Article XII, Sec 11.

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by
such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a
longer period than fifty years. Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common
good so requires. The State shall encourage equity participation in public utilities by the general public.
The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines.

The Law is found on the first paragraph of Section 2, Article XII of the 1987 Philippine Constitution, to
wit:

“Section 2.  All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development, and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five
years, and under such terms and conditions as may be provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant.” (emphasis supplied)

Now, how do we determine the nationality of a corporation? Laws and jurisprudence would provide the
following tests:

Incorporation Test – It is determined by the place of incorporation regardless of the nationality of its
stockholders.

Domiciliary Test – It is determined by the principal place of business of the corporation.

Control Test – It is determined by the nationality of the controlling stockholders or members. This test is
applied in times of war.

Grandfather Rule – Nationality is attributed to the percentage of equity in the corporation used in
nationalized or partly nationalized area. As further defined 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 attributing the
nationality of the second or even subsequent tier of ownership to determine the nationality of the
corporate shareholder.”

Said rule is applied specifically 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.
The first three tests are self-explanatory. Let’s talk about the fourth.
The Rule was thoroughly discussed in the case of “Narra Nickel Mining and Development Corporation
vs. Redmont Consolidated Mines Corporation (G.R. No. 195580, January 28, 2015)”

The aforementioned case stemmed from a dispute over the mining and exploration of certain areas in
Palawan. The respondent Redmont Consolidated Mines, Inc. (Redmont henceforth) questioned the
nationality of the three petitioner corporations (Narra Nickel, Tesoro, and McArthur) which are prior
applicants for Mineral Production and Sharing Agreements (MPSA) on the same area. Redmont alleged
that these three corporations are not qualified as they do not meet the “at least 60% owned by Filipinos”
requirement under the cited provision of the Constitution. It further argued that at least 60% of the capital
stock of Narra Nickel, Tesoro and MacArthur are owned and controlled by MBMI Resources,
Inc. (MBMI henceforth), which is a 100% Canadian corporation. 

The Supreme Court ruled on the dispute by giving an answer to the question, “When should the
Grandfather Rule be applied?” It then provided that it should be applied only when:

(1) the corporation’s Filipino equity falls below the constitutional threshold of 60 percent or;
(2) there exists a “doubt” as to the Filipino to Foreign equity.

How would we know that a corporation’s Filipino equity falls below the threshold of 60 percent or that
there exists a “doubt” as to the Filipino to Foreign equity? We must first apply the third test which is the
Control Test. As mentioned, Control Test is determined by the nationality of the controlling stockholders.
When after applying the Control Test and there exists a “doubt” as to the Filipino – Foreign equity,
meaning, even when the equity does not fall below the threshold but reasonable grounds to doubt
the true ownership exists, Grandfather Rule butts in.  Grandfather Rule determines the actual Filipino
ownership and control in a corporation by tracing both the direct and indirect shareholdings in the
corporation. In essence, Grandfather Rule supplements the Control Test.

The “doubt” demanding the application of the Grandfather Rule is not confined or refer to the fact that
the apparent Filipino ownership of the corporation’s equity falls below the 60% constitutional threshold.
Rather, “doubt” refers to various indicia that the “beneficial ownership” and “control” of the
corporation do not in fact reside in Filipino shareholders but in foreign stakeholders which actually gave
rise to the legislation on the Anti-Dummy Law.

In the present case, the doubt exists as to the extent of control and beneficial ownership of MBMI over
the petitioners and their investing corporate stockholders. In applying the Grandfather Rule, the Supreme
Court looked into the actual ownership of MBMI in each of the three corporations. It further checked the
structure of the other shareholder corporations of each company.   Through the application of the
Grandfather Rule, the Supreme Court held that petitioners Narra Nickel, Tesoro and MacArthur Mining
are not considered Philippine nationals since MBMI, a 100 percent Canadian corporation, owns 60
percent or more of their equity shares interests. Hence, as non-Philippine nationals, they are disqualified
to participate in the exploitation, utilization and development of the Philippines’ natural resources

