CORP.

LAW OUTLINE 3 (RCCP)

Prof. M.I.P. Romero

V. CLASSES OF CORPORATIONS UNDER THE CORP. CODE

1. Sec. 3, 86, 87--- stock and non-stock corporation

a. SEC. 3. Classes of Corporation – Corporation formed or organized under this Code may be stock or
nonstock corporations. Stock Corporations are those which have capita stock divided into shares and are
authorized to distribute to the holders of such shares, dividends, or allotments of the surplus profits on the
basis of the shares held. All other corporations are nonstock corporations.
b. SEC. 86. – For purposes of this code and subject to its provisions on dissolution, a nonstock corporation is
one where no part of its income is distributable as dividends to its members, trustees, or officers: Provided,
that any profit which a nonstock corporation may obtain incidental to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was
organized, subject to the provisions of this Title.
The provisions governing stock corporations, when pertinent, shall be applicable to nonstock corporations,
except as may be covered by specific provisions of this Title.
c. SEC. 87 – Nonstock corporations may be formed or organized for charitable, religious, educational,
professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade,
industry, agricultural and like chambers, or any combination thereof, subject to the special provisions of this
Title governing particular classes of nonstock Corporations

Coll. of Int. Rev. v. Club Filipino 5 SCRA 321 (1962)

DECISION

PAREDES, J  :p
 This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of
Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu," the sum of P12,068.84 as
fixed and percentage taxes, surcharge and compromise penalty, allegedly due from it as a keeper of bar and restaurant.
As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation
organized under the laws of the Philippines, with an original authorized capital stock of P22,000.00, which was
subsequently increased to P200,000.00, among others, to "proporcionar, operar, y mantener un campo de golf, tenis,
gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de billar y pool, y toda clase de juegos no prohibidos por
leyes generales y ordenanzas generales; y desarollar y cultivar deportes de toda clase y denominacion cualquiera para el
recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino,
Inc. Exh. A). Neither in the articles or by-laws is there a provision relative to dividends and their distribution, although it is
covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a).
The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government),
and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests.
The bar-restaurant was a necessary incident to the operation of the club and its golf-course. The club is operated mainly
with funds derived from membership fees and dues. Whatever profits it had, were used to defray its overhead expenses
and to improve its golf-course. In 1951, as a result of a capital surplus, arising from the re-valuation of its real properties,
the value or price of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to
the stockholders. In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its
bar and restaurant, although it secured B-4, B-9 (a) and B-7 licenses. In a letter dated December 22, 1952, the Collector
of Internal Revenue assessed against and demanded from the Club, the following sums:—
As percentage tax on its gross receipts
 
during the
taxyears 1946 to 1951 P9,599.07
Surcharge therein 2,399.77
As fixed tax for the years 1946 to 1952 70.00
Compromise penalty 500.00
The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been denied, the
Club filed the instant petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of P12,068.84, as fixed and percentage
taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the
assessment was made, in connection with the operation of its bar and restaurant, during the periods
mentioned above; and
 2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.
Section 182, of the Tax Code states "Unless otherwise provided, every person engaging in a business on which the
percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year or fraction thereof in
which such person shall engage in said business." Section 183 provides in general that "the percentage taxes on
business shall be payable at the end of each calendar quarter in the amount lawfully due on the business transacted
during each quarter; etc." And section 191, same Tax Code, provides "Percentage tax . . . Keepers of restaurants,
refreshment parlors and other eating places shall pay a tax three per centum, and keepers of bars and cafes where wines
or liquors are served, five per centum of their gross receipts . . ." It has been held that the liability for fixed and percentage
taxes, as provided by these sections, does not ipso facto attach by mere reason of the operation of a bar and restaurant.
For the liability to attach, the operator thereof must be engaged in the business as a barkeeper and restauranteur. The
plain and ordinary meaning of business is restricted to activities or affairs where profit is the purpose or livelihood is the
motive, and the term business when used without qualification, should be construed in its plain and ordinary meaning,
restricted to activities for profit or livelihood (The Coll. of Int. Rev. vs. Manila Lodge No. 761 of the BPOE [Manila Elks
Club] & Court of Tax Appeals, G.R. No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int.
Rev. vs. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are similar
to ones at bar; Manila Polo Club v. B.L. Meer, etc., No. L-10854, Jan. 27, 1960).
Having found as a fact that the Club was organized to develop and cultivate sports of all class and denomination,
for the healthful recreation and entertainment of its stockholders and members; that upon its dissolution, its remaining
assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu; that it is operated mainly with
funds derived from membership fees and dues; that the Club's bar and restaurant catered only to its members and their
guests; that there was in fact no cash dividend distribution to its stockholders and that whatever was derived on retail from
its bar and restaurant was used to defray its overall overhead expenses and to improve its golf-course (cost-plus-
expenses-basis), it stands to reason that the Club is not engaged in the business of an operator of bar and restaurant
(same authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not
necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts' of the Club to foster
its purposes and the profits derived therefrom are necessarily incidental to the primary object of developing and cultivating
sports for the healthful recreation and entertainment of the stockholders and members. That a Club makes some profit,
does not make it a profit-making club. As has been remarked, a club should always strive, whenever possible, to have a
surplus (Jesus Sacred Heart College vs. Collector of Int. Revenue, G.R. No. L-6807, May 24, 1954; Collector of Int. Rev.
v. Sinco Educational Corp., G.R. No. L-9276, Oct. 23 1956).
It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock
corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into shares, does not
detract from the finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is
determinative of whether or not the Club is engaged in such business is its object or purpose, as stated in its articles and
by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate form or by the commercial aspect of
the business prosecuted, but may be shown by extrinsic evidence, including the by-laws and the method of operation.
From the extrinsic evidence adduced, the Tax Court concluded that the Club is not engaged in the business as a
barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided
into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on
the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, while the respondent Club's, capital stock is divided
into shares, nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its
dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the
contemplation of the corporation law.
"A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, non-stock
organizations, unless the intent to the contrary is manifest and patent" (Collector vs. BPOE Elks Club, et al., supra), which
is not the case in the present appeal.
Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar and
restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty, much less
of a compromise penalty.
WHEREFORE, the decision appealed from, is affirmed, without costs.

2. Other classes of corporations under the Corporation Code:

a. ONE PERSON CORPORATION – SECTION 116. – A One Person Corporation is a corporation with a single
stockholder: Provided, That only a natural person, trust, or an estate may form a One Person Corporation.
Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed companies, and non-charted
government-owned and –controlled corporations may not incorporate as One Person Corporations: Provided
Further, That a natural person who is licensed to exercise a profession may not organize as a One Person
Corporation for the Purpose of exercising such profession except as otherwise provided under special laws.
b. CLOSE CORPORATION – SECTION 95 – A close corporation, within the meaning of this Code, is one whose
articles of incorporation provides that:
(a.) All the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by
not more than a specified number of persons, not exceeding twenty (20);
(b.) All the issued stock of all classes shall be subject to one (1) or more specified restrictions on transfer
permitted by this Title;
 (c.) The corporation shall not list in any stock exchange or make any public offering of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3)
of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation
within the meaning of this Code.
Any corporation may be incorporated as a close corporation, except mining or oil companies, stock exchanges,
banks, insurance companies, public utilities, educational institutions and corporations declared to be vested with
public interest in accordance with the provisions of this Code.
The Provisions of this Title shall primarily govern close corporations: Provided, That other Titles in this Code shall
apply suppletorily, except as otherwise provided under this Title.
c. FOREIGN CORPORATIONS – SECTION 140 – For purposes of this Code, a foreign corporation is one formed,
organized or existing under laws other than those of the Philippines’ and whose laws allow Filipino Citizens and
corporations to do business in its own country or State. It shall have the right to transact business in the Philippines
after obtaining a license for that purpose in accordance with this Code and a certificate of authority from the
appropriate government agency.

Others: subsidiary (wholly-owned v. majority owned), affiliate, parent/holding company, joint venture
corporation, open vs. close, lay vs. religious, eleemosynary vs. civil corp., etc.

GOVERNED primarily by specific titles, then suppletorily by the other applicable provisions of the Corp.
Code

VI. CREATION OF CORPORATION

A. Promotion (relate to Sec. 3.10. of Securities Regulation Code)

McArthur v. Times Printing Co. 31 Am. St. Rep. 653

 Action brought by D. A. McArthur to recover damages sustained by him from the breach of a contract made by
defendant with him. He was employed by it for a year from October 1, 1889, to solicit advertisements for its
newspaper, and was to receive $20 a week during October, and $30 a week for the residue of the year, and
was also to receive, at the end of the year, five shares of'its stock, of $100 each. He was discharged April 12,
1890. After the year expired he brought this suit. It was tried May 5, 1891, and plaintiff had a verdict for $450.
 Defendant moved for a new trial. The motion was denied, and it appealed. -- McArthur v. Times Printing Co.,
48 Minn. 319 (Minn. 1892)
 Contracts Made by Promoters of Corporations. — While a corporation is not bound by engagements made on
its behalf by its promoters before its organization, it may, after it is organized, make such engagements its
contracts by adopting them as its own; and this it may do in the same manner as it might make similar original
contracts. Sattelle v. Northwestern Cement & Concrete Pavement Co., 37 Minn. 89, followed
 Adoption of — Is a Hew Contract. — The act of the corporation in adopting such engagements is not a
ratification, which relates back to the date of the making of the contract by the promoter, but is, in legal effect,
the making of a contract as of the date of the adoption.
 Statute of Frauds — Performance within One Year. — Hence, although the contract made in behalf of the
contemplated corporation was, by its terms, not to be performed within one year from the date of the making
thereof by the promoter, it is not within the statute of frauds if it be performed within one year from the date of
its adoption by the corpora-, tion after its organization. –
 The complaint alleges that about October 1, 1889, the defendant contracted with plaintiff for his services as
advertising solicitor for one year; that in April, 1890, it discharged him, in violation of the contract. The action is
to recover damages for the breach of the contract. The answer sets up two defenses: (1) That plaintiff’s
employment was not for any stated time, but only from week to week; (2) that he was discharged for good
cause. Upon the trial there was evidence reasonably tending to prove that in September, 1889, one C. A.
Nimocks and others were engaged as promoters in procuring the organization of the defendant company to
publish a newspaper; that, about September 12th, Nimocks, as such promoter, made a contract with plaintiff,
in behalf of the contemplated company, for his services as advertising solicitor for the period of one year from
and after October 1st, — the date at which it was expected that the company would be organized; that the
corporation was not, in fact, organized until October 16th, but that the publication of the paper was
commenced by the promoters October 1st, at which date plaintiff, in pursuance of his arrangement with
Nimocks, entered upon the discharge of his duties as advertising solicitor for the paper; that after the
organization of the company he continued in its employment in the same capacity until discharged, the
following April; that defendant’s board of directors never took any formal action with reference to the contract
made in its behalf by Nimocks, but all of the stockholders, directors, and officers of the corporation knew of
this contract at the time of its organization, or were informed of it soon afterwards, and none of them objected
to or repudiated it, but, on the contrary, retained plaintiff in the employment of the company without any other
or new contract as to his services.
 There is a line of cases which hold that where a contract is made in behalf of, and for the benefit of, a
projected corporation, the corporation, after its organization, cannot become a party to the contract, either by
 adoption or ratification of it. Abbott v. Hapgood, 150 Mass. 248, (22 N. E. Rep. 907;) Beach, Corp. § 198. This,
however, seems to be more a question of name than of substance; that is, whether the liability of the
corporation, in such cases, is to be placed on the grounds of its adoption of the contract of its promot ers, or
upon some other ground,( such as equitable estoppel. This court, in accordance with what we deem sound
reason, as well as the weight of authority, has held that, while a corporation is not bound by engagements
made on its behalf by its promoters before its organization, it may, after its organization, make such
engagements its own contracts. And this it may do precisely as it might make similar original contracts; formal
action of its board of directors being necessary only where it would be necessary in the ease of a similar
original contract. That it is not requisite that such adoption or acceptance be expressed, but it may be inferred
from acts or acquiescence on part of the corporation, or its authorized agents, as any similar original contract
might be shown. Battelle v. Northwestern Cement & Concrete Pavement Co., 37 Minn. 89, (33 N. W. Rep.
327.) See, also, Mor. Corp. § 548. The right of the corporate agents to adopt an agreement originally made by
promoters depends upon the purposes of the corporation and the nature of the agreement. Of course, the
agreement must be one which the corporation itself could make, and one which the usual agents of the
company have express or implied authority to make. That the contract in this case was of that kind is very
clear; and the acts and acquiescence of the corporate officers, after the organization of the company, fully jus -
tified the jury in finding that it had adopted it as its own.
 The defendant, however, claims that the contract was void under the statute of frauds, because, “by its terms,
not to be -performed within one year from the making thereof,” which counsel assumes to be September 12th,
— the date of the agreement between plaintiff and the promoter. This proceeds upon the erroneous theory
that the act of the corporation, in such cases, is a ratification, which relates back to the date of the contract
with the promoter, under the familiar maxim that “a subsequent ratification has a retroactive effect, and is
equivalent to a prior command.” But the liability of the corporation, under such circumstances, does not rest
upon any principle of the law of agency, but upon the immediate and voluntary act of the company. Although
the acts of a corporation with reference to the contracts made by promotors in its behalf before its organization
are frequently loosely termed “ratification,” yet a “ratification, ” properly so called, implies an existing person,
on whose behalf the contract might have been made at the time. There cannot, in law, be a ratification of a
contract which could not have been made binding on the ratifier at the time it was made, because the ratifier
was not then in existence. In re Empress Engineering Co., 16 Ch. Div. 128; Melhado v. Porto Alegre, N. H. &
B. Ry. Co., L. R. 9 C. P. 505; Kelner v. Baxter, L. R. 2 C. P. 185. What is called “adoption,” in such cases, is,
in legal effect, the making of a contract of the date of the adoption, and not as of some former date. The
contract in this case was, therefore, not within the statute of frauds. The trial court fairly submitted to the jury
 all the issues of fact in this case, accompanied by instructions as to the law which were exactly in the line of
the views we have expressed; and the evidence justified the verdict.
 The point is made that plaintiff should have alleged that the contract was made with Nimoeks, and
subsequently adopted by the defendant. If we are correct in what we have said as to the legal effect of the
adoption by the corporation of a contract made by a promoter in its behalf before its organization, the plaintiff
properly pleaded the contract as having been made with the defendant. But we do not find that the evidence
was objected to on the ground of variance between it and the complaint. The assignments of error are very
numerous, but what has been already said covers all that are entitled to any special notice.
 ORDER AFFIRMED

Cagayan Fishing v. Sandiko 65 Phil 223 (1937)

LAUREL, J  : p

This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the
plaintiff's complaint.
Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri,
Province of Cagayan, as evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy of which
is in evidence as Exhibit 1. To guarantee the payment of a loan in the sum of P8,000, Manuel Tabora, on August 14,
1929, executed in favor of the Philippine National Bank a first mortgage on the four parcels of land above-mentioned. A
second mortgage in favor of the same bank was in April of 1930 executed by Tabora over the same lands to guarantee
the payment of another loan amounting to P7,000. A third mortgage on the same lands was executed on April 16, 1930 in
favor of Severina Buzon to whom Tabora was indebted in the sum of P2,900. These mortgages were registered and
annotations thereof appear at the back of transfer certificate of title No. 217.
On May 31, 1930, Tabora executed a public document entitled "Escritura de Traspaso de Propiedad Inmueble"
(Exhibit A) by virtue of which the four parcels of land owned by him were sold to the plaintiff company, said to be under
process of incorporation, in consideration of one peso (P1) subject to the mortgages in favor of the Philippine National
Bank and Severina Buzon and, to the condition that the certificate of title to said lands shall not be transferred to the name
of the plaintiff company until the latter has fully and completely paid Tabora's indebtedness to the Philippine National
Bank.
The plaintiff company filed its articles of incorporation with the Bureau of Commerce and Industry on October 22,
1930 (Exhibit 2). A year later, on October 28, 1931, the board of directors of the said company adopted a resolution
(Exhibit G) authorizing its president, Jose Ventura, to sell the four parcels of land in question to Teodoro Sandiko for
P42,000. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed of sale executed before a notary
public by the terms of which the plaintiff sold, ceded and transferred to the defendant all its rights, titles and interest in and
to the four parcels of land described in transfer certificate of title No. 217 for P25,300; and the defendant in turn obligated
himself to shoulder the three mortgages hereinbefore referred to. Exhibit C is a promissory note for P25,300 drawn by the
defendant in favor of the plaintiff, payable after one year from the date thereof. Exhibit D is a deed of mortgage executed
before a notary public in accordance with which the four parcels of land were given as security for the payment of the
promissory note, Exhibit C. All these three instruments were dated February 15, 1932.
The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought
this action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the sum of
P25,300, with interest at the legal rate from the date of the filing of the complaint, and the costs of the suit. After trial, the
court below, on December 18, 1934, rendered judgment absolving the defendant, with costs against the plaintiff. Plaintiff
presented a motion for new trial on January 14, 1935, which motion was denied by the trial court on January 19 of the
same year. After due exception and notice, plaintiff has appealed to this court and makes an assignment of various errors.
In dismissing the complaint against the defendant, the court below reached the conclusion that Exhibit B is invalid
because of vice in consent and repugnancy to law. While we do not agree with this conclusion, we have however voted to
affirm the judgment appealed from for reasons which we shall presently state.
The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein, was effected on May
31, 1930 (Exhibit A) and the actual incorporation of said company was effected later on October 22, 1930 (Exhibit 2). In
other words, the transfer was made almost five months before the incorporation of the company. Unquestionably, a duly
organized corporation has the power to purchase and hold such real property as the purposes for which such corporation
was formed may permit and for this purpose may enter into such contracts as may be necessary (sec. 13, pars. 5 and 9,
and sec. 14, Act No. 1459). But before a corporation may be said to be lawfully organized, many things have to be done.
Among other things, the law requires the filing of articles of incorporation (secs. 6 et seq., Act No. 1459). Although there is
a presumption that all the requirements of law have been complied with (sec. 334, par. 31, Code of Civil Procedure), in
the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into the contract of sale,
Exhibit A. The contract itself referred to the plaintiff as "una sociedad en vias de incorporacion." It was not even a de
facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter into the
contract.
"Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has
already been stated, general laws authorizing the formation of corporations are general offers to any persons who may
bring themselves within their provisions; and if conditions precedent are prescribed in the statute, or certain acts are
required to be done, they are terms of the offer, and must be complied with substantially before legal corporate
existence can be acquired." (14 C. J., sec. 111, p. 118.)
"That a corporation should have a full and complete organization and existence as an entity before it can enter
into any kind of a contract or transact any business, would seem to be self evident. . . . A corporation, until organized,
 has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power to bind it by
contract, unless so authorized by the charter. Until organized as authorized by the charter there is not a corporation, nor
does it possess franchises or faculties for it or others to exercise, until it acquires a complete existence."
(Gent vs. Manufacturers and Merchants' Mutual Insurance Company, 107 Ill., 652, 658.)
Boiled down to its naked reality, the contract here (Exhibit A) was entered into not only between Manuel Tabora and
a non-existent corporation but between Manuel Tabora as owner of four parcels of land on the one hand and the same
Manuel Tabora, his wife and others, as mere promoters of a corporation on the other hand. For reasons that are self-
evident, these promoters could not have acted as agents for a projected corporation since that which had no legal
existence could have no agent. A corporation, until organized, has no life and therefore no faculties. It is, as it were, a
child in ventre sa mere. This is not saying that under no circumstances may the acts of promoters of a corporation be
ratified by the corporation if and when subsequently organized. There are, of course, exceptions (Fletcher Cyc. of Corps.,
permanent edition, 1931, vol. I, secs. 207 et seq.), but under the peculiar facts and circumstances of the present case we
decline to extend the doctrine of ratification which would result in the commission of injustice or fraud to the candid and
unwary. (Massachusetts rule, Abbott vs. Hapgood, 150 Mass., 248; 22 N. E., 907, 908; 5 L. R. A., 586; 15 Am. St. Rep.,
193; citing English cases; Koppel vs. Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope
Co. vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It should be observed that Manuel Tabora was the registered
owner of the four parcels of land, which he succeeded in mortgaging to the Philippine National Bank so that he might have
the necessary funds with which to convert and develop them into fishery. He appeared to have met with financial
reverses. He formed a corporation composed of himself, his wife, and a few others. From the articles of incorporation,
Exhibit 2, it appears that out of the P48,700, amount of capital stock subscribed, P45,000 was subscribed by Manuel
Tabora himself and P500 by his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on subscriptions,
P42,100 is made to appear as paid by Tabora and P200 by his wife. Both Tabora and his wife were directors and the
latter was treasurer as well. In fact, to this day, the lands remain inscribed in Tabora's name. The defendant always
regarded Tabora as the owner of the lands. He dealt with Tabora directly. Jose Ventura, president of the plaintiff
corporation, intervened only to sign the contract, Exhibit B, in behalf of the plaintiff. Even the Philippine National Bank,
mortgagee of the four parcels of land, always treated Tabora as the owner of the same. (See Exhibits E and F.) Two civil
suits (Nos. 1931 and 38641) were brought against Tabora in the Court of First Instance of Manila and in both cases a writ
of attachment against the four parcels of land was issued. The Philippine National Bank threatened to foreclose its
mortgages. Tabora approached the defendant Sandiko and succeeded in making him sign Exhibits B, C, and D and in
making him, among other things, assume the payment of Tabora's indebtedness to the Philippine National Bank. The
promissory note, Exhibit C, was made payable to the plaintiff company so that it may not be attached by Tabora's
creditors, two of whom had obtained writs of attachment against the four parcels of land.
 
If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it did not
possess any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko.
 Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan
Fishing Development Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent
(condicion suspensiva), namely, the payment of a mortgage debt of the said Tabora to the Philippine National Bank, and
that this condition not having been complied with by the Cagayan Fishing Development Company, Inc., the transfer was
ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.) However, having
arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null
because at the time it was effected the corporation was non-existent, we deem it unnecessary to discuss this point.
The decision of the lower court is accordingly affirmed, with costs against the appellant. So ordered.

Caram v. CA June 30, 1987

CRUZ, J  :p

We gave limited due course to this petition on the question of the solidary liability of the petitioners with their co-
defendants in the lower court 1 because of the challenge to the following paragraph in the dispositive portion of the
decision of the respondent court: **
"1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount of P50,000.00 for the
preparation of the project study and his technical services that led to the organization of the defendant corporation, plus
P10,000.00 attorney's fees;" 2
The petitioners claim that this order has no support in fact and law because they had no contract whatsoever with
the private respondent regarding the above-mentioned services. Their position is that as mere subsequent investors in the
corporation that was later created, they should not be held solidarily liable with the Filipinas Orient Airways, a separate
juridical entity, and with Barretto and Garcia, their co-defendants in the lower court, *** who were the ones who requested
the said services from the private respondent. 3
We are not concerned here with the petitioners' co-defendants, who have not appealed the decision of the
respondent court and may, for this reason, be presumed to have accepted the same. For purposes of resolving this case
before us, it is not necessary to determine whether it is the promoters of the proposed corporation, or the corporation itself
after its organization, that shall be responsible for the expenses incurred in connection with such organization.
The only question we have to decide now is whether or not the petitioners themselves are also
and personally liable for such expenses and, if so, to what extent.
The reasons for the said order are given by the respondent court in its decision in this wise:
"As to the 4th assigned error we hold that as to the remuneration due the plaintiff for the preparation of the project
study and the pre-organizational services in the amount of P50,000.00, not only the defendant corporation but the other
defendants including defendants Caram should he jointly and severally liable for this amount. As we above related it
 was upon the request of defendants Barretto and Garcia that plaintiff handled the preparation of the project study which
project study was presented to defendant Caram so the latter was convinced to invest in the proposed airlines. The
project study was revised for purposes of presentation to financiers and the banks. It was on the basis of this study that
defendant corporation was actually organized and rendered operational. Defendants Garcia and Caram, and Barretto
became members of the Board and/or officers of defendant corporation. Thus, not only the defendant corporation but all
the other defendants who were involved in the preparatory stages of the incorporation, who caused the preparation
and/or benefited from the project study and the technical services of plaintiff must be liable." 4
It would appear from the above justification that the petitioners were not really involved in the initial steps that finally
led to the incorporation of the Filipinas Orient Airways. Elsewhere in the decision, Barretto was described as "the moving
spirit." The finding of the respondent court is that the project study was undertaken by the private respondent at the
request of Barretto and Garcia who, upon its completion, presented it to the petitioners to induce them to invest in the
proposed airline. The study could have been presented to other prospective investors. At any rate, the airline was
eventually organized on the basis of the project study with the petitioners as major stockholders and, together with
Barretto and Garcia, as principal officers.
The following portion of the decision in question is also worth considering:
". . .. Since defendant Barretto was the moving spirit in the pre-organization work of defendant corporation based
on his experience and expertise, hence he was logically compensated in the amount of P200,000.00 shares of stock not
as industrial partner but more for is technical services that brought to fruition the defendant corporation. By the same
token, We find no reason why the plaintiff should not be similarly compensated not only for having actively participated
in the preparation of the project study for several months and its subsequent revision but also in his having been
involved in the pre-organization of the defendant corporation, in the preparation of the franchise, in inviting the interest of
the financiers and in the training and screening of personnel. We agree that for these special services of the plaintiff the
amount of P50,000.00 as compensation is reasonable." 5
The above finding bolsters the conclusion that the petitioners were not involved in the initial stages of the
organization of the airline, which were being directed by Barretto as the main promoter. It was he who was putting all the
pieces together, so to speak. The petitioners were merely among the financiers whose interest was to be invited and who
were in fact persuaded, on the strength of the project study, to invest in the proposed airline.
Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did not have a
separate juridical personality, to justify making the petitioners, as principal stockholders thereof, responsible for its
obligations. As a bona fide corporation, the Filipinas Orient Airways should alone be liable for its corporate acts as duly
authorized by its officers and directors.
In the light of these circumstances, we hold that the petitioners cannot be held personally liable for the
compensation claimed by the private respondent for the services performed by him in the organization of the corporation.
To repeat, the petitioners did not contract such services. It was only the results of such services that Barretto and Garcia
 presented to them and which persuaded them to invest in the proposed airline. The most that can be said is that they
benefited from such services, but that surely is no justification to hold them personally liable therefor. Otherwise, all the
other stockholders of the corporation, including those who came in later, and regardless of the amount of their
shareholdings, would be equally and personally liable also with the petitioners for the claims of the private respondent.
The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. Our impression is that it is
opposed to the imposition of solidary responsibility upon the Carams but seems to be willing, in a vague, unexpressed
offer of compromise, to accept joint liability. While it is true that it does here and there disclaim total liability, the thrust of
the petition seems to be against the imposition of solidary liability only rather than against any liability at all, which is what
it should have categorically argued.
Categorically, the Court holds that the petitioners are not liable at all, jointly or jointly and severally, under the first
paragraph of the dispositive portion of the challenged decision. So holding, we find it unnecessary to examine at this time
the rules on solidary obligations, which the parties — needlessly, as it turns out — have belabored unto death.
WHEREFORE, the petition is granted. The petitioners are declared not liable under the challenged decision, which
is hereby modified accordingly. It is so ordered.

B. Incorporation

1) Steps in incorporation

2) Sections 5, 10 –14

* SEC Memo Circ. No. 16, series of 2019 (Guidelines on Number and
Qualifications of Incorporators under the RCCP)

* SEC Memo Circ. No. 6, series of 2016 (Omnibus Guidelines on Principal Office
Address; Address of Each Incorporator, Director, Trustee, Member)

* SEC Memo Circ. No. 7, series of 2019 (Guidelines on Establishment of a One

Person Corporation)
 3) Name of corporation – Sec 17, 18, 14 par Tenth

* SEC Memo Circ. No. 13, series of 2019 (Amended Guidelines and Procedures on
Use of Corporate & Partnership Names)

Republic Planters Bank v. CA GR 93073 Dec. 21,1992

CAMPOS, JR., J  : p

This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in CA
G.R. CV No. 07302, entitled "Republic Planters Bank, Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al.,
Defendants and Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448 except
that it completely absolved Fermin Canlas from liability under the promissory notes and reduced the award for damages
and attorney's fees. The RTC decision, rendered on June 20, 1985, is quoted hereunder:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic Planters Bank,
ordering defendant Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and defendants
Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff bank the following sums with interest
thereon at 16% per annum from the dates indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981 until fully paid;
under promissory note (Exhibit "B"), the sum of P40,000.00 with interest from November 27, 1980; under the promissory
note (Exhibit "C"), the sum of P166,466.00 with interest from January 29, 1981; under the promissory note (Exhibit "E"),
the sum of P86,130.31 with interest from January 29, 1981; under the promissory note (Exhibit "G"), the sum of
P12,703.70 with interest from November 27, 1980; under the promissory note (Exhibit "H"), the sum of P281,875.91 with
interest from January 29, 1981; and under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from
January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named Worldwide
Garment Manufacturing, Inc.) and Shozo Yamaguchi are ordered to pay, jointly and severally, the plaintiff bank the sum
of P367,000.00 with interest of 16% per annum from January 29, 1981 until fully paid. llcd

Under the promissory note (Exhibit "F"), defendant corporation Pinch (formerly Worldwide) is ordered to pay the plaintiff
bank the sum of P140,000.00 with interest at 16% per annum from November 27, 1980 until fully paid.
Defendant Pinch (formerly Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81 with interest at 12%
per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with interest from March 28, 1981, until fully
paid.
 All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00 as and for
reasonable attorney's fee and the further sum equivalent to 3% per annum of the respective principal sums from the
dates above stated as penalty charge until fully paid, plus one percent (1%) of the principal sums as service charge.
With costs against the defendants.
SO ORDERED." 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Appellate Court (now the
Court of Appeals). His contention was that inasmuch as he signed the promissory notes in his capacity as officer of the
defunct Worldwide Garment Manufacturing, Inc., he should not be held personally liable for such authorized corporate
acts that he performed. It is now the contention of the petitioner Republic Planters Bank that having unconditionally signed
the nine (9) promissory notes with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarily liable
with Shozo Yamaguchi on each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas
were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc. By virtue of
Board Resolution No. 1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent Fermin Canlas were
authorized to apply for credit facilities with the petitioner Republic Planters Bank in the forms of export advances and
letters of credit/trust receipts accommodations. Petitioner bank issued nine promissory notes, marked as Exhibits A to I
inclusive, each of which were uniformly worded in the following manner:
"_____________, after date, for value received, I/we, jointly and severally promise to pay to the ORDER of the
REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of __________ PESOS ( ), Philippine
Currency . . . ."
On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin
Canlas above their printed names with the phrase "and (in) his personal capacity" typewritten below. At the bottom of the
promissory notes appeared: "Please credit proceeds of this note to:
_____ Savings Account ___ XX Current Account No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line which ran horizontally across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. was
apparently rubber stamped above the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. voted to change its corporate name to Pinch
Manufacturing Corporation.  cdll
 On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among others, by
the nine promissory notes with interest thereon, plus attorney's fees and penalty charges. The complaint was originally
brought against Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide
Manufacturing, Inc. as defendant and substitute Pinch Manufacturing Corporation in its place. Defendants Pinch
Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled
pre-trial conference despite due notice. Only private respondent Fermin Canlas filed an Amended Answer wherein he
denied having issued the promissory notes in question since according to him, he was not an officer of Pinch
Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued said
promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten entries not
appearing therein prior to the time he affixed his signature.
In the mind of this Court, the only issue material to the resolution of this appeal is whether private respondent
Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo
Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his
signature for the following reasons:
The promissory notes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2
Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers
and are liable as such. 3 By signing the notes, the maker promises to pay to the order of the payee or any holder 5 Based
on the above provisions of law, there is no denying that private respondent Fermin Canlas is one of the co-makers of the
promissory notes. As such, he cannot escape liability arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to
be jointly and severally liable thereon. 6 An instrument which begins with "I", "We", or "Either of us" promise to pay, when
signed by two or more persons, makes them solidarily liable. 7 The fact that the singular pronoun is used indicates that the
promise is individual as to each other; meaning that each of the co-signers is deemed to have made an independent
singular promise to pay the notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without
reason for ambiguity, by the presence of the phrase "Joint and several" as describing the unconditional promise to pay to
the order of Republic Planters Bank. A joint and several note is one in which the makers bind themselves both jointly and
individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as
the object of the suit. 8 A joint and several obligation in common law corresponds to a civil law solidary obligation; that is,
one of several debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate
share. 9 By making a joint and several promise to pay to the order of Republic Planters Bank, private respondent Fermin
Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or
jointly with Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in
the notes will affect the liability of the makers, We do not find it necessary to resolve and decide, because it is immaterial
and will not affect the liability of private respondent Fermin Canlas as a joint and several debtor of the notes. With or
without the presence of said phrase, private respondent Fermin Canlas is primarily liable as a co maker of each of the
notes and his liability is that of a solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of
Incorporation effecting a change of corporate name, in this case from Worldwide Garment Manufacturing, Inc. to Pinch
Manufacturing Corporation, extinguished the personality of the original corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original
corporation. It is the same corporation with a different name, and its character is in no respect changed. 10
A change in the corporate name does not make a new corporation, and whether effected by special act or under a
general law, has no effect on the identity of the corporation, or on its property, rights, or liabilities. 11
The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had
previously contracted or incurred. 12
As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or
contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity
as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the
corporation bearing the same name is still bound by the acts of its agents if authorized by the Board. Under the
Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for as follows:  LibLex

SECTION 20. Liability of a person signing as agent and so forth. — Where the instrument contains or a person adds to
his signature words indicating that he signs for or on behalf of a principal, or in a representative capacity, he is not liable
on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal, does not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a
representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally
liable to the holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and
parol or extrinsic evidence is not admissible to avoid the agent's personal liability. 13
On the private respondent's contention that the promissory notes were delivered to him in blank for his signature,
we rule otherwise. A careful examination of the notes in question shows that they are the stereotype printed form of
promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. Such
printed notes are incomplete because there are blank spaces to be filled up on material particulars such as payee's name,
amount of the loan, rate of interest, date of issue and the maturity date. The terms and conditions of the loan are printed
on the note for the borrower-debtor's perusal. An incomplete instrument which has been delivered to the borrower for his
signature is governed by Section 14 of the Negotiable Instruments Law which provides, in so far as relevant to this case,
thus:
SECTION 14. Blanks; when may be filled. — Where the instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it by filling up the blanks therein. . . . In order, however, that
any such instrument when completed may be enforced against any person who became a party thereto prior to its
completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. . . .
Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas,
as determined by the trial court, so that the trial court "doubts that the defendant (Canlas) signed in blank the promissory
notes". We chose to believe the bank's testimony that the notes were filled up before they were given to private
respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint and several promissors. For
signing the notes above their typewritten names, they bound themselves as unconditional makers. We take judicial notice
of the customary procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the
banks in printed form with blank spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to
do nothing but read the terms and conditions therein printed and to sign as makers or co-makers. When the notes were
given to private respondent Fermin Canlas for his signature, the notes were complete in the sense that the spaces for the
material particular had been filled up by the bank as per agreement. The notes were not incomplete instruments; neither
were they given to private respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the Negotiable
Instruments Law is not applicable.
This Court takes note that the respondent Court, relying on Reformina vs. Tomol, 14 lowered the interest rate on the
promissory notes from 16% to 12%.
The ruling in the case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the
promissory notes from 16% to 12% per annum does not squarely apply to the instant petition. In the abovecited case, the
rate of 12% was applied to forebearances of money, goods or credit and court judgments thereon, only in the absence of
any stipulation between the parties.
In the case at bar however, it was found by the trial court that the rate of interest is 9% per annum, which interest
rate the plaintiff may at any time without notice, raise within the limits allowed by law. And so, as of February 16, 1984, the
plaintiff had fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are
applicable only to interests by way of compensation for the use or forebearance of money. Article 2209 of the Civil Code,
on the other hand, governs interests by way of damages. 15 This fine distinction was not taken into consideration by the
appellate court, which instead made a general statement that the interest rate be at 12% per annum.
Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by the
Usury Law, the appellate court erred in limiting the interest rate at 12% per annum. Central Bank Circular No. 905, Series
of 1982 removed the Usury Law ceiling on interest rates. 16
In the light of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter,
the decision of the respondent Court of Appeals absolving private respondent Fermin Canlas is REVERSED and SET
ASIDE. Judgment is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all the
nine promissory notes with the following sums and at 16% interest per annum from the dates indicated, to wit:
Under the promissory note marked as Exhibit A, the sum of P300,000.00 with interest from January 29, 1981 until
fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest from November 27, 1980;
under the promissory note denominated as Exhibit C, the amount of P166,466.00 with interest from January 29, 1981;
under the promissory note denominated as Exhibit D, the amount of P367,000.00 with interest from January 29, 1981 until
fully paid; under the promissory note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981;
under the promissory note marked as Exhibit F, the sum of P140,000.00 with interest from November 27, 1980 until fully
paid; under the promissory note marked as Exhibit G, the amount of P12,703.70 with interest from November 27, 1980;
the promissory note marked as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the
promissory note marked as Exhibit I, the sum of P200,000.00 with interest from January 29, 1981.  LLpr

The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.)
and Shozo Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in accordance with
the judgment rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby
held jointly and solidarily liable with defendants for the amounts found by the Court a quo. With costs against private
respondent.
SO ORDERED.

GSIS Family Bank v. BPI Family Bank Sept. 23, 2015

GSIS FAMILY BANK — THRIFT BANK [Formerly Comsavings Bank, Inc.], petitioner, vs. BPI FAMILY
BANK, respondent.
 DECISION

JARDELEZA, J  : p

This is a Petition for Review on Certiorari filed by GSIS Family Bank — Thrift Bank 1 assailing the Court of Appeals
Decision 2 dated March 29, 2006 (Decision) and Resolution 3 dated October 23, 2006 which denied petitioner's petition for
review of the Securities and Exchange Commission Decision dated February 22, 2005 (SEC En Banc Decision). The
SEC En Banc Decision 4 prohibited petitioner from using the word "Family" as part of its corporate name and ordered
petitioner to delete the word from its name. 5
Facts
Petitioner was originally organized as Royal Savings Bank and started operations in 1971. Beginning 1983 and
1984, petitioner encountered liquidity problems. On July 9, 1984, it was placed under receivership and later temporarily
closed by the Central Bank of the Philippines. Two (2) months after its closure, petitioner reopened and was renamed
Comsavings Bank, Inc. under the management of the Commercial Bank of Manila. 6
In 1987, the Government Service Insurance System (GSIS) acquired petitioner from the Commercial Bank of
Manila. Petitioner's management and control was thus transferred to GSIS. 7 To improve its marketability to the public,
especially to the members of the GSIS, petitioner sought Securities and Exchange Commission (SEC) approval to change
its corporate name to "GSIS Family Bank, a Thrift Bank." 8 Petitioner likewise applied with the Department of Trade and
Industry (DTI) and Bangko Sentral ng Pilipinas (BSP) for authority to use "GSIS Family Bank, a Thrift Bank" as its
business name. The DTI and the BSP approved the applications. 9 Thus, petitioner operates under the corporate name
"GSIS Family Bank — a Thrift Bank," pursuant to the DTI Certificate of Registration No. 741375 and the Monetary Board
Circular approval. 10
Respondent BPI Family Bank was a product of the merger between the Family Bank and Trust Company (FBTC)
and the Bank of the Philippine Islands (BPI). 11 On June 27, 1969, the Gotianum family registered with the SEC the
corporate name "Family First Savings Bank," which was amended to "Family Savings Bank," and then later to "Family
Bank and Trust Company." 12 Since its incorporation, the bank has been commonly known as "Family Bank." In 1985,
Family Bank merged with BPI, and the latter acquired all the rights, privileges, properties, and interests of Family Bank,
including the right to use names, such as "Family First Savings Bank," "Family Bank," and "Family Bank and Trust
Company." BPI Family Savings Bank was registered with the SEC as a wholly-owned subsidiary of BPI. BPI Family
Savings Bank then registered with the Bureau of Domestic Trade the trade or business name "BPI Family Bank," and
acquired a reputation and goodwill under the name. 13
Proceedings before the SEC
 Eventually, it reached respondent's attention that petitioner is using or attempting to use the name "Family Bank."
Thus, on March 8, 2002, respondent petitioned the SEC Company Registration and Monitoring Department (SEC CRMD)
to disallow or prevent the registration of the name "GSIS Family Bank" or any other corporate name with the words
"Family Bank" in it. Respondent claimed exclusive ownership to the name "Family Bank," having acquired the name since
its purchase and merger with Family Bank and Trust Company way back 1985. 14 Respondent also alleged that through
the years, it has been known as "BPI Family Bank" or simply "Family Bank" both locally and internationally. As such, it has
acquired a reputation and goodwill under the name, not only with clients here and abroad, but also with correspondent
and competitor banks, and the public in general. 15
Respondent prayed the SEC CRMD to disallow or prevent the registration of the name "GSIS Family Bank" or any
other corporate name with the words "Family Bank" should the same be presented for registration. Respondent likewise
prayed the SEC CRMD to issue an order directing petitioner or any other corporation to change its corporate name if the
names have already been registered with the SEC. 16
The SEC CRMD was thus confronted with the issue of whether the names BPI Family Bank and GSIS Family Bank
are confusingly similar as to require the amendment of the name of the latter corporation.  IAETDc

The SEC CRMD declared that upon the merger of FBTC with the BPI in 1985, the latter acquired the right to the
use of the name of the absorbed corporation. Thus, BPI Family Bank has a prior right to the use of the name Family Bank
in the banking industry, arising from its long and extensive nationwide use, coupled with its registration with the
Intellectual Property Office (IPO) of the name "Family Bank" as its trade name. Applying the rule of "priority in registration"
based on the legal maxim first in time, first in right, the SEC CRMD concluded that BPI has the preferential right to the use
of the name "Family Bank." More, GSIS and Comsavings Bank were then fully aware of the existence and use of the
name "Family Bank" by FBTC prior to the latter's merger with BPI. 17
The SEC CRMD also held that there exists a confusing similarity between the corporate names BPI Family Bank
and GSIS Family Bank. It explained that although not identical, the corporate names are indisputably similar, as to cause
confusion in the public mind, even with the exercise of reasonable care and observation, especially so since both
corporations are engaged in the banking business. 18
In a decision 19 dated May 19, 2003, the SEC CRMD said,
PREMISES CONSIDERED respondent GSIS FAMILY BANK is hereby directed to refrain from using the word
"Family" as part of its name and make good its commitment to change its name by deleting or dropping the subject
word from its corporate name within [thirty (30) days] from the date of actual receipt hereof. 20
Petitioner appealed 21 the decision to the SEC En Banc, which denied the appeal, and upheld the SEC CRMD in
the SEC En Banc Decision. 22 Petitioner elevated the SEC En Banc Decision to the Court of Appeals, raising the
following issues:
 1. Whether the use by GSIS Family Bank of the words "Family Bank" is deceptively and confusingly similar to the
name BPI Family Bank;
2. Whether the use by Comsavings Bank of "GSIS Family Bank" as its business constitutes unfair competition;
3. Whether BPI Family Bank is guilty of forum shopping;
4. Whether the approval of the DTI and the BSP of petitioner's application to use the name GSIS Family Bank
constitutes its authority to the lawful and valid use of such trade name or trade mark;
5. Whether the application of respondent BPI Family Bank for the exclusive use of the name "Family Bank," a
generic name, though not yet approved by IPO of the Bureau of Patents, has barred the GSIS Family Bank
from using such trade mark or name. 23  CTIEac

Court of Appeals Ruling

The Court of Appeals ruled that the approvals by the BSP and by the DTI of petitioner's application to use the name
"GSIS Family Bank" do not constitute authority for its lawful and valid use. It said that the SEC has absolute jurisdiction,
supervision and control over all corporations. 24 The Court of Appeals held that respondent was entitled to the exclusive
use of the corporate name because of its prior adoption of the name "Family Bank" since 1969. 25 There is confusing
similarity in the corporate names because "[c]onfusion as to the possible association with GSIS might arise if we were to
allow Comsavings Bank to add its parent company's acronym, 'GSIS' to 'Family Bank.' This is true especially considering
both companies belong to the banking industry. Proof of actual confusion need not be shown. It suffices that confusion is
probably or likely to occur." 26 The Court of Appeals also ruled out forum shopping because not all the requirements
of litis pendentia are present. 27
The dispositive portion of the decision read,
WHEREFORE, the instant petition for review is hereby DISMISSED for lack of merit. 28
After its Motion for Reconsideration was denied, 29 petitioner brought the decision to this Court via a Petition for
Review on Certiorari. 30
Issues in the Petition
Petitioner raised the following issues in its petition:
I. The Court of Appeals gravely erred in affirming the SEC Resolution finding the word "Family" not generic despite
its unregistered status with the IPO of the Bureau of Patents and the use by GSIS-Family Bank in its
corporate name of the words "[F]amily [B]ank" as deceptive and [confusingly similar] to the name BPI Family
Bank; 31
 II. The Court of Appeals gravely erred when it ruled that the respondent is not guilty of forum shopping despite the
filing of three (3) similar complaints before the DTI and BSP and with the SEC without the requisite
certification of non-forum shopping attached thereto; 32
III. The Court of Appeals gravely erred when it completely disregarded the opinion of the Banko Sentral ng Pilipinas
that the use by the herein petitioner of the trade name GSIS Family Bank — Thrift Bank is not similar or does
not deceive or likely cause any deception to the public. 33
Court's Ruling
We uphold the decision of the Court of Appeals.
Section 18 of the Corporation Code provides,
Section 18. Corporate name. — No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or
to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a
change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under
the amended name.
In Philips Export B.V. v. Court of Appeals, 34 this Court ruled that to fall within the prohibition of the law on the right
to the exclusive use of a corporate name, two requisites must be proven, namely:  DcHSEa

 
(1) that the complainant corporation acquired a prior right over the use of such corporate name; and
(2) the proposed name is either
(a) identical or
(b) deceptive or confusingly similar to that of any existing corporation or to any other name already protected
by law; or
(c) patently deceptive, confusing or contrary to existing law. 35
These two requisites are present in this case. On the first requisite of a prior right, Industrial Refractories
Corporation of the Philippines v. Court of Appeals (IRCP case) 36 is instructive. In that case, Refractories Corporation of
the Philippines (RCP) filed before the SEC a petition to compel Industrial Refractories Corporation of the Philippines
(IRCP) to change its corporate name on the ground that its corporate name is confusingly similar with that of RCP's such
that the public may be confused into believing that they are one and the same corporation. The SEC and the Court of
Appeals found for petitioner, and ordered IRCP to delete or drop from its corporate name the word "Refractories." Upon
appeal of IRCP, this Court upheld the decision of the CA.
 Applying the priority of adoption rule to determine prior right, this Court said that RCP has acquired the right to use
the word "Refractories" as part of its corporate name, being its prior registrant. In arriving at this conclusion, the Court
considered that RCP was incorporated on October 13, 1976 and since then continuously used the corporate name
"Refractories Corp. of the Philippines." Meanwhile, IRCP only started using its corporate name "Industrial Refractories
Corp. of the Philippines" when it amended its Articles of Incorporation on August 23, 1985. 37
In this case, respondent was incorporated in 1969 as Family Savings Bank and in 1985 as BPI Family Bank.
Petitioner, on the other hand, was incorporated as GSIS Family — Thrift Bank only in 2002, 38 or at least seventeen (17)
years after respondent started using its name. Following the precedent in the IRCP case, we rule that respondent has the
prior right over the use of the corporate name.
The second requisite in the Philips Export case likewise obtains on two points: the proposed name is (a) identical or
(b) deceptive or confusingly similar to that of any existing corporation or to any other name already protected by law.
On the first point (a), the words "Family Bank" present in both petitioner and respondent's corporate name satisfy
the requirement that there be identical names in the existing corporate name and the proposed one. Respondent cannot
justify its claim under Section 3 of the Revised Guidelines in the Approval of Corporate and Partnership Names, 39 to wit:
3. The name shall not be identical, misleading or confusingly similar to one already registered by another corporation
or partnership with the Commission or a sole proprietorship registered with the Department of Trade and Industry.
If the proposed name is similar to the name of a registered firm, the proposed name must contain at least one
distinctive word different from the name of the company already registered.
Section 3 states that if there be identical, misleading or confusingly similar name to one already registered by
another corporation or partnership with the SEC, the proposed name must contain at least one distinctive word different
from the name of the company already registered. To show contrast with respondent's corporate name, petitioner used
the words "GSIS" and "thrift." But these are not sufficiently distinct words that differentiate petitioner's corporate name
from respondent's. While "GSIS" is merely an acronym of the proper name by which petitioner is identified, the word
"thrift" is simply a classification of the type of bank that petitioner is. Even if the classification of the bank as "thrift" is
appended to petitioner's proposed corporate name, it will not make the said corporate name distinct from respondent's
because the latter is likewise engaged in the banking business.
This Court used the same analysis in Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K. sa Bansang
Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan. 40 In that case, Iglesia ng Dios Kay
Cristo Jesus filed a case before the SEC to compel Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus to change its
corporate name, and to prevent it from using the same or similar name on the ground that the same causes confusion
among their members as well as the public. Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus claimed that it complied
with SEC Memorandum Circular No. 14-2000 by adding not only two, but eight words to their registered name, to
wit: "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.," which effectively distinguished it from Iglesia ng Dios Kay Cristo
Jesus. This Court rejected the argument, thus:
The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in petitioner's name are, as correctly
observed by the SEC, merely descriptive of and also referring to the members, or kaanib, of respondent who are
likewise residing in the Philippines. These words can hardly serve as an effective differentiating medium necessary to
avoid confusion or difficulty in distinguishing petitioner from respondent. This is especially so, since both petitioner and
respondent corporations are using the same acronym — H.S.K.; not to mention the fact that both are espousing
religious beliefs and operating in the same place. . . . 41
On the second point (b), there is a deceptive and confusing similarity between petitioner's proposed name and
respondent's corporate name, as found by the SEC. 42 In determining the existence of confusing similarity in corporate
names, the test is whether the similarity is such as to mislead a person using ordinary care and discrimination.  43 And
even without such proof of actual confusion between the two corporate names, it suffices that confusion is probable or
likely to occur. 44
Petitioner's corporate name is "GSIS Family Bank — A Thrift Bank" and respondent's corporate name is "BPI
Family Bank." The only words that distinguish the two are "BPI," "GSIS," and "Thrift." The first two words are merely the
acronyms of the proper names by which the two corporations identify themselves; and the third word simply describes the
classification of the bank. The overriding consideration in determining whether a person, using ordinary care and
discrimination, might be misled is the circumstance that both petitioner and respondent are engaged in the same business
of banking. "The likelihood of confusion is accentuated in cases where the goods or business of one corporation are the
same or substantially the same to that of another corporation." 45  SCaITA

Respondent alleged that upon seeing a Comsavings Bank branch with the signage "GSIS Family Bank" displayed
at its premises, some of the respondent's officers and their clients began asking questions. These include whether GSIS
has acquired Family Bank; whether there is a joint arrangement between GSIS and Family Bank; whether there is a joint
arrangement between BPI and GSIS regarding Family Bank; whether Comsavings Bank has acquired Family Bank; and
whether there is there an arrangement among Comsavings Bank, GSIS, BPI, and Family Bank regarding BPI Family Bank
and GSIS Family Bank. 46 The SEC made a finding that "[i]t is not a remote possibility that the public may entertain the
idea that a relationship or arrangement indeed exists between BPI and GSIS due to the use of the term 'Family Bank' in
their corporate names." 47
Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded respect and even finality by this
Court, if supported by substantial evidence, in recognition of their expertise on the specific matters under their
consideration, more so if the same has been upheld by the appellate court, as in this case. 48
Petitioner cannot argue that the word "family" is a generic or descriptive name, which cannot be appropriated
exclusively by respondent. "Family," as used in respondent's corporate name, is not generic. Generic marks are
commonly used as the name or description of a kind of goods, such as "Lite" for beer or "Chocolate Fudge" for chocolate
 soda drink. Descriptive marks, on the other hand, convey the characteristics, function, qualities or ingredients of a product
to one who has never seen it or does not know it exists, such as "Arthriticare" for arthritis medication. 49
Under the facts of this case, the word "family" cannot be separated from the word "bank." 50 In asserting their claims
before the SEC up to the Court of Appeals, both petitioner and respondent refer to the phrase "Family Bank" in their
submissions. This coined phrase, neither being generic nor descriptive, is merely suggestive and may properly be
regarded as arbitrary. Arbitrary marks are "words or phrases used as a mark that appear to be random in the context of its
use. They are generally considered to be easily remembered because of their arbitrariness. They are original and
unexpected in relation to the products they endorse, thus, becoming themselves distinctive." 51 Suggestive marks, on the
other hand, "are marks which merely suggest some quality or ingredient of goods. . . . The strength of the suggestive
marks lies on how the public perceives the word in relation to the product or service." 52
In Ang v. Teodoro, 53 this Court ruled that the words "Ang Tibay" is not a descriptive term within the meaning of the
Trademark Law but rather a fanciful or coined phrase. 54 In so ruling, this Court considered the etymology and meaning of
the Tagalog words, "Ang Tibay" to determine whether they relate to the quality or description of the merchandise to which
respondent therein applied them as trademark, thus:
We find it necessary to go into the etymology and meaning of the Tagalog words "Ang Tibay" to determine
whether they are a descriptive term, i.e., whether they relate to the quality or description of the merchandise to which
respondent has applied them as a trade-mark. The word "ang" is a definite article meaning "the" in English. It is also
used as an adverb, a contraction of the word "anong" (what or how). For instance, instead of saying, "Anong ganda!"
("How beautiful!"), we ordinarily say, "Ang ganda!" Tibay is a root word from which are derived the
verb magpatibay (to strengthen); the nouns pagkamatibay (strength, durability), katibayan (proof, support,
strength), katibaytibayan (superior strength); and the adjectives matibay (strong, durable, lasting), napakatibay (very
strong), kasintibay or magkasintibay (as strong as, or of equal strength). The phrase "Ang Tibay" is an exclamation
denoting admiration of strength or durability. For instance, one who tries hard but fails to break an object exclaims,
"Ang tibay!" ("How strong!") It may also be used in a sentence thus, "Ang tibay ng sapatos mo!" ("How durable your
shoes are!") The phrase "ang tibay" is never used adjectively to define or describe an object. One does not say, "ang
tibay sapatos" or "sapatos ang tibay" to mean "durable shoes," but "matibay na sapatos" or "sapatos na matibay. "
 
From all of this we deduce that "Ang Tibay" is not a descriptive term within the meaning of the Trade-Mark Law
but rather a fanciful or coined phrase which may properly and legally be appropriated as a trade-mark or trade-
name. . . . 55 (Underscoring supplied).
The word "family" is defined as "a group consisting of parents and children living together in a household" or "a
group of people related to one another by blood or marriage." 56 Bank, on the other hand, is defined as "a financial
establishment that invests money deposited by customers, pays it out when requested, makes loans at interest, and
exchanges currency." 57 By definition, there can be no expected relation between the word "family" and the banking
business of respondent. Rather, the words suggest that respondent's bank is where family savings should be deposited.
More, as in the Ang case, the phrase "family bank" cannot be used to define an object.
Petitioner's argument that the opinion of the BSP and the certificate of registration granted to it by the DTI constitute
authority for it to use "GSIS Family Bank" as corporate name is also untenable.
The enforcement of the protection accorded by Section 18 of the Corporation Code to corporate names is lodged
exclusively in the SEC. The jurisdiction of the SEC is not merely confined to the adjudicative functions provided in Section
5 of the SEC Reorganization Act, 58 as amended. 59 By express mandate, the SEC has absolute jurisdiction, supervision
and control over all corporations. 60 It is the SEC's duty to prevent confusion in the use of corporate names not only for the
protection of the corporations involved, but more so for the protection of the public. It has authority to de-register at all
times, and under all circumstances corporate names which in its estimation are likely to generate confusion. 61
The SEC 62 correctly applied Section 18 of the Corporation Code, and Section 15 of SEC Memorandum Circular
No. 14-2000, pertinent portions of which provide:
In implementing Section 18 of the Corporation Code of the Philippines (BP 69), the following revised guidelines in the
approval of corporate and partnership names are hereby adopted for the information and guidance of all concerned:
xxx xxx xxx
15. Registrant corporations or partnership shall submit a letter undertaking to change their corporate or partnership
name in case another person or firm has acquired a prior right to the use of the said firm name or the same is
deceptively or confusingly similar to one already registered unless this undertaking is already included as one of the
provisions of the articles of incorporation or partnership of the registrant. 
cAaDHT

The SEC, after finding merit in respondent's claims, can compel petitioner to abide by its commitment "to change its
corporate name in the event that another person, firm or entity has acquired a prior right to use of said name or one
similar to it." 63
Clearly, the only determination relevant to this case is that one made by the SEC in the exercise of its express
mandate under the law. The BSP opinion invoked by petitioner even acknowledges that "the issue on whether a proposed
name is identical or deceptively similar to that of any of existing corporation is matter within the official jurisdiction and
competence of the SEC." 64
Judicial notice 65 may also be taken of the action of the IPO in approving respondent's registration of the trademark
"BPI Family Bank" and its logo on October 17, 2008. The certificate of registration of a mark shall be prima facie evidence
of the validity of the registration, the registrant's ownership of the mark, and of the registrant's exclusive right to use the
same in connection with the goods or services and those that are related thereto specified in the certificate. 66
Finally, we uphold the Court of Appeals' finding that the issue of forum shopping was belatedly raised by petitioner
and, thus, cannot anymore be considered at the appellate stage of the proceedings. Petitioner raised the issue of forum
 shopping for the first time only on appeal. 67 Petitioner argued that the complaints filed by respondent did not contain
certifications against non-forum shopping, in violation of Section 5, Rule 7 of the Rules of Court. 68
In S.C. Megaworld Construction and Development Corporation vs. Parada, 69 this Court said that objections relating
to non-compliance with the verification and certification of non-forum shopping should be raised in the proceedings below,
and not for the first time on appeal. In that case, S.C. Megaworld argued that the complaint for collection of sum of money
should have been dismissed outright by the trial court on account of an invalid non-forum shopping certification. It alleged
that the Special Power of Attorney granted to Parada did not specifically include an authority for the latter to sign the
verification and certification of non-forum shopping, thus rendering the complaint defective for violation of Sections 4 and
5 of Rule 7 of the Rules of Court. On motion for reconsideration of the decision of the Court of Appeals, petitioner raised
for the first time, the issue of forum shopping. The Court ruled against S.C. Megaworld, thus:
It is well-settled that no question will be entertained on appeal unless it has been raised in the proceedings
below. Points of law, theories, issues and arguments not brought to the attention of the lower court,  administrative
agency or quasi-judicial body, need not be considered by a reviewing court, as they cannot be raised for the first
time at that late stage. Basic considerations of fairness and due process impel this rule. Any issue raised for the first
time on appeal is barred by estoppel. 70
In this case, the fact that respondent filed a case before the DTI was made known to petitioner  71 long before the
SEC rendered its decision. Yet, despite its knowledge, petitioner failed to question the alleged forum shopping before the
SEC. The exceptions to the general rule that forum shopping should be raised in the earliest opportunity, as explained in
the cited case of Young v. Keng Seng, 72 do not obtain in this case.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals dated March 29, 2006 is
hereby AFFIRMED.
SO ORDERED.  HCaDIS

|||  (GSIS Family Bank — Thrift Bank v. BPI Family Bank, G.R. No. 175278, [September 23, 2015], 770 PHIL 158-179)
Indian Chamber of Commerce Phils., Inc. v Filipino-Indian Chamber of Commerce in the
Philippines, Inc. G.R. 184008 (Aug. 3, 2016)

INDIAN CHAMBER OF COMMERCE PHILS., INC., petitioner, vs. FILIPINO INDIAN CHAMBER OF

COMMERCE IN THE PHILIPPINES, INC., respondent.

DECISION
JARDELEZA, J  : p

This is a Petition for Review on Certiorari 1 assailing the Decision and Resolution of the Court of Appeals (CA)
dated May 15, 2008 2 and August 4, 2008, 3 respectively, in CA-G.R. SP No. 97320. The Decision and Resolution
affirmed the Securities and Exchange Commission En Banc (SEC En Banc) Decision dated November 30,
2006 4 directing petitioner Indian Chamber of Commerce Phils., Inc. to modify its corporate name.
The Facts
Filipino-Indian Chamber of Commerce of the Philippines, Inc. (defunct FICCPI) was originally registered with the
SEC as Indian Chamber of Commerce of Manila, Inc. on November 24, 1951, with SEC Registration Number 6465. 5 On
October 7, 1959, it amended its corporate name into Indian Chamber of Commerce of the Philippines, Inc., and further
amended it into Filipino-Indian Chamber of Commerce of the Philippines, Inc. on March 4, 1977. 6 Pursuant to its Articles
of Incorporation, and without applying for an extension of its corporate term, the defunct FICCPI's term of existence
expired on November 24, 2001. 7
SEC Case No. 05-008
On January 20, 2005, Mr. Naresh Mansukhani (Mansukhani) reserved the corporate name "Filipino Indian Chamber
of Commerce in the Philippines, Inc." (FICCPI), for the period from January 20, 2005 to April 20, 2005, with the Company
Registration and Monitoring Department (CRMD) of the SEC. 8 In an opposition letter dated April 1, 2005, Ram Sitaldas
(Sitaldas), claiming to be a representative of the defunct FICCPI, alleged that the corporate name has been used by the
defunct FICCPI since 1951, and that the reservation by another person who is not its member or representative is illegal. 9
The CRMD called the parties for a conference and required them to submit their position papers. Subsequently, on
May 27, 2005, the CRMD rendered a decision granting Mansukhani's reservation, 10 holding that he possesses the better
right over the corporate name. 11 The CRMD ruled that the defunct FICCPI has no legal personality to oppose the
reservation of the corporate name by Mansukhani. After the expiration of the defunct FICCPI's corporate existence,
without any act on its part to extend its term, its right over the name ended. Thus, the name "Filipino Indian Chamber of
Commerce in the Philippines, Inc." is free for appropriation by any party. 12
Sitaldas appealed the decision of the CRMD to the SEC En Banc, which appeal was docketed as SEC Case No.
05-008. On December 7, 2005, the SEC En Banc denied the appeal, 13 thus:
WHEREFORE, premises considered, the instant appeal is HEREBY DISMISSED for lack of merit. Let a
copy of this decision be furnished the Company Registration and Monitoring Department of this Commission for its
appropriate action. 14 (Emphasis in the original.)
Sitaldas appealed the SEC En Banc decision to the CA, docketed as CA-G.R. SP No. 92740. On September 27,
2006, the CA affirmed the decision of the SEC En Banc. 15 It ruled that Mansukhani, reserving the name "Filipino Indian
Chamber of Commerce in the Philippines, Inc.," has the better right over the corporate name. It ruled that with the
expiration of the corporate life of the defunct FICCPI, without an extension having been filed and granted, it lost its legal
personality as a corporation. 16 Thus, the CA affirmed the SEC En Banc ruling that after the expiration of its term, the
defunct FICCPI's rights over the name also ended. 17 The CA also cited SEC Memorandum Circular No. 14-2000 18 which
gives protection to corporate names for a period of three years after the approval of the dissolution of the corporation. 19 It
noted that the reservation for the use of the corporate name "Filipino Indian Chamber of Commerce in the Philippines,
Inc.," and the opposition were filed only in January 2005, way beyond this three-year period. 20  DHITCc

On March 14, 2006, pending resolution by the CA, the SEC issued the Certificate of Incorporation 21 of respondent
FICCPI, pursuant to its ruling in SEC Case No. 05-008.
SEC Case No. 06-014
Meanwhile, on December 8, 2005, 22 Mr. Pracash Dayacan, who allegedly represented the defunct FICCPI, filed an
application with the CRMD for the reservation of the corporate name "Indian Chamber of Commerce Phils., Inc."
(ICCPI). 23 Upon knowledge, Mansukhani, in a letter dated February 14, 2006, 24 formally opposed the application.
Mansukhani cited the SEC En Banc decision in SEC Case No. 05-008 recognizing him as the one possessing the better
right over the corporate name "Filipino Indian Chamber of Commerce in the Philippines, Inc." 25
In a letter dated April 5, 2006, 26 the CRMD denied Mansukhani's opposition. It stated that the name "Indian
Chamber of Commerce Phils., Inc." is not deceptively or confusingly similar to "Filipino Indian Chamber of Commerce in
the Philippines, Inc." On the same date, the CRMD approved and issued the Certificate of Incorporation 27 of petitioner
ICCPI.
Thus, respondent FICCPI, through Mansukhani, appealed the CRMD's decision to the SEC En Banc. 28 The appeal
was docketed as SEC Case No. 06-014. On November 30, 2006, the SEC En Banc granted the appeal filed by
FICCPI, 29 and reversed the CRMD's decision. Citing Section 18 of the Corporation Code, 30 the SEC En Banc made a
finding that "both from the standpoint of their [ICCPI and FICCPI] corporate names and the purposes for which they were
established, there exist[s] a similarity that could inevitably lead to confusion." 31 It also ruled that "oppositor [FICCPI] has
the prior right to use its corporate name to the exclusion of the others. It was registered with the Commission on March
14, 2006 while respondent [ICCPI] was registered on April 05, 2006. By virtue of oppositor's [FICCPI] prior appropriation
and use of its name, it is entitled to protection against the use of identical or similar name of another corporation." 32
Thus, the SEC En Banc ruled, to wit:
WHEREFORE, the appeal is hereby granted and the assailed Order dated April 05, 2006 is hereby REVERSED
and SET ASIDE and respondent is directed to change or modify its corporate name within thirty (30) days from the
date of actual receipt hereof.
SO ORDERED. 33 (Emphasis in the original.)
 ICCPI appealed the SEC En Banc decision in SEC Case No. 06-014 to the CA. 34 The appeal, docketed as CA-
G.R. SP No. 97320, raised the following issues:
A. The Honorable SEC En Banc committed serious error when it held that petitioner's corporate name (ICCPI) could
inevitably lead to confusion;
B. Respondent's corporate name (FICCPI) did not acquire secondary meaning; and
C. The Honorable SEC En Banc violated the rule of equal protection when it denied petitioner (ICCPI) the use of the
descriptive generic words. 35
In a decision dated May 15, 2008, 36 the CA affirmed the decision of the SEC En Banc. It held that by simply looking
at the corporate names of ICCPI and FICCPI, one may readily notice the striking similarity between the two. Thus, an
ordinary person using ordinary care and discrimination may be led to believe that the corporate names of ICCPI and
FICCPI refer to one and the same corporation. 37 The CA further ruled that ICCPI's corporate name did not comply with
the requirements of SEC Memorandum Circular No. 14-2000. It noted that under the facts of this case, it is the registered
corporate name, FICCPI, which contains the word (Filipino) making it different from the proposed corporate name. SEC
Memorandum Circular No. 14-2000 requires, however, that it should be the proposed corporate name which should
contain one distinctive word different from the name of the corporation already registered, and not the other way around,
as in this case. 39 Finally, the CA held that the SEC En Banc did not violate ICCPI's right to equal protection when it
ordered ICCPI to change its corporate name. The SEC En Banc merely compelled ICCPI to comply with its undertaking to
change its corporate name in case another person or firm has acquired a prior right to the use of the said name or the
same is deceptively or confusingly similar to one already registered with the SEC. 40
The dispositive portion of the CA decision reads:
WHEREFORE, premises considered, the petition filed in this case is hereby DENIED and the assailed Decision
of the Securities and Exchange Commission en banc in SEC EN BANC Case No. 06-014 is hereby AFFIRMED.
SO ORDERED. 41 (Emphasis in the original.)
In its Resolution dated August 4, 2008, 42 the CA denied the Motion for Reconsideration filed by ICCPI.
The Petition 43
ICCPI now appeals the CA decision before this Court raising the following arguments:
A. The Honorable Court of Appeals committed serious error when it upheld the findings of the SEC En Banc;
B. The Honorable Court of Appeals committed serious error when it held that there is similarity between the petitioner
and the respondent (sic) corporate name that would inevitably lead to confusion; and
C. Respondent's corporate name did not acquire secondary meaning. 44
The Court's Ruling
 We uphold the decision of the CA.
Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is identical or
deceptively or confusingly similar to that of any existing corporation:  cEaSHC

No corporate name may be allowed by the Securities and Exchange Commission if the proposed name
is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name
is approved, the Commission shall issue an amended certificate of incorporation under the amended name.
(Underscoring supplied.)
In Philips Export B.V. v. Court of Appeals, 45 this Court ruled that to fall within the prohibition, two requisites must be
proven, to wit:
(1) that the complainant corporation acquired a prior right over the use of such corporate name; and
(2) the proposed name is either:
(a) identical; or
(b) deceptively or confusingly similar to that of any existing corporation or to any other name already protected by
law; or
(c) patently deceptive, confusing or contrary to existing law. 46
These two requisites are present in this case.
FICCPI acquired a prior right over
the use of the corporate name
In Industrial Refractories Corporation of the Philippines v. Court of Appeals, 47 the Court applied the priority of
adoption rule to determine prior right, taking into consideration the dates when the parties used their respective corporate
names. It ruled that "Refractories Corporation of the Philippines" (RCP), as opposed to "Industrial Refractories
Corporation of the Philippines" (IRCP), has acquired the right to use the word "Refractories" as part of its corporate name,
being its prior registrant on October 13, 1976. The Court noted that IRCP only started using its corporate name when it
amended its Articles of Incorporation on August 23, 1985. 48
In this case, FICCPI was incorporated on March 14, 2006. On the other hand, ICCPI was incorporated only on April
5, 2006, or a month after FICCPI registered its corporate name. Thus, applying the principle in the Refractories case, we
hold that FICCPI, which was incorporated earlier, acquired a prior right over the use of the corporate name.
ICCPI cannot argue that it first incorporated and held the name "Filipino Indian Chamber of Commerce," in 1977;
and that it established the name's goodwill until it failed to renew its name due to oversight. 49 It is settled that a
corporation is ipso facto dissolved as soon as its term of existence expires. 50 SEC Memorandum Circular No. 14-
2000 likewise provides for the use of corporate names of dissolved corporations:
14. The name of a dissolved firm shall not be allowed to be used by other firms within three (3) years after the
approval of the dissolution of the corporation by the Commission, unless allowed by the last stockholders representing
at least majority of the outstanding capital stock of the dissolved firm.
When the term of existence of the defunct FICCPI expired on November 24, 2001, its corporate name cannot be
used by other corporations within three years from that date, until November 24, 2004. FICCPI reserved the name
"Filipino Indian Chamber of Commerce in the Philippines, Inc." on January 20, 2005, or beyond the three-year period.
Thus, the SEC was correct when it allowed FICCPI to use the reserved corporate name.
ICCPI's name is identical and
deceptively or confusingly similar to
that of FICCPI
The second requisite in the Philips Export case likewise obtains in two respects: the proposed name is (a) identical
or (b) deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law.
On the first point, ICCPI's name is identical to that of FICCPI. ICCPI's and FICCPI's corporate names both contain
the same words "Indian Chamber of Commerce." ICCPI argues that the word "Filipino" in FICCPI's corporate name
makes it easily distinguishable from ICCPI. 51 It adds that confusion and deception are effectively precluded by appending
the word "Filipino" to the phrase "Indian Chamber of Commerce." 52 Further, ICCPI claims that the corporate name of
FICCPI uses the words "in the Philippines" while ICCPI uses only "Phils., Inc." 53
ICCPI's arguments are without merit. These words do not effectively distinguish the corporate names. On the one
hand, the word "Filipino" is merely a description, referring to a Filipino citizen or one living in the Philippines, to describe
the corporation's members. On the other, the words "in the Philippines" and "Phils., Inc." are simply geographical locations
of the corporations which, even if appended to both the corporate names, will not make one distinct from the other. Under
the facts of this case, these words cannot be separated from each other such that each word can be considered to add
distinction to the corporate names. Taken together, the words in the phrase "in the Philippines" and in the phrase "Phils.,
Inc." are synonymous — they both mean the location of the corporation.
The same principle was adopted by this Court in Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K. sa
Bansang Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan: 54
Significantly, the only difference between the corporate names of petitioner and respondent are the
words SALIGAN and SUHAY. These words are synonymous — both mean ground, foundation or support. Hence, this
case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc., where the Court ruled that the
corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that even
under the test of "reasonable care and observation" confusion may arise. 55 (Italics in the original.) 
CTIEac
 Thus, the CA is correct when it ruled, "[a]s correctly found by the SEC en banc, the word 'Filipino' in the corporate
name of the respondent [FICCPI] is merely descriptive and can hardly serve as an effective differentiating medium
necessary to avoid confusion. The other two words alluded to by petitioner [ICCPI] that allegedly distinguishes its
corporate name from that of the respondent are the words 'in' and 'the' in the respondent's corporate name. To our mind,
the presence of the words 'in' and 'the' in respondent's corporate name does not, in any way, make an effective distinction
to that of petitioner." 56
Petitioner cannot argue that the combination of words in respondent's corporate name is merely descriptive and
generic, and consequently cannot be appropriated as a corporate name to the exclusion of the others. 57 Save for the
words "Filipino," "in the," and "Inc.," the corporate names of petitioner and respondent are identical in all other respects.
This issue was also discussed in the Iglesia case where this Court held,
Furthermore, the wholesale appropriation by petitioner of respondent's corporate name cannot find justification
under the generic word rule. We agree with the Court of Appeals' conclusion that a contrary ruling would encourage
other corporations to adopt verbatim and register an existing and protected corporate name, to the detriment of the
public. 58
On the second point, ICCPI's corporate name is deceptively or confusingly similar to that of FICCPI. It is settled that
to determine the existence of confusing similarity in corporate names, the test is whether the similarity is such as to
mislead a person, using ordinary care and discrimination. In so doing, the court must examine the record as well as the
names themselves. 59 Proof of actual confusion need not be shown. It suffices that confusion is probably or likely to
occur. 60
In this case, the overriding consideration in determining whether a person, using ordinary care and discrimination,
might be misled is the circumstance that both ICCPI and FICCPI have a common primary purpose, that is, the promotion
of Filipino-Indian business in the Philippines.
The primary purposes of ICCPI as provided in its Articles of Incorporation are:
a) Develop a stronger sense of brotherhood;
b) Enhance the prestige of the Filipino-Indian business community in the Philippines;
c) Promote cordial business relations with Filipinos and other business communities in the Philippines, and other
overseas Indian business organizations;
d) Respond fully to the needs of a progressive economy and the Filipino-Indian Business community;
e) Promote and foster relations between the people and Governments of the Republics of the Philippines and India in
areas of Industry, Trade, and Culture. 61
Likewise, the primary purpose of FICCPI is "[t]o actively promote and enhance the Filipino-Indian business
relationship especially in view of [current] local and global business trends." 62
 Considering these corporate purposes, the SEC En Banc made a finding that "[i]t is apparent that both from the
standpoint of their corporate names and the purposes for which they were established, there exist a similarity that could
inevitably lead to confusion." 63 This finding of the SEC En Banc was fully concurred with and adopted by the CA. 64
Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded respect and even finality by this
Court, if supported by substantial evidence, in recognition of their expertise on the specific matters under their
consideration, and more so if the same has been upheld by the appellate court, 65 as in this case.
Petitioner cannot argue that the CA erred when it upheld the SEC En Banc's decision to cancel ICCPI's corporate
name. 66 By express mandate of law, the SEC has absolute jurisdiction, supervision and control over all corporations. 67 It
is the SEC's duty to prevent confusion in the use of corporate names not only for the protection of the corporation
involved, but more so for the protection of the public. It has the authority to de-register at all times, and under all
circumstances corporate names which in its estimation are likely to generate confusion. 68
Pursuant to its mandate, the SEC En Banc correctly applied Section 18 of the Corporation Code, and Section 15
of SEC Memorandum Circular No. 14-2000:
In implementing Section 18 of the Corporation Code of the Philippines  (BP 68), the following revised guidelines
in the approval of corporate and partnership names are hereby adopted for the information and guidelines of all
concerned: SaCIDT

xxx xxx xxx

15. Registrant corporations or partnership shall submit a letter undertaking to change their corporate or
partnership name in case another person or firm has acquired a prior right to the use of said firm name or
the same is deceptively or confusingly similar to one already registered unless this undertaking is already
included as one of the provisions of the articles of incorporation or partnership of the registrant.
Finding merit in respondent's claims, the SEC En Banc merely compelled petitioner to comply with its
undertaking. 69
WHEREFORE, the petition is DENIED. The Decision of the CA dated May 15, 2008 in CA-G.R. SP No. 97320 is
hereby AFFIRMED.
SO ORDERED.
|||  (Indian Chamber of Commerce Phils., Inc. v. Filipino Indian Chamber of Commerce in the Philippines, Inc., G.R. No.
184008, [August 3, 2016], 792 PHIL 277-294)

Carebest Int’l v. SEC G.R. 215510 (Mar. 16, 2015)

and CA-GR SP No. 104364 ( Sept. 13, 2013)
 CARE BEST INTERNATIONAL, INC., petitioner, vs. SECURITIES AND EXCHANGE COMMISSION AND
ITS COMPLIANCE AND ENFORCEMENT DIVISION, respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution dated March 16, 2015 which reads as follows:
"G.R. No. 215510 (Care Best International, Inc. v. Securities and Exchange Commission and its Compliance
and Enforcement Division). — The petitioner's motion for an extension of thirty (30) days within which to file a petition for
review on certiorari is GRANTED, counted from the expiration of the reglementary period.
After a judicious review of the records, the Court resolves to DENY the instant petition and AFFIRM the September 13,
2013 Decision 1 and November 17, 2014 Resolution 2 of the Court of Appeals (CA) in CA-G.R. SP No. 104364 for failure of
Care Best International, Inc. (petitioner) to show that the CA committed any reversible error in upholding the ruling of the
Securities and Exchange Commission revoking its Certificate of Registration on the ground of fraud.
As correctly pointed out by the CA, incorporation is a mere grant of privilege from the State and, in order to be entitled
to such privilege, 3 the requirements and procedures for the grant thereof must be complied with. Under Section 14 (5) of the
Corporation Code, the articles of incorporation must state the names of the incorporators and this must necessarily refer to
their legal names, not fictitious names or aliases which they have no authority to use, as in this case. The fact that petitioner
had for its clients various government agencies is irrelevant as all corporations must comply with the provisions of the
Corporation Code. 4  SECHIA

SO ORDERED." SERENO, C.J., on official travel. BRION, J., designated acting member per S.O. No. 1947 dated
March 12, 2015.

Very truly yours,

 
(SGD.) EDGAR O. ARICHETA
|||  (Care Best International, Inc. v. Securities and Exchange Commission, G.R. No. 215510 (Notice), [March 16, 2015])
 4) Residence of corporation -
Young Auto Supply Co. v. CA (1993) 223 SCRA 670
QUIASON, J  : p

Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237, which reversed
the Order dated February 8, 1991 issued by the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB 6967.
The order of the trial court denied the motion to dismiss filed by respondent George C. Roxas of the complaint for
collection filed by petitioners.
It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio
Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing &
Development Corporation (CMDC) to Roxas. The purchase price was P8,000,000.00 payable as follows: a down payment
of P4,000,000.00 and the balance of P4,000,000.00 in four postdated checks of P1,000,000.00 each.  prcd

Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC. However,
the vendors held on to the stock certificates of CMDC as security pending full payment of the balance of the purchase
price.
 cdll

The first check of P4,000,000.00, representing the down payment, was honored by the drawee bank but the four
other checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the
markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00, leaving a balance of
P3,400,000.00 (Rollo, p. 176).
Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the
CMDC shares to Nemesio Garcia.
On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11, Cebu City,
praying that Roxas be ordered to pay petitioners the sum of P3,400,000.00 or that full control of the three markets be
turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00
and the payment of attorney's fees and costs (Rollo, p. 290).  cdll

Roxas filed two motions for extension of time to submit his answer. But despite said motion, he failed to do so
causing petitioners to file a motion to have him declared in default. Roxas then filed, through a new counsel, a third motion
for extension of time to submit a responsive pleading.
On August 19, 1988, the trial court declared Roxas in default. The order of default was, however, lifted upon motion
of Roxas.
On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:
"1. The complaint did not state a cause of action due to non-joinder of indispensable parties;
 2. The claim or demand set forth in the complaint had been waived, abandoned or otherwise extinguished; and
3. The venue was improperly laid" (Rollo, p. 299).
After a hearing, wherein testimonial and documentary evidence were presented by both parties, the trial court in an
Order dated February 8, 1991 denied Roxas' motion to dismiss. After receiving said order, Roxas filed another motion for
extension of time to submit his answer. He also filed a motion for reconsideration, which the trial court denied in its Order
dated April 10, 1991 for being pro-forma (Rollo, p. 17). Roxas was again declared in default, on the ground that his motion
for reconsideration did not toll the running of the period to file his answer.
On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not accompanied with the
required affidavit of merit. But without waiting for the resolution of the motion, he filed a petition for certiorari with the Court
of Appeals.
The Court of Appeals sustained the findings of the trial court with regard to the first two grounds raised in the motion
to dismiss but ordered the dismissal of the complaint on the ground of improper venue (Rollo, p. 49).
A subsequent motion for reconsideration by petitioner was to no avail.
Petitioners now come before us, alleging that the Court of Appeals erred in:
"1. holding that venue should be in Pasay City, and not in Cebu City (where both petitioners/plaintiffs are residents;
2. not finding that Roxas is estopped from questioning the choice of venue" (Rollo, p. 19).
The petition is meritorious.
In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the address of YASCO,
as appearing in the Deed of Sale dated October 28, 1987, which is "No. 1708 Dominga Street, Pasay City." This was the
same address written on YASCO's letters and several commercial documents in the possession of Roxas (Decision, p.
12; Rollo, p. 48).
 Cdpr

In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in three letters which he
sent to Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The appellate court held that Roxas was led by
petitioners to believe that their residence is in Pasay City and that he had relied upon those representations (Decision, p.
12; Rollo, p. 47).
 Cdpr

The Court of Appeals erred in holding that the venue was improperly laid in Cebu City.
In the Regional Trial Courts, all personal actions are commenced and tried in the province or city where the
defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the
election of the plaintiff [Sec. 2(b) Rule 4, Revised Rules of Court].
 There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both plaintiffs aver in
their complaint that they are residents of Cebu City, thus:  cdll

"1.1 Plaintiff Young Auto Supply Co., Inc. ("YASCO") is a domestic corporation duly organized and existing under
Philippine laws with principal place of business at M.J. Cuenco Avenue, Cebu City. It also has a branch office at 1708
Dominga Street, Pasay City, Metro Manila.
"Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business address at Young Auto Supply Co.,
Inc., M.J. Cuenco Avenue, Cebu City. . . ." (Complaint, p. 1; Rollo, p. 81).
The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:
"THIRD. That the place where the principal office of the corporation is to be established or located is at Cebu City,
Philippines (as amended on December 20, 1980 and further amended on December 20, 1984)" (Rollo, p. 273).
A corporation has no residence in the same sense in which this term is applied to a natural person. But for practical
purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in
the articles of incorporation (Cohen v. Benquet Commercial Co., Ltd., 34 Phil. 526 [1916] Clavecilla Radio System v.
Antillon, 19 SCRA 379 [1967]). The Corporation Code precisely requires each corporation to specify in its articles of
incorporation the "place where the principal office of the corporation is to be located which must be within the Philippines"
(Sec. 14 [3]). The purpose of this requirement is to fix the residence of a corporation in a definite place, instead of allowing
it to be ambulatory. LibLex

In Clavecilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions cannot be filed
against a corporation in any place where the corporation maintains its branch offices. The Court ruled that to allow an
action to be instituted in any place where the corporation has branch offices, would create confusion and work untold
inconvenience to said entity. By the same token, a corporation cannot be allowed to file personal actions in a place other
than its principal place of business unless such a place is also the residence of a co-plaintiff or a defendant.  Cdpr

If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground that its principal
place of business was in Cebu City, Roxas could argue that YASCO was in estoppel because it misled Roxas to believe
that Pasay City was its principal place of business. But this is not the case before us.  prLL

With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of
business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu City and whether Roxas
was in estoppel from questioning the choice of Cebu City as the venue.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is SET ASIDE and
the Order dated February 8, 1991 of the Regional Trial Court is REINSTATED.
SO ORDERED.
|||  (Young Auto Supply Co. v. Court of Appeals, G.R. No. 104175, [June 25, 1993], 295 PHIL 738-743)

5) Citizenship/ Nationality requirements ---

--- pertinent provisions of the 1987 Constitution

--- meaning of CAPITAL under Sec. 11, Art. 12 of the Constitution
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.

Gamboa v. Teves, et al June 28, 2011 and Oct. 9, 2012

CARPIO, J  : p

The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares
of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the
Philippines to Metro 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 P25.6 billion or US$510 million. 
TAESDH

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 P25,217,556,000 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 decision 4 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
P25,217,556,000. 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 P25,217,556,000; (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 P25,217,556,000 and the
government delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other allegations of
facts of petitioner. 
HcaDIA

On 28 February 2007, petitioner 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, . . . . 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. . . . 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. . . .
. . . as the annual disclosure reports, also referred to as Form 20-K reports . . . which PLDT submitted to the New
York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities breached
the constitutional limit of 40 percent ownership as early as 2003. . . ." 7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC
shares to First 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. 
caIACE

Petitioners-in-intervention "join petitioner Wilson Gamboa . . . in seeking, among others, to enjoin and/or nullify the
sale by respondents of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-in-intervention claim that, as
PLDT subscribers, they have a "stake in the outcome of the controversy . . . where the Philippine Government is
completing the sale of government owned assets in [PLDT], unquestionably a public utility, in violation of the nationality
restrictions of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which indisputably demand
a thorough examination of the evidence of the parties, are generally beyond this Court's jurisdiction. Adhering to this well-
settled principle, the Court shall 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 P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC
shares.
However, since the threshold and purely legal issue on the 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 . . . " that would "negate Article 10 of the Civil Code which provides
that 'in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and
justice to prevail.'" The Court therefore required respondents Central Bank of the Philippines, the local bank, and the
accused to comply with the writ of execution issued in the civil case for damages and to release the dollar deposit of the
accused to satisfy the judgment.  ICHcTD

In Alliance of Government Workers v. Minister of Labor, 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 . . . a thirteenth (13th) month
pay . . .?" The Constitutional principle involved therein affected all government employees, clearly justifying a relaxation of
the technical rules of procedure, and certainly requiring the interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue
involved has far-reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to
this rule have been recognized. Thus, where the petition has far-reaching implications and raises questions that
should be resolved, it may be treated as one for mandamus. 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. CAIHTE

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. DCIEac

More importantly, there is no question that the instant petition raises matters of transcendental importance to the
public. The fundamental and threshold legal issue in this case, involving the national economy and the economic welfare
of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to bring this action.
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) DIHETS

Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the
petitioner has the requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of
public utilities, to wit:
 Section 11. No franchise, 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) THAICD

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 . . . 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
Memorandum 37 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:  DHATcE
 The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to
ownership of shares of stock entitled to vote, i.e., common shares, considering that it is through voting that control is
being exercised. . . .
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized
and partially nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said
activities. Otherwise, if the Trial Court's ruling upholding respondents' arguments were to be given credence, it would be
possible for the ownership structure of a public utility corporation to be divided into one percent (1%) common stocks
and ninety-nine percent (99%) preferred stocks. Following the Trial Court's ruling adopting respondents' arguments, the
common shares can be owned entirely by foreigners thus creating an absurd situation wherein foreigners, who are
supposed to be minority shareholders, control the public utility corporation.
xxx xxx xxx
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and
the controlling interest.
xxx xxx xxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by
the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of
record of shares will not 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. 
EIDATc

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the
proposition that the meaning of the word "capital" as used in Section 11, Article XII of the  Constitution allegedly refers to
the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how the stock is
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. . . .
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.
xxx xxx xxx
17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is
nothing in the Record of the Constitutional Commission (Vol. III) — which petitioner misleadingly cited in the Petition . . .
— which supports petitioner's view that only common shares should form the basis for computing a public utility's foreign
equity. 
AaITCS

xxx xxx xxx

18. In addition, the SEC — the government agency primarily responsible for implementing the Corporation Code,
and which also has the responsibility of ensuring compliance with the Constitution's foreign equity restrictions as regards
nationalized activities . . . — has categorically ruled that both common and preferred shares are properly considered in
determining outstanding capital stock and the nationality composition thereof. 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 Philippines 42 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 (P5.00) pesos per share: Provided, further, That
the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not
be available for distribution as dividends. 
TcCEDS 

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or
legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the 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  caIETS

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?  ITESAc

MR. VILLEGAS.
 We have just had a long discussion with the members of the team from the UP Law Center who provided us a
draft. The phrase that is contained here which we adopted from the UP draft is "60 percent of voting
stock."
MR. NOLLEDO.
That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock
shall be entitled to vote.
MR. VILLEGAS.
That is right.
MR. NOLLEDO.
Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?
MR. VILLEGAS.
Yes, that is the understanding of the Committee.
MR. NOLLEDO.
Therefore, we need additional Filipino capital?
MR. VILLEGAS.
Yes. 48
xxx xxx xxx
MR. AZCUNA.
May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS.
The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling interest."  ESTAIH

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

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.  ITaESD

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 (P1.00) 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. 
HCEaDI

The example given is not theoretical but can be found in the real world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT's
Articles of Incorporation expressly state that "the holders of Serial Preferred Stock shall not be entitled to vote at any
meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any
action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders." 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 Incorporation 52 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
SIP 58 preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for the
common shares at P70.00 per share, while the declared dividends for the preferred shares amounted to a measly P1.00
per share. 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 P5.00 per
share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par
value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover,
99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred
shares. 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 . . . corporations . . . organized under the laws of the Philippines, at least sixty per centum of whose capital is
owned by such citizens . . . ."  IaCHTS

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises
the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of
PLDT's common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends
that common shares earn; 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 P5.00 have a current stock market value of
P2,328.00 per share, 64 while PLDT preferred shares with a par value of P10.00 per share have a current stock market
value ranging from only P10.92 to P11.06 per share, 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:
. . . Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate,
the presumption now is that all provisions of the constitution are self-executing. If the constitutional provisions are
treated as requiring legislation instead of self-executing, the legislature would have the power to ignore and practically
nullify the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always
been, that —
. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-
executing. . . . Unless the contrary is clearly intended, the provisions of the Constitution should be
 considered self-executing, as a contrary rule would give the legislature discretion to determine when, or
whether, they shall be effective. These provisions would be subordinated to the will of the lawmaking body,
which could make them entirely meaningless by simply refusing to pass the needed implementing statute.
(Emphasis supplied)  TAaEIc

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice,
agreed that constitutional provisions are presumed to be self-executing. Justice Puno stated:
Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future
legislation for their enforcement. The reason is not 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:
. . . As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and
as both the citizen and the alien have violated the law, none of them should have a recourse against the other, and it
should only be the State that should be allowed to intervene and determine what is to be done with the property subject
of the violation. We have said that what the State should do or could do in such matters is a matter of public policy,
entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G.R. No. L-5996, June 27,
1956.) While the legislature has not definitely decided what policy should be followed in cases of violations
against the constitutional prohibition, courts of justice cannot go beyond by declaring the disposition to be null
and void as violative of the Constitution. . . . (Emphasis supplied)  IScaAE

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935
Constitution, or over the last 75 years, not one of the constitutional provisions expressly reserving 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.
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 . . . 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 is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions
under the law. aDSTIC

SO ORDERED.
|||  (Gamboa v. Teves, G.R. No. 176579, [June 28, 2011], 668 PHIL 1-118)
 SEC Memo Circ. No. 8, s2013 (Guidelines in Fil-Foreign ownership)

Roy v. Herbosa Nov. 22, 2016 and April 18, 2017

CAGUIOA, J  : p

The petitions 1 before the Court are special civil actions for certiorari under Rule 65 of the Rules of Court seeking to
annul Memorandum Circular No. 8, Series of 2013 ("SEC-MC No. 8") issued by the Securities and Exchange Commission
("SEC") for allegedly being in violation of the Court's Decision 2 ("Gamboa Decision") and
Resolution 3 ("Gamboa Resolution") in Gamboa v. Finance Secretary Teves, G.R. No. 176579, respectively promulgated
on June 28, 2011, and October 9, 2012, which jurisprudentially established the proper interpretation of Section 11, Article
XII of the Constitution.
The Antecedents
On June 28, 2011, the Court issued the Gamboa Decision, the dispositive portion of which reads:
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the
1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case
only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares).
Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this 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.:
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 
CAIHTE

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:
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-
Intervention 17 on July 30, 2013, which the Court granted. The Petition-in-Intervention 18 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
Court 25 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 Memorandum 28 on February 10, 2015.  DETACa

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.
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
. . . 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. . . . ." 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.
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. Ochoa 37 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:
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 . . . Court. 40 
aDSIHc

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. 41
 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] . . . 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 . . . 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.  ETHIDa

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 . . . 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 Bañez, Jr. v. Concepcion 52 stressed that:
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 shield 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. . . .
. . . 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. . . . 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, 2014 55 and SHAREPHIL in its
Omnibus Motion [1] For Leave to Intervene; and [2] To Admit Attached Comment-in-Intervention dated May 30,
2016 56 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 SHAREPHIL, 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.
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, 60 viz.:
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the
1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case
only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares) .
Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this 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. 61
In turn, the Gamboa Resolution stated:
In any event, the SEC has expressly manifested 62 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.
xxx xxx xxx
. . . 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  AIDSTE

The Court directly answered the issue and consistently defined the term "capital" as follows:
. . . 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.
xxx xxx xxx
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:
". . . we . . . 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:
 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:
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]." 
AaCTcI

xxx xxx xxx

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. . . . 71
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 DOJ 72 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:
 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 FIA'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:
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 
EcTCAD

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:
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 shares of stock entitled to vote
  Filipino) applied to the total in the election of directors 80
  number of outstanding (60% of the voting rights)
  shares of stock 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 Full beneficial ownership of 60
  Filipino) applied to BOTH percent of the outstanding capital
  (a) the total number of stock, coupled with 60 percent of
  outstanding shares of stock, the voting rights 81 or Full
  entitled to vote in the beneficial ownership of the
  election of directors; AND stocks, coupled with appropriate
  (b) the total number of voting rights . . . shares with
  outstanding shares of stock, voting rights, as well as with full
  whether or not entitled to beneficial ownership" 82 
  vote in the election of  
  directors.  
 
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:
. . . 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.  HSAcaE

. . . In mixed class or dual structured corporations, however, there is variance in the proportion of stockholders'
controlling interest vis-à-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) . . . ." 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:
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.:
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. . . .
xxx xxx xxx
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. . . . . 86 
HESIcT

And the "Final Word" of the Gamboa Resolution is in full accord with the foregoing pronouncement of the Court, to wit:
XII.
Final Word
. . . 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.:
Sec. 11. No franchise, certificate, or any other foam 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. 
caITAC

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 IAS 90 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:
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 has a choice over how 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 
ICHDca

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.
Going back to the illustration above, the restrictive meaning of the term "capital" espoused 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 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 preferred shares, i.e., 60
Class A preferred shares and 60 Class B preferred shares, is not 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
unwarranted "restrictive" meaning of "capital."
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 restrictive re-interpretation of "capital" as the
petitioners espouse. As observed in the Gamboa Decision, viz.:
The Corporation Code of the Philippines 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. 
TCAScE

xxx xxx xxx

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. This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation. In the absence of provisions in the articles of incorporation denying voting rights
to preferred shares, preferred shares have the same voting rights as common shares. However, preferred
shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and
on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in
the same manner as bondholders. In fact, under the Corporation Code only preferred or redeemable shares can be
deprived of the right to vote. Common shares cannot be deprived of the right to vote in any corporate meeting, and any
provision in the articles of incorporation restricting the right of common shareholders to vote is invalid.
Considering that common shares have voting rights which translate to control, as opposed to preferred shares
which usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to
common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term
"capital" shall include such preferred shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors. In short, the term "capital" in Section
11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.
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 . . . . 94 
cTDaEH

The Gamboa Decision held that preferred shares are to be factored in only if they are entitled to vote in the election
of directors. If preferred shares have no voting rights, then they cannot elect members of the board of directors, which
wields control of the corporation. As to the right of non-voting preferred shares to vote in the 8 instances enumerated in
Section 6 of the Corporation Code, the Gamboa Decision considered them but, in the end, did not find them significant in
resolving the issue of the proper interpretation of the word "capital" in Section 11, Article XII of the Constitution.
Therefore, to now insist in the present case that preferred shares be regarded differently from their unambiguous
treatment in the Gamboa Decision is enough proof that the Gamboa Decision, which had attained finality more than 4
years ago, is being drastically changed or expanded.
In this regard, it should be noted that the 8 corporate matters enumerated in Section 6 of the Corporation
Code require, at the outset, a favorable recommendation by the 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 all-Filipino management team must first be convinced that any of the 8 corporate actions in Section 6 will be to the
best interest of the company. Then, when the all-Filipino management team recommends this to the board, a majority of
the board has to approve the recommendation — and, as required by the Constitution, foreign participation in 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 directors to approve the intended corporate act. After approval by the board, all
the shareholders (with and without voting rights) will vote on the corporate action. The required vote in the shareholders'
meeting is 2/3 of the outstanding capital stock. 95 Given the super majority vote requirement, foreign shareholders cannot
dictate upon their 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 approved. The 2/3 voting requirement applies to all
corporations, given the significance of the 8 corporate actions contemplated in Section 6 of the Corporation Code.
In short, if the Filipino officers, directors and shareholders will not approve of the corporate act, the foreigners are
helpless.
Allowing stockholders holding preferred shares without voting rights to vote in the 8 corporate matters enumerated
in Section 6 is an acknowledgment of their right of ownership. If the owners of preferred shares without right to vote/elect
directors are not allowed to vote in any of those 8 corporate actions, then they will not be entitled to the appraisal right
provided under Section 81 96 of the Corporation Code in the event that they dissent in the corporate act. As required in
Section 82, the appraisal right can only be exercised by any stockholder who voted against the proposed action. Thus,
without 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 corporate action. In simple terms, the right to vote in the 8
instances enumerated in Section 6 is more in furtherance of the stockholder's right of ownership rather than as a mode of
control.
As to financial interest, giving short-lived preferred or superior terms to certain classes or series of shares may be a
welcome option to expand capital, without the Filipino shareholders putting up additional substantial capital and/or losing
ownership and control of the company. For shareholders who are not keen on the creation of those shares, they may opt
to avail themselves of their appraisal right. As acknowledged in the Gamboa Decision, preferred shareholders are merely
investors in the company for income in the same manner as bondholders. Without a lucrative package, including an
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 was never contemplated in the Gamboa Decision, will surely
have a dampening effect on the business milieu by eroding the flexibility inherent in the issuance of preferred shares with
varying terms and conditions. Consequently, the rights and prerogatives of the owners of the corporation will be
unwarrantedly stymied.  cSaATC

Moreover, the restrictive interpretation of the term "capital" would have a tremendous impact on the country as a
whole — and to all Filipinos.
The PSE's Comment-in-Intervention dated June 16, 2014 97 warns that:
 80. [R]edefining "capital" as used in Section 11, Article XII of the 1987 Constitution and adopting the supposed
"Effective Control Test" will lead to disastrous consequences to the Philippine stock market.
81. Current data of the PSE show that, if the "Effective Control Test" were applied, the total value of shares that
would be deemed in excess of the foreign-ownership limits based on stock prices as of 30 April 2014 is One Hundred
Fifty Nine Billion Six Hundred Thirty Eight Million Eight Hundred Forty Five Thousand Two Hundred Six Pesos
and Eighty Nine Cents (Php159,638,845,206.89).
82. The aforementioned value of investments would have to be discharged by foreign holders, and
consequently must be absorbed by Filipino investors. Needless to state, the lack of investments may lead to shutdown
of the affected enterprises and to immeasurable consequences to the Philippine economy. 98
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-interpretation of the term "capital" will result in massive
forced divestment of foreign stockholdings in Philippine corporations." 100 SHAREPHIL explains:
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:
"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-à-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. . . . . 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 . . . add[ing] burden [to] the Court." 102 These observations by the
PSE 103 and SHAREPHIL, 104 unless refuted, must be considered by the Court to be valid and sound.  cHDAIS

The Court in Abacus Securities Corp. v. Ampil 105 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 . . . ." 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:
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:
 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. . . . .
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.  ISHCcT

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 
CAacTH

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.
|||  (Roy III v. Herbosa, G.R. No. 207246, [November 22, 2016], 800 PHIL 459-617)

-- Foreign Investments Act (FIA) of 1991, as amended (general)

AN ACT TO PROMOTE FOREIGN INVESTMENTS, PRESCRIBE THE PROCEDURES FOR

REGISTERING ENTERPRISES DOING BUSINESS IN THE PHILIPPINES, AND FOR
OTHER PURPOSES
SEC. 2. Declaration of Policy. – It is the policy of the State to attract, promote and welcome productive investments
from foreign individuals, partnerships, corporations, and governments, including their political
subdivisions, in activities which significantly contribute to national industrialization and socio-
economic development to the extent that foreign investment is allowed in such activity by the
Constitution and relevant laws. Foreign investments shall be encouraged in enterprises that
significantly expand livelihood and employment opportunities for Filipinos; enhance economic value
of farm products; promote the welfare of Filipino consumers; expand the scope, quality and volume
of exports and their access to foreign markets; and/or transfer relevant technologies in agriculture,
industry and support services. Foreign investments shall be welcome as a supplement to Filipino
capital and technology in those enterprises serving mainly the domestic market.

As a general rule, there are no restrictions on extent of foreign ownership of export enterprises. In domestic market
enterprises, foreigners can invest as much as one hundred percent (100%) equity except in areas
included in the negative list. Foreign owned firms catering mainly to the domestic market shall be
encouraged to undertake measures that will gradually increase Filipino participation in their
businesses by taking in Filipino partners, electing Filipinos to the board of directors, implementing
transfer of technology to Filipinos, generating more employment for the economy and enhancing
skills of Filipino workers.
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 Philippine
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;

--- other laws imposing maximum foreign equity

--- “Philippine national” under the FIA

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:
. . . 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.  HSAcaE

. . . In mixed class or dual structured corporations, however, there is variance in the proportion of stockholders'
controlling interest vis-à-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) . . . ." 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:
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.:
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. . . .
xxx xxx xxx
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. . . . . 86 
HESIcT

And the "Final Word" of the Gamboa Resolution is in full accord with the foregoing pronouncement of the Court, to wit:
XII.
Final Word
. . . 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.

--- Phil. corporation under the Corp. Code

--- Foreign corporation under the Corp. Code (Sec. 140)

SEC. 140. Definition and Rights of Foreign Corporations – For purposes of this Code, a foreign corporation is
one formed, organized or existing under laws other than those of the Philippines’ and whose laws allow
Filipino citizens and corporations to do business in its own country or State. It shall have the right to
transact business in the Philippines after obtaining a license for that purpose in accordance with this Code
and a certificate of authority from the appropriate government agency.

--- Control Test v. Grandfather Rule

Narra Nickel Mining v. Redmont April 21, 2014 and Jan. 28, 2015
(see dissent of J. Leonen)

VELASCO, JR., J  : p

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 Decision 1 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.  CSHEAI

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:
xxx xxx xxx
(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.
xxx xxx xxx
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 . . . 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 Order 7 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 Appeal 8 and
Memorandum of Appeal 9 with the Mines Adjudication Board (MAB) while Narra separately filed its Notice of Appeal 10 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-09 12 on May 2007, while Tesoro's MPSA application was converted to AFTA-IVB-08 13 on May
28, 2007, and Narra's FTAA was converted to AFTA-IVB-07 14 on March 30, 2006.  DHESca

Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint 15 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 Complaint 16 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 Order 18 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 Reconsideration 19 of the September 10, 2008 Order
of the MAB. Subsequently, it filed a Supplemental Motion for Reconsideration 20 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 Complaint 21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order 22 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 . . . 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.  cCaEDA

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 Decision 26 on April 6, 2011, wherein it canceled and
revoked petitioners' FTAAs for violating and circumventing the "Constitution . . .[,] 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 Resolution 30 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 caTIDE

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.
xxx xxx xxx
. . . 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.  TaEIcS

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.
xxx xxx xxx
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.
xxx xxx xxx
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 depending on the ownership of the Investee Corporation and, in certain
instances, the Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee
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, '(s)hares belonging to corporations
or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine
nationality.' Under the liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as
Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7
of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality ."
 Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing
Corporation and added to the shares directly owned in the Investee Corporation . . . .
xxx xxx xxx
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 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 the 59% less Filipino).  Stated differently, where
the 60-40 Filipino-foreign equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis
supplied) CTacSE

After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the
grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate ownership of
petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino 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 when the stockholdings of Filipinos are less than 60%. 43
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 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-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 that they have less
than 60% Filipino stockholders since the applications will be denied instantly. Thus, various corporate schemes and layerings
are utilized to circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the
law, creating a cloud of doubt in the Court's mind. To determine, therefore, the actual participation, direct or indirect, of
MBMI, the grandfather rule must be used.
McArthur Mining, Inc.
To establish the actual ownership, interest or participation of MBMI in each of petitioners' corporate structure, they
have to be "grandfathered."
 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 (PhP10,000,000) divided into 10,000 common shares at one
thousand pesos (PhP1,000) per share, subscribed to by the following: 44
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Madridejos Mining Filipino 5,997 PhP5,997,000.00 PhP825,000.00
Corporation        
MBMI Resources, Canadian 3,998 PhP3,998,000.00 PhP1,878,174.60
Inc.        
Lauro L. Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
Esguerra        
Manuel A. Agcaoili Filipino 1 PhP1,000.00 PhP1,000.00
Michael T. Mason American 1 PhP1,000.00 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
    ––––––– ––––––––––––– ––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,708,174.60
    ====== ============ ============
        (emphasis supplied)
Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition
as McArthur. In fact, it would seem that MBMI is also a major investor and "controls" 45 MBMI and also, similar nominal
shareholders were present, i.e., Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason)
and Kenneth Cawkell (Cawkell):
Madridejos Mining Corporation
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Olympic Mines & Filipino 6,663 PhP6,663,000.00 PhP0
Development Corp.        
MBMI Resources, Canadian 3,331 PhP3,331,000.00 PhP2,803,900.00
Inc.        
Amanti Limson Filipino 1 PhP1,000.00 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
Esguerra        
 Lauro Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Emmanuel G. Filipino 1 PhP1,000.00 PhP1,000.00
Hernando        
Michael T. Mason American 1 PhP1,000.00 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
    ––––––– –––––––––––––––– ––––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,809,900.00
    ====== ============== ==============
        (emphasis supplied)
Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect 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 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% effective equity interest in the Olympic Properties. 46 Quoting the said Annual report:
On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") 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 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 achieving certain milestones, the Company may earn up
to a 100% interest, subject to a 2.5% net revenue royalty. 47 (emphasis supplied)
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering 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.
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP10,000,000)
divided into ten thousand (10,000) common shares at PhP1,000 per share, as demonstrated below:
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Sara Marie Filipino 5,997 PhP5,997,000.00 PhP825,000.00
Mining, Inc.        
MBMI Canadian 3,998 PhP3,998,000.00 PhP1,878,174.60
Resources, Inc.        
 Lauro L. Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
Esguerra        
Manuel A. Filipino 1 PhP1,000.00 PhP1,000.00
Agcaoili        
Michael T. Mason American 1 PhP1,000.00 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
    –––––– –––––––––––––––– –––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,708,174.60
    ===== ============== =============
        (emphasis supplied)
Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate
structure of petitioner McArthur, down to the last centavo. All the other shareholders are the 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 scrutinize SMMI's corporate structure:
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Olympic Mines & Filipino 6,663 PhP6,663,000.00 PhP0
Development Corp.        
MBMI Resources, Canadian 3,331 PhP3,331,000.00 PhP2,794,000.00
Inc.        
Amanti Limson Filipino 1 PhP1,000.00 PhP1,000.00
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
Esguerra        
Lauro Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Emmanuel G. Filipino 1 PhP1,000.00 PhP1,000.00
Hernando        
Michael T. Mason American 1 PhP1,000.00 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
    –––––– ––––––––––––– ––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,809,900.00
    ====== ============= ============
        (emphasis supplied)
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, namely: Olympic, MBMI, Amanti Limson
(Limson), Esguerra, Salazar, Hernando, Mason and Cawkell. 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 (PhP2,794,000). Oddly, the total value of the
amount paid is two million eight hundred nine thousand nine hundred pesos (PhP2,809,900).
Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic's participation in SMMI's 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.
Narra Nickel Mining and Development Corporation
Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC's MPSA 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 (PhP10,000,000), which is divided into ten thousand common shares (10,000) at one thousand pesos
(PhP1,000) per share, shown as follows:  ACHEaI

Name Nationality Number of  Amount Amount Paid

    Shares Subscribed  
         
Patricia Louise Filipino 5,997 PhP5,997,000.00 PhP1,677,000.00
Mining &        
Development        
Corp.        
MBMI Canadian 3,998 PhP3,996,000.00 PhP1,116,000.00
Resources, Inc.        
Higinio C. Filipino 1 PhP1,000.00 PhP1,000.00
Mendoza, Jr.        
Henry E. Filipino 1 PhP1,000.00 PhP1,000.00
Fernandez        
Manuel A. Filipino 1 PhP1,000.00 PhP1,000.00
Agcaoili        
Ma. Elena A. Filipino 1 PhP1,000.00 PhP1,000.00
Bocalan        
Bayani H. Agabin Filipino 1 PhP1,000.00 PhP1,000.00
Robert L. American 1 PhP1,000.00 PhP1,000.00
McCurdy        
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
     ––––––– ––––––––––––– ––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,800,000.00
    ====== ============= =============
Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this corporate
structure.
Patricia Louise Mining & Development Corporation
Using the grandfather method, we further look and examine PLMDC's corporate structure:
Name Nationality Number of  Amount Amount Paid
    Shares Subscribed  
         
Palawan Alpha Filipino 6,596 PhP6,596,000.00 PhP0
South Resources        
Development        
Corporation        
MBMI Resources, Canadian 3,396 PhP3,396,000.00 PhP2,796,000.00
Inc.        
Higinio C. Filipino 1 PhP1,000.00 PhP1,000.00
Mendoza, Jr.        
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
Esguerra        
Henry E. Filipino 1 PhP1,000.00 PhP1,000.00
Fernandez        
Lauro L. Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Manuel A. Agcaoili Filipino 1 PhP1,000.00 PhP1,000.00
Bayani H. Agabin Filipino 1 PhP1,000.00 PhP1,000.00
Michael T. Mason American 1 PhP1,000.00 PhP1,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 PhP1,000.00
    ––––––– ––––––––––––– ––––––––––––––
  Total 10,000 PhP10,000,000.00 PhP2,708,174.60
    ====== ============= ============
        (emphasis supplied)
Yet again, the usual players in petitioners' corporate structures are present. Similarly, the amount of money paid by the
2nd tier majority stock holder, in this case, Palawan Alpha South Resources and Development Corp. (PASRDC), is zero.
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:
 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:
(a)  Olympic Group
The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as follows:
Olympic-Philippines (the "Olympic Group"
Sara Marie Mining Properties Ltd. ("Sara Marie") — 33.3%
Tesoro Mining & Development, Inc. (Tesoro) — 60.0%
Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective 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.
(b)  Alpha Group
The Philippine companies holding the Alpha Property, and the ownership interests therein, are as follows:
Alpha-Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") — 34.0%
Narra Nickel Mining & Development Corporation (Narra) — 60.4%
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 control over
the companies in the Alpha Group. 48 (emphasis supplied)
Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not
Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived
from grandfathering petitioners' corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding to the picture,
MBMI's Summary of Significant Accounting 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" corporations boils down to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has joint venture
agreements with, practically exercising majority control over the corporations mentioned. In effect, whether looking at the
capital structure or the underlying relationships between and among the corporations, petitioners are NOT Filipino nationals
and must be considered foreign since 60% or more of their capital stocks or equity interests are owned by MBMI.
Application of the res inter alios acta rule
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 the case and that it is not a "partner" of petitioners.
 Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29.  Admission by co-partner or agent. — The act or declaration of a partner or agent of the party 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 (PhP3,000). 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:  IEDHAT

[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.
xxx xxx xxx
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.
xxx xxx xxx
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.
xxx xxx xxx
Within fifteen (15) working days from 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)  ACcDEa

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. —
xxx xxx xxx
 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. —
xxx xxx xxx
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. —
. . . 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  SEIcHa

(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. 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 Batangas  55 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. 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.
|||  (Narra Nickel Mining & Development Corp. v. Redmont Consolidated Mines Corp., G.R. No. 195580, [April 21, 2014], 733
PHIL 365-490)

LEONEN, J., dissenting:

Investments into our economy are deterred by interpretations of law that are not based on solid ground and sound
rationale. Predictability in policy is a very strong factor in determining investor confidence.
The so-called "Grandfather Rule" has no statutory basis. It is the Control Test that governs in determining Filipino
equity in corporations. It is this test that is provided in statute and by our most recent jurisprudence.
Furthermore, the Panel of Arbitrators created by the Philippine Mining Act is not a court of law. It cannot decide
judicial questions with finality. This includes the determination of whether the capital of a corporation is owned or
controlled by Filipino citizens. The Panel of Arbitrators renders arbitral awards. There is no dispute and, therefore, no
competence for arbitration, if one of the parties does not have a mining claim but simply wishes to ask for a declaration
that a corporation is not qualified to hold a mining agreement. Respondent here did not claim a better right to a mining
agreement. By forum shopping through multiple actions, it sought to disqualify petitioners. The decision of the majority
rewards such actions.
In this case, the majority's holding glosses over statutory provisions 1 and settled jurisprudence. 2
Thus, I disagree with the ponencia in relying on the Grandfather Rule. I disagree with the finding that petitioners
Narra Nickel Mining and Development Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur
Mining, Inc. (McArthur) are not Filipino corporations. Whether they should be qualified to hold Mineral Production Sharing
Agreements (MPSA) should be the subject of proper proceedings in accordance with this opinion. I disagree that the
Panel of Arbitrators (POA) of the Department of Environment and Natural Resources (DENR) has jurisdiction to disqualify
an applicant for mining activities on the ground that it does not have the requisite Filipino ownership.
 Furthermore, respondent Redmont Consolidated Mines Corp. (Redmont) has engaged in blatant forum shopping.
The Court of Appeals 3 is in error for sustaining the POA. Thus, its findings that Narra, Tesoro, and McArthur are not
qualified corporations must be rejected.
To recapitulate, Redmont took interest in undertaking mining activities in the Province of Palawan. Upon inquiry with
the Department of Environment and Natural Resources, it discovered that Narra, Tesoro, and McArthur had standing
MPSA applications for its interested areas. 4
Narra, Tesoro, and McArthur are successors-in-interest of other corporations that have earlier pursued MPSA
applications:
1. Narra intended to succeed Alpha Resources and Development Corporation and Patricia Louise Mining and
Development Corporation (PLMDC), which held the application MPSA-IV-1-12 covering an area of 3,277
hectares in Barangay Calategas and Barangay San Isidro, Narra, Palawan; 5
2. Tesoro intended to succeed Sara Marie Mining, Inc. (SMMI), which held the application MPSA-AMA-IVB-154
covering an area of 3,402 hectares in Barangay Malinao and Barangay Princess Urduja, Narra, Palawan; 6
3. McArthur intended to succeed Madridejos Mining Corporation (MMC), which held the application MPSA-AMA-
IVB-153 covering an area of more than 1,782 hectares in Barangay Sumbiling, Bataraza, Palawan and EPA-
IVB-44 which includes a 3,720-hectare area in Barangay Malatagao, Bataraza, Palawan from SMMI. 7
Contending that Narra, Tesoro, and McArthur are corporations whose foreign equity disqualifies them from entering
into MPSAs, Redmont filed with the DENR Panel of Arbitrators (POA) for Region IV-B three (3) separate petitions for the
denial of the MPSA applications of Narra, Tesoro, and McArthur. In these petitions, Redmont asserted that at least sixty
percent (60%) of the capital stock of Narra, Tesoro, and McArthur are owned and controlled by MBMI Resources, Inc.
(MBMI), a corporation wholly owned by Canadians. 8
Narra, Tesoro, and McArthur countered that the POA did not have jurisdiction to rule on Redmont's petitions per
Section 77 of Republic Act No. 7942, otherwise known as the Philippine Mining Act of 1995 (Mining Act). They also
argued that Redmont did not have personality to sue as it had no pending application of its own over the areas in which
they had pending applications. They contended that whether they were Filipino corporations has become immaterial as
they were already pursuing applications for Financial or Technical Assistance Agreements (FTAA), which, unlike MPSAs,
may be entered into by foreign corporations. They added that, in any case, they were qualified to enter into MPSAs as
60% of their capital is owned by Filipinos. 9
In a December 14, 2007 resolution, 10 the POA held that Narra, Tesoro, and McArthur are foreign corporations
disqualified from entering into MPSAs. The dispositive portion of this resolution reads:
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 as  [sic], they are DECLARED
NULL AND VOID.
Accordingly, the Exploration Permit Applications of Petitioner Redmont Consolidated Mines Corporation shall be
GIVEN DUE COURSE, subject to compliance with the provisions of the Mining Law and its implementing rules and
regulations. 11
Narra, Tesoro, and McArthur then filed appeals before the Mines Adjudication Board (MAB). In a September 10,
2008 order, 12 the MAB pointed out that "no MPSA has so far been issued in favor of any of the parties";  13 thus, it faulted
the POA for still ruling that "[t]heir Mineral Production Sharing Agreement (MPSA) are hereby as [sic], they are
DECLARED NULL AND VOID." 14
The MAB sustained the contention of Narra, Tesoro, and McArthur that "the Panel does not have jurisdiction over
the instant case, and that it should have dismissed the Petition fortwith [sic]." 15 It emphasized that:
[W]hether or not an applicant for an MPSA meets the qualifications imposed by law, more particularly the nationality
requirement, is a matter that is addressed to the sound discretion of the competent body or agency, in this case the
[Securities and Exchange Commission]. In the interest of orderly procedure and administrative efficiency, it is
imperative that the DENR, including the Panel, accord full faith and confidence to the contents of Appellants' Articles of
Incorporation, which have undergone thorough evaluation and scrutiny by the SEC. Unless the SEC or the courts
promulgate a ruling to the effect that the Appellant corporations are not Filipino corporations, the Board cannot
conclude otherwise. This proposition is borne out by the legal presumptions that official duty has been regularly
performed, and that the law has been obeyed in the preparation and approval of said documents. 16
Redmont then filed with the Court of Appeals a petition for review under Rule 43 of the 1997 Rules on Civil
Procedure. This petition was docketed as CA-G.R. SP No. 109703.
In a decision dated October 1, 2010, 17 the Court of Appeals, through its Seventh Division, reversed the MAB and
sustained the findings of the POA. 18
The Court of Appeals noted that the "pivotal issue before the Court is whether or not respondents McArthur, Tesoro
and Narra are Philippine nationals under Philippine laws, rules and regulations." 19 Noting that doubt existed as to their
foreign equity ownerships, the Court of Appeals, Seventh Division, asserted that such equity ownerships must be
reckoned via the Grandfather Rule. 20 Ultimately, it ruled that Narra, Tesoro, and McArthur "are not Philippine nationals,
hence, their MPSA applications should be recommended for rejection by the Secretary of the DENR." 21
On the matter of the Panel of Arbitrators' jurisdiction, the Court of Appeals, Seventh Division, referred to this court's
declarations in Celestial Nickel Mining Exploration Corp. v. Macroasia Corp. 22 and considered these pronouncements as
"clearly support[ing the conclusion] that the POA has jurisdiction to resolve the Petitions filed by . . . Redmont." 23
The motion for reconsideration of Narra, Tesoro, and McArthur was denied by the Court of Appeals through a
resolution dated February 15, 2011. 24
 Hence, this present petition was filed and docketed as G.R. No. 195580.
Apart from these proceedings before the POA, the MAB and the Court of Appeals, Redmont also filed three (3)
separate actions before the Securities and Exchange Commission, the Regional Trial Court of Quezon City, and the
Office of the President:
First action: On August 14, 2008, Redmont filed a complaint for revocation of the certificates of registration of
Narra, Tesoro, and McArthur with the Securities and Exchange Commission (SEC). 25 This complaint became the
subject of another case (G.R. No. 205513), which was consolidated but later de-consolidated with the present petition,
G.R. No. 195580.
In view of this complaint, Redmont filed on September 1, 2008 a manifestation and motion to suspend
proceeding[s] before the MAB. 26
In a letter-resolution dated September 3, 2009, the SEC's Compliance and Enforcement Department (CED)
ruled in favor of Narra, Tesoro, and McArthur. It applied the Control Test per Section 3 of  Republic Act No. 7042, as
amended by Republic Act No. 8179, the Foreign Investments Act (FIA), and held that Narra, Tesoro, and McArthur as
well as their co-respondents in that case satisfied the requisite Filipino equity ownership.  27 Redmont then filed an
appeal with the SEC En Banc.
In a decision dated March 25, 2010, 28 the SEC En Banc set aside the SEC-CED's letter-resolution with respect
to Narra, Tesoro, and McArthur as the appeal from the MAB's September 10, 2008 order was then pending with the
Court of Appeals, Seventh Division. 29 The SEC En Banc considered the assertion that Redmont has been engaging
in forum shopping:
It is evident from the foregoing that aside from identity of the parties . . ., the issue(s) raised in the
CA Case and the factual foundations thereof . . . are substantially the same as those obtaining the case
at bar. Yet, Redmont did not include this CA Case in the Certification against Forum Shopping attached
to the instant Appeal. 30
However, with respect to the other respondent-appellees in that case (Sara Marie Mining, Inc., Patricia Louise
Mining and Development Corp., Madridejos Mining Corp., Bethlehem Nickel Corp., San Juanico Nickel Corp., and
MBMI Resources, Inc.), the complaint was remanded to the SEC-CED for further proceedings with the reminder for it
to "consider every piece already on record and, if necessary, to conduct further investigation in order to
ascertain, consistent with the Grandfather Rule, the true, actual Filipino and foreign participation in each of these
five (5) corporations." 31
Asserting that the SEC En Banc had already made a definite finding that Redmont has been engaging in forum
shopping, Sara Marie Mining, Inc., Patricia Louise Mining and Development Corp., and Madridejos Mining Corp. filed
with the Court of Appeals a petition for review under Rule 43 of the 1997 Rules of Civil Procedure. This petition was
docketed as CA-G.R. SP No. 113523.
 In a decision dated May 23, 2012, the Court of Appeals, Former Tenth Division, found that "there was a
deliberate attempt not to disclose the pendency of CA-GR SP No. 109703." 32 It concluded that "the partial dismissal
of the case before the SEC is unwarranted. It should have been dismissed in its entirety and with prejudice to the
complainant." 33 The dispositive portion of the decision reads:
WHEREFORE, the Petition is GRANTED. The Decision dated March 25, 2010 of the Securities
and Exchange Commission En Banc is REVERSED and SET ASIDE. Accordingly, the complaint for
revocation filed by Redmont Consolidated Mines is DISMISSED with prejudice. 34 (Emphasis supplied)
On January 22, 2013, the Court of Appeals, Former Tenth Division, issued a resolution  35 denying Redmont's
motion for reconsideration.
Aggrieved, Redmont filed the petition for review on certiorari which became the subject of G.R. No. 205513,
initially lodged with this court's First Division. Through a November 27, 2013 resolution, G.R. No. 205513 was
consolidated with G.R. No. 195580. Subsequently however, this court's Third Division de-consolidated the two (2)
cases.
Second Action: On September 8, 2008, Redmont filed a complaint for injunction (of the MAB proceedings
pending the resolution of the complaint before the SEC) with application for issuance of a temporary restraining order
(TRO) and/or writ of preliminary injunction with the Regional Trial Court, Branch 92, Quezon City. 36 The Regional Trial
Court issued a TRO on September 16, 2008. By then, however, the MAB had already ruled in favor of Narra, Tesoro,
and McArthur. 37
Third Action: On May 7, 2010, Redmont filed with the Office of the President a petition seeking the
cancellation of the financial or technical assistance agreement (FTAA) applications of Narra, Tesoro, and McArthur. In
a decision dated April 6, 2011, 38 the Office of the President ruled in favor of Redmont. In a resolution dated July 6,
2011, 39 the Office of the President denied the motion for reconsideration of Narra, Tesoro, and McArthur. As noted by
the ponencia, Narra, Tesoro, and McArthur then filed an appeal with the Court of Appeals. As this appeal has been
denied, they filed another appeal with this court, which appeal is pending in another division. 40
The petition for review on certiorari subject of G.R. No. 195580 is an appeal from the Court of Appeals' October 1,
2010 decision in CA-G.R. SP No. 109703 reversing the MAB and sustaining the POA's findings that Narra, Tesoro, and
McArthur are foreign corporations disqualified from entering into MPSAs. The petition also questions the February 15,
2011 resolution of the Court of Appeals denying the motion for reconsideration of Narra, Tesoro, and McArthur.
To reiterate, G.R. No. 195580 was consolidated with another petition — G.R. No. 205513 — through a resolution of
this court dated November 27, 2013. G.R. No. 205513 is an appeal from the Court of Appeals, Former Tenth Division's
May 23, 2012 decision and January 22, 2013 resolution in CA-G.R. SP No. 113523. Subsequently however, G.R.
No. 195580 and G.R. No. 205513 were de-consolidated.
 Apart from G.R. Nos. 195580 and 205513, a third petition has been filed with this court. This third petition is an
offshoot of the petitions filed by Redmont with the Office of the President seeking the cancellation of the FTAA
applications of Narra, Tesoro, and McArthur.
The main issue in this case relates to the ownership of capital in Narra, Tesoro, and McArthur, i.e., whether they
have satisfied the required Filipino equity ownership so as to be qualified to enter into MPSAs.
In addition to this, Narra, Tesoro, and McArthur raise procedural issues: (1) the POA's jurisdiction over the subject
matter of Redmont's petitions; (2) the supposed mootness of Redmont's petitions before the POA considering that Narra,
Tesoro, and McArthur have pursued applications for FTAAs; and (3) Redmont's supposed engagement in forum
shopping. 41
Governing laws
Mining is an environmentally sensitive activity that entails the exploration, development, and utilization of inalienable
natural resources. It falls within the broad ambit of Article XII, Section 2 as well as other sections of the  1987
Constitution which refers to ancestral domains 42 and the environment. 43
More specifically, Republic Act No. 7942 or the Philippine Mining Act, its implementing rules and regulations, other
administrative issuances as well as jurisprudence govern the application for mining rights among others. Small-scale
mining 44 is governed by Republic Act No. 7076, the People's Small-scale Mining Act of 1991. Apart from these, other
statutes such as Republic Act No. 8371, the Indigenous Peoples Rights Act of 1997 (IPRA), and Republic Act No. 7160,
the Local Government Code (LGC) contain provisions which delimit the conduct of mining activities.
Republic Act No. 7042, as amended by Republic Act No. 8179, the Foreign Investments Act (FIA) is significant with
respect to the participation of foreign investors in nationalized economic activities such as mining. In the 2012 resolution
ruling on the motion for reconsideration in Gamboa v. Teves, 45 this court stated that "The FIA is the basic law governing
foreign investments in the Philippines, irrespective of the nature of business and area of investment." 46
Commonwealth Act No. 108, as amended, otherwise known as the Anti-Dummy Law, penalizes those who "allow
[their] name or citizenship to be used for the purpose of evading" 47 "constitutional or legal provisions requir[ing] Philippine
or any other specific citizenship as a requisite for the exercise or enjoyment of a right, franchise or privilege". 48
Batas Pambansa Blg. 68, the Corporation Code, is the general law that "provide[s] for the formation, organization,
[and] regulation of private corporations." 49 The conduct of activities relating to securities, such as shares of stock, is
regulated by Republic Act No. 8799, the Securities Regulation Code (SRC).
DENR's Panel of Arbitrators
has no competence over the
petitions filed by Redmont
 The DENR Panel of Arbitrators does not have the competence to rule on the issue of whether the ownership of the
capital of the corporations Narra, Tesoro, and McArthur meet the constitutional and statutory requirements. This alone is
ample basis for granting the petition.
Section 77 of the Mining Act provides for the matters falling under the exclusive original jurisdiction of the DENR
Panel of Arbitrators, as follows:
Section 77. Panel of Arbitrators. — . . . Within thirty (30) working days, after the submission of the case by the
parties for decision, the panel shall have exclusive and original jurisdiction to hear and decide on the following:
(a) Disputes involving rights to mining areas;
(b) Disputes involving mineral agreements or permit;
(c) Disputes involving surface owners, occupants and claimholders/concessionaires; and
(d) Disputes pending before the Bureau and the Department at the date of the effectivity of this Act.
In 2007, this court's decision in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp. 50 construed the
phrase "disputes involving rights to mining areas" as referring "to any adverse claim, protest, or opposition to an
application for mineral agreement." 51
Proceeding from this court's statements in Celestial, the ponencia states:
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 the petitioners' MPSA applications being that they are foreign corporation [sic], is
valid. 52
An earlier decision of this court, Gonzales v. Climax Mining Ltd., 53 ruled on the jurisdiction of the Panel of
Arbitrators as follows:
We now come to the meat of the case which revolves mainly around the question of jurisdiction by the Panel of
Arbitrators: Does the Panel of Arbitrators have jurisdiction over the complaint for declaration of nullity and/or
termination of the subject contracts on the ground of fraud, oppression and violation of the Constitution? This issue
may be distilled into the more basic question of whether the Complaint raises a mining dispute or a judicial question.
A judicial question is a question that is proper for determination by the courts, as opposed to a moot
question or one properly decided by the executive or legislative branch. A judicial question is raised when the
determination of the question involves the exercise of a judicial function; that is, the question involves the
determination of what the law is and what the legal rights of the parties are with respect to the matter in controversy.
On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b) mineral agreements,
FTAAs, or permits, and (c) surface owners, occupants and claimholders/concessionaires. Under Republic Act No.
 7942 (otherwise known as the Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and original
jurisdiction to hear and decide these mining disputes. The Court of Appeals, in its questioned decision, correctly stated
that the Panel's jurisdiction is limited only to those mining disputes which raise questions of fact or matters
requiring the application of technological knowledge and experience. 54 (Emphasis supplied)
Moreover, this court's decision in Philex Mining Corp. v. Zaldivia, 55 which was also referred to in Gonzales,
explained what "questions of fact" are appropriate for resolution in a mining dispute:
We see nothing in sections 61 and 73 of the Mining Law that indicates a legislative intent to confer real judicial
power upon the Director of Mines. The very terms of section 73 of the Mining Law, as amended by Republic Act No.
4388, in requiring that the adverse claim must "state in full detail the nature, boundaries and extent of the adverse
claim" show that the conflicts to be decided by reason of such adverse claim refer primarily to questions of fact. This is
made even clearer by the explanatory note to House Bill No. 2522, later to become Republic Act 4388, that "sections
61 and 73 that refer to the overlapping of claims are amended to expedite resolutions of mining conflicts * * *."  The
controversies to be submitted and resolved by the Director of Mines under the sections refer
therfore [sic] only to the overlapping of claims and administrative matters incidental thereto. 56 (Emphasis
supplied)
The pronouncements in Celestial cited by the ponencia were made to address the assertions of Celestial Nickel
and Mining Corporation (Celestial Nickel) and Blue Ridge Mineral Corporation (Blue Ridge) that the Panel of Arbitrators
had the power to cancel existing mineral agreements pursuant to Section 77 of the Mining Act. 57 Thus:
Clearly, POA's jurisdiction over "disputes involving rights to mining areas" has nothing to do with the
cancellation of existing mineral agreements. 58
These pronouncements did not undo or abandon the distinction, clarified in Gonzales, between judicial questions
and mining disputes. The former are cognizable by regular courts of justice, while the latter are cognizable by the DENR
Panel of Arbitrators.
As has been repeatedly acknowledged by the ponencia, 59 the Court of Appeals, 60 and the Mines Adjudication
Board, 61 the present case, and the petitions filed by Redmont before the DENR Panel of Arbitrators boil down to the
"pivotal issue . . . [of] whether or not [Narra, Tesoro, and McArthur] are Philippine nationals."
This is a matter that entails a consideration of the law. It is a question that relates to the status of Narra, Tesoro,
and McArthur and the legal rights (or inhibitions) accruing to them on account of their status. This does not entail a
consideration of the specifications of mining arrangements and operations. Thus, the petitions filed by Redmont before the
DENR Panel of Arbitrators relate to judicial questions and not to mining disputes. They relate to matters which are beyond
the jurisdiction of the Panel of Arbitrators.
Furthermore nowhere in Section 77 of the Republic Act No. 7942 is there a grant of jurisdiction to the Panel of
Arbitrators over the determination of the qualification of applicants. The Philippine Mining Act clearly requires the
existence of a "dispute" over a mining area, 62 a mining agreement, 63 with a surface owner, 64 or those pending with the
Bureau or the Department 65 upon the law's promulgation. The existence of a "dispute" presupposes that the party
bringing the suit has a colorable or putative claim more superior than that of the respondent in the arbitration proceedings.
After all, the Panel of Arbitrators is supposed to provide binding arbitration which should result in a binding award either in
favor of the petitioner or the respondent. Thus, the Panel of Arbitrators is a qualified quasi-judicial agency. It does not
perform all judicial functions in lieu of courts of law.
The petition brought by respondent before the Panel of Arbitrators a quo could not have resulted in any kind of
award in its favor. It was asking for a judicial declaration at first instance of the qualification of the petitioners to hold
mining agreements in accordance with the law. This clearly was beyond the jurisdiction of the Panel of Arbitrators and
eventually also of the Mines Adjudication Board (MAB).
The remedy of Redmont should have been either to cause the cancellation of the registration of any of the
petitioners with the Securities and Exchange Commission or to request for a determination of their qualifications with the
Secretary of the Department of Environment and Natural Resources. Should either the Securities and Exchange
Commission (SEC) or the Secretary of Environment and Natural Resources rule against its request, Redmont could have
gone by certiorari to a Regional Trial Court.
Having brought their petitions to an entity without jurisdiction, the petition in this case should be granted.
Mining as a nationalized
economic activity
The determination of who may engage in mining activities is grounded in the 1987 Constitution and the Mining Act.
Article XII, Section 2 of the 1987 Constitution reads:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the
State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and supervision of the State.  The State
may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not
more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights
for irrigation, water supply, fisheries, or industrial uses other than the development of waterpower, beneficial use may
be the measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive
economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as
cooperative fish farming, with priority to subsistence fishermen and fish workers in rivers, lakes, bays, and lagoons.
 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.
The President shall notify the Congress of every contract entered into in accordance with this provision, within
thirty days from its execution. (Emphasis supplied)
The requirement for nationalization should always be read in relation to Article II, Section 19 of
the Constitution which reads:
Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by
Filipinos. (Emphasis supplied)
Congress takes part in giving substantive meaning to the phrases "Filipino . . . corporations or associations at least
60 per centum of whose capital is owned by such citizens" 66 as well as the phrase "effectively controlled by
Filipinos". 67 Like all constitutional text, the meanings of these phrases become more salient in context.
Thus, Section 3 (aq) of the Mining Act defines a "qualified person" as follows:
Section 3. Definition of Terms. — As used in and for purposes of this Act, the following terms, whether in
singular or plural, shall mean:
xxx xxx xxx
(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 centum (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. (Emphasis supplied)
In addition, Section 3 (t) defines a "foreign-owned corporation" as follows:
(t) "Foreign-owned corporation" means any corporation, partnerships, association, or cooperative duly registered in
accordance with law in which less than fifty per centum (50%) of the capital is owned by Filipino citizens.
Under the Mining Act, nationality requirements are relevant for the following categories of mining contracts and
permits: first, exploration permits (EP); second, mineral agreements (MA); third, financial or technical assistance
agreements (FTAA); and fourth, mineral processing permits (MPP).
In Section 20 of the Mining Act, "[a]n exploration permit grants the right to conduct exploration for all minerals in
specified areas." Section 3 (q) defines exploration as the "searching or prospecting for mineral resources by geological,
geochemical or geophysical surveys, remote sensing, test pitting, trenching, drilling, shaft sinking, tunneling or any other
means for the purpose of determining the existence, extent, quantity and quality thereof and the feasibility of mining them
for profit." DENR Administrative Order No. 2005-15 characterizes an exploration permit as the "initial mode of entry in
mineral exploration." 68
In Section 26 of the Mining Act, "[a] mineral agreement shall grant to the contractor the exclusive right to conduct
mining operations and to extract all mineral resources found in the contract area."
There are three (3) forms of mineral agreements:
1. Mineral production sharing agreement (MPSA) "where the Government grants to the contractor the exclusive
right to conduct mining operations within a contract area and shares in the gross output [with the]
contractor . . . provid[ing] the financing, technology, management and personnel necessary for the
implementation of [the MPSA]". 69
2. Co-production agreement (CA) "wherein the Government shall provide inputs to the mining operations other than
the mineral resource"; 70 and
3. Joint-venture agreement (JVA) "where a joint-venture company is organized by the Government and the
contractor with both parties having equity shares. Aside from earnings in equity, the Government shall be
entitled to a share in the gross output". 71
The second paragraph of Section 26 of the Mining Act allows a contractor "to convert his agreement into any of the
modes of mineral agreements or financial or technical assistance agreement . . . ."
Section 33 of the Mining Act allows "[a]ny qualified person with technical and financial capability to undertake large-
scale exploration, development, and utilization of mineral resources in the Philippines" through a financial or technical
assistance agreement.
In addition to Exploration Permits, Mineral Agreements, and FTAAs, the Mining Act allows for the grant of mineral
processing permits (MPP) in order to "engage in the processing of minerals." 72 Section 3 (y) of the Mining Act defines
mineral processing as "milling, beneficiation or upgrading of ores or minerals and rocks or by similar means to convert the
same into marketable products."
Applying the definition of a "qualified person" in Section 3 (aq) of the Mining Act, a corporation which intends to
enter into a Mining Agreement must have (1) "technical and financial capability to undertake mineral resources
development" and (2) "duly registered in accordance with law at least sixty per centum (60%) of the capital of which is
owned by citizens of the Philippines". 73 Clearly, the Department of Environment and Natural Resources, as an
administrative body, determines technical and financial capability. The DENR, not the Panel of Arbitrators, is also
mandated to determine whether the corporation is (a) duly registered in accordance with law and (b) at least "sixty percent
of the capital" is "owned by citizens of the Philippines."
 Limitations on foreign participation in certain economic activities are not new. Similar, though not identical,
limitations are contained in the 1935 and 1973 Constitutions with respect to the exploration, development, and utilization
of natural resources.
Article XII, Section 1 of the 1935 Constitution provides:
Section 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces or potential energy, and other natural resources of the Philippines belong to the State, and
their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines, or
to corporations or associations at least sixty per centum of the capital of which is owned by such citizens,
subject to any existing right, grant, lease, or concession at the time of the inauguration of the Government established
under this Constitution. Natural resources, with the exception of public agricultural land, shall not be alienated, and no
license, concession, or lease for the exploitation, development, or utilization of any of the natural resources shall be
granted for a period exceeding twenty-five years, except as to water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, in which cases beneficial use may be the measure and the
limit of the grant. (Emphasis supplied)
Likewise, Article XIV, Section 9 of the 1973 Constitution states:
Section 9. The disposition, exploration, development, of exploitation, or utilization of any of the natural
resources of the Philippines shall be limited to citizens of the Philippines, or to  corporations or association at least
sixty per centum of the capital of which is owned by such citizens. The Batasang Pambansa, in the national
interest, may allow such citizens, corporations, or associations to enter into service contracts for financial, technical,
management, or other forms of assistance with any foreign person or entity for the exploitation, development,
exploitation, or utilization of any of the natural resources. Existing valid and binding service contracts for financial, the
technical, management, or other forms of assistance are hereby recognized as such. (Emphasis supplied)
The rationale for nationalizing the exploration, development, and utilization of natural resources was explained by
this court in Register of Deeds of Rizal v. Ung Siu Si Temple 74 as follows:
The purpose of the sixty per centum requirement is obviously to ensure that corporations or
associations allowed to acquire agricultural land or to exploit natural resources shall be controlled by Filipinos;
and the spirit of the Constitution demands that in the absence of capital stock, the controlling membership should be
composed of Filipino citizens. 75 (Emphasis supplied)
On point are Dean Vicente Sinco's words, cited with approval by this court in Republic v. Quasha: 76
It should be emphatically stated that the provisions of our Constitution which limit to Filipinos the rights to
develop the natural resources and to operate the public utilities of the Philippines is one of the bulwarks of our national
integrity. The Filipino people decided to include it in our Constitution in order that it may have the stability and
permanency that its importance requires. It is written in our Constitution so that it may neither be the subject of barter
nor be impaired in the give and take of politics. With our natural resources, our sources of power and energy, our
 public lands, and our public utilities, the material basis of the nation's existence, in the hands of aliens over
whom the Philippine Government does not have complete control, the Filipinos may soon find themselves
deprived of their patrimony and living as it were, in a house that no longer belongs to them. 77 (Emphasis
supplied)
Article XII, Section 2 of the 1987 Constitution ensures the effectivity of the broad economic policy, spelled out in
Article II, Section 19 of the 1987 Constitution, of "a self-reliant and independent national economy effectively controlled by
Filipinos" and the collective aspiration articulated in the 1987 Constitution's Preamble of "conserv[ing] and develop[ing]
our patrimony."
In this case, Narra, Tesoro, and McArthur are corporations of which a portion of their equity is owned by
corporations and individuals acknowledged to be foreign nationals. Moreover, they have each sought to enter into a
Mineral Production Sharing Agreement (MPSA). This arrangement requires that foreigners own, at most, only 40% of the
capital.
Notwithstanding that they have moved to obtain FTAAs — which are permitted for wholly owned foreign
corporations — Redmont still asserts that Narra, Tesoro, and McArthur are in violation of the nationality requirements of
the 1987 Constitution and of the Mining Act. 78
Narra, Tesoro, and McArthur argue that the Grandfather Rule should not be applied as there is no legal basis for it.
They assert that Section 3 (a) of the Foreign Investments Act (FIA) provides exclusively for the Control Test as the means
for reckoning foreign equity in a corporation and, ultimately, the nationality of a corporation engaged in or seeking to
engage in an activity with nationality restrictions. They fault the Court of Appeals for relying on DOJ Opinion No. 20,
series of 2005, a mere administrative issuance, as opposed to the Foreign Investments Act, a statute, for applying the
Grandfather Rule. 79
Standards for reckoning
foreign equity participation in
nationalized economic
activities
The broad and long-standing nationalization of certain sectors and industries notwithstanding, an apparent
confusion has persisted as to how foreign equity holdings in a corporation engaged in a nationalized economic activity
shall be reckoned. As have been proffered by the myriad cast of parties and adjudicative bodies involved in this case,
there have been two means: the Control Test and the Grandfather Rule.
Paragraph 7 of the 1967 Rules of the Securities and Exchange Commission, dated February 28, 1967, states:
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 a Filipino citizens, all of the said shares shall be recorded
as owned by Filipinos. But if less than 60%, or, say, only 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 shares shall be recorded as belonging to aliens. 80
Department of Justice (DOJ) Opinion No. 20, series of 2005, explains that the 1967 SEC Rules provide for the
Control Test and the Grandfather Rule as the means for reckoning foreign and Filipino equity ownership in an "investee"
corporation:
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 of the Investee Corporation may be owned both by individual
stockholders ("Investing Individuals") and by corporations and partnerships ("Investing Corporation"). The
determination of nationality depending on the ownership of the Investee Corporation and in certain instances, the
Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee
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, '(s)hares belonging to
corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality.' Under the liberal Control Test, there is no need to further trace the ownership of the 60% (or
more) Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is
considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph
7 of the 1967 SEC Rules which states, 'but if the percentage of Filipino ownership in the corporation or partnership is
less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine
nationality.' Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the
Investee Corporation must be traced (i.e., 'grandfathered') to determine the total percentage of Filipino ownership. 81
DOJ Opinion No. 20, series of 2005, then concluded as follows:
[T]he 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 where the joint venture corporation with Filipino and foreign stockholders
with less than 60% Filipino stockholdings [or 59%] invests in another joint venture corporation which is either 60-40%
Filipino-alien or 59% less Filipino. Stated differently, where the 60-40 Filipino-foreign equity ownership is not in doubt,
the Grandfather Rule will not apply. 82 (Emphasis supplied)
The conclusion that the Grandfather Rule "applies only when the 60-40 Filipino-foreign equity ownership is in
doubt" 83 is borne by that opinion's consideration of an earlier DOJ opinion (i.e., DOJ Opinion No. 18, series of
1989). DOJ Opinion No. 20, series of 2005's quotation of DOJ Opinion No. 18, series of 1989, reads:
 . . . . It is quite clear . . . that the "Grandfather Rule", which was evolved and applied by the SEC in several
cases, will not apply in cases where the 60-40 Filipino-alien equity ownership in a particular natural resource
corporation is not in doubt. 84
A full quotation of the same portion of DOJ Opinion No. 18, series of 1989, reveals that the statement quoted above
was made in a very specific context (i.e., a prior DOJ opinion) that necessitated a clarification:
Opinion No. 84, s. 1988 cited in your query is not meant to overrule the aforesaid SEC rule. 85 There is nothing
in said Opinion that precludes the application of the said SEC rule in appropriate cases. It is quite clear from said SEC
rule that the 'Grandfather Rule', which was evolved and applied by the SEC in several cases, will not apply in cases
where the 60-40 Filipino-alien equity ownership in a particular natural resource corporation is not in doubt. 86
DOJ Opinion No. 18, series of 1989, addressed the query made by the Chairman of the Securities and Exchange
Commission (SEC) "on whether or not it may give due course to the application for incorporation of Far Southeast Gold
Resources, Inc., (FSEGRI) to engage in mining activities in the Philippines in the light of [DOJ] Opinion No. 84, s. 1988
applying the so-called 'Grandfather Rule' . . . ." 87
DOJ Opinion No. 84, series of 1988, applied the Grandfather Rule. In doing so, it noted that the DOJ has been
"informed that in the registration of corporations with the [SEC], compliance with the sixty per centum requirement is being
monitored with the 'Grandfather Rule'" 88 and added that the Grandfather Rule is "applied specifically in cases where the
corporation has corporate stockholders with alien stockholdings." 89
Prior to applying the Grandfather Rule to the specific facts subject of the inquiry it addressed, DOJ Opinion No. 84,
series of 1988, first cited the SEC's application of the Grandfather Rule in a May 30, 1987 opinion rendered by its Chair,
Julio A. Sulit, Jr. 90
This SEC opinion resolved the nationality of the investee corporation, Silahis International Hotel (Silahis). 31% of
Silahis' capital stock was owned by Filipino stockholders, while 69% was owned by Hotel Properties, Inc. (HPI). HPI, in
turn, was 47% Filipino-owned and 53% alien-owned. Per the Grandfather Rule, the 47% indirect Filipino stockholding in
Silahis through HPI combined with the 31% direct Filipino stockholding in Silahis translated to an aggregate 63.43%
Filipino stockholding in Silahis, in excess of the requisite 60% Filipino stockholding required so as to be able to engage in
a partly nationalized business. 91
In noting that compliance with the 60% requirement has (thus far) been monitored by SEC through the Grandfather
Rule and that the Grandfather Rule has been applied whenever a "corporation has corporate stockholders with alien
stockholdings," 92 DOJ Opinion No. 84, series of 1988, gave the impression that the Grandfather Rule is all-
encompassing. Hence, the clarification in DOJ Opinion No. 18, series of 1989, that the Grandfather Rule "will not apply in
cases where the 60-40 Filipino-alien equity ownership . . . is not in doubt." 93 This clarification was affirmed in DOJ
Opinion No. 20, series of 2005, albeit rephrased positively as against DOJ Opinion No. 19, series of 1989's negative
syntax (i.e., "not in doubt"). Thus, DOJ Opinion No. 20, series of 2005, declared, that the Grandfather Rule "applies only
when the 60-40 Filipino-foreign equity ownership is in doubt." 94
Following DOJ Opinion No. 18, series of 1989, the SEC in its May 30, 1990 opinion addressed to Mr. Johnny M.
Araneta stated:
[T]he Commission En Banc, on the basis of the Opinion of the Department of Justice No. 18, S. 1989 dated
January 19, 1989 voted and decided to do away with the strict application/computation of the so-called
"Grandfather Rule" Re: Far Southeast Gold Resources, Inc. (FSEGRI), and instead applied the so-called "Control
Test" method of determining corporate nationality. 95 (Emphasis supplied)
The SEC's May 30, 1990 opinion related to the ownership of shares in Jericho Mining Corporation (Jericho) which
was then wholly owned by Filipinos. Two (2) corporations wanted to purchase a total of 60% of Jericho's authorized
capital stock: 40% was to be purchased by Gold Field Asia Limited (GFAL), an Australian corporation, while 20% was to
be purchased by Gold Field Philippines Corporation (GFPC). GFPC was itself partly foreign-owned. It was 60% Filipino-
owned, while 40% of its equity was owned by Circular Quay Holdings, an Australian corporation. 96
Applying the Control Test, the SEC's May 30, 1990 opinion concluded that:
GFPC, which is 60% Filipino owned, is considered a Filipino company. Consequently, its investment in Jericho
is considered that of a Filipino. The 60% Filipino equity requirement therefore would still be met by Jericho.
Considering that under the proposed set-up Jericho's capital stock will be owned by 60% Filipino, it is still
qualified to hold mining claims or rights or enter into mineral production sharing agreements with the Government. 97
Some two years after DOJ Opinion No. 18, series of 2009, Republic Act No. 7042, otherwise known as the Foreign
Investments Act (FIA), was enacted. Section 3 (a) of the Foreign Investments Act defines 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 Philippine
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; (as amended by R.A. 8179). (Emphasis supplied)
Thus, under the Foreign Investments Act, a "Philippine national" is any of the following:
1. a citizen of the Philippines;
2. a domestic partnership or association wholly owned by citizens of the Philippines;
3. a corporation organized under the laws of the Philippines, of which at least 60% of the capital stock outstanding
and entitled to vote is owned and held by citizens of the Philippines;
4. a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code,
of which 100% of the capital stock outstanding and entitled to vote is wholly owned by Filipinos; or
5. a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a
Philippine national and at least 60% of the fund will accrue to the benefit of Philippine nationals.
The National Economic and Development Authority (NEDA) formulated the implementing rules and regulations
(IRR) of the Foreign Investments Act. Rule I, Section 1 (b) of these IRR reads:
RULE I
DEFINITIONS
SECTION 1. DEFINITION OF TERMS. — For the purposes of these Rules and Regulations:
xxx xxx xxx
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 corporation organized abroad and registered as doing
business in the Philippines under the Corporation Code of which 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 benefits of the Philippine nationals; Provided, that where a corporation and its non-
Filipino stockholders own stocks in 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 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)
The Foreign Investments Act's implementing rules and regulations are clear and unequivocal in declaring that
the Control Test shall be applied to determine the nationality of a corporation in which another corporation owns stocks.
From around the time of the issuance of the SEC's May 30, 1990 opinion addressed to Mr. Johnny M. Araneta
where the SEC stated that it "decided to do away with the strict application/computation of the so-called 'Grandfather Rule'
. . ., and instead appl[y] the so-called 'Control Test'", 98 the SEC "has consistently applied the control test". 99 This is a
matter expressly acknowledged by Justice Presbitero J. Velasco in his dissent in Gamboa v. Teves: 100
It is settled that when the activity or business of a corporation falls within any of the partly nationalized
provisions of the Constitution or a special law, the "control test" must also be applied to determine the
nationality of a corporation on the basis of the nationality of the stockholders who control its equity.
The control test was laid down by the Department of Justice (DOJ) in its Opinion No. 18 dated January 19,
1989. It determines the nationality of a corporation with alien equity based on the percentage of capital owned by
Filipino citizens. It reads:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as Philippine nationality, but if the percentage of Filipino ownership
in the corporation or partnership is less than 60% only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality.
In a catena of opinions, the SEC, "the government agency tasked with the statutory duty to enforce the
nationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities," has
consistently applied the control test.
The FIA likewise adheres to the control test. This intent is evident in the May 21, 1991 deliberations of the
Bicameral Conference Committee (Committees on Economic Affairs of the Senate and House of Representatives), to
wit:
CHAIRMAN TEVES. . . . . On definition of terms, Ronnie, would you like anything to say here on
the definition of terms of Philippine national?
 HON. RONALDO B. ZAMORA. I think we've — we have already agreed that we are adopting here
the control test. Wasn't that the result of the —
CHAIRMAN PATERNO. No. I thought that at the last meeting, I have made it clear that the Senate
was not able to make a decision for or against the grandfather rule and the control test, because we had
gone into caucus and we had voted but later on the agreement was rebutted and so we had to go back
to adopting the wording in the present law which is not clearly, by its language, a control test formulation.
HON. ANGARA. Well, I don't know. Maybe I was absent, Ting, when that happened but my
recollection is that we went into caucus, we debated [the] pros and cons of the control versus the
grandfather rule and by actual vote the control test bloc won. I don't know when subsequent rejection
took place, but anyway even if the — we are adopting the present language of the law I think by
interpretation, administrative interpretation, while there may be some differences at the beginning, the
current interpretation of this is the control test. It amounts to the control test.
CHAIRMAN TEVES. That's what I understood, that we could manifest our decision on the control
test formula even if we adopt the wordings here by the Senate version.
xxx xxx xxx
CHAIRMAN PATERNO. The most we can do is to say that we have explained — is to say that
although the House Panel wanted to adopt language which would make clear that the control test is the
guiding philosophy in the definition of [a] Philippine national, we explained to them the situation in the
Senate and said that we would be — was asked them to adopt the present wording of the law cognizant
of the fact that the present administrative interpretation is the control test interpretation. But, you know,
we cannot go beyond that.
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee. [sic]
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock
or controlling interest."
This intent is even more apparent in the Implementing Rules and Regulations (IRR) of the  FIA. In defining a
"Philippine national," Section 1(b) of the IRR of the FIA categorically states that for the purposes of determining
the nationality of a corporation the control test should be applied.
The cardinal rule in the interpretation of laws is to ascertain and give effect to the intention of the legislator.
Therefore, the legislative intent to apply the control test in the determination of nationality must be given
effect. 101 (Emphasis supplied)
The Foreign Investments Act and its implementing rules notwithstanding, the Department of Justice, in DOJ Opinion
No. 20, series of 2005, still posited that the Grandfather Rule is still applicable, albeit "only when the 60-40 Filipino-foreign
equity ownership is in doubt." 102
 Anchoring itself on DOJ Opinion No. 20, series of 2005, the SEC En Banc found the Grandfather Rule applicable in
its March 25, 2010 decision in Redmont Consolidated Mines Corp. v. McArthur Mining Corp. (subject of the petition in
G.R. No. 205513). 103 It asserted that there was "doubt" in the compliance with the requisite 60-40 Filipino-foreign equity
ownership:
Such doubt, we believe, exists in the instant case because the foreign investor, MBMI, provided practically all
the funds of the remaining appellee-corporations. 104
On December 9, 2010, the SEC Office of the General Counsel (OGC) rendered an opinion (SEC-OGC Opinion No.
10-31) effectively abandoning the Control Test in favor of the Grandfather Rule:
We are aware of the Commission's prevailing policy of applying the so-called "Control Test" in determining the
extent of foreign equity in a corporation. Since the 1990s, the Commission En Banc, on the basis of DOJ Opinion No.
18, series of 1989 dated January 19, 1989, voted and decided to do away with the strict application/computation of the
"Grandfather Rule," and instead applied the "Control Test" method of determining corporate nationality. . . . 105
However, we now opine that the Control Test must not be applied in determining if a corporation satisfies
the Constitution's citizenship requirements in certain areas of activities. . . . . 106
Central to the SEC-OGC's reasoning is a supposed distinction between Philippine "citizens" and Philippine
"nationals". It emphasized that Article XII, Section 2 of the 1987 Constitution used the term "citizen" (i.e., "corporations or
associations at least 60 per centum of whose capital is owned by such citizens") and that this terminology was reiterated
in Section 3 (aq) of the Mining Act (i.e., "at least sixty per centum (60%) of the capital of which is owned by citizens of the
Philippines"). 107
It added that the enumeration of who the citizens of the Philippines are in Article III, Section 1 of the  1987
Constitution is exclusive and that "only natural persons are susceptible of citizenship". 108
Finding support in this court's ruling in the 1966 case of Palting v. San Jose Petroleum, 109 the SEC-OGC asserted
that it was necessary to look into the "citizenship of the individual stockholders, i.e., natural persons of [an] investor-
corporation in order to determine if the [c]onstitutional and statutory restrictions are complied with." 110 Thus, "if there are
layers of intervening corporations . . . we must delve into the citizenship of the individual stockholders of each
corporation." 111 As the SEC-OGC emphasized, "[t]his is the strict application of the Grandfather Rule." 112
Between the Grandfather Rule and the Control Test, the SEC-OGC opined that the framers of the 1987
Constitution intended to apply the Grandfather Rule and that the Control Test ran counter to their intentions:
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. 113
xxx xxx xxx
 The Control Test creates a legal fiction where if 60% of the shares of an investing corporation are owned by
Philippine citizens then all of the shares or 100% of that corporation's shares are considered Filipino owned for
purposes of determining the extent of foreign equity in an investee corporation engaging in an activity restricted to
Philippine citizens. 114
The SEC-OGC reasoned that the invalidity of the Control Test rested on the matter of citizenship:
In other words, Philippine citizenship is being unduly attributed to foreign individuals who own the rest of
the shares in a 60% Filipino equity corporation investing in another corporation. Thus, applying the Control Test
effectively circumvents the Constitutional mandate that corporations engaging in certain activities must be 60% owned
by Filipino citizens. The words of the Constitution clearly provide that we must look at the citizenship of the
individual/natural person who ultimately owns and controls the shares of stocks of the corporation engaging in the
nationalized/partly-nationalized activity. This is what the framers of the constitution intended. In fact, the Mining
Act strictly adheres to the text of the Constitution and does not provide for the application of the Control Test. Indeed,
the application of the Control Test has no constitutional or statutory basis. Its application is only by mere administrative
fiat. 115 (Emphasis supplied)
This court must now put to rest the seeming tension between the Control Test and the Grandfather Rule.
This court's 1952 ruling in Davis Winship v. Philippine Trust Co. 116 cited its 1951 ruling in Filipinas Compania de
Seguros v. Christern, Huenefeld and Co., Inc. 117 and stated that "the nationality of a private corporation is determined by
the character or citizenship of its controlling stockholders." 118
Filipinas Compania de Seguros, for its part, specifically used the term "Control Test" (citing a United States
Supreme Court decision) 119 in ruling that the respondent in that case, Christern, Huenefeld and Co., Inc. — the majority
of the stockholders of which were German subjects — "became an enemy corporation upon the outbreak of the war." 120
Their pronouncements and clear reference to the Control Test notwithstanding, Davis Winship and Filipinas
Compania de Seguros do not pertain to nationalized economic activities but rather to corporations deemed to be of a
belligerent nationality during a time of war.
In and of itself, this court's 1966 decision in Palting had nothing to do with the Control Test and the Grandfather
Rule. Palting, which was relied upon by SEC-OGC in Opinion No. 10-31, was promulgated in 1966, months before the
1967 SEC Rules and its bifurcated paragraph 7 were adopted.
Likewise, Palting was promulgated before Republic Act No. 5186, the Investments Incentive Act, was adopted in
1967. The Investments Incentive Act was adopted with the declared policy of "accelerat[ing] the sound development of the
national economy in consonance with the principles and objectives of economic nationalism," 121 thereby effecting the
(1935) Constitution's nationalization objectives.
It was through the Investments Incentive Act that a definition of a "Philippine national" was established. 122 This
definition has been practically reiterated in Presidential Decree No. 1789, the Omnibus Investments Code of
1981; 123 Executive Order No. 226, the Omnibus Investments Code of 1987; 124 and the present Foreign Investments
Act. 125
This court's 2009 decision in Unchuan v. Lozada 126 referred to Section 3 (a) of the Foreign Investments
Act defining "Philippine national". In so doing, this court may be characterized to have applied the Control Test:
In this case, we find nothing to show that the sale between the sisters Lozada and their nephew Antonio
violated the public policy prohibiting aliens from owning lands in the Philippines. Even as Dr. Lozada advanced the
money for the payment of Antonio's share, at no point were the lots registered in Dr. Lozada's name. Nor was it
contemplated that the lots be under his control for they are actually to be included as capital of Damasa Corporation.
According to their agreement, Antonio and Dr. Lozada are to hold 60% and 40% of the shares in said corporation,
respectively. Under Republic Act No. 7042, particularly Section 3, a corporation organized under the laws of the
Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines, is considered a Philippine National. As such, the corporation may acquire disposable
lands in the Philippines. Neither did petitioner present proof to belie Antonio's capacity to pay for the lots subjects of
this case. 127 (Emphasis supplied)
This court's 2011 decision in Gamboa v. Teves 128 also pertained to the reckoning of foreign equity ownership in a
nationalized economic activity (i.e., public utilities). However, it centered on the definition of the term "capital" 129 which
was deemed as referring "only to shares of stock entitled to vote in the election of directors." 130
This court's 2012 resolution ruling on the motion for reconsideration in Gamboa 131 referred to the SEC En Banc's
March 25, 2010 decision in Redmont Consolidated Mines Corp. v. McArthur Mining Corp. (subject of G.R. No. 205513),
which applied the Grandfather Rule:
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. 132
However, a reading of the original 2011 decision will reveal that the matter of beneficial ownership was considered
after quoting the implementing rules and regulations of the Foreign Investments Act. The third paragraph of Rule I,
Section 1 (b) of these rules states that "[f]ull beneficial ownership of the stocks, coupled with appropriate voting rights is
essential." It is this same provision of the implementing rules which, in the first paragraph, declares that "the Control Test
shall be applied . . . ."
In any case, the 2012 resolution's reference to the SEC En Banc's March 25, 2010 decision in Redmont can hardly
be considered as authoritative. It is, at most, obiter dictum. In the first place, Redmont was evidently not the subject
of Gamboa. It is the subject of G.R. No. 205513, which was consolidated, then de-consolidated, with the present petition.
Likewise, the crux of Gamboa was the consideration of the kind/s of shares to which the term "capital" referred, not the
applicability of the Control Test and/or the Grandfather Rule. Moreover, the 2012 resolution acknowledges that:
 [T]he 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. 133
The Grandfather Rule is not
enshrined in the Constitution
In ruling that the Grandfather Rule must apply, the ponencia relies on the deliberations of the 1986 Constitutional
Commission. The ponencia states that these discussions "shed light on how a citizenship of a corporation will be
determined." 134
The ponencia cites an exchange between Commissioners Bernardo F. Villegas and Jose N. Nolledo: 135
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. 136 (Emphasis supplied)
This court has long settled the interpretative value of the deliberations of the Constitutional Commission. In Civil
Liberties Union v. Executive Secretary, 137 this court noted:
A foolproof yardstick in constitutional construction is the intention underlying the provision under consideration.
Thus, it has been held that the Court in construing a Constitution should bear in mind the object sought to be
accomplished by its adoption, and the evils, if any, sought to be prevented or remedied. A doubtful provision will be
examined in the light of the history of the times, and the condition and circumstances under which the  Constitution was
framed. The object is to ascertain the reason which induced the framers of the  Constitution to enact the particular
provision and the purpose sought to be accomplished thereby, in order to construe the whole as to make the words
consonant to that reason and calculated to effect that purpose. 138
However, in the same case, this court also said: 139
While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional convention
in order to arrive at the reason and purpose of the resulting Constitution, resort thereto may be had only when other
guides fail as said proceedings are powerless to vary the terms of the Constitution when the meaning is
clear. Debates in the constitutional convention "are of value as showing the views of the individual members,
and as indicating the reasons for their votes, but they give us no light as to the views of the large majority
who did not talk, much less of the mass of our fellow citizens whose votes at the polls gave that instrument
the force of fundamental law. We think it safer to construe the constitution from what appears upon its face."
The proper interpretation therefore depends more on how it was understood by the people adopting it than in
the framers's understanding thereof. 140 (Emphasis supplied)
As has been stated:
The meaning of constitutional provisions should be determined from a contemporary reading of the text in
relation to the other provisions of the entire document. We must assume that the authors intended the words to be
read by generations who will have to live with the consequences of the provisions. The authors were not only the
members of the Constitutional Commission but all those who participated in its ratification. Definitely, the ideas and
 opinions exchanged by a few of its commissioners should not be presumed to be the opinions of all of them. The result
of the deliberations of the Commission resulted in a specific text, and it is that specific text — and only that text —
which we must read and construe.
The preamble establishes that the "sovereign Filipino people" continue to "ordain and promulgate"
the Constitution. The principle that "sovereignty resides in the people and all government authority emanates from
them" is not hollow. Sovereign authority cannot be undermined by the ideas of a few Constitutional Commissioners
participating in a forum in 1986 as against the realities that our people have to face in the present.
There is another, more fundamental, reason why reliance on the discussion of the Constitutional
Commissioners should not be accepted as basis for determining the spirit behind constitutional provisions. The
Constitutional Commissioners were not infallible. Their statements of fact or status or their inferences from such beliefs
may be wrong . . . . . 141
It is true that the records of the Constitutional Commission indicate an affirmative reference to the Grandfather Rule.
However, the quoted exchange fails to indicate a consensus or the general sentiment of the forty-nine (49) members 142 of
the Constitutional Commission. What it indicates is, at most, an understanding between Commissioners Nolledo and
Villegas, albeit with the latter claiming that the same understanding is shared by the Constitutional Commission's
Committee on National Economy and Patrimony. (Though even then, it is not established if this understanding is shared
by the committee members unanimously, or by a majority of them, or is advanced by its leadership under the assumption
that it may speak for the Committee.)
The 1987 Constitution is silent on the precise means through which foreign equity in a corporation shall be
determined for the purpose of complying with nationalization requirements in each industry. If at all, it militates against the
supposed preference for the Grandfather Rule that, its mention in the Constitutional Commission's deliberations
notwithstanding, the 1987 Constitution was, ultimately, inarticulate on adopting a specific test or means.
The 1987 Constitution is categorical in its omission. Its meaning is clear. That is to say, by its silence, it chose to not
manifest a preference. Had there been any such preference, the Constitution could very well have said it.
In 1986, when the Constitution was being drafted, the Grandfather Rule and the Control Test were not novel
concepts. Both tests have been articulated since as far back as 1967. The Foreign Investments Act, while adopted in
1991, has "predecessor statute[s]" 143 dating to before 1986. As earlier mentioned, these predecessors also define the
term "Philippine national" and in substantially the same manner that Section 3 (a) of the Foreign Investments
Act does. 144 It is the same definition: This is the same basis for applying the Control Test.
It is elementary that the Constitution is not primarily a lawyer's document. 145 As the convoluted history of the
Control Test and Grandfather Rule shows, even those learned in the law have been in conflict, if not in outright confusion,
as to their application. It is not proper to insist upon the Grandfather Rule as enshrined in the Constitution — and as
manifesting the sovereign people's will — when the Constitution makes absolutely no mention of it.
 In the final analysis, the records of the Constitutional Commission do not bind this court. As Charles P. Curtis, Jr.
said on the role of history in constitutional exegesis: 146
The intention of the framers of the Constitution, even assuming we could discover what it was, when it is not
adequately expressed in the Constitution, that is to say, what they meant when they did not say it, surely that has no
binding force upon us. If we look behind or beyond what they set down in the document, prying into what else
they wrote and what they said, anything we may find is only advisory. They may sit in at our councils. There is no
reason why we should eavesdrop on theirs. 147 (Emphasis provided)
The Control Test is
established by congressional
dictum
The Foreign Investments Act addresses the gap. As this court has acknowledged, "[t]he FIA is the basic law
governing foreign investments in the Philippines, irrespective of the nature of business and area of investment." 148
The Foreign Investments Act applies to nationalized economic activities under the Constitution. Section 8 of
the Foreign Investments Act 149 provides that there shall be two (2) component lists, A and B, with List A pertaining to "the
areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws."
To reiterate, Section 3 (a) of the Foreign Investments Act defines a "Philippine national" as including "a corporation
organized under the laws of the Philippines of which at least sixty per cent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines." This is a definition that is consistent with the first part of
paragraph 7 of the 1967 SEC Rules, which, as proffered by DOJ Opinion No. 20, series of 2005, articulates the Control
Test: "[s]hares belonging to corporations or partnerships at least 60 per cent of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality."
Moreover, the Foreign Investments Act admits of situations where a corporation invests in another corporation by
owning shares of the latter. Thus, the proviso in Section 3 (a) of the Foreign Investments Act reads:
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[.]
Supplementing this is the last sentence of the first paragraph of Rule I, Section 1 (b) of the implementing rules and
regulations of the Foreign Investments Act: "The Control Test shall be applied for this purpose."
As such, by congressional dictum, which is properly interpreted by administrative rule making, the Control
Test must govern in reckoning foreign equity ownership in corporations engaged in nationalized economic activities. It is
through the Control Test that these corporations' minimum qualification to engage in nationalized economic activities
adjudged.
DOJ Opinion No. 20, series of
2005, provides a qualifier, not
a mere example
The ponencia states that "this case calls for the application of the grandfather rule since, . . ., doubt prevails and
persists in the corporate ownership of herein petitioners." 150 This position is borne by the ponencia's consideration
of DOJ Opinion No. 20, series of 2005, which states:
[T]he 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 where the joint venture corporation with Filipino and foreign stockholders
with less than 60% Filipino stockholdings [or 59%] invests in another joint venture corporation which is either
60-40% Filipino-alien or 59% less Filipino. Stated differently, where the 60-40 Filipino-foreign equity ownership is
not in doubt, the Grandfather Rule will not apply. 151 (Emphasis supplied)
As is clear from the quoted portion of DOJ Opinion No. 20, series of 2005, the phrase "in doubt" is followed by a
qualifying clause: "i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less than
60% Filipino stockholdings [or 59%] invests in another joint venture corporation which is either 60-40% Filipino-alien or
59% less Filipino."
The ponencia states that this clause "only made an example of an instance where 'doubt' as to the ownership of a
corporation exists" 152 and is, thus, not controlling.
This construction is erroneous. The abbreviation "i.e." is an acronym for the Latin "id est", which translates to "that
is". 153 It is used not to cite an example but "to add explanatory information or to state something in different
words." 154 Whatever follows "i.e." is a paraphrasing or an alternative way of stating the word/s that preceded it. The
words succeeding "i.e.", therefore, refer to the very conception of the words preceding "i.e.".
Had DOJ Opinion No. 20, series of 2005, intended to cite an example or to make an illustration, it should have
instead used "e.g." This stands for the Latin "exempli gratia", which translates to "for example." 155
Thus, all that DOJ Opinion No. 20, series of 2005, meant was that "doubt" as to Filipino-foreign equity ownership
exists when Filipino stockholdings is less than sixty percent (60%). Indeed, there is no doubt where Filipino stockholdings
amount to at least sixty percent (60%). Pursuant to Section 3 (a) of the Foreign Investments Act, a corporation is then
already deemed to be of Philippine nationality.
The Control Test serves the
rationale for nationalizing the
exploration, development,
and utilization of natural
resources
The application of the Control Test is by no means antithetical to the avowed policy of a "national economy
effectively controlled by Filipinos." 156 The Control Test promotes this policy.
It is a matter of transitivity 157 that if Filipino stockholders control a corporation which, in turn, controls another
corporation, then the Filipino stockholders control the latter corporation, albeit indirectly or through the former corporation.
An illustration is apt.
Suppose that a corporation, "C", is engaged in a nationalized activity requiring that 60% of its capital be owned by
Filipinos and that this 60% is owned by another corporation, "B", while the remaining 40% is owned by stockholders,
collectively referred to as "Y". Y is composed entirely of foreign nationals. As for B, 60% of its capital is owned by
stockholders collectively referred to as "A", while the remaining 40% is owned by stockholders collectively referred to as
"X". The collective A, is composed entirely of Philippine nationals, while the collective X is composed entirely of foreign
nationals. (N.b., in this illustration, capital is understood to mean "shares of stock entitled to vote in the election of
directors," per the definition in Gamboa). 158 Thus:

 
By owning 60% of B's capital, A controls B. Likewise, by owning 60% of C's capital, B controls C. From this, it
follows, as a matter of transitivity, that A controls C; albeit indirectly, that is, through B.
This "control" holds true regardless of the aggregate foreign capital in B and C. As explained in Gamboa, control by
stockholders is a matter resting on the ability to vote in the election of directors:
 Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation. This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation. 159
B will not be outvoted by Y in matters relating to C, while A will not be outvoted by X in matters relating to B. Since
all actions taken by B must necessarily be in conformity with the will of A, anything that B does in relation to C is, in effect,
in conformity with the will of A. No amount of aggregating the foreign capital in B and C will enable X to outvote A, nor Y to
outvote B.
In effect, A controls C, through B. Stated otherwise, the collective Filipinos in A, effectively control C, through their
control of B.
To reiterate, "[t]he purpose of the sixty per centum requirement is . . . to ensure that corporations . . . allowed to . . .
exploit natural resources shall be controlled by Filipinos." 160 The decisive consideration is therefore control rather than
plain ownership of capital.
The Grandfather Rule does
not guarantee control and can
undermine the rationale for
nationalization
As against each other, it is the Control Test, rather than the Grandfather Rule, which better serves to ensure that
Philippine nationals control a corporation.
As is illustrated by the SEC's September 21, 1990 opinion addressed to Carag, Caballes, Jamora, Rodriguez and
Somera Law Offices, the application of the Grandfather Rule does not guarantee control by Filipino stockholders.
In certain instances, the application of the Grandfather Rule actually undermines the rationale (i.e., control) for the
nationalization of certain economic activities.
The SEC's September 21, 1990 opinion related to the nationality of a proposed corporation. Another corporation,
Indo Phil Textile Mills, Inc. (Indo Phil), intended to subscribe to 70% of the proposed corporation's capital stock upon
incorporation. The remainder (i.e., 30%) of the proposed corporation's capital stock would have been subscribed to by
Filipinos. For its part, Indo Phil was owned by foreign stockholders to the extent of 56%. Thus, it was only 44% Filipino-
owned.
Applying the Grandfather Rule, the aggregate Filipino stockholdings in the proposed corporation was computed to
amount to 60.8%. As such, the proposed corporation was deemed to be of Filipino nationality.
A consideration of the same case, with emphasis on the matter of "control" (and therefore in a manner more in
keeping with the rationale for nationalization), should yield a different conclusion.
 Considering that there is no indication in the SEC opinion that any of the shares in Indo Phil do not have voting
rights, it must be assumed that all such shares have voting rights. As the foreign stockholdings in Indo Phil amount to
56%, control of Indo Phil is held by foreign nationals; that is, this 56% can outvote the 44% stockholding of Indo Phil's
Filipino stockholders. Since control of the proposed corporation will rest on Indo Phil (which is to hold 70% of its capital),
this control would ultimately rest on those who control Indo Phil; that is, its 56% foreign stockholding.
Had the Control Test been applied, Indo Phil would have, at the onset, been deemed to have failed to satisfy the
requisite Filipino equity ownership, and its 70% stockholding in the proposed corporation would have been deemed not
held by Philippine nationals. The Control Test would thus have averted an aberrant result where a corporation ultimately
controlled by foreign nationals was deemed to have satisfied the requisite Filipino equity ownership.
The Control Test satisfies the
beneficial ownership
requirement
Apart from control (through voting rights), also significant is "beneficial ownership". In the 2011 decision
in Gamboa, 161 this court stated:
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]." 162
The concept of "beneficial ownership" is not novel. The implementing rules and regulations (amended 2004) of
Republic Act No. 8799, the Securities Regulation Code (SRC), defines "beneficial owner or beneficial ownership" as
follows:
SRC Rule 3 — Definition of Terms Used in the Rules and Regulations
1. As used in the rules and regulations adopted by the Commission under the Code, unless the context otherwise
requires:
A. Beneficial 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 to direct the voting of such security; and/or investment returns or power,
which includes the power to dispose of, or to direct the disposition of such security; provided, however,
that a person shall be deemed to have an indirect beneficial ownership interest in any security
which is:
i. held by members of his immediate family sharing the same household;
ii. held by a partnership in which he is a general partner;
 iii. held by a corporation of which he is a controlling shareholder; or
iv. subject to any contract, arrangement or understanding which gives him voting power or investment power with
respect to such securities; provided however, that the following persons or institutions shall not be deemed
to be beneficial owners of securities held by them for the benefit of third parties or in customer or fiduciary
accounts in the ordinary course of business, so long as such shares were acquired by such persons or
institutions without the purpose or effect of changing or influencing control of the issuer:
a. a broker dealer;
b. an investment house registered under the Investment Houses Law;
c. a bank authorized to operate as such by the Bangko Sentral ng Pilipinas;
d. an insurance company subject to the supervision of the Office of the Insurance Commission;
e. an investment company registered under the Investment Company Act;
f. a pension plan subject to regulation and supervision by the Bureau of Internal Revenue and/or the Office
of the Insurance Commission or relevant authority; and
g. a group in which all of the members are persons specified above.
 All securities of the same class beneficially owned by a person, regardless of the form such beneficial ownership
takes, shall be aggregated in calculating the number of shares beneficially owned by such person.
 A person shall be deemed to be the beneficial owner of a security if that person has the right to acquire
beneficial ownership, within thirty (30) days, including, but not limited to, any right to acquire, through the
exercise of any option, warrant or right; through the conversion of any security; pursuant to the power to
revoke a trust, discretionary account or similar arrangement; or pursuant to automatic termination of a
trust, discretionary account or similar arrangement. (Emphasis supplied)
Thus, there are two (2) ways through which one may be a beneficial owner of securities, such as shares of stock:
first, by having or sharing voting power; and second, by having or sharing investment returns or power. By the
implementing rules' use of "and/or", either of the two suffices. They are alternative means which may or may not concur.
Voting power, as discussed previously, ultimately rests on the controlling stockholders of the controlling investor
corporation. To go back to the previous illustration, voting power ultimately rests on A, it having the voting power in B
which, in turn, has the voting power in C.
As to investment returns or power, it is ultimately A which enjoys investment power. It controls B's investment
decisions — including the disposition of securities held by B — and (again, through B) controls C's investment decisions.
Similarly, it is ultimately A which benefits from investment returns generated through C. Any income generated by C
redounds to B's benefit, that is, through income obtained from C, B gains funds or assets which it can use either to
finance itself in respect of capital and/or operations. This is a direct benefit to B, itself a Philippine national. This is also an
indirect benefit to A, a collectivity of Philippine nationals, as then, its business — B — not only becomes more viable as a
going concern but also becomes equipped to funnel income to A.
Moreover, beneficial ownership need not be direct. A controlling shareholder is deemed the indirect beneficial
owner of securities (e.g., shares) held by a corporation of which he or she is a controlling shareholder. Thus, in the
previous illustration, A, the controlling shareholder of B, is the indirect beneficial owner of the shares in C to the extent that
they are held by B.
Practical difficulties with the
Grandfather Rule
Per SEC-OGC Opinion No. 10-31, the Grandfather Rule calls for the aggregation of stockholdings on the basis of
the individual stockholders (i.e., natural persons) of every investor corporation. This construction presents practical
problems which, in many circumstances, render the reckoning of foreign equity a futile exercise.
It is a given that a corporation may hold shares in another corporation. Having to reckon equity to that point when
natural persons hold rights to stocks makes it conceivable that stockholdings will have to be traced ad infinitum. The
Grandfather Rule, as conceived in SEC-OGC Opinion No. 10-31, will never be satisfied for as long as there is a
corporation holding the shares of another corporation.
This proposition is rendered even more difficult (and absurd) by how certain corporations are listed and traded in
stock exchanges. In these cases, the ownership of stocks and the fractional composition of a corporation can change on a
daily basis.
Even Palting, which SEC-OGC Opinion No. 10-31 relied upon to justify resort to the Grandfather Rule,
acknowledged these impracticalities and absurdities:
[T]o what extent must the word "indirectly" be carried? Must we trace the ownership or control of these various
corporations ad infinitum for the purpose of determining whether the American ownership-control-requirement is
satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL which are
allegedly owned or controlled directly by citizens of the United States, are traded in the stock exchange in New York,
and you have a situation where it becomes a practical impossibility to determine at any given time, the citizenship of
the controlling stock required by the law. 163
The Control Test is sustained
by the Mining Act
The Foreign Investments Act's reckoning of a Philippine national on the basis of control and the requisite application
of the Control Test are reinforced by the Mining Act.
 Section 3 (aq) of the Mining Act deems as a qualified person (for purposes of a mineral agreement) a "corporation, .
. . at least sixty per centum (60%) of the capital of which is owned by citizens of the Philippines." Insofar as the controlling
equity requirement is concerned, this is practically a restatement of Section 3 (a) of the Foreign Investments Act. 164
Moreover, Section 3 (t), by defining a "foreign-owned corporation" as a "corporation, . . . in which less than fifty
per centum (50%) of the capital is owned by Filipino citizens" is merely stating Section 3 (aq)'s inverse. Section 3 (t)
remains consistent with the Control Test, for after all, a corporation in which less than half of the capital is owned by
Filipino could not possibly be controlled by Filipinos.
Sixty percent Filipino equity
ownership is indispensable to
be deemed a Philippine
national
But what of corporations in which Filipino equity is greater than 50% but less than 60%?
The Foreign Investments Act is clear. The threshold to qualify as a Philippine national, whether as a stand-alone
corporation or one involving investments from or by other corporation/s, is 60% Filipino equity ownership. Failing this, a
corporation must be deemed to be of foreign nationality.
The necessary implication of Section 3 (a) of the FIA is that anything that fails to breach this 60% threshold is not a
Philippine national. There is no "doubt", as DOJ Opinion No. 20, series of 2005, posits. Any declaration, in the Mining
Act or elsewhere, that a corporation in which Filipino equity ownership is less than 50% is deemed foreign-owned is
merely to articulate — so as to eliminate uncertainty — the natural consequence of Filipinos' minority shareholding in a
corporation. Ultimately, the positive determination of what makes a Philippine national, per Section 3 (a) of the Foreign
Investments Act, is that which controls.
The Grandfather Rule may
be applied as a supplement to
the Control Test
This standard under the Foreign Investments Act is the Control Test. Its application can be nuanced if there is a
clear showing that the context of a case requires it. The Foreign Investments Act's standard should be applied with the
end of achieving the rationale for nationalization. Thus, sixty percent equity ownership is but a minimum.
This court's conception of what constitutes control — as articulated in Gamboa — must be deemed integrated into
the Foreign Investment Act's standard. Bare ownership of 60% of a corporation's shares would not suffice. What is
necessary is such ownership as will ensure control of a corporation.
In Gamboa, "[f]ull beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required." 165 With this in mind, the Grandfather Rule may be used as a supplement to the Control
Test, that is, as a further check to ensure that control and beneficial ownership of a corporation is in fact lodged
in Filipinos.
For instance, Department of Justice Opinion No. 165, series of 1984, identified the following "significant indicators"
or badges of "dummy status":
1. That the foreign investor provides practically all the funds for the joint investment undertaken by Filipino businessmen
and their foreign partner.
2. That the foreign investors undertake to provide practically all the technological support for the joint venture.
3. That the foreign investors, while being minority stockholders, manage the company and prepare all economic viability
studies. 166
In instances where methods are employed to disable Filipinos from exercising control and reaping the economic
benefits of an enterprise, the ostensible control vested by ownership of 60% of a corporation's capital may be pierced.
Then, the Grandfather Rule allows for a further, more exacting examination of who actually controls and benefits from
holding such capital.
Narra, Tesoro, and McArthur
ostensibly satisfy the
minimum requirement of
60% Filipino equity holding
Turning now to Narra, Tesoro, and McArthur, a determination of their qualification to enter into MPSAs requires an
examination of the structures of their respective stockholdings and controlling interests. This examination must remain
consistent with the previously discussed requirements of effective control and beneficial ownership.
Consistent with Gamboa, 167 this examination of equity structures must likewise focus on "capital" understood as
"shares of stock entitled to vote in the election of directors." 168
Proceeding from the findings of the Court of Appeals in its October 1, 2010 decision in CA-G.R. SP No.
109703, 169 it appears that at least 60% of equities in Narra, Tesoro, and McArthur is owned by Philippine nationals. Per
this initial analysis, Narra, Tesoro, and McArthur ostensibly satisfy the requirements of the Control Test in order that they
may be deemed Filipino corporations.
Attention must be drawn to how these findings fail to indicate which (fractional) portion of these equities consist of
"shares of stock entitled to vote in the election of directors" or, if there is even any such portion of shares which are not
entitled to vote. These findings fail to indicate any distinction between common shares and preferred shares (not entitled
to vote). Absent a basis for reckoning non-voting shares, there is, thus, no basis for diminishing the 60% Filipino equity
holding in Narra, Tesoro, and McArthur and undermining their having ostensibly satisfied the requirements of the Control
Test in order to be deemed Filipino corporations qualified to enter into MPSAs.
 1. Narra Nickel Mining and Development Corporation
Petitioner Narra Nickel Mining and Development Corporation has P10 Million in capital stock, divided into 10,000
shares at P1,000.00 per share, subscribed to as follows: 170
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Patricia Louise Filipino 5,997 P5,997,000.00 P1,667,000.00
Mining and        
Development Corp.        
         
MBMI Resources, Inc. Canadian 3,996 P3,996,000.00 P1,116,000.00
Higinio C. Mendoza, Jr. Filipino 1 P1,000.00 P1,000.00
Henry E. Fernandez Filipino 1 P1,000.00 P1,000.00
Ma. Elena A. Bocalan Filipino 1 P1,000.00 P1,000.00
Michael T. Mason American 1 P1,000.00 P1,000.00
Robert L. McCurdy Canadian 1 P1,000.00 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00
Bayani H. Agabin Filipino 1 P1,000.00 P1,000.00
    –––––– ––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,800,000.00
    ====== ============ ============
Patricia Louise Mining and Development Corporation (PLMDC) also has P10 Million in capital stock, divided into
10,000 shares at P1,000.00 per share, subscribed to as follows: 171
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Palawan Alpha South Filipino 6,596 P6,596,000.00 P0
Resource        
Development Corp.        
MBMI Resources, Inc. Canadian 3,396 P3,396,000.00 P2,796,000.00
Higinio C. Mendoza, Jr. Filipino 1 P1,000.00 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Henry E. Fernandez Filipino 1 P1,000.00 P1,000.00
Lauro L. Salazar Filipino 1 P1,000.00 P1,000.00
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
 Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00
Bayani H. Agabin Filipino 1 P1,000.00 P1,000.00
    ––––––– –––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,804,000.00
    ====== ============= ============
Palawan Alpha South Resource and Development Corporation, a Filipino corporation, along with Higinio C.
Mendoza, Jr., Fernando B. Esguerra, Henry E. Fernandez, Lauro L. Salazar, Manuel A. Agcaoili, and Bayani H. Agabin,
who are all Filipinos, collectively own 6,002 shares in or 60.02% of the capital stock of PLMDC. PLMDC is
thus ostensibly a Filipino corporation (i.e., it is controlled by Philippine nationals who own more than 60% of its capital as
required by Section 3 (a) of the Foreign Investments Act).
PLMDC, along with Higinio C. Mendoza, Jr., Henry E. Fernandez, Ma. Elena A. Bocalan, Manuel A. Agcaoili and
Bayani H. Agabin, who are all Filipinos, collectively own 6,002 shares in or 60.02% of the capital stock of Narra. As Narra
has satisfied the minimum Filipino equity ownership (i.e., 60%) required by Section 3 (a) of the Foreign Investments Act, it
is ostensibly a Filipino corporation. Moreover, as it has satisfied the minimum Filipino equity ownership (i.e., 60%)
required by Section 3 (aq) of the Mining Act to be deemed a qualified person for purposes of mineral agreements, Narra is
ostensibly qualified to enter into an MPSA.
2. Tesoro Mining and Development, Inc.
Petitioner Tesoro Mining and Development, Inc. has P10 Million in capital stock, divided into 10,000 shares at
P1,000.00 per share, subscribed to as follows: 172
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Sara Marie Mining, Inc. Filipino 5,997 P5,997,000.00 P825,000.00
MBMI Resources, Inc. Canadian 3,998 P3,998,000.00 P1,878,174.60
Lauro L. Salazar Filipino 1 P1,000.00 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
    –––––– –––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,708,174.60 
    ====== ============= ============
Sara Marie Mining, Inc. (SMMI) also has P10 Million in capital stock, divided into 10,000 shares at P1,000.00 per
share, subscribed to as follows: 173
 Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Olympic Mines and Filipino 6,663 P6,663,000.00 P0
Development Corp.        
MBMI Resources, Inc. Canadian 3,331 P3,331,000.00 P2,794,000.00
Amanti Limson Filipino 1 P1,000.00 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Lauro Salazar Filipino 1 P1,000.00 P1,000.00
Emmanuel G. Filipino 1 P1,000.00 P1,000.00
Hernando        
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
    ––––––– –––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,809,900.00
    ====== ============= ============
Olympic Mines and Development Corporation (OMDC), a Filipino corporation, along with Amanti Limson, Fernando
B. Esguerra, Lauro Salazar, and Emmanuel G. Hernando, who are all Filipinos, collectively own 6,667 shares in or
66.67% of the capital stock of SMMI. SMMI is thus ostensibly a Filipino corporation (i.e., it is controlled by Philippine
nationals who own more than 60% of its capital as required by Section 3 (a) of the Foreign Investments Act).
SMMI, along with Lauro L. Salazar, Fernando B. Esguerra, and Manuel A. Agcaoili, who are all Filipinos, collectively
own 6,000 shares in or 60% of the capital stock of Tesoro. As Tesoro has satisfied the minimum Filipino equity ownership
(i.e., 60%) required by Section 3 (a) of the Foreign Investments Act, it is ostensibly a Filipino corporation. Moreover, as it
has satisfied the minimum Filipino equity ownership (i.e., 60%)required by Section 3 (aq) of the Mining Act to be deemed
a qualified person for purposes of mineral agreements, Tesoro is ostensibly qualified to enter into an MPSA.
3. McArthur Mining Corporation
Petitioner McArthur Mining Corporation has P10 Million in capital stock, divided into 10,000 shares at P1,000.00 per
share, subscribed to as follows: 174
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Madridejos Mining Filipino 5,997 P5,997,000.00 P825,000.00
Corp.        
MBMI Resources, Inc. Canadian 3,998 P3,998,000.00 P1,878,174.60
Lauro L. Salazar Filipino 1 P1,000.00 P1,000.00
 Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Manuel A. Agcaoili Filipino 1 P1,000.00 P1,000.00
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
    –––––– –––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,708,174.60
    ====== ============= ============
Madridejos Mining Corporation (Madridejos) also has P10 Million in capital stock, divided into 10,000 shares at
P1,000.00 per shares, subscribed to as follows: 175
Name Nationality Number of  Amount Amount Paid 
    Shares Subscribed   
         
Olympic Mines and Filipino 6,663 P6,663,000.00 P0
Development Corp.         
MBMI Resources, Inc. Canadian 3,331 P3,331,000.00 P2,803,900.00
Amanti Limson Filipino 1 P1,000.00 P1,000.00
Fernando B. Esguerra Filipino 1 P1,000.00 P1,000.00
Lauro Salazar Filipino 1 P1,000.00 P1,000.00
Emmanuel G. Filipino 1 P1,000.00 P1,000.00
Hernando        
Michael T. Mason American 1 P1,000.00 P1,000.00
Kenneth Cawkel Canadian 1 P1,000.00 P1,000.00
    –––––– ––––––––––––– –––––––––––––
  Total 10,000 P10,000,000.00 P2,809,900.00
    ====== ============ ============
OMDC, a Filipino corporation, combined with Amanti Limson, Fernando B. Esguerra, Lauro Salazar, and Emmanuel
G. Hernando, who are all Filipino, collectively own 6,667 shares in or 66.67% of the capital stock of Madridejos.
Madridejos is thus ostensibly a Filipino corporation (i.e., it is controlled by Philippine nationals who own more than 60% of
its capital as required by Section 3 (a) of the Foreign Investments Act).
Madridejos combined with Lauro L. Salazar, Fernando B. Esguerra, and Manuel A. Agcaoili, who are all Filipinos,
collectively own 6,000 shares in or 60% of the capital stock of McArthur. As McArthur has satisfied the minimum Filipino
equity ownership (i.e., 60%) required by Section 3 (a) of the Foreign Investments Act, it is ostensibly a Filipino
corporation. Moreover, as it has satisfied the minimum Filipino equity ownership (i.e., 60%) required by Section 3 (aq) of
the Mining Act to be deemed a qualified person for purposes of mineral agreements, McArthur is ostensibly qualified to
enter into an MPSA.
 In its October 1, 2010 decision, the Court of Appeals, Seventh Division, made much of a joint venture entered into
by the Canadian Corporation, MBMI Resources, Inc. with OMDC. 176 This joint venture was denominated "Olympic
Properties". Per MBMI's 2006 Annual report, MBMI was noted to hold "directly and indirectly an initial 60% interest in
[Olympic Properties]." 177 This joint venture, however, does not factor into the respective stockholders' genealogies of
Tesoro and McArthur. It is an independent venture entered into by OMDC with MBMI. It is OMDC, and not Olympic
Properties, which owns shares in Tesoro and McArthur. It is, therefore, of no consequence that MBMI holds a 60%
interest in Olympic Properties.
Having made these observations, it should not be discounted that a more thorough consideration — as has been
intimated in the earlier disquisition regarding how 60% Filipino equity ownership is but a minimum and how the
Grandfather Rule may be applied to further examine actual Filipino ownership — could yield an entirely different
conclusion. In fact, Redmont has asserted that such a situation avails.
However, the contingencies of this case must restrain the court's consideration of Redmont's claims.
Redmont sought relief from a body without jurisdiction — the Panel of Arbitrators — and has engaged in blatant
forum shopping. It has taken liberties with and ran amok of rules that define fair play. It is, therefore, bound by its
lapses and indiscretions and must bear the consequences of its imprudence.
Redmont has been engaged in
blatant forum shopping
The concept of and rationale against forum shopping was explained by this court in Top Rate Construction and
General Services, Inc. v. Paxton Development Corporation: 178
Forum shopping is committed by a party who institutes two or more suits in different courts, either
simultaneously or successively, in order to ask the courts to rule on the same or related causes or to grant the
same or substantially the same reliefs, on the supposition that one or the other court would make a favorable
disposition or increase a party's chances of obtaining a favorable decision or action. It is an act of malpractice for it
trifles with the courts, abuses their processes, degrades the administration of justice and adds to the already
congested court dockets. What is critical is the vexation brought upon the courts and the litigants by a party
who asks different courts to rule on the same or related causes and grant the same or substantially the
same reliefs and in the process creates the possibility of conflicting decisions being rendered by the different
for a upon the same issues, regardless of whether the court in which one of the suits was brought has no jurisdiction
over the action. 179 (Emphasis supplied)
Equally settled is the test for determining forum shopping. As this court explained in Yap v. Court of Appeals: 180
To determine whether a party violated the rule against forum shopping, the most important factor to ask is
whether the elements of litis pendentia are present, or whether a final judgment in one case will amount to res
judicata in another; otherwise stated, the test for determining forum shopping is whether in the two (or more) cases
pending, there is identity of parties, rights or causes of action, and reliefs sought. 181
 Litis pendentia "refers to that situation wherein another action is pending between the same parties for the same
cause of action, such that the second action becomes unnecessary and vexatious." 182 It requires the concurrence of
three (3) requisites: (1) the identity of parties, or at least such as representing the same interests in both actions; (2) the
identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (3) the identity of the two
cases such that judgment in one, regardless of which party is successful, would amount to res judicata in the other. 183
In turn, prior judgment or res judicata bars a subsequent case when the following requisites concur: (1) the former
judgment is final; (2) it is rendered by a court having jurisdiction over the subject matter and the parties; (3) it is a
judgment or an order on the merits; (4) there is — between the first and the second actions — identity of parties, of
subject matter, and of causes of action. 184
Redmont has taken at least four (4) distinct routes all seeking substantially the same remedy. Stripped of their
verbosity and legalese, Redmont's petitions before the DENR Panel of Arbitrators, complaint before the Regional Trial
Court, complaint before the Securities and Exchange Commission, and petition before the Office of the President all seek
to prevent Narra, Tesoro, and McArthur as well as their co-respondents and/or co-defendants from engaging in mining
operations. Moreover, these are all grounded on the same cause (i.e., that they are disqualified from doing so because
they fail to satisfy the requisite Filipino equity ownership) and premised on the same facts or circumstances.
Redmont has created a situation where multiple tribunals must rule on the extent to which the parties adverse to
Redmont have met the requisite Filipino equity ownership. It is certainly possible that conflicting decisions will be issued
by the various tribunals over which Redmont's various applications for relief have been lodged. It is, thus, glaring that the
very evil sought to be prevented by the rule against forum shopping is being foisted by Redmont.
The consequences of willful forum shopping are clear. Rule 7, Section 5 of the 1997 Rules of Civil
Procedure provides:
Section 5. Certification against forum shopping. — The plaintiff or principal party shall certify under oath in the
complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the
same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or
claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the present status
thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he
shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading
has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or
other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided,
upon motion and after hearing. The submission of a false certification or non-compliance with any of the undertakings
therein shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal
actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the
 same shall be ground for summary dismissal with prejudice and shall constitute direct contempt, as well as a
cause for administrative sanctions. (n)
It strains credulity to accept that Redmont's actions have not been willful. By filing petitions with the DENR Panel of
Arbitrators, Redmont started the entire series of events that have culminated in: first, the present petition; second, the de-
consolidated G.R. No. 205513; and third, at least one (1) more petition filed with this court. 186
Following the adverse decision of the Panel of Arbitrators, Narra, Tesoro, and McArthur pursued appeals before the
Mines Adjudication Board. This is all but a logical consequence of the POA's adverse decision. While the appeal before
the MAB was pending, Redmont filed a complaint with the SEC and then filed a complaint with the Regional Trial Court to
enjoin the MAB from proceeding. Redmont seems to have conveniently forgotten that it was its own actions that gave rise
to the proceedings before the MAB in the first place. Moreover, even as all these were pending and in various stages of
appeal and/or review, Redmont still filed a petition before the Office of the President.
Consistent with Rule 7, Section 5 of the 1997 Rules of Civil Procedure, the actions subject of these consolidated
petitions must be dismissed with prejudice.
It should also not escape this court's attention that the vexatious actions of Redmont would not have been possible
were it not for the permissiveness of Redmont's counsels. To reiterate, willful forum shopping leads not only to an action's
dismissal with prejudice but "shall [also] constitute direct contempt, [and is] a cause for administrative
sanctions." 187 Redmont's counsels should be reminded that the parameters established by judicial (and even
administrative) proceedings, such as the rule against forum shopping, are not to be trifled with.
ACCORDINGLY, I vote to GRANT the petition for review on certiorari subject of G.R. No. 195580. The assailed
decision dated October 1, 2010 and the assailed resolution dated February 15, 2011 of the Court of Appeals, Seventh
Division, in CA-G.R. SP No. 109703, which reversed and set aside the September 10, 2008 and July 1, 2009 orders of the
Mines Adjudication Board (MAB) should be SET ASIDE AND DECLARED NULL AND VOID. The September 10, 2008
order of the Mines Adjudication Board dismissing the petitions filed by Redmont Consolidated Mines with the DENR Panel
of Arbitrators must be REINSTATED
|||  (Narra Nickel Mining & Development Corp. v. Redmont Consolidated Mines Corp., G.R. No. 195580, [April 21, 2014], 733
PHIL 365-490)

--- Nationality of corporation sole

Roman Catholic Apostolic Admin. of Davao (102 Phil.596)

SYLLABUS
 1. CORPORATIONS SOLE; COMPONENTS AND PURPOSE OF; POWER TO HOLD AND TRANSMIT CHURCH
PROPERTIES TO HIS SUCCESSOR IN OFFICE. — A corporation sole is a special form of corporation usually
associated with clergy . . . designed to facilitate the exercise of the functions of ownership of the church which was
regarded as the property owner (I Bouvier's Law Dictionary, p. 682-683). It consists of one person only, and his
successors (who will always be one at a time), in some particular, who are incorporated by law in order to give them some
legal advantages particularly that of perpetuity which in their natural persons they could not have . . . (Reid vs. Barry, 93
Fla. 849 112 So. 846). Through this legal fiction, church properties acquired by the incumbent of a corporation sole pass,
by operation of law, upon his death not to his personal heirs but to his successor in office. A corporation sole, therefore, is
created not only to administer the temporalities of the church or religious society where he belongs, but also to hold and
transmit the same to his successor in said office.
2. ID.; PERSONALITY OF SEPARATE AND DISTINCT FROM THAT OF ROMAN PONTIFF. — Although a branch
of the Universal Roman Catholic Apostolic Church, every Roman Catholic Church in different countries, if it exercises its
mission and is lawfully incorporated in accordance with laws of the country where it is located, is considered an entity or
person with all the rights and privileges granted to such artificial being under laws of that country, separate and distinct
from the personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations with the latter which
are governed by the Common Law or their rules and regulations.
3. ID.; ID.; POWER AND QUALIFICATION TO PURCHASE IN ITS NAME PRIVATE LANDS; 60 PER CENTUM
REQUIREMENT NOT INTENDED TO CORPORATION SOLE. — Under the circumstances of the present case, it is safe
to state that even before the establishment of the Philippine Commonwealth and of the Republic of the Philippines every
corporation sole then organized and registered had by express provision of law (Corporation Law, Public Act. 1459) the
necessary power and qualification to purchase in its name private lands located in the territory in which it exercised its
functions or ministry and for which it was created, independently of the nationality of its incumbent unique and single
number and head, the bishop of the diocese. It can be also maintained without fear of being gainsaid that the Roman
Catholic Apostolic Church in the Philippines has no nationality and that the frames of the Constitution did not have in mind
the religious corporation sole when they provided that 60 per centum of the capital thereof be owned by Filipino citizens.
Thus, if this constitutional provision were not intended for corporation sole, it is obvious that this could not be regulated or
restricted by said provision.
4. ID.; ID.; ID.; ID.; CONSTITUTIONAL REQUIREMENT LIMITED TO OWNERSHIP NOT TO CONTROL. —
But the Corporation Law and the Canon Law are explicit in their provisions that a corporation sole or "ordinary" is not the
owner of the properties that he may acquire but merely the administrator thereof and holds the same in trust for the
church to which the corporation is an organized and constituents part. Being mere administrator of the temporalities or
properties titled in his name, the constitutional provision requiring 60 per centum Filipino ownership is not applicable. The
said constitutional provision is limited by it terms to ownership alone and does not extend to control unless the control
over the property affected has been devised to circumvent the real purpose of the constitution.
 5. ID.; CORPORATION SOLE WITHOUT NATIONALITY; NATIONALITY OF CONSTITUENTS DETERMINES
WHETHER CONSTITUTIONAL REQUIREMENTS IS APPLICABLE. — The corporation sole by reason of their peculiar
constitution and form of operation have no designed owner of its temporalities, although by the terms of the law it can be
safely implied that they ordinarily hold them in trust for the benefit of the Roman Catholic faithful of their respective locality
or diocese. They can not be considered as aliens because they have no nationality at all. In determining, therefore,
whether the constitutional provision requiring 60 per centum Filipino capital is applicable to corporations sole, the
nationality of the constituents of the diocese, and not the nationality of the actual incumbent of the parish, must be taken
into consideration. In the present case, even if the question of nationality be considered, the aforesaid constitutional
requirement is fully met and satisfied, considering that the corporation sole in question is composed of an overwhelming
majority of Filipinos.

DECISION

FELIX, J  :
p

This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of Davao seeking the reversal
of a resolution issued by the Land Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case are as
follows:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of sale of
a parcel of land located in the same city covered by Transfer Certificate of Title No. 2263, in favor of the Roman Catholic
Administrator of Davao, Inc., a corporation sole organized and existing in accordance with Philippine laws, with Msgr.
Clovis Thibault, a Canadian citizen, as actual incumbent. When the deed of sale was presented to the Register of Deeds
of Davao for registration, the latter
having in mind a previous resolution of the Fourth Branch of the Court of First Instance of Manila wherein the Carmelite
Nuns of Davao were made to prepare an affidavit to the effect that 60 per cent of the members of their corporation were
Filipino citizens when they sought to register in favor of their congregation a deed of donation of a parcel of land —
required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members thereof were Filipino
citizens.
The vendee in a letter dated June 28, 1954, expressed willingness to submit an affidavit, but not in the same tenor
as that made by the Prioress of the Carmelite Nuns because the two cases were not similar, for whereas the congregation
of the Carmelite Nuns had five incorporators, the corporation sole has only one; that according to their articles of
incorporation, the organization of the Carmelite Nuns became the owner of properties donated to it, whereas the case at
bar, the totality of the Catholic population of Davao would become the owner of the property sought to be registered.
As the Register of Deeds entertained some doubts as to the registerability of the document, the matter was referred
to the Land Registration Commissioner en consulta for resolution in accordance with section 4 of Republic Act No. 1151.
Proper hearing on the matter was conducted by the Commissioner and after the petitioner corporation had filed its
memorandum, a resolution was rendered on September 21, 1954, holding that in view of the provisions of Sections 1 and
5 of Article XIII of the Philippine Constitution, the vendee was not qualified to acquire private lands in the Philippines in the
absence of proof that at least 60 per centum of the capital, property, or assets of the Roman Catholic Administrator of
Davao, Inc., was actually owned or controlled by Filipino citizens, there being no question that the present incumbent of
the corporation sole was a Canadian citizen. It was also the opinion of the Land Registration Commissioner that section
159 of the Corporation Law relied upon by the vendee was rendered inoperative by the aforementioned provisions of the
Constitution with respect to real estate, unless the precise condition set therein — that at least 60 per cent of its capital is
owned by Filipino citizens — be present, and, therefore, ordered the Register of Deeds of Davao to deny registration of
the deed of sale in the absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action for mandamus was instituted with this Court by
said corporation sole, alleging that under the Corporation Law, the Canon Law as well as the settled jurisprudence on the
matter, the deed of sale executed by Mateo L. Rodis in favor of petitioner is actually a deed of sale in favor of the Catholic
Church which is qualified to acquire private agricultural lands for the establishment and maintenance of places of worship,
and prayed that judgment be rendered reserving and setting aside the resolution of the Land Registration Commissioner
in question. In its resolution of November 15, 1954, this Court gave due course to this petition providing that the procedure
prescribed for appeals from the Public Service Commission or the Securities and Exchange Commission (Rule 43), be
followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:
SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the
Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to the State,
and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines,  or to
corporations or associations at least sixty per centum of the capital of which is owned by such citizens, SUBJECT TO
ANY EXISTING RIGHT, grant, lease, or concession AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT
ESTABLISHED UNDER THIS CONSTITUTION. Natural resources, with the exception of public agricultural land, shall
not be alienated, and no license, concession, or lease for the exploitation, development, or utilization of any of the
 natural resources shall be granted for a period exceeding twenty-five years, renewable for another twenty-five years,
except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water
power, in which cases beneficial use may be the measure and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and hold
agricultural lands in the Philippines? What is the effect of these constitutional prohibition on the right of a religious
corporation recognized by our Corporation Law and registered as a corporation sole, to possess, acquire and register real
estates in its name when the Head, Manager, Administrator or actual incumbent is an alien?
Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not
prohibited or disqualified to acquire and hold real properties. The Corporation Law and the Canon Law are explicit in their
provisions that a corporation sole or "ordinary" is not the owner of the properties that he may acquire but merely the
administrator thereof. The Canon Law also specified that church temporalities are owned by the Catholic Church as a
"moral person" or by the dioceses as minor "moral persons" with the ordinary or bishop as administrator.
And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that as a religious
society or organization, it is made up of 2 elements or divisions — the clergy or religious members and the faithful or lay
members. The 1948 figures of the Bureau of Census and Statistics showed that there were 277,551 Catholics in Davao
and aliens residing therein numbered 3,465. Even granting that all these foreigners are Catholics, petitioner contends that
Filipino citizens form more than 80 per cent of the entire Catholics population of that area. As to its clergy and religious
composition, counsel for petitioner presented the Catholic Directory of the Philippines for 1954 (Annex A) which revealed
that as of that year, Filipino clergy and women novices comprise already 60.5 per cent of the group. It was, therefore,
alleged that the constitutional requirement was fully met and satisfied.
Respondents, on the other hand, averred that although it might be true that petitioner is not the owner of the land
purchased, yet he has control over the same, with full power to administer, take possession of, alienate, transfer,
encumber, sell or dispose of any or all lands and their improvements registered in the name of the corporation sole and
can collect, receive, demand or sue for all money or values of any kind that may become due or owing to said corporation,
and vested with authority to enter into agreements with any persons, concerns or entities in connection with said real
properties, or in other words, actually exercising all rights of ownership over the properties. It was their stand that the
theory that properties registered in the name of the corporation sole are held in trust for the benefit of the Catholic
population of a place, as of Davao in the case at bar, should not be sustained because a conglomeration of persons
cannot just be pointed out as the cestui que trust or recipient of the benefits from the property allegedly administered in
their behalf. Neither can it be said that the mass of people referred to as such beneficiary exercise any right of ownership
over the same. This set-up, respondents argued, falls short of a trust. Respondents instead tried to prove that in reality,
the beneficiary of ecclesiastical properties are not the members or faithful of the church but someone else, by quoting a
portion of the oath of fidelity subscribed by a bishop upon his elevation to the episcopacy wherein he promises to render
to the Pontifical Father or his successors an account of his pastoral office and of all things appertaining to the state of this
church.
Respondents likewise advanced the opinion that in construing the constitutional provision calling for 60 per cent
Filipino citizenship, the criterion is not membership in the society but ownership of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the following: A corporation sole is a special
form of corporation usually associated with the clergy. Conceived and introduced into the common law by sheer necessity,
this legal creation which was referred to as "that unhappy freak of English law" was designed to facilitate the exercise of
the functions of ownership carried on by the clerics for and on behalf of the church which was regarded as the property
owner (See I Bouvier's Law Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors (who will always be one at a time), in some
particular station, who are incorporated by law in order to give them some legal capacities and advantages, particularly
that of perpetuity, which in their natural persons they could not have had. In this sense, the king is a sole corporation; so is
a bishop, or deans, distinct from their several chapters (Reid vs. Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are illuminating and sustain the stand of petitioner.
Section 154 thereof provides:
SEC 154. — For the administration of the temporalities of any religious denomination, society or church and the
management of the estates and properties thereof, it shall be lawful for the bishop, chief priest, or presiding elder of any
such religious denomination, society or church to become a corporation sole, unless inconsistent with the rules,
regulations or discipline of his religious denomination, society, or church or forbidden by competent authority thereof.
See also the pertinent provisions of the succeeding sections of the same Corporation Law copied hereunder:
SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of any religious
denomination, society, or church must file with the Securities and Exchange Commissioner articles of incorporation
setting forth the following facts:
xxx xxx xxx
(3) That as such bishop, chief priest, or presiding elder he is charged with the administration of the temporalities
and the management of the estates, and properties of his religious denomination, society, or church within its territorial
jurisdiction, describing it;
xxx xxx xxx
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities & Exchange Commissioner of the said articles of
incorporation, verified by affidavit or affirmation as aforesaid and accompanied by the copy of the commission, certificate
of election, or letters of appointment of the bishop, chief priest, or presiding elder, duly certified as prescribed in the
section immediately preceding such bishop, chief priest, or presiding elder, as the case may be, shall become a
 corporation sole, and all temporalities, estates, and properties of the religious denomination, society, or church therefore
administered or managed by him as such bishop, chief priest, or presiding elder shall be held in trust by him as a
corporation sole, for the use, purpose, behoof, and sole benefit of his religious denomination, society, or church,
including hospitals, schools, colleges, orphan asylums; parsonages, and cemeteries thereof. For the filing of such
articles of incorporation, the Securities & Exchange Commissioner shall collect twenty-five pesos. (As amended by
Commonwealth Act No. 287); and
SEC. 163. The right to administer all temporalities and all property held or owned by a religious order or society,
or by the diocese, synod, or district organization of any religious denomination or church shall, on its incorporation, pass
to the corporation and shall be held in trust for the use, purpose, behoof, and benefit of the religious society, or order so
incorporated or of the church of which the diocese, synod, or district organization is an organized and constituent part.
The Canon Law contains similar provisions regarding the duties of the corporation sole or ordinary as administrator
of the church properties, as follows:
"Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los bienes eclesiasticos
que se hallan en su territorio y no estuvieren sustraidos de su jurisdiccio n, salvas las prescripciones legitimas que le
concedan mas amplios dsrechos.
"Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los Ordinarios regular
todo lo concerniente a la administracion de los bienes eclesiasticos, dando las oportunas instrucciones particulares
dentro del marco del derecho comun". (Title XXVIII, Codigo da Derecho Canonico, Lib. III, Canon 1519). *
That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole are
merely administrators of the church properties that come to their possession, and which they hold in trust for the church. It
can also be said that while it is true that church properties could be administered by a natural person, problems regarding
succession to said properties can not be avoided to rise upon his death. Through this legal fiction, however, church
properties acquired by the incumbent of a corporation sole pass, by operation of law, upon his death not to his personal
heirs but to his successor in office. It could be seen, therefore, that a corporation sole is created not only to administer the
temporalities of the church or religious society where he belongs but also to hold and transmit the same to his successor
in said office. If the ownership or title to the properties do not pass to the administrators, who are the owners of church
properties?
Bouscaren and Elis, S. J., authorities on canon law, on their treatise comment:
"In matters regarding property belonging to the Universal Church and to the Apostolic See, the Supreme Pontiff
exercises his office of supreme administrator through the Roman Curia; in matters regarding other church
property, through the administrators of the individual moral persons in the Church according to that norms, laid down in
the Code of Canon Law. This does not mean, however, that the Roman Pontiff is the owner of all church property; but
merely that he is the supreme guardian" (Bouscaren and Ellis, Canon Law, A Text and Commentary, p. 764).
 
And this Court, citing Campos y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of Trinidad vs. Roman
Catholic Archbishop of Manila, 63 Phil. 881, that:
"The second question to be decided is in whom the ownership of the properties constituting the endowment of the
ecclesiastical or collative chaplaincies is vested.
'Canonists entertain different opinions as to the person in whom the ownership of the ecclesiastical properties is
vested, with respect to which we shall, for our purpose, confine ourselves to stating with Donoso that, while many
doctors cited by Fagnano believe that it resides in the Roman Pontiff as Head of the Universal Church, it is more
probable that ownership, strictly speaking, does not reside in the latter, and, consequently, ecclesiastical properties are
owned by churches, institutions and canonically established private corporations to which said properties have been
donated'."
Considering that nowhere can We find any provision conferring ownership of church properties on the Pope
although he appears to be the supreme administrator or guardian of his flock, nor on the corporations sole or heads of
dioceses as they are admittedly mere administrators of said properties, ownership of these temporalities logically fall and
devolve upon the church, diocese or congregation acquiring the same. Although this question of ownership of
ecclesiastical properties has off and on been mentioned in several decisions of this Court yet in no instance was the
subject of citizenship of this religious society been passed upon.
We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of
Agustines vs. Court of First Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila
is only a branch of a universal church by the Pope, with permanent residence in Rome, Italy". There is no question that
the Roman Catholic Church existing in the Philippines is a tributary and part of that international religious organization, for
the word "Roman" clearly expresses its unity with and recognizes the authority of the Pope in Rome. However, lest We
become hasty in drawing conclusions, We have to analyze and take note of the nature of the government established in
the Vatican City, of which it was said:
"GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over clergy and laity alike is
held by the pope who (since the Middle Ages) is elected by the cardinals assembled in conclave, and holds office until
his death or legitimate abdication. . . . While the pope is obviously independent of the laws made, and the officials
appointed, by himself or his predecessors, he usually exercises his administrative authority according to the code of
canon law and through the congregations, tribunals and offices of the Curia Romana. In their respective territories
(called generally dioceses) and over their respective subjects, the patriarchs, metropolitans or archbishops and bishops
exercise a jurisdiction which is called ordinary (as attached by law to an office and so distinguished from delegated
jurisdiction which is given to a person. . . . ." (Collier's Encyclopedia, Vol. 17, p. 93.)
While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the supreme head;
that in religious matters, in the exercise of their belief, the Catholic congregation of the faithful throughout world seeks the
guidance and direction of their Spiritual Father in the Vatican, yet it cannot be said that there is a merger of personalities
resultant therein. Neither can it be said that the political and civil rights of the faithful, inherent or acquired under the laws
of their country, are affected by that relationship with the Pope. The fact that the Roman Catholic Church in almost every
country springs from that society that saw its beginning in Europe and the fact that the clergy of this faith derive their
authorities and receive orders from the Holy See do not give or bestow the citizenship of the Pope upon these branches.
Citizenship is a political right which cannot be acquired by a sort of "radiation". We have to realize that although there is a
fraternity among all the catholic countries and the dioceses therein all over the globe, this universality that the word
"catholic" implies, merely characterize their faith, a uniformity in the practice and interpretation of their dogma and in the
exercise of their belief, but certainly they are separate and independent from one another in jurisdiction, governed by
different laws under which they are incorporated, and entirely independent of the others in the management and
ownership of their temporalities. To allow theory that the Roman Catholic Churches all over the world follow the
citizenship of their Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of a country
who embrace the Catholic faith and become members of that religious society, likewise citizens of the Vatican or of Italy.
And this is more so if We consider that the Pope himself may be an Italian or national of any other country of the world.
The same thing may be said with regard to the nationality or citizenship of the corporation sole created under the laws of
the Philippines, which is not altered by the change of citizenship of the incumbent bishops or heads of said corporations
sole.
We must, therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every
Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in accordance with the
laws of the country where it is located, is considered an entity or person with all the rights and privileges granted to such
artificial being under the laws of that country, separate and distinct from the personality of the Roman Pontiff or the Holy
See, without prejudice to its religious relations with the latter which are governed by the Canon Law or their rules and
regulations.
We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have a far reaching
influence, nor can We overlook the pages of history that arouse indignation and criticisms against church landholdings.
This nurtured feeling that showballed into a strong nationalistic sentiment manifested itself when the provisions on natural
resources to be embodied in the Philippines Constitution were framed, but all that has been said on this regard referred
more particularly to landholdings of religious corporations known as "Friar Estates" which have already been acquired by
our Government, and not to properties held corporations sole which, We repeat, are properties held in trust for the benefit
of the faithful residing within its territorial jurisdiction. Though that same feeling probably precipitated and influenced to a
large extent the doctrine laid down in the celebrated Krivenko decision, We have to take this matter in the light of legal
provisions and jurisprudence actually obtaining, irrespective of sentiments.
The question now left for our determination is whether the Roman Catholic Apostolic Church in the Philippines, or
better still, the corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire
private agricultural lands in the Philippines pursuant to the provisions of Article XIII of the Constitution.
 We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified to acquire or
hold lands of the public domain in the Philippines may acquire or be assigned and hold private agricultural lands.
Consequently, the decisive factor in the present controversy hinges on the proposition of whether or not the petitioner in
this case can acquire agricultural lands of the public domain.
From the data secured from the Securities and Exchange Commission, We find that the Roman Catholic Bishop of
Zamboanga was incorporated as a corporation sole) in September, 1912, principally to administer its temporalities and
manage its properties. Probably due to the ravages of the last war, its articles of incorporation were reconstructed in the
Securities and Exchange Commission on April 8, 1948. At first, this corporation sole administered all the temporalities of
the church existing or located in the island of Mindanao. Later on, however, new dioceses were formed and new
corporations sole were created to correspond with the territorial jurisdiction of the new dioceses, one of them being
petitioner herein, the Roman Catholic Apostolic Administrator of Davao, Inc., which was registered with the Securities and
Exchange Commission on September 12, 1950, and succeeded in the administration of all the "temporalities" of the
Roman Catholic Church existing in Davao.
According to our Corporation Law, Public Act No. 1459, approved April 1, 1906, a corporation sole
is organized and composed of a single individual, the head of any religious society or church, for
the ADMINISTRATION of the temporalities of such society of church. By "temporalities" is meant estates and properties
not used exclusively for religious worship. The successors in office of such religious head or chief priest incorporated as
a corporation sole shall become the corporation sole on ascension to office, and shall be permitted to transact business
as such on filing with the Securities and Exchange Commission a copy of his commission, certificate of election or letter
of appointment duly certified by any notary public or clerk of court of record (Guevara's The Philippine  Corporation Law,
p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold real estate and personal property for its church,
charitable, benevolent, or educational purposes, and may receive bequests or gifts for such purposes. Such corporation
may mortgage or sell real property held by it upon obtaining an order for that purpose from the Court of First Instance of
the province in which the property is situated; but before making the order proof must be made to the satisfaction of the
Court that notice of the application for leave to mortgage or sell has been given by publication or otherwise in such
manner and for such time as said Court or the Judge thereof may have directed, and that it is to the interest of the
corporation that leave to mortgage or sell should be granted. The application for leave to mortgage or sell must be made
by petition, duly verified by the bishop, chief priest, or presiding elder, acting as corporation sole, and may be opposed
by any member of the religious denomination, society or church represented by the corporation sole:  Provided,
however, That in cases where the rules, regulations, and discipline of the religious denomination, society or church
concerned represented by such corporation sole regulate the methods of acquiring, holding, selling and mortgaging real
estate and personal property, such rules, regulations, and discipline shall control and the intervention of the Courts shall
not be necessary.
 It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the power exercised
in the case at bar, is not restricted although the power to sell or mortgage sometimes is, depending upon the rules,
regulations, and discipline of the church concerned represented by said corporation sole. If corporations sole can
purchase and sell real estate for its church, charitable, benevolent, or educational purposes, can they register said real
properties? As provided by law, lands held in trust for specific purposes may be subject of registration (section 69, Act
496), and the capacity of a corporation sole, like petitioner herein, to register lands belonging to it is acknowledged, and
title thereto may be issued in its name (Bishop of Nueva Segovia vs. Insular Government, 26 Phil. 300-1913). Indeed it is
absurd to conceive that while the corporations sole that might be in need of acquiring lands for the erection of temples
where the faithful can pray, or schools and cemeteries which they are expressly authorized by law to acquire in
connection with the propagation of the Roman Catholic Apostolic faith or in furtherance of their freedom of religion, they
could not register said properties in their name. As professor Javier J. Nepomuceno very well says "Man in his search for
the immortal and imponderable, has, even before the dawn of recorded history, erected temples to the Unknown God, and
there is no doubt that he will continue to do so for all time to come, as long as he continues 'imploring the aid of Divine
Providence'" (Nepomuceno's Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41, September, 1956). Under the
circumstances of this case, We might safely state that even before the establishment of the Philippine Commonwealth
and of the Republic of the Philippines every corporation sole then organized and registered had by express provision of
law the necessary power and qualification to purchase in its name private lands located in the territory in which it
exercised its functions or ministry and for which it was created, independently of the nationality of its incumbent unique
and single member and head, the bishop of the diocese. It can be also maintained without fear of being gainsaid that the
Roman Catholic Apostolic Church in the Philippines has no nationality and that the framers of the Constitution, as will be
hereunder explained, did not have in mind the religious corporations sole when they provided that 60 per centum of the
capital thereof be owned by Filipino citizens.
There could be no controversy as to the fact that a duly registered corporation sole is an artificial being having the
right of succession and the power, attributes, and properties expressly authorized by law or incident to its existence
(section 1, Corporation Law). In outlining the general powers of a corporation, Public Act No. 1459 provides among
others:
SEC. 13. Every corporation has the power:
xxx xxx xxx
(5) To purchase, hold, convey, sell, lease, let, mortgage, encumber, and otherwise deal with such real and
personal property as the purposes for which the corporation was formed may permit, and the transaction of the lawful
business of the corporation may reasonably and necessarily require, unless otherwise prescribed in this Act: . . . .
In implementation of the same and specifically made applicable to a form of corporation recognized by the same
law, Section 159 aforequoted expressly allowed the corporation sole to purchase and hold real as well as personal
properties necessary for the promotion of the objects for which said corporation sole is created. Respondent Land
Registration Commissioner, however, maintained that since the Philippine Constitution is a later enactment than
Public Act No. 1459, the provisions of Section 159 in amplification of Section 13 thereof, as regard real properties, should
be considered repealed by the former.
There is reason to believe that when the specific provision of the Constitution invoked by respondent Commissioner
was under consideration, the framers of the same did not have in mind or overlooked this particular form of corporation. It
is undeniable that the nationalization and conservation of our natural resources was one of the dominating objectives of
the Convention and in drafting the present Article XIII of the Constitution, the delegates were goaded by the desire (1) to
insure their conservation for Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the
extension into the country of foreign control through peaceful economic penetration; and (3) to prevent making the
Philippines a source of international conflicts with the consequent danger to its internal security and independence (See
The Framing of the Philippine Constitution by Professor Jose M. Aruego, a Delegate to the Constitutional Convention, Vol.
II. P. 592-604). In the same book Delegate Aruego, explaining the reason behind the first consideration, wrote:
"At the time of the framing of the Philippine Constitution. Filipino capital had been known to be rather shy.
Filipinos hesitated as a general rule to invest a considerable sum of their capital for the development, exploitation and
utilization of the natural resources of the country. They had not as yet been so used to corporate enterprises as the
peoples of the west. This general apathy, the delegates knew, would mean the retardation of the development of the
natural resources, unless foreign capital would be encouraged to come and help in that development. They knew that
the nationalization of the natural resources would certainly not encourage the INVESTMENT OF FOREIGN CAPITAL,
into them. But there was a general feeling in the Convention that it was better to have such a development retarded or
even postponed together until such time when the Filipinos would be ready and willing to undertake it rather than permit
the natural resources to be placed under the ownership or control of foreigners in order that they might be immediately
developed, with the Filipinos of the future serving not as owners but utmosts as tenants or workers under foreign
masters. By all means, the delegates believed, the natural resources should be conserved for Filipino posterity".
It could be distilled from the foregoing that the framers of the Constitution intended said provisions as barrier for
foreigners or corporations financed by such foreigners to acquire, exploit and develop our natural resources, saving these
undeveloped wealth for our people to clear and enrich when they are already prepared and capable of doing so. But that
is not the case of corporations sole in the Philippines, for, We repeat, they are mere administrators of the "temporalities"
or properties titled in their name and for the benefit of the members of their respective religion composed of an
overwhelming majority of Filipinos. No mention nor allusion whatsoever is made in the Constitution as to the prohibition
against or the ability of the Roman Catholic Church in the Philippines to acquire and hold agricultural lands. Although
there were some discussions on landholdings, they were mostly confined in the inclusion of the provision allowing the
Government to break big landed estates to put an end to absentee landlordism.
But let us suppose, for the sake of argument, that the above referred to inhibitory clause of Section 1 of Article XIII
of the Constitution does have bearing on the petitioner's case; even so the clause requiring that at least 60 per centum of
the capital of the corporation be owned by Filipinos is subordinated to the petitioner's aforesaid right already existing at
the time of the inauguration of the Commonwealth and the Republic of the Philippines. In the language of Mr. Justice Jose
P. Laurel (a Delegate to the Constitutional Convention), in his concurring opinion in the case of Gold Creek Mining
Corporation petitioner vs. Eulogio Rodriguez, Secretary of Agriculture and Commerce, and Quirico Abadilla, Director of
the Bureau of Mines, respondent, 66 Phil. 259:
"The saving clause in the section involved of the Constitution was originally embodied in the report submitted by
the Committee on Nationalization and Preservation of Lands and Other Natural Resources to the Constitutional
Convention on September 17, 1934. It was later inserted in the first draft of the Constitution as section 13 of Article XIII
thereof, and finally incorporated as we find it now. Slight have been the changes undergone by the proviso from the time
when it came out of the committee until it was finally adopted. When first submitted and as inserted in the first draft of
the Constitution it reads: 'subject to any right, grant, lease or concession existing in respect thereto as the date of the
adoption of the Constitution'. As finally adopted, the proviso reads: 'subject to any existing right, grant, lease or
concession at the time of the inauguration of the Government established under this Constitution'. This recognition is not
mere graciousness but springs from the just character of the government established. The framers of the Constitution
were not obscured by the rhetoric of democracy or swayed to hostility by an intense spirit of nationalism. They well knew
that conservation of our natural resources did not mean destruction or annihilation of acquired property rights. Withal,
they erected a government neither episodic nor stationary but well-nigh conservative in the protection of property rights.
This notwithstanding nationalistic and socialistic traits discoverable upon even a sudden dip into a variety of the
provisions embodied in the instrument."
The writer of this decision wishes to state at this juncture that during the deliberation of this case he submitted to
the consideration of the Court the question that may be termed the "vested right saving clause" contained in Section 1,
Article XIII of the Constitution, but some of the members of this Court either did not agree with the theory of the writer, or
were not ready to take a definite stand on the particular point I am now to discuss deferring our ruling on such debatable
question for a better occasion, inasmuch as the determination thereof is not absolutely necessary for the solution of the
problem involved in this case. In his desire to face the issues squarely, the writer will endeavour, at least as a digression,
to explain and develop his theory, not as a lucubration of the Court, but of his own, for he deems it better and convenient
to go over the cycle of reasons that are linked to one another and that step by step lead Us to conclude as We do in the
dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all agricultural
lands of the public domain and their disposition shall be limited to citizens of Philippines or to corporations at least 60 per
centum of the capital of which is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation vs. Rodriguez et
al., 66 Phil. 259, "this recognition (in the clause already quoted), is not mere graciousness but springs from the just
character of the government established. The framers of the Constitution were not obscured by the rhetoric of democracy
or swayed to hostility by an intense spirit of nationalism. They well knew that conservation of our natural resources did not
mean destruction or annihilation of ACQUIRED PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of acquisition of public or private lands by a
corporation which does not fulfill this 60 per cent requisite, refers to purchases or acquisitions made prior to the effectivity
of the Constitution and not to later transactions. This argument would imply that even assuming that petitioner had at the
time of the enactment of the Constitution the right to purchase real property, that power or right could not be exercised
after the effectivity of our Constitution, because said power or right of corporations sole, like the herein petitioner,
conferred in virtue of the aforequoted provisions of the Corporation Law, could no longer be exercised in view of the
requisite therein prescribed that at least 60 per centum of the capital of the corporation had to be Filipino. It has been
shown before that: (1) the corporation sole, unlike the ordinary corporations which are formed by no less than 5
incorporators, is composed of only one person, usually the head or bishop of the diocese, a unit which is not subject to
expansion for the purpose of determining any percentage whatsoever; (2) the corporation sole is only
the administrator and not the owner of the temporalities located in the territory comprised by said corporation sole; (3)
such temporalities are administered for and on behalf of the faithful residing in the diocese or territory of the corporation
sole; and (4) the latter, as such, has no nationality and the citizenship of the incumbent Ordinary has nothing to do with
the operation, management or administration of the corporation sole, nor affects the citizenship of the faithful connected
with their respective diocese or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of the
Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the framers of the same
did not have in mind or overlooked this particular form of corporation. If this were so, as the facts and circumstances
already indicated tend to prove it to be so, then the inescapable conclusion would be that this requirement of at least 60
per cent of Filipino capital was never intended to apply to corporations sole, and the existence or not of a vested right
becomes unquestionably immaterial.
But let us assume that the questioned proviso is material, yet We might say that a reading of said Section 1 will
show that it does not refer to any actual acquisition of land but to the right, qualification or power to acquire and hold
private real property. The population of the Philippines, Catholic to a high percentage, is ever increasing. In the practice of
religion of their faithful the corporation sole may be in need of more temples where to pray, more schools where the
children of the congregation could be taught in the principles of their religion, more hospitals where their sick could be
treated, more hallow or consecrated grounds or cemeteries where Catholics could be buried, many more than those
actually existing at the time of the enactment of our Constitution. This being the case, could it be logically maintained that
because the corporation sole which, by express provision of law, has the power to hold and acquire real estate and
personal property for its churches, charitable benevolent, or educational purposes (section 159, Corporation Law) it has to
stop its growth and restrain its necessities just because the corporation sole is a non-stock corporation composed of only
one person who in his unity does not admit of any percentage, especially when that person is not the owner but merely an
administrator of the temporalities of the corporation sole? The writer leaves the answer to whoever may read and consider
this portion of the decision.
Anyway, as stated before, this question is not a decisive factor in disposing this case, for even if We were to
disregard such saving clause of the Constitution, which reads: subject to any existing right, grant, etc., at the time of the
inauguration of the Government established under this Constitution, yet We would have, under the evidence on record,
sufficient grounds to uphold petitioner's contention on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, * G. R. No. L-6776, promulgated May 21,
1955, wherein this question was considered from a different angle, this Court, through Mr. Justice J. B. L. Reyes, said:
"The fact that the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign nationality. The purpose of the sixty per
centum requirement is obviously to ensure that corporation or associations allowed to acquired agricultural land or to
exploit natural resources shall be controlled by Filipinos; and the spirit of the Constitution demands that  in the absence
of capital stock, the controlling membership should be composed of Filipino citizens."
In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation aggregate, i.e.,
an unregistered organization operating through 3 trustees, all of Chinese nationality, and that is why this Court laid down
the doctrine just quoted. With regard to petitioner, the Roman Catholic Administrator of Davao, Inc., which likewise is a
non-stock corporation, the case is different, because it is a registered corporation sole, evidently of no nationality and
registered mainly to administer the temporalities and manage the properties belonging to the faithful of said church
residing in Davao. But even if we were to go over the record to inquire into the composing membership to determine
whether the citizenship requirement is satisfied or not, we would find undeniable proof that the members of the Roman
Catholic Apostolic faith within the territory of Davao are predominantly Filipino citizens. As indicated before, petitioner has
presented evidence to establish that the clergy and lay members of this religion fully covers the percentage of Filipino
citizens required by the Constitution. These facts are not controverted by respondents and our conclusion in this point is
sensibly obvious.
Dissenting Opinion — Discussed. — After having developed our theory in this case and arrived at the findings and
conclusions already expressed in this decision. We now deem it proper to analyze and delve into the basic foundation on
which the dissenting opinion stands up. Being aware of the transcendental and far-reaching effects that Our ruling on the
matter might have, this case was thoroughly considered from all points of view, the Court sparing no effort to solve the
delicate problems involved herein.
At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the reversal of
the doctrine We laid down in the celebrated Krivenko case by excluding urban lots and properties from the grasp of the
term "private agricultural lands" used in section 5, Article XIII of the Constitution; and (2) by driving Our reasons to a point
that might indirectly cause the appointment of Filipino bishops or Ordinary to head the corporations sole created to
administer the temporalities of the Roman Catholic Church in the Philippines. With regard to the first way, a great majority
of the members of this Court were not yet prepared nor agreeable to follow that course, for reasons that are obvious. As
to the second way, it seems to be misleading because the nationality of the head of a diocese constituted as a corporation
sole has no material bearing on the functions of the latter, which are limited to the administration of the temporalities of the
Roman Catholic Apostolic Church in the Philippines.
Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author lingered on
the outskirts of the issues, thus throwing the main points in controversy out of focus. Of course We fully agree, as stated
by Professor Aruego, that the framers of our Constitution had at heart to insure the conservation of the natural resources
of Our motherland for Filipino posterity; to serve them as an instrument of national defense, helping prevent the extension
into the country of foreign control through peaceful economic penetration; and to prevent making the Philippines a source
of international conflicts with the consequent danger to its internal security and independence. But all these precautions
adopted by the Delegates to Our Constitutional Assembly could not have been intended for or directed against cases like
the one at bar. The emphasis and wanderings on the statement that once the capacity of a corporation sole to
acquire private agricultural lands is admitted there will be no limit to the areas that it may hold and that this will pave the
way for the "revival or revitalization of religious landholdings that proved so troublesome in our past", cannot even furnish
the "penumbra" of a threat to the future of the Filipino people. In the first place, the right of Filipino citizens, including those
of foreign extraction, and Philippine corporations, to acquire private lands is not subject to any restriction or limit as to
quantity or area, and We certainly do not see any wrong in that. The right of Filipino citizens and corporations to
acquire public agricultural lands is already limited by law. In the second place, corporations sole cannot be considered as
aliens because they have no nationality at all. Corporations sole are, under the law, mere administrators of the
temporalities of the Roman Catholic Church in the Philippines. In the third place, every corporation, be it aggregate or
sole, is only entitled to purchase, convey, sell, lease, let, mortgage, encumber and otherwise deal with real properties
when it is pursuant to or in consonance with the purposes for which the corporation was formed, and when the
transactions of the lawful business of the corporation reasonably and necessarily require such dealing — section 13-(5)
of the Corporation Law, Public Act No. 1459 — and considering these provisions in conjunction with Section 159 of the
same law which provides that a corporation sole may only "purchase and hold real estate and personal properties for its
church, charitable, benevolent or educational purposes", the above mentioned fear of revitalization of religious
landholdings in the Philippines is absolutely dispelled. The fact that the law thus expressly authorizes the corporations
sole to receive bequests or gifts of real properties (which were the main source that the friars had to acquire their
big haciendas during the Spanish regime), is a clear indication that the requisite that bequests or gifts of real estate be for
charitable, benevolent, or educational purposes, was, in the opinion of the legislators, considered sufficient and adequate
protection against the revitalization of religious landholdings.
Finally, and as previously stated, We have reason to believe that when the Delegates to the Constitutional
Convention drafted and approved Article XIII of the Constitution, they did not have in mind the corporation sole. We come
to this finding because the Constitutional Assembly, composed as it was by a great number of eminent lawyers and
jurists, was like any other legislative body empowered to enact either the Constitution of the country or any public statute,
presumed to know the conditions existing as to particular subject matter when it enacted a statute (Board of Com'rs of
Orange County vs. Bain, 92 S. E. 176; 173 N. C. 377).
"Immemorial customs are presumed to have been always in the mind of the Legislature in enacting legislation."
(In re Kruger's Estate, 121 A. 109; 277 Pa. 326).
"The Legislative is presumed to have a knowledge of the state of the law on the subjects upon which it legislates."
(Clover Valley Land & Stock Co. vs. Lamb et al., 187, p. 723, 726.)
"The Court in construing a statute, will assume that the legislators acted with full knowledge of the prior legislation
on the subject and its construction by the courts." (Johns vs. Town of Sheridan, 89 N. E. 899, 44 Ind. App. 620.)
"The Legislature is presumed to have been familiar with the subject with which it was dealing . . . ."
(Landers vs. Commonwealth, 101 S. E. 778, 781.)
"The Legislature is presumed to know principles of statutory construction " (People vs. Lowell, 230 N. W. 202,
250 Mich. 349, followed in P. vs. Woodworth, 230 N. W. 211, 250 Mich. 436.)
"It is not to be presumed that a provision was inserted in a constitution or statute without reason, or that a result
was intended inconsistent with the judgment of men of common sense guided by reason." (Mitchell vs. Lawden, 123 N.
E. 566, 288 Ill. 326.) See City of Decatur vs. German, 142 N. E. 252, 310 Ill. 591, and many other authorities that can be
cited in support hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of a single individual, the head of any religious society
or church operating within the zone, area or jurisdiction covered by said corporation sole (Article 155, Public  Act No.
1459);
2. That a corporation sole is a non-stock corporation;
3. That the Ordinary (the corporation sole proper) does not own the temporalities which he merely administers;
4. That under the law the nationality of said Ordinary or of any administrator has absolutely no bearing on the
nationality of the person desiring to acquire real property in the Philippines by purchase or other lawful means other than
by hereditary succession, who, according to the Constitution must be a Filipino (sections 1 and 5, Article XIII);
5. That section 159 of the Corporation Law expressly authorized the corporation sole to purchase and hold real
estate for its church, charitable, benevolent or educational purposes, and to receive bequests or gifts for such purposes;
6. That in approving our Magna Carta the Delegates to the Constitutional Convention, almost all of whom were
Roman Catholics, could not have intended to curtail all the propagation of the Roman Catholic faith or the expansion of
the activities of their church, knowing pretty well that with the growth of our population more places of worship, more
schools where our youth could be taught and trained; more hallow grounds where to bury our dead would be needed in
the course of time.
 Long before the enactment of our Constitution the law authorized the corporations sole even to receive bequests or
gifts of real estates send this Court could not, without any clear and specific provision of the Constitution, declare that any
real property donated, let us say this year, could no longer be registered in the name of the corporation sole to which it
was conveyed. That would be an absurdity that should not receive our sanction on the pretext that corporations sole
which have no nationality and are non-stock corporations composed of only one person in the capacity of administrator,
have to establish first that at least sixty per centum of their capital belong to Filipino citizens. The new Civil Code even
provides:
"ART. 10. — In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body
intended right and justice to prevail."
Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino can acquire, in the
name of the latter, private lands without any limitation whatsoever, and that is so because the properties thus acquired
are not for and would not belong to the administrator but to the Filipino whom he represents. But the dissenting Justice
inquires: If the Ordinary is only the administrator, for whom does he administer? And who can alter or overrule his acts?
We will forthwith proceed to answer these questions. The corporations sole by reason of their peculiar constitution and
form of operation have no designed owner of its temporalities, although by the terms of the law it can be safely implied
that the Ordinary holds them in trust for the benefit of the Roman Catholic faithful of their respective locality or diocese.
Borrowing the very words of the law, We may say that the temporalities of every corporation sole are held in trust for the
use, purpose, behoof and benefit of the religious society, or order so incorporated or of the church to which the diocese,
synod, or district organization is an organized and constituent part (section 163 of the Corporation Law).
In connection with the powers of the Ordinary over the temporalities of the corporation sole, let us see now what is
the meaning and scope of the word "control". According to the Merriam-Webster's New International Dictionary, 2nd ed.,
p. 580, one of the acceptations of the word "control" is:
"4. To exercise restraining or directing influence over; to dominate; regulate; hence, to hold from action; to curb;
subject, also, Obs. — to overpower.
"SYN: restrain, rule, govern, guide, direct; check, subdue."
It is true that under section 159 of the Corporation Law, the intervention of the courts is not necessary,
to mortgage or sell real property held by the corporation sole where the rules, regulations and discipline of the religious
denomination, society or church concerned represented by such corporation sole regulate the methods of acquiring,
holding, selling and mortgaging real estate, and that the Roman Catholic faithful residing in the jurisdiction of the
corporation sole has no say either in the manner of acquiring or of selling real property. It may be also admitted that the
faithful of the diocese cannot govern or overrule the acts of the Ordinary, but all this does not mean that the latter can
administer the temporalities of the corporation sole without check or restraint. We must not forget that when a corporation
sole is incorporated under Philippine laws, the head and only member thereof subjects himself to the jurisdiction of the
Philippine courts of justice and these tribunals can thus entertain grievances arising out of or with respect to the
temporalities of the church which came into the possession of the corporation sole as administrator. It may be alleged that
the courts cannot intervene as to the matters of doctrine or teachings of the Roman Catholic Church. That is correct, but
the courts may step in, at the instance of the faithful for whom the temporalities are being held in trust, to check undue
exercise by the corporation sole of its powers as administrator to insure that they are used for the purpose or purposes for
which the corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an action brought by persons claiming to be members of a
church, who allege a wrongful and fraudulent diversion of the church property to uses foreign to the purposes of the
church, since no ecclesiastical question is involved and equity will protect from wrongful diversion of the
property (Hendryx vs. Peoples United Church, 42 Wash. 336, 4 L.R.A. — n.s.-1154).
The courts of the State have no general jurisdiction and control over the officers of such corporations in respect to
the performance of their official duties; but as in respect to the property which they hold for the corporation, they stand in
position of TRUSTEES and the courts may exercise the same supervision as in other cases of trust (Ramsey vs. Hicks,
174 Ind. 428, 91 N. E. 344, 92 N. E. 164, 30 L.R.A. — n.s.-665; Hendryx vs. Peoples United Church, supra.)
Courts of the state do not interfere with the administration of church rules or discipline unless civil rights become
involved and which must be protected (Morris St., Baptist Church vs. Dart, 67 S. C. 338, 45 S. E. 753, and others). (All
cited in Vol. II, Cooley's Constitutional Limitations, p. 960-964.)
If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of law relative to
existing conditions as to management and operation of corporations sole in the Philippines, and if, on the other hand,
almost all of the Delegates thereto embraced the Roman Catholic faith, can it be imagined even for an instant that when
Article XIII of the Constitution was approved the framers thereof intended to prevent or curtail from then on the acquisition
by corporations sole, either by purchase or donation, of real properties that they might need for the propagation of the
faith and for other religious and Christian activities such as the moral education of the youth, the care, attention and
treatment of the sick and the burial of the dead of the Roman Catholic faithful residing in the jurisdiction of the respective
corporations sole? The mere indulgence in said thought would impress upon Us a feeling of apprehension and absurdity.
And that is precisely the leit motiv that permeates the whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted With in this appeal, hinges around the
necessity of a proper and adequate interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us then be
guided by the principles of statutory construction laid down by the authorities on the matter:
"The most important single factor in determining the intention of the people from whom the constitution emanated
is the language in which it is expressed. The words employed are to be taken in their natural sense, except that legal or
technical terms are to be given their technical meaning. The imperfections of language as a vehicle for conveying
meanings result in ambiguities that must be resolved by resort to extraneous aids for discovering the intent of the
framers. Among the more important of these are a consideration of the history of the times when the provision was
adopted and of the purposes aimed at in its adoption. The debates of constitutional conventions, contemporaneous
 construction, and practical construction by the legislative and executive departments, especially if long continued, may
be resorted to to resolve, but not to create, ambiguities. . . . . Consideration of the consequences flowing from
alternative constructions of doubtful provisions constitutes an important interpretative device. . . . The purposes of many
of the broadly phrased constitutional limitations were the promotion of policies that do not lend themselves to definite
and specific formulation. The courts have had to define those policies and have often drawn on natural law and natural
rights theories in doing so. The interpretation of constitutions tends to respond to changing conceptions of political and
social values. The extent to which these extraneous aids affect the judicial construction of constitutions cannot be
formulated in precise rules, but their influence cannot be ignored in describing the essentials of the process"
(Rottschaeffer on Constitutional Law, 1939 ed., p. 18-19).
"There are times when even the literal expression of legislation may be inconsistent with the general objectives of
policy behind it, and on the basis of the equity or spirit of the statute the courts rationalize a restricted meaning of the
latter. A restricted interpretation is usually applied where the effect of a literal interpretation will make for injustice and
absurdity or, in the words of one court, the language must be so unreasonable 'as to shock general common sense'".
(Vol. 3, Sutherland on Statutory Construction, 3rd ed., 150.)
"A constitution is not intended to be a limitation on the development of a country nor an obstruction to its progress
and foreign relations" (Moscow Fire Inc. Co. of Moscow, Russia vs. Bank of New York & Trust Co., 294 N. Y. S. 648; 56
N. E. 2d 745, 293 N. Y. 749).
"Although the meaning or principles of a constitution remain fixed and unchanged from the time of its adoption, a
constitution must be construed as if intended to stand for a great length of time, and it is progressive and not static.
Accordingly, it should not receive too narrow or literal an interpretation but rather the meaning given it should be applied
in such manner as to meet new or changed conditions as they arise" (U.S. vs. Classic, 313 U.S. 299, 85 L. Ed., 1368).
"Effect should be given to the purpose indicated by a fair interpretation of the language used and that
construction which effectuates, rather than that which destroys a plain intent or purpose of a constitutional provision, is
not only favored but will be adopted" (State ex rel. Randolph Country vs. Walden, 206 S. W. 2d 979).
"It is quite generally held that in arriving at the intent and purpose the Construction should be broad or liberal or
equitable, as the better method of ascertaining that intent, rather than technical" (Great Southern Life Ins. Co.  vs. City of
Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the constitution had not in mind the corporations sole,
nor intended to apply them the provisions of sections 1 and 5 of said Article XIII when they passed and approved the
same. And if it were so as We think it is, herein petitioner, the Roman Catholic Apostolic Administrator of Davao, Inc.,
could not be deprived of the right to acquire by purchase or donation real properties for charitable, benevolent and
educational purposes, nor of the right to register the same in its name with the Register of Deeds of Davao, an
indispensable requisite prescribed by the Land Registration Act for lands covered by the Torrens system.
We leave as the last theme for discussion the much debated question above referred to as "the vested right saving
clause" contained in section 1, Article XIII of the Constitution. The dissenting Justice hurls upon the personal opinion
expressed on the matter by the writer of the decision the most pointed darts of his severe criticism. We think, however,
that this strong dissent should have been spared, because as clearly indicated before, some members of this Court either
did not agree with the theory of the writer or were not ready to take a definite stand on that particular point, so that there
being no majority opinion thereon there was no need of any dissension therefrom. But as the criticism has been made the
writer deems it necessary to say a few words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in futuro, is not in
itself a vested or existing property right that the Constitution protects from impairment. For a property right to be vested (or
acquired) there must be a transition from the potential or contingent to the actual, and the proprietary interest must have
attached to a thing; it must have become 'fixed and established'" (Balboa vs. Farrales, 51 Phil. 498). But the case at bar
has to be considered as an exception to the rule because among the rights granted by section 159 of the Corporation
Law was the right to receive bequests or gifts of real properties for charitable, benevolent and educational purposes. And
this right to receive such bequests or gifts (which implies donations in futuro), is not a mere potentiality that could be
impaired without any specific provision in the Constitution to that effect, especially when the impairment would disturbingly
affect the propagation of the religious faith of the immense majority of the Filipino people and the curtailment of the
activities of their Church. That is why the writer gave as a basis of his contention what Professor Aruego said in his book
"The Framing of the Philippine Constitution" and the enlightening opinion of Mr. Justice Jose P. Laurel, another Delegate
to the Constitutional Convention, in his concurring opinion in the case of Goldcreek Mining Company vs. Eulogio
Rodriguez et al., 66 Phil. 269. Anyway the majority of the Court did not deem necessary to pass upon said "vested right
saving clause" for the final determination of this case.
JUDGMENT
Wherefore, the Resolution of the respondent Land Registration Commission of September 21, 1954, holding that in
view of the provisions of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee (petitioner) is not
qualified to acquire lands in the Philippines in the absence of proof that at least 60 per centum of the capital, properties or
assets of the Roman Catholic Apostolic Administrator of Davao, Inc., is actually owned or controlled by Filipino citizens,
and denying the registration of the deed of sale in the absence of proof of compliance with such requisite, is hereby
reversed. Consequently, the respondent Register of Deeds of the City of Davao is ordered to register the deed of sale
executed by Mateo L. Rodis in favor of the Roman Catholic Apostolic Administrator of Davao, Inc., which is the subject of
the present litigation. No pronouncement is made as to costs. It is so ordered.
Bautista Angelo and Endencia, JJ., concur.
Paras, C. J., and Bengzon, J., concur in the result.

Separate Opinions
LABRADOR, J., concurring:

The case at bar squarely presents this important legal question: Has the bishop or ordinary of the Roman Catholic
Church who is not a Filipino citizen, as corporation sole, the right to register land, belonging to the Church over which he
presides, in view of the Krivenko decision? Mr. Justice Felix sustains the affirmative view while Mr. Justice J. B. L. Reyes,
the negative. As the undersigned understands it, the reason given for this last view is that the constitutional provision
prohibiting land ownership by foreigners also extends to control because this lies within the scope and purpose of the
prohibition.
To our way of thinking, the question at issue depends for its resolution upon another, namely, who is the owner of
the land or property of the Church sought to be registered? Under the Canon Law the parish and the diocese have the
right to acquire and own property.
"SEC. 1. La Iglesia catolica y la Sede Apostolica, libre e independientemente de la potestad civil, tiene derecho
innato de adquirir, retener y administrar bienes temporales para el logro de sus propios fines.
"SEC. 2. Tambien las iglesias particulares y demas personas morales erigidas por la autoridad eclesiastica en
persona juridica, tienen derecho, a tenor de los sagrados canones, de adquirir, retener y administrar bienes
temporales." (Canon 1495) (Codigo de Derecho Canonico por Miguelez-Alonso-Cabreros, 4a ed., p. 562.)
The Canon Law further states that Church property belongs to the non-collegiate moral person called the parish, or
to the diocese.
"In canon law the ownership of ecclesiastical goods belongs to each separate juridical person in the Church (C.
1499). The property of St. John's Church does not belong to the Pope, the bishop, the pastor, or even to the people of
the parish. It belongs to the non- collegiate moral person called the parish, which has been lawfully erected. It is not like
a stock company. The civil law does not recognize this canonical principle; it insists on an act of civil incorporation or
some other legal device." (Ready Answers in Canon Law by Rev. P. J. Lydon, DD., 3rd ed., 1948, p. 576.)
"Parish. 3. A portion or subdivision of a diocese committed to the spiritual jurisdiction or care of a priest or
minister, called rector or pastor. In the Protestant Episcopal Church, it is a territorial division usually following civil
bounds, as those of a town. In the Roman Catholic Church, it is usually territorial, but whenever, as in some parts of the
United States there are different rites and languages, the boundaries and jurisdiction are determined by rite or language;
as, a Ruthenian or a Polish parish.
"5. The inhabitants or members of a parish, collectively."
"Diocese. 3. Eccl. The circuit or extent of a bishop's jurisdiction; the district in which a bishop has authority."
(Webster's New International Dictionary.)
We are aware of the fact that some writers believe that ownership of ecclesiastical properties resides in the Roman
Catholic Pontiff as Head of the Universal Church, but the better opinion seems to be that they do belong to the parishes
and dioceses as above indicated.
 "Canonists entertain different opinions as to the person in whom the ownership of the ecclesiastical properties is
vested, with respect to which we shall, for our purpose, confine ourselves to stating with Donoso that, while many
doctors cited by Fagnano believe that it resides in the Roman Pontiff as Head of the Universal Church, it is more
probable that ownership, strictly speaking, does not reside in the latter and, consequently, ecclesiastical properties are
owned by the churches, institutions and canonically established private corporations to which said properties have been
donated." (3 Campos y Pulido, Legislacion y Jurisprudencia Canonica, P. 420, cited in Trinidad  vs. Roman Catholic
Archbishop of Manila, 63 Phil., 881, 888- 889.)
The property in question, therefore, appears to belong to the parish or the diocese of Davao. But the Roman
Catholics of Davao are not organized as a juridical person, either under the Canon Law or under the Civil Law. Neither is
there any provision in either for their organization as a juridical person. Registration of the property in the name of the
Roman Catholics of Davao is, therefore, impossible.
As under the Civil Law, however, the organization of parishes and dioceses as juridical persons is not expressly
provided for, the corporation law has set up the fiction known as the "corporation sole."
"It tolerates the corporation sole wherever and as long as the state law does not permit the legal incorporation of
the parish or diocese. The bishop officially is the legal owner." (Ready Answers in Canon Law, supra, p. 577.)
and authorizes it to purchase and hold real estate for the Church.
"SEC. 159. Any corporation sole may purchase and hold real estate and personal property for its church,
charitable, benevolent, or educational purposes, and may receive bequests or gifts for such purposes. Such corporation
may mortgage or sell real property held by it upon obtaining an order for that purpose from the Court of First Instance of
the province in which the property is situated; but before making the order proof must be made to the satisfaction of the
court that notice of the application for leave to mortgage or sell has been given by publication or otherwise in such
manner and for such time as said court or the judge thereof may have directed, and that it is to the interest of the
corporation that leave to mortgage or sell should be granted. The application for leave to mortgage or sell must be made
by petition, duly verified by the bishop, chief priest, or presiding elder, acting as corporation sole, and may be opposed
by any member of the religious denomination, society, or church represented by the corporation sole:  Provided,
however, That in cases when the rules, regulations and discipline of the religious denomination, society or church
concerned represented by such corporation sole regulate the methods of acquiring, holding, selling, and mortgaging real
estate and personal property, such rules, regulations, and discipline shall control and the intervention of the courts shall
not be necessary." (The Corporation Law.)
And in accordance with the above section, the temporalities of the Church or of a parish or diocese are allowed to be
registered in the name of the corporation sole for purposes of administration and in trust for the real owners.
The mere fact that the Corporation Law authorizes the corporation sole to acquire and hold real estate or other
property does not make the latter the real owner thereof, as his tenure of Church property is merely for the purposes of
administration. As stated above, the bishop is only the legal (technical) owner or trustee, the parish or diocese being the
beneficial owner, or cestui que trust.
 Having arrived at the conclusion that the property in question belongs actually either to the parish or the diocese of
Davao, the next question that possess for solution is, In case of said property, whose nationality must be considered for
the purpose of determining the applicability of the constitutional provision limiting ownership of land to Filipinos, that of the
bishop or chief priest who registers as corporation sole, or that of the constituents of the parish or diocese who are the
beneficial owners of the land? We believe that that of the latter must be considered, and not that of the priest clothed with
the corporate fiction and denominated as the corporation sole. The corporation sole is a mere contrivance to enable a
church to acquire, own and manage properties belonging to the church. It is only a means to an end. The constitutional
provision could not have been meant to apply to the means through which and by which property may be owned or
acquired, but to the ultimate owner of the property. Hence, the citizenship of the priest forming the corporation sole should
be no impediment if the parish or diocese which owns the property is qualified to own and possess the property.
We can take judicial notice of the fact that a great majority of the constituents of the parish or diocese of Davao are
Roman Catholics. The affidavit demanded is, therefore, a mere formality.
The dissenting opinion sustains the proposition that control, not actual ownership, is the factor that determines
whether the constitutional prohibition against alien ownership of lands should or should not apply. We may assume the
correctness of the proposition that the Holy See exercises control over Church properties everywhere, but the control
cannot be real and actual but merely theoretical. In any case, the constitutional prohibition is limited by its terms to
ownership and ownership alone. And should the corporation sole abuse its powers and authority in relation to the
administration or disposal of the property contrary to the wishes of the constituents of the parish or the diocese, the act
may always be questioned as ultra vires.
We agree, therefore, with the reversal of the order.
 (Roman Catholic Apostolic Administrator of Davao, Inc. v. Land Registration Commission, G.R. No. L-8451, [December 20,
|||

1957], 102 PHIL 596-641)

6) Formal Organization and Commencement of business – Sec. 21

SEC. 21. Effects of Non-Use of Corporate Charter and Continuous Inoperation – If a corporation does not
formally organize and commence its business within five (5) years from the date of its incorporation, its
certificate of incorporation shall be deemed revoked as of the day following the end of the five-year period.
However, if a corporation has commenced its business but subsequently becomes inoperative for a period of
at least five (5) consecutive years, the Commission may, after due notice and hearing, place the corporation
under delinquent status.
A delinquent corporation shall have a period of two (2) years to resume operations and comply with all
requirements that the Commission shall prescribe. Upon compliance by the corporation, the Commission shall
issue an order lifting the delinquent status. Failure to comply with the requirements and resume operations
within the period given by the Commission shall cause the revocation of the corporation’s certificate of
incorporation.
The Commission shall give reasonable notice to, and coordinate with the appropriate regulatory agency prior
to the suspension or revocation of the certificate of incorporation of companies under their special regulatory
jurisdiction.