Week 4M-Corpo-Nationality of Corporations

EN BANC
[G.R. No. 207246. April 18, 2017.]
JOSE M. ROY III , petitioner, vs. CHAIRPERSON TERESITA HERBOSA,

THE SECURITIES AND EXCHANGE COMMISSION, and PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY , respondents.
WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN WARREN P.

GABINETE, ANTONIO V. PESINA, JR., MODESTO MARTIN Y. MAMON
III, and GERARDO C. EREBAREN , petitioners-in-intervention,
PHILIPPINE STOCK EXCHANGE, INC. , respondent-in-intervention,
SHAREHOLDERS' ASSOCIATION OF THE PHILIPPINES, INC. ,

respondent-in-intervention.
RESOLUTION
CAGUIOA , J : p
Before the Court is the Motion for Reconsideration dated January 19, 2017 1 (the
Motion) led by petitioner Jose M. Roy III (movant) seeking the reversal and setting
aside of the Decision dated November 22, 2016 2 (the Decision) which denied the
movant's petition, and declared that the Securities and Exchange Commission (SEC) did
not commit grave abuse of discretion in issuing Memorandum Circular No. 8, Series of
2013 (SEC-MC No. 8) as the same was in compliance with, and in fealty to, the decision
of the Court in Gamboa v. Finance Secretary Teves , 3 (Gamboa Decision) and the
resolution 4 denying the Motion for Reconsideration therein (Gamboa Resolution).
The Motion presents no compelling and new arguments to justify the
reconsideration of the Decision.
The grounds raised by movant are: (1) He has the requisite standing because this
case is one of transcendental importance; (2) The Court has the constitutional duty to
exercise judicial review over any grave abuse of discretion by any instrumentality of
government; (3) He did not rely on an obiter dictum; and (4) The Court should have
treated the petition as the appropriate device to explain the Gamboa Decision.
The Decision has already exhaustively discussed and directly passed upon these
grounds. Movant's petition was dismissed based on both procedural and substantive
grounds.
Regarding the procedural grounds, the Court ruled that petitioners (movant and
petitioners-in-intervention) failed to su ciently allege and establish the existence of a
case or controversy and locus standi on their part to warrant the Court's exercise of
judicial review; the rule on the hierarchy of courts was violated; and petitioners failed to
implead indispensable parties such as the Philippine Stock Exchange, Inc. and
Shareholders' Association of the Philippines, Inc. 5
CD Technologies Asia, Inc. 2018 cdasiaonline.com

In connection with the failure to implead indispensable parties, the Court's
Decision held:
Under Section 3, Rule 7 of the Rules of Court, an indispensable party is a
party-in-interest without whom there can be no nal determination of an action.
Indispensable parties are those with such a material and direct interest in the
controversy that a nal decree would necessarily affect their rights, so that the
court cannot proceed without their presence. The interests of such indispensable
parties in the subject matter of the suit and the relief are so bound with those of
the other parties that their legal presence as parties to the proceeding is an
absolute necessity and a complete and e cient determination of the equities and
rights of the parties is not possible if they are not joined.
Other than PLDT, the petitions failed to join or implead other public utility
corporations subject to the same restriction imposed by Section 11, Article XII of
the Constitution. These corporations are in danger of losing their franchise and
property if they are found not compliant with the restrictive interpretation of the
constitutional provision under review which is being espoused by petitioners.
They should be afforded due notice and opportunity to be heard, lest they be
deprived of their property without due process.
Not only are public utility corporations other than PLDT directly and
materially affected by the outcome of the petitions, their shareholders also stand
to suffer in case they will be forced to divest their shareholdings to ensure
compliance with the said restrictive interpretation of the term "capital". As
explained by SHAREPHIL, in ve corporations alone, more than Php158 Billion
worth of shares must be divested by foreign shareholders and absorbed by
Filipino investors if petitioners' position is upheld.
Petitioners' disregard of the rights of these other corporations and
numerous shareholders constitutes another fatal procedural aw, justifying the
dismissal of their petitions. Without giving all of them their day in court,
they will de nitely be deprived of their property without due process of
law . 6
This is highlighted to clear any misimpression that the Gamboa Decision and
Gamboa Resolution made a categorical ruling on the meaning of the word "capital" under
Section 11, Article XII of the Constitution only in respect of, or only con ned to,
respondent Philippine Long Distance Telephone Company (PLDT). Nothing is further
from the truth. Indeed, a fair reading of the Gamboa Decision and Gamboa Resolution
shows that the Court's pronouncements therein would affect all public utilities, and not
just respondent PLDT.
On the substantive grounds, the Court disposed of the issue on whether the SEC
gravely abused its discretion in ruling that respondent PLDT is compliant with the
limitation on foreign ownership under the Constitution and other relevant laws as without
merit. The Court reasoned that "in the absence of a de nitive ruling by the SEC on PLDT's
compliance with the capital requirement pursuant to the Gamboa Decision and
Resolution, any question relative to the inexistent ruling is premature." 7
In resolving the other substantive issue raised by petitioners, the Court held that:
[E]ven if the resolution of the procedural issues were conceded in favor of
petitioners, the petitions, being anchored on Rule 65, must nonetheless fail
because the SEC did not commit grave abuse of discretion amounting to lack or
excess of jurisdiction when it issued SEC-MC No. 8. To the contrary , the Court
nds SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision and
Resolution. 8
To belabor the point, movant's petition is not a continuation of the Gamboa case
as the Gamboa Decision attained nality on October 18, 2012, and thereafter Entry of
Judgment was issued on December 11, 2012. 9
As regards movant's repeated invocation of the transcendental importance of the
Gamboa case, this does not ipso facto accord locus standi to movant. Being a new
petition, movant had the burden to justify his locus standi in his own petition. The Court,
however, was not persuaded by his justification.
Pursuant to the Court's constitutional duty to exercise judicial review, the Court has
conclusively found no grave abuse of discretion on the part of SEC in issuing SEC-MC No.
8.
The Decision has painstakingly explained why it considered as obiter dictum that
pronouncement in the Gamboa Resolution that the constitutional requirement on Filipino
ownership should "apply uniformly and across the board to all classes of shares,
regardless of nomenclature and category, comprising the capital of a corporation." 9-a
The Court stated that:
[T]he fallo or decretal/dispositive portions of both the Gamboa Decision and
Resolution are de nite, clear and unequivocal. While there is a passage in the
body of the Gamboa Resolution that might have appeared contrary to the fallo of
the Gamboa Decision x x x the de niteness and clarity of the fallo of the Gamboa
Decision must control over the obiter dictum in the Gamboa Resolution regarding
the application of the 60-40 Filipino-foreign ownership requirement to "each class
of shares, regardless of differences in voting rights, privileges and restrictions." 1 0
To the Court's mind and, as exhaustively demonstrated in the Decision, the
dispositive portion of the Gamboa Decision was in no way modi ed by the Gamboa
Resolution.
The heart of the controversy is the interpretation of Section 11, Article XII of the
Constitution, which provides: "No franchise, certi cate, or any other form of authorization
for the operation of a public utility shall be granted except to citizens of the Philippines or
to corporations or associations organized under the laws of the Philippines at least sixty
per centum of whose capital is owned by such citizens x x x."
T h e Gamboa Decision already held, in no uncertain terms, that what the
Constitution requires is "[f]ull [and legal] bene cial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights x x x must rest in
the hands of Filipino nationals x x x." 1 1 And, precisely that is what SEC-MC No. 8
provides , viz.: "x x x For purposes of determining compliance [with the constitutional or
statutory ownership], the required percentage of Filipino ownership shall be applied to
BOTH (a) the total number of outstanding shares of stock entitled to vote in the election
of directors; AND (b) the total number of outstanding shares of stock, whether or not
entitled to vote x x x." 1 2
In construing "full bene cial ownership," the Implementing Rules and Regulations
of the Foreign Investments Act of 1991 (FIA-IRR) provides:
For stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the required Filipino
equity. Full bene cial ownership of the stocks, coupled with appropriate voting
rights is essential. Thus, stocks, the voting rights of which have been assigned or
transferred to aliens cannot be considered held by Philippine citizens or Philippine
nationals. 1 3
In turn, "bene cial owner" or "bene cial ownership" is de ned in the Implementing
Rules and Regulations of the Securities Regulation Code (SRC-IRR) as:
[A]ny person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting power (which
includes the power to vote or direct the voting of such security) and/or investment
returns or power (which includes the power to dispose of, or direct the disposition
of such security) x x x. 1 4
Thus, the de nition of "bene cial owner or bene cial ownership" in the SRC-IRR,
which is in consonance with the concept of "full bene cial ownership" in the FIA-IRR, is, as
stressed in the Decision, relevant in resolving only the question of who is the bene cial
owner or has bene cial ownership of each "speci c stock" of the public utility company
whose stocks are under review. If the Filipino has the voting power of the "speci c
stock", i.e., he can vote the stock or direct another to vote for him, or the Filipino has the
investment power over the "speci c stock", i.e., he can dispose of the stock or direct
another to dispose of it for him, or both, i.e., he can vote and dispose of that "speci c
stock" or direct another to vote or dispose it for him, then such Filipino is the "bene cial
owner" of that "speci c stock." Being considered Filipino, that "speci c stock" is then to
be counted as part of the 60% Filipino ownership requirement under the Constitution. The
right to the dividends, jus fruendi — a right emanating from ownership of that "speci c
stock" necessarily accrues to its Filipino "beneficial owner."
Once more, this is emphasized anew to disabuse any notion that the dividends
accruing to any particular stock are determinative of that stock's "bene cial ownership."
Dividend declaration is dictated by the corporation's unrestricted retained earnings. On
the other hand, the corporation's need of capital for expansion programs and special
reserve for probable contingencies may limit retained earnings available for dividend
declaration. 1 5 It bears repeating here that the Court in the Gamboa Decision adopted the
foregoing de nition of the term "capital" in Section 11, Article XII of the 1987
Constitution in express recognition of the sensitive and vital position of public utilities
both in the national economy and for national security, so that the evident purpose of the
citizenship requirement is to prevent aliens from assuming control of public utilities,
which may be inimical to the national interest. 1 6 This purpose prescinds from the
"bene ts"/dividends that are derived from or accorded to the particular stocks held by
Filipinos vis-à-vis the stocks held by aliens. So long as Filipinos have controlling interest
of a public utility corporation, their decision to declare more dividends for a particular
stock over other kinds of stock is their sole prerogative — an act of ownership that would
presumably be for the bene t of the public utility corporation itself. Thus, as explained in
the Decision:
In this regard, it would be apropos to state that since Filipinos own at least
60% of the outstanding shares of stock entitled to vote directors, which is what
the Constitution precisely requires, then the Filipino stockholders control the
corporation, i.e., they dictate corporate actions and decisions, and they have all
the rights of ownership including, but not limited to, offering certain preferred
shares that may have greater economic interest to foreign investors — as the need
for capital for corporate pursuits (such as expansion), may be good for the
corporation that they own. Surely, these "true owners" will not allow any dilution
of their ownership and control if such move will not be beneficial to them. 1 7
Finally, as to how the SEC will classify or treat certain stocks with voting rights
held by a trust fund that is created by the public entity whose compliance with the
limitation on foreign ownership under the Constitution is under scrutiny, and how the SEC
will determine if such public utility does, in fact, control how the said stocks will be voted,
and whether, resultantly, the trust fund would be considered as Philippine national or not
— lengthily discussed in the dissenting opinion of Justice Carpio — is speculative at this
juncture. The Court cannot engage in guesswork. Thus, there is need of an actual case or
controversy before the Court may exercise its power of judicial review. The movant's
petition is not that actual case or controversy.
Thus, the discussion of Justice Carpio's dissenting opinion as to the voting
preferred shares created by respondent PLDT, their acquisition by BTF Holdings, Inc.,
which appears to be a wholly-owned company of the PLDT Bene cial Trust Fund (BTF),
and whether or not it is respondent PLDT's management that controls BTF and BTF
Holdings, Inc. — all these are factual matters that are outside the ambit of this Court's
review which, as stated in the beginning, is con ned to determining whether or not the
SEC committed grave abuse of discretion in issuing SEC-MC No. 8; that is, whether or not
SEC-MC No. 8 violated the ruling of the Court in Gamboa v. Finance Secretary Teves , 1 8
and the resolution in Heirs of Wilson P. Gamboa v. Finance Sec. Teves 1 9 denying the
Motion for Reconsideration therein as to the proper understanding of "capital".
To be sure, it would be more prudent and advisable for the Court to await the
SEC's prior determination of the citizenship of speci c shares of stock held in trust —
based on proven facts — before the Court proceeds to pass upon the legality of such
determination.
As to whether respondent PLDT is currently in compliance with the Constitutional
provision regarding public utility entities, the Court must likewise await the SEC's
determination thereof applying SEC-MC No. 8. After all, as stated in the Decision, it is the
SEC which is the government agency with the competent expertise and the mandate of
law to make such determination.
In conclusion, the basic issues raised in the Motion having been duly considered
and passed upon by the Court in the Decision and no substantial argument having been
adduced to warrant the reconsideration sought, the Court resolves to DENY the Motion
with FINALITY .
WHEREFORE , the subject Motion for Reconsideration is hereby DENIED WITH
FINALITY . No further pleadings or motions shall be entertained in this case. Let entry of
final judgment be issued immediately.
SO ORDERED.
Sereno, C.J., Peralta, Bersamin, Del Castillo, Reyes and Tijam, JJ., concur.
Carpio, J., see dissenting opinion.
Velasco, Jr., J., please see concurring opinion.
Leonardo-de Castro, Mendoza and Martires, JJ., join the dissent of Justice Carpio.
Perlas-Bernabe * and Jardeleza, * JJ., took no part.
Leonen, J., I dissent, see separate opinion.
Separate Opinions
CARPIO , J., dissenting :
I dissent.
Section 11, Article XII of the Constitution provides: "No franchise, certi cate, or any
other form of authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines at least sixty per centum of whose capital is owned by such
citizens , x x x."
In the Gamboa Decision, 1 the threshold issue before the Court was "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."
In resolving this issue, the Court looked into PLDT's capital structure at the time
and found the glaring anomaly in treating the total outstanding capital stock as a single
class of shares. The Court showed how control and bene cial ownership of PLDT rest
solely with the common shares, thus:
x x x (1) foreigners own 64.27% of the common shares of PLDT, which
class of shares exercises the sole right to vote in the election of directors, and
thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDT's
common shares, constituting a minority of the voting stock, and thus do not
exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have
no voting rights; (4) preferred shares earn only 1/70 of the dividends that
common shares earn; (5) preferred shares have twice the par value of common
shares; and (6) preferred shares constitute 77.85% of the authorized capital stock
of PLDT and common shares only 22.15%. This kind of ownership and control of
a public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of P5.00
have a current stock market value of P2,328.00 per share, while PLDT preferred
shares with a par value of P10.00 per share have a current stock market value
ranging from only P10.92 to P11.06 per share, is a glaring con rmation by the
market that control and bene cial ownership of PLDT rest with the common
shares, not with the preferred shares. 2
Clearly, PLDT's capital structure then, where 64.27% of the common shares were in the
hands of foreigners, warranted the Court's ruling that the term "capital" refers to shares
of stock that can vote in the election of directors. The Court further stated that "in the
present case (in the case of PLDT), [the term 'capital' refers] only to common shares, and
not to the total outstanding capital stock." The dispositive portion of the Gamboa
Decision reads:
WHEREFORE, we PARTLY GRANT the petition and rule that the term
"capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of
stock entitled to vote in the election of directors, and thus in the present case only
to common shares, and not to the total outstanding capital stock (common and
non-voting preferred shares). Respondent Chairperson of the Securities and
Exchange Commission is DIRECTED to apply this de nition of the term "capital"
in determining the extent of allowable foreign ownership in respondent Philippine
Long Distance Telephone Company, and if there is a violation of Section 11,
Article XII of the Constitution, to impose the appropriate sanctions under the law.
SO ORDERED. 3
Moreover, in the Gamboa Decision, the Court stated that "[m]ere legal title is
insu cient to meet the 60 percent Filipino-owned 'capital' required in the Constitution." 4
Full bene cial ownership of 60 percent of the total outstanding capital stock, coupled
with 60 percent of the voting rights, is the minimum constitutional requirement for a
corporation to operate a public utility, thus:
x x x. Full bene cial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is required. The legal and
bene cial 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]." 5 (Emphasis supplied)
Signi cantly, in the 9 October 2012 Gamboa Resolution 6 denying the motion for
reconsideration, the Court reiterated the requirement of full bene cial ownership by
Filipinos of at least 60 percent of the outstanding capital stock and at least 60 percent
Filipino ownership of the voting rights. This is consistent with the Foreign Investments
Act, as well as its Implementing Rules, thus:
This is consistent with Section 3 of the FIA which provides that where 100% of the
capital stock is held by "a trustee of funds for pension or other employee
retirement or separation bene ts," the trustee is a Philippine national if "at least
sixty percent (60%) of the fund will accrue to the bene t of Philippine nationals."
Likewise, Section 1(b) of the Implementing Rules of the FIA provides that "for
stocks to be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required Filipino equity. Full
bene cial ownership of the stocks, coupled with appropriate voting
rights, is essential." 7 (Emphasis in the original)
The Court clari ed, in no uncertain terms, that the 60 percent constitutional
requirement of Filipino ownership applies uniformly and across the board to all classes
of shares comprising the capital of a corporation. The 60 percent Filipino ownership
requirement applies to each class of share, not to the total outstanding capital stock as a
single class of share.
Since the constitutional requirement of at least 60 percent Filipino
ownership applies not only to voting control of the corporation but also to the
bene cial ownership of the corporation, it is therefore imperative that such
requirement apply uniformly and across the board to all classes of shares,
regardless of nomenclature and category, comprising the capital of a corporation.
Under the Corporation Code, capital stock consists of all classes of shares issued
to stockholders, that is, common shares as well as preferred shares, which may
have different rights, privileges or restrictions as stated in the articles of
incorporation.
xxx xxx xxx
x x x. Thus, if a corporation, engaged in a partially nationalized industry,
issues a mixture of common and preferred non-voting shares, at least 60 percent
of the common shares and at least 60 percent of the preferred non-voting shares
must be owned by Filipinos. Of course, if a corporation issues only a single class
of shares, at least 60 percent of such shares must necessarily be owned by
Filipinos. In short, the 60-40 ownership requirement in favor of Filipino
citizens must apply separately to each class of shares, whether
common, preferred non-voting, preferred voting or any other class of
shares . This uniform application of the 60-40 ownership requirement in favor of
Filipino citizens clearly breathes life to the constitutional command that the
ownership and operation of public utilities shall be reserved exclusively to
corporations at least 60 percent of whose capital is Filipino-owned. Applying
uniformly the 60-40 ownership requirement in favor of Filipino citizens to each
class of shares, regardless of differences in voting rights, privileges and
restrictions, guarantees effective Filipino control of public utilities, as mandated
by the Constitution.
Moreover, such uniform application to each class of shares
insures that the "controlling interest" in public utilities always lies in the
hands of Filipino citizens. x x x.
As we held in our 28 June 2011 Decision, to construe broadly the term
"capital" as the total outstanding capital stock, treated as a single class
regardless of the actual classi cation of shares, grossly contravenes the intent
and letter of the Constitution that the "State shall develop a self-reliant and
independent national economy effectively controlled by Filipinos." We illustrated
the glaring anomaly which would result in de ning the term "capital" as the total
outstanding capital stock of a corporation, treated as a single class of shares
regardless of the actual classification of shares, to wit:
Let us assume that a corporation has 100 common shares
owned by foreigners and 1,000,000 non-voting preferred shares
owned by Filipinos, with both classes of share having a par value of
one peso (P1.00) per share. Under the broad de nition of the term
"capital," such corporation would be considered compliant with the
40 percent constitutional limit on foreign equity of public utilities
since the overwhelming majority, or more than 99.999 percent, of
the total outstanding capital stock is Filipino owned. This is
obviously absurd.
In the example given, only the foreigners holding the
common shares have voting rights in the election of directors, even
if they hold only 100 shares. The foreigners, with a minuscule equity
of less than 0.001 percent, exercise control over the public utility. On
the other hand, the Filipinos, holding more than 99.999 percent of
the equity, cannot vote in the election of directors and hence, have
no control over the public utility. This starkly circumvents the intent
of the framers of the Constitution, as well as the clear language of
the Constitution, to place the control of public utilities in the hands
of Filipinos. x x x. 8 (Emphasis supplied)
Clearly, in both Gamboa Decision and Resolution, the Court categorically declared
that the 60 percent minimum Filipino ownership refers not only to voting rights but
likewise to full bene cial ownership of the stocks. Moreover, in the Gamboa Resolution,
the Court explicitly stated that the 60 percent Filipino ownership applies uniformly to
each class of shares. Such interpretation ensures effective control by Filipinos of public
utilities, as expressly mandated by the Constitution.
Capital Structure of PLDT
Let us examine PLDT's capital structure to determine whether it complies with the
Gamboa Decision and Resolution where the Court expressly held that the 60 percent
minimum Filipino ownership refers not only to voting rights but also to full bene cial
ownership of the stocks. Further, the 60 percent Filipino ownership applies uniformly to
each class of shares.
In the 2011 General Information Sheet of PLDT, before the nality of the Gamboa
Decision and Resolution, its shares were divided into common and preferred. Filipinos
owned 35.77% while foreigners owned 64.23% of the common shares . Filipinos
owned 99.67% while foreigners owned 0.33% of the preferred shares. Filipinos owned
86.30% while foreigners owned 13.70% of the total outstanding capital stock. There was
no dispute that in 2011, before the Gamboa Decision and Resolution were promulgated,
the common shares of PLDT had the right to vote in the election of the board of
directors, whereas the preferred shares had no such right.
In the 2012 General Information Sheet of PLDT, after the promulgation of the
Gamboa Decision and Resolution, the preferred shares were sub-classi ed into (a) voting
preferred shares and (b) non-voting serial preferred shares. The newly-created voting
preferred shares, which have voting rights in the election of directors, are fully owned by
BTF Holdings, Inc. These voting preferred shares are not listed in the Philippine Stock
Exchange. With the newly-created preferred shares, it appears that Filipinos owned
65.53% while foreigners owned 34.47% of the total voting shares. However, based on
common shares only, Filipinos owned 41.60% while foreigners owned 58.40%. Based on
PLDT's 2012 General Information Sheet, Filipinos owned 100% of the non-voting
preferred shares.
In the 2013 General Information Sheet of PLDT, it appears that Filipinos owned
common shares only, Filipinos owned 44.63% while 55.37% were owned by foreigners.
Based on PLDT's 2013 General Information Sheet, Filipinos owned 100% of the non-
voting preferred shares.
preferred shares.
preferred shares.
preferred shares.
To summarize, the table below shows that from 2011 to 2016, the majority of the
common shares remained in the hands of foreigners and less than 60% of the common
shares were owned by Filipinos.
Number of PLDT 2012 in 2013 in 2015 in 2016 in
2011 in % 2014 in %
shares % % % %
COMMON
A. Filipino 35.77 41.60 44.63 46.35 45.70 48.87
B. Foreigners 64.23 58.40 55.37 53.65 54.30 51.13
PREFERRED
(NON-VOTING)
A. Filipino 99.67 100 100 100 100 100
B. Foreigners 0.33 0 0 0 0 0
PREFERRED
(VOTING)
A. Filipino - 100 100 100 100 100
B. Foreigners - 0 0 0 0 0
TOTAL VOTING
A. Filipino 35.77 65.53 67.32 68.34 67.95 69.82
B. Foreigners 64.23 34.47 32.68 31.66 32.05 30.18
To repeat, the issue in the Gamboa Decision was "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."
Considering PLDT's capital structure at the time, indicating that control and
ownership rest with the common shares, the Court stated in the dispositive portion of
t h e Gamboa Decision 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)."
If we apply the term "capital" as referring only to common shares and not to the
total outstanding capital stock of PLDT, as stated in the Gamboa Decision, then since
2011, before the promulgation of the Gamboa Decision and Resolution, until 2016, after
the promulgation of the Gamboa Decision and Resolution, PLDT's capital structure has
failed to comply with the constitutional requirement that at least 60 percent of its
common shares, which control PLDT, are Filipino-owned.
Voting Preferred Shares
In October 2012, PLDT created a new class of shares — the voting preferred
shares — to comply allegedly with the Gamboa Decision. All the 150,000,000 newly-
issued voting preferred shares were acquired by BTF Holdings, Inc., a wholly-owned
company of the PLDT Bene cial Trust Fund (BTF). The voting preferred shares have a par
value of P1.00 per share, while the common shares have a par value of P5.00 per share.
The BTF was established by the Board of Directors of PLDT as a retirement plan
for PLDT's employees. As stated in PLDT's By-Laws, among the express powers of the
Board of Directors of PLDT is to establish pension or retirement plans for the employees,
and to determine the persons to participate in such plans and the amount of their
participation. 9 The Board of Directors appoints the BTF's Board of Trustees, which
manages the BTF and consists of two members of PLDT's Board of Directors, a senior
member of the executive staff of PLDT, and two persons who are neither executives nor
employees of PLDT. 1 0 Since the PLDT Board of Directors appoints the Board of
Trustees of the BTF, in effect, it is PLDT's management which controls the BTF.
In 2011, when the Gamboa Decision was promulgated, PLDT's Board of Directors
was elected by foreigners comprising more than 60 percent of the common shares who
had the right to elect the Board of Directors. After the creation of the voting preferred
shares in 2012, PLDT's Board of Directors continued to be manned by the same set of
persons, and the management of PLDT remained in the hands of the same persons.
The table 1 1 below shows that the total voting preferred shares of 150,000,000
comprised 40.98% of the total voting capital of PLDT from 2012 until 2016. However, for
the same period, the number of voting preferred shares comprised only 22.5% of the
total paid-up capital of PLDT. The number of common shares, which was owned by a
majority of foreigners, comprised 77.5% of the total paid-up capital of PLDT.
2012 2013 2014 2015 2016
Number of PLDT
(as of 16 Oct. (as of 3 Oct. (as of 11 (as of 10 (as of 15 April
Shares
2012 2013 April 2014) April 2015) 2016)
FILIPINO
Common 89,882,436 96,429,568 100,150,726 98,743,500 105,577,491
Voting Preferred 150,000,000 150,000,000 150,000,000 150,000,000 150,000,000
FOREIGNERS
Common 126,173,339 119,626,207 115,905,049 117,312,275 110,478,284
Voting Preferred 0 0 0 0 0
TOTAL
366,055,775 366,055,775 366,055,775 366,055,775 366,055,775
366,055,775 366,055,775 366,055,775 366,055,775 366,055,775
VOTING
% OF VOTING
PREFERRED
VS. TOTAL
VOTING
(PAID-UP
CAPITAL) 40.98% 40.98% 40.98% 40.98% 40.98%
% OF VOTING
PREFERRED
VS. TOTAL
PAID-UP
CAPITAL 1 2 22.52% 22.52% 22.52% 22.73% 22.52%
There is no question that the 150,000,000 voting preferred shares have the right to
vote in the election of the Board of Directors. However, the Board of Trustees of the BTF
is appointed by the Board of Directors of PLDT. The BTF controls how the voting
preferred shares of BTF Holdings, Inc. are voted. In short, BTF Holdings, Inc. is controlled
by the Board of Directors of PLDT, including how the voting preferred shares of BTF
Holdings, Inc. will be voted. In essence, whoever controls PLDT also controls BTF and
BTF Holdings, Inc. When the voting preferred shares were created and issued to BTF
Holdings, Inc., PLDT, BTF, and BTF Holdings, Inc. were all controlled by the same
PLDT Board of Directors , who was elected by the owners of the PLDT common
shares. The majority of these PLDT common shares were then, and even up to now,
foreign-owned and controlled.
In 2012, when the voting preferred shares were created and issued, the common
shares with a par value of P5.00 were traded in the stock market for a price which
reached P2,650. 1 3 Meanwhile, the voting preferred shares with a par value of P1.00 were
not traded or listed in the stock exchange. While voting rights had been extended to the
newly-created voting preferred shares, the bene cial ownership of PLDT remained
indisputably with the common shares.
Clearly, the issuance of the voting preferred shares is a farce. PLDT created and
issued the voting preferred shares to "comply" allegedly with the Gamboa Decision and
Gamboa Resolution. With its "modi ed" capital structure, PLDT ostensibly quali es as a
"Philippine national" with at least 60 percent of its voting stock in the hands of Filipinos.
However, in truth and in fact, it is nothing but a "sweetheart deal," a disingenuous device,
which not only circumvents the ruling in Gamboa; but worse, illegally evades the
constitutional mandate of 60-40 Filipino ownership of capital. This ploy is a plain and
simple travesty of the Constitution.
Beneficial Ownership
The table below shows the disparity in the amounts of dividends declared from
2013 to 2016 1 4 between PLDT's common shares and voting preferred shares.
PLDT Shares 2013 2014 2015 2016
COMMON 1 5 P52 P54 P26 P49
(per share) P60 P62 P61 P57
P63 P69 P65
VOTING
PREFERRED P0.016/share P0.016/share P0.016/share P0.016/share
STOCK 1 6 (P2,437,500/ (P2,437,500/ (P2,437,500/ (P2,437,500/
(per share) 150,000,000) 150,000,000) 150,000,000) 150,000,000)
% DIVIDENDS OF
VOTING PREFERRED
VS. COMMON 0.04% 0.04% 0.03% 0.06%
SHARES
Clearly, such disparity highlights the anomaly in the treatment of the
total outstanding voting stock as a single class of shares. From 2013 to 2016,
the declared dividends on the common shares ranged from P26 to P69 per
share per annum with a par value of P5.00 per share, whereas the dividend on
the 150,000,000 voting preferred shares amounted to P0.065 1 7 per annum
with a par value of P1.00 per share.
In short, the voting preferred shares comprised 40.98% of all voting
shares but received only 0.04% 1 8 of the dividends for 2013, 0.04% 1 9 for 2014,
0 . 0 3 % 2 0 for 2015, and 0.06% 2 1 for 2016, compared with the dividends
received by the common shares for the same period.
Clearly, the voting preferred shares are mere "mickey mouse" voting shares,
created just to ostensibly comply with the 60 percent Filipino ownership requirement of
the voting stock. In reality, the voting preferred shares have insigni cant bene cial
returns to whoever owns it.
Signi cantly, in the Gamboa Decision, the Court cited the disparity in the bene cial
ownership between common shares and preferred shares of PLDT, to wit:
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a
current stock market value of P2,328.00 per share, while PLDT preferred shares
with a par value of P10.00 per share have a current stock market value ranging
from only P10.92 to P11.06 per share, is a glaring confirmation by the market that
control and beneficial ownership of PLDT rest with the common shares, not with
the preferred shares. 2 2
It must be noted that as of 10 March 2017, the last traded price of PLDT's
common shares with a par value of P5.00 is P1,544.00, 2 3 whereas the voting preferred
shares with a par value of P1.00 are not listed or traded. This further con rms that
control and bene cial ownership of PLDT rest with the common shares, not with the
preferred shares, either voting or non-voting.
Moreover, as I have previously stated, SEC Memorandum Circular No. 8 can be
considered valid only if (1) the stocks with voting rights and (2) the stocks without voting
rights, which comprise the capital of a corporation operating a public utility, have equal
par values. If the shares of stock have different par values, then applying SEC
Memorandum Circular No. 8 would contravene the Gamboa Decision that the "legal and
bene cial ownership of 60 percent of the outstanding capital stock x x x rests
in the hands of Filipino nationals in accordance with the constitutional
mandate." I illustrated the resulting anomaly in this wise:
For example, assume that class "A" voting shares have a par value of
P1.00, and class "B" non-voting preferred shares have a par value of P100.00. If
100 outstanding class "A" shares are all owned by Filipino citizens, and 80
outstanding class "B" shares are owned by foreigners and 20 class "B" shares are
owned by Filipino citizens, the 60-40 percent ownership requirement in favor of
Filipino citizens for voting shares, as well as for the total voting and non-voting
shares, will be complied with. If dividends are declared equivalent to the par value
per share for all classes of shares, only 20.8 percent of the dividends will go to
Filipino citizens while 79.2 percent of the dividends will go to foreigners, an
absurdity or anomaly that the framers of the Constitution certainly did not intend.
Such absurdity or anomaly will also be contrary to the Gamboa Decision that the
"legal and bene cial ownership of 60 percent of the outstanding capital
stock x x x rests in the hands of Filipino nationals in accordance with
the constitutional mandate." (Emphasis in the original)
PLDT's capital structure, as well as the disparity in the declared dividends between
common and voting preferred shares, illustrates clearly the anomaly which will result in
the interpretation by the SEC of the Gamboa Decision and Resolution. Applying the 60
percent Filipino ownership to the total voting stock and to the total outstanding stock,
whether voting or non-voting, and not to each class of shares of PLDT clearly amounts to
a blatant mockery of the Constitution.
Clarification of the
Gamboa Decision and Resolution
While the Court did not explicitly state in the dispositive portion of the Gamboa
Decision and Resolution that the minimum 60 percent Filipino ownership must be
uniformly applied to each class of shares, the body of the Gamboa Resolution
categorically declared that "the 60-40 ownership requirement in favor of Filipino citizens
must apply separately to each class of shares, whether common, preferred non-voting,
preferred voting or any other class of shares."
Is the Court perpetually precluded from re ning the dispositive portion of the
Gamboa Decision and Resolution to harmonize with the Court's pronouncements in the
body of the decision? Is the Court absolutely barred from clarifying the dispositive
portion of the Gamboa Decision and Resolution and stating that the 60-40 Filipino
ownership applies to each class of shares, as declared in the body of the Gamboa
Resolution?
Definitely, no.
To avoid absurdity, and more importantly, to uphold the spirit and language of the
Constitution, the Court is not only allowed, but is bound, to clarify, even rectify, any
apparent con ict in its decisions. To grasp and delve into the true intent and meaning of
a decision, no speci c portion thereof should be resorted to — the decision must be
considered in its entirety. 2 4 In Reinsurance Company of the Orient, Inc. v. Court of
Appeals, 2 5 the Court stated:
It is true that even a judgment which has become nal and executory may be
clari ed under certain circumstances. The dispositive portion of the judgment
may, for instance, contain an error clearly clerical in nature (perhaps best
illustrated by an error in arithmetical computation) or an ambiguity arising from
inadvertent omission, which error may be recti ed or ambiguity clari ed and the
omission supplied by reference primarily to the body of the decision itself.
Supplementary reference to the pleadings previously led in the case may also be
resorted to by way of corroboration of the existence of the error or of the
ambiguity in the dispositive part of the judgment. x x x.
To refuse to clarify the dispositive portion of the Gamboa Decision, invoking

conclusiveness of judgment and obiter dictum, among other things, is to shirk from this
Court's sworn duty to uphold the Constitution. Consequently, the Court must reject the
SEC's imsy argument that the SEC's task is merely to implement the Court's directive as
contained in the dispositive portion of the Gamboa Decision. Following such contention,
the SEC deliberately ignores the crucial pronouncements of the Court in the body of the
Gamboa Decision and Resolution.
Possible Economic Consequences

