G.R. No.
L-23145 November 29, 1968 It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary
administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust
Company of New York, United States of America, of the estate of the deceased Idonah Slade Perkins,
who died in New York City on March 27, 1960, to surrender to the ancillary administrator in the
Philippines the stock certificates owned by her in a Philippine corporation, Benguet Consolidated, Inc.,
to satisfy the legitimate claims of local creditors, the lower court, then presided by the Honorable
Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the
motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the
Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with
the administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates
covering the 33,002 shares of stock standing in her name in the books of the Benguet Consolidated,
Inc., (2) orders said certificates cancelled, and (3) directs said corporation to issue new certificates in
lieu thereof, the same to be delivered by said corporation to either the incumbent ancillary administrator
or to the Probate Division of this Court."1
From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County
Trust Company of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The
appeal cannot possibly prosper. The challenged order represents a response and expresses a policy, to
paraphrase Frankfurter, arising out of a specific problem, addressed to the attainment of specific ends
by the use of specific remedies, with full and ample support from legal doctrines of weight and
significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade
Perkins, who died on March 27, 1960 in New York City, left among others, two stock certificates
covering 33,002 shares of appellant, the certificates being in the possession of the County Trust
Company of New York, which as noted, is the domiciliary administrator of the estate of the
deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad
instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A.
Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the
appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the
ancillary administrator in the Philippines as to which of them was entitled to the possession of the stock
certificates in question. On January 27, 1964, the Court of First Instance of Manila ordered the
domiciliary administrator, County Trust Company, to "produce and deposit" them with the ancillary
administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and
on February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the
certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade
Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it
is concerned as to "who is entitled to the possession of the stock certificates in question; appellant
opposed the petition of the ancillary administrator because the said stock certificates are in existence,
they are today in the possession of the domiciliary administrator, the County Trust Company, in New
York, U.S.A...."4
considered as lost. Moreover, it would allege that there was a failure to observe certain requirements of
its by-laws before new stock certificates could be issued. Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes
an emphatic affirmation of judicial authority sought to be emasculated by the wilful conduct of the
domiciliary administrator in refusing to accord obedience to a court decree. How, then, can this order be
stigmatized as illegal?
As is true of many problems confronting the judiciary, such a response was called for by the realities of
the situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually
reached it, cannot without undue loss of judicial prestige, be condoned or tolerated. For the law is not so
lacking in flexibility and resourcefulness as to preclude such a solution, the more so as deeper reflection
would make clear its being buttressed by indisputable principles and supported by the strongest policy
considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less
than that of the country. Through this challenged order, there is thus dispelled the atmosphere of
contingent frustration brought about by the persistence of the domiciliary administrator to hold on to the
stock certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of the lower court
by entering its appearance through counsel on June 27, 1963, and filing a petition for relief from a
previous order of March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was
decreed. For without it, what it had been decided would be set at naught and nullified. Unless such a
blatant disregard by the domiciliary administrator, with residence abroad, of what was previously
ordained by a court order could be thus remedied, it would have entailed, insofar as this matter was
concerned, not a partial but a well-nigh complete paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator
to gain control and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor
could it. Such a power is inherent in his duty to settle her estate and satisfy the claims of local
creditors.5 As Justice Tuason speaking for this Court made clear, it is a "general rule universally
recognized" that administration, whether principal or ancillary, certainly "extends to the assets of a
decedent found within the state or country where it was granted," the corollary being "that an
administrator appointed in one state or country has no power over property in another state or country."6
It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set
forth by Justice Malcolm. Thus: "It is often necessary to have more than one administration of an estate.
When a person dies intestate owning property in the country of his domicile as well as in a foreign
country, administration is had in both countries. That which is granted in the jurisdiction of decedent's
last domicile is termed the principal administration, while any other administration is termed the ancillary
administration. The reason for the latter is because a grant of administration does not ex proprio
vigore have any effect beyond the limits of the country in which it is granted. Hence, an administrator
appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper,
whenever a person dies, leaving in a country other than that of his last domicile, property to be
administered in the nature of assets of the deceased liable for his individual debts or to be distributed
among his heirs."7
It would follow then that the authority of the probate court to require that ancillary administrator's right to
"the stock certificates covering the 33,002 shares ... standing in her name in the books of [appellant]
Benguet Consolidated, Inc...." be respected is equally beyond question. For appellant is a Philippine
corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of
stock cannot therefore be considered in any wise as immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the
instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled
[here]." To the force of the above undeniable proposition, not even appellant is insensible. It does not
dispute it. Nor could it successfully do so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality
of the challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely
heavy burden of persuasion of precisely demonstrating the contrary? It would assign as the basic error
allegedly committed by the lower court its "considering as lost the stock certificates covering 33,002
shares of Benguet belonging to the deceased Idonah Slade Perkins, ..."9 More specifically, appellant
would stress that the "lower court could not "consider as lost" the stock certificates in question when, as
a matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by the appellee, that
the said stock certificates are in existence and are today in the possession of the domiciliary
administrator in New York."10
There may be an element of fiction in the above view of the lower court. That certainly does not suffice
to call for the reversal of the appealed order. Since there is a refusal, persistently adhered to by the
domiciliary administrator in New York, to deliver the shares of stocks of appellant corporation owned by
the decedent to the ancillary administrator in the Philippines, there was nothing unreasonable or
arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu thereof.
Thereby, the task incumbent under the law on the ancillary administrator could be discharged and his
responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being made to depend on the
uncontrolled discretion of the party or entity, in this case domiciled abroad, which thus far has shown the
utmost persistence in refusing to yield obedience. Certainly, appellant would not be heard to contend in
all seriousness that a judicial decree could be treated as a mere scrap of paper, the court issuing it
being powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not correspond
exactly with the facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived
at. It is to be remembered however, again to borrow from Frankfurter, "that fictions which the law may
rely upon in the pursuit of legitimate ends have played an important part in its development."11
Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance
the ends of justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the
present, that eminent jurist, noting "the quasi contract, the adopted child, the constructive trust, all of
flourishing vitality, to attest the empire of "as if" today."13 He likewise noted "a class of fictions of another
order, the fiction which is a working tool of thought, but which at times hides itself from view till reflection
and analysis have brought it to the light."14
What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the
law. There should be then on the part of the appellant a further refinement in the catholicity of its
condemnation of such judicial technique. If ever an occasion did call for the employment of a legal
fiction to put an end to the anomalous situation of a valid judicial order being disregarded with apparent
impunity, this is it. What is thus most obvious is that this particular alleged error does not carry
persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one
of the provisions of its by-laws which would set forth the procedure to be followed in case of a lost,
stolen or destroyed stock certificate; it would stress that in the event of a contest or the pendency of an
action regarding ownership of such certificate or certificates of stock allegedly lost, stolen or destroyed,
the issuance of a new certificate or certificates would await the "final decision by [a] court regarding the
ownership [thereof]."15
Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is
admitted that the foreign domiciliary administrator did not appeal from the order now in question.
Moreover, there is likewise the express admission of appellant that as far as it is concerned, "it is
immaterial ... who is entitled to the possession of the stock certificates ..." Even if such were not the
case, it would be a legal absurdity to impart to such a provision conclusiveness and finality. Assuming
that a contrariety exists between the above by-law and the command of a court decree, the latter is to
be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which,
however, the judiciary must yield deference, when appropriately invoked and deemed applicable. It
would be most highly unorthodox, however, if a corporate by-law would be accorded such a high estate
in the jural order that a court must not only take note of it but yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be
set aside for its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful
court order certainly constitutes a valid defense, assuming that such apprehension of a possible court
action against it could possibly materialize. Thus far, nothing in the circumstances as they have
developed gives substance to such a fear. Gossamer possibilities of a future prejudice to appellant do
not suffice to nullify the lawful exercise of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at
war with the basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by operation of
law...."16 It owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated:
"Classically, a corporation was conceived as an artificial person, owing its existence through creation by
a sovereign power."17 As a matter of fact, the statutory language employed owes much to Chief Justice
Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being,
invisible, intangible, and existing only in contemplation of law."18
The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in
reality a person, but the law treats it as though it were a person by process of fiction, or by regarding it
as an artificial person distinct and separate from its individual stockholders.... It owes its existence to
law. It is an artificial person created by law for certain specific purposes, the extent of whose existence,
powers and liberties is fixed by its charter."19 Dean Pound's terse summary, a juristic person, resulting
from an association of human beings granted legal personality by the state, puts the matter neatly.20
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from
Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition and
concession."21 A corporation as known to Philippine jurisprudence is a creature without any existence
until it has received the imprimatur of the state according to law. It is logically inconceivable therefore
that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot
legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary,
whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of persuasive
authority in our jurisdiction, comes more often within the ken of the judiciary than the other two
coordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not
immune from judicial control in those instances, where a duty under the law as ascertained in an
appropriate legal proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not
autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may, when
so minded, overrule the state, the source of its very existence; it is to contend that what any of its
governmental organs may lawfully require could be ignored at will. So extravagant a claim cannot
possibly merit approval.
Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet
Consolidated seems to be firmly committed as shown by its failure to accept the validity of the order
complained of; it seeks its reversal. Certainly we must at all pains see to it that it does not succeed. The
deplorable consequences attendant on appellant prevailing attest to the necessity of negative response
from us. That is what appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to
conjure extreme and even oppressive possibilities. That is not decisive. It does not settle the issue.
What carries weight and conviction is the result arrived at, the just solution obtained, grounded in the
soundest of legal doctrines and distinguished by its correspondence with what a sense of realism
requires. For through the appealed order, the imperative requirement of justice according to law is
satisfied and national dignity and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First
Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated,
Inc.

5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship
proceedings then pending in a lower court, the United States Veterans Administration filed a motion for
the refund of a certain sum of money paid to the minor under guardianship, alleging that the lower court
had previously granted its petition to consider the deceased father as not entitled to guerilla benefits
according to a determination arrived at by its main office in the United States. The motion was denied.
In seeking a reconsideration of such order, the Administrator relied on an American federal statute
making his decisions "final and conclusive on all questions of law or fact" precluding any other American
official to examine the matter anew, "except a judge or judges of the United States
court."23 Reconsideration was denied, and the Administrator appealed.

