation on the misrepresentation of facts and the FTAAs. In the said Decision. hence. 2011. then President Gloria respondent is on point. 2008 and July 1. With respect to the FTAA applications or conversion of the MPSA since it is based on mere conjectures and surmises and not supported with evidence. DENR. 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. 2011. However. What is the reason for such conversion? Did the said conversion February 15. the case was moot."35 Finally. 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 Respondent Redmont. 2010. in fact. observed this suspect change violation of the "Small Scale Mining Law and Environmental Compliance Certificate of applications while the case was pending before it and held: as well as Sections 3 and 8 of the Foreign Investment Act and E. petitioners would want us to correct the CA’s finding rejection of their MPSA applications were recommended to the Secretary of the which deemed the aforementioned conversions of applications as suspicious in nature. petitioners prayed for the The CA’s analysis of the actions of petitioners after the case was filed against them by dismissal of the petition asserting that on April 5. thus. in order to conduct large scale mining operations. in truth. POA." via a Petition for Review on Certiorari under Rule 45. the CA affirmed the ruling that petitioners against them for being "moot"? It is quite obvious that it is petitioners’ strategy to have are. 2009 Orders of the questioned MPSA applications were already converted into FTAA applications. the respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. which another just because a case was filed against them. The filing of the FTAA application conversion through various schemes of corporate layering and conversion of applications to skirt which is allowed foreign corporation of the earlier MPSA is an admission that indeed the constitutional prohibition against foreign mining in Philippine soil. quoting the Order of by the court or appropriate government agency: on January 2. furnished its Conversion of MPSA applications to FTAA applications stockholders in their head office in Canada suggest that they are conducting operation only through their local counterparts. Corporate documents of MBMI Resources. would raise not a few rendered the petition moot and academic. made known to the in their operation that is why they sought the participation of MBMI Resources. On June 15. Also. The changing of applications by petitioners from one type to Macapagal-Arroyo signed and issued in their favor FTAA No. foreign corporations. denying the Motion for Reconsideration filed by the petitioners. the CA upheld the findings of the POA of the DENR that the issue on the prohibition relating to MPSA applications of foreign mining the herein petitioners are in fact foreign corporations thus a recommendation of the corporations is academic. the CA. 2007. 2007 Resolution."39 On July 6.36 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 On October 1. the CA deferred the matter for the determination of the Secretary of the DENR and the President of the Republic of the Philippines. the OP rendered a Decision dated April 6. thus. the disposition of the issues or errors in the instant case will serve as a guide "to the bench. applications. The POA. Interestingly. No definite ruling on such xxxx principle has been pronounced by the Court. cancelling and revoking the FTAAs. a day after this Consider the history of this case and how petitioners responded to every action done petition for review was filed. in a Resolution dated sceptics’ eyebrows. In their Motion for Reconsideration dated October 26. questioning the Decision of the CA. applications to FTAAs. during the pendency of the public.exceptional character and involves paramount public interest since it undeniably mining areas for the greater benefit and interest of the same and not the Filipino affects the exploitation of our Country’s natural resources. 584.40 wherein they asserted that the present . in its Comment dated October 10. MAB.

as belonging to aliens. petitioners were constant in advocating the The only thing clear and proved in this Court is the fact that the OP declared that application of the "control test" under RA 7042. it is quite evident that petitioners have been trying to have this case dismissed corporations or partnerships at least 60% of the capital of which is owned by Filipino for being "moot. "if the percentage of the Filipino ownership in the corporation or interest by MBMI will not change the stand of this Court with respect to the partnership is less than 60%. shares shall be counted as owned by Filipinos and the other 50. 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 Basically. only proves that the liberal rule. until they submitted their Manifestation and percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided. Thus. 020. respectively. literal meaning of the statute meant the application of the control test Philippine nationality.petition is moot since. Petitioners is owned by Filipino citizens shall be considered as of Philippine nationality. at least sixty percent (60%) nationality of petitioner corporations. power to verify. of which belong to Filipino citizens. construing it and prevent the court’s use of discretion in applying the law.As used in this Act: 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. if 100. Paragraph 7 of DOJ Opinion No. 3 of the FIA Shares belonging to corporations or partnerships at least 60% of the capital of which admits the application of a "corporate layering" scheme of corporations. percentage shall be counted as Philippine nationality. But if less than 60%." pertains to the control test or shares and interest in the petitioner "holding companies" to DMCI. wherein MBMI was able to allegedly sell/assign all its citizens shall be considered as of Philippine nationality. Filipino owned. corporation or partnership at least 60% of the capital stock or capital. in a remarkable turn of events."41 They also opined that the last portion of Sec. Further. a Grandfather test 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 The main issue in this case is centered on the issue of petitioners’ nationality. Definitions. considered a Philippine national. respectively. as amended by RA 8179. "Corporate layering" is admittedly allowed by the FIA. making their respective corporations fully. demonstrating that petitioners are not beyond going against or around the law using shifty actions and strategies. The first part of paragraph 7.) The term Philippine national shall mean a citizen of the Philippines. They further claim that the grandfather rule "has been abandoned and is no longer the applicable rule. Thus. (emphasis supplied) 020. the . has no leg to stand on in the instant case enterprises engaged in the exploitation of natural resources owned by Filipino since the definition of a "Philippine National" under Sec. all of the shares shall be recorded as owned by We disagree.000 shall be recorded a Filipino corporation and. Thus. there are two acknowledged tests in determining the nationality of a the members of the Board of Directors. adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws pertaining to the controlling interests in The grandfather rule. DOJ Opinion No. belongs to Filipino citizens. On the other hand. provides: for it. Series of 2005. Submission dated October 19. 3 of the FIA provides: revocation of the said FTAAs. Prior to this recent change of events. more The new documents filed by petitioners are factual evidence that this Court has no stringent grandfather rule. whether by Filipinos or a trustee of funds for pension or other employee retirement or Filipino or foreign. 50% of the capital stock or capital of the circumvent the Constitution and pertinent laws. but if the claim that the clear and unambiguous wordings of the statute preclude the court from percentage of Filipino ownership in the corporation or partnership is less than 60%. the second part of the DOJ Opinion which they were in fact not Filipino corporations from the start. in this instance. in effect. SECTION 3. but if it is used to Filipinos. or say. In their previous petitions. where the trustee is a Philippine national and at least sixty they were Filipino corporations. only 50. or a domestic partnership or association wholly owned by the citizens of the Philippines. rather than using the stricter misrepresentations and falsehood in their applications for FTAA which lead to the grandfather rule. . The pertinent provision under Sec. They said only the number of shares corresponding to such percentage shall be counted as of that the plain. 3 of the FIA does not provide citizens. there is a need to determine the and Exchange Commission (SEC) registered enterprise. in order that the corporation shall be corporation: the control test and the grandfather rule. MBMI was able to sell/assign all corporation or partnership." Their final act." pertains to the stricter. only the number of shares corresponding to such nationality of petitioners prior the suspicious change in their corporate structures. stating "shares belonging to Again. petitioners reasoned. The recent divesting of provides. 2012 where they stated the alleged change of corporate That were a corporation and its non-Filipino stockholders own stocks in a Securities ownership to reflect their Filipino ownership. otherwise petitioner corporations have violated several mining laws and made known as the Foreign Investments Act (FIA). then it becomes illegal. they had been adamant in insisting that separation benefits. a.000 shares are registered in the name of a is obligatory.000 its shares/interest in the "holding companies" to DMCI Mining Corporation (DMCI).

NOLLEDO: Thank you. because unless Commission shed light on how a citizenship of a corporation will be determined: declared delinquent. The phrase that is contained the nationality of petitioners since. say. All lands of the public domain. minerals. With respect to an investment by one corporation in another corporation. independent national economy is freedom from undue foreign control? What is the meaning of undue foreign control? MR. renewable for not more than twenty-five years. 60-40 in Section 9. joint venture or production-sharing agreements with Filipino citizens. petroleum and other retain the 60/40 possibility in the cultivation of natural resources. petroleum. 40 percent involves mineral oils. 9 and 15. on the The emphasized portion of Sec. and and foreign equity. BENNAGEN: Did I hear right that the Chairman’s interpretation of an MR. Thank you. enter into co-production. Art. xxxx xxxx The President may enter into agreements with Foreign-owned corporations involving MR. NOLLEDO: In teaching law. such agreements here which we adopted from the UP draft is ‘60 percent of the voting stock. not simply freedom from foreign control? I think that is the meaning of independence. mining. MR. a corporation with 60-40 percent equity invests in another corporation which is permitted by the Corporation Code. and 2/3-1/3 in utilization of minerals. flora some control. But we will be open to improvement of the phraseology. there is a need to ascertain from the UP Law Center who provided us with a draft. MR." The deliberations in the Records of the 1986 Constitutional MR. but some control. 60-40 in Section 3. forests or timber. we are always faced with the question: ‘Where do we base the equity requirement. Mr. or on the paid-up capital stock of a corporation’? Will the types of agreements for the exploration. NOLLEDO: That must be based on the subscribed capital stock. the State shall MR. 2. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why must be discredited for lack of basis. Thus. 2 of the Constitution provides: MR. Vice-President. In such agreements. Mr. namely. (emphasis supplied) MR. VILLEGAS: We have just had a long discussion with the members of the team country’s natural resources or specifically. based on real contributions to the economic growth and general welfare of the country. With the exception of agricultural lands. coal. VILLEGAS: That is right. XII. the Committee stated local or Filipino equity either technical or financial assistance for large-scale exploration. The State may directly undertake such activities. I think in due time we will propose some amendments. all forces of potential energy. and utilization of natural resources shall be under the full control and supervision of the State.pronouncement of petitioners that the grandfather rule has already been abandoned MR. does the Committee adopt the grandfather rule? . development. and other natural resources are owned by the State. VILLEGAS: Yes. since the issues are centered on the utilization of our MR. Such agreements may be for a period not exceeding twenty-five years. NOLLEDO: In Sections 3. Sec. as the Constitution so provides. for example. and fauna. The exploration. wildlife. VILLEGAS: That is right. waters. capital is owned by such citizens. and other mineral oils according to the general Section 15. or it may MR. BENNAGEN: In any case. unpaid capital stock shall be entitled to vote. because as phrased. and under such terms and conditions as may be provided by law. not total control. or corporations or associations at least sixty per centum of whose Mr. is it on the authorized capital stock. promote the development and use of local scientific and technical resources. and utilization of natural Committee please enlighten me on this? resources with entities who are deemed Filipino due to 60 percent ownership of capital is pertinent to this case. fisheries. we Sec. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and the welfare of the Filipino in the economic sphere. it still allows for foreign control. development.’ are only allowed corporations or associations "at least 60 percent of such capital is owned by such citizens. VILLEGAS: It will now depend on the interpretation because if. BENNAGEN: Yes. terms and conditions provided by law. development. all other natural resources shall not be alienated. 2 which focuses on the State entering into different subscribed capital stock.