Anti-Dummy Law

Section 2-A. Unlawful use, Exploitation or enjoyment — 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 specific 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 a
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 qualified under the Constitution, or the provisions of the existing laws; or in any manner
permits or allows any person, not possessing the qualifications 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 specific country, to intervene in the management, operation, administration or
control thereof, whether as an officer, employee or laborer therein with or without remuneration except
technical personnel whose employment may be specifically 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 five nor more than
fifteen years and by a fine 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 five 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, finally, 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.3

Gamboa vs. Teves, 652 SCRA 690 (2011)

By: G-one T. Paisones

Facts:

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief,
and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the
sale of the 111,415 PTIC shares would result in an increase in First Pacific's common shareholdings in
PLDT from 30.7 percent to 37 percent, and this, combined with Japanese NTT DoCoMo's common
shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56 percent
which is over the 40 percent constitutional limit. Petitioner asserts:

If and when the sale is completed, First Pacific's equity in PLDT will go up from 30.7 percent to 37.0
percent of its common - or voting- stockholdings, x x x. Hence, the consummation of the sale will put the
two largest foreign investors in PLDT - First Pacific and Japan's NTT DoCoMo, which is the world's
largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the
completion of the sale, data culled from the official website of the New York Stock Exchange
(www.nyse.com) showed that those foreign entities, which own at least five percent of common equity,
will collectively own 81.47 percent of PLDT's common equity. x x x

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted
to the New York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other
foreign entities breached the constitutional limit of 40 percent ownership as early as 2003. x x x"

Issue:

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

Held:
Yes. 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.

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

Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of
PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that
"[n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens

In the same way, the Opinion dated 15 January 2008 for Attys. Ruby Rose J. Yusi and Rudyard S.
Arbolada never discussed whether "capital" refers to outstanding capital stock or only to voting stocks,
but rather whether the Control Test is applicable or not. The FIA was used merely to justify the
application of the Control Test. More importantly, the term "capital" could not have been relevant and/or
material issue in this Opinion because the common and preferred shares involved have the same voting
rights.

The Opinion dated 18 August 2010 for Castillo Laman Tan Pantaleon & San Jose reiterates 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 the shares. The FIA is mentioned only to explain the
application of the Control Test and the Grandfather Rule in a corporation owning land in the Philippines
by looking into the nationality of its investors. (Emphasis supplied).70

In view of the foregoing, it is submitted that the long-established interpretation and mode of computing
by the SEC of the total capital stock strongly recognize the intent of the framers of the Constitution to
allow access to much-needed foreign investments confined to 40% of the capital stock of public utilities.
Narra Nickel Mining and Dev’t Corp., et al. v. Redmont Consolidated Mines Corp., G.R. No.
195580, 21 April 2014

FACTS

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate
petitions for the denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-
154 and MPSA IV-1-12. In the petitions, Redmont alleged that at least 60% of the capital stock of
McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100%
Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it
was the driving force behind petitioners’ filing of the MPSAs over the areas covered by applications since
it knows that it can only participate in mining activities through corporations which are deemed Filipino
citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only
for Filipino citizens.

McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino) owning
5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares;
MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporation;

Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining, Inc.
(Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of
10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.;

Narra Nickel Mining and Development Corporation, is composed, among others, by Patricia Louise
Mining & Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources,
Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000 shares of
Patricia Louise Mining & Development Corporation;

ISSUES

(1) Is the Grandfather Rule applicable?

(2) Whether McArthur, Tesoro and Narra are Filipino nationals.

RULINGS

(1) YES.
The instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the
law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct
or indirect, of MBMI, the grandfather rule must be used.

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

(2) NO.
[P]etitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation,
owns 60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners’
corporate owners. xxx Noticeably, the ownership of the “layered” corporations boils down to xxx group
wherein MBMI has joint venture agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships
between and among the corporations, petitioners are NOT Filipino nationals and must be considered
foreign since 60% or more of their capital stocks or equity interests are owned by MBMI.

The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[fJull
[and legal] beneficial 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."

