Professional Documents
Culture Documents
General Garments Corporation v Director of Patents of the law (being) that it was never the purpose of the legislature to exclude a
G.R. No. 24295 | Sept. 30, 1971 foreign corporation which happens to obtain an isolated order for business from
PETITIONER: GENERAL GARMENTS CORPORATION PH, from securing redress in the Philippine Courts.
RESPONDENT: THE DIRECTOR OF PATENTS and PURITAN SPORTSWEAR CORPORATION 3. To recognize Puritan as a juridical person will not resolve the issue. At this point,
PONENTE: Makalintal, J. Puritan is not suing for “the recovery of any debt, claim or demand” for which a
license to transact business in the Philippines is required by Section 69 of the
DOCTRINE: A foreign corporation which has never done...business in the Philippine Islands Corporation Law, subject only to the exception already noted. It just went to the
and which is unlicensed and unregistered to do business here, but is widely and favorably Philippine Patent Office on a petition for cancellation of a trademark registered by
known in the Islands through the use therein of its products bearing its corporate and trade petitioner, invoking Section 17(c) in relations to Section 4(d) of the Trademark Law.
name has a legal right to maintain an action in the Islands. (Western Equipment v Reyes) 4. The right to the use of the corporate or trade name is a property right, a right in
rem, which it may assert and protect in any of the courts of the world — even in
FACTS: jurisdictions where it does not transact business — just the same as it may protect
1. GGC is the owner of the trademark “Puritan” for assorted men's wear. Thereafter, its tangible property, real or personal against trespass or conversion.
Puritan Sportswear filed a petition with the PH Patent Office for the cancellation of 5. As to GCC's second argument: argument misses the essential point in the said
the trademark “Puritan” registered in the name of General Garments, alleging provision, which is that the foreign corporation is allowed there under to sue
ownership and prior use of the same trademark on the same kinds of goods. They "whether or not it has been licensed to do business in the Philippines" pursuant to
also alleged that GGC had obtained it fraudulently, in violation of Section 17(c) of the Corporation Law.
RA 166. 6. In any event, Puritan is not suing for infringement or unfair competition under
2. GGC moved to dismiss the petition. The director of patents denied the motion to Section 21-A, but for cancellation under Section 17, on one of the grounds
dismiss and the MR of GCC. enumerated in Section 4. The first kind of action, it maybe stated, is cognizable by
3. GCC contends that Puritan being a foreign corporation which is not licensed to do the CFI and the second partakes of an administrative proceeding before the Patent
and is not doing business in the Philippines, is not considered as a person under Office.
Philippine laws and consequently is not comprehended within the term "any 7. While a suit under Section 21-A requires that the mark or tradename alleged to
person" who may apply for cancellation of a mark or trade-name under Section have been infringed has been "registered or assigned" to the suing foreign
17(c) of the Trademark Law. corporation, a suit for cancellation of the registration of a mark or tradename
4. Second argument: Section 21-A militates against respondent's capacity to maintain under Section 17 has no such requirement. For such mark or tradename should not
a suit for cancellation, since it requires, before a foreign corporation may bring an have been registered in the first place (and consequently may be cancelled if so
action, that its trademark or trade name has been registered under the Trademark registered) if it "consists of or comprises a mark or tradename which so resembles
Law. a mark or tradename previously used in the Philippines by another and not
5. Third argument: Under Section 37 of the Trademark Law respondent is not entitled abandoned, as to be likely, when applied to or used in connection with goods,
to the benefits of said law because the Philippines is not a signatory to any business or services of the applicant, to cause confusion or mistake or to deceive
international treaty or convention relating to marks or tradenames or to the purchasers.
repression of unfair competition. 8. As to third argument: provision will be operative only when PH becomes a party to
such a convention or treaty. Regardless of Section 37, aliens or foreign corporations
ISSUE: Whether or not Puritan Sportswear Corporation, which is a foreign corporation not are accorded benefits under the law. Thus, under Section 2, for instance, the
licensed to do business and not doing business in the Philippines, has legal capacity to trademarks, tradenames and service-marks owned by persons, corporations,
maintain a suit in the Philippine Patent Office for cancellation of a trademark registered? YES partnerships or associations domiciled in any foreign country may be registered in
PH, provided that the country of which the applicant for registration is a citizen
HELD: grants bylaw substantially similar privileges to citizens of the Philippines.