the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and added to the shares directly owned in the MR. doubt is present in the 60-40 Filipino equity ownership of petitioners Narra. among others. based on the said SEC Rule and DOJ Opinion. the said word only to the instances where the stockholdings of non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. To determine. and pertains to the portion in said corporations to state in their respective articles of incorporation that they have less Paragraph 7 of the 1967 SEC Rules which states. the 100% The above-quoted SEC Rules provide for the manner of calculating the Filipino Canadian corporation––MBMI. XII of the Constitution on National Economy not in doubt. the grandfather rule prevails and must be applied. To establish the actual ownership. As decreed by the honorable framers of our Constitution. funded them.43 nationality requirements (the ‘Investee Corporation’). only made an example of an instance where "doubt" as to the nationality depending on the ownership of the Investee Corporation and. NOLLEDO: Therefore. creating a cloud of doubt in the Court’s mind.42 (emphasis supplied) xxxx It is apparent that it is the intention of the framers of the Constitution to apply the In other words. the instant case presents a situation which exhibits a scheme employed by considered as Filipino. the Grandfather Rule or grandfather rule in cases where corporate layering is present. Sec. portion in said Paragraph 7 of the 1967 SEC Rules which states. The Under the above-quoted SEC Rules. need to further trace the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is Obviously. (emphasis supplied) and Patrimony. Inc. the Grandfather Rule will not apply. of MBMI. Stated differently..e. DOJ Opinion No. we need additional Filipino capital? Investee Corporation x x x. However. they have to be "grandfathered. in cases where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests Elementary in statutory construction is when there is conflict between the in other joint venture corporation which is either 60-40% Filipino-alien or the 59% Constitution and a statute.foreign equity ownership is pertaining to the provisions under Art." Under the Strict Rule or Grandfather Rule Proper.’ Under the liberal Control Test. Series of 2005 provides: found by the CA. of determining compliance with there is "doubt" only when the stockholdings of Filipinos are less than 60%.e. which petitioners quoted (‘Investing Corporation’). the Court finds that this case calls for the application of the grandfather rule since. DOJ Opinion No. It would be ludicrous to limit the application of instances. the The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the grandfather rule must be used. the Constitution will prevail. the actual participation. only the McArthur Mining. direct or indirect. there is no the Constitution. In this instance. the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i. in certain ownership of the corporation exists. "but if the percentage of Filipino ownership in the corporation or partnership is less than 60%. After a scrutiny of the evidence extant on record. specifically less Filipino). McArthur and Tesoro. Moreover. number of shares corresponding to such percentage shall be counted as of Philippine nationality. as ruled by the POA and affirmed by the OP. interest or participation of MBMI in each of "grandfathered") to determine the total percentage of Filipino ownership. Also. that is the understanding of the Committee. as Likewise. later coined by the SEC Filipino Ownership" at face value. therefore.. petitioners’ corporate structure. petitioners also claim that interest in a corporation for purposes. The first case is the ‘liberal rule’. 3 of the FIA will have no place of application. partnerships at least 60% of the capital of which is owned by Filipino citizens shall be various corporate schemes and layerings are utilized to circumvent the application of considered as of Philippine nationality. since their common investor. VILLEGAS: Yes. Such manner of computation is necessary since the shares in the Investee Corporation may be owned both by The assertion of petitioners that "doubt" only exists when the stockholdings are less individual stockholders (‘Investing Individuals’) and by corporations and partnerships than 60% fails to convince this Court." . where the 60-40 Filipino. Thus. 020. paragraph 7. the Investing Corporation. VILLEGAS: Yes. MR. The said rules thus provide for the determination of in their petition. ‘(s)hares belonging to corporations or than 60% Filipino stockholders since the applications will be denied instantly. It would be senseless for these applying as the Control Test in its 30 May 1990 Opinion. the combined totals in the Investing Corporation and the Investee Corporation must be traced (i. stockholders to circumvent the law. doubt prevails and persists in the corporate ownership of petitioners.MR. there are two cases in determining the nationality corporations interested in circumventing our laws would clearly strive to have "60% of the Investee Corporation. 20.

American 1 PhP 1.000.000.997 PhP 5.900. .997.00 PhP 1.00 Agcaoili Hernando Michael T.000. i.000. Olympic Mines & Development Corporation (Olympic) did not pay any T. Mining Corporation Amanti Limson Filipino 1 PhP 1. Fernando B.000.00 PhP 1. it would seem that MBMI is supplied) also a major investor and "controls"45 MBMI and also.000 common shares at one thousand pesos (PhP Development 1.000. looking at the corporate structure of MMC.00 Michael T. subscribed to by the following:44 Corp.000.000.00 PhP 825.331 PhP 3.708.000.998. Salazar Filipino 1 PhP 1.00 PhP Shares Subscribed Resources.e.000.00 MBMI Canadian 3.663 PhP 6.00 PhP 1. Michael Noticeably. Esguerra (Esguerra).00 Total 10. Inc. Lauro L.000.000. which is quite absurd since Olympic is the major stockholder in MMC.00 Inc.663. Filipino 1 PhP 1. Mason American 1 PhP 1.000.000.000.00 Mason Kenneth Cawkell Canadian 1 PhP 1.000 PhP PhP supplied) 10. Filipino 1 PhP 1. Filipino 1 PhP 1.000. wherein it holds directly and Name Nationality Number of Amount Amount Paid indirectly a 60% effective equity interest in the Olympic Properties.803.00 Interestingly. Mason (Mason) and Kenneth Cawkell (Cawkell): amount with respect to the number of shares they subscribed to in the corporation. Salazar (Salazar).00 Esguerra Fernando B.000.00 PhP 1.00 Resources. It states that Olympic entered into joint venture agreements with several Philippine companies. 46 Quoting the said Shares Subscribed Annual report: Olympic Mines Filipino 6.000. MBMI’s 2006 Madridejos Mining Corporation Annual Report sheds light on why Olympic failed to pay any amount with respect to the number of shares it subscribed to.000.00 PhP 1.00 PhP 1.00 PhP 1. Filipino 1 PhP 1.174.000) divided into 10.00 Madridejos Filipino 5. 2004.000. 2.000.000. McArthur has a capital stock of ten million pesos (PhP 10.000) per share. we take note that it has a (emphasis similar structure and composition as McArthur.000 PhP PhP Cawkell 10.000.000.00 PhP 1.998 PhP 3.00 PhP 1.60 Fernando B.000.000.000. McArthur acquired its MPSA application from MMC. Lauro L.00 2.00 Lauro Salazar Filipino 1 PhP 1.809.00 Esguerra Emmanuel G. In fact. Name Nationality Number of Amount Amount Paid MBMI Canadian 3.00 2.00 PhP 1. similar nominal shareholders were present. Philippines (the "Olympic Properties").000.331.000.00 Kenneth Canadian 1 PhP 1.0 PhP 1.00 Manuel A.000. which acquired its application from SMMI.00 PhP 0 & On September 9.00 PhP 1. the Company and Olympic Mines & Development Corporation ("Olympic") entered into a series of agreements including a Property Purchase and Development Agreement (the Transaction Documents) with respect to three nickel laterite properties in Palawan.As previously discussed.60 (emphasis Total 10.000.174.000.878.900.

" 10.000.00 PhP 2.ph/pdf/web/viewer. making the latter supplied) a foreign corporation. as demonstrated in this first corporation.judiciary..000. Olympic Mines Filipino 6.000.000.000. Filipino 1 PhP 1.judiciary.997 PhP 5.00 PhP 1. Under certain circumstances and upon achieving certain milestones.00 company layering was utilized by MBMI to gain control over McArthur." PhP 1.00 MBMI Canadian 3.000.The Transaction Documents effectively establish a joint venture between the Michael T.000. the Company Kenneth Canadian 1 PhP 1.000.00 PhP 1." "Number of Shares.000. Tesoro. we scrutinize SMMI’s corporate structure: [[reference = http://sc. Agcaoili. Manuel A.00 PhP 1. 47 (emphasis Cawkell supplied) Total 10.000.000. Esguerra Inc.998 PhP 3.60 & 6.pdf]] [[reference = http://sc.00 Amanti Limson Filipino 1 PhP 1.gov. It is apparent (emphasis that MBMI has more than 60% or more equity interest in McArthur.000 per share. Except for the name "Sara Marie Mining.174.708.000. Salazar Filipino 1 PhP 1.794. when it is "grandfathered.ph/pdf/web/viewer.174. as demonstrated below: and "Amount Paid" are exactly the same.998. McArthur. subject to a 2.000.00 Company and Olympic for purposes of developing the Olympic Properties.000) common shares at Cawkell.878.663 PhP PhP 0 MBMI Canadian 3. Inc.00 PhP 1.331 PhP 3.000) divided into ten thousand (10.000. Inc.pdf]] of Subscribed Shares Name Nationality Number Amount Amount Paid of Sara Marie Filipino 5.00 Corp.html?file=/jurisprudence/2014/april2014/19 Sara Marie Mining. Filipino 1 PhP 1.997.000 PhP PhP 2. Inc." the table above shows exactly the same figures as the corporate structure of petitioner McArthur.gov. American 1 PhP 1.00 Resources.000.00 Subscribed Shares Mining.html?file=/jurisprudence/2014/april2014/19 Name Nationality Number Amount Amount Paid 5580. Inc. has a capital stock of ten All the other shareholders are the same: MBMI.60 Thus.5% net revenue royalty.00 may earn up to a 100% interest.331. Delving deeper.000.663.00 PhP 1.000." "Amount Subscribed. The Mason Company holds directly and indirectly an initial 60% interest in the joint venture. Development Lauro L. The figures under "Nationality.00 PhP 1.00 PhP 1. which acquired its MPSA application from SMMI. 5580. down to the last centavo. Esguerra.000. Fernando B. Inc.00 PhP 825.000.000. Mason and million pesos (PhP 10.00 Agcaoili . Salazar.00 Resources. Tesoro Mining and Development.000.

00 Patricia Louise Filipino 5.00 Emmanuel G.00 PhP 1.00 Mason Corp. Again.116.000.00 PhP 1.677.000. Mason and Cawkell.000).000. Agcaoili Oddly. Ma.000.00 spot the glaring similarity between SMMI and MMC’s corporate structure. After subsequently studying SMMI’s corporate structure.Fernando B. 10.809.000.00 Mining & Hernando Development Michael T. it is clear that MBMI is in control of Tesoro and owns 60% or more equity interest in Tesoro.00 are exactly the same except for the amount paid by MBMI which now reflects the amount of two million seven hundred ninety four thousand pesos (PhP 2.000.000) at one thousand pesos (PhP 1. Agabin utilization and development of our natural resources. Filipino 1 PhP 1. American 1 PhP 1.00 . after "grandfathering" petitioner Tesoro and factoring in Olympic’s Bocalan participation in SMMI’s corporate structure.000.000.00 PhP 1. Filipino 1 PhP 1.000. shown as follows: Total 10.000). Narra.000.809.000.000.000. Inc.000.000. Filipino 1 PhP 1. whose corporate structure’s arrangement is similar to Kenneth Canadian 1 PhP 1.800. Amanti Limson Fernandez (Limson). American 1 PhP 1. Esguerra." and "Amount Paid" Manuel A.00 (emphasis Higinio C.00 PhP 1." "Amount Subscribed.00 PhP 1.00 PhP 1." "Number of Shares.000.000.00 that of the first two petitioners discussed. Robert L.000. Salazar.00 Cawkell 3.00 PhP 1. This makes petitioner Tesoro Bayani H. MBMI.00 PhP 1. Elena A.000. Filipino 1 PhP 1.00 a non-Filipino corporation and.000 PhP PhP 2.00 PhP 1.000. which is the transferee and assignee of PLMDC’s MPSA application. Kenneth Canadian 1 PhP 1.794.900. which is divided into ten thousand common shares (10. namely: Olympic.900). it is not farfetched for us to Henry E.000.998 PhP PhP 1.000. Filipino 1 PhP 1. the total value of the amount paid is two million eight hundred nine thousand nine hundred pesos (PhP 2.000.000 PhP PhP 2.000.00 Total 10.996.000.000.997 PhP 5.000. Filipino 1 PhP 1.997. Jr. thus. the presence of identical stockholders. disqualifies it to participate in the exploitation.00 supplied) Mendoza.000.00 PhP 1.00 Name Nationality Number Amount Amount Paid of Esguerra Subscribed Shares Lauro Salazar Filipino 1 PhP 1.00 Resources.000) per share.000. The figures under the headings "Nationality.00 Narra Nickel Mining and Development Corporation McCurdy Moving on to the last petitioner.000.00 PhP 1.00 PhP 1.00 PhP 1.00 MBMI Canadian 3.000. Filipino 1 PhP 1. The capital stock of Narra is ten million Cawkell pesos (PhP 10.000. Hernando.00 Accordingly.

