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What we see here is a debate on the wisdom or the efficacy of the DECISION
Act, but this is a matter on which we are not competent to rule. As
PANGANIBAN, J.:
Cooley observed: "Debatable questions are for the legislature to
decide. The courts do not sit to resolve the merits of conflicting
Is a foreign corporation which sold its products sixteen times
issues." 3 In Angara v. Electoral Commission, 4 Justice Laurel made
over a five-month period to the same Filipino buyer without first
it clear that "the judiciary does not pass upon questions of wisdom, obtaining a license to do business in the Philippines, prohibited
justice or expediency of legislation." And fittingly so for in the from maintaining an action to collect payment therefor in Philippine
exercise of judicial power, we are allowed only "to settle actual courts? In other words, is such foreign corporation doing business
controversies involving rights which are legally demandable and in the Philippines without the required license and thus barred
enforceable," 5 and may not annul an act of the political access to our court system?
departments simply because we feel it is unwise or impractical. It
This is the main issue presented for resolution in the instant
is true that, under the expanded concept of the political question,
petition for review, which seeks the reversal of the Decision [1] of
we may now also "determine whether or not there has been a
the Court of Appeals, Seventh Division, promulgated on January
grave abuse of discretion amounting to lack or excess of
25, 1995, in CA-G.R. CV No. 41275 which affirmed, for want of
jurisdiction on the part of any branch or instrumentality of the capacity to sue, the trial courts dismissal of the collection suit
Government." 6 We find, however, that irregularity does not exist instituted by petitioner.
in the case at bar.
The petitioner is commended for his high civic spirit and his zeal in
The Facts
the protection of the Filipino investors against unfair foreign
competition. His painstaking study and analysis of the Foreign
Investments Act of 1991 reveals not only his nationalistic fervor Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation
but also an impressive grasp of this complex subject. But his views engaged in the manufacture and sale of elements used in sealing
are expressed in the wrong forum. The Court is not a political pumps, valves and pipes for industrial purposes, valves and control
arena. His objections to the law are better heard by his colleagues equipment used for industrial fluid control and PVC pipes and
in the Congress of the Philippines, who have the power to rewrite fittings for industrial uses. In its complaint, it alleged that:[2]
it, if they so please, in the fashion he suggests.
(I)t is a corporation duly organized and existing under the laws of
WHEREFORE, the petition is DISMISSED, without any the Republic of Singapore with address at 18 Pasir Panjang Road
pronouncement as to costs. It is so ordered #09-01, PSA Multi-Storey Complex, Singapore 0511. It is not
licensed to do business in the Philippines and i(s) not so engaged
and is suing on an isolated transaction for which it has capacity to
sue x x x. (par. 1, Complaint; p. 1, Record)
--------------------------
On various dates covering the period January 17 -- August 16,
1989, private respondent Delfin Enriquez, Jr., doing business under
the name and style of Delrene EB Controls Center and/or EB
[G.R. No. 118843. February 6, 1997] Karmine Commercial, ordered and received from petitioner various
elements used in sealing pumps, valves, pipes and control
equipment, PVC pipes and fittings. The ordered materials were a Motion to Dismiss, contending that petitioner corporation had no
delivered via airfreight under the following invoices:[3] legal capacity to sue. In an Order dated March 8, 1993, [5] the trial
court dismissed the action on the ground that petitioner is a foreign
Date Invoice No. AWB No. corporation doing business in the Philippines without a license. The
17 Jan 89 27065 618-7496-2941 dispositive portion of said order reads:[6]
24 Feb 89 27738 618-7553-6672
02 Mar 89 27855 (freight & hand-
WHEREFORE, in view of the foregoing, the motion to dismiss is
ling charges per
hereby GRANTED and accordingly, the above-entitled case is
03 Mar 89 27876 Inv. 27738)
hereby DISMISSED.
03 Mar 89 27877 618-7553-7501
10 Mar 89 28046 618-7553-7501
618-7578-3256/ SO ORDERED.
21 Mar 89 28258 618-7578-3481
14 Apr 89 28901 618-7578-4634 On appeal, respondent Court affirmed said order as it deemed
19 Apr 89 29001 618-7741-7631 the series of transactions between petitioner corporation and
16 Aug 89 31669 Self-collect private respondent not to be an isolated or casual
(handcarried by buyer) transaction. Thus, respondent Court likewise found petitioner to be
without legal capacity to sue, and disposed of the appeal as
21 Mar 89 28257 618-7578-4634 follows:[7]
04 Apr 89 28601 618-7741-7605
14 Apr 89 28900 618-7741-7631 WHEREFORE, the appealed Order should be, as it is hereby
25 Apr 89 29127 618-7741-9720 AFFIRMED. The complaint is dismissed. No costs.
02 May 89 29232 (By seafreight)
05 May 89 29332 618-7796-3255 SO ORDERED.
15 May 89 29497 (Freight & hand-
ling charges per Hence, this petition.
Inv. 29127)
31 May 89 29844
618-7796-5646
The Issue
Total
The main issue in this petition is whether petitioner-corporation
may maintain an action in Philippine courts considering that it has
The transfers of goods were perfected in Singapore, for private no license to do business in the country. The resolution of this issue
respondents account, F.O.B. Singapore, with a 90-day credit depends on whether petitioners business with private respondent
term. Subsequently, demands were made by petitioner upon may be treated as isolated transactions.
private respondent to settle his account, but the latter
Petitioner insists that the series of sales made to private
failed/refused to do so.
respondent would still constitute isolated transactions despite the
On August 28, 1991, petitioner corporation filed with the number of invoices covering several separate and distinct items
Regional Trial Court of Makati, Branch 138,[4] Civil Case No. 91- sold and shipped over a span of four to five months, and that an
2373 entitled Eriks Pte. Ltd. vs. Delfin Enriquez, Jr. for the recovery affirmation of respondent Courts ruling would result in injustice and
of S$41,939.63 or its equivalent in Philippine currency, plus unjust enrichment.
interest thereon and damages. Private respondent responded with
Private respondent counters that to declare petitioner as Philippines or who in any calendar year stay in the
possessing capacity to sue will render nugatory the provisions of country for a period or periods totalling one hundred
the Corporation Code and constitute a gross violation of our eight(y) (180) days or more; participating in the
laws. Thus, he argues, petitioner is undeserving of legal protection. 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
The Courts Ruling commercial dealings or arrangements, and contemplate
to that extent the performance of acts or works, or the
The petition has no merit. exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of
The Concept of Doing Business the purpose and object of the business organization:
Provided, however, That the phrase doing business shall
The Corporation Code provides: 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
Sec. 133. Doing business without a license. - No foreign
rights as such investor; nor having a nominee director
corporation transacting business in the Philippines without a
or officer to represent its interests in such corporation;
license, or its successors or assigns, shall be permitted to maintain
nor appointing a representative or distributor domiciled
or intervene in any action, suit or proceeding in any court or
in the Philippines which transacts business in its own
administrative agency of the Philippines; but such corporation may
name and for its own account. (underscoring supplied)
be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized In the durable case of The Mentholatum Co. vs.
under Philippine laws. Mangaliman, this Court discoursed on the test to determine
whether a foreign company is doing business in the Philippines,
The aforementioned provision prohibits, not merely absence of thus:[10]
the prescribed license, but it also bars a foreign corporation doing
business in the Philippines without such license access to our x x x The true test, however, seems to be whether the foreign
courts.[8] A foreign corporation without such license is not ipso corporation is continuing the body or substance of the business or
facto incapacitated from bringing an action. A license is necessary enterprise for which it was organized or whether it has
only if it is transacting or doing business in the country. substantially retired from it and turned it over to another. (Traction
Cos. v. Collectors of Int. Revenue [C.C.A., Ohio], 223 F. 984,
However, there is no definitive rule on what constitutes doing,
987.] The term implies a continuity of commercial dealings and
engaging in, or transacting business. The Corporation Code itself
arrangements, and contemplates, to that extent, the performance
does not define such terms. To fill the gap, the evolution of its
of acts or works or the exercise of some of the functions normally
statutory definition has produced a rather all-encompassing
incident to, and in progressive prosecution of, the purpose and
concept in Republic Act No. 7042[9] in this wise:
object of its organization.] (sic) (Griffin v. Implement Dealers Mut.
Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank
SEC. 3. Definitions. - As used in this Act: Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. v.
American Standard Metal Products Corp., 158 N.E. 698, 703, 327
xxx xxx xxx III. 367.)
(d) the phrase doing business shall include soliciting
orders, service contracts, opening offices, whether The accepted rule in jurisprudence is that each case must be
called liaison offices or branches; appointing judged in the light of its own environmental circumstances.[11] It
representatives or distributors domiciled in the should be kept in mind that the purpose of the law is to subject the
foreign corporation doing business in the Philippines to the it can be clearly gleaned from the four-month period of
jurisdiction of our courts. It is not to prevent the foreign transactions between appellant and appellee that it was a
corporation from performing single or isolated acts, but to bar it continuing business relationship, which would, without doubt,
from acquiring a domicile for the purpose of business without first constitute doing business without a license. For all intents and
taking the steps necessary to render it amenable to suits in the purposes, appellant corporation is doing or transacting business in
local courts. the Philippines without a license and that, therefore, in accordance
with the specific mandate of Section 144 of the Corporation Code,
The trial court held that petitioner-corporation was doing it has no capacity to sue. (addition ours)
business without a license, finding that:[12]
We find no reason to disagree with both lower courts. More
The invoices and delivery receipts covering the period of (sic) from than the sheer number of transactions entered into, a clear and
January 17, 1989 to August 16, 1989 cannot be treated to mean a unmistakable intention on the part of petitioner to continue the
singular and isolated business transaction that is temporary in body of its business in the Philippines is more than apparent. As
character.Granting that there is no distributorship agreement alleged in its complaint, it is engaged in the manufacture and sale
between herein parties, yet by the mere fact that plaintiff, each of elements used in sealing pumps, valves, and pipes for industrial
time that the defendant posts an order delivers the items as purposes, valves and control equipment used for industrial fluid
evidenced by the several invoices and receipts of various dates control and PVC pipes and fittings for industrial use. Thus, the sale
only indicates that plaintiff has the intention and desire to repeat by petitioner of the items covered by the receipts, which are part
the (sic) said transaction in the future in pursuit of its ordinary and parcel of its main product line, was actually carried out in the
business. Furthermore, and if the corporation is doing that for progressive prosecution of commercial gain and the pursuit of the
which it was created, the amount or volume of the business done is purpose and object of its business, pure and simple. Further, its
immaterial and a single act of that character may constitute doing grant and extension of 90-day credit terms to private respondent
business. (See p. 603, Corp. Code, De Leon - 1986 Ed.). for every purchase made, unarguably shows an intention to
continue transacting with private respondent, since in the usual
Respondent Court affirmed this finding in its assailed Decision course of commercial transactions, credit is extended only to
with this explanation:[13] customers in good standing or to those on whom there is an
intention to maintain long-term relationship. This being so, the
existence of a distributorship agreement between the parties, as
x x x Considering the factual background as laid out above, the
alleged but not proven by private respondent, would, if duly
transaction cannot be considered as an isolated one. Note that
established by competent evidence, be merely corroborative, and
there were 17 orders and deliveries (only sixteen per our count)
failure to sufficiently prove said allegation will not significantly
over a four-month period. The appellee (private respondent) made
affect the finding of the courts below. Nor our own ruling. It is
separate orders at various dates. The transactions did not consist
precisely upon the set of facts above-detailed that we concur with
of separate deliveries for one single order. In the case at bar, the
respondent Court that petitioner corporation was doing business in
transactions entered into by the appellant with the appellee are a
the country.
series of commercial dealings which would signify an intent on the
part of the appellant (petitioner) to do business in the Philippines Equally important is the absence of any fact or circumstance
and could not by any stretch of the imagination be considered an which might tend even remotely to negate such intention to
isolated one, thus would fall under the category of doing business. continue the progressive prosecution of petitioners business
activities in this country. Had private respondent not turned out to
Even if We were to view, as contended by the appellant, that be a bad risk, in all likelihood petitioner would have indefinitely
the transactions which occurred between January to August 1989, continued its commercial transactions with him, and not
constitute a single act or isolated business transaction, this being surprisingly, in ever increasing volumes.
the ordinary business of appellant corporation, it can be said to be
illegally doing or transacting business without a license. x x x Here
Thus, we hold that the series of transactions in question could By this judgment, we are not foreclosing petitioners right to
not have been isolated or casual transactions. What is collect payment. Res judicata does not set in a case dismissed for
determinative of doing business is not really the number or the lack of capacity to sue, because there has been no determination
quantity of the transactions, but more importantly, the intention of on the merits.[16] Moreover, this Court has ruled that subsequent
an entity to continue the body of its business in the country. The acquisition of the license will cure the lack of capacity at the time
number and quantity are merely evidence of such intention. The of the execution of the contract.[17]
phrase isolated transaction has a definite and fixed meaning, i.e. a
transaction or series of transactions set apart from the common The requirement of a license is not meant to put foreign
corporations at a disadvantage. Rather, the doctrine of lack of
business of a foreign enterprise in the sense that there is no
intention to engage in a progressive pursuit of the purpose and capacity to sue is based on considerations of sound public policy.