The Executive Secretary vs. CA (429 SCRA 81 [2004])

Facts:

Republic Act 8042 (Migrant Workers and Overseas Filipino Act of 1995) took effect on 15 July 1995.
Prior to its effectivity, Asian Recruitment Council Philippine Chapter Inc (ARCO-Phil) filed petition for
declaratory relief. The alleged that: Section 6, subsections (a) to (m) is unconstitutional because licensed
and authorized recruitment agencies are placed on equal footing with illegal recruiters. It contended that
while the Labor Code distinguished between recruiters who are holders of licenses and non-holders
thereof in the imposition of penalties, Rep. Act No. 8042 does not make any distinction.

The penalties in Section 7(a) and (b) being based on an invalid classification are, therefore, repugnant to
the equal protection clause, besides being excessive; hence, such penalties are violative of Section 19(1),
Article III of the Constitution.

In their answer to the petition the petitioner, they contend that ARCO-Phil has no legal standing, it being
a non-stock, non-profit organization; hence, not the real party-in-interest as petitioner in the action. It is
service-oriented while the recruitment agencies it purports to represent are profit-oriented.

Issue

Whether or not ARCO-Phil has legal standing to assail Republic Act 8042?

Held

The modern view is that an association has standing to complain of injuries to its members. This view
fuses the legal identity of an association with that of its members. An association has standing to file suit
for its workers despite its lack of direct interest if its members are affected by the action. An organization
has standing to assert the concerns of its constituents. However, the respondent has no locus standi to file
the petition for and in behalf of unskilled workers. We note that it even failed to implead any unskilled
workers in its petition.

"Locus standi" (place of standing) - the right of the party to appear and be heard before court, or the right
of a party to commence an action

The validity of Section 6 of R.A. No. 8042 which provides that employees of recruitment agencies may
be criminally liable for illegal recruitment has been upheld in People v. Chowdury:27

As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for illegal
recruitment are the principals, accomplices and accessories. An employee of a company or corporation
engaged in illegal recruitment may be held liable as principal, together with his employer, if it is
shown that he actively and consciously participated in illegal recruitment. It has been held that the
existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and
intentionally causes the corporation to commit a crime. The corporation obviously acts, and can act, only
by and through its human agents, and it is their conduct which the law must deter. The employee or agent
of a corporation engaged in unlawful business naturally aids and abets in the carrying on of such business
and will be prosecuted as principal if, with knowledge of the business, its purpose and effect, he
consciously contributes his efforts to its conduct and promotion, however slight his contribution may be.
…28

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.

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

The Supreme Court ruled on the dispute by giving an answer to the question, “When should the
Grandfather Rule be applied?” It then provided that it should be applied only when:

(1) the corporation’s Filipino equity falls below the constitutional threshold of 60 percent or;
(2) there exists a “doubt” as to the Filipino to Foreign equity.

Espiritu vs. Petron Corp. (605 SCRA 245 [2009])

Facts

Respondent Petron Corporation (Petron) sold and distributed liquefied petroleum gas (LPG) in cylinder
tanks that carried its trademark "Gasul."1 Respondent Carmen J. Doloiras owned and operated Kristina
Patricia Enterprises (KPE), the exclusive distributor of Gasul LPGs in the whole of Sorsogon.2 Jose
Nelson Doloiras (Jose) served as KPE’s manager.
Bicol Gas Refilling Plant Corporation (Bicol Gas) was also in the business of selling and distributing
LPGs in Sorsogon but theirs carried the trademark "Bicol Savers Gas." Petitioner Audie Llona managed
Bicol Gas.

In the course of trade and competition, any given distributor of LPGs at times acquired possession of LPG
cylinder tanks belonging to other distributors operating in the same area. They called these "captured
cylinders." According to Jose, KPE’s manager, in April 2001 Bicol Gas agreed with KPE for the
swapping of "captured cylinders" since one distributor could not refill captured cylinders with its own
brand of LPG.