In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that
the appeal should be rejected. The provisions of the U.S. Code, invoked by the appellant, make the
decisions of the U.S. Veterans' Administrator final and conclusive when made on claims property
submitted to him for resolution; but they are not applicable to the present case, where the Administrator
is not acting as a judge but as a litigant. There is a great difference between actions against the
Administrator (which must be filed strictly in accordance with the conditions that are imposed by the
Veterans' Act, including the exclusive review by United States courts), and those actions where the
Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions
therein. Our attention has not been called to any law or treaty that would make the findings of the
Veterans' Administrator, in actions where he is a party, conclusive on our courts. That, in effect, would
deprive our tribunals of judicial discretion and render them mere subordinate instrumentalities of the
Veterans' Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive,
determinations made by foreign governmental agencies. It is infinitely worse if through the absence of
any coercive power by our courts over juridical persons within our jurisdiction, the force and effectivity of
their orders could be made to depend on the whim or caprice of alien entities. It is difficult to imagine of
a situation more offensive to the dignity of the bench or the honor of the country.
G.R. No. 181277 July 3, 2013
SWEDISH MATCH PHILIPPINES, INC., Petitioner,
vs.
THE TREASURER OF THE CITYOF MANILA, Respondent.
THE FACTS
On 20 October 2001, petitioner paid business taxes in the total amount of ₱470,932.21.4 The assessed
amount was based on Sections 145 and 216 of Ordinance No. 7794, otherwise known as the Manila
Revenue Code, as amended by Ordinance Nos. 7988 and 8011. Out of that amount, ₱164,552.04
corresponded to the payment under Section 21.7
Assenting that it was not liable to pay taxes under Section 21, petitioner wrote a letter8 dated 17
September 2003 to herein respondent claiming a refund of business taxes the former had paid pursuant
to the said provision. Petitioner argued that payment under Section 21 constituted double taxation in
view of its payment under Section 14.
On 17 October 2003, for the alleged failure of respondent to act on its claim for a refund, petitioner filed
a Petition for Refund of Taxes9 with the RTC of Manila in accordance with Section 196 of the Local
Government Code of 1991. The Petition was docketed as Civil Case No. 03-108163.
On 14 June 2004, the Regional Trial Court (RTC), Branch 21 of Manila rendered a Decision10 in Civil
Case No. 03-108163 dismissing the Petition for the failure of petitioner to plead the latter’s capacity to
sue and to state the authority of Tiarra T. Batilaran-Beleno (Ms. Beleno), who had executed the
Verification and Certification of Non-Forum Shopping.
In denying petitioner’s Motion for Reconsideration, the RTC went on to say that Sections 14 and 21
pertained to taxes of a different nature and, thus, the elements of double taxation were wanting in this
case.
On appeal, the CTA Second Division affirmed the RTC’s dismissal of the Petition for Refund of Taxes
on the ground that petitioner had failed to state the authority of Ms. Beleno to institute the suit.
The CTA En Banc likewise denied the Petition for Review, ruling as follows:
In this case, the plaintiff is the Swedish Match Philippines, Inc. However, as found by the RTC as well
as the Court in Division, the signatory of the verification and/or certification of non-forum shopping is Ms.
Beleno, the company’s Finance Manager, and that there was no board resolution or secretary's
certificate showing proof of Ms. Beleno’s authority in acting in behalf of the corporation at the time the
initiatory pleading was filed in the RTC. It is therefore, correct that the case be dismissed.
WHEREFORE, premises considered, the petition for review is hereby DENIED. Accordingly, the
assailed Decision and the Resolution dated August 8, 2006 and November 27, 2006, respectively, are
hereby AFFIRMED in toto.
SO ORDERED.11
ISSUES
In order to determine the entitlement of petitioner to a refund of taxes, the instant Petition requires the
resolution of two main issues, to wit:
1) Whether Ms. Beleno was authorized to file the Petition for Refund of Taxes with the RTC;
and
2) Whether the imposition of tax under Section 21 of the Manila Revenue Code constitutes
double taxation in view of the tax collected and paid under Section 14 of the same code.12
THE COURT’S RULING
Authority from the board to sign the
Verification and Certification of
Non-Forum Shopping
Anent the procedural issue, petitioner argues that there can be no dispute that Ms. Beleno was acting
within her authority when she instituted the Petition for Refund before the RTC, notwithstanding that the
Petition was not accompanied by a Secretary’s Certificate. Her authority was ratified by the Board in its
Resolution adopted on 19 May 2004. Thus, even if she was not authorized to execute the Verification
and Certification at the time of the filing of the Petition, the ratification by the board of directors
retroactively applied to the date of her signing.
On the other hand, respondent contends that petitioner failed to establish the authority of Ms. Beleno to
institute the present action on behalf of the corporation. Citing Philippine Airlines v. Flight Attendants
and Stewards Association of the Philippines (PAL v. FASAP),13 respondent avers that the required
certification of non-forum shopping should have been valid at the time of the filing of the Petition. The
Petition, therefore, was defective due to the flawed Verification and Certification of Non-Forum
Shopping, which were insufficient in form and therefore a clear violation of Section 5, Rule 7 of the 1997
Rules of Civil Procedure.
We rule for petitioner.
Time and again, this Court has been faced with the issue of the validity of the verification and
certification of non-forum shopping, absent any authority from the board of directors.
The power of a corporation to sue and be sued is lodged in the board of directors, which exercises its
corporate powers.14 It necessarily follows that "an individual corporate officer cannot solely exercise any
corporate power pertaining to the corporation without authority from the board of directors."15 Thus,
physical acts of the corporation, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of
directors.16
Consequently, a verification signed without an authority from the board of directors is defective.
However, the requirement of verification is simply a condition affecting the form of the pleading and non-
compliance does not necessarily render the pleading fatally defective.17 The court may in fact order the
correction of the pleading if verification is lacking or, it may act on the pleading although it may not have
been verified, where it is made evident that strict compliance with the rules may be dispensed with so
that the ends of justice may be served.18
Respondent cites this Court’s ruling in PAL v. FASAP,19 where we held that only individuals vested with
authority by a valid board resolution may sign a certificate of non-forum shopping on behalf of a
corporation. The petition is subject to dismissal if a certification was submitted unaccompanied by proof
of the signatory’s authority.20 In a number of cases, however, we have recognized exceptions to this
rule. Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue21 provides:
In a slew of cases, however, we have recognized the authority of some corporate officers to sign the
verification and certification against forum shopping. In Mactan-Cebu International Airport Authority v.
CA, we recognized the authority of a general manager or acting general manager to sign the verification
and certificate against forum shopping; in Pfizer v. Galan, we upheld the validity of a verification signed
by an "employment specialist" who had not even presented any proof of her authority to represent the
company; in Novelty Philippines, Inc., v. CA, we ruled that a personnel officer who signed the petition
but did not attach the authority from the company is authorized to sign the verification and non-forum
shopping certificate; and in Lepanto Consolidated Mining Company v. WMC Resources International
Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and President of the Company can sign
the verification and certificate against non-forum shopping even without the submission of the board’s
authorization.
In sum, we have held that the following officials or employees of the company can sign the verification
and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2)
the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel
Officer, and (5) an Employment Specialist in a labor case.
While the above cases do not provide a complete listing of authorized signatories to the verification and
certification required by the rules, the determination of the sufficiency of the authority was done on a
case to case basis. The rationale applied in the foregoing cases is to justify the authority of corporate
officers or representatives of the corporation to sign the verification or certificate against forum
shopping, being "in a position to verify the truthfulness and correctness of the allegations in the petition."
(Emphases supplied)
Given the present factual circumstances, we find that the liberal jurisprudential exception may be
applied to this case.
A distinction between noncompliance and substantial compliance with the requirements of a certificate
of non-forum shopping and verification as provided in the Rules of Court must be made.22 In this case, it
is undisputed that the Petition filed with the RTC was accompanied by a Verification and Certification of
Non-Forum Shopping signed by Ms. Beleno, although without proof of authority from the board.
However, this Court finds that the belated submission of the Secretary’s Certificate constitutes
substantial compliance with Sections 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure.
A perusal of the Secretary’s Certificate signed by petitioner’s Corporate Secretary Rafael Khan and
submitted to the RTC shows that not only did the corporation authorize Ms. Beleno to execute the
required Verifications and/or Certifications of Non-Forum Shopping, but it likewise ratified her act of
filing the Petition with the RTC. The Minutes of the Special Meeting of the Board of Directors of
petitioner-corporation on 19 May 2004 reads:
RESOLVED, that Tiarra T. Batilaran-Beleno, Finance Director of the Corporation, be authorized, as she
is hereby authorized and empowered to represent, act, negotiate, sign, conclude and deliver, for and in
the name of the Corporation, any and all documents for the application, prosecution, defense,
arbitration, conciliation, execution, collection, compromise or settlement of all local tax refund cases
pertaining to payments made to the City of Manila pursuant to Section 21 of the Manila Revenue Code,
as amended;
RESOLVED, FURTHER, that Tiarra T. Batilaran-Beleno be authorized to execute Verifications and/or
Certifications as to Non-Forum Shopping of Complaints/Petitions that may be filed by the Corporation in
the above-mentioned tax-refund cases;
RESOLVED, FURTHER, that the previous institution by Tiarra T. Batilaran-Beleno of tax refund cases
on behalf of the Corporation, specifically Civil Cases Nos. 01-102074, 03-108163, and, 04-109044, all
titled "Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila" and pending in the
Regional Trial Court of Manila, as well as her execution of the Verifications and/or Certifications as to
Non-Forum Shopping in these tax refund cases, are hereby, approved and ratified in all respects.
(Emphasis supplied)
Clearly, this is not an ordinary case of belated submission of proof of authority from the board of
directors. Petitioner-corporation ratified the authority of Ms. Beleno to represent it in the Petition filed
before the RTC, particularly in Civil Case No. 03-108163, and consequently to sign the verification and
certification of non-forum shopping on behalf of the corporation. This fact confirms and affirms her
authority and gives this Court all the more reason to uphold that authority.23
Additionally, it may be remembered that the Petition filed with the RTC was a claim for a refund of
business taxes. It should be noted that the nature of the position of Ms. Beleno as the corporation’s
finance director/manager is relevant to the determination of her capability and sufficiency to verify the
truthfulness and correctness of the allegations in the Petition. A finance director/manager looks after the
overall management of the financial operations of the organization and is normally in charge of financial
reports, which necessarily include taxes assessed and paid by the corporation. Thus, for this particular
case, Ms. Beleno, as finance director, may be said to have been in a position to verify the truthfulness
and correctness of the allegations in the claim for a refund of the corporation’s business taxes.
In Mediserv v. Court of Appeals,24 we said that a liberal construction of the rules may be invoked in
situations in which there may be some excusable formal deficiency or error in a pleading, provided that
the invocation thereof does not subvert the essence of the proceeding, but at least connotes a
reasonable attempt at compliance with the rules. After all, rules of procedure are not to be applied in a
very rigid, technical manner, but are used only to help secure substantial justice.25
More importantly, taking into consideration the substantial issue of this case, we find a special
circumstance or compelling reason to justify the relaxation of the rule. Therefore, we deem it more in
accord with substantive justice that the case be decided on the merits.
Double taxation
As to the substantive issues, petitioner maintains that the enforcement of Section 21 of the Manila
Revenue Code constitutes double taxation in view of the taxes collected under Section 14 of the same
code. Petitioner points out that Section 21 is not in itself invalid, but the enforcement of this provision
would constitute double taxation if business taxes have already been paid under Section 14 of the same
revenue code. Petitioner further argues that since Ordinance Nos. 7988 and 8011 have already been
declared null and void in Coca-Cola Bottlers Philippines, Inc. v. City of Manila,26 all taxes collected and
paid on the basis of these ordinances should be refunded.
In turn, respondent argues that Sections 14 and 21 pertain to two different objects of tax; thus, they are
not of the same kind and character so as to constitute double taxation. Section 14 is a tax on
manufacturers, assemblers, and other processors, while Section 21 applies to businesses subject to
excise, value-added, or percentage tax. Respondent posits that under Section 21, petitioner is merely a
withholding tax agent of the City of Manila.
At the outset, it must be pointed out that the issue of double taxation is not novel, as it has already been
settled by this Court in The City of Manila v. Coca-Cola Bottlers Philippines, Inc.,27 in this wise:
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their
own detriment. Said exempting proviso was precisely included in said section so as to avoid double
taxation.
Double taxation means taxing the same property twice when it should be taxed only once; that is,
"taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious when the
taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate taxation,"
the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same
kind or character.
Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is
subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being
imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila; (2) for
the same purpose – to make persons conducting business within the City of Manila contribute to city
revenues; (3) by the same taxing authority – petitioner City of Manila; (4) within the same taxing
jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per
calendar year; and (6) of the same kind or character – a local business tax imposed on gross sales or
receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax
Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the
power of municipalities and cities to impose a local business tax, and to which any local business tax
imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits,
wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said municipality or
city may no longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the
same Code. Section 143(h) may be imposed only on businesses that are subject to excise tax, VAT, or
percentage tax under the NIRC, and that are "not otherwise specified in preceding paragraphs." In the
same way, businesses such as respondent’s, already subject to a local business tax under Section 14
of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made
liable for local business tax under Section 21 of the same Tax Ordinance [which is based on Section
143(h) of the LGC].28 (Emphases supplied)
Based on the foregoing reasons, petitioner should not have been subjected to taxes under Section 21 of
the Manila Revenue Code for the fourth quarter of 2001, considering that it had already been paying
local business tax under Section 14 of the same ordinance.
Further, we agree with petitioner that Ordinance Nos. 7988 and 8011 cannot be the basis for the
collection of business taxes. In Coca-Cola,29 this Court had the occasion to rule that Ordinance Nos.
7988 and 8011 were null and void for failure to comply with the required publication for three (3)
consecutive days. Pertinent portions of the ruling read:
It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already been declared by
the DOJ Secretary, in its Order, dated 17 August 2000, as null and void and without legal effect due to
respondents’ failure to satisfy the requirement that said ordinance be published for three consecutive
days as required by law. Neither is there quibbling on the fact that the said Order of the DOJ was never
appealed by the City of Manila, thus, it had attained finality after the lapse of the period to
appeal.1âwphi1
Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated the
findings of the DOJ Secretary that respondents failed to follow the procedure in the enactment of tax
measures as mandated by Section 188 of the Local Government Code of 1991, in that they failed to
publish Tax Ordinance No. 7988 for three consecutive days in a newspaper of local circulation. From
the foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said ordinance was
published only for one day in the 22 May 2000 issue of the Philippine Post in contravention of the
unmistakable directive of the Local Government Code of 1991.
Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May 2002,
went on to dismiss petitioner’s case on the force of the enactment of Tax Ordinance No. 8011,
amending Tax Ordinance No. 7988. Significantly, said amending ordinance was likewise declared null
and void by the DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that "Instead of amending
Ordinance No. 7988, herein respondent should have enacted another tax measure which strictly
complies with the requirements of law, both procedural and substantive. The passage of the assailed
ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way, does not
legally exist." Said Resolution of the DOJ Secretary had, as well, attained finality by virtue of the
dismissal with finality by this Court of respondents’ Petition for Review on Certiorari in G.R. No. 157490
assailing the dismissal by the RTC of Manila, Branch 17, of its appeal due to lack of jurisdiction in its
Order, dated 11 August 2003.30 (Emphasis in the original)
Accordingly, respondent’s assessment under both Sections 14 and 21 had no basis. Petitioner is indeed
liable to pay business taxes to the City of Manila; nevertheless, considering that the former has already
paid these taxes under Section 14 of the Manila Revenue Code, it is exempt from the same payments
under Section 21 of the same code. Hence, payments made under Section 21 must be refunded in
favor of petitioner.
It is undisputed that petitioner paid business taxes based on Sections 14 and 21 for the fourth quarter of
2001 in the total amount of ₱470,932.21.31 Therefore, it is entitled to a refund of
₱164,552.0432 corresponding to the payment under Section 21 of the Manila Revenue Code.
WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the Court of Tax
Appeals En Banc Decision dated 1 October 2007 and Resolution dated 14 January 2008 are
REVERSED and SET ASIDE.
G.R. No. 147402 January 14, 2004
ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte Metropolitan
Water District (LMWD), Tacloban City, petitioner,
vs.
COMMISSION ON AUDIT, Chairman CELSO D. GANGAN, Commissioners RAUL C. FLORES and
EMMANUEL M. DALMAN, and Regional Director of COA Region VIII, respondents.
The Case
This is a petition for certiorari1 to annul the Commission on Audit’s ("COA") Resolution dated 3 January
2000 and the Decision dated 30 January 2001 denying the Motion for Reconsideration. The COA
denied petitioner Ranulfo C. Feliciano’s request for COA to cease all audit services, and to stop
charging auditing fees, to Leyte Metropolitan Water District ("LMWD"). The COA also denied petitioner’s
request for COA to refund all auditing fees previously paid by LMWD.
Antecedent Facts
A Special Audit Team from COA Regional Office No. VIII audited the accounts of LMWD. Subsequently,
LMWD received a letter from COA dated 19 July 1999 requesting payment of auditing fees. As General
Manager of LMWD, petitioner sent a reply dated 12 October 1999 informing COA’s Regional Director
that the water district could not pay the auditing fees. Petitioner cited as basis for his action Sections 6
and 20 of Presidential Decree 198 ("PD 198")2 , as well as Section 18 of Republic Act No. 6758 ("RA
6758"). The Regional Director referred petitioner’s reply to the COA Chairman on 18 October 1999.
On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all
auditing fees LMWD previously paid to COA.
On 16 March 2000, petitioner received COA Chairman Celso D. Gangan’s Resolution dated 3 January
2000 denying his requests. Petitioner filed a motion for reconsideration on 31 March 2000, which COA
denied on 30 January 2001.
On 13 March 2001, petitioner filed this instant petition. Attached to the petition were resolutions of the
Visayas Association of Water Districts (VAWD) and the Philippine Association of Water Districts
(PAWD) supporting the petition.
The Ruling of the Commission on Audit
The COA ruled that this Court has already settled COA’s audit jurisdiction over local water districts
in Davao City Water District v. Civil Service Commission and Commission on Audit,3 as follows:
The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to naught
petitioner’s contention that they are private corporations. It is clear therefrom that the power to
appoint the members who will comprise the members of the Board of Directors belong to the
local executives of the local subdivision unit where such districts are located. In contrast, the
members of the Board of Directors or the trustees of a private corporation are elected from
among members or stockholders thereof. It would not be amiss at this point to emphasize that
a private corporation is created for the private purpose, benefit, aim and end of its members or
stockholders. Necessarily, said members or stockholders should be given a free hand to
choose who will compose the governing body of their corporation. But this is not the case here
and this clearly indicates that petitioners are not private corporations.
The COA also denied petitioner’s request for COA to stop charging auditing fees as well as petitioner’s
request for COA to refund all auditing fees already paid.
The Issues
Petitioner contends that COA committed grave abuse of discretion amounting to lack or excess of
jurisdiction by auditing LMWD and requiring it to pay auditing fees. Petitioner raises the following issues
for resolution:
1. Whether a Local Water District ("LWD") created under PD 198, as amended, is a
government-owned or controlled corporation subject to the audit jurisdiction of COA;
2. Whether Section 20 of PD 198, as amended, prohibits COA’s certified public accountants
from auditing local water districts; and
3. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and
controlled corporations auditing fees.
The Ruling of the Court
The petition lacks merit.
The Constitution and existing laws4 mandate COA to audit all government agencies, including
government-owned and controlled corporations ("GOCCs") with original charters. An LWD is a GOCC
with an original charter. Section 2(1), Article IX-D of the Constitution provides for COA’s audit
jurisdiction, as follows:
SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the
Government, or any of its subdivisions, agencies, or instrumentalities, including government-
owned and controlled corporations with original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and offices that have been granted fiscal autonomy under
this Constitution; (b) autonomous state colleges and universities; (c) other government-owned
or controlled corporations and their subsidiaries; and (d) such non-governmental entities
receiving subsidy or equity, directly or indirectly, from or through the government, which are
required by law or the granting institution to submit to such audit as a condition of subsidy or
equity. However, where the internal control system of the audited agencies is inadequate, the
Commission may adopt such measures, including temporary or special pre-audit, as are
necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the
Government and, for such period as may be provided by law, preserve the vouchers and other
supporting papers pertaining thereto. (Emphasis supplied)
The COA’s audit jurisdiction extends not only to government "agencies or instrumentalities," but also to
"government-owned and controlled corporations with original charters" as well as "other government-
owned or controlled corporations" without original charters.
Whether LWDs are Private or Government-Owned
and Controlled Corporations with Original Charters
Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed
by a long line of cases culminating in Davao City Water District v. Civil Service Commission5 and
just recently reiterated in De Jesus v. Commission on Audit.6 Petitioner maintains that LWDs are not
government-owned and controlled corporations with original charters. Petitioner even argues that LWDs
are private corporations. Petitioner asks the Court to consider certain interpretations of the applicable
laws, which would give a "new perspective to the issue of the true character of water districts."7
Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration ("LWUA")
and not the LWDs. Petitioner claims that LWDs are created "pursuant to" and not created directly by PD
198. Thus, petitioner concludes that PD 198 is not an "original charter" that would place LWDs within
the audit jurisdiction of COA as defined in Section 2(1), Article IX-D of the Constitution. Petitioner
elaborates that PD 198 does not create LWDs since it does not expressly direct the creation of such
entities, but only provides for their formation on an optional or voluntary basis.8 Petitioner adds that the
operative act that creates an LWD is the approval of the Sanggunian Resolution as specified in PD 198.
Petitioner’s contention deserves scant consideration.
We begin by explaining the general framework under the fundamental law. The Constitution recognizes
two classes of corporations. The first refers to private corporations created under a general law. The
second refers to government-owned or controlled corporations created by special charters. Section 16,
Article XII of the Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability.
The Constitution emphatically prohibits the creation of private corporations except by a general law
applicable to all citizens.9 The purpose of this constitutional provision is to ban private corporations
created by special charters, which historically gave certain individuals, families or groups special
privileges denied to other citizens.10
In short, Congress cannot enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law. Stated differently, only corporations
created under a general law can qualify as private corporations. Under existing laws, that general law is
the Corporation Code,11 except that the Cooperative Code governs the incorporation of cooperatives.12
The Constitution authorizes Congress to create government-owned or controlled corporations through
special charters. Since private corporations cannot have special charters, it follows that Congress can
create corporations with special charters only if such corporations are government-owned or controlled.
Obviously, LWDs are not private corporations because they are not created under the Corporation
Code. LWDs are not registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that "[A]ll corporations organized under this code shall file with the Securities
and Exchange Commission articles of incorporation x x x." LWDs have no articles of incorporation, no
incorporators and no stockholders or members. There are no stockholders or members to elect the
board directors of LWDs as in the case of all corporations registered with the Securities and Exchange
Commission. The local mayor or the provincial governor appoints the directors of LWDs for a fixed term
of office. This Court has ruled that LWDs are not created under the Corporation Code, thus:
From the foregoing pronouncement, it is clear that what has been excluded from the coverage
of the CSC are those corporations created pursuant to the Corporation Code. Significantly,
petitioners are not created under the said code, but on the contrary, they were created
pursuant to a special law and are governed primarily by its provision.13 (Emphasis
supplied)
LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution
only government-owned or controlled corporations may have special charters, LWDs can validly exist
only if they are government-owned or controlled. To claim that LWDs are private corporations with a
special charter is to admit that their existence is constitutionally infirm.
Unlike private corporations, which derive their legal existence and power from the Corporation Code,
LWDs derive their legal existence and power from PD 198. Sections 6 and 25 of PD 19814 provide:
Section 6. Formation of District. — This Act is the source of authorization and power to
form and maintain a district. For purposes of this Act, a district shall be considered as a
quasi-public corporation performing public service and supplying public wants. As
such, a district shall exercise the powers, rights and privileges given to private
corporations under existing laws, in addition to the powers granted in, and subject to
such restrictions imposed, under this Act.
(a) The name of the local water district, which shall include the name of the city, municipality,
or province, or region thereof, served by said system, followed by the words "Water District".
(b) A description of the boundary of the district. In the case of a city or municipality, such
boundary may include all lands within the city or municipality. A district may include one or
more municipalities, cities or provinces, or portions thereof.
(c) A statement completely transferring any and all waterworks and/or sewerage facilities
managed, operated by or under the control of such city, municipality or province to such district
upon the filing of resolution forming the district.
(d) A statement identifying the purpose for which the district is formed, which shall include
those purposes outlined in Section 5 above.
(e) The names of the initial directors of the district with the date of expiration of term of office
for each.
 (f) A statement that the district may only be dissolved on the grounds and under the conditions
set forth in Section 44 of this Title.
(g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 of
this Title.
Nothing in the resolution of formation shall state or infer that the local legislative body has the
power to dissolve, alter or affect the district beyond that specifically provided for in this Act.
If two or more cities, municipalities or provinces, or any combination thereof, desire to form a
single district, a similar resolution shall be adopted in each city, municipality and province.
xxx
Sec. 25. Authorization. — The district may exercise all the powers which are expressly
granted by this Title or which are necessarily implied from or incidental to the powers
and purposes herein stated. For the purpose of carrying out the objectives of this Act, a
district is hereby granted the power of eminent domain, the exercise thereof shall, however, be
subject to review by the Administration. (Emphasis supplied)
Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers on LWDs
corporate powers. Section 6 of PD 198 provides that LWDs "shall exercise the powers, rights and
privileges given to private corporations under existing laws." Without PD 198, LWDs would have no
corporate powers. Thus, PD 198 constitutes the special enabling charter of LWDs. The ineluctable
conclusion is that LWDs are government-owned and controlled corporations with a special charter.
The phrase "government-owned and controlled corporations with original charters" means GOCCs
created under special laws and not under the general incorporation law. There is no difference between
the term "original charters" and "special charters." The Court clarified this in National Service
Corporation v. NLRC15 by citing the deliberations in the Constitutional Commission, as follows:
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now
read as follows: "including government-owned or controlled corporations WITH ORIGINAL
CHARTERS." The purpose of this amendment is to indicate that government corporations
such as the GSIS and SSS, which have original charters, fall within the ambit of the civil
service. However, corporations which are subsidiaries of these chartered agencies such as the
Philippine Airlines, Manila Hotel and Hyatt are excluded from the coverage of the civil service.
THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?
MR. FOZ. Just one question, Mr. Presiding Officer. By the term "original charters," what
exactly do we mean?
MR. ROMULO. We mean that they were created by law, by an act of Congress, or by
special law.
MR. FOZ. And not under the general corporation law.
MR. ROMULO. That is correct. Mr. Presiding Officer.
MR. FOZ. With that understanding and clarification, the Committee accepts the amendment.
MR. NATIVIDAD. Mr. Presiding Officer, so those created by the general corporation law are
out.
MR. ROMULO. That is correct. (Emphasis supplied)
Again, in Davao City Water District v. Civil Service Commission,16 the Court reiterated the meaning
of the phrase "government-owned and controlled corporations with original charters" in this wise:
By "government-owned or controlled corporation with original charter," We mean
government owned or controlled corporation created by a special law and not under the
Corporation Code of the Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No.
82819, February 8, 1989, 170 SCRA 79, 82), We held:
"The Court, in National Service Corporation (NASECO) v. National Labor Relations
Commission, G.R. No. 69870, promulgated on 29 November 1988, quoting
extensively from the deliberations of the 1986 Constitutional Commission in
respect of the intent and meaning of the new phrase ‘with original charter,’ in effect
held that government-owned and controlled corporations with original charter refer
to corporations chartered by special law as distinguished from corporations
organized under our general incorporation statute — the Corporation Code. In
NASECO, the company involved had been organized under the general incorporation
statute and was a subsidiary of the National Investment Development Corporation (NIDC)
which in turn was a subsidiary of the Philippine National Bank, a bank chartered by a
special statute. Thus, government-owned or controlled corporations like NASECO are
effectively, excluded from the scope of the Civil Service." (Emphasis supplied)
Petitioner’s contention that the Sangguniang Bayan resolution creates the LWDs assumes that the
Sangguniang Bayan has the power to create corporations. This is a patently baseless assumption. The
Local Government Code17 does not vest in the Sangguniang Bayan the power to create
corporations.18 What the Local Government Code empowers the Sangguniang Bayan to do is to provide
for the establishment of a waterworks system "subject to existing laws." Thus, Section 447(5)(vii) of the
Local Government Code provides:
SECTION 447. Powers, Duties, Functions and Compensation. — (a) The sangguniang bayan,
as the legislative body of the municipality, shall enact ordinances, approve resolutions and
appropriate funds for the general welfare of the municipality and its inhabitants pursuant to
Section 16 of this Code and in the proper exercise of the corporate powers of the municipality
as provided for under Section 22 of this Code, and shall:
 xxx
(vii) Subject to existing laws, provide for the establishment, operation, maintenance,
and repair of an efficient waterworks system to supply water for the inhabitants; regulate
the construction, maintenance, repair and use of hydrants, pumps, cisterns and
reservoirs; protect the purity and quantity of the water supply of the municipality and, for
this purpose, extend the coverage of appropriate ordinances over all territory within the
drainage area of said water supply and within one hundred (100) meters of the reservoir,
conduit, canal, aqueduct, pumping station, or watershed used in connection with the
water service; and regulate the consumption, use or wastage of water;
x x x. (Emphasis supplied)
The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of
PD 198. The Sangguniang Bayan has no power to create a corporate entity that will operate its
waterworks system. However, the Sangguniang Bayan may avail of existing enabling laws, like PD 198,
to form and incorporate a water district. Besides, even assuming for the sake of argument that the
Sangguniang Bayan has the power to create corporations, the LWDs would remain government-owned
or controlled corporations subject to COA’s audit jurisdiction. The resolution of the Sangguniang Bayan
would constitute an LWD’s special charter, making the LWD a government-owned and controlled
corporation with an original charter. In any event, the Court has already ruled in Baguio Water District
v. Trajano19 that the Sangguniang Bayan resolution is not the special charter of LWDs, thus:
While it is true that a resolution of a local sanggunian is still necessary for the final creation of a
district, this Court is of the opinion that said resolution cannot be considered as its charter, the
same being intended only to implement the provisions of said decree.
Petitioner further contends that a law must create directly and explicitly a GOCC in order that it may
have an original charter. In short, petitioner argues that one special law cannot serve as enabling law for
several GOCCs but only for one GOCC. Section 16, Article XII of the Constitution mandates that
"Congress shall not, except by general law,"20 provide for the creation of private corporations. Thus, the
Constitution prohibits one special law to create one private corporation, requiring instead a "general
law" to create private corporations. In contrast, the same Section 16 states that "Government-owned or
controlled corporations may be created or established by special charters." Thus, the
Constitution permits Congress to create a GOCC with a special charter. There is, however, no
prohibition on Congress to create several GOCCs of the same class under one special enabling charter.
The rationale behind the prohibition on private corporations having special charters does not apply to
GOCCs. There is no danger of creating special privileges to certain individuals, families or groups if
there is one special law creating each GOCC. Certainly, such danger will not exist whether one special
law creates one GOCC, or one special enabling law creates several GOCCs. Thus, Congress may
create GOCCs either by special charters specific to each GOCC, or by one special enabling charter
applicable to a class of GOCCs, like PD 198 which applies only to LWDs.
Petitioner also contends that LWDs are private corporations because Section 6 of PD 19821 declares
that LWDs "shall be considered quasi-public" in nature. Petitioner’s rationale is that only private
corporations may be deemed "quasi-public" and not public corporations. Put differently, petitioner
rationalizes that a public corporation cannot be deemed "quasi-public" because such corporation is
already public. Petitioner concludes that the term "quasi-public" can only apply to private corporations.
Petitioner’s argument is inconsequential.
Petitioner forgets that the constitutional criterion on the exercise of COA’s audit jurisdiction depends on
the government’s ownership or control of a corporation. The nature of the corporation, whether it is
private, quasi-public, or public is immaterial.
The Constitution vests in the COA audit jurisdiction over "government-owned and controlled
corporations with original charters," as well as "government-owned or controlled corporations" without
original charters. GOCCs with original charters are subject to COA pre-audit, while GOCCs without
original charters are subject to COA post-audit. GOCCs without original charters refer to corporations
created under the Corporation Code but are owned or controlled by the government. The nature or
purpose of the corporation is not material in determining COA’s audit jurisdiction. Neither is the manner
of creation of a corporation, whether under a general or special law.
The determining factor of COA’s audit jurisdiction is government ownership or control of the
corporation. In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans
Bank,22 the Court even ruled that the criterion of ownership and control is more important than the issue
of original charter, thus:
This point is important because the Constitution provides in its Article IX-B, Section 2(1) that
"the Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the
Government, including government-owned or controlled corporations with original
charters." As the Bank is not owned or controlled by the Government although it does
have an original charter in the form of R.A. No. 3518,23 it clearly does not fall under the
Civil Service and should be regarded as an ordinary commercial corporation. Section 28
of the said law so provides. The consequence is that the relations of the Bank with its
employees should be governed by the labor laws, under which in fact they have already been
paid some of their claims. (Emphasis supplied)
Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance
with a specific law, PD 198. There is no private party involved as co-owner in the creation of an LWD.
Just prior to the creation of LWDs, the national or local government owns and controls all their assets.
The government controls LWDs because under PD 198 the municipal or city mayor, or the provincial
governor, appoints all the board directors of an LWD for a fixed term of six years.24 The board directors
of LWDs are not co-owners of the LWDs. LWDs have no private stockholders or members. The board
directors and other personnel of LWDs are government employees subject to civil service laws25 and
anti-graft laws.26
While Section 8 of PD 198 states that "[N]o public official shall serve as director" of an LWD, it only
means that the appointees to the board of directors of LWDs shall come from the private sector. Once
such private sector representatives assume office as directors, they become public officials governed by
the civil service law and anti-graft laws. Otherwise, Section 8 of PD 198 would contravene Section 2(1),
Article IX-B of the Constitution declaring that the civil service includes "government-owned or controlled
corporations with original charters."
If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then they would
fall under the term "agencies or instrumentalities" of the government and thus still subject to COA’s
audit jurisdiction. However, the stark and undeniable fact is that the government owns LWDs. Section
4527 of PD 198 recognizes government ownership of LWDs when Section 45 states that the board of
directors may dissolve an LWD only on the condition that "another public entity has acquired the
assets of the district and has assumed all obligations and liabilities attached thereto." The implication is
clear that an LWD is a public and not a private entity.
Petitioner does not allege that some entity other than the government owns or controls LWDs. Instead,
petitioner advances the theory that the "Water District’s owner is the District itself."28 Assuming for the
sake of argument that an LWD is "self-owned,"29 as petitioner describes an LWD, the government in any
event controls all LWDs. First, government officials appoint all LWD directors to a fixed term of office.
Second, any per diem of LWD directors in excess of P50 is subject to the approval of the Local Water
Utilities Administration, and directors can receive no other compensation for their services to the
LWD.30 Third, the Local Water Utilities Administration can require LWDs to merge or consolidate their
facilities or operations.31 This element of government control subjects LWDs to COA’s audit jurisdiction.
Petitioner argues that upon the enactment of PD 198, LWDs became private entities through the
transfer of ownership of water facilities from local government units to their respective water districts as
mandated by PD 198. Petitioner is grasping at straws. Privatization involves the transfer of government
assets to a private entity. Petitioner concedes that the owner of the assets transferred under Section 6
(c) of PD 198 is no other than the LWD itself.32 The transfer of assets mandated by PD 198 is a transfer
of the water systems facilities "managed, operated by or under the control of such city, municipality or
province to such (water) district."33 In short, the transfer is from one government entity to another
government entity. PD 198 is bereft of any indication that the transfer is to privatize the operation and
control of water systems.
Finally, petitioner claims that even on the assumption that the government owns and controls LWDs,
Section 20 of PD 198 prevents COA from auditing LWDs. 34 Section 20 of PD 198 provides:
Sec. 20. System of Business Administration. — The Board shall, as soon as practicable, prescribe
and define by resolution a system of business administration and accounting for the district, which
shall be patterned upon and conform to the standards established by the Administration. Auditing
shall be performed by a certified public accountant not in the government service. The
Administration may, however, conduct annual audits of the fiscal operations of the district to be
performed by an auditor retained by the Administration. Expenses incurred in connection therewith
shall be borne equally by the water district concerned and the Administration.35 (Emphasis supplied)
Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor for that
matter, from auditing LWDs. Petitioner asserts that this is the import of the second sentence of Section
20 of PD 198 when it states that "[A]uditing shall be performed by a certified public accountant not in the
government service."36
PD 198 cannot prevail over the Constitution. No amount of clever legislation can exclude GOCCs like
LWDs from COA’s audit jurisdiction. Section 3, Article IX-C of the Constitution outlaws any scheme or
devise to escape COA’s audit jurisdiction, thus:
Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any
guise whatever, or any investment of public funds, from the jurisdiction of the Commission on Audit.
(Emphasis supplied)
The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely to annul
provisions of Presidential Decrees, like that of Section 20 of PD 198, that exempt GOCCs from COA
audit. The following exchange in the deliberations of the Constitutional Commission elucidates this
intent of the framers:
MR. OPLE: I propose to add a new section on line 9, page 2 of the amended committee report
which reads: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT
OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS,
FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.
May I explain my reasons on record.
We know that a number of entities of the government took advantage of the absence of a
legislature in the past to obtain presidential decrees exempting themselves from the
jurisdiction of the Commission on Audit, one notable example of which is the Philippine National
Oil Company which is really an empty shell. It is a holding corporation by itself, and strictly on its
own account. Its funds were not very impressive in quantity but underneath that shell there were
billions of pesos in a multiplicity of companies. The PNOC — the empty shell — under a presidential
decree was covered by the jurisdiction of the Commission on Audit, but the billions of pesos
invested in different corporations underneath it were exempted from the coverage of the
Commission on Audit.
Another example is the United Coconut Planters Bank. The Commission on Audit has determined
that the coconut levy is a form of taxation; and that, therefore, these funds attributed to the shares of
1,400,000 coconut farmers are, in effect, public funds. And that was, I think, the basis of the PCGG
in undertaking that last major sequestration of up to 94 percent of all the shares in the United
Coconut Planters Bank. The charter of the UCPB, through a presidential decree, exempted it from
the jurisdiction of the Commission on Audit, it being a private organization.
So these are the fetuses of future abuse that we are slaying right here with this additional section.
May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY
ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY
INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON
AUDIT.
THE PRESIDENT: May we know the position of the Committee on the proposed amendment of
Commissioner Ople?
MR. JAMIR: If the honorable Commissioner will change the number of the section to 4, we will
accept the amendment.
MR. OPLE: Gladly, Madam President. Thank you.
MR. DE CASTRO: Madam President, point of inquiry on the new amendment.
THE PRESIDENT: Commissioner de Castro is recognized.
 MR. DE CASTRO: Thank you. May I just ask a few questions of Commissioner Ople.
Is that not included in Section 2 (1) where it states: "(c) government-owned or controlled
corporations and their subsidiaries"? So that if these government-owned and controlled corporations
and their subsidiaries are subjected to the audit of the COA, any law exempting certain government
corporations or subsidiaries will be already unconstitutional.
So I believe, Madam President, that the proposed amendment is unnecessary.
MR. MONSOD: Madam President, since this has been accepted, we would like to reply to the point
raised by Commissioner de Castro.
THE PRESIDENT: Commissioner Monsod will please proceed.
MR. MONSOD: I think the Commissioner is trying to avoid the situation that happened in the past,
because the same provision was in the 1973 Constitution and yet somehow a law or a decree was
passed where certain institutions were exempted from audit. We are just reaffirming, emphasizing,
the role of the Commission on Audit so that this problem will never arise in the future.37
There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting
COA auditors from auditing LWDs and Sections 2(1) and 3, Article IX-D of the Constitution vesting in
COA the power to audit all GOCCs. We rule that the second sentence of Section 20 of PD 198 is
unconstitutional since it violates Sections 2(1) and 3, Article IX-D of the Constitution.
On the Legality of COA’s
Practice of Charging Auditing Fees
Petitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in
Section 18 of RA 6758,38 which states:
Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. – In
order to preserve the independence and integrity of the Commission on Audit (COA), its officials and
employees are prohibited from receiving salaries, honoraria, bonuses, allowances or other
emoluments from any government entity, local government unit, government-owned or controlled
corporations, and government financial institutions, except those compensation paid directly by
COA out of its appropriations and contributions.
Government entities, including government-owned or controlled corporations including financial
institutions and local government units are hereby prohibited from assessing or billing other
government entities, including government-owned or controlled corporations including financial
institutions or local government units for services rendered by its officials and employees as part of
their regular functions for purposes of paying additional compensation to said officials and
employees. (Emphasis supplied)
Claiming that Section 18 is "absolute and leaves no doubt,"39 petitioner asks COA to discontinue its
practice of charging auditing fees to LWDs since such practice allegedly violates the law.
Petitioner’s claim has no basis.
Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from any
government entity except "compensation paid directly by COA out of its appropriations and
contributions." Thus, RA 6758 itself recognizes an exception to the statutory ban on COA personnel
receiving compensation from GOCCs. In Tejada v. Domingo,40 the Court declared:
There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthen further
the policy x x x to preserve the independence and integrity of the COA, by explicitly PROHIBITING:
(1) COA officials and employees from receiving salaries, honoraria, bonuses, allowances or other
emoluments from any government entity, local government unit, GOCCs and government financial
institutions, except such compensation paid directly by the COA out of its appropriations and
contributions, and (2) government entities, including GOCCs, government financial institutions and
local government units from assessing or billing other government entities, GOCCs, government
financial institutions or local government units for services rendered by the latter’s officials and
employees as part of their regular functions for purposes of paying additional compensation to said
officials and employees.
xxx
The first aspect of the strategy is directed to the COA itself, while the second aspect is addressed
directly against the GOCCs and government financial institutions. Under the first, COA personnel
assigned to auditing units of GOCCs or government financial institutions can receive only
such salaries, allowances or fringe benefits paid directly by the COA out of its appropriations
and contributions. The contributions referred to are the cost of audit services earlier
mentioned which cannot include the extra emoluments or benefits now claimed by
petitioners. The COA is further barred from assessing or billing GOCCs and government financial
institutions for services rendered by its personnel as part of their regular audit functions for purposes
of paying additional compensation to such personnel. x x x. (Emphasis supplied)
In Tejada, the Court explained the meaning of the word "contributions" in Section 18 of RA 6758,
which allows COA to charge GOCCs the cost of its audit services:
xxx the contributions from the GOCCs are limited to the cost of audit services which are based on
the actual cost of the audit function in the corporation concerned plus a reasonable rate to cover
overhead expenses. The actual audit cost shall include personnel services, maintenance and other
operating expenses, depreciation on capital and equipment and out-of-pocket expenses. In respect
to the allowances and fringe benefits granted by the GOCCs to the COA personnel assigned to the
former’s auditing units, the same shall be directly defrayed by COA from its own appropriations xxx.
COA may charge GOCCs "actual audit cost" but GOCCs must pay the same directly to COA and not to
COA auditors. Petitioner has not alleged that COA charges LWDs auditing fees in excess of COA’s
"actual audit cost." Neither has petitioner alleged that the auditing fees are paid by LWDs directly to
individual COA auditors. Thus, petitioner’s contention must fail.
WHEREFORE, the Resolution of the Commission on Audit dated 3 January 2000 and the Decision
dated 30 January 2001 denying petitioner’s Motion for Reconsideration are AFFIRMED. The second
sentence of Section 20 of Presidential Decree No. 198 is declared VOID for being inconsistent with
Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.
G.R. No. 152542 July 8, 2004
MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as represented by
MA. ANTONIA M. SALVATIERRA, petitioner,
vs.
ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT,
ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ,
ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ and COURT OF
APPEALS, respondents.
G.R. No. 155472 July 8, 2004
ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT,
ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ,
ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ, petitioners,
vs.
HON. COURT OF APPEALS, MONFORT HERMANOS AGRICULTURAL DEVELOPMENT
CORPORATION, as represented by MA. ANTONIA M. SALVATIERRA, and RAMON H.
MONFORT, respondents.
Before the Court are consolidated petitions for review of the decisions of the Court of Appeals in the
complaints for forcible entry and replevin filed by Monfort Hermanos Agricultural Development
Corporation (Corporation) and Ramon H. Monfort against the children, nephews, and nieces of its
original incorporators (collectively known as "the group of Antonio Monfort III").
The petition in G.R. No. 152542, assails the October 5, 2001 Decision1 of the Special Tenth Division of
the Court of Appeals in CA-G.R. SP No. 53652, which ruled that Ma. Antonia M. Salvatierra has no legal
capacity to represent the Corporation in the forcible entry case docketed as Civil Case No. 534-C,
before the Municipal Trial Court of Cadiz City. On the other hand, the petition in G.R. No. 155472, seeks
to set aside the June 7, 2002 Decision2 rendered by the Special Former Thirteenth Division of the Court
of Appeals in CA-G.R. SP No. 49251, where it refused to address, on jurisdictional considerations, the
issue of Ma. Antonia M. Salvatierra's capacity to file a complaint for replevin on behalf of the
Corporation in Civil Case No. 506-C before the Regional Trial Court of Cadiz City, Branch 60.
Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the
registered owner of a farm, fishpond and sugar cane plantation known as Haciendas San Antonio II,
Marapara, Pinanoag and Tinampa-an, all situated in Cadiz City.3 It also owns one unit of motor vehicle
and two units of tractors.4 The same allowed Ramon H. Monfort, its Executive Vice President, to breed
and maintain fighting cocks in his personal capacity at Hacienda San Antonio.5
In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took possession of
the 4 Haciendas, the produce thereon and the motor vehicle and tractors, as well as the fighting cocks
of Ramon H. Monfort.
In G.R. No. 155472:
On April 10, 1997, the Corporation, represented by its President, Ma. Antonia M. Salvatierra, and
Ramon H. Monfort, in his personal capacity, filed against the group of Antonio Monfort III, a
complaint6 for delivery of motor vehicle, tractors and 378 fighting cocks, with prayer for injunction and
damages, docketed as Civil Case No. 506-C, before the Regional Trial Court of Negros Occidental,
Branch 60.
The group of Antonio Monfort III filed a motion to dismiss contending, inter alia, that Ma. Antonia M.
Salvatierra has no capacity to sue on behalf of the Corporation because the March 31, 1997 Board
Resolution7 authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the
Corporation is void as the purported Members of the Board who passed the same were not validly
elected officers of the Corporation.
On May 4, 1998, the trial court denied the motion to dismiss.8 The group of Antonio Monfort III filed a
petition for certiorari with the Court of Appeals but the same was dismissed on June 7, 2002.9 The
Special Former Thirteenth Division of the appellate court did not resolve the validity of the March 31,
1997 Board Resolution and the election of the officers who signed it, ratiocinating that the determination
of said question is within the competence of the trial court.
The motion for reconsideration filed by the group of Antonio Monfort III was denied.10 Hence, they
instituted a petition for review with this Court, docketed as G.R. No. 155472.
In G.R. No. 152542:
On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint for forcible
entry, preliminary mandatory injunction with temporary restraining order and damages against the group
of Antonio Monfort III, before the Municipal Trial Court (MTC) of Cadiz City.11 It contended that the latter
through force and intimidation, unlawfully took possession of the 4 Haciendas and deprived the
Corporation of the produce thereon.
In their answer,12 the group of Antonio Monfort III alleged that they are possessing and controlling the
Haciendas and harvesting the produce therein on behalf of the corporation and not for themselves.
They likewise raised the affirmative defense of lack of legal capacity of Ma. Antonia M. Salvatierra to
sue on behalf of the Corporation.
On February 18, 1998, the MTC of Cadiz City rendered a decision dismissing the complaint.13 On
appeal, the Regional Trial Court of Negros Occidental, Branch 60, reversed the Decision of the MTCC
and remanded the case for further proceedings.14
Aggrieved, the group of Antonio Monfort III filed a petition for review with the Court of Appeals. On
October 5, 2001, the Special Tenth Division set aside the judgment of the RTC and dismissed the
complaint for forcible entry for lack of capacity of Ma. Antonia M. Salvatierra to represent the
Corporation.15 The motion for reconsideration filed by the latter was denied by the appellate court.16
Unfazed, the Corporation filed a petition for review with this Court, docketed as G.R. No. 152542 which
was consolidated with G.R. No. 155472 per Resolution dated January 21, 2004.17
The focal issue in these consolidated petitions is whether or not Ma. Antonia M. Salvatierra has the
legal capacity to sue on behalf of the Corporation.
The group of Antonio Monfort III claims that the March 31, 1997 Board Resolution authorizing Ma.
Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation is void because the
purported Members of the Board who passed the same were not validly elected officers of the
Corporation.
A corporation has no power except those expressly conferred on it by the Corporation Code and those
that are implied or incidental to its existence. In turn, a corporation exercises said powers through its
board of directors and/or its duly authorized officers and agents. Thus, it has been observed that the
power of a corporation to sue and be sued in any court is lodged with the board of directors that
exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents,
can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a
specific act of the board of directors.18
Corollary thereto, corporations are required under Section 26 of the Corporation Code to submit to the
SEC within thirty (30) days after the election the names, nationalities and residences of the elected
directors, trustees and officers of the Corporation. In order to keep stockholders and the public
transacting business with domestic corporations properly informed of their organizational operational
status, the SEC issued the following rules:
xxx xxx xxx
2. A General Information Sheet shall be filed with this Commission within thirty (30) days
following the date of the annual stockholders' meeting. No extension of said period shall be
allowed, except for very justifiable reasons stated in writing by the President, Secretary,
Treasurer or other officers, upon which the Commission may grant an extension for not more
than ten (10) days.
2.A. Should a director, trustee or officer die, resign or in any manner, cease to hold
office, the corporation shall report such fact to the Commission with fifteen (15) days
after such death, resignation or cessation of office.
3. If for any justifiable reason, the annual meeting has to be postponed, the company should
notify the Commission in writing of such postponement.
The General Information Sheet shall state, among others, the names of the elected
directors and officers, together with their corresponding position title… (Emphasis
supplied)
In the instant case, the six signatories to the March 31, 1997 Board Resolution authorizing Ma. Antonia
M. Salvatierra and/or Ramon H. Monfort to represent the Corporation, were: Ma. Antonia M. Salvatierra,
President; Ramon H. Monfort, Executive Vice President; Directors Paul M. Monfort, Yvete M. Benedicto
and Jaqueline M. Yusay; and Ester S. Monfort, Secretary.19 However, the names of the last four (4)
signatories to the said Board Resolution do not appear in the 1996 General Information Sheet submitted
by the Corporation with the SEC. Under said General Information Sheet the composition of the Board is
as follows:
1. Ma. Antonia M. Salvatierra (Chairman);
2. Ramon H. Monfort (Member);
3. Antonio H. Monfort, Jr., (Member);
4. Joaquin H. Monfort (Member);
5. Francisco H. Monfort (Member) and
6. Jesus Antonio H. Monfort (Member).20
There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and
Ester S. Monfort, were indeed duly elected Members of the Board legally constituted to bring suit in
behalf of the Corporation.21
In Premium Marble Resources, Inc. v. Court of Appeals,22 the Court was confronted with the similar
issue of capacity to sue of the officers of the corporation who filed a complaint for damages. In the said
case, we sustained the dismissal of the complaint because it was not established that the Members of
the Board who authorized the filing of the complaint were the lawfully elected officers of the corporation.
Thus –
The only issue in this case is whether or not the filing of the case for damages against private
respondent was authorized by a duly constituted Board of Directors of the petitioner
corporation.
Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel Pengson,
Jose Ma. Silva, Aderito Yujuico and Rodolfo Millare, presented the Minutes of the meeting of
its Board of Directors held on April 1, 1982, as proof that the filing of the case against private
respondent was authorized by the Board. On the other hand, the second set of officers, viz.,
Saturnino G. Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes, presented a Resolution
dated July 30, 1986, to show that Premium did not authorize the filing in its behalf of any suit
against the private respondent International Corporate Bank.
Later on, petitioner submitted its Articles of Incorporation dated November 6, 1979 with the
following as Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and
Jose Ma. Silva.
However, it appears from the general information sheet and the Certification issued by the
SEC on August 19, 1986 that as of March 4, 1981, the officers and members of the board of
directors of the Premium Marble Resources, Inc. were:
Alberto C. Nograles — President/Director
Fernando D. Hilario — Vice President/Director
Augusto I. Galace — Treasurer
Jose L.R. Reyes — Secretary/Director
Pido E. Aguilar — Director
 Saturnino G. Belen, Jr. — Chairman of the Board.
While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected
officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare,
petitioner failed to show proof that this election was reported to the SEC. In fact, the last entry
in their General Information Sheet with the SEC, as of 1986 appears to be the set of officers
elected in March 1981.
We agree with the finding of public respondent Court of Appeals, that "in the absence of any
board resolution from its board of directors the [sic] authority to act for and in behalf of the
corporation, the present action must necessarily fail. The power of the corporation to sue and
be sued in any court is lodged with the board of directors that exercises its corporate powers.
Thus, the issue of authority and the invalidity of plaintiff-appellant's subscription which is still
pending, is a matter that is also addressed, considering the premises, to the sound judgment of
the Securities & Exchange Commission."
By the express mandate of the Corporation Code (Section 26), all corporations duly organized
pursuant thereto are required to submit within the period therein stated (30 days) to the
Securities and Exchange Commission the names, nationalities and residences of the directors,
trustees and officers elected.
Sec. 26 of the Corporation Code provides, thus:
"Sec. 26. Report of election of directors, trustees and officers. — Within thirty (30)
days after the election of the directors, trustees and officers of the corporation, the
secretary, or any other officer of the corporation, shall submit to the Securities and
Exchange Commission, the names, nationalities and residences of the directors,
trustees and officers elected. xxx"
Evidently, the objective sought to be achieved by Section 26 is to give the public information,
under sanction of oath of responsible officers, of the nature of business, financial condition and
operational status of the company together with information on its key officers or managers so
that those dealing with it and those who intend to do business with it may know or have the
means of knowing facts concerning the corporation's financial resources and business
responsibility.
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are
the incumbent officers of Premium has not been fully substantiated. In the absence of an
authority from the board of directors, no person, not even the officers of the corporation, can
validly bind the corporation.
In the case at bar, the fact that four of the six Members of the Board listed in the 1996 General
Information Sheet23 are already dead24 at the time the March 31, 1997 Board Resolution was issued,
does not automatically make the four signatories (i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline
M. Yusay and Ester S. Monfort) to the said Board Resolution (whose name do not appear in the 1996
General Information Sheet) as among the incumbent Members of the Board. This is because it was not
established that they were duly elected to replace the said deceased Board Members.
To correct the alleged error in the General Information Sheet, the retained accountant of the
Corporation informed the SEC in its November 11, 1998 letter that the non-inclusion of the lawfully
elected directors in the 1996 General Information Sheet was attributable to its oversight and not the fault
of the Corporation.25 This belated attempt, however, did not erase the doubt as to whether an election
was indeed held. As previously stated, a corporation is mandated to inform the SEC of the names and
the change in the composition of its officers and board of directors within 30 days after election if one
was held, or 15 days after the death, resignation or cessation of office of any of its director, trustee or
officer if any of them died, resigned or in any manner, ceased to hold office. This, the Corporation failed
to do. The alleged election of the directors and officers who signed the March 31, 1997 Board
Resolution was held on October 16, 1996, but the SEC was informed thereof more than two years later,
or on November 11, 1998. The 4 Directors appearing in the 1996 General Information Sheet died
between the years 1984 – 1987,26 but the records do not show if such demise was reported to the SEC.
What further militates against the purported election of those who signed the March 31, 1997 Board
Resolution was the belated submission of the alleged Minutes of the October 16, 1996 meeting where
the questioned officers were elected. The issue of legal capacity of Ma. Antonia M. Salvatierra was
raised before the lower court by the group of Antonio Monfort III as early as 1997, but the Minutes of
said October 16, 1996 meeting was presented by the Corporation only in its September 29,
1999 Comment before the Court of Appeals.27 Moreover, the Corporation failed to prove that the same
October 16, 1996 Minutes was submitted to the SEC. In fact, the 1997 General Information
Sheet28 submitted by the Corporation does not reflect the names of the 4 Directors claimed to be
elected on October 16, 1996.
Considering the foregoing, we find that Ma. Antonia M. Salvatierra failed to prove that four of those who
authorized her to represent the Corporation were the lawfully elected Members of the Board of the
Corporation. As such, they cannot confer valid authority for her to sue on behalf of the corporation.
The Court notes that the complaint in Civil Case No. 506-C, for replevin before the Regional Trial Court
of Negros Occidental, Branch 60, has 2 causes of action, i.e., unlawful detention of the Corporation's
motor vehicle and tractors, and the unlawful detention of the of 387 fighting cocks of Ramon H. Monfort.
Since Ramon sought redress of the latter cause of action in his personal capacity, the dismissal of the
complaint for lack of capacity to sue on behalf of the corporation should be limited only to the
corporation's cause of action for delivery of motor vehicle and tractors. In view, however, of the demise
of Ramon on June 25, 1999,29 substitution by his heirs is proper.
WHEREFORE, in view of all the foregoing, the petition in G.R. No. 152542 is DENIED. The October 5,
2001 Decision of the Special Tenth Division of the Court of Appeals in CA-G.R. SP No. 53652, which
set aside the August 14, 1998 Decision of the Regional Trial Court of Negros Occidental, Branch 60 in
Civil Case No. 822, is AFFIRMED.
In G.R. No. 155472, the petition is GRANTED and the June 7, 2002 Decision rendered by the Special
Former Thirteenth Division of the Court of Appeals in CA-G.R. SP No. 49251, dismissing the petition
filed by the group of Antonio Monfort III, is REVERSED and SET ASIDE.
The complaint for forcible entry docketed as Civil Case No. 822 before the Municipal Trial Court of
Cadiz City is DISMISSED. In Civil Case No. 506-C with the Regional Trial Court of Negros Occidental,
Branch 60, the action for delivery of personal property filed by Monfort Hermanos Agricultural
Development Corporation is likewise DISMISSED. With respect to the action filed by Ramon H. Monfort
for the delivery of 387 fighting cocks, the Regional Trial Court of Negros Occidental, Branch 60, is
ordered to effect the corresponding substitution of parties.
G. R. No. 175352 January 18, 2011
DANTE V. LIBAN, REYNALDO M. BERNARDO and SALVADOR M. VIARI, Petitioners,
vs.
RICHARD J. GORDON, Respondent.
PHILIPPINE NATIONAL RED CROSS, Intervenor.
RESOLUTION
LEONARDO-DE CASTRO, J.:
This resolves the Motion for Clarification and/or for Reconsideration1 filed on August 10, 2009 by
respondent Richard J. Gordon (respondent) of the Decision promulgated by this Court on July 15, 2009
(the Decision), the Motion for Partial Reconsideration2 filed on August 27, 2009 by movant-intervenor
Philippine National Red Cross (PNRC), and the latter’s Manifestation and Motion to Admit Attached
Position Paper3 filed on December 23, 2009.
In the Decision,4 the Court held that respondent did not forfeit his seat in the Senate when he accepted
the chairmanship of the PNRC Board of Governors, as "the office of the PNRC Chairman is not a
government office or an office in a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution."5 The Decision, however, further declared
void the PNRC Charter "insofar as it creates the PNRC as a private corporation" and consequently ruled
that "the PNRC should incorporate under the Corporation Code and register with the Securities and
Exchange Commission if it wants to be a private corporation."6 The dispositive portion of the Decision
reads as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a
government office or an office in a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a),
5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No.
95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC
as a private corporation or grant it corporate powers.7
In his Motion for Clarification and/or for Reconsideration, respondent raises the following grounds: (1) as
the issue of constitutionality of Republic Act (R.A.) No. 95 was not raised by the parties, the Court went
beyond the case in deciding such issue; and (2) as the Court decided that Petitioners did not have
standing to file the instant Petition, the pronouncement of the Court on the validity of R.A. No. 95 should
be considered obiter.8
Respondent argues that the validity of R.A. No. 95 was a non-issue; therefore, it was unnecessary for
the Court to decide on that question. Respondent cites Laurel v. Garcia,9 wherein the Court said that it
"will not pass upon a constitutional question although properly presented by the record if the case can
be disposed of on some other ground" and goes on to claim that since this Court, in the Decision,
disposed of the petition on some other ground, i.e., lack of standing of petitioners, there was no need for
it to delve into the validity of R.A. No. 95, and the rest of the judgment should be deemed obiter.
In its Motion for Partial Reconsideration, PNRC prays that the Court sustain the constitutionality of its
Charter on the following grounds:
A. THE ASSAILED DECISION DECLARING UNCONSTITUTIONAL REPUBLIC ACT NO. 95 AS
AMENDED DEPRIVED INTERVENOR PNRC OF ITS CONSTITUTIONAL RIGHT TO DUE PROCESS.
1. INTERVENOR PNRC WAS NEVER A PARTY TO THE INSTANT CONTROVERSY.
2. THE CONSTITUTIONALITY OF REPUBLIC ACT NO. 95, AS AMENDED WAS NEVER AN
ISSUE IN THIS CASE.
B. THE CURRENT CHARTER OF PNRC IS PRESIDENTIAL DECREE NO. 1264 AND NOT
REPUBLIC ACT NO. 95. PRESIDENTIAL DECREE NO. 1264 WAS NOT A CREATION OF
CONGRESS.
C. PNRC’S STRUCTURE IS SUI GENERIS; IT IS A CLASS OF ITS OWN. WHILE IT IS PERFORMING
HUMANITARIAN FUNCTIONS AS AN AUXILIARY TO GOVERNMENT, IT IS A NEUTRAL ENTITY
SEPARATE AND INDEPENDENT OF GOVERNMENT CONTROL, YET IT DOES NOT QUALIFY AS
STRICTLY PRIVATE IN CHARACTER.
In his Comment and Manifestation10 filed on November 9, 2009, respondent manifests: (1) that he
agrees with the position taken by the PNRC in its Motion for Partial Reconsideration dated August 27,
2009; and (2) as of the writing of said Comment and Manifestation, there was pending before the
Congress of the Philippines a proposed bill entitled "An Act Recognizing the PNRC as an Independent,
Autonomous, Non-Governmental Organization Auxiliary to the Authorities of the Republic of the
Philippines in the Humanitarian Field, to be Known as The Philippine Red Cross."11
After a thorough study of the arguments and points raised by the respondent as well as those of
movant-intervenor in their respective motions, we have reconsidered our pronouncements in our
Decision dated July 15, 2009 with regard to the nature of the PNRC and the constitutionality of some
provisions of the PNRC Charter, R.A. No. 95, as amended.
As correctly pointed out in respondent’s Motion, the issue of constitutionality of R.A. No. 95 was not
raised by the parties, and was not among the issues defined in the body of the Decision; thus, it was not
the very lis mota of the case. We have reiterated the rule as to when the Court will consider the issue of
constitutionality in Alvarez v. PICOP Resources, Inc.,12 thus:
This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is a well-
established rule that a court should not pass upon a constitutional question and decide a law to be
unconstitutional or invalid, unless such question is raised by the parties and that when it is raised, if the
record also presents some other ground upon which the court may [rest] its judgment, that course will
be adopted and the constitutional question will be left for consideration until such question will be
unavoidable.13
Under the rule quoted above, therefore, this Court should not have declared void certain sections of
R.A. No. 95, as amended by Presidential Decree (P.D.) Nos. 1264 and 1643, the PNRC Charter.
Instead, the Court should have exercised judicial restraint on this matter, especially since there was
some other ground upon which the Court could have based its judgment. Furthermore, the PNRC, the
entity most adversely affected by this declaration of unconstitutionality, which was not even originally a
party to this case, was being compelled, as a consequence of the Decision, to suddenly reorganize and
incorporate under the Corporation Code, after more than sixty (60) years of existence in this country.
Its existence as a chartered corporation remained unchallenged on ground of unconstitutionality
notwithstanding that R.A. No. 95 was enacted on March 22, 1947 during the effectivity of the 1935
Constitution, which provided for a proscription against the creation of private corporations by special
law, to wit:
SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations, unless such corporations are owned and controlled by the
Government or any subdivision or instrumentality thereof. (Art. XIV, 1935 Constitution.)
Similar provisions are found in Article XIV, Section 4 of the 1973 Constitution and Article XII, Section 16
of the 1987 Constitution. The latter reads:
SECTION 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability.
Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953,
August 16, 1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373,
P.D. No. 1264, and P.D. No. 1643, respectively. The passage of several laws relating to the PNRC’s
corporate existence notwithstanding the effectivity of the constitutional proscription on the creation of
private corporations by law, is a recognition that the PNRC is not strictly in the nature of a private
corporation contemplated by the aforesaid constitutional ban.
A closer look at the nature of the PNRC would show that there is none like it not just in terms of
structure, but also in terms of history, public service and official status accorded to it by the State and
the international community. There is merit in PNRC’s contention that its structure is sui generis.
The PNRC succeeded the chapter of the American Red Cross which was in existence in the Philippines
since 1917. It was created by an Act of Congress after the Republic of the Philippines became an
independent nation on July 6, 1946 and proclaimed on February 14, 1947 its adherence to the
Convention of Geneva of July 29, 1929 for the Amelioration of the Condition of the Wounded and Sick
of Armies in the Field (the "Geneva Red Cross Convention"). By that action the Philippines indicated its
desire to participate with the nations of the world in mitigating the suffering caused by war and to
establish in the Philippines a voluntary organization for that purpose and like other volunteer
organizations established in other countries which have ratified the Geneva Conventions, to promote
the health and welfare of the people in peace and in war.14
The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and 6373, and further amended by P.D.
Nos. 1264 and 1643, show the historical background and legal basis of the creation of the PNRC by
legislative fiat, as a voluntary organization impressed with public interest. Pertinently R.A. No. 95, as
amended by P.D. 1264, provides:
WHEREAS, during the meeting in Geneva, Switzerland, on 22 August 1894, the nations of the world
unanimously agreed to diminish within their power the evils inherent in war;
WHEREAS, more than one hundred forty nations of the world have ratified or adhered to the Geneva
Conventions of August 12, 1949 for the Amelioration of the Condition of the Wounded and Sick of
Armed Forces in the Field and at Sea, The Prisoners of War, and The Civilian Population in Time of
War referred to in this Charter as the Geneva Conventions;
WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946, and
proclaimed on February 14, 1947 its adherence to the Geneva Conventions of 1929, and by the action,
indicated its desire to participate with the nations of the world in mitigating the suffering caused by war
and to establish in the Philippines a voluntary organization for that purpose as contemplated by the
Geneva Conventions;
WHEREAS, there existed in the Philippines since 1917 a chapter of the American National Red Cross
which was terminated in view of the independence of the Philippines; and
WHEREAS, the volunteer organizations established in other countries which have ratified or adhered to
the Geneva Conventions assist in promoting the health and welfare of their people in peace and in war,
and through their mutual assistance and cooperation directly and through their international
organizations promote better understanding and sympathy among the people of the world;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers
vested in me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines and
pursuant to Proclamation No. 1081 dated September 21, 1972, and General Order No. 1 dated
September 22, 1972, do hereby decree and order that Republic Act No. 95, Charter of the Philippine
National Red Cross (PNRC) as amended by Republic Acts No. 855 and 6373, be further amended as
follows:
Section 1. There is hereby created in the Republic of the Philippines a body corporate and politic to be
the voluntary organization officially designated to assist the Republic of the Philippines in discharging
the obligations set forth in the Geneva Conventions and to perform such other duties as are inherent
upon a national Red Cross Society. The national headquarters of this Corporation shall be located in
Metropolitan Manila. (Emphasis supplied.)
The significant public service rendered by the PNRC can be gleaned from Section 3 of its Charter,
which provides:
Section 3. That the purposes of this Corporation shall be as follows:
(a) To provide volunteer aid to the sick and wounded of armed forces in time of war, in
accordance with the spirit of and under the conditions prescribed by the Geneva Conventions
to which the Republic of the Philippines proclaimed its adherence;
(b) For the purposes mentioned in the preceding sub-section, to perform all duties devolving
upon the Corporation as a result of the adherence of the Republic of the Philippines to the said
Convention;
(c) To act in matters of voluntary relief and in accordance with the authorities of the armed
forces as a medium of communication between people of the Republic of the Philippines and
their Armed Forces, in time of peace and in time of war, and to act in such matters between
similar national societies of other governments and the Governments and people and the
Armed Forces of the Republic of the Philippines;
 (d) To establish and maintain a system of national and international relief in time of peace and
in time of war and apply the same in meeting and emergency needs caused by typhoons,
flood, fires, earthquakes, and other natural disasters and to devise and carry on measures for
minimizing the suffering caused by such disasters;
(e) To devise and promote such other services in time of peace and in time of war as may be
found desirable in improving the health, safety and welfare of the Filipino people;
(f) To devise such means as to make every citizen and/or resident of the Philippines a member
of the Red Cross.
The PNRC is one of the National Red Cross and Red Crescent Societies, which, together with the
International Committee of the Red Cross (ICRC) and the IFRC and RCS, make up the International
Red Cross and Red Crescent Movement (the Movement). They constitute a worldwide humanitarian
movement, whose mission is:
[T]o prevent and alleviate human suffering wherever it may be found, to protect life and health and
ensure respect for the human being, in particular in times of armed conflict and other emergencies, to
work for the prevention of disease and for the promotion of health and social welfare, to encourage
voluntary service and a constant readiness to give help by the members of the Movement, and a
universal sense of solidarity towards all those in need of its protection and assistance.15
The PNRC works closely with the ICRC and has been involved in humanitarian activities in the
Philippines since 1982. Among others, these activities in the country include:
1. Giving protection and assistance to civilians displaced or otherwise affected by armed
clashes between the government and armed opposition groups, primarily in Mindanao;
2. Working to minimize the effects of armed hostilities and violence on the population;
3. Visiting detainees; and
4. Promoting awareness of international humanitarian law in the public and private sectors.16
National Societies such as the PNRC act as auxiliaries to the public authorities of their own countries in
the humanitarian field and provide a range of services including disaster relief and health and social
programmes.
The International Federation of Red Cross (IFRC) and Red Crescent Societies (RCS) Position
Paper,17 submitted by the PNRC, is instructive with regard to the elements of the specific nature of the
National Societies such as the PNRC, to wit:
National Societies, such as the Philippine National Red Cross and its sister Red Cross and Red
Crescent Societies, have certain specificities deriving from the 1949 Geneva Convention and the
Statutes of the International Red Cross and Red Crescent Movement (the Movement). They are also
guided by the seven Fundamental Principles of the Red Cross and Red Crescent Movement: Humanity,
Impartiality, Neutrality, Independence, Voluntary Service, Unity and Universality.
A National Society partakes of a sui generis character. It is a protected component of the Red Cross
movement under Articles 24 and 26 of the First Geneva Convention, especially in times of armed
conflict. These provisions require that the staff of a National Society shall be respected and protected in
all circumstances. Such protection is not ordinarily afforded by an international treaty to ordinary private
entities or even non-governmental organisations (NGOs). This sui generis character is also emphasized
by the Fourth Geneva Convention which holds that an Occupying Power cannot require any change in
the personnel or structure of a National Society. National societies are therefore organizations that
are directly regulated by international humanitarian law, in contrast to other ordinary private
entities, including NGOs.
xxxx
In addition, National Societies are not only officially recognized by their public authorities as voluntary
aid societies, auxiliary to the public authorities in the humanitarian field, but also benefit from recognition
at the International level. This is considered to be an element distinguishing National Societies from
other organisations (mainly NGOs) and other forms of humanitarian response.
x x x. No other organisation belongs to a world-wide Movement in which all Societies have equal status
and share equal responsibilities and duties in helping each other. This is considered to be the essence
of the Fundamental Principle of Universality.
Furthermore, the National Societies are considered to be auxiliaries to the public authorities in the
humanitarian field. x x x.
The auxiliary status of [a] Red Cross Society means that it is at one and the same time a private
institution and a public service organization because the very nature of its work implies
cooperation with the authorities, a link with the State. In carrying out their major functions, Red
Cross Societies give their humanitarian support to official bodies, in general having larger resources
than the Societies, working towards comparable ends in a given sector.
x x x No other organization has a duty to be its government’s humanitarian partner while remaining
independent.18 (Emphases ours.)
It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has remained valid and
effective from the time of its enactment in March 22, 1947 under the 1935 Constitution and during the
effectivity of the 1973 Constitution and the 1987 Constitution.
The PNRC Charter and its amendatory laws have not been questioned or challenged on constitutional
grounds, not even in this case before the Court now.
In the Decision, the Court, citing Feliciano v. Commission on Audit,19 explained that the purpose of the
constitutional provision prohibiting Congress from creating private corporations was to prevent the
granting of special privileges to certain individuals, families, or groups, which were denied to other
groups. Based on the above discussion, it can be seen that the PNRC Charter does not come within the
spirit of this constitutional provision, as it does not grant special privileges to a particular individual,
family, or group, but creates an entity that strives to serve the common good.
Furthermore, a strict and mechanical interpretation of Article XII, Section 16 of the 1987 Constitution will
hinder the State in adopting measures that will serve the public good or national interest. It should be
noted that a special law, R.A. No. 9520, the Philippine Cooperative Code of 2008, and not the general
corporation code, vests corporate power and capacities upon cooperatives which are private
corporations, in order to implement the State’s avowed policy.
hold his position as Chairman thereof concurrently while he served as a Senator, such a conclusion
does not ipso facto imply that the PNRC is a "private corporation" within the contemplation of the
provision of the Constitution, that must be organized under the Corporation Code. As correctly
mentioned by Justice Roberto A. Abad, the sui generis character of PNRC requires us to approach
controversies involving the PNRC on a case-to-case basis.