[18]
Thus, it has been ruled in Home Insurance that:[19]
object of the business organization. Whether a foreign corporation
is doing business does not necessarily depend upon the frequency
of its transactions, but more upon the nature and character of the x x x The primary purpose of our statute is to compel a foreign
transactions.[14] corporation desiring to do business within the state to submit itself
to the jurisdiction of the courts of this state. The statute was not
Given the facts of this case, we cannot see how petitioners intended to exclude foreign corporations from the state. x x x x The
business dealings will fit the category of isolated transactions better reason, the wiser and fairer policy, and the greater weight
considering that its intention to continue and pursue the corpus of lie with those decisions which hold that where, as here, there is a
its business in the country had been clearly established. It has not prohibition with a penalty, with no express or implied declarations
presented any convincing argument with equally convincing respecting the validity of enforceability of contracts made by
evidence for us to rule otherwise. qualified foreign corporations, the contracts x x x are enforceable x
x x upon compliance with the law.(Peter & Burghard Stone Co. v.
Carper, 172 N.E. 319 [1930].)
Incapacitated to Maintain Suit
While we agree with petitioner that the country needs to
develop trade relations and foster friendly commercial relations
Accordingly and ineluctably, petitioner must be held to be with other states, we also need to enforce our laws that regulate
incapacitated to maintain the action a quo against private the conduct of foreigners who desire to do business here. Such
respondent. strangers must follow our laws and must subject themselves to
reasonable regulation by our government.
It was never the intent of the legislature to bar court access to
a foreign corporation or entity which happens to obtain an isolated WHEREFORE, premises considered, the instant petition is
order for business in the Philippines. Neither, did it intend to shield hereby DENIED and the assailed Decision is AFFIRMED.
debtors from their legitimate liabilities or obligations. [15] But it
cannot allow foreign corporations or entities which conduct regular SO ORDERED.
business any access to courts without the fulfillment by such
corporations of the necessary requisites to be subjected to our
governments regulation and authority. By securing a license, the
foreign entity would be giving assurance that it will abide by the [G.R. No. 154618. April 14, 2004]
decisions of our courts, even if adverse to it.
This petition for review assails the Decision dated August 12, On June 1, 2001, summons and a copy of the complaint were
2002 of the Court of Appeals in CA-G.R. SP No. 66574, which served on Atty. Ramon Quisumbing, who returned these processes
dismissed Civil Case No. 3123-2001-C and annulled and set aside on the claim that he was not the registered agent of Agilent. Later,
the Order dated September 4, 2001 issued by the Regional Trial he entered a special appearance to assail the courts jurisdiction
Court of Calamba, Laguna, Branch 92. over the person of Agilent.
Petitioner Agilent Technologies Singapore (Pte.), Ltd. (Agilent) On July 2, 2001, Agilent filed a separate complaint against
is a foreign corporation, which, by its own admission, is not Integrated Silicon, Teoh Kang Seng, Teoh Kiang Gong,
licensed to do business in the Philippines.[1] Respondent Integrated Anthony Choo, Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz
Silicon Technology Philippines Corporation (Integrated Silicon) is a and Rolando T. Nacilla,[10] for Specific Performance, Recovery of
private domestic corporation, 100% foreign owned, which is Possession, and Sum of Money with Replevin, Preliminary
engaged in the business of manufacturing and assembling Mandatory Injunction, and Damages, before the Regional Trial
electronics components.[2] Respondents Teoh Kiang Court, Calamba, Laguna, Branch 92, docketed as Civil Case No.
Hong, Teoh Kiang Seng and Anthony Choo, Malaysian nationals, are 3123-2001-C. Agilent prayed that a writ of replevin or, in the
current members of Integrated Silicons board of directors, while alternative, a writ of preliminary mandatory injunction, be issued
Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz, and Rolando ordering defendants to immediately return and deliver to plaintiff
T. Nacilla are its former members.[3] its equipment, machineries and the materials to be used for fiber-
optic components which were left in the plant of Integrated
The juridical relation among the various parties in this case can Silicon. It further prayed that defendants be ordered to pay actual
be traced to a 5-year Value Added Assembly Services Agreement and exemplary damages and attorneys fees.[11]
(VAASA), entered into on April 2, 1996 between Integrated Silicon
and the Hewlett-Packard Singapore (Pte.) Respondents filed a Motion to Dismiss in Civil Case No. 3123-
Ltd., Singapore Components Operation (HP-Singapore).[4] Under 2001-C,[12] on the grounds of lack of Agilents legal capacity to sue;
the terms of the VAASA, Integrated Silicon was to locally
[13]
litis pendentia;[14] forum shopping;[15] and failure to state a
manufacture and assemble fiber optics for export to HP- cause of action.[16]
Singapore. HP-Singapore, for its part, was to consign raw materials On September 4, 2001, the trial court denied the Motion to
to Integrated Silicon; transport machinery to the plant of Dismiss and granted petitioner Agilents application for a writ
Integrated Silicon; and pay Integrated Silicon the purchase price of of replevin.[17]
the finished products.[5] The VAASA had a five-year term, beginning
on April 2, 1996, with a provision for annual renewal by mutual Without filing a motion for reconsideration, respondents filed a
written consent.[6] On September 19, 1999, with the consent of petition for certiorari with the Court of Appeals.[18]
Integrated Silicon,[7] HP-Singapore assigned all its rights and In the meantime, upon motion filed by respondents, Judge
obligations in the VAASA to Agilent.[8] Antonio S. Pozas of Branch 92 voluntarily inhibited himself in Civil
On May 25, 2001, Integrated Silicon filed a complaint for Case No. 3123-2001-C. The case was re-raffled and assigned to
Specific Performance and Damages against Agilent and its officers Branch 35, the same branch where Civil Case No. 3110-2001-C is
Tan Bian Ee, Lim Chin Hong, Tey Boon Teck and Francis Khor, pending.
On August 12, 2002, the Court of Appeals granted respondents (2) whether or not the Court of Appeals committed reversible error
petition for certiorari, set aside the assailed Order of the trial court in dismissing Civil Case No. 3123-2001-C.
dated September 4, 2001, and ordered the dismissal of Civil Case
No. 3123-2001-C. We find merit in the petition.
The Court of Appeals, citing the case
Hence, the instant petition raising the following errors:
of Malayang Manggagawa sa ESSO v. ESSO Standard Eastern, Inc.,
I. [20]
held that the lower court had no jurisdiction over Civil Case No.
3123-2001-C because of the pendency of Civil Case No. 3110-
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT 2001-C and, therefore, a motion for reconsideration was not
DISMISSING RESPONDENTS PETITION FOR CERTIORARI FOR necessary before resort to a petition for certiorari. This was error.
RESPONDENTS FAILURE TO FILE A MOTION FOR
Jurisdiction is fixed by law. Batas Pambansa Blg. 129 vests
RECONSIDERATION BEFORE RESORTING TO THE REMEDY OF
jurisdiction over the subject matter of Civil Case No. 3123-2001-C
CERTIORARI.
in the RTC.[21]
II. The Court of Appeals ruling that the assailed Order issued by
the RTC of Calamba, Branch 92, was a nullity for lack of jurisdiction
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN due to litis pendentia and forum shopping, has no legal
ANNULLING AND SETTING ASIDE THE TRIAL COURTS ORDER basis. The pendency of another action does not strip a court of the
DATED 4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF jurisdiction granted by law.
CIVIL CASE NO. 3123-2001-C BELOW ON THE GROUND OF LITIS The Court of Appeals further ruled that a Motion for
PENDENTIA, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE NO. Reconsideration was not necessary in view of the urgent necessity
3110-2001-C. in this case. We are not convinced. In the case of Bache and Co.
(Phils.), Inc. v. Ruiz,[22] relied on by the Court of Appeals, it was
III. held that time is of the essence in view of the tax assessments
sought to be enforced by respondent officers of the Bureau of
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN Internal Revenue against petitioner corporation, on account of
ANNULLING AND SETTING ASIDE THE TRIAL COURTS ORDER which immediate and more direct action becomes necessary. Tax
DATED 4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF assessments in that case were based on documents seized by
CIVIL CASE NO. 3123-2001-C BELOW ON THE GROUND OF FORUM virtue of an illegal search, and the deprivation of the right to due
SHOPPING, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE NO. process tainted the entire proceedings with illegality. Hence, the
3110-2001-C. urgent necessity of preventing the enforcement of the tax
assessments was patent. Respondents, on the other hand, cite the
IV. case of Geronimo v. Commission on Elections,[23] where the urgent
necessity of resolving a disqualification case for a position in local
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN government warranted the expeditious resort to certiorari. In the
ORDERING THE DISMISSAL OF CIVIL CASE NO. 323-2001-C case at bar, there is no analogously urgent circumstance which
BELOW INSTEAD OF ORDERING IT CONSOLIDATED WITH CIVIL would necessitate the relaxation of the rule on a Motion for
CASE NO. 3110-2001-C.[19] Reconsideration.
Indeed, none of the exceptions for dispensing with a Motion for
The two primary issues raised in this petition: (1) whether or Reconsideration is present here. None of the following cases cited
not the Court of Appeals committed reversible error in giving due by respondents serves as adequate basis for their procedural lapse.
course to respondents petition, notwithstanding the failure to file a
Motion for Reconsideration of the September 4, 2001 Order; and
In Vigan Electric Light Co., Inc. v. Public Service Commission, regardless of which party is successful, amount
[24]
the questioned order was null and void for failure of respondent to res judicata in the other.[28]
tribunal to comply with due process requirements;
in Matanguihan v. Tengco,[25] the questioned order was a patent The Court of Appeals correctly appreciated the identity of
parties in Civil Cases No. 3123-2001-C and 3110-2001-C. Well-
nullity for failure to acquire jurisdiction over the defendants, which
fact the records plainly disclosed; and in National Electrification settled is the rule that lis pendens requires only substantial, and
not absolute, identity of parties. [29] There is substantial identity of
Administration v. Court of Appeals,[26] the questioned orders were
void for vagueness. No such patent nullity is evident in the Order parties when there is a community of interest between a party in
the first case and a party in the second case, even if the latter was
issued by the trial court in this case.Finally, while urgency may be a
ground for dispensing with a Motion for Reconsideration, in the not impleaded in the first case.[30] The parties in these cases are
vying over the interests of the two opposing corporations; the
case of Vivo v. Cloribel,[27] cited by respondents, the slow progress
of the case would have rendered the issues moot had a motion for individuals are only incidentally impleaded, being the natural
persons purportedly accused of violating these corporations rights.
reconsideration been availed of. We find no such urgent
circumstance in the case at bar. Likewise, the fact that the positions of the parties are
reversed, i.e., the plaintiffs in the first case are the defendants in
Respondents, therefore, availed of a premature remedy when
they immediately raised the matter to the Court of Appeals the second case or vice versa, does not negate the identity of
parties for purposes of determining whether the case is dismissible
on certiorari; and the appellate court committed reversible error
when it took cognizance of respondents petition instead of on the ground of litis pendentia.[31]
dismissing the same outright. The identity of parties notwithstanding, litis pendentia does not
We come now to the substantive issues of the petition. obtain in this case because of the absence of the second and third
requisites. The rights asserted in each of the cases involved are
Litis pendentia is a Latin term which literally means a pending separate and distinct; there are two subjects of controversy
suit. It is variously referred to in some decisions presented for adjudication; and two causes of action are clearly
as lis pendens and auter action pendant. While it is normally involved. The fact that respondents instituted a prior action for
connected with the control which the court has on a property Specific Performance and Damages is not a ground for defeating
involved in a suit during the continuance proceedings, it is more the petitioners action for Specific Performance, Recovery of
interposed as a ground for the dismissal of a civil action pending in Possession, and Sum of Money with Replevin, Preliminary
court. Mandatory Injunction, and Damages.
Litis pendentia as a ground for the dismissal of a civil action In Civil Case No. 3110-2001-C filed by respondents, the issue
refers to that situation wherein another action is pending between is whether or not there was a breach of an oral promise to renew of
the same parties for the same cause of action, such that the the VAASA. The issue in Civil Case No. 3123-2001-C, filed by
second action becomes unnecessary and petitioner, is whether petitioner has the right to take possession of
vexatious. For litis pendentia to be invoked, the concurrence of the the subject properties. Petitioners right of possession is founded on
following requisites is necessary: the ownership of the subject goods, which ownership is not
disputed and is not contingent on the extension or non-extension
(a) identity of parties or at least such as represent the of the VAASA. Hence, the replevin suit can validly be tried even
same interest in both actions; while the prior suit is being litigated in the Regional Trial Court.
(b) identity of rights asserted and reliefs prayed for, Possession of the subject properties is not an issue in Civil
the reliefs being founded on the same facts; and Case No. 3110-2001-C. The reliefs sought by respondent
(c) the identity in the two cases should be such that the Integrated Silicon therein are as follows: (1) execution of a written
judgment that may be rendered in one would, extension or renewal of the VAASA; (2) compliance with the
extended VAASA; and (3) payment of overdue accounts, damages,
and attorneys fees. The reliefs sought by petitioner Agilentin Civil We now proceed to the issue of forum shopping.
Case No. 3123-2001-C, on the other hand, are as follows: (1)
The test for determining whether a party violated the rule
issuance of a Writ of Replevin or Writ of Preliminary Mandatory
Injunction; (2) recovery of possession of the subject properties; against forum-shopping was laid down in the case of Buan v.