00 Alpha.396 PhP PhP 3. Palawan Concluding from the above-stated facts.00 PhP 1. (PASRDC). Such conclusion is derived from grandfathering petitioners’ corporate owners. in this case. ("Sara Marie") 33.000. namely: MMI.00 (b) Alpha Group Henry E.000.000. engaged in the acquisition. is zero. (Tesoro) 60.000. Agabin Filipino 1 PhP 1. Canadian 3.4% Total 10.00 PhP 1.000.174. McArthur.000.000. Jr.000. Mendoza. Studying MBMI’s Summary of Significant Accounting Policies dated October 31. owns 60% or more of their equity interests. Mason American 1 PhP 1. Similarly. Agcaoili and JOINT VENTURES The Company’s ownership interests in various mining ventures Esguerra. exploration and development of mineral properties in the Philippines is described as follows: Patricia Louise Mining & Development Corporation (a) Olympic Group Using the grandfather method.000.00 Lauro L.00 Narra Nickel Mining & Development Corporation (Narra) 60.48 (emphasis supplied) Yet again.00 2.0%.Philippines (the "Olympic Group") Palawan Alpha South Filipino 6. SMMI and PLMDC.00 PhP 1.00 PhP 1. are as follows: Manuel A.4%.000. Salazar Filipino 1 PhP 1.00 (emphasis explains the reason behind the intricate corporate layering that MBMI immersed itself supplied) in: Again. Fernandez Filipino 1 PhP 1. Pursuant to a shareholders’ agreement.000. the Company exercises joint control over the companies in the Alpha Group.00 Pursuant to the Olympic joint venture agreement the Company holds directly and Inc. it is quite safe to say that petitioners Alpha South Resources and Development Corp. Tesoro and Narra are not Filipino since MBMI. a 100% Canadian corporation. is present in this corporate structure. ("Patricia") 34.00 Patricia Louise Mining Development Inc.596.00 Michael T. i.000.000.000. and the ownership and interests therein. and the ownership interests therein.000.00 The Philippine companies holding the Alpha Property.396. the usual players in petitioners’ corporate structures are present. we further look and examine PLMDC’s corporate structure: The Philippine companies holding the Olympic Property. 2005 10.708. Agcaoili Filipino 1 PhP 1.00 2.00 PhP 1.e.00 PhP 1. . the Company exercises joint control over the companies in Higinio C.Philippines (the "Alpha Group") Bayani H. Filipino 1 PhP 1.00 the Olympic Group.000.000.000.00 PhP 1. MBMI. the amount of money paid by the 2nd tier majority stock holder. are as follows: Name Nationality Number Amount Amount Paid of Shares Subscribed Olympic. indirectly an effective equity interest in the Olympic Property of 60.000.000. Inc.0% MBMI Resources.000 PhP PhP 10. Pursuant to a shareholders’ supplied) agreement.00 PhP 1.596 PhP PhP 0 Sara Marie Mining Properties Ltd. Esguerra Filipino 1 PhP 1.3% Resources Development 6..60 Under a joint venture agreement the Company holds directly and indirectly an (emphasis effective equity interest in the Alpha Property of 60.000.000. along with other nominal stockholders. Fernando B.00 Corporation Tesoro Mining & Development. Mason.000.0% Kenneth Cawkell Canadian 1 PhP 1.796.

then the CA is justified in applying Sec.. partnership or agency. 29. joint ventures are partnership or agency is shown by evidence other than such act or declaration itself.The act or declaration of a partner or agent of the party within the scope of his authority and during the existence of the Though some claim that partnerships and joint ventures are totally different animals. then the relationship created should be deemed as "partnerships." As a rule. petitioners are NOT Filipino nationals and must be considered foreign since 60% or more of their capital stocks or A partnership is defined as two or more persons who bind themselves to contribute equity interests are owned by MBMI. or other and legal incidents governing partnerships are applied. Noticeably. joint venture agreements agreement between and among corporations may be seen as similar to partnerships since the elements of partnership are present. money."49 Thus. while holding the title. "the to form "pseudo partnerships. as the intricate web of "ventures" entered into by and among petitioners in finding that a partnership relationship exists between them and MBMI because. by pointing out that statements made by MBMI should not so similar and closely akin to a partnership that it is ordinarily held that their rights. it has been said that the trend in the law has been to blur the distinctions Secs. Admission by co-partner or agent. very little law being found applicable to one that does not apply to the other.Going further and adding to the picture. . rules The same rule applies to the act or declaration of a joint owner. Being that there is no evidence of written agreement to form a partnership between Olympic or corporations under the "Alpha" group wherein MBMI has joint venture petitioners and MBMI. 31. be admitted in this case since it is not a party to the case and that it is not a "partner" duties. if not exactly the same.Where one derives title to property from another. declaration. or industry to a common fund with the intention of dividing the profits among themselves. it should have been formally reduced into the "Olympic" and "Alpha" groups––involves SMMI. In fact. culled from the incidents and records of this case. 29. in relation to the "joint venture agreements. MBMI have a joint interest" with Narra. property." Further. corporations enter into joint venture agreements with other corporations or partnerships for certain transactions in order Petitioners claim that before the above-mentioned Rule can be applied to a case. Tesoro and McArthur. a joint venture Partnerships vs. Accordingly. and that proof of the fact must be made by evidence other than the admission itself. or omission of the latter. 52 person jointly interested with the party. deemed "akin" or similar to a partnership. may be given in evidence against such party after the there are very few rules that differentiate one from the other. the the relationships entered between and among petitioners and MBMI are no simple act. as those which govern partnership. PLMDC and Narra. MBMI have a joint interest" with Narra. they asserted that before this Policies statement– –regarding the "joint venture" agreements that it entered into with particular partnership can be formed. is evidence against the former. and liabilities are to be tested by rules which are closely analogous to and of petitioners.000). joint ventures have been deemed to be Application of the res inter alios acta rule "akin" to partnerships since it is difficult to distinguish between joint ventures and partnerships." and the laws on partnership should be applied. In fact. writing since the capital involved is more than three thousand pesos (PhP 3. Rule 130 of the Revised Rules of Court provide: between a partnership and a joint venture. relationships between and among the corporations. consequently." partnership relation must be shown. 29. substantially the same. the ownership of the "layered" corporations boils down to MBMI. entering into partnerships. agreements with. 29 and 31. in and MBMI was executed to circumvent the legal prohibition against corporations fact. joint debtor. Tesoro. Thus: 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 [T]he relations of the parties to a joint venture and the nature of their association are Court in the instant case. petitioners assert that the CA erred Obviously. in joint venture agreements. partnership agreements. corporations are prohibited from entering into property. no such partnership exists. practically exercising majority control over the corporations mentioned. Considering that the relationships found between petitioners and MBMI are Tesoro and McArthur. In effect. no partnership was created. Petitioners claim that the CA erred in applying Sec. They challenged the conclusion of the CA which pertains to considered to be partnerships.. whether looking at the capital structure or the underlying We disagree. Thus. it can be assumed that Sec.50 On the other hand. thus. MBMI’s Summary of Significant Accounting "partnerships" and "joint venture agreements. Rule 130 of the close characteristics of the Rules by stating that "by entering into a joint venture. Rule 130 of the Rules by stating that "by entering into a joint venture.51 Sec. Admission by privies.

McArthur and Tesoro.- Arbitrators pursuant to the provisions of this Act and these implementing rules and regulations. concerned Regional office(s) and Certification to that effect within five working days therefrom. protest or opposition announcements. 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 Sec. Any adverse claim. protest. xxxx owned mining corporations. protest or opposition. 38. copy furnished the barangays where the proposed contract area is located once a week for two (2) consecutive xxxx weeks in a language generally understood in the locality. Publication/Posting of Mineral Agreement. The POA has jurisdiction to settle disputes over rights to mining areas which definitely involve the petitions filed by Redmont against petitioners Narra. The jurisdiction of the POA over adverse claims. the panel shall have exclusive and original jurisdiction to hear and decide the reservations. or opposition to an application for mineral agreement.: 53 Arbitrators as provided for in Section 38 hereof. (emphasis supplied) The phrase "disputes involving rights to mining areas" refers to any adverse claim. is asserting the right of Filipinos over mining areas in the Philippines against alleged foreign. the concerned Regional Director Within thirty (30) days. opposition shall be filed directly. 38 and 41 of the DENR AO 96-40. in the concerned province(s) and municipality(ies).Panel of Arbitrators’ jurisdiction 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 We affirm the ruling of the CA in declaring that the POA has jurisdiction over the the Panel of Arbitrators. the xxxx Panel of Arbitrators shall likewise issue a certification to that effect within five (5) working days from the date of finality of resolution thereof. which provide: relative to the applications for a mineral agreement or conferment of mining rights. or oppositions to a mining right application is further elucidated by Secs. or opposition to a pending It has been made clear from the aforecited provisions that the "disputes involving application for a mineral agreement filed with the concerned Regional Office of the rights to mining areas" under Sec.Notwithstanding the Within thirty (30) calendar days from the last date of publication/posting/radio provisions of Sections 28. This is clear from Secs. Where there is no adverse The Regional Director or concerned Regional Director shall also cause the posting of claim. within thirty (30) in said Sections. 219 and 43 of DENR AO 95-936. 43. Macroasia Corp. Redmont. after the submission of the case by the parties for the shall initially evaluate the Mineral Agreement applications in areas outside Mineral decision. Filing of Adverse Claims/Conflicts/Oppositions. protest or opposition. (b) Disputes involving mineral agreements or permits In case of Mineral Agreement applications in areas with Mineral Reservations. 43 and 57 above. protest. Sec. the same shall be evaluated and endorsed by the Director to the Secretary for consideration/approval within fifteen days from receipt of such endorsement. by filing its petition against petitioners. protest. instant case. within fifteen (15) working days from receipt of the Certification issued by the Panel of We held in Celestial Nickel Mining Exploration Corporation v. Thereafter. He/She shall thereafter endorse his/her findings to the Bureau for further following: evaluation by the Director within fifteen (15) working days from receipt of forwarded documents. the Panel of Arbitrators shall likewise issue a the application on the bulletin boards of the Bureau. The POA therefore has the jurisdiction to resolve any adverse claim. 41. protest. 77(a) specifically refer only to those disputes MGB. Such claim constitutes a "dispute" found in Sec. calendar days from the last date of publication/posting/radio announcement. After forty-five (45) days . Upon final resolution of any adverse claim. 77 of RA 7942: Within fifteen (15) working days form the receipt of the Certification issued by the Panel of Arbitrators as provided in Section 38 hereof. any adverse claim. 219. the Director shall endorse the same to the secretary for (a) Disputes involving rights to mining areas consideration/approval within fifteen working days from receipt of such endorsement. Sec. which read: xxxx Sec.. protest or opposition as specified with. the authorized officer(s) of the concerned office(s) shall issue a specified in said sections may also be filed directly with the Panel of Arbitrators certification(s) that the publication/posting/radio announcement have been complied within the concerned periods for filing such claim.