1. The fact that Puritan may not transact business in the Philippines unless it has
obtained a license for that purpose, nor maintain a suit in Philippine courts for the NOTES:
recovery of any debt, claim or demand without such license (Secs. 68 and 69, SEC. 37.Rights of foreign registrants. — Persons who are nationals of, domiciled in, or have a
Corporation Law) does not make Puritan any less a juridical person. Indeed an bona fide or effective business or commercial establishment in any foreign country which is a
exception to the license requirement has been recognized in this jurisdiction, party to any international convention or treaty relating to marks or tradenames, or the
namely, where a foreign corporation sues on an isolated transaction. repression of unfair competition to which the Philippines may be a party, shall be entitled to
2. Marshall-Wells v Elser: The object of the statute (Secs. 68 and 69, Corporation Law) the benefits and subject to the provisions of this Act to the extent and under the conditions
was not to prevent the foreign corporation from performing single acts, but to essential to give effect to any such convention and treaties so long as the Philippines shall
prevent it from acquiring a domicile for the purpose of business without taking the continue to be a party thereto, except as provided in the following paragraphs of this section.
steps necessary to render it amenable to suit in the local courts ... the implication
151. Mentholatum v Mangaliman 152. Agilent Technologies vs. Integrated Silicon
72 Phil 524 G.R. No. 154618
April 14, 2004
FACTS: Topic: Foreign Corporations
Mentholatum Co Inc. and the Philippine-American Drug Co. instituted an action against Petitioners: AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD.
Anacleto Mangaliman, Florencio Mangaliman and the Director of the Bureau of Commerce Respondents: INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORPORATION, TEOH KIANG
for infringement of trade mark and unfair competition. HONG, TEOH KIANG SENG, ANTHONY CHOO, JOANNE KATE M. DELA CRUZ, JEAN KAY M.
DELA CRUZ and ROLANDO T. NACILLA
The complaint stated that Mentholatum Co Inc. is a Kansas corporation which manufactures Ponente: J. Ynares-Santiago
Mentholatum;
that the Philippine-American Drug Co. is its exclusive distributing agent in the Philippines FACTS:
authorized by it to look after and protect its interests; • Petitioner Agilent is a foreign corporation, which, by its own admission, is not licensed to
that Mentholatum Co. registered with the Bureau of Commerce and Industry the word do business in the Philippines. Respondent Integrated Silicon is a private domestic
“Mentholatum” as trade mark for its products; corporation, 100% foreign owned, which is engaged in the business of manufacturing
that the Mangaliman brothers prepared a medicament and salve named “Mentholiman” and assembling electronics components.
which they sold to the public packed in a container of the same size, color and shape as • The juridical relation among the various parties in this case can be traced to a 5-year
“Mentholatum”; Value Added Assembly Services Agreement (VAASA), between Integrated Silicon and HP-
that the acts of defendants caused damages from the dimunition of plaintiff’s sales and loss Singapore. Under the terms of the VAASA, Integrated Silicon was to locally manufacture
of goodwill and reputation of their product in the market. and assemble fiber optics for export to HP-Singapore. HP-Singapore, for its part, was to
consign raw materials to Integrated Silicon. The VAASA had a five-year term with a
CFI ruled in favor of complainants. CA reversed. provision for annual renewal by mutual written consent. Later, with the consent of
Integrated Silicon, HP-Singapore assigned all its rights and obligations in the VAASA to
ISSUE: Agilent.
W/N Mentholatum Co Inc. holds business transactions in the Philippines and may maintain • Later, Integrated Silicon filed a complaint for “Specific Performance and Damages”
the present suit? against Agilent and its officers. It alleged that Agilent breached the parties’ oral
agreement to extend the VAASA. Agilent filed a separate complaint against Integrated
HELD: Silicon for “Specific Performance, Recovery of Possession, and Sum of Money with
No general rule or governing principle can be laid down as to what constitutes “engaging in” Replevin, Preliminary Mandatory Injunction, and Damages”.
business. Each case must be judged in the light of its peculiar circumstances. The true test • Respondents filed a MTD in the 2nd case, on the grounds of lack of Agilent’s legal
seems to be whether the foreign corporation is continuing the body or substance of the capacity to sue; litis pendentia; forum shopping; and failure to state a cause of action.
business for which it was organized or whether it has substantially retired from it and turned • The trial court denied the MTD and granted petitioner Agilent’s application for a writ of
it over to another. replevin. Without filing a MR, respondents filed a petition for certiorari with the CA. The
CA granted respondents’ petition for certiorari, set aside the assailed Order of the trial
It follows that whatever transactions the Philippine-American Drug Co. had executed in view court (denying the MTD) and ordered the dismissal of the 2nd case. Hence, the instant
of the law, the Mentholatum Co., did it itself. The Mentholatum Co., being a foreign petition.
corporation doing business in the Philippines without the license required by the Corporation
Law, it may not prosecute this action for the reason that the distinguishing features of the ISSUE:
agent being his representative character and derivative authority. It cannot now claim an W/N an unlicensed foreign corporation not doing business in the Philippines lacks the legal
independent standing in court to the advantage of the principal. capacity to file suit.
The writ prayed should be, as it hereby is, denied, with costs against the petitioners. NO
So ordered. • A foreign corporation without a license is not ipso facto incapacitated from bringing an
action in Philippine courts. Sec. 133 of the Old Corporation Code provides that a license
is necessary only if a foreign corporation is “transacting” or “doing business” in the
country.