Agreeing with the Philippine Stock Exchange, the majority voiced fears of an
economic disaster if the term "capital" would be "re-interpreted." The PSE claims that "
[a]dopting a new de nition of 'capital' will prove disastrous [to] the Philippine stock
market." The majority opined that "a restrictive interpretation — or rather, re-
interpretation, of 'capital' x x x directly affects the well-being of the country."
Su ce it to state that the possible economic repercussions resulting from the
de nition of the term "capital" in Section 11, Article XII of the Constitution can never
justify a blatant violation of the Constitution. It is utterly dangerous to hold that possible
economic repercussions justify junking the Constitution. The solution is to properly
amend the Constitution, not to start violating it every time it becomes inconvenient to
comply with the Constitution.
To repeat, the Constitution expressly mandates an economy effectively controlled
by Filipinos. To sustain the glaringly anomalous and absurd situation which will result
from the SEC's interpretation of the term "capital" contravenes the Gamboa Decision and
Resolution, and worse, contradicts the Constitution.
The majority's decision now allows foreigners to control all nationalized
industries, whether nationalized under the Constitution or existing statutes.
Under these existing laws, foreign ownership is limited to less than a
controlling interest. With the majority's decision, the mere expedient of
creating "mickey mouse" voting preferred shares will turn over control of
nationalized industries, particularly strategic industries like
telecommunications and energy distribution, to foreigners. This is what the
majority's decision is all about. This has, of course, far-reaching rami cations
to the country's national economy, national security, and even the future of our
country as a sovereign state.
ACCORDINGLY , I vote to GRANT the motion for reconsideration. The minimum
60 percent Filipino ownership requirement under Section 11, Article XII of the
Constitution must be applied to each class of shares, which comprises "capital," as used
in the Constitution, in determining whether a corporation can validly operate a public
utility.
VELASCO JR. , J., concurring :
I concur with the denial of the motion for reconsideration, which still fails to
demonstrate any grave abuse of discretion committed by respondent Securities and
Exchange Commission (SEC) when it issued Memorandum Circular (MC) No. 8.
For purposes of emphasis, I restate part of my Concurring Opinion to the main
Decision:
The petition is anchored on the contention that the SEC committed grave
abuse of discretion in issuing MC No. 8. By grave abuse of discretion, the
petitioners must prove that the Commission's act was tainted with the quality of
whim and caprice. 1 Abuse of discretion is not enough. It must be shown that the
Commission exercised its power in an arbitrary or despotic manner because of
passion or personal hostility that is so patent and gross as to amount to an
evasion of positive duty or to a virtual refusal to perform a duty enjoined or to act
at all in contemplation of law. 2
With this standard in mind, the petitioner and petitioners-in-intervention
failed to demonstrate that the SEC's issuance of MC No. 8 was attended with
grave abuse of discretion. On the contrary, the assailed circular su ciently
applied the Court's definitive ruling in Gamboa.
To recall, Gamboa construed the word "capital" and the nationality
requirement in Section 11, Article XII of the Constitution, which states:
SECTION 11. No franchise, certi cate, or any other
form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of
the Philippines at least sixty per centum of whose capital is
owned by such citizens , nor shall such franchise, certi cate, or
authorization be exclusive in character or for a longer period than
fty years. Neither shall any such franchise or right be granted
except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so
requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign
investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its
capital , and all the executive and managing o cers of such
corporation or association must be citizens of the Philippines. 3
The Court explained in the June 28, 2011 Decision in Gamboa that the
term "capital" in Section 11, Article XII refers "only to shares of stock
entitled to vote in the election of directors." The rationale provided by the
majority was that this interpretation ensures that control of the Board of
Directors stays in the hands of Filipinos, since foreigners can only own a
maximum of 40% of said shares and, accordingly, can only elect the equivalent
percentage of directors. As a necessary corollary, Filipino stockholders can
always elect 60% of the Board of Directors which, to the majority of the Court,
translates to control over the corporation. The June 28, 2011 Decision, thus, read:
Considering that common shares have voting rights which translate
to control, as opposed to preferred shares which usually have no
voting rights, the term 'capital' in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred
shares also have the right to vote in the election of directors, then
the term "capital" shall include such preferred shares because the
right to participate in the control or management of the
corporation is exercised through the right to vote in the
election of directors. In short, the term "capital" in Section
11, Article XII of the Constitution refers only to shares of
stock that can vote in the election of directors.
This interpretation is consistent with the intent of the framers of the
Constitution to place in the hands of Filipino citizens the control and
management of public utilities. As revealed in the deliberations of
the Constitutional Commission, "capital" refers to the voting stock or
controlling interest of a corporation xxx
The dispositive portion of the June 28, 2011 Decision in Gamboa clearly
spelled out the doctrinal declaration of the Court on the meaning of "capital" in
Section 11, Article XII of the Constitution, viz.:
WHEREFORE, we PARTLY GRANT the petition and rule that the term
"capital" in Section 11, Article XII of the 1987 Constitution refers
only to shares of stock entitled to vote in the election of
directors , and thus in the present case only to common shares, and
not to the total outstanding capital stock (common and non-voting
preferred shares). Respondent Chairperson of the Securities and
Exchange Commission is DIRECTED to apply this de nition of the
term "capital" in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone
Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law. 4
The motions for reconsideration of the June 28, 2011 Decision led by the
movants in Gamboa argued against the application of the term "capital" to the
voting shares alone and in favor of applying the term to the total outstanding
capital stock (combined total of voting and non-voting shares). Notably, none of
them contended or moved for the application of the capital or the 60-40
requirement to "each and every class of shares" of a public utility, as it was never
an issue in the case .
In resolving the motions for reconsideration in Gamboa, it is relevant to
stress that the majority did not modify the June 28, 2011 Decision. The fallo of
the October 9, 2012 Resolution simply stated —
WHEREFORE, we DENY the motions for reconsideration WITH
FINALITY. No further pleadings shall be entertained.
Clearly, the Court had no intention, express or otherwise, to amend the
construction of the term "capital" in the June 28, 2011 Decision in Gamboa, much
less in the manner proposed by petitioner Roy. Hence, no grave abuse of
discretion can be attributed to the SEC in applying the term "capital" to the "voting
shares" of a corporation.
The portion quoted by the petitioners is nothing more than an obiter dictum
that has never been discussed as an issue during the deliberations in Gamboa. As
such, it is not a binding pronouncement of the Court 5 that can be used as basis
to declare the SEC's circular as unconstitutional.
xxx xxx xxx
Thus, the zealous watchfulness demonstrated by the SEC in imposing
another tier of protection for Filipino stockholders cannot, therefore, be penalized
on a misreading of the October 9, 2012 Resolution in Gamboa, which neither
added nor subtracted anything from the June 28, 2011 Decision de ning capital
as "shares of stock entitled to vote in the election of directors."
It must also be stressed that the Decision in Gamboa was issued pursuant to this
Court's symbolic function. It was meant as a de nitive ruling for the education of the
bench, bar, and the public in general on the meaning of the word "capital" in Section 11,
Article XII of the Constitution, and not as a resolution exclusively applicable to a
particular public utility. Accordingly, instead of resolving the charges against PLDT, the
Court directed the SEC to "apply this de nition of the term 'capital' in determining the
extent of allowable foreign ownership in respondent [PLDT]."
Presently, the SEC clari ed that it "has not yet issued a de nitive ruling anent
PLDT's compliance with the limitation on foreign ownership imposed under the
Constitution and relevant laws." It is, therefore, premature and presumptuous for this
Court to adjudge as erroneous a ruling that is still to be rendered by the SEC.
Least of all, not being a trier of facts nor specially equipped to investigate the
intricacies of corporate structures and the identities of capital market participants, this
Court cannot declare a corporation as non-compliant with the nationality requirement by,
without more, a mere cursory review of its General Information Sheets. With the drastic
consequences of such a ruling, which includes the possible revocation of its franchise, all
parties affected — the corporate public utility, its investors both in equity and debt, and
all its other stakeholders — deserve more than a passing treatment by this Court. The
SEC, the government agency speci cally tasked to review corporate matters, is better-
suited to fairly rule, after a full-blown investigation, on the compliance by corporate public
utilities with the nationality requirement.
Furthermore, in Gamboa, this Court construed "capital" as equivalent to the
" shares of stock entitled to vote in the election of directors " and so, sustaining
the petitioner's contention that it is through voting that control over a corporation is
exercised, it ruled that 60% of the voting shares or the "shares of stock entitled to
vote in the election of directors " in corporate public utilities are reserved for
Filipinos. Thus, the June 28, 2011 Gamboa Decision emphatically stated, viz.:
Indisputably, one of the rights of a stockholder is the right to
participate in the control or management of the corporation. This is
exercised through his vote in the election of directors because it is the
board of directors that controls or manages the corporation. 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. In fact, under the
Corporation Code only preferred or redeemable shares can be deprived of the right
to vote. 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.
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 .
Thus, the Court cannot now feign that the construction in Gamboa of the term
"capital" is con ned and limited only to "common shares," to the exclusion of voting
preferred shares. Adopting this regrettably myopic view will certainly revise and alter the
final decision and resolution in Gamboa.
For the foregoing, I vote to deny with nality the present Motion for
Reconsideration.
LEONEN , J., dissenting:
I maintain my dissent.
The primordial interest served by the limitation of foreign participation and
ownership in certain economic activities is the "conserv[ation] and develop[ment of] our
patrimony." 1 By de nition, this limitation is a matter of maintaining and rendering to the
Filipino what belongs to the Filipino. This means that there is an effective control by
Filipinos. It also means, as an act of preservation and development, that the Philippine
economy stands to bene t from the fruits of capital. It is thus a question of national
integrity:
It should be emphatically stated that the provisions of our Constitution which
limit to Filipinos the rights to develop the natural resources and to operate the
public utilities of the Philippines is one of the bulwarks of our national integrity.
The Filipino people decided to include it in our Constitution in order that it may
have the stability and permanency that its importance requires. It is written in our
Constitution so that it may neither be the subject of barter nor be impaired in the
give and take of politics. With our natural resources, our sources of power and
energy, our public lands, and our public utilities, the material basis of the nation's
existence, in the hands of aliens over whom the Philippine Government does not
have complete control, the Filipinos may soon nd themselves deprived of their
patrimony and living as it were, in a house that no longer belongs to them. 2
(Emphasis supplied)
The 1987 Constitution leaves room for the legislature to identify "certain areas of
investment" where foreign equity participation may be limited to 40% or even lower. 3
This is in addition to the areas of natural resources 4 and public utilities 5 where foreign
equity participation was already limited to a maximum of 40% by the 1935 6 and the
1973 7 Constitutions. This is also in addition to other activities explicitly mentioned
outside of Article XIV of the 1987 Constitution. 8
The Constitution recognizes private enterprise and investments as indispensable
to national progress and therefore encourages and provides incentives for them. 9 Yet
the Constitution's propitious stance towards private enterprise and investment is
tempered by the primacy of a "self-reliant and independent national economy." 1 0
The imperative of conserving and developing our inheritance and integrity is not an
empty exhortation. The speci c mandate is established by Article II, Section 19 of the
1987 Constitution: "The State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos."
There is thus a positive duty imposed upon state organs. They are charged with
the de nite prestation of going about and ensuring such conservation and development.
This is done through the conscious adoption of legal mechanisms that adequately effect
such conservation and development.
The mechanisms we adopt in jurisprudence must work not only at a barefaced
identi cation of Filipino and foreign stock ownership. They must go beyond surveying
nominal compliance but discerningly — even astutely — account for and foreclose
avenues for circumvention.
This begins with a conceptual understanding of capital and a functional
comprehension of what it means to own capital. These must be thorough, with keen
awareness that formal designations are not always representative of attendant rights,
bene ts, prerogatives, and other incidents. More than titular descriptions therefore, the
mechanisms we adopt must scrutinize the many features of stock ownership, such as,
its ultimate end of deriving commercial gains, the mutable as against the inviolable rights
it entails, and its implications for participating in corporate affairs, the avenues for
withholding participation, as well as the extent and quality of such participation
depending on the nature of the affair. Our jurisprudential mechanisms must focus on
bene cial, not merely titular, ownership. It cannot be true that a share of stock is held by
a Filipino when it is only the title that he holds while the entire usufruct belongs to a
foreigner.
Accordingly, the apparatus for reckoning foreign ownership must be willing go
beyond what (i.e., the class of shares) corporate participants are holding but also at how
they are holding it. When appropriate, there must be an unravelling of who ultimately
derives the gains, as well as who bene ts from and in uences the manner of exercising
the rights and prerogatives attendant to holding shares. Our mechanisms must rise
beyond the naivety of assuming that nominal ownership translates to consummate and
beneficial ownership.
The majority's position limiting the conception of "capital" vis-à-vis foreign equity
participation in public utilities under Article XII, Section 11 of the 1987 Constitution only
to shares of stock entitled to vote for directors in a corporation fails to adequately effect
the Constitution's dictum. Rather than guarding our patrimony, it has opened the door for
foreign control of corporations engaged in nationalized economic activities. 1 1
In keeping with the primacy of our patrimony and the charge of a "self-reliant and
independent national economy," capital must be construed in such a manner as to secure
"the controlling interest in favor of Filipinos." 1 2
To limit capital to so-called voting shares is to be shortsighted. It fails to account
for the reality that every class of shares exercises a measure of control over a
corporation. Even so-called non-voting shares vote and may be pivotal in the most crucial
corporate actions. A cursory reading of the Corporation Code reveals this:
No class of shares is ever truly bereft of a measure of control of a
corporation. It is true, as Section 6 of the Corporation Code permits, that preferred
and/or redeemable shares may be denied the right to vote extended to other
classes of shares. For this reason, they are also often referred to as ["]non-voting
shares.["] However, the absolutist connotation of the description "non-voting" is
misleading. The same Section 6 provides that these "non-voting shares" are still
"entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or
other corporations;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
In the most crucial corporate actions — those that go into the very
constitution of the corporation — even so-called non-voting shares may vote. Not
only can they vote; they can be pivotal in deciding the most basic issues
confronting a corporation. Certainly, the ability to decide a corporation's
framework of governance (i.e., its articles of incorporation and by-laws), viability
(through the encumbrance or disposition of all or substantially all of its assets,
engagement in another enterprise, or subjection to indebtedness), or even its very
existence (through its merger or consolidation with another corporate entity, or
even through its outright dissolution) demonstrates not only a measure of control,
but even possibly overruling control. "Non-voting" preferred and redeemable
shares are hardly irrelevant in controlling a corporation. 1 3 (Emphasis in the
original, citation omitted)
The constitutional imperative demands a consideration not just of nominal power
and control or the identi cation of which shares are denominated as "voting" and "non-
voting", but equally of beneficial ownership.
The implementing rules and regulations (amended 2004) of Republic Act No.
8799, the Securities Regulation Code (SRC), de ne "bene cial owner or bene cial
ownership." It identi es the two (2) facets of bene cial ownership: rst, having or sharing
voting power; second, having or sharing investment returns or power:
Rule 3 — Definition of Terms Used in the Rules and Regulations
1. As used in the rules and regulations adopted by the Commission
under the Code, unless the context otherwise requires:
A. Bene cial owner or bene cial ownership means any person who,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting power,
which includes the power to vote, or to direct the voting of such
security; and/or investment returns or power, which includes the
power to dispose of, or to direct the disposition of such security;
provided, however, that a person shall be deemed to have an indirect
beneficial ownership interest in any security which is:
i. held by members of his immediate family sharing the same
household;
ii. held by a partnership in which he is a general partner;
iii. held by a corporation of which he is a controlling shareholder; or
iv. subject to any contract, arrangement or understanding which gives
him voting power or investment power with respect to such securities;
provided however, that the following persons or institutions shall not
be deemed to be bene cial owners of securities held by them for the
bene t of third parties or in customer or duciary accounts in the
ordinary course of business, so long as such shares were acquired by
such persons or institutions without the purpose or effect of changing
or influencing control of the issuer:
a. a broker dealer;
b. an investment house registered under the Investment Houses
Law;
c. a bank authorized to operate as such by the Bangko Sentral ng
Pilipinas;
d. an insurance company subject to the supervision of the O ce
of the Insurance Commission;
e. an investment company registered under the Investment
Company Act;
f. a pension plan subject to regulation and supervision by the
Bureau of Internal Revenue and/or the O ce of the Insurance
Commission or relevant authority; and
g. a group in which all of the members are persons speci ed
above.
All securities of the same class bene cially owned by a person,
regardless of the form such bene cial ownership takes, shall be
aggregated in calculating the number of shares bene cially owned
by such person.
A person shall be deemed to be the bene cial owner of a security if
that person has the right to acquire bene cial ownership, within
thirty (30) days, including, but not limited to, any right to acquire,
through the exercise of any option, warrant or right; through the
conversion of any security; pursuant to the power to revoke a trust,
discretionary account or similar arrangement; or pursuant to
automatic termination of a trust, discretionary account or similar
arrangement. (Emphasis supplied)
The concept of beneficial ownership uncovers that control is not entirely the end of
participating in a stock corporation. As stock corporations are fundamentally business
organizations, participating in their affairs by partaking in ownership is ultimately a
matter of reaping gains from investments.
Consistent with the composite character of stock ownership and impelled by the
need to equip state organs with the most e cacious means for conserving our heritage
are the correlative mechanisms of the Control Test and the Grandfather Rule. These are
the guideposts through which foreign participation in nationalized economic activities is
reckoned. Together, the Control Test and the Grandfather Rule enable an adequate
mechanism for state organs to examine whether a stock corporation is effectively
controlled and beneficially owned by Filipinos.
My dissent to the majority's November 22, 2016 Decision, 1 4 as well as to the April
21, 2014 Decision 1 5 and January 28, 2015 Resolution 1 6 in Narra Nickel and
Development Corp. v. Redmont Consolidated Mines Corp. , emphasized that the Control
Test nds initial application and "must govern in reckoning foreign equity ownership in
corporations engaged in nationalized economic activities." 1 7 Further, "the Grandfather
Rule may be used as a supplement to the Control Test, that is, as a further check to
ensure that control and bene cial ownership of a corporation is in fact lodged in
Filipinos." 1 8
The correlation between the Control Test and the Grandfather Rule — where the
former nds initial application, and the latter supplements — is settled in jurisprudence,
having been a rmed in the January 28, 2015 Resolution in Narra Nickel. The Court
explained:
[T]he Control Test can be, as it has been, applied jointly with the 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 can only be applied alternative
to each other. Rather, these methods can, 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 quali ed to perform nationalized or partly
nationalized activities. Hence, it is only when the Control Test is rst 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 need to 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
doubt as to who has the "bene cial ownership" and "control" of the corporation. In
that instance, there is no need for a 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 ratio is apparently met by the subject or investee corporation, a
resort to the Grandfather Rule is necessary if doubt exists as to the locus of the
"beneficial ownership" and "control." 1 9 (Emphasis supplied)
Characterizing the Grandfather Rule as a "supplement" or as a " further check" is not
understating its importance.
Precisely, the Grandfather Rule is intended to frustrate the use of ostensible equity
ownership as an arti ce for circumventing the constitutional imperatives of "conserv[ing]
and develop[ing] our patrimony" 2 0 and "develop[ing] a self-reliant and independent
national economy." 2 1
We should be mindful of schemes used to frustrate the Constitution's ends. These
include the use of dummies and corporate layering and cloaking devices. As early as
1936, we have adopted the Anti-Dummy Law. 2 2 It not only proscribes, but even penalizes
concession to use one's name or citizenship to evade constitutional or legal
requirements of citizenship for the exercise of a right, franchise or privilege, 2 3 the
simulation of minimum capital stock, 2 4 and other acts deemed tantamount to the
unlawful use, exploitation or enjoyment of a right, franchise, privilege, property or
business, reserved to citizens. 2 5 In 1984, the Department of Justice, through its Opinion
No. 165, referenced the Anti-Dummy Law and identi ed the following "signi cant
indicators" or badges of "dummy status":
1. That the foreign investor provides practically all the funds for the joint
investment undertaken by Filipino businessmen and their foreign
partner.
2. That the foreign investors undertake to provide practically all the
technological support for the joint venture.
3. That the foreign investors, while being minority stockholders, manage
the company and prepare all economic viability studies. 2 6
The Grandfather Rule enables the piercing of ostensible control vested by
ownership of 60% of a corporation's capital when methods are employed to disable
Filipinos from exercising control and reaping the economic bene ts of an enterprise. 2 7
This — more assiduous — examination of who actually controls and benefits from holding
such capital may very well be a jealous means of protecting our patrimony, but fending
off the challenges to our national integrity demands it.
The application of the Grandfather Rule hinges on circumstances. It is an
extraordinary mechanism the operation of which is impelled by a reasonable sense of
doubt that even as 60% of a corporation's capital is ostensibly owned by Filipinos, a more
scrupulous arrangement may underlie that compliance and that nominal Filipino owners
have become parties to the besmirching of their own national integrity. As the 2015
Resolution in Narra Nickel explained, "'[D]doubt' refers to various indicia that the
'bene cial ownership' and 'control' of the corporation do not in fact reside in Filipino
shareholders but in foreign stakeholders." 2 8 It is necessary then, that proper evidentiary
bases sustain resort to the Grandfather Rule.
Adopting mechanisms that may be well-meaning, but ultimately inadequate,
reduces state organs to unwitting collaborators in the despoiling and pillaging of the
Filipino's patrimony. Rather than work for and in the national interest, they fall prey to
regulatory capture; facilitating private over public, or worse, foreign over national, gain.
The majority's limitation of capital to so-called voting stocks entrenches an
operational de nition that can be a gateway to violating the Constitution's righteous
protection of our heritage. It licentiously empowers foreign interests to overrun public
utilities, which are enterprises whose primary objectives should be the common good
and not commercial gain, to wrest control of rights to our natural resources, and to
takeover other crucial areas of investment.
The majority's November 22, 2016 Decision may have set us along this course. We
have the opportunity to reverse that position and truly do justice to the Filipino.
ACCORDINGLY , I vote to grant the Motion for Reconsideration.
Footnotes
* No Part.
1. Rollo (Vol. II), pp. 1262-1277.
2. Decision, id. at 1154-1189.
3. 668 Phil. 1 (2011).

4. Heirs of Wilson P. Gamboa v. Finance Sec. Teves, 696 Phil. 276 (2012).
5. Decision, rollo (Vol. II), pp. 1160-1166.
6. Decision, id. at 1165; citations omitted.
7. Decision, id. at 1159.
8. Decision, id. at 1166.
9. Id. at 605-609.
9-a. Supra note 4, at 339.
10. Id. at 1185.
11. Supra note 3, at 57.
12. SEC-MC No. 8, Sec. 2.

13. Implementing Rules and Regulations of Republic Act No. 7042 (Foreign Investment Act of
1991) as amended by Republic Act No. 8179, Sec. 1, b.
14. 2015 Implementing Rules and Regulations of the Securities Regulation Code, Sec. 3.1.2.
15. SEC Memorandum Circular No. 11, Series of 2008.
16. Supra note 3, at 44.
17. Decision, rollo (Vol. II), p. 1168.
18. Supra note 3.
19. Supra note 4.

CARPIO, J., dissenting:
1. Gamboa v. Teves, 668 Phil. 1 (2011).
2. Id. at 63-64.
3. Id. at 69-70.
4. Id. at 57.
5. Id.

6. 696 Phil. 276 (2012).
7. Id. at 338-339.
8. Id. at 339, 341, 345.
9. Article V, Section 9 (i) of the Amended By-Laws of PLDT dated 20 February 2015.
10. Page F-119 of SEC Form 17-A (Annual Report) for the scal year 2015
<http://www.pds.com.ph/wp-content/uploads/2016/03/Disclosure-No.-490-2016-Annual-
Report-for-Fiscal-Year-Ended-December-31-2015-SEC-FORM-17-A.pdf> (accessed on 12
March 2017).
11. Based on PLDT's General Information Sheets from 2011 to 2016.
2011: http://www.pldt.com/docs/default-source/general-information/pldt-2011-gis.pdf?
sfvrsn=0 (accessed on 7 March 2017).
2012: http://www.pldt.com/docs/default-source/general-information/amended-general-
information-sheet_final-2012.pdf?sfvrsn=0 (accessed on 7 March 2017).
2013: http://www.pldt.com/docs/default-source/general-information/amended-
gis_decrease-in-capital-stock_10-03-13.pdf?sfvrsn=0 (accessed on 7 March 2017).
2014: http://www.pldt.com/docs/default-source/general-information/2014-gis-with-
certification.pdf?sfvrsn=0 (accessed on 7 March 2017).
2015: http://www.pldt.com/docs/default-source/general-information/2015-pldt-gis-with-
certification.pdf?sfvrsn=2 (accessed on 7 March 2017).
2016: http://www.pldt.com/docs/default-source/general-information/pldt-2016-amended-
general-information-sheet-(gis).pdf?sfvrsn=0 (accessed on 7 March 2017).
12. The number of shares comprising the total paid-up capital for 2012 was 666,058,745; for
2013 it was 666,056,345; for 2014 it was 666,056,345; for 2015 it was 666,056,145; and
for 2016 it was 666,057,015. Based on PLDT's General Information Sheets.
13. On 23 October 2012. <http://edge.pse.com.ph/companyPage/stockData.do?cmpy_id=6>
(accessed on 10 March 2017).
14. Based on PLDT's dividend declaration from 2013 to 2016 <http://www.pldt.com/investor-
relations/shareholder-information/dividend-info> (accessed on 12 March 2017).
15. Declared on various dates.

16. Quarterly.
17. For 2013, 2014, and 2016.
18. P0.065 (sum of the dividends of each voting preferred share) divided by P175.065 (sum of
the dividends of each common share and voting preferred share).
21. P0.065 (sums of the dividends of each voting preferred share) divided by P106.065 (sum of

22. Gamboa v. Teves, supra note 1, at 64.
23. As of 1:27 p.m. of 10 March 2017 <http://edge.pse.com.ph/companyPage/stockData.do?
cmpy_id=6>.
24. Gulang v. Court of Appeals, 360 Phil. 435, 450 (1998), citing Valderrama v. NLRC, 326 Phil.
477, 484 (1996).
25. 275 Phil. 20, 34 (1991). Cited in Gulang v. Court of Appeals, id.
VELASCO JR., J., concurring:
1. OKS Designtech, Inc. v. Caccam, G.R. No. 211263 August 5, 2015.
2. Gold City Integrated Services, Inc. v. Intermediate Appellate Court , G.R. Nos. 71771-73, March
31, 1989; citing Arguelles v. Young , No. L-59880, September 11, 1987, 153 SCRA 690;
Republic v. Heirs of Spouses Molinyawe, G.R. No. 217120, April 18, 2016; Olaño v. Lim Eng
Co, G.R. No. 195835, March 14, 2016; City of Iloilo v. Honrado , G.R. No. 160399, December
9, 2015; OKS Designtech, Inc. v. Caccam, G.R. No. 211263, August 5, 2015.
3. Emphasis supplied.
5. Ocean East Agency, Corp. v. Lopez, G.R. No. 194410, October 14, 2015.
LEONEN, J., dissenting:
1. CONST., Preamble.
2 . Former President of the University of the Philippines, Hon. Vicente G. Sinco (Congressional
Record, House of Representatives, Vol. I, No. 26, 561), quoted in Republic v. Quasha, 150-B
Phil. 140, 170 (1972) [Per J. Reyes, J.B.L., En Banc].
3. CONST., art. XII, sec. 10 provides:
Section 10. The Congress shall, upon recommendation of the economic and planning
agency, when the national interest dictates, reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose capital is owned by such
citizens, or such higher percentage as Congress may prescribe, certain areas of
investments. The Congress shall enact measures that will encourage the formation and
operation of enterprises whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and
patrimony, the State shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national
jurisdiction and in accordance with its national goals and priorities.
4. CONST., art. XII, sec. 2, par. (1) provides:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, sheries, forests or timber, wildlife, ora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may enter
into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such
citizens. Such agreements may be for a period not exceeding twenty- ve years. renewable
for not more than twenty- ve years, and under such terms and conditions as may be
provided by law. In cases of water rights for irrigation, water supply, sheries, or industrial
uses other than the development of water power, bene cial use may be the measure and
limit of the grant.
5. CONST., art. XII, sec. 11 provides:
Section 11. No franchise, certi cate, or any other form of authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise, certi cate, or
authorization be exclusive in character or for a longer period than fty years. Neither shall
any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility enterprise shall
be limited to their proportionate share in its capital, and all the executive and managing
officers of such corporation or association must be citizens of the Philippines.
6. CONST. (1935), art. XII, sec. 1 provides:
Section 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals,
coal, petroleum, and other mineral oils, all forces or potential energy, and other natural
resources of the Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to citizens of the Philippines, or to corporations
or associations at least sixty per centum of the capital of which is owned by such citizens,
subject to any existing right, grant, lease, or concession at the time of the inauguration of
the Government established under this Constitution. Natural resources, with the exception
of public agricultural land, shall not be alienated, and no license, concession, or lease for
the exploitation, development, or utilization of any of the natural resources shall be
granted for a period exceeding twenty- ve years, except as to water rights for irrigation,
water supply, sheries, or industrial uses other than the development of water power, in
which cases beneficial use may be the measure and the limit of the grant.
CONST. (1935), art. XIII, sec. 8 provides:
Section 8. No franchise, certi cate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or
other entities organized under the laws of the Philippines, sixty per centum of the capital
of which is owned by citizens of the Philippines, nor shall such franchise, certi cate, or
authorization be exclusive in character or for a longer period than fty years. No franchise
or right shall be granted to any individual, rm, or corporation, except under the condition
that it shall be subject to amendment, alteration, or repeal by the National Assembly when
the public interest so requires.
7. CONST. (1973), art. XIV, sec. 5 provides:
Section 5. No franchise, certi cate, or any other form of authorization for the operation of a
associations organized under the laws of the Philippines at least sixty per centum of the
capital of which is owned by such citizens, nor shall such franchise, certi cate, or
authorization be exclusive in character or for a longer period than fty years. Neither shall
any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal in by the National Assembly when the public interest so
requires. The State shall encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in the capital thereof.
CONST. (1973), art. XIV, sec. 9 provides:
Section 9. The disposition, exploration, development, exploitation, or utilization of any of
the natural resources of the Philippines shall be limited to citizens of the Philippines, or to
corporations or associations at least sixty per centum of the capital of which is owned by
such citizens. The National Assembly, in the national interest, may allow such citizens,
corporations, or associations to enter into service contracts for nancial, technical,
management, or other forms of assistance with any foreign person or entity for the
exploration, development, exploitation, or utilization of any of the natural resources.
Existing valid and binding service contracts for nancial, technical, management, or other
forms of assistance are hereby recognized as such.
8. CONST., art. XIV, sec. 4 (2) provides:
Section 4.
xxx xxx xxx

(2) Educational institutions, other than those established by religious groups and mission
boards, shall be owned solely by citizens of the Philippines or corporations or associations
at least sixty per centum of the capital of which is owned by such citizens. The Congress
may, however, require increased Filipino equity participation in all educational institutions.
CONST., art. XVI, sec. 11 provides:
SECTION 11. (1) The ownership and management of mass media shall be limited to
citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned
and managed by such citizens.
The Congress shall regulate or prohibit monopolies in commercial mass media when the
public interest so requires. No combinations in restraint of trade or unfair competition
therein shall be allowed.
(2) The advertising industry is impressed with public interest, and shall be regulated by law
for the protection of consumers and the promotion of the general welfare.
Only Filipino citizens or corporations or associations at least seventy per centum of the
capital of which is owned by such citizens shall be allowed to engage in the advertising
industry.
The participation of foreign investors in the governing body of entities in such industry
shall be limited to their proportionate share in the capital thereof, and all the executive and
managing officers of such entities must be citizens of the Philippines.
9. CONST., art. II, sec. 20 provides:
Section 20. The State recognizes the indispensable role of the private sector, encourages
private enterprise, and provides incentives to needed investments.
10. CONST., art. II, sec. 19:

Section 19. The State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos.
1 1 . RIGOBERTO D. TIGLAO, COLLOSAL DECEPTION: HOW FOREIGNERS CONTROL OUR
TELECOMS SECTOR (2016).
12. Dissenting Opinion of J. Leonen in Roy v. Herbosa , G.R. No. 207246, November 22, 2016
<http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2016/november2016/207246_leonen.pdf> 6 [Per J. Caguioa, En Banc],
citing Dissenting Opinion of J. Mendoza in Roy v. Herbosa, G.R. No. 207246, November 22,
2016
le=/jurisprudence/2016/november2016/207246_mendoza.pdf > 21 [Per J. Caguioa, En
Banc].
13. Dissenting Opinion of J. Leonen in Roy v. Herbosa , G.R. No. 207246, November 22, 2016
le=/jurisprudence/2016/november2016/207246_leonen.pdf> 6-7 [Per J. Caguioa, En
Banc].
14. Dissenting Opinion of J. Leonen in Roy v. Herbosa , G.R. No. 207246, November 22, 2016,
file=/jurisprudence/2016/november2016/207246_leonen.pdf> [Per J. Caguioa, En Banc].
15. Dissenting Opinion of J. Leonen in Narra Nickel Mining & Development Corp. v Redmont
Consolidated Mines Corp., 733 Phil. 365, 420-490 (2014) [Per J. Velasco, Third Division].
16. Dissenting Opinion of J. Leonen in Narra Nickel Mining and Development Corp. v. Redmont
Consolidated Mines Corp., G.R. No. 195580, January 28, 2015, 748 SCRA 455, 492-510
[Per J. Velasco, Special Third Division Resolution].
17. Dissenting Opinion of J. Leonen in Narra Nickel Mining & Development Corp. v. Redmont
Consolidated Mines Corp., 733 Phil. 365, 468 (2014) [Per J. Velasco, Third Division].
18. Id. at 478.
19. Narra Nickel Mining and Development Corp. v. Redmont Consolidated Mines Corp. , G.R. No.
195580, January 28, 2015, 748 SCRA 455, 477-478 [Per J. Velasco, Special Third Division
Resolution].
20. CONST., preamble.
21. CONST., art. II, sec. 19.
22. Com. Act No. 108, as amended.
23. Com. Act No. 108, sec. 1 provides:
Section 1. In all cases in which any constitutional or legal provision requires Philippine or
United States citizenship as a requisite for the exercise or enjoyment of a right, franchise
or privilege, any citizen of the Philippines or the United States who allows his name or
citizenship to be used for the purpose of evading such provision, and any alien or
foreigner pro ting thereby, shall be punished by imprisonment for not less than two nor
more than ten years, and by a ne of not less than two thousand nor more than ten
thousand pesos.
The fact that the citizen of the Philippines or of the United States charged with a violation
of this Act had, at the time of the acquisition of his holdings in the corporations or
associations referred to in section two of this Act, no real or personal property, credit or
other assets the value of which shall at least be equivalent to said holdings, shall be
admissible as circumstantial evidence of a violation of this Act.
24. Com. Act No. 108, sec. 2 provides:
Section 2. In all cases in which a constitutional or legal provision requires that, in order that
a corporation or association may exercise or enjoy a right, franchise or privilege, not less
than a certain per centum of its capital must be owned by citizens of the Philippines or the
United States, or both, it shall be unlawful to falsely simulate the existence of such
minimum of stock or capital as owned by such citizens of the Philippines or the United
States or both, for the purpose of evading said provision. The president or managers and
directors or trustees of corporations or associations convicted of a violation of this section
shall be punished by imprisonment for not less than two nor more than ten years, and by a
fine of not less than two thousand nor more than ten thousand pesos.
25. Com. Act No. 108, sec. 2-A provides:
Section 2-A. Any person, corporation, or association[,] which, having in its name or under its
control, a right, franchise, privilege, property or business, the exercise or enjoyment of
which is expressly reserved by the Constitution or the laws to citizens of the Philippines or
of any other speci c country, or to corporations or associations at least sixty per centum
of the capital of which is owned by such citizens, permits or allows the use, exploitation or
enjoyment thereof by a person, corporation or association not possessing the requisites
prescribed by the Constitution or the laws of the Philippines; or leases, or in any other way,
transfers or conveys said right, franchise, privilege, property or business to a person,
corporation or association not otherwise quali ed under the Constitution, or the provisions
of the existing laws; or in any manner permits or allows any person, not possessing the
quali cations required by the Constitution, or existing laws to acquire, use, exploit or enjoy
a right, franchise, privilege, property or business, the exercise and enjoyment of which are
expressly reserved by the Constitution or existing laws to citizens of the Philippines or of
any other speci c country, to intervene in the management, operation, administration or
control thereof, whether as an o cer, employee or laborer therein with or without
remuneration except technical personnel whose employment may be speci cally
authorized by the Secretary of Justice, and any person who knowingly aids, assists or
abets in the planning, consummation or perpetration of any of the acts herein above
enumerated shall be punished by imprisonment for not less than ve nor more than
fteen years and by a ne of not less than the value of the right, franchise or privilege
enjoyed or acquired in violation of the provisions hereof but in no case less than ve
thousand pesos: Provided, however, that the president, managers or persons in charge of
corporations, associations or partnerships violating the provisions of this section shall be
criminally liable in lieu thereof: Provided, further, That any person, corporation or
association shall, in addition to the penalty imposed herein, forfeit such right, franchise,
privilege, and the property or business enjoyed or acquired in violation of the provisions of
this Act: and Provided, nally, That the election of aliens as members of the board of
directors or governing body of corporations or associations engaging in partially
nationalized activities shall be allowed in proportion to their allowable participation or
share in the capital of such entities.
26. Sec. of Justice Op. No. 165, s. 1984.
27. Dissenting Opinion of J. Leonen in Narra Nickel Mining & Development Corp. v. Redmont
Consolidated Mines Corp., 713 Phil. 365, 478-479 (2014) [Per J. Velasco, Third Division].
28. Narra Nickel Mining and Development Corp. v. Redmont Consolidated Mines Corp., G.R. No.
195580, January 28, 2015, 748 SCRA 455, 478 [Per J. Velasco, Special Third Division
Resolution].

EN BANC
[G.R. No. 176579. June 28, 2011.]
WILSON P. GAMBOA , petitioner, vs . FINANCE SECRETARY MARGARITO B. TEVES,

FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER RICARDO
ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN
THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD.
IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC.,
CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC
CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK
EXCHANGE , respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD , petitioners-in-intervention.
DECISION
CARPIO , J : p
The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of
the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the
government of the Republic of the Philippines to Metro Paci c Assets Holdings, Inc. (MPAH), an a liate
of First Pacific Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance
Telephone Company (PLDT), are as follows: 1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a
franchise and the right to engage in telecommunications business. In 1969, General Telephone and
Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26 percent of
the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated
by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner
of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC
stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held
by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415
PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later
declared by this Court to be owned by the Republic of the Philippines. 2
In 1999, First Paci c, a Bermuda-registered, Hong Kong-based investment rm, acquired the
remaining 54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency
Privatization Council (IPC) of the Philippine Government announced that it would sell the 111,415 PTIC
shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public bidding to be
conducted on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006, and
only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their
bids. Parallax won with a bid of P25.6 billion or US$510 million. TAESDH
Thereafter, First Paci c announced that it would exercise its right of rst refusal as a PTIC
stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax. However, First
Paci c failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its right to PTIC
itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14 February 2007, First
Paci c, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the
111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, with the Philippine
Government for the price of P25,217,556,000 or US$510,580,189. The sale was completed on 28
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February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of
PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding
common shares of PLDT. With the sale, First Pacific's common shareholdings in PLDT increased
from 30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners
in PLDT to about 81.47 percent . This violates Section 11, Article XII of the 1987 Philippine
Constitution which limits foreign ownership of the capital of a public utility to not more than 40 percent. 3
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John
P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment
holdings. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding
common shares. PHI, on the other hand, was incorporated in 1977, and became the owner of 111,415
PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue of three Deeds of
Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held
by PHI were sequestered by the PCGG, and subsequently declared by this Court as part of the ill-gotten
wealth of former President Ferdinand Marcos. The sequestered PTIC shares were reconveyed to the
Republic of the Philippines in accordance with this Court's decision 4 which became nal and executory
on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent
of the outstanding common shares of stock of PLDT, and designated the Inter-Agency Privatization
Council (IPC), composed of the Department of Finance and the PCGG, as the disposing entity. An
invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On 20
November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled on 4
December 2006 was reset to 8 December 2006. The extension was published in nine different
newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest
bidder with a bid of P25,217,556,000. The government noti ed First Paci c, the majority owner of PTIC
shares, of the bidding results and gave First Paci c until 1 February 2007 to exercise its right of rst
refusal in accordance with PTIC's Articles of Incorporation. First Paci c announced its intention to match
Parallax's bid.
On 31 January 2007, the House of Representatives (HR) Committee on Good Government
conducted a public hearing on the particulars of the then impending sale of the 111,415 PTIC shares.
Respondents Teves and Sevilla were among those who attended the public hearing. The HR Committee
Report No. 2270 concluded that: (a) the auction of the government's 111,415 PTIC shares bore due
diligence, transparency and conformity with existing legal procedures; and (b) First Paci c's intended
acquisition of the government's 111,415 PTIC shares resulting in First Paci c's 100%
ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of
a public utility since PTIC holds only 13.847 percent of the total outstanding common shares
of PLDT . 5 On 28 February 2007, First Paci c completed the acquisition of the 111,415 shares of stock
of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public
bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the
remaining 54 percent of PTIC shares was already owned by First Paci c and its a liates); (b) Parallax
offered the highest bid amounting to P25,217,556,000; (c) pursuant to the right of rst refusal in favor of
PTIC and its shareholders granted in PTIC's Articles of Incorporation, MPAH, a First Paci c a liate,
exercised its right of rst refusal by matching the highest bid offered for PTIC shares on 13 February
2007; and (d) on 28 February 2007, the sale was consummated when MPAH paid IPC P25,217,556,000
and the government delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies
the other allegations of facts of petitioner. HcaDIA
On 28 February 2007, petitioner led the instant petition for prohibition, injunction, declaratory
relief, and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that
the sale of the 111,415 PTIC shares would result in an increase in First Paci c's common shareholdings
in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese NTT DoCoMo's common
shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56 percent
which is over the 40 percent constitutional limit. 6 Petitioner asserts:
If and when the sale is completed, First Paci c's equity in PLDT will go up from 30.7 percent
to 37.0 percent of its common — or voting-stockholdings, . . . . Hence, the consummation of the sale
will put the two largest foreign investors in PLDT — First Paci c and Japan's NTT DoCoMo, which is
the world's largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity.
. . . With the completion of the sale, data culled from the o cial website of the New York Stock
Exchange (www.nyse.com) showed that those foreign entities, which own at least ve percent of
common equity, will collectively own 81.47 percent of PLDT's common equity. . . .
. . . as the annual disclosure reports, also referred to as Form 20-K reports . . . which PLDT
submitted to the New York Stock Exchange for the period 2003-2005, revealed that First Paci c and
several other foreign entities breached the constitutional limit of 40 percent ownership as early as
2003. . . ." 7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale of
111,415 PTIC shares to First Paci c violates the constitutional limit on foreign ownership of a public
utility; (2) whether public respondents committed grave abuse of discretion in allowing the sale of the
111,415 PTIC shares to First Paci c; and (3) whether the sale of common shares to foreigners in excess
of 40 percent of the entire subscribed common capital stock violates the constitutional limit on foreign
ownership of a public utility. 8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad led a Motion for Leave to Intervene
and Admit Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the
motion and noted the Petition-in-Intervention. caIACE
Petitioners-in-intervention "join petitioner Wilson Gamboa . . . in seeking, among others, to enjoin

and/or nullify the sale by respondents of the 111,415 PTIC shares to First Paci c or assignee."
Petitioners-in-intervention claim that, as PLDT subscribers, they have a "stake in the outcome of the
controversy . . . where the Philippine Government is completing the sale of government owned assets in
[PLDT], unquestionably a public utility, in violation of the nationality restrictions of the Philippine
Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which
indisputably demand a thorough examination of the evidence of the parties, are generally beyond this
Court's jurisdiction. Adhering to this well-settled principle, the Court shall con ne the resolution of the
instant controversy solely on the threshold and purely legal issue of whether the term "capital" in
Section 11, Article XII of the Constitution refers to the total common shares only or to the total
outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public
utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks,
only the petition for prohibition is within the original jurisdiction of this court, which however is not
exclusive but is concurrent with the Regional Trial Court and the Court of Appeals. The actions for
declaratory relief, 1 0 injunction, and annulment of sale are not embraced within the original jurisdiction of
the Supreme Court. On this ground alone, the petition could have been dismissed outright.
While direct resort to this Court may be justi ed in a petition for prohibition, 1 1 the Court shall
nevertheless refrain from discussing the grounds in support of the petition for prohibition since on 28
February 2007, the questioned sale was consummated when MPAH paid IPC P25,217,556,000 and the
government delivered the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the de nition of the term "capital" in Section
11, Article XII of the Constitution has far-reaching implications to the national economy, the Court treats
the petition for declaratory relief as one for mandamus. 1 2
In Salvacion v. Central Bank of the Philippines, 1 3 the Court treated the petition for declaratory relief
as one for mandamus considering the grave injustice that would result in the interpretation of a banking
law. In that case, which involved the crime of rape committed by a foreign tourist against a Filipino minor
and the execution of the nal judgment in the civil case for damages on the tourist's dollar deposit with a
local bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting foreign currency
deposits from attachment, garnishment or any other order or process of any court, inapplicable due to
the peculiar circumstances of the case. The Court held that "injustice would result especially to a citizen
aggrieved by a foreign guest like accused . . . " that would "negate Article 10 of the Civil Code which
provides that 'in case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail.'" The Court therefore required respondents Central
Bank of the Philippines, the local bank, and the accused to comply with the writ of execution issued in the
civil case for damages and to release the dollar deposit of the accused to satisfy the judgment. ICHcTD
In Alliance of Government Workers v. Minister of Labor , 1 4 the Court similarly brushed aside the
procedural in rmity of the petition for declaratory relief and treated the same as one for mandamus. In
Alliance, the issue was whether the government unlawfully excluded petitioners, who were government
employees, from the enjoyment of rights to which they were entitled under the law. Speci cally, the
question was: "Are the branches, agencies, subdivisions, and instrumentalities of the Government,
including government owned or controlled corporations included among the four 'employers' under
Presidential Decree No. 851 which are required to pay their employees . . . a thirteenth (13th) month pay .
. .?" The Constitutional principle involved therein affected all government employees, clearly justifying a
relaxation of the technical rules of procedure, and certainly requiring the interpretation of the assailed
presidential decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for
mandamus if the issue involved has far-reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for declaratory relief.
However, exceptions to this rule have been recognized. Thus, where the petition has far-
reaching implications and raises questions that should be resolved, it may be treated as
one for mandamus . 1 5 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section 11,
Article XII of the Constitution. He prays that this Court declare that the term "capital" refers to common
shares only, and that such shares constitute "the sole basis in determining foreign equity in a public
utility." Petitioner further asks this Court to declare any ruling inconsistent with such interpretation
unconstitutional.
The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reaching
implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos
are masters, or second class citizens, in their own country. What is at stake here is whether Filipinos or
foreigners will have effective control of the national economy. Indeed, if ever there is a legal issue that
has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the
threshhold legal issue presented in this case. CAIHTE
The Court rst encountered the issue on the de nition of the term "capital" in Section 11, Article XII
of the Constitution in the case of Fernandez v. Cojuangco , docketed as G.R. No. 157360. 1 6 That case
involved the same public utility (PLDT) and substantially the same private respondents. Despite the
importance and novelty of the constitutional issue raised therein and despite the fact that the petition
involved a purely legal question, the Court declined to resolve the case on the merits, and instead denied
the same for disregarding the hierarchy of courts. 1 7 There, petitioner Fernandez assailed on a pure
question of law the Regional Trial Court's Decision of 21 February 2003 via a petition for review under
Rule 45. The Court's Resolution, denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to nally settle this
purely legal issue which is of transcendental importance to the national economy and a fundamental
requirement to a faithful adherence to our Constitution. The Court must forthwith seize such opportunity,
not only for the bene t of the litigants, but more signi cantly for the bene t of the entire Filipino people,
to ensure, in the words of the Constitution, "a self-reliant and independent national economy effectively
controlled by Filipinos." 1 8 Besides, in the light of vague and confusing positions taken by government
agencies on this purely legal issue, present and future foreign investors in this country deserve, as a
matter of basic fairness, a categorical ruling from this Court on the extent of their participation in the
capital of public utilities and other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely legal issue has remained
unresolved for over 75 years since the 1935 Constitution. There is no reason for this Court to evade this
ever recurring fundamental issue and delay again de ning the term "capital," which appears not only in
Section 11, Article XII of the Constitution, but also in Section 2, Article XII on co-production and joint
venture agreements for the development of our natural resources, 1 9 in Section 7, Article XII on
ownership of private lands, 2 0 in Section 10, Article XII on the reservation of certain investments to
Filipino citizens, 2 1 in Section 4 (2), Article XIV on the ownership of educational institutions, 2 2 and in
Section 11 (2), Article XVI on the ownership of advertising companies. 2 3
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question
the subject sale, which he claims to violate the nationality requirement prescribed in Section 11, Article
XII of the Constitution. If the sale indeed violates the Constitution, then there is a possibility that PLDT's
franchise could be revoked, a dire consequence directly affecting petitioner's interest as a stockholder.
DCIEac
More importantly, there is no question that the instant petition raises matters of transcendental
importance to the public. The fundamental and threshold legal issue in this case, involving the national
economy and the economic welfare of the Filipino people, far outweighs any perceived impediment in the
legal personality of the petitioner to bring this action.
I n Chavez v. PCGG , 2 4 the Court upheld the right of a citizen to bring a suit on matters of
transcendental importance to the public, thus:
In Tañada v. Tuvera , the Court asserted that when the issue concerns a public right and
the object of mandamus is to obtain the enforcement of a public duty, the people are
regarded as the real parties in interest; and because it is su cient that petitioner is a
citizen and as such is interested in the execution of the laws, he need not show that he
has any legal or special interest in the result of the action . In the aforesaid case, the
petitioners sought to enforce their right to be informed on matters of public concern, a right then
recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in
order to be valid and enforceable must be published in the O cial Gazette or otherwise effectively
promulgated. In ruling for the petitioners' legal standing, the Court declared that the right they sought
to be enforced 'is a public right recognized by no less than the fundamental law of the land.'
Legaspi v. Civil Service Commission , while reiterating Tañada, further declared that 'when a
mandamus proceeding involves the assertion of a public right, the requirement of
personal interest is satis ed by the mere fact that petitioner is a citizen and, therefore,
part of the general 'public' which possesses the right. '
Further, in Albano v. Reyes , we said that while expenditure of public funds may not have been
involved under the questioned contract for the development, management and operation of the
Manila International Container Terminal, 'public interest [was] de nitely involved considering
the important role [of the subject contract] . . . in the economic development of the
country and the magnitude of the nancial consideration involved .' We concluded that, as a
consequence, the disclosure provision in the Constitution would constitute su cient authority for
upholding the petitioner's standing. (Emphasis supplied) DIHETS
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public
importance, the petitioner has the requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the
Filipinization of public utilities, to wit:
Section 11. No franchise, certi cate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at least sixty
per centum of whose capital is owned by such citizens ; nor shall such franchise, certi cate,
or authorization be exclusive in character or for a longer period than fty years. Neither shall any
such franchise or right be granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The participation of foreign investors in
the governing body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing o cers of such corporation or association must be
citizens of the Philippines. (Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:
corporations or associations organized under the laws of the Philippines at least sixty
per centum of the capital of which is owned by such citizens , nor shall such franchise,
certi cate, or authorization be exclusive in character or for a longer period than fty years. Neither
shall any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the National Assembly when the public interest so requires. The
State shall encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in the capital thereof. (Emphasis supplied) THAICD
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935
Constitution, viz.:
corporations or other entities organized under the laws of the Philippines sixty per
centum of the capital of which is owned by citizens of the Philippines , nor shall such
franchise, certi cate, or authorization be exclusive in character or for a longer period than fty years.
No franchise or right shall be granted to any individual, rm, or corporation, except under the
condition that it shall be subject to amendment, alteration, or repeal by the Congress when the public
interest so requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds
us that the Filipinization provision in the 1987 Constitution is one of the products of the spirit of
nationalism which gripped the 1935 Constitutional Convention. 2 5 The 1987 Constitution "provides for
the Filipinization of public utilities by requiring that any form of authorization for the operation of public
utilities should be granted only to 'citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens.'
The provision is [an express] recognition of the sensitive and vital position of public utilities
both in the national economy and for national security. " 2 6 The evident purpose of the citizenship
requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the
national interest. 2 7 This speci c provision explicitly reserves to Filipino citizens control of public utilities,
pursuant to an overriding economic goal of the 1987 Constitution: to "conserve and develop our
patrimony" 2 8 and ensure "a self-reliant and independent national economy effectively controlled by
Filipinos." 2 9
Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum
nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation
to be granted authority to operate a public utility, at least 60 percent of its "capital" must be owned by
Filipino citizens.
The crux of the controversy is the definition of the term "capital. " Does the term "capital" in Section
11, Article XII of the Constitution refer to common shares or to the total outstanding capital stock
(combined total of common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers
only to common shares because such shares are entitled to vote and it is through voting that control over
a corporation is exercised. Petitioner posits that the term "capital" in Section 11, Article XII of the
Constitution refers to "the ownership of common capital stock subscribed and outstanding, which class
of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of
directors." It is undisputed that PLDT's non-voting preferred shares are held mostly by Filipino citizens. 3 0
This arose from Presidential Decree No. 217, 3 1 issued on 16 June 1973 by then President Ferdinand
Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting preferred shares to
pay for the investment cost of installing the telephone line. 3 2
Petitioners-in-intervention basically reiterate petitioner's arguments and adopt petitioner's
de nition of the term "capital." 3 3 Petitioners-in-intervention allege that "the approximate foreign
ownership of common capital stock of PLDT . . . already amounts to at least 63.54% of the total
outstanding common stock," which means that foreigners exercise signi cant control over PLDT,
patently violating the 40 percent foreign equity limitation in public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any de nition of the term "capital" in Section 11,
Article XII of the Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT
do not dispute that more than 40 percent of the common shares of PLDT are held by foreigners.
In particular, respondent Nazareno's Memorandum, consisting of 73 pages, harps mainly on the
procedural in rmities of the petition and the supposed violation of the due process rights of the
"affected foreign common shareholders." Respondent Nazareno does not deny petitioner's allegation of
foreigners' dominating the common shareholdings of PLDT. Nazareno stressed mainly that the petition
"seeks to divest foreign common shareholders purportedly exceeding 40% of the total
common shareholdings in PLDT of their ownership over their shares. " Thus, "the foreign natural
and juridical PLDT shareholders must be impleaded in this suit so that they can be heard." 3 4 Essentially,
Nazareno invokes denial of due process on behalf of the foreign common shareholders.
While Nazareno does not introduce any de nition of the term "capital," he states that "among the
factual assertions that need to be established to counter petitioner's allegations is the
uniform interpretation by government agencies (such as the SEC), institutions and
corporations (such as the Philippine National Oil Company-Energy Development Corporation
or PNOC-EDC) of including both preferred shares and common shares in "controlling interest"
in view of testing compliance with the 40% constitutional limitation on foreign ownership in
public utilities. " 3 5
Similarly, respondent Manuel V. Pangilinan does not de ne the term "capital" in Section 11, Article
XII of the Constitution. Neither does he refute petitioner's claim of foreigners holding more than 40
percent of PLDT's common shares. Instead, respondent Pangilinan focuses on the procedural aws of
the petition and the alleged violation of the due process rights of foreigners. Respondent Pangilinan
emphasizes in his Memorandum (1) the absence of this Court's jurisdiction over the petition; (2)
petitioner's lack of standing; (3) mootness of the petition; (4) non-availability of declaratory relief; and (5)
the denial of due process rights. Moreover, respondent Pangilinan alleges that the issue should be
whether "owners of shares in PLDT as well as owners of shares in companies holding shares in PLDT may
be required to relinquish their shares in PLDT and in those companies without any law requiring them to
surrender their shares and also without notice and trial."
Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution]
imposes no nationality requirement on the shareholders of the utility company as a condition
for keeping their shares in the utility company. " According to him, "Section 11 does not authorize
taking one person's property (the shareholder's stock in the utility company) on the basis of another
party's alleged failure to satisfy a requirement that is a condition only for that other party's retention of
another piece of property (the utility company being at least 60% Filipino-owned to keep its franchise)." 3 6
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P.
Sevilla, Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the de nition of the
term "capital." In its Memorandum 3 7 dated 24 September 2007, the OSG also limits its discussion on the
supposed procedural defects of the petition, i.e., lack of standing, lack of jurisdiction, non-inclusion of
interested parties, and lack of basis for injunction. The OSG does not present any de nition or
interpretation of the term "capital" in Section 11, Article XII of the Constitution. The OSG contends that
"the petition actually partakes of a collateral attack on PLDT's franchise as a public utility," which in effect
requires a "full-blown trial where all the parties in interest are given their day in court." 3 8
Respondent Francisco Ed Lim, impleaded as President and Chief Executive O cer of the Philippine
Stock Exchange (PSE), does not also de ne the term "capital" and seeks the dismissal of the petition on
the following grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly
implemented its rules and required all listed companies, including PLDT, to make proper and timely
disclosures; and (3) the reliefs prayed for in the petition would adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco , petitioner Fernandez who claimed to be a
stockholder of record of PLDT, contended that the term "capital" in the 1987 Constitution refers to
shares entitled to vote or the common shares. Fernandez explained thus: DHATcE
The forty percent (40%) foreign equity limitation in public utilities prescribed by the
Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares, considering
that it is through voting that control is being exercised. . . .
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions
on fully nationalized and partially nationalized activities is for Filipino nationals to be always in
control of the corporation undertaking said activities. Otherwise, if the Trial Court's ruling upholding
respondents' arguments were to be given credence, it would be possible for the ownership structure
of a public utility corporation to be divided into one percent (1%) common stocks and ninety-nine
percent (99%) preferred stocks. Following the Trial Court's ruling adopting respondents' arguments,
the common shares can be owned entirely by foreigners thus creating an absurd situation wherein
foreigners, who are supposed to be minority shareholders, control the public utility corporation.
xxx xxx xxx
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the
beneficial ownership and the controlling interest.
xxx xxx xxx