In the Decision of July 15, 2009, the Court recognized the public service rendered by the PNRC as the
government’s partner in the observance of its international commitments, to wit:
The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization, whose mission is to
bring timely, effective, and compassionate humanitarian assistance for the most vulnerable without
consideration of nationality, race, religion, gender, social status, or political affiliation. The PNRC
provides six major services: Blood Services, Disaster Management, Safety Services, Community Health
and Nursing, Social Services and Voluntary Service.
The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a
voluntary organization for the purpose contemplated in the Geneva Convention of 27 July 1929. x x
x.20 (Citations omitted.)
So must this Court recognize too the country’s adherence to the Geneva Convention and
respect the unique status of the PNRC in consonance with its treaty obligations. The Geneva
Convention has the force and effect of law.21 Under the Constitution, the Philippines adopts the
generally accepted principles of international law as part of the law of the land.22 This constitutional
provision must be reconciled and harmonized with Article XII, Section 16 of the Constitution, instead of
using the latter to negate the former.
By requiring the PNRC to organize under the Corporation Code just like any other private corporation,
the Decision of July 15, 2009 lost sight of the PNRC’s special status under international humanitarian
law and as an auxiliary of the State, designated to assist it in discharging its obligations under the
Geneva Conventions. Although the PNRC is called to be independent under its Fundamental Principles,
it interprets such independence as inclusive of its duty to be the government’s humanitarian partner. To
be recognized in the International Committee, the PNRC must have an autonomous status, and carry
out its humanitarian mission in a neutral and impartial manner.
In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government in the
humanitarian field in accordance with its commitments under international law. This Court cannot all of a
sudden refuse to recognize its existence, especially since the issue of the constitutionality of the PNRC
Charter was never raised by the parties. It bears emphasizing that the PNRC has responded to almost
all national disasters since 1947, and is widely known to provide a substantial portion of the country’s
blood requirements. Its humanitarian work is unparalleled. The Court should not shake its existence to
the core in an untimely and drastic manner that would not only have negative consequences to those
who depend on it in times of disaster and armed hostilities but also have adverse effects on the image
of the Philippines in the international community. The sections of the PNRC Charter that were declared
void must therefore stay.
WHEREFORE, premises considered, respondent Richard J. Gordon’s Motion for Clarification and/or for
Reconsideration and movant-intervenor PNRC’s Motion for Partial Reconsideration of the Decision in
G.R. No. 175352 dated July 15, 2009 are GRANTED. The constitutionality of R.A. No. 95, as amended,
the charter of the Philippine National Red Cross, was not raised by the parties as an issue and should
not have been passed upon by this Court. The structure of the PNRC is sui generis¸ being neither
strictly private nor public in nature. R.A. No. 95 remains valid and constitutional in its entirety. The
dispositive portion of the Decision should therefore be MODIFIED by deleting the second sentence, to
now read as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a
government office or an office in a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution.
SO ORDERED.

However, in accordance with the Fundamental Principle of Voluntary Service of National Societies of
the Movement, the PNRC must be distinguished from private and profit-making entities. It is the main
characteristic of National Societies that they "are not inspired by the desire for financial gain but by
individual commitment and devotion to a humanitarian purpose freely chosen or accepted as part of the
service that National Societies through its volunteers and/or members render to the Community."23

The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can
neither "be classified as an instrumentality of the State, so as not to lose its character of neutrality" as
well as its independence, nor strictly as a private corporation since it is regulated by international
humanitarian law and is treated as an auxiliary of the State.24

Based on the above, the sui generis status of the PNRC is now sufficiently
established.1âwphi1 Although it is neither a subdivision, agency, or instrumentality of the government,
nor a government-owned or -controlled corporation or a subsidiary thereof, as succinctly explained in
the Decision of July 15, 2009, so much so that respondent, under the Decision, was correctly allowed to
 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.
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 Pacific Assets Holdings, Inc. (MPAH), an affiliate
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 Pacific, a Bermuda-registered, Hong Kong-based investment firm, 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 ₱25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder
and buy the 111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific 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 Pacific,
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 ₱25,217,556,000 or US$510,580,189. The sale was completed on 28 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 decision4 which became final 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 ₱25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares,
of the bidding results and gave First Pacific until 1 February 2007 to exercise its right of first refusal in
accordance with PTIC’s Articles of Incorporation. First Pacific 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 Pacific’s intended
acquisition of the government’s 111,415 PTIC shares resulting in First Pacific’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 Pacific 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 Pacific and its affiliates); (b) Parallax offered the
highest bid amounting to ₱25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and
its shareholders granted in PTIC’s Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its
right of first 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 ₱25,217,556,000 and the
government delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the
other allegations of facts of petitioner.
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.6 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"7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale of
111,415 PTIC shares to First Pacific 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 Pacific; 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 filed 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.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin
and/or nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or assignee."
Petitioners-in-intervention claim that, as PLDT subscribers, they have a "stake in the outcome of the
controversy x x x 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 confine 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,10 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 justified in a petition for prohibition,11 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 ₱25,217,556,000 and the
government delivered the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition 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.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as
one for mandamus considering the grave injustice that would result in the interpretation of a banking
law. In that case, which involved the crime of rape committed by a foreign tourist against a Filipino minor
and the execution of the final judgment in the civil case for damages on the 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 x x x" 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.
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the
procedural infirmity 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.
Specifically, 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 x x x a
thirteenth (13th) month pay x x x ?" 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.15 (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.
The Court first encountered the issue on the definition of the term "capital" in Section 11, Article XII of
the Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 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.17 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 finally settle this purely
legal issue which is of transcendental importance to the national economy and a fundamental
requirement to a faithful adherence to our Constitution. The Court must forthwith seize such opportunity,
not only for the benefit of the litigants, but more significantly for the benefit of the entire Filipino people,
to ensure, in the words of the Constitution, "a self-reliant and independent national economy effectively
controlled by Filipinos."18 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 defining 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,19 in Section 7, Article XII on
ownership of private lands,20 in Section 10, Article XII on the reservation of certain investments to
Filipino citizens,21 in Section 4(2), Article XIV on the ownership of educational institutions,22 and in
Section 11(2), Article XVI on the ownership of advertising companies.23
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.
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.
In Chavez v. PCGG,24 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 sufficient 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 Official 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 satisfied 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] definitely involved considering the
important role [of the subject contract] . . . in the economic development of the country and the
magnitude of the financial consideration involved.’ We concluded that, as a consequence, the
disclosure provision in the Constitution would constitute sufficient authority for upholding the petitioner’s
standing. (Emphasis supplied)
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, 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. (Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:
Section 5. 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 the capital
of which 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 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)
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935
Constitution, viz:
Section 8. 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 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, certificate, or authorization be
exclusive in character or for a longer period than fifty years. No franchise or right shall be granted to any
individual, firm, 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.25 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."26 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.27 This specific 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"28 and ensure "a self-reliant and independent national
economy effectively controlled by Filipinos."29
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.30 This arose from Presidential Decree No. 217,31 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.32
Petitioners-in-intervention basically reiterate petitioner’s arguments and adopt petitioner’s definition of
the term "capital."33 Petitioners-in-intervention allege that "the approximate foreign ownership of
common capital stock of PLDT x x x already amounts to at least 63.54% of the total outstanding
common stock," which means that foreigners exercise significant 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 definition of the term "capital" in Section 11, Article XII
of the Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not
dispute that more than 40 percent of the common shares of PLDT are held by foreigners.
In particular, respondent Nazareno’s Memorandum, consisting of 73 pages, harps mainly on the
procedural infirmities 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."34 Essentially, Nazareno
invokes denial of due process on behalf of the foreign common shareholders.
While Nazareno does not introduce any definition 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."35
Similarly, respondent Manuel V. Pangilinan does not define 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 flaws 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)."36
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla,
Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term
"capital." In its Memorandum37 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 definition 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."38
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine
Stock Exchange (PSE), does not also define the term "capital" and seeks the dismissal of the petition
on the following grounds: (1) failure to state a cause of action against Lim; (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:
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. x x x
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.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial
ownership and the controlling interest.
xxxx
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 suffice but it must be shown that the legal and beneficial
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.
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 classified, 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 clarified by the above-quoted Amendments. In this regard, suffice 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.39
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. x x x
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 defined. – 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.
xxxx
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 x x x – which supports petitioner’s view that only common shares should form the
basis for computing a public utility’s foreign equity.
xxxx
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 x x x – has categorically ruled that both
common and preferred shares are properly considered in determining outstanding capital stock and the
nationality composition thereof.40
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,41 and not to the total outstanding capital stock comprising both
common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:
Sec. 6. Classification 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 classified 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 fix the terms and conditions of
preferred shares of stock or any series thereof: Provided, That such terms and conditions shall be
effective upon the filing of a certificate 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
five (₱5.00) 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.
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 certificate 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:
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.
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.43 This is exercised through his vote in the election of directors because it is the board of
directors that controls or manages the corporation.44 In the absence of provisions in the articles of
incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as
common shares. However, preferred shareholders are often excluded from any control, that is, deprived
of the right to vote in the election of directors and on other matters, on the theory that the preferred
shareholders are merely investors in the corporation for income in the same manner as
bondholders.45 In fact, under the Corporation Code only preferred or redeemable shares can be
deprived of the right to vote.46 Common shares cannot be deprived of the right to vote in any corporate
meeting, and any provision in the articles of incorporation restricting the right of common shareholders
to vote is invalid.47
Considering that common shares have voting rights which translate to control, as opposed to preferred
shares which usually have no voting rights, the term "capital" in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred shares also have the right to vote
in the election of directors, then the term "capital" shall include such preferred shares because the right
to participate in the control or management of the corporation is exercised through the right to vote in
the election of directors. In short, the term "capital" in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the election of directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of
Filipino citizens the control and management of public utilities. As revealed in the deliberations of the
Constitutional Commission, "capital" refers to the voting stock or controlling interest 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?
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.48
xxxx
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."
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 definition of a "Philippine national" in the Foreign Investments Act of 1991,50 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 benefits, where the trustee is a
Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit 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)
In explaining the definition 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 benefits, where the trustee is a Philippine national and at least sixty
percent [60%] of the fund will accrue to the benefit of the Philippine nationals; 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 beneficial 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.
Individuals or juridical entities not meeting the aforementioned qualifications are considered as
non-Philippine nationals. (Emphasis supplied)
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]."
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 definition unjustifiably 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 definition 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 (₱1.00) per share.
Under the broad definition 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 controlled by
Filipinos.
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."51
On the other hand, holders of common shares are granted the exclusive right to vote in the election of
directors. PLDT’s Articles of Incorporation52 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."53
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),54 which is a document
required to be submitted annually to the Securities and Exchange Commission,55 foreigners hold
120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares.56 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 2009,57 as submitted to the SEC, shows that per share
the SIP58 preferred shares earn a pittance in dividends compared to the common shares. PLDT
declared dividends for the common shares at ₱70.00 per share, while the declared dividends for the
preferred shares amounted to a measly ₱1.00 per share.59 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,60 as submitted to the SEC, the par value of PLDT common shares is
₱5.00 per share, whereas the par value of preferred shares is ₱10.00 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.61 Worse, preferred
shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only
22.15%.62 This undeniably shows that beneficial 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 beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands
of Filipinos in accordance with the constitutional mandate. Full beneficial 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, 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 x x x."
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;63 (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 ₱5.00 have a current stock market
value of ₱2,328.00 per share,64 while PLDT preferred shares with a par value of ₱10.00 per share have
a current stock market value ranging from only ₱10.92 to ₱11.06 per share,65 is a glaring confirmation
by the market that control and beneficial 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,66 thus:
x x x 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)
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 difficult to discern. For if they are not treated
as self-executing, the mandate of the fundamental law ratified by the sovereign people can be
easily ignored and nullified 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,67 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,68 this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to
an alien, 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 is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the
legislature has not definitely decided what policy should be followed in cases of violations law.
against the constitutional prohibition, courts of justice cannot go beyond by declaring the
disposition to be null and void as violative of the Constitution. x x x (Emphasis supplied) SO ORDERED.