or protest relative to mining rights under Sec. Jurisdiction in Civil Cases. relative to the applications for a mineral agreement or conferment of mining rights. Justice Marvic Mario Victor F.- This postulation is incorrect. protest or opposition was filed within the said forty-five (45) days. the same shall be filed within forty-five (45) days from the last date of publication/posting. the finding provisions of Sections 28. conflicts and oppositions relating to applications for are fully complied with and any opposition/adverse claim is dealt with in writing by the grant of mineral rights. protest. Sec. protest or opposition.) POA’s jurisdiction is confined only to resolutions of such adverse claims. protest or opposition of the POA. POA’s jurisdiction over "disputes involving rights to mining areas" has nothing to do with the cancellation of existing mineral agreements. or .Notwithstanding the applications. the concerned offices shall (CENRO) or Provincial Environment and Natural Resources Officers (PENRO). 43. days from the last date of publication/posting. 54 the application on the bulletin boards of the Bureau. Accordingly. xxxx It is basic that the jurisdiction of the court is determined by the statute in force at the The Regional Director or concerned Regional Director shall also cause the posting of time of the commencement of the action. 219. to be issue a certification that publication/posting has been made and that no adverse claim. 219 and 43 of DENRO AO 95-936. 43 and 57 above. to be are fully complied with and any opposition/adverse claim is dealt with in writing by filed at the Regional Office for resolution of the Panel of Arbitrators. the concerned offices shall issue a certification that publication/posting has been made and that no adverse claim. not the POA. within the concerned periods for filing such claim. the same shall be filed within forty-five (45) posted/posting required under this Section. asserts that it is the regular courts. or through the Department’s Community Environment and Natural Resources Officers No mineral agreement shall be approved unless the requirements under this section (CENRO) or Provincial Environment and Natural Resources Officers (PENRO). with respect to the rejection of petitioners’ MPSA applications being that specified in said sections may also be filed directly with the Panel of Arbitrators they are foreign corporation.) previously published valid and subsisting mining claims are exempted from posted/posting required under this Section. which is vested only upon the Secretary of the DENR. with the Regional Offices concerned. opposition. Batas Pambansa Blg. in his Dissent. However. (Emphasis supplied. 129 or "The Judiciary Reorganization where the proposed contract area is located once a week for two (2) consecutive weeks in a language generally understood in the locality. protest or opposition as specified in said Sections. 77(a) specifically refer only to those disputes is vested in the DENR Secretary upon recommendation of the MGB Director. protest through the Department’s Community Environment and Natural Resources Officers or opposition was filed within the said forty-five (45) days. that has jurisdiction over the MPSA applications of petitioners. said jurisdiction does not include either the approval or rejection of the MPSA Sec. Sec. 19. or oppositions to a mining right application is further elucidated by Secs. (emphasis ours) The jurisdiction of the POA over adverse claims. protest or opposition of whatever nature has been filed. Publication/Posting of Mineral Agreement Application. (Emphasis supplied. Thus. Such power rights to mining areas" under Sec. if there be previously published valid and subsisting mining claims are exempted from any adverse claim. 77(a) of RA 7942 is No mineral agreement shall be approved unless the requirements under this section confined only to adverse claims. After forty-five (45) days Act of 1980" reads: from the last date of publication/posting has been made and no adverse claim. However. any adverse claim. the POA unquestionably has jurisdiction which reads: to resolve disputes over MPSA applications subject of Redmont’s petitions. if there be original jurisdiction: any adverse claim. Filing of Adverse Claims/Conflicts/Oppositions.from the last date of publication/posting has been made and no adverse claim. concerned Regional office(s) and in the concerned province(s) and municipality(ies). On the other hand. filed at the Regional Office for resolution of the Panel of Arbitrators. Leonen. copy furnished the barangays Sec. 19. Clearly.. the Director and resolved by the Panel of Arbitrators. On the other hand. conflicts and It has been made clear from the aforecited provisions that the "disputes involving oppositions and it has no authority to approve or reject said applications. as we enunciated in Celestial.—Regional Trial Courts shall exercise exclusive protest or opposition of whatever nature has been filed. is valid. protest or opposition. with the Regional offices concerned. These provisions lead us to conclude that the power of the POA to resolve any adverse claim. However the Director and resolved by the Panel of Arbitrators.

after the submission of the case by the parties the "control test" is used. 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. involving rights to mining areas. 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. the instant petition is DENIED." Moreover. In all civil actions in which the subject of the litigation is incapable of pecuniary corporation duly organized and existing under Philippine laws and is at least 60% estimation. allegedly a Philippine-owned corporation due to the sale of MBMI's shareholdings to DMCI. 202877 pending before this (d) Disputes involving mineral agreements or permits Court. Furthermore. specialized training and knowledge of an administrative body. whether the "grandfather rule" or x x x Within thirty (30) days. the transfer of their shares supposedly cured the "defect" of their On the other hand. Euro-med Laboratories v. protest or opposition is filed by another interested In ending. Filipino-equity ownership in the corporation. 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. Province of Batangas 55 elucidates: The doctrine of primary jurisdiction holds that if a case is such that its determination requires the expertise. petitioners’ Manifestation and Submission dated October 19. the panel shall have exclusive and original jurisdiction to would pass both tests. Thus. Art. The manifestation can no longer be considered by us since it is being tackled in G. the jurisdiction of POA is unequivocal from Sec. development and utilization of their respective MPSA applications. entitled to undertake the exploration.56 Petitioners reasoned that they now cannot be considered as foreign-owned. a . No. the jurisdiction of the RTC involves civil actions while what petitioners WHEREFORE. are allowed to enter It is clear that POA has exclusive and original jurisdiction over any and all disputes into FTAAs with the State is a non-issue in this case. the question of whether petitioners. Panel of Arbitrators. the dispute arose or originated from MPSA a corporation is a Filipino corporation. 2. premises considered. then it may apply the "grandfather rule. 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.— regards their qualification to enter into FTAA contracts since they are qualified to engage in mining activities in the Philippines. 77 of RA 7942: previous nationality. based on the attendant facts and circumstances of the case. the "control test" is still the prevailing mode of determining whether or not applicant. in the 60-40 it is POA’s jurisdiction to resolve said disputes. within the ambit of Sec. the nationalities of petitioners cannot be doubted since it for the decision. One such dispute is an MPSA application to which an adverse claim."57Petitioners stress that there should no longer be any issue left as Section 77. Philippine-owned. II of the 1987 applications where petitioners are asserting their rights to mining areas subject of Constitution. 2010 and Resolution dated February 15. When in the mind of the Court there is denial of said applications.1âwphi1 Thus. Since respondent filed 3 separate petitions for the the natural resources of the Philippines.1âwphi1 In the case at bar. the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction. hear and decide the following: The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant (c) Disputes involving rights to mining areas case and said fact should be disregarded. applications. The assailed filed with the DENR Regional Office or any concerned DENRE or CENRO are MPSA Court of Appeals Decision dated October 1. 2011 are hereby AFFIRMED. then a controversy has developed between the parties and doubt.R. Selling of MBMI’s shares to DMCI As stated before.1. Thus POA has jurisdiction.

. In 1986. Gamboa. FINANCE UNDERSECRETARY JOHN P. No. the Philippine Legislature enacted Act No. an affiliate of First Pacific Company METRO PACIFIC ASSET HOLDINGS INC. according to petitioner Wilson P.. 176579 Petitioner.R.. LTD.. .. SANIDAD.. In 1977.. G.. Inc. were later declared by this Court to be owned by the Republic of the Philippines.. PLDT a franchise and the right to engage in telecommunications business... The facts. Inc.... AND COMMISSIONER RICARDO ABCEDE OF THE The Case PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS... PABLITO V. CHAIRMAN MANUEL V. The 111.. x. LTD. 2 DECISION ..415 shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG).. sold 26 percent of the outstanding common shares of PLDT to PTIC. Subsequently. NAZARENO OF PHILIPPINE LONG The Antecedents DISTANCE TELEPHONE COMPANY. the 111. 2011 major PLDT stockholder.versus ... Prime Holdings.. Limited (First Pacific). General Telephone and Electronics Corporation (GTE)... declaratory relief and declaration of nullity of the sale of shares of stock of Philippine Telecommunications CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC Investment Corporation (PTIC) by the government of the Republic of the Philippines CO. CHAIR FE BARIN OF THE SECURITIES EXCHANGE COMMISSION... injunction. (MPAH)... In 1969.415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla..125 percent of the outstanding capital stock of PTIC. a stockholder of Philippine Long Distance Telephone Company (PLDT). Jr... (PHI) was incorporated by several persons.. GAMBOA...-x including Roland Gapud and Jose Campos. SANIDAD and Promulgated: On 28 November 1928. PRESIDENT NAPOLEON L. OF THE PRIVATIZATION COUNCIL. J. This is an original petition for prohibition.. TEVES. an American company and a Petitioners-in-Intervention..... RESPECTIVELY.. IN HIS CAPACITY AS DIRECTOR OF to Metro Pacific Assets Holdings.: FINANCE SECRETARY MARGARITO B. are as follows: 1 Respondents.. PHI became the owner of 111. CARPIO.WILSON P. and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE. which represent about 46.. SEVILLA.... 3436 which granted ARNO V.. June 28.. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO.415 PTIC shares.