• GR: unlicensed foreign corp doing business in the Philippines cannot maintain a suit; • By and large, to constitute “doing business”, the activity to be undertaken in the
Exception: when the action is against a Phil. Citizen or entity who had contracted with Philippines is one that is for profit-making.
and benefited from said corporation. This is by reason of estoppel. A party is estopped • By the clear terms of the VAASA, Agilent’s activities in the Philippines were confined to
from challenging the personality of a corporation after having acknowledged the same (1) maintaining a stock of goods in the Philippines solely for the purpose of having the
by entering into a contract with it. same processed by Integrated Silicon; and (2) consignment of equipment with
• The principles regarding the right of a foreign corporation to bring suit in Philippine Integrated Silicon to be used in the processing of products for export. As such, we hold
courts may thus be condensed in four statements: that, based on the evidence presented thus far, Agilent cannot be deemed to be “doing
o if a foreign corporation does business in the Philippines without a license, it business” in the Philippines. Respondents’ contention that Agilent lacks the legal
cannot sue before the Philippine courts; capacity to file suit is therefore devoid of merit. As a foreign corporation not doing
o if a foreign corporation is not doing business in the Philippines, it needs no license business in the Philippines, it needed no license before it can sue before our courts.
to sue before Philippine courts on an isolated transaction or on a cause of action
entirely independent of any business transaction;
o if a foreign corporation does business in the Philippines without a license, a 153. ML Futures v CA
Philippine citizen or entity which has contracted with said corporation may be GR NO. 97816
estopped from challenging the foreign corporation’s corporate personality in a suit July 24, 1992
brought before Philippine courts; and Topic: Foreign Corporations
o if a foreign corporation does business in the Philippines with the required license, Petitioners: Merrill Lynch Futures
it can sue before Philippine courts on any transaction. Respondents: Court of Appeals
• In order to determine whether Agilent has legal capacity to sue, the Court will need to Ponente:
determine whether it is “doing business” in the Philippines. However, the Corp code is
silent on what constitutes as doing business. FACTS:
• According to the Mentholatum case: Two general tests to determine whether or not a • Merrill Lynch futures, Inc. (ML FUTURES) filed a complaint with the RTC at against
foreign corporation can be considered as “doing business” in the Philippines. the Spouses Pedro Lara and Elisa Lara for the recovery of a debt and interest
o The first of these is the substance test which determines whether the foreign thereon, damages, and attorney's fees.
corporation is continuing the body of the business or enterprise for which it was • In its complaint ML FUTURES described itself as (a) "a non-resident foreign
organized or whether it has substantially retired from it and turned it over to corporation, not doing business in the Philippines, duly organized and existing
another. under and by virtue of the laws of the state of Delaware, U.S.A.;" as well as (b) a
o The second test is the continuity test. It implies a continuity of commercial 'futures commission merchant' duly licensed to act as such in the futures markets
dealings and arrangements, and contemplates, to that extent, the performance of and exchanges in the United States, . . . essentially functioning as a broker
acts or works or the exercise of some of the functions normally incident to, and in (executing) orders to buy and sell futures contracts received from its customers on
the progressive prosecution of, the purpose and object of its organization. U.S. futures exchanges."
• Sec 1 of the IRR of the Foreign Investment Act (as amended by RA 8179), provides that • In its complaint ML FUTURES alleged:
the following shall not be deemed “doing business”: o (1) that on 28 September 1983 it entered into a Futures Customer
1) Mere investment as a shareholder by a foreign entity in domestic corporations duly Agreement with the spouses (Account 138-12161), in virtue of which it
registered to do business, and/or the exercise of rights as such investor; agreed to act as the latter's broker for the purchase and sale of futures
2) Having a nominee director or officer to represent its interest in such corporation; contracts in the U.S.;
3) Appointing a representative or distributor domiciled in the Philippines which o (2) that pursuant to the contract, orders to buy and sell futures contracts
transacts business in the representative’s or distributor’s own name and account; were transmitted to ML FUTURES by the Lara Spouses "through the
4) The publication of a general advertisement through any print or broadcast media; facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a
5) Maintaining a stock of goods in the Philippines solely for the purpose of having the company servicing ML Futures' customers;"
same processed by another entity in the Philippines; o (3) that from the outset, the Lara Spouses "knew and were duly advised
6) Consignment by a foreign entity of equipment with a local company to be used in that Merrill Lynch Philippines, Inc. was not a broker in futures contracts,"
the processing of products for export; and that it "did not have a license from the Securities and Exchange
7) Collecting information in the Philippines; and Commission to operate as a commodity trading advisor (i.e., "and entity
8) Performing services auxiliary to an existing isolated contract of sale which are not on which, not being a broker, furnishes advice on commodity futures to
a continuing basis, such as installing in the Philippines machinery it has manufactured persons who trade in futures contracts");