On August 4, 2001 KPE’s Jose saw a particular Bicol Gas truck on the Maharlika Highway. While the
truck carried mostly Bicol Savers LPG tanks, it had on it one unsealed 50-kg Gasul tank and one 50-kg
Shellane tank. Jose followed the truck and when it stopped at a store, he asked the driver, Jun Leorena,
and the Bicol Gas sales representative, Jerome Misal, about the Gasul tank in their truck. They said it was
empty but, when Jose turned open its valve, he noted that it was not. Misal and Leorena then admitted
that the Gasul and Shellane tanks on their truck belonged to a customer who had them filled up by Bicol
Gas. Misal then mentioned that his manager was a certain Rolly Mirabena.

Because of the above incident, KPE filed a complaint3 for violations of Republic Act (R.A.) 623
(illegally filling up registered cylinder tanks), as amended, and Sections 155 (infringement of trade
marks) and 169.1 (unfair competition) of the Intellectual Property Code (R.A. 8293). The complaint
charged the following: Jerome Misal, Jun Leorena, Rolly Mirabena, Audie Llona, and several John and
Jane Does, described as the directors, officers, and stockholders of Bicol Gas. These directors, officers,
and stockholders were eventually identified during the preliminary investigation.

Issue

2. Whether or not the facts of the case warranted the filing of charges against the Bicol Gas people for:

a) Filling up the LPG tanks registered to another manufacturer without the latter’s consent in violation of
R.A. 623, as amended;

b) Trademark infringement consisting in Bicol Gas’ use of a trademark that is confusingly similar to
Petron’s registered "Gasul" trademark in violation of section 155 also of R.A. 8293; and

c) Unfair competition consisting in passing off Bicol Gas-produced LPGs for Petron-produced Gasul LPG
in violation of Section 168.3 of R.A. 8293.

Held

No. Bicol Gas is a corporation. As such, it is an entity separate and distinct from the persons of its
officers, directors, and stockholders. It has been held, however, that corporate officers or employees,
through whose act, default or omission the corporation commits a crime, may themselves be individually
held answerable for the crime.15

The finding of the Court of Appeals that the employees "could not have committed the crimes without the
consent, [abetment], permission, or participation of the owners of Bicol Gas"18 is a sweeping
speculation especially since, as demonstrated above, what was involved was just one Petron Gasul
tank found in a truck filled with Bicol Gas tanks. Although the KPE manager heard petitioner Llona
say that he was going to consult the owners of Bicol Gas regarding the offer to swap additional captured
cylinders, no indication was given as to which Bicol Gas stockholders Llona consulted. It would be unfair
to charge all the stockholders involved, some of whom were proved to be minors.19 No evidence was
presented establishing the names of the stockholders who were charged with running the operations of
Bicol Gas. The complaint even failed to allege who among the stockholders sat in the board of directors
of the company or served as its officers.
The "owners" of a corporate organization are its stockholders and they are to be distinguished from its
directors and officers. The petitioners here, with the exception of Audie Llona, are being charged in their
capacities as stockholders of Bicol Gas. But the Court of Appeals forgets that in a corporation, the
management of its business is generally vested in its board of directors, not its stockholders. 17
Stockholders are basically investors in a corporation. They do not have a hand in running the day-to-day
business operations of the corporation unless they are at the same time directors or officers of the
corporation. Before a stockholder may be held criminally liable for acts committed by the
corporation, therefore, it must be shown that he had knowledge of the criminal act committed in
the name of the corporation and that he took part in the same or gave his consent to its commission,
whether by action or inaction.

Jose Roy III vs. Herbosa (G.R. No. 207246, Nov. 22, 2016)

Facts

Before the Court is the Motion for Reconsideration dated January 19, 2017 (the Motion) filed by
petitioner Jose M. Roy III (movant) seeking the reversal and setting aside of the Decision dated
November 22, 2016 (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 (Gamboa Decision) and the resolution
denying the Motion for Reconsideration therein (Gamboa Resolution).

The Motion presents no compelling and new arguments to justify the reconsideration of the 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.

Issue

Whether or not SEC committed grave abuse of discretion amounting to lack or excess of jurisdiction
when it issued SEC-MC No. 8.

Held

SEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it issued
SEC-MC No. 8. The Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision
and Resolution.