Lopez.[34] Forum shopping exists where the elements
(3) damages and attorneys fees.
of litispendentia are present, or where a final judgment in one case
Concededly, some items or pieces of evidence may be will amount to res judicata in the final other. There being
admissible in both actions. It cannot be said, however, no litis pendentia in this case, a judgment in the said case will not
that exactly the same evidence will support the decisions in both, amount to res judicata in Civil Case No. 3110-2001-C, and
since the legally significant and controlling facts in each case are respondents contention on forum shopping must likewise fail.
entirely different. Although the VAASA figures prominently in both
We are not unmindful of the afflictive consequences that may
suits, Civil Case No. 3110-2001-C is premised on a purported
breach of an oral obligation to extend the VAASA, and damages be suffered by both petitioner and respondents if replevin is
granted by the trial court in Civil Case No. 3123-2001-C. If
arising out of Agilents alleged failure to comply with such purported
extension. Civil Case No. 3123-2001-C, on the other hand, is respondent Integrated Silicon eventually wins Civil Case No. 3110-
2001-C, and the VAASAs terms are extended, petitioner
premised on a breach of the VAASA itself, and damages arising
to Agilent out of that purported breach. corporation will have to comply with its obligations thereunder,
which would include the consignment of properties similar to those
It necessarily follows that the third requisite it may recover by way of replevin in Civil Case No. 3123-2001-
for litis pendentia is also absent. The following are the elements C. However, petitioner will also suffer an injustice if denied the
of res judicata: remedy of replevin, resort to which is not only allowed but
encouraged by law.
(a) The former judgment must be final;
Respondents argue that since Agilent is an unlicensed foreign
(b) The court which rendered judgment must have corporation doing business in the Philippines, it lacks the legal
jurisdiction over the parties and the subject matter; capacity to file suit.[35] The assailed acts of petitioner Agilent,
(c) It must be a judgment on the merits; and purportedly in the nature of doing business in the Philippines, are
the following: (1) mere entering into the VAASA, which is a service
(d) There must be between the first and second actions contract;[36] (2) appointment of a full-time representative in
identity of parties, subject matter, and cause of action. Integrated Silicon, to oversee and supervise the production
[32]
of Agilents products;[37] (3) the appointment by Agilent of six full-
In this case, any judgment rendered in one of the actions will time staff members, who were permanently stationed at Integrated
not amount to res judicata in the other action. There being Silicons facilities in order to inspect the finished goods for Agilent;
different causes of action, the decision in one case will not
[38]
and (4) Agilents participation in the management, supervision
constitute res judicata as to the other. and control of Integrated Silicon, [39] including instructing Integrated
Silicon to hire more employees to meet Agilents increasing
Of course, a decision in one case may, to a certain extent, production needs,[40] regularly performing quality audit, evaluation
affect the other case. This, however, is not the test to determine and supervision of Integrated Silicons employees, [41] regularly
the identity of the causes of action. Whatever difficulties or performing inventory audit of raw materials to be used by
inconvenience may be entailed if both causes of action are pursued Integrated Silicon, which was also required to provide weekly
on separate remedies, the proper solution is not the dismissal inventory updates to Agilent,[42] and providing and dictating
order of the Court of Appeals. The possible consolidation of said Integrated Silicon on the daily production schedule, volume and
cases, as well as stipulations and appropriate modes of discovery, models of the products to manufacture and ship for Agilent.[43]
may well be considered by the court below to subserve not only
procedural expedience but, more important, the ends of justice.[33] A foreign corporation without a license is not ipso
facto incapacitated from bringing an action in Philippine courts. A
license is necessary only if a foreign corporation is transacting or required license, it can sue before Philippine courts on any
doing business in the country. The Corporation Code provides: transaction.
The challenge to Agilents legal capacity to file suit hinges on
Sec. 133. Doing business without a license. No foreign corporation
whether or not it is doing business in the Philippines. However,
transacting business in the Philippines without a license, or its
there is no definitive rule on what constitutes doing, engaging in,
successors or assigns, shall be permitted to maintain or intervene
or transacting business in the Philippines, as this Court observed in
in any action, suit or proceeding in any court or administrative
the case of Mentholatum v. Mangaliman.[50] The Corporation Code
agency of the Philippines; but such corporation may be sued or
itself is silent as to what acts constitute doing or transacting
proceeded against before Philippine courts or administrative
business in the Philippines.
tribunals on any valid cause of action recognized under Philippine
laws. Jurisprudence has it, however, that the term implies a
continuity of commercial dealings and arrangements, and
The aforementioned provision prevents an unlicensed foreign contemplates, to that extent, the performance of acts or works or
corporation doing business in the Philippines from accessing our the exercise of some of the functions normally incident to or in
courts. progressive prosecution of the purpose and subject of its
organization.[51]
In a number of cases, however, we have held that an
unlicensed foreign corporation doing business in In Mentholatum,[52] this Court discoursed on the two general
the Philippines may bring suit in Philippine courts against a tests to determine whether or not a foreign corporation can be
Philippine citizen or entity who had contracted with and benefited considered as doing business in the Philippines. The first of these is
from said corporation.[44] Such a suit is premised on the doctrine the substance test, thus:[53]
of estoppel. A party is estopped from challenging the personality of
a corporation after having acknowledged the same by entering into The true test [for doing business], however, seems to be whether
a contract with it. This doctrine of estoppel to deny corporate the foreign corporation is continuing the body of the business or
existence and capacity applies to foreign as well as domestic enterprise for which it was organized or whether it has
corporations.[45] The application of this principle prevents a person substantially retired from it and turned it over to another.
contracting with a foreign corporation from later taking advantage
of its noncompliance with the statutes chiefly in cases where such The second test is the continuity test, expressed thus:[54]
person has received the benefits of the contract.[46]
The principles regarding the right of a foreign corporation to The term [doing business] implies a continuity of commercial
bring suit in Philippine courts may thus be condensed in four dealings and arrangements, and contemplates, to that extent, the
statements: (1) if a foreign corporation does business in the performance of acts or works or the exercise of some of the
Philippines without a license, it cannot sue before the Philippine functions normally incident to, and in the progressive prosecution
courts;[47] (2) if a foreign corporation is not doing business in the of, the purpose and object of its organization.
Philippines, it needs no license to sue before Philippine courts on an
isolated transaction or on a cause of action entirely independent of Although each case must be judged in light of its attendant
any business transaction[48]; (3) if a foreign corporation does circumstances, jurisprudence has evolved several guiding principles
business in the Philippines without a license, a Philippine citizen or for the application of these tests. For instance, considering that it
entity which has contracted with said corporation may transacted with its Philippine counterpart for seven years, engaging
be estopped from challenging the foreign corporations corporate in futures contracts, this Court concluded that the foreign
personality in a suit brought before Philippine courts;[49] and (4) if a corporation in Merrill Lynch Futures, Inc. v. Court of Appeals and
foreign corporation does business in the Philippines with the Spouses Lara,[55] was doing business in the Philippines.
In Commissioner of Internal Revenue v. Japan Airlines (JAL),[56] the
Court held that JAL was doing business in the Philippines, i.e., its
commercial dealings in the country were continuous despite the Philippines; and any other act or acts that imply a continuity of
fact that no JAL aircraft landed in the country as it sold tickets in commercial dealings or arrangements, and contemplate to that
the Philippines through a general sales agent, and opened a extent the performance of acts or works, or the exercise of some of
promotions office here as well. the functions normally incident to, and in the progressive
prosecution of, commercial gain or of the purpose and object of the
In General Corp. of the Phils. v. Union Insurance Society of business organization.
Canton and Firemans Fund Insurance,[57] a foreign insurance
corporation was held to be doing business in the Philippines, as it
An analysis of the relevant case law, in conjunction with
appointed a settling agent here, and issued 12 marine insurance
Section 1 of the Implementing Rules and Regulations of the FIA (as
policies. We held that these transactions were not isolated or
amended by Republic Act No. 8179), would demonstrate that the
casual, but manifested the continuity of the foreign corporations
acts enumerated in the VAASA do not constitute doing business in
conduct and its intent to establish a continuous business in the
the Philippines.
country. In Eriks PTE Ltd. v. Court of Appeals and Enriquez,[58] the
foreign corporation sold its products to a Filipino buyer who Section 1 of the Implementing Rules and Regulations of the
ordered the goods 16 times within an eight-month FIA (as amended by Republic Act No. 8179) provides that the
period. Accordingly, this Court ruled that the corporation was doing following shall not be deemed doing business:
business in the Philippines, as there was a clear intention on its
part to continue the body of its business here, despite the relatively (1) Mere investment as a shareholder by a foreign entity in
short span of time involved. Communication Materials and Design, domestic corporations duly registered to do business,
Inc., et al. v. Court of Appeals, ITEC, et al. [59] and Top-Weld and/or the exercise of rights as such investor;
Manufacturing v. ECED, IRTI, et al.[60] both involved the License (2) Having a nominee director or officer to represent its
and Technical Agreement and Distributor Agreement of foreign interest in such corporation;
corporations with their respective local counterparts that were the
primary bases for the Courts ruling that the foreign corporations (3) Appointing a representative or distributor domiciled in
were doing business in the Philippines. [61] In particular, the Court the Philippines which transacts business in the
cited the highly restrictive nature of certain provisions in the representatives or distributors own name and account;
agreements involved, such that, as stated in Communication
(4) The publication of a general advertisement through
Materials, the Philippine entity is reduced to a mere extension or
any print or broadcast media;
instrument of the foreign corporation. For example,
in Communication Materials, the Court deemed the No Competing (5) Maintaining a stock of goods in the Philippines solely
Product provision of the Representative Agreement therein for the purpose of having the same processed by
restrictive.[62] another entity in the Philippines;
The case law definition has evolved into a statutory definition, (6) Consignment by a foreign entity of equipment with a
having been adopted with some qualifications in various pieces of local company to be used in the processing of products
legislation. The Foreign Investments Act of 1991 (the FIA; Republic for export;
Act No. 7042, as amended), defines doing business as follows:
(7) Collecting information in the Philippines; and
Sec. 3, par. (d). The phrase doing business shall include soliciting (8) Performing services auxiliary to an existing isolated
orders, service contracts, opening offices, whether called liaison contract of sale which are not on a continuing basis,
offices or branches; appointing representatives or distributors such as installing in the Philippines machinery it has
domiciled in the Philippines or who in any calendar year stay in the manufactured or exported to the Philippines, servicing
country for a period or periods totaling one hundred eighty (180) the same, training domestic workers to operate it, and
days or more; participating in the management, supervision or similar incidental services.
control of any domestic business, firm, entity, or corporation in the
By and large, to constitute doing business, the activity to be CARPIO MORALES,
undertaken in the Philippines is one that is for profit-making.[63] TINGA, and
VELASCO, JR., JJ.
By the clear terms of the VAASA, Agilents activities in the
Philippines were confined to (1) maintaining a stock of goods in the
Philippines solely for the purpose of having the same processed by GTVL MANUFACTURING Promulgated:
Integrated Silicon; and (2) consignment of equipment with INDUSTRIES, INC.,
Integrated Silicon to be used in the processing of products for Respondent. May 28, 2007
export. As such, we hold that, based on the evidence presented x--------------------------------------------------------------------------
thus far, Agilent cannot be deemed to be doing business in ---------------x
the Philippines. Respondents contention that Agilent lacks the legal
capacity to file suit is therefore devoid of merit. As a foreign
corporation not doing business in the Philippines, it needed no DECISION
license before it can sue before our courts.
Finally, as to Agilents purported failure to state a cause of
action against the individual respondents, we likewise rule in favor CARPIO, J.:
of petitioner. A Motion to Dismiss hypothetically admits all the
allegations in the Complaint, which plainly alleges that these
individual respondents had committed or permitted the commission The Case
of acts prejudicial to Agilent. Whether or not these individuals had
divested themselves of their interests in Integrated Silicon, or are
no longer members of Integrated Silicons Board of Directors, is a Before the Court is a petition for review [1] of the 18
matter of defense best threshed out during trial.
April 2001 Decision[2] of the Court of Appeals in CA-G.R. CV No.
WHEREFORE, PREMISES CONSIDERED, the petition is
GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 66236. The Court of Appeals affirmed the Order[3] of the Regional
66574 dated August 12, 2002, which dismissed Civil Case No. Trial Court, Branch 258, Paraaque City (trial court) dismissing the
3123-2001-C, is REVERSED and SET ASIDE. The Order
dated September 4, 2001 issued by the Regional Trial Court complaint for sum of money filed by B. Van Zuiden Bros., Ltd.
of Calamba, Laguna, Branch 92, in Civil Case No. 3123-2001-C, is (petitioner) against GTVL Manufacturing Industries, Inc.
REINSTATED. Agilents application for a Writ of Replevin is
GRANTED. (respondent).
4. On several occasions, GTVL purchased lace After an exchange of several pleadings[6] between the parties, the
products from [ZUIDEN].
trial court issued an Order on 10 November 1999 dismissing the
5. The procedure for these purchases, as per the complaint.
instructions of GTVL, was that ZUIDEN delivers the
products purchased by GTVL, to a certain Hong Kong
corporation, known as Kenzar Ltd. (KENZAR), On appeal, the Court of Appeals sustained the trial courts dismissal
x x x and the products are then considered as sold,
upon receipt by KENZAR of the goods purchased by of the complaint.
GTVL.
KENZAR had the obligation to deliver the products to
the Philippines and/or to follow whatever instructions Hence, this petition.
GTVL had on the matter.