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed
by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares.
Furthermore, ownership of record of shares will not su ce but it must be shown that the legal and
bene cial ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner
PLDT, since it is already admitted that the voting interests of foreigners which would gain entry to
petitioner PLDT by the acquisition of SMART shares through the Questioned Transactions is
equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino
owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the
Constitution. EIDATc
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial
Court to support the proposition that the meaning of the word "capital" as used in Section 11, Article
XII of the Constitution allegedly refers to the sum total of the shares subscribed and paid-in by the
shareholder and it allegedly is immaterial how the stock is classi ed, whether as common or
preferred, cannot stand in the face of a clear legislative policy as stated in the FIA which took effect
in 1991 or way after said opinions were rendered, and as clari ed by the above-quoted Amendments.
In this regard, su ce it to state that as between the law and an opinion rendered by an
administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and
cannot prevail over the clear intent of the framers of the Constitution.
In the same vein, the SEC's construction of Section 11, Article XII of the Constitution is at best
merely advisory for it is the courts that finally determine what a law means. 3 9
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A.
Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C.
Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term "capital"
in Section 11, Article XII of the Constitution includes preferred shares since the Constitution does not
distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the corporation's "capital,"
without distinction as to classes of shares. . . .
In this connection, the Corporation Code — which was already in force at the time the present
(1987) Constitution was drafted — defined outstanding capital stock as follows:
Section 137. Outstanding capital stock de ned. — The term "outstanding capital
stock", as used in this Code, means the total shares of stock issued under binding
subscription agreements to subscribers or stockholders, whether or not fully or partially paid,
except treasury shares.
Section 137 of the Corporation Code also does not distinguish between common and
preferred shares, nor exclude either class of shares, in determining the outstanding capital stock (the
"capital") of a corporation. Consequently, petitioner's suggestion to reckon PLDT's foreign equity only
on the basis of PLDT's outstanding common shares is without legal basis. The language of the
Constitution should be understood in the sense it has in common use.
xxx xxx xxx
17. But even assuming that resort to the proceedings of the Constitutional Commission is
necessary, there is nothing in the Record of the Constitutional Commission (Vol. III) — which
petitioner misleadingly cited in the Petition . . . — which supports petitioner's view that only common
shares should form the basis for computing a public utility's foreign equity. AaITCS
xxx xxx xxx

18. In addition, the SEC — the government agency primarily responsible for implementing
the Corporation Code, and which also has the responsibility of ensuring compliance with the
Constitution's foreign equity restrictions as regards nationalized activities . . . — has categorically
ruled that both common and preferred shares are properly considered in determining outstanding
capital stock and the nationality composition thereof. 4 0
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, 4 1 and not to the total outstanding capital stock comprising
both common and non-voting preferred shares.
The Corporation Code of the Philippines 4 2 classifies shares as common or preferred, thus:
Sec. 6. Classi cation of shares. — The shares of stock of stock corporations may be
divided into classes or series of shares, or both, any of which classes or series of shares may have
such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, That
no share may be deprived of voting rights except those classi ed and issued as
"preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided,
further, That there shall always be a class or series of shares which have complete voting rights. Any
or all of the shares or series of shares may have a par value or have no par value as may be provided
for in the articles of incorporation: Provided, however, That banks, trust companies, insurance
companies, public utilities, and building and loan associations shall not be permitted to issue no-par
value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution of dividends,
or such other preferences as may be stated in the articles of incorporation which are not violative of
the provisions of this Code: Provided, That preferred shares of stock may be issued only with a
stated par value. The Board of Directors, where authorized in the articles of incorporation, may x the
terms and conditions of preferred shares of stock or any series thereof: Provided, That such terms
and conditions shall be effective upon the ling of a certi cate thereof with the Securities and
Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to its creditors in
respect thereto: Provided; That shares without par value may not be issued for a consideration less
than the value of ve (P5.00) pesos per share: Provided, further, That the entire consideration
received by the corporation for its no-par value shares shall be treated as capital and shall not be
available for distribution as dividends. TcCEDS
A corporation may, furthermore, classify its shares for the purpose of insuring compliance
with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certi cate of
stock, each share shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this
Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;

6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance

with this Code; and caIETS

Except as provided in the immediately preceding paragraph, the vote necessary to approve a
particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting
rights.
Indisputably, one of the rights of a stockholder is the right to participate in the control or
management of the corporation. 4 3 This is exercised through his vote in the election of directors because
it is the board of directors that controls or manages the corporation. 4 4 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. 4 5 In fact, under the Corporation Code only preferred or redeemable shares can be deprived
of the right to vote. 4 6 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. 4 7
Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term "capital" in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred shares also have the right to vote in
the election of directors, then the term "capital" shall include such preferred shares because the right to
participate in the control or management of the corporation is exercised through the right to vote in the
election of directors. In short, the term "capital" in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the election of directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in the
hands of Filipino citizens the control and management of public utilities. As revealed in the deliberations
of the Constitutional Commission, "capital" refers to the voting stock or controlling interest of a
corporation, to wit:
MR. NOLLEDO.
In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity;
namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS.
That is right.
MR. NOLLEDO.
In teaching law, we are always faced with this question: "Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation"? Will the Committee please enlighten me on this?ITESAc
MR. VILLEGAS.
We have just had a long discussion with the members of the team from the UP Law Center
who provided us a draft. The phrase that is contained here which we adopted from
the UP draft is "60 percent of voting stock."
MR. NOLLEDO.
That must be based on the subscribed capital stock, because unless declared delinquent,
unpaid capital stock shall be entitled to vote.
MR. VILLEGAS.
That is right.
MR. NOLLEDO.
Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation

with 60-40 percent equity invests in another corporation which is permitted by the Corporation
Code, does the Committee adopt the grandfather rule?
MR. VILLEGAS.
Yes, that is the understanding of the Committee.

MR. NOLLEDO.
Therefore, we need additional Filipino capital?
MR. VILLEGAS.
Yes. 4 8
xxx xxx xxx

MR. AZCUNA.
May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS.
The portion accepted by the Committee is the deletion of the phrase "voting stock or
controlling interest." ESTAIH
MR. AZCUNA.
Hence, without the Davide amendment, the committee report would read: "corporations or
associations at least sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS.
Yes.
MR. AZCUNA.
So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by
citizens.
MR. VILLEGAS.
That is right.
MR. AZCUNA.
But the control can be with the foreigners even if they are the minority. Let us say
40 percent of the capital is owned by them, but it is the voting capital, whereas,
the Filipinos own the nonvoting shares. So we can have a situation where the
corporation is controlled by foreigners despite being the minority because they
have the voting capital. That is the anomaly that would result here.
MR. BENGZON.
No, the reason we eliminated the word "stock" as stated in the 1973 and 1935
Constitutions is that according to Commissioner Rodrigo, there are associations
that do not have stocks. That is why we say "CAPITAL."
MR. AZCUNA.
We should not eliminate the phrase "controlling interest."
MR. BENGZON.
In the case of stock corporations, it is assumed. 49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest " in the
corporation. Reinforcing this interpretation of the term "capital," as referring to controlling interest or
shares entitled to vote, is the de nition of a "Philippine national" in the Foreign Investments Act of 1991,
5 0 to wit:
SEC. 3. Definitions. — As used in this Act:

a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic
partnership or association wholly owned by citizens of the Philippines; or a corporation organized
under the laws of the Philippines of which at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is owned and held by citizens of the Philippines ;
or a corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled
to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or
separation bene ts, where the trustee is a Philippine national and at least sixty percent (60%) of the
fund will accrue to the bene t of Philippine nationals: Provided, That where a corporation and its
non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of
both corporations must be owned and held by citizens of the Philippines and at least sixty percent
(60%) of the members of the Board of Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a "Philippine national." (Emphasis
supplied) TDcHCa
In explaining the de nition of a "Philippine national," the Implementing Rules and Regulations of the
Foreign Investments Act of 1991 provide:
b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or
association wholly owned by the citizens of the Philippines; or a corporation organized under
the laws of the Philippines of which at least sixty percent [60%] of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines ; or a
trustee of funds for pension or other employee retirement or separation bene ts, where the trustee is
a Philippine national and at least sixty percent [60%] of the fund will accrue to the bene t of the
Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a
Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the
capital stock outstanding and entitled to vote of both corporations must be owned and held by
citizens of the Philippines and at least sixty percent [60%] of the members of the Board of Directors
of each of both corporation must be citizens of the Philippines, in order that the corporation shall be
considered a Philippine national. The control test shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation shall be

determined on the basis of outstanding capital stock whether fully paid or not, but only
such stocks which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine

nationals, mere legal title is not enough to meet the required Filipino equity. Full
bene cial ownership of the stocks, coupled with appropriate voting rights is essential.
Thus, stocks, the voting rights of which have been assigned or transferred to aliens
cannot be considered held by Philippine citizens or Philippine nationals. ITaESD
Individuals or juridical entities not meeting the aforementioned quali cations are
considered as non-Philippine nationals. (Emphasis supplied)
Mere legal title is insu cient to meet the 60 percent Filipino-owned "capital" required in the
Constitution. Full bene cial ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is required. The legal and bene cial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]."
Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the
Philippines or to corporations or associations at least sixty per centum of whose capital is owned by
such citizens, or such higher percentage as Congress may prescribe, certain areas of investments." Thus,
in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to
corporations at least sixty percent of the "capital " of which is owned by Filipino citizens. Some of these
laws are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors
Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No.
6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping
Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No.
10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term " capital " in Section 11, Article
XII of the Constitution is also used in the same context in numerous laws reserving certain areas of
investments to Filipino citizens.
To construe broadly the term "capital" as the total outstanding capital stock, including both
common and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution
that the "State shall develop a self-reliant and independent national economy effectively controlled by
Filipinos." A broad de nition unjusti ably disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility.
We shall illustrate the glaring anomaly in giving a broad de nition to the term "capital." Let us
assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting
preferred shares owned by Filipinos, with both classes of share having a par value of one peso (P1.00)
per share. Under the broad de nition of the term "capital," such corporation would be considered
compliant with the 40 percent constitutional limit on foreign equity of public utilities since the
overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino
owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the
election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less
than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, holding more
than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no control over
the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear
language of the Constitution, to place the control of public utilities in the hands of Filipinos. It also
renders illusory the State policy of an independent national economy effectively controlle d by Filipinos.
HCEaDI
The example given is not theoretical but can be found in the real world, and in fact exists in the
present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of
directors. PLDT's Articles of Incorporation expressly state that "the holders of Serial Preferred Stock
shall not be entitled to vote at any meeting of the stockholders for the election of directors
or for any other purpose or otherwise participate in any action taken by the corporation or its
stockholders, or to receive notice of any meeting of stockholders." 5 1
On the other hand, holders of common shares are granted the exclusive right to vote in the election
of directors. PLDT's Articles of Incorporation 5 2 state that "each holder of Common Capital Stock shall
have one vote in respect of each share of such stock held by him on all matters voted upon by the
stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote
for the election of directors and for all other purposes. " 5 3
In short, only holders of common shares can vote in the election of directors, meaning only
common shareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no
voting rights in the election of directors, do not have any control over PLDT. In fact, under PLDT's Articles
of Incorporation, holders of common shares have voting rights for all purposes, while holders of
preferred shares have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute , that foreigners hold a majority of the
common shares of PLDT. In fact, based on PLDT's 2010 General Information Sheet (GIS), 5 4 which is a
document required to be submitted annually to the Securities and Exchange Commission, 5 5 foreigners
hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares. 5 6 In
other words, foreigners hold 64.27% of the total number of PLDT's common shares, while Filipinos hold
only 35.73%. Since holding a majority of the common shares equates to control, it is clear that foreigners
exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit
on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009, 5 7 as submitted to the SEC, shows that per
share the SIP 5 8 preferred shares earn a pittance in dividends compared to the common shares. PLDT
declared dividends for the common shares at P70.00 per share, while the declared dividends for the
preferred shares amounted to a measly P1.00 per share. 5 9 So the preferred shares not only cannot vote
in the election of directors, they also have very little and obviously negligible dividend earning capacity
compared to common shares.
As shown in PLDT's 2010 GIS, 6 0 as submitted to the SEC, the par value of PLDT common shares is
P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred
shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the
dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while
foreigners own only a minuscule 0.56% of the preferred shares. 6 1 Worse, preferred shares constitute
77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%. 6 2 This
undeniably shows that bene cial interest in PLDT is not with the non-voting preferred shares but with the
common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and
Filipino beneficial ownership in a public utility.
The legal and bene cial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipinos in accordance with the constitutional mandate. Full bene cial ownership of 60 percent
of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required
for the State's grant of authority to operate a public utility. The undisputed fact that the PLDT preferred
shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common
shares earn, grossly violates the constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60
percent of the dividends, of PLDT. This directly contravenes the express command in Section 11,
Article XII of the Constitution that "[n]o franchise, certi cate, or any other form of authorization for the
operation of a public utility shall be granted except to . . . corporations . . . organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such citizens . . . . " IaCHTS
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares
exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2)
Filipinos own only 35.73% of PLDT's common shares, constituting a minority of the voting stock, and thus
do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights;
(4) preferred shares earn only 1/70 of the dividends that common shares earn; 6 3 (5) preferred shares
have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized
capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public
utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock
market value of P2,328.00 per share, 6 4 while PLDT preferred shares with a par value of P10.00 per share
have a current stock market value ranging from only P10.92 to P11.06 per share, 6 5 is a glaring
con rmation by the market that control and bene cial ownership of PLDT rest with the common shares,
not with the preferred shares.
Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to include
both voting and non-voting shares will result in the abject surrender of our telecommunications industry
to foreigners, amounting to a clear abdication of the State's constitutional duty to limit control of public
utilities to Filipino citizens. Such an interpretation certainly runs counter to the constitutional provision
reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources as
well as the ownership of land, educational institutions and advertising businesses. The Court should
never open to foreign control what the Constitution has expressly reserved to Filipinos for that would be
a betrayal of the Constitution and of the national interest. The Court must perform its solemn duty to
defend and uphold the intent and letter of the Constitution to ensure, in the words of the Constitution, "a
self-reliant and independent national economy effectively controlled by Filipinos."
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly
reserving to Filipinos specific areas of investment, such as the development of natural resources and
ownership of land, educational institutions and advertising business, is self-executing . There is no need
for legislation to implement these self-executing provisions of the Constitution. The rationale why these
constitutional provisions are self-executing was explained in Manila Prince Hotel v. GSIS, 6 6 thus:
. . . Hence, unless it is expressly provided that a legislative act is necessary to enforce a
constitutional mandate, the presumption now is that all provisions of the constitution are self-
executing. If the constitutional provisions are treated as requiring legislation instead of self-
executing, the legislature would have the power to ignore and practically nullify the mandate of the
fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always been,
that —
. . . in case of doubt, the Constitution should be considered self-executing rather than

non-self-executing. . . . Unless the contrary is clearly intended, the provisions of the
Constitution should be considered self-executing, as a contrary rule would give the
legislature discretion to determine when, or whether, they shall be effective. These
provisions would be subordinated to the will of the lawmaking body, which could make them
entirely meaningless by simply refusing to pass the needed implementing statute. (Emphasis
supplied) TAaEIc
In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later
Chief Justice, agreed that constitutional provisions are presumed to be self-executing. Justice Puno
stated:
Courts as a rule consider the provisions of the Constitution as self-executing, rather than as
requiring future legislation for their enforcement. The reason is not di cult to discern. For if they
are not treated as self-executing, the mandate of the fundamental law rati ed by the
sovereign people can be easily ignored and nulli ed by Congress. Suffused with wisdom
of the ages is the unyielding rule that legislative actions may give breath to
constitutional rights but congressional inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches
and seizures, the rights of a person under custodial investigation, the rights of an accused, and the
privilege against self-incrimination. It is recognized that legislation is unnecessary to enable courts to
effectuate constitutional provisions guaranteeing the fundamental rights of life, liberty and the
protection of property. The same treatment is accorded to constitutional provisions forbidding the
taking or damaging of property for public use without just compensation. (Emphasis supplied)
Thus, in numerous cases, 6 7 this Court, even in the absence of implementing legislation, applied
directly the provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In
Soriano v. Ong Hoo, 6 8 this Court ruled:
. . . As the Constitution is silent as to the effects or consequences of a sale by a citizen of his
land to an alien, and as both the citizen and the alien have violated the law, none of them should
have a recourse against the other, and it should only be the State that should be allowed to intervene
and determine what is to be done with the property subject of the violation. We have said that what
the State should do or could do in such matters is a matter of public policy, entirely beyond the scope
of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G.R. No. L-5996, June 27, 1956.)
While the legislature has not de nitely decided what policy should be followed in cases
of violations against the constitutional prohibition, courts of justice cannot go beyond
by declaring the disposition to be null and void as violative of the Constitution. . . .
(Emphasis supplied) IScaAE
To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the
1935 Constitution, or over the last 75 years, not one of the constitutional provisions expressly reserving
speci c areas of investments to corporations, at least 60 percent of the "capital" of which is owned by
Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987 Constitutions miserably
failed to effectively reserve to Filipinos speci c areas of investment, like the operation by corporations of
public utilities, the exploitation by corporations of mineral resources, the ownership by corporations of
real estate, and the ownership of educational institutions. All the legislatures that convened since 1935
also miserably failed to enact legislations to implement these vital constitutional provisions that
determine who will effectively control the national economy, Filipinos or foreigners. This Court cannot
allow such an absurd interpretation of the Constitution.
This Court has held that the SEC "has both regulatory and adjudicative functions." 6 9 Under its
regulatory functions, the SEC can be compelled by mandamus to perform its statutory duty when it
unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial functions, the SEC can be
also be compelled by mandamus to hear and decide a possible violation of any law it administers or
enforces when it is mandated by law to investigate such violation.
Under Section 17 (4) 7 0 of the Corporation Code, the SEC has the regulatory function to reject or
disapprove the Articles of Incorporation of any corporation where "the required percentage of
ownership of the capital stock to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the Constitution. " Thus, the SEC is the government
agency tasked with the statutory duty to enforce the nationality requirement prescribed in Section 11,
Article XII of the Constitution on the ownership of public utilities. This Court, in a petition for declaratory
relief that is treated as a petition for mandamus as in the present case, can direct the SEC to perform its
statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do based on the
2010 GIS that respondent PLDT submitted to the SEC.
Under Section 5 (m) of the Securities Regulation Code, 7 1 the SEC is vested with the "power and
function" to "suspend or revoke, after proper notice and hearing, the franchise or certi cate of
registration of corporations, partnerships or associations, upon any of the grounds provided
by law. " The SEC is mandated under Section 5 (d) of the same Code with the "power and function" to
"investigate . . . the activities of persons to ensure compliance " with the laws and regulations that
SEC administers or enforces. The GIS that all corporations are required to submit to SEC annually should
put the SEC on guard against violations of the nationality requirement prescribed in the Constitution and
existing laws. This Court can compel the SEC, in a petition for declaratory relief that is treated as a
petition for mandamus as in the present case, to hear and decide a possible violation of Section 11,
Article XII of the Constitution in view of the ownership structure of PLDT's voting shares, as admitted by
respondents and as stated in PLDT's 2010 GIS that PLDT submitted to SEC.
WHEREFORE , we PARTLY GRANT the petition and rule that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common shares, and not to the total outstanding capital
stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and
Exchange Commission is DIRECTED to apply this de nition of the term "capital" in determining the
extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if
there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions
under the law. aDSTIC
SO ORDERED.
Leonardo-de Castro, Brion, Peralta, Bersamin, Del Castillo, Villarama, Jr., Perez, Mendoza and
Sereno, JJ., concur.
Corona, C.J., I join the dissent of Mr. Justice Velasco.
Velasco, Jr., J., I dissent. Please see Dissenting Opinion.
Abad, J., see my dissenting opinion.
Separate Opinions
VELASCO, JR. , J., dissenting :
With due respect, I dissent.

A summary of the pertinent facts is as follows:
Philippine Long Distance Telephone Company (PLDT), a Philippine-registered telecommunications
rm, was granted an initial 50-year charter and the right to establish a telephone network by Act No. 3436
on November 28, 1928. 1
In 1969, American-owned General Telephone and Electronics Corporation (GTE), a major
shareholder of PLDT, sold 26% of PLDT's equity to Philippine Telecommunications Investment
Corporation (PTIC). 2 PTIC was incorporated on November 9, 1967 and is engaged in the business of
investment holdings. It held 26,034,263 of PLDT shares, or 13.847% of the total outstanding common
stocks of PLDT. 3
In 1977, Prime Holdings, Inc. (PHI) was incorporated and 100% owned by the Cojuangco group.
Subsequently, PHI became the owner of 111,415 shares or 46.125% of PTIC by virtue of three (3) Deeds
of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. 4
On May 9, 1986, the 111,415 PTIC shares held by PHI were sequestered by the Presidential
Commission on Good Government (PCGG) pursuant to Executive Order No. 1. 5 Later, this Court declared
the said shares to be owned by the Republic of the Philippines. 6
In 1999, First Paci c Company Limited (First Paci c), a Bermuda-registered, Hong Kong-based
investment firm, acquired the remaining 54% equity of PTIC. 7
Thereafter, the government decided to sell its 46.1% stake in PTIC (equivalent to 6.4% indirect
stake in PLDT), designating the Privatization Council of the Philippine Government as the disposition
entity. On December 8, 2006, a public bidding was held where Singapore-based Parallax Capital
Management LP (Parallax) emerged as the highest bidder with an offer of PhP25,217,556,000. 8
On January 31, 2007, the House of Representatives Committee on Good Government conducted a
public hearing on the particulars of the impending sale. Finance Secretary Margarito Teves, Finance
Undersecretary John Sevilla, PCGG Chairperson Camilo Sabio, Commissioners Narciso Nario and Nick
Conti, Securities and Exchange Commission (SEC) General Counsel Vernette Umali-Paco, Philippine Stock
Exchange (PSE) Chairperson Jose Vitug and President Francisco Ed Lim, Development Bank of the
Philippines (DBP) President Reynaldo David and Director Miguel Romero all attended the hearing. 9
In Report No. 2270, the House Committee on Good Government concluded that: (1) the auction of
the government's PTIC shares bore due diligence, transparency and conformity with existing legal
procedures; and (2) First Paci c's intended acquisition of the government's PTIC shares resulting in its
100% ownership in PTIC will not violate the 40% constitutional limit on foreign ownership of a public
utility since PTIC held only 13.847% of the total outstanding common stocks of PLDT. 1 0
Subsequently, the government informed First Paci c of the results of the bidding and gave it until
February 1, 2007 to exercise its right of rst refusal as provided under PTIC's Articles of Incorporation.
Consequently, First Paci c announced that it would match Parallax's bid. 1 1 However, First Paci c failed
to raise the money for the purchase by the February 1, 2007 deadline and, instead, yielded the right to
PTIC itself. The deadline was then reset to March 2, 2007. 1 2
On February 14, 2007, First Paci c, through its subsidiary, Metro Paci c Assets Holdings, Inc.
(MPAH), entered into a Conditional Sale and Purchase Agreement with the government for the latter's
46.1% stake in PTIC at the price of PhP25,217,556,000. 1 3 The acquisition was completed on February
28, 2007.
On the same date, Wilson Gamboa (Gamboa) led the instant petition for prohibition, injunction,
declaratory relief and declaration of nullity of sale of the 111,415 shares of PTIC. He argues that: (1) the
consummation of the impending sale of 111,415 shares to First Paci c violates the constitutional
limitation on foreign ownership of a public utility; (2) respondents committed grave abuse of discretion
by allowing the sale of PTIC shares to First Paci c; (3) respondents have made a complete
misrepresentation of the impending sale by saying that it does not breach the constitutional limitation on
foreign ownership of a public utility; and (4) the sale of common shares to foreigners in excess of 40% of
the entire subscribed common capital stock violates the 1987 Philippine Constitution. 1 4
After a careful examination of the facts and law applicable to the case, I submit that the petition
should be dismissed.
At the outset, it is strikingly clear that the petition suffers from several jurisdictional and procedural
defects.
Petitioner Has No Locus Standi
Petitioner Gamboa claims that he led the petition in his capacity as a "nominal shareholder of
PLDT and as [a] taxpayer." 1 5 However, these claims do not clothe him with the requisite legal standing to
bring this suit.
The Rules of Court speci cally requires that "[e]very action must be prosecuted or defended in the
name of the real party in interest." 1 6 A real party in interest is de ned as the "party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit." CcSTHI
Petitioner has failed to allege any interest in the 111,415 PTIC shares nor in any of the previous
purchase contracts he now seeks to annul. He is neither a shareholder of PTIC nor of First Paci c. Also,
he has not alleged that he was an interested bidder in the government's auction sale of the PTIC shares.
Finally, he has not shown how, as a nominal shareholder of PLDT, he stands to bene t from the annulment
of the sale of the 111,415 PTIC shares or of any of the sales of the PLDT common shares held by
foreigners. In ne, petitioner has not shown any real interest substantial enough to give him the requisite
locus standi to question the sale of the government's PTIC shares to First Pacific.
Likewise, petitioner's assertion that he has standing to bring the suit as a "taxpayer" must fail. In
Gonzales v. Narvasa , We discussed that "a taxpayer is deemed to have the standing to raise a
constitutional issue when it is established that public funds have been disbursed in alleged
contravention of the law or the Constitution. " 1 7 In this case, no public funds have been disbursed.
In fact, the opposite has happened —— there is an inflow of funds into the government coffers.
Evidently, petitioner Gamboa has no legal standing to bring the present petition before this Court.
This Court Has No Jurisdiction
Petitioner Gamboa led four (4) different petitions before this Court —— declaratory relief,
annulment, prohibition and injunction. However, all of these actions are not within the exclusive and/or
original jurisdiction of the Supreme Court. TIcAaH
Article VII of the 1987 Constitution, particularly Section 5 (1), in relation to Sec. 5 (5), enumerates
the instances where this Court exercises original jurisdiction:
Article VIII
Section 5. The Supreme Court shall have the following powers:
(1) Exercise original jurisdiction over cases affecting ambassadors, other public ministers
and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas
corpus.
xxx xxx xxx
(5) Promulgate rules concerning the protection and enforcement of constitutional rights,
pleading, practice, and procedure in all courts, the admission to the practice of law, the integrated
bar, and legal assistance to the under-privileged. Such rules shall provide a simpli ed and
inexpensive procedure for the speedy disposition of cases, shall be uniform for all courts of the same
grade, and shall not diminish, increase, or modify substantive rights. Rules of procedure of special
courts and quasi-judicial bodies shall remain effective unless disapproved by the Supreme Court.
Accordingly, this Court promulgated the Rules of Court, Sec. 1, Rule 56 of which states:
RULE 56
Original Cases
Section 1. Original cases cognizable. — Only petitions for certiorari, prohibition,
mandamus, quo warranto, habeas corpus, disciplinary proceedings against members of the judiciary
and attorneys, and cases affecting ambassadors, other public ministers and consuls may be led
originally in the Supreme Court. CITSAc
Based on the foregoing provisos, it is patently clear that petitions for declaratory relief, annulment
of sale and injunction do not fall within the exclusive original jurisdiction of this Court.
First, the court with the proper jurisdiction for declaratory relief is the Regional Trial Court (RTC).
Sec. 1, Rule 63 of the Rules of Court stresses that an action for declaratory relief is within the exclusive
original jurisdiction of the RTC, viz.:
Any person interested under a deed, will, contract or other written instrument, whose rights are
affected by a statute, executive order or regulation, ordinance, or any other governmental regulation
may, before breach or violation thereof, bring an action in the appropriate Regional Trial
Court to determine any question of construction or validity arising, and for a declaration of his rights
or duties, thereunder. (Emphasis supplied.) CcAHEI
An action for declaratory relief also requires the following: (1) a justiciable controversy between persons
whose interests are adverse; (2) the party seeking the relief has a legal interest in the controversy; and (3)
the issue is ripe for judicial determination. 1 8 As previously discussed, petitioner lacks any real interest in
this action; thus, no justiciable controversy between adverse interests exists.
Further, the Rules of Court also requires that "[a]ll persons who have or claim any interest which
would be affected by the declaration shall be made parties." 1 9 The failure to implead all persons with a
claim or interest in the subject matter of the petition for declaratory relief is a jurisdictional defect. 2 0
What is more, an action for declaratory relief requires that it be led before "the breach or violation
of the statute, deed, contract, etc. to which it refers. Where the law or contract has already been
contravened prior to the ling of an action for declaratory relief, the court can no longer assume
jurisdiction over the action." 2 1 Here, petitioner himself points out the fact that, using the common
stockholding basis, the 40% maximum foreign ownership limit on PLDT was already violated long before
the sale of the PTIC shares by the government. 2 2 In addition, the sale itself has already been
consummated. This only means that an action for declaratory relief is no longer proper.
Despite this, the ponencia decided to treat the petition for declaratory relief as one for mandamus,
citing the rule that "where the petition has far-reaching implications and raises questions that should be
resolved, it may be treated as one for mandamus." 2 3 However, such rule is not absolute. In Macasiano v.
National Housing Authority, 2 4 the Court explicitly stated that the exercise of such discretion, whether to
treat a petition for declaratory relief as one for mandamus, presupposes that the petition is
otherwise viable or meritorious. As I shall discuss subsequently in the substantive portion of this
opinion, the petition in this case is clearly not viable or meritorious.
Moreover, one of the reasons pointed out by the Court in Macasiano when it refused to treat the
petition for declaratory relief as one for mandamus was that the petitioner lacked the proper standing to
le the petition. Thus, the petition was subsequently dismissed. This is exactly similar to the instant case.
As previously explained, petitioner has no legal standing to bring the present petition before this Court.
He failed to show any real interest in the case substantial enough to give him the required legal standing
to question the sale of the PTIC shares of the government to First Pacific.
Further, a petition for mandamus is premature if there are administrative remedies available to
petitioner. 2 5 Under the doctrine of primary administrative jurisdiction, "courts cannot or will not
determine a controversy where the issues for resolution demand the exercise of sound administrative
discretion requiring the special knowledge, experience, and services of the administrative tribunal to
determine technical and intricate matters of fact. In other words, if a case is such that its determination
requires the expertise, specialized training and knowledge of an administrative body, relief must rst be
obtained in an administrative proceeding before resort to the courts is had even if the matter may well be
within their proper jurisdiction." 2 6 Along with this, the doctrine of exhaustion of administrative remedies
also requires that where an administrative remedy is provided by statute relief must be sought by
exhausting this remedy before the courts will act. 2 7
In the instant case, the power and authority to determine compliance with the Constitution lies with
the SEC. Under Section 17 (4) of the Corporation Code, the SEC has the power to approve or reject 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." Similarly, under Section 5 of the Securities Regulation Code, the SEC is conferred
with the power to suspend or revoke the franchise or certi cate of registration of corporations upon any
of the grounds provided by law. 2 8 It bears stressing that the SEC also has the power to investigate
violations of the Securities Regulation Code and its Amended Rules. With this, it is clear that petitioner
failed to invoke the primary jurisdiction of the SEC with respect to this matter.
Additionally, the petition contains numerous questions of fact which is not allowed in a petition for
mandamus. 2 9 Hence, based on the foregoing, a petition for mandamus is evidently improper.
Second, since an action for annulment of sale is an ordinary civil action incapable of pecuniary
estimation, 3 0 it also falls within the exclusive original jurisdiction of the RTC. 3 1
Lastly, although this Court, the CA, and the RTC have "concurrent jurisdiction to issue writs of
certiorari, prohibition , mandamus, quo warranto, habeas corpus and injunction , such concurrence does
not give the petitioner unrestricted freedom of choice of court forum." 3 2 The doctrine of hierarchy of
courts dictates that when jurisdiction is shared concurrently with different courts, the proper suit should
rst be led with the lower-ranking court. Failure to do so is su cient cause for the dismissal of a
petition. 3 3
In Santiago v. Vasquez , 3 4 the Court took the opportunity to explain why the blatant disregard of
the hierarchy of courts is frowned upon, to wit:
. . . We discern in the proceedings in this case a propensity on the part of petitioner, and, for
that matter, the same may be said of a number of litigants who initiate recourses before us, to
disregard the hierarchy of courts in our judicial system by seeking relief directly from this Court
despite the fact that the same is available in the lower courts in the exercise of their original or
concurrent jurisdiction, or is even mandated by law to be sought therein. This practice must be
stopped, not only because of the imposition upon the precious time of this Court but also because of
the inevitable and resultant delay, intended or otherwise, in the adjudication of the case which often
has to be remanded or referred to the lower court as the proper forum under the rules of procedure, or
as better equipped to resolve the issues since this Court is not a trier of facts. We, therefore, reiterate
the judicial policy that this Court will not entertain direct resort to it unless the redress desired cannot
be obtained in the appropriate courts or where exceptional and compelling circumstances justify
availment of a remedy within and calling for the exercise of our primary jurisdiction.
In the instant case, petitioner should have led the petition for injunction and prohibition with the
trial courts. Petitioner failed to show any exceptional or compelling circumstance to justify the exception
to the rule of hierarchy of courts. Thus, absent such justification, the rule must be upheld.
In fact, in Fernandez v. Cojuangco , 3 5 which also involved a similar issue, questioning the issuance
of PLDT's common shares to Smart and NTT's stockholders on the ground, among others, that such
issuance of shares violated the 40% foreign ownership constitutional restriction for public utilities, this
Court issued a Resolution dismissing the petition filed with it for disregarding the hierarchy of courts.
More importantly, the function of a writ of prohibition is to prevent the performance of an act which
is yet to be done. It is not intended to provide a remedy for acts already performed. 3 6 The rationale
behind this was discussed in Cabanero v. Torres, 3 7 citing U.S. v. Hoffman, 3 8 viz.:
The writ of prohibition, as its name imports, is one which commands the person to whom it is
directed not to do something which, by the suggested to the relator, the court is informed he is about
to do. If the thing be already done, it is manifest the writ of prohibition cannot undo it, for that would
require an a rmative act; and the only effect to a writ of prohibition is to suspend all action, and to
prevent any further proceeding in the prohibited direction. IcHTED
As previously pointed out, the sale by the government of the PTIC shares had already been completed.
Thus, the Petition for Prohibition has become moot. As a result, this Court has no obligation to entertain
the petition.
Finally, it should be noted that the non-joinder of ordinary civil actions with special civil actions is
elementary in remedial law. Sec. 5, Rule 2 of the Rules speci cally prohibits the joining of special civil
actions or actions governed by special rules with ordinary civil actions. 3 9 In this case, petitioner violated
this basic rule when he joined several special civil actions, prohibition and declaratory relief, and the
ordinary civil actions for annulment and injunction.
Violation of Due Process
It is a fundamental guarantee in the Constitution that "[n]o person shall be deprived of life, liberty or
property without due process of law." 4 0 Due process has two aspects: substantive and procedural.
Substantive due process is a prohibition of arbitrary laws, while procedural due process is a guarantee of
procedural fairness. 4 1 Here, what petitioner asks of this Court is a nding of a violation of both
substantive and procedural due process.
Sec. 11, Art. XII of the Constitution contemplates of two situations: first, where the applicant of a
franchise is a natural person, he must be a Filipino citizen; and second, where the applicant is a juridical
person, 60% of its capital must be owned by Filipino citizens. In the rst scenario, only one person and
one property is involved, i.e., the Filipino citizen and his or her franchise. In the second, two different
property holders and two different properties are involved, i.e., the public utility company holding its
franchise and the shareholders owning the capital of the utility company. However, in both situations, Sec.
11 imposes a quali cation for the retention of property on just one property holder, the franchise holder,
as a condition for keeping his or its franchise. It imposes no nationality quali cation on the shareholders
of the utility company as a condition for keeping their shares in the utility company. Thus, if a utility
company or the franchise holder fails to maintain the nationality quali cation, only its franchise should be
revoked.
In J.G. Summit Holdings, Inc. v. CA , 4 2 this Court had the chance to rule on a similar set of facts. In
that case, We refused to annul the sale of the government's shares despite the petitioner's claim that it
would breach the maximum 40% foreign ownership limit found in the Constitution. According to the
Court:
. . . In fact, it can even be said that if the foreign shareholdings of a landholding
corporation exceeds 40%, it is not the foreign stockholders' ownership of the shares
which is adversely affected but the capacity of the corporation to own land — that is, the
corporation becomes disquali ed to own land . This nds support under the basic corporate
law principle that the corporation and its stockholders are separate juridical entities. In this vein, the
right of rst refusal over shares pertains to the shareholders whereas the capacity to own land
pertains to the corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of
their right of rst refusal. No law disquali es a person from purchasing shares in a
landholding corporation even if the latter will exceed the allowed foreign equity, what
the law disqualifies is the corporation from owning land. (Emphasis supplied.) THESAD
Certainly, the Court has differentiated the two property owners and their properties. Confusing the two
would result in "an unreasonable curtailment of property rights without due process of law." 4 3
Furthermore, procedural due process requires that before any of the common shares in excess of
the 40% maximum foreign ownership limit can be taken, all the shareholders have to be given notice and a
trial should be held before their shares are taken. This means that petitioner should have impleaded all
the foreign natural and juridical shareholders of PLDT so that they can be heard. The foreign shareholders
are considered as an "indispensable party" or one who:
has such an interest in the controversy or subject matter that a nal adjudication cannot be
made, in his absence, without injuring or affecting that interest[;] a party who has not only an interest
in the subject matter of the controversy, but also has an interest of such nature that a nal decree
cannot be made without affecting his interest or leaving the controversy in such a condition that its
nal determination may be wholly inconsistent with equity and good conscience. It has also been
considered that an indispensable party is a person in whose absence there cannot be a
determination between the parties already before the court which is effective, complete, or equitable.
Further, an indispensable party is one who must be included in an action before it may properly go
forward. 4 4
At the same time, the Rules of Court explicitly requires the joinder of indispensable parties or "
[p]arties in interest without whom no nal determination can be had." 4 5 This is mandatory. As held in
Pepsico, Inc. v. Emerald Pizza, Inc., 4 6 their absence renders all actions of the court null and void, viz.:
. . . Their presence is necessary to vest the court with jurisdiction, which is "the authority to
hear and determine a cause, the right to act in a case." Thus, without their presence to a suit or
proceeding, judgment of a court cannot attain real nality. The absence of an indispensable
party renders all subsequent actions of the court null and void for want of authority to
act, not only as to the absent parties but even as to those present. (Emphasis supplied.)
In this case, petitioner failed to implead all the indispensable parties. Accordingly, in the absence of
such indispensable parties, this Court is wanting in authority to act or rule on the present petition.
Ultimately, the present petition partakes of a collateral attack on PLDT's franchise as a public utility
with petitioner pleading as ground PLDT's alleged breach of the 40% limit on foreign equity. Such is not
allowed. As discussed in PLDT v. National Telecommunications Commission , 4 7 a franchise is a property
right that can only be questioned in a direct proceeding:
. . . A franchise is a property right and cannot be revoked or forfeited without due process of
law. The determination of the right to the exercise of a franchise, or whether the right to enjoy such
privilege has been forfeited by non-user, is more properly the subject of the prerogative writ of quo
warranto, the right to assert which, as a rule, belongs to the State "upon complaint or otherwise" . . .
the reason being that the abuse of a franchise is a public wrong and not a private injury. A forfeiture
of a franchise will have to be declared in a direct proceeding for the purpose brought by the State
because a franchise is granted by law and its unlawful exercise is primarily a concern of
Government.
Hence, due process requires that for the revocation of franchise a petition for quo warranto be led
directly attacking the franchise itself.
Evidently, the petition is patently awed and the petitioner availed himself of the wrong remedies.
These jurisdictional and procedural grounds, by themselves, are ample enough to warrant the dismissal
of the petition. Granting arguendo that the petition is su cient in substance and form, it will still suffer
the same fate. HSTaEC
The Proper Definition of "Capital"

Petitioner's main substantive issue revolves around the proper de nition of the word "capital"
found in Section 11, Article 12 of the Constitution. The said section reads:
corporations or associations organized under the laws of the Philippines, at least sixty
per centum of whose capital is owned by such citizens; nor shall such franchise,
certi cate, or authorization be exclusive in character or for a longer period than fty
years. Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities by the general public. The participation
of foreign investors in the governing body of any public utility enterprise shall be limited
to their proportionate share in its capital, and all the executive and managing o cers of
such corporation or association must be citizens of the Philippines. (Emphasis supplied.)
He argues that the framers of the Constitution intended the word "capital" to be limited to voting shares
alone and not the total outstanding capital stock (combined total of voting and non-voting shares).
Speci cally, he contends that the term "capital" refers only to shares of stock that can vote in the election
of the members of the Board of Directors. The question is, is this the proper definition?
The ponencia resolved this in the a rmative and held that the term "capital" only refers to voting
shares since these are the shares that "have voting rights which translate to control", 4 8 i.e., the right to
elect directors who ultimately control or manage the corporation. Generally, these are referred to as
"common" shares. However, he clari ed that if preferred shares also have the right to vote in the election
of the members of the Board of Directors, then the term "capital" shall also include such preferred shares.
Further, the ponencia maintains that "mere legal title is insu cient to meet the required Filipino equity,"
but that "full beneficial ownership of the stocks coupled with appropriate voting rights" is required. 4 9
I beg to disagree with the ponencia's resolution of this issue for the following reasons:
First, contrary to pronouncement of the ponencia, the intent of the framers of the Constitution was
not to limit the application of the word "capital" to voting or common shares alone. In fact, the Records of
the Constitutional Commission reveal that even though the UP Law Center proposed the phrase "voting
stock or controlling interest," the framers of the Constitution did not adopt this but instead used the word
"capital," viz.:
MR. BENGZON.
We would also like to indicate that perhaps the better term in order to avoid any con ict or
misinterpretations would be the use of the phrase "capital stock."
ACTaDH
MR. NATIVIDAD.
Capital stock?
MR. SUAREZ.
We will discuss that on the committee level because precisely, there were three criteria that
were submitted. One of them is with reference to the authorized capital stock; the second
would be with respect to the voting rights; and the third would be with respect to the
management. And so, again, we would like to inform the members that the Committee is still
trying to polish this particular provision. 5 0
xxx xxx xxx
MR. FOZ.
Mr. Vice-President, in Sections 3 and 9, 5 1 the provision on equity is both 60 percent, but I
notice that this is now different from the provision in the 1973 Constitution in that the basis
for the equity provision is voting stock or controlling interest instead of the usual capital
percentage as provided for in the 1973 Constitution. We would like to know what the
difference would be between the previous and the proposed provisions regarding equity
interest.
MR. VILLEGAS.
Commissioner Suarez will answer that.
MR. SUAREZ.
Thank you.
As a matter of fact, this particular portion is still being reviewed by this Committee. In Section
1, Article XIII of the 1935 Constitution, the wording is that the percentage should be based on
the capital which is owned by such citizens. In the proposed draft, this phrase was proposed:
"voting stock or controlling interest." This was a plan submitted by the UP Law Center. aCHDST
Three days ago, we had an early morning breakfast conference with the members of the UP
Law Center and precisely, we were seeking clari cation regarding the difference. We would
have three criteria to go by: One would be based on capital, which is capital stock of the
corporation, authorized, subscribed or paid up, as employed under the 1935 and the 1973
Constitution. The idea behind the introduction of the phrase "voting stock or controlling
interest" was precisely to avoid the perpetration of dummies, Filipino dummies of
multinationals. It is theoretically possible that a situation may develop where these
multinational interests would not really be only 40 percent but will extend beyond that in the
matter of voting because they could enter into what is known as a voting trust or voting
agreement with the rest of the stockholders and, therefore, notwithstanding the fact that on
record their capital extent is only up to 40-percent interest in the corporation, actually, they
would be managing and controlling the entire company. That is why the UP Law Center
members suggested that we utilize the words "voting interest" which would preclude
multinational control in the matter of voting, independent of the capital structure of the
corporation. And then they also added the phrase "controlling interest" which up to now they
have not been able to successfully de ne the exact meaning of. . . . And as far as I am
concerned, I am not speaking in behalf of the Committee, I would feel more comfortable if we
go back to the wording of the 1935 and the 1973 Constitution, that is to say, the 60-40
percentage could be based on the capital stock of the corporation.
MR. FOZ.
I understand that that was the same view of Dean Carale who does not agree with the other
on this panel at the UP Law Center regarding the percentage of the ratio.
MR. SUAREZ.
That is right. Dean Carale shares my sentiment about this matter.
MR. BENGZON.
I also share the sentiment of Commissioner Suarez in that respect. So there are already two in
the Committee who want to go back to the wording of the 1935 and the 1973 Constitution. 5 2
xxx xxx xxx
MR. TREÑAS.
Madam President, may I propose an amendment on line 14 of Section 3 by

deleting therefrom "whose voting stock and controlling interest." And in lieu
thereof, insert the CAPITAL so the line should read: "associations at least sixty
percent of the CAPITAL is owned by such citizens".
MR. VILLEGAS.
We accept the amendment.