Subsequently. composed of the Department of Finance and the PCGG. Since PTIC is a stockholder of PLDT.415 PTIC shares or 46. First Pacifics On 31 January 2007. Parallax Capital Management LP emerged as the Philippine Government for the price of P25.556.415 PTIC shares resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of a public utility since PTIC holds only 13. Sevilla.847 percent of the total outstanding common shares of PLDT. In 1986. First Pacific On the other hand.580.415 PTIC shares bore due diligence.217.This violates Section 11.7 percent to 37 percent.189. The government notified First sale was completed on 28 February 2007. yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares.847 percent of .000. the public bidding was reset to 8 December 2006.47 percent. An invitation to bid was published in seven different newspapers from 13 to 24 November 2006. First Pacific. However. and Courts decision4which became final and executory on 8 August 2006.263 PLDT common shares. and PCGG Commissioner Ricardo Abcede allege the following relevant facts: Respondent Manuel V.125 percent of PTIC shares is actually an indirect sale of 12 million shares or about 6. MPAH. or 13.415 PTIC shares. entered into a Conditional Sale and Purchase Agreement of the 111. the total PLDT outstanding common shares. only two bidders. with During the 8 December 2006 bidding.415 shares of stock of PTIC. First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead.034.4 percent of the outstanding common shares of stock of PLDT. 5 On 28 February 2007.125 percent of the outstanding capital stock of PTIC. public respondents Finance Secretary Margarito B. submitted their bids. First Pacific. The sequestered PTIC the outstanding capital stock of PTIC. Parallax. or 46. Respondents Teves and Sevilla were among those who 81. Pacific.556.415 PTIC shares.6 billion or US$510 The Philippine Government decided to sell the 111. PTIC held 26.125 percent of the ill-gotten wealth of former President Ferdinand Marcos. On 20 Ramon Cojuangco and Luis Tirso Rivilla. Parallax won with a bid of P25. Article XII of the 1987 Philippine Constitution attended the public hearing.217. transparency percent. 6. completed the acquisition of the 111. On 14 February 2007. a Bermuda-registered. 2270 concluded that: (a) which limits foreign ownership of the capital of a public utility to not more than 40 the auction of the governments 111. the majority owner of PTIC shares. and subsequently declared by this Court as part of Government announced that it would sell the 111.3 and conformity with existing legal procedures. through a public bidding to be conducted on 4 shares were reconveyed to the Republic of the Philippines in accordance with this December 2006. First Pacific announced that it would exercise its right of first refusal as a 2006 was reset to 8 December 2006. On 20 November 2006. through its subsidiary.415 PTIC shares held by PHI November 2006. the Inter-Agency Privatization Council (IPC) of the Philippine were sequestered by the PCGG. Teves. Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111. or 46. the sale by the Philippine Government of 46. outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by acquired the remaining 54 percent of the outstanding capital stock of PTIC. PTIC was incorporated and had since engaged in the business of capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by investment holdings.415 PTIC shares by matching the bid price of newspapers. and (b) First Pacifics intended acquisition of the governments 111. The the highest bidder with a bid of P25. was incorporated in 1977.415 PTIC shares. Government conducted a public hearing on the particulars of the then impending sale thereby increasing the common shareholdings of foreigners in PLDT to about of the 111. With the sale.415 PTIC shares.000 or US$510. as the disposing entity. and became the owner of 111. The HR Committee Report No. Hong Kong-based investment firm. Undersecretary John P.415 PTIC shares or 46 percent of the outstanding On 9 November 1967. PHI. a pre-bid conference was held. the House of Representatives (HR) Committee on Good common shareholdings in PLDT increased from 30.3 percent of the outstanding common shares of PLDT. and the original deadline for bidding scheduled on 4 December Thereafter. and designated the Inter-Agency Privatization Council (IPC). The extension was published in nine different PTIC stockholder and buy the 111. the 111.125 percent of the In 1999. of the bidding results and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTICs Articles of Incorporation. on the other hand. First Pacific announced its intention to match Parallaxs bid. which represent million.

Sanidad filed a Motion for Leave to facts of petitioner. (b) Parallax offered the highest bid amounting and (3) whether the sale of common shares to foreigners in excess of 40 percent of the to P25. among others.9which indisputably demand a thorough examination of the evidence of the Form 20-K reports x x x which PLDT submitted to the parties. principle. and declaration of nullity of sale of the 111. to enjoin and/or nullify the sale by respondents of the 111. On 28 February 2007.217. If and when the sale is completed. x x x.6 Petitioner asserts: unquestionably a public utility. the consummation of the sale will put the two largest foreign investors in PLDT First Pacific and Japans NTT DoCoMo.000. . are generally beyond this Courts jurisdiction. combined with Japanese NTT DoCoMos common shareholdings in they have a stake in the outcome of the controversy x x x where the Philippine PLDT. a First Pacific ownership of a public utility. x x x This Court is not a trier of facts.com) showed that those foreign entities. Pablito V. MPAH.415 PTIC shares to First Pacific violates the constitutional limit The Ruling of the Court on foreign ownership of a public utility.000 and the government delivered the certificates for the 111.556. (2) whether public respondents committed grave abuse of discretion in allowing the sale of the 111. First Pacifics equity in PLDT will go up from 30. owning 51. Intervene and Admit Attached Petition-in-Intervention. Sanidad and Arno V. x x x With the completion of the sale. would result to a total foreign common shareholdings in PLDT of 51. as PLDT subscribers. Article breached the constitutional limit of 40 percent ownership XII of the Constitution refers to the total common shares only or to the total as early as 2003. among Petitioner claims. percent. declaratory relief. In the Resolution of 28 August 2007. which is over the 40 percent constitutional limit.nyse.7 percent to 37. Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111.56 percent Government is completing the sale of government owned assets in [PLDT]. which is the worlds largest wireless telecommunications firm.0 percent of its common or voting. which own at least five percent of common equity. 8 affiliate.556.217.7 percent to 37 First Pacific or assignee. petitioner filed the instant petition for prohibition. Adhering to this well-settled New York Stock Exchange for the period 2003-2005. the sale was consummated when MPAH paid IPC P25. data culled from the official website of the New York Stock Exchange (www.First Pacific and its affiliates). Petitioners-in-intervention claim that.56 percent of The Issue PLDT common equity.415 PTIC shares to in an increase in First Pacifics common shareholdings in PLDT from 30.415 PTIC shares. also referred to as petitioner. injunction. and (d) on 28 February 2007.47 percent of PLDTs common equity. exercised its right of first refusal by matching the highest bid offered for PTIC shares on 13 February 2007.stockholdings. the Court granted the motion and noted the Petition-in-Intervention. that the sale of the 111. Hence. (c) pursuant to the right of first refusal in favor of PTIC and its entire subscribed common capital stock violates the constitutional limit on foreign shareholders granted in PTICs Articles of Incorporation. the Court shall confine the resolution of the instant controversy solely on revealed that First Pacific and several other foreign entities the threshold and purely legal issue of whether the term capital in Section 11. in violation of the nationality restrictions of the Philippine Constitution.415 PTIC shares would result others. Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking. and this. x xx7 outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT.415 PTIC shares. Respondent Pangilinan denies the other allegations of On 13 August 2007.415 PTIC shares to First Pacific. a public utility. Factual questions such as those raised by x x x as the annual disclosure reports. will collectively own 81.

10 injunction.556. the Court treats the petition for declaratory relief as one for declaratory relief. Specifically.15 (Emphasis supplied) In Salvacion v. and instrumentalities of the Government. garnishment or any other order or process term capital refers to common shares only. the local bank. accused x xx that would negate Article 10 of the Civil Code which provides that in case of doubt in the interpretation or application of laws. While direct resort to this Court may be justified in a petition for prohibition. petitioner seeks primarily the interpretation of the term capital in bank. it is presumed that the lawmaking body intended right and justice to prevail. Among the remedies excluded petitioners. 960. Petition for declaratory relief treated as petition for mandamus In Alliance of Government Workers v. The Court basis in determining foreign equity in a public utility. Thus. exempting Section 11. and government owned or controlled corporations included among the four employers annulment of sale are not embraced within the original jurisdiction of the Supreme under Presidential Decree No. inapplicable due to the peculiar circumstances of the case.The petition is partly meritorious. and certainly requiring the interpretation of the assailed presidential decree. thirteenth (13th) month pay x x x ? The Constitutional principle involved therein affected all government employees. the issue was whether the government unlawfully At the outset. subdivisions. Article XII of the Constitution. the questioned sale was consummated when MPAH paid IPC P25. Petitioner further asks this held that injustice would result especially to a citizen aggrieved by a foreign guest like Court to declare any ruling inconsistent with such interpretation unconstitutional. which however is not exclusive but is concurrent with the Regional Trial branches. 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. where the petition has far-reaching implications and raises questions that should be resolved. the Court declared Section 113 of Central Bank Circular No. the petition could have been dismissed outright. agencies.415 PTIC shares. clearly justifying a relaxation of the technical rules of procedure. He prays that this Court declare that the foreign currency deposits from attachment. who were government employees. Article XII of the Constitution has far-reaching implications to The Court has no original and exclusive jurisdiction over a petition for the national economy. 11 the Court shall nevertheless refrain from discussing the grounds in support of the petition for prohibition since on 28 February 2007.000 and the government delivered the certificates In short. petitioner is faced with a procedural barrier.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. including Court and the Court of Appeals.217. Central Bank of the Philippines. Minister of Labor. it is well-settled that this Court may treat a petition for declaratory relief as for the 111.12 recognized. The Court therefore required respondents Central Bank of the Philippines. On this ground alone. and the accused to . the question was: Are the this court. 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 tourists dollar deposit with a local In the present case. it may be treated as one for mandamus. 851 which are required to pay their employees x x x a Court. and that such shares constitute the sole of any court. since the threshold and purely legal issue on the definition of the term capital in Section 11.14 the Court similarly brushed aside the procedural infirmity of the petition for declaratory relief and treated the same as one for mandamus. exceptions to this rule have been mandamus. from the enjoyment of rights petitioner seeks. In Alliance. However. The actions for declaratory relief. only the petition for prohibition is within the original jurisdiction of to which they were entitled under the law. As this Court held in Salvacion: However. one for mandamus if the issue involved has far-reaching implications.

further declared that when a advertising companies. as a matter of basic fairness. Constitution. involving the national economy and the economic welfare of the Filipino people. petitioner Fernandez assailed on a pure question of law the Regional Trial Courts Decision of 21 February 2003 via a More importantly. Petitioner has locus standi reaching implications to the entire nation. Article XII of the enforceable must be published in the Official Gazette or otherwise effectively Constitution. the Court declared that the agreements for the development of our natural resources. if ever there is a legal issue that has far.24 the Court upheld the right of a citizen to bring a suit on matters of in the words of the Constitution. Despite its far-reaching implications to the national economy. Cojuangco. 157360. a resolution of this issue will determine whether Filipinos are masters. Tuvera. far outweighs any perceived impediment in the legal personality of the petitioner to bring this action. thus: economy effectively controlled by Filipinos. while reiterating Taada. the people are regarded as the real parties in interest.21 in Section 4(2).22and in Section 11(2). In ruling for the petitioners legal standing. PCGG. and because it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws. not only for the benefit of the litigants. Article XII of the Constitution in the case of Fernandez v. Article XVI on the ownership of Legaspi v. there is no question that the instant petition raises matters of petition for review under Rule 45. Article XIV on the ownership of educational institutions. Indeed.17 There. investments to Filipino citizens. in the light of vague and confusing positions taken by government agencies on this purely legal issue. There is no matters of public concern. denying the petition. and instead denied the same for disregarding the hierarchy of courts. 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 must forthwith seize such opportunity. There is no dispute that petitioner is a stockholder of PLDT. present and future foreign investors in this country deserve. the Court declined to resolve the case on the merits. he has the right to question the subject sale. this purely legal issue In the aforesaid case. Article XII of the Constitution has far-reaching implications to the national economy.18 Besides. 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. Civil Service Commission.The interpretation of the term capital in Section 11. The Courts Resolution. a right then recognized in Section 6. but more significantly for the benefit of the entire Filipino people.19 in Section 7. Article XII on the reservation of certain fundamental law of the land. it is the threshhold legal issue presented in this case. Article XII of the Constitution. the petitioners sought to enforce their right to be informed on has remained unresolved for over 75 years since the 1935 Constitution. As such. docketed as G. Article XII on right they sought to be enforced is a public right recognized by no less than the ownership of private lands. the requirement of . In Taada v. a dire No. same private respondents. which he claims to violate the nationality requirement The Court first encountered the issue on the definition of the term capital in Section prescribed in Section 11. Article IV of the 1973 reason for this Court to evade this ever recurring fundamental issue and delay again Constitution. transcendental importance to the public. In Chavez v.20 in Section 10. or second class citizens.23 mandamus proceeding involves the assertion of a public right. but also in Section 2. and to future generations of Filipinos. The fundamental and threshold legal issue in became final on 21 December 2004. to ensure. he need not show that he has any legal or special interest in the result of the action.16 That case involved the same public utility (PLDT) and substantially the consequence directly affecting petitioners interest as a stockholder. in their own country. 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. then there is a possibility that PLDTs franchise could be revoked. In fact. a categorical ruling from this Court on the extent of their participation in the capital of public utilities and other nationalized businesses. this case. which appears not only in Section 11. What is at stake here is whether Filipinos or foreigners will have effective control of the national economy. If the sale indeed violates the 11. in connection with the rule that laws in order to be valid and defining the term capital.R. a self-reliant and independent national transcendental importance to the public. Article XII on co-production and joint venture promulgated.