or exported to the Philippines, servicing the same, training domestic workers to o (4) that in line with the above mentioned agreement and through said
operate it, and similar incidental services. Merill Lynch Philippines, Inc., the Lara Spouses actively traded in futures
contracts, including "stock index futures" for four years or so, i.e., from this country, and had executed all these transactions without ML FUTURES being licensed to
1983 to October, 1987, there being more or less regular accounting and so transact business here, and without MLPI being authorized to operate as a commodity
corresponding remittances of money (or crediting or debiting) made futures trading advisor. These are the factual findings to both the Trial Court and the Court of
between the spouses and ML FUTURES; ( Appeals. These, too, are the conclusions of the Securities & Exchange Commission which
o 5) that because of a loss amounting to US $160,749.69 incurred in respect denied MLPI's application to operate as a commodity futures trading advisor, a denial
of 3 transactions involving "index futures," and after setting this off subsequently affirmed by the Court of Appeals. Prescinding from the proposition that factual
against an amount of US $75,913.42 then owing by ML FUTURES to the findings of the Court of Appeals are generally conclusive, the Supreme Court has been cited
Lara Spouses, said spouses became indebted to ML FUTURES for the to no circumstance of substance to warrant reversal of said Appellate Court's findings or
ensuing balance of US $84,836.27, which the latter asked them to pay; conclusions in this case. Further, the Laras did transact business with ML FUTURES through its
o (6) that the Lara Spouses however refused to pay this balance, "alleging agent corporation organized in the Philippines, it being unnecessary to determine whether
that the transactions were null and void because Merrill Lynch this domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner &
Philippines, Inc., the Philippine company servicing accounts of ML Smith (MLPI's alleged predecessor). The fact is that ML FUTURES did deal with futures
Futures, had no license to operate as a "commodity and/or financial contracts in exchanges in the United States in behalf and for the account of the Lara Spouses,
futures broker." and that on several occasions the latter received account documents and money in
• ML FUTURES prayed: connection with those transactions. Given these facts, if indeed the last transaction executed
o (1) for a preliminary attachment against the spouses' properties "up to by ML FUTURES in the Laras's behalf had resulted in a loss amounting to US $160,749.69;
the value of at least P2,267,139.50," and that in relation to this loss, ML FUTURES had credited the Laras with the amount of US $
o (2) for judgment, after trial, sentencing the spouses to pay ML FUTURES: 75,913.42 — which it (ML FUTURES) then admittedly owed the spouses — and thereafter
(a) the Philippine peso equivalent of $84,836.27 at the applicable sought to collect the balance, US $84,836.27, but the Laras had refused to pay (for the
exchange rate on date of payment, with legal interest from the date of reasons already above stated).
demand until full payment; (b) exemplary damages in the sum of at least
P500,000,00; and (c) attorney's fees and expenses of litigation as may be 2. The Laras received benefits generated by their business relations with ML FUTURES. Those
proven at the trial. business relations, according to the Laras themselves, spanned a period of 7 years; and they
• Preliminary attachment issued ex parte on 2 December 1987, and the spouses were evidently found those relations to be of such profitability as warranted their maintaining
duly served with summons. them for that not insignificant period of time; otherwise, it is reasonably certain that they
• The spouses filed a motion to dismiss dated 18 December 1987 on the grounds would have terminated their dealings with ML FUTURES much, much earlier. In fact, even as
that: regards their last transaction, in which the Laras allegedly suffered a loss in the sum of
o (1) ML FUTURES had "no legal capacity to sue" and US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML
o (2) its "complaint states no cause of action since it is not the real party in FUTURES credited them with the amount of US $75,913.42 then due to them, thus reducing
interest." their debt to US $84,836.27. Given these facts, and assuming that the Lara Spouses were
• On 12 January 1988, the Trial Court promulgated an Order sustaining the motion to aware from the outset that ML FUTURES had no license to do business in this country and
dismiss, directing the dismissal of the case and discharging the writ of preliminary MLPI, no authority to act as broker for it, it would appear quite inequitable for the Laras to
attachment. It later denied ML FUTURES's motion for reconsideration, by Order evade payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon
dated 29 February 1988. the plea that it should not have done business in this country in the first place, or that its
• ML FUTURES appealed to the Court of Appeals. agent in this country, MLPI, had no license either to operate as a "commodity and/or
• In its own decision promulgated on 27 November 1990, the Court of Appeals financial futures broker." Considerations of equity dictate that, at the very least, the issue of
affirmed the Trial Court's judgment. Its motion for reconsideration having been whether the Laras are in truth liable to ML FUTURES and if so in what amount, and whether
denied, ML FUTURES appealed to the Supreme Court on certiorari. they were so far aware of the absence of the requisite licenses on the part of ML FUTURES
and its Philippine correspondent, MLPI, as to be estopped from alleging that fact as a defense
ISSUE: to such liability, should be ventilated and adjudicated on the merits by the proper trial court.