Insofar as ZUIDEN is concerned, upon delivery of the The Court of Appeals Ruling
goods to KENZAR in Hong Kong, the transaction is
concluded; and GTVL became obligated to pay the
agreed purchase price. In affirming the dismissal of the complaint, the Court of Appeals
relied on Eriks Pte., Ltd. v. Court of Appeals.[7] In that case, Eriks,
xxxx
7. However, commencing October 31, 1994 up to the an unlicensed foreign corporation, sought to collect US$41,939.63
present, GTVL has failed and refused to pay the from a Filipino businessman for goods which he purchased and
agreed purchase price for several deliveries ordered
received on several occasions from January to May 1989. The
by it and delivered by ZUIDEN, as above-mentioned.
transfers of goods took place in Singapore, for the Filipinos
xxxx
account, F.O.B. Singapore, with a 90-day credit term. Since the
9. In spite [sic] of said demands and in spite [sic] of transactions involved were not isolated, this Court found Eriks to be
promises to pay and/or admissions of liability, GTVL
doing business in the Philippines. Hence, this Court upheld the
has failed and refused, and continues to fail and
refuse, to pay the overdue amount of U.S. dismissal of the complaint on the ground that Eriks has no capacity
$32,088.02 [inclusive of interest].[4]
to sue.
The Court of Appeals noted that in Eriks, while the deliveries of the
The petition is meritorious.
goods were perfected in Singapore, this Court still found Eriks to be
engaged in business in the Philippines. Thus, the Court of Appeals
Section 133 of the Corporation Code provides:
concluded that the place of delivery of the goods (or the place
where the transaction took place) is not material in determining Doing business without license. No foreign
corporation transacting business in the Philippines
whether a foreign corporation is doing business in the without a license, or its successors or assigns, shall
Philippines. The Court of Appeals held that what is material are the be permitted to maintain or intervene in any action,
suit or proceeding in any court or administrative
proponents to the transaction, as well as the parties to be agency of the Philippines; but such corporation may
benefited and obligated by the transaction. be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause
of action recognized under Philippine laws.
In this case, the Court of Appeals found that the parties entered
into a contract of sale whereby petitioner sold lace products to The law is clear. An unlicensed foreign corporation doing business
respondent in a series of transactions. While petitioner delivered in the Philippines cannot sue before Philippine courts. On the other
the goods in Hong Kong to Kenzar, Ltd. (Kenzar), another Hong hand, an unlicensed foreign corporation not doing business in the
Kong company, the party with whom petitioner transacted was Philippines can sue before Philippine courts.
company. The Court of Appeals concluded that the delivery of the claims that it is not doing business in the Philippines. As such, it
goods in Hong Kong did not exempt petitioner from being needs no license to institute a collection suit against respondent
The sole issue in this case is whether petitioner, an unlicensed license. Hence, petitioner has no legal capacity to sue before
foreign corporation, has legal capacity to sue before Philippine Philippine courts.
SO ORDERED.[11]
The Ruling of the Court
On appeal, the Court of Appeals reversed the trial courts decision We find the petition meritorious.
and dismissed the complaint. Hence, this petition.
Doing Business in the Philippines and Capacity to Sue
The Court of Appeals Ruling
The Court of Appeals held that petitioner does not have the The principal issue in this case is whether petitioner, an unlicensed
capacity to file this suit since it is a foreign corporation doing
foreign corporation, has legal capacity to sue before Philippine
business in the Philippines without the requisite license. The Court
of Appeals held that petitioners purchases of molasses were in courts. Under Article 123[13] of the Corporation Code, a foreign
pursuance of its basic business and not just mere isolated and
corporation must first obtain a license and a certificate from the
incidental transactions.
appropriate government agency before it can transact business in
the Philippines. Where a foreign corporation does business in
The Issues
the Philippines without the proper license, it cannot maintain any
Petitioner raises the following issues: action or proceeding before Philippine courts as provided
underSection 133 of the Corporation Code:
Sec. 133. Doing business without a license. No those activities which are not deemed doing business. Section 3(d)
foreign corporation transacting business in the of RA 7042 states:
Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene
[T]he phrase doing business shall include soliciting
in any action, suit or proceeding in any court or
orders, service contracts, opening offices, whether
administrative agency of the Philippines; but such
called liaison offices or branches; appointing
corporation may be sued or proceeded against before
representatives or distributors domiciled in the
Philippine courts or administrative tribunals on any
Philippines or who in any calendar year stay in the
valid cause of action recognized under Philippine
country for a period or periods totalling one hundred
laws.
eighty (180) days or more; participating in the
management, supervision or control of any domestic
Thus, the threshold question in this case is whether petitioner was business, firm, entity or corporation in the
doing business in the Philippines. The Corporation Code provides no Philippines; and any other act or acts that imply a
definition for the phrase doing business. Nevertheless, Section 1 of continuity of commercial dealings or arrangements,
Republic Act No. 5455 (RA 5455),[14] provides that: and contemplate to that extent the performance of
acts or works, or the exercise of some of the
x x x the phrase doing business shall include functions normally incident to, and in progressive
soliciting orders, purchases, service contracts, prosecution of, commercial gain or of the purpose
opening offices, whether called liaison offices or and object of the business organization: Provided,
branches; appointing representatives or distributors however, That the phrase doing business shall not be
who are domiciled in the Philippines or who in any deemed to include mere investment as a shareholder
calendar year stay in the Philippines for a period or by a foreign entity in domestic corporations duly
periods totalling one hundred eighty days or more; registered to do business, and/or the exercise of
participating in the management, supervision or rights as such investor; nor having a nominee
control of any domestic business firm, entity or director or officer to represent its interests in such
corporation in the Philippines; and any other act or corporation; nor appointing a representative or
acts that imply a continuity of commercial distributor domiciled in the Philippines which
dealings or arrangements, and contemplate to transacts business in its own name and for its own
that extent the performance of acts or works, account.
or the exercise of some of the functions
normally incident to, and in progressive
prosecution of, commercial gain or of the Since respondent is relying on Section 133 of the Corporation Code
purpose and object of the business
to bar petitioner from maintaining an action in Philippine courts,
organization. (Emphasis supplied)
respondent bears the burden of proving that petitioners business
activities in the Philippines were not just casual or occasional, but
This is also the exact definition provided under Article 44 of the
so systematic and regular as to manifest continuity and
Omnibus Investments Code of 1987.
permanence of activity to constitute doing business in the
Republic Act No. 7042 (RA 7042), otherwise known as the Foreign Philippines. In this case, we find that respondent failed to prove
Investments Act of 1991, which repealed Articles 44-56 of Book II
of the Omnibus Investments Code of 1987, enumerated not only that petitioners activities in the Philippines constitute doing
the acts or activities which constitute doing business but also business as would prevent it from bringing an action.
The Implementing Rules and Regulations of RA 7042 provide under
The determination of whether a foreign corporation is doing Section 1(f), Rule I, that doing business does not include the
business in the Philippines must be based on the facts of each following acts:
case.[15] In the case of Antam Consolidated, Inc. v. CA,[16] in which
a foreign corporation filed an action for collection of sum of money
1. Mere investment as a shareholder by a foreign
against petitioners therein for damages and loss sustained for the
entity in domestic corporations duly registered to do
latters failure to deliver coconut crude oil, the Court emphasized
business, and/or the exercise of rights as such
the importance of the element of continuity of commercial activities
investor;
to constitute doing business in the Philippines. The Court held:
In the case at bar, the transactions entered into by 2. Having a nominee director or officer to represent its interests in
the respondent with the petitioners are not a series such corporation;
of commercial dealings which signify an intent on the
3. Appointing a representative or distributor domiciled in
part of the respondent to do business in the
the Philippines which transacts business in the representative's or
Philippines but constitute an isolated one which does
distributor's own name and account;
not fall under the category of doing business. The
records show that the only reason why the 4. The publication of a general advertisement through any print or
respondent entered into the second and third broadcast media;
transactions with the petitioners was because it
5. Maintaining a stock of goods in the Philippines solely for the
wanted to recover the loss it sustained from the
purpose of having the same processed by another entity in
failure of the petitioners to deliver the crude coconut
the Philippines;
oil under the first transaction and in order to give the
latter a chance to make good on their obligation. 6. Consignment by a foreign entity of equipment with a local
xxx company to be used in the processing of products for export;
7. Collecting information in the Philippines; and
x x x The three seemingly different transactions were
entered into by the parties only in an effort to fulfill 8. Performing services auxiliary to an existing isolated contract of
the basic agreement and in no way indicate an intent sale which are not on a continuing basis, such as installing in the
on the part of the respondent to engage in a Philippines machinery it has manufactured or exported to the
continuity of transactions with petitioners which will Philippines, servicing the same, training domestic workers to
categorize it as a foreign corporation doing business operate it, and similar incidental services.
in the Philippines.[17]
Similarly, in this case, petitioner and NMC amended their contract Most of these activities do not bring any direct receipts or profits to
three times to give a chance to NMC to deliver to petitioner the the foreign corporation, consistent with the ruling of this Court
molasses, considering that NMC already received the minimum in National Sugar Trading Corp. v. CA[18]that activities within
price of the contract. There is no showing that the transactions Philippine jurisdiction that do not create earnings or profits to the
between petitioner and NMC signify the intent of petitioner to foreign corporation do not constitute doing business in the
establish a continuous business or extend Philippines.[19] In that case, the Court held that it would be
its operations in the Philippines. inequitable for the National Sugar Trading Corporation, a state-
owned corporation, to evade payment of a legitimate indebtedness
performing in the importing countries specific
owing to the foreign corporation on the plea that the latter should
commercial acts that would constitute doing business
have obtained a license first before perfecting a contract with the in the importing countries. The mere act of exporting
from ones own country, without doing any specific
Philippine government. The Court emphasized that the foreign
commercial act within the territory of the importing
corporation did not sell sugar and derive income from the country, cannot be deemed as doing business in the
Philippines, but merely purchased sugar from the Philippine importing country. The importing country does not
require jurisdiction over the foreign exporter who has
government and allegedly paid for it in full. not yet performed any specific commercial act within
the territory of the importing country. Without
In this case, the contract between petitioner and NMC involved the jurisdiction over the foreign exporter, the importing
country cannot compel the foreign exporter to secure
purchase of molasses by petitioner from NMC. It was NMC, the a license to do business in the importing country.
domestic corporation, which derived income from the transaction
Otherwise, Philippine exporters, by the mere act alone of exporting
and not petitioner. To constitute doing business, the activity their products, could be considered by the importing countries to
undertaken in the Philippines should involve profit-making. be doing business in those countries. This will require Philippine
exporters to secure a business license in every foreign country
[20]
Besides, under Section 3(d) of RA 7042, soliciting purchases where they usually export their products, even if they do not
has been deleted from the enumeration of acts or activities which perform any specific commercial act within the territory of such
importing countries. Such a legal concept will have deleterious
constitute doing business. effect not only on Philippine exports, but also on global trade.
Furthermore, a review of the records shows that the trial court was
correct in holding that the advance payment of $500,000 was
released to NMC in accordance with the conditions provided
under the red clause Letter of Credit from which said amount was
drawn. The Head of the International Operations Department of the Promulgated:
Bank of Philippine Islands testified that the bank would not have
paid the beneficiary if the required documents were not complete.
It is a requisite in a documentary credit transaction that the
documents should conform to the terms and conditions of the letter
April 18, 2012
of credit; otherwise, the bank will not pay. The Head of the
International Operations Department of the Bank of Philippine
x--------------------------------------------------------------------------
Islands also testified that they received reimbursement from the
---------------x
issuing bank for the $500,000 withdrawn by NMC. [25] Thus,
respondent had no legitimate reason to refuse payment under the
DECISION
performance and surety bonds when NMC failed to perform its part
under its contract with petitioner.
MENDOZA, J.:
WHEREFORE , we GRANT the petition. We REVERSE the
Decision dated 26 May 2005 of the Court of Appeals in CA-G.R. CV
No. 48447. We REINSTATE the Decision dated 23 November 1994 This is a petition for review on certiorari under Rule 45
of the trial court. assailing the March 31, 2005 Decision [1] of the Court of
Appeals (CA) which affirmed the May 29, 2000 Order [2]of the
SO ORDERED. Regional Trial Court, Branch 60, Makati City (RTC), dismissing the
STEELCASE, INC., G.R. No. 171995 complaint for sum of money in Civil Case No. 99-122
Petitioner,
entitled Steelcase, Inc. v. Design International Selections, Inc.
Philippines except through DISI; (2) the dismissal of the complaint
for lack of merit; and (3) the payment of actual, moral and
The Facts exemplary damages together with attorneys fees and expenses of
litigation. DISI alleged that the complaint failed to state a cause of
Petitioner Steelcase, Inc. (Steelcase) is a foreign corporation action and to contain the required allegations on Steelcases
existing under the laws of Michigan, United States of capacity to sue in the Philippines despite the fact that it (Steelcase)
America (U.S.A.), and engaged in the manufacture of office was doing business in the Philippines without the required license
furniture with dealers worldwide.[3] Respondent Design to do so. Consequently, it posited that the complaint should be
International Selections, Inc. (DISI) is a corporation existing under dismissed because of Steelcases lack of legal capacity to sue in
Philippine Laws and engaged in the furniture business, including Philippine courts.
the distribution of furniture. [4]
Steelcase moved for the reconsideration of the questioned Hence, this petition.