or corporation. . The State shall encourage equity participation in of the Philippines sixty per centum of the capital of which is owned by public utilities by the general public. alteration. management and operation of the Manila International Container Terminal. thus: provision in the Constitution would constitute sufficient authority for upholding the petitioners standing. certificate. or authorization be exclusive in character or for a longer period than fifty years. or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Clearly. Neither shall any such franchise or right be granted except under the Definition of the Term Capital in condition that it shall be subject to amendment. certificate. involves matters of Philippines or to corporations or associations organized under the laws transcendental public importance. Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities.personal interest is satisfied by the mere fact that petitioner is a citizen and. public interest [was] definitely involved considering the important role [of the subject contract] . certificate. Article XIV of the 1973 consideration involved. the petitioner has the requisite locus standi. nor shall such franchise. nor shall such franchise. of such corporation or association must be citizens of the Philippines. as a consequence. to wit: The foregoing provision in the 1973 Constitution reproduced Section 8. firm. we said that while expenditure of public funds may not have been involved under the questioned contract for the development. and all the executive and managing officers No franchise or right shall be granted to any individual. brought by a citizen. Reyes. Article XIV of Section 11. Neither shall any Section 8. We concluded that. part of the general public which possesses the right. (Emphasis supplied) Further. . in Albano v. Article XII of the 1987 Constitution participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof. alteration. certificate. certificate. proportionate share in its capital. viz: 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. or repeal by the Congress when the Philippines or to corporations or other entities organized under the laws common good so requires. The State shall encourage equity participation in public utilities by the general public. at least sixty per centum of whose capital is owned by such citizens. nor shall such franchise. of the Philippines at least sixty per centum of the capital of which is owned by such citizens. since the instant petition. The Section 11. No franchise. . the disclosure Constitution. No franchise. No franchise. or any other form of authorization for the 1935 Constitution. in the economic development of the country and the magnitude of the financial The above provision substantially reiterates Section 5. The participation of foreign investors in citizens of the Philippines. therefore. certificate. (Emphasis supplied) Section 11. (Emphasis supplied) Section 5. or any other form of authorization for such franchise or right be granted except under the condition that it shall be the operation of a public utility shall be granted except to citizens of the subject to amendment. or authorization be exclusive in character or for a longer period than fifty years. or repeal by the National Assembly when the public interest so requires. or the governing body of any public utility enterprise shall be limited to their authorization be exclusive in character or for a longer period than fifty years.

54% of the total outstanding common stock. national economy effectivelycontrolled by Filipinos. Hence.26The evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities.32 Father Joaquin G. 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. Petitioner posits that the Oil Company-Energy Development Corporation or PNOC-EDC) of including term capital in Section 11. respondent Nazarenos Memorandum. for a corporation to be granted authority to operate a public Respondent Nazareno does not deny petitioners allegation of foreigners dominating utility. he states that among the factual assertions that need to be established to counter Petitioner submits that the 40 percent foreign equity limitation in domestic public petitioners allegations is the uniform interpretation by government agencies utilities refers only to common shares because such shares are entitled to vote and it is (such as the SEC). which means that be granted only to citizens of the Philippines or to corporations or associations foreigners exercise significant control over PLDT.29 In particular. the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that The crux of the controversy is the definition of the term capital.27 This specific provision explicitly reserves to Filipino citizens control of Section 11. the common shareholdings of PLDT. which may be inimical to the national Respondents.J. Bernas. (Emphasis is undisputed that PLDTs non-voting preferred shares are held mostly by Filipino supplied) citizens. Article XII of the Constitution refer to common shares or to the total the foreign common shareholders. Nazareno invokes denial of due process on behalf of in Section 11. Article XII of the Constitution refers to the ownership of both preferred shares and common shares in controlling interest in view of common capital stock subscribed and outstanding. 217. at least 60 percent of its capital must be owned by Filipino citizens. the corporate set-up of PLDT. Does the term capital they can be heard. under . can vote and elect members of the board of directors. Article XII of the Constitution. private public utilities. The provision is [an express] recognition of the sensitive and vital position of public utilities both in the national economy and for national security. 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. do not offer any definition of the term capital in interest. on the other hand.. Article XII of the due process rights of the affected foreign common shareholders. harps Any citizen or juridical entity desiring to operate a public utility must therefore meet mainly on the procedural infirmities of the petition and the supposed violation of the the minimum nationality requirement prescribed in Section 11. Constitution. More importantly.34Essentially.30 This arose from Presidential Decree No. S. outstanding capital stock (combined total of common and non-voting preferred shares)? While Nazareno does not introduce any definition of the term capital.31 issued on 16 June 1973 by then President Ferdinand Marcos. institutions and corporations (such as the Philippine National through voting that control over a corporation is exercised. reminds us that the Filipinization provision in the 1987 Constitution is Petitioners-in-intervention basically reiterate petitioners arguments and adopt one of the products of the spirit of nationalism which gripped the 1935 Constitutional petitioners definition of the term capital. is owned by such citizens. a leading member of the 1986 Constitutional Commission. which class of shares alone. except under the condition that it shall be subject to amendment. patently violating the 40 percent organized under the laws of the Philippines at least sixty per centum of whose capital foreign equity limitation in public utilities prescribed by the Constitution. alteration. It or repeal by the Congress when the public interest so requires.25 The 1987 Constitution provides for the Filipinization of public utilities approximate foreign ownership of common capital stock of PLDT x x x already by requiring that any form of authorization for the operation of public utilities should amounts to at least 63. pursuant to an overriding economic goal of the 1987 Constitution: to respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40 conserve and develop our patrimony28 and ensure a self-reliant and independent percent of the common shares of PLDT are held by foreigners. 33 Petitioners-in-intervention allege that the Convention. consisting of 73 pages.

(4) non-availability of Constitution refers to shares entitled to vote or the common shares. The OSG. In its Memorandum 37 dated 24 September shareholders. (2) stockholder of record of PLDT. Article XII of the Constitution. petitioner Fernandez who claimed to be a his Memorandum (1) the absence of this Courts jurisdiction over the petition. i. lack of standing. Instead. The OSG does not present any definition or interpretation of the term capital in Section 11. 2007. non-inclusion of interested parties. Undersecretary the common shares can be owned entirely by foreigners thus creating an John P. Moreover. Respondent Pangilinan emphasizes in In the earlier case of Fernandez v.e. the OSG also limits its discussion on the supposed procedural defects of the petition.36 respondents arguments were to be given credence. and (3) the reliefs prayed for in the petition would adversely impact the stock market.e. Sevilla. Article XII of the Constitution. (2) the PSE allegedly implemented its rules and required all listed companies. Fernandez declaratory relief. Following the Trial Courts ruling adopting respondents arguments. control the public utility corporation. Otherwise. 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. respondent Pangilinanfocuses on the procedural flaws of the petition and the alleged violation of the due process rights of foreigners. the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the controlling interest. 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. impleaded as President and Chief Executive Officer of in public utilities. 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. and (5) the denial of due process rights. if the Trial Courts ruling upholding Filipino-owned to keep its franchise).. Commissioner Ricardo Abcede.testing compliance with the 40% constitutional limitation on foreign ownership Respondent Francisco Ed Lim. which in effect requires a full-blown trial where all the parties in interest are given their day in court. contended that the term capital in the 1987 petitioners lack of standing. and Chairman Fe Barin. representing public respondents Secretary Margarito Teves. including PLDT. According to him. Cojuangco. common shares. The xxxx OSG contends that the petition actually partakes of a collateral attack on PLDTs franchise as a public utility. considering that it is through voting that control is being exercised. respondent Manuel V. (3) mootness of the petition.38 Thus. Neither does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs common shares. the intent of the framers of the Constitution in imposing property (the shareholders stock in the utility company) on the basis of another limitations and restrictions on fully nationalized and partially nationalized partys alleged failure to satisfy a requirement that is a condition only for that other activities is for Filipino nationals to be always in control of the corporation partys retention of another piece of property (the utility company being at least 60% undertaking said activities. and lack of basis for injunction. x x x Respondent Pangilinan further asserts that Section 11. lack of jurisdiction. Section 11 does not authorize taking one persons Obviously. [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. to make proper and timely disclosures. is likewise absurd situation wherein foreigners.35 the Philippine Stock Exchange (PSE). who are supposed to be minority silent on the definition of the term capital. . Pangilinan does not define the term capital in Section 11. Similarly. explained thus: 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.

whether as common or preferred. Pangilinan. common shares. in state that as between the law and an opinion rendered by an administrative determining the outstanding capital stock (the capital) of a corporation. i. therefore. Ray C. Cojuangco.e. In this regard. xxxx Fr. xxxx In the same vein. x x x utilities prescribed by the Constitution refers to ownership of shares of stock entitled to vote. The Constitution. means the total shares of stock issued under Parenthetically. respondents therein. 1988 and April 14. argued that the term capital in Section 11. without distinction as to classes of shares. Espinosa. nor exclude either class of shares. 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. Albert F. Elma. III) which petitioner misleadingly cited in the Petition x x x which supports petitioners view that only common shares should form the basis for computing a public utilitys foreign equity. The term outstanding capital stock. the forty percent (40%) foreign equity limitation in public capital. 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. petitioners suggestion to reckon PLDTs foreign equity only on advisory and cannot prevail over the clear intent of the framers of the the basis of PLDTs outstanding common shares is without legal basis. Antonio O. Mariles Cacho-Romulo. as used in this Code. Article XII of . since it is already admitted that the voting interests of time the present (1987) Constitution was drafted defined outstanding capital foreigners which would gain entry to petitioner PLDT by the acquisition of stock as follows: SMART shares through the Questioned Transactions is equivalent to 82. 1987 cited binding subscription agreements to subscribers or stockholders. Bienvenido F. whether or by the Trial Court to support the proposition that the meaning of the word not fully or partially paid. there is. Magdangal B. and Orlando B. language of the Constitution should be understood in the sense it has in common use. Dee. said Opinions are merely Consequently.99%. Napoleon L. Carlos A. and the nominee arrangements between the foreign principals and the Filipino owners is likewise admitted. Section 137. Nebres. Article XII of the Constitution is at best merely advisory for it is the courts that finally determine what a law means. Nazareno. The Constitution applies its foreign ownership limitation on the corporations Clearly. in the case of In this connection. suffice it to common and preferred shares. capital as used in Section 11. On the other hand. Helen Y. there is nothing in the Record of the Constitutional Commission (Vol. Outstanding capital stock defined. agency. Del Rosario. Vea. Furthermore. thus: xxxx 16. a violation of Section 11. But even assuming that resort to the proceedings of the Constitutional Commission is necessary. Moreover..39 17. Manuel V. Arellano. Consequently. the SECs construction of Section 11. therefore. the Opinions dated February 15. except treasury shares. the law indubitably prevails. the Constitution includes preferred shares since the Constitution does not distinguish among classes of stock. and Section 137 of the Corporation Code also does not distinguish between as clarified by the above-quoted Amendments. 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. the Corporation Code which was already in force at the petitioner PLDT. Article XII of the Constitution.