1. W/N ML FUTURES was doing business in the Philippines without license.
2. W/N the Lara Spouses are estopped to impugn ML FUTURES capacity to sue them in the
courts of the forum.
HELD/RATIO:
1. The facts on record adequately establish that ML FUTURES, operating in the United States,
had indeed done business with the Lara Spouses in the Philippines over several years, had
done so at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation organized in
154. ANTAM CONSOLIDATED v. CA
G.R. No. L-61523 Stokely prayed that a writ of attachment be issued against any and all properties of the
Date: 31 July 1986 petitioner, alleging:
Topic: • After demands were made, the Tambuntings ceased to be directors and officers of
Petitioners: ANTAM CONSOLIDATED, INC., TAMBUNTING TRADING CORPORATION and Comphil and were replaced by ther 5 employees, who were managers of its
AURORA CONSOLIDATED SECURITIES and INVESTMENT CORPORATION pawnshops. Said employees caused the change of name to Banahaw Milling
Respondents: THE COURT OF APPEALS, THE HONORABLE MAXIMIANO C. ASUNCION (Court Corporation and authorized Antonio (neither a director nor officer of Banahaw) to
of First Instance of Laguna, Branch II [Sta. Cruz]) and STOKELY VAN CAMP, INC sell its oil mill
Ponente: GUTIERREZ, JR • Unicom has taken over the entire operations and assets of Banahaw because the
entire OCS of Banahaw was sold to Unucom
• All of the issued and OCS of Comphil are owned by the Tambuntings
FACTS • A devious scheme was perpetrated by replacing the Tambuntings in the
Stokely filed a complaint against Banahaw, Antam, Tambunting, Aurora, and Unicom for a management of Banahaw and disposing of the oil mill or the entire interest to
collection of sum of money Unicom
• There is reasonable cause to believe that the coconut oil mill, which is the only
Stokely is a US corporation organized and existing under the laws of the state of Indiana. One substantial asset of Banahaw, is about to be sold or removed
of its subdivisions Capital City entered into 3 contracts with Comphil (later name changed to
Banahaw) regarding the sale of 500 long tons of crude coconut oil. Both Stokely and Capital Trial Court
City are not engaged in business in the PH prior to the commencement of the suit, neither is • Ordered the issuance of a writ of attachment in favor of Stokely
Stokely licensed to do business in the PH
CA
First Contract (RBS 3655) • Ruled that the judge did not commit any grave abuse of discretion in deferring the
• Comphil (seller) undertook to sell and deliver 500 long tons of crude coconut oil to motion to dismiss
be delivered in October/November 1978
• Capital City agreed to buy at the price of $0.30/lb ISSUE
• Comphil failed to deliver Whether there is continuity of transactions which are in the pursuance of the normal
• Capital City covered its coconut oil needs in the open market at a price substantially business of the corporation and that the transactions entered into by respondent
in excess of the contract and sustained a loss of $103,600 undoubtedly fall within this category.
However they stressed how that PLDT common shares is ₱5.00 per share, whereas the par Indisputably, one of the rights of a stockholder is the right to participate in the control or
value of preferred shares is ₱10.00 per share. In other words, preferred shares have twice management of the corporation. This is exercised through his vote in the election of directors
the par value of common shares but cannot elect directors and have only 1/70 of the because it is the board of directors that controls or manages the corporation. Preferred
dividends of common shares. Moreover, 99.44% of the preferred shares are owned by shareholders are often excluded from any control, that is, deprived of the right to vote in the
Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. election of directors and on other matters. In fact, PLDT’s Articles of Incorporation expressly
state that "the holders of Serial Preferred Stock shall not be entitled to vote at any meeting
ISSUE of the stockholders for the election of directors or for any other purpose or otherwise
1. Does the term “capital” in Section 11, Article XII of the Constitution refer to participate in any action taken by the corporation or its stockholders, or to receive notice of
the total common shares only, or to the total outstanding capital stock any meeting of stockholders."
(combined total of common and non-voting preferred shares) of PLDT, a public
utility? The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in
the hands of Filipinos in accordance with the constitutional mandate. Full beneficial
2. Whether the consummation of the then impending sale of 111,415 PTIC ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the
shares to First Pacific violates the constitutional limit on foreign ownership of voting rights, is constitutionally required for the State’s grant of authority to operate a public
a public utility utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are
non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly
RULING: violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial
1. The term "capital" in Section 11, Article XII of the Constitution refers only to shares ownership of a public utility.
of stock entitled to vote in the election of directors, and thus in the present case
only to common shares,41 and not to the total outstanding capital stock comprising In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60
both common and non-voting preferred shares. percent of the dividends, of PLDT.