Order but the motion was denied by the RTC in its May 29,
2000 Order.[12] The Issues
Aggrieved, Steelcase elevated the case to the CA by way of Steelcase filed the present petition relying on the following
appeal, assailing the November 15, 1999 and May 29, 2000 Orders grounds:
of the RTC. On March 31, 2005, the CA rendered its Decision
affirming the RTC orders, ruling that Steelcase was a foreign
I
corporation doing or transacting business in the Philippines without THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR WHEN IT FOUND THAT
a license. The CA stated that the following acts of Steelcase
STEELCASE HAD BEEN DOING BUSINESS IN
showed its intention to pursue and continue the conduct of its THE PHILIPPINES WITHOUT A LICENSE.
business in the Philippines: (1) sending a letter to Phinma,
II
informing the latter that the distribution rights for its products
would be established in the near future and directing other THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR IN NOT FINDING THAT
questions about orders for Steelcase products to Steelcase RESPONDENT WAS ESTOPPED FROM
International; (2) cancelling orders from DISIs customers, CHALLENGING STEELCASES LEGAL CAPACITY
6. Consignment by a foreign entity of equipment xxx basically a buy and sell arrangement whereby
with a local company to be used in the processing of we would inform Steelcase of the volume of the
products for export; products needed for a particular project and
Steelcase would, in turn, give special quotations or
discounts after considering the value of the entire
7. Collecting information in the Philippines; and package. In making the bid of the project, we would
then add out profit margin over Steelcases
8. Performing services auxiliary to an existing prices.After the approval of the bid by the client, we
isolated contract of sale which are not on a would thereafter place the orders to Steelcase. The
continuing basis, such as installing in the Philippines latter, upon our payment, would then ship the goods
machinery it has manufactured or exported to the to the Philippines, with us shouldering the freight
Philippines, servicing the same, training domestic charges and taxes.[18] [Emphasis supplied]
workers to operate it, and similar incidental
services. (Emphases supplied)
From the preceding citations, the appointment of a distributor in through which Steelcase conducted its business in the
the Philippines is not sufficient to constitute doing business unless country. From the preceding facts, the only reasonable conclusion
it is under the full control of the foreign corporation. On the other that can be reached is that DISI was an independent contractor,
Petitioner,
During this period of financial difficulty, our nation greatly
needs to attract more foreign investments and encourage trade
Present:
between the Philippines and other countries in order to rebuild and
strengthen our economy. While it is essential to uphold the sound
public policy behind the rule that denies unlicensed foreign
- versus -
corporations doing business in the Philippines access to our courts,
CORONA, C.J.,
it must never be used to frustrate the ends of justice by becoming
an all-encompassing shield to protect unscrupulous domestic FINANCE SECRETARY MARGARITO B. CARPIO,
TEVES, FINANCE UNDERSECRETARY
enterprises from foreign entities seeking redress in our country. To
JOHN P. SEVILLA, AND VELASCO, JR.,
do otherwise could seriously jeopardize the desirability of COMMISSIONER RICARDO ABCEDE OF
the Philippines as an investment site and would possibly have the THE PRESIDENTIAL COMMISSION ON LEONARDO-DE CASTRO,
GOOD GOVERNMENT (PCGG) IN
deleterious effect of hindering trade between Philippine companies THEIR CAPACITIES AS CHAIR AND
BRION,
and international corporations. MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL,
PERALTA,
CHAIRMAN ANTHONI SALIM OF FIRST
WHEREFORE, the March 31, 2005 Decision of the Court of
PACIFIC CO., LTD. IN HIS CAPACITY BERSAMIN,
AS DIRECTOR OF METRO PACIFIC
Appeals and its March 23, 2006 Resolution are
ASSET HOLDINGS INC., CHAIRMAN DEL CASTILLO,
hereby REVERSED and SET ASIDE. The dismissal order of the MANUEL V. PANGILINAN OF
PHILIPPINE LONG DISTANCE ABAD,
Regional Trial Court dated November 15, 1999 is hereby set TELEPHONE COMPANY (PLDT) IN HIS
CAPACITY AS MANAGING DIRECTOR VILLARAMA, JR.,
aside. Steelcases Amended Complaint is herebyOF FIRST PACIFIC CO., LTD.,
PRESIDENT NAPOLEON L. NAZARENO PEREZ,
OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY, CHAIR FE MENDOZA, and
BARIN OF THE SECURITIES
EXCHANGE COMMISSION, and PABLITO V. SANIDAD and Promulgated:
SERENO, JJ.
PRESIDENT FRANCIS LIM OF THE
PHILIPPINE STOCK EXCHANGE, ARNO V. SANIDAD,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - -x
DECISION
CARPIO, J.:
The Case
In Taada v. Tuvera, the Court asserted that when the issue Definition of the Term Capital in
concerns a public right and the object of mandamus is to
obtain the enforcement of a public duty, the people are Section 11, Article XII of the 1987 Constitution
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
Section 11, Article XII (National Economy and Patrimony) of the
action. In the aforesaid case, the petitioners sought to enforce
1987 Constitution mandates the Filipinization of public utilities, to
their right to be informed on matters of public concern, a right then
wit:
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. Section 11. No franchise, certificate, or any other form
of authorization for the operation of a public utility
Legaspi v. Civil Service Commission, while reiterating Taada, shall be granted except to citizens of the Philippines
further declared that when a mandamus proceeding involves or to corporations or associations organized under
the assertion of a public right, the requirement of personal the laws of the Philippines, at least sixty per centum
interest is satisfied by the mere fact that petitioner is a of whose capital is owned by such citizens; nor shall
citizen and, therefore, part of the general public which such franchise, certificate, or authorization be exclusive in
possesses the right. character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under
Further, in Albano v. Reyes, we said that while expenditure of the condition that it shall be subject to amendment,
public funds may not have been involved under the questioned alteration, or repeal by the Congress when the common
contract for the development, management and operation of the good so requires. The State shall encourage equity
Manila International Container Terminal, public interest [was] participation in public utilities by the general public. The
definitely involved considering the important role [of the participation of foreign investors in the governing body of
subject contract] . . . in the economic development of the any public utility enterprise shall be limited to their
country and the magnitude of the financial consideration proportionate share in its capital, and all the executive and
involved. We concluded that, as a consequence, the disclosure managing officers of such corporation or association must
provision in the Constitution would constitute sufficient authority be citizens of the Philippines. (Emphasis supplied)
for upholding the petitioners standing. (Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV any individual, firm, or corporation, except under the
of the 1973 Constitution, thus: condition that it shall be subject to amendment, alteration,
or repeal by the Congress when the public interest so
requires. (Emphasis supplied)
The OSG, representing public respondents Obviously, the intent of the framers of the Constitution in
Secretary Margarito Teves, Undersecretary John P. Sevilla, imposing limitations and restrictions on fully nationalized
Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise and partially nationalized activities is for Filipino nationals to
silent on the definition of the term capital. In its be always in control of the corporation undertaking said
Memorandum37 dated 24 September 2007, the OSG also limits its activities. Otherwise, if the Trial Courts ruling upholding
discussion on the supposed procedural defects of the petition, i.e. respondents arguments were to be given credence, it would
lack of standing, lack of jurisdiction, non-inclusion of interested be possible for the ownership structure of a public utility
parties, and lack of basis for injunction. The OSG does not present corporation to be divided into one percent (1%) common
any definition or interpretation of the term capital in Section 11, stocks and ninety-nine percent (99%) preferred stocks.
Article XII of the Constitution. The OSG contends that the petition Following the Trial Courts ruling adopting respondents
actually partakes of a collateral attack on PLDTs franchise as a arguments, the common shares can be owned entirely by
public utility, which in effect requires a full-blown trial where all the foreigners thus creating an absurd situation wherein
parties in interest are given their day in court.38 foreigners, who are supposed to be minority shareholders,
control the public utility corporation.
Parenthetically, the Opinions dated February 15, 1988 and In this connection, the Corporation Code which was already
April 14, 1987 cited by the Trial Court to support the in force at the time the present (1987) Constitution was
proposition that the meaning of the word capital as used in drafted defined outstanding capital stock as follows:
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 Section 137. Outstanding capital stock defined. The term
which took effect in 1991 or way after said opinions were outstanding capital stock, as used in this Code, means the
rendered, and as clarified by the above-quoted total shares of stock issued under binding subscription
Amendments. In this regard, suffice it to state that as agreements to subscribers or stockholders, whether or not
between the law and an opinion rendered by an fully or partially paid, except treasury shares.
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. 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.
In the same vein, the SECs construction of Section 11, Consequently, petitioners suggestion to reckon PLDTs
Article XII of the Constitution is at best merely advisory for foreign equity only on the basis of PLDTs outstanding
it is the courts that finally determine what a law means.39 common shares is without legal basis. The language of the
Constitution should be understood in the sense it has in
common use.
xxxx 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
17. But even assuming that resort to the proceedings of the classified and issued as preferred or redeemable
Constitutional Commission is necessary, there is nothing in shares, unless otherwise provided in this Code:
the Record of the Constitutional Commission (Vol. III) which Provided, further, That there shall always be a class or
petitioner misleadingly cited in the Petition x x x which series of shares which have complete voting rights. Any or
supports petitioners view that only common shares should all of the shares or series of shares may have a par value or
form the basis for computing a public utilitys foreign equity. 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
xxxx
building and loan associations shall not be permitted to
issue no-par value shares of stock.
We agree with petitioner and petitioners-in-intervention. The term Shares of capital stock issued without par value shall be
capital in Section 11, Article XII of the Constitution refers only to deemed fully paid and non-assessable and the holder of
shares of stock entitled to vote in the election of directors, and such shares shall not be liable to the corporation or to its
thus in the present case only to common shares,41 and not to the creditors in respect thereto: Provided; That shares without
total outstanding capital stock comprising both common and non- par value may not be issued for a consideration less than
voting preferred shares. the value of five (P5.00) pesos per share: Provided, further,
That the entire consideration received by the corporation for
The Corporation Code of the Philippines42 classifies shares as its no-par value shares shall be treated as capital and shall
common or preferred, thus: not be available for distribution as dividends.
Except as provided in the immediately preceding paragraph, This interpretation is consistent with the intent of the framers of
the vote necessary to approve a particular corporate act as the Constitution to place in the hands of Filipino citizens the control
provided in this Code shall be deemed to refer only to and management of public utilities. As revealed in the deliberations
stocks with voting rights. of the Constitutional Commission, capital refers to the voting stock
or controlling interest of a corporation, to wit:
MR. VILLEGAS. That is right. MR. VILLEGAS. Yes, that is the understanding of the
Committee.
To construe broadly the term capital as the total outstanding Holders of PLDT preferred shares are explicitly denied of the right
capital stock, including both common and non-voting preferred to vote in the election of directors. PLDTs Articles of Incorporation
shares, grossly contravenes the intent and letter of the Constitution expressly state that the holders of Serial Preferred Stock shall
that the State shall develop a self-reliant and independent national not be entitled to vote at any meeting of the stockholders
economy effectively controlled by Filipinos. A broad definition for the election of directors or for any other purpose or
unjustifiably disregards who owns the all-important voting stock, otherwise participate in any action taken by the corporation or its
which necessarily equates to control of the public utility. stockholders, or to receive notice of any meeting of stockholders.51
We shall illustrate the glaring anomaly in giving a broad definition On the other hand, holders of common shares are granted the
to the term capital. Let us assume that a corporation has 100 exclusive right to vote in the election of directors. PLDTs Articles of
common shares owned by foreigners and 1,000,000 non-voting Incorporation52 state that each holder of Common Capital Stock
preferred shares owned by Filipinos, with both classes of share shall have one vote in respect of each share of such stock held by
having a par value of one peso (P1.00) per share. Under the broad him on all matters voted upon by the stockholders, and the
definition of the term capital, such corporation would be considered holders of Common Capital Stock shall have the exclusive
compliant with the 40 percent constitutional limit on foreign equity right to vote for the election of directors and for all other
of public utilities since the overwhelming majority, or more than purposes.53
99.999 percent, of the total outstanding capital stock is Filipino
owned. This is obviously absurd.
Section 11, Article XII of the Constitution, like other provisions of In Manila Prince Hotel, even the Dissenting Opinion of then
the Constitution expressly reserving to Filipinos specific areas of Associate Justice Reynato S. Puno, later Chief Justice, agreed that
investment, such as the development of natural resources and constitutional provisions are presumed to be self-executing. Justice
ownership of land, educational institutions and advertising Puno stated:
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: Courts as a rule consider the provisions of the Constitution
as self-executing, rather than as requiring future legislation
x x x Hence, unless it is expressly provided that a legislative for their enforcement. The reason is not difficult to
act is necessary to enforce a constitutional mandate, the discern. For if they are not treated as self-executing,
presumption now is that all provisions of the constitution the mandate of the fundamental law ratified by the
are self-executing. If the constitutional provisions are sovereign people can be easily ignored and nullified
treated as requiring legislation instead of self-executing, the by Congress. Suffused with wisdom of the ages is the
legislature would have the power to ignore and practically unyielding rule that legislative actions may give
nullify the mandate of the fundamental law. This can be breath to constitutional rights but congressional
cataclysmic. That is why the prevailing view is, as it has inaction should not suffocate them.
always been, that
This Court has held that the SEC has both regulatory and
adjudicative functions.69 Under its regulatory functions, the SEC
x x x As the Constitution is silent as to the effects or
can be compelled by mandamus to perform its statutory duty when
consequences of a sale by a citizen of his land to an alien,
it unlawfully neglects to perform the same. Under its adjudicative
and as both the citizen and the alien have violated the law,
or quasi-judicial functions, the SEC can be also be compelled by
none of them should have a recourse against the other, and
mandamus to hear and decide a possible violation of any law it
it should only be the State that should be allowed to
administers or enforces when it is mandated by law to investigate
intervene and determine what is to be done with the
such violation.