00) pesos per share: Provided. Article XII of the Constitution refers only to shares of stock entitled to vote in the the certificate of stock. or both. Dissolution of the corporation. or such other preferences as may be stated in 8. Increase or decrease of capital stock. lease. classify its shares for the purpose of insuring compliance with constitutional or legal requirements. Sale. That shares regards nationalized activities x x x has categorically ruled that both without par value may not be issued for a consideration less than the value of common and preferred shares are properly considered in determining five (P5. complete voting rights. exchange. the articles of incorporation which are not violative of the provisions of this Code: Provided. furthermore. insurance 6. Merger or consolidation of the corporation with another companies. Investment of corporate funds in another corporation or business Preferred shares of stock issued by any corporation may be given preference in accordance with this Code. permitted to issue no-par value shares of stock. We agree with petitioner and petitioners-in-intervention. however. and which also has the responsibility of and non-assessable and the holder of such shares shall not be liable to the ensuring compliance with the Constitutions foreign equity restrictions as corporation or to its creditors in respect thereto: Provided. The Board of Directors. Adoption and amendment of by-laws. each share shall be equal in all respects to every other election of directors. any of which classes or 3. unless otherwise provided in this Code: Provided. and building and loan associations shall not be corporation or other corporations. 2. privileges or restrictions as may be or substantially all of the corporate property. stated in the articles of incorporation: Provided. That there shall always be a class or series of shares which have 5. and thus in the present case only to common shares. Incurring. That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission. the total outstanding capital stock comprising both common and non-voting preferred shares. A corporation may. mortgage. pledge or other disposition of all series of shares may have such rights. . Amendment of the articles of incorporation. 40 received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends. public utilities. to vote on the following matters: thus: 1. where authorized in the articles of necessary to approve a particular corporate act as provided in this Code shall incorporation. That banks. and in the distribution of the assets of the corporation in case of liquidation and in the distribution of dividends. further. That no share may be deprived of voting rights except those classified and issued as preferred 4. The term capital in Section Except as otherwise provided in the articles of incorporation and stated in 11. creating or increasing bonded indebtedness. 6. 41 and not to share. Sec.The shares of stock of stock corporations may be divided into classes or series of shares. 18. may fix the terms and conditions of preferred shares of stock be deemed to refer only to stocks with voting rights. trust companies. the SEC the government agency primarily responsible for Shares of capital stock issued without par value shall be deemed fully paid implementing the Corporation Code. Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code. 7. or redeemable shares. That the entire consideration outstanding capital stock and the nationality composition thereof. the vote stated par value. the holders of such shares shall nevertheless be entitled The Corporation Code of the Philippines42 classifies shares as common or preferred. That preferred shares of stock may be issued only with a Except as provided in the immediately preceding paragraph. In addition. Classification of shares. . or any series thereof: Provided. 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. further.

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.45 In fact. VILLEGAS. In Sections 3. . VILLEGAS. preferred shareholders are often excluded from any control.43 This is exercised through his vote in the Where do we base the equity requirement. NOLLEDO. NOLLEDO. and any voting stock. MR. Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. However. the term capital in Section 11. under the Corporation Code team from the UP Law Center who provided us a draft. opposed to preferred shares which usually have no voting rights. With respect to an investment by one corporation in another corporation. Thank you. to wit: which is permitted by the Corporation Code. the term capital in Section 11. on the theory that the preferred shareholders are merely investors in the corporation MR. on the subscribed capital stock. VILLEGAS. Article XII of the Constitution refers only to common shares. Section 9 and 2/3-1/3 in Section 15. MR. That is right. 60-40 in Section 3. that is.44In the absence of provisions in the articles of incorporation denying corporation? Will the Committee please enlighten me on this? voting rights to preferred shares. We have just had a long discussion with the members of the for income in the same manner as bondholders. because unless declared delinquent. In short. 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 MR. Yes. That must be based on the subscribed capital stock. election of directors. namely. provision in the articles of incorporation restricting the right of common shareholders to vote is invalid. In teaching law. one of the rights of a stockholder is the right to participate in the MR. NOLLEDO. unpaid capital stock shall be entitled to Considering that common shares have voting rights which translate to control. as vote. deprived of the right to vote in the election of directors and on other matters. However. 46 Common contained here which we adopted from the UP draft is 60 percent of shares cannot be deprived of the right to vote in any corporate meeting. VILLEGAS. The phrase that is only preferred or redeemable shares can be deprived of the right to vote.47 MR. the Committee stated local or Filipino equity and foreign equity. is it on the authorized capital election of directors because it is the board of directors that controls or manages the stock. NOLLEDO. capital refers to say. NOLLEDO. that is the understanding of the Committee.Indisputably. we need additional Filipino capital? MR. does the Committee adopt the grandfather rule? MR. if the preferred shares also have the right to vote in the election of directors. As revealed in the deliberations of the Constitutional Commission. preferred shares have the same voting rights as common shares. or on the paid-up capital stock of a corporation. That is right. we are always faced with this question: control or management of the corporation. 60-40 in MR. Therefore. a corporation with 60-40 percent equity invests in another corporation the voting stock or controlling interest of a corporation. 9 and 15.

Thus. 3. as referring to controlling interest or shares entitled to vote. BENGZON. We should not eliminate the phrase controlling interest. No. AZCUNA. MR. a. VILLEGAS.49 (Emphasis supplied) MR. VILLEGAS. assumed. That is the anomaly that would result here. xxxx MR.MR. VILLEGAS. 60 percent of the capital assumes. SEC. So if the Davide amendment is lost. That where a corporation and its capital. The term Philippine national shall mean a citizen of the Philippines. BENGZON. In the case of stock corporations. AZCUNA. MR. without the Davide amendment. where the trustee is a Philippine shares. That is right. May I be clarified as to that portion that was accepted by the Committee. we are stuck with 60 percent of the capital to be owned by citizens. . Let us say 40 percent of the capital is owned by them. VILLEGAS. 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. controlling interest in the corporation. Reinforcing this interpretation of the term capital. the committee report would read: corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens. is wholly owned by Filipinos or a trustee of funds for pension or other but it is the voting capital.50 to wit: MR. there are associations that do not have stocks. AZCUNA. the Filipinos own the nonvoting employee retirement or separation benefits. Definitions. Philippines.48 MR. AZCUNA. Yes. whereas. But the control can be with the foreigners even if they hundred percent (100%) of the capital stock outstanding and entitled to vote are the minority. The portion accepted by the Committee is the deletion of MR. or a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one MR. AZCUNA. or should result in. the reason we eliminated the word stock as stated in the 1973 and 1935 Constitutions is that according to Commissioner Rodrigo. So we can have a situation where the corporation is controlled by national and at least sixty percent (60%) of the fund will accrue to the foreigners despite being the minority because they have the voting benefit of Philippine nationals: Provided. Yes. or a domestic partnership or association wholly owned by citizens of the MR. Hence. it is the phrase voting stock or controlling interest. non-Filipino stockholders own stocks in a Securities and Exchange . is the definition of a Philippine national in the Foreign Investments Act of 1991.As used in this Act: MR. That is why we say CAPITAL.

the voting rights of the Constitution is also used in the same context in numerous laws reserving certain areas of investments to Filipino citizens. shall be considered a Philippine national. Under Section 10. Article XII of appropriate voting rights is essential. 3850. in numerous laws Congress has paid or not. Philippine national shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens of the Philippines. . Small and Medium Enterprises or R. No. that where a corporation its non-Filipino stockholders own stocks in a Securities and Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required Exchange Commission [SEC] registered enterprise. the term capital in Section 11. Full beneficial ownership of 60 percent of the outstanding capital [60%] of the capital stock outstanding and entitled to vote of both stock. is required.A. No. (4) Philippine Overseas Shipping Development For stocks to be deemed owned and held by Philippine citizens or Act or R. 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. the Implementing Rules and Regulations of the Foreign Investments Act of 1991 provide: b. Some of these laws are: (1) Regulation of Award of Government Contracts or R. Otherwise. Thus. at least sixty percent (60%) of the which have been assigned or transferred to aliens cannot be considered capital stock outstanding and entitled to vote of each of both corporations held by Philippine citizens or Philippine nationals. but only such stocks which are generally entitled to vote are reserved certain areas of investments to Filipino citizens or to corporations at least considered. No. Congress may reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose Compliance with the required Filipino ownership of a corporation shall capital is owned by such citizens. 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. at least sixty percent in the Constitution. coupled with 60 percent of the voting rights. Philippine nationals. (6) Philippine Technology Transfer Act of 2009 or R. No. (5) Domestic Shipping Development Act of 2004 or R. mere legal title is not enough to meet the required 9295. 5183. and (7) Ship Filipino equity. Commission (SEC) registered enterprise. (2) Philippine Inventors Incentives Act or R. The legal and corporations must be owned and held by citizens of the Philippines and at beneficial ownership of 60 percent of the outstanding capital stock must rest in the least sixty percent [60%] of the members of the Board of Directors of each of hands of Filipino nationals in accordance with the constitutional mandate. Hence. No. in order that the the corporation is considered as non-Philippine national[s].A. (Emphasis supplied) In explaining the definition of a Philippine national. corporation shall be considered a Philippine national. (Emphasis supplied) Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine nationals. or such higher percentage as Congress be determined on the basis of outstanding capital stock whether fully may prescribe. sixty percent of the capital of which is owned by Filipino citizens. Article XII of the Constitution. or a trustee of funds for pension or other employee retirement or separation benefits. certain areas of investments. No. Full beneficial ownership of the stocks. No. Thus. Provided. 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. 7471. (3) Magna Carta for Micro.D. 10055.A. in order that the corporation. The control test shall be applied for this purpose. stocks. coupled with Mortgage Decree or P.A. both corporation must be citizens of the Philippines.A.A. 1521. 6977.