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 confined 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.

The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution, which
provides: "No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under
the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens x x x."

The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is
"[fJull [and legal] beneficial 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." 11 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

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 fallo or decretal/dispositive portions of both the Gamboa Decision and Resolution are definite, 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, the definiteness 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."
Meralco vs. T.E.A.M. Electronics Corp. (540 SCRA 62 [2007])

FACTS

Respondent T.E.A.M. Electronics Corporation (TEC) is wholly owned by respondent Technology

Electronics Assembly and Management Pacific Corporation (TPC). On the other hand, petitioner Manila
Electric Company (Meralco) is a utility company supplying electricity in the Metro Manila area.

MERALCO alleges that TEC tampered the electric meters in its buildings and should thus be liable for
differential billings. For failure of TEC to pay such differential billing, petitioner disconnected the
electricity supply to said buildings.

TEC and TPC filed a complaint for damages against MERALCO before the RTC Pasig. The RTC ruled
in favor of TEC-TPC and ordered MERALCO to pay the former AD, MD, ED and AF. The court found
the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meter installations.
The CA affirmed the RTC decision with modifications, hence this petition for review on certiorari under
Rule 45.

ISSUE

Whether or not the award of MD proper?

HELD

No. We, however, deem it proper to delete the award of moral damages. TEC’s claim was premised
allegedly on the damage to its goodwill and reputation. As a rule, a corporation is not entitled to moral
damages because, not being a natural person, it cannot experience physical suffering or sentiments like
wounded feelings, serious anxiety, mental anguish and moral shock.

The only exception to this rule is when the corporation has a reputation that is debased, resulting in its
humiliation in the business realm. But in such a case, it is imperative for the claimant to present proof to
justify the award. It is essential to prove the existence of the factual basis of the damage and its causal
relation to petitioner’s acts. In the present case, the records are bereft of any evidence that the name or
reputation of TEC/TPC has been debased as a result of petitioner’s acts

Acebedo Optical vs. CA (329 SCRA 314 [2000])

FACTS

Petitioner Acebedo Optical Company, Inc. applied for a business permit to operate in Iligan City. After
hearing the sides of local optometrists, Mayor Camilo Cabili of Iligan granted the permit but he attached
various special conditions which basically made Acebedo dependent upon prescriptions or limitations to
be issued by local optometrists. Petitioner basically is not allowed to practice optometry within the city
(but may sell glasses only). Acebedo however acquiesced to the said conditions and operated under the
permit.

Private respondent Samahan ng Optometrist Sa Pilipinas (SOPI), Iligan Chapter, lodged a complaint
against the petitioner before the Office of the City Mayor, alleging that Acebedo had violated the
conditions set forth in its business permit and requesting the cancellation and/or revocation of such
permit. Acting on such complaint, then City Mayor conduct an investigation through the City Legal
Officer on the matter. Respondent City Legal Officer submitted a report to the City Mayor finding the
herein petitioner guilty of violating all the conditions of its business permit and recommending the
disqualification of petitioner from operating its business in Iligan City.

ISSUE

Whether or not the respondent city mayor acted beyond his authority in imposing the special conditions in
the permit

HELD

Yes, the power to issue licenses and permits necessarily includes the corollary power to revoke, withdraw
or cancel the same. And the power to revoke or cancel, likewise includes the power to restrict through the
imposition of certain conditions. In the case of Austin-Hardware, Inc. vs. Court of Appeals,[7] it was held
that the power to license carries with it the authority to provide reasonable terms and conditions under
which the licensed business shall be conducted. As the Solicitor General puts it:

"If the City Mayor is empowered to grant or refuse to grant a license, which is a broader power, it stands
to reason that he can also exercise a lesser power that is reasonably incidental to his express power, i. e. to
restrict a license through the imposition of certain conditions, especially so that there is no positive
prohibition to the exercise of such prerogative by the City Mayor, nor is there any particular official or
body vested with such authority"

However, Distinction must be made between the grant of a license or permit to do business and the
issuance of a license to engage in the practice of a particular profession. The first is usually granted
by the local authorities and the second is issued by the Board or Commission tasked to regulate the
particular profession. A business permit authorizes the person, natural or otherwise, to engage in business
or some form of commercial activity. A professional license, on the other hand, is the grant of authority to
a natural person to engage in the practice or exercise of his or her profession.