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 Under Section 17(4)70 of the Corporation Code, the SEC has the
not definitely decided what policy should be followed regulatory function to reject or disapprove the Articles of
in cases of violations against the constitutional Incorporation of any corporation where the required percentage
prohibition, courts of justice cannot go beyond by of ownership of the capital stock to be owned by citizens of
declaring the disposition to be null and void the Philippines has not been complied with as required by
as violative of the Constitution. x x x (Emphasis existing laws or the Constitution. Thus, the SEC is the
supplied) 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 NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO
respondent PLDT submitted to the SEC. MINING AND DEVELOPMENT, INC., AND MCARTHUR
MINING, INC., Petitioners, v. REDMONT CONSOLIDATED
Under Section 5(m) of the Securities Regulation Code,71 the SEC is MINES CORP., Respondent.
vested with the power and function to suspend or revoke, after
proper notice and hearing, the franchise or certificate of RESOLUTION
registration of corporations, partnerships or associations,
upon any of the grounds provided by law. The SEC is VELASCO JR., J.:
mandated under Section 5(d) of the same Code with the power and
function to investigate x x x the activities of persons to Beforethe Court is the Motion for Reconsideration of its April 21,
ensure compliance with the laws and regulations that SEC 2014 Decision, which denied the Petition for Review on Certiorari
administers or enforces. The GIS that all corporations are required under Rule 45 jointly interposed by petitioners Narra Nickel and
to submit to SEC annually should put the SEC on guard against Mining Development Corp. (Narra), Tesoro Mining and
violations of the nationality requirement prescribed in the Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur),
Constitution and existing laws. This Court can compel the SEC, in a and affirmed the October 1, 2010 Decision and February 15, 2011
petition for declaratory relief that is treated as a petition for Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 109703.
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 Very simply, the challenged Decision sustained the appellate courts
ownership structure of PLDTs voting shares, as admitted by ruling that petitioners, being foreign corporations,are not entitled
respondents and as stated in PLDTs 2010 GIS that PLDT submitted to Mineral Production Sharing Agreements (MPSAs). In reaching its
to SEC. conclusion, this Court upheld with approval the appellate courts
finding that there was doubt as to petitioners nationality since a
100% Canadian-owned firm, MBMI Resources, Inc. (MBMI),
effectively owns60% of the common stocks of the petitioners by
WHEREFORE, we PARTLY GRANT the petition and rule that the owning equity interest of petitioners other majority corporate
term capital in Section 11, Article XII of the 1987 Constitution shareholders.
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 In a strongly worded Motion for Reconsideration dated June 5,
not to the total outstanding capital stock (common and non-voting 2014, petitioners-movants argued, in the main, that the Courts
preferred shares). Respondent Chairperson of the Securities and Decision was not in accord with law and logic.In its September 2,
Exchange Commission is DIRECTED to apply this definition of the 2014 Comment, on the other hand, respondent Redmont
term capital in determining the extent of allowable foreign Consolidated Mines Corp. (Redmont) countered that petitioners
ownership in respondent Philippine Long Distance Telephone motion for reconsideration is nothing but a rehash of their
Company, and if there is a violation of Section 11, Article XII of the arguments and should, thus, be denied outright for being pro-
Constitution, to impose the appropriate sanctions under the law. forma. Petitioners have interposed on September 30, 2014 their
Reply to the respondents Comment.
We can assume for the nonce that the controversy had indeed been Lastly, the petitioners actions during the lifetime and existence of
rendered moot by these two events. As this Court has time and the instant case that gave rise to the present controversy are
again declared, the moot and academic principle is not a magical capable of repetition yet evading review because, as shown by
formula that automatically dissuades courts in resolving a case.1 petitioners actions, foreign corporations can easily utilize dummy
The Court may still take cognizance of an otherwise moot and Filipino corporations through various schemes and stratagems to
skirt the constitutional prohibition against foreign mining in
Philippine soil. With that, the use of the Grandfather Rule as a supplement to
the Control Test is not proscribed by the Constitution or the
II. Philippine Mining Act of 1995.
The application of the Grandfather Rule is justified by the The Grandfather Rule implements the intent of
circumstances of the case to determine the nationality of the Filipinization provisions of the Constitution.
petitioners.
To reiterate, Sec. 2, Art. XII of the Constitution reserves the
To petitioners, the Courts application of the Grandfather Rule to exploration, development, and utilization of natural resources to
determine their nationality is erroneous and allegedly without basis Filipino citizens and corporations or associations at least sixty per
in the Constitution, the Foreign Investments Act of 1991 (FIA), the centum of whose capital is owned by such citizens. Similarly,
Philippine Mining Act of 1995,3 and the Rules issued by the Section 3(aq) of the Philippine Mining Act of 1995considers a
Securities and Exchange Commission (SEC). These laws and rules corporation xxx registered in accordance with law at least sixty
supposedly espouse the application of the Control Test in verifying per cent of the capital of which is owned by citizens of the
the Philippine nationality of corporate entities for purposes of Philippines as a person qualified to undertake a mining operation.
determining compliance with Sec. 2, Art. XII of the Constitution Consistent with this objective, the Grandfather Rule was originally
that only corporations or associations at least sixty per centum of conceived to look into the citizenship of the individuals who
whose capital is owned by such [Filipino] citizens may enjoy ultimately own and control the shares of stock of a corporation for
certain rights and privileges, like the exploration and development purposes of determining compliance with the constitutional
of natural resources. requirement of Filipino ownership.It cannot, therefore, be denied
that the framers of the Constitution have not foreclosed the
The application of the Grandfather Rule in the Grandfather Rule as a tool in verifying the nationality of
present case does not eschew the Control Test. corporations for purposes of ascertaining their right to participate
in nationalized or partly nationalized activities. The following
Clearly, petitioners have misread, and failed to appreciate the clear excerpts from the Record of the 1986 Constitutional Commission
import of, the Courts April 21, 2014 Decision. Nowhere in that suggest as much:chanRoblesvirtualLawlibrary
disposition did the Court foreclose the application of the Control
Test in determining which corporations may be considered as MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated
Philippine nationals. Instead, to borrow Justice Leonens term, the local or Filipino equity and foreign equity; namely, 60-40 in Section
Court used the Grandfather Rule as a supplement to the Control 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
Test so that the intent underlying the averted Sec.2, Art. XII of the
Constitution be given effect. The following excerpts of the April 21, MR. VILLEGAS: That is right.
2014 Decision cannot be clearer:chanRoblesvirtualLawlibrary
x xxx
In ending, the control test is still the prevailing mode of
determining whether or not a corporation is a Filipino MR. NOLLEDO: Thank you.
corporation, within the ambit of Sec. 2, Art. XII of the 1987
Constitution, entitled to undertake the exploration, development With respect to an investment by one corporation in another
and utilization of the natural resources of the Philippines. When in corporation, say, a corporation with 60-40 percent equity invests in
the mind of the Court, there is doubt, based on the another corporation which is permitted by the Corporation
attendant facts and circumstances of the case, in the 60-40 Code, does the Committee adopt the grandfather rule?
Filipino equity ownership in the corporation, then it may apply
the grandfather rule.(emphasis supplied)
MR. VILLEGAS: Yes, that is the understanding of the You allege that the structure of MMLs ownership in PHILSAGA is as
Committee. follows: (1) MML owns 40% equity in MEDC, while the 60% is
ostensibly owned by Philippine individual citizens who are actually
MMLs controlled nominees; (2) MEDC, in turn,owns 60% equity in
As further defined by Dean Cesar Villanueva, the Grandfather Rule
MOHC, while MML owns the remaining 40%; (3) Lastly, MOHC
is the method by which the percentage of Filipino equity in
owns 60% of PHILSAGA, while MML owns the remaining 40%. You
a corporation engaged in nationalized and/or partly nationalized
provide the following figure to illustrate this
areas of activities, provided for under the Constitution and other
structure:chanRoblesvirtualLawlibrary
nationalization laws, is computed, in cases where corporate
shareholders are present, by attributing the nationality of
xxxx
the second or even subsequent tier of ownership to
determine the nationality of the corporate
We note that the Constitution and the statute use the concept
shareholder.4 Thus, to arrive at the actual Filipino ownership and
Philippine citizens. Article III, Section 1 of the Constitution
control in a corporation, both the direct and indirect shareholdings
provides who are Philippine citizens: x x x This enumeration is
in the corporation are determined.
exhaustive. In other words, there can be no other Philippine
citizens other than those falling within the enumeration provided by
This concept of stock attribution inherent in the Grandfather Rule
the Constitution. Obviously, only natural persons are susceptible of
to determine the ultimate ownership in a corporation is observed
citizenship. Thus, for purposes of the Constitutional and statutory
by the Bureau of Internal Revenue (BIR) in applying Section 127
restrictions on foreign participation in the exploitation of mineral
(B)5 of the National Internal Revenue Code on taxes imposed on
resources, a corporation investing in a mining joint venture can
closely held corporations, in relation to Section 96 of the
never be considered as a Philippine citizen.
Corporation Code6 on close corporations. Thus, in BIR Ruling No.
148-10, Commissioner Kim Henares
The Supreme Court En Banc confirms this [in] Pedro R. Palting,
held:chanRoblesvirtualLawlibrary
vs. San Jose Petroleum [Inc.]. The Court held that a corporation
In the case of a multi-tiered corporation, the stock investing in another corporation engaged in a nationalized activity
attribution rule must be allowed to run continuously along cannot beconsidered as a citizen for purposes of the Constitutional
the chain of ownership until it finally reaches the individual provision restricting foreign exploitation of natural
stockholders. This is in consonance with the grandfather resources:chanRoblesvirtualLawlibrary
rule adopted in the Philippines under Section 96 of the
Corporation Code (Batas Pambansa Blg. 68) which provides that xxxx
notwithstanding the fact that all the issued stock of a corporation
are held by not more than twenty persons, among others, a Accordingly, we opine that we must look into the citizenship of the
corporation is nonetheless not to be deemed a close corporation individual stockholders, i.e. natural persons, of that investor-
when at least two thirds of its voting stock or voting rights is corporation in order to determine if the Constitutional and statutory
owned or controlled by another corporation which is not a close restrictions are complied with. If the shares of stock of the
corporation.7 immediate investor corporation is in turn held and controlled by
another corporation, then we must look into the citizenship of the
individual stockholders of the latter corporation. In other words,
In SEC-OGC Opinion No. 10-31 dated December 9, 2010 (SEC if there are layers of intervening corporations investing in a
Opinion 10-31),the SEC applied the Grandfather Rule even if the mining joint venture, we must delve into the citizenship of
corporation engaged in mining operation passes the 60-40 the individual stockholders of each corporation. This is the
requirement of the Control Test, viz:chanRoblesvirtualLawlibrary strict application of the grandfather rule, which the Commission has
been consistently applying prior to the 1990s.
Indeed, the framers of the Constitution intended for the however, Falcon Ridge paid nothing for this subscription while MBMI
grandfather rule to apply in case a 60%-40% Filipino- paid P2,500,000.00 out of its total subscription cost of
Foreign equity corporation invests in another corporation P3,998,000.00. Thus, pursuant to the afore-quoted DOJ Opinion,
engaging in an activity where the Constitution restricts the Grandfather Rule must be used.
foreign participation.
xxxx
xxxx
The avowed purpose of the Constitution is to place in the
Accordingly, under the structure you represented, the joint mining hands of Filipinos the exploitation of our natural resources.
venture is 87.04 % foreign owned, while it is only 12.96% owned Necessarily, therefore, the Rule interpreting the
by Philippine citizens. Thus, the constitutional requirement of 60% constitutional provision should not diminish that right
ownership by Philippine citizens is violated. (emphasis supplied) 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
Similarly, in the eponymous Redmont Consolidated Mines
command of the Constitution. Hence, the Grandfather Rule must
Corporation v. McArthur Mining Inc., et al.,8the SEC en
be applied to accurately determine the actual participation,
banc applied the Grandfather Rule despite the fact that the subject
both direct and indirect, of foreigners in a corporation
corporations ostensibly have satisfied the 60-40 Filipino equity
engaged in a nationalized activity or business.
requirement. The SEC en banc held that to attain the
Constitutional objective of reserving to Filipinos the
utilization of natural resources, one should not stop where The method employed in the Grandfather Rule of attributing the
the percentage of the capital stock is shareholdings of a given corporate shareholder to the second or
60%. Thus:chanRoblesvirtualLawlibrary even the subsequent tier of ownership hews with the rule that
the beneficial ownership of corporations engaged in
[D]oubt, we believe, exists in the instant case because the nationalized activities must reside in the hands of Filipino citizens.