To construe broadly the term “capital” as the total outstanding capital stock, DISPOSITIVE PORTION:
including both common and non-voting preferred shares, grossly contravenes the WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11,
intent and letter of the Constitution that the “State shall develop a self-reliant and Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the
independent national economy effectively controlled by Filipinos.” A broad election of directors, and thus in the present case only to common shares, and not to the
definition unjustifiably disregards who owns the all-important voting stock, which total outstanding capital stock (common and non-voting preferred shares). Respondent
necessarily equates to control of the public utility. 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
2. After the judgement of June 28, 2011 PLDT filed a motion for reconsideration Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article
to address the issue regarding the interpretation of the terms “capital”. XII of the Constitution, to impose the appropriate sanctions under the law.
Basis:
NOTES:
The case has two stages: 161. Narra Nickel v. Redmont
1. June 28, 2011 – PETITION Filed by Mr. GAMBOA to complain about the alleged G.R. No. 195580 | April 21, 2014
unlawful sale of shares. PETITION PARTIALLY GRANTED.
2. October 09, 2012 – PETITION for reconsideration filed by Mr. Pangilinan, Mr.
Nazareno, SEC and PSE regarding the decision of June 28, 2011. SC resolved as follow: PETITIONERS: NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
“WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further DEVELOPMENT, INC., and MCARTHUR MINING, INC
pleadings shall be entertained.” RESPONDENT: REDMONT CONSOLIDATED MINES CORP
Facts:
REDMONT PETITIONERS
Alleged that at least 60% of the capital stock Averred that they were qualified persons
of McArthur, Tesoro and Narra are owned under Section 3(aq) of REPUBLIC ACT NO.
and controlled by MBMI RESOURCES, INC. (RA) 7942 or the Philippine Mining Act of
(MBMI), a 100% Canadian corporation. 19951
Reasoned that since MBMI is a considerable Stated that their nationality as applicants is
stockholder of petitioners, it was the driving immaterial because they also applied for
force behind petitioners’ filing of the MPSAs Financial or Technical Assistance
over the areas covered by applications since Agreements (FTAA) for McArthur, AFTA-IVB-
it knows that it can only participate in 08 for Tesoro and Narra, which are granted
mining activities through corporations to foreign-owned corporations.
which are deemed Filipino citizens.
Claimed that the issue on nationality should
Argued that given that petitioners’ capital not be raised since McArthur, Tesoro and
stocks were mostly owned by MBMI, they Narra are in fact Philippine Nationals as 60%
were likewise disqualified from engaging in of their capital is owned by citizens of the
mining activities through MPSAs, which are Philippines.
reserved only for Filipino citizens.
They asserted that though MBMI owns 40%
of the shares of PLMC (which owns 5,997
shares of Narra), 40% of the shares of MMC
(which owns 5,997 shares of McArthur) and
40% of the shares of SLMC (which, in turn,
1 Sec. 3. Definition of Terms.—As used in and for purposes of this Act, the following terms, whether in singular or plural, shall mean:
xxxx
(aq) “Qualified person” means any citizen of the Philippines with capacity to contract, or a corporation, partnership, association, or
cooperative organized or authorized for the purpose of engaging in mining, with technical and financial capability to undertake mineral
resources development and duly registered in accordance with law at least sixty percent (60%) of the capital of which is owned by
citizens of the Philippines: Provided, That a legally organized foreign-owned corporation shall be deemed a qualified person for
purposes of granting an exploration
397permit, financial or technical assistance agreement or mineral processing permit.
owns 5,997 shares of Tesoro), the shares of 8. CA found that there was doubt as to the nationality of petitioners when it realized
MBMI will not make it the owner of at least that petitioners had a common major investor, MBMI, a corporation composed of
60% of the capital stock of each of 100% Canadians. The CA used the “grandfather rule” to determine the nationality
petitioners. of petitioners. It provided that shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino citizens shall be considered as
Added that the best tool used in of Philippine nationality, but if the percentage of Filipino ownership in the
determining the nationality of a corporation corporation or partnership is less than 60%, only the number of shares
is the “control test,” embodied in Sec. 3 of corresponding to such percentage shall be counted as of Philippine nationality.2
RA 7042 or the Foreign Investments Act of 9. In determining the nationality of petitioners, the CA looked into their corporate
1991. structures and their corresponding common shareholders. Using the grandfather
rule, it was discovered that MBMI in effect owned majority of the common stocks
Claimed that the POA of DENR did not have of the petitioners as well as at least 60% equity interest of other majority
jurisdiction over the issues in Redmont’s shareholders of petitioners through joint venture agreements. The CA found that
petition since they are not enumerated in through a “web of corporate layering, it is clear that one common
Sec. 77 of RA 7942 and stressed that controlling investor in all mining corporations involved x x x is MBMI.” Thus, it
Redmont has no personality to sue them concluded that petitioners McArthur, Tesoro and Narra are also in partnership
because it has no pending claim or with, or privies-in-interest of, MBMI.
application over the areas applied for by 10. As for the FTAA applications, it was found to be suspicious in nature and, as a
petitioners. consequence, it recommended the rejection of petitioners’ MPSA applications by
the Secretary of the DENR.