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
specific 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 specific 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."69 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.1awphi1

Under Section 17(4)70 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,71 the SEC is vested with the "power and
function" to "suspend or revoke, after proper notice and hearing, the franchise or certificate 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 x x x 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 definition of the term "capital" in determining the extent of
allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there
G.R. No. 176579 October 9, 2012
HEIRS OF WILSON P. GAMBOA,* Petitioners,
vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN 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 AND EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF
THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.
This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine
Stock Exchange's (PSE) President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L. Nazareno
(Nazareno ),3 and ( 4) the Securities and Exchange Commission (SEC)4 (collectively, movants ).
The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalfofthe
SEC,5 assailing the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment on
behalf of the State,6 declaring expressly that it agrees with the Court's definition of the term "capital" in
Section 11, Article XII of the Constitution. During the Oral Arguments on 26 June 2012, the OSG
reiterated its position consistent with the Court's 28 June 2011 Decision.
We deny the motions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.
As we emphatically stated in the 28 June 2011 Decision, 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
Philippine 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 threshold legal issue presented in this
case.
Contrary to Pangilinan’s narrow view, the serious economic consequences resulting in the interpretation
of the term "capital" in Section 11, Article XII of the Constitution undoubtedly demand an immediate
adjudication of this issue. Simply put, the far-reaching implications of this issue justify the
treatment of the petition as one for mandamus.7
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise and expedient to resolve
the case although the petition for declaratory relief could be outrightly dismissed for being procedurally
defective. There, appellant admittedly had already committed a breach of the Public Service Act in
relation to the Anti-Dummy Law since it had been employing non- American aliens long before the
decision in a prior similar case. However, the main issue in Luzon Stevedoring was of transcendental
importance, involving the exercise or enjoyment of rights, franchises, privileges, properties and
businesses which only Filipinos and qualified corporations could exercise or enjoy under the
Constitution and the statutes. Moreover, the same issue could be raised by appellant in an appropriate
action. Thus, in Luzon Stevedoring the Court deemed it necessary to finally dispose of the case for the
guidance of all concerned, despite the apparent procedural flaw in the petition.
The circumstances surrounding the present case, such as the supposed procedural defect of the
petition and the pivotal legal issue involved, resemble those in Luzon Stevedoring. Consequently, in the
interest of substantial justice and faithful adherence to the Constitution, we opted to resolve this case for
the guidance of the public and all concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been
settled and defined to refer to the total outstanding shares of stock, whether voting or non-voting. In fact,
movants claim that the SEC, which is the administrative agency tasked to enforce the 60-40 ownership
requirement in favor of Filipino citizens in the Constitution and various statutes, has consistently
adopted this particular definition in its numerous opinions. Movants point out that with the 28 June 2011
Decision, the Court in effect introduced a "new" definition or "midstream redefinition"9 of the term
"capital" in Section 11, Article XII of the Constitution.
This is egregious error.
For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the term
"capital" found in various economic provisions of the 1935, 1973 and 1987 Constitutions. There has
never been a judicial precedent interpreting the term "capital" in the 1935, 1973 and 1987 Constitutions,
until now. Hence, it is patently wrong and utterly baseless to claim that the Court in defining the term
"capital" in its 28 June 2011 Decision modified, reversed, or set aside the purported long-standing
definition of the term "capital," which supposedly refers to the total outstanding shares of stock, whether
voting or non-voting. To repeat, until the present case there has never been a Court ruling categorically
defining the term "capital" found in the various economic provisions of the 1935, 1973 and 1987
Philippine Constitutions.
The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term
"capital" as referring to both voting and non-voting shares (combined total of common and preferred
shares) are, in the first place, conflicting and inconsistent. There is no basis whatsoever to the claim that
the SEC and the DOJ have consistently and uniformly adopted a definition of the term "capital" contrary
to the definition that this Court adopted in its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term "capital" in Section 9,
Article XIV of the 1973 Constitution was raised, that is, whether the term "capital" includes "both
preferred and common stocks." The issue was raised in relation to a stock-swap transaction between a
Filipino and a Japanese corporation, both stockholders of a domestic corporation that owned lands in
the Philippines. Then Minister of Justice Estelito P. Mendoza ruled that the resulting ownership structure
of the corporation would be unconstitutional because 60% of the voting stock would be owned by
Japanese while Filipinos would own only 40% of the voting stock, although when the non-voting stock is
added, Filipinos would own 60% of the combined voting and non-voting stock. This ownership
structure is remarkably similar to the current ownership structure of PLDT. Minister Mendoza
ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and
preferred) while the Japanese investors control sixty percent (60%) of the common (voting) shares.
It is your position that x x x since Section 9, Article XIV of the Constitution uses the word
"capital," which is construed "to include both preferred and common shares" and "that where
the law does not distinguish, the courts shall not distinguish."
xxxx
In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question
may not be constitutionally upheld. While it may be ordinary corporate practice to classify corporate
shares into common voting shares and preferred non-voting shares, any arrangement which attempts to
defeat the constitutional purpose should be eschewed. Thus, the resultant equity arrangement which
would place ownership of 60%11 of the common (voting) shares in the Japanese group, while
retaining 60% of the total percentage of common and preferred shares in Filipino hands would
amount to circumvention of the principle of control by Philippine stockholders that is implicit in
the 60% Philippine nationality requirement in the Constitution. (Emphasis supplied)
In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9, Article
XIV of the 1973 Constitution includes "both preferred and common stocks" treated as the same class of
shares regardless of differences in voting rights and privileges. Minister Mendoza stressed that the 60-
40 ownership requirement in favor of Filipino citizens in the Constitution is not complied with unless the
corporation "satisfies the criterion of beneficial ownership" and that in applying the same "the
primordial consideration is situs of control."
On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan
Pantaleon & San Jose, then SEC General Counsel Vernette G. Umali-Paco applied the Voting Control
Test, that is, using only the voting stock to determine whether a corporation is a Philippine national. The
Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national
because: (1) sixty percent (60%) of its outstanding capital stock entitled to vote is owned by a
Philippine national, the Trustee; and (2) at least sixty percent (60%) of the ERF will accrue to the benefit
of Philippine nationals. Still pursuant to the Control Test, MLRC’s investment in 60% of BFDC’s
outstanding capital stock entitled to vote shall be deemed as of Philippine nationality, thereby
qualifying BFDC to own private land.
Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals,
considering that: (1) sixty percent (60%) of their respective outstanding capital stock entitled to
vote is owned by a Philippine national (i.e., by the Trustee, in the case of MLRC; and by MLRC, in the
case of BFDC); and (2) at least 60% of their respective board of directors are Filipino citizens.
(Boldfacing and italicization supplied)
Clearly, these DOJ and SEC opinions are compatible with the Court’s interpretation of the 60-40
ownership requirement in favor of Filipino citizens mandated by the Constitution for certain economic
activities. At the same time, these opinions highlight the conflicting, contradictory, and inconsistent
positions taken by the DOJ and the SEC on the definition of the term "capital" found in the economic
provisions of the Constitution.
The opinions issued by SEC legal officers do not have the force and effect of SEC rules and regulations
because only the SEC en banc can adopt rules and regulations. As expressly provided in Section 4.6 of
the Securities Regulation Code,12 the SEC cannot delegate to any of its individual Commissioner or staff
the power to adopt any rule or regulation. Further, under Section 5.1 of the same Code, it is the SEC
as a collegial body, and not any of its legal officers, that is empowered to issue opinions and
approve rules and regulations. Thus:
4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or
office of the Commission, an individual Commissioner or staff member of the Commission except its
review or appellate authority and its power to adopt, alter and supplement any rule or regulation.
The Commission may review upon its own initiative or upon the petition of any interested party any
action of any department or office, individual Commissioner, or staff member of the Commission.
SEC. 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:
xxxx
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and
provide guidance on and supervise compliance with such rules, regulations and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that have
the effect of SEC rules or regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the Code, only the
SEC en banc can "issue opinions" that have the force and effect of rules or regulations. Section 4.6 of
the Code bars the SEC en banc from delegating to any individual Commissioner or staff the power to
adopt rules or regulations. In short, any opinion of individual Commissioners or SEC legal officers
does not constitute a rule or regulation of the SEC.
The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual
commissioners or legal staff, is empowered to issue opinions which have the same binding effect as
SEC rules and regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the Commission En Banc that can issue an
 SEC Opinion, correct? COMMISSIONER GAITE:

COMMISSIONER GAITE:13 They are not rules and regulations.

That’s correct, Your Honor. JUSTICE CARPIO:

JUSTICE CARPIO:
Can the Commission En Banc delegate this function to an SEC officer?
COMMISSIONER GAITE:
Yes, Your Honor, we have delegated it to the General Counsel.
JUSTICE CARPIO:
It can be delegated. What cannot be delegated by the Commission En Banc to a
commissioner or an individual employee of the Commission?
If they are not rules and regulations, they apply only to that particular situation and will
not constitute a precedent, correct?
COMMISSIONER GAITE:
Yes, Your Honor.14 (Emphasis supplied)
Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and
opinions on behalf of the SEC, has adopted even 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.,15 to wit:

COMMISSIONER GAITE: The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our
natural resources. Necessarily, therefore, the Rule interpreting the constitutional provision should
Novel opinions that [have] to be decided by the En Banc... not diminish that right through the legal fiction of corporate ownership and control. But the
constitutional provision, as interpreted and practiced via the 1967 SEC Rules, has favored foreigners
JUSTICE CARPIO: 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.
What cannot be delegated, among others, is the power to adopt or amend rules and
regulations, correct?
Compliance with the constitutional limitation(s) on engaging in nationalized activities must be
determined by ascertaining if 60% of the investing corporation’s outstanding capital stock is owned by
COMMISSIONER GAITE: "Filipino citizens", or as interpreted, by natural or individual Filipino citizens. If such investing corporation
is in turn owned to some extent by another investing corporation, the same process must be observed.
That’s correct, Your Honor. One must not stop until the citizenships of the individual or natural stockholders of layer after layer of
investing corporations have been established, the very essence of the Grandfather Rule.
JUSTICE CARPIO:
Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule. In
one of the discussions on what is now Article XII of the present Constitution, the framers made the
So, you combine the two (2), the SEC officer, if delegated that power, can issue
following exchange:
an opinion but that opinion does not constitute a rule or regulation, correct?

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign
COMMISSIONER GAITE:
equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.

Correct, Your Honor.

MR. VILLEGAS. That is right.

JUSTICE CARPIO:
MR. NOLLEDO. In teaching law, we are always faced with the 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
So, all of these opinions that you mentioned they are not rules and regulations, capital stock of a corporation’? Will the Committee please enlighten me on this?
correct?
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. (Boldfacing and underscoring supplied; italicization in the original)
This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership requirement
in favor of Filipino citizens in the Constitution to engage in certain economic activities applies not only to
voting control of the corporation, but also to the beneficial ownership of the corporation. Thus, in
our 28 June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60 percent Filipinoowned "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]."
(Emphasis supplied)
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a
corporation is a "Philippine national."
The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions which
respondents relied upon, is merely preliminary and an opinion only of such officers. To repeat, any such
opinion does not constitute an SEC rule or regulation. In fact, many of these opinions contain a
disclaimer which expressly states: "x x x the foregoing opinion is based solely on facts disclosed in
your query and relevant only to the particular issue raised therein and shall not be used in the nature
of a standing rule binding upon the Commission in other cases whether of similar or dissimilar
circumstances."16 Thus, the opinions clearly make a caveat that they do not constitute binding
precedents on any one, not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither
conclusive nor controlling and thus, do not bind the Court. It is hornbook doctrine that any interpretation
of the law that administrative or quasi-judicial agencies make is only preliminary, never conclusive on
the Court. The power to make a final interpretation of the law, in this case the term "capital" in Section
11, Article XII of the 1987 Constitution, lies with this Court, not with any other government entity.
In his motion for reconsideration, the PSE President cites the cases of National Telecommunications
Commission v. Court of Appeals17 and Philippine Long Distance Telephone Company v. National
Telecommunications Commission18 in arguing that the Court has already defined the term "capital" in
Section 11, Article XII of the 1987 Constitution.19
The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of
Appeals20 and Philippine Long Distance Telephone Company v. National Telecommunications
Commission,21 the Court did not define the term "capital" as found in Section 11, Article XII of the 1987
Constitution. In fact, these two cases never mentioned, discussed or cited Section 11, Article XII
of the Constitution or any of its economic provisions, and thus cannot serve as precedent in the
interpretation of Section 11, Article XII of the Constitution. These two cases dealt solely with the
determination of the correct regulatory fees under Section 40(e) and (f) of the Public Service Act, to wit:
(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of other
public services and/or in the regulation or fixing of their rates, twenty centavos for each one hundred
pesos or fraction thereof, of the capital stock subscribed or paid, or if no shares have been issued, of
the capital invested, or of the property and equipment whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or fraction
thereof, of the increased capital. (Emphasis supplied)
The Court’s interpretation in these two cases of the terms "capital stock subscribed or paid," "capital
stock" and "capital" does not pertain to, and cannot control, the definition of the term "capital" as used in
Section 11, Article XII of the Constitution, or any of the economic provisions of the Constitution where
the term "capital" is found. The definition of the term "capital" found in the Constitution must not be
taken out of context. A careful reading of these two cases reveals that the terms "capital stock
subscribed or paid," "capital stock" and "capital" were defined solely to determine the basis for
computing the supervision and regulation fees under Section 40(e) and (f) of the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies the
ideals that the Constitution intends to achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and humane
society, and establish a Government that shall embody our ideals and aspirations, promote the common
good, conserve and develop our patrimony, and secure to ourselves and our posterity, the blessings
of independence and democracy under the rule of law and a regime of truth, justice, freedom, love,
equality, and peace, do ordain and promulgate this Constitution. (Emphasis supplied)
Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy the
development of a national economy "effectively controlled" by Filipinos:
Section 19. The State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos.
Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:
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.23
Under Section 10, Article XII of the 1987 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.
With respect to public utilities, the 1987 Constitution specifically ordains:
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. (Emphasis supplied)
This provision, which mandates the Filipinization of public utilities, requires that any form of
authorization for the operation of public utilities shall 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."24
The 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1) Filipino
citizens, or (2) corporations or associations at least 60 percent of whose "capital" is owned by Filipino
citizens. Hence, in the case of individuals, only Filipino citizens can validly own and operate a public
utility. In the case of corporations or associations, at least 60 percent of their "capital" must be owned by
Filipino citizens. In other words, under Section 11, Article XII of the 1987 Constitution, to own and
operate a public utility a corporation’s capital must at least be 60 percent owned by Philippine
nationals.
IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress enacted
Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA), as amended, which defined a
"Philippine national" as follows:
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 benefits, where the trustee is a
Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit 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." (Boldfacing, italicization and underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a
domestic corporation at least "60% of the capital stock outstanding and entitled to vote" is owned
by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in its
predecessor statute, Executive Order No. 226 or the Omnibus Investments Code of 1987,25 which was
issued by then President Corazon C. Aquino. Article 15 of this Code states:
Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic 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 per cent (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 benefits, where the trustee is a Philippine national and at least
sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent
(60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and held
by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of
Directors of both corporations must be citizens of the Philippines in order that the corporation shall be
considered a Philippine national. (Boldfacing, italicization and underscoring supplied)
Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x x which is not a
‘Philippine national’ x x x shall do business
x x x in the Philippines x x x without first securing from the Board of Investments a written certificate to
the effect that such business or economic activity x x x would not conflict with the Constitution or laws of
the Philippines."27 Thus, a "non-Philippine national" cannot own and operate a reserved economic
activity like a public utility. This means, of course, that only a "Philippine national" can own and operate
a public utility.
In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code of
1987 was a reiteration of the meaning of such term as provided in Article 14 of the Omnibus
Investments Code of 1981,28 to wit:
Article 14. "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 per cent (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 benefits, where the trustee is a Philippine national and at least
sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent
(60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and held
by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of
Directors of both corporations must be citizens of the Philippines in order that the corporation shall be
considered a Philippine national. (Boldfacing, italicization and underscoring supplied)
Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x which is not a
‘Philippine national’ x x x shall do business x x x in the Philippines x x x without first securing a written
certificate from the Board of Investments to the effect that such business or economic activity x x x
would not conflict with the Constitution or laws of the Philippines."29 Thus, a "non-Philippine national"
cannot own and operate a reserved economic activity like a public utility. Again, this means that only a
"Philippine national" can own and operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 518630 or the Investment Incentives
Act, which took effect on 16 September 1967, contained a similar definition of a "Philippine national," to
wit:
(f) "Philippine National" shall mean a citizen of the Philippines; or a 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 per cent 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 benefits, where the trustee is a Philippine National and at least sixty per cent of the fund will
accrue to the benefit of Philippine Nationals: Provided, That where a corporation and its non-Filipino
stockholders own stock in a registered enterprise, at least sixty per cent of the capital stock outstanding
and entitled to vote of both corporations must be owned and held by the citizens of the Philippines and
at least sixty per cent of the members of the Board of Directors of both corporations must be citizens of
the Philippines in order that the corporation shall be considered a Philippine National. (Boldfacing,
italicization and underscoring supplied)
Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took effect on
30 September 1968, if the investment in a domestic enterprise by non-Philippine nationals exceeds 30%
of its outstanding capital stock, such enterprise must obtain prior approval from the Board of
Investments before accepting such investment. Such approval shall not be granted if the investment
"would conflict with existing constitutional provisions and laws regulating the degree of required
ownership by Philippine nationals in the enterprise."31 A "non-Philippine national" cannot own and
operate a reserved economic activity like a public utility. Again, this means that only a "Philippine
national" can own and operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino citizen,
or a domestic corporation "at least sixty percent (60%) of the capital stock outstanding and
entitled to vote" is owned by Filipino citizens. A domestic corporation is a "Philippine national" only if at
least 60% of its voting stock is owned by Filipino citizens. This definition of a "Philippine national" is
crucial in the present case because the FIA reiterates and clarifies Section 11, Article XII of the 1987
Constitution, which limits the ownership and operation of public utilities to Filipino citizens or to
corporations or associations at least 60% Filipino-owned.
The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature of
business and area of investment. The FIA spells out the procedures by which non-Philippine nationals
can invest in the Philippines. Among the key features of this law is the concept of a negative list or the
Foreign Investments Negative List.32 Section 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment Negative
List]. - The Foreign Investment Negative List shall have two 2 component lists: A and B:
a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of
the Constitution and specific laws.
b. List B shall contain the areas of activities and enterprises regulated pursuant to law:
1. which are defense-related activities, requiring prior clearance and authorization from the Department
of National Defense [DND] to engage in such activity, such as the manufacture, repair, storage and/or
distribution of firearms, ammunition, lethal weapons, military ordinance, explosives, pyrotechnics and
similar materials; unless such manufacturing or repair activity is specifically authorized, with a
substantial export component, to a non-Philippine national by the Secretary of National Defense; or
2. which have implications on public health and morals, such as the manufacture and distribution of
dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam
bathhouses and massage clinics. (Boldfacing, underscoring and italicization supplied)
Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign
Investment Negative List A consists of "areas of activities reserved to Philippine nationals by
mandate of the Constitution and specific laws," where foreign equity participation in any
enterprise shall be limited to the maximum percentage expressly prescribed by the Constitution
and other specific laws. In short, to own and operate a public utility in the Philippines one must
be a "Philippine national" as defined in the FIA. The FIA is abundant notice to foreign investors
to what extent they can invest in public utilities in the Philippines.
To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the
ownership and operation of public utilities, which the Constitution expressly reserves to Filipino citizens
and to corporations at least 60% owned by Filipino citizens. In other words, Negative List A of the
FIA reserves the ownership and operation of public utilities only to "Philippine nationals,"
defined in Section 3(a) of the FIA as "(1) a citizen of the Philippines; x x x or (3) 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 (4) 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
benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals."
Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus
Investments Code of 1981, to the enactment of the Omnibus Investments Code of 1987, and to the
passage of the present Foreign Investments Act of 1991, or for more than four decades, the
statutory definition of the term "Philippine national" has been uniform and consistent: it means
a Filipino citizen, or a domestic corporation at least 60% of the voting stock is owned by
Filipinos. Likewise, these same statutes have uniformly and consistently required that only
"Philippine nationals" could own and operate public utilities in the Philippines. The following
exchange during the Oral Arguments is revealing:
JUSTICE CARPIO:
Counsel, I have some questions. You are aware of the Foreign Investments Act of
1991, x x x? And the FIA of 1991 took effect in 1991, correct? That’s over twenty (20)
years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine
nationals can own and operate public utilities[], correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign Investments Act of 1991 defines a "Philippine national" either
as a citizen of the Philippines, or if it is a corporation at least sixty percent (60%) of
the voting stock is owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that under the predecessor law of the Foreign Investments
Act of 1991, the Omnibus Investments Act of 1987, the same provisions apply: x x x
only Philippine nationals can own and operate a public utility and the Philippine
national, if it is a corporation, x x x sixty percent (60%) of the capital stock of that
corporation must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the Omnibus Investments Act of 1987, under the Omnibus
Investments Act of 1981, the same rules apply: x x x only a Philippine national can
own and operate a public utility and a Philippine national, if it is a corporation, sixty
percent (60%) of its x x x voting stock, must be owned by citizens of the Philippines,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under [the]1967 Investments Incentives Act and the Foreign
Company Act of 1968, the same rules applied, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4) decades, x x x, the law has been very consistent – only a
Philippine national can own and operate a public utility, and a Philippine
national, if it is a corporation, x x x at least sixty percent (60%) of the voting
stock must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.33 (Emphasis supplied)
Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which
categorically prescribe that certain economic activities, like the ownership and operation of public
utilities, are reserved to corporations "at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines." Foreign Investment Negative List A
refers to "activities reserved to Philippine nationals by mandate of the Constitution and specific
laws." The FIA is the basic statute regulating foreign investments in the Philippines. Government
agencies tasked with regulating or monitoring foreign investments, as well as counsels of foreign
investors, should start with the FIA in determining to what extent a particular foreign investment is
allowed in the Philippines. Foreign investors and their counsels who ignore the FIA do so at their own
peril. Foreign investors and their counsels who rely on opinions of SEC legal officers that obviously
contradict the FIA do so also at their own peril.
Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise a
red flag. There are already numerous opinions of SEC legal officers that cite the definition of a
"Philippine national" in Section 3(a) of the FIA in determining whether a particular corporation is
qualified to own and operate a nationalized or partially nationalized business in the Philippines. This
shows that SEC legal officers are not only aware of, but also rely on and invoke, the provisions of the
FIA in ascertaining the eligibility of a corporation to engage in partially nationalized industries. The
following are some of such opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;
2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine Overseas
Employment Administration;
3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S.
Calma;
4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los
Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S.
Arbolado.
The SEC legal officers’ occasional but blatant disregard of the definition of the term "Philippine national"
in the FIA signifies their lack of integrity and competence in resolving issues on the 60-40 ownership
requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution.
The PSE President argues that the term "Philippine national" defined in the FIA should be limited and
interpreted to refer to corporations seeking to avail of tax and fiscal incentives under investment
incentives laws and cannot be equated with the term "capital" in Section 11, Article XII of the 1987
Constitution. Pangilinan similarly contends that the FIA and its predecessor statutes do not apply to
"companies which have not registered and obtained special incentives under the schemes established
by those laws."
Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any
enterprise. Tax and fiscal incentives to investments are granted separately under the Omnibus
Investments Code of 1987, not under the FIA. In fact, the FIA expressly repealed Articles 44 to 56 of
Book II of the Omnibus Investments Code of 1987, which articles previously regulated foreign
investments in nationalized or partially nationalized industries.
The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized
industries. There is nothing in the FIA, or even in the Omnibus Investments Code of 1987 or its
predecessor statutes, that states, expressly or impliedly, that the FIA or its predecessor statutes do not
apply to enterprises not availing of tax and fiscal incentives under the Code. The FIA and its
predecessor statutes apply to investments in all domestic enterprises, whether or not such enterprises
enjoy tax and fiscal incentives under the Omnibus Investments Code of 1987 or its predecessor
statutes. The reason is quite obvious – mere non-availment of tax and fiscal incentives by a non-
Philippine national cannot exempt it from Section 11, Article XII of the Constitution regulating
foreign investments in public utilities. In fact, the Board of Investments’ Primer on Investment
Policies in the Philippines,34 which is given out to foreign investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES
Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives, (i.e.,
the activity is not listed in the IPP, and they are not exporting at least 70% of their production) may go
ahead and make the investments without seeking incentives. They only have to be guided by the
Foreign Investments Negative List (FINL).
The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas
outside of this list are fully open to foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the Constitution
to engage in certain economic activities applies not only to voting control of the corporation, but also to
the beneficial ownership of the corporation. To repeat, we held:
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]."
(Emphasis supplied)
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 benefits," 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 beneficial ownership of the stocks, coupled with appropriate
voting rights, is essential."
Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to voting
control of the corporation but also to the beneficial 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 stock35 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.36
The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but
disallows denial of the right to vote in specific corporate matters. Thus, common shares have the right to
vote in the election of directors, while preferred shares may be denied such right. Nonetheless,
preferred shares, even if denied the right to vote in the election of directors, are entitled to vote on the
following corporate matters: (1) amendment of articles of incorporation; (2) increase and decrease of
capital stock; (3) incurring, creating or increasing bonded indebtedness; (4) sale, lease, mortgage or
other disposition of substantially all corporate assets; (5) investment of funds in another business or
corporation or for a purpose other than the primary purpose for which the corporation was organized; (6)
adoption, amendment and repeal of by-laws; (7) merger and consolidation; and (8) dissolution of
corporation.37
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?
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.

Since a specific class of shares may have rights and privileges or restrictions different from the rest of MR. VILLEGAS. That is right.
the shares in a corporation, the 60-40 ownership requirement in favor of Filipino citizens in Section 11,
Article XII of the Constitution must apply not only to shares with voting rights but also to shares without MR. NOLLEDO. Thank you.
voting rights. Preferred shares, denied the right to vote in the election of directors, are anyway still
entitled to vote on the eight specific corporate matters mentioned above. Thus, if a corporation,
engaged in a partially nationalized industry, issues a mixture of common and preferred non- With respect to an investment by one corporation in another corporation, say, a corporation with 60-40
voting shares, at least 60 percent of the common shares and at least 60 percent of the preferred percent equity invests in another corporation which is permitted by the Corporation Code, does the
non-voting shares must be owned by Filipinos. Of course, if a corporation issues only a single class Committee adopt the grandfather rule?
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 MR. VILLEGAS. Yes, that is the understanding of the Committee.
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
MR. NOLLEDO. Therefore, we need additional Filipino capital?
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, MR. VILLEGAS. Yes.39
regardless of differences in voting rights, privileges and restrictions, guarantees effective Filipino control
of public utilities, as mandated by the Constitution. xxxx

Moreover, such uniform application to each class of shares insures that the "controlling interest" in MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
public utilities always lies in the hands of Filipino citizens. This addresses and extinguishes Pangilinan’s
worry that foreigners, owning most of the non-voting shares, will exercise greater control over
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or
fundamental corporate matters requiring two-thirds or majority vote of all shareholders.
controlling interest."

VI.
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations
Intent of the framers of the Constitution
or associations at least sixty percent of whose CAPITAL is owned by such citizens."

While Justice Velasco quoted in his Dissenting Opinion38 a portion of the deliberations of the
MR. VILLEGAS. Yes.
Constitutional Commission to support his claim that the term "capital" refers to the total outstanding
shares of stock, whether voting or non-voting, the following excerpts of the deliberations reveal
otherwise. It is clear from the following exchange that the term "capital" refers to controlling interest of MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be
a corporation, thus: 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.40 (Boldfacing and underscoring
supplied)
Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the
corporation.
The use of the term "capital" was intended to replace the word "stock" because associations without
stocks can operate public utilities as long as they meet the 60-40 ownership requirement in favor of
Filipino citizens prescribed in Section 11, Article XII of the Constitution. However, this did not change
the intent of the framers of the Constitution to reserve exclusively to Philippine nationals the
"controlling interest" in public utilities.
During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the
nationalists in the Convention."41 The same battle-cry resulted in the nationalization of the public
utilities.42 This is also the same intent of the framers of the 1987 Constitution who adopted the exact
formulation embodied in the 1935 and 1973 Constitutions on foreign equity limitations in partially
nationalized industries.
The OSG, in its own behalf and as counsel for the State,43 agrees fully with the Court’s interpretation of
the term "capital." In its Consolidated Comment, the OSG explains that the deletion of the phrase
"controlling interest" and replacement of the word "stock" with the term "capital" were intended
specifically to extend the scope of the entities qualified to operate public utilities to include associations
without stocks. The framers’ omission of the phrase "controlling interest" did not mean the inclusion of
all shares of stock, whether voting or non-voting. The OSG reiterated essentially the Court’s declaration
that the Constitution reserved exclusively to Philippine nationals the ownership and operation of public
utilities consistent with the State’s policy to "develop a self-reliant and independent national
economy effectively controlled by Filipinos."
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 classification 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 defining 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
(₱ 1.00) per share. Under the broad definition 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
Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino
board of directors, this situation does not guarantee Filipino control and does not in any way cure the
violation of the Constitution. The independence of the Filipino board members so elected by such
foreign shareholders is highly doubtful. As the OSG pointed out, quoting Justice George Sutherland’s
words in Humphrey’s Executor v. US,44 "x x x it is quite evident that one who holds his office only during
the pleasure of another cannot be depended upon to maintain an attitude of independence against the
latter’s will." Allowing foreign shareholders to elect a controlling majority of the board, even if all the
directors are Filipinos, grossly circumvents the letter and intent of the Constitution and defeats the very
purpose of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the Constitution
The last sentence of Section 11, Article XII of the 1987 Constitution 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 officers of such
corporation or association must be citizens of the Philippines.
During the Oral Arguments, the OSG emphasized that there was never a question on the intent of the
framers of the Constitution to limit foreign ownership, and assure majority Filipino ownership and control
of public utilities. The OSG argued, "while the delegates disagreed as to the percentage threshold to
adopt, x x x the records show they clearly understood that Filipino control of the public utility corporation
can only be and is obtained only through the election of a majority of the members of the board."
Indeed, the only point of contention during the deliberations of the Constitutional Commission on 23
August 1986 was the extent of majority Filipino control of public utilities. This is evident from the
following exchange:
THE PRESIDENT. Commissioner Jamir is recognized.
MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the phrase
"two thirds of whose voting stock or controlling interest," and instead substitute the words "SIXTY
PERCENT OF WHOSE CAPITAL" so that the sentence will read: "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
PERCENT OF WHOSE CAPITAL is owned by such citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous sections
in which we fixed the Filipino equity to 60 percent as against 40 percent for foreigners. It is only in this
Section 15 with respect to public utilities that the committee proposal was increased to two-thirds. I think
it would be better to harmonize this provision by providing that even in the case of public utilities, the
minimum equity for Filipino citizens should be 60 percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is recognized.
MR. ROMULO. My reason for supporting the amendment is based on the discussions I have had with
representatives of the Filipino majority owners of the international record carriers, and the subsequent
memoranda they submitted to me. x x x
Their second point is that under the Corporation Code, the management and control of a corporation is
vested in the board of directors, not in the officers but in the board of directors. The officers are only
agents of the board. And they believe that with 60 percent of the equity, the Filipino majority
stockholders undeniably control the board. Only on important corporate acts can the 40-percent foreign
equity exercise a veto, x x x.
x x x x45
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a memorandum by the
spokesman of the Philippine Chamber of Communications on why they would like to maintain the
present equity, I am referring to the 66 2/3. They would prefer to have a 75-25 ratio but would settle for
66 2/3. x x x
xxxx
THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-thirds
rather than the 60 percent?
MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino citizens.
x x x x46
While they had differing views on the percentage of Filipino ownership of capital, it is clear that the
framers of the Constitution intended public utilities to be majority Filipino-owned and controlled. To
ensure that Filipinos control public utilities, the framers of the Constitution approved, as additional
safeguard, the inclusion of the last sentence of Section 11, Article XII of the Constitution commanding
that "[t]he 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." In other words, the last sentence of
Section 11, Article XII of the Constitution mandates that (1) the participation of foreign investors in the
governing body of the corporation or association shall be limited to their proportionate share in the
capital of such entity; and (2) all officers of the corporation or association must be Filipino citizens.
Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers of the
corporation or association to be Filipino citizens specifically to prevent management contracts, which
were designed primarily to circumvent the Filipinization of public utilities, and to assure Filipino control of
public utilities, thus:
MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a phrase
which states: "THE MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN
ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me their position
paper.
THE PRESIDENT. The Commissioner may proceed.
MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which
Commissioner Romulo mentioned – Philippine Global Communications, Eastern Telecommunications,
Globe Mackay Cable – are 40-percent owned by foreign multinational companies and 60-percent owned
by their respective Filipino partners. All three, however, also have management contracts with these
foreign companies – Philcom with RCA, ETPI with Cable and Wireless PLC, and GMCR with ITT. Up to
the present time, the general managers of these carriers are foreigners. While the foreigners in these
common carriers are only minority owners, the foreign multinationals are the ones managing and
controlling their operations by virtue of their management contracts and by virtue of their strength in the
governing bodies of these carriers.47
xxxx
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an
amendment with respect to the operating management of public utilities, and in this amendment, we are
associated with Fr. Bernas, Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will state
this amendment now.
Thank you.
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. This is still on Section 15.
MS. ROSARIO BRAID. Yes.
MR. VILLEGAS. Yes, Madam President.
xxxx
MS. ROSARIO BRAID. Madam President, I propose a new section to read: ‘THE MANAGEMENT
BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY
CITIZENS OF THE PHILIPPINES."
This will prevent management contracts and assure control by Filipino citizens. Will the
committee assure us that this amendment will insure that past activities such as management contracts
will no longer be possible under this amendment?
xxxx
FR. BERNAS. Madam President.
THE PRESIDENT. Commissioner Bernas is recognized.
FR. BERNAS. Will the committee accept a reformulation of the first part?
MR. BENGZON. Let us hear it.
FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which reads:
"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 AND..."
MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS
AND ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the whole thing again?
FR. BERNAS. "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..." I do not have the rest of the copy.
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that correct?
MR. VILLEGAS. Yes.
MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept the
amendment. Is that all right with Commissioner Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body refers to the board of directors and trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body refers to the board of directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam President.
VOTING
xxxx
The results show 29 votes in favor and none against; so the proposed amendment is approved.
xxxx
THE PRESIDENT. All right. Can we proceed now to vote on Section 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the committee please read Section 15?
MR. VILLEGAS. The entire Section 15, as amended, reads: "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 60 PERCENT OF
WHOSE CAPITAL is owned by such citizens." May I request Commissioner Bengzon to please
continue reading.
MR. BENGZON. "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 AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE
EXCLUSIVE IN CHARACTER OR FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS
RENEWABLE FOR NOT MORE THAN TWENTY-FIVE 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 Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public."
VOTING
xxxx
The results show 29 votes in favor and 4 against; Section 15, as amended, is approved.48 (Emphasis
supplied)
The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on the
limited participation of foreign investors in the governing body of public utilities, is a reiteration of the last
sentence of Section 5, Article XIV of the 1973 Constitution,49 signifying its importance in reserving
ownership and control of public utilities to Filipino citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not claim the contrary, that (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 foreigners control PLDT; (2) Filipinos own only 35.73% of PLDT’s common shares,
constituting a minority of the voting stock, and thus Filipinos do not control 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;50 (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%.
Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the question of
whether PLDT violated the 60-40 ownership requirement in favor of Filipino citizens in Section 11,
Article XII of the 1987 Constitution. Such question indisputably calls for a presentation and
determination of evidence through a hearing, which is generally outside the province of the Court’s
jurisdiction, but well within the SEC’s statutory powers. Thus, for obvious reasons, the Court limited its
decision on the purely legal and threshold issue on the definition of the term "capital" in Section 11,
Article XII of the Constitution and directed the SEC to apply such definition in determining the exact
percentage of foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is
the sole basis in determining foreign equity in a public utility and that any other government rulings,
opinions, and regulations inconsistent with this declaratory relief be declared unconstitutional and a
violation of the intent and spirit of the 1987 Constitution;
6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess
of 40 percent of the total subscribed common shareholdings; and
7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine Stock
Exchange to require PLDT to make a public disclosure of all of its foreign shareholdings and
their actual and real beneficial owners.
Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)
As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its
statutory duty to investigate whether "the required percentage of ownership of the capital stock to be
owned by citizens of the Philippines has been complied with [by PLDT] as required by x x x the
Constitution."51 Such plea clearly negates SEC’s argument that it was not impleaded.
Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to order
the SEC’s compliance with its directive contained in the 28 June 2011 Decision in view of the far-
reaching implications of this case. In Domingo v. Scheer,52 the Court dispensed with the amendment of
the pleadings to implead the Bureau of Customs considering (1) the unique backdrop of the case; (2)
the utmost need to avoid further delays; and (3) the issue of public interest involved. The Court held:
The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition
should not be dismissed because the second action would only be a repetition of the first. In Salvador,
et al., v. Court of Appeals, et al., we held that this Court has full powers, apart from that power and
authority which is inherent, to amend the processes, pleadings, proceedings and decisions by
substituting as party-plaintiff the real party-in-interest. The Court has the power to avoid delay in the
disposition of this case, to order its amendment as to implead the BOC as party-respondent.
Indeed, it may no longer be necessary to do so taking into account the unique backdrop in this
case, involving as it does an issue of public interest. After all, the Office of the Solicitor General has
represented the petitioner in the instant proceedings, as well as in the appellate court, and maintained
the validity of the deportation order and of the BOC’s Omnibus Resolution. It cannot, thus, be claimed
by the State that the BOC was not afforded its day in court, simply because only the petitioner, the
Chairperson of the BOC, was the respondent in the CA, and the petitioner in the instant recourse.
In Alonso v. Villamor, we had the occasion to state:
There is nothing sacred about processes or pleadings, their forms or contents. Their sole
purpose is to facilitate the application of justice to the rival claims of contending parties. They
were created, not to hinder and delay, but to facilitate and promote, the administration of justice. They
do not constitute the thing itself, which courts are always striving to secure to litigants. They are
designed as the means best adapted to obtain that thing. In other words, they are a means to an end.
When they lose the character of the one and become the other, the administration of justice is at fault
and courts are correspondingly remiss in the performance of their obvious duty.53 (Emphasis supplied)
In any event, the SEC has expressly manifested54 that it will abide by the Court’s decision and
defer to the Court’s definition of the term "capital" in Section 11, Article XII of the Constitution.
Further, the SEC entered its special appearance in this case and argued during the Oral
Arguments, indicating its submission to the Court’s jurisdiction. It is clear, therefore, that there
exists no legal impediment against the proper and immediate implementation of the Court’s
directive to the SEC.
PLDT is an indispensable party only insofar as the other issues, particularly the factual questions, are
concerned. In other words, PLDT must be impleaded in order to fully resolve the issues on (1) whether
the sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign ownership of
PLDT; (2) whether the sale of common shares to foreigners exceeded the 40 percent limit on foreign
equity in PLDT; and (3) whether the total percentage of the PLDT common shares with voting rights
complies with the 60-40 ownership requirement in favor of Filipino citizens under the Constitution for the
ownership and operation of PLDT. These issues indisputably call for an examination of the parties’
respective evidence, and thus are clearly within the jurisdiction of the SEC. In short, PLDT must be
impleaded, and must necessarily be heard, in the proceedings before the SEC where the factual issues
will be thoroughly threshed out and resolved.
Notably, the foregoing issues were left untouched by the Court. The Court did not rule on the
factual issues raised by Gamboa, except the single and purely legal issue on the definition of the term
"capital" in Section 11, Article XII of the Constitution. The Court confined the resolution of the instant
case to this threshold legal issue in deference to the fact-finding power of the SEC.
Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in this
case even without the participation of PLDT since defining the term "capital" in Section 11, Article XII of
the Constitution does not, in any way, depend on whether PLDT was impleaded. Simply put, PLDT is
not indispensable for a complete resolution of the purely legal question in this case.55 In fact, the Court,
by treating the petition as one for mandamus,56 merely directed the SEC to apply the Court’s definition
of the term "capital" in Section 11, Article XII of the Constitution in determining whether PLDT committed
any violation of the said constitutional provision. The dispositive portion of the Court’s ruling is
addressed not to PLDT but solely to the SEC, which is the administrative agency tasked to
enforce the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of
the Constitution.
Since the Court limited its resolution on the purely legal issue on the definition of the term "capital" in
Section 11, Article XII of the 1987 Constitution, and directed the SEC to investigate any violation by
PLDT of the 60-40 ownership requirement in favor of Filipino citizens under the Constitution,57 there is
no deprivation of PLDT’s property or denial of PLDT’s right to due process, contrary to Pangilinan and
Nazareno’s misimpression. Due process will be afforded to PLDT when it presents proof to the SEC that
it complies, as it claims here, with Section 11, Article XII of the Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in a
sudden flight of existing foreign investors to "friendlier" countries and simultaneously deterring new
foreign investors to our country. In particular, the PSE claims that the 28 June 2011 Decision may result
in the following: (1) loss of more than ₱ 630 billion in foreign investments in PSE-listed shares; (2)
massive decrease in foreign trading transactions; (3) lower PSE Composite Index; and (4) local
investors not investing in PSE-listed shares.58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants’ apprehension.
Without providing specific details, he pointed out the depressing state of the Philippine economy
compared to our neighboring countries which boast of growing economies. Further, Dr. Villegas
explained that the solution to our economic woes is for the government to "take-over" strategic
industries, such as the public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you have additional information on whether this high
FDI59 countries in East Asia have allowed foreigners x x x control [of] their public utilities, so that we can
compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these neighbors of ours find an industry strategic, their
solution is not to "Filipinize" or "Vietnamize" or "Singaporize." Their solution is to make sure that
those industries are in the hands of state enterprises. So, in these countries, nationalization
means the government takes over. And because their governments are competent and honest
enough to the public, that is the solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is the solution, then foreign investments in our public utilities
serve no purpose. Obviously, there can never be foreign investments in public utilities if, as Dr. Villegas
claims, the "solution is to make sure that those industries are in the hands of state enterprises." Dr.
Villegas’s argument that foreign investments in telecommunication companies like PLDT are badly
needed to save our ailing economy contradicts his own theory that the solution is for government to take
over these companies. Dr. Villegas is barking up the wrong tree since State ownership of public utilities
and foreign investments in such industries are diametrically opposed concepts, which cannot possibly
be reconciled.
In any event, the experience of our neighboring countries cannot be used as argument to decide the
present case differently for two reasons. First, the governments of our neighboring countries have, as
claimed by Dr. Villegas, taken over ownership and control of their strategic public utilities like the
telecommunications industry. Second, our Constitution has specific provisions limiting foreign ownership
in public utilities which the Court is sworn to uphold regardless of the experience of our neighboring
countries.
In our jurisdiction, the Constitution expressly reserves the ownership and operation of public utilities to
Filipino citizens, or corporations or associations at least 60 percent of whose capital belongs to Filipinos.
Following Dr. Villegas’s claim, the Philippines appears to be more liberal in allowing foreign investors to
own 40 percent of public utilities, unlike in other Asian countries whose governments own and operate
such industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the
application and imposition of appropriate sanctions against PLDT if found violating Section 11, Article
XII of the Constitution.1avvphi1
As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated
Section 11, Article XII of the Constitution. Thus, there is no dispute that it is only after the SEC has
determined PLDT’s violation, if any exists at the time of the commencement of the administrative case
or investigation, that the SEC may impose the statutory sanctions against PLDT. In other words, once
the 28 June 2011 Decision becomes final, the SEC shall impose the appropriate sanctions only if it finds
after due hearing that, at the start of the administrative case or investigation, there is an existing
violation of Section 11, Article XII of the Constitution. Under prevailing jurisprudence, public utilities that
fail to comply with the nationality requirement under Section 11, Article XII and the FIA can cure their The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control
deficiencies prior to the start of the administrative case or investigation.61 requirement for public utilities like PLOT. Any deviation from this requirement necessitates an
amendment to the Constitution as exemplified by the Parity Amendment. This Court has no power to
XII. amend the Constitution for its power and duty is only to faithfully apply and interpret the Constitution.
Final Word
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall
The Constitution expressly declares as State policy the development of an economy "effectively be entertained.
controlled" by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the
ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign SO ORDERED.
Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of
whose capital with voting rights belongs to Filipinos. The FIA’s implementing rules explain that "[f]or
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 beneficial ownership of the stocks, coupled with
appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and confirms the
interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares
with voting rights, as well as with full beneficial ownership. This is precisely because the right to
vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective
control of a corporation.

Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes the
letter and intent of the Constitution. Any other meaning of the term "capital" openly invites alien
domination of economic activities reserved exclusively to Philippine nationals. Therefore, respondents’
interpretation will ultimately result in handing over effective control of our national economy to foreigners
in patent violation of the Constitution, making Filipinos second-class citizens in their own country.

Filipinos have only to remind themselves of how this country was exploited under the Parity
Amendment, which gave Americans the same rights as Filipinos in the exploitation of natural resources,
and in the ownership and control of public utilities, in the Philippines. To do this the 1935 Constitution,
which contained the same 60 percent Filipino ownership and control requirement as the present 1987
Constitution, had to be amended to give Americans parity rights with Filipinos. There was bitter
opposition to the Parity Amendment62 and many Filipinos eagerly awaited its expiration. In late 1968,
PLDT was one of the American-controlled public utilities that became Filipino-controlled when the
controlling American stockholders divested in anticipation of the expiration of the Parity Amendment on
3 July 1974.63 No economic suicide happened when control of public utilities and mining corporations
passed to Filipinos’ hands upon expiration of the Parity Amendment.

Movants’ interpretation of the term "capital" would bring us back to the same evils spawned by the
Parity Amendment, effectively giving foreigners parity rights with Filipinos, but this time even
without any amendment to the present Constitution. Worse, movants’ interpretation opens up our
national economy to effective control not only by Americans but also by all foreigners, be they
Indonesians, Malaysians or Chinese, even in the absence of reciprocal treaty arrangements. At
least the Parity Amendment, as implemented by the Laurel-Langley Agreement, gave the capital-
starved Filipinos theoretical parity – the same rights as Americans to exploit natural resources, and to
own and control public utilities, in the United States of America. Here, movants’ interpretation would
effectively mean a unilateral opening up of our national economy to all foreigners, without any
reciprocal arrangements. That would mean that Indonesians, Malaysians and Chinese nationals could
effectively control our mining companies and public utilities while Filipinos, even if they have the capital,
could not control similar corporations in these countries.
 G.R. No. 207246, November 22, 2016
JOSE M. ROY III, Petitioner, v. CHAIRPERSON TERESITA HERBOSA,THE
SECURITIES AND EXCHANGE COMMISSION, AND PHILILIPPINE 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.
The Antecedents
On June 28, 2011, the Court issued the Gamboa Decision, the dispositive portion of which
reads:chanRoblesvirtualLawlibrary
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
definition 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.4
Several motions for reconsideration were filed assailing the Gamboa Decision. They were
denied in the Gamboa Resolution issued by the Court on October 9,
2012, viz:chanRoblesvirtualLawlibrary
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further
pleadings shall be entertained.
SO ORDERED.5
The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was
thereafter issued on December 11, 2012.6
On November 6, 2012, the SEC posted a Notice in its website inviting the public to attend
a public dialogue and to submit comments on the draft memorandum circular (attached
thereto) on the guidelines to be followed in determining compliance with the Filipino
ownership requirement in public utilities under Section 11, Article XII of the Constitution
pursuant to the Court's directive in the Gamboa Decision.7
On November 9, 2012, the SEC held the scheduled dialogue and more than 100
representatives from various organizations, government agencies, the academe and the
private sector attended.8
On January 8, 2013, the SEC received a copy of the Entry of Judgment 9 from the Court
certifying that on October 18, 2012, the Gamboa Decision had become final and
executory.10
On March 25, 2013, the SEC posted another Notice in its website soliciting from the public
comments and suggestions on the draft guidelines.11
On April 22, 2013, petitioner Atty. Jose M. Roy III ("Roy") submitted his written comments
on the draft guidelines.12
On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa, issued
SEC-MC No. 8 entitled "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." It was published in the Philippine Daily
Inquirer and the Business Mirror on May 22, 2013.13 Section 2 of SEC-MC No. 8
provides:chanRoblesvirtualLawlibrary
Section 2. All covered corporations shall, at all times, observe the constitutional or
statutory ownership requirement. For purposes of determining compliance therewith, 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 in the election of
directors.
Corporations covered by special laws which provide specific citizenship requirements shall
comply with the provisions of said law.14
On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the Petition, 15 assailing
the validity of SEC-MC No. 8 for not conforming to the letter and spirit of
the Gamboa Decision and Resolution and for having been issued by the SEC with grave
abuse of discretion. Petitioner Roy seeks to apply the 60-40 Filipino ownership
requirement separately to each class of shares of a public utility corporation, whether
common, preferred non�voting, preferred voting or any other class of shares. Petitioner
Roy also questions the ruling of the SEC that respondent Philippine Long Distance
Telephone Company ("PLDT") is compliant with the constitutional rule on foreign
ownership. He prays that the Court declare SEC-MC No. 8 unconstitutional and direct the
SEC to issue new guidelines regarding the determination of compliance with Section 11,
Article XII of the Constitution in accordance with Gamboa.
Wilson C. Gamboa, Jr.,16 Daniel V. Cartagena, John Warren P. Gabinete, Antonio V. Pesina,
Jr., Modesto Martin Y. Mamon III, and Gerardo C. Erebaren ("intervenors Gamboa, et al.")
filed a Motion for Leave to File Petition-in-Intervention17 on July 30, 2013, which the Court
granted. The Petition-in-Intervention18 filed by intervenors Gamboa, et al. mirrored the
issues, arguments and prayer of petitioner Roy.
On September 5, 2013, respondent PLDT filed its Comment (on the Petition dated 10 June
2013).19 PLDT posited that the Petition should be dismissed because it violates the
doctrine of hierarchy of courts as there are no compelling reasons to invoke the Court's
original jurisdiction; it is prematurely filed because petitioner Roy failed to exhaust
administrative remedies before the SEC; the principal actions/remedies of mandamus and
declaratory relief are not within the exclusive and/or original jurisdiction of the Court; the
petition for certiorari is an inappropriate remedy since the SEC issued SEC-MC No. 8 in the
exercise of its quasi-legislative power; it deprives the necessary and indispensable parties
of their constitutional right to due process; and the SEC merely implemented the
dispositive portion of the Gamboa Decision.
On September 20, 2013, respondents Chairperson Teresita Herbosa and SEC filed their
Consolidated Comment.20 They sought the dismissal of the petitions on the following
grounds: (1) the petitioners do not possess locus standi to assail the constitutionality of
SEC-MC No. 8; (2) a petition for certiorari under Rule 65 is not the appropriate and proper
remedy to assail the validity and constitutionality of the SEC-MC No. 8; (3) the direct
resort to the Court violates the doctrine of hierarchy of courts; (4) the SEC did not abuse
its discretion; (5) on PLDT's compliance with the capital requirement as stated in
the Gamboa ruling, the petitioners' challenge is premature considering that the SEC has
not yet issued a definitive ruling thereon.
On October 22, 2013, PLDT filed its Comment (on the Petition-in�-Intervention dated 16
July 2013).21 PLDT adopted the position that intervenors Gamboa, et al. have no standing
and are not the proper party to question the constitutionality of SEC-MC No. 8; they are in
no position to assail SEC-MC No. 8 considering that they did not participate in the public
consultations or give comments thereon; and their Petition-in-Intervention is a disguised
motion for reconsideration of the Gamboa Decision and Resolution.
On May 7, 2014, Petitioner Roy and intervenors Gamboa, et al.22 filed their Joint
Consolidated Reply with Motion for Issuance of Temporary Restraining Order. 23
On May 22, 2014, PLDT filed its Rejoinder [To Petitioner and Petitioners-in-Intervention's
Joint Consolidated Reply dated 7 May 2014] and Opposition [To Petitioner and Petitioners-
in-Intervention's Motion for Issuance of a Temporary Restraining Order dated 7 May
2014].24
On June 18, 2014, the Philippine Stock Exchange, Inc. ("PSE") filed its Motion to Intervene
with Leave of Court25 and its Comment-in� Intervention.26 The PSE alleged that it has
standing to intervene as the primary regulator of the stock exchange and will sustain
direct injury should the petitions be granted. The PSE argued that in the Gamboa ruling,
"capital" refers only to shares entitled to vote in the election of directors, and excludes
those not so entitled; and the dispositive portion of the decision is the controlling factor
that determines and settles the questions presented in the case. The PSE further argued
that adopting a new interpretation of Section 11, Article XII of the Constitution violates the
policy of conclusiveness of judgment, stare decisis, and the State's obligation to maintain
a stable and predictable legal framework for foreign investors under international treaties;
and adopting a new definition of "capital" will prove disastrous for the Philippine stock
market. The Court granted the Motion to Intervene filed by PSE.27
PLDT filed its Consolidated Memorandum28 on February 10, 2015.
On June 1, 2016, Shareholders' Association of the Philippines, Inc.29 ("SHAREPHIL") filed
an Omnibus Motion [1] For Leave to Intervene; and [2] To Admit Attached Comment-in-
Intervention.30 The Court granted the Omnibus Motion of SHAREPHIL.31
On June 30, 2016, petitioner Roy filed his Opposition and Reply to Interventions of
Philippine Stock Exchange and Sharephil.32 Intervenors Gamboa, et al. then filed on
September 14, 2016, their Reply (to Interventions by Philippine Stock Exchange and
Sharephil).33
The Issues
The twin issues of the Petition and the Petition-in-Intervention are: (1) whether the SEC
gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa Decision
and Gamboa Resolution, and (2) whether the SEC gravely abused its discretion in ruling
that PLDT is compliant with the constitutional limitation on foreign
ownership.chanroblesvirtuallawlibrary
The Court's Ruling
At the outset, the Court disposes of the second issue for being without merit. In its
Consolidated Comment dated September 13, 2013,34 the SEC already clarified that it "has
not yet issued a definitive ruling anent PLDT's compliance with the limitation on foreign
ownership imposed under the Constitution and relevant laws [and i]n fact, a careful
perusal of x x x SEC�-MC No. 8 readily reveals that all existing covered corporations
which are non-compliant with Section 2 thereof were given a period of one (1) year from
the effectivity of the same within which to comply with said ownership requirement. x x
x."35 Thus, in the absence of a definitive 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.
Also, considering that the Court is not a trier of facts and is in no position to make a
factual determination of PLDT's compliance with the constitutional provision under review,
the Court can only resolve the first issue, which is a pure question of law. However, before
the Court tackles the first issue, it has to rule on certain procedural challenges that have
been raised.chanroblesvirtuallawlibrary
The Procedural Issues
The Court may exercise its power of judicial review and take cognizance of a case when
the following specific requisites are met: (1) there is an actual case or controversy calling
for the exercise of judicial power; (2) the petitioner has standing to question the validity of
the subject act or issuance, i.e., he has a personal and substantial interest in the case that
he has sustained, or will sustain, direct injury as a result of the enforcement of the act or
issuance; (3) the question of constitutionality is raised at the earliest opportunity; and (4)
the constitutional question is the very lis mota of the case.36
The first two requisites of judicial review are not met.
Petitioners' failure to sufficiently allege, much less establish, the existence of the first two
requisites for the exercise of judicial review warrants the perfunctory dismissal of the
petitions.
a. No actual controversy.
Regarding the first requisite, the Court in Belgica v. Ochoa37 stressed anew that an actual
case or controversy is one which involves a conflict of legal rights, an assertion of opposite
legal claims, susceptible of judicial resolution as distinguished from a hypothetical or
abstract difference or dispute since the courts will decline to pass upon constitutional
issues through advisory opinions, bereft as they are of authority to resolve hypothetical or
moot questions. Related to the requirement of an actual case or controversy is the
requirement of "ripeness", and a question is ripe for adjudication when the act being
challenged has a direct adverse effect on the individual challenging it.
Petitioners have failed to show that there IS an actual case or controversy which is ripe for
adjudication.
The Petition and the Petition-in-Intervention identically allege:chanRoblesvirtualLawlibrary
3. The standing interpretation of the SEC found in MC8 practically encourages
circumvention of the 60-40 ownership rule by impliedly allowing the creation of several
classes of voting shares with different degrees of beneficial ownership over the same, but
at the same time, not imposing a 40% limit on foreign ownership of the higher yielding
stocks.38
4. For instance, a situation may arise where a corporation may issue several classes of
shares of stock, one of which are common shares with rights to elect directors, another
are preferred shares with rights to elect directors but with much lesser entitlement to
dividends, and still another class of preferred shares with no rights to elect the directors
and even less dividends. In this situation, the corporation may issue common shares to
foreigners amounting to forty percent (40%) of the outstanding capital stock and issue
preferred shares entitled to vote the directors of the corporation to Filipinos consisting of
60%39 percent (sic) of the outstanding capital stock entitled to vote. Although it may
appear that the 60-40 rule has been complied with, the beneficial ownership of the
corporation remains with the foreign stockholder since the Filipino owners of the preferred
shares have only a miniscule share in the dividends and profit of the corporation. Plainly,
this situation runs contrary to the Constitution and the ruling of this x x x Court. 40
Petitioners' hypothetical illustration as to how SEC-MC No. 8 "practically encourages
circumvention of the 60-40 ownership rule" is evidently speculative and fraught with
conjectures and assumptions. There is clearly wanting specific facts against which the
veracity of the conclusions purportedly following from the speculations and assumptions
can be validated. The lack of a specific factual milieu from which the petitions originated
renders any pronouncement from the Court as a purely advisory opinion and not a
decision binding on identified and definite parties and on a known set of facts.
Firstly, unlike in Gamboa, the identity of the public utility corporation, the capital of which
is at issue, is unknown. Its outstanding capital stock and the actual composition thereof in
terms of numbers, classes, preferences and features are all theoretical. The description
"preferred shares with rights to elect directors but with much lesser entitlement to
dividends, and still another class of preferred shares with no rights to elect the directors
and even less dividends" is ambiguous. What are the specific dividend policies or
entitlements of the purported preferred shares? How are the preferred shares' dividend
policies different from those of the common shares? Why and how did the fictional public
utility corporation issue those preferred shares intended to be owned by Filipinos? What
are the actual features of the foreign-owned common shares which make them superior
over those owned by Filipinos? How did it come to be that Filipino holders of preferred
shares ended up with "only a miniscule share in the dividends and profit of the
[hypothetical] corporation"? Any answer to any of these questions will, at best, be
contingent, conjectural, indefinite or anticipatory.
Secondly, preferred shares usually have preference over the common shares in the
payment of dividends. If most of the "preferred shares with rights to elect directors but
with much lesser entitlement to dividends" and the other "class of preferred shares with no
rights to elect the directors and even less dividends" are owned by Filipinos, they stand to
receive their dividend entitlement ahead of the foreigners, who are common shareholders.
For the common shareholders to have "bigger dividends" as compared to the dividends
paid to the preferred shareholders, which are supposedly predominantly owned by
Filipinos, there must still be unrestricted retained earnings of the fictional corporation left
after payment of the dividends declared in favor of the preferred shareholders. The
fictional illustration does not even intimate how this situation can be possible. No
permutation of unrestricted retained earnings of the hypothetical corporation is shown that
makes the present conclusion of the petitioners achievable. Also, no concrete meaning to
the petitioners' claim of the Filipinos' "miniscule share in the dividends and profit of the
[fictional] corporation" is demonstrated.
Thirdly, petitioners fail to allege or show how their hypothetical illustration will directly and
adversely affect them. That is impossible since their relationship to the fictional
corporation is a matter of guesswork.
From the foregoing, it is evident that the Court can only surmise or speculate on the
situation or controversy that the petitioners contemplate to present for judicial
determination. Petitioners are likewise conspicuously silent on the direct adverse impact to
them of the implementation of SEC�-MC No. 8. Thus, the petitions must fail because the
Court is barred from rendering a decision based on assumptions, speculations, conjectures
and hypothetical or fictional illustrations, more so in the present case which is not even
ripe for decision.
b. No locus standi.
The personal and substantial interest that enables a party to have legal standing is one
that is both material, an interest in issue and to be affected by the government action, as
distinguished from mere interest in the issue involved, or a mere incidental interest,
and real, which means a present substantial interest, as distinguished from a mere
expectancy or a future, contingent, subordinate, or consequential interest. 41cralawred
As to injury, the party must show that (1) he will personally suffer some actual or
threatened injury because of the allegedly illegal conduct of the government; (2) the
injury is fairly traceable to the challenged action; and (3) the injury is likely to be
redressed by a favorable action.42 If the asserted injury is more imagined than real, or is
merely superficial and insubstantial, an excursion into constitutional adjudication by the
courts is not warranted.43
Petitioners have no legal standing to question the constitutionality of SEC-MC No. 8.
To establish his standing, petitioner Roy merely claimed that he has standing to question
SEC-MC No. 8 "as a concerned citizen, an officer of the Court and as a taxpayer" as well as
"the senior law partner of his own law firm[, which] x x x is a subscriber of PLDT." 44 On
the other hand, intervenors Gamboa, et al. allege, as basis of their locus standi, their
"[b]eing lawyers and officers of the Court" and "citizens x x x and taxpayers."45
The Court has previously emphasized that the locus standi requisite is not met by the
expedient invocation of one's citizenship or membership in the bar who has an interest in
ensuring that laws and orders of the Philippine government are legally and validly issued
as these supposed interests are too general, which are shared by other groups and by the
whole citizenry.46 Per their allegations, the personal interest invoked by petitioners as
citizens and members of the bar in the validity or invalidity of SEC-MC No. 8 is at best
equivocal, and totally insufficient.
Petitioners' status as taxpayers is also of no moment. As often reiterated by the Court, a
taxpayer's suit is allowed only when the petitioner has demonstrated the direct correlation
of the act complained of and the disbursement of public funds in contravention of law or
the Constitution, or has shown that the case involves the exercise of the spending or
taxing power of Congress.47 SEC-MC No. 8 does not involve an additional expenditure of
public funds and the taxing or spending power of Congress.
The allegation that petitioner Roy's law firm is a "subscriber of PLDT" is ambiguous. It is
unclear whether his law firm is a "subscriber" of PLDT's shares of stock or of its various
telecommunication services. Petitioner Roy has not identified the specific direct and
substantial injury he or his law firm stands to suffer as "subscriber of PLDT" as a result of
the issuance of SEC-MC No. 8 and its enforcement.
As correctly observed by respondent PLDT, "(w]hether or not the constitutionality of SEC-
MC No. 8 is upheld, the rights and privileges of all PLDT subscribers, as with all the rest of
subscribers of other corporations, are necessarily and equally preserved and protected.
Nothing is added [to] or removed from a PLDT subscriber in terms of the extent of his or
her participation, relative to what he or she had originally enjoyed from the beginning. In
the most practical sense, a PLDT subscriber loses or gains nothing in the event that SEC-
MC No. 8 is either sustained or struck down by [the Court]."48
More importantly, the issue regarding PLDT's compliance with Section 11, Article XII of the
Constitution has been earlier ruled as premature and beyond the Court's jurisdiction. Thus,
petitioner Roy's allegation that his law firm is a "subscriber of PLDT" is insufficient to
clothe him with locus standi.
Petitioners' cursory incantation of "transcendental importance x x x of the rules on foreign
ownership of corporations or entities vested with public interest" 49 does not automatically
justify the brushing aside of the strict observance of the requisites for the Court's exercise
of judicial review. An indiscriminate disregard of the requisites every time "transcendental
or paramount importance or significance" is invoked would result in an unacceptable
corruption of the settled doctrine of locus standi, as every worthy cause is an interest
shared by the general public.50
In the present case, the general and equivocal allegations of petitioners on their legal
standing do not justify the relaxation of the locus standi rule. While the Court has taken an
increasingly liberal approach to the rule of locus standi, evolving from the stringent
requirements of personal injury to the broader transcendental importance doctrine, such
liberality is not to be abused.51
The Rule on the Hierarchy of Courts has been violated.
The Court in Ba�ez, Jr. v. Concepcion52 stressed that:chanRoblesvirtualLawlibrary
The Court must enjoin the observance of the policy on the hierarchy of courts, and now
affirms that the policy is not to be ignored without serious consequences. The strictness of
the policy is designed to shied the Court from having to deal with causes that are also well
within the competence of the lower courts, and thus leave time to the Court to deal with
the more fundamental and more essential tasks that the Constitution has assigned to it.
The Court may act on petitions for the extraordinary writs of certiorari, prohibition
and mandamus only when absolutely necessary or when serious and important reasons
exist to justifY an exception to the policy. x x x
x x x Where the issuance of an extraordinary writ is also within the competence of the
Court of Appeals or a Regional Trial Court, it is in either of these courts that the specific
action for the writ's procurement must be presented. This is and should continue to be the
policy in this regard, a policy that courts and lawyers must strictly observe. x x x 53
Petitioners' invocation of "transcendental importance" is hollow and does not merit the
relaxation of the rule on hierarchy of courts. There being no special, important or
compelling reason that justified the direct filing of the petitions in the Court in violation of
the policy on hierarchy of courts, their outright dismissal on this ground is further
warranted.54
The petitioners failed to implead indispensable parties.
The cogent submissions of the PSE in its Comment-in-Intervention dated June 16,
201455 and SHAREPHIL in its Omnibus Motion [1] For Leave to Intervene; and [2] To
Admit Attached Comment-in-Intervention dated May 30, 201656 demonstrate how
petitioners should have impleaded not only PLDT but all other corporations in nationalized
and partly�nationalized industries because the propriety of the SEC's enforcement of the
Court's interpretation of "capital" through SEC-MC No. 8 affects them as well.
Under Section 3, Rule 7 of the Rules of Court, an indispensable party is a party-in-interest
without whom there can be no final determination of an action. Indispensable parties are
those with such a material and direct interest in the controversy that a final decree would
necessarily affect their rights, so that the court cannot proceed without their
presence.57 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 efficient
determination of the equities and rights of the parties is not possible if they are not
joined.58
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 SHAREPIDL, in five 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.59
Petitioners' disregard of the rights of these other corporations and numerous shareholders
constitutes another fatal procedural flaw, justifYing the dismissal of their
petitions. Without giving all of them their day in court, they will definitely be
deprived of their property without due process of law.
During the deliberations, Justice Velasco stressed on the foregoing procedural objections
to the granting of the petitions; and Justice Bersamin added that the special civil action
for certiorari and prohibition is not the proper remedy to assail SEC-MC No. 8 because it
was not issued under the adjudicatory or quasi-judicial functions of the
SEC.chanroblesvirtuallawlibrary
The Substantive Issue
The only substantive issue that the petitions assert is whether the SEC's issuance of SEC-
MC No. 8 is tainted with grave abuse of discretion.
The Court holds that, even 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 finds SEC-MC
No. 8 to have been issued in fealty to the Gamboa Decision and Resolution.
The ratio in the Gamboa Decision and Gamboa Resolution.
To determine what the Court directed the SEC to do - and therefore resolve whether what
the SEC did amounted to grave abuse of discretion - the Court resorts to the decretal
portion of the Gamboa Decision, as this is the portion of the decision that a party relies
upon to determine his or her rights and duties,60viz:chanRoblesvirtualLawlibrary
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section
II, Article XII of the I987 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
definition 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 II, Article XII of the Constitution, to impose the appropriate sanctions under the
law.61
In turn, the Gamboa Resolution stated:chanRoblesvirtualLawlibrary
In any event, the SEC has expressly manifested62 that it will abide by the Court's decision
and defer to the Court's definition of the term "capital" in Section II, Article XII of the
Constitution. Further, the SEC entered its special appearance in this case and argued
during the Oral Arguments, indicating its submission to the Court's jurisdiction. It is clear,
therefore, that there exists no legal impediment against the proper and immediate
implementation of the Court's directive to the SEC.
xxxx
x x x The dispositive portion of the Court's ruling is addressed not to PLDT but
solely to the SEC, which is the administrative agency tasked to enforce the 60-40
ownership requirement in favor of Filipino citizens in Section 11, Article XII of
the Constitution.63
To recall, the sole issue in the Gamboa case 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."64
The Court directly answered the Issue and consistently defined the term "capital" as
follows:chanRoblesvirtualLawlibrary
x x x The term "capital" in Section 11, Article XII of the Constitution refers only to shares
of stock entitled to vote in the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock comprising both common
and non� voting preferred shares.
xxxx
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.65
The decretal portion of the Gamboa Decision follows the definition of the term "capital" in
the body of the decision, to wit: "x x x we x x x 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)."66
The Court adopted the foregoing definition of the term "capital" in Section 11, Article XII
of the 1987 Constitution in furtherance of "the intent and letter of the Constitution that the
'State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos' [because a] broad definition unjustifiably disregards who owns the
all-important voting stock, which necessarily equates to control of the public utility." 67 The
Court, recognizing that the provision is an express recognition of the sensitive and vital
position of public utilities both in the national economy and for national security, also
pronounced 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.68 Further, the Court noted that the foregoing 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; and, as revealed in the deliberations of the
Constitutional Commission, "capital" refers to the voting stock or controlling interest of
a corporation.69
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.
As owners of the corporation, the economic benefits will necessarily accrue to them. There
is thus no logical reason why Filipino shareholders will allow foreigners to have greater
economic benefits than them. It is illogical to speculate that they will create shares which
have features that will give greater economic interests or benefits than they are holding
and not benefit from such offering, or that they will allow foreigners to profit more than
them from their own corporation - unless they are dummies. But, Commonwealth Act No.
108, the Anti-Dummy Law, is NOT in issue in these petitions. Notably, even if the shares
of a particular public utility were owned 100% Filipino, that does not discount the
possibility of a dummy situation from arising. Hence, even if the 60-40 ownership in favor
of Filipinos rule is applied separately to each class of shares of a public utility corporation,
as the petitioners insist, the rule can easily be side-stepped by a dummy relationship. In
other words, even applying the 60-40 Filipino� foreign ownership rule to each class of
shares will not assure the lofty purpose enunciated by petitioners.
The Court observed further in the Gamboa Decision that reinforcing this interpretation of
the term "capital", as referring to interests or shares entitled to vote, is the definition of a
Philippine national in the Foreign Investments Act of 1991 ("FIA"), which is explained in
the Implementing Rules and Regulations of the FIA ("FIA-IRR"). The FIA-IRR
provides:chanRoblesvirtualLawlibrary
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 beneficial 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.70
Echoing the FIA-IRR, the Court stated in the Gamboa Decision
that:chanRoblesvirtualLawlibrary
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]."
xxxx
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest
in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial
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. x x x71
Was the definition of the term "capital" in Section 11, Article XII of the 1987 Constitution
declared for the first time by the Court in the Gamboa Decision modified in
the Gamboa Resolution?
The Court is convinced that it was not. The Gamboa Resolution consists of 51 pages
(excluding the dissenting opinions of Associate Justices Velasco and Abad). For the most
part of the Gamboa Resolution, the Court, after reviewing SEC and DOJ72 Opinions as well
as the provisions of the FIA and its predecessor statutes, 73 reiterated that both the Voting
Control Test and the Beneficial Ownership Test must be applied to determine whether a
corporation is a "Philippine national"74 and that a "Philippine national," as defined in the
FIA and all its predecessor statutes, is "a Filipino citizen, or a domestic corporation "at
least sixty percent (60%) of the capital stock outstanding and entitled to
vote," is owned by Filipino citizens. A domestic corporation is a "Philippine national" only if
at least 60% of its voting stock is owned by Filipino citizens."75 The Court also reiterated
that, from the deliberations of the Constitutional Commission, it is evident that the term
"capital" refers to controlling interest of a corporation,76 and the framers of the
Constitution intended public utilities to be majority Filipino-owned and controlled.
The "Final Word" of the Gamboa Resolution put to rest the Court's interpretation of the
term "capital", and this is quoted verbatim, to wit:chanRoblesvirtualLawlibrary
XII.
Final Word
The Constitution expressly declares as State policy the development of an economy
"effectively controlled" by Filipinos. Consistent with such State policy, the Constitution
explicitly reserves the ownership and operation of public utilities to Philippine nationals,
who are defined in the Foreign Investments Act of 1991 as Filipino citizens, or corporations
or associations at least 60 percent of whose capital with voting rights belongs to
Filipinos. The FIA's implementing rules explain that "[f]or 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 beneficial ownership of stocks, coupled with
appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and
confirms the interpretation that the term "capital" in Section 11, Article XII of the 1987
Constitution refers to shares with voting rights, as well as with full beneficial
ownership. This is precisely because the right to vote in the election of directors, coupled
with full beneficial ownership of stocks, translates to effective control of a corporation. 77
Everything told, the Court, in both the Gamboa Decision and Gamboa Resolution, finally
settled with the PIA's definition of "Philippine national" as expounded in the FIA-IRR in
construing the term "capital" in Section 11, Article XII of the 1987 Constitution.
The assailed SEC-MC No. 8.
The relevant provision in the assailed SEC-MC No. 8 IS Section 2, which
provides:chanRoblesvirtualLawlibrary
Section 2. All covered corporations shall, at all times, observe the constitutional or
statutory ownership requirement. For purposes of determining compliance therewith, 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 in the election of
directors.78
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling
interest requirement. In fact, Section 2 goes beyond requiring a 60-40 ratio in favor
of Filipino nationals in the voting stocks; it moreover requires the 60-40
percentage ownership in the total number of outstanding shares of stock,
whether voting or not. The SEC formulated SEC-MC No. 8 to adhere to the Court's
unambiguous pronouncement that "[f]ull beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights is
required."79 Clearly, SEC-MC No. 8 cannot be said to have been issued with grave abuse of
discretion.
A simple illustration involving Company X with three kinds of shares of stock, easily shows
how compliance with the requirements of SEC-MC No. 8 will necessarily result to full and
faithful compliance with the Gamboa Decision as well as the Gamboa Resolution.
The following is the composition of the outstanding capital stock of Company
X:chanRoblesvirtualLawlibrary
100 common shares
100 Class A preferred shares (with right to elect directors)
100 Class B preferred shares (without right to elect directors)
SEC-MC No. 8 GAMBOA DECISION
(1) 60% (required percentage of Filipino) applied to "shares of stock entitled to vote in the election of
the total number of outstanding shares of stock directors"80 (60% of the voting rights)
entitled to vote in the election of directors
If at least a total of 120 of common shares and Class A preferred shares (in any
combination) are owned and controlled by Filipinos, Company X is compliant with the 60%
of the voting rights in favor of Filipinos requirement of both SEC-MC No. 8 and
the Gamboa Decision.
SEC-MC No. 8 GAMBOA DECISION/RESOLUTION
(2) 60% (required percentage of Filipino) applied to "Full beneficial ownership of 60 percent of the
BOTH (a) the total number of outstanding shares of outstanding capital stock, coupled with 60 percent of
stock, entitled to vote in the election of directors; the voting rights"81 or "Full beneficial ownership of
AND (b) the total number of outstanding shares of the stocks, coupled with appropriate voting rights x x
stock, whether or not entitled to vote in the election of x shares with voting rights, as well as with full
directors. beneficial ownership"82
If at least a total of 180 shares of all the outstanding capital stock of Company X are
owned and controlled by Filipinos, provided that among those 180 shares a total of 120 of
the common shares and Class A preferred shares (in any combination) are owned and
controlled by Filipinos, then Company X is compliant with both requirements of voting
rights and beneficial ownership under SEC-MC No. 8 and the Gamboa Decision and
Resolution.
From the foregoing illustration, SEC-MC No. 8 simply implemented, and is fully in
accordance with, the Gamboa Decision and Resolution.
While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full
beneficial ownership of stocks requirement in the FIA, this will not, as it does not, render it
invalid meaning, it does not follow that the SEC will not apply this test in determining
whether the shares claimed to be owned by Philippine nationals are Filipino, i.e., are held
by them by mere title or in full beneficial ownership. To be sure, the SEC takes its guiding
lights also from the FIA and its implementing rules, the Securities Regulation Code
(Republic Act No. 8799; "SRC") and its implementing rules.83
The full beneficial ownership test.
The minority justifies the application of the 60-40 Filipino-foreign ownership rule
separately to each class of shares of a public utility corporation in this
fashion:chanRoblesvirtualLawlibrary
x x x The words "own and control," used to qualify the minimum Filipino participation in
Section 11, Article XII of the Constitution, reflects the importance of Filipinos having both
the ability to influence the corporation through voting rights and economic benefits. In
other words, full ownership up to 60% of a public utility encompasses both
control and economic rights, both of which must stay in Filipino hands. Filipinos, who
own 60% of the controlling interest, must also own 60% of the economic interest in a
public utility.
x x x In mixed class or dual structured corporations, however, there is variance in the
proportion of stockholders' controlling interest vis�a-vis their economic ownership
rights. This resulting variation is recognized by the Implementing Rules and Regulations
(IRR) of the Securities Regulation Code, which defined beneficial ownership as that may
exist either through voting power and/or through investment returns. By using and/or in
defining beneficial ownership, the IRR, in effect, recognizes a possible situation where
voting power is not commensurate to investment power.
The definition of "beneficial owner" or "beneficial ownership" in the Implementing Rules
and Regulations of the Securities Regulation Code ("SRC-IRR") is consistent with the
concept of"full beneficial ownership" in the FIA-IRR.
As defined in the SRC-IRR, "[b]eneficial owner or beneficial 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
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." 84
While it is correct to state that beneficial ownership is that which may exist either through
voting power and/or investment returns, it does not follow, as espoused by the minority
opinion, that the SRC-IRR, in effect, recognizes a possible situation where voting power is
not commensurate to investment power. That is a wrong syllogism. The fallacy arises from
a misunderstanding on what the definition is for. The "beneficial ownership" referred to in
the definition, while it may ultimately and indirectly refer to the overall ownership of the
corporation, more pertinently refers to the ownership of the share subject of the question:
is it Filipino-owned or not?
As noted earlier, the FIA-IRR states:chanRoblesvirtualLawlibrary
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
beneficial 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. 85
The emphasized portions in the foregoing provision is the equivalent of the so-called
"beneficial ownership test". That is all.
The term "full beneficial ownership" found in the FIA-IRR is to be understood in the
context of the entire paragraph defining the term "Philippine national". Mere legal title is
not enough to meet the required Filipino equity, which means that it is not sufficient that a
share is registered in the name of a Filipino citizen or national, i.e., he should also have
full beneficial ownership of the share. If the voting right of a share held in the name of a
Filipino citizen or national is assigned or transferred to an alien, that share is not to be
counted in the determination of the required Filipino equity. In the same vein, if the
dividends and other fruits and accessions of the share do not accrue to a Filipino citizen or
national, then that share is also to be excluded or not counted.
In this regard, it is worth reiterating the Court's pronouncement in the Gamboa Decision,
which is consistent with the FIA-IRR, viz:chanRoblesvirtualLawlibrary
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. x x x
xxxx
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest
in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights, is constitutionally required (or the State's grant of
authority to operate a public utility. x x x.86
And the "Final Word" of the Gamboa Resolution is in full accord with the foregoing
pronouncement of the Court, to wit:chanRoblesvirtualLawlibrary
XII.
Final Word
x x x The FIA's implementing rules explain that "[f]or 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 beneficial ownership of the stocks, coupled with
appropriate voting rights is essential."87
Given that beneficial ownership of the outstanding capital stock of the public utility
corporation has to be determined for purposes of compliance with the 60% Filipino
ownership requirement, the definition in the SRC-IRR can now be applied to
resolve only the question of who is the beneficial owner or who has beneficial ownership
of each "specific stock" of the said corporation. Thus, if a "specific stock" is owned by a
Filipino in the books of the corporation, but the stock's voting power or disposing power
belongs to a foreigner, then that "specific stock" will not be deemed as "beneficially
owned" by a Filipino.
Stated inversely, if the Filipino has the "specific stock's" voting power (he can vote the
stock or direct another to vote for him), or the Filipino has the investment power over the
"specific stock" (he can dispose of the stock or direct another to dispose it for him), or he
has both (he can vote and dispose of the "specific stock" or direct another to vote or
dispose it for him), then such Filipino is the "beneficial owner" of that "specific stock" and
that "specific stock" is considered (or counted) as part of the 60% Filipino ownership of
the corporation. In the end, all those "specific stocks" that are determined to be Filipino
(per definition of "beneficial owner" or "beneficial ownership") will be added together and
their sum must be equivalent to at least 60% of the total outstanding shares of stock
entitled to vote in the election of directors and at least 60% of the total number of
outstanding shares of stock, whether or not entitled to vote in the election of directors.
To reiterate, the "beneficial owner or beneficial ownership" definition in the SRC-IRR is
understood only in determining the respective nationalities of the outstanding capital
stock of a public utility corporation in order to determine its compliance with the
percentage of Filipino ownership required by the Constitution.
The restrictive re-interpretation of "capital" as insisted by the petitioners is
unwarranted.

Petitioners' insistence that the 60% Filipino equity requirement must be applied to each
class of shares is simply beyond the literal text and contemplation of Section 11, Article
XII of the 1987 Constitution, viz:chanRoblesvirtualLawlibrary
Sec. 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 or 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.
As worded, effective control by Filipino citizens of a public utility is already assured in
the provision. With respect to a stock corporation engaged in the business of a public
utility, the constitutional provision mandates three safeguards: (1) 60% of its capital must
be owned by Filipino citizens; (2) participation of foreign investors in its board of directors
is limited to their proportionate share in its capital; and (3) all its executive and managing
officers must be citizens of the Philippines.
In the exhaustive review made by the Court in the Gamboa Resolution of the deliberations
of the Constitutional Commission, the opinions of the framers of the 1987 Constitution, the
opinions of the SEC and the DOJ as well as the provisions of the FIA, its implementing
rules and its predecessor statutes, the intention to apply the voting control test and the
beneficial ownership test was not mentioned in reference to "each class of shares." Even
the Gamboa Decision was silent on this point.
To be sure, the application of the 60-40 Filipino-foreign ownership requirement separately
to each class of shares, whether common, preferred non-voting, preferred voting or any
other class of shares fails to understand and appreciate the nature and features of stocks
as financial instruments.88
There are basically only two types of shares or stocks, i.e., common stock and preferred
stock. However, the classes and variety of shares that a corporation may issue are
dictated by the confluence of the corporation's financial position and needs, business
opportunities, short-term and long� term targets, risks involved, to name a few; and
they can be classified and re-classified from time to time. With respect to preferred
shares, there are cumulative preferred shares, non-cumulative preferred shares,
convertible preferred shares, participating preferred shares.
Because of the different features of preferred shares, it is required that the presentation
and disclosure of these financial instruments in financial statements should be in
accordance with the substance of the contractual arrangement and the definitions of a
financial liability, a financial asset and an equity instrument.89
Under IAS90 32.16, a financial instrument is an equity instrument only if (a) the
instrument includes no contractual obligation to deliver cash or another financial asset to
another entity, and (b) if the instrument will or may be settled in the issuer's own equity
instruments, it is either: (i) a non� derivative that includes no contractual obligation for
the issuer to deliver a variable number of its own equity instruments; or (ii) a derivative
that will be settled only by the issuer exchanging a fixed amount of cash or another
financial asset for a fixed number of its own equity instruments. 91
The following are illustrations of how preferred shares should be presented and
disclosed:chanRoblesvirtualLawlibrary
Illustration - preference shares
If an entity issues preference (preferred) shares that pay a fixed rate of dividend and that
have a mandatory redemption feature at a future date, the substance is that they are a
contractual obligation to deliver cash and, therefore, should be recognized as a liability.
[IAS 32.18(a)] In contrast, preference shares that do not have a fixed maturity, and
where the issuer does not have a contractual obligation to make any payment are equity.
In this example even though both instruments are legally termed preference shares they
have different contractual terms and one is a financial liability while the other is equity.
Illustration - issuance of fixed monetary amount of equity instruments
A contractual right or obligation to receive or deliver a number of its own shares or other
equity instruments that varies so that the fair value of the entity's own equity instruments
to be received or delivered equals the fixed monetary amount of the contractual right or
obligation is a financial liability. [IAS 32.20]
Illustration - one party bas a choice over bow an instrument is settled
When a derivative financial instrument gives one party a choice over how it is settled (for
instance, the issuer or the holder can choose settlement net in cash or by exchanging
shares for cash), it is a financial asset or a financial liability unless all of the settlement
alternatives would result in it being an equity instrument. [IAS 32.26]92
The fact that from an accounting standpoint, the substance or essence of the financial
instrument is the key determinant whether it should be categorized as a financial liability
or an equity instrument, there is no compelling reason why the same treatment may not
be recognized from a legal perspective. Thus, to require Filipino shareholders to acquire
preferred shares that are substantially debts, in order to meet the "restrictive" Filipino
ownership requirement that petitioners espouse, may not bode well for the Philippine
corporation and its Filipino shareholders.
Parenthetically, given the innumerable permutations that the types and classes of stocks
may take, requiring the SEC and other government agencies to keep track of the ever-
changing capital classes of corporations will be impracticable, if not downright impossible.
And the law does not require the impossible. (Lex non cogit ad impossibilia.)93
That stock corporations are allowed to create shares of different classes with varying
features is a flexibility that is granted, among others, for the corporation to attract and
generate capital (funds) from both local and foreign capital markets. This access to capital
- which a stock corporation may need for expansion, debt relief/repayment, working
capital requirement and other corporate pursuits - will be greatly eroded with further
unwarranted limitations that are not articulated in the Constitution. The intricacies and
delicate balance between debt instruments (liabilities) and equity (capital) that stock
corporations need to calibrate to fund their business requirements and achieve their
financial targets are better left to the judgment of their boards and officers, whose
bounden duty is to steer their companies to financial stability and profitability and who are
ultimately answerable to their shareholders.
with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate 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:cralawlawlibrary

Going back to the illustration above, the restrictive meaning of the term "capital" espoused 1. Amendment of the articles of incorporation;ChanRoblesVirtualawlibrary
by petitioners will definitely be complied with if 60% of each of the three classes of shares
of Company X, consisting of 100 common shares, 100 Class A preferred shares (with right 2. Adoption and amendment of by-laws;ChanRoblesVirtualawlibrary
to elect directors) and 100 Class B preferred shares (without right to elect directors), is
owned by Filipinos. However, what if the 60% Filipino ownership in each class of 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of
preferred shares, i.e., 60 Class A preferred shares and 60 Class B preferred shares, is not the corporate property;ChanRoblesVirtualawlibrary
fully subscribed or achieved because there are not enough Filipino takers? Company X will
be deprived of capital that would otherwise be accessible to it were it not for this 4. Incurring, creating or increasing bonded indebtedness;ChanRoblesVirtualawlibrary
unwarranted "restrictive" meaning of "capital".
5. Increase or decrease of capital stock;ChanRoblesVirtualawlibrary
The fact that all shares have the right to vote in 8 specific corporate actions as provided in
Section 6 of the Corporation Code does not per se justify the favorable adoption of the 6. Merger or consolidation of the corporation with another corporation or other
restrictive re-interpretation of "capital" as the petitioners espouse. As observed in corporations;ChanRoblesVirtualawlibrary
the Gamboa Decision, viz:chanRoblesvirtualLawlibrary
The Corporation Code of the Philippines classifies shares as common or preferred, 7. Investment of corporate funds in another corporation or business in accordance with
thus:chanRoblesvirtualLawlibrary this Code; and
Sec. 6. Classification 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 8. Dissolution of the corporation.
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 classified Except as provided in the immediately preceding paragraph, the vote necessary to
and issued as "preferred" or "redeemable" shares, unless otherwise provided in approve a particular corporate act as provided in this Code shall be deemed to refer only
this Code: Provided, further, That there shall always be a class or series of shares which to stocks with voting rights.
have complete voting rights. Any or all of the shares or series of shares may have a par
Indisputably, one of the rights of a stockholder is the right to participate in the control or
value or have no par value as may be provided for in the articles of incorporation:
management of the corporation. This is exercised through his vote in the election of
Provided, however, That banks, trust companies, insurance companies, public utilities, and
directors because it is the board of directors that controls or manages the corporation. In
building and loan associations shall not be permitted to issue no-par value shares of stock.
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 shares of stock issued by any corporation may be given preference in the
preferred shareholders are often excluded from any control, that is, deprived of the right
distribution of the assets of the corporation in case of liquidation and in the distribution of
to vote in the election of directors and on other matters, on the theory that the preferred
dividends, or such other preferences as may be stated in the articles of incorporation
shareholders are merely investors in the corporation for income in the same manner as
which are not violative of the provisions of this Code: Provided, That preferred shares of
bondholders. In fact, under the Corporation Code only preferred or redeemable shares can
stock may be issued only with a stated par value. The Board of Directors, where
be deprived of the right to vote. Common shares cannot be deprived of the right to vote in
authorized in the articles of incorporation, may fix the terms and conditions of preferred
any corporate meeting, and any provision in the articles of incorporation restricting the
shares of stock or any series thereof: Provided, That such terms and conditions shall be
right of common shareholders to vote is invalid.
effective upon the filing of a certificate thereof with the Securities and Exchange
Commission.
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,
xxxx
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
A corporation may, furthermore, classify its shares for the purpose of insuring compliance
include such preferred shares because the right to participate in the control or appraisal right provided under Section 8196 of the Corporation Code in the event that they
management of the corporation is exercised through the right to vote in the election of dissent in the corporate act. As required in Section 82, the appraisal right can only be
directors. In short, the term "capital" in Section 11, Article XII of the Constitution exercised by any stockholder who voted against the proposed action. Thus, without
refers only to shares of stock that can vote in the election of directors. recognizing the right of every stockholder to vote in the 8 instances enumerated in Section
6, the stockholder cannot exercise his appraisal right in case he votes against the
This interpretation is consistent with the intent of the framers of the Constitution to place corporate action. In simple terms, the right to vote in the 8 instances enumerated in
in the hands of Filipino citizens the control and management of public utilities. As revealed Section 6 is more in furtherance of the stockholder's right of ownership rather than as a
in the deliberations of the Constitutional Commission, "capital" refers to the voting stock mode of control.
or controlling interest of a corporation x x x.94
As to financial interest, giving short-lived preferred or superior terms to certain classes or
The Gamboa Decision held that preferred shares are to be factored in only if they are
series of shares may be a welcome option to expand capital, without the Filipino
entitled to vote in the election of directors. If preferred shares have no voting rights, then
shareholders putting up additional substantial capital and/or losing ownership and control
they cannot elect members of the board of directors, which wields control of the
of the company. For shareholders who are not keen on the creation of those shares, they
corporation. As to the right of non� voting preferred shares to vote in the 8 instances
may opt to avail themselves of their appraisal right. As acknowledged in
enumerated in Section 6 of the Corporation Code, the Gamboa Decision considered them
the Gamboa Decision, preferred shareholders are merely investors in the company for
but, in the end, did not find them significant in resolving the issue of the proper
income in the same manner as bondholders. Without a lucrative package, including an
interpretation of the word "capital" in Section 11, Article XII of the Constitution.
attractive return of investment, preferred shares will not be subscribed and the much-
needed additional capital will be elusive. A too restrictive definition of "capital", one which
Therefore, to now insist in the present case that preferred shares be regarded differently
was never contemplated in the Gamboa Decision, will surely have a dampening effect on
from their unambiguous treatment in the Gamboa Decision is enough proof that
the business milieu by eroding the flexibility inherent in the issuance of preferred shares
the Gamboa Decision, which had attained finality more than 4 years ago, is being
with varying terms and conditions. Consequently, the rights and prerogatives of the
drastically changed or expanded.
owners of the corporation will be unwarrantedly stymied.
In this regard, it should be noted that the 8 corporate matters enumerated in Section 6 of
Moreover, the restrictive interpretation of the term "capital" would have a tremendous
the Corporation Code require, at the outset, a favorable recommendation by the
impact on the country as a whole and to all Filipinos.
management to the board. As mandated by Section 11, Article XII of the Constitution, all
the executive and managing officers of a public utility company must be Filipinos. Thus,
The PSE's Comment-in-Intervention dated June 16, 201497 warns
the all-Filipino management team must first be convinced that any of the 8 corporate
that:chanRoblesvirtualLawlibrary
actions in Section 6 will be to the best interest of the company. Then, when the all�-
80. [R]edefining "capital" as used in Section 11, Article XII of the 1987 Constitution and
Filipino management team recommends this to the board, a majority of the board has to
adopting the supposed "Effective Control Test" will lead to disastrous consequences to the
approve the recommendation and, as required by the Constitution, foreign participation in
Philippine stock market.
the board cannot exceed 40% of the total number of board seats. Since the Filipino
directors comprise the majority, they, if united, do not even need the vote of the foreign
81. Current data of the PSE show that, if the "Effective Control Test" were applied, the
directors to approve the intended corporate act. After approval by the board, all the
total value of shares that would be deemed in excess of the foreign-ownership limits based
shareholders (with and without voting rights) will vote on the corporate action. The
on stock prices as of 30 April 2014 is One Hundred Fifty Nine Billion Six Hundred
required vote in the shareholders' meeting is 2/3 of the outstanding capital stock. 95 Given
Thirty Eight Million Eight Hundred Forty Five Thousand Two Hundred Six Pesos
the super majority vote requirement, foreign shareholders cannot dictate upon their
and Eighty Nine Cents (Php159,638,845,206.89).
Filipino counterpart. However, foreigners (if owning at least a third of the outstanding
capital stock) must agree with Filipino shareholders for the corporate action to be
82. The aforementioned value of investments would have to be discharged by foreign
approved. The 2/3 voting requirement applies to all corporations, given the significance of
holders, and consequently must be absorbed by Filipino investors. Needless to state, the
the 8 corporate actions contemplated in Section 6 of the Corporation Code.
lack of investments may lead to shutdown of the affected enterprises and to immeasurable
consequences to the Philippine economy.98
In short, if the Filipino officers, directors and shareholders will not approve of the
corporate act, the foreigners are helpless. In its Omnibus Motion [1] For Leave to Intervene; and [2] To Admit Attached Comment-
in-Intervention dated May 30, 2016,99 SHAREPHIL further warns that "[t]he restrictive re-
Allowing stockholders holding preferred shares without voting rights to vote in the 8 interpretation of the term "capital" will result in massive forced divestment of foreign
corporate matters enumerated in Section 6 is an acknowledgment of their right of stockholdings in Philippine corporations."100 SHAREPHIL
ownership. If the owners of preferred shares without right to vote/elect directors are not explains:chanRoblesvirtualLawlibrary
allowed to vote in any of those 8 corporate actions, then they will not be entitled to the
4.51. On 16 October 2012, Deutsche Bank released a Market Research Study, which
analyzed the implications of the ruling in Gamboa. The Market Research Study stated
that:chanRoblesvirtualLawlibrary
"If this thinking is applied and becomes established precedent, it would significantly
expand on the rules for determining nationality in partially nationalized industries. If that
were to happen, not only will PLDT's move to issue the 150m voting prefs be inadequate
to address the issue, a large number of listed companies with similar capital structures
could also be affected."
4.52. In five (5) companies alone, One Hundred Fifty Eight Billion Pesos
(PhP158,000,000,000.00) worth of shares will have to be sold by foreign shareholders in a
forced divestment, if the obiter in Gamboa were to be implemented. Foreign shareholders
of PLDT will have to divest One Hundred Three Billion Eight Hundred Sixty Million Pesos
(PhP103,860,000,000.00) worth of shares.
a. Foreign shareholders of Globe Telecom will have to divest Thirty Eight
Billion Two Hundred Fifty Million Pesos (PhP38,250,000,000.00) worth of
shares.
b. Foreign shareholders of Ayala Land will have to divest Seventeen Billion
Five Hundred Fifty Million Pesos (PhP17,550,000,000.00) worth of shares.
c. Foreign shareholders of ICTSI will have to divest Six Billion Four Hundred
Ninety Million Pesos (PhP6,490,000,000.00) worth of shares.
d. Foreign shareholders of MWC will have to divest Seven Billion Seven
Hundred Fourteen Million Pesos (PhP7,714,000,000.00) worth of shares.
4.53. Clearly, the local stock market which has an average value turn-over of Seven Billion
Pesos cannot adequately absorb the influx of shares caused by the forced divestment. As a
result, foreign stockholders will have to sell these shares at bargain prices just to comply
with the Obiter.
4.54. These shares being part of the Philippine index, their forced divestment vis-a-vis the
inability of the local stock market to absorb these shares will necessarily bring immense
downward pressure on the index. A domino-effect implosion of the Philippine stock market
and the Philippine economy, in general is not remote. x x x. 101
Petitioners have failed to counter or refute these submissions of the PSE and SHAREPHIL.
These unrefuted observations indicate to the Court that a restrictive interpretation - or
rather, re-interpretation, of "capital", as already defined with finality in
the Gamboa Decision and Resolution - directly affects the well-being of the country
and cannot be labelled as "irrelevant and impertinent concerns x x x add[ing] burden [to]
the Court."102 These observations by the PSE103 and SHAREPHIL,104 unless refuted, must
be considered by the Court to be valid and sound.
The Court in Abacus Securities Corp. v. Ampil105 observed that: "[s]tock market
transactions affect the general public and the national economy. The rise and fall of stock
market indices reflect to a considerable degree the state of the economy. Trends in stock
prices tend to herald changes in business conditions. Consequently, securities transactions
are impressed with public interest x x x."106 The importance of the stock market in the
economy cannot simply be glossed over.
In view of the foregoing, the pronouncement of the Court in the Gamboa Resolution - the
constitutional requirement to apply uniformly and across the board to all classes of shares,
regardless of nomenclature and category, comprising the capital of a corporation 107 - is
clearly an obiter dictum that cannot override the Court's unequivocal definition of the term
"capital" in both the Gamboa Decision and Resolution.
Nowhere in the discussion of the definition of the term "capital" in Section 11, Article XII of
the 1987 Constitution in the Gamboa Decision did the Court mention the 60% Filipino
equity requirement to be applied to each class of shares. The definition of "Philippine
national" in the FIA and expounded in its IRR, which the Court adopted in its interpretation
of the term "capital", does not support such application. In fact, even the Final Word of
the Gamboa Resolution does not even intimate or suggest the need for a clarification or
re-interpretation.
To revisit or even clarify the unequivocal definition of the term "capital" as referring "only
to shares of stock entitled to vote in the election of directors" and apply the 60% Filipino
ownership requirement to each class of share is effectively and unwarrantedly amending
or changing the Gamboa Decision and Resolution. The Gamboa Decision and Resolution
Doctrine did NOT make any definitive ruling that the 60% Filipino ownership requirement
was intended to apply to each class of share.
In Malayang Manggagawa ng Stayfast Phils., Inc. v. NLRC,108 the Court
stated:chanRoblesvirtualLawlibrary
Where a petition for certiorari under Rule 65 of the Rules of Court alleges grave abuse of
discretion, the petitioner should establish that the respondent court or tribunal
acted in a capricious, whimsical, arbitrary or despotic manner in the exercise of
its jurisdiction as to be equivalent to lack of jurisdiction. This is so because "grave
abuse of discretion" is well-defined and not an amorphous concept that may easily be
manipulated to suit one's purpose. In this connection, Yu v. Judge Reyes-Carpio, is
instructive:chanRoblesvirtualLawlibrary
The term "grave abuse of discretion" has a specific meaning. An act of a court or tribunal
can only be considered as with grave abuse of discretion when such act is done in a
"capricious or whimsical exercise of judgment as is equivalent to lack of jurisdiction." The
abuse of discretion must be so patent and gross as to amount to an "evasion of a positive
duty or to a virtual refusal to perform a duty enjoined by law, or to act at all in
contemplation of law, as where the power is exercised in an arbitrary and despotic manner
by reason of passion and hostility." Furthermore, the use of a petition for certiorari is
restricted only to "truly extraordinary cases wherein the act of the lower court or quasi-
judicial body is wholly void." From the foregoing definition, it is clear that the special civil
action of certiorari under Rule 65 can only strike an act down for having been done with
grave abuse of discretion if the petitioner could manifestly show that such act was
patent and gross. x x x.
The onus rests on petitioners to clearly and sufficiently establish that the SEC, in issuing
SEC-MC No. 8, acted in a capricious, whimsical, arbitrary or despotic manner in the
exercise of its jurisdiction as to be equivalent to lack of jurisdiction or that the SEC's abuse
of discretion is so patent and gross as to amount to an evasion of a positive duty or to a
virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law
and the Gamboa Decision and Resolution. Petitioners miserably failed in this respect.
The clear and unequivocal definition of "capital" in Gamboa has attained finality.
It is an elementary principle in procedure that the resolution of the court in a given issue
as embodied in the dispositive portion or fallo of a decision controls the settlement of
rights of the parties and the questions, notwithstanding statement in the body of the
decision which may be somewhat confusing, inasmuch as the dispositive part of a final
decision is definite, clear and unequivocal and can be wholly given effect without need of
interpretation or construction.109
As explained above, 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 - capitalized upon by petitioners to espouse a restrictive re-
interpretation of "capital" - 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."
The final judgment as rendered is the judgment of the court irrespective of all seemingly
contrary statements in the decision because at the root of the doctrine that the premises
must yield to the conclusion is, side by side with the need of writing finis to litigations, the
recognition of the truth that "the trained intuition of the judge continually leads him to
right results for which he is puzzled to give unimpeachable legal reasons."110
Petitioners cannot, after Gamboa has attained finality, seek a belated correction or
reconsideration of the Court's unequivocal definition of the term "capital". At the core of
the doctrine of finality of judgments is that public policy and sound practice demand that,
at the risk of occasional errors, judgments of courts should become final at some definite
date fixed by law and the very objects for which courts were instituted was to put an end
to controversies.111 Indeed, the definition of the term "capital" in the fallo of
the Gamboa Decision has acquired finality.
Because the SEC acted pursuant to the Court's pronouncements in both
the Gamboa Decision and Gamboa Resolution, then it could not have gravely abused its
discretion. That portion found in the body of the Gamboa Resolution which the petitioners
rely upon is nothing more than an obiter dictum and the SEC could not be expected to
apply it as it was not - is not - a binding pronouncement of the Court.112
Furthermore, as opined by Justice Bersamin during the deliberations, the doctrine of
immutability of judgment precludes the Court from re� examining the definition of
"capital" under Section 11, Article XII of the Constitution. Under the doctrine of finality and
immutability of judgment, a decision that has acquired finality becomes immutable and
unalterable, and may no longer be modified in any respect, even if the modification is
meant to correct erroneous conclusions of fact and law, and even if the modification is
made by the court that rendered it or by the Highest Court of the land. Any act that
violates the principle must be immediately stricken down.113 The petitions have not
succeeded in pointing to any exceptions to the doctrine of finality of judgments, under
which the present case falls, to wit: (1) the correction of clerical errors; (2) the so-
called nunc pro tunc entries which cause no prejudice to any party; (3) void judgments;
and (4) whenever circumstances transpire after the finality of the decision rendering its
execution unjust and inequitable.114
With the foregoing disquisition, the Court rules that SEC-MC No. 8 is not contrary to the
Court's definition and interpretation of the term "capital". Accordingly, the petitions must
be denied for failing to show grave abuse of discretion in the issuance of SEC-MC No. 8.
The petitions are second motions for Reconsideration, which are proscribed.
As Justice Bersamin further noted during the deliberations, the petitions are in reality
second motions for reconsideration prohibited by the Internal Rules of the Supreme
Court.115 The parties, particularly intervenors Gamboa, et al., could have filed a motion for
clarification in Gamboa in order to fill in the perceived shortcoming occasioned by the non-
inclusion in the dispositive portion of the Gamboa Resolution of what was discussed in the
body.116 The statement in the fallo of the Gamboa Resolution to the effect that "[n]o
further pleadings shall be entertained" could not be a hindrance to a motion for
clarification that sought an unadulterated inquiry arising upon an ambiguity in the
decision.117
Closing
Ultimately, the key to nationalism is in the individual. Particularly for a public utility
corporation or association, whether stock or non-stock, it starts with the Filipino
shareholder or member who, together with other Filipino shareholders or members
wielding 60% voting power, elects the Filipino director who, in turn, together with other
Filipino directors comprising a majority of the board of directors or trustees, appoints and
employs the all-Filipino management team. This is what is envisioned by the Constitution
to assure effective control by Filipinos. If the safeguards, which are already stringent,
fail, i.e., a public utility corporation whose voting stocks are beneficially owned by
Filipinos, the majority of its directors are Filipinos, and all its managing officers are
Filipinos, is pro�alien (or worse, dummies), then that is not the fault or failure of the
Constitution. It is the breakdown of nationalism in each of the Filipino shareholders,
Filipino directors and Filipino officers of that corporation. No Constitution, no decision of
the Court, no legislation, no matter how ultra�nationalistic they are, can guarantee
nationalism.
WHEREFORE, premises considered, the Court DENIES the Petition and Petition-in-
Intervention.
SO ORDERED.ChanRoblesVirtualawlibrary
G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT,
INC., and MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining
Development Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc.
(McArthur), which seeks to reverse the October 1, 2010 Decision1 and the February 15, 2011
Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic
corporation organized and existing under Philippine laws, took interest in mining and exploring certain
areas of the province of Palawan. After inquiring with the Department of Environment and Natural
Resources (DENR), it learned that the areas where it wanted to undertake exploration and mining
activities where already covered by Mineral Production Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an
application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB),
Region IV-B, Office of the Department of Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in
Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes an
area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP were then
transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006, assigned to petitioner
McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia
Louise Mining & Development Corporation (PLMDC) which previously filed an application for an MPSA
with the MGB, Region IV-B, DENR on January 6, 1992. Through the said application, the DENR issued
MPSA-IV-1-12 covering an area of 3.277 hectares in barangays Calategas and San Isidro, Municipality
of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned its rights and interests
over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-
154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality
of Narra, Province of Palawan. SMMI subsequently conveyed, transferred and assigned its rights and
interest over the said MPSA application to Tesoro.
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.
In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of Republic
Act No. (RA) 7942 or the Philippine Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in
singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation,
partnership, association, or cooperative organized or authorized for the purpose of engaging in mining,
with technical and financial capability to undertake mineral resources development and duly registered
in accordance with law at least sixty per cent (60%) of the capital of which is owned by citizens of the
Philippines: Provided, That a legally organized foreign-owned corporation shall be deemed a qualified
person for purposes of granting an exploration permit, financial or technical assistance agreement or
mineral processing permit.
Additionally, they stated that their nationality as applicants is immaterial because they also applied for
Financial or Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur,
AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which are granted to foreign-owned corporations.
Nevertheless, they claimed that the issue on nationality should not be raised since McArthur, Tesoro
and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens of the Philippines.
They asserted that though MBMI owns 40% of the shares of PLMC (which owns 5,997 shares of
Narra),3 40% of the shares of MMC (which owns 5,997 shares of McArthur)4 and 40% of the shares of
SLMC (which, in turn, owns 5,997 shares of Tesoro),5 the shares of MBMI will not make it the owner of
at least 60% of the capital stock of each of petitioners. They added that the best tool used in
determining the nationality of a corporation is the "control test," embodied in Sec. 3 of RA 7042 or the
Foreign Investments Act of 1991. They also claimed that the POA of DENR did not have jurisdiction
over the issues in Redmont’s petition since they are not enumerated in Sec. 77 of RA 7942. Finally, they
stressed that Redmont has no personality to sue them because it has no pending claim or application
over the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It
held:
[I]t is clearly established that respondents are not qualified applicants to engage in mining activities. On
the other hand, [Redmont] having filed its own applications for an EPA over the areas earlier covered by
the MPSA application of respondents may be considered if and when they are qualified under the law.
The violation of the requirements for the issuance and/or grant of permits over mining areas is clearly
established thus, there is reason to believe that the cancellation and/or revocation of permits already
issued under the premises is in order and open the areas covered to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining
and Development, Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being
considered as Foreign Corporations. Their Mineral Production Sharing Agreement (MPSA) are hereby x
x x DECLARED NULL AND VOID.6
The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100%
Canadian company and declared their MPSAs null and void. In the same Resolution, it gave due course
to Redmont’s EPAs. Thereafter, on February 7, 2008, the POA issued an Order7 denying the Motion for
Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of
Appeal8 and Memorandum of Appeal9 with the Mines Adjudication Board (MAB) while Narra separately
filed its Notice of Appeal10 and Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they are qualified persons under the law.
Also, through a letter, they informed the MAB that they had their individual MPSA applications converted
to FTAAs. McArthur’s FTAA was denominated as AFTA-IVB-0912 on May 2007, while Tesoro’s MPSA
application was converted to AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA was converted to
AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint15 with
the Securities and Exchange Commission (SEC), seeking the revocation of the certificates for
registration of petitioners on the ground that they are foreign-owned or controlled corporations engaged
in mining in violation of Philippine laws. Thereafter, Redmont filed on September 1, 2008 a
Manifestation and Motion to Suspend Proceeding before the MAB praying for the suspension of the
proceedings on the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City,
Branch 92 (RTC) a Complaint16 for injunction with application for issuance of a temporary restraining
order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 08-63379. Redmont
prayed for the deferral of the MAB proceedings pending the resolution of the Complaint before the SEC.
But before the RTC can resolve Redmont’s Complaint and applications for injunctive reliefs, the MAB
issued an Order on September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS
ASIDE the Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA)
in POA-DENR Case Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07 February 2008
denying the Motions for Reconsideration of the Appellants. The Petition filed by Redmont Consolidated
Mines Corporation on 02 January 2007 is hereby ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmont’s application for a
TRO and setting the case for hearing the prayer for the issuance of a writ of preliminary injunction on
September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration19 of the September 10,
2008 Order of the MAB. Subsequently, it filed a Supplemental Motion for Reconsideration20 on
September 29, 2008.
Before the MAB could resolve Redmont’s Motion for Reconsideration and Supplemental Motion for
Reconsideration, Redmont filed before the RTC a Supplemental Complaint21 in Civil Case No. 08-
63379.
On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of preliminary injunction
enjoining the MAB from finally disposing of the appeals of petitioners and from resolving Redmont’s
Motion for Reconsideration and Supplement Motion for Reconsideration of the MAB’s September 10,
2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying Redmont’s Motion for
Reconsideration and Supplemental Motion for Reconsideration and resolving the appeals filed by
petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB.
On October 1, 2010, the CA rendered a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10, 2008
and July 1, 2009 of the Mining Adjudication Board are reversed and set aside. The findings of the Panel
of Arbitrators of the Department of Environment and Natural Resources that respondents McArthur,
Tesoro and Narra are foreign corporations is upheld and, therefore, the rejection of their applications for
Mineral Product Sharing Agreement should be recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical
Assistance Agreement (FTAA) or conversion of their MPSA applications to FTAA, the matter for its
rejection or approval is left for determination by the Secretary of the DENR and the President of the
Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by
petitioners.
After a careful review of the records, the CA found that there was doubt as to the nationality of
petitioners when it realized that petitioners had a common major investor, MBMI, a corporation
composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of Department of Justice
(DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the exploitation of natural resources, the CA
used the "grandfather rule" to determine the nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality, 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. Thus, if 100,000 shares are registered
in the name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of
which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less
than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively,
belongs to Filipino citizens, only 50,000 shares shall be recorded as belonging to aliens.24 (emphasis
supplied)
In determining the nationality of petitioners, the CA looked into their corporate structures and their
corresponding common shareholders. Using the grandfather rule, the CA discovered that MBMI in effect
owned majority of the common stocks of the petitioners as well as at least 60% equity interest of other
majority shareholders of petitioners through joint venture agreements. The CA found that through a
"web of corporate layering, it is clear that one common controlling investor in all mining corporations
involved x x x is MBMI."25 Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in
partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA
applications suspicious in nature and, as a consequence, it recommended the rejection of petitioners’
MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the POA
has jurisdiction over them and that it also has the power to determine the of nationality of petitioners as
a prerequisite of the Constitution prior the conferring of rights to "co-production, joint venture or
production-sharing agreements" of the state to mining rights. However, it also stated that the POA’s
jurisdiction is limited only to the resolution of the dispute and not on the approval or rejection of the
MPSAs. It stipulated that only the Secretary of the DENR is vested with the power to approve or reject
applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which considered
petitioners McArthur, Tesoro and Narra as foreign corporations. Nevertheless, the CA determined that
the POA’s declaration that the MPSAs of McArthur, Tesoro and Narra are void is highly improper.
While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a
petition dated May 7, 2010 seeking the cancellation of petitioners’ FTAAs. The OP rendered a
Decision26 on April 6, 2011, wherein it canceled and revoked petitioners’ FTAAs for violating and
circumventing the "Constitution x x x[,] the Small Scale Mining Law and Environmental Compliance
Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584."27 The OP, in
affirming the cancellation of the issued FTAAs, agreed with Redmont stating that petitioners committed
violations against the abovementioned laws and failed to submit evidence to negate them. The Decision
further quoted the December 14, 2007 Order of the POA focusing on the alleged misrepresentation and
claims made by petitioners of being domestic or Filipino corporations and the admitted continued mining
operation of PMDC using their locally secured Small Scale Mining Permit inside the area earlier applied
for an MPSA application which was eventually transferred to Narra. It also agreed with the POA’s
estimation that the filing of the FTAA applications by petitioners is a clear admission that they are "not
capable of conducting a large scale mining operation and that they need the financial and technical
assistance of a foreign entity in their operation, that is why they sought the participation of MBMI
Resources, Inc."28 The Decision further quoted:
The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate
the violations and lack of qualification of the respondent corporations to engage in mining. The filing of
the FTAA application conversion which is allowed foreign corporation of the earlier MPSA is an
admission that indeed the respondent is not Filipino but rather of foreign nationality who is disqualified
under the laws. Corporate documents of MBMI Resources, Inc. furnished its stockholders in their head
office in Canada suggest that they are conducting operation only through their local counterparts.29
The Motion for Reconsideration of the Decision was further denied by the OP in a Resolution30 dated
July 6, 2011. Petitioners then filed a Petition for Review on Certiorari of the OP’s Decision and
Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the CA Decision dated February 29,
2012, the CA affirmed the Decision and Resolution of the OP. Thereafter, petitioners appealed the
same CA decision to this Court which is now pending with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners put forth
the following errors of the CA:
I.
The Court of Appeals erred when it did not dismiss the case for mootness despite the fact that
the subject matter of the controversy, the MPSA Applications, have already been converted
into FTAA applications and that the same have already been granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction considering
that the Panel of Arbitrators has no jurisdiction to determine the nationality of Narra, Tesoro
and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on account of Redmont’s willful
forum shopping.
IV.
The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations based
on the "Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign
Investments Act of 1991, as amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule.
VI.
 The Court of Appeals erred when it concluded that the conversion of the MPSA Applications
into FTAA Applications were of "suspicious nature" as the same is based on mere conjectures
and surmises without any shred of evidence to show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case as moot is without merit.
Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable
controversy by virtue of supervening events, so that a declaration thereon would be of no practical use
or value."32 Thus, the courts "generally decline jurisdiction over the case or dismiss it on the ground of
mootness."33
The "mootness" principle, however, does accept certain exceptions and the mere raising of an issue of
"mootness" will not deter the courts from trying a case when there is a valid reason to do so. In David v.
Macapagal-Arroyo (David), the Court provided four instances where courts can decide an otherwise
moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public interest is involved;
3.) When constitutional issue raised requires formulation of controlling principles to guide the
bench, the bar, and the public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant case. We of this Court note that a grave
violation of the Constitution, specifically Section 2 of Article XII, is being committed by a foreign
corporation right under our country’s nose through a myriad of corporate layering under different,
allegedly, Filipino corporations. The intricate corporate layering utilized by the Canadian company,
MBMI, is of exceptional character and involves paramount public interest since it undeniably affects the
exploitation of our Country’s natural resources. The corresponding actions of petitioners during the
lifetime and existence of the instant case raise questions as what principle is to be applied to cases with
similar issues. No definite ruling on such principle has been pronounced by the Court; hence, the
disposition of the issues or errors in the instant case will serve as a guide "to the bench, the bar and the
public."35 Finally, the instant case is capable of repetition yet evading review, since the Canadian
company, MBMI, can keep on utilizing dummy Filipino corporations through various schemes of
corporate layering and conversion of applications to skirt the constitutional prohibition against foreign
mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error presented by petitioners since both
involve the conversion of MPSA applications to FTAA applications. Petitioners propound that the CA
erred in ruling against them since the questioned MPSA applications were already converted into FTAA
applications; thus, the issue on the prohibition relating to MPSA applications of foreign mining
corporations is academic. Also, petitioners would want us to correct the CA’s finding which deemed the
aforementioned conversions of applications as suspicious in nature, since it is based on mere
conjectures and surmises and not supported with evidence.
We disagree.
The CA’s analysis of the actions of petitioners after the case was filed against them by respondent is on
point. The changing of applications by petitioners from one type to another just because a case was
filed against them, in truth, would raise not a few sceptics’ eyebrows. What is the reason for such
conversion? Did the said conversion not stem from the case challenging their citizenship and to have
the case dismissed against them for being "moot"? It is quite obvious that it is petitioners’ strategy to
have the case dismissed against them for being "moot."
Consider the history of this case and how petitioners responded to every action done by the court or
appropriate government agency: on January 2, 2007, Redmont filed three separate petitions for denial
of the MPSA applications of petitioners before the POA. On June 15, 2007, petitioners filed a
conversion of their MPSA applications to FTAAs. The POA, in its December 14, 2007 Resolution,
observed this suspect change of applications while the case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is a clear admission that the
respondents are not capable of conducting a large scale mining operation and that they need the
financial and technical assistance of a foreign entity in their operation that is why they sought the
participation of MBMI Resources, Inc. The participation of MBMI in the corporation only proves the fact
that it is the Canadian company that will provide the finances and the resources to operate the mining
areas for the greater benefit and interest of the same and not the Filipino stockholders who only have a
less substantial financial stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only
demonstrate the violations and lack of qualification of the respondent corporations to engage in mining.
The filing of the FTAA application conversion which is allowed foreign corporation of the earlier MPSA is
an admission that indeed the respondent is not Filipino but rather of foreign nationality who is
disqualified under the laws. Corporate documents of MBMI Resources, Inc. furnished its stockholders in
their head office in Canada suggest that they are conducting operation only through their local
counterparts.36
On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing and
setting aside the September 10, 2008 and July 1, 2009 Orders of the MAB. In the said Decision, the CA
upheld the findings of the POA of the DENR that the herein petitioners are in fact foreign corporations
thus a recommendation of the rejection of their MPSA applications were recommended to the Secretary
of the DENR. With respect to the FTAA applications or conversion of the MPSA applications to FTAAs,
the CA deferred the matter for the determination of the Secretary of the DENR and the President of the
Republic of the Philippines.37
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal of the
petition asserting that on April 5, 2010, then President Gloria Macapagal-Arroyo signed and issued in
their favor FTAA No. 05-2010-IVB, which rendered the petition moot and academic. However, the CA, in
a Resolution dated February 15, 2011 denied their motion for being a mere "rehash of their claims and
defenses."38 Standing firm on its Decision, the CA affirmed the ruling that petitioners are, in fact, foreign
corporations. On April 5, 2011, petitioners elevated the case to us via a Petition for Review on Certiorari
under Rule 45, questioning the Decision of the CA. Interestingly, the OP rendered a Decision dated
April 6, 2011, a day after this petition for review was filed, cancelling and revoking the FTAAs, quoting
the Order of the POA and stating that petitioners are foreign corporations since they needed the
financial strength of MBMI, Inc. in order to conduct large scale mining operations. The OP Decision also
based the cancellation on the misrepresentation of facts and the violation of the "Small Scale Mining
Law and Environmental Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment
Act and E.O. 584."39 On July 6, 2011, the OP issued a Resolution, denying the Motion for
Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact of the
OP’s Decision and Resolution. In their Reply, petitioners chose to ignore the OP Decision and continued
to reuse their old arguments claiming that they were granted FTAAs and, thus, the case was moot.
Petitioners filed a Manifestation and Submission dated October 19, 2012,40 wherein they asserted that
the present petition is moot since, in a remarkable turn of events, MBMI was able to sell/assign all its
shares/interest in the "holding companies" to DMCI Mining Corporation (DMCI), a Filipino corporation
and, in effect, making their respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case dismissed for being "moot."
Their final act, wherein MBMI was able to allegedly sell/assign all its shares and interest in the petitioner
"holding companies" to DMCI, only proves that they were in fact not Filipino corporations from the start.
The recent divesting of interest by MBMI will not change the stand of this Court with respect to the
nationality of petitioners prior the suspicious change in their corporate structures. The new documents
filed by petitioners are factual evidence that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that petitioner corporations
have violated several mining laws and made misrepresentations and falsehood in their applications for
FTAA which lead to the revocation of the said FTAAs, demonstrating that petitioners are not beyond
going against or around the law using shifty actions and strategies. Thus, in this instance, we can say
that their claim of mootness is moot in itself because their defense of conversion of MPSAs to FTAAs
has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners’ nationality, whether Filipino or
foreign. In their previous petitions, they had been adamant in insisting that they were Filipino
corporations, until they submitted their Manifestation and Submission dated October 19, 2012 where
they stated the alleged change of corporate ownership to reflect their Filipino ownership. Thus, there is
a need to determine the nationality of petitioner corporations.
Basically, there are two acknowledged tests in determining the nationality of a corporation: the control
test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967
SEC Rules which implemented the requirement of the Constitution and other laws pertaining to the
controlling interests in enterprises engaged in the exploitation of natural resources owned by Filipino
citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality, 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. Thus, if 100,000 shares are registered
in the name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of
which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less
than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively,
belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other
50,000 shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality," pertains to the control test or the liberal rule. On the other hand, the second part
of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage shall be
counted as Philippine nationality," pertains to the stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in advocating the application of the
"control test" under RA 7042, as amended by RA 8179, otherwise known as the Foreign Investments
Act (FIA), rather than using the stricter grandfather rule. The pertinent provision under Sec. 3 of the FIA
provides:
SECTION 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 the citizens of the Philippines; 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 wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That were 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, in order that the corporation shall be considered a Philippine
national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition
of a "Philippine National" under Sec. 3 of the FIA does not provide for it. They further claim that the
grandfather rule "has been abandoned and is no longer the applicable rule."41 They also opined that the
last portion of Sec. 3 of the FIA admits the application of a "corporate layering" scheme of corporations.
Petitioners claim that the clear and unambiguous wordings of the statute preclude the court from
construing it and prevent the court’s use of discretion in applying the law. They said that the plain, literal
meaning of the statute meant the application of the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the
Constitution and pertinent laws, then it becomes illegal. Further, the pronouncement of petitioners that
the grandfather rule has already been abandoned must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 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.
xxxx
The President may enter into agreements with Foreign-owned corporations involving either technical or
financial 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. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into different types of
agreements for the exploration, development, and utilization of natural resources with entities who are
deemed Filipino due to 60 percent ownership of capital is pertinent to this case, since the issues are
centered on the utilization of our country’s natural resources or specifically, mining. Thus, there is a
need to ascertain the nationality of petitioners since, as the Constitution so provides, such agreements
are only allowed corporations or associations "at least 60 percent of such capital is owned by such
citizens." The deliberations in the Records of the 1986 Constitutional Commission shed light on how a
citizenship of a corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of an independent national economy
is freedom from undue foreign control? What is the meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and the
welfare of the Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not simply freedom
from foreign control? I think that is the meaning of independence, because as phrased, it still allows for
foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain the 60/40
possibility in the cultivation of natural resources, 40 percent involves some control; not total control, but
some control.
MR. BENNAGEN: In any case, I think in due time we will propose some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
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 the 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?
MR. VILLEGAS: We have just had a long discussion with the members of the team from the UP Law
Center who provided us with a draft. The phrase that is contained here which we adopted from the UP
draft is ‘60 percent of the 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.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in
cases where corporate layering is present.
Elementary in statutory construction is when there is conflict between the Constitution and a statute, the
Constitution will prevail. In this instance, specifically pertaining to the provisions under Art. XII of the
Constitution on National Economy and Patrimony, Sec. 3 of the FIA will have no place of application. As
decreed by the honorable framers of our Constitution, the grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a corporation
for purposes, among others, of determining compliance with nationality requirements (the ‘Investee
Corporation’). Such manner of computation is necessary since the shares in the Investee Corporation
may be owned both by individual stockholders (‘Investing Individuals’) and by corporations and
partnerships (‘Investing Corporation’). The said rules thus provide for the determination of nationality Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to
depending on the ownership of the Investee Corporation and, in certain instances, the Investing circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual
Corporation. participation, direct or indirect, of MBMI, the grandfather rule must be used.

Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee McArthur Mining, Inc.
Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May
1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, To establish the actual ownership, interest or participation of MBMI in each of petitioners’ corporate
‘(s)hares belonging to corporations or partnerships at least 60% of the capital of which is owned by structure, they have to be "grandfathered."
Filipino citizens shall be considered as of Philippine nationality.’ Under the liberal Control Test, there is
no need to further trace the ownership of the 60% (or more) Filipino stockholdings of the Investing
Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino. As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its
application from SMMI. McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided into
10,000 common shares at one thousand pesos (PhP 1,000) per share, subscribed to by the following:44
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such Name Nationality Number of Shares Amount Subscribed Amount Paid
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 Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
(i.e., "grandfathered") to determine the total percentage of Filipino ownership. Corporation
MBMI Resources, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Corporation and added to the shares directly owned in the Investee Corporation x x x.
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
xxxx Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part
of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture corporation which is either 60-40% Filipino-alien or Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity ownership is not in (emphasis supplied)
doubt, the Grandfather Rule will not apply. (emphasis supplied)
Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and
After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of composition as McArthur. In fact, it would seem that MBMI is also a major investor and
the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in "controls"45 MBMI and also, similar nominal shareholders were present, i.e. Fernando B. Esguerra
the corporate ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):
equity ownership of petitioners Narra, McArthur and Tesoro, since their common investor, the 100%
Canadian corporation––MBMI, funded them. However, petitioners also claim that there is "doubt" only Madridejos Mining Corporation
when the stockholdings of Filipinos are less than 60%.43

Name Nationality Number of Shares Amount Subscribed Amount Paid

The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to
convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0
example of an instance where "doubt" as to the ownership of the corporation exists. It would be
ludicrous to limit the application of the said word only to the instances where the stockholdings of non- Development
Filipino stockholders are more than 40% of the total stockholdings in a corporation. The corporations
interested in circumventing our laws would clearly strive to have "60% Filipino Ownership" at face value.
It would be senseless for these applying corporations to state in their respective articles of incorporation Corp.
that they have less than 60% Filipino stockholders since the applications will be denied instantly. Thus, MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00
various corporate schemes and layerings are utilized to circumvent the application of the Constitution.
Inc.
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00 Name Nationality Number of Amount Amount Paid
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Shares Subscribed
Esguerra
Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00 Mining, Inc.

MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60

Hernando
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00 Resources, Inc.
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

(emphasis supplied)
Esguerra

Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
to the number of shares they subscribed to in the corporation, which is quite absurd since Olympic is the
major stockholder in MMC. MBMI’s 2006 Annual Report sheds light on why Olympic failed to pay any Agcaoili
amount with respect to the number of shares it subscribed to. It states that Olympic entered into joint
venture agreements with several Philippine companies, wherein it holds directly and indirectly a 60% Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
effective equity interest in the Olympic Properties.46 Quoting the said Annual report:
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
entered into a series of agreements including a Property Purchase and Development Agreement (the
Transaction Documents) with respect to three nickel laterite properties in Palawan, Philippines (the
"Olympic Properties"). The Transaction Documents effectively establish a joint venture between the (emphasis supplied)
Company and Olympic for purposes of developing the Olympic Properties. The Company holds directly
and indirectly an initial 60% interest in the joint venture. Under certain circumstances and upon
Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the
achieving certain milestones, the Company may earn up to a 100% interest, subject to a 2.5% net
corporate structure of petitioner McArthur, down to the last centavo. All the other shareholders are the
revenue royalty.47 (emphasis supplied)
same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell. The figures under "Nationality," "Number
of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same. Delving deeper, we
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering scrutinize SMMI’s corporate structure:
was utilized by MBMI to gain control over McArthur. It is apparent that MBMI has more than 60% or
more equity interest in McArthur, making the latter a foreign corporation.
Sara Marie Mining, Inc.

Tesoro Mining and Development, Inc.

[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]
Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP
10,000,000) divided into ten thousand (10,000) common shares at PhP 1,000 per share, as
demonstrated below: Name Nationality Number of Amount Amount Paid

[[reference Shares Subscribed

= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]
Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0
 [[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]
Development

Corp. Name Nationality Number of Amount Amount Paid

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,794,000.00 Shares Subscribed

Inc. Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00 Mining &

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Development
Esguerra
Corp.
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
Resources, Inc.
Hernando
Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Mendoza, Jr.
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00
Fernandez
(emphasis supplied)
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
After subsequently studying SMMI’s corporate structure, it is not farfetched for us to spot the glaring
similarity between SMMI and MMC’s corporate structure. Again, the presence of identical stockholders, Agcaoili
namely: Olympic, MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando, Mason and Cawkell.
Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00
The figures under the headings "Nationality," "Number of Shares," "Amount Subscribed," and "Amount
Paid" are exactly the same except for the amount paid by MBMI which now reflects the amount of two
million seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly, the total value of the amount Bocalan
paid is two million eight hundred nine thousand nine hundred pesos (PhP 2,809,900).
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s participation in SMMI’s Robert L. American 1 PhP 1,000.00 PhP 1,000.00
corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or more equity interest in
Tesoro. This makes petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it to participate in
the exploitation, utilization and development of our natural resources. McCurdy

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Narra Nickel Mining and Development Corporation
Total 10,000 PhP 10,000,000.00 PhP 2,800,000.00
Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC’s MPSA (emphasis supplied)
application, whose corporate structure’s arrangement is similar to that of the first two petitioners
discussed. The capital stock of Narra is ten million pesos (PhP 10,000,000), which is divided into ten
Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in
thousand common shares (10,000) at one thousand pesos (PhP 1,000) per share, shown as follows:
this corporate structure.
 Patricia Louise Mining & Development Corporation Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%

Using the grandfather method, we further look and examine PLMDC’s corporate structure: Tesoro Mining & Development, Inc. (Tesoro) 60.0%

Name Nationality Number of Amount Amount Paid Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective
Shares Subscribed equity interest in the Olympic Property of 60.0%. Pursuant to a shareholders’ agreement, the Company
exercises joint control over the companies in the Olympic Group.
Palawan Alpha South Resources Filipino 6,596 PhP 6,596,000.00 PhP 0
Development Corporation
(b) Alpha Group
MBMI Resources, Canadian 3,396 PhP 3,396,000.00 PhP
2,796,000.00 The Philippine companies holding the Alpha Property, and the ownership interests therein, are as
Inc. follows:
Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00
Alpha- Philippines (the "Alpha Group")
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00 Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00 Under a joint venture agreement the Company holds directly and indirectly an effective equity interest in
the Alpha Property of 60.4%. Pursuant to a shareholders’ agreement, the Company exercises joint
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00 control over the companies in the Alpha Group.48 (emphasis supplied)
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and
Total 10,000 PhP PhP
Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity
10,000,000.00 2,708,174.60
interests. Such conclusion is derived from grandfathering petitioners’ corporate owners, namely: MMI,
(emphasis
SMMI and PLMDC. Going further and adding to the picture, MBMI’s Summary of Significant Accounting
supplied)
Policies statement– –regarding the "joint venture" agreements that it entered into with the "Olympic" and
"Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered"
Yet again, the usual players in petitioners’ corporate structures are present. Similarly, the amount of corporations boils down to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has
money paid by the 2nd tier majority stock holder, in this case, Palawan Alpha South Resources and joint venture agreements with, practically exercising majority control over the corporations mentioned. In
Development Corp. (PASRDC), is zero. 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.
Studying MBMI’s Summary of Significant Accounting Policies dated October 31, 2005 explains the
reason behind the intricate corporate layering that MBMI immersed itself in:
Application of the res inter alios acta rule
JOINT VENTURES The Company’s ownership interests in various mining ventures engaged in the
acquisition, exploration and development of mineral properties in the Philippines is described as follows: Petitioners question the CA’s use of the exception of the res inter alios acta or the "admission by co-
partner or agent" rule and "admission by privies" under the Rules of Court in the instant case, by
pointing out that statements made by MBMI should not be admitted in this case since it is not a party to
(a) Olympic Group
the case and that it is not a "partner" of petitioners.

The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
follows:

Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the party
Olympic- Philippines (the "Olympic Group")
within the scope of his authority and during the existence of the partnership or agency, may be given in
evidence against such party after the partnership or agency is shown by evidence other than such act or
declaration itself. The same rule applies to the act or declaration of a joint owner, joint debtor, or other
person jointly interested with the party.
Sec. 31. Admission by privies.- Where one derives title to property from another, the act, declaration, or
omission of the latter, while holding the title, in relation to the property, is evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership
relation must be shown, and that proof of the fact must be made by evidence other than the admission
itself."49 Thus, petitioners assert that the CA erred in finding that a partnership relationship exists
between them and MBMI because, in fact, no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that "by
entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and McArthur. They
challenged the conclusion of the CA which pertains to the close characteristics of
"partnerships" and "joint venture agreements." Further, they asserted that before this particular
partnership can be formed, it should have been formally reduced into writing since the capital involved is
more than three thousand pesos (PhP 3,000). Being that there is no evidence of written agreement to
form a partnership between petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to contribute money, property, or
industry to a common fund with the intention of dividing the profits among themselves.50 On the other
hand, joint ventures have been deemed to be "akin" to partnerships since it is difficult to distinguish
between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their association are so similar and
closely akin to a partnership that it is ordinarily held that their rights, duties, and liabilities are to be
tested by rules which are closely analogous to and substantially the same, if not exactly the same, as
those which govern partnership. In fact, it has been said that the trend in the law has been to blur the
distinctions between a partnership and a joint venture, very little law being found applicable to one that
does not apply to the other.51
Though some claim that partnerships and joint ventures are totally different animals, there are very few
rules that differentiate one from the other; thus, joint ventures are deemed "akin" or similar to a
partnership. In fact, in joint venture agreements, rules and legal incidents governing partnerships are
applied.52
Accordingly, culled from the incidents and records of this case, it can be assumed that the relationships
entered between and among petitioners and MBMI are no simple "joint venture agreements." As a rule,
corporations are prohibited from entering into partnership agreements; consequently, corporations enter
into joint venture agreements with other corporations or partnerships for certain transactions in order to
form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was
executed to circumvent the legal prohibition against corporations entering into partnerships, then the
relationship created should be deemed as "partnerships," and the laws on partnership should be
applied. Thus, a joint venture agreement between and among corporations may be seen as similar to
partnerships since the elements of partnership are present.
Considering that the relationships found between petitioners and MBMI are considered to be
partnerships, then the CA is justified in applying Sec. 29, Rule 130 of the Rules by stating that "by
entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and McArthur.
Panel of Arbitrators’ jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The POA
has jurisdiction to settle disputes over rights to mining areas which definitely involve the petitions filed by
Redmont against petitioners Narra, McArthur and Tesoro. Redmont, by filing its petition against
petitioners, is asserting the right of Filipinos over mining areas in the Philippines against alleged foreign-
owned mining corporations. Such claim constitutes a "dispute" found in Sec. 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
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.:53
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 AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the
authorized officer(s) of the concerned office(s) shall issue a certification(s) that the
publication/posting/radio announcement have been complied with. Any adverse claim, protest,
opposition shall be filed directly, within thirty (30) calendar days from the last date of
publication/posting/radio announcement, with the concerned Regional Office or through any concerned
PENRO or CENRO for filing in the concerned Regional Office for purposes of its resolution by the Panel
of Arbitrators pursuant to the provisions of this Act and these implementing rules and regulations. Upon
final resolution of any adverse claim, protest or opposition, the Panel of Arbitrators shall likewise issue a
certification to that effect within five (5) working days from the date of finality of resolution thereof.
Where there is no adverse claim, protest or opposition, the Panel of Arbitrators shall likewise issue a
Certification to that effect within five working days therefrom.
 xxxx
No Mineral Agreement shall be approved unless the requirements under this Section are fully complied
with and any adverse claim/protest/opposition is finally resolved by the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification issued by the Panel of Arbitrators as
provided in Section 38 hereof, the concerned Regional Director shall initially evaluate the Mineral
Agreement applications in areas outside Mineral reservations. He/She shall thereafter endorse his/her
findings to the Bureau for further evaluation by the Director within fifteen (15) working days from receipt
of forwarded documents. Thereafter, the Director shall endorse the same to the secretary for
consideration/approval within fifteen working days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15)
working days from receipt of the Certification issued by the Panel of Arbitrators as provided for in
Section 38 hereof, the same shall be evaluated and endorsed by the Director to the Secretary for
consideration/approval within fifteen days from receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas"
under Sec. 77(a) specifically refer only to those disputes relative to the applications for a mineral
agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is
further elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections
28, 43 and 57 above, any adverse claim, protest or opposition specified in said sections may also be
filed directly with the Panel of Arbitrators within the concerned periods for filing such claim, protest or
opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director shall also cause the posting of the application on
the bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the proposed contract area is located once a
week for two (2) consecutive weeks in a language generally understood in the locality. After forty-five
(45) days from the last date of publication/posting has been made and no adverse claim, protest or
opposition was filed within the said forty-five (45) days, the concerned offices shall issue a certification
that publication/posting has been made and that no adverse claim, protest or opposition of whatever
nature has been filed. On the other hand, if there be any adverse claim, protest or opposition, the same
shall be filed within forty-five (45) days from the last date of publication/posting, with the Regional
Offices concerned, or through the Department’s Community Environment and Natural Resources
Officers (CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be filed at
the Regional Office for resolution of the Panel of Arbitrators. However previously published valid and
subsisting mining claims are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully complied
with and any opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel
of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas"
under Sec. 77(a) specifically refer only to those disputes relative to the applications for a mineral
agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is
further elucidated by Secs. 219 and 43 of DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections
28, 43 and 57 above, any adverse claim, protest or opposition specified in said sections may also be
filed directly with the Panel of Arbitrators within the concerned periods for filing such claim, protest or
opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.-
xxxx
The Regional Director or concerned Regional Director shall also cause the posting of the application on
the bulletin boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the proposed contract area is located once a
week for two (2) consecutive weeks in a language generally understood in the locality. After forty-five
(45) days from the last date of publication/posting has been made and no adverse claim, protest or
opposition was filed within the said forty-five (45) days, the concerned offices shall issue a certification
that publication/posting has been made and that no adverse claim, protest or opposition of whatever
nature has been filed. On the other hand, if there be any adverse claim, protest or opposition, the same
shall be filed within forty-five (45) days from the last date of publication/posting, with the Regional offices
concerned, or through the Department’s Community Environment and Natural Resources Officers
(CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be filed at the
Regional Office for resolution of the Panel of Arbitrators. However, previously published valid and
subsisting mining claims are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully complied
with and any opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel
of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to resolve any adverse claim,
opposition, or protest relative to mining rights under Sec. 77(a) of RA 7942 is confined only to adverse
claims, conflicts and oppositions relating to applications for the grant of mineral rights.
POA’s jurisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions and it
has no authority to approve or reject said applications. Such power is vested in the DENR Secretary
upon recommendation of the MGB Director. Clearly, POA’s jurisdiction over "disputes involving rights to
mining areas" has nothing to do with the cancellation of existing mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve disputes
over MPSA applications subject of Redmont’s petitions. However, said jurisdiction does not include
either the approval or rejection of the MPSA applications, which is vested only upon the Secretary of the
DENR. Thus, the finding of the POA, with respect to the rejection of petitioners’ MPSA applications
being that they are foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the POA,
that has jurisdiction over the MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute in force at the time of the
commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
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.
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x 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:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights to
mining areas. One such dispute is an MPSA application to which an adverse claim, protest or opposition
is filed by another interested applicant.1âwphi1 In the case at bar, the dispute arose or originated from
MPSA applications where petitioners are asserting their rights to mining areas subject of their respective
MPSA applications. Since respondent filed 3 separate petitions for the denial of said applications, then a
controversy has developed between the parties and it is POA’s jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the DENR
Regional Office or any concerned DENRE or CENRO are MPSA applications. Thus POA has
jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary
jurisdiction. Euro-med Laboratories v. Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that its determination requires the
expertise, specialized training and knowledge of an administrative body, relief must first be obtained in
an administrative proceeding before resort to the courts is had even if the matter may well be within
their proper jurisdiction.
Whatever may be the decision of the POA will eventually reach the court system via a resort to the CA
and to this Court as a last recourse.
Selling of MBMI’s shares to DMCI
As stated before, petitioners’ Manifestation and Submission dated October 19, 2012 would want us to
declare the instant petition moot and academic due to the transfer and conveyance of all the
shareholdings and interests of MBMI to DMCI, a corporation duly organized and existing under
Philippine laws and is at least 60% Philippine-owned.56 Petitioners reasoned that they now cannot be
considered as foreign-owned; the transfer of their shares supposedly cured the "defect" of their previous
nationality. They claimed that their current FTAA contract with the State should stand since "even
wholly-owned foreign corporations can enter into an FTAA with the State."57 Petitioners stress that there
should no longer be any issue left as regards their qualification to enter into FTAA contracts since they
are qualified to engage in mining activities in the Philippines. Thus, whether the "grandfather rule" or the
"control test" is used, the nationalities of petitioners cannot be doubted since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said
fact should be disregarded. The manifestation can no longer be considered by us since it is being
tackled in G.R. No. 202877 pending before this Court.1âwphi1 Thus, the question of whether
petitioners, allegedly a Philippine-owned corporation due to the sale of MBMI's shareholdings to DMCI,
are allowed to enter into FTAAs with the State is a non-issue in this case.
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. II 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."
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals
Decision dated October 1, 2010 and Resolution dated February 15, 2011 are hereby AFFIRMED.
SO ORDERED.
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.:
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 affirmed 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 finding that there was doubt as to
petitioners' nationality since a 100% Canadian-owned firm, 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 first 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 Redmontavers 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
Office 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 justified 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 clarified 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 thusissued to petitioners. Petitioners curiously have omitted this critical
factin their motion for reconsideration. Furthermore, the supposed sale by MBMI of its shares in the
petition ercorporations and in their holding companies is not only a question of fact that this Court is
without authority toverify, 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. Asthis 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 finds 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, requirethe establishment of a
definite 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 Ruleis 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 withSec. 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 Constitution.
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 x x x 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 qualified to undertake a mining operation.
Consistent with this objective, the Grandfather Rulewas originally conceived to look into the
citizenshipof 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.
xxxx
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 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."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 Code6 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 finally 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:
xxxx
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: x x x 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 confirms this [in]… Pedro R. Palting, vs. San Jose Petroleum [Inc.]. The
Court held that a corporation investing in another corporation engaged ina nationalized activity cannot
be considered as a citizen for purposes of the Constitutional provision restricting foreign exploitation of
natural resources:
xxxx
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 Constitution 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 Constitution restricts foreign participation.
xxxx
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 isviolated. (emphasis supplied)
Similarly, in the eponymous Redmont Consolidated Mines Corporation v. McArthur Mining Inc., et
al.,8 the SEC en bancapplied the Grandfather Rule despite the fact that the subject corporations
ostensibly have satisfied the 60-40 Filipino equity requirement. The SEC en bancheld 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 ₱2,803,900.00 out of its total subscription cost of ₱3,331,000.00; (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
PatriciaLouise; however, Palawan Alpha paid nothing for this subscription while MBMI paid
₱2,796,000.00 out of its total subscription cost of ₱3,996,000.00; (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 ₱2,794,000.00 out of its total subscription cost of
₱3,331,000.00; 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 ₱2,500,000.00 out of its total subscription cost of ₱3,998,000.00. Thus, pursuant to the
afore-quoted DOJ Opinion, the Grandfather Rule must be used.
xxxx
The avowed purpose of the Constitution 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 fiction of corporate ownership and control. But the constitutional
provision, as interpreted and practicedvia 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
"beneficial 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 beneficial 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 morethan 40% from the proceeds of the
operations?
xxxx
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 x x x.The sixty percent Philippine equity requirement in mineral resource exploitation x x xis
intended to insure, among other purposes, the conservation of indigenous natural resources, for Filipino
posterityx x x. 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
requirementis not satisfied unless Filipinos are the principal beneficiaries in the exploitation of the
country’s natural resources. This criterion of beneficial 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 ration is derived from the 60-40 equity
requirement in the Constitution.
xxxx
It is obvious that while payments to a service contractor may be justified 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" x x x like the options available tothe contractor to become
equity participant in the Philippine entity holding the concession, or to acquire rights in the processing
and marketing stages. x x x (emphasis supplied)
The "beneficial ownership" requirement was subsequently used in tandem with the "situs of control"
todetermine 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 withat least 60%-40% Filipino-Foreign Equity, while the
remaining thirty percent (30%) of the capital stock is owned by a foreign corporation.
xxxx
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 satisfied unless it meets the criterion of
beneficial ownership, i.e. Filipinos are the principal beneficiaries 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 nonstock corporation"(Op. No. 178, s. 1974). As
stated in the Register of Deeds vs. Ung Sui Si Temple (97 Phil. 58), obviously toinsure 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 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.
Applying the "Grandfather Rule" in the instant case, the result is as follows: x x x 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 disqualified 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 "beneficial ownership" and the "situs of control" in determining what
constitutes"capital" has been adopted by this Court in Heirs of Gamboa v. Teves.10 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
heldby "a trustee of funds for pension or other employee retirement or separation benefits," 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 beneficial ownership of the stocks, coupled with appropriate voting
rights, is essential." (emphasis supplied)
In emphasizing the twin requirements of "beneficial ownership" and "control" in determining compliance
with the required Filipino equity in Gamboa, the en bancCourt 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 Rulein 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. x x x (emphasis supplied)
Applying Gamboa, the Court, in Express Investments III Private Ltd. v. Bayantel Communications,
Inc.,11 denied the foreign creditors’ proposal to convert part of Bayantel’s debts to common shares of
the company at a rate of 77.7%. Supposedly, 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 financial commitments made by respondent Bayantelis
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 Constitution.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 exemplified 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 withthe Grandfather Rule to determine the
observance of foreign ownership restriction in nationalized economic activities. The Control Test and the
Grandfather Rule are not, as it were, incompatible ownership-determinant methods that canonly be
applied alternative to each other. Rather, these methodscan, if appropriate, be used cumulatively in the
determination of the ownership and control of corporations engaged in fully or partly nationalized
activities, as the mining operation involved in this case or the operation of public utilities as in Gamboa
or Bayantel.
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership and
control in a corporation, as it could result in an otherwise foreign corporation rendered qualified to
perform nationalized or partly nationalized activities. Hence, it is only when the Control Test is first
complied with that the Grandfather Rule may be applied. Put in another manner, if the subject
corporation’s Filipino equity falls below the threshold 60%, the corporation is immediately considered
foreign-owned, in which case, the needto resort to the Grandfather Rule disappears.
On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity requirement can
be considered a Filipino corporation if there is no doubtas to who has the "beneficial ownership" and
"control" of the corporation. In that instance, there is no need fora dissection or further inquiry on the
ownership of the corporate shareholders in both the investing and investee corporation or the
application of the Grandfather Rule.12 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 existsas to the locusof the "beneficial ownership" and "control." In this case, a further investigation
as to the nationality of the personalities with the beneficial ownership and control of the corporate
shareholders in both the investing and investee corporations is necessary.
As explained in the April 21,2012 Decision, the "doubt" that demands the application of the Grandfather
Rule in addition to or in tandem with the Control Test is not confined to, or more bluntly, does not refer
to the fact that the apparent Filipino ownership of the corporation’s equity falls below the 60% threshold.
Rather, "doubt" refers to various indicia that the "beneficial ownership" and "control" of the corporation
do not in fact reside in Filipino shareholders but in foreign stakeholders. As provided in DOJ Opinion No.
165, Series of 1984, which applied the pertinent provisions of the Anti-DummyLaw in relation to the
minimum Filipino equity requirement in the Constitution, "significant 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 Certificate of Registration of Linear Works
Realty Development Corporation,13 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:
x x x 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 Linear works
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.
xxxx
x x x [I]n this respect we find 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 restrictionson 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 suspectthat 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 find 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 atfirst 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 beneficial 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. Suffice 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.14 These limits comply with the requirement in Palting v. San Jose Petroleum, Inc.15 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 Emmanuel G. Filipino 1 ₱1,000.00 ₱1,000.00
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.
Hernando
We considered the following membership and control structures and like nuances: Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00
Tesoro
Total 10,000 ₱10,000,000.00 ₱2,800,000.00
Supposedly Filipino corporation Sara Marie Mining, Inc. (Sara Marie) holds 59.97% of the 10,000
commonshares of petitioner Tesoro while the Canadian-owned company, MBMI, holds 39.98% of its The fact that MBMI had practically provided all the funds in Sara Marie and Tesoro creates
shares. 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
Name Nationality Number of Shares Amount Subscribed Amount Paid Grandfather Rule is clearly called for, and as shown below, the Filipinos’ control and economic benefits
Sara Marie Mining, Filipino 5,997 ₱5,997,000.00 ₱825,000.00 in petitioner Tesoro (through Sara Marie) fallbelow the threshold 60%, viz:
Inc.
Filipino participation in petitioner Tesoro: 40.01%
MBMI Resources, Canadian 3,998 ₱3,998,000.00 ₱1,878,174.60
Inc.16
Lauro L. Salazar Filipino 1 ₱1,000.00 ₱1,000.00 66.67
(Filipino equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 39.98%
Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00 100
Esguerra
39.98% + .03% (shares of individual Filipino shareholders [SHs] in Tesoro)
Manuel A. Agcaoili Filipino 1 ₱1,000.00 ₱1,000.00 =40.01%
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00 Foreign participation in petitioner Tesoro: 59.99%
Total 10,000 ₱10,000,000.00 ₱2,708,174.60
33.33
(Foreign equity in Sara Marie) x 59.97 (Sara Marie’s share in Tesoro) = 19.99%
In turn, the Filipino corporation Olympic Mines & Development Corp. (Olympic) holds 66.63% of Sara
100
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 19.99% + 39.98% (MBMI’s direct participation in Tesoro) + .02% (shares of foreign individual
paid for 99% of the paid-up capital of Sara Marie. SHs in Tesoro)
= 59.99%
Name Nationality Number of Shares Amount Subscribed Amount Paid
Olympic Mines & Filipino 6,663 ₱6,663,000.00 P0.00 With only 40.01% Filipino ownership in petitioner Tesoro, as compared to 59.99% foreign ownership of
Development its shares, it is clear that petitioner Tesoro does not comply with the minimum Filipino equity
Corp.17 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.
MBMI Resources, Canadian 3,331 ₱3,331,000.00 ₱2,794,000.00
Inc.
McArthur
Amanti Limson Filipino 1 ₱1,000.00 ₱1,000.00
Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00 Petitioner McArthur follows the corporate layering structure of Tesoro, as 59.97% of its 10, 000 common
Esguerra shares is owned by supposedly Filipino Madridejos Mining Corporation (Madridejos), while 39.98%
belonged to the Canadian MBMI.
Lauro Salazar Filipino 1 ₱1,000.00 ₱1,000.00
 Name Nationality Number of Shares Amount Subscribed Amount Paid 66.67
(Filipino equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 39.98%
Madridejos Mining Filipino 5,997 ₱5,997,000.00 ₱825,000.00
100
Corporation
MBMI Resources, Canadian 3,998 ₱3,998,000.0 ₱1,878,174.60 39.98% + .03% (shares of individual Filipino SHs in McArthur)
Inc.18 =40.01%

Lauro L. Salazar Filipino 1 ₱1,000.00 ₱1,000.00

Foreign participation in petitioner McArthur: 59.99%
Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00
Manuel A. Agcaoili Filipino 1 ₱1,000.00 ₱1,000.00
33.33
(Foreign equity in Madridejos) x 59.97 (Madridejos’ share in McArthur) = 19.99%
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00 19.99% + 39.98% (MBMI’s direct participation inMcArthur) + .02% (shares of foreign
individual SHs in McArthur)
Total 10,000 ₱10,000,000.00 ₱2,708,174.60
= 59.99%

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 As with petitioner Tesoro, with only 40.01% Filipino ownership in petitioner McArthur, as compared to
provided 99.79% of the paid-up capital of Madridejos. 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.
Name Nationality Number of Shares Amount Subscribed Amount Paid
Olympic Mines & Filipino 6,663 ₱6,663,000.00 P0.00 Narra
Development
Corp.19 As for petitioner Narra, 59.97% of its shares belonged to Patricia Louise Mining & Development
MBMI Resources, Canadian 3,331 ₱3,331,000.00 ₱2,803,900.00 Corporation (PLMDC), while Canadian MBMI held 39.98% of its shares.
Inc.
Amanti Limson Filipino 1 ₱1,000.00 ₱1,000.00 Name Nationality Number of Shares Amount Subscribed Amount Paid

Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00 Patricia Lousie Filipino 5,997 ₱5,997,000.00 ₱1,677,000.00
Esguerra Mining and
Development Corp.
Lauro Salazar Filipino 1 ₱1,000.00 ₱1,000.00
MBMI Resources, Canadian 3,996 ₱3,996,000.00 ₱1,116,000.00
Emmanuel G. Filipino 1 ₱1,000.00 ₱1,000.00 Inc.20
Hernando
Higinio C. Mendoza, Filipino 1 ₱1,000.00 ₱1,000.00
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
Henry E. Fernandez Filipino 1 ₱1,000.00 ₱1,000.00
Kenneth Cawkel Canadian 1 ₱1,000.00 ₱1,000.00
Ma. Elena A. Filipino 1 ₱1,000.00 ₱1,000.00
Total 10,000 ₱10,000,000.00 ₱2,809,900.00 Bocalan
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00
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 Robert L. McCurdy Canadian 1 ₱1,000.00 ₱1,000.00
McArthur. The application of the Grandfather Rule is clearly called for, and as will be shown below, Manuel A. Agcaoili Filipino 1 ₱1,000.00 ₱1,000.00
MBMI, along with the other foreign shareholders, breached the maximum limit of 40% ownership in
petitioner McArthur, rendering the petitioner disqualified to an MPSA: Bayani H. Agabin Filipino 1 ₱1,000.00 ₱1,000.00
Total 10,000 ₱10,000,000.00 ₱2,800,000.00
Filipino participation in petitioner McArthur: 40.01%
 PLMDC’s shares, in turn, were held by Palawan Alpha South Resources Development Corporation 33.98
(PASRDC), which subscribed to 65.96% of PLMDC’s shares, and the Canadian MBMI, which (Foreign equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 20.38%
subscribed to 33.96% of PLMDC’s shares.
100
20.38% + 39.96% (MBMI’s direct participation in Narra) + .02% (shares of foreign individual
Name Nationality Number of Shares Amount Subscribed Amount Paid
SHs in McArthur)
Palawan Alpha Filipino 6,596 ₱6,596,000.00 P0 = 60.36%
South Resource
Development Corp.
With 60.36% foreign ownership in petitioner Narra, as compared to only 39.64% Filipino ownership of its
MBMI Resources, Canadian 3,396 ₱3,396,000.00 ₱2,796,000.00 shares, it is clear that petitioner Narra does not comply with the minimum Filipino equity requirement
Inc.21 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.
Higinio C. Mendoza, Filipino 1 ₱1,000.00 ₱1,000.00
Jr.
It must be noted that the foregoing determination and computation of petitioners’ Filipino equity
Fernando B. Filipino 1 ₱1,000.00 ₱1,000.00 composition was based on their common shareholdings, not preferred or redeemable shares. Section 6
Esguerra of the Corporation Code of the Philippines explicitly provides that "no share may be deprived of voting
Henry E. Fernandez Filipino 1 ₱1,000.00 ₱1,000.00 rights except those classified as ‘preferred’ or ‘redeemable’ shares." Further, as Justice Leonen puts it,
there is "no indication that any of the shares x x x do not have voting rights, [thus] it must be assumed
Ma. Elena A. Filipino 1 ₱1,000.00 ₱1,000.00 that all such shares have voting rights."22 It cannot therefore be gain said that the foregoing computation
Bocalan hewed with the pronouncements of Gamboa, as implemented by SEC Memorandum Circular No. 8,
Michael T. Mason American 1 ₱1,000.00 ₱1,000.00 Series of 2013, (SEC Memo No. 8)23 Section 2 of which states:

Robert L. McCurdy Canadian 1 ₱1,000.00 ₱1,000.00 Section 2. All covered corporations shall, at all times, observe the constitutional or statutory
Manuel A. Agcaoili Filipino 1 ₱1,000.00 ₱1,000.00 requirement.1âwphi1 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
Bayani H, Agabin Filipino 1 ₱1,000.00 ₱1,000.00 the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled
Total 10,000 ₱10,000,000.00 ₱2,804,000.00 to vote in the election of directors.

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 justified. And as will be shown, it is clear that the Filipino
ownership in petitioner Narra falls below the limit prescribed in both the Constitution and the Philippine
Mining Act of 1995.
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.

Filipino participation in petitioner Narra: 39.64% 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
66.02 (POA) of the Department of Environment and Natural Resources (DENR) since the POA’s
(Filipino equity in PLMDC) x 59.97 (PLMDC’s share in Narra) = 39.59% determination of petitioners’ nationalities is supposedly beyond its limited jurisdiction, as defined in
100 Gonzales v. Climax Mining Ltd.24 and Philex Mining Corp. v. Zaldivia.25
39.59% + .05% (shares of individual Filipino SHs in McArthur)
=39.64% 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
Foreign participation in petitioner Narra: 60.36% properly recognize and give effect to the jurisdiction vested in the POA by Section 77 of the Philippine
Mining Act of 1995,26 and in parallel with this Court’s ruling in Celestial Nickel Mining Exploration
Corporation v. Macroasia Corp.,27 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 finding 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, filed 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.