Chapter 4.

Effect of Parental Authority Upon

the Property of the Children

Art. 225. The father and the mother shall jointly exercise legal guardianship
over the property of the unemancipated common child without the necessity
of a court appointment. In case of disagreement, the father's decision shall
prevail, unless there is a judicial order to the contrary.

Where the market value of the property or the annual income of the child
exceeds P50,000, the parent concerned shall be required to furnish a bond
in such amount as the court may determine, but not less than ten per
centum(10%) of the value of the property or annual income, to guarantee
the performance of the obligations prescribed for general guardians.
A verified petition for approval of the bond shall be filed in the proper court
of the place where the child resides, or, if the child resides in a foreign
country, in the proper court of the place where the property or any part
thereof is situated.

The petition shall be docketed as a summary special proceeding in which all

incidents and issues regarding the performance of the obligations referred to
in the second paragraph of this Article shall be heard and resolved.

The ordinary rules on guardianship shall be merely suppletory except when

the child is under substitute parental authority, or the guardian is a stranger,
or a parent has remarried, in which case the ordinary rules on guardianship
shall apply.

Gamboa vs. Teves

Petitioner submits that the 40 percent foreign equity limitation in domestic public
utilities refers only to common shares because such shares are entitled to vote and it
is through voting that control over a corporation is exercised. Petitioner posits that
the term capital in Section 11, Article XII of the Constitution refers to the ownership
of common capital stock subscribed and outstanding, which class of shares alone,
under the corporate set-up of PLDT, can vote and elect members of the board of
directors. It is undisputed that PLDTs non-voting preferred shares are held mostly by
Filipino citizens.

Respondents, on the other hand, do not offer any definition of the term capital in
Section 11, Article XII of the Constitution. More importantly, private
respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40
percent of the common shares of PLDT are held by foreigners.

Issue: Whether the term capital in Section 11, Article XII of the Constitution refers to
the total common shares only or to the total outstanding capital stock (combined
total of common and non-voting preferred shares) of PLDT, a public utility.

Held:

We agree with petitioner and petitioners-in-intervention. The term capital in Section

11, Article XII of the Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares, and not to
the total outstanding capital stock comprising both common and non-voting
preferred shares.

Indisputably, one of the rights of a stockholder is the right to participate in the control
or management of the corporation.43 This is exercised through his vote in the election
of directors because it is the board of directors that controls or manages the
corporation.44 In the absence of provisions in the articles of incorporation denying
voting rights to preferred shares, preferred shares have the same voting rights as
common shares. However, preferred shareholders are often excluded from
any control, that is, deprived of the right to vote in the election of directors and on
other matters, on the theory that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders. 45 In fact, under the
Corporation Code only preferred or redeemable shares can be deprived of the right to
vote.46 Common shares cannot be deprived of the right to vote in any corporate
meeting, and any provision in the articles of incorporation restricting the right of
common shareholders to vote is invalid.47

Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term capital in
Section 11, Article XII of the Constitution refers only to common shares. However, if
the preferred shares also have the right to vote in the election of directors, then the
term capital shall include such preferred shares because the right to participate in the
control or management of the corporation is exercised through the right to vote in the
election of directors. In short, the term capital in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of
directors.
This interpretation is consistent with the intent of the framers of the Constitution to
place in the hands of Filipino citizens the control and management of public utilities.
As revealed in the deliberations of the Constitutional Commission, capital refers to the
voting stock or controlling interest

Thus, 60 percent of the capital assumes, or should result in, controlling interest in
the corporation. Reinforcing this interpretation of the term capital, as referring to
controlling interest or shares entitled to vote, is the definition of a Philippine national
in the Foreign Investments Act of 1991, to wit;

Section 3.XXX XXX XXX 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.

Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required
in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is required. The legal and
beneficial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipino nationals in accordance with the constitutional mandate. Otherwise,
the corporation is considered as non-Philippine national[s].

To construe broadly the term capital as the total outstanding capital stock, including
both common and non-voting preferred shares, grossly contravenes the intent and
letter of the Constitution that the State shall develop a self-reliant and independent
national economy effectively controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to
control of the public utility.

Hence, it was ruled that the term capital in Section 11, Article XII of the 1987
Constitution refers only to shares of stock entitled to vote in the election of directors,
and thus in the present case only to common shares, and not to the total outstanding
capital stock (common and non-voting preferred shares).

Control Test- The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its 30
May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, ‘(s)hares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the liberal Control
Test, there is no need to further trace the ownership of the 60% (or more) Filipino stockholdings of
the Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as
Filipino.

Grandfather Rule - The second case is the Strict Rule or the Grandfather Rule Proper and pertains
to the portion in said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of
Filipino ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality." Under the Strict
Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino
ownership.

Narra Nickel Mining vs. Redmont Consolidate Mines

Petitioner, being a foreign corporations, are not entitle to Mineral Product Sharing
Agreements. SC held there was doubt as to petitioner’s nationality since a 100%
Canadian-owned firm, MBMI, Inc., effectively owns 60% of the common stock of the
petitioners by owning equity interest of petitioners’ other majority corporate
shareholders

Issue: Whether or not Grandfather Rule can be applied jointly with Control test in
determining the nationality of corporate entities for purposes of determining
compliance with Sec.2, Art. XII of the Constitution (60-40 equity ownership)

Held: Yes. the Control Test can be, as it has been, applied jointly withthe Grandfather Rule to
determine the observance of foreign ownership restriction in nationalized economic activities. The
Control Test and the Grandfather Rule are not, as it were, incompatible ownership-determinant
methods that canonly be applied alternative to each other. Rather, these methodscan, if appropriate,
be used cumulatively in the determination of the ownership and control of corporations engaged in
fully or partly nationalized activities, as the mining operation involved in this case or the operation of
public utilities as in Gamboa or Bayantel.