MR. TREÑAS.
Thank you.
THE PRESIDENT.
The amendment of Commissioner Treñas on line 14 has been accepted by the

Committee. HcDaAI
Is there any objection? ( Silence ) The Chair hears none; the amendment is
approved. 5 3
xxx xxx xxx
MR. VILLEGAS.
Yes, Commissioner Davide has accepted the word "CAPITAL" in place of "voting
stock or controlling interest." This is an amendment already accepted by the
Committee. 5 4 . . .
xxx xxx xxx
MR. NOLLEDO.
Thank you, Madam President.

I would like to propound some questions to the chairman and members of the committee. I
have here a copy of the approved provisions on Article on the National Economy and
Patrimony. On page 2, the rst two lines are with respect to the Filipino and foreign equity and
I said: "At least sixty percent of whose capital or controlling interest is owned by such citizen."
I notice that this provision was amended by Commissioner Davide by changing "voting
stocks" to "CAPITAL," but I still notice that there appears the term "controlling interest" which
seems to refer to associations other than corporations and it is merely 50 percent plus one
percent which is less than 60 percent. Besides, the wordings may indicate that the 60 percent
may be based not only on capital but also on controlling interest; it could mean 60 percent or
51 percent.
Before I propound the nal question, I would like to make a comment in relation to Section 15
since they are related to each other. I notice that in Section 15, there still appears the phrase
"voting stock or controlling interest." The term "voting stocks" as the basis of the Filipino
equity means that if 60 percent of the voting stocks belong to Filipinos, foreigners may not
own more than 40 percent of the capital as long as the 40 percent or the excess thereof will
cover nonvoting stock. This is aside from the fact that under the Corporation Code, even
nonvoting shares can vote on certain instances. Control over investments may cover aspects
of management and participation in the fruits of production or exploitation.
So, I hope the committee will consider favorably my recommendation that instead of using
"controlling interests," we just use "CAPITAL" uniformly in cases where foreign equity is
permitted by law, because the purpose is really to help the Filipinos in the exploitation of
natural resources and in the operation of public utilities. I know the committee, at its own
instance, can make the amendment. TASCEc
What does the committee say?
MR. VILLEGAS.
We completely agree with the Commissioner's views. Actually, it was really an

oversight. We did decide on the word "CAPITAL." I think it was the opinion of the
majority that the phrase "controlling interest" is ambiguous.
So, we do accept the Commissioner's proposal to eliminate the phrase "or

controlling interest" in all the provisions that talk about foreign participation.
(Emphasis supplied.)
MR. NOLLEDO.
Not only in Section 3, but also with respect to Section 15.
Thank you very much. 5 5

Undoubtedly, the framers of the Constitution decided to use the word "capital" in all provisions that
talk about foreign participation and intentionally left out the phrase "voting stocks" or "controlling
interest." Cassus Omissus Pro Omisso Habendus Est —— a person, object or thing omitted must have
been omitted intentionally. In this case, the intention of the framers of the Constitution is very clear —— to
omit the phrases "voting stock" and "controlling interest." EScAID
Evidently, the framers of the Constitution were more comfortable with going back to the wording
of the 1935 and 1973 Constitutions, which is to use the 60-40 percentage for the basis of the capital
stock of the corporation. Additionally, the phrases "voting stock or controlling interest" were also initially
used in Secs. 2 5 6 and 10, 5 7 Article XII of the 1987 Constitution. These provisions involve the
development of natural resources and certain investments. However, after much debate, they were also
replaced with the word "capital" alone. All of these were very evident in the aforementioned deliberations.
Much more signi cant is the fact that a comprehensive examination of the constitutional
deliberations in their entirety will reveal that the framers of the Constitution themselves understood that
the word capital includes both voting and non-voting shares and still decided to use "capital" alone, to wit:
MR. AZCUNA.
MR. VILLEGAS.
controlling interest."
MR. AZCUNA.
Hence, without the Davide amendment, the committee report would read: "corporations or
associations at least sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS.
Yes.
MR. AZCUNA.
So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by
citizens? HICSaD
MR. VILLEGAS.
That is right.
xxx xxx xxx

MR. AZCUNA.
Yes, but what I mean is that the control should be with the Filipinos.
MR. BENGZON.
Yes, that is understood.
MR. AZCUNA.
Yes, because if we just say "sixty percent of whose capital is owned by the
Filipinos," the capital may be voting or non-voting .
MR. BENGZON.
That is correct. 58
xxx xxx xxx
MR. GARCIA.
Thank you very much, Madam President.
I would like to propose the following amendment on Section 3, line 14 on page 2. I propose to
change the word "sixty" to SEVENTY-FIVE. So, this will read: "or it may enter into co-
production, joint venture, production sharing agreements with Filipino citizens or corporations
or associations at least SEVENTY-FIVE percent of whose CAPITAL stock or controlling interest
is owned by such citizens." aTICAc
MR. VILLEGAS.
This is just a correction. I think Commissioner Azcuna is not insisting on the retention of the
phrase "controlling interest," so we will retain "CAPITAL" to go back really to the 1935 and
1973 formulations. 5 9 (Emphasis supplied.)
To emphasize, by using the word "capital," the framers of the Constitution adopted the de nition or
interpretation that includes all types of shares, whether voting or non-voting.
The fundamental principle in the construction of constitutional provisions is "to give the intent to
the framers of the organic law and the people adopting it. The intention to which force is to be given is
that which is embodied and expressed in the constitutional provisions themselves." 6 0 Generally, "in
construing constitutional provisions which are ambiguous or of doubtful meaning, the courts may
consider the debates in the constitutional convention as throwing light on the intent of the framers of the
Constitution. It is true that the intent of the convention is not controlling by itself, but as its proceeding
was preliminary to the adoption by the people of the Constitution the understanding of the convention as
to what was meant by the terms of the constitutional provision which was the subject of the deliberation,
goes a long way toward explaining the understanding of the people when they ratified it." 6 1
Second, the ponencia also points to the provisions of the Foreign Investments Act of 1991 (FIA), 6 2
as a reinforcement of the interpretation of the word "capital" as only referring to those shares entitled to
vote. However, a careful examination of its provisions would reveal otherwise.
Section 3 (a) of the FIA, as amended, defines the term "Philippine national" as:
SEC. 3. Definitions. — As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines; of a domestic
partnership or association wholly owned by citizens of the Philippines; or a corporation organized
under the laws of the Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a
corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled
to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or
separation bene ts, where the trustee is a Philippine national and at least sixty percent (60%) of the
fund will accrue to the bene t of Philippine nationals: Provided, That where a corporation and its
non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of
both corporations must be owned and held by citizens of the Philippines and at least sixty percent
Philippines, in order that the corporation, shall be considered a "Philippine national." (Emphasis
supplied.) 2005cdasia
The ponencia failed to see the fact that the FIA speci cally has the phrase "entitled to vote" after
the phrase "total outstanding capital stock." Logically, this means that interpreting the phrase "total
outstanding capital stock" alone connotes the inclusion of all types of shares under the term "capital"
and not just those that are entitled to vote. By adding the phrase "entitled to vote," the FIA sought to
distinguish between the shares that can vote and those that cannot. Thus, it is very clear that even the FIA
itself supports the definition of the term "capital" as including all types of shares.
As a matter of fact, in the Senate deliberations of the FIA, Senator Angara pointed out that the word
"capital," as used in the 1987 Constitution, includes all types of shares:
Senator Angara. . . .
Before I leave that point, Mr. President, as we know, the constitutional test is capital.
That means, equity investment, not control. Would this control test then now become an
additional requirement to the constitutional requirement?
Senator Paterno.
Well, this is an ampli cation of the constitutional stipulation, Mr. President. It is a de nition,
by law, of what is contained in the Constitution.
Senator Angara.
No, Mr. President, because the Constitution requires 60 percent of capital. That
means, whether voting or nonvoting, 60 percent of that must belong to Filipinos.
Whereas, under this proposed de nition, it is only the voting shares that we require to be 60
percent owned. DcaSIH
Senator Paterno.
Yes.
Senator Angara.
So, my question is: Would this requirement of control be in addition to what the Constitution
imposes?
Senator Paterno.
No, this would be the de nition of what the Constitution requires. We are saying that it is the
capital stock outstanding and entitled to vote. It is the de nition of capital as maintained by
the Constitution.
Senator Angara.
On the contrary, I am saying that the constitutional test is capital, which is

distinguished from capital stock entitled to vote. Capital means equity which can
be voting or nonvoting, common or preferred. That is the constitutional test. 6 3 . . .
Moreover, it is a well-settled rule of statutory construction that a statute should be construed

whenever possible in a manner that will avoid con ict with the Constitution. 6 4 Where a statute is
reasonably susceptible of two constructions, one constitutional and the other unconstitutional, the
construction in favor of its constitutionality should be adopted.
In this case, the FIA should be read in harmony with the Constitution. Since the Constitution only
provides for a single requirement for the operation of a public utility under Sec. 11, i.e., 60% capital must
be Filipino-owned, a mere statute cannot add another requirement. Otherwise, such statute may be
considered unconstitutional. HSDaTC
Accordingly, the phrase "entitled to vote" should not be interpreted to be limited to common shares
alone or those shares entitled to vote in the election of members of the Board of Directors. It should also
include those deemed non-voting because they also have voting rights. Sec. 6 of the Corporation Code 6 5
grants voting rights to holders of shares of a corporation on certain key fundamental corporate matters
despite being classified as non-voting in the articles of incorporation. These are:
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of
the corporate property;
6. Merger or consolidation of the corporation with another corporation or other

corporations; HEcIDa
7. Investment of corporate funds in another corporation or business in accordance with

this Code; and
Clearly, the shares classified as non-voting are also entitled to vote under these circumstances.
In fact, the FIA did not say "entitled to vote in the management affairs of the corporation" or
"entitled to vote in the election of the members of the Board of Directors." Verily, where the law does not
distinguish, neither should We. Hence, the proper interpretation of the phrase "entitled to vote" under the
FIA should be that it applies to all shares, whether classi ed as voting or non-voting shares. Such
construction is in fact in harmony with the fundamental law of the land.
Stockholders, whether holding voting or non-voting stocks, have all the rights, powers and
privileges of ownership over their stocks. This necessarily includes the right to vote because such is
inherent in and incidental to the ownership of corporate stocks, and as such is a property right. 6 6
Additionally, control is another inherent right of ownership. 6 7 The circumstances
enumerated in Sec. 6 of the Corporation Code clearly evince this. It gives voting rights to the stocks
deemed as non-voting as to fundamental and major corporate changes. Thus, the issue should not
only dwell on the daily management affairs of the corporation but also on the equally important
fundamental changes that may need to be voted on. On this, the "non-voting" shares also exercise control,
together with the voting shares.
Consequently, the fact that only holders of common shares can elect a corporation's board of
directors does not mean that only such holders exercise control over the corporation. Particularly, the
control exercised by the board of directors over the corporation, by virtue of the corporate entity
doctrine, is totally distinct from the corporation's stockholders and any power stockholders have over
the corporation as owners. DAHaTc
It is settled that when the activity or business of a corporation falls within any of the partly
nationalized provisions of the Constitution or a special law, the "control test" must also be applied to
determine the nationality of a corporation on the basis of the nationality of the stockholders who control
its equity.
The control test was laid down by the Department of Justice (DOJ) in its Opinion No. 18 dated
January 19, 1989. It determines the nationality of a corporation with alien equity based on the percentage
of capital owned by Filipino citizens. It reads:
Shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as Philippine nationality, but if the percentage of
Filipino ownership in the corporation or partnership is less than 60% only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. 6 8
In a catena of opinions, the SEC, "the government agency tasked with the statutory duty to enforce the
nationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public
utilities," 6 9 has consistently applied the control test. 7 0
The FIA likewise adheres to the control test. This intent is evident in the May 21, 1991 deliberations
of the Bicameral Conference Committee (Committees on Economic Affairs of the Senate and House of
Representatives), to wit:
CHAIRMAN TEVES.
. . . On de nition of terms, Ronnie, would you like anything to say here on the de nition of
terms of Philippine national?
HON. RONALDO B. ZAMORA.
I think we've — we have already agreed that we are adopting here the control test. Wasn't that
the result of the —
CHAIRMAN PATERNO.
No. I thought that at the last meeting, I have made it clear that the Senate was not able to
make a decision for or against the grandfather rule and the control test, because we had gone
into caucus and we had voted but later on the agreement was rebutted and so we had to go
back to adopting the wording in the present law which is not clearly, by its language, a control
test formulation. aSEDHC
HON. ANGARA.
Well, I don't know. Maybe I was absent, Ting, when that happened but my recollection is that
we went into caucus, we debated [the] pros and cons of the control versus the grandfather rule
and by actual vote the control test bloc won. I don't know when subsequent rejection took
place, but anyway even if the — we are adopting the present language of the law I think by
interpretation, administrative interpretation, while there may be some differences at the
beginning, the current interpretation of this is the control test. It amounts to the control test.
CHAIRMAN TEVES.
That's what I understood, that we could manifest our decision on the control test formula even
if we adopt the wordings here by the Senate version.
xxx xxx xxx
CHAIRMAN PATERNO.
The most we can do is to say that we have explained — is to say that although the House
Panel wanted to adopt language which would make clear that the control test is the guiding
philosophy in the de nition of [a] Philippine national, we explained to them the situation in the
Senate and said that we would be — was asked them to adopt the present wording of the law
cognizant of the fact that the present administrative interpretation is the control test
interpretation. But, you know, we cannot go beyond that. 7 1
MR. AZCUNA.
MR. VILLEGAS.
controlling interest."
SDTcAH
This intent is even more apparent in the Implementing Rules and Regulations (IRR) of the FIA. In
defining a "Philippine national," Section 1 (b) of the IRR of the FIA categorically states that for the
purposes of determining the nationality of a corporation the control test should be applied.
72
The cardinal rule in the interpretation of laws is to ascertain and give effect to the intention of the
legislator. 7 3 Therefore, the legislative intent to apply the control test in the determination of nationality
must be given effect.
Signi cantly, in applying the control test, the SEC has consistently ruled that the
determination of the nationality of the corporation must be based on the entire outstanding
capital stock , which includes both voting and non-voting shares. One such ruling can be found in
an Opinion dated November 21, 1989 addressed to Atty. Reynaldo G. Geronimo, to wit:
As to the basis of computation of the 60-40 percentage nationality requirement under existing
laws (whether it should be based on the number of shares or the aggregate amount in pesos of the
par value of the shares), the following definitions of corporate terms are worth mentioning.
"The term capital stock signi es the aggregate of the shares actually subscribed". (11
Fletcher, Cyc. Corps. (1971 Rev. Vol.) sec. 5082, citing Goodnow v. American Writing Paper Co., 73 NJ
Eq. 692, 69 A 1014 aff'g 72 NJ Eq. 645, 66 A, 607).
"Capital stock means the capital subscribed (the share capital)". (Ibid., emphasis supplied).
"In its primary sense a share of stock is simply one of the proportionate integers or units, the
sum of which constitutes the capital stock of corporation. (Fletcher, sec. 5083).
The equitable interest of the shareholder in the property of the corporation is represented by
the term stock, and the extent of his interest is described by the term shares. The expression shares
of stock when quali ed by words indicating number and ownership expresses the extent of the
owner's interest in the corporate property (Ibid., Sec. 5083, emphasis supplied).
Likewise, in all provisions of the Corporation Code the stockholders' right to vote and receive
dividends is always determined and based on the "outstanding capital stock", defined as follows:
"SECTION 137.Outstanding capital stock de ned. — The term "outstanding capital stock" as
used in this Code, means the total shares of stock issued to subscribers or stockholders, whether or
not fully or partially paid (as long as there is a binding subscription agreement, except treasury
shares." caHCSD
The computation, therefore, should be based on the total outstanding capital stock,
irrespective of the amount of the par value of the shares.
Again in SEC Opinion dated December 22, 2004 addressed to Atty. Priscilla B. Valer, the SEC
reiterated the application of the control test to the total outstanding capital stock irrespective of the
amount of the par value of shares, viz.:
"Under the 'control concept', the nationality of the corporation depends on the nationality of
the controlling stockholders. In determining the nationality of a corporation under the 'control test',
the following ruling was adopted by the Commission:
xxx xxx xxx
Hence, we con rm your view that the test for compliance with the nationality
requirement is based on the total outstanding capital stock irrespective of the amount of
the par value of shares. 7 4 (Emphasis supplied.)
More importantly, the SEC de ned "capital" as to include both voting and non-voting in the
determination of the nationality of a corporation, to wit:
In view of the foregoing, it is opined that the term "capital" denotes the sum total of the shares
subscribed and paid by the shareholders, or secured to be paid, irrespective of their nomenclature to
be issued by the corporation in the conduct of its operation. Hence, non-voting preferred shares
are considered in the computation of the 60-40% Filipino-alien equity requirement of
certain economic activities under the Constitution. 7 5 (Emphasis supplied.) DHITcS
In fact, the issue in the present case was already answered by the SEC in its Opinion dated
February 15, 1988. The opinion was issued as an answer to the query —— "Would it be legal for foreigners
to own more than 40% of the common shares but not more than 40% of the total outstanding capital
stock which would include both common and non-voting preferred shares?" This is exactly the question in
this case. The SEC ruled in the affirmative and stated:
The pertinent provision of the Philippine Constitution under Article XII, Section 7, reads in part
thus:
"No franchise, certi cate, or any form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines, or to corporations or associations organized under
the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens. . ." . .
. HAEDCT
The issue raised on your letter zeroes in on the meaning of the word "capital" as
used in the above constitutional provision.
Anent thereto, please be informed that the term "capital" as applied to corporations, refers to
the money, property or means contributed by stockholders as the form or basis for the business or
enterprise for which the corporation was formed and generally implies that such money or property
or means have been contributed in payment for stock issued to the contributors. (United Grocers, Ltd.
v. United States F. Supp. 834, cited in 11 Fletcher, Cyc. Corp., 1986, rev. vol., sec. 5080 at 18). As
further ruled by the court, "capital of a corporation is the fund or other property, actually or potentially
in its possession, derived or to be derived from the sale by it of shares of its stock or his exchange by
it for property other than money. This fund includes not only money or other property received by the
corporation for shares of stock but all balances of purchase money, or installments, due the
corporation for shares of stock sold by it, and all unpaid subscriptions for shares." ( Williams v.
Brownstein, 1F. 2d 470, cited in 11 Fletcher, Cyc. Corp., 1058 rev. vol., sec. 5080, p. 21).
The term "capital" is also used synonymously with the words "capital stock", as meaning the
amount subscribed and paid-in and upon which the corporation is to conduct its operation. (11
Fletcher, Cyc. Corp. 1986, rev. vol., sec. 5080 at 15). And, as held by the court in Haggard v. Lexington
Utilities Co., (260 Ky 251, 84 SW 2d 84, cited in 11 Fletcher, Cyc. Corp., 1958 rev. vol., sec. 5079 at
17), "The capital stock of a corporation is the amount paid-in by its stockholders in
money, property or services with which it is to conduct its business, and it is immaterial
how the stock is classified, whether as common or preferred."
The Commission, in a previous opinion, ruled that the term 'capital' denotes the
sum total of the shares subscribed and paid by the shareholders or served to be paid,
irrespective of their nomenclature. (Letter to Supreme Technotronics Corporation, dated April 14,
1987). TEAcCD
Hence, your query is answered in the affirmative. 7 6 (Emphasis supplied.)
This opinion was reiterated in another Opinion dated July 16, 1996 addressed to Mr. Mitsuhiro
Otsuki:
Relative to the second issue, "In the absence of special provisions the holders of preferred
stock in a corporation are in precisely the same position, both with respect to the corporation itself
and with respect to the creditors of the corporation, as the holders of common stock, except only that
they are entitled to receive dividends on their shares, to the extent guaranteed or agreed upon, before
any dividends can be paid to the holders of common stock. . . . . Accordingly, as a general rule,
they are considered in the computation of the 60-40% Filipino-alien equity percentage
requirement, unless the law covering the type of business to be undertaken provides
otherwise. (Emphasis supplied.)
In Opinion No. 32-03 dated June 2, 2003 addressed to Commissioner Armi Jane R. Borje, the SEC
likewise held that the word "capital" as used in Sec. 11, Art. XII of the 1987 Constitution refers to the
entire outstanding capital stock, regardless of its share classification, viz.:
Please note that Article XII, Section 11 of the Philippine Constitution provides:
"No franchise, certi cate, or any other form of authorization for the operation of a
associations organized under the laws of the Philippines at least sixty per centum of whose
capital is owned by such citizens . . ."
The legal capacity of the corporation to acquire franchise, certi cate, or authority for the
operation of a public utility is regulated by the aforequoted Constitutional provision, which requires
that at least sixty per centum (60%) of the capital of such corporation be owned by citizens of the
Philippines. However, such provision does not qualify whether the required ownership of
"capital" shall be that of the voting or non-voting , common or preferred. Hence, it should
be interpreted to refer to the sum total of the outstanding capital stock, irrespective of
the nomenclature or classi cation as common, preferred, voting or non-voting . (Emphasis
supplied.)
In the same way, the SEC has also adopted the same interpretation of the word "capital" to various
laws or statutes imposing a minimum on Filipino ownership. In an Opinion dated November 11, 1988
addressed to Mr. Nito Doria, which involved Executive Order No. 226, otherwise known as the Omnibus
Investments Code of 1987, the SEC stated:
For permitted and permissible investments, the maximum percentage of control allowable to
foreign investors is found in Sections 46 and 47 of the Omnibus Investments Code of 1987, copy
enclosed. In relation thereto, "Outstanding capital stock" refers to the total shares issued to
subscribers or stockholders, whether or not fully or partially paid, except treasury shares. (Section
137, Corporation Code of the Philippines), and it is immaterial how the stock is classi ed, whether as
common or preferred, (SEC Opinions, dated June 13, 1988, April 14, 1987, and February 15, 1988). IDAESH
Again, in an Opinion dated October 16, 1981 addressed to Atty. Jose A. Bañez which involved
Republic Act No. 1180, otherwise known as the Retail Trade Nationalization Law, the SEC opined that the
issuance of preferred shares to a foreigner will disqualify the corporation from engaging in retail trade,
because the law provides that "no association, partnership, or corporation the capital of which is not
wholly owned by citizens of the Philippines, shall engage directly or indirectly in the retail business." 7 7
The SEC held:
Your client will lose its character of being one hundred percent (100%) Filipino-owned if said
Japanese entity is allowed to subscribe to its preferred shares. The issuance of shares to an alien
will reduce the ownership of Filipino citizens to less than the required percentage based on the
outstanding capital stock of the corporation, regardless of the fact that said shares are non-voting
and non-convertible.
Please be advised that under the Retail Trade Nationalization Law (R.A. 1180), "No
association, partnership, or corporation the capital of which is not wholly owned by citizens of the
Philippines, shall engage directly or indirectly in the retail business."
Notably, the foregoing Opinion was rendered before the promulgation of the 1987 Constitution.
Thus, it must be assumed that the framers of the Constitution were aware of the administrative
interpretation of the word "capital" and that they also adhered to the same interpretation when they re-
adopted it in the 1987 Constitution from the 1935 and 1973 Constitutions. As held in Laxamana v.
Baltazar, "[w]here a statute has received a contemporaneous and practical interpretation and the statute
as interpreted is re-enacted, the practical interpretation is accorded greater weight than it ordinarily
receives, and is regarded as presumptively the correct interpretation of the law. The rule here is based
upon the theory that the legislature is acquainted with the contemporaneous interpretation of a statute,
especially when made by an administrative body or executive o cers charged with the duty of
administering or enforcing the law, and therefore impliedly adopts the interpretation upon re-enactment."
78
Without a doubt, the SEC's de nition of the word "capital" has been consistently applied to include
the entire outstanding capital stock of a corporation, irregardless of whether it is common or preferred
or voting or non-voting.
This contemporaneous construction of the SEC is entitled to great respect and weight especially
since it is consistent with the Constitutional Commission's intention to use the term "capital" as applying
to all shares, whether common or preferred. It is well to reiterate the principle of contemporaneous
construction and the reason why it is entitled to great respect, viz.:
. . . As far back as In re Allen, (2 Phil. 630) a 1903 decision, Justice McDonough, as ponente,
cited this excerpt from the leading American case of Pennoyer v. McConnaughy , decided in 1891:
"The principle that the contemporaneous construction of a statute by the executive
o cers of the government, whose duty it is to execute it, is entitled to great respect, and
should ordinarily control the construction of the statute by the courts , is so rmly
embedded in our jurisprudence that no authorities need be cited to support it.' ( Ibid., 640. Pennoyer v.
McConnaughly is cited in 140 US 1. The excerpt is on p. 23 thereof. Cf. Government v. Municipality
of Binalonan, 32 Phil. 634 [1915]) There was a paraphrase by Justice Malcolm of such a
pronouncement in Molina v. Rafferty , (37 Phil. 545) a 1918 decision:" Courts will and should respect
the contemporaneous construction placed upon a statute by the executive officers whose duty it is to
enforce it, and unless such interpretation is clearly erroneous will ordinarily be controlled thereby.
(Ibid., 555) Since then, such a doctrine has been reiterated in numerous decisions. 7 9 (Emphasis
supplied.)
Similarly, the Corporation Code de nes "outstanding capital stock" as the "total shares of stock
issued." 8 0 It does not distinguish between common and preferred shares. It includes all types of shares.
DCHIAS
Since foreigners hold 64.27% of to the total number of PLDT's common shares which are entitled
to select the Board of Directors, the ponencia claims foreigners will elect the majority of the Board of
Directors in PLDT and, hence, have control over the company.
This is incorrect.
First of all, it has been established that the word "capital" in the phrase "corporation or associations
organized under the laws of the Philippines, at least sixty per centum of whose 'capital' is owned by such
citizens" under Sec. 11, Art. XII of the 1987 Constitution means both common or preferred shares or
voting or non-voting shares. This phrase is qualified by the last sentence of Sec. 11, which reads:
. . . The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital , and all the executive
and managing o cers of such corporation or association must be citizens of the Philippines.
The aforequoted constitutional provision is unequivocal — it limits the participation of the foreign
investors in the governing body to their proportionate share in the capital of the corporation.
Participation is "the act of taking part in something." 8 1 Accordingly, it includes the right to elect or vote
for in the election of the members of the Board of Directors. However, this right to participate in the
election is restricted by the rst sentence of Sec. 11 such that their right cannot exceed their
proportionate share in the capital, i.e., 40%. In other words, the right of foreign investors to elect the
members of the Board of Directors cannot exceed the voting rights of the 40% of the common shares,
even though their ownership of common shares may exceed 40%. Thus, since they can only vote up to
40% of the common shares of the corporation, they will never be in a position to elect majority of the
members of the Board of Directors. Consequently, control over the membership of the Board of Directors
will always be in the hands of Filipino stockholders although they actually own less than 50% of the
common shares.
Let Us apply the foregoing principles to the situation of PLDT. Granting without admitting that
foreigners own 64.27% of PLDT's common shares and say they own 40% of the total number of common
and preferred shares, still they can only vote up to 40% of the common shares of PLDT since their
participation in the election of the Board of Directors (the governing body of the corporation) is limited by
the 40% ownership of the capital under the rst sentence of Sec. 11, Art. XII of the Constitution. The
foreigners can only elect members of the Board of Directors based on their 40% ownership of the
common shares and their directors will only constitute the minority. In no instance can the foreigners
obtain the majority seats in the Board of Directors.
Further, the 2010 General Information Sheet (GIS) of PLDT reveals that among the thirteen (13)
members of the Board of Directors, only two (2) are foreigners. It also reveals that the foreign investors
only own 13.71% of the capital of PLDT. 8 2
Obviously, the nomination and election committee of PLDT uses the 40% cap on the foreign
ownership of the capital which explains why the foreigners only have two (2) members in the Board of
Directors. It is apparent that the 64.27% ownership by foreigners of the common shares cannot be used
to elect the majority of the Board of Directors. The fact that the proportionate share of the foreigners in
the capital (voting and non-voting shares or common and preferred shares) is even less than 40%, then
they are only entitled to voting rights equivalent to the said proportionate share in the capital and in the
process elect only a smaller number of directors. This is the reality in the instant case. Hence, the
majority control of Filipinos over the management of PLDT is, at all times, assured. ASHECD
This intent to limit the participation of the foreign investors in the governing body of the
corporation was solidi ed in Commonwealth Act No. 108, otherwise known as the Anti-Dummy Law. Sec.
2-A of the aforementioned law, as amended, provides in part:
. . . Provided, nally, that the election of aliens as members of the Board of Directors of
governing body of corporations or associations engaging in partially nationalized activity shall be
allowed in proportion to their allowable participation or share in the capital of such entities.
The view that the de nition of the word "capital" is limited to common or voting shares alone would
certainly have the effect of removing the 60-40% nationality requirement on the non-voting shares. This
would then give rise to a situation wherein foreign interest would not really be limited to only 40% but may
even extend beyond that because foreigners could also own the entire 100% of the preferred or non-
voting shares. As a result, Filipinos will no longer have effective ownership of the corporate assets which
may include lands. This is because the actual Filipino equity constitutes only a minority of the entire
outstanding capital stock. Therefore, the company would then be technically owned by foreigners since
the actual ownership of at least 60% of the entire outstanding capital stock would be left to the hands of
the foreigners. Allowing this to happen would violate and circumvent the purpose for which the provision
in the Constitution was created. 8 3
This situation was the subject matter of the Opinion dated December 27, 1995 addressed to Mr.
George Lavidia where the SEC opined that for the computation of the required minimum 60% Filipino
ownership in a land owning corporation, both voting and preferred non-voting shares must be included, to
wit:
The [law] does not qualify whether the required ownership of "capital stock" are
voting or non-voting. Hence, it should be interpreted to mean the sum total of the capital
stock subscribed, irrespective of their nomenclature and whether or not they are voting
or non-voting. The use of the phrase "capital stock belongs" connotes that in order to
comply with the Filipino nationality requirement for land ownership, it is necessary that
the criterion of "bene cial ownership" should be met, not merely the control of the
corporation. ISaTCD
To construe the 60-40% equity requirement is merely based on the voting shares,
disregarding the preferred non-voting shares, not on the total outstanding subscribed
capital stock, would give rise to a situation where the actual foreign interest would not
really be only 40% but may extend beyond that because they could also own even the
entire preferred non-voting shares. In this situation, Filipinos may have the control in the
operation of the corporation by way of voting rights, but have no effective ownership of
the corporate assets which include lands, because the actual Filipino equity constitutes
only a minority of the entire outstanding capital stock. Therefore, in essence, the
company, although controlled by Filipinos, is bene cially owned by foreigners since the
actual ownership of at least 60% of the entire outstanding capital stocks would be in the
hands of foreigners. Allowing this situation would open the oodgates to circumvention
of the intent of the law to make the Filipinos the principal bene ciaries in the ownership
of Philippine alienable lands.
xxx xxx xxx
Thus, for purpose of "land ownership", non-voting preferred shares should be included in the
computation of the statutory 60-40% Filipino-alien equity requirement. To rule otherwise would result
in the emergence of foreign bene cial ownership of land, thereby defeating the purpose of the law.
On the other hand, to view the equity ratio as determined on the basis of the entire outstanding
capital stock would be to uphold the unequivocal purpose of the above-cited law of ensuring Filipino
rightful domination of land ownership. (Emphasis supplied.)
Clearly, applying the ponencia's de nition of the word "capital" will give rise to a greater anomaly
because it will result in the foreigner's obtaining bene cial ownership over the corporation, which is
contrary to the provisions of the Constitution; whereas interpreting "capital" to include both voting and
non-voting shares will result in giving both legal and bene cial ownership of the corporation to the
Filipinos.
In the event that the word "capital" is construed as limited to common or voting shares only, it
should not have any retroactive effect. Reliance in good faith on the opinions issued by the SEC, the
regulating body in charged with the duty to enforce the nationality required by the Constitution, should
not prejudice any one, especially not the foreign investors. Giving such interpretation retroactive effect is
tantamount to violation of due process and would impact negatively on the various foreign investments
already present in the country. Accordingly, such construction should only be applied prospectively.
In sum, the Constitution requires that 60% of the capital be owned by Filipinos. It further requires
that the foreign ownership of capital be limited to 40%, as well as its participation in the governing body
of the public utility corporation be limited to its proportionate share in the capital which cannot exceed
40% thereof. As a result, control over the Board of Directors and full bene cial ownership of 60% of the
capital stock of the corporation are secured in the hands of the Filipinos. DHATcE
I, therefore, vote to DISMISS the petition.
ABAD , J., dissenting :
In 1928, the legislature enacted Act 3436, granting Philippine Long Distance Telephone Company
(PLDT) a franchise to provide telecommunications services across the country. Forty years later in 1969,
General Telephone and Electronics Corporation, an American company and major PLDT stockholder, sold
26% of PLDT's equity to the Philippine Telecommunications Investment Corporation (PTIC).
Subsequently, PTIC assigned 46% of its equity or 111,415 shares of stock to Prime Holdings, Inc.
In 1986, the Presidential Commission on Good Government sequestered these shares. Eventually, the
Court declared these as properties of the Republic of the Philippines.
In 1999, First Paci c, a Bermuda-registered and Hongkong-based investment rm, acquired the
remaining 54% of PTIC's equity in PLDT.
In 2006, the government's Inter-agency Privatization Council offered to auction the 46% PTIC
equity in PLDT that the Court adjudged to the Republic. Parallax Venture Fund XXVII won with a bid of
P25.2 billion or US$510 million. First Paci c announced that it would exercise its right of rst refusal and
buy those shares by matching Parallax's bid. In 2007, First Paci c, through its subsidiary, Metro Paci c
Assets Holdings, Inc., entered into a Conditional Sale and Purchase Agreement with the national
government involving the 46% PTIC equity for P25.2 billion or US$510 million. IaDcTC
In this petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale,
petitioner Wilson P. Gamboa, a PLDT stockholder, seeks to annul the sale of the 46% PTIC equity or
111,415 shares of stock to Metro Paci c on the ground that it violates Section 11, Article XII of the 1987
Constitution which limits foreign ownership of a public utility company to 40% of its capital. Gamboa
claims that since PTIC is a PLDT stockholder, the sale of the 46% of its equity is actually an indirect sale
of 6.3% PLDT equity or 12 million shares of stock. This would increase First Paci c's equity in PLDT from
30.7% to 37%, and concomitantly increase the common shareholdings of foreigners in PLDT to about
64.27%.
The action presents two primordial issues:
1. Whether or not the Court can hear and decide Gamboa's petition for prohibition, injunction,
declaratory relief, and declaration of nullity of sale; and
2. Whether or not Metro Paci c's acquisition of 46% of PTIC's equity violates the constitutional
limit on foreign ownership of the capital of PLDT, a public utility company, provided under Section 11,
Article XII of the 1987 Constitution.
One. The objection to the idea of the Court hearing and deciding Gamboa's action seems to have
some basis in the rules. Under Section 1, Rule 56 of the Rules of Court, only the following cases may be
filed originally in the Supreme Court:
Sec. 1. Original cases cognizable. — Only petitions for certiorari, prohibition, mandamus,
quo warranto, habeas corpus, disciplinary proceedings against members of the judiciary and
attorneys, and cases affecting ambassadors, other public ministers and consuls may be led
originally in the Supreme Court.caADSE
Strictly speaking, Gamboa actions for injunction, declaratory relief, and declaration of nullity of sale
are not among the cases that can be initiated before the Supreme Court. Those actions belong to some
other tribunal.
And, although the Court has original jurisdiction in prohibition cases, the Court shares this authority
with the Court of Appeals and the Regional Trial Courts. But this concurrence of jurisdiction does not give
the parties absolute and unrestrained freedom of choice on which court the remedy will be sought. They
must observe the hierarchy of courts. 1 As a rule, the Supreme Court will not entertain direct resort to it
unless the remedy desired cannot be obtained in other tribunals. Only exceptional and compelling
circumstances such as cases of national interest and of serious implications justify direct resort to the
Supreme Court for the extraordinary remedy of writ of certiorari, prohibition, or mandamus. 2
The majority of the Court of course suggests that although Gamboa entitles his actions as ones
for injunction, declaratory relief, and declaration of nullity of sale, what controls the nature of such actions
are the allegations of his petition. And a valid special civil action for mandamus can be made out of those
allegations since respondent Secretary of Finance, his undersecretary, and respondent Chairman of the
Securities and Exchange Commission are the o cials who appear to have the duty in law to implement
the foreign ownership restriction that the Constitution commands. 3
To a certain extent, I agree with the position that the majority of my colleagues takes on this
procedural issue. I believe that a case can be made for giving due course to Gamboa's action. Indeed,
there are in his actions compelling reasons to relax the doctrine of hierarchy of courts. The need to
address the important question of de ning the constitutional limit on foreign ownership of public utilities
under Section 11, Article XII of the 1987 Constitution, a bedrock policy adopted by the Filipino people, is
certainly a matter of serious national interest. Such policy is intended to develop a self-reliant and
independent national economy effectively controlled by Filipino entrepreneurs. cITCAa
Indeed, as the Court said in Espina v. Zamora , 4 the provisions of Article XII of the 1987
Constitution lay down the ideals of economic nationalism. One of these is the Filipinization of public
utilities under Section 11 which recognizes the very strategic position of public utilities both in the
national economy and for national security. 5 The participation of foreign capital is encouraged since the
establishment and operation of public utilities may require the investment of substantial capital that
Filipino citizens could possibly not afford. But at the same time, the Constitution wants to limit foreign
involvement to prevent them from assuming control of public utilities which may be inimical to national
interest. 6
Two. Still, the question is whether it is for the Court to decide in this case the shape and substance
of what the Constitution meant when it restricted the size of foreign ownership of the capital of public
utility corporations provided for in Section 11, Article XII of the 1987 Constitution which reads:
Section 11. No franchise, certi cate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose capital
is owned by such citizens; . . . .
Gamboa contends that the constitutional limit on foreign ownership in public utilities should be
based on the ownership of common or voting shares since it is through voting that stockholders are
able to have control over a corporation. Preferred or non-voting shares should be excluded from the
reckoning.
But this interpretation, adopted by the majority, places on the Court the authority to de ne and
interpret the meaning of "capital" in section 11. I believe, however, that such authority should be for
Congress to exercise since it partakes of policy making founded on a general principle laid down by the
fundamental law. The capital restriction written in the constitution lacks su cient details for orderly and
meaningful implementation. Indeed, in the twenty-four years that the provision has been in the
Constitution, no concrete step has been taken by any government agency to see to its actual
implementation given the absence of clear legislative guidance on how to go about it. THcEaS
It has been said that a constitution is a system of fundamental laws for the governance and
administration of a nation. It prescribes the permanent framework of a system of government, assigns to
the different departments their respective powers and duties, and establishes certain xed principles on
which the government is founded. 7 But while some constitutional provisions are self-executing, others
are not.
A constitutional provision is self-executing if it xes the nature and extent of the right conferred
and the liability imposed such that they can be determined by an examination and construction of its
terms, and there is no language indicating that the subject is referred to the legislature for action. On the
other hand, if the provision needs a supplementary or enabling legislation, it is merely a declaration of
policy and principle which is not self-executing. 8
Here, the Constitution simply states that no franchise for the operation of a public utility shall be
granted to a corporation organized under Philippine laws unless at least sixty per centum of its capital is
owned by Filipino citizens.
Evidently, the Constitution fails to provide for the meaning of the term "capital," considering that
the shares of stock of a corporation vary in kinds. The usual classi cation depends on how pro ts are to
be distributed and which stockholders have the right to vote the members of the corporation's board of
directors.
The Corporation Code does not offer much help, albeit it only confuses, since it uses the terms
"capital," "capital stock," or "outstanding capital stock" interchangeably. "Capital" refers to the money,
property, or means contributed by stockholders in the corporation and generally implies that the same
have been contributed in payment for stock issued to the stockholders. 9 "Capital stock" signi es the
amount subscribed and paid-in in money, property or services. 1 0 "Outstanding capital stock" means the
total shares of stock issued to stockholders, whether or not fully or partially paid, except treasury shares.
11
Meanwhile, the Foreign Investments Act of 1991 de nes a "Philippine national" as, among others, a
corporation organized under the laws of the Philippines of which at least 60% of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines. 1 2 This gives the
impression, as Justice Carpio noted, that the term "capital" refers only to controlling interest or shares
entitled to vote. 1 3
On the other hand, government agencies such as the Securities and Exchange Commission,
institutions, and corporations (such as the Philippine National Oil Company-Energy Development
Corporation) interpret the term "capital" to include both preferred and common shares. 1 4
Under this confusing legislative signals, the Court should not leave the matter of compliance with
the constitutional limit on foreign ownership in public utilities, a matter of transcendental importance, to
judicial legislation especially since any ruling the Court makes on the matter could have deep economic
repercussions. This is not a concern over which the Court has competence. The 1987 Constitution laid
down the general framework for restricting foreign ownership of public utilities. It is apt for Congress to
build up on this framework by de ning the meaning of "capital," establishing rules for the implementation
of the State policy, providing sanctions for its violation, and vesting in the appropriate agency the
responsibility for carrying out the purposes of such policy. DACIHc
Parenthetically, there have been several occasions in the past where Congress provided
supplementary or enabling legislation for constitutional provisions that are not self-executing. To name
just some: the Comprehensive Agrarian Reform Law of 1988, 1 5 the Indigenous Peoples Rights Act of
1997, 1 6 the Local Government Code of 1991, 1 7 the Anti-Graft and Corrupt Practices Act, 1 8 the Speedy
Trial Act of 1998, 1 9 the Overseas Absentee Voting Act of 2003, 2 0 the Party-List System Act, 2 1 the
Paternity Leave Act of 1996, 2 2 and the Solo Parents' Welfare Act of 2000. 2 3
Based on the foregoing, I vote to DENY the petition on the ground that the constitutional limit on
foreign ownership in public utilities under Section 11, Article XII of the 1987 Constitution is not a self-
executing provision and requires an implementing legislation for its enforcement.
Footnotes
1.Rollo (Vol. I), pp. 15-103, (Vol. II), pp. 762-768.
2.See Cojuangco v. Sandiganbayan, G.R. No. 183278, 24 April 2009, 586 SCRA 790.
3.Section 11, Article XII of the 1987 Constitution provides:
ARTICLE XII
NATIONAL ECONOMY AND PATRIMONY
xxx xxx xxx
Section 11. No franchise, certi cate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such
franchise, certi cate, or authorization be exclusive in character or for a longer period than fty years.
Neither shall any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public. The participation of foreign investors
in the governing body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing o cers of such corporation or association must be citizens of
the Philippines.
4.Yuchengco v. Sandiganbayan, G.R. No. 149802, 20 January 2006, 479 SCRA 1.
5.Rollo, (Vol. II), p. 806.
6.Rollo (Vol. I), p. 23.
7.Id. at 23-24, 26.
8.Id. at 41.
9.Id.
10.Governed by Rule 63 of the Rules of Court. Section 1, Rule 63 of the Rules of Court states:
RULE 63
Declaratory Relief and Similar Remedies

Section 1. Who may le petition. — Any person interested under a deed, will, contract or other written
instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or any other
governmental regulation may, before breach or violation thereof bring an action in the appropriate Regional
Trial Court to determine any question of construction or validity arising, and for a declaration of his rights or
duties, thereunder. (Bar Matter No. 803, 17 February 1998)
11.Section 2, Rule 65 of the Rules of Court provides:
SEC. 2. Petition for prohibition. — When the proceedings of any tribunal, corporation, board, o cer, or
person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its or
his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal or any other plain, speedy and adequate remedy in the ordinary course of law, a person aggrieved
thereby may le a veri ed petition in the proper court, alleging the facts with certainty and praying that
judgment be rendered commanding the respondent to desist from further proceedings in the action or
matter specified therein, or otherwise granting such incidental relief as law and justice may require.
xxx xxx xxx
12.Section 3, Rule 65 of the Rules of Court states:
SEC. 3. Petition for mandamus. — When any tribunal, corporation, board, o cer or person unlawfully
neglects the performance of an act which the law speci cally enjoins as a duty resulting from an o ce,
trust, or station, or unlawfully excludes another from the use and enjoyment of a right or o ce to which
such other is entitled, and there is no other plain, speedy and adequate remedy in the ordinary course of law,
the person aggrieved thereby may le a veri ed petition in the proper court, alleging the facts with certainty
and praying that judgment be rendered commanding the respondent, immediately or at some other time to
be speci ed by the court, to do the act required to be done to protect the rights of the petitioner and to pay
the damages sustained by the petitioner by reason of the wrongful acts of the respondent.
xxx xxx xxx
13.343 Phil. 539 (1997).
14.209 Phil. 1 (1983), citing Nacionalista Party v. Angelo Bautista , 85 Phil. 101, and Aquino v. Commission on
Elections, 62 SCRA 275.
15.Supra note 13.
16.Adverted to in respondent Nazareno's Memorandum dated 27 September 2007. Rollo, p. 929. Nazareno stated:
"In fact, in Fernandez v. Cojuangco , which raised markedly similar issues, the Honorable Court refused to
entertain the Petition directly led with it and dismissed the same for violating the principle of hierarchy of
courts."
17.In a Resolution dated 9 June 2003.
18.Section 19, Article II, Constitution.