In the case at bar, what is sought by petitioner from respondent City Mayor is a permit to engage in the
business of running an optical shop. It does not purport to seek a license to engage in the practice of
optometry as a corporate body or entity, although it does have in its employ, persons who are duly
licensed to practice optometry by the Board of Examiners in Optometry.

A business permit is issued primarily to regulate the conduct of business and the City Mayor cannot,
through the issuance of such permit, regulate the practice of a profession, like that of optometry. Such a
function is within the exclusive domain of the administrative agency specifically empowered by law to
supervise the profession, in this case the Professional Regulations Commission and the Board of
Examiners in Optometry.

The regulatory power to issue licenses or permits extends only up to the regulation of a business and not
in the regulation of a profession. Therefore, the acts of the mayor are ultra vires and cannot be given
effect.

Int’l Express Travel vs. CA (343 SCRA 674 [2000])

Facts

On June 30, 1989, petitioner International Express Travel and Tours Services Inc., through its managing
director, wrote a letter to the Philippine Football Federation through its President Henri Kahn, wherein the
former offered its services as a travel agency to the latter. The offer was accepted. Petitioner secured the
airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in
Kuala Lumpur as well as various other trips to the People’s Republic of China and Brisbane. The total
cost of the tickets amounted to Php449,654.83. For the tickets received, the Federation made two partial
payments, both in September of 1989 in the total amount of Php176,467.50. On October 4, 1989,
petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount
of Php265,844.33. On October 30, 1989, the Federation, through the project gintong alay, paid the
amount of Php31,603. On December 27, 1989, Henri Kahn issued a personal check in the amount of
Php50,000 as partial payment for the outstanding balance of the Federation. Thereafter, no further
payments were made despite repeated demands. Hence, this petition.

Issue

Whether or not private respondent can be made personally liable for the liabilities of the Philippines
Football Federation.

Held

Yes. A voluntary unincorporated association, like defendant Federation has no power to enter into, or to
ratify a contract. The contract entered into by its officers or agents on behalf of such association is
binding or, as enforceable against it. The officers or agents are themselves personally liable.

In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for
reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football
Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and
accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is not a national sports
association within the purview of the aforementioned laws and does not have corporate existence of its
own.

Thus being said, it follows that private respondent Henri Kahn should be liable for the unpaid obligations
of the unincorporated Philippine Football Federation. It is a settled principle in corporation law that any
person acting or purporting to act on behalf of the corporation which has no valid existence assumed such
privileges and becomes personally liable for contract entered into or for other acts performed as such
agent.

The Missionary Sisters of Our Lady of Fatima vs. Alzona (G.R. No. 224307, August 6, 2018)

Facts:

The Missionary Sisters of Our Lady of Fatima (petitioner), is a religious and charitable group Its primary
mission is to take care of the abandoned and neglected elderly persons.

The petitioner came into being as a corporation by virtue of a Certificate issued by the Securities and
Exchange Commission (SEC) on August 31, 2001. Mother Ma. Concepcion R. Realon (Mother
Concepcion) is the petitioner's Superior General. The respondents, on the other hand, are the legal heirs of
the late Purificacion Y. Alzona (Purificacion).

Purificacion, a spinster, is the registered owner of parcels of land... and a co-owner of another property...
all of which are located in Calamba City, Laguna. Purificacion, impelled by her unmaterialized desire to
be nun, decided to devote the rest of her life in helping others. In the same year, she then became a
benefactor of the petitioner by giving support to the community and its works.