The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and
control in a corporation, as it could result in an otherwise foreign corporation rendered qualified to
perform nationalized or partly nationalized activities. Hence, it is only when the Control Test is first
complied with that the Grandfather Rule may be applied. Put in another manner, if the subject
corporation’s Filipino equity falls below the threshold 60%, the corporation is immediately considered
foreign-owned, in which case, the needto resort to the Grandfather Rule disappears.

On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity requirement
can be considered a Filipino corporation if there is no doubtas to who has the "beneficial ownership"
and "control" of the corporation. In that instance, there is no need fora dissection or further inquiry on
the ownership of the corporate shareholders in both the investing and investee corporation or the
application of the Grandfather Rule. As a corollary rule, even if the 60-40 Filipino to foreign equity
12

ratio is apparently met by the subject or investee corporation, a resort to the Grandfather Rule is
necessary if doubt existsas to the locusof the "beneficial ownership" and "control." In this case, a
further investigation as to the nationality of the personalities with the beneficial ownership and
control of the corporate shareholders in both the investing and investee corporations is necessary.

As explained in the April 21,2012 Decision, the "doubt" that demands the application of the
Grandfather Rule in addition to or in tandem with the Control Test is not confined to, or more bluntly,
does not refer to the fact that the apparent Filipino ownership of the corporation’s equity falls below
the 60% threshold. Rather, "doubt" refers to various indicia that the "beneficial ownership" and
"control" of the corporation do not in fact reside in Filipino shareholders but in foreign stakeholders.

Cagayan Fishing vs. Sandiko

Manuel Tabora owner of 4 parcels of land located in Aparri, Cagayan de Oro mortgaged with PNB to
guarantee a payment of loan. Thereafter, he sold the 4 parcels of land to Cagayan Fishing Dev., Inc.,
whom at that time was under the process of incorporation. The transfer made by the Tabora to Cagayan
Fishing was made almost 5 months before the incorporation of the company. A year later, the company
adopted a resolution to sell the 4 parcels of land to Teodoro Sandiko and executed promissory note in
favor to Cagayan fishing and subject to mortgages in favor of PNB. Sandiko failed to pay the promissory
note. Cagayan fishing filed an action against Sandiko with the trial court. The trial court rendered the sale
deed of sale made between Sandiko and Cagayan Fishing is invalid.

1.Whether Cagayan Fishing Dev’t. has juridical capacity to enter into the contract.

2. Can promoters of a corporation act as agents of a corporation?

RULING:

1.

The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein, was
effected on May 31, 1930 and the actual incorporation of said company was effected later on
October 22, 1930. In other words, the transfer was made almost five months before the
incorporation of the company.

A duly organized corporation has the power to purchase and hold such real property as the
purposes for which such corporation was formed may permit and for this purpose may enter into
such contracts as may be necessary. But before a corporation may be said to be lawfully
organized, many things have to be done. Among other things, the law requires the filing of
articles of incorporation. Although there is a presumption that all the requirements of law have
been complied with, in the case before us it can not be denied that the plaintiff was not yet
incorporated when it entered into the contract of sale.
The contract itself referred to the plaintiff as “una sociedad en vias de incorporacion.” It was not
even a de facto corporation at the time. Not being in legal existence then, it did not possess
juridical capacity to enter into the contract.

“Corporations are creatures of the law, and can only come into existence in the manner
prescribed by law. As has already been stated, general laws authorizing the formation of
corporations are general offers to any persons who may bring themselves within their provisions;
and if conditions precedent are prescribed in the statute, or certain acts are required to be done,
they are terms of the offer, and must be complied with substantially before legal corporate
existence can be acquired.”

“That a corporation should have a full and complete organization and existence as an entity
before it can enter into any kind of a contract or transact any business, would seem to be self
evident. . . . A corporation, until organized, has no being, franchises or faculties. Nor do those
engaged in bringing it into being have any power to bind it by contract, unless so authorized by
the charter. Until organized as authorized by the charter there is not a corporation, nor does it
possess franchises or faculties for it or others to exercise, until it acquires a complete existence.”

2.

The contract here was entered into not only between Manuel Tabora and a non-existent
corporation but between Manuel Tabora as owner of four parcels of land on the one hand and the
same Manuel Tabora, his wife and others, as mere promoters of a corporation on the other hand.
For reasons that are self-evident, these promoters could not have acted as agents for a projected
corporation since that which had no legal existence could have no agent. A corporation, until
organized, has no life and therefore no faculties. It is, as it were, a child in ventre sa mere. This is
not saying that under no circumstances may the acts of promoters of a corporation be ratified by
the corporation if and when subsequently organized. There are, of course, exceptions , but under
the peculiar facts and circumstances of the present case we decline to extend the doctrine of
ratification which would result in the commission of injustice or fraud to the candid and unwary.

The transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null
because at the time it was effected the corporation was non-existent, we deem it unnecessary to
discuss this point.

Municipality of Malabang vs Pangandapun Benito

Balindong