19.Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, sheries, forests or timber, wildlife, ora and fauna, and other natural resources are owned
by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under the full control and supervision
of the State. The State may directly undertake such activities, or it may enter into co-production,
joint venture, or production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty- ve years, renewable for not more than twenty- ve
years, and under such terms and conditions as may be provided by law. In cases of water rights for
irrigation, water supply sheries, or industrial uses other than the development of water power, bene cial
use may be the measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive
economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as
cooperative sh farming, with priority to subsistence shermen and sh-workers in rivers, lakes, bays, and
lagoons.
The President may enter into agreements with foreign-owned corporations involving either technical or
nancial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and
other mineral oils according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. In such agreements, the State
shall promote the development and use of local scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this provision,
within thirty days from its execution.
20.Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to
individuals, corporations, or associations quali ed to acquire or hold lands of the public
domain.
21.Section 10. The Congress shall, upon recommendation of the economic and planning agency, when
the national interest dictates, reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by such citizens, or such
higher percentage as Congress may prescribe, certain areas of investments. The Congress shall
enact measures that will encourage the formation and operation of enterprises whose capital is wholly
owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State
shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national jurisdiction and
in accordance with its national goals and priorities.
22.Section 4 (2), Article XIV of the 1987 Constitution provides: "Educational institutions, other than those
established by religious groups and mission boards, shall be owned solely by citizens of the
Philippines or corporations or associations at least sixty per centum of the capital of which is
owned by such citizens. The Congress may, however, require increased Filipino equity participation in all
educational institutions.
The control and administration of educational institutions shall be vested in citizens of the Philippines.
xxx xxx xxx"
23.Section 11 (2), Article XVI of the 1987 Constitution provides: "The advertising industry is impressed with public
interest, and shall be regulated by law for the protection of consumers and the promotion of the general
welfare.
Only Filipino citizens or corporations or associations at least seventy per centum of the
capital of which is owned by such citizens shall be allowed to engage in the advertising
industry.
The participation of foreign investors in the governing body of entities in such industry shall be limited to
their proportionate share in the capital thereof, and all the executive and managing o cers of such entities
must be citizens of the Philippines.
24.G.R. No. 130716, 9 December 1998, 299 SCRA 744 cited in Chavez v. Public Estates Authority , 433 Phil. 506
(2002). See also David v. Macapagal-Arroyo , G.R. No. 171396, 3 May 2006, 489 SCRA 160; Santiago v.
Commission on Elections, G.R. No. 127325, 19 March 1997, 270 SCRA 106; Kilosbayan, Inc. v. Guingona,
Jr., G.R. No. 113375, 5 May 1994, 232 SCRA 110 (1994).
25.BERNAS, THE CONSTITUTION OF THE REPUBLIC OF THE PHILIPPINES, p. 452, citing Smith, Bell and Co. v.
Natividad, 40 Phil. 136, 148 (1919); Luzon Stevedoring Corporation v. Anti-Dummy Board, 46 SCRA 474, 490
(1972).
26.Id.
27.DE LEON, HECTOR, PHILIPPINE CONSTITUTIONAL LAW (PRINCIPLES AND CASES), Volume 2, 1999 Ed., p. 848.
28.Preamble, 1987 Constitution; DE LEON, HECTOR, PHILIPPINE CONSTITUTIONAL LAW (PRINCIPLES AND
CASES), Volume 2, 1999 Ed., p. 788.
29.Section 19, Article II, Constitution.
30.http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_%28as%20of %207.2.10%29_final.pdf.
31.ESTABLISHING BASIC POLICIES FOR THE TELEPHONE INDUSTRY, AMENDING FOR THE PURPOSE THE
PERTINENT PROVISIONS OF COMMONWEALTH ACT NO. 146, AS AMENDED, OTHERWISE KNOWN AS THE
PUBLIC SERVICE ACT, AS AMENDED, AND ALL INCONSISTENT LEGISLATIVE AND MUNICIPAL FRANCHISE
OF THE PHILIPPINE LONG DISTANCE TELEPHONE COMPANY UNDER ACT NO. 3436, AS AMENDED, AND
ALL INCONSISTENT LEGISLATIVE AND MUNICIPAL FRANCHISES INCLUDING OTHER EXISTING LAWS.
32.Upon approval by the National Telecommunications Commission, this mandatory requirement to subscribe to
non-voting preferred shares was made optional starting 22 April 2003. See PLDT 20-F 2005 ling with the
United States Securities and Exchange Commission at
http://www.wikinvest.com/stock/Philippine_Long_Distance_Telephone Company_(PHI)/Filing/20-F/2—
5/F2923101. See also Philippine Consumers Foundation, Inc. v. NTC and PLDT , G.R. No. L-63318, 18 April
1984, on the origin and rationale of the SIP.
33.Rollo (Vol. I), pp. 414-451.

34.Rollo (Vol. II), p. 991.
35.Id. at 951.
36.Id. at 838.
37.Id. at 898-923.
38.Rollo (Vol. II), p. 913.
39.Rollo (G.R. No. 157360), pp. 55-62.
40.Rollo (G.R. No. 157360), pp. 1577-1583.
41.In PLDT's case, the preferred stock is non-voting, except as speci cally provided by law.
(http://www.pldt.com.ph/investor/Documents/a2d211230ec3436eab66b41d3d107cfc4Q2004FSwi
thopinion.pdf)
42.Batas Pambansa Blg. 68.
43.As stated in the Corporation Code.
44.See http://www.congress.gov.ph/download/researches/rrb_0303_5.pdf.
45.See http://www.congress.gov.ph/download/researches/rrb_0303_5.pdf.
46.Section 6, BP Blg. 68 or The Corporation Code.
47.AGPALO, RUBEN E., COMMENTS ON THE CORPORATION CODE OF THE PHILIPPINES, 2001 Second Edition, p.
36.
48.Record of the Constitutional Commission, Vol. III, pp. 255-256.
49.Id. at 360.
50.Republic Act No. 7042 entitled "AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE
PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES AND FOR OTHER
PURPOSES."
51.Rollo (G.R. No. 157360), Vol. I, p. 348.
It must be noted that under PLDT's Articles of Incorporation, the PLDT Board of Directors is expressly
authorized to determine, among others, with respect to each series of Serial Preferred Stock:
xxx xxx xxx
(b) the dividend rate, if any, on the shares of such series (which, if and to the extent the Board of Directors,
in its sole discretion, shall deem appropriate under the circumstances, shall be xed considering the rate of
return on similar securities at the time of issuance of such shares), the terms and conditions upon which
and the periods with respect to which dividends shall be payable, whether and upon what conditions such
dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate;
(c) whether or not the shares of such series shall be redeemable, the limitations with respect to such
redemption, the time or times when and the manner in which such shares shall be redeemable (including
the manner of selecting shares of such series for redemption if less than all shares are to be redeemed) and
the price or prices at which such shares shall be redeemable, which may not be less than (i) the par value
thereof plus (ii) accrued and unpaid dividends thereon, nor more than (i) 110% of the par value thereof plus
(ii) accrued and unpaid dividends thereon;
(d) whether or not the shares of such series shall be subject to the operation of a purchase, retirement or
sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall
be cumulative or non-cumulative, the extent to which and the manner in which such fund shall be applied to
the purchase or redemption of the shares of such series for retirement or to other corporate purposes and
the terms and provisions relative to the operation thereof;
(e) the rights to which the holders of shares of such series shall be entitled upon the voluntary or
involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, which rights may
vary depending on whether such liquidation, dissolution, distribution or winding up is voluntary or
involuntary, and if voluntary, may vary at different dates, provided, however, that the amount which the
holders of shares of such series shall be entitled to receive in the event of any voluntary or involuntary
liquidation, dissolution, distribution of assets or winding up of the corporation.
Further, "the holders of Serial Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available therefore, preferential cash dividends at the rate, under the
terms and conditions, for the periods and on the dates xed by the resolution or resolutions of the Board of
Directors, . . . and no more, before any dividends on the Common Capital Stock (other than dividends
payable in Common Capital Stock) shall be paid or set apart for payment with respect to the same dividend
period. All shares of Preferred Stock of all series shall be of equal rank, preference and priority as to
dividends irrespective of whether or not the rates of dividends to which the same shall be entitled shall be
the same and, when the stated dividends are not paid in full, the shares of all series of Serial Preferred
Stock shall share ratably in the payment of dividends including accumulations, if any, in accordance with
the sums which would be payable on such shares if all dividends were declared and paid in full, provided,
however, that any two or more series of Serial Preferred Stock may differ from each other as to the
existence and extent of the right to cumulative dividends as aforesaid."
52.Rollo (G.R. No. 157360), Vol. I, pp. 339-355. Adopted on 21 November 1995 and approved on 18 February 1997.
53.The other rights, limitations and preferences of common capital stock are as follows:
1. After the requirements with respect to preferential dividends on the Serial Preferred Stock shall have been
met and after the corporation shall have complied with all the requirements, if any, with respect to the
setting aside of sums as purchase, retirement or sinking funds, then and not otherwise the holders of the
Common Capital Stock shall be entitled to receive such dividends as may be declared from time to time by
the Board of Directors out of funds legally available therefor.
2. After distribution in full of the preferential amounts to be distributed to the holders of Serial Preferred
Stock in the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding
up of the corporation, the holders of the Common Capital Stock shall be entitled to receive all the remaining
assets of the corporation of whatever kind available for distribution to stockholders ratably in proportion to
the number of shares of the Common Capital Stock held by them, respectively.
xxx xxx xxx
4. The ownership of shares of Common Capital Stock shall not entitle the owner thereof to any right (other
than such right, if any, as the Board of Directors in its discretion may from time to time grant) to subscribe
for or to purchase or to have offered to him for subscription or purchase any shares of any class of
preferred stock of the corporation.
54.http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_%28as%20of%207.2.10%29_final.pdf.
55.http://www.sec.gov.ph/index.htm?GIS_Download.
56.http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_%28as%20of%207.2.10%29_final.pdf.
57.http://www.pldt.com.ph/investor/Documents/2009%20Dividend%20Declarations_Update%2012082009.pdf.
See also http://www.pldt.com.ph/investor/Documents/disclosures_03-01-2011.pdf.
58.Subscription Investment Plan. See PD No. 217.
59.This is the result of the preferred shares being denominated 10% preferred, which means each preferred share
will earn an annual dividend equal to 10% of its par value of P10, which amounts to P1. Once this dividend
is paid to holders of preferred shares, the rest of the retained earnings can be paid as dividends to the
holders of common shares. See
http://www.pldt.com.ph/investor/Documents/2009%20Dividend%20Declarations_Update%2012082009.pdf.
In 2011, PLDT declared dividends for the common shares at P78.00 per share.
(http://www.pldt.com.ph/investor/Documents/disclosures_03-01-2011.pdf)
60.http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_(as%20of%207.2.10)_final.pdf.
61.Id. Based on PLDT's 2010 GIS, the paid-up capital of PLDT (as of Record Date — 12 April 2010) consists of the
following:
Filipino (preferred): 403,410,355

Foreigners (preferred): 2,287,207
——————————
Total: 405,697,562
=========
62.Based on par value, as stated in PLDT's 2010 GIS submitted to the SEC. See
http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_%28as%20of%207.2.10%29_final.pdf
(accessed 23 May 2011).
Authorized capital stock of PLDT is broken down as follows:

Common shares: 234,000,000
Preferred shares: 822,500,000
————————————
Total: 1,056,000,000
===========
63.For the year 2009.
64.http://www.pse.com.ph/ (accessed 31 May 2011).
65.http://www.pse.com.ph/html/Quotations/2011/stockQuotes_05272011.pdf (accessed 27 May 2011).
66.335 Phil. 82 (1997).

67.Krivenko v. Register of Deeds , 79 Phil. 461 (1947); Rellosa v. Gaw Chee Hun , 93 Phil. 827 (1953); Vasquez v. Li
Seng Giap, 96 Phil. 447 (1955); Soriano v. Ong Hoo , 103 Phil. 829 (1958); Philippine Banking Corporation v.
Lui She, 128 Phil. 53 (1967); Frenzel v. Catito, 453 Phil. 885 (2003).
68.Id.
69.Securities and Exchange Commission v. Court of Appeals, et al. , 316 Phil. 903 (1995). The Court ruled in this
case:
The Securities and Exchange Commission ("SEC") has both regulatory and adjudicative functions.
Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend
or revoke (after due notice and hearing), certificates of registration of corporations , partnerships
and associations (excluding cooperatives, homeowners' associations, and labor unions); compel legal and
regulatory compliances; conduct inspections; and impose nes or other penalties for violations of the
Revised Securities Act, as well as implementing rules and directives of the SEC, such as may be warranted.
Relative to its adjudicative authority, the SEC has original and exclusive jurisdiction to hear and decide
controversies and cases involving —

a. Intra-corporate and partnership relations between or among the corporation, o cers and stockholders
and partners, including their elections or appointments;
b. State and corporate affairs in relation to the legal existence of corporations, partnerships
and associations or to their franchise; and
c. Investors and corporate affairs particularly in respect of devices and schemes, such as fraudulent
practices, employed by directors, o cers, business associates, and/or other stockholders, partners, or
members of registered firms; . . .
xxx xxx xxx (Emphasis supplied)
70.SEC. 17. Grounds when articles of incorporation or amendment may be rejected or disapproved. — The
Securities and Exchange Commission may reject the articles of incorporation or disapprove any
amendment thereto if the same is not in compliance with the requirements of this Code: Provided, That the
Commission shall give the incorporators a reasonable time within which to correct or modify
the objectionable portions of the articles or amendment. The following are grounds for such
rejection or disapproval:
xxx xxx xxx
(4) That 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.
(Emphasis supplied)
71.Republic Act No. 8799. Section 5 of R.A. No. 8799 provides:
Section 5. Powers and Functions of the Commission.— 5.1. The Commission shall act with transparency
and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have, among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the
grantees of primary franchises and/or a license or a permit issued by the Government;
xxx xxx xxx
(c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and
licensing applications;
xxx xxx xxx
(f) Impose sanctions for the violation of laws and the rules, regulations and orders, issued pursuant thereto;
xxx xxx xxx
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
xxx xxx xxx
(m) Suspend, or revoke, after proper notice and hearing the franchise or certi cate of registration of
corporations, partnership or associations, upon any of the grounds provided by law; and
(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or
which are necessary or incidental to the carrying out of, the express powers granted the Commission to
achieve the objectives and purposes of these laws.
VELASCO, JR., J., dissenting:
1.Rollo, p. 16.
2.Id.
3.Id. at 899.
4.Id. at 900.
5.Id.
6.See Cojuangco v. Sandiganbayan, G.R. No. 183278, April 24, 2009, 586 SCRA 790.
7.Rollo, p. 18.
8.Id. at 900-901.
9.Id. at 902.
10.Id. at 902-903.
11.Id. at 902.
12.Id. at 17.
13.Id. at 903.
14.Id. at 41.
15.Id. at 15.
16.Rule 3, Sec. 2.
17.G.R. No. 140835, August 14, 2000, 337 SCRA 733, 741. (Emphasis supplied.)
18.Province of Camarines Sur v. Court of Appeals, G.R. No. 175064, September 18, 2009, 600 SCRA 569, 585.
19.Rule 63, Sec. 2.
20.Degala v. Reyes, No. L-2402, November 29, 1950.
21.Tambunting, Jr. v. Sumabat, G.R. No. 144101, September 16, 2005, 470 SCRA 92, 96.
22.Rollo, pp. 11-12.
23.Ponencia, p. 10.
24.G.R. No. 107921, July 1, 1993, 224 SCRA 236, 243.
25.Perez v. City Mayor of Cabanatuan, No. L-16786, October 31, 1961.
26.Ferrer, Jr. v. Roco, Jr., G.R. No. 174129, July 5, 2010.
27.Montes v. Civil Service Board of Appeals, No. L-10759, May 20, 1957.
28.Republic Act No. 8799, Sec. 5 provides:

Section 5. Powers and Functions of the Commission. — 5.1. The commission shall act with transparency
and shall have the powers and functions provided by this code, Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses law, the Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have, among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnership or associations who are the grantees
of primary franchises and/or a license or a permit issued by the Government;
xxx xxx xxx
(c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and
licensing applications;
(d) Regulate, investigate or supervise the activities of persons to ensure compliance;

xxx xxx xxx
(f) Impose sanctions for the violation of laws and rules, regulations and orders, and issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide
guidance on and supervise compliance with such rules, regulation and orders;
xxx xxx xxx
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
xxx xxx xxx
(m) Suspend, or revoke, after proper notice and hearing the franchise or certi cate of registration of
corporations, partnership or associations, upon any of the grounds provided by law; and
(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or
which are necessary or incidental to the carrying out of, the express powers granted the Commission to
achieve the objectives and purposes of these laws.
29.National Power Corporation v. Province of Quezon and Municipality of Pagbilao , G.R. No. 171586, January 25,
2010.
30.See Heirs of Juanita Padilla v. Magdua, G.R. No. 176858, September 15, 2010, 630 SCRA 573, 586.
31.Batas Pambansa Blg. 129, Sec. 19. Jurisdiction in civil cases. — Regional Trial Courts shall exercise exclusive
original jurisdiction:
(1) In all civil actions in which the subject of the litigation is incapable of pecuniary estimation;
xxx xxx xxx

32.Chong v. Dela Cruz , G.R. No. 184948, July 21, 2009, 593 SCRA 311, 314; citing Talento v. Escalada , G.R. No.
180884, June 27, 2008, 556 SCRA 491.
33.See Chamber of Real Estate and Builders Associations, Inc. (CREBA) v. Secretary of Agrarian Reform , G.R. No.
183409, June 18, 2010, 621 SCRA 295.
34.G.R. Nos. 99289-90, January 27, 1993, 217 SCRA 633, 651-652.
35.G.R. No. 157360, June 9, 2003.

36.Pimentel v. Ermita , G.R. No. 164978, October 13, 2005, 472 SCRA 587, 593; Tolentino v. Commission on
Elections, G.R. No. 148334, January 21, 2004, 420 SCRA 438, 451.
37.61 Phil. 523 (1935).
38.4 Wall., 158, 161; 18 Law. ed., 354.

39.Rule 2, Sec. 5. Joinder of causes of action. —
A party may in one pleading assert, in the alternative or otherwise, as many causes of action as he may
have against an opposing party, subject to the following conditions:
xxx xxx xxx

(b) The joinder shall not include special civil actions or actions governed by special rules;
40.Art. III, Sec. 1.
41.J.G. Bernas, S.J., THE 1987 PHILIPPINE CONSTITUTION: A COMPREHENSIVE REVIEWER 27-28 (2006).
42.G.R. No. 124293, January 31, 2005, 450 SCRA 169, 192.
43.La Bugal-B'laan Tribal Association, Inc. v. DENR, G.R. No. 127882, December 1, 2004, 445 SCRA 1.
44.Metropolitan Bank & Trust Company v. Alejo , G.R. No. 141970, September 10, 2001, 364 SCRA 812, 820;
citations omitted.
45.Rule 3, Sec. 7.
46.G.R. No. 153059, August 14, 2007, 530 SCRA 58.

47.G.R. No. 84404, October 18, 1990, 190 SCRA 717, 729.
48.Ponencia, p. 17.
49.Id. at 20.
50.Records of the Constitutional Commission, Volume III, p. 269.

51.Referring to Sections 2 and 10, Article XII of the 1987 Constitution.
52.Records of the Constitutional Commission, Volume III, pp. 326-327.

53.Id. at 357.
54.Id. at 360.
55.Id. at 582.
56.Section 2, Article XII, 1987 Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces
of potential energy, sheries, forests or timber, wildlife, ora and fauna, and other natural resources are
owned by the State. With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources shall be under the full control
and supervision of the State. The State may directly undertake such activities, or it may enter into co-
production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens. . . .
57.Section 10, Article XII, 1987 Constitution:

Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the
national interest dictates, reserve to citizens of the Philippines or to corporations or associations at
least sixty per centum of whose capital is owned by such citizens , or such higher percentage as
Congress may prescribe, certain areas of investments. The Congress shall enact measures that will
encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.
58.Records of the Constitutional Commission, Volume III, p. 360.

59.Id. at 364.
60.Sarmiento v. Mison , G.R. No. 79974, December 17, 1987, 156 SCRA 549, 552 citing Gold Creek Mining Corp. v.
Rodriguez, 66 Phil. 259, 264.
61.Aquino, Jr. v. Enrile, No. L-35546, September 17, 1974, 59 SCRA 183.
62.Republic Act No. 7042 entitled "AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE
PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES AND FOR OTHER
PURPOSES."
63.Transcript of the January 15, 1991, 4th Regular Session, 8th CRP, Bill on Second Reading, Senate, pp. 11-12.
64.Teehankee v. Rovias, 75 Phil. 634 (1945).
65.Batas Pambansa Blg. 68 entitled "THE CORPORATION CODE OF THE PHILIPPINES."

66.Castillo v. Balinghasay , G.R. No. 150976, October 18, 2004.
67.National Waterworks and Sewerage Authority , No. L-21911, September 29, 1967.
68.Opinion No. 018, s. 1989, January 19, 1989, Department of Justice.
69.Ponencia, pp. 30-31.

70.SEC Opinion dated November 6, 1989 addressed to Attys. Barbara Anne C. Migollos and Peter Dunnely A. Barot;
SEC Opinion dated December 14, 1989 addressed to Atty. Maurice C. Nubla; SEC Opinion dated January 2,
1990 addressed to Atty. Eduardo F. Hernandez; SEC Opinion dated May 30, 1990 addressed to Gold Fields
Philippines Corporation; SEC Opinion dated September 21, 1990 addressed to Carag, Caballes, Jamora,
Rodriguez & Somera Law O ces; SEC Opinion dated March 23, 1993 addressed to Mr. Francis F. How; SEC
Opinion dated April 14, 1993 addressed to Director Angeles T. Wong of the Philippine Overseas Employment
Administration; SEC Opinion dated November 23, 1993 addressed to Mssrs. Dominador Almeda and Renato
S. Calma; SEC Opinion dated December 7, 1993 addressed to Roco Bunag Kapunan Migallos & Jardaleza;
SEC Opinion No. 49-04 dated December 22, 2004 addressed to Atty. Priscilla B. Valer; SEC Opinion No. 17-
07 dated September 27, 2007 addressed to Mr. Reynaldo G. David; SEC Opinion No. 18-07 dated November
28, 2007 addressed to Mr. Rafael C. Bueno, Jr.; SEC-OGC Opinion No. 20-07 dated November 28, 2007
addressed to Atty. Amado M. Santiago, Jr., SEC-OGC Opinion No. 21-07 dated November 28, 2007
addressed to Atty. Navato, Jr.; SEC-OGC Opinion No. 03-08 dated January 15, 2008 addressed to Attys.
Ruby Rose J. Yusi and Rudyard S. Arbolado; SEC-OGC Opinion No. 09-09 dated April 28, 2009 addressed to
Villaraza Cruz Marcelo Angangco; SEC-OGC Opinion No. 08-10 dated February 8, 2010 addressed to Mr.
Teodoro B. Quijano; SEC-OGC Opinion No. 23-10 dated August 18, 2010 addressed to Attys. Teodulo G. San
Juan, Jr. and Erdelyn C. Go.
71.Deliberations of the Bicameral Conference Committee, May 21, 1991, pp. 3-5.
72.Section 1 (b), Implementing Rules and Regulations of the Foreign Investments Act of 1991:
b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association
wholly owned by the citizens of the Philippines; or a corporation organized under the laws of the Philippines
of which at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held
by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation
bene ts, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to
the bene t of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own
stocks in a Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of
the capital stock outstanding and entitled to vote of both corporations must be owned and held by citizens
of the Philippines and at least sixty percent [60%] of the members of the Board of Directors of each of both
corporation must be citizens of the Philippines, in order that the corporation shall be considered a Philippine
national. The control test shall be applied for this purpose. (Emphasis supplied.)
73.Roldan v. Villaroman, No. L-46825, October 18, 1939.
74.See also SEC Opinion No. 18-07 dated November 28, 2007 addressed to Mr. Rafael C. Bueno, Jr.; SEC-OGC
Opinion No. 03-08 dated January 15, 2008 addressed to Attys. Ruby Rose J. Yusi and Rudyard S. Arbolado;
and SEC-OGC Opinion No. 23-10 dated August 18, 2010 addressed to Attys. Teodulo G. San Juan, Jr. and
Erdelyn C. Go.
75.SEC Opinion dated April 14, 1987.
76.SEC Opinion dated February 15, 1988.

77.Republic Act No. 1180, Sec. 1.
78.No. L-5955, September 19, 1952.
79.Philippine Global Communications, Inc. v. Relova , No. L-60548, November 10, 1986; citing Philippine
Association of Free Labor Unions [PAFLU] v. Bureau of Labor Relations, August 21, 1976, 72 SCRA 396, 402.
80.Sec. 137.
81.BLACK'S LAW DICTIONARY (9th ed. 2009).
82.<http://www.pldt.com.ph/investor/shareholder/Documents/GIS_2010_(as%20of%207.2.10)_ nal.pdf> (last

visited June 23, 2011).
83.See SEC Opinion dated December 27, 1995 addressed to Mr. George Lavidia.
ABAD, J., dissenting:
1.Fortich v. Corona, G.R. No. 131457, April 24, 1998, 289 SCRA 624, 645.
2.Springfield Development Corporation, Inc. v. Presiding Judge, RTC, Misamis Oriental, Br. 40, Cagayan de Oro City ,
G.R. No. 142628, February 6, 2007, 514 SCRA 326, 342-343; Fortich v. Corona, id.
3.Decision, p. 10.
4.G.R. No. 143855, September 21, 2010.
5.BERNAS, JOAQUIN G., FOREIGN RELATIONS IN CONSTITUTIONAL LAW, 1995 Ed., p. 87 citing Smith, Bell and
Co. v. Natividad , 40 Phil. 136, 148 (1919); Luzon Stevedoring Corporation v. Anti-Dummy Board , 46 SCRA
474, 490 (1972); DE LEON, HECTOR S., PHILIPPINE CONSTITUTIONAL LAW (Principles and Cases), 2004
Ed., Vol. 2, p. 940.
6.DE LEON, HECTOR S., PHILIPPINE CONSTITUTIONAL LAW (Principles and Cases), 2004 Ed., Vol. 2, p. 946.
7.Manila Prince Hotel v. Government Service Insurance System , G.R. No. 122156, February 3, 1997, 267 SCRA 408,
430.
8.Id. at 431.
9.AGPALO, RUBEN E., COMMENTS ON THE CORPORATION CODE OF THE PHILIPPINES, 2001 Ed., p. 50.
10.Id. at 51.
11.Section 137. The Corporation Code.

12.Sec. 3. Definitions. — As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines; of a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines; or a corporation organized abroad and registered as doing
business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital
stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other
employee retirement or separation bene ts, where the trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the bene t of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC)
registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent
Philippines, in order that the corporation, shall be considered a "Philippine national." (As amended by
Republic Act 8179)
13.Decision, pp. 25-26.

14.Id. at 17.
15.Section 21, Article II.


19.Section 16, Article III.

20.Section 2, Article V.
21.Section 5, Article VI.

22.Section 3, Article XIII.
23.Id.

SPECIAL THIRD DIVISION
[G.R. No. 195580. January 28, 2015.]
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and
McARTHUR MINING, INC. , petitioners, vs . REDMONT CONSOLIDATED MINES CORP. , respondent.
RESOLUTION
VELASCO, JR. , J : p
Before the Court is the Motion for Reconsideration of its April 21, 2014 Decision, which denied the Petition for Review on
Certiorari under Rule 45 jointly interposed by petitioners Narra Nickel and Mining Development Corp. (Narra), Tesoro Mining and
Development, Inc. (Tesoro), and McArthur Mining, Inc. (McArthur), and a rmed the October 1, 2010 Decision and February 15, 2011
Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 109703.
Very simply, the challenged Decision sustained the appellate court's ruling that petitioners, being foreign corporations, are not
entitled to Mineral Production Sharing Agreements (MPSAs). In reaching its conclusion, this Court upheld with approval the appellate
court's nding that there was doubt as to petitioners' nationality since a 100% Canadian-owned rm, MBMI Resources, Inc. (MBMI),
effectively owns 60% of the common stocks of the petitioners by owning equity interest of petitioners' other majority corporate
shareholders.
In a strongly worded Motion for Reconsideration dated June 5, 2014, petitioners-movants argued, in the main, that the Court's
Decision was not in accord with law and logic. In its September 2, 2014 Comment, on the other hand, respondent Redmont
Consolidated Mines Corp. (Redmont) countered that petitioners' motion for reconsideration is nothing but a rehash of their
arguments and should, thus, be denied outright for being pro-forma. Petitioners have interposed on September 30, 2014 their Reply
to the respondent's Comment.
After considering the parties' positions, as articulated in their respective submissions, We resolve to deny the motion for
reconsideration.
I.
The case has not been rendered moot and academic
Petitioners have rst off criticized the Court for resolving in its Decision a substantive issue, which, as argued, has supposedly
been rendered moot by the fact that petitioners' applications for MPSAs had already been converted to an application for a Financial
Technical Assistance Agreement (FTAA), as petitioners have in fact been granted an FTAA. Further, the nationality issue, so
petitioners presently claim, had been rendered moribund by the fact that MBMI had already divested itself and sold all its
shareholdings in the petitioners, as well as in their corporate stockholders, to a Filipino corporation — DMCI Mining Corporation
(DMCI).
As a counterpoint, respondent Redmont avers that the present case has not been rendered moot by the supposed issuance of
an FTAA in petitioners' favor as this FTAA was subsequently revoked by the O ce of the President (OP) and is currently a subject of
a petition pending in the Court's First Division. Redmont likewise contends that the supposed sale of MBMI's interest in the
petitioners and in their "holding companies" is a question of fact that is outside the Court's province to verify in a Rule 45 certiorari
proceedings. In any case, assuming that the controversy has been rendered moot, Redmont claims that its resolution on the merits is
still justi ed by the fact that petitioners have violated a constitutional provision, the violation is capable of repetition yet evading
review, and the present case involves a matter of public concern.
Indeed, as the Court clari ed in its Decision, the conversion of the MPSA application to one for FTAAs and the issuance by the
OP of an FTAA in petitioners' favor are irrelevant. The OP itself has already cancelled and revoked the FTAA thus issued to
petitioners. Petitioners curiously have omitted this critical fact in their motion for reconsideration. Furthermore, the supposed sale by
MBMI of its shares in the petitioner-corporations and in their holding companies is not only a question of fact that this Court is
without authority to verify, it also does not negate any violation of the Constitutional provisions previously committed before any
such sale.
We can assume for the nonce that the controversy had indeed been rendered moot by these two events. As this Court has
time and again declared, the "moot and academic" principle is not a magical formula that automatically dissuades courts in resolving
a case. 1 The Court may still take cognizance of an otherwise moot and academic case, if it nds that (a) there is a grave violation of
the Constitution; (b) the situation is of exceptional character and paramount public interest is involved; (c) the constitutional issue
raised requires formulation of controlling principles to guide the bench, the bar, and the public; and (d) the case is capable of
repetition yet evading review. 2 The Court's April 21, 2014 Decision explained in some detail that all four (4) of the foregoing
circumstances are present in the case. If only to stress a point, we will do so again.
First, allowing the issuance of MPSAs to applicants that are owned and controlled by a 100% foreign-owned corporation, albeit
through an intricate web of corporate layering involving alleged Filipino corporations, is tantamount to permitting a blatant violation
of Section 2, Article XII of the Constitution. The Court simply cannot allow this breach and inhibit itself from resolving the controversy
on the facile pretext that the case had already been rendered academic.
Second, the elaborate corporate layering resorted to by petitioners so as to make it appear that there is compliance with the
minimum Filipino ownership in the Constitution is deftly exceptional in character. More importantly, the case is of paramount public
interest, as the corporate layering employed by petitioners was evidently designed to circumvent the constitutional caveat allowing
only Filipino citizens and corporations 60%-owned by Filipino citizens to explore, develop, and use the country's natural resources.
Third, the facts of the case, involving as they do a web of corporate layering intended to go around the Filipino ownership
requirement in the Constitution and pertinent laws, require the establishment of a de nite principle that will ensure that the
Constitutional provision reserving to Filipino citizens or "corporations at least sixty per centum of whose capital is owned by such
citizens" be effectively enforced and complied with. The case, therefore, is an opportunity to establish a controlling principle that will
"guide the bench, the bar, and the public."
Lastly, the petitioners' actions during the lifetime and existence of the instant case that gave rise to the present controversy
are capable of repetition yet evading review because, as shown by petitioners' actions, foreign corporations can easily utilize dummy
Filipino corporations through various schemes and stratagems to skirt the constitutional prohibition against foreign mining in
Philippine soil.
II.
The application of the Grandfather Rule is justified by the circumstances of the case to determine the nationality
of petitioners.
To petitioners, the Court's application of the Grandfather Rule to determine their nationality is erroneous and allegedly without
basis in the Constitution, the Foreign Investments Act of 1991 (FIA), the Philippine Mining Act of 1995, 3 and the Rules issued by the
Securities and Exchange Commission (SEC). These laws and rules supposedly espouse the application of the Control Test in
verifying the Philippine nationality of corporate entities for purposes of determining compliance with Sec. 2, Art. XII of the
Constitution that only "corporations or associations at least sixty per centum of whose capital is owned by such [Filipino] citizens"
may enjoy certain rights and privileges, like the exploration and development of natural resources.
The application of the Grandfather Rule in the
present case does not eschew the Control Test.
Clearly, petitioners have misread, and failed to appreciate the clear import of, the Court's April 21, 2014 Decision. Nowhere in
that disposition did the Court foreclose the application of the Control Test in determining which corporations may be considered as
Philippine nationals. Instead, to borrow Justice Leonen's term, the Court used the Grandfather Rule as a "supplement" to the Control
Test so that the intent underlying the averted Sec. 2, Art. XII of the Constitution be given effect. The following excerpts of the April 21,
2014 Decision cannot be clearer:
In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a
Filipino corporation , within the ambit of Sec. 2, Art. XII of the 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines. When in the mind of the Court, there is doubt,
based on the attendant facts and circumstances of the case , in the 60-40 Filipino equity ownership in the corporation,
then it may apply the "grandfather rule." (emphasis supplied)
With that, the use of the Grandfather Rule as a "supplement" to the Control Test is not proscribed by the Constitution or the
Philippine Mining Act of 1995.
The Grandfather Rule implements the intent of
the Filipinization provisions of the Consti tution.
To reiterate, Sec. 2, Art. XII of the Constitution reserves the exploration, development, and utilization of natural resources to
Filipino citizens and "corporations or associations at least sixty per centum of whose capital is owned by such citizens." Similarly,
Section 3 (aq) of the Philippine Mining Act of 1995 considers a "corporation . . . registered in accordance with law at least sixty per
cent of the capital of which is owned by citizens of the Philippines" as a person quali ed to undertake a mining operation. Consistent
with this objective, the Grandfather Rule was originally conceived to look into the citizenship of the individuals who ultimately own
and control the shares of stock of a corporation for purposes of determining compliance with the constitutional requirement of
Filipino ownership. It cannot, therefore, be denied that the framers of the Constitution have not foreclosed the Grandfather Rule as a
tool in verifying the nationality of corporations for purposes of ascertaining their right to participate in nationalized or partly
nationalized activities. The following excerpts from the Record of the 1986 Constitutional Commission suggest as much:
MR. NOLLEDO:
In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in
Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS:
That is right.
xxx xxx xxx
MR. NOLLEDO:
Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests
in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather
rule ?
MR. VILLEGAS:
Yes, that is the understanding of the Committee .
As further de ned by Dean Cesar Villanueva, the Grandfather Rule is "the method by which the percentage of Filipino
equity in a corporation engaged in nationalized and/or partly nationalized areas of activities, provided for under the Constitution
and other nationalization laws, is computed, in cases where corporate shareholders are present, by at t r ib ut ing the
nationality of the second or even subsequent tier of ownership to determine the nationality of the corporate
shareholder. " 4 Thus, to arrive at the actual Filipino ownership and control in a corporation, both the direct and indirect
shareholdings in the corporation are determined.
This concept of stock attribution inherent in the Grandfather Rule to determine the ultimate ownership in a corporation is
observed by the Bureau of Internal Revenue (BIR) in applying Section 127 (B) 5 of the National Internal Revenue Code on taxes
imposed on closely held corporations, in relation to Section 96 of the Corporation Code 6 on close corporations. Thus, in BIR Ruling
No. 148-10, Commissioner Kim Henares held:
In the case of a multi-tiered corporation , the stock attribution rule must be allowed to run continuously
along the chain of ownership until it nally reaches the individual stockholders. This is in consonance with the
"grandfather rule" adopted in the Philippines under Section 96 of the Corporation Code (Batas Pambansa Blg. 68)
which provides that notwithstanding the fact that all the issued stock of a corporation are held by not more than twenty
persons, among others, a corporation is nonetheless not to be deemed a close corporation when at least two thirds of its voting
stock or voting rights is owned or controlled by another corporation which is not a close corporation. 7
In SEC-OGC Opinion No. 10-31 dated December 9, 2010 (SEC Opinion 10-31), the SEC applied the Grandfather Rule even if the
corporation engaged in mining operation passes the 60-40 requirement of the Control Test, viz.:
You allege that the structure of MML's ownership in PHILSAGA is as follows: (1) MML owns 40% equity in MEDC, while
the 60% is ostensibly owned by Philippine individual citizens who are actually MML's controlled nominees; (2) MEDC, in turn,
owns 60% equity in MOHC, while MML owns the remaining 40%; (3) Lastly, MOHC owns 60% of PHILSAGA, while MML owns
the remaining 40%. You provide the following figure to illustrate this structure:
xxx xxx xxx
We note that the Constitution and the statute use the concept "Philippine citizens." Article III, Section 1 of the
Constitution provides who are Philippine citizens: . . . This enumeration is exhaustive. In other words, there can be no other
Philippine citizens other than those falling within the enumeration provided by the Constitution. Obviously, only natural persons
are susceptible of citizenship. Thus, for purposes of the Constitutional and statutory restrictions on foreign participation in the
exploitation of mineral resources, a corporation investing in a mining joint venture can never be considered as a Philippine
citizen.
The Supreme Court En Banc con rms this [in] . . . Pedro R. Palting, vs. San Jose Petroleum, [Inc.]. The Court held that a
corporation investing in another corporation engaged in a nationalized activity cannot be considered as a citizen for purposes
of the Constitutional provision restricting foreign exploitation of natural resources:
xxx xxx xxx
Accordingly, we opine that we must look into the citizenship of the individual stockholders, i.e., natural persons, of that
investor-corporation in order to determine if the Constitutional and statutory restrictions are complied with. If the shares of
stock of the immediate investor corporation is in turn held and controlled by another corporation, then we must look into the
citizenship of the individual stockholders of the latter corporation. In other words, if there are layers of intervening
corporations investing in a mining joint venture, we must delve into the citizenship of the individual
stockholders of each corporation. This is the strict application of the grandfather rule, which the Commission has been
consistently applying prior to the 1990s.
Indeed, the framers of the Consti tution intended for the "grandfather rule" to apply in case a 60%-40%
Filipino-Foreign equity corporation invests in another corporation engaging in an activity where the
Consti tution restricts foreign participation.
xxx xxx xxx

Accordingly, under the structure you represented, the joint mining venture is 87.04% foreign owned, while it is only
12.96% owned by Philippine citizens. Thus, the constitutional requirement of 60% ownership by Philippine citizens is violated.
(emphasis supplied)
Similarly, in the eponymous Redmont Consolidated Mines Corporation v. McArthur Mining, Inc., et al., 8 the SEC en banc applied
the Grandfather Rule despite the fact that the subject corporations ostensibly have satis ed the 60-40 Filipino equity requirement.
The SEC en banc held that to attain the Constitutional objective of reserving to Filipinos the utilization of natural
resources, one should not stop where the percentage of the capital stock is 60%. Thus:
[D]oubt, we believe, exists in the instant case because the foreign investor, MBMI, provided practically all
the funds of the remaining appellee-corporations . The records disclose that: (1) Olympic Mines and Development
Corporation ("OMDC"), a domestic corporation, and MBMI subscribed to 6,663 and 3,331 shares, respectively, out of the
authorized capital stock of Madridejos; however, OMDC paid nothing for this subscription while MBMI paid P2,803,900.00 out
of its total subscription cost of P3,331,000.00; (2) Palawan Alpha South Resource Development Corp. ("Palawan Alpha"), also
a domestic corporation, and MBMI subscribed to 6,596 and 3,996 shares, respectively, out of the authorized capital stock of
Patricia Louise; however, Palawan Alpha paid nothing for this subscription while MBMI paid P2,796,000.00 out of its total
subscription cost of P3,996,000.00; (3) OMDC and MBMI subscribed to 6,663 and 3,331 shares, respectively, out of the
authorized capital stock of Sara Marie; however, OMDC paid nothing for this subscription while MBMI paid P2,794,000.00 out
of its total subscription cost of P3,331,000.00; and (4) Falcon Ridge Resources Management Corp. ("Falcon Ridge"), another
domestic corporation, and MBMI subscribed to 5,997 and 3,998 shares, respectively, out of the authorized capital stock of San
Juanico; however, Falcon Ridge paid nothing for this subscription while MBMI paid P2,500,000.00 out of its total subscription
cost of P3,998,000.00. Thus, pursuant to the afore-quoted DOJ Opinion, the Grandfather Rule must be used.
xxx xxx xxx

The avowed purpose of the Consti tution is to place in the hands of Filipinos the exploitation of our
natural resources. Necessarily, therefore, the Rule interpreting the constitutional provision should not diminish
that right through the legal ction of corporate ownership and control. But the constitutional provision, as interpreted
and practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of the Constitution. Hence, the
Grandfather Rule must be applied to accurately determine the actual participation, both direct and indirect, of
foreigners in a corporation engaged in a nationalized activity or business.
The method employed in the Grandfather Rule of attributing the shareholdings of a given corporate shareholder to the second
or even the subsequent tier of ownership hews with the rule that the "bene cial ownership " of corporations engaged in
nationalized activities must reside in the hands of Filipino citizens. Thus, even if the 60-40 Filipino equity requirement appears to have
been satisfied, the Department of Justice (DOJ), in its Opinion No. 144, S. of 1977, stated that an agreement that may distort the
actual economic or bene cial ownership of a mining corporation may be struck down as violative of the
constitutional requirement , viz.:
In this connection, you raise the following specific questions:
1. Can a Philippine corporation with 30% equity owned by foreigners enter into a mining service contract with a foreign
company granting the latter a share of not more than 40% from the proceeds of the operations?
xxx xxx xxx
By law, a mining lease may be granted only to a Filipino citizen, or to a corporation or partnership
registered with the [SEC] at least 60% of the capital of which is owned by Filipino citizens and possessing . . . .
The sixty percent Philippine equity requirement in mineral resource exploitation . . . is intended to insure, among
other purposes, the conservation of indigenous natural resources, for Filipino posterity . . . . I think it is implicit in
this provision, even if it refers merely to ownership of stock in the corporation holding the mining concession, that beneficial
ownership of the right to dispose, exploit, utilize, and develop natural resources shall pertain to Filipino
citizens, and that the nationality requirement is not satis ed unless Filipinos, are the principal bene ciaries in
the exploitation of the country's natural resources . This criterion of bene cial ownership is tacitly adopted in Section 44
of P.D. No. 463, above-quoted, which limits the service fee in service contracts to 40% of the proceeds of the operation, thereby
implying that the 60-40 benefit-sharing ratio is derived from the 60-40 equity requirement in the Constitution.
xxx xxx xxx
It is obvious that while payments to a service contractor may be justi ed as a service fee, and therefore, properly
deductible from gross proceeds, the service contract could be employed as a means of going about or
circumventing the constitutional limit on foreign equity participation and the obvious constitutional policy to
insure that Filipinos retain beneficial ownership of our mineral resources . Thus, every service contract scheme has to
be evaluated in its entirety, on a case to case basis, to determine reasonableness of the total "service fee" . . . like the options
available to the contractor to become equity participant in the Philippine entity holding the concession, or to acquire rights in
the processing and marketing stages. . . . (emphasis supplied)
The "bene cial ownership" requirement was subsequently used in tandem with the "situs of control" to determine the
nationality of a corporation in DOJ Opinion No. 84, S. of 1988, through the Grandfather Rule, despite the fact that both the investee
and investor corporations purportedly satisfy the 60-40 Filipino equity requirement: 9
This refers to your request for opinion on whether or not there may be an investment in real estate by a domestic
corporation (the investing corporation) seventy percent (70%) of the capital stock of which is owned by another domestic
corporation with at least 60%-40% Filipino-Foreign Equity, while the remaining thirty percent (30%) of the capital stock is owned
by a foreign corporation.
xxx xxx xxx
This Department has had the occasion to rule in several opinions that it is implicit in the constitutional provisions, even
if it refers merely to ownership of stock in the corporation holding the land or natural resource concession, that the
nationality requirement is not satis ed unless it meets the criterion of bene cial ownership, i.e., Filipinos are
the principal bene ciaries in the exploration of natural resources (Op. No. 144, s. 1977; Op. No. 130, s. 1985), and
that in applying the same "the primordial consideration is situs of control, whether in a stock or non-stock
corporation" (Op. No. 178, s. 1974). As stated in the Register of Deeds vs. Ung Sui Si Temple (97 Phil. 58), obviously to insure
that corporations and associations allowed to acquire agricultural land or to exploit natural resources "shall be controlled by
Filipinos." Accordingly, any arrangement which attempts to defeat the constitutional purpose should be eschewed
(Op. No. 130, s. 1985).
We are informed that in the registration of corporations with the [SEC], compliance with the sixty per centum requirement
is being monitored by SEC under the "Grandfather Rule" a method by which the percentage of Filipino equity in corporations
engaged in nationalized and/or partly nationalized areas of activities provided for under the Constitution and other national
laws is accurately computed, and the diminution if said equity prevented (SEC Memo, S. 1976). The "Grandfather Rule" is
applied speci cally in cases where the corporation has corporate stockholders with alien stockholdings,
otherwise, if the rule is not applied, the presence of such corporate stockholders could diminish the effective
control of Filipinos .
Applying the "Grandfather Rule" in the instant case, the result is as follows: . . . the total foreign equity in the investing
corporation is 58% while the Filipino equity is only 42%, in the investing corporation, subject of your query, is disquali ed from
investing in real estate, which is a nationalized activity, as it does not meet the 60%-40% Filipino-Foreign equity requirement
under the Constitution.
This pairing of the concepts "bene cial ownership" and the "situs of control" in determining what constitutes "capital" has been
adopted by this Court in Heirs of Gamboa v. Teves. 1 0 In its October 9, 2012 Resolution, the Court clarified, thus:
This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is held by "a trustee of
funds for pension or other employee retirement or separation bene ts," the trustee is a Philippine national if "at least sixty
percent (60%) of the fund will accrue to the benefit of Philippine nationals." Likewise, Section 1(b) of the Implementing Rules of
the FIA provides that "for stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is
not enough to meet the required Filipino equity. Full bene cial ownership of the stocks, coupled with appropriate
voting rights, is essential ." (emphasis supplied)
In emphasizing the twin requirements of "bene cial ownership" and "control" in determining compliance with the required
Filipino equity in Gamboa, the en banc Court explicitly cited with approval the SEC en banc's application in Redmont Consolidated
Mines, Corp. v. McArthur Mining, Inc., et al. of the Grandfather Rule, to wit:

Significantly, the SEC en banc , which is the collegial body statutorily empowered to issue rules and opinions on behalf
of SEC, has adopted the Grandfather Rule in determining compliance with the 60-40 ownership requirement in favor of
Filipino citizens mandated by the Constitution for certain economic activities. This prevailing SEC ruling, which the SEC
correctly adopted to thwart any circumvention of the required Filipino "ownership and control," is laid down in the
25 March 2010 SEC en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al. . . . (emphasis
supplied)
Applying Gamboa, the Court, in Express Investments III Private Ltd. v. Bayantel Communications, Inc. , 1 1 denied the foreign
creditors' proposal to convert part of Bayantel's debts to common shares of the company at a rate of 77.7%. Sup p osed ly, the
conversion of the debts to common shares by the foreign creditors would be done, both directly and indirectly, in
order to meet the control test principle under the FIA . Under the proposed structure, the foreign creditors would own 40% of
the outstanding capital stock of the telecommunications company on a direct basis, while the remaining 40% of shares would be
registered to a holding company that shall retain, on a direct basis, the other 60% equity reserved for Filipino citizens. Nonetheless,
the Court found the proposal non-compliant with the Constitutional requirement of Filipino ownership as the proposed
structure would give more than 60% of the ownership of the common shares of Bayantel to the foreign corporations, viz.:
In its Rehabilitation Plan, among the material nancial commitments made by respondent Bayantel is that its
shareholders shall relinquish the agreed-upon amount of common stock[s] as payment to Unsecured Creditors as per the Term
Sheet. Evidently, the parties intend to convert the unsustainable portion of respondent's debt into common
stocks, which have voting rights. If we indulge petitioners on their proposal, the Omnibus Creditors which are
foreign corporations, shall have control over 77.7% of Bayantel, a public utility company. This is precisely the
scenario proscribed by the Filipinization provision of the Consti tution . Therefore, the Court of Appeals acted correctly
in sustaining the 40% debt-to-equity ceiling on conversion. (emphasis supplied)
As shown by the quoted legislative enactments, administrative rulings, opinions, and this Court's decisions, the Grandfather
Rule not only finds basis, but more importantly, it implements the Filipino equity requirement, in the Constitution.
Application of the Grandfather
Rule with the Control Test.
Admittedly, an ongoing quandary obtains as to the role of the Grandfather Rule in determining compliance with the minimum
Filipino equity requirement vis-à-vis the Control Test. This confusion springs from the erroneous assumption that the use of one
method forecloses the use of the other.
As exempli ed by the above rulings, opinions, decisions and this Court's April 21, 2014 Decision, the Control Test can be, as it
has been, applied jointly with the 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 can only be applied alternative to each other. Rather, these methods can, 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 quali ed to perform nationalized or partly nationalized activities. Hence, it
is only when the Control Test is rst 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 need to 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 doubt as to who has the "bene cial ownership" and "control" of the
corporation. In that instance, there is no need for a 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. 1 2 As a corollary rule,
even if the 60-40 Filipino to foreign equity ratio is apparently met by the subject or investee corporation, a resort to the
Grandfather Rule is necessary if doubt exists as to the locus of the "bene cial ownership" and "control." In this case, a
further investigation as to the nationality of the personalities with the bene cial 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 con ned 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 "bene cial
ownership" and "control" of the corporation do not in fact reside in Filipino shareholders but in foreign stakeholders.
As provided in DOJ Opinion No. 165, Series of 1984, which applied the pertinent provisions of the Anti-Dummy Law in relation to the
minimum Filipino equity requirement in the Constitution, "signi cant indicators of the dummy status" have been recognized in view of
reports "that some Filipino investors or businessmen are being utilized or [are] allowing themselves to be used as dummies by
foreign investors" specifically in joint ventures for national resource exploitation. These indicators are:
1. That the foreign investors provide practically all the funds for the joint investment undertaken by these Filipino
businessmen and their foreign partner;
2. That the foreign investors undertake to provide practically all the technological support for the joint venture;
3. That the foreign investors, while being minority stockholders, manage the company and prepare all economic viability
studies.
Thus, In the Matter of the Petition for Revocation of the Certi cate of Registration of Linear Works Realty Development
Corporation, 1 3 the SEC held that when foreigners contribute more capital to an enterprise, doubt exists as to the actual
control and ownership of the subject corporation even if the 60% Filipino equity threshold is met. Hence, the SEC in that
one ordered a further investigation, viz.:
. . . The [SEC Enforcement and Prosecution Department (EPD)] maintained that the basis for determining the level of
foreign participation is the number of shares subscribed, regardless of the par value. Applying such an interpretation, the EPD
rules that the foreign equity participation in Linearworks Realty Development Corporation amounts to 26.41% of the
corporation's capital stock since the amount of shares subscribed by foreign nationals is 1,795 only out of the 6,795 shares.
Thus, the subject corporation is compliant with the 40% limit on foreign equity participation. Accordingly, the EPD
dismissed the complaint, and did not pursue any investigation against the subject corporation.
xxx xxx xxx
. . . [I]n this respect we nd no error in the assailed order made by the EPD. The EPD did not err when it did not take into
account the par value of shares in determining compliance with the constitutional and statutory restrictions on foreign equity.
However, we are aware that some unscrupulous individuals employ schemes to circumvent the
constitutional and statutory restrictions on foreign equity. In the present case, the fact that the shares of the
Japanese nationals have a greater par value but only have similar rights to those held by Philippine citizens
having much lower par value, is highly suspicious . This is because a reasonable investor would expect to have
greater control and economic rights than other investors who invested less capital than him. Thus, it is
reasonable to suspect that there may be secret arrangements between the corporation and the stockholders wherein the
Japanese nationals who subscribed to the shares with greater par value actually have greater control and
economic rights contrary to the equality of shares based on the articles of incorporation.
With this in mind, we nd it proper for the EPD to investigate the subject corporation. The EPD is advised to avail of the
Commission's subpoena powers in order to gather sufficient evidence, and file the necessary complaint.
As will be discussed, even if at rst glance the petitioners comply with the 60-40 Filipino to foreign equity ratio, doubt exists
in the present case that gives rise to a reasonable suspicion that the Filipino shareholders do not actually have the requisite
number of control and bene cial ownership in petitioners Narra, Tesoro, and McArthur. Hence, a further investigation and dissection
of the extent of the ownership of the corporate shareholders through the Grandfather Rule is justified.
Parenthetically, it is advanced that the application of the Grandfather Rule is impractical as tracing the shareholdings to the
point when natural persons hold rights to the stocks may very well lead to an investigation ad infinitum. Su ce it to say in this regard
that, while the Grandfather Rule was originally intended to trace the shareholdings to the point where natural persons hold the shares,
the SEC had already set up a limit as to the number of corporate layers the attribution of the nationality of the corporate
shareholders may be applied.
In a 1977 internal memorandum, the SEC suggested applying the Grandfather Rule on two (2) levels of corporate relations for
publicly-held corporations or where the shares are traded in the stock exchanges, and to three (3) levels for closely held corporations
or the shares of which are not traded in the stock exchanges. 1 4 These limits comply with the requirement in Palting v. San Jose
Petroleum, Inc. 1 5 that the application of the Grandfather Rule cannot go beyond the level of what is reasonable.
A doubt exists as to the extent of control and
beneficial ownership of MBMI over the petitioners
and their investing corporate stockholders.
In the Decision subject of this recourse, the Court applied the Grandfather Rule to determine the matter of true ownership and
control over the petitioners as doubt exists as to the actual extent of the participation of MBMI in the equity of the petitioners and
their investing corporations.
We considered the following membership and control structures and like nuances:
Tesoro
Supposedly Filipino corporation Sara Marie Mining, Inc. (Sara Marie) holds 59.97% of the 10,000 common shares of petitioner
Tesoro while the Canadian-owned company, MBMI, holds 39.98% of its shares.
Name Nationality Number Amount Amount Paid
of Shares Subscribed
Sara Marie Mining, Inc. Filipino 5,997 P5,997,000.00 P825,000.00

MBMI Resources, Inc. 1 6 Canadian 3,998 P3,998,000.00 P1,878,174.60
Lauro L. Salazar Filipino 1 P1,000.00 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
–––––––– ––––––––––––– –––––––––––––
Total 10,000 P10,000,000.00 P2,708,174.60
======= ============ ============
In turn, the Filipino corporation Olympic Mines & Development Corp. (Olympic) holds 66.63% of Sara Marie's shares while the
same Canadian company MBMI holds 33.31% of Sara Marie's shares. Nonetheless, it is admitted that Olympic did not pay a single
peso for its shares. On the contrary, MBMI paid for 99% of the paid-up capital of Sara Marie.

Olympic Mines & Filipino 6,663 P6,663,000.00 P0.00

Development Corp. 1 7
MBMI Resources, Inc. Canadian 3,331 P3,331,000.00 P2,794,000.00
Amanti Limson
Fernando B. Esguerra Filipino
Filipino 1
1 P1,000.00
P1,000.00 P1,000.00
P1,000.00
Lauro Salazar Filipino 1 P1,000.00 P1,000.00
Emmanuel G. Hernando Filipino 1 P1,000.00 P1,000.00
–––––––– ––––––––––––– –––––––––––––
Total 10,000 P10,000,000.00 P2,800,000.00
======= ============ ============
The fact that MBMI had practically provided all the funds in Sara Marie and Tesoro creates serious doubt as to
the true extent of its (MBMI) control and ownership over both Sara Marie and Tesoro since, as observed by the SEC, "a
reasonable investor would expect to have greater control and economic rights than other investors who invested less capital than
him." The application of the Grandfather Rule is clearly called for, and as shown below, the Filipinos' control and economic bene ts in
petitioner Tesoro (through Sara Marie) fall below the threshold 60%, viz.:
Filipino participation in petitioner Tesoro: 40.01 %
66.67
––––– (Filipino equity in Sara Marie) x 59.97 (Sara Marie's share in Tesoro) = 39.98%
100
39.98% + .03% (shares of individual Filipino shareholders [SHs] in Tesoro) = 40.01%
========
Foreign participation in petitioner Tesoro: 59.99 %

33.33
––––– (Foreign equity in Sara Marie) x 59.97 (Sara Marie's share in Tesoro) = 19.99%
100
19.99% + 39.98% (MBMI's direct participation in Tesoro) + .02% (shares of foreign individual SHs in Tesoro) = 59.99%
==========
With only 40.01% Filipino ownership in petitioner Tesoro, as compared to 59.99% foreign ownership of its shares, it is clear
that petitioner Tesoro does not comply with the minimum Filipino equity requirement imposed in Sec. 2, Art. XII of the Constitution.
Hence, the appellate court's observation that Tesoro is a foreign corporation not entitled to an MPSA is apt.
McArthur
Petitioner McArthur follows the corporate layering structure of Tesoro, as 59.97% of its 10,000 common shares is owned by
supposedly Filipino Madridejos Mining Corporation (Madridejos), while 39.98% belonged to the Canadian MBMI.
Madridejos Mining Filipino 5,997 P5,997,000.00 P825,000.00

Corporation
Lauro L. Salazar Filipino 1 P1,000.00 P1,000.00
–––––––– ––––––––––––– –––––––––––––
Total 10,000 P10,000,000.00 P2,708,174.60
======= ============ ============
In turn, 66.63% of Madridejos' shares were held by Olympic while 33.31% of its shares belonged to MBMI. Yet again, Olympic
did not contribute to the paid-up capital of Madridejos and it was MBMI that provided 99.79% of the paid-up capital of Madridejos.
Olympic Mines & Filipino 6,663 P6,663,000.00 P0.00

Development Corp. 1 9
MBMI Resources, Inc. Canadian 3,331 P3,331,000.00 P2,803,900.00
Amanti Limson Filipino 1 P1,000.00 P1,000.00
Lauro Salazar Filipino 1 P1,000.00 P1,000.00
Emmanuel G. Hernando Filipino 1 P1,000.00 P1,000.00
–––––––– ––––––––––––– –––––––––––––
Total 10,000 P10,000,000.00 P2,809,900.00
======= ============ ============
Again, the fact that MBMI had practically provided all the funds in Madridejos and McArthur creates serious
doubt as to the true extent of its control and ownership of MBMI over both Madridejos and McArthur. The application
of the Grandfather Rule is clearly called for, and as will be shown below, MBMI, along with the other foreign shareholders, breached
the maximum limit of 40% ownership in petitioner McArthur, rendering the petitioner disqualified to an MPSA:
Filipino participation in petitioner McArthur: 40.01 %
66.67
––––– (Filipino equity in Madridejos) x 59.97 (Madridejos' share in McArthur) = 39.98%
100
39.98% + .03% (shares of individual Filipino SHs in McArthur) = 40.01%

============
Foreign participation in petitioner McArthur: 59.99 %

33.33
––––– (Foreign equity in Madridejos) x 59.97 (Madridejos' share in McArthur) = 19.99%
100
19.99% + 39.98% (MBMI's direct participation in McArthur) + .02% (shares of foreign individual SHs in McArthur) = 59.99%
============
As with petitioner Tesoro, with only 40.01% Filipino ownership in petitioner McArthur, as compared to 59.99% foreign
ownership of its shares, it is clear that petitioner McArthur does not comply with the minimum Filipino equity requirement imposed in
Sec. 2, Art. XII of the Constitution. Thus, the appellate court did not err in holding that petitioner McArthur is a foreign corporation not
entitled to an MPSA.
Narra
As for petitioner Narra, 59.97% of its shares belonged to Patricia Louise Mining & Development Corporation (PLMDC), while
Canadian MBMI held 39.98% of its shares.
Patricia Lousie Mining Filipino 5,997 P5,997,000.00 P1,677,000.00

and Development Corp.
Higinio C. Mendoza, Jr. Filipino 1 P1,000.00 P1,000.00
Henry E. Fernandez Filipino 1 P1,000.00 P1,000.00
Ma. Elena A. Bocalan Filipino 1 P1,000.00 P1,000.00
Robert L. McCurdy Canadian 1 P1,000.00 P1,000.00
Bayani H. Agabin Filipino 1 P1,000.00 P1,000.00
–––––––– ––––––––––––– –––––––––––––
Total 10,000 P10,000,000.00 P2,800,000.00

======= ============ ============
Yet again, PASRDC did not pay for any of its subscribed shares, while MBMI contributed 99.75% of PLMDC's paid-up 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 expect to have greater control and economic rights than other investors who invested less capital
than him." Thus, the application of the Grandfather Rule is justi ed. 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 Mining Act of 1995.
Filipino participation in petitioner Narra: 39.64 %
66.02
––––– (Filipino equity in PLMDC) x 59.97 (PLMDC's share in Narra) = 39.59%
100
39.59% + .05% (shares of individual Filipino SHs in McArthur) = 39.64%

=========
Foreign participation in petitioner Narra: 60.36 %

33.98
––––– (Foreign equity in PLMDC) x 59.97 (PLMDC's share in Narra) = 20.38%
100
20.38% + 39.96% (MBMI's direct participation in Narra) + .02% (shares of foreign individual SHs in McArthur) = 60.36%
==========
With 60.36% foreign ownership in petitioner Narra, as compared to only 39.64% Filipino ownership of its shares, it is clear that
petitioner Narra does not comply with the minimum Filipino equity requirement imposed in Section 2, Article XII of the Constitution.
Hence, the appellate court did not err in holding that petitioner McArthur is a foreign corporation not entitled to an MPSA.
It must be noted that the foregoing determination and computation of petitioners' Filipino equity composition was based on
their common shareholdings , not preferred or redeemable shares. Section 6 of the Corporation Code of the Philippines explicitly
provides that "no share may be deprived of voting rights except those classi ed as 'preferred' or 'redeemable' shares." Further, as
Justice Leonen puts it, there is "no indication that any of the shares . . . do not have voting rights, [thus] it must be assumed that all
such shares have voting rights." 2 2 It cannot therefore be gainsaid that the foregoing computation hewed with the pronouncements
of Gamboa, as implemented by SEC Memorandum Circular No. 8, Series of 2013, (SEC Memo No. 8) 2 3 Section 2 of which states:
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory requirement. For purposes
of determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH (a) the total
outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of
stock, whether or not entitled to vote in the election of directors.
In fact, there is no indication that herein petitioners issued any other class of shares besides the 10,000 common shares.
Neither is it suggested that the common shares were further divided into voting or non-voting common shares. Hence, for purposes
of this case, items a) and b) in SEC Memo No. 8 both refer to the 10,000 common shares of each of the petitioners, and there is no
need to separately apply the 60-40 ratio to any segment or part of the said common shares.
III.
In mining disputes, the POA has jurisdiction to pass upon the nationality of applications for MPSAs
Petitioners also scoffed at this Court's decision to uphold the jurisdiction of the Panel of Arbitrators (POA) of the Department
of Environment and Natural Resources (DENR) since the POA's determination of petitioners' nationalities is supposedly beyond its
limited jurisdiction, as defined in Gonzales v. Climax Mining Ltd. 2 4 and Philex Mining Corp. v. Zaldivia. 2 5
The April 21, 2014 Decision did not dilute, much less overturn, this Court's pronouncements in either Gonzales or Philex Mining
that POA's jurisdiction "is limited only to mining disputes which raise questions of fact," and not judicial questions cognizable by
regular courts of justice. However, to properly recognize and give effect to the jurisdiction vested in the POA by Section 77 of the
Philippine Mining Act of 1995, 2 6 and in parallel with this Court's ruling in Celestial Nickel Mining Exploration Corporation v.
Macroasia Corp., 2 7 the Court has recognized in its Decision that in resolving disputes "involving rights to mining areas" and "involving
mineral agreements or permits," the POA has jurisdiction to make a preliminary nding of the required nationality of the corporate
applicant in order to determine its right to a mining area or a mineral agreement.
There is certainly nothing novel or aberrant in this approach. In ejectment and unlawful detainer cases, where the subject of
inquiry is possession de facto, the jurisdiction of the municipal trial courts to make a preliminary adjudication regarding ownership of
the real property involved is allowed, but only for purposes of ruling on the determinative issue of material possession.
The present case arose from petitioners' MPSA applications, in which they asserted their respective rights to the mining areas
each applied for. Since respondent Redmont, itself an applicant for exploration permits over the same mining areas, led petitions
for the denial of petitioners' applications, it should be clear that there exists a controversy between the parties and it is POA's
jurisdiction to resolve the said dispute. POA's ruling on Redmont's assertion that petitioners are foreign corporations not entitled to
MPSA is but a necessary incident of its disposition of the mining dispute presented before it, which is whether the petitioners are
entitled to MPSAs.
Indeed, as the POA has jurisdiction to entertain "disputes involving rights to mining areas," it necessarily follows that the POA
likewise wields the authority to pass upon the nationality issue involving petitioners, since the resolution of this issue is essential and
indispensable in the resolution of the main issue, i.e., the determination of the petitioners' right to the mining areas through MPSAs.
WHEREFORE , We DENY the motion for reconsideration WITH FINALITY . No further pleadings shall be entertained. Let entry
of judgment be made in due course.
SO ORDERED.
Peralta, Mendoza and Jardeleza, JJ., concur.
Leonen, J., I dissent. See separate opinion.
Separate Opinions
LEONEN , J., dissenting opinion:
I dissent from the majority's Resolution denying with nality the Motion for Reconsideration led by petitioners. I maintain the
positions I articulated in my Dissent to the April 21, 2014 Decision.
I welcome the majority's statements clarifying the relative applicability of the Grandfather Rule in relation to the Control Test. I
particularly welcome the clari cation that "it is only when the Control Test is rst complied with that the Grandfather Rule may be
applied." 1 This is in line with the position I articulated in my Dissent to the April 21, 2014 Decision that the Control Test should nd
priority in application, with the Grandfather Rule being applicable only as a "supplement." 2
However, I maintain that the Panel of Arbitrators of the Department of Environment and Natural Resources (DENR Panel of
Arbitrators) never had jurisdiction to rule on the nationalities of petitioners Narra Nickel Mining and Development Corp. (Narra),
Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining, Inc. (McArthur) and on the question of whether they should be
quali ed to hold Mineral Production Sharing Agreements (MPSA). It is error for the majority to rule that petitioners are foreign
corporations proceeding from the actions of a body which never had jurisdiction and competence to rule on the judicial question of
nationality.
Likewise, I maintain that respondent Redmont Consolidated Mines Corp. (Redmont) engaged in blatant forum shopping. This,
the lack of jurisdiction and competence of the DENR Panel of Arbitrators, and the error of proceeding from the acts of an
incompetent body are su cient grounds for granting the Petition and should su ce as bases for granting the present Motion for
Reconsideration.

I
The DENR Panel of Arbitrators had no competence to rule on the Petitions filed by Redmont
The jurisdiction of the DENR Panel of Arbitrators is spelled out in Section 77 of Republic Act No. 7942, otherwise known as the
Philippine Mining Act of 1995 (the "Mining Act"):
Section 77. Panel of Arbitrators. — . . . . Within thirty (30) working days, after the submission of the case by the parties
for decision, the panel shall have exclusive and original jurisdiction to hear and decide on the following:
(a) Disputes involving rights to mining areas;

(b) Disputes involving mineral agreements or permit;
(c) Disputes involving surface owners, occupants and claimholders/concessionaires; and
(d) Disputes pending before the Bureau and the Department at the date of the effectivity of this Act.
The April 21, 2014 Decision sustained the jurisdiction of the DENR Panel of Arbitrators, relying on pronouncements made in
Celestial Nickel Mining Exploration Corporation v. Macroasia Corp. 3 which construed the phrase "disputes involving rights to mining
areas" as referring "to any adverse claim, protest, or opposition to an application for mineral agreement." 4
However, the Decision interpreted Section 77 of the Mining Act in a manner that runs afoul of this court's pronouncements in
its Decision penned by Associate Justice Dante Tinga in Gonzales v. Climax Mining Ltd. 5 and in its Decision penned by Associate
Justice J.B.L. Reyes in Philex Mining Corp. v. Zaldivia. 6
As pointed out in my Dissent to the April 21, 2014 Decision, "Gonzales v. Climax Mining Ltd., 7 ruled on the jurisdiction of the
Panel of Arbitrators as follows:"
We now come to the meat of the case which revolves mainly around the question of jurisdiction by the Panel of
Arbitrators: Does the Panel of Arbitrators have jurisdiction over the complaint for declaration of nullity and/or termination of
the subject contracts on the ground of fraud, oppression and violation of the Consti tution ? This issue may be distilled into
the more basic question of whether the Complaint raises a mining dispute or a judicial question.
A judicial question is a question that is proper for determination by the courts, as opposed to a moot
question or one properly decided by the executive or legislative branch. A judicial question is raised when the
determination of the question involves the exercise of a judicial function; that is, the question involves the determination of
what the law is and what the legal rights of the parties are with respect to the matter in controversy.
On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b) mineral agreements, FTAAs, or
permits, and (c) surface owners, occupants and claimholders/concessionaires. Under Republic Act No. 7942 (otherwise known
as the Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and original jurisdiction to hear and decide these
mining disputes. The Court of Appeals, in its questioned decision, correctly stated that the Panel's jurisdiction is limited
only to those mining disputes which raise questions of fact or matters requiring the application of
technological knowledge and experience. 8 (Emphasis supplied, citation omitted)
Philex Mining Corp. v. Zaldivia 9 settled what "questions of fact" are appropriate for resolution in a mining dispute:
We see nothing in [S]ections 61 and 73 of the Mining Law that indicates a legislative intent to confer real judicial power
upon the Director of Mines. The very terms of [S]ection 73 of the Mining Law, as amended by Republic Act No. 4388, in
requiring that the adverse claim must "state in full detail the nature, boundaries and extent of the adverse claim" show that the
con icts to be decided by reason of such adverse claim refer primarily to questions of fact. This is made even clearer by the
explanatory note to House Bill No. 2522, later to become Republic Act 4388, that "[S]ections 61 and 73 that refer to the
overlapping of claims are amended to expedite resolutions of mining con icts . . . ." The controversies to be submitted
and resolved by the Director of Mines under the sections refer ther[e]fore only to the overlapping of claims and
administrative matters incidental thereto. 1 0 (Emphasis supplied)
The DENR Panel of Arbitrators, as its name denotes, is an arbitral body. It is not a court of law. Its competence rests in its
capacity to resolve factual issues arising between parties with competing mining claims and requiring the application of technical
expertise.
In this case, Redmont has not even shown that it has a competing mining claim. It has asked only that petitioners be declared
as not qualified to enter into MPSAs.
By sustaining the jurisdiction of the DENR Panel of Arbitrators, the majority effectively diminishes (if not totally abandons) the
distinction made in Gonzales and Philex between "mining disputes" and "judicial questions." Per Gonzales and Philex, judicial
questions are cognizable only by courts of justice, not by the DENR Panel of Arbitrators.
The majority's reference to Celestial takes out of context the pronouncements made therein. To reiterate what I have stated in
my Dissent to the April 21, 2014 Decision, "[t]he pronouncements in Celestial cited by the ponencia were made to address the
assertions of Celestial Nickel and Mining Corporation (Celestial Nickel) and Blue Ridge Mineral Corporation (Blue Ridge) that the
Panel of Arbitrators had the power to cancel existing mineral agreements pursuant to Section 77 of the Mining Act. . . . These
pronouncements did not undo or abandon the distinction, clarified in Gonzales, between judicial questions and mining disputes." 1 1
The crux of this case relates to a matter that is beyond the competence of the DENR Panel of Arbitrators. It does not pertain to
the intricacies and speci cations of mining operations. Rather, it pertains to the legal status of petitioners and the rights or
inhibitions accruing to them on account of their status. It pertains to a judicial question.
II
On the applicability of the Grandfather Rule
I maintain the position I elucidated in my Dissent to the April 21, 2014 Decision. The Control Test, rather than the Grandfather
Rule, finds priority application in reckoning the nationalities of corporations engaged in nationalized economic activities.
The Grandfather Rule nds no basis in the text of the 1987 Constitution. It is true that the records of the Constitutional
Commission "indicate an a rmative reference to the Grandfather Rule." 1 2 However, whatever references these records make to the
Grandfather Rule is not indicative of a consensus among all members of the Constitutional Commission. At most, these references
are advisory and not binding on this court. 1 3 Ultimately, what is controlling is the text of the Constitution itself. This text is silent on
the precise means of reckoning foreign ownership.
In contrast, the Control Test is rmly enshrined by congressional dictum in a statute, speci cally, Republic Act No. 8179,
otherwise known as the Foreign Investments Act (FIA). As this court has pointed out, "[t]he FIA is the basic law governing foreign
investments in the Philippines, irrespective of the nature of business and area of investment." 1 4
Section 3 (a) of the Foreign Investments Act de nes a "Philippine national" as including "a corporation organized under the
laws of the Philippines of which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held
by citizens of the Philippines." In my Dissent to the April 21, 2014 Decision:
This is a definition that is consistent with the first part of paragraph 7 of the 1967 SEC Rules, which [originally articulated] the
Control Test: "[s]hares belonging to corporations or partnerships at least 60 per cent of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality." 1 5
The Control Test serves the rationale for nationalization of economic activities. It ensures effective control by Filipinos and
satisfies the requirement of beneficial ownership.
On the matter of control, my Dissent to the April 21, 2014 Decision explained that:
It is a matter of transitivity 1 6 that if Filipino stockholders control a corporation which, in turn, controls another
corporation, then the Filipino stockholders control the latter corporation, albeit indirectly or through the former corporation.
An illustration is apt.
Suppose that a corporation, "C", is engaged in a nationalized activity requiring that 60% of its capital be owned by
Filipinos and that this 60% is owned by another corporation, "B", while the remaining 40% is owned by stockholders, collectively
referred to as "Y". Y is composed entirely of foreign nationals. As for B, 60% of its capital is owned by stockholders collectively
referred to as "A", while the remaining 40% is owned by stockholders collectively referred to as "X". The collective A, is
composed entirely of Philippine nationals, while the collective X is composed entirely of foreign nationals. (N.b., in this
illustration, capital is understood to mean "shares of stock entitled to vote in the election of directors," per the de nition in
Gamboa). 1 7 Thus:
[image]
By owning 60% of B's capital, A controls B. Likewise, by owning 60% of C's capital, B controls C. From this, it follows, as
a matter of transitivity, that A controls C; albeit indirectly, that is, through B.
This "control" holds true regardless of the aggregate foreign capital in B and C. As explained in Gamboa, control by
stockholders is a matter resting on the ability to vote in the election of directors:
Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation. This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation. 1 8
B will not be outvoted by Y in matters relating to C, while A will not be outvoted by X in matters relating to B. Since all
actions taken by B must necessarily be in conformity with the will of A, anything that B does in relation to C is, in effect, in
conformity with the will of A. No amount of aggregating the foreign capital in B and C will enable X to outvote A, nor Y to
outvote B.
In effect, A controls C, through B. Stated otherwise, the collective Filipinos in A, effectively control C, through their control
of B. 1 9
From the de nition of "bene cial owner or bene cial ownership" provided by the Implementing Rules and Regulations
(amended 2004) of Republic Act No. 8799, otherwise known as the Securities Regulation Code, "there are two (2) ways through
which one may be a bene cial owner of securities, such as shares of stock: rst, by having or sharing voting power; and second, by
having or sharing investment returns or power." 2 0 The Implementing Rules use "and/or"; thus, these are alternative means which may
or may not concur.
On the first — voting power — my Dissent to the April 21, 2014 Decision pointed out that:
Voting power, as discussed previously, ultimately rests on the controlling stockholders of the controlling investor
corporation. To go back to the previous illustration, voting power ultimately rests on A, it having the voting power in B which, in
turn, has the voting power in C. 2 1
On the second — investment returns or power — the same Dissent pointed out that:
As to investment returns or power, it is ultimately A which enjoys investment power. It controls B's investment decisions
— including the disposition of securities held by B — and (again, through B) controls C's investment decisions.
Similarly, it is ultimately A which bene ts from investment returns generated through C. Any income generated by C
redounds to B's bene t, that is, through income obtained from C, B gains funds or assets which it can use either to nance
itself in respect of capital and/or operations. This is a direct bene t to B, itself a Philippine national. This is also an indirect
bene t to A, a collectivity of Philippine nationals, as then, its business — B — not only becomes more viable as a going concern
but also becomes equipped to funnel income to A.
Moreover, bene cial ownership need not be direct. A controlling shareholder is deemed the indirect bene cial owner of
securities (e.g., shares) held by a corporation of which he or she is a controlling shareholder. Thus, in the previous illustration,
A, the controlling shareholder of B, is the indirect beneficial owner of the shares in C to the extent that they are held by B. 2 2
However, 60 percent equity ownership is but a minimum. It is in this regard that the Dissent to the April 21, 2014 Decision
recognized that the Grandfather Rule properly finds application as a "supplement" to the Control Test:
Bare ownership of 60% of a corporation's shares would not su ce. What is necessary is such ownership as will
ensure control of a corporation.
In Gamboa, "[f]ull bene cial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required." 2 3 With this in mind, the Grandfather Rule may be used as a supplement to the Control
Test, that is, as a further check to ensure that control and bene cial ownership of a corporation is in fact
lodged in Filipinos.
For instance, Department of Justice Opinion No. 165, series of 1984, identi ed the following "signi cant indicators" or
badges of "dummy status":
1. That the foreign investor provides practically all the funds for the joint investment undertaken by Filipino
businessmen and their foreign partner[;]
2. That the foreign investors undertake to provide practically all the technological support for the joint venture[; and]
3. That the foreign investors, while being minority stockholders, manage the company and prepare all economic viability
studies. 2 4
In instances where methods are employed to disable Filipinos from exercising control and reaping the economic
bene ts of an enterprise, the ostensible control vested by ownership of 60% of a corporation's capital may be pierced. Then,
the Grandfather Rule allows for a further, more exacting examination of who actually controls and bene ts from holding such
capital. 2 5
The majority's Resolution denying the present Motion for Reconsideration recognizes that the Grandfather Rule alone does not
su ce for reckoning Filipino and foreign equity ownership in corporations engaged in nationalized economic activities. The majority
echoes the characterization of the applicability of the Grandfather Rule as only supplementary 2 6 and explains:
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and control in a
corporation, as it could result to an otherwise foreign corporation rendered quali ed to perform nationalized or partly
nationalized activities. Hence, it is only when the Control Test is rst 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 need to 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 doubt as to who has the "bene cial ownership" and "control" of
the corporation. In that instance, there is no need for a 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 is apparently met by the subject or investee corporation, a resort to the
Grandfather Rule is necessary if doubt exists as to the locus of the "beneficial ownership" and "control." 2 7
III
Proceeding from the actions of the DENR Panel of Arbitrators is improper
Following the above-quoted portion in its discussion, the majority states that "[i]n this case, a further investigation as to the
nationality of the personalities with the bene cial ownership and control of the corporate shareholders in both the investing and
investee corporations is necessary." 2 8
The majority then proceeds to an analysis of the equity structures of petitioners. The analysis notes that 59.97% of Narra's
10,000 shares 2 9 is held by Patricia Louise Mining and Development Corporation (Patricia Louise), 65.96% of whose shares is, in turn,
held by Palawan Alpha South Resources Development Corporation (PASRDC). It adds that 59.97% of Tesoro's 10,000 common
shares is held by Sara Marie Mining, Inc. (Sara Marie), a Filipino corporation, 66.63% of whose shares is, in turn, held by Olympic
Mines and Development Corporation (Olympic), another Filipino corporation. Finally, 59.97% of McArthur's 10,000 common shares is
held by Madridejos Mining Corporation (Madridejos), a Filipino corporation, 66.63% of whose shares is, in turn, held by Olympic.
The majority also notes that 39.98% of Narra's shares is held by Canadian corporation MBMI Resources, Inc. (MBMI), while
39.98% of Tesoro's and McArthur's common shares is held by MBMI. 3 0 It adds that in the case of the majority shareholder of Narra
(i.e., Patricia Louise), 33.96% of its shares is owned by MBMI, while in the cases of the respective majority shareholders of Tesoro
and McArthur (i.e., Sara Marie, and Madridejos, respectively), 33.31% of their shares is held by MBMI.
The respective Filipino majority shareholders of Patricia Louise, Sara Marie, and Madridejos (i.e., PASRDC in the case of
Patricia Louise, and Olympic in the cases of Sara Marie and Madridejos) did not pay for shares. Instead, MBMI paid for their
respective paid-up capital. The majority concludes, applying the Grandfather Rule, that a foreign corporation — MBMI — breached the
permissible maximum of 40% foreign equity participation in the three (3) petitioner corporations and that petitioners are foreign
corporations not entitled to mineral production sharing agreements.
My Dissent to the April 21, 2014 Decision noted the inadequacy of relying merely on the denomination of shares as common
or preferred:
Proceeding from the ndings of the Court of Appeals in its October 1, 2010 decision in CA-G.R. SP No. 109703, it
appears that at least 60% of equities in Narra, Tesoro, and McArthur is owned by Philippine nationals. Per this initial analysis,
Narra, Tesoro, and McArthur ostensibly satisfy the requirements of the Control Test in order that they may be deemed Filipino
corporations.
Attention must be drawn to how these ndings fail to indicate which (fractional) portion of these equities consist of
"shares of stock entitled to vote in the election of directors" or, if there is even any such portion of shares which are not entitled
to vote. These ndings fail to indicate any distinction between common shares and preferred shares (not entitled to vote).
Absent a basis for reckoning non-voting shares, there is, thus, no basis for diminishing the 60% Filipino equity holding in Narra,
Tesoro, and McArthur and undermining their having ostensibly satis ed the requirements of the Control Test in order to be
deemed Filipino corporations qualified to enter into MPSAs. 3 1
It is the majority's position that the mere reckoning of how shares are denominated — whether common or preferred —
su ces. I, however, proffer an analysis that requires looking into the actual voting rights vested on each class of shares. While it is
true that preferred shares are generally viewed as non-voting shares, a conclusion that the preferred shares involved in this case are
totally bereft of voting rights is not warranted by a cursory consideration of how they are denominated.
The same Dissent conceded that a "more thorough consideration . . . could yield an entirely different conclusion." 3 2 This is
what the majority endeavors to embark on. However, it is improper to proceed, as the majority does, from the action of a body
without competence and jurisdiction as well as the imprudent acts of forum shopping of Redmont, and, in the process, lend
legitimacy to the DENR Panel of Arbitrators' and Redmont's illicit actions:
Having made these observations, it should not be discounted that a more thorough consideration — as has been
intimated in the earlier disquisition regarding how 60% Filipino equity ownership is but a minimum and how the Grandfather
Rule may be applied to further examine actual Filipino ownership — could yield an entirely different conclusion. In fact,
Redmont has asserted that such a situation avails.
However, the contingencies of this case must restrain the court's consideration of Redmont's claims.
Redmont sought relief from a body without jurisdiction — the Panel of Arbitrators — and has engaged in blatant
forum shopping. It has taken liberties with and ran amok of rules that de ne fair play. It is, therefore, bound by
its lapses and indiscretions and must bear the consequences of its imprudence. 3 3
IV
Redmont engaged in blatant forum shopping
It would be remiss of this court to overlook Redmont's acts of forum shopping. To do so would enable Redmont to pro t from
its own imprudence and for this court to countenance a manifest disrespect for courts and quasi-judicial bodies. As extensively
discussed in my Dissent to the April 21, 2014 Decision:
Redmont has taken at least four (4) distinct routes all seeking substantially the same remedy. Stripped of their verbosity
and legalese, Redmont's petitions before the DENR Panel of Arbitrators, complaint before the Regional Trial Court, complaint
before the Securities and Exchange Commission, and petition before the O ce of the President all seek to prevent Narra,
Tesoro, and McArthur as well as their co-respondents and/or co-defendants from engaging in mining operations. Moreover,
these are all grounded on the same cause (i.e., that they are disquali ed from doing so because they fail to satisfy the requisite
Filipino equity ownership) and premised on the same facts or circumstances.
Redmont has created a situation where multiple tribunals must rule on the extent to which the parties adverse to
Redmont have met the requisite Filipino equity ownership. It is certainly possible that con icting decisions will be issued by the
various tribunals over which Redmont's various applications for relief have been lodged. It is, thus, glaring that the very evil
sought to be prevented by the rule against forum shopping is being foisted by Redmont.
xxx xxx xxx
It strains credulity to accept that Redmont's actions have not been willful. By ling petitions with the DENR Panel of
Arbitrators, Redmont started the entire series of events that have culminated in: rst, the present petition; second, the de-
consolidated G.R. No. 205513; and third, at least one (1) more petition filed with this court. 3 4
Following the adverse decision of the Panel of Arbitrators, Narra, Tesoro, and McArthur pursued appeals before the
Mines Adjudication Board. This is all but a logical consequence of the POA's adverse decision. While the appeal before the
MAB was pending, Redmont led a complaint with the SEC and then led a complaint with the Regional Trial Court to enjoin
the MAB from proceeding. Redmont seems to have conveniently forgotten that it was its own actions that gave rise to the
proceedings before the MAB in the rst place. Moreover, even as all these were pending and in various stages of appeal and/or
review, Redmont still filed a petition before the Office of the President.
Consistent with Rule 7, Section 5 of the 1997 Rules of Civil Procedure, the actions subject of these consolidated
petitions must be dismissed with prejudice. 3 5
Apart from the Petition subject of the present Motion for Reconsideration, two (2) other cases involving the same parties are
now pending with this court. The rst, G.R. No. 205513, relates to a Complaint for Revocation of the certi cates of registration of
Narra, Tesoro, and McArthur led by Redmont with the Securities and Exchange Commission. G.R. No. 205513 was consolidated but
later de-consolidated with this case. The second is a case pending with this court's First Division. This relates to the Petition led by
Redmont with the O ce of the President in which it sought the cancellation of the nancial or technical assistance agreement
(FTAA) applications of Narra, Tesoro, and McArthur.
That there are now three (3) simultaneously pending Petitions with this court is the result of Redmont's contemporaneously
having sought remedies from:
1. The DENR Panel of Arbitrators;
2. The Securities and Exchange Commission;
3. The Regional Trial Court, Quezon City; and
4. The Office of the President.
While this and the two other cases pending with this court diverge as to the procedural routes they have taken, they all boil
down to the central issue of the nationalities of Narra, Tesoro and McArthur. It is manifest that Redmont engaged in blatant forum
shopping. The April 21, 2014 Decision effectively rewarded Redmont's abuse of court processes. Worse, maintaining the status quo
of having a multiplicity of cases reinforces the stance of leaving Redmont to reap the benefits of its unconscionable scheme.
ACCORDINGLY , I vote to grant the Motion for Reconsideration. I reiterate my vote to GRANT the Petition for Review on
Certiorari subject of G.R. No. 195580. The assailed Decision dated October 1, 2010 and the assailed Resolution dated February 15,
2011 of the Court of Appeals Seventh Division in CA-G.R. SP No. 109703, which reversed and set aside the September 10, 2008 and
July l, 2009 Orders of the Mines Adjudication Board, should be SET ASIDE and DECLARED NULL AND VOID . The September 10,
2008 Order of the Mines Adjudication Board dismissing the Petitions led by Redmont Consolidated Mines with the DENR Panel of
Arbitrators must be REINSTATED.
Footnotes
1. Province of North Cotabato v. Government of the Republic of the Philippines Peace Panel on Ancestral Domain (GRP), G.R. No. 183591,
October 14, 2008, 568 SCRA 402, 460.
2. David v. Macapagal-Arroyo, G.R. No. 171396, etc., May 3, 2006, 489 SCRA 160; citing Province of Batangas v. Romulo, G.R. No. 152774,
May 27, 2004, 429 SCRA 736; Lacson v. Perez, 410 Phil. 78 (2001); Albaña v. Comelec, 478 Phil. 941 (2004); Chief Supt. Acop v.
Guingona, Jr., 433 Phil. 62 (2002); SANLAKAS v. Executive Secretary Reyes, 466 Phil. 482 (2004).
3. Republic Act No. (RA) 7942, effective April 14, 1995.
4. Villanueva, Cesar Lapuz, Philippine Corporate Law (2001), p. 54. Emphasis and italicization supplied.
5. SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange or
through Initial Public Offering. —
(B) Tax on Shares of Stock Sold or Exchanged Through Initial Public Offering. — There shall be levied, assessed and collected on every sale,
barter, exchange or other disposition through initial public offering of shares of stock in closely held corporations, as defined herein, a
tax at the rates provided hereunder based on the gross selling price or gross value in money of the shares of stock sold, bartered,
exchanged or otherwise disposed in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise
disposed to the total outstanding shares of stock after the listing in the local stock exchange:
xxx xxx xxx
For purposes of this Section, the term 'closely held corporation' means any corporation at least fifty percent (50%) in value of the
outstanding capital stock of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20)
individuals.
For purposes of determining whether the corporation is a closely held corporation, insofar as such determination is based on stock
ownership, the following rules shall be applied:
(1) Stock not Owned by Individuals. — Stock owned directly or indirectly by or for a corporation, partnership, estate or trust
shall be considered as being owned proportionately by its shareholders, partners or beneficiaries . . . .
6. Sec. 96. Definition and applicability of Title. —
A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1) All the corporation's issued
stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not
exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted
by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3)
of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation
within the meaning of this Code.
Any corporation may be incorporated as a close corporation, except mining or oil companies, stock exchanges, banks, insurance
companies, public utilities, educational institutions and corporations declared to be vested with public interest in accordance with the
provisions of this Code.
7. Dated December 17, 2010; emphasis supplied. See also BIR Ruling Nos. 072-97, July 2, 1997 and 055-81, March 23, 1981.
8. SEC En Banc Case No. 09-09-177, March 25, 2010.
9. Dated April 26, 1988.
10. G.R. No. 176579, October 9, 2012.
11. G.R. Nos. 175418-20, December 5, 2012.

12. See SEC-OGC Opinion No. 03-08 dated 15 January 2008.
13. SEC En Banc Case No. 07-10-205, November 25, 2010.
14. Villanueva, Cesar Lapuz. Philippine Corporate Law (2001), p. 54.

15. No. L-14441, December 17, 1966, 18 SCRA 924.

22. Dissenting Opinion, p. 41.
23. Otherwise known as the "Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the Constitution
and/or Existing Laws by Corporations Engaged in Nationalized and Partly Nationalized Activities," dated May 20, 2013 and Published
on May 22, 2013.
24. 492 Phil. 682 (2005).

25. 150 Phil. 547 (1972).
26. Section 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have exclusive and original
jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas;
(b) Disputes involving mineral agreements or permits.

27. 565 Phil. 466 (2007). The Court held: "The phrase 'disputes involving rights to mining areas' refers to any adverse claim, protest, or
opposition to an application for mineral agreement. The POA therefore has the jurisdiction to resolve any adverse claim, protest, or
opposition to a pending application for a mineral agreement filed with the concerned Regional Office of the MGB. This is clear from
Secs. 38 and 41 of the DENR A 96-40 . . . ."
LEONEN, J., dissenting opinion:

1. Narra Nickel v. Redmont, G.R. No. 195580, April 21, 2014, 12 [Per J. Velasco, Jr., Special Third Division Resolution].
2. J. Leonen, dissenting opinion in Narra Nickel v. Redmont, G.R. No. 195580, April 21, 2014,
<http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580_leonen.pdf>, [Per J. Velasco, Jr., Third
Division].
3. 565 Phil. 466 (2007) [Per J. Velasco, Jr., Second Division].
4. Id. at 499.
5. 492 Phil. 682 (2005) [Per J. Tinga, Second Division].
6. 150 Phil. 547 (1972) [Per J. J.B.L. Reyes, En Banc].