11. While the petition was pending with the CA, Redmont filed with the Office of the
President (OP) a petition seeking the cancellation of petitioners’ FTAAs. The OP
3. December 14, 2007, the POA issued a Resolution disqualifying petitioners from canceled and revoked petitioners’ FTAAs for violating and circumventing the
gaining MPSAs. The POA considered petitioners as foreign corporations being “Constitution x x x[,] the Small Scale Mining Law and Environmental Compliance
“EFFECTIVELY CONTROLLED” BY MBMI, a 100% Canadian company and declared Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584.”
their MPSAs null and void. 12. OP agreed with Redmont stating that petitioners committed violations against the
4. McArthur, Tesoro and Narra filed a Notice of Appeal and Memorandum of Appeal said laws and failed to submit evidence to negate them. OP agreed with the POA’s
with the MINES ADJUDICATION BOARD (MAB). They basically emphasized that estimation that the filing of the FTAA applications by petitioners is a clear
they are qualified persons under the law and that they had their individual MPSA admission that they are “not capable of conducting a large scale mining operation
applications converted to FTAAs. and that they need the financial and technical assistance of a foreign entity in their
5. Pending resplution of the appeal with MAB, Redmont filed a complaint with the operation, that is why they sought the participation of MBMI Resources, Inc.” MR
SEC seeking the revocation of the certificates for registration of petitioners on the denied.
ground that they are foreign-owned or controlled corporations engaged in mining
in violation of Philippine laws. Issue: W/N CA’s ruling that Narra, Tesoro and McArthur are foreign corporations based on
6. Redmont filed before RTC-Quezon a Complaint for injunction with application for the “Grandfather Rule” is contrary to law, particularly the express mandate of the Foreign
issuance of a TRO and/or writ of preliminary injunction, praying for the deferral of Investments Act of 1991, as amended, and the FIA Rules.
the MAB proceedings pending the resolution of the Complaint before the SEC but
before the RTC can resolve Redmont’s Complaint and applications for injunctive Ruling:
reliefs, the MAB found the appeal meritorious. Basically, the Court was asked by the foreign-Filipino petitioner-corporations to rule on the
7. A petition for review filed by Redmont before the CA, assailing the Orders issued by compliance of said corporations with the 60-40 ownership requirement mandated by the
the MAB. CA partially granted the petition and holding MAB’s orders reversed and 1987 Constitution.
set aside. The findings of the Panel of Arbitrators of the Department of
Environment and Natural Resources that respondents McArthur, Tesoro and Narra 1. The Court ruled that the corporate structure employed by the petitioner-corporations
are foreign corporations is upheld and, therefore, the rejection of their was evidently designed to circumvent the constitutional caveat allowing only Filipino
applications for Mineral Product Sharing Agreement should be recommended to
the Secretary of the DENR and holding that the conversion of their MPSA
applications to FTAA is left for determination by the Secretary of the DENR and the 2 Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital,
President of the Republic of the Philippines. MR denied. respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say,
50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall
be recorded as belonging to aliens
citizens and corporations 60%-owned by Filipino citizens to explore, develop, and use 1. That the foreign investors provide practically all the funds for the joint
the country’s natural resources. Furthermore, the Court discussed the application of investment undertaken by these Filipino businessmen and their
the Grandfather Rule and the Control Test in relation to the determination of a foreign partner;
corporation’s compliance with the 60-40 ownership requirement. 2. That the foreign investors undertake to provide practically all the
technological support for the joint venture;
First, the Court quoted Dean Cesar Villanueva’s definition of the Grandfather Rule: 3. That the foreign investors, while being minority stockholders, manage
the company and prepare all economic viability studies.
…the Grandfather Rule is “the method by which the
percentage of Filipino equity in a corporation engaged 5. Further, the Court observed that the Securities and Exchange Commission (SEC), in its
in nationalized and/or partly nationalized areas of 1977 internal memorandum, already suggested applying the Grandfather Rule in the
activities, provided for under the Constitution and other following manner:
nationalization laws, is computed, in cases where
corporate shareholders are present, by attributing the • For publicly-held corporations or where the shares are traded in the stock
nationality of the second or even subsequent tier of exchanges, the Grandfather Rule is applied on two (2) levels of corporate relations;
ownership to determine the nationality of the • On the other hand, if the corporation is closely held or the shares of which are not
corporate shareholder.” Thus, to arrive at the actual traded in the stock exchange, the Grandfather Rule is applied up to three (3) levels
Filipino ownership and control in a corporation, both of corporate relations.
the direct and indirect shareholdings in the corporation
are determined. The Court gave a computation as to how to determine Filipino and Foreign participation in
multi-tiered companies. Let us take petitioner Narra as an example (Table provided in Annex
Furthermore, the Court concurred with BIR Ruling No. 148-10, where Commissioner Kim “B”):
Henares held that “in cases of multi-tiered corporations, the stock attribution rule must be
allowed to run continuously along the chain of ownership until it finally reaches the
individual stockholders.” PASRDC
PLMDC 65.96%
2. The Court explained that the Control Test, as explained in the discussion on Gamboa
and the old DOJ-SEC Rule (1989) and the Grandfather Rule may actually be used
59.97%
cumulatively in determining the ownership and control of corporations engaged in MDMI 33.96%
fully or partly nationalized activities. It is only when the Control Test is first complied Narra (Canadian)
with that the Grandfather Rule may be applied.