Therein, Purificacion after knowing she has lung donate the house and lot at F. Mercado Street and
Riceland at Banlic, both at Calamba, Laguna, to the petitioner through Mother Concepcion. Purificacion
executed a Deed of Donation Inter Vivos (Deed) in favor of the petitioner, conveying her properties... and
her undivided share in the property
Purificacion died without any issue, and survived only by her brother of full blood, Amando, who filed a
Complaint before the RTC, seeking to annul the Deed executed between Purificacion and the petitioner,
on the ground that at the time the donation was made, the latter was not registered with the SEC and
therefore has no juridical personality and cannot legally accept the donation

RTC rendered its Decision[16] finding no merit in the complaint

On the capacity of the donee, the RTC held that at the time of the execution of the Deed, the petitioner
was a de facto corporation and as such has the personality to be a beneficiary and has the power to
acquire and possess property.

The CA ruled that the petitioner cannot enter into a contract of Donation with Purificacion.[26]...
petitioner contends that it is a de facto corporation and therefore possessed of the requisite personality to
enter into a contract of donation.

Assuming further that it cannot be considered as a de facto corporation, the petitioner submits that the
acceptance by Mother Concepcion while the religious organization is still in the process of incorporation
is valid as it then takes the form of a pre-incorporation contract governed by the rules on agency.

the petitioner argues that the intestate estate of Purificacion is estopped from questioning its legal
personality considering the record is replete of evidence to prove that Purificacion at the time of the
donation is fully aware of its status and yet was still resolved into giving her property.

In response, the respondents submit that juridical personality to enter into a contract of donation is vested
only upon the issuance of a Certificate of Incorporation from SEC.

Further, the respondents posit that the petitioner cannot even be considered as a de facto corporation
considering that for more than 20 years, there was never any attempt on its part to incorporate,

Issues:

whether or not the Deed executed by Purificacion in favor of the petitioner is valid and binding

Ruling:

The Court finds that for the purpose of accepting the donation, the petitioner is deemed vested with
personality to accept, and Mother Concepcion is clothed with authority to act on the latter's behalf.

At the outset, it must be stated that as correctly pointed out by the CA, the RTC erred in holding that the
petitioner is a de facto corporation.

Jurisprudence settled that "[t]he filing of articles of incorporation and the issuance of the
certificate of incorporation are essential for the existence of a de facto corporation."[38] In fine, it is
the act of registration with SEC through the issuance of a certificate of incorporation that marks
the beginning of an entity's corporate existence.

Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001. However, the SEC issued
the corresponding Certificate of Incorporation only on August 31, 2001, two (2) days after Purificacion
executed a Deed of Donation on August 29, 2001. Clearly, at the time the donation was made, the
Petitioner cannot be considered a corporation de facto.
Rather, a review of the attendant circumstances reveals that it calls for the application of the doctrine of
corporation by estoppel as provided for under Section 21 of the Corporation Code

The doctrine of corporation by estoppel is founded on principles of equity and is designed to prevent
injustice and unfairness. It applies when a non-existent corporation enters into contracts or dealings with
third persons.[41] In which case, the person who has contracted or otherwise dealt with the non-
existent corporation is estopped to deny the latter's legal existence in any action leading out of or
involving such contract or dealing.

In this controversy, Purificacion dealt with the petitioner as if it were a corporation. This is evident from
the fact that Purificacion executed two (2) documents conveying her properties in favor of the petitioner...
the latter having been executed the day after the petitioner filed its application for registration with the
SEC

The doctrine of corporation by estoppel rests on the idea that if the Court were to disregard the existence
of an entity which entered into a transaction with a third party, unjust enrichment would result as some
form of benefit have already accrued on the part of one of the parties. Thus, in that instance, the
Court affords upon the unorganized entity corporate fiction and juridical personality for the sole purpose
of upholding the contract or transaction.

In this case, while the underlying contract which is sought to be enforced is that of a donation, and thus
rooted on liberality, it cannot be said that Purificacion, as the donor failed to acquire any benefit
therefrom so as to prevent the application of the doctrine of corporation by estoppel.

the subject deed partakes of the nature of a remuneratory or compensatory donation, having been made
"for the purpose of rewarding the donee for past services, which services do not amount to a demandable
debt."... past services constitutes consideration, which in tum can be regarded as "benefit" on the part of
the donor, consequently, there exists no obstacle to the application of the doctrine of corporation by
estoppel;