while the declared dividends for the preferred shares amounted to a measly P1. The example given is not theoretical but can be found in the real world. 51 common shares is P5.60 as submitted to the SEC. 57 as submitted to the SEC.To construe broadly the term capital as the total outstanding capital stock. do not have having a par value of one peso (P1. such corporation would be considered compliant with the 40 percent common shares have voting rights for all purposes. Since holding a majority of the common shares equates to control. is clear that foreigners exercise control over PLDT. utility. they also have very little and obviously negligible dividend earning capacity compared to common shares. or to receive As shown in PLDTs 2010 GIS. it public utility.000. the par value of PLDT notice of any meeting of stockholders. This is obviously absurd.999 percent of the foreigners hold 64. meaning Let us assume that a corporation has 100 common shares owned by foreigners and only common shareholders exercise control over PLDT. and in fact shows that per share the SIP58 preferred shares earn a pittance in dividends compared exists in the present case. In fact.73%. that foreigners hold a majority of the common shares of PLDT. under PLDTs Articles of Incorporation. Moreover.690 common shares of with a minuscule equity of less than 0. The foreigners. It also renders illusory the State policy of an independent utilities expressly mandated in Section 11. based on PLDTs 2010 General Information In the example given. holding more than 99. It must be stressed. majority. while holders of preferred shares constitutional limit on foreign equity of public utilities since the overwhelming have no voting right for any purpose whatsoever.00 per share.999 percent. On the other hand. Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT declared dividends for the common shares at P70. and respondents do not dispute.27% of the total number of PLDTs common shares. 53 We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Conversely. A broad definition unjustifiably by him on all matters voted upon by the stockholders. or more than 99. to the common shares. exercise control over the public PLDT whereas Filipinos hold only 66. the Filipinos. even if they hold only 100 shares.00) per share. the Dividend Declarations of PLDT for 2009. Under the broad definition of the any control over PLDT. cannot vote in the election of directors and hence. who have no voting rights in the election of directors. holders of 1. PLDTs 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. only the foreigners holding the common shares have voting Sheet (GIS). holders of term capital. which necessarily equates to Capital Stock shall have the exclusive right to vote for the election of directors control of the public utility.00 per share. 56 In other words. and for all other purposes. including On the other hand. 55 foreigners hold 120. national economy effectively controlled by Filipinos. In fact. This starkly circumvents the intent of the framers of the Constitution. grossly contravenes the intent and letter the election of directors. and the holders of Common disregards who owns the all-important voting stock. In short.59 So the preferred shares not only cannot vote in the election of directors. whereas the par value of preferred shares is P10. PLDTs Articles of Incorporation 52 state that each holder of of the Constitution that the State shall develop a self-reliant and independent national Common Capital Stock shall have one vote in respect of each share of such stock held economy effectively controlled by Filipinos. holders of common shares are granted the exclusive right to vote in both common and non-voting preferred shares. Such amount of control as well as the clear language of the Constitution. only holders of common shares can vote in the election of directors.046. while Filipinos equity. to place the control of public utilities unmistakably exceeds the allowable 40 percent limit on foreign ownership of public in the hands of Filipinos. with both classes of share preferred shares.54 which is a document required to be submitted annually to the rights in the election of directors. of the total outstanding capital stock is Filipino owned. have no control over the hold only 35.001 percent.000 non-voting preferred shares owned by Filipinos. Securities and Exchange Commission. Article XII of the Constitution.00 per share.750.00 .622 common shares.

in the words of the Constitution.00 per share. as a contrary rule would give the legislature discretion to Incidentally. educational institutions and advertising except to x x xcorporations x x x organized under the laws of the Philippines. and thus do not exercise control over legislature would have the power to ignore and practically nullify the PLDT. These provisions current stock market value of P2. GSIS. . The Court should never open to foreign control what the Constitution has percent of the voting rights.65 is a glaring confirmation by the market that control Moreover. Full resources as well as the ownership of land. at least business. expressly reserving to Filipinos specific areas of investment. This directly contravenes the express Section 11.63 (5) prevailing view is. certificate. There is no need for legislation to implement these self- sixty per centum of whose capital is owned by such citizens x x x. Article XII of the Constitution. like other provisions of the Constitution command in Section 11. .73% of PLDTs common shares. and thus exercise provisions of the constitution are self-executing. If the constitutional control over PLDT. in case of doubt. This kind of ownership and control of a public utility is a mockery of the Constitution.64 while PLDT preferred shares with would be subordinated to the will of the lawmaking body. which class of to enforce a constitutional mandate. preferred shares constitute preferred shares.85% of the authorized capital stock of PLDT and common shares only 22. only P10. the provisions of the Constitution should be considered self- executing. . 99. 99.62This undeniably shows that beneficial interest in PLDT is not with the non- voting preferred shares but with the common shares.27% of the common shares of PLDT. executing provisions of the Constitution. provisions are treated as requiring legislation instead of self-executing. That is why the preferred shares earn only 1/70 of the dividends that common shares earn. grossly violates the constitutional requirement of 60 self-reliant and independent national economy effectively controlled by Filipinos. percent Filipino control and Filipino beneficial ownership of a public utility.56% of the preferred shares. . and earn less than 60 percent of the dividends. of PLDT.06 per share. have no voting rights. to include both voting and non-voting shares will result in the abject surrender of our telecommunications industry to foreigners. the Constitution should be considered self-executing rather than non-self-executing.15%. (2) Filipinos own only 35.44% owned by Filipinos. and (6) preferred shares constitute 77. the constituting a minority of the voting stock. educational institutions and advertising beneficial ownership of 60 percent of the outstanding capital stock. Article XII of the Constitution that [n]o franchise. that preferred shares have twice the par value of common shares. they shall be effective. which could make .92 to P11. as it has always been. (3) preferred shares.66 thus: x x x Hence. not with the only a minuscule 0.85% of the authorized capital stock of PLDT while common shares constitute only 22.61 Worse. the presumption now is that all shares exercises the sole right to vote in the election of directors. In short. such as the exploitation of natural rest in the hands of Filipinos in accordance with the constitutional mandate. such as the development of or any other form of authorization for the operation of a public utility shall be granted natural resources and ownership of land. construing the term capital in Section 11. . unless it is expressly provided that a legislative act is necessary To repeat. Article XII of the Constitution ownership in a public utility. coupled with 60 businesses. is self-executing. In other words. The Court must perform its solemn duty to defend and uphold shares.44% owned by Filipinos. The rationale why these constitutional provisions are self-executing was explained in Manila Prince Hotel v.15%. This can be cataclysmic.per share. Unless the contrary is clearly intended. preferred shares have twice the par value of common shares a par value of P10. amounting to a clear abdication of the States constitutional duty to limit control of public utilities to Filipino citizens. are non-voting and earn only 1/70 of the dividends the intent and letter of the Constitution to ensure.44% of the preferred shares are owned by Filipinos while foreigners own and beneficial ownership of PLDT rest with the common shares. (1) foreigners own 64. Such an interpretation certainly runs counter to the constitutional provision reserving The legal and beneficial ownership of 60 percent of the outstanding capital stock must certain areas of investment to Filipino citizens.00 per share have a current stock market value ranging from but cannot elect directors and have only 1/70 of the dividends of common shares.00 have a determine when. Filipinos hold less than 60 percent of the voting stock. is constitutionally required for the States grant of expressly reserved to Filipinos for that would be a betrayal of the Constitution and of authority to operate a public utility. a that PLDT common shares earn. or whether. . The undisputed fact that the PLDT preferred the national interest.328. 77. blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial Indisputably. the fact that PLDT common shares with a par value of P5. (4) mandate of the fundamental law. 99.

the rights of an accused. agreed that constitutional provisions are presumed to be cases of violations against the constitutional prohibition. legislature has not definitely decided what policy should be followed in Puno.) While the In Manila Prince Hotel. at least 60 constitutional rights but congressional inaction should not suffocate percent of the capital of which is owned by Filipinos. Justice Puno stated: cannot go beyond by declaring the disposition to be null and void as violative of the Constitution. and the privilege against self- incrimination. liberty and the protection of property. 6 G. in numerous cases. the mandate of the fundamental law ratified by the sovereign people can be To treat Section 11. We have said that what the State should do or could do in such matters is a matter of public policy. The reason is not difficult to discern. or over the last 75 years. Filipinos or foreigners. x x x (Emphasis supplied) Courts as a rule consider the provisions of the Constitution as self-executing. courts of justice self-executing. No. entirely beyond the scope of judicial authority. even in the absence of implementing legislation. and the ownership of educational institutions. even the Dissenting Opinion of then Associate Justice ReynatoS. later Chief Justice. vs. In Soriano v. 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. Suffused with wisdom of the that since the 1935 Constitution. and as both the citizen and the alien have violated the law. All the legislatures that convened since 1935 also miserably failed to enact legislations to implement these vital constitutional provisions that determine who will effectively Thus. not one of the constitutional ages is the unyielding rule that legislative actions may give breath to provisions expressly reserving specific areas of investments to corporations. For if they are not treated as self-executing. the exploitation by corporations of mineral resources. 1956. none of them should have a recourse against the other. we have treated as self-executing the provisions in the Bill of Rights on control the national economy. The same treatment is accorded This Court has held that the SEC has both regulatory and adjudicative to constitutional provisions forbidding the taking or damaging of property functions. framers of the 1935. the ownership by corporations of real estate.68 this 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. (Dinglasan. It is recognized that legislation is unnecessary to enable courts to effectuate constitutional provisions guaranteeing the fundamental rights of life. Under its adjudicative or quasi-judicial functions. the rights of a person under custodial absurd interpretation of the Constitution. investigation. L-5996.. Lee Bun Ting. the them. them entirely meaningless by simply refusing to pass the needed Thus. searches and seizures. June 27.67 this Court. the SEC can be compelled by mandamus for public use without just compensation. R. et al. 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment. like the operation by corporations of public utilities. This Court cannot allow such an arrests. 1973 and 1987 Constitutions limiting land ownership to Filipinos. 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. (Emphasis supplied) applied directly the provisions of the 1935. was enforceable. . rather than as requiring future legislation for their enforcement. In short. (Emphasis supplied) to perform its statutory duty when it unlawfully neglects to perform the same. et al.69 Under its regulatory functions. implementing statute. Ong Hoo. Article XII of the Constitution as not self-executing would mean easily ignored and nullified by Congress.

This Court can compel the SEC. as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT submitted to SEC. Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors. in a petition for declaratory relief that is treated as a petition for mandamus as in the present case. Under Section 5(m) of the Securities Regulation Code. . we PARTLY GRANT the petition and rule that the term capital in Section 11.Under Section 17(4)70 of the Corporation Code. in a petition for declaratory relief that is treated as a petition for mandamus as in the present case. a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted to the SEC. upon any of the grounds provided by law. and not to the total outstanding capital stock (common and non-voting preferred shares). partnerships or associations. 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. the SEC is the government agency tasked with the statutory duty to enforce the nationality requirement prescribed in Section 11. after proper notice and hearing. to impose the appropriate sanctions under the law. Article XII of the Constitution in view of the ownership structure of PLDTs voting shares. and if there is a violation of Section 11. can direct the SEC to perform its statutory duty under the 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. Thus. 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. to hear and decide a possible violation of Section 11. Article XII of the Constitution. 71 the SEC is vested with the power and function to suspend or revoke. This Court. Article XII of the Constitution on the ownership of public utilities. WHEREFORE. 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. the franchise or certificate of registration of corporations. and thus in the present case only to common shares.