MDMI
3. Hence, if a corporation’s Filipino equity falls below the threshold of 60%, the
corporation is immediately considered foreign-owned and the need to use the 39.98%
Grandfather Rule disappears. Also, if the corporation complies with the 60-40 (Canadian)
Filipino provided in the DOJ-SEC 1989 Rule, where to foreign equity requirement and
there is no doubt as to who has the beneficial ownership and control, the In Narra’s case, 59.97% of its shares belonged to Patricia
Grandfather Rule need not be applied. However, even if the 60-40 equity ratio is Louise Mining & Development Corporation (PLMDC),
apparently met, but doubt exists as to the beneficial ownership and control, the while Canadian MBMI held 39.98% of its shares.
Grandfather Rule will be applied. This is because several foreign companies create
“dummy” companies to circumvent the 60-40 Filipino Foreign equity rule. PLMDC’s shares, in turn, were held by Palawan Alpha
South Resources Development Corporation (PASRDC),
4. Doubt, as used in the case, does not refer to the fact that the apparent Filipino which subscribed to 65.96% of PLMDC’s shares, and the
ownership of the corporation falls below the threshold, but rather, doubt refers to Canadian MBMI, which subscribed to 33.96% ofPLMDC’s
various indicia that the beneficial ownership and control of the corporation do not in shares.
fact reside in Filipino shareholders but in foreign shareholders.
PASRDC did not pay for any of its subscribed shares,
The DOJ Opinion No. 165, Series of 1984 recognized significant indicators of the dummy while MBMI contributed 99.75% of PLMDC’s paid-up
status, which the Court also referred to in its discussion of the case. These are: capital. This fact creates serious doubt as to the true
extent of MBMI’s control and ownership over both
PLMDC and Narra since “a reasonable investor would MANUEL A. AGCAOILI FILIPINO 1 P1,000.00 P1,000.00
expect to have greater control and economic rights than BAYANI H. AGABIN FILIPINO 1 P1,000.00 P1,000.00
other investors who invested less capital than him.”
TOTAL 10,000 P10,000,000.00 P2,800,000.00
Thus, the application of the Grandfather Rule is justified.
And as will be shown, it is clear that the Filipino
ownership in petitioner Narra falls below the limit
prescribed in both the Constitution and the Philippine PLMDC’S SHARES:
Mining Act of 1995.
NAME NATIONALITY NUMBER OF AMOUNT AMOUNT PAID
SHARES SUBSCRIBED
COMPUTATION USED BY THE COURTS IN THE NARRA CASE PALAWAN ALPHA SOUTH FILIPINO 6,596 P6,596,000.00 P0
RESOURCE DEVELOPMENT CORP.
Filipino participation in petitioner Narra: 39.64% MBMI RESOURCES, INC.[21 CANADIAN 3,396 P3,396,000.00 P2,796,000.00
HIGINIO C. MENDOZA, JR. FILIPINO 1 P1,000.00 P1,000.00
66.02 (Filipino equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 39.59%
FERNANDO B. ESGUERRA FILIPINO 1 P1,000.00 P1,000.00
100
HENRY E. FERNANDEZ FILIPINO 1 P1,000.00 P1,000.00
39.59% + .05% (shares of individual Filipino SHs in Narra) =39.64% MA. ELENA A. BOCALAN FILIPINO 1 P1,000.00 P1,000.00
MICHAEL T. MASON AMERICAN 1 P1,000.00 P1,000.00
Foreign participation in petitioner Narra: 60.36% ROBERT L. MCCURDY CANADIAN 1 P1,000.00 P1,000.00
MANUEL A. AGCAOILI FILIPINO 1 P1,000.00 P1,000.00
33.98 (Foreign equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 20.38% BAYANI H. AGABIN FILIPINO 1 P1,000.00 P1,000.00
100
TOTAL 10,000 P10,000,000.00 P2,804,000.00
20.38% + 39.96% (MBMI’s direct participation in Narra) + .02% (shares of foreign individual
SHs in Narra)= 60.36%
As can be seen in this computation, even though it appears on the first level that Narra does
not violate the 60-40 equity rule, when the court applied the Grandfather Rule, it was
revealed that the foreign company actually had more control and owned more of Narra than
the Filipino stockholders.
NARRA’S SHARES: