the said assignment and transfer in favor of the ASSIGNEE under

the following terms and conditions:

1. The ASSIGNEE shall take appropriate steps against any user other
than ASSIGNOR or infringer of the BMW trademark in the
Philippines; for such purpose, the ASSIGNOR shall inform the
ASSIGNEE immediately of any such use or infringement of the said
trademark which comes to his knowledge and upon such information
the ASSIGNOR shall automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power, authority and
responsibility to prosecute unilaterally or in concert with
ASSIGNEE, any such infringer of the subject mark and for purposes
hereof the ASSIGNOR is hereby named and constituted as
ASSIGNEE's Attorney-In-Fact, but any such suit without
ASSIGNEE's consent will exclusively be the responsibility and for
the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business
relations as has been usual in the past without a formal contract, and
for that purpose, the dealership of ASSIGNOR shall cover the
ASSIGNEE's complete production program with the only limitation
that, for the present, in view of ASSIGNEE's limited production, the
latter shall not be able to supply automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has
been usual in the past without a formal contract." But on February 16,
1993, in a meeting with a BMW representative and the president of
Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was
informed that BMW was arranging to grant the exclusive dealership of
BMW cars and products to CMC, which had expressed interest in
acquiring the same. On February 24, 1993, petitioner received
confirmation of the information from BMW which, in a letter, expressed
dissatisfaction with various aspects of petitioner's business, mentioning
among other things, decline in sales, deteriorating services, and
inadequate showroom and warehouse facilities, and petitioner's alleged
failure to comply with the standards for an exclusive BMW
dealer. 2 Nonetheless, BMW expressed willingness to continue business
relations with the petitioner on the basis of a "standard BMW importer"
contract, otherwise, it said, if this was not acceptable to petitioner, BMW

G.R. No. 113074 January 22, 1997

ALFRED HAHN, petitioner, vs. COURT OF APPEALS and
BAYERSCHE MOTOREN WERKE AKTIENGSELLSCHAFT
(BMW), respondents.
MENDOZA, J.:
This is a petition for review of the decision 1 of the Court of Appeals
dismissing a complaint for specific performance which petitioner had
filed against private respondent on the ground that the Regional Trial
Court of Quezon City did not acquire jurisdiction over private
respondent, a nonresident foreign corporation, and of the appellate
court's order denying petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the
name and style "Hahn-Manila." On the other hand, private respondent
Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident
foreign corporation existing under the laws of the former Federal
Republic of Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a
"Deed of Assignment with Special Power of Attorney," which reads in
full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the
BMW trademark and device in the Philippines which ASSIGNOR
uses and has been using on the products manufactured by
ASSIGNEE, and for which ASSIGNOR is the authorized exclusive
Dealer of the ASSIGNEE in the Philippines, the same being
evidenced by certificate of registration issued by the Director of
Patents on 12 December 1963 and is referred to as Trademark No.
10625;
WHEREAS, the ASSIGNOR has agreed to transfer and
consequently record said transfer of the said BMW trademark and
device in favor of the ASSIGNEE herein with the Philippines Patent
Office;
NOW THEREFORE, in view of the foregoing and in consideration
of the stipulations hereunder stated, the ASSIGNOR hereby affirms
1

would have no alternative but to terminate petitioner's exclusive

dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive
dealership would be a breach of the Deed of Assignment. 3 Hahn insisted
that as long as the assignment of its trademark and device subsisted, he
remained BMW's exclusive dealer in the Philippines because the
assignment was made in consideration of the exclusive dealership. In the
same letter petitioner explained that the decline in sales was due to lower
prices offered for BMW cars in the United States and the fact that few
customers returned for repairs and servicing because of the durability of
BMW parts and the efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW
withdrew on March 26, 1993 its offer of a "standard importer contract"
and terminated the exclusive dealer relationship effective June 30,
1993. 4 At a conference of BMW Regional Importers held on April 26,
1993 in Singapore, Hahn was surprised to find Alvarez among those
invited from the Asian region. On April 29, 1993, BMW proposed that
Hahn and CMC jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a
complaint for specific performance and damages against BMW to
compel it to continue the exclusive dealership. Later he filed an
amended complaint to include an application for temporary restraining
order and for writs of preliminary, mandatory and prohibitory injunction
to enjoin BMW from terminating his exclusive dealership. Hahn's
amended complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the
Philippines with principal offices at Munich, Germany. It may be
served with summons and other court processes through the
Secretary of the Department of Trade and Industry of the Philippines.
...
xxx xxx xxx
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW
a Deed of Assignment with Special Power of Attorney covering the
trademark and in consideration thereof, under its first whereas
clause, Plaintiff was duly acknowledged as the "exclusive Dealer of
the Assignee in the Philippines. . . .

xxx xxx xxx

8. From the time the trademark "BMW & DEVICE" was first used
by the Plaintiff in the Philippines up to the present, Plaintiff, through
its firm name "HAHN MANILA" and without any monetary
contribution from defendant BMW, established BMW's goodwill and
market presence in the Philippines. Pursuant thereto, Plaintiff has
invested a lot of money and resources in order to single-handedly
compete against other motorcycle and car companies. . . . Moreover,
Plaintiff has built buildings and other infrastructures such as service
centers and showrooms to maintain and promote the car and
products of defendant BMW.
xxx xxx xxx
10. In a letter dated February 24, 1993, defendant BMW advised
Plaintiff that it was willing to maintain with Plaintiff a relationship
but only "on the basis of a standard BMW importer contract as
adjusted to reflect the particular situation in the Philippines" subject
to certain conditions, otherwise, defendant BMW would terminate
Plaintiffs exclusive dealership and any relationship for cause
effective June 30, 1993. . . .
xxx xxx xxx
15. The actuations of defendant BMW are in breach of the
assignment agreement between itself and plaintiff since the
consideration for the assignment of the BMW trademark is the
continuance of the exclusive dealership agreement. It thus, follows
that the exclusive dealership should continue for so long as
defendant BMW enjoys the use and ownership of the trademark
assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to
Branch 104 of the Quezon City Regional Trial Court, which on June 14,
1993 issued a temporary restraining order. Summons and copies of the
complaint and amended complaint were thereafter served on the private
respondent through the Department of Trade and Industry, pursuant to
Rule 14, 14 of the Rules of Court. The order, summons and copies of
the complaint and amended complaint were later sent by the DTI to
BMW via registered mail on June 15, 1993 5 and received by the latter
on June 24, 1993.
2

On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte,
with petitioner Hahn testifying. On June 30, 1993, the trial court issued
an order granting the writ of preliminary injunction upon the filing of a
bond of P100,000.00. On July 13, 1993, following the posting of the
required bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the
trial court did not acquire jurisdiction over it through the service of
summons on the Department of Trade and Industry, because it (BMW)
was a foreign corporation and it was not doing business in the
Philippines. It contended that the execution of the Deed of Assignment
was an isolated transaction; that Hahn was not its agent because the
latter undertook to assemble and sell BMW cars and products without
the participation of BMW and sold other products; and that Hahn was an
indentor or middleman transacting business in his own name and for his
own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was
doing business in the Philippines through him as its agent, as shown by
the fact that BMW invoices and order forms were used to document his
transactions; that he gave warranties as exclusive BMW dealer; that
BMW officials periodically inspected standards of service rendered by
him; and that he was described in service booklets and international
publications of BMW as a "BMW Importer" or "BMW Trading
Company" in the Philippines.
The trial court 6 deferred resolution of the motion to dismiss until after
trial on the merits for the reason that the grounds advanced by BMW in
its motion did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW
filed a petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE
OR OTHERWISE INJUDICIOUSLY IN PROCEEDINGS
LEADING TOWARD THE ISSUANCE OF THE WRIT OF
PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE
TERMS FOR THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN
DEFERRING RESOLUTION OF THE MOTION TO DISMISS ON

THE GROUND OF LACK OF JURISDICTION, AND THEREBY

FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order
and, after hearing, for a writ of preliminary injunction, to enjoin the trial
court from proceeding further in Civil Case No. Q-93-15933. Private
respondent pointed out that, unless the trial court's order was set aside, it
would be forced to submit to the jurisdiction of the court by filing its
answer or to accept judgment in default, when the very question was
whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's
complaint. On December 20, 1993, it rendered judgment finding the trial
court guilty of grave abuse of discretion in deferring resolution of the
motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court
before it came out with its questioned order of July 26, 1993, we rule
and so hold that petitioner's (BMW) motion to dismiss could be
resolved then and there, and that the respondent judge's deferment of
his action thereon until after trial on the merit constitutes, to our
mind, grave abuse of discretion.
xxx xxx xxx
. . . [T]here is not much appreciable disagreement as regards the
factual matters relating to the motion to dismiss. What truly divide
(sic) the parties and to which they greatly differ is the legal
conclusions they respectively draw from such facts, (sic) with Hahn
maintaining that on the basis thereof, BMW is doing business in the
Philippines while the latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on
the motion to dismiss would anyway be elevated to it on appeal, the
Court of Appeals itself resolved the motion. It ruled that BMW was not
doing business in the country and, therefore, jurisdiction over it could
not be acquired through service of summons on the DTI pursuant to
Rule 14, 14. 'The court upheld private respondent's contention that
Hahn acted in his own name and for his own account and independently
of BMW, based on Alfred Hahn's allegations that he had invested his
own money and resources in establishing BMW's goodwill in the
Philippines and on BMW's claim that Hahn sold products other than
3

those of BMW. It held that petitioner was a mere indentor or broker and
not an agent through whom private respondent BMW transacted
business in the Philippines. Consequently, the Court of Appeals
dismissed petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred
(1) in finding that the trial court gravely abused its discretion in
deferring action on the motion to dismiss and (2) in finding that private
respondent BMW is not doing business in the Philippines and, for this
reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon private foreign corporations. If the defendant is
a foreign corporation, or a nonresident joint stock company or
association, doing business in the Philippines, service may be made
on its resident agent designated in accordance with law for that
purpose, or, if there be no such agent, on the government official
designated by law to that effect, or on any of its officers or agents
within the Philippines. (Emphasis added).
What acts are considered "doing business in the Philippines" are
enumerated in 3(d) of the Foreign Investments Act of 1991 (R.A. No.
7042) as follows: 7
d) the phrase "doing business" shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices or
branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a
period or periods totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines;and
any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided,
however, That the phrase "doing business" shall not be deemed to
include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or

officer to represent its interests in such corporation; nor appointing a

representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account.
(Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in
the Philippines" but not when the representative or distributor "transacts
business in its name and for its own account." In addition, 1(f)(1) of the
Rules and Regulations implementing (IRR) the Omnibus Investment
Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts,
enumerated in Article 44 of the Code. In particular, "doing business"
includes:
(1) . . . A foreign firm which does business through middlemen
acting in their own names, such as indentors, commercial brokers or
commission merchants, shall not be deemed doing business in the
Philippines. But such indentors, commercial brokers or commission
merchants shall be the ones deemed to be doing business in the
Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor
in the Philippines of private respondent BMW. If he is, BMW may be
considered doing business in the Philippines and the trial court acquired
jurisdiction over it (BMW) by virtue of the service of summons on the
Department of Trade and Industry. Otherwise, if Hahn is not the agent of
BMW but an independent dealer, albeit of BMW cars and products,
BMW, a foreign corporation, is not considered doing business in the
Philippines within the meaning of the Foreign Investments Act of 1991
and the IRR, and the trial court did not acquire jurisdiction over it
(BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own
name and for his own account and not as agent or distributor in the
Philippines of BMW on the ground that "he alone had contacts with
individuals or entities interested in acquiring BMW vehicles.
Independence characterizes Hahn's undertakings, for which reason he is
to be considered, under governing statutes, as doing business." (p. 13) In
support of this conclusion, the appellate court cited the following
allegations in Hahn's amended complaint:
4

8. From the time the trademark "BMW & DEVICE" was first used
by the Plaintiff in the Philippines up to the present, Plaintiff, through
its firm name "HAHN MANILA" and without any monetary
contributions from defendant BMW, established BMW's goodwill
and market presence in the Philippines. Pursuant thereto, Plaintiff
invested a lot of money and resources in order to single-handedly
compete against other motorcycle and car companies. . . . Moreover,
Plaintiff has built buildings and other infrastructures such as service
centers and showrooms to maintain and promote the car and
products of defendant BMW.
As the above quoted allegations of the amended complaint show,
however, there is nothing to support the appellate court's finding that
Hahn solicited orders alone and for his own account and without
"interference from, let alone direction of, BMW." (p. 13) To the contrary,
Hahn claimed he took orders for BMW cars and transmitted them to
BMW. Upon receipt of the orders, BMW fixed the downpayment and
pricing charges, notified Hahn of the scheduled production month for the
orders, and reconfirmed the orders by signing and returning to Hahn the
acceptance sheets. Payment was made by the buyer directly to BMW.
Title to cars purchased passed directly to the buyer and Hahn never paid
for the purchase price of BMW cars sold in the Philippines. Hahn was
credited with a commission equal to 14% of the purchase price upon the
invoicing of a vehicle order by BMW. Upon confirmation in writing that
the vehicles had been registered in the Philippines and serviced by him,
Hahn received an additional 3% of the full purchase price. Hahn
performed after-sale services, including warranty services, for which he
received reimbursement from BMW. All orders were on invoices and
forms of BMW. 8
These allegations were substantially admitted by BMW which, in its
petition for certiorari before the Court of Appeals, stated: 9
9.4. As soon as the vehicles are fully manufactured and full payment
of the purchase prices are made, the vehicles are shipped to the
Philippines. (The payments may be made by the purchasers or thirdpersons or even by Hahn.) The bills of lading are made up in the
name of the purchasers, but Hahn-Manila is therein indicated as the
person to be notified.

9.5. It is Hahn who picks up the vehicles from the Philippine ports,
for purposes of conducting pre-delivery inspections. Thereafter, he
delivers the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited
with a commission of fourteen percent (14%) of the full purchase
price thereof, and as soon as he confirms in writing that the vehicles
have been registered in the Philippines and have been serviced by
him, he will receive an additional three percent (3%) of the full
purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an
agency. An agent receives a commission upon the successful conclusion
of a sale. On the other hand, a broker earns his pay merely by bringing
the buyer and the seller together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at
his own expense, Hahn said that he had to follow BMW specifications as
exclusive dealer of BMW in the Philippines. According to Hahn, BMW
periodically inspected the service centers to see to it that BMW
standards were maintained. Indeed, it would seem from BMW's letter to
Hahn that it was for Hahn's alleged failure to maintain BMW standards
that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service
centers and showrooms does not necessarily prove that he is not an agent
of BMW. For as already noted, there are facts in the record which
suggest that BMW exercised control over Hahn's activities as a dealer
and made regular inspections of Hahn's premises to enforce compliance
with BMW standards and specifications. 10 For example, in its letter to
Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions
and letters that we have to tackle the Philippine market more
professionally and that we are through your present activities not
adequately prepared to cope with the forthcoming challenges. 11
In effect, BMW was holding Hahn accountable to it under the 1967
Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court
of Appeals, 12 in which the foreign corporation entered into a
"Representative Agreement" and a "Licensing Agreement" with a
5

domestic corporation, by virtue of which the latter was appointed

"exclusive representative" in the Philippines for a stipulated
commission. Pursuant to these contracts, the domestic corporation sold
products exported by the foreign corporation and put up a service center
for the products sold locally. This Court held that these acts constituted
doing business in the Philippines. The arrangement showed that the
foreign corporation's purpose was to penetrate the Philippine market and
establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive
distributor in the Philippines, even as it announced in the Asian region
that Hahn was the "official BMW agent" in the Philippines. 13
The Court of Appeals also found that petitioner Alfred Hahn dealt in
other products, and not exclusively in BMW products, and, on this basis,
ruled that Hahn was not an agent of BMW. (p. 14) This finding is based
entirely on allegations of BMW in its motion to dismiss filed in the trial
court and in its petition for certiorari before the Court of Appeals. 14 But
this allegation was denied by Hahn 15 and therefore the Court of Appeals
should not have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have
indicated to the Court of Appeals the necessity of affirming the trial
court's order deferring resolution of BMW's motion to dismiss.
Petitioner alleged that whether or not he is considered an agent of BMW,
the fact is that BMW did business in the Philippines because it sold cars
directly to Philippine buyers. 16 This was denied by BMW, which
claimed that Hahn was not its agent and that, while it was true that it had
sold cars to Philippine buyers, this was done without solicitation on its
part. 17
It is not true then that the question whether BMW is doing business
could have been resolved simply by considering the parties' pleadings.
There are genuine issues of facts which can only be determined on the
basis of evidence duly presented. BMW cannot short circuit the process
on the plea that to compel it to go to trial would be to deny its right not
to submit to the jurisdiction of the trial court which precisely it denies.
Rule 16, 3 authorizes courts to defer the resolution of a motion to
dismiss until after the trial if the ground on which the motion is based
does not appear to be indubitable. Here the record of the case bristles

with factual issues and it is not at all clear whether some allegations
correspond to the proof.
Anyway, private respondent need not apprehend that by responding to
the summons it would be waiving its objection to the trial court's
jurisdiction. It is now settled that, for purposes of having summons
served on a foreign corporation in accordance with Rule 14, 14, it is
sufficient that it be alleged in the complaint that the foreign corporation
is doing business in the Philippines. The court need not go beyond the
allegations of the complaint in order to determine whether it has
Jurisdiction. 18 A determination that the foreign corporation is doing
business is only tentative and is made only for the purpose of enabling
the local court to acquire jurisdiction over the foreign corporation
through service of summons pursuant to Rule 14, 14. Such
determination does not foreclose a contrary finding should evidence later
show that it is not transacting business in the country. As this Court has
explained:
This is not to say, however, that the petitioner's right to question the
jurisdiction of the court over its person is now to be deemed a
foreclosed matter. If it is true, as Signetics claims, that its only
involvement in the Philippines was through a passive investment in
Sigfil, which it even later disposed of, and that TEAM Pacific is not
its agent, then it cannot really be said to be doing business in the
Philippines. It is a defense, however, that requires the contravention
of the allegations of the complaint, as well as a full ventilation, in
effect, of the main merits of the case, which should not thus be
within the province of a mere motion to dismiss. So, also, the issue
posed by the petitioner as to whether a foreign corporation which has
done business in the country, but which has ceased to do business at
the time of the filing of a complaint, can still be made to answer for a
cause of action which accrued while it was doing business, is another
matter that would yet have to await the reception and admission of
evidence. Since these points have seasonably been raised by the
petitioner, there should be no real cause for what may
understandably be its apprehension,i.e., that by its participation
during the trial on the merits, it may, absent an invocation of separate
or independent reliefs of its own, be considered to have voluntarily
submitted itself to the court's jurisdiction. 19
6

Far from committing an abuse of discretion, the trial court properly

deferred resolution of the motion to dismiss and thus avoided
prematurely deciding a question which requires a factual basis, with the
same result if it had denied the motion and conditionally assumed
jurisdiction. It is the Court of Appeals which, by ruling that BMW is not
doing business on the basis merely of uncertain allegations in the
pleadings, disposed of the whole case with finality and thereby deprived
petitioner of his right to be heard on his cause of action. Nor was there
justification for nullifying the writ of preliminary injunction issued by
the trial court. Although the injunction was issued ex parte, the fact is
that BMW was subsequently heard on its defense by filing a motion to
dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and
the case is REMANDED to the trial court for further proceedings.
SO ORDERED.

DECISION
CARPIO, J.:
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

-------------------------------------------------------------------------------------------------------------

G.R. No. 176579

June 28, 2011
WILSON P. GAMBOA, Petitioner, vs. FINANCE SECRETARY
MARGARITO B. TEVES, et, al, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-inIntervention.
7

with this Courts decision4 which became final and executory on 8

August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares,
which represent 6.4 percent of the outstanding common shares of stock
of PLDT, and designated the Inter-Agency Privatization Council (IPC),
composed of the Department of Finance and the PCGG, as the disposing
entity. An invitation to bid was published in seven different newspapers
from 13 to 24 November 2006. On 20 November 2006, a pre-bid
conference was held, and the original deadline for bidding scheduled on
4 December 2006 was reset to 8 December 2006. The extension was
published in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP
emerged as the highest bidder with a bid of 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 PTICs Articles of
Incorporation. First Pacific announced its intention to match Parallaxs
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
governments 111,415 PTIC shares bore due diligence, transparency and
conformity with existing legal procedures; and (b) First Pacifics
intended acquisition of the governments 111,415 PTIC shares resulting
in First Pacifics 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

XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids.

Parallax won with a bid of P25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right of first
refusal as a PTIC stockholder and buy the 111,415 PTIC shares by
matching the bid price of Parallax. However, First Pacific failed to do so
by the 1 February 2007 deadline set by IPC and instead, yielded its right
to PTIC itself which was then given by IPC until 2 March 2007 to buy
the PTIC shares. On 14 February 2007, First Pacific, through its
subsidiary, MPAH, entered into a Conditional Sale and Purchase
Agreement of the 111,415 PTIC shares, or 46.125 percent of the
outstanding capital stock of PTIC, with the Philippine Government for
the price of 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 Pacifics 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
8

toP25,217,556,000; (c) pursuant to the right of first refusal in favor of

PTIC and its shareholders granted in PTICs 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.
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 Pacifics
common shareholdings in PLDT from 30.7 percent to 37 percent, and
this, combined with Japanese NTT DoCoMos 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 Pacifics equity in PLDT will go
up from 30.7 percent to 37.0 percent of its common or votingstockholdings, x x x. Hence, the consummation of the sale will put the
two largest foreign investors in PLDT First Pacific and Japans NTT
DoCoMo, which is the worlds largest wireless telecommunications
firm, owning 51.56 percent of PLDT common equity. x x x With the
completion of the sale, data culled from the official website of the New
York Stock Exchange (www.nyse.com) showed that those foreign
entities, which own at least five percent of common equity, will
collectively own 81.47 percent of PLDTs common equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K
reports x x x which PLDT submitted to the New York Stock Exchange
for the period 2003-2005, revealed that First Pacific and several other
foreign entities breached the constitutional limit of 40 percent ownership
as early as 2003. x x x"7
Petitioner raises the following issues: (1) whether the consummation of
the then impending sale of 111,415 PTIC shares to First Pacific violates
the constitutional limit on foreign ownership of a public utility; (2)
whether public respondents committed grave abuse of discretion in

allowing the sale of the 111,415 PTIC shares to First Pacific; and (3)
whether the sale of common shares to foreigners in excess of 40 percent
of the entire subscribed common capital stock violates the constitutional
limit on foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a
Motion for Leave to Intervene and Admit Attached Petition-inIntervention. In the Resolution of 28 August 2007, the Court granted the
motion and noted the Petition-in-Intervention.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in
seeking, among others, to enjoin and/or nullify the sale by respondents
of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-inintervention claim that, as PLDT subscribers, they have a "stake in the
outcome of the controversy x x x where the Philippine Government is
completing the sale of government owned assets in [PLDT],
unquestionably a public utility, in violation of the nationality restrictions
of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those raised
by petitioner,9 which indisputably demand a thorough examination of
the evidence of the parties, are generally beyond this Courts
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 nonvoting 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.
9

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 farreaching 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 tourists dollar deposit with a local bank,
the Court declared Section 113 of Central Bank Circular No. 960,
exempting foreign currency deposits from attachment, garnishment or
any other order or process of any court, inapplicable due to the peculiar
circumstances of the case. The Court held that "injustice would result
especially to a citizen aggrieved by a foreign guest like accused x x x"
that would "negate Article 10 of the Civil Code which provides that in
case of doubt in the interpretation or application of laws, it is presumed
that the lawmaking body intended right and justice to prevail." The
Court therefore required respondents Central Bank of the Philippines,
the local bank, and the accused to comply with the writ of execution
issued in the civil case for damages and to release the dollar deposit of
the accused to satisfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court
similarly brushed aside the procedural infirmity of the petition for
declaratory relief and treated the same as one for mandamus.
In Alliance, the issue was whether the government unlawfully excluded
petitioners, who were government employees, from the enjoyment of
rights to which they were entitled under the law. Specifically, the
question was: "Are the branches, agencies, subdivisions, and
instrumentalities of the Government, including government owned or
controlled corporations included among the four employers under

Presidential Decree No. 851 which are required to pay their employees x
x x a thirteenth (13th) month pay x x x ?" The Constitutional principle
involved therein affected all government employees, clearly justifying a
relaxation of the technical rules of procedure, and certainly requiring the
interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for
declaratory relief as one for mandamus if the issue involved has farreaching 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 farreaching implications to the entire nation, and to future generations of
Filipinos, it is the threshhold legal issue presented in this case.
The Court first encountered the issue on the definition of the term
"capital" in Section 11, Article XII of the Constitution in the case
of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case
involved the same public utility (PLDT) and substantially the same
private respondents. Despite the importance and novelty of the
constitutional issue raised therein and despite the fact that the petition
involved a purely legal question, the Court declined to resolve the case
on the merits, and instead denied the same for disregarding the hierarchy
of courts.17 There, petitioner Fernandez assailed on a pure question of
10

law the Regional Trial Courts Decision of 21 February 2003 via a

petition for review under Rule 45. The Courts 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 issuewhich 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 PLDTs franchise could be revoked, a dire consequence
directly affecting petitioners interest as a stockholder.

More importantly, there is no question that the instant petition raises

matters of transcendental importance to the public. The fundamental and
threshold legal issue in this case, involving the national economy and the
economic welfare of the Filipino people, far outweighs any perceived
impediment in the legal personality of the petitioner to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a
suit on matters of transcendental importance to the public, thus:
In Taada 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 Taada, 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 petitioners standing. (Emphasis supplied)
11

Clearly, since the instant petition, brought by a citizen, involves matters

of transcendental public importance, the petitioner has the
requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987
Constitution mandates the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to citizens of
the Philippines or to corporations or associations organized under the
laws of the Philippines, at least sixty per centum of whose capital is
owned by such citizens; nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under
the condition that it shall be subject to amendment, alteration, or repeal
by the Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public.
The participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation
or association must be citizens of the Philippines. (Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the
1973 Constitution, thus:
Section 5. No franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to citizens of
the Philippines or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of the capital of which
is owned by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under
the condition that it shall be subject to amendment, alteration, or repeal
by the National Assembly when the public interest so requires. The State
shall encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their proportionate share
in the capital thereof. (Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8,

Article XIV of the 1935 Constitution, viz:
Section 8. No franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to citizens of
the Philippines or to corporations or other entities organized under the
laws of the Philippines sixty per centum of the capital of which is owned
by citizens of the Philippines, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty
years. No franchise or right shall be granted to any individual, firm, or
corporation, except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the public
interest so requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986
Constitutional Commission, reminds us that the Filipinization provision
in the 1987 Constitution is one of the products of the spirit of
nationalism which gripped the 1935 Constitutional Convention.25 The
1987 Constitution "provides for the Filipinization of public utilities by
requiring that any form of authorization for the operation of public
utilities should be granted only to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines
at least sixty per centum of whose capital is owned by such
citizens. The provision is [an express] recognition of the sensitive and
vital position of public utilities both in the national economy and for
national security."26 The evident purpose of the citizenship requirement
is to prevent aliens from assuming control of public utilities, which may
be inimical to the national interest.27 This specific provision explicitly
reserves to Filipino citizens control of public utilities, pursuant to an
overriding economic goal of the 1987 Constitution: to "conserve and
develop our patrimony"28 and ensure "a self-reliant and independent
national economy effectively controlled by Filipinos."29
Any citizen or juridical entity desiring to operate a public utility must
therefore meet the minimum nationality requirement prescribed in
Section 11, Article XII of the Constitution. Hence, for a corporation to
be granted authority to operate a public utility, at least 60 percent of its
"capital" must be owned by Filipino citizens.
12

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 PLDTs 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 petitioners arguments and
adopt petitioners definition of the term "capital."33 Petitioners-inintervention allege that "the approximate foreign ownership of common
capital stock of PLDT x x x already amounts to at least 63.54% of the
total outstanding common stock," which means that foreigners exercise
significant control over PLDT, patently violating the 40 percent foreign
equity limitation in public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any definition of the term
"capital" in Section 11, Article XII of the Constitution. More
importantly, private respondents Nazareno and Pangilinan of PLDT do
not dispute that more than 40 percent of the common shares of PLDT are
held by foreigners.
In particular, respondent Nazarenos 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 petitioners
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 petitioners 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 petitioners claim of foreigners holding more than 40 percent of
PLDTs 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 Courts jurisdiction over the
petition; (2) petitioners 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 persons property (the shareholders stock in the utility
company) on the basis of another partys alleged failure to satisfy a
requirement that is a condition only for that other partys retention of
13

another piece of property (the utility company being at least 60%

Filipino-owned to keep its franchise)."36
The OSG, representing public respondents Secretary Margarito Teves,
Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, and
Chairman Fe Barin, is likewise silent on the definition of the term
"capital." In its Memorandum37 dated 24 September 2007, the OSG
also limits its discussion on the supposed procedural defects of the
petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of
interested parties, and lack of basis for injunction. The OSG does not
present any definition or interpretation of the term "capital" in Section
11, Article XII of the Constitution. The OSG contends that "the petition
actually partakes of a collateral attack on PLDTs franchise as a public
utility," which in effect requires a "full-blown trial where all the parties
in interest are given their day in court."38
Respondent Francisco Ed Lim, impleaded as President and Chief
Executive Officer of the Philippine Stock Exchange (PSE), does not also
define the term "capital" and seeks the dismissal of the petition on the
following grounds: (1) failure to state a cause of action against Lim; (2)
the PSE allegedly implemented its rules and required all listed
companies, including PLDT, to make proper and timely disclosures; and
(3) the reliefs prayed for in the petition would adversely impact the stock
market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who
claimed to be a stockholder of record of PLDT, contended that the term
"capital" in the 1987 Constitution refers to shares entitled to vote or the
common shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities
prescribed by the Constitution refers to ownership of shares of stock
entitled to vote, i.e., common shares, considering that it is through
voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing
limitations and restrictions on fully nationalized and partially
nationalized activities is for Filipino nationals to be always in control of
the corporation undertaking said activities. Otherwise, if the Trial
Courts 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
Courts ruling adopting respondents arguments, the common shares can
be owned entirely by foreigners thus creating an absurd situation
wherein foreigners, who are supposed to be minority shareholders,
control the public utility corporation.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted to
apply to both the beneficial ownership and the controlling interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in
public utilities prescribed by the Constitution refers to ownership of
shares of stock entitled to vote, i.e., common shares. Furthermore,
ownership of record of shares will not suffice but it must be shown that
the legal and beneficial ownership rests in the hands of Filipino citizens.
Consequently, in the case of petitioner PLDT, since it is already admitted
that the voting interests of foreigners which would gain entry to
petitioner PLDT by the acquisition of SMART shares through the
Questioned Transactions is equivalent to 82.99%, and the nominee
arrangements between the foreign principals and the Filipino owners is
likewise admitted, there is, therefore, a violation of Section 11, Article
XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14,
1987 cited by the Trial Court to support the proposition that the meaning
of the word "capital" as used in Section 11, Article XII of the
Constitution allegedly refers to the sum total of the shares subscribed
and paid-in by the shareholder and it allegedly is immaterial how the
stock is classified, whether as common or preferred, cannot stand in the
face of a clear legislative policy as stated in the FIA which took effect in
1991 or way after said opinions were rendered, and as clarified by the
above-quoted Amendments. In this regard, suffice it to state that as
between the law and an opinion rendered by an administrative agency,
the law indubitably prevails. Moreover, said Opinions are merely
advisory and cannot prevail over the clear intent of the framers of the
Constitution.
14

In the same vein, the SECs 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
corporations "capital," without distinction as to classes of shares. x x x
In this connection, the Corporation Code which was already in force at
the time the present (1987) Constitution was drafted defined
outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. The term "outstanding
capital stock", as used in this Code, means the total shares of stock
issued under binding subscription agreements to subscribers or
stockholders, whether or not fully or partially paid, except treasury
shares.
Section 137 of the Corporation Code also does not distinguish between
common and preferred shares, nor exclude either class of shares, in
determining the outstanding capital stock (the "capital") of a
corporation. Consequently, petitioners suggestion to reckon PLDTs
foreign equity only on the basis of PLDTs outstanding common shares
is without legal basis. The language of the Constitution should be
understood in the sense it has in common use.
xxxx
17. But even assuming that resort to the proceedings of the
Constitutional Commission is necessary, there is nothing in the Record
of the Constitutional Commission (Vol. III) which petitioner
misleadingly cited in the Petition x x x which supports petitioners
view that only common shares should form the basis for computing a
public utilitys foreign equity.
xxxx

18. In addition, the SEC the government agency primarily responsible

for implementing the Corporation Code, and which also has the
responsibility of ensuring compliance with the Constitutions foreign
equity restrictions as regards nationalized activities x x x has
categorically ruled that both common and preferred shares are properly
considered in determining outstanding capital stock and the nationality
composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term
"capital" in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in
the present case only to common shares,41 and not to the total
outstanding capital stock comprising both common and non-voting
preferred shares.
The Corporation Code of the Philippines42 classifies shares as common
or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock
corporations may be divided into classes or series of shares, or both, any
of which classes or series of shares may have such rights, privileges or
restrictions as may be stated in the articles of incorporation:
Provided, That no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless
otherwise provided in this Code: Provided, further, That there shall
always be a class or series of shares which have complete voting rights.
Any or all of the shares or series of shares may have a par value or have
no par value as may be provided for in the articles of incorporation:
Provided, however, That banks, trust companies, insurance companies,
public utilities, and building and loan associations shall not be permitted
to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given
preference in the distribution of the assets of the corporation in case of
liquidation and in the distribution of dividends, or such other preferences
as may be stated in the articles of incorporation which are not violative
of the provisions of this Code: Provided, That preferred shares of stock
may be issued only with a stated par value. The Board of Directors,
where authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof: Provided,
15

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.
A corporation may, furthermore, classify its shares for the purpose of
insuring compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated
in the certificate of stock, each share shall be equal in all respects to
every other share.
Where the articles of incorporation provide for non-voting shares in the
cases allowed by this Code, the holders of such shares shall nevertheless
be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all
or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or business
in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote
necessary to approve a particular corporate act as provided in this Code
shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate
in the control or management of the corporation.43 This is exercised

through his vote in the election of directors because it is the board of

directors that controls or manages the corporation.44 In the absence of
provisions in the articles of incorporation denying voting rights to
preferred shares, preferred shares have the same voting rights as
common shares. However, preferred shareholders are often excluded
from any control, that is, deprived of the right to vote in the election of
directors and on other matters, on the theory that the preferred
shareholders are merely investors in the corporation for income in the
same manner as bondholders.45 In fact, under the Corporation Code
only preferred or redeemable shares can be deprived of the right to
vote.46 Common shares cannot be deprived of the right to vote in any
corporate meeting, and any provision in the articles of incorporation
restricting the right of common shareholders to vote is invalid.47
Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting
rights, the term "capital" in Section 11, Article XII of the Constitution
refers only to common shares. However, if the preferred shares also have
the right to vote in the election of directors, then the term "capital" shall
include such preferred shares because the right to participate in the
control or management of the corporation is exercised through the right
to vote in the election of directors. In short, the term "capital" in Section
11, Article XII of the Constitution refers only to shares of stock that can
vote in the election of directors.
This interpretation is consistent with the intent of the framers of the
Constitution to place in the hands of Filipino citizens the control and
management of public utilities. As revealed in the deliberations of the
Constitutional Commission, "capital" refers to the voting stock
or controlling interest of a corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or
Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in
Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this
question: "Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the paid16

up capital stock of a corporation"? Will the Committee please enlighten

me on this?
MR. VILLEGAS. We have just had a long discussion with the members
of the team from the UP Law Center who provided us a draft. The
phrase that is contained here which we adopted from the UP draft is "60
percent of voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock,
because unless declared delinquent, unpaid capital stock shall be entitled
to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation,
say, a corporation with 60-40 percent equity invests in another
corporation which is permitted by the Corporation Code, does the
Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted
by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion
of the phrase "voting stock or controlling interest."
MR. AZCUNA. Hence, without the Davide amendment, the committee
report would read: "corporations or associations at least sixty percent of
whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with
60 percent of the capital to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they
are the minority. Let us say 40 percent of the capital is owned by them,
but it is the voting capital, whereas, the Filipinos own the nonvoting
shares. So we can have a situation where the corporation is controlled by

foreigners despite being the minority because they have the voting
capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as
stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have stocks.
That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling
interest."
MR. BENGZON. In the case of stock corporations, it is
assumed.49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in,
"controlling interest" in the corporation. Reinforcing this interpretation
of the term "capital," as referring to controlling interest or shares entitled
to vote, is the definition of a "Philippine national" in the Foreign
Investments Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines;
or a domestic partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the Philippines
of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a corporation organized abroad and registered as doing
business in the Philippines under the Corporation Code of which one
hundred percent (100%) of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a trustee of funds for pension or
other employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a Securities
and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens of the
Philippines and at least sixty percent (60%) of the members of the Board
of Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a
"Philippine national." (Emphasis supplied)
17

In explaining the definition of a "Philippine national," the Implementing

Rules and Regulations of the Foreign Investments Act of 1991 provide:
b. "Philippine national" shall mean a citizen of the Philippines or a
domestic partnership or association wholly owned by the citizens of the
Philippines; or a corporation organized under the laws of the Philippines
of which at least sixty percent [60%] of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines; or a
trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty
percent [60%] of the fund will accrue to the benefit of the Philippine
nationals; Provided, that where a corporation its non-Filipino
stockholders own stocks in a Securities and Exchange Commission
[SEC] registered enterprise, at least sixty percent [60%] of the capital
stock outstanding and entitled to vote of both corporations must be
owned and held by citizens of the Philippines and at least sixty percent
[60%] of the members of the Board of Directors of each of both
corporation must be citizens of the Philippines, in order that the
corporation shall be considered a Philippine national. The control test
shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation shall
be determined on the basis of outstanding capital stock whether fully
paid or not, but only such stocks which are generally entitled to vote are
considered.
For stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of
which have been assigned or transferred to aliens cannot be considered
held by Philippine citizens or Philippine nationals.
Individuals or juridical entities not meeting the aforementioned
qualifications are considered as non-Philippine nationals. (Emphasis
supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned
"capital" required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required. The legal and beneficial ownership of 60

percent of the outstanding capital stock must rest in the hands of Filipino
nationals in accordance with the constitutional mandate. Otherwise, the
corporation is "considered as non-Philippine national[s]."
Under Section 10, Article XII of the Constitution, Congress may
"reserve to citizens of the Philippines or to corporations or associations
at least sixty per centum of whose capital is owned by such citizens, or
such higher percentage as Congress may prescribe, certain areas of
investments." Thus, in numerous laws Congress has reserved certain
areas of investments to Filipino citizens or to corporations at least sixty
percent of the "capital" of which is owned by Filipino citizens. Some of
these laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No.
3850; (3) Magna Carta for Micro, Small and Medium Enterprises or
R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or
R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or
R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A.
No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the
term "capital" in Section 11, Article XII of the Constitution is also
used in the same context in numerous laws reserving certain areas of
investments to Filipino citizens.
To construe broadly the term "capital" as the total outstanding capital
stock, including both common and non-voting preferred shares, grossly
contravenes the intent and letter of the Constitution that the "State shall
develop a self-reliant and independent national economy effectively
controlled by Filipinos." A broad definition unjustifiably disregards who
owns the all-important voting stock, which necessarily equates to control
of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the
term "capital." Let us assume that a corporation has 100 common shares
owned by foreigners and 1,000,000 non-voting preferred shares owned
by Filipinos, with both classes of share having a par value of one peso
(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.
18

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 PLDTs common
shares, while Filipinos hold only 35.73%. Since holding a majority of
the common shares equates to control, it is clear that foreigners exercise
control over PLDT. Such amount of control unmistakably exceeds the
allowable 40 percent limit on foreign ownership of public utilities
expressly mandated in Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted
to the SEC, shows that per share the SIP58 preferred shares earn a
pittance in dividends compared to the common shares. PLDT declared
dividends for the common shares at 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 PLDTs 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 States grant of authority to operate a
public utility. The undisputed fact that the PLDT preferred shares,

In the example given, only the foreigners holding the common shares
have voting rights in the election of directors, even if they hold only 100
shares. The foreigners, with a minuscule equity of less than 0.001
percent, exercise control over the public utility. On the other hand, the
Filipinos, holding more than 99.999 percent of the equity, cannot vote in
the election of directors and hence, have no control over the public
utility. This starkly circumvents the intent of the framers of the
Constitution, as well as the clear language of the Constitution, to place
the control of public utilities in the hands of Filipinos. It also renders
illusory the State policy of an independent national economy effectively
controlled by Filipinos.
The example given is not theoretical but can be found in the real
world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to
vote in the election of directors. PLDTs 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. PLDTs Articles of
Incorporation52 state that "each holder of Common Capital Stock shall
have one vote in respect of each share of such stock held by him on all
matters voted upon by the stockholders, and the holders of Common
Capital Stock shall have the exclusive right to vote for the election of
directors and for all other purposes."53
In short, only holders of common shares can vote in the election of
directors, meaning only common shareholders exercise control over
PLDT. Conversely, holders of preferred shares, who have no voting
rights in the election of directors, do not have any control over PLDT. In
fact, under PLDTs 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 PLDTs
19

99.44% owned by Filipinos, are non-voting and earn only 1/70 of the
dividends that PLDT common shares earn, grossly violates the
constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn
less than 60 percent of the dividends, of PLDT. This directly contravenes
the express command in Section 11, Article XII of the Constitution that
"[n]o franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to x x x corporations
x x x organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens x x x."
To repeat, (1) foreigners own 64.27% of the common shares of PLDT,
which class of shares exercises the soleright to vote in the election of
directors, and thus exercise control over PLDT; (2) Filipinos own only
35.73% of PLDTs 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 ofP2,328.00 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 States 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 Filipinosspecific areas of investment,
such as the development of natural resources and ownership of land,
educational institutions and advertising business, is self-executing. There
is no need for legislation to implement these self-executing provisions of
the Constitution. The rationale why these constitutional provisions are
self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is
necessary to enforce a constitutional mandate, the presumption now is
that all provisions of the constitution are self-executing. If the
constitutional provisions are treated as requiring legislation instead of
self-executing, the legislature would have the power to ignore and
practically nullify the mandate of the fundamental law. This can be
cataclysmic. That is why the prevailing view is, as it has always been,
that
. . . in case of doubt, the Constitution should be considered selfexecuting rather than non-self-executing. . . .Unless the contrary is
clearly intended, the provisions of the Constitution should be considered
self-executing, as a contrary rule would give the legislature discretion to
determine when, or whether, they shall be effective. These provisions
would be subordinated to the will of the lawmaking body, which could
make them entirely meaningless by simply refusing to pass the needed
implementing statute. (Emphasis supplied)
In Manila Prince Hotel, even the Dissenting Opinion of then Associate
Justice Reynato S. Puno, later Chief Justice, agreed that constitutional
provisions are presumed to be self-executing. Justice Puno stated:
Courts as a rule consider the provisions of the Constitution as selfexecuting, rather than as requiring future legislation for their
20

enforcement. The reason is not difficult to discern. For if they are not
treated as self-executing, the mandate of the fundamental law ratified by
the sovereign people can be easily ignored and nullified by Congress.
Suffused with wisdom of the ages is the unyielding rule that legislative
actions may give breath to constitutional rights but congressional
inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of
Rights on arrests, searches and seizures, the rights of a person under
custodial investigation, the rights of an accused, and the privilege
against self-incrimination. It is recognized that legislation is unnecessary
to enable courts to effectuate constitutional provisions guaranteeing the
fundamental rights of life, liberty and the protection of property. The
same treatment is accorded to constitutional provisions forbidding the
taking or damaging of property for public use without just
compensation. (Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of
implementing legislation, applied directly the provisions of the 1935,
1973 and 1987 Constitutions limiting land ownership to Filipinos.
In Soriano v. Ong Hoo,68 this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of a
sale by a citizen of his land to an alien, and as both the citizen and the
alien have violated the law, none of them should have a recourse against
the other, and it should only be the State that should be allowed to
intervene and determine what is to be done with the property subject of
the violation. We have said that what the State should do or could do in
such matters is a matter of public policy, entirely beyond the scope of
judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No.
L-5996, June 27, 1956.) While the 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. x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-executing
would mean that since the 1935 Constitution, or over the last 75 years,
not one of the constitutional provisions expressly reserving specific
areas of investments to corporations, at least 60 percent of the "capital"

of which is owned by Filipinos, was enforceable. In short, the framers of

the 1935, 1973 and 1987 Constitutions miserably failed to effectively
reserve to Filipinos specific areas of investment, like the operation by
corporations of public utilities, the exploitation by corporations of
mineral resources, the ownership by corporations of real estate, and the
ownership of educational institutions. All the legislatures that convened
since 1935 also miserably failed to enact legislations to implement these
vital constitutional provisions that determine who will effectively
control the national economy, Filipinos or foreigners. This Court cannot
allow such an absurd interpretation of the Constitution.
This Court has held that the SEC "has both regulatory and adjudicative
functions."69 Under its regulatory functions, the SEC can be compelled
by mandamus to perform its statutory duty when it unlawfully neglects
to perform the same. Under its adjudicative or quasi-judicial functions,
the SEC can be also be compelled by mandamus to hear and decide a
possible violation of any law it administers or enforces when it is
mandated by law to investigate such violation.1awphi1
Under Section 17(4)70 of the Corporation Code, the SEC has the
regulatory function to reject or disapprove the Articles of Incorporation
of any corporation where "the required percentage of ownership of the
capital stock to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the Constitution." Thus,
the SEC is the government agency tasked with the statutory duty to
enforce the nationality requirement prescribed in Section 11, Article XII
of the Constitution on the ownership of public utilities. This Court, in a
petition for declaratory relief that is treated as a petition for mandamus
as in the present case, can direct the SEC to perform its statutory duty
under the law, a duty that the SEC has apparently unlawfully neglected
to do based on the 2010 GIS that respondent PLDT submitted to the
SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is
vested with the "power and function" to "suspend or revoke, after proper
notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds
provided by law." The SEC is mandated under Section 5(d) of the same
Code with the "power and function" to "investigate x x x the activities of
persons to ensure compliance" with the laws and regulations that SEC
21

The Office of the Solicitor General (OSG) initially filed a motion

for reconsideration on behalfofthe SEC,5 assailing the 28 June
2011 Decision. However, it subsequently filed a Consolidated
Comment on behalf of the State,6declaring expressly that it
agrees with the Court's definition of the term "capital" in
Section 11, Article XII of the Constitution. During the Oral
Arguments on 26 June 2012, the OSG reiterated its position
consistent with the Court's 28 June 2011 Decision.
We deny the motions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for
mandamus.
As we emphatically stated in the 28 June 2011 Decision, the
interpretation of the term "capital" in Section 11, Article XII of
the Constitution has far-reaching implications to the national
economy. In fact, a resolution of this issue will determine
whether Filipinos are masters, or second-class citizens, in their
own country. What is at stake here is whether Filipinos or
foreigners will have effective control of the Philippine national
economy. Indeed, if ever there is a legal issue that has farreaching implications to the entire nation, and to future
generations of Filipinos, it is the threshold legal issue
presented in this case.
Contrary to Pangilinans narrow view, the serious economic
consequences resulting in the interpretation of the term
"capital" in Section 11, Article XII of the Constitution
undoubtedly demand an immediate adjudication of this
issue. Simply put, the far-reaching implications of this issue
justify the treatment of the petition as one for mandamus.7
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court
deemed it wise and expedient to resolve the case although the
petition for declaratory relief could be outrightly dismissed for
being procedurally defective. There, appellant admittedly had
already committed a breach of the Public Service Act in
relation to the Anti-Dummy Law since it had been employing
non- American aliens long before the decision in a prior similar
case. However, the main issue in Luzon Stevedoring was of
transcendental importance, involving the exercise or

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 PLDTs voting shares,
as admitted by respondents and as stated in PLDTs 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.
SO ORDERED.
------------------------------------------------------------------------------------------------------------G.R. No. 176579
October 9, 2012
*
HEIRS OF WILSON P. GAMBOA, Petitioners, vs. FINANCE
SECRETARYMARGARITO B. TEVES, et. al Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-inIntervention.
RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of the 28 June
2011 Decision filed by (1) the Philippine Stock Exchange's
(PSE) President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3)
Napoleon L. Nazareno (Nazareno ),3and ( 4) the Securities and
Exchange Commission (SEC)4 (collectively, movants ).
22

enjoyment of rights, franchises, privileges, properties and

businesses which only Filipinos and qualified corporations
could exercise or enjoy under the Constitution and the
statutes. Moreover, the same issue could be raised by
appellant in an appropriate action. Thus, in Luzon
Stevedoring the Court deemed it necessary to finally dispose
of the case for the guidance of all concerned, despite the
apparent procedural flaw in the petition.
The circumstances surrounding the present case, such as the
supposed procedural defect of the petition and the pivotal
legal issue involved, resemble those in Luzon
Stevedoring. Consequently, in the interest of substantial
justice and faithful adherence to the Constitution, we opted to
resolve this case for the guidance of the public and all
concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article
XII of the Constitution has long been settled and defined to
refer to the total outstanding shares of stock, whether voting
or non-voting. In fact, movants claim that the SEC, which is the
administrative agency tasked to enforce the 60-40 ownership
requirement in favor of Filipino citizens in the Constitution and
various statutes, has consistently adopted this particular
definition in its numerous opinions. Movants point out that with
the 28 June 2011 Decision, the Court in effect introduced a
"new" definition or "midstream redefinition"9 of the term
"capital" in Section 11, Article XII of the Constitution.
This is egregious error.
For more than 75 years since the 1935 Constitution, the Court
has not interpreted or defined the term "capital" found in
various economic provisions of the 1935, 1973 and 1987
Constitutions. There has never been a judicial precedent
interpreting the term "capital" in the 1935, 1973 and 1987
Constitutions, until now. Hence, it is patently wrong and utterly
baseless to claim that the Court in defining the term "capital"
in its 28 June 2011 Decision modified, reversed, or set aside
the purported long-standing definition of the term "capital,"

which supposedly refers to the total outstanding shares of

stock, whether voting or non-voting. To repeat, until the
present case there has never been a Court ruling categorically
defining the term "capital" found in the various economic
provisions of the 1935, 1973 and 1987 Philippine Constitutions.
The opinions of the SEC, as well as of the Department of
Justice (DOJ), on the definition of the term "capital" as referring
to both voting and non-voting shares (combined total of
common and preferred shares) are, in the first place,
conflicting and inconsistent. There is no basis whatsoever to
the claim that the SEC and the DOJ have consistently and
uniformly adopted a definition of the term "capital" contrary to
the definition that this Court adopted in its 28 June 2011
Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the
scope of the term "capital" in Section 9, Article XIV of the 1973
Constitution was raised, that is, whether the term "capital"
includes "both preferred and common stocks." The issue was
raised in relation to a stock-swap transaction between a
Filipino and a Japanese corporation, both stockholders of a
domestic corporation that owned lands in the Philippines. Then
Minister of Justice Estelito P. Mendoza ruled that the resulting
ownership structure of the corporation would
beunconstitutional because 60% of the voting stock would be
owned by Japanese while Filipinos would own only 40% of the
voting stock, although when the non-voting stock is added,
Filipinos would own 60% of the combined voting and nonvoting stock. This ownership structure is remarkably similar to
the current ownership structure of PLDT. Minister Mendoza
ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of the entire
subscribed capital stock (common and preferred) while the
Japanese investors control sixty percent (60%) of the common
(voting) shares.
It is your position that x x x since Section 9, Article XIV of the
Constitution uses the word "capital," which is construed "to
include both preferred and common shares" and "that where
the law does not distinguish, the courts shall not distinguish."
23

xxxx
In light of the foregoing jurisprudence, it is my opinion that the
stock-swap transaction in question may not be constitutionally
upheld. While it may be ordinary corporate practice to classify
corporate shares into common voting shares and preferred
non-voting shares, any arrangement which attempts to defeat
the constitutional purpose should be eschewed. Thus, the
resultant equity arrangement which would place ownership of
60%11 of the common (voting) shares in the Japanese group,
while retaining 60% of the total percentage of common and
preferred shares in Filipino hands would amount to
circumvention of the principle of control by Philippine
stockholders that is implicit in the 60% Philippine nationality
requirement in the Constitution. (Emphasis supplied)
In short, Minister Mendoza categorically rejected the theory
that the term "capital" in Section 9, Article XIV of the 1973
Constitution includes "both preferred and common stocks"
treated as the same class of shares regardless of differences in
voting rights and privileges. Minister Mendoza stressed that
the 60-40 ownership requirement in favor of Filipino citizens in
the Constitution is not complied with unless the corporation
"satisfies the criterion of beneficial ownership" and that in
applying the same "the primordial consideration is situs of
control."
On the other hand, in Opinion No. 23-10 dated 18 August
2010, addressed to Castillo Laman Tan Pantaleon & San Jose,
then SEC General Counsel Vernette G. Umali-Paco applied
the Voting Control Test, that is, using only the voting stock to
determine whether a corporation is a Philippine national. The
Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is
deemed as a Philippine national because: (1) sixty percent
(60%) of its outstanding capital stock entitled to vote is owned
by a Philippine national, the Trustee; and (2) at least sixty
percent (60%) of the ERF will accrue to the benefit of Philippine
nationals. Still pursuant to the Control Test, MLRCs investment
in 60% of BFDCs outstanding capital stock entitled to
vote shall be deemed as of Philippine nationality, thereby
qualifying BFDC to own private land.

Further, under, and for purposes of, the FIA, MLRC and BFDC
are both Philippine nationals, considering that: (1) sixty
percent (60%) of their respective outstanding capital
stock entitled to vote is owned by a Philippine national (i.e., by
the Trustee, in the case of MLRC; and by MLRC, in the case of
BFDC); and (2) at least 60% of their respective board of
directors are Filipino citizens. (Boldfacing and italicization
supplied)
Clearly, these DOJ and SEC opinions are compatible with the
Courts interpretation of the 60-40 ownership requirement in
favor of Filipino citizens mandated by the Constitution for
certain economic activities. At the same time, these opinions
highlight the conflicting, contradictory, and inconsistent
positions taken by the DOJ and the SEC on the definition of the
term "capital" found in the economic provisions of the
Constitution.
The opinions issued by SEC legal officers do not have the force
and effect of SEC rules and regulations because only the
SEC en banc can adopt rules and regulations. As expressly
provided in Section 4.6 of the Securities Regulation
Code,12 the SEC cannot delegate to any of its individual
Commissioner or staff the power to adopt any rule or
regulation. Further, under Section 5.1 of the same Code, it
is the SEC as a collegial body, and not any of its legal officers,
that is empowered to issue opinions and approve rules and
regulations. Thus:
4.6. The Commission may, for purposes of efficiency, delegate
any of its functions to any department or office of the
Commission, an individual Commissioner or staff member of
the Commission exceptits review or appellate authority and its
power to adopt, alter and supplement any rule or regulation.
The Commission may review upon its own initiative or upon
the petition of any interested party any action of any
department or office, individual Commissioner, or staff
member of the Commission.
SEC. 5. Powers and Functions of the Commission.- 5.1. The
Commission shall act with transparency and shall have the
powers and functions provided by this Code, Presidential
Decree No. 902-A, the Corporation Code, the Investment
24

Houses Law, the Financing Company Act and other existing

laws. Pursuant thereto the Commission shall have, among
others, the following powers and functions:
xxxx
(g) Prepare, approve, amend or repeal rules, regulations and
orders, and issue opinions and provide guidance on and
supervise compliance with such rules, regulations and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers
of the SEC in issuing opinions that have the effect of SEC rules
or regulations is ultra vires. Under Sections 4.6 and 5.1(g) of
the Code, only the SEC en banc can "issue opinions" that have
the force and effect of rules or regulations. Section 4.6 of the
Code bars the SEC en banc from delegating to any individual
Commissioner or staff the power to adopt rules or
regulations. In short, any opinion of individual Commissioners
or SEC legal officers does not constitute a rule or regulation of
the SEC.
The SEC admits during the Oral Arguments that only the
SEC en banc, and not any of its individual commissioners or
legal staff, is empowered to issue opinions which have the
same binding effect as SEC rules and regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the Commission En Banc
that can issue an
SEC Opinion, correct?
COMMISSIONER GAITE:13
Thats correct, Your Honor.
JUSTICE CARPIO:
Can the Commission En Banc delegate this
function to an SEC officer?
COMMISSIONER GAITE:
Yes, Your Honor, we have delegated it to the
General Counsel.
JUSTICE CARPIO:

It can be delegated. What cannot be delegated by

the Commission En Banc to a commissioner or an
individual employee of the Commission?
COMMISSIONER GAITE:
Novel opinions that [have] to be decided by the
En Banc...
JUSTICE CARPIO:
What cannot be delegated, among others, is the
power to adopt or amend rules and regulations,
correct?
COMMISSIONER GAITE:
Thats correct, Your Honor.
JUSTICE CARPIO:
So, you combine the two (2), the SEC officer, if
delegated that power, can issue an opinion but
that opinion does not constitute a rule or
regulation, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, all of these opinions that you mentioned they
are not rules and regulations, correct?
COMMISSIONER GAITE:
They are not rules and regulations.
JUSTICE CARPIO:
If they are not rules and regulations, they apply
only to that particular situation and will not
constitute a precedent, correct?
COMMISSIONER GAITE:
Yes, Your Honor.14 (Emphasis supplied)
Significantly, the SEC en banc, which is the collegial body
statutorily empowered to issue rules and opinions on behalf of
the SEC, has adopted even the Grandfather Rule in
determining compliance with the 60-40 ownership requirement
in favor of Filipino citizens mandated by the Constitution for
certain economic activities. This prevailing SEC ruling, which
25

the SEC correctly adopted to thwart any circumvention of the

required Filipino "ownership and control," is laid down in the 25
March 2010 SEC en banc ruling in Redmont Consolidated
Mines, Corp. v. McArthur Mining, Inc., et al.,15 to wit:
The avowed purpose of the Constitution is to place in the
hands of Filipinos the exploitation of our natural
resources. Necessarily, therefore, the Rule interpreting the
constitutional provision should not diminish that right through
the legal fiction of corporate ownership and control. But the
constitutional provision, as interpreted and practiced via the
1967 SEC Rules, has favored foreigners contrary to the
command of the Constitution. Hence, the Grandfather Rule
must be applied to accurately determine the actual
participation, both direct and indirect, of foreigners in a
corporation engaged in a nationalized activity or business.
Compliance with the constitutional limitation(s) on engaging in
nationalized activities must be determined by ascertaining if
60% of the investing corporations outstanding capital stock is
owned by "Filipino citizens", or as interpreted, by natural or
individual Filipino citizens. If such investing corporation is in
turn owned to some extent by another investing corporation,
the same process must be observed. One must not stop until
the citizenships of the individual or natural stockholders of
layer after layer of investing corporations have been
established, the very essence of the Grandfather Rule.
Lastly, it was the intent of the framers of the 1987 Constitution
to adopt the Grandfather Rule. In one of the discussions on
what is now Article XII of the present Constitution, the framers
made the following exchange:
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
a draft. The phrase that is contained here which we adopted
from the UP draft is 60 percent of voting stock.
MR. NOLLEDO. That must be based on the subscribed capital
stock, because unless declared delinquent, unpaid capital
stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you. With respect to an investment by
one corporation in another corporation, say, a corporation with
60-40 percent equity invests in another corporation which is
permitted by the Corporation Code, does the Committee adopt
the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the
Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied;
italicization in the original)
This SEC en banc ruling conforms to our 28 June 2011 Decision
that the 60-40 ownership requirement in favor of Filipino
citizens in the Constitution to engage in certain economic
activities applies not only to voting control of the corporation,
but also to the beneficial ownership of the corporation. Thus, in
our 28 June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60 percent
Filipinoowned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is required.
The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipino
nationals in accordance with the constitutional mandate.
Otherwise, the corporation is "considered as non-Philippine
national[s]." (Emphasis supplied)
Both the Voting Control Test and the Beneficial Ownership Test
must be applied to determine whether a corporation is a
"Philippine national."
The interpretation by legal officers of the SEC of the term
"capital," embodied in various opinions which respondents
26

relied upon, is merely preliminary and an opinion only of such

officers. To repeat, any such opinion does not constitute an
SEC rule or regulation. In fact, many of these opinions contain
a disclaimer which expressly states: "x x x the foregoing
opinion is based solely on facts disclosed in your query and
relevant only to the particular issue raised therein and shall
not be used in the nature of a standing rule binding upon the
Commission in other cases whether of similar or dissimilar
circumstances."16 Thus, the opinions clearly make
a caveat that they do not constitute binding precedents on any
one, not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the
DOJ, interpreting the law are neither conclusive nor controlling
and thus, do not bind the Court. It is hornbook doctrine that
any interpretation of the law that administrative or quasijudicial agencies make is only preliminary, never conclusive on
the Court. The power to make a final interpretation of the law,
in this case the term "capital" in Section 11, Article XII of the
1987 Constitution, lies with this Court, not with any other
government entity.
In his motion for reconsideration, the PSE President cites the
cases of National Telecommunications Commission v. Court of
Appeals17 and Philippine Long Distance Telephone Company v.
National Telecommunications Commission18 in arguing that
the Court has already defined the term "capital" in Section 11,
Article XII of the 1987 Constitution.19
The PSE President is grossly mistaken. In both cases
of National Telecommunications v. Court of
Appeals20 andPhilippine Long Distance Telephone Company v.
National Telecommunications Commission,21 the Court did not
define the term "capital" as found in Section 11, Article XII of
the 1987 Constitution. In fact, these two cases never
mentioned, discussed or cited Section 11, Article XII of the
Constitution or any of its economic provisions, and thus cannot
serve as precedent in the interpretation of Section 11, Article
XII of the Constitution. These two cases dealt solely with the
determination of the correct regulatory fees under Section
40(e) and (f) of the Public Service Act, to wit:

(e) For annual reimbursement of the expenses incurred by the

Commission in the supervision of other public services and/or
in the regulation or fixing of their rates, twenty centavos for
each one hundred pesos or fraction thereof, of the capital
stock subscribed or paid, or if no shares have been issued, of
the capital invested, or of the property and equipment
whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos
for each one hundred pesos or fraction thereof, of the
increased capital. (Emphasis supplied)
The Courts interpretation in these two cases of the terms
"capital stock subscribed or paid," "capital stock" and "capital"
does not pertain to, and cannot control, the definition of the
term "capital" as used in Section 11, Article XII of the
Constitution, or any of the economic provisions of the
Constitution where the term "capital" is found. The definition of
the term "capital" found in the Constitution must not be taken
out of context. A careful reading of these two cases reveals
that the terms "capital stock subscribed or paid," "capital
stock" and "capital" were defined solely to determine the basis
for computing the supervision and regulation fees under
Section 40(e) and (f) of the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the
supreme law of the land, embodies the ideals that the
Constitution intends to achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty
God, in order to build a just and humane society, and establish
a Government that shall embody our ideals and aspirations,
promote the common good, conserve and develop our
patrimony, and secure to ourselves and our posterity, the
blessings of independence and democracy under the rule of
law and a regime of truth, justice, freedom, love, equality, and
peace, do ordain and promulgate this Constitution. (Emphasis
supplied)
Consistent with these ideals, Section 19, Article II of the 1987
Constitution declares as State policy the development of a
national economy "effectively controlled" by Filipinos:
27

Section 19. The State shall develop a self-reliant and

independent national economy effectively controlled by
Filipinos.
Fortifying the State policy of a Filipino-controlled economy, the
Constitution decrees:
Section 10. The Congress shall, upon recommendation of the
economic and planning agency, when the national interest
dictates, reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose
capital is owned by such citizens, or such higher percentage as
Congress may prescribe, certain areas of investments. The
Congress shall enact measures that will encourage the
formation and operation of enterprises whose capital is wholly
owned by Filipinos.
In the grant of rights, privileges, and concessions covering the
national economy and patrimony, the State shall give
preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign
investments within its national jurisdiction and in accordance
with its national goals and priorities.23
Under Section 10, Article XII of the 1987 Constitution, Congress
may "reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is
owned by such citizens, or such higher percentage as Congress
may prescribe, certain areas of investments." Thus, in
numerous laws Congress has reserved certain areas of
investments to Filipino citizens or to corporations at least sixty
percent of the "capital" of which is owned by Filipino citizens.
Some of these laws are: (1) Regulation of Award of
Government Contracts or R.A. No. 5183; (2) Philippine
Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for
Micro, Small and Medium Enterprises or R.A. No. 6977; (4)
Philippine Overseas Shipping Development Act or R.A. No.
7471; (5) Domestic Shipping Development Act of 2004 or R.A.
No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A.
No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521.
With respect to public utilities, the 1987 Constitution
specifically ordains:

Section 11. No franchise, certificate, or any other form of

authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such
citizens; nor shall such franchise, certificate, or authorization
be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good
so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of
foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines.
(Emphasis supplied)
This provision, which mandates the Filipinization of public
utilities, requires that any form of authorization for the
operation of public utilities shall be granted only to "citizens of
the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens." "The provision is [an
express] recognition of the sensitive and vital position of public
utilities both in the national economy and for national
security."24
The 1987 Constitution reserves the ownership and operation of
public utilities exclusively to (1) Filipino citizens, or (2)
corporations or associations at least 60 percent of whose
"capital" is owned by Filipino citizens. Hence, in the case of
individuals, only Filipino citizens can validly own and operate a
public utility. In the case of corporations or associations, at
least 60 percent of their "capital" must be owned by Filipino
citizens. In other words, under Section 11, Article XII of the
1987 Constitution, to own and operate a public utility a
corporations capital must at least be 60 percent owned
by Philippine nationals.
IV.
Definition of "Philippine National"
28

Pursuant to the express mandate of Section 11, Article XII of

the 1987 Constitution, Congress enacted Republic Act No. 7042
or the Foreign Investments Act of 1991 (FIA), as amended,
which defined a "Philippine national" as follows:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the
Philippines; or a domestic partnership or association wholly
owned by citizens of the Philippines; or a corporation organized
under the laws of the Philippines of which at least sixty percent
(60%) of the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines; or a corporation
organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred
percent (100%) of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a trustee of funds for
pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its
non-Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise, at least
sixty percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be owned
and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors of
each of both corporations must be citizens of the Philippines, in
order that the corporation, shall be considered a "Philippine
national." (Boldfacing, italicization and underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine
national" as a Philippine citizen, or a domestic corporation at
least "60% of the capital stock outstanding and entitled to
vote" is owned by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the
meaning of such term as provided in its predecessor statute,
Executive Order No. 226 or the Omnibus Investments Code of
1987,25 which was issued by then President Corazon C.
Aquino. Article 15 of this Code states:
Article 15. "Philippine national" shall mean a citizen of the
Philippines or a diplomatic partnership or association wholly-

owned by citizens of the Philippines; or a corporation organized

under the laws of the Philippines of which at least sixty per
cent (60%) of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines; or a
trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national
and at least sixty per cent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent (60%) of the
capital stock outstanding and entitled to vote of both
corporations must be owned and held by the citizens of the
Philippines and at least sixty per cent (60%) of the members of
the Board of Directors of both corporations must be citizens of
the Philippines in order that the corporation shall be
considered a Philippine national. (Boldfacing, italicization and
underscoring supplied)
Under Article 48(3)26 of the Omnibus Investments Code of
1987, "no corporation x x x which is not a Philippine national
x x x shall do business
x x x in the Philippines x x x without first securing from the
Board of Investments a written certificate to the effect that
such business or economic activity x x x would not conflict with
the Constitution or laws of the Philippines."27Thus, a "nonPhilippine national" cannot own and operate a reserved
economic activity like a public utility. This means, of course,
that only a "Philippine national" can own and operate a public
utility.
In turn, the definition of a "Philippine national" under Article 15
of the Omnibus Investments Code of 1987 was a reiteration of
the meaning of such term as provided in Article 14 of
the Omnibus Investments Code of 1981,28 to wit:
Article 14. "Philippine national" shall mean a citizen of the
Philippines; or a domestic partnership or association wholly
owned by citizens of the Philippines; or a corporation organized
under the laws of the Philippines of which at least sixty per
cent (60%) of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines; or a
trustee of funds for pension or other employee retirement or
29

separation benefits, where the trustee is a Philippine national

and at least sixty per cent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent (60%) of the
capital stock outstanding and entitled to vote of both
corporations must be owned and held by the citizens of the
Philippines and at least sixty per cent (60%) of the members of
the Board of Directors of both corporations must be citizens of
the Philippines in order that the corporation shall be
considered a Philippine national. (Boldfacing, italicization and
underscoring supplied)
Under Article 69(3) of the Omnibus Investments Code of 1981,
"no corporation x x x which is not a Philippine national x x x
shall do business x x x in the Philippines x x x without first
securing a written certificate from the Board of Investments to
the effect that such business or economic activity x x x
would not conflict with the Constitution or laws of the
Philippines."29 Thus, a "non-Philippine national" cannot own
and operate a reserved economic activity like a public utility.
Again, this means that only a "Philippine national" can own and
operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act
No. 518630 or the Investment Incentives Act, which took effect
on 16 September 1967, contained a similar definition of a
"Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines;
or a partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty per cent of the capital stock
outstanding and entitled to vote is owned and held by citizens
of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee
is a Philippine National and at least sixty per cent of the fund
will accrue to the benefit of Philippine Nationals: Provided, That
where a corporation and its non-Filipino stockholders own stock
in a registered enterprise, at least sixty per cent of the capital
stock outstanding and entitled to vote of both corporations
must be owned and held by the citizens of the Philippines and
at least sixty per cent of the members of the Board of Directors

of both corporations must be citizens of the Philippines in order

that the corporation shall be considered a Philippine National.
(Boldfacing, italicization and underscoring supplied)
Under Section 3 of Republic Act No. 5455 or the Foreign
Business Regulations Act, which took effect on 30 September
1968, if the investment in a domestic enterprise by nonPhilippine nationals exceeds 30% of its outstanding capital
stock, such enterprise must obtain prior approval from the
Board of Investments before accepting such investment. Such
approval shall not be granted if the investment "would conflict
with existing constitutional provisions and laws regulating the
degree of required ownership by Philippine nationals in the
enterprise."31 A "non-Philippine national" cannot own and
operate a reserved economic activity like a public utility. Again,
this means that only a "Philippine national" can own and
operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a
"Philippine national" as a Filipino citizen, or adomestic
corporation "at least sixty percent (60%) of the capital stock
outstanding and entitled to vote"is owned by Filipino citizens. A
domestic corporation is a "Philippine national" only if at least
60% of its voting stock is owned by Filipino citizens. This
definition of a "Philippine national" is crucial in the present
case because the FIA reiterates and clarifies Section 11, Article
XII of the 1987 Constitution, which limits the ownership and
operation of public utilities to Filipino citizens or to
corporations or associations at least 60% Filipino-owned.
The FIA is the basic law governing foreign investments in the
Philippines, irrespective of the nature of business and area of
investment. The FIA spells out the procedures by which nonPhilippine nationals can invest in the Philippines. Among the
key features of this law is the concept of a negative list or the
Foreign Investments Negative List.32 Section 8 of the law
states:
SEC. 8. List of Investment Areas Reserved to Philippine
Nationals [Foreign Investment Negative List]. - The Foreign
Investment Negative List shall have two 2 component
lists: A and B:
30

a. List A shall enumerate the areas of activities reserved to

Philippine nationals by mandate of the Constitution and
specific laws.
b. List B shall contain the areas of activities and enterprises
regulated pursuant to law:
1. which are defense-related activities, requiring prior
clearance and authorization from the Department of National
Defense [DND] to engage in such activity, such as the
manufacture, repair, storage and/or distribution of firearms,
ammunition, lethal weapons, military ordinance, explosives,
pyrotechnics and similar materials; unless such manufacturing
or repair activity is specifically authorized, with a substantial
export component, to a non-Philippine national by the
Secretary of National Defense; or
2. which have implications on public health and morals, such
as the manufacture and distribution of dangerous drugs; all
forms of gambling; nightclubs, bars, beer houses, dance halls,
sauna and steam bathhouses and massage clinics. (Boldfacing,
underscoring and italicization supplied)
Section 8 of the FIA enumerates the investment areas
"reserved to Philippine nationals." Foreign Investment Negative
List A consists of "areas of activities reserved to Philippine
nationals by mandate of the Constitution and specific laws,"
where foreign equity participation in any enterprise shall be
limited to the maximum percentage expressly prescribed by
the Constitution and other specific laws. In short, to own and
operate a public utility in the Philippines one must be a
"Philippine national" as defined in the FIA. The FIA is abundant
notice to foreign investors to what extent they can invest in
public utilities in the Philippines.
To repeat, among the areas of investment covered by the
Foreign Investment Negative List A is the ownership and
operation of public utilities, which the Constitution expressly
reserves to Filipino citizens and to corporations at least 60%
owned by Filipino citizens. In other words, Negative List A of
the FIA reserves the ownership and operation of public utilities
only to "Philippine nationals," defined in Section 3(a) of the FIA
as "(1) a citizen of the Philippines; x x x or (3) a corporation
organized under the laws of the Philippines of which at least

sixty percent (60%) of the capital stock outstanding and

entitled to vote is owned and held by citizens of the
Philippines; or (4) a corporation organized abroad and
registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the
capital stock outstanding and entitled to vote is wholly owned
by Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a
Philippine national and at least sixty percent (60%) of the fund
will accrue to the benefit of Philippine nationals."
Clearly, from the effectivity of the Investment Incentives Act of
1967 to the adoption of the Omnibus Investments Code of
1981, to the enactment of the Omnibus Investments Code of
1987, and to the passage of the present Foreign Investments
Act of 1991, or for more than four decades, the statutory
definition of the term "Philippine national" has been uniform
and consistent: it means a Filipino citizen, or a domestic
corporation at least 60% of the voting stock is owned by
Filipinos. Likewise, these same statutes have uniformly and
consistently required that only "Philippine nationals" could own
and operate public utilities in the Philippines. The following
exchange during the Oral Arguments is revealing:
JUSTICE CARPIO:
Counsel, I have some questions. You are aware of
the Foreign Investments Act of 1991, x x x? And
the FIA of 1991 took effect in 1991, correct?
Thats over twenty (20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign Investments Act of
1991 states that []only Philippine nationals can
own and operate public utilities[], correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign Investments Act of 1991
defines a "Philippine national" either as a citizen
31

of the Philippines, or if it is a corporation at least

sixty percent (60%) of the voting stock is owned
by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that under the
predecessor law of the Foreign Investments Act of
1991, the Omnibus Investments Act of 1987, the
same provisions apply: x x x only Philippine
nationals can own and operate a public utility and
the Philippine national, if it is a corporation, x x x
sixty percent (60%) of the capital stock of that
corporation must be owned by citizens of the
Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the Omnibus Investments Act of
1987, under the Omnibus Investments Act of
1981, the same rules apply: x x x only a Philippine
national can own and operate a public utility and
a Philippine national, if it is a corporation, sixty
percent (60%) of its x x x voting stock, must be
owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under [the]1967
Investments Incentives Act and the Foreign
Company Act of 1968, the same rules applied,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4) decades, x x x, the law has
been very consistent only a Philippine national

can own and operate a public utility, and a

Philippine national, if it is a corporation, x x x at
least sixty percent (60%) of the voting stock must
be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.33 (Emphasis supplied)
Government agencies like the SEC cannot simply ignore
Sections 3(a) and 8 of the FIA which categorically prescribe
that certain economic activities, like the ownership and
operation of public utilities, are reserved to corporations "at
least sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the
Philippines." Foreign Investment Negative List A refers to
"activities reserved to Philippine nationals by mandate of the
Constitution and specific laws." The FIA is the basic statute
regulating foreign investments in the Philippines. Government
agencies tasked with regulating or monitoring foreign
investments, as well as counsels of foreign investors, should
start with the FIA in determining to what extent a particular
foreign investment is allowed in the Philippines. Foreign
investors and their counsels who ignore the FIA do so at their
own peril. Foreign investors and their counsels who rely on
opinions of SEC legal officers that obviously contradict the FIA
do so also at their own peril.
Occasional opinions of SEC legal officers that obviously
contradict the FIA should immediately raise a red flag. There
are already numerous opinions of SEC legal officers that cite
the definition of a "Philippine national" in Section 3(a) of the
FIA in determining whether a particular corporation is qualified
to own and operate a nationalized or partially nationalized
business in the Philippines. This shows that SEC legal officers
are not only aware of, but also rely on and invoke, the
provisions of the FIA in ascertaining the eligibility of a
corporation to engage in partially nationalized industries. The
following are some of such opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F.
How;

32

2. Opinion of 14 April 1993, addressed to Director Angeles

T. Wong of the Philippine Overseas Employment
Administration;
3. Opinion of 23 November 1993, addressed to Messrs.
Dominador Almeda and Renato S. Calma;
4. Opinion of 7 December 1993, addressed to Roco Bunag
Kapunan Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta
Buenaventura Sayoc & De Los Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo
G. David; and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby
Rose J. Yusi and Rudyard S. Arbolado.
The SEC legal officers occasional but blatant disregard of the
definition of the term "Philippine national" in the FIA signifies
their lack of integrity and competence in resolving issues on
the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution.
The PSE President argues that the term "Philippine national"
defined in the FIA should be limited and interpreted to refer to
corporations seeking to avail of tax and fiscal incentives under
investment incentives laws and cannot be equated with the
term "capital" in Section 11, Article XII of the 1987
Constitution. Pangilinan similarly contends that the FIA and its
predecessor statutes do not apply to "companies which have
not registered and obtained special incentives under the
schemes established by those laws."
Both are desperately grasping at straws. The FIA does not
grant tax or fiscal incentives to any enterprise. Tax and fiscal
incentives to investments are granted separately under the
Omnibus Investments Code of 1987, not under the FIA. In fact,
the FIA expressly repealed Articles 44 to 56 of Book II of the
Omnibus Investments Code of 1987, which articles previously
regulated foreign investments in nationalized or partially
nationalized industries.
The FIA is the applicable law regulating foreign investments in
nationalized or partially nationalized industries. There is
nothing in the FIA, or even in the Omnibus Investments Code

of 1987 or its predecessor statutes, that states, expressly or

impliedly, that the FIA or its predecessor statutes do not apply
to enterprises not availing of tax and fiscal incentives under
the Code. The FIA and its predecessor statutes apply to
investments in all domestic enterprises, whether or not such
enterprises enjoy tax and fiscal incentives under the Omnibus
Investments Code of 1987 or its predecessor statutes. The
reason is quite obvious mere non-availment of tax and fiscal
incentives by a non-Philippine national cannot exempt it from
Section 11, Article XII of the Constitution regulating foreign
investments in public utilities. In fact, the Board of
Investments Primer on Investment Policies in the
Philippines,34 which is given out to foreign investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES
Investors who do not seek incentives and/or whose chosen
activities do not qualify for incentives, (i.e., the activity is not
listed in the IPP, and they are not exporting at least 70% of
their production) may go ahead and make the investments
without seeking incentives. They only have to be guided by the
Foreign Investments Negative List (FINL).
The FINL clearly defines investment areas requiring at least
60% Filipino ownership. All other areas outside of this list are
fully open to foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino
ownership required by the Constitution to engage in certain
economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the
corporation. To repeat, we held:
Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the Constitution. Full beneficial
ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is required. The
legal and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipino nationals in
accordance with the constitutional mandate. Otherwise, the
33

corporation is "considered as non-Philippine national[s]."

(Emphasis supplied)
This is consistent with Section 3 of the FIA which provides that
where 100% of the capital stock is held by "a trustee of funds
for pension or other employee retirement or separation
benefits," the trustee is a Philippine national if "at least sixty
percent (60%) of the fund will accrue to the benefit of
Philippine nationals." Likewise, Section 1(b) of the
Implementing Rules of the FIA provides that "for stocks to be
deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of the stocks, coupled
with appropriate voting rights, is essential."
Since the constitutional requirement of at least 60 percent
Filipino ownership applies not only to voting control of the
corporation but also to the beneficial ownership of the
corporation, it is therefore imperative that such requirement
apply uniformly and across the board to all classes of shares,
regardless of nomenclature and category, comprising the
capital of a corporation. Under the Corporation Code, capital
stock35 consists of all classes of shares issued to stockholders,
that is, common shares as well as preferred shares, which may
have different rights, privileges or restrictions as stated in the
articles of incorporation.36
The Corporation Code allows denial of the right to vote to
preferred and redeemable shares, but disallows denial of the
right to vote in specific corporate matters. Thus, common
shares have the right to vote in the election of directors, while
preferred shares may be denied such right. Nonetheless,
preferred shares, even if denied the right to vote in the
election of directors, are entitled to vote on the following
corporate matters: (1) amendment of articles of incorporation;
(2) increase and decrease of capital stock; (3) incurring,
creating or increasing bonded indebtedness; (4) sale, lease,
mortgage or other disposition of substantially all corporate
assets; (5) investment of funds in another business or
corporation or for a purpose other than the primary purpose
for which the corporation was organized; (6) adoption,
amendment and repeal of by-laws; (7) merger and
consolidation; and (8) dissolution of corporation.37

Since a specific class of shares may have rights and privileges

or restrictions different from the rest of the shares in a
corporation, the 60-40 ownership requirement in favor of
Filipino citizens in Section 11, Article XII of the Constitution
must apply not only to shares with voting rights but also to
shares without voting rights. Preferred shares, denied the right
to vote in the election of directors, are anyway still entitled to
vote on the eight specific corporate matters mentioned
above. Thus, if a corporation, engaged in a partially
nationalized industry, issues a mixture of common and
preferred non-voting shares, at least 60 percent of the
common shares and at least 60 percent of the preferred nonvoting shares must be owned by Filipinos. Of course, if a
corporation issues only a single class of shares, at least 60
percent of such shares must necessarily be owned by
Filipinos. In short, the 60-40 ownership requirement in favor of
Filipino citizens must apply separately to each class of shares,
whether common, preferred non-voting, preferred voting or
any other class of shares. This uniform application of the 60-40
ownership requirement in favor of Filipino citizens clearly
breathes life to the constitutional command that the ownership
and operation of public utilities shall be reserved exclusively to
corporations at least 60 percent of whose capital is Filipinoowned. Applying uniformly the 60-40 ownership requirement in
favor of Filipino citizens to each class of shares, regardless of
differences in voting rights, privileges and restrictions,
guarantees effective Filipino control of public utilities, as
mandated by the Constitution.
Moreover, such uniform application to each class of shares
insures that the "controlling interest" in public utilities always
lies in the hands of Filipino citizens. This addresses and
extinguishes Pangilinans worry that foreigners, owning most of
the non-voting shares, will exercise greater control over
fundamental corporate matters requiring two-thirds or majority
vote of all shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion38 a
portion of the deliberations of the Constitutional Commission
to support his claim that the term "capital" refers to the total
34

outstanding shares of stock, whether voting or non-voting, the

following excerpts of the deliberations reveal otherwise. It is
clear from the following exchange that the term "capital" refers
to controlling interest of a corporation, thus:
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.39
xxxx
MR. AZCUNA. May I be clarified as to that portion that was
accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the
deletion of the phrase "voting stock or controlling interest."

MR. AZCUNA. Hence, without the Davide amendment, the

committee report would read: "corporations or associations at
least sixty percent of whose CAPITAL is owned by such
citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck
with 60 percent of the capital to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if
they are the minority. Let us say 40 percent of the capital is
owned by them, but it is the voting capital, whereas, the
Filipinos own the nonvoting shares. So we can have a situation
where the corporation is controlled by foreigners despite being
the minority because they have the voting capital. That is the
anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock"
as stated in the 1973 and 1935 Constitutions is that according
to Commissioner Rodrigo, there are associations that do not
have stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling
interest."
MR. BENGZON. In the case of stock corporations, it is
assumed.40 (Boldfacing and underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in,
a "controlling interest" in the corporation.
The use of the term "capital" was intended to replace the word
"stock" because associations without stocks can operate public
utilities as long as they meet the 60-40 ownership requirement
in favor of Filipino citizens prescribed in Section 11, Article XII
of the Constitution. However, this did not change the intent of
the framers of the Constitution to reserve exclusively to
Philippine nationals the "controlling interest" in public utilities.
During the drafting of the 1935 Constitution, economic
protectionism was "the battle-cry of the nationalists in the
Convention."41 The same battle-cry resulted in the
nationalization of the public utilities.42 This is also the same
intent of the framers of the 1987 Constitution who adopted the
exact formulation embodied in the 1935 and 1973
35

Constitutions on foreign equity limitations in partially

nationalized industries.
The OSG, in its own behalf and as counsel for the
State,43 agrees fully with the Courts interpretation of the term
"capital." In its Consolidated Comment, the OSG explains that
the deletion of the phrase "controlling interest" and
replacement of the word "stock" with the term "capital" were
intended specifically to extend the scope of the entities
qualified to operate public utilities to include associations
without stocks. The framers omission of the phrase
"controlling interest" did not mean the inclusion of all shares of
stock, whether voting or non-voting. The OSG reiterated
essentially the Courts declaration that the Constitution
reserved exclusively to Philippine nationals the ownership and
operation of public utilities consistent with the States policy to
"develop a self-reliant and independent national
economy effectively controlled by Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly
the term "capital" as the total outstanding capital stock,
treated as a single class regardless of the actual classification
of shares, grossly contravenes the intent and letter of the
Constitution that the "State shall develop a self-reliant and
independent national economyeffectively controlled by
Filipinos." We illustrated the glaring anomaly which would
result in defining the term "capital" as the total outstanding
capital stock of a corporation, treated as a single class of
shares regardless of the actual classification of shares, to wit:
Let us assume that a corporation has 100 common shares
owned by foreigners and 1,000,000 non-voting preferred
shares owned by Filipinos, with both classes of share having a
par value of one peso (P 1.00) per share. Under the broad
definition of the term "capital," such corporation would be
considered compliant with the 40 percent constitutional limit
on foreign equity of public utilities since the overwhelming
majority, or more than 99.999 percent, of the total outstanding
capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common
shares have voting rights in the election of directors, even if
they hold only 100 shares. The foreigners, with a minuscule

equity of less than 0.001 percent, exercise control over the

public utility. On the other hand, the Filipinos, holding more
than 99.999 percent of the equity, cannot vote in the election
of directors and hence, have no control over the public utility.
This starkly circumvents the intent of the framers of the
Constitution, as well as the clear language of the Constitution,
to place the control of public utilities in the hands of Filipinos. x
xx
Further, even if foreigners who own more than forty percent of
the voting shares elect an all-Filipino board of directors, this
situation does not guarantee Filipino control and does not in
any way cure the violation of the Constitution. The
independence of the Filipino board members so elected by
such foreign shareholders is highly doubtful. As the OSG
pointed out, quoting Justice George Sutherlands words
in Humphreys Executor v. US,44 "x x x it is quite evident that
one who holds his office only during the pleasure of another
cannot be depended upon to maintain an attitude of
independence against the latters will." Allowing foreign
shareholders to elect a controlling majority of the board, even
if all the directors are Filipinos, grossly circumvents the letter
and intent of the Constitution and defeats the very purpose of
our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the Constitution
The last sentence of Section 11, Article XII of the 1987
Constitution reads:
The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be
citizens of the Philippines.
During the Oral Arguments, the OSG emphasized that there
was never a question on the intent of the framers of the
Constitution to limit foreign ownership, and assure majority
Filipino ownership and control of public utilities. The OSG
argued, "while the delegates disagreed as to the percentage
threshold to adopt, x x x the records show they clearly
understood that Filipino control of the public utility corporation
36

can only be and is obtained only through the election of a

majority of the members of the board."
Indeed, the only point of contention during the deliberations of
the Constitutional Commission on 23 August 1986 was the
extent of majority Filipino control of public utilities. This is
evident from the following exchange:
THE PRESIDENT. Commissioner Jamir is recognized.
MR. JAMIR. Madam President, my proposed amendment on
lines 20 and 21 is to delete the phrase "two thirds of whose
voting stock or controlling interest," and instead substitute the
words "SIXTY PERCENT OF WHOSE CAPITAL" so that the
sentence will read: "No franchise, certificate, or any other form
of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines at
least SIXTY PERCENT OF WHOSE CAPITAL is owned by such
citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
MR. JAMIR. Yes, in this Article on National Economy and
Patrimony, there were two previous sections in which we fixed
the Filipino equity to 60 percent as against 40 percent for
foreigners. It is only in this Section 15 with respect to public
utilities that the committee proposal was increased to twothirds. I think it would be better to harmonize this provision by
providing that even in the case of public utilities, the minimum
equity for Filipino citizens should be 60 percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is recognized.
MR. ROMULO. My reason for supporting the amendment is
based on the discussions I have had with representatives of
the Filipino majority owners of the international record carriers,
and the subsequent memoranda they submitted to me. x x x
Their second point is that under the Corporation Code, the
management and control of a corporation is vested in the
board of directors, not in the officers but in the board of
directors. The officers are only agents of the board. And they
believe that with 60 percent of the equity, the Filipino majority

stockholders undeniably control the board. Only on important

corporate acts can the 40-percent foreign equity exercise a
veto, x x x.
x x x x45
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of equal time, may I
also read from a memorandum by the spokesman of the
Philippine Chamber of Communications on why they would like
to maintain the present equity, I am referring to the 66 2/3.
They would prefer to have a 75-25 ratio but would settle for 66
2/3. x x x
xxxx
THE PRESIDENT. Just to clarify, would Commissioner Rosario
Braid support the proposal of two-thirds rather than the 60
percent?
MS. ROSARIO BRAID. I have added a clause that will put
management in the hands of Filipino citizens.
x x x x46
While they had differing views on the percentage of Filipino
ownership of capital, it is clear that the framers of the
Constitution intended public utilities to be majority Filipinoowned and controlled. To ensure that Filipinos control public
utilities, the framers of the Constitution approved, as additional
safeguard, the inclusion of the last sentence of Section 11,
Article XII of the Constitution commanding that "[t]he
participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing officers
of such corporation or association must be citizens of the
Philippines." In other words, the last sentence of Section 11,
Article XII of the Constitution mandates that (1) the
participation of foreign investors in the governing body of the
corporation or association shall be limited to their
proportionate share in the capital of such entity; and (2) all
officers of the corporation or association must be Filipino
citizens.
37

Commissioner Rosario Braid proposed the inclusion of the

phrase requiring the managing officers of the corporation or
association to be Filipino citizens specifically to prevent
management contracts, which were designed primarily to
circumvent the Filipinization of public utilities, and to assure
Filipino control of public utilities, thus:
MS. ROSARIO BRAID. x x x They also like to suggest that we
amend this provision by adding a phrase which states: "THE
MANAGEMENT BODY OF EVERY CORPORATION OR
ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY
CITIZENS OF THE PHILIPPINES." I have with me their position
paper.
THE PRESIDENT. The Commissioner may proceed.
MS. ROSARIO BRAID. The three major international record
carriers in the Philippines, which Commissioner Romulo
mentioned Philippine Global Communications, Eastern
Telecommunications, Globe Mackay Cable are 40-percent
owned by foreign multinational companies and 60-percent
owned by their respective Filipino partners. All three, however,
also have management contracts with these foreign
companies Philcom with RCA, ETPI with Cable and Wireless
PLC, and GMCR with ITT. Up to the present time, the general
managers of these carriers are foreigners. While the foreigners
in these common carriers are only minority owners, the foreign
multinationals are the ones managing and controlling their
operations by virtue of their management contracts and by
virtue of their strength in the governing bodies of these
carriers.47
xxxx
MR. OPLE. I think a number of us have agreed to ask
Commissioner Rosario Braid to propose an amendment with
respect to the operating management of public utilities, and in
this amendment, we are associated with Fr. Bernas,
Commissioners Nieva and Rodrigo. Commissioner Rosario Braid
will state this amendment now.
Thank you.
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. This is still on Section 15.

MS. ROSARIO BRAID. Yes.

MR. VILLEGAS. Yes, Madam President.
xxxx
MS. ROSARIO BRAID. Madam President, I propose a new
section to read: THE MANAGEMENT BODY OF EVERY
CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE
CONTROLLED BY CITIZENS OF THE PHILIPPINES."
This will prevent management contracts and assure control by
Filipino citizens. Will the committee assure us that this
amendment will insure that past activities such as
management contracts will no longer be possible under this
amendment?
xxxx
FR. BERNAS. Madam President.
THE PRESIDENT. Commissioner Bernas is recognized.
FR. BERNAS. Will the committee accept a reformulation of the
first part?
MR. BENGZON. Let us hear it.
FR. BERNAS. The reformulation will be essentially the formula
of the 1973 Constitution which reads: "THE PARTICIPATION OF
FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC
UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR
PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND..."
MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS
OF SUCH CORPORATIONS AND ASSOCIATIONS MUST BE
CITIZENS OF THE PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the whole thing
again?
FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN
THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE
SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE
CAPITAL THEREOF..." I do not have the rest of the copy.
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING
OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST
BE CITIZENS OF THE PHILIPPINES." Is that correct?
MR. VILLEGAS. Yes.
38

MR. BENGZON. Madam President, I think that was said in a

more elegant language. We accept the amendment. Is that all
right with Commissioner Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body refers to the board of
directors and trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body refers to the board of
directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam President.
VOTING
xxxx
The results show 29 votes in favor and none against; so the
proposed amendment is approved.
xxxx
THE PRESIDENT. All right. Can we proceed now to vote on
Section 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the committee please
read Section 15?
MR. VILLEGAS. The entire Section 15, as amended, reads: "No
franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens
of the Philippines or to corporations or associations organized
under the laws of the Philippines at least 60 PERCENT OF
WHOSE CAPITAL is owned by such citizens." May I request
Commissioner Bengzon to please continue reading.
MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN
THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE
SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE
CAPITAL THEREOF AND ALL THE EXECUTIVE AND MANAGING
OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST
BE CITIZENS OF THE PHILIPPINES."

MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR

AUTHORIZATION BE EXCLUSIVE IN CHARACTER OR FOR A
PERIOD LONGER THAN TWENTY-FIVE YEARS RENEWABLE FOR
NOT MORE THAN TWENTY-FIVE YEARS. Neither shall any such
franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by
Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general
public."
VOTING
xxxx
The results show 29 votes in favor and 4 against; Section 15,
as amended, is approved.48 (Emphasis supplied)
The last sentence of Section 11, Article XII of the 1987
Constitution, particularly the provision on the limited
participation of foreign investors in the governing body of
public utilities, is a reiteration of the last sentence of Section 5,
Article XIV of the 1973 Constitution,49 signifying its
importance in reserving ownership and control of public
utilities to Filipino citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not claim the
contrary, that (1) foreigners own 64.27% of the common
shares of PLDT, which class of shares exercises the sole right
to vote in the election of directors, and thus foreigners control
PLDT; (2) Filipinos own only 35.73% of PLDTs common shares,
constituting a minority of the voting stock, and thus Filipinos
do not control PLDT; (3) preferred shares, 99.44% owned by
Filipinos, have no voting rights; (4) preferred shares earn only
1/70 of the dividends that common shares earn;50 (5)
preferred shares have twice the par value of common shares;
and (6) preferred shares constitute 77.85% of the authorized
capital stock of PLDT and common shares only 22.15%.
Despite the foregoing facts, the Court did not decide, and in
fact refrained from ruling on the question of whether PLDT
violated the 60-40 ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the 1987 Constitution. Such
question indisputably calls for a presentation and
39

determination of evidence through a hearing, which is

generally outside the province of the Courts jurisdiction, but
well within the SECs statutory powers. Thus, for obvious
reasons, the Court limited its decision on the purely legal and
threshold issue on the definition of the term "capital" in
Section 11, Article XII of the Constitution and directed the SEC
to apply such definition in determining the exact percentage of
foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory relief that
ownership of common or voting shares is the sole basis in
determining foreign equity in a public utility and that any other
government rulings, opinions, and regulations inconsistent with
this declaratory relief be declared unconstitutional and a
violation of the intent and spirit of the 1987 Constitution;
6. For the Honorable Court to declare null and void all sales of
common stocks to foreigners in excess of 40 percent of the
total subscribed common shareholdings; and
7. For the Honorable Court to direct the Securities and
Exchange Commission and Philippine Stock Exchange to
require PLDT to make a public disclosure of all of its foreign
shareholdings and their actual and real beneficial owners.
Other relief(s) just and equitable are likewise prayed for.
(Emphasis supplied)
As can be gleaned from his prayer, Gamboa clearly asks this
Court to compel the SEC to perform its statutory duty to
investigate whether "the required percentage of ownership of
the capital stock to be owned by citizens of the Philippines has
been complied with [by PLDT] as required by x x x the
Constitution."51 Such plea clearly negates SECs argument
that it was not impleaded.
Granting that only the SEC Chairman was impleaded in this
case, the Court has ample powers to order the SECs
compliance with its directive contained in the 28 June 2011

Decision in view of the far-reaching implications of this case.

In Domingo v. Scheer,52 the Court dispensed with the
amendment of the pleadings to implead the Bureau of
Customs considering (1) the unique backdrop of the case; (2)
the utmost need to avoid further delays; and (3) the issue of
public interest involved. The Court held:
The Court may be curing the defect in this case by adding the
BOC as party-petitioner. The petition should not be dismissed
because the second action would only be a repetition of the
first. InSalvador, et al., v. Court of Appeals, et al., we held that
this Court has full powers, apart from that power and authority
which is inherent, to amend the processes, pleadings,
proceedings and decisions by substituting as party-plaintiff the
real party-in-interest. The Court has the power to avoid delay
in the disposition of this case, to order its amendment as to
implead the BOC as party-respondent. Indeed, it may no longer
be necessary to do so taking into account the unique backdrop
in this case, involving as it does an issue of public
interest. After all, the Office of the Solicitor General has
represented the petitioner in the instant proceedings, as well
as in the appellate court, and maintained the validity of the
deportation order and of the BOCs Omnibus Resolution. It
cannot, thus, be claimed by the State that the BOC was not
afforded its day in court, simply because only the petitioner,
the Chairperson of the BOC, was the respondent in the CA, and
the petitioner in the instant recourse. In Alonso v. Villamor, we
had the occasion to state:
There is nothing sacred about processes or pleadings, their
forms or contents. Their sole purpose is to facilitate the
application of justice to the rival claims of contending
parties. They were created, not to hinder and delay, but to
facilitate and promote, the administration of justice. They do
not constitute the thing itself, which courts are always striving
to secure to litigants. They are designed as the means best
adapted to obtain that thing. In other words, they are a means
to an end. When they lose the character of the one and
become the other, the administration of justice is at fault and
courts are correspondingly remiss in the performance of their
obvious duty.53(Emphasis supplied)
40

In any event, the SEC has expressly manifested54 that it will

abide by the Courts decision and defer to the Courts
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 Courts jurisdiction. It is clear, therefore,
that there exists no legal impediment against the proper and
immediate implementation of the Courts directive to the SEC.
PLDT is an indispensable party only insofar as the other issues,
particularly the factual questions, are concerned. In other
words, PLDT must be impleaded in order to fully resolve the
issues on (1) whether the sale of 111,415 PTIC shares to First
Pacific violates the constitutional limit on foreign ownership of
PLDT; (2) whether the sale of common shares to foreigners
exceeded the 40 percent limit on foreign equity in PLDT; and
(3) whether the total percentage of the PLDT common shares
with voting rights complies with the 60-40 ownership
requirement in favor of Filipino citizens under the Constitution
for the ownership and operation of PLDT. These issues
indisputably call for an examination of the parties respective
evidence, and thus are clearly within the jurisdiction of the
SEC. In short, PLDT must be impleaded, and must necessarily
be heard, in the proceedings before the SEC where the factual
issues will be thoroughly threshed out and resolved.
Notably, the foregoing issues were left untouched by the Court.
The Court did not rule on the factual issues raised by Gamboa,
except the single and purely legal issue on the definition of the
term "capital" in Section 11, Article XII of the Constitution. The
Court confined the resolution of the instant case to this
threshold legal issue in deference to the fact-finding power of
the SEC.
Needless to state, the Court can validly, properly, and fully
dispose of the fundamental legal issue in this case even
without the participation of PLDT since defining the term
"capital" in Section 11, Article XII of the Constitution does not,
in any way, depend on whether PLDT was impleaded. Simply
put, PLDT is not indispensable for a complete resolution of the
purely legal question in this case.55 In fact, the Court, by
treating the petition as one for mandamus,56 merely directed
the SEC to apply the Courts definition of the term "capital" in

Section 11, Article XII of the Constitution in determining

whether PLDT committed any violation of the said
constitutional provision. The dispositive portion of the Courts
ruling is addressed not to PLDT but solely to the SEC, which is
the administrative agency tasked to enforce the 60-40
ownership requirement in favor of Filipino citizens in Section
11, Article XII of the Constitution.
Since the Court limited its resolution on the purely legal issue
on the definition of the term "capital" in Section 11, Article XII
of the 1987 Constitution, and directed the SEC to investigate
any violation by PLDT of the 60-40 ownership requirement in
favor of Filipino citizens under the Constitution,57 there is no
deprivation of PLDTs property or denial of PLDTs right to due
process, contrary to Pangilinan and Nazarenos misimpression.
Due process will be afforded to PLDT when it presents proof to
the SEC that it complies, as it claims here, with Section 11,
Article XII of the Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell
disaster to our economy, as it may result in a sudden flight of
existing foreign investors to "friendlier" countries and
simultaneously deterring new foreign investors to our country.
In particular, the PSE claims that the 28 June 2011 Decision
may result in the following: (1) loss of more than P 630 billion
in foreign investments in PSE-listed shares; (2) massive
decrease in foreign trading transactions; (3) lower PSE
Composite Index; and (4) local investors not investing in PSElisted shares.58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral
Arguments, shared movants apprehension. Without providing
specific details, he pointed out the depressing state of the
Philippine economy compared to our neighboring countries
which boast of growing economies. Further, Dr. Villegas
explained that the solution to our economic woes is for the
government to "take-over" strategic industries, such as the
public utilities sector, thus:
JUSTICE CARPIO:
41

I would like also to get from you Dr. Villegas if you have
additional information on whether this high FDI59 countries in
East Asia have allowed foreigners x x x control [of] their public
utilities, so that we can compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these
neighbors of ours find an industry strategic, their solution is
not to "Filipinize" or "Vietnamize" or "Singaporize." Their
solution is to make sure that those industries are in the hands
of state enterprises. So, in these countries, nationalization
means the government takes over. And because their
governments are competent and honest enough to the public,
that is the solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is the solution, then
foreign investments in our public utilities serve no purpose.
Obviously, there can never be foreign investments in public
utilities if, as Dr. Villegas claims, the "solution is to make sure
that those industries are in the hands of state enterprises." Dr.
Villegass argument that foreign investments in
telecommunication companies like PLDT are badly needed to
save our ailing economy contradicts his own theory that the
solution is for government to take over these companies. Dr.
Villegas is barking up the wrong tree since State ownership of
public utilities and foreign investments in such industries are
diametrically opposed concepts, which cannot possibly be
reconciled.
In any event, the experience of our neighboring countries
cannot be used as argument to decide the present case
differently for two reasons. First, the governments of our
neighboring countries have, as claimed by Dr. Villegas, taken
over ownership and control of their strategic public utilities like
the telecommunications industry. Second, our Constitution has
specific provisions limiting foreign ownership in public utilities
which the Court is sworn to uphold regardless of the
experience of our neighboring countries.
In our jurisdiction, the Constitution expressly reserves the
ownership and operation of public utilities to Filipino citizens,
or corporations or associations at least 60 percent of whose
capital belongs to Filipinos. Following Dr. Villegass claim, the

Philippines appears to be more liberal in allowing foreign

investors to own 40 percent of public utilities, unlike in other
Asian countries whose governments own and operate such
industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to
clarify the reckoning period of the application and imposition of
appropriate sanctions against PLDT if found violating Section
11, Article XII of the Constitution.1avvphi1
As discussed, the Court has directed the SEC to investigate
and determine whether PLDT violated Section 11, Article XII of
the Constitution. Thus, there is no dispute that it is only after
the SEC has determined PLDTs violation, if any exists at the
time of the commencement of the administrative case or
investigation, that the SEC may impose the statutory sanctions
against PLDT. In other words, once the 28 June 2011 Decision
becomes final, the SEC shall impose the appropriate sanctions
only if it finds after due hearing that, at the start of the
administrative case or investigation, there is an existing
violation of Section 11, Article XII of the Constitution. Under
prevailing jurisprudence, public utilities that fail to comply with
the nationality requirement under Section 11, Article XII and
the FIA can cure their deficiencies prior to the start of the
administrative case or investigation.61
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 FIAs 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
42

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 toshares with voting rights,
as well as with full beneficial ownership. This is precisely
because the right to vote in the election of directors, coupled
with full beneficial ownership of stocks, translates to effective
control of a corporation.
Any other construction of the term "capital" in Section 11,
Article XII of the Constitution contravenes the letter and intent
of the Constitution. Any other meaning of the term "capital"
openly invites alien domination of economic activities reserved
exclusively to Philippine nationals. Therefore, respondents
interpretation will ultimately result in handing over effective
control of our national economy to foreigners in patent
violation of the Constitution, making Filipinos second-class
citizens in their own country.
Filipinos have only to remind themselves of how this country
was exploited under the Parity Amendment, which gave
Americans the same rights as Filipinos in the exploitation of
natural resources, and in the ownership and control of public
utilities, in the Philippines. To do this the 1935 Constitution,
which contained the same 60 percent Filipino ownership and
control requirement as the present 1987 Constitution, had to
be amended to give Americans parity rights with Filipinos.
There was bitter opposition to the Parity Amendment62 and
many Filipinos eagerly awaited its expiration. In late 1968,
PLDT was one of the American-controlled public utilities that
became Filipino-controlled when the controlling American
stockholders divested in anticipation of the expiration of the
Parity Amendment on 3 July 1974.63 No economic suicide
happened when control of public utilities and mining
corporations passed to Filipinos hands upon expiration of the
Parity Amendment.
Movants interpretation of the term "capital" would bring us
back to the same evils spawned by the Parity
Amendment, effectively giving foreigners parity rights with
Filipinos, but this time even without any amendment to the
present Constitution. Worse, movants interpretation opens up
our national economy toeffective control not only by
Americans but also by all foreigners, be they Indonesians,

Malaysians or Chinese, even in the absence of reciprocal treaty

arrangements. At least the Parity Amendment, as implemented
by the Laurel-Langley Agreement, gave the capital-starved
Filipinos theoretical parity the same rights as Americans to
exploit natural resources, and to own and control public
utilities, in the United States of America. Here, movants
interpretation would effectively mean a unilateral opening up
of our national economy to all foreigners, without any
reciprocal arrangements. That would mean that Indonesians,
Malaysians and Chinese nationals could effectively control our
mining companies and public utilities while Filipinos, even if
they have the capital, could not control similar corporations in
these countries.
The 1935, 1973 and 1987 Constitutions have the same 60
percent Filipino ownership and control requirement for public
utilities like PLOT. Any deviation from this requirement
necessitates an amendment to the Constitution as exemplified
by the Parity Amendment. This Court has no power to amend
the Constitution for its power and duty is only to faithfully
apply and interpret the Constitution.
WHEREFORE, we DENY the motions for reconsideration WITH
FINALITY. No further pleadings shall be entertained.
SO ORDERED.
------------------------------------------------------------------------------------------------------------G.R. No. 195580
April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO
MINING AND DEVELOPMENT, INC., and MCARTHUR MINING,
INC., Petitioners, vs. REDMONT CONSOLIDATED MINES
CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under
Rule 45 filed by Narra Nickel and Mining Development Corp.
(Narra), Tesoro Mining and Development, Inc. (Tesoro), and
McArthur Mining Inc. (McArthur), which seeks to reverse the
43

October 1, 2010 Decision1 and the February 15, 2011

Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont
Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in
mining and exploring certain areas of the province of Palawan.
After inquiring with the Department of Environment and
Natural Resources (DENR), it learned that the areas where it
wanted to undertake exploration and mining activities where
already covered by Mineral Production Sharing Agreement
(MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara
Marie Mining, Inc. (SMMI), filed an application for an MPSA and
Exploration Permit (EP) with the Mines and Geo-Sciences
Bureau (MGB), Region IV-B, Office of the Department of
Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering
an area of over 1,782 hectares in Barangay Sumbiling,
Municipality of Bataraza, Province of Palawan and EPA-IVB-44
which includes an area of 3,720 hectares in Barangay
Malatagao, Bataraza, Palawan. The MPSA and EP were then
transferred to Madridejos Mining Corporation (MMC) and, on
November 6, 2006, assigned to petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining &
Development Corporation (PLMDC) which previously filed an
application for an MPSA with the MGB, Region IV-B, DENR on
January 6, 1992. Through the said application, the DENR issued
MPSA-IV-1-12 covering an area of 3.277 hectares in barangays
Calategas and San Isidro, Municipality of Narra, Palawan.
Subsequently, PLMDC conveyed, transferred and/or assigned
its rights and interests over the MPSA application in favor of
Narra.
Another MPSA application of SMMI was filed with the DENR
Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB47) over 3,402 hectares in Barangays Malinao and Princesa
Urduja, Municipality of Narra, Province of Palawan. SMMI

subsequently conveyed, transferred and assigned its rights

and interest over the said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of
Arbitrators (POA) of the DENR three (3) separate petitions for
the denial of petitioners applications for MPSA designated as
AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the
capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was the driving force
behind petitioners filing of the MPSAs over the areas covered
by applications since it knows that it can only participate in
mining activities through corporations which are deemed
Filipino citizens. Redmont argued that given that petitioners
capital stocks were mostly owned by MBMI, they were likewise
disqualified from engaging in mining activities through MPSAs,
which are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified
persons under Section 3(aq) of Republic Act No. (RA) 7942 or
the Philippine Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this
Act, the following terms, whether in singular or plural, shall
mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines
with capacity to contract, or a corporation, partnership,
association, or cooperative organized or authorized for the
purpose of engaging in mining, with technical and financial
capability to undertake mineral resources development and
duly registered in accordance with law at least sixty per cent
(60%) of the capital of which is owned by citizens of the
Philippines: Provided, That a legally organized foreign-owned
corporation shall be deemed a qualified person for purposes of
granting an exploration permit, financial or technical
assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is
immaterial because they also applied for Financial or Technical
Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for
44

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)4and 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 Redmonts
petition since they are not enumerated in Sec. 77 of RA 7942.
Finally, they stressed that Redmont has no personality to sue
them because it has no pending claim or application over the
areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution
disqualifying petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified
applicants to engage in mining activities. On the other hand,
[Redmont] having filed its own applications for an EPA over the
areas earlier covered by the MPSA application of respondents
may be considered if and when they are qualified under the
law. The violation of the requirements for the issuance and/or
grant of permits over mining areas is clearly established thus,
there is reason to believe that the cancellation and/or
revocation of permits already issued under the premises is in
order and open the areas covered to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents,
McArthur Mining Inc., Tesoro Mining and Development, Inc.,
and Narra Nickel Mining and Development Corp. as,
DISQUALIFIED for being considered as Foreign Corporations.
Their Mineral Production Sharing Agreement (MPSA) are hereby
x x x DECLARED NULL AND VOID.6

The POA considered petitioners as foreign corporations being

"effectively controlled" by MBMI, a 100% Canadian company
and declared their MPSAs null and void. In the same
Resolution, it gave due course to Redmonts EPAs. Thereafter,
on February 7, 2008, the POA issued an Order7 denying the
Motion for Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur
and Tesoro filed a joint Notice of Appeal8 and Memorandum of
Appeal9 with the Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal10 and Memorandum of
Appeal.11
In their respective memorandum, petitioners emphasized that
they are qualified persons under the law. Also, through a letter,
they informed the MAB that they had their individual MPSA
applications converted to FTAAs. McArthurs FTAA was
denominated as AFTA-IVB-0912 on May 2007, while Tesoros
MPSA application was converted to AFTA-IVB-0813 on May 28,
2007, and Narras FTAA was converted to AFTA-IVB-0714 on
March 30, 2006.
Pending the resolution of the appeal filed by petitioners with
the MAB, Redmont filed a Complaint15 with the Securities and
Exchange Commission (SEC), seeking the revocation of the
certificates for registration of petitioners on the ground that
they are foreign-owned or controlled corporations engaged in
mining in violation of Philippine laws. Thereafter, Redmont filed
on September 1, 2008 a Manifestation and Motion to Suspend
Proceeding before the MAB praying for the suspension of the
proceedings on the appeals filed by McArthur, Tesoro and
Narra.
Subsequently, on September 8, 2008, Redmont filed before the
Regional Trial Court of Quezon City, Branch 92 (RTC) a
Complaint16 for injunction with application for issuance of a
temporary restraining order (TRO) and/or writ of preliminary
injunction, docketed as Civil Case No. 08-63379. Redmont
prayed for the deferral of the MAB proceedings pending the
resolution of the Complaint before the SEC.
But before the RTC can resolve Redmonts Complaint and
applications for injunctive reliefs, the MAB issued an Order on
September 10, 2008, finding the appeal meritorious. It held:
45

WHEREFORE, in view of the foregoing, the Mines Adjudication

Board hereby REVERSES and SETS ASIDE the Resolution dated
14 December 2007 of the Panel of Arbitrators of Region IV-B
(MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02 and
2007-03, and its Order dated 07 February 2008 denying the
Motions for Reconsideration of the Appellants. The Petition filed
by Redmont Consolidated Mines Corporation on 02 January
2007 is hereby ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an
Order18 granting Redmonts application for a TRO and setting
the case for hearing the prayer for the issuance of a writ of
preliminary injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for
Reconsideration19 of the September 10, 2008 Order of the
MAB. Subsequently, it filed a Supplemental Motion for
Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmonts Motion for
Reconsideration and Supplemental Motion for Reconsideration,
Redmont filed before the RTC a Supplemental Complaint21 in
Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order22 granting the
issuance of a writ of preliminary injunction enjoining the MAB
from finally disposing of the appeals of petitioners and from
resolving Redmonts Motion for Reconsideration and
Supplement Motion for Reconsideration of the MABs
September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order
denying Redmonts 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
46

that MBMI in effect owned majority of the common stocks of

the petitioners as well as at least 60% equity interest of other
majority shareholders of petitioners through joint venture
agreements. The CA found that through a "web of corporate
layering, it is clear that one common controlling investor in all
mining corporations involved x x x is MBMI."25 Thus, it
concluded that petitioners McArthur, Tesoro and Narra are also
in partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA
applications of petitioners into FTAA applications suspicious in
nature and, as a consequence, it recommended the rejection
of petitioners MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining
areas, the CA pointed out that the POA has jurisdiction over
them and that it also has the power to determine the of
nationality of petitioners as a prerequisite of the Constitution
prior the conferring of rights to "co-production, joint venture or
production-sharing agreements" of the state to mining rights.
However, it also stated that the POAs 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 POAs declaration that the MPSAs of
McArthur, Tesoro and Narra are void is highly improper.
While the petition was pending with the CA, Redmont filed with
the Office of the President (OP) a petition dated May 7, 2010
seeking the cancellation of petitioners FTAAs. The OP rendered
a Decision26 on April 6, 2011, wherein it canceled and revoked
petitioners FTAAs for violating and circumventing the
"Constitution x x x[,] the Small Scale Mining Law and
Environmental Compliance Certificate as well as Sections 3
and 8 of the Foreign Investment Act and E.O. 584."27 The OP,
in affirming the cancellation of the issued FTAAs, agreed with
Redmont stating that petitioners committed violations against
the abovementioned laws and failed to submit evidence to

negate them. The Decision further quoted the December 14,

2007 Order of the POA focusing on the alleged
misrepresentation and claims made by petitioners of being
domestic or Filipino corporations and the admitted continued
mining operation of PMDC using their locally secured Small
Scale Mining Permit inside the area earlier applied for an MPSA
application which was eventually transferred to Narra. It also
agreed with the POAs estimation that the filing of the FTAA
applications by petitioners is a clear admission that they are
"not capable of conducting a large scale mining operation and
that they need the financial and technical assistance of a
foreign entity in their operation, that is why they sought the
participation of MBMI Resources, Inc."28 The Decision further
quoted:
The filing of the FTAA application on June 15, 2007, during the
pendency of the case only demonstrate the violations and lack
of qualification of the respondent corporations to engage in
mining. The filing of the FTAA application conversion which is
allowed foreign corporation of the earlier MPSA is an admission
that indeed the respondent is not Filipino but rather of foreign
nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders
in their head office in Canada suggest that they are conducting
operation only through their local counterparts.29
The Motion for Reconsideration of the Decision was further
denied by the OP in a Resolution30 dated July 6, 2011.
Petitioners then filed a Petition for Review on Certiorari of the
OPs 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
47

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 Redmonts willful forum shopping.
IV.
The Court of Appeals ruling that Narra, Tesoro and
McArthur are foreign corporations based on the
"Grandfather Rule" is contrary to law, particularly the
express mandate of the Foreign Investments Act of 1991,
as amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions
to the res inter alios acta rule.
VI.
The Court of Appeals erred when it concluded that the
conversion of the MPSA Applications into FTAA Applications
were of "suspicious nature" as the same is based on mere
conjectures and surmises without any shred of evidence to
show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the
instant case as moot is without merit.
Basically, a case is said to be moot and/or academic when it
"ceases to present a justiciable controversy by virtue of
supervening events, so that a declaration thereon would be of
no practical use or value."32 Thus, the courts "generally
decline jurisdiction over the case or dismiss it on the ground of
mootness."33
The "mootness" principle, however, does accept certain
exceptions and the mere raising of an issue of "mootness" will

not deter the courts from trying a case when there is a valid
reason to do so. In David v. Macapagal-Arroyo (David), the
Court provided four instances where courts can decide an
otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and
paramount public interest is involved;
3.) When constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the
public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant
case. We of this Court note that a grave violation of the
Constitution, specifically Section 2 of Article XII, is being
committed by a foreign corporation right under our countrys
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 Countrys 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
48

prohibition relating to MPSA applications of foreign mining

corporations is academic. Also, petitioners would want us to
correct the CAs 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 CAs analysis of the actions of petitioners after the case
was filed against them by respondent is on point. The changing
of applications by petitioners from one type to another just
because a case was filed against them, in truth, would raise
not a few sceptics eyebrows. What is the reason for such
conversion? Did the said conversion not stem from the case
challenging their citizenship and to have the case dismissed
against them for being "moot"? It is quite obvious that it is
petitioners strategy to have the case dismissed against them
for being "moot."
Consider the history of this case and how petitioners
responded to every action done by the court or appropriate
government agency: on January 2, 2007, Redmont filed three
separate petitions for denial of the MPSA applications of
petitioners before the POA. On June 15, 2007, petitioners filed
a conversion of their MPSA applications to FTAAs. The POA, in
its December 14, 2007 Resolution, observed this suspect
change of applications while the case was pending before it
and held:
The filing of the Financial or Technical Assistance Agreement
application is a clear admission that the respondents are not
capable of conducting a large scale mining operation and that
they need the financial and technical assistance of a foreign
entity in their operation that is why they sought the
participation of MBMI Resources, Inc. The participation of MBMI
in the corporation only proves the fact that it is the Canadian
company that will provide the finances and the resources to
operate the mining areas for the greater benefit and interest of
the same and not the Filipino stockholders who only have a
less substantial financial stake in the corporation.
xxxx

x x x The filing of the FTAA application on June 15, 2007,

during the pendency of the case only demonstrate the
violations and lack of qualification of the respondent
corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of
the earlier MPSA is an admission that indeed the respondent is
not Filipino but rather of foreign nationality who is disqualified
under the laws. Corporate documents of MBMI Resources, Inc.
furnished its stockholders in their head office in Canada
suggest that they are conducting operation only through their
local counterparts.36
On October 1, 2010, the CA rendered a Decision which partially
granted the petition, reversing and setting aside the
September 10, 2008 and July 1, 2009 Orders of the MAB. In the
said Decision, the CA upheld the findings of the POA of the
DENR that the herein petitioners are in fact foreign
corporations thus a recommendation of the rejection of their
MPSA applications were recommended to the Secretary of the
DENR. With respect to the FTAA applications or conversion of
the MPSA applications to FTAAs, the CA deferred the matter for
the determination of the Secretary of the DENR and the
President of the Republic of the Philippines.37
In their Motion for Reconsideration dated October 26, 2010,
petitioners prayed for the dismissal of the petition asserting
that on April 5, 2010, then President Gloria Macapagal-Arroyo
signed and issued in their favor FTAA No. 05-2010-IVB, which
rendered the petition moot and academic. However, the CA, in
a Resolution dated February 15, 2011 denied their motion for
being a mere "rehash of their claims and
defenses."38 Standing firm on its Decision, the CA affirmed the
ruling that petitioners are, in fact, foreign corporations. On
April 5, 2011, petitioners elevated the case to us via a Petition
for Review on Certiorari under Rule 45, questioning the
Decision of the CA. Interestingly, the OP rendered a Decision
dated April 6, 2011, a day after this petition for review was
filed, cancelling and revoking the FTAAs, quoting the Order of
the POA and stating that petitioners are foreign corporations
since they needed the financial strength of MBMI, Inc. in order
to conduct large scale mining operations. The OP Decision also
based the cancellation on the misrepresentation of facts and
49

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 OPs 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
50

percentage shall be counted as Philippine nationality," pertains

to the stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant
in advocating the application of the "control test" under RA
7042, as amended by RA 8179, otherwise known as the
Foreign Investments Act (FIA), rather than using the stricter
grandfather rule. The pertinent provision under Sec. 3 of the
FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the
Philippines; or a domestic partnership or association wholly
owned by the citizens of the Philippines; a corporation
organized under the laws of the Philippines of which at least
sixty percent (60%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of
funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least
sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That were a corporation and its
non-Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise, at least
sixty percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be owned
and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors, in
order that the corporation shall be considered a Philippine
national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand
on in the instant case since the definition of a "Philippine
National" under Sec. 3 of the FIA does not provide for it. They
further claim that the grandfather rule "has been abandoned
and is no longer the applicable rule."41 They also opined that
the last portion of Sec. 3 of the FIA admits the application of a
"corporate layering" scheme of corporations. Petitioners claim
that the clear and unambiguous wordings of the statute
preclude the court from construing it and prevent the courts
use of discretion in applying the law. They said that the plain,
literal meaning of the statute meant the application of the
control test is obligatory.

We disagree. "Corporate layering" is admittedly allowed by the

FIA; but if it is used to circumvent the Constitution and
pertinent laws, then it becomes illegal. Further, the
pronouncement of petitioners that the grandfather rule has
already been abandoned must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal,
petroleum and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception
of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of
natural resources shall be under the full control and
supervision of the State. The State may directly undertake
such activities, or it may enter into co-production, joint venture
or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose
capital is owned by such citizens. Such agreements may be for
a period not exceeding twenty-five years, renewable for not
more than twenty-five years, and under such terms and
conditions as may be provided by law.
xxxx
The President may enter into agreements with Foreign-owned
corporations involving either technical or financial assistance
for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the
general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of
the country. In such agreements, the State shall promote the
development and use of local scientific and technical
resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State
entering into different types of agreements for the exploration,
development, and utilization of natural resources with entities
who are deemed Filipino due to 60 percent ownership of
capital is pertinent to this case, since the issues are centered
on the utilization of our countrys natural resources or
specifically, mining. Thus, there is a need to ascertain the
nationality of petitioners since, as the Constitution so provides,
51

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 Chairmans
interpretation of an independent national economy is freedom
from undue foreign control? What is the meaning of undue
foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which
sacrifices national sovereignty and the welfare of the Filipino in
the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the
word "undue"? Why not simply freedom from foreign control? I
think that is the meaning of independence, because as
phrased, it still allows for foreign control.
MR. VILLEGAS: It will now depend on the interpretation
because if, for example, we retain the 60/40 possibility in the
cultivation of natural resources, 40 percent involves some
control; not total control, but some control.
MR. BENNAGEN: In any case, I think in due time we will
propose some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the
phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated
local or Filipino equity and foreign equity; namely, 60-40 in
Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the
question: Where do we base the equity requirement, is it on
the authorized capital stock, on the subscribed capital stock, or
on the paid-up capital stock of a corporation? Will the
Committee please enlighten me on this?

MR. VILLEGAS: We have just had a long discussion with the

members of the team from the UP Law Center who provided us
with a draft. The phrase that is contained here which we
adopted from the UP draft is 60 percent of the voting stock.
MR. NOLLEDO: That must be based on the subscribed capital
stock, because unless declared delinquent, unpaid capital
stock shall be entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity
invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather
rule?
MR. VILLEGAS: Yes, that is the understanding of the
Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the
Constitution to apply the grandfather rule in cases where
corporate layering is present.
Elementary in statutory construction is when there is conflict
between the Constitution and a statute, the Constitution will
prevail. In this instance, specifically pertaining to the
provisions under Art. XII of the Constitution on National
Economy and Patrimony, Sec. 3 of the FIA will have no place of
application. As decreed by the honorable framers of our
Constitution, the grandfather rule prevails and must be
applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005
provides:
The above-quoted SEC Rules provide for the manner of
calculating the Filipino interest in a corporation for purposes,
among others, of determining compliance with nationality
requirements (the Investee Corporation). Such manner of
computation is necessary since the shares in the Investee
Corporation may be owned both by individual stockholders
(Investing Individuals) and by corporations and partnerships
52

(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% Filipinoowned 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
x x x.
xxxx
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)
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 Courts 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 (PhP
53

10,000,000) divided into 10,000 common shares at one

thousand pesos (PhP 1,000) per share, subscribed to by the
following:44
Name

Olympic
Mines &
Developme
nt
Corp.

Filipino

6,663

PhP
6,663,000.00

PhP 0

MBMI
Resources,
Inc.

Canadi
an

3,331

PhP
PhP
3,331,000.00 2,803,900.00

Nationa Number of
lity
Shares

Amount
Subscribed

Amount Paid

Madridejos
Mining
Corporation

Filipino

5,997

PhP
5,997,000.0
0

PhP
825,000.00

MBMI
Resources,
Inc.

Canadi
an

3,998

PhP
3,998,000.0

PhP
1,878,174.60

Amanti
Limson

Filipino

PhP 1,000.00 PhP 1,000.00

PhP 1,000.00 PhP 1,000.00

Lauro L.
Salazar

Filipino

PhP
1,000.00

PhP 1,000.00

Fernando B. Filipino
Esguerra
Filipino

PhP 1,000.00 PhP 1,000.00

Fernando B.
Esguerra

Filipino

PhP
1,000.00

PhP 1,000.00

Lauro
Salazar

Filipino

PhP 1,000.00 PhP 1,000.00

Manuel A.
Agcaoili

Filipino

PhP
1,000.00

PhP 1,000.00

Emmanuel
G.
Hernando

Michael T.
Mason

Americ
an

PhP
1,000.00

PhP 1,000.00

Michael T.
Mason

Americ
an

PhP 1,000.00 PhP 1,000.00

Kenneth
Cawkell

Canadi
an

PhP
1,000.00

PhP 1,000.00

Kenneth
Cawkell

Canadi
an

PhP 1,000.00 PhP 1,000.00

Total

10,000

PhP
10,000,000.
00

PhP
2,708,174.60
(emphasis
supplied)

Total

10,000

PhP
PhP
10,000,000.0 2,809,900.00
0
(emphasis
supplied)

1
1

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. MBMIs
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:

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

Nationa Number of
lity
Shares

Amount
Subscribed

Amount Paid
54

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 (PhP 10,000,000) divided into
ten thousand (10,000) common shares at PhP 1,000 per share,
as demonstrated below:
Name

Nationali Number
ty
of
Shares

Amount
Subscribed

Manuel A.
Agcaoili

Filipino

PhP
1,000.00

PhP 1,000.00

Michael T.
Mason

America
n

PhP
1,000.00

PhP 1,000.00

Kenneth
Cawkell

Canadia
n

PhP
1,000.00

PhP 1,000.00

Total

10,000

PhP
10,000,000.
00

PhP
2,708,174.60
(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 SMMIs
corporate structure:
Sara Marie Mining, Inc.
Name

Amount Paid

National Number
ity
of
Shares

Amount
Subscribed

Amount Paid

PhP 0

Olympic
Mines &
Development
Corp.

Filipino

6,663

PhP
6,663,000.0
0

PhP
PhP
3,331,000.0 2,794,000.00
0

Sara Marie
Mining, Inc.

Filipino

5,997

PhP
5,997,000.0
0

PhP
825,000.00

MBMI
Resources,
Inc.

Canadia
n

3,998

PhP
3,998,000.0
0

PhP
1,878,174.60

MBMI
Resources,
Inc.

Canadia
n

3,331

Lauro L.
Salazar

Filipino

PhP
1,000.00

PhP 1,000.00

Amanti
Limson

Filipino

PhP
1,000.00

PhP 1,000.00

Fernando B.
Esguerra

Filipino

PhP
1,000.00

PhP 1,000.00

Fernando B.
Esguerra

Filipino

PhP
1,000.00

PhP 1,000.00

55

Lauro
Salazar

Filipino

PhP
1,000.00

PhP 1,000.00

Emmanuel
G.
Hernando

Filipino

PhP
1,000.00

PhP 1,000.00

Michael T.
Mason

America
n

PhP
1,000.00

PhP 1,000.00

Kenneth
Cawkell

Canadia
n

PhP
1,000.00

PhP 1,000.00

Total

10,000

petitioners discussed. The capital stock of Narra is ten million

pesos (PhP 10,000,000), which is divided into ten thousand
common shares (10,000) at one thousand pesos (PhP 1,000)
per share, shown as follows:
Name

Patricia
Louise
Mining &
Developmen
t
Corp.

PhP
PhP
10,000,000. 2,809,900.00
00
(emphasis
supplied)

56

Amount
Subscribed

Amount Paid

Filipino

5,997

PhP
PhP
5,997,000.0 1,677,000.00
0

Canadia
n

3,998

PhP
PhP
3,996,000.0 1,116,000.00
0

Higinio C.
Mendoza, Jr.

Filipino

PhP
1,000.00

PhP 1,000.00

Henry E.
Fernandez

Filipino

PhP
1,000.00

PhP 1,000.00

Manuel A.
Agcaoili

Filipino

PhP
1,000.00

PhP 1,000.00

Ma. Elena A.
Bocalan

Filipino

PhP
1,000.00

PhP 1,000.00

Bayani H.
Agabin

Filipino

PhP
1,000.00

PhP 1,000.00

Robert L.
McCurdy

America
n

PhP
1,000.00

PhP 1,000.00

Kenneth
Cawkell

Canadia
n

PhP
1,000.00

PhP 1,000.00

Total

10,000

MBMI
Resources,
Inc.

After subsequently studying SMMIs corporate structure, it is

not farfetched for us to spot the glaring similarity between
SMMI and MMCs 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 (PhP 2,794,000). Oddly, the total value of the
amount paid is two million eight hundred nine thousand nine
hundred pesos (PhP 2,809,900).
Accordingly, after "grandfathering" petitioner Tesoro and
factoring in Olympics participation in SMMIs 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 PLMDCs MPSA application, whose corporate
structures arrangement is similar to that of the first two

Nationali Number
ty
of
Shares

PhP
PhP
10,000,000. 2,800,000.00
00
(emphasis

Total

supplied)
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
PLMDCs corporate structure:
Name

Nationa Number
Amount
lity
of
Subscribed
Shares
6,596

PhP
6,596,000.
00

MBMI Resources,
Inc.

Canadi
an

3,396

PhP
PhP
3,396,000. 2,796,000
00
.00

Higinio C. Mendoza,
Jr.

Filipino

PhP
1,000.00

PhP
1,000.00

Fernando B.
Esguerra

Filipino

PhP
1,000.00

PhP
1,000.00

Henry E. Fernandez

Filipino

PhP
1,000.00

PhP
1,000.00

Lauro L. Salazar

Filipino

PhP
1,000.00

PhP
1,000.00

Manuel A. Agcaoili

Filipino

PhP
1,000.00

PhP
1,000.00

Bayani H. Agabin

Filipino

PhP
1,000.00

PhP
1,000.00

Michael T. Mason

Americ
an

PhP
1,000.00

PhP
1,000.00

Kenneth Cawkell

Canadi
an

PhP
1,000.00

PhP
1,000.00

PhP
PhP
10,000,000 2,708,174
.00
.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 MBMIs 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 Companys 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

Amount
Paid

Palawan Alpha South Filipino

Resources
Development
Corporation

10,000

PhP 0

57

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,
MBMIs Summary of Significant Accounting Policies statement
regarding the "joint venture" agreements that it entered into
with the "Olympic" and "Alpha" groupsinvolves 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 CAs 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 (PhP
3,000). Being that there is no evidence of written agreement to
form a partnership between petitioners and MBMI, no
partnership was created.
We disagree.
A partnership is defined as two or more persons who bind
themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among
themselves.50 On the other hand, joint ventures have been
deemed to be "akin" to partnerships since it is difficult to
distinguish between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature
of their association are so similar and closely akin to a
partnership that it is ordinarily held that their rights, duties,
and liabilities are to be tested by rules which are closely
analogous to and substantially the same, if not exactly the
same, as those which govern partnership. In fact, it has been
said that the trend in the law has been to blur the distinctions
between a partnership and a joint venture, very little law being
found applicable to one that does not apply to the other.51
58

Though some claim that partnerships and joint ventures are

totally different animals, there are very few rules that
differentiate one from the other; thus, joint ventures are
deemed "akin" or similar to a partnership. In fact, in joint
venture agreements, rules and legal incidents governing
partnerships are applied.52
Accordingly, culled from the incidents and records of this case,
it can be assumed that the relationships entered between and
among petitioners and MBMI are no simple "joint venture
agreements." As a rule, corporations are prohibited from
entering into partnership agreements; consequently,
corporations enter into joint venture agreements with other
corporations or partnerships for certain transactions in order to
form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by
and among petitioners and MBMI was executed to circumvent
the legal prohibition against corporations entering into
partnerships, then the relationship created should be deemed
as "partnerships," and the laws on partnership should be
applied. Thus, a joint venture agreement between and among
corporations may be seen as similar to partnerships since the
elements of partnership are present.
Considering that the relationships found between petitioners
and MBMI are considered to be partnerships, then the CA is
justified in applying Sec. 29, Rule 130 of the Rules by stating
that "by entering into a joint venture, MBMI have a joint
interest" with Narra, Tesoro and McArthur.
Panel of Arbitrators jurisdiction
We affirm the ruling of the CA in declaring that the POA has
jurisdiction over the instant case. The POA has jurisdiction to
settle disputes over rights to mining areas which definitely
involve the petitions filed by Redmont against petitioners
Narra, McArthur and Tesoro. Redmont, by filing its petition
against petitioners, is asserting the right of Filipinos over
mining areas in the Philippines against alleged foreign-owned
mining corporations. Such claim constitutes a "dispute" found
in Sec. 77 of RA 7942:

Within thirty (30) days, after the submission of the case by the
parties for the decision, the panel shall have exclusive and
original jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v.
Macroasia Corp.:53
The phrase "disputes involving rights to mining areas" refers to
any adverse claim, protest, or opposition to an application for
mineral agreement. The POA therefore has the jurisdiction to
resolve any adverse claim, protest, or opposition to a pending
application for a mineral agreement filed with the concerned
Regional Office of the MGB. This is clear from Secs. 38 and 41
of the DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the authorized
officer(s) of the concerned office(s) shall issue a certification(s)
that the publication/posting/radio announcement have been
complied with. Any adverse claim, protest, opposition shall be
filed directly, within thirty (30) calendar days from the last
date of publication/posting/radio announcement, with the
concerned Regional Office or through any concerned PENRO or
CENRO for filing in the concerned Regional Office for purposes
of its resolution by the Panel of Arbitrators pursuant to the
provisions of this Act and these implementing rules and
regulations. Upon final resolution of any adverse claim, protest
or opposition, the Panel of Arbitrators shall likewise issue a
certification to that effect within five (5) working days from the
date of finality of resolution thereof. Where there is no adverse
claim, protest or opposition, the Panel of Arbitrators shall
likewise issue a Certification to that effect within five working
days therefrom.
xxxx
No Mineral Agreement shall be approved unless the
requirements under this Section are fully complied with and
59

any adverse claim/protest/opposition is finally resolved by the

Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the
Certification issued by the Panel of Arbitrators as provided in
Section 38 hereof, the concerned Regional Director shall
initially evaluate the Mineral Agreement applications in areas
outside Mineral reservations. He/She shall thereafter endorse
his/her findings to the Bureau for further evaluation by the
Director within fifteen (15) working days from receipt of
forwarded documents. Thereafter, the Director shall endorse
the same to the secretary for consideration/approval within
fifteen working days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral
Reservations, within fifteen (15) working days from receipt of
the Certification issued by the Panel of Arbitrators as provided
for in Section 38 hereof, the same shall be evaluated and
endorsed by the Director to the Secretary for
consideration/approval within fifteen days from receipt of such
endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the
"disputes involving rights to mining areas" under Sec. 77(a)
specifically refer only to those disputes relative to the
applications for a mineral agreement or conferment of mining
rights.
The jurisdiction of the POA over adverse claims, protest, or
oppositions to a mining right application is further elucidated
by Secs. 219 and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.Notwithstanding the provisions of Sections 28, 43 and 57
above, any adverse claim, protest or opposition specified in
said sections may also be filed directly with the Panel of
Arbitrators within the concerned periods for filing such claim,
protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.xxxx

The Regional Director or concerned Regional Director shall also

cause the posting of the application on the bulletin boards of
the Bureau, concerned Regional office(s) and in the concerned
province(s) and municipality(ies), copy furnished the
barangays where the proposed contract area is located once a
week for two (2) consecutive weeks in a language generally
understood in the locality. After forty-five (45) days from the
last date of publication/posting has been made and no adverse
claim, protest or opposition was filed within the said forty-five
(45) days, the concerned offices shall issue a certification that
publication/posting has been made and that no adverse claim,
protest or opposition of whatever nature has been filed. On the
other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days
from the last date of publication/posting, with the Regional
Offices concerned, or through the Departments 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
60

Arbitrators within the concerned periods for filing such claim,

protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.xxxx
The Regional Director or concerned Regional Director shall also
cause the posting of the application on the bulletin boards of
the Bureau, concerned Regional office(s) and in the concerned
province(s) and municipality(ies), copy furnished the
barangays where the proposed contract area is located once a
week for two (2) consecutive weeks in a language generally
understood in the locality. After forty-five (45) days from the
last date of publication/posting has been made and no adverse
claim, protest or opposition was filed within the said forty-five
(45) days, the concerned offices shall issue a certification that
publication/posting has been made and that no adverse claim,
protest or opposition of whatever nature has been filed. On the
other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days
from the last date of publication/posting, with the Regional
offices concerned, or through the Departments 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.
POAs 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, POAs 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 Redmonts petitions. However, said
jurisdiction does not include either the approval or rejection of
the MPSA applications, which is vested only upon the Secretary
of the DENR. Thus, the finding of the POA, with respect to the
rejection of petitioners MPSA applications being that they are
foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts
that it is the regular courts, not the POA, that has jurisdiction
over the MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the
statute in force at the time of the commencement of the
action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary
Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall
exercise exclusive original jurisdiction:
1. In all civil actions in which the subject of the litigation is
incapable of pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal from
Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.
x x x Within thirty (30) days, after the submission of the
case by the parties for the decision, the panel shall have
exclusive and original jurisdiction to hear and decide the
following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over
any and all disputes involving rights to mining areas. One such
61

dispute is an MPSA application to which an adverse claim,

protest or opposition is filed by another interested
applicant.1wphi1 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 POAs
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. Euromed Laboratories v. Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such
that its determination requires the expertise, specialized
training and knowledge of an administrative body, relief must
first be obtained in an administrative proceeding before resort
to the courts is had even if the matter may well be within their
proper jurisdiction.
Whatever may be the decision of the POA will eventually reach
the court system via a resort to the CA and to this Court as a
last recourse.
Selling of MBMIs 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% Philippineowned.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."57Petitioners 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.1wphi1 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.

62