foreign investor, MBMI, provided practically all the funds of Thus, even if the 60-40 Filipino equity requirement appears to
the remaining appellee-corporations. The records disclose have been satisfied, the Department of Justice (DOJ), in its Opinion
that: (1) Olympic Mines and Development Corporation (OMDC), a No. 144, S. of 1977, stated that an agreement that may distort
domestic corporation, and MBMI subscribed to 6,663 and 3,331 the actual economic or beneficial ownership of a mining
shares, respectively, out of the authorized capital stock of corporation may be struck down as violative of the
Madridejos; however, OMDC paid nothing for this subscription while constitutional requirement, viz:chanRoblesvirtualLawlibrary
MBMI paid P2,803,900.00 out of its total subscription cost of
P3,331,000.00; (2) Palawan Alpha South Resource Development In this connection, you raise the following specific
Corp. (Palawan Alpha), also a domestic corporation, and MBMI questions:chanRoblesvirtualLawlibrary
subscribed to 6,596 and 3,996 shares, respectively, out of the
authorized capital stock of Patricia Louise; however, Palawan Alpha 1. Can a Philippine corporation with 30% equity owned by
paid nothing for this subscription while MBMI paid P2,796,000.00 foreigners enter into a mining service contract with a foreign
out of its total subscription cost of P3,996,000.00; (3) OMDC and company granting the latter a share of not more than 40% from
MBMI subscribed to 6,663 and 3,331 shares, respectively, out of the proceeds of the operations?
the authorized capital stock of Sara Marie; however, OMDC paid
nothing for this subscription while MBMI paid P2,794,000.00 out of xxxx
its total subscription cost of P3,331,000.00; and (4) Falcon Ridge
Resources Management Corp. (Falcon Ridge), another domestic By law, a mining lease may be granted only to a Filipino
corporation, and MBMI subscribed to 5,997 and 3,998 shares, citizen, or to a corporation or partnership registered with
respectively, out of the authorized capital stock of San Juanico; the [SEC] at least 60% of the capital of which is owned by
Filipino citizens and possessing x x x. The sixty percent of which is owned by another domestic corporation with at least
Philippine equity requirement in mineral resource 60%-40% Filipino-Foreign Equity, while the remaining thirty
exploitation x x x is intended to insure, among other percent (30%) of the capital stock is owned by a foreign
purposes, the conservation of indigenous natural resources, corporation.
for Filipino posterity x x x. I think it is implicit in this provision,
even if it refers merely to ownership of stock in the corporation xxxx
holding the mining concession, that beneficial ownership of the
right to dispose, exploit, utilize, and develop natural This Department has had the occasion to rule in several opinions
resources shall pertain to Filipino citizens, and that the that it is implicit in the constitutional provisions, even if it refers
nationality requirement is not satisfied unless Filipinos are merely to ownership of stock in the corporation holding the land or
the principal beneficiaries in the exploitation of the natural resource concession, that the nationality requirement is
countrys natural resources. This criterion of beneficial not satisfied unless it meets the criterion of beneficial
ownership is tacitly adopted in Section 44 of P.D. No. 463, above- ownership, i.e. Filipinos are the principal beneficiaries in the
quoted, which limits the service fee in service contracts to 40% of exploration of natural resources (Op. No. 144, s. 1977; Op. No.
the proceeds of the operation, thereby implying that the 60-40 130, s. 1985), and that in applying the same the primordial
benefit-sharing ration is derived from the 60-40 equity requirement consideration is situs of control, whether in a stock or non-
in the Constitution. stock corporation (Op. No. 178, s. 1974). As stated in the
Register of Deeds vs. Ung Sui Si Temple (97 Phil. 58), obviously to
xxxx insure that corporations and associations allowed to acquire
agricultural land or to exploit natural resources shall be controlled
It is obvious that while payments to a service contractor may be by Filipinos. Accordingly, any arrangement which attempts to
justified as a service fee, and therefore, properly deductible from defeat the constitutional purpose should be eschewed (Op.
gross proceeds, the service contract could be employed as a No 130, s. 1985).
means of going about or circumventing the constitutional
limit on foreign equity participation and the obvious We are informed that in the registration of corporations with the
constitutional policy to insure that Filipinos retain beneficial [SEC], compliance with the sixty per centum requirement is being
ownership of our mineral resources. Thus, every service monitored by SEC under the Grandfather Rule a method by which
contract scheme has to be evaluated in its entirety, on a case to the percentage of Filipino equity in corporations engaged in
case basis, to determine reasonableness of the total service fee x nationalized and/or partly nationalized areas of activities provided
x x like the options available to the contractor to become equity for under the Constitution and other national laws is accurately
participant in the Philippine entity holding the concession, or to computed, and the diminution if said equity prevented (SEC Memo,
acquire rights in the processing and marketing stages. x x x S. 1976). The Grandfather Rule is applied specifically in
(emphasis supplied) cases where the corporation has corporate stockholders
with alien stockholdings, otherwise, if the rule is not
applied, the presence of such corporate stockholders could
The beneficial ownership requirement was subsequently used in
diminish the effective control of Filipinos.
tandem with the situs of control to determine the nationality of a
corporation in DOJ Opinion No. 84, S. of 1988, through the
Applying the Grandfather Rule in the instant case, the result is as
Grandfather Rule, despite the fact that both the investee and
investor corporations purportedly satisfy the 60-40 Filipino equity follows: xxx the total foreign equity in the investing corporation is
58% while the Filipino equity is only 42%, in the investing
requirement:9chanroblesvirtuallawlibrary
corporation, subject of your query, is disqualified from investing in
This refers to your request for opinion on whether or not there may real estate, which is a nationalized activity, as it does not meet the
be an investment in real estate by a domestic corporation (the 60%-40% Filipino-Foreign equity requirement under the
investing corporation) seventy percent (70%) of the capital stock Constitution.
the proposed structure, the foreign creditors would own 40% of the
This pairing of the concepts beneficial ownership and the situs of outstanding capital stock of the telecommunications company on a
control in determining what constitutes capital has been adopted direct basis, while the remaining 40% of shares would be
by this Court in Heirs of Gamboa v. Teves.10In its October 9, 2012 registered to a holding company that shall retain, on a direct basis,
Resolution, the Court clarified, thus:chanRoblesvirtualLawlibrary the other 60% equity reserved for Filipino citizens. Nonetheless,
the Court found the proposal non-compliant with the
This is consistent with Section 3 of the FIA which provides that Constitutional requirement of Filipino ownership as the
where 100% of the capital stock is held by a trustee of funds for proposed structure would give more than 60% of the ownership of
pension or other employee retirement or separation benefits, the the common shares of Bayantel to the foreign corporations,
trustee is a Philippine national if at least sixty percent (60%) of viz:chanRoblesvirtualLawlibrary
the fund will accrue to the benefit of Philippine nationals. Likewise,
Section 1(b) of the Implementing Rules of the FIA provides that In its Rehabilitation Plan, among the material financial
for stocks to be deemed owned and held by Philippine citizens or commitments made by respondent Bayantel is that its shareholders
Philippine nationals, mere legal title is not enough to meet the shall relinquish the agreed-upon amount of common stock[s] as
required Filipino equity. Full beneficial ownership of the stocks, payment to Unsecured Creditors as per the Term Sheet. Evidently,
coupled with appropriate voting rights, is essential. the parties intend to convert the unsustainable portion of
(emphasis supplied) respondents debt into common stocks, which have voting
rights. If we indulge petitioners on their proposal, the
Omnibus Creditors which are foreign corporations, shall
In emphasizing the twin requirements of beneficial ownership and
have control over 77.7% of Bayantel, a public utility
control in determining compliance with the required Filipino
company. This is precisely the scenario proscribed by the
equity in Gamboa, the en banc Court explicitly cited with approval
Filipinization provision of the Constitution. Therefore, the
the SEC en bancs application in Redmont Consolidated Mines,
Court of Appeals acted correctly in sustaining the 40% debt-to-
Corp. v. McArthur Mining, Inc., et al. of the Grandfather Rule, to
equity ceiling on conversion. (emphasis supplied)
wit:chanRoblesvirtualLawlibrary
Significantly, the SEC en banc, which is the collegial body As shown by the quoted legislative enactments, administrative
statutorily empowered to issue rules and opinions on behalf of rulings, opinions, and this Courts decisions, the Grandfather Rule
SEC, has adopted the Grandfather Rule in determining not only finds basis, but more importantly, it implements the
compliance with the 60-40 ownership requirement in favor of Filipino equity requirement, in the Constitution.
Filipino citizens mandated by the Constitution for certain economic
activities. This prevailing SEC ruling, which the SEC correctly Application of the Grandfather
adopted to thwart any circumvention of the required Filipino Rule with the Control Test.
ownership and control, is laid down in the 25 March 2010 SEC
en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Admittedly, an ongoing quandary obtains as to the role of the
Mining, Inc., et al. xxx(emphasis supplied) Grandfather Rule in determining compliance with the minimum
Filipino equity requirement vis--vis the Control Test. This
Applying Gamboa, the Court, in Express Investments III Private confusion springs from the erroneous assumption that the use of
Ltd. v. Bayantel Communications, Inc.,11 denied the foreign one method forecloses the use of the other.
creditors proposal to convert part of Bayantels debts to common
shares of the company at a rate of 77.7%. Supposedly, the As exemplified by the above rulings, opinions, decisions and this
conversion of the debts to common shares by the foreign Courts April 21, 2014 Decision, the Control Test can be, as it has
creditors would be done, both directly and indirectly, in been, applied jointly with the Grandfather Rule to determine the
order to meet the control test principle under the FIA. Under observance of foreign ownership restriction in nationalized
economic activities. The Control Test and the Grandfather
Rule are not, as it were, incompatible ownership-determinant Law in relation to the minimum Filipino equity requirement in the
methods that can only be applied alternative to each other. Rather, Constitution, significant indicators of the dummy status have
these methods can, if appropriate, be used cumulatively in been recognized in view of reports that some Filipino investors or
the determination of the ownership and control of businessmen are being utilized or [are] allowing themselves to be
corporations engaged in fully or partly nationalized used as dummies by foreign investors specifically in joint ventures
activities, as the mining operation involved in this case or the for national resource exploitation. These indicators
operation of public utilities as in Gamboa or Bayantel. are:chanRoblesvirtualLawlibrary
The Grandfather Rule, standing alone, should not be used to 1. That the foreign investors provide practically all the funds for the
determine the Filipino ownership and control in a corporation, as it joint investment undertaken by these Filipino businessmen and
could result in an otherwise foreign corporation rendered qualified their foreign partner;chanrobleslaw
to perform nationalized or partly nationalized activities. Hence, it is
only when the Control Test is first complied with that the 2. That the foreign investors undertake to provide practically all the
Grandfather Rule may be applied. Put in another manner, if the technological support for the joint venture;chanrobleslaw
subject corporations Filipino equity falls below the threshold 60%,
the corporation is immediately considered foreign-owned, in which 3. That the foreign investors, while being minority stockholders,
case, the need to resort to the Grandfather Rule disappears. manage the company and prepare all economic viability studies.
On the other hand, a corporation that complies with the 60-40 Thus, In the Matter of the Petition for Revocation of the Certificate
Filipino to foreign equity requirement can be considered a of Registration of Linear Works Realty Development
Filipino corporation if there is no doubt as to who has the Corporation,13 the SEC held that when foreigners contribute
beneficial ownership and control of the corporation. In more capital to an enterprise, doubt exists as to the actual
that instance, there is no need for a dissection or further control and ownership of the subject corporation even if the
inquiry on the ownership of the corporate shareholders in both the 60% Filipino equity threshold is met. Hence, the SEC in that
investing and investee corporation or the application of the one ordered a further investigation, viz:chanRoblesvirtualLawlibrary
Grandfather Rule.12As a corollary rule, even if the 60-40 Filipino
to foreign equity ratio is apparently met by the subject or investee x x x The [SEC Enforcement and Prosecution Department (EPD)]
corporation, a resort to the Grandfather Rule is necessary maintained that the basis for determining the level of foreign
if doubt exists as to the locus of the beneficial ownership participation is the number of shares subscribed, regardless of the
and control. In this case, a further investigation as to the par value. Applying such an interpretation, the EPD rules that the
nationality of the personalities with the beneficial ownership and foreign equity participation in Linear works Realty Development
control of the corporate shareholders in both the investing and Corporation amounts to 26.41% of the corporations capital stock
investee corporations is necessary. since the amount of shares subscribed by foreign nationals is 1,795
only out of the 6,795 shares. Thus, the subject corporation is
As explained in the April 21, 2012 Decision, the doubt that compliant with the 40% limit on foreign equity
demands the application of the Grandfather Rule in addition to or in participation. Accordingly, the EPD dismissed the complaint, and
tandem with the Control Test is not confined to, or more bluntly, did not pursue any investigation against the subject corporation.
does not refer to the fact that the apparent Filipino ownership of
the corporations equity falls below the 60% threshold. xxxx
Rather, doubt refers to various indicia that the beneficial
ownership and control of the corporation do not in fact x x x [I]n this respect we find no error in the assailed order made
reside in Filipino shareholders but in foreign by the EPD. The EPD did not err when it did not take into account
stakeholders. As provided in DOJ Opinion No. 165, Series of the par value of shares in determining compliance with the
1984, which applied the pertinent provisions of the Anti-Dummy constitutional and statutory restrictions on foreign equity.cralawred
However, we are aware that some unscrupulous individuals corporations or the shares of which are not traded in the stock
employ schemes to circumvent the constitutional and exchanges.14 These limits comply with the requirement in Palting v.
statutory restrictions on foreign equity. In the present San Jose Petroleum , Inc.15that the application of the Grandfather
case, the fact that the shares of the Japanese nationals have Rule cannot go beyond the level of what is reasonable.
a greater par value but only have similar rights to those
held by Philippine citizens having much lower par value, is A doubt exists as to the extent of control and
highly suspicious. This is because a reasonable investor beneficial ownership of MBMI over the petitioners
would expect to have greater control and economic rights and their investing corporate stockholders.
than other investors who invested less capital than
him. Thus, it is reasonable to suspect that there may be secret In the Decision subject of this recourse, the Court applied the
arrangements between the corporation and the stockholders Grandfather Rule to determine the matter of true ownership and
wherein the Japanese nationals who subscribed to the shares control over the petitioners as doubt exists as to the actual extent
with greater par value actually have greater control and of the participation of MBMI in the equity of the petitioners and
economic rights contrary to the equality of shares based on the their investing corporations.
articles of incorporation.
We considered the following membership and control structures
With this in mind, we find it proper for the EPD to investigate the and like nuances:chanRoblesvirtualLawlibrary
subject corporation. The EPD is advised to avail of the
Commissions subpoena powers in order to gather sufficient Tesoro
evidence, and file the necessary complaint.
Supposedly Filipino corporation Sara Marie Mining, Inc. (Sara
Marie) holds 59.97% of the 10,000 common shares of petitioner
As will be discussed, even if at first glance the petitioners comply
Tesoro while the Canadian-owned company, MBMI, holds 39.98%
with the 60-40 Filipino to foreign equity ratio, doubt exists in the
of its shares.
present case that gives rise to a reasonable suspicion that the
Filipino shareholders do not actually have the requisite number of
control and beneficial ownership in petitioners Narra, Tesoro, and Name Nationality Number Amount Amount Paid
McArthur. Hence, a further investigation and dissection of the of Subscribed
extent of the ownership of the corporate shareholders through the Shares
Grandfather Rule is justified. Sara Marie Filipino 5,997 P5,997,000.00 P825,000.00
Mining, Inc.
Parenthetically, it is advanced that the application of the MBMI Canadian 3,998 P3,998,000.00 P1,878,174.60
Grandfather Rule is impractical as tracing the shareholdings to the Resources,
point when natural persons hold rights to the stocks may very well Inc.16
lead to an investigation ad infinitum. Suffice it to say in this regard
Lauro L. Filipino 1 P1,000.00 P1,000.00
that, while the Grandfather Rule was originally intended to trace
Salazar
the shareholdings to the point where natural persons hold the
shares, the SEC had already set up a limit as to the number of Fernando B. Filipino 1 P1,000.00 P1,000.00
corporate layers the attribution of the nationality of the corporate Esguerra
shareholders may be applied. Manuel A. Filipino P1,000.00 P1,000.00
Agcaoili 1
In a 1977 internal memorandum, the SEC suggested applying the
Grandfather Rule on two (2) levels of corporate relations for
publicly-held corporations or where the shares are traded in the Michael T. American 1 P1,000.00 P1,000.00
stock exchanges, and to three (3) levels for closely held Mason
Kenneth Canadian 1 P1,000.00 P1,000.00 The fact that MBMI had practically provided all the funds in
Cawkel Sara Marie and Tesoro creates serious doubt as to the true
extent of its (MBMI) control and ownership over both Sara
Total 10,000 P10,000,000.00 P2,708,174.60
Marie and Tesoro since, as observed by the SEC, a reasonable
investor would expect to have greater control and economic rights
than other investors who invested less capital than him. The
In turn, the Filipino corporation Olympic Mines & Development application of the Grandfather Rule is clearly called for, and as
Corp. (Olympic) holds 66.63% of Sara Maries shares while the shown below, the Filipinos control and economic benefits in
same Canadian company MBMI holds 33.31% of Sara Maries petitioner Tesoro (through Sara Marie) fall below the threshold
shares. Nonetheless, it is admitted that Olympic did not pay a 60%, viz:chanRoblesvirtualLawlibrary
single peso for its shares. On the contrary, MBMI paid for 99% of
the paid-up capital of Sara Marie. Filipino participation in petitioner Tesoro: 40.01%
66.67 (Filipino equity in Sara Marie) x59.97 (Sara Maries share in
Name Nationalit Numbe Amount Amount Paid Tesoro) = 39.98%
y r of Subscribed 100
Shares
Olympic Filipino 6,663 P6,663,000.00 P0.00 39.98% + .03% (shares of individual Filipino shareholders [SHs] in
Mines & Tesoro)
Developmen =40.01%
t Corp.17 =====
MBMI Canadian 3,331 P3,331,000.00 P2,794,000.0 Foreign participation in petitioner Tesoro: 59.99%
Resources, 0 33.33 (Foreign equity in Sara Marie) x 59.97 (Sara Maries share
Inc. in Tesoro) = 19.99%
Amanti Filipino 1 P1,000.00 P1,000.00 100
Limson
19.99% + 39.98% (MBMIs direct participation in Tesoro) + .02%
Fernando B. Filipino 1 P1,000.00 P1,000.00
(shares of foreign individual SHs in Tesoro)
Esguerra
= 59.99%
Lauro Salazar Filipino P1,000.00 P1,000.00 =====
1
With only 40.01% Filipino ownership in petitioner Tesoro, as
compared to 59.99% foreign ownership of its shares, it is clear that
Emmanuel G. Filipino P1,000.00 P1,000.00 petitioner Tesoro does not comply with the minimum Filipino equity
Hernando 1 requirement imposed in Sec. 2, Art. XII of the Constitution. Hence,
the appellate courts observation that Tesoro is a foreign
corporation not entitled to an MPSA is apt.
Michael T. American 1 P1,000.00 P1,000.00
Mason
McArthur
Kenneth Canadian 1 P1,000.00 P1,000.00
Cawkel Petitioner McArthur follows the corporate layering structure of
Total 10,000 P10,000,000.0 P2,800,000.0 Tesoro, as 59.97% of its 10, 000 common shares is owned by
0 0 supposedly Filipino Madridejos Mining Corporation (Madridejos),
while 39.98% belonged to the Canadian MBMI.
Name Nationality Number Amount Amount Paid Esguerra
of Subscribed Lauro Salazar Filipino 1 P1,000.00 P1,000.00
Shares
Emmanuel G. Filipino 1 P1,000.00 P1,000.00
Madridejos Filipino 5,997 P5,997,000.00 P825,000.00 Hernando
Mining
Michael T. American 1 P1,000.00 P1,000.00
Corporation
Mason
MBMI Canadian 3,998 P3,998,000.00 P1,878,174.60
Kenneth Canadian 1 P1,000.00 P1,000.00
Resources,
Cawkel
Inc.[18
Total 10,000 P10,000,000.0 P2,809,900.0
Lauro Salazar Filipino 1 P1,000.00 P1,000.00
0 0
Fernando B. Filipino 1 P1,000.00 P1,000.00
Esguerra
Manuel A. Filipino P1,000.00 P1,000.00 Again, the fact that MBMI had practically provided all the
Agcaoili 1 funds in Madridejos and McArthur creates serious doubt as
to the true extent of its control and ownership of MBMI over
Michael T. American 1 P1,000.00 P1,000.00 both Madridejos and McArthur. The application of the
Mason Grandfather Rule is clearly called for, and as will be shown below,
MBMI,along with the other foreign shareholders, breached the
Kenneth Canadian 1 P1,000.00 P1,000.00
maximum limit of 40% ownership in petitioner McArthur, rendering
Cawkel
the petitioner disqualified to an MPSA:chanRoblesvirtualLawlibrary
Total 10,000 P10,000,000.00 P2,708,174.60
Filipino participation in petitioner McArthur: 40.01%
In turn, 66.63% of Madridejos shares were held by Olympic while 66.67 (Filipino equity in Madridejos) x 59.97 (Madridejos share in
33.31% of its shares belonged to MBMI. Yet again, Olympic did not McArthur) = 39.98%
contribute to the paid-up capital of Madridejos and it was MBMI 100
that provided 99.79% of the paid-up capital of Madridejos.
39.98% + .03% (shares of individual Filipino SHs in McArthur)
Name Nationalit Numbe Amount Amount Paid =40.01%
y r of Subscribed =====
Shares
Foreign participation in petitioner McArthur: 59.99%
Olympic Filipino 6,663 P6,663,000.00 P0.00
Mines &
33.33 (Foreign equity in Madridejos) x 59.97 (Madridejos share
Developmen
in McArthur) = 19.99%
t Corp.19
100
MBMI Canadian 3,331 P3,331,000.00 P2,803,900.0
Resources, 0 19.99% + 39.98% (MBMIs direct participation in McArthur) + .
Inc. 02% (shares of foreign individual SHs in McArthur)
Amanti Filipino 1 P1,000.00 P1,000.00 = 59.99%
Limson =====
Fernando B. Filipino 1 P1,000.00 P1,000.00
As with petitioner Tesoro, with only 40.01% Filipino ownership in
petitioner McArthur, as compared to 59.99% foreign ownership of PLMDCs shares, in turn, were held by Palawan Alpha South
its shares, it is clear that petitioner McArthur does not comply with Resources Development Corporation (PASRDC), which subscribed
the minimum Filipino equity requirement imposed in Sec. 2, Art. to 65.96% of PLMDCs shares, and the Canadian MBMI, which
XII of the Constitution. Thus, the appellate court did not err in subscribed to 33.96% of PLMDCs shares.
holding that petitioner McArthur is a foreign corporation not
entitled to an MPSA. Name Nationalit Numbe Amount Amount Paid
y r of Subscribed
Narra Shares
Palawan Filipino 6,596 P6,596,000.00 P0
As for petitioner Narra, 59.97% of its shares belonged to Patricia
Alpha South
Louise Mining & Development Corporation (PLMDC), while Canadian
Resource
MBMI held 39.98% of its shares.
Developmen
t Corp.
Name Nationality Number Amount Amount Paid
MBMI Canadian 3,396 P3,396,000.00 P2,796,000.0
of Subscribed
Resources, 0
Shares
Inc.[21
Patricia Lousie Filipino 5,997 P5,997,000.00 P1,677,000.00
Higinio C. Filipino 1 P1,000.00 P1,000.00
Mining and
Mendoza, Jr.
Development
Corp. Fernando B. Filipino 1 P1,000.00 P1,000.00
Esguerra
MBMI Canadian 3,996 P3,996,000.00 P1,116,000.00
Resources, Henry E. Filipino 1 P1,000.00 P1,000.00
Inc.[20 Fernandez
Higinio C. Filipino 1 P1,000.00 P1,000.00 Ma. Elena A. Filipino 1 P1,000.00 P1,000.00
Mendoza, Jr. Bocalan
Henry E. Filipino 1 P1,000.00 P1,000.00 Michael T. American 1 P1,000.00 P1,000.00
Fernandez Mason
Ma. Elena A. Filipino 1 P1,000.00 P1,000.00 Robert L. Canadian 1 P1,000.00 P1,000.00
Bocalan McCurdy
Michael T. American 1 P1,000.00 P1,000.00 Manuel A. Filipino 1 P1,000.00 P1,000.00
Mason Agcaoili
Robert L. Canadian 1 P1,000.00 P1,000.00 Bayani H. Filipino 1 P1,000.00 P1,000.00
McCurdy Agabin
Manuel A. Filipino 1 P1,000.00 P1,000.00 Total 10,000 P10,000,000.0 P2,804,000.0
Agcaoili 0 0
Bayani H. Filipino 1 P1,000.00 P1,000.00
Agabin
Yet again, PASRDC did not pay for any of its subscribed shares,
Total 10,000 P10,000,000.00 P2,800,000.00
while MBMI contributed 99.75% of PLMDCs paid-up capital. This
fact creates serious doubt as to the true extent of MBMIs
control and ownership over both PLMDC and Narra since a assumed that all such shares have voting rights.22 It cannot
reasonable investor would expect to have greater control and therefore be gainsaid that the foregoing computation hewed with
economic rights than other investors who invested less capital than the pronouncements of Gamboa, as implemented by SEC
him. Thus, the application of the Grandfather Rule is justified. And Memorandum Circular No. 8, Series of 2013, (SEC Memo No.
as will be shown, it is clear that the Filipino ownership in petitioner 8)23Section 2 of which states:chanRoblesvirtualLawlibrary
Narrafalls below the limit prescribed in both the Constitution and
the Philippine Mining Act of 1995. Section 2. All covered corporations shall, at all times, observe the
constitutional or statutory requirement. For purposes of
Filipino participation in petitioner Narra: 39.64% determining compliance therewith, the required percentage of
Filipino ownership shall be applied to BOTH (a) the total
66.02 (Filipino equity in PLMDC) x 59.97 (PLMDCs share in Narra) outstanding shares of stock entitled to vote in the election of
= 39.59% directors; AND (b) the total number of outstanding shares of stock,
100 whether or not entitled to vote in the election of directors.
39.59% + .05% (shares of individual Filipino SHs in McArthur) In fact, there is no indication that herein petitioners issued any
=39.64% other class of shares besides the 10,000 common shares. Neither
==== is it suggested that the common shares were further divided into
Foreign participation in petitioner Narra: 60.36% voting or non-voting common shares. Hence, for purposes of this
case, items a) and b) in SEC Memo No. 8 both refer to the 10,000
33.98 (Foreign equity in PLMDC) x 59.97 (PLMDCs share in common shares of each of the petitioners, and there is no need to
Narra) = 20.38% separately apply the 60-40 ratio to any segment or part of the said
100 common shares.
The present case arose from petitioners MPSA applications, in WHEREFORE, We DENY the motion for reconsideration WITH
which they asserted their respective rights to the mining areas FINALITY. No further pleadings shall be entertained. Let entry of
each applied for. Since respondent Redmont, itself an applicant for judgment be made in due course.
exploration permits over the same mining areas, filed petitions for
the denial of petitioners applications, it should be clear that there SO ORDERED.
exists a controversy between the parties and it is POAs jurisdiction