7. 492 Phil. 682 (2005) [Per J. Tinga, Second Division].
8. Id. at 692-693, as cited in J. Leonen, dissenting opinion in Narra Nickel v. Redmont, G.R. No. 195580, April 21, 2014,
<http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580_leonen.pdf> 10-11 [Per J. Velasco, Jr.,
Third Division].
9. 150 Phil. 547 (1972) [Per J. Reyes, J.B.L., En Banc].
10. Id. at 553-554, as cited in J. Leonen, dissenting opinion in Narra Nickel v. Redmont, G.R. No. 195580, April 21, 2014,
<http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580_leonen.pdf> 11 [Per J. Velasco, Jr.,
Third Division].
Third Division].
12. Id. at 34.
13. To reiterate what I stated in my dissent in Narra Nickel v. Redmont, G.R. No. 195580, April 21, 2014,
Third Division]:
In the final analysis, the records of the Constitutional Commission do not bind this court. As Charles P. Curtis, Jr. said on the role of history
in constitutional exegesis:
The intention of the framers of the Constitution, even assuming we could discover what it was, when it is not adequately expressed in the
Constitution, that is to say, what they meant when they did not say it, surely that has no binding force upon us. If we look behind or
beyond what they set down in the document, prying into what else they wrote and what they said, anything we may find is only
advisory. They may sit in at our councils. There is no reason why we should eavesdrop on theirs.
14. Gamboa v. Teves, G.R. No. 176579, October 9, 2012, 682 SCRA 397, 435 [Per J. Carpio, En Banc].
Third Division].
16. I.e., "([o]f a relation) such that, if it applies between successive members of a sequence, it must also apply between any two members
taken in order. For instance, if A is larger than B, and B is larger than C, then A is larger than C"
<http://www.oxforddictionaries.com/us/definition/american_english/transitive>.
17. Gamboa v. Teves, G.R. No. 176579, June 28, 2011, 652 SCRA 690, 723 and 726 [Per J. Carpio, En Banc] as cited in J. Leonen, dissenting
opinion in Narra Nickel v. Redmont, G.R. No. 195580, April 21, 2014, <http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580_leonen.pdf> [Per J. Velasco, Jr., Third Division].
18. Id. at 725.
Third Division].
20. Id. at 43-44.
21. Id. at 44.
22. Id.
23. Gamboa v. Teves, G.R. No. 176579, June 28, 2011, 652 SCRA 690, 730 [Per J. Carpio, En Banc], as cited in J. Leonen, dissenting opinion
in Narra Nickel v. Redmont, G.R. No. 195580, April 21, 2014, <http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580_leonen.pdf> 46 [Per J. Velasco, Jr., Third Division].
24. Sec. of Justice Op. No. 165, s. 1984, as cited in J. Leonen, dissenting opinion in Narra Nickel v. Redmont, G.R. No. 195580, April 21, 2014,
Third Division].
Third Division].
26. Id.
27. Narra Nickel v. Redmont, G.R. No. 195580, April 21, 2014, 12 [Per J. Velasco, Jr., Special Third Division Resolution]. Emphasis and
underscoring from the original, citation omitted.
28. Id.
29. The majority's Resolution fails to specify if these are all common shares.
30. The majority's Resolution also fails to specify if these are all common shares.
Third Division].
32. Id. at 52.
33. Id.
34. Arising from Redmont's Petition with the Office of the President.
35. Id. at 53-55.

SECOND DIVISION
[G.R. No. L-2294. May 25, 1951.]
FILIPINAS COMPAÑIA DE SEGUROS , petitioner, vs . CHRISTERN,

HUENEFELD & CO., INC. , respondent.
Ramirez & Ortigas for petitioner.

Ewald Huenefeld for respondent.
SYLLABUS
1. CORPORATIONS; NATIONALITY OF PRIVATE CORPORATION; CONTROL TEST.

— The nationality of a private corporation is determined by the character or citizenship
of its controlling stockholders.
2. ID.; ID.; ID.; INTERNATIONAL LAW; EFFECT OF WAR. — Where majority of the
stockholders of a corporation were German subjects, the corporation became an
enemy corporation upon the outbreak of the war between the United States and
Germany.
3. INSURANCE; TERMINATION OF POLICY OF PUBLIC ENEMY. — As the
Philippine Insurance Law (Act No. 2427, as amended), in its section 8, provides that
"anyone except a public enemy may be insured," an insurance policy ceases to be
allowable as soon as an insured becomes a public enemy.
4. ID.; ID.; RETURN OF PREMIUMS UPON TERMINATION OF POLICY BY REASON
OF WAR. — Where an insurance policy ceases to be effective by reason of war, which
has made the insured an enemy, the premiums paid for the period covered by the policy
from the date war is declared, should be returned.
DECISION
PARAS , C. J : p
On October 1, 1941, the respondent corporation, Christern, Huenefeld & Co., Inc.,
after payment of corresponding premium, obtained from the petitioner, Filipinas Cia. de
Seguros, re policy No. 29333 in the sum of P100,000, covering merchandise
contained in a building located at No. 711 Roman Street, Binondo, Manila. On February
27, 1942, or during the Japanese military occupation, the building and insured
merchandise were burned. In due time the respondent submitted to the petitioner its
claim under the policy. The salvaged goods were sold at public auction and, after
deducting their value, the total loss suffered by the respondent was xed at P92,650.
The petitioner refused to pay the claim on the ground that the policy in favor of the
respondent had ceased to be in force on the date the United States declared war
against Germany, the respondent corporation (though organized under and by virtue of
the laws of the Philippines) being controlled by German subjects and the petitioner
being a company under American jurisdiction when said policy was issued on October
1, 1941. The petitioner, however, in pursuance of the order of the Director of the Bureau
of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the
respondent the sum of P92,650 on April 19, 1943.
The present action was led on August 6, 1946, in the Court of First Instance of
Manila for the purpose of recovering from the respondent the sum of P92,650 above
mentioned. The theory of the petitioner is that the insured merchandise were burned
after the policy issued in 1941 in favor of the respondent corporation had ceased to be
effective because of the outbreak of the war between the United States and Germany
on December 10, 1941, and that the payment made by the petitioner to the respondent
corporation during the Japanese military occupation was under pressure. After trial, the
Court of First Instance of Manila dismissed the action without pronouncement as to
costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance
of Manila was af rmed, with costs. The case is now before us on appeal by certiorari
from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the
respondent corporation became an enemy when the United States declared war
against Germany, relying on English and American cases which held that a corporation
is a citizen of the country or state by and under the laws of which it was created or
organized. It rejected the theory that the nationality of a private corporation is
determined by the character or citizenship of its controlling stockholders.
There is no question that majority of the stockholders of the respondent
corporation were German subjects. This being so, we have to rule that said respondent
became an enemy corporation upon the outbreak of the war between the United States
and Germany. The English and American cases relied upon by the Court of Appeals
have lost their force in view of the latest decision of the Supreme Court of the United
States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law.
Ed. Advance Opinions, No. 4, pp. 148-153, in which the control test has been adopted.
In "Enemy Corporations" by Martin Domke, a paper presented to the Second
International Conference of the Legal Profession held at The Hague (Netherlands) in
August, 1948, the following enlightening passages appear:
"Since World War I, the determination of enemy nationality of corporations
has been discussed in many countries, belligerent and neutral. A corporation was
subject to enemy legislation when it was controlled by enemies, namely managed
under the in uence of individuals or corporations themselves considered as
enemies. It was the English courts which rst in the Daimler case applied this new
concept of "piercing the corporate veil', which was adopted by the Peace Treaties
of 1919 and the Mixed Arbitral Tribunals established after the First World War.
"The United States of America did not adopt the control test during the First
World War. Courts refused to recognize the concept whereby American-registered
corporations could be considered as enemies and thus subject to domestic
legislation and administrative measures regarding enemy property.
"World War II revived the problem again. It was known that German and
other enemy interests were cloaked by domestic corporation structure. It was not
only by legal ownership of shares that a material in uence could be exercised on
the management of the corporation but also by long-term loans and other factual
situations. For that reason, legislation on enemy property enacted in various
countries during World War II adopted by statutory provisions the control test and
determined, to various degrees, the incidents of control. Court decisions were
rendered on the basis of such newly enacted statutory provisions in determining
enemy character of domestic corporation.
"The United States did not, in the amendments of the Trading with the
Enemy Act during the last war, include as did other legislations, the application of
the control test and again, as in World War I, courts refused to apply this concept
whereby the enemy character of an American or neutral-registered corporation is
determined by the enemy nationality of the controlling stockholders.
"Measures of blocking foreign funds, the so called freezing regulations,
and other administrative practice in the treatment of foreign-owned property in the
United States allowed to a large degree the determination of enemy interests in
domestic corporations and thus the application of the control test. Court
decisions sanctioned such administrative practice enacted under the First War
Powers Act of 1941, and more recently, on December 8, 1947, the Supreme Court
of the United States de nitely approved of the control theory. In Clark vs.
Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly
controlled by German interests, the Court said: 'The property of all foreign interest
was placed within the reach of the vesting power (of the Alien Property
Custodian) not to appropriate friendly or neutral assets but to reach enemy
interests which masqueraded under those innocent fronts. . . . The power of
seizure and vesting was extended to all property of any foreign country or
national so that no innocent appearing device could become a Trojan horse.'"
It becomes unnecessary, therefore, to dwell at length on the authorities cited in
support of the appealed decision. However, we may add that, in Haw Pia vs. China
Banking Corporation, * 45 Off. Gaz., (Supp. 9) 229, we already held that the China
Banking Corporation came within the meaning of the word "enemy" as used in the
Trading with the Enemy Acts of civilized countries not only because it was incorporated
under the laws of an enemy country but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended), in section 8, provides
that "anyone except a public enemy may be insured." It stands to reason that an
insurance policy ceases to be allowable as soon as an insured becomes a public
enemy.
"Effect of war, generally . — All intercourse between citizens of belligerent
powers which is inconsistent with a state of war is prohibited by the law of
nations. Such prohibition includes all negotiations, commerce, or trading with the
enemy; all acts which will increase, or tend to increase, its income or resources; all
acts of voluntary submission to it; or of receiving its protection; also, all acts
concerning the transmission of money or goods; and all contracts relating thereto
are thereby nulli ed. It further prohibits insurance upon trade with or by the
enemy, and upon the life or lives of aliens engaged in service with the enemy; this
for the reason that the subjects of one country cannot be permitted to lend their
assistance to protect by insurance the commerce or property of belligerent, alien
subjects, or to do anything detrimental to their country's interest. The purpose of
war is to cripple the power and exhaust the resources of the enemy, and it is
inconsistent that one country should destroy its enemy's property and repay in
insurances the value of what has been so destroyed, or that it should in such
manner increase the resources of the enemy, or render it aid, and the
commencement of war determines, for like reasons, all trading intercourse with
the enemy, which prior thereto may have been lawful. All individuals, therefore,
who compose the belligerent powers, exist, as to each other, in a state of utter
exclusion, and are public enemies." (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)

"In the case of an ordinary re policy, which grants insurance only from
year to year, or for some other speci ed term it is plain that when the parties
become alien enemies, the contractual tie is broken and the contractual rights of
the parties, so far as not vested, lost." (Vance, the Law on Insurance, Sec. 44, p.
112.)
The respondent having become an enemy corporation on December 10, 1941,
the insurance policy issued in its favor on October 1, 1941, by the petitioner (a
Philippine corporation) had ceased to be valid and enforceable, and since the insured
goods were burned after December 10, 1941, and during the war, the respondent was
not entitled to any indemnity under said policy from the petitioner. However, elementary
rules of justice (in the absence of speci c provision in the Insurance Law) require that
the premium paid by the respondent for the period covered by its policy from
December 11, 1941, should be returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on
the question of whether the policy in question became null and void upon the
declaration of war between the United States and Germany on December 10, 1941, and
its judgment in favor of the respondent corporation was predicated on its conclusion
that the policy did not cease to be in force. The Court of Appeals necessarily assumed
that, even if the payment by the petitioner to the respondent was involuntary, its action
is not tenable in view of the ruling on the validity of the policy. As a matter of fact, the
Court of Appeals held that "any intimidation resorted to by the appellee was not unjust
but the exercise of its lawful right to claim for and receive the payment of the insurance
policy," and that the ruling of the Bureau of Financing to the effect that "the appellee
was entitled to payment from the appellant, was well founded." Factually, there can be
no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay
the claim of the respondent, merely obeyed the instructions of the Japanese Military
Administration, as may be seen from the following: "In view of the ndings and
conclusion of this of ce contained in its decision on Administrative Case dated
February 9, 1943 copy of which was sent to your of ce and the concurrence therein of
the Financial Department of the Japanese Military Administration, and following the
instructions of said authority, you are hereby ordered to pay the claim of Messrs.
Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by
means of crossed check." (Italics supplied.).
It results that the petitioner is entitled to recover what was paid to the
respondent under the circumstances of this case. However, the petitioner will be
entitled to recover only the equivalent, in actual Philippine currency, of P92,650 paid on
April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent
corporation is ordered to pay to the petitioner the sum of P77,208.39, Philippine
currency, less the amount of the premium, in Philippine currency, that should be
returned by the petitioner for the unexpired term of the policy in question, beginning
December 11, 1941. Without costs. So ordered.
Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo, JJ.,
concur.
Footnotes
* 80 Phil., 604.
SECOND DIVISION
[G.R. No. 97642. August 29, 1997.]
AVON INSURANCE PLC, BRITISH RESERVE INSURANCE CO. LTD.,

CORNHILL INSURANCE PLC, IMPERIO REINSURANCE CO. (UK) LTD.,
INSTITUTE DE RESERGURROS DO BRAZIL, INSURANCE
CORPORATION OF IRELAND PLC, LEGAL AND GENERAL
ASSURANCE SOCIETY LTD., PROVINCIAL INSURANCE PLC, QBL
INSURANCE (UK) LTD., ROYAL INSURANCE CO. LTD., TRINITY
INSURANCE CO. LTD., GENERAL ACCIDENT FIRE AND LIFE
ASSURANCE CORP. LTD., COOPERATIVE INSURANCE SOCIETY and
PEARL ASSURANCE CO. LTD. , petitioners, vs . COURT OF APPEALS,
REGIONAL TRIAL COURT OF MANILA, BRANCH 51, YUPANGCO
COTTON MILLS, WORLDWIDE SURETY & INSURANCE CO., INC. ,
respondents.
Syquia Law Offices for petitioners.

O.F. Santos & P.C. Nolasco for Yupangco Cotton Mills.
Ricardo E. Reyes for World-Wide Insurance & Surety.
SYNOPSIS
This is a petition for certiorari led by herein petitioners questioning the decision
of respondent Court of Appeals dated October 11, 1990 nding that the summons
were properly served to petitioners and whatever defects, if any, in the service of
summons were cured by their voluntary appearance in the lower court, via a motion to
dismiss. It appears in the records of the case that it all started when private respondent
led a collection suit against herein petitioners being the reinsurers of the property
owned by private respondents. Petitioners, by way of a motion to dismiss, questioned
the jurisdiction of the lower court alleging that being a foreign company not doing
business in the Philippines, the court did not acquire jurisdiction on its person, even
though the summons where served to the insurance commissioner. The lower court
denied the motion. Thereafter, petitioner led a petition to the Court of Appeals but
likewise respondent court denied the petition. Henceforth, petitioner brought the
matter to the Supreme Court. In its petition, herein petitioners maintained that the trial
court's jurisdiction does not extend to them, since they are foreign reinsurance
companies that are not doing business in the Philippines. Moreover, petitioners assert
that since the complaint for sum of money led by private respondent was a personal
action not affecting status or relating to property, extraterritorial service of summons
on petitioners — all not doing business in the Philippines is null and void.
The Honorable Supreme Court ruled that there is no su cient basis in the
records which would merit the institution of this collection suit in the Philippines. More
speci cally, there is nothing to substantiate the private respondent's submission that
petitioners had engaged in business activities in this country. This is not an instance
where the erroneous service of summons upon the defendant can be cured by the
issuance and service of alias summons, as in the absence of showing that petitioners
had been doing business in the country, they cannot be summoned to answer for the
charges leveled against them. Moreover, the fact that herein petitioners voluntarily
appeared in the lower court does not mean that they voluntarily submitted to the
jurisdiction of the court because petitioners, from time to time led their motion to
dismiss, their submissions have been consistently and unfailingly to object to the trial
court's assumption of jurisdiction, anchored on the fact that they are all foreign
corporations not doing business in the Philippines. Accordingly, the decision appealed
from is set aside and the petition is hereby granted.
SYLLABUS
1.COMMERCIAL LAW; OMNIBUS INVESTMENTS CODE OF 1987; DOING OR

ENGAGING IN OR TRANSACTING BUSINESS IN THE PHILIPPINES; CONSTRUED. — In
Communication Materials and Design, Inc. et. al. vs. Court of Appeals, G.R. No. 102223,
August 22, 1996, it was observed that: "There is no exact rule or governing principle as
to what constitutes doing or engaging in or transacting business. Indeed, such case
must be judged in the light of its peculiar circumstances, upon its peculiar facts and
upon the language of the statute applicable. The true test, however, seems to be
whether the foreign corporation is continuing the body or substance of the business or
enterprise for which it was organized. Article 44 of the Omnibus Investments Code of
1987 de nes the phrase to include: 'soliciting orders, purchases, service contracts,
opening o ces, whether called 'liaison' o ces or branches; appointing representatives
or distributors who are domiciled in the Philippines or who in any calendar year stay in
the Philippines for a period or periods totaling one hundred eighty (180) days or more;
participating in the management, supervision or control of any domestic business rm,
entity or corporation in the Philippines, and any other act or acts that imply a continuity
or commercial dealings or arrangements and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of the purpose and
object of the business organization.'" The term ordinarily implies a continuity of
commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of the functions normally incident to and
in progressive prosecution of the purpose and object of its organization. A single act or
transaction made in the Philippines, however, could qualify a foreign corporation to be
doing business in the Philippines, if such singular act is not merely incidental or casual,
but indicates the foreign corporation's intention to do business in the Philippines. HECTaA
2.ID.; CORPORATION CODE; FOREIGN CORPORATION; STATUS THEREOF,

CONSTRUED. — A foreign corporation, is one which owes its existence to the laws of
another state, [Section 123, Corporation Code of the Philippines] and generally, has no
legal existence within the state in which it is foreign. In Marshall Wells Co. vs. Elser, No.
22015, September 1, 1924, 46 Phil. 70, it was held that corporations have no legal
status beyond the bounds of the sovereignty by which they are created. Nevertheless, it
is widely accepted that foreign corporations are, by reason of state comity, allowed to
transact business in other states and to sue in the courts of such fora. In the
Philippines foreign corporations are allowed such privileges, subject to certain
restrictions, arising from the state's sovereign right of regulation. Before a foreign
corporation can transact business in the country, it must rst obtain a license to
transact business here [Section 125, 126, Corporation Code of the Philippines] and
secure the proper authorizations under existing law. If a foreign corporation engages in
business activities without the necessary requirements, it opens itself to court actions
against it, but it shall not be allowed to maintain or intervene in an action, suit or
proceeding for its own account in any court or tribunal or agency in the Philippines.
[Section 133, id.]
3.ID.; ID.; ID.; WHEN REQUIRED TO BE LICENSED; RATIONALE. — The purpose of
the law in requiring that foreign corporations doing business in the country be licensed
to do so, is to subject the foreign corporations doing business in the Philippines to the
jurisdiction of the courts, otherwise, a foreign corporation illegally doing business here
because of its refusal or neglect to obtain the required license and authority to do
business may successfully though unfairly plead such neglect or illegal act so as to
avoid service and thereby impugn the jurisdiction of the local courts. The same danger
does not exist among foreign corporations that are indubitably not doing business in
the Philippines. Indeed, if a foreign corporation does not do business here, there would
be no reason for it to be subject to the State's regulation. As we observed, in so far as
the State is concerned, such foreign corporation has no legal existence. Therefore, to
subject such corporation to the courts' jurisdiction would violate the essence of
sovereignty.
4.REMEDIAL LAW; JURISDICTION OVER DEFENDANT WHEN ACQUIRED. — In civil
cases, jurisdiction over the person of the defendant is acquired either by his voluntary
appearance in court and his submission to its authority or by service of summons.
Fundamentally, the service of summons is intended to give o cial notice to the
defendant or respondent that an action has been commenced against it. The defendant
or respondent is thus put on guard as to the demands of the plaintiff as stated in the
complaint. The service of summons upon the defendant becomes an important
element in the operation of a court's jurisdiction upon a party to a suit, as service of
summons upon the defendant is the means by which the court acquires jurisdiction
over his person. Without service of summons, or when summons are improperly made,
both the trial and the judgment, being in violation of due process, are null and void,
unless the defendant waives the service of summons by voluntarily appearing and
answering the suit. The Court is cognizant of the doctrine in Signetics Corp. vs. Court of
Appeals G.R. No. 105141, August 31, 1993, 225 SCRA 737, that for the purpose of
acquiring jurisdiction by way of summons on a defending foreign corporation, there is
no need to prove rst the fact that defendant is doing business in the Philippines. The
plaintiff only has to allege in the complaint that the defendant has an agent in the
Philippines for summons to be validly served thereto, even without prior evidence
advancing such factual allegation.
5.ID.; ID.; MAYBE ACQUIRED THRU VOLUNTARY APPEARANCE; EXCEPTION. —
When defendant voluntarily appears, he is deemed to have submitted himself to the
jurisdiction of the court. This is not, however, always the case. Admittedly, and without
subjecting himself to the court's jurisdiction, the defendant in an action can, by special
appearance object to the court's assumption on the ground of lack of jurisdiction. If he
so wishes to assert this defense, he must do so seasonably by motion for the purpose
of objecting to the jurisdiction of the court, otherwise, he shall be deemed to have
submitted himself to that jurisdiction. In the case of foreign corporations, it has been
held that they may seek relief against the wrongful assumption of jurisdiction by local
courts. In Time, Inc. vs. Reyes, G.R. No. L-28882, May 31, 1971, 39 SCRA 303, it was
held that the action of a court in refusing to rule or deferring its ruling on a motion to
dismiss for lack or excess of jurisdiction is correctable by a writ of prohibition or
certiorari sued out in the appellate court even before trial on the merits is had. The
same remedy is available should the motion to dismiss be denied, and the court, over
the foreign corporation's objections, threatens to impose its jurisdiction upon the
same. If the defendant, besides setting up in a motion to dismiss his objection to the
jurisdiction of the court, alleges at the same time any other ground for dismissing the
action, or seeks an a rmative relief in the motion, he is deemed to have submitted
himself to the jurisdiction of the court. As was consistently held, if the appearance of a
party in a suit is precisely to question the jurisdiction of the said tribunal over the
person of the defendant, then this appearance is not equivalent to service of summons,
nor does it constitute an acquiescence to the court's jurisdiction. TADIHE
DECISION
TORRES , JR. , J : p
Just how far can our courts assert jurisdiction over the persons of foreign
entities being charged with contractual liabilities by residents of the Philippines?
Appealing from the Court of Appeals' October 11, 1990 Decision 1 in CA-G.R. No.
22005, petitioners claim that the trial court's jurisdiction does not extend to them, since
they are foreign reinsurance companies that are not doing business in the Philippines.
Having entered into reinsurance contracts abroad, petitioners are beyond the
jurisdictional ambit of our courts and cannot be served summons through
extraterritorial service, as under Section 17, Rule 14 of the Rules of Court, nor through
the Insurance Commissioner, under Section 14. Private respondent Yupangco Cotton
Mills contends on the other hand that petitioners are within our courts' cognitive
powers, having submitted voluntarily to their jurisdiction by ling motions to dismiss 2
the private respondent's suit below. cdtech
The antecedent facts, as found by the appellate court, are as follows:

"Respondent Yupangco Cotton Mills led a complaint against several
foreign reinsurance companies (among which are petitioners) to collect their
alleged percentage liability under contract treaties between the foreign insurance
companies and the international insurance broker C.J. Boatright, acting as agent
for respondent Worldwide Surety and Insurance Company. Inasmuch as
petitioners are not engaged in business in the Philippines with no o ces, places
of business or agents in the Philippines, the reinsurance treaties having been
entered abroad, service of summons upon motion of respondent Yupangco, was
made upon petitioners through the O ce of the Insurance Commissioner.
Petitioners, by counsel on special appearance, seasonably led motions to
dismiss disputing the jurisdiction of respondent Court and the extra-territorial
service of summons. Respondent Yupangco led its opposition to the motions to
dismiss, petitioners led their reply, and respondent Yupangco led its rejoinder.
In an Order dated April 30, 1990, respondent Court denied the motions to dismiss
and directed petitioners to le their answer. On May 29, 1990, petitioners led
their notice of appeal. In an order dated June 4, 1990, respondent court denied
due course to the appeal." 3
To this day, trial on the merits of the collection suit has not proceeded as in the
present petition, petitioners continue vigorously to dispute the trial court's assumption
of jurisdiction over them.
It will be remembered that in the plaintiff's complaint, 4 it was contended that on
July 6, 1979 and on October 1, 1980, Yupangco Cotton Mills engaged to secure with
Worldwide Security and Insurance Co. Inc., several of its properties for the periods July
6, 1979 to July 6, 1980 as under Policy No. 20719 for a coverage of P100,000,000.00
and from October 1, 1980 to October 1, 1981, under Policy No. 25896, also for
P100,000,000.00. Both contracts were covered by reinsurance treaties between
Worldwide Surety and Insurance and several foreign reinsurance companies, including
the petitioners. The reinsurance arrangements had been made through international
broker C.J. Boatwright and Co. Ltd., acting as agent of Worldwide Surety and Insurance.
As fate would have it, on December 16, 1979 and May 2, 1981, within the
respective effectivity periods of Policies 20719 and 25896, the properties therein
insured were razed by re, thereby giving rise to the obligation of the insurer to
indemnify the Yupangco Cotton Mills. Partial payments were made by Worldwide
Surety and Insurance and some of the reinsurance companies.
On May 2, 1983, Worldwide Surety and Insurance, in a Deed of Assignment,
acknowledged a remaining balance of P19,444,447.75 still due Yupangco Cotton Mills,
and assigned to the latter all reinsurance proceeds still collectible from all the foreign
reinsurance companies. Thus, in its interest as assignee and original insured, Yupangco
Cotton Mills instituted this collection suit against the petitioners.
Service of summons upon the petitioners was made by noti cation to the
Insurance Commissioner, pursuant to Section 14, Rule 14 of the Rules of Court. 5
In a Petition for Certiorari led with the Court of Appeals, petitioners submitted
that respondent Court has no jurisdiction over them, being all foreign corporations not
doing business in the Philippines with no o ce, place of business or agents in the
Philippines. The remedy of Certiorari was resorted to by the petitioners on the premise
that if petitioners had led an answer to the complaint as ordered by the respondent
court, they would risk abandoning the issue of jurisdiction. Moreover, extra-territorial
service of summons on petitioners is null and void because the complaint for collection
is not one affecting plaintiff's status and not relating to property within the Philippines.
The Court of Appeals found the petition devoid of merit, stating that:
1.Petitioners were properly served with summons and whatever defect, if any, in
the service of summons were cured by their voluntary appearance in court, via motion
to dismiss.
2.Even assuming that petitioners have not yet voluntarily appeared as co-
defendants in the case below even after having led the motions to dismiss adverted
to, still the situation does not deserve dismissal of the complaint as far as they are
concerned, since as held by this Court in Lingner Fisher GMBH vs. IAC, 125 SCRA 523;
"A case should not be dismissed simply because an original summons
was wrongfully served. It should be di cult to conceive for example, that when a
defendant personally appears before a court complaining that he had not been
validly summoned, that the case led against him should be dismissed. An alias
summons can be actually served on said defendant."
3.Being reinsurers of respondent Worldwide Surety and Insurance of the risk

which the latter assumed when it issued the re insurance policies in dispute in favor of
respondent Yupangco, petitioners cannot now validly argue that they do not do
business in this country. At the very least, petitioners must be deemed to have engaged
in business in the Philippines no matter how isolated or singular such business might
be, even on the assumption that among the local domestic insurance corporations of
this country, it is only in favor of Worldwide Surety and Insurance that they have ever
reinsured any risk arising from any reinsurance within the territory.
4.The issue of whether or not petitioners are doing business in the country is a
matter best referred to a trial on the merits of the case, and so should be addressed
there.
Maintaining its submission that they are beyond the jurisdiction of Philippine
Courts, petitioners are now before us, stating:
"Petitioners, being foreign corporations, as found by the trial court, not
doing business in the Philippines with no o ce, place of business or agents in
the Philippines, are not subject to the jurisdiction of Philippine courts.
The complaint for sum of money being a personal action not affecting
status or relating to property, extraterritorial service of summons on petitioners —
all not doing business in the Philippines — is null and void.
The appearance of counsel for petitioners being explicitly 'by special

appearance without waiving objections to the jurisdiction over their persons or the
subject matter' and the motions to dismiss having excluded non-jurisdictional
grounds, there is no voluntary submission to the jurisdiction of the trial court." 6
For its part, private respondent Yupangco counter-submits:

"1.Foreign corporations, such as petitioners, not doing business in the
Philippines, can be sued in Philippine Courts, notwithstanding petitioners' claim to
the contrary.
2.While the complaint before the Honorable Trial Court is for a sum of
money, not affecting status or relating to property, petitioners (then defendants)
can submit themselves voluntarily to the jurisdiction of Philippine Courts, even if
there is no extra-judicial (sic) service of summons upon them.
3.The voluntary appearance of the petitioners (then defendants) before the
Honorable Trial Court amounted, in effect, to voluntary submission to its
jurisdiction over their persons." 7
In the decisions of the courts below, there is much left to speculation and
conjecture as to whether or not the petitioners were determined to be "doing business
in the Philippines" or not.
To qualify the petitioners' business of reinsurance within the Philippine forum,
resort must be made to the established principles in determining what is meant by
"doing business in the Philippines." In Communication Materials and Design, Inc. et. al.
vs. Court of Appeals, 8 it was observed that:
"There is no exact rule or governing principle as to what constitutes doing
or engaging in or transacting business. Indeed, such case must be judged in the
light of its peculiar circumstances, upon its peculiar facts and upon the language
of the statute applicable. The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or enterprise for
which it was organized. cdtech
Article 44 of the Omnibus Investments Code of 1987 de nes the phrase to

include:
'soliciting orders, purchases, service contracts, opening o ces,
whether called 'liaison' o ces or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in any calendar
year stay in the Philippines for a period or periods totaling one hundred
eighty (180) days or more; participating in the management, supervision or
control of any domestic business rm, entity or corporation in the
Philippines, and any other act or acts that imply a continuity or commercial
dealings or arrangements and contemplate to that extent the performance
of acts or works, or the exercise of some of the functions normally incident
to, and in progressive prosecution of, commercial gain or of the purpose
and object of the business organization.'"
The term ordinarily implies a continuity of commercial dealings and

arrangements, and contemplates, to that extent, the performance of acts or works or
the exercise of the functions normally incident to and in progressive prosecution of the
purpose and object of its organization. 9
A single act or transaction made in the Philippines, however, could qualify a
foreign corporation to be doing business in the Philippines, if such singular act is not
merely incidental or casual, but indicates the foreign corporation's intention to do
business in the Philippines. 1 0
There is no su cient basis in the records which would merit the institution of
this collection suit in the Philippines. More speci cally, there is nothing to substantiate
the private respondent's submission that the petitioners had engaged in business
activities in this country. This is not an instance where the erroneous service of
summons upon the defendant can be cured by the issuance and service of alias
summons, as in the absence of showing that petitioners had been doing business in the
country, they cannot be summoned to answer for the charges leveled against them.
The Court is cognizant of the doctrine in Signetics Corp. vs. Court of Appeals 1 1
that for the purpose of acquiring jurisdiction by way of summons on a defendant
foreign corporation, there is no need to prove rst the fact that defendant is doing
business in the Philippines. The plaintiff only has to allege in the complaint that the
defendant has an agent in the Philippines for summons to be validly served thereto,
even without prior evidence advancing such factual allegation.
As it is, private respondent has made no allegation or demonstration of the
existence of petitioners' domestic agent, but avers simply that they are doing business
not only abroad but in the Philippines as well. It does not appear at all that the
petitioners had performed any act which would give the general public the impression
that it had been engaging, or intends to engage in its ordinary and usual business
undertakings in the country. The reinsurance treaties between the petitioners and
Worldwide Surety and Insurance were made through an international insurance broker,
and not through any entity or means remotely connected with the Philippines.
Moreover, there is authority to the effect that a reinsurance company is not doing
business in a certain state merely because the property or lives which are insured by
the original insurer company are located in that state. 1 2 The reason for this is that a
contract of reinsurance is generally a separate and distinct arrangement from the
original contract of insurance, whose contracted risk is insured in the reinsurance
agreement. 1 3 Hence, the original insured has generally no interest in the contract of
reinsurance. 1 4
A foreign corporation, is one which owes its existence to the laws of another
state, and generally, has no legal existence within the state in which it is foreign. In
15
Marshall Wells Co. vs. Elser, 1 6 it was held that corporations have no legal status
beyond the bounds of the sovereignty by which they are created. Nevertheless, it is
widely accepted that foreign corporations are, by reason of state comity, allowed to
transact business in other states and to sue in the courts of such fora. In the
Philippines foreign corporations are allowed such privileges, subject to certain
restrictions, arising from the state's sovereign right of regulation.
Before a foreign corporation can transact business in the country, it must rst
obtain a license to transact business here 1 7 and secure the proper authorizations
under existing law.
If a foreign corporation engages in business activities without the necessary
requirements, it opens itself to court actions against it, but it shall not be allowed to
maintain or intervene in an action, suit or proceeding for its own account in any court or
tribunal or agency in the Philippines. 1 8
The purpose of the law in requiring that foreign corporations doing business in
the country be licensed to do so, is to subject the foreign corporations doing business
in the Philippines to the jurisdiction of the courts, 1 9 otherwise, a foreign corporation
illegally doing business here because of its refusal or neglect to obtain the required
license and authority to do business may successfully though unfairly plead such
neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the
local courts.
The same danger does not exist among foreign corporations that are indubitably
not doing business in the Philippines. Indeed, if a foreign corporation does not do
business here, there would be no reason for it to be subject to the State's regulation. As
we observed, in so far as the State is concerned, such foreign corporation has no legal
existence. Therefore, to subject such corporation to the courts' jurisdiction would
violate the essence of sovereignty.
In the alternative, private respondent submits that foreign corporations not doing
business in the Philippines are not exempt from suits leveled against them in courts,
citing the case of Facilities Management Corporation vs. Leonardo Dela Osa, et. al. 2 0
where we ruled "that indeed, if a foreign corporation, not engaged in business in the
Philippines, is not barred from seeking redress from Courts in the Philippines, a fortiori,
that same corporation cannot claim exemption from being sued in Philippine Courts for
acts done against a person or persons in the Philippines."
We are not persuaded by the position taken by the private respondent. In
Facilities Management case, the principal issue presented was whether the petitioner
had been doing business in the Philippines, so that service of summons upon its agent
as under Section 14, Rule 14 of the Rules of Court can be made in order that the Court
of First Instance could assume jurisdiction over it. The Court ruled that the petitioner
was doing business in the Philippines, and that by serving summons upon its resident
agent, the trial court had effectively acquired jurisdiction. In that case, the court made
no prescription as the absolute suability of foreign corporations not doing business in
the country, but merely discounts the absolute exemption of such foreign corporations
from liabilities particularly arising from acts done against a person or persons in the
Philippines.
As we have found, there is no showing that petitioners had performed any act in
the country that would place it within the sphere of the court's jurisdiction. A general
allegation standing alone, that a party is doing business in the Philippines does not
make it so. A conclusion of fact or law cannot be derived from the unsubstantiated
assertions of parties, notwithstanding the demands of convenience or dispatch in legal
actions, otherwise, the Court would be guilty of sorcery; extracting substance out of
nothingness. In addition, the assertion that a resident of the Philippines will be
inconvenienced by an out-of-town suit against a foreign entity, is irrelevant and
unavailing to sustain the continuance of a local action, for jurisdiction is not dependent
upon the convenience or inconvenience of a party. 2 1
It is also argued that having led a motion to dismiss in the proceedings before
the trial court, petitioners have thus acquiesced to the court's jurisdiction, and they
cannot maintain the contrary at this juncture.
This argument is at the most, flimsy. cdta
In civil cases, jurisdiction over the person of the defendant is acquired either by
his voluntary appearance in court and his submission to its authority or by service of
summons. 2 2
Fundamentally, the service of summons is intended to give o cial notice to the
defendant or respondent that an action has been commenced against it. The defendant
or respondent is thus put on guard as to the demands of the plaintiff as stated in the
complaint. 2 3 The service of summons upon the defendant becomes an important
element in the operation of a court's jurisdiction upon a party to a suit, as service of
summons upon the defendant is the means by which the court acquires jurisdiction
over his person. 2 4 Without service of summons, or when summons are improperly
made, both the trial and the judgment, being in violation of due process, are null and
void, 2 5 unless the defendant waives the service of summons by voluntarily appearing
and answering the suit. 2 6
When a defendant voluntarily appears, he is deemed to have submitted himself to
the jurisdiction of the court. 2 7 This is not, however, always the case. Admittedly, and
without subjecting himself to the court's jurisdiction, the defendant in an action can, by
special appearance object to the court's assumption on the ground of lack of
jurisdiction. If he so wishes to assert this defense, he must do so seasonably by motion
for the purpose of objecting to the jurisdiction of the court, otherwise, he shall be
deemed to have submitted himself to that jurisdiction. 2 8 In the case of foreign
corporations, it has been held that they may seek relief against the wrongful
assumption of jurisdiction by local courts. In Time, Inc. vs. Reyes, 2 9 it was held that the
action of a court in refusing to rule or deferring its ruling on a motion to dismiss for lack
or excess of jurisdiction is correctable by a writ of prohibition or certiorari sued out in
the appellate court even before trial on the merits is had. The same remedy is available
should the motion to dismiss be denied, and the court, over the foreign corporation's
objections, threatens to impose its jurisdiction upon the same.
If the defendant, besides setting up in a motion to dismiss his objection to the
jurisdiction of the court, alleges at the same time any other ground for dismissing the
action, or seeks an a rmative relief in the motion, 3 0 he is deemed to have submitted
himself to the jurisdiction of the court.
In this instance, however, the petitioners from the time they led their motions to
dismiss, their submissions have been consistently and unfailingly to object to the trial
court's assumption of jurisdiction, anchored on the fact that they are all foreign
corporations not doing business in the Philippines.
As we have consistently held, if the appearance of a party in a suit is precisely to
question the jurisdiction of the said tribunal over the person of the defendant, then this
appearance is not equivalent to service of summons, nor does it constitute an
acquiescence to the court's jurisdiction. 31 Thus, it cannot be argued that the
petitioners had abandoned their objections to the jurisdiction of the court, as their
motions to dismiss in the trial court, and all their subsequent posturings, were all in
protest of the private respondent's insistence on holding them to answer a charge in a
forum where they believe they are not subject to. Clearly, to continue the proceedings in
a case such as those before Us would just "be useless and a waste of time." 3 2
ACCORDINGLY, the decision appealed from dated October 11, 1990, is SET
ASIDE and the instant petition is hereby GRANTED. The respondent Regional Trial Court
of Manila, Branch 51 is declared without jurisdiction to take cognizance of Civil Case
No. 86-37932, and all its orders and issuances in connection therewith are hereby
ANNULLED and SET ASIDE. The respondent court is hereby ORDERED to DESIST from
maintaining further proceeding in the case aforestated. cdt
SO ORDERED.
Romero, Puno and Mendoza, JJ ., concur.
Regalado, J ., is on leave.
Footnotes
1.Penned by Associate Justice Nicolas R. Lapena, Jr. and concurred into by Associate Justices
Ricardo L. Pronove, Jr. and Salome A. Montoya.
2.Annexes "A" and "B", CA-Petition, pp. 15 and 17, CA-Record.
3.Court of Appeals Decision, pp. 124-125, Rollo.
4.Filed with the Regional Trial Court of Manila, Branch 51, docketed as Civil Case No. 86-37392,
CA-Record, p. 14.
5.Sec. 14. Service upon private foreign corporations. — If the defendant is a foreign corporation,
or a nonresident joint stock company or association, doing business in the Philippines,
service may be made on its resident agent designated in accordance with law for that
purpose, or if there be no such agent, on the government o cial designated by law to
that effect, or on any of its officers or agents within the Philippines.
6.Memorandum for Petitioners, p. 256, Rollo.
7.Memorandum for Private Respondent, pp. 226-227, Rollo.

8.G.R. No. 102223, August 22, 1996.
9.Mentholatum Co. Inc., vs. Mangaliman, G.R. No. 47701, June 27, 1941, 72 Phil 524.
10.Far East International Import and Export Corporation vs. Nankai Kogyo Co., G.R. No. 13525,
November 30, 1962, 6 SCRA 725.
11.G.R. No. 105141, August 31, 1993, 225 SCRA 737.
12.Moris & Co. vs. Scandinavia Ins. Co., 279 U.S. 405 (1929), cited in Vance, p. 1074.
13.Section 95. A contract of reinsurance is one by which an insurer procures a third person to
insure him against loss or liability by reason of such original insurance. (Presidential
Decree No. 1460, otherwise known as the Insurance Code of the Philippines)
14.Section 98, P.D. 1460.
15.Section 123, Corporation Code of the Philippines.
16.No. 22015, September 1, 1924, 46 Phil 70.
17.Section 125, 126, Corporation Code of the Philippines.
18.Section 133, id.
19.Marshall Wells Co. vs. Elser, supra.
20.G.R. No. L-38649, March 26, 1979, 89 SCRA 131.

21.Time, Inc. vs. Reyes, G.R. No. L-28882, May 31, 1971, 39 SCRA 303.
22.Minucher vs. Court of Appeals, G.R. No. 97765, September 24, 1992, 214 SCRA 242.
23.Munar vs. Court of Appeals, G.R. No. 100740, November 25, 1994, 238 SCRA 372.
24.Vda. de Macoy vs. Court of Appeals, G.R. No. 95871, February 13, 1992, 206 SCRA 244.
25.C.E. Salmon vs. Tan Cueco, No. 12286, March 27, 1917, 36 Phil 556.
26.Gov't. vs. Rotor, No. 46438, November 7, 1939, 69 Phil 130.
27.Paramount Insurance Corporation vs. Japson, G.R. No. 68037, July 29, 1992, 211 SCRA 879.
28.La Naval Drug Corporation vs. Court of Appeals, G.R. No. 103200, August 31, 1994, 236
SCRA 78.
29.Supra.
30.Wang Laboratories vs. Mendoza, G.R. No. 72147, December 1, 1987, 156 SCRA 44.
31.Delos Santos vs. Montesa, Jr., G.R. No. 73531, April 6, 1993, 221 SCRA 15.
32.Philippine International Fair, Inc., et. al., vs. Ibañez, et. al., 50 Off. Gaz. 1036.

FIRST DIVISION
[G.R. No. 154618. April 14, 2004.]
AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD. , petitioner, vs .

INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORPORATION,
TEOH KIANG HONG, TEOH KIANG SENG, ANTHONY CHOO, JOANNE
KATE M. DELA CRUZ, JEAN KAY M. DELA CRUZ and ROLANDO T.
NACILLA , respondents.
DECISION
YNARES-SANTIAGO , J : p
This petition for review assails the Decision dated August 12, 2002 of the Court of
Appeals in CA-G.R. SP No. 66574, which dismissed Civil Case No. 3123-2001-C and
annulled and set aside the Order dated September 4, 2001 issued by the Regional Trial
Court of Calamba, Laguna, Branch 92.
Petitioner Agilent Technologies Singapore (Pte.), Ltd. ("Agilent") is a foreign
corporation, which, by its own admission, is not licensed to do business in the Philippines.
1 Respondent Integrated Silicon Technology Philippines Corporation (“Integrated Silicon”)
is a private domestic corporation, 100% foreign owned, which is engaged in the business
of manufacturing and assembling electronics components. 2 Respondents Teoh Kiang
Hong, Teoh Kiang Seng and Anthony Choo, Malaysian nationals, are current members of
Integrated Silicon’s board of directors, while Joanne Kate M. dela Cruz, Jean Kay M. dela
Cruz, and Rolando T. Nacilla are its former members. 3
The juridical relation among the various parties in this case can be traced to a 5-year
Value Added Assembly Services Agreement (“VAASA”), entered into on April 2, 1996
between Integrated Silicon and the Hewlett-Packard Singapore (Pte.) Ltd., Singapore
Components Operation (“HP-Singapore”). 4 Under the terms of the VAASA, Integrated
Silicon was to locally manufacture and assemble ber optics for export to HP-Singapore.
HP-Singapore, for its part, was to consign raw materials to Integrated Silicon; transport
machinery to the plant of Integrated Silicon; and pay Integrated Silicon the purchase price
of the finished products. 5 The VAASA had a ve-year term, beginning on April 2, 1996, with
a provision for annual renewal by mutual written consent. 6 On September 19, 1999, with
the consent of Integrated Silicon, 7 HP-Singapore assigned all its rights and obligations in
the VAASA to Agilent. 8
On May 25, 2001, Integrated Silicon led a complaint for “Speci c Performance and
Damages” against Agilent and its o cers Tan Bian Ee, Lim Chin Hong, Tey Boon Teck and
Francis Khor, docketed as Civil Case No. 3110-01-C. It alleged that Agilent breached the
parties’ oral agreement to extend the VAASA. Integrated Silicon thus prayed that
defendant be ordered to execute a written extension of the VAASA for a period of ve
years as earlier assured and promised; to comply with the extended VAASA; and to pay
actual, moral, exemplary damages and attorney’s fees. 9
On June 1, 2001, summons and a copy of the complaint were served on Atty. Ramon
Quisumbing, who returned these processes on the claim that he was not the registered
agent of Agilent. Later, he entered a special appearance to assail the court’s jurisdiction
over the person of Agilent.
On July 2, 2001, Agilent led a separate complaint against Integrated Silicon, Teoh
Kang Seng, Teoh Kiang Gong, Anthony Choo, Joanne Kate M. dela Cruz, Jean Kay M. dela
Cruz and Rolando T. Nacilla, 1 0 for “Speci c Performance, Recovery of Possession, and
Sum of Money with Replevin, Preliminary Mandatory Injunction, and Damages”, before the
Regional Trial Court, Calamba, Laguna, Branch 92, docketed as Civil Case No. 3123-2001-
C. Agilent prayed that a writ of replevin or, in the alternative, a writ of preliminary
mandatory injunction, be issued ordering defendants to immediately return and deliver to
plaintiff its equipment, machineries and the materials to be used for ber-optic
components which were left in the plant of Integrated Silicon. It further prayed that
defendants be ordered to pay actual and exemplary damages and attorney’s fees. 1 1
Respondents led a Motion to Dismiss in Civil Case No. 3123-2001-C, 1 2 on the
grounds of lack of Agilent’s legal capacity to sue; 1 3 litis pendentia; 1 4 forum shopping; 1 5
and failure to state a cause of action. 1 6
On September 4, 2001, the trial court denied the Motion to Dismiss and granted
petitioner Agilent’s application for a writ of replevin. 1 7
Without ling a motion for reconsideration, respondents led a petition for certiorari
with the Court of Appeals. 1 8
In the meantime, upon motion led by respondents, Judge Antonio S. Pozas of
Branch 92 voluntarily inhibited himself in Civil Case No. 3123-2001-C. The case was re-
ra ed and assigned to Branch 35, the same branch where Civil Case No. 3110-2001-C is
pending.
On August 12, 2002, the Court of Appeals granted respondents’ petition for
certiorari, set aside the assailed Order of the trial court dated September 4, 2001, and
ordered the dismissal of Civil Case No. 3123-2001-C.
Hence, the instant petition raising the following errors:
I.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT DISMISSING

RESPONDENTS’ PETITION FOR CERTIORARI FOR RESPONDENTS’ FAILURE TO
FILE A MOTION FOR RECONSIDERATION BEFORE RESORTING TO THE REMEDY
OF CERTIORARI.
II.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND

SETTING ASIDE THE TRIAL COURT’S ORDER DATED 4 SEPTEMBER 2001 AND
ORDERING THE DISMISSAL OF CIVIL CASE NO. 3123-2001-C BELOW ON THE
GROUND OF LITIS PENDENTIA, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE
NO. 3110-2001-C.
III.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND

SETTING ASIDE THE TRIAL COURT’S ORDER DATED 4 SEPTEMBER 2001 AND
ORDERING THE DISMISSAL OF CIVIL CASE NO. 3123-2001-C BELOW ON THE
GROUND OF FORUM SHOPPING, ON ACCOUNT OF THE PENDENCY OF CIVIL
CASE NO. 3110-2001-C.
IV.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ORDERING THE

DISMISSAL OF CIVIL CASE NO. 323-2001-C BELOW INSTEAD OF ORDERING IT
CONSOLIDATED WITH CIVIL CASE NO. 3110-2001-C. 1 9
The two primary issues raised in this petition: (1) whether or not the Court of
Appeals committed reversible error in giving due course to respondents’ petition,
notwithstanding the failure to le a Motion for Reconsideration of the September 4, 2001
Order; and (2) whether or not the Court of Appeals committed reversible error in
dismissing Civil Case No. 3123-2001-C.
We find merit in the petition.
The Court of Appeals, citing the case of Malayang Manggagawa sa ESSO v. ESSO
Standard Eastern, Inc., 2 0 held that the lower court had no jurisdiction over Civil Case No.
3123-2001-C because of the pendency of Civil Case No. 3110-2001-C and, therefore, a
motion for reconsideration was not necessary before resort to a petition for certiorari.
This was error.
Jurisdiction is xed by law. Batas Pambansa Blg. 129 vests jurisdiction over the
subject matter of Civil Case No. 3123-2001-C in the RTC. 2 1
The Court of Appeals’ ruling that the assailed Order issued by the RTC of Calamba,
Branch 92, was a nullity for lack of jurisdiction due to litis pendentia and forum shopping,
has no legal basis. The pendency of another action does not strip a court of the jurisdiction
granted by law. CaDEAT
The Court of Appeals further ruled that a Motion for Reconsideration was not
necessary in view of the urgent necessity in this case. We are not convinced. In the case of
Bache and Co. (Phils.), Inc. v. Ruiz , 2 2 relied on by the Court of Appeals, it was held that
“time is of the essence in view of the tax assessments sought to be enforced by
respondent o cers of the Bureau of Internal Revenue against petitioner corporation, on
account of which immediate and more direct action becomes necessary.” Tax
assessments in that case were based on documents seized by virtue of an illegal search,
and the deprivation of the right to due process tainted the entire proceedings with
illegality. Hence, the urgent necessity of preventing the enforcement of the tax
assessments was patent. Respondents, on the other hand, cite the case of Geronimo v.
Commission on Elections, 2 3 where the urgent necessity of resolving a disquali cation
case for a position in local government warranted the expeditious resort to certiorari. In
the case at bar, there is no analogously urgent circumstance which would necessitate the
relaxation of the rule on a Motion for Reconsideration.
Indeed, none of the exceptions for dispensing with a Motion for Reconsideration is
present here. None of the following cases cited by respondents serves as adequate basis
for their procedural lapse.
I n Vigan Electric Light Co., Inc. v. Public Service Commission , 2 4 the questioned
order was null and void for failure of respondent tribunal to comply with due process
requirements; in Matanguihan v. Tengco , 2 5 the questioned order was a patent nullity for
failure to acquire jurisdiction over the defendants, which fact the records plainly disclosed;
and in National Electri cation Administration v. Court of Appeals , 2 6 the questioned orders
were void for vagueness. No such patent nullity is evident in the Order issued by the trial
court in this case. Finally, while urgency may be a ground for dispensing with a Motion for
Reconsideration, in the case of Vivo v. Cloribel , 2 7 cited by respondents, the slow progress
of the case would have rendered the issues moot had a motion for reconsideration been
availed of. We find no such urgent circumstance in the case at bar.
Respondents, therefore, availed of a premature remedy when they immediately
raised the matter to the Court of Appeals on certiorari; and the appellate court committed
reversible error when it took cognizance of respondents’ petition instead of dismissing the
same outright.
We come now to the substantive issues of the petition.
Litis pendentia is a Latin term which literally means “a pending suit.” It is variously
referred to in some decisions as lis pendens and auter action pendant. While it is normally
connected with the control which the court has on a property involved in a suit during the
continuance proceedings, it is more interposed as a ground for the dismissal of a civil
action pending in court.
Litis pendentia as a ground for the dismissal of a civil action refers to that situation
wherein another action is pending between the same parties for the same cause of action,
such that the second action becomes unnecessary and vexatious. For litis pendentia to be
invoked, the concurrence of the following requisites is necessary:
(a) identity of parties or at least such as represent the same interest in both
actions;
(b) identity of rights asserted and reliefs prayed for, the reliefs being founded
on the same facts; and
(c) the identity in the two cases should be such that the judgment that may
be rendered in one would, regardless of which party is successful, amount
to res judicata in the other. 2 8
The Court of Appeals correctly appreciated the identity of parties in Civil Cases No.
3123-2001-C and 3110-2001-C. Well-settled is the rule that lis pendens requires only
substantial, and not absolute, identity of parties. 2 9 There is substantial identity of parties
when there is a community of interest between a party in the rst case and a party in the
second case, even if the latter was not impleaded in the rst case. 3 0 The parties in these
cases are vying over the interests of the two opposing corporations; the individuals are
only incidentally impleaded, being the natural persons purportedly accused of violating
these corporations’ rights.
Likewise, the fact that the positions of the parties are reversed, i.e., the plaintiffs in
the rst case are the defendants in the second case or vice versa, does not negate the
identity of parties for purposes of determining whether the case is dismissible on the
ground of litis pendentia. 3 1
The identity of parties notwithstanding, litis pendentia does not obtain in this case
because of the absence of the second and third requisites. The rights asserted in each of
the cases involved are separate and distinct; there are two subjects of controversy
presented for adjudication; and two causes of action are clearly involved. The fact that
respondents instituted a prior action for “Speci c Performance and Damages” is not a
ground for defeating the petitioners’ action for “Speci c Performance, Recovery of
Possession, and Sum of Money with Replevin, Preliminary Mandatory Injunction, and
Damages.”
In Civil Case No. 3110-2001-C led by respondents, the issue is whether or not there
was a breach of an oral promise to renew of the VAASA. The issue in Civil Case No. 3123-
2001-C, led by petitioner, is whether petitioner has the right to take possession of the
subject properties. Petitioner’s right of possession is founded on the ownership of the
subject goods, which ownership is not disputed and is not contingent on the extension or
non-extension of the VAASA. Hence, the replevin suit can validly be tried even while the
prior suit is being litigated in the Regional Trial Court.
Possession of the subject properties is not an issue in Civil Case No. 3110-2001-C.
The reliefs sought by respondent Integrated Silicon therein are as follows: (1) execution of
a written extension or renewal of the VAASA; (2) compliance with the extended VAASA;
and (3) payment of overdue accounts, damages, and attorney’s fees. The reliefs sought by
petitioner Agilent in Civil Case No. 3123-2001-C, on the other hand, are as follows: (1)
issuance of a Writ of Replevin or Writ of Preliminary Mandatory Injunction; (2) recovery of
possession of the subject properties; (3) damages and attorney’s fees.
Concededly, some items or pieces of evidence may be admissible in both actions. It
cannot be said, however, that exactly the same evidence will support the decisions in both,
since the legally signi cant and controlling facts in each case are entirely different.
Although the VAASA gures prominently in both suits, Civil Case No. 3110-2001-C is
premised on a purported breach of an oral obligation to extend the VAASA, and damages
arising out of Agilent’s alleged failure to comply with such purported extension. Civil Case
No. 3123-2001-C, on the other hand, is premised on a breach of the VAASA itself, and
damages arising to Agilent out of that purported breach.
It necessarily follows that the third requisite for litis pendentia is also absent. The
following are the elements of res judicata:
(a) The former judgment must be final;
(b) The court which rendered judgment must have jurisdiction over the parties
and the subject matter;
(c) It must be a judgment on the merits; and
(d) There must be between the first and second actions identity of parties,
subject matter, and cause of action. 3 2
In this case, any judgment rendered in one of the actions will not amount to res
judicata in the other action. There being different causes of action, the decision in one case
will not constitute res judicata as to the other.
Of course, a decision in one case may, to a certain extent, affect the other case. This,
however, is not the test to determine the identity of the causes of action. Whatever
di culties or inconvenience may be entailed if both causes of action are pursued on
separate remedies, the proper solution is not the dismissal order of the Court of Appeals.
The possible consolidation of said cases, as well as stipulations and appropriate modes
of discovery, may well be considered by the court below to subserve not only procedural
expedience but, more important, the ends of justice. 3 3
We now proceed to the issue of forum shopping.
The test for determining whether a party violated the rule against forum-shopping
was laid down in the case of Buan v. Lopez . 3 4 Forum shopping exists where the elements
o f litis pendentia are present, or where a nal judgment in one case will amount to res
judicata in the nal other. There being no litis pendentia in this case, a judgment in the said
case will not amount to res judicata in Civil Case No. 3110-2001-C, and respondents’
contention on forum shopping must likewise fail.
We are not unmindful of the a ictive consequences that may be suffered by both
petitioner and respondents if replevin is granted by the trial court in Civil Case No. 3123-
2001-C. If respondent Integrated Silicon eventually wins Civil Case No. 3110-2001-C, and
the VAASA’s terms are extended, petitioner corporation will have to comply with its
obligations thereunder, which would include the consignment of properties similar to
those it may recover by way of replevin in Civil Case No. 3123-2001-C. However, petitioner
will also suffer an injustice if denied the remedy of replevin, resort to which is not only
allowed but encouraged by law.
Respondents argue that since Agilent is an unlicensed foreign corporation doing
business in the Philippines, it lacks the legal capacity to le suit. 3 5 The assailed acts of
petitioner Agilent, purportedly in the nature of “doing business” in the Philippines, are the
following: (1) mere entering into the VAASA, which is a “service contract”; 3 6 (2)
appointment of a full-time representative in Integrated Silicon, to “oversee and supervise
the production” of Agilent’s products; 3 7 (3) the appointment by Agilent of six full-time
staff members, who were permanently stationed at Integrated Silicon’s facilities in order
to inspect the nished goods for Agilent; 3 8 and (4) Agilent’s participation in the
management, supervision and control of Integrated Silicon, 3 9 including instructing
Integrated Silicon to hire more employees to meet Agilent’s increasing production needs,
4 0 regularly performing quality audit, evaluation and supervision of Integrated Silicon’s
employees, 4 1 regularly performing inventory audit of raw materials to be used by
Integrated Silicon, which was also required to provide weekly inventory updates to Agilent,
4 2 and providing and dictating Integrated Silicon on the daily production schedule, volume
and models of the products to manufacture and ship for Agilent. 4 3
A foreign corporation without a license is not ipso facto incapacitated from bringing
an action in Philippine courts. A license is necessary only if a foreign corporation is
“transacting” or “doing business” in the country. The Corporation Code provides:
Sec. 133. Doing business without a license. — No foreign corporation
transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine
laws.
The aforementioned provision prevents an unlicensed foreign corporation “doing

business” in the Philippines from accessing our courts.
In a number of cases, however, we have held that an unlicensed foreign corporation
doing business in the Philippines may bring suit in Philippine courts against a Philippine
citizen or entity who had contracted with and bene ted from said corporation. 4 4 Such a
suit is premised on the doctrine of estoppel. A party is estopped from challenging the
personality of a corporation after having acknowledged the same by entering into a
contract with it. This doctrine of estoppel to deny corporate existence and capacity
applies to foreign as well as domestic corporations. 4 5 The application of this principle
prevents a person contracting with a foreign corporation from later taking advantage of its
noncompliance with the statutes chie y in cases where such person has received the
benefits of the contract. 4 6
The principles regarding the right of a foreign corporation to bring suit in Philippine
courts may thus be condensed in four statements: (1) if a foreign corporation does
business in the Philippines without a license, it cannot sue before the Philippine courts; 4 7
(2) if a foreign corporation is not doing business in the Philippines, it needs no license to
sue before Philippine courts on an isolated transaction or on a cause of action entirely
independent of any business transaction 4 8 ; (3) if a foreign corporation does business in
the Philippines without a license, a Philippine citizen or entity which has contracted with
said corporation may be estopped from challenging the foreign corporation’s corporate
personality in a suit brought before Philippine courts; 4 9 and (4) if a foreign corporation
does business in the Philippines with the required license, it can sue before Philippine
courts on any transaction.
The challenge to Agilent’s legal capacity to le suit hinges on whether or not it is

doing business in the Philippines. However, there is no de nitive rule on what constitutes
“doing”, “engaging in”, or “transacting” business in the Philippines, as this Court observed
in the case of Mentholatum v. Mangaliman . 5 0 The Corporation Code itself is silent as to
what acts constitute doing or transacting business in the Philippines.
Jurisprudence has it, however, that the term “implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incident to or in progressive
prosecution of the purpose and subject of its organization.” 51
I n Mentholatum, 5 2 this Court discoursed on the two general tests to determine
whether or not a foreign corporation can be considered as “doing business” in the
Philippines. The first of these is the substance test, thus: 5 3
The true test [for doing business], however, seems to be whether the
foreign corporation is continuing the body of the business or enterprise for which
it was organized or whether it has substantially retired from it and turned it over to
another.
The second test is the continuity test, expressed thus: 5 4

The term [doing business] implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or works
or the exercise of some of the functions normally incident to, and in the
progressive prosecution of, the purpose and object of its organization.
Although each case must be judged in light of its attendant circumstances,

jurisprudence has evolved several guiding principles for the application of these tests. For
instance, considering that it transacted with its Philippine counterpart for seven years,
engaging in futures contracts, this Court concluded that the foreign corporation in Merrill
Lynch Futures, Inc. v. Court of Appeals and Spouses Lara , 5 5 was doing business in the
Philippines. In Commissioner of Internal Revenue v. Japan Airlines (“JAL”), 5 6 the Court held
that JAL was doing business in the Philippines, i.e., its commercial dealings in the country
were continuous — despite the fact that no JAL aircraft landed in the country — as it sold
tickets in the Philippines through a general sales agent, and opened a promotions o ce
here as well.
I n General Corp. of the Phils. v. Union Insurance Society of Canton and Fireman's
Fund Insurance, 5 7 a foreign insurance corporation was held to be doing business in the
Philippines, as it appointed a settling agent here, and issued 12 marine insurance policies.
We held that these transactions were not isolated or casual, but manifested the continuity
of the foreign corporation’s conduct and its intent to establish a continuous business in
the country. In Eriks PTE Ltd. v. Court of Appeals and Enriquez , 5 8 the foreign corporation
sold its products to a Filipino buyer who ordered the goods 16 times within an eight-
month period. Accordingly, this Court ruled that the corporation was doing business in the
Philippines, as there was a clear intention on its part to continue the body of its business
here, despite the relatively short span of time involved. Communication Materials and
Design, Inc., et al. v. Court of Appeals, ITEC, et al . 5 9 and Top-Weld Manufacturing v. ECED,
IRTI, et al . 6 0 both involved the License and Technical Agreement and Distributor
Agreement of foreign corporations with their respective local counterparts that were the
primary bases for the Court’s ruling that the foreign corporations were doing business in
the Philippines. 6 1 In particular, the Court cited the highly restrictive nature of certain
provisions in the agreements involved, such that, as stated in Communication Materials,
the Philippine entity is reduced to a mere extension or instrument of the foreign
corporation. For example, in Communication Materials, the Court deemed the “No
Competing Product” provision of the Representative Agreement therein restrictive. 6 2
The case law de nition has evolved into a statutory de nition, having been adopted
with some quali cations in various pieces of legislation. The Foreign Investments Act of
1991 (the “FIA”; Republic Act No. 7042, as amended), defines “doing business” as follows:
Sec. 3, par. (d). The phrase “doing business” shall include soliciting orders,
service contracts, opening o ces, whether called “liaison” o ces or branches;
appointing representatives or distributors domiciled in the Philippines or who in
any calendar year stay in the country for a period or periods totaling one hundred
eighty (180) days or more; participating in the management, supervision or
control of any domestic business, rm, entity, or corporation in the Philippines;
and any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works,
or the exercise of some of the functions normally incident to, and in the
progressive prosecution of, commercial gain or of the purpose and object of the
business organization.
An analysis of the relevant case law, in conjunction with Section 1 of the

Implementing Rules and Regulations of the FIA (as amended by Republic Act No. 8179),
would demonstrate that the acts enumerated in the VAASA do not constitute “doing
business” in the Philippines.
Section 1 of the Implementing Rules and Regulations of the FIA (as amended by
Republic Act No. 8179) provides that the following shall not be deemed “doing business”:
(1) Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights
as such investor;
(2) Having a nominee director or officer to represent its interest in such
corporation;
(3) Appointing a representative or distributor domiciled in the Philippines
which transacts business in the representative’s or distributor’s own name
and account;
(4) The publication of a general advertisement through any print or broadcast
media;
(5) Maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by another entity in the Philippines;
(6) Consignment by a foreign entity of equipment with a local company to be

used in the processing of products for export;
(7) Collecting information in the Philippines; and

(8) Performing services auxiliary to an existing isolated contract of sale
which are not on a continuing basis, such as installing in the Philippines
machinery it has manufactured or exported to the Philippines, servicing the
same, training domestic workers to operate it, and similar incidental
services.
By and large, to constitute “doing business”, the activity to be undertaken in the

Philippines is one that is for profit-making . 6 3
By the clear terms of the VAASA, Agilent’s activities in the Philippines were con ned
to (1) maintaining a stock of goods in the Philippines solely for the purpose of having the
same processed by Integrated Silicon; and (2) consignment of equipment with Integrated
Silicon to be used in the processing of products for export. As such, we hold that, based
on the evidence presented thus far, Agilent cannot be deemed to be “doing business” in
the Philippines. Respondents’ contention that Agilent lacks the legal capacity to le suit is
therefore devoid of merit. As a foreign corporation not doing business in the Philippines, it
needed no license before it can sue before our courts.
Finally, as to Agilent’s purported failure to state a cause of action against the
individual respondents, we likewise rule in favor of petitioner. A Motion to Dismiss
hypothetically admits all the allegations in the Complaint, which plainly alleges that these
individual respondents had committed or permitted the commission of acts prejudicial to
Agilent. Whether or not these individuals had divested themselves of their interests in
Integrated Silicon, or are no longer members of Integrated Silicon’s Board of Directors, is a
matter of defense best threshed out during trial.
WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The Decision of the
Court of Appeals in CA-G.R. SP No. 66574 dated August 12, 2002, which dismissed Civil
Case No. 3123-2001-C, is REVERSED and SET ASIDE. The Order dated September 4, 2001
issued by the Regional Trial Court of Calamba, Laguna, Branch 92, in Civil Case No. 3123-
2001-C, is REINSTATED. Agilent’s application for a Writ of Replevin is GRANTED.
No pronouncement as to costs.
SO ORDERED. DTcASE
Davide, Jr., C .J ., Panganiban, Carpio and Azcuna, JJ ., concur.

Footnotes
1. Rollo, p. 4.
2. Id., p. 93.
3. Id., pp. 93-94.
4. Id., p. 112.
5. Id., pp. 112-122.
6. Id., p. 112.
7. Id., pp. 135-36.
8. Id.
9. CA Records, pp. 405-407.
10. Rollo, p. 137.
11. Id., pp. 149-150.
12. Id., p. 253.
13. Id., pp. 255-60.
14. Id., pp. 260-61.
15. Id., pp. 261-63.
16. Id., pp. 263-64.
17. Id., p. 43.
18. Id., p. 98.
19. Id., p. 24.
20. 122 Phil. 147 (1965), at 155.
21. Batas Pambansa Blg. 129, sec. 19.
22. 148 Phil. 794, 812 (1971).
23. G.R. No. L-52413, 26 September 1981, 107 SCRA 614.

24. 119 Phil. 304 (1964).
25. G.R. No. L-27781, 28 January 1980, 95 SCRA 478.
26. G.R. No. L-32490, 29 December 1983, 126 SCRA 394.
27. G.R. No. L-23239, 23 November 1966, 18 SCRA 713.

28. Northcott & Co. v. Villa-Abrille, 41 Phil. 462 (1921).
29. Santos v. Court of Appeals, G.R. No. 101818, 21 September 1993, 226 SCRA 630, 637.
30. Santos v. Court of Appeals, supra, citing Anticamara v. Ong, 82 SCRA 337 (1978).
31. Yu v. Court of Appeals, G.R. No. 106818, 27 May 1994, 232 SCRA 594.
32. Saura v. Saura, Jr., 372 Phil. 337 (1999).
33. Ramos v. Ebarle, G.R. No. L-49833, 15 February 1990, 182 Phil. 245.
34. 229 Phil. 65 (1986).
35. Rollo, pp. 1739-1744.
36. Id., pp. 508-510.
37. Id., p. 510.
38. Id., pp. 510-511.
39. Id., p. 511.

40. Id.
41. Id., p. 512.
42. Id.
43. Id.
44. Merrill Lynch Futures v. Court of Appeals, G.R. No. 97816, 24 July 1992, 211 SCRA 824.
45. Georg Grotjahn GMBH v. Isnani, G.R. No. 109272, 10 August 1994, 235 SCRA 216.
46. Merrill Lynch Futures v. Court of Appeals, supra, citing Sherwood v. Alvis, 83 Ala. 115, 3
So 307, limited and distinguished in Dudley v. Collier, 84 Ala 431, 6 So. 304; Spinney v.
Miller, 114 Iowa 210, 86 NW 317.
47. CORPORATION CODE, sec. 133.
48. Eastboard Navigation, Ltd. v. Juan Ysmael & Company, Inc., 102 Phil. 1 (1957).
49. Merrill Lynch Futures v. Court of Appeals, supra, citing Sherwood vs. Alvis, 83 Ala. 115,
3 So 307, limited and distinguished in Dudley v. Collier, 84 Ala 431, 6 So. 304; Spinney v.
Miller, 114 Iowa 210, 86 NW 317.
50. 72 Phil. 524 (1941).
51. Columbia Pictures, Inc, et al. v. Court of Appeals, 329 Phil. 875 (1996).
52. 72 Phil. 524 (1941).
53. See Villanueva, PHILIPPINE CORPORATE LAW 596, et seq. (1998 ed.).
54. Id.
55. G.R. No. 97816, 24 July 1992, 211 SCRA 824.
56. G.R. No. 60714, 4 October 1991, 202 SCRA 450.
57. 87 Phil. 313 (1950).
58. 335 SCRA 229 (1997).

59. 329 Phil. 487 (1996).

60. G.R. No. L-44944, 9 August 1985, 138 SCRA 118.
61. According to the Court in Communication Materials, it was persuaded to conclude that
the foreign corporation was doing business in the Philippines, as this was “the inevitable
result after a scrutiny of the different contracts and agreements entered into” by the
foreign corporation.
62. Footnote text not found in the original.
63. C. Villanueva, PHILIPPINE CORPORATE LAW 590 (1998 ed.).

EN BANC
[G.R. No. L-13525. November 30, 1962.]
FAR EAST INTERNATIONAL IMPORT and EXPORT CORPORATION ,

plaintiff-appellee, vs. NANKAI KOGYO CO., LTD., ET AL. , defendant,
NANKAI KOGYO CO., LTD. , defendant-appellant.
Marcial Rañola and Fernandez & Benedictos for defendant-appellant.

Protacio Cañalita, Jesus Ocampo and Gonzalo D. David for plaintiff-appellant.
SYLLABUS
1. CORPORATIONS; FOREIGN CORPORATIONS; SERVICE OF SUMMONS;

THREE MODES OF EFFECTING SERVICE. — Three modes of effecting service of
summons upon private foreign corporations are provided in section 14, Rule 7 of the
Rules of Court, to wit: (1) by serving upon the agent designated in accordance with law
to accept service of summons; (2) if there is no resident agent, by service on the
government o cial designated by law to that effect; and (3) by serving on any o cer
or agent of said corporation within the Philippines.
2. ID.; ID.; ID.; WHEN SINGLE ACT OR TRANSACTION CONSTITUTES DOING
OF BUSINESS. — Where a single act or transaction of a foreign corporation is not
merely incidental or casual, but is of such character as distinctly to indicate a purpose
on the part of the corporation to do other business in the state, and to make the state a
basis of operation for the conduct of a part of the corporation's ordinary business, such
act or transaction constitutes doing of business within the meaning of statutes
prescribing the conditions under which a foreign corporation may be served with
summons.
3. ID.; ID.; PLEADING AND PRACTICE; JURISDICTION OVER FOREIGN
CORPORATIONS; HOW JURISDICTION IS ACQUIRED OR LOST; EFFECT OF SPECIAL
APPEARANCE. — Even though the defendant objects to the jurisdiction of the court, if at
the same time he alleges any non-jurisdictional ground for dismissing the action, the
Court acquires jurisdiction over him. Even though he does not intend to confer
jurisdiction upon the court, his appearance for some other purpose than to object to
the jurisdiction subjects him to the jurisdiction of the court. Even though he does not
wish to submit to the jurisdiction of the court, he cannot ask the court to act any
question except the question of jurisdiction, without conferring jurisdiction upon the
court. In the case at bar, not only did appellant allege non-jurisdictional grounds in its
pleadings to have the complaint dismissed, but it also went into trial on the merits and
presented evidence destined to resist appellee's claim. Verily, there could not be a
better situation of acquired jurisdiction based on consent.
DECISION
PAREDES , J : p

On December 26, 1956, the Far East International Import & Export Corporation,
Far East for short, organized under Philippine Laws, entered into a Contract of Sale of
Steel Scrap with the Nankai Kogyo Co., Ltd., Nankai for short, a foreign corporation
organized under Japanese laws with address at Osaka, Japan. The buyer signed in
Japan and the seller in Manila, Philippines. The pertinent provisions of the agreement
are reproduced below —
"1. Quantity: Approximately 5,000 ( ve thousand) metric tons 10% more
or less.
xxx xxx xxx
10. Payments: BUYER shall establish an irrevocable without recourse
Letter of Credit in the amount of U.S. $312,500.00 with China Banking
Corp. in Manila, not later than 30 days upon receipt of SELLER'S
con rmation about the availability of export permit, and shall be
subject to the following terms and conditions:
a. This Letter of Credit shall be drawable 90% of quantity been
shipped upon presentation of:
xxx xxx xxx
b. The remaining balance of 10% of the shipment shall be
adjusted between BUYER and SELLER immediately after the
discharge is completed at the port of destination, and shall be
drawable by the SELLER upon presentation of:
xxx xxx xxx
13. Force Majeure: The execution of this agreement is subject to any
and all Government restrictions prohibiting or penalizing in whole or
in part the export of Iron & Steel Scrap from the Philippines, and the
Seller shall not be responsible for delay in or failure of shipment or
delivery or delays in transportation due to force majeure, strikes,
differences with workmen, accidents, res, oods, mobilizations,
wars, foreign wars, riots, revolutions, regulations and restrictions or to
any conditions beyond the control of the SELLER whether the nature
herein stated or not.
14. Dispute: In case of disputes, Board of Arbitration may be formed in
Japan. Decision by the Board of Arbitration shall be nal and binding
on both BUYER and SELLER."
Upon perfection of the contract and after having been informed of the readiness
to ship and that the Export License was to expire on March 19, 1957, Nankai opened a
Letter of Credit (No. 38/80049) with the China Banking Corporation, issued by the
Nippon Kangyo, Ltd., Tokyo, Japan, in the amount of $312.500.00 on January 30, 1957.
On March 15, 1957 only four (4) days before the expiration of the Far East license, three
(3) boats sent by Nankai arrived in the Philippines, one to load in Manila, the other two
at Poro Point, San Fernando, La Union, and Tacloban, Leyte, respectively. On March 19,
1957, the expiration of the export license, only 1.058.6 metric tons of scrap steel was
loaded on the SS. Mina (loading in Manila). The loading was accordingly stopped. The
boat at Poro Point was also unloaded of the 200 metric tons, for the same reason. An
agreement was reached whereby the Far East would seek an extension of the license.
However, the untimely death of President Magsaysay and the taking over by President
Garcia changed the picture, for the latter and/or his agents refused to extend the
license. The two boats sailed to Japan without any cargo, the third (SS Mina) with only
1,058.6 metric tons.
On April 27, 1957, Nankai con rmed and acknowledged delivery of the 1,058.6
metric tons of steel scrap, but asked for damages amounting to $148,135.00,
consisting of dead freight charges demurrages, bank charges, telephone and cable
expenses (Exh. F).
On May 4, 1957, Far East wrote the Everett Steamship Corporation, requesting
the issuance of a complete set of the Bill of Lading for the shipment, in order that
payment thereof be effected against the Letter of Credit. Under date of May 7, 1957,
the Everett informed the Far East that they were not in a position to comply because
the bill of lading was issued and signed in Tokyo by the Master of the boat, upon
request of the Charterer, defendant herein.
As repeated requests, both against the shipping agent and the buyers (Nankai),
for the issuance of the Bill of Lading were ignored, Far East led on May 16, 1957, the
present complaint for Speci c Performance, damages, a writ of preliminary mandatory
injunction directed against Nankai and the shipping company, to issue and deliver to the
plaintiff, a complete set of negotiable Bill of Lading for the 1,058.6 metric tons of scrap
and a writ of preliminary injunction against the China Banking Corporation and the
Nankai to maintain the Letter of Credit. The lower court issued on May 17, 1957, an ex-
parte writ of preliminary mandatory injunction, after Far East had posted a bond in the
amount of P50,000.00.
By Special appearance, defendant Nankai filed a Motion to Dismiss the complaint
and dissolve the preliminary mandatory injunction on the following grounds: lack of
jurisdiction over the person of the defendant and over the subject-matter; and failure to
state a cause of action against the said defendant. On June 8, 1957, plaintiff Far East
opposed the Special Appearance and Motion to Dismiss.
Before the Special Appearance, Motions to Dismiss and Dissolve Preliminary
Mandatory Injunction could be ruled upon by the court a quo, plaintiff led a Motion to
File Amended complaint, it appearing that Nankai had already taken the Bill of Lading
for the shipment from the Master of the SS Mina and used the same to secure the
delivery of the 1,058.6 metric tons of scrap. The most important amendments
introduced are the allegation that defendant is doing business in the Philippines with
o ce address at R-517 Luneta Hotel, Manila, represented by Mr. Issei Ishida and Mr.
Tominaga and the additional prayer to order the defendant Nankai to pay plaintiff the
price of the scrap amounting to $68,809.00 or its equivalence in Philippine currency.
The motions to dismiss the complaint and to dissolve the Writ of Preliminary
Mandatory Injunction were denied, the Court holding that the grounds therefor "do not
appear to be indubitable."
On June 26 1957, the defendant Nankai presented an opposition to the motion to
admit amended complaint, stating that the same is belated and an unfair and unjust
attempt to establish by allegation, a semblance of jurisdiction of the Court over the
person of the defendant Nankai and the subject matter.
Under date of June 29, 1957, the motion to le an amended complaint was
denied. A motion for reconsideration of the order was presented on June 31, 1957,
plaintiff alleging that the amended complaint contained facts which are necessary and
indispensable for the complete resolution of the issues between the parties and that
the amendment is a matter of right, since defendants have not yet led a responsive
pleading (Sec. 1, Rule 17, Rules of Court). An opposition was registered by defendant.
Before resolution on the reconsideration could be issued, defendant led its Answer to
the original complaint containing the customary admissions and denials. As Special
Defenses, it reiterated the grounds contained in the Motion to Dismiss Complaint and
Dissolve the writ of Preliminary Mandatory Injunction and the arguments invoked in the
oppositions, replies, etc. On August 20, 1957, the Amended Complaint was ordered
admitted and on September 30, 1957, Nankai presented its Answer, which is identical
to the Answer to the original complaint
At the trial, plaintiff Far East, thru the testimony of its Secretary Pablo Ocampo,
showed that the transaction in question was intended to be the beginning of business
to be undertaken by Nankai, as in fact, the representatives of the company had made
inquiries as to the operation of mines and mining rights in this jurisdiction; that (Nankai)
thru its representatives, Messrs. Ishida and Tominaga, established a temporary o ce
at Room 517 Luneta Hotel and manifested their intention to put up one at the Madrigal
building, which did not materialize, due to the belated con rmation of the head o ce;
that in spite of the repeated demands and actual receipt of the delivery of the 1,056.8
metric tons of scrap steel, Nankai and the steamship company failed and consistently
refused to issue the Bill of Lading, which acts prevented plaintiff from collecting the
price of the scrap from the China Banking Corporation against the Letter of Credit.
Defendant Everett Steamship Company and the China Banking Corporation also
presented evidence, both oral and documentary.
Defendant Nankai presented Francisco Santos, accountant of the Luneta Hotel,
to prove that it has not established an o ce at Room 517 of said Hotel; Nabuo
Yoshida, chief of the Import Section of defendant Nankai, to show that it has not
established a branch o ce in the Philippines and that the buying of the scrap was the
only transaction of the defendant had in the Philippines; Tan Tiong Tick, the nancier of
the exportation in behalf of appellee, and Tan Tia Cuan, the contact man, to prove that
the real party in interest is not the plaintiff Far East but the Delta Enterprises, and that
the plaintiff was merely the holder of the Export License but had no scrap.
The lower court rendered judgment absolving defendants Everett Steamship
Company and China Banking Corporation from liability and denied the claim for
damages, both actual and moral, of the parties, found that the question of jurisdiction
over the person of defendant and the subject matter has become moot, and
". . . hereby renders judgment in favor of the plaintiff and against
defendant Nankai Kogyo Co., Ltd, sentencing said defendant to pay plaintiff the
amount of U.S. $67,710.50, or its equivalent in pesos, with interest thereon at the
legal rate from the date of filing of plaintiff's complaint until fully paid, plus the
sum of P1,000.00 as attorney's fees, and to pay the costs."
Defendant assigned six (6) errors allegedly committed by the lower court, which
may be consolidated into two propositions: to wit —
(1) Whether or not the trial court acquired jurisdiction over the subject
matter and over the person of the defendant-appellant and
(2) the propriety of the award.
Defendant contends that Philippine Courts have no jurisdiction to take
cognizance of the case, because the Nankai, is not doing business in the islands; and
that while it has entered into the transaction in question, same, however, does not
constitute "doing business", so as to make it amenable to summons and subject it to
the court's jurisdiction. It bolstered this claim by a provision in the contract which
provides that "In case of disputes, Board of Arbitration may be formed in Japan.
Decision of the Board of Arbitration shall be nal and binding on both BUYER and
SELLER."
The rule pertinent to the questions in issue provides —
"SEC. 14. Service upon private foreign corporations. — If the defendant
is a foreign corporation, or a non-resident joint stock company or association,
doing business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, it there be no such agent,
on the government official designated by law to that effect, or on any officer or
agent within the Philippines." (Rule 7).
The above rule indicates three modes of effecting service of summons upon a private
foreign corporation, viz: (1) by serving upon the agent designated in accordance with
law to accept service of summons (2) if there is no resident agent, by service on the
government o cial designated by law to that effect; and (3) by serving on any officer
or agent of said corporation within the Philippines. The plaintiff complied with the third
mode stated above, for it has been shown that Mr. Ishida, who personally signed the
contract for the purchase of the scrap in question in behalf of the Nankai Kogyo, is the
Trade Manager of said company, Mr. Tominaga was the Chief of the Petroleum Section
of the same company and Mr. Yoshida was the man-in-charge of the Import Section of
the company's Tokyo Branch. All these three, including the rst two who were served
with Summons, were officers of the defendant company.
It is true that the defendant entered a Special Appearance, wherein it contested
the jurisdiction of the Philippine Courts to take cognizance of the case on grounds
contained in the various pleadings presented by it. The motion to dismiss on the
ground of lack of jurisdiction had been overruled because it did not appear indubitable.
Subsequently, however, the defendant led its Answer and invoked defenses and
grounds for dismissal of the complaint other than lack of jurisdiction (See pars. 12 &
13, of Answer to, Amended Complaint), which circumstance vested upon the Court
jurisdiction to take cognizance of the case.
"Even though the defendant objects to the jurisdiction of the court, if at the
same time he alleges any non-jurisdictional ground for dismissing the action, the
Court acquires jurisdiction over him. Even though he does not intend to confer
jurisdiction upon the court, his appearance for some other purpose than to object
to the jurisdiction subjects him to the jurisdiction of the court. Even though he
does not wish to submit to the jurisdiction of the court, he cannot ask the court to
act upon any question except the question of jurisdiction, without conferring
jurisdiction upon the court.
"Thus though a Special appearance to object to the jurisdiction is not a

submission, if it is followed by a motion to dismiss or to quash the motion
invokes the jurisdiction of the Court to decide the issue raised by the motion; and
a decision of that issue binds the defendant. Therefore if the decision of the
motion is based upon a finding of facts necessary to jurisdiction, this finding
binds the defendant, and the court acquires jurisdiction to determine the merits of
the case."
". . . Undoubtedly if after his objection to the jurisdiction is wrongly over-

ruled, a defendant files a cross complaint demanding affirmative relief, he cannot
thereafter claim that the court had no jurisdiction over him." (p. 352). (I Conflict of
Laws, Beale and authorities cited therein.)
Not only did appellant allege non-jurisdictional grounds in its pleadings to have the
complaint dismissed, but it also went into trial on the merits and presented evidence
destined to resist appellee's claim. Verily, there could not be a better situation of
acquired jurisdiction based on consent. Consequently, the provision of the contract
wherein it was agreed that disputes should be submitted to a Board of Arbitration
which may be formed in Japan (in the supposition that it can apply to the matter in
dispute — payment of the scrap), seem to have been waived with appellant's voluntary
submission. Apart from the fact that the clause employs the word "may".
The appellant alleges that the lower court did not acquire jurisdiction, because it
was not doing business in the Philippines and the requirement of summons had not
been ful lled. It is di cult to lay down any rule of universal application to determine
when a foreign corporation is doing business. Each case must turn upon its own
peculiar facts and upon the language of the statute applicable. But from the proven
facts obtaining in this particular case, the appellant's defense of lack of jurisdiction
appears unavailing. The case of Paci c Micronesian Line. Inc. vs. N. Baens del Rosario,
G.R. No. L-7154, October 23, 1954, relied upon in the Motion to Dismiss and other
pleadings presented by defendant-appellant, stand on a different footing. Therein, We
made the following pronouncements:
". . . And the only act it did here was to secure the services of Lucero
Pelingon to act as cook and chief steward in one of its vessels authorizing to that
effect the Luzon Stevedoring Co., Inc., a domestic corporation, and the contract of
employment was entered into on July 18, 1951. It further appears that petitioner
has never sent its ships to the Philippines, nor has it transported nor even solicited
the transportation of passengers and cargoes to and from the Philippines. In
other words, petitioner engaged the services of Pelingon not as part of the
operation of its business but merely to employ him as member of the crew in one
of its ships. That act apparently is an isolated one, incidental, or casual, and 'not
of a character to indicate a purpose to engage in business' within the meaning of
the rule." (Emphasis ours.)
In the instant case, the testimony of Atty. Pablo Ocampo, that appellant was doing
business in the Philippines was corroborated by no less than Nabuo Yoshida, one of the
appellant's o cers, that he was sent to the Philippines by his company to look into the
operation of mines, thereby revealing the defendant's desire to continue engaging in
business here, after receiving the shipment of the scrap iron under consideration,
making the Philippines a base thereof.
"The rule stated in the preceding section that the doing of a single act does
not constitute business within the meaning of statutes prescribing the conditions
to be complied with by foreign corporations must be qualified to this extent, that a
single act may bring the corporation within the purview of the statute where it is
an act of the ordinary business of the corporation. In such a case, the single act or
transaction is not merely incidental or casual, but is of such character as
distinctly to indicate a purpose on the part of the foreign corporation to do other
business in the state, and to make the state a basis of operations for the conduct
of a part of the corporation's ordinary business." (17 Fletcher's Cyc. of
Corporations, sec. 8470, pp. 572-573, and authorities cited therein). (Emphasis
ours.)
It is nally noted that when defendant's motion to dismiss in the Micronesian

case was denied, it immediately brought the matter to this Court on Prohibition,
seeking to restrain the Workmen's Compensation Commission from exercising
jurisdiction over the controversy. In the present case, the defendant, while entering a
Special appearance to contest the jurisdiction of the Court, pursued its defense further
by filing its Answer and going into trial.
There is no appeal on the lower court's ndings that the failure of the appellee
herein to make full shipment of the scrap was due, not to the fault of said appellee, but
to the action and intervention of the Philippine Government, which was beyond the
control of the plaintiff. This aspect of the case is particularly covered by paragraph 13
of the contract, heretofore reproduced.
WHEREFORE, the judgment appealed from is hereby a rmed, with costs against
defendant-appellant Nankai Kogyo.
Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Dizon,
Regala and Makalintal, JJ., concur.

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EN BANC

[G.R. No. 207246. April 18, 2017.]

JOSE M. ROY III , petitioner, vs. CHAIRPERSON TERESITA HERBOSA,

WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN WARREN P.

PHILIPPINE STOCK EXCHANGE, INC. , respondent-in-intervention,

SHAREHOLDERS' ASSOCIATION OF THE PHILIPPINES, INC. ,

CD Technologies Asia, Inc. 2018 cdasiaonline.com

To refuse to clarify the dispositive portion of the Gamboa Decision, invoking

Possible Economic Consequences

3. 668 Phil. 1 (2011).

12. SEC-MC No. 8, Sec. 2.

19. Supra note 4.

CD Technologies Asia, Inc. 2018 cdasiaonline.com

15. Declared on various dates.

CD Technologies Asia, Inc. 2018 cdasiaonline.com

4. CONST., art. XII, sec. 2, par. (1) provides:

xxx xxx xxx

10. CONST., art. II, sec. 19:

CD Technologies Asia, Inc. 2018 cdasiaonline.com

[G.R. No. 176579. June 28, 2011.]

WILSON P. GAMBOA , petitioner, vs . FINANCE SECRETARY MARGARITO B. TEVES,

PABLITO V. SANIDAD and ARNO V. SANIDAD , petitioners-in-intervention.

Petitioners-in-intervention "join petitioner Wilson Gamboa . . . in seeking, among others, to enjoin

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

7. Investment of corporate funds in another corporation or business in accordance

8. Dissolution of the corporation.

With respect to an investment by one corporation in another corporation, say, a corporation

Yes, that is the understanding of the Committee.

Therefore, we need additional Filipino capital?

xxx xxx xxx

May I be clarified as to that portion that was accepted by the Committee.

CD Technologies Asia, Inc. © 2018 cdasiaonline.com

We should not eliminate the phrase "controlling interest."

In the case of stock corporations, it is assumed. 49 (Emphasis supplied)

SEC. 3. Definitions. — As used in this Act:

Compliance with the required Filipino ownership of a corporation shall be

For stocks to be deemed owned and held by Philippine citizens or Philippine

. . . in case of doubt, the Constitution should be considered self-executing rather than

With due respect, I dissent.

Section 5. The Supreme Court shall have the following powers:

The Proper Definition of "Capital"

Commissioner Suarez will answer that.

That is right. Dean Carale shares my sentiment about this matter.

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Madam President, may I propose an amendment on line 14 of Section 3 by

We accept the amendment.

The amendment of Commissioner Treñas on line 14 has been accepted by the

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Thank you, Madam President.

What does the committee say?

We completely agree with the Commissioner's views. Actually, it was really an

So, we do accept the Commissioner's proposal to eliminate the phrase "or

Not only in Section 3, but also with respect to Section 15.

Thank you very much. 5 5

May I be clarified as to that portion that was accepted by the Committee.

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